Employment Rights Briefings
Performance Related Pay
November 2006
Introduction
This briefing has been produced as an initial response to an increase in the number of
colleges considering performance related pay. Its timing is influenced by the Association of
Colleges’ (AOC) recent suggestion contained in an employment briefing to college
managements, that colleges should consider moving away from automatic incremental
progression to performance linked progression. It is claimed that such a move would
increase equality. Our detailed legal advice and the practical experience of PRP
demonstrate that this claim is a triumph of dogma over intellect.
UCU National Executive members in FE will consider a detailed response to the AoC
proposals. In the meantime this briefing explains why PRP doesn’t work in terms of
equality, quality and fair pay.
Barry Lovejoy, Head of Colleges, UCU
Roger Kline, Head of equality and Employment Rights, UCU
2
1. Executive summary
In both further and higher education an increasing number of institutions are seeking to
introduce performance related pay (PRP). UCU has a number of concerns about this trend.
Our concerns are as follows:

Individual PRP fragments collective departmental or team teaching and research

effort.
PRP that is linked to appraisal distorts the appraisal process

All PRP schemes struggle to identify measures that are objective and
meaningful and whose existence does not distort the work staff undertake or
lead to games playing

All PRP struggles to meet equality criteria, and processes and outcomes are
not sufficiently transparent to avoid well founded allegation of bias

PRP is generally a very time-consuming exercise with unclear benefits

In a massively casualised sector, PRP becomes yet another cause of
uncertainty amongst an insecure workforce
UCU is absolutely committed to arrangements that genuinely sustain and raise quality in
UK further and higher education. PRP is not such a mechanism and we oppose it. This
briefing explains why, and provides information on ways of working towards an acceptable
way of rewarding merit.
 Its publication is prompted in particular by the recent Association of Colleges
Employment Briefing1 which seeks, on equality grounds, to justify movement away
from a further education pay scale based on automatic progression towards one where
annual increments are linked to individual performance.
 The AoC claim, made by reference to the new age discrimination Regulations and the
‘Cadman decision’2, is fundamentally flawed. There is no doubt however that a
significant number of employers in further education may seize upon the conclusion it
draws that:
Colleges will normally find it easier to justify pay scales where the increment is not
automatic, but is awarded at least in part by reference to the contribution or performance
of the employee
1
AoC Employment Briefing 71/06 October 2006
http://curia.europa.eu/jurisp/cgibin/gettext.pl?where=&lang=en&num=79938996C19050017&doc=T&ouvert=T&seance=ARRET
2
3
The suggestion that PRP has any significant benefits is not evidence based. On the
contrary, the evidence points to PRP being a divisive, demoralising and discriminatory
payment system.
For these reasons UCU is highly critical of PRP schemes in education. Moreover there is no
reputable legal case for to justify moving away from automatic incremental progression
linked to service within the short pay scales normal within FE and HE. Branches will want
to insist that any institution seeking to introduce such schemes arising from the AoC advice
is obliged to provide the evidence to support their proposals and explain how they can
possibly be equality proofed.
2. Performance related pay
Performance related pay (PRP) schemes commonly involve the assessment of an individual
employee’s performance rating by means of an annual appraisal meeting. The award
system linked to the rating can take various forms including: accelerated increments; a
discretionary range of performance increments above the pay scale maximum; individual
pay levels in a band within a minimum and a maximum pay level; cash bonuses; or
increments plus bonuses for those at or near the scale maximum.
Individual PRP has been used for a long time in the UK, traditionally as a merit payment
over and above the annual pay award. Since the 1980s PRP schemes have been
increasingly linked to organisational objectives, against which individuals are appraised on
an annual basis. A growing number of employers seek to use PRP schemes as a gateway to
incremental progression (or a means of refusing it) or instead of an upgrading.
‘In Britain, PRP schemes have become increasingly popular over the past two decades.
Throughout the 1980s and early 1990s these schemes were seen as a means of improving
both individual and organisational performance, and as such were heavily promoted by the
governments of the day.
However opinions differed as to their motivational effects and it appeared that the use of
PRP was declining.’3
A survey conducted in 1998 by the Institute of Personnel and Development (IPD) on the
use of PRP in the UK, found that the public sector organisations surveyed were less likely
than the private sector to think that linking pay to pre-arranged objectives had a positive
effect on performance, and were more likely to say that it had a negative effect on
motivation. Consequently, they were also more likely to consider dropping individual PRP
schemes than were their private sector counterparts.4
3
4
http://www.eiro.eurofound.ie/1998/03/Feature/UK9803107F.html
http://www.eiro.eurofound.ie./1998/03/Feature/UK980310F.html
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3. Performance related pay and pay inequality
In the public sector, there is evidence of a link between performance related pay and
unequal pay among employees in terms of sex, ethnicity or disability.
In 1999 an equal pay tribunal found that the pay system then in place at ACAS – the
Advisory, Conciliation and Arbitration Service – was not able to guarantee equal pay
because of the way its PRP system operated. The ACAS pay system had long bands, which,
when they were introduced, had tended to fossilise pay differentials between staff, carried
over from the previous ACAS pay system. The pay differentials among ACAS employees
favoured men, who tended to have longer service records than women. Because of the
small value of performance-related payments, progression up the pay band was very slow.
The pay bands meant that progression to the maximum, in theory, could take 40 years or
more. The tribunal found that the pay system was ‘unlawful as it maintained the general
difference in pay between those with longer service who were predominantly male and
those with shorter service, predominantly female’.5
ACAS was not alone in having a potentially unequal pay system. The public sector union
PCS subsequently lodged equal pay claims at the Ministry of Agriculture food and Fisheries,
the Prison Service and the Department of Environment, Transport and the Regions (DETR),
with the ‘potential for a claim in almost every department which employed predominantly
male specialists alongside predominantly female administrators’.6 Linking pay to
performance was linked with an institutionalising of unequal pay:
‘The growing realisation that civil service pay structures had institutionalised unequal pay
was compounded by a report from the Institute for Employment Studies which found
significant biases in performance markings across 11 departments and agencies. There
was a pattern of ethnic minority and disabled staff receiving lower average box markings
than white and non-disabled staff, and of women at lower grades receiving higher box
markings than men in the same grade. This had followed the suspension of performance
pay at the Department of the Environment, Transport and the Regions in 1998 after box
markings were found to be discriminatory. A follow-up report published in June 2001
confirmed the statistically significant differences in box markings by gender, ethnicity and
disability.’7
5
6
7
IDS Report 852, March 2002, p.13
IDS (2002), Pay in the public services 2001/02, London: IDS, p.37.
IDS (2002), Pay in the public services 2001/02, London: IDS,p.37.
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4. General concerns about PRP in the public sector
The report Incentives for Change, published by HM Treasury in 2000, by the government’s
Public Services Productivity Panel, which was chaired by John Makinson, in summarising
the research findings on the main public service performance pay schemes, observed that
current arrangements were ‘ineffective and discredited’ and contrasted ‘approval of the
principle and disenchantment with the practice of performance pay’.8
A number of critical surveys or analyses of PRP have found a variety of negative aspects of
public sector PRP schemes.9 Employees are attracted by the prospect of higher earnings
for good performance, but research shows that they also find PRP demoralising, divisive
and unfair. Large numbers of employees thought that PRP had damaged morale and that it
caused jealousies and undermined team working. With this in mind, many employers have
shifted the emphasis of PRP towards a team approach with a greater ‘across-the-board’
element in PRP settlements. The 1998 pay deal at the Child Support Agency included a
decision to permanently abolish individual performance pay, and to introduce team
performance awards. Other approaches such as competency and skills-based pay are
gaining more support.
Research among public sector staff has found that ‘merit pay can be divisive as it has the
effect of magnifying small differences in assessed performance’.10 A survey of civil
servants conducted by Templeton College, Oxford, for the IPMS union found widespread
dissatisfaction with performance related pay. Only 18% of participants agreed that their
own annual reward was related to performance, and half believed that high and low
performers received the same level of reward. One in two disagreed with the suggestion
that if they performed well in their job they would received a pay increase.11
Overall, individual PRP does not seem to have a strong motivational impact on public
sector employees.12 This may be particularly so where employees are reluctant
participants in any such scheme: ‘organisations that impose a merit pay system on their
employees will find that employees either do not respond to inducements or actively resist
the system.’13
8
David Marsden (2001), The rate for the job, CentrePiece, Autumn, p.29
David Marsden and Stephen French (1999), What a Performance: performance related pay in the public
services, Centre for Economic Performance, LSE. IPD (1999), IPD 1998 Performance Pay Survey.
10 Michelle Brown (2001) Merit pay preferences among public sector employees, Human Resource
Management Journal, Vol 11, No 4, p.49
11 IRS Pay and Benefits Bulletin 513, February 2001, p.10
12 Ray Richardson (1999), Perfomance Related Pay in Schools. An Assessment of the Green Papers.
Report prepared for the NUT, LSE
13 Michelle Brown (2001) Merit pay preferences among public sector employees, Human Resource
Management Journal, Vol 11, No 4, p.49
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Employees in a PRP scheme may doubt the competence of their management to measure
performance accurately; ‘more seriously, they may doubt the good faith and sincerity of
management’s promises to reward good performance’. Just under one-third of employees
in the public sector PRP schemes surveyed ‘thought their last appraisal, on which their
latest performance pay award depended, was not a fair reflection of their performance.
Many thought managers used PRP to reward their favourites and that senior management
set quotas on good appraisals in order to save money’.14
The small amounts of extra pay usually involved in public sector PRP schemes mean that
‘merit pay systems cannot work when employees do not value the marginal increments
associated with merit pay.’15 Where public sector pay rises are small (as is often the case),
the money funding the increase has to be split a number of ways: ‘organisations are trying
to split pay review budgets of say 5% between competing demands – addressing low pay,
recruitment problems, progression, providing a cost of living increase, changes to the pay
structure and rewarding performance. Not surprisingly, more immediate priorities have
meant that the amount given to performance pay has often been small …’
For example, at the Crown Prosecution Service, performance pay was limited to a 0.25%
bonus pot while staff were moved to a new pay system. In fact, some civil service
departments and agencies abandoned performance pay altogether in 2000-01 because of
more pressing issues. For example, at the Department of Social Security ‘performance pay
was suspended for a year while a new harmonised pay structure was introduced across the
core department and its agencies.’16 On a smaller scale, concern over budgets lead some
school head teachers in Lincolnshire to stop performance related pay supplements to
teachers in September 2002.17
Any public sector merit pay system runs the risk of stimulating the development of an
economic – rather than service – culture. In this context, public sector organisations ‘need
to find a balance between providing adequate economic rewards without destroying the
intrinsic needs of public employees.’18 Using PRP may be unlikely to succeed because of
the nature of employees in the public sector.
Public sector employees have been found to have ‘a greater interest in altruistic or
ideological goals – such as helping others or doing something worthwhile for society – and
less interest in monetary rewards than do their private sector counterparts.’ Public
14
David Marsden (2001), The rate for the job, CentrePiece, Autumn, p.29
Brown, p.50
16 IDS Report 826, February 2001, p.16
17 Philippa White (2002), Heads block pay rise to protect budgets, Times Educational Supplement 11
October, p.4
18 Brown, p.50
15
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employees rate extrinsic rewards (such as increased pay) ‘lower in importance than do
employees from the private sector’.19
Linking pay to employees’ performance may backfire because this kind of management
tool is seen as an attempt to control staff. The measurement of employee performance can
be made ineffectual by the ‘obsession with control and therefore is liable to undermine,
rather than contribute to, performance’. The ‘reaction to incentives can (according to
Kohn) produce negative behaviour in a number of different ways, from the single-minded
pursuit of only that which delivers rewards, to the subversion of incentives because people
resent the perceived attempt to control them.’20
Employees who are committed to their organisation are less likely to minimise their effort
than those who are not. Yet the design of incentive pay schemes ‘often assumes that this
is how employees will behave, unless they have an incentive to do otherwise. For those
with a strong professional or public service orientation, this may be a mistaken
assumption’.21
While there is a significant body of evidence concerning the negative impact of PRP
schemes, there is evidence that any positive effects of these schemes may be slight. The
IPD survey in 1998 found that ‘only 21% of organisations in the IPD survey said that these
schemes have a positive effect on the behaviour of ‘high performers’ and only 4% thought
that they had a positive impact on the more average performer.’22 As Gabris and Mitchell
point out, the ‘paradox of merit pay is that, while it potentially satisfied the need of one
group, it may downgrade the needs and opportunities of another’.23
Given the problems associated with performance pay, it is not surprising that in 2004,
Incomes Data Services commented that in the public sector ‘we have seen further moves
away from what used to be individual performance pay and also moves away from what
were forms of broad banded pay systems. The emphasis on individual performance-related
pay in civil service pay agreements has been receding … Bands have been shortened and
the link between progression and top performance markings has been removed so that all
satisfactorily performing staff can get to the target rate for the job in four or five steps.
Performance is now more likely to be rewarded by non-consolidated bonus payments. In
many cases there is a return to automatic or semi-automatic progression through scales.
19
Brown, p.50
C. Hendry, S. Woodward, P. Bradley & S. Perkins (2000), Performance and rewards: cleaning out the
stables, Human Resource Management Journal, Vol 10, No 3, p.46-47
21 David Marsden (2001), The rate for the job, CentrePiece, Autumn, p.30
22 http://www.eiro.eurofound.ie/1998/03/Feature/UK9803107F.thml
23 G.T. Gabris & K. Mitchell (1998), The impact of merit raise scores on employee attitudes: the Matthew
effect of performance appraisal, Public Personnel Management, Vol 17, No 4, p.384, quoted in Michelle
Brown (2001) Merit pay preferences among public sector employees, Human Resource Management
Journal, Vol 11, No 4, P.49.
20
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This reverses much of the Government exhortation of the past decade to introduce
performance pay.’24
It is a matter of concern that employers in further and higher education are seeking to
introduce greater levels of performance-related pay, when the trend in public sector
employment has been in the opposite direction, because of the problems inherent in this
form of reward mechanism.
International research shows that PRP in education systems is time-consuming;
undermines morale and team working; lacks transparency and consistency; fails to
motivate staff; and discriminates against women.25
Above all, there appears to be little evidence of the potential of performance related pay
schemes to motivate academic staff to develop their effectiveness as teachers.
In higher education, surveys of administrators indicate that PRP is often the least effective
motivator for academic staff. Instead, tenure, promotion, and intrinsic rewards have the
most significant impact on the activities of academic staff.26
Any system that fails to meet these criteria will undermine the collaboration between
colleagues necessary to maintain and enhance the internationally recognised high
standards to which UK universities aspire. It will also expose universities to claims of race
and sex discrimination.
5. PRP in further education
UCU supports positive measures to improve the quality of teaching including the use of
‘appraisal’, and in 2004 signed a national agreement on performance management which
forms part of the overall modernising pay agreement. UCU supports an approach which
provides a framework to support lecturers at work with constructive feedback and regular
exchange of dialogue between appraisee and appraiser which helps identify training and
development needs and raise teaching and learning standards. A successful system would
require careful introduction, with both appraisers and appraisees being fully briefed and
trained on its use in advance.
24
IDS (2004) Pay in the public services 2004 (London: IDS) p.4
T.A. Chandler (1989), Is merit pay truly meritorious? College Student Journal, 23(2), 109-112. P.
Lewis, (1993) Performance-related pay in higher education. Education and Training, 35(2), 11-15. S.F,
McLendon, (1992) The Development of an Incentive Pay System for Use at Sue Bennett College.
Doctoral practicum report, Nova University, April. (ERIC Document Reproduction Service No.ED 345
619); J. McMurtry, (1991) How competition goes wrong. Journal of Applied Philosophy, 8(2), 201-220;
R.I. Miller, (1988) Merit pay in United States postsecondary institutions. Higher Education, 17, 219-232;
Richardson (1999), op cit.
26 G.J. Marchant and I. Newman, (1994) Faculty activities and rewards: views from education
administrators in the USA. Assessment and Evaluation in Higher Education, 19(2), 145-152
25
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UCU has made it clear that improving the quality of teaching in further education must go
hand in hand with manageable workloads, a supportive management culture, and
adequate access, with remission, to continuing professional development.
The national joint agreement on Guidelines for Performance Management in FE Colleges,
specifically states (paragraph 2.3) that it: ‘is not intended to require the performance
management scheme to be used for the determination of salary increases or bonuses
where paid.’
Unfortunately the recent AoC Employment Briefing 71/06 is likely to encourage some other
employers to follow the small number of institutions which have already begun proposing
an explicit link to rewarding performance by linking the appraisal outcomes to all future
incremental progression. It may present branches both with difficulties when pursuing
implementation agreements, and, further, may put at risk agreements already in place.
At one institution, UCU recently balloted members on industrial action against such an
attempt. A branch leaflet summarised the issue:
‘For you to get your incremental pay rise you will have to apply for pay progression and
meet completely subjective targets based on observations, appraisals, student retention
and success rates and confirmation that you have completed your 864 teaching hours.
Much of this is beyond your control and the rest is completely subjective. ‘
Another such scheme also includes a further and more difficult set of criteria to access the
so called ‘new enhanced rates of pay’ which form part of the proposal.
This scheme proposes that appraisers ‘…recommendations will be considered by a panel of
senior staff’ but no associated criterion is published to explain how recommendations will
be fairly assessed.
In another college a member of staff suffered a double whammy:
‘I was off sick for about three months following a major operation. As a result I
was told I could not have my annual appraisal. However my PRP was dependent
on the outcome of the appraisal so I was also denied access to PRP’
In yet another college, the criteria which helped trigger performance related payments
were set out in a matrix in which staff were marked between ‘very good’ and ‘training
needed’ on:
 ‘contribution to cheerful atmosphere in college’
 ‘dependability’
 ‘loyalty’
 ‘diligence’
UCU is not opposed to rewarding merit within an agreed and transparent promotion
process. However, any such scheme could only be introduced after the low level of basic
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salaries and recruitment and retention problems have been addressed and we would want
the same criteria applied to senior management as to other staff;
Further detailed bargaining advice for branches is being developed. In the meantime
branches encountering problems arising from the AOC advice are advised to contact their
regional office in the first instance.
6. Equality and PRP
There is already widespread gender and race discrimination over pay within FE and HE,
particularly amongst those staff on fixed term, part time, hourly or variable
hours/associate lecturer contracts. Other staff groups such as LGBT and disabled also
suffer a range of discrimination. PRP is likely to increase inequality and discrimination
further.
Both AUT and NATFHE were highly critical of PRP in higher education. However whilst PRP
was almost entirely absent from the post-92 institutions, a significant number of pre-92
institutions had introduced a range of local discretionary pay arrangements, which added
discretionary pay points to the top of pay scales. The AUT was sufficiently concerned that
as long ago as 1991 it produced clear evidence that the form of PRP operating within
higher education (the discretionary pay scheme) was divisive, demoralising and
discriminatory.27
The scheme was being used by individual institutions to increase the salaries of those who
were already higher paid, bypassing the promotion process and discriminating against
contract research staff, part-time staff and women. The criteria for allocation were unclear
and some institutions allocated the bulk of the monies through secretive senior
management committees.
More recently, analysis by the former AUT in HE of discretionary point data in 1999-2000
indicates that male academic and research staff are far more likely than women to be on
discretionary salary points.
London Metropolitan University was almost the only post 92 institution using PRP. The
results extracted from the institution by NATFHE confirmed fears of innate unfairness28:
 white staff were twice as likely as black and minority ethnic staff to receive the highest
level of reward under the PADAS PRP scheme
 the scheme distorted the appraisal process and led to games playing.
The more discretionary any pay system is, the more opaque it will be, and the more
vulnerable to distortions based on favouritism and discrimination. Where there is least
27
28
AUT (1991), Merit and Market? The case against discretionary pay in universities. AUT
Letter from NATFHE to CRE 6th May 2005.
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transparency, for example in the determination of professorial salaries in HE, women and
ethnic minorities have been shown to suffer the most discrimination. Analysis of the
discretionary payments awarded in 2002 in old universities showed that men were over
50% more likely to get such payments.29
UCU also believes that the concept of self assessments as promoted in at least one FE
scheme is potentially discriminatory. People naturally undervalue themselves, and this is
we believe particularly so amongst minority groups, women, or staff who are less confident
than others, and is not a fair or robust approach to performance management.
UCU will not endorse any pay arrangements that are not open, transparent and equality
proofed. Indeed were we to do so, we would be collaborating in discrimination. In order to
ensure this is the case, local representatives should:
 Insist on an equality impact assessment of any proposals prior to their introduction,
drawing management’s attention to the statutory requirement to carry out such
assessments in respect of race and disability.
 Insist on an equality audit to include detailed monitoring data on the consequences for
staff of any such scheme.
7. What the evidence shows
The reasons given by the AoC for pointing colleges towards performance linked increments
are to avert discrimination claims linked to Cadman or age discrimination. The legal case
for this claim is extremely flimsy and our rebuttal is available to UCU branches on request.
Far from PRP linked increments averting discrimination claims, it is bound to prompt them.
Moreover, the other claims for PRP being made by individual colleges, that PRP motivates
staff, fly in the face of available public sector evidence.
Recruitment and retention should be dealt with by improving the levels of pay for all staff
at all levels and addressing the issue of comparability with similar staff in other sectors.
PRP does nothing to address the problem of declining real pay in further and higher
education; in fact in FE there is evidence that it creams money off the inadequate scale
increases and effectively lowers the basic salary levels making PRP entirely counterproductive.
Merit and achievement can be rewarded in such a way as to benefit the whole of FE and
HE through an agreed and transparent promotion process. Both FE and HE staff place a
premium on teamwork and mutual support.
29
Discretionary salary points in UK higher education institutions. AUT analysis of HESA Individualised
staff record 1999-2000
12
Academic work is often misunderstood as essentially individualistic, but the principle of
collegiality is vital to the maintenance of academic standards. Ministers misinterpret
resistance to PRP as ‘misguided egalitarianism which they then condemn as evidence of ‘a
culture of mediocrity’. But this resistance is a professional response to PRP.30
PRP will not improve the quality of FE or HE and academic standards will be depressed.
Most potential quality targets that could be used for performance ratings are not under the
control of individual members of staff. The adoption of PRP would be likely to lead to an
increase in the importance of numerical targets, i.e. payment by results, which would force
down standards as lecturers are pressurised to pass more and more students.
In one FE college in Essex that recently introduced PRP, UCU warned that the consequence
would be staff moving elsewhere both because of the impact on pay and perceived
unfairness of the system. That is precisely what happened.
UCU believes that credible methods for evaluating, recognising, rewarding and enhancing
teaching should reflect and build upon existing academic values and procedures.
Performance related pay is not one of those options. Instead, institutions should ensure
they have in place formal and transparent reward systems linked to tenure and promotion.
Research shows that these mechanisms, alongside using multiple forms of peer review and
research-based approaches, are the key to recognising and rewarding good teaching.31
This Briefing draws heavily on previous work by Stephen Court and further comments by
Martyn Moss and Andy Pike
30
Peter Mortimore (1998), The Independent, 5 November.
Gibbs, G. and Habershaw, T. (2002) Recognising and Rewarding Excellent teaching, National Coordination Team/Teaching Quality Enhancement Fund, Open.
31
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