Final answer:
Performance-based pay, or merit pay, is a compensation structure where pay increases are determined by an individual's job performance. Examples include the U.S. Federal General Schedule pay system for civil servants. Pay raises given under this system can be quantified by percentage change, illustrating the direct relationship between performance and compensation.
Step-by-step explanation:
In a performance-based pay system, an individual's job performance directly influences the amount and timing of their pay increases. This structure is often termed as merit pay. For example, the U.S. Federal General Schedule has been used for civil servants, with a pay schedule that includes salary ranges for different positions, organized by grades and steps to reflect competencies and experience.
The process of awarding merit pay considers factors like personal growth, training, and career advancement opportunities, and balances them against the demands of the role, such as time pressure and extra work requirements. When an employee's performance is deemed exceptional, they may receive a pay raise, which can be expressed as a percentage change. For instance, if an employee earning $10 per hour receives a $2 per hour raise due to excellent performance, this equates to a 20% growth rate in their pay.