Appraisal Process, Merit Pay and Performance: Evidence From a Longitudinal Survey of School Teachers in England and Wales

ABSTRACT This study investigates how the quality of performance appraisals influences perceptions of merit pay − whether it is viewed as motivating or divisive − and its impact on achieving performance objectives. Using longitudinal survey data collected from classroom teachers in England and Wales between 2014 and 2018, and employing an instrumental variable approach, the analysis reveals that the effectiveness of merit pay in improving employee performance is closely tied to the quality of appraisal processes. Procedural fairness emerges as a key factor in fostering both motivational and divisiveness attitudes, whereas poorly designed or disengaging appraisals tend to amplify divisiveness rather than motivation, undermining the achievement of performance objectives. These findings highlight the need to carefully weigh both the potential benefits and drawbacks of merit pay systems.