Agency Performance and Executive Pay in Government. An Empirical Test

Public management reform has drawn inspiration from principal agent theory and private management, and a favored reform strategy has been civil service reform that strongly recommends pay-for-performance. The hypothesis tested in this paper is that the incentive effect will improve public sector management. The basis is the performance management system introduced in Danish central government where access to both performance and pay data provides us with unique behavioral data. The system combines performance contracts with executive contracts for agency heads, who in this way can earn a bonus based on agency performance. We find no support for the hypothesis and discuss the result against principal agent theory, private sector experience, and bureaucratic theory.

[1]  O. Williamson.  The economic institutions of capitalism , 1985 .

[2]  Andrew Schotter,et al.  Multiperson Tournaments: An Experimental Examination , 2004, Manag. Sci..

[3]  G. J. Miller,et al.  THE POLITICAL EVOLUTION OF PRINCIPAL-AGENT MODELS , 2005 .

[4]  Kevin J. Murphy,et al.  CEO Incentives - It's Not How Much You Pay, But How , 1990, Harvard business review.

[5]  A. Binderkrantz,et al.  Delegation without Agency Loss? The Use of Performance Contracts in Danish Central Government , 2009 .

[6]  Donald P. Moynihan,et al.  Integrative Leadership in the Public Sector , 2004 .

[7]  H. Simon,et al.  A Formal Theory of the Employment Relationship , 1951 .

[8]  V. Naidoo.  The state of the public service , 2005 .

[9]  Eran Vigoda.  New Public Management , 2007 .

[10]  Sanjay K. Pandey,et al.  Testing How Management Matters in an Era of Government by Performance Management , 2004 .

[11]  S. Goldfinch,et al.  TWO MYTHS OF CONVERGENCE IN PUBLIC MANAGEMENT REFORM , 2010 .

[12]  Patricia W. Ingraham.  Of Pigs in Pokes and Policy Diffusion: Another Look at Pay-for-Performance , 1993 .

[13]  L. B. Andersen.  What determines the behaviour and performance of health professionals? Public service motivation, professional norms and/or economic incentives , 2009 .

[14]  Jarmo Vakkuri.  STRUGGLING WITH AMBIGUITY: PUBLIC MANAGERS AS USERS OF NPM-ORIENTED MANAGEMENT INSTRUMENTS , 2010 .

[15]  H. Barkema,et al.  Managerial compensation and firm performance : A general research framework , 1998 .

[16]  Anne Ketelaar,et al.  Performance-based Arrangements for Senior Civil Servants OECD and other Country Experiences , 2007 .

[17]  D. Moynihan.  A Workforce of Cynics? The Effects of Contemporary Reforms on Public Service Motivation , 2010 .

[18]  O. James.  Business Models and the Transfer of Businesslike CentralGovernment Agencies , 2001 .

[19]  R. Pitetti,et al.  Managerial dilemmas. , 2001, Pediatric emergency care.

[20]  Barry Bozeman,et al.  Comparing Public and Private Organizations: Empirical Research and the Power of the A Priori , 2000 .

[21]  Joe Wallis,et al.  International handbook of public management reform , 2009 .

[22]  J. Christensen,et al.  Similar Ends, Differing Means: Contractualism and Civil Service Reform in Denmark and New Zealand , 2004 .

[23]  Luis R. Gomez-Mejia,et al.  Perceptions of Benevolence and the Design of Agency Contracts: CEO-TMT Relationships in Family Firms , 2010 .

[24]  Lucian Arye Bebchuk,et al.  Pay Without Performance: Overview of the Issues , 2005 .

[25]  Avinash Dixit,et al.  # Incentives and Organizations in the Public Sector: An Interpretative Review , 2002 .

[26]  D. Moynihan,et al.  The Normative Model in Decline? Public Service Motivation in the Age of Governance , 2008 .

[27]  L. Gómez-Mejia,et al.  Environmental Performance and Executive Compensation: An Integrated Agency-Institutional Perspective , 2009 .

[28]  D. Moynihan,et al.  Performance Regimes Amidst Governance Complexity , 2009 .

[29]  Kevin J. Murphy,et al.  Performance Pay and Top Management Incentives , 1990 .

[30]  M. Osterloh,et al.  Pay for Performance in the Public Sector—Benefits and (Hidden) Costs , 2010 .

[31]  L. Langbein.  Economics, Public Service Motivation, and Pay for Performance: Complements or Substitutes? , 2010 .

[32]  K. Meier,et al.  Beware of Managers Not Bearing Gifts: How Management Capacity Augments the Impact of Managerial Networking. , 2010 .

[33]  Paul R. Milgrom,et al.  Multitask Principal–Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design , 1991 .

[34]  A. Binderkrantz,et al.  Governing Danish Agencies by Contract: From Negotiated Freedom to the Shadow of Hierarchy , 2009, Journal of Public Policy.

[35]  K. Schedler,et al.  Public Management as a Cultural Phenomenon: Revitalizing Societal Culture in International Public Management Research , 2007 .

[36]  Bruno S. Frey,et al.  Yes, Managers Should Be Paid Like Bureaucrats , 2005, SSRN Electronic Journal.

[37]  James L. Perry,et al.  Motivating Employees in a New Governance Era: The Performance Paradigm Revisited , 2006 .

[38]  J. Clarkson,et al.  Incentives for Dentists in Public Service: Evidence from a Natural Experiment , 2010 .

[39]  Roger G. Noll,et al.  Administrative Procedures as Instruments of Political Control , 1987 .

[40]  Brian G. M. Main,et al.  Top Executive Remuneration: A View from Europe , 2005 .

[41]  W. Dugger.  The Economic Institutions of Capitalism , 1987 .

[42]  G. Miller.  Above Politics: Credible Commitment and Efficiency in the Design of Public Agencies , 2000 .

[43]  Andrew B. Whitford,et al.  The Principal's Moral Hazard: Constraints on the Use of Incentives in Hierarchy , 2006 .

[44]  Matthew Dull.  Results-Model Reform Leadership: Questions of Credible Commitment , 2008 .

[45]  Henry L. Tosi,et al.  How Much Does Performance Matter? A Meta-Analysis of CEO Pay Studies , 2000 .

[46]  Kevin J. Murphy,et al.  CEO Incentives - It's Not How Much You Pay, But How , 1990 .

[47]  P. Ingraham.  Building Bridges over Troubled Waters: Merit as a Guide , 2006 .

[48]  Gary J. Miller,et al.  Trust and Incentives in Principal-Agent Negotiations , 2002 .

[49]  George Alexander Boyne,et al.  Human Resource Management in the Public and Private Sectors: An Empirical Comparison , 1999 .

[50]  Marc Keuschnigg,et al.  6. Wirtschaft und Gesellschaft im Zeitablauf , 2013 .

[51]  J. Christensen.  Ministers and Mandarins under Danish Parliamentarism , 2006 .

[52]  Jensen Mc,et al.  CEO incentives-its not how much you pay, but how. , 1990 .

[53]  Jan-Erik Lane,et al.  New Public Management , 2021, Bangladesh Journal of Public Administration.

[54]  Sendhil Mullainathan,et al.  Are CEOs Rewarded for Luck? The Ones Without Principals Are , 2001 .