Human Capital: Selected Agencies Have Implemented Key Features of
Their Senior Executive Performance-Based Pay Systems, but	 
Refinements Are Needed (22-JUL-08, GAO-08-1019T).		 
                                                                 
In 2003, Congress and the administration established a		 
performance-based pay system for Senior Executive Service (SES)  
members that requires a link between individual and		 
organizational performance and pay. Specifically, agencies are	 
allowed to raise SES pay caps if their systems are certified by  
the Office of Personnel Management (OPM) with concurrence by the 
Office of Management and Budget (OMB) as meeting specified	 
criteria. GAO was asked to testify on preliminary results of	 
ongoing work analyzing selected executive branch agencies'	 
policies and procedures for their SES performance-based pay	 
systems in the following areas: (1) factoring organizational	 
performance into senior executive performance appraisal 	 
decisions, (2) making meaningful distinctions in senior executive
performance, and (3) building safeguards into senior executive	 
performance appraisal and pay systems. GAO selected the U.S.	 
Departments of Defense (DOD), Energy (DOE), State, and the	 
Treasury; the U.S. Nuclear Regulatory Commission (NRC); and the  
United States Agency for International Development (USAID) based 
on variations in agency mission, organizational structure, and	 
size of their career SES workforces. To date, GAO has analyzed	 
agencies' SES performance management policies and guidance and	 
analyzed aggregate SES performance appraisal data as provided by 
the agencies for fiscal year 2007.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-1019T					        
    ACCNO:   A83007						        
  TITLE:     Human Capital: Selected Agencies Have Implemented Key    
Features of Their Senior Executive Performance-Based Pay Systems,
but Refinements Are Needed					 
     DATE:   07/22/2008 
  SUBJECT:   Appraisals 					 
	     Data collection					 
	     Eligibility determinations 			 
	     Employees						 
	     Employment 					 
	     Evaluation criteria				 
	     Executive agencies 				 
	     Executive compensation				 
	     Federal agencies					 
	     Government employees				 
	     Human capital management				 
	     Human capital planning				 
	     Human capital policies				 
	     Internal controls					 
	     Pay						 
	     Performance appraisal				 
	     Performance management				 
	     Performance measures				 
	     Policy evaluation					 
	     Program evaluation 				 
	     Program management 				 
	     Strategic planning 				 
	     Systems analysis					 
	     Systems evaluation 				 
	     Policies and procedures				 
	     program goals or objectives			 
	     Program implementation				 
	     Senior Executive Service				 

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GAO-08-1019T


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Testimony before the Subcommittee on Oversight of Government 
Management, the Federal Workforce, and the District of Columbia, 
Committee on Homeland Security and Governmental Affairs, U.S. Senate: 

United States Government Accountability Office: 
GAO: 

For Release on Delivery: 
Expected at 2:00 p.m. EDT:
Tuesday, July 22, 2008: 

Human Capital: 

Selected Agencies Have Implemented Key Features of Their Senior 
Executive Performance-Based Pay Systems, but Refinements Are Needed: 

Statement of J. Christopher Mihm: 
Managing Director, Strategic Issues: 

GAO-08-1019T: 

GAO Highlights: 

Highlights of GAO-08-1019T, a testimony before the Subcommittee on 
Oversight of Government Management, the Federal Workforce, and the 
District of Columbia, Committee on Homeland Security and Governmental 
Affairs, U.S. Senate. 

Why GAO Did This Study: 

In 2003, Congress and the administration established a performance-
based pay system for Senior Executive Service (SES) members that 
requires a link between individual and organizational performance and 
pay. Specifically, agencies are allowed to raise SES pay caps if their 
systems are certified by the Office of Personnel Management (OPM) with 
concurrence by the Office of Management and Budget (OMB) as meeting 
specified criteria. 

GAO was asked to testify on preliminary results of ongoing work 
analyzing selected executive branch agenciesï¿½ policies and procedures 
for their SES performance-based pay systems in the following areas: (1) 
factoring organizational performance into senior executive performance 
appraisal decisions, (2) making meaningful distinctions in senior 
executive performance, and (3) building safeguards into senior 
executive performance appraisal and pay systems. GAO selected the U.S. 
Departments of Defense (DOD), Energy (DOE), State, and the Treasury; 
the U.S. Nuclear Regulatory Commission (NRC); and the United States 
Agency for International Development (USAID) based on variations in 
agency mission, organizational structure, and size of their career SES 
workforces. To date, GAO has analyzed agenciesï¿½ SES performance 
management policies and guidance and analyzed aggregate SES performance 
appraisal data as provided by the agencies for fiscal year 2007. 

What GAO Found: 

Overall, the selected agencies are making positive steps toward three 
key areas related to OPM and OMBï¿½s certification criteria, with some 
opportunities for refinements in these areas. 

Factoring organizational performance into senior executive performance 
appraisal decisions: All of the selected agencies have policies in 
place that require senior executivesï¿½ performance expectations to be 
aligned with organizational results and organizational performance to 
be factored into appraisal decisions. Improvements in communicating 
organizational performance to reviewing officials could be made. 

Making meaningful distinctions in senior executive performance: While 
all of the selected agencies have multiple rating levels in place for 
assessing senior executive performance, senior executives were 
concentrated at the top two rating levels in the fiscal year 2007 
appraisal cycle, as shown below. 

Figure: Percentage of Senior Executives by Rating Level at the Selected 
Agencies: 

[See PDF for image] 

This figure is a multiple vertical bar graph depicting the following 
data: 

Agency: DOD; 
Rating level 5 (highest performance rating): 32.0%; Rating level 4: 
54.3%; 
Rating level 3: 13.4%; 
Rating level 2: 0.3%; 
Rating level 1 (lowest performance rating): 0. 

Agency: DOE; 
Rating level 5 (highest performance rating): 37.0%; Rating level 4: 
N/A[A]; 
Rating level 3: 62.4%; 
Rating level 2: 0.5%; 
Rating level 1 (lowest performance rating): 0. 

Agency: NRC; 
Rating level 5 (highest performance rating): 29.2%; Rating level 4: 
64.6%; 
Rating level 3: 6.3%; 
Rating level 2: 0; 
Rating level 1 (lowest performance rating): 0. 

Agency: State; 
Rating level 5 (highest performance rating): 69.0%; Rating level 4: 
27.4%; 
Rating level 3: 3.5%; 
Rating level 2: 0; 
Rating level 1 (lowest performance rating): 0. 

Agency: Treasury; 
Rating level 5 (highest performance rating): 43.9%; Rating level 4: 
44.9%; 
Rating level 3: 10.7%; 
Rating level 2: 0.5%; 
Rating level 1 (lowest performance rating): 0. 

Agency: USAID; 
Rating level 5 (highest performance rating): 60.0%; Rating level 4: 
30.0%; 
Rating level 3: 10.0%; 
Rating level 2: 0; 
Rating level 1 (lowest performance rating): 0. 

Source: GAO analysis of agency data. 

Note: DOE uses a four-level appraisal system. 

[End of figure] 

Building safeguards into senior executive performance appraisal and pay 
systems: The selected agencies varied in how they implemented 
predecisional checks of appraisal recommendations through higher-level 
reviews and Performance Review Boards as well as transparency in the 
aggregate results with opportunities to improve communication of 
aggregate appraisal results to all senior executives. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-1019T]. For more 
information, contact J. Christopher Mihm at (202) 512-6806 or 
[email protected]. 

[End of section] 

Mr. Chairman, Senator Voinovich, and Members of the Subcommittee: 

I am pleased to be here today to discuss our preliminary results 
concerning selected agencies' policies and procedures for the 
performance-based pay systems for career members of the Senior 
Executive Service (SES). As you know, in recent years, Congress and the 
administration modernized the performance appraisal and pay systems for 
senior executives by requiring a clearer link between individual 
performance and pay. Specifically, agencies are allowed to raise SES 
base pay and total compensation caps if their performance appraisal 
systems are certified by the Office of Personnel Management (OPM) with 
concurrence by the Office of Management and Budget (OMB) as, among 
other things, linking performance for senior executives to the 
organization's goals and making meaningful distinctions based on 
relative performance. 

In our past work on performance management and pay issues, we have 
reported that performance-based pay cannot be simply overlaid on most 
organizations' existing performance management systems.[Footnote 1] 
Rather, as a precondition to effective pay reform, individual 
expectations must be clearly aligned with organizational results, 
communication on individual contributions to annual goals must be 
ongoing and two-way, meaningful distinctions in employee performance 
must be made, and cultural changes must be undertaken. Most important, 
leading organizations have recognized that effective performance 
management systems create a "line of sight" showing how unit and 
individual performance can contribute to overall organizational goals 
and can help them drive internal change and achieve external results. 
[Footnote 2] As you know, effective performance management systems that 
hold executives accountable for results can help provide continuity 
during times of leadership transition, such as the upcoming change in 
the administration, by maintaining a consistent focus on organizational 
priorities. We have reported that there are significant opportunities 
to strengthen agencies' efforts in holding senior executives 
accountable for results through their performance management systems--
in particular, by linking senior executives' performance expectations 
to the achievement of results-oriented organizational goals. 

OPM's recently released 2008 governmentwide SES survey results found 
that senior executives across the government recognize the importance 
of linking pay to performance with about 93 percent of the respondents 
strongly agreeing or agreeing that pay should be based on performance. 
In addition, the majority of senior executives reported that their 
performance ratings were linked to their salary increases and bonuses 
to a very great or great extent. However, senior executives recognized 
the challenge of making meaningful distinctions in performance--a key 
criterion for agencies' certification of their SES appraisal systems. 
Specifically, less than a third of senior executives governmentwide 
strongly agreed or agreed that bonuses or pay distinctions were 
meaningfully different among executives. 

At your request and Senator Dorgan's, we are preparing a report 
highlighting selected federal agencies' policies and procedures for 
their SES performance appraisal and pay systems and OPM and OMB's 
oversight of the certification process (for additional background on 
the governmentwide SES performance-based pay system and certification 
criteria, see app. I). Today, I will present preliminary observations 
from our ongoing review. As requested, I will discuss the policies and 
procedures at selected agencies addressing three key areas: (1) 
factoring organizational performance into senior executive performance 
appraisal decisions, (2) making meaningful distinctions in senior 
executive performance, and (3) building safeguards into senior 
executive performance appraisal and pay systems. In our forthcoming 
report, we plan to report on OPM and OMB's oversight role and make 
recommendations to the selected agencies on areas of refinement for 
their senior executive performance appraisal and pay systems and to OPM 
and OMB to strengthen their oversight roles. 

For our review, we selected the U.S. Departments of Defense (DOD), 
Energy (DOE), State, and the Treasury; the U.S. Nuclear Regulatory 
Commission (NRC); and the United States Agency for International 
Development (USAID) based on variations in agency mission, 
organizational structure, size of their career SES workforces, and past 
results of their SES performance appraisal systems through rating and 
bonus distributions. To date, we have analyzed these agencies' SES 
performance management policies, directives, and guidance, and other 
related documents; interviewed cognizant agency officials, including 
OPM and OMB officials, regarding the certification process; and 
analyzed aggregate SES performance rating, bonus, and pay adjustment 
data as provided by the agencies for fiscal year 2007. In analyzing the 
fiscal year 2007 appraisal data, we defined our universe of analysis as 
career senior executives who received ratings. In calculating the 
percentage of eligible senior executives who received bonuses (cash 
awards) or pay adjustments (increases to basic pay) and average 
amounts, we excluded executives who received a rating less than "fully 
successful" (level 3), as applicable, from the eligible population 
since those executives are not eligible to receive bonuses or pay 
increases, according to the selected agencies' policies. We also 
excluded senior executives at NRC, Treasury, and State who received 
Presidential Rank Awards from our calculations of percentages of 
eligible SES members receiving bonuses and average amounts because 
those individuals were not considered for bonuses that year, according 
to the agencies' policies. In order to have consistency in our analysis 
across selected agencies, we included senior executives who were rated 
but left their positions--because of retirement, attrition, or 
assignment to a lower grade--prior to performance payouts being made in 
our analysis. The agencies' policies and practices varied in whether or 
not senior executives who retired were eligible for performance 
payouts. We checked the agency data for reasonableness and the presence 
of any obvious or potential errors in accuracy and completeness. We 
also reviewed related agency documentation, interviewed agency 
officials knowledgeable about the data, and brought to the attention of 
these officials any concerns or discrepancies we found with the data 
for correction or updating. On the basis of these procedures, we 
believe the data are sufficiently reliable for use in the analyses 
presented in this statement. Agency officials also verified the 
accuracy of the facts presented in this statement. 

The examples of the selected agencies' policies and procedures for 
their SES performance-based pay systems are not generalizable to the 
governmentwide SES population and all executive branch agencies. We did 
not assess how the selected agencies are implementing all the policies 
and procedures for their SES performance-based pay systems. An agency 
may have implemented a policy related to the three key areas even if it 
is not specifically highlighted in this statement. We conducted our 
work from October 2007 to July 2008 in accordance with generally 
accepted government auditing standards. Those standards require that we 
plan and perform the audit to obtain sufficient, appropriate evidence 
to provide a reasonable basis for our findings and conclusions based on 
our audit objectives. We believe that the evidence obtained provides a 
reasonable basis for our findings and conclusions based on our audit 
objectives. 

In summary, the selected agencies are making positive steps in 
generally addressing three key areas related to OPM and OMB's 
certification criteria through their SES performance-based pay systems 
with some opportunities for refinements of their systems. First, all of 
the selected agencies have policies in place that require senior 
executives' performance expectations to be aligned with organizational 
results and organizational performance to be factored into senior 
executive appraisal decisions. However, OPM has found that while many 
agencies are doing a good job of clarifying the alignment of executive 
performance plans with agency mission and goals, some of the plans 
often still fall short of identifying the measures used to determine 
whether the results are achieved. While the agencies identified common 
organizational assessments for consideration in senior executive 
appraisal decisions, NRC and Treasury identified other types of tools 
to assess performance at the office or bureau level. OPM has emphasized 
the importance of communicating to individuals involved in appraisal 
decisions the effect organizational performance can have on individual 
ratings and overall rating distributions through briefings or other 
communications. Several of the selected agencies shared the 
organizational performance assessments and communicated the importance 
of considering organizational performance through briefings, training, 
or document packages for the Performance Review Board (PRB) meetings, 
while State did not communicate any information regarding 
organizational performance. 

Second, while all of the selected agencies have multiple rating levels 
in place for assessing senior executive performance, several of the 
agencies, such as NRC, State, and DOE, designed their appraisal systems 
to help allow for differentiations when assessing and rewarding 
executive performance by establishing tier structures or prescribed 
performance payout ranges based on the resulting performance rating. 
However, our analysis shows that the senior executives are concentrated 
at the top two rating levels for the most recently completed appraisal 
cycle. Further, at almost all of the agencies, the highest-performing 
executives, rated as "outstanding" (level 5), made up the greatest 
percentage of eligible executives receiving bonuses with the largest 
bonuses on average, with the exception of NRC where all the eligible 
executives rated at the top two levels received a bonus. For pay 
adjustments, the majority of eligible senior executives rated at fully 
successful or higher received pay increases, but unlike bonus 
distributions, at some of the selected agencies, the highest performing 
executives did not comprise the greatest percentage of executives 
receiving pay increases with the largest increases on average. 

Third, all of the selected agencies have built safeguards into their 
senior executive performance appraisal and pay systems--such as 
predecisional checks of performance appraisal recommendations through 
higher-level reviews and PRBs as well as transparency in the aggregate 
results--to help enhance the credibility, fairness, and transparency of 
their systems, although they varied in how the safeguards have been 
implemented. Our preliminary results show that there are opportunities 
for USAID to improve the communication of aggregate appraisal results 
to all senior executives, rather than just individual appraisal results 
to the appropriate executive. Communicating an executive's individual 
rating conveys information about how well the executive has performed 
against the expectations in the performance plan, but is not sufficient 
to provide a clear picture of how the executive's performance compares 
with other executives in the agency. 

Factoring Organizational Performance into Senior Executive Performance 
Appraisal Decisions: 

In our past work on performance management, we have identified the 
alignment of individual performance expectations with organizational 
goals as a key practice for effective performance management systems. 
[Footnote 3] Having a performance management system that creates a 
"line of sight" showing how unit and individual performance can 
contribute to overall organizational goals helps individuals understand 
the connection between their daily activities and the organization's 
success. According to OPM, agency systems do not yet place sufficient 
emphasis on achieving measurable results. OPM has said that the 
criterion for alignment with organizational results is often the 
hardest of the certification criteria for agencies to meet. While many 
agencies are doing a good job of clarifying the alignment of executive 
performance plans with agency mission and goals, some of the plans 
often still fall short of identifying the measures used to determine 
whether the results are achieved, according to OPM. This challenge of 
explicitly linking senior executive expectations to results-oriented 
organizational goals is consistent with findings from our past work on 
performance management.[Footnote 4] 

To help hold senior executives accountable for organizational results, 
beginning in 2007, OPM required agencies to demonstrate that at least 
60 percent of each senior executive's performance plan is focused on 
achieving results and has clear measures associated with those results 
to show whether the goals have been achieved in order to receive 
certification of their SES appraisal systems. The selected agencies in 
our review have designed their appraisal systems to address OPM's 
requirement of aligning individual expectations with organizational 
goals. For example, in setting expectations for the individual 
performance plans, DOE requires the senior executives and supervisors 
to identify three to five key performance requirements with metrics 
that the executive must accomplish in order for the agency to achieve 
its strategic goals. Weighted at 60 percent of the summary rating, the 
performance requirements are to be specific to the executive's position 
and described in terms of specific results with clear, credible 
measures (e.g., quality, quantity, timeliness, cost-effectiveness) of 
performance, rather than activities. For each performance requirement, 
the executive is to identify the applicable strategic goal in the 
performance plan. To ensure that agencies are implementing their 
policies for alignment of performance expectations with organizational 
goals, OPM requires agencies as part of their certification submissions 
to provide a sample of executive performance plans, the strategic plan 
or other organizational performance documents for establishing 
alignment, and a description of the appraisal system outlining the 
linkage of executive performance with organizational goals. 

Further, OPM requires agencies to consider organizational performance 
in appraising senior executive performance to receive certification of 
their SES appraisal systems. According to OPM and OMB officials, the 
main sources of organizational performance that agencies use are the 
performance and accountability reports (PAR) and Program Assessment 
Rating Tool (PART) summaries, which capture agencywide as well as 
program-or office-specific performance. While identifying appropriate 
assessments of organizational performance to be used in appraisal 
decisions, agencies are also to communicate the organizational 
performance to the senior executives, PRB members, and other reviewing 
officials--including supervisors who complete the ratings--involved in 
appraisal decisions prior to the completion of individual performance 
ratings. In its certification regulations,[Footnote 5] OPM does not 
specify the format in which agencies need to communicate organizational 
performance; however, OPM has emphasized the importance of 
communicating to individuals involved in appraisal decisions the effect 
organizational performance can have on individual ratings and overall 
rating distributions through briefings or other communications. 

All of the selected agencies have policies in place for factoring 
organizational performance into senior executive appraisal decisions. 
While the agencies identified common organizational assessments, such 
as the President's Management Agenda (PMA), PAR, or PART results for 
consideration in senior executive appraisal decisions, several agencies 
identified other types of tools to assess performance at different 
levels of the organization, such as the bureau, office, or program 
levels. For example, NRC provides summary reports capturing office- 
level performance to rating and reviewing officials for appraising 
senior executive performance. Twice a year, NRC's senior performance 
officials (SPO)--two top-level executives responsible for assessing 
organizational performance--conduct assessments for each office that 
take into account quarterly office performance reports on their 
operating plans, an interoffice survey completed by the other directors 
as identified by NRC on the office's performance, as well as the office 
director's self-assessment of the office's performance. According to an 
NRC official, the resulting SPO summary reports are used in the midyear 
feedback by senior executives and their supervisors to identify areas 
for improvement for the remainder of the appraisal cycle. At the end of 
the appraisal cycle, rating officials and PRB members are to consider 
the SPO summary reports in appraising senior executive performance. 

To assess bureau-level performance, Treasury uses a departmentwide 
organizational assessment tool that provides a "snapshot" of each 
bureau's performance across various indicators of organizational 
performance, such as the PAR, PART results, PMA areas, OPM's Federal 
Human Capital Survey results, budget data, and information on material 
weaknesses. The performance information is provided to PRB members and 
reviewing officials to help inform their senior executive appraisal 
recommendations. 

The selected agencies varied in how they provided and communicated 
organizational performance assessments to PRB members and other 
reviewing officials to help inform senior executive appraisal 
recommendations. Several of the selected agencies shared the 
organizational performance assessments and communicated the importance 
of considering organizational performance through briefings, training, 
or document packages for the PRB meetings, while one agency did not 
provide or communicate any information regarding organizational 
performance. 

For example, at Treasury, all the PRBs across the department were 
briefed on the tool used to assess organizational performance and the 
importance of considering organizational performance in appraising 
senior executive performance. DOD provided the heads of its components 
with a departmentwide organizational assessment to be used in 
appraising senior executive performance and, as a check across the 
components, asked for copies of the training given to the PRB members 
and other reviewing officials on factoring organizational performance 
into senior executive appraisal recommendations. Through the office of 
the Deputy Secretary for Defense, DOD developed an assessment of the 
department's overall performance against its overall priorities for 
fiscal year 2007. According to a DOD official, the components had the 
flexibility to develop their own organizational assessments using the 
department's assessment as a guide and to consider other indicators of 
organizational performance. Having the components provide the 
department with their communications of organizational performance 
helps provide a check in the process across the components and ensures 
that the spirit and policies of the performance management system are 
being followed, according to a senior DOD official. 

As part of the documents received prior to the meeting, NRC provides 
PRB members with various indicators of organizational performance, such 
as the SPO summary reports, PAR, and PART information. As part of 
communicating the organizational assessments, NRC instructs the PRB 
members to review the summary of proposed ratings and scores for 
consistency with SPO reports, PAR, and PART outcomes, with rankings of 
executives recommended by office directors, and across offices and 
programs. Similarly, DOE provides its PRB members snapshots of the 
Consolidated Quarterly Performance Reports relevant to the senior 
executives that measure how each departmental element performed 
respective to the goals and targets in its annual performance plan. 
According to the Director of the Office of Human Capital Management, 
the Deputy Secretary also verbally briefed the PRB members on the 
importance of considering organizational performance in appraising 
executive performance. 

On the other hand, State did not provide its PRB members and other 
reviewers with any specific information on organizational performance 
to help inform their senior executive appraisal recommendations for the 
most recently completed appraisal cycle. According to State officials, 
PRB members received packages of information to help inform their 
decisions, including senior executives' performance plans and 
appraisals, the performance management policy, and the memo from the 
Director General of the Foreign Service and Director of Human Resources 
on performance bonuses and pay adjustment amounts and distributions for 
that cycle. While a senior State human resources official said that the 
PRB was made aware of a variety of organizational performance 
assessments that could be readily accessible, if needed, the PRB 
members did not receive any specific assessments of organizational 
performance. 

Making Meaningful Distinctions in Senior Executive Performance: 

Effective performance management systems make meaningful distinctions 
between acceptable and outstanding performance of individuals and 
appropriately reward those who perform at the highest level. In order 
to receive certification of their SES systems from OPM with OMB 
concurrence, agencies are to design and administer performance 
appraisal systems that make meaningful distinctions based on relative 
performance through performance rating and resulting performance 
payouts (e.g., bonuses and pay adjustments). Specifically, agencies are 
to use multiple rating levels--four or five levels--and reward the 
highest-performing executives with the highest ratings and largest pay 
adjustments and bonuses, among other things. 

Several of the agencies designed their appraisal systems to help allow 
for differentiations when assessing and rewarding executive performance 
by establishing tier structures or prescribed performance payout ranges 
based on the resulting performance rating. For example, NRC uses three 
tiers called position groups to differentiate its senior executives' 
basic pay and the resulting bonus amounts based on ratings received at 
the end of the appraisal cycle. NRC divides its executives into three 
groups (A, B, and C) based on difficulty of assignment and scope of 
responsibilities of the positions and annually sets basic pay ceilings 
for each of the groups tied to the levels of the Executive Schedule 
(EX), as shown in table 1. Pay ceilings within each group allow NRC to 
reserve pay above EX-III for executives who demonstrate the highest 
levels of performance, including the greatest contribution to 
organizational performance as determined through the appraisal system. 

NRC uses the position groups and resulting performance ratings as the 
basis for its bonus structure to help ensure that executives in the 
higher position groups with the higher performance ratings receive the 
larger bonuses. For example, for fiscal year 2007, an executive in the 
highest position group (A) that received an outstanding rating was to 
receive $30,000, while an executive in the lowest group (C) with the 
same rating was to receive a $20,000 bonus. According to an NRC 
official, the bonus range for executives in group C with excellent 
ratings was intended to help allow for meaningful distinctions in 
performance to be made within that group, as well as to give the agency 
flexibility in the amount of bonuses to be awarded. 

Table 1: NRC's SES Position Groups with Basic Pay Ceilings and 
Resulting Bonus Amounts Based on Position Group and Performance Ratings 
for the Fiscal Year 2007 Appraisal Cycle: 

Examples of SES positions by group: A: Executive Director for 
Operations, Chief Financial Officer, General Counsel, major program 
office directors (e.g., Director of the Office of Nuclear Reactor 
Regulation); 
Basic pay ceiling (comparable to EX pay): $172,200; (EX-II); 
Resulting bonus amount based on performance rating received: 
Outstanding: $30,000; 
Resulting bonus amount based on performance rating received: Excellent: 
$25,000; 
Resulting bonus amount based on performance rating received: Meets 
expectations: $0. 

Examples of SES positions by group: B: Support and small program office 
directors (e.g., Directors of the Offices of Administration and Human 
Resources), Deputy Directors of the Offices of the General Counsel and 
the Chief Financial Officer; 
Basic pay ceiling (comparable to EX pay): $165,350; (Midpoint between 
EX-II and III); 
Resulting bonus amount based on performance rating received: 
Outstanding: $25,000; 
Resulting bonus amount based on performance rating received: Excellent: 
$20,000; 
Resulting bonus amount based on performance rating received: Meets 
expectations: 0. 

Examples of SES positions by group: C: All other SES members; 
Basic pay ceiling (comparable to EX pay): $158,500 (EX-III); 
Resulting bonus amount based on performance rating received: 
Outstanding: $20,000; 
Resulting bonus amount based on performance rating received: Excellent: 
$8,000 - $13,800; 
Resulting bonus amount based on performance rating received: Meets 
expectations: 0. 

Source: NRC. 

Notes: NRC has a five-level appraisal system, but senior executives in 
the two lowest rating categories--unsatisfactory and needs improvement-
-are not eligible to receive bonuses based on their performance 
ratings. The governmentwide basic pay cap for SES under certified 
performance appraisal systems is EX-II. 

[End of table] 

State also uses a structure with six tiers to help differentiate 
executive performance based on the ratings and bonuses and allocate pay 
adjustment amounts for its senior executives, with executives who are 
placed in the highest tier (I) receiving a larger percentage pay 
adjustment than executives in a lower tier (V) who received the annual 
percentage adjustment to the EX pay schedule, which was 2.5 percent in 
2008. 

DOE sets prescribed ranges tied to performance ratings prior to 
finalizing ratings to help create a greater distinction between bonus 
amounts for the top and middle performers and differentiate pay 
adjustment caps. Specifically, for fiscal year 2007, DOE required that 
all executives receiving an outstanding rating receive a bonus of 12 to 
20 percent of base pay, while executives receiving a meets expectations 
rating were eligible to receive a bonus of 5 to 9 percent, but at 
management's discretion. For pay adjustments, executives were eligible 
to receive a discretionary increase of up to 5 or 7 percent of basic 
pay if rated at meets expectations or outstanding, respectively. 
Executives who receive the other two rating levels--needs improvement 
or unsatisfactory--cannot receive any bonuses or pay increases. 
[Footnote 6] 

We have reported that using multiple rating levels provides a useful 
framework for making distinctions in performance by allowing an agency 
to differentiate among individuals' performance.[Footnote 7] All of the 
selected agencies have four or five rating levels in place for 
assessing senior executive performance. While the selected agencies 
designed their appraisal and pay systems to help make meaningful 
distinctions in performance through ratings, our analysis shows that 
the senior executives were concentrated at the top two rating levels 
for the most recently completed appraisal cycle, as shown in figure 1. 
At State and USAID, about 69 percent and 60 percent of senior 
executives, respectively, received the top performance rating. At the 
other four agencies, the largest percentage of executives received the 
second highest rating--ranging from about 65 percent at NRC to 45 
percent at Treasury. Conversely, less than 1 percent of senior 
executives across the selected agencies received a rating below fully 
successful (level 3). As a point of comparison, about 43 percent of 
career SES governmentwide received the top performance rating for 
fiscal year 2006, the most recent governmentwide data available as 
reported by OPM. Similar to the selected agencies, less than 1 percent 
of career SES governmentwide received a rating below fully successful 
in fiscal year 2006. 

Figure 1: Percentage of Senior Executives by Rating Level at the 
Selected Agencies for the Fiscal Year 2007 Appraisal Cycle: 

[See PDF for image] 

This figure is a multiple vertical bar graph depicting the following 
data: 

Agency: DOD; 
Rating level 5 (highest performance rating): 32.0%; Rating level 4: 
54.3%; 
Rating level 3: 13.4%; 
Rating level 2: 0.3%; 
Rating level 1 (lowest performance rating): 0. 

Agency: DOE; 
Rating level 5 (highest performance rating): 37.0%; Rating level 4: 
N/A[A]; 
Rating level 3: 62.4%; 
Rating level 2: 0.5%; 
Rating level 1 (lowest performance rating): 0. 

Agency: NRC; 
Rating level 5 (highest performance rating): 29.2%; Rating level 4: 
64.6%; 
Rating level 3: 6.3%; 
Rating level 2: 0; 
Rating level 1 (lowest performance rating): 0. 

Agency: State; 
Rating level 5 (highest performance rating): 69.0%; Rating level 4: 
27.4%; 
Rating level 3: 3.5%; 
Rating level 2: 0; 
Rating level 1 (lowest performance rating): 0. 

Agency: Treasury; 
Rating level 5 (highest performance rating): 43.9%; Rating level 4: 
44.9%; 
Rating level 3: 10.7%; 
Rating level 2: 0.5%; 
Rating level 1 (lowest performance rating): 0. 

Agency: USAID; 
Rating level 5 (highest performance rating): 60.0%; Rating level 4: 
30.0%; 
Rating level 3: 10.0%; 
Rating level 2: 0; 
Rating level 1 (lowest performance rating): 0. 

Source: GAO analysis of agency data. 

Note: The percentages may not total 100 percent due to rounding. 

[A] DOE uses a four-level appraisal system with no rating level between 
outstanding (rating level 5) and meets expectations (rating level 3). 

[End of figure] 

According to State's Deputy Assistant Secretary for the Bureau of Human 
Resources, historically, the vast majority of senior executives have 
received the highest rating of outstanding, including for fiscal year 
2007. Since the implementation of performance-based pay, this official 
said State has struggled with changing the culture and general 
perception among senior executives that any rating less than 
outstanding is a failure. DOD is communicating the message that a fully 
successful or equivalent rating is a valued and quality rating to help 
change its culture and make more meaningful distinctions in ratings. 
Part of this communication is developing common benchmark descriptors 
for the performance elements at the five, four, and three rating 
levels. The Principal Deputy Under Secretary of Defense for Civilian 
Personnel Policy said she hopes that developing common definitions for 
the performance elements at all three levels will aid the development 
of a common understanding and in turn make more meaningful distinctions 
in ratings. The agency official recognizes that this shift to giving 
fully successful ratings is a significant cultural change and it will 
take some time to fully transform the culture. 

The percentage of eligible executives that received bonuses or pay 
adjustments varied across the selected agencies for fiscal year 2007, 
as shown in table 2. The percentage of eligible senior executives that 
received bonuses ranged from about 92 percent at DOD to about 30 
percent at USAID, with the average dollar amount ranging from $11,034 
at State to about $17,917 at NRC. For pay adjustments, all eligible 
executives at State received pay adjustments, while about 88 percent of 
eligible executives at DOE received adjustments, with the average 
dollar amount ranging from about $5,414 at NRC to about $6,243 at DOE. 
As a point of comparison, about 67 percent of career SES members 
received bonuses with an average dollar amount of $13,292 for fiscal 
year 2006, according to governmentwide data reported by OPM. The 
governmentwide percentage of career SES receiving pay adjustments and 
average dollar amount of the adjustments in the aggregate are not 
available from OPM's governmentwide data report for fiscal year 2006. 

The selected agencies have policies in place where only senior 
executives who receive a rating of fully successful (level 3) or higher 
are eligible to receive bonuses or pay increases. Also affecting 
executives' bonus eligibility are the agencies' policies on awarding 
bonuses to executives who also received Presidential Rank Awards that 
year, which varied among the selected agencies.[Footnote 8] NRC, State, 
and Treasury do not allow executives to receive both awards in the same 
year, while DOD, DOE, and USAID allow the practice. 

Table 2: Percentage of Eligible Senior Executives Who Received Bonuses 
or Pay Adjustments and the Average Amounts at the Selected Agencies for 
the Fiscal Year 2007 Appraisal Cycle: 

Agency: DOD; 
Bonuses: Percentage who received bonuses: 92; 
Bonuses: Average amount: $13,934; 
Pay adjustments: Percentage who received pay adjustments: 95; 
Pay adjustments: Average amount: $5,739. 

Agency: DOE; 
Bonuses: Percentage who received bonuses: 82; 
Bonuses: Average amount: $14,116; 
Pay adjustments: Percentage who received pay adjustments: 88; 
Pay adjustments: Average amount: $6,243. 

Agency: NRC; 
Bonuses: Percentage who received bonuses: 87; 
Bonuses: Average amount: $17,917; 
Pay adjustments: Percentage who received pay adjustments: 95; 
Pay adjustments: Average amount: $5,414. 

Agency: State; 
Bonuses: Percentage who received bonuses: 55; 
Bonuses: Average amount: $11,034; 
Pay adjustments: Percentage who received pay adjustments: 100; 
Pay adjustments: Average amount: $6,148. 

Agency: Treasury; 
Bonuses: Percentage who received bonuses: 77; 
Bonuses: Average amount: $16,074; 
Pay adjustments: Percentage who received pay adjustments: 93; 
Pay adjustments: Average amount: $6,120. 

Agency: USAID; 
Bonuses: Percentage who received bonuses: 30; 
Bonuses: Average amount: $11,083; 
Pay adjustments: Percentage who received pay adjustments: 90; 
Pay adjustments: Average amount: $6,227. 

Source: GAO analysis of agency data. 

Notes: In calculating the percentage of eligible senior executives who 
received bonuses or pay adjustments and average amounts, we excluded 
executives who received a rating less than fully successful since those 
executives are not eligible to receive bonuses or pay increases, 
according to the selected agencies' policies. We also excluded SES 
members at NRC, State, and Treasury who received Presidential Rank 
Awards because according to the agencies' policies, those individuals 
were not considered for bonuses. For all agencies, we included senior 
executives who were rated but left their positions--because of 
retirement, attrition, or assignment to a lower grade--prior to 
performance payouts being made. 

[End of table] 

According to OPM regulations, agencies are to reward the highest- 
performing executives with the highest ratings and largest bonuses and 
pay adjustments.[Footnote 9] At almost all of the agencies, the highest-
performing executives (rated at level 5) made up the greatest 
percentage of eligible executives receiving bonuses, with the exception 
of NRC where all the eligible executives rated at the top two levels 
received a bonus. Similarly, the executives rated at the highest level 
received the largest bonuses on average--about $23,333 at NRC compared 
to about $11,034 at State. State only awarded bonuses to executives 
receiving the top rating of outstanding for fiscal year 2007. In 
addition, senior executives at NRC and USAID rated at fully successful 
(level 3) did not receive bonuses. (See fig. 2.) 

Figure 2: Percentage of Eligible Senior Executives Who Received Bonuses 
and the Average Bonus Amounts by Rating Level at the Selected Agencies 
for the Fiscal Year 2007 Appraisal Cycle: 

[See PDF for image] 

This figure contains two multiple horizontal bar graphs depicting the 
following data: 

Agency: DOD; 
Percentage of eligible SES members receiving a bonus by rating level, 
Rating level 5: 99%; 
Average bonus by rating level, Rating level 5: $18,373; 
Percentage of eligible SES members receiving a bonus by rating level, 
Rating level 4: 96%; 
Average bonus by rating level, Rating level 4: $12,100; 
Percentage of eligible SES members receiving a bonus by rating level, 
Rating level 3: 61%; 
Average bonus by rating level, Rating level 3: $8,456. 

Agency: DOE; 
Percentage of eligible SES members receiving a bonus by rating level, 
Rating level 5: 97%; 
Average bonus by rating level, Rating level 5: $20,326; 
Percentage of eligible SES members receiving a bonus by rating level, 
Rating level 4: N/A[A]; 
Average bonus by rating level, Rating level 4: N/A[A]; 
Percentage of eligible SES members receiving a bonus by rating level, 
Rating level 3: 74%; 
Average bonus by rating level, Rating level 3: $9,258. 

Agency: NRC; 
Percentage of eligible SES members receiving a bonus by rating level, 
Rating level 5: 100%; 
Average bonus by rating level, Rating level 5: $23,333; 
Percentage of eligible SES members receiving a bonus by rating level, 
Rating level 4: 100%; 
Average bonus by rating level, Rating level 4: $15,460; 
Percentage of eligible SES members receiving a bonus by rating level, 
Rating level 3: 0; 
Average bonus by rating level, Rating level 3: 0. 

Agency: State; 
Percentage of eligible SES members receiving a bonus by rating level, 
Rating level 5: 83%; 
Average bonus by rating level, Rating level 5: $11,034; 
Percentage of eligible SES members receiving a bonus by rating level, 
Rating level 4: 0; 
Average bonus by rating level, Rating level 4: 0; 
Percentage of eligible SES members receiving a bonus by rating level, 
Rating level 3: 0; 
Average bonus by rating level, Rating level 3: 0. 

Agency: Treasury; 
Percentage of eligible SES members receiving a bonus by rating level, 
Rating level 5: 99%; 
Average bonus by rating level, Rating level 5: $19,195; 
Percentage of eligible SES members receiving a bonus by rating level, 
Rating level 4: 72%; 
Average bonus by rating level, Rating level 4: $12,389; 
Percentage of eligible SES members receiving a bonus by rating level, 
Rating level 3: 13%; 
Average bonus by rating level, Rating level 3: $8,885. 

Agency: USAID; 
Percentage of eligible SES members receiving a bonus by rating level, 
Rating level 5: 42%; 
Average bonus by rating level, Rating level 5: $11,500; 
Percentage of eligible SES members receiving a bonus by rating level, 
Rating level 4: 17%; 
Average bonus by rating level, Rating level 4: $9,000; 
Percentage of eligible SES members receiving a bonus by rating level, 
Rating level 3: 0; 
Average bonus by rating level, Rating level 3: 0. 

Rating level 5 is the highest performance rating; Rating level 1 is the 
lowest performance rating. 

Rating levels 1 and 2 are not eligible to receive bonuses. 

Source: GAO analysis of agency data. 

Notes: In calculating the percentage of eligible senior executives who 
received bonuses and average amounts, we excluded executives who 
received a rating less than fully successful since those executives are 
not eligible to receive bonuses, according to the selected agencies' 
policies. We also excluded SES members at NRC, State, and Treasury who 
received Presidential Rank Awards because according to the agencies' 
policies, those individuals were not considered for bonuses. For all 
agencies, we included senior executives who were rated but left their 
positions--because of retirement, attrition, or assignment to a lower 
grade--prior to performance payouts being made. 

[A] DOE uses a four-level appraisal system with no rating level between 
outstanding (rating level 5) and meets expectations (rating level 3). 

[End of figure] 

In a memo to agencies on the certification process, OPM stated that 
senior executives who receive a fully successful or higher rating and 
are paid at a level consistent with their current responsibilities 
should receive a pay increase. According to an OPM official, agencies 
are not required to give these executives pay increases, but OPM 
considers fully successful to be a good rating and encourages agencies 
to recognize and reward executives performing at this rating level. At 
the selected agencies, the majority of eligible senior executives rated 
at fully successful received pay adjustments for fiscal year 2007, as 
shown in figure 3. Unlike the bonus distributions by rating level, at 
some of the agencies, the highest-performing executives who received a 
rating of level 5 did not make up the greatest percentage of executives 
receiving pay adjustments with the largest increases on average. For 
example, at USAID, all eligible executives who received a level 3 
rating received a pay adjustment, while about 92 percent of eligible 
executives rated at level 5 received an adjustment. For all the 
agencies except Treasury, the executives rated at the highest level 
received the largest pay adjustments on average--about $7,473 at USAID 
compared to about $6,133 at NRC. At Treasury, executives rated at 
levels five, four, and three on average received about the same pay 
adjustment amounts primarily due to pay cap issues. 

Figure 3: Percentage of Eligible Senior Executives Who Received Pay 
Adjustments and the Average Pay Adjustment Amount by Rating Level at 
the Selected Agencies for the Fiscal Year 2007 Appraisal Cycle: 

[See PDF for image] 

This figure contains two multiple horizontal bar graphs depicting the 
following data: 

Agency: DOD; 
Percentage of eligible SES members receiving a pay adjustment by rating 
level, Rating level 5: 96%; 
Average pay adjustment by rating level, Rating level 5: $6,572; 
Percentage of eligible SES members receiving a pay adjustment by rating 
level, Rating level 4: 95%; 
Average pay adjustment by rating level, Rating level 4: $5,601; 
Percentage of eligible SES members receiving a pay adjustment by rating 
level, Rating level 3: 86%; 
Average pay adjustment by rating level, Rating level 3: $4,143. 

Agency: DOE; 
Percentage of eligible SES members receiving a pay adjustment by rating 
level, Rating level 5: 95%; 
Average pay adjustment by rating level, Rating level 5: $5,496; 
Percentage of eligible SES members receiving a pay adjustment by rating 
level, Rating level 4: N/A[A]; 
Average pay adjustment by rating level, Rating level 4: N/A[A]; 
Percentage of eligible SES members receiving a pay adjustment by rating 
level, Rating level 3: 84%; 
Average pay adjustment by rating level, Rating level 3: $6,073. 

Agency: NRC; 
Percentage of eligible SES members receiving a pay adjustment by rating 
level, Rating level 5: 100%; 
Average pay adjustment by rating level, Rating level 5: $6,133; 
Percentage of eligible SES members receiving a pay adjustment by rating 
level, Rating level 4: 92%; 
Average pay adjustment by rating level, Rating level 4: $5,216; 
Percentage of eligible SES members receiving a pay adjustment by rating 
level, Rating level 3: 100%; 
Average pay adjustment by rating level, Rating level 3: $4,028. 

Agency: State; 
Percentage of eligible SES members receiving a pay adjustment by rating 
level, Rating level 5: 100%; 
Average pay adjustment by rating level, Rating level 5: $6,651; 
Percentage of eligible SES members receiving a pay adjustment by rating 
level, Rating level 4: 100%; 
Average pay adjustment by rating level, Rating level 4: $5,142; 
Percentage of eligible SES members receiving a pay adjustment by rating 
level, Rating level 3: 100%; 
Average pay adjustment by rating level, Rating level 3: $4,150. 

Agency: Treasury; 
Percentage of eligible SES members receiving a pay adjustment by rating 
level, Rating level 5: 91%; 
Average pay adjustment by rating level, Rating level 5: $6,002; 
Percentage of eligible SES members receiving a pay adjustment by rating 
level, Rating level 4: 95%; 
Average pay adjustment by rating level, Rating level 4: $6,304; 
Percentage of eligible SES members receiving a pay adjustment by rating 
level, Rating level 3: 90%; 
Average pay adjustment by rating level, Rating level 3: $5,802. 

Agency: USAID; 
Percentage of eligible SES members receiving a pay adjustment by rating 
level, Rating level 5: 92%; 
Average pay adjustment by rating level, Rating level 5: $7,473; 
Percentage of eligible SES members receiving a pay adjustment by rating 
level, Rating level 4: 83%; 
Average pay adjustment by rating level, Rating level 4: $4,517; 
Percentage of eligible SES members receiving a pay adjustment by rating 
level, Rating level 3: 100%; 
Average pay adjustment by rating level, Rating level 3: $3,652. 

Rating level 5 is the highest performance rating; Rating level 1 is the 
lowest performance rating. 

Rating levels 1 and 2 are not eligible to receive pay increases. 

Source: GAO analysis of agency data. 

Notes: In calculating the percentage of eligible senior executives who 
received pay adjustments and average amounts, we excluded executives 
who received a rating less than fully successful since those executives 
are not eligible to receive pay increases, according to the selected 
agencies' policies. For all agencies, we included senior executives who 
were rated but left their positions--because of retirement, attrition, 
or assignment to a lower grade--prior to performance payouts being 
made. 

[A] DOE uses a four-level appraisal system with no rating level between 
outstanding (rating level 5) and meets expectations (rating level 3). 

[End of figure] 

The governmentwide results of the 2008 OPM SES survey show that the 
majority of senior executives responded that their bonus or salary 
increase was linked to their performance rating to a very great or 
great extent. However, less than a third of senior executives strongly 
agreed or agreed that bonus amounts or pay distinctions were 
meaningfully different among the executives. These results show that 
making meaningful distinctions in bonuses and pay can be a challenge. 

Building Safeguards into Senior Executive Performance Appraisal and Pay 
Systems: 

We have reported that agencies need to have modern, effective, 
credible, and, as appropriate, validated performance management systems 
in place with adequate safeguards to ensure fairness and prevent 
politicization and abuse.[Footnote 10] All of the selected agencies 
have built safeguards into their senior executive performance appraisal 
and pay systems--such as predecisional checks of performance appraisal 
recommendations through higher-level reviews and PRBs as well as 
transparency in communicating the aggregate results--to help enhance 
the credibility, fairness, and transparency of their systems, although 
they varied in how the safeguards have been implemented. Our 
preliminary results show that there are opportunities for improvement 
in the communication of aggregate appraisal results to all senior 
executives. 

By law, as part of their SES appraisal systems, all agencies must 
provide their senior executives with an opportunity to view their 
appraisals and ratings and to request a review of the recommended 
performance ratings by higher-level officials, before the ratings 
become final.[Footnote 11] The higher-level reviewer cannot change the 
initial summary rating given by the supervisor, but may recommend a 
different rating in writing to the PRB that is shared with the senior 
executive and the supervisor. For example, according to State's policy, 
an executive may request a higher-level review of the initial rating in 
writing prior to the PRB convening at which time the initial summary 
rating, the executive's request, and the higher-level reviewing 
official's written findings and recommendations are considered. The PRB 
is to provide a written recommendation on the executive's summary 
rating to State's Director General of the Foreign Service and Director 
of Human Resources, who makes the final appraisal decisions. 

Further, all agencies must establish one or more PRBs to help ensure 
that performance appraisals reflect both individual and organizational 
performance and that rating, bonus, and pay adjustment recommendations 
are consistently made. The PRB is to review senior executives' initial 
summary performance ratings and other relevant documents and make 
written recommendations on the performance of the senior executives to 
the agency head or appointing authority. 

The selected agencies varied in their PRB structures and in who 
provided the final approval of the appraisal decisions. For example, 
given its small number of senior executives, USAID has one PRB that is 
responsible for making recommendations to the Administrator for his/her 
final approval on all rated career executives for their annual summary 
ratings, bonuses, performance-based pay adjustments, and Presidential 
Rank Award nominations. On the other hand, DOD has multiple PRBs within 
and across its components and agencies with separate authorizing 
officials who give the final approval of rating and performance payout 
recommendations. According to a DOD official, there is not a central 
PRB that oversees all the PRBs within the department responsible for 
recommending approval of the final appraisal decisions for all senior 
executives. To help ensure consistency in appraisal recommendations 
across the department and between the various authorizing officials, 
the components are to provide their final rating and performance payout 
distributions to the Under Secretary of Defense for Personnel and 
Readiness to be validated prior to executives receiving the bonuses and 
pay adjustments. As part of the validation process, the Under Secretary 
of Defense for Personnel and Readiness checks to ensure that meaningful 
distinctions were made and ratings, bonuses, and pay adjustments 
reflect organizational and individual performance, among other things, 
before performance bonuses and pay increases are made effective. 

To help enhance the transparency of the system, agencies can 
communicate the overall aggregate results of the performance appraisal 
decisions--ratings, bonuses, and pay adjustment distributions--to 
senior executives while protecting individual confidentiality, and as a 
result, let executives know where they stand in the organization. 
Further, OPM has recognized the importance of communicating the overall 
rating distributions and performance payout averages through its 
guidance for certifying agencies' SES systems, and factors it into 
certification decisions. OPM asks agencies to brief their SES members 
on the results of the completed appraisal process to make sure that the 
dynamics of the general distribution of ratings and accompanying 
rewards are fully understood. The results of the OPM survey of senior 
executives show that the communication of overall performance appraisal 
results is not widely practiced throughout the government. 
Specifically, 65 percent of respondents said that they were not given a 
summary of their agency's SES performance ratings, bonuses, and pay 
adjustments. 

The selected agencies communicated the aggregate results in varying 
ways. For example, Treasury and DOD posted the aggregate rating, bonus, 
and pay adjustment distributions for senior executives on their Web 
sites with comparison of data across previous fiscal years. In 
communicating the results of the most recent appraisal cycle, NRC sent 
an e-mail to all senior executives sharing the percentage of executives 
at each rating level and the percentages receiving bonuses and pay 
adjustments as well as the average dollar amounts. According to an NRC 
official, the agency periodically holds agencywide "all hands" SES 
meetings where the results of the appraisal cycle, among other topics, 
are communicated to executives. 

Similarly, the Deputy Secretary of DOE provides a memo to all senior 
executives summarizing the percentage of executives at the top two 
rating levels and the average bonus and pay adjustment amounts. DOE 
also includes governmentwide results as reported by OPM as a point of 
comparison. Further, in that memo, the Deputy Secretary stated his 
concern with the negligible difference in bonuses and pay adjustments 
among executives receiving the top two rating levels and stressed the 
importance of making meaningful distinctions in the allocation of 
compensation tied to performance ratings in the upcoming appraisal 
cycle. 

While USAID shares an individual's appraisal results with that 
executive, agency officials said that they do not communicate aggregate 
results to all senior executives. Communicating an executive's 
individual rating conveys information about how well the executive has 
performed against the expectations in the performance plan, but is not 
sufficient to provide a clear picture of how the executive's 
performance compares with that of other executives in the agency. 
Further, USAID communicated to all SES members the pay adjustment 
distributions in ranges by rating level, but not the aggregate results 
showing the percentage of executives receiving the pay adjustments in 
total or by rating level. There are opportunities for further 
refinements in how the aggregate appraisal results are communicated to 
all senior executives. 

Mr. Chairman, Senator Voinovich, and Members of the Subcommittee, this 
completes my prepared statement. I would be pleased to respond to any 
questions that you may have. 

Contacts and Acknowledgments: 

For further information regarding this statement, please contact J. 
Christopher Mihm, Managing Director, Strategic Issues, at (202) 512- 
6806 or [email protected] or Robert N. Goldenkoff, Director, Strategic 
Issues, at (202) 512-6806 or [email protected]. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this testimony. Individuals making key 
contributions to this statement include Belva Martin, Assistant 
Director; Amber Edwards; Janice Latimer; Meredith Moore; Mary Robison; 
Sabrina Streagle; and Greg Wilmoth. 

[End of section] 

Appendix I: Background on the Senior Executive Performance-Based Pay 
System and Certification Criteria: 

In November 2003, Congress authorized a new performance-based pay 
system for members of the Senior Executive Service (SES).[Footnote 12] 
With the performance-based pay system, senior executives are to no 
longer receive annual across-the-board or locality pay adjustments. 
Agencies are to base pay adjustments for senior executives on 
individual performance and contributions to the agency's performance by 
considering the individual's accomplishments and such things as unique 
skills, qualifications, or competencies of the individual and the 
individual's significance to the agency's mission and performance, as 
well as the individual's current responsibilities. The system, which 
took effect in January 2004, also replaced the six SES pay levels with 
a single, open-range pay band and raised the cap on base pay and total 
compensation. For 2008, the caps are $158,500 for base pay (Level III 
of the Executive Schedule) with a senior executive's total compensation 
not to exceed $191,300 (Level I of the Executive Schedule). If an 
agency's senior executive performance appraisal system is certified by 
the Office of Personnel Management (OPM) and the Office of Management 
and Budget (OMB) concurs, the caps are increased to $172,200 for base 
pay (Level II of the Executive Schedule) and $221,100 for total 
compensation (the total annual compensation payable to the Vice 
President). 

To qualify for senior executive pay flexibilities, agencies' 
performance appraisal systems are evaluated against nine certification 
criteria and any additional information that OPM and OMB may require to 
make determinations regarding certification. As shown in table 3, the 
certification criteria jointly developed by OPM and OMB are broad 
principles that position agencies to use their pay systems 
strategically to support the development of a stronger performance 
culture and the attainment of the agency's mission, goals, and 
objectives. 

Table 3: Senior Executive Performance Appraisal System Certification 
Criteria: 

Criterion: Alignment; 
Description: Individual performance expectations must be linked to or 
derived from the agency's mission, strategic goals, program/policy 
objectives, or annual performance plan. 

Criterion: Consultation; 
Description: Individual performance expectations are developed with 
senior employee involvement and must be communicated at the beginning 
of the appraisal cycle. 

Criterion: Results; 
Description: Individual expectations describe performance that is 
measurable, demonstrable, or observable, focusing on organizational 
outputs and outcomes, policy/program objectives, milestones, and so 
forth. 

Criterion: Balance; 
Description: Individual performance expectations must include measures 
of results, employee and customer/stakeholder satisfaction, or 
competencies or behaviors that contribute to outstanding performance. 

Criterion: Assessments and guidelines; 
Description: The agency head or a designee provides assessments of the 
performance of the agency overall, as well as each of its major program 
and functional areas, such as reports of agency's goals and other 
program performance measures and indicators, and evaluation guidelines 
based, in part, upon those assessments to senior employees and 
appropriate senior employee rating and reviewing officials. The 
guidance provided may not take the form of quantitative limitations on 
the number of ratings at any given rating level. 

Criterion: Oversight; 
Description: The agency head or designee must certify that (1) the 
appraisal process makes meaningful distinctions based on relative 
performance; (2) results take into account, as appropriate, the 
agency's performance; and (3) pay adjustments and awards recognize 
individual/organizational performance. 

Criterion: Accountability; 
Description: Senior employee ratings (as well as subordinate employees' 
performance expectations and ratings for those with supervisor 
responsibilities) appropriately reflect employees' performance 
expectations, relevant program performance measures, and other relevant 
factors. 

Criterion: Performance differentiation; 
Description: Among other provisions, the agency must provide for at 
least one rating level above fully successful (must include an 
outstanding level of performance), and in the application of those 
ratings, must make meaningful distinctions among executives based on 
their relative performance. 

Criterion: Pay differentiation; 
Description: The agency should be able to demonstrate that the largest 
pay adjustments, highest pay levels (base and performance awards), or 
both are provided to its highest performers, and that overall the 
distribution of pay rates in the SES rate range and pay adjustments 
reflects meaningful distinctions among executives based on their 
relative performance. 

Source: GAO. 

[End of table] 

[End of section] 

Appendix II: Highlights of Selected GAO Products: 

GAO-07-90: 

Report to Congressional Requesters: 

United States Government Accountability Office: 
GAO: 

January 2007: 

Office Of Personnel Management: 

Key Lessons Learned to Date for Strengthening Capacity to Lead and 
Implement Human Capital Reforms: 

GAO Highlights: 

Highlights of GAO-07-90, a report to congressional requesters. 

Why GAO Did This Study: 

As the agency responsible for the federal governmentï¿½s human capital 
initiatives, the Office of Personnel Management (OPM) must have the 
capacity to successfully guide human capital transformations necessary 
to meet the governance challenges of the 21st century. Given this key 
role, GAO was asked to assess OPMï¿½s capacity to lead further reforms. 
In June 2006, GAO testified on several management challenges that OPM 
faces. This reportï¿½the second in a seriesï¿½supplements that testimony 
and, using the new senior executive performance-based pay system as a 
model for understanding OPMï¿½s capacity to lead and implement reform, 
identifies lessons learned that can inform future reforms. GAO analyzed 
relevant laws and documents, and obtained views from the Chief Human 
Capital Officers (CHCO) Council and human resource directors, the 
Office of Management and Budget (OMB) staff, and OPM officials. 

What GAO Found: 

The congressionally authorized senior executive performance-based pay 
system, implemented in 2004, provides an opportunity to learn from 
experiences gained and apply those lessons to the design and 
implementation of future human capital reforms. Under the performance-
based system, before an agency can receive the new pay flexibilities, 
OPM, with concurrence from OMB, must certify that the agencyï¿½s 
appraisal system meets certain criteria. OPM is likely to play a 
similar leadership and oversight role for future reforms. 

Table: Lessons Learned from the Performance-based System and Other 
Human Capital Initiatives: 

Ensure internal OPM capacity to lead and implement reform; 
Executive branch agencies noted a lack of knowledge and experience 
among OPM staff to design and implement key human capital 
transformation efforts. GAO analysis of available OPM employee feedback 
data suggests that employees may not be receiving sufficient training 
to enhance their skills and competencies. OPM has begun aligning its 
workforce skills to meet future needs but has not conducted an 
agencywide skills assessment since updating its key strategic 
management documents. Lesson: Ensure that OPMï¿½s workforce is properly 
aligned to successfully design and implement human capital reforms, 
such as knowledge of innovative classification and pay and compensation 
approaches, and continue to prepare the workforce to meet changing 
demands of the future. 

Ensure that executive branch agencies' infrastructures support reform; 
OPMï¿½s approach to certifying agenciesï¿½ senior executive performance-
based systems should more fully promote the building of the 
institutional infrastructure, such as robust performance management 
systems with adequate safeguards, within agencies needed to effectively 
implement the reforms. Lesson: Assist agencies in building the 
necessary infrastructure for a performance-based system by providing 
front-end and ongoing involvementï¿½building on progress made to date. 

Collaborate with CHCO Council; 
Executive branch agencies said the certification process was a missed 
opportunity for OPM to better collaborate with the CHCO Council. One 
agency CHCO said OPM traditionally uses council meetings to present 
information to the CHCOs, but does not always encourage discussions or 
seek input. Lesson: Cultivate effective partnerships with the CHCO 
Council by engaging them to solicit their ideas and suggestions during 
system design to build consensus and develop momentum for success. 

Develop clear and timely guidance; 
The lack of clear and timely guidance from OPM created confusion as 
agencies attempted to understand and implement the broadly defined 
regulatory criteria for certification. Lesson: Provide agencies with 
clear and timely guidanceï¿½being sensitive to other ongoing human 
capital activitiesï¿½to reach a common, consistent understanding and 
promote efficiency as agencies adjust to new requirements for reforms. 

Share best practices; 
Executive branch agencies said OPM could have better facilitated 
sharing best practices to help them implement senior executive 
performance-based systems. Lesson: Facilitate the sharing of best 
practices for implementing human capital reforms by providing forums 
for agencies to learn from each othersï¿½ experiences, share successful 
strategies, and avoid common pitfalls. 

Solicit and incorporate feedback; 
Executive branch agencies said there was no formal mechanism, such as a 
customer survey, for them to provide feedback to OPM on its guidance 
and assistance. Lesson: Solicit feedback from executive branch agencies 
and incorporate to improve the implementation of human capital reforms. 

Track progress to ensure accountability; OPM does not have an 
evaluation strategy for tracking the progress of the agenciesï¿½ 
implementation of the new executive systems. Lesson: Develop a strategy 
to allow OPM, other federal agencies, and Congress to monitor progress 
toward achieving human capital reform goals. 

Source: GAO analysis. 

[End of table] 

What GAO Recommends: 

GAO is making recommendations to the Director of OPM to improve OPMï¿½s 
capacity for future reforms by reexamining agencywide skills, and to 
address issues specific to the senior executivesï¿½ pay systems, such as 
sharing best practices and tracking progress towards goals. In 
commenting on a draft of this report, OPM stated it has made progress 
toward achieving its operational and strategic goals, but neither 
agreed nor disagreed with GAOï¿½s recommendations. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-90]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Brenda S. Farrell at 
(202) 512-6806 or [email protected]. 

[End of highlights] 

GAO-06-1125T: 

Testimony: 

Before the Subcommittee on Oversight of Government Management, the 
Federal Workforce and the District of Columbia, Committee on Homeland 
Security and Government Affairs, U.S. Senate: 

United States Government Accountability Office: 
GAO: 

For Release on Delivery: 
Expected at 10:45 a.m. EDT: 
Tuesday, September 26, 2006: 

Human Capital: 

Aligning Senior Executives' Performance with Organizational Results Is 
an Important Step Toward Governmentwide Transformation: 

Statement of Brenda S. Farrell: 
Acting Director Strategic Issues: 

GAO Highlights: 

Highlights of GAO-06-1125T, testimony before the Subcommittee on 
Oversight of Government Management, the Federal Workforce and the 
District of Columbia, Committee on Homeland Security and Governmental 
Affairs, U.S. Senate 

Why GAO Did This Study: 

The governmentï¿½s senior executives need to lead the way in transforming 
their agenciesï¿½ cultures. Credible performance management systemsï¿½those 
that align individual, team, and unit performance with organizational 
resultsï¿½can help manage and direct this process. In past work, GAO 
found that the performance management systems for senior executives 
fell short in this regard. In November 2003, recognizing that reforms 
were needed, Congress authorized a new performance-based pay system 
that ended the practice of giving annual pay adjustments to senior 
executives. Instead, agencies are to consider such factors as 
individual results and contributions to agency performance. If the 
Office of Personnel Management (OPM) certifies an agencyï¿½s new 
performance system and the Office of Management and Budget (OMB) 
concurs, the agency has the flexibility to raise the pay of its highest 
performing senior executives above certain pay caps. 

This testimony addresses (1) the performance management systemï¿½s 
regulatory structure, (2) OPMï¿½s certification process and agenciesï¿½ 
views of it, and (3) OPMï¿½s role in monitoring the system, and the 
number of agencies that have been certified to date. This statement is 
based on GAOï¿½s issued work, which included interviews with senior OPM 
officials, agency Chief Human Capital Officers and Human Resource 
officers, and reviews of agency documents. 

What GAO Found: 

Overall, the regulations that OPM and OMB developed to administer a 
performance-based pay system for executives serve as an important step 
for agencies in creating an alignment or ï¿½line of sightï¿½ between 
executivesï¿½ performance and organizational results. To qualify for the 
pay flexibilities included in the statute, OPM must certify and OMB 
must concur that an agencyï¿½s performance management system meets nine 
certification criteria, including demonstrating that its performance 
management system aligns individual performance expectations with the 
mission and goals of the organization and that its system as designed 
and applied makes meaningful distinctions in performance. The 
certification criteria are generally consistent with key practices for 
effective performance management systems GAO identified that 
collectively create a line of sight between an individualï¿½s performance 
and an organizationï¿½s success. To receive a full 2-calendar-year 
certification, an agency must document that its senior executive 
performance management system meets all nine of the criteria. Agencies 
can meet four of nine criteria and demonstrate that their system in 
design meets the remaining certification criteria to receive 1-year 
provisional certification and use the higher pay rates. 

Two divisions in OPM, as well as OMB, independently review agenciesï¿½ 
certification submissions. A number of agencies GAO contacted expressed 
concern over OPMï¿½s ability to communicate expectations, guidance, and 
deadlines to agencies in a clear and consistent manner. OPM officials 
agreed that agencies need better guidance and were working on 
improvements. 

In monitoring agenciesï¿½ performance management systems, OPM can suspend 
an agencyï¿½s certification at any time with OMB concurrence if an agency 
is not complying with the certification criteria. According to OPM 
data, performance management systems at 24 agencies were certified 
during calendar year 2006. Of these, only the Department of Laborï¿½s 
system received full certification; the remaining systems received only 
provisional certification. These findings are not surprising. As GAO 
has noted in its past work, agencies could find it initially difficult 
to provide the necessary performance data to receive full 
certification. Going forward, it will be important for OPM to continue 
to monitor the certification process to help ensure that provisional 
certifications do not become the norm, and agencies develop performance 
management systems for their senior executives that meet all of OPMï¿½s 
requirements. 

The new performance management system for the governmentï¿½s senior 
executives will help agencies align individual, team, and unit 
performance with organizational results. Although there have been some 
implementation challenges, what will be important is how OPM works with 
agencies to meet the certification criteria. Moreover, the lessons 
learned in implementing the senior executive performance management 
system can be applied to modernizing the performance management systems 
of employees at other levels. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-1125T]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Brenda S. Farrell at 
(202) 512-3604 or [email protected]. 

[End of highlights] 

GAO-06-708: 

Report to the Chairman, Subcommittee on the Federal Workforce and 
Agency Organization, Committee on Government Reform, House of 
Representatives: 

United States Government Accountability Office: 
GAO: 

June 2006: 

Human Capital: 

Trends in Executive and Judicial Pay: 

GAO Highlights: 

Highlights of GAO-06-708, a report to the Chairman, Subcommittee on the 
Federal Workforce and Agency Organization, Committee on Government 
Reform, House of Representatives 

Why GAO Did This Study: 

Critical to the success of the federal governmentï¿½s transformation are 
its peopleï¿½human capital. Yet, the government has not transformed, in 
many cases, how it classifies, compensates, develops, and motivates its 
employees to achieve maximum results within available resources and 
existing authorities. GAO has reported that the federal government as a 
whole may face challenges in offering competitive compensation to its 
senior leaders who have reached a statutory pay cap. 

As requested, GAO (1) provided trend data for basic pay rates of 
selected federal executive and judicial pay plans from 1970 to 2006, 
(2) identified elements of total compensation for the selected pay 
plans in 2006, and (3) identified principles for any possible 
restructuring of these pay plans. We selected 1970 as a baseline 
because salary increases went into effect in 1969 for executive-level 
positions as recommended by the Commission on Executive, Legislative, 
and Judicial Salaries. The pay plans cover the followingï¿½career Senior 
Executive Service (SES), administrative law judges (ALJ), senior-level 
(SL), Executive Schedule (EX), scientific or professional (ST), and 
members of Boards of Contract Appeals (BCA), as well as federal 
justices and judgesï¿½the Chief Justice, associate justices, circuit 
judges, district judges, and judges of the U.S. Court of International 
Trade. 

What GAO Found: 

The basic pay rates for all of the selected federal pay plans increased 
in nominal dollars from 1970 to 2006. However, when adjusted for 
inflation to 2006 dollars using the Gross Domestic Product price 
deflator, the pay rates for those under the EX pay plan and the federal 
justices and judges decreased and the pay rates for the SES, SL/ST, and 
ALJ positions increased. For example, in 1970, cabinet secretaries were 
paid $250,204 (in 2006 dollars) compared to $183,500 in 2006. Their pay 
actually declined in value by about 27 percent during this period. In 
1970, ALJs were paid $148,058 (in 2006 dollars) compared to $152,000 in 
2006. Their pay increased in value by 3 percent during this period. In 
comparison, when adjusted for inflation to 2006 dollars using the 
Consumer Price Index, the pay rates for all of the selected pay plans 
decreased. For example, pay actually declined in value for cabinet 
secretaries and ALJs by 41 percent and 17 percent, respectively. 

The elements of total compensation vary among the selected pay plans. 
For example, SES and SL/ST positions may receive cash awards/bonuses, 
while, at present, selected EX positions, ALJs, BCA positions, and 
federal justices and judges do not due to the nature of the positions. 
All of the positions within the selected pay plans may receive noncash 
or deferred benefits, such as health and life insurance, retirement, 
and access to child care facilities. However, there are differences in 
retirement, such as larger benefits, for federal justices and judges 
compared to other executive-level positions. 

Regarding any possible restructuring of these pay plans, certain 
principles should be considered to attract and retain the executive 
leadership necessary to address 21st century challenges. The pay plans 
should be 

* sensitive to hiring and retention trends;
* reflective of responsibilities, knowledge and skills, and 
contributions;
* transparent; 
* market-sensitive; 
* flexible to economic change; 
* sustainable; and, 
* competitive. 

Going forward, there are several illustrative issues that deserve 
further reconsiderationï¿½maintaining a reasonable relationship in total 
compensation across executive-level positions; recognizing equity 
issues in the basic pay rates within the same position, such as 
inspectors general; considering performance-based bonuses with 
appropriate safeguards for positions that do not receive them including 
selected EX positions, ALJs, BCA positions, and federal justices and 
judges; and recognizing anomalies between comparable pay plans, such as 
SES and SL/ST, in terms of basic pay caps, as well as aggregate pay 
(basic pay plus cash awards/bonuses). 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-708]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Lisa Shames at (202) 512-
6806 or [email protected]. 

[End of highlights] 

GAO-05-1048T: 

Testimony: 

Before the Subcommittee on Oversight of Government Management, the 
Federal Workforce, and the District of Columbia, Committee on Homeland 
Security and Governmental Affairs, U.S. Senate: 

For Release on Delivery: 
Expected at 10:00 a.m. 
EDT Tuesday, September 27, 2005: 

Human Capital: 

Designing and Managing Market-Based and More Performance-Oriented Pay 
Systems: 

Statement of David M. Walker: 
Comptroller General of the United States: 

GAO Highlights: 

Highlights of GAO-05-1048T, a testimony before the Subcommittee on 
Oversight of Government Management, the Federal Workforce, and the 
District of Columbia, Committee on Homeland Security and Governmental 
Affairs, U.S. Senate: 

Why GAO Did This Study: 

The federal government must have the capacity to plan more 
strategically, react more expeditiously, and focus on achieving 
results. Critical to the success of this transformation are the federal 
governmentï¿½s peopleï¿½its human capital. Yet, in many cases the federal 
government has not transformed how it classifies, compensates, 
develops, and motivates its employees to achieve maximum results within 
available resources and existing authorities. A key question is how to 
update the federal governmentï¿½s compensation system to be market-based 
and more performance-oriented. 

To further the discussion of federal pay reform, GAO partnered with key 
human capital stakeholders to convene a symposium in March 2005 to 
discuss public, private, and nonprofit organizationsï¿½ successes and 
challenges in designing and managing market-based and more performance-
oriented pay systems. 

This testimony presents the strategies that organizations considered in 
designing and managing market-based and more performance-oriented pay 
systems and describes how they are implementing them. 

What GAO Found: 

GAO strongly supports the need to expand pay reform in the federal 
government. While implementing market-based and more performance-
oriented pay systems is both doable and desirable, organizationsï¿½ 
experiences in designing and managing their pay systems underscored 
three key themes that can guide federal agenciesï¿½ efforts. 

* The shift to market-based and more performance-oriented pay must be 
part of a broader strategy of change management and performance 
improvement initiatives. 

* Market-based and more performance-oriented pay cannot be simply 
overlaid on most organizationsï¿½ existing performance management 
systems. Rather, as a precondition to effective pay reform, individual 
expectations must be clearly aligned with organizational results, 
communication on individual contributions to annual goals must be 
ongoing and two-way, meaningful distinctions in employee performance 
must be made, and cultural changes must be undertaken. 

* Organizations need to build up the basic management capacity of their 
organizations. Training and developing new and current staff to fill 
new roles and work in different ways will play a crucial part in 
building the capacity of the organizations. 

Organizations presenting at our symposium considered the following 
strategies in designing and managing their pay systems. 

1. Focus on a set of values and objectives to guide the pay system.
2. Examine the value of employeesï¿½ total compensation to remain 
competitive in the market. 
3. Build in safeguards to enhance the transparency and help ensure the 
fairness of pay decisions. 
4. Devolve decision making on pay to appropriate levels. 
5. Provide training on leadership, management, and interpersonal skills 
to facilitate effective communication. 
6. Build consensus to gain ownership and acceptance for pay reforms. 
7. Monitor and refine the implementation of the pay system. 

Moving forward, it is possible to enact broad-based reforms that would 
enable agencies to move to market-based and more performance-oriented 
pay systems. However, before implementing reform, each executive branch 
agency should demonstrate and the Office of Personnel Management should 
certify that the agency has the institutional infrastructure in place 
to help ensure that the pay reform is effectively and equally 
implemented. At a minimum, this infrastructure includes a modern, 
effective, credible, and validated performance management system in 
place that provides a clear linkage between institutional, unit, and 
individual performance-oriented outcomes; results in meaningful 
distinctions in ratings; and incorporates adequate safeguards. 

[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-1048T]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Lisa Shames at (202) 512-
6806 or [email protected]. 

[End of highlights] 

Human Capital: 

Senior Executive Performance Management Can Be Significantly 
Strengthened to Achieve Results: 

GAO Highlights: 

Highlights of GAO-04-614, a report to congressional requesters. 

Why GAO Did This Study: 

Congress and the administration have established a new performance-
based pay system for members of the Senior Executive Service (SES) that 
is designed to provide a clear and direct linkage between SES 
performance and pay. Also, GAO previously reported that significant 
opportunities exist for agencies to hold the SES accountable for 
improving organizational results. 

GAO assessed how well selected agencies are creating linkages between 
SES performance and organizational success by applying nine key 
practices GAO previously identified for effective performance 
management. GAO selected the Department of Education, the Department of 
Health and Human Services (HHS), and the National Aeronautics and Space 
Administration (NASA). 

What GAO Found: 

Senior executives need to lead the way to transform their agenciesï¿½ 
cultures to be more results-oriented, customer focused, and 
collaborative in nature. Performance management systems can help manage 
and direct this process. While Education, HHS, and NASA have undertaken 
important and valuable efforts to link their career SES performance 
management systems to their organizationsï¿½ success, there are 
opportunities to maximize their systems to manage their organizations 
and achieve organizational goals. For example, as indicated below by 
the executives themselves, the agencies can better use their 
performance management systems as a tool to manage the organization or 
to achieve organizational goals. 

As Congress and the administration are reforming SES pay to better link 
pay to performance, valid, reliable, and transparent performance 
management systems with adequate safeguards are critical. Information 
on the experiences and knowledge of these agencies should provide 
valuable insights to other agencies as they seek to drive internal 
change and achieve external results. 

Figure: Percentage of Senior Executives Responding to a ï¿½Very Greatï¿½ or 
ï¿½Greatï¿½ Extent on Their Agenciesï¿½ Overall Use of Their SES Performance 
Management Systems: 

[See PDF for image] 

This figure contains two multiple vertical bar graphs depicting the 
following data: 

Your agency's SES performance management system is used as a tool to 
manage the organization: 

Agency: Education; 
Percentage of SES: 26%. 

Agency: HHS; 
Percentage of SES: 29%. 

Agency: NASA; 
Percentage of SES: 33%. 

Your agency's SES performance management system is used in achieving 
organizational goals: 

Agency: Education; 
Percentage of SES: 28%. 

Agency: HHS; 
Percentage of SES: 37%. 

Agency: NASA; 
Percentage of SES: 47%. 

Source: GAO. 

[End of figure] 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-614]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact J. Christopher Mihm at 
(202) 512-6806 or [email protected]. 

[End of highlights] 

[End of section] 

Footnotes: 

[1] GAO, Human Capital: Symposium on Designing and Managing Market- 
Based and More Performance-Oriented Pay Systems, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-05-832SP] (Washington, D.C.: July 
27, 2005). For additional information on our past work related to SES 
performance management systems and the certification process, see app. 
II of this statement. 

[2] GAO, Human Capital: Senior Executive Performance Management Can Be 
Significantly Strengthened to Achieve Results, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-04-614] (Washington, D.C.: May 
26, 2004). 

[3] GAO, Results-Oriented Cultures: Creating a Clear Linkage between 
Individual Performance and Organizational Success, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-03-488] (Washington, D.C.: Mar. 
14, 2003). 

[4] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-614]. 

[5] 5 CFR Ch. 1, Pt. 430, Subpart D. 

[6] DOE uses a four-level appraisal system with no rating level between 
outstanding and meets expectations. 

[7] GAO, Financial Regulators: Agencies Have Implemented Key 
Performance Management Practices, but Opportunities for Improvement 
Exist, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-678] 
(Washington, D.C.: June 18, 2007). 

[8] Agencies can nominate senior executives for Presidential Rank 
Awards, which recognize career senior executives who have demonstrated 
exceptional performance over an extended period of time. The OPM 
Director reviews agency nominations and recommends candidates to the 
President. These awards are either 20 percent or 35 percent of the 
recipient's base pay. 

[9] 5 CFR ï¿½ 430.404(a)(9). 

[10] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-832SP]. For 
more information including the complete list of safeguards, see GAO, 
Defense Transformation: Preliminary Observation's on DOD's Proposed 
Civilian Personnel Reforms, GAO-03-717T (Washington, D.C.: Apr. 29, 
2003). 

[11] 5 USC ï¿½ 4312(b)(3). 

[12] National Defense Authorization Act for Fiscal Year 2004, Pub. L. 
No. 108-136, November 24, 2003; 5 USC ï¿½ 5382. 

[End of section] 

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