Evaluation of Performance Related Pay (PRP) schemes in the NHS

Executive Summary

The following report evaluates how the aims of Performance Related Pay (PRP) schemes are underpinned by theory, focuses on how PRP theory relates to the aims and objectives of the NHS and considers how effective the current PRP policy is within the NHS with specific focus on whether the current scheme meets the needs of the current NHS organisation.

The NHS has seen relative success where PRP schemes have been applied, with 51% of NHS managers recently commenting that PRP schemes in their trust had resulted in employees working harder. Although 61% of the staff involved with NHS trusts operating these schemes suggested the idea of rewarding performance was divisive and undermined the overall co-operation of its staff .

The overall benefits of PRP include facilitating and implementing change in a structured manner, aligning the employee’s objectives with the wider goals of the organisation and introducing structured rewards in a fair fashion.

Although the aims of the PRP scheme may be aligned to the business strategy, they will only succeed if the end goal is enough to motivate the individual. Within the NHS one would suggest there have to be additional concepts for performance management to focus on, such as content, departmental resource and career development for PRP schemes to be a success.

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When the introduction of PRP to any organisation is applied, it is supposed to encourage fairness and equality with rewards. However criticism of PRP within the NHS organisation suggests that it does not provide fairness and equality. Research has shown that the perception is that PRP benefits those in more fiscal or senior orientated roles than it does for those lower down the organisation.

PRP schemes will be hard to introduce to NHS trusts where they do not already exist due to the nature of the structured role orientated pay scale and the inflexible nature of the NHS. This would be further compounded by the unionised nature of the NHS, with the unions likely to resist any move from collectivism to individualism in discussions about pay and contract conditions.

Recommendations at the end of the report include consideration to the design of the scheme and how crucial this can be to the schemes’ future success: the need to manage PRP openly to prevent breakdown of relationships and thus prevent negative impacts on performance overall and the importance of clear management of objectives by individuals best placed to manage their teams.

Evaluate how the aims of the Performance Related Payment scheme are underpinned by theory

The initial concept of performance related pay (PRP) schemes were introduced as a way to reward employees for completing a specific goal. The sense of reward was expected to act as a motivator therefore the scheme was embraced with high expectations (Daniels, Macdonald, 2005:183).

Assessment of organisational reward applications shows that performance is not the only way employees relate to being congratulated on doing a job well. However, it is suggested the benefit of using performance based reward systems has been in the applying of the statistical elements of the method, allowing for a clear and relatively objective means of performance measurement. (Shields, 2007:410/11). This suggests that organisations favour a method which provides a supportive conclusion with quantative evidence to back up decisions made that may favour one individual over another.

Secondly the use of PRP schemes have been linked to wider business strategic plans which have sought to align the employees objectives with the wider goals of the organisation (Holbeche, 2009:219). However, performance based reward schemes have been criticised in recent years, despite becoming seen as the norm within organisational structures (Holbeche, 2009:219).

Alternative applications can be rewarded through behavioural analysis in line with a set of parameters and goals. However, this method of reward has been argued as being subjective and open to abuse and interpretation (Shields, 2007:410/11). As such the use of performance management against tangible goals as a measure provides something concrete for the employee to be measured against which cannot be refuted (Shields, 2007:411).

PRP schemes can however be heavily criticised when there is a belief the targets are not truly achievable (Lai, Tsui, 2009:116). Moreover there is a concern that where targets are consistently not achieved and are deemed inaccurate, the effects can be rapid demotivation with the workforce (Lai, Tsui, 2009:116).

An additional aim of PRP can be the encouragement of equality and fairness, this is not that everyone should be paid the same but those that add value are rewarded appropriately in comparison to others that may not contribute to the same level.

How does this theory fit into the organisations aims and objectives?

The aims and objectives of the NHS centre on measureable statistics such as level of patient care, treatment times, waiting list turnover, number of patients seen and treated, level of discharged patients and sound fiscal management. These are rolled down from central government and managed by the individual NHS Trusts across the country.

It is suggested that providing a tangible measure against which to be managed is a key element in the use of PRP within the NHS. The use of tangible goals means the objectives are clear and concise (Shields, 2007:410/11). Furthermore the NHS argues that the use of performance measures means there is an ownership placed onto the employee to perform to their expected level and for their manager to ensure they are learning and developing (Shields, 2007:410/11).

The NHS has seen relative success where PRP schemes have been applied (Shields, 2007:411). Under these schemes the employees use individual goal setting applications, which instead of creating conflict; achieved motivation although in-depth assessment of the research found that the goal setting aspect of the measure was the most favoured element (it enabled a clear guide for the reward) the behavioural assessments were deemed subjective (Shields, 2007:411).

However one might argue that whilst this may work within a public service sector environment there are contrasts within private industry. The directed use of strategic alignment can pitch departments against each other creating internalised conflict (Schienmann, 2009:142). Furthermore people can be encouraged to apply their focus in a directed way which means they stop looking at the wider picture. In doing this there is the potential to create a funnel and individuals end up working at cross purposes instead of working together (Schienmann, 2009:142).

Furthermore contrasting these statistics is the idea that public sector employees see financial reward as a secondary motivator to work harder (OECD, 2005:74). This is supported by research into all public sector environments, which suggests that job content and career development are primary motivators to increase performance (OECD, 2005:74). This is supported with recent research into the NHS management structure. During questioning into applied PRP, 61% of the staff involved with NHS trusts operating these schemes suggested the idea of rewarding performance was divisive and undermined the overall co-operation of its staff (OECD, 2005:73). This was implied to be because there was a lack of team discipline and people worked as individuals. This behaviour was cited as unacceptable within an environment that made life and death choices based on teamwork (OECD, 2005:73).

On the other hand the same research contradicts this idea; stating that when questioned 51% of NHS managers suggested that PRP schemes in their trust had resulted in employees working harder (OECD, 2005:74).

As such one might argue that the use of performance related pay schemes only work when the individual is financially motivated, and this could be applied to all sectors, public and private. Therefore there is an argument to suggest that although the aims of the PRP scheme may be aligned to the business strategy they will only succeed if the end goal is enough to motivate the individual. Within the NHS one would suggest there have to be additional concepts for performance management to focus on such as content, departmental resource and career development. Although the theory of PRP may be applicable, the practice does not necessarily translate into a high performing team.

Critically Evaluate the Effectiveness of this Scheme

One might debate the effectiveness of the performance related pay schemes within the NHS depending on the expected outcome. It is assumed that the expectation within employee groups from the introduction of PRP is increased morale and improved performance which therefore increases operational output (Lai, Tsui, 2009:116).

Yet it should also be considered that the scheme can be used as a method to employ goal setting policy within an establishment where this has not been done before. Research suggests that the introduction of PRP validates the implementation of goal setting within public sector environments regardless of motivational output (OECD, 2005:76).This could be considered a significant benefit of the application of PRP within a wider assessment of the scheme. Furthermore the implementation of PRP provides the opportunity to redefine established organisational performance norms (OECD, 2005:76) and allow the NHS the advantage of being able to implement change in a structured manner.

However it can also be argued that change in itself carries the potential for overall internalised threat (Huston, Marquis, 2008:178). Research suggests that when not welcomed, change has the ability to inject conflict into the organisational structure (Huston, Marquis, 2008:178). This means the focus moves away from the primary strategic aim. Moreover, conflict can send negativity around the workplace, ensuring non-compliance, and removing any degree of support for any performance based schemes (Huston, Marquis, 2008:178). Unfortunately it would appear the scale for conflict is high within the NHS when PRP is discussed. If the trust is considered as a business organisation the application of PRP means that pay adjustments can be applied in a measured way which can therefore become a strength (OECD, 2005:76).

However, this means the counter argument becomes a weakness from the employees’ perspective (OECD, 2005:76). As such one would argue that changing to a PRP scheme will reduce the involvement of the trade unions because the focus moves from collectivism to individualism as a discipline (Gall, 2003:13). This could be seen as a weakness because unlike privatised industry the NHS environment is cited as being more static with less flexibility between positions and employee expectations (Gall, 2003:13).

It is suggested that the termination of the collectivism power would leave NHS staff negotiating for contracts in the same way private industry do. This leaves the employees open to increased discrimination between financial rewards at the same grade levels. This is seen with the introduction of flexible working hours for employees, which effectively abolishes the overtime model for staff, and the theory implies that staff would no longer be financially compensated for working additional hours over their standard agreed contract rate (OECD, 2005:76).

On the other hand the introduction of flexible working is defended as necessary within modern society. As such this implies that the change in financial application by moving to PRP incentives should not be seen as a weakness but a strength or opportunity to open the job market up to new applicants. Moreover research suggests that the use of performance related pay within the NHS environment provides a recruitment incentive and improves staff retention in the long term (OECD, 2005:76).

Conclude whether the scheme meets the needs of the organisation

One might argue that the introduction of PRP to any organisation is applied to encourage fairness and equality with rewards (Redman, Wilkinson, 2009:160). However criticism of PRP within the NHS organisation suggests that it does not provide fairness and equality with its rewards (Abel, Esmail, 2006). Research suggests that although PRP is adopted, there are inherent weaknesses in the application of the initiative and previous discriminations against gender and ethnicity remain prevalent despite the results of performance based measures (Abel, Esmail, 2006).

This is further supported with a government review of the NHS performance review process. This research found a large number of consultants who voiced their concerns over both racial and gender discrimination within the PRP, however they also suggested discrimination based on their medical specialism and the degree to which the individual contributed towards management decisions existed alongside traditional discriminations (Abel, Esmail, 2006). Thus one may suggest that the performance reviews favoured those who worked in more high profile specialism’s, which could provide additional funding.

On the flip side of this discussion however is the consideration that those lower in the organisational structure would welcome the opportunity for performance based pay rewards in order to grow their roles and develop their careers. However this research implies their performance is isolated in comparison to that which benefits the wider business model needs.

In recent research conducted in this area it was concluded that incentive polices such as PRP have provided a positive knock on effect where quality and safety are concerned. This point is interesting as in an environment such as nursing, one would have assumed quality of care and safety are principle fundamentals of patient expectations. However performance is massively improved when the employee is offered additional reward for reaching targets in these fields (Kurtzman et al, 2011).

The research however goes on to suggest that the use of incentive schemes place an increased burden and creates a blame culture for nurses without addressing the infra-structure needs that the NHS trusts require to meet the targets set for them, This shows that the adaptation of PRP can be seen as being a double edged sword within the NHS system (Kurtzman et al, 2011).

Report Conclusion

The research appears to suggest that the performance based incentive schemes meet the base needs of the NHS as they make the basic principles of nursing happen in accordance with expectations. However an incentive scheme such as PRP cannot overcome the lack of adequate environment, staffing levels and low salary level. As such this implies that performance based pay does not work as a motivator for the existing workforce. Neither would one conclude that it works as a recruitment incentive as was previously suggested.

Instead the implication is that the use of performance based incentive schemes means that those with power can continue to reward those they single out for success, whilst the remainder of the workplace organisation are left to manage with inadequate environments in which to meet the targets they are given.

One might determine an outcome borne from two potential directions. In one case if the NHS is seen as an organisational structure and not as a public service, the use of PRP may be seen as successful. As a scheme this allows management to reward those individuals who are benefiting the NHS. From within this it can be assumed the discrimination that occurs is justified. However on the other side if the NHS is viewed as a public service with its key members being the front line staff, one would have to conclude that PRP does not benefit the needs of the organisation. Nursing graduates are decreasing in numbers; the vocation is increasingly seen as a difficult environment with insufficient financial reward and high expectations (Chitty, 2005:36).

Following these arguments one would have to conclude that the use of a PRP scheme would provide the NHS with specific benefits when linked into an open environment which supported fairness and equality. However the current organisational structure of the NHS is not conducive to producing the environment needed to make this ideology successful. Instead work is perhaps needed with the basic infrastructure of the NHS organisation before additional performance plans will be able to achieve the required outcome for the operation.

Recommendations for the management of PRP within the NHS

There are several recommendations to be made for the management of pay within the NHS. These are as follows;

Design of the scheme

When PRP schemes are adopted, the design of them is crucial to their success and application (Redman, Wilkinson, 2009:134). Not only is it necessary to consider what will work for the majority of the workforce, but it is also vital to link the work of the individual into the wider team dynamic (OECD, 2005:86). As such when incentive schemes are applied, the link between teamwork and the individual is necessary in order to ensure a performance measure that involves the wider strategic picture of the organisation (OECD, 2005:86).

In the case of the NHS this would be rectified through adapting some of the schemes considered elitist and improving some of the base working conditions which affect a wider degree of the working population. One would assume this will improve morale and create a workforce that wants to achieve targets and attain performance rewards.

Communication

When introducing performance related ideology the implementation has to be anticipated and managed openly (OECD, 2005:86). When relationships break down internally the need for consolidated teamwork becomes harder, this affects all forms of performance (Redman, Wilkinson, 2009:134). Within the NHS business model this argument is applied especially when managing trade union relationships (OECD, 2005:86), especially because this sector is driven by collective bargaining Furthermore this is particularly relevant because the core competencies of the roles have to be the same within the medical profession. The hierarchy has to be clearly defined by actual role competencies which enable staggered payments. Therefore performance based payment becomes harder to manage because each level should work at the same rate.

Moreover this suggests the link between performance based pay and goal setting is vital in ensuring that employees are enabled to achieve and maintain their goals within fair and attainable means (OCED, 2005:87).

Measurable Objectives

Within the NHS organisational model one would assume targets for performance will centre on measureable statistics such as treatment times, waiting list turnover, number of patients seen and treated, level of discharged patients.

These provide clear and measureable targets for people to meet and the measure is quantitative therefore enabling a degree of concise clarity to the measure. However research shows that providing clear statistical measures within the NHS model results in internalised pressure which manifests through the lower ranks (Kurtzman et al, 2011). Therefore one would argue this supports the need to correct the basic infrastructure within the organisations, prior to implementing reward schemes for employees.

Management of Objectives

When applied, the goals provided must be clearly managed by team leaders within the confines of the department or ward. This means the head medical staff responsible for these staff members have to take on a level of responsibility for managing their team as well as coping with their medical expectations. One might argue this is especially difficult within the NHS model and compounds the issue of burden and blame as medical professionals find themselves having to become more like managers (Kurtzman et al, 2011). This is known to be a contentious argument for medical professionals who chose their roles as vocations (Kurtzman et al, 2011).

Stimulate Change

Research suggests that performance related incentives should be used as a way to stimulate and introduce change into organisational structures (Redman, Wilkinson, 2009:135). This can be achieved through challenging the status quo and looking at new ways to manage (OECD, 2005:89). It could therefore be supported that the introduction of performance related pay into NHS trust models is applicable. As an observer one may assume the NHS organisational model has not particularly been challenged in decades, thus this strategy enables a fresh way of adapting new methods.