• Performance Anxiety - Results-Based Pay: Springer heralds the winds of change

Whichever way it blows, change is definitely in the wind for the federal pay system. The government is looking to abolish its 56-year-old General Schedule system in favor of something sleek and modern, befitting a 21st century workforce.

But the shift from the tenure-based GS pay system to one based on performance could shake the federal government to its core. Proponents of a merit-based system see it as a long overdue way to make government more efficient and effective. Opponents—including many f

NISTS’s Helena Inman says pay for performance helps agencies stay competitive in the labor market.

ederal employees and union representatives—worry that pay for performance will breed favoritism, shatter job security, lower morale and erode the spirit of teamwork on which public service is based.

The Bush administration last year proposed the Working for America Act, which would mandate a radical departure from the pay system that’s been in place since the late 1940s. The WFAA, now in draft form, will require part of federal employees’ pay to be based on their work performance, not their longevity.

Under the current General Schedule system, established in 1949, federal employees serve a certain length of time at one grade level and are promoted to the next grade level. Private industry abounds with stories of mail clerks becoming vice presidents within a few years, but such rapid career progress has been impossible in the federal sector.

If enacted, the WFAA will change all that, as well as the very fabric of the federal employee review process. Managers will write their employees’ appraisals, and pay raises will be based on these appraisals—a common practice in private industry, but a novel undertaking for the federal government, where raise percentages are mandated governmentwide by Congress. Now, under the GS system, a star performer receives the same 3.1 percent raise as the more ordinary employee in the next cubicle.

Already more than 90,000 federal employees are in some form of performance-based pay system, including the Senior Executive Service, which has been under such a system since January 2004. Government agencies that use alternative pay systems include the IRS, the National Institute of Standards and Technology, the Government Accountability Office, the Federal Deposit Insurance Corp. and the Federal Aviation Administration, among others. Alternative pay systems are also being implemented at the Homeland Security Department and the Defense Department.

Few will dispute that the General Schedule system is clunky and out-of-date. Comptroller general and GAO chief David M. Walker recently described it as “broken.” When the GS pay system was established, 70 percent of government workers were clerical employees who did routine filing and typing. The Classification Act of 1949 was considered the latest in scientific management principles, according to an Office of Personnel Management report published in 2002, A Fresh Start for Federal Pay: The Case for Modernization. The GS system made position rather than performance the foundation for pay. “Most of the work was so cut and dried that employees had scant opportunity to distinguish themselves from their peers,” the report said.

Much has changed since 1949. Now most federal employees are highly skilled “knowledge workers.” They keep airplanes from colliding in mid-air, protect the nation’s shores and send people in orbit around the Earth. Among their ranks are surgeons and nuclear physicists.

“It’s a brave new world for everybody, including the human resources department,” said Brad Bunn, deputy program executive officer for the National Security Personnel System. The Defense Department is “on the cusp” of implementing the NSPS, which will establish a new set of personnel rules for DOD, including a performance-based pay system. “The GS system was a one-size-fits-all system, designed for a different era,” Bunn said.

The federal government has to bring labor market considerations into the compensation structure, too, Bunn said. The GS system puts limits on starting salaries. “We often lose the highest-quality candidates because we can’t offer competitive salaries,” Bunn said. “We’re not under any illusion that we can compete with Microsoft. But with NSPS, we can attract better-quality candidates.”

Helena Inman, NIST’s performance management program manager, agrees that the need to stay competitive in the labor market was a major factor in adopting a pay-for-performance system. NIST has successfully been using pay for performance since 1987, when it was authorized as a demonstration project by OPM, Inman said. The standards agency had to attract and retain an unusually talented workforce.

“We have three Nobel Prize winners in physics” who could work just about anywhere they wanted, Inman said. NIST had to be able to offer them incentives that would make them want to stay. Now they wouldn’t go anywhere else, she said.

One reason why the pay-for-performance experience at NIST has been so positive is that the initiative was “a grassroots effort,” Inman said. “NIST did this all on our own.” The agency worked with its own human resources staff, mathematicians and statisticians to build algorithms for the pay-for-performance system.

But some observers are concerned that the change to a merit-based pay system won’t go so smoothly across the government. The tenure-based GS pay system is deeply entrenched in the federal culture. “Everybody not getting the same pay increase? That’s a subject foreign to public service,” said Glen Bjorklund, deputy director for administration at FDIC.

Agency officials who think they can “pop in pay for performance, hit plug-and-play and it will work” are in for a shock, said Steve Nelson, director of the Office of Policy and Evaluation at the Merit Systems Protection Board.

“It’s such a large cultural change. It takes at least three to five years to implement,” Nelson said. “To think you’ll do it in one or two performance cycles is overly ambitious.”

CULTURE CHANGE. GAO, which has been using a pay-for-performance system since 1991, is also switching to more market-based compensation ranges, said Susan Kladiva, special assistant to the comptroller general. A relatively small agency with a fairly homogeneous workforce, GAO still had to deal head-on with the staff’s anxiety about their pay. The agency had numerous meetings between executives and employee groups. GAO’s Walker held televised “chats” on performance compensation. Employees could watch on closed-circuit television or on their computer desktop, and e-mail questions to Walker during the chat.

Pay for performance “is going to be a major, huge, culture change,” Kladiva said. Agencies “need to approach it in that vein because it is radically different” from the GS system.

Some federal employees, as well as representatives of the employee unions, worry that giving managers and supervisors so much power over an employee’s fate will allow favoritism to seep into the system.

The GS system, for all its flaws, allowed women and minorities to flourish in federal jobs, said one federal employee who requested anonymity. “The problem with pay for performance is that sexism and racism still exist,” she said. “The old system had some built-in ways to keep the system fair. But pay for performance is going to make favoritism the deciding factor.”

Government is going to have to address that suspicion, MSPB’s Nelson said. The MSPB took a governmentwide survey a few years ago about how much federal employees trusted their supervisors. “The level of trust was low,” Nelson said.

Officials at agencies that are successfully using pay-for-performance systems say that training has been the key to keeping the system fair.

The FAA, for example, which has been transitioning to a pay-for-performance system since 1996, provided classroom training for managers at its Center for Management and Executive Leadership in Palm Coast, Fla. The agency used printed media, interactive technology and webcasts to educate both employees and supervisors on the new system. Now 82 percent of all FAA employees are under merit-based systems.

Ventris Gibson, assistant administrator for human resources management at the FAA, found the move from a GS pay system to a merit-based system “not difficult.” In fact, Gibson embraced the new system. “My pay should be based on my performance,” Gibson said. “I believe that in my very core. We owe that to the taxpayer and the nearly 600 million people who fly annually.”

At the FDIC, every manager and supervisor received training when the agency phased in its pay-for-performance system. The agency went through a personnel roller coaster ride during the savings and loan crisis of the late 1980s and early 1990s. At the height of the banking crisis, the FDIC workforce was about 22,000; today it numbers 4,700. The agency has been experimenting with merit pay and pay-for-performance programs since the late 1980s, Bjorklund said. Now everyone at the FDIC is covered by some form of pay for performance except the presidential appointees.

“We didn’t develop a specific, canned training program,” but perhaps it’s something the agency should consider, Bjorklund said. “We probably need less training and more listening.”

Because supervisors are only human, DOD has built in a system of checks and balances in its review process, DOD’s Bunn said. Each review will be reviewed by “another set of eyes,” looking for what Bunn called “troubling trends. Some managers might be hard raters. Another manager might be much more generous.”

At GAO, the Human Capital Office and the Office of Opportunity and Inclusiveness analyze preliminary appraisal results for inconsistencies or aberrations before evaluations are finalized, Walker said.

“No performance analysis system in the history of the world is perfect and none ever will be,” Walker said. “So you need to have systems and safeguards in place to maximize consistency and minimize the possibility of abuse.”

If managers are trained in performance goals and those goals are clearly set at the start of the performance period, “the results are what the results are,” said Howard Weizmann, president of the private-sector council of the Partnership for Public Service, a nonprofit research organization.

Most employees don’t like surprises when it comes to their performance evaluations and pay. At the FAA, through communication and training, employees knew what to expect, said Hank Price, an FAA spokesman. “What we were told was going to happen, happened. Now we know how we’re meeting our goals.”

The IRS has had about 8,000 managers under a pay-for-performance system since September. The new system emphasizes providing quantifiable objectives in assessing employee performance, said Beverly Ortega Babers, the IRS’ chief human capital officer. When linking pay to performance, evaluation factors need to be “real concrete items, not what appear to be subjective notions,” Babers said. At the IRS, employees are rated on performance measures such as fair and equitable treatment of taxpayers and customer satisfaction.

Experts are divided on the effect pay-for-performance will have on the morale of federal employees. Some observers say it will raise only the morale of the high performers, bringing down the spirits of the average employee. Union officials say it will destroy the federal government’s spirit of teamwork by shifting the focus to individual performance.

“It may have negative effects on the morale of average performers as well as poor performers,” said Jason Shaw, associate professor of management at the University of Kentucky. “Seniority-based systems are built around average performers. ... If you’re giving large raises only to those performing above average, you could see negative effects on morale.”

On the other hand, people get upset when they see others getting rewarded who aren’t pulling as much weight as everyone else, Weizmann said. “Everybody can identify the star performers and who needs help. What creates cynicism is the kind of system where it doesn’t matter what I do, or what my neighbor does—we all get rewarded the same.”