An E-Forum Convened and Moderated by Howard Risher
Part I - The Link Between Pay and Performance: Logic and Experience
It is now 15 years since the passage of the Government Performance and Results Act of 1993 (GPRA) and the start of an ongoing transformation to improve government performance. There have been significant investments in financial management systems and in new technology. The management tools are largely in place. However, those are essentially planning and control mechanisms. The systems have little to do with the way people perform their jobs, with the capabilities they bring to their desks every morning, or with their commitment to achieving agency goals.
Shortly after President George W. Bush took office, in a report kicking off the President's Management Agenda, the announced goal was to transform government so "...High performance will become a way of life that defines the culture of the federal service." The desired culture was described as follows:
"The civil service will use clear and carefully aligned performance incentives for individual employees, for teams, and for its leadership. In turn, these incentives will be tied clearly to reaching their agency's mission and objectives. Agencies will meet and exceed established productivity and performance goals. Accountability for results will be clear and meaningful, with positive rewards for success and real consequences for failure."
This e-forum on reforming federal government pay and performance is organized around three major challenges: 1) how to improve organizational and individual employee performance; 2) problems related to market alignment and the pay gap between the public and private sectors; and 3) planning and policy questions leading to a new white collar salary system. Clearly, the convener/moderator of the forum (moi) views pay for performance as a proven alternative to the current system. It also contributes to improved performance and is much more than a new pay model. Nevertheless, we'll make sure to weave in diverse views - from both invited contributors as well as the general public (toi).
Replacing the General Schedule
Central to those changes was the replacement of the General Schedule (GS) salary system with a new market-sensitive, pay-for-performance-based system. All the ‘system' changes since GPRA was enacted have largely failed to change the culture. In replacing the GS system, the clear intent was to use a new reward system to support the transition to a performance culture. Now, those plans have come to a halt. Recent legal proceedings at the US Departments of Homeland Security (DHS) and Defense (DoD), along with bias charges at the Security and Exchange Commission (SEC) and the General Accountability Office (GAO), have stopped the replacement express. DoD plans to expand the coverage of its National Security Personnel System (NSPS) but otherwise it appears to be dead until the next Administration takes office, and then its fate is unknown.
Employees are always uncomfortable with plans to replace a pay system, especially when the new system signifies a significant change in philosophy, because they cannot be certain how it will affect them. Their concern makes the plan to build broad-based acceptance for a new system uncertain. Employees need to feel they will be treated fairly. Recently the statements of several prominent people opposing planned changes have reinforced those concerns and undermined the initiative's support. In this case, it may be an unintended consequence but the opposition has effectively derailed efforts to improve agency performance.
As the managing consultant for the studies that led in 1990 to passage of the Federal Employees Pay Comparability Act (FEPCA), I learned how difficult it is to assemble and maintain the support to change the federal pay system. I've also played a role in three National Academy of Public Administration (NAPA) studies focused on pay issues, which prompted a number of discussions with senior people in the federal community. There is a high level of interest and broad support for change. However, that support has largely been philosophical. ‘Pay for performance' and ‘market sensitive' are concepts that sound good. Below the surface, however, it quickly becomes obvious that the changes are extraordinarily complex.
The Purpose is Improved Performance
The GS system sends a truly unfortunate message. The ‘living and breathing' step increases tell employees that it doesn't matter how you perform your job. The way promotions have been handled unfortunately reinforces that message - the grade changes from GS 5/7 to the top of a career ladder are for most employees automatic. Government leaders should not be surprised by performance problems when automatic rewards contribute to a sense of entitlement.
The pressure to move away from entitlement cultures has triggered global interest in pay for performance. It's virtually universal in the private sector. It's used by ‘mom-and-pop' businesses as well as the largest global companies. Even the critics of the practice in the academic world are typically paid for their performance. Increasingly companies are supplementing ‘merit' salary increases with group and team incentives - and they willingly incur the added expense because they are convinced it will payoff in improved performance.
Public employers around the world are moving, albeit haltingly, to pay for performance. In the UK, the Senior Civil Service pay and performance system appears to be working well. Reports on that system suggest it is accepted much better by executives than the 2004 changes in the U.S. Senior Executive Service (SES) system. Canada has a similar system. In my work with the United Nation's International Civil Service Commission (ICSC), I talked to representatives from a diverse group of countries who agreed the UN organizations should move to pay for performance
This is by no means a new idea. The first pay-for-performance demo, China Lake, dates to 1980. Legislation was enacted in 1989 authorizing the financial regulatory agencies to develop their own, more flexible pay systems. Pay for performance was discussed in the meetings leading to FEPCA, but Connie Newman and her US Office of Personnel Management (OPM) staff decided locality pay was a higher priority. In 1991, a committee formed by the National Academy of Sciences and funded by OPM assessed the research on pay for performance and concluded federal agencies should move to performance pay. NAPA has supported the policy change in several reports. The 2003 Volcker Commission also supported the change.
The reason the practice is deeply entrenched in the private sector is actually two-fold - there is solid evidence it contributes to improved performance, and corporate executives are strongly opposed to guaranteed pay increases. Researchers have for the most part stopped evaluating the practice. It would be difficult to find anyone in industry who questions the appropriateness of pay-for-performance. There are critics, but they typically focus on problems associated with performance management.
A key point is that despite the occasional comments by critics, this is not about ‘working harder.' The phrase ‘working smarter' is a better descriptor of the goal, that is to say, the intent is to provide an incentive for employees to focus on specific performance goals. When people know what they are expected to accomplish and can anticipate a reward if they are successful, it influences their performance.
It's also not about denying increases to workers whose performance is inadequate. Private sector employers tend to focus on rewarding the star performers. Businesses celebrate and reward their star performers. The goal is to retain those individuals. There are to be sure a few poor performers - every organization no doubt has a few - but companies handle those situations quietly and discretely.
Bottom Line
The bottom line is that the purpose in moving to pay for performance is to improve agency performance. The human resources and human capital offices normally are responsible for administering pay, but the success of a pay for performance policy depends on managers and supervisors. It's obvious if we think about it, but the HR/HC office has little impact or involvement in the day-to-day management of employees. That's the primary reason I normally recommend pay for performance should be adopted first for managers, and an important measure in determining their increase should be how well they manage the performance of their people.
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So, let's leave it here for the moment and have others with informed views and varying perspectives on the matter broaden the debate on the centrality of linking pay and performance. Again, we invite other site visitors to weigh in with your "collegial" views and experience as well. Your comments will be posted after being screened for inappropriate language. I'll be sure to weave these divergent thoughts into the next segment.
Howard Risher is a private consultant on pay and performance. He has over 30 years of experience as a consultant and a corporate human resource executive. He managed the studies that led to FEPCA, has consulted with a number of federal agencies, and played a role in several NAPA studies. He is the author of the 2005 IBM report, Pay for Performance: A Guide for Federal Managers and co-author (with Charles Fay) of the book, New Strategies for Public Pay. He can be reached at: h.risher@verizon.net.