Performance Contract: will it work?

Tricky business, the Performance Contract between government and university. However, itt just might work to improve both education and research, argue three students of Psychology in a winning essay.

Have you ever heard of the Performance Contract the University of Groningen has concluded with the Dutch Government? We can imagine you have not, but that is quite a pity, because the contract can have a big impact on the study process, the teachers and even you, RUG students. Below we explain the RUG performance contract and discuss the positive and negative effects that might emerge from it.

The Performance Contract is a contract of goals and ambitions the RUG needs to accomplish until 2015. There are four important points in the contract: education, research, talent-development and valorisation. Education focuses on the BSA (binding study advice) to increase study success rates, next to learning communities, combining Bachelor studies, excellence through the Honours and University College, and the quality of teachers and education. Research focuses on international top research through three themes (healthy ageing, energy and sustainability) and on research profiles per faculty. Also talent-development is of importance, next to valorisation, measured by the number of patent licenses, the increase of knowledge-intensive start-ups and funds that will be invested.

Specific goals

This performance contract is an example of a performance measure in the public sector. Performance measures are used by governments around the world to improve the effectiveness of the public sector. Such positive effects of performance measurement can be explained from both goal setting theory and agency theory. Goal setting theory assumes that there is a direct relation between the definition of specific and measurable goals and performance (Locke and Latham, 2002).

Research shows that clear and measurable goals are related to performance (Verbeeten, 2008). Agency theory assumes that individuals are fully rational, have well-defined preferences and are solely motivated by self-interest. It also suggests that incentives play a fundamental role in the control of performance because individuals want to increase in wealth (Baiman, 1990).

According to those two theories there should be clear and measurable goals and incentives that reward good performance in order to increase performance in the public sector. But how does this apply to the RUG performance contract?


Regarding the first condition, we conclude that the RUG performance contract contains several clear and measurable goals in all areas of focus. For example, in the education area the aim is to reach 70% Bachelor’s efficiency, in talent-development a special project will be set up within a planned timeframe, and the valorisation area includes several goals stated in specific numbers, such as the amount of knowledge-intensive start-ups. These facts indicate that the RUG performance contract can increase the performance of the University of Groningen.

The second condition states that there should be clear incentives that reward good performance of the RUG. The Dutch government has decided to cut the subsidies they grant to universities; this is the main rationale behind the performance contracts in Dutch higher education. The universities can recover this money by fulfilling the requirements of the performance contract. This cut in subsidy is a clear incentive for the RUG to adhere to the performance contract, and therefore the second condition is also met.

Unintended side effects

However, performance measurement can also generate unintended side effects, such as additional internal bureaucracy, lack of innovation, gaming of performance measures and measure fixing (Verbeeten, 2008). Such problems may arise from unclear procedural rules and measures in the contract, resulting in an “open space” that gives an opportunity to the parties involved to manipulate the performance results.

In such a context, agents can learn what aspects of their work are important to the principal which leads to ‘fixation’ on those aspects (Smith, 1995). The risk is that it will then no longer be relevant whether performance is really improved or whether the road taken is the desired one, just as long as performance appears to be improved (cf. Van Thiel, Leeuw, 2002).

In practice, this could mean that teachers start preparing students for tests and not for intellectual development as a way to achieve the goals of the RUG contract, given the fact that the University’s performance (including the success of students) will determine the University budget.


Using performance indicators may thus unintentionally increase the risk of a performance paradox (Van Thiel and Leeuw 2000), which refers to a weak correlation between indicators and performance, resulting in a separation between actual and reported performance. To avoid this paradox the focus should be more on the procedures towards increased performance rather than on the actual performance (Van Thiel and Leeuw, 2000). The RUG contract does not seem to focus on such implementation procedures, so the outcomes of this contract might possibly not show the realistic picture.

To conclude, we argue that any performance contract, and thus also the RUG performance contract, in itself is not bad and might have a chance of success, despite suggested negative effects. For this to succeed, the RUG needs to keep an eye on the suggested negative side effects.

In order to do so, it is important that staff will be given enough freedom to distribute their own time between teaching and researching, and to determine their own methods of achieving the goals. With that requirement fulfilled, the risk of negative effects might be reduced.

Especially in the times like these, where crisis is impacting on almost every aspect of our lives, the last thing needed is a lower quality of education. After all, knowledge is the key to success; all other things in life are just a value added.

Winnie Timans, Laura Liemburg, Tjaša Zupan
Students of Psychology

This essay is a shortened version of the winning essay written for the Master Class on New Public Management 2012



1. The RUG performance contract

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4. Baiman, S. (1990), Agency research in managerial accounting: a second look, Accounting, Organizations and Society, 15(4): 341-371.

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6. Smith, P. (1995), On the unintended consequences of publishing performance in the public sector, International Journal of Public Administration, 18, 227-310.

7. Van Thiel, S. and Leeuw, F. (2002), The performance paradox in the public sector, Public Performance & Management Review, Vol. 25, No. 3, March 2002, 267-281.