The IRS hopes to hit pay dirt

The IRS legislation had several components: more flexibility in recruiting, retention and relocation payments, pay banding authority, authority to conduct demonstration projects outside the basic law governing such test programs and authority to exceed the standard federal salary cap for up to 40 key executives.

One lesson from the IRS experience is that reform takes time. The IRS spent its first year and a half with the new authority establishing organizational performance measures and then linking them to individual performance measures. Only in late 2000 did the agency apply pay banding, and even then only in certain senior management positions.

"The essence of pay banding is pay for performance. That means you've got to have some way of credibly measuring that performance. An effective performance management system is a condition precedent to pay banding," says Ron Sanders, IRS' chief human resources officer, who likens redesigning performance management and pay systems at the same time to building an airplane while it's in flight.

To gain acceptance of the changes, the agency worked closely with management groups and involved managers in developing the system for senior management positions. Another goal was to break the mind-set that everyone should get raises in lockstep.

"One of our efforts here is to make them comfortable with pay banding, to show them that it can work, so that we can eventually begin proposing some version of it for our front-line employees," he says, adding that the support of top management has been vital.

The concept next will be applied to front-line managers, then to certain pockets such as law enforcement and senior information technology people. It could be some time until the approach is applied to rank-and-file employees. That process would be subject to negotiations with the National Treasury Employees Union.

Further, the agency is finding that certain jobs are more amenable to pay banding than others. Thus, some positions might remain under the traditional pay structure.

"We have found that these additional authorities have been extremely helpful. It's been said our pay banding is a potential model for other agencies but I think it goes beyond that. I think this whole structure of personnel authorities and flexibilities is a model," says Sanders. "We're a microcosm."