Pay-for-Performance (Federal Government)

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U.S. Capital Building in Washington, D.C. Capitol Building 3.jpg
U.S. Capital Building in Washington, D.C.

Pay-for-Performance is a method of employee motivation meant to improve performance in the United States federal government by offering incentives such as salary increases, bonuses, and benefits. It is a similar concept to Merit Pay for public teachers and it follows basic models from Performance-related Pay in the private sector. According to recent studies, however, there are key differences in how pay-for-performance models influence federal employees in public service roles. [1] James Perry is one scholar who has conducted such studies. His research reveals that public servants tend to be more intrinsically motivated, and thus, are prone to have a negative reaction to monetary incentives. There is still debate, however, on what exactly makes the public sector different.

Contents

History

Pay-for-performance programs first began in the private sector. As consultants, academic experts, and employee advocate groups analyzed merit pay systems' success in private businesses, they recommended expanding this method into the public sector. [2] One vital omission in the process of implementation, however, is that the policy makers failed to consider that the stakeholders in the private sector differ from those in the public sector.

The first trial run of a pay-for-performance system came in the late 1970s. In 1978 U.S. President Jimmy Carter introduced the broad outlines of the Civil Service Reform Act in his State of the Union message. It was the first time a U.S. President had ever included civil service reform among his major legislative proposals.

The Civil Service Reform Act of 1978 created the Office of Personnel Management, to oversee the human resource management of the federal government, and the Merit Systems Protection Board, to regulate the merit system and prevent any abuse. The major provisions in the act included, but were not limited to, performance appraisals for all employees, merit pay on a variety of levels (but focusing on managerial levels), and modifications for dealing with poor performers. [3] This merit pay system was a break in the long tradition of automatic salary increases based on length of service. Under the new act, employees only got half of their traditional automatic salary increase. The remaining non-automatic portion was divided up according to performance rating. A key part of this system was that it was revenue neutral—this meant that when some employees benefited under the new system, others would of necessity be receive less than in the previous system.

The greatest benefits of the Act were that it clarified job expectations and defined goals and objectives. The clearest shortcoming was that it failed to establish a "demonstrable relationship between pay and performance." [4] This failure had a number of causes—most notably a lack of adequate funding. Managers who performed satisfactorily often found themselves receiving less pay than their non-managerial counterparts because the non-managerial employees were still under the previous pay system. Some complained that this merit system seemed arbitrary and many employees did not perceive it as a fair assessment of performance and effort. Furthermore, the public became upset when they saw certain senior executives in the government receiving large paychecks. It became apparent that the Act was not an effective means of civic service reform.

President Ronald Reagan Ronald Reagan - NARA - 558523.jpg
President Ronald Reagan

When Ronald Reagan was elected in 1982, he significantly reduced the size and cost of many portions of government, thereby greatly limiting the Civil Service Reform Act. Satisfying the need for new legislation, the Performance Management and Recognition System (PMRS) was enacted on November 8, 1984. Most notably, the PMRS provided a greater level of evaluation accuracy and imposed minimum and maximum levels of pay increase to limit disparity among merit pay employees. PMRS also created Performance Standard Review Boards for each department and required that at least half of the board be members who were under the merit pay system. This requirement ensured that at least some board members had a vested interest in dealing with potential problems and concerns. [5]

Although it was considered a significant improvement over its predecessor, PMRS only lasted from 1984 to 1991. The demise of PMRS was caused by poor discrimination among performance levels, inadequate performance findings, and little demonstrable evidence that the system improved performance. Over 50 percent of the employees felt like the size of the rewards was inadequate, and more than 75 percent of the managers stated that their performance evaluations provided little guidance for development purposes, mentioning that "insufficient funds [had] resulted in meaningless performance awards." [6]

Since the PMRS was abandoned, various proposals have surfaced and even a few agencies have tried variations of pay-for-performance systems. The Department of Defense [7] and the Department of Homeland Security [8] have both developed systems, but they were annulled when President Barack Obama signed the National Defense Authorization Act on October 28, 2009. There has yet to be a new pay-for-performance system implemented on a nationwide scale for the United States Federal Government.

Research

When these federal pay for performance systems failed, many were surprised because it had worked so well within the private sector. Much of this failure was attributed to the fact that most of the research on pay for performance had been done in the private rather than public sector. [9] These perplexing and inconsistent results between the private and public sectors led academia to question why pay-for-performance programs in the public sector were not as effective. Research revealed that two main factors contributed to poor public sector motivation and performance: (1) the public sector has unique budgeting restrictions that make it difficult to effectively implement such a program, and (2) the type of motivation that affects employees in the federal public sector is different from the motivators that work for employees of private business firms.

Unique characteristics of the public sector

A limited and restricted budget is one of the biggest factors that have prevented the public sector from successfully implementing a pay for performance program. As noted by Antoinette Weibel, the private sector simply has more money and will always be more fluid with cash than any public sector organization. Profit motive will always matter in the private sector because a business organization's function is to maximize profits. [10]

Since public organizations operate on tax revenue, they are expected to act responsibly for that stewardship of resources. Public institutions also operate in nonmarket conditions and are subject to unique rules and expectations. This makes budgeting for incentives very difficult because unlike private sector businesses, public organizations cannot arrange their incentives around the company profit. By their very nature of receiving funds instead of generating them, public organizations can never have the same freedom that private organizations have in providing incentives in the work force. [11]

As important as the budget differences are to the issue of pay for performance, the difference in how federal and private sector employees respond to motivators is even more crucial. Weibel has demonstrated that public servants tend to gravitate more to intrinsic motivation, but two key researchers, Edward L. Deci and Robert Eisenburger, have disagreed as to whether extrinsic motivation is harmful to intrinsically motivated individuals. Deci designed a study that involved college students who were given an "interesting" activity to perform. Some of those students were provided tangible rewards (e.g. money) as an extrinsic motivation and were observed by researchers to see how they reacted. From these studies, Deci argued that some activities provide their own inherent reward, so motivation for such activities is not dependent on external rewards. Deci goes even further to show that when extrinsic rewards are placed on these activities, it is detrimental to performance because it puts a market price on something they already value internally. [12]

Eisenberger designed a study meant to refute Deci's claim. His results reported that "perceived competence partially mediated the positive relationship found between performance-contingent reward and intrinsic motivation." [13] In other words, the detrimental effects of providing tangible rewards, discussed in the Deci studies, occurred under highly restricted, easily avoidable conditions.

Although a push for providing extrinsic motivation is still politically popular, research continues to lean toward the understanding of Deci and Perry—that the public sector is fundamentally different from the private sector. Since those who work for government or non-profit organizations are more likely to be in the mindset of serving others, they tend to be motivated more intrinsically. They perform tasks because of loyalty or an internalized sense of duty, and/or enjoyment. Giving employees a performance-contingent monetary incentive to do something they already enjoy can decrease his/her motivation to do it as the person is then likely to view its action as externally driven rather than as internally appealing. [14]

Weibel contributed further to Perry and Deci's findings when she and her team examined the benefits and costs of an extrinsically motivated system, and compared this system in the public and the private sectors. This clearly defined scope allowed the pay-for-performance policies in each sector to be evaluated individually. The authors’ hypothesis was that the public sector has specific characteristics (the same as those diagnosed by Deci and Perry) that would make pay for performance ineffective, calling the proposed adoption for such policies "naïve". [15]

Recent developments

Daniel H. Pink in London Daniel H pink.jpg
Daniel H. Pink in London

Research has continued to support the notion that although incentive systems may be effective and efficient in one organizational context, they can be ineffective or even counterproductive in others. Daniel Pink has been another persuasive voice who has drawn on many of these studies to call for new methods of motivation in the workplace. He cites an MIT study in which the research team repeatedly demonstrated that as long as the tasks being undertaken are purely mechanical, performance-related pay works to improve results. The moment a task required any cognitive skill, the incentives became detrimental to performance. [16]

Others, such as Weibel, have also urged caution in implementing the pay-for-performance models of old. In the federal government, this is especially important because intrinsically motivated public service agents are shown to have a "higher incentive to invest in expert knowledge than extrinsically motivated ones and therefore function as the 'institutional memory' of public service." [17]

To preserve that institutional memory and continue to attract intrinsically motivated employees, the government will likely need alternative models to replace or supplement the popular business model of performance-related pay. Some have suggested an incentive plan that focuses on employees' internal motivation. Instead of cash bonuses or raises, employees may instead be given discretionary time to work on creative projects in which they have a personal interest, as has been implemented by companies such as Google and 3M. Another alternative to a strictly intrinsically based model may be a hybrid in which monetary rewards and intrinsic incentives are offered, giving the employees of both dispositions the motivation to increase performance. It is unclear what the next step of action will be for the federal government, but since the issue of pay for performance is so politically popular it is unlikely that the issue will go away any time soon.

The President's Management Agenda (PMA) and Office of Budget and Management asked federal government agencies to maximize performance as well as reevaluate and restructure human capital. These agencies were also required to amend ineffective policies on performance management. The PMA recommended streamlining the system of compensating and rewarding federal employees. One way is move from the present General Schedule approach to a system that emphasizes performance-based wages. [18] In the US and many countries of Western Europe, pay for performance plans are used collectively. In Hong Kong, the popularity of pay for performance is increasing gradually both in the public and private sectors. [19]

See also

Related Research Articles

Motivation is what explains why people or animals initiate, continue or terminate a certain behavior at a particular time. Motivational states are commonly understood as forces acting within the agent that create a disposition to engage in goal-directed behavior. It is often held that different mental states compete with each other and that only the strongest state determines behavior. This means that we can be motivated to do something without actually doing it. The paradigmatic mental state providing motivation is desire. But various other states, like beliefs about what one ought to do or intentions, may also provide motivation.

Incentive Something that motivates individuals to perform

An incentive is something that motivates or drives one to do something or behave in a certain way. There are two types of incentives that affect human decision making. These are: intrinsic and extrinsic incentives. Intrinsic incentives are those that motivate a person to do something out of their own self interest or desires, without any outside pressure or promised reward. However, extrinsic incentives are motivated by rewards such as an increase in pay for achieving a certain result; or avoiding punishments such as disciplinary action or criticism as a result of not doing something. 

Content theory is a subset of motivational theories that try to define what motivates people. Content theories of motivation often describe a system of needs that motivate peoples' actions. While process theories of motivation attempt to explain how and why our motivations affect our behaviors, content theories of motivation attempt to define what those motives or needs are. Content theory includes the work of David McClelland, Abraham Maslow and other psychologists.

The overjustification effect occurs when an expected external incentive such as money or prizes decreases a person's intrinsic motivation to perform a task. Overjustification is an explanation for the phenomenon known as motivational "crowding out." The overall effect of offering a reward for a previously unrewarded activity is a shift to extrinsic motivation and the undermining of pre-existing intrinsic motivation. Once rewards are no longer offered, interest in the activity is lost; prior intrinsic motivation does not return, and extrinsic rewards must be continuously offered as motivation to sustain the activity.

Self-determination theory (SDT) is a macro theory of human motivation and personality that concerns people's inherent growth tendencies and innate psychological needs. It is concerned with the motivation behind choices people make without external influence and interference. SDT focuses on the degree to which human behavior is self-motivated and self-determined.

Performance-related pay or pay for performance, not to be confused with performance-related pay rise, is a salary or wages paid system based on positioning the individual, or team, on their pay band according to how well they perform. Car salesmen or production line workers, for example, may be paid in this way, or through commission.

Motivation crowding theory is the theory from psychology and microeconomics suggesting that providing extrinsic incentives for certain kinds of behavior—such as promising monetary rewards for accomplishing some task—can sometimes undermine intrinsic motivation for performing that behavior. The result of lowered motivation, in contrast with the predictions of neoclassical economics, can be an overall decrease in the total performance.

Merit pay, merit increase or pay for performance, is performance-related pay, most frequently in the context of educational reform or government civil service reform. It provides bonuses for workers who perform their jobs effectively, according to easily measurable criteria. In the United States, policy makers are divided on whether merit pay should be offered to public school teachers, and other public employees, as is commonly the case in the United Kingdom.

Managerial psychology is a sub-discipline of industrial and organizational psychology, which focuses on the efficacy of individuals, groups and organizations in the workplace. Its purpose is to specifically aid managers in gaining a better managerial and personal understanding of the psychological patterns common among individuals and groups within any organization. Managerial psychology can be used to predict and prevent harmful psychological patterns within the workplace and can also be implemented to control psychological patterns among individuals and groups in a way that will benefit the organisation long term.

Cognitive evaluation theory (CET) is a theory in psychology that is designed to explain the effects of external consequences on internal motivation. Specifically, CET is a sub-theory of self-determination theory that focuses on competence and autonomy while examining how intrinsic motivation is affected by external forces in a process known as motivational "crowding out."

<i>Drive: The Surprising Truth About What Motivates Us</i>

Drive: The Surprising Truth About What Motivates Us is the fourth non-fiction book by Daniel Pink. The book was published in 2009 by Riverhead Hardcover. It argues that human motivation is largely intrinsic, and that the aspects of this motivation can be divided into autonomy, mastery, and purpose. He argues against old models of motivation driven by rewards and fear of punishment, dominated by extrinsic factors such as money.

Warm-glow giving is an economic theory describing the emotional reward of giving to others. According to the original warm-glow model developed by James Andreoni, people experience a sense of joy and satisfaction for "doing their part" to help others. This satisfaction - or "warm glow" - represents the selfish pleasure derived from "doing good", regardless of the actual impact of one's generosity. Within the warm-glow framework, people may be "impurely altruistic", meaning they simultaneously maintain both altruistic and egoistic (selfish) motivations for giving. Whereas "pure altruists" are motivated solely by the desire to provide for a recipient, impure altruists are also motivated by the joy of giving. Importantly, warm glow is distinctly non-pecuniary, meaning it arises independent of the possibility of financial reward. Therefore, the warm glow phenomenon is distinct from reciprocal altruism, which may imply a direct financial incentive.

The extrinsic incentives bias is an attributional bias according to which people attribute relatively more to "extrinsic incentives" than to "intrinsic incentives" when weighing the motives of others rather than themselves.

Work motivation "is a set of energetic forces that originate both within as well as beyond an individual's being, to initiate work-related behavior, and to determine its form, direction, intensity, and duration." Understanding what motivates an organization's employees is central to the study of I–O psychology. Motivation is a person's internal disposition to be concerned with and approach positive incentives and avoid negative incentives. To further this, an incentive is the anticipated reward or aversive event available in the environment. While motivation can often be used as a tool to help predict behavior, it varies greatly among individuals and must often be combined with ability and environmental factors to actually influence behavior and performance. Results from a 2012 study, which examined age-related differences in work motivation, suggest a "shift in people's motives" rather than a general decline in motivation with age. That is, it seemed that older employees were less motivated by extrinsically related features of a job, but more by intrinsically rewarding job features. Work motivation is strongly influenced by certain cultural characteristics. Between countries with comparable levels of economic development, collectivist countries tend to have higher levels of work motivation than do countries that tend toward individualism. Similarly measured, higher levels of work motivation can be found in countries that exhibit a long versus a short-term orientation. Also, while national income is not itself a strong predictor of work motivation, indicators that describe a nation’s economic strength and stability, such as life expectancy, are. Work motivation decreases as a nation’s long term economic strength increases. Currently work motivation research has explored motivation that may not be consciously driven. This method goal setting is referred to as goal priming. Effects of primed subconscious goals in addition to goals that are consciously set related to job performance have been studied by Stajkovic, Latham, Sergent, and Peterson, who conducted research on a CEO of a for-profit business organization using goal priming to motivate job performance. Goal priming refers to the achievement of a goal by external cues given. These cues can affect information processing and behaviour the pursuit of this goal. In this study, the goal was primed by the CEO using achievement related words strategy placed in emails to employees. This seemingly small gesture alone not only cost the CEO very little money, but it increased objectively measured performance efficiency by 35% and effectiveness by 15% over the course of a 5 day work week. There has been controversy about the true efficacy of this work as to date, only four goal priming experiments have been conducted. However, the results of these studies found support for the hypothesis that primed goals do enhance performance in a for-profit business organization setting.

Employee motivation is an intrinsic and internal drive to put forth the necessary effort and action towards work-related activities. It has been broadly defined as the "psychological forces that determine the direction of a person's behavior in an organisation, a person's level of effort and a person's level of persistence". Also, "Motivation can be thought of as the willingness to expend energy to achieve a goal or a reward. Motivation at work has been defined as 'the sum of the processes that influence the arousal, direction, and maintenance of behaviors relevant to work settings'." Motivated employees are essential to the success of an organization as motivated employees are generally more productive at the work place.

Reward management is concerned with the formulation and implementation of strategies and policies that aim to reward people fairly, equitably and consistently in accordance with their value to the organization.

Public Service Motivation (PSM) is an attribute of government and non-governmental organization (NGO) employment that explains why individuals have a desire to serve the public and link their personal actions with the overall public interest. Understanding the theory and practice of PSM is important in determining the motivations of individuals who choose careers in the government and non-profit sectors despite the potential for more financially lucrative careers in the private sector.

Praise as a form of social interaction expresses recognition, reassurance or admiration. Praise is expressed verbally as well as by body language.

Intrinsic motivation in the study of artificial intelligence and robotics is a mechanism for enabling artificial agents to exhibit inherently rewarding behaviours such as exploration and curiosity, grouped under the same term in the study of psychology. Psychologists consider intrinsic motivation in humans to be the drive to perform an activity for inherent satisfaction – just for the fun or challenge of it.

Work motivation was defined by George and jones as the motivation that moves employee's behavior toward certain actions, and retain their persistence in face of difficulties, while employee engagement refers to the employee's involvement and contribution inside the organization. Robinson and his colleagues announced that the key of work engagement is feeling involved and valued. keeping motivation level high retains employee inside the company, and therefore ensure the stability of the organization. There is a correlation-ship between motivation and employee's engagement, and the productivity of the organization. when managers were asked how they know the difference between the engaged and disengaged employee, they announced that if an employee is engaged, he will do his best to be creative at work, he will be enjoying what he or she is doing, while if the employee is disengaged, he will not be interested in what he is doing, and he will not do anything more than what he or she is told to do. Since work motivation is now considered as an important topic, many theories came up to the stage.

References

  1. ↑ Perry, James, Annie Hondeghem, and Lois Recascino Wise. "Revisiting the Motivational Based of Public Service: Twenty Years of Research and an Agenda for the Future." Public Administration Review, 2010: p. 681-690
  2. ↑ Milkovich and Alexandra K. Wigdor. Pay for Performance: Evaluating Performance Appraisal and Merit Pay. Washington, D.C.: National Academy Press, 1991: p.13
  3. ↑ Milkovich and Alexandra K. Wigdor. Pay for Performance: Evaluating Performance Appraisal and Merit Pay. Washington, D.C.: National Academy Press, 1991: p. 20-22
  4. ↑ Milkovich and Alexandra K. Wigdor. Pay for Performance: Evaluating Performance Appraisal and Merit Pay. Washington, D.C.: National Academy Press, 1991: pg.27
  5. ↑ Milkovich and Alexandra K. Wigdor. Pay for Performance: Evaluating Performance Appraisal and Merit Pay. Washington, D.C.: National Academy Press, 1991: pp. 28-28
  6. ↑ Milkovich and Alexandra K. Wigdor. Pay for Performance: Evaluating Performance Appraisal and Merit Pay. Washington, D.C.: National Academy Press, 1991: p. 30
  7. ↑ STEPHEN LOSEY (2010-08-06). "DoD ends pay-for-performance system for most intel workers". FederalTimes.com. Retrieved 2011-12-19.
  8. ↑ "DHS: Fact Sheet: DHS and OPM Final Human Resource Regulations". Dhs.gov. 2002-11-25. Retrieved 2011-12-19.
  9. ↑ Perry, James, Trent A. Engbergs, and So Yun Jun. "Back to the Future? Performance-Related Pay, Empirical Research, and the Perils of Persistence." Theory to Practice, 2009: p. 47
  10. ↑ Weibel, Antoinette, Katja Rost, and Margit Osterloh. "Pay for Performance in the Public Sector—Benefits and (Hidden) Costs". Journal of Public Administration Research and Theory, 2009
  11. ↑ Perry, James, Trent A. Engbergs, and So Yun Jun. "Back to the Future? Performance-Related Pay, Empirical Research, and the Perils of Persistence". Theory to Practice, 2009: p. 46
  12. ↑ Deci, Edward L. "Effects of Externally Mediated Rewards on Intrinsic Motivation". Journal of Personality and Social Psychology 18:1, 1971: pp. 105-115.
  13. ↑ Eisenberger, Robert W.; Pierce, David; and Cameron J., Judy: "Effects of Reward on Intrinsic Motivation Negative, Neutral, and Positive: Comment on Deci, Koestner, and Ryan (1999)". Psychological Bulletin. 125, no. 6: 678
  14. ↑ Weibel, Antoinette, Katja Rost, and Margit Osterloh. "Pay for Performance in the Public Sector—Benefits and (Hidden) Costs.” Journal of Public Administration Research and Theory, 2009: pp. 387-412
  15. ↑ Weibel, Antoinette, Katja Rost, and Margit Osterloh. "Pay for Performance in the Public Sector—Benefits and (Hidden) Costs". Journal of Public Administration Research and Theory, 2009: p. 397
  16. ↑ Dan Ariely; Uri Gneezy; George Loewenstein & Nina Mazar (2005-07-23). "Large Stakes and Big Mistakes, Working Paper" (PDF). Federal Reserve Bank of Boston, Working Papers. pp. 05–11. Retrieved 2012-11-26.
  17. ↑ Weibel, Antoinette, Katja Rost, and Margit Osterloh. "Pay for Performance in the Public Sector—Benefits and (Hidden) Costs". Journal of Public Administration Research and Theory, 2009: p. 390
  18. ↑ "Pay for Performance Possible but Takes Much Work, Says MSPB". FEDweek. 2018-06-06. Retrieved 2018-06-15.
  19. ↑ "Science shows pay for performance works, if used properly". South China Morning Post. Retrieved 2018-06-15.
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