Workforce Development and Paying For Success: A Model for the Future

As part of a Department of Labor (DOL) news release in June, 2012 announcing the 26 recipients of Workforce Innovation Fund (WIF) grants, the DOL also mentioned an additional $20 million in WIF funding earmarked for the “Pay for Success” (PFS) model.

The PFS concept was distilled into one sentence by the White House Office of Management and Budget (OMB):  “Pay providers after they have demonstrated success, not based on the promise of success, as is done now.” The same OMB blog post goes on to describe it as “an innovative way of partnering with philanthropic and private sector investors to create incentives for service providers to deliver better outcomes at lower cost—producing the highest return on taxpayer investments.”  

The use of Social Impact Bonds (SIB) to capitalize social services has recently come into vogue being used in programs as far afield as the U.K. and Australia, and as close as New York. The bonds essentially create a social investment market. In the PFS model, independent investors (both private and philanthropic) inject the initial capital to cover operational costs which then makes the stakeholders eligible for a return on their investment.

Measurable outcomes represent the bedrock of programmatic successes or short fallings, so grants include independent parties that then track and assess programs. Reaching goals and attaining agreed upon results is what prompts any committed funds from the partnering government agency.

Initiatives enhancing the capacity of an agency to further workforce development and so better serve all jobseekers is something that KRA Corporation welcomes. Progressive and proactive initiatives aimed at positively impacting unemployment in the U.S. is something we applaud.

The PFS system does have its critics. Executive Director of the Minnesota Council of Nonprofits, Jon Pratt, has called for a cautious approach to the implementing of SIBs in Nonprofit Quarterly, quoting Campbell’s Law: “The more any quantitative social indicator is used for social decision-making, the more subject it will be to corruption pressures and the more apt it will be to distort and corrupt the social processes it is intended to monitor.”

This does represent “a new way of doing business” and as such does have some risks. Some of the PFS risk tradeoffs were dissected by authors Kristin Giantris and Bill Pinakiewicz in a Nonprofit Finance Fund review. They assert that high-performing service providers, through sharing their experiences as “program intermediaries,” can mitigate the risk and “develop the pipeline” for newer providers, and so increase the probability of future successes of PFS providers

With our more than 30 years of experience in workforce development, KRA Corporation is fortunate to have been of service to dozens of public- and private-sector agencies and organizations whose programs support effective workforce services systems.  Dedicated to remaining on the cutting edge of evolving workforce development services, the KRA Corporation looks forward to following the progress of this new PFS program model.