Human Capital
Bonuses to Senior Executives at the Department of Veterans Affairs Gao ID: GAO-07-985T June 12, 2007Key practices of effective performance management for the Senior Executive Service (SES) include the linkage or "line of sight" between individual performance and organizational success, the importance of linking pay to individual and organizational performance, and the need to make meaningful distinctions in performance. GAO identified certain principles for executive pay plans that should be considered to attract and retain the quality and quantity of executive leadership necessary to address 21st century challenges, including that they be sensitive to hiring and retention trends; reflect knowledge, skills, and contributions; and be competitive. This testimony focuses on the Department of Veterans Affairs' (VA) process for awarding bonuses to SES members, the amount and percentage of bonuses awarded for fiscal years 2004 through 2006 based on data reported by VA, and the Office of Personnel Management's (OPM) and the Office of Management and Budget's (OMB) roles in certifying federal agencies SES performance appraisal systems. GAO analyzed VA's policies and procedures for awarding bonuses and data provided by VA on the amount and percentages of bonuses and interviewed knowledgeable VA officials. Information on OPM's and OMB's certification process was based on our 2007 report on OPM's capacity to lead and implement reform
VA requires that each senior executive have an executive performance plan or contract in place for the appraisal year that reflects measures that balance organization results with customer satisfaction, employee perspectives, and other appropriate measures. VA uses four performance review boards (PRB) to review and make recommendations on SES ratings, awards, and pay adjustments based on these performance plans. VA's Secretary appoints members of three of the four boards on the basis of the position held within the agency, and consideration is given to those positions where the holder would have knowledge about the broadest group of executives. Members of the fourth board are appointed by VA's Inspector General. VA's PRBs vary in size, composition, and number of SES members considered for bonuses, and each PRB, within the scope of VA's policies, develops its own procedures and criteria for making bonus recommendations. According to VA policy, bonuses are generally awarded only to those rated outstanding or excellent and who have demonstrated significant individual and organizational achievements during the appraisal period. According to data reported by OPM, in fiscal year 2005, VA awarded higher bonus amounts to its career SES than any other cabinet-level department; however, according to OPM's data, six other cabinet-level departments awarded bonuses to a higher percentage of their career SES. OPM and OMB evaluate agencies' SES performance appraisal systems against nine certification criteria jointly developed by the two agencies and determine that agencies merit full, provisional, or no certification. VA has been granted provisional certification in each of the years 2004 through 2006. Our review of VA's requirements for SES performance plans as represented in both its 2006 submission and 2007 draft submission to OPM show that VA made changes to the requirements for its performance plans to reflect greater emphasis on measurable results.
GAO-07-985T, Human Capital: Bonuses to Senior Executives at the Department of Veterans Affairs
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Testimony:
Before the Subcommittee on Oversight and Investigations, House
Committee on Veterans' Affairs, House of Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 2:00 p.m. EDT:
Tuesday, June 12, 2007:
Human Capital:
Bonuses to Senior Executives at the Department of Veterans Affairs:
Statement of J. Christopher Mihm:
Managing Director, Strategic Issues:
GAO-07-985T:
GAO Highlights:
Highlights of GAO-07-985T, testimony before Subcommittee on Oversight
and Investigations, Committee on Veterans Affairs, House of
Representatives
Why GAO Did This Study:
Key practices of effective performance management for the Senior
Executive Service (SES) include the linkage or ’line of sight“ between
individual performance and organizational success, the importance of
linking pay to individual and organizational performance, and the need
to make meaningful distinctions in performance. GAO identified certain
principles for executive pay plans that should be considered to attract
and retain the quality and quantity of executive leadership necessary
to address 21st century challenges, including that they be sensitive to
hiring and retention trends; reflect knowledge, skills, and
contributions; and be competitive. This testimony focuses on the
Department of Veterans Affairs‘ (VA) process for awarding bonuses to
SES members, the amount and percentage of bonuses awarded for fiscal
years 2004 through 2006 based on data reported by VA, and the Office of
Personnel Management‘s (OPM) and the Office of Management and Budget‘s
(OMB) roles in certifying federal agencies SES performance appraisal
systems.
GAO analyzed VA‘s policies and procedures for awarding bonuses and data
provided by VA on the amount and percentages of bonuses and interviewed
knowledgeable VA officials. Information on OPM‘s and OMB‘s
certification process was based on our 2007 report on OPM‘s capacity to
lead and implement reform.
What GAO Found:
VA requires that each senior executive have an executive performance
plan or contract in place for the appraisal year that reflects measures
that balance organization results with customer satisfaction, employee
perspectives, and other appropriate measures. VA uses four performance
review boards (PRB) to review and make recommendations on SES ratings,
awards, and pay adjustments based on these performance plans. VA‘s
Secretary appoints members of three of the four boards on the basis of
the position held within the agency, and consideration is given to
those positions where the holder would have knowledge about the
broadest group of executives. Members of the fourth board are appointed
by VA‘s Inspector General. VA‘s PRBs vary in size, composition, and
number of SES members considered for bonuses, and each PRB, within the
scope of VA‘s policies, develops its own procedures and criteria for
making bonus recommendations. According to VA policy, bonuses are
generally awarded only to those rated outstanding or excellent and who
have demonstrated significant individual and organizational
achievements during the appraisal period.
As for bonuses awarded, the table below shows VA SES member bonus
amounts for fiscal years 2004 through 2006.
Table: Average Bonus Amount and Percentage Receiving Bonuses at VA
among Career SES Members and by Headquarters and Field Locations, 2004-
2006:
All;
2004: Average amount: $16,371;
2004: Percentage receiving: 85.4%;
2005: Average amount: $16,713;
2005: Percentage receiving: $79.7%;
2006: Average amount: $16,606;
2006: Percentage receiving: 87.2%.
Headquarters;
2004: Average amount: $19,195;
2004: Percentage receiving: 82.1%;
2005: Average amount: $18,629;
2005: Percentage receiving: 80.2%;
2006: Average amount: $19,439;
2006: Percentage receiving: 81.9%.
Field;
2004: Average amount: $15,089;
2004: Percentage receiving: 87.0%;
2005: Average amount: $15,761;
2005: Percentage receiving: 79.4%;
2006: Average amount: $15,268;
2006: Percentage receiving: 90.0%.
Source: GAO analysis of VA data.
[End of figure]
According to data reported by OPM, in fiscal year 2005, VA awarded
higher bonus amounts to its career SES than any other cabinet-level
department; however, according to OPM‘s data, six other cabinet-level
departments awarded bonuses to a higher percentage of their career SES.
OPM and OMB evaluate agencies‘ SES performance appraisal systems
against nine certification criteria jointly developed by the two
agencies and determine that agencies merit full, provisional, or no
certification. VA has been granted provisional certification in each of
the years 2004 through 2006. Our review of VA‘s requirements for SES
performance plans as represented in both its 2006 submission and 2007
draft submission to OPM show that VA made changes to the requirements
for its performance plans to reflect greater emphasis on measurable
results.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-985T].
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]
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to provide the Subcommittee with
information on the Department of Veterans Affairs' (VA) process for
providing Senior Executive Service (SES) performance awards
(bonuses).[Footnote 1] VA's mission is to serve America's veterans and
their families. Through its three primary components, in fiscal year
2006, VA operated one of the largest health care systems that provided
services to about 5 million patients, paid cash disability benefits to
more than 3.5 million veterans and their survivors, and operated 125
national cemeteries in the United States.[Footnote 2]
In our body of work on senior executive performance management, we have
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. We have also identified key practices of effective performance
management for the SES, which include the linkage or "line of sight"
between individual performance and organizational success, the
importance of linking pay to individual and organizational performance,
and the need to make meaningful distinctions in performance.[Footnote
3] In 2006, we identified certain principles for executive pay plans
that should be considered to attract and retain the quality and
quantity of executive leadership necessary to address 21st century
challenges, including that they be sensitive to hiring and retention
trends; reflect responsibilities, knowledge, skills, and contributions;
and be competitive.[Footnote 4]
My comments today will focus on (1) VA's policies, procedures, and
guidelines for evaluating and awarding SES member bonuses, including
the composition and responsibility of VA's performance review boards
(PRB), which recommend SES bonuses; (2) the number and amount of
bonuses awarded for fiscal years 2004 through 2006 by VA headquarters
and field locations and compared to the amount of bonuses given to SES
members at other major cabinet-level departments; and (3) the Office of
Personnel Management's (OPM) and the Office of Management and Budget's
(OMB) roles in certifying VA's and other agencies' SES performance
appraisal system. We analyzed VA's policies and procedures related to
the awarding of SES member bonuses for 2005 through 2007 that were
included in VA's 2005 and 2006 submissions and 2007 draft submission to
OPM concerning VA's SES and senior-level employee performance appraisal
system. We also interviewed knowledgeable officials in VA's Office of
Human Resources and Administration. We analyzed data provided to us by
VA on the amount and number of SES member bonuses for fiscal years 2004
through 2006 and comparable data from other cabinet-level departments
as reported by OPM for fiscal years 2004 and 2005. The numbers we are
presenting today are limited to SES member bonuses and do not include
other types of SES member compensation. Information on OPM's and OMB's
roles is based on our review of VA's senior performance appraisal
system certification submissions and related correspondence and our
prior work reviewing OPM's capacity to lead and implement
reform.[Footnote 5] We conducted our work in May and June 2007 in
accordance with generally accepted government auditing standards.
In summary, VA requires that each SES member have an executive
performance plan or contract in place for the appraisal year that
reflects measures that balance organization results with customer
satisfaction, employee perspectives, and other appropriate measures. VA
uses four PRBs that review and make recommendations on SES members'
ratings, awards, and pay adjustments based on these performance plans.
Members are appointed to the boards on the basis of the positions held,
and consideration is given to those positions where the holder would
have knowledge about the broadest group of executives. VA's PRBs vary
in size, composition, and the number of SES members considered for
bonuses, and each PRB, within the scope of VA's policies, develops its
own procedures and criteria for making recommendations. According to VA
policy, bonuses are generally awarded only to those rated outstanding
or excellent and who have demonstrated significant individual and
organizational achievements during the appraisal period. In fiscal year
2006, VA awarded an average of $16,606 in bonuses to 87 percent of its
career SES members.[Footnote 6] At headquarters, 82 percent of career
SES members received bonuses and 90 percent received bonuses in the
field. Additionally, those in headquarters were awarded an average of
about $4,000 more in bonuses than the career SES members in its field
locations. OPM and OMB evaluate agencies' SES and senior-level employee
performance appraisal systems against nine certification criteria
jointly developed by the two agencies. OPM also issues guidance to help
agencies improve their systems and reviews submissions to ensure that
they meet the criteria. In providing concurrence, OMB primarily
considers measures of overall agency performance, such as agency
President's Management Agenda results. Our review of VA's requirements
for SES performance plans as represented in both its 2006 submission
and 2007 draft submission to OPM shows that VA made changes to the
requirements for its performance plans to reflect greater emphasis on
measurable results.
We provided VA officials the opportunity to review the information
contained in my statement. VA officials agreed that the facts presented
accurately reflect VA's SES bonus process and results.
Background:
In recent years, Congress has passed legislation designed to strengthen
the linkage between SES performance and pay. Congress established a new
performance-based pay system for the SES and permitted agencies with
SES appraisal systems, which have been certified as making meaningful
distinctions based on relative performance, to apply a higher maximum
SES pay rate and a higher annual cap on total SES
compensation.[Footnote 7] We have testified that such SES and senior-
level employee performance-based pay systems serve as an important step
for agencies in creating alignment or "line of sight" between
executives' performance and organizational results.[Footnote 8] By
2004, an agency could apply a higher cap on SES pay and total
compensation if OPM certifies and OMB concurs that the agency's
performance management system, as designed and applied, aligns
individual performance expectations with the mission and goals of the
organization and makes meaningful distinctions in performance. Since
2004, VA has received approval to increase the cap on SES pay and total
compensation, which includes bonuses.
By law, only career SES appointees are eligible for SES
bonuses.[Footnote 9] As stated previously, agencies with certified
senior performance appraisal systems are permitted higher caps on SES
base pay and total compensation. With a certified system, for 2006, an
agency was authorized to increase SES base pay to $165,200 (Level II of
the Executive Schedule) and total compensation to $212,100 (the total
annual compensation payable to the Vice President). Those agencies
without certified systems for 2006 were limited to a cap of $152,000
for base pay (Level III of the Executive Schedule) and $183,500 (Level
I of the Executive Schedule) for total compensation.[Footnote 10] SES
performance bonuses are included in SES aggregate total compensation.
Agencies are permitted to award bonuses from 5 to 20 percent of an
executive's rate of basic pay from a pool that cannot exceed the
greater of 10 percent of the aggregate rate of basic pay for the
agency's career SES appointees for the year preceding, or 20 percent of
the average annual rates of basic pay to career SES members for the
year preceding.
VA's SES Performance Appraisal Process:
VA requires that each SES member have an executive performance plan or
contract in place for the appraisal year. According to VA's policy, the
plan must reflect measures that balance organizational results with
customer satisfaction, employee perspectives, and other appropriate
measures. The plan is to be based on the duties and responsibilities
established for the position and also reflect responsibility for
accomplishment of agency goals and objectives, specifying the
individual and organizational performance or results to be achieved for
each element. Toward the end of the appraisal period, each executive is
to prepare a self-assessment relative to the job requirements in the
approved performance plan, and his or her supervisor then rates the
executive on each element and provides a summary rating. Specifically,
according to VA's policy on the rating process, the rater is to assess
the accomplishment of each established performance requirement,
consider the impact of the individual requirement on overall
performance of the element, and assign one achievement level for each
element. The VA rating is a written record of the appraisal of each
critical and other performance element and the assignment of a summary
rating level by the rater. The summary of each SES member rating passes
to the appropriate reviewing official (if applicable) and PRBs for
consideration.
VA uses four PRBs to review and prepare recommendations on SES member
ratings, awards, and pay adjustments: Veterans Affairs, Veterans Health
Administration, Veterans Benefits Administration, and Office of
Inspector General. The Veterans Affairs PRB has a dual role in VA in
that it functions as a PRB for SES members who work for VA's central
offices, such as the Office of the Assistant Secretary for Management
and the Office of the Assistant Secretary for Policy and Planning, and
those employed by the National Cemetery Administration. It also reviews
the policies, procedures, and recommendations from the Veterans Health
Administration and Veterans Benefits Administration PRBs.
The Secretary appoints members of three of the four PRBs on an annual
basis; members of the Office of Inspector General PRB are appointed by
the VA Inspector General. VA's PRBs must have three or more members
appointed by the agency head or Inspector General for the Office of
Inspector General PRB and can include all types of federal executives
from within and outside the agency. As required by OPM, when appraising
career appointees or recommending performance awards for career
appointees, more than one-half of the PRB membership must be career SES
appointees. Federal law prohibits PRB members from taking part in any
PRB deliberations involving their own appraisals. Appointments to PRBs
must also be published in the Federal Register.[Footnote 11] According
to a VA official in the Office of Human Resources and Administration,
appointments are made on basis of the position held, and consideration
is given to those positions where the holder would have knowledge about
the broadest group of executives. Typically, the same VA positions are
represented on the PRB each year, and there is no limit on the number
of times a person can be appointed to a PRB.
VA's PRBs vary in size, composition, and number of SES members
considered for bonuses. For example, in 2006, VA's Veterans Health
Administration PRB was composed of 18 members and made recommendations
on 139 SES members while its Veterans Benefits Administration PRB was
composed of 7 members and made recommendations on 50 SES members. In
2006, six PRB members sat on multiple PRBs, and 1 member, the Deputy
Chief of Staff, sat on three PRBs--the Veterans Affairs, Veterans
Health Administration, and Veterans Benefits Administration PRBs. With
the exception of the Office of Inspector General PBR, members of PRBs
are all departmental employees, a practice that is generally consistent
across cabinet-level departments. The Office of Inspector General PRB
is composed of 3 external members--officials from other federal
agencies' offices of inspector generals--which is generally consistent
with PRBs for other federal offices of inspector general.
Under VA's policy, each PRB develops its own operating procedures for
reviewing ratings and preparing recommendations. The Veterans Health
Administration and Veterans Benefits Administration PRBs are to submit
their procedures to the chairperson of the Veterans Affairs PRB for
approval and are to include a summary of procedures used to ensure that
PRB members do not participate in recommending performance ratings for
themselves or their supervisors.
VA policy requires any SES member who wishes to be considered for a
bonus to submit a two-page justification based on his or her
performance plan addressing how individual accomplishments contribute
towards organizational and departmental goals, as well as appropriate
equal employment opportunity and President's Management Agenda
accomplishments. While federal law and OPM regulations permit career
SES members rated fully successful or higher to be awarded bonuses,
VA's policy calls for bonuses to generally be awarded to only those
rated outstanding or excellent and who have demonstrated significant
individual and organizational achievements during the appraisal period.
Beyond these policies, each PRB determines how it will make its
recommendations. For example, a VA official from its Office of Human
Resources and Administration told us that the Veterans Affairs PRB
bases it's bonus recommendations on an array of the numerical scores
assigned based on the executive core qualifications. The information
that each PRB receives from its component units also varies. For
example, the Veterans Benefits Administration PRB members receive
ratings and recommended pay adjustments and bonus amounts from Veterans
Benefits Administration units. VA policy requires formal minutes of all
PRB meetings that are to be maintained for 5 years. The official from
the Office of Human Resources and Administration told us that the
minutes are limited to decisions made, such as the recommended bonus
amount for each SES member considered, and generally do not capture the
deliberative process leading to such decisions. Data provided by VA on
one VA component--the Veterans Integrated Services Network--showed that
of the bonuses proposed for fiscal year 2006, the Veterans Health
Administration PRB decreased 45 and increased 9 of the bonuses
initially proposed to that PRB and left the amounts of 64 unchanged.
At the conclusion of their deliberations, the Veterans Health
Administration and Veterans Benefits Administration PRBs send their
recommendations to the Under Secretary for Health and Under Secretary
for Benefits, respectively, who, at their sole discretion, may modify
the recommendations for SES members under their authority. No
documentation of the rationale for modifications is required. The
recommendations, as modified, are then forwarded to the chairperson of
the Veterans Affairs PRB, who reviews the decisions for apparent
anomalies, such as awarding bonuses that exceed maximum amounts. The
chairperson of the Veterans Affairs PRB then forwards the
recommendations from the Veterans Health Administration, Veterans
Benefits Administration, and Veterans Affairs PRBs to the Secretary for
approval.
The Secretary makes final determinations for SES member performance
bonuses, with the exception of SES members in VA's Office of Inspector
General. Recommendations from the Office of Inspector General PRB are
sent directly to the VA Inspector General for final decision without
review by the Veterans Affairs PRB or approval by the
Secretary.[Footnote 12] The Secretary has sole discretion in accepting
or rejecting the recommendations of the PRBs. According to an official
in the Office of Human Resources and Administration, the Secretary
modified 1 recommendation in 2006, but a prior secretary modified over
30 in one year.
Recommendations for bonuses for members of the Veterans Affairs,
Veterans Health Administration, and Veterans Benefits Administration
PRBs are made after the PRBs conclude their work.[Footnote 13] The
highest-level executives of each board rank the members of their
respective PRBs and make recommendations, which are submitted to the
Secretary. The Secretary determines any bonuses for the highest-level
executives of the boards.
VA SES Bonuses:
In 2006, VA's bonus pool was $3,751,630, or 9 percent of the aggregate
basic pay of its SES members in 2005. VA awarded an average of $16,606
in bonuses in fiscal year 2006 to 87 percent of its career SES
members.[Footnote 14] At headquarters, approximately 82 percent of
career SES members received bonuses and 90 percent received bonuses in
the field. Additionally, those in headquarters were awarded an average
of about $4,000 more in bonuses than the career SES members in field
locations. Table 1 shows the average bonus amount, percentage receiving
bonuses, and total rated at VA among career SES members and by
headquarters and field locations for 2004 through 2006.[Footnote 15]
Table 1: Average Bonus Amount, Percentage Receiving Bonuses, and Total
Rated at VA among Career SES Members and by Headquarters and Field
Locations, 2004-2006:
All;
2004: Average amount: $16,371;
2004: Percentage receiving: 85.4;
2004: Number rated: 240;
2005: Average amount: $16,713;
2005: Percentage receiving: 79.7;
2005: Number rated: 261; 2006: Average amount: $16,606;
2006: Percentage receiving: 87.2;
2006: Number rated: 243.
Headquarters;
2004: Average amount: 19,195;
2004: Percentage receiving: 82.1;
2004: Number rated: 78;
2005: Average amount: 18,629;
2005: Percentage receiving: 80.2;
2005: Number rated: 86;
2006: Average amount: 19,439;
2006: Percentage receiving: 81.9; 2006: Number rated: 83.
Field;
2004: Average amount: 15,089;
2004: Percentage receiving: 87.0;
2004: Number rated: 162;
2005: Average amount: 15,761;
2005: Percentage receiving: 79.4;
2005: Number rated: 175;
2006: Average amount: 15,268;
2006: Percentage receiving: 90.0;
2006: Number rated: 160.
Source: GAO analysis of VA data.
Note: We excluded career SES members who received Presidential Rank
Awards from our calculations of average bonus amount, percent receiving
bonuses and total rated because under VA's policy, those individuals
were not considered for bonuses.
[End of table]
In 2005, according to OPM's Report on Senior Executive Pay for
Performance for Fiscal Year 2005, the most recent report available, VA
awarded higher average bonuses to its career SES than any other cabinet-
level department. OPM data show that six other cabinet-level
departments awarded bonuses to a higher percentage of their career SES
members.[Footnote 16] When asked about possible reasons for VA's high
average bonus award, a VA official in the Office of Human Resources and
Administration cited the outstanding performance of VA's three
organizations and the amount allocated to SES member bonuses.
OPM's and OMB's Roles in the VA Certification Process:
Both OPM and OMB play a role in the review of agency's senior
performance appraisal systems and have jointly developed certification
criteria.[Footnote 17] OPM issues guidance each year to help agencies
improve the development of their SES performance appraisal systems and
also reviews agency certification submissions to ensure they meet
specified criteria. To make its own determination, OMB examines
agency's performance appraisal systems against the certification
criteria, primarily considering measures of overall agency performance,
such as an agency's results of a Program Assessment Rating Tool review
or President's Management Agenda results.
Specifically, to qualify for the use of SES pay flexibilities, OPM and
OMB evaluate agencies' senior performance appraisal systems against
nine certification criteria. These certification criteria are broad
principles that position agencies to use their pay systems
strategically to support the development of a stronger performance
culture and the attainment of the agencies' missions, goals, and
objectives. These are alignment, consultation, results, balance,
assessments and guidelines, oversight, accountability, performance, and
pay differentiation. See appendix I for a description of the
certification criteria. There are two levels of performance appraisal
system certification available to agencies: full and provisional. To
receive full certification, the design of the systems must meet the
nine certification criteria, and agencies must, in the judgment of OPM
and with concurrence from OMB, provide documentation of prior
performance ratings to demonstrate compliance with the criteria. Full
certification lasts for 2 calendar years. Provisionally certified
agencies are also granted the authority to apply higher caps on SES pay
and total compensation just as those with fully certified systems are,
even though agencies with provisional certification do not meet all
nine of the certification criteria. Provisional certification lasts for
1 calendar year. According to OPM, the regulations were designed to
cover initial implementation of the certification process. Now that all
agencies have been under the system, all nine criteria must be met for
an agency to be certified, even provisionally. According to OPM, for an
agency to receive full certification in 2007, it must show that it has
2 years of making performance differentiation in ratings, pay, and
award; and that the agency performance plans fully met all the criteria
without requiring extensive revision.
After OMB concurrence, the Director of OPM certifies the agency's
performance appraisal system and formally notifies the agency with a
letter specifying provisional, full certification, or no
certification.[Footnote 18] Of the 42 performance appraisal systems
that were certified in 2006, only the Department of Labor's system
received full certification. According to OPM's Web site, as of June 5,
2007, four agencies had received full certification of their senior
performance appraisal systems--the Department of Commerce for 2007
through 2008, the Department of Labor for 2006 through 2007, the
Federal Communications Commission for 2007 through 2008, and the
Federal Energy Regulatory Commission for 2007 through 2008.[Footnote
19]
If provisional or no certification is recommended, the letter from OPM
provides the agency with specific areas of concern identified through
the review process. These comments may direct an agency to focus more
on making meaningful distinctions in performance or improving the type
of performance measures used to evaluate SES members. For example, in
OPM's 2007 certification guidance, the OPM Director asked agencies to
place more emphasis on achieving measurable results, noting that many
plans often fall short of identifying the measures used to determine
whether results are achieved. In addition, OPM asked agencies to
highlight in their 2007 certification requests any description or
evidence of improvements made as a result of comments from OPM or OMB
in response to the agency's 2006 certification submission.
VA received provisional certification for each of the years 2004
through 2006. In 2006, the letter from OPM to VA discussing its
decision to grant the VA provisional certification rather than full
certification, OPM stated that while the VA "system met certification
criteria, clear alignment and measurable results must be evident in all
plans across the entire agency." In addition, OPM said that it expected
to see "well over 50 percent of an executive's performance plan focused
on business results" and that VA "needs to ensure its 2007 executive
performance plans weight business results appropriately." VA officials
told us that the 2007 submission is in draft and they expect to submit
it to OPM by the June 30, 2007, deadline.
Our preliminary review of VA's requirements for performance plans
contained in its 2006 submission and 2007 draft submission show that VA
made changes to the policy requirements for its performance plans to
reflect a greater emphasis on measurable results. Specifically, the
elements of the job requirement in the 2007 policies provides that each
critical element and performance element will be weighted, which was
not previously required in 2006. These performance requirements,
according to the policy, will be described in terms of specific
result(s) with metrics that the SES member must accomplish for the
agency to achieve its annual performance goals and represent at least
60 percent of the overall weight of the performance plan. The policy
further states that the expected results should be specific,
measurable, and aggressive yet achievable, results-oriented, and time-
based.
Responding to concerns expressed by members of Congress and media
reports about SES member bonuses, VA's Secretary recently requested
that OPM review its performance management program for senior
executives to ensure that its processes are consistent with governing
statutes and OPM regulations and guidance. VA officials indicated that
while OPM's review encompasses some of the same areas as those required
for 2007 certification, VA requested a separate report from OPM.
We have stated that it is important for OPM to continue to carefully
monitor the implementation of agencies' systems and the certification
process with the goal of helping all agencies to receive full
certification of their system. Requiring agencies with provisional
certification to reapply annually rather than every 2 years helps to
ensure continued progress in fully meeting congressional intent in
authorizing the new performance-based pay system. VA has achieved
provisional certification of its SES performance management system for
2004 through 2006.
Mr. Chairman and Members of the Subcommittee, this concludes my
prepared statement. I would be pleased to respond to any questions that
you have.
Contacts and Acknowledgments:
For further information regarding this statement, please contact J.
Christopher Mihm at (202) 512-6806 or mihmj@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this testimony. Individuals making key
contributions to this statement included George Stalcup, Director;
Belva Martin, Assistant Director; Carole J. Cimitile; Karin Fangman;
Tamara F. Stenzel; and Greg Wilmoth.
[End of section]
Appendix I: Senior Executive Service Performance Appraisal System
Certification Criteria:
Summary of certification criteria for senior executive appraisal
systems: 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.
Summary of certification criteria for senior executive appraisal
systems: Consultation;
Individual performance expectations are developed with senior employee
involvement and must be communicated at the beginning of the appraisal
cycle.
Summary of certification criteria for senior executive appraisal
systems: Results;
Individual expectations describe performance that is measurable,
demonstrable, or observable, focusing on organizational outputs and
outcomes, policy/program objectives, milestones, and so forth.
Summary of certification criteria for senior executive appraisal
systems: Balance;
Individual performance expectations must include measures of results,
employee and customer/stakeholder satisfaction, and competencies or
behaviors that contribute to outstanding performance.
Summary of certification criteria for senior executive appraisal
systems: 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, such as reports of agency's goals and other program
performance measures and indicators, and evaluation guidelines based,
in part, upon those assessments to senior employees, and appropriate
senior employee rating and reviewing officials. The guidance provided
may not take the form of quantitative limitations on the number of
ratings at any given rating level.
Summary of certification criteria for senior executive appraisal
systems: 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.
Summary of certification criteria for senior executive appraisal
systems: 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.
Summary of certification criteria for senior executive appraisal
systems: Performance differentiation;
Among other provisions, the agency must provide for at least one rating
level above Fully Successful (must include an Outstanding level of
performance), and in the application of those ratings, make meaningful
distinctions among executives based on their relative performance.
Summary of certification criteria for senior executive appraisal
systems: Pay differentiation;
The agency should be able to demonstrate that the largest pay
adjustments, highest pay levels (base and performance awards), or both
are provided to its highest performers, and that, overall, the
distribution of pay rates in the SES rate range and pay adjustments
reflects meaningful distinctions among executives based on their
relative performance.
Source: GAO analysis of OPM and OMB regulations.
[End of table]
FOOTNOTES
[1] For purposes of this testimony, we refer to SES performance awards
as bonuses. Since only members of the SES with career appointments are
eligible for bonuses, all references to bonuses apply only to SES
members with career appointments.
[2] VA's three primary components are the Veterans Health
Administration, the Veterans Benefits Administration, and the National
Cemetery Administration.
[3] GAO, Results-Oriented Cultures: Creating a Clear Linkage between
Individual Performance and Organizational Success, GAO-03-488
(Washington, D.C.: Mar. 14, 2003).
[4] GAO, Human Capital: Trends in Executive and Judicial Pay, GAO-06-
708 (Washington, D.C.: June 21, 2006).
[5] GAO, Office of Personnel Management: Key Lessons Learned to Date
for Strengthening Capacity to Lead and Implement Human Capital Reforms,
GAO-07-90 (Washington, D.C.: Jan. 19, 2007).
[6] According to VA policy, Presidential Rank Award winners are not
eligible for VA's senior executive bonuses in the same year they
receive the award. Agencies can nominate senior executives for these
awards, which recognize career senior executives who have demonstrated
exceptional performance over an extended period of time. The OPM
Director reviews agency nominations and recommends candidates to the
President. These awards are either 20 or 35 percent of the recipient's
base pay.
[7] See Section 1322 of the Chief Human Capital Officers Act of 2002,
Title XIII of the Homeland Security Act of 2002, Pub. L. No. 107-296
(Nov. 25, 2002) and section 1125(a)(2) of the National Defense
Authorization Act for Fiscal Year 2004, Pub. L. No. 108-136 (Nov. 24,
2003).
[8] GAO, Human Capital: Aligning Senior Executives' Performance with
Organizational Results Is an Important Step Toward Governmentwide
Transformation, GAO-06-1125T (Washington, D.C.: Sept. 26, 2006).
[9] 5 U.S.C. § 5384.
[10] In 2007, senior executives at agencies with certified systems can
receive up to $168,000 in base pay and $215,700 in total compensation,
at agencies with noncertified systems, up to $154,600 in base pay and
$186,600 in total compensation.
[11] 5 U.S.C. § 4314. VA's PRB members were published in the Federal
Register on November 2, 2006. 71 Fed. Reg. 64,609 (Nov. 2, 2006).
[12] In accordance with section 6(d) of the Inspector General Act of
1978, the VA Inspector General is responsible for making final bonus
decisions for SES members within the Office of the Inspector General.
See Pub. L. No. 95-452, codified at section 6(d) of Appendix 3 of Title
5 of the United States Code.
[13] The three members of the Office of Inspector General PRB are not
eligible for bonuses from VA because they are external to VA.
[14] According to VA policy, Presidential Rank Award winners are not
eligible for VA's senior executive bonuses in the same year. Agencies
can nominate senior executives for these awards, which recognize career
senior executives who have demonstrated exceptional performance over an
extended period of time. The OPM Director reviews agency nominations
and recommends candidates to the President. These awards are either 20
or 35 percent of the recipient's base pay.
[15] For 2004 and 2005, our analysis of the average award amount and
percentage receiving SES bonuses at VA based on data provided by VA
differs from that reported by OPM.
[16] In fiscal years 2004 and 2005, the Department of Defense did not
receive certification of its SES performance appraisal system for SES
member.
[17] GAO-07-90.
[18] Since congressional authorization for the new performance-based
pay system went into effect, not all federal agencies have submitted
their senior performance appraisal systems for review and not all
agencies have received either full or provisional certification.
[19] All years are calendar years.
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