IRS hires firm to review performance pay for managers

The Internal Revenue Service has hired an outside consultant to assess whether pay changes have made a difference in the hiring and retention of managers.

KnowledgeBank, a human resources consulting firm based in McLean, Va., will review the IRS system, established in 2001 for senior and departmental managers, to determine whether it is helping to recruit, motivate and keep talented employees. The company also will provide recommendations to strengthen the system.

"We want the outside perspective to assist us in making sure that, as we go forward, we are going about implementing pay for performance in an appropriate fashion," said Bruce Friedland, an IRS spokesman.

KnowledgeBank will evaluate the system in three phases over five years.

The IRS has touted changes to its pay structure as necessary to offset a potential loss of skilled managers and employees to retirement. The agency is slated to lose about 4,000 employees a year over the next four years from retirements, the IRS Oversight Board reported last month.

But IRS Inspector General J. Russell George reported in July that the current pay system actually could dissuade nonmanagers from applying for management positions, largely because the system does not have sound policies to ensure that managers are paid comparably to IRS employees who fall under the General Schedule.

Under the IRS system, for example, the commissioner may withhold from managers the annual across-the-board pay increase given to all GS employees. If this is withheld in the future, managers may not be paid comparably with other IRS employees, the IG found.

"Pay for performance has one of the rings to it that really appeals to the HR community," said Ken McDaniels, the Federal Managers Association's IRS conference chairman. "But for the managers doing the workload of their agencies, it does not have that same appeal."

The IG report also recommended that the IRS chief human capital officer offer employees an opportunity to express concerns about the pay system directly to personnel experts. Previously, a lack of communication about the details of the system led to decreased morale and increased opposition by managers, the IG found.

Robert Buggs, the IRS' human capital chief, said in a letter accompanying the report that communication surrounding the system always could be improved. He added that he is committed to partnering with employee groups on pay for performance issues.

He said he will determine whether there is a need to modify the pay system when the KnowledgeBank review is complete. "We believe that more time is warranted to evaluate the effectiveness of the existing pay system before significant revisions . . . are implemented," he said. KnowledgeBank did not return calls seeking comment.