Scholars have long debated the effectiveness of public sector performance pay, especially how it may be limited by institutional constraints and the peculiarities of public sector employees. In “The Paradox of Meritocracy: System Justification and Inequality in Federal Agencies,” published last month in The American Review of Political Administration, SPA Associate Professor John Marvel goes further: performance pay can generate a “paradox of meritocracy,” interacting with results-based organizational cultures to produce race- and gender-based inequities in compensation.

“For a long time, misconceptions have been floating around that federal employees are low-performing workers,” said Marvel. “In response, public sector organizations, including the federal government, have been drawn to the idea of performance pay, which, in theory, rewards good workers and not bad ones, based on the cultural idea that this is what good, effective private sector organizations do.”

However, the evidence on this relationship between performance pay and, well, performance, is unconvincing, says Marvel, outside of studies focusing on mechanical, rote tasks.

“Whenever work contexts require creativity, human problem-solving, and ingenuity, these systems don't [produce] much extra performance,” he explained. “The federal government has been trying to get this right for decades, and they've never been able to. Worse, even good faith efforts to institute reforms or improve old processes can introduce unintended consequences.”

To examine these potential effects, Marvel’s study combined micro-level federal personnel data on merit pay awards from the annual survey administered by the Office of Personnel Management (OPM) with survey-based measures of agency culture (e.g., “Is good performance rewarded in this agency?”). He used these data to compare merit cash award patterns in agencies with higher performance cultures and those without, discovering a larger disparity in gender- and race-based compensation in the former. In such cases, he argues, the guise of meritocracy may mask compensation decisions based on conscious or unconscious gender or racial biases.

“The evidence is pretty consistent that meritocracy can have nonmeritocratic consequences,” said Marvel. “Some organizations claim to have big performance cultures, when in fact, they may not. . . It could just be an ideological hallucination.”

The concept of meritocracy, both extremely powerful and extremely American, drives adoption of performance-pay systems, but also justifies their continuation and any troubling consequences, such as gender and race-based differences in cash bonuses. The underlying psychological mechanism, known as system justification, is an ideological tool that helps us explain the world around us and establish cause and effect.

“’Why does this guy have a bigger house than me? Why does that person make more than me?’ We don't like to believe that things are random,” explained Marvel. “System justification means that because we're in this meritocratic system, it must be a meritocratic outcome. ‘The rich are hardworking and deserve it. The poor are lazy and don't deserve more money.’ It is easier for people to believe this than to admit that the universe is a hostile, unexplainable place.”

As an alternative to pay-for-performance schemes in the public sector, Marvel proposes a humane base salary, high enough to attract talent, keep them satisfied, and meet their ego needs, with supplementary or complementary performance pay on top.

“If you want to give someone a bonus now and again for really good performance, I think that's fine,” said Marvel. “But organizations get into trouble when they try to make performance pay the core of their approach to people management.”