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MANAGING FOR IMPROVED PERFORMANCE

The high proportion of agencies reporting ‘performance management systems aligned with identified workforce requirements’ as a measure to deal with workforce challenges emphasises the importance of effective performance management systems in building and sustaining APS capability. The PS Commissioner’s Directions (clause 2.12) require agencies to put in place a fair and open performance management system that covers all APS employees, guides salary movement, is linked to organisational and business goals and the maintenance of the APS Values, and provides employees with a clear statement of performance expectations and an opportunity to comment on those expectations. In addition, the Policy Parameters for Agreement Making in the APS require salary advancement to be guided by performance, that is, salary advancement should only occur where an employee’s performance has been assessed as effective or better.

Within this broad framework, agency heads have the flexibility to develop performance management systems that meet the particular needs of their organisation and employees.

The State of the Service Report 2002—03 found improvement in the area of performance management, with all agencies having performance management frameworks in place. However, it also found that agencies still face serious challenges, particularly in the areas of rewarding performance and handling underperformance.

The ANAO released a performance audit report Performance Management in the Australian Public Service in August 2004. The audit covered agencies that employed more than 100 APS staff.¹⁵ The report assessed agency performance against three critical success factors for performance management identified by the 2001 MAC report on performance management, through agency and staff surveys.¹⁶ These were:

• alignment 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 staff through transparency, fairness, simplicity, and 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.

The ANAO concluded that the application of better practice principles for performance management across APS agencies was quite variable. It considered that some agencies have scope for improvement in demonstrating that their performance management systems, strategies and plans are consistent with the strategic framework set out in the MAC report. It described performance management in the APS as a ‘work in progress’, and found that two major issues identified by the 2001 MAC report, credibility and staff engagement, were still at the forefront of the major challenges that remain.

The 2004 State of the Service agency and employee surveys sought further information about the extent to which agencies are successfully implementing performance management. The results of the surveys are discussed below in relation to assessment and feedback, performance pay, and the three critical success factors for performance management systems identified by MAC. Specific results from the ANAO report are discussed in the relevant sections.

ASSESSMENT AND FEEDBACK

The proportion of APS employees responding to the State of the Service employee survey reporting that they have received formal individual performance feedback in their agency in the last 12 months has increased from 79% in 2003 to 87% in 2004. Consistent with last year’s results almost all employees who had received feedback (96%) received it from their supervisor. Just over a quarter of employees indicated that they had received feedback from more than one source. The next most common source of feedback was from a peer (16%) followed by the supervisor’s supervisor (15%).

Only nine per cent of employees had received formal feedback from a subordinate. Five per cent of employees said that they had received feedback from their direct supervisor, peer(s) and subordinate(s), indicating that the use of 360 degree feedback is still very limited in the APS (a result confirmed by the ANAO’s audit).

The Commission notes that 360 degree feedback can be particularly useful for staff development processes, and for identifying ways to improve team performance. It needs to be handled with particular care, however, if it is to be used directly for performance assessment and, when it is used, it may often be more of a conversationstarter, than a provider of unambiguous evidence. Accordingly, the Commission would not endorse general application of 360 degree feedback in performance assessment.

The Commission does support systematic involvement of the supervisor’s supervisor both in performance assessment and in career development. The manager once removed is often critical to consistency of performance assessments and the quality of the process. Moreover, while a supervisor is best positioned to advise directly on ‘what’s my job’ and ‘how am I going’, they are not always best placed to advise on ‘what’s my future?’: that is where the supervisor’s supervisor can play the key role.

The proportion of employees who had received feedback 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 was 92% (similar to last year’s results).

The ANAO also found a high use of formal agreements in agencies. However, it did identify some concerns including that:

• more quantitative measures are wanted by staff to provide clarity in their performance assessments
• many staff surveyed are not convinced that their supervisors are able to use their performance agreement to monitor staff work activity, nor do they feel able to use it to gauge their own performance
• additional effort is needed to consult with staff when setting desired capability levels, as well as in training managers on how to conduct performance discussions and assess individual work performance.¹⁷

Some respondents to the employee survey also emphasised the importance of formal feedback occurring in the context of regular informal feedback.

I have an open dialogue with my immediate supervisor. Even if there has not been a formal arrangement, I feel confident that I get any necessary and appropriate feedback.

I am fortunate in that my manager and I are able to discuss issues including performance issues if necessary openly at any time, in addition to having the formal process twice each year.

ASSESSMENT AND PAY

The ANAO report found that 79% of agencies responding to its agency survey paid performance bonuses in 2002—03 and that three-quarters of agencies had performance linked advancement (an ongoing payment which generally involves progress to a higher pay point, or a percentage increase in salary, based on performance).

Despite this result, a much larger number of staff were eligible for performance related advancement (76,217) whereas a much smaller number of staff were eligible for bonuses (21,143), largely reflecting the fact that bonuses were concentrated among the SES and, to a lesser extent, EL employees.

These results are generally consistent with the State of the Service employee survey. The proportion of employees responding to the State of the Service employee survey reporting that under their agency’s performance assessment system, any part of their pay was linked to an assessment of performance has increased slightly from 65% in 2003 to 69% in 2004.

Employees whose pay was linked to an assessment of their performance were also asked about how their pay was linked. Consistent with the ANAO report, the large majority of these employees, 74%, stated that they were eligible for advancement through the salary range for their classification subject to fully competent performance.

Eligibility for a one-off bonus was the second most common method of linking pay with performance assessments, but was selected by just under a quarter of respondents (23%). Other options were less common and included:

• eligibility for accelerated advancement through the salary range for the employee’s classification, subject to better than fully competent performance (20%)
• eligibility for an increase in base salary (17%)
• 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%).

Thirty-two percent of employees reported that their pay was linked to performance assessment in more than one way.

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

There were some differences in the type of performance pay received, depending on classification level and industrial arrangements. In particular, eligibility for advancement through the salary range subject to fully competent performance was more common for employees covered by their agency’s certified agreement (78% of employees eligible for performance pay) than for employees covered by AWAs (45% of relevant employees). Conversely employees covered by AWAs were more likely to be eligible for a one-off performance bonus (52% of relevant employees) than those covered by their agency’s certified agreement (18% of relevant employees).

The eligibility rate for advancement through the salary range for the employee’s classification subject to fully competent performance was 78% for those APS staff eligible for performance-related pay, 60% for relevant EL staff and 13% for relevant SES staff. Conversely, eligibility for a one-off performance bonus increased with classification level, from 16% for APS staff, to 44% for EL staff and rising substantially to 77% for SES staff. This result is likely to reflect the greater likelihood of employees at EL and particularly at SES levels to be covered by AWAs.

ALIGNMENT

The ANAO found that agencies have generally been effective in aligning their performance management systems with the agency’s goals and organisational priorities. In particular, it found that agencies had established objectives for their performance management systems that were clear and well focussed on improving the agency’s overall performance. It also found that the design of these systems adequately reflected the objectives that had been established.

However, the ANAO found that alignment was variable across the APS and, in many cases appears to be driven more by industrial relations processes than the business needs of agencies, and the outcomes sought by government. It was also concerned that while over 46% of agencies responding to its survey considered that the nature of their agency business, their governing legislation or their specific role/objective was important in shaping the development of their performance management systems, nearly 19% did not regard these as important. In addition, many agencies did not have established systems that relate to, and support their performance management systems, such as systems for internal communication, personnel data analysis or management feedback, together with the capacity to collect and analyse data on individual staff performance.

The ANAO found that most agencies took the APS Values into account and promoted them through their performance management systems. This is consistent with the State of the Service agency survey results, reported in Chapter 7, which show that agencies are increasingly incorporating an assessment of values and behaviour into performance assessments, and that nearly 80% of employees who had received formal feedback reported that that their behaviour had been assessed, either against agency-specific values/behaviours, the APS Values as a whole, the APS Values most relevant to their job, or other behavioural indicators.

CREDIBILITY

Credibility was the second factor identified by the MAC report as critical to the success of performance management systems. A key component in assessing credibility is the views of employees about the effectiveness of performance management systems.

As in 2003, the State of the Service employee survey 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 are reported in Table 9.1. The overall results continue to highlight key issues for APS agencies in ensuring the credibility of their performance pay systems with employees.

Table 9.1: Employee views on the operation of performance pay

Source: Employee survey

As in 2003, employees were most likely to have agreed that the performance pay system in their agency ‘ensures performance assessment is managed systematically and regularly’, with half of employees eligible for performance pay having agreed with this statement. Almost half of relevant employees (47%) also agreed that the performance pay system ‘operates fairly and consistently’, an improvement on last year’s result of 40%.

However, results for other statements continue to be concerning and show no significant change from last year:

• ‘acts as an incentive to perform well’ (38% of relevant employees agreed)
• ‘contributes to a workplace which upholds the APS Values’ (35% of relevant employees agreed)
• ‘provides appropriate rewards for top performers’ (25% of relevant employees agreed)
• ‘contributes to a workplace culture in which individuals work together effectively’ (26% agreed)
• ‘accurately reflects difference in individuals’ performance’ (21% agreed).

As for 2003, there were particularly poor results for ‘accurately reflects differences in individuals’ performance’ and ‘provides appropriate rewards for top performers’, with almost half of employees having disagreed with these statements. A number of employees commented on this issue, for example:

Assessments are always subjective and there is no confidence that there is consistency across the agency.

People in high profile positions or in projects which are important get more recognition than people who are working in ongoing operational areas probably because it’s easier to measure something new and different.

Low levels don't seem to get above fully competent, no matter what they do.

People who work hard get paid the same as those that are not performing.

I think the performance pay system that operates in my department is very unfair. It's payable at the EL2 level (that I'm aware of), and my director, who gets the benefit of the performance pay, puts a lot of pressure on staff to achieve results, so that he can be paid his bonus. The staff who do all the hard work don't get anything in recognition. We feel that we do the work, and he gets the pay.

Despite the poor average results, there was considerable variation in opinions about performance pay across large agencies. The largest range was in the level of agreement on whether performance pay systems ‘operate fairly and consistently’, from a low of 19% to a high of 69% (with the highest levels of agreement at ATO, FaCS and CSA), but there was a broad range of results for most statements, including:

• ‘acts as an incentive to perform well’ (16%—56%)
• ‘ensures performance system is managed systematically and effectively’ (24%—70%)
• ‘provides appropriate rewards for top performers’ (6%—51%)
• ‘contributes to a workplace culture where individuals work together effectively’ (11%—51%)
• ‘contributes to a workplace culture which upholds the APS Values’ (13%—56%).

The smallest ranges in opinion were for ‘accurately reflects differences in individuals’ performance’ (11%—38%).

While individual agencies’ performance varied between different statements, with some having relatively high levels of agreement on some statements, but not on 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. While there are issues across agencies, it appears that some agencies have established more credible performance management systems than others.

There are also some significant differences in views of performance pay according to the nature of the link between pay and performance, that is, between those who received performance bonuses (including those who receive bonuses along with some other type of performance pay), and those who receive some other type of performance pay but not bonuses.

The proportion of each group that agreed with each statement about performance pay is shown in Table 9.2.

Table 9.2: Employee views on the operation of performance pay by type of performance pay

Source: Employee survey

Employees eligible for bonuses were significantly less likely to have agreed that their agency’s performance pay system ‘operates fairly and consistently’, that the system ‘contributes to a workplace culture in which individuals work together effectively’, or that it ‘contributes to a workplace culture which upholds the APS Values’.

On the other hand, employees eligible for bonuses were more likely than employees receiving other forms of performance pay to have agreed that the agency’s performance pay systems ensures ‘performance assessment is managed systematically and regularly’ and ‘provides appropriate rewards for top performers’, although in the latter cases only a minority of employees receiving the different types of performance pay agreed. The last point may reflect the fact that where performance pay is solely linked to increments, there are no particular rewards for performance for those on the top increment, a comment made by a number of respondents to the survey.

For example:

Performance management that is linked to salary progression works well as a motivational tool, however a number of my staff have been on the top increment for several years, and they are primarily motivated by management support, good work environments, interesting work, etc.

Employees’ views were also broken down by classification. There were no consistent trends in the views of employees by classification, although with the exception of ‘accurately reflects difference in individuals’ performance’, a minority of employees in each classification group agreed with each statement. The most significant differences were in relation to:

• ‘ensures performance assessment is managed systematically and regularly’, where SES employees were more positive than APS employees, who in turn were more positive than EL employees
• ‘provides appropriate rewards for top performers’ where SES employees were more positive than EL employees, who were in turn more positive than APS employees
• ‘contributes to a workplace which upholds the APS Values’ where APS employees were more positive than other employees.

Table 9.3: Employees’ views on the operation of performance pay by classification and by eligibility for type of performance pay

Source: Employee survey

Note: The confidence intervals for these estimates are relatively wide and results should be interpreted with caution. Statistically significant results are highlighted in the text.

Within classifications, the impact of the type of performance pay on these results varied. APS level employees receiving bonuses were more likely to believe that the performance pay system ‘ensures performance assessment is managed systematically and regularly’ and ‘provides appropriate rewards for top performers’.

However, they were less likely to believe that the system ‘operates fairly and consistently’ and ‘contributes to a workplace which upholds the APS Values’. Differences for EL staff were generally in the same direction, although there was no significant difference between EL employees eligible for different types of performance pay in relation to ‘ensures performance assessment is managed systematically and regularly’.

For SES employees, those receiving bonuses were more positive than their counterparts receiving other types of performance pay in relation to a larger number of statements. Specifically, SES employees receiving bonuses were more likely than SES staff receiving other types of performance pay to have agreed that their performance pay system:

• ‘acts as an incentive to perform well’
• ‘ensures performance assessment is managed systematically and regularly’
• ‘accurately reflects differences in individuals’ performance’
• ‘provides appropriate rewards for top performers’.

Despite relatively large differences in percentage point estimates in relation to the other statements, the sample size for this group means that these differences were not statistically significant.

The results from the State of the Service employee survey are consistent with the tenor of the ANAO’s employee survey results, which found that there remains a substantial gap between the rhetoric and the reality in relation to performance management. The ANAO found that many staff considered that the distribution of performance pay in their agency was unfair, that there was bias and favouritism exhibited in performance reward decisions, that the rewards offered were not worth the extra effort involved, and that there was a lack of clarity for them on what constitutes good performance. Staff also did not see performance management systems as effective in assisting them to evaluate, or to improve their own performance. At the very least, the ANAO concluded that there was an issue of staff perception that needed to be addressed.

The results are also consistent with international research. In particular, the OECD has concluded that there is no conclusive empirical evidence that performance pay has effectively helped to improve motivation and performance within the public service.¹⁸

The ANAO’s analysis of the performance linked remuneration paid by agencies during 2002—03 raised some suggestions that staff concerns about the distribution of performance rewards may be well founded. In particular, the ANAO highlighted the fact that 86% of the aggregate dollar amount of bonuses paid by APS agencies in 2002—03 went to SES and EL employees. The ANAO’s report also shows, with the exception of employees at the APS 1 and 2 levels, the percentage of employees eligible for a bonus who actually received a bonus increased with classification, from 18% of eligible employees at the APS 3 level to 90% of eligible employees at the SES level (see Table 9.4). This may reflect the design of different schemes which frequently require most senior people to have a greater proportion of their pay ‘at risk’. This of course, also means they have access to higher bonuses as a proportion of their income, which may be perceived as unfair by some employees at lower classification levels.

Table 9.4: Proportion of employees eligible for performance bonuses in 2002—03 who received a bonus

Source: ANAO survey of APS agencies¹⁹

The ANAO’s report also highlighted the fact that while women were slightly more likely to receive a bonus at all classification levels except SES, greater total and average payments were paid to male staff, who received a disproportionately greater share of bonus payment levels at all classification levels except APS 1—2 and APS 4. When the ANAO’s figures are converted to the average bonus for all employees eligible for a bonus (including those who received no bonus), women received a higher average bonus than men at the lower classification levels (APS1 to EL1), but received a lower average bonus than men at the EL2 and SES levels, where the majority of bonuses are paid.

A degree of caution needs to be applied in interpreting the ANAO’s findings in relation to the distribution of bonus payments. The use of bonuses is more common for employees at more senior levels and performance linked salary advancement is the more common approach for lower classifications. This will affect an analysis that looks only at bonuses, as may other factors, such the incidence of flat as opposed to percentage payments and the different performance criteria and levels used in different systems. It may also be an appropriate business decision to apply different forms of performance assessment and pay to different staff.

Further data on the distribution of bonus payments is available from the results of the agency survey of SES and non-SES remuneration conducted for DEWR by Mercer Human Resource Consulting in 2003. Table 9.5 shows the average amount of bonus received as a proportion of base salary for all staff eligible for a bonus, including those eligible, but who did not receive a bonus.

Table 9.5: Performance bonuses as a proportion of base salary (a)

Note: (a) Average performance bonuses paid (including those who were eligible to receive a performance bonus but did not receive one) as a proportion of median base salary.

Source: Mercer Human Resource Consulting, 2003 APS SES Remuneration Survey and 2003 APS Non-SES Remuneration Survey, revised version released October 2004, conducted for DEWR.

While the size of the bonus relative to base salary is generally higher for employees on AWAs, there is a definite trend for the size of the bonus to increase with classification, being lowest for APS level 1 employees and highest for SES Band 3. A decision to have a higher proportion of the total salary package ‘at risk’ may be appropriate for staff at higher classification levels, particularly if they are more comfortable with the notion of performance pay. Differences in bonus size may also reflect preferred remuneration arrangements agreed by employees covered by different forms of industrial arrangements. However, where bonuses are perceived as an add-on to existing base salary, differentials between classifications may be viewed as unfair.

In combination with the ANAO data that shows that employees at higher classification levels eligible for bonuses are generally more likely to receive a bonus than employees at lower classification levels eligible for bonuses, the results could also be perceived by employees as reflecting ‘classification bias’. For example, the performance of employees at lower classification levels may be being compared to the performance of employees at higher levels, rather than against the work level standards for their own classification.

Given these results, and the poor employee perceptions identified through both the ANAO and State of the Service employee surveys, it would appear prudent for agencies to heed the ANAO’s recommendation to review the distribution of their performance related remuneration and address any bias detected, particularly any bias related to classification level.

One method of dealing with perceptions of bias in performance pay may be through a written remuneration policy that clearly specifies the objectives of the performance pay system and the criteria that will apply in assessing whether employees should receive a bonus, and the size of that bonus. Such a policy is more likely to be necessary where the performance pay system is administered through AWAs, and the details of the system are not included in a publicly available agreement. This issue is discussed in more detail in Chapter 5.

The ANAO identified a number of other issues in relation to performance management that could affect issues of credibility. For example, it found a high level of non-compliance with annual reporting requirements in relation to disclosing details about the performance bonuses paid by agencies during 2002—03, with this lack of transparency further compromised by numerous errors, omissions and inconsistencies in the data reported in annual reports.

The ANAO also expressed some concern at the high proportion of staff advancing through pay points for ‘satisfactory’ work performance and, to a lesser extent, receiving bonuses for ‘satisfactory’ work performance. The ANAO acknowledged that there had been considerable debate over the appropriateness of such bonuses. The Commission notes that there is some evidence that performance management systems that reward only a minority of employees can demotivate employees who might perceive themselves as having been rated as merely ‘competent’.²⁰ While some observers might express concern about rewarding employees with bonuses for doing the job competently that they are paid for, designing remuneration so as to give such staff a bonus may be sensible in terms of motivation. Further comments on motivation, organisational performance and performance management are set out below.

20 O’Donnell, M and Shields, J, ‘Psychological Contract in the Australian Federal Public Sector’ in Australian Journal of Public Administration, 2002.

Despite some improvements, this year’s survey results and the ANAO report add to the evidence presented in last year’s report that, at least, the debate on the merits of performance pay remains open: credibility amongst staff has not been achieved in most agencies. The seriousness of the ‘credibility gap’ is, however, difficult to assess.

It is likely that there will always be at least some staff 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 show that employees’ perception of merit is affected by the results of recent selection processes they have participated in, and it is also likely that a less than expected result in a recent performance assessment round will affect employees’ perception of the fairness of the performance pay system at their agency.

It is also possible that part of the dissatisfaction reflects a culture in the APS that still needs to shift, such that employees accept greater individual responsibility and more active performance management. There is some evidence that employees with longer service, who have experienced different approaches to performance management in the past, have greater levels of dissatisfaction with performance pay systems. When views on performance pay are examined by length of service, employees with 1—5 years of service were more likely than those with more than 5 years of service to have agreed:

• that their performance pay system ‘operates fairly and consistently’ (55% compared to 42%)
• that it ‘acts as an incentive to perform well’ (44% compared to 33%)
• that it ‘ensures performance assessment is managed systematically and regularly’ (54% compared to 48%).²⁵

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’ (28% compared to 23% for those with more than five years service), and ‘contributes to a workplace which upholds the APS Values’ (38% compared to 32%), 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.

Without other points of comparison, it is difficult to identify a benchmark for employee satisfaction levels in relation to performance pay to which the APS should be heading. However, 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 overall APS result.

In this context, the State of the Service Report 2002—03 concluded that, given the continuing challenge to ensure credibility amongst staff, a modest approach to performance rewards may deliver the benefits of locking in systematic performance assessment with less risk of significant disparity between reward and actual performance, particularly while systems are being bedded down and skills developed.

Notwithstanding the ANAO report’s conclusion that small amounts of performance pay may contribute to the perception that rewards do not provide sufficient incentive for top performers, the Commission remains concerned about staff perceptions of fairness and consistency, and considers that, while these remain substantial, it would be wise to keep the payments modest. The Commission also encourages agencies to pay more attention to the underlying purposes of performance management, and the known most important ways of improving organisational performance and of motivating staff, which do not include performance pay.

INTEGRATION

The third critical factor identified by the MAC report in establishing a successful performance management system was the integration of performance management into the overall corporate management structure of APS agencies, including 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.

The ANAO found that agencies are making progress in this area, and in providing a clearer link for staff between their work and the goals of the organisation. However, it also found that agencies could make significant improvements in recognising and rewarding those who manage their staff effectively and by identifying and assisting those who do not.

The State of the Service agency survey did not address the question of agency integration of performance management systems directly. However, it does provide some evidence that agencies are integrating their performance management systems into the overall corporate management structure. In particular:

• as discussed above, aligning performance management systems with identified workforce requirements is the most common measure that agencies have in place to deal with workforce challenges
• performance management systems are used to identify potential leaders by a substantial proportion of agencies across all classification levels
• the large majority of agencies indicate that learning and development priorities are identified in the performance management system, and around half state that aggregated needs are identified through the performance management system.

Nevertheless, the ANAO found that agencies could also improve in integrating their performance management systems with the identification of the learning and development needs of staff. The State of the Service employee survey supports this view, with only just over half of employees indicating that their learning and development needs had been identified as part of the performance management process, in contrast to the strong agency result. Learning and development issues for the APS are discussed further below.

UNDERPERFORMANCE

The MAC report Performance Management identified the management of underperformance as key to the overall credibility of performance management. The ANAO’s audit report on performance management stated that agencies should have simple, robust and comprehensive processes for dealing with poor performance or underperformance that may, or may not, be separate from the performance management system. In particular, the report stated that in agency underperformance processes there should be:

• simple and quick procedures for handling underperformance which give adequate procedural fairness to the employee
• employee performance monitoring and reporting periods of shorter duration once an employee is in a formal underperformance process
• simple processes for the decision-maker to decide on appropriate actions after any final underperformance assessment.

Agencies should also revisit and reform any cumbersome underperformance processes in future CA negotiations.

The ANAO report found that only a very small percentage of total APS staff are dealt with through the formal underperformance processes, and that staff surveyed do not consider that underperformance is effectively managed in agencies. It concluded that the APS appears to continue to have a rhetoric-reality gap on these issues.

Issues of underperformance were addressed by both the State of the Service agency survey and the State of the Service employee survey.

In the agency survey, 30% of all agencies indicated that they had finalised at least one formal underperformance action during 2003—04.²⁶ As would be expected large agencies were much more likely to have finalised at least one underperformance action (71%) than medium or small agencies (33% and 5% respectively). In total, 236 actions were finalised, with 87% of these in large agencies.

The results of actions undertaken to address underperformance are set out in Table 9.6. It should be noted that each agency could nominate multiple actions.

Table 9.6: Results of underperformance actions finalised in 2003—04

Source: Agency survey

The most common outcome of underperformance actions was that a development program was instituted. In 74 cases (31% of actions reported), satisfactory performance was attained. In 48 cases (20%), the employee left the agency, either through voluntary redundancy or as the result of termination. Ten agencies reported that there had been outcomes other than those specified in the survey. These included resignation, termination within a probation period, reduction of salary within classification and referral to appropriate counselling.

Only three agencies reported that any of the outcomes were challenged in the AIRC, with six employees challenging the outcomes of the underperformance process in total. Three cases had been settled or resolved through conciliation, and three were ongoing.

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

As shown in Figure 9.7, there was a wide range of assistance provided, with all agencies indicating that advice was provided by the HR/people management area on request, and all but three (97%) indicating that they had procedures for managing unsatisfactory performance that could be accessed by all employees. Responses were generally consistent with results from 2003, although there has been an increase in the proportion of agencies offering training to assessors (those making the performance assessment), from 36% to 49%. Three-quarters of agencies had at least three forms of assistance available, and just over half had at least four forms of assistance.

Figure 9.7: Types of assistance provided to assess work performance

Source: Agency survey

Eighteen per cent of agencies indicated that they had some other form of assistance for managers. This included coaching, employee assistance programs, and the use of external contractors to undertake formal assessments.

The employee survey sought employees’ views on how underperformance was managed in their agency. Forty-six per cent of employees felt that, during the last 12 months, an employee in their immediate work team had consistently underperformed, a slight decrease on the 2003 results (where 50% of employees felt that an employee in their immediate work area consistently underperformed).

Perceptions of underperformance were related to:

• age, with employees between 25 and 44 most likely to have felt that an employee had consistently underperformed in their immediate work team
• sex, with women slightly more likely to have felt they had observed underperformance than men
• agency size, with employees in medium and large agencies more likely to feel they had observed underperformance than employees in small agencies
• location, with underperformance slightly more likely to be reported outside the ACT
• classification level, with APS and SES employees more likely to feel they had observed underperformance than EL staff (a change from 2003, when EL employees were more likely to report observing underperformance than APS level employees).

Amongst large agencies, the proportion of employees who felt that someone in their immediate work team had consistently underperformed varied from 28% to 75%. However, one agency had much higher rates than other agencies. If this agency is removed, the range is much narrower–28% to 58%. The lowest proportions were in BOM, DFAT, ABS, Finance, DEH, ASIC, and DITR, all within a seven percentage point range.

It was most common for the underperforming employee to be a peer (66% of relevant employees), followed by a subordinate (34%) and a supervisor/manager (24%). As for 2003, the large majority of employees (87%) who had observed underperformance believed that the underperformance had had an adverse effect on their team’s work (a slight increase on the 2003 result of 84%).

Employees continued to be largely dissatisfied with the way underperformance in their work areas is handled. Only 16% of employees observing underperformance expressed satisfaction with the way the underperformance they had observed was dealt with, and 64% of relevant employees were dissatisfied (similar to 2003).

Satisfaction with the way underperformance was dealt with was related to:

• age, with younger employees, particularly those under 25, least satisfied
• sex, with women more satisfied than men, although both men and women had similar levels of dissatisfaction (with men having a higher ‘neither satisfied nor dissatisfied’ result)
• agency size, with those in medium agencies most satisfied
• location, with employees in the ACT more satisfied
• classification, with APS employees more dissatisfied than EL employees, who were again more dissatisfied than SES employees (see Figure 9.8).

Figure 9.8: Employees’ level of satisfaction with handling underperformance

Source: Employee survey

It is likely that the relationship between satisfaction with the way underperformance was dealt with and classification reflects the greater level of responsibility for dealing with underperformance among higher level staff. More senior people are likely to be conscious of the difficulties involved in managing underperformance, but also may be more aware of action being taken than more junior staff who, for reasons of privacy and fairness, may not be informed of action being taken.

All large agencies had relatively low levels of satisfaction with the handling of underperformance, with the range extending from as low as six per cent of employees satisfied to a high of 29%. Dissatisfaction rates varied from a low of 51% to a high of 85%.

Employees were more likely to be satisfied with the way underperformance was dealt with if they agreed that the performance pay system accurately reflects differences in individuals’ performance, reflecting the key link between credibility in performance management systems and the handling of underperformance more specifically.

A number of employees made comments about dissatisfaction with the way underperformance is handled. For example:

Underperformance would have to be the one management task the APS is truly deficient in.

I don't believe 'underperformance' is addressed or dealt with effectively within the agency. The result is a large reverse workflow and additional work for staff who are meeting performance levels.

Managers generally seem to shy away from performance management.

Others acknowledge the difficulties surrounding issues of underperformance that could affect employee satisfaction levels.

Underperformance should not be ‘broadcast’ to the under team [sic]. It should be between the employee and his/her manager.

I have been through a process to review under performance and it was the most difficult, time consuming and stressful thing I have ever had to do. There should be more support provided to the supervisors who are trying to do the right thing by addressing under performance.

Managing underperformance is extremely difficult. It is rarely a clear cut case. Employees often have either personal issues or health issues that contribute to their underperformance. Very difficult to manage when there are health issues.

There were also a few positive comments about successful handling of underperformance.

My team leader has helped that person change work behaviour to get better results. My team leader was very prompt starting this process.

An issue that has traditionally been poorly addressed in this agency. Now, however, a properly structured process is in place in cases of underperformance.

15 ANAO, Performance Management in the Australian Public Service, Performance Audit Report No. 6, August 2004, <http://www.anao.gov.au>

16 MAC Report 1, Performance Management in the Australian Public Service, 2001, <http://www.apsc.gov.au/publications01/performancemanagement.htm.> A revised edition of this report was published in 2003.

17 ANAO, 2004, op. cit., pp. 19—20.

18 Cardona, F, Performance Related Pay in the Public Service, A paper presented to the second conference of the Institute of Public Administration and European Integration, OECD/SIGMA, 2002.

19 ANAO, 2004, op.cit., p. 108.

21 Corporate Leadership Council, Building the High Performance Workforce–A Quantitative Analysis of the Effectiveness of Performance Management Strategies, 2002, p. vi.

22 ibid., p. 38a.

23 Foster, A, Parston, G and Smith, J, Making a Difference: Motivating People to Improve Performance, Public Services Productivity Panel, 2002.

24 Institute of Public Administration Australia (in conjunction with People and Strategy), Performance Management–a guide to good practice, August 2001.

25 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.

26 These figures are not comparable with 2002—03, as that survey asked agencies how many actions had commenced during the financial year. The change to ‘finalised’ will ensure that information is collected about the outcome of all actions in future years (as not all those actions commenced in a year may be finalised within the year).