Pay-For-Performance Systems. Today s Agenda. Today s Learning Objectives

Transcription

1 Pay-For-Performance Systems Dr. Bob Rue Dr. Margaret Barton Carolyn Grillo Michelle Williams Transformation in the Federal Workplace October 20, Today s Agenda Explain pay-for-performance systems in the Federal workplace Illustrate how pay-for-performance systems are impacting the Federal workplace and workforce Share the evolving experience: Air Force Research Laboratory Personnel Demonstration Project October 20, Today s Learning Objectives By the end of our session, you will understand: How pay-for-performance systems may be framed as catalysts to create an engaged, high performing workforce The range of benefits associated with pay-for-performance systems The difference between facts and fiction about pay-for-performance systems The positive attributes and practical limitations of an effective pay-forperformance implementation strategy Compelling messages to support pay-for-performance systems October 20,

2 Background SRA supports pay-for-performance systems in several departments of the Federal government U.S. Department of Defense U.S. Department of Treasury U.S. Department of Commerce Air Force Lab Demo is an established payfor-performance workplace within the Federal system October 20, Pay for Performance What s The Idea? Pay for government employees should be based less on the passage of time and more on the quality of an employee s performance - Former Comptroller General David Walker Government Executive 12/28/05 October 20, Pay-for-Performance: What s the Objective? First, it focuses government, and its employees, on the idea of performance and results, rather than regarding government service as a sinecure for the security-minded. Second, it seems to be consistent with the idea of making government management more businesslike Steven Kelman, Harvard Business School March 2003 October 20,

3 Pay-for-Performance: What s the Difference? FROM: The General Schedule 15 pay grades with 10 steps each Movement within grade based on longevity Employees receive increase amounts in lock step Rare exceptions: early step increase or withheld step increase Pay Increases as Entitlements TO: A Performance Focus Fewer levels of Work Simplified position classification Broad Pay Ranges Movement within pay bands based on contribution -Different amounts to different performers Rating System - Performance goal-setting: quantifiable objectives Pay Increases as Incentives to Contribute to Agency/Unit Mission October 20, Why Now? Competition for Talent Anticipate the Federal Workforce Retirement Wave Respond to a Different Value Equations across Generations Financial Restraint Taxpayer Expectation: Return on Investment Prudent Management Manage for for High Performance Performance- Based Rewards October 20, The General Schedule ADVANTAGES: Easy to administer little supervisory judgment required Employees know what to expect Encourages and rewards longevity and knowledge retention LIMITATIONS: Managing Top Performers - Difficult to differentially reward contribution Managing Poor Performers - Difficult to limit rewards or encourage improvement Little connection to employee impact on agency mission October 20,

4 General Schedule vs. Performance- Based Pay 1 year 1 year 1 year 3 years 3 years 3 years General Schedule Step 1 Step 2 Step 3 Step 4 Step 5 Step 6 Step 7 Step 8 Step 9 Step 10 2 years 2 years 2 years Pay for Performance Pay Band 1 year (3 Rating) 1 year (3 Rating) 1 year (5 Rating) 1 year (4 Rating) 1 year (5 Rating) Performance-based Pay Pay increase linked to rating Greater increases for better ratings Potentially faster progress up the pay scale October 20, Current Practice in Pay-for- Performance Pay for performance (target pay) Uses a rating system with many levels Uses a standard pay line of table to relate rating to pay Pay increase for performance Uses a simple rating system (3 to 5 levels) Pay increase percent determined by rating Controls are needed to manage movement through the pay band October 20, Standard Pay Line - Target $100 $90 Standard Pay Line (SPL) Base Pay ($K) $80 $70 $60 $50 $40 Over-Compensated Employee Equitably Compensated Employee Pay Raise Needed to Bring Employee Up to the SPL $30 Under-Compensated Employee $ Performance Rating October 20,

5 Standard Pay Table - Target 2002 Standard Pay Table Score Salary Score Salary Score Salary Score Salary 0 $14, $25, $44, $76, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,834 : 24 22, , , , , , , , , , , , , , , , , , , , , , , , ,423 October , 13 Pay Increase for Performance - Share-Based Performance Level Role Model Exceeds Expectations Valued Performer Fair Unacceptable Performance Score Share Range Floating Share Value = Funding Percentage*Sum of Salaries/(Employee1 shares * Employee1 salary + +EmployeeN shares *EmployeeN salary) October 20, Pay Increase for Performance - Fixed Percentage Rating Band 1 Payout 0% U or NI 5% Meets Objectives Ratings Exceeds Objectives 15% Fixed % Outstanding 25% Share Value Payouts Unsatisfactory 1 Needs Improvement 2 Band 2 and Band 3, Zone 1 Payout Meets Objectives 3 Position in Range Exceeds Objectives 4 Rating Bottom Tercile Middle Tercile Top Tercile Outstanding 5 U or NI 0% 0% 0% Meets Objectives 3.5% 3.5% 3.5% Exceeds Objectives 6% 5% 4% Outstanding 9% 7% 6% Band 3, Zone 2 and Band 4, Zones 1-2 Payout Position in Range Bottom Tercile Middle Tercile Top Tercile Rating U or NI 0% 0% 0% Meets Objectives 3% 2% 1% Exceeds Objectives 6% 4% 2% Outstanding 9% 6% 4% October 20,

6 Pay for Performance Options: Summary Target Based System Fixed Dollar Share Value Fixed Percentage Share Value Floating Percentage Share Value Uses a standard pay table Number of shares based on funding Table of numbers of shares for each rating Number of shares based on funding Table of numbers of shares for each rating Share value floats Table of numbers of shares for each rating Pros Pay matches performance - pay levels off if performance does Can give large increases to top performers Easy to understand Easy to understand Same form as GS across the board increase (% based) Ratings not constrained to budget Relatively easy to understand Same form as GS across the board increase (% based) Cons Complicated - difficult to design, understand and execute Pay increases may continue even if performance plateaus (no pay target) Ratings must be controlled to stay within budget Pay increases may continue even if performance plateaus (no pay target) Ratings must be controlled to stay within budget Pay increases may continue even if performance plateaus (no pay target) Share value not known until all ratings done Most popular system October 20, Two Interwoven Processes Pay Pool Process: Administered for entire organization Performance Management Process: Administered for each employee October 20, Performance Management Cycle Plan Link employee objectives or competencies to organization mission Monitor Observe employee work behavior and provide feedback Develop Provide the training, tools, and guidance needed achieve objectives Rate Compare employee performance to standards and assign rating level Reward Provide appropriate compensation October 20,

7 Managing Performance Cycle Performance/Productivity Employee Performance Manager s Expectations Employee Hired (Set expectations) Six Months (Mid-year Review) Twelve Months (appraisal) New Cycle Begins (set expectations) October 20, Pay Pool Cycle Plan Determine pay pool structure and funding Prepare Provide training to supervisors to ensure consistent rating standards across the organization Pay Review ratings for consistency, determine share value, and assign payouts October 20, Pay Pools* Organization funds pool as a percentage of sum of the base pays of the employees in the organization Computation used to allocate money from the pool based on rating Amount goes up with better ratings Total spent is limited to the funded amount Share value floats based on number of shares used * Pay pool is both a group of employees and a pool of money October 20,

8 Pay for Performance Introduces Change on Two Levels ORGANIZATIONAL : - How many pay bands? - How to structure pay pools? - How to value shares in pay pools? INDIVIDUAL : - What defines contribution? - What is the performance standard? - How is an individual s rating determined? October 20, But Change is Difficult Are managers ready to make differentiating decisions? Will feedback be timely and usable? Will decisions be fair and equitable? Can I communicate to my manager all I ve done? October 20, And Resistance is Human DHS's continuing efforts to move forward with [the personnel system's] implementation, despite NTEU victories in court declaring large portions of the system illegal, are threatening our national security and causing dangerously low morale among frontline employees," said Colleen Kelley, the union's president. October 20,

9 Culture = Equilibrium Whenever a suggested change goes against the culture, the culture will win Challenges and Demands Resources and Energy October 20, Change = DISequilibrium Resources and Energy Challenges and Demands October 20, Preparation for Change Respect the culture: change readiness index Prepare the organization for performance management Training for supervisors Training and preparation for all employees Workshops for goal setting Communicate the guiding principles October 20,

10 The System in Practice Air Force Lab Demo Michelle Williams, Air Force Research Laboratory Personnel Demonstration Project Office October 20,