ABSTRACT
This chapter draws on the organizational justice literature to offer a model of psychological processes and cognitive and affective reactions to the removal of performance appraisal and merit pay systems. It provides a preliminary analysis of the effects of removing performance appraisal and merit pay in the name of aligning rewards with corporate goals, and speaks to the importance of effectively managing employee performance and developing high levels of trust. A positive link from performance appraisal and merit pay removal to procedural justice indicates employees' attitudes toward this structural change in their compensation reflect positive feelings about the fairness of pay procedures. The chapter demonstrates employees' acceptance of replacing merit pay with a more objective pay raise. Employees embraced the strategic alignment of compensation with bank performance goals and showed virtually no remorse toward the removal of merit pay. The removal of merit pay signals to employees a deliberate move by managers to more closely align compensation and strategy.
