The Influence of performance contracting on productivity in the public sector: a case of Kenya Revenue Authority

Abstract

Public sector institutions in Kenya continue to face challenges related to efficiency, accountability, and service delivery, prompting the adoption of performance contracting as a reform strategy. This study investigated how performance contracting influences employee productivity in the public sector, using the Kenya Revenue Authority (KRA) as a case study. Specifically, the study examined the influence of target setting, staff training and development, performance appraisal systems, and stakeholder involvement on productivity outcomes within KRA. Guided by Goal Setting Theory and Equity Theory, the study explored how these components individually and collectively shape performance dynamics and organizational effectiveness. The study adopted a positivist paradigm and employed a descriptive cross-sectional research design. The target population consisted of 5,245 KRA staff based at the organization's headquarters in Nairobi, with a stratified random sample of 372 respondents drawn across twelve departments. Data was collected through structured questionnaires and analyzed using descriptive statistics, correlation, and multiple regression techniques with the aid of SPSS software. The study's reliability and validity were confirmed through pilot testing and expert review. Findings revealed that all four components of performance contracting significantly influence employee productivity. Target setting contributed to goal clarity and employee focus, while staff training and development enhanced job competence and adaptability. Performance appraisal was found to improve accountability and motivation, and stakeholder involvement strengthened transparency, employee morale, and organizational alignment. The regression analysis confirmed a positive and statistically significant relationship between each component and overall productivity. The study concludes that a holistic implementation of performance contracting anchored in inclusive target setting, continuous staff development, fair appraisal systems, and active stakeholder engagement are critical to improving public sector productivity. Recommendations include institutionalizing staff training programs, promoting participatory goal-setting practices, reinforcing performance monitoring mechanisms, and enhancing stakeholder consultation. Policy implications highlight the need for standardized performance management frameworks, increased investment in capacity building, and sustained political support for reform initiatives. The findings provide actionable insights for policymakers, practitioners, and researchers seeking to optimize performance contracting for improved public service delivery.

Key Words: Performance contracting, public sector, employee productivity, stakeholder, target setting