Motivation and performance related pay in the public sector: a case study of the Inland Revenue

Performance related pay has been extended to practically the whole of the Civil Service over the last few years, and the Chancellor of the Exchequer recently announced the Government's intention to enlarge its role even further. Almost no serious work on seems to have been published on whether the existing systems have succeeded. The present study, directed solely at the Inland Revenue, begins to fill the gap. Performance Pay was introduced for the majority of staff at the Inland Revenue in 1988. The reason for doing this is not completely clear but the central justification for performance related pay must surely be that it acts as a motivator. We therefore wish to establish whether Revenue staff have been motivated to improve the quality and quantity of their work in response to Performance Pay. We surveyed the views of nearly 2,500 staff on the impact of the Performance Pay system on their own behaviour and that of others. Our first finding is that the majority of Revenue staff support the principle of performance related pay but that a significant minority feels hostile to it. Our second finding is that any positive motivational effects of Performance Pay have been, at most, very modest among Revenue staff. Even worse, there is clear evidence of some demotivation among staff. It is by no means implausible that the net motivational effect has been negative. The main reason for this failure to motivate looks to be that the allocation of performance payments is seen by very many staff to be unfair. Awards are given only to those who have received good appraisal ratings, but many of our respondents feel that the appraisal system has been corrupted. A second reason is that staff feel the amount of money involved in performance pay awards is simply not large enough to justify a change in behaviour. A third reason is that very many staff feel that they are already working to the right standard and that they cannot improve.