Commission on Public Service

Paul Volcker Chairs Joint Forum on Performance-Based Pay

On October 21, the Academy and the National Commission on the Public Service Implementation Initiative jointly sponsored a forum on the issue of performance-based pay in the federal government. Academy Chairman Carl Stenberg and President C. Morgan Kinghorn opened the forum, which was chaired by former Federal Reserve Board Chairman Paul Volcker.

The panelists were Clay Johnson, Deputy Director for Management, OMB; Dan Blair, Deputy Director, OPM; Gene Dodaro, Chief Operating Office, GAO; and Marcia Marsh, Vice President, Partnership for Public Service.

A performance-based pay system is one of the options that Department of Homeland Security Secretary Tom Ridge and OPM Director Kay Coles James are considering for the new Department. Performance-based pay also is being debated as part of legislation to change the personnel system at the Department of Defense and in other proposals sent by the President to Congress. At the same time, there is considerable concern about how such a system should be designed--and whether it can be implemented equitably and effectively in these government agencies.

This joint forum was held for the purpose of informing and clarifying the debate on this issue. From this discussion the conveners were able to identify some lessons that have proven important in the adoption of pay for performance in the private sector, as well as at GAO and IRS.

Importantly, there was considerable agreement among the participants about the kinds of safeguards that were necessary for a pay-for-performance system to be effective. The safeguards that most felt should be assured at the Department of Homeland Security and elsewhere are:

• a credible appraisal methodology
• a transparent system
• a timely set of processes
• consultation with those affected
• peer review (some advocated external review by a neutral third party)
• ongoing communication, including feedback from all involved
• training of managers and supervisors, who themselves are evaluated on how they manage performance
• training of employees to participate in the system

To this list, Paul Volcker added the importance of careful and ongoing oversight by the responsible leadership in the Executive Branch and by the Congress.

Participants in the forum also identified several factors for which implementers must be prepared:

• Adequate time: Adoption of pay for performance will take time. GAO began to lay the groundwork for its system years ago. This may require a phased implementation, starting with those agencies or units that are ready to do a good job.
• Verifiable performance systems: Individual performance must be linked to organization goals and sound performance management systems, including agreement and buy-in among all those who are part of the system.
• Culture change: This is necessary throughout the organization.
• Adequate funding: There must be enough money to make meaningful rewards for commendable performance.
• Careful assessments: Pay for performance is complicated because it is difficult to make meaningful distinctions in evaluating performance once one gets below the top performers in an organization.