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 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.
What GAO Found:
Overall, the selected agencies are making positive steps toward three
key areas related to OPM and OMB�s 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 executives� 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 government�s 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 OPM�s capacity to lead further reforms.
In June 2006, GAO testified on several management challenges that OPM
faces. This report�the second in a series�supplements that testimony
and, using the new senior executive performance-based pay system as a
model for understanding OPM�s 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 agency�s
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 OPM�s 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;
OPM�s approach to certifying agencies� 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 involvement�building 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 guidance�being sensitive to other ongoing human
capital activities�to 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 others� 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 agencies�
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 OPM�s
capacity for future reforms by reexamining agencywide skills, and to
address issues specific to the senior executives� 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 GAO�s 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 government�s senior executives need to lead the way in transforming
their agencies� cultures. Credible performance management systems�those
that align individual, team, and unit performance with organizational
results�can 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 agency�s 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 system�s
regulatory structure, (2) OPM�s certification process and agencies�
views of it, and (3) OPM�s role in monitoring the system, and the
number of agencies that have been certified to date. This statement is
based on GAO�s 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 �line of sight� between
executives� performance and organizational results. To qualify for the
pay flexibilities included in the statute, OPM must certify and OMB
must concur that an agency�s 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 individual�s performance
and an organization�s 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 agencies�
certification submissions. A number of agencies GAO contacted expressed
concern over OPM�s 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 agencies� performance management systems, OPM can suspend
an agency�s 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 Labor�s
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 OPM�s
requirements.
The new performance management system for the government�s 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 government�s transformation are
its people�human 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 following�career 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 judges�the 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 reconsideration�maintaining 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
government�s people�its 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 government�s 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 organizations� 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, organizations�
experiences in designing and managing their pay systems underscored
three key themes that can guide federal agencies� 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 organizations� 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 employees� 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 agencies�
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 organizations� 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 �Very Great� or
�Great� Extent on Their Agencies� 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 � 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 � 4312(b)(3).
[12] National Defense Authorization Act for Fiscal Year 2004, Pub. L.
No. 108-136, November 24, 2003; 5 USC � 5382.
[End of section]
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