Vilnius, 23-24 May 2006

1. Seminar on civil service performance appraisal Vilnius, 23-24 May 2006 Performance Appraisal and Performance-Related Pay (PRP): an overview of OECD countries Julio Nabais, OECD, Sigma

2. Presentation based on: • the report published in 2005 by • OECD(Public Governance and • Territorial Development Directorate) • a presentation made by • Elsa Pilichowski (OECD/GOV)

3. Structure of the presentation • Performance-related pay in the wider management context : key findings • Major trends in performance-related pay policies • Implementation difficulties • Impact of PRP • Lessons learned

4. …looking at the last century… • Pressures for changing • Economic and budgetary difficulties • Social pressures – civil servants v. private sector workers – a question of legitimacy of civil service • Responsiveness to the citizens: accountability / responsibility – preoccupation for results – a question of political legitimacy

5. …and so… from… to… Service incremental salary scales PRP Wide variations of degree…

6. 1. Performance-related pay in the wider management context: key findings An overview of the current state of play in performance management • Most OECD member countries report having an extended formal performance appraisal system for employee • Attempt to link individual objectives and performance to institutional ones • Continuous extension of PRP policies in the past decade: two thirds of OECD member countries have to some extent introduced PRP for government employees • Reasons for the introduction of PRP vary across countries • PRP goes hand in hand with delegation of managerial responsibilities

7. Relationship between delegation and link between performance appraisal and pay in OECD member countries

8. 2. Major trends in PRP policies Trends in performance appraisal systems: a dialogue rather than a control tool • Performance appraisals tend to rely more on dialogue with line management than on strictly quantifiable indicators • Performance rating systems : less standardised, formalised & detailed than ten years ago • Trend towards a 360-degree feedback system • Quota systems for ratings are becoming more widespread

9. 2. Major trends in PRP policies(cont) Performance appraisal: criteria for assessing performance

10. 2. Major trends in PRP policies(cont) The size of performance payments is rather small : On average: The maximum for top performers is less than 10% of the base salary at the employee level The maximum is around 20% of the base salary at the managerial level Bonuses are tending to supplement and even replace merit increments Bonuses used in France, Italy, Spain and the United States (SES) Combination bonuses & merit increments in Canada, Finland, Germany, Korea, New Zealand, Switzerland Bonuses in general higher than merit increments Size and form of performance payments

11. 3. PRP implementation difficulties Difficulties linked to performance evaluation • Difficulty in assessing performance in the public sector due to the lack of quantifiable indicators • Objectives tend to be too numerous, unchallenging, unrealistic, not updated… • Difficulty in differentiating the average performance of government employees • Problems with detailed and highly formalised performance rating • Resistance from unions, staff and middle management • Costs: often underestimated & insufficient funds • Time & work for implementation: underestimated • Lack of preparation from line management

12. 3. Implementation difficulties(cont) • Managerial and contextual problems The four missing components: Lack of valid performance appraisal process Lack of dialogue with line management Lack of managerial delegation Lack of transparency

13. 4. Impact of PRP : Key findings Motivational incentive Low impact PRP • Performance Positive effects in the right managerial conditions Derived effects Organisational and management changes, new working methods and tools

14. 5. Main lessons learned The design of PRP is a trade off • Take into account the background culture of each individual organisation/country : no ‘best’ solution • Team/unit PRP systems for employees should seriously be considered • Associate staff/unions in the design of the PRP scheme • Size and form of performance payments Implementation problems need to be well anticipated Clear anticipation of the time, cost and work that the introduction and monitoring of the system requires

15. 5. Main lessons learned(cont) The performance appraisal process is at the heart of the whole system • It should : • be based on well identified job objectives (small number, both realistic and challenging) • establish a link between individual and organisational objectives • be based on a simple performance rating framework, with no detailed differentiation in the ratings • be based on dialogue with line management • be transparent and rely on well established procedural justice mechanisms • feedback on the appraisal should be well reported and explained • Be understood in the wider management framework

16. …meaning that performance appraisal is basically a process aiming to: • Provide a framework for effective management of the jobholder • Clarify objectives to be met in accordance to organisational objectives • Identify the appropriate competencies needed • Provide feedback between manager and the jobholder • Help personal development through training and mobility • Foreseen career path • Eventually, allows to link performance to pay.

17. AČIŪ ! Thank you