The problem with Performance Related Pay...

I read an article in today’s Guardian which referred to performance related pay in the civil service. It got me thinking - I understand George Osborne plans to introduce greater performance related pay to the Civil Service in 2016. I don’t have an issue with reform of the civil service (although I don’t pretend to know much about the civil service if I’m honest) but I do have an issue with performance related pay. On the face of it, performance related pay seems like a logical thing to do. No doubt politicians think it is a good way to ensure results and demonstrate to the public that they’re being tough yet fair. After all “reward” equals “pay” right?

The unfortunate thing is there is very little (in fact next to none) evidence to show that performance related pay actually works! There is however evidence to show it can be damaging and actually drive the wrong behaviours. For many decades respected industrialists and academics have told us that money is a poor motivator. For example Frederick Hertzberg told us in 1959 that money is important to an extent - but only to a limited extent. Karl Dunkers ‘candle problem’ published way back in 1945 showed the limitations financial incentives have in driving results to complex problems. The fact is the ‘carrot and stick’ approach which encompasses things like performance related pay and performance appraisal rarely works and when it does, does so in limited circumstances.

The most powerful human motivation comes from within and there is a lot of evidence to support this. If you’re sceptical, apply this to your own life and you will see it makes sense. For example do you bust a gut to finish that 10k because someone is going to pay you? Do you volunteer with your local sports club because you will get punished? No of course you don’t. A cursory glance at some of the most successful entrepreneurs in the world is revealing. People like Branson or Zuckerberg talk about solving problems, coming up with innovative solutions, creation, having mastery of their work. In fact money is a consequence of their success rather than the driving factor.

Yet in late 2013 we’re still in a situation where politicians and many companies think the best way to motivate people is through performance related pay.