Pay-for-performance contracts involve governments making payments to service providers or intermediaries on the basis of achieving pre-agreed performance targets. The government pays only for the results that are achieved, thereby shifting risk of failure to the private sector. If designed effectively, pay- for-performance models can encourage innovation in service delivery and meaningful partnerships with the private sector. Some examples of pay-for-performance models identified in the research conducted by Purpose Capital and the Carleton Centre for Community Innovation to address needs in the settlement and integration sector include:
COMMUNITY EMPLOYMENT LOAN PROGRAM (Ontario, CAN)
Community Employment Loan Program (CELP) is a pilot project of Social Capital Partners. CELP provides employment opportunities for people with disabilities and other vulnerable populations, including newcomers. It does so by providing an interest rate reduction on financing for entrepreneurs, franchisees and small business owners who commit to hiring disadvantaged workers in Ontario. The cost of finance varies according to the number of community hires made. The employee must be retained for a period of at least six months. A new pilot program was launched in Spring 2016 that builds on an earlier program that was initiated in 2006. Local bank branches administer loans to businesses that hire migrants. As noted in the appendix of the Social Finance Report, “unlike the micro-loan programs and funds that can be limited by the size of the capital pool that underwrites them, this program is designed to be scaled up, particularly in large urban centers in Canada.”
SOCIAL IMPACT BONDS (SIBs)
Social Impact Bonds (SIBs) are a form of pay-for-performance contact that provide a financial return to investors that have committed funding upfront based on achieving specified social outcomes. Since 2015, several new SIBs and proposals for new SIBs have been announced to address the needs of migrants and refugees. Some examples of SIBs are described below.
The Massachusetts Adult Basic Education Program is a joint initiative of the State Finance Office, Social Finance US and Jewish Vocational Services Boston that aims to address the lack of education services (ESOL) for newcomers. Waiting lists for these services can create a significant barrier to employment for some migrants. The initiative will use a social impact bond to achieve its objectives. The project will attempt to serve approximately 1,000 students including newcomers, per year over a three- year service delivery period (3000) for post- secondary degree or certificate attainment to improve education and employment outcomes. Performance outcomes will be measured based on changes in employment status, earnings, and enrollment in post-secondary education among those that participated in the program. The state has allocated $15 M to extend the pilot if it is successful.
CARITAS PERSPEKTIVE SIB (Switzerland)
Key Partners: Government: Bern, Switzerland Intermediary: Invethos; Fokus Bern; Service Provider: Caritas Perspective; Investors: Fokus Bern.
Pilot: June 2015 – June 2020
Intervention: Work placements and on-the-job training (new model called ‘supported employment’. The ‘first place, then train approach” integrating and training recognized refugees and temporarily admitted persons in the job market.
Target Beneficiaries: 120 refugees (pilot) with temporary work permits and that face barriers to employment. The service provider assesses skill level, and if low, referred. Work with high and medium potential clients to find employment.
Return for Investors: If the intervention succeeds in increasing employment rate of target population by 20 % – 30 %, the investors and service provider will receive an annual return is 0.25% over five years. If the targets are surpassed, the interest rate increases in a linear way to a maximum of 5% over the entire term.
Key Lessons: Many social service providers are compensated by government on the basis of the number of days that the clients would spend in a state institution. That way, there is no financial incentive to keep clients for longer. The bonus component works exactly the opposite way. It pays the service provider once the integration into the job market has been successful, so ultimately, the bonus is paid when the client leaves the institution of the service provider In the case of the employment opportunities, the targets depend on the qualifications of the participants. The target for the participants with better qualifications (for example work experience) is to get a fixed employment of at least 50% working hours for 50% of the participants and the salary needs to be regular. For participants with lower qualifications, the rate is 30%. The benchmark was based on the former rate of integration, which was at an estimated 15% across all the groups. See
ELEVEN AUSBURG SIB (GERMANY)
Key Partners: Government: Bavarian State Ministry of Labour; Intermediary: Juvat; Service Provider: Education Management Ausburg (Special Purpose Vehicle, with 4 project partners) Investors: Non-profit foundations: BMW Foundation Herbert Quandt, BHF-BANK Foundation, BonVenture GmbH, EvK Foundation of BMW AG.
Pilot: Sept. 2013 – Dec. 2015.
Intervention: Extensive support and guidance to find apprenticeship or employment and continued support during the period of their employment.
Target Beneficiaries: Unemployed youth under the age of 25, who are not attending school and have not completed compulsory education or apprenticeship, have not had contact with an employment agency for 2 years, and are living in the Ausburg region.
Return for Investors: Maximum of 3% over 3 years if 20 persons or more are employed for a period of at least 9 months (no incremental returns).
Key Challenges: For the specified objectives, the Social Impact Bond had a very short operational duration of 2 years and 4 months. “Launching and successfully implementing the project within this period of time was almost impossible.”
Key Lessons: Due to the secure financing and the un-bureaucratic structure of the SIB pilot project, the project partners could focus their energy on the content of their work. There are degrees of success, and future SIBs should include room for incremental repayments for the investor (rather than all or nothing). Communication should be clear around the fact that they were launching a SIB.
‘DUO FOR A JOB SIB (BELGIUM)
Key Partners: Government: Brussels Capital Region Employment Office; Intermediary: Kois Invest; Service Provider: Duo for a Job; Investors: individuals
Pilot: Jan. 2014 – Dec. 2016
Intervention: The program aims to tackle the dual problems of integration and employment among recent migrants aged 18-30. In particular, the program seeks to “increase their immersion in the local culture by being matched with experienced local retirees, help migrants connect to existing employment networks and increase their professional opportunities.” Investors provide the initial capital and are reimbursed if the program is successful. The net savings for the government generated after the activation of a job seeker is estimated to be €33,000 per year, per person. The social impact bond aims to serve 180 youth immigrants for the duration of the pilot. It is estimated that the state could realize savings of €2m. Results will be compared with a control group.
Target Beneficiaries: 180 youth (1800 youth when fully scaled).
Annualized rate from 3% – 6%: if improvement in reemployment rate is between 0% and 10%, payment increases from 0% to 100% of principal. If improvement is beyond 10%, investors earn incrementally higher interest, up to a maximum of 7%. Maximum potential loss for investors is 100%.
Key Opportunities: “Our plan for the next two years is to scale up our activities in Brussels and to extend our program to other cities in Belgium.” (SSIR 2016).
Key Lessons: The success of the mentorship program “validates our belief that a lack of social capital, rather than a lack of skill or motivation, accounts for the low rate of labor-market participation among migrants” The entire process took two years from the initial idea to the successful launch of the Actiris SIB.
FINNISH SITRA SIB FOR REFUGEES (FINLAND)
Key Partners: Government: Finnish Ministry of Labour Intermediary: Sitra and Epiqus Oy (project coordinated and fund manager selected via competitive bid) Service Provider: To be selected by intermediary Investors: We Foundation, Sitra and private finance investor Henri Kulvik.
Pilot: Sept. 2016 – Sept. 2019
Intervention: The project aims to assist refugees to find employment after two months of integration training. If successful, the Finnish Government will repay investors with the savings accrued to the government as a result of the integration training.
Target beneficiaries: 2000 migrants
Potential Savings to Government: If the project’s objectives are met, the Ministry will pay part of the achieved savings into a fund from which the investors will be paid back their capital as well as a reasonable profit. Savings from reduction in dependence on labour market support and integration education for adult migrants. It is also anticipated that increased employment will bring in additional tax revenue.
Key Opportunities: “The SIB will help the public-sector purchase results without taking on financial risks. Investors can impact on the social issues they feel are important. The strength of the model is that it sets specific, formal targets for impact and economic results, the realization of which are also regularly monitored, Epiqus’ task will be to build the necessary cooperation network and collect funds for the fund that will be established.”