Appointments and Pay Panel
PERFORMANCE RELATED PAYMENT 2005/06
1
SUMMARY
1.1
This report provides background information to enable the Panel to determine
the performance related pay (PRP) award for the assessment period June
2005 – May 2006 (payable in July 2006). It should be read in conjunction
with the Staff Side report in the Appendix to this report.
2
INTRODUCTION
2.1
Following a joint Member/officer review of the PRP and appraisal schemes
during 2002, a number of changes were made to the process and timing of
performance assessments within the schemes. Objectives are now agreed
and assessed annually in May each year with performance related payments
made each July.
2.2
The Council’s PRP scheme has been in operation since 1990. During this
period the value of a Standard Merit Unit (SMU) has been set at the following
levels:
1990/91
5%
1999
4%
1992/93/94
2.5%
2000
3%
1995/96
3.5%
2001
3.5%
1997
4%
2002
3%
1998
3.5%
2003 (part year)
2004
1%
3%
2005
3%
3
FACTORS FOR DETERMINING THE VALUE OF A SMU
3.1
Historically, the Panel has taken account of two main factors when setting the
value of the SMU each year. The first of these is the need to maintain the
credibility of the scheme. As a guide, the Panel has in the past used the
relative value of increments under the national pay scheme as being
indicative of a worthwhile level of reward for performance. An annual
increment represents between 2% - 3.8% of basic salary.
3.2
The PRP and appraisal scheme was first revised during 1997, to take account
15 April 2005
Appointments and Pay Panel
of feedback from staff. One of staff’s concerns at that time related to the level
of SMU determination in earlier years. As a result the scheme was changed
in 1998 to allow Staff Side to submit a written report to the Panel, putting
forward their views on an appropriate level of SMU. This year’s Staff Side
comments can be found in the Appendix to this report.
3.3
The second factor is the Council’s ability to pay. The budget for 2006/07 has
not yet been set but the Panel’s decision will create a commitment within the
budget review process.
3.4
As a general rule, the number of staff qualifying for PRP payments in any
year has been, as a result of service and resultant progression through the
grade, significantly less than the total number of staff employed. In addition,
the pay scheme is structured so that most staff who qualify for a PRP award
in any year will receive 0.75 of a SMU rather than 1.00 SMU.
3.5
The PRP Scheme has operated successfully for many years. The Council
and customers have benefited from improved performance from the council’s
staff. Thus, the profile of assessments awarded through the appraisal
scheme has in general terms moved upwards. This is an expected result of
improved corporate performance e.g., excellent PDG awards and recycling
service.
3.6
The Council has a unique and effective approach to performance
management. The major and most important element is the appraisal
scheme. Many Councils have appraisal schemes but why Broadland is
unique is that it is universally applied. Many Councils struggle to get beyond
50% compliance. We get 100% because of the pay link.
3.7
The PRP scheme exists as just one part of an overall remuneration package
for staff. Were it is to be reduced significantly it would be necessary to
undertake a broader review of the Council’s remuneration package in order to
ensure we remain competitive in the jobs market and continue our current
high levels of staff morale, low turnover and absence rates and good
performance.
4
RESOURCE IMPLICATIONS
4.1
As previously outlined, the exact cost of the PRP award depends on a
number of variables, most importantly the performance levels of staff and
their current position in their salary grade. For example, the 2003 PRP award
(payable in July 2004 and the most recent full year award) setting a SMU of
3% resulted in a 2.35% increase to gross basic salary costs.
4.2
The table below outlines a range of costs, which, based on previous experience
might be expected from various levels of SMU. The costs have been increased
15 April 2005
Appointments and Pay Panel
from previous years’ costing models, to reflect the (higher) July 2004 SMU
effect on basic salary costs. If this proves to be an overstatement then, (July
2005 pending), budget provision can be reduced accordingly.
Value of
SMU
Percentage
Effect on Basic
Salary costs
%
1
2
3
4
5
10
%
0.78
1.57
2.35
3.13
3.92
7.83
Full Year Cost
Percentage
(incl. of 20%
Effect on
employer on
Council Tax
costs).
£000
%
46
1.1
93
2.1
139
3.2
185
4.3
231
5.3
462
10.7
4.3
The budget provision for the July 2005 PRP award needs to be increased, in
order to allow for the increased cost of implementation (see 4.2 above). In
2005/06 the predicted £24,000 shortfall (over and above the budgeted
£78,800 provision) can be covered from contingency funds. In 2006/07, a
total of £58,000 will need to be budgeted to cover the full year effect and
the shortfall from the July 2005 award. This is in addition to any cost
arising from the 2006 award.
5
LEGAL IMPLICATIONS
5.1
The Council has power to pay reasonable remuneration to staff. In so doing,
it cannot take into account other considerations such as setting a good
example to other employers.
6
RECOMMENDATION
6.1
The Panel is RECOMMENDED to consider the information provided in this
report together with Staff Side views and determine the percentage value of a
Standard Merit Unit for the 12-month period June 2005 to May 2006 (payable
July 2006).
Stephen Fennell
Head of Information & Human Resources
Background Papers
None
15 April 2005
Appointments and Pay Panel
For further information on this report call Stephen Fennell on (01603) 430524 or email stephen.fennell@broadland.gov.uk
15 April 2005
Appointments and Pay Panel
Appendix
UNISON’S SUBMISSION ON THE MINIMUM VALUE OF THE STANDARD MERIT
UNIT FOR 2005
The philosophy behind performance related pay is to encourage high standards of
quality and output in work through the incentive of financial reward. Research by
UNISON’s Bargaining Support Unit has highlighted a common flaw inherent in
performance related pay schemes that operate in the public sector. The limited
cash award for good performance fail to motivate staff and have a negative impact
on staff morale.
An effective performance related pay scheme can help in recruitment and retention,
which avoids the costs associated with losing experienced members of staff and the
recruitment. Not least of these benefits is the financial benefit for the organisation in
retaining staff.
In order for the Standard Merit Unit to act as a catalyst to achieving such high
performance it is necessary for it to be set at a high enough level to warrant staff
putting in an effort over and above what is merely adequate. Likewise the ability to
move through to the higher end of the grade can give Broadland the edge when
compared with other employers. However, the Broadland scheme has an additional
flaw, as there are many members of staff who never receive a Performance Related
Pay Award as they are at the top of the scale. This is often because they have
performed well in the past and moved through the scale but have not had the
opportunity for promotion. The Performance Related Pay Award can be a
disincentive for these members of staff. UNISON requests that the scheme be reexamined to explore ways of giving some award or incentive for staff in this position.
In addition to the above, although inflation was quite moderate in 2004 workers in
the East saw their cost of living rise disproportionately quickly - at 6.1% for
September 2004 – ranked highest of all regions in the UK. Croner Reward "Cost of
Living Regional Comparisons"
In an authority that so heavily relies on the goodwill and hard work of its staff, a
scheme of reward needs to reflect the Councils appreciation of effort in an often
under-resourced environment.
For these reasons if this year’s award is to have a motivating effect, and to help
recruitment and retention, it must be set at a level of at least 6%.
15 April 2005