PERFORMANCE-RELATED%20PAY%20POLICIES%20FOR%20GOVERNMENT%20EMPLOYEES:

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PERFORMANCE-RELATED PAY POLICIES FOR GOVERNMENT
EMPLOYEES MAIN TRENDS IN OECD MEMBER COUNTRIES
7 October, 2004 HRM Working Party
Meeting Dorothée Landel OECD Public Governance
and Territorial Development Directorate (GOV)
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• Performance-related pay in the wider management
  context key findings
• Major trends in performance-related pay policies
• Implementation difficulties
• Impact of PRP
• Lessons learned

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

An overview of the current state of play in
performance management

• 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

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1. PRP in the wider management context (continued)
Relationship between delegation and link between
performance appraisal and pay in OECD member
countries
Figure 1. Relationship between HR delegation
and the link between performance appraisal and
pay in OECD member countries
High degree of HR delegation
Low degree of HR delegation
Source OECD, 2004.
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1. PRP in the wider management context (continued)
Reasons for introducing performance-related pay
The types of objectives vary across countries

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

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

• 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

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2. Key trends in PRP policies (continued)
Performance appraisal criteria for assessing
performance
Performance appraisal based on
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2. Major trends in PRP policies (continued)
Trends in performance appraisal systems a
dialogue rather than 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
• Quota systems for ratings are becoming more
  widespread
• ? In practice, they tend to counteract the trend
  towards less formality
•  

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2. Major trends in PRP policies (continued)
Size 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

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3. Implementation difficulties

• Difficulty in assessing performance in the
  public sector due to the lack of quantifiable
  indicators
• Objectives tend to be too numerous,
  unchallenging, unrealistic, not updated
• Difficulty in differentiating the average
  performance of government employees
• Problems with detailed and highly formalised
  performance rating

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3. Implementation difficulties (continued)
Managerial and contextual problems

The four missing components
Lack of valid performance appraisal process
Lack of dialogue with line management
Lack of managerial delegation
Lack of transparency
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3. Implementation difficulties (continued)

• Constraints 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

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4. Impact of PRP Key findings

• OVERALL
• PRP has a limited impact on staff motivation
• ? Other types of incentives are more influential

HOWEVER

• It is through its derived effects that PRP has
  been found to have an effect on individual
  collective performance and not through the
  motivation channel

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4. Impact of PRP Key findings (continued)
PRP a window of opportunity for the
introduction of wider organisational changes

An opportunity for an organisational culture shift

• 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

PRP
A lever for change in the organisation of work

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

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4. Impact of PRP Key findings (continued)




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5. Main lessons learned
The design of PRP is a trade off

• 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

Implementation problems need to be well
anticipated

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

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5. Main lessons learned (continued)
The performance appraisal process is at the heart
of the whole system

• 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

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5. Main lessons learned (continued)
PRP needs to be understood in the wider
management framework

• Performance pay goes hand in hand with
  delegation of human resources management
• The 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 supports a trust-based work
  relationship
• PRP should be used as a stimulus and a lever for
  the introduction of wider management and
  organisational change. The objectives of PRP
  should be set accordingly.