Reward Management by Geoff White & Janet Druker

Author:Geoff White & Janet Druker
Language: eng
Format: epub
Publisher: Routledge

This material is taken from the CIPD annual survey report Reward Management (2007) with the permission of the publisher, the Chartered Institute of Personnel and Development, London (www.cipd.co.uk)

Performance-Based Pay Progression: Empirical Evidence

Incremental, seniority-based salary progression systems rely on the assumption that performance improves with length of service and that age and seniority are as good proxy measures for performance improvement as any. As we have outlined, the story of pay progression systems over the last two decades has been to move away from this principle and focus on individual behaviours, skills and competencies as the main criteria for progression. This shift in focus towards individualisation and a greater emphasis on flexibility and adaptability on behalf of the employee has reshaped the psychological contract for many white-collar employees (and increasingly manual employees too). But how widespread is the use of performance-based progression systems?

There are surprisingly few large-scale representative and reliable studies that can help us understand the evolution of salary progression systems. A major problem in assessing the growth of salary progression systems linked to performance is the lack of data using consistent measures. The Government’s Annual Survey of Hours and Earnings (ASHE) provides information about the composition of employee earnings (i.e. overtime pay, shift pay, payment by results and profit-related pay) over time for different occupational groups. Unless an employee receives a separate merit payment (which can be identified as payment by results), there is no way of determining how an employee is paid. The category called ‘all other pay’ (which includes basic pay) does not distinguish between the method of progression for salaried workers (seniority, age, performance, skills acquisition or competence). This does not help to understand the extent to which salary progression systems for white-collar employees have shifted from using rules based on seniority to rules based on performance.

To understand these more subtle questions we need to turn to other sources of data. The most representative source of data on work and employment issues in the UK is the Workplace Employment Relations Survey (WERS). The latest available data comes from the 2004 survey. However, this survey also presents problems in trying to understand the coverage of salary progression systems based on either seniority or performance rules. First, the survey does not collect data on pay structures or pay levels which are important data in building a picture of salary progression systems, particularly if we are interested in rates of change. Second, while the survey does ask questions related to the basis for determining pay these are at a level of abstraction that make it difficult to understand the micro-level processes at firm level and how these might be changing. The best that we can do, as is the case with much survey data, is to make some inferences on trends based on the limited data available.

WERS 2004 (Kersley et al. 2006) gathered data on ‘performance related payment schemes’. These covered two principal types of scheme. The first, payment by results (PBR), is an output-based payment system related to the level, quality, value or other output measure.

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