Running head: PERFORMANCE FUNDING

Performance Funding in Higher Education:

Issues in Implementation
Crystal Nikki Simpson
Georgia Southern University
EDLD 8432, Summer 2014
Dr. Daniel Calhoun
June 30, 2014

PERFORMANCE FUNDING

Performance Funding in Higher Education:

Issues in Implementation
Introduction
Performance based funding ties funding to higher education institutions to
performance outcomes of that institution. Some popular outcomes for performance based
funding include retention and graduation rates. Friedel, Thornton, DAmico, and Katsinas
(2013) noted that measures have evolved over time and include indicators such as general
outcomes, progress outcomes, subgroup outcomes, and high need subject outcomes.
As of September 2013, 22 states are utilizing performance based funding, seven
are in transition, and ten are discussion regarding performance based funding (Friedel et
al., 2013). Currently, funding for higher education in the state of Georgia is based on
enrollment. However, Georgia is in transition to begin the implementation of
performance based funding specifically looking at student progression, retention and
graduation rates starting in fiscal year 2017 (Higher Education Funding Commission,
2012). The Higher Education Funding Commission (2012) stated, moving from an
enrollment based driven formula to an outcomes-based formula is a commitment from the
state to invest our resources in the results we want and to accomplish these results with
clarity and predictability (p. 8). With performance based funding becoming the future of
institutions of higher education in Georgia, higher education employees have a vested
interest in performance based funding practices.
Literature Review

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The purpose of this literature review is to examine how performance based

funding has affected institutional performance. This review will look at research done at
the international, national, and state levels. The obstacles found will also be discussed.
International
Jongbloed and Vossensteyn (2001) looked at the policies for higher education
funding in eleven countries. Some of the countries used enrollment, the number of
educators, teaching and research output, and other formulas as determined by their
policies (Jongbloed & Vossensteyn, 2001). They noted that the amounts tied to
performance funding are small and that these measures are primarily for accountability
purposes or informing student about higher education; they do not (yet) use them for
funding decisions (Jongbloed & Vossessteyn, 2001, p. 140) The amount of funding tied
to performance outcomes being relatively small and affecting potential outcomes of
performance measures is a trend that will be addressed in more detail in the implications
portion of this paper.
Alexander (2000) found two commonalties while reviewing performance based
funding in The Organisation for Economic Co-operation and Development member
nations. There are increased tensions between policy makers and higher education
administrators and there has been a shift of the states involvement in higher education
from oversight to active involvement (Alexander, 2000).
National
In 2013, performance metrics emerged as a national agenda item (Friedel, et al.,
2013). Shin (2009) did an analysis of 467 institutions nationwide to see how performance

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funding affected institutional performance and found that there were no changes. Part of
these findings could be attributed to the fact that the amount of funding tied to
institutional performance was very small, on average less than 6% (Shin, 2009). In order
to directly impact performance outcomes, significant funding needs to be committed
(Friedel, et al., 2013). It was stated, federal efforts to create performance metrics will
likely build upon what is already happening in the states (Friedel, et al., 2013, p. 1).
State
Sanford and Hunter (2011) researched the affect of performance funding on
retention and graduation in the state of Tennessee due to the states fifteen-year history of
using performance based funding. They found that the institutions in Tennessee showed
no significant change in performance (Sanford & Hunter, 2011). Dougherty and Reddy
(2011) researched literature on performance funding in Florida, Tennessee, Ohio, and
Washington. They did find changes in institutions in regards to awareness of priorities
and performance and state competition (Dougherty & Reddy, 2011). However, they did
not find evidence that performance funding increases performance in the areas of
retention and graduation (Dougherty & Reddy, 2011).
Obstacles of Performance Funding
Dougherty and Reddy (2011) noted the need for more performance funding due to
the lack of significant changes to outcomes. Several of the studies reviewed noted that the
amount of funding tied to performance outcomes was relatively small (Jongbloed &
Vossessteyn, 2001; Sanford & Hunter, 2011; Shin, 2009). Sanford and Hunter (2011)

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discussed how doubling the incentive in Tennessee in 2005 also did not increase
graduation rates.
Hermes (2012) also noted some factors for consideration if performance funding
is going to be successful. These points include the need to identify proper metrics,
consider the institutional mission, incentivize completion by dis-advantaged students,
recognize interim measure, proved stable funding, and obtain buy in from key
constituencies (Hermes, 2012). The item about providing stable funding is interesting in
that Hermes (2012) states that models should ensure that funding does not drastically
change year to year. This provides stability for institutions so that students are not
dramatically impacted by decreases of performance based funding year to year.
Implications
Performance funding is spreading across higher education institutions in the
nation. Hermes (2012) wrote that states are not just returning to the idea of using
performance funding but that they are also increasing their efforts.
The largest implication found in the review of literature is that performance
funding has no significant impact on performance outcome. Shin (2009) noted policy
makers garner more success by changing the factors that are known to be highly
correlated with institutional performance (p. 65). Sanford and Hunter (2011) commented
that policy makers might need to consider alternate solutions to achieve goals.
Another implication is the unintended effects of performance funding. Dougherty
and Reddy (2011) noted there impacts of performance funding that are unintentional
including costs of compliance, narrowing of institutional missions, grade inflation and

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lowering of academic standards, restrictions on student admissions, and diminished

faculty voice in academic governance (p. 44).
Stakeholders need to look at where performance funding has succeeded and failed
in the past and make corrections in order to successfully implement performance funding.
Cavanaugh and Garland (2012) stated that there are two reasons that performance
funding fails, not having enough funding tied to the outcomes and discontinuation when
the economy begins to decline. Sanford and Hunter (2011) also stated that any impact on
outcomes is going to be the result of significant incentives.
Cavanaugh and Garland (2012) concluded, performance funding, if designed
well, can improve targeted outcomes and reflect good and appropriate stewardship
(Cavanaugh & Garland, 2012, p. 39). Some policy recommendations for consideration
are engaging stakeholders, aligning the measurements to the goals of the state agenda,
consider individual institutional missions, have a phase in period, have a significant
amount of money tied to the program, have outcome and progress measures, and evaluate
the system (Friedel, et al., 2013).
Conclusion
As with all polices and procedures, it is best not to try to reinvent the wheel. Time
should be spent reviewing best practices of states which are currently using performance
funding and learn from their past experiences. What problems emerged and what changes
were made to correct them? What worked correctly from the beginning? At what
threshold is the amount of money tied to performance funding effective? These are all

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questions that stakeholders and policy makers need to consider when moving towards
implementing and evaluating performance funding.
While the research shows that there has be limited impact on performance funding
on performance goals, there are suggestions in research for how performance funding can
be modified to successfully impact outcomes. An important factor that should be kept in
mind is assessment. Any state implementing performance based funding should assess
the impact, both positive and negative, on institutions. This will allow states to determine
how successful performance based funding initiatives are in each state, and what changes
may need to occur.

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8
References

Alexander, F. E. (2000). The changing face of accountability: Monitoring and assessing

institutional performance in higher education. Journal of Higher Education, 71,
411-431.
Cavanaugh, J., & Garland, P. (2012). Performance funding in Pennsylvania. Change,
44(3), 34-39.
Dougherty, K.J., & Reddy, V. (2011). The impacts of state performance funding systems
on higher education institutions: Research literature review and policy
recommendations. Working paper No. 37, Community College Research Center,
Columbia University, New York, NY.
Friedel, J.N., Thornton, Z.M., DAmico, M.M., & Katsinas, S. G. (2012, September).
Performance-based funding: The national landscape. The University of Alabama,
Education Policy Center.
Hermes, J. (2012). States trend toward performance funding. Community College
Journal, 82(4), 26-29.
Higher Education Funding Commission. (2012, December). Report to Governor Deal.
Retrieved from
http://gov.georgia.gov/sites/gov.georgia.gov/files/related_files/press_release/Reco
mmendations%20of%20the%20Higher%20Education%20Funding%20Commissi
on.pdf

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Jongbloed, B., & Vossensteyn, H. (2001). Keeping up Performances: an international
survey of performance-based funding in higher education. Journal Of Higher
Education Policy & Management, 23(2), 127-145.
doi:10.1080/13600800120088625
Sanford, T., & Hunter, J.M. (2011). Impact of performance-funding on retention and
graduation rates. Education Policy Analysis Archives, 19(33), 1-30.
Shin, J. (2010). Impacts of performance-based accountability on institutional
performance in the U.S. Higher Education, (1). 47.