Performance Pay at VHA

Despite pushback from some employees, labor unions and lawmakers, many federal agencies still are intent on scrapping the General Schedule system and replacing it with one that ties pay more closely to performance.

It's been well over two years since the Bush administration started floating the Working for America Act, which would extend personnel reforms being implemented at the Homeland Security and Defense departments to the rest of government. While the bill has yet to attract much interest on Capitol Hill, some federal agencies are jumping ahead to test the apparent flexibilities offered by alternative personnel systems.

According to Office of Personnel Management spokesman Mike Orenstein, federal agencies have the authority to place up to 5,000 employees in pay-for-performance demonstration projects. OPM must approve the projects and can manage only up to 10 pilots at any one time.

Currently, pay-for-performance pilots are active in three federal agencies -- the acquisition component at the Defense Department and the Commerce and Energy departments. But a fourth agency may soon be added to the mix -- the Veterans Health Administration.

Joleen Clark, deputy chief of the management support office at VHA, said last week that the department is waiting on OPM approval for its proposed demonstration project, and expects to launch it in early 2008.

News of a pay-for-performance pilot at VHA may sound familiar. The Veterans Affairs Department announced late last year that it planned to test the system with 1,000 VHA employees. But Clark said the department scrapped the idea of implementing it so late in the year, largely because officials felt it was unfair to debut a new approach so close to the end of a rating period.

The agency already has implemented a five-tiered performance management system instead of the pass-fail systems many agencies use, said Lawrence Bifareti, director of workforce planning and organization development at VHA. What's next is simply tying pay to ratings to give them meaning.

Still, the department has scaled back its plans for the trial, with plans to implement it for only 175 nonbargaining unit employees, Clark said. If successful, the plan eventually will include all VHA employees.

VHA's system will guarantee employees with a rating of fully successful or above a pay raise that is equal to the annual governmentwide increase. Ratings below fully successful will not receive any pay increase, and eligibility for within-grade increases and quality-step increases will be discontinued. VHA notes that additional funding of about $500,000 per year will be required to adequately recognize high performers.

Clark said VHA officials are looking to the pay-for-performance system at the Federal Aviation Administration as a model. But VHA has urged caution, she said, largely because FAA's implementation of the system has not been free of challenges.

In fact, Clark admits she is wary of implementing the new system. While she believes something must be done to replace the General Schedule, she said she was concerned about subjectivity, especially if performance standards are not given the attention needed upfront.

"I could see something like this having a very negative effect on employee satisfaction," she said, "if the perception is [that] supervisors are not being fair to employees, or the opposite -- overrating those who are barely performing to avoid complaints."

She added VHA has submitted to OPM a set of regulations on the pilot project for the Federal Register, which must be opened to comment before the project is launched. "Unfortunately, OPM has a few concerns with some of the language, so there has been a lot of back and forth," she said. "We're still hopeful that it will keep moving forward."