Human Capital
Aligning Senior Executives' Performance with Organizational Results Is an Important Step Toward Governmentwide Transformation Gao ID: GAO-06-1125T September 26, 2006The government's senior executives need to lead the way in transforming their agencies' cultures. Credible performance management systems--those that align individual, team, and unit performance with organizational results--can help manage and direct this process. In past work, GAO found that the performance management systems for senior executives fell short in this regard. In November 2003, recognizing that reforms were needed, Congress authorized a new performance-based pay system that ended the practice of giving annual pay adjustments to senior executives. Instead, agencies are to consider such factors as individual results and contributions to agency performance. If the Office of Personnel Management (OPM) certifies an agency's new performance system and the Office of Management and Budget (OMB) concurs, the agency has the flexibility to raise the pay of its highest performing senior executives above certain pay caps. This testimony addresses (1) the performance management system's regulatory structure, (2) OPM's certification process and agencies' views of it, and (3) OPM's role in monitoring the system, and the number of agencies that have been certified to date. This statement is based on GAO's issued work, which included interviews with senior OPM officials, agency Chief Human Capital Officers and Human Resource officers, and reviews of agency documents.
Overall, the regulations that OPM and OMB developed to administer a performance-based pay system for executives serve as an important step for agencies in creating an alignment or "line of sight" between executives' performance and organizational results. To qualify for the pay flexibilities included in the statute, OPM must certify and OMB must concur that an agency's performance management system meets nine certification criteria, including demonstrating that its performance management system aligns individual performance expectations with the mission and goals of the organization and that its system as designed and applied makes meaningful distinctions in performance. The certification criteria are generally consistent with key practices for effective performance management systems GAO identified that collectively create a line of sight between an individual's performance and an organization's success. To receive a full 2-calendar-year certification, an agency must document that its senior executive performance management system meets all nine of the criteria. Agencies can meet four of nine criteria and demonstrate that their system in design meets the remaining certification criteria to receive 1-year provisional certification and use the higher pay rates. Two divisions in OPM, as well as OMB, independently review agencies' certification submissions. A number of agencies GAO contacted expressed concern over OPM's ability to communicate expectations, guidance, and deadlines to agencies in a clear and consistent manner. OPM officials agreed that agencies need better guidance and were working on improvements. In monitoring agencies' performance management systems, OPM can suspend an agency's certification at any time with OMB concurrence if an agency is not complying with the certification criteria. According to OPM data, performance management systems at 24 agencies were certified during calendar year 2006. Of these, only the Department of Labor's system received full certification; the remaining systems received only provisional certification. These findings are not surprising. As GAO has noted in its past work, agencies could find it initially difficult to provide the necessary performance data to receive full certification. Going forward, it will be important for OPM to continue to monitor the certification process to help ensure that provisional certifications do not become the norm, and agencies develop performance management systems for their senior executives that meet all of OPM's requirements. The new performance management system for the government's senior executives will help agencies align individual, team, and unit performance with organizational results. Although there have been some implementation challenges, what will be important is how OPM works with agencies to meet the certification criteria. Moreover, the lessons learned in implementing the senior executive performance management system can be applied to modernizing the performance management systems of employees at other levels.
GAO-06-1125T, Human Capital: Aligning Senior Executives' Performance with Organizational Results Is an Important Step Toward Governmentwide Transformation
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Testimony:
Before the Subcommittee on Oversight of Government Management, the
Federal Workforce and the District of Columbia, Committee on Homeland
Security and Government Affairs, U.S. Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 10:45 a.m. EDT:
Tuesday, September 26, 2006:
Human Capital:
Aligning Senior Executives' Performance with Organizational Results Is
an Important Step Toward Governmentwide Transformation:
Statement of Brenda S. Farrell Acting Director Strategic Issues:
GAO-06-1125T:
GAO Highlights:
Highlights of GAO-06-1125T, testimony before the Subcommittee on
Oversight of Government Management, the Federal Workforce and the
District of Columbia, Committee on Homeland Security and Governmental
Affairs, U.S. Senate
Why GAO Did This Study:
The government‘s senior executives need to lead the way in transforming
their agencies‘ cultures. Credible performance management systems”those
that align individual, team, and unit performance with organizational
results”can help manage and direct this process. In past work, GAO
found that the performance management systems for senior executives
fell short in this regard. In November 2003, recognizing that reforms
were needed, Congress authorized a new performance-based pay system
that ended the practice of giving annual pay adjustments to senior
executives. Instead, agencies are to consider such factors as
individual results and contributions to agency performance. If the
Office of Personnel Management (OPM) certifies an agency‘s new
performance system and the Office of Management and Budget (OMB)
concurs, the agency has the flexibility to raise the pay of its highest
performing senior executives above certain pay caps.
This testimony addresses (1) the performance management system‘s
regulatory structure, (2) OPM‘s certification process and agencies‘
views of it, and (3) OPM‘s role in monitoring the system, and the
number of agencies that have been certified to date. This statement is
based on GAO‘s issued work, which included interviews with senior OPM
officials, agency Chief Human Capital Officers and Human Resource
officers, and reviews of agency documents.
What GAO Found:
Overall, the regulations that OPM and OMB developed to administer a
performance-based pay system for executives serve as an important step
for agencies in creating an alignment or ’line of sight“ between
executives‘ performance and organizational results. To qualify for the
pay flexibilities included in the statute, OPM must certify and OMB
must concur that an agency‘s performance management system meets nine
certification criteria, including demonstrating that its performance
management system aligns individual performance expectations with the
mission and goals of the organization and that its system as designed
and applied makes meaningful distinctions in performance. The
certification criteria are generally consistent with key practices for
effective performance management systems GAO identified that
collectively create a line of sight between an individual‘s performance
and an organization‘s success. To receive a full 2-calendar-year
certification, an agency must document that its senior executive
performance management system meets all nine of the criteria. Agencies
can meet four of nine criteria and demonstrate that their system in
design meets the remaining certification criteria to receive 1-year
provisional certification and use the higher pay rates.
Two divisions in OPM, as well as OMB, independently review agencies‘
certification submissions. A number of agencies GAO contacted expressed
concern over OPM‘s ability to communicate expectations, guidance, and
deadlines to agencies in a clear and consistent manner. OPM officials
agreed that agencies need better guidance and were working on
improvements.
In monitoring agencies‘ performance management systems, OPM can suspend
an agency‘s certification at any time with OMB concurrence if an agency
is not complying with the certification criteria. According to OPM
data, performance management systems at 24 agencies were certified
during calendar year 2006. Of these, only the Department of Labor‘s
system received full certification; the remaining systems received only
provisional certification. These findings are not surprising. As GAO
has noted in its past work, agencies could find it initially difficult
to provide the necessary performance data to receive full
certification. Going forward, it will be important for OPM to continue
to monitor the certification process to help ensure that provisional
certifications do not become the norm, and agencies develop performance
management systems for their senior executives that meet all of OPM‘s
requirements.
The new performance management system for the government‘s senior
executives will help agencies align individual, team, and unit
performance with organizational results. Although there have been some
implementation challenges, what will be important is how OPM works with
agencies to meet the certification criteria. Moreover, the lessons
learned in implementing the senior executive performance management
system can be applied to modernizing the performance management systems
of employees at other levels.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-1125T].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Brenda S. Farrell at
(202) 512-3604 or farrelb@gao.gov.
[End of Section]
Chairman Voinovich, Senator Akaka, and Members of the Subcommittee:
Thank you for the opportunity to be here today to discuss the federal
government's implementation of pay-for-performance systems for the
approximately 7,000 members of the Senior Executive Service (SES) and
those in other senior positions. As we have consistently testified, and
as the Subcommittee has recognized, an agency's human capital is its
most important catalyst for transforming government to meet the current
and emerging challenges of the 21st century. We have also highlighted
how federal human capital systems designed in the past are outmoded
and, in some cases, barriers to an agency's transformation.
In our earlier work on senior executive performance management, we
noted how high-performing organizations have recognized that a critical
success factor in fostering a results-oriented culture is a performance
management system that creates a "line of sight" showing how unit and
individual performance can contribute to overall organizational goals
and helping them understand the connection between their daily
activities and the organization's success. We also discussed how high-
performing organizations understand that they need senior leaders who
are accountable for results, drive continuous improvement, and
stimulate and support efforts to integrate human capital approaches
with organizational goals and related transformation issues.[Footnote
1]
In 2002, we reported that significant opportunities existed to
strengthen agencies' efforts to hold senior executives accountable for
results through their performance management systems.[Footnote 2] In
particular, we reported that more progress was needed in explicitly
linking senior executives' performance expectations to the achievement
of results-oriented organizational goals, fostering the necessary
collaboration both within and across organizational boundaries to
achieve results, and demonstrating a commitment to lead and facilitate
change.
Over the past few years, Congress and the administration have sought to
modernize senior executive performance management systems. In November
2003, Congress established a new performance-based pay system as part
of the National Defense Authorization Act for Fiscal Year 2004[Footnote
3] that is designed to provide a clear and direct linkage between
performance and pay for the government's senior executives.
Additionally, aspects of the legislation can help address two
shortcomings with the previous pay system: pay compression, and the
failure of agencies to make meaningful distinctions among senior
executives' job performances. Pay compression occurred in part because
the previous system had six pay levels. Because of pay caps and other
factors, senior executives at the top three levels received essentially
the same amount of base pay in a given year. For example, we reported
that about 70 percent of SES members received the same basic pay due to
compression in 2003.[Footnote 4] At the same time, the administration
believed that agencies' performance management systems were not making
meaningful distinctions in senior executives' performance as
demonstrated by the large percentage that consistently received the
highest ratings possible.
The new pay system ended the practice of giving annual across-the-board
or locality pay adjustments to senior executives. Instead, agencies are
to base pay adjustments for senior executives on individual results 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. The system also
replaced the six SES pay levels with a single, open-range pay band.
Further, agencies can apply for certification of their performance
appraisal systems by the Office of Personnel Management (OPM), with
Office of Management and Budget (OMB) concurrence. Once an agency is
certified, it has the flexibility to raise the pay of its highest
performing SES members above certain pay caps. As an example, those
agencies with certified performance management systems can increase
base pay to $165,200 for 2006. This compares to a cap of $152,000 for
base pay for those agencies without certified systems. OPM and OMB
jointly issued regulations establishing the criteria for obtaining this
certification in July 2004.
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. SL/ST
positions have a lower maximum rate of basic pay than SES employees,
and unlike the SES, their individual rate of pay does not necessarily
have to be based on individual or agency performance. However, an
agency may apply to OPM and OMB for certification of its SL/ST
performance management system, and if the 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. However, certification does not affect the
maximum rate of basic pay of SL/ST employees.
We believe the new senior executive pay-for-performance system is an
important step in aligning individual, team, and unit performance with
organizational results. Indeed, high-performing organizations have
recognized that their performance management systems are strategic
tools to help them manage on a day-to-day basis and achieve
organizational goals in part by linking their senior executive
performance management systems to their organizations' success.
Moreover, the lessons learned from implementing the new senior
executive pay system can inform efforts to modernize the pay systems
under which other federal employees are compensated. Indeed, cascading
aspects of this approach to other levels of employees can help agencies
recognize and reward employee contributions and achieve the highest
levels of individual performance.
In my remarks today, I will discuss (1) the regulatory structure of the
senior executive pay system and the importance of achieving a line of
sight between executives' performance and organizational success by
linking pay with performance, (2) the agency certification process and
agencies' views of it, and (3) OPM's role in evaluating and monitoring
the system, and the number of agencies that have been certified to
date.
Mr. Chairman, as you know, the Senate Committee on Homeland Security
and Governmental Affairs and your Oversight of Government Management,
the Federal Workforce, and the District of Columbia Subcommittee
requested that we conduct a review of OPM to identify management
challenges that could affect its ability to lead human capital reform
efforts. As part of our review, we have interviewed or obtained written
responses from all 23 members of the Chief Human Capital Officers
Council (CHCO) and/or their corresponding agency human resource (HR)
directors to gain a customer perspective of OPM's products and services
and their views of OPM management challenges. We obtained agencies'
views on their experiences with OPM's certification of SES pay-for-
performance systems. Our forthcoming report on this work will be issued
in November 2006 and will include the agencies' experiences with the
certification process, as well as recommended actions to enhance OPM's
capacity to lead and implement human capital reform overall. My
statement today is based on our issued products which were conducted in
accordance with generally accepted government auditing standards.
The Regulatory Structure of the Senior Executive Performance Management
System Helps Link Executives' Performance to Organizational Results:
Overall, the regulations that OPM developed to administer a performance-
based pay system for senior executives serve as a substantive and
positive step for agencies in holding senior executives accountable for
their performance and contributions to organizational success. The new
senior executive pay system raises the cap on base pay and total
compensation. For 2006, the caps are $152,000 for base pay (Level III
of the Executive Schedule) with a senior executive's total compensation
not to exceed $183,500 (Level I of the Executive Schedule). If an
agency's senior executive performance management system is certified by
OPM and OMB concurs, the caps are increased to $165,200 for base pay
(Level II of the Executive Schedule) and $212,100 for total
compensation (the total annual compensation payable to the Vice
President).
To qualify for these flexibilities, agencies' performance management
systems need to meet nine specified certification criteria, including
demonstrating that the systems align individual performance
expectations with the mission and goals of the organization and that
its appraisal system as designed and applied makes meaningful
distinctions in performance.
To receive a full 2-calendar-year certification, an agency must provide
documentation that its senior executive performance management system
meets all nine of the criteria. Otherwise, agencies can meet four of
nine criteria and demonstrate that their system in design meets the
remaining certification criteria to receive 1-year provisional
certification and use the higher pay rates. Agencies with 1-year
provisional certification must reapply annually, and agencies with full
certification must reapply every 2 years. Those agencies with more than
one performance management system for their senior executive employees
are to certify each system separately.
The certification criteria are framed as broad principles designed to
serve as guidelines to position agencies to use their performance
management system(s) strategically to support the development of a
strong performance culture and the attainment of the agency's mission,
goals, and objectives. The certification criteria are generally
consistent with our body of work identifying key practices for
effective performance management.[Footnote 5] Specifically, we
identified key practices, including aligning individual performance
expectations with organizational goals, linking pay to individual
performance, and making meaningful distinctions in performance, that
collectively create a line of sight between an individual's performance
and an organization's success. These practices are reflected in the
final certification criteria.
Key aspects of the OPM certification criteria, as outlined in the
regulations, are as follows:
(1) Alignment: Individual performance expectations must be linked to or
derived from the agency's mission, strategic goals, program/policy
objectives, and/or annual performance plan.
(2) Consultation: Individual performance expectations are developed
with senior employee involvement and must be communicated at the
beginning of the appraisal cycle.
(3) Results: Individual expectations describe performance that is
measurable, demonstrable, or observable, focusing on organizational
outputs and outcomes, policy/program objectives, milestones, etc.
(4) Balance: Individual performance expectations must include measures
of results, employee and customer/stakeholder satisfaction, and/or
competencies or behaviors that contribute to outstanding performance.
(5) Assessments and Guidelines: 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.
(6) Oversight: 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.
(7) Accountability: 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.
(8) Performance Differentiation: Among other provisions, the agency
must provide for at least one rating level above Fully Successful (must
include an Outstanding level), and in the application of those ratings,
make meaningful distinctions among executives based on their relative
performance.
(9) Pay Differentiation: The agency should be able to demonstrate that
the largest pay adjustments and/or highest pay levels (base and
performance awards) 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.
In commenting on OPM's draft regulations, we included suggestions
intended to help agencies broaden the criteria to reinforce cultures
that are results oriented, customer focused, and collaborative in
nature. For example, we suggested that OPM require agencies to have
their senior executives identify specific programmatic crosscutting,
external, and partnership-oriented goals or objectives in their
individual performance plans to help foster the necessary
collaboration, interaction, and teamwork to achieve results.
Further, based on our previous testimony that performance management
processes need to assure reasonable transparency,[Footnote 6] we noted
the new performance management system should have adequate safeguards
to ensure fairness and guard against abuse.[Footnote 7] Specifically,
we suggested that OPM require agencies to build in safeguards as part
of their senior executive performance management systems when linking
pay to performance. For example, communicating the overall results of
the performance management decisions to the senior executives, while
protecting individual confidentiality, could help enhance the
transparency of the performance management process. We also recognized
that scalability needs to be considered, and that small agencies might
face difficulties communicating overall results of the performance
management process while protecting the confidentiality of the fewer
numbers of senior executives. In response, OPM changed some aspects of
its criteria by incorporating these suggestions into the interim final
regulations.
The Process for Certifying Agencies' Submissions:
Agencies can submit their applications to OPM for certification anytime
during the year. If fully certified, the certification is good for the
remainder of the calendar year in which the agency applied, as well as
all of the following calendar year. If provisionally certified, an
agency's certification is only good for the calendar year in which it
applied. For example, if an agency is provisionally certified in
October 2005, its certification would expire in December 2005. To
ensure the agency's submission is complete, the agency's OPM contact--
the Human Capital Officer (HCO)--first verifies that the application
contains the required materials and documents. If complete, the HCO
sends copies to the two OPM divisions responsible for reviewing the
application, the Human Capital Leadership and Merit System
Accountability (HCLMSA) division and the Strategic Human Resources
Policy (SHRP) division, and an additional copy to OMB. An agency's
submission is reviewed independently by representatives within HCLMSA
and SHRP in an attempt to bring different organizational perspectives
to the review.
A submission is reviewed against the nine certification criteria, but
each review team has its own method for analyzing the application.
After an initial examination, the reviewers from HCLMSA and SHRP hold
an informal meeting to discuss the submission. The reviewers meet again
in a formal panel after a more thorough review, and this time they are
joined by the HCO. This panel decides whether they have enough
information to reach a certification decision about the agency. If the
panel concludes there is not enough information to reach a decision,
the HCO will request that the agency provide any missing or additional
supporting information. If the panel decides there is sufficient
information to reach a decision, it will either certify or reject the
application.
When an application is rejected, the HCO works with the agency to help
modify its appraisal system so that it meets the criteria. If the
application is approved, the HCO contacts OMB for concurrence. OMB uses
the same nine criteria to evaluate agency applications, but primarily
focuses on measures of agency performance. If OMB concurrence is not
achieved, the HCO works with the agency to address OMB's concerns until
resolution is reached. Once OMB concurs, the Director of OPM certifies
the agency's appraisal system and the HCO provides additional comments
to the agency on their system and identifies any improvement needs. For
example, these comments may direct the agency to focus more on making
meaningful distinctions in performance.
Agencies' Experience in Implementing the Senior Executive Pay System
Highlights Areas Where Improvements Might be Needed:
In our ongoing work on OPM's capacity to lead and implement human
capital reform, we asked agency chief human capital officers (CHCO) and
human resource (HR) directors to describe their experiences with OPM's
administration of the senior executive pay-for-performance
certification process. As the Comptroller General testified before this
Subcommittee in June 2006,[Footnote 8] we heard a number of concerns
from agencies regarding OPM's ability to communicate expectations,
guidance, and deadlines to agencies in a clear and consistent manner.
When the senior executive certification process began in 2004, OPM
provided agencies with limited guidance for implementing the new
regulations. OPM's initial guidance consisted of a list of documents
required for provisional and full certification and a sample cover
letter to accompany each application. The lack of more specific
guidance created confusion as agencies attempted to interpret the
broadly defined regulatory criteria and adjust to the requirements for
certification. Officials at a majority of the CHCO Council agencies
told us they did not have enough guidance to properly prepare for
certification. As a result, agencies did not fully understand what was
required in the regulations to receive certification.
For example, one official noted that while OPM tries to point agencies
in the right direction, it will not give agencies discrete
requirements. This leads to uncertainty about what agencies must and
should demonstrate to OPM. Some CHCOs and HR directors also told us
that, in some cases, OPM changed expectations and requirements
midstream with little notice or explanation. However, OPM explains that
it intentionally allowed some ambiguity in the regulations for the new
senior executive appraisal system, in an attempt to provide agencies
with management flexibilities. A senior OPM official said OPM did not
provide agencies with "best practices" examples because OPM did not
want agencies to think there was only one "right" way to get certified.
Agencies also indicated that because OPM did not issue guidance for
calendar year 2006 submissions until January 5, 2006, some were unable
to deliver their submissions to OPM before the beginning of the
calendar year. Further, OPM clarified this guidance in a January 30,
2006, memorandum to agencies, telling agencies that senior executive
performance appraisal systems would not be certified for calendar year
2006 if the performance plans did not hold senior executives
accountable for achieving measurable business outcomes. As a result,
agencies had to revise their submissions, where necessary, to meet
OPM's additional requirements.
Some agencies indicated that OPM's late issuance of guidance also
created an uneven playing field among agencies, as those that chose to
wait until OPM issued guidance before applying for certification were
unable to give their senior executives higher pay, while those who did
not wait got certified sooner. OPM officials we spoke with about this
agreed that they need to be able to provide clear and consistent
guidance to agencies and said they are working to improve this.
Further, they said their evaluation of agencies' submissions is
evolving as their understanding of the senior executive certification
criteria is increasing.
OPM's Role in Evaluating and Monitoring the Pay-for-Performance System:
The regulations include several positive internal checks and balances
that should help maintain the rigorous application of the new senior
executive pay system. As I noted earlier, agencies granted full
certification are to have their systems renewed for an additional 2
calendar years and agencies granted provisional certification are to
reapply for certification after 1 calendar year in order to continue
setting the rate of basic pay for senior executives at the higher
level. In addition, OPM can suspend certification at any time during
the certification period if it determines, with OMB concurrence, that
the agency's system is not in compliance with the certification
criteria. OPM's regulations also require review of each senior
executive's rating by a performance review board appointed by the
agency head. As noted above, the regulations also require oversight of
the performance appraisal system by the agency head who must certify
that the system makes meaningful distinctions in relative performance.
According to OPM data, 26 performance management systems at 24 agencies
were certified during calendar year 2006.[Footnote 9] Of these 26, only
the Department of Labor's system received full certification. As of
September 19, 2006, the remaining 25 systems received only provisional
certification. These findings are not surprising. In our April 2005
testimony before this Subcommittee, we stated that a number of agencies
would be challenged in the short term to provide the necessary
performance data on their senior executives in order to receive full
certification or to maintain their certification (agencies must provide
2 years of performance rating and bonus data showing that meaningful
distinctions in senior executive performance were made to
qualify).[Footnote 10] Other factors might also be at work. For
example, a number of agencies have told us that the certification
process is burdensome. One agency said that OPM's requirements for the
certification of a submission are time intensive, laborious, and can
disrupt an agency's recruitment and retention efforts.
As we also noted at the April 2005 hearing, OPM will need to carefully
monitor the implementation of agencies' performance management systems,
especially those that have provisional certification. This is because,
as I have stated earlier, agencies with provisional certification can
still receive the flexibilities of the new pay system, even though they
do not meet all of OPM's certification requirements. In other words,
agencies can receive the benefits of the new pay-for-performance system
without meeting all of its requirements and safeguards. We believe
that, going forward, it will be important for OPM to continue to
monitor the certification process, determine whether any obstacles are
impeding agencies from receiving full certification, and take
appropriate measures to address them. These actions will help ensure
that agencies continue to make substantive progress toward modernized
performance management systems, and that provisional certifications do
not become the norm.
Once agencies have provisional or full certification, OPM monitors
senior executive performance appraisal systems by measuring the
distributions of agencies' performance ratings and pay. This
information helps OPM determine if agencies are making meaningful
distinctions among the performance of their senior executives. Such
distinctions are important because effective performance management
requires the organization's leadership to make meaningful distinctions
between acceptable and outstanding performance and appropriately reward
those who perform at the highest level.
In its Report on Senior Executive Pay for Performance for Fiscal Year
2005, OPM stated that the data indicate that federal agencies are
taking seriously the requirement to develop rigorous appraisal systems
and to make meaningful distinctions in performance ratings and pay. All
reporting agencies have moved away from pass/fail appraisal systems and
now have at least one performance level above "fully successful." In
2005, 43 percent of career SES governmentwide were rated at the highest
performance level, compared to 75 percent in 2003 prior to the
implementation of the SES pay-for-performance system. Further, OPM
reported for fiscal year 2005 that the percentage of SES rated at the
highest performance level declined 16 percent from the prior year. OPM
also reported that the largest increases in salary went to SES rated at
the highest performance level. Although SES pay and performance award
amounts vary by agency based on factors such as compensation strategy,
funding, and agency performance levels, OPM believes these general
trends suggest a further refinement may be occurring in the process of
distinguishing outstanding performers.
Concluding Remarks:
As we have said in our prior reports and testimonies, senior executives
need to lead the way in transforming their agencies' cultures to be
more results oriented, customer focused, and collaborative in nature.
Credible performance management systems, specifically those that (1)
align individual, team, and unit performance to organizational results;
(2) contain built-in safeguards; and (3) are effectively implemented,
can help manage and direct this process.
The pay-for-performance system for the government's senior executives
that I have discussed today is an important milestone on the march
toward modern compensation systems that are more market based and
performance oriented. Although OPM and agencies have encountered
various challenges in implementing the system, such challenges are not
surprising given the cultural shift that the new system represents.
Moreover, just 2 years have passed since OPM issued its regulations for
certifying agencies' pay-for-performance systems, and some growing
pains are to be expected given agencies' lack of experience with
performance management systems that meet OPM's requirements. Moving
forward, what will be important is how OPM works with agencies to
provide the tools and resources they need to design and implement
performance management systems that meet the certification criteria in
as streamlined a fashion as possible.
The lessons learned in implementing the senior executive pay-for-
performance system will be critical to modernizing the performance
management systems under which other federal employees are compensated.
In particular, establishing an explicit line of sight between
individual, team, and unit performance and organizational success, as
well highlighting opportunities to improve guidance, communications,
transparency, and safeguards, will serve the government well moving
forward. We stand ready to assist OPM and Congress in exploring and
implementing these critical human capital reforms.
Chairman Voinovich, Senator Akaka, and Members of the Subcommittee,
this completes my prepared statement. I would be pleased to respond to
any questions that you may have.
Contact and Acknowledgments:
For further information regarding this statement, please contact Brenda
S. Farrell, Acting Director, Strategic Issues, at (202) 512-6806 or
farrellb@gao.gov. Individuals making key contributions to this
statement include Carole J. Cimitile, William Colvin, Laura Miller
Craig, William Doherty, Robert Goldenkoff, Janice Latimer, Trina Lewis,
Jeffrey McDermott, and Michael Volpe.
FOOTNOTES
[1] GAO, Human Capital: Senior Executive Performance Management Can Be
Significantly Strengthened to Achieve Results, GAO-04-614 (Washington,
D.C.: May 26, 2004).
[2] GAO, Results-Oriented Cultures: Using Balanced Expectations to
Manage Senior Executive Performance, GAO-02-966 (Washington, D.C.:
Sept. 27, 2002).
[3] Pub.L. No.108-136, Nov. 24, 2003.
[4] GAO, Human Capital: Trends in Executive and Judicial Pay, GAO-06-
708 (Washington, D.C.: June 21, 2006).
[5] GAO, Results-Oriented Cultures, Creating a Clear Linkage between
Individual Performance and Organizational Success, GAO-03-488
(Washington, D.C.: Mar.14, 2003).
[6] GAO, Defense Transformation: Preliminary Observations on DOD's
Proposed Civilian Personnel Reforms, GAO-03-717T (Washington, D.C.:
Apr. 29, 2003), p. 8.
[7] GAO, Human Capital: Implementing Pay for Performance at Selected
Personnel Demonstration Projects, GAO-04-83 (Washington, D.C.: Jan. 23,
2004).
[8] GAO, Office of Personnel Management: OPM is Taking Steps to
Strengthen Its Internal Capacity for Leading Human Capital Reform, GAO-
06-861T (Washington, D.C: June 27, 2006).
[9] An agency may have multiple performance management systems for
senior employees--including SES and SL/ST members--and an agency must
apply to OPM for certification of each system separately. In 2006, the
National Aeronautics and Space Administration received separate
certification for its Inspector General's Office and the Department of
Defense received separate certification for its SL/ST systems.
[10] GAO, Human Capital: Agencies Need Leadership and the Supporting
Infrastructure to Take Advantage of New Flexibilities, GAO-05-616T
(Washington, D.C.: Apr. 21, 2005).
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