Give Pay Decisions a Human Face

Sixteen years ago, the CIA moved hundreds of telecommunications technicians from the General Schedule to a system of performance-based salary increases and bonuses. Unfortunately, the program seldom linked performance to pay. Headquarters committees doled out pay raises and bonuses averaging $2,000, even though committee members were barely aware of employee salaries. Aligning salaries to the market was a goal, but the committees had no compensation strategy. Performance documentation and feedback were inconsistent, according to employees. In the words of one frustrated CIA executive, "It was a paper exercise, a handout. Merit pay had lost its linkage to performance."

According to employees, the committees either operated too privately or they "peanut-buttered" pay awards, avoiding tough decisions by spreading a little bit to everyone, thus limiting their impact and sending confusing messages to employees. Committee rules limited merit pay to preset increments of 1.5 percent, 3 percent, 4.5 percent or 6 percent of salary. Eight percent of the workforce got the maximum 6 percent payout, while 91 percent received payouts of between $630 and $2,800. Almost everyone got a raise. From a management perspective, the pay-for-performance process provides no benefit if:

• Payouts are not significantly different for average and exceptional performance.
• No explicit compensation or performance strategy exists.
• Feedback is poor.
• Managers are not trained to communicate about basic compensation.
• The rationale for pay decisions is not explained to employees.

Managing With Money

To connect merit pay to performance and reduce process costs, the CIA made the following changes through COMET:

• Delegating pay raise decisions to the lowest manager possible, instead of committees.
• Making payouts a percentage of salary, not preset amounts, based on an employee's position in the pay range and market pay rates.
• Eliminating the 6 percent limit on the size of an individual award.

The CIA divided its organization into 30 "pay pools," each with a manager. Pay pool managers can be anywhere in the hierarchy as long as they directly observe employee performance and give informed feedback to employees. These managers base merit payouts on three criteria: performance information, fiscal data and the pay decision methodology. Managers had been accustomed to using only one of these factors-performance appraisals-so they were given the training and tools needed to calculate the compensation and process the data. Pay pool managers use average pay ranges for comparable private-sector positions as reference points in deciding merit raises. The agency appointed a salary survey advisory group to develop job descriptions for market comparisons, which were augmented with a database of national surveys and a contractor's statistical staff. Those descriptions and specifications were sent to several telecommunications firms whose salary responses covered thousands of jobs.

The CIA's survey revealed that entry-level telecommunication technician salaries were, on average, 4 percent lower than Washington area market rates. But CIA salaries gained rough parity with market rates in the middle grades, and then pulled ahead of market rates in senior technical positions. These data were provided to pay pool managers so they could apply a realistic picture of market rates for similar skills when making decisions about pay raises and bonuses.

The agency published a pay table, allowing employees to be "educated consumers" in the payout process. Pay pool managers had no restraints in determining actual payouts, but they were on the hook to explain to employees any difference between the pay table's recommended payouts and what an employee actually received. There was no committee to blame and no measurement instrument to manipulate. High performers and poor ones both got messages where it matters-in their paychecks. In 1999, 8 percent received a sum greater than 4.5 percent of their salaries. These awards were in the $2,400 to $6,000 range. In 2000, 23.4 percent of the employees received awards in excess of 4.5 percent. These awards, combining salary increases and bonuses, ranged from $6,000 to $9,000. Pay pool managers were clearly using the system to send positive pay messages to high performers.

The money for these increases has to come from somewhere, and in COMET it comes from reducing awards formerly granted to lesser performers. In 1999, only 1.4 percent received a payout valued at less than 1.5 percent of salary. In contrast, in 2000, 11 percent fit this category. Clearly, a primary COMET objective had been met: Managers, limited only by their budgets, were directing performance-based payouts to the best performers in the workforce.

Keeping It Simple

Managers at the CIA liked the ease and human scale of the new pay-for-performance process and were comfortable with their new accountability. They found the tools for calculating raises easy to use. And they were most positive about the new system's linkage of performance and pay and their new authority to drive performance with more tangible messages.

Employees were less confident than managers that the pay for performance link had been enhanced. However, they perceived pay pool managers to be not just fair but familiar enough with the employees' work to have made pay decisions. Two major criticisms of the former central committees were that their decisions seemed remote or arbitrary and committee members might not understand the work being performed. Moreover, employees expressed confidence that their pay pool managers knew how to use their performance instruments and that they dealt with accurate information. Indeed, the new process had the desired "human face," making it more understandable-and credible-than the earlier system.

COMET established a solid foundation for a more effective pay-for-performance program. A CIA survey showed:

• The design was quickly communicated and understood.
• Managers felt well prepared and were perceived to have done their jobs fairly.
• Managers sent strong pay messages about performance extremes.
• Managers believed the new process enhanced the performance-reward linkage.