Chapter 9: Building APS capability

Performance management

The 2001 MAC report on performance management in the APS stated that ‘Performance management is an essential tool that is relevant at all levels in all APS agencies’. It noted that performance management ‘provides the means to improve organisational performance by linking and aligning individual, team and organisational objectives and results’ and that it ‘provides a means to recognise and reward good performance and to manage underperformance’.¹⁰

The MAC report indicated in 2001 that it believed that the public sector had made significant progress in dealing with performance management issues. It identified three factors for successful performance management:

• alignment, based on a detailed understanding of the outcomes sought, the nature of the business and the culture of the organisation
• credibility amongst staff through transparency, fairness, simplicity, and CEO and management commitment
• integration, ensuring a clear line of sight for staff between their responsibilities and the objectives of the organisation (see Figure 9.4 below), along with careful implementation and adequate training.

The employee survey sought information about:

• whether their performance objectives are linked to the agency’s business and to the standards against which performance can be assessed
• their experience of assessment and feedback
• their experience of recognition and reward for performance.

For agencies, the survey sought information on measures to ensure implementation of, and accountability for, formal performance management schemes.

Performance objectives and standards

Establishing a formal agreement against which the performance assessment is made assists employees to understand managerial and organisational expectations, and the standards against which judgments about performance will be made.

Of the 79% of employees who received feedback in the last year, most of these employees (93%) indicated that their most recent formal assessment had been undertaken against a formal agreement or work plan. The MAC report emphasised that ‘performance management systems will work when staff see a clear link between their work and the goals of the organisation’.¹¹

About three-quarters of employees (72%) agreed that the links between their agency’s business and their work had been made clear in the development of their performance agreement. The same proportion of employees indicated that they understood the standards used to evaluate their performance. ¹²

Figure 9.4 shows that more SES employees than non-SES employees agreed that the links between the agency’s business and their work were made clear in developing their performance agreement.

The importance of individuals understanding the standards against which their performance is assessed is demonstrated by the fact that of the employees who did not agree that their most recent performance agreement helped them perform well, 77% reported that they did not understand the standards used to evaluate their performance.

I was assessed against what appeared to be general indicators—perhaps they had some formal basis which was not explained to me.

Assessment and feedback

Seventy-nine per cent of employees reported receiving formal individual performance feedback in their current agency in the last 12 months and, of these, 95% reported that this feedback was provided by their direct supervisor.

Overall, 43% of employees agreed that their most recent performance assessment would help them perform well.¹³ A further 35% neither agreed nor disagreed that it would help them perform well. It may be that for many of these employees their assessment confirmed their current perception of their level of performance. Twenty-one per cent of employees did not believe that the assessment would help. More SES employees (61%) were likely to agree that their performance assessment would help them perform well than non-SES employees (43%).

There was considerable variation in employees’ views in large agencies about whether their most recent performance assessment would help them perform well. The range was from only 19% of employees in one large agency agreeing that it would help them to perform well to a maximum of 60% in another large agency.

It works very well where I am right now, but only because we have a new management team who are committed to making it work. When staff know what is expected of them they mostly work well.

The usefulness of individual performance management is much dependent on the particular manager conducting the performance review.

More than two-thirds of all employees (67%) indicated that their most recent performance assessment had included a discussion of behaviour. Behaviour was mostly assessed against agency-specific values and behaviours (44%), against all APS Values (24%) and/or against APS Values most relevant to their job (20%). However, 19% of employees indicated that their behaviour had not been assessed and a further 12% were unsure.

There are no specific behaviours or values in the performance agreement; it relates only to projects and tasks to be undertaken and completed.

There appears to be a link between whether there was an assessment of behaviour and the usefulness to employees of their performance feedback. Employees whose behaviours had not been assessed were less likely to consider that their performance assessment would help them perform well in future than employees whose behaviours had been assessed.

Rewards and recognition

Sixty-five per cent of all employees indicated that under the performance assessment system in their agency some part of their pay was linked to an assessment of their performance. The link could occur in more than one way so that employees could, for example, have access to advancement through the salary range and/or a performance bonus.

Opinions were sought 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.

Table 9.1: Views on the operation of performance pay

	Agree %	Neither agree nor disagree %	Disagree %
Operates fairly and consistently	40	26	31
Acts as an incentive to perform well	41	27	30
Ensures performance assessment is managed systematically and regularly	51	23	24
Accurately reflects differences in individuals’ performance	22	26	48
Provides appropriate rewards for top performers	25	24	47
Contributes to a workplace culture in which individuals work together effectively	24	35	39
Contributes to a workplace which upholds APS Values	34	38	24

Source: Employee survey

The aggregate results presented in Table 9.1 indicate that linking pay to performance continues to present a major challenge in the Service. There is considerable recognition among employees with some pay linked to performance, that performance pay ensures that performance assessment is managed systematically and regularly (51% agree and 24% disagree), but large numbers of employees do not agree that performance pay accurately reflects differences in individuals’ performance (48%), provides appropriate rewards for top performers (47%) or contributes to a workplace culture in which individuals work together effectively (39%). Some of these views may not be well informed, as performance pay outcomes are kept confidential in most agencies. Nonetheless, the perceptions do need to be considered carefully.

The MAC report on performance management had also noted that reward and recognition were issues.¹⁴ For mature-aged workers recognition for effort (for both current and former employees who were surveyed) was the most highly rated workplace factor but also the one with which they were most dissatisfied. For graduates recognition for effort was ranked in third place.

Even though I was assessed as eligible for top-level performance pay I still think it’s very unhelpful in terms of performance management.

As performance pay is directly linked to salary increases and a bonus there is a real incentive for people to perform both in terms of business outcomes and leadership behaviours…. The better you perform in both aspects the better the base salary increase. A performance bonus only does not provide the incentive to perform that a link to the amount of base pay provides. The more transparency in the ratings given, e.g. through a group moderation process, the more consistent the outcome.

It is possible that part of this dissatisfaction reflects a culture in the APS that still needs to shift, such that supervisors and senior management accept greater individual responsibility and more active performance management. A more significant factor, however, would seem to be the quality of the performance management system. For example, the proportion of employees who considered that performance pay ensures performance assessment is managed systematically and regularly was as high as 70% in one large agency and the proportion who considered the performance pay system operates fairly and consistently was as high as 55% in another three large agencies (with only between 18% and 23% of employees in these three agencies having disagreed). In no large agency, however, did a majority of employees consider performance pay accurately reflects differences in individual performance, the highest level being 32% in agreement, with another 30% neither agreeing or disagreeing.

Linking performance to pay does not provide for open and honest feedback.

Performance evaluation is great. Tying it to performance pay introduces unnecessary complexities.

The debate on the merits of performance pay remains open, therefore. The risks do appear to be manageable, however, if the performance management system is well designed and carefully implemented.

The MAC report indicated that perceived fairness is a critical factor in the credibility of performance management systems.¹⁵ According to MAC, central to views about fairness are:

• consistency in application
• systematic training and review of managers’ capabilities as part of their assessment
• moderation of the review process to facilitate greater consistency in the development of, and assessment against, agreements.

These could be useful areas for scrutiny by agencies wishing to improve perceptions about fairness and hence credibility of their systems.

There was no clear correlation between views on performance pay and the size of the pay available in the agency concerned. Nonetheless, given the continuing challenge to ensure credibility amongst staff, a modest approach may deliver the benefits of locking in systematic performance assessment with less risk of significant disparity between reward and actual performance, particularly while schemes are being bedded down and skills developed.

Support arrangements for performance management

Most agencies (87%) reported that it is mandatory for all staff to have a formal performance agreement. The measures used by agencies to assist managers to implement the agency’s performance management system are set out in Table 9.2.

Table 9.2: Assistance to managers in implementing performance management for staff

	Yes %	No %	Being developed %
Mandatory training on aspects of performance management systems	33	52	15
Self-nominating training on aspects of performance management systems	70	22	8
Providing consistent guidelines and forms for establishing performance agreements	92	1	7
Advice from corporate area	98	1	1

Source: Agency survey

Table 9.2 shows that most agencies provided managers with consistent guidelines and advice from the corporate area. As well, a high proportion of agencies indicated that self-nominated training was available. Given the need for agencies to improve perceptions of performance management systems, particularly the links with performance pay, mandatory training on performance assessment systems may be a useful strategy. Another useful strategy is to clarify the role of a supervisor’s supervisor, to promote consistency and quality in the assessment process and to ensure feedback addresses longer-term career development issues, as well as immediate performance.

Agencies were asked about how they ensured line managers were accountable for implementing performance management systems. The most commonly used mechanism was incorporating accountability measures in a more senior manager’s performance agreement, and this occurred in nearly two-thirds of cases. Inclusion in the line manager’s own performance agreement was the mechanism for 61% of agencies. Only 28% of agencies reported testing compliance in implementing performance management arrangements in their staff surveys.

ANAO audit of performance management

The ANAO is currently undertaking an audit entitled the Administration of Performance Management in the APS. The audit objectives are to provide:

• an assessment of the extent to which agencies’ strategies and plans conform with the strategic framework set out in the MAC report Performance Management in the Australian Public Service
• assurance that performance management is being implemented efficiently and effectively in accordance with better practice principles
• an estimate of the extent and cost of performance-linked remuneration, both performance bonuses and performance-linked increments across the APS.

As part of the audit all APS agencies with more than 100 staff are being surveyed, as are the staff in those agencies. The audit is expected to be tabled at the end of March 2004.

The detailed work being undertaken by the ANAO may provide a deeper understanding of the issues involved in sound performance management. On the one hand, individual performance assessment is generally viewed positively by most employees. On the other hand, the use of performance pay is obviously one to which most agencies still need to give more attention.

Unsatisfactory performance

Identifying and addressing unsatisfactory performance is a difficult issue for managers, but it is important that the challenges involved be dealt with effectively. In 2001, the MAC report noted that ‘the challenge of handling underperformance is a key one for the overall credibility of performance management’.¹⁶

The agency survey sought information about formal action taken by agencies to address unsatisfactory performance, the results achieved and the assistance provided to managers to deal with unsatisfactory performance. Where employees believed that a colleague in their immediate work area consistently underperformed, the employee survey sought views about the impact of unsatisfactory performance and whether employees felt that it was being dealt with effectively.

Managing unsatisfactory performance requires commitment on the part of the direct manager and support and leadership from senior management. As well, adequate training and assistance must be provided to managers dealing with unsatisfactory performance.

In an area under extreme pressure I find it difficult myself, as do other managers, to justify the time required to effectively deal with underperformance. Also, if the organisation lacks a broader will and commitment to managing underperformance, then taking action is risky unless you are willing to devote considerable time to documentation, performance tracking etc. This is a challenging area for all workplaces, but especially so if 99% of the expectations/rewards are for producing outputs.

Fifty per cent of employees indicated that an employee in their immediate work area had underperformed consistently. This is a large figure, but needs to be analysed carefully. It may mean that on average one person in every second area is identified by all those in the work area as underperforming, so that 50% of employees will identify someone in their work area as underperforming while the total number identified as underperforming may be only a small fraction of 50%.

The underperforming employee was identified as a peer by more than half of the respondents, a subordinate by about a third and a supervisor by 16% of respondents. A substantial majority of the respondents reporting the existence of unsatisfactory performance (84%) felt that it had an adverse effect on their immediate work team.

An examination of respondents by level indicated that a slightly higher proportion of ELs (54%) than APS 1–6 (49%) or SES officers (51%) reported underperformance in their immediate work area. Employees (52%) in large agencies were more likely to identify underperformance than those in medium (40%) or small agencies (41%).

The level of unsatisfactory performance reported by employees is a concern. It is also of concern that twothirds of employees were dissatisfied with the way underperformance was handled. This varied by classification as Figure 9.5 shows.

The higher level of satisfaction with how underperformance is managed reported by the SES employees may be a result of greater involvement, and to some extent their greater knowledge of any action being taken to address underperformance. It might also, of course, reflect denial by some SES employees that they are managing the issue unsatisfactorily.

Efforts are being made to deal with underperformers, and they are not always obvious to third parties.

Employees at other levels may not be aware that action is occurring and this may lead to the higher levels of dissatisfaction. However, results of the employee survey reinforce the importance of not only identifying and taking prompt action to address unsatisfactory performance, but also managing the perceptions of employees in the immediate work area.

Perceptions that unsatisfactory performance is present in the workplace and that it is not dealt with effectively may have implications for other performance management policies. For example, of the employees who were dissatisfied with the way underperformance was being handled, 64% indicated that they did not believe that performance pay accurately reflected differences in individual performance (the overall result for employees whose performance assessment system was linked to pay, shown in Table 9.1, was 48%).

Underperformance is a difficult issue for the supervisor but also for the person who is not achieving the required level of performance.

Generally the underperformer does not want to be in the situation they are in. I find the major concern I have about underperformance is that many managers do not deal with it when they should, i.e. early on in the staff member’s career, but rather seek to shift the underperformer to another work unit to let someone else work out the problem. This is not acceptable as not only is the manager avoiding their responsibilities but they are allowing the underperformance to become a greater problem by delaying remedial action.

At the agency level, 39% of agencies indicated that formal action regarding unsatisfactory performance had commenced in 2002–03. The results of action undertaken to address underperformance are set out in Table 9.3. It should be noted that each agency could nominate multiple actions.

Table 9.3: Results of underperformance action

Result	Number of agencies reporting this outcome	Number of times this outcome occurred
Action not finalised	22	55
Development program instituted	18	67
Satisfactory performance standard attained	17	54
Termination of employment without incentive	9	30
Assignment to other duties	8	15
Reduction in classification	7	9
Termination of employment with incentive	2	2
Voluntary redundancy	2	4
No action taken (against employee)	2	3
Other (including resignation, invalidity, medical assessment)	11	25

Source: Agency survey

In relation to assistance to specifically manage underperformance, the majority of agencies (96%) reported that assistance was provided to managers to formally assess whether employees’ work performance was satisfactory. The types of assistance and the proportions of agencies that used them are shown in Figure 9.6. Agencies could provide more than one form of assistance.

Agencies also noted in their comments that other forms of assistance that were provided included: procedures being outlined in the CA; specialised training being available on request; and having an employee assistance program in place.

Given that 50% of employees indicated that they felt that an employee in their immediate work area had consistently underperformed, this issue remains a matter of concern. There is no question that it is a difficult issue to address successfully, although there is the potential for agencies to look at streamlining arrangements through their workplace agreements. Employee comments raised particular concerns about underperformance at more senior levels not being addressed, the burden of work involved in the processes, the complexity of procedures and the contribution to underperformance made by organisational systems. The challenge for the APS is to address both actual underperformance and perceptions of it.

As with most of the APS we lack an effective system for dealing with underperformance. Attempts are fraught with administrative and legal risk. The chance of success is too low to warrant the effort of the process.

Managing underperformance remains a major challenge for the APS.

The APS Commission has produced a booklet, Performance management, to provide guidance to agency heads, human resource managers and agency staff more generally on performance management.¹⁷ It sets out basic requirements of the legislative and policy framework which agencies must observe in managing performance. As well, to assist agencies simplify their procedures for managing underperformance, it includes clauses relating to management of unsatisfactory performance. Agencies can adopt or adapt these clauses, which provide a minimalist but effective approach to the management of underperformance.

 

10 MAC, op. cit., p. 7.

11 ibid., p. 10.

12 All employees were asked these questions but those answering ‘not applicable’ have been excluded.

13 All employees were asked this question but those answering ‘not applicable’ have been excluded.

14 MAC, op. cit., 2001, p. 25

15 ibid.

16 ibid., p. 28.

17 APS Commission, Performance Management, June 2002