Report recommends limited use of pay incentives

Incentives such as pay boosts and punishments such as low program ratings for failure to meet aggressive targets should be used sparingly in government, a researcher concluded in a recent report.

In the report, published by the IBM Center for the Business of Government, Shelley Metzenbaum, a visiting professor and senior fellow at the University of Maryland School of Public Policy, found that governments can use performance measurement and incentives effectively, but strategies can also backfire when too great an emphasis is placed on external motivators.

"An overwhelming body of research and experience suggests that promising rewards to individuals in government agencies seldom works when the rewards are linked to attainment of specific targets, progress relative to peers, progress relative to the past, or per unit of product," Metzenbaum concluded in her report.

Performance measurement and goal-setting can be effective, she wrote, but can also provoke "self-protective responses" like setting unambitious targets, manipulating outcome measurements and disputing who deserves credit for achievements. Metzenbaum urged organizations to use incentives like pay increases and job promotions sparingly, and to rely instead on "intrinsic motivators" such as well-publicized goal-setting, transparent measurements and frequent feedback.

When an organization makes a concerted effort but fails to meet aggressive targets, neither individuals nor the group should be punished, Metzenbaum wrote.

Metzenbaum cited a case study in which the Environmental Protection Agency in 1995 set ambitious targets for cleaning up the Lower Charles River in Massachusetts, with the goal of making it safe for swimming within 10 years. The agency did not meet the target, but encountered little criticism from the community, Metzenbaum said, likely because it had kept the people informed of its strategies and action plans.

She contrasted this with a case study at the National Highway Traffic Safety Administration. In that case, the agency was penalized in the Office of Management and Budget's Program Assessment Rating Tool process for failing to meet annual goals to reduce the traffic fatality rate, even though NHTSA made progress over the longer term.

Metzenbaum said legislators have "ignored formal documents related to the Government Performance and Results Act and the [PART]," though many have paid attention to other information on agency goals and outcome measures. She acknowledged that the democratic process can make it difficult to set ambitious goals and to accept occasional failure.

"Those in government … fare better if they have thick political hides and anticipate the legislative, media and advocacy predilection for criticism over praise," Metzenbaum said. "Legislative hearings do not always afford the most conducive environment for discussing goal appropriateness or refinement … and agencies may find it hard to sort out political grandstanding from genuine concern at such highly staged events."

The report cited the rise and fall of performance-based pay systems in government as evidence of the risks of using cash incentives. Metzenbaum said performance-based pay systems tend to last only a few years in government, and systems that survive usually reward a particular work style or achieve cost savings.