© OECD A joint initiative of the OECD and the European Union, principally financed by the EU. Vilnius, May 2006 Performance Appraisal and Performance-Related Pay (PRP): an overview of OECD countries Seminar on civil service performance appraisal Julio Nabais, OECD, Sigma

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU. Presentation based on: - - the report published in 2005 by OECD (Public Governance and Territorial Development Directorate) - - a presentation made by Elsa Pilichowski (OECD/GOV)

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU. Structure of the presentation 1.Performance-related pay in the wider management context : key findings 2.Major trends in performance- related pay policies 3.Implementation difficulties 4.Impact of PRP 5.Lessons learned

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU. …looking at the last century… l Pressures for changing Economic and budgetary difficulties Social pressures – civil servants v. private sector workers – a question of legitimacy of civil service Responsiveness to the citizens: accountability / responsibility – preoccupation for results – a question of political legitimacy

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU. …and so… Service incremental salary scales PRP from…to… Wide variations of degree…

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU. 1. Performance-related pay in the wider management context: key findings l Most OECD member countries report having an extended formal performance appraisal system for employee l Attempt to link individual objectives and performance to institutional ones l Continuous extension of PRP policies in the past decade: two thirds of OECD member countries have to some extent introduced PRP for government employees l Reasons for the introduction of PRP vary across countries l PRP goes hand in hand with delegation of managerial responsibilities An overview of the current state of play in performance management

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU. Relationship between delegation and link between performance appraisal and pay in OECD member countries

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU. 2. Major trends in PRP policies Trends in performance appraisal systems: a dialogue rather than a control tool a dialogue rather than a control tool l Performance appraisals tend to rely more on dialogue with line management than on strictly quantifiable indicators l Performance rating systems : less standardised, formalised & detailed than ten years ago l Trend towards a 360-degree feedback system l Quota systems for ratings are becoming more widespread

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU. Performance appraisal: criteria for assessing performance 2. Major trends in PRP policies (cont)

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU. 2. Major trends in PRP policies (cont) Size and form of performance payments l The size of performance payments is rather small : On average: l The maximum for top performers is less than 10% of the base salary at the employee level l The maximum is around 20% of the base salary at the managerial level l Bonuses are tending to supplement and even replace merit increments l Bonuses used in France, Italy, Spain and the United States (SES) l Combination bonuses & merit increments in Canada, Finland, Germany, Korea, New Zealand, Switzerland l Bonuses in general higher than merit increments

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU. 3. PRP implementation difficulties Difficulties linked to performance evaluation l Difficulty in assessing performance in the public sector due to the lack of quantifiable indicators l Objectives tend to be too numerous, unchallenging, unrealistic, not updated… l Difficulty in differentiating the average performance of government employees l Problems with detailed and highly formalised performance rating l Resistance from unions, staff and middle management l Costs: often underestimated & insufficient funds l Time & work for implementation: underestimated l Lack of preparation from line management

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU. 3. Implementation difficulties (cont) Managerial and contextual problems The four missing components: Lack of valid performance appraisal process Lack of dialogue with line management Lack of managerial delegation Lack of transparency

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU. 4. Impact of PRP : Key findings PRP Motivational incentive Derived effects Organisational and management changes, new working methods and tools Performance Low impact Positive effects in the right managerial conditions

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU. 5. Main lessons learned l Take into account the background culture of each individual organisation/country : no ‘best’ solution l Team/unit PRP systems for employees should seriously be considered l Associate staff/unions in the design of the PRP scheme l Size and form of performance payments The design of PRP is a trade off Implementation problems need to be well anticipated Clear anticipation of the time, cost and work that the introduction and monitoring of the system requires

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU. The performance appraisal process is at the heart of the whole system (cont) 5. Main lessons learned (cont) l It should : l be based on well identified job objectives (small number, both realistic and challenging) l establish a link between individual and organisational objectives l be based on a simple performance rating framework, with no detailed differentiation in the ratings l be based on dialogue with line management l be transparent and rely on well established procedural justice mechanisms l feedback on the appraisal should be well reported and explained l Be understood in the wider management framework

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU. …meaning that performance appraisal is basically a process aiming to: l Provide a framework for effective management of the jobholder l Clarify objectives to be met in accordance to organisational objectives l Identify the appropriate competencies needed l Provide feedback between manager and the jobholder l Help personal development through training and mobility l Foreseen career path l Eventually, allows to link performance to pay.

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU. Thank you AČIŪ !