Pay for Performance: Where Do We Go From Here?

Pay for Performance: Where Do We Go From Here?

Can the General Schedule help supervisors pay for performance?

The concept of pay for performance has taken some hits recently. In September 2008, the Government Accountability Office questioned whether the Department of Defense’s (DoD) performance management system had the necessary safeguards to ensure the system is fair, effective, and credible. This system serves as the basis of DoD’s pay for performance system. On October 2, 2008, the Department of Homeland Security (DHS) announced it was rescinding application of its new human resources system—including the pay for performance component. In an October letter to the President of the American Federation of Government Employees, then-Presidential candidate Barack Obama called into question whether the DoD pay for performance system should be implemented due to existing concerns about the system.

Given these developments, it is a good time to reflect on why pay for performance has faced so many challenges and where the Government might go from here. Over the last 10 years or so, there have been a number of attempts to change the way Federal employees are compensated, most notably at DHS and DoD. One of the recurring themes has been to provide a greater link between the quality of work an employee does and his or her salary.

Proponents have claimed pay for performance has many advantages. They say it can be a fairer way to pay because the highest performers receive the highest compensation, providing agencies with greater ability to attract and retain “the best and the brightest.” Also, they believe pay for performance can incentivize poor and marginal performers to either improve or move on.

While the pay for performance concept has a number of features that are intuitively attractive, there have been implementation issues that have limited widespread acceptance of the concept. For pay for performance systems to operate as intended, employees must trust their supervisors’ ability and willingness to provide fair assessments of their performance. This trust can be built through training, collaboration in the development of performance expectations, transparency in the pay determination process, and ultimately what is perceived as a successful implementation of the system.

But do these challenges mean that the  Government must abandon the concept of pay for performance? Maybe not. Believe it or not, the General Schedule was originally intended to have many pay for performance features. The merit system principles call for employees to receive equal pay for work of equal value, as well as appropriate incentives and recognition for excellence in performance. In short, this means employees should be paid based upon how well they perform the work required of them.

But how can this be done within the constraints of the General Schedule? There are actually several tools agencies can use. First, agencies must ensure that supervisors have an awards budget that allows them to provide meaningful recognition of superior performance. In turn, supervisors must use their award budgets judiciously and not simply spread awards across the office to all staff, as is often done.

Another tool supervisors can use to recognize performance is the quality step increase (QSI). In many organizations, this type of award is seldom used. While supervisors certainly should not pass out QSIs indiscriminately, their strategic use can be a valuable way of recognizing and reinforcing superior performance.

While not directly related to performance, agencies can also use pay to manage the retention of their top employees. They can pay employees a retention incentive under certain conditions when the employees are likely to leave for another Federal or private sector job. This authority is also rarely used.

On the other side of the scale, pay for performance should mean withholding rewards for poor performance. Specifically, supervisors should be more willing to withhold within-grade step increases from employees who are not performing at an adequate level. Unfortunately, the data suggest that few supervisors are willing to do so.

I do not mean to suggest that the civil service should cease efforts to modernize the compensation system. Rather, if agencies believe that pay for performance is the better way of compensating employees, then they can begin by making better use of the pay for performance elements of the General Schedule. In fact, by using the options that are currently available to them in an appropriate and transparent manner, supervisors may be able to demonstrate to employees that they can be trusted to make fair decisions that affect their subordinates’ pay, thus laying the groundwork for more comprehensive compensation reform. ¯

Reprinted from Issues of Merit, a publication of the Office of Policy and Evaluation, U.S. Merit Systems Protection Board.


FLSA Decisions Cost Agencies Millions

Recent articles discuss the number of recent arbitration decisions that have gone against Federal agencies and have resulted in tens of millions of dollars in overtime payments to bargaining unit employees wrongly designated as exempt from the FLSA. The overtime and associated costs paid by multiple Federal agencies in arbitration decisions or in settlements reached by the parties has been truly staggering and should trigger in federal agencies the need to ensure that all individuals making decisions that relate to FLSA–the HR specialists who determine FLSA exemption status and the managers and supervisors who assign and track work hours–know how to apply FLSA requirements. Has your agency yet re-evaluated your FLSA designations and reviewed how they are applied by managers and supervisors?