Problems With the Small Business Administration's Merit Appraisal and Compensation System

GAO reviewed the performance appraisal/merit pay program of the Small Business Administration (SBA).

SBA experienced numerous problems in its initial implementation of merit pay. Some of these problems appear to be associated principally with implementation; others appear to be recurring, such as: (1) difficulties in developing, with employee involvement, meaningful performance standards; (2) problems with rating distribution skewness, resulting in management's prescribing a distribution of ratings contrary to Office of Personnel Management regulation; and (3) problems with using preestablished performance objectives as the basis for performance appraisals leading to the substitution of new appraisal criteria after the appraisal period contrary to the requirements of the Civil Service Reform Act. These problems contributed to negative attitudes and reduced the credibility of the SBA Merit Appraisal and Compensation (MAC) System. Unless these problems are addressed and resolved, many of the problems may well occur again in fiscal year 1981. No new official SBA management goals have been developed in 1981 for headquarters and field offices. As these goals serve as the primary basis for setting individual performance objectives, many individuals' performance objectives will be based on fiscal year 1980 goals that have not been revised or updated. Because few changes were made in the MAC system in 1981, there is a good chance that performance measures other than preestablished objectives might again be used as the basis for appraising performance, resulting in increased employee dissatisfaction.

Recommendations

Our 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.

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