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.

I recently came across an organisation that would quite like to vary an element of pay to reflect individuals’ performance but felt that they should not do so because their appraisal system was not appropriate. In fact the system did produce a rating (an essential element for linkage) but was based on ‘soft’ factors such as behaviours and values rather than performance against annual targets. They thought this ruled out using the appraisal ratings to moderate pay or calculate bonuses.

Increasingly, organisations are assessing performance against such characteristics because they think this will better drive long-term performance. That is fine but then be consistent and accept them as a valid measure of performance. If the definitions of the softer factors are such that people can score highly against them while performing their duties badly you have the wrong definitions. Change them or appraise against task performance.

The appraisal should be an employee’s main source of formal feedback about their performance – the annual stock take. If major elements of working life such as pay (and, possibly, promotion) appear to be based on factors unrelated to those discussed at appraisal time why should they take the appraisal seriously?

Should everyone know everyone else’s pay? The CIPD have a mini poll on “should you share your pay details in the cause of transparency”. The current tally is 57% saying yes. There are calls from a range of pressure groups for open pay systems either in the cause of equality or to highlight where public sector cash has gone.

In most blue-collar jobs the main variation between employees’ pay arises from either output payments or overtime. Public sector jobs, mostly, have published grades and pay ranges, often with pre-scripted progression through the range; as do many private sector organisations. So where are the ‘secrets’?

Smaller organisations will often pay individual salaries to reflect the employer’s view of the job weight and the contribution of the individual (which does not mean it must be inaccurate or prejudiced). But, for the most part, it is pay differences based on some form of performance linkage that are not made public. Performance assessments can determine pay progression or bonuses; some having mathematical linkages between performance and pay; others based on senior opinion.

In such circumstances, therefore, revealing salaries or earnings is equivalent to revealing performance assessments. It is one thing for individuals to boast about their own high ratings (not very British, though). But should the employer effectively announce who has a good appraisal and, more importantly, who a bad one? Many companies have an employee of the month award. Few have a worst employee award.

Try answering these two questions. Can you logically answer yes to both?

Not everything in the news requires much in the way of comment and analysis. Here are a few items with links to HR that I have found in the last week or so.

• A bulletin from law firm Wake Smith & Tofields saying the government was consulting on “gingerism” as an extension of equality laws generated a lot of interest. Especially on it’s publication day of April 1st.
• Possibly not an April fool was the report that pilots and cabin crew on Easyjet will have to buy their own tea and coffee in the air. Though they can have free hot water in which to dunk their own tea bags. I wonder if they will still get priority seating?
• No need to recount all the details in the Damian McBride smeargate affair. But do not assume it is just a politics issue. Whispered innuendo is just as common in corporate life and is one (of many) reasons for having a robust, and objective, staff appraisal system.
• A recent survey is reported to have found that, while many employees think an untidy desk makes them look busy, most bosses think it makes them look disorganised. However, I am not sure that that means that bosses assume the opposite (ie a desk with just one folder) is a sign of hard work. Overall, I think it just shows how few office jobs have clearly defined output criteria.

Yet again the press pick up on bonus schemes for staff in newsworthy organisations and write them up as if they have discovered a scandal. The latest was the Agency in charge of the SATs fiasco this summer “Almost every civil servant at the Government’s National Assessment Agency ….. will be awarded performance-related pay next month”

But hang on; why should they get anything after that mess-up? After all, in the commercial world (investment bankers excluded) such a mess up would probably have meant there was no money to pay out anyway. However, we are not talking about Goldman Sachs sized payments and we are not, for the most part, talking about those making the strategic decisions. Subject to performance, these bonuses are going to all staff, many quite junior. The article also reports that staff can get “between £512.50 and £3,905″. If, as the article implies the scheme includes the Chief Executive, that is probably around four or five percent. And, in these schemes, that is not a pay rise it is a non-consolidated bonus that probably costs the same as last year. It just gets distributed differently among individuals according to their appraisal rating.

If there is anything to question about these schemes (brought in as an alternative to linking performance to progression through pay ranges) it is how much they really do reflect relative performance in any realistic way; or are just paid to almost everyone.

Recently, while Googling for something else, I came across the Cabinet Office evidence to the Senior Salaries Review Board. This reminded me that, among Senior Civil Servants at least, a robust approach is taken to performance pay. Annual bonuses for this group (paid out of an accumulated pot) are distributed strictly in line with appraisal ratings.

So do many organisations, I hear you say, but what is different here is that they openly use a forced distribution. The top 25% of performers receive the highest bonus (at least 10% of salary), the next 40% typically receive a more modest bonus (5-10%). The rest get nothing and, amongst them, remedial action will be taken for the bottom 5-10% of performers.

Over the years I have had numerous discussions with managers as to whether, for example, ‘excellent’ or ‘outstanding’ ratings are relative or absolute. The consequence of taking the absolutive approach is that, theoretically at least, everyone could be ‘outstanding’. “This company only recruits the best people” is the argument often put forward to defend over-generous marking. If that really is true then it should be reflected in pay rates not bonuses or appraisal scores. Just as awarding too many A* GCSE awards dilutes the currency of that mark too many top box appraisal ratings will reduce the incentive to achieve or maintain that level of performance.

Grumbles about appraisal ratings, especially from managers, are among HR departments’ most frequent irritants. There is an article on my website that goes into this in more detail but it is good to know that some parts of the Civil Service have their priorities right.