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Managing for improved performance

Performance management is an essential component of a constructive workplace environment that, from a workforce planning perspective, is intended to identify and develop required capabilities for a capable, adaptive and effective workforce. It is also aimed at:

• improving individual and organisational performance over time
• providing measures of organisational and individual accountability
• planning and monitoring individual performance within the achievement of organisational and business goals
• recognising and rewarding good performance, improving average performance and managing underperformance.

The 2001 MAC report on Performance Management in the Australian Public Service⁹ identified three critical success factors for performance management:

• alignment of individual performance objectives with agency goals and strategic priorities, based on a detailed understanding of the outcomes sought, the nature of the business and the culture of the organisation
• credibility amongst employees through transparency, fairness, simplicity, and Chief Executive Officer (CEO) and management commitment
• integration, ensuring that performance management is part of the overall management structure of the organisation, that there is a clear line of sight for staff between their responsibilities and the objectives of the organisation along with careful implementation and adequate training.

Systematic approaches to performance management have been in place for some time in the APS. Within the broad framework outlined by the Act and the Commissioner’s Directions, agency heads have the flexibility to develop performance management systems that meet the particular needs of their organisation and employees. In 94% of agencies it is mandatory for all employees to have a formal performance agreement (up from 87% of agencies in 2002–03).

Performance assessment and feedback

Consistent with the critical success factors identified in the MAC report on performance management,¹⁰ an important aspect of setting realistic performance objectives is that employees have a clear line of sight to organisational responsibilities to enable them to see how their work aligns with the agency’s objectives and to ensure relevant and consistent performance information is cascaded through the organisation. In the 2005 survey, employees were asked about their level of agreement with the statement that ‘the links between my agency’s business and my work were made clear in the development of my performance agreement’. Sixty-five per cent of respondents agreed with this statement, 21% neither agreed nor disagreed and 11% disagreed. The proportion of respondents who agreed with the statement in 2002–03 was 72%. This decrease is statistically significant and would suggest that, whilst there is a level of alignment of the objectives set in individual performance agreements with the agency’s business, this is an area which requires further attention.

Employees were also asked to rate their agreement with the statement that ‘My most recent performance review will help me perform well’. Less than a half (43%) of employees agreed with this statement, 35% of respondents neither agreed nor disagreed and 20% disagreed. The results of the 2003 employee survey were similar.

Seventy-three per cent of employees agreed that they ‘understood the standards used to evaluate their performance’, 17% neither agreed nor disagreed and 8% disagreed. These results were also similar to the results from the 2003 employee survey.

The 2001 MAC report on performance management¹¹ saw giving and receiving feedback as an essential component of performance management systems and a fundamental skill that managers need in order to ensure the effectiveness of performance management. It also noted that without effectiveness in giving and receiving feedback, performance management was unlikely to improve individual or organisational performance or be credible to staff. Research by the Corporate Leadership Council (CLC) has found that the provision of informed, positive, fair, accurate and detailed feedback is a strong driver of performance.¹²

This year 85% of employees reported that they had received formal individual feedback in their agency, down slightly from the 87% in 2003–04. Nevertheless, this year’s result is still higher than the 79% recorded in 2002–03.

Of those employees that had received formal individual feedback in their agency in 2004–05, almost all (94%) employees received feedback from their supervisor. The next most common source of feedback was from the supervisor’s supervisor (18%) followed by a peer (16%). These findings are consistent with those reported in previous years.

Ninety per cent of employees who had received feedback, and who reported that their performance in their most recent performance feedback session was assessed against a formal performance agreement or work plan, agreed with their supervisor (down slightly from 92% in 2003–04).

The view that quality feedback is essential to effective performance management was common in comments provided by respondents to the employee survey.

Performance and pay

The proportion of employees reporting that under their agency’s performance assessment system, any part of their pay was linked to an assessment of performance has decreased from 69% in 2003–04 to 65% in 2004–05.

Employees whose pay was linked to an assessment of their performance were also asked about how this link was made. The large majority of these employees (69%) stated that they were eligible for advancement through the salary range for their classification subject to fully competent performance (down from 74% in 2003–04). Eligibility for a one-off bonus was the second most common method of linking pay with performance assessments, and applied to just under a quarter of relevant respondents (24%). Other options, which were less common, included:

• eligibility for accelerated advancement through the salary range for the employee’s classification, subject to better than fully competent performance (18%)
• eligibility for an increase in base salary (18%)
• if covered by an AWA, performance assessments are formally taken into account when renegotiating AWAs (7%)
• performance assessment is formally taken into account in selection for promotion (6%).

Performance pay in this chapter is used broadly to refer to all of these methods of linking pay to employees’ performance assessment, unless otherwise indicated.

Over the last three years the employee survey has sought opinions from employees who had any part of their pay linked to an assessment of performance, on how well the performance pay system operated in their agency. The results from 2003–04 and 2004–05 are reported in Table 8.1. The overall results continue to highlight key issues for APS agencies in ensuring the credibility of their performance pay systems with employees.

Although there has been a general decline in relevant employees’ views on the operation of performance pay systems in their agency, Table 8.1 also shows that sizeable proportions of relevant employees continue to neither agree nor disagree with statements relating to the operation of performance pay systems in their agency. This finding would suggest that there is scope for agencies to shift these employees’ opinions from the neutral to a more positive position with better design and management of their performance pay systems.

Table 8.1: Relevant employee views on the operation of performance pay, 2003–04 and 2004–05

	Agree (%)		Neither agree nor disagree (%)		Disagree (%)
	2003–04	2004–05	2003–04	2004–05	2003–04	2004–05
Operates fairly and consistently	47	39	24	25	26	32
Acts as an incentive to perform well	38	36	27	28	33	34
Ensures performance assessment is managed systematically and regularly	50	47	23	23	25	28
Accurately reflects differences in individuals’ performance	21	20	28	26	46	51
Provides appropriate rewards for top performers	25	21	24	21	48	54
Contributes to a workplace culture in which individuals work together effectively	26	20	35	37	37	40
Contributes to a workplace which upholds the APS Values	35	31	36	35	24	30

Source: Employee survey

While Table 8.1 shows that this year’s results generally represent a decline on those reported in 2003–04, Figure 8.2 illustrates the fluctuating nature of some of the indicators over the last three years. Figure 8.2 also shows that a downward trend is starting to emerge on some of the indicators such as ‘acts as an incentive to perform well’ and ‘ensures performance assessment is managed systematically and regularly’.

Figure 8.2: Proportion of relevant employees agreeing with performance pay statements, 2002–03 to 2004–05

Source: Employee survey

Despite the poor average results, there was considerable variation in opinions about performance pay across large agencies. The variation between agencies’ results was not as high as last year’s, however, with the highest performing agencies this year recording significantly lower levels of agreement; for example, in 2003–04 the ATO recorded 69% agreement with the statement that the performance pay system ‘operates fairly and consistently’, whereas this year the highest level of agreement was in DAFF (54%).

In 2005, the largest difference in range was in the level of agreement on whether performance pay systems ‘contribute to a workplace culture which upholds the APS Values’, from a low of 12% to a high of 52% (with the highest levels of agreement at CSA), but there was a broad range of results for most statements, including:

• ‘operates fairly and consistently’ (the range in 2003–04 was 19%–69% compared to 20%–54% in 2004–05). The results for the majority of large agencies had decreased from those recorded in the 2004 State of the Service employee survey
• ‘acts as an incentive to perform well’ (the range in 2003–04 was 16%–56% compared to 24%–49% in 2004–05)
• ‘ensures performance system is managed systematically and regularly’ (the range in 2003–04 was 24%–70% compared to 34%–64% in 2004–05)
• ‘provides appropriate rewards for top performers’ (the range in 2003–04 was 6%–51% compared to 9%–48% in 2004–05)
• ‘contributes to a workplace culture where individuals work together effectively’ (the range in 2003–04 was 11%–51% compared to 9%–39% in 2004–05).

The smallest ranges in opinion were for ‘accurately reflects differences in individual performance’ (the range in 2003–04 was 11%–38% compared to 9%–26% in 2004–05).

While results in individual large agencies’ performances varied for different statements, some agencies had higher levels of agreement on some statements than on others. Although there are issues across agencies, it appears that some agencies have established more credible performance pay systems than others. The CSA’s performance was strong across most statements, having one of the three highest levels of agreement against all but one of the statements.

As was reported last year, there continue to be some differences in views of performance pay depending on how the link between pay and performance is made—that is, between the views of those who were eligible for performance bonuses (including those who are eligible for bonuses along with some other type of performance pay), and those who are eligible for some other form of performance pay but not bonuses.

The proportion of relevant employees in these two groups that agreed with each statement about performance pay is shown in Table 8.2.

Table 8.2: Relevant employee views on the operation of performance pay by type of performance pay, 2004–05

	Employees that agreed with statement
	Employees eligible for performance bonus (%)	Employees eligible for other performance pay (%)
Operates fairly and consistently	34	41
Acts as an incentive to perform well	36	38
Ensures performance assessment is managed systematically and regularly	48	48
Accurately reflects differences in individuals’ performance	22	21
Provides appropriate rewards for top performers	32	20
Contributes to a workplace culture in which individuals work together effectively	18	22
Contributes to a workplace which upholds the APS Values	24	33

Source: Employee survey

Employees eligible for bonuses were more likely than employees receiving other forms of performance pay to have agreed that the agency’s performance pay system ‘provides appropriate rewards for top performers’. This may reflect the fact that where performance pay is linked solely to increments, there are no particular rewards for performance for those on the top increment. In last year’s report employees eligible for bonuses were also more likely than employees receiving other forms of performance pay to have agreed that the agency’s performance pay system ensures ‘performance assessment is managed systematically and regularly’. This year the results have fallen to the same level of agreement as those who receive some other type of performance pay. There were no consistent trends in the views of employees by classification.

The survey results were also separated into whether employees’ salaries were set out in either a certified agreement or an AWA. Those employees covered by an AWA were more likely to agree with the majority of statements as opposed to those on CAs. Levels of agreement were, however, relatively low for both groups.

This year’s survey results add to the evidence presented in last year’s report that the credibility of performance pay systems amongst employees is not high in most agencies and the gap is widening. The seriousness of the ‘credibility gap’ is, however, difficult to assess. It is likely that there will always be at least some employees who are dissatisfied with performance pay, either for philosophical reasons or because of the results of recent performance assessment rounds. Employee survey results presented in Chapter 5, ‘The Values and Workplace Relationships’, show that employees’ perceptions of merit are affected by the results of recent selection processes in which they have participated. It is also possible that a less than expected result in a recent performance assessment round will negatively affect employees’ perceptions of the fairness of their agency’s performance pay system. Employees’ perceptions of performance pay systems within agencies and of whether they operate fairly and consistently may be influenced by a range of other factors, including feelings surrounding the application of merit in selection processes and the negotiation of certified agreements.

There is some evidence that employees with longer service, who have experienced different approaches to performance pay in the past and/or commenced in the APS prior to the introduction of performance pay, have greater levels of dissatisfaction with performance pay systems. When views on performance pay are examined in relation to length of service, relevant employees with 1–5 years of service were more likely than those with more than five years of service to have agreed that:

• their performance pay system ‘operates fairly and consistently’ (46% compared to 34%)
• it ‘acts as an incentive to perform well’ (41% compared to 32%)
• it ‘ensures performance assessment is managed systematically and regularly’ (52% compared to 42%).¹³

Relevant employees with 1–5 years of service were also more likely to have agreed that the performance pay system in their agency ‘contributes to a workplace culture in which individuals work together effectively’ (25% compared to 17% for those with more than five years’ service), and ‘contributes to a workplace which upholds the APS Values’ (36% compared to 26%), but results for both groups were relatively low. There was little difference in views based on length of service about whether performance pay systems ‘accurately reflect differences in individuals’ performance’ or ‘provide appropriate rewards for top performers’, indicating that these areas are considered problematic by a wide range of employees.

The variability of large agency results, and particularly the higher results for some large agencies in relation to the fairness and consistency of their system, suggests that there is room for significant improvement in the capacity of the APS to link pay to performance.

Provided below are some comments from the employee survey which are indicative of what employees had to say about performance pay.

Integration of performance management systems

As mentioned above, the MAC report on performance management¹⁴ identified the integration of performance management systems into the overall management structure of organisations as a critical success factor for performance management.

Aside from the questions directly identified as relating to performance management, the 2005 employee survey asked respondents to rate their level of agreement with the statement that ‘My agency has achieved its stated objectives over the last 12 months’. Sixty-five per cent of employees agreed with this statement, 20% neither agreed nor disagreed and 7% disagreed. This result, when considered alongside employees’ level of agreement with the statement that ‘The links between my agency’s business and my work were made clear in the development of my performance agreement’ (65% of respondents agreed with this statement), would suggest that whilst integration of performance management into the overall corporate management structure is a challenge for agencies, work being undertaken to address the issue is paying off.

To provide further support in the area of performance management, the Commission is developing a guide to assist agencies to reflect upon, review and refine their performance management approaches and systems. It is expected that this guide will be released in late 2005.

Underperformance

Central to any discussion on performance management and its overall credibility is the management of underperformance. Issues of underperformance were addressed in both the agency and employee surveys.

In the agency survey, 39% of all agencies (32 agencies) indicated that they had finalised at least one formal underperformance action during 2004–05. This is an increase on the 30% of agencies that had finalised at least one formal underperformance action in 2003–04. In total, 213 actions were finalised, with 77% of these in large agencies. As would be expected large agencies were much more likely to have finalised at least one underperformance action (71%) than medium or small agencies (35% and 23%, respectively). These figures represent an increase in the level of underperformance action finalised in small agencies (up from 5% in 2003–04).

The results of finalised actions undertaken to address underperformance are set out in Table 8.3. It should be noted that each agency could nominate multiple actions.

Table 8.3: Results of underperformance actions finalised in 2004–05

Result	Number of agencies reporting this outcome	Number of times this outcome occurred
No action taken	5	16
Development programme instituted	13	60
Satisfactory performance standard attained	13	43
Assignment to other duties	8	15
Deferral of salary advancement	5	25
Reduction in classification	6	8
Voluntary redundancy (including termination of employment with incentive for SES)	6	8
Termination of employment (i.e. without incentive or without voluntary redundancy)	14	37
Other	16	59

Source: Agency survey

The most common outcome of underperformance actions was that a development programme was instituted (60 occasions, 28% of actions reported). Satisfactory performance was attained in 43 cases (20% of actions reported). In 45 cases (21%), the employee left the agency, either through voluntary redundancy or as the result of termination. Sixteen agencies reported that there had been outcomes other than those specified in the survey, the majority of which were resignation by the employee.

Only five agencies reported that any of the outcomes had been challenged in the AIRC, with a total of seven employees challenging the outcomes of the underperformance process. Six of these cases had been settled or resolved through conciliation, and one was ongoing.

The agency survey also asked about the assistance managers and/or supervisors are given in formally assessing whether an employee’s work performance is satisfactory.

As shown in Figure 8.3, a wide range of assistance was provided, with all agencies indicating that advice was provided by the HR management area on request, and all but three (96%) indicating they had procedures for managing unsatisfactory performance that could be accessed by all employees. Responses were generally consistent with results from 2003–04. Three-quarters of agencies had at least three forms of assistance available, and half had at least four forms of assistance.

Figure 8.3: Types of assistance provided to managers/supervisors relating to assessing work performance, 2004–05

Source: Agency survey

The employee survey sought employees’ views on how underperformance was managed in their agency. Forty-five per cent of employees felt that, during the last 12 months, at least one employee in their immediate work team had consistently underperformed. This is consistent with the 2003–04 results. Amongst large agencies, the proportion of employees who felt that someone in their immediate work team had consistently underperformed varied from 29% to 59%. The lowest proportions were in DFAT and BoM.

It was most common for the underperforming employee to be a peer (61% of relevant employees), followed by a subordinate (39%) and a supervisor and/or manager (27%). As was the case in 2003–04, the large majority of employees (88%) who had observed underperformance believed that the underperformance had had an adverse effect on their team’s work.

Relevant employees continued to be largely dissatisfied with the way underperformance in their work areas was handled. Only 16% of employees observing underperformance expressed satisfaction with the way the underperformance they had observed was dealt with, and 67% of relevant employees were dissatisfied.

The 2005 employee survey asked relevant EL and SES respondents if they were involved in supervising or managing an employee who consistently underperformed over the last 12 months. Forty-eight per cent of relevant EL and SES employees responded that they were. This equates to 1 in 5 EL or SES across the APS.

Relevant EL and SES employees were then asked whether they had faced any challenges in supervising or managing the underperformer. The biggest challenge identified was managing the impact of the underperformer on team members and/or colleagues (72%), followed by the time required to deal with the underperformance issue (60%). Over half of the relevant employees identified that there was unwillingness on the part of the underperformer to try and improve their performance.

Those involved in managing or supervising someone who consistently underperformed were also asked whether there was anything they found particularly helpful. Forty-four per cent indicated they found support from their manager to be particularly helpful, followed by support from their agency’s HR area (25%). Of concern was the finding that 23% found nothing particularly helpful.

A number of employees expressed dissatisfaction with the way underperformance is handled. For example:

Others acknowledge the difficulties surrounding issues of underperformance.

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9 Management Advisory Committee 2001, Performance Management in the Australian Public Service, Commonwealth of Australia, Canberra.

10 Management Advisory Committee 2001, Performance Management in the Australian Public Service, Commonwealth of Australia, Canberra

11 ibid.

12 Corporate Leadership Council (CLC), Building the High Performance Workforce—A Quantitative Analysis of the Effectiveness of Performance Management Strategies, Corporate Executive Board, Washington. These findings result from research undertaken by the CLC, via a web-based survey of 41,000 employees and managers, and of their performance management database, aimed at identifying the major drivers of individual performance.

13 Those with less than one year’s service were excluded on the basis that they would not have gone through a full annual performance management cycle.

14 Management Advisory Committee 2001, Performance Management in the Australian Public Service, Commonwealth of Australia, Canberra

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