A Comparative Analysis of Performance Funding: Four Country Case Studies

• In Event: Higher Education Policy and Finance

Proposal

Overview
This paper presents analysis of the performance funding programmes for public universities in four countries: Austria, Denmark, Finland, and Sweden. The presentation is based on a comparative study conducted in 2019 and published in 2020. It focuses on technical features of the performance funding programmes, such as the structure of the performance funding models, the proportion of performance funding as part of the total government budget for universities, the performance indicators, and the weights attached to them. Focus will also be given to the policy objectives pursued in each system as shown in the designated performance metrics and the volume of funding tied to them. This question is triggered by the idea that performance funding is not merely a budgeting process. Rather, this funding mechanism is entwined with how governments signal priorities and define success (Jongbloed & Vossensteyn, 2001). Therefore, one would expect see that the problems and goals addressed in policy will show up in the way public funds are supplied out of the public purse.
Context
Performance funding has become a major practice in resource allocation in higher education. In recent decades, a constellation of social, economic, and political factors have led many governments to deploy performance measurements. Foremost among these is the double bind many higher education systems face in which the cost of higher education has continued to rise in the face of strained public finances, while at the same time raising outcome expectations: a financial outlook, in many instances, deemed unsustainable in the long run (Jacob, Neubauer, & Ye, 2018). These projections coincided with the emerging recognition that higher education had become crucial to a country’s success in an increasingly competitive global economy driven by knowledge and innovation. In a climate clouded by this dilemma, many countries launched structural reforms aimed at improving the performance of their higher education systems through the introduction of business-like management practices that stress the decentralization of responsibility as well as requiring higher education institutions to offer a more nuanced version of quality assurance, cost-effectiveness, and productivity than has been heretofore offered (Adam, 2020). These reforms are believed to have altered the notion of accountability in higher education from accounting for expenditure to accounting for results with central governments declaring that the future funds supplied out of the public purse are going to use performance assessments (Lucianelli and Citro, 2017).
The four national contexts under study provided a useful lens to examine the extent to which governments base the funding of their public universities on performance. The four countries have large public university sectors where a substantial proportion of annual revenue earned by universities comes from public funds. They all integrate a version of performance funding into their national accountability frameworks. The time was also ripe for such inquiry. In 2019, Austria, Denmark, Finland, and Sweden introduced changes to the funding models of their higher education systems. These changes are the latest episode which have a longer provenance. The policy setting in these countries has been adjusted toward broader emphasis on performance-based accountability in the past decade. Following the financial crisis of 2008, European higher education authorities faced growing pressure to explore funding methods that support policy goals in a cost-effective way amidst increasing competition for resources from other sectors (Estermann, Benntot Pruvot, Laeys-Kulik, 2015).
Conceptual Framework
The conceptual framework used in analysis is based on the classification of performance funding into three forms: output-based funding, performance set-asides, and performance contracts (Burke, 2002; Dougherty & Natow, 2015). Output-based funding attaches the funding formulas to results on key metrics. This model basically awards a portion of the core funding available for universities on the basis of quantified teaching and research output data. Performance set-asides earmark a portion of the public budget for higher education institutions to be allocated on the basis of performance indicators. Funding sources are sometimes sliced off the annual grant or drawn from external sources to be provided as an additional bonus. Performance contracts are bilateral negotiated agreements between the government and individual institutions. The contract is the regulatory document which sets out the performance goals, indicators, weights, and success standards.
Regardless of the form it takes, performance funding is an accountability-driven system which uses the power of the public purse to prompt higher education institutions to become more efficient, delivering more value for money in addressing public policy objectives. This rationale espouses resource dependence theory (Pfeffer and Salancik, 1978) which basically frames organizations as capable of rationality and purposive action. Hence, the assumption is that resources determine much of institutional behavior, because organizations would naturally enhance their performance to acquire resources necessary for organizational autonomy and survival.
Research Design
In pursuing this inquiry, the study examined the technical features of performance funding for universities. These included such attributes as the designated performance indictors; their measurements and administration, as well as the volume of funding tied to them. The study takes the form of a policy analysis drawing mainly on the analysis of policy papers and financial data obtained from official documents published by government agencies and ministries which deal with statistics and questions of finances and quality in higher education. Qualitative and quantitative data were also obtained from email communications with officials in the ministries responsible for higher education in the four case countries. These data sources provided much-needed understanding of the design of performance funding programmes.
Analysis focused on recurrent government funding which public universities receive annually to cover their core activities. This does not include funding from research councils. The agencies support higher education in the case countries by means of competitively-awarded funding which varies on a yearly basis according to the ability of research personnel to acquire research grants, and hence does not qualify as recurrent funding.

Author

• Edmund Adam, University of Toronto, Ontario Institute for Studies in Education