Knowledge workers: exploring the link among performance rating, pay and motivational aspects

Historically, performance appraisals were intended to focus on three areas: development, motivation, and recognition of achievement. One major purpose of performance appraisals is to determine individual merit, especially where pay for performance systems are employed. Based upon expectancy theory, high performance ratings should entail high merit increases while low performance ratings result in low merit increases. However, it appears that decoupling performance ratings and merit increases is common practice. This paper explores the effects of receiving a low performance rating and high merit increase or a high performance rating and a low merit increase and empirically investigate its impact on knowledge workers’ motivational and general morale.