The charity sector has generally rejected the use of performance-based pay, largely because it’s hard to measure effectiveness in a sector where profit is not the primary purpose. It’s perhaps no surprise, then, that the animal welfare charity the RSPCA came under fire in October for announcing plans to introduce new contracts for employees that link salary increases to performance.
The contracts will apply to all of the charity’s 1,700 staff, including those working directly with animals. Anyone who does not sign by 31 March will lose their job. The trade union Unite branded the move a "backward step", with Union members at the charity considering whether to conduct a ballot on industrial action over the decision. But in a statement the charity suggested it was necessary to save money in "a challenging financial environment".
With performance and pay often provoking controversy in the sector, and the Code of Fundraising Practice explicitly forbidding the payment of fundraisers on commission (another form of performance-related pay) unless all other options have been exhausted, are there any circumstances in which the system can work for charitable organisations?
Charles Cotton, performance and reward adviser at the Chartered Institute of Personnel and Development, says different forms of performance-related pay can work "for most employees in most environments", but it has to be introduced with care and a lot of thought about how good performance is defined for different roles.
This can be complicated in the third sector, as Siobhan Endean, national officer at Unite, pointed out in response to the RSPCA decision: "How you evaluate ‘performance’ when it comes to rescuing abused animals remains to be seen."
Performance-related schemes in charities also bring reputational risk. In August, Marie Stopes International was criticised in the national media and contacted by the Charity Commission after Third Sector revealed that its chief executive, Simon Cooke, had received a bonus worth more than £200,000 because, the charity said, it had experienced its most impactful year ever. "How many administrative staff saw their salary packages almost double in a single year?" asked former charity chief executive Mark Flannagan in a Third Sector blog.
Peter Reeve, the chair of the Charities HR Network and head of HR at the Motor Neurone Disease Association, says performance-related pay is unusual in charities, pointing out that, unlike the private sector, the charity sector also has to answer to the public over pay. "Obviously, we have this constant battle about paying people at all," Reeve says.
The sector doesn't do performance management that well. In a lot of charities the mechanisms don't existPeter Reeve, chair Charities HR Network and head of HR, Motor Neurone Disease Association
Another concern, he adds, is that performance-related pay might incentivise negative behaviour, particularly in fundraising. He says he’s not even convinced it will improve performance: "We want to be able to have a genuine conversation about performance with staff: to get the whole picture without somebody feeling their pay will be affected by any admission that they didn’t understand something."
And in his experience, Reeve says, the people who consistently get pay rises under such systems aren’t always those who are most valued by their line managers.
As for the RSPCA’s argument that the move will help to cut costs, both Reeves and Cotton are sceptical. The latter says: "If you talk about linking pay and performance, the focus is on performance, not on costs. If you want to save costs, you’d freeze pay or make redundancies and cut back.
"With performance-related pay, not only do you have to find money to reward high performers, you’ve also got to invest money, time and effort in getting it off the ground.
Reeve says: "The third sector doesn’t do performance management that well. In a lot of charities the mechanisms for identifying people who are performing well don’t exist."
Ultimately, Cotton says, any decisions about pay must be communicated well. "Disputes about pay tend to be a presentation issue," he says. "When people start complaining about pay and how it’s managed, it might be more about how they are being managed and developed."
It can take time to rebuild trust, he says, but it is possible if employees feel their concerns are being listened to. "If you introduce performance-related pay, you have to make sure lots of things are lined up or it’s not going to work as you want it to," he says. "That’s not to say you shouldn’t do it; it’s just a lot harder than it might have looked in a textbook."