Path to performance

When House lawmakers passed the fiscal 2004 Defense Authorization bill (H.R. 1588) last week, it included a provision to create a $500 million pool of money managers could use to "reward agencies' highest performing and most valuable employees."

The Bush administration pitched the idea three months ago when it issued its fiscal 2004 budget proposal and paired it with a plan to hold the annual across-the-board federal pay raise to 2 percent next year. House Government Reform Chairman Tom Davis, R-Va., shepherded the proposal through the House, first introducing it in a multi-faceted personnel reform bill and then offering it as an amendment to the Defense authorization bill. Davis, whose district is heavily populated with federal employees, touts the measure as a way to get away from automatic pay raises and move to performance-based pay.

So, how would the Human Capital Performance Fund work?

The Office of Personnel Management controls the money. Agencies interested in drawing money from the fund have to submit a plan to OPM describing whom they would pay and how they would use the money to meet their missions. OPM and the Chief Human Capital Officers Council would approve or disapprove agencies' plans. Agencies with great plans can get more money than requested. Agencies with bad plans would probably get no money from the fund.

According to Davis' amendment, a good plan would include merit systems principles, a fair performance appraisal system and link the performance appraisal system to the agency's strategic plan. Good plans would also incorporate employee input in their design and implementation, and allow for employees to get feedback during the appraisal process. Managers would be trained on how to use pay-for-performance plans, and safeguards would be put in place to prevent abuse and ensure that employees are fairly judged.

Under the new procedure, agencies can't give the extra pay to more than 15 percent of the agencies' full-time and part-time workforce, and the extra salary boost cannot be more than 10 percent of an employee's basic pay. The total of an employee's salary, including basic pay, locality pay and human capital pay cannot exceed Level IV of the Executive Schedule, currently $134,000.

The raises would be permanent salary increases for those employees who receive them, increasing pensions and agencies' Thrift Savings Plan contributions. The performance fund will pay the initial boost to an employee's salary but agencies would pay the higher salary in subsequent years out of their payroll budgets.

The Senate version of the Defense authorization bill (S. 1050), which also was approved last week, did not include the pay-for-performance fund.