Managing Performance-related Pay

66 HUMAN RESOURCE MANAGEMENT JOURNAL VOL 8 NO 2

In recent years performance management has come to the fore as organisations seek

constantly to optimise their human resources in the face of growing competitive

pressures. The increased interest in performance management has been mirrored by

the popularity of performance-related pay (PRP) schemes which reward individual

employees on the basis of their job performance, de ned as `a method of payment where

an individual employee receives increases in pay based wholly or partly on the regular and

systematic assessment of job performance (ACAS, 1996: 8). Indeed, definitions of

performance management (eg Clark, 1995; Storey and Sisson, 1993) often include PRP as

an intrinsic part of this approach.

However, the PRP literature indicates that unsuccessful implementation of PRP is often

associated with ineffective performance management processes (see, for example, Cannell

and Wood, 1992; Marsden and Richardson, 1992). But, as Dowling and Richardson (1997)

note, there have been few attempts to explain empirically any observed success or failure of

PRP, including the extent to which ineffective implementation may explain PRP failure.

This article seeks to shed light on this debate. It has two aims: the rst is to identify the

performance management processes which are fundamental to the successful

implementation of PRP; the second, to establish how effectively these processes were

conducted in three organisations which were the subject of this research.

RESEARCH DESIGN

The focus of the overall study was to arrive at an explanatory theory of the effectiveness of

PRP schemes. The research design featured three nancial services organisations: Finbank, a

high street bank, Finsoc, a major building society, and Premierco, a leading insurance

company. It was anticipated that data collection in three organisations would result in a

more valid explanatory theory of PRP success than if only one organisation had been used.

Financial services was chosen because it is in this sector that PRP has been embraced

with particular enthusiasm, due to the perceived need to generate more commercially

aware behaviour among employees in an increasingly competitive product market a need

with which PRP was assumed to be consistent (Snape et al, 1992).

The focus of the study was on managers at branch (or equivalent) level the recipients of

PRP. In the three organisations, PRP operated in a similar way for managers at this level,

and this was the reason for choosing this employee category. Each organisation operated its

scheme under the umbrella of a performance management system. In all three the corner-

stone of this system was the setting of objectives by the implementing manager for the

recipient manager; these were derived from the organisations objectives. These individual

objectives were assessed at least annually and triggered a performance-based award.

Assessment in each organisation was on a ve-point scale with any performance award

being determined by individual performance. Each of the organisations had been running

its PRP scheme since the late 1980s.

Managing performance-related pay based on evidence from the nancial services sector

Philip Lewis, Cheltenham and Gloucester College of Higher Education

The main method of data collection was through semi-structured interviews lasting one

hour or more with 63 recipient managers, together with 23 managers who were either the

implementers of the scheme (usually area managers) or the designers of the performance

management scheme (personnel specialists). The semi-structured interview was chosen

because of its ability to probe beneath the surface of information that otherwise may be

accepted at face value or, alternatively, not disclosed. For example, in the Finbank pilot study

the organisations concern to use PRP to reduce labour costs was not revealed in the rst

instance in senior manager interviews. But it was apparent that this was the perception of

branch managers; this was con rmed in subsequent senior management interviews. Both

the general management and personnel management perspectives were thought to be

important so that a full picture could be obtained.

Data analysis was consistent with the grounded theory approach (Glaser and Strauss,

1967). Initially the data were disaggregated into conceptual units which were labelled accord-

ing to the main themes which arose. Initial de nition of relationships between these themes

was conducted and then a nal de nition of categories and sub-categories was developed.

The eldwork was conducted over a period of 18 months between 1993 and 1995. In

addition to interviews with managers, the author also attended managerial meetings,

studied organisational documentation and had two three-hour discussions with relevant

trade union of cials.

PERFORMANCE MANAGEMENT PROCESSES AND PRP

Analysis of the data suggested there were several key activities in the implementation of

PRP. What was clear was these had more to do with what have become known as

performance management processes than they did with pay per se. This pointed the way to

an analytical framework derived from the performance management literature.

Performance management is a term used to describe an integrated set of techniques

which have had an independent existence under their own names, eg performance

appraisal. There is no clear agreed de nition of performance management. Storey and Sisson

(1993) note that, at its broadest, the term can mean any activity which is designed to improve

the performance of employees. At its narrowest, performance management is used to refer

to individual PRP. Storey and Sisson (1993) note that performance management has three

basic activities:

1. setting clear objectives for individual employees which are derived from the

organisations strategy and departmental strategies;

2. formal monitoring and review of progress towards these objectives; and

3. using the outcomes of the review process to reinforce desired employee behaviour

through differential rewards and identifying training and development needs.

Clark (1995) stresses one important additional facet of performance management activity:

that of feeding back to the employee the results of the formal monitoring.

It can be seen from the above definition that PRP is usually an intrinsic part of

performance management. The IPM survey on performance management (Institute of

Personnel Management, 1992) reported that two-thirds of the respondent organisations

which operated PRP without other performance management policies thought that PRP had

contributed to improved organisational performance. This contrasted with 94 per cent of the

sample which operated PRP with other performance management policies, who thought

PRP had contributed to improved organisational performance. This suggests the importance


67HUMAN RESOURCE MANAGEMENT JOURNAL VOL 8 NO 2



of PRP being located within the context of performance management activities, ie activities

which set objectives, measure performance and give feedback against objectives.

The IPM survey claims several advantages for performance management, including:

l more effective employees able to meet increased product market competition;

l the pushing of key decisions down the organisational structure to line managers, together

with a greater acceptance of accountability by such managers; and

l reward structures which reward performance.

Among the bene ts of performance management claimed by Clark (1995: 186) is that it

`provides a means of inspecting the functioning of the process links which deliver

performance against objectives . It is this last bene t of performance management which

makes it particularly attractive as a tool to analyse the implementation of PRP. In the case

study organisations PRP was concerned with delivering performance against objectives and

examining the process links between the various aspects of the implementation of PRP

offered a thorough way of analysing the data.

Storey and Sisson (1993) and Clark (1995) represent performance management as a cycle of

activities. Analysis of the PRP data in this study was conducted using a cycle derived from this

work. Figure 1 illustrates the PRP process cycle, shown here as an interactive cycle as opposed

to a series of discrete activities; that is, the processes are presented in a logical order and there

is a relationship between each of the processes in the cycle in that each one affects the others.

The interactive nature of the model, indicated by the arrows, requires explanation.

Clearly, the performance objectives set in stage 1 of the cycle are those which it is intended to

measure in stage 2. But the arrow pointing back to stage 1 indicates that the measurement

process may involve a redefinition of the objectives. Underperformance may lead to a

decrease in targets and overachievement an increase.

The performance measurement process will provide feedback to recipient managers on

their performance level in stage 3 of the cycle. The arrow returning to stage 2 indicates that a

consequence of this process may be modi cation of the measures being used and of the way

in which the feedback is given, eg too infrequently or too critically.

Feedback on performance eventually leads to the performance rating derived being tran-

slated into a pay award in stage 4. Here, the arrow points back to stage 1 because it is possible

that recipient managers may appeal, either informally or formally, against the rating and the

amount awarded. This may lead to a modi cation of the rating, award and future objectives.

As Lawler (1995) asserts, communication is a key aspect of the cycle. Communication of

relevant performance management information from implementing managers to PRP

recipients is placed at the centre of the model and it is seen to be essential that this ows

around the complete process cycle. This involves the setting objectives stage. For example,

what are the origins of the objectives? What are the objectives of colleagues, of other

divisions and regions? Performance measurement calls into question the extent to which

information about other recipients is communicated. Communication is obviously at the

heart of the feedback giving process. For example, how much justi cation is given for the

assessments made? Translation of performance rating into award implies the need for

communication of information about the expected level of the `pot size and the implications

of this for the respective levels of rating. Knowledge of this allows the potential recipient to

be clear about the award he or she can expect.

Clearly, the PRP process cycle represents an idealised approach to the implementation of

PRP. But it is used here principally as a `means of inspecting the functioning of the process

links which deliver performance against objectives (Clark, 1995: 186) at Finbank, Finsoc and

Premierco. The data are presented below in the order of each stage of the cycle.



Effectiveness of PRP process cycle in the three case study organisations

Stage 1: setting objectives Fundamental to performance management are measures of

performance. Lawler (1990) argues that these should be credible and comprehensive;

without these ingredients a successful scheme is impossible. Pre-determined objectives are

one of the most popular forms of measuring performance (ACAS, 1996) and were used in

each of the three case study organisations.

Performance management ineffectiveness may not only be a product of inappropriate

objectives but lack of management skill in their application (Lawler, 1990). In their study

Cannell and Wood (1992) conclude that, while managers found the setting of objectives easy,

the assessment of their impact and effectiveness was less so. These potential problems are

re ected in the data from the case studies in this research, where the main weaknesses were

the imposition, narrowness and number of objectives.

At Finbank the way in which the objectives were set was the cause of unease. The of cial

line was that objectives were negotiated by the branch manager with the area manager. Yet

most branch managers insisted the reality was that they were imposed by the bank on area

managers and by area managers on branch managers:

There was the opportunity last year to have some say in this but the bank just went ahead and

imposed what they wanted to impose anyway. Branch manager

... branch managers complained there was no such thing as negotiation, that they [objectives]

were imposed. So the employee relations manager at the time said, `OK, lets make it clear

they are imposed. Union national of cer

In addition, the scope of performance objectives for Finbank managers was narrow. They

seemed only to dwell on the achievement of nancial business targets. This encouraged

managers to concentrate on the short term rather than build long-term developmental

relationships with staff and customers.

FIGURE 1 PRP process cycle

COMMUNICATION

Stage 1: setting objectives

Stage 2: measuring performance

Stage 3: giving performance feedback

Source: developed from Clark (1995) and Storey and Sisson (1993)

NB Bold arrows represent forward progression throughout the cycle. The lighter arrows indicate the possibilityof each stage being revisited as a consequence of what happens at that stage. See text for full explanation.

Stage 4: translating performance into award

At Finsoc the performance objectives fell into two categories business/ nancial and

personal development. The latter category covered speci c areas related to the development

of the branch (eg branch appearance) as well as the development of the manager. The former

category consisted of hard, quantitative measures; the latter soft and qualitative. There

seemed little doubt from interview evidence that the business/ nancial objectives were

imposed and the personal development objectives were negotiated. According to one area

manager, this was inevitable:

In reality, there is little opportunity for managers to in uence me in the targets I set for them.

In the same way I cant really in uence my boss. The society hands down the goals and we

have to work to them. Area manager

All Finsoc area managers interviewed pointed out that at least they were likely to give

branch managers the opportunity to disagree with their objectives. But branch managers all

echoed the point that, although there was the opportunity to disagree, there was little point

in doing so.

There was also evidence at Finsoc that managers thought there were too many objectives:

There are too many key performance areas about 20. This is far too many because managers

lose sight of the ones they really should be aiming for... Area manager

This may be the reason why, as many branch managers confessed, they did not refer to

the performance agreement frequently, seeing it as little more than bureaucracy.

Managers at Premierco were less critical of the objective setting process. The hub of the

PRP system was the performance contract. Future objectives for managers were derived

from the companys strategic objectives and the previous annual appraisal round. These

were written into a performance contract giving the manager explicit standards which

re ected the need for improved performance. Premierco managers had a high achievement

orientation: set them a target and they would strive to achieve it.

Overall, there appeared to be more evidence of ineffective than effective implementation

of stage 1 of the PRP process cycle. This had the effect of disenfranchising the recipient

managers, of creating the impression that the PRP process cycle was something that was

`done to them rather than something in which they played an active part.

Stage 2: measuring performance A consistent theme in the PRP literature is that employees

agree in principle with the concept but disagree with the way in which schemes are operated

(see, for example, Kessler, 1994). This calls into question the processes in the performance

management cycle. Two main issues dominate the empirical literature (eg Procter et al, 1993;

Marsden and Richardson, 1992): the extent to which employees feel favouritism is being

practised and the tendency for ratings to cluster at the mid-point in the distribution. Such

clustering has the effect of not discriminating between individuals, which they feel is unfair.

Finbank managers expressed concern about the subjectivity of the measurement process.

Some managers were worried about the lack of congruence between their views on the

variables affecting achievement and those of the rating manager. The general view seemed

to be: i`ts okay as long as he thinks in the same way as you. A fear of a small group of

corporate lending managers was that their implementing manager may not understand all

the complexities of the job, thereby exacerbating the worst effects of rating subjectivity.

Favouritism was an issue with some Finbank managers. This had four strands. The rst

was the straightforward `if you dont get on with your manager its not so good for your

PRP. The second strand was that `managers have their pet issues, and the third related to

the extent to which the manager was visible in the performance of the job. But the fourth





strand of favouritism was the most insidious the òld boy network. There were distinct soc-

ial groupings in the bank, which meant promotions were often seen to be based on this rather

than on performance. Many interviewees thought there was still too much of this in the bank:

After all, a lot of managers have put in a lot of service together and grown up together in the

bank. This meant there tended to be great insularity. Managers are reluctant to lose people

theyve groomed. Business banking manager

Perceived favouritism manifested itself in a different way at Finsoc. Branch managers felt

staff in head of ce received systematically higher ratings than retail staff. This was part of a

wider issue of perceived unfairness in that retail staff thought head of ce staff at Finsoc had

an èasy life in comparison with them.

I... spent a year in the head of ce and I couldnt believe the lack of pressure those people there

were experiencing. I think a lot of them ought to have a spell in the branches and see what life

is really like. Branch manager

Managers choosing the `safe rating was a significant problem at Finsoc. This was

recognised by branch and area managers and the retail HR manager; the latter thought this

may have been due to the availability of so many options (nine) for the rating manager.

In 1993-4, 84 per cent of Finsoc staff received ratings which used just three (mid-point) of

the nine rating options. The most signi cant consequence of this was that genuine good or

poor performance was not recognised or rewarded:

One of the problems with the last award was the difference between a 3 and a 3.5 rating. It

translated to 0.1 per cent of the increase last time which is ridiculous. People will rightly ask,

why did I bother? The difference in effort required surely warrants more than that!

Branch manager

The low level of funds in the PRP `pot in recent years may explain the lack of different-

iation. However, some argued that this was an example of managers tàking the easy way

out and not being prepared to be accountable for their actions.

For Premierco managers the measures were precise and demanding. Managers were

measured on keeping within budget, meeting service quality standards, meeting nancial

controls, relationships with other departments and relationships with staff.

The implementing manager was not the sole arbiter of performance. Feedback was

obtained from all parties who were relevant to job performance, including, importantly,

immediate colleague managers and other managers able to contribute. It also involved the

completion of a questionnaire by the manager s staff on her performance as a people

manager. The consequence of using such a wide range was that recipient managers saw the

feedback process as far more complete and the eventual PRP award much more accurate.

PRP at Premierco depended upon improved performance. Managers were continually set

fresh challenges in one form or another. This may not have been promotion but perhaps a

new project or extra functional responsibility, thus ensuring intrinsic motivation. Few

managers interviewed had been doing their jobs for more than two years.

Another facet of the performance measurement stage of the PRP process cycle which was

effective at Premierco was the meeting of implementing managers on a quarterly basis to

review the ratings given to recipient managers. This was pursued to achieve greater

conformity across the division and had the effect of ensuring that implementing managers

justi ed their decisions to peers.

Stage 3: giving performance feedback Feedback on performance is seen as part of the wider

issue of communication in the prescriptive performance management literature (see, for

example, McAdams, 1988; Hoevemeyer, 1989) and deemed to be a process of key signi cance.

There was no impression that Finbank managers were receiving qualitative feedback on

their job performance. This could have been provided by the area manager or other senior

managers. Indeed, there was no evidence that managers were encouraged to learn from the

experiences of others. Advancement was something which was seen in terms of salary or

promotion. But for many managers salary had effectively been capped and promotion

opportunities had been reduced by initiatives which had seen layers of management

removed.

There was also evidence at Finsoc that the performance management process was not

conducted thoroughly. One area manager readily admitted that he only did three reviews a

year rather than the prescribed four. It was not dif cult to have some sympathy with his

reasons:

There is a far too big a span of control on my part and the managers managing me. If you take

my manager as an example. He has 23 direct reports and he has to do four appraisals a year

thats 23 times four times 20 key performance indicators!

One of the key performance monitoring aspects was the clear communication to recipient

managers of what precisely it was they needed to do to turn this year s rating into a higher

rating in the following year. In general, Finsoc managers could not do this.

The situation at Premierco was quite different. There were often weekly, monthly or

quarterly progress meetings and reviews. There was also the annual appraisal at which all

employees completed a self-appraisal. This was shared with the reviewing manager who

had completed an appraisal of the individual. The object was to reach a consensus; the

output of the process was the setting of future objectives and planning training and

development needs. Many managers talked of the major bene t of the system being `no

surprises at the end of the year when the nal performance rating was announced.

It seemed performance management was taken very seriously by managers at Premierco,

where senior managers were convinced of its bene ts. The performance feedback process

was the best example of the `new style managerialism which was evident at Premierco and

was summarised by an enthusiastic operations manager:

I dont know anything at all about the technical side of the jobs my people do. I think its my

job to manage them. I do that through talking to them about what they do and making sure

everything is right for them to do their jobs. If you treat them correctly youll get that back 20

times over from them. They will want to do it for you.

Stage 4: translating performance into reward In none of the organisations did managers

know what the nal PRP award was going to be until shortly before it was actually paid. In

addition, they did not rate it as attractive when it was nally paid.

A typical comment was from a Finbank business banking manager:What would be nice is if you could say what your level of remuneration was going to be once

you had achieved a certain level of performance. But the way that the system is now, you

cant make that connection.

The situation was similar at Finsoc. For all managers this operated at two levels: they did

not know what they would get and they were not sure what rating to give their staff. The

amounts in recent years had been so small that managers generally were keen to push

ratings as high as possible. The retail HR manager acknowledged this was a problem, but

public declaration of the pot size, and therefore the payments associated with different

ratings, would have been revealing managements negotiating hand to the trade union.

The lack of money available to drive the performance management system at Finsoc

exacerbated the major focus of managers dissatisfaction the lack of differentiation in the



amount of award between the different levels of performance rating. There was a negligible

difference between the cash amounts generated by different ratings.

At Premierco, too, managers did not know what the award for a particular rating would

be. This situation was brought about, partly, by the system which operated whereby awards

were linked not only to performance but position on pay scale. Therefore a manager who

was high on the scale received less PRP award for the same rating. It was also due to the fact

the pay award was not declared until the latter part of the review year.

Secondly, in recent years the size of awards had been small. This was due to the limited

amount of money available for increases. There was some interview evidence which

suggested this has led to some managers saying i`f there is so little to give out, then why

bother? Cascio (1989) and Lawler (1990) suggest that anything less than 10 per cent of salary

is too little to be of consequence to employees. During the period of the eldwork, in all

three organisations the maximum amount payable even to the outstanding performer was

less than this amount.

Communication

Part of the PRP process entails communicating information to participants. Although not a

major focus of the interview data, several points arose. One was the failure to communicate

information about the awards which had been given, and a Finbank business manager

explained this very clearly:

I... think those who achieve 2s and 1s [the top two ratings] ought to be publicised. This is so

others could go to them and say: `What is it you did to make you a 1? I have asked this

question of my manager, and frankly he doesnt know the answer. It is essential that managers

are open and can say what it is that made the difference between the outstanding performer

achieving all his targets and doing that something extra... This would enable the person to

emulate the outstanding achiever. The more you open up the system to scrutiny the more

accountable you make managers, and they should be accountable.

A good example of the mystique created by this lack of openness was related by a

manager who did receive a 1 rating in 1994. When questioned about what he had to do to

repeat the rating in the next year he replied:

I wouldnt get the same rating next year... nobody gets a 1 in two successive years. I dont

know why they just dont.

There was no information conveyed to recipient managers about the general level of PRP

awards at any level, either in the team, division, region or bank. As a consequence suspicion

was evident.

There was little evidence at Finsoc that there was any more communication about PRP

than in Finbank. But there were two noteworthy perspectives which derive from the

communication component of the PRP process cycle at Finsoc. First, the communication of

society strategy to staff gave branch managers an impression of the broad frame of reference

informing the performance feedback of the area manager. Secondly, a less positive point

concerned the failure to communicate information regarding the general performance of

other branch managers in the team and beyond in the wider organisation. This failed to

provide managers with any benchmark of their own performance, a benchmark from which

they may have derived self-esteem, solace or just satis ed curiosity.

At Premierco the low level of awards which threatened PRPs productivity goals was a

problem of which the company was very aware. Therefore much time was spent in

managing the expectations of employees through employee communication. The economic

position in which the company was placed was explained to all employees with the result



that those who had an increase in 1993 were pleasantly surprised. Like the other two

organisations, the distribution of ratings at Premierco was not communicated to recipients.

DISCUSSION

The evidence outlined above indicates that the PRP process cycle was implemented

ineffectively in Finbank and Finsoc, and only effectively in Premierco. But this raises the

question: what do the data presented in this study add to existing insights on PRP theory

and practice? This final section argues the case for the value of the process cycle as an

analytical framework, questions the concern of writers with motivation theory, con rms the

pre-eminence of the line manager in the management of PRP and reasons that the inclusion

of pay in the performance management process may be unnecessary.

Value of PRP process cycle

Often the literature is clear in drawing the conclusion that PRP is unsuccessful, usually as

measured by surveys which show employee discontent (eg Marsden and Richardson, 1992),

but less clear about the reasons for this discontent. In adopting a processual analysis, this

study has attempted to gain a clearer understanding of these reasons. In this respect the PRP

process cycle has been helpful because of its ability to examine the functioning of the process

links which deliver performance against objectives. As Guest (1997) asserts, with regard to

recent attempts in the literature to establish the effect of wider HRM practices on

organisational performance (see Dyer and Reeves, 1995), without making explicit the

possible linkages between cause and effect the understanding of the reasons for success or

failure will not be understood. Guest (1997: 267) explains: `without some linkages... we have

no theory. The PRP process cycle constitutes a theory; if the four stages are conducted

effectively and information ows around the cycle, then PRP is more likely to be accepted by

individuals and the objectives of the organisation in its introduction are more likely to be

achieved. It is a highly deterministic theory and one, moreover, that takes no account of

contingency theory, rightly a traditional concern of the pay literature (eg Lupton and Gowler,

1969). But it makes some advance in our thinking of why PRP may succeed or fail.

This raises another question: what is meant by success or failure of PRP? This study

follows the lead of Lawler (1984) in using the criterion of employee acceptance to determine

the level of its success. Thus, the possible criteria of organisational objectives set for PRP

in all three organisations these were unclear and impact on overall organisational

performance because of the dif culty of isolating one HR component (Kessler and Purcell,

1995; Kinnie and Lowe, 1990) were rejected. In essence, the argument here is that if

employees are generally in agreement with both the principle and practice of PRP, then they

will be motivated to better job performance and bene cial organisational outcomes will

follow. Conversely, if they are not in agreement with either the principle or the practice of

PRP, then they will not be motivated to perform more effectively in their jobs and such

organisational outcomes will not follow. Rather than improved job performance, the emp-

loyee will feel at best apathetic, leading to PRP being largely ignored or alienated from both

the PRP process and those responsible for its implementation (Gabris and Mitchell, 1988).

Over three-quarters of the recipient managers interviewed at Finbank were extremely

unhappy with both the principle and practice of PRP, so much so that the issue was the

subject of a strike ballot soon after its introduction. Finsoc managers were less strident in

their rejection; however, although generally accepting the principle of PRP, over two-thirds

were unhappy with the way in which PRP was implemented. But at Premierco managers



were overwhelmingly positive about PRP. They saw it as conducted fairly and perceived its

congruence with the meritocratic values which the company had traditionally preached and

they had absorbed. Therefore, using Lawler s (1984) criterion of employee acceptance, PRP

could be said to be a success in Premierco but not in Finbank or Finsoc. In addition, only in

Premierco was the PRP process cycle implemented effectively, giving some credence to the

theory articulated above.

Concern with motivation theory

There is clear empirical evidence which suggests employee motivation is high on the list of

organisations reasons for the introduction of PRP (Thompson, 1992; Cannell and Wood,

1992). Therefore it is only to be expected that the central concern of both researchers and

practitioners is with the degree to which PRP has motivated employees to work in different

ways in order to achieve a PRP award. This prompts questions about the extent to which

PRP has provided an incentive for individuals to work harder, show more initiative, get

work priorities right, increase the quality and quantity of work and whether the amount of

award is suf cient to act as an incentive (Marsden and Richardson, 1992). These are perfectly

valid concerns, but they have the effect of steering attention towards the `harder aspects of

the cycle. The data from this study suggest that it is the `softer processes those which

involve employees in the cycle rather than exclude them which are likely to be associated

with greater acceptance of PRP. In Premierco this was the skilful giving of performance

feedback, coaching to improve performance, gathering of performance data from a wide

range of sources, negotiation of objectives and the management of expectations about the

nal award.

This suggests that, even if the pay element of the cycle (stage 4) is not accepted by

employees, the processes which concern the determination of the award, if conducted

effectively, may mitigate the unacceptable impact of the pay element. This was largely the

case at Premierco. However, it must be said that existence of `new style managers at

Premierco operating in a highly meritocratic culture played a signi cant part in promoting

the effectiveness of the soft processes. This reinforces the earlier point about the importance

of considering contingency theory in addition to the PRP process cycle theory. The

Premierco context in which PRP took place was of considerable signi cance. Therefore, a

virtuous circle was operating where effective PRP processes were reinforcing the

meritocratic culture, thus further strengthening them.

Pre-eminence of line managers

It follows from the above that the effective implementation of the softer processes turns on

the skills and attitudes of the line manager. This study has con rmed the conclusion of

Storey (1992) that line managers have an important part to play in the HRM model of

managing the employment relationship, of which PRP is often a signi cant component.

They have a particularly important role in the implementation of PRP. As noted above, this

role has a hard and a soft side. The hard side is detailed by ACAS (1996). It is line managers

who must de ne the required standards of performance and behaviour, explain these to

their subordinates, take tough decisions about assessments, communicate these decisions to

subordinates and defend their judgements if asked. The soft side, exempli ed in this study

by the new style managerialism evident at Premierco, is thought to be consistent with

Guests (1987) HRM goal of employee commitment.

It may be that there is an inherent contradiction between PRP and the soft goals of HRM.

Driving employees to perform better by carrot and stick when they are excluded from the



process by dint of managers monopolising information setting objectives and standards

and making assessments and awards (Marsden and Richardson, 1992) can hardly be

thought of as a commitment seeking strategy.

What this study has indicated is that, in two of the organisations, neither the hard nor soft

aspects of the PRP process cycle were conducted effectively. This calls into question the

attitudes and skill of the managers. The evidence suggested that short-term concerns, Storey

and Sissons (1993: 76) `quick-fix agreements, fire-fighting solutions and Tayloristic job

design methods which are built on command and control rather than the more time-

consuming consensus-seeking methods, governed the thinking and behaviour of these

managers. The evidence from this study suggests that, if the softer elements of the PRP

process cycle are to be promoted, then line managers need a longer term investment

perspective on their management of employees, which will lead to the involvement of

individuals in the process cycle rather than exclusion from it.

CONCLUSION: `MUCH ADO ABOUT NOTHING

The thrust of this discussion has been that the soft aspects of the PRP process cycle are

those which have been given less attention in the literature, a shortcoming this article has

sought to rectify. The argument has been that agreeing clear objectives, defining

performance standards which emphasise how the job is done as well as the results of the

job, monitoring progress towards objectives and feeding back to the employee the results

of the monitoring in a developmental way are necessary pre-conditions for the acceptance

of PRP by employees. But these activities could be part of a performance management

process without the presence of pay. Indeed, these activities are consistent with what Bevan

and Thompson (1991: 39) call `development driven integration, where the outcome of the

performance management process is the identi cation of training and development needs.

So is pay a necessary part of performance management? Certainly the recipient managers

at both Finbank and Finsoc thought it doubtful. Even if all the hard and soft aspects of the

PRP process cycle had been conducted effectively, the feeling still remained that an increase

of 2 per cent was `much ado about nothing . But this study has shown that, when the PRP

process cycle is conducted effectively as at Premierco, PRP is more likely to be accepted by

employees than when it is conducted ineffectively, whatever the level of award.

Note

The author acknowledges with thanks the helpful comments of an unknown referee which

guided the preparation of this article.

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Managing Performance-related Pay