Problems with the Implementation of Performance Measurement Systems in the Public Sector Where Performance Is Linked to Pay

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PROBLEMS WITH THE IMPLEMENTATION OF PERFORMANCE MEASUREMENT SYSTEMS IN THE PUBLIC SECTOR WHERE PERFORMANCE IS LINKED TO PAY: A LITERATURE REVIEW DRAWN FROM THE UK

MIRAL METAWIE
PhD student in Industrial Relations KBS Annex University of Kent at Canterbury Tel: 01227 82-3375 E-mail: mm248@kent.ac.uk

DR. MARK GILMAN
Senior Lecturer in Industrial Relations/HRM KBS University of Kent at Canterbury CT2 7PE Tel: 01227 823797 Fax: 01227 761187 E-mail: m.w.gilman@kent.ac.uk

3rd Conference on Performance Measurements and Management Control (Nice September 22-23, 2005)

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Abstract
According to Robert Kaplan and David Norton, (1992; 1996; 2001; 2004), 'the final linkage from high-level strategy to day-to-day actions occurs when companies link individuals' reward programs to the Balanced Scorecard'. The objectives of this linkage are, first, to focus employees' attention on strategic priorities, and second, to provide extrinsic motivation by rewarding employees when they and the organisation reach their targets. Performance related pay (PRP) which has been widely introduced especially in the public sector holds out the promise of providing such a link. Yet, in practice performance measurement in the public sector has been a problematic area with PRP. This paper will attempt to address the problems of applying performance measurement systems (PMS) in linkage to pay systems in the public sector through reviewing the literature of the UK. An extensive portion of the literature on PMS has been concerned with the economic benefits of the application of such systems as strategic control systems to increase productivity through monitoring employees’ activities and influencing their behaviours (Kaplan and Norton, 1996b; Neely, 1995). This however, brings attention to two issues that raise doubts in the lucidity of this literature and the validity of using, mainly, economic theories to assess the benefits of PMS. The first is that though one can note that the most important element influencing organisational performance is the human factor, economists and scholars have mostly referred to the success of performance measurement (PM) and incentive systems in terms of productivity, which though incorporating both financial and non-financial measures still ignores employee relations and organisational behaviour theories. In fact if we look at the assessment of PRP systems in several industries within the public sector (e.g. Civil Service, Local Government, and Nationalized Industries) we come to the conclusion that whilst it may be successful in generating increased productivity;, its impact on employees’ behaviours, such as motivation, has been proved negative in most research. The second is that while there is a logical link between PRP and PMS, in practice such links seem less coherent than suggested in the literature (e.g. Kaplan and Norton, 1992; 1996b). Yet there is a lack of research on what might be the cause of such incoherence, even worse, there is a lack of research on the strength of such link. In other words, overlooking the link between rewards and PMS, leads to neglecting the problems inherent in measuring the performance of the public sector and the difficulties in finding unproblematic performance measures. By looking into different fields namely industrial-psychology, sociology and economics this paper will identify problems of performance measurement when performance is linked to pay (PRP). For the purpose of this paper, a literature review of the UK public sector is conducted in order to highlight gaps in the research area of PRP and PM.

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INTRODUCTION
There has been a substantial body of literature on performance measurement in both the public and the private sector. Though there have been some differences of interest in researching both sectors – in the fact that while more clear examples of application and success have been reviewed in the private sector very few are found in the public...
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