Incentives in the Public Sector: Evidence from a Government Agency (PDF, file 282 KB) (PDF, 282kB)
Simon Burgess, Carol Propper, Marisa Ratto and Emma Tominey
This paper addresses a lack of evidence on the impact of performance pay in the public sector by evaluating a pilot scheme of incentives in a major government agency. The incentive scheme was based on teams and covered five different targets, measured with varying degrees of precision. We use data from the agency's performance management system and personnel records, plus matched labour market data. We focus on three main issues: whether performance pay matters for public service workers, what the team basis of the scheme implies, and the impact of the differential measurement precision. We show that the use of performance pay did have a significant effect on the main quality measure (job placements), but that there was significant heterogeneity of response. This heterogeneity was patterned as one would expect from a free rider versus per monitoring perspective. We found that the incentive had a substantial positive effect in small teams, and a negative response in large teams. We found little impact of the scheme on quality measures, and we interpret this as due to the differential measurement technology. We show that the scheme in small teams had non-trivial effects on output, and our estimates suggest that the use of incentive pay is much more cost effective than a general pay rise
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