employee compensation

Last year, you were tasked with deploying an employment engagement survey. While there are areas where the company is excelling, there is an opportunity to address merit pay concerns.  It seems employees who are high performers feel there is very little differentiation in pay increases for those whose performance exceeds or far exceeds expectations.  To further this concern, exit interviews indicate many employees are leaving the organization for higher paying positions with major competitors.

1. You have been asked to develop the pay for performance philosophy for the organization and integrate it into the performance management process.  Describe pay for performance and discuss how you can infuse a pay for performance culture within the organization.   
2. How would this new culture impact the organization?