Some festive Payment by Results

 By -Fearless-

Ho Ho Ho. It’s Christmas time. A time of eating, drinking and spending time with those who are loosely genetically related to us.  But, for most of us, it isn’t all happy families. There are some family members who are generally hard work.

Imagine that to try and stimulate the Christmas cheer, your mum paid you to spend more time with the more challenging members of your family. How would you respond? Would this make you listen with more vigour to Auntie Emerald telling you about her difficult divorce, or more inclined to pop in to Grandpa and hear about the war?  Would you do it next year too, even if you didn’t get the reward? Or would you leave the whole business to your brother as he needs the money more than you.

This is an attempt at a festive analogy of payment by results. Broadly speaking this means that organisations that deliver public services get paid for performance. The rewards will be higher for the more difficult cases. For an example see the payment structure for the DWP’s new work programme.  Reading between the lines, it means you take a provider which might be a profit maximising company whose raison d'être is to maximise returns to shareholders. You then make solving the most entrenched social problems profitable. Everyone is a winner.

What could possibly go wrong - people respond to incentives don’t they? Well, yes they do, but in a very complicated way. They often don’t respond to payments received in the form of bonuses for performance. There are a number of explanations for this – the bonus may signal that the task is undesirable, crowd out intrinsic motivations, or distract attention away from the main point of the activity to the actual reward itself.

People are also often motivated by other factors. Heckman et al looked at the behaviour of frontline staff who were given discretion about who to accept onto a job training programme. They found that, contrary to expectations to ‘cream skim’ the best candidates, they were much more likely to accept people from more disadvantaged backgrounds. They had an intrinsic motivation to help those who were most in need.

This doesn’t mean that people shouldn’t get paid. Or that incentives never work. At nef we encourage local authorities to use incentives in the delivery of their services, including timebanking and local currencies. But incentives can be financial and non-financial and lessons from behavioural economics are important.  In a time where there is less public sector funding to go round commissioners need to build on and enhance peoples motivations to do a good job and to make a difference. Not crowd them out.