Drastic Measures

Under pressure to limit and overhaul pay, agencies must first figure out how to evaluate employee performance.

Federal employees for months have been the center of an intense debate over the meaning of fair pay. While think tanks and government observers have presented data suggesting government workers are overpaid, compared with their private sector counterparts, union leaders and agency officials maintain feds actually earn less. The controversy, in part, brought the issue of freezing federal salaries to the national stage, and raises questions of whether pay affects recruiting, retention and morale.

Despite calls for change, the Obama administration seems to have stalled on questions of pay reform.

Early in his tenure, Office of Personnel Management Director John Berry pledged to reform the federal pay system to include a fair and credible performance appraisal and accountability framework; training that would prepare employees for promotion and support them throughout their careers; and genuine parity between federal and private sector salaries for comparable occupations. A governmentwide pay-for-performance system would be challenging to design and implement, but it could reward top talent with raises beyond standard salary adjustments, he said.

But recent pay-for-performance failures have left agencies wary of testing the waters. The Defense Department is in the midst of shifting employees out of the National Security Personnel System, the controversial pay program repealed under the fiscal 2010 National Defense Authorization Act, and back to the General Schedule. Three-quarters of the NSPS population has made the transition, and most of the remaining 53,000 employees will be placed in alternative pay systems this spring, with completion scheduled for Jan. 1, 2012. Now Defense is exploring the next steps for future pay systems.

Observers say plenty of work remains before government can attempt to overhaul its entire salary structure. At the heart of pay for performance is a credible and accepted performance management system, something agencies are hesitant to take on, says Robert M. Tobias, who served on a panel appointed by the Defense Business Board to conduct a comprehensive review of NSPS. He is former president of the National Treasury Employees Union and distinguished practitioner in residence at American University.

First and foremost, agencies must be able to define and measure good performance, Tobias says, noting they have to be serious about setting goals and outcomes that truly are based on mission objectives. Once that happens, it's possible to create a system linked to those outcomes, he adds.

"You start with the premise that most people, but not all, come [to government] because they want to be involved in something larger than themselves and really believe in public service," says Tobias. "If the goal is to accomplish an agency's mission, I have to understand the role I play in accomplishing that and it has to be described that way. There aren't any [systems] in place that do that well."

According to Howard Risher, an independent compensation and performance management consultant who managed the studies that led to the signing of the 1990 Federal Employees Pay Comparability Act, any performance management structure should be goal-oriented and balance results-what employees have accomplished-with associated competencies.

"If you cannot come up with results, then you have to have a solid set of competencies intuitively important to performance," says Risher. "Government hasn't had either at this point."

A further challenge is managers receive little training and few incentives to develop performance management skills, notes Risher, adding the lack of support makes people reluctant to try.

"People cannot get better at their job unless they get feedback," he says. "Training by itself doesn't do it. It has to be an environment where those skills are practiced, encouraged and rewarded. Government doesn't reward anything, it seems at times."

Trickle-Down Effect

Adopting a new performance management system is more than a logistical challenge. Most would agree it requires a champion at the top. If Senior Executive Service members don't value performance, it sends the message that it isn't important at lower levels either, observers say. They argue that support for a performance management system hinges on training managers to rate employees fairly, consistently and objectively across the board.

"One of the biggest problems has been discrimination in the way ratings are done," says Matt Biggs, legislative and political director for the International Federation of Professional and Technical Engineers. "If you put that in, you have to let it operate for a number of years and work out all the kinks. Then maybe we can talk about relating pay to it."

Union officials attribute mistrust of pay for performance to negative experiences with NSPS, and they note agency leaders will have to engage employee groups before any new system can move forward. Labor organizations have expressed support for pay reform and an overhaul of performance appraisal processes, but generally they are opposed to the wholesale replacement of the GS system. The Defense Department says it plans to reiterate the importance of keeping employees informed and helping them understand how their work contributes to accomplishing the department's goals and priorities.

Performance management was the bright spot for NSPS, according to Tobias. The report he helped draft on the now-defunct pay-for-performance system found that despite the need for some basic changes to the NSPS structure, Defense was on the right track in its efforts to link workers' performance to the department's mission.

Where the system fell down was the lack of a transparent link between an employee's evaluation and compensation received, says Tobias. There's no evidence showing additional pay motivates people to work harder, he notes, adding it's been difficult for government to determine whether employees are happier because they perform better, or get paid more.

According to National Federation of Federal Employees President William R. Dougan, NSPS created a "black box" that kept employees in the dark and lacked union input on the formulas and pay pools used to set salaries. He also notes NSPS' pass/fail evaluation system was incompatible with the tiered pay scale, limiting managers' objectivity in determining how much employees contributed and how much pay they should receive. Because government isn't in the business of making money, it's difficult to determine the value of an employee's contribution to the mission, he adds.

"Any sort of pay reform that's going to be talked about in government has to be transparent," Dougan says. "A huge downfall with NSPS . . . it's not transparent whatsoever, which leads to distrust among the workforce and prevents people from believing the system can work."

Though agencies have explored pay for performance, at no time has anyone stepped back to study the lessons learned, Risher says. Systems before NSPS, such as the Homeland Security Department's MaxHR, have failed, but government has yet to define why such strategies did or did not work.

Closing the Gap If done right, some say pay for performance could help address the gap between federal and private sector pay and allow government to fairly compensate employees for their work.

Federal employees have responsibilities that are not necessarily tied to agencies' ability to pay for them, says Paul Rowson, managing director at human resources association WorldatWork. Air traffic controllers, for example, must keep order in commercial airspace regardless of funding. He notes, however, the private sector makes meaningful distinctions in pay based on contributions and performance, which rewards those who make the greatest difference in meeting an organization's mission. David M. Walker, founder and chief executive officer of the Comeback America Initiative and former U.S. comptroller general, says such practices are a way to motivate top performers and to efficiently and equitably allocate a limited amount of resources to the workforce. During his tenure at the Government Accountability Office from 1998 to 2008, Walker spearheaded significant changes in the watchdog agency's pay practices.

Under a new two-tiered pay system, every GAO employee receives a competency-based performance appraisal. Those who perform at a satisfactory level or above receive the full across-the-board annual increase up to the cap for their pay range.

Top performers relative to their peer group receive additional compensation. According to Walker, the key was overhauling the old performance management system, which wasn't based on competency or results. In addition, the system didn't provide a full and fair assessment of accomplishments, or consider how individuals contributed relative to their co-workers.

"One of the things that was controversial was the fact that there had been rampant grade inflation and people were never told where they stood compared to their peer group," Walker says. "By definition everyone can't be at the top tier when you're looking at ratings. It's a psychological and cultural challenge."

Before attempting to link performance to pay, however, government also should complete a comprehensive study of public and private sector compensation, says Walker. Berry last summer announced that OPM is working with the Office of Management and Budget and the Bureau of Labor Statistics to determine what changes, if any, would make federal pay calculations more credible, but the parties have yet to reach a decision.

"The current process for setting federal pay is fundamentally flawed," Walker says. "In some regards, it understates what people should get paid, but in many cases overstates it. First we need to change the whole system determining what competitive compensation is."

According to Walker, the real challenge lies in defining fair compensation for employees who fall in the middle of the pay scale.

"The federal government in many cases significantly overpays compared to the private sector for the significant majority of the workforce that's in the middle, the reason being is because you rise up to a pretty high GS level or equivalent on a noncompetitive basis, and in addition to that everyone has the right to make the pay cap, no matter what your performance," he adds. The only question is not are you going to get to the pay cap, but how quickly. That's a concept that doesn't exist in the real world."

Screeching Halt

Given the current economic and political climate, observers are skeptical about whether a governmentwide performance management and pay overhaul will remain on the agenda. While Berry initially pushed hard to realign personnel systems to recognize, reward and promote merit within the workforce, the Obama administration has backed away from the idea of pay for performance in recent months. Between a change in congressional leadership, tight agency budgets and limited energy to start anew following the NSPS repeal, reform could be slow to implement.

"The question is will the money be there," says Biggs. "I don't think it will, and couple that with the fact that Republicans now have taken control of the House. It's no secret that the No. 1 target is federal workers."

Post-NSPS, Defense is in the early stages of developing a new performance appraisal system, flexible hiring authorities and a discretionary civilian workforce incentive fund in coordination with OPM. According to Biggs, the environment is ripe for those changes, but the agency could face similar problems when it comes to funding.

Dougan agrees. "It's going to be a very tough sell," he says. "It's not a dead issue, but [administration officials] wisely recognize it's probably not something worth putting a lot of energy into given all the other things competing for dollars."

Because the administration had appeared to be making progress, the abruptness with which pay reform was dropped from the agenda has left union leaders and federal employees searching for answers.

"They had every intention of doing something, but it came to a screeching halt," says Biggs. "We were wondering where the plan is for performance management, but it just disappeared."?