PERFORMANCE-RELATED PAY PERFORMANCE-RELATED PAY POLICIES FOR GOVERNMENT POLICIES FOR GOVERNMENT

EMPLOYEES: EMPLOYEES:

MAIN TRENDS IN OECD MEMBER MAIN TRENDS IN OECD MEMBER COUNTRIESCOUNTRIES

7 October, 20047 October, 2004HRM Working Party MeetingHRM Working Party Meeting

Dorothée LandelDorothée Landel

OECDOECDPublic Governance and Territorial Development Public Governance and Territorial Development

Directorate Directorate (GOV)(GOV)

1.1. Performance-related pay in the wider Performance-related pay in the wider

management context : key findingsmanagement context : key findings

2.2. Major trends in performance-related pay Major trends in performance-related pay

policies policies

3.3. Implementation difficultiesImplementation difficulties

4.4. Impact of PRPImpact of PRP

5.5. Lessons learnedLessons learned

Most OECD member countries report having an extended formal performance appraisal system for employee

Attempt to link individual objectives and performance to institutional ones

Continuous extension of PRP policies in the past decade: two thirds of OECD member countries have to some extent introduced PRP for government employees

1.Performance-related pay in the wider management context : key findings

An overview of the current state of play in performance An overview of the current state of play in performance managementmanagement

PRP

Performance appraisal

Performance Managementstrategy

Figure 1. Relationship between HR delegation and the link between performance appraisal and pay in OECD member countries

Germany

USA

Iceland

Canada

Italy Portugal

UK

Greece AustriaLuxembourg

New Zealand

Japan Mexico

Belgium

Spain

Finland

Hungary

Denmark

Norw ay

Sw eden

Korea

IrelandFrance

Australia

Czech Rep

Sllghtly linked

Somewhat linked

Very much linked

Not linked

Lin

k b

etw

een

perf

orm

an

ce

ap

pra

isal an

d p

ay

Source: OECD, 2004.

High degree of HR delegation

Low degree of HR delegation

1. PRP in the wider management context (continued)

Relationship between delegation and link between performance appraisal and pay in OECD member countries

Reasons for introducing performance-related payReasons for introducing performance-related pay

1. PRP in the wider management context (continued)

Attracting and retaining

talents

Facilitating management

changes

Pay bill: different aims

Accountability more visible

Improving motivation

PRP

The types of objectives vary across countries:The types of objectives vary across countries:

Nordic countries personnel development aspects Westminster countries motivational aspect France & Italy accountability of top civil servants

2. Major trends in PRP policies across OECD 2. Major trends in PRP policies across OECD countries in the past 10 yearscountries in the past 10 years

PRP schemes have been formally extended to all categories of staff

Long-running standardised PRP schemes have evolved into more decentralised ones

Increase in the use of collective or group performance schemes, at the team/unit or organisational level

OverviewOverview

Performance appraisal: criteria for assessing performancePerformance appraisal: criteria for assessing performance

2. Key trends in PRP policies (continued)2. Key trends in PRP policies (continued)

Outputs/achievement of objectives

Values, discipline, and inputs

Improvement in competencies

Czech Republic

Canada

Hungary

Poland Germany

Australia Denmark Finland Sweden

Italy United Kingdom

New Zealand

Spain France

Portugal

Switzerland

Austria Ireland Korea

Interpersonal & Management skills

Slovak Republic

Performance appraisal based on :Performance appraisal based on :

Trends in performance appraisal systems: a dialogue rather Trends in performance appraisal systems: a dialogue rather than a control toolthan a control tool

Performance appraisals tend to rely more on dialogue with line management than on strictly quantifiable indicators

Performance rating systems : less standardised, formalised & detailed than ten years ago

Trend towards a 360-degree feedback system

However:However:

Quota systems for ratings are becoming more widespread

In practice, they tend to counteract the trend towards less formality 

2. Major trends in PRP policies (continued)

Size and form of performance paymentsSize and form of performance payments

The size of performance payments is rather small :

On average:

less than 10% of the base salary at the employee level around 20% of the base salary at the managerial level

Bonuses are tending to supplement and even replace merit increments

Bonuses used in France, Italy, Spain and the United States (SES) Combination bonuses & merit increments in Canada, Finland, Germany,

Korea, New Zealand, Switzerland

Bonuses in general higher than merit increments

2. Major trends in PRP policies (continued)2. Major trends in PRP policies (continued)

3. Implementation difficulties

Difficulty in assessing performance in the public sector due to Difficulty in assessing performance in the public sector due to the lack of quantifiable indicators the lack of quantifiable indicators

Objectives tend to be too numerous, unchallenging, unrealistic, Objectives tend to be too numerous, unchallenging, unrealistic, not updated…not updated…

Difficulty in differentiating the average performance of Difficulty in differentiating the average performance of government employeesgovernment employees

Problems with detailed and highly formalised performance Problems with detailed and highly formalised performance ratingrating

3. Implementation difficulties (continued)

Lack of dialogue with line

management

Lack of valid performance

appraisal process

Managerial and contextual problemsManagerial and contextual problems

Lack of managerial delegation

The four missing components: The four missing components:

Lack of transparency

Constraints: time, cost and human factorConstraints: time, cost and human factor

Resistance from unions, staff and middle management

Financial costs of PRP are often underestimated

PRP not adequately funded

Under-estimation of time and work needed to implement PRP

Lack of preparation from line management

3. Implementation difficulties (continued)

4. Impact of PRP : Key findings

OVERALL:OVERALL:

PRP has a limited impact on staff motivationPRP has a limited impact on staff motivation

Other types of incentives are more influentialOther types of incentives are more influential

HOWEVER:HOWEVER:

It is through its It is through its derived effectsderived effects that PRP has been found to that PRP has been found to have an effect on individual & collective performance – and have an effect on individual & collective performance – and not through the ‘motivation’ channelnot through the ‘motivation’ channel

4. Impact of PRP : Key findings (continued)

• PRP : an incentive to fully endorse a goal setting approach• PRP allows a clarification of job descriptions and tasks• Potential positive effects on recruitment • Some evidence of the beneficial effects of team rewards

PRPPRP

An opportunity for an organisational culture shiftAn opportunity for an organisational culture shift

• Introduce more flexible working methods • Reform or reinforce the ICT policy • Focus on training policies• Encourage team working, through collective bonuses

A lever for change in the A lever for change in the organisation organisation of workof work

PRP : a window of opportunity for the introduction of PRP : a window of opportunity for the introduction of wider wider organisational changesorganisational changes

4. Impact of PRP : Key findings (continued)

PRPPRP

Motivational Motivational incentiveincentive

Derived effectsDerived effectsOrganisational and

management changes, new working methods

and tools

Performance Performance

Low impact

Positive effects in the

right managerial conditions

The design of PRP is a trade offThe design of PRP is a trade off

5. Main lessons learned

Take into account the background culture of each individual organisation/country : no ‘best’ solution

Team/unit PRP systems for employees should seriously be considered

Associate staff/unions in the design of the PRP scheme

Size and form of performance payments

Clear anticipation of the time, cost and work that the introduction and monitoring of the system requires

Implementation problems need to be well Implementation problems need to be well anticipatedanticipated

The performance appraisal process is at the heart of the The performance appraisal process is at the heart of the whole systemwhole system

It should :It should :

be based on well identified job objectives (small number, both realistic and challenging)

establish a link between individual and organisational objectives

be based on a simple performance rating framework, with no detailed differentiation in the ratings

be based on dialogue with line management

be transparent and rely on well established procedural justice mechanisms

feedback on the appraisal should be well reported and explained

5. Main lessons learned (continued)

PRP needs to be understood in the wider PRP needs to be understood in the wider management frameworkmanagement framework

Performance pay goes hand in hand with delegation of human Performance pay goes hand in hand with delegation of human resources managementresources management

The significance and impact of PRP should not be overestimatedThe significance and impact of PRP should not be overestimated - Need for a broad approach to better performance management as against a narrow preoccupation with performance-related pay

PRP should be applied in an environment that maintains and PRP should be applied in an environment that maintains and supports a trust-based work relationshipsupports a trust-based work relationship

PRP should be used as a stimulus and a lever for the introduction PRP should be used as a stimulus and a lever for the introduction of wider management and organisational changeof wider management and organisational change. The objectives of PRP should be set accordingly.

5. Main lessons learned (continued)