Civil Service Reform, Again

The Republican Study Committee’s recent task force report is correct in its point that federal benefits costs cannot be justified.

The recently released report from the Republican Study Committee’s Government Efficiency, Accountability and Reform Task Force identified civil service reform as one of three pillars to produce “a more efficient, effective, and accountable government.” The report correctly observes that without the “right people” meaningful reform cannot be implemented. However, the basic changes needed to attract the necessary talent—hiring reform, pay reform and benefits reform—have been proposed repeatedly in reports going back decades. At this point, no one would argue that the civil service system serves the needs of government or the country. The system impedes badly needed change. But it’s very likely this latest report will be quickly forgotten, just like all such previous reports. 

Reform proposals are not new. Presidents Clinton, Bush and Obama each proposed hiring and pay reform.  Clinton’s list of recommendations included several similar to those proposed by the GEAR taskforce: Create a flexible and responsive hiring system; reform the GS pay and classification systems; authorize incentive award and bonus systems; deal with poor performers. Reform is past due.

The most difficult of the GEAR reforms promises to be replacing the General Schedule and classification systems. That would potentially affect all covered employees. Neither system makes any sense in 2020 and they are badly out of sync with best practice thinking. The task force recognized that reform will have to address how federal pay is structured but was silent on a replacement program model. Their key point is: “Rewarding employees based on performance is critical.”  

President Trump reiterated the same points in his message to Congress on the 2021 pay adjustments, as he did in previous pay adjustment messages for 2019 and 2020.

The GEAR report correctly links pay to reforming what the report’s authors deem the “bloated benefits package” federal employees receive. To quote Willie Sutton, “That’s where the money is.” It's understandable why conservatives focus on the potential savings but it’s wrong to argue federal benefits should be aligned with private sector averages. Government’s salaries, paid time off and benefits need to be competitive with the major contractors in the Washington area. Savings from rethinking the benefits package could be shifted to make salaries more competitive. Currently the benefits package locks in poor performers and makes it attractive for those with valuable talents to retire early to start second careers.  

The future has to provide for competitive market salaries along with pay for performance. High performers should expect to be recognized and rewarded. There will be the usual resistance but it’s essential to recruiting and retaining needed talent. It’s also important to the culture change necessary to improve performance.

The pay and benefits program design issues are technically straightforward. The policy alternatives, planning steps and cost estimation methods are discussed in numerous books.  

The GEAR report argues that “it is past time that government function more like a business.” That is basically valid but misses a couple of key points—the transparency, the problems reaching agreement on goals and metrics, and the competing interests of stakeholder groups make government different from the private sector. Plus, remaining profitable is an overriding concern for all businesses. The differences need to be considered in planning for reform.

Focusing on Improved Performance

There is another key difference between government and the private sector. In government the focus is too often on the few poor performers. In the private sector the focus is on recognizing and rewarding the higher performers. Poor performers in business are handled confidentially. The difference means that pay for performance in the private sector is viewed as a positive factor. It’s solidly accepted, not resisted as it often is in government. It’s also important in recruiting the best talent. Success in other sectors—business, healthcare and higher education—is celebrated and contributes to esprit de corps.  

All organizations have a need for good performance. For government and its culture of compliance, however, raising performance levels rides on giving employees more autonomy to address job-related problems—it’s not about working harder or longer although employees who love their jobs often do. Mutual trust is essential. With time and an investment in developing job skills, workers can raise performance levels significantly. But they have to know they will not be punished for minor missteps.  

Many proponents of pay for performance seem to suggest that switching to a pay for performance system is as easy as rewriting a policy. It’s not. Pay for performance is not, at its core, a pay problem; the key is the management of performance and the validity of year-end performance ratings. For agencies with badly inflated ratings, it’s very obvious—the performance system is not ready to support the change in policy.

Both the GEAR task force and the White House budget proposals have called for shifting salary increase funds to incentive bonus awards. That is consistent with a trend in the private sector. However, the failure of the National Security Personnel System makes any proposal to link rewards to current ratings a red flag.  

The problems with performance management practices are not unique to government. More than a few companies have dropped formal rating systems. The new practices have been a hot topic in the business literature for the past year or two. The latest trend emphasizes ongoing, informal coaching and investing in developing talent. Companies now give managers much more discretion to make reward decisions.

A recent column by John Kamensky, “Performance Management: An Emphasis on Learning,” highlighted a core problem. Government has spent almost three decades working “to find ways to cascade the use of . . . evidence-based learning routines . . . to front-line managers.” For reasons that are not clear or justifiable, agencies continue to live with ineffective employee performance management practices.

There is no excuse. The state of Tennessee had a similar situation but when a new governor was inaugurated in 2011 he committed to a state-wide evaluation of existing management practices. The state made a commitment to training. Leaders invested three years in preparing managers to rely on managing employee performance with goal setting. The commitment paid off. Today, salary increases are linked to performance and the state is an employer of choice. The state’s performance has improved on multiple measures.

Of course, the federal government is far larger than any state workforce. The fact is that each agency’s situation is different and change will have to be accomplished in different terms and over a different timeline. The circumstances that influence how managers and employees work together are never the same. But there are success stories. The Government Accountability Office under David Walker stands out.  A simple strategy is to involve employees in assessing work management practices each year and commit to continuous improvement. That should be a priority for all agencies.

The performance data agencies generate would be ideally suited to group, team and individual incentives.  The proven practice is to link payouts to improved metrics-based results. When teams are involved in setting goals, they own them and gain great satisfaction from meeting or exceeding expectations. The promise of cash awards helps to strengthen focus. The payouts do not have to be large. In fact, the savings from improved results could offset any payouts. The Task Force recommendation is on target.

Rethinking Benefits

The task force is correct in its point that federal benefits costs cannot be justified. Companies have been modifying benefits to reduce costs for 40 years. The cost data cited in the report are from Congressional Budget Office analyses and undoubtedly actuarially accurate. However, benefits planning is normally not based on cost alone.  

The textbook approach starts with analyzing the benefits offered by employers competing for talent. For government, that could include separate analyses for key groups—federal contractors, leading hospitals, research organizations, leading technology companies, etc. There is no justification for government to be more generous than those organizations.

Federal benefits include practices that go beyond even the best of other employers. Paid time off is one of those practices; payment for unused sick leave is another; cost-of-living adjustments for retirees is another.  The core question is: Is this practice justified by the need to compete for talent?

Those comparative analyses are straightforward and regularly undertaken by employers in other sectors.  Several consulting firms maintain databases with benefit plan information. The basic information should be routinely collected from federal contractors. Documenting the benefits provided by competing employers should be routinely completed every few years.  

After all the proposals and all the years, the need for reform is clear. It’s a simple test: government needs to be competitive for young talent and fair to its older employees. Today, the civil service system prevents effective workforce management and impedes efforts to improve performance. That should not be acceptable.