Pay Bonding

Like it or not, with the passage of legislation granting the Defense Department the authority to move ahead with a pay-for-performance system, a whole new method of evaluating and paying employees is coming soon to a federal agency near you. No one is expecting the transition to be an easy one.

The Partnership for Public Service, a Washington nonprofit organization, has set up a "Solutions Center" on its Web site that may help. The center offers a section on setting up a new performance management system and lists three case studies of agencies that have done so. One of the examples, the General Accounting Office, already has substantial personnel flexibilities outside of Title 5, the section of the federal code that is the bulwark of the civil service system. But the other two--the Court Services and Offender Supervision Agency and the Bonneville Power Administration--have set up systems within the constraints of the civil service code.

The GAO example is instructive, since the watchdog agency has perhaps the most experience in government in implementing pay-for-performance. Since passage of the 1980 GAO Personnel Act, the watchdog agency has had personnel flexibilities. But after taking over as agency head in 1999, comptroller general David Walker found that the average rating for a GAO analyst was still 4.6 on a 5.0 scale. He immediately put his top human resources aide, Susan Kladiva, to work on remaking the system. "It had lost any relevance or ability to make distinctions about performance," she says.

Indeed, a perennial problem with performance appraisal systems is the tendency for managers to inflate grades over time. Giving someone a low grade or poor evaluation never is easy, and most managers' natural tendency is not to do it. But the result at GAO, says Kladiva, was widespread staff frustration. "Our employees would say, 'I got a 4.5 rating. On half the elements, I was perfect; on the other half, I exceeded expectations, but I didn't get the big increase…They didn't have the perspective to know that a 4.5 was below average," she says.

Walker immediately ordered managers to get tougher, with 3 set as the standard rating for an employee meeting, but not exceeding all expectations. In 2000, the average rating fell to 4.19. In the meantime, Kladiva worked with an outside consulting firm and agency employees to better align the standards for employee ratings with the agency's mission. In the end, GAO decided to discard previous rating areas such as data gathering and documentation, data analysis, job planning, and written and oral communication in favor of broader categories such as thinking critically, collaborating with others, and achieving results. GAO set measurable goals in each area. To counter rating inflation, these targets were aligned with four rating levels: "role model," "exceeds expectations," "meets expectations," and "below expectations." The "meets expectations" rating became 1.5. In 2002, the average analyst rating was 2.19. Exceeds expectations is a 3, role model is a 5.

To win over wary employees, Kladiva made sure they had opportunities to comment throughout the development of the new system, and she has made providing regular feedback a management focus. At the end of each year, employees write self-assessments that kick off the grading process. Supervisors follow with their evaluations, which are then reviewed by a member of the Senior Executive Service.

Employees are ranked against their peers. In 2002, the top 8 to 12 percent in each team were placed in the top pay category and are eligible for a merit raise of 4 percent to 6 percent, though that figure can vary from year-to-year. Employees ranked in the second and third pay categories receive smaller raises. Those in the fourth category receive no raise, and those who fall below expectations in at least three of the grading areas, are given a limited amount of time to either improve or lose their jobs.

As of now, all GAO employees continue to receive the annual governmentwide pay increase, though the agency is seeking congressional approval to shift to a full pay-for-performance system. "We want the primary factor in pay to come down to the skills, knowledge and performance of our people rather than just the passage of time," says Walker.

Then there are agencies that have moved ahead even while still operating under the old civil service rules, among them Bonneville Power Administration and the Court Services and Offender Supervision Agency, a relatively new federal agency responsible for overseeing parolees in the District of Columbia.

CSOSA has set up a performance management system aimed at reducing recidivism among parolees. If the agency's supervising officers perform well in areas that have been identified as helping offenders make the transition back into society, the theory goes, the agency will achieve its goal of reducing recidivism.

The officers are graded annually on their proficiency in improving the initial assessment of an offender's needs and the risks posed by that person to the public; providing closer supervision of offenders; assuring offenders have access to treatment for drug or health problems, and support services; creating community partnerships; and providing accurate and timely information about offenders to the courts.

Gauges in each of these areas have been relatively easy to establish. For example, to be successful in meeting goals, supervision officers must make an assessment of all 50 to 60 offenders under their supervision within 20 days. Officers must demonstrate how much time they spent with each offender and how they made the offender aware of available treatment and support. Officers are not judged on the rate of recidivism among the offenders under their supervision, however, because the limited number of offenders assigned to each officer may not be a representative sample of the whole.

Though merely anecdotal at this point, employee reaction to the system has been good, says Joyce McGinnis, a management analyst at the agency. But McGinnis notes that CSOSA has an advantage in evaluating performance because "what we do is really well-defined and discrete. We don't have 800 different types of programs that we are trying to manage."

The Bonneville Power Administration example, for now, is more of a cautionary tale than a ray of light in the development of performance management systems. BPA is an Energy Department agency that markets wholesale electrical power and operates and markets transmission services in the Pacific Northwest. It relies on its business lines for funding. In the late 1990s, the agency put in place a pay-for-performance system for its executives. Detailed performance contracts were drawn up to gauge how agency managers were contributing to the agency's bottom line and how customers and employees felt about the managers' service and leadership.

"Most managers like the clarity of what is expected of them" under the contract system, says Terry Esvelt, senior vice president for employee and business resources at BPA. "You know exactly at the beginning of the year what you will be responsible for."

But when the economy went sour in 2001 and the agency's revenues dipped, the money for merit raises and performance bonuses dried up. Until those revenues turn up again, the program has been indefinitely suspended. "We had a hugely popular system in place," says Esvelt, "but now we're not so popular because it's been taken away." Inevitably, in government, there will be many times when budgets are short through no fault of employees. Finding a way to continue to reward top workers in such a climate is a challenge for which there may be no easy solution.