Re-Applying the Lipstick: The Next Generation of Merit Pay

Despite numerous examples of failed implementation, pay-for-performance for the Federal sector continues to build momentum.

Last week, FedSmith posted a link to an article: “Is Pay for Performance Viable in the Federal Government?”

As always, the subject matter caught my eye. Clicking the headline took me to a Federal Times article by Professor Howard Risher, a persistent advocate of pay-for-performance (PFP) in government.

Dr. Risher is associated with the prestigious Wharton School and with the IBM Center for the Business of Government, an organization that influences government reform. His article advocates that we continue to press on with performance-based compensation in the Federal sector despite the end of the Defense Department’s massive National Security Personnel System (NSPS) undertaking.

Matters of perspective

Dr. Risher is a scholar and I am not. He has access to decision makers in Washington, DC and I don’t. By the same token, 35 years in the government’s trenches (13+ in the civil service and 22 more teaching seminars exclusively for Feds) may have given me a perspective worthy of consideration as well. I have been listening to Federal supervisors and managers speak about appraisal programs since implementation of the Civil Service Reform Act in the early 1980s.

For the past twenty years, I have also been a self-employed individual without a defined retirement or benefit plan. My economic life is bound inexorably to my job performance. What success I have is measurable—in terms of days, dollars, and participant evaluations. It was different when I worked as a Labor Relations Specialist for the Department of the Navy.

Dr. Risher’s column begins with this sentence, “For critics of the National Security Personnel System (NSPS), the decision by Congress to terminate the system was a victory that reinforces the argument that pay for performance is not viable in the federal government.” I do not see the NSPS debacle as a “victory” for anyone.

As I see it, former Defense Secretary Rumsfeld’s PFP plan is another example of how private sector models cannot be pasted into public service laws and regulations simply because they are believed to be better. In the eyes of most observers, it was more than coincidence that Secretary Rumsfeld’s plan was to both marginalize unions and institute merit pay.

Is it really about the money?

Earnings and income are the most common measure (or “metric”) of private sector success and failure. Wall Street responds to business metrics. While money is a major motivator for me and everyone reading this article, it may also differentiate public service from the private sector. The same may be true for many of Dr. Risher’s academic colleagues.

People often choose careers for reasons other than income. Teachers are among them. So are many nurses, researchers, social workers, machinists, and information technology workers. They are drawn to what they enjoy and to what holds meaning for them. Secure middle class earnings and meaningful work will suffice.

Civil servants often have much in common with uniformed counterparts in law enforcement, the military, public health, etc. They serve. You don’t have to pass laws to help them understand their agency’s mission. They are already there. I’ve found that many private consultants don’t appreciate that and want Feds to be more like them. As a Service Representative for Social Security, our mission and my motivation walked through our office doors five days a week.

Who is “we”?

Late last year, Dr. Risher authored a commentary in Federal Computer Week entitled Performance Pay: We Know How It Works. Other scholars may not agree with this assumption. As I cited in an earlier FedSmith article, Dr. James Bowman of Florida State University’s Askew School reviewed a vast body of literature on the subject and found little evidence that PFP “works”—inside or outside of government.

An abstract of Dr. Bowman’s article “The Success of Failure: The Paradox of Performance Pay” reads:

This normative article examines the contemporary record of pay-for-performance plans in the federal government. These programs, extending back nearly two generations, have consistently malfunctioned. Nonetheless,the state of the field today is one of continued attempts to use the technique despite agency history and research data that document its problematic nature. Based on scholarly literature,news media reports, and interview data, the analysis assesses the practical experience, policy findings, and political realities of this compensation method. The discussion raises questions about rational decision-making models and suggests that belief in performance pay is akin to an urban legend.

Far be it from me to play referee among academics. Suffice it to say there is plenty of contradictory data out there. Indeed, the Merit Systems Protection Board has done its own homework in this arena. Board studies have found that pay is not the best motivator of federal employees. Much less expensive ways of “engaging” Feds appear to be far more effective.

Objective subjectivity

After citing examples where PFP has succeeded in the Department of Defense (DoD), Dr. Risher’s article proffers the following, “The fatal flaw [of the NSPS] was the untested notion of pay pools.” “Pay pools” were groups of managers created to allocate annual “pay outs” among individual Defense employees.

The National Security Personnel System (which I contend had little, if anything, to do with national security) ran into bigger problems than pay pools. NSPS professed the proliferation of “SMART” (Specific, Measurable, Aligned, Realistic/Relevant, and Timed) “performance objectives”. In reality, however, thousands of DoD employees were being rated subjectively and the bean counting wasn’t really happening. Comments were posted on this site by Feds who read Dr. Risher’s article. One was from a manager with FAA, where PFP continues in use. It reads:

We at the FAA have several forms of pay systems from pay for performance (Core Banding) to the FG (sic GS) systems. I do not philosophically have a problem with any pay system. The argument has always been the subjectivity of the performance measures and the inconsistent funding of pay.

Performance measures must be that, objectively measurable. Without metrics how can I as an employee or manager rationally and consistently apply a standard that is non-standard? Performance measures (standards) such as “Most times completes tasks in a timely manner” are not consistently applied since what does “most times” mean? Also, by limiting the number of performers that can receive superior performance pay (ratios) increase, high performers will be left out in the cold.

To that, an Engineer with the Department of the Air Force wrote:

Manager FAA is correct. It’s not PFP that’s the issue, but how do you measure performance when the output isn’t widgets? We had a lot of help telling us to write SMART objectives, but when we asked how, they always provided worthless examples of “answers the phone within three rings.” How do you translate jobs with ever changing, undefined objectives into measurable objectives? Until we can answer that one, PFP will always stall out.

One directive after another calls for developing “clear lines of sight”, “directly linked goals”, “outcome-based measures”, etc.  Something else, however, is at work in Federal performance appraisal systems—”generic” or “benchmark” standards. Here is an example for the Fully Successful level:

The employee demonstrates good, sound performance that meets organizational goals. All critical activities are generally completed in a timely manner and supervisor is kept informed of work issues, alterations and status. The employee effectively applies technical skills and organizational knowledge to get the job done. The employee successfully carries out regular duties while also handling any difficult special assignments. The employee plans and performs work according to organizational priorities and schedules. The employee communicates clearly and effectively.

Such mandated “standards” have proliferated in government and suggest that ratings are far less objective than experts and leaders want to believe.  Generics seem to apply where compensation is and isn’t at stake. If individual evaluations are subjective, “pay-for-performance” becomes “pay-for-impressions-of-performance” and debates over who is most deserving begin. This, in turn, leads to demands for narrative justifications for higher ratings rather than data. A software engineer for the Navy simply titled his comments on Dr. Risher’s Federal Times article, “I’m not an English major.”

Examining the darker side

At the macro level, what recommends PFP to the civil service? From Enron to Goldman Sachs, from BP to the Minerals Management Service (MMS), we have seen how money can corrupt matters at the workplace. (I know that the MMS wasn’t under a PFP system. The companies that seduced their employees with money and more, however, were.) Assuming the mayhem associated with BP’s Deepwater Horizon had something to do with pay-for-performance does not strain credibility.

Proponents who cite successful PFP programs in government tend to leave out examples like the Department of Homeland Security (DHS) and Federal Aviation Administration (FAA) where merit pay is at work today and showing mixed results, at best. Then there are the Securities and Exchange Commission (SEC), Government Accountability Office (GAO), and (of course) Department of Defense. The data is far from dazzling.

Many FedSmith readers are aware that the SEC’s PFP system was challenged by the National Treasury Employees Union as discriminating against African Americans and employees over 40 years old. In September 2007, after examining the evidence, a labor arbitrator awarded $2,700,000 to the represented employees. Cleaning up PFP mistakes can be expensive! After all, the SEC is a rather small agency.

Then there’s the union that GAO never had until merit pay was introduced. While former Controller General David Walker was touting GAO’s broad-banded compensation and evaluation system, the employees affected went looking for a labor union. Unions are elected for a variety of reasons, many of which reflect on management practices and decisions. The International Federation of Professional and Technical Employees (IFPTE) credits their successful election to GAO’s PFP program and its lack of transparency.

Serious consideration should be given to what went wrong with GAO and SEC. Nor was the failure of NSPS just a hiccup. It took an act of Congress to revoke Rumsfeld’s pay-banding system. Years earlier, Jimmy Carter’s Merit Pay/PMRS initiative met the same fate. Perhaps someone from the IBM Center should be examining whether PFP may be an unsuitable strategy for the Federal government.

Show Me the money

Despite all of the above, pay-for-performance for the Federal sector continues to build momentum. The Office of Personnel Management’s Director John Berry wants it—citing success at Best Buy stores as a model! Office of Management and Budget’s Chief Performance Officer, Jeffrey Zients appears to be insisting on it. Clearly, Dr. Risher’s message resonates with them.

None of these gentlemen seems interested in enumerating the costs of implementing and administering such a system or how that tax money will be repaid via objective benefits. Leaders and experts should reviewing studies like the one done by Professor Bowen. Is his data inaccurate, incomplete, or inapplicable? History is replete with leaders who avoided the assessments of those who might disagree with theirs.


Alan Campbell, the first director of OPM, and his sponsor, Jimmy Carter, were gone by the time his merit pay system for GS 13-15s was abandoned by an act of Congress. Similarly, Comptroller General Walker and Secretary Rumsfeld had left their agencies before their PFP efforts required clean-up. Those who serve their country year in and year out are left to wonder what this generation of leaders has in store for them. Like a parent, I suggest looking both ways before crossing to the other side.

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