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

Posted: 26 Apr 2010

See all articles by Antoinette A. Weibel

Antoinette A. Weibel

University of Liechtenstein

Katja Rost

University of Zurich - Institute for Organization and Administrative Science

Margit Osterloh

University of Basel; Professor (em.) University of Zurich

Date Written: April 2010

Abstract

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.

Suggested Citation

Weibel, Antoinette A. and Rost, Katja and Osterloh, Margit, Pay for Performance in the Public Sector-Benefits and (Hidden) Costs (April 2010). Journal of Public Administration Research and Theory, Vol. 20, Issue 2, pp. 387-412, 2010, Available at SSRN: https://ssrn.com/abstract=1594606 or http://dx.doi.org/10.1093/jopart/mup009

Antoinette A. Weibel

University of Liechtenstein ( email )

Fürst-Franz-Josef-Strasse
Vaduz, FL-9490
Liechtenstein

Katja Rost

University of Zurich - Institute for Organization and Administrative Science ( email )

Plattenstrasse 14
CH-8032 Zurich
Switzerland

Margit Osterloh

University of Basel ( email )

Petersplatz 1
Basel, CH-4003
Switzerland

Professor (em.) University of Zurich ( email )

Südstrasse 11
Zürich, CH-8008
Switzerland

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