Doing everything they can or everything that pays: the impact of financial incentives on two non-profit organisations

This thesis explores the impact of financial incentives on non-profit organisations delivering outcomes-based contracts in UK public services to understand how they affect intra-organisational behaviour and the motivation of staff members. These issues are examined in comparative case studies of two non-profit organisations delivering public services through a Social Impact Bond (SIB), an outcomes-based payment for results (PbR) contract. In a SIB, government purchasers collaborate with private investors or social investors (seeking a blend of financial return and social value) to fund interventions tackling social problems. The SIBs generated direct financial incentives to the organisation and indirect financial incentives for managers and front line staff. This thesis examines the impact of these incentives on organisational, team, and staff behaviour at the managerial and front-line level. This analysis draws on economic theory about the agency relationship, incentives, and non-profit organisations to understand the impact of these direct and indirect incentives on the behaviour of providers delivering outcomes-based contracts. The research examines the applicability of theories of intrinsic motivation crowding from the economics and social psychology literature to understand the impact of indirect financial incentives on the staff’s intrinsic motivation. The analysis of the SIB contracts identified the potential for unintended consequences and suboptimal allocations of resources. The strategic importance senior leadership placed on direct financial incentives influenced how team managers organised staff structure and service delivery. Front line staff understood and prioritised the preferences of their team managers in their choices to apply a client- or outcomes-centred approach to the client group. Incentives ‘crowded in’ intrinsic motivation for staff that supported the outcomes targets and had autonomy over their work. This study argues that the highly-geared incentives in these outcomes-based contracts had complex effects on public services delivery.