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Public sector pay should be linked to performance

15th Mar 2011
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Senior public sector managers’ pay should be performance-related but not subject to a cap at 20 times the salary of their lowest paid staff, an independent review has proposed.


The government-commissioned Fair Pay Review, led by Work Foundation head Will Hutton, the final version of which is published today, U-turned on initial recommendations made in December of a 20:1 maximum pay multiple. The report said that the move would be “illogical” as it would affect only 70 top public servants and “could become a target to which people aspire”.
But it did suggest that pay ratios between top earners and the median pay of workers in public authorities and public limited companies should be published for comparison purposes.
Greater pay transparency in both the public and private sector, along with explanations of job weight and performance, could help to restrain the top pay “arms race” and would “allow an informed public debate on senior pay; citizens will be able to hold organisations to account on how senior pay reflects individuals’ due desert”, Hutton said.
He also recommended a new “pay for performance” deal that would see about 2,000 senior executives awarded between 10% and 15% of their pay at the end of their year in an “earn back” scheme if annual targets were met. Although the move would only affect a couple of thousand senior leaders initially, it could be broadened out to include middle managers on a voluntary basis over time and so could apply to “tens of thousands” of people.
But excellent performers who exceeded targets should also be eligible for a matching bonus. “No pay system can be fair if it fails to reflect individual performance,” Hutton said.
Other recommendations, meanwhile, included abandoning “arbitrary” benchmarks such as comparisons with the Prime Minister’s pay. Although 9,000 managers ostensibly earned more than David Cameron’s salary of £142,500, such comparisons were “profoundly flawed” as one estimate of the PM’s total package put it at nearer £580,000 if pensions and accommodation were included.
Chancellor George Osborne said that he would give “careful consideration to his recommendations and respond in detail in due course”.

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By Chris Rodgers
15th Mar 2011 20:02

Why does the view persist that organizational outcomes can be related, in a simple cause-and-effect way, to the 'performance' of individuals?

It might seem like common sense to pay people according to their perceived performance.  But it is a version of common sense which still sees the business world as ordered, predictable and ultimately controllable.

Organizational outcomes emerge form the complex interplay of decisions and actions taken - and not taken - by people 'population-wide' (i.e. 'organization-wide', 'industry-wide', 'world-wide' or 'any-other-wide' that you might like to consider).  It is not in the gift of managers - or anyone else for that matter - to control this process or the outcomes that emerge.  This does not mean that managers shouldn't act with intent.  It does mean, though, that there is no direct link between a specific intervention and performance outcomes.

Personal targets might provide the illusion of control.  But they add nothing to the leadership of organizations and are more likely to detract from it.  Either they are ignored until 'the annual day of reckoning' (on a sort of 'que sera, sera' basis), by those managers who understand the complex social dynamics of organizations .  Or they distort the leadership behaviour of others - distracting their attention away from the everyday reality of organizational performance towards efforts to keep their personal 'score cards' on track. 

Will Hutton would no doubt argue that his "earn back" proposal would mark a significant change from existing bonus practice.  But it does nothing to address the 'organizational dynamics' points above.  And, since it threatens to eat into managers' base pay (however inflated this might seem to be in places), it might even exacerbate the dysfunctional effects of personal targets.

In his attack on "the target culture" in the public sector, John Seddon (<em>Systems Thinking in the Public Sector</em>) argues against the idea that modifying a flawed concept will solve the underlying problem.  He calls this approach "doing the wrong thing righter."

Hopefully the Government won't do the wrong thing righter here, too. 

In his book <em>Punished by Rewards</em> Alfie Kohn offers the following, alternative formula: "Pay people generously and equitably. Do your best to make sure they don’t feel exploited. Then do everything in your power to help them put money out of their minds."

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