Each state agency shall establish a system of performance appraisal reports which shall form the basis for awarding merit salary increases to managers on or before July 1, 1988. Any agency which fails to establish such a system on or before July 1, 1988, shall forfeit 50 percent of merit salary funds otherwise available for eligible managerial employees during that fiscal year. Any agency which fails to establish such a system on or before July 1, 1989, shall forfeit 75 percent of merit salary funds otherwise available for eligible managerial employees during that fiscal year. Any agency which fails to establish such a system on or before July 1, 1990, shall forfeit all merit salary funds otherwise available for eligible managerial employees during that fiscal year, and during each subsequent fiscal year during which such a system is not established.