PAY FOR PERFORMANCE IN THE PUBLIC SECTOR: FROM THE NATIONAL SECURITY PERSONNEL SYSTEM TO THE AFFORDABLE CARE ACT

Changing compensation systems for public servants toward pay for performance is one of the most alluring reform movements in the public sector. The design of compensation reforms is often based on private sector models. The central premise of these compensation systems is that they will improve both efficiency and effectiveness of government services through the use of a market compensation approach. The overarching expectation is that performance will increase in the presence of a potential increase in pecuniary rewards. A challenge with this theoretical justification in public administration is based on varying theories of motivation of public sector employees. Some may be motivated by money, while others exhibit a public service ethos based on intrinsic motivation. Another challenge is the inherent complexity in the implementation phase of pay for performance on a macro scale in large public sector institutions. This research provides two different perspectives on the effects and implementation challenges of pay for performance in the public sector. The first is a retrospective, quantitative study of the Department of Defense's National Security Personnel System. The second is a prospective analysis of the implementation of pay for performance for Medicare reimbursement under the Affordable Care Act. The juxtaposition of these different approaches using similar theoretical justification provides an opportunity to generate and discuss interagency lessons learned with using pay for performance. The results from the NSPS experience show that pay for performance may have made improvements in retention intent among DOD employees. They also indicate that recruiting may have been improved for a subset of employees in the scientific and engineering specialties. They do, however, support the notion of motivational crowding out of those who gravitate toward intrinsic motivation. The qualitative study reveals issues such as financing and the creation of effective and equitable performance metrics will continue to play integral roles for the successful implementation of pay for performance in the Medicare system. Taken together the results underscore the complexity of using pay for performance in the public sector including negative unintended consequences.