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PERFORMANCE-RELATED PAY POLICIES FOR GOVERNMENT EMPLOYEES: MAIN TRENDS IN OECD MEMBER COUNTRIES

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 POLICIES FOR GOVERNMENT EMPLOYEES: MAIN TRENDS IN OECD MEMBER COUNTRIES

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  1. 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)

  2. Performance-related pay in the wider management context : key findings • Major trends in performance-related pay policies • Implementation difficulties • Impact of PRP • Lessons learned

  3. 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

  4. 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 Low degree of HR delegation High degree of HR delegation Source: OECD, 2004.

  5. 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

  6. 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

  7. 2. Key trends in PRP policies (continued) Performance appraisal: criteria for assessing performance Performance appraisal based on :

  8. 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

  9. 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

  10. 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

  11. 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

  12. 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

  13. 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

  14. 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

  15. Motivational incentive Low impact PRP • Performance Positive effects in the right managerial conditions Derived effects Organisational and management changes, new working methods and tools 4. Impact of PRP : Key findings (continued)

  16. 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

  17. 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

  18. 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.

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