PERFORMANCE-RELATED PAY (PRP) has failed. Its time has come and gone – again.
Originally popular in the early part of the 20th century, it was resurrected by corporations, CEOs and HR gurus in the later part of the last century but has now reached its zenith and needs to be binned.
PRP has been cited in a number of reports as a contributing factor in miss-selling scandals and the financial crisis of 2008.
It drives gaming and cheating of performance management systems and creates division and antagonism in the workplace. It has driven an excessive bonus and reward culture at executive level which has created well-documented and destructive inequality.
It lends itself to individualistic and selfish workplace behaviours and also grants employers too much control over their workforce.
It divides workers, thus enabling much greater control for employers and facilitating patronage and discriminatory practices. It rewards ‘yes’ people which can ultimately do untold damage to businesses and society.
Many PRP schemes don’t even reward performance anymore. Over the last two decades they have often become secretive schemes, with individuals privately told their ratings.
Often performers at the same level are given different increases, as behind the scenes other variables are included like where your salary benchmarks against an arbitrary, made up ‘market rate’.
This market rate is often set by outside consultancy firms which serves to stagnate pay rather than increase it and distorts the market in an uncompetitive fashion to the advantage of big employers.
Employers often justify PRP on the basis of employee opinion surveys. In my experience as a trade union official, staff often feel pressured into completing these surveys.
Frequently, survey questions are asked in a leading way. Questions such as “Do you wish to be rewarded based on performance?” are often answered in the affirmative – but who wouldn’t answer yes in the absence of alternatives being posed?
Questions such as “Would you like to be paid a base cost of living increase and performance?” or “Would you like a union to negotiate your pay?” are not asked.
If such questions were posed, a truer picture would emerge.
Pay was not always like this. For a number of decades in the middle of the last century, when capitalism was seen to be at its most equal, and also most productive, pay was generally done in a different way.
Pay bargaining with unions dominated and the cost of living in the country or region in question was taken into account.
Increases were applied across grades in an equal way. Staff were rewarded based on contributing to an overall team or company performance.
Pay was open and transparent, staff knew exactly what they and their colleagues were getting and often got to vote yes or no to the proposed increase.
It is important we move once again to a fairer, more equitable system of reward. The days of secrecy and discrimination are over. Staff want transparency.
A further issue in performance-related pay which warrants more analysis is the gender gap.
There is emerging evidence that PRP impacts negatively on part-time workers in a disproportionate way through performance management rating systems.
There is also evidence that staff who are absent from the workplace for periods of time, such as staff who avail of maternity leave, are likely to be negatively impacted by PRP, again through ratings.
As part-time staff are more likely to be female, the evidence is pointing to a need to investigate the gendered impact of performance management and performance-related pay.
Our union has surveyed thousands of workers on performance-related pay in finance and it is clear to me that staff want a base pay cost of living increase for all each year so wages retain their purchasing power.
They also want a clearly defined and union negotiated performance increase which is transparent with no variables added to penalise those with longer service. Staff are also deserving of productivity increases as fewer staff are often driving greater income.
Gareth Murphy is head of campaigns and industrial relations at the Financial Services Union.