Performance management in the APS: A strategic framework

MAC

The Management Advisory Committee (MAC) is a forum of Secretaries and Agency Heads established under the Public Service Act 1999 to advise the Australian Government on matters relating to the management of the Australian Public Service

Go to the MAC page

Performance management: Definition and rationale

This chapter provides a brief introduction to:

the objectives of this report and the methodology used;
a definition of performance management and its importance;
the current drivers of performance management in the APS; and
comparisons with the private sector.

1.1 Objectives and methodology

MAC met in December 2000 and commissioned a report on performance management in the APS.

1.1.1 Terms of Reference

The MAC Performance Management Sub-Committee will undertake a comprehensive study of performance management in the APS.

The outcome of the study will be to assess the overall effectiveness of approaches to managing and rewarding performance in APS agencies. Within the context of recognising the ongoing value of a diversity of approaches and information sharing among agencies, the Project will also identify better practice principles for effective performance management and good practice case studies of effective approaches to performance management in the APS.

The Project will:

Examine agencies' performance management approaches;
Identify the key features of the approaches, including refinements or advances in the approach from the first to second round of agency agreements;
Gain an understanding of agencies' experiences of what has/has not been effective;
Examine any major implications for performance management arising from the Public Service Act 1999 and the APS Values;
Identify approaches to rewarding performance, including remuneration;
Consider the impact of performance management systems on agency performance and on Human Resource Management more generally;
Identify trends, challenges, better practice principles and good practice case studies; and
Examine the use of appropriate measures and benchmarks to assess performance.

1.1.2 Methodology

Information for this report was gathered in a number of ways:

A report was commissioned from the Public Service and Merit Protection Commission (PSMPC) to review the literature on best practice in performance management and a report on approaches to performance management in APS certified agreements prepared by the PSMPC was examined.
Case studies and other evidence such as staff attitude surveys were gathered direct from agencies.
Interviews were conducted with 20 public sector, 6 Government business enterprises/statutory authorities and 6 private sector executives (mostly CEOs) about their experience and reflections on performance management, using a semi-structured interview format.

1.2 Performance management - what is it and why does it matter?

Performance management in the APS is the use of interrelated strategies and activities to improve the performance of individuals, teams and organisations. Its purpose is to enhance the achievement of agency organisational goals and outcomes for the government.

Performance management is an essential component of a corporate governance framework, allowing boards, Ministers and committees to lead, monitor and respond to how an organisation delivers against its goals, mission and the outcomes required of it by the government.

Effective performance management requires a framework that integrates organisational, business and individual planning and performance. It can involve:

• clarifying performance objectives (this could include tasks, outcomes, behaviours and values based systems or a combination of these) and linking these with organisational business plans;
periodic performance appraisal of individuals or teams against the achievement of these objectives;
feedback from this appraisal;
recognition or reward for performance, including performance pay and salary progression guided by performance;
team and individual development to build capabilities;
counselling, or other action to deal with poor performance;
establishing a link between the development of capabilities with organisational and business planning (i.e. not only cascading down from corporate and business planning outcomes but also having a system that feeds back up); and
evaluating the contribution of individual, team and organisational performance.

An effective approach to performance management enables employees and teams to understand the goals of the organisation and to see how individual and team outputs contribute to the achievement of organisational objectives and values. This approach identifies, or defines, the performance expectations for individuals and teams that are inherent aspects of their employment.

Integrating people, planning and performance with organisational objectives develops individual and organisational capability and leads to higher performance. The performance appraisal process articulates the standards of work expected of employees and the values and behaviours employees are expected to uphold in meeting their job requirements, communicating and working with others.

Performance management leads to higher performance that is more closely directed to the objectives and needs of the organisation. Performance appraisal and feedback assist employees to understand what work they do well and how they can improve their performance.

Performance management is a shared management priority in the APS and organisations are heading towards an increasingly common performance management framework that recognises the need for organisational planning to cascade down into development plans or performance agreements for individual staff. This trend to define performance management in an integrated way is in fact one of the key best practice lessons observed. It is expanded in Chapter 2, which covers the range of best practice lessons observed. Common elements of performance management frameworks operating in both public and private sector organisations are depicted in Figure 1 although the specific design of the various elements differs markedly from organisation to organisation.

Figure 1

The comprehensive performance management framework outlined in the model above does not attract the same kind of debate about its validity and effectiveness as performance pay did when that was the narrower focus of attention in the APS in the early 1990s.

This report's focus is on the following questions:

How does performance management work and what is best practice? (Chapter 2)
How do we know performance management is working - how do we assess performance at an organisational level? (Chapter 3)
What part do reward and recognition strategies play within performance management frameworks? (Chapter 4)
What issues is performance management raising in the contemporary APS environment? (Chapter 5)

The conclusions at the end of each of the chapters of the report provide a summary of the key issues for monitoring and discussion.

1.3 The current drivers of performance management in the public sector

There is a long history of engagement by public sector management in issues of performance management. While it is possible to overstate the continuities and gloss over significant shifts in policy and perception, some salient points set a useful context for our current thinking.

How to assess, reward and improve performance has been a constant theme, although it has been inconsistently applied and has had a patchy focus in the APS. The first Public Service Commissioner attempted to introduce a rigorous performance based increment system at the start of the last century but political and industrial pressure worked against him and increments became quasiautomatic.

The great incentive, which is ever present to the businessman, is, by the very nature of things, absent in public administration. The department of the Civil Service which he administers (or assists in administering) is not his own; he suffers no personal loss; he enjoys no personal gain; and why should he bother? Why should he incur the odium of his subordinates by enforcing strict discipline and insisting on continuous and undivided attention to duty? Why should he addle his brain and burn the midnight oil in studying the literature of other nations for improved methods when he gets no special thanks for it, but probably finds himself in the end far little better off financially than if he had allowed things to drift along in the old way? These are the questions commonly put to himself by the perfunctory official and they constitute one very potent reason why Civil Service administration has not attained the high state of efficiency that the public interest demands'.
Mr D McLachlan , Public Service Commissioner 1906

A growing focus on appraisal systems emerged in the 60s and 70s, but they were not embedded as a regular, systematic and effective practice in most agencies.

Through the 1980s a wave of reform in public administration engaged the APS with trends in management thinking, including from the private sector. Significant among these trends was an increasing focus on managing by outcomes and accountability of agencies for improving management and performance. This coincided with a renewed interest in performance management.

Performance pay was first introduced for the Senior Executive Service (SES) and Senior Officers in the early 90s and was seen as a stand-alone initiative, 'dropped on' agencies as a mechanism to achieve improved remuneration. Staff did not see it as part of an overall performance management framework. The implementation was a one-size-fits-all approach that did not allow for agency differences or relate to the stage of development of individual agencies' business planning. Many agencies did not have robust assessment criteria and processes in place, nor had they provided sufficient training to those involved. In a number of agencies moderation was applied after ratings had been given to staff. The result in many Departments was strong resistance, with most deciding at the first opportunity to roll the Senior Officer performance pay pool into that available for more general salary increases. Cynicism was the result.

The Financial Management and Accountability Act 1997, Commonwealth Authorities and Companies Act 1997, the Workplace Relations Act 1996, and the Public Service Act 1999 comprise a legislative framework that focuses on effectiveness and the achievement of organisational objectives. The framework provides Agency Heads with significant flexibility to pursue results and to tailor their approaches to managing performance to best suit the needs of their own organisations.

This current legislative and policy environment has some important differences from the past. These include:

Scope for agency differentiation in the type of approach;
The strong policy and legislative requirement for action in this area (important for management focus and in industrial negotiations); and
Much greater integration with corporate planning and overall management improvement frameworks.

1.4. Comparison with the private sector

The private sector has been seen as the pace setter in performance management. The private sector certainly has some advantages in terms of the definition of 'bottom lines', at least in most cases. It has also had the opportunity to reward performance more directly for a longer time. Certainly, performance related remuneration is now widespread at executive level throughout the private sector.

There is, however, a convergence as private sector executives are also grappling with the same issues as the APS. Executives in private companies also tailor their performance management frameworks to fit organisational culture. They talk about the same challenges that their public sector peers face, such as how to establish a clear 'line of sight' between the business plans and corporate strategies and staff performance contracts.

MAC believes that the public sector has also made significant strides in dealing with performance management issues in a sophisticated way. The public sector has always had to work harder to define measures of performance and at its best can be subtle and creative in this endeavour.

All of this said, performance management in the APS could be described as 'work in progress'. Chapter 2 discusses the lessons learnt and highlights some best practice. Much of this best practice is not yet permeating the APS and major challenges remain.