Results Oriented Management
Opportunities Exist for Refining the Oversight and Implementation of the Senior Executive Performance-Based Pay System Gao ID: GAO-09-82 November 21, 2008Agencies are allowed to raise pay caps for their Senior Executive Service (SES) members if the Office of Personnel Management (OPM) certifies and the Office of Management and Budget (OMB) concurs that their appraisal systems meet applicable criteria. As requested, this report examines selected agencies' policies and procedures for (1) factoring organizational performance into SES appraisal decisions, (2) making meaningful distinctions in SES performance and (3) building safeguards into SES systems. Also, this report examines OPM and OMB oversight in certifying the pay systems through their statutory roles. GAO selected six agencies based on mission, structure, and number of career SES variations. GAO analyzed the agencies' policies and fiscal year 2007 aggregate SES appraisal data and OPM guidance.
All of the selected agencies--the U.S. Departments of Defense, Energy, State, and the Treasury; U.S. Nuclear Regulatory Commission; and USAID--have policies in place that require senior executives' performance expectations to be aligned with organizational results and organizational performance to be factored into appraisal decisions. While almost all of the agencies provided and communicated the importance of considering organizational performance, USAID did not provide its performance review board members (PRB) and other reviewing officials with any specific information on organizational performance to help inform their executive appraisal recommendations. All of the selected agencies have multiple rating levels in place for assessing senior executive performance. For the fiscal year 2007 appraisal cycle, senior executives were concentrated at the top two rating levels, which raises questions about the extent to which meaningful distinctions based on relative performance are being made and how OPM applies this criterion. OPM has an opportunity to strengthen its communication with agencies and executives on the importance of using a range of rating levels when assessing performance while avoiding the use of forced distributions. All of the selected agencies have safeguards, including higher level reviews of performance appraisal recommendations, PRBs, and transparency in communicating the aggregate results, although agencies varied in how they implemented such safeguards. While generally satisfied with OPM's and OMB's oversight, officials at the selected agencies said OPM could strengthen its communication with agencies and executives on how it uses the SES performance appraisal data and correlation between ratings and performance pay in determining whether agencies are making meaningful distinctions based on relative performance. Further communication from OPM is important in order for agencies to have a better understanding of how they are being held accountable for these certification criteria and make the necessary improvements to their systems to maintain certification. Further, senior-level officials at the selected agencies suggested options--such as moving to an electronic submission process and lengthening the certification coverage beyond 2 years once their systems are operating at the fully certified level--to increase the efficiency of the process. Moving forward, it will be important for OPM and OMB to identify ways to improve the certification process and make it more streamlined while ensuring that agencies have the guidance, tools, and training they need to implement effective performance appraisal and pay systems for their senior executives.
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-09-82, Results Oriented Management: Opportunities Exist for Refining the Oversight and Implementation of the Senior Executive Performance-Based Pay System
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
November 2008:
Results-Oriented Management:
Opportunities Exist for Refining the Oversight and Implementation of
the Senior Executive Performance-Based Pay System:
SES Performance-Based Pay:
GAO-09-82:
GAO Highlights:
Highlights of GAO-09-82, a report to congressional requesters.
Why GAO Did This Study:
Agencies are allowed to raise pay caps for their Senior Executive
Service (SES) members if the Office of Personnel Management (OPM)
certifies and the Office of Management and Budget (OMB) concurs that
their appraisal systems meet applicable criteria. As requested, this
report examines selected agencies‘ policies and procedures for (1)
factoring organizational performance into SES appraisal decisions, (2)
making meaningful distinctions in SES performance and (3) building
safeguards into SES systems. Also, this report examines OPM and OMB
oversight in certifying the pay systems through their statutory roles.
GAO selected six agencies based on mission, structure, and number of
career SES variations. GAO analyzed the agencies‘ policies and fiscal
year 2007 aggregate SES appraisal data and OPM guidance.
What GAO Found:
Factoring organizational performance into senior executive appraisal
decisions: All of the selected agencies”the U.S. Departments of
Defense, Energy, State, and the Treasury; U.S. Nuclear Regulatory
Commission; and USAID”have policies in place that require senior
executives‘ performance expectations to be aligned with organizational
results and organizational performance to be factored into appraisal
decisions. While almost all of the agencies provided and communicated
the importance of considering organizational performance, USAID did not
provide its performance review board members (PRB) and other reviewing
officials with any specific information on organizational performance
to help inform their executive appraisal recommendations.
Making meaningful distinctions in senior executive performance: All of
the selected agencies have multiple rating levels in place for
assessing senior executive performance. For the fiscal year 2007
appraisal cycle, senior executives were concentrated at the top two
rating levels, which raises questions about the extent to which
meaningful distinctions based on relative performance are being made
and how OPM applies this criterion. OPM has an opportunity to
strengthen its communication with agencies and executives on the
importance of using a range of rating levels when assessing performance
while avoiding the use of forced distributions.
Building safeguards into senior executive performance appraisal and pay
systems: All of the selected agencies have safeguards, including higher
level reviews of performance appraisal recommendations, PRBs, and
transparency in communicating the aggregate results, although agencies
varied in how they implemented such safeguards.
While generally satisfied with OPM‘s and OMB‘s oversight, officials at
the selected agencies said OPM could strengthen its communication with
agencies and executives on how it uses the SES performance appraisal
data and correlation between ratings and performance pay in determining
whether agencies are making meaningful distinctions based on relative
performance. Further communication from OPM is important in order for
agencies to have a better understanding of how they are being held
accountable for these certification criteria and make the necessary
improvements to their systems to maintain certification. Further,
senior-level officials at the selected agencies suggested options”such
as moving to an electronic submission process and lengthening the
certification coverage beyond 2 years once their systems are operating
at the fully certified level”to increase the efficiency of the process.
Moving forward, it will be important for OPM and OMB to identify ways
to improve the certification process and make it more streamlined while
ensuring that agencies have the guidance, tools, and training they need
to implement effective performance appraisal and pay systems for their
senior executives.
What GAO Recommends:
GAO recommends that the United States Agency for International
Development (USAID) provide uniform organizational performance
assessments to reviewing officials to help inform their executive
appraisal recommendations. GAO makes several recommendations to OPM and
OMB to strengthen its communication to agencies on certification
decisions and to improve the efficiency of the certification process.
USAID, OPM, and OMB generally agreed with the recommendations.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-09-82]. For more
information, contact Robert Goldenkoff at (202) 512-6806 or
goldenkoffr@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Selected Agencies Are Generally Addressing Key Areas Related to the
Certification Criteria through Their SES Performance-Based Pay Systems,
but an Opportunity for Refinement Exists:
OPM and OMB Provide Oversight through Various Formats; Selected Agency
Officials Suggested Opportunities for Refinements:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Certification Criteria for the Senior Executive
Performance- Based Pay System:
Appendix III: Comments from the Department of Defense:
Appendix IV: Comments from the Office of Personnel Management:
Appendix V: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: NRC's SES Position Groups with Basic Pay Ceilings and
Resulting Bonus Amounts Based on Position Group and Performance Ratings
for the Fiscal Year 2007 Appraisal Cycle:
Table 2: DOD's Performance Scores and Performance Payout Shares by
Performance Rating for the Fiscal Year 2007 Appraisal Cycle:
Table 3: Percentage of Eligible Senior Executives Who Received Bonuses
or Pay Adjustments and the Average Amounts at the Selected Agencies for
the Fiscal Year 2007 Appraisal Cycle:
Table 4: OPM's and OMB's Senior Executive Performance Appraisal System
Certification Criteria:
Figures:
Figure 1: Percentage of Senior Executives by Rating Level at the
Selected Agencies for the Fiscal Year 2007 Appraisal Cycle:
Figure 2: Percentage of Eligible Senior Executives Who Received Bonuses
and the Average Bonus Amounts by Rating Level at the Selected Agencies
for the Fiscal Year 2007 Appraisal Cycle:
Figure 3: Percentage of Eligible Senior Executives Who Received Pay
Adjustments and the Average Pay Adjustment Amounts by Rating Level at
the Selected Agencies for the Fiscal Year 2007 Appraisal Cycle:
Figure 4: Percentage of Senior Executives at the Selected Agencies Paid
According to Executive Schedule Pay Levels in 2008:
Abbreviations:
CHCO: chief human capital officer:
DOD: Department of Defense:
DOE: Department of Energy:
EX: Executive Schedule:
NRC: Nuclear Regulatory Commission:
OMB: Office of Management and Budget:
OPM: Office of Personnel Management:
PAAT: Performance Appraisal Assessment Tool:
PAR: performance and accountability report:
PART: program assessment rating tool:
PMA: President's Management Agenda:
PRB: performance review board:
SES: Senior Executive Service:
SFS: Senior Foreign Service:
SL: senior level:
SPO: senior performance official:
ST: scientific or professional:
USAID: United States Agency for International Development:
November 21, 2008:
The Honorable Daniel K. Akaka:
Chairman:
The Honorable George V. Voinovich:
Ranking Member:
Subcommittee on Oversight of Government Management, the Federal
Workforce, and the District of Columbia:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
The Honorable Byron L. Dorgan:
Chairman:
Subcommittee on Interstate Commerce, Trade, and Tourism:
Committee on Commerce, Science and Transportation:
United States Senate:
To successfully respond to the array of complex challenges facing the
nation--including long-term fiscal imbalance, evolving national and
homeland security threats, and turmoil in global financial markets--the
federal government must build the capacity to plan more strategically,
react more expeditiously, and focus on achieving results. Strategic
human capital management is the centerpiece of federal agencies'
efforts to transform to meet these challenges. Senior executives need
to lead the way in transforming their agencies to become more results-
oriented, collaborative in nature, and customer-focused. In 2003,
Congress and the administration modernized the performance appraisal
and pay systems for members of the Senior Executive Service (SES) by
requiring a clearer link between individual performance and
pay.[Footnote 1] Specifically, agencies are allowed to raise SES basic
pay and total compensation caps if the Office of Personnel Management
(OPM) certifies, with the concurrence of the Office of Management and
Budget (OMB), that their performance appraisal systems, among other
things, link performance for senior executives to the organization's
goals and make meaningful distinctions based on relative
performance.[Footnote 2]
In our past work on performance management and pay issues, we have
reported that performance-based pay cannot be simply overlaid on most
organizations' existing performance management systems.[Footnote 3]
Rather, as a precondition to effective pay reform, individual
expectations must be clearly aligned with organizational results,
communication on individual contributions to annual goals must be
ongoing and two-way, meaningful distinctions in employee performance
must be made, and cultural changes must be undertaken. Most important,
leading organizations have recognized that effective performance
management systems create a "line of sight" showing how unit and
individual performance can contribute to overall organizational goals
and can help them drive internal change and achieve external
results.[Footnote 4] Effective performance management systems that hold
executives accountable for results can help provide continuity during
times of leadership transition, such as the upcoming change in
administration, by maintaining a consistent focus on organizational
priorities.
OPM's recently released governmentwide SES survey results found that
senior executives across the government recognize the importance of
linking pay to performance, with about 93 percent of the respondents
strongly agreeing or agreeing that pay should be based on performance.
In addition, the majority of senior executives reported that their
salary increases and bonuses were linked to their performance ratings
to a very great or great extent. However, senior executives recognized
the challenge of making meaningful distinctions in performance--a key
criterion for agencies' certification of their SES appraisal systems.
Specifically, less than a third of senior executives governmentwide
strongly agreed or agreed that bonuses or pay distinctions were
meaningfully different among executives.
At your request, this report examines selected agencies' policies and
procedures for their career SES performance appraisal and pay systems
in three key areas: (1) factoring organizational performance into
senior executive performance appraisal decisions, (2) making meaningful
distinctions in senior executive performance, and (3) building
safeguards into senior executive performance appraisal and pay systems.
Collectively, these three areas cover half of the nine criteria that
are critical to appraising and rewarding senior executive performance
that agencies must meet to be certified by OPM and OMB.[Footnote 5] In
addition, this report examines how OPM and OMB are providing oversight
to the certification of the senior executive performance-based pay
system through their statutory roles. In July 2008, we testified before
the Senate Subcommittee on Oversight of Government Management, the
Federal Workforce, and the District of Columbia on our preliminary
results of the selected agencies' policies and procedures for their SES
performance-based pay systems.[Footnote 6] This report supplements the
information provided in our July 2008 testimony.
For this review, we selected the U.S. Departments of Defense (DOD),
Energy (DOE), State, and the Treasury; the U.S. Nuclear Regulatory
Commission (NRC); and the United States Agency for International
Development (USAID) based on variations in agency mission;
organizational structure; size of their career SES workforces to
reflect agencies with a large, average, and small number of executives;
and results of their SES performance appraisal systems in terms of the
percentage of SES rated at the highest rating levels and the percentage
that received performance awards or bonuses from fiscal years 2004 to
2006, according to OPM's governmentwide data reports. To meet our
objectives, we analyzed these agencies' SES performance management
documents; analyzed OPM's guidance; interviewed cognizant senior-level
agency officials regarding their SES performance-based pay systems and
their views on OPM's and OMB's oversight of the certification process;
interviewed senior-level OPM and OMB officials who oversee the
certification review process on their oversight of the SES performance-
based pay system and certification process; and analyzed aggregate SES
performance appraisal and compensation data as provided by the agencies
and comparable governmentwide data as reported by OPM for fiscal year
2007. Appendix I contains a detailed discussion of our objectives,
scope, and methodology.
We checked the agency SES performance appraisal 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. The agency officials
confirmed the correctness of the data or in some cases provided
corrections to the data, which we used in our analysis. On the basis of
these procedures, we believe the data are sufficiently reliable for use
in the analyses presented in this report.
The examples of the selected agencies' policies and procedures for
their SES performance-based pay systems are not generalizable to the
governmentwide SES population and all executive branch agencies. We did
not assess how the selected agencies are implementing all the policies
and procedures for their SES performance-based pay systems. We
recognize that focusing on 1 year of appraisal data may not show the
complete picture of how agencies are making meaningful distinctions in
senior executive performance. An agency may have implemented a policy
related to the study objectives even if it is not specifically
highlighted in this report. We conducted our work from October 2007
through November 2008 in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform
the audit to obtain sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable
basis for our findings and conclusions based on our audit objectives.
Results in Brief:
All of the selected agencies require senior executives' performance
expectations to be aligned with organizational results and are
factoring organizational performance into appraisal decisions. While
almost all of the selected agencies provided the organizational
performance assessments and communicated the importance of considering
organizational performance to individuals involved in appraisal
decisions, USAID did not provide its performance review board (PRB)
members and other reviewing officials with any specific information on
organizational performance to help inform their senior executive
appraisal recommendations. As for making meaningful distinctions in
senior executive performance, all of the selected agencies have
multiple rating levels in place for assessing senior executive
performance and five of the selected agencies have tier structures or
prescribed performance payout ranges based on the resulting performance
rating. For the fiscal year 2007 appraisal cycle, senior executives
were concentrated at the top two rating levels, which raises questions
about the extent to which meaningful distinctions based on relative
performance are being made and how OPM applies this criterion. At
almost all of the agencies, the highest-performing executives, rated as
"outstanding" (level 5), made up the greatest percentage of eligible
executives receiving bonuses with the largest bonuses on average, but
at some agencies, these executives did not make up the greatest
percentage of executives receiving pay adjustments with the largest
increases on average. Specifically, at Treasury, executives rated at
levels 5, 4, and 3 on average received about the same pay adjustment
amounts, primarily due to pay cap issues. As part of making meaningful
distinctions in performance, OPM has emphasized to agencies through its
certification guidance that its regulations prohibit forced
distribution of performance ratings and that agencies must avoid
policies or practices that would lead to forced distributions or even
the appearance of it. OPM has not provided specific guidance to
agencies on how to make meaningful distinctions in senior executive
performance while avoiding the perception of forced distributions of
performance ratings. OPM has an opportunity to strengthen its
communication with agencies and executives regarding the importance of
using a range of rating levels when assessing performance while
avoiding the use of forced distributions. Communicating this
information to agencies can help agencies begin to transform their
cultures to one where a fully successful rating is valued and rewarded.
All of the selected agencies have safeguards including higher-level
reviews of performance appraisal recommendations, PRBs, and
transparency in communicating the aggregate results, although agencies
varied in how they implemented such safeguards.
OPM and OMB, as applicable, provide continuing oversight by issuing
guidance to agencies on revisions to the certification process, using
tools and other initiatives to help assess how agencies are
implementing their systems, providing training and forums, and
interacting with agencies on the review of their certification
submissions. While generally satisfied with OPM's and OMB's oversight,
officials at the selected agencies said OPM could strengthen its
communication with agencies and executives on how it uses the SES
performance appraisal data and the correlation between ratings and
performance pay in determining whether agencies are making meaningful
distinctions based on relative performance. Further communication from
OPM is important in order for agencies to have a better understanding
of how they are being held accountable for these certification criteria
and make the necessary improvements to their systems to maintain
certification. The senior-level officials at the selected agencies also
suggested options--such as moving to an electronic submission process
and lengthening the certification coverage beyond 2 years once their
systems are operating at the fully certified level--to increase the
efficiency of the certification submission process. OPM recognizes that
extending coverage would require a statutory change, and OPM is not
taking a position on lengthening coverage at this time.
To help ensure consistency and clarity in how organizational
performance is considered in appraising executive performance, we
recommend that the Administrator of USAID provide uniform
organizational performance assessments to PRB members and other
reviewing officials to help inform their appraisal recommendations for
senior executives at the end of the performance appraisal cycle. To
help improve agencies' understanding of certain aspects of the
certification decisions, we recommend two areas for the Acting Director
of OPM to take action to strengthen OPM's communication with agencies
and executives on the importance of making meaningful distinctions in
performance while avoiding the use of forced distributions and that a
fully successful rating is valued and rewarded; and how it uses the SES
performance appraisal data and the correlation between ratings and
performance pay in determining whether agencies are making meaningful
distinctions based on relative performance as measured through the pay
and performance differentiation certification criteria. In addition, to
help improve the efficiency of the certification submission process for
agencies, we recommend that the Acting Director of OPM and Director of
OMB explore opportunities for streamlining the certification process,
such as electronic submissions or lengthening the full certification
coverage beyond 2 years for agencies that received full certification.
We provided a copy of the draft report to the Secretaries of Defense,
Energy, State, and the Treasury; the Commissioners of NRC; the
Administrator of USAID; the Acting Director of OPM; and the Director of
OMB for their review and comment. DOE had no comments on the draft
report. We received written comments from DOD and OPM, which are
included in appendixes III and IV. NRC, OMB, State, Treasury, and USAID
provided clarifying and technical comments, which we incorporated as
appropriate. Regarding our recommendations, USAID, OPM, and OMB
expressed general agreement. The Acting Director stated that OPM looks
forward to working with agencies and OMB to find ways to further
improve communications with the agencies concerning the certification
process. OMB generally agreed with our assessment and recommendation
regarding the possibilities of streamlining the certification process
to improve efficiency and potentially extending full certification
coverage beyond 2 years. OMB stated that it agrees with OPM that
careful review of the newly passed law and its effect will be necessary
before considering such an extension. Regarding our discussion of pay
compression, OPM stated that it is not comfortable with the
identification of tiers as a means to address SES pay compression.
While we recognize OPM's concern about agencies' use of tiers, we are
not recommending the use of tiers as a way for agencies to address
future problems with pay compression and have revised the language in
the report to clarify this point.
Background:
Since 2000, Congress and OPM have gradually shifted to performance-
based pay for senior executives through legislative and regulatory
changes.
* In October 2000, OPM amended its senior executive performance
management regulations requiring agencies to (1) hold senior executives
accountable for their individual and organizational performance by
linking performance management with the results-oriented goals of the
Government Performance and Results Act of 1993; (2) evaluate senior
executive performance using measures that balance organizational
results with customer satisfaction, employee perspectives, and any
other measures agencies decide are appropriate; and (3) use performance
results as a basis for pay, awards, and other personnel
decisions.[Footnote 7] While emphasizing the use of performance results
as the basis for pay and other awards, members of the SES still
received the annual across-the-board and locality pay adjustments.
* In 2002, Congress raised the total annual compensation limit--from
Executive Schedule (EX) level I to the total annual compensation
payable to the Vice President--for senior executives and other senior
professionals in agencies with systems that have been certified by OPM
with OMB concurrence as having performance appraisal systems which as
designed and applied make meaningful distinctions based on relative
performance.[Footnote 8] The act instructed OPM and OMB to promulgate
regulations regarding certification that, if met by an agency, would
allow it to access the higher total compensation cap, which includes
bonuses and other forms of compensation.
* In 2003, Congress changed the basis for how agencies pay their senior
executives and the overall SES pay structure.[Footnote 9] Beginning in
January 2004, senior executives no longer received annual across-the-
board or locality pay adjustments. Agencies are to base pay adjustments
for senior executives on individual performance and contributions to
the agency's performance by considering the individual's
accomplishments and such things as unique skills, qualifications, or
competencies of the individual and the individual's significance to the
agency's mission and performance, as well as the individual's current
responsibilities. In addition, the SES pay structure changed from six
pay levels to a single, open-range pay band with a higher basic pay
cap--EX-level III for agencies without certified appraisal systems and
EX-level II for agencies with such systems. For calendar year 2008, the
pay caps are $158,500 for basic pay (EX-level III) with a senior
executive's total compensation not to exceed $191,300 (EX-level I). If
an agency's senior executive performance appraisal system is certified
by OPM and OMB concurs, the caps are increased to $172,200 for basic
pay (EX-level II) and $221,100 for total compensation (the total annual
compensation payable to the Vice President).
To qualify for senior executive pay flexibilities, agencies'
performance appraisal systems are evaluated against nine certification
criteria and any additional information that OPM and OMB may require to
make determinations regarding certification. OPM's and OMB's
certification criteria are broad principles that position agencies to
use their pay systems strategically to support the development of a
stronger performance culture and the attainment of their mission,
goals, and objectives. (See app. II for additional information on the
certification criteria). Two levels of performance appraisal system
certification are available to agencies--full and provisional. Through
a law passed in October 2008, an agency's certification now lasts for
up to 24 months, with the possibility of a 6-month extension by the OPM
Director, rather than a calendar-year-based coverage.[Footnote 10]
Previously, an agency's certification lasted for 2 calendar years for
full certification and 1 calendar year for provisional certification.
In addition to SES employees, many agencies use senior employees with
scientific, technical, and professional expertise, commonly known as
senior-level (SL) and scientific or professional (ST) positions. An
agency may apply to OPM and OMB for certification of its SL/ST
performance management system, and if its system is certified as making
meaningful distinctions in relative performance, an agency may raise
the total annual compensation maximum for SL/ST employees to the salary
of the Vice President. Beginning in April 2009, the recently passed law
allows certified agencies to raise the basic pay cap for SL/ST
employees to EX-level II--the same maximum rate of basic pay as SES
members, and also exempts SL/ST employees from receiving locality
pay.[Footnote 11] Previously, SL/ST employees under certified appraisal
systems had a maximum rate of basic pay equal to EX-level IV plus
locality pay up to EX-level III. However, unlike the SES, their
individual rate of pay does not necessarily have to be based on
individual or agency performance.
OPM has a key leadership and oversight role in the design and
implementation of agencies' SES performance-based pay systems by
certifying that the agencies' systems meet the certification criteria
before they can receive the pay flexibilities.[Footnote 12] In our
January 2007 report examining the senior executive performance-based
pay system, we made a series of recommendations to OPM designed to
address issues specific to the performance-based pay system, such as
sharing best practices, tracking progress towards goals, and developing
a timeline for issuance of certification guidance. We are following up
on the status of these recommendations through this report.
Selected Agencies Are Generally Addressing Key Areas Related to the
Certification Criteria through Their SES Performance-Based Pay Systems,
but an Opportunity for Refinement Exists:
The selected agencies are generally addressing three key areas related
to OPM's and OMB's certification criteria through their SES performance-
based pay systems--factoring organizational performance into senior
executive performance appraisal systems, making meaningful distinctions
in senior executive performance, and building safeguards into senior
executive performance appraisal and pay systems. However, USAID did not
provide its PRB members and other reviewing officials with any specific
information on organizational performance to help inform their senior
executive appraisal recommendations.
Selected Agencies Have Policies for Factoring Organizational
Performance into Appraisal Decisions, but USAID Did Not Provide
Organizational Performance Information to Reviewing Officials:
In our past work on performance management, we identified the alignment
of individual performance expectations with organizational goals as a
key practice for effective performance management systems.[Footnote 13]
Having a performance management system that creates a "line of sight"
showing how unit and individual performance can contribute to overall
organizational goals helps individuals understand the connection
between their daily activities and the organization's success. To
receive certification of their systems, agencies are to align senior
executive performance expectations with the agency's mission, strategic
goals, program and policy objectives, or annual performance plan and
budget priorities. While many agencies are doing a good job overall of
aligning executive performance plans with agency mission and goals,
according to OPM some of the plans do not fully identify the measures
used to determine whether the executive is achieving the necessary
results, which can affect the executive's overall performance
appraisal. This challenge of explicitly linking senior executive
expectations to results-oriented organizational goals is consistent
with findings from our past work on performance management.[Footnote
14]
To help hold senior executives accountable for organizational results,
beginning in 2007, OPM required agencies to demonstrate that at least
60 percent of each senior executive's performance plan is focused on
achieving results and has clear measures associated with those results
to show whether the goals have been achieved to be certified. The
selected agencies have designed their appraisal systems to address
OPM's requirement of aligning individual expectations with
organizational goals. For example, in setting expectations for
individual performance plans, DOE requires senior executives and
supervisors to identify three to five key performance requirements with
metrics that the executive must accomplish in order for the agency to
achieve its strategic goals. Weighted at 60 percent of the summary
rating, the performance requirements are to be specific to the
executive's position and described in terms of specific results with
clear, credible measures (e.g., quality, quantity, timeliness, cost-
effectiveness) of performance, rather than activities. For each
performance requirement, the executive is to identify the applicable
strategic goal in the performance plan. To ensure that agencies are
implementing their policies for alignment of performance expectations
with organizational goals, OPM requires agencies as part of their
certification submissions to provide a sample of executive performance
plans, the strategic plan or other organizational performance documents
for establishing alignment, and a description of the appraisal system
outlining the linkage of executive performance with organizational
goals.
Further, OPM requires agencies to factor organizational performance
into senior executive performance appraisals to receive certification
of their SES appraisal systems. According to OPM and OMB officials
overseeing the certification review process, the main sources of
organizational performance that agencies use are the performance and
accountability reports (PAR); program assessment rating tool (PART)
summaries, which capture agencywide as well as program-or office-
specific performance; and the President's Management Agenda (PMA)
scorecards, as applicable. However, agencies have the flexibility to
determine the format and type of organizational performance information
for the performance appraisal process and certification submissions,
according to OMB's lead official for the certification review process.
All of the selected agencies have policies in place for factoring
organizational performance into senior executive appraisal decisions
and have identified common organizational assessments--such as the PMA,
PAR, or PART results--for highlighting organizational performance
results. As a next step, a few of the agencies, such as NRC and
Treasury, have developed customized tools summarizing organizational
performance at different levels of the organization, such as the
bureau, office, or program levels to help ensure that senior executive
appraisal decisions are consistent with organizational performance. For
example, NRC provides summary reports capturing office-level
performance to rating and reviewing officials to ensure that these
officials have the information they need to make consistent assessments
between senior executive and organizational performance. At the
midpoint and end of the appraisal cycle, NRC's senior performance
officials (SPO)--two top-level executives responsible for assessing
organizational performance--conduct assessments for each office that
take into account quarterly office performance reports on their
operating plans, an interoffice survey on the office's performance
completed by the other directors as identified by NRC, as well as the
office director's self-assessment of the office's performance.
To assess bureau-level performance, Treasury uses a departmentwide
organizational assessment tool that provides a "snapshot" of each
bureau's performance across various indicators of organizational
performance, such as the PAR, PART results, PMA areas, OPM's Federal
Human Capital Survey results, budget data, and information on material
weaknesses. PRB members and reviewing officials receive copies of the
organizational performance assessments, which serve as a basic
framework for reviewing and recommending senior executive ratings, pay,
and bonuses to help ensure ratings and pay are consistent with the
organization's performance. According to Treasury's Deputy Assistant
Secretary for Human Resources and Chief Human Capital Officer (CHCO),
the indicators of organizational performance are updated throughout the
year as organizational performance is always changing and the senior
executives need to have a sense of the organization's performance at
all times.
Prior to the completion of individual performance ratings, agencies are
to communicate organizational performance to senior executives, PRB
members, and other reviewing officials--including supervisors who
complete the ratings--involved in appraisal decisions to ensure they
understand the effect organizational performance can have on rating
distributions. Almost all of the selected agencies provided
organizational performance assessments and communicated the importance
of considering organizational performance in individual appraisals
through briefings, training, or document packages for the PRB meetings.
One agency, however, did not provide any specific information regarding
organizational performance to PRB members and other reviewing
officials.
* DOD provided the heads of its components with a departmentwide
organizational assessment against its overall priorities for fiscal
year 2007 that was to be used in appraising senior executive
performance and, as a check across the components, asked for copies of
the training given to PRB members and other reviewing officials on
factoring organizational performance into senior executive appraisal
recommendations. According to the Principal Director to the Deputy
Under Secretary of Defense for Civilian Personnel Policy, the
components had the flexibility to use the departmentwide assessment and
to develop their own organizational assessments. Component
organizational assessments were required to be linked to the
departmentwide priorities and assessment. Component organizational
assessments can provide a level of specificity that enables a clearer
connection or "line of sight" between individual executive and
organizational performance. Having the components provide the
department with their communications of organizational performance and
how it was used to inform executive rating decisions provides
accountability across the components for the departmental performance
management policies, according to this official.
* DOE provides its PRB members with snapshots of the Consolidated
Quarterly Performance Reports relevant to the senior executives that
measure how each departmental element performed respective to the goals
and targets in its annual performance plan. According to the Director
of the Office of Human Capital Management, the Deputy Secretary also
verbally briefed PRB members on the importance of considering
organizational performance in appraising executive performance.
* For its most recently completed appraisal cycle, State for the first
time provided PRB members an organizational assessment composed of
various indicators from the most recent PART, PMA scorecard, and
PAR.[Footnote 15] For the previous appraisal cycle, PRB members
received various documents, such as senior executives' performance
plans and appraisals and the performance management policy, but did not
receive any specific assessments of organizational performance.
According to a senior human resources official at State, based on OPM's
and OMB's feedback for its 2008 certification submission, the agency
has committed to providing organizational performance results in its
guidance to the PRB members on how to consider organizational
performance in making individual senior executive appraisal
recommendations, among other things.
* In contrast, USAID did not provide its PRB members and other
reviewing officials with any specific information on organizational
performance to help inform their senior executive appraisal
recommendations for the fiscal year 2007 appraisal cycle. According to
a senior human resources official at USAID, the agency does not provide
PRB members and reviewing officials with these organizational
performance assessments because they know where to find the relevant
information applicable for each senior executive's performance
appraisal given the small size of the agency. Nevertheless, providing
and communicating uniform organizational performance assessments can
help ensure consistency and clarity in how organizational performance
is considered in appraising executive performance among PRB members,
rating officials, and other reviewers. According to USAID's Deputy
Director for Human Resources, USAID has developed various indicators of
organizational performance-- such as individual operating unit reports,
the Agency Financial Report, the PMA, PART results, and the
Congressional Budget Justification outlining agency performance and
other information--which are readily available for use by PRB members
and other reviewing officials responsible for appraising senior
executive performance.
Selected Agencies Use Various Mechanisms to Help Make Meaningful
Distinctions in Performance, but Senior Executives Were Concentrated at
the Top Two Rating Levels and Received Varying Performance Payout
Amounts:
Effective performance management systems make meaningful distinctions
between acceptable and outstanding performance of individuals and
appropriately reward those who perform at the highest level. In order
to receive OPM certification and OMB concurrence, agencies are to
design and administer performance appraisal systems that make
meaningful distinctions based on relative performance through
performance rating and resulting performance payouts (e.g., bonuses and
pay adjustments). To address the certification criteria of performance
and pay differentiation, agencies are to use multiple rating levels--
four or five levels including a level for outstanding performance--and
recognize the highest performing executives with the highest ratings
and largest pay adjustments and bonuses, among other things.
Selected Agencies Designed Their Appraisal Systems to Help Make
Meaningful Distinctions in Senior Executive Performance:
Five of the selected agencies designed their appraisal systems to help
allow for differentiations when assessing and rewarding executive
performance by establishing tier structures or prescribed performance
payout ranges based on the resulting performance rating.
* For example, NRC uses three tiers called position groups to
differentiate its senior executives' basic pay and the resulting bonus
amounts based on ratings received at the end of the appraisal cycle.
NRC divides its executives into three groups (A, B, and C) based on the
position's difficulty of assignment and the scope of responsibilities
and annually sets basic pay ceilings for each of the groups tied to the
EX pay levels. NRC uses the position groups and resulting performance
ratings as the basis for its bonus structure to help ensure that
executives in the higher position groups with the higher performance
ratings receive the larger bonuses, as shown in table 1. In fiscal year
2007, an executive in the highest position group A who received an
outstanding rating was to receive a $30,000 bonus, while an executive
in the lowest group C with the same rating was to receive a $20,000
bonus. According to a senior human resources official at NRC, the bonus
range for executives in group C with excellent ratings was intended to
help allow for meaningful distinctions in performance to be made within
that group, as well as to give the agency flexibility in the monetary
amounts of the bonuses awarded.
Table 1: NRC's SES Position Groups with Basic Pay Ceilings and
Resulting Bonus Amounts Based on Position Group and Performance Ratings
for the Fiscal Year 2007 Appraisal Cycle:
Examples of SES positions by group: A: Executive Director for
Operations, Chief Financial Officer, General Counsel, and major program
office directors (e.g., Director of the Office of Nuclear Reactor
Regulation);
Basic pay ceiling (comparable to EX pay): $172,200: (EX- level II);
Resulting bonus amount based on performance rating received:
Outstanding: $30,000;
Resulting bonus amount based on performance rating received: Excellent:
$25,000;
Resulting bonus amount based on performance rating received: Meets
expectations: $0.
Examples of SES positions by group: B: Support and small program office
directors (e.g., Directors of the Offices of Administration and Human
Resources), Deputy Directors of the Offices of the General Counsel, and
the Chief Financial Officer;
Basic pay ceiling (comparable to EX pay): 165,350: (Midpoint between EX-
levels II and III);
Resulting bonus amount based on performance rating received:
Outstanding: 25,000;
Resulting bonus amount based on performance rating received: Excellent:
20,000;
Resulting bonus amount based on performance rating received: Meets
expectations: 0.
Examples of SES positions by group: C: All other SES members;
Basic pay ceiling (comparable to EX pay): 158,500 (EX-level III);
Resulting bonus amount based on performance rating received:
Outstanding: 20,000;
Resulting bonus amount based on performance rating received: Excellent:
8,000-13,800;
Resulting bonus amount based on performance rating received: Meets
expectations: 0.
Source: NRC.
Notes: NRC has a five-level appraisal system, but senior executives in
the two lowest rating categories--unsatisfactory and needs improvement-
-are not eligible to receive bonuses based on their performance
ratings. The governmentwide basic pay cap for SES under certified
performance appraisal systems is EX-level II.
[End of table]
* State uses a six-tier structure to help differentiate executive
performance based on the ratings and bonuses and allocate pay
adjustment amounts for its senior executives, with senior executives
who are placed in the highest tier (I) receiving a larger percentage
pay adjustment than those in a lower tier (V), who received the annual
percentage adjustment to the EX pay schedule--2.5 percent in 2008.
* In 2008, DOD implemented a departmentwide tier structure to help
ensure comparability and transparency in SES position and compensation
management with pay ceilings for each of the tiers tied to EX-level II
and III pay rates. Specifically, DOD assigned SES positions to three
tiers based on the position's impact on mission, level of complexity,
span of control, and influence in joint, national security matters,
among other things. According to the Principal Director, DOD is now
using the tier structure to differentiate executive performance payouts
to recognize that high-level performance in some positions has more
impact than comparable performance in other positions. Further, DOD
uses a mathematical formula to differentiate the performance payout
amounts among its senior executives based on the recommended
performance rating, performance score, and performance payout shares,
as shown in table 2. In determining the number of performance payout
shares to recommend, rating officials are to consider areas such as the
executive's level of responsibility, mission impact, current basic pay,
and performance against the relative performance of other executives,
if applicable. The formula for computing the actual amount of the
performance payout takes into account various indicators, such as the
budget for bonuses and pay increases, annual adjustment to the EX pay
rates, and total salaries and number of performance shares for all the
senior executives in the pay pool.
Table 2: DOD's Performance Scores and Performance Payout Shares by
Performance Rating for the Fiscal Year 2007 Appraisal Cycle:
Performance rating: Exceptional results;
Performance score: 95-100;
Performance payout shares: 11, 12, 13, 14, 15, or 16.
Performance rating: Exceeds expected results;
Performance score: 86-94;
Performance payout shares: 7, 8, 9, or 10.
Performance rating: Achieved expectations;
Performance score: 70-85;
Performance payout shares: 1, 2, 3, 4, 5, or 6.
Performance rating: Minimally satisfactory;
Performance score: 51-69;
Performance payout shares: 0.
Performance rating: Unsatisfactory;
Performance score: 0-50;
Performance payout shares: 0.
Source: DOD.
[End of table]
* DOE sets prescribed ranges tied to performance ratings for its senior
executives prior to finalizing ratings to help create a greater
distinction between bonus amounts for top and middle performers and
differentiate pay adjustment caps. Specifically, for fiscal year 2007,
DOE required that all executives receiving an outstanding rating
receive a bonus of 12 to 20 percent of basic pay, while executives
receiving a meets expectations rating were eligible to receive a bonus
of 5 to 9 percent at management's discretion.[Footnote 16] For pay
adjustments, executives were eligible to receive a discretionary
increase of up to 5 or 7 percent of basic pay if rated at meets
expectations or outstanding, respectively. Executives who received
needs improvement or unsatisfactory ratings were not eligible for any
bonuses or pay increases.[Footnote 17]
Selected Agencies Rated Their Senior Executives at the Top Two Rating
Levels with Varying Bonus and Pay Adjustment Amounts:
We have reported that using multiple rating levels provides a useful
framework for making distinctions in performance by allowing an agency
to differentiate among individuals' performance.[Footnote 18] As
required for certification, all of the selected agencies have four or
five rating levels in place for assessing senior executive performance.
For the fiscal year 2007 appraisal cycle, senior executives were
concentrated at the top two rating levels, as shown in figure 1. At
State and USAID, about 69 percent and 60 percent of senior executives,
respectively, received the top performance rating. At the other four
agencies, the largest percentage of executives received the second
highest rating--ranging from about 65 percent at NRC to 45 percent at
Treasury. Conversely, less than 1 percent of senior executives across
the selected agencies received a rating below fully successful (level
3). As a point of comparison, about 47 percent of career SES
governmentwide received the top performance rating for fiscal year
2007, according to governmentwide data as reported by OPM. Similar to
the selected agencies, less than 1 percent of career senior executives
governmentwide received ratings below fully successful for fiscal year
2007.
Figure 1: Percentage of Senior Executives by Rating Level at the
Selected Agencies for the Fiscal Year 2007 Appraisal Cycle:
This figure is a combination bar graph showing the percentage of senior
executives by rating level at the selected agencies for the fiscal year
2007 appraisal cycle. The X axis represents the agencies, and the Y
axis represents the percentage. The bars represent rating level 5
(highest performance rating), rating level 4, rating level 3, rating
level 2, and rating level 1 (lowest performance rating).
Agency: DOD;
Rating level 5 (highest performance rating): 32;
Rating level 4: 54.3;
Rating level 3: 13.4;
Rating level 2: 0.3;
Rating level 1 (lowest performance rating): 0.
Agency: NRC;
Rating level 5 (highest performance rating): 29.2;
Rating level 4: 64.6;
Rating level 3: 6.3;
Rating level 2: 0;
Rating level 1 (lowest performance rating): 0.
Agency: State;
Rating level 5 (highest performance rating): 69;
Rating level 4: 27.4;
Rating level 3: 3.5;
Rating level 2: 0;
Rating level 1 (lowest performance rating): 0.
Agency: Treasury;
Rating level 5 (highest performance rating): 43.9;
Rating level 4: 44.9;
Rating level 3: 10.7;
Rating level 2: 0.5;
Rating level 1 (lowest performance rating): 0.
Agency: USAID;
Rating level 5 (highest performance rating): 60;
Rating level 4: 30;
Rating level 3: 10;
Rating level 2: 0;
Rating level 1 (lowest performance rating): 0.
Agency: DOE;
Rating level 5 (highest performance rating): 37;
Rating level 4: 0;
Rating level 3: 62.4;
Rating level 2: 0.5;
Rating level 1 (lowest performance rating): 0.
[See PDF for image]
Source: GAO analysis of agency data.
Note: The percentages may not total 100 percent due to rounding.
[A] DOE uses a four-level appraisal system with no rating level between
outstanding (rating level 5) and meets expectations (rating level 3).
[End of figure]
While OPM officials have certified that the selected agencies' systems
are making meaningful distinctions, performance ratings at the selected
agencies raise questions about the extent to which meaningful
distinctions based on relative performance are being made and how OPM
applies this criterion, as indicated in figure 1. As part of making
meaningful distinctions in performance, OPM has emphasized to agencies
through its certification guidance that its regulations prohibit forced
distribution of performance ratings and that agencies must avoid
policies or practices that would lead to forced distributions or even
the appearance of it. A senior OPM official acknowledged that it is
difficult for OPM to determine if an agency is using forced
distributions through its review of agencies' aggregate appraisal
results and policy documents. The official indicated that OPM looks at
trends in the data across different components of agencies for
statistical improbabilities, such as a certain percentage of SES
members receiving an outstanding rating each year within an office that
could be explained by a quota system. OPM has not provided specific
guidance to agencies on how to make meaningful distinctions in senior
executive performance while avoiding the perception of forced
distributions of performance ratings. OPM has an opportunity to
strengthen its communication with agencies and executives regarding the
importance of using a range of rating levels when assessing performance
while avoiding the use of forced distributions. Communicating this
information to agencies will help them begin to transform their
cultures to one where a fully successful rating is valued and rewarded.
Senior-level officials at three of the selected agencies recognized the
challenge in using a range of rating levels when appraising senior
executive performance. In a memo to all SES members, DOE's Deputy
Secretary stated his concern with the negligible difference in bonuses
and pay adjustments among executives receiving the top two rating
levels and stressed the importance of making meaningful distinctions in
the allocation of compensation tied to performance ratings in the
upcoming appraisal cycle. According to State's Deputy Assistant
Secretary for the Bureau of Human Resources, historically the vast
majority of senior executives have received the highest rating of
outstanding, including for fiscal year 2007. Since the implementation
of performance-based pay, this official said State has struggled with
changing the culture and general perception among senior executives
that any rating less than outstanding is a failure. According to DOD's
Principal Director, DOD is communicating the message that the SES
performance-based pay system recalibrates performance appraisals as a
way to help change the culture and make meaningful distinctions in
performance. A fully successful or equivalent rating is a high standard
as well as a valued and quality rating. Levels above fully successful
require extraordinary results. Part of this communication is developing
common benchmark descriptors for the performance elements at the 5, 4,
and 3 rating levels. The Principal Director said she hopes that
developing common definitions for the performance elements at all three
levels will aid the development of a common understanding and in turn
make more meaningful distinctions in ratings. The agency official
recognizes that this shift will require a significant cultural change,
and that such cultural transformation takes time.
The percentage of eligible executives who received bonuses or pay
adjustments varied across the selected agencies for fiscal year 2007,
as shown in table 3. The percentage of eligible senior executives who
received bonuses ranged from about 92 percent at DOD to about 30
percent at USAID, with the average dollar amount of bonuses ranging
from $11,034 at State to about $17,917 at NRC.[Footnote 19] All
eligible executives at State received pay adjustments, while about 88
percent of eligible executives at DOE received adjustments, with the
average dollar amount of such adjustments ranging from about $5,414 at
NRC to about $6,243 at DOE. As a point of comparison, about 75 percent
of career senior executives received bonuses with an average dollar
amount of $14,221 for fiscal year 2007, according to OPM's
governmentwide data report. The governmentwide percentage of career
senior executives receiving pay adjustments and the average dollar
amount of such adjustments in the aggregate are not available from
OPM's governmentwide data report for fiscal year 2007.
The selected agencies have policies in place where only senior
executives who receive a rating of fully successful (level 3) or higher
are eligible to receive bonuses or pay increases. Also affecting
executives' bonus eligibility are the agencies' policies on awarding
bonuses to executives who also received Presidential Rank Awards that
year, which varied among the selected agencies.[Footnote 20] NRC,
State, and Treasury do not allow executives to receive both awards in
the same year, while DOD, DOE, and USAID allow the practice.
Table 3: Percentage of Eligible Senior Executives Who Received Bonuses
or Pay Adjustments and the Average Amounts at the Selected Agencies for
the Fiscal Year 2007 Appraisal Cycle:
Agency: DOD;
Bonuses: Percentage who received bonuses: 92;
Bonuses: Average amount: $13,934;
Pay adjustments: Percentage who received pay adjustments: 95;
Pay adjustments: Average amount: $5,739.
Agency: DOE;
Bonuses: Percentage who received bonuses: 82;
Bonuses: Average amount: 14,116;
Pay adjustments: Percentage who received pay adjustments: 88;
Pay adjustments: Average amount: 6,243.
Agency: NRC;
Bonuses: Percentage who received bonuses: 87;
Bonuses: Average amount: 17,917;
Pay adjustments: Percentage who received pay adjustments: 95;
Pay adjustments: Average amount: 5,414.
Agency: State;
Bonuses: Percentage who received bonuses: 55;
Bonuses: Average amount: 11,034;
Pay adjustments: Percentage who received pay adjustments: 100;
Pay adjustments: Average amount: 6,148.
Agency: Treasury;
Bonuses: Percentage who received bonuses: 77;
Bonuses: Average amount: 16,074;
Pay adjustments: Percentage who received pay adjustments: 93;
Pay adjustments: Average amount: 6,120.
Agency: USAID;
Bonuses: Percentage who received bonuses: 30;
Bonuses: Average amount: 11,083;
Pay adjustments: Percentage who received pay adjustments: 90;
Pay adjustments: Average amount: 6,227.
Source: GAO analysis of agency data.
Notes: In calculating the percentage of eligible senior executives who
received bonuses or pay adjustments and average amounts, we excluded
executives who received a rating less than fully successful since those
executives are not eligible to receive bonuses or pay increases,
according to the selected agencies' policies. We also excluded SES
members at NRC, State, and Treasury who received Presidential Rank
Awards because according to the agencies' policies, those individuals
were not considered for bonuses. For all agencies, we included senior
executives who were rated but left their positions--because of
retirement, attrition, or assignment to a lower grade--prior to
performance payouts being made.
[End of table]
According to OPM regulations, agencies are to recognize the highest
performing executives with the highest ratings and largest bonuses and
pay adjustments.[Footnote 21] At five of the selected agencies, the
highest performing executives (rated at level 5) made up the greatest
percentage of eligible executives receiving bonuses. At NRC, all
eligible executives rated at the top two levels received a bonus. At
all the agencies, the executives rated at the highest level received
the largest bonuses on average--about $23,333 at NRC compared to about
$11,034 at State. State only awarded bonuses to executives receiving
outstanding ratings for fiscal year 2007. According to State's senior
human resources official, State does not have an official policy
prohibiting those receiving ratings of exceeds expectations or fully
successful from receiving a bonus. Rather, the agency official stated
that State's decision to only award bonuses to executives who received
outstanding ratings was due to budget constraints and an effort to keep
the SES parallel with the SFS in the allocation of bonuses and pay
adjustments. In addition, senior executives at NRC and USAID rated at
fully successful (level 3) did not receive bonuses. (see fig. 2).
Figure 2: Percentage of Eligible Senior Executives Who Received Bonuses
and the Average Bonus Amounts by Rating Level at the Selected Agencies
for the Fiscal Year 2007 Appraisal Cycle:
This figure is a combination of two bar graphs, showing the percentage
of eligible senior executives who received bonuses and the average
bonus amounts by rating level at the selected agencies for the fiscal
year 2007 appraisal cycle. The X axis for the left graph represents
percentage, and the X axis for the right graph represents dollars in
thousands. The Y axis represents agencies. The bars represent rating
level 5 (highest performance rating), rating level 4, rating level 3,
rating level 2, and rating level 1 (lowest performance rating). *
signifies that these were not eligible to receive bonuses at these
rating levels.
Percentage of eligible SES members receiving a bonus by rating level:
Agency: DOD;
Rating level 5 (highest performance rating): 99;
Rating level 4: 96;
Rating level 3: 61;
Rating level 2: *;
Rating level 1 (lowest performance rating): *.
Agency: DOE;
Rating level 5 (highest performance rating): 94;
Rating level 4: N/A[A];
Rating level 3: 74;
Rating level 2: *;
Rating level 1 (lowest performance rating): *.
Agency: NRC;
Rating level 5 (highest performance rating): 100;
Rating level 4: 100;
Rating level 3: 3.5;
Rating level 2: *;
Rating level 1 (lowest performance rating): *.
Agency: State;
Rating level 5 (highest performance rating): 83;
Rating level 4: 0;
Rating level 3: 0;
Rating level 2: *;
Rating level 1 (lowest performance rating): *.
Agency: Treasury;
Rating level 5 (highest performance rating): 99;
Rating level 4: 72;
Rating level 3: 13;
Rating level 2: *;
Rating level 1 (lowest performance rating): *.
Agency: USAID;
Rating level 5 (highest performance rating): 42;
Rating level 4: 17;
Rating level 3: 0;
Rating level 2: *;
Rating level 1 (lowest performance rating): *.
Average bonus by rating level:
Agency: DOD;
Rating level 5 (highest performance rating): $18,373;
Rating level 4: $12,100;
Rating level 3: $8,456;
Rating level 2: *;
Rating level 1 (lowest performance rating): *.
Agency: DOE;
Rating level 5 (highest performance rating): $20,326;
Rating level 4: N/A[A];
Rating level 3: $9,258;
Rating level 2: *;
Rating level 1 (lowest performance rating): *.
Agency: NRC;
Rating level 5 (highest performance rating): $23,333;
Rating level 4: $15,640;
Rating level 3: $0;
Rating level 2: *;
Rating level 1 (lowest performance rating): *.
Agency: State;
Rating level 5 (highest performance rating): $11,034;
Rating level 4: $0;
Rating level 3: $0;
Rating level 2: *;
Rating level 1 (lowest performance rating): *.
Agency: Treasury;
Rating level 5 (highest performance rating): $19,195;
Rating level 4: $12,389;
Rating level 3: $8,885;
Rating level 2: *;
Rating level 1 (lowest performance rating): *.
Agency: USAID;
Rating level 5 (highest performance rating): $11,500;
Rating level 4: $9,000;
Rating level 3: $0;
Rating level 2: *;
Rating level 1 (lowest performance rating): *.
[See PDF for image]
Source: GAO analysis of agency data.
Notes: In calculating the percentage of eligible senior executives who
received bonuses and average amounts, we excluded executives who
received a rating less than fully successful since those executives are
not eligible to receive bonuses, according to the selected agencies'
policies. We also excluded SES members at NRC, State, and Treasury who
received Presidential Rank Awards because according to the agencies'
policies, those individuals were not considered for bonuses. For all
agencies, we included senior executives who were rated but left their
positions--because of retirement, attrition, or assignment to a lower
grade--prior to performance payouts being made.
[A] DOE uses a four-level appraisal system with no rating level between
outstanding (rating level 5) and meets expectations (rating level 3).
[End of figure]
In a memo to agencies on the certification process, OPM has stated that
it expects senior executives who receive a fully successful or higher
rating and are paid at a level consistent with their current
responsibilities will receive a performance-based pay increase.
According to a senior OPM official, agencies are not required to give
these executives pay increases, but OPM considers fully successful to
be a good rating and encourages agencies to recognize and reward
executives performing at this level. At the selected agencies, the
majority of eligible senior executives rated at fully successful
received pay adjustments for fiscal year 2007, as shown in figure 3.
The highest-performing executives (rated at level 5) did not make up
the greatest percentage of executives receiving pay adjustments with
the largest increases on average at some of the selected agencies.
Specifically, at Treasury, about 95 percent of eligible executives
rated at level 4 received a pay adjustment, compared with about 91
percent of eligible executives rated at level 5 and about 90 percent
rated a level 3. At NRC, all of the eligible executives rated at level
5 and level 3 received pay adjustments compared with about 92 percent
of eligible executives rated at level 4[Footnote 22]. For all the
agencies except Treasury, the executives rated at the highest level
received the largest pay adjustments on average--about $7,473 at USAID
compared to about $6,133 at NRC. At Treasury, executives rated at
levels 5, 4, and 3 on average received about the same pay adjustment
amounts, primarily due to pay cap issues.
Figure 3: Percentage of Eligible Senior Executives Who Received Pay
Adjustments and the Average Pay Adjustment Amounts by Rating Level at
the Selected Agencies for the Fiscal Year 2007 Appraisal Cycle:
This figure is a combination of two graphs showing the percentage of
eligible senior executives who received pay adjustments and the average
pay adjustment amounts by rating level at the selected agencies for the
fiscal year 2007 appraisal cycle. The X axis on the left represents
percentage, and the X axis on the right represents dollars in
thousands. The Y axis represents the agencies. The bars represent
rating level 5 (highest performance rating), rating level 4, rating
level 3, rating level 2, and rating level 1 (lowest performance
rating). * signifies that these were not eligible to receive bonuses at
these rating levels.
Percentage of eligible SES members receiving a pay adjustment by rating
level:
Agency: DOD;
Rating level 5 (highest performance rating): 96;
Rating level 4: 95;
Rating level 3: 86;
Rating level 2: *;
Rating level 1 (lowest performance rating): *.
Agency: DOE;
Rating level 5 (highest performance rating): 95;
Rating level 4: N/A[A];
Rating level 3: 84;
Rating level 2: *;
Rating level 1 (lowest performance rating): *.
Agency: NRC;
Rating level 5 (highest performance rating): 100;
Rating level 4: 92;
Rating level 3: 100;
Rating level 2: *;
Rating level 1 (lowest performance rating): *.
Agency: State;
Rating level 5 (highest performance rating): 100;
Rating level 4: 100;
Rating level 3: 100;
Rating level 2: *;
Rating level 1 (lowest performance rating): *.
Agency: Treasury;
Rating level 5 (highest performance rating): 91;
Rating level 4: 95;
Rating level 3: 90;
Rating level 2: *;
Rating level 1 (lowest performance rating): *.
Agency: USAID;
Rating level 5 (highest performance rating): 92;
Rating level 4: 83;
Rating level 3: 100;
Rating level 2: *;
Rating level 1 (lowest performance rating): *.
Average pay adjustments by rating level:
Agency: DOD;
Rating level 5 (highest performance rating): $6,572;
Rating level 4: $5,601;
Rating level 3: $4,143;
Rating level 2: *;
Rating level 1 (lowest performance rating): *.
Agency: DOE;
Rating level 5 (highest performance rating): $6,496;
Rating level 4: N/A[A];
Rating level 3: $6,073;
Rating level 2: *;
Rating level 1 (lowest performance rating): *.
Agency: NRC;
Rating level 5 (highest performance rating): $6,133;
Rating level 4: $5,216;
Rating level 3: $4,028;
Rating level 2: *;
Rating level 1 (lowest performance rating): *.
Agency: State;
Rating level 5 (highest performance rating): $6,651;
Rating level 4: $5,142;
Rating level 3: $4,150;
Rating level 2: *;
Rating level 1 (lowest performance rating): *.
Agency: Treasury;
Rating level 5 (highest performance rating): $6,002;
Rating level 4: $6,304;
Rating level 3: $5,802;
Rating level 2: *;
Rating level 1 (lowest performance rating): *.
Agency: USAID;
Rating level 5 (highest performance rating): $7,473;
Rating level 4: $4,517;
Rating level 3: $3,652;
Rating level 2: *;
Rating level 1 (lowest performance rating): *.
[See PDF for image]
Source: GAO analysis of agency data.
Notes: In calculating the percentage of eligible senior executives who
received pay adjustments and average amounts, we excluded executives
who received a rating less than fully successful since those executives
are not eligible to receive pay increases, according to the selected
agencies' policies. For all agencies, we included senior executives who
were rated but left their positions--because of retirement, attrition,
or assignment to a lower grade--prior to performance payouts being
made.
[A] DOE uses a four-level appraisal system with no rating level between
outstanding (rating level 5) and meets expectations (rating level 3).
[End of figure]
The Proximity of Senior Executives' Basic Pay to the Governmentwide
Basic Pay Cap Varies Across the Selected Agencies:
We have reported that the federal government as a whole may face
challenges in offering competitive compensation to its senior
leaders.[Footnote 23] In 2003, about 70 percent of senior executives
received the same basic pay due to compression--which occurred when
their pay reached the statutory cap of EX-level III. In 2004, the SES
performance-based pay system and certification process provided an
interim solution to this issue of pay compression by creating a single,
open-range pay band and allowing agencies to increase the basic pay cap
for their senior executives to EX-level II upon certification of their
performance appraisal systems by OPM with OMB concurrence.
While the pay cap was raised for certified agencies, agencies are to
reserve the pay rates above EX-level III for truly outstanding
performers only, which in effect slows the growth of senior executives'
pay within the pay band. According to OPM regulations, the rates of
basic pay higher than EX-level III but less than or equal to EX-level
II are generally reserved for senior executives who have demonstrated
the highest levels of individual performance and/or made the greatest
contributions to the agency's performance, or newly appointed senior
executives who possess superior leadership or other competencies.
The basic pay for senior executives at the selected agencies shows that
pay compression may be a problem in the future for some agencies.
Overall, however, only a small percentage of senior executives at the
selected agencies have their basic pay capped out at EX-level II
($172,200) in 2008. Specifically, about half to three-quarters of
senior executives at the selected agencies are paid at or above EX-
level III ($158,500) in 2008, after performance-based pay adjustments
were made for the fiscal year 2007 performance appraisal cycle, as
shown in figure 4.[Footnote 24] For example, at State, about 76 percent
of senior executives are paid at or above EX-level III, while about 50
percent of senior executives at DOD and USAID are paid at these rates.
Of the senior executives paid at or above $158,500, the percentage of
senior executives who are paid at the governmentwide pay cap for 2008-
-$172,200--varies across the agencies. Specifically, at State and DOE,
about 26 percent of senior executives are paid at the pay cap for 2008,
while only 1 percent of senior executives at DOD and none at USAID are
paid at this cap. OPM has found that about 13 percent of SES members
governmentwide are paid at the pay cap based on the fiscal year 2007
performance appraisal data they received from agencies.
Figure 4: Percentage of Senior Executives at the Selected Agencies Paid
According to Executive Schedule Pay Levels in 2008:
This figure is a combination bar graph showing percentage of senior
executives at the selected agencies paid according to executive
schedule pay levels in 2008. The X axis represents the agency, and the
bars represent percentage of SES members paid at or above EX-level III
($158,500), percentage of SES members paid below EX-level III,
percentage of SES members paid at EX-level II ($172,200).
Agency: DOD;
Percentage of SES members paid at or above EX-level III ($158,500): 50;
Percentage of SES members paid below EX-level III: 50;
Percentage of SES members paid at EX-level II ($172,200): 1.
Agency: DOE;
Percentage of SES members paid at or above EX-level III ($158,500): 70;
Percentage of SES members paid below EX-level III: 30;
Percentage of SES members paid at EX-level II ($172,200): 26.
Agency: NRC;
Percentage of SES members paid at or above EX-level III ($158,500): 72;
Percentage of SES members paid below EX-level III: 28;
Percentage of SES members paid at EX-level II ($172,200): 4.
Agency: State;
Percentage of SES members paid at or above EX-level III ($158,500): 76;
Percentage of SES members paid below EX-level III: 24;
Percentage of SES members paid at EX-level II ($172,200): 26.
Agency: Treasury;
Percentage of SES members paid at or above EX-level III ($158,500): 65;
Percentage of SES members paid below EX-level III: 35;
Percentage of SES members paid at EX-level II ($172,200): 2.
Agency: USAID;
Percentage of SES members paid at or above EX-level III ($158,500): 50;
Percentage of SES members paid below EX-level III: 50;
Percentage of SES members paid at EX-level II ($172,200): 0.
[See PDF for image]
Source: GAO analysis of agency data.
[End of figure]
According to a senior OPM official, the SES performance-based pay
system was never intended to fix the problem of pay compression that
occurred prior to 2004 or be the answer to future pay compression
issues. OPM recognizes that pay compression is a problem in the SES.
While the majority of senior executives at the selected agencies have
yet to reach the governmentwide basic pay cap, officials from two of
the selected agencies recognized the challenge of making distinctions
in executive performance given potential pay compression issues.
Specifically, Treasury's Deputy Assistant Secretary for Human Resources
and CHCO said an agency does not have enough room in the governmentwide
pay band to fully recognize the outstanding performers through the
appraisal system since the best performers are already near the top of
the pay range and their performance payouts in the form of basic pay
increases are limited. DOD's Principal Director said when pay increases
are not possible given salary cap issues, bonuses are a tool for
components to reward their executives' performance for achieving
results.
NRC's three position groups and the associated pay ceilings are
intended, in part, to help reserve pay above EX-III for those
executives who demonstrate the highest levels of performance, including
the greatest contribution to organizational performance as determined
through the appraisal system, according to a senior human resources
official at NRC. A senior executive would not receive a pay increase if
the executive had already reached the pay ceiling for the applicable
position group. While there is little room for pay increases within the
pay bands for each position group, the agency official indicated that
NRC tries to give pay adjustments and generous bonus amounts when
possible to acknowledge that their senior executives are high-
performing individuals. To identify possible areas and options for
improvement to its performance appraisal and pay system including the
tier structure, NRC convened an executive working group of PRB members
and senior executives from different areas and position groups. As part
of its June 2008 findings, the working group recommended retaining the
three position groups and existing pay ceilings with slight revisions
to the positions that fall within each group. NRC management accepted
this recommendation, according to the agency official.
Selected Agencies Have Built Safeguards into Their Senior Executive
Performance Appraisal and Pay Systems to Help Ensure Fairness and
Transparency:
We have reported that agencies need to have modern, effective,
credible, and validated performance management systems in place with
adequate safeguards to ensure fairness and prevent politicization and
abuse.[Footnote 25] All of the selected agencies have safeguards
including higher-level reviews of performance appraisal
recommendations, PRBs, and transparency in communicating the aggregate
results, although agencies varied in how they implemented such
safeguards.
Higher-level reviews. By law, as part of their SES appraisal systems,
all agencies must provide their senior executives with an opportunity
to view their performance appraisals and to request a review of the
recommended performance ratings by higher-level officials, before the
ratings become final.[Footnote 26] The higher-level reviewer cannot
change the initial rating given by the supervisor, but may recommend a
different rating in writing to the PRB that is shared with the senior
executive and the supervisor. For example, according to State's policy,
an executive may request a higher-level review of the initial rating in
writing prior to the PRB convening, at which time the initial summary
rating, the executive's request, and the higher-level reviewer's
written findings and recommendations are considered. The PRB is to
provide a written recommendation on the executive's summary rating to
State's Director General of the Foreign Service and Director of Human
Resources, who makes the final appraisal decisions.
Performance review boards. All agencies must establish one or more PRBs
to help ensure that performance appraisals reflect both individual and
organizational performance and rating, bonus, and pay adjustment
recommendations are consistently made. The PRB is to review senior
executives' initial summary performance ratings and other relevant
documents and make written recommendations on the performance of the
senior executives to the agency head or appointing authority. When
appraising a career appointee's performance or recommending a career
appointee for a bonus, more than one-half of the PRB's members must be
SES career appointees. The selected agencies varied in their PRB
structures and who provided the final approval of the appraisal
decisions. On the one hand, given its small number of senior
executives, USAID has one PRB that is responsible for making
recommendations to the Administrator for his/her final approval on all
rated career executives' annual summary ratings, bonuses, performance-
based pay adjustments, and Presidential Rank Award nominations. On the
other hand, DOD has multiple PRBs within and across its components and
agencies with separate authorizing officials who give the final
approval of rating and performance payout recommendations. As another
level of review after the PRB, DOE convenes a Senior Review Board--
comprised mainly of political appointees--to review and approve the PRB
recommendations for ratings, pay adjustments, and bonuses, and look for
consistency in recommendations across the senior executives in
headquarters, the field, and the various organizations within DOE. The
Director of the Office of Human Capital Management said the Deputy
Secretary, who serves as the chair, ultimately makes the final
decisions on senior executives' ratings, pay adjustments, and bonuses.
Transparency in communicating aggregate appraisal results. Agencies
should communicate the overall aggregate results of the performance
appraisal decisions--ratings, bonuses, and pay adjustment
distributions--to senior executives while protecting individual
confidentiality, and as a result, provide a clear picture of how the
executive's performance compares with that of other executives in the
agency. Further, as part of its certification decisions, OPM requires
agencies to brief their SES members on the results of the completed
appraisal process to make sure that the dynamics of the general
distribution of ratings and accompanying rewards are fully understood.
All the selected agencies communicated the aggregate appraisal results
to senior executives, although their methods of communication and the
types of information provided varied.
* Treasury and DOD posted the aggregate rating, bonus, and pay
adjustment distributions for senior executives on their Web sites with
comparison of data across previous fiscal years.
* NRC sent an e-mail to all senior executives providing the percentage
of executives at each rating level and the percentage who received
bonuses and pay adjustments, as well as the average dollar amounts.
According to a senior human resources official at NRC, the agency
periodically holds agencywide "all hands" SES meetings where the
results of the appraisal cycle, among other topics, are communicated to
executives.
* The Deputy Secretary of DOE provides a memo to all senior executives
summarizing the percentage of executives at the top two rating levels
and the average bonus and pay adjustment amounts, as well as OPM's
governmentwide results as a point of comparison.
* USAID communicated the aggregate SES appraisal results to SES members
throughout the appraisal cycle. In a February 2008 notice, USAID
communicated to all SES members the pay adjustment distributions in
ranges by rating level for the fiscal year 2007 appraisal cycle. In a
September 2008 e-mail to all SES members and rating officials at the
end of the appraisal cycle, USAID communicated the aggregate
performance rating distributions for the past two appraisal cycles for
fiscal years 2006 and 2007.
While the selected agencies all shared aggregate appraisal results with
their senior executives, the results of the OPM SES survey show that
the communication of overall performance appraisal results is not
widely practiced throughout the government. Specifically, 65 percent of
respondents said that they were not given a summary of their agency's
SES performance ratings, bonuses, and pay adjustments. At the June 2008
forum with agency executive resources staff where it shared the survey
results, OPM officials emphasized the importance of communicating
aggregate appraisal results to all senior executives. According to a
senior OPM official, agencies need to figure out how best to
communicate aggregate appraisal results in a way that supports their
different cultures and practices. The official said OPM plans to
continually monitor how well the agencies are communicating aggregate
appraisal results through the certification review process.
OPM and OMB Provide Oversight through Various Formats; Selected Agency
Officials Suggested Opportunities for Refinements:
To ensure agencies' senior executive appraisal systems are designed and
implemented to address the certification criteria, OPM and OMB, as
applicable, provide continuing oversight by issuing guidance to
agencies on revisions to the certification process, using tools and
other initiatives to help assess how agencies are implementing their
SES performance-based pay systems, providing training and forums, and
interacting with agencies on the review of their certification
submissions. While generally satisfied with OPM's and OMB's oversight,
officials at the selected agencies said OPM could strengthen its
communication with agencies and executives on how it uses the SES
performance appraisal data and the correlation between ratings and
performance pay in determining whether agencies are making meaningful
distinctions based on relative performance. In addition, senior-level
officials at the selected agencies identified a need for increased
efficiency in the certification submission process.
Issuing Guidance to Agencies on Revisions to the Certification Process:
Providing agencies with clear and timely guidance is one way for OPM
and OMB to effectively communicate with agencies upcoming revisions to
the certification process. OMB does not issue its own guidance to
agencies, but reviews OPM's guidance to agencies, according to OMB's
lead official in the certification review process. Officials at five of
the selected agencies said that, in the past, OPM has revised its
guidance midway through the appraisal cycle, which did not allow
agencies sufficient time to change their systems in order to receive
certification for that calendar year. Recognizing that it was late in
issuing the guidance in 2006, OPM since has issued guidance in the fall
via memos to agency heads. In the future, OPM plans to continue issuing
any changes to the guidance in the fall, according to a senior OPM
official, since this is when agencies are finishing up the performance
appraisal cycle and starting to set expectations for the next cycle.
This should also provide agencies with adequate time to revise their
appraisal systems to reflect any new requirements before the
certification submission deadline at the end of June. In light of
changes to the law in October 2008, in the near future OPM plans to
issue regulations and revised certification guidance to agencies
reflecting the modifications to SL/ST basic pay rates for certified
appraisal systems and changing the certification cycle coverage to up
to 24 months from a calendar-year-based coverage.[Footnote 27]
Using Tools and Other Initiatives to Help Assess How Agencies Are
Implementing Their SES Performance-Based Pay Systems:
OPM and OMB use tools and other initiatives--such as the SES
Performance Appraisal Assessment Tool (SES-PAAT), the correlation
coefficient, and the governmentwide survey to all SES members on
performance-based pay--to help assess how agencies are implementing
their performance-based pay systems and addressing the certification
criteria. Overall, selected agency officials were in favor of OPM and
OMB using these tools and initiatives, although officials from three of
the selected agencies expressed concern about how OPM calculated the
correlation coefficient and the effect it had on the resulting score.
SES-PAAT:
In 2007, OPM developed the SES-PAAT to help streamline the
certification process, improve the efficiency of its oversight process,
and offer a more transparent and organized way for agencies, OPM, and
OMB to examine SES appraisal systems, among other things. OPM first
required agencies with fully certified SES appraisal systems to use
this tool when requesting full certification for 2009 and 2010. Based
on a set of questions that relate to the certification criteria, the
SES-PAAT helps clarify the certification criteria and quantifies
aspects of the certification package that agencies had previously
supported through narrative form. In making an agency's certification
decision, OPM and OMB consider the SES-PAAT score and the quality of
the provided supporting documentation, such as the sample of individual
performance plans.
OPM is hopeful that the SES-PAAT will improve the efficiency of its
oversight process and the feedback provided to the agencies, but
officials from our selected agencies that completed the SES-PAAT have
mixed views on using this tool. OPM removed one office from the review
process for SES-PAAT submissions with the intention of spending less
time overseeing the continuation of full certifications and more time
focusing on provisional certifications or those agencies that were in
danger of dropping from full to provisional certification, according to
a senior OPM official. Officials from the two selected agencies that
completed the SES-PAAT for the first time said the certification
submission process was more efficient with less documentation submitted
overall; however, the process was still labor intensive and time
consuming, specifically with regard to the sample of performance plans
required. Even though the SES-PAAT requires agencies to submit a
smaller sample of performance plans, a senior human resources official
said her agency needed to do a complete review of its SES performance
plans to ensure that all the plans were adequate for certification
approval.
Correlation Coefficient:
To help assess in part how agencies are meeting the pay differentiation
certification criterion, OPM is using a metric based on a correlation
coefficient that summarizes the strength of the relationship between
SES members' ratings and their performance-based pay adjustments and
bonuses as part of the Human Capital Assessment and Accountability
Framework's systems, standard, and metrics.[Footnote 28] Given that at
least 60 percent of executives' performance ratings are to be based on
organizational results, a senior OPM official said calculating the
relationship between executive ratings and performance pay provides an
indication of how well an agency is recognizing its executives based on
organizational results achieved.
Officials from three of the selected agencies expressed concern about
how OPM calculated the correlation coefficient and the effect it had on
the resulting score. Specifically, OPM decided to include in its
calculations those senior executives who received Presidential Rank
Awards, but because of their agencies' policies were not eligible for
and did not receive bonuses. As a result, the coefficients for those
agencies may show a weaker connection between SES ratings and
performance pay because highly rated executives did not receive
bonuses. A senior OPM official said OPM recognizes that the decision to
include all executives regardless of their bonus eligibility in the
correlation coefficient may have a negative effect on an agency's
coefficient, especially in the case of smaller agencies with few SES
members, but it is a policy decision that OPM has made to ensure that
the coefficients were calculated consistently across the government.
For small agencies, OPM said that a correlation coefficient may not be
appropriate for determining how the agency is addressing the pay
differentiation criteria; rather, OPM will review the mean, median, and
mode of the agencies' total compensation including pay adjustments and
bonuses, as applicable to determine whether higher-rated executives
were rewarded appropriately.
SES Survey:
In January 2008, OPM conducted a governmentwide survey of all SES
members to evaluate the performance-based pay system. While OPM found
considerable variability in the executives' responses across the
different agencies, according to OPM the overall results show that the
vast majority of executives believe pay should be based on performance
and that areas for improvement exist, for example, in communicating
aggregate appraisal results to senior executives. According to selected
agency officials, the SES survey results were very helpful and useful
to their agency.
We previously recommended that OPM develop a strategy to allow it,
other executive agencies, and Congress to monitor the progress of
implementation of the senior executive performance-based pay
system.[Footnote 29] The SES survey could be a vehicle for regularly
monitoring progress in the future. OPM has not committed to
administering the survey on an ongoing basis, in part due to the
concern of over-surveying agency officials, but plans to revisit the
idea of administering the survey again in the next several years.
According to a senior OPM official, the Federal Human Capital Survey is
administered every 2 years and provides OPM with the opportunity to
monitor senior executives' satisfaction with the appraisal process,
including whether they consider their appraisals to be a fair
reflection of their performance, based on the senior executives who
responded. Rather, when OPM decides to administer the survey again,
according to the OPM official, it plans to target the relevant issues
of the day with some of the original questions in order to track trends
over time.
Providing Training and Forums for Agency Officials to Obtain
Information from OPM and Discuss Relevant Issues Regarding the SES
Performance-Based Pay System:
To help facilitate its communications and interactions with agency
officials and the executive resources community, OPM periodically
provides training and holds forums for agency officials to discuss
different aspects of the SES performance-based pay system and the
certification process, among other topics. Selected agency officials
found the forums to be useful and helpful in understanding the
certification process and requirements while allowing agencies to share
lessons learned from and experiences with the certification process.
OPM also finds these forums helpful in gathering agency feedback, which
it considers in future revisions to the certification process and other
human capital initiatives, according to a senior OPM official. For
example, in December 2007 OPM conducted four training workshops for all
interested agency executive resources officials on how to complete the
SES-PAAT and plans to hold sessions in December 2008 and January 2009.
OPM also holds forums five times a year for executive resources staff
from all agencies. At these forums, OPM and agency officials have the
opportunity to discuss common concerns, obtain status updates on
various OPM initiatives, and learn about future plans for the
certification process and other human capital areas.
In addition, the CHCO Council chaired by the OPM Director works with
agencies to develop and share leading practices in implementing human
capital initiatives. For example, the CHCO Council periodically holds
training academy sessions that are open to agency officials other than
CHCOs to highlight and showcase human capital practices related to
senior executive pay and certification issues. Specifically, over the
last 2 years, the CHCO Council has held several training academy
sessions related to SES performance management and pay systems, the SES-
PAAT, and lessons learned from the governmentwide SES survey results.
In our past work we recommended that OPM work with the CHCO Council to
develop a formal mechanism for sharing leading practices for
implementing human capital initiatives, such as the SES certification
process.[Footnote 30] OPM has addressed this recommendation by inviting
all levels of agency officials to attend CHCO Council training academy
sessions when relevant topics, such as the SES performance management
and SES survey results, were featured. Moving forward, the CHCO
subcommittee on performance management plans to partner with OMB's
Performance Improvement Council to make improvements on SES
certification and other human capital efforts.[Footnote 31]
Interacting with Agencies on the Review of Their Certification
Submissions:
OPM provides oversight to the certification process by communicating
and working directly with agencies to help them improve their systems.
According to OMB's lead official in the certification review process,
OPM takes the lead on the certification review process and OMB has a
concurrence role focusing most of its review on specific aspects of
agencies' certification submissions including aligning executive
performance expectations with organizational and program goals,
ensuring executives' goals are sufficiently results-oriented and
challenging to drive improved performance; measuring organizational
performance; and linking organizational results to the performance
rating distribution. Overall, the selected agencies have positive
working relationships with OPM on executive resources issues. For
example, officials at five of the selected agencies found that working
with OPM on the individual performance plans prior to submitting the
certification package was helpful and that OPM provided useful feedback
at this step in the certification process. Through its executive
resources forums, OPM has also communicated directly with agencies on
SES performance-based pay and the certification process, including
sharing key results from the SES survey with agencies.
However, OPM could strengthen its communication with agencies and
executives on how it uses the SES performance appraisal data and
correlation coefficient in determining whether agencies are making
meaningful distinctions based on relative performance as measured
through the performance and pay differentiation certification criteria.
Further communication from OPM is important in order for agencies to
have a better understanding of how they are being held accountable for
these certification criteria and make the necessary improvements to
their systems to maintain certification. Officials at four of the
selected agencies said they are unclear about how OPM uses the SES
appraisal data to assess whether agencies are meeting these criteria
and making meaningful distinctions in performance overall. In addition,
officials at four of the selected agencies said that the communication
they have received from OPM individually and through broader forums,
such as OPM's executive resources forums and certification guidance,
has not provided them with a clear sense of how OPM is using the
correlation coefficients to determine how agencies are addressing the
pay differentiation criterion. For the coefficients based on fiscal
year 2006 appraisal data, OPM provided each agency with their
coefficients and technical information explaining the concept of a
correlation coefficient, but did not communicate to agencies how the
scores were used for certification decisions. In addition, OPM gave
this information only to PMA-scored agencies. OPM provided all agencies
with 10 or more senior executives their correlation coefficient based
on the fiscal year 2007 appraisal data along with some contextual
information, but OPM does not address the concerns expressed by
officials at the selected agencies regarding how the correlation
coefficient is being used in certification decisions.
With respect to agencies' working relationships with OMB, officials at
five of the selected agencies had little to no direct contact with OMB
through past reviews of their certification submissions and did not
have a clear understanding of OMB's role in the certification review
process. However, while their interaction with OMB and understanding of
its role was limited, the selected agency officials were satisfied
overall with how they received OMB's feedback through OPM. OMB's
feedback on agencies' systems is most commonly communicated to agencies
via the letter that it sends to OPM stating its concurrence or
nonconcurrence with OPM's certification recommendation, according to
OMB's lead official in the certification review process. For the 2008
certification review process, OMB is working with agencies to identify
areas of improvement for their appraisal systems and asking agencies to
commit to working with OPM and OMB to address these areas. This
communication and feedback to agencies is taking place prior to
receiving OPM's and OMB's certification decisions, according to the OMB
official.
Future Plans and Potential Refinements for the SES Performance-Based
Pay System and Certification Process:
OPM is considering phasing out the distinction between full and
provisional certification once all agencies have received full
certification. Provisionally certified agencies receive the same pay
flexibilities--access to higher basic pay and total compensation--as
those with fully certified systems. Currently, agencies' systems are
required to meet the same criteria for both types of certification,
with the only distinction being fairly subtle differences in the degree
to which the agencies meet the criteria, according to OPM. When
certification began in 2004, an agency needed to only meet four of the
nine criteria and demonstrate that its system in design would meet the
remaining certification criteria to receive provisional certification.
We reported that it would be important for OPM to continue to monitor
the certification process, especially for those agencies' systems with
provisional certification, to help ensure that provisional
certifications do not become the norm.[Footnote 32] After that initial
year, agencies' systems were required to meet all nine certification
criteria to receive provisional certification, which according to a
senior OPM official was done in part because agencies would have had
the opportunity to produce performance data showing that meaningful
distinctions were made by the second year. OPM expects that all
applicant SES appraisal systems will meet full certification criteria
in the future. As of October 28, 2008, 76 percent of the agency
certification submissions reviewed by OPM and OMB had received full
certification for calendar year 2008. According to a senior OPM
official, OPM is currently revisiting the certification regulations to
determine what revisions should be made.
Regarding potential refinements to the certification process, officials
at the selected agencies identified a need for increased efficiency in
the certification submission process given the large quantity of
documents required and the time it currently takes to gather the
certification package.
* For example, officials at five of the selected agencies are in favor
of moving to an electronic submission process, if it reduces the amount
of paper documentation that is required and streamlines the process of
compiling the necessary documentation for agencies. Selected agency
officials acknowledged that the certification process is moving in that
direction with the SES-PAAT, which is an electronic tool. For agencies
completing the SES-PAAT, OPM requested five copies of the completed
tool and supporting documentation, such as the sample of performance
plans and organizational performance assessments. A senior human
resources official who is not using the SES-PAAT said her agency
submitted to OPM seven copies of its certification package for 2007.
While OPM has informally encouraged agencies through its executive
resources forums or e-mail communications to submit their certification
submissions electronically, according to a senior OPM official OPM has
not directly discussed electronic certification submissions in its
guidance and submission instructions to the agencies. In addition,
officials at three of the selected agencies said that OPM could lessen
agencies' reporting burden by only requiring them to submit
documentation to OPM and OMB on those areas of the system where
substantive changes have occurred since the previous certification
submission. While OPM and OMB should receive completed certification
submissions as part of their oversight responsibilities, moving to
electronic documentation may help agencies more easily gather and
submit the certification documents that change minimally from year to
year. OPM and OMB officials both said they support electronic
certification submissions and would not rule out a more electronic
certification process in the future, starting with the SES-PAAT.
* Overall, selected agency officials supported lengthening the
certification coverage beyond 2 years once agencies have proved their
systems are addressing the certification criteria. Currently, full
certification lasts for 24 months. Specifically, the process of
gathering the necessary documentation for certification submissions
would be less burdensome to agencies if they had more time between
recertification deadlines, according to a senior human resources
official. Prior to receiving an extended certification coverage period,
the agency officials acknowledged that their systems would have to be
operating at the fully certified level. The lead OMB official
overseeing the certification review process said OMB could potentially
be supportive of lengthening the certification coverage, once agencies
have their systems up and running and all agencies have full
certification. Recognizing extending coverage would require a statutory
change, OPM is reviewing the recently passed law that changes the
certification coverage to up to 24 months from a calendar-year-based
coverage, among other things, and OPM is not taking a position on
extending certification coverage at this time.
Conclusions:
OPM and OMB have taken important steps in overseeing the design and
implementation of agencies' senior executive performance- based pay
systems. The selected agencies' experiences with implementing their SES
systems can help inform other agencies' efforts to hold executives
accountable for organizational results and link pay for performance.
USAID has an opportunity to strengthen the link between organizational
and individual performance by providing rating and reviewing officials
with specific information on organizational performance. For senior
executives to lead the way in transforming their organizations to meet
the complex challenges facing the nation, it will be important for them
to have confidence that the SES performance-based pay system is
operating as intended and that they will be rewarded according to their
performance. In this regard, making meaningful distinctions among
executives when assessing performance is important to the overall
credibility of the SES performance-based pay system. Less than a third
of senior executives governmentwide strongly agreed or agreed that
bonuses or pay distinctions were meaningfully different among senior
executives, according to OPM's SES survey. OPM has an opportunity to
help ensure that agencies are making meaningful distinctions in
executive performance by strengthening its communication with agencies
and executives on the importance of using a range of rating levels when
assessing performance, while avoiding forced distributions.
Additionally, communicating how OPM uses data and other tools in making
certification decisions will be important so that agencies can make
continuous improvements to their systems to support the development of
a stronger performance culture and the attainment of their missions,
goals, and objectives. Moving forward, it will also be important for
OPM and OMB to identify ways to improve the certification process and
make it more streamlined while ensuring that agencies have the
guidance, tools, and training they need to implement effective
performance appraisal and pay systems for their senior executives.
Recommendations for Executive Action:
To help ensure consistency and clarity in how organizational
performance is considered in appraising executive performance, we
recommend that the Administrator of USAID provide uniform
organizational performance assessments to PRB members and other
reviewing officials to help inform their appraisal recommendations for
senior executives at the end of the performance appraisal cycle.
To help improve agencies' understanding of certain aspects of the
certification decisions, we recommend two areas for the Acting Director
of OPM to take action to strengthen OPM's communication with agencies
and executives on:
* the importance of making meaningful distinctions in performance while
avoiding the use of forced distributions and that a fully successful
rating is valued and rewarded and:
* how it uses the SES performance appraisal data and the correlation
between ratings and performance pay in determining whether agencies are
making meaningful distinctions based on relative performance as
measured though the pay and performance differentiation certification
criteria.
In addition, to help improve the efficiency of the certification
submission process for agencies, we recommend that the Acting Director
of OPM and Director of OMB explore opportunities for streamlining the
certification process, such as electronic submissions or lengthening
the full certification coverage beyond 2 years for agencies that
received full certification.
Agency Comments and Our Evaluation:
We provided a copy of the draft report to the Secretaries of Defense,
Energy, State, and the Treasury; the Commissioners of NRC; the
Administrator of USAID; the Acting Director of OPM; and the Director of
OMB for their review and comment.
DOE had no comments on the draft report. We received written comments
from DOD and OPM, which are included in appendixes III and IV. NRC,
OMB, State, Treasury, and USAID provided clarifying and technical
comments, which we incorporated as appropriate. With respect to making
meaningful distinctions in performance, Treasury officials provided
broad comments on the challenge agencies face in using the full range
of rating levels given that executives are high achievers and had to
exhibit exceptional performance to enter the SES. The officials
suggested that meaningful distinctions can not be defined simply by the
distribution of performance ratings. Our findings and recommendations
about making meaningful distinctions acknowledged challenges, but also
the need for additional communication from OPM in this area.
Regarding our recommendations, USAID, OPM, and OMB expressed general
agreement. The Acting Director stated that OPM looks forward to working
with agencies and OMB to find ways to further improve communications
with the agencies concerning the certification process. OMB generally
agreed with our assessment and recommendation regarding the
possibilities of streamlining the certification process to improve
efficiency and potentially extending full certification coverage beyond
2 years. OMB stated that it agrees with OPM that careful review of the
newly passed law and its effect will be necessary before considering
such an extension. Regarding our discussion of pay compression, OPM
stated that it is not comfortable with the identification of tiers as a
means to address SES pay compression. The Acting Director commented
that using tiers results in salaries clustering around points in the
salary range rather than only at the top of the range. While we
recognize OPM's concern about agencies' use of tiers, we are not
recommending the use of tiers as a way for agencies to address future
problems with pay compression and have revised the language in the
report to clarify this point.
As agreed with your offices, unless you publicly announce the contents
of this report earlier, we plan no further distribution of it until 30
days from the date of this letter. At that time, we will send copies of
this report to the appropriate congressional committees; the
Secretaries of Defense, Energy, State, and the Treasury; the
Commissioners of NRC; the Administrator of USAID; the Acting Director
of OPM; the Director of OMB; and other interested parties. The report
will also be available at no charge on the GAO Web site at [hyperlink,
http://www.gao.gov].
If you or your staff have any questions regarding this report, please
contact me at (202) 512-6806 or goldenkoffr@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 V.
Signed by:
Robert N. Goldenkoff:
Director, Strategic Issues:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
This report examines selected agencies' policies and procedures for
their career Senior Executive Service (SES) performance appraisal and
pay systems in (1) factoring organizational performance into senior
executive performance appraisal decisions, (2) making meaningful
distinctions in assessing and rewarding senior executive performance,
and (3) building safeguards into senior executive performance appraisal
and pay systems. In addition, this report examines how the Office of
Personnel Management (OPM) and the Office of Management and Budget
(OMB) are providing oversight in the certification of the senior
executive performance-based pay system through their statutory roles.
We selected the U.S. Departments of Defense, Energy, State, and the
Treasury; the U.S. Nuclear Regulatory Commission (NRC); and the United
States Agency for International Development based on variations in
agency mission, organizational structure, size of their career SES
workforces to reflect agencies with a large, average, and small number
of executives; and results of their SES performance appraisal systems
in terms of the percentage of SES rated at the highest rating levels
and the percentage that received performance awards or bonuses from
fiscal years 2004 to 2006, according to OPM's governmentwide data
reports. We focused on career members of the SES because they represent
the majority of all SES appointments governmentwide.
To address our first and third objectives, we analyzed selected
agencies' documents on their SES performance appraisal and pay systems
including performance management policies, directives, guidance, and
other related information; performance planning and appraisal
templates; briefings, memos, and other materials used to communicate
aggregate appraisal results to senior executives; and the submission
documents to OPM and OMB for certification in 2007. We also interviewed
cognizant senior-level officials in the human capital offices at the
selected agencies regarding their agencies' SES systems and senior-
level OPM and OMB officials on how organizational performance and
safeguards are integrated into the certification process.
To address our second objective, we analyzed aggregate SES basic pay,
performance rating, bonus, and pay adjustment data as provided by the
agencies for fiscal year 2007. We defined our universe of analysis as
career senior executives who received ratings. In calculating the
percentage of eligible senior executives who received bonuses (cash
awards) or pay adjustments (increases to basic pay) and average (or
mean) amounts, we excluded executives who received a rating less than
"fully successful" (level 3), as applicable, from the eligible
population since those executives are not eligible to receive bonuses,
according to the selected agencies' policies, or pay increases,
according to OPM regulation. We also excluded senior executives at NRC,
Treasury, and State who received Presidential Rank Awards from our
calculations of percentages of eligible SES members receiving bonuses
and average amounts because those individuals were not considered for
bonuses that year, according to the agencies' policies. In order to
have consistency in our analysis across selected agencies, we included
senior executives who were rated but left their positions--because of
retirement, attrition, or assignment to a lower grade--prior to
performance payouts being made in our analysis. The agencies' policies
and practices varied in whether or not senior executives who retired
were eligible for performance payouts.
In analyzing the basic pay rates, we used the rates of basic pay for
rated, career senior executives after pay adjustments were made for the
fiscal year 2007 appraisal cycle. We compared these basic pay amounts
to the governmentwide SES basic pay range and the Executive Schedule
(EX) pay levels, specifically EX-level II (the SES pay cap) and EX-
level III (within the SES pay band) for calendar year 2008. EX pay
rates are set at the beginning of each calendar year and because
performance payouts from the completed appraisal cycle are usually paid
out in January, agencies are able to use the next calendar year SES pay
rates for their pay ranges. In calculating the percentage of senior
executives paid at or above EX-level III, we included those SES paid at
EX-level II in our calculations. For this objective, we also analyzed
relevant agency policies and guidance regarding performance ratings,
bonuses, and pay adjustments, and interviewed selected senior-level
agency officials from the human capital offices. For the governmentwide
perspective, we reviewed OPM's Report on Senior Executive Pay for
Performance for Fiscal Year 2007 to identify relevant governmentwide
performance data as a comparison point for the selected agencies. We
analyzed OPM memos and guidance on the certification process and
criteria, and interviewed senior-level OPM and OMB officials who
oversee the certification review process on how the SES performance
data are used as part of the certification process.
We checked the agency 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. The agency officials confirmed the correctness
of the data or in some cases provided corrections to the data, which we
used in our analysis. On the basis of these procedures, we believe the
data are sufficiently reliable for use in the analyses presented in
this report.
For our fourth objective, we analyzed OPM's and OMB's guidance, memos,
and other documents regarding the certification process and criteria;
interviewed senior-level OPM and OMB officials involved in the
certification process regarding their oversight of the certification
process; and interviewed senior-level agency officials from the
selected agencies' human capital offices to obtain their perspectives
on OPM and OMB oversight. As part of this objective, we are reporting
on the status of OPM's progress toward addressing recommendations from
our past work on the SES performance-based pay system and certification
process.[Footnote 33]
We conducted our work from October 2007 through November 2008 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: Certification Criteria for the Senior Executive
Performance-Based Pay System:
In November 2003, Congress authorized a new performance-based pay
system for members of the Senior Executive Service.[Footnote 34]
Agencies are to base pay adjustments for senior executives on
individual performance and contributions to the agency's performance by
considering the individual's accomplishments and such things as unique
skills, qualifications, or competencies of the individual and the
individual's significance to the agency's mission and performance, as
well as the individual's current responsibilities. If an agency's
senior executive performance appraisal system is certified by the
Office of Personnel Management (OPM) and the Office of Management and
Budget (OMB) concurs, an agency can raise the pay cap for its senior
executives to $172,200 for basic pay (Level II of the Executive
Schedule) and $221,100 for total compensation (the total annual
compensation payable to the Vice President).
To qualify for senior executive pay flexibilities, agencies'
performance appraisal systems are evaluated against nine certification
criteria and any additional information that OPM and OMB may require to
make determinations regarding certification. As shown in table 4, the
certification criteria jointly developed by OPM and OMB are broad
principles that position agencies to use their pay systems
strategically to support the development of a stronger performance
culture and the attainment of their mission, goals, and objectives.
Table 4: OPM's and OMB's Senior Executive Performance Appraisal System
Certification Criteria:
Criterion: Alignment;
Description: Individual performance expectations must be linked to or
derived from the agency's mission, strategic goals, program/policy
objectives, or annual performance plan.
Criterion: Consultation;
Description: Individual performance expectations are developed with
senior employee involvement and must be communicated at the beginning
of the appraisal cycle.
Criterion: Results;
Description: Individual expectations describe performance that is
measurable, demonstrable, or observable, focusing on organizational
outputs and outcomes, policy/program objectives, milestones, and so
forth.
Criterion: Balance;
Description: Individual performance expectations must include measures
of results, employee and customer/stakeholder satisfaction, or
competencies or behaviors that contribute to outstanding performance.
Criterion: Assessments and guidelines;
Description: The agency head or a designee provides assessments of the
performance of the agency overall, as well as each of its major program
and functional areas, such as reports of agency's goals and other
program performance measures and indicators, and evaluation guidelines
based, in part, upon those assessments to senior employees and
appropriate senior employee rating and reviewing officials. The
guidance provided may not take the form of quantitative limitations on
the number of ratings at any given rating level.
Criterion: Oversight;
Description: The agency head or designee must certify that (1) the
appraisal process makes meaningful distinctions based on relative
performance; (2) results take into account, as appropriate, the
agency's performance; and (3) pay adjustments and awards recognize
individual/organizational performance.
Criterion: Accountability;
Description: Senior employee ratings (as well as subordinate employees'
performance expectations and ratings for those with supervisor
responsibilities) appropriately reflect employees' performance
expectations, relevant program performance measures, and other relevant
factors.
Criterion: Performance differentiation;
Description: Among other provisions, the agency must provide for at
least one rating level above fully successful (must include an
outstanding level of performance), and in the application of those
ratings, must make meaningful distinctions among executives based on
their relative performance.
Criterion: Pay differentiation;
Description: The agency should be able to demonstrate that the largest
pay adjustments, highest pay levels (basic and performance awards), or
both are provided to its highest performers, and that overall the
distribution of pay rates in the SES rate range and pay adjustments
reflects meaningful distinctions among executives based on their
relative performance.
[End of table]
Source: GAO.
[End of section]
Appendix III: Comments from the Department of Defense:
Office Of The Under Secretary Of Defense:
4000 Defense Pentagon:
Washington, DC 20301-4000:
Personnel and Readiness:
November 24, 2008:
Mr. Robert N. Goldenkoff:
Director, Strategic Issues, U.S. Government Accountability Office:
U.S. Government Accountability Office:
441 G Street, N.W.:
Washington, DC 20548:
Dear Mr. Goldenkoff,
This is the Department of Defense (DoD) response to the GAO draft
report, GAO- 09-82, `Results-Oriented Management: Opportunities Exist
for Refining the Oversight and Implementation of the Senior Executive
Performance-Based Pay System,' dated October 29, 2008 (GAO Code
450628).
The Department appreciates the opportunity to respond to the audit. The
analysis of selected agency practices and policies will be useful as
the Department continues to refine its own performance management
practices. The Department's comments are generally editorial in nature,
however, they provide additional clarity to help inform the DoD effort.
They are:
1. The title of the DoD official is, "Principal Director to the Deputy
Under Secretary of Defense for Civilian Personnel Policy." You can
shorten it to Principal Director.
2. Page 13: Suggest a slight rewrite of the last sentence in the DoD
bullet. "According to the Principal Director to the Deputy Under
Secretary of Defense for Civilian Personnel Policy, the DoD Components
had the flexibility to use both the department wide organizational
assessment and their own organizational assessments. Component
organizational assessments were required to be linked to the department
wide priorities and end of year assessment. Component organizational
assessments can provide a level of specificity that enables a clearer
connection or "line of sight" between individual executive performance
and organizational performance."
3. Page 18. Suggest an additional sentence to the last paragraph before
Table 2. "DOD also uses the Tier Structure to differentiate executive
payouts (basic pay increases and bonuses) to recognize high level
performance in some positions has more impact than comparable
performance in others.
4. Page 21: Suggest a slight rewrite to sentence 5, second paragraph.
"DoD is communicating the message that the new pay for performance
management system recalibrates performance assessments as a way to help
change the culture and make meaningful distinctions in performance. A
fully successful or equivalent rating is a high bar standard as well as
a valued and quality rating. Levels above this require extraordinary
results." Part of this communication...
5. Page 29: Suggest a slight rewrite to sentence at the top of the
page. "...The Principal Director to the Deputy Under Secretary of
Defense for Civilian Personnel Policy said when pay increases are not
possible given salary cap issues, bonuses are a tool for Components to
reward their executives' performance for achieving results." Last
sentence ” A comment for your consideration. Tiers are the most common
way for agencies to control salary costs. However, tiers can exacerbate
pay compression issues.
If you have additional questions, please do not hesitate to contact me
at 703-614-9487.
Signed by:
Patricia Bradshaw:
Deputy Under Secretary of Defense:
(Civilian Personnel Policy):
[End of section]
Appendix IV: Comments from the Office of Personnel Management:
United States Office Of Personnel Management:
Washington, DC 20415:
[hyperlink, http://www.opm.gov]:
"Our mission is to ensure the Federal Government has an effective
civilian workforce.":
[hyperlink, http://www.usajobs.gov]:
November 18, 2008:
The Honorable Gene L. Dodaro:
Acting Comptroller General:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Dodaro:
Thank you for the opportunity to provide comments in response to the
U.S. Government Accountability Office (GAO) draft report entitled
Results-Oriented Management: Opportunities Exist for Refining the
Oversight and Implementation of the Senior Executive Performance-Based
Pay System (GAO-09-82).
I appreciate GAO's recommendations for improving communications with
the agencies concerning the executive appraisal system certification
process. I agree that communication about system certification with the
agencies is vitally important. The U.S. Office of Personnel Management
has already taken a number of steps to improve our communications with
the agencies, particularly through workshops, forums, Chief Human
Capital Officer Council activities, and briefings for individual
agencies as well as interagency groups. We have plans to conduct
additional workshops on system certification using the Senior Executive
Service Performance Appraisal Assessment Tool (SES-PAAT), which we
recently introduced to improve the certification process. We look
forward to working with agencies and the Office of Management and
Budget to find ways to further improve the process.
We have one observation about the report's discussion regarding pay
compression and agencies establishing pay tiers within the broad pay
range. While we agree that pay compression is a problem, we are not
comfortable with the identification of tiers as a means to address SES
pay compression. Tiers are used by agencies for a purpose other than
relieving pay compression to recognize varying levels of responsibility
and difficulty among SES positions, with the most demanding jobs
falling in the top pay tier. This strategy results in a greater spread
among the salaries of individual SES members, and ensures that SES
members in the toughest jobs don't receive the same rate of basic pay
as other Senior Executives. However, using pay tiers does not
necessarily address the issue of pay compression. Instead, it results
in salaries clustering around two or three points in the salary range
rather than only at the top of the range. Also, the growing concern
about compression is mostly fueled by the fact there is greater upward
movement each January in the General Schedule (GS) than the Executive
Schedule, resulting in a smaller and smaller difference each year
between GS-15 and SES salaries. If anything, tiers would probably make
the difference between the average SES and GS 15 salary even smaller.
Again, thank you for allowing me to comment on this report. I am
providing specific technical corrections to the draft report and would
ask for your consideration of these changes.
Enclosure:
[End of section]
Appendix V: GAO Contact and Staff Acknowledgments:
GAO Contact:
Robert N. Goldenkoff, (202) 512-6806, goldenkoffr@gao.gov:
Staff Acknowledgments:
In addition to the individual named above, Belva Martin, Assistant
Director; Amber Edwards; Janice Latimer; Donna Miller; Meredith Moore;
Mary Robison; Sabrina Streagle; and Greg Wilmoth made major
contributions.
[End of section]
Footnotes:
[1] National Defense Authorization Act for Fiscal Year 2004, Pub. L.
No. 108-136, November 24, 2003; 5 U.S.C. § 5382.
[2] Relative performance means the performance of a senior employee
with respect to the performance of other senior employees, including
their contribution to agency performance, where appropriate, as
determined by the application of a certified appraisal system. 5 C.F.R.
§ 430.402.
[3] GAO, Human Capital: Symposium on Designing and Managing Market-
Based and More Performance-Oriented Pay Systems, [hyperlink,
http://www.gao.gov/products/GAO-05-832SP] (Washington, D.C.: July 27,
2005).
[4] GAO, Human Capital: Senior Executive Performance Management Can Be
Significantly Strengthened to Achieve Results, [hyperlink,
http://www.gao.gov/products/GAO-04-614] (Washington, D.C.: May 26,
2004).
[5] These three areas fit into the alignment, results, assessments and
guidelines, performance differentiation, and pay differentiation
criteria. See app. II for a description of all nine criteria.
[6] GAO, Human Capital: Selected Agencies Have Implemented Key Features
of Their Senior Executive Performance-Based Pay Systems, but
Refinements Are Needed, [hyperlink, http://www.gao.gov/products/GAO-08-
1019T] (Washington, D.C.: July 22, 2008).
[7] 5 C.F.R. § 430.301(b).
[8] The Homeland Security Act of 2002, Pub. L. 107-296, § 1322,
November 25, 2002; 5 U.S.C. § 5307.
[9] National Defense Authorization Act for Fiscal Year 2004, Pub. L.
No. 108-136, November 24, 2003; 5 U.S.C. § 5382.
[10] Senior Professional Performance Act of 2008, Pub. L. No. 110-372,
§ 3, October 8, 2008.
[11] Senior Professional Performance Act of 2008, Pub. L. No. 110-372,
§ 3, October 8, 2008.
[12] GAO, Office of Personnel Management: Key Lessons Learned to Date
for Strengthening Capacity to Lead and Implement Human Capital Reforms,
[hyperlink, http://www.gao.gov/products/GAO-07-90] (Washington, D.C.:
Jan. 19, 2007).
[13] GAO, Results-Oriented Cultures: Creating a Clear Linkage between
Individual Performance and Organizational Success, [hyperlink,
http://www.gao.gov/products/GAO-03-488] (Washington, D.C.: Mar. 14,
2003).
[14] [hyperlink, http://www.gao.gov/products/GAO-04-614].
[15] State's senior executive performance appraisal cycle ended on July
31, 2008. The appraisal cycle is from August 1 to July 31.
[16] Agencies are permitted to award bonuses from 5 to 20 percent of an
executive's rate of basic pay from a pool that cannot exceed the
greater of 10 percent of the aggregate rate of basic pay for the
agency's career SES appointees for the year preceding, or 20 percent of
the average annual rates of basic pay to career SES members for the
year preceding; 5 U.S.C. § 5384.
[17] DOE uses a four-level appraisal system with no rating level
between outstanding and meets expectations.
[18] GAO, Financial Regulators: Agencies Have Implemented Key
Performance Management Practices, but Opportunities for Improvement
Exist, [hyperlink, http://www.gao.gov/products/GAO-07-678] (Washington,
D.C.: June 18, 2007).
[19] Given that they both have SES and Senior Foreign Service (SFS)
members, State and USAID discuss issues of executive compensation and
other executive resources areas in order to maintain comparability for
SES bonuses and pay adjustments between the agencies and with the SFS,
according to agency officials. The Foreign Service Act of 1980, as
amended, limits the percentage of SFS members who can receive bonuses
to 33 percent; 22 U.S.C. § 3965. According to a senior-level State
official, the percentage of SES members receiving bonuses has increased
recently to between 50 to 60 percent at State due to an effort to
offset regular pay increases SFS members receive through promotions.
[20] Agencies can nominate senior executives for Presidential Rank
Awards, which recognize career senior executives who have demonstrated
exceptional performance over an extended period of time. The OPM
Director reviews agency nominations and recommends candidates to the
President. These awards are either 20 percent or 35 percent of the
recipient's basic pay.
[21] 5 C.F.R. § 430.404(a)(9).
[22] At NRC, the majority of senior executives rated at level 4 who did
not receive pay increases retired before performance payouts were made
for the fiscal year 2007 appraisal cycle.
[23] [hyperlink, http://www.gao.gov/products/GAO-05-832SP] and GAO,
Human Capital: Trends in Executive and Judicial Pay, [hyperlink,
http://www.gao.gov/products/GAO-06-708] (Washington, D.C.: June 21,
2006).
[24] Bonuses awarded to senior executives are cash payments not added
to the executives' basic pay and therefore do not count toward the
governmentwide basic pay cap.
[25] [hyperlink, http://www.gao.gov/products/GAO-05-832SP]. For more
information, including the complete list of safeguards, see GAO, Human
Capital: DOD Needs to Improve Implementation of and Address Employee
Concerns about Its National Security Personnel System, [hyperlink,
http://www.gao.gov/products/GAO-08-773] (Washington, D.C.: Sept. 10,
2008).
[26] 5 U.S.C. § 4312(b)(3).
[27] Senior Professional Performance Act of 2008, Pub. L. No. 110-372,
§ 3, October 8, 2008.
[28] The correlation coefficient ranges from -1 to +1. An agency that
has a strong relationship between ratings and performance pay will have
a positive correlation coefficient close to +1, which indicates that
the executives' summary ratings are the agencies' primary bases for
determining their performance pay. An agency that has a strong negative
relationship between ratings and performance pay will have a
coefficient near -1. A coefficient of zero indicates there is no
correlation between ratings and performance pay.
[29] [hyperlink, http://www.gao.gov/products/GAO-07-90].
[30] [hyperlink, http://www.gao.gov/products/GAO-07-90].
[31] An Executive Order in November 2007 required agency heads to
appoint performance improvement officers as members of the Performance
Improvement Council. These officers are responsible for coordinating
the organization's performance management activities including
assisting the agency head in developing and using performance measures
in individual performance appraisals to ensure accountability for
greater effectiveness. Exec. Order No. 13,450, 72 Fed. Reg. 64,517
(Nov. 15, 2007).
[32] GAO, Human Capital: Agencies Need Leadership and the Supporting
Infrastructure to Take Advantage of New Flexibilities, [hyperlink,
http://www.gao.gov/products/GAO-05-616T] (Washington, D.C.: Apr. 21,
2005).
[33] [hyperlink, http://www.gao.gov/products/GAO-07-90].
[34] National Defense Authorization Act for Fiscal Year 2004, Pub. L.
No. 108-136, November 24, 2003; 5 U.S.C § 5382.
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