PERFORMANCE-RELATED PAY: BONUS BENEFITS - Charities have traditionally shied away from performance-related pay as alien to the culture of voluntary organisations. But, as Mathew Little discovers, the system does have its advocates

Debasing, demotivating, divisive, stressful and just plain tacky. The idea of paying bonuses to staff who perform beyond expectations and conversely freezing the pay of those who fall below them - performance-related pay - continues to be met with hostility in a sector wary of inappropriate commercial imports

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Last year, 84 per cent of voluntary organisations shunned any form of performance-related pay, according to a survey by pay and benefits consultant the Reward Group. This contrasts with the private sector where nearly two-thirds of employers operate some kind of performance-related pay system.

But such opposition is not the result of a refusal to reconsider how they reward their staff, according to the Reward Group's director Andrew Walker. "Charities have looked at it, tried it, decided they didn't like it and aren't doing it again,

he says. The Reward Group's annual survey of pay in the voluntary sector gives no indication that performance-related pay is gaining more of a foothold in the sector. In 2001, 13.8 per cent of charities used performance-related pay compared with 13.6 per cent in 2000, which hardly merits the description of momentum.

The nub of the issue to most performance-related pay refuseniks is that the concept runs counter to the culture of voluntary organisations. The tired mantra that people in the voluntary sector aren't motivated by money because if they were they wouldn't be in the voluntary sector, contains a kernel of truth. John Burnell, director of voluntary-sector specialist Personnel Solutions, says performance-related pay in the sector is often brought in by trustees with a non-voluntary sector background who base it on their business experience and assume it can be seamlessly transferred.

"It's inappropriate because the voluntary sector is more complex than the private sector,

he says. "People are motivated by more than just cash. Charity workers being paid more money for doing what they are expected to do - which is to give 110 per cent - doesn't fit well with an organisation's ethos."

Beyond this, there is the logistical problem of applying performance-related pay to the objectives and outputs of charities, which are seldom definable in the way that those of profit-making organisations are. Janet Cummins, chief executive of CF Appointments and trustee of two charities, sees difficulties in applying performance-related pay to voluntary organisations with long-term targets such as working with children.

"We are not making widgets,

she says. "With children, you might not know the impact until they reach their thirties. What about groups seeking to change lives, ease conditions, or shape government thinking? Do you want to wait for a new Bill to be passed in Parliament? It's difficult to produce performance markers for overall objectives."

Even fundraising - traditionally the stronghold of performance-related pay in the sector because of an assumed correlation between cause and effect - is more complex than a simple pay formula rewarding individual staff or the fundraising team allows for, according to Cummins. "A lot of people think it's appropriate to fundraising but everybody in a charity contributes to fundraising - there is a long lead time, everybody in the charity has a role to play, and it is seldom down to one individual.

Indeed, the Institute of Fundraising advises charities against performance-related pay.

But if conventional wisdom in the sector is holding out against the payment method, there is a hardy body of dissenters determined to challenge the aversion. Among the larger charities, Help the Aged and NCH both run versions of performance-related pay.

As director of development at the MS Society, John Neate introduced a performance-related pay system at the charity in 1997 which still operates.

Now chief executive at the Prostate Cancer Charity, he is engaged in developing performance-related pay there as well. A self-proclaimed proponent, he fervently disputes the implication that the voluntary sector possesses a special kind of uniqueness which renders performance-related pay an unnatural and unworkable imposition.

Money, argues Neate, can be a motivating factor for voluntary sector staff as it is for others. "People in the voluntary sector have a range of motivations. The idea that performance-related pay is incompatible with a commitment to the job is a false distinction,

he says.

Performance-related pay is, Neate affirms, applicable to all staff within a charity, not just fundraisers or chief executives. The objectives set for staff should not just be financial, they can also be quantitative such as developing a project, formulating policy or process-driven such as carrying out consultation. But they need to be, in Neate's view, "specific, relevant, achievable and time-banded".

The communications department of a charity might not seem as immediately susceptible to target-setting as fundraising but it is equally possible, suggests Neate. Objectives could include building up a database of contacts as well as "outcome measures

such as a total number of media citations for the charity or the percentage of professional magazines covering a particular story.

But even if performance-related pay is feasible in the voluntary sector, is it effective? Not surprisingly, consensus, academic or otherwise, is lacking. Burnell argues that paying people according to their performance doesn't make a significant difference to an organisation's success. "People do well for the first couple of years and then just coast,

he says.

Even Neate will not be drawn to say that performance-related pay has improved the staff's achievements at the MS Society, though he does claim that "it brings benefits where there is a critical mix of performance-related pay and a regular appraisal system".

For many voluntary organisations, performance-related pay may be putting the cart before the horse. It is fraught with pitfalls from inadvertantly weighting awards more to one gender or race, to suspicions of favouritism if the system is not transparent enough.

David Harker, chief executive of the National Association of Citizens Advice Bureaux, was forced to introduce a system in 2000 because of a funding requirement by the DTI. The system prompted allegations of discrimination against ethnic minority staff in administration positions with less chance to receive "excellent

appraisals. "Focus on performance management first,

advises Harker. "When you have a performance management culture, then you can align it with performance-related pay. But don't do it the other way round."

CASE STUDY THE INTRODUCTION OF PERFORMANCE-RELATED PAY AT THE MS SOCIETY

In 1997, when John Neate started work as director of development at the MS Society, there was no explicit set of policies for remuneration at the charity's national centre, which employed 50 staff. According to Neate, "this led to suspicion and lack of clarity as to how people had come to be rewarded in the way they were. We had to put this right."

The senior management team considered two approaches: an incremental system, rewarding length of service or a performance-related pay system. With management keen to develop a "performance culture", they chose the latter.

The charity implemented an Individual Performance and Development Review, tied to performance-related pay. Each member of staff was set objectives to contribute to the overall plans for the charity. Objectives were intended to be "specific, achievable, relevant and time-banded". A whole day each year was set aside for the management team to moderate awards to each member of staff to ensure they were fair and that consistent standards applied.

The MS Society established five performance-related pay bands. At the top of the scale, merit band one incorporates a cost of living increase plus an extra 5 per cent. Band two earns 3 per cent extra and band three is two per cent extra. Band four terms performance as "acceptable

and the employee just receives the cost of living increase. Band five is below acceptable and people who fall in this band do not even receive the cost of living increase.

Despite the potential for uncertainty in the payroll budget, Neate says that management could assume some predictability in the awards. "In theory everyone could get outstanding performance, but in reality you get a lot of people in the middle, some extraordinary, and some not so good. We were able to predict that the average award was not going to exceed 3 per cent. It's possible to build in budgetary estimates."

Staff reaction to the system was mixed. "A small number of staff opposed performance-related pay on principle. They either argued that you cannot measure performance effectively or that it was somehow "tacky

or insulting to imagine that extra pay would motivate people to higher levels of performance when they already had a high level of commitment to the charity's cause,

says Neate. Another small group of staff were actively supportive, while the majority were neutral.

However, no grievance was pursued against the decisions on the awards, although hundreds of individual decisions were made. "The negative feelings after a poor assessment were no worse than when an ordinary appraisal is not good,

he says.

Whether the award system improved performance is open to question."It's hard to be sure whether the system itself produced improved performance. But it did provide a real focus for the work of the organisations, and clarity about rewards."

DO'S AND DON'TS OF PERFORMANCE-RELATED PAY

DO ensure that staff are involved in the process, that they have discussed the implementation of the system and as much as possible set their own objectives

DO make the system as transparent as possible. Make sure it is clear who makes the decisions and how they are reached

DO apply the system to all members of staff: managers as well as workers

DO tie the system to a regular staff appraisal system

DON'T let the system detract from the need to pay professional rates of basic pay

DON'T let performance-related pay benefit some sections of staff such as males or departments such as fundraising more than others

DON'T let performance-related pay appraisals obscure other non-financial issues such as personal development

DON'T publish individual results, creating an unnecessary sense of competition.

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