Pay for performance (PFP) is an innovative contracting approach that links payment to the delivery of verified outcomes. Inspiring innovation to efficiently produce and sustain environmental outcomes, PFP creates opportunity for private entities to finance and implement habitat, water quality, and green infrastructure projects with the potential to achieve a return on investment. Piloted in the social sector, PFP is catching on as an effective way to ensure environmental projects produce meaningful results on the ground.
PAY FOR PERFORMANCE TOOLKIT
Overview
Comparison to Traditional Agreements
Traditional agreements, such as grants and cost-plus contracts, often misalign the incentives between the funding and implementing parties. Implementers are paid for actions rather than outcomes, providing no reward for cost-efficiency or effectiveness. The funders – often public agencies or donors – are left to bear the full risk if projects don’t deliver the planned results.
PFP projects, on the other hand, align the incentives of both parties towards the achievement of environmental goals. By paying for outcomes rather than actions, funding organizations become conservation buyers and transfer project delivery risk to those in the best position to manage it – the producer implementing the project.
Key Distinctions of Pay for Performance
- Defined performance metrics that are tied to desired environmental outcomes
- Outcome-based payments
- Financial incentives for long-term stewardship
Why do it?
Pay for performance maximizes the impact of often limited water quality, habitat, and development funding and enables rapid, landscape-scale conservation in regions where it is needed most. The opportunity for financial gain motivates a whole industry of professionals to identify high priority project opportunities, design effective projects, and implement efficient practices.
Benefits
- Reduces risk of funding ineffective projects by paying for environmental outcomes rather than actions.
- Enables rapid, large-scale conservation by leaving the details of project design and implementation to producers, and reducing the need for costly project-by-project reviews.
- Achieves long-term stewardship by linking ongoing payments to verification of sustained environmental outcomes.
- Attracts private sector participation with opportunities for landowners, engineers, and investors to fund and implement cost-effective projects on private or public lands.
- Builds public support by clearly demonstrating the environmental and community outcomes achieved using taxpayer dollars.
