Making Pay-For-Performance Pay Off

DoD and DHS are the vanguard agencies for widespread introduction of pay for performance. As implementation nears, doubts and concerns within government are reaching tsunami levels…

As the Congress and the administration move toward institutionalizing "pay-for-performance" throughout the federal sector the Departments of Defense (DoD) and Homeland Security (DHS) are the vanguard agencies for widespread introduction of this concept. As their implementing regulations are about to be revealed, doubts and concerns within government are reaching tsunami levels.

Mediocre bureaucrats fear that the loss of "steps" or "within-grade increases" may mean they never see a meaningful pay raise again. High achievers wonder if there will be sufficient dollars to provide real incentives for exceptional performance. And union activists, minorities, and outspoken civil servants have apprehensions about management favoritism.

The past is prologue
At its heart, the anxiety over using annual evaluations to determine salary increases rests in a long and sad history of failure that precedes this administration. President Bush is not the first to perceive a need to improve management and efficiency in the Federal sector.

Over a decade ago (1993), Congress abandoned "Merit Pay" for management officials, then graded as GM-13, 14, and 15. That first stab at pay-for-performance was part of Jimmy Carter’s Civil Service Reform Act (CSRA). It lasted about a dozen years.

From the word "go", managers failed to distinguish our best and brightest from the mediocre and incompetent. Many of the government’s more senior employees can recall executives vowing that none of their subordinates would get ratings higher than their own. In some agencies, virtually all managers were found to be above average.

Two years after the first merit pay was abolished, the Office of Personnel Management’s (OPM’s) mandatory five-tiered rating system was also abandoned — in the face of wildly inflated, subjective ratings in agency after agency. At that time, there was a drumbeat from Total Quality Management (TQM) advocates to either abandon appraisals or move toward team (rather than individual) ratings. Neither resulted in any appreciable way, but the door was open to experimentation with evaluations.

Neutering performance evaluations
Upon OPM’s freeing agencies to devise their own systems, most opted for "pass/fail" systems. Over the 14 years since the Carter reforms were implemented, ratings had inflated in some agencies to an absurd degree. Ratings of "Fully Successful" were viewed as insults as the vast majority of civil servants were evaluated as being "Excellent," "Outstanding," "Superior," "Highly Successful," and similar flattering adjectives.

The two-tiered systems insured everyone was rated the same since virtually no one fails. Accordingly, for the past decade a rather socialistic notion of performance evaluations has emerged. Over 99% of employees in these agencies (including components of DoD and DHS) are told they are "Fully Successful" on an annual basis.

From this abyss of chronic failures to provide employees with realistic evaluations such as those we experienced back in school, managers in DoD and DHS are not only being mandated to provide fair and accurate evaluations, but also to tie annual salary increases to their judgments. Santayana’s adage, "Those who cannot learn from history are doomed to repeat it." looms large.

Bangs and bucks
As these two huge federal agencies prepare to implement the latest schemes for paying, evaluating, and motivating their work force, some suggestions should be heeded. Human Resources specialists and executives should note the Merit Systems Protection Board (MSPB) report of January 2005. Citing a report recently issued by the Corporate Leadership Council (CLC), the MSPB noted that, "Simply put, pay does not appear to motivate most employees to perform better." This conclusion comes from research done by a corporate think tank. We should all take notice.

DoD and DHS are operating from a perspective that pay incentives will motivate employees. Underlying this assumption is a deep disenchantment with the federal system of pay currently at work. The GS/FWS assumes that the value of civil servants appreciates with their seniority. Salary increases are most commonly obtained via promotions and "step" (or longevity) increases. The Secretaries of Defense and Homeland Security are gambling that their soon-to-be-implemented systems are better.

It’s the standards, stupid
DHS and DoD are also presuming that employees will be evaluated against objective or realistic criteria. History again undermines this presumption. Under the CSRA (which is still in effect for non-DHS/DoD agencies) managers are required to provide standards that "…to the maximum extent feasible, permit the accurate evaluation of job performance on the basis of objective criteria."

Such calls for accuracy and objectivity presume supervisors and managers spend their days observing employees, annotating their observations, and keeping scrupulous records –all for appraisal purposes. Pay-for-performance presumes the same. Volumes of experience, however, tell us that federal supervisors and managers have neither the time nor the inclination to gather and interpret metrics on their subordinates — especially those who have 10-30 direct reports performing complex jobs with changing priorities.

This distaste for objective appraisals was acknowledged by the many agencies when they resorted to "generic" standards of performance These "one size fits all" yardsticks are as far from accurate measurement one can imagine. Laden to with vague adjectives – "weasel words" – they have been derided by supervisors and employees alike. Many supervisors and managers will be going directly from rating "pass" or "fail" by generics to standards that will support decisions to adjust salaries.

The Corporate Leadership Council concluded that "employee engagement" is the factor that has greatest influence on individual achievement. In citing this finding the CLC suggests that positive interaction that employees have with management is the best motivator of all.

It looks as if good management means more than the promise of incremental salary adjustments. This doesn’t mean that pay-for-performance is bad. Rather, it will more likely stimulate higher achievements when presented by honest, collaborative, and caring leaders. Such leadership is not the bureaucracy’s strongest suit. By the same token, no one should walk away from bold and innovative ideas just because our present infrastructure won’t support them.

An agenda for change

While the challenges of implementing pay-for-performance are formidable, ideas for successful implementation point in the direction of two principal issues:

  • Develop sufficient competence and support for front line managers to ensure the program is implemented on the ground as well as on paper.
  • Consider how individual performance standards will be developed and used to support employee motivation and future salary determinations.

These subjects will be addressed in the next two articles in this series. Before concluding, however, it is important to remember why DoD and DHS have targeted the same area for change. Motivating federal employees has never been considered easy. The coming pay systems replace a pay system that may have de-motivated as many people as not. Lastly, the seniority aspects of the GS system are not in keeping with concepts of "merit" nor do they compare to pay practices outside of government.

Another consideration is how government employees are different from their private sector counterparts. Federal workers don’t work for profit or increased stock values. They work for their country and are often more motivated by that simple fact than by all the schemes and systems that presidents and congresses can devise. Let’s hope DHS and DoD (and all the agencies that may follow them) keep that in mind when attempting to motivate civil servants.

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