Kirsten Bregn

Management of the new pay systems in the public sector — some implications of insights gained from experiments

During recent decades, new pay systems have been widely introduced in Organization for Economic Co-operation and Development (OECD) countries. Experiments draw attention to some aspects which are normally not included in analyses of pay systems, namely fairness and reciprocity. Furthermore, the experiments indicate a different understanding of what are perceived as gains and losses than what is assumed in conventional economic theory, and they also indicate an asymmetric evaluation of gains and losses. The aim of the article is to present some results from these experiments and to investigate their implications for pay systems in the public sector. The conclusion is that the results have important implications for the management of pay systems, and due to some specific characteristics of the public sector, for management of pay systems in the public sector in particular. Points for practitioners Insights gained from experiments concerning fairness, reciprocity and perceived gains and losses shed a new light on management of pay. They stress the importance of managers taking responsibility for ensuring acceptance of criteria for pay supplements and bonuses, and for a realistic formation of expectations about pay supplements and bonuses. Moreover, the managers need to ensure that supplements and bonuses are provided in accordance with the criteria in such a way that the allocation of supplements and bonuses is considered to be fair, and justified expectations are met. This can be particularly difficult in the public sector. Thus, considerable caution in relation to using the individualization of pay to motivate employees in the public sector is recommended.

New institutional economics: what does it have to offer?

This article discusses the empirical relevance of what is considered two prinicipal contributions to the new institutional economics–the contributions of A. Schotter and O. Williamson – and draw three general conclusions. First, it is argued, on the basis of a comparison of the above mentioned two contributions to new institutional economics, their empirical relevance cannot be discussed in general but must be based on separate analyses of the two contributions and will depend on the institutions which are analysed. Secondly, that it is especially within analyses of consequence and design of institutions that the Williamson-approach to new institutional economics presently has something to offer while there seems to be rather limited possibilities for application of the approach of Schotter. Thirdly, that in their future development, the two contributions can probably both mutually benefit each other and benefit from an integration of elements from other institutional theories.

The Logic of the New Pay Systems Revisited–in the Light of Experimental and Behavioral Economics

The article questions the logic of the new pay systems introduced in the public sector in many countries. The pay systems and their goals are consistent when looked upon through the lens of standard economic theory. In addition, we find no contradictions between the goals of the pay systems. However, if findings of experimental economics and behavioral economics are included in the analysis of the pay systems, this is not necessarily the case. Experimental economics and behavioral economics contribute with knowledge which must be taken into account when pay systems are designed.