Long, Hard Road From Here To Performance-Based Pay

By Stephen Barr
Sunday, July 31, 2005

At a recent panel discussion on the Pentagon's plan to jettison current pay practices and set up a pay-for-performance system, the first questioner noted that the changes would give added responsibilities to managers and asked whether managers would get extra compensation for the extra work.

The three-person panel did not answer the question directly but agreed that "change is hard," as one Defense Department official put it.

The government is just beginning to grapple with what kind of change it plans to impose on managers and employees as it shifts from the decades-old General Schedule, which provides predictable pay raises, to more dynamic systems, in which raises hinge on national and labor market trends for key occupations and the job ratings of employees.

The change will take place on a monumental scale. The Defense and Homeland Security departments, which are marching forward on new pay plans, employ about 850,000 people. They would be followed by about 1 million additional federal employees, if the Bush administration wins the support of Congress for a government-wide overhaul.

The change will require new thinking on how to set standards, measure performance and compare federal workers with their private-sector counterparts. Administering such a system will require sustained funding, a problem that has hampered efforts to systematically provide geographic-based pay adjustments in the GS system. That approach also has been faulted by administration officials, who contend it overpays some federal employees and underpays others.

The change will challenge officials to show that pay raises are fair and untainted by politics. A symposium organized by David M. Walker , head of the Government Accountability Office, highlighted the fairness issue and other challenges facing agencies.

As one of its examples, the GAO report on the symposium summarized practices at a major employer, IBM, and how the corporation handles pay decisions for 300,000 employees worldwide. In terms of staff, IBM is larger than Homeland Security (166,000) and smaller than Defense (700,000 civilians).

IBM's offices in North America provide employees with an annual summary statement that shows where each fits on the pay scale and relative to market rates, the employee's performance rating and any pay increase, according to the report.

Before awarding pay increases, IBM's first-line managers work up proposed raises for the employees they supervise. The managers discuss their proposals with other first-line managers and up-line managers for consistency across work groups. Up-line managers, the GAO report said, may shift pay allocations across groups "to ensure employees who perform similarly are compensated the same regardless of their first-line managers."

As a final check, senior managers sign off on the pay decisions for each employee.

IBM also conducts a "base pay equity analysis" to review the salaries of women and minorities and look for cases that are not in line with the majority of pay decisions, the GAO said.

The company provides managers with salary planning software to identify the factors used in determining pay increases for each employee. IBM also permits employees to appeal pay decisions up the corporate ladder if they feel they are not being treated fairly, the GAO said.

Any organization's change to performance pay "is a huge undertaking," Walker said in an introduction to the GAO report. "How it is done, when it is done, and the basis on which it is done can make all the difference in their success," he wrote.

If Congress approves an overhaul of federal pay, it will be vital that agencies define job expectations with some precision rather than use a vague standard, such as saying employees will be rated based on their "contributions," said Colleen M. Kelley , who deals with agencies on pay issues as president of the National Treasury Employees Union.

Job ratings that are not seen as fair usually lead employees to file grievances, she said.

Setting up pay-for-performance systems "is very hard work," Kelley said.

E-mail:barrs@washpost.com


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