Workforce Innovation Fund

Pay For Success

What is Pay for Success?
The Pay for Success (PFS) model is a new way of financing social services to help governments target limited dollars to achieve a positive, measurable outcome. Under the Pay for Success model, a government agency commits funds to pay for a specific outcome that is achieved within a given timeframe. The financial capital to cover the operating costs of achieving the outcome is provided by independent investors. In return for accepting the risks of funding the project, the investors may expect a return on their investment if the project is successful; however, payment of the committed funds by the government agency is contingent on the validated achievement of results. In this way, the PFS model shifts the burden of investment risk from the government to private investors, effectively creating a social investment market where the government only pays for results.

What Programs Are Likely Candidates for Pay for Success Bond Financing?
There are numerous examples of prevention strategies with strong evidence of impact that, if successfully replicated and scaled, could reduce future demand for government funding. These include:

  • multi-systemic therapies that reduce recidivism by offenders;
  • early childhood interventions that reduce costly long-term special education placements of children whose mild learning disabilities or behavioral problems could be better treated early on;
  • summer academic programs for disadvantaged students that accelerate and maintain academic gains;
  • elder care services that reduce the number of elderly who are inappropriately placed in costly nursing homes; and
  • transition services for youth with disabilities that enable young people to enter postsecondary education and obtain employment.

How is ‘success’ measured in the PFS model?
The “success” of the PFS model is defined by specific, measureable outcomes. PFS projects seek to improve a social metric of a target population, such as the rate of unemployment. Pay for Success is best suited to fund interventions that address the needs of a target group where there is either no existing provision of services or the current provision of services is inadequate, and the problem can’t be fixed with current funding sources.

Where can I learn more about Pay for Success?
A Pay for Success Learning Hub (www.payforsuccess.org), run by the Non-Profit Finance Fund, brings together organizations interested in the Pay for Success concept. There you will find articles, recordings, transcripts, research, and videos from around the world on the progress of Pay for Success and other contemporary projects. Also available on the site is a Provider Toolkit, with resources for nonprofits and other service providers; a Networking section, linking people providers and key organizations; and finally, an Events calendar to stay up to date with the latest PFS goings on.

Sources: http://www.doleta.gov/workforce_innovation/pdf/whatispfs.pdf; http://www.whitehouse.gov/omb/factsheet/paying-for-success

Updates on Pay for Success:  http://innovation.workforce3one.org/blog/view/pay-for-success-practitioners-share-perspectives-at-ombs-collaborative-foru


Comments (4)

  1. Robert Gervey on April 12, 2013 said:

    I just watched a clip discussing a social investment bond arrangement being conducted in New York City for young inmates coming out of Riker’s Island Correctional System. Goldman Sachs and the Bloomberg Foundation were investing in a recidivist reduction program. I am glad to see this sort of innovation occurring but worry that the outcome measurements might become biased toward short-term gains in the interest of paying off bond investors at the long term expense of the recipients of the actual services and government will be left with the long term costs associated with maintaining care and services to these at-risk individuals. Hence, we should enter this exciting new capitalization project carefully.


  2. Stephen J. Lynch on April 12, 2013 said:

    Robert, thank you for your insightful comment. Feedback and comments such as yours are invaluable to our national network team of technical assistance coaches and evaluation coordinators as we work to ensure that the Pay For Success projects selected are designed, measured and evaluated in a manner that supports long-term public benefit.


  3. second chances today on October 02, 2013 said:

    It’s nice to know that programs such as “Pay for success” is here to stop the programs that are not working with endless funds because they have always been funded.  As, a organization looking for assistance to go to that next level   Sounds like “Pay for Success”  will be available for us in the future.


  4. Paul Franckowiak on September 03, 2014 said:

    Calworks (The start of the WIA in California that was based on Wisconsin’s model) was using this basic structure back in 1999.  Social Service Agencies were paid on the basis of program participants achiving employment and program completion benchmarks.  I thought this was a very effective innovation.


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