Performance Evaluation and Pay for Performance: Does it Really Motivate Public Officials?

Abstract

New Public Management based on principal agent theory has considered pay for performance schemes as a panacea for the reform of public institutions. During the 1990s the private sector has witnessed extensive managerial misbehaviour induced by variable pay, e.g. stock option plans. The same is likely to happen in public institutions when pay for performance schemes are introduced. We argue that, variable pay for performance may undermine public servants’ efforts, as rewards crowd out intrinsic motivation. Consequently we provide several arguments for the return to fixed salaries. (87 words)

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