Much heat and great indignation in the media today as it becomes known that the MoD (an arm of government that has overtaken the Child Support Agency in the public ordure stakes) is paying £47m in bonuses to its staff. Most of the critics seem not to understand the nature of this scheme. Essentially it uses a pot of money (possibly around 3% of payroll) accumulated by withholding small amounts from earlier pay reviews. It is distributed among staff as a non-consolidated payment based on annual appraisal ratings (it looks as though around two thirds of staff shared the pot). As it is not consolidated into basic, contractual pay it is not an addition to the annual paybill. It should be similar in amount to what was paid in previous years – just (potentially) distributed differently each year.
This approach, which is common across government departments, allows them to comply with the Treasury requirement for there to be some form of performance related pay (PRP). So the consequence of cancelling it, as the critics wish, would be to return to the bad old days when there was no reward for doing well or consequences from doing as little as possible. Partly the problem lies in using the word bonus: fat cats and bankers spring to mind. How about ‘contingent pay’?
Much of the media anger arises from a perception of the MoD as a department that has performed badly/let our troops down over recent years. So how come a lot of people can perform well enough to earn their contingent pay but the Department perform badly? Appraisals, on which this distribution is based, reflect how well individuals have performed against what was asked of them for that year. Is not their fault if what they were asked to do did not result in extra helicopters?
This disconnect, between an individual’s task and overall organisation success, applies everywhere. An accounts clerk working his or her socks off cannot overcome the fact that the company went after the wrong market. In the commercial sector this can be overcome by linking some or all of a bonus to company profits. Even in the government sector some organisations, for example Regional Development Agencies, are awarded an overall rating each year, which has the potential to be fed into individual bonuses.
Rating the performance of central government departments is another story, however. We maintain the fiction that these departments are run by their minister and, as we know, politicians do not make mistakes.
