Human Capital
Symposium on Designing and Managing Market-Based and More Performance-Oriented Pay Systems Gao ID: GAO-05-832SP July 27, 2005Critical to the success of the federal government's transformation are its people--human capital. Yet the government has not transformed, in many cases, how it classifies, compensates, develops, and motivates its employees to achieve maximum results within available resources and existing authorities. One of the questions being addressed as the federal government transforms is how to update its compensation system to be more market based and performance oriented. To further the discussion of federal pay reform, GAO, the U.S. Office of Personnel Management, the U.S. Merit Systems Protection Board, the National Academy of Public Administration, and the Partnership for Public Service convened a symposium on March 9, 2005, to discuss organizations' experiences with market-based and more performance-oriented pay systems. Representatives from public, private, and nonprofit organizations made presentations on the successes and challenges they experienced in designing and managing their market-based and more performance-oriented pay systems. A cross section of human capital stakeholders was invited to further explore these successes and challenges and engage in open discussion. While participants were asked to review the overall substance and context of the draft summary, GAO did not seek consensus on the key themes and supporting examples.
While implementing market-based and more performance-oriented pay systems is both doable and desirable, organizations' experiences show that the shift to market-based and more performance-oriented pay must be part of a broader strategy of change management and performance improvement initiatives. GAO identified the following key themes that highlight the leadership and management strategies these organizations collectively considered in designing and managing market-based and more performance-oriented pay systems. 1. Focus on a set of values and objectives to guide the pay system. Values represent an organization's beliefs and boundaries and objectives articulate the strategy to implement the system. 2. Examine the value of employees' total compensation to remain competitive in the market. Organizations consider a mix of base pay plus other monetary incentives, benefits, and deferred compensation, such as retirement pay, as part of a competitive compensation system. 3. Build in safeguards to enhance the transparency and ensure the fairness of pay decisions. Safeguards are the precondition to linking pay systems with employee knowledge, skills, and contributions to results. 4. Devolve decision making on pay to appropriate levels. When devolving such decision making, overall core processes help ensure reasonable consistency in how the system is implemented. 5. Provide training on leadership, management, and interpersonal skills to facilitate effective communication. Such skills as setting expectations, linking individual performance to organizational results, and giving and receiving feedback need renewed emphasis to make such systems succeed. 6. Build consensus to gain ownership and acceptance for pay reforms. Employee and stakeholder involvement needs to be meaningful and not pro forma. 7. Monitor and refine the implementation of the pay system. While changes are usually inevitable, listening to employee views and using metrics helps identify and correct problems over time. These organizations found that the key challenge with implementing market-based and more performance-oriented pay is changing the culture. To begin to make this change, organizations need to build up their basic management capacity at every level of the organization. Transitioning to these pay systems is a huge undertaking and will require constant monitoring and refining in order to implement and sustain the reforms.
GAO-05-832SP, Human Capital: Symposium on Designing and Managing Market-Based and More Performance-Oriented Pay Systems
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July 2005:
Human Capital:
Symposium on Designing and Managing Market-Based and More Performance-
Oriented Pay Systems:
GAO-05-832SP:
GAO Highlights:
Highlights of GAO-05-832SP
Why GAO Convened This Symposium:
Critical to the success of the federal government‘s transformation are
its people”human capital. Yet the government has not transformed, in
many cases, how it classifies, compensates, develops, and motivates its
employees to achieve maximum results within available resources and
existing authorities. One of the questions being addressed as the
federal government transforms is how to update its compensation system
to be more market based and performance oriented.
To further the discussion of federal pay reform, GAO, the U.S. Office
of Personnel Management, the U.S. Merit Systems Protection Board, the
National Academy of Public Administration, and the Partnership for
Public Service convened a symposium on March 9, 2005, to discuss
organizations‘ experiences with market-based and more performance-
oriented pay systems. Representatives from public, private, and
nonprofit organizations made presentations on the successes and
challenges they experienced in designing and managing their market-
based and more performance-oriented pay systems. A cross section of
human capital stakeholders was invited to further explore these
successes and challenges and engage in open discussion. While
participants were asked to review the overall substance and context of
the draft summary, GAO did not seek consensus on the key themes and
supporting examples.
What Participants Said:
While implementing market-based and more performance-oriented pay
systems is both doable and desirable, organizations‘ experiences show
that the shift to market-based and more performance-oriented pay must
be part of a broader strategy of change management and performance
improvement initiatives. GAO identified the following key themes that
highlight the leadership and management strategies these organizations
collectively considered in designing and managing market-based and more
performance-oriented pay systems.
1. Focus on a set of values and objectives to guide the pay system.
Values represent an organization‘s beliefs and boundaries and
objectives articulate the strategy to implement the system.
2. Examine the value of employees‘ total compensation to remain
competitive in the market. Organizations consider a mix of base pay
plus other monetary incentives, benefits, and deferred compensation,
such as retirement pay, as part of a competitive compensation system.
3. Build in safeguards to enhance the transparency and ensure the
fairness of pay decisions. Safeguards are the precondition to linking
pay systems with employee knowledge, skills, and contributions to
results.
4. Devolve decision making on pay to appropriate levels. When devolving
such decision making, overall core processes help ensure reasonable
consistency in how the system is implemented.
5. Provide training on leadership, management, and interpersonal skills
to facilitate effective communication. Such skills as setting
expectations, linking individual performance to organizational results,
and giving and receiving feedback need renewed emphasis to make such
systems succeed.
6. Build consensus to gain ownership and acceptance for pay reforms.
Employee and stakeholder involvement needs to be meaningful and not pro
forma.
7. Monitor and refine the implementation of the pay system. While
changes are usually inevitable, listening to employee views and using
metrics helps identify and correct problems over time.
These organizations found that the key challenge with implementing
market-based and more performance-oriented pay is changing the culture.
To begin to make this change, organizations need to build up their
basic management capacity at every level of the organization.
Transitioning to these pay systems is a huge undertaking and will
require constant monitoring and refining in order to implement and
sustain the reforms.
www.gao.gov/cgi-bin/getrpt?GAO-05-832SP.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact J. Christopher Mihm at
(202) 512-6806 or mihmj@gao.gov.
[End of section]
Contents:
Letter:
Appendixes:
Appendix I: Key Themes from the Symposium:
Focus on a Set of Values and Objectives to Guide the Pay System:
Examine the Value of Employees' Total Compensation to Remain
Competitive in the Market:
Build in Safeguards to Enhance the Transparency and Ensure the Fairness
of Pay Decisions:
Devolve Decision Making on Pay to Appropriate Levels:
Provide Training on Leadership, Management, and Interpersonal Skills to
Facilitate Effective Communication:
Build Consensus to Gain Ownership and Acceptance for Pay Reforms:
Monitor and Refine the Implementation of the Pay System:
Appendix II: Symposium Agenda:
Appendix III: Symposium Participants:
Appendix IV: Organizations' Pay Systems: Background Information and
Presentations:
Federal Deposit Insurance Corporation:
Commonwealth of Virginia:
IBM Corporation:
Office of the Comptroller of the Currency:
American Red Cross:
Appendix V: Presentation by the Director of the Human Resources
Management Consortium of the National Academy of Public Administration:
Appendix VI: Presentation by the Director of the Office of Policy and
Evaluation of the U.S. Merit Systems Protection Board:
Abbreviations:
CHCO: chief human capital officer:
FDIC: Federal Deposit Insurance Corporation:
FIRREA: Financial Institutions Reform, Recovery, and Enforcement Act of
1989:
MSPB: U.S. Merit Systems Protection Board:
NAPA: National Academy of Public Administration:
OCC: Office of the Comptroller of the Currency:
OPM: Office of Personnel Management:
SES: Senior Executive Service:
SRS: standardized rating score:
Letter July 27, 2005:
The federal government must adapt to a range of major trends and
challenges in the nation and the world, and to respond, it must have
the institutional capacity to plan more strategically, identify and
react more expeditiously, and focus on achieving results. Critical to
the success of this transformation are the federal government's people-
-its human capital. Yet the government has not transformed, in many
cases, how it classifies, compensates, develops, and motivates its
employees to achieve maximum results within available resources and
existing authorities. One of the questions being addressed as the
federal government transforms is how to update its compensation system
to be more market based and performance oriented.[Footnote 1] In this
type of system, organizations consider the skills, knowledge, and
performance of employees as well as the labor market when making pay
decisions.[Footnote 2] Recognizing that the federal government's pay
system does not align well with modern compensation principles,
Congress has provided various agencies exemptions from current statute
in performance management and pay administration, as outlined in
various chapters of title 5 of the United States Code.[Footnote 3] Most
recently, the Departments of Homeland Security and Defense received the
authority to establish "flexible and contemporary" human capital and
pay systems.
To further the discussion of federal pay reform, the U.S. Government
Accountability Office, the U.S. Office of Personnel Management, the
U.S. Merit Systems Protection Board (MSPB), the National Academy of
Public Administration (NAPA), and the Partnership for Public Service
convened a symposium on March 9, 2005, to discuss organizations'
experiences with market-based and more performance-oriented pay
systems. Representatives from public, private, and nonprofit
organizations made presentations on the successes and challenges they
experienced in designing and managing their market-based and more
performance-oriented pay systems.[Footnote 4] These organizations are
the Federal Deposit Insurance Corporation, Office of the Comptroller of
the Currency, Commonwealth of Virginia, IBM Corporation, and American
Red Cross. We invited these organizations because they have been
implementing this type of pay system and consider it to be important to
achieving their missions and goals. To learn from their experiences,
further explore these successes and challenges, and engage in an open
discussion of ideas, a cross section of senior leaders attended the
symposium, including congressional staff who have oversight
responsibility for federal management issues, chief human capital
officers or other officials from the executive branch who are
responsible for managing human capital in their respective agencies,
employee representatives who are currently engaged in pay reform
efforts, and academics and other human capital stakeholders who have
experience with and knowledge of human capital issues.
Overall, the symposium highlighted a variety of approaches that
organizations have used in designing and managing market-based and more
performance-oriented pay systems. While we believe that implementing
this type of pay system is both doable and desirable, these
organizations' experiences show that the shift to market-based and more
performance-oriented pay must be part of a broader strategy of change
management and performance improvement initiatives. Market-based and
more performance-oriented pay is only one part--albeit a critical one-
-of a larger effort to improve the performance of an organization.
Further, market-based and more performance-oriented pay cannot be
simply overlaid on most organizations' existing performance management
systems. 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
fundamentally, to implement these types of pay systems successfully,
the organizations found that they must change the culture from
compensation that is based on position and longevity to one that is
performance oriented, affordable, and sustainable. Specifically, these
organizations recognize that pay increases are no longer an entitlement
but should be based on employees' contributions to the organization's
mission and goals.
To begin to make this cultural change, there was widespread recognition
that organizations need to build up the basic management capacity of
their organizations. In particular, there needs to be growth and
development at every level of the organization: top leaders with the
vision, commitment, capabilities, and persistence to lead and
facilitate the change; managers with the skills and abilities to fairly
and honestly assess employee performance; and individual employees who
are engaged and empowered to seek opportunities to enhance their
careers. In addition, human capital professionals will need to acquire
a new set of skills for implementing market-based and more performance-
oriented pay systems. Transitioning to these pay systems is a huge
undertaking for organizations and will require constant monitoring and
refining in order to implement and, very importantly, sustain them
successfully. How it is done, when it is done, and the basis on which
it is done can make all the difference in their success.
The organizations described the tools and techniques they used for
designing and implementing their pay systems in order to best meet
their needs. Based on these organizations' experiences and following
discussions, we identified several key themes that highlight the
leadership and management strategies these organizations collectively
considered in designing and managing market-based and more performance-
oriented pay systems. These key themes are as follows.
1. Focus on a set of values and objectives to guide the pay system.
2. Examine the value of employees' total compensation to remain
competitive in the market.
3. Build in safeguards to enhance the transparency and ensure the
fairness of pay decisions.
4. Devolve decision making on pay to appropriate levels.
5. Provide training on leadership, management, and interpersonal skills
to facilitate effective communication.
6. Build consensus to gain ownership and acceptance for pay reforms.
7. Monitor and refine the implementation of the pay system.
As I discussed at the symposium, it is possible to enact broad-based
human capital reforms that would enable agencies to move to market-
based and more performance-oriented pay systems. However, any such
effort should require that the agency implement key reforms only after
it meets certain procedural management assessment and independent
certification requirements relating to its institutional
infrastructure.[Footnote 5] This institutional infrastructure includes,
at a minimum, a human capital planning process that integrates the
agency's human capital policies, strategies, and programs; the
capabilities to develop and implement a new human capital system
effectively; and a modern, effective, credible, and validated
performance management system that provides a clear linkage between
institutional, unit, and individual performance-oriented outcomes, and
adequate safeguards to ensure the fair, effective, and
nondiscriminatory implementation of the system, including internal
reconsideration and third-party appeal processes.
Appendix I of this document provides a more detailed summary of the key
themes from the symposium discussion along with examples from the
presentations to illustrate these themes. Appendix II presents the
symposium agenda. Appendix III lists the hosts, moderators, presenters,
and human capital stakeholders who participated in the symposium.
Appendix IV includes the presentations and background information on
the organizations' pay systems. Appendixes V and VI include the
presentations given by directors at NAPA and MSPB on issues related to
market-based and more performance-oriented pay systems.
The purpose of the symposium was not to reach a consensus on how market-
based and more performance-oriented pay systems should be designed and
managed, but rather to engage in an open discussion of the leadership
and management strategies the presenting organizations have considered
with their systems. We asked the participants to review the overall
substance and context of the draft summary of the symposium discussion
and incorporated their comments, as appropriate. Therefore, no
assumptions should be made that every participant agreed with the key
themes and supporting examples.
I would like to thank the hosts, moderators, presenters, and
participants in the symposium for taking the time to share their
experiences and knowledge on this important matter. I look forward to
working with the participants on other important issues of mutual
interest and concern in the future.
Signed by:
David M. Walker:
Comptroller General of the United States:
[End of section]
Appendixes:
Appendix I: Key Themes from the Symposium:
To further the discussion of pay reform, the U.S. Government
Accountability Office (GAO), the U.S. Office of Personnel Management
(OPM), the U.S. Merit Systems Protection Board (MSPB), the National
Academy of Public Administration (NAPA), and the Partnership for Public
Service convened a symposium on March 9, 2005, to discuss
organizations' experiences with market-based and more performance-
oriented pay systems. Representatives from public, private, and
nonprofit organizations made presentations on the successes and
challenges they experienced in designing and managing their market-
based and more performance-oriented pay systems, followed by an open
discussion among key human capital stakeholders to learn from their
experiences. The organizations described the tools and techniques they
used for designing and implementing their pay systems in order to best
meet their needs. Based on these organizations' experiences and
following discussions, we identified several key themes that highlight
the leadership and management strategies these organizations
collectively considered in designing and managing market-based and more
performance-oriented pay systems.
Focus on a Set of Values and Objectives to Guide the Pay System:
In their discussions, the presenters highlighted the need to focus on a
set of values and objectives when designing and managing their market-
based and more performance-oriented pay systems. Values are inherent
and enduring principles that represent the organization's beliefs and
boundaries. In addition, objectives articulate the strategy an
organization plans to take to implement a market-based and more
performance-oriented pay system to help it recognize and reward
employees and maintain a competitive position in the market.
The Comptroller General of the United States highlighted GAO's
experiences in implementing its competency-based performance management
system. GAO's core values--accountability, integrity, and reliability--
were a focus in identifying and validating the competencies in GAO's
new system. Most recently, GAO received additional authority to adjust
the rates of basic pay on a separate basis from the annual adjustments
authorized for employees of the executive branch. With additional
authority from Congress, GAO is implementing a market-based and more
performance-oriented compensation system that places greater emphasis
on a person's skills, knowledge, and job performance and not the
passage of time while, at a minimum, protecting the purchasing power of
employees who are performing acceptably and are paid within applicable
competitive compensation ranges. Employee compensation will now
consider current salary and allocate individual performance-based
compensation amounts between a merit increase (e.g., salary increase)
and a performance bonus (e.g., cash).
Similarly, OPM's Acting Director stated that as the federal government
moves forward with modernizing the civil service system, the shift to
market-based and more performance-oriented pay should be grounded in
the core values of the civil service system: merit system principles
and prohibited personnel practices. Examples of these merit principles
include promoting employees based on merit and protecting employees
against arbitrary action or personal favoritism. An example of a
prohibited personnel practice is violating veterans' preference
requirements. Protecting merit principles and prohibiting certain
personnel practices must remain intact as the federal pay system is
modernized, according to OPM's Acting Director.
While core values define the organization's beliefs and boundaries,
objectives articulate the strategy the organization plans to take to
implement a market-based and more performance-oriented pay system to
help it recognize and reward employees and maintain a competitive
position in the market. To this end, among IBM's pay objectives is to
"differentiate strongly" among employees by giving larger pay increases
or bonuses to those employees who are most deserving. IBM's Director of
Global Services Compensation noted that IBM believes that by rewarding
its highest performing employees with the largest pay increases, these
employees will stay with and lead the organization, and as a result,
other employees will stay as well. For example, the highest performing
employees who were in the top of their pay bands and were considered to
be paid over the market average still received pay increases because
IBM wanted to "protect them" from its competitors. He attributed this
approach to helping IBM weather both the late 1990s talent wars and the
current market for information technology positions. To help
differentiate among employees in making pay decisions, IBM provides
general guidance on the "differentiation ratio" whereby the largest pay
increases are to be far greater than the smallest increases. Further,
IBM employees understand that pay increases are not an entitlement but
are based on each individual's contributions to IBM's goals.
Specifically, in 2003, the Director said a significant percentage of
the population did not receive increases because they were already paid
competitively for their level of contributions and performance. This
approach allows more of the budget for merit pay increases to go to the
highest contributing employees.
A main objective of the Office of the Comptroller of the Currency's
(OCC) pay system is to maintain comparability regarding compensation
and benefits with the other federal financial regulatory agencies that
are subject to the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA).[Footnote 6] OCC defines its market as
other FIRREA agencies, the Federal Reserve Banks, and other agencies
such as the U.S. Securities and Exchange Commission that are exempt
from certain provisions of title 5. To maintain comparability with this
market, OCC participates in an annual survey administered by the
HayGroup, which gathers data on these organizations' total compensation
packages in order to benchmark against various positions and job
families, such as bank policy and bank supervision. The OCC presenters
said that the 2004 survey results showed that OCC's base pay was on
average 8 percent above the market average, which was within its
competitive range of plus or minus 10 percent of the average pay rates
of the FIRREA market. These data helped OCC set its pay increase budget
for 2005.
The American Red Cross's Director of Corporate Compensation noted that
the Red Cross recognizes that salary is its main lever to fulfill its
mission and values, and thus one of its pay objectives is to pay
salaries that are externally competitive and internally equitable. To
meet this objective, the Director said the Red Cross sets its
employees' pay slightly higher than the market in order to remain
competitive. The Director noted that since the Red Cross is a not-for-
profit humanitarian organization, this pay objective is critical as the
Red Cross does not have variable pay, stock options, or other
incentives to attract, motivate, and retain its employees, as
organizations in the private sector can offer.
Examine the Value of Employees' Total Compensation to Remain
Competitive in the Market:
The presenters underscored that a competitive compensation system that
provides employees a mix of base pay plus other incentives can help
organizations attract, motivate, and retain a quality workforce. In
addition to base pay, total compensation includes features such as
geographic differentials; monetary incentives, such as awards and
bonuses; benefits, such as health care and tuition reimbursement; and
deferred compensation, such as retirement pay. The presenters noted it
is important for organizations to be flexible in the mix of what
constitutes total compensation so they can remain competitive with the
market. On the other hand, a presenter also identified challenges that
the federal government may face, such as statutory pay caps and other
limitations, as it shifts to market-based and more performance-oriented
pay that may hinder its ability to offer competitive compensation.
In discussing what incentives attract individuals to public service,
the Director of the Office of Policy and Evaluation at MSPB reported
that people come to work for and stay with the federal government for a
variety of reasons besides base pay. Among these reasons is the desire
to make a contribution and the personal pride or satisfaction in their
work as well as the variety of benefits provided to employees, as
reported in MSPB's "Merit Principles Survey 2000" that obtained federal
employees' views on how well the workforce is being managed. Pay alone
usually does not influence whether employees remain with an
organization in the private sector as well. IBM's Director of Global
Services Compensation believes IBM has been successful in competing in
the market and retaining its employees because of the "total rewards"
package it offers its employees along with pay. For example, the
package includes work-life benefits such as tuition reimbursement for
employee development, along with retirement and health care benefits.
To make it more competitive in local markets, OCC offers a pay
differential based on local labor costs. OCC recently shifted to a cost
of labor system called "geo pay" from a "complex" methodology largely
based on cost of living. According to OCC presenters, the newer OCC
salaries better reflect the local market labor rates. Specifically, as
part of its geo pay system, OCC groups its cities where it has offices
into seven pay zones by using the Economic Research Institute's cost of
labor data to identify the differentials in labor costs between its
employees and the labor market. For example, employees in zone 1 (e.g.,
Atlanta) receive no differential, employees in zone 3 (e.g.,
Washington, D.C.) receive an 8 percent differential, and employees in
zone 7 (e.g., San Francisco) receive a 28 percent differential. OCC
presenters said that with the new geo pay system, 49 of its 80 cities
have no geographic differentials. Of the employees who receive a
differential, most receive from about 3 to 13 percent. OCC presenters
noted that about two-thirds of the employees receive a smaller
differential under the geo pay system than the previous differentials
OCC used. During the transition to the geo pay system, the presenters
said OCC has promised to "maintain the total compensation" of these
employees who now receive a smaller differential by rolling most of
these differences into the employees' base pay.
In addition, to help its employees settle into more expensive cities,
OCC offers relocation incentives in the form of lump sum payments that
are not built into employees' base pay. One OCC presenter noted that
these incentives helped OCC recruit employees for critical jobs in New
York City in 2004. For example, the enhanced mortgage and rent
subsidies are 3-year allowances designed to help employees get into the
housing or rental markets when moving to selected higher cost cities
from cities in a lower geo pay zone. In addition, OCC offers an annual
lump sum for 3 years to employees when they move to selected high-cost
cities from cities in a lower geo pay zone to compensate for the higher
living costs in the new city.
However, a presenter identified challenges that the federal government
as a whole may face in offering competitive compensation to its senior
leaders who are subject to a statutory pay cap. The Director of the
Human Resources Management Consortium at NAPA discussed how the
statutory pay cap could restrict rewards, demoralize employees, and
nullify market-based pay for senior leaders. Participants also
commented on how the statutory pay cap may have a negative effect on
the retention of the senior leaders if they could receive higher pay in
the private sector. The Director noted that about 70 percent of the
members in the Senior Executive Service (SES) had their pay capped in
2004, which reflected the agencies' limited ability to offer
performance-based rewards and market-based pay. She also observed that
the recently enacted SES performance-based pay system provides an
interim solution to this pay compression by allowing agencies to
increase the pay cap for their senior executives.[Footnote 7]
However, the Director and other participants noted that pay compression
may return despite the higher pay cap for SES members. The new
performance-based pay system replaces the six SES pay levels with a
single, open-range pay band for all SES members. A participant noted
that having one pay band is being perceived as loss of rank among some
of the SES. To help make distinctions in rank among their SES members,
this participant said some agencies are grouping their executives into
smaller pay bands according to their responsibilities. As a result, the
participant observed that these SES members may in effect have their
pay capped more quickly based on the placement in these smaller pay
bands. Another participant commented that SES pay compression might
return if agencies do not demonstrate the necessary rigor and
discipline in applying their new SES performance management systems to
ensure performance ratings and pay adjustments are consistent with the
performance of the organizations and make meaningful distinctions in
performance. The Director agreed that the long-term effect of SES pay
compression remains to be seen.
To help address the issue of market-based and more performance-oriented
pay for the government's senior leaders, the National Commission on the
Public Service suggested, in its 2003 report, that the challenge is to
convince Congress that the pay cap undermines rewarding performance and
to help build the rationale for tying government pay to relevant
markets across all three branches of government.[Footnote 8] For
example, the Commission reported that in the judicial branch, the
salaries for U.S. federal court judges are considerably less than those
of deans and senior professors of top law schools.
However, a participant observed that he felt the federal government's
main pay system--the General Schedule--is already market based and
performance oriented. Specifically, in setting the pay levels for
federal employees, the participant stated that the Department of Labor
conducts extensive market-based surveys for comparing the knowledge,
skills, and responsibilities of federal positions with the private
sector market. He also commented that the pay system is performance
oriented in that agencies can reward employees' exceptional performance
with quality step increases, bonuses, and nonmonetary incentives. He
added that another performance-based aspect of the General Schedule
system is within grade increases, which require agencies to certify
that an employee is performing at an acceptable level.
Federal agencies now have more flexibility in terms of the total
compensation they can offer employees in addition to base pay. A
participant pointed out that through the recently enacted Federal
Workforce Flexibility Act, agencies have the authority to use
recruitment, relocation, and retention incentives or bonuses in more
strategic ways to help them improve their competitiveness in recruiting
and maintaining a high-quality workforce. However, the participants
discussed the impact of using bonuses or other monetary incentives on
employees' retirement calculations. They observed that bonuses are not
included in calculating retirement benefits and suggested that
potential legislative changes could have cash bonuses calculated toward
retirement and thrift savings benefits. Specifically, it was suggested
that bonuses should be factored into an employee's "high-3" average
basic pay when retirement benefits are calculated. A participant also
observed that federal employees' decisions to remain in government or
seek nonfederal employment could depend on the specific retirement
system that covers them.
Build in Safeguards to Enhance the Transparency and Ensure the Fairness
of Pay Decisions:
Agencies need to have modern, effective, credible, and as appropriate
validated performance management systems in place with adequate
safeguards, including reasonable transparency and appropriate
accountability mechanisms, to ensure fairness and prevent
politicization and abuse. Performance management systems with adequate
safeguards are the precondition to linking pay, incentive, and reward
systems with employee knowledge, skills, and contributions to
organizational results. The presenters gave examples of safeguards in
their organizations' market-based and more performance-oriented pay
systems that were designed to help promote reasonable transparency as
well as achieve consistency and equity across employee groups and
teams.
The presenters discussed how their organizations provided both general
and individualized information on pay decisions to help promote
reasonable transparency in their market-based and more performance-
oriented pay systems. For example, the Director of Corporate
Compensation at the Red Cross stressed that employees need to know the
details of how the pay system is designed and implemented in order to
understand how pay decisions are made. The Red Cross provides its
employees general information on what the salary ranges are for each
pay band, how their pay compares to the market, and how their
performance ties to the pay decisions. According to OCC presenters, to
help foster transparency on its geo pay system and help employees
understand how the system works, OCC posted on its intranet site
formulas for calculating the geo pay rate for each zone and the
resulting rates, as well as the other information sources OCC uses to
establish the rates.
In addition to general information, IBM believes showing each employee
how he or she fits into the organization's pay system is critical to
the understanding of how the pay system works. IBM provides each
employee with an annual total cash summary statement showing, among
other things, where he or she falls in the pay range and relative to
the market along with the performance rating, and pay increase, if
applicable. IBM's Director of Global Services Compensation noted that
there should be no mystery about how employees' pay compares to others
in their pay range in any given market and whether they deserve a pay
increase based on their contributions that year.
To help achieve consistency and equity in pay decisions across employee
groups and teams, organizations built in several accountability
mechanisms, such as conducting predecisional internal checks to help
ensure there is no discrimination in pay decisions. For example, IBM
conducts a base pay equity analysis to review the pay of women or
minority employees if their proposed pay is one standard deviation away
from the mean of the majority of employees. The Director said IBM looks
for an explanation for these pay differences, such as poor performance,
a recent promotion into the pay band, or an extended leave of absence.
In addition, the IBM Director stated that while there is a total
commitment from all levels of management to ensure consistency in the
compensation process, IBM built in second-level reviews of pay
decisions before employees receive any pay increases. Specifically, the
first-line managers propose pay increases for the employees they
supervise. These managers then discuss their decisions with other first-
line managers and managers at the next level--the up-line managers--to
ensure the assessments and justifications are consistent across groups.
Up-line managers can also shift pay allocations across groups if
necessary in order to ensure employees who perform similarly are
compensated the same regardless of their first-line managers. As a
final check, the senior managers sign off on the pay decisions for each
employee.
The Comptroller General discussed GAO's recent use of standardized
rating scores (SRS) for employees to ensure consistency in ratings and
in applying performance standards within and across GAO's teams.
Implemented for the first time for the fiscal year 2004 performance
appraisal cycle, the SRS indicates the employee's position relative to
the average rating of that employee's team. Employees in different
teams with the same SRS have the same relative performance, thus
achieving better comparability in ratings across teams. Employees' SRS
and the midpoint for their pay range are key factors in calculating
their performance-based compensation for that year. The Comptroller
General noted that he plans to continue working with the employees to
identify the best way to communicate the SRS information as part of
GAO's ongoing commitment to employee feedback on the new system and
transparency about pay decisions.
The organizations also discussed grievance processes to address
employees' complaints about pay or performance management decisions.
Both IBM and Virginia have internal grievance processes in place for
their employees if they want a review of their pay decision. For
example, Virginia's Director of Human Resource Management stated that
Virginia's process provides for grievances to be elevated up to the
central office--the Department of Human Resource Management--if
necessary. In addition, IBM's Director of Global Services Compensation
noted that IBM has an open-door policy, and employees may appeal pay
and performance management decisions through its internal grievance
process up to the corporate office if they feel that these decisions
were not fair.
Devolve Decision Making on Pay to Appropriate Levels:
In implementing market-based and more performance-oriented pay systems,
organizations will need to determine what parts of their pay systems
should be maintained centrally and what can be devolved to "lower"
levels of the organization. For example, IBM devolves its pay decisions
to first-line managers, and Virginia devolves these decisions to its
agencies. Regardless of the context, the presenters noted that as
decision making is devolved, organizations will need to build in
overall core processes to help ensure reasonable consistency in how
their systems are implemented.
IBM designed its compensation program to be as simple and flexible as
possible in order to keep the control at the first-line manager level.
The Director of Global Services Compensation noted that IBM uses the
phrase "lower the center of gravity" to mean that line managers need to
have central roles in pay and related compensation decisions since they
are the best sources of knowledge about their employees. Nevertheless,
IBM maintains certain overall core processes. For example, the
corporate office determines the funding for employee pay increases that
is necessary to maintain competitiveness with the market and the
managers within the business units are held accountable for planning
how to allocate the money to the employees. To help distribute the
money among the employees, IBM provides managers with an automated
salary planning tool that identifies a variety of factors considered in
determining pay increases for each employee. These factors include the
employee's job family, performance rating, current pay, and the "market
reference point" or midpoint in the pay range for the employee's pay
band. Using the tool, the manager is responsible for allocating money
for pay increases among the employees before the pay decisions are
approved by higher levels of management and employees receive the
increases.
With its statewide compensation reform initiatives, Virginia shifted
responsibility for administering pay from its central office, the
Department of Human Resource Management, to the agencies and their
managers. The Director of Human Resource Management noted that by
increasing their accountability, it reduces the agencies' and managers'
excuses, such as "HR won't let me" for not making needed revisions in
their pay systems. The Director said there is a statewide salary plan
that provides broad guidelines for all the agencies regarding the
commonwealth's overall compensation philosophy, funding for pay
increases, and the pay ranges for the employees' positions that reflect
market conditions, but each agency is held accountable for developing
its own salary administration plan. As part of this plan, the agency is
to select from among designated "pay practices" that it considers
useful to best meet its specific needs. These practices--such as
promotions or in-band pay adjustments to recognize employees for taking
on additional duties--are designed to provide agencies with approaches
to reward and recognize high performance among employees while
providing a higher degree of accountability in reaching pay decisions.
The Department of Human Resource Management approves each agency's
salary administration plan before it is implemented.
Provide Training on Leadership, Management, and Interpersonal Skills to
Facilitate Effective Communication:
There was widespread agreement that clear, consistent, and frequent
communication was critical to the successful implementation of market-
based and more performance-oriented pay systems. A presenter discussed
how the organization trained individuals to ensure they would be able
to clearly and simply communicate information so that employees at all
levels understood how these compensation reforms would be implemented.
Using employee groups to develop the training without using technical
compensation terms was especially valued. There was also acknowledgment
among the presenters that there needs to be a renewed emphasis on
leadership, management, and interpersonal skills, such as setting
expectations, linking individual performance to organizational results,
and effectively giving and receiving feedback, to make market- based
and more performance-oriented pay succeed. Lastly, defining a new role
for employees by holding them accountable for their own careers and for
identifying the necessary training to develop their skills was also
mentioned as beneficial to the individual as well as the organization.
Virginia's Department of Human Resource Management developed a central
"train the trainer" approach to provide comprehensive communication on
the compensation reforms that agencies then customized and delivered to
their employees. Trainers were nominated by the agencies' human
resources directors based on their interpersonal skills, experiences,
and knowledge of compensation, among other things. Further, the
Director understood that employees need information on the compensation
reforms in as simple and clear a format as possible with little room
for misinterpretation. She observed that sometimes the
misinterpretation of information is caused by the use of technical
compensation terms or "HR" terminology to explain the initiative. As a
result, Virginia has used its Employee Advisory Committee to help
develop training and supporting materials on the compensation reform
initiatives and communicate the information to the other employees.
According to the Director, using the committee to clearly communicate
the information was very effective because the straightforward
discussion allowed employees to better understand how the reforms would
affect them directly.
The presenters acknowledged that there needs to be a renewed emphasis
on leadership, management, and interpersonal skills to make market-
based and more performance-oriented pay succeed. For example, the Chief
Human Capital Officer (CHCO) from the Federal Deposit Insurance
Corporation (FDIC) discussed how managers need "the will" along with
the tools to make distinctions in employees' performance based on their
contributions to FDIC's goals and then give the appropriate pay
increases. In his experience, the CHCO said that some managers have
trouble making the distinctions because they have to face the people
they are evaluating the next day, and they would prefer to give all
employees the same pay increase rather than to have to make these
distinctions. Providing training on how to make these distinctions
helps the managers implement the pay system successfully.
Similarly, IBM's Director of Global Services Compensation recognized
the value in training managers on how to give ongoing feedback to
employees on their performance and its affect on pay decisions. Such
training is especially important to managers since IBM holds them
accountable for assessing employee performance and making pay
decisions. To help managers in giving feedback, IBM developed scenarios
where managers could play roles to help them have these meaningful
discussions about the employees' contributions to IBM's goals
throughout the year. IBM also is committed to training employees on how
the system works to help prepare them to receive performance feedback
from their managers.
Similarly, the Director of MSPB's Office of Policy and Evaluation
emphasized that supervisors will need to develop leadership and
management skills that will help engage employees in order for the
organization to be successful in its implementation of its pay for
performance efforts and help improve its overall performance. These
skills include:
* clearly articulating organizational goals and how the employee fits
into the goals of the organization,
* setting realistic performance expectations,
* adapting to changing circumstances,
* finding solutions to problems, and:
* demonstrating honesty and integrity.
Virginia is defining a new role for employees by holding them
accountable for their own careers and for identifying the training they
need to enhance their skills. For example, the Department of Human
Resource Management developed career guides to inform employees on what
they may personally need to do to develop, advance, or change their
careers. Posted on the Virginia Jobs Web site, the guides provide
important occupational information for employees interested in
developing their careers and improving opportunities for advancement in
any work environment. The Director noted that an added benefit is that
these career guides help employees understand that they have knowledge,
skills, and abilities that cut across different occupations and that
are transferable across the commonwealth's government. For example, the
career guide for accountants states that these positions are primarily
assigned to the financial services career group, but accountants also
have opportunities in other groups, such as program administration,
procurement services, and policy analysis and planning.
Build Consensus to Gain Ownership and Acceptance for Pay Reforms:
To help improve internal and external acceptance for pay reforms, the
presenters discussed how they involved stakeholders when designing or
implementing their market-based and more performance-oriented pay
systems to build a reasonable degree of consensus on the reforms.
Involving employees and other stakeholders helps to improve overall
confidence and belief in the fairness of the system, enhance their
understanding of how the system works, and increase their understanding
and ownership of organizational goals and objectives. The Comptroller
General observed that inclusion of employees and their representatives
needs to be meaningful, not just pro forma. Similarly, the President of
NAPA remarked that it is important for the organization to integrate
any pay reforms within a larger strategy to help the organization
achieve its mission and program operations. Because employees are
critical to an organization's success, the President of NAPA also noted
that it is important for them to understand and accept the pay reforms.
Without a sustained, disciplined, and focused commitment from top
leaders, managers, and employees, a participant noted that it may be
possible to do more harm than good when implementing these types of pay
systems.
Virginia involved stakeholders in designing and implementing its
compensation reforms. For example, Virginia established the 12-member
Commission on Reform of the Classified Compensation Plan that included
representatives from Virginia's legislative and executive branches,
such as state senators and delegates and cabinet heads, as well as
human resource representatives from private sector organizations. To
serve as internal consultants to the Commission throughout the process,
Virginia established a Technical Advisory Committee comprising central
agency representatives, chief human resource officers from agencies,
and legislative fiscal analysts from the Senate Finance Committee and
House Appropriations Committee. In addition, Virginia formed an
Employee Advisory Committee comprising 20 nonsupervisory employees from
diverse occupations, demographic groups, and geographic locations. The
Director noted that the charge for the employees was to help the
commonwealth as a whole improve its compensation program, not just for
their select interest groups. Further, to implement the new statewide
compensation program, Virginia's Department of Human Resource
Management collaborated with 150 human resource staff members and 60
different agencies to form 10 implementation teams representing various
priority areas, such as funding, compensation management, performance
management, training, and communications. The Director noted that these
implementation teams helped to ensure the details of the various
compensation reforms were consistently communicated to all the
employees across the commonwealth.
Similarly, the FDIC CHCO found that it was better to have the union
involved in the implementation of its pay reforms. The CHCO said when
negotiating compensation for its bargaining unit employees with
representatives of the National Treasury Employees Union, he views them
as true partners instead of following an "us versus them" approach.
FDIC is to negotiate a new pay for performance system with its union
this summer and he noted that they both want to work together to reach
an agreement in terms of compensation levels that will satisfy both
parties.
Monitor and Refine the Implementation of the Pay System:
High-performing organizations understand they need to continuously
review and revise their performance management systems to achieve
results and accelerate change.[Footnote 9] The presenters acknowledged
that when implementing their market-based and more performance-oriented
pay systems, they identified problems and corrected them along the way.
The presenters identified ways they monitor their systems, including
listening to employees' and stakeholders' views--informally and
formally--on the pay systems and using metrics to track the
effectiveness of the pay systems over time. While the need for refining
the system is inevitable, especially when new initiatives are
introduced, they also observed that there is value in stabilizing the
pay system for a period of time to let employees get accustomed to the
new initiative and see how it works.
The presenters discussed the importance of listening to employees' and
stakeholders' views--informally and formally--to monitor the
implementation of the pay system. To ensure the pay for performance
system has integrity among the employees and stakeholders, FDIC has
found that listening to stakeholders, such as the union, is essential
in evaluating the effectiveness of the pay system. The FDIC CHCO noted
that the organization needs to listen to the "level of noise" among the
employees and the union to find out whether an initiative is working
well. In addition to informally tracking employee views, IBM sends out
a pulse survey with only a few questions on the compensation program to
a sample of its 300,000 employees every quarter. IBM's Director of
Global Services Compensation noted that he feels IBM is doing well in
implementing the compensation program if over 70 percent of the
employees' responses to these questions are "neutral" or "favorable."
The organizations also identified metrics to track the effectiveness of
their pay systems. For example, IBM tracks its attrition rates to
determine why employees are leaving and compares them to its
competitors' attrition rates. Specifically, during the late 1990s, the
Director stated that IBM had attrition rates that were considerably
lower than its competitors. In addition, IBM and Virginia consider the
use of the employee appeal process as an indicator of the employees'
acceptance of pay and performance management decisions. For example,
IBM tracks the total number of grievances that are initiated by the
employees. The Director indicated that typically employees' appeals are
resolved at a second-level review. Virginia's Director of Human
Resource Management tracks the number of employee grievances that are
forwarded to the next level for resolution because she considers
grievances that are resolved between the manager and the employee to be
"successes" since both sides reached an acceptable outcome. She said
her office works with managers to educate them on what these metrics
mean and how they affect their agencies and employees.
According to the presenters, organizations should be open to refining
their systems to address unintended consequences that may arise when
implementing their pay systems. For example, in order to spread the pay
increases among as many employees as possible, FDIC found that managers
tended not to award merit pay increases to top-performing employees
when they were to be promoted in the career ladder. As a result, the
CHCO said these high-performing employees were not getting the merit
pay increases they deserved. The CHCO said FDIC recognized that this
unintended consequence needed to be corrected in future iterations of
the pay system and managers needed help in learning how to make the
necessary distinctions in employees' contributions.
Virginia made the appropriate refinements to its pay system based on
employee feedback. For example, when consolidating Virginia's
classification structure, the Director of Human Resource Management
developed a crosswalk between the old and new classification structures
to show employees how, for example, approximately 1,650 individual job
classifications would be consolidated into 256 broader job roles. The
Director noted that while most employees accepted the new structure,
her office nevertheless made some revisions as a result of employee
feedback so that employees could more easily see where they fit into
these new job roles. According to the Director, it is especially
important that employees perceive that specific actions have been taken
in response to their feedback. Anticipating that there may be
unidentified issues as the classification structure is implemented, the
Director said her office plans to continue soliciting feedback at least
annually to see if further refinements need to be made to the
structure.
While the need for refining a system is inevitable especially when new
initiatives are introduced, the presenters noted there is value in
stabilizing the pay system for a period of time to let employees get
accustomed to the new initiative and see how it works. For example, the
OCC presenters said OCC plans to reassess its geo pay rates every 3
years rather than annually in order to provide continuity in
implementing the system. This continuity benefits employees because
they know how much their geographic differential will be for a period
of time and benefits OCC because it makes managing the pay system more
stable. The FDIC CHCO said that FDIC has not had its pay systems in
place without any revisions long enough to determine if employees have
accepted the new systems. Nevertheless, the CHCO said it is his opinion
that there is much more acceptance surrounding pay for performance than
when FDIC first began implementing the systems in 1997.
In closing, the President and CEO of the Partnership for Public Service
asked participants to identify what they regarded to be the next steps
for pay reform in the federal government. There was general consensus
among the participants that a shift from administering the federal
government's current pay system--the General Schedule--to managing a
market-based and more performance-oriented pay system will be a
fundamental change for agencies' human capital offices. Specifically,
participants noted that human capital professionals will need to
acquire a new set of skills for implementing these types of pay
systems. In the changing human capital environment of increased
flexibilities, human capital professionals will need to transition to a
larger strategic role rather than one of compliance. This transition
will require training to play an active role in helping to determine
the overall strategic direction of an organization.
Overall, there was general agreement that basic management capacity
needs to be built at all levels of the organization, starting with
senior leaders who are to direct the change management initiatives that
need to accompany pay reform. Market-based and more performance-
oriented pay are best understood as only one part--albeit a critical
one--of larger efforts to improve the performance of an organization.
As such, market-based and more performance-oriented pay cannot be
simply overlaid on most organizations' existing performance management
systems. 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.
[End of section]
Appendix II: Symposium Agenda:
[See PDF for image]
[End of figure]
[End of section]
Appendix III Symposium Participants:
Hosts:
David M. Walker:
Comptroller General of the United States:
U.S. Government Accountability Office:
Dan G. Blair:
Acting Director*:
U.S. Office of Personnel Management:
Neil A.G. McPhie:
Chairman:
U.S. Merit Systems Protection Board:
C. Morgan Kinghorn:
President:
National Academy of Public Administration:
Max Stier:
President and CEO:
Partnership for Public Service:
Moderators:
Eileen Larence:
Director, Strategic Issues:
U.S. Government Accountability Office:
Marcia Marsh:
Vice President for Agency Partnerships:
Partnership for Public Service:
John Palguta:
Vice President for Policy and Research:
Partnership for Public Service:
Presenters:
Arthur Amler:
Director, Global Services Compensation:
IBM Corporation:
Rhonda Jones:
Lead Expert, Compensation and Benefits:
Office of the Comptroller of the Currency:
U.S. Department of the Treasury:
Ben Katcoff:
Director, Compensation and Benefits:
Office of the Comptroller of the Currency:
U.S. Department of the Treasury:
Philip A. Melita:
Director, Corporate Compensation, Human Resources:
American Red Cross:
Steve Nelson:
Director, Office of Policy and Evaluation:
U.S. Merit Systems Protection Board:
Hannah Sistare:
Director, Human Resources Management Consortium:
National Academy of Public Administration:
Miguel A. Torrado:
Chief Human Capital Officer:
Federal Deposit Insurance Corporation:
Sara Redding Wilson:
Director, Department of Human Resource Management:
Commonwealth of Virginia:
Human Capital Stakeholders:
David Amaral:
Deputy Associate Director for Small Agencies:
Human Capital Management:
U.S. Office of Personnel Management:
Carol A. Bonosaro:
President:
Senior Executives Association:
Bradley Bunn:
Deputy Program Executive Officer, National Security Personnel System:
U.S. Department of Defense:
Lois B. Cheney:
Senior Advisor, Human Resources*:
Federal Deposit Insurance Corporation:
Claudia A. Cross:
Chief Human Capital Officer/Director, Office of Human Resources
Management:
U.S. Department of Energy:
Amy Denning:
Compensation Program Manager:
IBM Global Services:
Brian DeWyngaert:
Chief of Staff:
The American Federation of Government Employees, AFL-CIO:
Joan Dodaro:
Human Resources Consultant and Former Assistant Comptroller General for
Operations:
U.S. Government Accountability Office:
Michael D. Dovilla:
Executive Director, Chief Human Capital Officers Council:
U.S. Office of Personnel Management:
Debra Ellerbe:
Human Resources Specialist:
U.S. Equal Employment Opportunity Commission:
Cynthia Ferentinos:
Senior Research Analyst, Office of Policy and Evaluation:
U.S. Merit Systems Protection Board:
Frank D. Ferris:
National Executive Vice President:
National Treasury Employees Union:
Bethany Hardy:
Press Secretary:
Partnership for Public Service:
Sallyanne Harper:
Chief Administrative Officer/Chief Financial Officer:
U.S. Government Accountability Office:
Doris Hausser:
Senior Policy Advisor to the Director and Chief Human Capital Officer:
U.S. Office of Personnel Management:
Jennifer Hemingway:
Professional Staff Member:
Homeland Security and Governmental Affairs Committee:
U.S. Senate:
Allan Heuerman:
Project Director, Academy Studies:
National Academy of Public Administration:
Jesse Hoskins:
Chief Human Capital Officer:
U.S. Government Accountability Office:
Helen Hsing:
Managing Director, Strategic Planning & External Liaison:
U.S. Government Accountability Office:
Deborah Jefferson:
Director of Human Resources:
U.S. Department of Commerce:
Patrick Jennings:
Senior Counsel:
Subcommittee on the Federal Workforce and Agency Organization:
Government Reform Committee:
U.S. House of Representatives:
Craig Jerabek:
Chief, Wage and Salary Division:
Civilian Personnel Management Service:
U.S. Department of Defense:
Ernestine Jones:
Human Resources Specialist:
U.S. Equal Employment Opportunity Commission:
Richard Keevey:
Director, Performance Consortium:
National Academy of Public Administration:
Susan Kladiva:
Special Assistant to the Comptroller General:
U.S. Government Accountability Office:
Rosslyn Kleeman:
Distinguished Executive in Residence:
The George Washington University:
Nanci Langley:
Democratic Deputy Staff Director:
Subcommittee on Oversight of Government Management, the Federal
Workforce, and the District of Columbia:
Homeland Security and Governmental Affairs Committee:
U.S. Senate:
Marc Porter Magee:
Director of Research:
Partnership for Public Service:
Katie Malague:
Program Manager, Agency Partnerships:
Partnership for Public Service:
Jenny Mallios:
Chief of Executive Resources:
U.S. Department of State:
Sally Mavlian:
Human Resources Specialist/Compensation*:
U.S. Department of State:
Jennifer D. Melvin:
HR Specialist (Compensation/Classification), Human Resources Strategy &
Solutions:
Office of the Deputy Assistant Secretary for Human Resources & Chief
Human Capital Officer:
U.S. Department of the Treasury:
J. Christopher Mihm:
Managing Director, Strategic Issues:
U.S. Government Accountability Office:
Keith Nelson:
Associate Deputy Secretary for Management:
U.S. Department of Labor:
Terrance Norflis:
Legislative Assistant, Office of Congresswoman Eleanor Holmes Norton:
U.S. House of Representatives:
Lawrence B. Novey:
Counsel:
Homeland Security and Governmental Affairs Committee:
U.S. Senate:
Aaron Pendleton:
Deputy Human Resources Director:
National Labor Relations Board:
Marta Brito Perez:
Associate Director, Human Capital Leadership & Merit System
Accountability:
U.S. Office of Personnel Management:
Patricia Prosperi:
Director, Office of Human Resources Management:
U.S. Department of Transportation:
Theresa Prych:
Professional Staff Member:
Subcommittee on Oversight of Government Management, the Federal
Workforce, and the District of Columbia:
Homeland Security and Governmental Affairs Committee:
U.S. Senate:
Ron Sanders:
Associate Director, Division of Strategic Human Resources Policy*:
U.S. Office of Personnel Management:
Jayne L. Seidman:
Associate Executive Director, Office of Human Resources and
Administrative Services:
U.S. Securities and Exchange Commission:
Tania A. Shand:
Professional Staff Member:
Government Reform Committee:
U.S. House of Representatives:
Myra Shiplett:
Project Director, Academy Studies:
National Academy of Public Administration:
Janet Silva:
Director, Human Resources Management:
Office Federal Trade Commission:
Aaron Smith:
Government Affairs Assistant:
Federal Managers Association:
Ed Stephenson:
Senior Project Advisor, Academy Studies:
National Academy of Public Administration:
Sharon Stewart:
Director of Human Resources, National Security Personnel System:
U.S. Department of Defense:
Michael B. Styles:
National President:
Federal Managers Association:
Vincent T. Taylor:
Chief Human Capital Officer and Assistant Secretary for Administration:
U.S. Department of Transportation:
Robert M. Tobias:
Professor:
American University:
Didier Trinh:
Executive Director:
Federal Managers Association:
James Tsugawa:
Senior Research Analyst, Office of Policy and Evaluation:
U.S. Merit Systems Protection Board:
Dennis Turner:
Chief, Classification and Pay Branch, Field Advisory Services:
Civilian Personnel Management Service:
U.S. Department of Defense:
Kathleen Wheeler:
Deputy Chief Human Capital Officer:
U.S. Department of the Interior:
Donald J. Winstead:
Deputy Associate Director for Pay and Performance Policy:
U.S. Office of Personnel Management:
Erica Woods:
Program Manager:
Partnership for Public Service:
*Title as of the date of the symposium, March 9, 2005.
[End of section]
Appendix IV: Organizations' Pay Systems: Background Information and
Presentations:
Federal Deposit Insurance Corporation:
Mission of the organization: The Federal Deposit Insurance Corporation
(FDIC) is an independent agency that is to maintain the stability and
public confidence in the nation's financial system by insuring
deposits, examining and supervising financial institutions, and
managing bank receiverships.
Number of employees: Approximately 5,000 employees.
Union participation: The National Treasury Employees Union for its
bargaining unit employees.
Key milestone dates:
* 1933: Congress established FDIC and gave it the authority to set the
compensation of its employees without regard to federal compensation
laws;
* 1989: Congress enacted the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989, which gave financial regulatory agencies
pay authorities similar to FDIC and required these agencies to maintain
compensation comparability so they would not compete with each other
for employees;
* 1995: FDIC eliminated a pay system with increases in steps based on
years of service;
* 1997: FDIC instituted pay for performance;
* 2003: FDIC began to implement three different pay systems for
executive level employees, as well as bargaining unit and nonbargaining
employees.
Source for additional information: http://www.fdic.gov.
Source: FDIC.
[End of table]
[See PDF for images]
[End of slide presentation]
Commonwealth of Virginia:
Mission of the organization: The commonwealth's Department of Human
Resource Management is to address the diverse human resources needs of
its customers through guidance, consultation, and training throughout
the commonwealth.
Number of employees: Approximately 54,000 employees in various agencies
across the commonwealth.
Union participation: The commonwealth does not negotiate compensation
with the unions.
Key milestone dates:
* 1998: The Commission on Reform of the Classified Compensation Plan
was formed to recommend modifications to the commonwealth's classified
compensation plan;
* 2000: The Governor and Virginia General Assembly approved the
Commission's recommendation to develop a new compensation system for
employees;
* 2000: The new compensation system took effect with new pay practices
and goals of greater opportunities for career growth within state
government, greater management flexibility and accountability, and new
ways to recognize and reward exceptional employee performance and
acquired skills.
Sources for additional information; http://www.dhrm.va.gov;
http://www.dhrm.virginia.gov/compreform/comp.htm.
Source: Commonwealth of Virginia.
[End of table]
[See PDF for images]
[End of slide presentation]
IBM Corporation:
Mission of the organization: IBM strives to lead in the invention,
development, and manufacture of the industry's most advanced
information technologies, including computer systems, software, storage
systems, and microelectronics. IBM translates these advanced
technologies into value for its customers through its professional
solutions, services, and consulting businesses worldwide.
Number of employees: Approximately 300,000 employees in more than 160
countries.
Union participation: In the United States, unions do not represent IBM
employees, but in other countries, some IBM employees belong to unions
and/or work councils. Often, these arrangements are either encouraged
or mandated by law.
Key milestone dates:
* 1991: IBM introduced the employee bonus program where payments are
based upon straight calculation with no manager discretion;
* 1996: IBM made multiple changes: Implemented broad bands; Started an
annual common review date for salary increase decisions (instead of
anniversary reviews); Introduced a compensation planning tool in the
United States and Canada;
* 2005: IBM changed the employee bonus program to give managers more
discretion for bonus payments.
Source for additional information: http://www.ibm.com.
Source: IBM Corporation.
[End of table]
[See PDF for images]
[End of slide presentation]
Office of the Comptroller of the Currency:
Mission of the organization: The Office of the Comptroller of the
Currency (OCC) is a bureau of the U.S. Department of the Treasury. OCC
is to charter national banks; oversee a nationwide system of banking
institutions; and assure that national banks are safe and sound,
competitive and profitable, and capable of serving in the best possible
manner the banking needs of their customers.
Number of employees: Approximately 2,800 employees located in offices
throughout the country.
Union participation: The National Treasury Employees Union.
Key milestone dates:
* 1989: Congress enacted the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 (FIRREA), which gave financial regulatory
agencies, including OCC, similar pay authorities and required these
agencies to maintain compensation comparability;
* 1999: OCC conducted a comprehensive survey on the pay systems of the
FIRREA agencies, other title 5-exempt organizations, and the Federal
Reserve Banks, which served as the basis for a major review of its pay
programs;
* 2001: OCC implemented a new, broad-banded pay plan designed to
encourage employees to achieve and to develop skills that support the
mission of OCC;
* 2002: OCC implemented a new performance management system;
* 2004: OCC introduced changes to its "geo pay" system using cost of
labor data to help ensure that pay is locally competitive and
comparable to the FIRREA community.
Source for additional information: http://www.occ.treas.gov.
Source: OCC.
[End of table]
[See PDF for images]
[End of slide presentation]
American Red Cross:
Mission of the organization: As a humanitarian organization led by
volunteers and guided by its congressional charter and the Fundamental
Principles of the International Red Cross Movement, the American Red
Cross is to provide relief to victims of disasters and help people
prevent, prepare for, and respond to emergencies.
Number of employees: Approximately 35,300 employees overall:
* About 3,300 employees in the National Headquarters (primarily in
Washington, D.C.) who are part of the broad-banded, pay for performance
system;
* About 18,000 employees in Biomedical Services across the country who
are under a pay for performance system with graded salary structures;
* About 14,000 employees in 864 chapters across the country who are
under a pay for performance system with graded salary structures.
Union participation: None at the National Headquarters.
Key milestone dates:
* 2002: The American Red Cross instituted broad salary bands for the
National Headquarters;
* 2003: The American Red Cross began using formal job family and survey
job descriptors in lieu of job descriptions and instituted a fully
automated, market-based job evaluation system;
* 2005: The American Red Cross began using a fully automated salary
planning or compensation management system.
Source for additional information: http://www.redcross.org.
Source: American Red Cross.
[End of table]
[See PDF for images]
[End of slide presentation]
[End of section]
Appendix V: Presentation by the Director of the Human Resources
Management Consortium of the National Academy of Public Administration:
[See PDF for images]
[End of slide presentation]
[End of section]
Appendix VI: Presentation by the Director of the Office of Policy and
Evaluation of the U.S. Merit Systems Protection Board:
[See PDF for images]
[End of slide presentation]
[End of section]
(450423):
FOOTNOTES
[1] GAO, 21st Century Challenges: Reexamining the Base of the Federal
Government, GAO-05-325SP (Washington, D.C.: February 2005).
[2] GAO, Human Capital: Implementing Pay for Performance at Selected
Personnel Demonstration Projects, GAO-04-83 (Washington, D.C.: Jan. 23,
2004).
[3] GAO, Human Capital: Selected Agencies' Statutory Authorities Could
Offer Options in Developing a Framework for Governmentwide Reform, GAO-
05-398R (Washington, D.C.: Apr. 21, 2005).
[4] For more information on these organizations' missions and key
milestones for implementing their pay systems, see app. IV.
[5] For more information, see GAO and the National Commission on the
Public Service Implementation Initiative, Highlights of a Forum: Human
Capital: Principles, Criteria, and Processes for Governmentwide Federal
Human Capital Reform, GAO-05-69SP (Washington, D.C.: Dec. 1, 2004).
[6] FIRREA gives specific federal financial regulatory agencies the
authority to establish their own compensation and benefits programs
without regard to the provisions of title 5 of the United States Code.
[7] By law, a SES member's total compensation may not exceed the total
annual compensation payable to the Vice President for agencies that
have their performance management systems certified by OPM with the
Office of Management and Budget's concurrence. For more information on
senior executive pay and performance management, see GAO, Human
Capital: Senior Executive Performance Management Can Be Significantly
Strengthened to Achieve Results, GAO-04-614 (Washington, D.C.: May 26,
2004).
[8] The National Commission on the Public Service, Urgent Business for
America: Revitalizing the Federal Government for the 21st Century
(January 2003).
[9] GAO, Results-Oriented Cultures: Creating a Clear Linkage between
Individual Performance and Organizational Success, GAO-03-488
(Washington, D.C.: Mar. 14, 2003).
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