Payment on Performance: Payment on Performance: A Policymaker’s Bumper Sticker - Gary L. Sturgess NZ Treasury, Wellington, 8 May 2012
If policy analysts carry bumper If policy analysts carry bumper stickers, they should read: ‘Payment on Performance’ on Performance’. - Pressman & Wildavsky, 1973 Pressman & Wildavsky 1973 2
Payment on Performance Payment on Performance Outcome Outcome Cash Value-based commissioning on on pricing pricing delivery Performance- based based Payment contracting by results by results Social Payment y No cure, , impact for no pay bonds progress p g 3
Payment on Performance Payment on Performance Payment-by-results Payment-by-outcome Invest-to-save Outcome commissioning S Social Impact Bonds i l I t B d 4
What’s happening? What s happening? 5
HMP Peterborough (UK) • Outcome: Reduction in reconviction rates in 12m • Outcome: Reduction in reconviction rates in 12m after release • Population: Three cohorts of ~1,000 offenders in Population: Three cohorts of 1 000 offenders in HMP Peterborough with short sentences (<12m), whether or not St Giles etc work with them whether or not St Giles etc work with them (~1,000 over 2 years) • Incentive Regime: 10% for each cohort or 7.5% % f % reduction over all 3 cohorts • Control: offenders from all other prisons 6
HMP Peterborough (UK) HMP Peterborough (UK) 7
HMP Peterborough (UK) HMP Peterborough (UK) • Contract with Social Finance • Delivery led by St Giles Trust Delivery led by St Giles Trust • First payback expected after 3-4 years • Went live September 2010 8
HMP Doncaster (UK) HMP Doncaster (UK) • Outcome: Absolute desistence in Ab l t d i t i O t 12m after release • Population: All prisoners released John Biggin from Doncaster (except foreign nationals) • Incentive regime: 10% of revenue rebated if one-year reconviction rate does not fall 5% points (60% > 55%) • Bonus payments for each 1% point reduction beyond 5% points (up to 5% points) y p ( p p ) 9
HMP Doncaster (UK) HMP Doncaster (UK) • £250m contract over 15 years • Went live on 1 October 2011 John Biggin • Serco has managed the prison since • Serco has managed the prison since 1994 • Joint venture with Turning Point & Catch 22 • Serco also has job placement contract for South Yorkshire for South Yorkshire 10
Work Programme (UK) Work Programme (UK) Year 1 Year 2 Year 3 Year 4 Year 5 Attachment fee Maximum 75% 50% 0% 0% payment starts to decrease decrease from Yr 2 Job outcome Payment placing a job seeker < Maximum payment starts to decrease payment payment in a job for 13 and 26 weeks from Yr 3 Sustainment Sustainment Additional payment for every 4 wks a client retains work outcome – for up to 2 years from job outcome payment 11
Social Benefit Bonds (NSW) Social Benefit Bonds (NSW) • Social Finance and Mission Australia - reduce reoffending among young adult repeat reduce reoffending among young adult repeat offenders • Benevolent Society, Westpac and the Commonwealth Bank – family preservation for at-risk families • UnitingCare Burnside – family preservation UnitingCare Burnside family preservation and restoration 12
Some Other Initiatives Some Other Initiatives • Diabetes Pilot (Australia) – improvement in clinical indicators clinical indicators • Suffolk Community Health (UK) – reduction in hospital admissions • Defence Recruitment (UK) – recruitment and ( ) sustainment • Troubled Families Initiative (UK) • Troubled Families Initiative (UK) – reducing reducing levels of crime, cutting the cost to government government 13
This isn’t new This isn t new. 14
History History “ If the [parish If h [ i h schoolmaster] was wholly, or even principally paid by [the principally paid by [the public treasury], he would soon learn to would soon learn to neglect his business.” - Adam Smith, 1776 15
History History “Instead of appointing a fixed salary, invariably of the same amount. . . it would be well to make such emolument in some measure depend upon the care with which their duties have been performed, as evidenced by their success.” - Jeremy Bentham, 1790s 16
History History “. . . the great master principle of administration. . . of making interest d i i t ti f ki i t t coincident with duty – by only paying for results.” - Edwin Chadwick, 1877 , 17
History History ‘P ‘Payment by Results’ in t b R lt ’ i Education (Revised Code, 1862-1890): “It is the state’s business. . . to ascertain the results of the instruction given, and then g , to pay in proportion to those results .” results . - Robert Lowe, 1861 18
Private Sector Private Sector No cure, no pay 19
Private Sector Private Sector Power by the hour 20
Private Sector Private Sector Value based Value-based pricing 21
Public Sector Public Sector • Program Budgeting g g g • Performance Budgeting • Program and Performance Budgeting • Program and Performance Budgeting • Management by Objectives • Management by Results 22
This is difficult: This is difficult: “[Program budgeting] resembles nothing so much resembles nothing so much as a Rube Goldberg apparatus in which the apparatus in which the operations performed bear little relation to the output little relation to the output achieved.” - Aaron Wildavsky A Wild k 23
And not without its critics: And not without its critics: The Revised Code was “the classical application to education classical application to education of the harmonious simplicities of the Manchester School the Manchester School. . . with with the annual examination as the exchange the inspectors as the exchange, the inspectors as the skilled buyers who graded the product and the teachers kept product, and the teachers kept on their toes by a premium- bonus system ” bonus system. - R.H. Tawney, 1939 24
Why is it difficult? Why is it difficult? 25
1 Specifying outcomes 1. Specifying outcomes “Outcomes often are uncertain, delayed, and controversial; procedures are known, immediate, p , , and defined by law or rule. It is hard to hold managers accountable for to hold managers accountable for attaining a goal, easy to hold them acco ntable for conforming to the accountable for conforming to the rules.” - James Q. Wilson, 1989 26
1 Specifying outcomes 1. Specifying outcomes • Complex, conflicting and contextual • Ownership may be unclear • Ownership may be unclear • May be unmeasurable 27
2 Performance incentives 2. Performance incentives Butterworth Report (20 April): 40% of PBO claims by 14 agencies were false or unsubstantiated 28
2 Performance incentives 2. Performance incentives Sunday 26 February 2012 Exclusive: A4e and a £200m back-to-work scandal Accusations of fraud and widespread malpractice have prompted Commons watchdog to take tough action 29
2. Performance incentives 2 Performance incentives “To secure a big grant, a high percentage of passes must be percentage of passes must be obtained, but that is no measure of the true education gained by the the true education gained by the Auberon Herbert, , 1889 scholars. “It is indeed often a measure of the It is, indeed, often a measure of the cruel overstrain and worthless cramming that the delicate and dull cramming that the delicate and dull. . . have been subjected to for the purposes of money winning ” purposes of money winning. 30
3 Procurement 3. Procurement Wednesday 25 January 2012 Over-optimism and the Work Programme: why we should be worried y High expectations for the success of the government scheme to get people back into work will mean trouble at the frontline 31
Work Programme (UK) g ( ) Successful Bidders • Ingeus UK Ltd 7 £727m • A4e Ltd A4e Ltd 5 5 £438m £438m • Working Links 3 £308m • Avanta 3 £267m • Seetec Seetec 3 3 £221m £221m • G4S 3 £184m • Maximus M i 2 2 £176 £176m • Serco 2 £115m 32
And yet: And yet: Social Benefit Bonds: “Mr Baird said the Coalition was ‘confident that these proponents will be able to work that these proponents will be able to work with us to develop these pilots in a way that represents value for money while that represents value for money, while also providing long-term social and economic benefits for the state’. ” ” - Australian Financial Review, 20 March 2012 33
And yet: And yet: Announcement of preferred bidder for Wiri Prison: for Wiri Prison: “The contract will have a combination of incentives and penalties to focus the contractor penalties to focus the contractor on achieving the Government's objectives of public safety and objectives of public safety and reduced re-offending.” - Ministerial Press Release, March 2012 34
Why the confidence? Why the confidence? 35
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