Pay for Performance?

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PeopleIn the private sector, linking employee pay to individual and organizational performance has been a long- accepted practice. This approach has gained gradual acceptance in the public sector over the past two decades, with varying degrees of progress and success. However, the approach has been seen as an increasingly divisive issue in the past few years. What might the next President do?

There has been controversy in the performance-related pay approaches being undertaken over the past 6 years, especially in the Departments of Defense and Homeland Security. Hearings were held last year on legislation proposed to extend similar approaches to the rest of the government, but it never gained any traction.

A recent IBM Center report by pay experts Howard Risher and Charles Fay provide some potential guideposts for moving forward. In their report, “Managing for Better Performance: Enhancing Federal Performance Management Practices,” they say that there are certain prerequisites that need to be in place before an agency can successfully implement a performance management system, especially a performance management system linked to employee pay.

Risher and Fay say that agency leadership has to be seen as valuing performance management and advocating a high performing culture. Based on their experience in the private sector, they observe: “No single practice by itself is powerful enough to create a strong culture, but in combination they promote high performance.”

Some of the practices that contribute, they note, are:

  • employee belief that high performance matters and is valued,
  • they can trust their managers to rate them fairly based on performance, and
  • employees are involved in helping define what constitutes “successful performance.

The governmentwide survey of employees suggests that none of these practices are seen as prevalent across the board. Interestingly, many of these prerequisites were advocated earlier by the National Performance Review in its original 1993 recommendations.Risher and Fay suggest that managerial training would help, so managers more clearly understand what constitutes good performance management and their roles as managers. They also applaud the approach taken by Congress in 2003 when the Senior Executive Service was placed under a performance pay system. They say that if the leaders cannot embrace performance management among themselves, leaders cannot expect line employees to do so. The SES system has not been well-received uniformly by SES members, according to a 2006 survey, but starting with the top 6,000 employees will create more credibility as the system expands more broadly across the workforce.

Risher and Fay also believe the “beta test” pilots of performance management, which were launched across the government voluntarily by a number of agencies last year, can create a foundation for expanding performance management principles more broadly across the government in coming years. These systems are not linked to pay, but do attempt to address the prerequisites Risher and Fay advocate for high performing organizations.

So while the implementation of governmentwide performance-related pay may be problematic, a solid foundation for good performance management — and potentially steps toward performance-related pay — may await the next President.

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