This paper examines the application of merit pay in Canadian universities. Designed to motivate and reward greater productivity, the effectiveness of merit pay depends upon the relative importance of competitive versus cooperative behaviour in the academic workplace, the capacity to evaluate individual performance, and the ability to design clear financial signals appropriate to the objectives of the institution. Differences among universities – related to their relative emphasis upon graduate training/research versus undergraduate instruction, their ability to measure performance, and workplace culture – can be expected to produce differences in compensation methods. A logit analysis is conducted that suggests that an institution's likelihood of having a merit pay scheme varies according to region; that it increases with the emphasis placed on graduate training and research; and that it declines in the presence of a unionized faculty association. This suggests that the adoption of performance-based pay is apt to meet stronger resistance in undergraduate and unionized institutions.