Sizing Up Pay-For-Performance In The Next Administration

There is no perfect compensation system. If the Obama administration and the Democratic congress want to extend pay-for-performance experiments to the rest of government, they would do well to consider several factors – some of which may be overlooked by good-government think tanks, high-price consultants, and agency human resources officers. Here are some of the issues that need to be addressed.

By anyone’s reckoning, incoming president Barack Obama has his hands full. The economy is in trouble, American troops have been deployed on two fronts for years, the character of our atmosphere is likely changing for the worse, and the list goes on. Civil Service reform may not be high on his agenda; however, some attention will be paid to changing management practices within the Executive Branch.

Moving Past the Past

From my perspective, the outgoing administration (especially former DoD Secretary Rumsfeld) came into office with an aspiration to dismantle the GS system. Rumsfeld used the attack of September 11, 2001 as an impetus for implementing pay-for-performance (PFP) in the government’s largest agency, calling it a National Security Personnel System (NSPS). This month, tens of thousands of employees within DoD will learn of their performance evaluations for FY 2007-8 and their corresponding payouts. No doubt, some will be happy with the outcome, others unmoved, and a large component demoralized.  

Old-timers who read this article may remember the abandonment of PFP’s predecessor, “Merit Pay”. That scheme applied only to GS 13-15’s and was implemented in 1981 as a provision of Jimmy Carter’s Civil Service Reform Act.  It morphed into the Performance Management and Recognition System (PMRS) in 1984, and was mercifully ended by Congress in 1993. Its problems were many and its assets hard to substantiate.

The next generation of Federal PFP systems has found homes in DHS, DoD, FAA, SEC, GAO, and several other pioneering agencies. Like their predecessors, these programs are rooted in the belief that:

  1. Agency supervisors and managers (rather than “time-in-grade”) should determine how much employee salary increases should be.
  2. Those same supervisors and managers can establish objective measures of individual performance.
  3. Employee performance will be more focused and motivated by tying the achievement of individual performance measures to individual salary increases.

While these PFP concepts are familiar to the competitive private sector, their large-scale use in government is relatively recent. Experiments in Federal “pay banding” (eliminating the General Schedule in favor of PFP) date back to the 1980’s. The National Institute of Standards and Technology, the Naval Air Warfare Center in China Lake and McClennan Air Force Base all reported positive results.

No Pain, No Gain?

I have presented seminars to hundreds of Federal supervisors, managers, and human resource specialists who are evaluated and paid under PFP systems. The vast majority of them work outside of headquarters. Unless their agency’s payroll is growing faster than it would under the GS system, most have unfavorable opinions of PFP.  

If such negative assessments were coming from folks whose performance was evaluated as sub-standard or mediocre, I’d presume the source of dissatisfaction to be sour grapes. Many of those who voice disfavor with recently-implemented versions of merit pay, however, are its beneficiaries – having been rated highly in comparison to their coworkers.  

Unions representing employees seem universally opposed to PFP plans. While that is not surprising, to those of us who have worked with and among unions, other related stories are surprising. General Accounting Office employees voted in union for the first time in the agency’s 86-year history. Most agree that this was, in large measure, a response to the implementation of PFP for GAO analysts. In a union-initiated grievance, the National Treasury Employees Union, alleged minority employees at the Securities and Exchange Commission were treated unfairly under PFP.  They won a multimillion-dollar arbitration judgement due to subjective PFP evaluations and subsequent pay-outs.  

Time To Take Stock

If the Obama administration and the Democratic congress want to extend PFP experiments to the rest of government, they would do well to consider several factors – some of which may be overlooked by good-government think tanks, high-price consultants, and agency human resources and human capital officers.

Here’s a partial list of PFP issues that must be considered to ensure continuing or expanding these programs is in the public’s interest:

  • Pay-banding is a compensation system that depends on agency management’s knowledge, skills, and abilities in the area of performance appraisal. Over the past three decades, the government’s track record with appraisals has not been a model.
  • Most PFP systems are no more effective at removing poor performers from the Federal workforce than the pay (GS) and performance appraisal systems they have replaced.
  • Worried about past experiences with inflated evaluations, agencies leadership is often more concerned with rating distributions or bell-shaped curves than with individual and collective achievements.
  • The costs of administering those PFP programs that are now established in Federal agencies are not clear… at least to this author. Many officials believe that such costs exceed any benefits accruing from merit-based pay.
  • In calculating merit compensation, agencies may substitute one-time bonuses (formerly known to Feds as “awards”) for ongoing salary increases (the equivalent of “steps”). This can have a de-motivating affect on an agency’s most talented and motivated employees.
  • Pay may not be as much of a motivator for government employees as for their private sector counterparts.
  • Federal management/leadership training has been notoriously deficient. Supervisors often have little formal knowledge or interest in the subject of management – making PFP a particularly formidable challenge.
  • Since the Carter administration, government leaders have presumed performance appraisal criteria to be objective. In reality, ratings are often subjective and, therefore, subject to favoritism and bias.
  • Where Federal jobs do not lend themselves to metric evaluations, managers and employees need to understand how performance evaluations will be determined.

This list is by no means comprehensive. For instance, I’ve left out self-appraisals and pay pool designs. Changing pay systems for the largest employer in the Western Hemisphere is a very complex undertaking with many dimensions.  

In the past, many Feds have experienced big changes in workplace culture (Total Quality Management and PMRS would be relevant examples) that were not implemented in ways that gained serious commitment. PFP is a more challenging and far-reaching reform than most Federal employees have ever witnessed. If President-Elect Obama is to make pay-for-performance an enduring change, his team must accept the difficulty of the task at hand.  

Beware of Those Who Know the Answers

In analyzing the factors listed above, greater attention should be paid to practical costs and benefits than to ideologies and facile world views. For instance, people who believe “the GS system promotes mediocrity” are more opinionated than useful. During my 34 years in and out of government, I have worked with a legion of dedicated, intelligent, and talented GS employees.

Were there a perfect compensation or evaluation system, it would have been adopted globally by now. Every organizational philosophy or technique is fraught with pitfalls and inconsistencies.  If the new administration aspires to do better than its predecessor in these areas of potential change, it should look to those who ask good questions and raise serious concerns before adopting models from the marketplace of ideas and consultants.  

Don’t Touch That Dial

In two FedSmith articles that will follow this one, I will explore the dimensions of the nine factors listed above.  I am not committed to the General Schedule or pay banding. Rather, a thriving Federal workforce that respects well-trained leaders is what matters most to me.  

Whatever our new president decides to do regarding Federal employee compensation, performance management and workforce leadership, I hope his team will consider my thoughts and those of others whose perspective comes from the nerve endings of the Executive Branch. 

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