Performance-related pay, fairness perceptions, and effort in public management tasks: a parallel encouragement design
| Published date | 01 December 2023 |
| DOI | http://doi.org/10.1177/00208523221105374 |
| Author | Paolo Belardinelli,Nicola Belle,Paola Cantarelli,Paul Battaglio |
| Date | 01 December 2023 |
| Subject Matter | Articles |
Performance-related pay,
fairness perceptions, and
effort in public
management tasks: a
parallel encouragement
design
Paolo Belardinelli
London School of Economics and Political Science, UK
Nicola Belle
Sant’Anna School of Advanced Studies, Italy
Paola Cantarelli
Sant’Anna School of Advanced Studies, Italy
Paul Battaglio
University of Texas at Dallas, USA
Sant’Anna School of Advanced Studies, Italy
Abstract
This randomized study explores the causal mechanisms linking contingent pay to individ-
ual performance on a series of tasks mimicking real public management activities.
Employing a parallel encouragement design in a laboratory setting, we disentangle the
overall, direct, and indirect performance effects of perceived fairness as well as a pay
scheme that reproduces the merit system provisions adopted by the Italian government.
The overall performance effect of that contingent pay scheme turned out to be insignifi-
cant when averaged across the four experimental tasks. However, a significant pay-for-
performance effect was detected for the most routine task. Moreover, we observed het-
erogeneity in the treatment effect depending on the participants’relative positioning in
Corresponding author:
Paul Battaglio, University of Texas at Dallas, 800 W Campbell Rd, Richardson, Texas 75080, USA.
Email: battaglio@utdallas.edu
Article
International
Review of
Administrative
Sciences
International Review of Administrative
Sciences
2023, Vol. 89(4) 1062–1078
© The Author(s) 2022
Article reuse guidelines:
sagepub.com/journals-permissions
DOI: 10.1177/00208523221105374
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the performance ranking. Overall, the data do not provide support for a mediation
model linking contingent pay-for-performance through perceived fairness.
Points for practitioners
•Workers tend to perceive pay-for-performance as fairer than equal pay.
•The effectiveness of pay-for-performance seems to be greater for more routine tasks.
•Public organizations and their managers should be aware that the effects of pay-for-
performance may be unpredictable because they depend on a multitude of factors.
Keywords
human resources management, performance, public management
Introduction
The debate about the use of pay-for-performance or performance-related pay (PRP) is not
new in public management scholarship. Perry et al. (2009) conclude a review of 57
studies published between 1977 and 2008 by stating that “performance-related pay in
the public sector consistently fails to deliver on its promise”(p. 43). Indeed, extant evi-
dence now suggests that the effectiveness of financial rewards depends on such factors as
the size of the incentives (e.g. Belle and Cantarelli 2015; Gneezy and Rustichini 2000),
their visibility or transparency (e.g. Ariely et al., 2009; Belle, 2015), the time at which
they are distributed (e.g. Fryer et al., 2012), the type of task (e.g. Weibel et al., 2010),
as well as individual characteristics of the subjects performing the task (e.g. Dal Bó
et al., 2013; Forest, 2008).
Yet, 80% of OECD countries have adopted some form of PRP since the 1980s (Lah
and Perry, 2008). Italy is no exception, with a variety of PRP schemes introduced in the
early 1990s across public organizations operating at the national, regional, and local
levels. The implementation of PRP provisions has typically led to a lack of differentiation
among employees, resulting in most employees assigned to the highest performance cat-
egory (e.g. Corte dei Conti, 2003; Ministero per la Pubblica Amministrazione, 2008).
Subsequently, the Italian government issued Legislative Decree No. 150 of 2009 introdu-
cing a forced-ranking system, whereby PRP is based on a ranking of public employees
within each agency. Employees are assigned to one of three ranking clusters: high
merit, intermediate merit, and low merit. Allocations for each ranking are 25%, 50%,
and 25% of the employees respectively, based on their measured performance. Each
agency has a predetermined amount of money for the payment of merit-based bonuses,
which is split among the three clusters: 50%, 50% and 0% to the high, intermediate,
and low merit clusters respectively.
1
Our study explores the effect of introducing and
actually enforcing such a contingent pay system as opposed to introducing it formally
and failing to enforce it by equally distributing monetary incentives while accounting
for perceived fairness. Specifically, we test the causal relationship between enforcing a
PRP scheme and performance across task types and the mediating role of perceived fair-
ness in a laboratory setting adopting a parallel encouragement design (Imai et al., 2013).
Belardinelli et al. 1063
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