Performance-related pay policies for government employees

217 Pages·2005·1.378 MB·English

by  OECD

Performance-related Pay Policies
for Government Employees
More pay for better performance: can such a policy be beneficial in the public
Performance-
sector? This report presents an overview of performance-related pay policies
(PRP) for government employees in 14 countries over the past two decades.
Both the strengths and the weaknesses of PRP policies are assessed. related Pay Policies
The report explores the various paths of reform in each country, investigating for Government
the reasons why PRP policies are being implemented and how the policies
operate concretely. The outcomes of PRP policies at the individual and team levels
Employees
are evaluated. Recommendations are made on what should be done and what
should be avoided with the implementation of PRP. This book, based extensively
on country reports, draws lessons from the two decades of experience with
performance-related pay and assesses the impact on public sector efficiency. P
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Performance-related
Pay Policies
for Government
Employees
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
ORGANISATION FOR ECONOMIC CO-OPERATION
AND DEVELOPMENT
The OECD is a unique forum where the governments of 30 democracies work
together to address the economic, social and environmental challenges of globalisation.
The OECD is also at the forefront of efforts to understand and to help governments
respond to new developments and concerns, such as corporate governance, the
information economy and the challenges of an ageing population. The Organisation
provides a setting where governments can compare policy experiences, seek answers to
common problems, identify good practice and work to co-ordinate domestic and
international policies.
The OECD member countries are: Australia, Austria, Belgium, Canada, the
Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland,
Ireland, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand,
Norway, Poland, Portugal, the Slovak Republic, Spain, Sweden, Switzerland, Turkey,
the United Kingdom and the United States. The Commission of the European
Communities takes part in the work of the OECD.
OECD Publishing disseminates widely the results of the Organisation’s statistics
gathering and research on economic, social and environmental issues, as well as the
conventions, guidelines and standards agreed by its members.
This work is published on the responsibility of the Secretary-General of
the OECD. The opinions expressed and arguments employed herein do not
necessarily reflect the official views of the Organisation or of the governments
of its member countries.
Also available in French under the title:
La rémunération liée aux performances dans l’administration
© OECD 2005
No reproduction, copy, transmission or translation of this publication may be made without written permission.
Applications should be sent to OECD Publishing: [email protected] or by fax [phone]. Permission to photocopy a
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FOREWORD
Foreword
M
ore pay for better performance: can such a policy be beneficial in the public
sector? This book provides a comprehensive overview of the trends in performance-
related pay policies (PRP) for government employees in selected countries over the past
two decades and draws some lessons from these experiences. Both the strengths and
the weaknesses of PRP policies are assessed. The report explores the various PRP
designs and emerging trends, investigating the reasons why PRP policies are being
implemented and how the policies operate concretely. The outcomes of PRP policies at
the individual and team levels are evaluated, and recommendations are made on what
should be done or avoided with the implementation of PRP.
PRP is part of the key policy options and new approaches to human resources
management in the public sector that the OECD Human Resources Management
Working Party examines, on behalf of the OECD Public Governance Committee. The
book is based primarily on twelve country reports that were presented at an OECD
expert meeting in October2003: Denmark, Finland, France, Germany, Hungary, Italy,
Korea, Spain, Sweden, Switzerland and the United Kingdom – all OECD member
countries– and Chile, which is an observer to the OECD Public Governance Committee.
Canada and New Zealand contributed subsequently. The Public Governance and
Territorial Development Directorate (GOV) gratefully acknowledges OECD delegates’
contributions to this project and especially their preparation of the country reports.
This book was prepared by Dorothée Landel from the OECD Secretariat, with
substantial input provided by Professor David Marsden, Director of the Industrial
Relations Department of the London School of Economics. The report was prepared
under the direction of Alex Matheson, Head of the Budgeting and Management
Division. Individual contributions were provided by Elsa Pilichowski and Francisco
Cardona. The book was edited by OECD consultant Alex Heron.
This work is published on the responsibility of the Secretary-General of the
OECD. The opinions expressed and arguments employed herein do not necessarily
reflect the official views of the Organisation or of the governments of its member
countries.
PERFORMANCE-RELATED PAY POLICIES FOR GOVERNMENT EMPLOYEES – ISBN 92-64-00753-9 – © OECD 2005 3
TABLE OF CONTENTS
Table of Contents
Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Glossary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Part I
Performance-related Pay Policies for Government Employees:
An Overview of OECD Countries
Chapter 1. Performance Pay in the Wider Management Context. . . . . . . 25
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2. The development of PRP over the past two decades . . . . . . . . . . . . 27
3. An overview of the current state of play in performance
management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4. Why have governments introduced PRP? . . . . . . . . . . . . . . . . . . . . . 32
5. PRP and the delegation of human resources and budgetary
responsibilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Chapter 2. Key Trends in Performance-related Pay in OECD Countries . 41
1. General trends in the overall design of PRP systems. . . . . . . . . . . . 42
2. Performance appraisal systems: highlighting the trends
in the criteria and systems used. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
3. Performance payments: form and size of payments. . . . . . . . . . . . 55
4. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Chapter 3. Implementation and Impact of PRP: Lessons to be Learned . 63
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
2. Design and implementation issues: lessons to be learned. . . . . . . 64
3. The impact of PRP: incentive for change? . . . . . . . . . . . . . . . . . . . . . 73
4. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Selective Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
PERFORMANCE-RELATED PAY POLICIES FOR GOVERNMENT EMPLOYEES – ISBN 92-64-00753-9 – © OECD 2005 5
TABLE OF CONTENTS
Part II
Case Studies
Chapter 4. Country Case Studies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Performance-related Pay in Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Performance-related Pay in Denmark. . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Performance-related Pay in Finland . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Performance-related Pay in France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Performance-related Pay in Germany. . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Performance-related Pay in Hungary . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
Performance-related Pay in Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
Performance-related Pay in Korea. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
Performance-related Pay in New Zealand . . . . . . . . . . . . . . . . . . . . . . . 146
Performance-related Pay in Spain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
Performance-related Pay in Sweden. . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Performance-related Pay in Switzerland . . . . . . . . . . . . . . . . . . . . . . . . 159
Performance-related Pay in the United Kingdom . . . . . . . . . . . . . . . . . 165
Performance-related Pay in Chile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174
Chapter 5. Case Studies of Performance-related Pay Schemes. . . . . . . . . 181
Performance Pay for School Teachers in England and Wales. . . . . . . 182
The National Institute of Social Security (INSS), Spain . . . . . . . . . . . . 190
Ministry of Defence, United Kingdom. . . . . . . . . . . . . . . . . . . . . . . . . . . 194
The Department for Work and Pensions (DWP),
United Kingdom: An Example of Team Pay. . . . . . . . . . . . . . . . . . . . . . 196
The Case of the Revenue Agency, Italy. . . . . . . . . . . . . . . . . . . . . . . . . . 204
Annex A. Performance-related Pay Policies Across 12OECD
Countries: Brief Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209
List of Boxes
1.1. Performance-related pay in the private sector . . . . . . . . . . . . . . . . . . . 28
1.2. What does the literature say about PRP? . . . . . . . . . . . . . . . . . . . . . . . . . . 32
1.3. Rationales for service incremental pay scales. . . . . . . . . . . . . . . . . . . . 33
2.1. Introducing PRP: the Danish case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
2.2. Introducing PRP: the case of the Department of Work
and Pensions (DWP) in the United Kingdom . . . . . . . . . . . . . . . . . . . . . 44
2.3. How to monitor the highly decentralised pay systems in Denmark
and Sweden. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
2.4. Committees to control evaluation criteria and ratings . . . . . . . . . . . . 47
2.5. Performance criteria and rating systems: country examples . . . . . . . 52
6 PERFORMANCE-RELATED PAY POLICIES FOR GOVERNMENT EMPLOYEES – ISBN 92-64-00753-9 – © OECD 2005
TABLE OF CONTENTS
2.6. Performance agreement for senior civil servants
in the United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
3.1. Negative effects of PRP mentioned in the Danish survey (2001). . . . . 68
3.2. Common weaknesses of the objective setting process . . . . . . . . . . . . 69
3.3. The case of France: the conclusions of the committee of enquiry
into the cost and efficiency of public services (April2004) . . . . . . . . . 71
3.4. The introduction of PRP in developing countries . . . . . . . . . . . . . . . . . 72
3.5. Impact of PRP in the private sector: the example of a survey of PRP
in 5000private organisations in the United Kingdom. . . . . . . . . . . . . 75
3.6. The impact of performance pay: the case of Statistics Finland . . . . . 77
3.7. The impact of PRP: the example of Finland . . . . . . . . . . . . . . . . . . . . . . 79
3.8. Impact of the collective PRP system in the National Institute
of Social Security in Spain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
List of Tables
1.1. Milestones in the development of PRP policy . . . . . . . . . . . . . . . . . . . . 30
1.2. Index of delegation in human resources management . . . . . . . . . . . . 37
2.1. Methods of introduction of PRP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
2.2. Degree of centralisation of design of PRP policies . . . . . . . . . . . . . . . . 45
2.3. Influence of unions on the operation of the performance
appraisal system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
2.4. Advantages and problems linked to different forms of performance
payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
2.5. Form and maximum size of individual PRP payments. . . . . . . . . . . . . 58
4.1. PRP policy in Korea. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
4.2. Appraisal grade, payment scope, and performance pay rate . . . . . . . 140
4.3. Appraisal frame for the performance-based bonus program . . . . . . . 140
4.4. PRP relating to appraisal ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
4.5. Target figures for ratings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
5.1. Classroom teachers’ responses to the CEP questionnaire survey. . . . 185
5.2. Head teachers’ responses to the CEP questionnaire survey . . . . . . . . 187
List of Figures
1.1. PRP and performance management: interdependent elements. . . . . 28
1.2. PRP in the overall pay structure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
1.3. Relationship between delegation and link between performance
appraisal and pay in OECD member countries . . . . . . . . . . . . . . . . . . . 36
2.1. Criteria for assessing performance across OECD member countries. 51
3.1. The four missing components for an effective performance
appraisal process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
3.2. The overall impact of performance-related pay on performance. . . . 82
PERFORMANCE-RELATED PAY POLICIES FOR GOVERNMENT EMPLOYEES – ISBN 92-64-00753-9 – © OECD 2005 7
TABLE OF CONTENTS
4.1. Result contract and director contract . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
4.2. The three elements in the new Danish pay system . . . . . . . . . . . . . . . 101
5.1. The old and the new classroom teachers’ pay spines . . . . . . . . . . . . . 183
8 PERFORMANCE-RELATED PAY POLICIES FOR GOVERNMENT EMPLOYEES – ISBN 92-64-00753-9 – © OECD 2005
ISBN 92-64-00753-9
Performance-related Pay Policies for Government Employees
© OECD 2005
Executive Summary
PERFORMANCE-RELATED PAY POLICIES FOR GOVERNMENT EMPLOYEES – ISBN 92-64-00753-9 – © OECD 2005 9
EXECUTIVE SUMMARY
Introduction
Twenty years ago, nearly all civil servants1 in the central government of
OECD member countries were paid according to service-incremental salary
scales. This is not to say that civil servants previously lacked performance
incentives. Promotions, and especially those into senior management, were
rigorously controlled, serving partly as an incentive but partly also as a way of
ensuring the independence of the public service with regard to the executive and
thus its ability to serve governments of different political persuasions. However,
socio-economic pressures have led to the need for types of incentives other than
“promotion” to strengthen performance management. Remuneration has been
seen as an alternative or a complementary incentive to promotion.
By the turn of the millennium, significant numbers of civil servants were
covered by performance-related pay (PRP) schemes of one kind or another in
most OECD member countries, particularly senior managers, but increasingly
also non-managerial employees. The introduction of performance pay policies
occurred in the context of the economic and budgetary difficulties faced by
OECD member countries from the mid-1970s. Reasons for introducing PRP are
multiple, but focus essentially on improving the individual motivation and
accountability of civil servants as a way to improve performance. PRP is seen
as a signal of change for civil servants and as a way of indicating to citizens
that performance is regularly assessed in public administration.
In this book, the terms “performance-related pay” and “performance pay”
are used as synonyms to refer to a variety of systems linking pay to
performance. Performance-related pay systems are based on the following
assumptions: i)organisations can accurately measure individual, team/unit or
organisation outputs; ii)individual and team/unit outputs contribute to
organisational performance; iii)pay can be administered in a way which
capitalises on its expected incentive value for potential recipients.
The adoption of performance-related pay in the public sector reflects the
influence of the private sector culture of incentives and individual
accountability on public administration. Civil services have increasingly
sought to manage service production tasks on similar lines to those in the
private sector. In the private sector, pay for performance is the norm in most
companies: managers usually receive cash incentives and stock ownership
opportunities that link rewards to the success of the company as well as
10 PERFORMANCE-RELATED PAY POLICIES FOR GOVERNMENT EMPLOYEES – ISBN 92-64-00753-9 – © OECD 2005