This document discusses adapting reward systems and performance management to support public sector transformation. It suggests moving from rigid, job-based reward systems to more flexible approaches focused on individual contribution and capabilities. Alternative talent models are outlined, including loyalty, market-based, career-based, and dynamic models. The dynamic model varies pay based on individual performance and capabilities rather than just job requirements. Performance management should balance development and evaluation to improve performance while engaging employees. Integrating reward, performance management, and engagement can help attract and retain top talent to support organizational change.

1. REWARD SOLUTIONS FOR THE FUTURE
9 May 2014
Daniel Hibbert

2. MERCER
Contents
Page
Adapting reward to reflect the increasing complexity of public services 2
Using reward to support workforce transformation 6
The role of performance management and reward in engagement 9
Conclusions 14

3. Adapting reward to reflect the increasing
complexity of public services
2

4. MERCER
3
Large delivery organisations Smaller commissioning organisations
Jobs designed around professional
groups
Jobs designed around business needs
Reward for job size Reward for contribution
Unconnected with talent management Integrated with talent management
Emphasis on equal pay compliance
Achieving equal pay compliance
alongside flexibility
Each term and condition of employment
dealt with in isolation
An integrated “Total Reward” approach to
all terms and conditions
Complex and inflexible processes
Pay decision making based on business
needs, rather than process
The changing public service landscape
How reward needs to change as local government adapts
Reward is central to the transformation journey

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Alternative talent and reward models
The characteristics of each model are summarised below
Specialist skills need to be
developed within the organisation
and long-term loyalty is required
Skills are readily available in the
external market and long-term
career opportunities within the
organisation may be limited
Long-term career opportunities are
available for those who develop
within a defined career path
The job is flexible and broadly
defined and the capabilities of the
job holder are critical to the value
created in the role
Talent characteristics
Incremental pay spine, with pay
starting behind market and moving
ahead of market with service
A single rate of pay for the job,
aligned with the external market
A pay system that fits with the
defined career path, supporting the
development of the individual
through that career path
Pay is varied by reference to the
capabilities of the individual
Reward approach
4
1. Loyalty
model
2. Market
model
3. Career
model
4. Dynamic
model

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How the dynamic model operates
New operating models require more focus on individual capability
5
Minimum
Salary
High Performing –
Non-Consolidated
50
55
60
65
70
Basesalary£'000
High Performing –
Consolidated
Developing
Range
Additional salary
paid to consistently
strong performers
Paid to exceptional
performers, and not
consolidated into
Base Salary
Individuals who are
still developing into
their role will be paid
in this range
The Rate for the
Job paid for the
expected standard
of performance
 The illustration shows a
Rate for the Job of
£60,000. There is the
potential to earn a further
15% of salary based on
performance, of which
5% of salary may be
consolidated into salary
and the rest may be
withdrawn if performance
subsequently declines.
 Below the Rate for the
Job there is a developing
range of around 10% of
base salary.

7. Using reward to support workforce
transformation
6

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How simplified job design can support transformation
The benefits of improved job design
 Simplified job design:
- Supports with the shift from measuring job content (job evaluation)
towards measuring individual capabilities and performance;
– Enables future changes and restructurings to be carried out more
efficiently through the use of generic job descriptions, including using a
job catalogue;
– Facilitates the process of transformation by enabling the move towards
new employment contracts.
 How changes to job design can support a transformation journey:
Initial changes to
reward to bring
this into line with
the needs of the
organisation
1 New roles and
new appointments
made on the basis
of the new job
design and reward
approach
2
Changes made to
existing roles to fit
with the new
organisation in line
with transformation
3
New simplified
organisational
design and
reward structure
in place
4

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How to link reward directly with transformation
All employee “Gainsharing” plan
March April March June
On an annual basis the
plan is set up to pay a
target amount at the end
of the performance year,
subject to the
achievement of a set of
clear measurable
Council-wide
performance targets.
Actual payment varies
depending on
achievement against
target.
Payment made
based on an
assessment of
achievement of
Council-wide targets
following the end of
the year, as agreed
by a Remuneration
Committee (or
equivalent).
Payment could also
be subject to a
minimum standard
of individual
performance.
1
2
3
Start of
performance
period
End of
performance
period

10. The role of performance management
and reward in engagement
9

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EvaluationDevelopment
Performance
Evaluation
People
Development
Differentiates
performance
10
Provides coaching
and support for
personal
development
The performance management debate
Purpose paradox: development versus evaluation
10
Good performance management achieves the right balance between
people development and performance evaluation

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Performance management
What should performance management do for you?
Improve performance –
Individuals and organisation
Identify top talent – individuals and teams
Help people succeed – individually and collectively
Performance management should also be used to engage
employees in:
 Issues relating to organisational performance, and
 How each individual contributes to that performance.

13. MERCER
Mercer research - 2013
Management capability has the biggest impact on overall success?
12
Mercer 2013 Global Performance Management Survey Report Copyright © 2013.

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Using performance management and reward in engagement
What is needed to engage employees and enhance performance?
Clear objectives and expectations
Regular dialogue on actual performance and on
progress made
Reward
Training and
development
Performance
measurement
Career
discussions
Integrated performance management, reward and engagement model

15. Conclusions
14

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Making changes to reward and performance management
Components of the business case for change
15
Benefits/savings Risks
 A workforce engaged with the
performance agenda
 Stronger long-term talent
management and career
development
 Reduced future costs, moving
away from the “one size fits all”
approach
 Increased capacity to recruit and
retain high performing staff
 An enabler for transformation
supporting change and flexibility
 Adverse employee relations
impact
 Costs of transition, including use
of resources and relating to pay
protection

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Questions for discussion
1. Which of the four talent models are most suitable for your
workforce?
2. Should the same talent model be applied across the
workforce?
3. Is there the capability to manage a different type of reward and
performance model?
4. How should the reward system be adapted to support the
transformation journey?
5. Can performance management be used as a positive
engagement tool?
6. How strong is the business case for making changes and
should this be a priority?

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Questions and
Discussion

19. MERCER
Daniel Hibbert
Principal
Mercer
Tower Place
London, EC3R 5BU
+44 (0) 20 7178 5520
+44 (0) 7557 031371
daniel.hibbert@mercer.com
Contact details
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