Duncan Brown: Reward and the road to recovery

Chancellor George Osborne’s Autumn Statement in December failed to fill us with festive cheer. He downgraded his 2013 growth forecasts again, announcing that the coalition government’s austerity measures would be extended to 2018.

With ministers such as business secretary Vince Cable openly discussing the possibility of a ‘triple-dip’ recession, the search is now on for measures to stimulate recovery, in the economy and in employee engagement.

Employee share ownership and less legislative red tape are two of them.

Despite little evident support, Osborne confirmed legislation to introduce a new employee shareholder status, giving staff shares worth a minimum of £2,000 in return for reduced employment rights. The government will exempt up to £50,000 of shares from capital gains tax and the first £2,000 of shares received will be free of income tax and national insurance contributions.

Equally controversially, he supported recommendations to pay teachers on the basis of performance. Service increments and the current ‘gateway’ for progression to an upper pay scale would be replaced by performance-based pay, as well as greater discretion for school heads to pay recruitment/retention bonuses.

The recession has seen a growth in performance-related bonus schemes. According to Aon Hewitt’s 2012 Variable compensation survey, a quarter of employers have introduced or extended bonus plans in the past two years, while 5% have removed them. Even larger numbers are redesigning their plans, with particular dissatisfaction evident with the appraisal systems used to assess individual contribution.

So do you want your kids’ teachers to have performance-related pay, and will it improve their teaching? Research published by the Organisation for Economic Co-operation and Development (OECD) in May 2012, Does performance-based pay improve teaching?, indicates the answers.

Currently, half of OECD countries reward teacher performance, ranging from bonuses in the Netherlands and Mexico to performance-related base pay in Turkey and Sweden. The bad news is that there is no relationship between average student performance and the use of performance-based pay.

The picture changes if you look at teachers’ pay levels. In countries with comparatively low salaries, student performance tends to be better when performance-based pay is in place. But in countries where teachers are pretty well paid, the opposite is true. And long-established research shows high performing education systems tend to pay teachers more, as well as prioritising their quality and development.

So, is the route to high organisational performance to force individual contribution with carrots and sticks? Or is it to create a well-rewarded, highly engaged workforce so everyone wants to contribute to their employer’s success?