Most organizations use a merit pay or pay-for-performance system (PFP) to improve employee performance. Despite its popularity, a PFP system can be difficult to implement. Success depends on several issues. These include adequate funding, suitable job characteristics, and appropriate performance feedback. Moreover, even under the best circumstances, PFP systems may cause unintended consequences such as dysfunctional behavior, unethical conduct and even employment discrimination. Still, when the critical issues for proper implementation are appropriately addressed, a PFP system is and should continue to be a successful management tool to enhance employee performance in the workplace.