In the Money

How Productivity Incentives Backfired Big Time in Israel's Civil Service

Instead of improving performance, incentive pay has become an automatic raise that rewards things like printing lots of pages; but that's about to change.

As far back as the 1960s the government decided it wanted to reward efficiency and productivity in the civil service and established pay incentives for raising performance to up to 142% based on a 100% standard set for every unit. Maximum performance entitled workers to a premium equal to 25% of their salaries.

In 2012 the average output of civil servants receiving incentive pay reached 169%, much higher than the top output set by the government. In some places, like the Tax Authority’s income tax division, the output measured 240% – or even 290% at the Enforcement and Collection Authority. Can the government really be that efficient?

The answer is obviously that just the opposite is true. It’s not that output is so high but that the standard of 100% is set so low – turning incentive pay into a farce.

Simply put, the government instituted incentive pay in the late 1960s and then fell asleep. Most of the standards set for performance haven’t changed in decades, and 48% of the methods for measuring performance in government offices are at least a decade old. The method for the income tax division’s economic department was set up in 1985 and hasn’t been updated since. The income tax collection department’s incentive pay model goes back to 1998. Nearly 60% of the performance thresholds, meanwhile, have automatically risen to at least 150% – above the ceiling set for entitlement to the maximum incentive pay – simply because over the years technologies have been added such as computers, boosting output without any effort on the part of workers.

The Tax Authority’s secretarial office, for instance, is evaluated according to the number of meetings held, pages printed, and the number of pieces of mail handled. In other words the government encourages its secretaries to print more pages. In a more sensitive area, incentive pay is earned by tax supervisors according to the number of actions they take on their files: the number of warrants put out, the number of bank accounts examined, the number of testimonies taken. Any connection between all this and making sure to exhaust the potential tax collection in each case file is purely coincidental.

Since premiums haven’t been updated for years, the output of government departments has reached ridiculous levels, and incentive pay along with it. The average premium received by 33,000 civil servants is 1,328 shekels ($381) a month for an average 21% of salary – very close to the 25% ceiling.

Over the years incentive pay has lost its significance and has simply become a pay increase. This is why any attempt to change it sparks a major war with the union locals who see it as making a dent in their wages. As a result, the 450 million shekels invested each year in motivating civil servants goes to waste. Rather than serving as a management tool to encourage productivity, it’s become nothing but an automatic pay increase.

A motivational device that's a joke

The Israeli government is ranked an unflattering 35th in the world on the World Bank’s index of ease of doing business. In some of the areas measured, such as building permits or registering properties, Israel ranks 140 to 150. Israeli government bureaucracy, as it turns out, is among the worst in the world, and this undoubtedly also contributes heavily to the country’s cost of living. But as things currently stand, the government is devoid of any tools to improve its bureaucracy – one reason being that its main motivational device has become a joke.

To its credit, the government has come to the realization that this situation can’t continue. And to their credit, the Histadrut labor federation and Ariel Yacobi, head of the Civil Servants Union, admit that low productivity isn’t just the government’s problem. For the past two years the government, with the backing of the Histadrut, has been trying to put its incentive program into proper working order despite the wrath encountered from many of the government union locals.

The compensation and incentive unit has been set up specifically for this purpose in the Finance Ministry’s Wage and Labor Agreements Department. At this stage the unit is mapping out the existing system and looking to update it with modern and more effective mechanisms.

The important outputs that truly streamline the operations of each government department are being prioritized, with performance linked to its work agenda. Quality indices are also being set up, along with opinion surveys in government offices providing services to the public. Differential elements will also be introduced to measure each worker’s performance individually.

One of the first places the new system was put into practice was the Interior Ministry’s planning administration which handles the initial step of government bureaucracy for new housing. Incentive pay was updated to reflect how well it met its work agenda, the number of housing units for which planning was completed, and a quality check for data entered into the computer. During the initial year of implementation – for whatever reason – the number of planned housing units generated by the office jumped from between 3,000 and 8,000 a quarter to 15,000.

The process of updating incentive pay is just getting underway and has many pitfalls to overcome. Solutions haven’t been found for providing incentives to civil servants in sensitive posts such as tax assessors, prosecutors, and doctors where incentive pay could backfire. The government, for instance, avoids rewarding prosecutors for the number of indictments handed down – for obvious reasons.

To prevent the system from again becoming outdated, the government is building in a safeguard to ensure that measurement criteria are updated each year. Incentive pay levels will automatically decrease for every year a department hasn’t done an annual update on its performance standards.

Many problems will be faced implementing the new system, but this is a national mission and they will have to be overcome if we want the gears of government to start spinning again after years of grinding along at a snail’s pace.

Tali Meyer