The government-commissioned Fair Pay Review, was published earlier today. Led by the Work Foundation's Will Hutton, the review team recommend a new performance-related pay deal for senior executives that might eventually be extended to middle managers. The proposals include a suggestion that managers should have to "earn back" a proportion of their pay (say 10-15% of it) by meeting personal performance targets. Provision would then exist for "excellent performers" to earn an additional, bonus sum.
According to an article in HRZone, Hutton maintains that no pay system can be fair if it fails to reflect individual performance. And there's the rub. The whole pay-for-performance approach - whether in the public or private sector - rests on the proposition that organizational outcomes can be related, in a simple cause-and-effect way, to the 'performance' of individuals. They can't.
A common sense approach?
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. So where is the flaw in this widely used practice? And is there an alternative?
Complex social dynamics
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 can't act with the intention of enabling people to perform at their best. It does mean, though, that there is no direct link between a specific intervention and the performance outcomes that actually emerge. And it also means focusing on what's actually going on in the detail of people's day-to-day ineractions; not on what might have happened, if the 'real world' had been kind enough to conform to the assumptions that informed the initial target-setting.
Setting personal targets might provide the illusion of control. But it adds nothing to the act of leading organizations 'on the ground'. By seeking to distil the complex act of organizational leadership and performance management into a few, precisely describable targets, it is more likely to undermine it. In practice, personal targets either tend to be ignored until 'the annual day of reckoning', by those people who understand the complex social dynamics of organizations. Or they distort the behaviour of others, by diverting their attention away from the everyday reality of organizational performance towards efforts aimed at keeping 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 underlying dynamics of organizational performance, as outlined above. And, since it threatens to eat into managers' base pay, it might further stimulate the dysfunctional effects that personal targets have in the context of organizations.
"Doing the wrong thing righter"
In a scathing attack on "the target culture" in the public sector, John Seddon (Systems Thinking in the Public Sector) argues against the idea that modifying (rather than eliminating) the flawed concept of target-setting will solve its underlying problems. He calls this approach "doing the wrong thing righter." Hopefully the Government won't do the wrong thing righter here, too.
In another book Punished by Rewards, 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." In the final analysis, the felt need to set personal targets to enhance performance betrays low expectations of people's inherent willingness and ability to contribute: They won't perform unless we control them through the setting of targets and the threat of witholding their pay.
Shifting the pattern
In launching the Fair Pay Review, Will Hutton said,
“High quality public services are essential to our society and economy and high quality public services require high calibre leaders to deliver them ...".
If that is the case, perhaps the strategy for escaping from this vicious circle of low expectations, tight controls and alienation should begin by adopting high expectations of managers' (and other people's) willingness and ability to contribute." That would mean moving away from the current obsession with 'carrot and stick' targets. And it would mean focusing instead on enabling people to participate as fully and effectively as they can - individually and collectively - in the light of the actual challenges that emerge.