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)
1. Performance-related pay in the wider
management context : key findings
2. Major trends in performance-related pay
policies
3. Implementation difficulties
4. Impact of PRP
5. Lessons learned
1. 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
institutional ones
individual
objectives
and
performance
to
 Continuous extension of PRP policies in the past decade: two
thirds of OECD member countries have to some extent introduced PRP
for government employees
PRP
Performance
appraisal
Performance Management
strategy
1. PRP in the wider management context (continued)
Link between performance
appraisal and pay
Relationship between delegation and link between performance appraisal
and pay in OECD member countries
Very much
Australiaperformance
Figure 1. Relationship between HR delegation and the link between
Sw edenappraisal
l i nked
UK
and pay
in OECD member countries
Korea
Czech Rep
New Zealand
Somewhat
l i nked
Norw ay
Canada
Finland
Denmark
USA
Germany
Sl l ghtl y
l i nked
Hungary
Ireland
France
Italy Spain
Not l i nked
Luxembourg Japan
Portugal
Iceland
Belgium
Greece
Austria
Mexico
Low degree of HR
delegation
High degree of HR
delegation
Source: OECD, 2004.
1. PRP in the wider management context (continued)
Reasons for introducing performance-related pay
Improving
motivation
Attracting
and retaining
talents
Accountabilit
y more
visible
PRP
Facilitating
management
changes
Pay bill:
different aims
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
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
2. Key trends in PRP policies (continued)
Performance appraisal: criteria for assessing performance
Performance appraisal based on :
Outputs/achievement of objectives
Australia
Denmark
Finland
Sweden
New Zealand
Italy
United Kingdom
Switzerland
Interpersonal &
Management skills
Canada
Austria
Ireland
Korea
Improvement in
competencies
Portugal
Poland
Germany
Spain
France
Hungary
Czech Republic
Slovak Republic
Values, discipline, and inputs
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
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
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
3. Implementation difficulties (continued)
Managerial and contextual problems
The four missing components:
Lack of valid
performance
appraisal process
Lack of
managerial
delegation
Lack of dialogue
with line
management
Lack of
transparency
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
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
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
• 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
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
4. Impact of PRP : Key findings (continued)
Motivational
incentive
PRP
Low impact
Performance
Derived effects
Organisational and
management changes,
new working methods
and tools
Positive
effects in the
right
managerial
conditions
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
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
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.