The Missing Management Practice: Linking Metrics to Rewards

Both the president’s management agenda and passage of the 2018 Foundations for Evidence-Based Policymaking Act elevated and redefined the government’s approach to managing performance. In a National Academy of Public Administration review of the PMA by a panel of experts, “Perspectives on the President’s Management Agenda,” Don Kettl opened with an overview that concluded the PMA is “a world-class plan for transforming the government and, between the lines, a powerful diagnostic for what ails it.” 

The Evidence Act and other laws have increased the availability of performance data. However, Government Accountability Office reviews over the past 20 years have found that “only about one-third of federal managers use performance-related information when making program or resource decisions.” Even more discouraging: GAO found that since 2007, federal managers have reported decreases in the use of performance information.

Somehow, that world class plan has failed to solve the performance problem. In a 2018 NAPA report, “No Time to Wait, Part 2: Building a Public Service for the 21st Century,” the panel argued: 

“With each passing year, the system has fallen further out of sync with what it takes to manage programs well. Moreover, with each passing year, the system has become increasingly encrusted with regulations, like barnacles on a ship. That has created a culture of compliance, where meeting the requirements of the rules has become more important than delivering value to taxpayers.”

The culture of compliance is a high barrier to improved results. Compliance is effectively the inverse of empowerment to make job-related decisions. Compliance is great when operations are well organized, running smoothly and producing desired results. Then the concern with efficiency and reducing costs is fully appropriate. 

Government Needs to Change

When an individual, team or organization fails over an extended period to achieve desired results, something needs to change. That was the conclusion of another NAPA report, “Strengthening Organizational Health and Performance in Government.” In the academy’s polite and positive manner, the authors concluded, “A good statutory framework has evolved over the past two decades to improve government performance and results, but it is still too top-down and does not meaningfully engage front line units—which is where direct contact with the government’s customers and partners occurs.”

They see this as “an opportune time to undertake such a reorientation.” Translation: Government needs to change. The authors identified a list of “missing elements” that included engaging “lower-level managers and their staff in a collaborative effort to improve organizational performance.” They also recommended agencies “create a learning-based approach (rather than a directive approach) to improve organizational capacity and performance” that encourages work groups “to develop their own individually tailored plans for improvement.” Their conclusion: This is “an opportune time to explore new approaches.”

The panel recognized that “Program performance does not increase simply by setting clear objectives or measuring progress. Progress depends also on strengthening the capacity of operational units to deliver.” That shifts the focus to front line employees, their managers, their motivation, and their working relationships. 

Unfortunately, that also opens the discussion to the somewhat obscure jargon common in the academic studies looking to explain why organizations are successful. The report closed with seven pages of footnotes. The panel worked hard to translate the research into practical answers. 

Two Core Concerns: Culture and Engagement

Two loosely understood constructs are core concerns. Organizational culture is one; employee engagement is the other. The problem is that as constructs, every expert relies on their own definition and assessment strategy. 

Whatever culture is, it shapes—arguably controls—behavior in organizations. Management guru Peter Drucker is credited with the quote, "Culture eats strategy for breakfast.” Transitioning from the culture of compliance to one that emphasizes performance is fundamentally important and very difficult. To improve performance, front-line workers need to be empowered to make job-related decisions. 

Engagement is similarly important. Gallup’s research and its Q12 survey dominate but there are other assessment methodologies. The Office of Personnel Management developed an engagement metric that makes it possible to assess trends across and within agencies but precludes comparisons with non-federal organizations. (The U.S. Postal Service has used Gallup and found its engagement scores are at the 1st percentile!)

A key conclusion from the NAPA report is that “measuring employee engagement isn’t enough to improve organizational health and performance.” Engagement is clearly important but does not assure an organization’s success. 

An overriding problem for government is the often downplayed differences in the organizational characteristics of the 450+ federal agencies. Leading and managing in NASA, for example, has to be a vastly different problem than in the Social Security Administration or the Forest Service. Further, as the NAPA panel recognized, the different “units” (using the panel’s word) that comprise an agency can each have somewhat different management problems. Agency performance is a composite of how individual units perform. 

That reality is why the panel recommended, “A first element of a new approach to improving organizational performance and health would be focused at the agency and, especially, the sub-agency unit level, to: 1) measure and rate unit-level capacity and health; 2) diagnose sources of low ratings to determine sources of management problems and identify feasible solutions.” Relying on unit-by-unit strategy makes intuitive sense but contradicts the civil service system philosophy. 

More or less new to the discussion is an emphasis repeated at several points in the report on the quality of management, how managers and front line employees interrelate to perform their jobs. Historically, top down control has been the norm and the explanation for the compliance culture. In the past, strategic discussions focused on leaders and executives and high level systems concerns. The systems focus is reflected in the “Federal Performance Management Framework” illustrated in an Appendix to the report. 

Unit Level Management Practices

Understanding unit capacity and health requires an analysis of basic management practices. The panel concluded that “granular data—information on smaller organizational units—is more actionable by front line managers than other forms of data, and thus it is more likely to produce effective action [such as] flagging performance problems before they become systemic or lead to failure.”

An ongoing global study, the World Management Survey, provides a proven framework for assessing management practices. The research, led by Stanford’s Nick Bloom, started almost 20 years ago and now extends to 40 countries and includes data for over 10,000 organizations in four sectors: manufacturing, hospitals, retail and education. They rely on interviews and an 18-question survey instrument. 

The questions are in a scaled-response format (1 to 5) and focus on practices associated with middle and front line managers, including:

• The use of metrics to track performance
• Review of performance trends
• Use of cascading performance goals
• Use of stretch goals
• Communication of progress in achieving goals
• Consequences for failure to achieve planned results

Six of the questions involve talent management practices. One is moving poor performers to less critical roles as soon as weaknesses are identified.

The findings: Consistently across the four sectors and in every country, better management produces better results. Hospitals, for example, with better management have better health outcomes. Interestingly, government run hospitals are associated with worse management. The data also show loose labor market regulation encourages good management. 

Their conclusions are solidly consistent with Gallup’s research findings. We know what contributes to effective management.

It would be possible to develop a version of the 18 questions for use in assessing the quality of management across government.

The Missing Element – Rewards Linked to Achievements

The World Management Study confirmed the importance of rewarding performance. The highest response level reads: “Rewards are awarded as a consequence of well-defined and monitored individual achievements.” 

Other experts have argued the most effective way to accomplish culture change is to reinforce new, desired behaviors with financial rewards. Incentives drive behavior, and behavior is the basis for culture. Initiatives to change culture, absent promised rewards, are likely to fail. 

Incentives are widely used in our society to influence behavior. Parents use incentives with their children. We have come to expect the best performers in every field to be recognized and rewarded.

Financial rewards are omnipresent in business at every level, from executives to hourly workers. The most common practice is the annual pay increase based on an employee’s performance rating. In addition, cash incentives are an integral component of the compensation package for executives, managers, and supervisors. In many companies, cash incentives are included in the pay package for all exempt employees. That’s true in hospitals as well.

The word ‘integral’ needs to be emphasized. At the beginning of each year, plan participants meet with their supervisor to define individual performance goals and are told their guideline award as a percentage of salary (e.g., 15%). At year’s end, the actual award, above or below the guideline, is based on company financial results and the achievement of individual goals. It’s a very common practice. 

Team or group incentives—“goal sharing”—are also widely used. When the goals include increased efficiency, the payouts can actually reduce costs. 

The payouts do not have to be large—5% of salary is adequate—but 1) the goals or targets need to be specific, and 2) employees need to be able to control the outcomes. They need to be empowered. Employees like the challenge. 

Specific goals linked to rewards creates a sense of commitment and accountability. It’s a proven best practice.

Don Kettl was right. The PMA is a world-class plan for transforming the government. The missing element is the power of rewards to help employees commit to achieving organizational goals.