Remunerating for work according to effort and achievement, measured by objective or subjective performance criteria.
In recent years employers have sought to build in more financial stimuli into training and job responsibilities. Management has been given more space to link salaries with performance -- of individual employees as well as groups of employees, production departments and the entire enterprise. This deviates from the concept that wages should be determined for the greater part by the requirements of the job in question (tariff system) and to a lesser extent by the efforts and qualities of the employee.
Examples of performance remuneration systems used within the EEC/EU are piece-wage and tariff systems, multi-factor remuneration, contract remuneration, productivity bonus systems, profit sharing and shareholdings. The cafeteria agreement offers individual employees the possibility of choosing from various packages of working conditions or of putting together their own packages out of a set of elements that are considered equivalent. The merit pay system is being applied mostly in the UK, France and Italy, for the major part in the private services sector but also in industrial enterprises.