New Public Management, Contracts for the Provision of Services and Financial Incentive Mechanisms:...

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2001 67: 151International Review of Administrative SciencesYves Emery and David Giauque

SwitzerlandFinancial Incentive Mechanisms: Practices and Problems Encountered in

New Public Management, Contracts for the Provision of Services and

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02_IRAS67/1articles 23/2/01 9:42 am Page 151

New public management, contracts for the provision ofservices and financial incentive mechanisms: practicesand problems encountered in Switzerland

Yves Emery and David Giauque

IntroductionHuman resource management is one of the major arenas in the modernization ofpublic services in all OECD countries (OECD/PUMA, 1997), as well as in themajority of other countries (ILO, 1998). The projects conducted in this field,modifying legal (staff regulations), organizational (reinforcement of humanresource structures and management, decentralization of human resource management) and cultural (orientation more towards performance, work assess-ment, flexible working conditions) foundations, with a view to boosting the spiritof enterprise and transforming public officials, in particular senior staff, intoentrepreneurs (Emery, 1997; Hill and Klages, 1997). In terms of the entrepre-neurial rationale, this involves setting up financial incentive systems to ‘reward’the performance achieved (OECD/PUMA, 1997; White, 1999), thereby castingaside the ‘functional’ bureaucratic models (Hondeghem, 1998) under whichsalary increases were automatic.

Often designed in a period of economic boom and analogous with the privatesector, these systems are not easy to reconcile with the new public management inthe current context. Indeed, the so-called ‘new public management’ (Osborne andGaebler, 1993; Schedler, 1995), which led to organizational restructuring thataffects administrative public bodies, aimed to improve the financial performanceof the public sector, under fierce financial pressure from public debt (ILO, 1998).As far as possible it therefore involves reducing expenditure associated with thefunctioning of the state and improving the quality of the services delivered, whileproviding competitive remuneration in the labour market.

However, such financial incentive systems have a tendency to cost more thantraditional systems (OECD/PUMA, 1997) while producing potentially inequit-able situations between the various departments of the administration, which donot all enjoy the same ‘gains’; in other words their expenditure and revenues are,to a varying degree, associated with political and legal decisions that largely

Yves Emery is a professor of public management and human resources at the Institut du hautes études en administration publique (IDHEAP). David Giauque is a scientificassistant at the IDHEAP, Switzerland. CDU: 35.06(494)

International Review of Administrative Sciences [0020–8523(200103)67:1]Copyright © 2001 IIAS. SAGE Publications (London, Thousand Oaks, CA and NewDelhi), Vol. 67 (2001), 151–171; 016162

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determine their extent. Consequently, these systems can create situations ofinequality between the management and staff of public services. These systemsalso have the effect of broadening the overall range of salaries (minimum andmaximum salaries paid to public officials), bringing them closer to the remunera-tion paid in the private sector. Finally, they raise the thorny question of the‘democratic’ use of public funds, because it is the responsibility of heads ofdepartments (civil servants) to distribute the financial incentives within the envelope granted to them without the political authorities being able to intervene.

In this article, we begin with a brief analysis of the trends in Europe towardsmaking salary conditions more flexible in the private and public sectors. We shallsee that attempts are made to justify this movement on the basis of economic andbehavioural theories; and that the aim is to increase the performance of publicorganizations. Following this, we analyse the political and economic context inSwitzerland in which innovations have been made in public organizations at federal, cantonal and even local (communal) level. Comparing these, we presentthe results of a field survey that we conducted within Swiss public services thatoperate under service provision contracts, concerning the motivation and re-muneration of public officials. We then go on to draw up a status report and todiscuss a few ethical, political and economic problems that inexorably arise inthis type of experiment. At the end of the analysis, we draw certain provisionalconclusions concerning financial incentives and flexible remuneration for publicofficials that could be transferred to other public services.

Individualization and the imposition of flexible salary relations

OverviewTraditionally, up until the 1970s, civil service pay was governed by more or lesscentralized collective bargaining agreements or even, in certain countries, definedby a statutory regulation. However, as from the early 1980s, a trend towards moreflexible pay conditions in the private sector and, by extension, in the public sectorbecame perceptible (Standing, 1997). It seems that this change in perspectiveconcerning the establishment of salaries, from the 1980s onwards was a point ofview largely shared in certain European and American political and economic circles that, at that time, considered rigid pay structures to be one of the main factors maintaining and boosting already high levels of unemployment. Withinorganizations the concepts of management by objectives and performance-relatedpay were developing, notably under the impetus of the work by the specialist E.E. Lawler (1973, 1990). The automatic remuneration mechanisms characteris-tic of the public sector, although a source of security for public officials, thuscame to be seen as providing little incentive because they made little or no refer-ence to the individual performance of members of staff.

These ideas had far-reaching repercussions on the development of the salaryrelationship in European countries. Little by little, management became con-vinced, following the crisis in the 1970s, that the salary pattern inherited from the

152 International Review of Administrative Sciences 67(1)





‘Glorious Thirties’ was increasingly acting as a brake on productivity (Boyer,1987). From this moment on, the practical repercussions were observed: first, fora decade or so salaries were marked by slower rises and a growing precariousnessof salary conditions in European countries (de-indexation, increase in the variableportion of the salary and sharing productivity gains came increasingly into favourin companies to the detriment of workers who no longer shared in the wealth pro-duced). Moreover, in both Europe and the United States, social transfers (socialsecurity, health policies, social support policies) were also viewed as a brake oncompetitiveness and the budgetary health of states, ‘a rationale that is promptingmost governments to introduce policies aimed at the rationalisation of socialexpenditure’ (Giauque and Uebelhart, 1999: 80).

Another argument put forward to support the theory that we are witnessing anoverhaul of the salary structure is based on the process of regulation of privateenterprise. Two major findings can be cited in this respect: first, we are seeing theindividualization of collective pay negotiations (Donnadieu, 1998); and, second,the creation of a multitude of ‘para-legal’ internal rules within companies thatcertain authors do not hesitate to interpret as a shift as significant as the creationof company internal regulations (Gavini, 1997). These phenomena may be due tothe conclusion of contractual relations in the ‘Fordist’ mould, that is to say nego-tiated on the basis of collective agreements, in groups or increasingly flexibleindividual employment contracts (indefinite contracts, temporary contracts, part-time contracts, frequent use of temporary staff, etc.) (Carnoy et al., 1997; de Gripet al., 1997).

The reasons advanced to justify the imposition of flexible pay conditions aretherefore generally: (1) to make salary arrangements less rigid in order to allow arecovery in employment; (2) to stimulate individual performance by introducingpay incentives, notably by increasing the variable portion of the salary thatdepends on the results of the work carried out following a performance assess-ment; and (3) to improve the efficiency and effectiveness of enterprises by a com-petitive adjustment of salary conditions.

How this affects the public sectorThe trends that we have just mentioned clearly had an impact and repercussionson the functioning of pay regulations in European and American public adminis-trations. Moreover, the arguments concerning the imposition of flexible pay con-ditions in the public sector are similar in nature to those presented earlier. To thiscan sometimes be added a more specific financial and budgetary dimensionbecause the public services find themselves confronted, to varying degrees, by acommon obligation: to reduce their operating costs (OECD, 1993a). In the con-text of an economic crisis, and a crisis in public finances, the public sector isfaced with the challenge of finding new management methods that are more efficient and respond better to the needs and expectations of the administered/citizens/clients (de Quatrebarbes, 1996). Other main elements put forward toexplain this wind of change are the following:

Emery and Giauque: New public management 153





• The crisis in public finances mentioned earlier, which, even though it iscontested by some commentators (Guex, 1998), plays a role in the debate on thelegitimization of the transformations currently taking place in public organiza-tions.

• The quest for secondary legitimization of public policies and thereforepolitical decision-makers:

the legitimacy of public policies cannot be founded solely on the democratic principlesand procedures that frame their formulation, their adoption and their execution (e.g.pre-parliamentary consultation with the groups concerned, majority legislative voting,procedural norms of administrative law). Beyond this primary legitimization, throughthe inputs and procedures of the state of law, the (players involved in) public policiesare seeking secondary legitimacy, through the quality of the services they provide forthe social players. (Knoepfel and Varone, 1999: 2; Laufer and Burlaud, 1980)

• The introduction of an economic point of reference, based on the methodsused in the private sector, into the working processes of public organizations. Inthis regard, market-based measures are particularly illustrative.

• The change in management thinking in organizations illustrated by theintroduction of a new type of less hierarchical and more transversal organizationof work, giving more priority to team-working and work processes in particular(‘quality’ approaches, project structures, etc.) (Gogue, 1997; Veltz and Zarifian,1993); and the undeniable success of the approaches invented by the new man-agerial movement in the public domain, known as ‘New Public Management’(Delley, 1994; Schedler, 1995).

Faced with these many challenges, as from the late 1980s some public admin-istrations experimented with new management tools with the aim of improvingthe services delivered and boosting organizational and financial performance(OECD, 1997). In a recent study, White (1999) identified several levels at workconcerning more specifically the imposition of flexible pay conditions in publicadministrations in Europe (Belgium, Denmark, Finland, France, Germany,Ireland, Italy, Holland, Spain, Sweden and Great Britain):

1. Decentralization of the methods and place of setting salaries. In certaincountries we are seeing a clear delegation of such competences to regional bodiesor even the integration of such competences into the administrative units them-selves (in certain cases in Great Britain). However, the degree of centralization ordecentralization varies greatly. It ranges from one extreme where centralization isstill strong (Germany, France, Spain), to the other extreme where decentralizationpredominates (Sweden, Finland, Great Britain), alongside other situations wheredecentralization is partial (Holland, Italy, Belgium).

2. Changes in the promotion system are tending towards decentralization andtherefore the former system of automatic promotion is no longer necessarily therule. Once again, there is no single system, because certain countries have strictand centralized rules on the matter at national level (France, Germany, Spain and






Italy), while others have introduced more flexible structures (Sweden, Finland,Great Britain and The Netherlands).

3. There are also changes in the salary progression systems where an increas-ingly large portion of the salary is becoming variable, although this trend is mostpronounced in countries where decentralization is greatest. Performance-relatedpay has been introduced in countries such as Great Britain, Sweden and Finland,although other countries where structures are more centralized are also testing thewater (Belgium, Italy, Spain and Germany).

There is therefore a general movement towards more flexible remunerationsystems, but beware of drawing hasty conclusions because there is no universalmodel emerging as the various systems in force in the European countries aredeeply rooted in national legal and juridical traditions and cultures.

What is happening in Switzerland?The traditionally highly decentralized federal political system in Switzerlandworks according to the principle of subsidiarity. Indeed, everything that cannot bedelegated to the cantons (26) or the communes (around 3000) duly becomes theprovince of and administered by the administrative bodies of the Confederation.The particularity of the Swiss system means that, in principle, all of the com-munes and all of the cantons, as well as the Confederation have their own legalinstruments that govern the civil service statutes. In other words, it could be saidthat in Switzerland there are as many civil service statutes as there are inde-pendent authorities. In fact, the civil service statutes are governed by formal lawsin 16 cantons, while the others make do with a regulation covered by a decree(Germann, 1996). In the communes, especially the smaller ones, it is not rare fora particular statute not to be adopted by the authorities, which means that the provisions of civil labour law, under the Code of Obligations, apply by default(Moor, 1992: 206).

Unsurprisingly, Switzerland has not escaped the changes affecting public services in the European countries. In many ways it seems to be very active in the field of administrative reform with a certain level of support both from thegeneral public and in political and economic circles (Emery, 2000). During the1980s, reflecting what was happening in other countries, increasingly virulentcriticisms were aimed at public organizations concerning, in particular, theirmanner of operation and resource management. Switzerland was a late developerin comparison with other neighbouring countries in terms of the social state and the associated administrative structures (Cattacin and Tattini, 1999), whichprobably explains why the debate concerning the role of the state took a slightlydifferent turn to that of other western European countries, although the crisis inthe 1990s helped to crystallize political positions on the subject of ‘less govern-ment’. There was, therefore, an offensive by the ‘Radical’ party (right side of theSwiss political scene) and employers’ organizations against the expansion of stateinstitutions and a plea for a moratorium or ceiling on staff in public administra-






tion (Germann, 1996) while, at the same time, the traditional left and the tradeunions fielded a strategy aimed at preserving the status quo.

It is precisely in this political and economic context that reform was initiated inthe vast majority of federal and cantonal administrations. In terms of humanresource management, without making any claims to completeness, it is possibleto give a brief overview of the trends that have come to light and the projects thatare now in progress. At cantonal, communal and federal level, the innovationsplanned or adopted are as follows (inspired by Germann, 1996).

• There is increased delegation to the executive of certain aspects of employ-ment traditionally contained in staff regulations voted by the legislature, forexample the salary scale and classification of functions.

• The administrative period that guarantees employment in principle for aperiod of four years as from the date of appointment has been withdrawn. Thisprovision was abolished or reserved for a restricted category of staff. Recruitmentis therefore for an indefinite period and the employer can terminate the engage-ment by giving notice of a few months, similar to the practice in the privatesector, without the public official having committed any fault. Naturally, the general principles of public law, notably proportionality, continue to apply. Withregard to this evolution, note also the reduction in the possibility of sanctions, theexistence of which was linked to the permanence of the working relationship.

• Remuneration now has a variable portion, linked to work assessment orperformance. Here we see the emergence of the notion of performance-relatedpay, which reflects a movement towards individualization and flexible salariesfor civil servants (Emery and Schedler, 1994).

• There are upper limits on the number of staff at the federal level (since thebeginning of the 1980s), then, following in the footsteps of the Confederation, atthe cantonal level, as the majority of cantons implement measures to control oreven reduce their staff levels.

In other words, the federal and cantonal political authorities have begun to initiate reforms aimed at making the employment conditions of civil service staffmore flexible through the use of incentive systems based on individual (or morerarely collective) performance assessment. Hence incentive mechanisms inspiredby behaviourism (rewards) have been introduced into human resource manage-ment; and these are progressively replacing the ‘sanctions’ approach. Conversely,it should be noted that these systems were often designed in the early 1990s whenthe public finance situation was not as critical. The issue of financing these systems today is therefore particularly delicate. Indeed, nothing, or almost noth-ing, has been said about the sources of financing performance, as the requiredbudgets are often not generated by improvements in productivity, as is the case inthe private sector. The canton of Bern decided to set up a system for rewardingthe performance of civil servants, but just as it was about to come into force, thecantonal parliament blocked the payroll, wiping out with one blow the potentialmotivational aspect of this new approach.






A strategy for funding performance is nevertheless tending to emerge: the useof ‘profit margins’ generated on the global envelopes associated with service provision contracts, a subject that we shall analyse in greater detail in this article.

Paying for performance using the margins generated on the global envelopegranted for service provision contractsOne of the key ideas underpinning the new public management is to instil a spiritof enterprise within public services, based on a service provision contract with thefollowing objectives.

1. The services to be provided and the criteria to be used for their evaluationshould be clearly defined.

2. The resources (global envelope) for carrying out these services should beattributed to the service. The global envelope (ge) is often the result of the calcu-lated difference between revenues (r) generated by the activity for each section ofthe service and the resulting expenditure (e);

3. The department should be given some autonomy in carrying out its services,with the idea that since this increased freedom favours a spirit of enterprise, itshould lead to lower expenditure, and/or higher revenues from the services rendered by the department in addition to those it must provide. Looked at in thisway, the envelope granted would not be fully utilized, generating a budget thatcould be used to finance performance-related rewards for public officials.

4. According to the modalities to be defined, some of the ‘savings’ would bereturned to the central treasury of the public administration, and a part could beused to finance rewards for members of the department, distributed collectivelyor individually. Or they could be used to improve the working conditions andinstruments within the department.

These practices are beginning to be adopted in the civil service in Switzerland.They are superimposed on the existing processes, in particular any performance-related remuneration systems introduced by the human resources department.How can we analyse the value of these practices in terms of both their operationand their impact? Returning to the main theories of motivation and equity at work(Adams, 1963; Lawler, 1973; Vroom, 1964), the OECD analysts are clear con-cerning the criteria that have to be respected for the implementation of incentive-based remuneration systems (OECD, 1997: 33ss):

Instrumentality of systems (link between the performance of officials and theremuneration paid). Instrumentality assumes the existence of well-tried workassessment systems, used in a transparent and equitable manner. However, suchsystems frequently either do not exist or they are used in a less than perfect manner.

Effectiveness (possibility of influencing the results obtained). This is a typicalproblem in the civil service context, where staff often have little margin toinfluence demand (monopoly situation), to shape the services provided (because






they are defined by the legal foundation) or to negotiate the conditions offered(tariffs imposed = emoluments).

Attractiveness (size of the sums to be distributed). Current public budgets, aswell as the reserves associated with the use of public funds, do not allow the allo-cation of sufficiently large budgets to have a motivational effect on the work. Forthis, the sums involved associated with performance would have to be greaterthan 10 percent of the remuneration paid to public officials to have any realimpact. In the case of the Swiss public services, they are in the order of 0.5–1.5percent.

Equity (degree of justice perceived in the procedure for allocating bonuses).Transparency concerning the assessment of the services provided and the bonusesallocated is proving difficult to implement.

These various ‘quality’ criteria for incentive systems are already difficult toapply when management is provided centrally by a human resources department.They become really problematic when the departments themselves generate theirown savings for redistribution to their members. Some of the problems we wouldlike to examine in this contribution include:

The problem of instrumentality and internal equity: the somewhat tenuous linkbetween the efforts of the staff and the global performance of a department (carrying out a service provision contract). Even for the head of department, thislink is not obvious because many parameters affect the smooth running of thedepartment, both external (changes in the socioeconomic environment, politicaldecisions) and internal (dependence on logistical departments acting in a trans-versal manner — finance, buildings, computer services, human resources, etc.).We need to assess the latitude for action in carrying out the service provisionmandate.

The problem of external equity (between departments): certain departments,due to the nature of their activities, are in a good position to achieve savings onthe envelope allocated to them, while others find it difficult to do so, especiallywhere most of their expenditure is associated with substantive public politicaldecisions (defined amount of subsidies, political arbitrage). Just like in privateenterprises, where some departments bring in money and others cost money, thisinequity is made glaringly obvious by new public management practices. Weneed to assess the relationship between the global envelope allocated by the service provision contract and the salary costs of the departments.

An incentive mechanism that encourages the staff of a department to make savings in order to benefit from them poses an ethical problem due to the specialnature of public services, the quality of which is often directly linked to expendi-ture. Consider social services, where the quality and effectiveness of the service,judged from the standpoint of the user, are based on the total amount of fundingallocated and not on savings that can be made. Since the purpose of public services is not to make profits, these new incentive approaches are at the limits of public ethics because they encourage behaviour, in the context of a budget






defined by policy, which could be a detrimental to users/clients of public ser-vices. The fact that Parliament no longer decides on the amounts distributedunder the heading of performance-related remuneration, while in the traditionalsystems it voted for a budget containing planned increases for the coming year,poses the problem of the responsibility of politicians in these new practices. Thequestion becomes a burning issue when the population and its elected representa-tives focus their attention on budgetary savings. How can public officials be paidfor performance on the basis of budgetary ‘self-generated’ savings, while all ofthe budget headings are being reduced? This poses a genuine ethical questionconcerning the public responsibility of governments. We need to assess the per-ception of the players involved, in particular that of the head of department, onthis question of ethics and political responsibility.

Case study: incentives linked to service provision contracts in the context ofnew public management experiences in SwitzerlandBefore presenting the various results that we have obtained, we would like tobriefly present the working method we have selected for our work in the field.

Investigation methodInitially, we procured from the cantonal and federal administrative departmentsthe largest possible number of service provision contracts already in operationand, where possible, those which had already been operating for a few yearstogether with service provision contracts that formed part of the administrativereforms implementing the new public management approach. It should be notedthat the various Swiss cantons are at very different stages of implementing thereform and that this sometimes renders the interpretation of the results difficult.Our work is therefore based on a study of 15 or so service provision contractsaffecting a dozen Swiss cantons as well as the administration of the Confeder-ation.

Following this, we constructed a one-page questionnaire that was sent to thedifferent administrative departments. The questions that we asked were simpleand formulated to allow heads of department to give their assessment of the experiences of introducing, within their own department, a system of financialincentives linked to their service provision contract. The questions posed wereaimed at

1. finding the proportion of the payroll for the services concerned comparedwith the total amount of the budgetary envelope allocated to them (this gives anidea of the margin for manoeuvre in each department to generate savings on theglobal amount allocated); and

2. finding out whether or not the heads of the administrative departmentsquestioned were in favour of a budget specifically dedicated to financial incen-tives directly integrated into the total amount of their budgetary envelope.

Using this methodology, we were able to combine objective considerations by






studying the technical mechanisms of the financial incentive systems currentlybeing used with the more subjective elements of the perception of heads ofdepartment concerning the proper functioning or otherwise of these incentive systems.

Because of the still incomplete nature of the data that we gathered, we can onlystate that a number of trends came to light in financial incentive practices. As aresult, when establishing the results obtained by our survey, we chose to proceedas follows:

• exemplification using real-life cases of administrative departments in theSwiss cantons that appeared to be characteristic of the prevailing situation inSwitzerland; and

• in the light of this, we formulated provisional findings and conclusions thatdraw a profile of the practices in the administrative departments in terms of finan-cial incentives and that emphasize the difficulties and limitations confrontingsuch departments in the day-to-day management of these systems.

Characteristic examples of financial incentive practices in SwitzerlandAll of the examples that we discuss are situations in which the administrativedepartments that negotiated a service contract with the cantonal or federalgovernment now find themselves. All of the examples in Table 1 concern pilotservices, in other words services that are experimenting with service provisioncontracts applied as part of the new public management approach. Subsequently,if the experiences in question give satisfaction, other cantonal and federal ser-vices are likely to be subjected to the same conditions. We discuss the financialincentives that are contained in the rules of service provision contracts, but weshould point out that certain cantons (Bern, Soleure, Zurich, Valais, for example)have performance-related salaries, in the form of annuities or bonuses, that pre-date the practice of service provision contracts, even though they are still basedon the egalitarian tradition of Swiss public administration in salary matters.

These different incentive mechanisms represent the four main categories ofperformance-related pay currently being used in Switzerland. Other cantons alsohave experience of the new public management approach of contracting out anumber of their administrative services. These notably include the cantons ofVaud, Valais, Neuchâtel and Lucerne. The possibility of earmarking sums dedi-cated to incentives based on the budgetary envelope also exists in these cantons,but the techniques used are covered by the examples in Table 1. At Confederationlevel, departments operate according to the principles of contractualization. Justlike the Sports Centre at Tenero, these departments can dedicate 0.5 percent ofthe payroll included in the budgetary envelope for the creation of a fund to beused for incentives (bonuses). In fact, the sums available are very small and theroom for manoeuvre with regard to performance-related pay is practically non-existent.







TABLE 1Financial Incentive Practices

Incentive Pilot services Pilot services Pilot services Pilot servicesmechanisms in the canton in the canton in the canton in the cantonin the various of Geneva of Berne of Soleure of Zurichdepartments

Legal or Service Service Service Decree onregulatory basis provision provision provision budgetarygoverning contract contract contract envelopes ofthe financial 2.10.96 and newincentives law on public

officials

Constitution • 50% of • 50% of • 2.5% of the • 4% ofof the amounts savings made savings made total sum surplusesdedicated to on the on the of the envelope on thetangible and budgetary budgetary • 50% of budgetary intangible envelope envelope savings made envelopeincentives • 50% returned • 50% saved on the • Extraordinary

to the state against any budgetary services coffers deficits envelope granted

Tangible • 25% of • none • 0–5% of the • 2% ofincentives savings made salary can be surpluses on(maximal on the paid in the the budgetaryamount of budgetary form of a bonus envelopeperformance envelope for individual (collectivebonus) (collective services shared bonus)

shared bonus). rendered • ExtraordinaryNot more than services1,500 Sfrs a renderedyear and per (not more thanmember of 50% of astaff monthly salary)

Intangible • 25% of • 50% of • 2.5% of the • 2% ofincentives savings made savings made total sum of the surpluses

on the on the budgetary on thebudgetary budgetary envelope budgetaryenvelope envelope • 50% of savings envelope

• measures: • measures: made on the • measures:staff training; improved budgetary improvedimproved customer envelope workinginternal service; staff conditions; functioning development; improvedof the improved functioning department working of the

conditions; departmentwork on the image of the department





Some general trends concerning incentives linked to service provision contractsin SwitzerlandWe would now like to return to a number of findings that we draw from the examples mentioned earlier, as well as in relation to other data gathered in oursurvey. The general trends that we identified provide an outline, with no claim tocompleteness as they are realized on the basis of still incomplete information.However, we think they nevertheless reflect the reality of experiments conductedin the Swiss cantons on financial incentives associated with service provisioncontracts. We reiterate that the majority of the administrative reforms undertakenin Switzerland are quite recent and that we lack the longer view necessary forassessing these various permutations more effectively. However, at the currentsituation of our research, we come up with the following initial findings:

• The Swiss cantons, as well as the Confederation, have just launched adebate on incentive systems linked to the current service provision contracts. Thefirst step, negotiating service provision contracts between certain administrativedepartments and the cantonal governments, or even the Confederation, has beentaken and these initial experiences are still under way and, in most cases, repre-sent pilot projects that may be generalized if they prove to have positive results.In this context, the political authorities of the different cantons and the Con-federation are often cautious about introducing incentive mechanisms based onindividual performance for fear that such systems might polarize situations andend up threatening the new public management experiments being conductedthroughout Switzerland. Moreover, prudence also prevailed in the implementa-tion of performance-related pay systems preceding the measures taken in the context of service provision contracts. Swiss management culture, especially inthe public sector, is very much a reflection of the Helvetic sociopolitical system,because it is largely based on the values of equal treatment (nobody should breakthe mould!) and consensus (Weibler and Wunderer, 1997). Another explanationof this managerial and political caution is perhaps the huge capacity of the civilservice trade unions to mobilize and influence opinion in our country. The tradeunions are among the most cohesive, the best organized and structured and cancount on a large number of members. The majority of cantonal and federal civilservants are trade union members.

• The heads of department that have worked with service provision contractsproved to be generally in favour of the introduction of individualized incentivemechanisms. Some of them, due to the regulatory vacuum in which they findthemselves, have real room for manoeuvre and are in a favourable situation forsetting their own rules on the matter. Most of the time, heads of department do notuse this margin for manoeuvre and would like to see clear centralized rules laiddown at political level. Thus, even though the service provision contracts havethe effect of decentralizing responsibilities to a large extent and giving adminis-trative departments greater autonomy in terms of management, we find that thedepartments are also cautious about introducing individualized incentives.






• The sums dedicated to incentives are relatively low and very much limitedin most cases by strict directives issued by the political authorities and by serviceprovision contracts or special decrees governing the functioning of global budgets. Compared with practices in the private sector, especially in certain service sectors (here we refer, in particular, to banking and insurance), the variable portion of the salary (which can be a sizeable proportion in the privatesector) is limited in the public services to the point where one might wonderwhether such low amounts could really act as incentives. The measures taken can,at most, be considered as gestures of encouragement, but under no circumstancescould they be considered to be substantial.

• The accumulation of funds devoted to the remuneration of public officialsaccording to the services rendered, in the vast majority of cases depends on theability of departments not to spend all of the budgetary envelope allocated tothem. In other words, the departments are encouraged to make savings, in prin-ciple on their operating costs, in order to establish reserves that can then be used for the remuneration of officials. Such a situation leaves little room formanoeuvre for the different administrative services, which could even find themselves in a paradoxical situation. Certain departments are obliged to shaveexpenditure from some of their budgetary headings (why not personnel?) tobalance their budgets and therefore respect the financial conditions set by thebudgetary envelope. If, by some chance, substantial reserves could be built up inthis manner, it would nevertheless be difficult for heads of department to justifyto their staff and citizens/clients that this should be devoted to rewarding the individual performance of public officials. Consequently, the economic logic that is undeniably one of the reasons for the introduction of service provision contracts into administrative services is proving to be an obstacle to rewardingperformance.

• The current incentive systems in administrative departments seems tofavour collective measures (improving the climate within the organization, staffdevelopment through training, particular care devoted to the image of the depart-ment both internally and externally, linear end-of-year bonuses that affect all staffequally) over more personalized incentives based on individual efforts.

Questions of equity and ethics associated with pay-related incentive systemsOn the basis of these findings and in the light of the problems of equity and ethicsthat we raised earlier (problems of internal equity, external equity and ethics), wecan also draw certain provisional conclusions on the way in which the Swisspolitical authorities and services attempt to deal with these issues.

As for the problem of internal equity — dealing with the dilemma betweenoverall performance and individual performance, as well as evaluation — thepolitical authorities and the departments seem to have opted for incentive systemsthat favour the approach of rewarding collective performance (respecting orexceeding the targets set for the department under a service provision contract)through measures aimed at the professional development of the staff, paying






particular attention to the image of the department in order to improve the organi-zational culture, the possibility of obtaining equipment conducive to work and theworking environment and financial measures such as linear end-of-year bonusesdistributed to the staff. Internal equity is therefore achieved through collectiverecognition of targets achieved.

There are a few cantons that, in addition to any margin generated on the globalenvelope, allow the remuneration of ‘extraordinary’ individual services rendered,but the amounts used for such practices remain so modest that they are not likelyto cause unrest within the working group. Heads of department, as we have seen,do not have much latitude for action and when some of them benefit from greaterroom for manoeuvre due to regulatory laxity, they do not use it for fear of politi-cal and organizational opposition that could threaten previous efforts to imple-ment new public management reforms. In one way, such highly individualizedrecognition could also harm the team spirit created by the common objectives ofthe service provision contract. Moreover, they presume that the staff assessmentis correctly handled, on the basis of precise assessment criteria or objectives,whereas the links with the objectives of the service contract are not always veryobvious, creating a real problem in terms of instrumentality.

As for the question of external equity in incentive systems, in other words thefact that certain departments are in a more favourable position than others to generate savings on the envelope allocated to them due to the additional revenueassociated with their particular activities, the cantonal and federal public appearto be very sensitive to the issue even though they have probably not fully graspedthe problems associated with it. By refusing to vary the rules concerning the generation of sums that can be devoted to individual and collective incentivemeasures they give de facto priority to the departments that are in a position tomake savings on their operating costs or can generate additional earnings. Ourfield survey illustrates this point because it clearly emerges that the departmentsin favour of the creation of a budget reserved for financial incentives within theirbudgetary envelope are precisely those with the lowest operating costs and aboveall those where the proportion of the payroll does not exceed 50–60 percent oftheir envelope. All of the other departments, which are not in such a favourableposition, are more in favour of the creation of a budget reserved for financialincentives that is not linked to the envelope for service provision contracts ratherthan ad hoc allocation. In the current state of affairs, it has to be admitted that thisproblem of external equity (between departments) has not yet been resolved inour country and, above all, the decisions that have been taken concerning incen-tives are conducive to situations of inequity between departments, although therather small amounts that are devoted to rewarding collective and individual services somewhat temper this initial assessment.

When it comes to the ethical questions surrounding incentive mechanisms, the cantonal and federal public authorities have fully grasped the scale of theproblems that could be posed by devoting increasingly large shares of publicfunds to rewarding collective and individual performance. The backlash from


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the Swiss people generated by certain colossal bonuses paid to managers in theprivate sector prompted the political authorities to proceed cautiously on thisissue. In addition, the public service trade unions have always been reticent, oreven hostile, to the introduction of incentive systems, whether collective or indi-vidual, and especially in view of the fact that the public service ethic is not con-cerned with profit but with working for the general interest. Under this rationale,there are no circumstances under which substantial individual financial incentivescould better the collective interests of citizens — on the contrary it would contribute to a probable increase in competition between public officials, due tolimited budgets, which could lead to a degradation of the public services providedin favour of the interests of egoists. These various fears have been taken intoaccount by the public authorities, who have defined relatively low ceilings forany individual incentives that might be paid, and by heads of departments whoare proving very cautious in setting up incentive systems to avoid polarizing (aswe have already stressed) contrary views on this question, a situation that couldput paid to the administration’s modernization efforts currently in progress.

Experiments carried out in Switzerland: a varied cultural contextAs we have seen, the experiments with new public management based on con-tractualization and on incentives established using budgetary envelopes, along-side a varied and centralized remuneration system, are currently under way in all linguistic and cultural regions of the country. One striking aspect is that the‘modernization’ of the public sector seems to have met with strong resistance inthe French-speaking part of the country while German-speaking Switzerland cancount on a more peaceful political landscape. In 1998 more than 12,000 civil servants, students and citizens in the canton of Vaud took to the streets to demon-strate their disapproval of the modernization of the administration planned by thecantonal executive. Their counterparts in Geneva followed close on their heels alittle later to express in their turn their disapproval of planned reforms affectingpublic organizations in the canton. In 1999 and again in early 2000, civil servantsin the canton of Neuchâtel, supported by their colleagues in other French-speaking cantons (Vaud, Geneva and Fribourg in particular) noisily demonstratedtheir antagonism to a plan concocted by the political authorities to introduce staffassessment and to link this to performance-related pay. Although the amounts forperformance incentives were very low, the French-speaking civil servants, sup-ported and organized by powerful civil service trade unions, contributed greatlyto freezing these attempts at change, often undeniably badly presented and communicated by the political authorities.

Many attempts to reform the civil service statutes are currently in progress inmany cantons (Geneva, Vaud, Neuchâtel, Zurich, Lucerne, etc.), as well as atConfederation level where the law of 24 March 2000 on Confederation personnel(LPers) attempts to introduce more flexible working conditions. At this level also, the Union fédérative du personnel des administrations et des entreprisespubliques launched a referendum which asks that the LPers should be submitted






to a popular vote. We are therefore seeing the emergence of fierce resistance on the part of the very powerful and active civil service trade unions, who havemobilized and taken a position against the changes currently being planned. Itshould nevertheless be pointed out that the impact of this resistance is very different in French-speaking Switzerland and in German-speaking Switzerland(Rime, 2000). Little mobilization has been seen in the German-speaking part ofSwitzerland while the French-speaking cantons have been the scene of streetdemonstrations. In conclusion, it seems that there is a cultural difference under-pinning the different reactions to the planned modernization projects currentlybeing undertaken in Switzerland, although this remains to be confirmed.

ConclusionsCompared with attempts to make pay conditions more flexible in the publicadministrations of Europe (see point 2 in the second section), Switzerland is notamong the leading reformers. This finding is based on the following arguments:

• Concerning the decentralization of methods and who should set levels ofremuneration, the examples illustrate the thrust of this article, emphasizing thefact that the Swiss cantons and the Confederation are anxious to create preciseand relatively strict rules to avoid excessive disparities in the working conditionsin their departments. Recent research (Emery and Giauque, 2000; Varone andGiauque, 1999) confirms this, highlighting the lack of room for managerialmanoeuvre for heads of departments in terms of human resource management.

• As for the changes in progress in promotion systems, the Swiss cantons andthe Confederation still operate largely on the principles of seniority and automaticpromotion. Strict classification of functions is still the main principle to which thedepartments adhere on the sensitive question of promotions. Even where moreroom for manoeuvre is granted on this precise point to the heads of departments,practices do not seem to have changed very much.

• Finally, the systems governing salary increases have not undergone majorchange. The pay and annuities scales are the predominant elements. The determi-nation of certain policies to remunerate public officials in line with the quality oftheir work, and therefore on the basis of individual and collective assessments inthe various departments, has not yet resulted in perceptible change. As we havepointed out on many occasions, the incentive mechanisms currently taking shapeare poorly structured and barely produce any effects.

The reasons why Switzerland is currently in a status quo situation have beendescribed and could be summarized as follows:

• First, Swiss politicians and the heads of departments are very cautious withregard to these incentive mechanisms and balk at pursuing reforms that couldthreaten other modernization measures currently in an experimental phase(notably contractualization, using budgetary envelopes, etc.). The powerful civilservice trade unions frequently play on the unpopularity of performance-related






pay to discredit other types of modernization. In this sense, the cantonal and federal public authorities prefer a gradual approach to a revolution that is destinedto fail.

• Moreover, incentive systems are costly. Contrary to what one might think,merit-based salaries and all the documents and work processes needed to makeremuneration dependent on an annual assessment of staff performance is oftenmore costly than traditional remuneration systems. Certain experts believe that itis necessary to calculate an increase of 1–2 percent of the payroll cost to reallyproduce effects on the degree of staff motivation (Emery, 1999). In a period ofbudgetary restrictions, any increase in payroll costs for the civil service is clearlyvery much compromised, unless one wishes to foster discontent among the Swisspopulation at large.

More generally speaking, and not only in the context of Switzerland, the logicof financial incentives as such could be debated in relation to public services.

• The results of scientific studies conducted at an international level showthat financial incentives are not necessarily a panacea in terms of staff motivation,especially where the people concerned work in the public sector (Jurkiewicz etal., 1998). Other studies have also demonstrated that there is a correlationbetween variables such as work satisfaction, group working, the identification ofstaff with the organization (for public officials the importance of the sense of mission behind their activities is the foundation of their vocational spirit) inwhich they develop, and individual and collective performance (Emery andGiauque, 2000; Rodwell et al., 1998), while the salary level is not necessarily agauge of individual and collective performance, even though it may make a con-tribution. Other studies highlight the difficulty of measuring and assessing indi-vidual performance in relation to collective performance and such assessmentsare always perceived as subjective by those who undergo assessment, making ithard for them to accept (Campbell et al., 1998).

• It seems that the potential risk of such incentive mechanisms affecting thebehaviour of civil servants is indeed real. The quest for performance and merit-based bonuses can lead to an increase in strategic behaviour by those working inpublic organizations that may result in the emergence of a phantom ethical code(Jurkiewicz, 1999) that can undermine the principle of public responsibility.Another indicator of this danger is the appearance of ‘a Mafia-style cohort of civilservants’ whose main objective is to gain power and share the proceeds obtainedvia a performance-related pay mechanism (Clegg, 2000). The effects engenderedby the introduction of incentive systems in public organizations have not beenadequately studied to be completely understood. However, it remains evident thatthe type of risk that we have just cited should be evaluated and then taken onboard by politicians.

Finally, in the light of the previous discussion and the findings from experi-






ences in Switzerland, we can advance some practical recommendations concern-ing the implementation of financial incentive systems:

• Set aside budgets dedicated to incentives that are independent of the globalfinancial envelope, thereby avoiding problems of external equity. Otherwise,stipulate a potential incentive ratio that could be calculated as follows:

— portion of the envelope on which the department has an impact

— payroll of the department

equalizing as far as possible the possibility of correcting incentives using therules and percentages to be distributed to the personnel. In reality, the rules areoften the same for all departments, making no allowance for such considerations.

• Define the link between individual performance and achieving the object-ives of the service provision contract. This allows all possible permutations, ranging from ‘excellent individual performance — objectives of mandate notachieved’ to the opposite. In this case, how is it possible to reward performance inan equitable manner? It is important to define the rules for combination of pilotincentive systems centrally (human resources department) and the incentives distributed within the department. In the case of accumulation, avoid letting thesums become too large and generating the ethical problems discussed earlier.

• Determine precisely the use that can be made of any surpluses generated onthe global envelope. If this involves improving the functioning of the department,one could legitimately ask where do you draw the line between what the depart-ment could (or should) pay, and what the employer, or the central fund, could (orshould) finance!

• The thorniest issue, which we are unable to analyse due to the lack of alonger view, is no doubt the sustainability of such incentive systems over time.When the department generates a margin over and above the envelope allocated,one might well imagine that in the next negotiations with the contracting authori-ties this margin would be reduced because it appears to be superfluous. Thiscould lead to a paradox in terms of motivational incentives: the fact of havingworked well and produced savings would lead to the disappearance over time ofthe funding of this saving, which places the staff of the department in a ratheruncomfortable situation.

Finally, we would like to end this contribution by putting forward practical recommendations aimed at making new remuneration systems conform to theethical conduct of public affairs (OECD/PUMA, 1998). It appears that suchincentive systems, where funding comes from margins generated on globalenvelopes, should respect the following principles:

• Define not only a staff incentive and motivation policy, but also a depart-mental conduct policy, clearly expressing the values that underpin such practices.In particular, remember that the quality of the services delivered to users is the primary goal, the economic use of public funds the second, and therefore






performance-related pay for public officials is subordinate to achieving these twopublic service objectives.

• Involve the social partners (trade unions and citizens’ groups) in the defini-tion of the rules governing incentive systems.

• Ensure transparency in the rules for the distribution of savings made on theglobal envelope, stipulating how much goes back to the central funds of theadministration, what remains in the department, and what can be distributed tothe personnel.

• Concerning the personnel, define any link between the incentives comingfrom a centrally managed system and those associated with the service provisioncontract. State clearly the maximum sums, avoiding any drift in the use of publicfunds.

• Clarify utilization with respect to the functioning of the department in orderto prevent the employer from being sidetracked from his/her responsibilities, forexample in terms of staff training, workplace equipment, etc.

• Communicate to the political authorities (government and parliament) theeffective breakdown of the sums distributed. Investigate the possibilities of anaudit by management boards.

When expanding quickly, the civil service must be capable of attracting andretaining the best staff on the labour market, as we are reminded in the newhuman resources policy of the Swiss Confederation. It must also foster a spirit ofenterprise and reflect on appropriate forms of individual and collective recogni-tion, both monetary and non-monetary. There is a wide range of options, but thereare many pitfalls if the systems implemented are not rigorously analysed. Currentpractices in Switzerland lead one to believe that much still remains to be done.



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