Plan to cap bonuses detailed in Obama administration memo

Citing a need to "manage budget resources carefully" and concern that "federal employees have come to expect awards as entitlements," the undated memo from Chief Performance Officer Jeffrey Zients and Office of Personnel Management Director John Berry would impose the bonus caps for the 2011 and 2012 performance cycles, according to a copy of the memo obtained by The Washington Post.

"We do not comment on policies that are under review, and deliberation is not yet final," said OMB spokeswoman Moira Mack.

The document, developed with the President's Management Council, calls on agencies to "adopt more rigorous employee performance management processes that incorporate key elements of consistent communication and feedback, establish accountability at all levels, and provide transparent and creditable appraisal systems."

The guidance was prompted in part, the text says, by criticisms from employees that the current bonus system is not implemented fairly or accurately. "For example," it reads, "the latest Federal Employee Viewpoint Survey showed that only 36 percent of employees believe that differences in performance are recognized and only 43 percent believe that awards reflect how well employees perform their jobs."

The new limits would apply to individual awards only, including rating-based performance awards and "individual special act awards." Other awards would be frozen at 2010 levels, except travel savings and foreign language awards. There is no limit on the percentage of employees who can receive awards.

The memo comes on the heels of a two-year pay freeze announced by President Obama in November 2010 and incorporated in his fiscal 2012 budget proposal. But it would mark a change in a policy detailed by Berry in a Dec. 30 memo in which he said the freeze would not extend to "performance awards and bonuses; recruitment, relocation and retention incentives; and premium payments such as overtime pay."

At least two Republicans in the House have introduced bills to deny federal employees additional pay, including step increases under the General Schedule.

Employee groups are worried. William Bransford, general counsel of the Senior Executives Association, which circulated the draft to its members, told Government Executive, that "our concern is that it not last more than two years," noting "rumors" that the federal pay freeze may be extended beyond that.

Another concern is the caps' impact on "pay compression," Bransford said. "When GS-15s are making as much as people in SES, there is less incentive for quality GS-15s to apply to SES. And as more people retire and there is less ability to receive performance awards, you may end up with a less quality SES in the future."

John Gage, national president of the American Federation of Government Employees, said: "In this recession, limiting pay and going after benefits is the wrong thing to do. They're pushing this myth of pay-for-performance, which provides the carrot, but then things happen beyond their control, and you get the pay freeze. The whole deficit reduction thing is like lemmings over the cliff, and I think cutting working people's pay, even if it's SES, is wrong."

Colleen Kelley, president of the National Treasury Employees Union, said, "It is disappointing to have to note that when the administration previously indicated it was considering a move to cap awards and NTEU sought to be included in the discussions, the administration declined to share the guidance document with us." She said the plan "undercuts precisely the performance management principle that everyone seems to agree on -- namely, that exceptional performance should be recognized and rewarded."

Regarding labor, the memo reminds agencies to "honor all collective bargaining obligations and discuss agency award programs in agency labor-management forums," while also encouraging "equitable distribution of awards between manager/supervisors and nonsupervisory employees."

The NTEU president, however, issued a warning: "As for the existing NTEU-negotiated awards programs, which provide for payouts ranging from 1 percent to 2.5 percent of salaries, these have been collectively bargained, and we expect these contract provisions to be honored."

The joint OMB/OPM initiative comes at a time when federal pay hikes have slowed. An OPM study of 7,436 executives governmentwide released last fall found that SES members in fiscal 2009 received an average 2.7 percent increase in pay, or $4,485. That raise was the lowest in the five years since the pay-for-performance system began. Executives in fiscal 2008 received a 3.7 percent increase.

To carry out the guidance on bonuses, the memo says, OPM and OMB are working with agency chief human capital officers and the National Council on Federal Labor-Management Relations to "identify best practices for improving the employee performance management system so that the performance appraisal and award system fairly reflects performance distinctions and effectively motivates employees."