Performance related pay: does it deliver?

I have always had mixed feelings about performance related pay. When I worked in sales many years ago I was paid for the achievement of targets and I found the process motivating.

It was straightforward in that the performance achievements were narrow and reward was directly linked to efforts. There was clarity about how much would be paid and the reward was large enough to make it well worth chasing. Many organisations I work with are convinced of its benefits although most complain that the processes have become over complex.

 

I looked at the subject in detail and its application and effectiveness in the public sector for my MA dissertation a good few years ago. My conclusion was that the introduction of PRP had failed for a range of reasons. Fast forward a few decades and I have not changed my mind. In the public sector PRP just does not do what it says on the tin. It does not improve performance.  

I received bonus payments for a number of years whilst working in senior roles in the Civil service. Whilst enjoying spending the money, and let’s be honest who wouldn’t, I always felt uncomfortable about the principles. My view was that I was already well paid for the job I did and my entire focus was on trying to improve my department  and the organisation so that customers ultimately received the best service possible. 

I didn’t need to be paid any more to do this; this was my job and frankly if I could not achieve my performance targets I should not have been in the role. I did eventually take a proposition to the management team to explain that I could no longer receive a bonus as I did not believe it to be appropriate in a climate where the economy was starting to decline and our staff were facing reductions. My proposal did not make me very popular as other directors may have felt that they were pushed into declining bonus payments. However it’s a matter for each individual to consider.

The concerns I have about performance related pay are that they can lead to a range of perverse outcomes:

 

  • Staff start chasing the targets often to the exclusion of everything else and as priorities changed during the year this inflexibility of approach becomes difficult to manage.
  • There have been a plethora of complex schemes developed to measure performance, manage reward systems and then moderate the rewards. How much are we spending to apply systems that don’t actually improve performance?
  • Staff become focused on what everyone else is receiving and can demonstrate competitive behaviours that do not assist the business.
  • Money is rarely the motivator that the architects of these schemes believe it is.

 

I’m not one to rely on just my own judgement, experience or observations, I always like to check out the research to see what the academics have to say on the matter. 

 

My train reading at the moment is 'Drive' by Daniel H Pink. It is a fascinating read and contrasts the outcomes for organisations of using extrinsic rewards (money) rather than intrinsic reward where the reward is the activity itself. There are a range of studies described in the book which show that the rewards of genuine motivation which include mastery, autonomy and purpose are what really motivate individuals.

By neglecting these and by misunderstanding the peculiar science of motivation we not only fail to achieve increases in performance but we can actually produce some unintended outcomes and consequences.

The research suggests that goals set by individuals and that are devoted to attaining mastery of skills are usually healthy compared to goals imposed by others, such as targets, quarterly returns etc. which can sometimes have very poor outcomes. 

This creates dilemmas for organisations who believe that the only way to enhance performance is to pay for it. I do believe that there are organisations and sectors who have successfully managed performance related pay and have been able to quantify the results, I do not believe the public sector to be one of those.

We have all moved away from the approaches of the past where emotions were ignored at work to one where emotional intelligence has been recognised as an important facet of management. Perhaps it’s time to utilise new and fresh thinking regarding  the subject of performance and consider that the shiny performance related pay industry may be just a very big and expensive distraction from what people really want from work: Purpose, meaning and a chance to go home at the end of the day feeling that they have made a difference.

What do you think? 

 

 


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