Ideally, resource materials on performance measurement and evaluation should be specifically designed for each of four groups:
(i) Ministry of Finance officials;
(ii) Accountants, comptrollers and auditors of the sector depart ments that deliver programs;
(iii) Managers of the programs that receive budgetary funds, for whom individual contracts are envisioned;
(iv) The staff of Ministers and the members of the Duma.
2.2.2. Individual and organizational performance arrangements Performance management Many countries (UK, Canada, United States, Australia, and New Zea land, to name a few) have been putting in place various performance management systems at both the institutional (or organizational) and individual employee levels. The objectives of such systems are to in crease efficiency, effectiveness and performance at the level of the or ganization and at the level of individual employees. Countries are at various stages in the development and implementation of performance management systems. Some countries are implementing organiza tional performance systems but have not developed performance sys tems for individual employees. Some countries have emphasized per formance systems for individual employees but have only partial or ru dimentary performance systems for their organizations. Still other countries have attempted to put in place performance systems for their organizations and their employees and more importantly to link and in tegrate these systems into their overall management systems and cul ture.
Underlying performance management at both the institutional and individual levels are a set of performance measures. Performance measurement with respect to organizational performance is an instru ment to assess progress against stated program and organizational objectives. With respect to individual performance it is to assess pro gress against stated performance objectives or “results to be achieved” for individual employees or teams of employees. In both cases it in volves:
- Defining the objectives to be achieved by the organization and the employee. (This is the most difficult part).
- Documenting the “production process” of transforming inputs into outputs. In the case of organizational performance that means documenting the goods and services produced by the program and organization. In the case of employee performance that means documenting the results they achieve.
- Assessing the outcomes. In case of organizational performance that means comparing the program outcomes achieved against the intended objectives. In the case of individual performance it means comparing the results achieved by employees with the objectives set out in their performance agreements.
Performance measures indicate the results achieved by the program or individual, but they do not analyze why the results have occurred (that is the focus of follow up program evaluation or in depth employee appraisals involving both employees, supervisors, and independent as sessors). Generally performance measurement covers five dimensions of performance (efficiency, effectiveness, economy, compliance and service quality). Performance is a relative concept and hence it is often measured against some baseline or standard (e.g., what has been ac complished in the past, a comparable program or organization, or a target in a budget or policy statement).
Advocates of performance management in public sector organiza tions emphasize that it can lead to better outcomes in these organiza tions. On the basis of considerable experience of public and private sector leaders, one major and widely disseminated strategy identified 10 traits that characterize the most effective performance management systems:
Outcome focused. Outcome goals focus attention on the real mis sion of organization and its programs, energize employees, and make it easier to enlist external cooperation.
Few, simple, and resonant at the top. If everything is a priority, noth ing is. Select a few goals, express them clearly, and build a perform ance measurement and management system to support them.
Challenging, but realistic. Set stretch targets, frame goals that are ambitious but not overwhelming.
“Cascading down” and “folding back up”. Show employees how they are expected to contribute to each organizational goal. Help the organi zation sort out how goals “cascade down” to connect the work of em ployees and work units and “fold up” to meet organization wide expec tations.
Broadly used. Performance measures need to be used routinely in the organization.
Visible. Make performance information visible. Write it clearly and disseminate it broadly inside and outside the organization.
Interactive information. Ensure employees (executives, managers, and workers) analyze and discuss performance information to learn where performance is strong and where and how it can be improved.
Frequent and fresh. Up to date, detailed performance data and in formation helps employees to detect and correct problems.
Segmentable. The ability to segment information (by geographic re gion, client group, industrial sector, program, etc.) helps employees to interpret the results, draw conclusions, and improve performance.
Fact based. Measurement accuracy is an essential and integral component of an effective performance measurement system.
This performance management strategy contains one important ca veat: “favour performance over punishment”. It emphasizes caution in linking performance measurement to rewards and penalties, noting that poorly structured incentive systems can backfire, discouraging workers and even rewarding dysfunctional behaviour76.
Resent research on individual and organizational performance There is a significant body of theoretical and applied research on the important question of individual and organizational performance ar rangements in public sector organizations that is summarized below77.
The most important and striking aspect about this research is that it is all about the development and application of incentives and rewards. In short, the fundamental issues for both Canadian and IET researchers centre around: how incentives effect performance, their effects on mo tivation, the dysfunctional effects of incentives and how to cope with them, and how incentives and rewards can best be structured.
Some of the most fundamental questions addressed by this re search include:
- When designing a performance management system, does it make sense to link goal accomplishment to monetary incentives Executive Session on Public Sector Performance, Getting Results Through Perform ance Management, Harvard University, Kennedy School of Government (undated). See http://www.ksg.harvard.edu/visions/performance_management/index.htm This research outlined below draws upon the recent review by Nancy R. Katz, Incentives and Performance Management in the Public Sector, Harvard University, Kennedy School of Government, 2000. See http://www.ksg.harvard.edu/visions/performance_management/katz_incentives.htm.
- How does incorporating incentives into such a system affect work ers’ performance, motivation, and attitudes - What shape should such incentives take - What do incentives add to a performance management system Are monetary incentives necessary, or are goals and feedback enough The substantial body of research on goal setting indicates that work ers who are given goals that are specific and difficult outperform work ers who are given a “do your best” goal or no goal at all. Goals do four things: direct attention; mobilize task effort; encourage task persis tence; and facilitate development of task strategies. In other words, goals provide workers with a clear direction; inform them that they need to try hard; remind them that an end is in sight; and encourage them to think about the process of reaching that end.
Research on feedback indicates that workers who are given informa tion about how they perform generally outperform workers who are not given such feedback. Furthermore, comparative feedback is especially useful. In studies that compare feedback that allows a worker to com pare his/her competence relative to others versus task feedback that allows a worker to assess his/her competence in isolation only, the comparative feedback has a stronger impact on workers’ feelings of effectiveness. Combining goals and feedback has a more powerful ef fect on task interest and persistence than either goals or feedback alone.
What happens when monetary incentives are added to the mix While goals and feedback clearly boost performance, adding incentives can enhance task interest and persistence further still. As Katz empha sizes the key word is “can”– whether incentives will have a positive ef fect on motivation depends upon the nature of the incentives.
When are rewards likely to have a strong effect on a worker’s moti vation and effort The dominant model for understanding and predicting whether a re ward is likely to affect worker motivation and effort is Vroom’s expec tancy model78. Several decades of research have largely substantiated the accuracy and robustness of this model. The model asserts that the strength of a reward’s impact on worker motivation and effort are a Vroom, V. 1964. Work and motivation. New York: Wiley.
function of three factors: “expectancy”, “instrumentality”, and “va lence”. Expectancy is the worker’s perception of the strength of the link between effort and performance. If a worker works hard and puts him self/herself out, will that translate into enhanced task performance Or are there constraints that nullify the extra effort Instrumentality is the worker’s perception of the strength of the link between performance and the reward. If a worker’s performance is strong, will he/she receive commensurate rewards Or will his/her work unit be punished by hav ing the budget reduced Valence is the value a worker places on the reward. Will the worker actually care about the rewards he/she re ceives Or will he/she receive a worthless medal An effective system must therefore take into account all three factors with the workers be lieving that:
- Effort will lead to performance, - Performance will lead to rewards, and - The rewards are desirable and valued.
Research indicates that if any one of these factors is weak, the in centive system is not likely to have a meaningful positive impact. This suggests great care in the design and development of reward systems (monetary or otherwise) to encourage employee performance.
The research cited above is primarily focussed on the impact of in centives on individual workers. What about the organizational level Do organizations that introduce incentives perform better The evidence is mixed. Some researchers firmly conclude that linking pay to results leads to the enhancement of organizational performance. Other re searchers conclude that contingent pay has no appreciable impact on organizational performance. Part of the reason for the lack of consen sus is that these studies encompass a broad array of incentive systems, such as merit salary increases, one time bonuses, gain sharing pro grams, and profit sharing programs. Furthermore, these studies opera tionalize performance in very different ways, such as quality of output, quantity of output, financial status, worker perceptions, etc.
Predicting dysfunctional effects of incentives In an ideal world, incentives can lead to enhanced motivation, effort, and performance. In the real world, however, incentives can have dys functional effects. The dysfunctional effect that is most broadly per ceived and has received the most study is the worker’s lament, “It’s not fair!” When rewards are contingent on performance, workers are finely attuned to issues of fairness. A distribution of rewards that is perceived as even slightly unfair can lead to significant problems.
Researchers have tried to understand when workers are likely to perceive their rewards as unfair, and how they are likely to react. A use ful model for understanding these issues is Adams’ equity theory, which has been supported and refined through decades of research79. Simply put the theory is this: To assess whether a worker is being rewarded fairly, he compares myself to others. He compares not only the rewards he receives but also his inputs, and the ratio of his rewards to his inputs.
Inputs include such things as effort, talent, and tenure. If his ratio is smaller than his fellow workers, he perceives the distribution of rewards as unfair. He will try to redress this injustice by changing the elements of his two ratios to make them equal. Research has indicated that the most common approach to equalizing the ratios is decreasing his inputs – that is, reducing his effort. When he tries to affix blame for his unjust situation, he is likely to blame external factors such as his supervisor, the organization, or the incentive system, rather than myself. Not sur prisingly when workers feel relatively under compensated they are more likely to engage in theft, sabotage, bribery, corruption, politicking, and turnover.
On the other hand, when assessing the fairness of the distribution of rewards, it is possible that the worker will discover that his ratio of re wards to inputs is bigger than his fellow workers. In this situation of rela tive overpayment, the worker may react by increasing his inputs – effort – in order to bring his ratio in line. The evidence for this prediction, how ever, is mixed. In the short term, workers may indeed react to feeling overpaid by expending more effort to justify their rewards. Over the long term, however, workers are likely to simply increase their perception of their deservedness, rather than sustaining an increased effort level.
When a worker compares his reward input ratio to a fellow worker, it is much more likely that the worker will perceive his ratio as too small rather than too big. This is because people generally have exaggerated Adams, J. 1963. “Toward an understanding of inequity”, Journal of Abnormal and So cial Psychology, 67: 422–436, and Adams, J. 1965, “Inequity in social exchange”, in L.
Berkowitz (Ed.), Advances in experimental social psychology, vol. 2, p. 267–296. New York: Academic Press.