Performance Management in the Australian Public Service
The objective of the audit were to assess the extent to which agencies' performance management systems, strategies and plans are consistent with the strategic framework set out in the Managment Advisory Committee Report; provide assurance that the administration of performance managment is being implemented efficiently and effectively in accordance with better practice principles; provide assurance that performance linked remuneration reported in anual reports complies with the Department of Prime Minister and Cabinet Requirements for Annual Reports; and quantify the cost of performance linked remuneration, both performance bonuses and performance linked advancements (salary increments), across the APS.
Agency survey responses were received from the following agencies:
- Aboriginal and Torres Strait Islander Commission
- Aboriginal Hostels Ltd
- Administrative Appeals Tribunal
- Australian Radiation Protection and Nuclear Safety Agency
- Attorney-General’s Department
- Australian Broadcasting Authority
- Australian Bureau of Statistics
- Australian Communications Authority
- Australian Competition and Consumer Commission
- Australian Crime Commission
- Australian Customs Service
- Australian Electoral Commission
- Australian Greenhouse Office
- Australian Industrial Registry
- Australian Institute of Health and Welfare
- Australian National Audit Office
- Australian National Maritime Museum
- Australian Protective Service
- Australian Public Service Commission
- Australian Securities and Investments Commission
- Australian Taxation Office
- Australian War Memorial
- Bureau of Meteorology
- Child Support Agency
- CRS Australia
- Department of Agriculture Fisheries and Forestry – Australia
- Department of Communications, Information Technology and the Arts
- Department of Defence
- Department of Education Science and Training
- Department of Employment and Workplace Relations
- Department of Environment and Heritage
- Department of Family and Community Services
- Department of Finance and Administration
- Department of Foreign Affairs and Trade
- Department of Health and Ageing
- Department of Immigration and Multicultural and Indigenous Affairs
- Department of Industry Tourism and Resources
- Department of the Prime Minister and Cabinet
- Department of the Treasury
- Department of Transport and Regional Services
- Department of Veterans Affairs
- Family Court of Australia
- Federal Court of Australia
- Foodstandards Australia
- Geoscience Australia
- Insolvency and Trustee Services Australia
- IP Australia
- Migration Review Tribunal
- National Archives of Australia
- National Library of Australia
- National Museum of Australia
- National Native Title Tribunal
- National Office for the Information Economy (now Australian
- Government Information Management Office)
- National Occupational Health and Safety Commission
- Office of the Director of Public Prosecutions
- Productivity Commission
- Refugee Review Tribunal
- Royal Australian Mint
- Screensound Australia (now Australian Film Commission)
Performance management provides a mechanism to systematically improve organisational performance by linking and aligning individual, team and organisational objectives and results. It also provides a means to recognise and reward good performance and to manage any identified under performance.
The Management Advisory Committee (MAC) reported on performance management in the Australian Public Service (APS) in late 2001.1 This audit has relied extensively on that body of work.
Government policy on performance management in the APS is clearly set out in the relevant directions of the Public Service Commissioner and the Department of Employment and Workplace Relations policy parameters, requiring agencies to maintain a fair and open performance management system focussed on achieving results and guiding salary movements.
Audit objectives and methodology
APS agencies have now had sufficient guidance and a reasonable period of time to implement and bed down their performance management systems in accordance with the framework. The objectives of the audit were to:
- assess the extent to which agencies' performance management systems, strategies and plans are consistent with the strategic framework set out in the MAC Report;
- provide assurance that the administration of performance management is being implemented efficiently and effectively in accordance with better practice principles;
- provide assurance that performance linked remuneration reported in annual reports complies with the Department of the Prime Minister and Cabinet's Requirements for Annual Reports; and
- quantify the cost of performance linked remuneration, both performance linked bonuses and performance linked advancements (salary increments), across the APS.
The audit identified 69 agencies that employed greater than 100 Australian Public Service Act staff as at 30 June 2002. This report considers the results arising from agency and staff surveys, conducted as part of the audit, and returned by 63 agencies, and staff of 68 of the 69 agencies, respectively.
All 63 APS agencies included in the audit reported that performance management was a specified goal in one or more of their planning documents and almost all included it in their certified agreements. Agencies are responsible for devising their own approaches to the management of performance and the payments associated with performance assessments.
The Australian National Audit Office (ANAO) concluded that the application of better practice principles for performance management across APS agencies was quite variable. Consequently, the ANAO considers that some agencies have scope for improvement in demonstrating that their performance management systems, strategies and plans are consistent with the strategic framework set out in the MAC Report.
The MAC Report framework nominated three critical success factors for performance management systems: alignment, credibility and integration.
The alignment of performance management systems with agencies' goals and organisational priorities is variable across the APS and, in many cases, appears to be driven more by the industrial relations processes than the business needs of agencies, and the outcomes sought by government. Many agencies do not have established systems that relate to, and support, their performance management systems. As well, little attempt has been made by agencies to assess the organisational impact of their performance management system. These are contributing factors in making it difficult for agencies to establish a viable link between the conduct of their performance management systems and improved performance of their organisations. Consequently, performance management cannot, as yet, be regarded as an effective contributor to achieving sound business outcomes in the APS.
Significant issues remain in establishing credible performance management systems in the APS. The perception of APS employees, reflected in survey responses obtained as part of the audit, is that there remains a substantial gap between the rhetoric and the reality. While staff generally could be expected to be less sanguine about achievements, there is a degree of uniformity in survey views across agencies with differing performance. Many staff considered that the distribution of performance pay in their agency was unfair, that there was bias and favouritism exhibited in performance reward decisions, that the rewards offered were not worth the extra effort involved; and that there was a lack of clarity for them on what constitutes good performance. Staff also did not see the performance management systems as effective in assisting them to evaluate, or to improve, their own performance. At the very least, the ANAO considers that there is an issue of staff perceptions that needs to be addressed.
Agencies are making progress in the integration of the performance management systems with the overall corporate management structure and in providing a clearer link for staff between their work and the goals of the organisation. However, agencies could make significant improvements in recognising and rewarding those who manage their staff effectively and by identifying and assisting those who do not. Agencies could also improve in the identification of the learning and development needs of staff.
These are not issues that are easily rectified. Nevertheless, they need to be directly addressed by agencies if there is to be an improved level of effectiveness in performance management across the APS.
Sound administrative arrangements can contribute to the overall success of agencies' performance management systems. Agencies have set key objectives, produced relevant documentation and guidelines, and developed formal agreements with staff. Some agencies have moderated performance ratings. Staff, however, reported shortcomings in these areas and are looking for better guidance, more quantitative measures for rating performance, better defined objectives and greater fairness in the distribution of payments, as well as rewards that are sufficient to provide real incentives. Of particular importance, is that up to one-third of responding agencies do not take staff adherence to the APS Values, as well as the agency's own value systems, into account when assessing performance.
The audit found a high level of non-compliance with annual reporting requirements in relation to disclosing details about the performance bonuses paid by agencies during 2002–03. The lack of transparency created by this result is further compromised by numerous errors, omissions and inconsistencies found in relation to the data reported by agencies in their annual reports.
In 2002–03, the reported cost of performance linked remuneration in the agencies surveyed, included performance bonuses of $39 million and performance linked salary advancements of $75 million. However, the latter is understated as some agencies could not provide relevant data. In addition, some agencies made across-the-board performance payments, based on achieving organisational outcomes, ranging from one to five per cent of the respective agencies' total wages bill. A further $4 million was paid in retention bonuses and $28 000 in sign-on bonuses. Administrative and support costs of operating each agency's performance management system would also need to be included to determine a total cost for performance linked remuneration.
The ANAO concluded that, to date, this significant investment appears to be delivering only patchy results and uncertain benefits. Given that over 80 per cent of agencies advanced their staff through pay points for ‘satisfactory' work performance and 28 per cent of agencies awarded bonuses for ‘satisfactory' work performance, the ANAO considers that a significant percentage of salary advancement payments, and even bonuses, are therefore unlikely to relate to ‘superior' performance.
At a more detailed level, the surveyed agencies reported that only 22 per cent of staff were eligible for a performance bonus, and an even smaller group were actually paid bonuses. Furthermore, 86 per cent of the aggregate dollar amount of bonuses paid by APS agencies in 2002–03 went to Senior Executive Service and executive level staff. These figures provide some support for the perceptions reflected in the staff survey that there is a disconnect between the application of performance management systems and the recognition/reward mechanisms for staff generally. These results lend support to the questioning of the credibility of performance management systems.
The ANAO considers that staff perceptions of the credibility of performance management systems would be greatly enhanced if staff who participate in the performance assessment process were eligible for rewards and recognition that are demonstrably more closely linked to the performance assessment process.
Similarly, analysis of the performance linked remuneration paid by agencies during 2002–03 suggests that staff concerns, raised during the audit, about the distribution of performance rewards may be well-founded. Agencies need to review the distribution of their performance related remuneration and address any bias detected.
In 2001, the MAC Report described performance management in the APS as a ‘work in progress'. It found that major challenges were still to be faced, especially on the issues of credibility and staff engagement. The ANAO considers that, in 2004, performance management in the APS can still best be described as ‘work in progress' and these same two issues are still at the forefront of the major challenges that remain.
While this audit found that progress has been made in consolidating the processes of performance management, the ANAO concluded that there is scope for agencies to do more to establish that their systems are effective, and effectively contribute to organisational outcomes.
While there are differing views about the justification for, and provision of, performance bonuses and pay in the APS, they can be used as an effective element of a performance management system. On the other hand, they can be counter-productive where they are perceived to be, or are actually, implemented ineffectively. A focus on performance management and improvement has been integral to successive public service reforms and has been widely supported. The enduring imperative is to implement systems that are credible and that enlist the involvement and commitment of staff to an effective outcome.
a) Consistency with the Strategic Framework of the MAC Report
Alignment with agency goals and strategic priorities was identified in the MAC Report as the first of three critical success factors for performance management systems. Although the results highlighted in this audit were mixed, and agencies and their staff had differing perceptions in a number of key areas, agencies surveyed have generally been effective in aligning their performance management systems with the agency's goals and organisational priorities. Most agencies took the APS Values into account and promoted them through their performance management systems. However, in many cases, the industrial process and the prevailing industrial climate were just as important in shaping performance management systems, particularly during their initial implementation phases.
Agency staff now seem to be more accustomed to performance management than they were at the time of the MAC Report. Accordingly, agencies could now shift their focus more towards achieving the outcomes sought by government for performance management. This can be facilitated by more consultation at the Ministerial/Parliamentary Secretary level, where relevant. However, agencies have not been as effective in aligning their performance management system to their own business models. To achieve this, agencies should consult adequately with their staff as part of an ongoing process of monitoring and review.
Most agencies have shown that they have learnt from their experiences with earlier performance management systems. However, many agencies still do not have established ‘systems', as defined in the MAC Report, that relate to, and support, their performance management system. Consequently, it is reasonable to conclude that agencies have some way to go in establishing and strengthening assessment and monitoring of the links between an individual's performance and the improved performance of the organisation.
Credibility of performance management systems was identified in the MAC Report as the second of the critical success factors. This audit report confirms that significant issues remain in establishing credible performance management systems in the APS. Responding agencies reported that they have undertaken reviews and attempted to simplify their systems. However, many responding staff considered that the systems are not straightforward to administer and that they have not been adequately trained in how to use them.
The survey results indicate that the credibility of APS performance management systems is reduced by the patchy involvement of SES in performance appraisal and the use of quotas and forced distribution systems.
The survey results also suggest that there exists a relatively low level of use of multi-sourced feedback on performance and effective use of the resulting outcomes. Even though gaining feedback from multiple sources has grown over time, in many cases this is a voluntary process. The survey indicates that agencies also may need to revisit their rationale for introducing team-based rewards, to ascertain whether they can be used more effectively in improving agency performance.
Of concern is that a large proportion of staff surveyed considered that their immediate supervisor and the SES do not show a commitment to performance management; that people management is not treated as a priority; and that the system is not effective in improving their own performance. There is significant scope for better assessing staff satisfaction with performance management systems, and to improve staff ownership of those systems, through staff surveys and effective follow-up action. Related to this issue is the survey findings that only a very small percentage of total APS staff are dealt with through the formal under performance processes, and that staff surveyed do not consider that under performance is effectively managed in agencies. The APS appears to continue to have a rhetoric-reality gap on these issues.
A number of agencies do collect relevant data and report on performance management. However, activities in this area show great variability across agencies in the types of data collected and used within agencies. The information that is collected is not disclosed to an adequate extent in annual reports, nor does it get widely reported to line managers and staff.
Integration was identified in the MAC Report as the last of the critical success factors for performance management systems. This audit found that agencies are making progress in providing a clearer link for staff between their work and the goals of the organisation. However, this result is undermined because, while agencies nominate people management skills as a priority, the survey results suggest that they are not recognising, or rewarding, those who manage their people effectively and are not identifying and assisting those who do not.
Agencies surveyed are collecting information on learning and development (L&D) needs through their performance management systems and using this information in their overall L&D plans. However, nearly one-half of the agencies surveyed are not aggregating this information on an agency-wide basis to provide an overall perspective of their needs. Staff surveyed do not consider that the process is effective in identifying their L&D needs or in improving their capability levels. Hence, agencies may be missing out on a significant opportunity to gain from potential improvements in capability.
b) Administration of performance management
Sound administrative arrangements can contribute to the overall success of agencies' performance management systems. The audit found that agencies had established objectives for their performance management systems that were clear and well-focused on improving the agency's overall performance. It was also evident that the design of these systems adequately reflected the objectives that had been established.
Responding agencies considered that the documentation and guidelines on performance management prepared by them were of a high standard. However, staff surveyed had less positive views regarding a number of aspects of these documents.
In the vast majority of cases, staff performance has been assessed against a formal agreement or plan agreed between the staff member and his or her supervisor. However, establishing accurate and meaningful standards for measuring and/or assessing performance outcomes is central to an effective performance management system. Agencies use both qualitative and quantitative measures, but more quantitative measures are wanted by staff to provide clarity in their performance assessments.
A related issue is that many staff surveyed are not convinced that their supervisors are able to use their performance agreement to monitor staff work activity, nor do they feel able to use it to gauge their own performance. These are two primary reasons for implementing performance management, and, hence, are obvious areas for agency improvement.
Of particular importance is that a significant number of agencies surveyed are still to develop a values-based performance management system with clear linkages to capability standards. Staff responses reflected also that they were not consulted in setting desired capabilities.
A range of quality outcomes is evident in the development of performance agreements. A majority of responding agencies had at least 85 per cent of their staff on formal performance agreements. Both agency and staff responses indicate that there has been good progress in relation to the setting of objectives and priorities in agreements and the basis on which performance would be assessed. Although 75 per cent of staff considered the level of consultation in establishing their performance agreement was adequate, some did not. This suggests that agencies need to continue to maintain their efforts in this regard. To improve in this area, additional effort is needed to consult with staff when setting desired capability levels, as well as in training managers on how to conduct performance discussions and assess individual work performance.
Most responding agencies have applied a rating scale in measuring performance. As well, just over one-half undertake some moderation of the ratings. While staff surveyed generally agreed in-principle to linking pay to performance, only one-half indicated support for the performance pay systems. Just over one-quarter agreed that the distribution of performance pay was fair. However, even fewer indicated that it provided sufficient incentive to improve performance. Further, only a small number of agencies surveyed made any assessment as to whether performance pay had resulted in improved individual or agency performance. Taken together, these findings indicate a very disappointing result overall for the APS and are consistent with the findings in the 2002–03 State of the Service Report (SOSR) issued by the Australian Public Service Commission (APSC).
c) Compliance with the Requirements for Annual Reports
The reporting of performance payments in annual reports has been a mandatory requirement for APS agencies over the last decade. The audit found a high level of non-compliance with this requirement for the 2002–03 annual reporting of performance bonus information. This results in a lack of transparency in relation to these payments in the APS. This transparency is further compromised by the high level of errors, omissions and lack of consistency in the annual reporting of this information. Hence, Parliament and/or the public cannot obtain an accurate indication of the number and amount of bonuses paid for even a selection of agencies, let alone across the entire APS.
d) Estimated cost of performance linked remuneration across the APS
Responding agencies reported that, in 2002–03, just over 21 000 staff were eligible for performance bonuses; whereas more than 76 000 staff were eligible for performance related advancements. However, the latter is understated as some agencies could not provide relevant data. Only about nine per cent of staff surveyed reported that they received both a bonus and ongoing salary advancement; whereas about seven per cent of staff advised that they were not eligible for either of these payments during the preceding 12 months.
Of the 63 agencies that responded to the ANAO survey, 50 paid performance bonuses in 2002–03. A total of $38.6 million was paid in performance bonuses to 11 078 staff. A relatively small 22 per cent of staff were eligible for bonuses. Eligibility rose as classification increased and 86 per cent of the total bonus pool was paid to Executive and Senior Executive staff. Although male staff were more likely to be eligible for a bonus, a greater percentage of eligible female staff received a bonus at all classification levels except SES. However, greater total and average payments were paid to male staff, who received a disproportionately greater share of bonus payments at all classification levels except APS 1–2 and APS4. Because of the nature of Australian Workplace Agreements (AWAs), staff on AWAs were far more likely to be eligible and to receive a bonus than staff on Certified Agreements (CAs), as well as receive significantly higher average payments. As would be expected a similar, although not as pronounced, effect was observed for staff in Central Offices who were more likely to be eligible for and receive a bonus and to receive a higher average payment, than Non-Central Office staff.
A total of $75.2 million was paid in performance linked advancements by 47 responding agencies to 44 792 staff. In contrast to the situation with bonuses, a relatively large 67 per cent of staff were eligible for these payments. Almost three-quarters of the total payments went to APS 1–6 staff. Overall, the total and average performance linked advancement payments to both male and female groups were very similar. While the bulk of this money was paid to staff on CAs, again staff on AWAs received significantly higher average payments. As well, as might be expected, Central Office staff fared better than Non-Central Office staff with greater proportions of those eligible receiving payments and receiving higher average payments.
In addition to the costs of performance linked remuneration outlined above, 16 agencies also reported making across-the-board performance payments that were based on achieving CA or organisational outcomes. These payments were also substantial in aggregate, ranging from less than one per cent, up to a maximum of five per cent, of the respective agencies' total wages bill. A further $4 million was paid in retention bonuses and $28 000 in sign-on bonuses.
Any estimate of the overall costs of performance management across the APS should also take into account the investment in administrative and support costs associated with: acquiring, operating, maintaining and reviewing agencies' performance management systems; dealing with the appeals generated where staff consider that they are adversely affected by performance assessments; as well as costs associated with internal and external reporting. Such administrative costs were not quantified in this audit, but would also be substantial when aggregated across the APS.
The ANAO concluded that, to date, this significant investment appears to be delivering only patchy results and uncertain benefits. Performance linked advancements remains the dominant method of encouraging and rewarding performance in the APS. Given that over 80 per cent of agencies advance their staff through pay points for ‘satisfactory' work performance and 28 per cent of agencies award bonuses for ‘satisfactory' work performance, the ANAO considers that a significant percentage of bonuses, and even a high proportion of performance linked advancement payments, are therefore unlikely to reflect ‘superior' performance. After more than a decade since this issue was first raised by the ANAO,2 debate continues about whether performance pay should be awarded for merely ‘doing one's job' or should be reserved for rewarding above average and/or exceptional performance only.
In some agencies, the minimal amounts in bonuses and/or salary advancements paid to individuals would almost certainly be exceeded by the administrative costs of making such payments. The ANAO considers that agencies should assess the costs and benefits of their performance management systems and restructure them, where required, for more effective outcomes.
Recommendations and Agency responses
The majority of agencies responded positively to the proposed report. The ANAO made two recommendations directed to the APSC aimed at improving the quality of guidance material available to APS agencies, and development of examples of key indicators for agencies to measure the performance management contribution to overall business outcomes. A recommendation was also addressed to the Department of the Prime Minister and Cabinet (PM&C) relating to the reporting of performance management information in agencies' annual reports.
The APSC agreed in part with the recommendations addressed to it. PM&C agreed with Parts 1 and 3 of the recommendation addressed to it, but disagreed with Part 2.
1 Management Advisory Committee Report Performance Management in the APS: A Strategic Framework. September 2001.
2 ANAO Audit Report No.16, 1993–94 Pay for Performance: Performance Appraisal and Pay in the Australian Public Service.