Merit Pay Reform Act of 1983 and Proposed Amendments

Gao ID: 122043 July 14, 1983

Testimony was given on a merit pay reform bill which is being proposed as an alternative to certain proposed Office of Personnel Management (OPM) regulations. GAO stated that some of the proposed OPM regulations are responsive to problems which GAO has identified in reviews of performance appraisal systems, and the regulations would standardize performance appraisal systems throughout the Government. However, some of the proposed regulations have caused agencies and employees much concern, such as the regulation which would tie career ladder promotions to an employee's latest performance rating. In a recently completed analysis of 2 years' experience with merit pay systems at three departments, GAO noted some year-to-year improvements in the merit payouts. However, GAO found that certain features of the current system need to be revised. A number of factors, other than performance, can influence the size of an employee's merit pay increase including: (1) the accuracy and consistency of performance ratings; (2) the relative number of high and low ratings in a pool; (3) the composition of the merit pool; and (4) the agencies' formulas for distributing merit pay funds. Between 37 and 52 percent of the employees sampled believed that their ratings did not accurately reflect their performance. Other problems which GAO identified at the three agencies included the inconsistent use of the merit pay cash awards program and the lack of a clear definition of who should be covered under merit pay. The proposed bill would overcome some of these problems and help eliminate perceived inequities. The bill would also provide an incentive for better performance, prohibit OPM and agencies from prescribing preestablished distribution ratings, and reduce the differences that previously existed between merit pay and other employees. GAO would encourage that a provision be added requiring a mandatory higher level review of performance ratings at the beginning of each appraisal period. Finally, GAO believes that the amended bill's experimental program for linking performance appraisal systems to pay and reduction-in-force procedures is reasonable.

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