Details Matter in DOL’s New Pay-for-Performance Strategy

Last week, the Department of Labor (DOL) released a forecasted funding opportunity for a $145 million Pay-for-Performance Incentive Payments Program that aims to expand apprenticeships. It is one step toward the goal that President Trump declared via Executive Order last spring: to reach and surpass one million new active apprentices as part of a push to prepare Americans for the high-paying, skilled-trades jobs of the future. But will it work?

The funding forecast outlines the availability of five cooperative agreements, each ranging from $10 million to $40 million. Cooperative agreements differ from federal grants. While a grant gives the recipient autonomy to determine how it will operate programs and meet requirements, cooperative agreements are more like a partnership with the federal agency. In some cooperative agreements, the federal agency is involved in all consequential decision-making. It is unclear yet how directive DOL will be in these agreements.

The money will be used to offer incentive payments to program sponsors for newly registered apprentices over a four-year performance period. Four of the agreements will be for priority industries: artificial intelligence/semiconductor/nuclear energy infrastructure buildout, shipbuilding and defense industrial base, information technology, healthcare, transportation, and telecommunication. Additionally, one agreement will support a pay-for-performance funding approach in an industry not currently listed. Selected applicants will receive per-apprentice payments for newly enrolled apprentices; however, the forecast does not provide information on the amount of the payments or their administration.

Beyond these parameters, however, the forecast provides very little detail. What we do know, however, is that this approach marks a significant shift in how the federal government has traditionally financed apprenticeship expansion, moving away from program-focused grants toward an outcomes-based funding model. And it’s a big bet, too: the $145 million allocated for this funding opportunity is more than half of the $285 million Registered Apprenticeship budget for FY2025. But will it be enough to make good progress toward one million apprentices? That will depend on the details to come.

What is pay-for-performance funding?

Pay-for-performance (PFP) is an outcomes-based public funding model in which the government reimburses programs for achieving specific milestones. In Registered Apprenticeship programs [1], these milestones include “hiring at the start of an apprenticeship, employer retention of an apprentice for a defined time period, and the worker’s completion of the apprenticeship and receipt of enhanced wages,” according to Apprenticeships for America (AFA). In the opportunity forecast of the Pay-for-Performance Incentive Payments Program, the only milestone DOL noted was for the enrollment of new apprentices during the agreement period.

PFP flips the traditional public funding models in which the government provides public money up-front, and recipients use that funding to support designated activities. Recipients then track and report outcomes of those activities to the government. While future awards may be contingent on these reported outcomes, traditional public funding doesn’t adjust payment levels during the performance period based on those outcomes.

The theory behind PFP is straightforward economics. Because programs are only paid when they reach certain milestones in PFP models, they have a stronger incentive to build high-quality programs that deliver strong results for participants. PFP advocates also argue that the model helps government and providers align on goals and incentives. Outcomes-based payment models have been used in social programs across the public sector internationally and domestically, and evidence suggests that when designed and implemented well, they can create positive impacts for the individuals and communities they serve [2].

Though the terms are sometimes used interchangeably, we distinguish PFP models from pay-for-success (PFS) models, also known as social impact bond models, a similar but more complex outcomes-based public funding mechanism. These models often include private investors who make an upfront investment to cover the program's operating costs and receive compensation if and when the program meets pre-determined outcomes.

Pay-for-performance models in apprenticeship programs

PFP models are not a new concept, even in apprenticeship. Some states have adopted these models in recent years, including California and Maryland, though limited data means we do not yet have a clear picture of how well they are working. California’s Apprenticeship Innovation Fund (AIF), which began in 2022, provides sponsors of non-traditional apprenticeships with $3,500 per apprentice per year and a $1,000 completion bonus upon an apprentice's program completion. Sponsors can use this funding to cover operational expenses.

Early data from California show encouraging signs. Per AFA, the number of non-trades apprentices grew 15 percent and apprentice enrollments in all industries grew nearly 10 percent from 2022 to 2023. According to DOL, program data from the initial AIF cohort suggests that the fund supported “an 18 percent increase in apprenticeships created in the state.” This last figure is notable because PFP models often struggle to support new programs as they don’t provide resources for start-up costs. It is possible that the multi-year payments in the AIF model may be helpful for sustaining new programs in their early years. However, it’s unclear exactly how successful AIF was at bringing new employers into apprenticeship.

In October 2025, a new PFP model for apprenticeships became law in Maryland. The Maryland Pay Per Apprentice Program will reimburse employers or sponsors for each new apprentice who has been employed as an apprentice for at least seven months. The state has not yet publicly shared the reimbursement amount. It’s too early for even initial results from this program, but we should learn more about the new program's efficacy when the Maryland Department of Labor “report[s] on key performance metrics such as job placement, post-apprenticeship wages, and retention and advancement data.”

PFP models have also been used to support apprenticeship systems internationally. Finland, for example, awards funding to training providers based on several different outcomes, including the number of apprentice completers. In England, training providers receive monthly installments based on the number of active apprentices they support. Employers also receive incentive payments of £1,000 for each youth apprentice or apprentice with a disability that they hire. Analysis by the Chartered Management Institute, a professional association for managers in the UK, indicated that England has seen a 300 percent return on its investment of £2 billion.

But until recently, the federal government has not shown much interest in the model. In 2024, under the Biden Administration, DOL issued a report recommending that the department launch a PFP pilot to learn more about its effectiveness in expanding Registered Apprenticeship. And late last year, the Trump DOL announced a $38.5 million cooperative agreement with the Arkansas Department of Commerce that will pay employers $3,500 for each new apprentice who completes a 90-day probationary period.

What is promising about this opportunity?

PFP is an innovative funding approach that has shown encouraging results in places like California and in international apprenticeship systems. It could reinvigorate and bring new ideas to the apprenticeship funding landscape at a time when the system needs to attract new employers to reach scale. And it could help answer some important questions about the promise of PFP models in the U.S., especially about how they influence employer behavior:

• Can PFP models attract new employers to Registered Apprenticeship?
• Are they effective at expanding apprenticeships among existing employers?
• Do they do this more effectively than traditional incentive programs, such as tax credits, which have seen mixed results?

Also encouraging is the fact that the forecast notice will require applicants to include, among their partners, at least one national or regional industry association or a multi-regional or national employer. This approach suggests that the DOL is considering how best to engage employers at scale, and may signal a willingness to tackle some of the hurdles that sometimes thwart the participation of such partners (e.g. program registration reciprocity).

What concerns does this opportunity raise?

But the forecast omits many details that will matter in order for this new funding approach to be effective. Most obviously, it provides an incomplete measure of good performance and no details on payment amounts or program quality, factors that will matter if the model is to make apprenticeship more appealing for employers or improve outcomes for apprentices.

This funding opportunity lists only one, less-than-ambitious milestone on which payments will be based: hiring an apprentice. DOL could strengthen the model by incentivizing not just hiring, but completion, which remains a weakness of the system, with rates ranging roughly from a third to half. Payments for milestones like credential attainment or program completion could support better outcomes for apprentices. DOL could also consider longer-term outcomes like those AFA and America Forward proposed in a recent report, including sustained employment, attainment of additional stackable credentials, and earnings growth. Rewarding these performance milestones would ensure federal money supports programs that set apprentices up for career success—not just those that are good at getting apprentices in the door.

The forecast makes no mention of incentives for providers to hire and support participants who are underrepresented in Registered Apprenticeship or vulnerable groups like youth or people with disabilities. Past federal investments that have directed support to these groups have increased their participation in Registered Apprenticeship, a sign that targeted incentives can help overcome barriers to employment. But without specific incentives tied to hiring and supporting these workers, this funding opportunity may create perverse incentives for sponsors to exclude these groups. To prevent this, the cooperative agreements should be set up to provide additional funding to sponsors that hire and retain those facing the greatest barriers to work in the target industries. Additionally, as our colleagues at AFA and America Forward suggested in a recent report, the adoption of longer-term performance milestones like earnings growth over time could incentivize programs to serve “participants who stand to gain the most” from apprenticeship.

Furthermore, paying upon apprentices' enrollment means the operator must front the start-up costs of program design, recruitment, etc. This raises concern that only well-funded entities able to cover program development costs would reap the benefits of participation. Ultimately, this means the model might help grow existing programs, but will be less effective at spurring the growth of new programs. (California’s model addressed this with a multiple-payment model, with some success. See above.)

Additionally, there will be at least a nominal cost for selected applicants to administer the incentive payments, and it is unclear what portion, if any, of the $145 million can be dedicated for this purpose. A too-tight restriction on administrative costs could discourage applicants or lead to operational challenges down the road for those who do receive cooperative agreements.

But perhaps most significantly, it is worth noting that the Swiss and German apprenticeship systems—which American apprenticeship advocates point to as the gold standard—do not use PFP funding models. They provide stable, robust support to all parts of the system, including to employers, through a variety of funding mechanisms. And in other European Union countries that do use PFP, it is usually seen as a bonus on top of the more predictable funding that goes towards operating the system, not a primary strategy for driving or sustaining growth.

Ultimately, the kinds of bonus payments PFP models provide are just that—a bonus. Absent a longer-term commitment to adequately fund the Registered Apprenticeship system, this PFP investment is unlikely to be a game-changer. To achieve President Trump’s goal of one million new apprentices and to sustain that momentum over time, the federal government will need to move beyond a system that funds apprenticeship through short-term grants and four-figure incentive payments to sponsors.

Notes

[1] Though this piece focused on how PFP models have been and can be used to support Registered Apprenticeship programs, this strategy is not limited to apprenticeship. PFP models have been used in a number of fields beyond apprenticeship and workforce both in the US and abroad.

[2] In a 2014 report, Georgetown researchers made recommendations for design choices government leaders should consider in crafting outcomes-based payment programs. They also noted that leaders can set these programs up for success by “(1) negotiat[ing] with funding recipients and manage stakeholder relationships; (2) develop[ing] effective and clear outcomes and incentives; and (3) measur[ing] and evaluat[ing] provider performance.”