Was Weber Right? The Effects of Pay for Ability and Pay for Performance on Pro-Social Motivation, Ability and Effort in the Public Sector

32 Pages Posted: 20 Apr 2016

See all articles by Sheheryar Banuri

Sheheryar Banuri

University of East Anglia (UEA) - School of Economic and Social Studies; University of East Anglia (UEA) - Centre for Behavioural and Experimental Social Science (CBESS)

Philip Keefer

Inter-American Development Bank

Date Written: May 11, 2015

Abstract

This paper examines the effects of pecuniary compensation on the ability and motivation of individuals inorganizations with non-pecuniary or pro-social missions. In particular, the paper compares flat pay systems, unrelated with ability or effort, to two other systems that are considered superior: high-powered, pay for performance schemes and more traditional, ?Weberian? schemes that calibrate pay to ability, independent of effort. The analysis uses a sample of future public sector workers and finds that all three pay schemes attract motivated workers into tasks with a pro-social mission. However, flat pay schemes also attract low ability workers. In the short run, pay-for-performance schemes generate higher effort than flat pay and pay-for-ability systems, a difference driven entirely by effects on unmotivated workers. Once selection effects are accounted for, however, workers with pay for ability and pay for performance exert statistically indistinguishable levels of effort in the pro-social task. Moreover, pay for ability elicits effort at lower cost than pay for performance.

Keywords: Public Sector Administrative & Civil Service Reform, Public Sector Administrative and Civil Service Reform, Democratic Government, De Facto Governments, Organizational Management, Administrative & Civil Service Reform

Suggested Citation

Banuri, Sheheryar and Keefer, Philip, Was Weber Right? The Effects of Pay for Ability and Pay for Performance on Pro-Social Motivation, Ability and Effort in the Public Sector (May 11, 2015). World Bank Policy Research Working Paper No. 7261, Available at SSRN: https://ssrn.com/abstract=2609379

Sheheryar Banuri (Contact Author)

University of East Anglia (UEA) - School of Economic and Social Studies ( email )

Norwich, Norfolk NR4 7TJ
United Kingdom
+441603591246 (Phone)

HOME PAGE: http://https://www.uea.ac.uk/economics/people/profile/s-banuri

University of East Anglia (UEA) - Centre for Behavioural and Experimental Social Science (CBESS) ( email )

United Kingdom
+441603591246 (Phone)

Philip Keefer

Inter-American Development Bank ( email )

1300 New York Ave., NW
Washington, DC 20577
United States
202-623-1961 (Phone)

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