Incentive-Systems

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CONFERENCE PAPER #8 WORKING DRAFT, NOVEMBER 06

INCENTIVE SYSTEMS: INCENTIVES, MOTIVATION, AND DEVELOPMENT PERFORMANCE

A UNDP CAPACITY DEVELOPMENT RESOURCE

Capacity Development Group Bureau for Development Policy United Nations Development Programme November 2006

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CONTENTS Page ACRONYMS AND ABBREVIATIONS EXECUTIVE SUMMARY I. II. III. Introduction Incentives Strategy in Application Operational Implications ANNEXES 1. Annex 1: 3 Case Studies 2. Annex 2: Bibliography 3 4 5 7 9 22

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ACRONYMS AND ABBREVIATIONS ADB CAP2015 CDG DFID ECDPM FAO GEF ILO LENCD OECD /DAC UNDG UNDP UNESCO UNEVOC UNICEF USAID WBI Asia Development Bank Capacity 2015 Capacity Development Group Department for International Development (UK) European Centre for Development Policy Management Food and Agriculture Organization Global Environment Facility International Labour Organization Learning Network on Capacity Development Organisation for Economic Cooperation and Development/Development Assistance Committee United Nations Development Group United Nations Development Programme United Nations Educational, Scientific, and Cultural Organization United Nations International Centre for TVET United Nations Children Fund United States Agency for International Development World Bank Institute

Acknowledgments This note has been drafted by Thomas Theisohn (Independent Expert) and Tony Land (Independent Expert). Rasheda Selim provided independent editorial comment. It has benefited from a technical review provided by Philip Courtnadge (UNDP/Regional Bureau for Asia & Pacific), Dele Olowu (Asia Development Bank), and Elizabeth Paul (Asia Development Bank). Contact Information: Conference Paper series Production team, Capacity Development Group/BDP, UNDP: Editor: Researcher: URL: Kanni Wignaraja, kanni.wignaraja@undp.org Dalita Balassanian, dalita.balassanian@undp.org www.capacity.undp.org

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EXECUTIVE SUMMARY It is possible to distinguish factors that have motivational effects from other capacity elements. Some are internal, others are external to or “in the environment” of any given system. The question of motivation is inextricably linked with capacity and needs to be analyzed and addressed on all capacity levels: individual, organization and enabling environment. Incentive measures, such as salaries, secondary benefits, and intangible rewards, recognition or sanctions have traditionally been used to motivate employees to increase performance. Motivators may be positive and/or negative. Reducing dis-incentives or perverse incentives that favour non-conducive behaviour, can often be more important than inventing new incentives. Incentive systems reside within organizations, their structure, rules, human resource management, opportunities, internal benefits, rewards and sanctions, etc. Whether based on perception or reality, organizational incentive systems do have a significant influence on the performance of individuals and thus the organization overall. Perhaps the most pervasive structural motivators and incentives are located at the societal level, such as security, rule of law, investment climate, civil service pay or legislation conducive to civic engagement. Operational implications are in terms ways in which incentives and other motivators can be used to mobilise capacity and to promote development performance. This is done in relation to the following: • How to Stimulate Better Performance in the Public Sector • How to retain and attract talent on the Global Labour Market • How to encourage local service delivery in remote areas • How to encourage poor people to claim their rights • How to align aid for capacity development The paper suggests throughout potential strategies and tools to pursue. Three of these are highlighted in dedicated boxes. 1. Reducing Distortionary Incentives by Aligning Aid Around National Pay Reform Countries are encouraged to promote transitional arrangements over the medium term that provide a...
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