[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
COMPENSATION REFORM: HOW SHOULD THE FEDERAL GOVERNMENT PAY ITS
EMPLOYEES?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON CIVIL SERVICE
AND AGENCY ORGANIZATION
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
APRIL 1, 2003
__________
Serial No. 108-46
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
U.S. GOVERNMENT PRINTING OFFICE
89-241 wASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001
COMMITTEE ON GOVERNMENT REFORM
TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania WM. LACY CLAY, Missouri
CHRIS CANNON, Utah DIANE E. WATSON, California
ADAM H. PUTNAM, Florida STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee LINDA T. SANCHEZ, California
JOHN SULLIVAN, Oklahoma C.A. ``DUTCH'' RUPPERSBERGER,
NATHAN DEAL, Georgia Maryland
CANDICE S. MILLER, Michigan ELEANOR HOLMES NORTON, District of
TIM MURPHY, Pennsylvania Columbia
MICHAEL R. TURNER, Ohio JIM COOPER, Tennessee
JOHN R. CARTER, Texas CHRIS BELL, Texas
WILLIAM J. JANKLOW, South Dakota ------
MARSHA BLACKBURN, Tennessee BERNARD SANDERS, Vermont
(Independent)
Peter Sirh, Staff Director
Melissa Wojciak, Deputy Staff Director
Rob Borden, Parliamentarian
Teresa Austin, Chief Clerk
Philip M. Schiliro, Minority Staff Director
Subcommittee on Civil Service and Agency Organization
JO ANN DAVIS, Virginia, Chairwoman
TIM MURPHY, Pennsylvania DANNY K. DAVIS, Illinois
JOHN L. MICA, Florida MAJOR R. OWENS, New York
MARK E. SOUDER, Indiana CHRIS VAN HOLLEN, Maryland
ADAH H. PUTNAM, Florida ELEANOR HOLMES NORTON, District of
NATHAN DEAL, Georgia Columbia
MARSHA BLACKBURN, Tennessee JIM COOPER, Tennessee
Ex Officio
TOM DAVIS, Virginia HENRY A. WAXMAN, California
Ronald L. Martinson, Staff Director
B. Chad Bungard, Deputy Staff Director
Chris Barkley, Clerk
Tania Shand, Minority Professional Staff Member
C O N T E N T S
----------
Page
Hearing held on April 1, 2003.................................... 1
Statement of:
Blair, Dan G., Deputy Director, Office of Personnel
Management; and Hannah S. Sistare, executive director,
National Commission on the Public Service.................. 16
Kelley, Colleen M., national president, National Treasury
Employees Union; Jacqueline Simon, public policy director,
American Federation of Government Employees, AFL-CIO; Bill
Bransford, counsel, Senior Executives Association; and
Karen Heiser, Federal Managers Association................. 105
Mihm, Christopher J., Director, Strategic Issues, U.S.
General Accounting Office; Max Stier, president and CEO,
Partnership for Public Service; and George Nesterczuk,
president, Nesterczuk and Associates and consultant,
Heritage Foundation........................................ 50
Ruppersberger, Hon. C.A. Dutch, a Representative in Congress
from the State of Maryland................................. 6
Letters, statements, etc., submitted for the record by:
Blair, Dan G., Deputy Director, Office of Personnel
Management:
Information concerning group incentive program........... 46
Prepared statement of.................................... 19
Davis, Hon. Jo Ann, a Representative in Congress from the
State of Virginia, prepared statement of................... 3
Heiser, Karen, Federal Managers Association, prepared
statement of............................................... 175
Kelley, Colleen M., national president, National Treasury
Employees Union, prepared statement of..................... 108
Mihm, Christopher J., Director, Strategic Issues, U.S.
General Accounting Office, prepared statement of........... 53
Nesterczuk, George, president, Nesterczuk and Associates and
consultant, Heritage Foundation, prepared statement of..... 93
Ruppersberger, Hon. C.A. Dutch, a Representative in Congress
from the State of Maryland, prepared statement of.......... 10
Shaw, Jerry, general counsel, Senior Executives Association,
prepared statement of...................................... 138
Simon, Jacqueline, public policy director, American
Federation of Government Employees, AFL-CIO, prepared
statement of............................................... 122
Sistare, Hannah S., executive director, National Commission
on the Public Service, prepared statement of............... 28
Stier, Max, president and CEO, Partnership for Public
Service, prepared statement of............................. 72
COMPENSATION REFORM: HOW SHOULD THE FEDERAL GOVERNMENT PAY ITS
EMPLOYEES?
----------
TUESDAY, APRIL 1, 2003
House of Representatives,
Subcommittee on Civil Service and Agency
Organization,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 1:08 p.m., in
room 2247, Rayburn House Office Building, Hon. Jo Ann Davis
(chairman of the subcommittee) presiding.
Present: Representatives Jo Ann Davis of Virginia, Murphy,
Blackburn, Danny Davis of Illinois, Norton, and Van Hollen.
Staff present: Ronald L. Martinson, staff director; B. Chad
Bungard, deputy staff director and senior counsel; John
Landers, professional staff member; Heea Vazirani-Fales and
Vaughn Murphy, legislative counsels; Robert White, director of
communications; Christopher J. Barkley, clerk; Tania Shand,
minority professional staff member; Jean Gosa, minority
assistant clerk; and Cecelia Morton, minority office manager.
Mrs. Davis of Virginia. The subcommittee will come to
order.
This is the first hearing of the Government Reform
Subcommittee on Civil Service and Agency Organization in the
108th Congress, and the topic is both important and timely. The
subject of compensation reform gets right at the heart of many
of the challenges facing the Civil Service, from recruitment
and retention to improving the efficiency and performance of
the government itself.
Before I begin my own remarks, I would like to express my
thanks to the witnesses who have agreed to join us today. We
have brought together a broad and knowledgeable array of voices
as we begin our exploration of this issue, and look forward to
hearing all of your perspectives. I want you to know that I
begin this hearing with an open mind. I see this session as a
learning opportunity for the subcommittee.
Just over 2 months ago, the National Commission on Public
Service, known as the Volcker Commission, issued its report on
how to revitalize the Federal Government. At about the same
time, the President issued his fiscal 2004 budget proposal.
Both documents contain bold recommendations to reshape the
Civil Service: The Volcker Commission, for example, suggests
abolishing the General Schedule and allowing managers to base
employees' salaries on ``competence and performance.'' The
White House's budget proposal includes a $500 million Human
Capital Performance fund to reward top performing employees, as
well as a proposed shift of the entire Senior Executive Service
to a pay-banding system.
More and more often, Federal agencies are seeking
permission to develop a compensation system outside the General
Schedule. More than 20 percent of non-postal civil servants now
work under alternate personnel systems according to the Volcker
report, including those developed at the Federal Aviation
Administration, the Internal Revenue Service and the General
Accounting Office. In all of those examples, change in the
compensation system was designed not merely as an end to itself
but as a way to improve agency performance.
The GAO is here today and I am looking forward to hearing
how the various pay for performance systems are working so far,
including GAO's own.
We are also fortunate in holding this hearing just 1 week
after the Office of Personnel Management released its Federal
Human Capital Survey. The results contain lots of good news.
Ninety-one percent of employees believe they are doing
important work and the overall percentages of Federal workers
who are satisfied with their job is 68 percent or who believe
the work they produce is high quality at 81 percent. It is
consistent with findings in the private sector. Moreover, more
than 60 percent of employees are satisfied with the basic pay
and benefits.
Not all the news was good, however. Fewer than half of the
employees are satisfied with the recognition they get for doing
a good job. Just 30 percent said the rewards program gives them
an incentive to do their best. Only 27 percent of employees
believe that steps are taken to deal with poor performers. On
the surface, it appears that those results point to a work
force that is generally satisfied with their pay, their
benefits and their jobs but would like to see a work culture
that better rewards performance and does not reward substandard
work.
I would like to hear the witnesses' perspective on this
picture and what the Federal Government should be doing in the
area of compensation reform. I thank you and I look forward to
a lively and informative discussion.
[The prepared statement of Hon. Jo Ann Davis follows:]
[GRAPHIC] [TIFF OMITTED] 89241.001
[GRAPHIC] [TIFF OMITTED] 89241.002
Mrs. Davis of Virginia. I would now like to recognize our
ranking member, Mr. Danny Davis, and see if he has an opening
statement.
Mr. Davis of Illinois. Thank you very much, Madam
Chairwoman. I do indeed, and it is a pleasure, as it always is,
to be here with you. I want to commend you for holding this
hearing as we begin to explore in a very serious way some of
the real issues and concerns with which we are going to be
confronted, not only now but for years to come.
There is a steady drumbeat to reform of the current Federal
pay system. This hearing provides a forum for the members of
the subcommittee and other stakeholders to discuss the pros and
cons of various pay reform proposals and the process for
implementing such reform. The current pay system has been
described as being designed for the heavily clerical and low-
graded work force of the 1950's rather than today's knowledge-
based government and that it should be redesigned to be more
performance oriented, flexible and market sensitive.
Others have argued that the Civil Service Reform Act of
1978 and the Federal Employees Pay Comparability Act of 1990
were enacted to do just that. If the current system is not
working, then the question becomes why not. If we do not
understand why the current system is not working and address
those concerns, how can we ensure that a new system will not be
fraught with the same problems? Furthermore, if the current
system is to be reformed to give managers more flexibility, how
can we ensure that a new system will be fair and equitable and
free from political influence?
Efforts to reform the Civil Service based on the need for
more flexibility may indeed be valid, but often more
flexibility without accountability is simply something we
cannot afford to do. This subcommittee should not consider any
reform legislation unless it addresses this very important
issue of holding decisionmakers in the Government accountable
for their actions and the decisions they make.
David Walker, the Comptroller General, has been a strong
advocate for pay reform. Yet, in a letter dated March 26 to the
Government Executive Committee, Mr. Walker wrote, ``As with all
pay-for-performance efforts, appropriate safeguards and
accountability procedures would need to be in place to ensure
fairness, prevent politicization and prevent abuse.'' The
bottom line is that in order to receive any additional
performance-based flexibility, agencies should have to
demonstrate they have the modern, effective, credible and
validated performance management systems in place that are
capable of supporting such decisions. Unfortunately, most
Federal agencies are a long way from meeting this task.
I agree with Mr. Walker and hope the witnesses before us
today can address these concerns about accountability that he
has raised.
I thank you, Madam Chairwoman, and yield the balance of my
time.
Mrs. Davis of Virginia. Thank you, Mr. Davis.
Are there any other Members who would like to be recognized
for an opening statement? Ms. Norton.
Ms. Norton. Thank you, Madam Chair.
You have called a hearing on a most important subject. I
would agree that we are at rather much of a watershed moment
when it comes to Federal compensation but that is, in my
judgment, because of structural changes in the way people
approach Federal work today. They don't come to the Federal
sector the way they used to and that is why your concern about
hard to fill positions is well placed.
I was chair of the subcommittee when locality pay was first
put in place. That was a reform that was decades in the making
and seems to have disappeared from the radar screen and from
the pocketbooks of Federal workers. I would hate to see us
engage in compensation reform on a piecemeal basis or have to
repeat the history of reform. I couldn't agree more that there
is not a lot to make an engineer or a nurse or a pharmacist
come to work for the Federal Government and remain with the
Federal Government. I am equally concerned with the 2-percent
increase for Federal employees if we want to keep hard to
retain and attract employees, what are we going to do about the
fact that those we already have are piling out of this place,
many of them trained with investment from the Federal
Government because very frankly, by retiring early or on time,
they can market their skills for better pay and better health
care than they get in the Federal Government. So it is very
hard for me to look at the ones we can't get anyway without
looking at those we have when you consider that half the work
force could retire within the next 3 years. That is a true
example of a crisis. It makes the crisis we face in hard to
attract and retain employees look like a small crisis. That is
a crisis writ large.
I hope in looking at compensation reform, we will bear in
mind that we face a structural crisis with employees in the
Federal Government and have our work cut out for us as we try
to find a comprehensive approach in the need for reform.
Thank you very much, Madam Chair.
Mrs. Davis of Virginia. Thank you.
I ask unanimous consent that all Members have 5 legislative
days to submit written statements and questions for the hearing
record and that any answers to written questions provided by
the witnesses also be included in the record. Without
objection, so ordered.
I also ask unanimous consent that all exhibits, documents
and other materials referred to by Members and the witnesses
may be included in the hearing record and that all Members be
permitted to revise and extend their remarks. Without
objection, so ordered.
Our first witness today is our colleague, Congressman Dutch
Ruppersberger. I am delighted that you were able to accept our
invitation to testify at the first hearing of the Subcommittee
on Civil Service and Agency Organization. By tradition, we do
not administer an oath to Members of Congress, so you are
recognized for 5 minutes, Congressman.
STATEMENT OF HON. C.A. DUTCH RUPPERSBERGER, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MARYLAND
Mr. Ruppersberger. Thank you, Madam Chairman, and it is a
pleasure to be here.
I have two people here who are not going to testify,
Attorney Sharborough, director of human resources for Baltimore
County, and Melissa Boone, who is gainsharing program manager.
I am here really based on the previous 8 years when I was
Baltimore County executive and we implemented a gainsharing
program which is really an employee group-incentive based on
performance.
First, what is gainsharing? Gainsharing is a group
incentive program. Gainsharing rewards employees for making
improvements that reduce costs without compromising quality and
objectives. The concept is based on team work where
participating employees improve performance and get to share in
the savings. For example, if savings are generated, the group
of employees receives half of the savings while the other half
goes into the General Fund of the treasury of that government.
Let me start by saying gainsharing is a program that works.
It saves money but more importantly, it boosts morale and it
makes government service more responsive and cost-effective.
That is a very important element of gainsharing, the morale and
making employees feel as if they are shareholders in the
government.
Programs like gainsharing will only succeed if everyone who
is affected by the process is brought to the table. For
example, in Baltimore County, we could not have done this
without the cooperation of our employee unions. What we are
talking about here today is using the Volcker Commission
recommendations and changing the culture of government
management and workers.
Baltimore County has approximately 761,000 citizens which
makes the county more populous than four States and larger in
land than two States. There are 19,000 employees and it has an
operating budget of $2 billion. Baltimore County is the only
one of two counties in the country that has no municipalities
which means the county provides all the services. Baltimore
County has a strong executive rule. The county executive has
the power to establish the budget. The county council approves
the budget but they can only cut the budget. The county council
cannot increase the budget or move funds from one area to
another and the county's budget must be balanced each year. It
is a challenging county with a diversity of incomes, a
diversity of people, a diversity of education levels, a
diversity of work force, and a diversity of geographic location
which wraps around Baltimore City and is urban, suburban and
two-thirds rural. Providing services to all these distinct and
unique populations and areas is very challenging.
When I took office as Baltimore County executive in January
1995, county employees had not received pay raises in 4 of the
previous 5 years. Layoffs in several departments had further
damaged morale while demand for services had increased. By
1996, Baltimore County was experiencing a narrow revenue stream
and aging infrastructure. In the 4-years before 1996, the
county work force had declined by 17 percent, there had been a
job freeze, the first employee layoffs in county history and
there were two early retirement programs enacted. There had
only been one cost-of-living-adjustment in the 6-years before.
Needless to say, county employees' morale was at an all time
low.
While serving on the Baltimore County council prior to
becoming Baltimore County executive, I observed that the
gradual decline in employee morale was affecting service
quality to our citizens. As county executive, I wanted quality
and productive improvements. I believe government is basically
a service industry and we need to be more responsive to our
constituents.
The question was, how do we make working for the county
rewarding and exciting? How do we get our employees to be
vested in their government and how do we make them want to
perform for the benefit of everyone? After researching the
issue, I concluded that a gainsharing program would meet all
those criteria with no added cost to the taxpayers. One of my
first acts was to bring aboard a human resources consulting
firm, a local consultant from the Regional Economic Studies
Institute at Towson State University in Baltimore County.
Development of the gainsharing program began in November 1995
with a survey of employees across all departments to determine
the readiness to participate. While initially hesitant about
the program, the union leaders believed that the gainsharing
program demonstrated that people in the field, the frontline
employees, do know their job the best. The process enabled
Baltimore County workers to prove they could deliver better
service at lower costs with virtually no complaints.
Baltimore County's gainsharing program brings together many
old ideas in a new package. It uses total quality management
principles and teambuilding strategies to transform frontline
workers. The team goal is to improve performance and save money
by bringing the insights and experience of frontline workers to
bear on the problems. The program's emphasis on getting
frontline employees to develop solutions empowers them to
become shareholders in the government, much like in the private
sector. The bottom line is Baltimore County's gainsharing
program generates cost savings and increases employee morale
while also improving the quality of service at the local
government level.
We have to remember that this program worked because we
brought everyone into the tent. We talked to and gained the
support of our employees, we brought together both mid-level
and top level management and facilitated cooperation between
them and our frontline employees and we retained outside
consultants to get their insight to work on these solutions.
The result was a highly motivated, effective and cost-efficient
work force that delivers quality service to our constituents.
Baltimore County's gainsharing program won a national award
from Harvard University and the Ford Foundation for innovations
in government. Since the program was implemented it has saved
over $4.1 million. With the help of the gainsharing program,
Baltimore County was 1 of only 20 counties out of 3,000 that
were able to obtain an AAA bond ratings from the rating houses
in New York. As a result of that, the governing magazine rated
Baltimore County as one of the top four managed counties in the
country.
As a result of increased employee morale, increased
government efficiency and a well managed county, our
administration and as Baltimore County Executive, was able to
attract over 40,000 new jobs which eclipsed the previous
administration job creation of 800, going from 800 jobs to
40,000 new jobs over the 7-year period. One of the reasons is
employees and business want to be involved and went to a county
they feel is well managed and where there are good services for
their employees.
Baltimore County is only one of a handful of governments
that have implemented a gainsharing program. Because of that,
Baltimore County is receiving inquiries from local, State and
Federal Government from around the country. I am pleased to say
the gainsharing program has gone international. Last year, the
State Department made inquiries into the success of Baltimore
County's gainsharing program. After a review of our successful
program, the State Department asked for funding from Congress
to implement a gainsharing program. Most recently, U.S. workers
have looked to implement the gainsharing program abroad.
Members of Baltimore County's gainsharing program have traveled
to Belgium to train the State Department employees in that
country.
If we are looking to revitalize and change the culture of
the Federal Government, we have to make sure that our frontline
workers are vested in what is happening. We should encourage
all Federal employees and managers to find ways to improve
performance. Gainsharing is not just about employees getting
additional money for performance. It is about the employees
becoming shareholders in the government and as a result, we
will have improved morale which leads to improved government
performance.
[The prepared statement of Hon. C.A. Dutch Ruppersberger
follows:]
[GRAPHIC] [TIFF OMITTED] 89241.003
[GRAPHIC] [TIFF OMITTED] 89241.004
[GRAPHIC] [TIFF OMITTED] 89241.005
[GRAPHIC] [TIFF OMITTED] 89241.006
Mrs. Davis of Virginia. Dutch, thank you so much for being
willing to come and share that success story. I think you hit
on some critical points there that you can't make changes
without bringing all parties to the table. That includes the
managers, the employees, the unions who are there for the
workers and I appreciate your coming and testifying.
Historically on the Hill, we don't question the Members
when they come.
Mr. Ruppersberger. If you would like to question me, you
can.
Mrs. Davis of Virginia. I think my ranking member would
like to ask a question but I will tell you, we normally don't
do it. We are not setting a precedent either.
Mr. Davis of Illinois. I would just ask in terms of
participation, was this done by divisions, departments or just
areas of work and how did that get organized?
Mr. Ruppersberger. What happened is we realized we had to
get outside consultants to implement a program because there
are always programs and new administrations are finding ways to
do this. I studied this gainsharing for years when I was on the
county council and read about it, how utility companies had
been able to use it, so I realized we needed to get experts in
the area and we hired national consultants. They came in and
analyzed our government. They picked pilot programs to start
the gainsharing program for Baltimore County.
As an example, one area was food service in our detention
center where individuals were making maybe $23,000-$24,000 a
year. They came together as a group. They were frontline
employees who said we can do this better if management would
listen. They came together with management, had facilitators
there to help them, made the changes and each and every
employee, after the changes were made and the money was saved,
took home about a $5,000 bonus that year. All of a sudden, the
labor unions that were all upset about this new program said we
want a piece of this action.
Another example was in our grass cutting in Rec and Parks,
as county executive I was getting ready to privatize it because
they just weren't producing. We went to the frontline and
worked with them. They said, if you give us the resources and
the equipment, we could beat any private sector. They had
facilitators, came as a group, discussed how they could cut the
grass the best way, and they ended up improving performance.
The whole concept is as performance is improved, costs go down.
Then all of a sudden everyone wanted to be involved.
It is a program that you just don't show up with a good
idea. If you have an idea as a frontline employee, you come
together, go to the facilitator, the facilitator will bring the
group together as the frontline, almost like a group therapy
session and talk about the program. Then they will put the
program in writing and the program will go to the department
head and eventually would come to me. If the program worked,
all of a sudden frontline employees would just go punch the
clock and say we are a part of this operation, we feel good
about this, we are shareholders in this operation. Then it kept
going from department to department.
To give an example of how gainsharing works, you can't give
police officers a bonus for the arrests they make. You have one
vehicle used by three shifts and the same people drive the same
car. If one group doesn't put their foot on the brakes and they
don't have to change tires in 6 months where another group had
to change it every 2 months, that would be a savings, a group
incentive to improve performance which cuts costs. Part of that
savings goes back to them.
Let me say this because sometimes we get these programs
confused. The main issue of gainsharing is not really the bonus
or the extra money that goes back to employees because
performance is improved, the main issue is the morale that in
good times and bad times, the employees feel they have the
ability on the frontline. How many times do we see in any
government or bureaucracy that midlevel managers were good
employees or they were not good managers, were never trained
and interfere with frontline. All of a sudden this relationship
between management and frontline improved and like
teambuilding, you had morale. When morale changes, a lot of
things change. So far this program has continued to work. We
are still in a recession now. When I say ``we'' I mean
Baltimore County, my previous job, and we still have employees
who feel good about going to work.
Mr. Davis of Illinois. Thank you very much. For many years,
I have been an advocate of what I call the shared approach to
management, so I see why you got elected to Congress.
Mrs. Davis of Virginia. Ms. Blackburn, do you have a
question?
Ms. Blackburn. Yes, I do have one. This sounds absolutely
fascinating and I thank you for your comments.
Going back to the compensation, could your individual
managers decide if they wanted to give an increase in salary or
if it was going to be given as a bonus or a promotion or your
incentivization program, what you would do to incentivize your
employees, who made that decision?
Mr. Ruppersberger. The incentive has to be the entire team,
that is the team concept. We had other incentive programs that
were in the county but basically this is a team concept, so the
entire team will be compensated. What is really good about it
is if you have people on the team that aren't working or
carrying their weight, management doesn't even have to get
involved in that. The team comes together and the team will
say, look, you are hurting us, we have this program to improve
performance. Because you are lazy or you are not doing the job,
you are hurting us. So it is strictly a team concept, has
nothing to do with our merit or compensation system, entirely
different, a team concept.
This is a program that you have to develop the program with
a facilitator and it has to be approved but it comes from the
frontline.
Ms. Blackburn. You mentioned $4.1 million in savings.
Overall, what percentage of your budget per year would you say
you see as a savings?
Mr. Ruppersberger. I don't know what that would be--less
than 2 percent.
Ms. Blackburn. Less than 2 percent, that is great.
Mr. Ruppersberger. Remember, every department doesn't have
a gainsharing program. It starts with the employees and the
facilitators.
Mrs. Blackburn. Were you able to reduce your overall budget
because of the success of the program?
Mr. Ruppersberger. Well, basically I would say that is why
I talked about our AAA bond rating and how Governing Magazine
rated Baltimore County. They write about counties and cities
and evaluate them. So I think from a management perspective,
yes, we were able to improve performance. As performance goes
up, costs go down. Yes, clearly in the areas in which we were
working, costs were going down in that regard and the
performance was going up. The difference is the savings was
going half to the group, the employees, and half back to our
general fund.
Ms. Blackburn. To the general fund. Thank you.
Mrs. Davis of Virginia. We have started a trend here but we
are not going to continue it next hearing.
Ms. Norton, do you have any questions?
Ms. Norton. No, but thank you for your graciousness.
Mrs. Davis of Virginia. Mr. Van Hollen.
Mr. Van Hollen. No, thank you.
Mrs. Davis of Virginia. We have been joined by Mr. Murphy.
I don't want to catch you off guard but would you happen to
have any questions for Congressman Ruppersberger?
Mr. Murphy. No. It is good to have him here.
Mrs. Davis of Virginia. Dutch, I thank you so much for
coming and appreciate your taking the time. I know how busy a
Member's schedule is. It was very enlightening. Thank you.
Mr. Ruppersberger. Thank you.
Mrs. Davis of Virginia. If the second panel would come
forward and remain standing, we do ask that each witness be
administered an oath.
[Witnesses sworn.]
Mrs. Davis of Virginia. The witnesses will now be
recognized for opening statements. We ask that you summarize
your testimony in 5 minutes. We have your written testimony and
I would hope all Members have had an opportunity to read it.
Your written testimony will be made a part of the record.
I would like to welcome OPM Deputy Director, Dan Blair and
the Executive Director of the National Commission on the Public
Service, Hannah Sistare. I thank you both for being with us
today. Mr. Blair, we will start with you and recognize you for
5 minutes.
STATEMENTS OF DAN G. BLAIR, DEPUTY DIRECTOR, OFFICE OF
PERSONNEL MANAGEMENT; AND HANNAH S. SISTARE, EXECUTIVE
DIRECTOR, NATIONAL COMMISSION ON THE PUBLIC SERVICE
Mr. Blair. Thank you very much, Madam Chair. It is indeed
an honor and privilege to be here today to represent Director
James. I appreciate this opportunity to appear before the
subcommittee, particularly on this panel with Hannah Sistare.
Hannah and I are longtime colleagues. She was a true mentor and
friend. I am particularly pleased to be on this panel with her.
I would also like to acknowledge the good work of OPM's
Deputy Associate Director for Pay and Performance Policy, Don
Winstead who is sitting in back of me.
I ask that my entire written statement be adopted for the
record.
Mrs. Davis of Virginia. So ordered.
Mr. Blair. On behalf of Director James, I am pleased to
appear here today. I would like to talk about what we have been
doing in terms of compensation reform for Federal employees.
Following Director James' appointment as Director of OPM,
she asked the staff to take an in-depth look at white collar
Federal pay. The result was a White Paper entitled, ``A Fresh
Start for Federal Pay: The Case for Modernization.'' The intent
of the White Paper was not to lay out specific reform proposals
or solutions. Rather, it was to expose the current problems
with the Government's white collar pay system.
The paper concluded the following points. The current
General Schedule is an antiquated system best suited for the
1950's work force but not for today's knowledgable work force.
It has minimal ability to encourage and reward achievement and
results. It does not adequately reflect market pay and it
precludes agency's from tailoring pay programs to their
specific mission and labor markets.
Since the paper was released, the conversation about pay
modernization has continued on a number of fronts. Last year,
Congress enacted legislation creating the new Department of
Homeland Security. It was significant that Congress recognized
that the new department needed flexibility for a modernized
approach for compensation by authorizing the Director of OPM
and the Secretary for DHS to jointly develop and establish a
new human resources system. We are in the initial stages of
working with DHS managers and employees to identify those
options for consideration.
We also recognize the thought provoking work contained in
the recent report of the National Commission on Public Service.
The Commission concluded that the Federal Government must be
reshaped and that the systems that support it must be rooted in
a new personnel management system which has principles and
ensure a much higher level as a government performance. Indeed,
the President's budget for fiscal year 2004 includes two
proposals intended to help create a pay for performance culture
in the Federal Government.
First, the administration proposes establishment of a Human
Capital Performance Fund. Second, the administration proposes
to raise the pay cap for the Senior Executive Service and
implement an open pay range for senior executives.
First, let me talk about the Human Capital Performance
Fund. Under this proposal, $500 million would be appropriated
in fiscal year 2004 for allocation by OPM to agencies that
submit a plan to use their share of the fund for performance-
based increases in basic pay. The fund would represent an
important tool for rewarding high performing employees and it
points the way to a greater emphasis on employee performance
and contributions to mission accomplishments by requiring
robust performance management as a criterion for funding but
also for providing incentive for agencies to improve their
performance management systems and human capital strategies
aligning them more closely with their mission and goals.
The proposal would leave intact for now the General
Schedule Pay System. Individual employees would remain at their
existing grade and step levels. Annual across the board
adjustments would continue as well as locality pay and within
grade step increases, while leaving the General Schedule and
job evaluation system basically intact, proposed as an
important first step in our efforts to bring performance-based
compensation to the Federal Government. With this proposal, we
can begin distinguishing between high and low performers in a
meaningful way.
The second proposal to increase performance sensitivity of
Federal pay system focuses on how we pay our senior executives.
The administration recognizes that pay compression within the
SES could result in serious recruitment and retention problems.
More importantly, the current structure under which more than
60 percent of all senior executives receive exactly the same
salary despite varying degrees of responsibilities and duties
fails to support the goal of developing a pay-for-performance
culture.
If we cannot demonstrate the value of a performance
oriented pay system for our senior executives, how can we
expect to foster development of performance oriented pay
systems for the rest of the Federal Government?
I believe the administration's Human Capital Performance
Fund and SES pay reform proposals represent major steps toward
the establishment of long-term goals and modernizing Federal
pay systems. We are confident these proposals will keep the
dialog moving in the right direction.
Also, let me acknowledge the important work that effective
performance management will play in any compensation program.
OPM's White Paper announced how credible, reliable performance
measures that make appropriate performance distinctions are
critical to successfully increasing the link between pay and
performance.
Thank you very much for this opportunity. I would be
pleased to answer any questions.
[The prepared statement of Mr. Blair follows:]
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Mrs. Davis of Virginia. Thank you, Mr. Blair.
Ms. Sistare.
Ms. Sistare. Chairwoman Davis, Congressman Davis and
members of the subcommittee, on behalf of Paul Volcker and the
members of the National Commission on the Public Service, I
thank the subcommittee for asking the Commission to share its
findings and recommendations on the issue of pay reform.
Paul Volcker took up the cause of the public service again
because of many of the same concerns that motivated the first
National Commission on the Public Service. The commissioners
who agreed to join him in this task are from all political
persuasions in both major political parties. Each of them has a
wealth of public service experience. Collectively they have
served every Presidential administration beginning with
President Harry Truman. From start to finish, the Commission
was aided, challenged and encouraged by many organizations and
individuals concerning the state of the public service.
The Commission examined Federal pay in all three branches
and at all levels. Three principles are suggested by the
Commission in the report. First, government pay must reflect
current market conditions if government is to attract and
retain the work force it needs to perform its responsibilities.
Second, the relevant market for most of the Federal work
force should be comparable jobs and capabilities in the general
work force. The relevant market for government senior
leadership should be positions demanding comparable
responsibility and capabilities in the nonprofit work force.
Third, pay should be tied to performance. As noted, for the
majority of the Federal work force, the private/non-profit
sector was identified as the most appropriate market. The
Commission recommended that Congress establish policies that
permit agencies to determine the specific relevant market for
their employees.
Currently, the Commission recommended that the existing
classification system and the General Schedule be terminated.
The Commission recommended a broad band system be adopted as
the government's default system. In the alternative, agencies
would adopt systems which best suited their own missions.
The Commission suggested a different compensation standard
for senior government positions such as Federal judgeships,
executives and Members of Congress. There they look to
comparable positions in the private/nonprofit sector as a
guide. We developed a comparison of executive pay for several
categories of nongovernmental, nonprofit entities. In every
case, the compensation of the nonprofit leadership was notably
higher than that of the senior leadership of the Federal
Government.
Another area of particular concern is the Senior Executive
Service. This cadre of senior executives was established to
provide the government with a skilled leadership without all
the traditional Civil Service protections but with the ability
to be rewarded for excellent performance. As a result of the
pay cap, nearly 70 percent of the SES earns the same
compensation. This clearly rules out rewarding excellence in
performance.
The Commission recommends that Congress immediately
increase the pay of capped senior government officials
including Federal judges and Members of Congress themselves.
Should Congress not wish to give itself this level of increase,
the Commission asked it to decouple its own pay from that of
Federal executives and judges.
I will repeat for the record a statement the Commission
included in the report, ``Few democracies in the world expect
so much from their national legislators for so little in
compensation.''
Two additional areas addressed by the Commission bear on
the issue of compensation flexibility. First is the importance
of increased and careful oversight by Congress and responsible
executive branch leadership to assure that the new system and
personnel flexibility stay on track. Careful and ongoing
oversight including statutory assurance of merit principles of
government employment can ease concerns about abuse and prevent
it from occurring.
Second and related is the importance of ongoing training.
The Commission believed that adequate and consistently funded
training for all Federal employees was of great importance.
The Commission focused to a greater extent in its report on
pay of top governmental officials than it did on pay of the
broad Federal work force first because of the clear challenge
to effective governance when the leadership of government is
significantly underpaid, and second, because the executive
level pay caps are currently a barrier to pay reform, the
entire work Federal work force.
Finally, an important barrier to utilizing existing
performance incentives is the government performance rating
process itself. Like the residents of Lake Woebegone, everyone
working for the Federal Government performs above average. In
fact, most of the Federal work force is in the superior
category. Of 700 employees rated in 2001 using the pass/fail
system, 93 percent passed and just 0.06 percent failed. Of the
800,000 who were rated that year using a 5 point system, 43
percent were outstanding, 28 were exceeds fully successful and
18 percent was fully successful.
The system is in need of reform. Agencies must adopt and
apply credible measures of performance with appropriate
training and oversight.
Thank you again.
[The prepared statement of Ms. Sistare follows:]
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Mrs. Davis of Virginia. Thank you, Ms. Sistare.
Mr. Blair, I was very pleased to see the thoughtful
discussion of the compensation issues in the White Paper that
you talked about that OPM issued last April. The White Paper
seemed to indict the General Schedule. However, during the
debate on Homeland Security Act of 2002, the administration
argued that the Department needed the flexibility to abolish
the General Schedule. Given that, why does the Human Capital
Performance Fund proposal continue to use the General Schedule
as the base for Federal employee compensation?
Mr. Blair. The Human Capital Performance Fund is really a
downpayment on future reforms which we are still working on.
The White Paper began this conversation and we are in the
process of working with the stakeholders to identify and refine
future solutions. The adoption of the proposal of the Human
Capital Performance Fund will give incentives to our managers
to begin making meaningful distinctions in employee
performance. Further, Congress has shown tremendous interest in
human capital issues including adoption of the Department of
Homeland Security legislation, there was a recent CBO report on
Federal compensation, the Volcker Commission recommendations
and the like. So we are continuing the conversations and
working to refine and propose solutions. Given that, we thought
it was a good idea to put forth this idea of the Performance
Fund as a meaningful downpayment on such reforms.
Mrs. Davis of Virginia. I continue to be very concerned and
I think my colleague alluded to it, that the administration is
continuing to be unwilling to ensure parity between the
civilian work force and the military. The Human Capital
Performance Fund proposal would fall short of parity except
presumably for top performers who would need the extra money
from the fund just to get parity.
How would OPM measure the results of the Human Capital
Performance Fund approach to pay for performance? It seems to
me without some clear, hardnosed criteria, we are unable to say
one way or another whether the pay-for-performance has been a
success. How are we going to do it?
Mr. Blair. Under the President's proposal, each agency will
apply for a pro rata portion of the fund that would be
appropriated to OPM. They will have to come up with specific
criteria showing what kind of performance management system
they intend to have in place and how they intend to reward
performance. So on the front end, you have continual monitoring
and oversight by the Office of Personnel Management.
In addition, the President's executive branch management
scorecard rates and evaluate agencies on the way they handle
the human capital performance. That is the scorecard reds,
yellows and greens and OPM is the lead partner in scoring
agencies on the human capital portion of that scorecard.
One of the things we take into account is how effective are
the agencies performance management systems. So you are going
to have continual monitoring and oversight over these
management performance systems.
In addition, we expect visual oversight from Congress, GAO,
the Inspectors General and a whole host of other bodies
interested in good governance. I think an effective framework
for oversight would be established. Agencies will have to apply
for this fund each year, so if an agency doesn't meet its
obligations and commitment 1 year, it would be unlikely it
would be approved the next.
In addition, agencies that would have particularly good
incentive programs would be rewarded because approximately 10
percent of this $500 million fund will be held in reserve by
OPM to reward agencies that come up with particularly good
plans. So we really think we have a strong infrastructure in
place to ensure effective management of the fund.
Mrs. Davis of Virginia. To qualify for the plan, would they
have to have set specific guidelines so there wouldn't be what
I think many of us are concerned about: bias toward an employee
one way or the other by a manager?
Mr. Blair. I would anticipate that. I think the merit
system principles would be at the heart of what we want to do
here. That would ensure that this fund is administered in a
fair and even-handed manner. We have no intention of doing
otherwise.
Mrs. Davis of Virginia. Ms. Sistare, you recommended in
your report eliminating the General Schedule for pay and
creating six to eight broad bands with relatively wide salary
ranges. Do you believe that pay banding without the presence of
specific measurable performance standards would work as a
concept and did the Commission, when they did the work, do any
work on any performance measures?
Ms. Sistare. The Commission would certainly say that it
should be concurrent, that they would have to be done
concurrently. If you are going to judge people on performance,
you have to have adequate and reliable measures.
Mrs. Davis of Virginia. So we can't just go out there and
change the system without everything in place.
Ms. Sistare. The Commission regarded its recommendations,
in some cases, as with the reorganization proposals, as being
the work of many years. But they felt the work should begin.
Mrs. Davis of Virginia. Do you propose, and how do you
propose, that we get Federal employees to buy into the pay
banding because I know we have some that are very nervous about
it and very concerned. How do we convince them it is a good
idea?
Ms. Sistare. There are concerns that have been raised about
pay banding and performance measurements generally. The
Commission felt that if you have adequate oversight both by
Congress and the executive branch, training of the people
making the judgments, and adequate funding for whatever reward
system there is and the training, that should not only allay
concerns but should deal with any problems.
Mrs. Davis of Virginia. I see my time is up, so I am going
to ask our ranking member, Mr. Davis, do you have questions?
Mr. Davis of Illinois. Thank you very much, Madam
Chairwoman.
Let me thank both of you for your testimony.
Mr. Blair, the GAO has stated that Federal agencies should
demonstrate that they have modern, effective and credible
performance management systems in place before additional pay
reform flexibilities are implemented. In your opinion, do
Federal agencies have credible performance management systems
in place? If so, which agencies would you highlight?
Mr. Blair. I would have to get back to you as to which
agencies to highlight but we do have some that do have good
performance management systems in place. That said, you bring a
very salient point. We have to have good performance measures
in place before this is effective and right now, there are no
incentives for agencies to have those in place because our pay
systems don't really recognize good performance. Until you have
a system which provides agency managers and agencies the kinds
of incentives it needs to reward your performance, it is going
to be hard to get those in place.
Mr. Davis of Illinois. You were here when Representative
Ruppersberger testified. Would you see gainsharing having any
place in that role in government?
Mr. Blair. It is my understanding agencies have the
authority now to do gainsharing, so I think what Representative
Ruppersberger pointed out was an interesting system and I think
there is a lot the government could learn from it.
Mr. Davis of Illinois. Let me ask Ms. Sistare, you have
indicated that the existing classification system should be
changed, terminated actually, and that the Federal agencies
should adopt pay systems that support their respective
missions. What impact would this have on the ability of
individuals to transfer say from one agency to another, and
would it affect their compensation?
Ms. Sistare. The Commission certainly believed that
government could benefit if the path between agencies were more
open to employees. I would see the transferring employee going
into the new agency and being considered on the basis of that
agency's system, just as people going between one business and
another in the private sector are then dealing with whatever
pay system exists with that new employer.
Mr. Davis of Illinois. So then it would be possible that if
one had an opportunity to transfer, they may also have to look
at a change in compensation that would not necessarily be an
upgrade for them?
Ms. Sistare. That is true, although it could be the
opposite. Maybe I should make one point, which is the
Commission definitely felt there should be and would be always
a core government work force that would most likely who were
career employees, full career, and that people in that work
force doing what Paul Volcker calls the core competencies of
government would probably have the broadbanding system and
would be in many ways alike. So it would be less of an issue
there for somebody transferring from one to the other.
Mr. Davis of Illinois. I gather from your testimony that
you are really excited about the way we evaluate performance.
What criteria would you suggest?
Ms. Sistare. The results would indicate that it is not
really an evaluation process. As you say, maybe the problem is
that the criteria aren't there. If a manager or supervisor or
an agency doesn't have reliable performance criteria, it is
pretty hard to rate people on a spectrum. Also, the law
prevents managers from rating on a curve and really doesn't
support them when they do try to make distinctions.
Mr. Davis of Illinois. So you are suggesting that it is
fairly subjective. It appears to be fairly subjective right
now?
Ms. Sistare. I believe so.
Mr. Davis of Illinois. Thank you.
Mrs. Davis of Virginia. Thank you, Mr. Davis.
Ms. Blackburn. If the gentlewoman would yield for a moment,
I would like to take a second of her time.
Tying into what Mr. Davis said when he was talking about
someone transferring from one department to another, would you
be suggesting that there be a one-size-fits-all compensation
system throughout the Federal Government so that one could
transfer or are you suggesting we do something different in
each agency?
Ms. Sistare. No, the Commission was clear they felt the
agencies should adopt the systems that best fit their missions
and needs but they did believe that many would adopt the pay-
banding system and that since they expected OPM would assist in
setting up these systems, there would probably be a fair number
of agencies that had similar pay systems.
Mrs. Davis of Virginia. Thank you, and thank you, Ms.
Blackburn, for yielding to me.
Ms. Norton.
Ms. Norton. Thank you, Madam Chair.
I appreciate what you are trying to do because what we are
dealing with here is the largest employer in the country and
yet a mandate to make sure the merit system principles apply
and if we didn't have that, we would be back to before the
Civil Service system. We do need to study our history to
understand how we got to this system in the first place with
all of its rigidities as we try to modernize it.
From both your testimonies, I got the impression that I was
dealing with a pig in a poke because I couldn't put my finger
on how it would work, in part because you obviously are in the
beginning stages and I have some appreciation for what you are
going through. I chaired the Equal Employment Opportunities
Commission and at a time when it had to go through a wholesale
reform of the entire agency, this is very difficult.
Choosing one part of the system first does seem to me to be
the way to go as opposed to throwing the stuff up and seeing
what you can do with the whole system. Yet, you have chosen a
part of the system, the SES, which I am left to wonder how much
it has to teach up and down the line.
For example, in your testimony, Mr. Blair, you say the
administration's SES pay proposal would eliminate the fixed pay
levels within the current SES system in favor of an open pay
range with a higher pay gap, would be able to make meaningful
distinctions in pay based on each individual executive's
performance and contribution to the agency's mission and goals.
One of the reasons we have a Civil Service system that is
so clumsy is because that is so difficult, to distinguish
between a whole bunch of people that may be doing the same or
similar work. You said in response to the Chair's question that
merit system principles would apply. It would help me a lot if
you would give me at least an example. You would be more
compelling in your testimony if you would say, and here is how
it would work with respect to even the smallest example.
Throughout this testimony and your testimony too, Ms.
Sistare, I cannot find examples to inform my judgment. I am
being asked, I guess, to trust you and the history of how we
got to the Civil Service system makes me unwilling to trust
anybody unless they are willing to lay out how the system would
work. So you would help me a lot if you would give me an
example of how this would work for somebody in SES with a broad
range and yet merit system principles would apply.
Mr. Blair. I always like to say trust us but verify, so we
will help you on that verification process.
First, with SES, keep in mind where we are coming from on
this. We have pay compression of somewhere between 60 and 70
percent SESers are all paid the same. The reason for that is it
has been linked to congressional pay and Congress has denied
itself pay raises over the course of the past decade and beyond
a multitude of times.
In order to justify moving up that pay cap, we want to say
we are not going to be giving any across-the-board pay raises
to Senior Executive Service members; that the pay raises that
will be afforded them, if you are going to increase within the
pay range, the pay range will now be, locality pay, Executive
Level 2 which is a Cabinet level Secretary salary or Deputy of
approximately $154,000, it is going to have to be based on
performance.
Right now, SESers are evaluated on a yearly basis and we
need to do more on that evaluation. In 2001, 83 percent got the
highest rating possible. Some argued that those ratings are a
sign of agencies trying to get around the pay compression cap.
That said, I think that we do already monitor SES performance.
I know in OPM, a relatively small agency, the Director walks
through with each and every Senior Executive Service member
their performance evaluation.
Ms. Norton. Is that an example of a merit principle? My
question was how do merit principles apply to this
individualized pay for performance system that you would put in
place?
Mr. Blair. We could identify the merit system principles
that you are paying fairly, you are recognizing good work, that
you are paying by work for equal work for equal value and also
aligning the work with the performance of the agency. I think
that meets the heart of the merit system principles.
Ms. Norton. It may well. Let me conclude by saying it all
sounds terribly subjective to me in the hands of an individual.
Again, this is how we got the system in the first place because
it produces all kinds of reactions from people who say how did
you reach that conclusion. I think you have a lot of work to
do. I think your work is easier, this I will grant you, much
easier with SES, much easier the higher up you get.
In your testimony, you say if we cannot demonstrate the
value of a performance oriented pay system for our senior
executives, how can we expect to foster development of
performance oriented pay systems for the rest of the Federal
work force and you suggest again, this is some kind of
precedent for the rest of the Federal work force on page 6 when
you say, the one-size-for-all pay system doesn't work for
senior executives any better than it works for other employees
and we are eager to show that a performance oriented pay system
can work for senior executives.
I would just like to ask you as you try to figure out how
to do this for people at the very top for whom it seems a case
can be made for at least the merit system principles being
applied for some really open-ended way to pay, I would caution
you against believing this is a model for how to deal with what
is 2 million people who work in the Federal work force. I think
that shows a lack of appreciation for how we got to this system
in the first place.
Mr. Ruppersberger talked about morale. The notion of saying
to managers in the workplace, hey, we are going to do what we
did in the SES, we are going to go to an individualized system,
using your language, of judging every employee. All I can say
to that, Mr. Blair, is good luck.
Mrs. Davis of Virginia. I thank the gentlewoman. Your time
has expired and we have several more panels, so I am going to
go on to Mr. Murphy.
Mr. Murphy. Thank you, Madam Chairman.
I have been trying to go through these reports and figure
out some sense and having been an employer myself, I know how
difficult it is to evaluate performance. How do you do it?
Forget all the jargon. I don't want to hear about performance
standards. I want to hear exactly how you do it?
Mr. Blair. We go through and evaluate employees.
Mr. Murphy. Who fills that out?
Mr. Blair. The manager or supervisor.
Mr. Murphy. And where does that data come from?
Mr. Blair. From an employee's performance plan on an annual
basis.
Mr. Murphy. So the employer and employee work out that
performance plan?
Mr. Blair. It is mainly done by the manager or supervisor
but with input from the employee.
Mr. Murphy. Who makes a determination if those things have
been met? Is that discussed between the employer and employee,
are there outside sources?
Mr. Blair. It is done by the manager.
Mr. Murphy. So it depends how closely the manager is
monitoring that person's job. Are there any outside sources? A
lot of Federal employees interface with the public. Is there
any way of getting information from the public on their
satisfaction?
Mr. Blair. I believe that might be part of the individual's
plan. It would be on an individual basis. I would have to get
back to you as to what those look like. I think the point is
for the individual employee, we do set up specific performance
plans for them.
Mr. Murphy. I am not closer to the truth of what is going
on here. I don't think you are being difficult, I am just
trying to understand because these things can be very, very
difficult to do and if one doesn't do them right, the whole
thing from top down ends up to be a mess.
I know we are all in a performance rated every 2 years for
better or worse, reality or fantasy. Whatever it is, we have
that and we have to lay those things out. It is a matter that
for employees, many times people talk in not very glowing terms
about any government employees. They refer in negative terms to
bureaucrats and so forth and many politicians say they are
going to cut through red tape and deal with bureaucrats. We
wouldn't say that, it would be challengers who would say those
things.
Many times we know the value of people working in these
aspects but what I am concerning about is how we can get
outside information that benefits that employee because I think
they always do better if they know an accurate and fair
information of how they are doing. How do we get that
information? Is there any system set up to do that?
Mr. Blair. I don't think we want to have a one-size-fits-
all for government. I think it is going to have to be tailor
made for each individual agency and even subcomponents within
the agency. We want to evaluate that plan and the agency needs
to evaluate that plan and make sure they aligned with the
mission goals and objectives. I am looking at it from kind of
the 30,000 foot level at this point but we want to make sure
employees know what is expected of them, know how they are
being judged, that performance evaluation always carries with
it an element of subjectivity. I think we need to recognize
that and put it out on the table but subjective judgments are
not inherently unreliable. They just have to be done openly and
transparently and done with objective, definable results. That
is what we want to make sure we have on the table for employees
when we are going to be basing a system or part of their
compensation system on performance based plans.
Mr. Murphy. I would hope in pursuit of this, those
guidelines would be fairly objective in terms of what employers
are doing because even management needs help in understanding
how to do those. Many times the problem occurs because a
manager has not clearly stated guidelines. It is unfortunate if
the only time that manager sits down with the employee to
discuss problems is at the time of their annual review. That is
a major flaw with management. They should have done so several
times up to that point. I assume we are doing work on that too?
Mr. Blair. I agree with you. I think when you do have a
problem employee, it shows a failure not just on the part of
the employee but on the part of management. This is something
employees and managers and the supervisor and the managers'
managers need to have constant interaction.
Let us look at what we are up against. We have
approximately a payroll of $133 billion a year. That includes
paying benefits. Pay can be a very strategic tool in the
management's arsenal so to speak but we have neutralized that
tool because very little of our pay is performance based.
We gave a 4.1 percent across the board increase last year,
it cost well over $5 billion. We have longevity of what we call
within-grade step increases of 3 percent a year which up to
one-third to one-half employees are eligible for, with only a
small component of performance as a part of that. You have to
ask, ``is that an effective way to manage that much money?''
What we are trying to do, and I think most people agree,
that we need to do a better job of rewarding performance. The
recent Federal Human Capital Survey results that OPM released
last week, and I believe the Chair referenced this in her
statement today, said that most employees, 63 percent, felt
good about their pay, were satisfied with their pay.
Interestingly, fewer than half said that pay rewards good
performance. We need to do a better job on that. That is what
the President's proposal attempts to do, introduce an element
of pay-for-performance through the Human Capital Performance
Fund.
Mr. Murphy. I don't disagree with the concept. It can have
some fine results provided it does that and provides a fair and
clear mechanism for employees to do that. I think that is what
employees want. When you have people not satisfied with their
job, oftentimes they just want more pay to make up for their
own problems with it. I hope these things continue to develop
and you can clear it up.
Mrs. Davis of Virginia. Thank you, Mr. Murphy.
Mr. Van Hollen.
Mr. Van Hollen. Thank you, Madam Chairman.
First, a general comment. My colleagues may have already
made this point which is, this may be received less
suspiciously by many employee groups if you dealt with the pay
parity issue. In other words, if people felt they were getting
their fair pay increases like the civilian side of the work
force with respect to comparison with the other side of the
work force as opposed to this incentive pay being carved out of
moneys that would otherwise be part of the general pay
increase, I think obviously you would get a better reception.
I have a couple questions to followup on what Congressman
Murphy and others have asked which really gets to the nub of
the issue which is people feeling comfortable that you have a
performance plan in place that really measures the individual's
performance on a merit basis as opposed to all these extraneous
and subjective factors.
I would be very interested and maybe you could supply the
committee and you mentioned you have performance plans already
in place to provide an analysis of employees. If you could
provide the subcommittee with a sort of cross section across
various departments, the Departments of State, Defense and the
others of the type of performance plans currently there because
on the one hand, you say they are already in place and on the
other hand, they seem to be giving you results you are not
happy with, a kind of bunching of results, so I would be
curious if we could get some sense. It is hard to put your
hands on this stuff, so if we could get our hands on some stuff
you have been using, that would be helpful to me anyway.
Mr. Blair. We would be happy to provide that.
Mr. Van Hollen. Thank you. Second, Congressman
Ruppersberger was here and talked about gainsharing. In that
case, you could see measurable results. It obviously applies
more clearly to things where the government is performing a
service. He mentioned mowing the grass or providing a
particular concrete service where you can measure the cost to
the government and determine whether or not that service is
being delivered at less or more cost.
I wonder if that is not a better approach. What he is
saying is we are going to identify a distinct area of
government services, determine how much it is costing us today
to provide those services, then we are going to say to the
employees, if you provide those services at less cost, you will
share somewhat in the benefits and the taxpayers will share in
the benefits. It is much easier to identify, I actually think
it may be harder to identify things in your Executive Service
than things in other areas of government where you may be
delivering specific services. I wonder if you could comment on
that.
Give us examples. You said gainsharing is allowed in the
Federal Government. Give me some examples of where it is in use
now and how it is working.
Mr. Blair. I would have to get back with you on that. I
didn't have the benefit of his statement before I came here, so
we would be pleased to provide that for the record.
[The information referred to follows:]
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Mr. Blair. One of the instances you just described would
really work well under the President's proposal for the
Performance Fund. For instance, say you have an employee with
no chance of promotion at this point but they are doing an
outstanding job. Say they identify some procurement savings
that can save an agency $2-$3 million a year. Under current
rules, we can reward that employee a one-time bonus of $5,000
for the identification and for that good work, but that is not
built into his or her base salary and doesn't go toward
retirement.
Under the Human Capital Performance Fund, an agency
presumably could submit a plan to recognize that kind of
productivity and give that employee an award increasing his or
her salary by $5,000 a year. That would be built into their
base pay, be recognized for retirement purposes and that person
would be able to keep it in future years rather than just see
it as a one-time bonus or one-time shot.
I am glad to see the committee members' interest in this
because we really need to do a better job of honing our systems
in order to encourage better performance. When we have a pay
system that doesn't do that, it really puts us out of whack and
pay is one of the most strategic tools we have. If we can't use
that to spur better performance, I am not sure what else we
have.
Mr. Van Hollen. Briefly to followup, you are right. The
procurement, that is an example where someone's creativity may
be able to identify cost savings but there are so many areas in
the Federal Government where there is not that kind of direct
link to an easy measure of productivity, not like a salesman
out there selling widgets.
For example, someone at the State Department or the CIA who
is analyzing the situation in Iraq or any other place in the
world, coming up with a clear performance standard for how you
measure success is what I am having trouble getting my hands on
and what is the basic concern of employees with respect to the
fairness. There are some things that lend themselves more
easily to measuring success and maybe we should focus on those
areas on a trial basis or pilot basis rather than trying to do
it all at once.
Thank you, Madam Chairman.
Mrs. Davis of Virginia. Thank you, Mr. Van Hollen.
If you all will bear with me, I have one more question
because it has been brought up a couple of times. You alluded
to it a moment ago, Mr. Blair. The OPM survey showed that
nearly two-thirds of the Federal workers were very satisfied
with their pay but also revealed that 35 percent were
considering leaving their jobs. To me doesn't this indicate
that maybe pay is not the source of job satisfaction and maybe
we should not be looking at pay reform as reform right now?
Mr. Blair. Let me take two stabs at that question. First, I
think 35 percent that may be thinking about leaving their jobs
may have also included those who are thinking about leaving for
retirement purposes. Say even if everyone is satisfied with
their job, I think we still need to take a look at how we pay
employees.
We have a 50-year-old system that has been amended over the
years. The last time it was substantially amended was in 1993
but we do not have performance as a key component in the way we
reward our employees. That is the right thing to do. So even if
everyone is satisfied with their pay, it still doesn't mean we
shouldn't be looking at finetuning and reforming the ways we
pay our employees.
Mrs. Davis of Virginia. I think you can see that the
members of the committee are possibly interested in this but
also very cautious and wary because we don't want to, at least
I as the Chair, am not real crazy about going into something
and making more of a mess of the system than we might have at
the moment.
I look forward to hearing some things back from both of you
and I agree, we do probably need to look at some type of change
but we want to make sure it is the right change.
Mr. Davis.
Mr. Davis of Illinois. I would like to make sure we all get
the information he is going to provide for Mr. Van Hollen.
Mrs. Davis of Virginia. We will make sure when he gets it
to the committee, Mr. Davis, that we get to all the members of
the subcommittee.
We thank you both for taking time to come and appreciate
everything you had to share with us.
If the third panel would come forward. We are going to
administer the oath, if you will stand. It is the
subcommittee's standard of practice to ask witnesses to testify
under oath, so if you will raise your right hands.
[Witnesses sworn.]
Mrs. Davis of Virginia. The witnesses will be recognized
for opening statements. We will ask you, as we did the previous
panel, to summarize your testimony in 5 minutes and your
written statement will be made a part of the record.
I would like to welcome Christopher J. Mihm, Director,
Strategic Issues, U.S. General Accounting Office; Max Stier,
president and CEO, Partnership for Public Service; and George
Nesterczuk, consultant to the Heritage Foundation. Thank you
all for being with us today. Mr. Mihm, we will recognize you
for 5 minutes.
STATEMENTS OF CHRISTOPHER J. MIHM, DIRECTOR, STRATEGIC ISSUES,
U.S. GENERAL ACCOUNTING OFFICE; MAX STIER, PRESIDENT AND CEO,
PARTNERSHIP FOR PUBLIC SERVICE; AND GEORGE NESTERCZUK,
PRESIDENT, NESTERCZUK AND ASSOCIATES AND CONSULTANT, HERITAGE
FOUNDATION
Mr. Mihm. Thank you very much, Chairwoman Davis and Mr.
Davis. It is a great honor and pleasure to be here today to
testify on results oriented pay reform.
Mr. Davis, I think as you noted in quoting from the
Controller General in your opening statement, my major point
today is that in order to have effective pay for performance
reforms, agencies must have modern, credible and validated
performance management systems that are capable of supporting
pay and other personnel decisions. Quite simply, pay for
performance works only when adequate safeguards including
reasonable transparency and appropriate accountability
mechanisms are in place.
I would agree with the spirit of what Mr. Blair and Ms.
Sistare were saying that modern performance management systems
are the centerpiece of those safeguards.
Unfortunately, as you also noted, Mr. Davis, we have quite
a way to go with many agencies. The chairwoman quoted in her
opening statement from the OPM Governmentwide Survey that
suggested the credibility is certainly a problem with the
current Federal performance management system. Part of the
problem is that executive agencies performance management
systems are based on episodic and paper intensive exercises
that are not linked to the strategic plans or program goals of
the organization. They often have only a modest influence on
the pay, use, deployment and promotions of Federal employees.
Leading organizations, on the other hand, use their
performance management systems to accelerate change, achieve
desired results and to facilitate two-way communication
throughout the year so that discussions about individual and
organizational performance are integrated and ongoing.
This gets to exactly the point Mr. Murphy raised in his
questioning of the last panel. That is, these organizations use
their performance management systems not so much as merely once
or twice a year just individual expectation setting or rating
processes but they are actually used as tools within the
organization to manage it on a day to day basis and achieve
results that citizens care about.
Chairwoman Davis, today you are releasing a report that we
prepared at your and Senator Voinovich's request that shows
some of the specific practices that leading public sector
organizations here in the United States as well as around the
world have used in their performance management systems to
create clear alignment between organizational goals and
individual day to day activities. It is the so-called line of
sight.
Our suggestion would be that Federal agencies consider
these practices as they modernize their performance management
systems to better ensure that their daily activities are
contributing to results. Our hope is that this report, and
other work we will certainly make available to the
subcommittee, will begin to provide some of the examples that
Mr. Murphy and Ms. Norton were asking about, very concrete
examples of where organizations are able to achieve this
alignment while still adhering to merit principles.
As all the conversation thus far has made clear, we need to
continue to experiment with providing agencies with the
flexibility to pilot approaches, to setting pay and linking pay
to performance. We believe that agencies should be required to
demonstrate they have modern performance management systems in
place before they are allowed to implement the pay for
performance initiatives. This is consistent with the approach
Congress took with raising the total amount of annual
compensation for senior executives as part of the Homeland
Security Act.
The Congress may also want to consider providing guidance
on the criteria that OPM should use in making judgments about
individual agencies' performance management systems if Congress
decides to go forward with the performance fund or other pay
for performance initiatives. We believe that the practice as
detailed in the report being released today provides the
starting point for that consideration.
In summary, there is widespread agreement that the basic
approach to setting Federal pay is broken and we need to move
to more market and performance based approach. Doing so will be
essential if we want to really maximize the performance of
government. However, while reasonable people can and will
debate and disagree about the merits of individual reform
proposals, we believe that all people should be able to agree
that a performance management system with appropriate
safeguards must be in place and serve as the fundamental
underpinning of any fair, effective and appropriate results
oriented pay reform.
The practices used by leading organizations in developing
and using their performance management systems to link
organizational goals to individual performance and create this
vital line of sight between individual activities and
organizational results, we believe show the way in how to
implement performance management systems with the necessary
attributes.
Chairwoman Davis and Mr. Davis, this concludes my
statement. I will be happy to take any questions you may have.
[The prepared statement of Mr. Mihm follows:]
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Mrs. Davis of Virginia. Thank you, Mr. Mihm.
Mr. Stier.
Mr. Stier. Thank you very much, Madam Chairwoman and
Congressman Davis. It is a pleasure being here particularly
with Chris who has done wonderful work at GAO and George
Nesterczuk and the panel coming, including Colleen Kelley who
is on our advisory board.
It is great the committee is doing this. I think you are to
be commended. When we talk about Civil Service reform,
oftentimes the elephant in the room that goes unrecognized is
the issue of compensation and compensation reform. It is a
tricky set of issues but it is terrific that you are focusing
on it today and bringing together so many people to share their
experiences with you.
It is particularly important to be focusing on it today
given the challenges the Federal Government faces with respect
to its human capital and I also think it is about time. There
has been research, there has been 25 years of demo project
experience. There are expected agencies that have been
experimenting and in fact, there are answers to questions
raised by members--other agencies that have been attempting
gainsharing. PTO is an example and others. Clearly the GAO
report is going to shed some interesting light on that. So this
is terrific.
I would begin by noting that the merit principles
themselves talk about a form of recognizing excellence. The law
requires, ``Appropriate incentives and recognition should be
provided for excellence in performance.'' That is in the law
today but unfortunately it has not, I think, been adequately
implemented. I think much of the committee's attention should
be focused on how do you get that to be a reality in today's
workforce.
I would make three very quick points. The first is that
this issue is not easy but it is worth tackling, very much so.
The present system I believe is very much broken. You have the
White Paper from OPM which is very instructive. Very
importantly, look at what the employee surveys are telling us.
In the year 2000, the Merit Systems Protection Board did a
survey asking ``If you perform better in your present job, how
likely is it that you will receive more pay?'' Fifty-four
percent said unlikely versus 35 percent saying likely. The most
recent survey we have from OPM, the 2003 survey, again the
chairwoman has raised some of these statistics, only 30 percent
agree with the proposition that ``Our organization's awards
program provides me with an incentive to do my best.'' Only 45
percent of employees agreed with the statement that ``Arbitrary
action, personal favoritism and coercion for partisan,
political purposes are not tolerated.'' That is a real problem.
I would note that number, according to the OPM report, was
5 percent higher among the employees surveyed in the
alternative personnel systems and demo projects. That may not
be management nirvana but it is a statistically significant
improvement and it says it is possible to do better even under
the existing system with some of the experimentation that has
taken place.
Second, the potential gains here are absolutely enormous.
If you believe that better performance will receive better
rewards it increases employee commitment. That is something you
see all over the private sector research. Watson and Wyatt did
a survey in which they found an 82 percent level of commitment
for employees who believe they will receive better pay for
better performance versus a 35 percent level of employee
commitment for those who did not.
We also can see examples in the public sector, Bonneville
Power Administration and GAO both talked about in great detail
in the written testimony.
The third point I would like to raise is that the issue of
pay for performance really needs to be looked into in larger
context. Many of the members of the committee have raised this
already. We need to be reviewing this as performance
management, a culture of results, and not simply a pay reform
issue. It is really a comprehensive system we need to be
talking about, not only the evaluation system raised here but
really an ongoing dialog between managers and employees about
the way contributions are made by individuals to meet the
organizational needs of the agency.
That means that ultimately you have to start with clear
organizational goals and ongoing communication--something that
oftentimes is not accomplished in agencies today--in order for
employees to be able to fully commit to the process.
Clearly, we need to be looking at individual agencies
before we allow them to move forward to a system that is going
to be more directed toward tying rewards to performance. It is
something we really need to do. There are lots of ways to do
it. We have good examples out there. Obviously the groups you
have involved in the testimony today need to be involved in
that process. We look forward to helping in whatever way we
can.
[The prepared statement of Mr. Stier follows:]
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Mrs. Davis of Virginia. Thank you, Mr. Stier. We appreciate
that.
Mr. Nesterczuk.
Mr. Nesterczuk. Thank you, Madam Chair and Mr. Davis.
Thanks for this opportunity to address the committee on the
question of compensation of Federal employees. It is a very
timely issue. Although current surveys may indicate some
satisfaction with current pay systems, historically it has
always been an irritant in the work force, maybe a reflection
of economic conditions outside.
Let me summarize of the key points I made in my written
testimony so that I can stay within the 5-minute time limit.
There is no question in my mind that the pay system is, if
not broken, certainly dysfunctional in many instances. If we
look at the past 15 years and the experience of agencies coming
to Congress seeking relief and getting relief for special
circumstances, I think there is a message there for the Civil
Service Subcommittee to seriously take to heart.
FIRREA exempted the banking regulators of financial
institutions from Title V pay restrictions way back in 1986-
1987. The FAA was taken out from under Title V and established
its own separate pay system back in 1996. The IRS followed suit
in 1998 and that is 100,000 employees in that case. The
Transportation Safety Administration followed in 2001 with a
separate pay system and the Department of Homeland Security. So
you are looking at 300,000 to 400,000 employees that are going
to be out from under the General Schedule.
There is a clear message there which is agencies are
focusing on their missions. They find the pay system is not
supporting getting their job done. OPM has historically had
special pay authority but clearly it is not adequate. That was
intended to rifleshoot individual occupations in specialized
locations where local labor market conditions dictated
exemptions from the General Schedule. The agencies are clearly
looking for much more sweeping reforms.
Let me now address the question of performance management,
performance recognition in the Federal Government, a whole
separate issue. Pay for performance is not really a play these
days in the Federal Government, except perhaps at the SES level
where performance is more strictly adhered to.
The two concepts are clearly divorced in the minds of most
Federal employees. The culture just doesn't recognize pay and
performance as being related. Pay adjustments annually are
pretty much automatic. Twice a year adjustments for many
employees, every 2 or 3 years for everybody else in 3 to 4
percent increments, so a 6 to 7 percent pay increase,
regardless of how well you do your job is a demotivator to go
out and try harder if your cohort is not contributing to the
process. So performance is used as an adjunct.
We do have performance recognition systems or cash awards,
bonuses for the SES, Presidential rank awards, but where is the
fundamental underpinning for making those awards? If a
performance management system results in 80 to 90 percent of
employees being rated above average, then what are the criteria
that are used to make decisions for those cash awards, those
rank awards, the incentive awards for rank and file employees.
There is a huge amount of cynicism in the work force because
they clearly understand there is some other system at play here
which is being relied on to support the bonus decisions.
We need a very robust, transparent performance measuring
system that makes meaningful distinction in relative
performance among employees. Until that is on the table, you
are not going to be able to marry pay and performance.
There are a number of options that the committee is looking
at today in realm of pay reforms. As I said, we go back to the
basic problem and agencies are speaking up telling you they do
need some kind of pay remedies. Pay banding is a credible
alternative. It has been tested for 25 years now. Yes, there
are some shortcomings with it. It tends to inflate the overall
payroll but those are issues that can be managed.
I think the notion of using OPM as a watchdog working with
agencies to ensure they implement the right kinds of responsive
performance management systems to go along with the pay banding
reforms is probably a suitable approach.
Moving to SES paybanding, the open pay system for the SES
with a raise cap is very important. That is a key element in
the chain of command from the President, Cabinet Secretaries to
agency heads down at the career work force. They need to be
motivated and rewarded for their efforts and the pay
compressions that historically reoccur every few years which is
not only a big demotivator for performance but tend to
encourage people to leave the work force.
Finally, the Human Capital Performance Fund I think is an
excellent idea. It is a marginal in the overall picture of the
overall payroll of $100-$120 billion and $500 million is a
marginal increment in that but it is new money for the
agencies. It is the kind of incentive they need to get their
performance management systems up to snuff.
Thank you.
[The prepared statement of Mr. Nesterczuk follows:]
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Mrs. Davis of Virginia. Thank you, Mr. Nesterczuk.
Mr. Mihm, I will start with you. Do Government agencies
have the capacity to measure individual and group performance
well enough to make pay-for-performance more than a guessing
game or worse, a matter of favoritism?
Mr. Mihm. When we look across Federal agencies performance
management system, we don't see the systems yet in place that
will allow them to make those meaningful distinctions or to
adequately measure individual performance. There are plenty of
efforts underway in that regard. Some agencies are really
making some enormous progress in that but we think there is
plenty of work that virtually all agencies need to undertake in
order to be able to these world class performance management
systems in place.
Mrs. Davis of Virginia. You at GAO have an internal pay for
performance system and it is pretty new?
Mr. Mihm. Yes. We started it as a result of legislation
Congress granted us in 1980. In the year 2000-2001, we went
through a rather fundamental change in updating that system.
That is the new part, yes.
Mrs. Davis of Virginia. Is it too early to tell if it is a
success?
Mr. Mihm. I am a homer for it, I like it, so yes, it is an
overwhelming success.
Mrs. Davis of Virginia. Would everybody in your agency say
that?
Mr. Mihm. In the true spirit of oversight, there are checks
we have in place. There are employee attitude surveys that we
take periodically to make sure that there is trust and
confidence in the system.
One of the things we did going into it to try and make sure
we wouldn't have problems in implementation at the back end is
really drill employee involvement. In every step in the
process, it was deep, it was serious and it was across the
agency that employees were involved. We went to a focus of
paying for core competencies, our employees were deeply
involved in identifying the competencies that we would need to
be successful in the future, validating those competencies and
were subsequently assessed on those competencies.
While we are far from perfect and are always looking to
update it and learn from others, we are quite confident and
quite pleased with the progress we have made in the first year.
Mrs. Davis of Virginia. Is that how you got the employees
to gain ownership in it, by getting them involved and letting
them be a part of the process and determining how the system
would work?
Mr. Mihm. Yes, ma'am. Fundamentally, that is what does it
for you. You have to have employees involved. In fact, when we
looked overseas at performance management systems and pay for
performance, we saw instances where they crashed and burned
because they did not get their employees and the unions, we are
talking about the representatives of the employee unions,
involved as well. They had to pull back and start all over
again. There is simply no other way you can do it if employees
don't feel a sense of ownership.
Mrs. Davis of Virginia. Mr. Stier, what do you think would
be a proper timeframe for implementation of pay-for-
performance?
Mr. Stier. Enough time to make it work. I think you have to
do this in pieces and I think that starting with the SES--I
think you can parallel track this--is a very good idea for some
of the major reforms you are talking about. That is the
leadership group. It is a small group you are talking about,
7,000 people total, governmentwide. If you can't get it right
with your executives, then you are going to have a very
difficult time doing it throughout the Government.
That doesn't mean that if the same system that is applied
to the SES either across Government or the same system applied
to the SES as to the General Schedule. I really do believe that
you start there.
I also think you find your agencies that are ready. There
are some agencies out there that have done significant work.
GAO is a good source of information. I also think you need to
provide an incentive to make this work. You need to incentivize
the agencies to start focusing on their performance evaluation
process and not only that, but the whole shebang, the
objectives they have as an agency, how do they connect the
overall agency objectives to the individual employee
contribution. If you don't start that process now, it is going
to be very difficult to ever get there.
I don't mean to be ducking your question but I honestly
believe this is going to be a long-term process but you can get
pieces of it done here and now.
Mrs. Davis of Virginia. It was a tough question.
Mr. Nesterczuk, I have one section of NASA in my district.
One of the things I have heard from them is being able to
employ, retain, recruit good folks. They proposed legislation
that would give it more hiring and pay flexibility to help
recruit and retain a quality work force. The labor unions have
countered that bonus pay is a poor substitute for across the
board pay increases that would reward the loyal workers instead
of those who threaten to leave to extort more pay. How do you
respond to that?
Mr. Nesterczuk. I don't think it is a question of loyalty,
it is a question of performance. We are not talking about 100
percent of the work force that needs to be rewarded and
recognized. These recognition systems don't have to begin with
the notion that gee, we have to make this work for 100 percent
of the people. If you accept the notion that 70 to 80 percent
of your work force is doing perfectly fine, needs a minimum
amount of supervision, the work doesn't change drastically day
to day, you can put them almost on automatic pilot. Clearly,
interaction with a supervisor is called for to make sure
everything is on track but it is that smaller number of
employees that are essential to getting quick turnaround,
critical jobs, some unknown circumstance drops into the middle
of the workplace and not everyone is going to deal with it,
just the handful of people. Those are the folks you need to
incentivize. You need to focus your performance management
systems on recognition of those key people.
The same applies to recruitment and retention. It is not a
matter of retaining 100 percent of the work force because most
of them are perfectly happy working at their level of
competence in the environment they are in. You don't have to
make special considerations for them. It is the ones that are
critical to getting your job done that you need to make sure
you take care of.
Mrs. Davis of Virginia. So do you think it is fair to pay
people who are doing the same job different pay?
Mr. Nesterczuk. If they are doing the same quality of work
on the same job, they should be paid the same but there are
other aspects. There is timeliness, quality, volume, doing
extra work. Those are the differentiators within a group. Those
are the people whose performance you recognize.
My experience is that in a group in a cohort, everyone
knows who the extra special employee is. They are the person
the employees go to when they don't want to talk to their
supervisor about resolving a problem. Their view of it is, if
the supervisor doesn't know who the star is, then the
supervisor is not worth a damn anyway.
Mrs. Davis of Virginia. Thank you.
Mr. Davis.
Mr. Davis of Illinois. Thank you, Madam Chairman.
Let me ask each of you how do we determine relative
importance of missions? This notion that if you are doing a job
in one place, it may not be comparable to doing a job in
another place? How do we make that distinction?
Mr. Mihm. I can start on that. As your question suggests,
it is not easy to do at all. There are a number of ways we have
seen organizations here and abroad have done it. One way is
they try and tackle it directly, try and make judgments about
those that are the more important or less important missions
and success under those missions.
We have an example in our report about the Province of
Ontario which starts at the provincial level and then tries to
cascade it down throughout the entire province in government.
Here, what we often find is a focus on core competencies.
That is, for each individual, normally an occupation group or
grade, what are the particular competencies that would be
needed that have been validated to be shown as leading to
organizational results and then let us pay off those
competencies, let us pay to the extent people exhibit those
competencies and then let us pay to the extent that they
achieve or contribute to the achievement of organizational
goals.
In other words, here in the United States we often don't
deal with that question directly. We don't try and make
judgments across missions. We just make judgments on did the
person exhibit the core competencies we are looking for and did
they contribute to organizational goals as specified in a
performance contract at the beginning of the assessment year?
Mr. Stier. Congressman Davis, I would like to add that I
was moving away from the microphone out of respect for Chris,
not out of fear of the question.
I would say, and I am not sure I fully grasp the entire
range of your question.
Mr. Davis of Illinois. Let us say I am a physician and I am
working for the Bureau of Primary Health Services and somebody
else is working for the Center for Disease Control. Are we
comparable physicians?
Mr. Stier. I would say, Congressman Davis, that in some
sense it is not dissimilar from the issues that face all
organizations in this country or any market-based system. I
think we have a situation with the Federal Government today
that by and large is not sufficiently sensitive to the market.
We need to have a pay system that is more market sensitive and
more performance sensitive in order for the Government to be
able to attract and keep the people it needs to get the job
done.
I think in the specific example you gave for CDC, for
example, we would need to ensure that CDC has the ability to
pay either existing talent it has to meet that job or talent it
does not have to attract that talent in order to be able to get
its mission done. As an organization, the Partnership for
Public Service believes that the Government would be much
better served if it had a system that both provided the
necessary resources to get the talent it needs and also a
system in place to allow that talent to maximize its capacity
to perform. That system would be one that recognizes and
rewards excellence.
Mr. Nesterczuk. I think there are two elements to that
question as I see it. One is the apportioning down, cascading
down of an agency's mission to various components of that
agency and making sure they understand how it is they
contribute to the overall mission of the agency. That way in
that context, you can do a performance evaluation and the
employee understands what it is that is expected in the overall
context of the agency. It is the cascading down process first
from the top of the agency.
The other aspect of that question I will take off from what
Max responded, the question of market testing, the value of a
physician in one context and one component versus another. That
could change over time. In 1 year, the CDC could play a far
more critical role in handling an epidemic or crisis than
perhaps a local service physician in some remote community,
public health service. So it is difficult to respond globally.
However, I don't have any problems with the notion of
agencies establishing compensation systems independent of each
other. That serves as kind of an internal market within the
Federal community. God knows there are enough jobs in the
private sector that have no comparability to the Federal
Government and vice versa. We are trying to establish market
comparisons with the private sector when a lot of our own
occupations don't fit over there, so creating a market within
the Federal Government has perhaps a very salutary benefit.
I would argue for you that to a certain extent we already
have the beginnings of that in some of our occupations. For
example, in law enforcement, there is a definite pecking order
of agencies, with the FBI sitting on top and everyone who is in
a law enforcement job series would love to wind up in the FBI
but they might start at the Federal Building Service, perhaps
move over to be a guard in the print shop in the Government
Printing Office, then work their way up through the ranks
through Customs or DEA or others.
There is a drift from some agencies and there is a pay
differential that goes along with that, greater opportunities
for career advancement as you go into different agencies. So we
have a market in the Federal workplace but we don't reflect
that in the pay structure.
Mr. Davis of Illinois. Am I understanding each of you to
suggest that in order for pay-for-performance to work,
employees must be intricately involved in devising the system?
Mr. Nesterczuk. Yes, absolutely.
Mr. Mihm. Yes, and where they are involved, it works or can
work and where they are not involved, it does not work.
Mr. Davis of Illinois. Thank you very much.
Mrs. Davis of Virginia. I just have one question for you,
Mr. Nesterczuk.
We just went through the battle last year with the Homeland
Security Act. Do you see that as a model for transitioning our
Federal agencies into a more flexible personnel system? Do you
believe that human resources is one of its successes or
failures?
Mr. Nesterczuk. I think there are better models. I think
Chapter 47 of Title V, the demonstration project authority,
sets out a number of rules of engagement so to speak, the parts
of Title V Civil Service that you shouldn't touch that are kind
of core and common to all versus the ones where perhaps there
are better ways of getting the job done like pay or appeals
processes, the classification system and a number of things
where you are allowed to experiment.
I think using a Chapter 47 model to try to bring agencies
together or to permit an agency to engage in a demonstration
project is far better. We have 25 years of experience with
that, it has worked in the past, it has tested legislative
language. The experiences that I have seen with the FAA in
1996, the IRS in 1998 and TSA in 2001, where you basically tell
the agencies start from scratch, although IRS wasn't quite
scratch, the others were, can be very problematic for an
agency.
The first day the FAA was out from under Title V it
administratively reimposed all of Title V, all of those hideous
rules and regulations of the Civil Service Code right back on
itself because it couldn't start from scratch, it couldn't
start from zero. So the Title V rules are a good starting point
and the Chapter 47 allows you to drop and substitute various
components and pieces of it as you mature, as you go along, as
you gain experience. I think that is probably a far better
model for reform.
Mrs. Davis of Virginia. Would you recommend that we do
demonstration projects if we were to go more to reform?
Mr. Nesterczuk. Yes. I would use Chapter 47 type language
to allow OPM to extend pay reform authority to agency A once it
submitted a plan, how it proposes to do it, why it wants to do
it, etc., but this would be much broader. There would be
restrictions, so you would need to lift some of those
restrictions but the construct, that is what would propose. Let
agencies come to OPM when they are ready to tackle it rather
than go governmentwide because they all need to tailor it
depending on the kinds of occupations they are dealing with,
the kinds of turnover they got, recruiting problems, they need
to tailor those things to their best needs.
Mrs. Davis of Virginia. You gentlemen agree? You are both
shaking your heads yes.
Mr. Davis, do you have anything else for this panel?
Mr. Davis of Illinois. No.
Mrs. Davis of Virginia. Gentlemen, thank you very much for
coming. I hope we didn't keep you here too long and I
appreciate all the information you gave us.
I do apologize that we have a long hearing today but this
is an issue we wanted to hear from everyone. Now we get to hear
from the workers themselves. If I could get panel four to come
forth.
For the fourth panel, we will go through the same drill, so
if you will remain standing, we will administer the oath. Thank
you all for being patient and waiting.
It is the subcommittee practice to ask witnesses to testify
under oath, so if you will raise your right hands.
[Witnesses sworn.]
Mrs. Davis of Virginia. The witnesses will now be
recognized for opening statements. We will ask you to summarize
your testimony in 5 minutes and your full written statements
will be included in the record.
I would like to welcome Colleen Kelley, national president,
National Treasury Employees Union; Jacqueline Simon, public
policy director, American Federation of Government Employees;
Bill Bransford, counsel, Senior Executives Association; and
Karen Heiser, Federal Managers Association. Thank you all again
for being here today and for your patience.
Ms. Kelley, we will start with you and you will be
recognized for 5 minutes.
STATEMENTS OF COLLEEN M. KELLEY, NATIONAL PRESIDENT, NATIONAL
TREASURY EMPLOYEES UNION; JACQUELINE SIMON, PUBLIC POLICY
DIRECTOR, AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES, AFL-CIO;
BILL BRANSFORD, COUNSEL, SENIOR EXECUTIVES ASSOCIATION; AND
KAREN HEISER, FEDERAL MANAGERS ASSOCIATION
Ms. Kelley. Thank you very much, Chairwoman Davis and
Ranking Member Davis.
On behalf of the 150,000 Federal employees represented by
NTEU, we very much appreciate the opportunity to be here today
with you.
The Federal Government has failed for many years now to
invest in its most important resource, its employees. One of
the original Volcker Commission conclusions in 1989 was that,
``The gap between what government and the private sector pays
has grown far beyond the point where government can hope to
recruit and retain qualified staff.''
Although the fiscal year 2003 Federal pay raise was
recently settled, it did not come without a fight and the
administration continues to show a lack of concern for what
failure to properly compensate the Nation's public employees
means for the future of public service by proposing a 2 percent
pay increase sending the unmistakable message for 2004 that the
work is not valued, vital and critical.
NTEU was very disappointed that the recent Volcker
Commission report did not adequately address the problems with
rank and file pay and we have reservations concerning the
recommendations for more flexibility in setting Federal pay.
Pay for performance means something different to everyone.
One thing is certain, however. Where pay-for-performance has
been implemented, very complicated questions and concerns have
been raised that have not yet been resolved.
The GAO recently released its study of the Federal Aviation
Administration's market-based pay for performance system. When
the GAO interviewed FAA employees concerning the new system,
nearly two-thirds of the employees interviewed either disagreed
or strongly disagreed that the new pay system is fair to
employees.
Concerns about Federal supervisors and managers having more
control in the pay-setting process are not unique to the FAA. A
demonstration on pay banding at the Bureau of Alcohol, Tobacco
and Firearms began in early 2000 with the first round of salary
reviews set for that October. Managers received little or no
training on writing pay for performance evaluations. Appraisals
were then forwarded to a performance review board [PRB] which
had the authority to downgrade evaluations. If the individual
supervisor was unable to write a well documented appraisal, the
employee suffered. The authority the PRB was given to downgrade
evaluations led to the belief that the Bureau was operating
with a fixed pool of money. Some employees had to have their
evaluations lowered in order for others to receive pay raises.
This perception of manipulation by management led to employee
skepticism. A fair and unbiased performance appraisal system
must be an underlying principle when judging employees.
In 1996, the House debated legislation to give more weight
to performance appraisals in down-sizing situations. Members
raised serious concerns about the lack of formal performance
appraisal guidance and questioned their tendency to be
subjective, unfair, overinflated and biased against minorities.
The proposal was defeated.
Evidence also points to pay for performance schemes in the
private sector producing poor results. Three years ago the Ford
Motor Co. implemented a performance measurement program and
unwittingly created a culture of backstabbing as employees
tried to outdo one another instead of working together as a
team. Instead of cooperation, the system fostered in-fighting
and divisiveness.
Similarly, the Fairfax County, VA School District was
forced to terminate its merit pay system when it became clear
that teachers were being pitted against each other and
cooperation and team work were discouraged. Moreover the school
district's commitment to its merit system plan waned as soon as
the program began costing money.
As I stated earlier, pay for performance means something
different to everyone you ask. What is consistent, however, are
the problems in designing a quality pay for performance system.
Employees must be encouraged to work together rather than
compete against one another. A system that promotes individual
achievement over group effort is bound to create additional
problems. A pay for performance system designed to be used only
when budgets are flush will breed contempt.
The performance evaluation system used to rate employees
will fail absent employee feedback and commitment to the
process and appropriate manager training in using the new
system is key to ensuring the system will be perceived as
valid.
In summary, NTEU believes that proposals to more closely
link pay with performance must embody several core principles.
Employees and their unions must be full partners in the design
and implementation. Pay for performance is not cost neutral.
Agencies must have adequate resources to implement a pay for
performance system.
Proposed changes must be communicated effectively and
clearly to employees. Development and implementation of a
performance-based appraisal system must be subject to
bargaining with employees and their unions and managers must be
trained to provide fair and unbiased evaluations of employee
performance.
Thank you again for the opportunity to testify and I look
forward to any questions you might have.
[The prepared statement of Ms. Kelley follows:]
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Mrs. Davis of Virginia. Thank you, Ms. Kelley.
Ms. Simon.
Ms. Simon. Madam Chair and Ranking Member Davis, I want to
thank you very much for the invitation to testify today and
specifically for your willingness to listen carefully to all
points of view.
I appear today on behalf of the more than 600,000 Federal
employees represented by AFGE. I will focus my remarks on two
items. The first is an attempt to provide an accurate
description of the General Schedule which has been maligned and
mischaracterized beyond recognition by some advocates of pay-
for-performance. The second will be to highlight many concerns
AFGE has about individualized pay for performance systems.
The version of the General Schedule I will describe is one
that was established as the result of the enactment of the
bipartisan FPCA in 1990. FPCA introduced numerous flexibilities
into the allegedly rigid and never changing GS system: locality
pay differentials, special pay rates for certain occupations,
critical pay authority, recruitment and retention flexibilities
that allow hiring above the minimum step of any grade,
recruitment, retention and relocation bonuses, payment of
travel and transportation expenses for job candidates and new
hires, allowing up to 2 weeks advance pay as a recruitment
incentive, allowing time off incentive rewards, allowing cash
performance-awards, waiver of dual compensation restrictions,
changes to law enforcement pay, special occupational pay
systems, and flexibilities for Title V health care positions
and many more. In addition, FPCA retained the GS allowance for
quality step increases, salary increases awarded on the basis
of extraordinary performance.
The basic structure of the GS is a 15 grade matrix with 10
steps per grade. Movement within a grade or between grades
depends on the satisfactory performance of job duties over
time. That is, whether a worker gets a step increase depends on
performance. The GS classification system also supports
performance by determining the standards against which a
worker's performance will be measured when opportunities for
movement arise. Most important, the GS system is based upon the
merit system principle of equal pay for substantially equal
work, which goes a very long way toward preventing pay
discrimination on the basis of race, ethnicity or gender.
Pay-for-performance is pushed by some on the basis of four
unproven contentions: that it will improve productivity,
recruitment, retention and will effectively punish poor
performers. Even its proponents are reluctant to say that it
will do anything at all to solve the real and longstanding fact
that Federal salaries are too low across the board, the
comparability problem that FPCA might have fixed over the past
decade if it had been funded.
Do the pay systems that set out to reward some individuals
for productivity improvement and punish others who are judged
to have made smaller or negative contributions to productivity
actually work? The facts suggest they do not. Research from
academics without a financial interest in the outcome of the
debate show that individualized pay-for-performance systems
don't deliver on their promises and are notorious for eating up
enormous managerial resources and making everybody unhappy.
More specifically, the research shows that pay-for-
performance undermines team work, encourages a focus on the
short term and leads people to sharpen their political skills
and personal ties to the supervisor rather than to improve the
mission of the organization. Individual pay-for-performance
gives workers the incentive to make themselves look good and
their co-workers look bad. It dissuades people from sharing
knowledge and working cooperatively.
Since salary money always comes in a fixed pot, pay-for-
performance becomes a high stakes competition between workers
within a unit with one worker's gain being another worker's
loss.
Pay consultants and personnelists love individual pay-for-
performance because if administered in a way that uses even a
pretense of fairness, it requires an enormous managerial and
supervisory hierarchy. The Navy's China Lake system which some
consider a worthy successor to the GS is an incredibly complex
system with pages and pages of evaluation documents that each
manager must fill out for each individual under him on an
almost continual basis. Pay-for-performance advocates and
contractors realize all this will have to be checked and
rechecked for accuracy and completion for every single 1 of the
1.8 million Federal employees.
I will close by mentioning OPM's recent poll. Although AFGE
felt that some of the questions in the draft we saw were biased
in a way that would lead respondents to send a message of
support for pay-for-performance, what they seem to have gotten
instead was a message that employees are relatively satisfied
with the existing pay system and do not hold their managers in
adequately high regard to trust them with vast new powers and
discretion over pay.
The only question that really needs to be asked of Federal
employees is, are you willing to trade the annual pay
adjustment passed by Congress which includes a locality
adjustment and any step increases for which you are eligible
for a unilateral decision by your supervisor every year on
whether and by how much your salary will be adjusted.
AFGE supports the congressional attention toward the
inadequacy of Federal pay. We support those who seek to reward
Federal employees for excellence but rewards for extraordinary
performance must be supplements, not substitutes, for a fully
funded regular pay system.
Thank you very much and I would be happy to answer any
questions.
[The prepared statement of Ms. Simon follows:]
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Mrs. Davis of Virginia. Thank you, Ms. Simon.
Mr. Bransford.
Mr. Bransford. Thank you, Madam Chair and Mr. Davis.
On behalf of the Senior Executives Association, we
appreciate the invitation to testify this afternoon on the
subject of Federal pay. We also appreciate your allowing me to
testify at the last minute in place of Jerry Shaw who was
unable to be here.
SEA is the only organization that represents the interests
of career senior executives and I will comment today on matters
of concern surrounding the executive pay system. The more
detailed remarks of Jerry Shaw and supporting documentation
have been submitted for the record.
Pay compression, which you have already heard about this
afternoon, is a longstanding problem in executive pay ranks
that hopefully will be relieved this year. The problem has been
caused by the existence of a pay cap on executive pay that has
not increased in 5 of the last 10 years because Congress did
not vote itself a pay raise. This caused salaries at the bottom
of the executive corps to rise but the top stayed constant.
Today, nearly 70 percent of senior executives are paid the
same.
The administration has proposed to lift the caps on base
pay and locality pay one level for each. If enacted, this will
result in an increase in the cap that limits locality pay from
$142,500 to $154,700. We welcome this proposal from the
administration and look forward to the bill Senator Voinovich
is about to introduce that includes the administration's
provisions.
As I will explain in more detail, we do have some concerns
about some parts of the administration's proposal and we do
seek some adjustments.
In addition to lifting the pay cap, the administration also
proposes to eliminate SES pay levels of which there are now six
and to replace them with one pay band with a minimum pay of
$102,000. Agencies would only be able to pay salaries in excess
of the old cap if they have a certified performance appraisal
system. The administration's proposal contains no provision
preventing reduction of SES pay.
We have the following concerns about the administration's
proposal. First, we support executive pay banding but we
believe three bands would be better for management of the SES
than one broad band. The nature of SES positions and the
experience level of executives varies and we believe this
justifies having distinguishing characteristics in the SES
system other than simply the amount of salary.
Second, we do not support lowering the minimum base pay
from its current $116,500 to $102,000 as proposed by the
administration. We believe this unnecessarily cheapens and
degrades what should be a prestigious corps. We suggest that
senior executives should make more than GS-15s and that someone
who is appointed to the SES should be paid consistent with
historical patterns. We also note that reducing the minimum SES
pay at the same time that efforts are being made to recruit
more minorities and women into the SES could be viewed as
having a discriminatory effect.
Third, OPM has announced its intention to allow SES
salaries under the new cap only for those agencies that have a
certified performance appraisal system under OPM and OMB
regulations. This certification would be for 2 years but could
be revoked at any time. We support a system that makes
meaningful distinctions based on relative performance but we
urge that it be administered only by OPM and that once
certified, an agency could rely on the certification for 4
years, not the up to 2 years as currently required. We seek to
exclude OMB from the process to prevent undue politicization.
Fourth, we ask that there be no pay cap on locality pay. We
see no reason to artificially limit locality pay granted to
every other Federal employee. A cap on locality pay will just
create a new form of pay compression.
Fifth, we propose a new method for adjusting the pay cap be
implemented so that the cap on base pay is increased each year
by the amount of the annual GS pay increase. This will not
result in an automatic pay raise, just the authority to pay it
and we note this is consistent with the Volcker Commission
report that talks about executive pay and congressional pay
being developed separately.
Sixth and last, we ask that safeguards be implemented on
reduction of SES pay. We propose that reductions of up to 3
percent be allowed with a review by the agency performance
review board as is current practice and that reductions greater
than that be reviewed by the MSPB. Reductions in pay currently
are simply not subject to any appeal by senior executives.
These reforms we suggest are not difficult or cumbersome.
They meet the administration's stated concerns of pay for
performance and not granted an across the board pay increase.
We urge the rapid consideration of the administration's
executive pay proposal as modified by our proposals to provide
appropriate safeguards and system adjustments to protect the
integrity of the SES and to prevent it from being politicized.
Thank you for the opportunity to present our views.
[The prepared statement of Mr. Shaw follows:]
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Mrs. Davis of Virginia. Thank you, Mr. Bransford.
Ms. Heiser.
Ms. Heiser. Madam Chair and Congressman Davis, my name is
Karen Heiser. On behalf of the 200,000 managers and supervisors
in the Federal Government whose interests are represented by
the Federal Managers Association, I would like to thank you for
inviting us to present our views before this committee
regarding the important subject of compensation for Federal
employees.
I am currently the organizational development manager at
Watervliet Arsenal in New York with the U.S. Department of the
Army. My statements are my own and in my capacity as a member
of FMA and do not represent the official views of the
Department of the Army or Watervliet Arsenal.
Established in 1913, the FMA is the largest and oldest
association of managers and supervisors in the Federal
Government. As those who are responsible for the daily
management and supervision of government programs and
personnel, our members possess a wide breadth of experience and
expertise we hope will be helpful as we collectively seek to
address the human capital crisis our Civil Service has been
burdened with.
While retaining our status as a world class manufacturer,
Watervliet Arsenal has struggled for over a decade with
decreasing workload and downsizing of personnel. To help offset
attrition and related loss of skills, anticipated hiring of new
engineers and manufacturing apprentices will rejuvenate the
nucleus of our work force. Now is the time for us to revive
development of essential skills for the future through
initiatives such as a reactivated apprentice program at
Watervliet Arsenal where program graduates since the 1800's
have provided our critical manufacturing skills and grown into
many of our supervisory positions from firstline to directorate
level.
At Watervliet Arsenal and beyond, this type of in-house
training and mentoring is what our government must do more of
as we continue to lose valuable expertise by way of retirements
and mid-career departures.
Compounding the myriad of problems associated with the
recruitment and retention of Federal employees is the
significant pay gap that we have discussed between public and
private sectors. According to a 2001 survey of college
graduates, current Federal and non-Federal workers conducted by
the Partnership for Public Service, nearly 90 percent said that
offering salaries more competitive with those paid by the
private sector would be an effective way to improve Federal
recruitment. Eighty-one percent of college graduates that same
year said higher pay would be very effective in getting people
to seek Federal employment.
The public sector simply has not been able to compete with
private companies to secure the talents of top notch workers
because of cash strapped agency budgets and an unwillingness to
address pay comparability issues.
We have discussed FEPCA a bit today. The act was intended
to close the gap between Federal employee salaries and those of
their private sector counterparts. However, FEPCA has never
been implemented as it was originally intended. Since the bill
was enacted, administrations led by both political parties have
used the capping feature designed to reduce pay increases in
times of economic distress. This executive authority has been
utilized despite record budget surpluses.
More than a decade since the enactment of FEPCA, the Bureau
of Labor Statistics shows the pay gap between Federal civilian
employees and their private sector counterparts has grown to 33
percent. If FEPCA is never to be adhered to, we must at a
minimum reexamine the language and the intent of the act and
determine how best to bring public sector salaries more in line
with those of their private sector counterparts. For the time
being, however, we must uphold the longstanding principle of
linking annual pay increases between Federal civilian employees
and military personnel.
Since 1987 and 19 of the past 22 years, civilian and
military personnel have received the same annual raises.
President Bush recently proposed a 2 percent across the board
average pay raise for Federal employees in 2004, while military
personnel are slated to receive a 4.1 percent average pay raise
next year. For the third straight year, the White House has
attempted to delink civilian and military pay increases.
In light of the well documented human capital concerns
facing our Federal Government, we must maintain the tradition
of providing equitable pay increases to Federal civilian
employees and members of the uniformed services, all of whom
work each day to ensure our Nation's security and make
significant contributions to the general welfare of the United
States.
Legislation has been recently introduced in the Senate by
Senator George Voinovich that would allow managers to use a
variety of compensation tools such as recruitment, relocation
and retention bonuses and give agencies streamlined critical
pay authority to fill key positions. These are sensible reforms
that would begin to address the work force problems that will
only worsen with the forthcoming retirement wave of Federal
employees.
Beyond the normal retirement wave of a large portion of the
aging Federal work force, there is a distinct retention problem
in the Federal Government. The notion of the career civil
servant is becoming more and more obsolete because there are
few incentives for advancement in the Federal Government. When
combined with better salary and benefit packages in the private
sector, it is no wonder that many Federal employees are leaving
the public sector after only a few years of service.
In fact, there are oftentimes disincentives for moving up
the career ladder. A perfect illustration is the current
statute that caps overtime pay for Federal managers and
supervisors. Between 1994 and 2001, the non-postal executive
branch civilian work force was reduced by more than 452,000
positions. As one of the effects of this downsizing, overtime
is becoming increasingly common. Under current law, overtime
pay for Federal managers, supervisors and FSLA exempt employees
is limited to that of a General Schedule Level 10, Step 1
employee. The first grade based overtime cap enacted in 1954
set the base at GS-9, Step 1. Twelve years later in 1966, it
was increased to GS-10, Step 1. In the 37 years since then,
however, nothing has been done to keep pace with changing work
force realities.
We have discussed how the work force in the Federal
Government has changed from a clerical work force to one of
more professional or information knowledge related services. In
1966, the average GS grade was 7.3 and in 2001, the average GS
grade was 9.7, nearly three full grades higher since the
implementation of the current pay cap.
Overtime pay is premium pay and therefore does not count
toward increasing an employee's future retirement benefit. That
means that increasing overtime pay does not affect mandatory
spending. The overtime cap causes two problems for Federal
managers and supervisors. Managers and supervisors above a GS-
12, Step 6 can actually earn less on overtime than they do for
work performed during the work week. Second, managers and
supervisors may earn substantially less for overtime work than
the employees they supervise.
Raising the overtime cap would present an opportunity and
provide an important move toward addressing overtime problems
that serve as disincentives to hardworking civil servants
contemplating accepting promotions to the ranks of management
when they consider the various benefits of moving to those
levels of higher responsibility.
The Federal Wage System as we have only touched on briefly,
is one of the most maligned and adversely affected sectors of
the Federal Government. FMA is concerned about securing
adequate pay raises for the 225,000 hardworking men and women
covered by the FWS. This number represents a reduction of 53
percent of the Federal wage system work force size in 1984 due
to downsizing and significant pay disparities with similar
positions in private industry.
A major concern is the disparity in how pay raises are
determined in the present system of wage grade surveying. In
examining the pay setting features used for wage grade pay, a
significant improvement would be the utilization of like
industries in establishing pay scales, providing a standard
wage grade survey and pay scale setting with appropriate
locality adjustments would be a step in the right direction to
resolve this longstanding inequity.
We have talked much about pay for performance and
performance management in general today. Currently, pay is
based on internal equity that revolves around seniority, not
performance. We certainly agree that pay for performance is as
valid as pay for seniority.
As a start, for agencies to perform at optimum levels,
employees must have clearly defined performance standards on
which to be appraised. These standards should be directly
linked to the agency's mission, customer service goals and
their annual performance plan or strategic plan. We at FMA
support implementing a more comprehensive governmentwide
appraisal system that includes a pay for performance component.
We recommend an awards system for managers that adequately
reflects the manager's level of responsibility, span of control
and level of achievement. Of course any such system requires
sufficient appropriations funds. We have too often seen over
time new pay authorities without the necessary dollars to
utilize these tools. The Bush administration has proposed a
$500 million Human Capital Performance Fund for fiscal year
2004 to allow managers to increase pay beyond annual raises for
high performing employees and address other critical personnel
needs. Although this is a step in the right direction,
questions must still be answered in terms of the disbursement
of funds. Who will decide which employees receive increases and
who will determine the amount of such increases? Is $500
million significant and sufficient for a work force of some 1.8
million Federal employees? How much will be lost to
administrative costs as the money filters down through various
chains of command? Will this fund be renewed every year and
appropriated accordingly?
Furthermore, FMA does not believe any new performance fund
should be used to undercut fair and appropriate annual pay
adjustments for Federal employees. The question of an
effective, consistent performance measurement system throughout
the Government must be addressed.
Our conclusion is, as we collectively grapple with the
complex issue of compensation reform in the Federal Government,
we must find where models such as the ones being used at the
IRS and the FAA have succeeded and where they have failed.
There have also been numerous instances where demonstration
projects in the area of expanding personnel authority have
brought success to some Federal agencies but rarely are these
initiatives allowed to cross agency lines.
The approach the Government takes to correct pay systems
for civilian workers will decide how this Nation survives the
human capital crisis before us. More importantly, Congress and
the administration must shift the habitual focus from cutting
the size of the Federal workforce to that of recruiting and
retaining top talent.
Some of the challenges facing the Federal work force will
be difficult to overcome should a continued priority be placed
on the conversion of critical Federal sector jobs to private
sector activity. The loss of valuable and experienced employees
and the institution of wisdom they provide is already taking
place. No real succession planning, including managerial
development and training, has been funded or implemented to
ease the strain the system is facing as retirement eligible
employees leave the public sector.
At FMA we would like to propose several recommendations.
One important priority is to work with both the administration
and Congress to alter the image and perception of the Civil
Service. Far too often civil servants have unfairly taken the
brunt of the blame for ill-advised policies they have no
control over. The public must recognize the important duties
our Federal employees perform each and every day on their
behalf.
We would also like to see review of FEPCA to examine what
adjustments need to be made to enable the legislation to work
as intended. Any constructive dialog is better than the hollow
act of preemptive designated pay increases each and every year.
We also support ways to improve the hiring process for
Federal employment and bring about policies that attract the
best and brightest of our society to serve in public service.
Correspondingly, managers should be afforded the means to
continuously enhance their skills. Agencies and departments
should increase opportunities for managers to receive training
in their respective fields while on duty by specifically
allocating funds for this training. Thus FMA supports
establishing management succession programs to ensure we have
the strongest possible pool of managers to lead tomorrow's
Civil Service.
Finally, we encourage a real and sincere look at Federal
pay systems while encouraging structures that attract, retain
and maintain the Federal workforce we need and desire. You
asked if everyone was satisfied with pay, should we still look
at the grade structure. I would put to you that the current
grade structure not only determines pay but also is a
determining factor in recruitment and internal movement of
employees. Often a person's grade is more determining of their
ability to be promoted than their resume. That is not good.
That is not right.
We would propose that any new system be fair and realistic
in offering career ladder incentives and progressions.
I would like to thank you again, Madam Chair, for allowing
me to go beyond my 5 minutes and for providing FMA an
opportunity to present our views. We look forward to working
with you and other Members of Congress to deal with the human
capital crisis. I would be delighted to answer any questions
you have.
[The prepared statement of Ms. Heiser follows:]
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Mrs. Davis of Virginia. Thank you, Ms. Heiser.
Once again, I would like to say thank you to all of you for
having to wait so long to be able to be our witnesses today.
Ms. Simon, you referred to the survey--and we have all
referred to it a lot today--you referred to it and said the
questions were in such a way to make it look like pay-for-
performance was something that the workers would be interested
in. I believe it was only 27 percent who said they felt there
was an adequate way to deal with poor performance. Can you
speak to poor performers and how the folks in your union feel
about the poor performers? It is tough to get rid of them now.
Ms. Simon. The first thing I would like to say about poor
performers is although in the context of today's discussion, we
are talking about pay, pay is not the only tool in the toolbox
for dealing with poor performance. We really don't think it is
appropriate to have a discussion about pay be so focused on how
to deal with the problem of poor performers.
Poor performers are a discipline problem. There are
certainly procedures on the books that allow managers to deal
with poor performers through performance improvement plans,
through various forms of discipline including demotion and
termination. To suggest that the pay system be radically
altered just to use pay as sort of a blunt instrument for
punishing people who are judged to be poor performers seems to
be inappropriate to us.
Mrs. Davis of Virginia. Has the thought occurred that it
might not be to punish the poor performers but to get them to
perform better, that rather than punishment, be an incentive to
get them to do their work?
Ms. Simon. I think that is certainly a good idea and I
think the procedures for allowing an employee to have an
opportunity to improve through a performance improvement plan
is already in existence and is not using pay as the exclusive
tool for either encouraging someone to improve or punishing
them if they haven't.
Mrs. Davis of Virginia. As it stands now, how would an
employee doing work over and above, in their opinion, feel that
their pay is the same as the poor performer and their increases
are the same because everybody's pay increase is the same when
they are at the same grade, if I am not mistaken. Is that
correct?
Ms. Simon. If you have a situation like the one you just
described, I would say it is really a case of poor management.
It is a manager's responsibility to deal with the poor
performer. It is a manager's responsibility to sit down with
that employee and devise a plan for that employee's improvement
and give that person the opportunity, the resources and the
assistance he or she may need to improve.
If, in spite of all that, the employee still fails to
improve, then it is the manager's responsibility to deal with
the poor performer. It is the manager's responsibility if he or
she still thinks there is hope, to withhold a step increase
when that employee becomes eligible. That is the existing
system that does give a manager an opportunity to use the pay
system as a performance management tool but then there are
hopeless cases, let us face it. When it is the manager's
unpleasant duty to either demote or ultimately terminate an
employee who isn't pulling his weight.
Mrs. Davis of Virginia. If I am not mistaken on one of the
surveys someone reported earlier, 83 percent of the workers had
a good performance rating. Yet, how do you justify that with
the 27 percent of the folks in the survey who said they did not
think the poor performers were being dealt with in a good way.
Do you think there are just that few poor performers?
Ms. Simon. I don't pretend to be an expert on exactly what
the questions were in the final survey or the interpretation of
the results. As I said in our testimony, we saw draft questions
in that poll. We did not see the final poll questions and I
haven't had the opportunity to do a really thorough examination
of whether or not the way the poll results are being presented
is necessarily an accurate way to present that data.
One of the things we know is that this poll was undertaken
during a very difficult period for Federal employees. They are
facing relentless attacks in many forms but certainly a very
aggressive privatization agenda, they are hearing about all
kinds of what they consider to be threats to give their
managers tremendous discretion over their pay system, and to
the extent they express satisfaction with their pay, we believe
they are expressing satisfaction with the existing system as
compared to some of the alternatives they have heard about that
certainly don't make them feel very comfortable given the sort
of hostilities they have experienced in the last several
months.
Mrs. Davis of Virginia. We have three votes and I want to
give my colleague a chance to ask some questions, but I have
one quick question for all three of you. Do any of you agree
that we need to move to a more market and performance pay based
system for the Federal Government to maximize the performance
of the Federal people? Do any of you agree with that?
Ms. Simon. I would say that to the extent we need to move
toward a more market based system, the market-based attribute
we need to move toward is comparability, that which was
promised but never realized through FEPCA.
Mrs. Davis of Virginia. So the dollar figure versus
changing the system?
Ms. Kelley. I agree with the issue of comparability. On the
issue of performance, NTEU supports anything that will help the
employees to do a better job so they can be successful and so
the agencies can be successful. I am not convinced that
necessarily means a pay-for-performance as I envision what that
means. I truly do believe if everyone in this room were asked
to write down what pay-for-performance means on a blank piece
of paper, we would have a lot of different definitions of what
it is. Therein, I think, lies the problem, but anything to
support and to improve the performance and the efficiency of
the Federal Government, NTEU and the employees we represent
would stand behind that.
Mr. Bransford. SEA supports pay-for-performance. It
believes that the SES, the Senior Executive Service has
historically been a pay-for-performance system.
When you talk about a market system, I am not sure what
that means. If we are talking about the comparability increases
and that kind of thing, I agree with my colleagues, but if you
are talking about paying executives who do computer work
differently from executives who do program work, I am not sure
how you do that. I think that needs more study.
Mrs. Davis of Virginia. Ms. Heiser.
Ms. Heiser. FMA would support a pay-for-performance
component without eliminating the annual increases and other
types of opportunities available for employees to increase
their salary. That aside, on the issue of comparability, we
think we need to get away from the old ways of looking at
classifications of jobs and how skills are determined to be
comparable without regard to the mission of an agency,
installation or whatever level those determinations are being
made.
Pay-for-performance, we have heard some stories of very
negative effects and that does happen because you all made
valid issues that managers have to be trained, employees have
to buy in, there is no doubt about that. I designed and
implemented a very, very successful pay-for-performance system
in the private sector before I came into the Federal Government
and I can tell you that you are always going to have some
subjective component but overall, it was extremely successful.
It was a hospital and was based on our mission, our strategic
planning, customer service, involved the union and the
employees and managers working together.
Mrs. Davis of Virginia. Mr. Davis. I think we probably have
another 5 minutes.
Mr. Davis of Illinois. Thank you very much.
I know some of you may have been here when Representative
Ruppersberger testified. I don't think you were, Ms. Kelley. If
you were, what do you think about gainsharing as a possible way
of arriving at pay for performance?
Mr. Bransford. Mr. Davis, I think it is a great idea if it
can be quantified. I think that is the problem, quantifying the
savings because there are a lot of different ways of counting
and if you can figure that out with some level of objectivity
so that there really is a taxpayer savings and then reward the
employees, I think that is a great incentive.
Ms. Simon. AFGE had some experience with gainsharing and in
general, we support the idea of productivity gainsharing
focusing on organizational success and group productivity
awards, but there are two things to bear in mind. First of all,
we believe even the gainsharing program should be as a
supplement to a well funded regular pay system and second, the
most successful demonstration project that involved
gainsharing, the Pacer Share Program in the Department of
Defense, was ended in spite of its success because it cost too
much. It did have supplemental funding but the agency decided
it was too costly.
Mr. Davis of Illinois. And last, what do you think about
privatization? How does privatization relate to what we are
trying to accomplish in terms of creating and retaining the
work force that we need for the Federal Government?
Ms. Heiser. Privatization is a clear statement that Federal
employees are not valued as a starting point.
Ms. Kelley. I would say the Federal employees see
privatization as an intent to move their jobs. It is not about
competition and is not about giving them the resources to be
able to find the efficiencies and be as successful as everyone
talks about on the issue of privatization. If there were those
resources, there is no question the Federal employees could do
the job better than anyone else but they are not being given
the resources and are expected to deliver on the efficiencies.
So there is really no way for them to see the privatization
effort other than as a threat to Federal employees doing the
work of the Federal Government.
Ms. Simon. We agree with our colleagues. The privatization
quotas that have been imposed by the administration are
certainly the worst scourge on the Federal work force right now
and I think they, far more than the pay system or any failures
of the pay system, explain agencies' difficulties in
recruitment and retention.
I think it was very telling that Representative
Ruppersberger mentioned the fact that he considered
privatization of the grass cutting prior to implementation of
the gainsharing program. Unfortunately, with the
administration's rewrite of the A-76 process, any kind of
strategy or management tool that would try to reorganize or
reengineer or do anything to improve productivity is explicitly
precluded. The only tool that managers are allowed to use
whether or not it saves money is privatization.
Mr. Davis of Illinois. I thank you very much, Madam
Chairman. I would just conclude that I guess there are people
who would expect the Federal workforce to make bricks without
any straw. I thank you very much and it has been a pleasure.
Mrs. Davis of Virginia. Thank you, Mr. Davis.
Unfortunately, we have three votes, not just one, and it is
going to be 30 to 45 minutes before we could get back, so I
want to say thank you all for coming and if it is OK with you,
I have some more questions I would like to submit to you for
the record. If I could get you to put them in writing, we will
make sure they are distributed to the other members of the
subcommittee.
Thank you again for coming and I appreciate your time and
patience.
The meeting is adjourned.
[Whereupon, at 3:32 p.m., the subcommittee was adjourned,
to reconvene at the call of the Chair.]
[Additional information submitted for the hearing record
follows:]
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