Public Sector Governance and Accountability Series: Budgeting and ...

148 Anwar Shah and Chunli Shen
cost is generally the largest component of operating expenditures, consolidating
budget lines will make little difference if central rules prevent any
flexibility in personnel management. Sweden’s experience in dismantling
central control over personnel management offers some interesting insights
(Blöndal 2003).
Most industrial countries have established various forms of performance
management systems. The experiences of Denmark, New Zealand,
and Sweden are briefly discussed in box 5.2.
BOX 5.2 Performance Management Reforms in Denmark,
New Zealand, and Sweden
Denmark: Danish Performance Management Model
Performance management arrangements are in place in all ministries and
agencies in Denmark. They consist of three main instruments: (a) a performance
contract between a ministry (permanent secretary) and an agency (director
general) for the production of the agency’s outcomes or outputs; (b) an annual
report showing the results achieved relative to those specified in the performance
contract, audited by the National Audit Office; and (c) a performance
pay system linking the salary of the director general of an agency with
achievement of the results specified in the performance contract.
Performance contracts were introduced in the late 1980s on a pilot basis,
but they have now become an established feature of the management of the
Danish public sector. The overall quality of the performance contracts has
improved over time, but the quality of the outcome and output descriptions
still leaves room for improvement. The agency annual report shows the results
achieved relative to targets for all specified outcomes and outputs; it is published
three months following the end of each fiscal year. The performance
pay system for directors general was introduced in the mid-1990s. The criteria
for performance pay are based on achieving the targets specified in the agencies’
performance contracts. In addition, one-fourth of the performance pay is
based on the director general’s management and leadership skills, which are
assessed by the permanent secretary of the respective ministry. The performance
pay can take up to 25 percent of the annual salary.
The Danish performance management system, rather than being
regarded as a contractual arrangement, serves more as a formal structure
under which ministries and agencies discuss the results to be achieved and
the ministries highlight areas they view as especially important and urgent.
The performance management system has developed a more results-oriented
culture in the Danish public sector (Blöndal and Ruffner 2004).