Performance-related Pay in the Public Sector : A Review of Theory and Evidence
The objective of this paper is to provide a review of the theoretical and, in particular, empirical literature on performance-related pay in the public sector spanning the fields of public administration, psychology, economics, education, and healt...
| Main Authors: | , , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2012
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2012/04/16235004/performance-related-pay-public-sector-review-theory-evidence http://hdl.handle.net/10986/6046 |
| Summary: | The objective of this paper is to
provide a review of the theoretical and, in particular,
empirical literature on performance-related pay in the
public sector spanning the fields of public administration,
psychology, economics, education, and health with the aim of
distilling useful lessons for policy-makers in developing
countries. This study to our knowledge is the first that
aims to disaggregate the available evidence by: (i) the
quality of the empirical study; (ii) the different public
sector contexts, in particular the different types of public
sector jobs; and (iii) geographical context (developing
country or OECD settings). The paper's main findings,
based on a comprehensive review of 110 studies of public
sector and relevant private sector jobs are as follows.
First, we find that overall a majority (65 of 110) of
studies find a positive effect of performance-related pay,
with higher quality empirical studies (68 of the 110)
generally more positive in their findings (46 of the 68).
These show that explicit performance standards linked to
some form of bonus pay can improve, at times dramatically,
desired service outcomes. Second, however, these more
rigorous studies are overwhelmingly for jobs where the
outputs or outcomes are more readily observable, such as
teaching, health care, and revenue collection (66 of the
68). There is insufficient evidence, positive or negative,
of the effect of performance-related pay in organizational
contexts that that are similar to that of the core civil
service, characterized by task complexity and the difficulty
of measuring outcomes, to reach a generalized conclusion
concerning such reforms. Third, while some of these studies
have shown that performance-related pay can work even in the
most dysfunctional bureaucracies in developing countries,
there are too few cases to draw firm conclusions. Fourth,
several observational studies identify problems with
unintended consequences and gaming of the incentive scheme,
although it is unclear whether the gaming results in an
overall decline in productivity compared to the
counterfactual. Finally, few studies follow up
performance-related pay effects over a long period of time,
leaving the possibility that the positive findings may be
due to Hawthorne Effects, and that gaming behavior may
increase over time as employees become more familiar with
the scheme and learn to manipulate it. |
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