Incentives for performance in cohesion policy — reality or wishful thinking?

By Cristina Jianu, Investment for Cohesion, Growth and Inclusion Directorate, and Bernard Witkos, cabinet of Marek Opiola, ECA member

Source: Lightsource/Deposit Photo.

The long quest for incentives to improve performance in cohesion policy

Cohesion policy has undergone reforms aiming to strengthen result orientation over the last two decades. The most relevant changes concern two interlinked elements:

  • the framework for measuring performance with output and result indicators to articulate what achievements are expected from investments and to enable monitoring; and
  • mechanisms to incentivise performance and encourage authorities to pursue the priorities of cohesion policy.
  • ex ante conditionalities (EACs);
  • a performance reserve; and
  • performance‑based funding, in particular Financing Not Linked to Costs (FNLTC).

Table 1 — Performance incentivisation in cohesion policy

Carrots and sticks to incentivise better performance in 2014‑2020 cohesion policy

The three instruments examined all involve ‘positive’ financial incentives or rewards for meeting the required conditions and for satisfactory performance, but also the possibility of imposing financial sanctions in the form of payment suspensions, i.e. ‘negative incentives’, as described in Table 2 below.

Table 2 — Performance incentives in 2014‑2020 cohesion policy

Auditing these instruments

The preparatory work for the audit published as ECA special report 24/2021 Performance‑based financing in Cohesion policy: worthy ambitions, but obstacles remained in the 2014‑2020 period started in April 2020, at a time when lockdowns and restrictions had just begun in the Member States. From mid‑March 2020, the ECA introduced teleworking as a default working mode. While none of us had the slightest idea how long and how far‑reaching the COVID‑19 pandemic would be, we decided to adapt the audit to the new working conditions. Based on our previous audit work, and not least because of the Commission’s significant progress in digitalising cohesion policy, we were relatively confident that we would be able to obtain the necessary audit evidence without on‑the‑spot visits.

  • the performance-based instruments were well designed to incentivise performance and shift the focus towards achieving results;
  • the Commission and the Member States used them effectively; and
  • their use made a difference in the way cohesion funding was allocated and disbursed.

An attractive idea hampered by design flaws

Overall, we concluded that the Commission and Member States have been only partially successful in using the three instruments to make the financing of cohesion policy more performance‑oriented. Ex ante conditionalities (EACs) were designed to set the conditions for effective spending, but their assessment was a one‑off exercise without subsequent monitoring. The performance reserve was released almost exclusively on the basis of progress in spending and outputs. Financing not linked to costs (FNLTC) was hardly used.

Table 3 — Qualitative assessment of the functioning of incentives

Figure 1 — Indicators used in the 2019 performance review per fund

What can we learn for the future?

With the introduction of performance‑based funding instruments in the 2014‑2020 period, the EU took a new path that shifted the focus from inputs to results in cohesion policy. The outcomes of these efforts were mixed. Nevertheless, performance‑based funding has now become a dominant form of EU financing, as it is the default for the Recovery and Resilience Facility and is optional under cohesion policy. Our examination offers a number of useful lessons to strengthen these instruments in the future and make them more effective.

--

--

Articles from the European Court of Auditors, #EU's external auditor & independent guardian of the EU's finances.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
European Court of Auditors

Articles from the European Court of Auditors, #EU's external auditor & independent guardian of the EU's finances.