The Public Sector Carrot – Rethinking Government Compensation.

This week I had the privilege of attending IBM’s Think Leadership Forum celebrating the company’s remarkable 100 years of success.  One of the more thought provoking presentations was from Tom Friedman, NY Times Foreign Affairs Columnist and co-author of the recent book “That Used To Be Us” (and yes also author of that influential book “The World Is Flat”) .  “That Used To Be Us” is a great read and atleast for me really put into context the situation we in the US find ourselves in today from an economic, social and political perspective.

The definition of insanity as many know is “Doing the same thing twice and expecting a different result”.  So clearly we need to do things differently – we need to rethink our mental model of what has made the USA great without compromising the core values that have shaped us.

As I reflected on issues raised in Tom’s book I started to think about the incentives that drive public officials and elected officials.  Typically for elected officials this is likely to be re-elected and the opportunity to continue to have a positive impact and for public officials it is likely job security, the opportunity to make a difference and work on a cause they believe in and maybe even a sense of patriotic/civic duty.

But are these incentives enough to allow effective leadership in today’s complicated environment?  What if the problem lies not so much with the elected and public officials, the majority of whom are good, talented, bright individuals,  but more with the system of incentives and compensation that drive their decision making.  Who has access to money (in the form of campaign finance and endorsements) and who has more media coverage (in the form of opponent bashing and sound bites) has become part of the incentive system for election and re-election while rolling up the sleeves and getting the job done is often just noise.   I am over-simplifying a complicated issue but you get the idea.

We spend a lot of time blaming our elected and public officials for all the problems and issues facing the country – while it may make us feel better I think we need to rethink the issue.

The proposal – What if we revamped public sector incentives to link compensation to key successes metrics that drive the country forward in the direction is required.

So some ideas – could you link congressional pay and executive pay to GDP growth, job expansion, debt limits, education test scores, export growth rates etc. – you get the idea.

I would even argue that we need to pay our public officials a much more competitive salary to attract the best people for the job and ensure the right level of motivation so they can deliver the best results.

Yes all this additional compensation will cost the government more but my assumption is that by compensating for success and assuming we find the right metrics for change we will actually end up saving much more.

The poster child for this kind of a system ofcourse is the Government of Singapore (or as commonly known Singapore Inc.).

My suggestion is not a new one, but it is one that I think is more important for us to explore today than ever before.  The right incentive system is the foundation for achieving goals and for enabling change.

Yes there are many issues with this approach, get consensus on the goals,  how do you measure the goals, how do you benchmark and how do do you link it to compensation.  Also many areas of focus may be social services or national defense where this approach may be an issue.

So maybe Singapore has it right, especially in a services and knowledge based economy, maybe we need to compensate our public officials more aggressively and based on an incentive model based on results.

I am sure many of you will have a view on this, and as usual I look forward to your comments and input.

Zia.

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3 Responses

  1. You are correct, in that the problem is not the persons themselves, but a warped system of incentives. Unfortunately, that is the problem with the modern democratic society. We have unrealistic expectations of our elected officials, and are willing to tolerate subpar performance from our non-elected officials (for whom accountability is often low to begin with).

    I for one do not believe that running government like a business is necessarily a good thing. The objectives are distinct, and the incentives should be as well. Almost every single performance metric for public officials you quote is oriented to the short term, and we all know how an emphasis on near term objectives can severely compromise the longer-term viability and health of a society. Your argument is also predicated on the fact that monetary incentives are the underlying driver of personal performance in both cases. I would maintain that those who seek to govern and serve the public interest (should) do so for a higher calling. Perhaps I am being naive in this view, especially in our current vicious political environment.

    However, I wholeheartedly agree that a new approach to the entire public sector is needed. This will entail changing the democratic process and institutions, rather than nudging our public officials incrementally in a particular direction.

    Government should be for governing and governance alone.

    • Cyrus, good to hear from you after many years and thanks for the comments. So i partially agree with you. Ofcourse everything is a balance and anything to the extreme will not work. Your point on managing the short versus long term is a good one – though the simple fix for what would be to compensate people on a mix of these objectives – easy to do.

      The second point is a more complicated one. I don’t believe that you should have to make a choice between a “higher calling” and being adequately compensated for your talents. In the same argument I think we underpay our teachers, fire fighters, policemen and military. Now mind you, i am not suggesting that everybody is ONLY motivated by financial considerations – even in the private sector it is not always money but job satisfaction etc.

      I think we can both agree that a more fundamental change and innovation to government is probably due.

      Hope you are well.

      Zia.

  2. Again a very good question, with no easy answers 😉
     
    In general, your proposal is very valid (and I will not use examples of CEO’s who might receive 35 Mio USD for a years “work” of destroying half the value of a company against it) and while it will be difficult to come up with the right KPIs, the discussion about what constitutes relevant KPIs alone will be very valuable.
     
    My biggest difficulty lies with three issues (somewhat reiterating cyrus’ point;)):
     
    1.) Long-term effect vs. short-term renumeration
     
    Drafting and implementing meaningful policies and seeing their sustained results seems to me to require rather decades than years, and as such would not be congruous with terms of elected politicians, and probably also not with specific positions held by public officials.  (That might be one of the advantages of monarchies 😉 ,i.e. long-term time horizons of countries and dynasties are matching)
     
    2.) Accountability
     
    I believe even more difficult than in a big global company, matching politicians/public officials renumerations with their concrete influence – both for or against- the development and implementation of a certain policy seems a very demanding task
     
    3.) Privacy
     
    I believe that you could find a lot of highly skillful, rightminded and successful people who would be willing to serve for their country, for the common good, for mankind – and the according financial renumeration would not be of their concern. But looking at how media – supported by a consuming public – might change ones life, and the lives of many loved ones around oneself, I believe one would need a discussion about “the public’s right to know” vs. “the individuals right to privacy” first. 
     
    But again, a very challenging topic, and a right question to ask by a bright mind;)
     
    All the best
     
    Bernd

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