Performance Evaluation for Public Enterprises

Abstract

Performance evaluation is not a simple task in private enterprises and it is all the more complicated in public enterprises. This paper emphasizes three main points: (a) a public enterprise must be evaluated; (b) a public enterprise must not be evaluated like a private enterprise; and (c) a public enterprise should be evaluated by starting with private profit and making a series of adjustments to make it fair to the nation and to managers. This paper suggests introducing a signaling system which consists of three major components. The first is a performance evaluation system, in which national goals are translated into explicit enterprise objectives and quantified in a performance criterion. The second is a performance information system, in which actual achievements are monitored. The third is an incentive system, in which the welfare of managers and workers is linked to national welfare by a pecuniary or non-pecuniary bonus system based on achievement of particular target values of the criterion variables. The paper proposes a phased system of implementation stressing how performance evaluation must be the product of an evolutionary process involving both enterprise managers and government supervisors.

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