Incentives to Productivity

Publication number: 2012-45
Authors: J. Theeuwes, M. Lammers, M. Volkerink
Commissioned by: Ministry of the Interior and Kingdom Relations
Published by: SEO Economic Research
ISBN: 978-90-6733-6-543

As an employer the Dutch government faces major challenges in the coming years. Budgets are being squeezed by the economic crisis. Over half of total public administration staff are aged 45 or over, and many older staff will be retiring in the next few years. The challenge, in this maelstrom of ageing, a tight labour market (due to the crisis) and cutbacks, is to maintain the quality and volume of public services. Higher productivity – equal output with less manpower – could be a solution.

Smarter working enables higher production: in this way the same (or even an improved) levels of service can be achieved with fewer people. This is easier said than done, but higher productivity could be encouraged with the right incentives. This report explores three financial incentives that could help to achieve this:

  • An automatic annual productivity cut (efficiency dividend) at the organizational level
  • Implementing target costing at service or product level
  • Introducing performance pay for individual staff

This survey examined these three incentives for their applicability and their potential contribution to higher productivity, quality and innovation. It also looked at their more perverse effects.

Category: 2012, Marloes Lammers