Academic journal article Canadian Public Administration

Why Do Governments Use Pay for Performance? Contrasting Theories and Interview Evidence

Academic journal article Canadian Public Administration

Why Do Governments Use Pay for Performance? Contrasting Theories and Interview Evidence

Article excerpt

"It is well known that a system of sanctions and rewards can produce, by itself, only minimally productive performance." Herbert Simon

Creating well-motivated employees who work vigorously on behalf of the public is a priority for all governments. In their quest for a diligent workforce, it is said that governments draw on a pro-social, other-directed set of attitudes conventionally labeled "public service motivation" (PSM). The concept of PSM is used broadly to describe attitudes that embody a positive evaluation of human beings and a concern for the well being of others (Rainey and Steinbauer 1999; Perry and Hondeghem 2008; Rainey 1982).

While researchers have been mapping the prevalence of PSM and exploring its consequences for performance (Moynihan and Pandey 2010), governments continue to experiment with motivational tools that rely on more tangible rewards. Even those who celebrate public service ideals acknowledge that "people are selfish and altruistic and organizations need to use intrinsic as well as extrinsic incentives to motivate employees" (Perry and Hondeghem 2008: vii). In Canada, prominent defenders of public service ideals acknowledge that the "less tangible rewards of praise and recognition have to be supplemented by more tangible ones" (Kemaghan (2001: 79).

The search for tangible forms of recognition has led many public sector agencies to experiment in recent years with pay-for-performance (PFP) compensation arrangements (OECD 2005). The assumption is that by basing a variable portion of pay on individual or group performance governments can attract and retain employees who flourish in environments where effort and achievement are concretely recognized. In this paper we look closely at how governments in Canada have introduced and managed PFP systems for deputy ministers (DMs). DMs are among the most generously remunerated of public servants; at the same time, they can be expected to exhibit high levels of PSM. Is a PFP system well suited to recognize and reward the most senior executive officers in the public service?

PFP systems have grown in popularity in government at the same time as they have fallen out of favour among academic observers. Critics maintain that paying for performance does not work well when employees are motivated by a sense of mission and a commitment to professional standards (Kellough and Yu 1993). PFP, they suggest, can adversely affect PSM (Frey and Jergen 2001; Francois 2000) and generate other psychological costs (Farkin, Pierce and Gino 2012). Despite these cautions, PFP continues to spread along with enthusiasm for performance management in general. Two-thirds of the Organization for Economic Cooperation and Development (OECD) countries have either introduced pay based on performance or are developing a performance-pay system (OECD 2005; 2008). Human resource management is seen as an urgent challenge in developed democracies, and performance pay, broad banding and performance contracts are part of the reform repertoire (Rainey 2009: 293-296; Ingraham 2005).

In what follows we offer a variety of reasons for the enthusiasm Canadian governments have shown for PFP. We start with a discussion of the conventional arguments for introducing PFP and assess its track record. Section 2 presents three perspectives--roughly corresponding to the economic, sociological and political--on the introduction of PFP for DMs. We argue that that performance pay allows politicians to dissolve the traditional boundaries separating politics and administration in Westminster systems by strengthening the hand of politician-principals who want their public servant-agents not only to do their bidding, but also be committed to their political agenda (Aucoin 2008). Section 3 uses this perspective to examine the introduction of various PFP systems in Canada. Section 4 draws on interviews conducted with senior officials familiar with PFP initiatives. Section 5 concludes by discussing tensions in roles and responsibilities at the apex of executive government. …

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