Where's the evidence for performance-related pay?
Helen Giles, April 08, 2015
HR directors know performance-related pay is not going to actually drive improved performance but regard it as symbolically important
Evidence-based HR seems to be flavour of the year for debate within our profession. This is great as we need to overcome our seemingly relentless susceptibility to ‘initiativitis’ - buying in to approaches or trends because everybody else is.
The other collective weakness we need to conquer is holding on to sacred cows when there is no evidence to support their efficacy, or there is evidence to prove the opposite. Perhaps the longest lived example of this is performance-related pay (PRP).
I can fully understand why in many commercial companies the link between pay and contribution is important for reinforcing messages about expectations and desired culture. In most cases I’m guessing that their HR directors know full well that performance-related pay is not going to actually drive improved performance for the individuals or the company, but regard it as symbolically important.
However, this is not always the case. I have had conversations with many HRDs of not-for-profit organisations who share a common dread of the commercial HRD that joins their board of trustees and insists that the first thing that needs to be done to improve the charity’s performance is to introduce PRP.
Many years ago I went to a seminar on PRP delivered by a revered academic and consultant. When I asked him what the evidence was for PRP improving performance, he turned on me fiercely saying: “Madam, there is not a shred of evidence that PRP improves performance – it’s not a matter of effectiveness, it’s a matter of equity." His point being that it’s not fair for people to get pay rises if they are not performing.
This line of argument has always begged a couple of glaring questions to me. Firstly, what is wrong with paying people incrementally more each year – if the scales are relatively short ones – when they are bringing more experience to the role each year, provided that they are performing well? And if the organisation doesn’t want to pay incremental or cost of living rises to people whose performance isn’t any good, why are they not dealing with that through a sound performance management system?
More recently I attended a talk by one of the UK’s leading pay experts, addressing the topic of whether PRP is suitable for not-for-profits. I anticipated that she would lecture us on the benefits of using it, and was pleasantly surprised to hear her say that she would be very loathe to introduce incentivised pay into any charity, since we should not be seeking to attract people who are driven by the pursuit of money rather than a passion to help achieve the organisation’s mission.
I do hope we continue the current flurry of interest in evidence-based management. If we start practising it rather than just talking about it perhaps more HR practitioners will be able to persuade their senior teams to stop fixating on PRP, and to adopt approaches that have actually been shown to boost performance, for example by thinking about who they appoint to line management positions and how they support the development of their people management skills.
Helen Giles is executive director of HR at homelessness charity St Mungo’s Broadway, and managing director at the social enterprise HR consultancy Real People