Should public servants get bonuses?
Interviewer:
We often hear people say the disciplines of the private sector should be brought to bear on the public sector but what about the private sectors bonus culture? Should public servants, top executives from the BBC or Network Rail or from core Government services get bonuses? Should clinicians in the NHS be assessed and possibly rewarded in some form for their performance? Earlier I spoke to Professor Simon Burgess who is the director of the Centre for Market and Public Organisation at Bristol University and to Lord David James corporate trouble shooter and conservative life peer and I asked Simon Burgess what his research on this subject showed.
Professor Simon Burgess:
Looking at frontline workers across various bits of the public sector we’ve found that comparing workers who are eligible for performance pay raise their performance by more than workers who are not eligible for performance pay. So that seems that performance pay, performance bonuses does increase output, does increase productivity. The second message is that you have to be very careful that the details of the scheme matter enormously, so what are the targets that you set for these people? Are they truly what you want the organisation to achieve? Over what time period are the targets set? Is it for individuals, teams? All these sorts of things that matter and you can quite easily make a mess of the performance scheme, the world is littered with badly designed bonus schemes.
Interviewer:
Lord James they seem to work in the private sector quite often why not in the public sector?
Lord David James:
I think what Professor Burgess has just been talking about is a rather deeper set of incentives going down through the structure of a company than what I thought the original question related to. Because he’s quite right, I have no argument with anything he said about effectiveness of incentive schemes at that level. But because the problem we are talking of in the present moment is a recurring theme of every recession then it brings into very sharp focus the disparity of reward schemes at the top executive level. Because the target has moved we are no longer moving into the creation of quick profit in order to drive a flotation or some quick kill on the stock exchange, were now talking about having to diverse instead to the long term building of teams and strategy for the development of the companies and the progress of the companies when the recession ends. There is an overheating of the economy at many levels but not least at the level of compensation for those who are the entrepreneurs at the top.
Interviewer:
So your quibble is not just with public sector bonuses it’s also with the private sector ones at this time?
Lord David James:
They have to be focused and the whole focus changes with the recession and this is sharply apparent now.
Interviewer:
Simon Burgess there is some evidence isn’t there that when you give people a monetary incentive to perform it sort of de-values what they do and are almost de-motivated by it.
Professor Simon Burgess:
I think that’s a real point, yes. Some people who feel they have been voluntarily contributing extra to their organisation then feel cross when this is monetised and contractualised and may actually reduce their productivity so it is a real question, does performance pay in the public sector is it a good idea? Does it raise performance? And on balance our research suggests that it does. But I think we should take the issue of public service ethos, if you like, seriously. Some of my colleagues at CMPO have shown that indeed people in the public sector and the third sector do, if you like, donate more labour to their organisations than the private sector.
Interviewer:
David James is there an argument against the big executive bonuses in the public sector that doesn’t apply in the private sector they have other advantages of working in the public sector?
Lord David James:
Normal market forces will take care of those very swiftly I suspect in this recession as they have done in every other, but I’m very surprised Professor Burgess hasn’t made reference to the sociological factor which is in my view more important than the monetary bonus. A lot of people in the time of recession will be concerned for the survival and success of their company for the good of the whole community in which they work, because they know that the whole working community depends on them around them, the shops the people and everything else in their way of life and that is actually for me a much more powerful factor in driving people as an incentive in a crisis like a recession than just giving them a financial reward.
Interviewer:
But in the public sector the recession is neither here nor there is it? The ones who are the Network Rails and the BBC and other like that, for the surgeons in the NHS who cares about recession their job carries on regardless doesn’t’ it?
Lord David James:
There are some areas where that is probably not true. Power generation for example at the moment is such an issue and particularly ecological friendly power generation that can achieve a sense of identification for the work force which is perhaps beginning to become more important even than monetary advantages to them.
Interviewer:
Simon Burgess you have obviously worked on this quite hard, your research is it evident that performance bonuses or performance monitoring works through the organisation? What about at the very top, the executive bonuses?
Professor Simon Burgess:
Well that’s not something that our research touches on the very very top. We did look at managers, team managers in Custom and Excise as was and we found managers to be very important. Now we know that in the public sector and in the private sector very very high bonuses at the top can cause unease and can reduce moral. But I think in the private sector there is really only one goal – profit maximisation. In the public sector that’s not true and what organisations are trying to achieve are many things. The bonus structure often reflects that people have several different targets covering different things.
Interviewer:
Simon Burgess, Lord James thank you both very much indeed