Financial Regulators
Agencies Have Implemented Key Performance Management Practices, but Opportunities for Improvement Exist Gao ID: GAO-07-678 June 18, 2007Congress granted financial regulators flexibility to establish their own compensation systems and required certain agencies to seek to maintain comparability with each other in pay and benefits to help the agencies overcome impediments to recruiting and retaining employees and avoid competing for the same employees. In response to a request, this report reviews (1) how the performance-based pay systems of 10 financial regulators are aligned with six key practices for effective performance management systems, (2) the actions these agencies have taken to assess and implement comparability in pay and benefits, and (3) the extent to which employees in selected occupations have moved between or left any of the agencies. GAO analyzed agency guidance and policies, agency data on performance ratings and pay increases, agency pay and benefits surveys, data from the Central Personnel Data File, and interviewed agency officials.
The 10 federal financial regulatory agencies have generally implemented key practices for effective performance management but could improve implementation of certain practices as they continue to refine their systems. All of the financial regulators awarded some pay increases during the appraisal cycles we reviewed that were linked to employees' performance ratings, although two also provided across-the-board pay adjustments, even to employees who had not received acceptable performance ratings, weakening the linkage of pay to performance. Both agencies have indicated in the future annual pay adjustments will not be awarded to unsuccessful performers. The agencies have generally aligned individual performance expectations and organizational goals, connected performance expectations to crosscutting goals, used competencies to provide a fuller assessment of performance, and involved employees and stakeholders in the process. All of the agencies built safeguards into their performance management systems to enhance credibility and fairness. However, the extent to which the agencies communicated overall results of performance rating and pay increase decisions to all employees varied, and some could increase transparency by letting employees know where they stand relative to their peers in the organization, while protecting individual confidentiality. Financial regulators have hired external compensation consultants to conduct pay and benefits comparability surveys, exchanged pay and benefits information, explored the feasibility of conducting a common survey, and adjusted pay and benefits to seek to maintain comparability with each other. Although financial regulators have adjusted pay and benefits partly based on the results of their comparability efforts, there is some variation in pay ranges and benefit packages among the agencies. According to agency officials, factors such as the year the agencies first became subject to comparability provisions, budget constraints, and the needs and preferences of workforces play a role in compensation decisions and contribute to this variation. Furthermore, agency officials emphasized that it was not their goal to have identical pay and benefits packages; rather, they considered pay and benefits as a total package when seeking to maintain comparability and when setting pay policies aimed at recruiting and retaining employees. Between fiscal years 1990 and 2006, few employees moved among financial regulators and the movement among these agencies presented no discernible trend. Specifically, 86 percent (13,433) of the 15,627 employees that left during this period (i.e., moving or resigning but not retiring), resigned from federal employment. Annually, the percentage of employees who moved to another financial regulator ranged from a low of 1 percent in fiscal year 1997 (16 out of the 1,362 who moved or resigned) to a high of 8 percent in fiscal year 1991 (97 out of the 1,229 who moved or resigned). The total number of financial regulatory employees was 15,400 and 19,796 during those 2 years, respectively.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-07-678, Financial Regulators: Agencies Have Implemented Key Performance Management Practices, but Opportunities for Improvement Exist
This is the accessible text file for GAO report number GAO-07-678
entitled 'Financial Regulators: Agencies Have Implemented Key
Performance Management Practices, but Opportunities for Improvement
Exist' which was released on June 18, 2007.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as part
of a longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
Report to Congressional Requesters:
June 2007:
Financial Regulators:
Agencies Have Implemented Key Performance Management Practices, but
Opportunities for Improvement Exist:
GAO-07-678:
GAO Highlights:
Highlights of GAO-07-678, a report to congressional requesters
Why GAO Did This Study:
Congress granted financial regulators flexibility to establish their
own compensation systems and required certain agencies to seek to
maintain comparability with each other in pay and benefits to help the
agencies overcome impediments to recruiting and retaining employees and
avoid competing for the same employees. In response to a request, this
report reviews (1) how the performance-based pay systems of 10
financial regulators are aligned with six key practices for effective
performance management systems, (2) the actions these agencies have
taken to assess and implement comparability in pay and benefits, and
(3) the extent to which employees in selected occupations have moved
between or left any of the agencies. GAO analyzed agency guidance and
policies, agency data on performance ratings and pay increases, agency
pay and benefits surveys, data from the Central Personnel Data File,
and interviewed agency officials.
What GAO Found:
The 10 federal financial regulatory agencies have generally implemented
key practices for effective performance management but could improve
implementation of certain practices as they continue to refine their
systems. All of the financial regulators awarded some pay increases
during the appraisal cycles we reviewed that were linked to employees‘
performance ratings, although two also provided across-the-board pay
adjustments, even to employees who had not received acceptable
performance ratings, weakening the linkage of pay to performance. Both
agencies have indicated in the future annual pay adjustments will not
be awarded to unsuccessful performers. The agencies have generally
aligned individual performance expectations and organizational goals,
connected performance expectations to crosscutting goals, used
competencies to provide a fuller assessment of performance, and
involved employees and stakeholders in the process. All of the agencies
built safeguards into their performance management systems to enhance
credibility and fairness. However, the extent to which the agencies
communicated overall results of performance rating and pay increase
decisions to all employees varied, and some could increase transparency
by letting employees know where they stand relative to their peers in
the organization, while protecting individual confidentiality.
Financial regulators have hired external compensation consultants to
conduct pay and benefits comparability surveys, exchanged pay and
benefits information, explored the feasibility of conducting a common
survey, and adjusted pay and benefits to seek to maintain comparability
with each other. Although financial regulators have adjusted pay and
benefits partly based on the results of their comparability efforts,
there is some variation in pay ranges and benefit packages among the
agencies. According to agency officials, factors such as the year the
agencies first became subject to comparability provisions, budget
constraints, and the needs and preferences of workforces play a role in
compensation decisions and contribute to this variation. Furthermore,
agency officials emphasized that it was not their goal to have
identical pay and benefits packages; rather, they considered pay and
benefits as a total package when seeking to maintain comparability and
when setting pay policies aimed at recruiting and retaining employees.
Between fiscal years 1990 and 2006, few employees moved among financial
regulators and the movement among these agencies presented no
discernible trend. Specifically, 86 percent (13,433) of the 15,627
employees that left during this period (i.e., moving or resigning but
not retiring), resigned from federal employment. Annually, the
percentage of employees who moved to another financial regulator ranged
from a low of 1 percent in fiscal year 1997 (16 out of the 1,362 who
moved or resigned) to a high of 8 percent in fiscal year 1991 (97 out
of the 1,229 who moved or resigned). The total number of financial
regulatory employees was 15,400 and 19,796 during those 2 years,
respectively.
What GAO Recommends:
GAO recommends that several regulators take steps to communicate the
overall results of appraisal and pay increase decisions to all
employees while protecting individual confidentiality. The regulators
generally agreed with the recommendations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-678].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Orice Williams, 202-512-
8678, williamso@gao.gov or Brenda Farrell, 202-512-5140,
farrellb@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Financial Regulators Generally Have Linked Pay to Performance and Made
Distinctions in Performance, but Opportunities Exist for Improvements:
Agencies Have Taken Various Actions to Seek to Maintain Pay and
Benefits Comparability:
Few Employees Have Moved among the Financial Regulators, Most Resigned
from Federal Employment:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Information on Agencies:
Appendix III: Financial Regulators Have Implemented Key Practices in
Varying Ways:
Appendix IV: Actions Taken by Financial Regulators to Seek to Maintain
Pay and Benefits Comparability and Pay and Benefits Data:
Appendix V: Analysis of Movement Data of Financial Regulator Employees
from Fiscal Years 1990 through 2006:
Appendix VI: Comments from the U.S. Commodity Futures Trading
Commission:
Appendix VII: Comments from the Board of Governors of the Federal
Reserve System:
Appendix VIII: Comments from the Federal Housing Finance Board:
Appendix IX: Comments from the National Credit Union Administration:
Appendix X: Comments from the Office of Federal Housing Enterprise
Oversight:
Appendix XI: Comments from the Securities and Exchange Commission:
Appendix XII: GAO Contacts and Staff Acknowledgments:
Tables:
Table 1: Federal Financial Regulator Pay Comparability Legislative
Provisions:
Table 2: Selected OPM Locality Pay Percentages Compared to Financial
Regulators' Locality Pay Percentages, Fiscal Year 2006:
Table 3: Performance Appraisal Cycle by Agency:
Table 4: Agency Information:
Table 5: Pay and Benefits Surveys That Federal Financial Regulators
Conducted through External Compensation Consultants, 1991-2006:
Table 6: Selected Examples of Benchmarks Agencies Have Used to Assess
Pay and Benefits Comparability:
Table 7: Selected Examples of Recent Pay and Benefits Adjustments
Resulting from Agencies' Comparability Assessments:
Table 8: Agencies' Current Methods for Determining Locality Pay
Percentages and Adjustments:
Table 9: List of Benefits Offered by the 10 Financial Regulators:
Table 10: Number of Financial Regulator Employees in Mission-Critical
and other Occupations Who Moved to another Financial Regulator, Fiscal
Years 1990-2006:
Table 11: Commodity Futures Trading Commission Employment and Movement
Data, Fiscal Years 1990-2006:
Table 12: Farm Credit Administration Employment and Movement Data,
Fiscal Years 1990-2006:
Table 13: Federal Deposit Insurance Corporation Employment and Movement
Data, Fiscal Years 1990-2006:
Table 14: Federal Housing Finance Board Employment and Movement Data,
Fiscal Years 1990-2006:
Table 15: National Credit Union Administration Employment and Employee
Movement Data, Fiscal Years 1990-2006:
Table 16: Office of the Comptroller of the Currency Employment and
Employee Movement Data, Fiscal Years 1990-2006:
Table 17: Office of Federal Housing Enterprise Oversight Employment and
Employee Movement Data, Fiscal Years 1990-2006:
Table 18: Office of Thrift Supervision Employment and Employee Movement
Data, Fiscal Years 1990-2006:
Table 19: Securities and Exchange Commission Employment and Employee
Movement Data, Fiscal Years 1990-2006:
Table 20: Other Federal Agencies Employment and Employee Movement Data,
Fiscal Years 1990-2006:
Figures:
Figure 1: Percentage of Regulatory Employees by Rating Level for
Systems with Multiple Rating Levels, for Completed Appraisal Cycles
Specified:
Figure 2: Percentage of Regulatory Employees by Rating Level and Merit
Increase Category for Agencies with Pass/Fail Performance Rating
Systems, for Completed Appraisal Cycles Specified:
Figure 3: Nonexecutive Minimum and Maximum Pay Ranges and Average
Actual Pay for Mission-Critical Occupations by Regulator, 2006:
Figure 4: Attrition among Financial Regulators, Fiscal Years 1990-2006:
Figure 5: Excerpt from an OCC Commissioned Examiner's Individual
Performance Plan:
Figure 6: Excerpt from an FCA Individual Performance Plan:
Figure 7: Example of OFHEO's Worksheet for Weighting Performance
Elements:
Figure 8: Average Number of Employees in Mission-Critical and other
Occupations Moving among the 9 Financial Regulators, Fiscal Years 1990-
2006:
Abbreviations:
CFTC: Commodity Futures Trading Commission:
CPDF: Central Personnel Data File:
EEO: Equal Employment Opportunity:
FCA: Farm Credit Administration:
FDIC: Federal Deposit Insurance Corporation:
FHFB: Federal Housing Finance Board:
FIRREA: Financial Institutions Reform, Recovery and Enforcement Act:
IT: information technology:
NCUA: National Credit Union Administration:
OCC: Office of the Comptroller of the Currency:
OFHEO: Office of Federal Housing Enterprise Oversight:
OPM: Office of Personnel Management:
OTS: Office of Thrift Supervision:
SEC: Securities and Exchange Commission:
SSP: Senior Staff Position:
June 18, 2007:
Congressional Requesters:
The federal government must adapt to a range of major trends and
challenges in the nation and the world, and to respond, it must have
the institutional capacity to plan more strategically, identify and
react more expeditiously, and focus on achieving results. Critical to
the success of this transformation are the federal government's people-
-its human capital. Yet the government has not transformed, in many
cases, how it classifies, compensates, develops, and motivates its
employees to achieve maximum results within available resources and
existing authorities. One of the questions being addressed as the
federal government transforms is how to update its compensation system
to be more market based and performance oriented.[Footnote 1] In this
type of system, organizations consider the skills, knowledge, and
performance of employees as well as the labor market when making pay
decisions.
Congress has recognized the need for flexibility in how selected
agencies compensate employees. Congress granted the federal financial
regulatory agencies the flexibility to establish their own compensation
systems recognizing that the existing approach to compensating
employees could impede these agencies' ability to recruit and retain
employees critical to meeting their organizational missions. In
addition to the flexibility provided to the agencies over the years,
Congress also directed most of the agencies to seek to maintain pay
comparability and to consult with each other in doing so to ensure the
agencies do not compete with each other for employees.[Footnote 2] The
10 federal financial regulatory agencies reviewed in this report are
the Commodity Futures Trading Commission (CFTC), the Farm Credit
Administration (FCA), the Federal Deposit Insurance Corporation (FDIC),
the Federal Housing Finance Board (FHFB), the Board of Governors of the
Federal Reserve System (Federal Reserve Board), the National Credit
Union Administration (NCUA), the Office of the Comptroller of the
Currency (OCC), the Office of Federal Housing Enterprise Oversight
(OFHEO), the Office of Thrift Supervision (OTS), and the Securities and
Exchange Commission (SEC).
In our prior work, we identified key practices for effective
performance management systems that collectively create a "line of
sight" showing how team, unit, and individual performance can
contribute to overall organizational goals and help individuals
understand the connection between their daily activities and the
organization's success.[Footnote 3]
In your February 2006 letter, you noted that the financial regulatory
agencies are at different stages of implementing their performance-
based pay systems and compensation authorities and that an examination
of how they are implementing their systems could be valuable to other
agencies pursuing performance-based pay systems. Our past work looking
at agencies' implementation of performance management and performance-
based pay systems has shown that better linking pay to performance is
very much a work in progress at the federal level.[Footnote 4]
In response to your request, this report examines (1) how the
performance-based pay systems of 10 federal financial regulatory
agencies are aligned with six key practices for effective performance
management systems, (2) the actions 10 federal regulatory agencies have
taken to assess and implement comparability in pay and benefits with
each other, and (3) the extent to which employees in selected
occupations have moved between or left any of the agencies.
For purposes of this review, we focused on six key practices for
effective performance management, which are more closely related to
planning, rating, and rewarding individual performance:[Footnote 5]
1. Align individual performance expectations with organizational goals.
2. Connect performance expectations to crosscutting goals.
3. Use competencies to provide a fuller assessment of performance.
4. Link pay to individual and organizational performance.
5. Make meaningful distinctions in performance.
6. Involve employees and stakeholders to gain ownership of performance
management systems.
In this report, we present important aspects of the agencies'
implementation of the practices of linking pay to individual and
organizational performance, which includes providing adequate
safeguards to help ensure fairness and guard against abuse, and making
meaningful distinctions in performance. We discuss the agencies'
implementation of the four other practices included in the list in
appendix III.
To address our first objective, we analyzed the selected agencies'
performance management and pay systems' guidance, policies, and
procedures and other related documents; interviewed key agency
officials and representatives of unions or other employee groups;
examined a small, select set of employees' individual performance plans
to illustrate annual performance expectations for employees; and
analyzed agencies' performance management data, such as the
distribution of performance ratings and performance-based pay
increases. The individual performance plans, selected in conjunction
with agency officials to reflect a mix of key locations, occupations,
and grade levels at each agency, as well as the performance management
data from each agency that we examined, pertained to each agency's last
completed performance appraisal cycle when we began this
review.[Footnote 6]
To address our second objective, we analyzed relevant statutes and
legislative histories for the selected agencies; reviewed the most
recent pay and benefits surveys from these agencies; obtained agency
pay and benefits data; and discussed agencies' informal interactions to
assess pay comparability with agency officials. For the third
objective, we analyzed data from the Central Personnel Data File
(CPDF), which includes information on pay, benefits, personnel actions,
and other data to support statistical analyses of executive branch
personnel management programs, to determine employee movement.
We conducted various inspections and electronic testing of agency data
obtained for the first objective for reasonableness and the presence of
any obvious or potential errors in accuracy and completeness. We also
reviewed related agency documentation, interviewed agency officials
knowledgeable about the data, and brought to the attention of these
officials any concerns or discrepancies we found with the data for
correction or updating. On the basis of these procedures, we believe
the data are sufficiently reliable for use in the analyses presented in
this report. Our data collection strategies were not designed to
guarantee that we would identify all potential examples of how agencies
may have implemented the various practices. An agency may have
implemented a particular practice even if it is not specifically
mentioned in the report. We did not independently verify the data in
the pay and benefits comparability surveys the consultants conducted
for the agencies or the pay and benefits data we received from the
agencies. On the basis of our data reliability testing of CPDF data, we
believe the CPDF data are sufficiently reliable for this review.
Appendix I provides additional information on our scope and
methodology. We conducted our work from February 2006 through June 2007
in accordance with generally accepted government auditing standards.
Results in Brief:
Overall, the federal financial regulators have implemented key
practices for effective performance management systems in ways that
consider the unique needs of their organizational cultures and
structures, but some have opportunities to improve implementation of
certain practices as they continue to refine their systems. All of the
regulators awarded some pay increases during the appraisal cycles we
reviewed that were linked to employees' performance ratings. However,
CFTC and SEC also provided across-the-board increases to employees,
even to the few employees who had not received acceptable performance
ratings, weakening the linkage of pay to performance. Officials from
both agencies stated that in the future, annual pay adjustments will
not be awarded to unsuccessful performers. While all of the regulators
built safeguards into their performance management systems to enhance
credibility and fairness, SEC did not establish and communicate
performance standards to its nonexecutives, which could compromise the
credibility of the system. Several regulators did not fully implement
the safeguard of providing overall ratings and pay increase results to
all employees, affecting employees' ability to understand where they
stood in their organizations. As a result, some regulators have
opportunities to strengthen an important safeguard for providing
transparency within their performance-based pay systems.
The financial regulators have hired external compensation consultants
to conduct individual, formal comparability surveys, exchanged pay and
benefits information, explored the feasibility of conducting a common
survey, or adjusted pay and benefits to seek to maintain comparability
requirements. Although officials said that they have adjusted pay and
benefits partly based on the results of their comparability efforts,
there is some variation in pay ranges and benefit packages among the
agencies. For example, the regulators have varying minimum and maximum
pay ranges for similar job series and offer different benefits such as
tuition reimbursement and supplemental retirement plans. When
discussing the reasons that may contribute to this variation, agency
officials said that the year the agencies first became subject to
comparability provisions, budget constraints, and the needs and
preferences of the workforce play a role in compensation decisions and
contribute to this variation. Furthermore, officials emphasized that it
was not their goal to have identical pay and benefits packages; rather,
they considered pay and benefits as a total package when seeking to
maintain pay and benefits comparability and when setting pay policies
aimed at recruiting and retaining employees.
From fiscal years 1990 through 2006, the movement of employees among
the financial regulators was very low and presented no discernible
trend over the period, but 86 percent (13,433) of the 15,627 employees
leaving the regulators voluntarily (i.e., moving or resigning),
resigned from the federal government.[Footnote 7] The number of
employees who moved to another financial regulator ranged from a low of
16 of 1,362 who moved or resigned in fiscal year 1997 to a high of 97
of 1,229 who moved or resigned in fiscal year 1991. The total number of
financial regulator employees was 15,400 (1997) and 19,796 (1991)
during those 2 years. (Federal Reserve Board data are excluded from the
federal government's personnel database and are not included in these
analyses.) Some agency officials told us that they believe that the
Financial Institutions Reform, Recovery and Enforcement Act (FIRREA)
comparability provision and similar provisions in subsequent laws
applicable to financial regulators have been effective in ensuring that
regulators' pay and benefits are generally comparable among the 10
agencies, which probably helps minimize employee movement among
financial regulatory agencies. The movement of mission-critical
employees, including accountants, attorneys, auditors, examiners,
economists, financial analysts, investigators, information technology
specialists, and business specialists, to a different financial
regulator also produced no discernible trends.
This report includes recommendations to CFTC, FCA FHFB, NCUA, OFHEO,
and SEC. FCA, FHFB, and OFHEO should communicate the overall results of
the performance appraisal and pay increase decisions to all employees
agencywide while protecting individual confidentiality. NCUA, CFTC, and
SEC should work with unions to communicate the overall results of the
performance appraisal and pay increase decisions to all employees
agencywide while protecting individual confidentiality. SEC should
clearly communicate the criteria for making performance rating and pay
increase decisions to nonexecutive employees and should assess senior
executives' performance at the end of the performance appraisal cycle
regardless of the amount of funding available for performance-based pay
increases.
We provided a copy of the draft report to the Chairman, Commodity
Futures Trading Commission; Chairman of the Board and Chief Executive
Officer, Farm Credit Administration; Chairman, Federal Deposit
Insurance Corporation; Chairman, Federal Housing Finance Board;
Chairman, Board of Governors of the Federal Reserve System; Chairman,
National Credit Union Administration; Comptroller of the Currency,
Office of the Comptroller of the Currency; Director, Office of Federal
Housing Enterprise Oversight; Director, Office of Thrift Supervision;
and Chairman, Securities and Exchange Commission, for review and
comment. We received written comments from six of the agencies. They
generally agreed with the findings and recommendations. See appendixes
VI, VII, VIII, IX, X, and XI for letters received from CFTC, the
Federal Reserve Board, FHFB, NCUA, OFHEO, and SEC. These six agencies,
along with the other four, also provided clarifying and technical
comments, which we have incorporated as appropriate. Several agencies
described actions they plan to take to address the recommendation to
communicate the overall results of the performance appraisal and pay
increase decisions to all employees on an agency-wide basis while
protecting individual confidentiality.
Background:
The 10 federal financial regulatory agencies in our review vary in
size, mission, funding structure, whether they bargain with a union,
and how long they have been implementing aspects of performance-based
pay systems. For example, FHFB is the smallest agency with just over
120 employees, while FDIC, the largest agency, had more than 4,300
employees as of September 2006 and has been implementing pay for
performance since 1998. Likewise, these agencies regulate a range of
activities including banking and securities and futures. Appendix II
includes the financial regulators' missions, funding structures, and
whether they are unionized and bargain with a union over pay and
benefits.
Under Title 5 of the U.S. Code, the financial regulatory agencies have
the flexibility to establish their own compensation programs without
regard to various statutory provisions on classification and pay for
executive branch agencies. At the same time these financial regulators
received increased flexibility regarding compensation, Congress also
generally required that they seek compensation comparability with each
other. A provision in FIRREA requires six agencies--FDIC, OCC, NCUA,
FHFB, FCA, and OTS--in establishing and adjusting compensation and
benefits, to inform each other and Congress of such compensation and
benefits, and to seek to maintain comparability regarding compensation
and benefits.[Footnote 8] Additional FIRREA provisions require FCA,
FHFB, NCUA, OCC, and OTS to seek to maintain compensation and benefit
comparability with the Federal Reserve Board.[Footnote 9] Although the
Federal Reserve Board is under no obligation to seek to maintain
compensation or benefit comparability with these or any of the other
financial regulators, it has agreed to share compensation information
with the other financial regulators.
The other three agencies are subject to their own compensation
comparability provisions. As required by its 1992 enabling legislation,
OFHEO must maintain comparability with the compensation of employees
from the Federal Reserve Board, OCC, FDIC, and OTS and consult with
those agencies in that regard.[Footnote 10] In 2002 legislation, SEC
and CFTC were placed under comparability requirements. SEC must consult
with and seek to maintain compensation comparability with FDIC, OCC,
NCUA, FHFB, FCA, OTS and CFTC.[Footnote 11] However, as shown in table
1, this legislation did not require these agencies to seek to maintain
compensation comparability with SEC. Similarly, CFTC must consult and
seek to maintain compensation comparability with the six FIRREA
agencies, but those agencies are not required to seek to maintain
compensation comparability with CFTC.[Footnote 12]
Table 1: Federal Financial Regulator Pay Comparability Legislative
Provisions:
Agency: CFTC;
Comparability provisions: Post-FIRREA;
Year of provision: 2002;
Comparability agencies: FIRREA agencies: FCA: X;
Comparability agencies: FIRREA agencies: FDIC: X;
Comparability agencies: FIRREA agencies: FHFB: X;
Comparability agencies: FIRREA agencies: NCUA: X;
Comparability agencies: FIRREA agencies: OCC: X;
Comparability agencies: FIRREA agencies: OTS: X;
Comparability agencies: CFTC: [Empty];
Comparability agencies: Federal Reserve Board: [Empty];
Comparability agencies: OFHEO: [Empty];
Comparability agencies: SEC: [Empty].
Agency: FCA;
Comparability provisions: FIRREA;
Year of provision: 1989;
Comparability agencies: FIRREA agencies: FCA: [Empty];
Comparability agencies: FIRREA agencies: FDIC: X;
Comparability agencies: FIRREA agencies: FHFB: X;
Comparability agencies: FIRREA agencies: NCUA: X;
Comparability agencies: FIRREA agencies: OCC: X;
Comparability agencies: FIRREA agencies: OTS: X;
Comparability agencies: CFTC: [Empty];
Comparability agencies: Federal Reserve Board: X;
Comparability agencies: OFHEO: [Empty];
Comparability agencies: SEC: [Empty].
Agency: FDIC;
Comparability provisions: FIRREA;
Year of provision: 1989;
Comparability agencies: FIRREA agencies: FCA: X;
Comparability agencies: FIRREA agencies: FDIC: [Empty];
Comparability agencies: FIRREA agencies: FHFB: X;
Comparability agencies: FIRREA agencies: NCUA: X;
Comparability agencies: FIRREA agencies: OCC: X;
Comparability agencies: FIRREA agencies: OTS: X;
Comparability agencies: CFTC: Empty];
Comparability agencies: Federal Reserve Board: [Empty];
Comparability agencies: OFHEO: [Empty];
Comparability agencies: SEC: [Empty].
Agency: FHFB;
Comparability provisions: FIRREA;
Year of provision: 1989;
Comparability agencies: FIRREA agencies: FCA: X;
Comparability agencies: FIRREA agencies: FDIC: X;
Comparability agencies: FIRREA agencies: FHFB: [Empty];
Comparability agencies: FIRREA agencies: NCUA: X;
Comparability agencies: FIRREA agencies: OCC: X;
Comparability agencies: FIRREA agencies: OTS: X;
Comparability agencies: CFTC: [Empty];
Comparability agencies: Federal Reserve Board: X;
Comparability agencies: OFHEO: [Empty];
Comparability agencies: SEC: [Empty].
Agency: NCUA;
Comparability provisions: FIRREA;
Year of provision: 1989;
Comparability agencies: FIRREA agencies: FCA: X;
Comparability agencies: FIRREA agencies: FDIC: X;
Comparability agencies: FIRREA agencies: FHFB: X;
Comparability agencies: FIRREA agencies: NCUA: [Empty];
Comparability agencies: FIRREA agencies: OCC: X;
Comparability agencies: FIRREA agencies: OTS: X;
Comparability agencies: CFTC: [Empty];
Comparability agencies: Federal Reserve Board: X;
Comparability agencies: OFHEO: [Empty];
Comparability agencies: SEC: [Empty].
Agency: OCC;
Comparability provisions: FIRREA;
Year of provision: 1989;
Comparability agencies: FIRREA agencies: FCA: X;
Comparability agencies: FIRREA agencies: FDIC: X;
Comparability agencies: FIRREA agencies: FHFB: X;
Comparability agencies: FIRREA agencies: NCUA: X;
Comparability agencies: FIRREA agencies: OCC: [Empty];
Comparability agencies: FIRREA agencies: OTS: X;
Comparability agencies: CFTC: [Empty];
Comparability agencies: Federal Reserve Board: X;
Comparability agencies: OFHEO: [Empty];
Comparability agencies: SEC: [Empty].
Agency: OFHEO;
Comparability provisions: Post-FIRREA;
Year of provision: 1992;
Comparability agencies: FIRREA agencies: FCA: [Empty];
Comparability agencies: FIRREA agencies: FDIC: X;
Comparability agencies: FIRREA agencies: FHFB: [Empty];
Comparability agencies: FIRREA agencies: NCUA: [Empty];
Comparability agencies: FIRREA agencies: OCC: X;
Comparability agencies: FIRREA agencies: OTS: X;
Comparability agencies: CFTC: [Empty];
Comparability agencies: Federal Reserve Board: X;
Comparability agencies: OFHEO: [Empty];
Comparability agencies: SEC: [Empty].
Agency: OTS;
Comparability provisions: FIRREA;
Year of provision: 1989;
Comparability agencies: FIRREA agencies: FCA: X;
Comparability agencies: FIRREA agencies: FDIC: X;
Comparability agencies: FIRREA agencies: FHFB: X;
Comparability agencies: FIRREA agencies: NCUA: X;
Comparability agencies: FIRREA agencies: OCC: X;
Comparability agencies: FIRREA agencies: OTS: [Empty];
Comparability agencies: CFTC: [Empty];
Comparability agencies: Federal Reserve Board: X;
Comparability agencies: OFHEO: [Empty];
Comparability agencies: SEC: [Empty].
Agency: SEC;
Comparability provisions: Post-FIRREA;
Year of provision: 2002;
Comparability agencies: FIRREA agencies: FCA: X;
Comparability agencies: FIRREA agencies: FDIC: X;
Comparability agencies: FIRREA agencies: FHFB: X;
Comparability agencies: FIRREA agencies: NCUA: X;
Comparability agencies: FIRREA agencies: OCC: X;
Comparability agencies: FIRREA agencies: OTS: X;
Comparability agencies: CFTC: X;
Comparability agencies: Federal Reserve Board: [Empty];
Comparability agencies: OFHEO: [Empty];
Comparability agencies: SEC: [Empty].
Agency: FRB;
Comparability provisions: Not required but shares information with a
number of agencies regarding compensation and benefits.
Source: GAO analysis of comparability legislative provisions.
[End of table]
We previously identified key practices for effective performance
management based on public sector organizations' experiences both here
and abroad.[Footnote 13] High-performing organizations seek to create
pay, incentive, and reward systems that clearly link employee
knowledge, skills, and contributions to organizational results.
Performance-based systems reward employees according to their
performance by using performance ratings as the basis for pay
increases. Linking pay to performance can help to create a performance-
oriented culture by providing monetary incentives to become a top-
performing employee. At the same time, as a precondition to linking pay
to performance, performance management systems need to provide adequate
safeguards to ensure fairness and guard against abuse. Providing
adequate safeguards that help to ensure transparency can improve the
credibility of the performance-based pay system by promoting fairness
and trust. Safeguards can include establishing clear criteria for
making rating decisions and determining merit increases, and providing
overall results of performance rating and pay increase decisions to all
employees, while protecting confidentiality. Effective performance
management systems also make meaningful distinctions between acceptable
and outstanding performance of individuals and appropriately reward
those who perform at the highest level. As we have previously reported,
effective performance management systems can provide management with
the objective and fact-based information it needs to reward top
performance and provide the necessary information and documentation to
deal with poor performers.[Footnote 14]
Financial Regulators Generally Have Linked Pay to Performance and Made
Distinctions in Performance, but Opportunities Exist for Improvements:
Overall, the federal financial regulators have implemented key
practices for effective performance management systems in ways that
consider the unique needs of their organizational cultures and
structures, but some have not fully implemented certain practices. For
purposes of this section, we focus on the regulators' implementation of
the two key practices of (1) linking pay to performance (which includes
building in safeguards), and (2) making meaningful distinctions in
performance. First, we found that while the regulators generally linked
pay to performance, two regulators awarded across-the-board increases
to employees regardless of their performance. Second, while most
regulators generally used safeguards in varying ways to increase
transparency, one did not establish and communicate performance
standards to its nonexecutives, which resulted in questions about how
decisions were made and could compromise the credibility of the
performance system. Third, many regulators did not fully implement the
safeguard of providing overall ratings and pay results to all
employees, which reduced the transparency of their performance-based
pay systems. Fourth, we found that while most regulators used multiple
rating levels to make meaningful distinctions in performance, employees
were usually concentrated in one or two rating categories and all had
very few poor performers. Finally, one agency did not complete
performance ratings for senior officers due to lack of funding for pay
increases, thereby missing an opportunity to provide valuable feedback.
For information about the other four key practices as well as
additional material pertaining to the linking pay to performance
practice, see appendix III.[Footnote 15]
Financial Regulators Generally Have Linked Pay to Performance, but Two
Regulators Still Provided Increases to Performers at All Levels:
All of the regulators awarded some performance-based increases during
the appraisal cycles we reviewed that were linked to employees'
performance ratings, although two financial regulators also provided
annual pay adjustments to employees, regardless of performance, during
the appraisal cycles we reviewed. Specifically, CFTC provided an across-
the-board pay increase to all employees to be equivalent to the cost of
living adjustment received by General Schedule employees of the federal
government in January 2006. During the 2005 appraisal cycle, SEC also
provided all employees an across-the-board pay adjustment of 2.1
percent, regardless of their performance.[Footnote 16] SEC officials
noted that this across-the-board pay adjustment was in accordance with
the negotiated compensation agreement with the union.[Footnote 17]
While the percentages of employees rated as unsuccessful or
unacceptable at CFTC and SEC during those cycles were extremely small
(less than 1 percent), these agencies lost opportunities to reinforce
the linkage of pay to performance in their performance management
systems. CFTC officials told us that the performance-based pay portion
of the new performance management system that will begin on July 1,
2007, will require a minimum threshold performance rating for an
employee to be eligible for a pay increase.[Footnote 18] SEC and its
union are currently negotiating implementation of a new Compensation
and Benefits Agreement, which provides that employees rated as
unacceptable will not receive annual pay adjustments. SEC officials
acknowledged that a negative perception occurs when employees who are
not performing satisfactorily receive a pay increase.
Most of the financial regulators used their rating systems to
differentiate individual performance to award performance-based
increases and reward top performers during the appraisal cycles we
reviewed. Furthermore, all of the agencies also provided increases
that, while not directly linked to performance ratings, considered
employee performance in some way. These increases included special
bonuses or awards given to individuals or teams for special
accomplishments or contributions, as well as promotions and within-pay-
band increases. For example, FCA provided Achievement or Special Act
Awards to employees for significant achievements or innovations towards
a special program, project, or assignment that contributed to the
agency's or organizational unit's mission, goals, and objectives. To
receive these awards, employees had to have performed their regular
duties at least at a fully successful level of performance. FCA also
provided some pay increases for competitive and noncompetitive
promotions during the completed appraisal cycle we reviewed.
Pay increases linked to performance ratings accounted for only part of
the total increases awarded to individual employees during the
appraisal cycles we reviewed. See appendix III for more information on
the different ways in which the regulators translated performance
ratings into pay increases and budgeted for performance-based
increases, as well as more information on other pay increases that
involved considerations of performance.
Financial Regulators Generally Used Safeguards to Increase
Transparency, but SEC Did Not Establish or Communicate Performance
Standards for its Nonexecutive Employees:
All of the financial regulatory agencies have built safeguards into
their performance management systems to enhance the credibility and
fairness of their systems, although they varied in how safeguards have
been implemented. For example, with the exception of SEC, the agencies
have used the safeguard of establishing and communicating (1) standards
for differentiating among performance rating categories and (2)
criteria for performance-based pay decisions, thus enhancing
transparency, which can improve employee confidence in the performance
management system. (See app. III for information on the financial
regulators' implementation of additional safeguards.)
CFTC's four-level rating system (i.e., unsuccessful, successful, highly
successful, and exemplary) defined the successful level of performance
for areas that CFTC had identified as critical to employees' job
performance, and included some information on how to distinguish
variations from the successful level of performance. However, an
employee representative at CFTC maintained that the rating level
descriptions did not sufficiently communicate to employees the skills
and behaviors employees needed to demonstrate in order to move, for
example, from the "successful" to the "highly successful" level.
Employee representatives stated that even though there was helpful
guidance on distinguishing between levels of performance in a CFTC
manual, these descriptions were hard to understand and most employees
did not refer to the CFTC manual for guidance. An agency official told
us that the revised performance management system that went into effect
in October 2006 is a five-level system, and includes descriptions of
all five performance levels rather than only the successful rating
level described in the system it replaced.
Similarly, OFHEO defined how employees would be rated on its five-level
rating scale for each of the performance elements included in their
performance plans. These performance standards defined the middle level
of performance (fully successful), and included what the rater should
look at to determine if an employee is performing better or worse than
this benchmark. An employee's performance for each element was assessed
and a total score was determined. OFHEO further distinguished between
"high" and "low" levels within rating categories. For example, a rating
of "outstanding" would be classified as being in either the high or low
level of the outstanding rating category based on the performance score
the employee received. Merit increases at OFHEO have been determined
directly by employees' performance ratings, so employees could
ascertain the merit increases they would receive for given performance
ratings. For example, an employee rated "high" commendable receives a
higher merit pay increase than one who is rated "low" commendable.
OFHEO employee working group members noted that both supervisors and
employees understand how the performance elements and standards have
been applied through rating decisions, and they stated that employees
generally understood what was expected of them to attain higher levels
of performance and associated merit increases. However, an employee
working group member also commented that when distinguishing between
performance rating levels, some managers seemed to apply the
performance standards more effectively than others, which could result
in differences in how rating decisions were made.
At FDIC, for nonexecutive/nonmanager employees to be eligible for
performance-based pay increases, employees had to first earn a "meets
expectations" rating. Then, in a second process called the "Pay for
Performance" system, FDIC nonexecutive/nonmanagers were placed into one
of four pay groups, based on an assessment of total performance and
corporate contributions as compared with other employees in the same
pay pool.[Footnote 19] The pay for performance program was essentially
comparative, meaning that the contributions and performance of each
employee were evaluated and rewarded on a relative basis within his or
her pay pool, as compared to peers. According to union representatives,
employees were not informed about how management made the distinctions
in pay increase groupings. According to FDIC officials, there are no
definitive descriptions or definitions of the performance levels for
each of the three pay groups because employees are assessed compared to
each other, not against fixed standards. Officials also said that
information on the system for determining pay groups was provided to
all employees in early 2006 after the compensation and benefits
agreement became effective, when the system was first rolled out, and
is explained to new employees at orientation. We did not determine how
widespread the concern about how management made distinctions in pay
increase groupings was among FDIC employees.
In contrast, SEC officials did not establish standards upon which to
base rating decisions for nonexecutive employees, nor did they
communicate criteria used to make performance-based pay decisions to
these employees. For its nonexecutive employees, SEC used a two-level
rating system in which individuals' performance was rated as acceptable
or unacceptable. According to agency management, SEC followed the
definitions under Title 5 that are used by the rest of the government
for differentiating between acceptable and unacceptable
performance.[Footnote 20] However, SEC did not establish written
performance standards for appraising employees' performance as
acceptable or unacceptable.
To determine performance-based pay increase amounts for nonexecutive
employees, SEC developed a second phase process that involved making
distinctions in contributions for those individuals who received a
summary performance rating of acceptable. As part of the second phase,
employees and their supervisors submitted contribution statements
summarizing the employees' accomplishments during the appraisal cycle.
Using the summary statements and the supervisors' own assessments,
supervisors placed employees into one of four categories: (1) made
contributions of the highest quality, (2) made contributions of high
quality, (3) made contributions of quality, and (4) made no significant
contribution beyond an acceptable level of performance. Next, a
compensation committee within each office or division evaluated the
contribution statements and the supervisors' placements. For each
employee, the committee recommended a merit pay increase ranging from
zero to 4.41 percent (corresponding to "steps" 0 to 3) to an official
from each office or division, who made the final determination of the
employee's merit increase.[Footnote 21]
However, SEC did not develop criteria to differentiate between the four
contribution categories that the compensation committees considered
when recommending merit pay step increase amounts. In addition, SEC
employee representatives told us that it was not clear to employees how
the contribution statements and the subsequent supervisory
recommendations were translated into the decisions about the four
contribution categories into which employees would be placed. SEC
officials noted that employees received copies of narratives written by
their supervisors to describe the employees' contributions; however,
they acknowledged that the system could be more transparent. According
to SEC officials, in an effort to increase transparency in the future,
they plan to share with employees information on supervisors'
preliminary recommendations on ratings that are provided to the
compensation committee, so that employees can see into which of the
four contribution categories they were recommended for placement and
the supporting documentation. If the committee changes an initial
recommendation from a supervisor, SEC will provide the employee with
the rationale for the change. An agency official indicated they are
developing broad statements, such as "the committee had a broader
perspective of employee contributions," that address a range of
possible reasons for changes.
Some Financial Regulators Did Not Fully Implement the Safeguard of
Providing Overall Ratings and Pay Increase Results to All Employees,
Which Would Increase Transparency in Their Performance-Based Pay
Systems:
The extent to which the financial regulators shared the overall results
of performance ratings and pay increase decisions with all employees
varied, and some agencies did not make this information widely
available to employees. We have previously reported that the safeguard
of communicating the overall results of performance appraisal and pay
increase decisions while protecting individual confidentiality can
improve transparency by letting employees know where they stand in the
organization.[Footnote 22] An employee's summary performance rating
conveys information about how well an employee has performed against
established performance standards, which is important, but not
sufficient to provide a clear picture of how the employee's performance
compares with that of other employees within the organization. When the
organization communicates where an employee stands, management can gain
credibility by having honestly disclosed to the employee the basis for
making pay, promotion, or developmental opportunity decisions that may
have been based upon relative performance.
The Federal Reserve Board communicated the overall results of the
performance appraisal decisions to all employees by sharing annual
performance rating distributions with all employees, disaggregated by
division. Since this system for determining the amounts of performance-
based increases for individuals based on their performance ratings is
essentially driven by formula, employees know what their merit
increases will be relative to others after receiving their performance
ratings.
At FDIC, the distribution of pay group assignments for all
nonexecutive/ nonmanager employees who passed the first assessment
process is fixed by the negotiated agreement with the union, so those
employees know how performance-based pay increases will be distributed
and the amounts of increases received by the various pay groups.
Further, FDIC officials told us that, in accordance with the collective
bargaining agreement, after completion of each annual pay for
performance cycle they share data on the results of the pay grouping
decisions for employees covered by the bargaining unit contract with
union representatives. These include summary pay group data analyzed
according to the agreement with the union, such as certain demographic
data and individual rating information.
According to an agency official, OCC began to post some limited
information on the average size of some performance-based pay increases
on the agency intranet in November 2006. The information included the
average, agencywide percentage increases for merit increases, merit
bonuses, and special act and spot awards, as well as the percentage of
employees receiving the increases.
During the performance appraisal cycle we reviewed, OTS shared with
union representatives some data on average pay increases. The agency
did not share ratings distribution data with the union, and did not
make either performance-based pay increase or rating results
information available to all employees. However, in November 2006, OTS
distributed to all employees information for the recently completed
appraisal cycle on the percentage of employees who received each
performance rating level and the average pay increase percentages to be
received by people at each level. The information was disaggregated by
regions and Washington, D.C.
While SEC did not make the results of performance rating decisions
available to all employees, officials said that they reported
information on performance awards (bonuses) to the union and that,
under implementation of the compensation and benefits agreement
currently being negotiated, they plan to publish aggregated information
on performance ratings under the planned new performance management
system for nonexecutive employees. SEC officials also told us that they
plan to provide information at the lowest possible organizational level
while still protecting individual confidentiality.
The remaining five financial regulators did not share overall data on
ratings or performance increases widely with all employees, although in
some cases some information was shared with managers. The following
outlines how information was shared:
* CFTC shared information on the results of ratings and award decisions
with managers on a Pay Parity Governance Committee, but not with all
employees, for the appraisal cycle we reviewed. CFTC officials told us
that there is no prohibition against sharing this type of information
under the new performance management system directive, and they are
aware that there is some interest among employees in receiving it. They
said that the pay parity committee will determine whether there is
value in releasing this information to all employees in the future.
* At FHFB, an official told us that office directors see all the
ratings within their offices and make the decisions about the
performance-based pay increases for employees, but this information is
not shared across offices or with all employees. However, the director
of the Office of Supervision, FHFB's largest office, has shared
information with all staff in the office on the ranges of pay increases
corresponding to different performance rating levels and base salary
levels that were received by staff within the office for a given year,
as well as the standards used to assign the merit increase amounts.
* Officials at OFHEO told us that just last year they started sharing
information on the results of ratings and pay increase decisions with
management, but that they have not yet shared this type of information
with all employees.
* FCA officials told us that they do not share aggregate results of the
performance rating and pay increase decisions with all employees. They
explained that, under a previous administration, in early 2000, an
executive summary was prepared and posted that all employees could
potentially access, which contained information on the results of
ratings and pay increases. However, this information was not broadly
disseminated directly to employees.
* NCUA shares information on the results of the merit pay decisions
with directors, but not with all employees. An NCUA official told us
that it is up to the directors to decide whether or not to share this
information with their staff. In comments on the draft report, NCUA
explained that this is one of the issues involved in its current
negotiations over pay and benefits with the National Treasury Employees
Union, and that the agency's proposal to the union does provide for
this type of transparency.
Agencies provided a variety of reasons for not sharing overall ratings
and pay increase information more widely. Officials from FHFB and FCA
told us that the relatively small size of their agencies, 122 and 248
employees, respectively, makes it harder to share this type of
information while protecting individual confidentiality and that an
FHFB official was not aware of employee demand for this type of
information. FCA officials also mentioned that the emphasis in their
performance management system is on rating individual employees against
the standards, not against other employees and they wanted employees to
focus on their individual ratings and performance. According to union
representatives at OCC, the union has made multiple requests for data
on the results of the performance rating and pay increase decisions but
management has declined to share information that would enable the
union to, in their words, perform a meaningful independent analysis of
the ratings and pay increase decisions. OCC officials told us that they
prefer not to share with employees disaggregated information on ratings
and pay increase distributions because organizational units administer
the process differently. For example, the percentages of individuals
rated at the highest level (4) and next highest level (3) vary from
unit to unit. Because units receive fixed pools of funds for
performance-based increases, the average size of a merit increase that
an employee receiving a level 4 may receive can vary from unit to unit,
depending on how many individuals receive the highest rating.[Footnote
23] OCC officials told us that sharing information on average merit
increases by unit with employees, without sufficient context of the
factors considered when making these decisions, including more detailed
rating information (which is privacy protected), could lead to
misinterpretation of the data.
However, not sharing information on the results of the performance
rating and pay increase decisions processes can detract from the goal
of a transparent and fair performance management system. This
information needs to be presented in ways that protect individual
confidentiality, such as by aggregating it. Without access to this type
of information, individual employees can lose a valuable opportunity to
understand how their performance stands relative to others in their
organization. In cases where agencies negotiate agreements with unions,
an important consideration is to reach agreement to share aggregate
results of the rating and pay increase decisions with employees, while
protecting individual confidentiality.
While Financial Regulators Generally Used Multiple Rating Levels to
Make Meaningful Distinctions in Performance, Employees at Most Agencies
Were Concentrated in One or Two Rating Categories, with Very Few Poor
Performers:
While most of the financial regulatory agencies used multiple rating
levels to assess employee performance and make distinctions in
performance, at most agencies employees were concentrated in one or two
rating categories and very few received poor performance ratings. By
using multiple-level rating systems, agencies have the capability to
make meaningful distinctions in performance. Effective performance
management systems make meaningful distinctions between acceptable and
outstanding performance of individuals and appropriately reward those
who perform at the highest level. As we have previously reported,
performance management systems can provide management with the
objective and fact-based information it needs to reward top performers
and provide the necessary information and documentation to deal with
poor performers.[Footnote 24] More specifically, using multiple rating
levels provides a useful framework for making distinctions in
performance by allowing an agency to differentiate, at a minimum,
between poor, acceptable, and outstanding performance. We have reported
that two-level rating systems by definition will generally not provide
meaningful distinctions in performance ratings, with possible
exceptions for employees in entry-level or developmental
bands.[Footnote 25]
Eight agencies used four or more rating levels. For example, as
described earlier, OFHEO used a five-level rating category system to
appraise employee performance and contributions toward achieving agency
goals, and further distinguished between high and low performance
scores within rating categories. As shown in figure 1, at the eight
agencies with four-or five-level rating systems, the largest percentage
of employees fell into the second highest rating category, except at
OFHEO and the Federal Reserve Board. At OFHEO, more than half of the
employees were placed into the high or low levels of the top rating
category. Conversely, at the Federal Reserve Board (excluding
economists), almost half of the employees fell into the third highest
or middle (commendable) rating category. Across the eight agencies
shown in figure 1, the percentage of employees who fell into the
highest rating category varied from 10.6 percent for economists at the
Federal Reserve Board, to 55 percent of employees at OFHEO.
(This page is left intentionally blank.)
Figure 1: Percentage of Regulatory Employees by Rating Level for
Systems with Multiple Rating Levels, for Completed Appraisal Cycles
Specified:
[See PDF for image] - graphic text:
Source: GAO analysis of agency data.
Note: The dates of the performance appraisal cycles varied across
agencies, as indicated in this figure and in table 3, appendix I. SEC
had two distinct cycles affecting two different groups of employees.
[A] OFHEO distinguished between "high" and "low" level performance
scores within rating categories. The percentage values shown in the
graphic include employees with scores at both the high and low levels
within categories. For example, the percentage value shown in the
graphic for the "Outstanding" rating category includes those employees
rated as high-level outstanding and low-level outstanding combined.
According to OFHEO officials, about 32 percent of employees fell into
the low-level outstanding category.
[B] The new CFTC performance management system that went into effect in
October 2006 has five rating levels.
[End of figure] - graphic text:
SEC and FDIC used two-level rating systems (essentially pass/fail
systems) to appraise the performance of certain groups of employees.
Although two-level rating systems by definition will not provide
meaningful distinctions in performance ratings, both SEC and FDIC used
a second process to determine performance-based pay increases and
effectively make more meaningful performance distinctions. As figure 2
shows, the highest percentage of employees at FDIC fell into the second
highest of four categories, in keeping with the fixed percentages
included in the negotiated agreement with the union. At SEC, the
largest percentage of employees fell into the third highest of four
rating categories.
Figure 2: Percentage of Regulatory Employees by Rating Level and Merit
Increase Category for Agencies with Pass/Fail Performance Rating
Systems, for Completed Appraisal Cycles Specified:
[See PDF for image]
Source: GAO analysis of agency data.
Note: At SEC, senior officers were not rated during this rating cycle
because, according to officials, the agency did not have the budget to
fund any merit increases. SK employees at SEC include all employees
other than senior officers.
[End of figure]
As shown in figures 1 and 2, the percentage of employees rated as poor
performers at each agency was very small during the completed
performance appraisal cycles we reviewed. Employees rated at below the
successful and meets expectations rating levels accounted for less than
3 percent of employees across the agencies.[Footnote 26] OTS had zero
employees in the bottom two rating categories combined--all OTS
employees received fully successful or higher ratings. Similarly at
NCUA, no executives and 2.1 percent of nonexecutives were rated below
minimally successful.
While the financial regulators rated very few employees as poor
performers, all of the agencies have established procedures to deal
with poor performers. When an employee does not perform up to a
threshold standard for satisfactory performance, most agencies place
the employee on a performance improvement plan or provide counseling
for the employee, and the employee does not receive a performance-based
increase at the end of the performance cycle. For example, OTS has
addressed poor performance by working with the employee to improve his
or her area of deficiency. An employee who receives a rating at the
unacceptable level is placed on a performance improvement plan for a
minimum of 90 days. Specifically, OTS policy advises supervisors to
develop a performance improvement plan by identifying the performance
areas in which the employee is deficient and the types of improvements,
including specific work products and steps to be followed which the
employee must complete to attain the fully successful performance
level. In addition, according to OTS policy, the agency may provide the
employee with closer supervision, or on-the-job or formal training.
However, governmentwide, 29.7 percent of employees indicated in the
2006 Office of Personnel Management (OPM) Federal Human Capital Survey
that they agreed or strongly agreed that differences in performance
within the work unit were recognized in a meaningful way. Positive
responses to this question for the eight financial regulators who
participated in the survey ranged from 24.9 percent for CFTC to 41.6
percent for OCC. None of these agencies had a majority of their
employees provide positive responses to this question, and only three
of the eight agencies had more than one third of their employees
provide positive responses to this question.
SEC Did Not Complete Performance Ratings for Senior Officers, Missing
an Opportunity to Provide Valuable Feedback:
While it may have been an isolated incident, for senior officers, SEC
effectively did not make distinctions in rating their performance
during the appraisal cycle we reviewed because the agency did not
complete performance ratings for them in 2005. According to SEC
officials, no funds were available for performance-based bonuses (which
are normally dependent on performance ratings) during that assessment
cycle. As a result, divisions performed assessments of senior officers,
but the assessment process was not completed and their ratings were not
signed by the Chairman for the October 1, 2004, to September 30, 2005,
performance appraisal cycle. A recent SEC Inspector General report
confirmed that senior officers in SEC's Enforcement Division did not
prepare performance review documents for the performance cycle that
ended on September 30, 2005, and recommended that required steps of the
senior officer performance appraisal process be conducted in accordance
with Commission policy, even when merit increases are not
awarded.[Footnote 27] All senior officers received annual across-the-
board salary increases during that cycle. Conducting performance
appraisals and making distinctions in performance are important not
only for determining performance-based pay increases, but for providing
feedback to help employees improve their performance and assess how
their work contributed to achieving organizational goals. By not
appraising their performance, SEC missed an opportunity to provide
valuable feedback to senior officers.
Agencies Have Taken Various Actions to Seek to Maintain Pay and
Benefits Comparability:
Financial regulators have hired external compensation consultants to
conduct individual, formal comparability surveys, exchanged pay and
benefits information, explored the feasibility of conducting a common
survey, and adjusted pay and benefits to seek to maintain pay and
benefits comparability. The majority of the financial regulators
conducted pay comparability surveys that have included other financial
regulators and in some instances, private-sector entities. To compare
pay across agencies, consultants send questionnaires on behalf of the
sponsoring agency and ask participating agencies to match the jobs
based on the job descriptions provided. To compare benefits,
consultants use various methods, such as side-by-side comparisons of
benefits and calculation of total cost of benefits per employee. In
addition to these surveys, human capital officials at the 10 financial
regulators have formed an interagency group to exchange information and
consult on topics such as updates on merit pay ranges and bonuses.
However, agency officials told us that because many of the financial
regulators conduct separate comparability surveys, their staffs have to
respond to numerous and often overlapping inquiries, which can be
inefficient. To begin addressing the inefficiencies of this process,
the agencies formed a subcommittee in December 2006 to study the
feasibility of conducting a common survey on pay and benefits.
According to agency officials, the subcommittee also has discussed the
feasibility of establishing a Web-based data system to make the most
current pay and benefits information available to participating
agencies.
In the absence of a legislative definition of what constitutes
comparability, agency officials told us that they use various methods
to assess pay and benefits comparability after they have obtained
relevant data from the other agencies. For example, FDIC has sought to
set its total pay ranges (base pay plus locality pay) for specific
occupations and grade levels within 10 percent of the average of FIRREA
agencies. FCA used the average market rate paid by other financial
regulators as a benchmark. Finally, partly on the basis of the results
of the comparability surveys and discussions among the agencies, the
financial regulators have adjusted their pay and benefits policies in
their efforts to seek to maintain comparability. For example, as a
result of gaining pay flexibilities, CFTC implemented new pay ranges
for its 2003 pay schedule, and increased base pay by 20 percent for all
eligible employees to partially close the 25 percent gap between CFTC
and FIRREA agencies. Appendix IV provides additional information on our
analysis of individual agency actions.
While the regulators have taken actions to seek to maintain
comparability in their pay and benefits, there are some variations in
base pay ranges and benefit packages among the agencies. Figure 3 shows
the base pay ranges (minimum and maximum) for the mission-critical
occupations, excluding executives at the 10 agencies.[Footnote 28] As
shown in the same figure, the actual average base pay among the 10
agencies also varies somewhat in relation to the agencies' respective
base pay ranges, which according to agency officials, could be affected
by the average length of service of employees, and the fact that some
agencies tend to hire employees at certain grade levels.
Figure 3: Nonexecutive Minimum and Maximum Pay Ranges and Average
Actual Pay for Mission-Critical Occupations by Regulator, 2006:
[See PDF for image] - graphic text:
Source: GAO analysis of agency data for pay ranges and Central
Personnel Data File data for actual pay.
[A] The figure shows the minimum pay of the lowest level and the
maximum pay of the highest level of an occupation for which agencies
have an established occupation. Agencies may not currently have
incumbents in each level of the occupation. The base pay ranges exclude
locality pay except for the Federal Reserve Board and OFHEO.
[B] The actual average base pay data in CPDF did not segregate CFTC's
examiners and investigators or OFHEO's examiners and financial analysts
because these occupations are assigned the same OPM job series number.
Therefore, we did not separately present the actual average pay for
these four occupations at the two agencies. The combined actual average
pay for examiners and investigators is $83,501 at CFTC; and $131,294
for examiners and financial analysts at OFHEO.
[C] The base pay ranges shown for the Federal Reserve Board and OFHEO
reflect the agencies' total pay ranges because Washington D.C., is the
agencies' only duty station.
[D] The actual average base pay data are provided by the Federal
Reserve Board because CPDF does not contain data for the Board.
[End of figure] - graphic text:
Because each financial regulator sets its own locality pay percentage
based on its respective policies, locality pay percentages often differ
from those that OPM sets for General Schedule employees (with the
exception of CFTC) and vary among agencies for the same duty station.
For example, in New York City, the OPM locality pay percentage is 22.97
percent but the regulators' locality pay percentages range from 21.19
at FDIC and FHFB to 33.20 percent at OTS. Table 2 shows the locality
pay percentages for OPM and for the eight financial regulators that
have locality pay percentages for selected cities.
Table 2: Selected OPM Locality Pay Percentages Compared to Financial
Regulators' Locality Pay Percentages, Fiscal Year 2006:
Locality: Atlanta, Ga;
OPM: 15.10%;
CFTC: N/A;
OCC: N/A;
OTS: 6.50%;
FDIC: 7.43%;
FCA: N/A;
FHFB: 7.43%;
NCUA: 8.06%;
SEC: 11.13%.
Locality: Boston, Mass;
OPM: 19.99;
CFTC: N/A;
OCC: 13.00;
OTS: 17.50;
FDIC: 22.67[ A];
FCA: N/A;
FHFB: 22.67;
NCUA: 18.55;
SEC: 24.29.
Locality: Chicago, Ill;
OPM: 21.15;
CFTC: 21.15;
OCC: 8.00;
OTS: 11.20;
FDIC: 16.20;
FCA: N/A;
FHFB: 16.20;
NCUA: 22.26;
SEC: 21.62.
Locality: Dallas, Tex;
OPM: 16.39;
CFTC: N/A;
OCC: 3.00;
OTS: N/A;
FDIC: 9.20;
FCA: 6.50;
FHFB: 9.20;
NCUA: 11.25;
SEC: 12.92.
Locality: Denver, Colo;
OPM: 19.49;
CFTC: N/A;
OCC: 8.00;
OTS: 2.30;
FDIC: N/A;
FCA: 10.50;
FHFB: N/A;
NCUA: 18.27;
SEC: 17.72.
Locality: Los Angeles, Calif;
OPM: 23.18;
CFTC: N/A;
OCC: 18.00;
OTS: 18.10;
FDIC: 19.28;
FCA: N/A;
FHFB: N/A;
NCUA: 25.70;
SEC: 24.35.
Locality: Miami, Fla;
OPM: 17.84;
CFTC: N/A;
OCC: 3.00;
OTS: 6.80;
FDIC: 11.33[ B];
FCA: N/A;
FHFB: N/A;
NCUA: 15.97;
SEC: 15.02.
Locality: Minneapolis, Minn;
OPM: 17.31;
CFTC: 17.31;
OCC: 3.00;
OTS: 7.30;
FDIC: 11.76;
FCA: 8.20[C];
FHFB: N/A;
NCUA: 13.23;
SEC: N/A.
Locality: New York City, N.Y;
OPM: 22.97;
CFTC: 22.97;
OCC: 23.00;
OTS: 33.20;
FDIC: 21.19;
FCA: N/A;
FHFB: 21.19;
NCUA: 23.61;
SEC: 24.92.
Locality: San Francisco, Calif;
OPM: 28.68;
CFTC: N/A;
OCC: 28.00;
OTS: 46.70;
FDIC: 32.41;
FCA: N/A;
FHFB: 32.41;
NCUA: 36.43;
SEC: 25.14.
Locality: Seattle, Wash;
OPM: 17.93;
CFTC: N/A;
OCC: 8.00;
OTS: 15.80;
FDIC: 13.93;
FCA: N/A;
FHFB: 13.93;
NCUA: 14.52;
SEC: N/A.
Locality: Washington, D.C;
OPM: 17.50;
CFTC: 17.50;
OCC: 8.00;
OTS: 25.90;
FDIC: 13.30;
FCA: 15.20[D];
FHFB: 16.30;
NCUA: 12.87;
SEC: 17.50.
Source: GAO analysis of agency data.
Note: Washington D.C. is the Federal Reserve Board's and OFHEO's only
duty station, thus the agencies do not have separate locality pay
percentages. For the other agencies, N/A indicates localities where
they had no office.
[A] Locality includes Braintree, Mass.
[B] Locality includes Sunrise, Fla.
[C] Locality includes Bloomington, Minn.
[D] Locality includes McLean, Va.
[End of table]
The benefits that the 10 financial regulators offered also varied,
which we discuss in detail in appendix IV. For example, half of the
regulators offer their employees 401(k) retirement savings plans with
varying employer contributions in addition to offering the
governmentwide Federal Thrift Saving Plan (except for the Federal
Reserve Board). According to agency officials, factors such as the year
an agency first became subject to comparability provisions, budget
constraints, the needs and preferences of different workforces, and
ways to attract and retain workforces play a role in compensation
decisions and contribute to the variations in pay ranges and benefits.
Moreover, agency officials emphasized that it was not their goal to
have identical pay and benefits packages; rather, they considered pay
and benefits as a total package when seeking to maintain pay and
benefits comparability and when setting pay policies aimed at
recruiting and retaining employees.
Few Employees Have Moved among the Financial Regulators, Most Resigned
from Federal Employment:
While the total number of financial regulatory employees resigning from
federal employment between fiscal years 1990 and 2006 generally
declined, there was no clear trend among the number who moved to
another financial regulator. As shown in figure 4, the number of
employees leaving one federal regulator for another declined from the
previous fiscal year in 10 of the 16 years and increased from the
previous fiscal year in the other 6 years. Figure 4 also shows the
percentage of financial regulatory employees who went to another
financial regulator, went to other federal agencies, and resigned from
federal employment, and the total number of financial regulatory
employees during this period. Of all the employees who left their
financial regulatory agency voluntarily (moved to another financial
regulator or executive branch agency, or resigned) from fiscal year
1990 through fiscal year 2006, the vast majority--86 percent (13,433)-
-of the 15,627 employees leaving the regulators voluntarily (i.e.,
moved or resigned), resigned from the federal government. The number of
employees who moved to another financial regulator ranged from a low of
16 of 1,362 who moved or resigned in fiscal year 1997 to a high of 97
of 1,229 who moved or resigned in fiscal year 1991. The total number of
financial regulator employees was 15,400 and 19,796 during those 2
years, respectively.[Footnote 29] Similar lows were also experienced in
1996 and 2003. Some agency officials told us that they believe that the
FIRREA comparability provision and similar provisions in subsequent
laws applicable to financial regulators have been effective in ensuring
that regulators' pay and benefits are generally comparable among the 10
agencies, which probably helps minimize employee movement among
financial regulatory agencies. Of the financial regulator employees who
moved or resigned, the percentage of those who resigned from federal
employment fluctuated slightly over the period, ranging from a low of
73.7 percent in fiscal year 2003 to a high of 94.8 percent in fiscal
year 1996.
Figure 4: Attrition among Financial Regulators, Fiscal Years 1990-2006:
[See PDF for image] - graphic text:
Source: GAO analysis of CPDF data.
Note: This figure does not include data for the Federal Reserve Board.
[End of figure] - graphic text:
The movement of mission-critical employees among financial regulators
also did not reveal a discernible trend. For the number of employees
who moved to another financial regulator from fiscal year 1990 through
fiscal year 2006, see table 10 in appendix V. The numbers ranged from
no movement for 7 of the 11 occupational categories (accountants,
auditors, business specialists, economists, financial analysts,
investigators, and information technology (IT) specialists) in at least
1 of the fiscal years we reviewed to a high of 37 employees (38.1
percent of all those who moved that fiscal year) for the "all other"
occupational category in fiscal year 1991.[Footnote 30] During this
period (fiscal years 1990 to 2006), some occupational categories
experienced very little movement. For example, fewer accountants,
auditors, business specialists, and investigators moved than employees
in the other categories. In contrast, examiners had the largest number
of employees moving among financial regulators in 8 of the 17 years,
including the 3 most recent years for which data were available. The
average number of employees in mission-critical occupations moving
among the 9 financial regulators from fiscal year 1990 through fiscal
year 2006 ranged from 0.1 for investigators to 11.7 for examiners. See
appendix V for additional data on employee movement.
For those employees that did not move to another financial regulator,
we could not determine in all cases where the employees moved because
CPDF, the most complete data set available with federal employment
information, does not include information on employment outside
executive branch agencies. We were able to identify those employees
that went to another federal agency. These numbers ranged from a low of
48 in fiscal year 1994 to a high of 128 in fiscal year 1991, higher
than the number of employees who moved to another financial regulator,
which was 23 in fiscal year 1994 and 97 in fiscal year 1991. Officials
from the 9 agencies told us that they do not track the employment of
their employees after the employees leave their agencies. Further, they
said that their employees generally sought employment outside the
federal government, including the private sector and state and local
government, but that their main competitors were private-sector
entities.
Conclusions:
Like other federal agencies, the experiences of the financial
regulators illustrate the challenges inherent in establishing well-
functioning, performance-based pay systems and that these systems are
works in progress that are constantly evolving. These regulators have
taken various approaches to revise their performance management systems
and introduce performance-based pay. Although the regulators have
incorporated many of the key practices for effective performance
management systems, opportunities exist for a number of them to make
improvements as they continue to refine their systems. Specifically,
some regulators have opportunities in the areas of strengthening
safeguards to enhance transparency and fairness and making meaningful
distinctions in performance. As some regulators develop new systems or
revise their existing systems, they have an opportunity to build in
aspects of the key practices, such as improving transparency by
communicating the overall results of performance appraisal rating and
performance-based pay increase decisions to all employees to help
employees understand how they performed relative to other employees in
their organization, while protecting individual confidentiality. For
regulators that negotiate with unions, there are also opportunities to
work together to accomplish this.
SEC has some additional opportunities to pursue improvements in
specific aspects of its performance management system, which it is in
the process of revamping. For example, SEC can establish and
communicate to nonexecutive employees using the new system clear
criteria for making performance rating and pay increase decisions.
Finally, while it may have been an isolated incident, by not completing
performance assessments of senior officers in the 2005 performance
appraisal cycle we reviewed, SEC missed an opportunity for two-way
feedback and assessments of individual and organizational progress
toward organizational goals. While funding circumstances specific to
that appraisal cycle contributed to this situation, in the future it
will be important to complete assessments regardless of the
availability of funding for increases.
The agencies have taken a variety of actions in seeking to maintain pay
and benefits comparability. While we did find some variation in base
pay ranges, locality pay percentages, actual average pay, and benefits
among the agencies, we found that a number of reasons could contribute
to the variation, including the following: regulators were granted
flexibility under Title V and subject to comparability requirements at
varying times, pay and benefits are considered comprehensively in
seeking comparability, the average length of service of employees, and
where employees are located. While pay and benefits comparability
cannot be precisely determined, all the agencies are working to
maintain comparability in pay and benefits. One recent initiative--
studying the feasibility of conducting a common survey on pay and
benefits--should help to increase the efficiency of this effort. In
addition, given the relatively small amount of employee movement among
federal regulators, the variation in pay, benefits, and locality pay
percentages in some locations across the regulators does not appear to
be encouraging large numbers of employees to move among financial
regulators. This may be an indication that the comparability provisions
of FIRREA and other pertinent legislation have been working as
intended. Moreover, from fiscal years 1990 through 2006, the agencies'
attrition rates have trended downward indicating that a smaller
percentage of employees were leaving.
Recommendations for Executive Action:
The Chairman of the Board and Chief Executive Officer of the Farm
Credit Administration, the Chairman of the Federal Housing Finance
Board, and the Director of the Office of Federal Housing Enterprise
Oversight should:
* communicate the overall results of the performance appraisal and pay
increase decisions to all employees agencywide while protecting
individual confidentiality.
The Chairman of the National Credit Union Administration and the
Chairman of the Commodity Futures Trading Commission should:
* work with unions to communicate the overall results of the
performance appraisal and pay increase decisions to all employees
agencywide while protecting individual confidentiality.
The Chairman of the Securities and Exchange Commission should:
* communicate clearly the criteria for making performance rating and
pay increase decisions to nonexecutive employees:
* work with the union to communicate the overall results of the
performance appraisal and pay increase decisions to all employees
agencywide while protecting individual confidentiality and:
* assess senior executives' performance at the end of the performance
appraisal cycle regardless of the amount of funding available for
performance-based pay increases.
Agency Comments and Our Evaluation:
We provided drafts of this report to the Chairman, Commodity Futures
Trading Commission; Chairman of the Board and Chief Executive Officer,
Farm Credit Administration; Chairman, Federal Deposit Insurance
Corporation; Chairman, Federal Housing Finance Board; Chairman, Board
of Governors of the Federal Reserve System; Chairman, National Credit
Union Administration; Comptroller of the Currency, Office of the
Comptroller of the Currency; Director, Office of Federal Housing
Enterprise Oversight; Director, Office of Thrift Supervision; and
Chairman, Securities and Exchange Commission; for review and comment.
We received written comments from six of the agencies. See appendixes
VI, VII, VIII, IX, X, and XI for letters received from CFTC, the
Federal Reserve Board, FHFB, NCUA, OFHEO, and SEC. These six, along
with the other four agencies, also provided clarifying and technical
comments, which we incorporated as appropriate.
The agencies generally agreed with our recommendations. With respect to
the recommendation to communicate the overall results of the
performance appraisal and pay increase decisions on an agency-wide
basis, CFTC, FCA, FHFB, NCUA, OFHEO, and SEC indicated that they plan
to implement the recommendation. In describing specific actions, the
executive director of CFTC explained that the agency has already
discussed working with the unions to communicate overall results of
performance appraisal and pay decisions across the agency as part of
the development of their new performance management and pay-for-
performance systems. The Chief Human Capital Officer of FCA stated that
the agency plans to communicate the overall results of the 2006
performance appraisal and 2007 pay increase decisions to FCA employees
by the end of June 2007. The Executive Director of NCUA explained that
sharing overall information on ratings and pay increase decisions with
all employees is one of the issues being negotiated as part of the
ongoing negotiations over pay and benefits with the National Treasury
Employees Union, and stated that the agency's proposal to the union
provides for this type of transparency. The Executive Director of SEC
agreed with the report findings and stated that SEC has established a
new branch within the Office of Human Resources to oversee performance-
related issues and has launched a new pilot performance management
system that will address the recommendations. Finally, the Acting
Director of FHFB and the Chief Human Capital Officer of OFHEO also
stated that their respective agencies will implement the
recommendation.
We will send copies of this report to the appropriate congressional
committees; the Chairman, Commodity Futures Trading Commission;
Chairman of the Board and Chief Executive Officer, Farm Credit
Administration; Chairman, Federal Deposit Insurance Corporation;
Chairman, Federal Housing Finance Board; Chairman, Board of Governors
of the Federal Reserve System; Chairman, National Credit Union
Administration; Comptroller of the Currency, Office of the Comptroller
of the Currency; Director, Office of Federal Housing Enterprise
Oversight; Director, Office of Thrift Supervision; Chairman, Securities
and Exchange Commission; and other interested parties. We will make
copies available to others upon request. The report will also be
available at no charge on our Web site at [Hyperlink,
http://www.gao.gov].
If you or your staff have any questions regarding this report, please
contact Orice M. Williams at (202) 512-8678 or williamso@gao.gov or
Brenda Farrell at (202)512-5140 or farrellb@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. GAO staff who made major contributions
to this report are listed in appendix XII.
Signed by:
Orice M. Williams, Director:
Financial Markets and Community Investment:
Signed by:
Brenda Farrell, Acting Director:
Strategic Issues:
List of Congressional Requesters:
The Honorable Barney Frank:
Chairman:
The Honorable Spencer Bachus:
Ranking Member:
Committee on Financial Services:
House of Representatives:
The Honorable Luis V. Gutierrez:
Chairman:
Subcommittee on Domestic and International Monetary Policy, Trade, and
Technology:
Committee on Financial Services:
House of Representatives:
The Honorable Paul E. Kanjorski:
Chairman:
Subcommittee on Capital Markets, Insurance, and Government Sponsored
Enterprises:
Committee on Financial Services:
House of Representatives:
The Honorable Bernard Sanders:
United States Senate:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
The objectives of this report were to (1) review how the performance-
based pay systems of 10 federal financial regulatory agencies are
aligned with six key practices for effective performance management
systems, (2) review actions these 10 agencies have taken to assess and
implement comparability in compensation, and (3) review the extent to
which individuals in selected occupations have moved between or left
any of the agencies. These agencies are the Commodity Futures Trading
Commission (CFTC), the Farm Credit Administration (FCA), the Federal
Deposit Insurance Corporation (FDIC), the Federal Housing Finance Board
(FHFB), the Board of Governors of the Federal Reserve System (the
Federal Reserve Board), the National Credit Union Administration
(NCUA), the Office of the Comptroller of the Currency (OCC), the Office
of Federal Housing Enterprise Oversight (OFHEO), the Office of Thrift
Supervision (OTS), and the Securities and Exchange Commission (SEC).
To address our first objective, we analyzed documents on the
regulators' performance management and pay systems, including guidance,
policies, and procedures on the systems; performance planning and
appraisal forms; union contracts and agreements; training materials;
internal evaluations of systems; and materials used to communicate with
employees about the systems. We also reviewed documents assessing the
agencies' systems, including results from the 2006 Federal Human
Capital Survey conducted by the Office of Personnel Management (OPM),
recent human resources operations audits performed by OPM, and relevant
material from agencies' offices of inspector general.
We also interviewed key human resources officials at each agency, as
well as officials from other functional areas knowledgeable about each
agency's performance-based pay practices. In addition, we interviewed
employees at the agencies who served as members of employee groups. At
six of the agencies, the employees we spoke with were union
representatives. Specifically, employees at FDIC, OCC, NCUA, and SEC
are represented by the National Treasury Employees Union, and OTS
headquarters staff and CFTC staff at two regional offices are
represented by the American Federation of Government Employees.
Employees at FCA, the Federal Reserve Board, FHFB, and OFHEO did not
have a union; at these agencies we spoke with employees who served on
employee committees or working groups.
In addition, we examined small, select sets of individual performance
plans for employees, which outline the annual performance expectations
for employees. The selection of these performance plans was not
intended to allow us to make generalizations about all performance
plans at the agencies, and we have used information from the plans for
illustrative purposes only. The performance plans we received were
selected by agency officials based on our request for a mix of
occupations and grade levels at each agency. The smallest number of
performance plans we examined from an agency was one, in a case where
the performance plans for all employees are completely standardized.
The largest number of plans we reviewed from an agency was 32. The
individual performance plans we examined pertained to each agency's
last completed performance appraisal cycle when we began this review.
Table 3 shows the appraisal cycle by agency.
Table 3: Performance Appraisal Cycle by Agency:
Agency: CFTC;
Performance appraisal cycle: July 1, 2005 to June 30, 2006.
Agency: FCA;
Performance appraisal cycle: October 1, 2004 to September 30, 2005.
Agency: FDIC;
Performance appraisal cycle: January 1, 2005 to December 31, 2005.
Agency: Federal Reserve Board;
Performance appraisal cycle: October 1, 2004 to September 30, 2005.
Agency: FHFB;
Performance appraisal cycle: October 1, 2005 to September 30, 2006.
Agency: NCUA;
Performance appraisal cycle: January 1, 2005 to December 31, 2005.
Agency: OCC;
Performance appraisal cycle: October 1, 2004 to September 30, 2005.
Agency: OFHEO;
Performance appraisal cycle: April 1, 2005 to March 31, 2006.
Agency: OTS;
Performance appraisal cycle: January 1, 2005 to December 31, 2005.
Agency: SEC:
for senior officers;
Performance appraisal cycle: October 1, 2004 to September 30, 2005.
for all other employees;
Performance appraisal cycle: May 1, 2005 to April 30, 2006.
Source: Various regulators.
[End of table]
Finally, we analyzed data from each agency on performance ratings and
performance-based pay awarded to employees as well as aggregate data on
all types of pay increases at each agency not linked to performance
ratings. We used these data to calculate the Spearman rank correlation
coefficient to show the strength of the relationship between employee
performance ratings and the associated performance-based percentage pay
increases at each agency.[Footnote 31] In computing the correlation
coefficients, we noted that a few agencies used a table or procedure
that specified particular pay increases corresponding to specific
ratings. Taken in isolation, the use of the table or procedure would be
expected to produce a perfect correlation, i.e., +1.0. However, other
aspects of these agencies' systems contributed to the resulting
coefficients being less than +1.0. For example, at one agency,
employees with rating scores below a certain threshold were not
eligible for any pay increase. While these employees may have had
different rating scores, none of them received a pay increase, which
contributed to a coefficient that was less than perfect. Other
mechanistic factors in these agencies' systems, such as adjusting or
changing the specified percentage pay increase based on the grade level
or current salary of the employee, also had the effect of producing a
less than perfect coefficient at these agencies. Given the influence
that these procedural but nondiscretionary variations may have had on
the resulting coefficients at these agencies, the coefficients are
primarily useful in their overall demonstration of the positive linkage
between ratings and pay increases at all the agencies, and the range of
coefficients that occurs. The magnitude of the coefficients, however,
is not sufficient for ranking the agencies or making other types of
comparisons.
We also analyzed agency data on performance ratings to determine the
distribution of employee performance ratings at each agency. All data
were provided to us by agency officials, and pertained to the
performance appraisal cycles noted in table 3.
To address our second objective, we first analyzed the content of
compensation comparability provisions in the agencies' laws and related
legislative histories. We reviewed the most recent pay and benefits
surveys conducted by external compensation consultants for these
agencies, obtained agency pay and benefits data, and analyzed actual
pay data from CPDF. In addition, we interviewed agency officials about
their experience with these surveys and the agencies' informal
interactions to assess pay comparability and to determine the
feasibility of conducting a common survey.
To report on the pay ranges for non-executive employees in selected
occupations, we analyzed the base pay data provided to us for mission-
critical occupations at nine of the agencies in our review. We selected
the mission critical occupations by: (1) identifying nonclerical and
nonblue-collar occupations with 45 or more employees in at least one
financial regulatory agency and (2) vetting this list with the 10
agencies.[Footnote 32] The agencies provided us with pay range
information as set forth in each agency's pay policies as of September
2006 for every job title under each occupational category, including
jobs with no incumbents at the time the agencies reported the data to
us.
To report on the actual average base pay of employees in the selected
occupations, we analyzed actual pay data from CPDF for fiscal year
2006. Because the CPDF does not include data for all agencies, the
Federal Reserve Board provided us with actual pay data for our analysis
of its employees' actual average pay for fiscal year 2006. To show the
financial regulators' locality pay percentages and general schedule
employees' locality pay percentages, we selected the cities where four
or more financial regulators had duty stations in fiscal year 2006. We
obtained fiscal year 2006 locality pay percentages information from the
financial regulators and general schedule locality pay percentages from
the OPM Web site. To report on the benefits offered by the agencies, we
obtained and analyzed data from each agency that included a list of
benefits the financial regulators offered as of September 2006 and
brief descriptions of each benefit. We also interviewed agency
officials about the factors that affect the actual average base pay,
and how each agency sets its locality pay percentage.
To address our third objective, we analyzed movement data from CPDF for
fiscal years 1990 to 2006, the most recent available data as of
December 2006. For each fiscal year, we identified the number of
employees in selected mission-critical occupations at a financial
regulator who (1) moved to another financial regulator, (2) moved to
other federal agencies, and (3) resigned from federal employment. We
identified those who moved from one financial regulatory agency to
another by identifying employees who had a CPDF separation code for a
voluntary transfer and who also had a CPDF accession code from another
financial regulatory agency within 25 days of the transfer out. Also,
for each mission-critical occupation, we examined the number of
financial regulator employees who moved to another financial regulator
in each fiscal year and the average number of employees who moved among
the nine financial regulators over the 16 years of our review. Our
analysis of supervisors included executives, who constituted 1 to 2
percent of all supervisors who moved to another financial regulator. We
also included all other agency occupations that were not classified as
"mission-critical occupations" in an "all other" category, which
includes occupations such as specialists in human resources management,
administration, clerical, management and program analysis, blue collar
occupations, financial administration, and paralegal work.
We did not include the Federal Reserve Board in our analysis of the
movement of financial regulator employees because CPDF does not include
data on the Federal Reserve Board. Federal Reserve Board officials told
us that data on employee movement for fiscal years 1990 to 1996 are not
readily accessible. The agency provided us some data for fiscal years
1997 to 2005, including data on employees who transferred, resigned,
were fired, were subject to a reduction in force, or otherwise
separated, and the agency's total number of employees, but was unable
to identify whether their employees left for another financial
regulator. Because the data the agency provided were not comparable
with the CPDF data we used for the other financial regulators, we did
not include the Federal Reserve Board in our analysis. We also did not
include information on the employment of financial regulatory employees
after they left federal employment because CPDF does not include data
on employment outside some agencies and officials told us that they do
not track the employment of their employees after the employees leave
their agencies.[Footnote 33]
We assessed the reliability of the various sets of data used in our
study. To assess the reliability of the performance and pay increase
data provided by the agencies, we conducted various inspections and
electronic testing of the data for reasonableness and the presence of
any obvious or potential errors in accuracy and completeness. We also
reviewed related agency documentation, interviewed agency officials
knowledgeable about the data, and brought to the attention of these
officials any concerns or discrepancies we found with the data for
correction or updating. Based on the results of these procedures, we
believe the data are sufficiently reliable for use in the analyses
presented in this report. We did not independently verify the pay and
benefits data we received from the agencies but consider these data
sufficiently reliable for the illustrative purpose of our review. Based
on our data reliability testing of CPDF data, we believe the CPDF data
are sufficiently reliable for this review. When analyzing employee
movement using CPDF data, we found exceptions from standard personnel
procedures, such as employees with a transfer-out code but with an
accession code in the hiring agency that was not a transfer-in code, or
employee records with transfer-out and transfer-in dates that exceeded
3 calendar days. We also found duplicate separation or accession
records for the same individual on the same day. We deleted one of the
duplicate records. We also found cases where an individual had two
separation actions on the same day but they were different types of
actions (e.g., a transfer out and a resignation). Because we could not
determine which separation action was the correct one, we deleted both
records. However, these types of data problems represented less than
one-tenth of 1 percent of the data used. As a result, we concluded that
the data were sufficiently reliable to show the magnitude of movement
between financial regulatory agencies, to other federal agencies, and
to nonfederal employers.
We conducted our work from February 2006 through June 2007 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: Information on Agencies:
Table 4: Agency Information:
Agency: Commodity Futures Trading Commission (CFTC);
Mission: To protect market users and the public from fraud,
manipulation, and abusive practices related to the sale of commodity
and financial futures and options, and to foster open, competitive, and
financially sound commodity futures and option markets;
Number of employees[A]: 446;
Funding[B]: Appropriated;
Employee representation: The American Federation of Government
Employees represents employees in CFTC's Chicago and New York offices
only;
Performance-based pay: In October 2006, CFTC began transitioning to a
new performance-based pay system that will be fully implemented
beginning in July 2007.[C].
Agency: Farm Credit Administration (FCA);
Mission: To promote a safe, sound, and dependable source of credit and
related services for agriculture and rural America;
Number of employees[A]: 248;
Funding[B]: Nonappropriated[D];
Employee representation: FCA is not unionized. FCA has an employee
council; Performance-based pay:
Performance-based pay began in 1993; the system has had some revisions
since its inception.
Agency: Federal Deposit Insurance Corporation (FDIC);
Mission: To maintain stability and public confidence in the nation's
financial system by insuring deposits, examining and supervising
financial institutions, and managing receiverships;
Number of employees[A]: 4328;
Funding[B]: Nonappropriated;
Employee representation: The National Treasury Employees Union has the
right to bargain over employees' pay and benefits at FDIC;
Performance-based pay: Performance-based pay began in 1998. FDIC has
essentially two pay and performance management systems --one that
applied to senior managers, and one that applied to bargaining unit
employees as well as nonbargaining unit employees.[E].
Agency: Federal Housing Finance Board (FHFB);
Mission: To ensure that the 12 federal home loan banks are safe and
sound so they serve as a reliable source of liquidity and funding for
the nation's housing finance and community investment needs;
Number of employees[A]: 122;
Funding[B]: Nonappropriated;
Employee representation: FHFB is not unionized. FHFB has an employee
working group;
Performance-based pay: The performance-based pay system began in the
mid 1990s; the system has been slightly revised since its inception.
Agency: Board of Governors of the Federal Reserve System;
Mission: To foster the stability, integrity, and efficiency of the
nation's monetary, financial, and payment systems so as to promote
optimal macroeconomic performance;
Number of employees[A]: 1855;
Funding[B]: Nonappropriated; Employee representation: The Board is not
unionized. The Board has an employee representative committee;
Performance-based pay: The performance-based pay system began in 1989;
the system has been slightly revised since its inception.
Agency: National Credit Union Administration (NCUA);
Mission: To facilitate the availability of credit union services to all
eligible consumers, especially those of modest means, through a
regulatory environment that fosters a safe and sound federally insured
credit union system;
Number of employees[A]: 919;
Funding[B]: Nonappropriated;
Employee representation: The National Treasury Employees Union has the
right to bargain over the impact and implementation of changes made to
NCUA's performance management system;
Performance-based pay: The performance-based pay system began in 1991.
Agency: Office of the Comptroller of the Currency (OCC); U.S.
Department of the Treasury;
Mission: The OCC was created by Congress to charter national banks, to
oversee a nationwide system of banking institutions, and to assure that
national banks are safe and sound, competitive and profitable, and
capable of serving in the best possible manner the banking needs of
their customers;
Number of employees[A]: 2908;
Funding[B]: Nonappropriated;
Employee representation: The National Treasury Employees Union has the
right to bargain over the impact and implementation of changes made to
OCC's performance management system, but not over employee pay and
benefits;
Performance-based pay: Performance-based pay began in 1981; the current
performance management system began in 2001, although some revisions
have been made since then.
Agency: Office Of Federal Housing Enterprise Oversight (OFHEO);
Mission: To promote housing and a strong economy by ensuring the safety
and soundness of Fannie Mae and Freddie Mac and fostering the strength
and vitality of the nation's housing finance system;
Number of employees[A]: 204;
Funding[B]: Nonappropriated[D];
Employee representation: OFHEO is not unionized. OFHEO has established
an ad hoc employee working group;
Performance-based pay: Performance-based pay has existed since the
agency's inception in 1992.
Agency: Office of Thrift Supervision (OTS) U.S. Department of the
Treasury;
Mission: To supervise savings associations and their holding companies
in order to maintain their safety and soundness and compliance with
consumer laws, and to encourage a competitive industry that meets
America's financial services needs;
Number of employees[A]: 956;
Funding[B]: Nonappropriated;
Employee representation: The American Federation of Government
Employees represents some employees in OTS's Washington, D.C., office
only;
Performance-based pay: Performance-based pay began in 1991.
Agency: Securities and Exchange Commission (SEC);
Mission: To maintain fair, orderly, and efficient securities markets,
facilitate capital formation, and protect investors;
Number of employees[A]: 3488;
Funding[B]: Appropriated;
Employee representation: The National Treasury Employees Union
represents two-thirds of SEC employees;
Performance-based pay: Performance-based pay began in 2002.
Source: Various regulators:
[A] Employment figure for the Federal Reserve Board is from December
2006 and includes all regular employees; employment figures for all
other agencies are for career employees and come from the CPDF as of
September 2006.
[B] Some financial regulators receive funding through appropriations
from Congress while others are funded from fees collected from members
or assessed on regulated entities.
[C] CFTC did not have a performance-based pay system prior to October
2006.
[D] The business operations of FCA and OFHEO are not financed by
taxpayer funds. Their annual operating budgets, however, undergo the
federal budgetary and appropriations process and are constrained by the
amount approved by Congress and signed into law by the President.
[E] The nonbargaining unit employees are never "covered" by the
compensation agreement with the union, but rather, the FDIC Board
proactively decides annually what performance management and
performance-based pay standards will apply to this population. During
the performance appraisal cycle we reviewed, the same system that
applied to bargaining unit employees was applied to nonbargaining unit
employees.
[End of table]
[End of section]
Appendix III: Financial Regulators Have Implemented Key Practices in
Varying Ways:
High-performing organizations have recognized that a critical success
factor in fostering a results-oriented culture is a performance
management system that creates a "line of sight" showing how team,
unit, and individual performance can contribute to overall
organizational goals and helping employees understand the connection
between their daily activities and the organization's success.
Effective performance management systems are essential for successfully
implementing performance-based pay. In the letter, we addressed
important aspects of how 10 financial regulatory agencies have
implemented two key practices: (1) linking pay to performance and (2)
making meaningful distinctions in performance. This appendix provides
detailed information on the financial regulators' implementation of
four additional key practices important for effective performance
management systems, as well as some additional material pertaining to
the linking pay to performance practice covered in the letter. The four
additional practices are:
* Align individual performance expectations with organizational goals.
* Connect performance expectations to crosscutting goals.
* Use competencies to provide a fuller assessment of performance.
* Involve employees and stakeholders to gain ownership of performance
management systems.
The 10 financial regulatory agencies have implemented these four key
practices for effective performance management systems in various ways,
reflecting the unique needs of their organizational cultures and
structures.
Agencies Have Aligned Individual Performance Expectations with
Organizational Goals in Different Ways:
The 10 federal financial regulatory agencies have implemented the
practice of alignment in a variety of ways. An explicit alignment of
daily activities with broader results is a key feature of effective
performance management systems in high-performing organizations. These
organizations use their performance management systems to improve
performance by helping individuals see the connection between their
daily activities and organizational goals and encouraging individuals
to focus on their roles and responsibilities in helping to achieve
these goals. The financial regulators reinforced alignment of
individual performance expectations to organizational goals in policy
and guidance documents for their performance management systems, used
standardized performance elements or standards for employees in their
performance plans, used customized individual performance expectations
that contributed to organizational goals in individual performance
plans, and included the corresponding organizational goals directly on
the individual performance plan forms.[Footnote 34]
Agencies Have Reinforced Alignment in Policies and Guidance for
Performance Management Systems:
Several of the financial regulatory agencies, including FDIC, OCC,
FHFB, and OFHEO, have reinforced alignment by including language on
linking individual performance expectations to organizational goals in
policy and guidance materials for the performance management systems.
The following are examples of how selected agencies have reinforced
alignment through policies and guidance.
* A key objective of FDIC's performance management program as stated in
a policy directive is to "establish fair and equitable performance
expectations and goals for individuals that are tied to accomplishing
the organization's mission and objectives."[Footnote 35] The directive
further states that employees at FDIC are assessed against performance
criteria, which are defined as "the major goals, objectives, and/or
primary responsibilities of a position which contribute toward
accomplishing overall organizational goals and objectives" (as found in
FDIC's strategic plan and annual performance plan).
* At OCC, the Policies and Procedures Manual for the performance
management system states that the system is designed to align employee
performance expectations with organizational objectives and priorities.
The manual also explains that the starting point for identifying
individual performance expectations should be unit objectives
established at the executive committee, district, field office, or
division level.
* The handbook and guide for FHFB's and OFHEO's performance management
systems, respectively, contain several references to alignment of
individual expectations to organizational goals.
Agencies Have Included Alignment in Standardized Performance Elements
for Employees:
Several of the financial regulators, including FCA, CFTC, FHFB, OCC and
OTS, have reinforced alignment by including standardized performance
elements or performance standards that link performance expectations to
organizational goals in employees' performance plans. We have
previously reported that results-oriented performance agreements can be
effective mechanisms to define accountability for specific goals and to
align daily activities with results.[Footnote 36] Individuals from the
agencies with standardized performance elements in their individual
performance plans are assessed against the same set of performance
elements and standards at the end of the appraisal cycle, as the
following examples illustrate.
* FCA has included a requirement to contribute to the achievement of
organizational goals in standardized performance elements for all
employees in their individual performance plans. Specifically, FCA has
developed a set of standardized performance elements for each of its
four occupational groups and in some of these elements, requires
individuals to contribute to achieving organizational goals and
objectives. For the senior manager's occupational group, individuals
have a standardized performance element--"Leadership and Motivation
Skills"--in their individual performance plans that measures the
employees' ability to accomplish the agency's goals and objectives. For
the other three occupational groups, individuals have a standardized
performance element--"Teamwork and Interpersonal Skills"--in their
individual performance plans that measures the extent to which the
employee places emphasis on achieving organizational and team goals. In
this way, all employees at FCA are assessed on the extent to which they
contribute to organizational objectives through a standardized
performance element.
* While not requiring a standardized performance element related to
alignment in the individual performance plans for all employees, CFTC
has reinforced alignment through the performance standards used for
rating all employees at the end of the performance appraisal cycle.
Specifically, in order for all employees to achieve the highest summary
performance rating, individuals must "achieve element objectives with
extensive impact on organizational mission," which reinforces the line
of sight between individual performance and organizational results. In
this way, for all employees at CFTC, the individual's contributions to
organizational goals affect his or her ability to achieve the highest
possible performance rating. Alignment is further reinforced for
managerial employees at CFTC because they are also assessed on the
standardized performance element of "Effective Leadership," which
requires them to, among other things, accomplish the mission and
organizational goals of the work unit, and communicate organizational
goals to subordinates.
* FHFB has reinforced alignment in standardized performance elements
for several occupational groups. Standardized elements for executives,
managers/supervisors, staff attorneys, and professional positions
contain references to aligning with or contributing to organizational
goals.
* OCC has applied an alignment focus in a generic performance standard
for four occupational groups at the agency. Executives, managers,
commissioned examiners, and specialists are all rated against a
standardized performance standard that requires them to contribute to
organizational goals in order to get the highest rating level of 4 for
a particular performance element. For example, managers have a
standardized performance element called "leadership skills," for which
the highest level performance standard includes language on meeting OCC
goals and objectives. Commissioned examiners and specialists have a
standardized performance element in their individual performance plans
called "organizational skills," with an accompanying performance
standard that requires individuals' work products to be closely aligned
with OCC's goals, objectives, and priorities in order to receive the
highest rating level.
* OTS has reinforced alignment in a standardized performance element
for managers and senior managers. Under the "Leadership Skills"
standardized performance element, managers are assessed on
accomplishing the agency's goals and objectives, taking initiative and
incorporating organizational objectives into the organization, and
scheduling work assignments. In addition, senior managers have a
supplemental performance element that holds them responsible for
supporting the achievement of OTS's strategic plan. An OTS official
stated that the agency is considering expanding the requirement for
alignment as it makes future changes to the performance management
system.
Agencies Have Strengthened Alignment by Linking Customized Individual
Performance Expectations to Organizational Goals:
Several financial regulatory agencies, including SEC, OCC, and the
Federal Reserve Board, have reinforced alignment for some individual
employees through customized performance expectations specific to
individuals that link to higher organizational goals. We have reported
that high-performing organizations use their performance management
systems to improve performance by helping individuals see the
connection between their daily activities and organizational goals and
encouraging individuals to focus on their roles and responsibilities to
help achieve these goals. One way to encourage this is to align
performance expectations of individual employees with organizational
goals in individual performance plans. We reviewed a small, select set
of individual performance plans from each agency, and identified the
following examples of individual performance expectations that linked
to higher organizational goals.
* The performance plan for a senior officer at SEC included the
performance expectation "Plans and Coordinates Inspection Programs and
Ensures that Internal Management Controls Exist and Operate
Effectively" that supports SEC's strategic goal to "Maximize the Use of
SEC Resources."
* In individual performance plans, OCC has used customized performance
expectations unique to the individual in addition to standardized
performance elements to appraise employees. Specifically, the
performance plan for an information technology (IT) specialist included
a customized expectation to provide timely, professional, and quality
IT support to promote efficient utilization of OCC resources. This
expectation supported the annual OCC objective--"OCC reflects an
efficient and effective organization."
* At the Federal Reserve Board, a performance plan for an economist
contained a performance expectation to produce a weekly monitoring
report on Japan and cover Japanese banking and financial issues, which
contributed to one of the Board's annual performance objectives in the
area of monetary policy function: "contribute to the development of
U.S. international policies and procedures, in cooperation with the
U.S. Department of the Treasury and other agencies."
Agencies Have Strengthened Alignment by Stating Organizational Goals in
Individual Performance Plans:
FHFB and OCC have reinforced the linkage between the individual's
performance expectations and organizational goals by including the
corresponding organizational goals directly on the individual
performance plan forms. This helps make clear the line of sight between
the employee's work and agency goals, as the following examples
illustrate.
* FHFB has included the agency mission statement and office mission
statement to which an employee is contributing at the top of the first
page of the performance plan form.
* In many of the individual performance plans we examined from OCC, the
annual OCC objective to which each customized performance element
contributed was listed on the form, along with performance measures.
According to an official, while OCC's performance management policy
does not specifically require that the higher organizational objective
to which each customized performance element contributes be listed on
the employee's performance evaluation form, managers are advised to
include the organizational goals and the majority of forms do include
them. The official stated that it was an oversight not to include this
requirement in the policy, and they plan to revise the performance
evaluation form to include space for the corresponding organizational
objectives. Figure 5 shows an example of how a customized performance
element on an individual performance plan is linked to an agency goal,
clarifying the relationship between individual and organizational
performance.
Figure 5: Excerpt from an OCC Commissioned Examiner's Individual
Performance Plan:
[See PDF for image] - graphic text:
Source: OCC document; GAO annotation.
[End of figure] - graphic text:
Agencies Have Connected Performance Expectations to Crosscutting Goals
in Different Ways:
The financial regulatory agencies have connected performance
expectations to crosscutting goals in several ways. As public sector
organizations shift their focus of accountability from outputs to
results, they have recognized that the activities needed to achieve
those results often transcend specific organizational boundaries. We
reported that key characteristics of high-performing organizations are
collaboration, interaction, and teamwork across organizational
boundaries.[Footnote 37] High-performing organizations use their
performance management systems to strengthen accountability for
results, specifically by placing greater emphasis on those
characteristics fostering the necessary collaboration, both within and
across organizational boundaries, to achieve results.
The specific ways in which the financial regulatory agencies have
connected performance expectations to crosscutting goals vary. In our
review of a small, select set of performance plans from some of the
agencies, we identified some examples of customized individual
performance plans that identified crosscutting goals that would require
collaboration to achieve, as well as either the internal or external
organizations with which the individuals would collaborate to achieve
those goals. All of the agencies recognized the importance of
collaboration by including performance elements for collaboration or
teamwork within and across organizational boundaries in individual
performance plans for at least some employees. Several agencies applied
standardized performance elements related to teamwork or collaboration
to employees.
Agencies Have Identified Crosscutting Goals and Organizations for
Collaboration in Individual Performance Plans:
We found examples of performance plans customized to individuals at
OCC, FCA, the Federal Reserve Board, and SEC that identified
crosscutting goals, as well as either the internal or external
organizations with which the individuals would collaborate to achieve
these goals. We have reported that more progress is needed to foster
the necessary collaboration both within and across organizational
boundaries to achieve results.[Footnote 38] One strategy for fostering
collaboration is identifying in individual performance plans specific
programmatic crosscutting goals that would require collaboration to
achieve. Another strategy for fostering collaboration is identifying
the relevant internal or external organizations with which individuals
would collaborate to reinforce a focus across organizational boundaries
in individuals' performance plans, as the following examples
illustrate.
* At OCC, an employee had an expectation in his individual performance
plan to enhance the division's ability to work cooperatively and
effectively together with other operational risk divisions, as well as
enhance coordination with federal and state agencies and outside
banking groups to promote consistency and to advance OCC viewpoints,
while contributing to OCC's objective for U.S. and international
financial supervisory authorities to cooperate on common interests.
* A senior manager at FCA had a customized expectation in his
individual performance plan to work closely with and coordinate Office
of Examination initiatives with other offices, notably the Office of
General Counsel and Office of Public Affairs, to support the FCA
Chairman and Chief Executive Officer's three strategic goals, which are
(1) improving communications and relationships with the Farm Credit
System, (2) gaining greater efficiency and effectiveness of the agency,
and (3) promoting the Farm Credit System to become the Premier
Financier of Agriculture and Rural America.
* An executive at the Federal Reserve Board had an expectation in his
individual performance plan to undertake expanded discussions with SEC
on information-sharing, cooperation, and coordination with the aim of
strengthening consolidated supervision and achieving consistency in the
implementation of Basel II.[Footnote 39]
* At SEC, a senior officer in the market regulation division had an
expectation in his individual performance plan to advance market
regulation objectives through cooperative efforts by coordinating with
other SEC offices, other U.S. agencies, self-regulatory organizations,
international regulators, and the securities industry.
Agencies Have Included Performance Elements Related to Collaboration or
Teamwork in Individual Performance Plans:
All of the financial regulators included performance elements related
to collaboration or teamwork within and across organizational
boundaries in individual performance plans for at least some of their
employees. Performance elements related to collaboration or teamwork in
individual performance plans can help reinforce behaviors and actions
that support crosscutting goals and provide a consistent message to all
employees about how they are expected to achieve results. CFTC, FHFB,
NCUA, and the Federal Reserve Board provide examples of how
standardized performance elements pertaining to teamwork or
collaboration have been applied to employees.
* CFTC has established a standardized performance element for all
employees that emphasizes collaboration or teamwork, called
"Professional Behavior," which requires employees to behave in a
professional and cooperative manner when interacting with coworkers or
the public and willingly initiate and respond to collaborative efforts
with coworkers, among other things.
* At FHFB, all employees have performance elements or standards related
to collaboration or teamwork in the standardized performance plans for
their occupational groups. For example, the standardized performance
plan for executives includes a performance element for "teamwork" that
requires executives to collaborate effectively with associates and
promote positive and credible relations with associates, among other
things. The standardized performance plan for administrative positions
also includes a "teamwork" performance element. For the other three
occupational groups, collaboration or teamwork is captured in a
performance standard. For example, the standardized performance plans
for professional positions and managers/supervisors have a performance
element that emphasizes collaboration or teamwork, called
"Professionalism," which requires the employee to develop and maintain
effective working relationships with all employees at all levels
throughout the agency and external to the agency and foster effective
internal and external communication, among other things.
* NCUA has performance elements related to collaboration or teamwork in
the standardized individual performance plans for some occupational
groups, such as examiners. For example, in the standardized performance
plan for some examiners, there is a performance element for "customer
service and teamwork" that requires the individual to demonstrate
initiative, responsibility, and accountability to both internal and
external customers and work in collaboration with coworkers and others
toward common goals. NCUA officials stated that a collaboration/
teamwork performance element may not be applicable to all positions.
They also said that, to the extent that this is an appropriate
performance element on which an employee should be rated, the agency
has or will include it in that employee's performance plan.
* According to Federal Reserve Board officials, the performance plans
for some occupations at the agency, such as security and administrative
positions, include teamwork as a standard element. Officials also said
that customized performance plans for other occupations typically
include teamwork or collaboration as a competency.
Agencies Have Used Competencies in Various Ways to Provide a Fuller
Assessment of Performance:
All 10 of the financial regulatory agencies have used competencies,
which define the skills and supporting behaviors that individuals are
expected to demonstrate to carry out their work effectively. High-
performing organizations use competencies to examine individual
contributions to organizational results. We have reported that core
competencies applied organizationwide can help reinforce behaviors and
actions that support the organization's mission, goals, and values and
can provide a consistent message about how employees are expected to
achieve results.[Footnote 40] As previously discussed, while some of
the financial regulatory agencies have included customized performance
expectations specific to individuals in performance plans, we found
that all of the agencies have used competencies. There are some
variations in the ways in which the agencies have structured and
applied competencies to evaluate employee performance. One of these
variations concerns whether or not the agency has assigned different
weights to competencies when determining overall summary ratings for
individuals.
Agencies Have Applied Competencies Organizationwide:
With the exception of the Federal Reserve Board, all of the federal
financial regulatory agencies have developed sets of core competencies
that apply to groups of employees, and assess employee performance
using those competencies as part of the annual performance appraisal
process. Using competencies can help strengthen the line of sight
between individual performance and organizational success by
reinforcing performance expectations that support achievement of the
agency's goals, as the following examples illustrate.
* FCA has a different standardized performance plan for each of four
occupational groups of employees--senior managers, supervisors,
examiners/attorneys/analysts/other specialists (non-supervisory), and
administrative/technicians. Each of the plans includes a standard set
of competencies, called critical elements, which applies to all
employees in that group. Specifically, the performance plan for
employees in the examiners/attorneys/analysts/other specialists group
contains the following competencies--technical and analytical skills;
organizational and project management skills; teamwork and
interpersonal skills; written and oral communication skills; and equal
employment opportunity (EEO), diversity and other agency initiatives. A
few sentences are included on the performance plan form to describe
what each element measures in terms of the employee's knowledge,
skills, and behavior, as shown in figure 6.
Figure 6: Excerpt from an FCA Individual Performance Plan:
[See PDF for image] - graphic text:
Source: GAO analysis of FCA document.
[End of figure] - graphic text:
* For the July 2005 to June 2006 performance appraisal cycle we
reviewed at CFTC, all employees were assessed on a set of five
competencies, called critical elements. Managerial employees were also
assessed on three additional competencies having to do with leadership,
developing staff, and supporting diversity and EEO programs.
* FDIC has 27 different performance plans with corresponding sets of
competencies, called performance criteria, to cover all employees.
According to agency officials, FDIC has learned from experience that
having a performance management system that is based on standardized
sets of competencies has allowed employees' performance to be compared
more easily to the standards from period to period. In addition, FDIC's
system bases merit pay increases for individuals at least partly on
corporate contributions (defined as contributions to corporate,
division, or unit-level goals). Officials said that this type of system
really enhances employee line of sight and has helped employees focus
on how their contributions align with the achievement of organizational
goals. In their view, this type of system promotes alignment and
consistency more effectively than a system of individual contracts
between supervisors and their employees.
* NCUA has approximately 240 detailed performance plans that are
tailored to specific occupations and grade levels of employees and that
include competencies, which are called elements. All of the employees
to whom a particular performance plan applies are assessed on the same
set of elements and performance standards. Elements for some employees
within the same occupation are universal, but standards can differ by
grade level. For example, the performance plans for examiners in grades
7, 11, and 12 all include basically the same elements, but some of the
performance standards upon which individuals are to be appraised for
each element vary by grade level.
* The Federal Reserve Board differs from the other financial regulatory
agencies in the way it uses competencies. The agency does not have sets
of core competencies that apply to specified groups of employees across
the agency. Instead, divisions have latitude to vary the design and
implementation of the performance plan form and process. According to
agency officials, divisions select competencies that best suit
occupational types and the divisions' goals, because the Board has
multiple responsibilities dealing with monetary policy and financial
institution regulation. It is possible for employees in the same
occupational group, but in different divisions, to be rated against
different sets of competencies. Agency officials said that they have
not heard complaints from similar occupational groups that they may be
assessed against different competencies. Further, all officers,
managers, and supervisors are rated against the same four management
objectives of communications, staff development, effective planning and
administration of financial resources, and equal employment
opportunity.
Agencies Have Assigned Weights to Competencies:
A few of the agencies, such as OFHEO, FCA, and NCUA, allow differing
weights to be assigned to specific competencies when determining
overall summary performance ratings for individuals. Using weights
enables the organization to place more emphasis on selected
competencies that are deemed to be more important in assessing the
overall performance of individuals in particular positions. Other
agencies, including OCC, OTS, FDIC, CFTC, and FHFB, do not assign
differing weights to competencies, as the following examples
illustrate.
* At OFHEO, the rating official for each employee assigns a weight to
each of the competencies (called performance elements) included in the
individual's performance plan, in consultation with the reviewing
official. Each competency must have a minimum weight of at least 5,
with the total weight of all the competencies in an individual
performance plan equaling 100. Any competency with a weight of 20 or
higher is considered to be critical. Each competency element is
weighted and scored (see figure 7), and then the weighted ratings for
the competencies are summed to derive the total summary rating for the
individual.[Footnote 41]
Figure 7: Example of OFHEO's Worksheet for Weighting Performance
Elements:
[See PDF for image] - graphic text:
Source: GAO analysis of OFHEO document.
[End of figure] - graphic text:
* FCA also permits supervisors to assign different weights to
competencies for individual employees, within the standardized
performance plans, at the beginning of the appraisal period. No
competency can be weighted less than 5 percent or more than 40 percent.
* At NCUA, the elements for the various occupations and grade levels
have different weights assigned to them, depending on the priorities
and skills pertaining to the positions. The weights are specified on
the performance plan form for each position.
* Some of the financial regulatory agencies, including OCC, OTS, FDIC,
CFTC, and FHFB, do not assign different weights to competencies when
appraising employee performance. Instead, all of the competencies in an
employee's performance plan are equally considered during the
appraisal. For example, at OCC, all of the competencies (which are
called skill-based performance elements) that are contained in an
individual's performance plan are considered to be critical, so they
receive equal weight when determining the overall summary rating for
that individual, according to an official.
Agencies Have Involved Employees and Stakeholders in Various Ways to
Gain Ownership of Performance Management Systems:
The financial regulatory agencies have used several strategies to
involve employees in their systems, including (1) soliciting or
considering input from employees on developing or refining their
performance management systems, (2) offering employees opportunities to
participate in the performance planning and appraisal process, and (3)
ensuring that employees were adequately trained on the performance
management system when rolling out the system and when changes were
made to the system. Overall, the 10 agencies have employed these
strategies differently. Effective performance management systems depend
on individuals', their supervisors', and management's common
understanding, support, and use of these systems to reinforce the
connection between performance management and organizational results.
Employee involvement improves the quality of the system by providing a
front-line perspective and helping to create organizationwide
understanding and ownership.
Agencies Have Considered Employee Input for Developing or Refining
Performance Management Systems:
All of the financial regulatory agencies, in some way, solicited or
considered employee input for developing or refining their performance
management systems by working with unions or employee groups to gather
employee opinions or conducting employee surveys or focus groups. An
important step to ensure the success of a new performance management
system is to consult a wide range of stakeholders and to do so early in
the process. High-performing organizations have found that actively
involving employees and stakeholders, such as unions or other employee
groups that represent employee views, when developing results-oriented
performance management systems helps to improve employees' confidence
and belief in the fairness of the system and increase their
understanding and ownership of organizational goals and objectives.
Feedback obtained from these sources is also important when creating or
refining competencies and performance standards used in performance
plans. However, in order for employees to gain ownership of the system,
employee input must receive adequate acknowledgement and consideration
from management.
Agencies Have Involved Employee Groups in the Performance Management
System Process:
Unions and employee groups had some role in providing comments or input
into the performance management systems at some of the financial
regulators. Six of the regulators (CFTC, FDIC, NCUA, OCC, OTS, and SEC)
had active union chapters, and four agencies (FCA, Federal Reserve
Board, FHFB, and OFHEO) had employee groups.[Footnote 42] We have
previously reported that obtaining union cooperation and support
through effective labor-management relations can help achieve consensus
on planned changes to a system, avoid misunderstandings, and more
expeditiously resolve problems that occur.[Footnote 43] The degree to
which unions and employee groups were involved in providing comments or
input into the development or implementation of performance management
systems varied from agency to agency. A few of the agencies with unions
have to negotiate over compensation. Unions at some agencies were
involved in participating in negotiations, entering into formal
agreements such as contracts and memoranda of understanding, and
initiating litigation concerning the development or implementation of
performance management systems. At other regulators, employee groups
were invited to comment on aspects of the performance management
system, as the following examples illustrate.
* OFHEO has used ad hoc employee working groups to study different
human capital issues and advise management on recommendations for
changes. Specifically, OFHEO established a working group to look at
teamwork and communication in the agency and the group recommended
changes to the individual performance plans relevant to teamwork and
communications. As a result of the group's recommendation, OFHEO
included additional language for the agency's performance plans in the
performance elements of teamwork and communication.
* At FDIC, the union participated with management in formal
negotiations regarding the establishment of the agency's performance
management and pay for performance systems and how the systems would
work. Both parties are bound by the terms of the formal agreements that
resulted.
* At NCUA, union representatives together with management issued a
memorandum of understanding in June 2006 detailing how supervisors are
supposed to introduce new performance plans for specified examiner
positions. The agreement set the timing of the introduction of new
performance standards, required training for rating officials, required
supervisors to give progress reviews to their employees on achievements
to date, and required supervisors and employees to discuss the new
standards.
* SEC will implement a new compensation and benefits system as a result
of an October 2006 ruling from the Federal Service Impasses Panel
(Panel).[Footnote 44] The Panel became involved when SEC and union
negotiations over a compensation and benefits agreement reached an
impasse. SEC management told us that they have formed a labor-
management working committee to discuss how to implement the terms of
the new Compensation and Benefits Agreement as provided for under the
Panel ruling.
Agencies Have Directly Engaged Employees in Consultations about the
Performance Management System:
The financial regulatory agencies involved employees in different ways
when developing their performance management systems. This process can
involve directly engaging individual employees and collecting opinions
from all employees through focus groups, surveys, or other forms of
feedback to develop a successful performance management system.
Further, soliciting employee input is also important when developing or
revising competencies or performance elements and related performance
standards in a performance management system in order to ensure that
the competencies and standards reflect skills and behaviors that are
relevant to employee tasks and responsibilities. While all of the
financial regulators involved employees to some degree, as the
following examples illustrate, NCUA did not consistently solicit input
on developing or revising the competencies and standards.
* In 2003-2004, when the Federal Reserve Board sought to revamp its
performance management system, the agency hired an outside consultant
to conduct focus groups with the intent of identifying issues raised by
employees and making recommendations to address any concerns. Some
focus group participants said that the agency's recommended rating
distribution guidelines might prevent some employees from achieving a
rating in the highest category. Furthermore, some employees were
concerned about possible unfairness in ratings and wanted to see the
distribution of the performance ratings for all employees published. As
a result of this feedback, management began publishing the agency's
ratings distributions, and added information on the system's process to
the agency's internal Web site on the performance management system.
* When developing its first performance-based pay system in 2006, CFTC
solicited employee input through a variety of methods. The agency hired
a contractor to conduct focus groups and to survey employees about
transitioning to a performance-based pay system and the administration
of a performance management system. The contractor also hosted a
Webinar, a Web-based interactive seminar that allows for the submission
of anonymous questions and comments, to present the results of the
employee survey. Additionally, CFTC conducted town hall meetings to
inform employees about development of the system. As a result of
employee feedback, management decided to delay the first phase of
implementation of the system from July 2006 until October 2006 in order
to allow additional time for employees to learn about the system and
make the transition. Union representatives at CFTC (Chicago and New
York) told us that prior to CFTC's transition to performance-based pay,
the agency's management communicated frequently with the union and
provided appropriate notice prior to implementing changes.
* Through internal surveys, OFHEO received feedback on employee
concerns regarding opportunities for promotion and the frequency of
progress reviews. According to an agency official, feedback from an
employee survey indicated that employees wanted more opportunities for
promotion than the prior six pay-band system allowed. On the basis of
this employee feedback, OFHEO made the decision to switch to 18 pay
grades and created career ladders. Further, employees commented through
the survey that they wanted more feedback on their performance during
the year. As a result, OFHEO increased the number of progress review
meetings from two to four per year. An agency official stated that the
Office of Human Resources Management monitors these meetings to ensure
that they have been held.
* SEC has analyzed data on SEC responses to OPM's governmentwide
Federal Human Capital Survey. According to agency officials, SEC has
tracked employee responses to questions on, for example, how well the
agency rewards good performers and deals with poor performers. In
addition, SEC has created a mailbox for anonymous employee comments and
constructive criticism on the performance management system.
* FCA circulated a draft of its proposed performance management system
in 2002, and solicited comments from employees. As a result of employee
comments, FCA revised the descriptions of performance elements in the
performance plans, changed the weight of an element dealing with equal
opportunity employment, eliminated one element, and provided additional
guidance and training. To show how employee feedback was addressed, FCA
management presented a briefing to employees, which listed some of the
employee comments about the individual performance plans with
accompanying responses from management.
* According to an NCUA official present at the time when the agency
originally developed its performance elements and standards, NCUA
conducted job analysis studies for all positions, which involved
employees and supervisors in identifying specific duties, skills, and
competencies needed to accomplish different jobs. In addition to the
studies, she said that NCUA surveyed employees and conducted an
assessment to identify any gaps in the performance elements and
standards. In 2006, when NCUA revised the elements and standards for
some examiner positions, NCUA used a committee consisting of managers,
supervisors, and one employee to develop the new elements and
standards. Union representatives told us they were briefed on the final
version of the elements and standards, but were not asked for input.
NCUA is currently revising individual performance plans for other
positions and the process does not include provisions for soliciting
and incorporating employee input. In comments on the draft of this
report, NCUA officials stated that NCUA sought to solicit input from
employees for certain positions, but that it was not necessary for
positions that are common across the government, since NCUA usually
adopts the competencies established by OPM for those positions.
Some union and employee group representatives we spoke with did not
think that management gave adequate consideration to employee input.
For example, the Employees' Committee at the Federal Reserve Board,
which provides advice to the Management Division on a variety of
issues, was asked to provide comments during the latest revision of the
performance management system. According to committee members, the
committee submitted a paper containing recommendations in response to
this management request. The committee, however, did not receive a
written response from management acknowledging their recommended
changes. Committee members told us they are now hesitant to submit
input during the current strategic planning process because they are
concerned about the usefulness of putting time and energy into
developing recommendations that may not be considered. According to
agency officials, the responses from the Employees' Committee and other
employee focus groups held on this topic were summarized by the
consultant hired for the project and the consultant presented the
summary comments to management through the executive oversight
committee. In addition, management officials stated that they met with
other committee members (i.e., the heads of special interest groups) to
discuss their input. The Federal Reserve Board's Administrative
Governor has also held monthly meetings with randomly selected
employees as an opportunity for employees to voice their concerns about
the performance management program, among other topics.
Agencies Have Encouraged Employee Participation in Performance Planning
and Appraisals:
All of the agencies, including FCA and FHFB, required or encouraged
employee participation in developing individual performance plans or
writing self assessments, contribution statements, or reports
summarizing accomplishments at the end of the appraisal cycle. In high-
performing organizations, employees and supervisors share the
responsibility for individual performance management and both should be
actively involved in identifying how individuals can contribute to
organizational results and be held accountable for their contributions.
By actively participating, employees are not just recipients of
performance expectations and ratings, but rather, have their ideas
heard and considered in work planning and assessment decisions.
However, employee representatives from some agencies, such as FDIC,
OTS, and OCC, expressed concern that employees were not actively
involved in the performance planning and appraisal processes even when
the agency required or encouraged such participation.[Footnote 45]
* At FCA, employees could participate in performance planning by
working with their rating officials to identify accomplishments
expected to be achieved during the appraisal period. In addition to
participating in an official mid-year performance review, at the end of
the appraisal cycle, employees and supervisors could meet for a pre-
appraisal interview to discuss the employees' accomplishments during
the previous year. Additionally, employees could submit an optional
self assessment of their performance. This input was supposed to be
considered when the supervisor evaluated the employee, according to FCA
policy.
* Employees at FHFB had several options for participating in developing
their performance plans--working with the supervisor to develop the
plan, providing the supervisor with a draft plan, or commenting on a
plan prepared by the supervisor.
Although FDIC, OTS, and OCC provided some opportunities for employee
participation in the planning and appraisal processes, we heard from
union representatives at these agencies that this participation did not
always occur, as the following examples illustrate.
* FDIC's performance management directive requires that the employee
and the supervisor have a meeting to discuss all performance criteria
included in the employee's performance plan and any expectations
regarding the quality, quantity or timeliness of work assignments. The
policy also encourages the employee to submit an accomplishment report
and to submit written comments on his or her supervisor's draft
assessment of the employee's "Total Performance" before it is forwarded
to higher levels of review within a pay pool. However, union
representatives told us that expectation-setting meetings have not been
consistently conducted; instead, sometimes employees have simply signed
a form to acknowledge receipt of their performance plans. Additionally,
employee comments on the appraisal form have not been taken into
account by supervisors, according to union representatives. FDIC
officials stated that the rating official and employee are required to
meet to discuss expectations at the beginning of the rating period or
whenever there is a change in performance criteria. Officials also
noted that the performance management program is a collaborative
process that relies on communication between a manager and his or her
employees, and that the employee is supposed to seek clarification on
performance criteria or expectations from the supervisor if necessary,
as is explained in the directive.
* An employee union representative at OTS maintained that employees
have not been very involved in setting their own performance
expectations; instead, supervisors have informed them about what they
should do at the beginning of the performance appraisal cycle. The
representative told us that supervisors may discuss changing
expectations with employees during the year, but these discussions have
not always occurred. According to an agency official, OTS has
encouraged managers to regularly meet with their employees and provide
a clear picture of what is expected of employees for the year in terms
of their individual roles and responsibilities for the standardized
performance expectations and what will be considered in appraising the
employees' performance.
* Although OCC provided opportunities for employee participation in the
performance planning and appraisal processes, union representatives
told us that this participation did not always occur. At OCC, employees
may participate in developing their individual performance plans and
are supposed to submit accomplishment reports. Further, officials
explained that many employees at OCC have secondary objectives in their
performance plans. Because secondary objectives are customized, there
should be a discussion between the supervisor and the employee.
According to an official, if an employee has customized secondary
objectives included in his or her individual performance plan, the
employee and supervisor are supposed to have a discussion about
it.[Footnote 46] However, representatives from the union at OCC told us
that performance plans are pretty generic and are distributed to
individuals based on their grade levels. They said that some employees
do not sit with their managers to tailor the plans; instead, employees
just sign the forms to acknowledge receipt of the plans.
Agencies Have Provided Training on Performance Management Systems:
All of the financial regulatory agencies have conducted some form of
training or information dissemination on topics related to performance
management. Asking employees to provide feedback should not be a one-
time process, but an ongoing process that occurs through the training
of employees at all levels of the organization to ensure common
understanding of the evaluation, implementation, and results of the
systems. Providing training when changes are made to a performance
management system can help ensure that employees stay connected to the
system and reinforce the importance of connecting individual
performance expectations to organizational goals. At some agencies,
such as SEC and FHFB, training has been mainly directed at supervisors,
while at FDIC training has been given to nonmanagers as well. Formal
training for nonsupervisors at the agencies has typically been directed
at new employees or has occurred when significant changes were being
made to a performance management system. Some agencies have distributed
materials through the agency intranet, memos, emails, or other written
documents, as the following examples illustrate.
* SEC has offered several opportunities for supervisors to learn the
mechanics and skills necessary for administering the performance
management system. Specifically, new supervisors have received general
training on supervisory roles and responsibilities, including
performance management. For supervisors, SEC has offered two levels of
classes on managing performance and communicating expectations.
Supervisors have also had the opportunity to receive training on
managing labor relations, which has included discussions of SEC's
agreement with the union, and the performance-based pay and award
systems. Supervisors could also attend a briefing on performance
management concepts and processes. In addition to offering supervisor
training, SEC informs new employees about the performance management
system during the orientation program. Performance management
information is also available to employees through the agency's
intranet web site. Finally, supervisors are supposed to brief new
employees on the performance management system at the beginning of the
rating cycle, during discussions of individual performance standards.
* Most employees at FHFB have not received training on performance
management since the late 1990s, and are expected to learn about the
system from their supervisors. However, FHFB offered training for
managers and supervisors in 2004 on the performance management system
and how to conduct performance appraisals.
* FDIC has conducted several training sessions and disseminated
information to managers and employees related to its performance
management and pay for performance programs. This has included in-
person training sessions, taped sessions made available for viewing on
IPTV, and "question and answer" documents and policy directives
available on the agency intranet. FDIC provided specific training for
nonsupervisors in 2006 when management and union representatives
jointly conducted training sessions on the agency's new compensation
agreement. Training was intended for non-management employees,
including bargaining unit and non-bargaining unit employees, and was
conducted in a variety of formats. Sessions included discussions of
employees' roles and responsibilities in the performance management and
pay for performance systems.
Agencies Generally Have Linked Pay to Performance and Built in
Safeguards:
As discussed, the 10 financial regulatory agencies linked pay to
performance and built safeguards into their performance management
systems but could make improvements to ensure that poor performers do
not receive pay increases and to improve the communication of
performance standards and transparency of performance results. This
section provides more detailed information on the different ways in
which the agencies translated performance ratings into pay increases
and used different budgeting strategies for performance-based pay. The
section also discusses how the agencies awarded pay increases that
considered performance but were not dependent on ratings. Finally,
information is presented on agency implementation of two additional
safeguards: higher-level reviews of performance rating decisions and
establishing appeals processes for performance rating decisions.
Agencies Used Differing Methods to Translate Performance Ratings into
Pay Increases:
For increases that were linked to performance ratings, the financial
regulatory agencies used different methods to translate employee
performance ratings into pay increases. These methods included
establishing ranges for increases, using formulas, and considering
current salaries when making decisions on the amounts of performance-
based pay increases for individuals.
Several agencies established ranges of potential pay increases
corresponding to the various performance rating levels. These systems
gave managers the discretion to determine the exact pay increase
amounts for individuals, within those ranges, as the following examples
illustrate.
* At OTS, employees who received a rating of 5 (on a 5-level scale)
received between a 5.5 percent and 7.5 percent pay increase, while
employees who received a rating of 3 received between a 1.5 percent and
3.25 percent pay increase during the appraisal cycle we reviewed.
Employees who received a rating of 1 or 2 did not receive any pay
increase. OTS gave managers the flexibility to determine the specific
pay amount each employee would receive within the range of possible pay
increases corresponding to that performance rating.
* OCC established ranges of potential pay increases that corresponded
to different performance rating levels and gave managers the
flexibility to decide on the exact amount of pay increase that each
individual would receive within the range that corresponded to that
employee's rating level. Each year OCC adopts a merit pay matrix that
defines a range of allowable percentage increases that may be paid for
performance rating levels 3 and 4 (the two highest rating categories).
During the appraisal cycle we reviewed, individuals with a level 3
performance rating were eligible to receive a merit increase between
2.1 percent and 5.5 percent, and individuals with a level 4 rating
could receive a merit increase between 5 percent and 9 percent. The
rating official recommended the percentage of merit pay that each
employee with a summary rating of 3 or 4 should receive. Agency
officials told us that it can be challenging for managers to determine
the pay increase amount for each employee within those preestablished
pay increase ranges. Managers want to ensure consistency among
employees with similar levels of performance and often consult with
other managers or human resources staff for advice when making these
pay increase decisions. Employee representatives expressed some concern
about the overlapping ranges for pay increases, and a representative
said that employees are unclear about what performance behaviors are
needed to achieve merit increases.
Other agencies used formulas for determining the amounts of pay
increases linked to performance ratings to be awarded, as the following
example illustrates.
* NCUA used a pay matrix tied to employees' performance rating scores
(which could range from 0 to 300) to calculate the pay increase
percentages. All employees in the same pay pool that received the same
performance rating would receive the same pay increase percentage.
Specifically, an employee who received a performance rating score of
234 fell within the "fully successful" performance rating range and
received a pay increase of 3.066 percent. Another employee who received
a performance rating score of 235 fell within the "highly successful"
performance rating range and received a pay increase of 3.076 percent.
Employees who received a performance rating score below 165 fell within
the "unsatisfactory" or "minimally successful" performance rating
ranges and did not receive any pay increases.
Some agencies considered employees' current salaries when deciding on
the amounts for pay increases linked to performance ratings, as the
following example illustrates.
* At FCA, the percentage pay increase an employee received depended on
where the employee's current salary fell within the pay band. FCA used
a merit matrix to calculate merit pay increases. The matrix considered
an employee's existing salary position within the relevant pay band
(with position defined in terms of one of five possible quintiles), as
well as the employee's performance rating, and determined the
percentage pay increase corresponding to those factors. For example,
for the performance appraisal cycle we reviewed at FCA, the percentage
increase in pay that an employee who received a fully successful
performance rating could receive ranged from 3.5 percent (for an
individual whose salary was in the bottom quintile of the pay band) to
2.0 percent (for an individual whose salary was in the top quintile of
the pay band). For employees with the same performance rating, an
employee whose salary was considered to be below market rate at the
bottom of the pay band would receive a larger percentage pay increase
than an employee whose salary was considered to be at or above market
rate. FCA provided pay increases only to employees who performed above
a minimally successful rating level.
At many of the agencies, as an employee's salary approached the top of
the pay range for a position, increases linked to performance ratings
could be received as a combination of permanent salary increase and a
one-time, lump sum cash payment, as the following example illustrates.
* At FHFB, for an employee in a position with a pay range of $70,000-
$90,000, if the individual's salary was near the top of the pay range,
he or she would receive a performance-based merit increase to take his
or her salary to the top of the salary range and then receive a lump
sum payment.
Across the various methods used to translate performance ratings into
pay increases, the expectation would be that larger pay increases are
associated with higher performance ratings. As a means of providing a
quantified descriptor of how strongly increases in ratings were
associated with increases in pay linked to those ratings at each of the
agencies, we computed a Spearman rank correlation coefficient between
employees' performance ratings and the percentage increases in pay that
were linked to performance ratings.[Footnote 47] Although the
correlation coefficients for the eight agencies varied from +0.63 and
+0.94, they all demonstrated a strong positive association between
higher performance ratings and higher ratings-linked pay increases
(expressed as a percentage increase in salary).[Footnote 48]
While the correlation coefficients provide some additional perspective
on the linkage between performance ratings and pay increases at the
financial regulatory agencies, they should be viewed as a rough gauge
of the overall strength of the relationship across the agencies and are
not sufficient for ranking or making other comparisons between
agencies.[Footnote 49] In reviewing the coefficients, we noted that
agencies with some of the lowest correlations were using a four-level
rating system that produced rather constrained ratings distributions.
In one instance, for example, employees rated at the two lowest
performance levels (called levels 1 and 2) were not eligible for pay
increases, and over two-thirds of all employees received a level 3
rating. Both the base pay increases and bonus amounts that could be
awarded for level 3 performance overlapped with those for level 4 (the
highest level), such that some employees rated at level 3 realized a
percentage increase in pay that was twice the amount obtained by other
level-3-rated employees, as well as even some level-4-rated employees.
Agencies Used Different Budgeting Strategies for Performance-Based Pay:
The federal financial agencies also varied in their strategies to
budget for pay increases directly linked to performance ratings. Many
of the agencies set aside funds each year for performance-based pay
increases. At some agencies, these funds were treated as an agencywide
funding pool or pools for performance-based pay increases, as the
following examples illustrate.
* According to agency officials, NCUA established two agencywide merit
funding pools for different employee grade-level groups because higher
graded employees usually received higher ratings and consequently,
higher merit pay increases. Officials stated that the establishment of
two merit funding pools was more advantageous to lower graded employees
and increased the amount of funds available for their merit pay.
* SEC established one pool of funds for performance bonuses and quality
step increases available for senior officers, and another pool for all
other employees.
At some agencies the performance-based pay increases budget was divided
into separate pay pools by suborganizational unit, and the
responsibility for distributing merit pay increases was delegated to
management at the subunit level, as the following examples
illustrate.[Footnote 50]
* For the "Pay for Performance" program at FDIC that covers bargaining
unit and nonbargaining unit employees, the agency established pay pools
at the division level (and at the regional level for the large Division
of Supervision and Consumer Protection), and allocated funds for
performance-based pay increases to the pools. Funds were allocated
through pay pools to each division and office, with subsequent
separations of each division or office into separate populations for
bargaining unit and nonbargaining unit employees. (Corporate managers
and executives at FDIC are covered by a separate pay-at-risk
compensation system.)
* FHFB provided each office with a pay pool for performance-based
annual pay increases. The merit increase pool amounts were determined
based on the approved governmentwide general increase plus 2.5 percent
of the total base salaries for all employees in the office. An FHFB
official stated that the reason each office was provided with a pool of
funds was to avoid comparing individuals with different functions and
responsibilities to each other, and this official believed that FHFB
had greater control when pay decisions were made at the office level.
For example, an office director could decide to assess all his staff at
the outstanding level, but less performance-based pay would be
available for each office employee. Office directors were responsible
for determining the sum of all merit increases and lump sum payments
for their offices, while not exceeding their offices' merit increase
pool allocations.
Agencies Provided Other Increases That Considered Performance:
In addition to providing ratings-based pay increases, the financial
regulatory agencies awarded pay increases that considered individual
performance in some way without being directly linked to employees'
performance ratings. The following are additional examples of these
types of pay increases at the agencies to supplement the material
presented in the body of the report.
* The Federal Reserve Board offered a cash awards program, which
accounted for about 2.5 percent of the total agency salary budget, to
reward employees who sustained exceptional performance or made
significant contributions to successful projects, according to
officials. According to the Federal Reserve Board's criteria for this
awards program, cash awards could be given to employees who initiated,
recommended, or accomplished actions that achieved important Federal
Reserve Board goals, realized significant cost reductions, or improved
the productivity or quality of Board services. These awards could be
made in any amount up to a maximum of 10 percent of an employee's base
pay within the same performance cycle. The 10 percent maximum did not
apply to variable pay awards, which are given instead of cash awards to
economists, attorneys, or Federal Reserve Board officers.
* For some regulators, these types of pay increases were sizeable. For
example, at OCC, approximately 10 percent of employees were awarded a
special increase during the completed appraisal cycle we reviewed. The
awards represented a 5 percent raise for those individuals. According
to OCC policy, special increases are to be awarded to recognize
increased value an employee contributes to his or her job by applying
desirable skills over a significant period of time or by assuming
higher-level responsibilities within his or her pay band. OCC also
provided some pay increases for competitive and noncompetitive
promotions during the appraisal cycle we reviewed. Interestingly, of
the eight financial regulators that participated in OPM's 2006 Federal
Human Capital Survey, OCC had the largest percentage of employees
agreeing with the view that awards in their work units depended on how
well employees performed their jobs. At OCC, 55.7 percent of employees
agreed with this view. Governmentwide the corresponding figure was 39.8
percent of employees. Two other agencies, FCA and NCUA, also had
slightly over 50 percent of their employees agreeing with this
statement.
Results from the 2006 OPM Federal Human Capital Survey suggest that the
financial regulatory agencies have done relatively better than many
agencies governmentwide in linking pay to performance. All eight of the
financial regulators that participated in the 2006 survey had
percentages of positive responses from their employees that were about
the same as or better than the governmentwide percentage of 21.7
positive responses to an item asking employees whether they agreed or
disagreed with the statement that pay raises depended on how well
employees performed their jobs at their agencies. The percentage of
employees giving a positive response to this item was at least twice as
high as the governmentwide value for a majority of the eight agencies
participating in the survey.
Agencies Built in Safeguards:
While the financial regulatory agencies built safeguards into their
performance management systems, the agencies established and
communicated standards for differentiating among performance rating
categories and criteria for performance-based pay decisions to varying
degrees. The agencies also built in additional safeguards of
establishing higher-level reviews of performance rating decisions by
either higher-level officials or oversight groups, and all have
established appeals processes for employees to request reconsiderations
of performance rating decisions. It is important for agencies to have
modern, effective, credible, and, as appropriate, validated performance
management systems in place with adequate safeguards to ensure fairness
and prevent politicization and abuse. We have reported that a common
concern that employees express about any performance-based pay system
is whether supervisors have the ability and willingness to assess
employees' performance fairly.[Footnote 51] Using safeguards can help
to allay these concerns and build a fair and credible system.
Agencies Implemented Higher-Level Reviews of Performance Rating
Decisions:
Although they have used different approaches, all of the federal
financial regulatory agencies have provided higher-level reviews of
individual performance rating decisions to help ensure that performance
standards were consistently and equitably applied across the agency.
All of the agencies have established at least one level of review of
employees' performance ratings to help ensure that performance
standards were applied appropriately. At some agencies, this oversight
process has involved a second-line supervisor or higher-level official
reviewing the employee's performance rating to ensure that the rating
was appropriate and consistent with any narrative describing the
employee's performance. Some agencies also have offices outside of the
employee's team/office, such as the Human Capital Office, review
employee performance ratings to ensure that rating decisions for groups
of employees (agencywide, or by division or region) were fair and
equitable, as the following examples illustrate.
* OCC officials indicated that at the end of every appraisal cycle,
they have evaluated the results of the performance management and pay
system by looking, for example, at the differentiation in ratings and
pay decisions and how the pay ranges were used. The human resources
officials have discussed these results with managers to show them how
their employees' performance ratings and pay decisions influenced OCC's
overall results. For example, OCC introduced merit bonuses for the
first time in the 2005 performance appraisal cycle. Upon reviewing the
results of the merit bonus decisions, OCC officials found that the
percentage of employees in each organizational unit that received a
merit bonus varied widely among the units--ranging from a high of over
80 percent of employees receiving a bonus in one unit to 30 percent in
another unit. As a result, according to agency officials, OCC decided
to recommend a minimum amount for bonuses and restrict the percentage
of staff who can receive a bonus to 50 percent within each
organizational unit. Agency officials also indicated that they have
identified areas of future training on the system based on the results
of reviews and subsequent discussions with managers, in order to
improve implementation of the system.
* At NCUA, an employee's performance rating was completed and signed by
the rating official, and then a reviewing official (an office or
regional director) reviewed the employee's performance rating to ensure
that the rating was supported. Reviewers also look for consistency
throughout the rating process. For example, an Associate Regional
Director will look across all examiners' ratings in the region for
consistency.
* FHFB provided a supervisory review of performance ratings to help
ensure that an employee's recommended rating was justified as well as
consistent with other ratings in the employee's work group. Once the
rating official (usually a first-line supervisor) recommended an
initial summary rating, the rating official would forward the rating to
a second-line supervisory reviewer (usually the division director or
deputy director), called a reviewing official. According to FHFB
officials, the reviewing official was usually knowledgeable about the
employee's performance and could discuss the rating narrative and final
rating decision with the rating official before the rating was shared
with the employee. In addition, the reviewing official checked whether
performance rating narratives supported individual performance
elements, summary ratings were properly calculated and appropriately
signed, and there was consistency of ratings across the work group.
FHFB employee representatives with whom we spoke stated a belief that
the rating review process was effective and that supervisors did not
give ratings unless they first reviewed their decisions with
management. Employee representatives noted that there is a commitment
in the agency to be fair and equitable in assigning ratings.
* FCA provided multiple levels of reviews of ratings to ensure the
appropriateness of rating scores and consistency in applying
performance standards across FCA offices. After the rating official
completed an initial rating, a second-line reviewer was assigned to
review each employee's rating against the standards. Before final
ratings were issued, FCA's Office of Management Services provided a
check to ensure that offices were appropriately and consistently
applying performance standards and to look for any significant
outliers. Employee performance assessments rated as outstanding and as
less than fully successful would be reviewed to determine whether
rating scores matched the narrative discussions. Any potential issues
identified would be brought to the attention of the rating official for
discussion and resolution. Management officials told us that the Chief
Human Capital Officer would meet with division management to discuss
whether the rating criteria were appropriately applied and then
division managers would determine whether to change any performance
ratings. In addition, the Office of Management Services performed a
post-rating distribution audit to review final rating distributions to
help inform future rating practices.
Establish Appeals Processes for Performance Rating Decisions:
As mentioned previously, all of the federal financial regulatory
agencies have established appeals processes for employees to request
reconsiderations of performance rating decisions to help ensure
accuracy and fairness in the process. Providing mechanisms for
employees to dispute rating decisions when they believe decisions are
unfair can help employees gain more trust in the system, as the
following examples illustrate.
* Employees at CFTC could ask for an appeal of their overall rating
through the agency's reconsideration process. An employee could first
appeal his or her rating to the manager who reviewed the rating (called
the reviewing official) by defending his or her position orally or in
writing. This Reviewing Official then considered the employee's
justification as well as the original rater's opinion and provided a
final decision on the matter. According to CFTC officials, employees
sometimes wanted to change the wording in their performance
evaluations.
* OTS has defined a grievance policy for employees who are dissatisfied
with their performance ratings. Employees covered by the bargaining
unit agreement may file a grievance under the negotiated agreement
while employees not covered by the agreement may request a grievance
(within 10 days of receiving their ratings) under the agency's
administrative grievance procedures. OTS' union representative reported
that in the past, management and union representatives had resolved
many cases of rating disputes prior to employees filing formal
grievances.
* The Federal Reserve Board has established an appeals process so that
an employee can appeal the fairness of an overall rating decision, the
rating on an individual element, or any adverse comments appearing on
the performance assessment form. Employee representatives we spoke with
said that they believe that employees understand the appeals process,
but thought that more employees could take advantage of this
opportunity. An employee may first appeal his or her performance rating
to a division director, who in turn will notify the appropriate
supervisor who submitted the rating. Then, the division director will
determine whether the rating is appropriate based upon a review of
documentation provided by both the employee and supervisor. If the
employee is not satisfied with the first-level appeal decision, the
employee may make a second-level appeal to the Associate Director of
Human Resources and specify areas of disagreement with the performance
assessment. The Associate Director for the second-level appeal will
then determine whether the division has reasonably followed procedures
and whether performance assessment guidelines were applied consistently
to other employees reporting to the same supervisor. This supporting
documentation submitted by the division will be shared with the
employee, except in cases where doing so infringes on the
confidentiality of other employees. As a result, first-or second-level
appeal decisions may result in changes to an overall rating, changes to
the rating of an individual element, or changes in the language in the
employee's performance assessment.
* OFHEO has established a three-level appeals process to ensure that
employees can dispute rating decisions when they disagree with rating
decisions. Employees can appeal the overall performance rating or
individual performance elements within the rating. For the first-level
appeal, the employee can submit a request with supporting documentation
to the performance rating official for reconsideration. If an appeal is
not resolved at the first level, the employee can request that the
second-level supervisor review the performance rating and supporting
documentation. Finally, the employee can request a third-level appeal
by the third-level supervisor, if necessary.
[End of section]
Appendix IV: Actions Taken by Financial Regulators to Seek to Maintain
Pay and Benefits Comparability and Pay and Benefits Data:
The federal financial regulatory agencies have made an effort to meet
the comparability requirements as required by the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and
subsequent legislation.[Footnote 52] However, we found that factors
such as funding constraints, when the agency was granted flexibility
under Title V of the U.S. Code, the needs or preferences of their
respective workforces, and each agency's pay and benefits policies can
result in some variation in their pay and benefits.[Footnote 53] They
have also taken steps to explore a common survey that would enable them
to more efficiently collect information for pay and benefit
comparability purposes.
Financial Regulators Have Conducted Individual Pay and Benefits
Comparability Surveys and Regularly Consult with Each Other, but Noted
Some Inefficiencies in the Process:
To seek to maintain pay and benefits comparability, the majority of the
10 federal financial regulators have hired external compensation
consultants to conduct individual formal pay and benefits comparability
surveys that have included the other financial regulators. As shown in
table 5, 7 of the 10 financial regulators conducted pay and benefits
comparability surveys. Of the 7, 5 agencies also have included benefits
in their formal surveys. According to agency officials, because some of
the 10 agencies perceive the private sector as their main competitor
for skilled employees, they have included private-sector entities in
their pay and benefits surveys or have obtained additional private-
sector data through the Bureau of Labor Statistics and private vendors
to complement their pay and benefits surveys.
Table 5: Pay and Benefits Surveys That Federal Financial Regulators
Conducted through External Compensation Consultants, 1991-2006:
Agencies: CFTC;
Hired external compensation consultants to conduct pay comparability
surveys: No. In 2003 and 2005, used consultant to review existing
surveys;
Included benefits in comparability surveys: N/A;
Years in which agencies have conducted surveys through external
compensation consultants: N/A;
Agencies participating in surveys: Used FDIC and OCC 2002 survey
results in 2003; used interagency group data in 2005.
Agencies: FCA;
Hired external compensation consultants to conduct pay comparability
surveys: Conducts a pay survey once every 2-3 years;
Included benefits in comparability surveys: No;
Years in which agencies have conducted surveys through external
compensation consultants: 1991, 1993, 1996, 1999, 2002;
Agencies participating in surveys: The 2002 survey included FDIC, FHFB,
the Federal Reserve Board, NCUA, OCC, OFHEO, and OTS.
Agencies: FDIC;
Hired external compensation consultants to conduct pay comparability
surveys: Conducts pay and benefits survey about once every 3 years;
Included benefits in comparability surveys: Yes;
Years in which agencies have conducted surveys through external
compensation consultants: 1996, 1999, 2002, 2005;
Agencies participating in surveys: The 2005 pay survey included all
FIRREA agencies as well as the Federal Reserve Board, CFTC, OFHEO, SEC,
and several Federal Reserve Banks.
The 2005 benefits survey included all FIRREA agencies and the Federal
Reserve Board.
Agencies: FHFB;
Hired external compensation consultants to conduct pay comparability
surveys: Conducted a pay and benefits survey once. Also uses FDIC's pay
and benefits surveys as a guide;
Included benefits in comparability surveys: Yes;
Years in which agencies have conducted surveys through external
compensation consultants: 2002;
Agencies participating in surveys: The 2003 survey compared pay and
benefits with FCA, FDIC, OCC, NCUA, OTS, and the Federal Reserve Board.
Agencies: Federal Reserve Board;
Hired external compensation consultants to conduct pay comparability
surveys: Conducts pay and benefits survey every 1-2 years;
Included benefits in comparability surveys: Yes;
Years in which agencies have conducted surveys through external
compensation consultants: Annual surveys conducted between 1994 and
2005, excluding 2003;
Agencies participating in surveys: The 2005 survey included OCC, FDIC,
NCUA, OFHEO, OTS, SEC, as well as the private-sector entities and
academia.
Agencies: NCUA;
Hired external compensation consultants to conduct pay comparability
surveys: Conducted pay and benefits surveys twice;
Included benefits in comparability surveys: Yes;
Years in which agencies have conducted surveys through external
compensation consultants: 2000, 2004;
Agencies participating in surveys: The 2004 pay and benefits survey
included FDIC, OCC, OTS, FHFB, FCA, SEC, OFHEO, and the private sector.
Agencies: OCC;
Hired external compensation consultants to conduct pay comparability
surveys: Conducted a pay survey every year, alternating between a full
survey that covered many benchmarked jobs and a simplified survey that
covered a few of the benchmarked jobs;
Included benefits in comparability surveys: No;
Years in which agencies have conducted surveys through external
compensation consultants: 1999, 2001, 2002, 2003, 2006;
Agencies participating in surveys: The 2006 pay survey included FCA,
FDIC, FHFB, NCUA, OTS, OFHEO, SEC, and the Federal Reserve Board.
Agencies: OFHEO;
Hired external compensation consultants to conduct pay comparability
surveys: Conducted pay and benefits surveys every 3 to 5 years;
Included benefits in comparability surveys: Yes;
Years in which agencies have conducted surveys through external
compensation consultants: 2000, 2005;
Agencies participating in surveys: The 2005 pay and benefits survey
included OCC, the Federal Reserve Board, FDIC, OTS, FHFB, and FCA.
Agencies: OTS;
Hired external compensation consultants to conduct pay comparability
surveys: No. Conducts informal benchmark surveys as needed;
Included benefits in comparability surveys: N/A;
Years in which agencies have conducted surveys through external
compensation consultants: N/A;
Agencies participating in surveys: N/A.
Agencies: SEC;
Hired external compensation consultants to conduct pay comparability
surveys: No;
Included benefits in comparability surveys: N/A;
Years in which agencies have conducted surveys through external
compensation consultants: N/A;
Agencies participating in surveys: N/A.
Source: GAO summary of agency data.
[End of table]
The remaining three regulators (CFTC, OTS, and SEC) have participated
in the pay and benefits surveys of other agencies, and officials from
these agencies said that they have used the results of these surveys,
but have not conducted their own. For example, an SEC official told us
that his agency often uses FDIC's data because, like SEC, FDIC has a
large number of compliance examiners and must negotiate pay and
benefits with the same union as SEC. In 2002 and 2003, CFTC has also
hired consultants to review existing surveys from FDIC and OCC as well
as from information gathered from other regulators.
The agencies hired external compensation consultants to conduct the
surveys because, according to officials from FCA and FDIC, these
consultants provide an objective view of their agencies' pay and
benefits. And, because they have often worked with other FIRREA
agencies, the consultants can provide insights and perspectives based
on information from other agencies. For pay comparability surveys,
external compensation consultants compare base pay ranges for a given
occupation, locality pay percentages and, to a lesser extent, annual
bonus and other cash award policies. To compare pay across agencies,
consultants send questionnaires on behalf of the sponsoring agency and
ask participating agencies to match the jobs based on the job
descriptions provided. The job descriptions usually contain information
on duties, scope of responsibilities, and educational requirements.
External compensation consultants also have used various methods to
assess the comparability of benefits. For example, the consultant for
FDIC did a side-by-side comparison of benefits offered at other
agencies, and also calculated the total cost of benefits per employee.
In addition to conducting comparability surveys, agency officials told
us that human capital officials at the 10 regulators have formed an
interagency Financial Regulatory Agency Group. The members regularly
consult with each other on pay and benefits issues, and as they prepare
their budgets for the coming year, they meet to exchange information on
potential and actual changes to pay and benefits. For example, the
group has exchanged information on updates in merit pay ranges,
bonuses, salary pay caps, and benefits such as flexible work schedules.
Agency officials also have taken turns to update a spreadsheet that
lists the pay ranges and benefits for all 10 financial regulators, a
key document the agencies use to compare pay and especially benefits
informally across agencies.
However, in consulting with each other to meet comparability
requirements, agency officials told us that because many of the
financial regulators conduct comparability surveys, their staffs have
had to respond to numerous and often overlapping inquiries, which can
be burdensome and inefficient. This is especially the case for smaller
agencies, such as FCA and FHFB, which tend to have smaller human
capital (personnel) departments than larger agencies that may have pay
and benefits specialists who can handle comparability issues full time,
including filling out and processing various comparability surveys.
According to officials from a few regulators, partly as a result of the
substantial investment of time and resources, some agencies have not
been timely or forthcoming in sharing their pay and benefits
information.
Regulators Are Exploring the Feasibility of a Common Survey:
According to several agency officials, in response to renewed interest
of upper management from several agencies in consolidating pay and
benefits surveys, the regulators are studying the feasibility of such a
method. In December 2006, the regulators formed a subcommittee within
the Financial Regulatory Agency Group to study the feasibility of a
common survey. Agency officials are exploring whether consolidating the
various comparability surveys into a common survey will improve the
process for job matching and result in more efficient use of resources.
They also told us that the subcommittee also has discussed the
feasibility of establishing a Web-based data system to make the most
current pay and benefits information available to participating
agencies. The subcommittee is working on the details of allocating
costs of a common survey among the agencies, but has suggested that
costs might be prorated based on the size of each regulatory agency. As
of March 2007, agency officials had not yet received cost figures from
potential consultants.
Agency officials who attended the first subcommittee meeting told us
that implementation of a common survey would require collaboration and
agreement on a number of matters, such as:
* choice of external compensation consultant to conduct the common
survey, since different consultants have different approaches to carry
out the common survey;
* group of jobs to be benchmarked for the common survey and best
approach for job matching, as some jobs are unique to certain agencies;
* timing and frequency of the common survey to meet everyone's needs
since agencies determine pay and benefits at different times of the
year and would need the updated information when the need arises;
* number and types of organizations to include in the common survey
because while all agencies would want to include the financial
regulators, some may need information from certain private-sector
entities; and,
* cost of the common survey may be substantial, which according to some
agencies, is a potential concern.
By forming the subcommittee to explore issues associated with
developing a common survey, agency officials have adopted some of the
practices that we identified that would enhance and sustain
collaborative efforts. These practices include defining and
articulating a common outcome, establishing means to operate across
agency boundaries, and leveraging resources.[Footnote 54]
Agency officials who are members of the subcommittee told us that the
officials have sent a formal request for information to several
consultant candidates. The request inquired about the consultants'
ability to plan and execute a common survey that will provide
customizable reports for each agency and also create a secure,
centralized data source on pay and benefits. In addition, agency
officials asked how the consultants would approach job matching, a
complicated task. For example, officials from FDIC, OFHEO, and SEC told
us that the use of different pay plans and grades among agencies and
the location of field offices in cities with different employment
market conditions contributed to the difficulty in matching jobs across
regulators. In addition, some agency officials said that it is
difficult to match jobs because agencies have different job
requirements that may differ even when a job title is the same. The
subcommittee received responses from various consultants and as of
March 2007 was in the process of contacting the consultants to gather
more details and to discuss the options available to them.
Most Regulators Used Benchmarks Developed from Surveys and Other Data
to Assess Comparability and Make Adjustments to Pay and Benefits:
In the absence of a legislative definition, agency officials told us
that agencies have used various benchmarks, as shown in table 6, to
assess pay and benefits comparability. For example, FDIC has sought to
set its total pay ranges (base pay plus locality pay) for specific
occupations and grade levels within 10 percent of the average of FIRREA
agencies, a benchmark that pay and benefits consultants have used in
their comparability surveys. FCA uses benchmarks, including average
market rate paid by other financial regulators. CFTC uses average
payroll and salary structure relative to other regulators. FHFB, NCUA,
OTS, and SEC told us that they have not used specific benchmarks, and
OTS uses informal benchmarks as needed.
Table 6: Selected Examples of Benchmarks Agencies Have Used to Assess
Pay and Benefits Comparability:
Agencies: CFTC;
Benchmark examples used to assess pay comparability: Average payroll,
salary structure, etc., relative to other regulators;
Benchmark examples used to assess benefits: Benefits being of similar
types, and relative benefits costs as percentage of payroll.
Agencies: FCA;
Benchmark examples used to assess pay comparability: Pay at average
market rate paid by other financial regulators. The goal is to be in
the middle range of the financial regulators;
Benchmark examples used to assess benefits: No specific benchmarks.
Agencies: FDIC;
Benchmark examples used to assess pay comparability: Since 1999, total
pay (base pay plus locality pay) within 10 percent of the average of
FIRREA agencies. Prior to 1999, no specific benchmarks were used;
Benchmark examples used to assess benefits: Benefits being of similar
types and having equivalent or similar overall value, without
necessarily being identical.
Agencies: FHFB;
Benchmark examples used to assess pay comparability: No specific
benchmarks;
Benchmark examples used to assess benefits: No specific benchmarks.
Agencies: Federal Reserve Board;
Benchmark examples used to assess pay comparability: Pay at the average
of the market, including regulators and other appropriate competitors;
Benchmark examples used to assess benefits: Benefits being similar
types.
Agencies: NCUA;
Benchmark examples used to assess pay comparability: No specific
benchmarks;
Benchmark examples used to assess benefits: No specific benchmarks.
Agencies: OCC;
Benchmark examples used to assess pay comparability: Pay within 10
percent of the other agencies' (or the market's) median base pay plus
locality pay for each occupation and grade;
Benchmark examples used to assess benefits: Benefits being similar
types. OCC does not consider the cost of benefits.
Agencies: OFHEO;
Benchmark examples used to assess pay comparability: Pay within 10
percent of average salary of other agencies or market average for each
occupation and grade;
Benchmark examples used to assess benefits: Benefits being of similar
types and having equivalent or similar overall value, without
necessarily being identical.
Agencies: OTS;
Benchmark examples used to assess pay comparability: No specific
benchmarks. Informal benchmarks as needed;
Benchmark examples used to assess benefits: No specific benchmarks.
Informal benchmarks as needed.
Agencies: SEC;
Benchmark examples used to assess pay comparability: No specific
benchmarks;
Benchmark examples used to assess benefits: No specific benchmarks.
Source: GAO summary of agency information.
[End of table]
Agency officials told us that all agencies, including the three
agencies that have not conducted formal benefits surveys, have assessed
their benefits comparability by comparing individual benefit items as
well as agency contributions to specific benefits. They added that most
agencies have used the interagency group spreadsheet that lists all the
benefits and agency contributions offered.
According to agency officials, the financial regulators have used
information from the pay and benefits comparability surveys and
discussions among the agencies in their efforts to seek to maintain
comparability. Table 7 provides some recent examples of these efforts.
Table 7: Selected Examples of Recent Pay and Benefits Adjustments
Resulting from Agencies' Comparability Assessments:
Year: 2002;
Action taken to adjust pay and benefits: FCA adjusted its pay ranges
based on its comparability survey, which stated that FCA's pay was
lower than other FIRREA agencies.
Year: 2002;
Action taken to adjust pay and benefits: In response to recently
enacted comparability requirements, SEC substantially increased its pay
ranges to be comparable to those offered at other FIRREA agencies.
Year: 2003;
Action taken to adjust pay and benefits: As a result of gaining pay
flexibilities, CFTC implemented new pay ranges for its 2003 pay
schedule; CFTC increased base pay by 20 percent for all eligible
employees to partially close the 25 percent gap between CFTC and FIRREA
agencies.
Year: 2006;
Action taken to adjust pay and benefits: OFHEO increased its pay ranges
across the board based on the findings from its 2005 pay and benefits
survey.
Year: 2006;
Action taken to adjust pay and benefits: The FDIC increased its pay
scale minimums by 1.5 percent and pay scale maximums by 6 percent,
effective February 18, 2006, based on FDIC's consultant's analysis of
its pay and benefits survey.
Source: GAO analysis of agency information.
[End of table]
Agency Pay and Benefits Policies and Several Other Factors Contribute
to Variations in Pay and Benefits:
Although the financial regulators have adjusted their pay and benefits
to seek to maintain comparability, several factors influence
compensation decisions that lead to some variations in pay ranges and
benefit packages. As shown in figure 3 in the report, with the
exception of the Federal Reserve Board and OFHEO, the financial
regulators' total pay ranges consist of base pay and locality pay
percentages that are calculated based on the employees' duty station.
The Federal Reserve Board and OFHEO do not have separate locality pay
percentages because Washington, D.C., is their only duty station.
Figure 3 also shows that, for examiners, FDIC and NCUA pay ranges
generally have lower minimum base pay than other agencies, and FDIC and
OCC have higher maximum base pay for examiners. In addition, for
economists, CFTC and FDIC pay ranges have lower minimum base pay than
other agencies, and the CFTC and OCC pay ranges have higher maximum
base pay.[Footnote 55]
Actual average base pay figures that we obtained from the Central
Personnel Data File and from the Federal Reserve Board also vary among
the 10 agencies in relation to the agencies' respective base pay
ranges, as shown in figure 3 in the report. For example, the actual
average base pay for examiners at OCC ($92,371) is 52 percent of the
maximum pay range of $177,600. However, actual average base pay as a
percentage of maximum pay can vary considerably, as in the case of SEC
attorneys. Their actual average base pay ($124,379) is 98 percent of
the maximum pay range of $126,987.
According to agency officials, two factors affect where actual average
base pay falls within an agency's pay range. One is the distribution of
the length of service among employees. For example, the actual average
base pay for agencies with a higher proportion of long-tenured
employees would be closer to the maximum of its pay range. Conversely,
actual average base pay for agencies with a higher proportion of new
hires would fall closer to the minimum of the pay scale. An OCC
official told us that despite the fact that OCC also has a large number
of experienced examiners, the actual average pay for OCC examiners may
seem low compared to other agencies because OCC has hired a large
number of examiners during the last 2 years. Officials from several
federal regulators also told us that they rarely hire at the lower
grade level for some occupations. For example, FHFB tends to hire mid-
level employees because its relatively small office cannot afford a
long training period for new hires.
As shown in table 2 in the report, locality pay percentages vary among
agencies for the same duty station. Table 8 shows the methods that
agencies are currently using to determine their respective locality pay
percentages and adjustments.
Table 8: Agencies' Current Methods for Determining Locality Pay
Percentages and Adjustments:
Agency: CFTC;
Methods for determining locality pay percentages and adjustments: Uses
OPM locality percentages.
Agency: FCA;
Methods for determining locality pay percentages and adjustments: Uses
the average rate of 5 FIRREA agencies: FDIC, FHFB, NCUA, OCC, and OTS.
Agency: FDIC;
Methods for determining locality pay percentages and adjustments: Uses
a formula jointly developed by the National Treasury Employees Union
and FDIC primarily based on the Bureau of Labor Statistics National
Compensation Survey Cost of Labor data for federally defined locality
pay areas, with Runzheimer International cost of living data influence
for a very few areas where there are extreme differences between cost
of living and cost of labor.
Agency: FHFB;
Methods for determining locality pay percentages and adjustments: For
Washington, D.C., considers other federal bank regulatory agencies per
FHFB's comparability statute. For other locations, uses FDIC locality
pay percentages.
Agency: Federal Reserve Board;
Methods for determining locality pay percentages and adjustments: Not
Applicable. Washington, D.C., is the only duty station.
Agency: NCUA;
Methods for determining locality pay percentages and adjustments:
Considers other FIRREA agencies.
Agency: OCC;
Methods for determining locality pay percentages and adjustments: Uses
primarily cost of labor data from the Economic Research Institute.
Agency: OFHEO;
Methods for determining locality pay percentages and adjustments: Not
Applicable. Washington, D.C., is the only duty station.
Agency: OTS;
Methods for determining locality pay percentages and adjustments: Uses
Runzheimer International cost of living data.
Agency: SEC;
Methods for determining locality pay percentages and adjustments:
Currently adjusts yearly locality pay percentage increases by at least
the minimum recommended OPM locality incremental adjustment.
Source: GAO analysis of agency information.
[End of table]
The benefits that the 10 financial regulators offered also varied.
Although all of the agencies offer standard federal government
benefits, there are variations in the extent of agency contributions
and types of additional benefits these agencies offer. For example, all
financial regulators offer the Federal Employees Health Benefits
program, but agency contributions differ. Some agencies pay for a
percentage of the health premium (e.g. 70 percent at FCA and 90 percent
at OFHEO). CFTC contributes 100 percent for reservists called to active
duty. The following are selected examples of the additional benefits
that some financial regulators offer as of September 2006 unless noted
otherwise:
* Five of the 10 regulators--FDIC, FHFB, the Federal Reserve Board,
OCC, and OTS--offer their employees 401(k) retirement savings plans
with varying employer contributions. In addition, all agencies except
the Federal Reserve Board offer the federal Thrift Savings
Plan.[Footnote 56]
* The Federal Reserve Board and OCC offer domestic partner benefits for
some types of plans.
* FCA and SEC offer child care subsidies, and FDIC and OTS offer on-
site day care.
* FCA, FDIC, FHFB, and OCC reimburse employee expenses related to items
such as fitness, recreation, and adoption in their wellness accounts.
Amounts differ from $250 per year at FDIC to $700 per year at FHFB.
According to agency officials, a number of factors have influenced
their pay and benefits policies and could have contributed to the
variations in their pay ranges and benefits. For example, the length of
time an agency has been under the comparability requirements and
related compensation flexibility provisions affected compensation. CFTC
and SEC officials told us that because their agencies received pay and
benefits flexibilities and were put under a comparability requirement
much later (in 2002) than the six FIRREA agencies (in 1989), CFTC and
SEC have taken an incremental approach to slowly increase their pay and
benefits to close the gap with the other financial regulators.
According to a CFTC official, this would allow time for employee input
and acceptance while building agency capacity to manage the authority.
Budgetary constraints represent another factor. OFHEO officials told us
that OFHEO did not implement a new 401(k) retirement savings plan
recommended by its external compensation consultant, Watson Wyatt, in
its 2005 comparability survey because OFHEO is working to control the
growth of its personnel expenses and because budget limitations
resulting from being part of the appropriations process has caused
OFHEO to curtail new benefits programs. Furthermore, agency officials
said that an agency has to consider the particular needs and
preferences of the agency's workforce as well as ways to attract and
retain its workforce. For example, CFTC added a fully paid dental
benefit as a result of an online vote by employees on preferred
benefits options. FDIC officials indicated that its employees greatly
value the matching contribution FDIC provides on its 401(k) plan, and
found that the matching contribution is also an effective retention
tool. Similarly, OCC added a 401(k) retirement savings plan in order to
attract and retain employees. According to an SEC official, SEC uses a
student loan repayment benefit because the benefit helps to attract and
retain employees, many of whom are recent law school graduates. Agency
officials emphasized that it was not their goal to have identical pay
and benefits packages; rather, they considered pay and benefits as a
total package when seeking to maintain pay and benefits comparability
and when setting pay and benefits policies aimed at recruiting and
retaining employees. See table 9 for more detailed information on the
benefits that the 10 financial regulators offer.
The following table lists selected benefits identified by 10 financial
regulators as of September 2006, unless otherwise noted in the table.
We included the following categories of benefits: insurance, pre-tax
benefits, child care, leave, travel and relocation, educational and
professional expenses, retirement, work/life benefits, and other
benefits and payments.
Table 9: List of Benefits Offered by the 10 Financial Regulators:
[See PDF for image] - graphic text:
Source: GAO analysis of agency data.
[End of figure] - graphic text:
[End of section]
Appendix V: Analysis of Movement Data of Financial Regulator Employees
from Fiscal Years 1990 through 2006:
We reviewed the movement of financial regulator employees from fiscal
year 1990 through 2006 using data from the Central Personnel Data File
(CPDF). We found that the movement of employees among the financial
regulators was very low and presented no discernible trend, but that 86
percent (13,433 of the 15,627) of employees leaving the regulators
voluntarily (i.e., moving or resigning) resigned from the federal
government. Our analysis did not include the Federal Reserve Board of
Governors because CPDF does not contain data from the Federal Reserve
Board. (For more detail on our methodology, see app. I.) This appendix
includes additional data for fiscal years 1990 through 2006 on the
average number of these employees moving among the 9 financial
regulators; the movement of employees among 9 of the 10 financial
regulatory agencies by occupation; and employment by occupation and
employee movement agency snapshots.
Figure 8 shows the average number of employees in mission-critical and
other occupations moving among the 9 financial regulators for which we
have data from fiscal year 1990 through fiscal year 2006. On average, a
total of 919 employees per year moved or resigned. Movement ranged from
an average of less than 1 for investigators to an average of over 11
for examiners.
Figure 8: Average Number of Employees in Mission-Critical and other
Occupations Moving among the 9 Financial Regulators, Fiscal Years 1990-
2006:
[See PDF for image] - graphic text:
Source: GAO analysis of CPDF data.
Note: This table does not include data for the Federal Reserve Board
because CPDF does not include data for the agency. The "all other"
category combines specialists in occupations such as human resources
management, administration, clerical, management and program analysis,
financial administration, and paralegal work.
[End of figure] - graphic text:
Table 10 provides the actual number of financial regulator employees
for whom we had data, by mission-critical and other occupations, who
moved to another financial regulator from fiscal year 1990 through
2006.
Tables 11 through 19 provide employment by occupation and movement data
for 9 of the 10 agencies from fiscal year 1990 through 2006.[Footnote
57]
Table 10: Number of Financial Regulator Employees in Mission-Critical
and other Occupations Who Moved to another Financial Regulator, Fiscal
Years 1990-2006:
Fiscal year: 1990;
Accountant: 1;
Attorney: 9;
Auditor: 0;
Business Specialist: 0;
Economist: 0;
Examiner[D]: 12;
Financial Analyst: 1;
Investigator[C]: 0;
IT Specialist: 0;
Supervisor[A]: 9;
All Other[B]: 30;
Total: 62.
Fiscal year: 1991;
Accountant: 0;
Attorney: 19;
Auditor: 0;
Business Specialist: 0;
Economist: 1;
Examiner[D]: 12;
Financial Analyst: 4;
Investigator[C]: 0;
IT Specialist: 3;
Supervisor[A]: 21;
All Other[B]: 37;
Total: 97.
Fiscal year: 1992;
Accountant: 2;
Attorney: 3;
Auditor: 3;
Business Specialist: 0;
Economist: 1;
Examiner[D]: 21;
Financial Analyst: 2;
Investigator[C]: 0;
IT Specialist: 0;
Supervisor[A]: 3;
All Other[B]: 19;
Total: 54.
Fiscal year: 1993;
Accountant: 0;
Attorney: 3;
Auditor: 0;
Business Specialist: 1;
Economist: 0;
Examiner[D]: 15;
Financial Analyst: 1;
Investigator[C]: 0;
IT Specialist: 1;
Supervisor[A]: 3;
All Other[B]: 8;
Total: 32.
Fiscal year: 1994;
Accountant: 0;
Attorney: 3;
Auditor: 0;
Business Specialist: 0;
Economist: 0;
Examiner[D]: 8;
Financial Analyst: 1;
Investigator[C]: 0;
IT Specialist: 0;
Supervisor[A]: 8;
All Other[B]: 3;
Total: 23.
Fiscal year: 1995;
Accountant: 0;
Attorney: 3;
Auditor: 0;
Business Specialist: 0;
Economist: 1;
Examiner[D]: 6;
Financial Analyst: 2;
Investigator[C]: 0;
IT Specialist: 0;
Supervisor[A]: 13;
All Other[B]: 11;
Total: 36.
Fiscal year: 1996;
Accountant: 1;
Attorney: 4;
Auditor: 1;
Business Specialist: 1;
Economist: 0;
Examiner[D]: 3;
Financial Analyst: 0;
Investigator[C]: 0;
IT Specialist: 1;
Supervisor[A]: 2;
All Other[B]: 5;
Total: 18.
Fiscal year: 1997;
Accountant: 0;
Attorney: 3;
Auditor: 0;
Business Specialist: 0;
Economist: 1;
Examiner[D]: 2;
Financial Analyst: 1;
Investigator[C]: 0;
IT Specialist: 1;
Supervisor[A]: 7;
All Other[B]: 1;
Total: 16.
Fiscal year: 1998;
Accountant: 0;
Attorney: 8;
Auditor: 0;
Business Specialist: 0;
Economist: 0;
Examiner[D]: 28;
Financial Analyst: 0;
Investigator[C]: 0;
IT Specialist: 0;
Supervisor[A]: 4;
All Other[B]: 7;
Total: 47.
Fiscal year: 1999;
Accountant: 0;
Attorney: 5;
Auditor: 0;
Business Specialist: 0;
Economist: 0;
Examiner[D]: 14;
Financial Analyst: 4;
Investigator[C]: 0;
IT Specialist: 2;
Supervisor[A]: 2;
All Other[B]: 8;
Total: 35.
Fiscal year: 2000;
Accountant: 0;
Attorney: 9;
Auditor: 0;
Business Specialist: 0;
Economist: 1;
Examiner[D]: 9;
Financial Analyst: 1;
Investigator[C]: 1;
IT Specialist: 0;
Supervisor[A]: 3;
All Other[B]: 10;
Total: 34.
Fiscal year: 2001;
Accountant: 1;
Attorney: 3;
Auditor: 0;
Business Specialist: 1;
Economist: 2;
Examiner[D]: 15;
Financial Analyst: 1;
Investigator[C]: 0;
IT Specialist: 2;
Supervisor[A]: 2;
All Other[B]: 9;
Total: 36.
Fiscal year: 2002;
Accountant: 0;
Attorney: 7;
Auditor: 0;
Business Specialist: 0;
Economist: 1;
Examiner[D]: 5;
Financial Analyst: 0;
Investigator[C]: 0;
IT Specialist: 3;
Supervisor[A]: 7;
All Other[B]: 4;
Total: 27.
Fiscal year: 2003;
Accountant: 1;
Attorney: 3;
Auditor: 0;
Business Specialist: 1;
Economist: 1;
Examiner[D]: 2;
Financial Analyst: 2;
Investigator[C]: 0;
IT Specialist: 0;
Supervisor[A]: 3;
All Other[B]: 6;
Total: 19.
Fiscal year: 2004;
Accountant: 1;
Attorney: 2;
Auditor: 0;
Business Specialist: 0;
Economist: 3;
Examiner[D]: 17;
Financial Analyst: 1;
Investigator[C]: 0;
IT Specialist: 2;
Supervisor[A]: 5;
All Other[B]: 10;
Total: 41.
Fiscal year: 2005;
Accountant: 0;
Attorney: 1;
Auditor: 2;
Business Specialist: 1;
Economist: 6;
Examiner[D]: 14;
Financial Analyst: 2;
Investigator[C]: 0;
IT Specialist: 4;
Supervisor[A]: 5;
All Other[B]: 7;
Total: 42.
Fiscal year: 2006;
Accountant: 1;
Attorney: 3;
Auditor: 1;
Business Specialist: 0;
Economist: 0;
Examiner[D]: 16;
Financial Analyst: 2;
Investigator[C]: 0;
IT Specialist: 0;
Supervisor[A]: 8;
All Other[B]: 8;
Total: 39.
Source: GAO analysis of CPDF data.
Note: This table does not include data for the Federal Reserve Board.
[A] Supervisors included executives, who constituted less than 1
percent of all supervisors who moved to another financial regulator.
[B] The "all other" category, which combines specialists in occupations
such as human resources management, administration, clerical,
management and program analysis, financial administration, and
paralegal work.
[C] CFTC officials told us that some employees in the investigation job
series 1801 were examiners. Because the CPDF cannot distinguish
employees in the same job series but in different job titles, we called
all the CFTC employees classified as 1801 examiners and classified
those in job series 1802 (compliance investigation and support) as
investigators at CFTC.
[D] OFHEO officials told us that some employees in the job series 0501
(financial administration and program) were examiners; because of
limitations of the CPDF we put all employees in job series 0501 into
the examiner job series.
[End of table]
Table 11: Commodity Futures Trading Commission Employment and Movement
Data, Fiscal Years 1990-2006:
Employment and Movement.
Employment: All employees;
1990: 495;
1991: 559;
1992: 570;
1993: 536;
1994: 516;
1995: 507;
1996: 515;
1997: 521;
1998: 527;
1999: 519;
2000: 515;
2001: 496;
2002: 468;
2003: 492;
2004: 490;
2005: 487;
2006: 446.
Employment: Accountant;
1990: 0;
1991: 0;
1992: 0;
1993: 0;
1994: 0;
1995: 0;
1996: 1;
1997: 1;
1998: 1;
1999: 0;
2000: 0;
2001: 0;
2002: 0;
2003: 1;
2004: 1;
2005: 1;
2006: 1.
Employment: Attorney;
1990: 65;
1991: 83;
1992: 83;
1993: 73;
1994: 73;
1995: 87;
1996: 100;
1997: 114;
1998: 119;
1999: 120;
2000: 117;
2001: 113;
2002: 109;
2003: 145;
2004: 142;
2005: 140;
2006: 123.
Employment: Auditor;
1990: 27;
1991: 29;
1992: 27;
1993: 26;
1994: 24;
1995: 25;
1996: 24;
1997: 25;
1998: 26;
1999: 26;
2000: 27;
2001: 25;
2002: 23;
2003: 23;
2004: 23;
2005: 26;
2006: 26.
Employment: Business Specialist;
1990: 4;
1991: 2;
1992: 0;
1993: 0;
1994: 0;
1995: 0;
1996: 0;
1997: 0;
1998: 0;
1999: 0;
2000: 0;
2001: 0;
2002: 0;
2003: 0;
2004: 0;
2005: 0;
2006: 0.
Employment: Economist;
1990: 35;
1991: 32;
1992: 35;
1993: 34;
1994: 31;
1995: 25;
1996: 26;
1997: 26;
1998: 27;
1999: 30;
2000: 26;
2001: 26;
2002: 28;
2003: 33;
2004: 35;
2005: 36;
2006: 33.
Employment: Examiner;
1990: 47;
1991: 64;
1992: 69;
1993: 66;
1994: 66;
1995: 70;
1996: 73;
1997: 66;
1998: 61;
1999: 66;
2000: 68;
2001: 66;
2002: 59;
2003: 57;
2004: 62;
2005: 691;
2006: 59.
Employment: Financial Analyst;
1990: 1;
1991: 1;
1992: 1;
1993: 1;
1994: 1;
1995: 1;
1996: 1;
1997: 1;
1998: 1;
1999: 3;
2000: 4;
2001: 4'
2002: 4;
2003: 3;
2004: 3;
2005: 3;
2006: 3.
Employment: Investigator;
1990: 7;
1991: 5;
1992: 7;
1993: 7;
1994: 13;
1995: 13;
1996: 15;
1997: 19;
1998: 20;
1999: 21;
2000: 23;
2001: 22;
2002: 18;
2003: 17;
2004: 14;
2005: 14;
2006: 12.
Employment: IT Specialist;
1990: 15;
1991: 15;
1992: 16;
1993: 15;
1994: 16;
1995: 16;
1996: 17;
1997: 17;
1998: 21;
1999: 23;
2000: 25;
2001: 28;
2002: 24;
2003: 28;
2004: 30;
2005: 29;
2006: 29.
Employment: All other;
1990: 148;
1991: 171;
1992: 174;
1993: 158;
1994: 146;
1995: 139;
1996: 134;
1997: 133;
1998: 133;
1999: 129;
2000: 123;
2001: 112;
2002: 102;
2003: 103;
2004: 97;
2005: 92;
2006: 80.
Employment: Supervisor;
1990: 146;
1991: 157;
1992: 158;
1993: 156;
1994: 146;
1995: 131;
1996: 124;
1997: 117;
1998: 118;
1999: 101;
2000: 102;
2001: 100;
2002: 101;
2003: 82;
2004: 83;
2005: 85;
2006: 80.
Movement.
To other financial regulator;
1990: 10;
1991: 6;
1992: 5;
1993: 1;
1994: 2;
1995: 6;
1996: 1;
1997: 3;
1998: 10;
1999: 5;
2000: 7;
2001: 4;
2002: 2;
2003: 2;
2004: 1;
2005: 0;
2006: 3.
To other federal agency;
1990: 16;
1991: 10;
1992: 5;
1993: 6;
1994: 1;
1995: 4;
1996: 2;
1997: 12;
1998: 11;
1999: 12;
2000: 6;
2001: 14;
2002: 8;
2003: 5;
2004: 0;
2005: 3;
2006: 7.
Resigned;
1990: 38;
1991: 28;
1992: 23;
1993: 19;
1994: 27;
1995: 23;
1996: 26;
1997: 18;
1998: 28;
1999: 27;
2000: 34;
2001: 20;
2002: 12;
2003: 6;
2004: 15;
2005: 9;
2006: 9.
Retired;
1990: 7;
1991: 2;
1992: 3;
1993: 6;
1994: 10;
1995: 7;
1996: 7;
1997: 6;
1998: 9;
1999: 13;
2000: 5;
2001: 8;
2002: 31;
2003: 8;
2004: 7;
2005: 9;
2006: 33.
Fired, other separations, reductions in force;
1990: 8;
1991: 1;
1992: 2;
1993: 3;
1994: 0;
1995: 2;
1996: 3;
1997: 3;
1998: 1;
1999: 1;
2000: 1;
2001: 1;
2002: 0;
2003: 3;
2004: 3;
2005: 0;
2006: 1.
Source: GAO analysis of CPDF data.
[End of table]
Table 12: Farm Credit Administration Employment and Movement Data,
Fiscal Years 1990-2006:
[See PDF for image] - graphic text:
Source: GAO analysis of CPDF data.
[End of figure] - graphic text:
Table 13: Federal Deposit Insurance Corporation Employment and Movement
Data, Fiscal Years 1990-2006:
[See PDF for image] - graphic text:
Source: GAO analysis of CPDF data.
Note: During some of the time under review, FDIC was actively
downsizing its workforce and achieved that in part by providing buyouts
and other incentives for employees to leave.
[End of figure] - graphic text:
Table 14: Federal Housing Finance Board Employment and Movement Data,
Fiscal Years 1990-2006:
[See PDF for image] - graphic text:
Source: GAO analysis of CPDF data.
[End of figure] - graphic text:
Table 15: National Credit Union Administration Employment and Employee
Movement Data, Fiscal Years 1990-2006:
[See PDF for image] - graphic text:
Source: GAO analysis of CPDF data.
[End of figure] - graphic text:
Table 16: Office of the Comptroller of the Currency Employment and
Employee Movement Data, Fiscal Years 1990-2006:
[See PDF for image] - graphic text:
Source: GAO analysis of CPDF data.
[End of figure] - graphic text:
Table 17: Office of Federal Housing Enterprise Oversight Employment and
Employee Movement Data, Fiscal Years 1990-2006:
[See PDF for image] - graphic text:
Source: GAO analysis of CPDF data.
[End of figure] - graphic text:
Table 18: Office of Thrift Supervision Employment and Employee Movement
Data, Fiscal Years 1990-2006:
[See PDF for image] - graphic text:
Source: GAO analysis of CPDF data.
[End of figure] - graphic text:
Table 19: Securities and Exchange Commission Employment and Employee
Movement Data, Fiscal Years 1990-2006:
[See PDF for image] - graphic text:
Source: GAO analysis of CPDF data.
[End of figure] - graphic text:
Table 20: Other Federal Agencies Employment and Employee Movement Data,
Fiscal Years 1990-2006:
[See PDF for image] - graphic text:
Source: GAO analysis of CPDF data.
[End of figure] - graphic text:
[End of section]
Appendix VI: Comments from the U.S. Commodity Futures Trading
Commission:
U.S. Commodity Futures Trading Commission:
Three Lafayette Centre:
1155 21st Street, NW, Washington, DC 20581:
Telephone: (202) 418-5160:
Facsimile: (202) 418-5541:
www.cftc.gov:
Office of the Executive Director:
Jun 1 2007:
Ms. Orice M. Williams:
Director, Financial Markets and Community Investment:
United States Government Accountability Office:
Washington, DC 20548:
Dear Ms. Williams:
Thank you for providing the Commodity Futures Trading Commission (CFTC)
with an opportunity to review and comment on your draft report entitled
Financial Regulators: Agencies Have Implemented Key Performance
Management Practices, but Opportunities for Improvement Exist. We
appreciate your study team's thorough and thoughtful approach to
analyzing this key aspect of our ongoing efforts to advance our mission
goals through improved strategic management. As an indication of the
value we place on your efforts, I would like to highlight several areas
in which we intend to make use of the facts and recommendations
presented in the draft.
Above all, the aim of our process for developing our new performance
management and pay-for-performance systems has been to observe best
practices by conducting a transparent process to which all employees
can contribute. Our Pay Parity Governance Committee (PPGC) is the main
vehicle for this purpose, and has previously found it useful to inform
staff of practices at the other financial regulators. We will encourage
our employees to review your report as well, to help further our common
understanding of the nature and purpose of the CFTC's overall efforts
to improve our strategic human capital management.
Those efforts produced a performance-based pay program that
specifically addressed needs expressed by CFTC employees and managers.
One such need was for more guidance on how to perform at a higher
summary rating level. As a result, we describe all five performance
rating levels in our revised performance management program, which took
effect in October of last year after mandatory training for all staff.
The program focused on specific areas that employee focus groups and
online surveys indicated were primary needs. Results from the previous
Federal Human Capital Survey (FHCS) were another important source of
ideas for change. While the CFTC placed last among the ten financial
regulators in terms of employee confidence in the meaningful
recognition of performance differences, a key fact is that the survey
took place before CFTC employees had full information on our new
program. We will use your final report to again demonstrate that CFTC
considers employee inputs vitally important to building successful
human capital programs.
As we seek to be an employer of choice for staff with competencies
related to federal oversight of the highly competitive financial
industry, your report's information on the ten regulators' pay
comparability efforts will help us communicate the absolute and
relative value of our total rewards approach to compensation. In March
2006, the PPGC approved a compensation philosophy to guide our
stewardship of this authority, as we operate within our appropriation
but outside of certain Title 5 limitations. We are always looking,
however, for best practices such as those you cite in this and earlier
reports we have studied, which help improve our strategic management of
human capital. For example, we were the first agency to fully adopt the
competency-based Strategic Workforce Planning system developed by the
Nuclear Regulatory Commission, the agency that placed first in the 2006
FRCS and did so based - according to media outlets quoting its Chairman
- on having a culture of openness and improved communication with
employees. We will use your report as important third-party input to
our ongoing assessment of CFTC strategies to recruit, retain, and
develop mission-critical staff.
Finally, as recommended in your report, the PPGC has already discussed
working with our unions to communicate overall results of performance
appraisal and pay decisions across the agency. As with the other CFTC
efforts cited in your report and this letter, this is consistent with
our aim to preserve and enhance the trust and understanding of all
participants in our performance-based pay system. We have found that a
transparent and participative approach, such as you recommend, leads to
sound decisions on the strategic management of human capital.
Thank you again for conducting this study and for this opportunity to
comment for the record.
Sincerely,
Signed by:
Madge Bolinger Gazzola:
Executive Director:
[End of section]
Appendix VII: Comments from the Board of Governors of the Federal
Reserve System:
Board Of Governors Of The Federal Reserve System:
Washington, D.C. 20551:
Stephen R. Malphrus:
Staff Director For Management:
May 18, 2007:
Sent by email to WilliamsO@gao.gov:
Ms. Orice M. Williams:
Director, Financial Markets and Community Investment:
U.S. Government Accountability Office:
Washington, D.C. 20548:
Dear Ms. Williams,
Thank you for the opportunity to comment on the draft report, Financial
Regulators: Agencies Have Implemented Key Performance Management
Practices, but Opportunities for Improvement Exist (GAO-07-678). There
are no recommendations for the Federal Reserve Board and therefore we
have no formal comments to offer on the report. We would like to
express our appreciation to the GAO staff for their consideration of
comments we provided on earlier drafts of the report.
Sincerely,
Signed by:
Stephen R. Malphrus:
Mail Stop 50, Washington, DC 20551:
Telephone: (202) 452-2801:
Internet: steve.malphrus@frb.gov:
Facsimile: (202) 728-5832:
[End of section]
Appendix VIII: Comments from the Federal Housing Finance Board:
Federal Housing Finance Board:
1625 Eye Street, N.W., Washington. D.C. 20006-4001:
Telephone (202) 408-2500:
Facsimile: (202) 408-1435:
www.fhtb.gov:
May 23, 2007:
Anne Inserra:
Senior Analyst:
Government Accountability Office:
441 G St., NW:
Washington, DC 20548:
Dear Ms. Inserra:
Thank you for the opportunity to respond to the draft GAO report (GAO-
07-678) entitled "Financial Regulators-Agencies Have Implemented Key
Performance Management Practices but Opportunities for Improvement
Exist." The Finance Board offers two comments. The first is intended to
clarify a statement in the draft report and the second responds to the
GAO recommendation.
The report presently states, in the first bullet point on Page 19, that
office directors see ratings and make decisions on pay, but the
information is not shared across offices or with all employees. That
statement is correct with respect to "all employees." However,
information on ratings and pay increases is communicated to most agency
employees. Specifically, the Director of the Office of Supervision
(OS), the Finance Board's largest office and the office responsible for
the mission of the agency, sends an annual email to all OS employees
describing the range of increases for the particular year and the
standards used in assigning merit increases for that year. A copy of
the most recent email, describing ratings and merit increases for
calendar year 2007, is attached. Please include this additional
information in the report.
GAO recommends that the Chairman of the Finance Board communicate the
overall results of the performance appraisal and pay increase decisions
to all employees on an agency-wide basis while protecting individual
confidentiality. We agree and will implement that recommendation. Going
forward, the Finance Board will communicate overall results of the
performance appraisal and pay increase decisions to all employees on an
agency-wide basis.
If you have any questions please contact me at (202) 408-2514 or
leed@fhfb.gov.
Sincerely,
Signed by:
David A. Lee:
Acting Director:
Attachment:
[End of section]
Appendix IX: Comments from the National Credit Union Administration:
May 29, 2007:
Ms. Belva Martin:
Assistant Director:
Financial Markets and Community Interests:
United States Government Accountability Office:
Washington, DC 20548:
martinb@gao.gov:
Dear Ms. Martin:
Thank you for the opportunity to comment on GAO-07-678 draft report
"Agencies Have Implemented Key Performance Management Practices but
Opportunities for Improvement Exist".
We agree that under the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 (FIRREA) the requirement for comparability is
not to have identical pay and benefit packages but to maintain
comparability when setting pay policies aimed at recruiting and
retaining employees. As the report noted, there is little employee
movement among the financial regulators and the audit found no
discernible trends in that movement.
We are providing the following additional information on issues that
relate to NCUA.
Some Financial Regulators Did Not Fully Implement the Safeguard of
Providing Overall Ratings and Pay Increase Results to All Employees,
Which Would Increase Transparency in Their Performance-based Pay
Systems:
The report notes that "NCUA shares information on the results of the
merit pay decisions with directors, but not with all employees. An NCUA
official told us that it is up to the directors to decide whether or
not to share this information with their staff."
NCUA is in the process of negotiating pay and benefits with the
National Treasury Employees Union, the exclusive representative for
NCUA employees, and this is one of the issues presently being
negotiated. The Agency proposal to the union does provide for this type
of transparency.
Agencies Have Aligned Individual Performance Expectations with
Organizational Goals in Different Ways:
Agencies Have Reinforced Alignment in Policies and Guidance for
Performance Management Systems:
This subsection notes that the FDIC has in its performance management
policy directive the statement "[to] establish fair and equitable
performance expectations and goals for individuals that are tied to
accomplishing the organization's mission and objectives. [t]he
directive further states `the major goals, objectives, and/or primary
responsibilities of a position which contribute toward accomplishing
overall organizational goals and objectives (as found in FDIC's
Strategic Plan and Annual Performance Plan)."
While NCUA's present performance management system does not
specifically state these goals in its policy statement it will
incorporate these ideas into it.
Agencies Have Involved Employees and Stakeholders in Various Ways to
Gain Ownership of Performance Management Systems:
Agencies Have Considered Employee Input for Developing or Refining
Performance Management Systems:
Agencies Have Directly Engaged Employees in Consultation about the
Performance Management System:
Here the reports notes that "[w]hile all financial regulators involved
employees to some degree, NCUA did not consistently solicit input on
developing or revising competencies and standards."
Where appropriate NCUA did seek to solicit input from employees for
certain positions but for other positions it was not necessary. For
positions that are common across the government, NCUA usually adopts
the competencies established by OPM for consistency purposes,
therefore, there is no need to solicit employee input.
Agencies Have Involved Employees and Stakeholders in Various Ways to
Gain Ownership of Performance Management Systems:
Agencies Used Different Budgeting Strategies for Performance-Based Pay
NCUA established two agency-wide merit funding pools for different
employee grade level groups because higher graded employees usually
received higher ratings and consequently, higher merit pay increases.
The establishment of two merit funding pools was more advantageous to
lower graded employees and increased the amount of funds available for
their merit pay.
Agencies Have Involved Employees and Stakeholders in Various Ways to
Gain Ownership of Performance Management Systems:
Agencies Built in Safeguards:
Establish Appeals Processes for Performance Ratings Decisions:
NCUA would like to be included in this section of the report because
its present grievance procedure provides for a two step process for
appealing performance ratings. NCUA did provide a copy of its grievance
chapter to GAO during the audit.
Please make the following corrections to the Tables:
Table 10.1 - Insurance, Business travel insurance - change to "no".
Table 10.6 - Educational and Professional Expenses, Student loan
repayment - change to "no".
Table 10.8 - Work/Life Benefits, Job sharing - change to "no".
Table 10.8 - Work/Life Benefits, Other medical services/exams - change
to read as follows: Yes, annual physical exam for senior staff; exams
for other staff one to three years."
In summary, NCUA's pay and benefits package, while not identical to its
FIRREA counterparts, is still comparable with them as evidenced by its
low employee attrition rate, including losses to other FIRREA agencies.
If you have any questions or need further information, please feel free
to contact me.
Sincerely,
Signed by:
J. Leonard Skiles:
Executive Director:
Ms. Belva Martin:
Assistant Director, GAO:
May 25, 2007:
cc: Reading Files (ED, OIG, OHR):
[End of section]
Appendix X: Comments from the Office of Federal Housing Enterprise
Oversight:
Office Of Federal Housing Enterprise Oversight:
1700 G Street NW:
Washington DC 20552:
(202) 414-3801:
Office Of The Director:
May 31, 2007:
Orice M. Williams:
Director, Financial Markets & Community Investment (FMCI):
Government Accountability Office:
441 G Street, NW Room 2240-C:
Washington, DC 20548 .
Dear Ms. Williams:
Reference: GAO report (GAO-07-678) entitled "Financial Regulators -
Agencies Have Implemented Key Performance Management Practices but
Opportunities for Improvement Exist," dated June 2007.
The Office of Federal Housing Enterprise Oversight (OFHEO) would like
to thank the General Accountability Office for their comprehensive
review of the pay systems of the financial regulators. Maintaining pay
comparability as required by our enabling legislation is an issue of
utmost importance to OFHEO. As one of the smaller regulators with
limited resources, it is very helpful to us to have an unbiased
benchmark review of where we stand as compared to the other
organizations with which we are working to maintain pay parity.
Please find enclosed a list on clarifications and technical
corrections.
I appreciate the opportunity to provide feedback on the draft report.
Please contact Janet Murphy, Chief Human Capital Officer at (202) 414-
8904 if you have questions or would like to discuss our comments.
Sincerely,
Signed by:
James B. Lockhart III:
Director:
Enclosure - Clarifications and Technical Corrections:
[End of section]
Appendix XI: Comments from the Securities and Exchange Commission:
United States Securities And Exchange Commission:
Washington, D.C. 20549:
Executive Director:
May 29, 2007:
Ms. Orice M. Williams Director:
Financial Markets and Community Investment:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, D.C. 20548:
Dear Ms. Williams:
Thank you for the opportunity to respond to your draft report entitled,
"Financial Regulators-Agencies Have Implemented Key Performance
Management Practices but Opportunities for Improvement Exist" (GAO-07-
678). The SEC agrees with the findings of this report and offers the
following comments.
Recognizing deficiencies in the current performance management program
and opportunities for significant improvement in communicating and
managing performance expectations of its work force, the SEC
established a new branch within the Office of Human Resources (OHR).
The Performance and Accountability Branch, established September 2006,
teams with the Employee and Labor Relations Branch to oversee the
Commission's performance-related issues. Currently, this branch is
developing and implementing a new performance management program for
the Commission. This new program is being piloted within the OHR,
emphasizes the need for unambiguous criteria for making rating and
merit increase decisions, and is based on equity and transparency. The
new program complies with the Office of Personnel Management's
Performance Appraisal Assessment Tool (PAAT), makes greater
distinctions in performance to support our pay-for-performance system,
governs the performance of Senior Officers as well as SK-level
personnel, and will address each of the concerns outlined in the
report.
The SEC is very confident in our new performance management program and
believes that once completely implemented this program will strengthen
the areas of concern cited in the report, as well as provide a solid
foundation for individual and organizational improvement.
Sincerely,
Signed by:
Diego T. Ruiz:
Executive Director:
[End of section]
Appendix XII: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Orice Williams, (202) 512-8678, or williamso@gao.gov Brenda Farrell,
(202) 512--5140 or farrellb@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Belva Martin and Karen Tremba,
Assistant Directors; Thomas Beall; Amy Friedlander; Robert Goldenkoff;
Eugene Gray; Simin Ho; Anne Inserra; Janice Latimer; Donna Miller; Marc
Molino; Jennifer Neer; Barbara Roesmann; Lou Smith; Tonya Walton;
Lindsay Welter; Gregory Wilmoth; and Robert Yetvin made major
contributions.
(450460):
FOOTNOTES
[1] GAO, 21st Century Challenges: Reexamining the Base of the Federal
Government, GAO-05-325SP (Washington, D.C.: February 2005).
[2] See, e.g., section 1206 of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 (FIRREA), Pub. L. No. 101-73. See
also, H. Conf. Rpt. No. 101-222, 457-458 (1989). While FIRREA uses
"compensation" to mean "pay," for purposes of this report, compensation
is defined as employee pay and benefits.
[3] GAO, Human Capital: Preliminary Observations on the
Administration's Draft Proposed "Working for America Act," GAO-06-142T
(Washington, D.C.: Oct. 5, 2005); Human Capital: Senior Executive
Performance Management Can Be Significantly Strengthened to Achieve
Results, GAO-04-614 (Washington, D.C.: May 26, 2004); and Results-
Oriented Cultures, Creating a Clear Linkage between Individual and
Organizational Success, GAO-03-488 (Washington, D.C.: Mar. 14, 2003).
[4] GAO, Human Capital: Implementing Pay for Performance at Selected
Personnel Demonstration Projects, GAO-04-83 (Washington, D.C.: Jan. 23,
2004).
[5] The other three key practices are: provide and routinely use
performance information to track organizational priorities, require
follow-up actions to address organizational priorities, and maintain
continuity during transitions.
[6] The smallest number of performance plans we examined from an agency
was 1, in a case where the performance plans for all employees are
completely standardized, and the largest number of plans we reviewed
from an agency was 32. See table 3 in appendix I for more information
on the dates of the performance appraisal cycles we reviewed at each
agency.
[7] Resignations do not include employees who left an agency due to
retirement.
[8] Pub. L. No. 101-73, section 1206, 103 Stat. 183, 523 (Aug. 9,
1989).
[9] Sections 301, 702, 1202-3, and 1210 of Pub. L. No. 101-73.
[10] Section 1315 of the Federal Housing Enterprises Financial Safety
and Soundness Act of 1992, Pub. L. No. 102-550, 106 Stat. 3941 (1992).
[11] Section 8(a) of the Investor and Capital Markets Fee Relief Act,
Pub. L. No. 107-123, 115 Stat. 2390 (2002).
[12] Section 10702(a) of the Farm Security and Rural Investment Act of
2002, Pub. L. No. 107-171, 116 Stat. 516 (2002).
[13] GAO-03-488.
[14] GAO-04-614.
[15] The other four practices are (1) align individual performance
expectations with organizational goals, (2) connect performance
expectations to crosscutting goals, (3) use competencies to provide a
fuller assessment of performance, and (4) involve employees and
stakeholders to gain ownership of performance management systems; the
financial regulators have implemented these important practices in
various ways.
[16] SEC had two distinct performance appraisal cycles, one for senior
officers and one for all other employees. The completed cycles we
examined were as follows: for senior officers from October 2004 to
September 2005; for all other employees from May 2005 to April 2006.
[17] According to SEC officials, all employees received the annual
across-the-board pay increase that all GS employees received.
[18] During the completed performance appraisal cycle we reviewed for
CFTC (July 1, 2005, to June 30, 2006), the agency operated under a
performance management system in which the only increases directly
linked to performance ratings were some performance bonuses. In October
2006, CFTC introduced a new performance management system directive
that affects the performance planning and appraisal processes. The
agency will introduce an accompanying new pay policy in July 2007 that
will complete the transition to a performance-based pay system under
which merit increases will be linked to performance ratings. The new
system was developed by an agency committee with employee and union
input and the final approved system took effect on October 1, 2006.
(The American Federation of Government Employees union has chapters at
CFTC's Chicago and New York offices.) CFTC officials informed us that
they do not plan to continue the annual pay adjustments in the new
system, but will continue to use locality pay percentages equivalent to
General Schedule executive order locality percentage increases.
[19] In the collective bargaining agreement for years 2006-2009, pay
group 1 will receive a 5 percent pay increase and 1 percent lump sum
payment, pay group 2 will receive a 3.2 percent pay increase and 1
percent lump sum, and pay group 3 will receive a 2.4 percent pay
increase. Pay group 4, containing individuals who did not receive a
"meets expectations" rating in the first appraisal process, will
receive no increase.
[20] Section 4301 of Title 5 of the U.S. Code defines unacceptable
performance as failure to meet established performance standards in one
or more critical performance elements.
[21] SEC used "steps" to indicate performance-based pay increases. Zero
steps meant no increase, one step corresponded to an increase of 1.47
percent, two steps to an increase of 2.94 percent, and three steps to
an increase of 4.41 percent.
[22] GAO-06-142T and GAO-04-614.
[23] See appendix III for a discussion of different ways in which
agencies budgeted for performance-based increases, including use of
funding pools.
[24] GAO-03-488.
[25] GAO-06-142T.
[26] Rating levels at the agencies that accounted for less than 3
percent of employees included the following categories: "unacceptable,"
"unsatisfactory," "unsuccessful," "minimally acceptable," "minimally
successful," "marginal," and "does not meet expectations."
[27] Securities and Exchange Commission, Office of the Inspector
General, Enforcement Performance Management, Audit Report No. 423 (Feb.
8, 2007).
[28] See appendix I for our criteria for selecting mission-critical
occupations in our study. We excluded executives from the analysis of
average actual pay and pay scale. In addition, with the exception of
the Federal Reserve Board and OFHEO, which do not have separate base
and locality pay, the base pay shown in figure 3 does not include
locality pay percentages.
[29] The analysis of employee movement does not include data for the
Federal Reserve Board, because the CPDF does not include data for the
agency.
[30] The "all other" category combines specialists in occupations such
as human resources management, administration, clerical, management and
program analysis, financial administration, and paralegal work. The
three occupational categories with employee movement were attorney,
examiner, and supervisor.
[31] The performance appraisal and pay systems at FDIC and SEC were
sufficiently different from those of the other eight agencies that a
correlation coefficient would not be a useful descriptor of the
relationship between ratings and pay increases at these two agencies.
Both FDIC and SEC use two-phase performance management systems that
preclude the meaningful use of a single correlation coefficient.
Neither the first or second processes in their systems are sufficiently
comparable to the multilevel performance rating scales and pay increase
determinations used at the other financial regulators. In the first
process at FDIC and SEC, almost all employees were rated as
"acceptable" on what was essentially a two-level, "acceptable/
unacceptable" rating scale. The lack of variation in performance
ratings given in the first process would show little association with
pay increases, and computing a correlation for this step would yield a
coefficient at or around zero. In the second process, which was not
considered to be a performance rating at these agencies, employees were
assigned to performance groups at FDIC or awarded steps at SEC that
were associated with specified percentage increases in pay. Computing a
correlation between group assignment or steps awarded and percentage of
pay increase would yield a perfect correlation since group or step
assignment was synonymous with a specific percentage increase in pay.
[32] OPM's six occupational categories are Professional,
Administrative, Technical, Clerical, Other White-Collar, and Blue
Collar, collectively known as "PATCOB." When we sent the list of
mission critical occupations to the agencies, we listed the
occupational title and asked the agency to identify the OPM job series
number they used for that occupation. For some occupations, all
agencies used the same job series (for example, 0905 for attorneys).
For other occupations, some agencies used different job series for the
same or similar occupation (for example, agencies used several agency-
unique job series for "examiners" such as 1831, 0580, and 0570). Two
agencies (CFTC and OFHEO) placed employees in the same job series (1801
for CFTC and 0501 for OFHEO) into two different occupations (examiners
and investigators, and examiners and financial analysts, respectively).
In both cases, we placed all employees in the examiner occupation
because the CPDF does not facilitate separating employees with the same
job series into separate occupations. For a few occupations, some
agencies used an OPM job series number that we did not expect (for
example, OFHEO used 0301 for information technology specialists and FCA
used 1101 for examiners). When we analyzed CPDF data, we used the
occupational titles and job series numbers the agencies provided to us.
Executives were not included in the pay analyses. We excluded
executives from the analysis of average actual pay and pay scale,
because we wanted to focus on mid-level management.
[33] We were not able to always find a transfer-in personnel action to
match a transfer-out personnel action within the time frames stipulated
for transfers. Some transfer-in personnel actions that we did not find
in fiscal year 1990 could be due to the fact that the transfer-out
personnel action occurred in fiscal year 1989. Similarly, some of the
transfer-out personnel actions in fiscal year 2006 for which we did not
find a matching transfer-in personnel action could be due to the fact
that they occurred in fiscal year 2007.
[34] According to OPM, performance elements identify the activities,
skills, or responsibilities that the employee is expected to achieve
during the year and performance standards identify how well the
employee must meet each performance element to receive a specific
performance rating.
[35] Federal Deposit Insurance Corporation, Performance Management
Program, Directive System Circular 2430.1, Mar. 28, 2002.
[36] GAO-04-614; GAO, Managing for Results: Emerging Benefits From
Selected Agencies' Use of Performance Agreements, GAO-01-115,
Washington, D.C.: (Oct. 30, 2000).
[37] GAO, Human Capital: Managing Human Capital in the 21ST Century,
GAO/T-GGD-00-77 (Washington, D.C.: Mar. 9, 2000).
[38] GAO-04-614.
[39] Basel II is a set of proposed changes to the original set of risk-
based capital rules based on an internationally adopted framework
developed by the Basel Committee. In the United States, Basel II rules
are intended to apply primarily to the largest and most internationally
active banking organizations.
[40] GAO-04-614.
[41] According to an agency official, OFHEO's weighting system is
expected to be modified as revisions are made to the performance
management system.
[42] Employees at FDIC, NCUA, OCC, and SEC are represented by the
National Treasury Employees Union. OTS employees in Washington, D.C.,
and CFTC staff at two offices are represented by the American
Federation of Government Employees.
[43] GAO, Human Capital: Practices that Empowered and Involved
Employees, GAO-01-1070 (Washington, D.C.: Sept. 14, 2001).
[44] The Federal Service Impasses Panel is part of the Federal Labor
Relations Authority and resolves impasses between federal agencies and
labor unions representing federal employees arising from negotiations
over conditions of employment. The Panel may make recommendations to
the parties on how to overcome the impasse, if bargaining and mediation
are unsuccessful.
[45] We did not assess whether meetings involving employees in
performance planning or appraisals were conducted in accordance with
agency policy or the quality of the interactions between supervisors
and employees. We relied on representatives from employee groups and
unions to describe their perceptions of actual employee participation
in expectation-setting meetings and their perceptions of management's
consideration of employee input into appraisals.
[46] According to OCC officials, generic performance plans are
established for examiners because they all perform similar functions.
The primary objectives in these standardized plans are generic. Any
additional primary objectives or secondary objectives included in the
examiner performance plans are tailored to individuals. According to
officials, commissioned examiners should have at least one secondary
objective in their performance plans so that they have the potential to
receive a level 4 (highest) performance rating. Precommissioned
examiners, who are focused on completing a rigorous training program,
are not required to have secondary performance objectives, although
they are not prohibited from having them.
[47] A correlation coefficient is a measure of association (strength)
of the relationship between two variables; in this case, ratings and
percentage increases in pay. A positive correlation coefficient would
mean that the two variables tend to increase (or decrease) together. A
positive coefficient would indicate that as the rating goes up, so does
the percentage increase in pay. A negative coefficient would mean that
the two factors have an inverse relationship--as one variable
increases, the other decreases. Values of the coefficient may range
from -1.0 to +1.0. The percentage increase in ratings-linked pay was
based on the combined value of both increases in base pay and lump sum
(one time) payments, relative to prior annual salary. The performance
appraisal and performance-based pay systems at FDIC and SEC were
sufficiently different from the other eight agencies that we do not
include correlation coefficients for these two agencies. See appendix
I, Objectives, Scope, and Methodology, for additional information
concerning the exclusion of FDIC and SEC from this analysis.
[48] In those instances where agency rating scales used lower numeric
values to indicate higher performance levels, the values were reversed
so that all coefficients would reflect the relationship of an increase
in ratings with an increase in pay as a positive coefficient.
[49] See appendix I for additional information on the limitations of
the correlation coefficient.
[50] Officials at one agency told us that setting separate budget
amounts for merit pay increases for each unit helped to ensure that
merit pay resources were more fairly distributed across the units.
[51] GAO-06-142T.
[52] For the six FIRREA financial regulatory agencies (FCA, FDIC, FHFB,
NCUA, OCC, and OTS), see sections 301, 702, 120-3, 1206, and 1210 of
the Financial Institutions Reform, Recovery, and Enforcement Act of
1989, Pub. L. No. 101-73 (1989); for OFHEO, section 1315 of Pub. L. No.
102-550 (1992); for SEC, section 8(a) of Pub. L. No. 107-123 (2002),
and for CFTC, section 10702 (a) of Pub. L. No. 107-171 (2002).
[53] While many of the financial regulatory agencies received increased
flexibility under FIRREA in 1989, such flexibility was afforded to
OFHEO in 1992 and to CFTC and SEC in 2002.
[54] GAO, Results-Oriented Government: Practices That Can Help Enhance
and Sustain Collaboration among Federal Agencies, GAO-06-15
(Washington, D.C.: Oct. 21, 2005).
[55] We did not include the Federal Reserve Board and OFHEO in our
example on differences in agencies' base pay because the Federal
Reserve Board and OFHEO's base pay include the element equivalent to
other agencies' locality pay for Washington, D.C.
[56] In addition to these five agencies, FCA offered a 401(k) plan but
discontinued it in December 2006.
[57] The data in these tables are for permanent employees only.
GAO's Mission:
The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting
its constitutional responsibilities and to help improve the performance
and accountability of the federal government for the American people.
GAO examines the use of public funds; evaluates federal programs and
policies; and provides analyses, recommendations, and other assistance
to help Congress make informed oversight, policy, and funding
decisions. GAO's commitment to good government is reflected in its core
values of accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through GAO's Web site (www.gao.gov). Each weekday, GAO posts
newly released reports, testimony, and correspondence on its Web site.
To have GAO e-mail you a list of newly posted products every afternoon,
go to www.gao.gov and select "Subscribe to Updates."
Order by Mail or Phone:
The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or
more copies mailed to a single address are discounted 25 percent.
Orders should be sent to:
U.S. Government Accountability Office 441 G Street NW, Room LM
Washington, D.C. 20548:
To order by Phone: Voice: (202) 512-6000 TDD: (202) 512-2537 Fax: (202)
512-6061:
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: fraudnet@gao.gov
Automated answering system: (800) 424-5454 or (202) 512-7470:
Congressional Relations:
Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 U.S.
Government Accountability Office, 441 G Street NW, Room 7125
Washington, D.C. 20548:
Public Affairs:
Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800
U.S. Government Accountability Office, 441 G Street NW, Room 7149
Washington, D.C. 20548:
