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Last updated: 19 September 2001

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

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What works: Some lessons and some directions

This chapter draws out the key factors to success in performance management systems. It identifies three groups of factors to which anyone designing, evaluating or redesigning a performance management system should attend.

Factors crucial to success can be grouped as follows:

Alignment - designing performance management based on a detailed understanding of the outcomes sought by government and stakeholders, the nature of the business, its goals, clients, and performance measures, as well as its culture, history and where the CEO wishes to take that organisation.
Credibility - engaging and winning the support of staff through transparency, fairness, simplicity, progressive implementation, CEO and management commitment, reducing the gap between rhetoric and reality and by handling poor performance.
Integration - ensuring that performance management is a part of the overall corporate management structure of the organisation, that there is a clear 'line of sight' for staff between their responsibilities and the objectives of the organisation and that implementation is planned carefully and with an adequate training component.

2.1 Alignment - establishing performance management systems which work with the texture of an organisation

What works best in an organisation will depend on a range of factors, including its size, the nature of its business, and its culture and industrial climate. The most commonly cited reason for failure of performance management initiatives was a failure to take account of the culture and history of an organisation.

This does not mean that the executives were preaching passivity in the face of cultural resistance. Performance management arrangements should be the product of deliberate and strategic decision-making, based on an understanding of the organisation, its objectives, operating environment and culture. With this sort of strategic thought performance management can in fact be a lever for change.

One CEO commented on the importance of getting a strong sense of the culture of an organisation before deciding on a path, 'otherwise people let you implement change but don't help'.

Despite having some common elements, performance management frameworks differ. There are some key environmental factors that contribute to the shape of performance management within an organisation. These factors are represented by the six environmental shapers for the performance management framework represented in Figure 2.

Figure 2

Environmental shapers of performance management

There is often a discernible trend in the nature of the performance management systems one could expect to find in organisations based on where that organisation fits in relation to each factor. For example, organisations with a more union-based industrial culture will often tend to have a more detailed performance management system based largely on a certified agreement structure, with prescriptive arrangements for assessment, appeal and dispute resolution.

This does not mean that there are iron rules that apply. One way of using this model is to stimulate thinking about the kind of performance management systems that will align best with the nature and culture of an organisation at a point in time. It may also be useful for considering how performance management systems may be used as a lever in intervening to change aspects of an organisation's culture.

One CEO commented he has always had a clear view of the end system, but chose not to introduce the full suite of components of the system all at once. It has taken 3 years to get where they are now. The approach has been 'Let's grow with this and as the trust and skills develop the system will evolve.'.

The six environmental factors are discussed below.

2.1.1 CEO Leadership

The performance management advocacy role played by a CEO is a key shaper for the organisation's performance management system. The CEO leadership role influences both the speed of its introduction and its style. CEOs set the vision for an organisation and use performance management to shape the culture of their organisations. The overall commitment, coherence and style of the CEOs senior management team also play an important role in mediating this factor.

A CEO who demonstrates strong commitment to performance management will be a powerful shaper of the system's design and implementation. This raises a challenge for the modern organisation. In both the public and private sectors these days CEOs can turn over relatively often and bring a radically new vision to an organisation. While organisational culture is not immutable, it is also not passive and will tend to resist change. To achieve sustained improvements in performance, a CEO must appreciate the other environmental shapers and take them into account when designing their performance management system.

2.1.2 Nature of the business

Performance management systems seem to vary in style according to the nature of the business of an organisation. Influences in this respect include:

Whether the organisation delivers policy/legislative outcomes or whether it is more operationally focussed on delivery and implementation;
The measurability of outputs; and
The particular skills and behaviours management want to reward and develop.

An agency head from a central coordinating Department in the APS, for example, saw an emphasis on values in their performance management system as a corollary of the policy nature of their work. In contrast the head of a direct service delivery agency focussed exclusively on 'results, expectations and achievements.'.

Performance management systems can also vary within an organisation. For example, some private-sector organisations, after analysing the internal differences in the nature of work, aligned their performance management systems differently in specific parts of their organisations.

2.1.3 Organisational history with performance management

Organisations will be profoundly influenced by their past experience with performance management and related initiatives. Opaque rationales and erratic implementation of performance assessment schemes in the past have tended to create scepticism about the effectiveness and motivation of performance management today. Analysis of past experience will aid agencies in the design, implementation or evolution of performance management within their organisation.

For example, in their 1999 staff survey, the staff of one large APS Department cited their strongly negative experience of the previous Personal Development System (from the late 1980s and early 1990s) as a core reason for resistance to performance pay in the second half of the 1990s.

2.1.4 Maturity of systems

Organisations that have in place established systems for internal communication, personnel data analysis, and management feedback will be better placed to implement performance management systems more quickly. A number of CEOs identified deficits in these areas as barriers to implementation and reasons to pace the introduction so as to ensure a smooth implementation process and to avoid alienation of staff.

Two CEOs reflected that the pace of introduction of performance management systems in their agencies was curtailed by systems limitations in communication or business systems.

Several agencies have refined their performance management systems through iterative steps as they built up alignment across, their governance arrangements, business planning, staff appraisal and training and development systems.

2.1.5 Industrial Climate

The industrial climate of an organisation may influence both the nature of performance management systems and the pace of implementation. Collective agreements, particularly those negotiated with the unions, tend to be more prescriptive, wary of performance pay and strong in grievance procedures. Agreements with individuals are more likely to incorporate recognition of performance in salary increases or bonuses.

2.1.6 Values

A fundamental driver to the shape of a performance management system is whether there is a strong values-based culture in the organisation. Some organisations give a much stronger importance to having values as a component of measurement whereas this may be a second order issue in the cultures of other organisations.

This was marked in one large private sector organisation that had both a high outputs focus and key values in its planning and performance management.

In summary, these alignment factors are offered as issues to consider before deciding on the style and pace of implementation or further development of a performance management system for a particular organisation. The interaction of performance management systems and organisational culture is complicated. To overlook cultural issues can bring a performance management system undone in the implementation. To view culture as absolute and immutable can miss an opportunity to use performance management systems as a lever for change.

2.2 Credibility - establishing performance management systems which engage people

There are a number of factors that strongly influence the credibility of performance management systems especially with staff, regardless of the culture of an organisation.

2.2.1 Keeping the systems under review - move to greater simplicity

Complex systems, which covered too wide a range of issues, have been found to be unsuccessful during initial implementation. The danger is that in trying too much nothing is done well. In this context performance management is seen as an iterative process.

The clear message is to 'keep it simple equals success'. Performance management systems should evolve and mature over time - with the acceptance of participants. A common result of reviews has been the introduction of changes to performance assessment and ratings systems.

The Public Service and Merit Protection Commission conducted an analysis of certified agreements across the APS. While the results only apply, of course, to staff covered by certified agreements (and therefore exclude many more senior staff likely to be more engaged with some aspects of performance management) they still provide an interesting insight into aspects of the implementation of performance management across the service. The analysis of Certified Agreements showed that in 63% of agreements, agencies have made some modifications to rating scales, performance descriptors and performance review processes as a result of feedback from managers and staff and operational experience from first to second round agreements. Thirty-nine percent of agencies have subsequently adopted a rating scale that provides greater flexibility to reward high achievers.

Two senior executives from a large corporation summed the issue up this way 'Our present system is perceived by managers as valuable because it helps them to manage their staff - they would not welcome something seen as a hindrance.'

2.2.2 Fairness

It is imperative too that the system is seen as fair. This will be more difficult to achieve in agencies where trust levels are low, particularly where performance pay is involved. Central to views about fairness are:

Consistency in application which can be enhanced by clarity and understanding of the system throughout the organisation;
Systematic training of all players and review of managers' capabilities in their area as part of their performance assessment; and
A moderation or review process to facilitate greater consistency across different areas of the organisation in the development of performance agreements and assessment of staff against them.

Some effort may also be needed to gain staff acceptance of the role of the performance assessment process, and in consequential pay decisions.

Rating systems and their link to performance based remuneration can be vulnerable to perceptions of unfairness. Ratings can be done on an absolute or relative basis and can be linked to pay or not. It is also possible to give performance feedback without a set rating scale or any link to performance related remuneration. Careful design and implementation of performance management systems is important, whether or not performance is rated or remunerated. Organisations that have decided against using performance ratings have sometimes done so because they judged that this message was too strongly in conflict with the culture of their organisation to be accepted.

Systems that involve ratings need to ensure that any moderation precedes disclosing those ratings or any remuneration outcomes to participants. This minimises the danger of perceptions of forced distributions or quotas. At the same time it is important to reinforce what the ratings really mean. Some organisations do this by providing some detail in the qualitative attributes and outcomes expected of staff.

One of the reasons early experiments with performance pay for Senior Officers faltered was because of lack of trust and acceptance and concerns about the rating and moderation processes being used.

It is also necessary to provide avenues of appeal or review for staff who are unhappy with the processes or its outcomes.

2.2.3 Management buy in

Performance management must be consistent from the top of an organisation to the bottom. Often staff feel lectured on the benefits of performance appraisal by managers who are not seen as being appraised themselves. If management does not take part in the process, a discouraging message is sent to the rest of the organisation, and the system is unlikely to succeed.

Commitment to performance management needs to extend consistently through the senior leadership team, with support by all line managers. A key is to ensure that senior and middle managers see themselves as part of a leadership team, that they accept their management roles and responsibilities and are equipped to carry them out.'

Effective performance management is where the whole leadership group is able to comprehend quickly and easily the performance of the organisation… It is difficult to get managers to be seen as part of the corporate management team rather than as the leader of their team or branch'

The management team must be clear about the system's objectives and not send mixed messages. This was a major factor in the failure of a number of past schemes.

Equally, management must work to ensure that this consistent message is filtered through the entire organisation. There needs to be an acceptance that performance management (encompassing appropriate assessment and feedback) is more than a faddish mantra that will, in practice, be abandoned in the pursuit of day-to-day tasks. Management and staff need to accept that performance management will require the application of resources and time and that this is an investment towards higher levels of performance.

'There is a long-standing culture in the public service to pay lip service to management and development. There is an endemic culture to say that these matters are less important and to get on with the job... It needs discipline - it does get in the way but we should take time to do it.'

2.2.4 Closing the Rhetoric/Reality gap

There is usually a gap between the supportive rhetoric of senior management regarding the importance of performance management, the values which are articulated in corporate plans and action or implementation on the ground. Often, people do not perceive that senior management consistently model or reward the values to which the organisation aspires. The existence of some rhetoric/reality gap is inevitable. To some extent it exists in all organisations and CEOs from both the public and private sectors were honest about this weakness in their performance management systems.

There will always be a gap; it just depends on the organisation as to how big that gap is.

Interviewees also acknowledged that the size of the gap regarding performance management systems in any particular organisation would inevitably reflect other factors as well, in some ways being an organisational health indicator. However, a review of staff surveys makes it clear that the rhetoric/reality gap needs to be consistently addressed by senior managers across the APS.

One CEO has '...been focusing very hard on the Senior Leadership Group. Our organisational renewal strategy rests on getting the involvement of and ownership by this Group. Unless they themselves change their day-to-day behaviour, there will always be a rhetoric-reality gap that undermines our efforts to pave the way to real organisational improvement'.

As well as identifying the issue, a number of CEOs interviewed mentioned key points of intervention to respond to cynical staff perception. These included:

Providing immediate follow-up and intervention as a mode of giving feedback;
Recognising the problem, raising the operational focus from outputs and the financials to consider the people dimensions and deal with what is critical for them; and
Handling under-performance.

2.2.5 Managing under-performance

Managing under-performance is one of the hardest skills of a manager.

There is no doubt that staff become cynical when poor performance is not dealt with. Staff surveys show this consistently. While inadequate recognition of good performance is often a cause of concern, the inability of an organisation to manage ineffectiveness and poor performance creates even stronger resentment. This cynicism does affect the credibility of performance management systems.

A number of factors can work against the effective management of poor performance. One is a lack of preparedness by managers to take the issue on.'

Managers aren't prepared to confront hard issues and then issues of rights and remedies arise and … an awareness of the legal pitfalls... It was a weakness in managers to tolerate weak performance but with more experience managers will do it better.

I believe that the term 'managing under-performance' is code for supervisors not being prepared to tell people that they are not performing satisfactorily, so they hide behind guidelines and booklets. It is code for saying that you cannot sack public servants, which is incorrect. It means you are not prepared to do it.

Another inhibiting factor may be the procedural or process frameworks that agencies establish to handle under-performance. Processes obviously need to meet basic principles of procedural fairness. This is important from an administrative law point of view and a basis for staff trust in the system. In many cases the procedures will have been subject to negotiation as part of agency bargaining and it may have been difficult to negotiate streamlined arrangements. As a result many agency Certified Agreements have provisions beyond what is necessary and create an overly cumbersome framework.

For example:

The period during which the employee's performance is monitored has been extended and become quite lengthy;
The formal reporting and responding requirements are more than required (for example reporting on a weekly basis); and
Very complex processes are put in place for arriving at a determination, once the assessment is complete and the report made to the decision-maker.

The bottom line is that management's failure to address under-performance in most workplaces, across all sectors, is one of the persistent factors that undermines the credibility of performance management systems overall. Agencies could re-visit this issue, particularly in the context of negotiating new certified agreements.

2.2.6 Reporting of Outcomes

A number of organisations have mentioned the provision of feedback to staff about the outcomes of performance management systems as an opportunity to build the credibility of their systems. The scope of disclosure needs to include remuneration-related outcomes for this strategy to reach the nub of much staff mistrust. That, however, requires strategies to protect the privacy of individuals. This of course is a common dilemma in public administration.

Some organisations report on aggregate results to staff and more generally as part of accountability mechanisms.

The public want more transparency in administration but they also are increasingly sensitive about their privacy.

2.2.7 Multi-source feedback

A number of APS agencies are using multi-source feedback systems to collect perceptions about managers' and team members' behaviours, and the impact of those behaviours on the team and the work activity. Some 24% of certified agreements refer to either upward feedback to managers and/or the SES from staff and 17% adopt a multi-source or 360 degree feedback process of manager, peer, staff and client.

Many more agencies are using multi-source feedback but do not see it as necessary or appropriate for these arrangements to be included in their CA. Most agencies using multi-source feedback do not directly link pay to its outcomes. An emerging trend is the use of external feedback from stakeholders, including ministers. This is a development which could be of use in improving the credibility of evaluating organisational performance. It could also support the internal credibility of performance management systems, in organisations with a high degree of involvement with stakeholders, including outsourced delivery agents and a culture of identification with clients.

Examples in relation to the use of multi source feedback include:

Implementation of an on-line 360 degree feedback process;

Use of an upward feedback mechanism to conduct assessments.

Multi-source feedback can be resource-intensive, and consideration should be given to the frequency of such appraisals. In at least one agency, multi-source feedback is used to help frame future performance arrangements, rather than as an annual contribution to performance appraisal.

2.2.8 Staff ownership

If employees have greater input in the performance appraisal they are less likely to feel resentful when they are being appraised - people support what they help create.
Joison.C: Making sure employees measure up. HR Magazine, March 2001

Some organisations have tried to build the sense of staff ownership of performance management systems by involving staff or their representatives in the design of the process. Staff ownership is very important and will go a long way towards overcoming the cynicism and scepticism of performance management systems. Staff involvement in design and review processes also assists in the awareness raising and education of staff.

One agency has introduced a system that allows the staff consultative committee to determine awards for individuals or teams using a small pool of money that has been allocated for this purpose.
In another agency a staff-initiated change to the performance management rating scale was introduced.

2.3 Integration - establishing performance management systems as part of organisational planning

Hewlitt Packard and Kraft have both been cited by a 1999 study as best-practice companies for operating with strong strategic linkage to corporate aims and developing an objective process that links individual objectives to annual business goals in a clear and articulated manner.

Performance management should be and be seen to be part of the agency's overall corporate management strategy. It must be linked to other change management approaches (such as workforce planning, recruitment and retention and capability development). This more comprehensive planning approach then needs to be kept simple enough for all the pieces to be kept in view at least down to middle-management level.

A number of APS Departments integrate the use of Plan on a Pagewith other people issues - building effective performance, encouraging learning and career development, building an environment of communication, trust and leadership by example.

2.3.1 Establishing a clear line of sight

Performance management systems will work when staff can see a clear link between their work and the goals of the organisation.

Agencies are striving to achieve this, with varying degree of success. Important elements appear to be clear articulation of organisational objectives and relating performance agreements and assessments to them.

Line of sight is also a two way process. The ideal is not only to make the corporate priority transparent to staff but to make staff activity transparent to management, by making performance reporting clear and meaningful, reducing levels of supervision and enhancing direct accountability for performance.

One APS Department described their system: Business planning closely links resource allocation, change management, work management activities across the Department - directions and priorities for Group, States and Teams Business Plans cascade into individual actions plans/performance agreements. Business planning and the development of action plans and performance agreements are closely linked to the Budget cycle.

A CEO of another public sector agency observed that he needs to improve communication and the understanding by staff of the vision and goals of the organisation in order for performance management system to reach its potential for his staff.

2.3.2 Make implementation progressive and evolutionary

The more effective performance management arrangements are progressively introduced - to ensure that the fundamentals are in place and a genuine exchange on performance is established.'

A bells and whistles system won't help get the fundamentals right.

Organisations appear to have benefited from building trust and acceptance of performance review procedures and developing the skills of the players involved before going further.

Performance management systems should change over time as the organisation evolves

'The evolutionary approach means regularly reviewing and evaluating the system's effectiveness.

One agency has regular internal reviews of its performance management system, which is to be complemented by an external review agreed as part of the organisation's Certified Agreement.

Many organisations use staff surveys, and include questions testing the regularity and quality of feedback processes and understanding of corporate and work area goals to assess if they are measuring up to the best-practice lessons we have also been describing.

2.3.3 Link to Training and Development

There is an increasing emphasis on the importance of all staff having an individual performance agreement and that their agreement also links to a personal development plan or learning agreement.

One APS Department has established a career development process as the second element of the agency Management Model. The annual career development system identifies skill development opportunities for future roles to complement the skill development needs for current roles, which form a key element in the six monthly performance appraisal processes. A manager one removed conducts this longer-term assessment of an individual. This process is popular with staff and has led to the identification of core training and development needs for the agency.

Performance management systems should facilitate staff development but this is not universally practiced. During interviews, agencies generally indicated that they had structured approaches to skill development. One interviewee, however, expressed concern about the extent to which agencies see training as a separate event, not connected to performance.

Training and development plans tend to be shopping lists rather than linked to performance expectations and capabilities. Plans should be key tools to provide feedback on current skills and identify ways to improve skills.

The PSMPC's analysis of Certified Agreements shows that 95% of those agreements include a planned approach to individual learning and development to encourage staff to improve their skills and capabilities. Further 27% of agencies make specific linkages to other people management strategies such as corporate training strategies, workforce planning and succession planning. The use of Individual Development Plans or development components within performance agreements and assessment documentation is common but still needs to go further in relation to strengthening the linkages with strategic people management issues including training and development.

An important emerging trend, however, is a move to articulating competencies and capabilities at an organisational level and the use of these systematically to devise human resource strategies. This has potential to tackle the problem of staff development being unplanned and resembling more a wish list than a corporate priority.

A large private employer noted that they had moved the performance management area to their Learning and Development unit so that that unit could look at the bigger picture and ascertain whether their managers/supervisors had, or could, develop their subordinate staff. They also noted that performance management and skill development was an element of their career and succession planning database.

Some agencies are also using a 'manager one removed' approach focussing on career development with staff to supplement performance management arrangements.

Healthy performance management systems also depend on the quality of skills in giving and receiving feedback and the integrity of any rating processes. Training is critical to give managers the courage and ability to speak openly and honestly to staff, and for staff to receive feedback positively and provide constructive upward feedback. It is also important in developing coaching and mentoring skills.

One organisation is tackling the skills training issue from the management perspective through provision of leadership and management programs and for the individual through 'managing your supervisor' training.

Training can also be used to build manager's understanding of the overall framework. Without this, managers may feel that performance appraisals take too long, are too complicated and do not serve any real purpose. It is essential that managers regard appraisal and performance feedback as a core component of their duties. In this way training can be used as a strategy to build the credibility of performance management as well as simply providing the requisite skills.

2.3.4 On-line activities

Some agencies have introduced on-line performance management systems. Opportunities for use of on line facilities to support performance management systems include:

Making information, guidelines, performance agreements, pay rates and work level standards accessible;
Enabling training and development needs to be mapped, fed into a structure process to assist in the identification of corporate needs and assist with workforce planning;
Monitoring procedural compliance, rating outcomes and evaluating against fairness criteria; and
Generating multi-source feedback questionnaires, processing results andgenerating reports at individual and organisational levels.

2.4 Evolving Trends

MAC has identified three evolving trends that warrant further attention. These are discussed in the following three chapters.

2.4.1 Performance Review and Feedback

There is an increasing focus on how agencies can review and evaluate organisational performance, both to meet external reporting requirements and as a way of validating their performance management systems. This report was not able to answer a number of questions conclusively because organisational performance cannot be measured with confidence. That said, reporting of agency performance under the accrual budgeting framework provides a measure of how well agencies are delivering their respective outcomes and outputs, and in essence, this is also a measure of organisational performance. If an agency has poor organisational performance it is unlikely to be delivering the outcomes for which it has been appropriated funds.

Chapter 3 explores this issue further and examines the implications for strategies for measuring organisational performance and providing feedback.

2.4.2 Rewards and Recognition Strategies

The use of reward and recognition strategies is now much wider than solely remuneration-linked approaches. New and innovative approaches are being developed all the time that demonstrate the link between the type of rewards and recognition being used and the culture of the organisation (or the culture to be achieved). However, remuneration-linked approaches are an area of debate.

A particular issue which provoked considerable discussion but which organisations in both the public and private sector find very difficult to implement is the recognition and reward of teams and teamwork.

Rewards and recognition strategies and the issues for the APS raised by performance-related remuneration is explored further in Chapter 4.

2.4.3 Measuring Values or Output

Performance management typically focuses on the timely and quality completion of an activity or output. Performance management can also focus on the values or behaviours shown in conducting work. There is an increasing emphasis on the need for a 'balanced performance management system' that takes account of both the outputs delivered and also the leadership behaviours and organisational values displayed. This is an issue for APS agencies and the private sector.

Considering values questions in performance management systems in the APS context also raises the much-discussed issue of the impact of performance management systems on APS values and the APS environment. This is explored further in Chapter 5.

2.5 Conclusion

Key elements of good practice in the design and implementation of effective performance management systems in public sector organisations are summarised in the checklist below. This checklist also identifies the three related areas where thinking is evolving.

Alignment	Credibility	Integration
Outcomes sought by government Consistency with APS values and legislative framework Nature of the business Client and stakeholder expectations History with performance management Maturity of systems Organisational Values Industrial climate	CEO and Executive commitment Review and Simplicity Fairness and trust Multi source feedback Addressing the rhetoric - reality gap Dealing with underperformance Reporting of outcomes Management buy in Staff ownership of the system	Line of sight between corporate and individual goals Embedding in a system of organisational performance management Progressive and iterative approach Link to training and career development On-line delivery
Evolving factors: Integrating organisational values with output based performance Achieving alignment in outsourced functions	Evolving factors: Constructing reward and recognition strategy - especially for teams	Evolving factors: Performance measurement and reporting