FDIC succeeds at new pay plan

A small agency has lessons for others looking at pay-for-performance plans

As federal agencies such as the Defense and Homeland Security departments plan to implement pay-for-performance programs later this year, the much smaller Federal Deposit Insurance Corp. has become an unlikely trend setter.

The FDIC took the plunge into pay-for-performance in October 1997, and it's now on the fourth version of the program. And changes are likely again when FDIC officials meet with union representatives this summer to hammer out a new agreement.

The structure of pay-for-performance programs at DOD, DHS and other agencies is unclear because they have not finalized details, not because officials are struggling to devise sufficiently objective performance measurements that are satisfactory to all sides.

"We're not in a rush to get things decided [on pay for performance] until we work out what these performance measures should be," said Larry Orluskie, a DHS spokesman.

DHS has been working on this and other issues with unions since September of last year, he said. Nevertheless, Orluskie said, the department still intends to begin implementing the new performance management process in October.

Based on the FDIC's experience, pay-for-performance newcomers should plan for their first efforts to not be perfect.

"When we first started, we had each employee judged by a manager, which generated some 34 pages of reports per employee," said Miguel Torrado, associate director for human resources at the FDIC. "The sad thing was that, after all that effort, the actual difference in pay raises was minute. The complexity of the process just didn't match the results."

So the FDIC scrapped that process in favor of a pass/fail approach. All employees are now first measured against certain expectations, which they are aware of, and if they don't meet them, they receive failing grades. Only those who pass participate in the pay-for-performance process.

All unionized employees who pass get at least a 3.2 percent raise, with those rated in the top one-third of contributors getting a 6.2 percent raise. Nonunionized and nonmanagement employees who pass are rated within five groups based on their level of contributions and get as much as 5.5 percent raises. Top contributors also get a 2 percent bonus.

FDIC executives and managers get pay raises up to 10 percent and can receive bonuses of up to 8 percent.

The success of pay for performance at the FDIC shows that more rather than fewer graduated reward levels are better, Torrado said. Agencies also should provide significantly different rewards.

Agencies need to involve unions from the beginning, he said. The FDIC cannot legally change personnel plans without first negotiating with the union, he added. Pay-for-performance programs are evolutionary and require officials to consider employees' concerns and feedback.

"To some degree, negotiations with the union are data- and information-driven," Torrado said. "But overall, it's an extremely complex dance."

That's something DOD and DHS are discovering. Several of the biggest unions involved in the current negotiations are unconvinced by what they have heard from the departments about the new personnel management systems, and they are hostile to plans to impose a pay-for-performance system.

"It's the No. 1 issue for our members, and it's been a principal item of discussion with the DOD," said Matt Biggs, legislative and political director for the United DOD Workers Coalition. "But they've failed to negotiate on any of our proposals. Despite the fact that DOD says it will lead to increased pay, we think it will instead lead to rewards for just a few and lower pay for most of the DOD workforce."

John Gage, national president of the American Federation of Government Employees (AFGE), who refers to pay for performance as "pay for patronage," thinks the complexities of managing the system and the resentment it would produce in workers would hurt productivity at the agencies that implement it.

"It just means an additional burden for agencies, particularly in DHS, which is a mess anyway," he said.

However, he and other union leaders seem resigned to adding pay for performance to the government landscape, although that doesn't mean they'll be meek about it.

AFGE and other unions filed a lawsuit in federal court earlier this year challenging the legality of DOD's proposed National Security Personnel System, which includes the pay-for-performance program. Biggs said the unions will also go back to Congress "to convince it that pay for performance is good for neither homeland security nor national defense."

OMB's Johnson says personnel changes will not be expansive

Bush administration proposals to expand civil service reform governmentwide will be less extensive than personnel changes at the Defense and Homeland Security departments.

New rules being implemented at DOD and DHS make it easier for officials to link pay to performance and fire or transfer workers. But civilian agencies do not have the same counterterrorism mission as those departments and do not need such a broad set of reforms, said Clay Johnson, the Office of Management and Budget's deputy director for management.

"There are many different aspects of the civil service system," Johnson said while talking to reporters earlier this month. "We want to go in and recommend reforms where we have a strong business case for a reform."

Officials must convince employees that changes to the General Schedule are good, he said. "With any civil service modernization, the questions we have to answer are very clear: 'What's in this for me?'" Johnson added.

Federal unions have protested the changes, arguing that they dilute employee protections and undermine unions' collective bargaining ability. Existing pay for performance provisions within the current system are underused, said Colleen Kelley, president of the National Treasury Employees Union.

Bush administration officials will disclose what they want to do in coming weeks with legislation that will be introduced in Congress this summer, Johnson said. Executive branch officials will likely forgo some of the more contentious collective bargaining and employee appeal provisions, Kelley said.

"In the pay area, I do believe they want to do everything across the government that they are doing in DHS and DOD," she added. Within Congress, pay-for-performance enjoys wider support because "it's a good buzz phrase," Kelley said.

"There's probably more support in theory for something like that because it means something different for everybody," she added.

Several congressional leaders, including Sen. Susan Collins (R-Maine) and Rep. Tom Davis (R-Va.), said they want to see how pay changes at DHS and DOD work before initiating civil service reform governmentwide.

— David Perera

Dancing between pay and performance

The details of how pay-for-performance plans are implemented will differ from agency to agency, but in general, they aim to:

  • Replace guaranteed pay levels and periodic pay raises based on longevity of employment with performance-based incentives.
  • Produce a compensation framework that is more sensitive to the general market, allowing agencies to compete for talent by setting pay rates according to local market conditions.
  • Give agency managers greater flexibility in setting pay rates for promotions and reassignments, for example.
  • Allow agencies to act faster based on mission and "total force" needs.

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