Tuesday, March 8, 2011

Merit pay versus collective bargaining

One of many issues embedded in the recent controversy over collective bargaining rights for state employees is how should pay be determined.  Typically under union contracts, pay raise are given out across the board, either in percentage terms or absolute dollar amounts.  Critics say this is unfair because the best and worst performers get the same reward.  Far better to have merit pay, they say.

I generally support that argument, but merit pay in the public sector is no slam dunk either, as pointed out in a recent NYT op-ed by UCLA management prof Sam Culbert.  As Jenkins MBAs all learn in their first semester, it is not easy to define performance and it is even more difficult to adopt appropriate metrics. 
Performance reviews corrupt the system by getting employees to focus on pleasing the boss, rather than on achieving desired results. 
Culbert thinks performance reviews should be replaced by a process he calls "performance previews" where the boss and the employee agree on goals and metrics, followed by regular consultations to make sure the targets are being met (or, if need be, readjusted). 

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