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The Paradox Of Performance Pay

Allan Hawke makes the argument that performance pay has no place in the public service.

The essence of my arguments is that performance pay: (1) Is at odds with public service culture; (2) Ignores the complexity of how the public service actually works; (3) Is bad for morale and teamwork; and (4) Gives senior leaders an excuse to avoid real leadership.

Performance appraisal and pay assumptions

usually include: (1) Evaluation covers performance over a (normally) 12-month cycle, not just the period of recent memory; (2) Evaluators are consistent with one another or equilibrated through a moderation process; (3) Evaluators apply a consistent ”objective” standard between employees; (4) Individual employee contributions can be distinguished from the contributions of other managers and workers; and (5) These beliefs usually arise from the command and control school of management.

And …

Performance pay acolytes (usually in an unstated or unrecognised manner) consider that a reservoir of withheld effort must be coaxed or coerced out of people. This is the underlying premise for incentive pay schemes and/or a manager's efforts to motivate and control their staff.

The reality is that there are not many bad people in the workplace. What's interesting is that so many executives shy away from dealing directly with poor performance and unacceptable conduct in the workplace, especially given the way those affected by these inappropriate behaviours feel about it.

The common arguments for performance pay

… (1) As a basis for differential pay/reward for outstanding performers; To provide performance feedback to individual employees; (3) To identify candidates for promotion; (4) To foster communication between supervisors and subordinates; and (5)To motivate employees.

Illusion of control

Some commentators argue that the practice continues despite evidence to the contrary because it relates to the manager's need to maintain control, or the illusion of control. Peter Scholtes, who has researched and written extensively about performance, appraisal and pay, argues that such a performance ”management” regime is inherently the wrong thing to do because three faults are common to all variations on the theme: (1) It doesn't work; (2) It's wrong to focus only on individuals or groups, because most opportunities for improvement involve systems, processes and technology; (3) Performance ”management” is judgment, not feedback; it's a hierarchical dynamic.

A culture of sycophants

Performance pay can lead to patronage, subordinate sycophancy, playing and paying favourites, oiling the squeaky wheel and other inappropriate practices. Imagine the consequences if ministers wanted to be involved in the process and decisions below secretary level.


Let's assume for the purpose of illustration that there is a truly unbiased performance-pay system in a typical Gaussian distribution. Half of your people will learn that they are below average: a statistical inevitability. Some may accept their fate; others will view this as proof that their manager is incompetent. Some will redouble their efforts to prove the judgment and system wrong – that may be noticed, and they may be lucky enough to be ranked above average next time − if so, someone above average last time will fill their below-average slot this time. All of this must do wonders for morale and superior workplace performance.

And, in the case of extremely poor leadership, the black box

Then there's the case where people are told their rating by their direct supervisor before it disappears into the black box of moderation and comes out at a lower level; apart from the lack of transparency, the recipient's perception is one of unfairness and it's deeply demotivating. Those who invoke ”science” in moderating people's scores to a decimal point are kidding.

Still curious? The book Punished by Rewards argues the case against the carrot-and-stick approach. If you're interested in this subject, you'd also like Drive: The Surprising Truth About What Motivates Us.