The Persistence of Pay-for-Performance in Government

By on June 28, 2009 in Current Events with 2 Comments

FedSmith and other sites frequented by Federal employees are reporting that the newly appointed Office of Personnel Management (OPM) Director, John Berry, has voiced his desire for a unified pay system within the Executive Branch. 

We are assured that whatever replaces the General Schedule (GS), with which most of readers are familiar, will incorporate some aspects of "pay-for-performance" (PFP). 

This article is, in essence, an open letter to Director Berry and his staff. In it, I have some suggestions for OPM to consider before codifying PFP.  

A sincere welcome
Before getting to the subject matter of this article, I want to congratulate the new Director on his appointment. His prior experience within government is welcome. It includes stints at the Departments of Treasury and Interior as well as the Smithsonian. Berry’s youth was spent in Montgomery County Maryland – home to many thousands of civil servant households. His mother worked for the Census Bureau. He is not an ill-informed outsider.

I also welcome the Director’s personal honesty and courage in identifying himself as a gay American and for speaking frankly to the subject of civil rights for sexual minorities. Honesty and courage are qualities needed in job that has often been compromised to ideology and politics. Career Federal employees (of today and the future) could use a clear-eyed and unflinching advocate.

A time for honesty
I hope that the new Director will take a clear-eyed look at compensation anchored to performance appraisals. Among the ideologues of recent times were those who labeled pay-for-performance (in the Department of Defense) a "National Security Personnel System"(NSPS). The connection between merit pay and national security is tenuous at best.  Moreover, research indicates that the relationship between merit pay and productivity may be equally strained.

I recommend research done by James Bowman, PhD. 

Dr. Bowman is a professor of public administration at Florida State University’s Askew School of Public Administration and Policy. In a talk to the American Society for Public Administration in March of this year titled Success of Failure: The Persistence of Performance Pay, Dr. Bowman reviewed and analyzed the Federal government’s ongoing experiments with PFP.  He was gracious enough to give me a copy of his address and, no doubt, would do the same for folks in OPM should they not already have it.

Dr. Bowman’s sources are included in an impressive bibliography of articles and studies – over 60 in all.  His findings are not what Director Berry and other Executive Branch appointees might prefer, but they are well-researched and carefully documented. 

Bowman writes:

In light of expectations, the performance of pay-for-performance programs, by most accounts, is at best disappointing; indeed, the consequences are often counterproductive. Based on past experience in the last quarter century, the strategy may or may not be good in principle but it is certainly difficult to do in practice.

"Those who do not remember the past are condemned to repeat it"
Take heed. Dr. Bowman’s research begins with the Civil Service Reform and Performance Management and Recognition Acts of 1978 and 1984. Both acts legislatively implemented merit pay (PFP) and both failed to achieve the desired results. There are many folks within and outside of government who have personal recollections of these efforts and can advise Director Berry and his OPM team of their fates – from implementation to eventual termination. Bowman writes:

The landmark National Academy of Sciences study (Milkovich & Wigdor, eds., 1991), undertook when the Office of Personnel Management was considering using incentive pay government wide, found that many of the assumptions in business and government about the technique were without foundation, there was insufficient evidence to determine if incentive pay was efficacious, and that transferability to government was a dubious proposition.

Many HR professionals who were in government at that time still cringe at the mention of "GM’s" – managers formerly at the GS 13-15 levels who were place in a PFP system. Implementation was haphazard and those administering the ratings were often more concerned about rating dispersions and the shape of curves than actual job performance.  

"This is like deja vu all over again"
Dr. Bowman’s review goes on to cite those PFP programs more recently implemented in the Federal sector – by FAA, GAO (admittedly, not in the Executive Branch), DHS, DoD, NIST, FDIC, and SEC. Of those seven organizations, only NIST (National Institute of Standards and Technology) can legitimately claim success. None of the other agencies has credibly shown that pay-for-performance has resulted in demonstrable returns.  

A batting average or winning percentage of .143 is as unimpressive in the world of management as it is in the realm of sports. After reviewing the factors that may have contributed to NIST’s claims of accomplishment, Dr. Bowman notes, "Such success stories tend to be isolated, temporary, and/or constrained; if confirmed by independent research, they nonetheless must contend with a substantial body of evidence on performance pay failure."

A lengthy report was recently released concerning the Pentagon’s initial implementation of the NSPS. It was prepared by SRA International, Inc. and provides insights from several focus groups within DoD. As with past attempts researched by Dr. Bowman, it appears as it the objectivity, motivation, and flexibilities the NSPS had assumed in its design are more illusive than originally imagined.

Barking up the wrong tree
Professor Bowman patiently reminded his audience of public administrators that overwhelming qualitative and quantitative evidence (from both public and private sectors) leads one to conclude that pay-for-performance programs accrue more costs than benefits. PFP continues, however, to enamor Federal leadership and the public.  

After all, what could be more logical than the phrase itself – "pay for performance"?  The appeal also stems from the world of sports where stats determine (in large measure) the salaries of point guards, defensive tackles, and shortstops. The work of most Federal employees, however, is not memorialized onto scorecards or stat sheets.  Capturing the aspects of a job most relevant to an agency’s mission can prove illusive. This is true for welders, service representatives, engineers, and attorneys.  

In his conclusion, the professor writes the following:

After years of being told to "run government like a business," if it was not clear before, then today’s fetid financial crisis–derived at least in part from foolhardy risk taking encouraged by corporate pay-for-performance systems–makes it obvious that the fascination with market values and compensation incentives is problematic.  In the end, government is a public service.

Look before you leap
As someone who looks forward to Director Berry’s tenure at OPM, I urge him and his staff to temper their enthusiasm for PFP with the cool-but-conclusive data at hand.  OPM should ask the hard questions about annual merit pay reviews tied to performance evaluations.  

As with the SRA International study of DoD’s recent attempts, their research should include those people who represent the fabric and strength of our government.  Too often in the past 6-7 years, investigations into PFP have asked the architects and builders to assess their own designs and constructions.  

If hundreds of thousands of additional Feds are to be put under a pay-for-performance scheme, OPM should also examine recent, successful union organizing at GAO and SEC. In both agencies, PFP was the touchstone of employee fears and dissatisfaction.  Successful union organizing followed on the heels of merit compensation implementation.  

Laying a foundation
As a result of my interest in Federal performance appraisals, I have posted several articles on this site concerning pay-for-performance. I am discouraged by a chorus of negative comments I continue to hear from Federal supervisors, managers, HR specialists, and union representatives. (See, for example, Sizing Up Pay-For-Performance In The Next Administration,  and The Future of Pay-for-Performance in the Federal Government.) A thorough investigation may reveal (as Dr. Bowman and I have speculated) that the costs of such programs have thus far exceeded the benefits.  We have not seen studies that validate PFP actually paying off – in corporations or government agencies.

In most Federal PFP systems supervisors and managers have been thrust into to business of determining employee compensation without a good foundation in performance appraisal. Many seasoned leaders do not know the difference between elements and standards (or objectives and indicators) or have any notes/data going into performance reviews. Most of those I encounter have never attended a serious examination of performance evaluations and the implications of the criteria they are using.

More troubling to me, most human resources/capital offices lack a cadre of specialists/expertise in the area performance evaluations. 

To be sure, much literature on the subject is open to question. Nevertheless, many agency regulations represent more rhetoric than reality, and competent advice is hard to come by. HR certifications exist throughout the private sector. Before taking on such a sophisticated and questionable system, we need to play "catch-up" and determine what our specialists know and have yet to learn.

Look in the backyard too
OPM’s guidance regarding appraisals has also invited questions. It has been the agency’s position since implementation of the Civil Service Reform Act (over 27 years ago) that data-driven goals and objectives can cascade downward from one layer of boxes to the next, eventually translating to objective performance standards. In reality, most Feds are rated against rankly subjective criteria.

In a different but related area, OPM has held that employees can occupy a "Marginal" performance status in perpetuity. As a former Executive Branch employee and manager himself, Director Berry should consider how long he would keep a marginal Veterinarian or Maintenance Worker or Payroll Clerk on his staff. Perhaps it’s time OPM discouraged the use of this rating level in order to have a realistic evaluation system that relate to the actual experiences of Federal employment.

A journey of 1,000 miles…
Contingency compensation (PFP by another name) is a popular theory; however, there is a lack of evidence as to its validity. Were he in charge of the Food and Drug administration, the presumed benefits of such a prescription would be subjected to considerable testing and study before Director Berry would allow its introduction into the marketplace.

As with many of my colleagues, I have found the pay-for-performance rhetoric facile… and the realities very challenging. PFP may prove a boon to government, but experiences to date indicate much groundwork must be laid before assumptions translate into proven successes.

If it is his intention to establish and/or mandate such a compensation system throughout the Federal sector, Mr. Berry needs to assess the past and present before attempting to alter the future of almost two million civil servants. James Bowman appears to have reviewed dozens of relevant sources before reaching his own conclusions. All are available to the Office of Personnel Management.
 

© 2016 Robbie Kunreuther. All rights reserved. This article may not be reproduced without express written consent from Robbie Kunreuther.

About the Author

Robbie Kunreuther is the Director of Government Personnel Services (GPS). GPS provides 1 to 3-day seminars to Federal agencies in four subject areas: Dealing with performance and conduct issues; Developing sensible performance appraisal criteria; Fostering cooperative labor-management relations; and Applying mediation skills in the workplace. Over the years, Robbie has trained thousands of Federal supervisors, managers, HR specialists, and union officials. For more information about him and GPS, go to trainlngfeds.com.

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