Così Fan Tutte? Adoption and Rejection of Performance-Related Pay in Italian Municipalities: A Cross-Sector Test of Isomorphism

• Published date: 01 June 2010
• Date: 01 June 2010
• DOI: 10.1177/0734371X09360177
• Author: Nicola Bellé
• Subject Matter: Articles

Review of Public Personnel Administration

30(2) 166 –188

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DOI: 10.1177/0734371X09360177

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Così Fan Tutte? Adoption

and Rejection of

Performance-Related Pay

in Italian Municipalities:

A Cross-Sector Test

of Isomorphism

Nicola Bellé1

Abstract

Using data from Italian municipalities, nonprofits, and business firms, this article explores

two sets of relationships. First, sectoral differences in the exposure to institutional forces

triggering the adoption of performance-related pay are investigated. Second, this study

estimates sectoral differences in the sensitivity to those isomorphic pressures. Coercive

pressure is the strongest on municipalities and the weakest on for-profits. Exposition

to mimetic pressure tends to be stronger for business establishments compared with

both municipalities and nonprofits. For-profits generally face weaker normative forces

relative to municipalities and nonprofits. Coercive pressure increases the probability

that an organization adopts performance-related pay schemes more in business firms

than in nonprofits and more in nonprofits than in municipalities. The effect of normative

pressure on the probability of adoption is higher in both municipalities and nonprofits

compared with for-profit establishments. Coercive pressure increases the percentage

of performance-related pay more in business firms than in nonprofits and more in non-

profits than in municipalities.

Keywords

performance-related pay, local governments, Italian civil service reform, isomorphism,

new institutionalism

“More pay for better performance” has long been a mantra for civil service reforms

worldwide. By 2005, about two thirds of the countries belonging to the Organisation

1Bocconi University, Milan, Italy

Corresponding Author:

Nicola Bellé, Bocconi University, via Roentgen, 1-20136 Milano, Italy

Email: nicola.belle@sdabocconi.it

Bellé 167

for Economic Co-operation and Development (OECD) had started linking civil

servants’ pay to their performances (OECD, 2005). As of 2008, 80% of OECD

governments had adopted merit pay provisions (Lah & Perry, 2008).

The salary of most senior civil servants—and that of an increasing proportion of

nonmanagerial employees—is now made of three main components: base pay, post-

related pay, and performance-related pay. Base pay is the fixed component of the com-

pensation, which is equal for all the staff within the same grade. Post-related pay is a

variable component of the salary, which compensates for duties required by each

position—for example, allowances that are attached to certain posts or certain working

conditions—and is awarded regardless of performance as long as the employee holds

the position. According to OECD terminology, performance-related pay refers to “the

variable part of pay which is awarded each year (or on any other periodic basis)

depending on performance” (OECD, 2005, p. 20). Milkovich and Wigdor (1991) use

a broader definition that also includes permanent increments to base salary—that

is, merit increments. Perry, Engbers, and Jun (2009) distinguish three typologies in

performance-related pay: added to base, bonus, and piece rate.

In Italian organizations, merit increments are either not used or consist of auto-

matic pay increases that are not really linked to performance (Valotti, 2005). None of

the establishments in the sample adopts piece rate compensation methods. On the

basis of the OECD definition—which excludes “any automatic pay increase by, for

example, grade promotion or service-based increments (not linked to performance)”

(OECD, 2005, p. 20)—only the bonus component of performance-related pay was

considered.

Three types of institutional pressures—that is, coercive, mimetic, and normative—

tend to make organizations more alike, that is, isomorphic. Coercive isomorphism

stems from both formal and informal authority exerted by other institutions—for

example, parent organizations, government, and society. Mimetic isomorphism

results from coping with uncertainty by imitating organizations that are deemed suc-

cessful. Normative isomorphism is associated with professionalization and may

derive from belonging to associations of peer organizations (DiMaggio & Powell,

1983; Meyer & Rowan, 1977; Rogers, 1995; Scott, 1995; Staw & Epstein, 2000;

Tolbert & Zucker, 1983). This study explores how institutional forces affect the deci-

sion to adopt performance-related pay schemes in Italian municipalities relative to

Italian nonprofit and for-profit organizations. Previous studies have not investigated

whether any such sectoral difference exists.

By comparing the vulnerability to institutional forces across sectors, one can tell

whether municipalities face a higher risk of adopting pay-for-performance plans not on

the grounds of technical efficiency evaluations but just because everyone else is doing

it. Using data from Italian municipalities, nonprofits, and business firms, this research

explores two sets of relationships. First, sectoral differences in the exposure to institu-

tional forces that trigger the adoption of performance-related pay are investigated.

Second, this study estimates sectoral differences in the sensitivity to such isomorphic

pressures.