The GOP wants to bring back pay for performance, but a leading expert says it’ll never work

Last week, a group of over 150 House Republicans proposed, in outline form, restructuring federal employee pay and benefits. Among their plan’s elements are echoes of failed and abandoned incentive programs launched under both the G.W. Bush and Trump administrations—notably, governmentwide pay-for-performance incentives for federal employees.

“Automatic raises should be eliminated,” the GOP document states, later pressing that “Congress should repeal current law restrictions that prohibit basing bonus decisions on the relative performance of an employee compared to their peers.”

In the last effort, scuttled with the failure of President Trump to win a second term, the aim was to gut the General Schedule and replace much of it over time with at-will employees under a new “Schedule F,” complemented by a pay-for-performance system financed by selectively stripping the General Schedule of step pay increases to the tune of $10 billion over a decade.

The incoming Biden White House and Democratic Congress put a quick stop to these aims. But to proponents, it makes sense to offer additional financial incentives for higher-performing employees, as is common in the private sector. To detractors—the winners on the ground of the argument, to date—such schemes have been rightly bound to fail, largely due to fundamental differences in government’s aims and functions compared with those of private sector businesses.

To dig in deeper on the news of a renewed push, Government Executive this week interviewed a top researcher on performance pay, James L. Perry. Perry is professor emeritus of public administration at the University of Indiana and a recognized expert on civil service reform. A 2009 piece, a 2019 piece and a new article he co-authored criticize public sector pay for performance, claiming to identify other factors more powerful—and more appropriate—to incentivizing public employees.

In these and his most recent book Managing Organizations to Maintain Passion for Public Service, Perry highlights that public sector employees work for organizations that don’t aim for—and can’t achieve—higher profits each year, but rather for public missions whose funding is generally not suited for such incentives. Performance bonuses, when tried widescale in government, run into problems. Indeed, such efforts so far have failed.  

Excerpts from the interview with Perry follow:

GE: What’s your opinion of a House GOP yet again intent on pursuing a far-reaching pay-for-performance plan across the federal government?

Perry: We—meaning our government, political leaders at different times—have tried repeatedly to do this kind of thing and failed to get it right every time. You can go back to my and my co-authors’ 2009 article, “Back to the Future,” for detail on how several efforts went wrong. But a big part of these failures is simply that the institutions of government—its financial functions and institutional rules—are just incompatible with pay for performance for employees. I mean, after all, it is an idea that people derived from the private sector, and then tried grafting onto government.

GE: When would you mark pay for performance’s beginnings, at least in recent decades?

Perry: Congress and President Carter instituted some aspects of it, as part of the Civil Service Reform Act of 1978.

GE: Can you say why so many pay-for-performance plans have come and gone? Opponents, public sector unions especially, say no matter the rhetoric, in the real world these plans turn into spoils and favoritism, rather than rewards for top-flight work, right?

Perry: Yes. Look—and I write about this in my book, about rewarding and incentivizing employees. Research shows several better ways than pay for performance and how they have been tried in practice. We know what doesn’t work. Almost right away after pay for performance kicked off four decades ago, the public was aghast at news stories of multi thousand-dollar bonuses for some feds.

This is one important way performance pay for public servants is almost bound to fail, compared to the private sector: the critical eye of tax-paying citizens footing the bill. On the other side, in the minds and motivations of public employees, better serving citizens is just not something we can, practically speaking, be trying to incentivize with monetary bonuses. Besides, the segment of public servants where performance pay might work—those whose tasks are easier to measure fairly—are generally at the lower end of the pay scale, not the top. But in practice most pay-for-performance awards end up aimed toward the top—like in the [long defunct] upper “GM” levels, or the [Senior Executive Service]-level.

In any case, research shows upper-level public servants don’t need this kind of encouragement. They already effectively do their missions …. So, no need for pay for performance there. On the other hand, there are many reasons why we should pay some public sector employees better for top-level skills. But we don't need to be paying people based on performance pay systems—which are often really based on short-term performance measures.

GE: You highlight that another big problem with incentive pay is that compensation isn’t compared fairly. Comparing private sector pay to public is still often apples-to-oranges, right?

Perry: That’s right. I believe people in this field all need to switch to what’s called total pay comparability or total compensation comparability, as I argue in my book. Studies still look at pay [alone], as separate from retirement benefits, and as separate from health benefits, and so on. Big problem: Regular people in the public don’t think like that. So, when they hear about federal pay they are like, “Wait a minute—maybe some of these people don’t make as much salary but taxpayers make up for that by funding their great pensions.” Or, “Hey, these feds get great health care benefits!” In other words, comparisons should never include just salary. Public servants often have better benefits. Total compensation ought to be the benchmark for comparison.

GE: Well, you just hit on one rocket fuel for critics of fed pay—especially House Republicans. Currently, they claim feds get 17% more compensation than their private sector counterparts, and it’s a big reason they push Schedule F and targeted performance pay.

Perry: That number is way too high. That number Republicans claim is B.S. But it’s true that the methodology commonly used is generally not right. Anyone discussing comparative compensation needs to be looking more broadly at pay, benefits and pensions, together—whatever is there, for everyone. Those of us in this field need to get to where we can go to the public and accurately compare and say definitively that our public employees are not undercompensated or overcompensated. We need to make sure the taxpayer knows the situation is fair.

In the long run, we need to gain, or regain, public trust in government about public servant compensation. Definitely, it’s still a problem, even if is often mostly one of perception. We need to all get to total pay comparability.

GE: President Trump’s pay-for-performance ambitions and Schedule F got stopped by Biden’s win and a Democratic majority in Congress. Looking back to the early 2000s and the previous large-scale effort at pay for performance under George W. Bush—specifically the Defense Department’s National Security Personnel System and the Homeland Security Department’s MaxHR—why were these eliminated?

Perry: Legally it all got pushed back, by unions. Employees perceived it as unfair. And, at DOD, a business panel that looked at it for the Pentagon—management—effectively turned against it. Look, pay for performance was also doing double duty as a kind of way to diminish the unions, go after the rank and file, and that was clear.

GE: Can you go deeper on factors that motivate public employees?   

Perry: Sure. Look, my book covers 30 years of my research—and that of others—on what really motivates people in the government sector. One big motivator is, of course, mission—the public-sector employee’s fulfilling the mission of their agency and their job. I add another motivator is “making a difference for one’s fellow citizens, for the public.” Now, for some that comes under “mission,” but there are arguments it’s a separate thing. But it’s all connected with the values of public service—helping people out of poverty, or into education, or other aims—and doing the work of making those values happen in the real world. On another level, and the [Office of Personnel Management] pursues this as a value, it’s called “public service motivation,” something not well-understood by many feds or those who train them. But it’s important.

My book discusses the United Nations Development Program finding that, bottom line, necessary UN sustainable development goals can’t be achieved without a culture of public service—not just in “developing countries,” but here too. We need to train on this, build up public service motivation and altruism, and redesign government jobs and the civil service system around this.

GE: If, in your opinion, agencies need to make such profound changes to federal job structure, recruitment and training, do we even want to keep much of the General Schedule system as it is?

Perry: Yes, I think we do. As I’ve said, there are many tweaks that would help. One other big problem I haven’t mentioned here that many see as needing change—and not toward pay for performance—is that the federal pay system is too flat. We are saying to the best people out there, “Look, no matter how expert you are on, for example, artificial intelligence or cyber security or whatever, your federal salary will top out at only around $200,000 or whatever.”      

That approach might have made sense a couple decades ago. But it doesn’t now, really not. Maybe instead sometimes the top federal salary should be, say, $400,000. That’s not pay for performance. That’s about ability. New York University’s professor Paul Light calls the current problem “administrative disinvestment,” and it’s also sometimes a huge compensation-related problem. Let’s face it: we’re competing with private companies that can pay a million dollars for a top-notch AI expert. With that much discrepancy, how else are you going to get people with those abilities in the public sector?