Management: Beware of putting a short-term fix into pay packets - Salaries based on performance are no substitute for good management and clear vision, argues Bruce Tofield

FOR all its apparent attractions, performance-related pay is largely a con. Just like ventures that seem to offer spectacularly high returns to investors, only to be shown to be fraudulent in the long term, so annual pay based on performance indicators can deliver a short-term fix only at the expense of long-term organisational development.

There are three fundamental reasons for this. Firstly, such performance-related pay will inevitably focus minds on the short-term aspects of any job. Secondly, it is divisive and damages the trust essential to a free flow of information, without which effective team-working cannot occur. Thirdly, the apparent need for performance-based pay reflects inadequate performance not by individuals but by their management.

To start with the last point. The fact is that people like to work well and in a high-performing manner. They are not happy when under- performing.

Where an organisation is well managed, quality and performance will thrive and performance-related pay will not need to be on the agenda. If an organisation is not working like this, it is the management shortcomings that should be addressed, not distractions such as performance-based pay.

The police, the focus of much recent debate on performance-related pay, are a good example. When any organisation, whether a plc, a hospital or a police force, has unnecessary layers of management, there will inevitably be internal politics, manipulation and the exercise of power as people attempt to fight their way up or hold their corner.

All sorts of prejudice will be rife, and long-term strategy and the development of good practice will suffer at the expense of short-term manipulation and calculation. The kind of 'performance' that gets people ahead in such an environment is often manipulation and intrigue.

It is difficult to see how real performance can be assessed in such an environment. Yet, to judge by much recent comment, and by such revelations as the Alison Halford case, this is the environment that can be found in many police forces.

It is a sad reflection on Sir Patrick Sheehy that performance- related pay was even considered by his committee. However, this may not be surprising considering his background and the extent of rewards supposedly based on performance in some executive boardrooms.

Performance-related pay cannot and should not be a substitute for good management. It seems entirely inappropriate in hospitals. Yet this is what the Government seems to be demanding.

Management in the health service needs to break down the barriers of specialisation that can inhibit flexibility, efficiency and better service to patients. To focus on linking pay to performance will be divisive and merely distract attention from the real challenge.

An example of the short-termism of performance-based pay is the new Child Support Agency. This agency was set up, so we were told, to encourage absent parents to take up their responsibilities for their children.

Yet now we see this agency concentrating, not so much on the difficult-to-trace absentees, but on the easy targets of fathers already fulfilling their responsibilities.

Such action has a lot to do with performance-related attitudes. The chief executive, it is reported, is on performance-related pay, judged on the amount the agency saves the Government in its first year.

Performance-related pay for senior managers will only exacerbate all the short-termism already diagnosed as being a primary cause of industrial decline and misjudgement in the City.

What about the divisiveness and consequent damage to information flow? A senior executive in a public-sector organisation was persuaded to enter a performance-related pay agreement. She had recently had her annual performance appraisal, during which it had been agreed that her work had been outstanding, but there had also been an opportunity for open discussion about problems.

'Wait,' she said, as the top management prepare to pronounce on the details of the performance-related scheme. 'If I am to be judged on performance then, in my appraisal next year, I am going to be reluctant to discuss any possible areas that need improvement.

'What if they use it as an excuse to minimise my performance-related pay. They won't want to acknowledge my achievements; they will soon start thinking that every word of praise notches up another point on my pay scale. There's trust and co-operation out of the window.'

Organisations of all sorts are realising that information flow is the key to better performance. They cannot be flexible and adaptable if there is suspicion, fear, greed, divisiveness or manipulation within them. This can only happen if people share problems and co-operate in finding solutions and developing necessary skills and expertise.

None of these things is acknowledged by pay related to performance indicators; rather they are inhibited by it.

The message for any company wanting to improve and to succeed over the long term is clear. Look to creating an organisation where the vision is clear and the culture enabling, not to short-term fixes.

Bruce Tofield is a business consultant.

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