Performance related pay in public services: theory and evidence

Transcription

1 Centre for Market and Public Organisation Performance related pay in public services: theory and evidence Simon Burgess

2 Public services are a sizeable part of UK output and deliver key outcomes. Efficiency and responsiveness are essential. Performance pay is common in private sector about half of workplaces have some form of performance pay. Why not in the public sector? Performance pay is a powerful tool, but it is a powerful tool. PIRU/ LSHTM, Feb

3 Theory Why have PRP? Why not? What s special about the public sector? Design issues in PRP schemes Evidence Education Health care Public servants Summary PIRU/ LSHTM, Feb

4 Theory 1: Why have PRP? Core issue: cannot pay people for the effort they put in because we can t observe it So instead pay for output, proxy for effort PRP does two things: Motivates, incentivises effort Selects, attracts higher performing workers Aligns incentives for worker with those of the organisation Work out the optimal gearing of the PRP Trade off between incentives and income risk Other factors PIRU/ LSHTM, Feb

5 Theory 2: Issues and problems Optimal PRP rate may be very low. Multiple tasks Multiple tasks and differential measurement Inter temporal aspects ratchet effects career concerns Intrinsic motivation De professionalistion Design issues design is hard to get right and poor design can have adverse unintended consequences PIRU/ LSHTM, Feb

6 Theory 3: What s special about the public sector? PRP much less common in public sector: optimal rate is low, or union power? Measurement issues Common occupations Different occupations Working in teams, collaboration not rivalry Intrinsic motivation Multiple principals No single factor appears special, but the combination is unique once we add: Fuzzier goals at organisation level PIRU/ LSHTM, Feb

7 Design Issues Linear (per unit) or threshold? Individual or team? Objective or subjective? Relative or absolute performance? Tournament? Monetary reward? Or resources for clients? Who for? Workers? Bosses? Clients? Framing and the use of loss aversion PIRU/ LSHTM, Feb

8 Evidence For a policy discussion we need the answer to a causal question: If we introduce PRP, how will productivity change? Evidential requirements for causality are hard. There is little robust evidence on the impact of performance pay in the public sector even though this sector employs as many people as manufacturing does. Interested in the main outcome, and potential unwanted side effects Consider: education, health care and public service. PIRU/ LSHTM, Feb

9 Evidence 1: Education International evidence is mixed: Some studies show positive effects (eg Lavy) Others show no effects (eg Fryer) Often strong effects in developing countries On balance, positive but a lot of variation Differences in design may be important Little evidence of gaming or undesirable effects Study for England: significant effect of the scheme, about half a GCSE grade per pupil despite poorly designed scheme. PIRU/ LSHTM, Feb

10 Evidence 2: Health care Systematic reviews find different effects but little evidence in favour of performance pay. Study of Advancing Quality in NW England (Sutton et al 2012): Team based (hospital level) performance pay; tournament basis; multi task safeguards. Rewards not salary but invested in clinical care Strong data infrastructure and support Significant fall in mortality Different strategies to achieve the gains; collaboration not competition. PIRU/ LSHTM, Feb

11 Evidence 3: Public servants Again, not a lot of robust causal evidence. Two examples: Jobcentre Plus incentive scheme based on team performance, covered five different targets Incentives had a substantial positive effect in small offices. Peer monitoring overcame free rider problems in small units No impact of performance pay on quality measures. HMCE (as was) Again team based scheme; teams include the manager. The incentive structure raised individuals tax yield and productivity. The most successful team allocated more of all its workers time to the incentivised tasks, but disproportionately reallocated the time of its efficient workers. This reallocation was the more important contributor to the overall outcome. PIRU/ LSHTM, Feb

12 Conclusions Incentives work Private sector, public sector; unskilled occupations, skilled manual, professionals. But be careful! On paying for A whilst hoping for B Design matters crucially match scheme to production; content of the incentive; framing loss aversion; measurement; multi tasking safeguards;... Requires clarity on the organisation s goals. PIRU/ LSHTM, Feb