The extant U.S. domestic literature provides evidence that if administered in an unbiased manner, merit pay can be a significant motivator. However, the same literature shows that judgment biases can lead to over‐rewarding of “favored failures,” individuals who receive favorable treatment despite their poor performance.
The cross‐cultural literature provides evidence that collectivist societies treat some portion of “merit” pay as salary rewarding both successful and unsuccessful performers with some merit pay. There has been no test in this literature of the treatment of “favored failures” but theoretical arguments and evidence from the cross‐cultural escalation of commitment literature suggests that collectivist societies may be less subject to the “favored failures” control problem. A “face” effect may offset the effect of collectivism in Chinese societies.
Using a behavioral experiment and subjects from countries that are at the extremes of Hofstede's (2000) individualism‐collectivism spectrum (Taiwan, United States) this paper finds that evaluators (subjects) from the more individualist U.S., overall provide less merit less often to poor performers than the collectivist Taiwanese. The U.S. evaluators also display significantly greater judgment biases than the Taiwanese for poor performers to whom they have a prior commitment. Thus, both societies have biases but from different angles and, as such, present employers with different control issues.
