Tax office pay system condemned by staff: Civil Service morale at rock bottom over performance-related salaries QBY: BARRIE CLEMENT, Labour Editor

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A SYSTEM linking pay to performance for 68,000 staff at the Inland Revenue is universally regarded by employees as demotivating, according to a damning internal report.

Written by a senior official, the document questions whether the department's scheme for assessing and rewarding performance can be saved, or whether it is 'discredited beyond redemption'.

The Inland Revenue was a pioneer in Whitehall of the radical new approach to salaries and ministers are insisting that similar systems are introduced throughout the Civil Service. The Government is also keen to promote merit pay throughout industry.

The Inland Revenue inquiry, led by Keith Deacon, the director of 'Quality Development Division', found that morale was rock bottom.

Mr Deacon's survey of more than 800 staff revealed widespread dissatisfaction. Among the complaints were that managers were shifting targets upwards - effectively moving the goalposts; that pay differentials were insufficient to offer any incentive; and that many assessments were conducted by managers who did not know the staff concerned.

It was also alleged that officials were 'feathering their own nests' at the expense of more junior colleagues.

It was thought that while budgetary constraints seemed to put a severe limitation on the amount of performance pay awarded to junior staff, there were fewer restrictions for more senior employees.

Staff complained that targets had been imposed on them by managers rather than reached by agreement, which was the stated aim.

Difficulty was encountered in defining 'quality of work' in assessing staff, and employees at all grades were unhappy with criteria based on subjective judgement. The establishment of individual targets was sometimes found to be inimical to co-operative effort.

Mr Deacon reported: 'Everywhere the team was told that morale was low. People felt trapped in their jobs because the general economic situation offered no possibility of a move and they saw no incentive in terms of pay or promotion. There was concern about job losses. Performance management was not seen as a route to job satisfaction and for many people indeed was not the main issue.'

A newsletter from Tony Battishill, chairman of the Inland Revenue, acknowledges the system's shortcomings and has promised to adopt many of the recommendations of an advisory panel which based its views on Mr Deacon's review. The chairman warns, however, that a 'more realistic view' of under-performers would also have to be adopted.

Bill Hawkes, assistant secretary at the Inland Revenue Staff Federation, said his union had always opposed the performance structure brought in by management, but had finally accepted it as the price for striking a pay agreement. 'All our criticisms have been borne out . . . We will be doing all we can to get some sense and fairness into the system.'

A spokeswoman for the Inland Revenue confirmed that the whole system of performance management was under review. It had only been in force for two years and inevitably there were 'teething problems'.