Geoff Plimmer: Victoria University Researcher on whether or not performance-based pay will help public servants

The return of performance pay for public service bosses could be a good thing - if done right.

The Minister-in-charge, Nicola Willis, confirms it will be back by the next financial year.

In 2018, then-State Services Minister Chris Hipkins cut performance pay, attempting to slow CEO salary growth.

Victoria University Researcher Geoff Plimmer says many studies show it can be disastrous - so it needs to be carefully implemented.

"I think you need to have really good measures, you need to audit them, make sure they're reliable - you need to update them occasionally as well, that seems to help."

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Episode Transcript

Speaker 1 (00:00):
Keller duples out. The government is bringing back performance pay
for public sector bosses. Finance Minister Nicola Willis it's been
a little cagy on exactly when this will come in,
but the Public Service Commission is working on it and
a new system should be in place by the middle
of next year. The last government labor got rid of
performance pay in twenty eighteen, saying the chief executives were
getting paid too much. Jeff Plimmer is an associate professor

(00:20):
at Victoria Victoria University School of Management and with US.

Speaker 2 (00:23):
Now, Hey, Jeff, hi, how are you.

Speaker 1 (00:26):
I'm well, thank you. You like the idea.

Speaker 2 (00:29):
I think it that's done well, it can work, But
there's lots of studies that have found performance pay in
the public sector can be disastrous. So I'd really argue
against an ideological approach that it's a great idea or
it's a terrible idea. Do it well, think it through,
work out how it's going to be gamed or it
might be gamed, and manage that.

Speaker 1 (00:49):
Okay, So how do you do it so it doesn't
get gamed?

Speaker 2 (00:53):
I think you need to have really good measures. You
need to audit them, make sure they're reliable. You need
to update them occasionally as well. That seems to help
and reduce in gaming. And you need to design them
ideally with sort of the industry or the sector of
the experts in mind, so you think about what's realistic
and think through how people might react to them.

Speaker 1 (01:16):
Is there evidence that it does actually sharpen the minds
of the bosses and get them to deliver what they're
supposed to deliver.

Speaker 2 (01:22):
It does, absolutely. It focuses attention, directs energy and the
level of effort put into them, and it can also
cut their level of political interference chief executive and say, sorry, minister,
I'm not your valet. I actually have to do this
work to meet my performance targets. So it can have
quite a few good positive effects, all right.

Speaker 1 (01:43):
The trouble, of course, is, for example, if you do
it in the medical system and you say one of
your targets is that you move people through EATY within
six hours, they start booting them out too quickly and
they're not ready to be moved on, right, That kind
of gaming can happen absolutely.

Speaker 2 (01:58):
You make you insist on a certain number of elective surgeries,
although there is in fast ones, and leave vulnerable people
with serious complications, untreated kind of risk.

Speaker 1 (02:07):
Your manager, the available options for how to game that
must be so huge. How can you possibly design a
system that catches all of it?

Speaker 2 (02:18):
Well, my guess is you'd think about it very carefully
about the type of operation. So specify them in terms
of not just elective servance surgery, but these types of surgery.
You might classify them in terms of difficult in terms
of difficulty as well. So by breaking them up more
than us you can manage that that kind of risk.

(02:40):
But it does get complicated, and so taking a view
that it works in the private sector sort of work
in the public sector is a really silly idea. But equally,
just saying doesn't work here. We're special, we're different, Trust
us noble public servants. That doesn't really work that well either.

Speaker 1 (02:57):
Jeff, thanks for talking us through it. Really appreciate it.
Is Jeff Plummer, Professor at Victoria University School of Management.
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