Arguments Against the

**Proposed Pay for Performance Plan**

On February 20, 2004, the DHS HR Design Team issued the proposed Human
Resource system. The system is hailed as a long overdue system that will
lead DHS into the 21^st^ century and will help combat terrorism. The
system is intended to move past the antiquated General Schedule, which
is not seen as a system that attracts and maintains a highly skilled and
motivated workforce or a system that recognizes and rewards performance.
The system is also intended to ensure due process and protect basic
employee rights.

I certainly applaud the design teams' efforts to create a system that
would solve all of the problems that we face today. Unfortunately, the
design team has concocted a system that would only work in a utopian
society. No employer wants employees that do not live up to
expectations. Every employer wants his or her employees to be happy and
produce as much output as possible while at the same time maximizing
profits, i.e. the perfect business model. Unfortunately, DHS is not a
business.

Obviously, it is difficult to argue against the proposed system too much
due to the fact that there are no specific details. There are no details
of salary points in each band. There are no clear definitions of how a
CBP Officer will be rated. Will an officer be rated by the number of
arrests, seizures, or refusals he has? Will he be rated by the number of
statistics he produces? If so, do CBP Officer who are in special
operation teams going to be rated better because special op teams
normally yield better statistics as where a CBP officer assigned to the
port of entry will have less statistics? Who will get the better raise?
Who will be considered an expert? There are no answers to the
aforementioned questions because there are no details in the proposed
regulations. One gets the feeling that there are no details for a
reason. If there are no details, then employees cannot argue on hard
facts about the new system. If there are no arguments from employees,
then the system should theoretically pass. Once the system passes, then
employees will be relegated to whatever plan DHS sees fit. One would
think that the government would want to save money, not spend more,
therefore employees would in the long run not receive as much money as
in the General Schedule.

I begin by writing about concerns that many others and I have with the
proposed regulations.

# Job Evaluation

On page 30 of the proposed HR system, there is a section on Job
Evaluation, which states that "In coordination with OPM, DHS will
establish *broad* occupational clusters by grouping occupations and
positions that are similar in terms.." This statement is running from
the idea that employees may have very select jobs. The word "*broad"*
could mean that CBP Officers will be lumped into a cluster with Special
Agents and or Federal Air Marshals (FAMS). Yes, they are all considered
law enforcement officers, but CBP Officers do drastically different jobs
than Special Agents and FAMS.

The fact is that Federal Air Marshals, according to Brock Meeks of
MSNBC, are having a hard time with recruitment and retention due to
marshals becoming "disillusioned with the program. Among the most
frequent complaints: inadequate training, scheduling problems that force
some marshals to fly solo instead of with a partner and unhappiness with
the realities of a job portrayed to them as something more than an
airborne security guard."

Later on in the same section, the guidelines state that "within each
occupational cluster, DHS (in coordination with OPM) will establish
broad salary ranges." Once again the word *"broad"* is used. This
wording leads one to believe that the design team believes that the
ranges in the General Schedule are too narrow. If that is the case, then
the *"broad"* bands will mean less money for each raise. This simply
will not do.

# Pay and Pay Administration

On page 33 of the proposed HR system, the guidelines state that pay
adjustments will fall into three general categories: market-related
adjustments comprising annual rate range adjustments and locality pay
supplements, annual performance-based pay increases, and other
individual adjustments.

Under market-related adjustments, it states that "Under criteria to be
developed by DHS, an employee whose performance is unacceptable and who
does not receive annual market adjustments may have those adjustments
granted prospectively if performance improves to the fully successful
level or better." Traditionally, market-related adjustments have been
considered increases due to inflation whether national or regional.
These adjustments have always been across the board. They have never
been part of one's performance or raise. This is certainly a problem
that many have with the new system and is considered to be completely
unfair if not blatantly defiant to the whole purpose of cost of living
and inflationary adjustments.

This leads me to discuss what DHS calls a "performance pay pool." The
example given is that there are 100 employees for whom the performance
pay pool is determined to be \$84,390. After the calculations, each
point would get \$435. Once again, the design team has failed to realize
that this is a double-edged sword. If more people receive higher
ratings, then the amount that each point receives lessens. How can the
design team have missed such an easy mathematical calculation? One can
only wonder if the design team thinks that its exceptional employees are
lacking in their mental thinking. I give the following as examples of
what a true fallacy the employees of DHS are being force-fed:

Example A:

100 Employees

Performance Pool=\$84,390

10 Employees @ "fully successful"

10 Employees @ "exceeds fully successful"

80 Employees @ "outstanding"

Value of each point=\$284.14 (Not \$435 as in the DHS HR example)

Example B:

100 Employees

Performance Pool=\$84,390

19 Employees @ "fully successful"

5 Employees @ "exceeds fully successful"

76 Employees @ "outstanding"

Value of each point=\$328 (Not \$435 as in the DHS HR example)

Example C

100 Employees

Performance Pool=\$84,390

80 Employees @ "fully successful"

10 Employees @ "exceeds fully successful"

10 Employees @ "outstanding"

Value of each point=\$649.19 (Not \$435 as in the DHS HR example)

Under this plan, it would be better for the group of employees to all
just meet "fully successful" expectations than for all of the employees
to be "outstanding." Is this not contrary to the whole idea that the DHS
design team had in the beginning.

Obviously, I realize that examples A and B probably will not happen.
Even so, it is a possibility. If the goal is for the country to be as
safe as it can be, then everyone must work above 100%. Therefore, it is
a possibility that a majority of employees could receive outstanding
ratings.

Later, on page 35, the guidelines talk about how an employee may receive
a raise, but if that raise goes beyond their band maximum, then that
individual will be granted a lump sum to compensate for the encroachment
across the band maximum. In theory, this sounds great. The only problem
is that lump sums are taxed at a greater percentage than receiving a
standard raise like everyone else. This lump sum is also a way for the
government not to fully reward their employees in the long run. For
example, an employee receives his raise. His raise will not go away next
year. It is a raise. It will count towards his retirement and so on.
Another individual just receives a lump sum. He may or may not receive
another one next year. It will not count in the long run towards his
retirement.

On page 34, each employee would be rated by their supervisor. Gladly,
the design team recognized that managers should not have control
regarding the amount of pay performance increases. Unfortunately,
managers are the ones giving points which in the end figures in to the
mathematical calculations of pay pools. Once again, the design team is
trying to pull the wool over its employees' eyes by talking a good talk,
yet they have no answer for the actual problem.

On page 37, the guidelines state that generally, a promotion increase
will be fixed at 8%. Concerning CBP Officers, a normal raise under the
General Schedule is considerably more. An 1890 CBP Officer in legacy
Customs was considered journeyman Grade 11. A Grade 9 CBP Officer will
jump to a Grade 11 after a full year. That promotion increase is 17%.
How can the new system only give out 8%? This will not only hurt CBP
Officers in the short-term, but in the long-term as well. There will be
less money contributed to the TSP therefore, when an agent comes to
retirement, he will have considerably less money. This is unspeakable
what the new system will do to CBP Officers who give their lives day in
and day out for the United States of America.

It is evident that DHS is going to profit by taking percentages of
raises away from employees and use that money for the *award money*. DHS
is robbing Peter to pay Paul, so to speak.

On page 36, the regulations read, "Employees in an Entry/Developmental
band will receive pay adjustments as they acquire the competencies,
skills, and knowledge necessary to advance to the target Full
Performance band." Later on, the regulations state, "Under the new
system, DHS will be able to advance an employee through the
Entry/Developmental band to the target Full Performance band without
regard to the limits and constraints of the GS system, such as
time-in-grade restrictions and rigid salary setting rules."

Upon first examination of the aforementioned statements, it seems like a
good idea. The problem with this rule is that it will be possible for an
individual to be hired and after say 6 months (instead of a rigid
probationary period like in the GS), the individual could be moved from
Entry Level to Full Performance. The individual may even deserve to be
moved, but this will cause other employees to question their manager as
to why that person was given more opportunities to learn and or use the
knowledge he received. For instance, employees will now fight to receive
training even more than now, because the more training an individual
receives the better chance of receiving a raise. This simple example
could bring about infighting and backbiting within a group, office, and
or agency. This would truly be detrimental to the goal of DHS.

Another serious problem with the proposed system is that employees
cannot plan their lives out properly. If there is no set pay schedule
and raises are subject to budget constraints, people will not know what
percentage of their pay they should send to the TSP. The GS schedule is
clearly defined and laid out so an individual who is hired can
immediately know how much he will be paid by the time he/she retires.
This knowledge allows the individual to plan for a family, which
includes a house, college educations, cars, and retirement.

The proposed pay system is certainly unclear, and not helpful in helping
an employee plan out his life and the lives of his family.

# Managers and Evaluations

As discussed before, managers will be evaluating those employees under
his supervision. There is no doubt that the ratings are tied to what
little raise there is. This marriage is one that can bring about
catastrophic consequences. Some of the consequences are stated as
follows:

-Backbiting amongst groups to get a better rating

-CBP Officers clamoring for statistics that will have no impact on the
defending of the country

-Hatred for one another if someone else gets a better rating

-Hatred for the supervisor, which could lead to mutinies

-Hatred for authority above supervisor if nothing is done to correct
bias

-Disgruntlement for agency as a whole

On the other hand, a supervisor will not want to rate his group to hard
because the group may mutiny. If the group mutines, the supervisor looks
incompetent thereby potentially costing him/her a good rating thereby
lowering his raise.

Another problem with tying ratings to pay is that employees will be
afraid to stand up for what is right. Employees will be fearful that
their boss may not agree which may have adverse effects on their rating
when the time comes. This undermines the whole goal of having an agency
where intelligent people feel that they are helping make decisions and
improving the their agency.

# Pay for Performance in Government vs. Private Sector

There are obvious problems with pay for performance in Government
agencies as opposed to the Private Sector.

A government is not selling a widget. A government does not receive its
budget based on the sales of the year before. The government receives
its budget based on taxes as well as other avenues like appropriations
from Congress. The government cannot say that there are 10 million
people in the U.S. and studies have shown that 40% of those people are
criminals and each agent should arrest 1 criminal per 13 hours.

On April 1, 2003, Jacqueline Simon, Public Policy Director for the
American Federation of Government Employees, AFL-CIO, testified before
The House Committee on Government Reform Subcommittee on Civil Service
and Agency Organization regarding the replacing of the General Schedule
with pay for performance. In her testimony, she cites Professor Jeffrey
Pfeffer, a professor in Stanford University's School of Business, is an
expert in the field of Pay for Performance. Pfeffer states that "despite
the evident popularity of this practice, the problems with individual
merit pay are numerous and well documented. It has been shown to
undermine teamwork, encourage employees to focus on the short term, and
lead people to link compensation to political skills and ingratiating
personalities rather than to performance. Indeed, those are among the
reasons why W. Edwards Deming and other quality experts have argued
strongly against using such schemes.

Consider the results of several studies. One carefully designed study of
a performance-contingent pay plan at 20 Social Security Administration
(SSA) offices found that merit pay had no effect on office performance.
Even though the merit pay plan was contingent on a number of objective
indicators, such as the time taken to settle claims and the accuracy of
claims processing, employees exhibited no difference in performance
after the merit pay plan was introduced as part of a reform of civil
service pay practices. Contrast that study with another that examined
the elimination of a piece work system and its replacement by a more
group-oriented compensation system at a manufacturer of exhaust system
components. There, grievances decreased, product quality increased
almost tenfold, and perceptions of teamwork and concern for performance
all improved."

Ms. Simon goes on to say that compensation consultants like the William
M. Mercer Group report that just over half of employees working in firms
with individual pay for performance schemes consider them \"neither fair
nor sensible\" and believe that they add little value to the company.
The Mercer report says that individual pay for performance plans \"share
two attributes: they absorb vast amounts of management time and
resources, and they make everybody unhappy.\"

One further problem cited by both Pfeffer and other academic and
professional observers of pay for performance is that since they are
virtually always zero-sum propositions, they inflict exactly as much
financial hardship as they do financial benefit. In the federal
government as in many private firms, a fixed percentage of the budget is
allocated for salaries. Whenever the resources available to fund
salaries are fixed, one employee's gain is another's loss. What
incentives does this create? One strategy that makes sense in this
context is to make others look bad, or at least relatively bad.
Competition among workers in a particular work unit or an organization
may also, rationally, lead to a refusal on the part of individuals to
share best practices or teach a coworker how to do something better. Not
only do these likely outcomes of a zero-sum approach obviously work
against the stated reasons for imposing pay for performance, they
actually lead to outcomes that are worse than before.

Marc Holzer, a Rutgers University professor and president of the
American Society for Public Administration, states that pay for
performance programs "do more damage than good." He goes on to state,
"They set up competition between people. They emphasize the individual
rather than the team. Virtually all innovations are group efforts. Yes,
the exceptional person should be rewarded. But that exceptional person
is dependant on others, on support services, which is often ignored."

CBP Officers have a job classification that is very hard to objectively
rate. A job classification cannot tell a CBP Officer to arrest 10
terrorists a week. There is a certain possibility that there are only 10
terrorists in the United States. A CBP Officer's work may be busy some
months and then not so busy other months. Officers do not have the type
of work where is something is always consistent. We are to go after
major crime syndicates, drug kingpins, and terrorist cells. If a system
sets up competition between CBP Officers, then there may come a time
where an officer needs help from another and the other officer doesn't
necessarily want to help because he has his own issues and he wants to
be rated highly.

Pat Lancaster, the chairman of Lantech, is quoted in Pfeffer's book,
[The Human Equation: Building Profits by Putting People
First]{.underline}, "Incentive pay is toxic.... By the early nineties, I
was spending 95 percent of my time on conflict resolution instead of on
how to serve our customers."

There is no question in my mind that the lawsuits that will be generated
due to real or perceived inequality by individuals/groups will stagnate
DHS to the point of worrying about problems within the agency rather
than worrying about keeping America safe.

# Possible Solutions

There are a number of solutions, to include a. Keep the GS As Is, b.
Modify the GS, and c. Grandfather Employees Into Proposed System.

# 

# Advocate of the General Schedule

I start out by discussing the General Schedule that was established as a
result of the enactment of the bipartisan Federal Employees Pay
Comparability Act (FEPCA) in 1990. The General Schedule is not
antiquated like the proponents of the new system say. The General
Schedule has been modified numerous times with the latest feature being
the locality pay system. Unfortunately, this feature has not even been
around a decade.

FEPCA also introduced pay flexibilities into the never-changing General
Schedule:

-special pay rates for certain occupations

-critical pay authority

-recruitment and retention flexibilities that allow hiring above the
minimum step of any grade

-paying recruitment or relocation bonuses

-paying retention bonuses of up to 25% of basic pay

-paying travel and transportation expenses for new job candidates and
new hires

-allowing new hires up to two weeks advance pay as a recruitment
incentive

-allowing time off incentive awards

-paying cash awards for performance

-paying supervisory differentials to GS supervisors whose salaries were
less than certain subordinates covered by non-GS pay systems

-waiver of dual compensation restrictions

-changes to Law Enforcement pay

-special occupational pay systems

-pay flexibilities available to Title 5 health care positions, and more.

## Awards

One example of the underutilization of the GS revolves around Quality
Step Increases (QSI). FEPCA retained agencies' authority for, which
allows managers to reward employees who exhibit outstanding performance.

Quite frankly, the problem is not the General Schedule, but those who
oversee the system and the appropriations to manage the system properly.
For instance, some individuals in an office are no doubt the hardest
workers in the office and everyone knows it, but they may not receive a
QSI whether due to budget constraints or the fact that management does
not know how to utilize this reward.

It is well known that certain agencies routinely allow enough QSI's for
each office so that each squad or group can give out a QSI every year
rather than one or two for a whole office. That operation would be
considered clearly defined and consistent.

## 

## Misconception About Time-In-Grade

Proponents of the new system say that Time-In-Grade raises automatically
give raises to individuals whether they deserve them or not. The
aforementioned misconception could not be farther from the truth.

The GS only allows individuals to receive their raise if the Supervisor
gives the okay. In theory, a Supervisor is not going to give the okay to
someone who is not performing at an optimal level. This feature should
just be enforced so employees do not think that they deserve a full
raise just because another year has passed.

The misconception about time-in-grade is just another example how the HR
Design Team and or Proponents of terminating the GS did not do their
homework.

## 

# Modify the General Schedule

The aforementioned solution is that awards that are already in place in
the GS should be modified, such as more money for QSI's, cash awards,
and on the spot awards.

Another modification that should satisfy all is to use the ratings
process in the proposed HR System in the GS to determine if an employee
moves to the next step or grade. I agree that employees that do not give
their all should not automatically receive a full grade raise, but a
simple modification to the GS would allow an under performing employee
either stay at his current level or to only go to the next step or two
instead of a full grade. If the employee corrects his performance, then
he could receive the full raise.

Grandfather in All Employees Hired Before Implementation of Proposed HR
System

Another option to transferring all employees to the new HR System is to
grandfather in all employees hired before the implementation of the new
HR System. Employees hired before the implementation of the new system
were hired for the GS. It would be a great disservice to these employees
to pull the rug out from under them and move them to a totally new and
unfair system.

Any employee who is hired after the implementation of the new system
will know what they are getting themselves into. They cannot say that
they were hired under one plan and also cannot say that they are being
treated unfairly.

If DHS feels that they must absolutely force a new system into place,
then the Grandfather option would be the fairest option and would
alleviate employees' worries as well as keep morale high in DHS.

# Conclusion

In conclusion, I implore DHS to consider either keeping the GS system as
it is, modifying the GS system, or Grand fathering employees into the
new system otherwise, DHS will have to deal with 110,000 employees who
are a part of an agency that will possibly have:

1.  Low morale

2.  Backbiting of employees

3.  Individualized effort instead of team effort

4.  Countless lawsuits

5.  Underpaid employees

The result of doing anything other than the options that have been
presented will no doubtedly hinder DHS' goal of maintaining a safe
America where employees enjoy coming to work, enjoy their coworkers, and
feel that they can safeguard their country without compromising the
quality of their life.

Do not make the mistake such as Hewlett-Packard did in the early 1990's.
Harvard Business School Professor Michael Beer studied the 13 pay for
performance plans that HP used. Within 3 years, HP had dropped all 13
pay for performance plans.

Do not hurt the employees who give their lives protecting the United
States of America by implementing a plan and then abandoning it.

Treat DHS employees with respect and dignity by keeping the General
Schedule so employees can plan for their futures while they defend the
futures of Americans.