Final answer:
Effective pay for performance systems must address economic efficiency, economic equity, and adverse selection in insurance markets to align employee rewards with productivity and ensure fair compensation while maintaining risk balance in health financing systems.
Step-by-step explanation:
Pay for performance systems, to be effective, must be designed to handle several key issues. They should address economic efficiency by ensuring that employees' rewards are aligned with their productivity and the overall goals of the organization. Furthermore, they must tackle economic equity, providing fair compensation that reflects the value of an employee's contribution to the company.
Lastly, these systems need to manage the risk of adverse selection in insurance markets, particularly in health financing systems like HMOs where the risk knowledge discrepancy between buyers and the insurance company can lead to unbalanced insurance pools. Such considerations help maintain financial sustainability and provide incentives that drive organizational success.