"It was a traumatic and worrying time," recalls Buxton. "We were moving away from relatively loose target setting, and trying to seek out and develop the pockets of good practice that we knew existed in the bank. The explicit link to pay, of course, highlighted some people's worries." With hindsight, personnel director Bill Gordon believes that it might have been better to tackle the appraisal system first, and attach the link to pay later. To try to dispel concerns, the bank launched an exhaustive consultative process.
The scheme that emerged was very different from its predecessor. Loose target setting has been replaced by "performance contracts" reflecting all key aspects of a manager's job: everything from contribution to current profits to marketing - for future profits - and managing staff. The old five-box rating was rejected in favour of three: "met", "exceeded" and "fell short".
Ideally the contract should be agreed rather than imposed. "It is an interactive process," explains Gordon. "Broadly, the boss defines what the key responsibilities or outputs of the job are, and the subordinate identifies how they should be met. The discussions add to people's understanding of what the bank expects of them, and allows them to contribute realistic ideas about how targets can be achieved."
All 10,000 managers in the UK bank are now covered by the scheme. Senior executives have also adopted it for themselves, and other parts of the group are thinking of following suit.
Expectations about the managers' scheme are running high. In the next 18 months to two years, predicts Buxton, it should be possible to see the results in terms of improved performance. That could lead to the performance-related element becoming a more significant part of a manager's pay: "As time goes on, I hope also that we will be able to widen the gap between those who perform and those who don't. At the moment these differentials are too small."
In the meantime there are admitted to be risks attached to making so radical a change in the middle of a recession. "It is difficult to start something like this when external factors are so powerful," concedes Gordon. "But we need to learn how to take them into account in assessing performance. At least we are thinking hard about it. We should be better placed to grapple with performance issues in hard times than those companies whose systems are just an excuse to pay out more money."
While Barclays has only lately taken the plunge, Legal and General has had a performance-related pay scheme in place for over five years now. The L and G system could therefore be called mature, although according to Geoff Tucker, personnel director for the financial services part of the group, it is "certainly not out of date". It takes five years for a system to settle down, he argues. "It is only recently that people have learned to use the L and G system well, even though we have made few modifications over the years."
L and G executives are unusually confident that they have got it right. "We have actually changed the culture," claims Tucker. Other managers report that the appraisal process has made people more work oriented and better focused on objectives. Employees feel the need to achieve more, and know that they cannot hide as much.
Appraisal at L and G, as described by Tucker, used to be fairly crude. "It was low level, almost a blank sheet of paper with boxes." The change came with top management's decision to introduce performance-related pay, starting with the chief executive. Pressure to apply the principle at other levels is said to have come from the managers. And before performance-related pay could be introduced, the company needed a "respectable" appraisal scheme.
The system affects about one third of the 6,500-strong workforce in the core business. "It is right for those whose jobs have objectives," explains Tucker. "This group is now beginning to see that objectives are now just about assessments but about running the business." In general insurance, for example, personnel work to a 12 monthly cycle, so it is fairly straightforward to arrive at and assess objectives. On the other hand, it is far from easy to establish objectives for life and pensions, and appraisal in these departments tends to be as complicated as the businesses themselves. Although "the right feel" is there, Tucker accepts that "it may never be perfect". The document used in the appraisal process sets out the main responsibilities that go with the job, and the individual's objectives for the coming year. There are no rating boxes.
No appraisal scheme lasts for ever, although some of the early systems were in place for a very long time. As business demands changed rapidly in the 1980s, it came to be accepted that a scheme might have to be redesigned after five or six years. L and G's experience shows that this is not so, if design and preparation were right in the first place. Ever more sophisticated schemes are now being introduced which are designed to respond to changing requirements. It may take several years for a company to learn how to get the most out of its system. After that the scheme should be able to evolve along with the rest of the business - until the next major revolution comes along.
(Nora Stein is a consultant with Kinsley Lord.)