Perception of Performance Management Practice: A Sectoral Comparison
Performance-based Human Resource Management: the internal HR policy or systems that mandate the use of individual performance evaluation in making important personnel decisions regarding pay increase, promotion, and awards.
Internal competition: competition among individual employees within an organization, not among organizations.
The emergence of New Public Management (NPM) has altered how government is operated. One of the notable changes is how public organizations manage their human resources, especially how they reward employees. Traditionally, governments have rewarded their employees based mostly on tenure, assuming that tenure reflects the ability necessary for conducting tasks. This assumption is somewhat rooted in the notion of career civil service. That is, government personnel are best equipped with the professional skills and knowledge specialized for the government context. Hence, the HRM practice for career civil service aims to hire employees mostly at the entry level and train them on the job as they move forward along the internal promotion ladder. However, the NPM challenged this notion and increased the number of co-optation (Kim 2002). Since 1999, the South Korean government have recruited experienced workers from the private sector for upper middle management positions. Currently, about 10% of the public managers in municipal governments are co-opted from outside of the government (Park et al. 2002). Also, it dramatically changed how their employees are held accountable and rewarded. Governments implanted the performance-based reward system which has been typically the HRM practice of the private sector.
Since the practice of performance-based HRM is somewhat foreign to the traditional management principles of government, scholars and practitioners alike opposed the implantation of it, and this controversy is still ongoing. One of the main arguments of the skepticism is that performance-based HRM will increase competition among employees which may serve to undermine certain aspects of performance (Bloom 1999). Admittedly, there has been a competition under the traditional HRM system as well. However, under the traditional system, public employees would usually compete for promotion. The extent of internal competition was limited since promotion is not only tenure-based but also occurs intermittently. Given that an employee is considered for promotion only after she serves the organization for a considerable period of time, the frequency and magnitude of working in a competitive environment were far lesser than under the new system of performance management.
In fact, however, infusing competition is one of the prescriptions of NPM. The proponents of NPM believed that competition promotes the revitalization of public organization. Osborne and Gaebler (1992), one of the pioneers of the movement, viewed that the inefficiency of government organization is attributed to the absence of competition. Although they did not explicitly endorse competition at the individual level, they certainly proposed the extensive reform toward performance-based HRM, such as performance-pay. Also, they proposed to benchmark private sector practices. Competition is indeed a key element of the performance-based HRM that has enabled private sector organization to accomplish greater productivity than public ones. Many private firms have had performance appraisal system limiting the proportion of employees to be rated as top tier performers (Cohan 2012), which is intended to increase competition among employees, and eventually to make the entire workforce motivated.
This chapter discusses how the South Korean employees perceive the government reform toward performance-based HRM with a particular focus on internal competition among its employees. This study compares these perceptions, including the levels of felt competition, in public sector organization to that of the private sector. This comparison will provide an insight on how sectoral difference plays out in adopting the performance-based HRM system in the public sector, and whether the public sector reform has accomplished the intended goal of creating competitive work environment.
The Reform of Performance Management in the South Korean Government
Since the economic crisis in 1997, the South Korean government have extensively reformed their governments at all levels (Kim 2000) embracing the ethos of NPM. Given this context of South Korean reform, it was a fight for survival in an emergency, rather than a strategic choice for improving efficiency. As such, the scope and magnitude of the reform were far greater than other developing countries in which the principles of NPM are adopted to modernize their government system.
Performance-based HRM can be practiced in many ways. Although using the information as to individuals’ performance for personnel decisions constitutes the central element of performance management, the effectiveness of the HRM practice as a motivating tool depends on the following two institutional elements. The first is securing a considerable difference in reward between high and low performing employees. In many of today’s private firms, the salary scale is designed to create significant differentials between employees with different task performances, which serves to promote competition among them (Samnani and Singh 2014). Many of these companies also have an internal policy mandating to eliminate a certain proportion of low performing employees annually. Under this policy, employees are alert to the risk of layoff, which allegedly makes the entire workforce remain motivated. The second involves the use of relative evaluation scheme. In most private firms, employees’ performance is assessed in consideration of their colleagues’. Also, the number of employees who can receive certain performance grades is limited. Under this scale, even if all the employees perform reasonably well, someone has to be forced into the poor grade band. The effect, of course, is that employees try to work harder than their competitors.
Performance pay scale in South Korean government employees (2018)
The Career Choice of Public Officials in South Korea: Competitive Personality
Individuals’ personality significantly influences their job choices. People want to choose the workplace in which they can enjoy working and, they believe, perform well. Scholars of public administration have found that those who are motivated by achieving public value tend to choose the career in the public sector (Perry and Wise 1990). Another significant, yet unexamined, individual difference affecting career choice is the preference for competition. Scholars have found that people have a different propensity for competing with others (Collier et al. 2010). Some enjoy the tasks that entail excelling others in a competitive task, while others feel the greater psychological strain in a competitive environment.
Public sector employees are likely to possess the propensity of avoiding competition rather than pursuing it. Scholars have found that public employees generally prefer job security (Lee and Choi 2016). Given that job security refers to the absence of the risk related to losing the status of employment, this reflects the risk-aversive propensity of public employees. Likewise, the tendency to avoid the risk of losing their status in their workplace is commensurate with the tendency to avoid competition in the workplace. Thus, the propensity for competition will also be less for public employees than for private sector counterparts.
Admittedly, it is impossible to preclude the possibility that this difference in competitive personality can be attributed to organizational socialization, rather than pre-entry personality difference. This possibility may be plausible given that, as Bozeman and Kingsley (1998) found, risk orientation is dependent on organization-specific characteristics, rather than the sector itself. However, considering the particular context of the South Korean labor market, this difference is more likely to indicate the risk-aversive propensity of public sector employees. Some major multinational companies such as Hyundai and Samsung take up the greatest portion of the South Korean national economy. According to recently published statistics, the ten biggest companies produce 44% of the Gross Domestic Product of South Korea. Also, the salary differential of the workers between these international conglomerates and ordinary mid-size companies in South Korea is much greater than in any other countries. According to Noh (2018), the average monthly salary for the workers in Korean large scale companies (with over 500 employees) 6097 USD, while that of the comparable US large scale firms was 4,736 USD. Calculating these figures as a proportion to the national GDP, Korean large company workers are receiving 1.91 times more than the US counterparts. Workers in Korean medium-sized companies earn only 57% of the salary of the large-scale firm workers, while in the USA, the workers in the medium-sized firms earn 79%. Therefore, working for these major firms is a great aspiration of Korean college students.
In spite of this, becoming a public servant in South Korea has constantly increased over the last several decades after the economic crisis in the 1990s. Accordingly, passing the national exam for hiring public servant has become increasingly competitive. In 2017, the South Korean government hired 4,910 public employees among 228,368 applicants (Source: The Ministry of Personnel Management (http://www.mpm.go.kr/mpm/)). The reason why Korean students prefer jobs in the public sector is clear. Compared to the employees in those top companies whose average retirement age is around 40 (According to Sung and Ahn (2006), the point of centraflexure in employment rate curve in South Korea appears around 40–44 in age, indicating that the national employment rate is at its peak at the age of 40–44 and decreases afterwards.), the employment of Korean public employees is guaranteed until 60 under the law. In this sense, once hired, public employees are insulated from competition in the workplace and the resultant loss of employment. Therefore, given that public officials in South Korea had aspired to get a job in the public sector in spite of the competitiveness and of the considerable pay discrepancy, the finding is likely to reflect that public employees in South Korea have much less preference for risk-taking and competition even before socialized after entry.
The difference in the preference for competition resulted in greater collective resistance of South Korean public employees to adopting the performance-based HRM. As the South Korean government gradually changed the HRM regulations to increase the magnitude of competition in public organizations, the Korean Government Employee Union have protested against the policy change. The Korean Teachers and Educational Workers’ Union also joined the collective action. As a strategic resistance to the performance-based HRM, individual public employees comply with the policy on the surface but are attempting to sabotage on it. One of the typical examples of the sabotage includes distributing the best performance grades on a rotation basis (Han 2010). As a result, the intended goal of the reform toward performance-based HRM has rarely been achieved.
The Practice of Performance Management
Despite the considerable efforts made by the South Korean government, the performance-based reward system in public organizations is significantly constrained. This is because the measures that public organizations can take to increase competition are inherently limited due to the nature of financial allocation. Public organizations hardly secure enough financial resources to provide considerable extra compensation for high performers. Private firms with employees of higher productivity will result in greater financial return for the organization. In such a case, it causes no controversy to distribute the additional revenue to their employees depending on their contributions. To the contrary, the government budget is usually not linked to their performance. And it is politically infeasible for the government to persuade the citizens of increasing the labor expenditure even if the quality of public service increases (Perry et al. 2009). South Korean government coped with this constraint by designating a larger portion of employee paycheck as performance-contingent, and at the same time, decreasing the amount of base pay.
Scholars have noted that performance indicators in public organization are less accurate due to the greater goal ambiguity. However, the survey did not confirm such a notion. The perception of appraisal accuracy for public employees (3.07) showed no significant difference from that of private sector employees (3.09). The difference was negligible and statistically non-significant (t = 0.27, p = 0.79). Goal ambiguity does not appear to be a significant factor in the perception of appraisal accuracy. Although the goals of private firms are simple and clear, the individual contribution to the achievement of organizational goals is ultimately evaluated based on supervisors’ subjective assessment. Hence, the issue of performance appraisal accuracy appears to depend on other factors than the sector, such as the quality of rater training, the participative nature of goal setting, etc.
Employees’ Feeling of Competitiveness
The results appear to indicate that to infuse competition by implementing performance-based HRM, both of the two conditions should be met: evaluating employees with a relative scale and making a meaningful difference in rewards. Although the South Korean government have made an extensive reform effort to make their employees stimulated by infusing competition, such effort does not appear to have come to sufficient fruition. One of the main reasons for that may be because due to the political nature of budget allocation and the resistance from the public, public organizations were not able to create a meaningful difference in reward, thereby did not offer an attractive incentive. Another reason may be because due to the strong job security protected by the law, it was not possible to provide a significant penalty for low performers. Unlike private sector organizations where termination of employment is relatively easier, public organizations are also constrained in terms of the measures to be taken to deal with low performers. Thus, simply implanting the private sector practice without reforming the entire system did not yield satisfactory consequences.
The propensity of employees, as well as work environment in government organization, is distinguished from those in the private sector organizations in many ways. In this vein, several specific points can be made. First, public sector employees have a lower degree of competitive personality than private sector counterparts. Although this may be due to the organizational socialization after entry, this is likely to reflect in large part the initial differences of attitudes toward job-related risk between prospective private and public sector employees. Their personality must have affected their career preference of whether they work for a private firm or public organization. Such difference has resulted in a considerable difference in the acceptance of the HRM reform toward performance-based paradigm.
Second, although South Korean governments have made considerable efforts to benchmark private sector HRM practices, the degree of incorporating the principle of meritocracy and improvement by competition into the internal policy arrangement has not up to the private sector standards. The degree to which employees are evaluated with the relative scale is relatively similar in both sectors of employees. However, the degree of the differential in reward and sanction was far greater in private sector organization than public ones. Considering that South Korean government have made greater efforts to reform their HRM system extensively than other countries, this should be due to the fundamental sectoral differences discussed previously, such as the political infeasibility of increasing the financial allocation for labor in the public sector (Perry et al. 2009).
Third, accordingly, the South Korean government does not appear to have achieved vitalizing public employees by infusing competition among its employees. The survey result reveals that, despite the extensive reform efforts of the government, South Korean public employees are experiencing a smaller degree of competition in the workplace compared to private sector employees.
All these points to the argument that the extent to which performance management can infuse competition among employees is significantly limited in the public sector. Is this indicating the absurdity of performance-based HRM in the public sector? The answer is not straightforward. At least, it is premature to make any firm conclusion. For instance, it may depend on the purpose of performance-based HRM. If the government aims to encourage high performers with the adoption of performance-based HRM, the practice may have failed to do so. However, If the main purpose of the reform was to stimulate those who have been inert due to the absence of sanction, it can be reasonably said that the reform may have had some level of achievement: it may have increased the motivation of low-performing individuals when compared to the past when there was no such reform effort. One of the implications of the Korean case may be that managers intending to reform their HRM systems should have a realistic expectation and understand a limitation.
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