Agencies Could Learn a Lot From Tennessee's Shift to Pay for Performance

Federal agencies will certainly not be the first public employer to switch to pay for performance. Among the earliest were Florida in 1968 and Wisconsin and Utah in 1969. Over the next four decades, reports show another 20 states adopted the policy although almost half cover less than 10 percent of the workforce. Unfortunately, their experience has not been documented or assessed recently.

The most recent may be Tennessee, and by all standards it’s demonstrated one of most successful transitions. The statute Tennessee Excellence, Accountability and Management (TEAM) Act was signed in April 2012, although significantly the first payouts didn’t occur until 2016.

Shortly after Tennessee Gov. Bill Haslam began his first term in 2011, he began three initiatives that focused on the need for reform and improved performance.

• Each cabinet member was asked to conduct a top to bottom review of their agency, asking if services were provided effectively and efficiently. Each found antiquated employment practices that needed to be reformed.
• The Commissioner of Finance and Administration surveyed agencies, seeking ideas for how to improve services to citizens. There were roughly 700 responses, almost half of which spoke to the antiquated employment practices.
• The deputy governor and commissioner of human resources went on a listening tour to hear how to recruit and retain the best employees and incorporated those ideas into the TEAM Act.

S.M.A.R.T. Performance Planning

The key to the state’s success is the decision to rely on S.M.A.R.T. (specific, measurable, achievable, relevant, time sensitive) performance goal setting. The requirement that performance plans be based on individual goals that meet the S.M.A.R.T. criteria ensured four things: It provided an intuitive linkage to higher level agency goals; facilitated supervisor/subordinate discussions; enabled progress assessments throughout the year; and provided a verifiable basis for year-end reviews.

For government, a decided advantage is that it allows managers and supervisors to empower their people and hold them accountable. When employees are focused on achieving specific goals, the progress can be tracked throughout the year and supervisors can shift to monitoring and coaching.  

The use of individual performance goals is effectively universal in every other sector at all work levels. It’s been widely used for half a century.  

Preparing Supervisors and Employees

The implementation was based on the understanding that agencies must first ensure a foundation for performance before implementing a pay-for-performance personnel system. That is critical. Any attempt to impose overnight change will fail.  

Tennessee started the planning in early 2012, before the law was signed. By July, supervisors were in training for S.M.A.R.T performance planning. In October, external coaches were hired to assist with auditing the initial performance plans. They also coached senior leaders to strengthen executive performance plans and equip them to be champions of S.M.A.R.T goal-based planning.

Training continued into 2015. Goal writing clinics were held, a pre/post-test was added to ensure supervisors retained course content, an online module was developed, and new content was developed to create a culture of continuous feedback. Recently, officials held employee meetings to discuss areas where the performance system could be enhanced.  

A comparison of performance ratings from 2010 to 2016 highlights the impact of the new system. In 2010, the ratings reflected an all too common problem in government—highly inflated ratings. A total of 83 percent were rated at the highest two levels. By 2016, ratings were more credible: 36 percent were highly rated.  

Training for Everyone

The state developed a portfolio of workshops to develop the skill sets to manage performance relying on objective and verifiable goals and metrics. The session titles speak to the state’s commitment to reform:   

• Performance Management for all Employees provides employees with tools to commit to goals and document performance.
• Performance Management for Supervisors teaches supervisors to lead employees through communication and empowerment to improve results.
• S.M.A.R.T Performance Planning helps supervisors develop performance plans that meet the S.M.A.R.T criteria.
• Get S.M.A.R.T.er for Higher Performance provides supervisors with guidance on supporting employees as they strive to improve performance.
• Performance Coaching teaches supervisors to reinforce positive behavior and change negative behavior.
• Developing Direct Reports covers proven methods for grooming subordinates to take on greater responsibility.

Cultivating Employee Support

While Tennessee law precludes state employee bargaining, the Governor’s office nonetheless worked with the Tennessee State Employees Association to gain their support. In January 2012, the TSEA website reported, “As written this bill would dismantle the civil service system, destroying the protections that system provides to the people of Tennessee.”  In March, TSEA reported, “all amendments presented by TSEA were voted down.”  But by April, when the bill was signed, TSEA was taking credit: “The essence of Civil Service Protections has always been the right not to be fired, except for cause, and not at will, and the right to grieve and appeal terminations, suspensions, and demotions. These foundational protections are ALL still intact.”

The TSEA website now implicitly claims credit for a list of items that “resulted from our negotiation process,” noting that now, “all employees will be eligible to be considered for merit pay.”  

Why Tennessee Was Successful

Looking back at the strategy underlying the transition to the new pay and performance system, the state made several important decisions:

• The initiative was championed by the governor and the members of his cabinet.
• It involved active roles for senior leaders of state government. That sent an important message.
• It’s part of a broader, governmentwide initiative to improve performance.
• They solicited input from all levels of government.
• Officials reached agreement on related employment practices that satisfied the employee association.
• They relied on a proven, widely accepted approach for planning and managing performance.
• The invested heavily in training.
• The state’s compensation policy is to pay “at a level sufficient to encourage excellence in performance and to maintain the labor market competitiveness necessary to recruit and retain a talented workforce.”

Context Matters

The success of a pay-for-performance policy depends on the organizational context. That is to say, all the other factors relevant to the employee work experience. Particularly important is the workforce management philosophy as evidenced by recent management actions. Tennessee recognized the importance of the context in the initial planning steps to understand the issues that had to be addressed.  Two issues are always important: the emphasis has to be on rewarding top performers and employees have to believe the system will be managed fairly.