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Payment by results is a bit like a soufflé, it has to be done right or you end up with a mess. The reward-based system is currently receiving a lot of attention from the public sector. As the pressure to save and improve increases each year, the benefits of a system that incentivises good performance and focusses on the end results for customers are obvious. But the risks are often overlooked.
A serious danger is that it can reward the wrong results. For example if a council were to pay their employees according to the number of housing applications they process, the people with the highest salary won’t be the ones who effectively deal with each request according to the needs of the applicant; it’ll be the people who rejected as many applications as possible so as to bump up their numbers. Incentivising this kind of behaviour can destroy the service payment by results seeks to improve.
Designing an appropriate payment system is no small feat. The Cabinet Office advices that, amongst other things, payment by results should use measurable, relevant indicators. That’s sound advice, but in reality these two requirements are often contradictory.
The most measurable results are often outputs, such as how many customer complaints are dealt with in a week. But these are not necessarily the most relevant. Results that relate most to the council’s goals, and therefore the well-being of their community, are often outcomes, such as having satisfied customers. This is a far better indicator of performance, but the subjective nature of outcomes makes them much harder to accurately measure and fairly reward.
These problems are serious, but not inevitable. The right system in the right place can improve innovation and create savings, without axing jobs or services.
When considering whether to use payment by results, organisations must decide on a case-by-case basis if and how the risks can be countered. The public sector doesn’t need payment by results, it needs payment by the right results – sometimes.