GOVERNANCE GOVERNANCE EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT Performance Management in the Public Administration — Seven Success Factors Sabina Schnell, Dimitrie Miheș, Anita Sobjak, and Wouter van Acker © 2021 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved. This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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Graphic Designer: Maria Lopez / lopez.ten@gmail.com >>> Acronyms EFI Equitable Growth, Finance and Institutions EU European Union HR human resources HRM human resource management OECD Organisation for Economic Co-operation and Development PM performance management PRP performance-related pay RAS Reimbursable Advisory Services EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 3 >>> Acknowledgments This Equitable Growth, Finance and Institutions (EFI) Insight note was prepared by a World Bank team consisting of Sabina Schnell (Senior Governance Specialist), Dimitrie Miheș (Governance Analyst), Anita Sobjak (Public Sector Specialist, Extended Term Consultant), and Wouter van Acker (Public Sector Specialist, Short-Term Consultant), under the overall guidance of Zahid Hasnain (Global Lead on Public Institutions Reform). The note originated with the review of international experience on performance management conducted under the Reimbursable Advisory Services (RAS) Agreement on Developing a Unitary Human Resources Management System within the Public Administration (P165191), signed between the General Secretariat of the Government of Romania and the International Bank for Reconstruction and Development, and co-financed by the European Social Fund under the Operational Programme Administrative Capacity (POCA) 2014–2020.1 It primarily builds on two reports developed under Deliverable 5.1, “Analysis of the performance management system,” of Output 5, “Performance Management System,” of the RAS project, namely the Analysis of the Performance Management System (lead authors: Sabina Schnell, Senior Governance Specialist, and Dimitrie Miheș, Governance Analyst), and the Report on the Introduction of Performance-related Pay in the Romanian Public Administration — A Case for the Excellency Award (lead author: Anca Butnaru, Governance Specialist). It also incorporates insight from the forthcoming chapter of a United Nations publication, Building Capacities to Transform Public Servants’ Mindsets to Implement the 2030 Agenda for Sustainable Development (authors: Wouter van Acker, Public Sector Specialist, Short-Term Consultant; Ravi Somani, Economist, Extended Term Consultant; Lida Bteddini, Senior Public Sector Specialist; Zahid Hasnain, Senior Public Sector Specialist and Global Lead on Public Institutions Reform; and Daniel Rogger, Economist) (United Nations, forthcoming). The authoring team would like to thank Ed Olowo-Okere (Global Director, Governance Global Practice), Roberto Senderowitsch (Practice Manager, Europe and Central Asia region, Governance Global Practice), Tracey Lane (Practice Manager, Global Unit, Governance Global Practice), Tatiana Proskuryakova (Country Manager, Romania), Carolina Rendon (Task Team Leader of the Human Resource Management RAS project and Senior Public Sector Specialist), May Olalia (Senior Public Sector Specialist), and the Governance Europe and Central Asia Operations team members for their overall advice, guidance, and support throughout the development of this note. The authors are grateful for the very helpful comments and suggestions of the note’s peer reviewers: Donna Andrews (Senior Public Sector Specialist, Global Lead on Public Institutions Reform), Bernard Myers (Senior Public Sector Specialist), and Virginia Horscroft (Senior Public Sector Specialist). 1. “Developing a unitary human resource management system in the public administration,” SMIS code 119957. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 4 >>> Contents Why Performance Management Matters for Increasing Public Sector Productivity 7 How Performance Management Can Improve Individual and Organizational Productivity: Success Factors 10 I. Performance Management Must Start from the Top 13 II. Ensure a Clear Line of Sight (Goal Alignment) 14 III. Differentiate Performance Assessments Across Institutions, Job Types, and Levels of Performance 15 IV. Diversify the Source of Evaluation, for Objectivity and Fairness 17 V. Motivate Performance Through Both Intrinsic and Extrinsic Incentives 18 VI. Enable Staff Performance Through Adequate Opportunities for Growth and Development 20 VII. Embed Performance Management in Organizational Culture and Practice 21 How to Apply the Seven Success Factors 23 Conclusions 27 References 28 Figures Figure 1. The Objectives of Performance Management 10 Figure 2. Principles for Setting up Successful Individual Performance Management Systems 12 Tables Table 1: Typology of Public Activities Based on Measurability 12 Table 2: Examples of Possible Managerial Biases in Performance Appraisals 18 Table 3: Checklist and Toolkit to Apply the Seven Success Factors 24 Boxes Box 1: Performance Management of Senior Civil Servants in the United Kingdom Civil Service 13 Box 2: Measuring Performance for Production-Type Jobs: The Case of P-Direkt in the Netherlands 16 Box 3: Total Reward Strategies 19 >>> Why Performance Management Matters for Increasing Public Sector Productivity 1. Increasing public sector productivity2 is vital for performing public sector, which spends and uses taxpayer effective regulation, infrastructure, maintenance money wisely and effectively, will increase citizens’ trust of law and order, service delivery, and the overall in government (Lau, Lonti, and Schultz 2017), and efficiency of government expenditure. The public vice versa. sector’s productivity is highly dependent on the quality and commitment of its employees, not just on the amount 3. Recent empirical studies have found that individual of money being spent. The spillover effects of improved public officials and organizations are of primary public sector employees’ performance, and through them importance for public sector productivity. For example, improved public sector productivity, can be significant. moving the worst-performing quartile of bureaucrats to After all, these issues, in turn, affect the growth and the 75th percentile reduces procurement expenditures development potential of the economy and society at large. by around 11 percent (US$13 billion/year or “roughly The more the state can do with a given level of resources, one fifth of the total amount spent on health care by the the better its contribution to growth and development Russian government at federal, regional, and municipal outcomes. level combined”), thereby achieving greatly superior value for money (Best, Hjort, and Szakonyi 2017). Similarly, 2. At the same time, the public sector has a heavy footprint moving public servants from the 25th to 75th percentile in the national economy and in overall employment of bureaucratic quality in Ghana increased project — the general government wage bill accounts for completion rates by almost 20 percentage points (Rasul, around 10 percent of gross domestic product globally Rogger, and Williams 2018). Years of research on the and the public sector workforce accounts for 36 effect of motivation on performance has shown a strong percent of formal employment.3 Increasing outputs for and consistently positive link between the two (Brewer the public sector thus increases a significant portion of the 2010). Performance management can have a significant economy overall, with a subsequent impact on national impact on public servants’ motivations and attitudes, welfare. Money that is saved by increasing public sector and thus, on the performance and productivity of the productivity can then be used to address other priorities organization at large. for the country (see examples, next paragraph). A better 2. Productivity measures the efficiency with which a given organization transforms inputs into outputs. 3. World Bank Worldwide Bureaucracy Indicators dataset, Washington, DC (accessed June 2, 2021). https://datacatalog.worldbank.org/dataset/worldwide-bureaucracy- indicators. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 7 4. Given the difficulty in measuring and monitoring the public administration literature on this topic finds outcomes in the public sector and staff contributions limited evidence of the effectiveness of performance to them, policies and measures that cultivate the right management systems (Heinrich and Marschke 2010). attitudes and behaviors of civil servants are important As an illustration of this, only half of respondents in the drivers of productivity. How motivated and self-confident Ministry of Public Administration of Montenegro found civil servants are and how they relate to their teams and the performance appraisal process to be a meaningful within their organizations, particularly with their managers one4. This shows that having a performance management and colleagues, will play an important role in shaping their system is not enough; it is just one of several factors commitment to and engagement in their jobs, and in turn, influencing and enabling staff performance (others in determining the quality of their work. The aggregate are recruiting competent and motivated staff, ensuring effect of morale, motivation, and confidence of hundreds the resources necessary for performance, adequately or thousands of public sector employees can constitute a compensating performance, and so on). Yet more often significant boost to, or drain on, public sector productivity. than not, organizations approach the introduction or overhaul of their performance management systems 5. Human resource management (HRM) policies and as a one-off change in human resource (HR) rules and practices that enable managers to effectively manage procedures, rather than as part of a broader set of long- the performance of their staffs play a critical role in term reforms of various core organizational processes improving public sector productivity by increasing (Aguinis 2013). With the former (one-off) approach, the staff engagement and aligning individual efforts with newly introduced performance management system runs organizational goals. Practitioners must go beyond the a high risk of being rejected in the organization and turned traditional view that staff performance can be achieved into a rote administrative process, because it is perceived only through the use of extrinsic incentives, triggered by as imposed from the top, with little consideration of the an annual appraisal exercise of individual performance. actual needs and capabilities of the system’s end users. Instead, performance management should be viewed as The latter (longer term) approach acknowledges that a continuous cycle of planning and defining, monitoring changing the performance management architecture is and enabling, measuring and evaluating, and rewarding a multi-year project that must be informed by a two-way (or sanctioning) employee performance, at both the engagement with all stakeholders and led by a specialized individual and team levels. For instance, employees who implementation structure (such as an implementation understand their organization’s or team’s objectives and team, a project management office, and a steering board), how their individual efforts contribute to them are more under the strategic direction of the top-level leadership. In motivated and engaged — as staff engagement surveys so doing, it builds credibility among stakeholders that the have found across public administrations in countries proposed system is useful, fair, and necessary, thereby of various income levels (Meyer-Sahling, Schuster, and facilitating its acceptance. Nevertheless, throughout its Mikkelsen 2018; World Bank Group 2020). Similarly, lifecycle (from design to implementation to evaluation regular communication and feedback from managers, and adjustment), the system must observe a number of when done effectively, contribute to higher job satisfaction core principles, which this note will elaborate on in the and individual performance, which ultimately lead to better following sections. organizational results (World Bank 2014). This applies across the public sector, in education, healthcare, and the 7. This EFI Insight note distills the key principles of core public administration (Bloom and others 2015; Bloom effective performance management in the public and Reenen 2007; Rasul and Rogger 2018). administration from literature and international good practice. First, it presents the objectives and different 6. However, organizations in the private and public approaches and tools for performance management, sector alike often fail in designing and implementing and then it details seven success factors that should be individual performance management systems considered when designing and reforming public sector that achieve their intended purposes. A review of performance management systems: (1) start performance 4. This survey was conducted as part of a World Bank project, “Montenegro: Strong Institutions for a Modern Public Administration” (P165375). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 8 management from the top; (2) align organizational and motivating, and developing employees. Based on the individual goals (“clear line of sight”); (3) tailor performance intended objectives, reform teams should consider seven assessment to institutional and job characteristics, and guiding principles that are key to the system’s success. adequately differentiate between levels of performance; Presenting success factors instead of “best practices” (4) improve manager judgment and diversify the sources allows the reader to apply these factors to a variety of of information for performance appraisals to ensure country contexts, regardless of the existing performance objectivity and fairness in assessment; (5) motivate staff management system’s level of development in the public through both intrinsic and extrinsic incentives; (6) enable administration. The success factors can serve as guidance staff through adequate opportunities for growth and — and deployed as actionable steps — in designing new development; and (7) embed performance management performance management systems and analyzing the in organizational culture and practice. effectiveness of and proposing improvements to existing ones. This guidance is supported by a matrix of diagnostic 8. By identifying seven success factors, this note questions and reform tools structured around the seven proposes a new methodological approach to success factors (see Table 3, page 24). This new enhancing performance management in the public methodological approach can be a useful tool for World sector. Existing performance management systems can Bank task teams, researchers, and government officials. serve one or more of three different objectives — steering, EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 9 >>> How Performance Management Can Improve Individual and Organizational Productivity: Success Factors 9. Performance management systems can improve as job enrichment, diversified work assignments, and job individual and organizational productivity by mobility. Developing staff to perform at high levels requires steering, motivating, and developing employees to structured programs, incentives, and resources for staff to achieve organizational, team, and individual goals improve their competencies,5 for example, through training (see Figure 1 below). Steering requires managers to set and on-the-job coaching. Managers can enable higher clear and attainable objectives and performance targets, staff performance by creating a work environment that linked to organizational goals, and to assess progress facilitates opportunities for staff to put their skills to their on them. Motivating personnel to perform at high levels organization’s best use. This would enable managers and requires opportunities for career progression, as well staff to meet not only current, but also future, demands of as other monetary incentives, such as performance- their jobs and of a continuously evolving public sector. related pay (PRP), and non-monetary incentives, such > > > F I G U R E 1 - The Objectives of Performance Management Outcome High Performance Objectives Steering Motivation Development • Monetary incentives • Goal setting • Training Practices • Non-monetary incentives • Performance appraisal • Coaching • Career progression Source: Figure 1 was developed as part of a World Bank project for the Romanian Government, “Reimbursable Advisory Services (RAS) Agreement on Developing a Unitary Human Resources Management System within the Public Administration (P165191). 5. Understood as skills, behaviors, and attitudes. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 10 10. Globally, performance management systems differ in characteristics. The more clearly observable outputs and their approaches to engendering staff performance. outcomes of public sector jobs are, the easier it is to create These systems can emphasize steering employees clear performance indicators, and thus, to measure and through backward-looking performance assessment ultimately reward performance through extrinsic rewards tied to administrative rewards and sanctions. Or they like pay-for-performance schemes (Hasnain, Manning, can emphasize forward-looking development of staff to and Pierskalla 2012). In Wilson’s (1989) classic typology enable them to perform in the future. This reflects two (adapted in Table 1, page 12), these are “production broad philosophies to managing staff performance: one jobs.” When coupled with hierarchical organizational that focuses on ensuring accountability for performance, settings, where tasks are certain and static, management and one that aims to foster staff development and growth.6 is directive, and staff autonomy, collaboration, and They are not mutually exclusive; rather, they reflect a professional independence are low, such jobs are the spectrum, and most successful performance management most suitable for defining strict and stable quantitative systems combine both. However, they do entail differences performance indicators and tying them to rewards, even to in which approaches and tools are emphasized. pay increases and promotions (Trost 2017). By contrast, Accountability is pursued by using performance ratings to for “coping jobs” and in agile organizational environments,7 inform HR decisions, such as pay and career progression. where outputs are difficult to quantify and mechanically Development aims to enable staff to grow and increase link to monetary rewards and promotions, more flexible their performance through coaching, regular feedback performance management tools and a stronger focus on and communication between staff and managers, and non-monetary rewards and development opportunities expanded learning and development opportunities. This are needed.8 happens with recognition that improving performance requires more than just assessing it (DeNisi 2006, 271). 12. While there is no one size fits all performance Non-financial rewards, such as new challenges, mobility, management model, there are nevertheless certain and personal development opportunities, complement or features that enable performance management even supplant more traditional, pecuniary, or disciplinary systems to achieve their objectives. Figure 2 (page 12) rewards and sanctions. presents these success factors and highlights that they are mutually reinforcing, rather than each contributing in 11. The type of performance management tools should isolation to the system’s effectiveness. The remainder of be prioritized based on the organizational and job this note elaborates on each success factor. 6. See Barbieri, Girosante, and Valotti 2017. The administrative versus development typology also overlaps with what much of the literature defines as performance appraisal versus performance management. See, for instance, Kloot and Martin 2000; Aguinis 2013; and Armstrong 2006. 7. Characterized by (i) high task uncertainty and dynamism, (ii) participative and supporting management, and (iii) high levels of autonomy, collaboration, and professional independence. 8. Many core civil service jobs fall in the latter category (such as policy-making jobs). See Wilson (1989) and Hasnain, Manning, and Pierskalla (2012). This literature distinguishes between types of jobs and organizations for which activities and/or results of these activities’ outputs can be observed and standardized and thus measured with quantitative indicators (for example, claims processing — called “production organizations”), jobs for which the activities/processes can be observed and measured, but results are harder to assess (“procedural organizations/jobs,” such as the military in peacetime), jobs for which the results but not the process/activities can be observed and assessed (such as teaching — called “craft jobs/organizations”), and those for which neither can be adequately observed and measured (“coping jobs,” for example, policy making, coordination, and so on). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 11 > > > T A B L E 1 - Typology of Public Activities Based on Measurability Observable Outcomes Yes No Production activities: the actions of officials Procedural activities: activities are observed, and their impacts can be observed but their impacts are diffuse Yes Examples: mail services, tax collection, Examples: mental health services, counseling, Observable sanitation, vehicle registration. military (peacetime), youth penitentiary. Outputs Craft activities: it is difficult to characterize Coping activities: neither the activity nor the the necessary outputs, but there is a clearly outcome can be cleanly measured observable outcome No Examples: field inspections, military (wartime), Examples: diplomacy, intelligence, research. doctors, forest rangers. Source: Authors’ elaboration of Wilson (1989). > > > F I G U R E 2 - Principles for Setting up Successful Individual Performance Management (PM) Systems 1. PM must start from the top 7. Embed PM 2. Ensure a clear within line of sight institutions Steer, motivate and develop staff 6. Enable performance 3. Differentiate between through adequate levels and types of opportunities for growth performance and improvement 5. Motivate performance 4. Diversify the sources through both intrinsic of evaluation, for and extrinsic objectivity and incentives fairness Source: Figure 2 was developed as part of a World Bank project for the Romanian Government, “Reimbursable Advisory Services (RAS) Agreement on Developing a Unitary Human Resources Management System within the Public Administration (P165191). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 12 I. Performance Management Must Start from the Top 13. Leaders and top managers9 of public organizations Second, for such a personal endorsement to be credible, must visibly and continuously demonstrate the leadership must ensure adequate resources within the commitment to performance management for it to be organization to implement and sustain the performance effective. First, the organization’s leadership must publicly management system. For instance, the organization’s endorse performance management as an organizational leaders might introduce mandatory training programs for priority, so that managers and staff are encouraged to managers and HR departments, but they must be ready to allocate the appropriate time and effort to fully engage enforce accountability in the process, even for high-level with the process beyond administrative requirements. A stakeholders (Pulakos and O’Leary 2011). To this end, study of 80 cases of reforms in government across 50 when evaluating the performance of public managers, countries found that successful transformations were many countries consider not only their performance in underpinned by a committed leadership, which assumed meeting individual objectives, but also their contributions personal and collective responsibility for results, and to achieving their organizations’ strategic goals and their which generated buy-in among staff through intensive, managerial and leadership competencies, including those two-way communication, as well as through leading pertaining to staff performance management (see Box 1). by example (McKinsey Center for Government 2018). > > > B O X 1 - Performance Management of Senior Civil Servants in the United Kingdom Civil Servicea In the United Kingdom (U.K.) Civil Service, performance management policies are centralized for senior civil servants. Their day-to-day performance is managed by the political heads of departments and agencies within a central framework determined by the Cabinet Office. Senior civil servants must achieve four categories of objectives, as defined with their managers: business/delivery, finance/efficiency, people/capability, and corporate contribution. The yearly objectives of senior civil servants are linked to their employing institutions’ corporate objectives (as reflected in the Single Departmental Plans), while the competencies they are required to display are set out in the Leadership Statement and in the U.K. Civil Service competency framework, called the “Success Profiles.” The Cabinet Office monitors the quality of objective setting among senior civil servants through random sampling of their performance agreements. The performance of senior civil servants is reviewed by their line managers against the aforementioned objectives and set of competencies during a mid-year discussion and during an end-of-year meeting. For the purpose of the yearly appraisal, senior civil servants must provide a self-evaluation of their performance, as well as input from peers, subordinates, and superiors, collected through a “360-degree” feedback system. Managers are encouraged to support their subordinated senior civil servants in identifying and achieving their development needs and career aspirations. Moreover, employing institutions are required to provide the Cabinet Office with information on high-potential staff, as identified through the set “Indicators of Potential.” Sources: U.K. Civil Service HR 2019. a. Box 1 was originally produced as part of a World Bank project for the Romanian Government, “Reimbursable Advisory Services (RAS) Agreement on Developing a Unitary Human Resources Management System within the Public Administration (P165191). 9. Understood as the highest-ranking level(s) of public managers within public institutions who are not politically elected (but can be politically appointed). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 13 14. Managers at all levels in organizations should to conduct the formally mandated yearly performance exercise performance management practices that appraisal. Instead, they need to be personally engaged reflect the practices endorsed by their organizations’ on a regular basis. One way to incentivize managers to top leadership. Whether it is about steering, motivating, take performance management seriously is to include or developing staff, performance management practices it in their own performance objectives. In Canada, for are primarily the tools of managers, and they need to instance, the Management Accountability Framework’s have the skills and dedication to apply them effectively. A “people management” requirement includes coaching meta-analysis of 49 studies shows that the effectiveness responsibilities as part of performance management. of performance management systems relies heavily on Another incentive can take the shape of performance- the quality of management practices (Gerrish 2015). related pay, which, while shown to have limitations when This was confirmed by a survey in the Romanian public applied to bureaucrats, may have a role in incentivizing administration, where the quality of management practices managers to manage performance (Marsden 2009). related to the performance management process was Evidence from a civil service survey in the Philippines found to be positively correlated with employee motivation suggests that management motivated by performance (World Bank, forthcoming). bonuses is more focused on target setting and monitoring and in engaging staff in the process than other approaches 15. Managers need to be equipped with the necessary (World Bank Group 2019). competencies to effectively manage performance. To put in practice the success factors outlined in this note, managers require specialized and regular training on issues such as defining performance, evaluating competencies, I. Ensure a Clear Line of Sight differentiating levels of performance, recognizing (Goal Alignment) unconscious bias, mastering difficult conversations, and giving constructive feedback to staff. In countries such as Ireland and Canada, training in performance management 17. Steering and motivating employees toward achieving is compulsory for all public sector managers. To make organizational goals requires a clear vision of what this training more effective, the content should be made the goals are and how they can be achieved (Smither gender sensitive and locally customized — an approach and London 2009, 46). Well-functioning organizational shown to increase the impact of training (McKenzie performance management systems are a prerequisite 2020). Beyond performance management techniques, for effective individual performance management. As a such training could also leverage intrinsic motivation, minimum, the relationship between the objectives of the which recent experimental evidence from Ghana organization and each unit’s objectives should be clear. In demonstrates can impact the quality of management and Romania, a 2018 public employee survey found that the the overall performance orientation of the organizational vast majority of respondents see their mission misaligned culture (Azulai and others 2020). For instance, managers with that of their organizations, which was also shown who undergo training in performance management and to correlate with lower levels of motivation of the same are perceived as effective by their teams can be asked employees (World Bank, forthcoming). In some cases, to provide motivational speeches to their peers in future organizational goals can be derived to units and further training sessions. Finally, classroom training10 could be to individuals, based on the concept of “management by complemented by providing each trained manager with objectives.” For example, revenue collection goals in tax a mentor (for example, a more experienced peer) or or customs agencies can in principle be broken down to instructor who can follow-up bilaterally to reinforce the the unit, and even the individual, level. This can provide content taught in training (McKenzie 2020). transparent connections between what an employee does and the organization’s key goals. However, public 16. Given that effective performance management organizations have multiple, complex goals and types requires not only compliant, but also invested of jobs; automatically cascading organizational goals to managers, appropriate incentives need to be in place. individual ones is not always feasible or advisable. As a If managers are not only to assess, but also to motivate second-best option, individual-level goals can be linked to and enable staff performance, it is not enough for them unit-level goals, if these are clearly defined. 10. Either in-person or, increasingly, virtually, given the need to adapt training to restrictions imposed by the COVID-19 pandemic. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 14 18. Ensuring alignment between individual and outputs. For example, in units and organizations focused organizational goals is possible without automatically on policy making or coordination, measuring compliance cascading the latter down to the individual level. This with procedures in preparing policy proposals says little alignment can be achieved by strengthening and clarifying about the quality of the policies or their effectiveness. the link between the goals of high-level managers and Focusing on the competencies defined for a particular organizational goals. For example, in the Belgian civil standard of performance, which is better suited for service, the system for assessing the performance assessing performance in complex jobs (Glifford 2016), of executives is the same as the one for assessing is even more difficult — even impossible — based on organizational performance.11 Frequent communication standardized quantitative indicators. and discussion of organizational goals with employees can also generate awareness and buy-in, allowing managers 20. Even for the jobs that lend themselves more readily to and staff to align their goals with the organizational quantitative standardized indicators,12 performance mission without being overly rigid or prescriptive (Pulakos is more than the sum of tasks completed. Assessing and O’Leary 2011, 149). This is important not only for performance also requires managers to make judgments steering, but also for motivating performance. If public about the context in which employees perform their work, sector employees perceive their own work as important for instance, by factoring into their evaluations external for accomplishing their agency’s goals, this may provide challenges that might affect employee performance. At significant intrinsic motivation for them to perform well the same time, managers must also consider how the (Wright 2004, 73). work accomplished by the employee affects, in turn, the wider context — individual objectives may be achieved at the expense of team cohesion and, ultimately, team III. Differentiate Performance performance. As such, individual performance cannot Assessments Across Institutions, be assessed simply in terms of quantitative targets Job Types, and Levels of Performance met, but also in terms of how such targets were met and the corresponding broader implications. Otherwise, overreliance on quantitative indicators may foster deviant 19. Defining and measuring staff performance should be behavior, goal-displacement effects, or even gaming the adapted to the nature and responsibilities of the job. system (Burgess and Ratto 2003; Holmstrom and Milgrom For example, for front-line staff who interact directly with 1991, 24) — ambulance drivers choosing short-distance beneficiaries, measures of client satisfaction (through calls to meet a response time target, teachers focusing direct or indirect feedback) can be particularly important. A on exams’ curricula because they are assessed by similar case can be made for jobs that deliver services to successful students’ quota, or police officers not reporting internal clients (see Box 2 for an example of a performance crimes to avoid increasing the area’s crime rate and thus assessment system for service delivery in the Dutch guaranteeing their bonuses (Osterloh, Frey, and Homberg public administration). Specific and detailed performance 2013). In sum, assessing performances requires careful indicators may work to some degree for highly predictable managerial judgment, which can be guided and aided, but and routine tasks (“production-type jobs”), but they are not replaced, by standardized performance indicators. less useful for more complex and less tangible types of 11. See Barbieri, Girosante, and Valotti (2017). Other examples of this approach are evident in Chile, the Republic of Korea, the United Kingdom, and the United States. 12. These jobs consist of observable, repetitive tasks and produce observable, discrete outputs (“production-type jobs,” for example, verifying compliance with procedures and processing claims). See Hasnain, Manning, and Pierskalla (2014). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 15 > > > B O X 2 - Measuring Performance for Production-Type Jobs: The Case of P-Direkt in the Netherlandsb P-Direkt is the shared services center for human resource management administrative services for institutions across the Dutch government. It is responsible for providing services to around 130,000 end users, both employees and managers in the public administration. Its services focus on payroll, providing HR information to relevant stakeholders and processing HR transactions. To ensure high quality, reliable, and efficient services, P-Direkt sets and digitally measures and reports on yearly targets for a number of key performance indicators pertaining to customer satisfaction, processing times for requests, and availability of services. The institutions use the targets to incentivize and improve performance by clarifying expectations and identifying areas for improvement, rather than for punitive purposes. These targets are integrated as performance standards into the performance appraisal of front-office and back-office staff. For instance, in 2019, front- office staff were expected to answer telephone calls within 10 seconds and to address 85 percent of telephone inquiries within 45 seconds. Back-office staff had to respond to 90 percent of queries and complaints within five working days. Customer satisfaction is measured on a scale of 1 to 10 and assessed through electronic surveys of satisfaction following each operation and through follow-up telephone calls to a sample of clients (around 10 percent). Sources: P-Direkt 2019; Netherlands, Ministry of the Interior and Kingdom Relations 2018. b. Box 2 was originally produced as part of a World Bank project for the Romanian Government, “Reimbursable Advisory Services (RAS) Agreement on Developing a Unitary Human Resources Management System within the Public Administration (P165191). 21. Focusing on performance at the team level, as (ex-ante) frame-of-reference training (Schleicher and Bull appropriate, may better capture actual performance 2007) and (ex-post) calibration of grades (Caruso 2013). in achieving organizational objectives. Job Through frame-of-reference training, managers within responsibilities of staff in the core public administration an organization are provided with guidelines and training typically entail substantial interdependencies between on how to evaluate different aspects of performance different individuals, sometimes across departmental or and to distinguish different levels of performance. This organizational boundaries. Given these interdependencies, is especially useful for behavioral, qualitative, and other improving individual performance will not necessarily aspects of performance that are difficult to measure lead to improved results for the organization. In these quantitatively based on administrative data. Through circumstances, objectives should be set at a level at which calibration, managers at each hierarchical level meet results can be adequately measured, that is, at the team after the individual staff appraisals are done to discuss (in cases for which it can be defined) or unit level (Farr and and compare provisional grades and grade distribution Tippins 2010). Nonetheless, placing too much emphasis across and within units. Both tools introduce some degree on team-based objectives might incentivize free-riding of quality assurance to how performance is rated. within the team, while disincentivizing managers to tackle individual underperformance. A study in the U.K. Civil 23. While calibration adds an additional step to the Service found these issues to undermine the expected process and is somewhat resource intensive, it benefits of team-based objectives, in the absence of generates a series of benefits. It improves managers’ competent managers to address them (Makinson 2000). accountability for the appraisals (managers have to justify Limiting the scope of objectives to smaller, more established their initial ratings), increases total information used in teams could help alleviate these issues and lead to decisionmaking (discussion with other managers and improved team productivity (Burgess and others 2010). supervisors), diminishes the pressure on managers to inflate ratings, and ensures a shared frame of reference 22. For both accountability and development purposes, that increases the accuracy of ratings (Speer, Tendrink, performance ratings should reflect the variance in and Schwendeman 2019). Discussing specific examples employee performance. This can be challenging in of performance also helps managers align their views of public and private sectors alike (Wigert and Harther how to interpret and apply standards, which increases 2017). Two ways to enable both comparability of rating consistency across employees. As such, calibration ratings across units and consistent and comparable diminishes bias and increases the fairness of the system. differentiation among different levels of performance are If combined with well-defined performance standards and EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 16 training of managers (for example, frame of reference), applying, or not, the right mix of competencies). There calibration is uniformly well received and useful in practice are various ways to achieve this: (Bock 2015; Pulakos and O’Leary 2011, 161). If calibration is tied to and integrated with the annual organizational a. Diversify the sources of data used for the performance planning and management processes, it has assessment. For some types of jobs with clear tasks the added benefit of strengthening the latter process and or outputs, this can be done through better use of its link to individual performance management (see figure administrative data (for example, from document 2, principle 2, page 12). management or management information systems, where they exist) and modern technologies (such 24. Forced distribution is a more radical technique of as tablets and cell-phones to monitor activities, differentiating between levels of performance, and it especially for some types of field workers who use can have detrimental side effects. A forced distribution them in their daily work), or to gather direct citizen requires managers to place team members in different feedback on services provided by frontline staff (see performance categories, based on a fixed percentage for Box 2 for an example of principle 3 on measuring each category. A number of European Union (EU) member performance in P-Direkt in the Netherlands). Another states have applied forced distribution to various degrees, option is to include feedback from multiple people in such as Portugal for top ratings, Latvia and Italy for all the assessment of a given individual. Multi-source ratings, and the United Kingdom for all ratings of senior feedback is increasingly popular in performance civil servants (Staroňová 2017). However, in general, assessment in the public sector, and it may include forced distributions were found to generate significant self-evaluation, evaluations by colleagues, and downsides (Schleicher, Bull, and Green 2009; Stewart, evaluations by external sources, such as clients, Gruys, and Storm 2010), because they force managers beneficiaries, and citizens (Glifford 2016). Tools such to artificially rank staff. This can have a demoralizing as 360-degree evaluations (which include feedback effect on staff in the medium- to long-term — especially if from supervisors, peers, clients, and subordinates) employees deem their scores unfair. It can also promote are especially valuable for managers since they can excessive individualism and competitiveness among co- capture various aspects of managerial performance. workers to the detriment of teamwork and collaboration However, 360-degree appraisals are resource- (Stewart, Gruys, and Storm 2010). These side effects are intensive and, unless certain conditions within the particularly damaging if the performance rating is linked organization are met (such as ensuring anonymity of to financial or career consequences. In countries where feedback providers, having an open feedback culture, the level of trust among staff concerning the objectivity of and using the feedback for developmental purposes), manager evaluations is low, quotas for top ratings can be they can become an administrative burden (Latham used as an in-between solution. This helps to differentiate and Mann 2006). The resources needed to implement and reward high performers, while not forcing managers and sustain a 360-degree performance process to rate some of their employees as underperforming, make it challenging for most public administrations to which might be viewed as excessively punitive. use for all but the most senior managers within their organizations (Kuperus and Rode 2016). b. Acknowledge and address unconscious bias in IV. Diversify the Source of Evaluation, performance appraisals. Organizational psychology for Objectivity and Fairness literature and behavioral sciences have documented numerous forms of potential bias (Scullen, Mount, and Goff 2000), as shown in Table 2 (page 18). 25. Effective performance management systems Managers who have been trained in performance improve and augment, rather than replace, human appraisal techniques and have been made aware judgment in the appraisal. As noted, even for jobs with of potential unconscious biases are more likely to standardized tasks and predictable results, managers provide fair and accurate ratings. The two most must integrate in their appraisals of staff performance effective types of training for this purpose were found elements such as task complexity, exogeneous to be frame-of-reference training, which enables challenges, and the broader implications of individual managers to recognize a given set of standards performance on the work environment (for example, by of performance across different employees, and EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 17 behavioral-observation training, which enables managers to observe, record, and recall staff behaviors (Glifford 2016; London, Mone, and Scott 2004). Moreover, requiring managers to justify their ratings and/or establishing an independent review process of the ratings was found to reduce the effect of biases on performance rating (ibid.). > > > T A B L E 2 - Examples of Possible Managerial Biases in Performance Appraisals Possible Bias in Description Performance Appraisal Managers generalize an employee’s overall performance based on only one Halo effect aspect of the employee’s work Managers consider staff in less complex roles, such as back office jobs, as low Lower rating for less challenge performers simply because they perform routine tasks Managers award high ratings to staff who they like and/or who have a similar Personal bias work style Managers have the tendency to award most employees an “average” performance Central tendency bias rating, despite actual performance, because they find it difficult to distinguish between performance levels Managers generally assess employees either higher than their actual performance Leniency and strictness bias (for instance, to prevent losing them or to avoid conflict and preserve relationships) or lower than their actual performance (being overcritical of their employees) Managers focus on the performance of their employees in the period leading Recency effect to the performance appraisal, rather than on their performance throughout the assessment period Sources: London, Mone, and Scott 2004; Wigert and Harter 2017; Table 2 was developed as part of a World Bank project for the Romanian Government, “Reimbursable Advisory Services (RAS) Agreement on Developing a Unitary Human Resources Management System within the Public Administration (P165191). V. Motivate Performance Through Both Intrinsic and Extrinsic Incentives 26. Civil servants can be motivated through monetary monetary incentives appeal to an individual’s intrinsic and and non-monetary rewards (Bandiera, Khan, and Tobias “pro-social” forms of motivation, including job satisfaction, 2017, 7). Beyond economic self-interest, civil servants’ new challenges, mobility, personal development, and decisions and choices are also affected by factors such social recognition, among others (Rose 2014; Watkins as fairness, professional pride, and societal responsibility and Beschel 2010). Indeed, the trend in private and some (Guszcza, Bersin, and Schwartz 2016). Monetary public organizations is toward “total reward strategies,” incentives (also known as performance-related pay) which include a variety of elements of the employment motivate through their extrinsic value, as sanctions do package other than wages (see Box 3). through pay cuts, demotions, and dismissals. In turn, non- EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 18 > > > B O X 3 - Total Reward Strategiesc Total reward strategies cover all relevant aspects of the employment package that help attract and retain the right staff in the organization. While performance-related pay is often included in the reward package, the total reward strategy also includes other financial elements (such as medical insurance, dental insurance, leisure vouchers, and so on) and other important non-financial incentives, such as: • The work itself — its challenge, variety, autonomy • Learning and development opportunities • Opportunities to grow — career prospects • Enabling environment— working conditions, work-life balance, flexible work arrangements • Management quality — including the quality of the framework for managing performance and encouraging manager- employee performance discussions. For example, in the U.K. civil service, the total reward strategies are a key element of the reform of the pay system for senior civil servants, as highlighted in the Government Evidence to the Review Body on Senior Salaries on the Pay of the Senior Civil Service (March 2020). As part of the reform strategy, there is increased emphasis on the benefits of working in the civil service, beyond base pay and performance-related pay. The document mentions pensions as well as the intrinsic importance of the role. Similarly, the British Council has developed a framework that intends to provide an “attractive total reward offer (pay, benefits, personal development, career progression, work-life balance, and environment and culture) to attract, engage and retain” qualified staff. In addition to the pay structure, the rewards strategy includes: 32 days annual leave in addition to statutory holidays, the benefit pension scheme, flexible working and well-being policies, enhanced family-friendly benefits (such as childcare vouchers), cycle to work plan, and so on. The framework is accompanied by a detailed guide for local councils on developing total reward strategies for their organizations. Sources: Armstrong 2019; United Kingdom, Cabinet Office 2020; Local Government Employers 2010. c. Box 3 was originally produced as part of a World Bank project for the Romanian Government, “Reimbursable Advisory Services (RAS) Agreement on Developing a Unitary Human Resources Management System within the Public Administration” (P165191). 27. While many governments use performance-related of ratings, the fear of potential losses can influence their pay, evidence on its impact on performance is mixed. behaviors twice as much as the prospect of potential gains Implementing PRP systems remains a challenging (Ewenstein, Hancock, and Komm 2016). An approach to issue in many Organisation for Economic Co-operation address the issue of employees taking yearly bonuses and Development (OECD) countries (OECD 2005). for granted and their tendency to excessively focus the Performance-related pay seems to be most effective for annual performance appraisal on monetary implications “production jobs” that have more readily observable outputs is to award “spot” bonuses throughout the year that and outcomes (Hasnain, Manning, and Pierskalla 2012). recognize superior effort or a salutary initiative (Hancock, This is not the case for “craft” or “coping jobs,” which make Hioe, and Schaninger 2018, 52). up much of the core civil service jobs; for these, there is insufficient evidence on the benefits of PRP. This is partly 28. For knowledge-intensive and more creative jobs, tools because an important side-effect of monetary incentives is that leverage intrinsic and pro-social motivation show that of crowding out intrinsic motivation (Marsden 2009). better impact on performance (Gallani 2017; Nava, Associating an economic value with a certain activity that Bandiera, and Kelsey 2014; Trost 2017). Techniques to the organization may consider should be driven by intrinsic appeal to intrinsic drivers of performance in the public motivation (for example, serving the public good) changes sector through non-monetary incentives include: the nature of motivation to that of a contractual exchange. As a result, the absence of continued financial rewards • Public sector awards: these can encourage can disrupt the altered positive behavior. Furthermore, if productivity and innovation and promote pride in one’s employees worry excessively about the pay implications work (Watkins and Beschel 2010). The conditions for EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 19 such positive effects are to award only a few of them, 30. Limited career progression and development have a transparent and fair selection process, and opportunities can be supplemented through effectively communicate the program. structured horizontal mobility programs. Most public administrations are characterized by rigid career • Less formal recognition: lunchroom celebrations, progression systems, hence opportunities for promotion town hall announcements, employee-of-the-month may be limited. However, horizontal mobility schemes and team-achievement awards encourage and help can also offer staff new challenges and opportunities, sustain high performance at little to no cost (Carpi, allowing them to diversify and augment their skills and Douglas, and Gascon 2017). competencies by working in other sectors and on different projects. From an organizational perspective, internal • Building team spirit: for some workers the best mobility can foster collaboration between institutions to motivation is maintaining a sense of closeness and deliver whole-of-government priorities in a coordinated connection with their colleagues. They want to please, manner. Moreover, it can help mobilize staff to fill capacity and certainly not disappoint, their team members, so gaps in institutions or for specific projects that require appealing to team spirit is an effective motivating tool. their expertise on short notice (Boyle and O’Riordan 2014; However, this works only when teams are cohesive Kuperus and Rode 2016; U.S. GAO 2019). A number of and members get along (Stewart, Courtright, and EU and non-EU public administrations have aimed to Barrick 2012). encourage internal mobility (permanent or temporary) among their staffs, particularly for public managers. A • Tailor-made benefits for individual needs: with 2016 OECD survey found that 13 of 35 OECD member the evolving nature of work and the labor market states encourage, to various degrees of intensity, their determined by generational shifts and societal senior managers to undergo mobility assignments (OECD disruptions (such as the COVID-19 pandemic), 2015). This can vary from formal requirements for senior expectations for the workplace also transform. managers to change positions after several years (such Employees increasingly seek benefits in the form of as in the Netherlands) to opening up vacant senior opportunities for growth, flexible worktime and better management positions first to internal mobility (such as work-life balance, career coaching, and other career in Ireland). development opportunities (Deloitte 2015). 29. Transparent, fair, and accessible opportunities for VI. Enable Staff Performance career progression and development are also critical Through Adequate Opportunities for determinants of staff engagement.13 This is particularly Growth and Development true for the new workforce from the millennial generation, which prioritizes opportunities of personal and professional development and fulfillment in a job (Wigert and Harther 31. Regular feedback and coaching of staff by managers 2017). A coherent and clear career path encourages can improve staff motivation and is essential for staff staff to invest personally in a long-term commitment development, and thus, performance.17 The feedback with their employing organization. Increasingly, public loop for the typical yearly performance assessments and administrations are looking to establish specialist one-off review meeting is too long to identify and address tracks for the various professions operating within their problems in a timely manner. It is also strongly focused on organizations (as in Australia14 and Ireland15), or they reviewing past performance, identifying errors, and holding have done so already (as in the United Kingdom16). staff accountable for them. Since it is difficult to assess Staff are thus able to easily identify career progression an entire year’s worth of performance, managers often opportunities within their specific fields of work and across mainly concentrate on the most recent events (“recency organizations and to invest in upskilling to help meet the bias”). More frequent feedback through regular informal prerequisites for a career change. conversations contributes to a better and immediate 13. For examples, see Australia, Department of the Prime Minister and Cabinet (2019) and U.S. GAO [United States Government Accountability Office (2019)]. 14 For example, see Australia, Department of the Prime Minister and Cabinet (2019). 15. For example, see Ireland, Department of Public Expenditure and Reform (2017). 16. See U.K. Civil Service professions (https://www.civil-service-careers.gov.uk/professions/). 17. For examples, see Latham and Mann (2006); Soltani and others (2005); Gruman and Saks (2011); and Wigert and Harther (2017). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 20 understanding of performance, and it provides employees 33. Competency-based management is one way to with direction as well as the opportunity to quickly adjust identify both needs and potential for development course (Trost 2017). It also increases staff morale. For of staff. Competencies are key behaviors, skills, and example, in a public employee survey conducted in the knowledge that staff need to use on the job in order to Romanian public administration, regular feedback from fulfill their specific responsibilities (OECD 2011). They managers was found to be positively correlated with staff can help identify staff with high potential for promotion, motivation and engagement (World Bank, forthcoming c). especially at managerial levels. Competencies are used To be effective, such conversations should use constructive in performance appraisal to identify behaviors, skills, and language and focus on building rapport with employees knowledge that should be further developed to enable staff and identifying avenues for future growth, rather than just to better perform and further progress in their careers and discussing activities to be performed (Christensen 2015; to link these to concrete development opportunities tied to Ewenstein, Hancock, and Komm 2016). employees’ personal expectations and career aspirations (Trost 2017, 31). Development opportunities can take the 32. It is recommended that managers separate form of training, mobility, or new responsibilities or tasks conversations focused on employee development of higher complexity and challenge. If done adequately, from formal performance conversations that have development opportunities can be more effective at primarily accountability and control functions. building skills and competencies than traditional forms Both managers and employees tend to use different of learning, such as training. Assessing and developing cognitive processes for formal performance appraisal competencies as part of performance management can discussions than for discussions focused on development. also help address underperformance, which is one of the Experimental studies have found that managers tend to most challenging aspects of any performance management disproportionately consider examples of poor employee system.18 Assessing competencies allows for a better performance when deciding whether to award extrinsic understanding of what causes underperformance — benefits to staff. They were also found to rate employees whether lack of motivation or the competencies necessary too generously to avoid conflict. Employees, in turn, were to perform on the job. found to take a combative approach to these discussions, focusing on justifying their weaknesses, defending against feedback, and over-emphasizing their strengths, all to improve their ratings (Bock 2015; Glifford 2016). However, VII. Embed Performance Management when evaluating staff performance without having to link in Organizational Culture and Practice it directly to administrative decisions, managers look at employee performance more comprehensively and tend to rate staff more realistically. Also, employees are 34. An effective individual performance management more open to talking about their weaknesses and ways system must be coherently integrated into the to improve their performance. Separating discussions organization’s culture, practices, and processes. about pay and promotion from those about development For instance, to ensure a clear line of sight between and learning can lead to more constructive conversations organizational and individual objectives, the organizational about performance between managers and staff. The strategic planning and management framework (through difference in mindset between administrative and which strategic objectives are defined and progress development conversations also applies to peer feedback. toward meeting them is monitored and evaluated) must Input from peers is more candid and effective in changing be formally connected to the staff appraisal process and behaviors when it is used for developmental purposes, must inform management decisions on staff rewards, such as learning, rather than administrative purposes, sanctions, and development needs. However, this clear such as promotions or bonuses (Smither, London, and line of sight rests on the organization having a practice Reilly 2005; Trost 2017). 18. For example, see Australian National Audit Office (2017); and as discussed in Barbieri, Girosante, and Valotti (2017). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 21 of setting measurable strategic objectives and regularly engagement surveys are standard practice in most OECD reviewing progress in meeting them. Other elements, countries; in most cases, they are undertaken every year, such as institutional safeguards in the shape of appeal through a standardized methodology for the entire public procedures or review boards, are also needed to ensure administration (ibid.). These surveys can help identify that managers use performance management tools high-performing organizations and facilitate learning adequately and that performance assessments are fair across the public administration. and credible. All these processes should be linked to each other through appropriate internal rules and improved 36. Human resource departments have a key role in communication channels between relevant departments. ensuring that performance management achieves its Finally, even when performance management is part of three-pronged objectives (steering, motivating, and an integrated system within the organization, it must be enabling staff). At a basic level, HR departments support embedded in the organizational culture for effective use the process administratively and verify compliance with and sustainability. This is achieved through intensive the applicable performance management regulations. and continuous communication efforts, as well as public More advanced HR departments also play a strategic endorsements and transparent accountability measures role in performance management, by (i) ensuring its from the organization’s leadership (see Figure 2, principle coherence with all the HRM processes underpinning the 1, page 12). employee lifecycle; (ii) actively building capacity among managers in managing staff performance within existing 35. Staff need to be involved and consulted in the design, frameworks; and (iii) continuously evaluating and adapting implementation, and adjustment of the performance the performance management system to effectively management system to ensure its take-up and support the institution’s strategic priorities. To this end, HR effectiveness. Having a role in shaping the policies and departments must not only embed the adequate level of processes that affect them and seeing the organization’s subject matter expertise (for example, through specialized leadership addressing their concerns can be a major training, internal centers of expertise, or external boost to staff morale and engagement (OECD 2016). partnerships), but also benefit from a commensurate One increasingly common instrument for eliciting staff mandate and leverage over strategic decisions in perceptions are staff engagement surveys, either large- the organization. scale or focused on a specific topic (“pulse” surveys). Staff EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 22 >>> How to Apply the Seven Success Factors 37. World Bank task teams and government officials are, whether development opportunities exist and can can use the framework proposed in this note to be pursued, how staff and managers interact, and assess and improve performance management what role formal performance management structures systems. It is advisable to first conduct a review to and procedures play in all of these. The results of the gain an understanding of the overall HRM structures assessment determine if the performance management and determinants of performance in the particular system is a cause of staff underperformance and whether country context. This includes a review of the legal reforming it alone or as part of broader HRM reforms and institutional framework for HRM, in general, and is the right response. Designing and implementing performance management, in particular. The next these reforms — to address any specific issues and, step is to assess how well the objectives of steering, in turn, target improved staff performance — would be motivating, and developing staff are achieved by the the ultimate objective. Table 3 (page 24) provides key current systems. Staff surveys, such as those conducted diagnostic questions for assessing whether and how by the World Bank’s Bureaucracy Lab, are a very useful a given performance management system reflects the instrument for conducting such assessments. They can seven success factors identified in this note. It also capture staff and manager perceptions about the degree suggests tools and actionable recommendations for to which individual and organizational goals are aligned, improving performance management systems along the what the motivational bases of public sector employees seven success factors. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 23 > > > T A B L E 3 - Checklist and Toolkit for Applying the Seven Success Factors Success Factor Diagnostic Questions Tools and Recommendations • Is there a separate performance • Revise performance management management regime for high-level civil regime for high- level civil servants to servants? Is it implemented well? align incentives and demonstrate the • Do leaders and top managers visibly and value of performance management 1. Performance management continuously demonstrate commitment • Communicate regularly (by leadership must start from the top to performance management? to staff) the goals and importance of • Does leadership ensure adequate performance management resources to implement and sustain the • Train managers at all levels in performance management system (for competencies necessary for example, to train managers and HR performance management departments)? • Include effective performance • Does leadership enforce accountability management as managers’ performance of the performance management system, objective even for high-level stakeholders? • Is there a well-functioning organizational • Reform and strengthen organizational performance management system in strategic planning and performance place? management system • Is the relationship between the • Cascade down organizational objective 2. Ensure a clear line of sight objectives of the organization and each to units and potentially to individuals as (goal alignment) unit’s objectives clear? possible • Strengthen and clarify the link between the goals of high-level managers and organizational goals • Incorporate frequent communication and discussion of organizational goals with employees • Are performance indicators adapted to • Use competencies and qualitative the nature and responsibilities of the job? indicators for jobs with no measurable • Do performance ratings reflect the outputs (for example, policy roles) 3. Differentiate performance variance in employee performance? • Evaluate performance at the team level, assessments across if evaluating individual contributions is institutions, job types, and not feasible levels of performance • Use (ex-ante) frame-of-reference training and (ex-post) calibration of grades to differentiate performance scores • Provide frame-of-reference training for managers to differentiate performance scores • Ensure variance in performance ratings through calibration process • Use quotas on top grades for which managers face weak incentives or disincentives to adequately differentiate performance among staff EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 24 Success Factor Diagnostic Questions Tools and Recommendations • Are performance ratings perceived by • Improve managers’ judgment in employees to be fair? performance evaluation through tailored • Beyond measuring standard quantitative training 4. Diversify the source performance indicators, do managers • Diversify the sources of information for of evaluation, for objectivity integrate in their appraisal factors the evaluation by using administrative and fairness such as task complexity, exogeneous data, citizen feedback, multi-source challenges, and the broader implications feedback (from peers, beneficiaries, of individual performance on the work citizens), and so on environment? • Acknowledge and address unconscious • Do managers rely on multiple sources of bias in performance appraisals by information to appraise their employees’ training managers in performance performance? appraisal techniques (frame-of-reference training, behavioral-observation training) • What monetary and non-monetary • Use performance-related pay primarily rewards are used to motivate staff? in production jobs, for which outputs and • Are opportunities for career progression outcomes are more readily observable 5. Motivate performance and development transparent, fair, • Use “spot” bonuses instead of yearly through both intrinsic and and accessible? Are they effective bonuses to award specific achievements, extrinsic incentives incentives? so that employees do not take bonuses • Does management consult employees for granted on what in particular would motivate • Use incentives that leverage intrinsic them to perform better? and pro-social motivation, such as public sector awards, building team spirit, and so on • Provide opportunities of personal and professional development and fulfillment in a job to motivate, in particular, younger employees • Use structured horizontal mobility programs for jobs with limited vertical career progression • Are regular performance conversations • Provide regular feedback using a mandated? constructive language and beyond task • Do these take place in practice? completion discuss competencies and • Do managers provide regular feedback professional growth 6. Enable staff performance to staff, beyond the yearly mandatory • Separate conversations focused on through adequate performance conversations? employee development from formal opportunities for growth performance conversations that have and development primarily accountability and control functions • Train managers in “competency- based management” so they can identify in performance conversations which competencies should be further developed to enable staff to better perform EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 25 Success Factor Diagnostic Questions Tools and Recommendations • Is the performance management system • Use institutional safeguards, such linked to other HRM functions and as appeal procedures, to ensure decisions? that managers use performance 7. Embed performance • Are there accountability mechanisms in management tools adequately management in place for performance management? • Embed the institutionalized performance organizational culture • Is there a performance and results- management system in the and practice oriented organizational culture? organizational culture through intensive and continued communication efforts • Involve staff in the design, implementation, and adjustment of the performance management system, for instance, through staff engagement surveys and focus groups • Train and empower HR departments to support managers in performance management EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 26 >>> Conclusions 38. Performance management is an important tool in motivating staff and helping them grow. This requires increasing public sector productivity, which is key not only aligning individual and organizational goals for effective regulation, infrastructure and service (principle 2) and starting at the highest levels of the civil delivery, and overall expenditure efficiency. The service (principle 1), but also improving the quality and general government wage bill accounts for around 10 context-adequacy of how performance is evaluated for percent of gross domestic product globally and the public different kinds of jobs (principles 3 and 4). It also requires sector workforce accounts for around one third of formal deploying a careful mix of monetary and non-monetary employment. With this magnitude, increasing outputs incentives to motivate different kinds of employees from public sector workers and organizations can have (principle 5), as well as providing opportunities for a significant impact on government saving, creating staff to perform better by emphasizing forward-looking room for new investments and building citizens’ trust development and growth (principle 6). in government. 41. Whichever performance management model is 39. Managing individual performance in the public sector chosen, the successful achievement of its goals is challenging, but it also has some advantages. The will largely depend not only on individual staff public sector’s sheer size and heterogeneity means that performance, but also on manager engagement and there is no “one size fits all” performance management leadership quality. The seven success factors outlined in system that works for all types of jobs and organizations this note provide useful lessons drawn from scientific and in the public sector. In the core public administration, empirical evidence. These lessons need to be adapted to there are few “production-type jobs,” so it is difficult the particular context and challenges of a given public to objectively measure and score performance. Most administration. This can be accomplished by ensuring public administrations are characterized by rigid career employee participation in the design and regular updating management and compensation systems, which further of the performance management system. However, one limits the possibility of offering performance-based overarching theme emerging from these lessons is that pay and promotion incentives for many. However, the public institutions need to invest in training and guiding public sector has its own advantages. For instance, its managers in all aspects of performance management size provides for development opportunities through — assessing performance fairly and holistically, linking mobility across organizations. Also, public servants individual and organizational goals, having constructive are more likely to find meaning in their work by making conversations with staff, and coaching them to achieve a positive difference in the lives of the citizens they their full potential. Institutionalizing such effective serve. This sense of mission offers tools for keeping performance management practices requires continuous them motivated. leadership commitment to supporting and improving the system and ensuring that performance management 40. To effectively use performance management to is not a rote procedure, but rather, a core element of boost public sector productivity, public institutions organizational culture and practice (principle 7). should focus both on assessing performance and on EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 27 >>> References Aguinis, Herman. 2013. Performance Management, 3rd edition. Boston, MA: Pearson. Armstrong, Michael. 2006. Performance Management: Key Strategies and Practical Guidelines. Kogan Page. Armstrong, Michael. 2019. Armstrong’s Handbook of Reward Management Practice: Improving Performance Through Reward. 6th ed. London: Kogan Page. Australia, Department of the Prime Minister and Cabinet. 2019. Our Public Service, Our Future. Independent Review of the Australian Public Service. Australian National Audit Office. 2017. “Managing Underperformance in the Australian Public Service.” Auditor-General ANAO Report no. 52 2016–2017, Performance Audit. 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