Abstract:Public sector management is in a state of flux. Pressures for greater efficiency and a stronger customer service orientation have led to changes to the structures and planning and reward systems of public sector organisations. In the milieu of reform, performance pay for managers has been given prominence in a recent critical report by the Senate Standing Committee on Finance and Public Administration which recommends a return to a more standardised approach to management salaries in the APS. I argue instead that performance pay should be considered as a third‐or fourth‐order coordinating mechanism and linked to the strategies of individual departments in the APS. A policy for greater decentralisation of the design, implementation and management of performance pay schemes in APS organisations is presen