Improving public sector performance management: one step forward, two steps back?

Public Finance and Management, Summer, 2004 by Carolyn J. Heinrich

Abstract

This empirical study of the performance management system in the U.S. Workforce Investment Act (WIA) program identifies challenges and prospects for implementing performance management systems effectively in public agencies. The analyses of performance standard setting processes and relationships among standards and state performance levels demonstrate that setting performance targets is a key task that determines the nature of incentives in the performance management system. In the absence of regular adjustments to performance standards for changing local conditions, the WIA system appeared to promote increased risk for program managers rather than shared accountability. Program managers, in response, appeared to make undesirable post-hoc accommodations to improve measured performance.

INTRODUCTION

Although performance measurement as a management tool has a long history dating back to the 1800s, it is primarily in the last two decades that public-sector performance management has shifted to an explicit focus on measuring outcomes and rewarding results (Heinrich, 2003; Radin, 2000). The United Kingdom's Next Steps and the U.S. Government Performance and Results Act (GPRA), for example, are government-wide initiatives that require agencies to specify quantitatively measurable goals and to evaluate performance toward these goals. This study is one in a growing body of work that aims to describe and draw lessons from public agencies' experiences in implementing these systems and to identify ways to increase their effectiveness, in addition to improving agency performance (Hatry et al., 2003; Heckman, Heinrich and Smith, 2002).

Among U.S. federal government agencies, the Department of Labor (DOL) has been a "pioneer" in the development of performance management systems (Barnow, 2000). Before GPRA, the Job Training Partnership Act (JTPA) of 1982 introduced performance standards for public employment and training program outcomes (e.g., job placement rates and trainee earnings) and the use of budgetary incentives based on performance to motivate agency staff. In addition, two randomized experimental evaluations, of the JTPA program in the 1980s and the Job Corps program in the 1990s, provided important information for assessing the performance of these performance standards systems in measuring program impacts. Policymakers and public managers have since drawn from the results of these studies to inform the design and operation of performance standards systems in government programs.

In the Workforce Investment Act (WIA) of 1998 that replaced the JTPA program, a greater emphasis on performance accountability was described as a "hallmark" of the legislation (Sheets, 2002; U.S. DOL-ETA, 2001). Some of the broader principles guiding the evolution of this performance management system include those originating in "total quality management" and "reinventing government" reforms--the measurement and analysis of results, continuous performance improvement, shared accountability, and a customer and market focus. The DOL is also actively supporting the use of the Malcolm Baldridge Criteria for Performance Excellence as a tool for improving organizational effectiveness. (1) Two new features of the WIA performance management system that were intended to strengthen these principles in implementation are a new approach to setting performance standards that involves the negotiation of performance targets with states, and new performance measures of customer (participant and employer) satisfaction.

This study uses the WIA performance management system as a case study to elucidate some of the challenges and prospects for making basic principles and components of performance management systems work effectively in public agencies. Early studies of the WIA performance management system have suggested that the system is working poorly and is in need of reform (U.S. GAO, 2002). Through the analysis of multiple sources of data, this study produces both general lessons about the implementation of performance management systems and more specific strategies for improving the effectiveness of outcomes-based performance management systems that involve multiple levels of government like WIA.

The paper proceeds as follows. An overview of the WIA program and specific goals of the WIA performance management system are presented first. The data and methods for the study are briefly described next. A qualitative analysis of how states determined performance goals, the levels of performance standards, and adjustments to standards under WIA is followed by empirical analyses of variation in and relationships among negotiated standards, states' attained performance levels, and differentials between states' performance and their negotiated standards. The larger question these analyses address is: How effective is this performance management system in gauging program performance and creating the right incentives to guide program administration and operations in improving outcomes for workers and employers?