Performance Related Pay In Operation: A Case Study From the Electronics Industry

PERFORMANCE RELATED PAY IN OPERATION: A CASE STUDY FROM THE ELECTRONICS INDUSTRY

Stephen J. Procter, Keele University Louise McArdle, University of Central Lnncushire Michael Rowlinson, University of Southampton

Paul Forrester and John Hassard, Keele University

INTRODUCTION

Developments in payment systems

As employers have attempted to use payment system as a means of exercising control, and as these attempts have been met by the efforts of employees and their representatives to resist them, the use and development of payment systems has tended to follow a cyclical pattern. Control through piece rates, for example, was met by workers regulating their efforts in attempts to avoid rate cutting (Armstrong, 1984). By the 1970s measured day work (MDW) was seen as the answer to some of these problems. Though MDW has proved successful in certain areas (Bennett, 1986; Gyllenhammar, 19m, Batstone (1988) points to the ability of workers’ organisations to manipulate the system to the extent that in some cases employees could double their standard times.

In response to plant-level resistance, attempts were made to gain control by means of industry-wide agreements which fixed wage rates on the basis of the ‘going rate‘ or cost of living rises. Throughout the early 1970s such methods of wage fixing were the norm for the vast majority of manufacturing industry. They were believed to muddy the relationship between efforts and rewards, however, and often left the control of the effort-reward bargain in the hands of national trade unions and employers’ federations. Though in the late 1970s and throughout the 1980s there was a move away from industry-wide negotiations and towards bargaining at company level, the wage-effort bargain was still controlled by trade unions and management through collective arrangements.

More recently there has been the rise of payment systems that tie rewards directly to a broad definition of performance. In resulting more from management choice than from reaction to workforce resistance, this development in some senses represents a break in the traditional cycle. Performance related pay systems differ from traditional payment by results (PBR) in not focusing exclusively on direct production levels as the measure of performance. Rather, they also set down indirect qualitative criteria which must be fulfilled in the course of meeting agreed targets. These can include such things as flexibility and contribution to teamwork (Kinnie and Lowe, 1990).

There is evidence to suggest that performance related pay is proving increasingly popular for both white collar and blue collar workers (IDS, 1991; IMS, 1991; Kinnie and Lowe, 1990). One survey in 1988 found that just under a quarter (23 per cent) of manual workers had some performance element incorporated into their pay (Kinnie and Lowe, 1990). An IDS study (1991) showed that around 25 per cent of the companies they interviewed had introduced some form of merit award for manual workers.

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Performance related pay: objectives and application

As Kessler and Purcell(1992) make clear, companies’ objectives in introducing a system of performance related pay (PRP) can be divided into two categories. The first covers the traditional functions of a payment system: recruitment, retention and motivation. While for management employees, PRP can be used as a means of recruitment and retention, for blue collar workers motivation is more often the objective.

The second set of objectives are those ’geared to using the potency of pay systems as part of managerial strategies for promoting broader organisational change‘ Kessler and Purcell, 199220-21). Under this ‘organisational change‘ heading three objectives can be identified. The first of these is the use of PRP as part of an attempt to effect a change in an organisation’s culture. Connected to this is the second objective, which is to use the emphasis on the individual inherent in a PRP system as a means of restructuring the relationship between a company and its employees in such a way as to extend managerial control. This is made effective by forcing the responsibility for decisions onto individuals’ line managers. The third way in which PRP acts as a means of effecting broader organisational change is in the greater financial flexibility it accords management. This, however, is the least developed of the ’organisational change’ objectives identified by Kessler and Purcell.

Having established what a company’s objectives might be in introducing a system of performance related pay, three stages are then identified in its operation: the establishment of performance criteria, the assessment of performance, and the linking of performance to pay. At each of these stages, it is argued, difficulties - some foreseen, but others, more importantly, unforeseen - may arise which will compromise and distort managerial objectives.

Performance criteria

The first stage of operation - the establishment of performance criteria - can give rise to problems in two respects. First, there is the question of what - indeed whether - suitable criteria for appraisal can be established. Kessler and Purcell(199224-5) concentrate on the problems likely to emerge in assessing the performance of professional groups. Concrete performance measures may be difficult to identify for individuals in such groups and, at the same time, it may not be equitable to link their assessment to the achievement of wider organisational goals. In these circumstances qualitative or ’soft’ performance criteria are likely to emerge. These can be used in addition to, as well as instead of, the more concrete criteria, a development which, as we shall see, need not be confined to the higher levels of an organisation.

The second problem which may arise with regard to the establishment of performance criteria is the extent to which these can be made uniform in their application throughout the company. Kessler and Purcell(1992:25) point to cases in which objectives are capable of being interpreted in different ways or where those setting the objectives are explicitly given a degree of discretion.

Performance assessment

Where it is argued that the ‘potential for distortion’ is at its greatest is at the second stage: where performance is actually assessed. A number of questions arise here. First, there is the

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STEPHEN J. PROCTER, LOUISE MCARDLE, MICHAEL ROWLINSON, PAUL FORRESTER AND JOHN HASSARD

possibility that in practice managers will refrain from passing real judgment on their subordinates, opting instead to give almost all of them a middling assessment. This can be of particular concern when each level of assessment is associated with a particular label'. Second, as Kessler and Purcell(199226) point out, 'Performance assessment is an extremely resource intensive procedure.' Even with thebest of intentions, therefore, appraisal might not be carried out as desired by the company. Third, there exists in PRP schemes a great deal of scope for subjectivity of judgment. To some extent this may be forced upon appraisers, as changing circumstances render agreed objectives superfluous. On top of this is the more general problem that appraisers may simply be biased in favour of certain individuals.

The link with pay The final stage is the link between the performance appraisal and pay. Again, a number of different problems may arise. The first is that in concentrating on the objectives on which their pay depends, the individuals may work in a manner detrimental to the performance of the company as a whole. In particular, they could undermine a collective spirit on which good performance might depend. Overall financial constraints could also limit the success of a PRP scheme. If achievement of objectives is not met by an improvement in pay, in other words, the scheme might actually have a demotivating effect.

Using the Kessler and Purcell framework Kessler and Purcell thus provide a thorough and logical framework within which systems of performance related pay can be examined and assessed. On their own admission, one theme they were unable to tackle was the importance of 'organisational context' in explaining the adoption, operation and success of individual PRP schemes. 'Such an approach,' they say, 'lends itself to case study work and it is hoped that ongoing research will provide useful qualitative material which can address these issues' (199229). It is precisely this hope that the present article is designed to fulfil. Using case study analysis, it examines the adoption and operation of performance related pay in a UK-based electronics company.

The research project The research upon which this article is based is part of a larger ESRC-funded study which has as its focus a large UK-based electronics company, 'Electroco'. The study is designed to contribute to our understanding of recent and current developments in British industry's labour policies and practices. In particular, it aims to help provide a fuller picture than would emerge from relying solely on the large amount of survey evidence available. As Morris and Wood (1991) point out in relation to industrial relations research in the 19809, the concentra- tion on formal structures evident in survey research makes it likely that a picture of continuity rather than of change will emerge.

In order to help redress this balance, three aspects of the study deserve particular attention. The first is that the main means of data collection has been the semi-structured interview, which, in line with the arguments of Moms and Wood (19911, has allowed a less formal and much fuller picture to emerge. This has been enhanced by the study's second characteristic, which is that the research has not been concerned exclusively with the views of senior management. Interviews have been carried out with personnel at all levels within the


PERFORMANCE RELATED PAY IN OPERATION A CASE STUDY FROM THE ELECTRONICS INDUSTRY

company, from senior management, through middle management and those in supervisory positions, to production operators on the shopfloor.

The third main characteristic of the study is its longitudinal nature. The first phase of the study was a three-year project begun in 1987. This project was concerned primarily with the design and implementation of a flexible manufacturing system at Electroco’s main manufacturing plant, but in the course of this work a large amount of data on the human resource implications of the new system was generated. This provided the basis for the second phase of the project which began in 1990 and came to an end in the autumn of 1992, and which focused specifically on issues of labour deployment. The importance of the study’s longitu- dinalnatureis that trying tobuildupapicture whichdoesnotrely ontheacceptanceof formal structures and policies necessitates, as Mintzberg (1978935) puts it, ‘the study of decision- streams in organisations over time periods long enough to detect the development and breakdown of patterns.’

Although the present article is concerned with just one aspect of change within Electroco, it needs to be seen against this wider background. Over the period of the project as a whole a total of around 120 semi-strudured interviews have been carried out. The data on which the article draws most heavily is a series of around twenty interviews carried out in the later part of 1991 and the first half of 1992. This series includes interviews with personnel managers, factory managers, supervisors, production operators, and two full-time trade union officials.

THE OPERATION OF PERFORMANCE RELATED PAY IN ’NORTHELECTRO’

The case study company and its payment system The article concentrates on the introduction of PRP at Electroco’s main manufacturing plant, Northelectro, in 1988. Northelectro is situated in a city in the north of England. At the end of 1991 approximately 6OOpeople were employed there. The company has had a presence in the city over a long period, but Northelectro itself was opened only at the end of the 1970s. The company prides itself on its advanced production and personnel policies, and Northelectro is claimed to exemplify this. The plant is unionised, with the (then) EETPU being the dominant union among production operators, the great majority of whom are women. The technical staff on the shopfloor are represented by MSF and EESA, the autonomous staff section of the EETPU.

The system of PRP introduced by the company in 1988 is based on an annual appraisal of all staff. This is made according to the individual employee’s achievement of objectives set down and agreed between the appraiser and appraisee, and takes place at the same time of year for all staff. The annual appraisal is supplemented by quarterly meetings, at which objectives can be discussed and reviewed. Both appraisals and quarterly reviews are carried out by managers or supervisors with direct line responsibility for the appraisee.

On the basis of the appraisal each employee is awarded a grade on a scale of 1 to 6. The highest grade, grade 1, is given for ‘exceptional‘ performance; grades 2,3 and 4 are given for ‘excellent’, ‘good‘ and ‘competent’ performances respectively; while 5 and 6 represent ‘less than competent’ and ’unacceptable’. The grade determines how an individual’s increase in pay compares with the predetermined increase in the wage bill for the company as a whole. Though the precise way in which the overall increase was divided up was information the

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company was not willing to divulge, the basic principle was that if it is decided that the overall wage should increase by 10 per cent - this figure being known as the ‘pot‘ - those with high grades would receive more than 10 per cent, and those with low grades would receive less.

Objectives of performance related pay In looking first at Electroco’s motivation in introducing a system of performance related pay, we can concentrate on the first two of the broader organisational objectives we identified earlier. In the early 1980s changes in corporate and marketing strategy were introduced with the objective of changing the company from being ‘technology led’ to being ‘market driven’. Thechangingnatureof itsmainproductssawthisfollowedlaterinthedecadeby correspond- ing changes in manufacturing strategy. The introduction of a new payment system was designed to reflect these changes. As the divisional personnel manager expressed it, the introduction of perfonnancebased pay was justified on the basis of Electroc0 being a performancebased company. It thus acted, as Kessler and Fjurcell(199221) found, as a means of ‘sending a message about the “kind of company we are“’.

At the same time, the introduction of performance related pay was associated with wider changes in the relationship between management and workforce. PRP was in fact introduced as part of the harmonisation of the terms and conditions of white collar and manual staff. Since PRP was already well established among white collar workers, its inclusion in the harmonisation package was regarded as essential. Harmonisation can of course be interpreted from a more critical perspective. As Ribbens (1988) has argued, it can lead to management having a much greater degree of control over the labour process. The incorpo- ration of PRP, moreover, in bringing to an end the bargaining between capital and labour over the sale of labour power, can involve the effective removal of the essence of trade union activity.

Evidence collected within Northelectro suggests that the introduction of harmonisation was driven more by questions of power relations than by any attempt to eradicate differences between white and blue collar employees. For one thing, the two sets of employees had in any case enjoyed similar benefits. For many shopfloor operators, apart from the introduction of PRP, the only change they experienced as a result of harmonisation was that they were able to go home at lunch-time on Fridays.

The management strategy in this regard is also shown by the fact that the harmonisation programme was introduced without prior consultation of any form with trade unions or other employee representatives. Each employee was simply given a letter which detailed the changesthatwere tobeimplemented (Rowlinsonetal.,1991:31).Thecompany’suseof aPRP system to remove de fact0 the trade unions’ right to negotiate collectively over pay in fact appears to have been a more acceptable alternative tode jure derecognition. Management had shied away from formalderecognition in thebelief that although the workforce would aqcept an end to the unions’ role in pay negotiation, they were still attached to the principle of union representation and to the idea that it was useful in redressing the grievances of individuals.

Establishment of performance criteria Having established the objectives of Northelectro in its decision to introduce a system of performance related pay, we turn now to an examination of the system in operation, the first



stage of which is the establishment of performance criteria. At Northelectro performance criteriaaredivided into ‘objectives’and ’key criteria’. Theobjectivesarethequantifiablegoals which the individual must fulfil. They thus include such things as output targets and quality levels. ‘Key criteria’ are the characteristics and modes of behaviour which the workers must adopt in meeting their objectives. One of the line managers explained that when it came to assessing performance, emphasis was placed on these key criteria or behavioural aspects.

There seems to have been little doubt in the company that it was possible to establish a meaningful list of such criteria. The company document setting out the appraisal procedure listed 28 criteria. These included such things as ‘tolerance for stress’, integrity, tenacity, adaptability, decisiveness, ‘organisation sensitivity‘, and creativity. Nor was this all. This list is not exhaustive,‘ said the document, ‘and it maybe appropriate touse additional criteria not included in the guidelines.’

In addition to the question of what - or indeed whether - satisfactory performance criteria can be established, there exists the problem that criteria might not be employed uniformly throughout the company. Within the Northelectro plant those who carried out appraisals were given a wide degree of autonomy in what they included among the key criteria. One supervisor who carried out appraisals described how he had a list of key criteria which he added to as things arose. The ‘basic ones‘ were ‘adaptability [andl flexibility‘, but he described how he had recently added ‘attention to detail‘ and ‘how people work with each other‘. The manager of a particular area of the factory said: ‘I set down the key criteria. There are guidelines but you can write down what criteria you want. I basically write down the type of skills that you need.’ This rather arbitrary manner of criteria selection was also perceived from a shopfloor point

of view. There is no one thing that is of paramount importance in the mind of the appraiser,‘ said one long-serving employee, ’it just depends on the person doing the appraising.’ Indeed, when those interviewed were asked what criteria they assessed or were assessed on, what was striking was the lack of unanimity. One operator referred to ‘punctuality, approach to work, amount of work done, adaptability [andl sickness’. Another spoke of ‘housekeeping, keeping the place tidy ... Keeping measurement charts ... [andl initiative.’ One line manager responsible for appraisals looked for ’quality levels ... general housekeeping, achieving output [andl being a team member‘.

Distribution of grades

As we have seen, where it is argued that the potential for distortion of a PRP system is at its greatest is at the second stage of operation, where workers are given their performance assessment. The first way in which performance related pay might be distorted at this stage is through the distribution of grades.

At Northelectro there existed a definite tendency for few - if any - very high grades to be awarded. Those undertaking the appraisals could effect such a policy in two ways. First, although in principle an individual’s objectives were decided jointly between them and their appraiser, evidence collected within the plant suggests that employees feel under pressure to agree objectives that are manipulated to keep the performance ratings low. This is demonstrated in the following extract from an interview with an operator:


STEPHEN J. PROCTER, LOUISE MCARDLE, MICHAEL ROWLINSON, PAUL FORRESTER AND JOHN W S A R D

Operator: You set objectives but you never achieve them. You couldn’t achieve all your objectives - that‘s the basic idea, to make it impossible - no doubt about that. You can’t, therefore you don’t get a high rate on performance. If I achieved al l my objectives I’d be superman and do my job as well. I know I will fail in some areas. Who sets down the objectives for you?

Do you agree them with him? Yes, well of course I don’t disagree with him, but it will be impossible to achieve all my objectives.

Interviewer: Operator: My manager. Interviewer: Operator:

In addition, maintaining a performance grade from one annual review to the next is also made difficult. Workers are under pressure to improve their performance in order to maintain their wage increase level. Working at the same level is not a safeguard against a drop in performance rating. One employee, working in an ancillary service now due to be contracted-out, complained that ‘the more you try to do all the objectives, every time you do they gve you more’. We were told by one appraiser:

I was on with one girl for three and a half hours because she took the view that she had done thesameasthepreviousyear.Soyoue~~ thatif youhavedonethesameastheprevious year there has been no improvement or development. Also the criteria by which they are judged are getting harder and harder each year. The criteria are getting more specific 90 that people have no room to argue about them.

As we saw earlier, Kessler and Purcell observed the same tendency for assessment grades to be concentrated in the middle of the available range. This they attributed to the appraisers’ desire to avoid unnecessary conflict with their subordinates. In Northelectro this line of reasoning applied only to grades at the bottom of the scale. One operator said she knew of no instance of a grade 6 - the lowest grade - being awarded. A supervisor with responsibility for appraisals said that he would not give anyone a performance rating of 5 or 6. By doing so, he said, ‘you’re really telling them they are no good.’

Resource constraints

In Kessler and Purcell’s view this tendency to take the ‘soft option‘ is exacerbated by what they describe as the ‘resource intensive’ nature of systems of performance related pay. This aspect of the system was certainly in evidence at Northelectro, where, as we have seen, the annual appraisal was backed up by three review sessions. In addition, discussion between an employee and their manager was, in the words of a company document, to take place throughout the year ‘on an ongoing basis’. The idea behind this and the quarterly review was, according to the company document, that ’the formal appraisal should bring no surprises‘ (emphasis in original).

What this meant, however, was that the appraisal system took up a great deal of time and effort. One supervisor, responsible for the appraisal of thirteen employees, said that for each employee each review would last for one hour, and the appraisal itself could be two or three times this in length. In addition, each interview required a certain amount of preparation. The main annual appraisal, he estimated, took him a full week to complete.

The situation was exacerbated by a number of factors. First, all employees were reviewed and appraised at around the same time. The divisional personnel manager explained that his ’ideal’ system would be one in which appraisals took place on a rolling basis, each employee



being appraised on the anniversary of their starting work in the company. This had been considered but had been rejected for what he called ‘administrative’ reasons. In particular, there were problems posed by the fact that the inflation rate could vary considerably within a single year.

Asecondfactorwas thatthereviews tookplaceattheendofaquarter,atimewhenpressure for production was often at its greatest, and the situation was exacerbated still further by the presence of significant numbers of temporary and untrained staff. In the words of one employee:

In some cases [the reviews] are missed out and others are just fitted in where they can be. You’ve got to remember iVs like a skeleton staff at the moment, you’ve got a few trained people and a hell of a lot of temps and when you are busy you can’t be showing a temp and be doing your own work, and that goes up to the [production manager]. So they can‘t spend their time calling people in and taking up time to do appraisals, there just isn’t the time.

Thus the full procedure of appraisal was often not gone through. One manager, in charge of an area of the factory in which over 60 people were employed, explained how appraisals had been effectively conducted only after a young graduate employee - ’Graham the Grad’ -had been allocated to him and assumed a substantial part of the responsibility.

Forcing of the distribution of grades

In any event, the reluctance to award high grades was not so much the result of the decisions of those undertaking the appraisals, however much their problems were exacerbated by the resource-intensive nature of the process. Rather, it came from pressure exerted by more senior management. One supervisor told us that he had never known a grade 1 to be awarded at Northelectro. Indeed, this was something referred to in the factory as ‘walking on water‘ or a ’nails in the hands job’. One of the line managers referred to a situation where he had wanted to make such an award:

LastyearIwantedtomakesomebodyal andwasstopped.Itwaspure1ypolitical.Nobody could argue against the reason why I wanted to give the girl a 1 but they didn’t think it was good for the [Northelectro] site to do that.

The personnel manager at Northelectro conceded that the majority of workers did in general find themselves being given grades of 2,3 or 4, but denied that there was an attempt to ’force’ this distribution. The impression gained from a series of interviews, however, was that such a policy was effected in a more or less systematic manner. One supervisor said:

Grades 2,3 or 4 are usual. I put the grades down, then hand them to my manager and he‘ll correct them if need be ... you just have to change them - they are not subtle. I wouldn‘t argue, I just change them before they are given to people.

According to the same source, there was no point in questioning this practice: If you question the fact that managers change the grades you are told it doesn’t happen. ITheyl treat you like kids. [They] won‘t admit it but they know it happens.

According to another appraise, the [appraiser] gives the appraisal to the manager and the manager will say that you can’t have too many 3s and that they need some more 4s. The [appraiser] will go off and redo them but still the manager will want them changed. Sometimes they have to remove some

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comments from appraisals so that they warrant the correct grade ... One [appraiser] was particularly annoyed because his team had worked particularly hard and thought they deserved high ratings but it was not allowed by management.

While intuitively, low grades can be seen as demotivating, the avoidance of the very highest grade is more puzzling. Two factors in particular go some way towards explaining it. First, though the personnel management denied that there was any attempt to ‘force’ the distribution of grades, they did say that a process of moderation was undertaken. Thus the personnel department made comparisons between the grades awarded by different appraisers. This was done at product centre, site and even divisional levels. It was argued that this process was necessary so that ‘petty differences’ could be avoided and thus confidence in the system maintained.

Beyond this, a more general factor seemed to be at work. What the distribution of grades suggested was an unwillingness by senior management to accept the full logic of a system of performance related pay. On the one hand, for the system to work on its own terms, differences in performance have to be reflected in differences in assessment and, ultimately, in differences in pay. On the other hand, even if ‘petty differences’ can be avoided, these differences in pay cannot be too great, for fear of causing dissension amongst the workforce.

The avoidance of excessive differentials can be ensured in one of two ways: not only by limiting the grades that in practice can be awarded, but also by restricting the differences in pay increases resulting from the differences in grades. The former has been demonstrated above; the latter, however, was also in evidence. While hard data on this were difficult to obtain, the personnel manager said that if the ‘ p o U was 10 per cent, the great bulk of pay increases would be between 9 and 11 per cent.

Awareness of the distribution of grades

Of course, the problems caused by differences in pay would arise only if the workforce were aware of each other‘s earnings. The grades awarded and their implications for pay were not made public within the factory, and it was at an individual‘s discretion to reveal what pay increase they had received. One operator explained her position:

I never discuss my pay with anybody. I have a few extra responsibilities so I do get a higher grade with a little extra pay. But there are one or two who will say ’well, you get more than me ...‘. ... I daren’t discuss it with the others. The grades are not made public but it is up to you whether you tell anyone.

This was far from being the position adopted by the majority of the workforce. A full-time trade union official took it almost for granted that the workforce would discuss their pay with each other:

We have a situation where a group of people sitting in the same area doing the same job won’t tolerate that the next man gets more money for doing the same job. And of course when you then move these people to another area and they are sitting with another group of people and they talk about pay and it hams out that there is a differential in pay ... again it is unacceptable.

Management had in this respect made what they regarded as a serious miscalculation. A senior personnel manager - from a self-confessed ‘middle-class perspechve’ - said that they had not expected employees to discuss their pay increases with each other. To regard this as


PERFORhMVCE RELATED PAY IN OPERATION A CASE STUDY FROM THE ELECTRONICS INDUSTRY

something to be avoided, however, reveals a tension within the operation of a system of performance related pay. On the one hand, management took the view that if the workforce were not aware of the results of each other‘s appraisals, this would reduce any ill-feeling caused by excessive differentials. On the other hand, for the workforce not to be aware of differences in performance was to some extent contrary to the objectives of the system. As one operator put it, They say you shouldn’t compare yourself with other people, but that is what appraisals are all about.’

Equity As has already been suggested, what underlay disquiet about the distribution of grades and the consequent differentials in pay was concern about the equity of a system of performance related pay. Views as to what constituted equity were not shared by management and workforce. From the company’s point of view, the system was regarded as a fair one. As we have seen, the divisional personnel manager took the view that in a ‘performance based‘ company, reward should be on the basis of the performance.

One manager told us at great length how he tries to persuade those under him of the fairness of the system, arguing that even those awarded lower grades were as a result willing to accept them. His account involved drawing a distinction between the actions of a seemingly heartless ‘Mr Fair Guy’ and those of a ‘Mr Nice Guy’. In the distribution to a number of women of tickets for a football match, ‘Mr Fair Guy’ would distribute them on the basis of who could afford them, while ‘Mr Nice Guy’ - an appellation one might question - would distribute them to those women willing to grant him sexual favours. Under the former method of allocation, the manager claimed, while some of the women would be disap- pointed, they would at least accept why they were unable to go to the game.

Many of those working on the shopfloor took a very different view of what constituted equity. This was expressed in the terms of one operator: ‘I feel that if we are al l doing the same type of work, that should be rewarded in the same way.’ Even one operator who admitted to doing well out of the PRP system conceded that many others considered it unfair. The situation was complicated by the fact that in some cases it was anyway very difficult to isolate the contribution to overall performance made by a particular job - a problem highlighted in the studies by the IDS (1991) and Kinnie and Lowe (1990).

Subjectivity

As Kessler and Purcell point out, the distortion induced by subjectivity can be made felt in a number of ways. The first of these was the problem posed by changing external conditions. In Northelectro, as we have seen, the way this was being dealt with was by supplementing the annual appraisal with three quarterly reviews. In that way, claimed the company, there would be ‘no surprises’. The system appeared largely to be successful in achieving this. One appraiser agreed that the ‘idea is right‘, while according to one operator, the three-monthly review

was a case of being told that they are happy with what you are doing, and it gives you the opportunity to have an input or if something is bothering you. We have objectives ... and so you get the chance to say if you can’t do it.

More general considerations of subjectivity were also of concern. In the words of the full-time



union official: When you are doing an interview with staff ... there are bound to be likes and dislikes ... if you have to grade people, and human nature being what it is, some people can be favoured more than others. A rise maybe unwarranted, but they may get it because they get on well with one another.

Subjectivity in this sense could also arise from more worthy motives: It might bethat someone has a particular problem at home of which the supervisor is aware, and he may think they need a few quid more. As far as being o-ve about it in relation to the work you've been doing, it isn't necessarily so.

For whatever reason it was employed, the divisional personnel manager did fear that an appraiser's discretion was open to abuse. As we have seen, it was in part to eliminate any 'petty differences' that a system of moderation had been established.

Intimacy

Perhaps not surprisingly, concrete examples of favouritism did not emerge during the series of interviews. Indeed, although a quite frequent complaint was that the whole system was a case of 'if your face fits', closer investigation revealed that as much as their subjectivity, what was being objected to in the appraisal interviews was their intimacy. This aspect of the appraisal process cropped up in a number of the research interviews with those being appraised. One operator said in reference to the interviews: 'People were told personal things about themselves, and that shouldn't come into it ... a girl in stores talks very quickly and in her appraisal she was told off for [it].' Another said, 'I find it a bit embarrassing actually, to sit in a room and be told how I'm getting on.'

Shopfloor workers were not on the whole used to there being this kind of personal element in the way their work was assessed and their pay determined. One appraiser put it as follows:

People say that the shopfloor workers are different, but they are not. If the same exercise was carried out in the offices it would be considered development, but the shopfloor people see it as criticism because they are not going anywhere. Criticism is taken [personally] on the shopfloor.

This aspect of the appraisal process, moreover, cannot be looked at in isolation from the sexual division of labour within the plant. Nearly all the production operators are female - many of them middle-aged and married - but most of those in supervisory and managerial positions are male. What this means is that the great majority of appraisees are women and the great majority of the appraisers are men. While this issue was not one actively explored in the research, the questions it raises are in line with the recent Equal Opportunities Commission (1992) report, which suggests that many PRP systems are inherently biased against female employees.

From the point of view of those carrying out the appraisals, the intimacy seemed to be accepted as being simply part of the job. One line manager, who was asked by one of the women on the shopfloor during an appraisal interview how she could work up to being an output controller, explained to us what he had told her:

She doesn't mix well. It's almost weird and I told her 80 ... I started off by asking her how she thought she mixed with people and she gave me her view on it but it got heavy. I told her my view was that she was a bit weird.



Over the period in which the system has been in operation, however, this ‘enforced intimacy‘ appeared to be becoming less of a problem. The operator who described the process as having been ‘embarrassing’ went on to say ‘I’ve got used to it by now‘. Another put the early resentment down to a lack of training on the part of the appraisers, a situation that was in the process of being remedied. On top of this - and something evident in a number of cases -was that trust was developed in those carrying out the appraisals. One operator said of her manager:

He tells you straight if you are doing wrong, but he also gives you credit where it is due. ... We like him and have a lot of loyalty for him ’cause he gives us a lot of loyalty back. We know that he may shout and bawl, but you do know that little things that you do, say, if you stay late, he‘ll remember those when it comes to the appraisal.

This attitude, it must be stressed, depended very much on the qualities of the person doing the appraising. The trust displayed in this instance was not universally enjoyed in the factory; nor was there evidence that it would necessarily be developed. The issue of intimacy, in short, is something to which attention must be paid in any study of performance related pay.

The appeals system Some of the problems arising from the operation of PRP at Northelectro might have been avoided had there been an effective system of appeal. Under the system in existence, any person dissatisfied with the grade they had been awarded could go first to their appraiser. If still unhappy, they could appeal to their appraiser‘s line manager and, ultimately, to the plant manager.

A number of operators admitted ignorance of the appeals system. One said: ’I think when they say they are not happy it goes to the manager, and if they are not happy with that they can go above that. I’m not sure about it.’ When asked how the system worked, another operator said ‘I’m not quite sure. I think it may be sent up to the next manager.‘

From the point of view of the company, this ignorance could be explained by the fact that there was little need to make use of the appeals system. One manager - the one who had used the ‘Mr Fair Guy’/’Mr Nice Guy’ story - claimed never to have had an appeal against a performance rating. He told us:

I’ve never had an appeal. Nobody has ever come to me about their grading ... I ask them what they think they are and if they understand what the rules are, and going from what I have said, they usually agree with the grade we come up with. They may not be happy, but they understand why they have been given a particular grade.

This was not a view shared throughout the factory. More common was the claim that use of the appeals system was futile. One supervisor reported: ‘I used to use it but never got my grades changed once. Appeals are used to let off steam ... people just like to have a bit of a moan.‘ This was echoed by another employee, who said that although many people did appeal, ’it doesn’t get them anywhere.’ She regarded the system as merely an exercise in public relations: ‘Appeals are not successful, but it looks good. It impresses outsiders, but it doesn’t get anywhere. I’ve never come across a successful appeal.’ Another operator took only a slightly more optimistic view:

People will have a go, but they know it is a wasted journey. Sometimes they may get the number changed, but ... that is what they thought of you in the first place, so in the long run



nothing changes. [They] still have the original grade in their minds or on their records.

Information against which these claims could be assessed was difficult to obtain. In this regard, however, perception may be as important as hard fact. While of course it would be difficult for an outsider to judge the strength of any case upon which an appeal might be based, it does seem that on the shopfloor there existed very little confidence in the system of appeal.

CONCLUSIONS

Thus many of the problems in PRP identified by Kessler and Purcell were in evidence at Northelectro. There were concerns about the criteria employed; assessment grades tended to be concentrated in the middle of the range; the system was costly to operate in terms of staff resources; subjectivity of judgment was perceived as being present; and, as we shall see, overall financial constraints posed a threat to the system.

A number of other problems had also emerged. Grades were concentrated in the middle of the range because they were ’forced’ as much as because appraisers were taking the ‘soft option’; the operators tended to compare their grades with each other; the intimacy involved in the appraisal process was a cause for some concern; and the appeals system was not widely seen as a means of redressing any of the shortcomings of the system as a whole.

Rather than simply providing a list of these problems, what we can also say is that what underlay them was a lack of confidence in the system on the part of the workforce. Lack of confidence was evident both in the principles of performance related pay and in the system as it was applied at Northeledro. As regards the former, the key issue was equity: as we have seen, management views on what constituted fairness were not shared on the shopfloor.

Lack of confidence in the system as it was applied at Northeledro cannot be considered in isolation from lack of confidence in the underlying principles. Indeed, it might be argued that if the principles were not accepted by the workforce, then confidence could not be won by even the best run of systems. In any event, as shown by the problems outlined above, the system as it was applied in Northelectro had certainly not gained the full backing of employees.

The company was thus placed in a dilemma. In order to gain the confidence of those participating in the system, concessions had to be made. Yet these concessions could not be camed so far as to represent an abandonment of the principles on which the system of performance related pay was based. In response to disquiet about the fairness of the system, the company proposed introducing team or group objectives into an individual’s appraisal. Said one personnel manager: We believe we ought to be moving towards recognition of the team role in performance.’ While this might go some way towards appeasing those concerned on this issue, it represented a move away from the idea that under a PRP system pay should be based essentially on individual performance.

The same problems arose in the distribution of grades. The company seemed to be afraid that the system might lead to the existence of substantial differentials. Thus not only was a process of moderation undertaken to remove differences that might have arisen through the subjective application of appraisal criteria, but the distribution of grades was ‘forced’ so as to ensure that even differentials due to more objective assessments did not emerge. Manage- ment concern on this issue was shown further by their decision not to publicise within the



factory the results of appraisals. Employees’ lack of confidence in the appeals system, moreover, seemed merely to reflect their more general disillusionment with the system as a whole.

What all this points up is the difficulty of using performance related pay as a means of effecting a change in a company’s culture. Even in a situation in which trade union organisation was very weak, the company was unable to persuade its workforce of the benefits of a system in which individual pay was based on individual performance. It appears that the necessary culture may already have to be in place for a system of performance related pay to work effectively.

In any event, it may be that even if confidence had existed in the principles and operation of the system of performance related pay, external events will serve to destroy it. The costs of the system had already forced the company to reconsider the holding of quarterly reviews to supplement the annual appraisal. We are not receiving four quality interviews,’ said one personnel manager. But more than this, the company has recently announced that in the face of worsening economic conditions it intends to introduce a pay freeze. Having introduced performance related pay at a time when economic conditions were very favourable, the company now faces an extreme case of the problem of ’financial constraints’ identified by Kessler and Purcell (199228). In Northelectro, it is not just that ‘expectations raised by a positive feedback from a performance review may simply not be translated into a si&cant pay increase’, but that the essential link between an individual’s performance and their pay will be broken completely. It remains to be seen whether in these straitened economic circumstances, a system of performance related pay can continue to exist at all.

NOTE The research upon which this article is based is funded by the Economic and Social Research Council.

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Performance Related Pay In Operation: A Case Study From the Electronics Industry

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