Viewpoint: why variable pay-for-performance in healthcare can backfire. Evidence from psychological economics
| Pages | 120-123 |
| Date | 13 May 2014 |
| DOI | https://doi.org/10.1108/EBHRM-12-2013-0037 |
| Published date | 13 May 2014 |
| Author | Margit Osterloh |
| Subject Matter | HR & organizational behaviour,Global HRM |
Viewpoint: why variable
pay-for-performance in
healthcare can backfire
Evidence from psychological economics
Margit Osterloh
Zeppelin University, Friedrichshafen, Germany,
Department of Business Administration, University of Zurich, Zurich,
Switzerland and CREMA (Center for Research in Economics,
Management and the Arts), Zurich, Switzerland
Abstract
Purpose – The purpose of this “viewpoint” is to consider the unintended consequences of variable
pay and incentive schemes in healthcare environments.
Design/methodology/approach – Reviews a series of side effects of incentives.
Findings – The paper suggests that pay-for-performance schemes should be avoided.
Originality/value – The area of public sector boards is undergoing considerable change in the UK
and this paper, although preliminary, is one of the few to examine the links to motivation.
Keywords Incentives, Employee motivation, Unintended consequences, Pay-for-performance
Paper type Viewpoint
Variable pay-for-performance has become fashionable in the public sector, even in areas
which are characterized by high ambiguity and the absence of market prices, in particular
in healthcare. Variable pay-for-performance means that bonuses are paid when certain
targets are reached. However, evidence-based studies and meta-analyses have been
unable to show that such pay-for-performance really benefits patients. The widespread
implementation of pay-for-performance in healthcare therefore is not justified
(Eijkenaar et al., 2013). In contrast, monetary rewards can undermine motivation and
worsen performance on cognitively complex and intrinsically rewarding work,
suggesting that pay-for-performance may backfire (Frey et al., 2013). Nonetheless,
enthusiasm for pay-for-performance in healthcare remains strong. Medicare is moving
ahead with variable pay-for-performance and major private insurers are following
(Woolhandler and Ariely, 2012). What is the theoretical background f or this controversy?
Proponents of variable pay-for-performance refer to standard microeconomics,
in particular to the principal agent view. This theory strongly builds on the model
of the self-interested “homo oeconomicus.” It accepts, as a matter of course, that “cash
compensation should be structured to provide big rewards for outstanding performance
and meaningful penalties for poor performance” (Jensen and Murphy, 1990, p. 141).
In contrast, opponents of variable pay-for-performance argue that theories based on
self-interest cannot provide sufficient grounds to analyze the motivation of employees,
in particular of those performing complex tasks prevailing in healthcare. Thus, the
idea of enhancing performance by pay-for-perfo rmance is under certain conditions
wrong in itself. This criticism can be substantiated by psychological economics or
behavioral economics[1] (for an overview see Frey and Benz, 2004), and motivati on
psychology (for an overview see Deci and Ryan, 2000). It challenges prin cipal agency
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/2049-3983.htm
Received 23 December 2013
Accepted 23 December 2013
Evidence-based HRM: a Global
Forum for Empirical Scholarship
Vol. 2 No. 1, 2014
pp. 120-123
rEmeraldGroup PublishingLimited
2049-3983
DOI 10.1108/EBHRM-12-2013-0037
120
EBHRM
2,1
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