The most divisive issue: Pay

Congress created the General Schedule pay system in 1949, when the federal government was largely known as a government of clerks. Based on work descriptions formulated earlier in the century, about the time the Titanic sank, the GS system created a centralized compensation structure for all white-collar positions. Pay increases became virtually automatic.Fifty-three years later, in 2002, the Bush administration launched a formal effort to create a new pay system. It began with a manifesto published by the Office of Personnel Management, “A Fresh Start for Federal Pay: the Case for Modernization.” The document was a comprehensive critique of the GS system.It argued that the nature of government work has evolved into highly specialized and skilled knowledge work and that modern government needs flexible compensation tools to attract and retain talented employees.Pay for performance became the catch-all phrase for a new, results-based system in which compensation would be based on performance evaluations, not the rigid GS.Administration officials intended pay for performance to disrupt the decades-old structure of federal pay. They meant to overturn the GS system, which they said was antiquated.From the standpoint of many advocates of pay for performance, any move to discard the GS system appeared to be a slam dunk. “The train has left the station,” one proponent said. “It’s clear that the GS system will be replaced.”However, overturning it and supplanting it with a new, performance-based system was easier to propose than to accomplish. The government’s major new pay-for-performance programs, at the Defense and Homeland Security departments, got bogged down in the courts after federal labor unions brought lawsuits over collective bargaining and labor-relations portions of the systems.Pay-for-performance demonstration projects at other agencies have come under heavy criticism from federal employee unions. Colleen Kelley, president of the National Treasury Employees Union, recently said performance-pay experiments at the Federal Deposit Insurance Corp. and other agencies are dismal failures. One of the primary reasons for their failures, Kelley and other critics said, is that employees had little say in the design and development of new pay systems.Some union officials, who assert that they aren’t opposed to merit pay systems in principle, have become more vocal in defending the GS system as fair and transparent. “We’ve argued that the GS system provides a very good balance between sensitivity to [market pay] rates and flexibility to reward good performance,” said Jacqueline Simon, director of public policy at the American Federation of Government Employees. “There are a lot of flexibilities that federal managers currently have on the books in the GS system.”Many public-policy experts who advocate pay reform in government agree that major federal pay-for-performance efforts have become mired in controversy.“I would say so far it cannot be called a success,” said Patricia McGinnis, president and chief executive officer of the Council for Excellence in Government. “I think everybody would agree that not enough groundwork was laid. You’ve got to have the basic structure right first. What’s happened is that we’ve moved too fast to link performance to pay before it was absolutely clear what we mean by performance and how that would be evaluated [in a way that] would be fair and also related to productivity and progress.”A successful performance management system requires trust between employees and managers and other top decision-makers, McGinnis said. “It’s clear that that threshold has not been reached in almost any case we can think of.”Meanwhile, members of the government’s Senior Executive Service have cited the trust f ctor as a hurdle for its pay-for-performance system, which the government introduced in 2004 and OPM touted as a model for p y for performance.Responding to a survey last year by the Senior Executives Association, federal executives said the new system was implemented without adequate communication and, as a result, is not well understood. They also reported that the new system had negatively affected morale in the SES.Such sentiments also reflect the massive changes in organizational culture involved when moving from one type of pay system to another.“The GS system is all that a lot of people know,” said John Palguta, vice president of policy at the Partnership for Public Service and former director of the office of policy and evaluation at the Merit Systems Protection Board. “For everybody in government still under the GS, particularly managers, that’s the system they grew up with. You’re talking about changing something fundamentally very near and dear to the hearts of federal employees.”An overriding concern for employees accustomed to the GS system is the extent to which performance appraisals under a new system will be fair and objective.“There is a problem with the actual design of these systems,” Simon said. “They have all kinds of factors that are just inherently subjective, competencies that have to do with personality, leadership, amiability, willingness to get along with others — all those things that are just very difficult if not impossible to administer.”To counter the resistance that accompanies those concerns, public-policy experts say performance-management systems must be carefully developed in concert with employees and otherstakeholders.“It’s going to be important to craft [performance] measures that feel fair and not arbitrary in terms of the overall decisions,” said William Eggers, global director at Deloitte Research-Public Sector. “There has to be a lot of 360-degree feedback.”Eggers, co-author with Stephen Goldsmith of “Governing by Network: the New Shape of the Public Sector,” said authorities must introduce pay for performance as part of a larger range of reforms to modernize government.“I don’t think pay for performance in itself is any kind of panacea,” Eggers said. “It can be done well, and it can be done poorly. The more that this can be part of broader reforms, the better. It’s possibly one element of that, but one element of maybe five or 10 important things that government needs to do moving forward.”Pay for performance has “to be part of a more systematic process, where you’re also changing the work environment and culture within government,” Eggers said. Such reforms are crucial to attracting the next generation of workers to public service, he added. “They think government is still too slow-moving and that the culture is antithetical to the highest performers.” Nonetheless, pay for performance alone will not lure a new generation of employees to government, Eggers said. “What we know about Generation X and Generation Y is how important having the latest and greatest technology tools, knowledge sharing and communities of practice are to them. Those factors are probably more important.”Public-policy experts agree that fundamental changes in the federal pay system are inevitable, despite the formidable bumps in a long road ahead.“We need a new approach,” Palguta said. “Tinkering with the GS system just isn’t going to get us there.”But if the GS system is eventually replaced across government with a modernized pay system, it’s not clear what that new system will look like.“It’s probably not going to be the GS system as it is now, and it’s probably not going to be pay for performance as it’s been put forward [to date] by several departments and agencies,” McGinnis said. “It’s going to be something that’s better than either of those, especially if the right people contribute to it.”