Nonfederal organizations endorse performance-based pay

Government officials and private and nonprofit organizations all agreed that pay-for-performance and market-based compensation systems are must-have parts of a larger picture of personnel reform, according to the results of a symposium hosted by the Government Accountability Office.

IBM, the American Red Cross and the Commonwealth of Virginia were among the groups that presented their experiences with personnel reform to executives of GAO, the Office of Personnel Management and the U.S. Merit Systems Protection Board in March. GAO released the groups' findings in a report (GAO-05-832SP) Wednesday.

"Implementing a more market-based and performance-oriented pay system is both doable and desirable," Comptroller General David Walker said. "But these organizations' experiences show that the shift must be part of a broader strategy of change in management and performance improvement initiatives."

While the GAO symposium summary is careful to say that the group did not reach a definitive consensus on how to go about implementing such reform, it does highlight a number of suggestions that were generally agreed upon.

For one, the leaders established that "market-based and more performance-oriented pay cannot simply be overlaid on most organizations' existing performance management systems."

Instead, they emphasized the need for clearly communicated employee expectations, meaningful distinctions between employee performance and "most fundamentally," a change in government culture to "recognize that pay increases are no longer an entitlement but should be based on employees' contributions."

IBM's director of global services compensation, Arthur Amler, presented a number of the company's pay strategies at the meeting. One is to reward its highest achieving employees generously above the market average, to encourage them to stay within the company and become leaders, which will cause other employees to stay as well.

Another distinctive IBM pay practice is conducting an analysis of pay for women or minority employees whose salaries are at least one standard deviation away from the mean employee salary.

The Red Cross's presentation was particularly germane to the government's quandary because it lacks the stock options that private sector companies can use to attract and retain employees. To compensate, the nonprofit sets its pay scale at slightly higher than the market average, according to its presentation.

The Red Cross also joined IBM and the Office of the Comptroller of the Currency in stressing the importance of communicating the details of any pay system to employees. These groups use a combination of intranet sites and written summaries to inform their employees of specific salary ranges, market comparisons, performances' affect on pay and geographical pay factors.

The symposium also concluded that reform is a major undertaking which would require persistent fine-tuning. That process includes continually listening to employees' views in order to monitor the system.