Pay for Performance

Attribution difficulty: For any moderately complex task, outcomes are generally the result of group effort, and the relative contribution of a single individual is difficult to discern.

Measurement difficulty: Attribution difficulty makes it difficult to come up with individual-level performance measures that connect well with organizational goals. As a result, PFP systems generally rely on subjective ratings of performance as determined by a supervisor. It is often unclear to employees how to do well on such scales beyond staying on the good side of their supervisor. From the supervisors' perspective, they often lack the information necessary to provide an informed assessment.

Grade inflation: Employee ratings generally follow a fixed scale, for example, 1 is excellent and 5 is

below expectations. The subjectivity of these scales, the lack of an incentive to critically differentiate between good and bad performers, and the discomfort of critically rating an individual result in the vast majority being graded as above average.

Resources: PFP systems have generally been underfunded. It seems that although politicians argue for high risk and high reward, in practice they cannot tolerate the potential media scrutiny that might arise if public servants earn genuinely high rewards. Public service unions, generally critical of PFP systems, also work to keep the size of the rewards small in order to ensure that members do not actually lose out under new systems. As a result, the rewards associated by PFP systems are generally too small to be effective motivators.

Incorrect assumptions: PFP systems are based on the assumption that individuals are motivated by financial rewards. But there is a substantial literature documenting the relatively high prevalence of intrinsic motivation among public sector workers. At the very least, it seems reasonable to assume that there will be heterogeneity in reward preferences among public employees and PFP systems will not be a strong motivator for many.