Question

Does implementation of performance pay in the public sector face unique challenges not seen in the private sector? If so, describe these challenges.

Answer 1

The challenges faced by the public sector in performance pay include

Resistance to change – Most of the public sector adopts a traditional pay system hiking the basic salary of the entire employees at the same time. In such situations, a decision to shift from traditional pay system to a performance pay system face severe resistance from employees and various other sources

Staffing problem – High performers in the public sector (high-demand occupations) shift to a performance pay system offered by private companies and in order to solve the staffing problem in the public sector, the starting salary is raised in a uniform manner

Budget problems – Some of the public sector faces budget problems to pay the employees and use their limited funds to the best use and hence performance pay adoption becomes a hindrance in such situations

Retaining and replacing employees – This is a major challenge faced by the public sector in finding an appropriate replacement for the retiring employees especially in service-oriented occupations like education, healthcare etc. The absence of performance pay system makes it hard to retain qualified employees and find suitable replacements for the retiring employees to fill the vacancy

High paying government jobs are scarce – The scarcity of government jobs and an ageing government workforce are other challenges in the current generation losing interest in a government job and switching to performance pay private jobs especially in the urban areas

Lack of engaged employees – Gallup report suggests that 71 per cent of government employees on an average are not engaged in their jobs and attribute pay factor to their dissatisfaction level