Performance-related pay schemes in the public sector record fewer positive outcomes and a greater number of problems than private sector schemes, according to a survey by employment analysts Industrial Relations Services.
The latest research from IRS, based on a detailed survey of merit arrangements in 125 organisations, adds to the growing body of evidence which has raised serious doubts about the suitability and efficacy of individual performance-related pay schemes, particularly in the public sector. It also comes after the High Court ruled that the Government's proposed performance pay plans for around 200,000 schoolteachers were "unlawful".
Overall, the survey finds that performance pay schemes are more prevalent in private industry. Almost two-thirds of private firms (61%) provide a pay review based entirely on performance (all-merit), while the majority of reviews in the state sector (78%) still pay merit awards on top of a general cost-of-living rise.
Problems with merit schemes are much more widespread in the public sector. In as many as three-quarters of state schemes (75%), pay awards were found to be too small to motivate employees, compared with 55% in the private sector. In addition, nearly a third of public sector bodies (29%) believe that merit pay is more costly than the system it replaced. In private industry the figure is just 6%. The survey reveals growing uncertainty about the efficacy of merit schemes in the state sector, where one in four organisations (25%) feel that the continuing focus on individual performance is "less appropriate". The proportion falls to 6% in the private sector.
Employees covered by public sector schemes are around twice as likely to believe that a quota system is in operation (34%) than those in private industry (19%). They are also more likely to feel that line managers are inadequately trained for the job in hand; to question their line managers' judgement; and to believe that the process takes up too much management time.
Public sector schemes record fewer positive outcomes following the introduction of performance pay, IRS reveals. Almost three-quarters (73%) of private sector firms rate their merit schemes as "fairly successful", compared with less than half (46%) in the public sector. In addition, 93% of private sector schemes led to an improvement in individual performance, compared with only 75% in the state sector. Employee commitment was also found to increase more among private sector groups (55%) than those in the public sector (25%), while increased productivity was reported by twice as many respondents in private industry (36%) than in the public sector (18%).
According to Jeremy Baugh, editor of the IRS Pay and Benefits Bulletin: "Performance pay schemes in the state sector are not only less prevalent, but less successful and more problematic than those operating in private industry. The findings are likely to make uncomfortable reading for the Government, and will add to the mounting body of evidence which suggests that performance pay in the public sector is fundamentally flawed."
