The Administration has recently emphasized its intention to implement pay for performance across the federal workforce. You can agree or disagree with the idea, and in my view the evidence is mixed, but that doesn't change the fact that government leaders will have to have a strategy to deal with it.
To make pay for performance work, you have to set clear goals and point the organization towards those goals. Surprisingly this is rarer than it should be. Many organizations have to muddle through without much direction. Some staff are connected to customers and have a good idea of what they need but many others simply revert to doing whatever is convenient, seems to be rewarded internally, or simply engage in internal fights for resources and power. If your culture is like this, pay for performance will simply exacerbate those problems. But if you are able to develop a simple and clear strategy, you have a chance to transform your organization.
The key is to first make some tough choices about what goals you are going to focus on. Most organizations don't choose because it is painful to have to say no and so they do a little bit of everything. With their efforts and resources spread thin, they can't make progress on anything. Without narrowing your focus, the pay for performance goals are likely to be so general and unspecific that anyone could meet the goals you set with little effort.
Once you've set goals, it's key to create a clear line of sight and linkage from those goals to the work your staff does. Doing this has the added benefit of creating other sources of satisfaction and pride for your people other than simply pay. When staff know they are in service to a larger cause and feel connected to that cause, they are more apt to be motivated. Without that connection to the larger purpose, pay for performance will most likely fail and create more internal politics and cynicism.
Finally, constant communication and reinforcement are critical. As the leader, you should establish a regular process to evaluate progress with each manager that reports to you, and make sure that focus cascades down the organization. For example, I've found that weekly leadership team meetings with a set agenda reviewing progress towards strategic goals works well. You should consider supplementing these with weekly email summaries and monthly review calls (or in-person meetings if possible) with the whole organization.
Pay for performance will increase pressure on government leaders to have clear and focused strategies for their organizations. Without those strategies, leaders risk making things worse and will miss an opportunity to transform their programs.