The carrot vs. the stick

The difficult art of motivating civil servants on a restricted budget

By Paul Constance

"You guys pretend that you’re working and I’ll pretend that I’m paying you." This remark, allegedly made by a Latin American labor minister to the leaders of the local federal employees union, provides a sad but accurate summary of the relationship between bosses and employees at many Latin American public services.

It also points to one of the most vexing issues facing the public sector in general: how to motivate good performance among civil servants. The private sector has always had a variety of positive and negative incentives to motivate individuals or teams of workers. The positive ones include bonus pay, stock options, gifts and promotions. Negative ones are based on the threat of dismissal.

But public enterprises are rarely able to use either of these methods fully. Financial rewards are out of the question because most governments use a rigid grade-based system for determining pay across the entire public sector. Annual employee performance reviews are carried out in many countries, but the results of the reviews are rarely linked to better pay or promotions. And in most countries the law also makes it very difficult to fire a civil servant for poor performance. In many Latin American countries, this so-called inamobilidad (or "unremovability") is jealousy defended by labor unions.

Road block. Mario Waissbluth, executive director of Invertec IGT, a Chilean management consulting firm that specializes in the public sector, sees inamobilidad as an enormous obstacle to progress. "It is virtually impossible to make more than cosmetic improvements in the performance of a public institution if a civil servant is certain that nothing will happen to him if he does not do his job," Waissbluth says. Many management experts agree.

But Javier Etcheberry, chief of Chile’s Internal Revenue Service, sees things differently. He claims that the law makes it difficult but not impossible to dismiss an employee. The problem, in his view, is that most bosses would rather not go to the trouble of applying the law. As an example, he cites the compulsory performance evaluations that all civil servants in Chile are required to undergo each year. In his service, for example, employees are given one of four ratings. Those who receive the fourth, or lowest, rating can be dismissed immediately, as can those who receive the third rating for two years in a row. The problem, according to Etcheberry, is that most bosses conclude that "it is easier to give all your employees the highest rating and avoid problems with the unions."

Etcheberry says his service has dismissed more employees (usually for corruption or malfeasance) than any other public institution in Chile. Each of these dismissals has been contested by the union, and the tax service has often been forced into court in order to justify its case. But Etcheberry says his employees have ultimately supported almost all the dismissals for one simple reason. "We discovered that if we were very open about the reasons for firing an employee, if we asked all of the bosses to hold meetings with their staff where they explain why so-and-so was being fired, then the opinion of the employees would quickly shift in our favor," Etcheberry says. "When people heard the details they would say ‘My God, why didn’t they fire that person earlier!’"

Compliments too. Chile does not rely exclusively on negative incentives, however. On the contrary, since 1998 all Chilean civil servants have used a pay-based incentives system without precedent in Latin America. Each worker is evaluated annually and placed in either a top, middle or bottom tier based on predefined criteria (the tax service evaluation system described above coexists with this system). Employees in the top tier receive a flat 4 percent raise the following year, above any other standard increases. Those in the second tier receive a 2 percent raise, and those in the bottom slot receive none.

Although this system appears to be very popular with public employees, it has also been criticized as arbitrary by labor unions. "We agree that you must evaluate and that you must differentiate between the good and the bad," says Eduardo Saavedra, president of the Chilean tax services’ Auditors Association. "But too often those who are rated in the top tier turn out to be the bosses’ friends and brown nosers, and we think that’s perverse." Etcheberry counters that all employees have the right to appeal their evaluation before an independent committee, and he argues that human subjectivity can never be entirely removed from an evaluation system. "You can try to evaluate objectively by using points and detailed criteria, but in the end somebody is going to have to make a judgement," he says.

And some sort of judgement, it seems, is preferable to no judgement at all. Reflecting on battles over the issue of evaluations in his native Uruguay, labor relations scholar Juan Manuel Rodríguez puts it this way: "When you try to do without performance-based incentives, you end up actually rewarding poor performance."

Date posted: March 2002