How effective is the pay-for-performance scheme in the public sector? Most civil servants working in public administrations worldwide before the 1980s had a salary system built upon seniority and length of service. The basis for career advancement did not look into the performance of the position holder.
During the 1990s, the tendency to change the payment systems was born, and the direction sought was to look into individual performance but only for senior public service officials and middle managers. What fueled the change was the need to fill in the gap between the salaries of managers in public service and those who served in the private sector so they could attract and retain private sector managers in public administration. Moreover, the focus was essentially on improving the motivation and accountability of civil servants.
However, in most European countries, there was little introduction to performance-related pay for non-managerial positions in civil service. The conclusion drawn by the European Public Administration Network was that the staff’s motivation could have improved. Given that only those achieving outstanding performance were entitled to a bonus–perhaps due to the efficiency of government spending, the employees found the schemes de-motivating. This caused jealousy and led them to blame the appraisal system.
Rigid pay systems began to be called into question to thrust into light the public value system and be able to compete with the private sector. By the 2000s, a significant number of civil servants were covered by various flexible payment arrangements. In other words, seniority was replaced by non-bureaucratic criteria such as job content, qualifications, competencies, and individual performance.
A controversial function under Human Resources Management is the individual staff performance appraisal with a pay-for-performance (PFP) scheme, which became popular among practitioners and academics in the New Public Management (NPM) wave. The public sector was responsive to change and complemented career-based pay with PFP models to reach soaring levels of attractiveness. Then, the NPM trend was established. There are two perspectives in analyzing the effect of monetary rewards or the efficient use of assets on the public sector.
The Standard Economic View is grounded on the notion that performance is positively related to effort, so outstanding performance should be rewarded. According to Victor Harold Vroom’s Expectancy Theory, there are three major elements of employee motivation. First is expectancy — an employee is motivated due to thinking that effort leads to “acceptable performance.” Second is instrumentality — meaning the “performance will be rewarded.” Lastly, the valence — “the value of the rewards is highly positive.”
Vroom saw the connection of these elements in motivating employees and provided guidelines on employee effort-to-performance expectancy, performance-to-reward expectancy, and valences of reward, which leaders will play an essential role in implementing.
Effort-to-performance expectancy – Leaders should provide all the training and support for their employees to be effective at work and be open to employees’ suggestions about innovative ways of getting their job done. Moreover, leaders should set expectations while helping employees achieve certain performance levels.
Performance-to-reward expectancy – This is where PFP will emerge. Leaders should establish with their employees that good performance will be rewarded. With this, the process of the reward mechanism should be strengthened. Performance should be accurately measured, and reward will be based on the result.
Valences of rewards – Rewards given to the employees should be diverse, with some preferred promotion, salary increase, or vacation leave credits. Leaders should make an effort to increase the expected value of rewards associated with their performance expectations.
The advantage of this approach is that weak performers are identified through financial incentives, and their performance is assessed through KPIs and targets, resulting in increased productivity and efficiency levels.
Image source: freepik
The Cognitive Psychology View takes heed of the two kinds of motivation: intrinsic and extrinsic. The first type of motivation looks for joy, satisfaction, and a sense of duty in the activity, rather than the external pressures or rewards, such as money or promotions and benefits, which the second type does.
Understanding workplace motivation is a critical component of achieving a dynamic work environment that enriches and fulfills employees. Based on Rajesh Singh’s study, “The Impact of Intrinsic and Extrinsic Motivators on Employee Engagement in Information Organizations,” managers must understand that intrinsic factors play a more significant role in motivating employees and investing more in building a culture of respect, appreciation, honesty, and individual freedom when reshaping their management approaches in tapping their employees’ emotion.
Literature, such as “Crowding Out Intrinsic Motivation in the Public Sector” written by Yannis Georgellis, Elisabetta Iossa, and Vurain Tabvuma, showsthat public servants tend to be more intrinsically motivated than private sector employees. That is why the motivation of public employees might decrease when extrinsic rewards are introduced.
Pay-for-Performance Schemes in Public Administration
According to a report issued in 2020 by the European Commission called “Pay-for-Performance in the civil service of the EU,” the monetary rewards are emphasized through a variety of economic forms that depend on several factors:
* Whether the performance of individuals is tracked
Individual performance can be approached in different ways. Traditionally, performance was scored on a scale based on a set of criteria and indicators, thus, leading to a differentiation of public servants into multiple performance categories. The modern way to register it is through regular performance appraisals in which employees ought to meet objectives’ targets within a certain timeframe. Crossing from output measures towards performance appraisals made the process more enchanting for the public system employees as they felt that they are part of a less rigid rating system that was qualitatively addicted. Some examples in this area are Estonia, Greece, and France, which gave up on explicit numerical rankings. Whereas Denmark and Finland have decentralized the decision regarding the rating system used to the organizational level.
According to a European Public Administration Network (EUPAN) survey (Staronova, 2017), only two countries reported using a quota system, Malta and Latvia. However, the purpose of it is to use it as a guideline only and not a strict requirement. Germany uses quotas only for the top performers in order to better differentiate them per category.
Part of the modern trend of performance instruments may be encountered in the self-assessment, together with the performance interviews. The methods are established through intrinsic motivators, like professional development opportunities or quality connections.
* The size and forms of payment (base pay, one-time bonuses, or a combination of the two)
Most of the time, the typical merit scheme links individual performance to annual salary raises. The computation is either as a percentage of base pay (3-10%) or a variable merit increment. Another form of it is granting a lump sum bonus. Some countries, such as Slovakia and Lithuania, offer a “pay promotion” that is tied to performance appraisal and a career promotion that assumes a change in rank.
Modern pay systems abandon the automatic pay progression and embrace the flexible PFP regimes under which annual evaluations and regular check-ins build the civil servant’s profile for a higher chance towards career advancement or bonus payment. According to the EUPAN 2017 survey, Portugal is an example of salary progression, as a public employee with an excellent performance score stays in the queue, alongside other high-performing candidates waiting for the managerial decision to give employees a bonus. Meanwhile, if other colleagues of a public employee that await in line accumulated an increased number of points since the last change of pay, they are entitled to the bonus.
Pursuant to “Pay-for-Performance in the civil service of the EU” developed by the European Commission, most Central European countries punish poor performers by decreasing their salaries or withdrawing the financial rewards. Others, like Malta and Belgium, chose to reflect the punishments on career progression by freezing it or even introducing the possibility of being downgraded.
Modern Performance Management Trends
More and more EU countries started to adopt PFP schemes in the public systems as they scrapped its controversial reputation and took heed of overall motivation, communication, and relations within the administration. Several key trends made it easier for financial schemes to be integrated into the organizational managerial culture:
Feedback and continuous discussion – Regular check-ins on results and competencies development represent a key trend within employee performance management. Mixing monetary incentives with non-monetary ones increases the changes in individuals’ motivation to reach new peaks. Annual appraisals performed in isolation are not the key to objectives achievement or performance of any kind. However, combined with ongoing feedback or performance interviews between superiors and civil servants creates common meaning and prepares them for the yearly evaluation. In the Swedish public administration, employees discuss goals and work-related issues with the manager, and they are aware of how payment is set and how they can increase their share.
Self-assessment – In order to involve and obtain civil servants’ input, they are required to perform self-evaluations. Shared insights of civil servants on how the job can be carried out effectively bring a valuable contribution to how they perceive appraisals, requirements, and opportunities for professional development. In Slovakia, this factor is introduced as a voluntary tool, while in Italy, the method is used for both supervisors and senior civil servants. In Portugal, self-assessment is compulsory to be carried out.
Competency-based approach – This takes into consideration technical skills and behavior patterns that put an apprentice on how individuals do their jobs. Moreover, the focus is on how civil servants contribute to the overall administration’s mission. According to a EUPAN survey (Staronova, 2017), in the past decade, the number of countries that adopted competency frameworks doubled. Supervisors believe that the policy contributes to the public sector’s performance by a vertical alignment of people’s competencies to the mission and vision.
Considering the current labor market challenges, pay-for-performance schemes need to be strategically planned to look into both the cost-effectiveness related to employment and the outcomes that support public employment services. The rule that undergoes tight budgets is to do more with less, thus implementing cost-effectiveness measures might provide comparative information on the labor market cost. Performance management should be linked to high-quality HR practices, in which individual, team effort, ongoing coaching, targeted training, and recognition are well-settled. Moreover, the human resources practices available in the public sector have a demonstration effect across the entire local market.Performance management should be tailored to influence civil servants to meet local needs rather than to achieve set targets at any cost.
Banks have beenbuilt on trust for more than six centuries. Bank relationship managers, a specialized type of banker, are vital in maintaining lasting relationships between their respective institutions and their consumers. As frontline officers, they are responsible for growing the business volume by selling various lending and funding products. Traditional approaches in trust-building put too much value in physical interaction above everything else—with modern technology only acting as an aid in supporting the exchange in order to be perceived as more genuine. This obsession with “I only trust what I can see with my own eyes” on both parties is not unfounded as bankers are handling very valuable assets.
Digitalization has presented a new challenge for banks as it changed how customers interact. Digitally savvy millennials for example are expecting
seamless omni-channel interactions with instantaneous service delivery akin to the ones offered by tech giants like Google or Netflix. Media consumption has also shifted to social media dominating the landscape. Even information gathering has also changed, with Gen-Z preferring to learn by their own rather than under the company’s sales personnel. These changes were further normalized with the pandemic in the 2020s, which discouraged physical interactions.
Recent developments have prompted banks to invest in more robust information technology (IT) architecture, which has led to the high demand for top tech talent.Smaller banks adopted partial digitalization through mobile banking applications, while larger banks created entirely new digital banks as subsidiaries. The allure of scalability, efficiency, and centralized operation is also driven by profit as digital banks do not need to operate multiple physical branches, which means they can employ fewer frontline staff, including bank relationship managers. As traditional banks plan to close more branches in 2024, there is a need for their relationship managers to leverage technology in building trust and loyalty with their consumers.
Building trust through technology
To create genuine interactions with customers, relationship managers mustshift their role from sales and marketing, to a more consultative-driven approach as the former has been taken over by digital media. Bank relationship managers must focus their effort in helping customers make the right decision amidst the abundance of available information. This role is beneficial across multiple generations as it helps the older generation navigate the digital ecosystem and helps younger customers take their first step in their financial journey. These interactions may also be implemented in social media by offering helpful banking guidance without pushing products.
Synergizing customer-facing and technology talents is also crucial in bridging the gap between customer needs and their digital banking solutions. Relationship managers in digital banks must be able to leverage the data offered by various digital platforms. By triangulating information acquired in the field and available from Customer Relationship Management (CRM) systems, relationship managers are able to identify the most effective interaction channels. Key performance indicators (KPIs) such as # Customer engagement and % Customer satisfaction must be considered another piece of the puzzle in decision-making. This triangulation of data will also enable personalized interactions through digital platforms to generate closeness and trust with customers. In addition, this digital record would also facilitate seamless transitions from one relationship manager to the next.
Bank relationship managers must also take a proactive role in improving their bank’s various digital platforms as these are essentially their organization’s extension in the digital landscape. They should move forward with the development of technology and work in a more horizontal and inter-functional structure. Their consultative role will be involved in introducing the human aspect of mobile applications and digital marketing to tech developers. Thus, modern relationship managers must also understand the digital design of the ecosystem. While this does not mean that banks should hire tech talents as relationship managers anytime soon, the talent they acquire should at least have a strong ownership towards digital applications so that they can help guide their consumers in navigating this new technology.
Digitalization has been both a blessing and a challenge for traditional banks. On one hand, it has allowed them to revolutionize their offerings to a wider range of consumers through mobile banking services and digital marketing campaigns. On the other hand, it has also forced them to adapt their approach in relationship-building. While these changes may put traditional banks into obsolescence, it has also created a new opportunity for them to synergize with the new digital ecosystem.
Does your organization adopt an employee or customer-centric operating methodology? For decades, the main focus of businesses in the Middle East has been on the customer, embracing mottos such as “The customer is always right” or “Customer comes first,” with the primary objective of attaining high customer satisfaction to expand market share. While this remains a universal goal, the approach to achieving it varies among companies, with some prioritizing employees over customers.
Employee performance management has gained increased attention in recent years compared to previous decades. This shift is largely a result of a changing mindset in both the private and public sectors regarding core business principles and operating methodologies. Companies have started to be more aware that what leads to customer satisfaction is a happy workforce, prompting them to focus more on managing employee performance.
Business magnate Richard Branson encapsulates this shift with his statement: “Clients do not come first. Employees come first. If you take care of your employees, they will take care of the clients.” This shows us the importance of transitioning towards a more employee-centric business model to keep employees satisfied and engaged while achieving business goals. For all these reasons, employee performance management plays a pivotal role.
To better understand what employee performance management entails, it is important to examine its sub-processes:
Employee performance planning: The planning phase is a prerequisite, establishing the groundwork for the entire process. It is imperative to clarify roles, responsibilities and competencies by having the proper job descriptions and competencies framework developed based on the market’s best practices.
Employee performance measurement: This phase teaches the creation of scorecards at the employee level, guiding the assessment of competencies and behaviors. It also delves into the advantages and disadvantages of creating a final performance index for each employee, incorporating clearly defined criteria such as objectives, KPIs, competencies, and behaviors.
Employee performance review: This phase details organizing and conducting employee performance review meetings, ensuring value for managers and employees. During meetings, managers transparently discuss employee performance, acknowledge achievements and progress, and highlight improvement areas.
Employee performance improvement(talent management): This phase emphasizes the right course of action after the performance review meeting and the enablers of performance improvement. It guides the addressing of low-, medium-, and high-performing staff members, underscoring the importance of a monitoring process to ensure the effective implementation of corrective actions.
Performance recognition: This process guides the creation of rewarding models for acknowledging high-performing individuals and teams, enabling the design of a sustainable reward system encompassing financial and non-financial rewards.
In 2023, several aspects of performance management, especially employee performance management, have evolved. This shift is a response to the so-called “post-pandemic new normal,” forcing businesses to rethink survival strategies for 2024 and beyond. Six main trends have emerged:
A noteworthy change is the evolution of the job landscape. Financial security, which once deterred employees from leaving their jobs, is no longer the sole factor. Jobs now offer employees opportunities for growth, continuous feedback, flexible working hours, remote or hybrid work options, and comprehensive benefits, enhancing their work-life balance. These trends underscore the imperative for businesses to shift towards employee-centricity to achieve strategic objectives and foster sustainable business practices with reduced turnover.
Employee performance management will witness further changes, particularly in performance review and goal-setting. The workplace will increasingly focus on personal and professional goals, transforming performance reviews from a process into project-based evaluations, enhancing the workspace and contributing to a more sustainable business.
To prepare you for the year ahead, The KPI Institute can equip you with the industry-leading tools and skills required to nurture employee performance. Sign up for the Certified Employee Performance Management Professional and Practitioner courses now and secure your slot here.
Image source: grapestock from Getty Images | Canva
In modern business, focusing on customer experience (CX) is no longer a nice-to-have, but rather a necessity for businesses of all sizes. However, defining a successful customer experience can be difficult because many touch points form the customer journey. By using online surveys, companies can gain quantitative information about the customer experience to actively monitor trends that develop over time. Based on customer feedback, organizations can identify areas for improvement, adjust their strategies accordingly, set better goals for their key performance indicators (KPIs), and strive to deliver the seamless experiences that today’s consumers expect.
Customer experience KPIs
Research shows that CX is now competing with traditional factors such as price and quality in influencing customer loyalty and advocacy. According to Forbes, 77% of consumers consider CX just as important as the main product or service itself. PWC reported that even beloved brands risk losing 32% of their customers after one negative interaction. In addition, poor CX burdens the company with costs. To address this, this article outlines five critical CX KPIs that can be systematically monitored, evaluated, and optimized to help address customer service problems and strengthen a company’s connections with its customer base.
1. % Customer satisfaction score (CSAT)
This KPI measures how customers rate particular interactions with a company, such as getting a response from customer care or processing a return. Users can score their satisfaction with the experience on a scale from “very dissatisfied” to “very satisfied” by responding to an automated questionnaire sent to them. Monitoring the ratings depends on a company’s objectives, but the general rule is that anything above 85% is excellent, and anything below 60% requires rapid attention.
Calculation: CSAT = (Number of Positive Responses / Total Number of Responses) x 100
2. # Net promoter score (NPS)
The NPS, considered the most famous CX KPI, reflects the willingness of consumers to recommend a product to friends and acquaintances. To calculate NPS, a company can conduct a survey of customers from one query: “What is the probability that you will recommend the product to your friends?” The answer is given on a 10-point scale, where 0 is “I will not recommend it in any case” and 10 is “I will definitely recommend.” The respondents can be divided into three groups depending on the scores obtained: promoters, passives, and detractors. The majority of companies consider a score above 80 as excellent, a score between 50 and 80 as very good, and a score below 50 as good.
An extension of the NPS index, the creation of the WoMI was motivated by criticism towards the traditional NPS. Researchers believed that the NPS made the incorrect assumption that if a customer does not recommend a product or service, then they are automatically considered detractors. This led researchers to make adjustments to the KPI in order to better reflect reality. It tracks the recommendation, but from the opposite perspective: “What is the probability that you will discourage people from doing business with the company?” This can be rated on a scale of 0 to 10. Those who choose 9-10 on the scale of “dissuading” are categorized as “true detractors.” The threshold varies from one industry to another. It is better to have a lower score, as the target for most companies is less than 10%. To gain a comprehensive understanding of your company’s position among customers, we suggest employing both approaches to obtain a complete picture.
WoMI = (Number of Promoters – Number of Detractors) / Number of Respondents * 100.
4. Consumer Effort Score (CES)
The CES index, which was developed in 2010, is related to the idea that the more effort the product or service requires from customers, the less likely they are to stay with the company. As cited in an article, research by the Corporate Executive Board (CEB) shows that 94% of customers who have an effortless experience are likely to make repeat purchases. The KPI could be measured by the customer’s response to a statement like: “Thanks to the service/product of company X. I was able to easily cope with my problem.” with a rating scale of 1 to 7. Most companies typically receive CES scores ranging from 5 to 5.5. A score exceeding 6 is generally considered above average.
CES = (Sum of response scores) ÷ (Number of responses)
5. Customer churn rate
Simply put, the churn rate is the number of users who stop any interaction with the company. Depending on the industry, this could mean that customers deleted their account, did not re-buy, or simply decided to switch to a competitor. In its simplest form, customer churn can be calculated by comparing the number of customers lost to the total number of customers. By dividing one metric by another, one can get the customer churn rate as a percentage of the total base. The most common acceptable churn rate is 5-7% annually.
KPIs must be monitored and measured in order to improve CX. To do so effectively, a system that accurately collects data from all channels should be considered. This allows requests to be categorized and common issues to be identified. In-depth interviews with both loyal and dissatisfied customers should be conducted to understand the root cause of any problems, as some of which could be related to support services. Consistency in tracking and improving CX KPIs is the key to ensuring decisions and actions in customer service adapt to changing customer sentiment and meeting their needs.
Take your CX to the next level! Visit smartKPIs.com for a comprehensive, 360-degree view of CX KPIs. For more in-depth articles on KPIs, click here.
In today’s dynamic business landscape, enhancing employee performance is crucial for sustained success. To build high-performing teams, it’s important to establish the right framework and processes for performance measurement, including the selection and deployment of tools like key performance indicators (KPIs). But how can organizations successfully unlock employee potential through performance measurement?
Here is how renowned company Adobe transformed its employee performance strategies to obtain outstanding outcomes.
Case Study: Adobe
Adobe’s transformation journey is a testament to the potential of strategic performance measurement and KPIs. Adobe has faced issues with its yearly performance evaluation process. These were:
Employees were frustrated with annual performance reviews as they found the process cumbersome and bureaucratic.
The process created barriers to teamwork since the experience of being rated and stack-ranked for compensation left many employees feeling undervalued.
Adobe estimated that a total of 80,000 hours of its managers’ time was required each year to conduct all of the reviews, the equivalent of nearly 40 full-time employees working year-round.
Adobe realized that it should not wait until the end of year to share feedback. So, the company made a surprising change that improved employee engagement and transformed the company culture.
Employee-centric approach: Adobe’s departure from traditional performance reviews towards a more frequent and less formal “check-in” process demonstrates its commitment to an employee-centric approach. These regular discussions—done at least once a quarter—provide a platform for managers and employees to engage in meaningful conversations about expectations, growth, and development. This shift reflects Adobe’s recognition that empowering employees with continuous feedback and opportunities for improvement is more effective in driving performance excellence than the conventional annual review model.
Setting clear, measurable goals: The new strategy adopted by Adobe focused on providing its staff with specific, measurable goals. Employees could clearly understand what was expected of them and how their performance would be assessed because these goals were cascaded down from the organizational and departmental goals and aligned with each other. Companies that have aligned goals tend to outperform organizations that lack a direct connection between top company priorities and employees’ individual aims.
Real-time performance insights: Adobe enabled its managers to give employees real-time insight into their performance by integrating technology. Adobe launched a digitally-enabled check-in, providing all employees and managers with a web-based destination to document their goals, development, and growth. Individual goals are documented in a centralized place, reviewed regularly, and can be updated in real-time by managers and employees alike. All of this made it possible for timely feedback and course correction, ensuring employees stayed on track with their objectives and KPIs year-round.
The results of the transformation were spectacular and resonated with employees—employee attrition dropped by 30% while involuntary departures rose by 50%. This change allowed managers to give more timely and useful feedback while empowering employees to take responsibility for their own advancement. The employees thus felt engaged, valued, and aligned with the company’s goals.
What are the key takeaways from Adobe’s case? Performance measurement best practices should always include the following:
Alignment with organizational goals: A strong performance measurement approach starts by matching team objectives and individual objectives with the organization’s overarching mission. Employee performance becomes a key factor in the organization’s success when they are aware of how their work supports corporate objectives.
Keeping qualitative and quantitative metrics in balance: Effective performance measurement goes beyond simply counting numbers, as it needs a comprehensive understanding of an employee’s contributions and their influence on the expansion of the business. This is made possible by incorporating qualitative elements like engagement, collaboration, and innovation.
Continuous feedback and growth: Many businesses are using continuous feedback loops instead of the traditional annual reviews. Periodic performance reviews and regular check-ins encourage ongoing conversations between managers and employees, facilitate growth discussions, and identify areas that need improvement.
In conclusion, the modern business landscape demands a strategic approach to unlocking employee potential. Performance measurement and KPIs are not just tools but pathways to aligning individual aspirations with organizational goals, combining qualitative and quantitative insights for a thorough understanding of employee contributions, and motivating continual improvement through timely feedback. By adopting best practices and an employee-centric approach, businesses may begin on a journey that empowers their staff, inspires innovation, and drives them to sustainable success in the dynamic global marketplace.
********
This article is written byMuhammad Ali Moustafa isa Business Management Consultant at The KPI Institute. He is a Certified KPI Professional (C-KPI) and Certified Performance Management Systems Audit Professional (C-PA). He has diverse professional experience in which he had the opportunity to work on advisory projects with different organizations, ranging from startups to multinationals.
