Many pay reviews take into account individual performance, which may be assessed through an appraisal scheme. In this sense, a performance appraisal review is a form of incentive, although that is not its only function.
Used in this way, the result of the appraisal scheme may be an increase in the basic rate of pay or salary, as distinct from an additional fluctuating element of pay resulting from bonus- or profit-related pay schemes.
Unfortunately, there is growing evidence of increased use in many workplaces of punitive performance management systems that have harmful effects on workers’ morale and mental health. A badly designed performance review system – especially one that affects pay – can also interfere with pay transparency and conceal hidden discrimination.
This kind of system can also drive down pay, by making it much harder for unions to bargain collectively for decent wages for everyone at work. For these reasons, many unions campaign on behalf of their members to reform performance-related pay systems.