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AN EXAMINATION OF THE ROLE, DYNAMICS AND OUTCOMES OF PERFORMANCE-RELATED PAY (PRP) IN THE PUBLIC SECTOR IN THE UK: AN EMPLOYMENT RELATIONSHIP PERSPECTIVE Miral Metawie Kent Business School Dr. Mark Gilman Senior Lecturer in Industrial Relations/HRM

Performance-Related Pay in the Public Sector: History and background Rationale of PRP Theoretical justification Problems and Gaps in existing research The Employment Relationship Framework Method Findings Conclusion Suggestions and Questions Overview

Traditional reward systems merely based on job evaluation Historically salary increments and rewards were seniority-based Unsuccessful attempts of the application of performance reviews in 1970s Change in technological, economic, political, and social forces increased pressure on government to become more accountable while lowering costs Conservative Governments 1979 – 1997 Changes to pay determination Emphasis on performance measurement Extension of PRP to whole of Civil Services Performance-Related Pay (PRP) in the Public Sector: History and Background

Attract, motivate, retain employees Equitable reward systems that reward employees according to their performance Improve communication Increase commitment Tool for reinforcing cultural change in the public sector Reflection on individualism Weakening trade union power Decrease of collective bargaining Objectives of PRP

Linking performance to pay through rewards motivates employees to work harder – improving performance and increasing productivity Rationale of PRP

ORGANISATIONAL-PSYCHOLOGY Expectancy Theory Goal-setting Theory expected rewards Agency costs – direct effort Equity Theory Fairness PERFORMANCE Agency Theory ECONOMIC THEORY PRP: Theoretical justifications Motivation Effort

Economic perspective: Managerialist perspective Regards the relationship as transactional Overlooks the ongoing nature of the relationship and dynamics of pay Clinical approach to human motivation – rational and self-interested. Problems and Gaps with Existing Studies

Psychological perspective: Simplistic approach of the link between pay and performance. Negative motivational impact vs. Government’s extension plans of PRP in the public sector. No evidence of a link between PRP and increased performance. Both perspectives: Nature and intensity of effort ignored. Political factors and forces influencing the application of PRP have been ignored. The psychological contract and social exchange issues overlooked. Only few research have examined the role of PRP in areas of the employment relationship, on an issue-by-issue basis. Problems and Gaps with Existing Studies

The Employment Relationship Framework

Method and Research Design Qualitative Approach: Case Study of Kent County Council (KCC) 3-stage data collection Stage One: Initial Fieldwork Informal Interviews Documentary Evidence Feedback Forums (Focus Groups) Stage Two: Explanatory Fieldwork Semi-Structured Interviews with Line-Managers Stage Three: Typicality and Descriptive Analysis Employees Survey

Total Contribution Pay (TCP) at KCC First implementation of PRP in 1990-1995 1995 abolishment of PRP and return to automatic increment 2003 Total Contribution Pay Agreement TCP – Phased approach 2005 first application to senior level management 2007 extension of TCP to all employees (more than 30000)

Total Contribution Pay (TCP) Five distinctive characteristics: 1. Additional assessment categories: Ways to Success Wider Contribution 2. Equal weighting on all assessment categories: award of any above average rating conditional on the achievement of above average in additional assessment categories 3. Removal of cash awards previously associated with wider contribution 4. Shorter Pay Grades 5. Moderation linked with a quota on the number of employees who can be rewarded above average

Findings Significant gap between the rhetoric and the reality of TCP TCP has several unstated (in some instances even reversed) roles: Demonstrate political accountability Control the wage-bill (higher performance for lower pay) Increase managerial prerogative to manage employees’ job contents Renegotiation and widening the zone of acceptance

Findings Significant gap between the rhetoric and the reality of TCP TCP has several unintended and distorted outcomes: Demotivation Intensification of Labour Withdrawal of discretionary effort Diversion of effort demoralisation Breach in the psychological contract Intention to quit

Findings Significant gap between the rhetoric and the reality of TCP Dynamics of TCP: Negative procedural justice Negative distributive justice Lack of trust Lack of employee discretion Overt control of TCP budget/lack of TCP fund Increase in managerial prerogative and frontiers of control in employer’s favour Imbalance of control over task and HR domain

Conclusion The employment relationship provides a bridge between the economic theories of the firm and organisational behaviour theories. The political dimension provides a lens through which external factors which have affected employers’ and employees’ frontiers of control can be examined. An examination of task discretion indicates that PRP may contribute to higher performance through labour intensification An examination of the norms of reciprocity and negotiation of the zone of acceptance indicates that PRP may lead to a withdrawal in discretionary effort leading to lower quality PRP can cause a breach in the psychological contract

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Paper 5: Sustainable Organisation (Metawie)

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