tag:theconversation.com,2011:/us/topics/pay-for-performance-1722/articlesPay for performance – The Conversation2023-10-17T21:02:34Ztag:theconversation.com,2011:article/2079772023-10-17T21:02:34Z2023-10-17T21:02:34ZBeyond the paycheck: The key to building a thriving workplace goes beyond salaries<figure><img src="https://images.theconversation.com/files/553733/original/file-20231013-19-ucgkud.jpg?ixlib=rb-1.1.0&rect=71%2C56%2C9418%2C6260&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Current research suggests it's time to re-evaluate existing pay structures and prioritize worker health and safety. </span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><iframe style="width: 100%; height: 100px; border: none; position: relative; z-index: 1;" allowtransparency="" allow="clipboard-read; clipboard-write" src="https://narrations.ad-auris.com/widget/the-conversation-canada/beyond-the-paycheck-the-key-to-building-a-thriving-workplace-goes-beyond-salaries" width="100%" height="400"></iframe>
<p>Today’s news is filled with stories highlighting salary figures, from <a href="https://www.pbs.org/newshour/economy/ceos-got-smaller-raises-it-would-still-take-the-average-worker-2-lifetimes-to-make-their-annual-pay">sky-high CEO compensation packages</a> to boards trying to <a href="https://www.thestar.com/news/gta/toronto-zoo-board-quietly-boosts-ceo-pay-20-per-cent-amid-city-s-financial-crisis/article_cc517b9c-2121-5318-9e3b-552f793d1ee3.html">hide CEO pay increases during periods of austerity</a>, to <a href="https://www.blg.com/en/insights/2022/11/bill-124-wage-cap-legislation-declared-unconstitutional-by-ontario-superior-court">governments interfering with collective bargaining over wage increases</a> and <a href="https://www.bnnbloomberg.ca/ford-workers-in-canada-ratify-agreement-set-precedent-for-other-automakers-1.1975855">unions securing pay hikes</a>.</p>
<p>Some provinces, including <a href="https://www.ontariosunshinelist.com">Ontario</a>, <a href="https://www.alberta.ca/salary-and-severance-disclosure-table">Alberta</a> and <a href="https://beta.novascotia.ca/public-sector-compensation-disclosure-reports">Nova Scotia</a>, are also mandated to release annual sunshine lists of public sector workers who earn above $100,000 — all of which might suggest that higher pay equates to more productive, healthy and safe workplaces. But is this a correct assumption? What if the opposite is true?</p>
<p>Could certain pay structures — like wide wage disparities, pay-for-performance systems, the belief that time equals money and pay secrecy — actually hinder organizations from reaching their primary goals? Current research suggests it’s time to re-evaluate these potential barriers to creating thriving workplaces.</p>
<h2>The impact of pay gaps</h2>
<p>Many organizations have significant pay gaps — also known as pay dispersion — between their highest and lowest earners. <a href="https://doi.org/10.1146/annurev-orgpsych-031413-091253">Pay dispersion</a> is driven by variations in employee skills, performance and market demand, and can be exacerbated by systemic biases like gender and racial discrimination.</p>
<p><a href="https://www.jstor.org/stable/256872?typeAccessWorkflow=login">One study</a>, which analyzed nine years of data from 29 Major League Baseball (MLB) teams, found that teams with wider pay gaps had poorer individual and team performances and declining financial metrics like gate receipts and television revenues. </p>
<p><a href="https://doi.org/10.1007/s10902-023-00680-0">Another study</a> on employees from German firms found that pay gaps led to job dissatisfaction because employees perceived the wage distribution to be unfair.</p>
<p>If pay gaps don’t make a positive difference, then what does? One solution was found by organizational psychologist Christian Resick and his colleagues. They demonstrated that <a href="https://doi.org/10.1037/a0016238">transformational leadership in MLB CEOs</a> resulted in higher levels of manager retention, improved team winning percentages and increased fan attendance.</p>
<h2>The perils of pay-for-performance</h2>
<p>Many organizations adopt pay-for-performance systems because they believe it highlights the importance of performance. This type of compensation model pays employees, or teams of employees, based on how well they perform their duties.</p>
<p>However, <a href="https://doi.org/10.1037/1076-8998.6.2.127">a study conducted on industrial plants in the mid-western United States</a> showed that companies using pay-for-performance systems experienced more workdays lost to injuries and had lower labour productivity. Notably, the researchers found that increased training hours over the prior year led to fewer injuries and higher productivity.</p>
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<img alt="A person, seen from the neck down, pointing to a graph on a clipboard with a pen" src="https://images.theconversation.com/files/553574/original/file-20231012-17-rvcdkh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/553574/original/file-20231012-17-rvcdkh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=381&fit=crop&dpr=1 600w, https://images.theconversation.com/files/553574/original/file-20231012-17-rvcdkh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=381&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/553574/original/file-20231012-17-rvcdkh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=381&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/553574/original/file-20231012-17-rvcdkh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=478&fit=crop&dpr=1 754w, https://images.theconversation.com/files/553574/original/file-20231012-17-rvcdkh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=478&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/553574/original/file-20231012-17-rvcdkh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=478&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Pay-for-performance systems pay employees based on how well they perform their duties.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
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</figure>
<p>In another study, researchers examined the impact of pay-for-performance systems on mental health. <a href="https://doi.org/10.5465/amd.2018.0007">They analyzed the pay data of over 318,000 employees from 1,309 Danish companies between 1995 and 2006</a>, alongside their medical prescription records. </p>
<p>The shift to performance-based pay was associated with an increase in prescriptions for anti-depressants and anxiety medication. These pay structures often led to the departure of employees who were prone to, or currently facing, mental health issues. </p>
<p>In sharp contrast, <a href="https://doi.org/10.1037/a0023663">a different analysis of 420,599 people across 63 countries</a> revealed that autonomy had a more positive influence on psychological well-being and anxiety than wealth. In fact, researchers found that wealth only impacted well-being to the extent that it offered individuals more life choices.</p>
<h2>The costs of ‘time is money’</h2>
<p>Pay structures that prioritize the “time is money” concept emphasize direct compensation for hours worked. Examples include hourly wages in retail and manufacturing sectors and billable hours in law firms. Not surprisingly, “time is money” pay structures tend to <a href="https://doi.org/10.1016/j.socscimed.2009.01.031">result in longer working hours</a> and other consequences.</p>
<p>In <a href="https://doi.org/10.5465/amd.2016.0017">one study</a>, participants who were reminded of the “time is money” concept reported higher psychological stress levels, evidenced by a 23 per cent rise in <a href="https://my.clevelandclinic.org/health/articles/22187-cortisol">cortisol levels</a> — a known stress biomarker. </p>
<p><a href="https://doi.org/10.5465/amj.2007.26279171">Another study</a> found that workers who were paid hourly volunteered less frequently at work than salaried workers. When participants were reminded of the “time is money” principle, it reinforced an economic-focused mindset, which was identified as the primary obstacle to employees’ volunteer behaviours. </p>
<p>A relational mindset, grounded in a general orientation to relational information, emphasizes the importance of interpersonal relationships and interactions. In contrast to the “time is money” perspective, a <a href="https://doi.org/10.1016/j.obhdp.2020.04.007">series of four studies</a> showed that promoting this relational mindset resulted in improved ethical behaviour in the workplace.</p>
<h2>The hidden dynamics of pay secrecy</h2>
<p>In many western societies, pay secrecy is <a href="https://global.oup.com/academic/product/exposing-pay-9780197628164">more common than pay transparency</a>. The <a href="https://www.theguardian.com/commentisfree/2023/jul/22/royal-secrecy-public-money-crown-estate-king-charles">British royal family</a> — often referred to as “<a href="https://time.com/5945032/what-is-the-firm-royal-family/">The Firm</a>” — serves as a well-known example of an organization that keeps the salary of the royals themselves hidden from the country.</p>
<p>Pay secrecy keeps employees in the dark about how much they earn compared to their colleagues and how pay is determined. It also discourages salary discussions among colleagues.</p>
<p><a href="https://doi.org/10.1111/1748-8583.12292">Across three studies</a>, researchers from the U.S. showed that employees perceive pay secrecy as a deliberate, negative strategy used by their employers, resulting in diminished trust in management. This distrust deepens when companies prevent employees from discussing salaries amongst themselves. </p>
<p>While transitioning to a transparent pay system demands time, effort, and money, two benefits stand out. First, companies that transition don’t experience a drop in profits since the costs are <a href="https://doi.org/10.1111/jofi.13136">balanced by declining wage growth for male employees</a>, who were already earning more than their female counterparts. Second, <a href="https://doi.org/10.1111/joes.12545">it results in a consistent reduction in the gender pay gap</a>.</p>
<h2>A not-so-new perspective on compensation</h2>
<p>Trying to perfect compensation strategies can be a fool’s errand. As business scholar and organizational consultant <a href="https://psycnet.apa.org/record/2000-07220-000">Ed Lawler noted almost 30 years ago</a> — a situation that remains largely unchanged today — many organizations invest significant time in giving minimum financial rewards to employees in hopes of improving performance. However, Lawler found this approach rarely yields substantial positive outcomes.</p>
<p>But if pay doesn’t help organizations create better workplaces, what does? The keys to a <a href="https://global.oup.com/academic/product/brave-new-workplace-9780190648107">workplace that fosters productivity, health and safety</a> are: high-quality leadership, job autonomy, feelings of belonging and fairness, opportunities for growth, meaningful work and psychologically and physically safe work.</p>
<p>However, this doesn’t mean organizations should underpay their employees. While organizations don’t have to be the highest payers in the industry, they should aim to <a href="https://jeffreypfeffer.com/books/the-human-equation/">compensate above industry standards</a> to avoid dissatisfaction and other negative consequences.</p>
<p>Implementing all these facets might seem overwhelming, but they don’t need to be introduced simultaneously. For leaders, the challenge is breaking away from traditional norms. But, grounded in years of studies, they can be confident that even the smallest meaningful changes can result in productive, healthy and safe work.</p><img src="https://counter.theconversation.com/content/207977/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Julian Barling receives funding from Social Sciences and Humanities Research Council of Canada. </span></em></p><p class="fine-print"><em><span>Nick Turner receives research funding from Social Sciences and Humanities Research Council of Canada.</span></em></p>Traditional pay structures — like wage gaps, pay-for-performance systems, the belief that time equals money and pay secrecy — are stopping organizations from reaching their goals and thriving.Julian Barling, Distinguished Professor and Borden Chair of Leadership, Smith School of Business, Queen's University, OntarioNick Turner, Professor of Organizational Behaviour and Future Fund Chair in Leadership, Haskayne School of Business, University of CalgaryLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/689342016-12-05T10:32:57Z2016-12-05T10:32:57ZMental health services should not be paid by outcomes<figure><img src="https://images.theconversation.com/files/148144/original/image-20161130-17044-qd8kvy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Tell me about your outcomes.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/pic-490506961/stock-photo-psychotherapy.html?src=HlUEdfo2cGqLs8G-xL2dsg-1-75">Pressmaster/Shutterstock.com</a></span></figcaption></figure><p>The UK government <a href="https://www.england.nhs.uk/wp-content/uploads/2014/10/5yfv-web.pdf#page=27">promised</a> a “drive towards an equal response to mental and physical health” in England as part of a five-year plan. Two years later and there is little sign that any progress has been made. Calls to improve mental health services peaked this month when 20 years’ worth of former health secretaries wrote an open letter <a href="http://www.bbc.co.uk/news/uk-politics-38025401">criticising</a> the government for “warm words” but no action.</p>
<p>There is a consensus that more funding should reach mental health care. But what should be funded and exactly how? From April 2017, payments to adult mental health services must be linked to the quality and outcomes of care provided. National guidance published by <a href="https://www.england.nhs.uk/about/">NHS England</a> and <a href="https://improvement.nhs.uk/about-us/who-we-are/">NHS Improvement</a> <a href="https://improvement.nhs.uk/uploads/documents/Linking_quality_and_outcome_measures_to_payment_for_mental_health_FINAL.pdf#page=4">claims</a> that doing so will improve care, “ensuring value for money and the best use of limited resources”. But there is worrying evidence that doing so might have little impact and, at worst, actually be harmful to services.</p>
<h2>How will payment for performance work?</h2>
<p>The money flows are complex. Here is a picture showing key parts of the system.</p>
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<img alt="" src="https://images.theconversation.com/files/147737/original/image-20161128-22748-1n2iiil.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/147737/original/image-20161128-22748-1n2iiil.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=381&fit=crop&dpr=1 600w, https://images.theconversation.com/files/147737/original/image-20161128-22748-1n2iiil.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=381&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/147737/original/image-20161128-22748-1n2iiil.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=381&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/147737/original/image-20161128-22748-1n2iiil.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=479&fit=crop&dpr=1 754w, https://images.theconversation.com/files/147737/original/image-20161128-22748-1n2iiil.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=479&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/147737/original/image-20161128-22748-1n2iiil.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=479&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">How funding flows to mental health services.</span>
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</figure>
<p>At the top end is the <a href="https://www.gov.uk/government/organisations/hm-treasury/about">Treasury</a>, which determines how much money health care receives, alongside all other public services. The Treasury does not directly determine how much money goes to mental health, however – <a href="https://www.whatdotheyknow.com/request/mental_health_budgets_2">it receives advice from below</a> in the hierarchy so it can calculate a total including all other areas of health.</p>
<p>The money flows on to the <a href="https://www.gov.uk/government/organisations/department-of-health/about">Department of Health</a>, <a href="https://www.england.nhs.uk/about/">NHS England</a>, then <a href="https://www.england.nhs.uk/ccg-details/">Clinical Commissioning Groups</a> which are distributed across the country. They may choose to commission an <a href="https://www.gov.uk/government/publications/nhs-foundation-trust-directory/nhs-foundation-trust-directory">NHS Foundation Trust</a>. They may also commission a commercial company such as Virgin Care, which <a href="https://www.theguardian.com/society/2016/nov/11/virgin-care-700m-contract-200-nhs-social-care-services-bath-somerset">recently won</a> a £700m contract.</p>
<p>Payment for performance will be at this final stage between commissioner and provider, and will be agreed locally between them. <a href="https://improvement.nhs.uk/uploads/documents/Linking_quality_and_outcome_measures_to_payment_for_mental_health_FINAL.pdf">National guidance</a> on how to implement the approach suggests that the chosen targets should be achievable yet stretching; informed by clinicians and people with experience of mental health problems; avoid creating an adversarial relationship between commissioners and providers; and should be used for the “reinforcement of positive behaviour”.</p>
<p>Oxford Health NHS Foundation Trust is <a href="https://improvement.nhs.uk/documents/234/MH_outcome_based_commissioning_update_note_v2.pdf">provided as an example</a> in the guidance. A fifth of its income will be linked to performance, which will include ensuring that people “improve their level of functioning”, determined using two measures. </p>
<p>One is the <a href="http://www.outcomesstar.org.uk/about-the-outcomes-star/">Mental Health Recovery Star</a>, which tracks the progress of people who use mental health services by their ability to manage their mental health and feelings of hopefulness. This measure is completed jointly by people who use mental health services and staff providing care (such as psychiatrists, psychologists or nurses). </p>
<p>The other measure is a checklist <a href="http://www.rcpsych.ac.uk/traininpsychiatry/conferencestraining/resources/honos/workingageadults/introduction.aspx">rated only by staff</a> which is used to track changes in symptoms such as depression and self-injury. The service has also promised its commissioners that it will ensure people live longer.</p>
<h2>Does payment for performance improve services?</h2>
<p>A recent systematic review of research <a href="https://www.ncbi.nlm.nih.gov/pubmed/27640342">found no evidence of impact</a> when payment was linked to health outcomes, such as how long people live – which makes Oxford Health’s choice of outcomes puzzling. There was a small benefit when payment was linked to what services actually did, for example, providing cancer screening or recording whether someone smokes, as this was much easier for services to control than were the consequences of care.</p>
<p>Given national advice to involve people who use mental health services in decisions about outcomes chosen, it is also curious that the recovery star has been chosen. An increasingly influential group who use mental health services, called <a href="https://recoveryinthebin.org/">Recovery in the Bin</a>, singled out the measure as “redundant, unhelpful, and blunt”, and suggested an alternative focusing more on the social causes of mental distress which are often ignored in outcomes.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/146683/original/image-20161120-19371-1g7lvnl.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/146683/original/image-20161120-19371-1g7lvnl.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/146683/original/image-20161120-19371-1g7lvnl.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=503&fit=crop&dpr=1 600w, https://images.theconversation.com/files/146683/original/image-20161120-19371-1g7lvnl.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=503&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/146683/original/image-20161120-19371-1g7lvnl.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=503&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/146683/original/image-20161120-19371-1g7lvnl.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=632&fit=crop&dpr=1 754w, https://images.theconversation.com/files/146683/original/image-20161120-19371-1g7lvnl.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=632&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/146683/original/image-20161120-19371-1g7lvnl.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=632&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">UnRecovery Star, developed by Recovery in the Bin as an alternative to an outcome measure used in services.</span>
<span class="attribution"><span class="source">Recovery in the Bin</span></span>
</figcaption>
</figure>
<p>Putting high-stakes targets on measures tends to mean that the measures stop measuring what they are supposed to measure because people cheat to achieve the targets. The effect is so common that it has a name: <a href="https://en.wikipedia.org/wiki/Goodhart's_law">Goodhart’s law</a>. For example, ambulance services had a target to get to the patient in eight minutes for life-threatening emergencies. This led to a third of services <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1467-985X.2008.00557.x/full">fiddling their timings</a> towards the target. </p>
<p>There are various subtle ways to cheat outcome measures in mental health, such as by not bothering people who drop out of services with questionnaires to complete. People who drop out are <a href="https://doi.org/10.1017/S0033291707001869">less likely to have benefited</a> from treatment, so excluding their answers from data analyses will improve a service’s apparent outcomes. Given the complexity of people’s experiences and predicaments, reducing them to scores on questionnaires can feel absurd, so it might be easy to justify this kind of gaming if it results in more funding which could improve the care provided. It seems especially easy for measures completed by staff who are under pressure from management to tick the right boxes.</p>
<p>Outcomes measures have <a href="http://onlinelibrary.wiley.com/doi/10.1111/camh.12086/abstract">an important role to play</a> in understanding and improving the care people receive and should be tracked as part of care, but linking them to payment risks demoralising staff and making the measures meaningless. This seems a dangerous path to take given the state mental health services are in. A better solution might lie further upstream at the Treasury when it decides how much money is available for mental health.</p><img src="https://counter.theconversation.com/content/68934/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andi Fugard has worked on projects funded by the Department of Health on mental health outcomes and payment systems and was a member of the NHS England/Monitor Quality and Cost Benchmarking Group. Andi is a member of the Labour Party.</span></em></p>From April 2017, payments to adult mental health services in the UK must be linked to outcomes. But it’s a bad idea.Andi Fugard, Co-Director of the Centre for Evaluation, National Centre for Social ResearchLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/613172016-06-21T11:46:08Z2016-06-21T11:46:08ZWhy doctors should not be paid by results<figure><img src="https://images.theconversation.com/files/127372/original/image-20160620-8856-4sf640.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Low cholesterol. Ka-ching! Glucose control. Ka-ching!</span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-403347847/stock-photo-doctor-is-using-calculator-to-sum-all-of-expenses.html?src=dt_last_search-5">Bacho/Shutterstock.com</a></span></figcaption></figure><p>Would you like it if your doctor was paid more if your blood pressure was under control, and less if it wasn’t? Do you think it would make you healthier?</p>
<p>The issue of whether, and how, to incentivise doctors is <a href="https://theconversation.com/why-its-no-surprise-the-nhs-pays-gps-not-to-send-you-to-hospital-48512">highly controversial</a>. Traditionally, doctors worldwide have been paid in three ways: with a regular salary, with a fee for each consultation or procedure they perform, or with a lump sum based on the number of patients under their care. Until recently, pay has not reflected whether the care provided by doctors actually benefits patients. As a result, healthcare systems around the world often provide poor value, with mediocre care being delivered at <a href="http://www.newyorker.com/magazine/2009/06/01/the-cost-conundrum">high cost</a>. The idea of paying doctors more if they provide better care, known as pay-for-performance, has been repeatedly touted as a solution and adopted worldwide. </p>
<p>But does pay-for-performance actually improve patients’ health? </p>
<p>The world’s largest and most studied pay-for-performance programme is the UK’s <a href="http://qof.hscic.gov.uk/">Quality and Outcomes Framework</a> (QOF). Introduced in 2004, this scheme allows family doctors to increase their incomes based on performance on more than 100 indicators of quality related to several major diseases, including heart disease, stroke and diabetes. QOF covers almost all family practices in the UK and nearly £6 billion (US$9 billion) was invested in incentive payments over the first seven years, with additional billions invested in administration and information technology. Much of the research suggests that this led to improvements in <a href="http://www.annfammed.org/content/10/5/461.full.pdf+html">quality indicators</a>, particularly in the early years, and in the process increased family doctors’ incomes by up to a quarter. </p>
<p>Given that QOF targeted some of the leading causes of death, it might be expected to have extended the lives of people with these conditions. We evaluated whether mortality rates declined more in the UK after QOF was initiated than in similar countries that didn’t introduce pay-for-performance, and found that the scheme was associated with a reduction in mortality of just <a href="http://bit.ly/28IX881">3.7 deaths per 100,000 in its first seven years</a>. This effect was not statistically distinguishable from zero. </p>
<h2>Clinical trials vs the real world</h2>
<p>In some ways this was surprising. Projections based on the apparent improvements for incentivised activities in the early years of the scheme, combined with evidence from clinical trials on the patient benefit of these activities, estimated that the scheme should have reduced mortality by <a href="http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2930244/">11 deaths per 100,000</a> in the first year alone.</p>
<p>What can explain the apparent contradiction that quality of care under pay-for-performance has seemingly improved, yet patient health has not? </p>
<p>One reason is the potential disparity between the effectiveness of treatments in clinical trials and the outcomes for patients using the same treatments in the “real-world”. Clinical trials aim to create ideal testing conditions for treatments, often excluding patients on the basis of age, illness or infirmity. These excluded groups – in whom the treatment is effectively untested – typically make up the majority of patients who receive treatment after the trial is concluded. For example, for the major trials of blood sugar control in diabetes, between 49% and 97% of diabetic patients would <a href="http://www.ncbi.nlm.nih.gov/pubmed/23075287">not have been eligible</a> to participate. As a result, evidence from randomised trials may not translate to the wider population, particularly for older and sicker patients.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/127374/original/image-20160620-8889-1uvn331.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/127374/original/image-20160620-8889-1uvn331.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/127374/original/image-20160620-8889-1uvn331.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/127374/original/image-20160620-8889-1uvn331.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/127374/original/image-20160620-8889-1uvn331.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/127374/original/image-20160620-8889-1uvn331.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/127374/original/image-20160620-8889-1uvn331.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Trial results may not apply to you.</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com/cat.mhtml?autocomplete_id=&language=en&lang=en&search_source=&safesearch=1&version=llv1&searchterm=very%20old%20person&media_type=images&media_type2=images&searchtermx=&photographer_name=&people_gender=&people_age=&people_ethnicity=&people_number=&color=&page=1&inline=329417774">Photographee.eu/Shutterstock.com</a></span>
</figcaption>
</figure>
<p>Interventions in clinical trials may also be significantly altered when put into practice. We know from clinical trials that keeping blood pressure and cholesterol at optimum levels and minimising variation over time is beneficial. But QOF indicators only require the most recent measurement to be under the relevant threshold, even if numerous previous measurements were too high. These performance measures bear little resemblance to the interventions in clinical trials that established the benefits of blood pressure and cholesterol control. </p>
<p>To complicate matters further, for patients with chronic conditions, very low levels of some biological parameters like blood glucose are not necessarily an indication of good health and can be associated with <a href="http://care.diabetesjournals.org/content/37/3/634">higher risk of death and other complications</a>. The necessity of creating straightforward, universal performance metrics in pay-for-performance schemes has perhaps oversimplified more intricate clinical relationships.</p>
<p>Medicine is complicated. The behaviour of patients and doctors is complicated. To date, the simple incentives used by national programmes <a href="http://www.ncbi.nlm.nih.gov/pmc/articles/PMC4204491/">haven’t been effective</a> in improving patient health. Yet these schemes are now widespread. It is critical that we find a way to make pay-for-performance work for patients, or else look for better ways to fix healthcare.</p><img src="https://counter.theconversation.com/content/61317/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Ryan receives funding from the National Institute on Aging, part of the National Institutes of Health in the United States.</span></em></p><p class="fine-print"><em><span>Evangelos Kontopantelis receives funding from the NIHR School for Primary Care Research. </span></em></p><p class="fine-print"><em><span>Tim Doran does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Pay-for-performance for doctors works brilliantly … but only in theory.Tim Doran, Professor of health policy, University of YorkAndrew Ryan, Associate professor, University of MichiganEvangelos Kontopantelis, Reader in biostatistics and health services research, University of ManchesterLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/284122014-06-25T09:07:49Z2014-06-25T09:07:49ZTeachers need quality time set aside to keep learning<p>Teachers in England have good access to free courses aimed at improving the quality of their lessons, but many are opting for shorter workshops, rather than the long-term qualifications more common in other countries. </p>
<p>This is the finding of a new set of data released as part of the 2013 <a href="http://www.oecd.org/edu/school/talis-2013-results.htm">Teacher and Learning International Survey (TALIS)</a> of 34 countries, carried out by the Organisation for Economic Co-operation and Development. The survey pulls together comparative data about teacher satisfaction and professional development.</p>
<p>Before leaping into the inevitable “how did we do?” section, there are some caveats. First, this report is labelled as TALIS 2013 and much of the data refers to the 12 month period before that. It is therefore already significantly out of date in many cases. Just consider how <a href="https://theconversation.com/counting-the-costs-of-moving-teacher-training-out-of-universities-23157">much development has taken place</a> in school-based initial and continuing teacher education in that time. </p>
<p>Second, the target sample size in each country was 200 schools in each country, with 20 teachers and one headteacher from each school. The chances are your school or your children’s school was not involved. So this may be a useful comparative tool – on which to base further discussion – but not on which to base policy decisions.</p>
<h2>How did England do?</h2>
<p>I want to start by considering the effects on teachers’ lives of class size. The data is both surprising and obvious. Take a look at these two charts from England:</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/52084/original/dr25kmm9-1403617671.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/52084/original/dr25kmm9-1403617671.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/52084/original/dr25kmm9-1403617671.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=331&fit=crop&dpr=1 600w, https://images.theconversation.com/files/52084/original/dr25kmm9-1403617671.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=331&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/52084/original/dr25kmm9-1403617671.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=331&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/52084/original/dr25kmm9-1403617671.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=416&fit=crop&dpr=1 754w, https://images.theconversation.com/files/52084/original/dr25kmm9-1403617671.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=416&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/52084/original/dr25kmm9-1403617671.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=416&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Teacher’s job satisfaction.</span>
<span class="attribution"><span class="source">Talis 2013, OECD</span></span>
</figcaption>
</figure>
<p>The chart on the left shows teachers job satisfaction measured against the number of disruptive pupils – a clear inverse relationship. But consider the chart on the right, comparing class size and job satisfaction. The average class size in England, according to the TALIS dataset, is 24 pupils. What is surprising here is the lack of variation in the satisfaction measure. </p>
<p>We may have expected that a bigger class size in an average school may mean less job satisfaction, because issues of classroom control can tend to take over from issues of learning. We can only suppose that a class of five pupils or less presents a very different set of problems and conditions for teachers than a class of 26 to 30. </p>
<p>There is rather more variation and interest in the data on teachers’ professional development. There is one chart where England comes out as first on the list: in terms of how much teachers pay for their own development. The TALIS dataset suggests that most teachers in England do not have to pay at all.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/52085/original/c3yjjhsp-1403617722.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/52085/original/c3yjjhsp-1403617722.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/52085/original/c3yjjhsp-1403617722.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/52085/original/c3yjjhsp-1403617722.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/52085/original/c3yjjhsp-1403617722.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/52085/original/c3yjjhsp-1403617722.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=504&fit=crop&dpr=1 754w, https://images.theconversation.com/files/52085/original/c3yjjhsp-1403617722.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=504&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/52085/original/c3yjjhsp-1403617722.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=504&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Professional Development.</span>
<span class="attribution"><span class="source">Talis 2013, OECD</span></span>
</figcaption>
</figure>
<p>However, just take a look at the other markers, and especially at those countries and provinces so often held up as England’s superiors in terms of teaching and results: Singapore, Finland, Alberta (Canada). </p>
<p>The clear spot on the table indicates the percentage of teachers given time for professional development in school time. Singapore and Alberta do rather better here. The black dot indicates the percentage of teachers who received non-monetary support such as reduced teaching time. England is very low in this respect.
The blue dot at the bottom indicates those who received a salary supplement. Again, against those three other countries, England scores the lowest. </p>
<p>If you talk to teachers from these countries, as I have had the opportunity to do, you will find a very different mindset in the way professional development is conducted. There is a focus on individual needs rather than treating the whole staff as a unit. Here is a clear message for future debate: good quality teaching requires giving the teachers corresponding quality time to develop. </p>
<p>Of interest in this data is the relationship between staff appraisal and professional development. In England, the emphasis is moving towards a (potentially) punitive <a href="https://theconversation.com/teachers-remain-divided-on-performance-related-pay-27664">pay-related model</a>. </p>
<p>The TALIS dataset identifies a relationship between the appraisal process and the effect on the individual teacher’s professional development. Where this was the case, then there was an identifiable positive effect on job satisfaction and, reasonably, on performance in the classroom. </p>
<p>In England, the report says “one third fewer teachers … [than average] say they see a moderate or large positive change in their motivation, public recognition, job satisfaction or responsibilities after they receive feedback”.</p>
<p>But there is a highly significant finding in the light of the government’s <a href="https://www.gov.uk/teaching-schools-a-guide-for-potential-applicants">Teaching Schools initiative</a>, which act as centres of excellence for other schools:</p>
<blockquote>
<p>Teachers in England report higher participation rates than average across TALIS countries for courses and workshops (75%) and in-service training in outside organisations (22%), but lower than average participation in more in-depth activities, such as those involving research or formal qualifications. </p>
</blockquote>
<p>The implication here is that course and workshops (often short-term) and external in-service training are shallower, less effective and bring less lasting impact than research-based or accredited professional development courses.</p>
<p>Here is where we might expect to see a change when the next TALIS survey is carried out. For this we can thank <a href="http://www.bera.ac.uk/project/research-and-teacher-education">research</a> and <a href="http://tsalliance.org.uk/?page_id=609">policy measures</a> to emphasise school-based research, together with the perceptible growing enthusiasm for research engagement by so many young teachers in England. As a result, we may hope to see a significant change in the professional development landscape – with more young teachers pushing for school based research and individualised training – and a corresponding positive change in teaching and learning.</p><img src="https://counter.theconversation.com/content/28412/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bob Burstow does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Teachers in England have good access to free courses aimed at improving the quality of their lessons, but many are opting for shorter workshops, rather than the long-term qualifications more common in…Bob Burstow, Senior Lecturer in Educational Leadership & Management, Department of Education & Professional Studies, King's College LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/257752014-04-23T11:33:08Z2014-04-23T11:33:08ZPerformance-related pay won’t motivate teachers<figure><img src="https://images.theconversation.com/files/46825/original/y23sr3q9-1398166206.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Govebusters vs teacher pay reforms. Who will win?</span> <span class="attribution"><span class="source">Rui Vieira/PA</span></span></figcaption></figure><p>This Easter Monday, members of the National Union of Teachers <a href="http://www.bbc.co.uk/news/education-27100733">voted in favour</a> of a motion for strike action this summer. The threat of industrial action reflects <a href="https://theconversation.com/are-the-tables-turning-in-michael-goves-war-on-teacher-unions-25417">an ever deepening rift</a> between teachers and Michael Gove, the secretary of state for education, against a backdrop of <a href="http://www.independent.co.uk/news/education/education-news/what-is-it-about-michael-gove-that-makes-people-hate-him-so-much-7628063.html">unpopular reforms</a> and <a href="http://www.bbc.co.uk/news/uk-politics-26008962">name calling</a>. </p>
<p>Among the most ostracised of these reforms is the dismantling of traditional experience-to-salary structures – to be replaced with performance-related-pay. <a href="https://www.gov.uk/government/news/new-advice-to-help-schools-set-performance-related-pay">Guidance</a> on the changes was introduced in September 2013, with the first pay rises based on performance starting in September 2014. In defence of his reform, Gove argues a link between performance and pay will “<a href="http://www.telegraph.co.uk/education/educationnews/9799356/Michael-Gove-to-confirm-plans-for-performance-related-pay-in-schools.html">make teaching a more attractive career and a more rewarding job</a>.”</p>
<p>Yet Gove, perhaps because he is an avid free marketeer, misses the point. Teachers are not bankers or stockbrokers (or Times editors). They are not seduced by the carrot of ever-increasing financial gain. </p>
<p>Financial gain, on its own, is a self-centred motivator and serves no purpose beyond the temporary gratification that money confers. Teaching, on the other hand, is a mutually rewarding occupation that serves the ongoing interests of both teachers and their students. By imposing economic sanctions on this precious relationship, we corrode the very meaning of teaching itself.</p>
<h2>A bad idea</h2>
<p>To understand why this is the case, it is important to understand how humans are motivated. We engage in certain activities not only for their tangible outcomes, but also for their implicit satisfaction. Harry Harlow, a primitive psychologist, <a href="http://psycnet.apa.org/journals/xge/40/2/228/">demonstrated</a> this over half a century ago when he observed that the satisfaction monkeys derived from mastering a maze task was so strong that they would even forgo food to do so. </p>
<p>This is where neoliberal ideology and human motivation begin to conflict. Motivation is not a commodity to be traded for the highest price. It originates from within and necessarily antagonises with any outside influence. Just ask teachers why they teach, they will tell you that they value the benefits and personal satisfaction that the job confers – it isn’t all about the money.</p>
<p>This, intrinsic motivation, is particularly important for teachers. It’s the motivational force that <a href="http://intrinsicmotivation.net/SDT/documents/2005_IsenReeve_MO.pdf">sustains their enjoyment</a> in the face of external pressure and underpins their <a href="http://www.ww.selfdeterminationtheory.org/SDT/documents/2008_Grant_JAP_ProsocialMotivation.pdf">extra-curricular</a> support for students. More than this, though, intrinsic motivation gives teachers impetus to engage in energetic and creative thought processes that enhance the quality of their teaching provision. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/46826/original/p5qndhpr-1398166426.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/46826/original/p5qndhpr-1398166426.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/46826/original/p5qndhpr-1398166426.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/46826/original/p5qndhpr-1398166426.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/46826/original/p5qndhpr-1398166426.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/46826/original/p5qndhpr-1398166426.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/46826/original/p5qndhpr-1398166426.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">It won’t work on teachers.</span>
<span class="attribution"><span class="source">nist6dh</span>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>Research from other professions shows us that teachers who teach from a place of personal satisfaction are likely to be <a href="http://www.ww.selfdeterminationtheory.org/SDT/documents/2007_OtisPelletier_JASP.pdf">healthier</a>, <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1559-1816.2002.tb02065.x/abstract">more satisfied, less inclined to burnout</a> and, importantly, <a href="http://m.selfdeterminationtheory.org/SDT/documents/2004_BaardDeciRyan.pdf">perform better</a> than those who do not. Why, then, would we want to discourage teachers from harnessing their own motivational resources? </p>
<p>This is the most pernicious of Gove’s criticisms. He assumes that when self-interest is propelled upon people it would act in the same way markets do – by motivating. Yet, inconveniently, contemporary research supports the seminal work of Harlow and suggests that this ideology is only correct when <a href="http://www.bos.frb.org/economic/wp/wp2005/wp0511.pdf">tasks require little cognition</a>, or <a href="http://www.oecd.org/pisa/50328990.pdf">are poorly paid in the first place</a>. </p>
<p>When tasks require more than a small degree of cognitive activation, and pay is perceived as equitable relative to living costs, rewards are in fact demotivating. In a <a href="http://www.rug.nl/gmw/psychology/research/onderzoek_summerschool/firststep/content/papers/4.4.pdf">synthesis</a> of 128 controlled experiments, consistent negative effects of rewards were reported on intrinsic motivation. These observations may not be intuitive to a society inculcated by economic discourse, but are in line with modern approaches to motivation which emphasise the salutogenic role of self-determination.</p>
<h2>Impacts on students</h2>
<p>And it isn’t only teachers that are harmed by performance-related pay. Children’s learning and development in school may also suffer.</p>
<p>It is well documented that when teachers feel pressured to produce certain outcomes the reaction is, typically, to pass along that pressure to their students in the form of control – to elicit short-term achievement. This may seem a somewhat controversial hypothesis, but it is supported by <a href="http://www.selfdeterminationtheory.org/SDT/documents/2002_PelletierLevesqueLegault_JESP.pdf">evidence</a>. </p>
<p>Worryingly, there is also evidence to suggest children’s learning is not helped by teaching practises that emphasise pressure to achieve. In an exemplary American <a href="http://selfdeterminationtheory.org/SDT/documents/1984_BenwareDeci.pdf">study</a>, researchers had college students study science material with either the aim of teaching it to somebody else or with the expectation of being tested on it. Results revealed that those who learnt the material to teach, relative to those who learnt to take a test, demonstrated higher creative thought and better conceptual learning. </p>
<p>Yet it isn’t only children’s learning strategies that are undermined by pressure – their tendency to engage in school work is also weakened. Researchers in Israel, for instance, <a href="http://selfdeterminationtheory.org/SDT/documents/2002_AssorKaplanRoth_BJEP.pdf">found</a> that pressuring behaviours by teachers made children less likely to persist with a task in the face of adversity. Hence, pressure is a double edged sword that instigates short-term effort at the expense of perseverance.</p>
<p>Now, here’s the rub: attempting to commoditise motivation treads a dangerous path. It replaces the high-quality intrinsic motivation that teachers bring to the classroom with poorer quality extrinsic motives that, as we have seen, create conflict and pressure. </p>
<p>In this way, performance related pay for otherwise intrinsically motivated occupations, such as teaching, is an unnecessary and counterproductive initiative. It gambles on the utility of self-interest for improving standards, in the face of mounting evidence to the contrary. This isn’t a liberal conspiracy, Mr Gove, its a simple case of the evidence disagreeing with your deep-set ideology.</p><img src="https://counter.theconversation.com/content/25775/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Thomas Curran does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>This Easter Monday, members of the National Union of Teachers voted in favour of a motion for strike action this summer. The threat of industrial action reflects an ever deepening rift between teachers…Thomas Curran, Research Fellow in Sport, Exercise and Well-Being, University of GloucestershireLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/234422014-02-20T05:55:24Z2014-02-20T05:55:24ZCan Carney provide the spark to fix bank bonus inequities?<p>Mark Carney, the governor of the Bank of England, wants to change the way bankers get paid in order to discourage them from taking excessive risk or behaving badly. He has suggested that a big part of the <a href="http://www.theguardian.com/business/2014/feb/16/mark-carney-bankers-bonuses-deferred">remuneration for senior staff should be spread over a longer time horizon</a>. He is not alone on either of these suggestions, of course, but the hope must be that his intervention sparks immediate progress for this hugely important change, for the greater health of society as much as for the institutions at the heart of it.</p>
<p>Banks often argue that it is necessary to offer large rewards to retain talent. This has been a repetitive answer to an equally recursive question on compensation. But this depends on whether the talents in question are acting in their own interest or that of the shareholders. </p>
<p>As academics, we always refer to the effective mechanisms for value creation for the shareholders, and pay has been the main way of getting staff to deliver that. In fact, it has been for several decades the central plank of “agency theory” which attempts to describe how to align the relationships between these discrete groups in banking and other businesses.</p>
<p>But clearly, this is not really how it all turns out. </p>
<p>We have ended up bailing out banks with taxpayers’ money – money that could otherwise be diverted to healthcare and education. And agency theory looks broken when you consider that Barclays <a href="http://www.thisismoney.co.uk/money/news/article-2556558/Barclays-hikes-bonus-pool-10-2-4bn-annual-profits-drop-32.html">just paid out £2.4 billion in group bonuses and just £860 million in dividends</a> to its owners.</p>
<p>One study estimated that between 2000 and 2008, the CEOs of Bear Stearns and Lehman Brothers – both of which collapsed on the eve of the financial crisis in 2008 – received cash from bonuses and share sales of about US$388 million and US$541 million respectively, with the aggregate cash of about US$1.4 billion and US$1billion to the top five executives in each firm, respectively. The report concludes that the firms’ performance-based compensation failed to produce a good alignment of executives’ interests with <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1513522">long-term shareholder value</a>. Instead, the design offered the executives substantial opportunities to take large amounts of compensation based on short-term gains and retain it even after the drastic reversal of the two companies’ fortunes.</p>
<h2>Achieving balance</h2>
<p>So executives have had an incentive to boost short-term results even if it means an excessively high risk of an implosion at some point in the future. But fixing it isn’t a zero-sum game, and nor is it just a problem in the UK. At a referendum in November, Swiss voters <a href="http://www.bbc.co.uk/news/business-25076879">rejected a measure</a> which would have capped executive compensation at 12 times that of the lowest paid worker. Fears over international competitiveness won out over advocates for a more balanced way to distribute pay. Similar conversations have studded the political debate in Germany too.</p>
<p>Of course, the relationship between pay and performance should not be the only way to assess whether bankers are overpaid. We should seek another point of reference, otherwise we would look at the symptom rather than the real disease. </p>
<figure class="align-left zoomable">
<a href="https://images.theconversation.com/files/41948/original/t5wqnrfc-1392802146.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/41948/original/t5wqnrfc-1392802146.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/41948/original/t5wqnrfc-1392802146.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=483&fit=crop&dpr=1 600w, https://images.theconversation.com/files/41948/original/t5wqnrfc-1392802146.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=483&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/41948/original/t5wqnrfc-1392802146.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=483&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/41948/original/t5wqnrfc-1392802146.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=607&fit=crop&dpr=1 754w, https://images.theconversation.com/files/41948/original/t5wqnrfc-1392802146.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=607&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/41948/original/t5wqnrfc-1392802146.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=607&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">From fairer times?</span>
<span class="attribution"><a class="source" href="http://www.flickr.com/photos/93416311@N00/4668511159/in/photolist-87xkHH-a5BrqE-bXivJs-83uwi5-89vVsp-89vUXK-a6PCfx">Tim Green</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>A better way to look at this issue is to adopt the viewpoint of what “regular” folks from different parts of the society earn. The public does not care if banker pay is sensitive to performance. Instead, people care about fairness – why do executives earn so much while others are paid so much less? After all, the row over <a href="http://uk.reuters.com/article/2014/02/11/us-barclays-earnings-idUKBREA190ES20140211">Barclays’ latest pay decision</a> is not so much about it paying £2.4 billion in bonuses (a 10% increase from last year); but more about cutting 12,000 jobs at the same time. </p>
<p>According to Bloomberg, the top investment bankers in the UK <a href="http://www.bloomberg.com/news/2013-11-29/eu-s-highest-paid-bankers-in-u-k-as-bonuses-exceed-planned-caps.html">received on average a total compensation of £1.5 million last year</a>. At the same time, the median pay for nurses was just above £31,000. Bank CEOs can talk at length about holding on to talent and competing in an international market place, but the public will instinctively compare them. And they will instinctively ask if it is fair that nurses, who dedicate their work to the benefits of the public and society, are paid so much less than executives whose primary constituency is often the shareholders. </p>
<p>The further question is why a banker, who, based on the experience of the past few years, has the potential to cause potential widespread societal damage, can be so much better paid a nurse, who is unlikely to create social harm of similar magnitude. You can take the debate still further when you consider that a <a href="http://www.ifs.org.uk/comms/comm124.pdf">typical household in Britain has an income of around £16,000</a>, which is grossly insufficient to cover utility bills and mortgage payment, and leaves no money to pay for other living expenses. </p>
<p>Taking all this into account, we would like to ask the following question: what is to become of a society in which the very rich do not share a common destiny with the vast majority of the population? The broader motivation in this case must be to discourage high disparity between social classes, rather than just a debate within the banking industry.</p>
<h2>Home truths</h2>
<p>We believe that paying bankers over a longer time horizon is insufficient; government needs to do more. For one, excess rewards should be clawed back when a bank suffers losses and this requires a change in performance measurements. </p>
<p>Another way is for the government to come up with more stringent regulation. One of the reasons why Canadian banks have emerged from the financial crisis relatively unscathed is due to its regulatory environment, which includes the imposition of the minimum capital requirements significantly above those demanded by the <a href="http://www.cml.org.uk/cml/policy/issues/721">Basel II</a> international accord. The Canadian government also plays an important role in ensuring the stability of the banking system as it continuously renews and monitors the banking market.</p>
<p>Certainly, no business likes more regulation. But when imposing more can create more fairness in the society, it must be worth considering. After all, our society is not just about current economic gains; it is also about creating a more harmonious future and Carney, as a good Canadian, should know this very well.</p><img src="https://counter.theconversation.com/content/23442/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Esposito does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article. They also have no relevant affiliations.</span></em></p><p class="fine-print"><em><span>Terence Tse does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Mark Carney, the governor of the Bank of England, wants to change the way bankers get paid in order to discourage them from taking excessive risk or behaving badly. He has suggested that a big part of…Terence Tse, Associate Professor of Finance, ESCP Business SchoolMark Esposito, Associate Professor of Business and Economics, Grenoble École de Management (GEM)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/39122011-10-24T02:19:32Z2011-10-24T02:19:32Z‘Two strikes’ law for shareholders, but will it curb executive pay?<figure><img src="https://images.theconversation.com/files/4752/original/Strike_one.jpg?ixlib=rb-1.1.0&rect=60%2C37%2C1959%2C1266&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Two strikes - a term borrowed from baseball, now being applied to Australian executive pay.</span> <span class="attribution"><span class="source">EPA/Arleen Ng</span></span></figcaption></figure><p>Australia’s new “two strikes” law giving shareholders more power to curb excessive executive pay packets, promises to shake up some businesses.</p>
<p>Homewares company <a href="http://www.smh.com.au/business/twostrikes-policy-hits-home-20111020-1ma8u.html">GUD Holdings has already been hit with a protest vote</a> from 42% of shareholders over the company’s remuneration report, under the new legislation introduced in July.</p>
<p>Under the new amendment to the Australian Corporations Act, if 25% or more of votes cast at two consecutive AGMs oppose the adoption of a remuneration report, then the company must formally respond by asking all board members except the managing director to stand for re-election within 90 days.</p>
<p>In addition, key management personnel whose remuneration is disclosed in the remuneration report are excluded from voting, ensuring those with an obvious interest in the outcome cannot vote.</p>
<p>So businesses have been put on notice.</p>
<h2>Executive pay </h2>
<p>There are few more controversial issues than executive pay.
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/4753/original/occupy_wall_st.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/4753/original/occupy_wall_st.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=595&fit=crop&dpr=1 600w, https://images.theconversation.com/files/4753/original/occupy_wall_st.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=595&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/4753/original/occupy_wall_st.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=595&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/4753/original/occupy_wall_st.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=748&fit=crop&dpr=1 754w, https://images.theconversation.com/files/4753/original/occupy_wall_st.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=748&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/4753/original/occupy_wall_st.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=748&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Occupy Wall Street protesters.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure>
In the US, the Occupy Wall Street movement, with its banner of “we are the 99%” has been vocally critical of Wall street executive pay packages.</p>
<p>Here in Australia, Qantas chief executive Alan Joyce found himself in the firing line for his large pay increase despite a damaging industrial dispute.</p>
<p>Last week, the Australian Shareholders Association indicated <a href="http://www.theaustralian.com.au/business/companies/asa-to-oppose-pay-changes-as-wesfarmers-moves-to-lower-bonus-hurdle/story-fn91v9q3-1226159646827">it would oppose the remuneration package of Wesfarmers chief Richard Goyder</a> and financial officer Terry Bowen at the company’s AGM in November.</p>
<h2>Non-binding vote</h2>
<p>Since 2005, Australian shareholders have had the right to vote on the remuneration report of their companies at an AGM. </p>
<p><figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/4743/original/goyder.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/4743/original/goyder.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=900&fit=crop&dpr=1 600w, https://images.theconversation.com/files/4743/original/goyder.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=900&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/4743/original/goyder.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=900&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/4743/original/goyder.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1131&fit=crop&dpr=1 754w, https://images.theconversation.com/files/4743/original/goyder.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1131&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/4743/original/goyder.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1131&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Wesfarmers’ chief, Richard Goyder faces shareholder displeasure.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure>
But as this has been an advisory, non-binding vote, it has widely been viewed as lacking teeth.</p>
<p>The tougher Australian laws parallel similar moves in the Netherlands, Norway, Sweden and the United Kingdom which have responded to public outrage about executive pay levels.</p>
<p>The US has also introduced similar legislation effective from the 2011 proxy season in the wake of public concern about the role of excessive remuneration in the global financial crisis. </p>
<h2>New research </h2>
<p><a href="http://www.sciencedirect.com/science/article/pii/S1815566911000130">Our new research</a> backs the idea that shareholder voting is an effective way to discipline boards over unsatisfactory executive pay arrangements. </p>
<p>Using a sample of 240 ASX listed firms between 2001 and 2009, fellow UQ researchers Peter Clarkson, Shannon Nicholls and I investigated the pay-for-performance relationship and its effect on governance.</p>
<p>Pay-for-performance is an important metric because it measures how much executive pay changes or varies with firm’s performance. That is, it captures the incentive effect of the remuneration structure. </p>
<p>Not surprisingly, a weak pay-for-performance relationship is a focus for shareholder dissent. </p>
<p>Research around the effects of the UK advisory vote, for instance, showed shareholders were more likely to vote “no” on remuneration packages that are excessively high, had a weak pay-for-performance link or were greatly dilutive.</p>
<p>We found the average “no” vote on the remuneration report for our sample has increased steadily from 5.4% in 2005 (the first year of the vote) to 11.4% in 2009. </p>
<h2>Pay-for-performance </h2>
<p>The pay-for-performance relation strengthened across the nine year period, with enhanced remuneration disclosure and the non-binding shareholder vote the most important avenues to achieve greater monitoring and greater shareholder control of the executive remuneration process.</p>
<p>Our research findings have important implications for Australian regulators and company directors. Shareholders are increasingly voicing their concerns about excessive executive pay and have used the advisory vote effectively to flag inappropriate remuneration packages to the board.</p>
<p>Our research suggests that boards of directors have listened to their shareholders and have adapted pay packages to be more in line with shareholder expectations. </p>
<p>This season, the two-strikes rule gives shareholders an even stronger say on pay and there is every reason to believe that shareholders will use it. </p>
<p>For their part, company boards need to listen closely to what shareholders have to say about the remuneration report and respond accordingly. </p>
<p>Transparent and careful disclosure about remuneration is more critical than ever this reporting season if company boards are to avoid “striking out” with their shareholders.</p><img src="https://counter.theconversation.com/content/3912/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Julie Walker does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Australia’s new “two strikes” law giving shareholders more power to curb excessive executive pay packets, promises to shake up some businesses. Homewares company GUD Holdings has already been hit with…Julie Walker, Associate Professor in Accounting , The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.