Performance Related Pay - Is it fair, transparent, behaviour-changing?

Performance Related Pay
Copyright 3C Associates Ltd | info@3cperform.co.uk | T: +44 (0) 1491 411 544
Don’t
Shoot the
Messenger

Some context
Bonuses and Performance Related Pay are widespread in corporate Britain
and rarer in the public and not-for-profit sector.
Studies trying to show the difference that PRP makes to performance are hard
to produce for the private sector as there are no ‘control’ experiments. In the
public sector, there is potential for some ‘control’ - research has shown a
mixed impact.
A few US companies are abandoning performance rankings, and making
discussions about pay for performance more flexible for managers locally.
Surveys and feedback from across all types of workers show that lack of pay
differentiation DE-MOTIVATES the best performers.

The Performance Management Wheel

How is Performance Management related to
Reward?
Some people think:
•PRP distorts the PM process
•It isn’t possible to fairly
assess performance
•PM is only about developing
the individual
Most resistance arises
from
•Cultural lack of
accountability
•Weakness in management at
one or more levels
•Deep misunderstanding
about what PM is for

Challenges of effective PRP
• Complex systems for
setting PRP
encourage ‘gaming’
• PRP can ‘skew’
behaviour and activity
to focus purely on
achieving the reward
• Very low payouts
presented as
‘motivational’ may be
perceived as ‘insulting’
• An ‘unattainable’ pay
out is demotivating (bar
set too high or for too
few)

Think about the variable aspects of pay and
reward at your organisation
What is working well?
What is causing you most problems?

Dilemmas of PRP
Money is NOT a motivator.
Money is one measure of:
•Success
•Recognition
•Achievement
•Value to the organisation
•Skill scarcity
•Employee power
In most ‘knowledge’ roles,
there can be a substantial
difference in performance
between people doing the
‘same’ job.
In knowledge-based
workplaces, behaviour is
one of the most important
drivers of organisational
performance.

Money can and does drive behaviour
• Pick-pockets
• Bank Robbing
• Bank-bonuses (e.g. 50%
and more of salary)
• Commission only sales
• Piece work
• Any paid work – given a
private income most
people would not do their
current job
Individual attitudes to
money depend on:
•Personal circumstances
•Expectations
•Family upbringing and
past experiences

If your organisation uses money to drive
behaviour…
How clear are management about what behaviour
is wanted?
How well do the processes deliver the result?

Money can focus attention on what
really matters – the strategy
Encourage innovation
Research led
Take risks
Customer focused
Complete package
Service culture
Think ‘lean’
Reduce waste
Focus on cost drivers
Weak decision making
Conflicting priorities
Pet projects
Adapted from ‘The Discipline of Market Leaders’ by Wiersema + Treacy, 1995
Ref: ‘Are Leaders Portable?’, Groysberg et al , HBR 2006

If your organisation uses money to focus attention
on strategy…
How clear are the signals?
How well do the processes deliver the results?

How much money is ‘meaningful’?
• Annual pay rises are running below inflation
• A recent survey by CEB reported that more than half the UK workforce
CLAIM they would change jobs for 10% pay increase.
• Typical pay rise for VOLUNTARY job change is 10 - 20% in UK (CIPD )
• Worldatwork research – average promotion bonus:
• In practice, in professional jobs, more money is factor 4 or 5 in changing
employer

So – WHY introduce PRP?
• In most knowledge-based
organisations it is clear to
many people who ‘gets
things done’
• Nothing is more
demotivating to the best
performers than seeing
the ‘lazy’ receive the
same reward
• An effective process of
PRP drives clarity of
purpose for the
organisation
• Effective application of
PRP makes clear that the
organisation values high
performers

Principles to consider
• What is the organisation aiming to
reward with PRP?
• What is the scale of the additional reward?
• What proportion of people might expect to achieve additional
reward?
• Who will make which decisions about additional reward?
• What checks and balances will there be?

HOW will PRP decisions be made in future?
Data Driven requires..
• Objectives linked to
meaningful data
– ‘Lowest Cost’ data
– ‘Customer Satisfaction’ data
– ‘Innovation data’
• Performance assessed by
impact rather than activity
– E.g. Cost per effective hire
rather than cost per hire
Personal Judgement requires..
• Clarity about what is
important to the
organisation and the
situation
• Reconcile management
expertise with analysis
‘Bogus rationality seeks to objectify
expertise by fitting it into a
template’ FT Sept 2nd 2014
No FAKE MATHS !

Selected references
Key texts supporting this presentation include:
Barrick & Mount, The Big Five Personality Dimensions and Job Performance: a meta analysis, Personnel Psychology
1991 number 44
Hurtz & Donovan, Personality & Job Performance: The Big Five revisited, Journal of Applied Psychology, Vol 85 No 6
P.869-879 2000 ftp://ftp.cba.uri.edu/Classes/swann/Hurtz%20&%20Donovan.pdf Date Accessed: 29/10/11
Erik Brynjolfsson and Shinkyu Yang, Information Technology and Productivity: A review of the Literature, Advances in
Computers, Academic Press, Vol. 43, P. 179-214, 1996, http://ccs.mit.edu/papers/CCSWP202/ Date accessed:
31/08/11
Franco, M., Bourne, M., and Neely,A. Understanding strategic performance measurement systems and their impact on
organizational output: a systematic review. (Working paper 2004)
W Cobussen, The relationship between job insecurity and work performance: A study among blue collar workers in the
south of the Netherlands, Technische Universiteit Eindhoven, January 2011,
http://alexandria.tue.nl/extra2/afstversl/tm/Cobussen%202011.pdf Date accessed: 23/06/2011
Dr Veronica Martinez and Dr Mike Kennerley, Impact of Performance Management Reviews: evidence from an energy
supplier. Conference proceedings EUROMA, Operations and Global Competitiveness; Budapest, Hungary; June 2005.
Yara Peters, p42, A practice oriented research to improve leadership within a mechanistic organisation, University of
Twente, Enschede, October 2010, http://essay.utwente.nl/60166/1/MA_thesis_Y_Peters.pdf, Date accessed
28/06/2011
Dan Pink, Drive- the surprising truth about what motivates us, Cannongate Books, 2010 (summarises much research
from Maslow, Herzberg etc)
Herzberg, Frederick. (2003). “One More Time: How Do You Motivate Employees?” Harvard Business Review

Performance Related Pay - Is it fair, transparent, behaviour-changing?

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