Linking Performance and Rewards:
- Does it ever work?
- Is HE importing a failed model?
IES for ECC
Duncan Brown, Head of HR Consultancy, IES
19.11.15
Copyright © 2015 IES
Duncan Brown
Duncan leads the HR Consultancy and Research work at IES, a
leading independent research-based charity which supports
improvement in HR and employment practice.
He has more than 25 years' experience in HR consulting &
research with Aon Hewitt, PwC and Towers Perrin. He spent
5 years as Assistant Director General at CIPD.
His clients have included major companies such as National
Grid and Lloyds Banking Group, public sector bodies such as
the Cabinet Office and National Health Service, universities
such as Southampton and City, and not-for-profits such as
Cancer Research and the United Nations.
Duncan is a leading commentator on HR, publishing many
articles and books. His last book was on HR effectiveness.
He has participated on Government taskforces concerned
with fair pay, engagement, pensions and human capital
reporting. He advises a number of remuneration committees
Human Resources magazine placed him in its listing of the
top 5 most influential thinkers in UK HR.
Duncan has an MA from Cambridge University, an MBA from
the London Business School and is a Fellow of the CIPD.He is
a Visiting Fellow at Kingston University.
Read his blogs at:
http://www.employment-studies.co.uk/news-press/ies-reflects
http://www.cipd.co.uk/pm/members/duncanbrown9000272/defa
ult.aspx
About IES
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Leading independent centre of research and consultancy in employment
policy and HR practice
Not for profit, established in 1969
c40 multidisciplinary staff
The IES HR Network:
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Organisational membership
Collaborative research
Conferences and seminars
Networking
Recent projects
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Re- designing senior reward and recognition strategy for an English university
Review and re-design of the KSF performance management system in the NHS
Evaluating the success of the government’s apprenticeship growth programme
Surveying the career intentions of university leavers
Reviewing and evaluating youth unemployment initiatives in the EU
University success sharing plan design
Looking at options of HR service structure in an expanding FE college
Development programme for an HR team in a local authority
Reward Priorities: PRP or else?! (Source: Aon Hewitt)
 The top employer reward priority has been to better motivate and reward high
performers, along with delivering a better return on the total reward investment and
latterly, addressing general employee disengagement.
Priority / Rank
Rewarding & Motivating high performers
1
Ensuring pay/incentives are tied to performance
2
Retention of key staff
3
Getting the most from Total Reward
4
Staff engagement/ morale
5
Hmmm…..Executive performance-related pay?
(The High Pay Centre)
Are we returning to the same (tired) old
debate?
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Still a controversial issue:
“Reports of a further move (in
the public sector) towards a
messy system of individual
performance-related pay will
damage morale - already at a low
ebb - undermine team working,
and do nothing to improve
services”
Frances O’Grady
“Majority of public sector
employees have reservations
about performance related pay”
CIPD,
PRP and Bonus Schemes: do they work?
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There is evidence that high performing companies make greater use of
performance pay, for example from the major WERS study (1999).
Research also suggests that profit sharing & share schemes are associated with high
organisation performance, ‘the John Lewis model’.
The evidence on executive bonus plans is much more contradictory.
The SSRB summarised common problems as being:
Poor performance management and objective setting;
An unclear justification and rationale;
The small size of opportunities and payments.
Burgess and Metcalfe’s(2007) review of PRP in the public sector paints a mixed
picture, with evidence that incentives have positively affected behaviour and
performance in some settings, including education and health.
There is evidence that knowledge workers prefer pay to be based on performance,
and that the public, although generally critical of senior public sector pay, believe
that it should be based on performance.
Armstrong and Brown (2010) conclude there is no universally successful PRP, no
“best practice, only best fit”. PRP’s success is highly situational-specific.
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But research certainly highlights some of the
problems
•Working too well: over concentration on short-term results eg City
•Not working: a lack of differentiation in a low pay inflation environment,
lack of payment in recession;
• The sceptre of ‘best’ practice;
• A confusion of objectives;
- a means of addressing market issues;
- rewarding the wrong performance
• Lack of strategic integration;
• Poor implementation/process;
“our manager seems uncomfortable in the meetings, like he’s going
through the motions and it’s a relief to get it over with”.
Employee, UK Company
• Bad design.
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Theory has also fallen short: Rewarding
performance models
1. The Behaviouralist
Performance > reward/punishment
“Money doesn’t motivate…undermines
intrinsic motivation”
Alfie Kohn
2. Expectancy theory
Effort > performance > reward
“Inter-branch differentials in bonus payments tend to create
motivational problems”
Nisar
“The ingenuity of the average worker is sufficient to outwit any system
of control devised by management” Mcgregor
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PRP and Variable Pay and Bonus Schemes
for senior staff in Universities
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¾ of institutions have some form of performance or contribution-related pay in place
(UCEA). Participation in PRP is more common at more senior levels.
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In the UCEA survey, total cash levels are 2.4% higher than base pay levels at the median
The main approaches would appear to be:
- The award of additional increments or cash
- The award of discretionary, honoraria-type lump sum
- The use of private sector style annual executive bonuses
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Around half have the facility to use annual bonuses, far fewer have paid out in the past 3
years
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Two universities have introduced annual all-employee success sharing plans, with
common payment levels earned for all staff according to overall university performance.
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Barriers to the wider use of executive bonus plans include often weak poor performance
management, the wide-ranging agenda beyond a profit-focused mission, academic
scepticism and negative external perceptions.
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First Lesson: The new PRP: Engagement
replacing carrot and stick
The ‘Big Idea’
M
A
N
HR/Reward
PEOPLE
A
Policies and
Practice
Ability
G
Motivation
Opportunity
E
Engagement
High
Performance
Satisfaction
M
E
N
T
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1
The use of mixed approaches in pay progression
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Pay for
performance
Pay for skill/
competence
Past
Future
76% use a combination approach:
Increments/pay for service
Pay for individual performance
Pay for skill/competence
Pay for org. performance
Paying for
contribution
20%
88%
51%
45%
Differentials have been widening between high and average performers, from 1.5 – 2x to 2 – 3
x
We are also seeing a shift from using base pay to using more variable pay to reward individual
performance
Aon Hewitt Consulting / November 2011
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Lesson 3: PRP problems are process problems
Ineffective
communications
45%
Lack of support
systems, eg market
data
35%
Poor performance
management
28%
System does not match
with organisation
needs
Lack of management
skills/support
27%
25%
Figures are % of participants changing their base pay systems
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Main objectives for HEI’s CRP schemes
45
41
40
36
Number of HEIs (n=42)
35
30
25
20
20
15
10
4
5
2
2
Improve
employee
productivity
Other
0
Pay for individual Reward / retain Focus employees
contribution /
best performers on institutional
performance
objectives
Increase /
broaden
employee
competencies /
skills
Main factors limiting the effectiveness of CRP
schemes
0
Number of HEIs (n=42)
10
15
20
5
25
Unwillingness of line managers to differentiate performance
28
Lack of good performance management practice
25
Lack of employee understanding / awareness
19
Weak or diluted links between contribution and pay
17
Complex administration
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Insufficient budget to reward contribution effectively
7
Results not justifying effort
7
Other
30
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Addressing the management
Managers struggling with complicated,
imposed formal HR systems with very
limited discretion
Managers using informal, social rewards
HR
to generate motivation and commitment
“A good manager who appreciates the work done,
makes all the difference”
“ The normal distribution curse”
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Simple objectives and design
Heavy development
Heavy moderation
Managers key role in
communications
HR and systems support
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Conclusions: If you are going to use
PRP…
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US research study (Ryan, Mims and Koestner): high financial rewards decrease
intrinsic motivation in a high control culture but increase it in a high
communications culture
Money and Graham: performance pay highly motivating for US employees but
not in Japan
US research study (Ellis and Haftel): does money/performance pay motivate?
• matched samples of pharmaceutical and high tech companies
• results: neither approach more or less successful
• conclusion: success relates to the intensity of application
UK research (Bowey): what form of PRP is most effective
• success bore no correlation to scheme design
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clarity/understanding of objectives
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effort put into related initiatives: pm, teambuilding etc
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level of staff involvement/communication
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Key questions for you
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Policy and desire
Do we want/need to relate reward and performance?
Where does it sit in our list of reward priorities?
Do we want financial incentives or rewards?
Practice and design
Do we reward performance through base pay, variable pay, non financial reward or
other means
Do we emphasis collective or individual performance?
Do we use different approaches for different parts/groups in the organisation?
Process and delivery
Can we manage the practice as planned?
How well do our managers manage performance and rewards, how can we improve
that?
How do we balance fairness and consistency with necessary flexibility in awards
Copyright © 2015 IES
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