11 Lecture 5 Pay for Performance and Performance Appraisal in Public Service Introduction to public personnel administration

22 Today’s Learning Objectives Performance management in public personnel administration -Performance appraisal -Pay-for-performance or merit pay

33 Pay-for-Performance and Performance Appraisal: US government The 1978 Civil Service Reform Act -Established job-related and objective performance appraisal systems in the U.S. federal government -Required performance-based pay systems for the federal government The unsuccessful consequences -Very few successful outcomes have been reported in the fed level. -Numerous difficulties experienced in state and local governments

44 Pay-for-Performance and Performance Appraisal: US government The 1984 Performance Management and Recognition Act -Restored pay-for-performance systems The continued efforts -Still expected to motivate employees and the increase productivity of public organizations when it is implemented correctly and managed effectively.

Pay-for-Performance and Performance Appraisal: Korean government The legislations of performance evaluation (e.g., 대통령령 24425; 안전행정부 예규 -1) -Performance-based contract ( 성과계약평가 ): Rank 4 and higher ranks -Performance evaluation ( 근무성적 평가 ): Rank 5 and lower ranks Pay for performance (Kim Dae-Jung administration, 1999) -Base salary + merit-based salary ( 성과연봉 ): Rank 4 and higher ranks -Base salary + merit-based bonus ( 성과상여금 ): Rank 5 and lower ranks 5

66 Theoretical Background of Merit Pay Expectancy theory and Vroom’s cognitive theory of motivation -If people want more rewards, and believe that more effort will result in their getting more rewards, they will make more effort and perform better to get more compensation -Pay-for-performance: Relating an expected monetary reward to an individual’s performance Do monetary incentives really improve individual performance??

77 Theoretical Background of Merit Pay Pitfalls of motivation theories -Focus on extrinsic motivation which is discontinuous and brings diminishing returns -Reduces intrinsic motivation and leads individuals to develop strategies to achieve rewards with minimum effort -The crowding-out effect of intrinsic motivation

8 Advantages of Merit Pay Remedies the flaws of traditional compensation systems: connecting pay to performance Attracting and retaining high performers Promoting communication between supervisors and subordinates about goals and expectations Enhancing the ability of the organization to allocate limited financial resources in an effective manner 8

99 Performance Appraisal Performance appraisal as an integral part of pay-for- performance as well as of performance management. -The important personnel functions (e.g., dismissals, promotions, or rewards) should be based on performance, as assessed by objective standards. Reform efforts of performance appraisals -The Performance Rating Act of The Civil Service Reform Act of 1978

10 Limitations of Performance Appraisal Technical limitations of performance appraisal systems -Complicated and conflicting goals, poorly described jobs, diverse and inconsistent performance criteria, and a difficult measurement system. -A lack of job descriptions which coincide with the work- related content of the performance-appraisal instrument (Goodale and Mouser, 1981). -A lack of training of managers and employees for effective management

11 Limitations of Performance Appraisal Managerial constraints -Subjective interpretation of criteria for appraisal and performance standards -Subjective judgment of an evaluator in the appraisal process (Kellough, 2002) -Potential bias or error caused by personal attitude and perception Ex. the halo effect, first-impression error, the similar-to-me effect, the comparison or contrast effect, and the central tendency effect 11

12 Georgia Gain The skepticism on the fairness of Performance Management Process (PMP) -“Office politics”(Kellough and Nigro, 2002) has been believed to be more influential on performance ratings than actual performance on the job. -Employees suspect that their performance ratings were intentionally downgraded due to budget constraints. 12

13 Alternatives Multisource performance appraisals -Replacing the hierarchical or “top-down” appraisal process with one that obtains feedback from a variety of sources Total Quality Management (TQM) -Emphasizing the empowerment of employees by giving them greater discretion and promoting cooperation and teamwork ex. Team performance evaluation and quality of work

14 Limitations of Merit Pay Motivational limitations -The complicated relationship between compensation and performance -The limited ability of extrinsic rewards to motivate employees Resource constraints -Insufficient funding to cover pay increases for high performers -Even private businesses have experienced trouble meeting the needs of additional funds for significant pay increases.

15 Why is Pay-for-Performance attractive to governments? Symbolic politics -A symbolic response to public perception of bureaucratic inefficiency and demands for accountability. Business stereotype Political control -Strengthening political accountability in the higher levels of the bureaucracy 15

16 Why is Pay-for-Performance attractive to governments? Sunk costs -Given extensive investment in the concept, there is reluctance to admit failure Perceived implementation failure -Kellough and Lu claimed that difficulties associated with merit pay are the product of implementation “glitches” rather than fundamental problems with the basic idea. 16