Pay-for-performance has become a widely utilized means of improving productivity and decreasing costs in the public sector. This article examines pay-for-performance schemes in the public sector. It offers recommendations for instituting a successful pay-for-performance scheme that will have a positive impact on the nation’s civil service.

 Starting in the 1980s governments around the world have tried to address a basic issue about government service, which is how to make that service more productive and more cost-effective. Governments were forced to respond to what was termed “the fiscal crisis of the State” - government costing taxpayers more and more and the demands being placed on taxpayers were becoming unsustainable.

The question faced by governments worldwide was how to address these twin issues of high demand and high cost for government services. The answer seemed to lie in the area of increasing the productivity of government service workers – to gain more output from them for the same monetary input. The subsequent question became, of course, how to achieve this goal.

Many countries turned to the private sector in search of a model. One possibility was to fundamentally alter the ways in which the pay for government workers was disbursed. Specifically, many governments instituted some form of pay-for-performance scheme for government workers.
Also called merit pay or performance-based pay, such schemes tie an employee’s base pay or bonuses to their productivity on the job. Such schemes are widely used in the private sector and are seen as a route to improving the cost effectiveness of the delivery of government services.

The typical service incremental wage structure contributes, in the view of the World Bank, to “endemic overstaffing and unsustainable wage bills” for governments. Spearheading an effort to reform civil service in developing countries, the World Bank began tying bureaucratic performance into its reviews of fiscal performance by developing countries in assessing governments as borrowers. In other words the message being sent by the World Bank starting in the early 1980s was that unlike developed countries, developing countries could not afford a non-cost-effective civil service.

In that direction, Uganda in the 1980s and 1990s started serious efforts to improve civil service performance. A major initiative was a change in remuneration policy. Previously Ugandan civil servants, except at the highest levels, were poorly paid, a situation contributing to endemic corruption. The civil service system was also a major patronage area in Uganda, and appointments, raises, and promotions were based largely on political connections, and not on performance.

In an effort to improve civil service performance Uganda in the 1980s raised basic pay and instituted performance measures in its remuneration package. In the 1990s Uganda began structuring an IPRP, and the result, as observed by the World Bank and others, has been a great increase in effectiveness and professionalism in the Ugandan civil service.