PERKINSON IN THE FEDERAL TIMES ON THE FUTURE OF PAY-FOR-PERFORMANCE - September 7, 2009

NSPS study a blueprint for broader pay reform

By Stephen Losey, Federal Times reporter

When a three-man panel of experts was tasked by the Defense Department earlier this year to find ways to improve its controversial pay-for-performance system, it went one step further.

In its report released late last month, the Defense Business Board task group proposed fixes for DoD’s National Security Personnel System (NSPS) — but it also outlined a strategy for converting the government’s 60-year-old General Schedule system into a pay-for-performance system.

Among its recommendations:

• Create a performance appraisal system consisting of clear, measurable goals.

Now that report is being viewed by many as a starting point for the Obama administration as it tries to create a pay-for-performance system for the government’s 1.9 million civilian employees.

The Office of Personnel Management will hold a summit of senior industry advisers in October or November to kick off the effort. Nancy Kichak, associate director of OPM’s strategic human resources division, said last week the summit will consider the Defense Business Board report as it charts a path toward personnel reform.

OPM Director John Berry said in May that he wants to replace the GS system of tenure-based grade and step increases with a personnel system that accurately measures how well federal employees do their jobs and gives greater rewards to strong performers. The White House plans to propose legislation in February overhauling how federal employees are evaluated and paid.

The fall summit — which will be co-chaired by former Maryland Sen. Paul Sarbanes; Laszlo Bock, vice president of people operations for Google; and David Ellwood, dean of Harvard University’s John F. Kennedy School of Government — is still being planned and has not yet been scheduled.

The Defense Business Board report said that while NSPS is deeply flawed and must be “reconstructed” almost from scratch, the General Schedule system also is fraught with problems.

“The GS system falls short in many of the areas in which NSPS has made progress, such as aligning individual performance to organizational goals, making meaningful distinctions between performance, and encouraging performance discussions between employees and their supervisors,” the report said. Members of the Defense Business Board task force were Rudy deLeon, former deputy Defense secretary; Robert Tobias, former National Treasury Employees Union president; and Michael Bayer, Defense Business Board chairman.

John Palguta, vice president of policy at the Partnership for Public Service, said the report is yet more evidence that the current system needs to be replaced.

“The GS system does not create an incentive to focus on your performance,” Palguta said. “As long as you’re not bad enough to get fired, you’ll still get your within-grade increase and cost-of-living adjustment.”

Former acting OPM Director Michael Hager said the report’s suggestion to delay linking pay to performance until after a new performance appraisal system is operating makes sense.

“That way, you don’t get the emotion of an employee looking at his salary” as a new system is established, Hager said. “This should be focused on your objectives, your timeline and [performance] outcomes. If you can keep money out of that discussion, you’ll be far better off.”

More flexibility for managers

The report also calls for replacing the GS system’s 15 grades with an unspecified number of broader pay bands. Those bands would be intended to give managers more flexibility to give skilled new hires larger starting salaries, give strong performers larger salary increases, and promote employees to higher pay bands as their skills and experience increase.

But that could cause resentment, Hager said, if employees feel they are entitled to earn the top salary in their pay band.

New pay bands also must not be too broad so as to encompass too many employees without providing a clear career development path for those employees, said Federal Managers Association President Darryl Perkinson.

The Defense Business Board report does not suggest how to link performance with pay raises or performance awards, aside from saying employees must be able to clearly see how their performance ratings affected their pay raises.

But Hager and Perkinson said that a new pay-for-performance system could draw inspiration from the intelligence community’s system. That system mandates that any employee who is rated fully successful will earn at least as much as a GS employee earns. NSPS was criticized for paying some successful employees less than the GS raise.

The intelligence system uses a mathematical formula based on an employee’s performance rating to decide how big a raise that employee gets. NSPS distributes raises and bonuses based on a controversial system in which a panel of Defense managers — known as a pay pool panel — subjectively decides how big of a raise an employee should receive.

Under the intelligence community’s pay system, a pay pool panel that decides to raise or lower the performance rating awarded by an employee’s immediate supervisor must document why, and then get approval from a higher official. Under NSPS, pay pool panels can change ratings without explaining why — or even acknowledging a change has been made. Those features of NSPS have earned it harsh criticism from many DoD employees who complain it is subjective and not transparent.

Perkinson said that rewarding extraordinary workers without shortchanging employees who are merely successful will require more money from Congress. He said pay for performance can’t be another empty promise like the 1990 Federal Employees Pay Comparability Act, which promised to close the gap between federal pay and private-sector salaries but has rarely been followed.

“The real discussion has to be, are we going to be able to budget for pay for performance?” Perkinson said. “We can’t say we’ll do pay for performance and end up not doing it.”

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