Pay for Performance in the Public Sector—Benefits and (Hidden) Costs

By Antoinette Weibel, Katja Rost, M. Osterloh. 2010

525 citations recorded by the source corpus.

Current reforms in the public sector are characterized by the introduction of businesslike incentive structures, in particular the introduction of “pay for performance” schemes in public institutions. However, the public sector has some specific characteristics, which might restrict the naive adoption of pay for performance. Our article analyzes whether the impact of pay for performance on performance is bound to conditions, and if this is the case, under which conditions pay for performance has a positive or a negative effect on performance. We explore this contingency in a meta-analytic review of previous experimental studies on the effects of pay for performance on performance. We further show why pay for performance sometimes negatively affects personal efforts. With an experimental vignette study we demonstrate (a) that motivation is likely to be a key influence on the effect of performance-related pay on performance, and (b) that pay for performance is generally more costly as it appears because it almost always produces hidden costs of rewards. Our findings help to explain the modest success of pay for performance in the public sector.

Subfields: Economics and Econometrics, Gender Studies, Political Science and International Relations

View Paper: https://www.semanticscholar.org/paper/faf82999f9ff8b6f3fe4094c72b61a22313af45d

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Citations in the corpus

From Strategy to Action: Transforming Organizational Goals into Organizational Behavior (2018, unknown): “…(but not quality) on simple tasks (not complex) in manufacturing settings (not in service settings; Jenkins et al. 1998; Stajkovic and Luthans 1997; Weibel et al. 2010), whereas intrinsic motivation has been associated with both performance quantity and performance quality (Cerasoli et al. 2014).”
Conceptualizing and Measuring Transformational and Transactional Leadership (2019, unknown): “Especially if financial incentives are seen as controlling, they can crowd out intrinsic motivation (Weibel et al., 2009 Andersen & Pallesen, 2008), and this is not the case with non-pecuniary (e.g., verbal) rewards (e.g., Deci et al., 1999).”
Experimental Evidence on the Relationship between Public Service Motivation and Job Performance (2013, background): “Persistence refers to the amount of time that individuals invest in their efforts (e.g., Dweck and Gilliard 1975; Grant 2007, 2008a, 2008b; Sandelands, Brockner, and Glynn 1988; Weibel, Rost, and Osterloh 2010).”
Motivating Employees of the Public Sector: Does Public Service Motivation Matter? (2010, background): “Such a ‘‘crowding-out effect’’ (Frey and Jegen 2001) was empirically attested for volunteers (Frey and Goette 1999) and blood donors (Frey and Oberholzer-Gee 1997) as well as for PSM-oriented civil servants (Georgellis, Iossa, and Tabvuma 2008; Weibel, Rost, and Osterloh 2010).”
Awards: A strategic management perspective (2016, background): “In many sectors, it is crucial for organizational success (Osterloh and Frey, 2000; Weibel, Rost, and Osterloh, 2010), in particular, where monitoring is costly and performance ambiguous (Ouchi, 1980).”
Self-Determination Theory in Work Organizations: The State of a Science (2017, background): “In a similar vein, Weibel et al. (2010) in their meta-analysis found that extrinsic incentives led to better performance on simple tasks but to poorer performance on more complex tasks.”
Do you get what you pay for? Sales incentives and implications for motivation and changes in turnover intention and work effort (2016, background): “1998) and for less interesting tasks (Weibel et al. 2010).”