1. 11 Lecture 8 Performance Management in Public Bureaucracy Introduction to Public Bureaucracy

2. 22 Pay-for-Performance and Performance Appraisal Systems Governmental policy on managing performance of public organizations -Established job-related and objective performance appraisal systems in government -Established performance-based pay (e.g., pay-for- performance, gain-sharing, bonus) and performance evaluation systems (e.g., balanced score card, President’s management agenda, best practice cases) The unsuccessful consequences -Mixed results or very few successful outcomes reported

3. 33 Pay-for-Performance and Performance Appraisal Systems The continued efforts regardless of the outcomes -Still expected to motivate employees and the increase productivity of public organizations when it is implemented correctly and managed effectively.

4. 44 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??

5. 55 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

6. 6 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 6

7. 77 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.

8. 88 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

9. 9 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 9

10. 10 Case Discussion: Georgia Gain in US 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. 10

11. 11 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

12. 12 Limitations of Merit Pay Motivational limitations -The complicated relationship between compensation and performance -The limited ability of extrinsic rewards to motivate employees

13. 13 Limitations of Merit Pay 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. 13

14. 14 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 14

15. 15 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. 15