Kelman: Pay for performance pays

A new approach to compensation could attract younger employees

Graduate students in my public management survey course opened my eyes recently to how young people think employees should be paid.

We were beginning a series of classes on using metrics as a tool for improving organizational performance. When I teach these classes, I direct the discussion toward ways the managers can improve organizational performance and avoid discussing how managers could use performance metrics to evaluate and reward individual employees.

But this year, the students pushed against my reluctance to discuss performance measures for individuals. They wanted to discuss them, and those who spoke up had strong opinions.

They believe that outstanding achievement should be rewarded, among other ways, with higher pay. They think employees who are outstanding achievers should be rewarded more than those who accomplish less.

And nearly all of them think that the government fails to reward achievement or punish laziness. The government's pay system does not attract these students.

My students' reactions are important in the ongoing debate about pay for performance in government. I have been moderately skeptical about the introduction of this salary philosophy at the Homeland Security and Defense departments.

I worry about the negative effects that individual pay-for-performance schemes could have on teamwork. Success might not motivate pay-for-performance "winners" as much as it would average performers, who might lose their motivation if they fail to get performance bonuses. Studies have shown that average performers tend to think their performance is above-average.

I also worry that too many supervisors might, if allowed, give small rewards to everyone or give all employees turns at getting them.

But my students' reactions made me realize that the government must create a pay-for-performance system that works. These young people are smart and energetic, exactly the kind of employees the government needs.

And they want pay for performance in the organizations where they will work. A government that does not reward performance with higher pay is a turnoff.

Their reactions remind me of scholarly research that shows a significant proportion of productivity and performance gains that come from instituting pay for performance occur because high performers choose to work for organizations that have such pay systems. Such systems encourage low performers to quit.

Creating pay-for-performance systems is never easy. We should, at least at the beginning, limit them to situations where objective performance measures already exist, such as in agencies' Government Performance Results Act plans. And I believe we should peg pay for performance to team performance rather than individual achievement.

My students convinced me that the government cannot ignore this issue.

Kelman is a professor of public management at Harvard University's Kennedy School and former administrator of the Office of Federal Procurement Policy. He can be reached at steve_kelman@harvard.edu.

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