Analysis: Calls for more performance-related pay in the public sector splits HR and employment experts

A report calling for more performance-related pay (PRP) in the public sector has split opinion among HR directors, employment experts and unions.

The report by the Chartered Institute of Personnel and Development (CIPD), published ahead of next week’s Emergency Budget (22 June), has been welcomed by some HR directors, but criticised as impractical and ineffective by other experts.

Earlier this week, the CIPD warned “pay restraint in the public sector is vital” to minimise the predicted 725,000 job losses by 2015, while government organisations have to stop rewarding poor and good performance equally.

Less than half (44%) of public sector employees questioned by the CIPD said that their organisations used cash bonuses or incentive plans, compared to 86% of respondents in the private sector. The majority of pay in the public sector is negotiated collectively by unions on a national basis, although the range of professions and roles in the public sector means that pay arrangements vary.

Mike Cooke, spokesman for risk and reward at the Public Sector People Managers Association, said he supported the CIPD’s call for more performance-related pay in public sector.

He said that top-performing councils already paid bonuses to senior staff, but added that the challenge was how to make bonuses available for all roles.

Increasing the use of bonuses in the public sector would need a change in culture, based around “robust” staff appraisal systems, Cooke added. “It could take 12 months to introduce these systems,” he said. “You need to get staff on board and give managers lots of support.”

The size of bonuses in the private sector, particularly in banks, has proved highly controversial in the past few years, but Cooke said that bonuses in the public sector were more modest.

Stephen Moir, corporate director, people, policy and law at Cambridgeshire County Council, said PRP was “wholly sensible” for public services and may help to enhance productivity further, particularly as cuts are implemented.

“At Cambridgeshire County Council, we’ve been operating PRP for our senior managers for some years and, equally, have operated a form of contribution-based pay for roughly 1,000 people,” Moir said.

However, other experts said extending PRP in the public sector was a bad idea.

Stephen Overell, associate director at the Work Foundation, said it was “most unlikely” to work in the public sector for a number of reasons, including widespread collective pay bargaining.

In addition, studies have raised doubts over the fairness of PRP and indicated that it can hinder collaboration in organisations by setting staff against each other, he said.

Dave Prentis, general secretary of Unison, the public sector union, which has more than 1.3 million members, said: “Past experience shows schemes have been less effective than expected, mainly due to cash limits, so rewards for high performers are not enough to deliver the motivation anticipated.”

He added: “Performance-related pay is based on individual assessments, which can be subjective; managers could pick their favourite colleague, which would have really negative impacts on motivation for other members of the team.

“There is also evidence that performance-related schemes discriminate against women because the process is subjective – women’s skills are often undervalued by their managers. Many women also work part-time, especially in the public sector, so they would have less opportunity to get this type of bonus.”

Personnel Today’s Austerity Panel of experts also rejected the CIPD’s calls for more PRP, saying it could lead to increased wage bills and would not necessarily improve productivity.

Meanwhile Gill Hibberd, HR director of Buckinghamshire County Council, called for “radical change” to payment and reward arrangements across the public sector, including uniform salary rates for jobs.

The CIPD’s report – Coping with Less: Pay and pensions in the public sector – recommended that public-sector bonus schemes should judge performance based on a range of criteria, including achievements that can’t be measured financially.

For large bonuses, it may be a good idea to defer some of the payment for a set time, such as three years, the report added.

However, any extension of performance-related pay and bonus schemes would face opposition from unions.

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