Pay Potential

Performance-based raises could stifle employees more than motivate them.

A new pay-for-performance system at the Defense Department is expected to set the pace for the rest of federal government in boosting productivity and leadership. It remains to be seen, however, whether annual pay increases will be enough to motivate and keep valued employees.

In January, the Pentagon announced that 98 percent of the 110,000 employees under the National Security Personnel System received performance-based payouts averaging 7.6 percent. That's more than twice the percentage given to General Schedule employees, who got 2.5 percent across the board and an additional 1 percent bump in locality pay.

Comparing NSPS raises with those in the GS system, however, is like comparing apples to oranges, many Defense employees say. The NSPS factors into the overall performance-based raise funds that the GS system directs to within-grade pay boosts, quality step increases and bonuses. The average NSPS payout also includes a 1.7 percent performance bonus, which General Schedule employees are eligible to receive on top of the annual increase.

One of the major concerns among employees and federal labor unions is because Pentagon officials are funding NSPS pay at the same level as the General Schedule, employees receiving average ratings must be receiving less to fund higher increases for those receiving top ratings. For the 2008 payout, 57 percent of employees received average ratings.

At a Feb. 12 hearing of the House Oversight and Government Reform Subcommittee on the Federal Workforce, Postal Service and District of Columbia, lawmakers expressed concern about average-rated employees ending up with a lower standard of living. "That is the aspect of pay for performance that is so infrequently discussed-that in the absence of significant increases in funds, performance-based increases are often funded by denying or reducing other employees' [pay increases] and bonuses," says Rep. Danny K. Davis, D-Ill., chairman of the subcommittee.

Unions argue that the problems they see in NSPS are heightened by the system's lack of transparency, adding that Defense has released no information on how the 7.6 percent average was calculated. "Defense is intentionally misleading employees by simply releasing a number without releasing the data that supports their number," says Greg Junemann, president of the International Federation of Professional and Technical Engineers. "Congress should ask the DoD to release any and all data relating to their 7.6 percent payout."

Jon Desenberg, consulting director of the Performance Institute, a think tank with offices in Arlington, Va., says to make pay for performance successful in government, information on pay decisions and on employee perceptions of such systems, specifically NSPS, must be made public. "If we're really going to use this as a lesson for the rest of the federal government, we can't be so close-mouthed," he says.

In addition, employees in NSPS are likely to see only two promotions in an entire career. "People aren't motivated or engaged by pay, they're motivated by the potential to advance and develop," Desenberg says. "There needs to be a greater understanding of the psychology of engagement."

An informal survey conducted by in January, however, suggests otherwise. According to the survey of more than 600 Defense employees, 54 percent agreed that pay would motivate them, while 28 percent were unsure and 18 percent disagreed.

Still, some in NSPS have said they can't decide whether the potential to earn higher pay increases is more important than career advancement. "We are left with having to rely on the annual pay raises to progress upward through our careers, and whether or not that will be enough remains to be seen," one employee says. "While the pay raises this year were probably higher than expected, I'm still reserving judgment on whether or not the system will be better or worse for employees over the long haul."

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