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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)