- Job satisfaction and responsibility; and - Reorganization of work processes.
5. How the performance pay is shared is as important as the quan tum, because the manner of sharing affects employees’ perceptions as to whether the scheme is fair.
6. The impact of the scheme also depends on the frequency of the payment. Therefore the reward should follow the performance as soon as possible.
7. The scheme should be given wide publicity within the enterprise.
8. The performance level should be achievable or else the scheme will have no motivational impact.
9. The quantum of pay directly related to performance (i.e., the amount that is placed at risk and can be gained from good performance or lost due to poor performance) should be carefully determined.
Important caveats to organizational and individual per formance management Experience and applied research has suggested a number of impor tant caveats with respect to the development and implement of per formance management at the organizational level and the individual level. It also suggests it may be necessary that there be in place a num ber of foundation pieces for the implementation of organizational and individual performance.
Performance measures at the organizational level have an important role to play, but they need to be handled with care especially when linked to performance contracts for individual employees. Their mean ing and interpretation needs to be regularly discussed and questioned, otherwise they can distort the behaviour of organizations, managers and employees. The development and implementation of performance measures needs to be adapted to the local circumstances. Perform ance measures differ according to the responsibilities of those who are being measured and the requirements of those using the information and measurements. At operational levels the performance measures used in contracts should be related to more narrow issues such as management of resources and production processes. At the higher ex ecutive levels the measures used in contracts can relate to broader is sues such as program effectiveness.
Performance measurement can be a useful tool for evaluating ad ministrative performance. Performance measures can be used to as sess whether a program is being implemented in conformity to its ob jectives. For example, in the road sector, measures relating to accessi bility (e.g., travel times at different times during the day and week) and safety (e.g., the number of accidents per kilometre of highway) can be useful in preparing and supervising implementation plans. Performance measurement can be useful for strengthening managerial accountabil ity by linking inputs to outputs. But they can rarely be used effectively to link inputs to outcomes. For example, managers in the health sector can be held accountable for the number of inoculations provided, but they cannot be held accountable for the overall health of the population.
The use of performance measures in contracts can be problematic.
Even when budget funds are provided for a contract, the link between the performance measure and resource allocations is at best an indi rect one. Performance related pay systems can link some element of performance to remuneration for a specific level of output activity and can contribute to improving operational performance. Caution however should be exercised before implementing such a system that explicitly links performance and pay. Selecting appropriate indicators is a very difficult and tricky business. Making employees accountable for things they cannot control raises problems. Focusing on things employees can control can encourage them to focus on short term responses to the detriment of longer term objectives. Results oriented personnel systems can lead to undesirable outcomes in the form of patronage and goal displacement in the form of “creaming” or selecting the clients that are the easiest to treat.
The law of unintended consequences indicates that attempts to modify behaviour may produce unintended consequences that may conflict with the goals of the program. For example, if hospital subsidies are based on the length of the patient waiting lists, hospital managers and doctors will have an incentive to keep a large number of non critical patients waiting as long as possible while focusing on other cases (high quality care for a few, little care for many).
There are particular risks to be avoided in the use of performance measurements as part of performance contracts for organizations and individuals (executives, managers and employees). A major question is how to reduce these risks when attempts are made to relate remunera tion of managers and staff to specific performance measures. For ex ample, the questions relating to risks are often concerned with:
- Tunnel vision and goal displacement: emphasis is only on quantifi able indicators;
- Short termism: failure to focus on longer term program objectives;
- Misrepresentation or corruption of data: manipulation of reporting data and the uncritical acceptance of it;
- Strategic management behaviour: deliberate under performance in order to engineer targets that can be achieved;
- Inflexible pursuit of defined objectives: inability to adapt to changing objectives; and - Demoralization of staff: those staff without performance measures can come to believe their services are less important.
To avoid such pitfalls there are a number of sound practices that could be used in setting up performance measurements:
- Relevance and usefulness. The measure should be defined prop erly and clearly in relationship to the program’s objectives.
- Clarity and understandability. The measures must be simple, well defined and understood by employees.
- Ownership and buy in. Getting ownership and buy in for the meas ures throughout the organization is important to avoid the percep tion that the measures are simply to be used by the top manager to get more from the workers.
- Cost effectiveness: The cost of developing, implementing, and maintaining the measures must be done at reasonable cost.
- Capacity to monitor. The measures must be applied consistently over time.
- Great care in linking to remuneration: The measures must be clear, within the control of the employee, be agreed to by the employee, and should only affect a part of the employee’s total remuneration.
The introduction of sound practices is often related to local circum stances. Are these practices sound for Russia Can they be intro duced What should be the priorities, the pace and the sequencing What is actually required by way of organization, skills and resources to do it In terms of performance at the individual level, individual perform ance contracts can be built upon the job descriptions for individual po sitions within an organization that describe the generic responsibilities and tasks of individual employees. These job descriptions are part of the job classification system that sets out classification categories by various occupational type (e.g., economist, social worker, school teacher, etc.) and the various salary levels and ranges within each oc cupational type. Performance contracts can build upon an effective job classification system by providing “differential compensation” for em ployees as a function of the degree to which they meet or exceed re sults as set out in advance in performance contracts developed with their supervisors.
In terms of performance at the individual level, Canadian federal and provincial governments have considerable experience with differential performance pay at the executive level. The most recent experience with executive compensation suggests the need to start with executives at the top of the organization, to limit performance pay to a portion of total compensation, and to proceed incrementally, and to time the in troduction of performance contracts with overall increases in executive pay. The environment into which performance contracts and perform ance pay was introduced was one of extended pay freeze, downsizing of senior managers, good leaders leaving government, inability to at tract highest calibre people, and compensation systems that did not reward superior behaviour.
The new performance system in the Canadian federal government has two components – ongoing commitments and key (or “at risk”) commitments. The former must be meet before any “at risk” pay is made which for deputy ministers can be as much as 25 per cent of total compensation. What is the potential for these changes What have been the pitfalls How large should the portion of “at risk” pay be How is the performance contract developed between the employee and su pervisor What should be included in the contract by way of perform ance indicators, availability of resources, delivery for changes through out the assessment period, etc What are the key lessons to be learned that could be relevant to Russia The Korean experience is noteworthy because it emphasizes the need to significantly raise the level of compensation for public service employees relative to those in the private sector in order for perform ance pay reforms to take hold. It also has experienced major difficulties with supervisor bias. For example supervisors are subject to biases such as erroneous first impressions when they make subjective as sessments of job performances. These errors can undermine the credibility of the performance evaluation process. What is the link be tween performance contracts and overall levels of pay To what extent and under what conditions can performance pay be introduced when overall compensation remains comparatively very low The UK experience is noteworthy because it highlights the impor tance of having foundation pieces in place that are necessary for the effective implementation of organizational and individual performance contracts. In the UK some of these foundation pieces include:
- Clear and measurable organizational objectives, which were devel oped in the 1980’s as part of the creation of 140 Executive Agen cies.
- The experience of developing meaningful business plans for the agencies.
- A history, although checkered of undertaking annual performance reviews for executives, managers, and employees.
- The development of operational logic chains to link individual per formance to desired organizational results.
- A history of seemingly reasonable compensation for public sector employees despite significant union/management tensions.
- Slow but gradual changes to reduce the number of pay bands and to simplify the pay band structures within the classification system.
- Experience with previous performance systems that were widely criticized as “biased and unfair”.
- Major efforts to stress the government wide behavioural norms of senior executives (e.g., giving purpose and direction, and getting the best from people) to complement agency specific norms.
- Recognition of the need for training of all executives and managers who must make the system work.
2.3. Conclusions Alternative service delivery presupposes a search for new forms and structures including partnerships with other levels of public sector and private sector with an aim of increasing quality of realization of state programmes and optimization of delivering services to the population.
Study of international experience in the sphere of implementation of ASD schemes have demonstrated that possible results from ASAD im plementation can be: less costly and more adequate service delivery to the citizens; changes in organizational culture and management prac tice, which will contribute to an increase in performance efficiency of the organizations; providing greater powers to the managers of public organizations, which will permit to bring the level of decision taking to the place of service delivery to corresponding settlements and citizens.
Canadian and international experience accumulated in the sphere of alternative service delivery allows singling out a number of possible variants of alternative service delivery implementation, i.e.:
- Creation of specialized boards (according to this mechanism the government delegates organization of service delivery to an agency, which has a certain level of independence);
- Transfer of powers (the government transfers responsibilities for service delivery to any other level of government or to commercial or non for profit organizations, which receive transfers for delivering services to the population);
- Procurement of services in the private sector (on the basis of gov ernment contract with private firm);
- Creation of private public partnerships (according to partnership agreements all its participants invest their funds and resources into this business, share risks and obtain profit);
- Franchising/licensing – transfer of rights for service delivery on stipulated understandings and arrangements, issue of license to a private firm for service delivery;
- Privatization – sale by the state of its assets in the organization that provides services to a private firm.
At the same time international experience with alternative service delivery makes a number of cautionary notes regarding implementation of ASD schemes. In particular, it is highly risky to implement this or that ASD scheme simultaneously in many brunches of public sector without carrying out analysis of specifics of each type of service that is subject to be included in the ASD sphere. Moreover, international experience leads to a conclusion that in the countries where public sector is entan gled in informal relations (which is very inherent to Russia) there should not be a simultaneous transition a regime under which managers have too much freedom of action in selecting staff and financial matters. In such countries a required premise for a successful transition to a sys tem of alternative service delivery consists in carrying out preliminary measures aimed at reducing the scale of informal relations in the budget sector increase in managerial potential.
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