The purpose of this study is to investigate performance related pay (PRP) and its viability within public sector education. The main theme of this study will be centred on the new government initiative to introduce performance related pay in schools through the Threshold system. This has been recently introduced as part of a new performance management scheme as outlined in the government green paper ‘Teachers: Facing the challenge of change’. To aid this dissertation research has taken place at three different types of school across England.

This has resulted in an extensive collection of questionnaires, interviews and literature. The study will begin with Chapters 1 and 2 that will first analyse the current state of and use of PRP as we enter the 21st century. It will then, in Chapter 3, analyse PRP in a public sector context with reference to commonly used implementation models. The main part of the report will then take part in Chapter 4 where theory and personal research will be brought together to analyse the new government initiative to introduce PRP in schools across England and Wales.

Performance related pay is becoming an increasingly popular way to distribute wages in the public sector. This study proposes to investigate whether the fundamental principles of performance related pay are suited to areas such as non profit organisations, where performance is based on subjective judgements. This study will place special emphasis on the new performance related pay system that is being introduced into public sector education. Performance related pay has been a popular method of linking productivity to employee’s wages since the first organised business structures began.

This system can find many of its roots in Taylor’s ‘Scientific Management’ theory developed in the USA the late 19th century. Throughout the 19th and 20th centuries it became increasingly popular and began to be introduced into services. Now as we enter a new millennium we find it commonplace in private and public sector organisations alike. The implementation of performance related pay is not easy in any type of organisation, however, the system is by far the most challenging to implement for public sector non-profit organisations.

It is commonplace to hear ‘complaints about difficulties measuring (public sector) performance, about diverse and contradictory objectives, unreliable measurement tools, and lack of resources governments are willing to invest in new management techniques (Rutgers University, 1997). Different methods of Performance related pay have been introduced in the private sector through institutions such as the health sector, social services, and even education.

Public sector implementation has, however, met with different success with several attempts failing through inability to provide, for example, funding and fair measurement techniques and the inability to cope with the capacities of the private sector. This provides the opportunity to investigate the implementation of performance related in the public sector. This study will concentrate primarily on the newly implemented method of performance related pay in the education sector through Performance Management and the Threshold system.

The new system is set to introduce pay thresholds for key career stages, and guidance on creating modern flexible career paths supported by continuing professional development and fair reward (DfEE 2000). Firstly there will be an initial overview of what constitutes performance related pay. This will be taken primarily from the private sector, which Is where the public sector has drawn many of it’s ideas from over the years in their design of their pay systems. This will then be used in the evaluation of performance related pay systems in schools.

Additional research such as interviews, related studies and surveys will also be drawn in taking into account joining with the aforementioned theory in evaluating whether performance related pay is a viable option in public sector education. In recent years Linking pay to performance has become an increasingly popular way to distribute wages in both public and private sectors. There are several reasons of the increased attractiveness of the Performance related Pay technique. The most obvious is reasons are set in response to the increasing competition in today’s marketplace.

The sheer intensity of doing business throughout the 20th century has led to businesses constantly seeking new ways to both increase production and reduce overheads. This has led to a reward based economy centred on the motivation of staff though cash incentives with the aim of keeping up with, or exceeding their competitors. Much of Performance related pay’s origins could be found in the 20th century’s increasing employment in the finance sector, an area in which payment or reward was linked directly to performance.

Another reason is the shift from a public sector to private sector economy. This created an enterprise culture that advanced forms of performance management to a new level. Many of today’s accepted management practices can find their roots in the private sector, the increasing size of this has provided huge management advances. The general trend is then for the Public sector to adopt techniques that have originated in the private sector.

However, due to the differences inherent in the public and private sectors it is important to investigate whether it is feasible to transfer performance related pay systems across from the private to the public sector. Finally it is important to mention the effect of declining inflation on the use of performance elated pay. When inflation was high in the late 70’s and Early 80’s merit increments could become inconsequential. When merit pay ‘generally falls between the range of 3-10% of the individuals’ salary’ (Fletcher 1993) inflation rates of around 20% made this sum become very small increase in real terms.

Throughout recent years with inflation rates decreasing to single figures it has become much easier to award noticeable pay increases based on performance. This chapter will continue with the aim of explaining the principle of performance related pay along with its advantages and disadvantages. Then the issues surrounding the increased use of performance related pay in the public sector, in particular in Education will be studied, with the aim of explaining why this is becoming an increasingly attractive option as we enter a new millennium.