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Thursday, February 21, 2013

Implementing Pay-for-Performance with Municipal Employees



Governmental agencies are often seen as ineffective in managing the human capital within their departments. As budgets become strained and tax revenue declines officials will need to find new ways of motivating and managing employees to do more with less. The development of higher employee engagement and performance often starts with the performance appraisal and the standards set within. The use of pay-for-performance can increase both the skill and standards within such agencies.

Human resource functions often set the pay and performance criteria of public service employees. In public agencies the cost of labor can be heavy and accounts for approximately 60% of municipal budgets (Chelladurai, 1999). The effective management of taxpayer dollars often rests on the proper utilization of this resource for greater public service. 

To develop stronger uses of human capital there should to be higher levels of alignment between work criteria and organizational objectives.  An important factor in creating this alignment rests on tying compensation closely to organizational service requirements to minimize human capital waste (Dyer & Reeves, 1995).  Employees need to focus on those tasks which are most important for the function of the organization.

Pay-per-performance is a method of compensating employees for the quality of work they complete. In municipal employees accustomed to universal performance appraisals and minimum performance standards there isn’t much incentive for higher levels of effort. Pay-for-performance systems have been described as one of the most effective methods of motivating and increasing performance (Levy & Williams, 2004). 

Research helps open the door to understanding how environments that may have been opposed to pay-for-performance in the past may be receptive to such measures if employee input is considered. By partnering with employees to develop higher standards the performance system creates higher levels of perceived validity and greater trust with management. Through employee engagement the organization can realign employee efforts to save taxpayer dollars. 

Research conducted by Mulvaney, McKinney, & Grodsky (2012) Study of 70 full-time and 550 part-time employees in the Elmhurst Park District of Illinois help highlight potential new performance measures for public employees. To implement an effective pay-for-performance system within municipal government required six important steps:


  • 1.)    Job Analysis: Systematic method of gathering and analyzing information on the content of jobs.
  • 2.)    Rating of Tasks: This includes the rating of tasks as to their importance to the success of the organization.
  • 3.)    Creating of Appraisal Instrument: The development of the appraisal system based upon job tasks.
  • 4.)    Identifying Raters: People who would be most accurate in assessing performance were selected to conduct the appraisals.
  • 5.)    Rater Training: Each of the raters was trained to reduce bias and errors.
  • 6.)    Performance Interview: Seeking and discussing potential information to include in the performance appraisal system.

The results help indicate that improvement in employee perception are beneficial results of developing employee pay-for-performance systems in which employees are participants in their development. The study was considered a pilot study that briefly tries to grasp the main concepts of transformation in government agencies. Additional research would be helpful in improving the likelihood of positive outcomes. The findings are as follows. 

-Cognitive and affective value of employees’ engagement in developing pay-for-performance evaluations.

-Additional agreement between management and employee perceptions of fairness  and accuracy with evaluations. 

-Noticeable performance improvement with employees who received feedback.

-There were higher levels of perceived procedural trust with the pay-for-performance evaluations.

Chelladurai, P. (1999). Human resource management in sport and recreation. Chicago, IL.:Human Kinetics

Dyer, L. & Reeves, T. (1995). Human resource strategies and firm performance: what do we know and where do we need to go? International Journal of Human Resource Management, 5 (3). 

Levy, P. & Williams, J. (2004). The social context of performance appraisals: a review and framework for the hitwe. Journal of Management, 20 (6).

Mulvaney, M., McKinney, W. & Grodsky, R. (2012). The development of a pay-for-performance system for municipal agencies: a case study. Public Personnel Management,  41 (3).

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