21st Century Challenges: Government Transformation and Pay for Performance

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21st Century Challenges Government
Transformation and Pay for Performance

• 2005 IPMA-HR Federal Section Conference
• November 30, 2005
• J. Christopher Mihm
• Managing Director, Strategic Issues
• U.S. Government Accountability Office

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The 21st Century A Period of Profound
Transition

• The federal government needs to engage in a
  comprehensive review, reassessment, and
  reprioritization of
• What the government does?
• How it does business?
• How does the government finance its efforts?

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Cultural Transformation A New Model

• Government organizations will need to
• Become less hierarchical, process-oriented,
  stovepiped, and inwardly focused.
• Become more partnership-based, results-oriented,
  integrated, and externally focused.
• Achieve a better balance between results,
  customer, and employee focus.
• Work better with other governmental
  organizations, non-governmental organizations,
  and the private sector, both domestically and
  internationally, to achieve results.

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People Enabler of Cultural Transformation

• In knowledge-based organizations, people
• Define an agencys character.
• Drive its capacity to perform.
• Effective strategic human capital management
  approaches serve as the cornerstone of any
  serious change management initiative.

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Moving Forward

• GAO strongly supports the need to expand
  market-based and more performance-oriented pay
  governmentwide.
• However--how it is done, when it is done, and the
  basis on which it is done--can make all the
  difference in whether such efforts are
  successful.
• Effective performance management
• drives internal change and achieves desired
  results and
• creates a line of sight showing how team, unit,
  and individual performance can contribute to
  organizational goals.

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Moving Forward (cont.)

• Experience shows that pay reform cannot be
  overlaid on most organizations existing
  performance management systems.
• The shift to market-based and more
  performance-oriented pay must be part of a
  broader strategy of change management and
  performance improvement initiatives. That is,
  pay is only one partalbeit a critical oneof a
  larger effort to improve the performance of an
  organization.
• Further, there is widespread recognition that
  organizations need to build up their basic
  management capacity.

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Moving Forward (cont.)

• GAO believes that implementing market-based and
  more performance-oriented pay reform is both
  doable and desirable. However, agencies should
  meet the show me test. Specifically
• Before implementing pay reforms, agencies should
  meet certain requirements
• Demonstrated management capacity or
  infrastructure, such as an effective performance
  management system that includes safeguards to
  ensure equity and prevent discrimination, and
• Independent certification, such as by OPM.

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Results-Oriented Organizational Cultures

• Successful organizations
• use their performance management systems as a
  strategic tool to drive internal change and
  achieve external results,
• start with senior executive performance
  management as the means to transform their
  cultures, and
• cascade expectations throughout the organization.

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Effective Performance Management

• Helps the organization manage on a day-to-day
  basis and are not merely used for once- or
  twice-yearly individual expectation and rating
  processes
• Facilitates two-way communication throughout the
  year so that discussions about individual and
  organizational performance are integrated and
  ongoing.
• Creates a line of sight" between individual
  performance and organizational success.

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Key Practices for Effective Performance
Management

• Align Individual Performance Expectations with
  Organizational Goals. An explicit alignment
  helps individuals see the connection between
  their daily activities and organizational goals.
• Connect Performance Expectations to Crosscutting
  Goals. Placing an emphasis on collaboration,
  interaction, and teamwork across organizational
  boundaries helps strengthen accountability for
  results.
• Provide and Routinely Use Performance Information
  to Track Organizational Priorities. Individuals
  use performance information to manage during the
  year, identify performance gaps, and pinpoint
  improvement opportunities.

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Key Practices for Effective Performance
Management (cont.)

• 4. Require Follow-up Actions. By requiring and
  tracking follow-up actions on performance gaps,
  organizations underscore the importance of
  holding individuals accountable for making
  progress on their priorities.
• 5. Use Competencies to Provide a Fuller
  Assessment of Performance. Competencies define
  the skills and supporting behaviors that
  individuals need to effectively contribute to
  organizational results.
• Validated core competencies
• Individual employee positions

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Key Practices for Effective Performance
Management (cont.)

• Link Pay to Individual and Organizational
  Performance. Pay, incentive, and reward systems
  link employee knowledge, skills, and
  contributions to organizational results.
• Focusing on a set of values and objectives to
  guide pay system
• Devolving decision making on pay to appropriate
  levels
• Translating employee performance rating into pay
  increases and awards
• Considering current salary in making
  performance-based pay decisions
• Examining the value of employees total
  compensation to remain competitive in the market

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Key Practices for Effective Performance
Management (cont.)

• 7. Make Meaningful Distinctions in Performance.
  Effective performance management systems strive
  to provide candid and constructive feedback and
  the necessary objective information and
  documentation to reward top performers and deal
  with poor performers.
• 8. Build in safeguards to enhance the
  transparency and ensure the fairness of pay
  decisions. Safeguards ensure the fair,
  effective, and non-discriminatory implementation
  of any new pay-for-performance systems.
  Safeguards include the following.

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Examples of Safeguards

• Assure that pre-decisional internal safeguards
  exist to help achieve consistency, equity,
  non-discrimination, and non-politicization of the
  process. Such as
• Second level reviews by management
• Pay panels made up of career officials
• Independent reviews by Human Capital Offices,
  before finalization of
• Performance rating decisions
• Pay determinations
• Promotion actions
• Internal grievance process

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Examples of Safeguards (cont.)

• Assure reasonable transparency and appropriate
  accountability mechanisms. Such as
• Provide general and individualized information on
  how pay decisions are made
• Publish overall results of performance management
  and pay decisions while protecting individual
  confidentiality
• Report periodically on internal assessments and
  employee survey results.

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Possible Criteria for Certification

• Build consensus to gain ownership and acceptance
  for pay reforms. Involvement needs to be
  meaningful and not pro forma.
• Consult a wide range of employees and
  stakeholders early in the process.
• Engage employee unions or associations.
• Obtain feedback directly from employees.
• Prescribe regulations in consultation or jointly
  with OPM. OPM could help assure that they are
  based on leading practice and avoid adverse
  impact on other agencies.
• Establish appeals processes in consultation with
  MSPB.

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Possible Criteria for Certification (cont.)

• Establish a communication strategy. Ongoing
  communication is essential to implementing a
  transformation.
• Provide training on leadership, management, and
  interpersonal skills to facilitate effective
  communication.
• Making meaningful distinctions among employees
  performance
• Giving and receiving ongoing feedback on
  performance
• Holding individuals accountable for career
  development
• Offering training beyond first year of pay reform
• Ensure adequate resources for planning,
  implementation, and evaluation. OPM has reported
  that increased costs of implementing alternative
  personnel systems should be acknowledged and
  budgeted for up front.

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Possible Criteria for Certification (cont.)

• Phase in implementation of new human capital
  systems. Different components of agencies will
  often have different levels of readiness and
  capability.
• Monitor and refine the implementation of the pay
  system. High performing organizations
  continuously review and revise their systems.
  OPM requires demonstration projects to conduct at
  least three evaluations.
• Use performance information and metrics to track
  progress
• Listen to employees and stakeholders views
• Identify any unintended consequences
• Commit to transparency and reporting. Public
  deserves to be told how well government is doing
  to improve quality of its civil service.

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www.gao.gov

• Human Capital Symposium on Designing and
  Managing Market-Based and More Performance-Oriente
  d Pay Systems (GAO-05-832SP)
• 21st Century Challenges Reexamining the Base of
  the Federal Government (GAO-05-325SP)
• Human Capital Principles, Criteria, and
  Processes for Governmentwide Human Capital Reform
  (GAO-05-69SP)
• High-Performing Organizations Metrics, Means,
  and Mechanisms for Achieving High Performance in
  the 21st Century Public Management Environment
  (GAO-04-343SP)
• Highlights of a GAO Forum Mergers and
  Transformation Lessons Learned for a Department
  of Homeland Security and Other Federal Agencies
  (GAO-03-293SP)