1. Performance-based Incentives
in the Korean Government
Nowook Park
Center for Performance Evaluation & Management
Korea Institute of Public Finance

2. Key issues in productivity improvement through
budgetary incentives
The individual and organizational incentives should be
congruent in the performance budgeting process.
Performance budgeting system provides few positive
incentives to performing individuals and organizations.
• Reallocation of funds from ineffective programs to effective
programs
• If efficiency criteria is used for budgeting purposes , there is
danger of reduction of budget and staffs for efficient programs.
 Program managers are penalized for improving productivity of
their programs.

3. Incentives for efficiency savings
Give more autonomy for budget formulation and execution
Allowing efficiency savings funds, which allows a part of savings can be
reserved within the organization
• Can be used for personal or group reward
• Can be used for the other purposes with the approval from the central budget office or the
parliament
• Reallocated for other programs within the organization
Reallocate programs to efficient organization
Personal rewards or recognition to the top managers may not be enough
Reward to the organizations who provide quality information to the
performance budget process
3

4. Performance based incentives in Government
Units of
Incentives
• Organization
• Team
• Individual
Types of
Incentives
• Promotion
• Financial
rewards
• Recognition
Types of
Performance
• Budget
savings
• Assessment
by superiors
and peers
• Assessment
by expert
committee
4

5. Performance Pay in the Korean Government
Units of incentives
• For higher ranked officials: individual performance salary
• For middle managers and below: performance bonus for an
individual or a team
Types of performance
• For higher ranked officials
• Based on performance agreements, including specific
performance targets
• For middle managers and below
• Varies across ministries, including team performance
assessment and self-assessment of operational performance
5

6. (e.g.) Significance of performance bonus
Grade S A B C
Ratio among
evaluated civil
servants
20% 40% 30% 10%
Bonus
Amount
(% of monthly
salary)
172.5% 125% 85% 0%
6

7. Incentives for good organizational performance
Incentives by the prime minister’s office
• Incentives for good self-assessment practices
• Incentives for good program performance
 Lump sum monetary rewards for organization
Incentives by the Ministry of Strategy & Finance
• Incentives for good self-assessment practices
 Lump sum monetary rewards for organization
 Reduction of the fiscal consolidation target for the next
assessment
7

8. Incentives for Budget Savings
“Budget Performance Bonus”
Unit of incentives
• Team or individual
Types of incentives
• Monetary rewards
• Max $30,000 for an individual
• The amount of one year-salary for the reduction of
positions
• 50% of operational cost savings
• 10% of program cost savings
8

9. Procedure
Application
1st review by the
committee in the line
ministry
2nd review by related
ministries and experts
Final decision by the
review committee for the
budget performance
bonus
9

10. Performance of “Budget Performance Bonus”
Paid Budget Performance Bonus
• 1,922 cases, $35 million between 1998-2013
Amount of budget savings
• Expenditure savings: $2 billion
• Revenue increase: $13.5 billion
Shift focus from revenue increase to expenditure
savings
10

11. Lessons
Monetary rewards help, but it should/can be
complementary not primary incentives.
Performance budgeting may be in conflict with individual and
organizational incentives in the public sector for the purpose of
efficiency improvement.
Monetary rewards helps to align individual and organizational
incentives, partially.
Proper combination of non-monetary rewards and monetary
rewards are required.
11

12. Thank you!