Hamid Mehran proposes funded deferred pay, an incentive structure to mitigate the risk and costs of police misconduct.

To be sure, police are doing a valuable service for society in protecting communities. Effective and sound policing is a difficult task to execute. Yet, understanding and justifying cases portrayed as police misconduct in January 2023 alone is difficult.  

Those who have studied problematic instances of police actions ask if officers exhibited good judgment—and, if not, why not? Answers may be elusive, but what could be possible is identifying ways that the police force can manage itself more effectively and serve the public more prudently.   

The idea is to alter the incentive structure and enhance internal governance in policing by making officers financially liable for their own misconduct, if justified. The aim is not to address every complex problem involved with policing, but to determine how to avoid cases that lead to tragedy, loss of life, and suffering by the victim’s family. 

I propose the adoption of funded deferred pay that could mitigate fraud and police misconduct and might benefit the police force and the public. Key are the production of reliable information on police conduct and the awarding of damages to victims through the legal process.

Misconduct always exists, and it tends to persist with a failure of information production about abuse cases and their escalation in organizations. Accurate information production is less likely in hierarchical structures such as policing. The goal is to change the norm in policing by encouraging information production bottom-up and top-down, as well as enhancing information flow to stakeholders in almost real time (this is, beyond data collection by tech equipment).  

It is necessary to understand why information production and its escalation fail to be as effective as expected. Obfuscation of information is apparent in many publicized police cases. Some have known about abuse and misconduct but refrain from speaking up or taking action, in effect becoming co-conspirators in defrauding and harming the public.  

Or, the police force does not discipline officers who use excessive force. The issue is far more problematic, for example, when police officers fail to intervene and stop the abusive behavior of a fellow officer and to save the victim. Further, police unions oppose disclosure of information on police abuse.

Police officers often work in teams, and coworkers on a team can be effective monitors of their colleagues. Thus, most issues or violations are unlikely to remain unnoticed over time. Recognition is a necessary condition in preventing misconduct, but it is not a sufficient condition. Most members of police forces find speaking up against their colleagues difficult when the conduct does not affect them directly. They do not want to adversely impact the position or welfare of others in the workplace, and they wish to avoid creating any tension.  

Therefore, employees might be willing to compromise their moral standards and their duties to the public to escape discomfort in the short term. What the police force could do to encourage its members to be more alert and vocal is annually deferring part of their pay (for a broad discussion on deferred pay, see my paper on the topic. In this proposal, if police officers fail to intervene or speak up when needed, they might forgo their deferred pay. The objective of the scheme is to change the implicit price to remain passive or silent.

Adoption of paycheck deferral (or performance bond) is a response to governance failure. The simplest example of a buffer and how it functions in other contexts, is the security deposit in the housing market. A property owner likely cannot fully monitor tenants in a rental market, but the threat of a loss of the security deposit is a deterrent to trashing the property. Thus, the security deposit or performance bond not only could alter the conduct of tenants, but it also reduces the funds needed to maintain the property and thus the cost imposition on other tenants in its absence. With no security deposit requirement, rental price is likely to be higher due to more abuse.  

Paycheck deferral is likely to induce similar conservatism. A reexamination of settlements, regardless of the size of the damages, paid to the family of victims of police abuse or the subjects themselves shows that tax paying residents in the end cover the fines for the crimes committed by the town or city police force and that the legal system assigns liability. The settlement costs in the US are large and have been in the order of about $1.5 billion from 2010 to 2020. The City of Boston alone has paid about $31 millions to settle litigations with police misconduct in the past two years.

Some may argue that the cost to a town or a city as a result of a settlement might not be large because it has insurance. That may be true, but stakeholders pay for the insurance contract. Meanwhile, is it moral for insurance companies to cover the costs associated with misconduct? If insurance companies stop covering the cost of misconduct cases then the benefit of police paycheck deferral to taxpayers is likely to increase.

 When residents have been abused by the police, these same residents are called upon to pay for the settlements in the form of taxes. The firing or punishing of one or more police officers does not change that fact. Meanwhile, the residents have little power to modify the system. What if a town or city imposes a reasonable fraction of the settlement costs (and legal fees) on officers or a police unit or the entire force, if justified? 

The new organizational design would hold responsible not only abusive police officers but also those who allow the misconduct to continue by not speaking up. Thus, the financial penalty on police force will be correlated if they fail to intervene or escalate the information about a misconduct case. Meanwhile, residents should absorb part of the settlement costs, determined through negotiations and based on the severity of a misconduct charge, to provide assurances that damage to the police force is limited.

More specifically, we can think of town residents as the principal and the police department as their agent. The police provide a service (law enforcement) to the principal, which they can do with more or less effort. The more effort the police invest, the less the probability that they overstep their authority, which would result in the whole town (the principal) being fined. If the compensation to the police does not depend on whether or not fines are levied, then they do not have incentives to exert effort, and that results in more fines being paid by the principal. Town residents receive the externality from lack of police effort, and have no way to affect the behavior of the police (except possibly through the political process). 

A better contract would be making the compensation of the police depend on fines (e.g. deferring part of their pay in a fund out of which to pay fines and vesting it over time), which would create an additional incentive for the police to provide effort. However, some of these incentives could be perverse if they encourage the police to not investigate accusations that could later lead to fines. Finding the right balance of incentives would involve adapting to the specific institutions surrounding policing in the U.S. 

There is some movement in this direction already. For example, in Colorado, where a police officer found guilty of wrongdoing must pay 5% of their judgment or $25,000, whichever is less. It should be noted that in Massachusetts, and maybe widely, misbehaving public employees can lose part or all of their pensions. 

While the policy is moving in the right direction, the role of employment horizon on incentive should be studied. For example, the deterrent effect of loss of pension might be less for younger officers. In addition, the policy does not impact the escalation of information by other officers.

Therefore, the instrument in the scheme that could impact information production is the creation of a funding buffer with deferral of police force compensation with vesting features. The buffer would be built with a fraction of police force members’ cash compensation. The size of the deferral and the deferral period including the vesting horizon would be predetermined (say, a deferral period of three years, uniform vesting over two years, and 2% of annual base pay for deferral size). Remarkably, as noted in my essay, a small amount of deferral could generate a large incentive. 

The scheme does not suggest that deferred compensation should be punitive. Furthermore, it should not adversely impact police mobility. Some employees may decide to exit the labor market or join other professions. If no bad news about misconduct follows their departures, employees would have access to their own deferred cash once vested. The scheme is not likely to require compensating differentials in a tight labor market to attract employees. 

Employees would pay income tax on their deferral pay. The introduction of a funded deferral buffer in effect creates a reserve with employee resources for the police to address problems brought on by employee negligence. Further, it could mitigate slippery slope cases, in which attempts to cover up a problem make the initial situation even worse. 

While the scheme could mitigate the abuse, it also could protect the abuser by limiting his misconduct and the sanctions he would face. Therefore, the aim of the proposal is not to punish the police force, rather to help address its own dysfunctionality.  

Although the legal system has prosecuted a few abusive police officers following pressure by activists and citizens demanding accountability, little evidence exists that punishment generally has a deterrence effect, and the recent case in Memphis underscores this point. Also, it is unrealistic to assume that potential police reforms such as changes to police qualified immunity from litigation could eliminate the police abuse entirely. Thus, it is important to focus on altering incentives, and so adoption of deferred compensation should be evaluated. 

Although skeptics could question the promises of the deferred compensation approach, no justification exists for town or city residents paying the entire fine if the police force engaged in misconduct and cover-up. Further, unlike many other reforms, the approach outlined here does not impose additional costs on towns and cities in its adoption. Instead, it saves money in its execution and can be considered jointly with other reforms. 

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