OPM touts success of performance-based pay

Federal agencies are using performance-based pay systems to create a results-driven culture, the Office of Personnel Management concluded in a report released this week.

The report analyzes various demonstration projects and other pay-for-performance systems that collectively cover more than 298,000 federal employees.

"This report shows performance-based pay systems drive improvements in managing performance, recruiting and retaining quality employees and achieving results-oriented performance cultures," said OPM Director Linda Springer.

The report covered three categories of performance-based pay systems -- demonstration projects, executive pay systems and independent agency systems established under legislative authority. The latter covers more than 246,000 employees -- with more than half of them working under the Pentagon's National Security Personnel System.

The report said that while achieving success with pay for performance entails significant effort on the part of agencies, the new systems are providing a stronger link between compensation and performance, and are improving government's ability to recruit and retain a high-quality workforce.

Payroll costs also are being controlled, the report added, but cost discipline must be maintained as systems expand and mature.

The report gives an agency-by-agency rundown of pay-for-performance efforts, with varying degrees of analysis of their implementation.

At the Government Accountability Office and the Transportation Security Administration, for example, OPM simply gives an overview of new systems, without addressing their impact. But the description of the one at the Treasury Department's Alcohol and Tobacco Tax and Trade Bureau notes that the vast majority of the organization's 131 employees operating under pay-for-performance principles have indicated that performance ratings are fair and that supervisors provide adequate feedback.

A pay-for-performance system at the Federal Aviation Administration appears to have increased the job satisfaction of employees since 2003, the report noted, though employee pay satisfaction has shown a small decrease since that time .

The report said the new systems send a different message to employees than the traditional General Schedule pay scale.

"For the GS, time is the overwhelming basis for distributing increases, so the message to employees is 'longevity is what matters,' " the report stated. "The message to employees is shifting to 'performance is what matters.' "

The report said the results of a 2006 federal workforce survey provided evidence that managers and supervisors are being trained to manage performance more effectively. Employees under pay for performance generally rated their agencies equally or more positive than the governmentwide average in terms of performance discussions with supervisors and fairness of performance appraisals.

Colleen Kelley, president of the National Treasury Employees Union, challenged the report's findings, noting that evidence indicates that pay-for-performance systems lead to increases in employee grievances, more litigation, high attrition rates and low morale.

"The problems may differ from agency to agency," Kelley said, "but the reality is that each of these programs is terribly flawed."

Kelley noted that a recent survey found that only 12 percent of employees at the Federal Deposit Insurance Corporation believed that its pay-for-performance system accurately reflected their actual performance. And an arbitrator recently ruled that a system at the Securities and Exchange Commission was discriminatory in its implementation.

"The key to these kinds of compensation systems rests on a trilogy of ideas," Kelley said. "They must not only be fair -- they must be seen by the employees as being fair; they must be credible; and they must be transparent, particularly in communicating why various decisions have been made."