Pay and Performance

Feuding Over Pay-For-Performance

Anonymous Policy Analyst — Tue, 29 Jul 2008 13:47:08 GMT

Recently a couple of senators held hearings on the status of pay-for-performance in the federal government (see article at http://www.govexec.com/story_page.cfm?articleid=40531&dcn=e_wfw).

Basically, agency leaders see PFP has gotten off to a good start and necessary for the future, while employee groups don't like PFP. Is anyone surprised at the difference in reactions? This discrepancy in reactions to PFP is as old as the hills.

What I find interesting is Congressional reactions to the debate. On the one hand they say that you can't have a good PFP system unless the employees like it, yet they don't provide sufficient funding to make meaningful pay differentiation.

And no one in the process thinks strategically about compensation. So much of annual federal pay adjustments is filled with base salary increases that people who only look at annual appropriations can't see the long term advantage of replacing a 1% base salary increase with 5% to 7% lump sum payments. If you did that, you could build some truly meaningful distinctions in pay that would still pay off in the long run.

Long run? Long run to legislators is within four years until the next election season.

OPM Director and Pentagon CHCO Assess Efforts at Pay-For-Performance

Anonymous Policy Analyst — Thu, 15 May 2008 17:18:42 GMT

Office of Personnel Management Director Linda Springer and Defense Department Chief Human Capital Officer David S.C. Chu spoke recently about pay-for-performance at the Excellence in Government conference on Monday, May 12, 2008.

OPM Director Springer tried to put pay reform into perspective. "What we have is antiquated and we are ill-served. ... The pay-for-performance effort began even before the Bush administration took up the issue. ... Will the effort to continue this reform go on? In my judgment it will, because if it doesn't, we will lose the battle of recruiting talent on this issue. You can have all the tradition of public service and pins and plaques and awards you want, but if you go to the grocery store and put your pins on the belt, they'll probably call security."

CHCO Chu insisted that despite the highly visible objections to the Defense Department's new National Security Personnel System, it would remain in place in the next administration. "I think the most important signal was given by Congress last year. It could have decided to reverse NSPS. It did not. It did change the union bargaining system. That was a contentious point. But it did not change the underlying nature of the system itself."

Many members of Congress - both Republican and Democrat - were part of the initiative to establish pay-for-performance in the Senior Executive Service. From what I have read of the regulations and OPM guidance, they tried to allow flexibility in design for the different agencies, but assure a handful of core principles. I can't imagine a new President or Congress abandoning those bipartisan design principles. Can you?

Reforming Federal Government Pay and Performance

Howard Risher — Fri, 25 Apr 2008 19:06:11 GMT

An E-Forum Convened and Moderated by Howard Risher

Part I - The Link Between Pay and Performance: Logic and Experience

It is now 15 years since the passage of the Government Performance and Results Act of 1993 (GPRA) and the start of an ongoing transformation to improve government performance. There have been significant investments in financial management systems and in new technology. The management tools are largely in place. However, those are essentially planning and control mechanisms. The systems have little to do with the way people perform their jobs, with the capabilities they bring to their desks every morning, or with their commitment to achieving agency goals.

Shortly after President George W. Bush took office, in a report kicking off the President's Management Agenda, the announced goal was to transform government so "...High performance will become a way of life that defines the culture of the federal service." The desired culture was described as follows:

"The civil service will use clear and carefully aligned performance incentives for individual employees, for teams, and for its leadership. In turn, these incentives will be tied clearly to reaching their agency's mission and objectives. Agencies will meet and exceed established productivity and performance goals. Accountability for results will be clear and meaningful, with positive rewards for success and real consequences for failure."

This e-forum on reforming federal government pay and performance is organized around three major challenges: 1) how to improve organizational and individual employee performance; 2) problems related to market alignment and the pay gap between the public and private sectors; and 3) planning and policy questions leading to a new white collar salary system. Clearly, the convener/moderator of the forum (moi) views pay for performance as a proven alternative to the current system. It also contributes to improved performance and is much more than a new pay model. Nevertheless, we'll make sure to weave in diverse views - from both invited contributors as well as the general public (toi).

Replacing the General Schedule

Central to those changes was the replacement of the General Schedule (GS) salary system with a new market-sensitive, pay-for-performance-based system. All the ‘system' changes since GPRA was enacted have largely failed to change the culture. In replacing the GS system, the clear intent was to use a new reward system to support the transition to a performance culture. Now, those plans have come to a halt. Recent legal proceedings at the US Departments of Homeland Security (DHS) and Defense (DoD), along with bias charges at the Security and Exchange Commission (SEC) and the General Accountability Office (GAO), have stopped the replacement express. DoD plans to expand the coverage of its National Security Personnel System (NSPS) but otherwise it appears to be dead until the next Administration takes office, and then its fate is unknown.

Employees are always uncomfortable with plans to replace a pay system, especially when the new system signifies a significant change in philosophy, because they cannot be certain how it will affect them. Their concern makes the plan to build broad-based acceptance for a new system uncertain. Employees need to feel they will be treated fairly. Recently the statements of several prominent people opposing planned changes have reinforced those concerns and undermined the initiative's support. In this case, it may be an unintended consequence but the opposition has effectively derailed efforts to improve agency performance.

As the managing consultant for the studies that led in 1990 to passage of the Federal Employees Pay Comparability Act (FEPCA), I learned how difficult it is to assemble and maintain the support to change the federal pay system. I've also played a role in three National Academy of Public Administration (NAPA) studies focused on pay issues, which prompted a number of discussions with senior people in the federal community. There is a high level of interest and broad support for change. However, that support has largely been philosophical. ‘Pay for performance' and ‘market sensitive' are concepts that sound good. Below the surface, however, it quickly becomes obvious that the changes are extraordinarily complex.

The Purpose is Improved Performance

The GS system sends a truly unfortunate message. The ‘living and breathing' step increases tell employees that it doesn't matter how you perform your job. The way promotions have been handled unfortunately reinforces that message - the grade changes from GS 5/7 to the top of a career ladder are for most employees automatic. Government leaders should not be surprised by performance problems when automatic rewards contribute to a sense of entitlement.

The pressure to move away from entitlement cultures has triggered global interest in pay for performance. It's virtually universal in the private sector. It's used by ‘mom-and-pop' businesses as well as the largest global companies. Even the critics of the practice in the academic world are typically paid for their performance. Increasingly companies are supplementing ‘merit' salary increases with group and team incentives - and they willingly incur the added expense because they are convinced it will payoff in improved performance.

Public employers around the world are moving, albeit haltingly, to pay for performance. In the UK, the Senior Civil Service pay and performance system appears to be working well. Reports on that system suggest it is accepted much better by executives than the 2004 changes in the U.S. Senior Executive Service (SES) system. Canada has a similar system. In my work with the United Nation's International Civil Service Commission (ICSC), I talked to representatives from a diverse group of countries who agreed the UN organizations should move to pay for performance

This is by no means a new idea. The first pay-for-performance demo, China Lake, dates to 1980. Legislation was enacted in 1989 authorizing the financial regulatory agencies to develop their own, more flexible pay systems. Pay for performance was discussed in the meetings leading to FEPCA, but Connie Newman and her US Office of Personnel Management (OPM) staff decided locality pay was a higher priority. In 1991, a committee formed by the National Academy of Sciences and funded by OPM assessed the research on pay for performance and concluded federal agencies should move to performance pay. NAPA has supported the policy change in several reports. The 2003 Volcker Commission also supported the change.

The reason the practice is deeply entrenched in the private sector is actually two-fold - there is solid evidence it contributes to improved performance, and corporate executives are strongly opposed to guaranteed pay increases. Researchers have for the most part stopped evaluating the practice. It would be difficult to find anyone in industry who questions the appropriateness of pay-for-performance. There are critics, but they typically focus on problems associated with performance management.

A key point is that despite the occasional comments by critics, this is not about ‘working harder.' The phrase ‘working smarter' is a better descriptor of the goal, that is to say, the intent is to provide an incentive for employees to focus on specific performance goals. When people know what they are expected to accomplish and can anticipate a reward if they are successful, it influences their performance.

It's also not about denying increases to workers whose performance is inadequate. Private sector employers tend to focus on rewarding the star performers. Businesses celebrate and reward their star performers. The goal is to retain those individuals. There are to be sure a few poor performers - every organization no doubt has a few - but companies handle those situations quietly and discretely.

Bottom Line

The bottom line is that the purpose in moving to pay for performance is to improve agency performance. The human resources and human capital offices normally are responsible for administering pay, but the success of a pay for performance policy depends on managers and supervisors. It's obvious if we think about it, but the HR/HC office has little impact or involvement in the day-to-day management of employees. That's the primary reason I normally recommend pay for performance should be adopted first for managers, and an important measure in determining their increase should be how well they manage the performance of their people.

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So, let's leave it here for the moment and have others with informed views and varying perspectives on the matter broaden the debate on the centrality of linking pay and performance. Again, we invite other site visitors to weigh in with your "collegial" views and experience as well. Your comments will be posted after being screened for inappropriate language. I'll be sure to weave these divergent thoughts into the next segment.

Howard Risher is a private consultant on pay and performance. He has over 30 years of experience as a consultant and a corporate human resource executive. He managed the studies that led to FEPCA, has consulted with a number of federal agencies, and played a role in several NAPA studies. He is the author of the 2005 IBM report, Pay for Performance: A Guide for Federal Managers and co-author (with Charles Fay) of the book, New Strategies for Public Pay. He can be reached at: h.risher@verizon.net.

Tying Resource Decisions to Strategic Performance

Warren Master — Sun, 15 Jun 2008 14:01:24 GMT

Howard, did you see my latest blog posting. It's entitled: The Non-Strategic State of Workplace Learning (http://thepublicmanager.org/cs/blogs/). I note that over the past decade or so, government at all levels has begun requiring short- and long-term plans, including strategic goals, measurable objectives, a system for assessing outcomes, and periodic reporting on results. More recently, decision makers have attempted to tie budget and other resource decisions to agency performance. (Ah, other resource decisions - like compensation?)

Ironically, this shift to a more results-oriented management system hasn’t yet made a noticeable dent in public sector organizational culture. I say this because for such a transformation to have occurred would have surely nudged most culture bearers out of their silos and bureaucratic stovepipes. To illustrate, let’s consider one of the most prosaic examples of this phenomenon – the non-strategic state of training and development, or workplace learning.

Theoretically, in a post-silo organizational culture, Chief Human Capital Officers (CHCOs) and/or Chief Learning Officers (CLOs) would be fully involved in the organization’s strategic planning and management systems. Moreover, these activities would be part of a transparent, integrated, 360° process aimed at harnessing all “agency” assets to meet priority challenges. I then proceed to highlight some of these challenges at this point in time. if you want to know more, read the blog posting.

Howard, you should have some insights on this matter - including some comparative feel for how things differ in this area between the public and private sectors. Which got me to thinking about your e-forum on pay and performance in the public sector. My gut tells me that one way to get public sector executives and managers interested in the topic of pay and performance might be to take the spotlight off of the compensation side and focus more on the "urgency of performance." First, offer compelling examples of high performance in both the public and private sectors and discuss how such behavior is recognized. What do you think are relevant management criteria for rewarding high performance (e.g., with respect to fairness, incentives, etc.)? Next, offer compelling examples of poor performance in both the public and private sectors and discuss how such behavior is "compensated." What do think are relevant criteria for recognizing poor performance, using the same criteria?

By shifting the discussion from compensation (which to many comes across as the end) and focusing more on pay - and other tools - as means of respecting and implementing these universal criteria (or values) for dealing with differing levels of performance, you may have a better chance of penetrating the cultural resistance to this highly polarized and polarizing topic - especially in the public sector.

I hope this generates some reactions - including yours?

Just one old bureaucrat's opinion.

Cheers,

Warren Master

OPM Criteria for Pay-For-Performance

Anonymous Policy Analyst — Sat, 10 May 2008 11:30:43 GMT

The President and Congress approved the following criteria for certifying Senior Executive Service pay-for-performance. It serves as a guide for you to design your own agency PFP system. (Full details at http://www.opm.gov/oca/COMPMEMO/2004/2004-13-ATT1.asp)

Alignment
- Agency's strategic plan, annual performance plan, or applicable strategic planning document(s) to establish alignment with employee performance plans
- Performance appraisal system description that explains how the agency links senior employee performance plans to strategic planning initiatives
- Senior employee performance plans that show expectations are linked to strategic planning initiatives*
- Narrative attachment that describes how the agency's senior employee performance plans link to the agency's mission and goals
Consultation
- Performance appraisal system description that explains how employees are involved in developing performance plans and how performance plans are communicated to senior employees at the beginning of the appraisal period
- Senior employee performance plans that show employees were provided their plans at the beginning of the appraisal period and show that employees were involved in developing the performance plans*
- Narrative attachment that describes how the agency involves its employees, individually or in the aggregate, in developing employee performance plans
Results
- Performance appraisal system description that explains how performance expectations are written to reflect organizational and individual results and are observable, measurable, and/or demonstrable
- Senior employee performance plans that show expectations include organizational and individual results and requirements/standards that are observable, measurable, and/or demonstrable*
- Narrative attachment that describes how the agency ensures expectations include organizational and individual results and are observable, measurable, and/or demonstrable
Balance
- Performance appraisal system description that explains how performance expectations include balanced measures
- Senior employee performance plans that show appropriate measures such as employee and/or customer/stakeholder feedback; quality, quantity, timeliness, and cost effectiveness; technical, leadership, and/or managerial competencies*
- Narrative attachment that describes how the agency identifies critical competencies and behaviors for the appraisal process and how it measures or observes them
- Narrative attachment that describes how the agency incorporates customer satisfaction and employee perspectives into its senior employee performance plans
Assessments and Guidelines
- Agency head or designee's guidance to rating and reviewing officials and Performance Review Board members
Oversight
- Narrative attachment that describes how the senior employee ratings and awards take into account, as appropriate, the assessment of the agency's performance
- Documentation the agency used to assess organizational performance
Accountability
- Senior employee performance plans that show how senior employees are accountable for rigorous performance management and for aligning their subordinate employees' performance plans to organizational goals*
- Performance appraisal system description that explains how senior employees are accountable for rigorous performance management and for aligning their subordinate employees' performance plans to organizational goals
Performance Differentiation
- Performance appraisal system description that provides for an outstanding summary level
- Same documents listed under regulatory requirement #10, below
Pay Differentiation
- Awards program description
- Narrative attachment that describes how the agency determines pay adjustments
- Same documents listed under regulatory requirement #11, below

Recent Steve Barr article on pay and performance

Brecca Faust — Wed, 14 May 2008 19:23:48 GMT

Please see the May 14 Steve Barr article on recent OPM study findings on federal employee pay and performance - http://www.washingtonpost.com/wp-dyn/content/article/2008/05/13/AR2008051302799.html

Foundation for Designing Pay-For-Performance

Anonymous Policy Analyst — Thu, 08 May 2008 20:00:53 GMT

There is a very thought-provoking article in the on-line version of The Public Manager that everyone seriously interested in federal pay-for-performance should read - "Management Fad of the Year: Pay-For-Performance" (http://www.thepublicmanager.org/articles/series02.aspx). Despite the provocative title of the article, the author A.C. Hyde provides some very useful factors to consider in designing a federal pay-for-performance system.

In my 30 years in Human Resources, the last 17 of which have been in the federal government, I'd like to offer some further factors to consider.

One-Size Does Not Fit All. Think about the difference between the Internal Revenue Service and the State Department. They have entirely different agency missions, so why should they have the exact same pay-for-performance system?
Shore Up the Foundation Before You Build the Castle. The foundation for any pay-for-performance system has to be agency performance metrics that are objective, valid, credible, and independently verifiable. Build them on a balanced scorecard that includes customer, employee, financial and productivity measures. Perhaps start with these measurements years before you even link them to pay. That way you have a history for which to know how you can build performance targets.
KISS - Keep it Short & Simple. Have any of you seen the pay formulas in some of these demonstration projects? They are a pipe-fitter's dream! Make it easy for participating employees to see the rewards and risks of the pay program.
Design for Cooperation, Not Competition. One of the problems with today's demonstration projects is that for you to rate someone above average, someone else has to be rated below average. How is that going to build cooperative behavior? Make sure that you use a "win-win" approach in your design so you can build a philosophy that "We're all in this boat together!" Make sure every person has a chance to contribute and succeed.
Design for Line-of-Sight. Participants in pay-for-performance need to see that their results can impact organizational results. So pay attention to performance measures vertically so the lowest levels can see that they have an impact; and horizontally so people in different functions can see how their results impact overall success.
Use the Same Sheet of Music. Alignment of performance objectives at all levels of the organization are critical to success. If your executives are playing on one sheet of music while your front-line supervisors are on another, don't expect great music. Note that the same sheet of music doesn't mean the same performance measures for everybody. For example, the oboe players have a different part of the music than the violin and percussion sections. But the composer must make sure that the combined impact of the orchestra sections create harmony when the entire performance comes together.
Think Strategically About Compensation. For the last two decades the private sector has been using high levels of variable pay and low levels of basic pay to make performance distinctions. That way you can make greater degrees of reward distinctions without significantly raising your long-term salary costs. The financial advantage of this approach can only be seen over the long term - at least 5 years. Unfortunately, government overseers only look at year-by-year expenditures, so a long term shift in strategic compensation appears too costly. This may be an Achilles heel in a federal government environment where so much depends on the annual appropriations process.
Stay the Course - Keep the Vision. Build Compensation that is Market-Based & Performance-Driven! Change doesn't occur over night. An agency needs time to make pay-for-performance work. There will be bumps in the road. Key players change over time. Be willing to make changes if need be as long as you are building them within a performance-based culture. Therefore don't wait every four years to see who the next President or agency head is going to be. Start building now for the future.

(My apologies for all the analogies to shoe-making, building sandcastles, fitting pipes, rowing boats, building pyramids, playing music, and Greek mythology. I hope they didn't distract anyone from the success factors they were trying to illustrate.)

A caring policy analyst ...

MSPB Suggestions on Designing Pay-For-Performance

Anonymous Policy Analyst — Sat, 10 May 2008 11:05:13 GMT

For those of you who may have missed it, here is a link to the Merit Systems Protection Board's guidance on designing a pay-for-performance system.

http://www.mspb.gov/netsearch/viewdocs.aspx?docnumber=224104&version=224323&application=ACROBAT

The MSPB report provides 12 key decision points to get you started, and 7 success criteria. Both are recapped below:

Key Decision Points

Is the agency ready for pay-for-performance?
What are the goals of pay-for-performance?
Who should be paid for performance?
What should be the timing for implementing pay-for-performance?
What should be rewarded?
How should employees be rewarded?
How much pay should be contingent on performance?
How should performance-based pay be funded?
How can costs be managed?
Who makes pay decisions?
Who provides input on the performance ratings?
How can agencies facilitate pay system integrity?

Success Criteria

A culture that supports pay-for-performance;
A rigorous performance evaluation system;
Effective and fair supervisors;
Appropriate training for supervisors and employees;
Adequate funding;
A system of checks and balances to ensure fairness; and
Ongoing system evaluation.

So what's holding you back? Go for it!