[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
ROBBING MARY TO PAY PETER AND PAUL: THE ADMINISTRATION'S PAY-FOR-
PERFORMANCE SYSTEM
=======================================================================
HEARING
before the
SUBCOMMITTEE ON FEDERAL WORKFORCE,
POSTAL SERVICE, AND THE DISTRICT
OF COLUMBIA
of the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
FEBRUARY 12, 2008
__________
Serial No. 110-203
__________
Printed for the use of the Committee on Oversight and Government Reform
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
http://www.house.gov/reform
U.S. GOVERNMENT PRINTING OFFICE
53-641 PDF WASHINGTON : 2009
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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
HENRY A. WAXMAN, California, Chairman
EDOLPHUS TOWNS, New York TOM DAVIS, Virginia
PAUL E. KANJORSKI, Pennsylvania DAN BURTON, Indiana
CAROLYN B. MALONEY, New York CHRISTOPHER SHAYS, Connecticut
ELIJAH E. CUMMINGS, Maryland JOHN M. McHUGH, New York
DENNIS J. KUCINICH, Ohio JOHN L. MICA, Florida
DANNY K. DAVIS, Illinois MARK E. SOUDER, Indiana
JOHN F. TIERNEY, Massachusetts TODD RUSSELL PLATTS, Pennsylvania
WM. LACY CLAY, Missouri CHRIS CANNON, Utah
DIANE E. WATSON, California JOHN J. DUNCAN, Jr., Tennessee
STEPHEN F. LYNCH, Massachusetts MICHAEL R. TURNER, Ohio
BRIAN HIGGINS, New York DARRELL E. ISSA, California
JOHN A. YARMUTH, Kentucky KENNY MARCHANT, Texas
BRUCE L. BRALEY, Iowa LYNN A. WESTMORELAND, Georgia
ELEANOR HOLMES NORTON, District of PATRICK T. McHENRY, North Carolina
Columbia VIRGINIA FOXX, North Carolina
BETTY McCOLLUM, Minnesota BRIAN P. BILBRAY, California
JIM COOPER, Tennessee BILL SALI, Idaho
CHRIS VAN HOLLEN, Maryland JIM JORDAN, Ohio
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
JOHN P. SARBANES, Maryland
PETER WELCH, Vermont
------ ------
Phil Schiliro, Chief of Staff
Phil Barnett, Staff Director
Earley Green, Chief Clerk
David Marin, Minority Staff Director
Subcommittee on Federal Workforce, Postal Service, and the District of
Columbia
DANNY K. DAVIS, Illinois
ELEANOR HOLMES NORTON, District of KENNY MARCHANT, Texas
Columbia JOHN M. McHUGH, New York
JOHN P. SARBANES, Maryland JOHN L. MICA, Florida
ELIJAH E. CUMMINGS, Maryland DARRELL E. ISSA, California
DENNIS J. KUCINICH, Ohio, Chairman JIM JORDAN, Ohio
WM. LACY CLAY, Missouri
STEPHEN F. LYNCH, Massachusetts
Tania Shand, Staff Director
C O N T E N T S
----------
Page
Hearing held on February 12, 2008................................ 1
Statement of:
Kelley, Colleen, president, National Treasury Employees
Union; John Gage, president, American Federation of
Government Employees; Gregory Junemann, president,
International Federation of Professional and Technical
Engineers; and Carol Bonosaro, president, Senior Executives
Association................................................ 123
Bonosaro, Carol.......................................... 168
Gage, John............................................... 137
Junemann, Gregory........................................ 148
Kelley, Colleen.......................................... 123
Ruiz, Diego, Executive Director, Securities and Exchange
Comission; Richard A. Spires, Deputy Commissioner for
Operational Support, Internal Revenue Service; and Ronald
P. Sanders, Chief Human Capital Officer, Office of the
Director of National Intelligence.......................... 91
Ruiz, Diego.............................................. 91
Sanders, Ronald P........................................ 108
Spires, Richard A........................................ 99
Tiefer, Charles, professor, University of Baltimore School of
Law; J. Russell George, Inspector General, U.S. Treasury
Tax Administration; Charles Fay, professor, School of
Management and Labor Relations, Rutgers University; Robert
Tobias, director, public-sector executive programs, and
director, ISPPI, School of Public Affairs, American
University; Stanley Ridley, president and CEO of Ridley &
Associates, LLC; and Max Stier, president and CEO, the
Partnership for Public Service............................. 9
Fay, Charles............................................. 39
George, J. Russell....................................... 29
Ridley, Stanley.......................................... 57
Stier, Max............................................... 72
Tiefer, Charles.......................................... 9
Tobias, Robert........................................... 40
Letters, statements, etc., submitted for the record by:
Bonosaro, Carol, president, Senior Executives Association,
prepared statement of...................................... 170
Davis, Hon. Danny K., a Representative in Congress from the
State of Illinois, prepared statement of................... 4
Gage, John, president, American Federation of Government
Employees, prepared statement of........................... 140
George, J. Russell, Inspector General, U.S. Treasury Tax
Administration, prepared statement of...................... 31
Junemann, Gregory, president, International Federation of
Professional and Technical Engineers, prepared statement of 150
Kelley, Colleen, president, National Treasury Employees
Union, prepared statement of............................... 125
Ridley, Stanley, president and CEO of Ridley & Associates,
LLC, prepared statement of................................. 60
Ruiz, Diego, Executive Director, Securities and Exchange
Comission, prepared statement of........................... 94
Sanders, Ronald P., Chief Human Capital Officer, Office of
the Director of National Intelligence, prepared statement
of......................................................... 111
Spires, Richard A., Deputy Commissioner for Operational
Support, Internal Revenue Service, prepared statement of... 101
Stier, Max, president and CEO, the Partnership for Public
Service, prepared statement of............................. 74
Tiefer, Charles, professor, University of Baltimore School of
Law, prepared statement of................................. 11
Tobias, Robert, director, public-sector executive programs,
and director, ISPPI, School of Public Affairs, American
University, prepared statement of.......................... 42
ROBBING MARY TO PAY PETER AND PAUL: THE ADMINISTRATION'S PAY-FOR-
PERFORMANCE SYSTEM
----------
TUESDAY, FEBRUARY 12, 2008
House of Representatives,
Subcommittee on Federal Workforce, Postal Service,
and the District of Columbia,
Committee on Oversight and Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:05 p.m., in
room 2154, Rayburn House Office Building, Hon. Danny K. Davis
(chairman of the subcommittee) presiding.
Present: Representatives Davis of Illinois, Norton,
Sarbanes, and Kucinich.
Staff present: Tania Shand, staff director; Lori Hayman,
counsel; LaKeshia Myers, clerk; Mason Alinger, minority deputy
legislative director; and Alex Cooper, minority professional
staff member.
Mr. Davis of Illinois. The subcommittee will come to order.
I know that the ranking member is on his way from Texas, and,
of course, depending on where you are in Texas, that could be
coming a long ways. But we will go ahead and proceed with the
hearing.
Let me welcome members of the subcommittee, hearing
witnesses, and all of those in attendance. I welcome you to the
Federal Workforce, Postal Service, and the District of Columbia
Subcommittee hearing, ``Robbing Mary to Pay Peter and Paul: The
Administration's Pay-for-Performance System.''
The purpose of the hearing is to examine the executive
branch's implementation of pay-for-performance systems.
Hearing no objection, the Chair and ranking member and
subcommittee members will each have 5 minutes to make opening
statements, and all Members will have 3 days to submit
statements for the record.
Good afternoon, and to the ranking member and subcommittee
members and all of those present, welcome to the subcommittee's
first hearing of the second session of the 110th Congress.
Today's hearing continues the subcommittee's examination of the
implementation of pay-for-performance systems at various
Federal agencies.
Last March, the subcommittee held a hearing on Federal
personnel reforms, followed by a hearing in May on the
personnel and pay reforms implemented at the Government
Accountability Office [GAO].
Today we turn our attention to the pay-for-performance
systems at the Securities and Exchange Commission and the
Internal Revenue Service. We will also take a look at the pay-
for-performance system that the Office of the Director of
National Intelligence would like to impose on the Intelligence
Community.
The implementation of these systems must be evaluated with
the same intensity that the Bush administration and other pay-
for-performance proponents advocated that these systems will be
implemented.
The title of the hearing, ``Robbing Mary to Pay Peter and
Paul,'' reflects our intent to personalize the impact these
systems have on Federal employees. Our work force is made up of
individuals sharing a commitment to public service with
personal goals and needs. They should not be viewed as or
treated as a bunch of bureaucrats who can be driven to better
performance by the prospect of monetary rewards.
The title also helps explain how the administration's pay-
for-performance system really works. Under the system, Mary,
who is a good performer and meeting established performance
expectations, may not receive a cost-of-living increase [COLA],
needed to offset inflation because her increases are needed to
reward Peter and Paul, who were subjectively judged to be
slightly better performers. That is the aspect of pay for
performance that is so infrequently discussed; that in the
absence of a significant increase in funds, performance-based
increases are often funded by denying or reducing other
employees' COLAs and bonuses. Also, if Mary is an African
American, the likelihood of her being adversely impacted by the
subjective application of the performance standards is
increased.
Next year, after his agency has conducted a market-based
study, Peter will be classified as overpaid. Though Peter, with
30 years of service, has been a good performer, he will receive
a small bonus, but no COLA. Bonuses are not counted toward base
pay, which will affect Peter's high three and, consequently,
his retirement benefit.
After a year or two, Peter, Paul and Mary are demoralized,
and their teamwork has suffered. They are uncertain about their
pay, have little faith in the system, and are looking for jobs
in agencies that do not have a pay-for-performance system.
Peter, Paul and Mary are representative of real Federal
employees whose pay and retirement are being similarly affected
as we speak. If these systems are not fair and equitable,
transparent and credible, and do not have the--buy-in of
Federal employees, I do not believe that they have a place in
the Federal Government.
Federal agencies cannot say that they did not know that
credibility, employee buy-in and equity were key to the
successful implementation of these systems. These issues were
raised up front by this subcommittee and others, yet agencies
are failing in all these areas. Further, these systems do not
appear to retain employees or increase their performance as the
administration advertised.
I ask unanimous consent that the Treasury Inspector General
for the Tax Administration report on the IRS's pay-for-
performance system be submitted for the record along with
arbitrator James M. Harkless' decision that the pay-for-
performance system at the SEC resulted in discrimination
against African-Americans and employees who are 40 and older.
Today's witnesses are here to help us evaluate these
systems and, where needed, to recommend corrective measures.
[The prepared statement of Hon. Danny K. Davis follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Davis of Illinois. Now I would like to ask Delegate
Norton if she has a statement that she would like to make.
Ms. Norton. Yes, Mr. Chairman, beginning with expressing my
gratitude that you have continued to do a great deal of due
diligence here. I just regret that the subcommittee continues
to be ignored, because it's going to make the task before us
harder, but inevitably I want to say a few words about why I
think the outcome is assured.
Now, even after the GAO debacle, we now have this
administration trying essentially to move the same pay systems
to what amounts to a half of the work force. When I say
``debacle,'' I don't consider getting a union a bad thing, but
I get the GAO does. Of course, as the COLA for 2008 is
restored, there is more work for this Congress to do.
Let me first say a word about standards. As I read what the
administration seeks to do, I had worse than a feeling of deja
vu, because these issues have been litigated and settled for
decades. To show you how far afield you are and where I come
from, it certainly is not that there is no conceivable way for
pay for performance to be done; nobody has even tried to
implement what the courts have said you have to do if you want
to create new standards.
As it turns out, these matters came forward first in the
discrimination laws, but the courts have said they apply across
the board.
Simply stated--and here is decades of court of appeals and
Supreme Court law--simply stated, let me just move to the
private sector first, if you want to use a pay system, a
promotion system, a testing system, or any other term and
condition of employment, it must be race- and sex- and age-
neutral, end of litigation.
I don't know whether the administration enjoys a class
action, but that's what it's going to get any day now, and
class actions that will inevitably lose.
Members of Congress, I have said, please save us some money
and listen to the subcommittee, although I assure you that what
the administration is doing now is courting not litigation, but
legislation. That's the rule. If any of our witnesses can tell
us that rule has been revised or changed, I would like to hear
it, since I make it my business to keep up with Supreme Court
litigation.
Now, if that is the rule that was developed mostly in
private-sector litigation, let's add on to it government,
Federal, State or local government and ask what would the rule
there be? I think we can agree it would at least be what the
rule is for the private sector, but--and here is where the
administration is brain dead, if you would forgive me--this is
a Civil Service system. Read my lips, Civil Service system. It
wasn't formed that way because someone woke up and said this is
the only way to do government. It came out of hard experience
with corruption, to be sure. But its main importance today is
that the government is subject to due process, the due process
clause of the fifth amendment. That's why, for example, you can
fire a private-sector employee, but a public-sector employee
has to have a hearing.
Why would you have to do that? Because the fifth amendment
kicks in, the Constitution kicks in when there is State action.
The State action is the government employing people, and
certain due process standards adhere.
This administration has never understood the difference
between a Civil Service system and a private system. I have
just told you that even the private system now has to operate
under race-, sex- and age-neutral standards.
As if that weren't enough, what is truly hard to understand
is how the administration would believe, given the actions of
this Congress, without exception, that it could fail to provide
money to reward people in its proposed pay system and take the
money from COLAs or locality pay. How in the world does the
administration think it has the statutory authority to do that?
Let me cite for you what the Congress does each and every
year with COLAs. The administration sends over a COLA. It
inevitably divides military from Civil Service. Inevitably,
overwhelmingly the Congress passes a COLA for every single
civil servant equal to the COLA for the military. Yet the
administration believes that it can take some people's COLAs,
and that the Congress would just sit by and let that happen.
If the administration wants that to happen, it seems to me
it has to talk with the chairman, with the committee and with
the Congress, and that would be difficult to effect, but at
least we would be having a conversation about what you are
after.
So I am here, Mr. Chairman, because I think you are doing
the right thing in bringing forward the difficulties we see,
but also asking the administration to come in and describe in
detail how it is able to skip over just the handful of things
that I have pointed out that I regard as huge barriers built
into the system, and to hear from experts who might enlighten
us so that together we might come to some accommodation and
would not have to rely upon, on the one hand, litigation from
employees, or, on the other hand, legislation from the Congress
of the United States.
Thank you again, Mr. Chairman, for this very important
hearing.
Mr. Davis of Illinois. Thank you very much, Delegate
Norton.
Mr. Kucinich.
Mr. Kucinich. I want to thank you for holding this hearing,
Mr. Chairman. I think it's important that we thank those who
work for the government for the work that they do and indicate
that they ought to be well paid, but they ought not to be
manipulated; that if they are doing a good job, they should be
compensated for it, and they shouldn't be pitted against each
other in any way.
I want to thank all of you for the work that you do. I came
here to make that statement, Mr. Chairman. I am glad you are
looking at this, because this is certainly something that
deserves to be looked at in the interest of those who serve the
same public that we serve.
Thank you.
Mr. Davis of Illinois. Thank you very much.
We will now hear from our witnesses, and I will introduce
the first panel.
Our first panel of witnesses is Dr. Charles Tiefer, who is
a professor of law at the University of Baltimore School of
Law. Prior to joining the University of Baltimore's faculty in
1995, Dr. Tiefer served as Solicitor and Deputy and General
Counsel of the U.S. House of Representatives for 11 years. He
is a quoted expert on Federal, governmental and constitutional
law.
Dr. Tiefer, thank you so much.
The Honorable J. Russell George was nominated by President
Bush and confirmed by the U.S. Senate in November 2004 as the
Treasury Inspector General for Tax Administration. Prior to
assuming this role, Mr. George served as the inspector general
of the Corporation for National and Community Service.
Thank you very much, Mr. George.
Dr. Charles Fay is a professor and chair of human resource
management at the School of Management and Labor Relations at
Rutgers University. He has worked over the last 5 years as a
consultant to the Bureau of Labor Statistics on the National
Compensation Survey. He was a Presidential appointee to the
Federal Salary Commission and also served as chair of the
research committee of the American Compensation Association.
Thank you, Dr. Fay.
Mr. Robert Tobias is currently the director of public-
sector executive programs at American University. Mr. Tobias
was nominated by President Clinton, and the Senate confirmed
him for a 5-year term, as a member of the Internal Revenue
Service Oversight Board. The Board has broad and strategic
oversight authority, responsibility for the IRS.
Thank you, Mr. Tobias.
Dr. Stan Ridley is president and CEO of Ridley &
Associates, a human- and organization-development consulting
firm in Washington, DC. Dr. Ridley has served on national
training committees and developed training on such topics as
managing diversity, performance appraisal and strategic
planning.
Dr. Ridley, we thank you.
Mr. Max Stier is the president and CEO for the Partnership
for Public Service. The partnership is a nonpartisan, nonprofit
organization dedicated to revitalizing the public service
through a campaign of educational efforts, policy, research,
public-private partnerships and legislative advocacy.
It is the policy of this committee that all witnesses be
sworn. So, if you would stand and raise your right hands.
[Witnesses sworn.]
Mr. Davis of Illinois. The record will show that each one
of the witnesses answered in the affirmative.
Gentlemen, we thank you all for being here. Of course, the
green light indicates that you have 5 minutes in which to
summarize your statement, which is already in the record. The
orange and yellow light indicates that your time is running
down, and the red light indicates that it's time to stop.
We thank all of you again for being here, and we will begin
with Dr. Charles Tiefer.
STATEMENTS OF CHARLES TIEFER, PROFESSOR, UNIVERSITY OF
BALTIMORE SCHOOL OF LAW; J. RUSSELL GEORGE, INSPECTOR GENERAL,
U.S. TREASURY TAX ADMINISTRATION; CHARLES FAY, PROFESSOR,
SCHOOL OF MANAGEMENT AND LABOR RELATIONS, RUTGERS UNIVERSITY;
ROBERT TOBIAS, DIRECTOR, PUBLIC-SECTOR EXECUTIVE PROGRAMS, AND
DIRECTOR, ISPPI, SCHOOL OF PUBLIC AFFAIRS, AMERICAN UNIVERSITY;
STANLEY RIDLEY, PRESIDENT AND CEO OF RIDLEY & ASSOCIATES, LLC;
AND MAX STIER, PRESIDENT AND CEO, THE PARTNERSHIP FOR PUBLIC
SERVICE
STATEMENT OF CHARLES TIEFER
Mr. Tiefer. Thank you, Mr. Chairman, and members of the
subcommittee. I am a professor at the University of Baltimore
Law School, and the author of books and articles and testimony
before House and Senate committees on Federal employment
policies.
In the past year, since my last testimony on these pay-for-
performance systems, the rollout of these systems has revealed
serious costs and impacts. First and most dramatically, we have
seen this year that they pose systemic discrimination risks.
Unlike objective governmentwide pay increases, which are race-
neutral, these systems work by evaluative ratings, using loose
subjective evaluation criteria; for example, whether employees
are considered to be ``collaborating with others.''
These systems are vulnerable to supervisors' stereotyping,
diversity-disparaging attitudes and issues of communications.
Just as in the past, a host of scholarly studies, of which a
leading collection is Professor Naff's book, To Look Like
America: Dismantling Barriers for Women and Minorities in
Government--studies have shown that Federal promotion and
discipline is vulnerable to such discriminatory biases when it
works by purely subjective and loose evaluative criteria.
Now, the particular finding that we had this year was on
September 4th when the arbitrator's ruling agencywide about the
SEC found systemic age and race discrimination. As Stephen Barr
of the Washington Post summarized, the ruling ``found the SEC
pay system led to discrimination against 324 black employees
and 1,109 employees who were 40 or older.''
Now, the other agencies who are still aggressively rolling
out pay-for-performance systems, from the Defense Department
with NSPS to the Intelligence Community, which will testify
today, will want to contend that they have set up neutral
systems, and they are doing it under plans, and that their
officers have the opposite of an intent to discriminate, and
that there's no evidence that they will intend to discriminate.
But, as you will read, the SEC says in its statement here
today, and as the arbitrator found, the SEC did not have intent
to discriminate. Intent to discriminate is not necessary to
have discrimination found in an agencywide system. What they
had were a set of statistics that showed a prima facie case of
rampant age and race discrimination, which followed from their
using subjective evaluative criteria without a system to check
what that would mean and without validation.
Now, the SEC will also tell you today that they have
revamped their program, but the most important lesson they
learned, as they say toward the very end of their statement, is
that ``the Commission has decided to temporarily separate our
performance management system from the merit pay system.''
Translation: They have stopped linking pay to performance.
They have spent some years trying to come out with an
evaluative system that can work at all, and only then will they
consider linking it to pay. By ``some years,'' they aren't even
going to have the performance system in place for the rest of
the Commission under the top levels until around starting 2009.
That's the kind of schedule that an agency soberly sets in this
kind of transition, but it's not the schedule that other
agencies are considering.
Are other agencies going to produce numbers similar to the
SEC's? If we were to check, well, absolutely, I am afraid. A
study for this subcommittee last year by GAO Strategic Issues
Office found that by studying the SES governmentwide, a
shockingly low level of minorities in the SES at the Defense
Department, half of what is found in the other departments. The
governmentwide figure for minorities in the Senior Executive
Service is 16 percent; the Defense Department figure a mere 8
percent. That was the testimony given to this committee May
2007 in this GAO report.
The pay-for-performance system's furthermore disregard just
like that shouts that in the Defense Department there's a big
problem in minority manager promotion and recruiting policy. So
the pay-for-performance system's disregard of seniority and
experience and evaluations has sent a not-too-subtle signal to
withhold raises from older employees, which the SEC arbitrator
found led to a case of illegal age discrimination.
Now, you will also hear today that the Intelligence
Community is pushing ahead with its program, but you will hear
very little of the skeptical and critical congressional
oversight provision, section 308 of the Intelligence
Authorization Conference Report, which has demanded answers
from the DNI about the alarming threat concerning minority and
age discrimination in the Intelligence Community, because the
intelligence agencies have a history of much worse numbers on
minority employees than the civilian departments. If you go
back not that far and put it frankly, some of those
intelligence agencies were lily white.
Now, is DNI making a recruitment and promotion of
minorities a top priority? No. Like the SEC, they are
instituting a program of subjective performance evaluations on
criteria like, ``Do they collaborate with others.''
I might say second that the administration's no new regular
funding basis does what the title of this hearing said: It robs
Mary to pay Peter and Paul. I summarize in my testimony why the
NSPS recent pay raise does not include regular funding, and I
will refer to the balance of my statement.
Thank you.
Mr. Davis of Illinois. Thank you very much.
[The prepared statement of Mr. Tiefer follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Davis of Illinois. We will go to the Honorable J.
Russell George.
STATEMENT OF J. RUSSELL GEORGE
Mr. George. Thank you, Mr. Chairman, Delegate Norton. It's
a pleasure to be before you today to discuss the Internal
Revenue Service's pay-for-performance system.
The Federal Government is faced with a human capital
crisis, and the IRS is no exception. By the end of fiscal 2010,
66 percent of the IRS's executives, 50 percent of its senior
managers and 36 percent of its front-line managers will be
eligible to retire.
To its credit, the IRS has already begun efforts to address
its human capital challenges. It has made progress in
transforming the agency into a more efficient, modern and
responsive organization.
A tool that should help recruit, retain and motivate
managers is a pay-for-performance system, but to do so, it
needs a good design and an even better implementation.
TIGTA has looked closely at the IRS pay-for-performance
system. If I were to issue a grade on the system similar to the
report cards that former Representative Steve Horn issued when
he was a subcommittee chairman on this committee, I would have
to give the IRS a C.
The IRS' efforts to implement a pay-for-performance system
began after enactment of the IRS Restructuring and Reform Act
of 1998. The IRS has implemented its pay-for-performance system
in three phases. Phase 1 for senior managers was launched in
March 2001. It placed all grades 14 or 15 mid level managers
into one pay band. Phase 2 for department managers was launched
in November 2001. It placed all grades 11 to 13 second-level
managers at IRS campuses into one pay band. Phase 3, which was
launched in 2005, placed all front-line managers from grade 5
to 15 into 11 pay bands.
TIGTA's July 2007 audit of the pay-for-performance system
found three major shortcomings in its design. First, the IRS's
pay-for-performance structure did not provide the benefits
envisioned in the Reform Act. These benefits include the
flexibility to assign new or different work, a greater ability
to hire more quickly and offer more competitive salaries, and
the ability to provide employees with better opportunities to
enhance their knowledge and advance their careers.
Second, the method for determining annual salary increases
for managers on all three pay systems may result in pay
inequities. For example, managers could receive increases that
are less than those received by other nonmanagerial employees
who automatically receive the annual across-the-board salary
increases established by the President.
Third, the Office of Personnel Management requires that the
lowest and highest salaries for each pay band must be
commensurate with the corresponding GS pay system's salary
changes. As a result, managers at either end of a pay band
would automatically receive annual across-the-board salary
increases regardless of their performance rating. However,
managers whose salary fall in the middle of the pay bands are
rewarded based on their performance.
Regarding implementation, TIGTA found that the IRS did not
allow sufficient time to educate managers on the details of the
front-line manager system. This resulted in increased
opposition and decreased morale among the 6,600 front-line
managers. Unfortunately, this lack of communication occurred
because the IRS accelerated implementation of the system by at
least a year in order to minimize the conversion costs in
fiscal year 2005. This acceleration left little time to explain
the system and no time at all to receive feedback prior to its
implementation. Predictably this caused significant
frustration.
The IRS responded to TIGTA's finding by initiating a third-
party evaluation to be conducted in three phases over 5 years.
This lengthy timeframe is of concern. We are monitoring the
IRS' corrective actions and will conduct a followup review. In
addition, the IRS plans to continue partnering with the
management associations representing a number of IRS managers
on pay-for-performance issues. The IRS has also agreed to
communicate more effectively with employees before, during and
after any additional changes to the system.
However, the IRS disagreed with our recommendation to
reinstate its policy of providing across-the-board adjustments
to managers who receive a satisfactory or higher performance
rating. The IRS stated that the authority for determining
salary increases rests with the IRS Commissioner. The
Commissioner does, indeed, have the authority to set pay
increases, and I would not suggest that this authority be
removed; however, the Commissioner can reinstate the policy of
providing across-the-board adjustments and still give higher
pay raises to highly rated managers. The Commissioner could
allocate amounts that have previously been designated for
within-grade step increases and quality step increases to
recognize higher-rated managers.
The difficulty of designing and implementing a pay-for-
performance system in an agency as large and complex as the IRS
cannot be overstated. TIGTA is dedicated to helping the IRS
navigate through this difficult project, as well as the many
other human capital challenges that it faces.
Thank you, Mr. Chairman.
Mr. Davis of Illinois. Thank you very much.
[The prepared statement of Mr. George follows:]
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Mr. Davis of Illinois. And we will go to Dr. Charles Fay.
STATEMENT OF CHARLES FAY
Mr. Fay. Thank you, Chairman Davis and Delegate Norton.
Let me start out by saying that my whole background leads
me to be in favor of pay for performance and performance
management. Those two things, in conjunction together, have
been shown in many cases in the private sector to work very
well.
When I look at the public-sector case, and the systems of
the SEC, the IRS and even the DOD, I am deeply disappointed.
Those systems don't work. I don't think they are likely to
work. They seem to me to violate many of the requirements for a
good pay-for-performance system that my coauthor and I set out
in the publication that was submitted as part of my testimony
that was sponsored by the IBM Center for the Business of
Government.
Let me do a couple of things; first, separate the notion of
performance management and compensation, or pay for
performance. Performance management is the key point. If people
get that right, then the pay for performance becomes much
easier, and it is clear in these systems that they have not
gotten the performance management part right, not at all. In
addition, as several people have noted, the SEC also messed up
seriously on the pay-for-performance part of it. So they struck
out in both cases.
Let me just tell you some of the things that I see in this
that violate the basic principles of a pay-for-performance
system and a merit-pay system. The first of those is that
performance criteria need to be job-specific. That's
performance management 101. When you have criteria for
someone's performance, those have to be specific to that job.
Second, the general competencies and criteria that have
been used by at least two of the systems that I have seen, DOD
and IRS, who have published portions of them, are very general
and very subject to bias, as a couple of people have mentioned.
This is just asking for trouble when you ask managers to make
decisions based on these kinds of things.
Third, and perhaps most important from my perspective, it's
critical that raters and the people who are rated be trained in
how to do performance management from both sides of the aisle.
Both the management and the director need to be able to know
how to work this system, know how to use it correctly and to
have some understanding for the reason for the system. In the
documentation I see, there does not appear to be any, or at
least not much, training of people.
Third, the instructions should be written in plain English.
The IRS reminds me of tax forms that I tried to fill out every
year, and the DOD, pure ``mil spec.'' I have a Ph.D. I consider
myself to be fairly reasonably cognizant of the English
language, and I had a hard time figuring out what you are
really supposed to do with some of these languages.
Finally, I would like to stress that all of these systems
are subjective by their nature. No performance management
system or performance appraisal system is not subjective. They
cannot be objective. If anyone has issues with that, think
about the last time you had overhead allocated to a program
that's highly objective. But it's very subjective how those
dollars get allocated.
So, again, I still believe people should manage
performance. I believe the government should investigate
performance management, should work at pay for performance, but
I think they need to do a much better job than has been done so
far.
Thank you.
Mr. Davis of Illinois. Thank you very much.
We will go to Mr. Tobias.
STATEMENT OF ROBERT TOBIAS
Mr. Tobias. Thank you very much, Mr. Chairman.
As Inspector General George pointed out, the Internal
Revenue Service got the authority to create pay-for-performance
systems, and what I did was take a look at some employee
surveys of the senior managers, the departmental managers that
were conducted to determine whether or not the IRS achieved its
goals.
I think the results of these surveys reveal very clearly
that the IRS has not achieved its goals of creating a pay-for-
performance system that links individual and organizational
goals with compensation, or that supports better rewards for
better performance. For example, only one in four senior
managers agree that the pay-for-performance system is a fair
system for evaluating or rewarding job performance; 58 percent
of the managers stated that the pay-for-performance system had
no impact, no impact on their motivation to increase
performance; and 18 percent stated it had a negative impact.
Less than 20 percent of the senior managers agreed that the
pay-for-performance system is linked to organizational results
or has improved business unit or IRS performance. Only 17
percent stated that their performance was linked to their pay,
and only 16 percent stated that their performance was linked to
strategic business goals; 46 percent state that had they
preferred the GS system.
Now, I think there are several reasons why the IRS goals
have not been achieved. First, the data does not reveal that
employees are motivated by pay; rather, I believe Federal
employees are motivated to increase their performance far more
by effective leadership and an effective performance management
system.
Second, I think it's difficult, if not impossible, to have
a successful pay-for-performance system if the leadership and
the agency does not support it. In a 2006 survey of the Senior
Executive Service, the persons who must be counted on to
implement a pay-for-performance system, reveal that they are
extremely unhappy with their pay-for-performance system; 83
percent stated it had no impact on their performance, and 33
percent indicated it had a negative impact on morale; 54
percent indicated their pay-for-performance system had no
impact on their motivation to increase performance, and 8
percent indicated it had a negative impact; 44 percent felt
their ratings were fair and accurate, but 33 percent disagree,
and 23 percent did not know.
Since the organizational change necessary to support the
introduction of a pay-for-performance system is not
enthusiastically endorsed by senior career leaders, it's no
surprise that those they lead do not endorse it.
Third, trust is a critical component necessary to implement
any significant organizational change effort, and particularly
pay for performance. Only 50 percent of the close to one-
quarter of a million Federal employee respondents to the
Federal Human Capital Survey answered ``strongly agree'' or
``agree'' to the statement, ``My organization's leaders
maintain high standards of honesty and integrity;'' 20 percent
reported either ``strongly disagree'' or ``disagree.''
In the IRS work force, only 43 percent ``strongly agree''
or ``agree'' with the statement, and 23 percent ``strongly
disagree'' or ``disagree.''
The IRS has even more work to do if it wants to
successfully implement a pay-for-performance system.
Now, can the IRS achieve its stated goals in the future? I
think--because the data shows that Federal employees are not
necessarily motivated to increase their performance solely
because of monetary rewards, I believe it's highly questionable
that the IRS can successfully implement a pay-for-performance
system.
Because Federal employees are motivated to increase their
performance when they are effectively led and their skills are
matched to their mission, I believe it is possible to increase
individual and organizational performance results with the
design, development and implementation of a performance
management system.
Now, I believe Presidents, political appointees, members of
the Senior Executive Service, midlevel managers, union leaders
and employees all want increased performance. That's why they
are part of public service. Harnessing that energy to actually
improve performance in the executive branch requires the
collaborative involvement of all parties. I believe it can be
done, but I don't see any real evidence of a focus on improving
performance management.
Thank you very much, Mr. Chairman.
Mr. Davis of Illinois. Thank you. Thank you very much.
[The prepared statement of Mr. Tobias follows:]
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Mr. Davis of Illinois. We will now proceed to Dr. Stan
Ridley.
STATEMENT OF STANLEY RIDLEY
Mr. Ridley. Thank you, Mr. Chairman.
Most of us remember the political quip, ``It's the economy,
hmm.'' To cut to the basics here, it's the basics, hmm, and the
people, hmm.
What Delegate Norton pointed out was that to design and
implement an effective performance appraisal, performance
management, and even a pay-for-performance system, the
knowledge and skills have been here for decades. People get in
the way.
I should mention that my roles in the government over a
decade have included being a coach, an organizational change
management expert, a performance appraisal and management
developer, teaching courses on supervising and human resources,
etc.
The bottom line is that these things do not work as they
should because they are either designed inappropriately, or,
more often, they are implemented in a way that are not
consistent with the basics of how they're supposed to be done.
That is the fundamental problem.
When you look at the SEC, an article is attached my
testimony about pass/fail. Over a decade ago I used a group of
employees in the government, all levels, and we went through an
exercise the appropriate way, and they discerned that pass/fail
had no chance of being successful. About 6 months later, pass/
fail was chosen. Did anybody mention pass/fail today? In the
SEC case, they used pass/fail. The bottom line is that the
basics and cycle metrics would tell you that pass/fail could
never work, and a group of employees, when given the right
information, were able to make that decision more than a decade
ago.
The bottom line is that the knowledge and skills are there
to make any system that is designed to motivate employees to
perform at their maximum and then to compensate them
appropriately, but if we do not employ those the right way, it
would never work.
The key thing I learned about 10 years ago was that the
biggest problem in terms of the government--they have some
excellent employees, and I am not saying that to be PC--
accountability. That was such an issue that I had to define it,
and by that I meant consequences, positive or negative, based
on how well you do what you are supposed to do.
How is it that we have the knowledge and skills to design
these programs and implement them the correct way, but they
have failed? It is not a knowledge or a skill issue. It is the
failure to use the knowledge and skill issue and to adhere to
whatever it is that you develop.
One of the things I should say about the Federal
Government, when I read these documents, boy, they sure look
good. You even see in my testimony, I made a faux pas when I
made a comment, although I did use the word ``appear,'' about
what I call the pay side of pay for performance. I say, well,
it appears like that is not too much of a problem, OK? But if
you delineated an example of how that particular approach has
been misused--and that is what I have seen over time, either
underuse, nonuse or misuse of the basics that will allow you to
design and implement these systems correctly, and the way in
which you make sure that people actually do that is that you
consistently and appropriately hold them accountable.
Any time you see a system that has failed, I will show you,
I can show you, that there was a failure to appropriately and
consistently hold people accountable for what it is that they
do.
That's the short version of my presentation. I will make a
couple of recommendations, because that's what this really
should be about, as to the performance appraisal side of this.
We have--the OPM developed what is called a PAAT, a
performance appraisal assessment tool. It's a good tool. It
shows that they have made progress over the last 10 years. But
that tool is not sufficiently aligned with what we want pay for
performance to be. A concrete example, the tool says that if
you meet the criteria at the 80 percent level, you are
certified. The problem is that tool includes some very good
items. Ask yourself this question: If the item is important,
why is it that you can fail on 20 percent of them, and then you
are certified? These are basics.
The next thing in that tool, they have items that use the
word ``adequate.'' Why would you have as a standard--Delegate
Norton, you mentioned standards--adequate in a tool that's for
the whole government that is supposed to let us know what we
are supposed to be able to do.
Other inconsistencies, these are basics, is the pay for
performance is supposed to be results-focused. Great concept,
no problem. Yet in the actual performance appraisal plans,
individuals are required to have at least one performance
element that is results-focused. That's what we call internal
inconsistency. If results focus in what it's about, and I have
five elements, why is it that only one is required to be
results-focused? These are all basics.
To cut to the chase further, in the PAAT, a number of
excellent things they have are either suggested or recommended.
If they are so good, why is it not required?
When you start talking about pay for performance and the
valuable performance management, how about this as a
recommendation? A sizable bonus should be awarded to each
agency executive whose performance appraisal system is shown to
be clearly valid and reliable in design, and here is the key
thing: design and practice. Where we come up short most times
is in the practice, based on a qualified objective review and a
100 percent pass score.
My point is really simple. The knowledge and skills
necessary to have an appropriate performance appraisal,
performance management, pay for performance, whatever you call
it, those requisite knowledge and skills have been here for
decades. We misuse, underuse or fail to use the appropriate
criteria.
For example, I was surprised when you mentioned this misuse
about COLAs. That shows a fundamental lack of understanding
about what we call systems. See, a performance management
approach should involve the PAAT system so you shouldn't be
robbing Peter to pay Paul if it's unfair.
So when you sit down to design these things, what you tend
to do, we design processes, not systems. Concrete example I use
is a car. Why would you suggest that you could have an
effective performance appraisal system, and you don't have to
have a real performance plan, a valid and reliable one?
I had mentioned in my testimony, it's kind of analogous to
having a car and saying, we recommend that you have a steering
wheel and a speedometer, but you don't have to have one. The
performance plan is supposed to guide that person throughout
the year, but you are supposed to get clear expectations up
front and then reinforce then.
The last one I will mention is the acronym that I used. It
is so simple, but if it is used consistently in the design and
implementation and evaluation of any system, that system will
work better. It's called CARE. You must have Clear, Aligned and
Reinforced Expectations. Any system that you all point out that
has failed, I will show that you there is a failure in one or
more of those four pieces.
Thank you.
Mr. Davis of Illinois. Thank you very much.
[The prepared statement of Mr. Ridley follows:]
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Mr. Davis of Illinois. We will go to Mr. Max Stier.
STATEMENT OF MAX STIER
Mr. Stier. Thank you.
Thank you as well, Congresswoman Norton.
It's a pleasure to be here. It's very important that you
hold this hearing.
I would ask that this committee take a step backward for a
moment and ask about not just pay for performance, but pay for
performance more generally, because what I would argue is that
the government is making distinctions around personnel issues
in a variety of areas that don't receive sufficient attention.
So, for example, whether it is hiring or promotion or decisions
around pay, government managers are making decisions that are
based upon systems that sometimes are working and sometimes
not. It's only because we are looking at efforts to change the
system right now that there's real attention being paid here,
and I think it would be worthwhile to focus on performance
issues more generally, understanding how it is we are making
distinctions, and how to use those distinctions in a way that
truly and effectively and appropriately promote performance.
Rather than looking backward, looking at issues and the
stakes or problems, I would propose six different
recommendation that we would make; first and foremost and most
important, the clear need to collect data and publish that data
on a regular basis. We see examples here of that, when Mr.
Tobias talks about the Human Capital Survey. In fact, his data
points to the fact that it is not pay-for-performance systems
that are generating problems in the work force, it's actually
the whole system itself.
General Schedule employees are raising issues about the pay
that they are receiving, about the leadership that they are
receiving. These are issues that are systemic and that we need
to address governmentwide. We need specific data efforts,
collection efforts. When you are talking about system change,
we propose seven different buckets of data that ought to be
collected around recruitment, retention, skills gap,
performance distinctions, performance culture and, ultimately,
as the last witness has testified, around implementation. That
data is quite important because it will allow you and other
decisionmakers to understand what is happening in real time
when these changes are being implemented.
Second, fundamentally, I believe, and you see this again
and again, you need true engagement and buy-in from the
employees and employee organizations. Unless that happens,
there is simply not going to be any success. Ultimately, when
you think about performance management systems, you are
ultimately trying to encourage employees to provide this, as
Bob would say, their discretionary energy. How can they do that
if they don't buy into the system? Therefore, that has to be a
foundational element of success.
Third, before moving to pay systems, again, and this is
something you have heard from other witnesses, you really need
to make sure that your performance evaluation and your larger
performance management system is working.
Fourth, managers have to receive the training, the support
in order to be able to successfully use these systems. When you
are asking them to make distinctions, you need to make sure
that they are getting the tools that will enable them to make
them appropriately. Ultimately they need to be held
accountable. They need to understand that organizationally this
is an important part of their work. By and large these are
challenging, difficult issues, and, given a choice, most
managers would rather do other things. So it's very important
to make sure that they understand that they themselves are
being judged on their performance with respect to the way that
they are judging the employees that they are supervising.
Fifth, we need to make sure that we give these systems time
to actually change and time to actually work. It's important to
collect the data. It's important also to realize that change is
difficult of this sort all the time, and you are not going see
a turnaround immediately.
If you look at some of the data points from some of the
demo projects, you actually see increased buy-in from the
employee base over time, and that is something I think again is
vital; that we make sure we understand that these things, A,
are not likely to be gotten right the very first time, that
they are going to take time to actually work through the issue
and to get the buy-in that's necessary.
Finally, No. 6, I would propose that this committee and
Congress more generally has a critical role in providing the
resources to make sure that the systems are resourced
appropriately, and that the work force is resourced
appropriately, and that you give this kind of attention to the
changes that are necessary.
So thank you very much.
[The prepared statement of Mr. Stier follows:]
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Mr. Davis of Illinois. Thank you very much, and I want to
thank each of you.
I want to ask each of you one question. I will begin with
you, sir.
In your testimony, you recommend that GAO conduct a study
and audit of statistics that involve pay for performance. Would
you explain why?
Mr. Stier. Certainly, Mr. Chairman. In the past year, GAO's
Office of Strategic Studies has done two extensive surveys, one
governmentwide about the SES and the other governmentwide about
Hispanics, of employment statistics. They have experience, and
they have the data base. There is the CPPF data base. It exists
already. It is not just that it has to be brought into
existence.
Using this data base and perhaps a limited supplemental
information, which this same office has used before, they did a
report in 2004 about the demonstration pay-for-performance
projects in existence at the time. Using their existing skill
set and their existing data base, they could produce the
statistics that would show who the raises have been going to in
SES and NSPS and the IRS managers system and so forth. The
statistics that they could produce would determine which units
in the government have the kind of statistics that the
arbitrator found at the SEC, that the arbitrator ruled that the
SEC made out a prima facie case of discrimination.
If they simply run the numbers up--I say simply, it's a
considerable effort to do that--but if they were to take the
systems that they are operating now, we could find out which
units have what is in effect a prima facie case of
discrimination going on using the pay-for-performance system.
Mr. Davis of Illinois. Let me ask. Why do you think that
the Federal pay-for-performance systems are failing? And what
if any legislative changes would you recommend?
Mr. Tiefer. Well, I think they are failing to take them in
a different order than I originally stated it. The No. 1 reason
that they're failing is that there is no new regular funding,
basically no new funding being put in for the performance
bonuses. And if you look at this--if you survey the literature
on pay-for-performance, what makes for success is if new money
is put in so that the employees accept--employee acceptance
goes with the system. Even if some employees don't get bonuses,
they say, well, we didn't lose anything from it, so we are not
going to fight the system; it's not embittering us.
The fact that no new money is put in is exactly why the
title of this hearing, robbing Mary to--I'm sorry--I get it
mixed up. I get it mixed up. I get it mixed up between Mary,
Peter and Paul. It's the same as the pay-for-performance
system. It is hard to figure out who it is coming from and who
it is going to. But if you don't put new money into it, you
know, you don't have any net winners; just as many losers as
winners.
And that is unfortunate because--let me add--a second--the
second reason is that we're using not--we're using a value of
ratings which were rushed into operation without giving them
time to reach the validated stage. Ms. Norton talked about--and
rightly so--the criteria that are used to determine whether you
have employment discrimination in the private sector. If you're
going to have an impact, if you are going to have an employment
system that may have a statistical impact that is not age
neutral and is not race neutral, then it has to be the private
sector title 7 litigation as shown validated. The systems we're
talking about here have not been validated. They couldn't be
validated. Those are the two basic reasons.
Mr. Davis of Illinois. Thank you very much. Dr. Fay, last
year you testified before the subcommittee regarding a market
based compensation study conducted by Watson Wyatt for GAO.
Given your findings, would you recommend that GAO continue to
use the Watts Wyatt study as a basis for determining pay at the
GAO?
Mr. Fay. I wouldn't use that study for the basis of
anything.
Mr. Davis of Illinois. Could you elaborate?
Mr. Fay. Well, as I testified before, the method of data
collection for that survey, the definition of jobs, the job
comparability, that is, the market matches that they made were
inadequate. The surveys they used did not have, in my judgment,
the appropriate sample comparators, and the way they utilized
the data to come up with the numbers they did--well, the second
or third time they did it--were I think misleading and
inaccurate or gave inaccurate results.
Mr. Davis of Illinois. Well, let me ask you. If validated
performance management systems are a prerequisite to the
implementation of successful pay-for-performance systems, why
do you think agencies have focused more on implementing
credible performance management systems?
Mr. Fay. Well, I would disagree that--it is very difficult
to validate a performance appraisal. Performance measures are
usually what is called a criterion variable. In selection, for
example, you predict in the selection process, you predict
toward performance. You have to use content validation methods
with performance appraisal systems. And my dissertation was on
errors and performance rating. And I recall all too well how
many rating errors can dance on the head of a pin. It is not
easy to do. And for that reason, there is a number of people
who have said it is really critical that you get buy in from
employees and employee organizations. This has to be a
collaborative process, whereby people recognize that what
they're doing is aimed toward improving performance of the
organization as a whole and rewarding those who most help that;
not a system where you have kind of a gotcha after the fact.
This is a--one person mentioned that planning is critical.
If performance planning is done correctly by a manager and his
or her direct reports, much of the rest of it falls into place.
The problem is when you have these generic criteria--which by
the way in my opinion are against the OCCP rules on dealing
with selection and so forth and validation of decisions,
primarily selection decisions. They state specifically in those
rulings that they have to be job-specific. And these are not
job-specific. And you see people twisting, trying to get an
employee's actual duties and responsibilities and behavior and
so forth, outcomes to match those. If you're going to be rating
performance, you should decide what is important in performance
on an individual and discuss it with them, coach and counsel
them over the year to get them there. And the summary rating at
that point becomes a--almost a nonevent. In these systems, the
summary rating is to me the total event.
Mr. Davis of Illinois. Thank you very much.
Delegate Norton.
Ms. Norton. Mr. Chairman, let me try to get my arms around
some of this.
Mr. Stier, in describing failure or success on page 4 of
your testimony, problems with unsuccessful systems often
traced--and then you list--communication with employees, overly
ambitious timelines, ambitious goals, inadequate guidance and
poor assessment. Do you believe that you can implement--because
you have been a defender of these systems. And as I've
indicated, there are circumstances in which these systems are
more than defensible. Do you believe you can--you can have a
successful pay-for-performance system if there has been no
validation of the performance criteria?
Mr. Stier. I would say--I mean, I think the position of the
partnership is very much akin to--I'm sorry--the position of
the partnership for public service is very, very much akin to
what you describe, which is that these are very difficult
systems to get right. It is possible to get right, but they
require quite a bit of effort and effort that is really very
much focused on the individual manager in that relationship
between the manager and the----
Ms. Norton. What do you think the systems--the criteria--
the criteria for judging the employee would need to be
validated?
Mr. Stier. I think that, again, as some of the earlier
witnesses stated, that you're not going to be able to validate
each individual performance plan that the employee has. You can
and ought to be collecting information on whether there is an
adverse impact with any system that is being put in place.
Ms. Norton. You just described what happens if a plan has
not been val--in other words, you're all saying that you do not
believe that a system would be valid if it discriminated on the
basis of race, sex or age?
Mr. Stier. Correct, correct. I think you have to look----
Ms. Norton. The only way in which we found to keep that
from happening is to require employees to suspend what has now
been if I can be clear, since 1960, billions of dollars, an
incalculable amount of dollars, in order to validate systems so
that indeed they can use them. And here I've not gotten to the
Federal employ--the Federal Government has paid--and I don't
know how much--but it also has paid a boatload of dollars. But
in the private sector, which led the way on validation, people
went to the trouble of the kind Dr. Fay has described of
validating each job. And you have just told me what you can
expect to do that.
Mr. Stier. To be clear, my point is that I think you're
absolutely right that we've under-invested in ensuring that
these are the right systems. I think----
Ms. Norton. I just want to know--you can't take--the
position that you're taking is a position to which I'm
sympathetic. You are not the best defender of that position if
you seem to be, as you--as part of your answer seems to say,
that even in the Federal Government, those systems can be used
if they show discrimination. This is very late in the game for
either the private sector--and I want to stress this--or the
public sector, either sector to put into place performance
criteria that discriminate, except the private sector doesn't
have the overlay of the Civil Service system so the arbitrator
throws the whole kit and caboodle out. Do you think that would,
if it were appealed to court, survive?
Mr. Stier. Congresswoman Norton, just to be clear, if I
have left you with the impression----
Ms. Norton. You certainly have left me with the impression
that you are generalizing across the board. This testimony does
not even mention validation.
Mr. Stier. Oh, I think it does. It certainly talks about
adverse impact, and it refers to the finding that you're
describing there.
Ms. Norton. You can't avoid--you can't avoid what we're
investigating here. What does the Government have to do in
order to avoid adverse impact? And that's what I'm asking you.
Isn't the case law--isn't the state of art of the profession
that you have to take the trouble and you have to spend the
money to validate whether you're a GM, Toyota or the Government
of the United States?
Mr. Stier. I will--there are other experts on the
validation process here on this panel. What my understanding
is, you certainly need to look to see if there is any adverse
impact. If you will look at our testimony, we are very
supportive of the idea----
Ms. Norton. I take it you're for validation. That's all I
wanted to make sure.
Mr. Stier. Certainly.
Ms. Norton. But you have something in your testimony that
concerned me. You haven't paid--something else in your
testimony. You see, the over--what you are trying to do overall
is important. But you don't do a service by mitigating how
difficult it is going to be. And you particularly don't do us a
service--if I may say so, I've been on the other end of this
where I have been part of an enforcement agency that forced the
private sector to spend all of this money. Here I now come to
the Congress of the United States having remembered all that,
billions of dollars that the private sector had to spend.
Which, yeah, they'll say the same thing, could it have gone for
something else. And we want to apply a lesser criteria to a
system that has also due process built into it. On page 4, you
tell us--boy, I think this would be a headline, and I'm going
to let them speak for themselves. But you tell us that the NTEU
has reached agreement with the National Credit Union
Administration on a compensation system. See? It can be done.
One of the--one of the great unions in--who is a tough union,
has already reached agreement that will reward the employees
commensurate with their performance. Did you think we weren't
going to check that out? Especially since--as a matter of fact,
we know they can bargain for pay-for-performance. And then you
say previously NTEO, EEU--and again I just think this ought to
be a banner headline, particularly in the Washington Post also
where so many Federal employees are--also reached a collective
bargaining agreement with the Security and Exchange Commission
and the Federal Deposit Insurance Corporation on their
performance pay system. Why didn't you say the arbitrator had
thrown it out?
Mr. Stier. Congresswoman, I'm very confused here as to what
your concern is. These are all factually correct statements. We
have not misrepresented anything at all. And I'm happy to
explain any----
Ms. Norton. I have just--you can explain--you can correct
what I just asked you. I have put facts before you. I said they
can bargain for pay-for-performance.
Mr. Stier. I'm sorry. As I understood what you said, is you
said we had made a statement that there had been an agreement
between the National Credit Union Administration [NTEU], and in
fact, that is correct. There has been an agreement. I'm not
understanding exactly----
Ms. Norton. According to the union, there has been no such
agreement. I'd be very interested in hearing that statement
because there has in fact been a----
Ms. Norton. And according to the union--and according to
the union, with the SEC, there was impasse. And you know what
impasse means?
Mr. Stier. I do.
Ms. Norton. It means that you can't reach agreement with
your union, so you then go to have--have the system impose----
Mr. Stier. Congresswoman Norton, the testimony is intended
to be helpful to you. I apologize if it is not. I don't believe
there are any factual inaccuracies, but we'll of course correct
them if there are any.
Ms. Norton. I'm going to let them speak for themselves.
Mr. Stier. I'd like to hear if there are any----
Ms. Norton. This is a fine art, and this is a very
technical matter. And really what we have to get down--down to
because I find most of your points, points I'm in agreement
with, and I think everybody else on the panel would be in
agreement with your points about, you know, getting employees
to buy in and the rest. You know, that doesn't get to what is
the nub of the problem, extremely technical, reams of
litigation, lots of money spent both on litigation and on
validating system, shouldn't have to go back and start all over
again.
I want to ask--ask you--you all this question, all of you.
The notion that most of you at least have indicated that a
system has to be validated in order to be valid if you're going
to judge people. And you can't judge people on the basis of
subjective criteria. Now, employees all get evaluated now. Are
the systems by which employees get evaluated now valid? How do
you explain that? Do they use any subjective criteria?
Mr. Ridley. I would say, much too often, they clearly are
not. And that is based on years of experience doing this.
One quick thing about--in terms of my colleague who noticed
that they are subjective, this is one of the things that I call
manager/supervisor learning disabilities. That if it is really
all that subjective, why do we go through the time trying to do
what Delegate Norton is talking about? If it is all subjective
as we just said, then we just said, we don't need all these
systems. The fact of the matter is, is that subjectivity and
objectivity are matters of degree. And what you want to do is
curtail the subjectivity; increase the objectivity. And how do
you do that? You dial up to get as much clarity as you can so
at the very least you have a shared understanding of what is
expected concretely from the supervisor. And I say that your
report must be written well, and you say, what does that mean?
I will be specific with you. I would mean that the right
content must be in there. If it is not, that is a problem. I
would suggest it needs to be well organized. If it is all over
the place, that is a problem. If there is a problem with
format, spelling--you need to be specific. And my point here--
and I'll let this go--is that we can do these things. We can do
them well. But any time you engage in a false dichotomy in
terms of something being either subjective or objective, you
get no place. It's a matter of degrees.
Ms. Norton. I want to get to whether or not we can do them
so easily if we just kind of do them well.
Mr. Tobias. I think you're using----
Ms. Norton. I'm really looking for the answer to my
question about what is it that keeps the present system from
being attacked? Now, in his testimony--in his testimony, Mr.
Stier correctly says Title V recognizes that incentives and
recognition for excellence are appropriate. Then he says but
the current 1949 era general service system does not reward
high performance. It rewards above all else longevity. Well, he
is right. Why does it do that, gentlemen? Why didn't it start
out doing exactly what Mr. Stier wanted to do? That is the
point I'm trying to get somebody to speak to since it is
obvious that if you can do it other than by time and service or
the like, that you'd expect the Federal Government to go to
that system.
Mr. Tobias.
Mr. Tobias. I think that you're using the term validated as
a term of art. And as a term of art, there is no performance
evaluation system in the Federal Government today that has been
validated as you're using that term. With respect to the issue
of longevity, in many agencies, within grade increases have
been equated with longevity. That is not the intent of the
statute. And if the statute were incremented properly,
performance would be an integral part of whether or not people
receive within-grade increases or not.
However, to get back to your original point, there is no
performance evaluation system in the Federal Government that
has been validated as you're using that term.
Ms. Norton. Well, I believe that is the honest answer, and
I believe there is a reason for it. And if you want to be
helpful to us, you can help us get to the point where you could
set up a performance-based pay or any other system--obviously
you have a system which, confronting the difficulty of finding
and identifying objective criteria, default on that and go to
an overall system that is not inherently unfair but is not the
best system. It says at least if an employee lasts long enough
and is satisfactory, then that employee ought to receive an
increment in pay. And essentially what you are confronting and
what you especially, Mr. Stier, are avoiding, is that it is the
difficulty, some would say, in a system of 3 million employees,
perhaps impossibility, of coming up with a system that would
meet validation standards that sends the Federal Government to
broader standards, to avoid just the kind of litigation that we
have already seen at the SEC, the same kind of results we've
seen at the GAO.
So that if there are short cuts to what the Supreme Court
has made the public and private sector do in order to implement
systems of pay or any other term and condition of employment
since the late 1960's, if there are short cuts, it is--that is
what we're looking for. If there are not short cuts, then we
need to tell the Federal Government the truth. We need to send
the Federal Government to AT&T, who got sued in a nationwide
class action suit, and say how did you, in fact, finally get
out of the consent decree? And then AT&T will tell the OPM we
did so first by saying a lot of back pay and second by
validating everything in this place, and it cost us billions of
dollars. I don't think you do us any service by saying that the
Federal Government, which paid the private sector to do that
and has made other Federal agencies do that, can now implement
the same kind of system on its own without going through the
same rigorous process and adding in the additional step that
will be required because it is a Civil Service system. If you
mitigate the difficulty, then you invite SEC-type overturns and
a lot of waste of the taxpayers' money.
And, Mr. Chairman, I must say that I think, if not before
the end of this year, but quickly, as soon as we can, we have
to find a way to roll back the pay-for-performance so that we
do not subject ourselves to inevitable litigation, lose Federal
employees at the height of when we're trying to keep them, at
the height of when we can't compete with the private sector on
many grounds. This has been a real lose-lose for us. And if you
want to sit down with any of us who have been in touch with
this work for a long time, I am open to seeing if there are
ways--some of the broadbanding ways have some--some suggestions
within them.
What I'm not open to is saying to the Federal Government on
the part of this subcommittee, go ahead, try it out; if you get
sued, you've got a lot of lawyers, let them take care of it.
Mr. Stier. Congresswoman Norton, I'd love to take you up on
the offer.
Ms. Norton. I'd be glad to meet with you.
Mr. Stier. Thank you.
Mr. Davis of Illinois. Thank you very much, Delegate
Norton.
Mr. Tobias, you noted that you collaborated with the
Partnership for Public Service on a study that found that
Federal employees are not motivated to increase their
performance solely because of monetary rewards. Federal
employees are motivated to increase their performance when they
are effectively led and their skills are matched to the
agency's mission. Despite having access to the same
information, you and Mr. Stier have reached two different
conclusions. You suggest that it is highly unlikely that the
IRS can successfully implement a pay-for-performance system.
Mr. Stier suggests moving forward with these systems.
If Federal agencies have already shown not to seek employee
buy-in and have difficulty linking agency mission with
measurable standards, is it fair to continue to allow Federal
employees to labor under these systems?
Mr. Tobias. Well, I think the risk, Mr. Chairman, of a
failed pay-for-performance system is what is shown in the data
from the IRS, and that is, rather than motivating, morale drops
and people perform at a lower level than they would with a pay-
for-performance system. I think that is the real risk of a
malimplemented, maldesigned, maladministered pay-for-
performance system. I think it is a significant risk, and the
IRS hasn't gotten over the hump based on their own survey data.
Mr. Davis of Illinois. Both you and Mr. Stier recommend
closer involvement and oversight of these systems by Congress.
You note that the Controller General deserves congressional
committee jurisdiction to hold oversight hearings on each of
the major agencies once a year. The subcommittee has not taken
no for an answer, but agencies have been reluctant to testify
before this subcommittee on these issues and have ignored our
recommendations and findings. This includes the GAO and one of
today's witnesses. This leaves the subcommittee with no choice
but to legislate to effect change which can be long and
difficult. Given these facts, is it reasonable to expect
Congress to assist with and examine every agency's pay-for-
performance to ensure that they are fair and equitable,
credible and transparent and have the support of agency
employees?
Mr. Tobias. I think if the--if the data were developed by
the agency, I think it would be rather easy for Congress to
determine whether the goals and objectives are being achieved.
IRS had stated goals. The data showed that the goals weren't
being achieved. It--it is not a complex matter to measure the
effectiveness based on what employee surveys say and whether or
not the organizational goals and objectives are being achieved.
I think it is more that Congress is interested in performance
and performance results. And that is really the thrust of my
testimony. I believe that it takes the interest of Congress,
the dedicated time of a President and the support of political
appointees to really have a performance management--an
effective performance management system. And as I said in my
testimony, I believe that the implementation of an effective
performance management system with the corollary of a better
led work force would have a significant, positive impact on
performance in the Federal Government.
Mr. Davis of Illinois. Thank you.
Dr. Fay, a senior management analyst with DNI wrote in a
November 12, 2007, commentary for the Federal Times that pay-
for-performance suffers from two false assumptions: First is
that what is the best for business must be best for government;
and the second is that pay-for-performance will be effective
for the entirety of a work force as diverse the Civil Service.
What are your views on this analyst's assessment?
Mr. Fay. I would agree that what is good in the private
sector is not necessarily appropriate for the public sector. I
think both sectors have an interest in improving performance of
the work force, and I think they might need to go about it in
different ways. With respect to your second question, could you
repeat that, please? The second question.
Mr. Davis of Illinois. I think it was only one, and that is
your assessment of the analyst's----
Mr. Fay. Well, his second point.
Mr. Davis of Illinois. Let's see. His second point, I
believe--oh, his second is that pay-for-performance will be
effective for the entirety of a work force as diverse----
Mr. Fay. Generally, I think that is probably true. That is,
the same system would be--the kind of system you use with one
job family is likely to be different from that used with
another. And as I recall, the rationale that was developed by
the agencies and accepted by OPM for each unit having its own
performance management system, performance appraisal system was
that there were two diverse set of needs across agencies for
one system to cover everybody. And my reading of the DOD system
was that is probably true of DOD as well, having a single
system with some subsets to cover all the civilian employees of
DOD strikes me that it is unlikely that it is going to be
highly workable.
Again, in the private sector what works best is a system
that is customized to each employee's job. As I said, the EEO
rulings of the past suggest that any criterion measure, any
performance measure that is not based on job-specific
information is of necessity biased and illegal.
Mr. Davis of Illinois. Thank you very much.
And Mr. Philips, let me thank you for joining us. Let me
ask you, what can the IRS do to improve the effectiveness of
its pay-for-performance system?
Mr. Phillips. Thank you, Chairman Davis.
My name is Mike Phillips, and I'm the deputy inspector
general for audit for TIGDA. And--well, we've heard some of the
same themes here today. The IRS took its system of 11 grades
for frontline managers in 2005 and converted it to an 11 pay
band system for its frontline managers. The problem was they
could not reach consensus--senior management could not reach
consensus in terms of--because of the variety of--of
positions--of which positions--and how large the band should
be.
So what we would recommend is to look to consolidate their
bands from 11 to a smaller number to move more toward the
flexibility and the opportunities for managers in those
different pay bands to diversify their knowledge as well as
their experience and also present them greater opportunities to
advance their careers within those individual pay bands.
We also felt like--feel that those managers who are
receiving at least a fully satisfactory or a net or higher
assessment--performance assessment should receive at least the
salary raise that is equivalent to the across-the-board
adjustment that is given to all nonmanagerial IRS employees
under the GS based system.
And then, finally, for those truly exceptional and
outstanding managers, we feel like that the IRS needs to work
with the Office of Personnel Management to look for additional
flexibilities to provide appropriate salary increases that
would maybe even take those managers above the pay band that
they are in to recognize their performance.
Mr. Davis of Illinois. Well, let me ask you, do you have
any concerns about the IRS's decision to hire a contractor to
evaluate the IRS's pay-for-performance system?
Mr. Phillips. Yes, Chairman Davis. The IRS has worked with
a third-party contractor to--to do a three-phased assessment of
its pay-for-performance system over a 5-year period. And we
really feel that is too long a period for making any
significant changes to the system. Particularly at this point
in time, as Mr. George mentioned, the IRS is faced, like all
other Federal agencies, with a tremendous wave of retirements
at its executive and managerial ranks over the next few years.
So we really feel that it needs to shorten the amount of time
that it is going to take to assess the system.
Mr. Davis of Illinois. Did your audit examine the impact of
the IRS's pay-for-performance system on minorities and older
workers?
Mr. Phillips. No, sir. We do not look at those aspects.
Mr. Davis of Illinois. Would you recommend that such a
study be conducted?
Mr. Phillips. We are planning, as the IRS continues to
implement its system, to do further study in that area, and we
would take that certainly under consideration.
Mr. Davis of Illinois. Thank you very much.
And let me thank all of the witnesses for the hearing this
afternoon. We thank you for your insight as well as for your
patience and thank you indeed. You're excused.
And we'll seat our second panel. While our witnesses are
being seated, I'll go ahead and introduce them. We have Mr.
Diego Ruiz, who is the Executive Director of the Securities and
Exchange Commission. For 10 years, Mr. Ruiz served as a
business executive with Univision Communications, Inc., a
leading Spanish language media company. In January 2006, Mr.
Ruiz left Univision to serve at the Federal Communications
Commission in Washington, DC, as Deputy Chief of the Office of
Strategic Planning and Policy Analysis.
Mr. Richard Spires is the Deputy Commissioner for
Operational Support at the Internal Revenue Service. He is
responsible for overseeing the development of policy for IRS
Personnel Services, Technology and Security. Mr. Spires
previously served as the IRS's Chief Information Officer.
Dr. Ronald Sanders is Associate Director of the National
Intelligence for Human Capital.
And I believe that constitutes our panel. Gentlemen, it is
our custom that all witnesses be sworn in. So if you will would
stand and raise your right hands.
[Witnesses sworn.]
Mr. Davis of Illinois. The record will show that the
witnesses answered in the affirmative. And, gentlemen, we're
delighted that you're here. Of course, the drill is that the
green light indicates that you have 5 minutes in which to
summarize your statement, which is already included in the
record. The yellow light indicates that the time is running
out. Of course, the red light indicates that it is time to
stop.
So we thank you very much, and we'll begin with Mr. Ruiz.
STATEMENTS OF DIEGO RUIZ, EXECUTIVE DIRECTOR, SECURITIES AND
EXCHANGE COMISSION; RICHARD A. SPIRES, DEPUTY COMMISSIONER FOR
OPERATIONAL SUPPORT, INTERNAL REVENUE SERVICE; AND RONALD P.
SANDERS, CHIEF HUMAN CAPITAL OFFICER, OFFICE OF THE DIRECTOR OF
NATIONAL INTELLIGENCE
STATEMENT OF DIEGO RUIZ
Mr. Ruiz. Thank you, Mr. Chairman. I appreciate the
opportunity to appear before you today to discuss the SEC's
pay-for-performance system. The SEC is phasing in a new pay-
for-performance system that was developed in cooperation with
the National Treasury Employees Union, which we believe will
provide meaningful rewards to employees for strong performance
and will facilitate the accomplishment of the SEC's statutory
mission to protect investors, promote capital formation and
foster market efficiency.
In response to chronic difficulties by the SEC in
recruiting and retaining mission critical staff, in December
2001, Congress passed the Pay Parity Act which authorized the
SEC to increase its pay and benefits to levels comparable to
those of other financial regulatory agencies while adhering to
merit system principles. The SEC, with the support of OMB,
obtained additional funding to implement a new compensation
system that would improve base pay while increasing
accountability by linking pay increases to individual
performance.
In early 2002, after the development of the new
compensation and pay-for-performance systems, the SEC and the
NTEU entered into compensation negotiations but were unable to
reach agreement over several issues. Subsequently, the matter
was submitted to Federal Services Impasse Panel, and in
November 2002, the FSIP issued a decision and order that
supported the SEC's arguments and the substance of the SEC's
proposal, including that the SEC's compensation proposal was
the product of extensive research carefully tailored to meet
the specific needs of the SEC and the comparability and the
overall fairness were established. The FSIP order allowed the
agency to provide an annual merit increase based on individual
performance. In the same year that the SEC obtained pay parody,
the SEC's mission was expanded by the enactment of the
Sarbanes-Oxley Act. The additional responsibilities and the
requirements of the act demanded a corresponding increase in
the SEC's mission critical staff.
The SEC's then relatively new compensation system proved
its effectiveness by allowing the SEC to increase staffing by a
third in less than 12 months. In addition, in the time since
the compensation system was established, attrition rates have
fallen dramatically to as low as 6 percent, which at that time
was a 10-year low for the SEC and well below governmentwide
averages.
As part of the SEC's continuous re-assessment and
refinement of the pay-for-performance system, in May 2003, the
SEC adopted our current two-tiered management system to assess
individual performance, which can be rated either acceptable or
unacceptable based on several agency-wide success factors. To
link performance with compensation, only employees who receive
an acceptable assessment are eligible for, although not
guaranteed, a merit increase.
After the first merit pay cycle in 2003, the NTEU filed a
grievance against the merit pay process alleging that it
discriminated against employees in several protected classes.
Although the arbitrator ruled that the statistical evidence
concerning the commission's compensation system in 2003
supported a finding of impact discrimination for two classes of
employees, the arbitrator's ruling made clear there was no
evidence of any intentional discrimination on part of the
commission or any of its employees.
The administrator did not make a ruling on the appropriate
remedy and has asked that the parties present briefs on how to
resolve the issue. The briefs have been submitted to the
arbitrator, and briefing on all issues should be complete this
month. We await the arbitrator's decision.
Even before the arbitrator's ruling, the SEC had identified
a number of areas where the two-tiered system could be
improved. Thus, in September 2006, the commission established
the Performance and Accountability Branch within the Office of
Human Resources, which is leading the implementation of a new
five-tiered performance management program for the commission
that will help establish unambiguous criteria from which fair,
credible and transparent rating and merit increase decisions
can be made.
The new five-tier program is designed specifically for the
commission's unique business needs. A joint labor management
team comprised of senior human resources staff and NTEU
officials is working collaboratively on our transition to this
program. This transition began in September 2006 with a pilot
program involving all SEC Office of Human Resources personnel.
Following significant adjustments based on lessons learned from
the pilot program and feedback from SEC managers and
supervisors, the commission's management is now being
transitioned into the new system. We anticipate transitioning
the rest of the commission beginning in 2009. The commission is
purposely taking its time in starting with leadership to allow
them to become comfortable with a new process before being
required to manage subordinates on it. Also, the commission has
decided to temporarily separate our performance management
system from the merit-based system until the new performance
management system is completely implemented. This will allow
the agency to focus all its efforts on effectively implementing
all aspects of the new system before relying on it to provide
performance information to support paid decisions. During the
transition to the five-tier system, all employees receiving an
acceptable performance rating will receive an equivalent share
of the funds the agency has available for merit-pay increases.
The new performance management program was developed based on
best practices both from other Federal agencies and the private
sector. Additionally, it responds to several performance-
related recommendations from the GAO and OPM.
Finally, the new program addresses issues raised by the
SEC's own Office of the Inspector General. To underscore the
SEC's resolve to improve continuously in this area, the
Inspector General has agreed to perform another full audit of
the performance management program in 2 years. Thank you for
providing me the opportunity to update you on the SEC's pay-
for-performance system, and I would be happy to address any
questions you may have.
[The prepared statement of Mr. Ruiz follows:]
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Mr. Davis of Illinois. Thank you very much. Mr. Spires.
STATEMENT OF RICHARD A. SPIRES
Mr. Spires. Thank you, Chairman Davis.
I'm pleased to be here today to discuss the Internal
Revenue Service's efforts to implement pay-for-performance and
respond to questions from the subcommittee. This is an
important issue as the Federal Government continues to look at
ways to recruit and retain talented managers. While I've worked
at the IRS in various capacities since 2004, I've spent more
than 20 years in private industry where pay-for-performance is
commonplace and, from the perspective of the companies with
which I was associated, has had great success.
I recognize that there is not a perfect correlation between
government and private enterprise and what works in one may not
in the other. And in my 4-year tenure at the IRS, I've seen
some of the reasons why. However, the development of a strong
pool of talented employees is such a critical issue for any
enterprise; it is important that innovative programs be
attempted.
In many respects, the IRS has been at the forefront of the
pay-for-performance program in the Federal Government. We've
been dealing with it for over 7 years as we've implemented such
a system for our more than 7,000 managers. Though there have
been some bumps along the way, the creation of pay bands and
compensating employees for the quality of their work rather
than their tenure with the agency has helped the IRS respond to
the challenges presented in turning the agency into a modern
and more efficient organization.
My written statement lays out much of the background of how
we got into pay-for-performance and describes in some detail
how we implemented the program and discusses some of the
obstacles we faced.
I want to focus my remarks this afternoon on two things.
First, I want to outline the areas in which pay-for-performance
has benefited our agency. Second, I want to offer some of the
lessons we've learned so that the agencies that follow us can
benefit from our experiences and have an easier transition.
Perhaps the greatest benefit of pay-for-performance for the
IRS has been the opportunities afforded to us in implementing
the dramatic overhaul of the agency mandated by the IRS
Restructuring and Reform Act of 1998. Specifically, the
implementation of a new performance management system allowed
us to link manager performance to the functional goals of the
organization. Managers and their supervisors jointly developed
specific performance commitments as part of an annual
performance plan that are designed to further the goals of the
functional unit and the IRS. The pay flexibilities have enabled
the IRS to strengthen the linkage between manager performance
and the overall IRS goals.
Despite these benefits, the road has not always been smooth
and without controversy. Let me offer several lessons we've
learned and, frankly, are still learning that may benefit other
agencies in the Federal Government. First, agencies should move
deliberately and cautiously to implement the program that is
right for their organization, recognizing that any change in
the way employees are paid will raise concerns on their part.
Second, communication is critical. Employees must understand
how the program will work and how they will be affected. There
also must be forums that have their questions answered. Third,
an effective performance evaluation system must be in place.
Employees must understand the basis for their evaluation, and
there should be a review system in place to make sure
evaluations are being made on a consistent and fair basis.
Fourth, supervisors and employees must be trained properly on
how to use the system and make sound evaluations. Fifth,
ongoing program evaluation is essential to ensure that the pay-
for-performance system is operating as intended, and agencies
must be willing to modify and revise to meet the changing needs
of their organization. And finally, evaluations must be made
free of any discrimination based on race, gender, age or
national origin.
I'm proud to say that an overall evaluation of our program
by a third party contractor found that, since fiscal year 2004,
there has been no disparate impact on any group of our
managers. The contractor analyzed the trends of the ratings
data grouped by race, gender, age and national origin. In each
group, ratings trended in a similar path to the average ratings
across all groups.
Thank you, again, Mr. Chairman, for the opportunity to be
here. And I'll be happy to respond to any questions.
[The prepared statement of Mr. Spires follows:]
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Mr. Davis of Illinois. Thank you very much, Dr. Sanders.
STATEMENT OF RONALD P. SANDERS
Mr. Sanders. Thank you, Mr. Chairman.
It is good to be back. Thank you for the invitation to
testify at today's hearing. Specifically I understand that the
subcommittee is interested in learning more about our plans for
designing, developing and implementing a more modern
compensation system for civilian employees in the U.S.
Intelligence Community--I'm sorry. I've got it now.
Of interest to these proceedings, we do have a few IC
elements that are covered by Title V of the U.S. Code to
include analytic functions in the Departments of Energy, State
and Treasury. Unfortunately, I'm unable to share any details of
that proposed system with the subcommittee at this time. We're
still very much in a predecisional phase. In this regard, the
most salient features and likely those that are of most
interest to the subcommittee remain under deliberation and
discussion amongst the six Cabinet Departments and seven
agencies and elements that comprise the IC, with the various IC
directives that will enable and establish the system's
framework still in formal interagency coordination.
As you may know, Section 308 of H.R. 2082, the Intelligence
Authorization Act for Fiscal 2008, require the Office of the
Director of National Intelligence to submit a report of the
IC's pay modernization initiative. And although that bill is
not yet law, we fully intend to comply with the congressional
wishes. We'd be glad to provide your subcommittee a copy of
that report as soon as it has been submitted to the
Intelligence Oversight Committees on the Hill.
What I can discuss with the subcommittee today is a related
initiative now proved to establish common performance
management requirements for the IC civilian work force. Those
requirements are set by an IC directive issued by Director
McConnell last November, and I'd be pleased to do so. Also I
can discuss one of our legislative proposals from last year
that did not make it into H.R. 2082 but may be of some interest
to the subcommittee given your focus today.
First, our performance and management directive. The DNI
believes strongly that a common set of core performance
management policies are an essential requirement for the IC as
a way of strengthening the community. In the past, performance
appraisal systems varied widely across the IC, and they did not
consistently reinforce the common behaviors and values which
are critical to the modern Intelligence profession, such as
collaboration and critical thinking.
. To remedy this, the DNI's 100-day plan called for the
completion of a directive of establishing performance
management requirements for the IC civilian work force. That
directive does not establish a common system. Instead it
establishes common core requirements and processes for managing
the performance of IC employees that are to be incorporated
into the performance systems established and administered by
the 16 separate IC elements and their 6 parent Cabinet
Departments.
Employees will be evaluated on what they achieve, their
results, performance objectives developed jointly between
manager and employee, and in the manner in which those results
were achieved. How, their manner of performance, with the
latter focusing on six common performance elements, which by
the way have been validated. They include such transformational
competencies such as critical thinking, collaboration, personal
leadership and integrity and technical expertise. These go to
the heart of Intelligence reform.
This performance management directive does not cover our
senior executive or equivalent senior level positions. They'll
soon be covered by a similar policy. All departments and
agencies in the IC are to implement the directive not later
than October 1, 2008 for application in the 2009 appraisal
cycle. I would note here that the implementation of the ICD
does not require any special or unique statutory authority. It
can be implemented as is by all IC elements, including those
covered by Title V. I'd also note that the directive is a
necessary antecedent of a modern performance-based compensation
system; although it is a separate and critical strategic human
capital initiative in its own right. For example, the IC deems
common performance management requirements are essential to the
success of our Civilian Joint Duty Program. They also provide a
mechanism to reward and reinforce our core IC values, as well
as some of the transformational behaviors I mentioned before.
Let me turn now quickly to a related legislative proposal.
As part of the administration's fiscal 2008 Intelligence
Authorization request, we asked Congress to give the DNI the
ability to extend already authorized personnel flexibilities
from one IC agency to another; this in order to maintain a
level playing field across the community. In short, we wanted
to be able to share the myriad special personnel flexibilities,
for example, deployment incentives, foreign language incentive
pay, various scholarship authorities, etc., that have been
authorized for one or more but not all of our agencies by
Congress over the years. And in the longer term, we wanted to
allow our smaller IC elements, those covered by Title V, to be
able to take advantage of our new pay-for-performance system.
As you know, there is no direct legal authority for those
elements for Title V employees to be covered by that new
system, and we're concerned that, as the rest of the community
moves to a system over the next few years that is more
performance-based and market-sensitive, our smaller elements
may be placed at a competitive disadvantage. To remedy this, we
propose that the DNI, with the concurrence of the head of the
department or agency, could authorize adoption of a flexibility
already granted to another IC element. But those IC elements
with employees covered by Title V, the director of OPM would
also have a say. Although this was included in the Senate
Intelligence Authorization, it was not included in the
conference report, nor has that conference report become law.
We're now in the process of developing our legislative
proposals for the 2009 Intelligence Authorization. Thus I must
add that, while we again requesting this provision, it has not
yet cleared the Office of Management and Budget.
Thank you very much, Mr. Chairman. I'll look forward to
answering your questions.
[The prepared statement of Mr. Sanders follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Davis of Illinois. Thank you very much, Dr. Sanders.
Mr. Ruiz, let me begin with you. In retrospect, do you--do
you think it was prudent for the SEC to implement a pay-for-
performance system without buy-in from the National Treasury
Employees Union?
Mr. Ruiz. Thank you, Mr. Chairman. As I stated in my
testimony, the circumstances around the time of our setting up
the pay-for-performance system that we are currently under were
unique in the life of the agency. We were undergoing a number
of years of pretty significant attrition, having a hard time
remaining competitive with other Federal regulators and
retaining staff. And we received from the Congress additional
funding to be able to increase pay for our staff to be more
competitive with other areas of the government. So we were
operating under the significant constraints and operating under
a fairly accelerated schedule at the time. We take very
seriously any concerns that--the concerns that have been raise
about the 2003 merit pay cycle. And as I noted, we're in the
process of discussing the remedy phase of that arbitration
decision with the arbitrator and with NTEU.
Mr. Davis of Illinois. Let me see if I'm understanding. Are
you saying that, given a different set of circumstances, where
some of the pressures that you were experiencing in the agency
at that time, if those were not present, then you would find
employee buy-in to be desirable, a desirable part?
Mr. Ruiz. Absolutely. I think it is. At the end of the day,
any performance management system is meant to improve the
quality of the work force and the caliber of the work being
performed by the agency, and I don't think that is doable in
any meaningful way unless the entire team, both management and
employees, has clear objectives; there is a commonality in
terms of the goals for the agency. And so I think it is a very
important component of any successful pay-for-performance
system that--any performance management system period, that
there be significant commonality of objectives among those
staff.
Mr. Davis of Illinois. While the arbitrator found no
evidence of intentional discrimination on the part of the SEC,
hundreds of minorities and older workers were adversely
impacted by the system. How does the SEC intend to make the
affected employees whole or to rectify that situation?
Mr. Ruiz. Let me just say, Mr. Chairman, that the case is
still going through the arbitration process. And so I have to
be careful of exactly what I say about it so as not to prejudge
the manner. But as you've stated, the arbitrator did not find
any evidence of intentional discrimination, but there--
statistically--a statistical--regarding the disparate impact.
We've submitted briefs to the arbitrator. He has asked the SEC
to do so as well, specifically regarding the remedy--and we're
awaiting for the arbitrator's decision on that.
Mr. Davis of Illinois. Now, the arbitrator's decision
applies only to the first merit based cycle in 2003. The
National Treasury's Employee Union has filed grievances against
the merit pay system for 2004, 2005, 2006 and etc. Has the SEC
made any attempt to settle with the union regarding the
subsequent years this problematic pay-for-performance system
has been in place?
Mr. Ruiz. Mr. Chairman, we've been in discussions with the
union concerning the 2003 case, including discussions and
that--seeing if there are grounds for settlement on that. In
the subsequent years, 2004 and beyond, I do not believe we have
engaged in those discussions. And again, this is simply because
we're still going through the process of the 2003 merit cycle
arbitration decision. And I believe it is not yet--the issue is
not yet right to gather the lessons we can draw from the 2003
cycle and apply it to those other years. But we certainly, I
think, have a good working relationship with our union and have
been engaged in discussions throughout this process and are
open to further discussions in the future, certainly.
Mr. Davis of Illinois. I note that instead of denying the
SEC employees a COLA, that the SEC can deny its employees an
automatic within-grade increase. Could you explain for the
committee what an automatic within-grade increase is and
whether or not an employee who meets expectations can be denied
such an increase?
Mr. Ruiz. I am sorry, Mr. Chairman, I didn't hear the
beginning of your question. I didn't quite make it out. Could
you state it again?
Mr. Davis of Illinois. Instead of denying a COLA, that the
SEC can deny employees an automatic within-grade increase. And
I am trying to find out what is an automatic within-grade
increase, and whether or not an employee who meets expectations
can be denied such an increase.
Mr. Ruiz. Under our current system, Mr. Chairman, we have
basically a two-tier performance process. An employee can be
classified either as acceptable or unacceptable, which, I
think, was referred to in the earlier panel as essentially
pass/fail. So employees that are rated at the unacceptable
level are not eligible for a merit pay increase. They do
receive the full COLA, as does the rest of the Federal
Government.
If an employee is classified at the acceptable level,
again, under the current system that we are under, they can be
given a range of steps in merit pay increases each year. And,
of course, we are an appropriated agency, and so this is
subject to what our level of funding is for the year.
So the decision on whether or not an employee receives a
merit pay increase, again, I am talking about merit pay above
and beyond the COLA, is dependent on that unacceptable rating.
I should say, just by way of context, in this past
performance cycle, I don't believe that we have had any
unacceptable ratings.
Mr. Davis of Illinois. But it is considered merit pay, and
if a determination is made that the employee does not merit
this, for all practical purposes, bonus, that it can be denied
them?
Mr. Ruiz. The merit pay component, yes, that is correct.
Mr. Davis of Illinois. Thank you very much.
Mr. Spires, let me ask you, can you explain how budgetary
constraints prohibit the IRS from establishing a policy
providing mandatory minimum increase in salary, which is
equivalent to an across-the-board adjustment?
Mr. Spires. The statute RRA 98 delegated decisions
regarding those increases of COLA to--I believe, the Secretary
of the Treasury would then delegate it to the IRS Commissioner.
We have made a decision that we would not mandate that, that we
would live by that statute.
However, the practical application is that since we have
implemented a pay-for-performance system in the IRS for
managers 7 years ago, we have always granted that COLA increase
for all managers that are fully successfully rated or above.
Mr. Davis of Illinois. Do you believe that the IRS pay-for-
performance system is actually providing an incentive to
managers, given that employees who are rated fully satisfactory
receive both step increases and the across-the-board-
adjustment, while managers who are rated fully satisfactory are
assured of neither?
Mr. Spires. I believe, Mr. Chairman, that our pay-for-
performance system, while certainly not perfect, is helping the
organization meet its overall objectives. We did have some
bumps in the road, and I allude back to my testimony where I
talk about the fact, and TIGTA alluded to this, we didn't
communicate and train the management staff as well as we needed
to on the system. And I think that's led to some of the kinds
of employee satisfaction ratings that Dr. Tobias stated on the
previous panel.
That being said, time-specific objectives to each manager
in their performance plan that roll up to that organization's
overall goals and objectives, that then roll up to the overall
IRS mission, I think, has really helped us in overall
performance. If you look at the overall performance of the IRS
over the last 5 years, in almost every category we measure, we
have performed markedly better, in taxpayer service, in our
compliance function.
In our modernization, compliance, for instance, from 2002
to 2007, we increased our enforcement revenues more than 70
percent in an era of essentially flat budgets, and we have
10,000 employees less than we had then.
I think that speaks to good management, and I believe that
a pay-for-performance system--and echoing what Dr. Tobias said,
a good performance management system are keys to have made that
happen.
Mr. Davis of Illinois. Let me ask, has the IRS made a
decision on whether to implement a pay-for-performance system
for the rest of the approximately 900,000 employees?
Mr. Spires. Sir, we have not. We--as I said earlier, it's
not perfect. We do believe we need more time to get it right
for the management ranks. We are still assessing whether it
makes sense to engage with the NTEU and discussions regarding
doing it for nonmanagerial employers. We have not made any
decision yet as to whether we are going to move forward.
Mr. Davis of Illinois. Recognizing that there is some
decrease in morale among some managers within the agencies, and
employees that might be considering managerial positions, what
is the IRS doing to try and beef that up or to have cut it off?
Mr. Spires. Well, we recognize that there may be a
perception of a disincentive, if you will, for nonmanagerial
employees to move into the managerial ranks. We are studying
that right now, sir. This goes well beyond pay-for-performance
issues, but given the pay compression that you see in the
Federal Government pay scale, what can we do to incentivize
those that really have the capability to manage, to move into
the management ranks?
I personally believe, and I think it's bearing out in the
IRS, that the pay-for-performance system does not need to be a
disincentive. I think with the kinds of studying we are doing
regarding ours, the training we are doing, the education, I
believe we can move past that. But there are other
disincentives. Particularly in the IRS, we have issues around
mobility. Many times we ask those going into management ranks
to actually relocate, given the disparate nature of the IRS and
our function. There are just issues like that also loom large
in trying to get employees interested in becoming managers.
Mr. Davis of Illinois. Can you tell me what the critical
pay authority is?
Mr. Spires. Sure. As part of the enactment of RRA 98, the
IRS was given the authority to hire up to 40 individuals meant
to come out of the private sector into the executive ranks in
order to help the IRS bring best practices, appropriate best
practices, from the private sector into the government, and it
was more pay flexibility, although none of the critical pay
executives can earn more than the Vice President of the United
States.
Mr. Davis of Illinois. Have you been able to evaluate that
to determine what it is that the IRS might have been able to
accomplish with this authority and with these individuals that
it was not able to accomplish without them?
Mr. Spires. Well, you are right in my wheelhouse, sir,
because I am one of those critical pay executives.
Most of them, about 75 percent, and I believe we have about
25 on board right now, although I am not sure of the exact
number, most of them are in our information technology
organization, our IT organization.
Most of them were brought in because they brought in
specific skills where we felt we were lacking in the IRS, in
information technology, management in particular, and I believe
that it has been a major benefit to the organization. We have
great individuals in our IT organization that are career
people, but there's a new set of technologies, a new set of
disciplines that they weren't familiar with. By being able to
bring in people from the private sector with those skills for a
4-year period, I think, has been a very big help in moving our
whole modernization program along on the IT side.
Mr. Davis of Illinois. Thank you very much.
Dr. Sanders, let me ask you, you testified that you cannot
provide any details on the DNI's proposed pay-for-performance
system because it is in a predecisional phase.
Could you explain what the predecisional phase means?
Mr. Sanders. Certainly, Mr. Chairman.
When you began the hearing, you talked about the pay-for-
performance system that the Director of National Intelligence
wants to impose on the Intelligence Community.
Mr. Chairman, the DNI does not have the statutory authority
to do that. Instead, we must achieve agreement amongst the 16
intelligence agencies and elements and their six parent Cabinet
departments, who have six different personnel systems in
different titles of the U.S. Code.
Again, only a very small minority of our employees are
covered by Title V. The rest are Title X and Title XV and other
parts of the law. So given that the DNI cannot impose this
system on them, we must achieve agreement amongst them.
Literally 2 years from last week, then principal Director
of National Intelligence, General Mike Hayden, commissioned a
feasibility study to look at whether we could and should
develop a common compensation framework for the Intelligence
Community. This was one of the critical recommendations made by
the President's Commission on the Intelligence Capabilities of
the United States with regard to weapons of mass destruction--
let me take a deep breath--other wise known as the Silverman-
Robb Commission, and they viewed it and we view it as an
essential way of trying to glue this community together, 6
departments, 16 agencies, all with different chains of command.
And one of the things I lose sleep over, Mr. Chairman, is
different pay and other personnel practices across that
community. If we have those kinds of disparities, there will be
no community, and we won't be able to achieve the purposes of
the Intelligence Reform Act.
Mr. Davis of Illinois. Now, let me make sure, because I
understand that this Thursday the Director of the DNI, Mike
McConnell, is scheduled to testify before an open Senate Select
Intelligence hearing on DNI's authorities and personnel issues.
Will Mr. McConnell provide the Select Intelligence Committee
with details of its pay-for-performance proposal, or do you
know?
Mr. Sanders. No, again, Mr. Chairman, he is in no different
situation than I am. The directives that we are developing over
those 16 agencies and 6 departments are, in effect, treaties.
We need everyone's agreement to move forward in a common way.
We don't have that agreement yet. We have been at this for 2
years. This is very much an event-driven process, and the first
and most critical event is to try to reach some consensus
amongst the intelligence agencies and elements to proceed
forward in a common way.
Mr. Davis of Illinois. The administration--the fiscal year
2008 budget contained funds to increase diversity in the
Intelligence Community. Each year the DNI reports to the House
Permanent Select Committee on Intelligence on diversity in six
of the largest intelligence components.
In fiscal year 2006, the DNI reported that the IC was 21
percent minority compared with 37 percent of the overall
population, and 39 percent women compared with 51 percent of
the overall population. DNI has acknowledged that the
Intelligence Community needs to make progress on diversity.
Given the adverse impact pay-for-performance systems seem
to have on minorities and older workers, how can you assure the
subcommittee that the DNI system will be any different?
Mr. Sanders. Let me respond in a couple of ways. First, we
are in the process of completing our fiscal 2007 report on EEO
and diversity in the Intelligence Community, and I am not sure
it has been submitted to our oversight committees, but, as it
is, as we do so, you will see that we have made modest
progress.
We have made modest progress each year for the last 3 years
in almost every category; for example, recruiting and promotion
rates. The percentages exceed our representation rates. So
while admittedly our representation rate is below, for example,
the civilian labor force, the fact is that we are hiring at a
greater rate than our current representation rate for women and
minorities. So we are making modest progress. That's progress
we don't want to retrench in that regard. We need a work force
that looks like America and, frankly, to be able to deal with
all the diverse peoples of the world.
It's a very high priority of Director McConnell's. We would
not be moving forward with pay for performance if we thought
for one instant that it would have adverse impact. Pay-for-
performance systems are not inherently discriminatory.
Frankly, I agree completely with Congresswoman Norton on
the notion of trying to set up a validated system so that
behaviors you are rewarding people on are, in fact, resident in
the work that they do. We have spent a lot of money and a lot
of time engaging hundreds of our employees, our best subject
matter experts, to develop the performance elements that I
talked about earlier, collaboration, critical thinking and the
like, as well as performance standards, specific behavioral
definitions of what those look like.
I would just like to add, my colleague on the previous
panel who seemed to scoff at the notion of evaluating employees
on collaboration--Mr. Chairman, you know this--the 9/11
Commission said one of the causes of that tragedy was that we
had not collaborated and shared information across the
Intelligence Community.
We have 16 agencies and stovepipes and 6 Cabinet
departments. If we don't put it in our performance evaluation
system, and we don't validate it, and we don't reinforce those
kinds of behaviors, we won't improve, and our improvement is a
matter of national security.
So we are not going to--we are not going to shortcut this.
We have spent the money to validate our elements and our
standards. We have oversight built into our proposed rules. We
have training built into our proposed rules, not just general
training for managers and supervisors and how to administer the
system, but we are going to include specifically training on
how to guard against implicit bias, subconscious bias.
So we have standards that are validated. We have oversight
mechanisms, literally five levels of oversight from the first
level of supervisor all the way up to a body called the IC
Human Capital Board that will look for and guard against
unlawful discrimination. In fact, the charter board
specifically says, among other things, it will guard against
unlawful discrimination.
So we have accountability, we have transparency, we have
oversight, we have the standards, we have the training to make
sure that we don't have any adverse impact on women and
minorities. Our goals there have been too hard won to risk
them.
Mr. Davis of Illinois. Thank you.
The last question I think I have is given the statutory
authority you are seeking for civilian personnel changes fall
within Title V of this subcommittee's jurisdiction, when do you
intend to brief the members of this subcommittee on the pay
provisions of your proposal, and do you have a timeline for
each phase of your pay-for-performance proposal?
Mr. Sanders. I am happy to brief you, your colleagues and
your staff as soon as we get past the predecisional stage. I
can tell you, Mr. Chairman, no one in this room more than I do
wants to get past that predecisional stage. This has been 2
years in the making. It is event-driven and time-phased. This
would literally be implemented through fiscal 2012.
So we want to do this right. It will start with a single
agency and proceed in gradually expanding phases until the
entire Intelligence Community is covered.
Mr. Chairman, we want to make sure you are on board,
because one of the things I worry about--and we do need your
committee's indulgence on this--at some point we have to be
able to extend the system to our Title V agencies. In relative
terms they are very small, they are vulnerable to interagency
competition, and we don't want to leave them behind. So we are
going to have to brief you; we are going to have to get you on
board; we are going to have to convince you that this pay
system won't work, that we have learned from lots of other
mistakes, including many I have made myself, so that we can get
it right the first time and then, with your permission, be able
to extend it to our smaller elements so they are literally not
cherry-picked as they move forward.
Mr. Davis of Illinois. Well, I have no more questions.
I want to thank you gentlemen very much for your testimony
and for your patience. You are excused.
Thank you very much.
Mr. Davis of Illinois. While we are seating our third and
last panel, I will go ahead with the introductions. We are
pleased to have Ms. Colleen Kelley. She is the president of the
National Treasury Employees Union [NTEU], the Nation's largest
independent Federal-sector union, representing employees in 31
different government agencies. As the union's top elected
official, she leads NTEU's efforts to achieve the dignity and
respect Federal employees deserve.
Ms. Kelley represents NTEU before Federal agencies and the
media and testifies before Congress on issues of importance to
NTEU members and Federal employees.
Mr. John Gage is the national president of the American
Federation of Government Employees [AFGE], of the AFL-CIO. Mr.
Gage watches over the rights of some 600,000 Federal and D.C.
Government employees. Mr. Gage was elected national president
at AFGE's 2003 national convention in Las Vegas, Nevada.
Mr. Gregory Junemann was unanimously selected to serve as
president of the International Federation of Professional and
Technical Engineers [IFPTE], AFL-CIO, at the union's 54th
convention in March 2001.
On Tuesday, May 8th, the IFPTE filed a petition to hold an
election at the Government Accountability Office. On September
19, 2007, GAO analysts voted overwhelmingly to join the
International Federation of Professional and Technical
Engineers [IFPTE]. The vote was 897 to 485, a 2 to 1 margin in
favor of IFPTE representation for 1,800-plus analysts at the
Government Accountability Office.
Ms. Carol Bonosaro is president of the Senior Executives
Association [SEA], the professional association representing
the top career executives in the Federal Government. Ms.
Bonosaro was, herself, a senior executive until her retirement
from Federal service in 1986 to become SEA's full-time
president.
Let me thank all of you for being here, for your patience,
your indulgence, and, of course, as is tradition with this
committee, all witnesses are asked to be sworn in. So if you
would stand and raise your right hands.
[Witnesses sworn.]
Mr. Davis of Illinois. The record will show that the
witnesses answered in the affirmative.
Again, thank you all very much for being here with us, and
we will begin with you, Ms. Kelley.
STATEMENTS OF COLLEEN KELLEY, PRESIDENT, NATIONAL TREASURY
EMPLOYEES UNION; JOHN GAGE, PRESIDENT, AMERICAN FEDERATION OF
GOVERNMENT EMPLOYEES; GREGORY JUNEMANN, PRESIDENT,
INTERNATIONAL FEDERATION OF PROFESSIONAL AND TECHNICAL
ENGINEERS; AND CAROL BONOSARO, PRESIDENT, SENIOR EXECUTIVES
ASSOCIATION
STATEMENT OF COLLEEN KELLEY
Ms. Kelley. Thank you very much, Chairman Davis. I
appreciate the invitation and the opportunity to speak with you
today. This distinguished subcommittee has heard testimony
today from Federal agency heads and renowned experts from
academia. I am here today to present the viewpoint of the tens
of thousands of dedicated public servants who are currently on
the ground working in the government. These Federal employees
are the ones for whom alternative pay systems are a looming
reality, not just an abstract concept.
The President's fiscal year 2009 budget submission
reaffirmed a commitment to replace the current GS system with a
``modern classification, pay, and performance management system
that is both results-driven and market-based.''
OPM just released its December 2007 report on performance-
based pay systems in Federal agencies touting their success in
leading to a better government. I am here to refute that.
No. 1, the notion that the GS system needs to be replaced
is not true; and, two, that current pay-for-performance systems
have shown widespread success. To the contrary, NTEU's
experience shows that the alternative pay systems at many of
the agencies in the OPM report are characterized by a slew of
grievances, arbitrations, litigation, high attrition rates and
rock-bottom employee morale.
Nothing in this OPM report or any other government study I
have found presents data documenting the need to eliminate the
GS system. The GS system is market-based. It has the goal of
achieving comparability with the private sector through 32
different locality pay areas, and employees receive raises
based on merit, which is synonymous with performance and
achieving results.
The GS system is transparent. It has rules, standards and
evaluations which must be written. If managers currently have
trouble with the GS system it does not make sense to go to a
more subjective pay system.
The Transportation Security Administration's past pay
system is a prime example of failure. Employees are constantly
tested, but if they fail, they are not told what they did
wrong. The training is minimal, and a majority of airport
screeners don't know what is expected to get a pay raise. The
uncertainty impasse has resulted in the highest attrition rate
in the government. The TSA past system should be eliminated,
and legislation should be enacted to put TSA screeners onto the
GS pay system.
NTEU strongly believes that in the absence of a statutorily
defined pay system like the GS system, pay should be subjective
to collective bargaining as it is in the private sector. At the
SEC and FDIC, NTEU bargains for pay on behalf of its employees,
yet problems still exist.
These alternative pay systems must be seen as fair, as
credible and as transparent. Employees must know what their
work expectations are and what they need to do to improve.
Unfortunately, the SEC has failed on all accounts.
In September 2007, as you know, NTEU won an important legal
battle when an arbitrator ruled for the union and for employees
that SEC's implementation of its 2003 pay-for-performance
system was illegal. This faulty system was found to be
discriminatory against African American employees above grade 8
and employees aged 40 and older.
The SEC system used a set of vague and subjective what they
call agency success factors to determine whether and how much
of a merit increase an employee would receive. The generic
factors were not linked to employees' job duties, and they
applied to every position within the SEC. They were based on
amorphous criteria.
NTEU warned the SEC that employees would not know how to
satisfy the vague standards, and that arbitrary treatment would
occur. This was compounded by a lack of training and guidance
for managers.
As you noted, four additional grievances are pending, yet
the SEC continues to determine pay increases based on the
flawed system currently in place.
FDIC's pay system, too, was problematic. The system had
established a separate set of what they call corporate
contributions. These factors were used to determine an employee
pay raise increase, which generated a great deal of resentment
and did little to motivate employees to foster teamwork. So to
its credit, however, working with NTEU, the FDIC has agreed to
suspend its pay-for-performance system, hiring employees for
the 2007 performance cycle. However, IRS managers have not
embraced their pay-banding system. In their public comments on
OPM's regs, the Federal Managers Association spoke against
these forced pay quotas.
In conclusion, I would like to emphasize a few things.
There is no hard evidence that the current pay system for
Federal employees needs to be changed. The current experiments
with alternative pay systems are failing, and, most
importantly, pay systems must be fair, credible and transparent
to be successful.
Thank you for the opportunity again, Mr. Chairman, and I
would be happy to answer any questions.
Mr. Davis of Illinois. Thank you very much.
[The prepared statement of Ms. Kelley follows:]
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Mr. Davis of Illinois. Mr. Gage.
STATEMENT OF JOHN GAGE
Mr. Gage. Thank you, Mr. Chairman. It's a pleasure to
appear before you today.
I will focus my remarks on DOD's national security
personnel system and TSA's pay system for transportation
security officers. Recent press reports of the 2008 NSPS payout
for employees have been highly misleading, and we urge this
subcommittee to demand data from DOD to explain how the system
has been applied, because what they have provided so far makes
any evaluation impossible.
But what we do know is subjectivity and bias plague the
entire system. NSPS is supposed to set base pay and future
salary increases on individual performance, judged by a
hierarchy of supervisors, but senior managers at DOD have told
us that different pay pools have different rules for
distribution, and that supervisors have an order to tell their
subordinates only their narrative ratings, not their numeric
ratings, so that the latter can be changed after the fact.
Surely it violates the principle of transparency if an employee
cannot even see their supervisor's rating.
Because NSPS is not supposed to exceed the cost of the GS
system, it must fit performance ratings into a normal
distribution or bell curve. In practice, this means that
numerical ratings can be changed not because of failure of
employees to reach performance objectives, but to align with
preset ceilings on the number of 5, 4, 3s necessary to match
preordained funding for pay pool distributions. Far too many
managers have carefully rated their subordinates as objectively
as possible, only to be forced by the pay pool manager to
reduce their ratings in order to get to the bell curve.
But it becomes more complicated than that. Employees in the
same pool who were rated 3, for example, might not get the same
number of shares. Further, the money put into the shares varies
enormously. In some places, a share was worth 1 percent of
salary; in others, it was worth 1.5; in others, it was worth 2.
In some workplaces an employee who got a 3 could get more than
someone else who got a 4.
Just to make matters even more complex, pay pool managers
can decide how much of a share can be put into an employee's
salary increase versus cash bonus, and this is enormously
important. Obviously, this can affect the employee's standard
of living not only while he is still working, but profoundly
into retirement.
In addition, there appears to be a bias in favor of
employees who work higher up the chain of command or closer to
the Pentagon. I would think Members of Congress would be
particularly interested in what is so obviously an inside-the-
Beltway bias.
We are also concern about the elimination of merit
promotion. Under the GS system, an employee's ability to get
promoted is clear from the position description. If the job is
based on the career ladder, say, and starts as a GS-5, goes to
a 7 and then a 9, employees know what is expected of them, and
they can look forward to those promotions if their performance
so warrants.
Under NSPS, promotions are likely to be far rarer.
Employees might be given additional duties by their supervisor
in order to advance inside the pay band, but there will be no
pathway, no clear pathway, to that advancement. Nor is there a
requirement that a job at the higher level be open to
competition. Bias and favoritism are inevitable.
Mr. Chairman, I have dwelled on the details of NSPS for
good reason. It has been so easy for the administration to spin
pay for performance as a great idea. Who can argue with
rewarding excellence and punishing the lazy and incompetent?
AFGE argued against the establishment of the authorities that
gave DOD, DHS and TSA the ability to create new pay systems. We
have testified numerous times before, and we reaffirmed today
that no matter how successful people may think pay for
performance is in private-sector settings, it is inappropriate
for the government where merit system principles must be
upheld, where teamwork is paramount, where politics always
threatens to corrupt the workplace, and where profit has no
place.
But the administration argued that they can be trusted to
create fair systems, that best practices would be followed, and
that we should just wait and see how happy and motivated
everyone will be once they get rewarded for their
contributions.
But the reality of pay for performance is different. In any
pay system like NSPS, with this much flexibility, the results
must be exposed to a great deal of sunshine. The fairness,
transparency and accountability promised by NSPS can only be
evaluated looking at the numbers.
We urge the committee to acquire the data listed in the
appendix that we are provided and to make it public. If the
system is any good, it will withstand the scrutiny. If it is
not, AFGE and other unions will negotiate for its improvement.
Now, transportation security officers. Just briefly,
despite the public's call for a Federalized, well-trained and
well-compensated screener work force following 9/11, TSOs
continue to be drastically underpaid. The average salary is
$30,000, approximately equal to that of a GS-5, while other law
enforcement officers at DHS are classified at much higher
grades.
TSOs are also subject to the unaccountable and highly
subjective performance-based pay system known as PASS. While it
is virtually impossible for us to obtain data or even basic
information about how this system is supposed to work, to make
matters worse, TSA continually changes the system. While
understandably confused about the details, employees tell us
that PASS is based on favoritism, not performance.
Last December, TSA disclosed that TSO officers--that TSO
officers would receive a smaller pay raise in 2008 than in
2007, even if they receive the same performance rating as the
previous year. TSA consistently ranks at the bottom of any
survey of employee morale.
We all know it from the tragedy suffered on 9/11 that this
work force is too important to be treated so callously. It is
time to provide a rational pay system for these workers before
the attrition rate climbs any higher. AFGE urges the
subcommittee to end the PASS system and instead place TSOs
under the pay system that it applies to other Federal workers,
including their colleagues throughout the DHS.
That concludes my statement, and I will be happy to address
any questions.
Mr. Davis of Illinois. Thank you very much, Mr. Gage.
[The prepared statement of Mr. Gage follows:]
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Mr. Davis of Illinois. Mr. Junemann.
STATEMENT OF GREGORY JUNEMANN
Mr. Junemann. Thank you, Mr. Chairman, and thank you and
Congressman Sarbanes for allowing me here to testify today.
IFPTE is a labor organization representing over 80,000
highly skilled professional and technical workers in the
private, Federal and public sectors throughout the United
States and Canada. IFPTE represents up to 20,000 workers of the
Department of Defense, civil servants and 1,800-plus analysts
within the Government Accountability Office.
IFPTE also represents Federal employees at the Department
of Interior, Department of Energy, NOAA, NASA, EPA, CRS, the
Executive Office of Immigration Review, and the administrative
law judges within the Social Security Administration.
Having said that, IFPTE has significant experience with pay
for performance, particularly at DOD and GAO, where our members
are either currently experiencing this firsthand or have been
threatened by its implementation over the past years.
IFPTE is somewhat unique when it comes to this
controversial issue. For one, in the private sector we have
represented members who for years have been on a pay-for-
performance system. While most of our Federal locals have
clearly said no to pay for performance, some of our members do
welcome the concept and believe that if properly and fairly
implemented, it may be able to work. This is the case among our
GAO membership.
One thing is clear, however. The proper application of pay
for performance in the Federal Government has yet to be
realized, and one could argue that its success is many years
away, if it is possible at all.
It's been the IFPTE's experience that pay-for-performance
schemes, whether they are in the short demo projects or largest
agencywide efforts, such as DHS or DOD, for the most part have
not worked in the Federal Government. Despite what some
supporters would contend, these pay systems have provided
little evidence that productivity of the workers is enhanced.
In my written testimony, I also argue that the recent
report of a 7.6 percent pay increase in the first year of
spiral 1 of DOD is inflated and unsubstantiated. Quite to the
contrary, in fact, IFPTE has seen negative impacts on the
concept of teamwork, morale, potential problems related to
safety in such places as shipyards, and discrimination toward
women and people of color in many instances.
One of the more troubling trends with pay for performance
recently has been the misguided belief by management that it is
somehow acceptable to pick and choose who receives
congressionally mandated yearly pay increases intended to all
Federal workers who meet satisfactory ratings. Since when was
it the prerogative of management to unilaterally decide to
circumvent Congress' intent on annual pay increases through
pay-for-performance systems?
IFPTE believes that regardless of what pay system an
employee is under, when it comes to the yearly pay increases
approved by Congress for Federal employees, there should be no
losers and winners.
We at IFPTE are well aware of this ``race to the bottom''
practice, both at GAO and at DOD through NSPS. In order to even
start thinking about an effective pay-for-performance system, I
think we can all agree that it would have to have a strong
employee buy-in; otherwise, morale, recruitment and retention
will suffer, and these are things the Federal Government can
ill afford.
As a foundation for any pay-for-performance system, IFPTE
would argue that, at the very least, pay parity among all
Federal employees who have satisfactorily or meet the
expectation ratings should be achieved. This can be done by
mandating the annual congressionally approved pay raises
guaranteed to all Federal workers, as is the intent of
Congress. Given management's prerogative to ignore Congress'
intent on the pay raise, IFPTE believes that guaranteed pay
parity between agencies and various pay systems can only be
achieved through legislation. Obviously, this is legislation
that the union would ask your subcommittee to champion through
Congress.
In my written testimony, I elaborate specifically on some
of the problems within DOD and GAO relative to the pay-for-
performance system, and I welcome the opportunity to discuss
these with you.
Again, I thank the subcommittee for taking on this very
important project and issue, and I look forward to any
questions you might have.
Mr. Davis of Illinois. Thank you very much.
[The prepared statement of Mr. Junemann follows:]
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Mr. Davis of Illinois. Ms. Bonosaro.
STATEMENT OF CAROL BONOSARO
Ms. Bonosaro. The Senior Executives Association very much
appreciates the opportunity to share our experiences and views
related to the current SES pay-for-performance system. With the
creation of the SES in 1978, its members were subject to what
we thought was, indeed, a pay-for-performance system requiring
performance standards, detailed appraisals, and providing
performance awards when warranted.
The SES pay system was changed in 2003, and for the past
three annual performance cycles, senior executives have been
under a new system, the principal features of which are the
absence of locality pay, absolute and unreviewable agency
discretion in determining annual salary adjustments, and the
availability of higher pay caps to pay higher salaries to
senior executives if OPM certifies an agency's SES pay and
performance management system is making meaningful distinctions
based on relative performance.
Our opinions about the SES pay and performance system are
formed with frequent interaction with our members and by a
comprehensive survey of the SES that SEA undertook just over a
year a half ago. Both the survey results and the continued
feedback from our membership show that changes to the pay-for-
performance system need to be made. Our goal in recommending
changes to that system is to develop one which is viewed fair
and reasonable by both those subjected to it and those who
might aspire to the SES.
One of the more disturbing findings of SEA's survey was the
opinion of 47 percent of the respondents that GS-14s and 15s
are losing interest in applying to the SES. Anecdotal evidence
we have continued to receive indicates that the narrowing gap
between SES pay and the General Schedule, coupled with the
uncertainty and inconsistency of the SES system, the loss of
locality pay, increased responsibilities and fewer rights,
results in a less attractive Senior Executive Service.
A significant finding of our survey, which persists to this
day, is the perception that agency quotas, not actual
performance levels, sometimes drive decisions about performance
ratings and salary adjustments. Quotas are, of course, illegal
according to the regulation, but de facto or notional quotas
seem to flourish. Most agencies perceive that a key factor in
receiving OPM certification is to reduce the number of
outstanding ratings, so downward pressures on rating levels
exist within many agencies.
The certification process itself is a problem. It's an
arcane, time-consuming and cumbersome process which seems to
change each year. It must also be done every 1 or 2 years, and
often the decision whether to certify does not come until well
into the performance cycle.
Another concern is inconsistency among agencies and
sometimes from year to year within an agency on how the
performance systems are implemented. This inconsistency makes
it difficult to assess which agencies are doing the best job of
rewarding good performance.
In the 3 years of experience under the new SES performance
system, one of the most striking results is the very low salary
adjustments that have occurred. In the most recent year for
which data is available, 2006, those senior executives rated
fully successful received an average salary increase of 2
percent, far below the increase received by the General
Schedule. Higher-rated executives fared only slightly better
with those whose performance exceeded the successful--fully
successful level receiving a 3 percent salary adjustment, and
those whose performance was outstanding receiving 3.7 percent.
For the rating cycle that just ended, we have learned of a
fully successful senior executive who received an annual salary
increase of $323, less than one-third of 1 percent of the
minimum SES salary. We have also learned of an outstanding
senior executive who was denied any salary increase or any
performance award.
Attached to my written testimony is a copy of SEA's
recommendations for legislative changes to fix the SES system.
Our two principal provisions are to assure a minimum annual
increase for those SES'ers at the fully successful or higher
level, and to include performance rewards and retention
allowances in the high three retirement calculation.
We also have recommendations concerning a longer
certification period, minimum funding of SES salary
adjustments, a minimum increase in pay for new senior
executives, rules for pay tiers which a number of agencies have
developed and are developing, feedback to senior executives,
and greater transparency in the administration of these
systems.
It is our hope that with the adoption of SEA's
recommendations, the SES pay system will be one that adequately
and fairly compensates those who perform the most challenging
and important jobs in the career Civil Service, and a very
important one which will attract quality candidates for the
future.
Thank you.
Mr. Davis of Illinois. Let me thank you very much.
[The prepared statement of Ms. Bonosaro follows:]
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Mr. Davis of Illinois. Let me thank all of you for your
testimony.
Let me ask one boilerplate kind of question, and perhaps I
will begin with you, Ms. Kelley. What do you think is driving
the movement toward pay for performance in the public sector?
Ms. Kelley. I think that agencies are looking for ways to
be able to hand managers the unilateral authority to determine
pay raises without having a lot of accountability required or
attached to that.
You know, the complaints that we hear about the GS system
really are not based on fact at all. If a--you know, I hear
things from agencies such as pay raises are automatic, and they
reward longevity, and that is not how the GS system is built.
If that is how managers are implementing it, the problem is
with the implementation by the managers, the problem is not
with the system. So rather than dealing with training managers
and holding them accountable for giving appropriate ratings
within the GS system, they try to find fault with the system.
And also, we are looking for ways, I believe, to move the
limited funds--because agencies have been faced with, in many
cases, flat-line budgets--and they are looking for ways to take
the money from the front-line employees and use it to recognize
or reward the few that they see fit, or to use it with other
things within the agency.
I just think they are not using the GS system
appropriately, and I think that they are really not interested
in recognizing and rewarding the front-line Federal employees.
Every Federal employee I talk to, they tell me they would like
to know what it is they need to do not just to succeed, but to
excel at what they do. They want to be told what that is so
that they can strive to achieve it. At the end of that, when
they do succeed, they want the appropriate recommendation and
reward attached to it, and the interested agencies are not
willing to do that.
Mr. Davis of Illinois. Mr. Gage.
Mr. Gage. I am probably of--well, to state it frankly, I
think we just have to look at where this stuff came from. It
came from people who have almost a hatred for government
service, who want to shrink government service; in fact, who
want to drown it in a bathtub, as one said.
I think, very clearly, that this whole pay for performance
is designed for one reason, and that is to lower overall
Federal pay. I think, too, that when you see some of the
schemes, if we could just get the numbers on what DOD or any of
these agencies are doing, I think it will really show exactly
what this is all about.
But the one thing I would like to bring up to you, Mr.
Chairman, about it, it's--it's so wrong where you give people a
bonus that would probably have added up to the pay raise they
got under the GS, but that money does not count for their
pensions. That's really disingenuous, and I think that's--that
in itself, these agencies these agencies won't be able to stop
themselves from saving money by not being able to put it into
the Federal pension system.
Mr. Davis of Illinois. All right. Mr. Junemann.
Mr. Junemann. Yes, I guess I could certainly echo what's
been said here by my two colleagues on this. When I look at
what happened with the NSPS, really shortly after the Bush
administration came on, some people came over from Heritage
Foundation and brought this idea of scuttling the GS system.
And I had no idea it was since 1949 until I started reading
these papers from the Heritage Foundation that said, OK, now,
it's old, it's Truman-era legislation, and now it has to be
replaced.
A lot of what President Kelley talked about was really
true; that it is--in essence, there is the ability to measure
and to rate employees within the GS system.
When we were in what we used to call ``no-gotiations'' when
we were developing the NSPS meet-and-confer process, that was
told to us: Well, it's an automatic increase. Well, it's really
not, and if it's implemented that way because the supervisors
weren't doing it properly or improperly trained, then that's
what should have been fixed.
But I think it was really--it was sort of an idea that
people had been sitting on for years and years, and then they
finally saw they had the power to implement it, and they did. I
think it was nothing more than wanting to, you know, lower the
pay of Federal workers by people who have some sort of animus
against Federal workers, and then they put it in NSPS, they
wrapped it into that, and then said, in addition to that, let's
put national security on the table with it and see if we can
get rid of collective bargaining at the same time.
So I don't think there was a heck of a lot good about this.
Nobody can tell me that everybody is a winner on these systems,
because that's not what we have seen. There's been just
thousands and thousands of losers. That has been our
experience.
Mr. Davis of Illinois. Ms. Bonosaro.
Ms. Bonosaro. Well, I am going to speak from my parochial
perspective of how this came to be in the Senior Executive
Service. I think, initially, I thought this is the management
theory du jour. We like to look at what the private sector is
doing, say to them, this would be a good idea.
Actually, I think virtually every administration comes in
and very often looks for a way to manage the Senior Executive
Service, because people who come in from the outside are used
to, perhaps, very often having the ability to pick their own
team, and they find a lot of career executives in place that
are pretty much going to be there, at least during their,
``get-acquainted period.''
So we went through something called recertification a
number of years ago that was proposed in the first Bush
administration. It has since been thrown overboard. But that
was looked at a way--it was looked at a way to get a handle on
the Senior Executive Service.
I think to some degree this system is looked at that way,
that you can--yes, you are assessing performance, but you are
going to be able to send some messages. And with pay adjustment
decisions, it is a system which can be manipulated. But I look
back, too, to initially the reason that this system was able to
get put in place. We had 70 percent of all senior executives
capped and earning exactly the same salary.
The day that I met with then-OMB Director Mitch Daniels and
OPM Director Kay Coles James, and they said, we are going to
solve this problem of the pay compression, but not everyone who
is capped is going to get a pay raise. And I walked out
scratching my head for a few days, because I couldn't think out
of the box.
And, obviously, what they had come up with was a way to
eliminate the S ranks and come up with a pay-for-performance
system, because there was also a sense that a lot of these
executives somehow or other were vastly overrated. There could
not possibly be this many people who were performing that well.
I think that was a very unfortunate premise, by the way, and a
wrong one.
Mr. Davis of Illinois. Thank you very much.
I see that we've been joined by Mr. Sarbanes. Is the
election over? I thought there was--well, some people don't
have to worry.
Mr. Sarbanes. We don't take anything for granted, but I
voted this morning. I did vote for myself. So hopefully that--
thank you, Mr. Chairman. And thank you to the panel.
Just a couple of comments, and then one or two questions.
Listening to the testimony today, I was able to hear some of it
on the radio as well before I got here. You would imagine that
to put a system like pay for performance into place, you would
need to do it under the best of circumstances to make it work,
and it seems that this has been done really under the worst of
circumstances. I'll leave aside for a moment whether I think it
can work anyhow. But everyone--if you assumed under the best of
circumstances you could implement it, you had the worst
circumstances here. You had inadequate funding, so you get the
result that Mr. Gage referred to where you have certain limited
amount of resources for each performance pool, and then you get
into this sort of allocation system which ends up resulting in
very arbitrary systems, highly subjective decisions that are
designed to just meet an overall agenda that is in place.
You have the fact that this is being done at a time when
we're still far away from comparability between what Federal
employees are making and what their counterparts are making in
the private sector, and obviously that is something you need to
move to, it seems to me, first before you start tinkering
around with these other things.
And then you have the other fact that those implementing
the system betrayed at every turn a fundamental lack of
respect, and a number of you have alluded to it, for the
Federal worker. And what they're trying to do--and the fact
that they're--they're not just bureaucrats as they'd have you
believe, they are people that are really committed to what
they're doing. They have a sense of mission, and they want to
perform well. They want to perform well, If you give them the
tools and the resources and the support that they deserve and
the leadership that they deserve.
And so this effort has been undertaken with a sort of
thinly disguised agenda, it seems to me, to attack the
integrity and the function of the Federal worker, and that is,
I think, why there is so much resentment to it. It also comes
at a time sadly when we're trying to recruit into the ranks of
our agencies and the Federal Government the best and the
brightest to serve there and to address some of the attrition
that has occurred, some just because of the passage of time,
but some as a result of this conduct on the part of the
administration which has undermined morale.
There is hundreds of thousands of jobs that need to be
filled in the coming years, and we need to make sure that the
Federal agencies are modeling absolutely the best behavior and
the best kind of leadership when it comes to rewarding people
for what they do and showing them basic respect.
The chairman did ask a question that I was going to ask,
which was sort of to describe your views of what--what the
agenda was here. I think that the administration--well, let me
ask you this: Do you think, for example, with respect to
collective bargaining rights, that the NSPS was launched and
pursued with the purpose of attacking collective bargaining
rights, among other goals that it had, or was it launched with
maybe more responsible objectives and then got hijacked by a
very strong ideology within this administration along the way?
I mean, I would be interested in your comments on that.
Mr. Gage. That is interesting.
By the way, I voted not far from where your brother lives
up in Baltimore today, too.
But I think that--you know, I almost don't want to look
back over the last 4 years, the fight we had about our
collective bargaining rights which we saw were--it was just so
wrong to take away our rights that used any type of a national
security reason for it, and--but I always thought the pay for
performance was really what they wanted. And to put in pay for
performance, at least the pay for performance that I think they
really want, it would be a lot easier to do without a union
there and without any voice of employees to be able to bargain
any fairness or transparency into this system. So maybe that is
just a conspiracy part of me, but through this whole exercise,
I always felt that the pay for performance was what they really
wanted, and to get rid of the unions was a step there.
Mr. Sarbanes. Yeah. Let me--can I just ask a quick
question, Mr. Chairman? I know my time has run out. But to look
positively toward the future in terms of fixing--I mean, you've
all commented on the fact that the General Schedule can work
well, that the systems that were in place can work well if they
got the right kind of resources and leadership behind them.
Maybe speak for 30 seconds if you--anyone who wants to jump
in--on your hope for how that can happen moving forward?
Ms. Kelley. Well, I would hope that there is a recognition
of the front-line employees that are there, and that they
should be supported in the work that they're doing. You know,
the overall question of pay for performance, at first blush it
is a pretty good sound bite, and many Federal employees at
first blush say, I'd love to be under a pay-for-performance
system; maybe then I would be paid appropriately, equitable to
the private sector. Then when they recognize pay for
performance under this administration is about no more funding
for the agency, so it goes to the name of the hearing today,
robbing Mary to pay Peter and Paul, and also to the fact that
managers will be--have this authority to decide who gets how
much money without any accountability, then they recognize that
it is a good sound bite, and that is all that is.
Mr. Gage. I don't think this system will work. I don't
think it is salvageable. I do think that many of the ideas that
our union has put forth, that Colleen has put forth about the
existing GS, we can do a lot on that classification system. And
it was really ironic to hear OMB and OPM say it is an outdated
system, and it has to be scrapped, where we've been arguing for
years that it needed to be adjusted, and it needed to be fixed.
And to see them say, no, it so out--and they were the ones that
were blocking trying to fix it in many areas.
But I'm very optimistic that I think that we can--now that
this issue is so much on the table, that the ideas that we have
for improving on the Civil Service can really maybe come
forward again, and that we can put out some really positive
ideas on how we can improve the Civil Service, protect the
Civil Service, and really make our country terrific.
And one thing you said about it, Congressman, why would
they do this or start this in DOD and DHS, you know, two of the
most--well, we've got two wars going on, and our DOD employees
are working mandatory overtime right on down the line. And DHS,
40 agencies coming together, the whole thing is a mishmash. And
to try to overlay that with a new personnel system, I think,
was really short-sighted and wrong.
Mr. Sarbanes. Thank you.
Mr. Junemann. I think one of the things that you brought up
before that kind of addresses this really helps. Now, under
DOD--because thanks to your legislation that the Congress
pushed through, we actually sort of have a two-tier thing going
on here. Where there is a union in place, they are still under
the GS system. Where there is no union, they fall under the
spiral thing.
Now, our union is not alone in this. We're involved heavily
with recruiting, you know, college graduates. And we can really
use and have used--when my members go out and meet with college
grads to try to get them to come into the naval shipyards as a
for instance, they can look at the GS system and say, OK, if
you have a 3 point or higher, you start with a GS-7. You're
going to move to a GS-9 over a certain period of time, and a
year later you'll go to a GS-11. If you're under a 3 point, you
start at a GS-5, and they can show them this is how you're
going to move through the ranks. And if you're able to get into
a more accelerated program, you can get into a GS-12, and here
is how long that is going to take. And it works. I mean, it
really works with people where they can see, OK, you know, I'm
going to actually have to perform to do this, but there is
guaranteed raises in there. There is a guarantee that if I do
something, I can make it to the next level and the next level.
Under the spiral system, they don't have that. And I think
what this is going to show, sort of the good news of all of
this, is, you know, the agencies that are unionized, that are
under the GS system, are going to find that they're able to
actually recruit the best and the brightest because they're
going to be motivated by this.
And I really need to speak to something I think that Dr.
Tobias brought up earlier where he talked about the fact that
money is not a motivator, yet--and we agree with that and--at
least I do. I agree with that; however, I still say, well, this
hurts morale. Well, because I think that the employees that I
represent are motivated by the mission of the agency they work
for, whether it is GAO, NASA, CRS, the Department of Defense,
they're motivated by that, that they see that their efforts
make a difference and that they really--and that they have to
make a difference, and that they really perform a service for
the taxpayer. However, they also understand that--when they get
cheated.
So it is not like that they are working for the money, but
when it is not there, you know, when they're not adequately
compensated, when suddenly they find that, you know--that the
director of their agency gets COLA and they don't, you know,
they feel cheated by that, and that is where the morale sets
in. And that's when maybe they start looking around to other
agencies or in the private government to maybe find something
better.
So you can't have both with this. I mean, they're not
motivated by the money under a merit system; however, you know,
the lack of proper recognition in their paycheck also--you
know, it hurts morale.
Ms. Bonosaro. Let's see, we need, I think, three things,
and first is a behavior change, which I would be very surprised
to see, but be very welcome, which is for those who are running
these systems in the agencies at least with regard to Senior
Executive Service to totally divest themselves of the notion
that there is or should be a normal distribution curve of
ratings, and to rate people honestly and these executives
honestly and fairly. I think that would first go a long way to
starting to fix this system.
But I do think that we need some structural changes. I
mean, if you were a fully successful senior executive, and the
OPM Director says that should be and is a very good rating,
there is no reason you should be getting an annual pay
adjustment that is far less than the people that you supervise.
I mean, a 2 percent adjustment for a fully successful executive
makes no sense.
I'm afraid that we're going to need legislation to fix
those kinds of issues, including the--counting the performance
of words in the high three and some other issues.
And there is a third issue. I think it is a long-range one,
but it is getting shorter- and shorter-range every day, and
that is how the General Schedule is--is creeping far into the
SES pay scale, and that is turning off a lot of potential,
really superb SES candidates. And we're going to have to take a
look at that SES pay cap and see what we can do with it,
because right now I think most rational GS-15s would say, why
do I want the additional responsibility, fewer rights, no
annual pay adjustment, no locality pay, etc? Yes, I love my
job, I love my country, I love public service, but--so I think
that is the third one we're going to have to fix, and it is a
tough fix, but we're going to have to address it at some point.
Mr. Sarbanes. Thank you.
Mr. Davis of Illinois. Thank you very much, and I have a
couple of last questions.
Ms. Kelley, you refer to the term ``amorphous criteria''
used in the SEC pay system. Could you explain what you mean by
that term?
Ms. Kelley. It is a criteria that is unknown to employees,
it cannot be defined. In the SEC they call it an agency
contribution factor, and in the FDIC they call it a corporate
success factor, but no one can tell you what that is. They kind
of describe it as ``I'll know it when I see it.'' And it has
zero correlation to your performance appraisal or your
evaluation based on the requirements and criteria for your job.
They intentionally delinked the rating to the--what they call a
merit increase.
Mr. Davis of Illinois. Given--and perhaps this might be our
last question. Given all of the problems and the controversy
that we hear, one side I suppose we get certain kinds of
arguments and discussions. From other sides, we get a different
set of discussions and arguments and criteria. And, of course,
we sit kind of in the seat where ultimately decisions have to
get made. And if you were in the business of recommending to
Congress that we do something about this controversy, what
would your recommendation be? Perhaps we'll begin with you, Ms.
Bonosaro.
Ms. Bonosaro. Well, our recommendation is attached to my
testimony. We have a legislative package that we think will
help fix this, because we really are concerned an awful lot of
senior executives are eligible to retire and probably will go
out. I mean, as we were saying earlier, pay is not the
motivator, but it sure can be a demotivator when it is handled
incorrectly. So I'm afraid that for us nothing short of getting
that bill moving is going to do it, because just some of this
is not going to happen without that, and they are the
recommendations I mentioned earlier. So I won't take your time
up with them again.
Mr. Davis of Illinois. Well, you know, the blues singers
say the best things in life are free, but you can give it to
the birds and bees because I need money.
Mr. Junemann. And that is pretty much my answer. I think
what it is going to take to fix this is funding; not only just
funding for training--and I would say not to fix the pay-for-
performance system, but to fix the GS system. You know, you're
going to need additional funding for training. If there is
going to be anything resembling pay-for-performance systems,
whether they are at GAO or wherever, there has to be--it has to
be properly funded.
If we're going to use a given pool--and let me use an
example. And we tried discussing this with the DOD folks when
we were going through the negotiations. What we do in the
private sector is we negotiate a cap of money, and it is
funded, you know. So we say, OK, everybody is going to get, you
know, a 2 percent across the board, and then there will be
merit above that, say, up to 6 percent. That money is funded
because what happens otherwise is you've got the four of us
going for three $20 bills, and somebody is going to come up
short. And that is what happens when you have this small capped
pool where everybody can't win no matter what their performance
is. And then what happens is--and we've alluded to it--is team
work suffers, because if I see that she is not doing her job
properly, and yet if I help her, if I train her, if I help make
her look better, it might cost me my pay, you know, that can't
work.
And this also even leads to, I think, the issue of
training--I mean, the issue of safety, you know, within
nuclear--within nuclear refueling, that if somebody again saw
that they had made a mistake and they thought, geez, maybe I
better tell somebody--and I'm not talking anything dramatic or
drastic, but even if it is something small, you know, that
they'd go back and tell their supervisor, I think I goofed
something up here, we better go back and take a hard look at
it, and they know it's going to cost them money if they do
that. You know, that is a position we really can't be in.
But I think the No. 1 thing that has happened--you know, a
system like this, two things really. It has to be developed
with the employees in mind, whether they're unionized or not.
It works better when there is a union, but it has to be
developed from the ground up with employee buy-in, and that
means just have an idea, not throw a program at them and expect
them to sign onto it. And then it has to be funded properly so
that, again, the money is there to reward people, and money is
there to train not only employees affected, but the supervisors
who are doing the evaluations.
Mr. Davis of Illinois. Thank you.
Mr. Gage.
Mr. Gage. Yeah. I'll be brief.
I think just two things. I think first the classification
system, it really could be an opportunity to look at that and
remove barriers that really stop people from moving up within
the GS system because of really antiquated barriers which don't
take into account how well the person works and how well they
perform. It is just some qualification that has been in there
for 30 years. Now, I'd like to see the classification system
really tweaked and fixed. Now, I don't think you can remove it
as a basis, though, of the Civil Service.
And the second thing, a real practical thing--and we've
been trying to push this, you know, for years--is more use of
this career ladder, a system that we already have in the
government. Many agencies use them. It is very similar to pay
banding, although it has set criteria for what you have to do
to be promoted. And these things have really worked good. I
don't know why we're moving away from things that have worked
well into this unknown.
But, again, Mr. Chairman, I just think this pay for
performance is built on false premises, and I don't think it
will ever work. I think that putting as much time into the
classification system and some techniques in the Federal
Government would pay off much more than to continue on with
this expensive disaster.
Ms. Kelley. I would ask that if the GS system is not going
to be the pay system for Federal employees, that the right to
collectively bargain pay be given to the unions and the Federal
sector, because if there is not going to be the GS system, a
known and established system, then that's what should happen.
We should have the right to collectively bargain.
The GS system is not perfect. There are changes that could
be made to it to allow the agencies more opportunity to reward
employees at the high end, and we have offered more than once
to work with the agencies to adjust that system to those
realities. They have never taken us up on that offer. We have
given them very specific proposals on how the GS system could
be used to be better able to attract, retain and reward. And
without collective bargaining, there is nothing there that
requires them to do that, to talk to us.
Funding is an issue because of the forced distributions
that you see in all of these alternative pay-for-performance
systems. To say that 25 percent of the employees will be given
the top raise, well, if only 25 percent of the employees are
performing at the top level, then that's appropriate. But what
if you have an agency with 60, 70, 80 percent top performers?
Why penalize them because of a funding issue or having to take
from one to give to somebody else? So I would ask for your help
there.
I would also ask for any opportunity you have to hold
agencies accountable for what they do with these alternate
systems. You heard from the SEC today, a 2003 arbitration win,
that they still have not made these employees whole who were
harmed. You know, the idea that they have not stepped up to
this issue, not made those employees whole and stepped up to
the fact that they made the same mistake in 4, 5, 6 and 7, and
here we are in 2008, and yet they think it is OK to be--you
know, writing briefs to have the arbitrator tell them what the
remedy will be. I think that is unconscionable. They should be
held accountable for that and they are not.
And the idea that anyone points to SEC, FDIC or the IRS
manager's pay banding as a success should be an opportunity for
anyone who can influence this to say that these are all
failures. And, you know, this sound bite needs to stop, and
they really need to get down to the business of managing the
work force and properly compensating and rewarding them, which
they are not doing today.
Mr. Davis of Illinois. Well, thank you all so very much.
Mr. Sarbanes, if you have no further----
Mr. Sarbanes. I just wanted to say that I'm very excited
about the prospects for doing the right thing going forward,
because, you know, there is this phrase, if it is not broke,
don't fix it. But a better way of saying that is if it is not
broken, make it better. And there is no shortage of good ideas
that you have identified in a very responsible way, which
signals that if we get the kind of leadership in place at the
levels where it can make a difference in collaboration with you
in taking up the ideas that you've offered, we can really start
to set a new standard and model as the Federal Government
should, the kind of behavior that every business in society can
emulate. So I'm very excited about what is to come based on
what I've heard here today.
Thank you for the hearing, Mr. Chairman.
Mr. Davis of Illinois. Well, thank you all so much. We
appreciate your being here, your testimony, your patience. And
perhaps good, better and best; never let it rest until your
good becomes better and your better becomes best. Maybe we'll
end up with the very best system that decisions can make.
Thank you so much. This hearing is adjourned.
[Whereupon, at 5:25 p.m., the subcommittee was adjourned.]