E mpirical research has shown that personnel system constraints are far more prevalent in public organizations than in private sector organizations (for summaries of the evidence, see Bozeman and Rainey 2000; Rainey 2010, chap. 3). Th ese constraints are believed to hamstring public managers and stifl e organizational performance. 1 One intended purpose of the civil service reforms implemented in recent decades has been to loosen these constraints on the assumption that more personnel system fl exibility will lead to greater managerial eff ectiveness and increased organizational performance Th is article examines this proposition empirically, presenting evidence on the eff ects of overly burdensome personnel system constraints at the organizational level and also investigating intraorganizational variation in the perception of constraints and their impacts on performance. In undertaking this task, we draw on Rainey's long-standing perceptual measures of personnel constraints, which gauge "diffi culty in rewarding good managers" and "diffi culty in removing poor managers" 2 Th at is, can managers eff ectively reward and punish the employees they oversee so as to achieve higher levels of organizational performance? Eff orts to reform public agencies have led to alternative strategies for neutralizing these two personnel constraints. Approaches to increasing managers' ability to remove poorly performing employees include empowering managers, removing constraints on their ability to manage, and instituting performance management systems that connect employee eff orts with results. Approaches to improving managers' ability to reward employees include increased reliance on the performance appraisal process and pay-for-performance schemes. 3 Evidence on the eff ectiveness of these reforms is not very impressive (see, e.g., Our primary contribution is to undertake what is, to the best of our knowledge, the fi rst empirical test of the proposition that public managers' perceptions of personnel constraints suppress public service performance. 122 Public Administration Review • January | February 2013 expected to be a model employer and set high standards in these regards (see, e.g., U.S. Merit Systems Protection Board 2008). Civil service systems are typically built on merit principles that include open and competitive examinations as a basis for selection, strong norms of neutral competence, and relative security of tenure for employees. Traditional systems have relied on centralized oversight of the personnel function and numerous rules to ensure political noninterference and equity in the treatment of all applicants and employees. As a consequence, these systems have been criticized for constraining managers and creating delay, infl exibility, and harmful eff ects on organizational performance. Th ere appears to be a fundamental trade-off between the merit principle, neutral competence, and fair play, on one hand, and economy, effi ciency, and performance, on the other (e.g., Moynihan 2004). In recent years, a chorus of voices has complained that arthritic civil service systems, which are characterized by burdensome personnel constraints that limit the ability of managers to reward good employees and remove bad ones, may be one of the primary causes for declining government performance. New Public Management, Vice President Al Gore's reinventing government campaign, the Public Service Improvement strategy of Tony Blair's Labour administration, and many other reform agendas adopted this mantle Reformers continue to emphasize that civil service systems must be weakened or replaced in order to give public managers more discretion and fl exibility on personnel matters. As a result, personnel systems are changing from purely legal-bureaucratic modes of control to more market-style modes. Traditional systems were characterized by centralized collective bargaining, uniform pay increases, steep and detailed career ladders with intraservice mobility, tightly written job descriptions, and lifetime employment security. Th e behavior of personnel was governed by detailed, input-oriented budgets. In the new model, collective bargaining is decentralized or eliminated, pay is more individuated, career ladders are short and job descriptions loose, recruitment from the outside replaces intraservice mobility, and hiring and fi ring are possible. Budgets are shifting to looser, output-based controls over personnel, who are being liberated and empowered to take risks. In short, the public sector is conforming more and more to the normal disciplines of the private sector We hasten to add that such reforms not only are associated with the New Public Management movement of the 1990s, which sought to improve the performance of public agencies and bring business practices into government, but also persist today as governments our knowledge, the fi rst empirical test of the proposition that public managers' perceptions of personnel constraints suppress public service performance. We off er a second contribution by exploring perceptions of personnel constraints at the intraorganizational level. Our data come from a large-scale survey of English local government authorities and other sources such as the U.K. census. Findings at the organizational level show that "diffi culty in removing poor managers" actually reduces organizational performance as anticipated in the literature but that "diffi culty in rewarding good managers" is insignifi cant. In other words, managers' inability to punish low performers seems to lower organizational performance, but their inability to reward high performers is inconsequential. Our intraorganizational investigation reveals that lower-level managers perceive more personnel constraints than other managers, whereas higher-level managers perceive fewer constraints--but ones that are of greater consequence and have stronger performance eff ects. Among these higherlevel managers, the prior fi ndings on reward and punishment are confi rmed, with one important exception: perceptions of "difficulty in rewarding good managers" produce a positive eff ect on performance rather than an inconsequential result. Th is fi nding contrasts sharply with theoretical expectations and reform predictions. Th ese results indicate that manager's perceptions of personnel constraints vary by organizational level and managerial rank. Th e hypothesized relationship to performance is strongest in the upper tiers, muted in the middle ranks, and partially supported among frontline service managers. Overall, personnel constraints do not exert a major impact on performance, as anticipated in the literature. Th ese fi ndings help explain why the considerable eff ort expended on the design and implementation of pay-for-performance reward schemes has not directly improved public service performance. Th e fi ndings do suggest, however, that managers may need increased discretion to deal with poor performers, as this could translate into improved performance. In the next section, we go into more detail on why personnel system constraints are more prevalent in the public sector than in the private sector and why such constraints are thought to bind public managers and lower organizational performance. Th is review leads to several testable hypotheses. In the third section (and the appendix), we introduce our data and methods; we then test the hypotheses and report the results. Finally, the implications of these fi ndings for public management research and practice are discussed. Personnel Constraints in Public Organizations Empirical research has shown that personnel system constraints are far more prevalent in the public sector than in the private sector (Bozeman and Rainey 2000; Rainey 2010, chap. 3; Rainey, Facer, and Bozeman 1995a; Personnel Constraints in Public Organizations: The Impact of Reward and Punishment on Organizational Performance 123 looked further down the organizational hierarchy and compared the attitudes of frontline supervisors with nonsupervisory employees in the U.S. federal government on a range of concerns, including their attitudes toward work, job satisfaction, and perceptions of individual and organizational performance. He found rather large, statistically signifi cant diff erences between the two groups on 16 of the 18 items studied. Th e author concluded that supervisors tend to report more positive and optimistic responses than nonsupervisory employees. Th e broader social sciences have dedicated eff orts toward understanding mechanisms and processes of coordination and cooperation among levels in the hierarchy Given the presumption that there is intraorganizational variation on key issues of management and organization, we logically extend this assumption to personnel constraints. Such variation is expected given that organizations have distinctive groups of managers with specialized job functions. In the case of English local government authorities, these include senior managers charged with managing the organization as a whole, service heads responsible for specifi c areas of professional service activity, and frontline staff who take charge of delivering services to the public. Scholars have written about the various roles and responsibilities of managers in public organizations. For example, At higher levels of the organization, senior managers may see personnel constraints diff erently than lower-level managers because they (senior managers) are charged with managing the whole organization, where goals, responsibilities, and tasks are broader and less well defi ned than at lower levels (Bozeman and Rainey 1998). Limited empirical research has examined this proposition in public organizations. Frazier and Swiss In this article, we examine long-standing personnel constraints that involve the inability of public organizations to reward good managers with higher pay and to remove poorly performing managers. Th ese constraints have a long-standing pedigree in the public management fi eld and have been prominent in Rainey and colleagues' investigations of public and private sector diff erences Hypothesis 1: Public managers perceive that personnel constraints have detrimental eff ects on public service performance. Hypothesis 1a: Higher personnel removal constraints will lead to poorer public service performance. Hypothesis 1b: Higher personnel reward constraints will lead to poorer public service performance. Th eory and research on personnel constraints has largely focused on the organization as the unit of analysis. As a result, researchers often rely on samples of "elite managers" drawn from the most senior level of the hierarchy to report on organization-wide phenomena. However, a widespread body of research informs us that within organizations, there are likely to be very diff erent perceptions, views, and practices. Some of the more notable examples of this stream of work have documented the alternative behavioral practices of street-level bureaucrats In keeping with these arguments, our fi nal hypothesis is as follows: Hypothesis 3: Perceptions of personnel constraints among public managers at lower organizational levels will have more harmful eff ects on performance. Data and Methods Th is study is situated in the English local government sector. English local government authorities are politically elected bodies with a Westminster-style cabinet system of political management. Th ey employ professional career staff and receive between two-thirds and three-quarters of their income and guidance on the implementation of legislation from the central government. Th ese are multipurpose authorities, but not all purpose; for example, health care is provided by separate health authorities. English local governments have experienced a wide range of public management reforms that include creating personnel incentives and fl exibilities, imposing target-setting regimes, and contracting out services Th ere are fi ve types of local authorities. Th ree types are comprehensive-that is, one authority provides all designated services to one geographically defi ned community. Th ese types of authorities are typically found in urban areas and include London boroughs, metropolitan districts, and unitary authorities. A two-tier system prevails in small towns and rural areas. County councils or shires are the upper-tier authority and district councils are in the lower tier. Th is variation in structural arrangements means that in areas within London boroughs and metropolitan councils, authorities are responsible for virtually everything. However, in two-tier systems, services such as fi re, transportation, and waste disposal are delivered by joint committees. Th is study focuses on major authorities, which include county councils, metropolitan boroughs, London boroughs, and unitary authorities. District councils, the tier of local government below county councils, are excluded from the analysis because the performance measure used in this study is not available for these authorities. One con dition of causality is temporal precedence: the cause must occur before the eff ect. To satisfy this condition, we create a time lag of approximately six months between our independent and dependent variables. Data are drawn from three sources. Th e dependent variable is taken from a data set created by the U.K. Audit Commission (2002) and recorded in late 2004. Th e Audit Commission acts on behalf of the central government and therefore is an important external stakeholder for local governments. Th e data source for the independent variables (personnel constraints) is a survey of English local authorities that also provides internal controls data (see appendix). External control variables come from the 2001 U.K. census (U.K. Offi ce for National Statistics 2003). 1970s. Hypothesis 2: Public managers at lower levels of the organization perceive more personnel constraints than those at higher levels. Researchers and public managers are probably most interested in the impact of personnel constraints on organizational performance at the organization-wide level. However, this does not tell us where the impacts on performance are greatest within the organization. Th us, our third hypothesis is based on the likelihood that personnel constraints perceived by managers at diff erent organizational levels will have varying impacts on performance. Th is hypothesis does not undermine our organizational level analysis (hypothesis 1); rather, it elucidates where the most troublesome perceptions of personnel constraints may lie. Th us, this third hypothesis calls for a sensitivity analysis to determine whether diff erent managerial ranks, which are presumed to perceive different levels of personnel constraints (hypothesis 2), also perceive that these constraints will have varying impacts on organizational performance. Given our arguments so far, it seems likely that senior-level managers at the corporate center 4 of an organization may not think that personnel constraints are as harmful as lower-level managers, in part because they probably perceive fewer such constraints and because they can adopt a variety of alternative strategies to improve performance, including changing processes and structures. Conversely, lower-level managers may perceive more negative eff ects because they experience personnel constraints on a daily basis and can see the impact of such constraints on service delivery. Th ese street-level bureaucrats also interact directly with citizens and service users, making them more sensitive to the views of those groups as sources of personnel constraints. It seems likely that senior-level managers at the corporate center of an organization may not think that personnel constraints are as harmful as lowerlevel managers, in part because they probably perceive fewer such constraints and because they can adopt a variety of alternative strategies to improve performance, including changing processes and structures. Our presumption is that managers' perceptions of personnel constraints will increase the further one looks down the organizational hierarchy: managers at lower levels are likely to perceive more troublesome constraints than higher-level managers. Personnel Constraints in Public Organizations: The Impact of Reward and Punishment on Organizational Performance 125 documentation. Statutory plans are assessed against the criteria of the service's relevant central government department. Evaluators external to the local authority conduct all assessments. Each service area is given a performance score by the Audit Commission ranging from 1 (lowest) to 4 (highest). After calculating the CSP score for each service area, the Audit Commission derives a score for the whole authority or organization by weighting services to refl ect their relative importance and budget (the weight for education and social services is 4, for environment and housing it is 2, and for libraries and leisure, benefi ts, and management of resources it is 1). Th e Audit Commission then multiplies these weights by the performance score (1-4) for each service area to calculate the CSP. Th e resulting scores range from a minimum of 15 (12 in the case of county councils that do not provide either housing or benefi ts) to a maximum of 60 (48 for county councils). To make the CSP scores comparable across all authorities, we calculated the percentage of the maximum possible CSP score achieved by the given local government. Th e dependent variable for our second hypothesis is personnel constraints, which is the primary response variable for hypotheses 1 and 3. Th is variable is described below. Independent Variables Two measures of personnel constraints, labeled remove manager and reward manager, were collected in the survey. As we noted earlier, since their inception in Rainey's research in the late 1970s Controls We include measures of internal controls, external constraints, and prior performance in our models to counteract potential spurious relationships (see Dependent Variables A robust measure of performance is likely to fulfi ll three criteria 10.29 1.126 6.5 13 Internal political climate "The internal political context during the last fi nancial year the service operates in was: (1) changing rapidly; (2) uncertain; and Statistical Results Our results are presented in two parts. First, we examine the eff ects of personnel constraints on organizational performance at the organization-wide level; then we delve into the organizational hierarchy and compare the perceptions of managers in diff erent ranks. Th e explanatory power of the models is around 70 percent, and, as predicted, the measure of prior performance is the most powerful explanatory variable. 6 Th us, the amount of variance explained in the models is broadly consistent with other public service performance studies reported in the literature that include a prior performance measure (Walker, Boyne, and Brewer 2010). Organizational-Level Results Table 2 provides summary statistical results from our regression analysis, and we commence our discussion with the control variables. By and large, these variables perform as anticipated. Developmental culture is positive and statistically signifi cant, whereas internal political climate is negative but not signifi cant. Prior performance is statistically signifi cant and captures the likely eff ects of diversity and population change, which prove to be insignifi cant predictors in their own right. Somewhat unexpectedly, deprivation has a short-term and statistically signifi cant impact on public service performance between the base year of 2003, when prior performance was recorded, and 2004, the year of the dependent variable. Th is positive eff ect may result from increased funding and attention from central government, as deprivation is a key indicator of local government needs. Th e variable remove manager is negative and statistically signifi cant. Th is indicates that rules which make it hard to remove poorly performing managers actually lower organizational performance. Reward manager has no eff ect when considered alongside internal and external controls. Th is fi nding indicates that not being able to reward a high-performing manager with pay increases does not aff ect performance at the organizational level. Th ese statistical results off er support for hypothesis 1a but not 1b. Intraorganizational Variation We begin our analysis of intraorganizational variation among the three hierarchical levels identifi ed in this study with a diff erence of means test. Th us, we test hypothesis 2 prior to undertaking a multivariate analysis. 5 Finally, prior performance is included, based on the argument that organizations are relatively inert and autoregressive systems (Staw and Epstein 2000). Managers make many small decisions in everyday practice that can have substantial cumulative impact over time, and organizations create operating systems and work processes designed to produce the same outputs over time. Th erefore, it is reasonable to expect that what an organization does today is the best predictor of what it will do tomorrow. Th is variable is labeled CSP 2003. Model Th e statistical model is as follow: Data are collected at diff erent points in time to try to address some of the potential causality ambiguities that may arise in the relationship between personnel constraints and performance and to ensure that the coeffi cients for personnel constraints are not biased. If we had a cross-sectional research design, it would be diffi cult to
