Performance-related Pay Policies for Government Employees

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1 A/ Performance-related Pay Policies for Government Employees OECD ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

2 Table of Contents Executive Summary 9 Glossary 17 Parti Performance-related Pay Policies for Government Employees: An Overview of OECD Countries Chapter 1. Performance Pay in the Wider Management Context Introduction The development of PRP over the past two decades An overview of the current state of play in performance management Why have governments introduced PRP? PRP and the delegation of human resources and budgetary responsibilities Conclusions 38 Notes 38 Chapter 2. Key Trends in Performance-related Pay in OECD Countries General trends in the overall design of PRP systems Performance appraisal systems: highlighting the trends in the criteria and systems used Performance payments: form and size of payments Conclusions 61 Notes 61 Chapter 3. Implementation and Impact of PRP: Lessons to be Learned Introduction Design and implementation issues: lessons to be learned The impact of PRP: incentive for change? Conclusions 81 Notes 84 Conclusion 85 Selective Bibliography 87 PERFORMANCE-RELATED PAY POLICIES FOR GOVERNMENT EMPLOYEES - ISBN ffl OECD 2005

3 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 12 OECD Countries: Brief Overview 209 List of Boxes 1.1. Performance-related pay in the private sector What does the literature say about PRP? Rationales for service incremental pay scales Introducing PRP: the Danish case Introducing PRP: the case of the Department of Work and Pensions (DWP) in the United Kingdom How to monitor the highly decentralised pay systems in Denmark and Sweden Committees to control evaluation criteria and ratings Performance criteria and rating systems: country examples 52

4 2.6. Performance agreement for senior civil servants in the United Kingdom Negative effects of PRP mentioned in the Danish survey (2001) Common weaknesses of the objective setting process The case of France: the conclusions of the committee of enquiry into the cost and efficiency of public services (April 2004) The introduction of PRP in developing countries Impact of PRP in the private sector: the example of a survey of PRP in private organisations in the United Kingdom The impact of performance pay: the case of Statistics Finland The impact of PRP: the example of Finland 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 Index of delegation in human resources management Methods of introduction of PRP Degree of centralisation of design of PRP policies Influence of unions on the operation of the performance appraisal system Advantages and problems linked to different forms of performance payments Form and maximum size of individual PRP payments PRP policy in Korea Appraisal grade, payment scope, and performance pay rate Appraisal frame for the performance-based bonus program PRP relating to appraisal ratings Target figures for ratings Classroom teachers' responses to the CEP questionnaire survey Head teachers' responses to the CEP questionnaire survey 187 List of Figures 1.1. PRP and performance management: interdependent elements PRP in the overall pay structure Relationship between delegation and link between performance appraisal and pay in OECD member countries Criteria for assessing performance across OECD member countries The four missing components for an effective performance appraisal process The overall impact of performance-related pay on performance... 82

5 4.1. Result contract and director contract The three elements in the new Danish pay system The old and the new classroom teachers' pay spines 183

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