Does Employee Pay Variation Increase Government Performance? Evidence From a Cross-National Analysis

Pay variation across positions, functions, and ranks can affect government performance by influencing the ability of the government to recruit and incentivize civil servants, but this proposition has not been systematically examined. Taking advantage of a new panel dataset, we develop and test the theoretical linkage between pay variation of civil servants and government performance. Our findings show a contingency-based relationship between pay variation and government performance. On average, neither total pay variation nor vertical pay variation is significantly related to government performance measured by the World Bank's Worldwide Governance Indicators. However, total pay variation is consistently and negatively correlated with government performance in low-income countries. The findings suggest the importance of accounting for national contexts in implementing administrative reforms and are a cautionary lesson about applying theories based on research on private firms to the public sector.