Pay and performance


16 / 4 / 2014 Midnight

Pay is a fundamental element of any total reward strategy. The flexibilities available under Agenda for Change support the introduction of locally agreed incremental progression policies.

Incremental progression policies should be developed in partnership with performance management policies (such as appraisal, performance and development reviews) and follow the principles set out under Annex W of Agenda for Change. Before incorporating incremental pay into your reward strategy it is useful to consider how these policies will be developed to ensure alignment with your strategic goals and principles.

How do we develop a strategic approach to performance-related pay?

Using the SWOT and gap analysis from phase one, review and evaluate your existing approach to pay progression, assessing the extent to which this produces strong linkages between pay and performance. Depending on the depth of analysis already carried out in phase one it may be necessary to carry out further detailed analysis in relation to pay. Through your analysis, examine the current situation: Where do staff sit within their pay bands? What proportion received an increment last year and how this was decided? How many staff are at the top of their pay band and how is their performance rewarded?

Assess if your current pay progression policy is aligned to the goals and principles of your reward strategy and if not, what level of change is required. One of the key strategic drivers for linking pay and performance is a move away from rewarding long service or 'time served' and toward rewarding individual and team performance. It is important to define performance for your organisation to incorporate skills and achievement but also values and behaviours; measuring not only what has been achieved but how it was achieved.

Is the current performance management process fit for purpose?

In order to reward or pay for performance you must have a robust process for managing and measuring it. A key aspect of the changes to the Knowledge and Skills Framework in the NHS has been to simplify the performance management and appraisal process.

An audit of your current performance management process will identify issues that need to be addressed through any new policy. The audit should consider:

  • the alignment between the performance management policy and the reward strategy
  • compliance with the performance management policy and process
  • the quality of objective setting, such as whether objectives are SMART and if they are monitored effectively
  • strategic links - are objectives and targets linked effectively through the management structure towards the achievement of organisational objectives?
  • the moderation process (whether performance management is audited) and whether it ensures equitable and consistent application of the process.

How do we ensure fairness and consistency in any revised approach?

Staff reaction to pay progression linked to performance can depend on the perceived fairness of its application such as consistency in how performance is measured. The CIPD report, The changing contours of fairness found that 49 per cent of respondents felt that reward was not distributed fairly in their organisation.

Fairness should be emphasised as an important objective in your reward strategy and this can be delivered through ensuring:

  • your project group is representative of your workforce demographic
  • any changes to current processes are robustly tested
  • the performance management and pay progression processes are regularly reviewed and moderated
  • local systems are equality assessed before implementation
  • the process is communicated clearly to managers and staff.

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