Pay for Performance is Needed

The highest hurdle promises to be creating performance processes that generate credible and defensible ratings.

The switch to pay for performance is inevitable. The General Schedule salary system is approaching 100 years old. Automatic step increases are contrary to the goals of improving government performance and holding employees accountable. Further, there is no rationale that justifies paying federal employees better than their counterparts working in non-federal organizations. That includes the value of benefits.  

It also needs to be acknowledged that the General Schedule and classification system prevent effective talent management.

The theory of pay for performance is unquestioned. The practice is universal in the private sector and important to the growth of the U.S. economy. Rewarding good performance has gained acceptance in all aspects of life. It’s now a global practice.

Government is different from the private sector in three key respects though. Two of those differences—the fact that performance ratings and pay increases are not confidential, and that changes to the system inevitably involve politics—are likely to prompt resistance to program changes.

A third difference is that in the private sector, pay for performance triggers continuous attention to performance metrics. For many organizations, the incentives that motivate are the prospect of year-end bonuses and gains from stock ownership. Both reinforce the importance of company success. In business, financial rewards are solidly entrenched.

The transition to pay for performance in government should be managed as organizational change since it redefines the role of managers and their relationship with staff. Managers who have relied on micromanagement will need to relinquish control. Performance-related pay makes no sense where employees are closely controlled. The history of inflated performance ratings will have to end. It also changes employee job and career expectations.

The highest hurdle promises to be creating performance processes that generate credible and defensible year-end ratings. Recognizing star performers as well those whose performance is unacceptable is important to every employer. That’s obviously central to pay for performance. The responses to the Federal Employee Viewpoint Survey suggest the current ratings are not credible.

This is happening at a time when performance management practices outside of government are undergoing radical change. Those year-end ratings are being de-emphasized, although they still are standard. Coaching and ongoing feedback are the new models. Football coaches are a good model. The goal is to support and encourage improved performance. It also contributes to a more positive work environment. That redefines the manager’s responsibility and necessitates the development of new supervisory skills. It should also redefine the selection criteria for new supervisors.

Using ratings to fire poor performers raises important questions about the current process. The courts look for evidence the criteria or standards reflect core elements of the job. The generic, somewhat vague criteria in too many government appraisals fail to satisfy that requirement. It’s also seen as important for employees to be involved in establishing performance standards for their job. Current performance practices need to be evaluated by experts.  

But the appraisal forms are peripheral to effective performance management. The forms are simply the place where managers document their assessment.  

The switch to pay for performance is consistent with the intent to improve performance and increase accountability. However, it’s not realistic to expect the promise of a few extra dollars, if that’s the only change, to accomplish that. The changed policy would mean an extra $15 to $20 per week for a high performer—and that’s before taxes and any increase in benefit contributions. The change in policy is essential to raising performance levels because it sends an important message but it needs to be planned as an element of broader strategy to focus on results.

Despite the failure of the National Security Personnel System, there are a number of success stories starting almost 40 years ago with China Lake. There are also several states that have successfully transitioned. The one I know best is Tennessee. Vice President Pence served as Governor for a state, Indiana, that also made the switch.  

In my consulting I have had reasons to discuss pay for performance with senior people working in UN System Organizations as well as representatives to the Organization for Economic Co-operation and Development. There is no inherent reason to think it cannot be successful in government.

But there are a large number of skeptics. The NSPS failure has not been forgotten. If enough employees conclude they’ve been unfairly treated, it will undermine their sense of engagement and minimize performance gains. For that reason, it makes sense to solicit employee feedback periodically and commit to taking corrective action.

This at its core is a management problem. HR needs to assure the criteria for evaluating performance are defensible. The office otherwise is limited to a support role, arranging for training, maintaining records, auditing ratings for bias and discrimination, and addressing problems. Managers need to be accountable.

The specifics of the administration’s plans have not been announced. Officials don’t have the benefit of starting with a clean slate, however. Several reports recommending a framework for a new salary program have been published by the National Academy of Public Administration. The Office of Personnel Management and the Partnership for Public Service have also issued reports. Those reports reflect the program models that have proven to be successful in several demonstration projects. The National Geospatial-Intelligence Agency’s pay program could be the model for other government agencies. The success stories as well as the reports reflect a compensation philosophy that would meet agency needs across government.

Successful pay programs—those that support agency staffing needs and encourage solid performance—ride on a shared management commitment to fairness. They also need to be broadly competitive for essential talent. Government’s workforce problems are clearly not unique.