No more pass/fail

Evaluating employees was an inefficient and somewhat ineffective activity at the Labor Department. With eight performance management systems on seven different calendar cycles, managers frequently didn’t know where to begin, and employee performance metrics were often meaningless.

“We were dealing with a number of different systems, so it was hard to look at all of them and get a clear picture of the department as a whole and how it should be linked to the mission,” said Jerry Lelchook, Labor’s deputy director of human resources. “It made your life a little more complicated as a departmental manager. Depending on what the issue was, you had to make clear in your mind what system you were working with and making references to.”

In 2001, while taking a close look at the President’s Management Agenda, Labor officials decided that improving employee management was critical to achieving results in each of the agenda’s five areas, said Patrick Pizzella, Labor’s assistant secretary of administration and management. And improving the workforce required a uniform, simple and fair employee performance management system, he said.

“The secretary believes that personnel is policy and that human capital is important to the success of all your endeavors,” Pizzella said. “We decided that very early on we needed a system that was fair, very clear, and that it needed to be linked to our budget, strategic plan and other management-related tools we used to manage the department.”

Employee performance has taken center stage recently as Congress, agencies and the federal courts are considering workforce reforms that will require managers to base employee raises on their performance rather than factors built into the 50-year-old General Schedule pay system. Under a Bush administration focused on results, more agencies are examining how they evaluate, promote and pay employees.

For other agencies struggling to develop systems to evaluate and manage job performance, Labor offers an example of how to manage employee performance. After establishing its performance management system, Labor began getting green scores on the Office of Management and Budget’s President’s Management Agenda score card.

One of the tenets of the agenda’s employee initiative is a strong performance management system, said Marta Perez, assistant director for human capital leadership and merit system accountability at the Office of Personnel Management.

“The performance management system should be clear, well-articulated, results-based, linked to the mission [and have] clear measures and clear expectations,” Perez said. “We are working very hard, and agencies are making a great deal of progress in making the programs clear and based on the mission.”

One of Labor’s first steps was to align employee evaluation cycles with a single 12-month period that parallels the fiscal year. Some cycles spanned from October to September, while others went from January to December or started on the date of employment, Pizzella said.

Labor officials next decided to evaluate employees using a five-level system: exemplary, highly effective, effective, satisfactory and minimally satisfactory. They eliminated the idea of a pass/fail system, opting for one that Pizzella said would give managers some discretion and facilitate flexibility.

Perez said many of the department’s agencies had pass/fail systems, and it has been challenging for them to move away from such systems. They leave little room for making distinctions among employees and make it harder to reward exemplary performers, she said.

Initially, Labor officials planned to focus on Senior Executive Service employees. But as they began to adopt the new system, they decided to expand it to cover their entire workforce of 17,000 employees. SES employees were included immediately, and after negotiations with employee union representatives, the rest of the department followed suit. By the beginning of fiscal 2003, Labor was evaluating all employees using its departmentwide performance management system, Pizzella said.

At that time, Labor Secretary Elaine Chao increased the performance award bonus pool for SES employees and, about a year later, increased the GS bonus pool for the first time since 1984. Although legislation prevents Labor from implementing a full pay-for-performance system for GS employees, the department has made its performance management system as close to a pay-for-performance system as possible, Pizzella said. OPM certified the system SES employees use, which means that Labor can link their annual pay adjustments directly to their performance rating, he said.

Employees rated as exemplary might receive a 6 percent pay adjustment, highly effective employees may receive as much as a 4 percent increase, and effective employees a 2 percent increase. Agencies determine bonus sizes based on their available pool. They require approval by a performance review board and Chao.

Before other agencies consider how to link employee performance to monetary rewards, officials should ensure that clear lines exist between the organization’s programs and goals and the individual employee’s work, said J. Christopher Mihm, managing director of strategic issues at the Government Accountability Office. GAO refers to such links as the line of sight — employees can easily see how the work they do relates to the overall agency mission. That is a crucial element in any successful performance management plan, Mihm said.

“The pay stuff is important, but what really is most important is making sure people understand what they are working on and that it’s big and valuable,” Mihm said.

That is often a major challenge for government agencies because outcomes usually rely on work happening at other departments or various offices departmentwide. The time invested, however, is worthwhile, Mihm said, because it leads to more meaningful performance conversations throughout the year.

Labor officials encountered surprisingly few obstacles in establishing their new evaluation system, Pizzella said. Although many employees and managers were accustomed to the old way of evaluating, once they understood the new process, many recognized that it was good for the department, he said. The key was keeping the system simple, uniform and transparent.

The department’s efforts might sound relatively painless, but developing an effective performance management system that managers and employees fully support is no small task, management experts say. Federal managers generally handled employee evaluations poorly in the past, said Richard Keevey, director of the Center for Improving Government Performance at the National Academy of Public Administration. “Most people got gentlemanly passing grades or inflated evaluations,” he said.

Changing the way agencies evaluate and eventually reward employees requires a huge culture shift, said Jonathan Ward, an organizational consultant at Right Management Consultants. To manage the change — and the apprehension and skepticism that may accompany it — senior managers must explain why they are moving to a performance management system and why it is good for the organization, he said. Employees will be more likely to feel a sense of ownership, and the process will lead to ongoing conversations rather than simply an annual review.

The process falls apart when employees and managers treat performance evaluations as an event rather than a process, Ward said. “It’s an ongoing deal,” he added.

Michael is a freelance writer based in Chicago.