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During the past 10 years, I have worked with a number of agencies to design pay-for-performance systems. Usually, we begin by talking openly with managers and employees about their views on the subject. People discuss their management philosophy, ethical values, notion of the employer-employee relationship, personnel processes, terminology, forms, technology -- anything and everything they might be concerned about with respect to pay for performance.

I still remember one comment a bright young manager made to me. I had just finished describing an approach to pay for performance, when he raised his hand.

"But for us it's a zero-sum game," he said. I asked him to explain. "Let's assume this system we design is brilliant," he continued. "It motivates everyone to step up their performance by 10 percent. If we were a business and that happened, we would expect our profits to go up, which could be used to reward us for our higher performance. But for this agency, if we perform better collectively, we'll still have the same salary budget, the same awards budget. That's the zero-sum. Whether we perform well or poorly, we've got the same pot of money to work with. All we can do is distribute what's in that pot differently. In government, pay for performance is only about equity. It can't really be about performance."

The more I thought about this, the more I concluded it cut the knees out from under pay for performance in the federal government. If individual performance is not tied to organizational performance, and if organizational performance is not tied to dollars, then pay for performance is little more than a minor, backhanded attempt to be equitable; it can never be what it should be: a powerful incentive structure that motivates the workforce to perform in support of the mission and goals of the agency.

But in the years since I heard that comment, the world of federal management has slowly changed. Beginning with the 1993 Government Performance and Results Act and picking up steam with the President's Management Agenda, a concerted shift has been made toward strategic, results-based management of federal agencies. This shift sets the stage to do exactly what this manager was suggesting needed to be done: pay an agency more for good performance.

If this administration is successful in its current management initiatives, then we will soon have the following in place:

• A clear definition of the outcomes each agency is striving to accomplish.
• An ongoing process to measure the success of each agency in accomplishing those outcomes.
• Dollars associated with each outcome, defining what successful accomplishment of the outcome is worth.
• An ongoing process to link individual employee performance with the success of the agency in accomplishing its outcomes.

Now for the final step. We should include in an agency's budget the financial incentives that are tied to its success in accomplishing the goals and outcomes. Those incentives become the agency's "profit" which must be shared with its workforce.

The idea is similar in concept to performance-based contracting. Think of an agency's budget as a contract between the elected leaders of the government and the organizations they have set up to accomplish their business. Elected leaders say to a given agency, "We will give you X dollars to accomplish these specific, measurable outcomes this fiscal year. If you don't achieve these objectives, your salary and awards budget will be Y; if you do achieve these objectives, your salary and awards budget will be Z. As an agency, you can make a 'profit' equal to Z minus Y by achieving your strategic outcomes. That profit will go directly to employees based on their individual performance and contribution to your success."

Pay for performance is a very simple change capping a series of important developments over the past few years that are designed to shift the focus of federal management from processes to results. But it could be the most important change of all. It would give employees a reason to invest in their agency's goals. It would provide meaningful financial incentives, rather than today's mostly symbolic incentives. It would help take some of the pressure off capped federal salaries. And this change would be so cheap, it wouldn't even be noticed in the larger budget of the agency. Most important, it would make it absolutely clear that agencies and their workforces exist to accomplish the goals and outcomes their political leaders have defined for them. Results matter.

And, finally, it would give me a comeback to that smart young manager.

COMMENTS

• I "don't have a dog in this fight" but am intereested in the outcome as a concerned taxpayer. I don't know which side I endorse because neither is overwhelming. Much of the argument against pay-for-performance is easily turned around to support it. Take a valid point by IT Manager below - "Then, when good people go unrewarded while others are rewarded, they see no reason to work harder when they are convinced it will get them nowhere." Simply change a couple of words and you get: "Then, when good people get the exact same longevity raise as slackers, they see no reason to work harder when they are convinced it will get them nowhere." Pay-for-performance works well in private industry where profit is the major driver and managers are given the time and training to perform it well. I am very skeptical that it will work in government where budget is only a constraint and there is rarely the time or training for the newest "good idea" coming down the pike. GovExec.com reader Posted September 1, 2004 11:48 AM
• The theory is really great for pay for performance. But that young manager was correct- there is a very limited and non-expanding pot of money. And when the pot shrinks, satisfactory performance will not be enough to save salary. Here is a comment from another young manager who happens to deal with performance issues on a daily basis for management. The system we currently have for measuring performance is too flawed to be the basis for paying people their salaries. Performance management is the last agenda item of importance on most program managers to do list and it is sometimes really painful watching them communicate to their employees regarding these employees' performance deficiencies. Carol Bonasaro of the SEA has some very valid concerns regarding her SES managers losing pay in this deal- up to 10% of their salary for poor performance. Judging performance whether in Olympic gymnastics of in federal government is extremely subjective and a push to save money by cutting salaries based on subjective performance evaluations is the real risk in this pie in the sky plan. I challenge any agency to tell me they can objectively evaluate their employees to support a pay for performance system that would be acceptable to their employees. And if the answer is none, why are we even having this discussion? HR Specialist GovExec.com reader Posted August 31, 2004 7:39 AM
• The referenced article overlooks the "healthy tension" that public administration schools cite as one of the major controls on government. The atavistic urge to make civil service pay immediately and directly dependent on politically elected leaders /political appointees is potentially hazardous to modern technical government. Motivation of the workforce to optimize efficiency and effectiveness rather than that which is politically expedient is what most clearly delineates us from third world governments. Those governments are known to be marvelously responsive to political pressure and are loved by those in power, but are also prone to corruption and overall ineffectiveness as a result. As bad as it sounds, at the end of the day American government is all about process and the rule of law--not responsiveness. I was taught that the process of working out the tension between political needs and desires on the one hand, and modern management dictates and approaches on the other, is what leads to delivery of the balanced government we have come to expect in this country. This has often been cited as the reason for our stability as a nation, and directly implements the cornerstone of our liberty, the rule of law. Michael Jay Posted August 30, 2004 5:41 PM