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?
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.
Employee benefits magazine reports that BT is planning to offer its top 400 top-level employees (in some businesses) the chance of gambling a minimum of 10% and a maximum of 50% of their contractual rewards in return for the chance of additional bonus. If they meet targets they get their ‘stake’ back. Beyond that they can get up to 200% of the amount gambled on a sliding scale. Obviously, for this to work, BT has to be confident of its target-setting processes and the staff be confident of their abilities (or believe that the targets are somewhat soft).
We do not know how many will take this offer up or how many will risk the full 50%. Many fewer, I suspect, than might have been the case when the scheme was being devised (ie, before the financial world imploded). But it is interesting to think how this might be applied in other areas. MP’s invited to gamble part of their salary, or gold-plated pension, on increasing their majority? Newspaper editors gambling theirs against reducing the number of retractions they have to publish? Bloggers gambling on increasing the number of hits? Maybe we should forget that last one.
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.
Posted by Frank Hobson 
Posted by Frank Hobson 
Posted by Frank Hobson 
