Performance-Based Perils

Recently, the personnel reform effort at the Government Accountability Office -- which had been hailed as an archetype of governmentwide reform -- has been called into question by members of Congress and certain employees, who have moved to form a union. Now another star of the federal personnel reform movement is being doubted.

This time, it's the Education Department's Federal Student Aid office. In 1998, Congress anointed the FSA as the first performance-based organization under then Vice President Al Gore's reinventing government initiative. PBOs were meant to run more like private-sector businesses.

Executives at the agency had to commit to annual performance goals, and were rewarded with hefty bonuses if successful. Salaries and bonuses for most top executives can go up to 125 percent of the maximum Senior Executive Service pay rate. The chief operating officer is eligible for an annual bonus of up to 50 percent of his or her salary. Executives were given personnel and procurement flexibilities to meet their goals.

But now, Theresa Shaw, COO at the student aid office, has announced her resignation, effective June 1. Shaw's shop is being scrutinized for alleged weak oversight of the student loan industry, after improper financial ties among universities, companies and government officials came to light.

A statement from Education Secretary Margaret Spellings said Shaw planned to quit in February, before the student loan scandal broke. Others link her resignation to the agency's problems.

Michael Dannenberg, education policy director at the New America Foundation, told The Washington Post that Shaw's "tenure has been characterized by lack of oversight and negligent administration of the student loan program."

Whether Shaw's departure is directly related to the scandal or not, her resignation casts a shadow over an agency that was touted by both Republicans and Democrats as a model of modern public management. In October 2005, the House Government Reform subcommittee overseeing the federal workforce invited Shaw to testify about her management expertise and how other agencies could emulate it.

"Let me congratulate you on the vast improvement in the student loan program," Del. Eleanor Holmes Norton, D-D.C., said at the time. "The taxpayers are happy, and I'm sure that the consumers, colleges and universities, and particularly students themselves, [are happy]."

"Share with us how you had such great success," said Rep. Jon Porter, R-Nev.

Shaw credited her office's improvements -- FSA had reduced student loan defaults by 40 percent since fiscal 2000 -- in large part to personnel flexibilities granted by the PBO status.

"Our hiring flexibilities allow us to fill critical and time-sensitive resource needs faster and to pay salaries closer to market rates for similar positions in the private sector," Shaw said at the hearing. "With this flexibility, our average period to hire is 34 calendar days versus 200 calendar days for the most recently federal hired career staff subject to the usually competitive processes. We have used our hiring flexibility to hire staff with needed skill sets obtained in the private sector, to augment the skill sets of our federal career staff."

All the bonuses and flexibility weren't enough, apparently, to stop department employee Matteo Fontana from acquiring at least $100,000 in stock in a student loan company. And they weren't enough to encourage adequate oversight of student loan companies, either.

Thursday, Spellings will testify before Congress. She probably will face tougher questions than those that awaited Shaw at the 2005 hearing.