PUBLIC ENTERPRISE, 2016, ISSUE 22., VOL.1, ARTICLE 6

Absence of an appropriate performance evaluation system is frequently the major cause of inefficiencies in public enterprises (PEs). Such a system is needed in PE sector largely owing to their multiple objectives which create vagueness about their goals. An evaluation system, which is based on clear and quantifiable targets linked with an incentive system, minimizes vagueness and; motivates managers to achieve specified performance level. In order to improve PEs performance in Pakistan, the “Signaling System for Public Enterprises” was set up in 1980s. The system had two major components: performance evaluation system, and incentive system which operated within the framework of an autonomy structure. Under this arrangement, managers were free to act to achieve targets and they were rewarded for good performance. The system was based on productivity linked with profitability targets. It generated positive results from the beginning. However, operations were further strengthened by improved target setting by application of benchmarking, and; by introducing the concept of strategic planning to enhance performance in short as well as long term. Supplementing the operations of signaling system with improvisations improved its effectiveness resulting in: (a) improvement in PEs profitability within four years; (b) managers acknowledged that it was a useful initiative which generated positive results; and (c) experts from the World Bank and Boston University concluded that the system motivated managers to attain targets, which improved operational efficiency of PEs.