Appendix A: Panel Members

**Costis Toregas (Chair),** President, Public Technology, Inc. Former
Vice President and Program Director, Public Technology, Inc.;
Consultant, Doxiadis Systems Development Corp.

**G. Edward DeSeve,** Managing Partner, American Government Management.
Former Partner and National Industry Director, Federal Government, for
the Health Care & Public Sector Practice, KPMG; Acting Deputy Director
for Management, and Controller, Office of Federal Financial Management,
Office of Management and Budget; Chief Financial Officer, U.S.
Department of Housing and Urban Development; Special Assistant to the
Governor, Commonwealth of Pennsylvania; President, American Capital
Group; Managing Director, Merrill Lynch Capital Markets, New York.
Former positions with the City of Philadelphia, Pennsylvania: Analyst
and Deputy Director, Community Renewal Program; Assistant to the
Director of Finance; Deputy Director of Finance for Budget; Director of
Finance.

**Martin Faga**, President and Chief Executive Officer, The MITRE
Corporation. Former positions with The MITRE Corporation: Executive Vice
President and Director, Department of Defense Federally Funded Research
and Development Center (FFRDC); Senior Vice President and General
Manager, Center for Integrated Intelligence Systems; Member, Technical
Staff. Former Assistant Secretary of the Air Force for Space Director,
National Reconnaissance Office, U.S. Air Force; Professional Staff
Member, House Permanent Select Committee on Intelligence.

**Rosslyn S. Kleeman,** Distinguished Executive‑in‑Residence, Department
of Public Administration, School of Business and Public Management,
George Washington University. Former Staff, Office of Presidential
Personnel, The White House; Director, Federal Workforce Future Issues
and Senior Associate Director, General Government Division, U.S. General
Accounting Office; Project Director, U.S. Office of Management and
Budget, President\'s Advisory Council on Management Improvement; Acting
Director and Deputy Director, Women\'s Action Program, U.S. Department
of Health, Education, and Welfare.

**Singleton Beryl McAllister,** Partner , Patton Boggs, LLP; Former
General Counsel, U.S. Agency for International Development. Former
Counsel, Shaw, Pittman, Potts & Trowbridge; Partner, Reed Smith Shaw &
McClay; Senior Counsel, Committee on the Budget, U.S. House of
Representatives; Judicial Law Clerk to Jack E. Tanner, U.S. District
Court for the Western District of Washington; Special Assistant to
Congressman Mickey Leland; Legislative Director to Congressman William
H. Grey, III; Assistant Director, TransAfrica, Inc.; Legislative
Assistant to Congressman Parren Mitchell

**Franklin S. Reeder,** President, The Reeder Group. Former Director,
Office of Administration, The White House. Former positions with the
U.S. Office of Management and Budget: Deputy Associate Director for
Veterans Affairs and Personnel; Assistant Director for General
Management and Deputy Assistant Director; Chief, Information Policy
Branch and Deputy Chief; Policy Analyst; Chief, Systems Development
Branch. Former Deputy Director, House Information Systems and member of
the Committee Staff, Committee on House Administration, U.S. House of
Representatives. Former positions with the U.S. Department of the
Treasury and the U.S. Department of Defense focusing on information
technology and systems.

**Bernard Rostker,** Senior Fellow, RAND. Former Under Secretary of
Defense (Personnel and Readiness), and Special Assistant to the
Secretary of Defense for Gulf War Illnesses, Medical Readiness, and
Military Deployment, U.S. Department of Defense. Former Under Secretary
of the Army, Department of the Army. Former positions with the
Department of the Navy: Department of the Navy: Assistant Secretary for
Manpower and Reserve Affairs; Principal Deputy Assistant Secretary of
the Navy for Manpower and Reserve Affairs; Former Director of the
Selective Service System. Former positions with RAND Corporation:
Director of the Defense Manpower Research Center of the National Defense
Research Institute; Program Director of the Force Development and
Employment Program and Associate Director of the Arroyo Center; Program
Director of the Project Air Force Manpower, Personnel and Training
Program.

**Gordon Sherman,** Director, Fidelity National Bank. Former positions
with Social Security Administration, Atlanta Region: Regional
Commissioner; Deputy Regional Commissioner, Principal Staff Officer,
Office of Atlanta Regional Commissioner; Administrative and Staff
Assistant. Various directorships on several bank boards and both profit
and non-profit organizations as well as civic associations.

Appendix B: Project Leadership Committee Members

# Co-Chairs: **Gloria Parker**, CIO, HUD

**Ira Hobbs**, Acting CIO, Agriculture

Public Members: **Executive Branch**

Army **Miriam Browning**

> Director, Army Information Management Directorate

HHS **Evelyn White**

Deputy Assistant Secretary for Human Resources

State **Fernando Burbano**

Chief Information Officer

> **Patricia A. Popovich**
>
> Deputy Chief Information Officer for Management and Customer Service

Treasury **Kay Frances Dolan**

Deputy Assistant Secretary for Human Resources

**Fred Thompson**

Assistant Director, Customer Service Consulting

Office of the Chief Information Officer

VA **Robert Bubniak**

Acting Secretary for Information and Technology

Public Members: **Judicial Branch**

Administrative **Charlotte G. Peddicord**

#  Office of the Chief, Human Resources Division

#  US Courts

US Courts **Tony Anastas**

#  Clerk of Court District Court Boston, MA

Private Sector Members:

AFCEA **Jean Callahan**

Director of Human Resources

BoozAllen&Hamilton

ITAA **Anne Altman**

Managing Director

> IBM Federal

IAC **Renato (Renny) DiPentima**

President, Consulting and Systems Integration

> SRA International

**Appendix C: Project Methodology**

At the outset of this study, the Academy formed two groups to provide
expert guidance and oversight.

The Academy Fellows Panel consists of nine Fellows who are knowledgeable
in the issues and problems associated with attracting and retaining well
qualified IT personnel to carry out the work of the federal government.
The group includes individuals from the private and public sectors. The
Panel met frequently with the Academy Project Team to participate in all
phases of this project and to exercise its oversight role.

The Project Leadership Committee (PLC) was formed to provide the Academy
Project Team with insight and reaction to the research findings and the
compensation system design alternatives, as well as to serve as a
feedback mechanism to the respective organizations on the progress of
the study. The Committee is led by the two co-chairs of the CIO
Council\'s IT Workforce Committee and is comprised of federal public
sector individuals with IT, human resources, financial and line
management experience, in addition to private sector individuals whose
knowledge and experience in the recruitment and retention of IT talent
will be helpful in shaping solutions.

The specific study tasks include research (Phase I) and design of
alternative compensation models and other human resource systems (Phase
II).

## Research Phase Methodology

The research phase of this study was carried out using the following
methodology:

-   **Project Team Subgroups:** The Academy Project Team broke into five
    separate subgroups for purposes of collecting data and conducting
    research: 1) Federal Government; 2) non-Federal Public Sector -
    State and Local Governments, International Governments, Non-Profit
    Institutions; 3) Private Industry and Academia; 4)
    Compensation/Salary Surveys; and, 5) Legislative and Regulatory
    Review.

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-   **Research Questions:** General questions were outlined for the
    first contact with compensation or human resources managers for
    public and private sector organizations. After using this set for
    the initial discussions, the Academy Project Team determined which
    organizations warranted follow-up contacts and designed more
    specific research questions for both the compensation managers and
    the chief IT managers .

-   **Interviews:** Extensive individual and group interviews were
    conducted via telephone or in-person with compensation managers,
    human resources directors, IT chiefs and other appropriate persons
    from federal agencies, state and local governments, international
    governments, non-profit institutions, professional
    societies/associations, private industry, colleges and universities.

-   **Literature Search:** An extensive literature search was made on
    the Internet and from books, reports and issuances from academia,
    professional societies/associations and other identified sources.
    All articles, reports and materials were carefully read and
    summarized by Project Team members who, in turn, shared the
    summaries with other Team members. The listing of results of this
    exhaustive literature review is found in, ***Appendix D***.

-   **Benchmarking Best Practices:** Benchmarking studies focusing on
    the recruitment and retention of IT workers, particularly in
    non-federal organizations, were collected, analyzed and shared with
    Team members, the Fellows Panel and the Project Leadership
    Committee. Additional information on best practices was obtained
    during the literature search, interviews and from other sources;
    these best practices were further studied by the Project Team for
    potential application in the design phase. Charts of the results of
    the benchmarking and best practices\' analyses for the various
    private sector companies and governmental entities is located in
    ***Appendix I.***

-   **Workforce Trends:** Information on the demographics of the federal
    IT workforce as well as IT and general occupational trend data were
    gathered from a number of sources. They include:

> \- U.S. Office of Personnel Management;

-   Bureau of Labor Statistics, U.S. Department of Labor;

-   Information Technology Association of America;

-   Bureau of the Census, U.S. Department of Commerce;

-   The Council of State Governments;

-   National Association of State Information Resources Executives;

-   National Association of State Personnel Executives;

-   Society for Human Resources Management;

-   International Personnel Management Association; and,

> \- WorldatWork (formerly, American Compensation Association);

-   **Other External Sources:** Other external sources of research data
    and relevant information were identified and contacted. The U.S.
    General Accounting Office recently completed an Executive Guide:
    *Maximizing the Success of Chief Information Officers* which covers
    human capital issues for public and private sector CIO\'s. The
    Project Team met on-site with GAO officials to discuss their
    interview notes and findings. The organizations listed above under
    Workforce Trends provided not only demographics and workforce trend
    data but also publications recently issued on the IT workforce.
    Other studies including the review of compensation and pay for the
    Administrative Offices of the U.S. Courts, Computerworld\'s 2000
    Salary Survey, and the Council of State Governments\' report on
    *Hiring and Keeping IT Employees in State Government* were reviewed
    and analyzed In addition, numerous sources of expert information on
    current human resources issues in both public and private sectors
    shared their knowledge of the trends in employment of the IT
    workforce.

-   **Legislative and Regulatory Review:** The Project Team has
    identified and reviewed relevant laws, regulations, policies and
    procedures to confirm what flexibilities and constraints currently
    exist. Particular attention has been focused on the Federal
    Employees Pay Comparability Act (FEPCA) and the occupational pay
    system components of that law since this is the only existing
    legislation that may provide the needed flexibility to structure a
    new approach to IT pay.

-   **Compensation/Salary Surveys*:*** The Project Team researched the
    various types of survey instruments and groups conducting the
    surveys to assess the validity, quality and appropriateness of all
    types. Included in this review is an evaluation of the current
    Bureau of Labor Statistics (BLS) approach to data collection and
    reporting used for General Schedule occupations.

## Alternative Compensation Models Phase

The second phase of the project was carried out by using the following
methodology:

-   **Project Team Subgroup:** A small subgroup of the Project Team
    analyzed the research findings and other appropriate compensation
    data. Based on this subgroup\'s analysis, it developed three
    different compensation models to serve as the basis for discussion
    and refinement of alternatives.

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-   **Focus Groups:** Seven separate focus groups, totaling 88
    participants, met on-site at the Center for Human Resources
    Management to discuss the alternative compensation models and
    related human resources issues. The participants were grouped
    according to: HR Specialist; Financial/Budget Specialist; IT Program
    Management; IT Specialist; IT Manager; Senior IT Professional; and,
    Junior IT Professional. Participants represented a cross-section of
    large and small departments/agencies as well as the judiciary.

-   **Colloquium:** A distinguished group of experts from the private
    and public sectors were gathered to discuss the future of
    information technology, its impact on organizations, and its impact
    on human resources management policies and practices. This group was
    also asked to review the alternative compensation models and to make
    recommendations on improvements and changes to the models.

**Appendix D: Literature Review**

**RESEARCH FOR PUBLIC SECTOR**

\"Abundant Career Opportunities Projected in Information Technology\",
Monthly Labor Review, October 28, 1998.

*America\'s New Deficit: The Shortage of Information Technology
Workers,* Department of Commerce, Office of Technology Policy, 1997,
Updated January 1998.

\"Attracting and Retaining Top-Performing Technology Employees,\"
IEEE-USA Careers Conference, November 2000.

\"Best Practices in Improving IT Staff Competencies,\" GIGA Research and
Information Group, December 1998.

Brandel, Mary, \"Rising in Riches,\" *ComputerWorld*, September 2000.

*Bridging the Gap: Information Technology Skills for a New Millenium*,
Information Technology Association of America, December 1999.

\"Broadbanding the IT Worker,\" *ComputerWorld*, October 2000.

\"Building the 21^st^ Century IT Workforce,\" Information Technology
Association of America, 2001.

Cappelli, Peter, \"A Market-Driven Approach to Retaining Talent,\"
*Harvard Business Review*, January - February 2000.

*Competing for Federal Jobs: Job Search Experiences of New Hires*, Merit
Systems Protection Board, 1999.

\"Critical Success Factors for Implementing Broadbanding in Complex
Organizations,\" *American Compensation Association News*, February
1999.

Davis, John, and Harris, Cyndi, \"Retaining Your Hot Skills Employees -
Use Dollars AND Sense\", *American Compensation Association Journal*,
First Quarter 2000

Dunham, Kemba, \"Dot-Commers Go Where Profits Truly Don\'t Matter,\"
*Wall Street Journal*, 2001.

*Executive Guide: Maximizing the Success of Chief Information Officers,*
Exposure Draft, General Accounting Office, March 2000.

Gilhooly, Kym, \"Global Glamour,\" *ComputerWorld,* November 1999.

Giunta, Celeste, \"New Approaches for Compensating the Information
Technology Knowledge Worker,\" *Cause/Effect*, Volume 20, Number 2,
Summer 1997.

\"High-Technology Employment: A Broader View,\" Monthly Labor Review,
June 1999.

\"IT Recruitment and Retention Benchmarking Study,\" International
Personnel Management Association/National Association of State Personnel
Executives, 2000.

*IT Retention: How to Attract and Retain Worldclass Talent in a
Competitive Market*,\" ComputerWorld Reports, January 2000.

\"Job Benefits That Matter Most to IT Workers,\", *InformationWeek*,
April 26, 1999.

Kauffman, Tim, and Robb, Karen, \"IT Pay Raise Falls Short of Full
Fix,\" *Federal Times*, November 20, 2000.

Mayor, Tracy, \"Making a Federal Case of IT,\" *CIO Magazine*, July 1,
1999.

*Meeting the Federal IT Workforce Challenge*, Federal CIO Council,
Education and Training Committee, June 1999.

Morneau, Jill, \"Unemployed Dot-Commers,\" *TechWeb Finance*, January
26, 2001.

Nicolai, Anne, \"The Road to Riches,\" *Public HR*, February 26, 1999

Occupational Outlook Handbook, Bureau of Labor Statistics, 2000.

Parus, Barbara, and Handel, Jeremy, \"Companies Battle Talent Drain,\",
*Workspan*, September 2000.

*Private Sector Compensation Practices*, US Office of Personnel
Management, February 2000.

Raths, David, \"Get Creative About It Recruiting,\" *InfoWorld*, July
24, 2000.

\"Recruitment - Current Practices,\" IT Market Compensation Study,
People3 Inc., Gartner Group, 2000.

\"Recruitment Firm Practices,\" IT Market Compensation Study, People3
Inc., Gartner Group, 2000.

Roberts, Kristin, \"Dot-Com Demise Benefits Other Industries,\"
zdnet.com, December 23, 2000.

\"Salary Survey: Pay Up,\" *InformationWeek*, April 26, 1999.

*Technical Difficulties: Hiring and Keeping IT Employees in State
Government*, The Council of State Governments, 2000.

\"Tech Talent Search: Pilot Training Project Among Recruitment Ideas,\"
*The Dallas Morning News*, April 1999.

\"Tech Workers and Where to Work,\" *Journal of City & State Public
Affairs*, 2000.

*The Changing Nature of Work: Rapid Advances in Information Technology*,
Human Resources Institute, 1998.

*The Digital Work Force: Building Infotech Skills at the Speed of
Innovation*, U.S. Department of Commerce, Office of Technology Policy,
June 1999.

\"The New Successful Workforce,\" *ComputerWorld*, 2000.

*Worldwide IT Trends & Benchmarks*, META Group, 2000.

Zemke, Ron, and Reid, Patrice, \"How to Attract and Retain World-Class
Talent in a Competitive Market,\" Synet Service Corporation, 2000.

# **Appendix D: Literature Review**

###### RESEARCH FOR FEDERAL SECTOR

Anselmo, Joseph C. "CIA Tech Recruiting Strong, "[Washington Post --
Washtech.com,]{.underline} Jan. 8, 2001.

Bachler, Christopher J., "How to tackle the IT worker shortage,"
[Workforce]{.underline}, Jul. 1998, Vol. 77 (7): 52-7.

CBO (Congressional Budget Office), [Comparing the Pay and Benefits of
Federal and Nonfederal Executives]{.underline}, Agency document, Nov.
1999.

CBO (Congressional Budget Office), [Changes in Federal Civilian
Employment: An Update]{.underline}, Agency document, Jun., 1999.

CBO (Congressional Budget Office), [Comparing Federal Salaries with
Those in the Private Sector, Agency document]{.underline}, Jul., 1997.

CBO (Congressional Budget Office), [Changes in Federal Civilian
Employment, Agency document]{.underline}, Jul. 1996.

Clark, Timothy B., "The grading game," [Government
Executive]{.underline}, Mar. 2000, Vol. 32(3):6

DOC (Department of Commerce), [Strategic Information Technology Plan:
FY2000 to FY2005]{.underline}, National Telecommunications and
Information Administration, Jan. 2000.

DOD (Department of Defense), [Shaping The Civilian Acquisition Workforce
of the Future]{.underline}, Agency document: the acquisition 2005 task
force final report, Oct. 2000.

DOD (Department of Defense), [Future Acquisition and Technology
Workforce]{.underline}, Agency document, Apr. 2000.

Dukart, James R., "CIO Council speaks for IT in government,"
[Signal]{.underline}, Feb. 2000, Vol.54 (6): VG3.

Dukart, James R. "Showcasing government IT initiatives brings out the
best products and practices," [Signal]{.underline}, Jun. 1999, Vol. 53
(10): VG8

Executive Office of the President of the United States: [Government-wide
Summary of Information Technology Spending for FY 1998, 1999, and
2000]{.underline}, Agency document, Apr. 1999.

Figura, Susannah Z., "The human touch," [Government
Executive]{.underline}, Sept. 2000, Vol. 32 (11): 22-7.

Figura, Susannah Z., "Leadership void," [Government
Executive]{.underline}, Sept. 1999, Vol. 31(9):20-4.

Flyzik, James J. [Building a Strategic Plan to Improve Information
Technology Skills]{.underline}, Agency document: a report to the
Secretary of the Treasury, Mar. 2000.

Flyzik, James J. [Responding to the Crisis in Information Technology
Skills]{.underline}, Agency document: report to the Secretary of the
Treasury, Feb. 1999.

GAO (General Accounting Office), [Observations on the Office of
Personnel Management's Fiscal Year 1999: Performance Report and Fiscal
Year 2001 Performance Plan]{.underline}, Agency document, Jun. 2000.

GAO (General Accounting Office), [Human Capital: Using Incentives to
Motivate and Reward High Performance]{.underline}, Agency document, May
2000.

GAO (General Accounting Office), [Human Capital: Design, Implementation,
and Evaluation of Training at Selected Agencies,]{.underline} Agency
document, May 2000.

GAO (General Accounting Office), [Implementing Effective CIO
Organizations]{.underline}, Agency document, Mar. 2000.

Gartner Group, [2000 IT Market Compensation Study]{.underline}, People 3
Inc., 2000.

Glister, Paul, "HR certification's technology gap,"
[Workforce]{.underline}, May 2000: 72-80.

HCFA (Health Care Financing Administration), [The Health Care
Infrastructure Improvement Act of 2000 and HCFA's Information Technology
Architecture]{.underline}, Agency document, Jul. 2000.

HHS (Department of Health and Human Services), [Building Successful
Organizations: Workforce Planning in HHS]{.underline}, Agency document,
Nov. 1999.

Hobbs, Ira and Gloria Parker, [Meeting the Federal IT Workforce
Challenge]{.underline}, CIO Council Education and Training Committee
Report, June 1999.

Hornestay, David, "The human factor," [Government
Executive]{.underline}, Feb. 1999, Vol. 31(2):39-42.

HRTC (Human Resources Technology Council), [Governmentwide Human
Resources Information Systems]{.underline}, Agency Document, Dec. 1999.

Lachance, Janice R., [Higher Pay for Information Technology
Workers]{.underline}, OPM agency document, Nov. 2000.

Light, Paul C., "Does management matter?" [Government
Executive]{.underline}, Feb. 1999, Vol. 31(2):6

Mears, Carol Ann and John F. Sargent, Jr., [The Digital Work Force:
Building Infotech Skills at the Speed of Innovation]{.underline}, U.S.
Department of Commerce Technology Administration, Office of Technology
Policy, June 1999.

MSPB (Merit System Protection Board), [Competing for Federal Jobs: Job
Search Experiences of New Hires]{.underline}, A report to the President
and the Congress of the United States, 1999.

NAPA (National Academy of Public Administration), [Development of
"Competency Tracks" for CIC IT Workforce,]{.underline} A report to CDC,
2001 (in progress).

NAPA (National Academy of Public Administration), [Evaluation of
Personnel Delegations: Year Four Report National Institutes of
Health,]{.underline} October, 2000.

NAPA (National Academy of Public Administration), [Implementing Real
Change in Human Resources Management: The Case for Transforming
Public-Sector Human Resources]{.underline}, July, 2000.

NAPA (National Academy of Public Administration), [Building Successful
Organizations: A Guide to Strategic Workforce Planning]{.underline},
May, 2000.

NAPA (National Academy of Public Administration), [Building the
Workforce of the Future to Achieve Organizational Success,]{.underline}
December, 1999.

NAPA (National Academy of Public Administration), [Personnel Reform in
the Federal Aviation Administration]{.underline}, A report for the
Congress, August, 1999.

NAPA (National Academy of Public Administration), [Entry-Level Hiring
and Development for the 21^st^ Century: Professional and Administrative
Positions]{.underline}, November, 1999.

NAPA (National Academy of Public Administration), "Report calls for
federal government to give high priority to 'hiring tomorrow's leaders
today,'" [News,]{.underline} November, 1999.

NAPA (National Academy of Public Administration), [HRM Systems in the
U.S. Patent and Trademark Office,]{.underline} January, 1998.

NAPA (National Academy of Public Administration), [Innovations and
Flexibilities: Overcoming HR System Barriers]{.underline}, August, 1997.

NAPA (National Academy of Public Administration), [Implementing Real
Change in Human Resources Management Phase III: Practical Tools \--
Downsizing the Federal Workforce: Effects and Alternatives,]{.underline}
March 1997.

NAPA (National Academy of Public Administration), [New Options, New
Talent: The Government Guide to the Flexible Workforce,]{.underline}
1997.

NAPA (National Academy of Public Administration), [Effective Downsizing:
A Compendium of Lessons Learned for Government
Organizations]{.underline}, 1996.

NAPA (National Academy of Public Administration), [Baseline External
Assessment of DOE Efforts to increase the Technical Capability of Its
Civil Service Technical Workforce in Defense Nuclear
Facilities]{.underline}, A human resources management staff report for
the department of energy, August, 1994.

NAPA (National Academy of Public Administration), [Implementing Real
Change in Human Resources Management: Alternatives for Federal
Agencies,]{.underline}August, 1994.

O'Hara, Colleen, "Survey reconfirms IT staffing woes -- OPM: Agencies
struggle to hir, retain," [FCO.COM]{.underline}, Sept. 2000.

OPM (Office of Personnel Management): [Private Sector Compensation
Practices]{.underline}, Agency document, Feb. 2000.

Steen, Margaret, "Project managers a must for IT success,"
[InfoWorld]{.underline}, Feb. 1998, Vol. 20 (6): 87.

Stone, Martin, "Gov't IT Workers Get Pay Raises," [Washington Post --
Washtech.com]{.underline}, Jan. 8, 2001.

Treasury Department, [Final Report: Treasury Department Senior IT
Management Assessment]{.underline}, Agency document, Dec. 1998.

USPS (United States Postal Service), [USPS 5 Year Strategic Plan:
FY2001-2005]{.underline}, Agency document, Dec. 2000.

VA (Department of Veterans Affairs), [HR: In-Process
Review]{.underline}, Agency document, Jun. 2000.

# **Appendix D: Literature Review**

##### RESEARCH FOR PRIVATE SECTOR

Allen, Claudia, \"Finding Technical Talent When Demand Outpaces
Supply.\" *Journal of Career Planning and Employment* (Summer 1997):
21-23, 43-44.

Blodgett, Mindy. \"Fast Forward: What\'s the Key to Success in a
Technology-Driven Economy? In a word, People.\" CIO Magazine (August 15,
1999): 46-58.

Boudreau, John W., Sturman, Michael C., Trevor, Charlie O., Gerhart,
Barry. *Is it Worth it to Win the Talent War? Using Turnover Research to
Evaluate the Utility of Performance-Based Pay*. Center for Advanced
Human Resource Studies, Working Paper 99-06.

Capelli, Peter. \"A Market-Driven Approach to Retaining Talent.\"
*Harvard Business Review* (Jan/Feb 2000): 103-111.

Clark, Kim. \"Why It Pays to Quit\". *U.S. News and World Report*,
November 1, 1999. 74 - 86.

Davis, John, and Harris, Cyndi. \"Retaining Your Hot Skills
Employees\--Use Dollars AND Sense\". *ACA Journal*, First Quarter 2000.

Ellis, Christian M., and McCutcheon, Jeff. \"Critical Success Factors
for Implementing Banding in Complex Organizations\". *ACA News*,
February 1999.

Foote, David. \"Non-Cash Rewards and Incentives: Secret Weapons in the
High-Tech Staffing Wars\". *ACA Journal*, Winter 1998.

Gerhart, Barry, and Milkovich, George T., *Employee Compensation:
Research and Practice*. Center for Advanced Human Resource Studies,
Working Paper 92-26.

Greene, Robert J., \"The Impact of Occupational Culture on Rewards
Strategy\". *ACA Journal*, Third Quarter 1999.

Gross, Steven E. \"What\'s a Compensation Manager to Do in Era of Full
Employment?\". *ACA News*, Nov/Dec 1998.

Healy, Andrea. \"Figuring Out Generation X: How to Attract and Motivate
the Newest Generation of Employees\". *ACA News*, February 1998.

*Hewitt Hot Skills Survey Teleconference*, June 2000.

Ledford, Gerry, Mulvey, Paul, and LeBlanc, Peter. *The Rewards of Work:
What Employees Value*, Sibson & Company and WorldatWork, September 2000.

Milkovich, George T., Tomorrow\'s Compensation and Rewards Shaped by
Today\'s Choices. Center for Advanced Human Resource Studies, Working
Paper 92-34.

Moad, Jeff. \"Ford Rebuilds IT Engine.\" *PC Week*, January 28, 2001.

Morneau, Jill. \"Back to Basics For Unemployed Dot-Commers.\" *TechWeb
Finance*. 26 Jan. 2001
\<<http://www.techweb.com/wire/finance/story/INV20010126S0005>\>.

Platt, Rodney K. \"The Big Picture at Big Blue\". *workspan* (formerly
*ACA News*), August 2000.

Shand, Dawne. \"Broadbanding the IT Worker\". *Computerworld*, October
2000.

Smith, Anne Kates. \"Charting Your Own Course\". *U.S. News and World
Report*, November 6, 2000.

Stross, Randall E., \"Employers Beg for Technie Help in the Valley.\"
*Fortune* (July 21, 1997): 98-102.

Tulgan, Bruce. *Battle Plan for Recruiting the Workforce of the Future*,
New York: W.W. Norton, 2000.

Tulgan, Bruce. *Winning the Talent Wars: How to Manage and Compete in
the High-Tech, High-Speed, Knowledge-Based, Superfluid Economy*, New
York: W.W. Norton, 2001.

Tulgan, Bruce and Martin, Carolyn. Rainmakerthinking newsletters for
2000 and 2001 \<http://www.rainmakerthinking.com/printnewsltr.htm\>

U.S. General Accounting Office. *Maximizing the Success of Chief
Information Officers: Learning from Leading Organizations*.
GAO/AIMD-00-83. Washington, D.C.: March 2000 (note: Exposure Draft).

U.S. Office of Personnel Management/Strategic Compensation Policy
Center. *Private Sector Compensation Practices*. Compensation Policy
B80BT627. Washington, D.C.: February 16, 2000.

Watson Wyatt Worldwide. *Strategic Rewards: New Employment Deals*,
Fourth Annual Survey Report, 1999/2000.

Watson Wyatt Worldwide. *WorkUSA 2000: Employee Commitment and the
Bottom Line*, January 2000.

Wright, Patrick M., Dyer, Lee, and Takla, Michael G., *Execution: The
Critical \"What\'s Next?\" in Strategic Human Resource Management*.
Center for Advanced Human Resource Studies, Working Paper 99-11.

Zingheim, Patricia K, and Schuster, Jay R. \"Rewards for Scarce
Information Technology Talent\". *ACA Journal*, Fourth Quarter 1999.

#### Appendix E:

**LEGAL AND REGULATORY REVIEW OF PAY AUTHORITIES RELATING TO INFORMATION
TECHNOLOGY**

This document reviews relevant statutory and regulatory areas relating
to pay authorities that might apply to information technology (IT), with
a view towards implications which may affect adoption of recommendations
by the National Academy of Public Administration in a study of IT
compensation strategies. The study identifies two compensation models,
Model One: Modified General Schedule and Model Two: Market-Based System,
as approaches to enable the government to compete for IT talent. This
document provides support for the recommended approaches.

No specific statutory or regulatory impediments were found; however,
some statutory and regulatory considerations affecting the recommended
approaches will be addressed where appropriate.

The following statutory and regulatory sources and human resource
flexibilities were reviewed:

**FEDERAL EMPLOYEES PAY COMPARABILITY ACT (FEPCA) OF 1990, P.L.
101-509.**

The FEPCA provides rules for pay in the Federal Government. IT covers
areas such as basic pay, adjustments to statutory pay rates,
locality-based pay, comparability pay, pay authority for critical
positions, differentials and special pay rates. It also covers awards,
allowances/bonuses, special rates for law enforcement officers,
Administrative Law Judges, and members of the Contract Appeals Board;
reemployment of retirees and other compensation matters. The Act
provides broad coverage on pay issues but also contains certain
limitations on amounts, time and circumstances in which payments can be
made depending upon the category of pay involved.

This statute is significant in regard to recommendations in the IT study
since it provides legal authority for some of the key areas addressed in
the two Models. An

analysis of some of the areas as they apply to the two models is
appropriate. Model One: Modified General Schedule maintains the current
General Schedule grades and pay levels and makes a few changes. It
eliminates steps within grades; allows for starting pay and
noncompetitive promotions to be based on performance and acquisition of
new and/or higher level competencies; combines two or more grades into
one grade; and calls for a Federal-wide competency framework. This Model
maintains elements of the current General Schedule system and allows for
locality pay, special pay rates, bonuses, and awards. Title I, Section
101 of the FEPCA allows for automatic across-the-board increases for
annual adjustments to pay (cost of living adjustments (COLAs)) and for

locality-based comparability pay for certain geographical areas. The Act
allows for

within-grade (step) increases and noncompetitive promotions based on
performance

and time-in-grade. These tend to be automatic increases, as long as
performance is

fully successful or satisfactory. FEPCA would limit Model One since
Model One

would eliminate steps within grades and step increases and would base
increases to

pay on performance and/or acquisition of new or higher level
competencies. Simi-

larly, FEPCA would pose some limitations in combining grades and
creating pay

ranges in Model One. In Title I, FEPCA also provides for special pay
rates, which

would support a similar aspect of Model One.

Other areas of consideration are the bonuses and competency framework in

Model One. In Title II, FEPCA provides for recruitment, relocation and
retention bonuses. Since Model One contains these features, it would be
consistent with FEPCA in these areas. FEPCA, however, limits these to
25% of base pay. The Federal-wide competency framework under Model One
could pose a different structure in identification and performance
measurement of IT positions, since it could conflict with the current
classification system which supports FEPCA.

Model Two: Market-Based System provides a broad, flexible pay system
which

makes major changes to the current system and places strong emphasis on
performance

and competencies in a market-focused environment. Its features are: five
levels or

grades with a broad pay range associated with each level; pay ranges
linked to pay for

comparable positions in the market; no across-the-board increases; pay
increases and

promotions based on acquisition of new and/or higher competencies and
performance

results; appointment in the excepted service; IT specialties linked to
the five levels;

generic description of duties, eliminating the current classification
system; salaries

commensurate with market-based experiences and competencies; a
Federal-wide

competency framework; and a variety of bonuses. This Model is designed
to afford

flexibility in attracting and retaining IT professionals and strengthen
managerial responsibility for salary budgets.

The limitations of FEPCA become more apparent when applied to this
market-

based approach to managing IT pay comparability. Increases in pay under
FEPCA,

such as the annual COLAs, automatic locality pay to all affected
employees in a

geographical area, step increases and noncompetitive promotions would
limit

Model Two. This model provides for an annual salary survey as the basis
for adjust-

ing pay levels and ensuring market alignment. It would eliminate the
COLAs and

step increases covered under FEPCA. Noncompetitive promotions, as in
Model One,

would be based on new and/or higher competencies and performance
results. Salary

schedules for different geographic areas would be based on the market.
Availability

and use of a variety of bonus options would be consistent with FEPCA.
However,

this market-based system would be hampered by FEPCA in the limitation on
25% of

base pay for the bonuses. Under Model Two, managers would need
considerable

flexibility and authority to set starting pay and determine amounts of
bonuses. FEPCA,

with its base pay cap, could limit their authority to set, manage and
balance their

responsibility for salary budget and limit their ability to manage the
resources needed

to support recruitment, hiring and retention.

**INFORMATION TECHNOLOGY MANAGEMENT REFORM ACT (ITMRA) OF 1996 (ALSO
KNOWN AS THE CLINGER-COHEN ACT OF 1996).**

The Clinger-Cohen Act provides for the acquisition, use and disposal of
information technology in Federal programs to improve productivity,
efficiency and effectiveness of Federal programs. Its goal is to reform
acquisition laws and IT management of the Federal government. It
requires agency heads to establish procedures

to select, manage and control their IT programs and investments. It
addresses

information resources management (IRM) and highlights the need for
well-developed and well-trained information resources managers.

Division E, Section 5124(c)(3) addressees the information resources
management (IRM) skills portion of the Act. It requires the Chief
Information Officer (CIO) of an agency to have IRM duties and to:

\"(3) annually, as part of the strategic planning and performance
evaluation process required\...

\(a\) assess the requirements established for personnel regarding
knowledge and skill in information resources management and the adequacy
of such requirements for facilitating the achievement of the performance
goals established for information resources management;

> \(b\) assess the extent to which positions and personnel at the
> executive level of the agency and the positions and personnel at the
> management level of the agency below the executive level meet those
> requirements;

\(c\) in order to rectify and deficiency in meeting those requirements,
develop strategies and specific plans for hiring, training and
professional development; and

\(d\) report to the head of the agency on the progress made in improving
information resources management capability.\"

This section of the Act on IRM skills provides support for the further
requirement in the Act that CIOs provide advice and assistance to senior
managers to ensure that IT is acquired and managed efficiently and
consistent with the Paperwork Reduction Act; develop and maintain
implementation of a sound integrated IT architecture; and monitor
performance of IT programs/projects and evaluate them with appropriate
performance measures. These requirements are designed to ensure that
agencies have processes in place to ensure effective implementation of
IT programs. The Models recommended in this study are supported by this
Act, particularly in their focus on competencies, performance
management, results, and training of IT professionals. The development
and use of the Federal-wide IT competency framework in the models is
very consistent with this Act.

**EXECUTIVE ORDER 13111 OF JANUARY 12, 1999, USING TECHNOLOGY TO IMPROVE
TRAINING OPPORTUNITIES FOR FEDERAL GOVERNMENT EMPLOYEES, 64 F.R. 2793
(1/15/99).**

This Executive Order established the President\'s Task Force on Federal
Training Technology, consisting of several agency or department heads,
to provide leadership regarding the effective use of technology to
improve training opportunities for federal

employees. The goals are to take steps to enhance employees\' training
opportunities using training technology and exploring options for
financing this training and post-secondary education. These are needed
to upgrade skills and gain new knowledge. It also provides for
partnerships among federal agencies and other appropriate entities to
promote sharing and use of training opportunities and technology.

**WORKFORCE INVESTMENTS ACT OF 1998, P.L. 105-220, AUGUST 7, 1998.**

This is an Act to consolidate, coordinate, and improve employment,
training, literacy and vocational rehabilitation programs. It provides
for coordination between federal, state, and local entities on workforce
investment systems and activities. It has

linkages with other programs such as veterans\' employment, individuals
with disabilities and older Americans Act programs. It established a
Twenty-First Century Commission to address the role of information
technology in relation to the continued prosperity of the U. S. economy.

**THE GOVERNMENT PERFORMANCE AND RESULTS ACT (GPRA) OF 1993, P.L. 103-62
\[S.20\], AUGUST 3, 1993.**

The GPRA was enacted for the following purposes:

(1.) to improve public confidence in the capability of the federal
government; (2.) to establish program performance reform, setting,
measuring and reporting on program goals; (3.) to improve federal
program effectiveness and accountability by focusing on results; (4.) to
improve service delivery; (5.) to improve congressional decision-making;
and (6.) to improve internal management of the Federal government. All
of these factors have a bearing on the development and management of a
sound IT pay system in the Federal government, particularly in view of
the Act\'s emphasis on strategic planning. This reinforces the need for
the human resources management aspect of IT to be aligned with agency
mission in strategic planning.

**TITLE 5 AUTHORITIES AND FLEXIBILITIES.**

The following are Title 5 authorities and flexibilities currently
available for use in addressing recruitment, hiring and retention of IT
professionals. They are supported by FEPCA and might be used with each
recommended model of this IT pay study in accordance with OPM
guidelines.

**5 CFR 213, SUBPART A, EXCEPTED SERVICE APPOINTMENTS.**

Excepted Service appointments may be made using special authorities such
as Schedules A, B, and C. Schedule A appointments are authorized by the
Office of Personnel Management for positions other than those of a
confidential or policy- determining character when it is not practical
to examine using standards and requirements established for the
competitive service. Examples are attorneys, law clerk trainees, PMI\'s,
and people with disabilities. Schedule A appointments cannot be made to
positions in the Senior Executive Service (SES). Schedule B appointments
are authorized for positions other than those of a confidential or
policy-determining character when it is not practical to hold a
competitive examination. An example is an appointment in the Student
Educational Employment Program. Schedule C appointments are authorized
for positions which are of a confidential or policy-determining nature.
An example is an appointment involving a close and confidential working
relationship with an agency head.

Section 213.104 provides for temporary intermittent or seasonal
appointments in Schedules A, B, and C. Temporary appointments may not
exceed 1 year, unless the

applicable schedule provides otherwise. Agencies may extend the
temporary appointment for more than 1 year. OPM may approve extension of
specific temporary appointments beyond 2 years due to major
reorganizations, base closings or other rare and unusual circumstances.

**5 CFR 213.3102 (r), INTERNSHIP OR FELLOWSHIP PROGRAMS IN THE**

**EXCEPTED SERVICE.**

This section allows for Schedule A appointments to be made in support of

programs involving (1) internships or fellowships that provide
developmental or pro-

fessional experience to individuals who have completed their formal
education;

\(2\) training and associateships designed to increase the pool of
candidates in a part-

icular occupational specialty; (3) professional industry exchange
programs that pro-

vide cross-fertilization between the agency and the private sector; etc.
Appointments

may not exceed 4 years.

**CIVIL SERVICE DUE PROCESS AMENDMENTS, P.L. 101-376, AUGUST 17, 1990**

Section 2, paragraph 7511(a)(c)(iii) of this Act provides excepted
service appeal rights for individuals, other than preference eligibles,
in the excepted service to the Merit Systems Protection Board. Such
individuals are employees who have completed 2 years

of current continuous service in the same or similar positions in an
Executive agency under other than a temporary appointment limited to 2
years or less. Paragraph 7511(b)(3) provides that an employee in the
excepted service and covered by Subchapter II of Chapter 75 who has been
reduced in grade or removed under this Section is entitled to appeal to
the MSPB.

These excepted service provisions provide another avenue for appointing
employees in the Federal government. Excepted Service appointments with
Not-To-Exceed (NTE) dates can be used in the IT areas under our models.
However, the appeal rights given in the Act place some limitations on
the analogy of the private sector \"Employment-At-Will\" doctrine to
excepted service appointments in the Federal government..

**5 CFR 213.3202, STUDENT EDUCATIONAL EMPLOYMENT PROGRAM - STUDENT
TEMPORARY EMPLOYMENT PROGRAM (STEP) AND STUDENT CAREER EXPERIENCE
PROGRAM (SCEP).**

This regulation provides authority to appoint graduate and undergraduate
students in the excepted service under the two components (STEP) and
(SCEP). Agencies can appoint students who are enrolled in or have been
accepted for enrollment in at least a

part-time schedule at an accredited institution. STEP appointments
cannot exceed one year and cannot be converted to permanent. SCEP
appointments may be noncompetitively converted to
career/career-conditional appointments within 120 days of completing
academic requirements.

**5 CFR 304, EXPERT AND CONSULTANT APPOINTMENTS.**

This regulation provides for employment of experts or consultants on a
temporary or intermittent basis. The appointment is in the excepted
service under 5 U.S.C. 3109 to perform work that does not exceed one
year or is intermittent.

**5 CFR 316, SUBPART C, TERM EMPLOYMENT.**

This regulation provides for the use of term appointments for one to
four years when the need for an employee\'s services is not permanent.
Reasons for making the appointment include project work, extraordinary
workload, reorganization, and contracting out of the function. Any of
these resource issues could affect the need for IT professionals.

**5 CFR 316, SUBPART D, TEMPORARY LIMITED EMPLOYMENT.**

This regulation provides for the use of temporary appointments for short
term needs that are not expected to last longer than one year, of
Veteran Readjustment Appointments that are used to appoint veterans in
the excepted service, and of streamlined student employment programs for
meeting future workforce needs.

**5 CFR 530, SUBPART C, SPECIAL SALARY RATE SCHEDULES FOR**

**RECRUITMENT AND RETENTION**

OPM may establish higher special salary rates for an occupation or group
of

occupations locally or nationwide when it determines that it is
necessary to overcome

existing or likely significant handicaps in the recruitment or retention
of

well-qualified personnel.

**5 CFR 531.203 (b), SUPERIOR QUALIFICATION APPOINTMENTS.**

This provision allows for appointments above the minimum rate because

of the superior qualifications of the candidate or a special need of the
agency for

the candidate\'s services.

**5 CFR 553, SUBPART B, REEMPLOYMENT OF CIVILIAN AND MILI-**

**TAY RETIREES.**

Dual compensation laws prohibit reemployed civilian and military
retirees

from receiving the full combined value of their salaries and annuities.
This provision allows OPM to waive the dual compensation prohibition on
a case-by-case

basis when an agency has difficulty recruiting or retaining a candidate.

**5 CFR 572, TRAVEL AND TRANSPORTATION EXPENSES FOR**

**INTERVIEWS AND NEW APPOINTMENTS**

An agency may pay travel and transportation expenses for a pre-employ-

ment interview or for a new appointee to first duty post.

**5 CFR 575, SUBPART A, RECRUITMENT BONUSES**

An agency may pay a lump-sum recruitment bonus of up to 25 percent

of an employee\'s annual rate of basic pay. The employee must sign a
written

service agreement to complete a specified period of employment with the
agency.

**5 CFR 575, SUBPART B, RELOCATION BONUSES**

An agency may pay lump-sum relocation allowances of up to 25 percent

of an employee\'s annual basic rate of pay for an employee who must
relocate to

fill a position that otherwise would be difficult to fill.

**5 CFR 575, SUBPART C, RETENTION BONUSES**

An agency may pay biweekly payments of up to 25 percent of a current

employee\'s annual basic rate of pay to an individual or up to 10
percent of basic

pay to a current group of employees if the unusually high or unique
qualifications

of the employees or a special need of the agency for the employees\'
services makes

it essential to retain the employees, and the agency determines that the
employees

would be likely to leave in the absence of the retention allowance

.

**5 CFR 595, PHYSICIANS COMPARABILITY ALLOWANCES**

Section 595.101 authorizes the payment of allowances to certain eligible

Federal physicians who enter a service agreement with their agencies.
The allowances

are paid in cases where the agency is experiencing recruitment and
retention problems.

Section 595.104 provides that a significant recruitment problem exist
when there is an

unacceptably high turnover rate; the qualification requirements being
used to consider

candidates for vacant positions are less than the qualifications
actually needed to per-

form the work; the agency has made efforts to recruit qualified
candidates for the

vacant positions and to retain physicians presently employed in the
category needed;

and a significant number of qualified candidates is not available to
fill the vacancies in the category at the rate of pay the agency may
offer if no comparability allowance is

paid. This provision helps meet the special needs of the VA to attract
qualified employees with professional and technical expertise needed by
the agency to carry out its mission.

**EXAMPLES OF NON-TITLE 5 AUTHORITIES AND FLEXIBILITIES**

The following are examples of non-Title 5 authorities and flexibilities

used in other occupations in various agencies to address pay,
recruitment, hiring and retention issues. Other occupations such as
judicial, law enforcement and research also have pay authorities and
flexibilities broader than Title 5.

These below, although not exhaustive, represent some of the existing
occupations which require and use special pay systems in the Federal
government. They lend support to the efforts involving the IT
profession.

**TITLE 38, VETERANS BENEFITS**

The Department of Veterans\' Affairs (VA) was established under

38 U. S. C. 210 note. It operates programs to benefit veterans and
members of their families. Benefits include compensation payments for
disabilities or death related to military service, pensions, education
and rehabilitation, burial and medicare incorporating nursing homes,
clinics and medical centers.

OPM may delegate use of Department of Veterans Affairs personnel

authorities under Title 38 of the United States Code to help recruit and
retain

physicians. Under these authorities, agencies may use special salary
rates,

premium pay, qualifications-based grading system, and physician special

pay authorities.

**FINANCIAL INSITUTIONS REFORM, RECOVERY, AND ENFORCEMENT ACT (FIRREA)
OF 1989, P. L. 101-73, AUGUST 9, 1989.**

This Act provides for the abolishment of the Federal Savings and Loan

Insurance Corporation (FSLIC) and the Federal Home Loan Bank Board\
(FHLBB) and the transfer of functions, personnel and property to other
financial institutions such as the Federal Deposit Insurance Corporation
(FDIC), the

Office of Thrift Supervision or the Federal Housing Finance Board. It
revamped

regulation and insurance of depository financial institutions in
response to the

savings and loan crisis. It is a complex statute with numerous
provisions. The

key provision which supports this IT pay study is Section 1206,
Comparability

Compensation Schedules. This section allows affected financial
institutions to

establish and adjust compensation and benefits outside of Title 5.

Section 1206 provides:

\"The Federal Deposit Insurance Corporation, the Comptroller of the
Currency,

the National Credit Union Administration Board, the Federal Housing
Finance

Board, the Oversight Board of the Resolution Trust Corporation, the Farm
Credit

Administration, and the Office of Thrift Supervision, in establishing
and adjust-

ing schedules of compensation and benefits which are to be determined
solely by

each agency under applicable provisions of law, shall inform the heads
of the

other agencies and the Congress of such compensation and benefits and
shall

seek to maintain comparability regarding compensation and benefits.\"

This section of the Act allows these financial institutions to set pay
and

benefits under separate laws pertaining to each agency. This delegation
of

authority to agencies is a significant aspect of the Act. Each of these
agencies

determines the scope and parameters of pay and benefits consistent with
FIRREA.

This section of FIRREA gives broad flexibility to these financial
institution to

establish and manage pay and benefits and ensure comparability across
the

agencies. This is more representative of the market-based approach to
pay en-

visioned in Models One and Two of the IT pay study. Each of these
agencies

must factor in market-based considerations across agency lines and
externally to

maintain comparability of pay and benefits. It appears that FIRREA
allows

greater flexibility than FEPCA in determining, solely by each agency,
the types

of compensation schedules and benefits and in setting pay beyond the
traditional

General Schedule.

**DEPARTMENT OF TRANSPORTATION AND RELATED APPROPRIATIONS ACT OF 1996,
P. L. 104-50, NOVEMBER 15, 1996.**

During the early 1990\'s, the Federal Aviation Administration (FAA)

undertook personnel reform. Several national studies indicated that the

FAA mission requirements, workforce characteristics and customer
expectations demanded a flexible personnel system unique to the FAA. It
historically

functioned under Title 5 like most federal agencies. This Act gave the
FAA personnel management flexibility and exempted it from most of the
provisions of Title 5. The FAA has the authority to develop personnel
systems tailored to its unique needs and culture. One of the basic
tenets of the FAApersonnel system is its emphasis on intellectual
capital to increase employeesatisfaction and organizational performance
and support agency and line of business strategic plans. This same
principle should apply to the IT profession.

**OTHER RELEVANT SOURCES REVIEWED**

**CIVIL RIGHTS ACT OF 1964, TITLE VII, P. L. 88-352, JULY 2, 1964**

**AND OTHER LAWS RELATING TO DIVERSITY**

This Act prohibits discrimination in employment on the basis of race,
color, sex (including sexual harassment), religion or national origin.
Both this

Act and the 1991 Civil Rights Act are relevant to the IT study because
they

provide statutory consideration of these categories, which will also
apply to

any pay system developed for the IT profession. This is similarly true
of laws

governing Americans with Disabilities, Age Discrimination, Equal Pay and

Equal Employment Opportunity regulations.

**OMB, CIRCULAR NO. A-130. MANAGEMENT OF FEDERAL INFORMATION RESOURCES**

This circular provides uniform government-wide information resources

management policies as required by the Paperwork Reduction Act of 1980,
as

amended by the Paperwork Reduction Act of 1995, P.L. 104-13, 44 U. S. C.

Chapter 35.

**OPM, HUMAN RESOURCE FLEXIBILITIES AND AUTHORITIES**

**IN THE FEDERAL GOVERNMENT, http://www.opm.gov.**

**OPM, RECRUITING AND RETAINING IT PROFESSIONALS, http://**

**www.opm.gov.**

**OPM, PRESIDENTIAL MANAGEMENT INTERN PROGRAM, established**

**by Executive Order in 1977, expanded to include the IT profession.**

**PRESIDENTIAL TASK FORCE ON FEDERAL TRAINING TECHNOLOGY, REPORT TO THE
PRESIDENT ON TECHNOLOGY: TRANSFORMING FEDERAL TRAINING, JULY, 2000.**

##### Appendix F:

######  TITLE 5 - EXEMPT AGENCIES

The following agencies / organizations are exempt in whole or in part
from Title 5:

Tennessee Valley Authority

United States Postal Service

Federal Aviation Administration

Metropolitan Washington Airport Authority

Smithsonian Institution \-- Trust Employees

Botanical Garden

Federal Reserve Board

Federal Deposit Insurance Corporation

Office of Thrift Supervision

Office of Comptroller of the Currency

Sallie Mae

Office of Federal Housing Enterprise

Library of Congress

General Accounting Office

Government Printing Office

Office of the Architect of the Capital

The Peace Corps

Foreign Agricultural Service

Department of State \-- Foreign Service

Veterans Health Administration

Atomic Energy Commission

Nuclear Regulatory Commission

National Security Agency

Central Intelligence Agency

Defense Intelligence Agency

National Imagery and Mapping Agency

Defense Exchange System

Virgin Islands Corporation

Appendix G: Interview Questions

**Part I. Background on the Company**

1.  What types of information technology occupations exist in your
    organization (i.e., mission-focused or support; professional or
    administrative)?

2\. What are your major HR concerns for your IT occupations/employees?

**Part II. Pay and Rewards for IT Occupations/Employees**

1.  What are the basic principles/goals driving your compensation system
    for IT occupations?

2.  How do you set starting pay for employees in IT occupations? Who has
    the authority to set starting pay?

3.  Do you use bonuses, awards, premiums, or other approaches to
    supplement pay for IT employees? If so, what kinds, how do you
    determine who qualifies, how does the bonus work, and who has
    authority to award?

-   signing/hiring bonus

-   retention bonus

-   referral bonus

-   on-the-spot awards

-   hot skills or tech pay premiums

-   paid overtime

-   team bonuses

-   variable pay

-   stock options

4.  Does your reward system for IT occupations include any
    quality-of-life features? If so, which ones and how do they work?

-   telecommuting

-   flex-time

-   special projects

-   paid time off

-   child care/child care referral/back-up child care

5.  About what amount of time does an IT employee spend in training over
    a one-year period? What kinds of training/career development
    benefits do you provide for IT (e.g., tuition reimbursement,
    company-sponsored training, sabbaticals, etc.)?

6.  Do you offer any other forms of rewards or benefits that you
    consider special or unique? If so, can you describe?

7.  In your opinion, what elements of your reward system are most
    effective in recruiting and retaining high-performing IT employees?

8.  To what extent are knowledgeable IT workers involved in actively
    recruiting for IT professionals in your organization? Please
    describe any marketing strategies they use to explain your
    organization's IT opportunities to potential candidates (e.g. at job
    fairs, colleges, universities, etc.).

**Part III. Other Work Dimensions/Factors**

1.  Are any employees in your IT occupations in unions? If so, what
    impact does this have on your compensation and reward system?

2.  For IT employees, what special approaches do you use related to work
    content, coaching/mentoring, special recognition, exposure to new
    technologies, rapid integration into the work force, knowledge
    sharing, etc.?

3.  What changes in your human resource management program, if any, do
    you think would improve your ability to attract and retain
    high-performing IT employees?

4\. Do you have any other comments?

For Compensation Managers

**Part I. Background on the Company**

1\. What is the nature of your business? What business products and/or
services?

2.  How is your company organized (i.e., top level organization
    structure)? How is your IT function organized; how does it fit
    within your general organizational structure?

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3.  What types of IT personnel do you employ (e.g., mission-focused or
    support; professional or administrative)? What other types of
    occupations do you employ?

4.  What are your major HR concerns for your IT occupations/employees?

**Part II. Background on the Company\'s Compensation System(s)**

1.  How many exempt employees are in your company? Are they paid under
    the same compensation system? If more than one, what types of
    employees does each cover?

2.  What are the basic principles driving your compensation system for
    IT occupations?

3.  What is the basic structure/approach to your compensation system for
    IT occupations?

-   number of occupations

-   numbers of levels/grades

-   range spread for levels/grades

-   factors that determine grade/level

-   salary increases and frequency of increases

-   how promotions are determined

4.  What is the basic structure/approach to your compensation system for
    supervisory or managerial IT employees?

5.  What pay surveys do you use to maintain your pay scales for IT
    occupations and how do you use them? How frequently do you adjust IT
    pay?

6.  How do you set starting pay for IT employees? Who has the authority
    to set?

7.  Have you introduced any significant changes in the compensation
    program in the past 3 years? Have you adopted any new policies or
    practices for your IT positions?

8.  In your opinion, what aspects of your compensation system are most
    effective in recruiting and retaining high-performing IT employees?

**Part III. Other Forms of Rewards for IT Occupations**

1.  Do you use approaches to supplement IT pay? If so, what kinds, how
    do you determine who qualifies, how does it work, and who has
    authority to award?

-   signing/hiring bonus

-   retention bonus

-   referral bonus

-   on-the-spot awards

-   hot skills or tech pay premiums

-   paid overtime, team bonuses

-   variable pay, stock options, etc.

2.  Does your reward system for IT occupations include any
    quality-of-life features? If so, which ones and how do they work?

-   telecommuting

-   flex-time

-   special projects

-   paid time off

-   child care/child care referral

-   back-up child care

3.  What kinds of training/career development benefits do you provide
    for IT (e.g., tuition reimbursement, company-sponsored training,
    sabbaticals, etc.)?

4.  Do you offer any other forms of rewards or benefits that you
    consider special or unique? If so, please describe.

5.  In your opinion, what elements of your reward system are most
    effective in recruiting and retaining high-performing IT employees?
    What else do you think would help?

**Part IV. Other Work Dimensions/Factors**

1.  Are any IT employees in unions? If so, what impact does this have on
    your compensation and reward system?

2.  For IT employees, what special approaches do you pursue related to
    work content, coaching/mentoring, recognition, exposure to new
    technologies, rapid integration into the work force, knowledge
    sharing, etc.?

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3.  To what extent are knowledgeable IT workers involved in marketing
    your IT employment opportunities to potential candidates?

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4.  Do you have any other comments?

######### Appendix H: Summary of Research Findings

######## Similarities Among Sectors

From the research, it is clear that private sector companies, state
governments, local governments, academia, international governments and
non-profit institutions are facing the same challenges of locating,
attracting and keeping IT workers to meet the increasing demand for
their talents. Their responses to this problem have been similar in some
respects while quite different in others. While each category has
designed and implemented different programs for the recruitment and
retention of IT workers, there are similarities in the approaches:

-   Bonuses, broad pay ranges and non-pay benefits have been introduced
    and implemented into the compensation structures of companies,
    governments, universities and other organizations in the U.S.

-   Broad banding or pay banding are on the rise in state governments,
    universities and those federal agencies with special authorities.

-   Pay differentials directed to highly specialized IT workers, signing
    bonuses and bonuses for mission-critical projects are other
    offerings by these same employment groups.

> When unable to attract sufficient numbers or quality of skills to
> their organizations, these same employers have moved to outsourcing
> and unclassifying their positions to provide for employees\'
> contracting. Programming and systems analysis are two areas for which
> most outsourcing efforts are targeted.

## Overall Comparison of the Sectors

The chart below reflects a general assessment of the status of the
various sectors included in the research. The level assignments (high,
medium and low) are based on an overall evaluation of data and
information obtained for organizations in each sector, in comparison to
the other sectors. This evaluation does not reflect individual
variations for any factor and is meant to serve only as a general guide.

##  *OVERALL COMPARISON OF COMPENSATION AND WORK FACTORS*

**(L=Low, M=Medium, H=High)**

  ---------------- ----------- ------------- --------------- ----------------- ------------
                   **Salary    **Work-Life   **Rewards/      **Advancement/    **Use of
                   Levels**    Benefits**    Recognition**   Training          Recruiting
                                                             Opportunities**   Tools°**

  **Federal**      **L**       **H**         **L**           **L**             **L**

  **State**        **L**       **M**         **M**           **M**             **M**

  **Local**        **L**       **M**         **M**           **L**             **L**

  **Non-Profit**   **M**       **M**         **M**           **M**             **H**

  **Private**      **H**       **H**         **H**           **H**             **H**

  **Academia**     **M**       **H**         **M**           **M**             **M**
  ---------------- ----------- ------------- --------------- ----------------- ------------

*°includes branding or selling the mission of the organization*

**Due to differences among countries, international governments were not
included in the comparison.**

######## Differences Among Sectors 

Private sector companies have many advantages over the other categories
included in this research. Offerings of stock options and stock grants,
pay above the market, paid time-off and more lucrative signing bonuses
are just some of the benefits that private industry can use. These
additional tools for recruiting and retaining IT workers, especially
those with highly specialized or \"hot\" skills, are placing the public
sector at a real disadvantage in competing for the same people. On top
of these pay differences, the public sector suffers from a poor image of
what it is like to work in the public sector - a perception, whether
right or wrong, that is supported by numerous surveys and reports. The
lengthy hiring processes and civil service bureaucratic rules do nothing
to dismiss or diminish this perception.

Another difference between private sector companies and their public
sector counterparts centers around basic compensation philosophies.
Private sector has moved away from a centralized, one-size-fits-all
approach including the traditional, internal-equity based pay and reward
systems. Current compensation practices in private industry tend to
emphasize pay-for-performance and external competitiveness over internal
equity. Major changes in reward system design focus on paying for
individual competencies versus jobs and moving from a commodity view to
one of investment. Public sector - federal, state and local
governments - continues to base compensation structures on broad labor
market surveys with little room for individual or occupational
differentiation. Special salary rates for targeted occupations are only
implemented after lengthy political and administrative negotiations - to
the point that, by the time they are established, the data on which they
are based may be no longer valid. The information technology occupation
is changing so rapidly that this type of compensation approach is
reactive and too little too late.

######## Use of Competency Models

The introduction of competencies as the basis for selection and
assessment of IT workers is gaining support in the public sector. State
governments are actually ahead of the federal government in this respect
and cite anecdotal information as to the success of competencies in
attracting a better quality of candidate and more accurately matching a
candidate\'s IT skills against the job requirements. The private sector
has effectively used competency models for a number of years as the
foundation for hiring and compensation decisions. Research has
continually shown that this approach supports the private sector\'s
philosophy of rewarding individual performance and targeting special
skill sets for recruitment into IT positions.

Competency modeling in the public sector has been fostered by a
coalition of state human resource directors and OPM as the federal
partner. Their joint efforts to develop computerized assessment and
selection tools based on competency models, as well as their
collaboration in occupational studies, are examples of the value of
inter-governmental partnerships in improving recruitment and retention
strategies for all occupations, but especially for the IT field.

######## Importance of Non-Pay Benefits

One important trend that applies to all sectors of employment is the
desire for challenging work in a supportive environment. Exposure to new
technologies through on-the-job exposure and technical training, career
advancement opportunities, flexible work schedules, family-friendly
benefits, good working relationships with supervisors and co-workers,
and meaningful recognition for good individual and team performance
contribute to IT workers\' decisions on where to work in the IT field.
These non-pay benefits, if used effectively and fairly, can close the
gap for those organizations that are unable to offer lucrative,
high-paying compensation packages. Workers at non-profit organizations
and many government agencies have consistently identified the importance
of a meaningful or even inspiring mission as a major motivator for
remaining in a job where the tangible compensation might be below the
norm. This fact was supported by an Academy Fellows Panel member who
cited the desires of informally surveyed graduate students to work for
such institutions (large or small), based primarily on their exciting,
meaningful missions.

######## Need for Greater Measurement

While there are abundant examples of novel human resources initiatives
at all levels of government and in the private sector to attract and
retain IT professionals, there is also a paucity of information on what
concrete gains have been or are expected to be achieved. That is, the
Academy Project Team found little in the way of specific measures or
indicators, with corresponding baseline data, to capture the impact (or
even the anticipated impact) of recent HR innovations on the goal of
recruiting and retaining IT professionals. Moreover, the Team found
little indication that HR or IT managers had in place a formal process
for gathering outcome information or for tracking results that could
later be used for project evaluation purposes.

Appendix I: Innovative Practices

Federal Agencies

(as of February 2001)

+-------+---------+-------+--------+--------+---------+--------------+
| **Age | **OPM   | **R   | **Inno | **Pay  | **Inn   | **Enhanced   |
| ncy** | IT Pay  | ecrui | vative | B      | ovative | training and |
|       | Scale   | tment | Mar    | anding | recr    | development  |
|       | for GS  | and   | keting | and    | uitment | programs     |
|       | 5 thru  | Rete  | Stra   | other  | pra     | (e.g         |
|       | GS-12   | ntion | tegies | Unique | ctices, | interns,     |
|       | posi    | Bonu  | (br    | Salary | e.g.    | COOP         |
|       | tions** | ses** | anding | Struct | we      | agreement,   |
|       |         |       | , use  | ures** | b-based | c            |
|       |         |       | of IT  |        | adver   | ertification |
|       |         |       | pr     |        | tising, | training,    |
|       |         |       | ofessi |        | decent  | maximizing   |
|       |         |       | onals, |        | ralized | use of       |
|       |         |       | total  |        | se      | lateral      |
|       |         |       | c      |        | lection | assignments  |
|       |         |       | ompens |        | p       | and          |
|       |         |       | ation, |        | rocess, | promotions,  |
|       |         |       | etc)** |        | etc.**  | etc.)**      |
+-------+---------+-------+--------+--------+---------+--------------+
| NIH   | X       | X     |        |        |         |              |
+-------+---------+-------+--------+--------+---------+--------------+
| DOI   | X       |       |        |        |         |              |
+-------+---------+-------+--------+--------+---------+--------------+
| HHS   | X       |       | X      |        |         |              |
+-------+---------+-------+--------+--------+---------+--------------+
| FDIC  | X       |       |        | X      |         |              |
+-------+---------+-------+--------+--------+---------+--------------+
| NIST  |         | X     |        | X      |         |              |
+-------+---------+-------+--------+--------+---------+--------------+
| AIR   |         |       |        |        |         |              |
| FORCE |         |       |        |        |         |              |
+-------+---------+-------+--------+--------+---------+--------------+
| NRL   |         | X     |        | X      |         |              |
+-------+---------+-------+--------+--------+---------+--------------+
| TRE   | > X     | X     |        |        |         |              |
| ASURY |         |       |        |        |         |              |
+-------+---------+-------+--------+--------+---------+--------------+
| PEACE | > X     |       | X      |        | X       |              |
| CORPS |         |       |        |        |         |              |
+-------+---------+-------+--------+--------+---------+--------------+
| VA    | X       |       | X      |        |         | X            |
+-------+---------+-------+--------+--------+---------+--------------+
| OCC   |         |       |        | X      |         | X            |
+-------+---------+-------+--------+--------+---------+--------------+
| CU    | X       |       |        |        |         |              |
| STOMS |         |       |        |        |         |              |
+-------+---------+-------+--------+--------+---------+--------------+
| P     |         | X     | X      | X      | X       | X            |
| OSTAL |         |       |        |        |         |              |
|       |         |       |        |        |         |              |
| SE    |         |       |        |        |         |              |
| RVICE |         |       |        |        |         |              |
+-------+---------+-------+--------+--------+---------+--------------+
| DE    | X       | X     | X      |        | X       | X            |
| FENSE |         |       |        |        |         |              |
| AC    |         |       |        |        |         |              |
| QUISI |         |       |        |        |         |              |
| TIONS |         |       |        |        |         |              |
+-------+---------+-------+--------+--------+---------+--------------+
| AO of |         | X     | X      | X      | X       | X            |
| US    |         |       |        |        |         |              |
| C     |         |       |        |        |         |              |
| OURTS |         |       |        |        |         |              |
+-------+---------+-------+--------+--------+---------+--------------+

Federal Agencies Continued

+--------+--------+-------+--------+--------+---------+--------------+
| **Ag   | **OPM  | **R   | **Inno | **Pay  | **Inn   | **Enhanced   |
| ency** | IT Pay | ecrui | vative | B      | ovative | training and |
|        | Scale  | tment | Mar    | anding | recr    | development  |
|        | for GS | and   | keting | and    | uitment | programs     |
|        | 5 thru | Rete  | Stra   | other  | pra     | (e.g         |
|        | GS-12  | ntion | tegies | Unique | ctices, | interns,     |
|        | posit  | Bonu  | (br    | Salary | e.g.    | COOP         |
|        | ions** | ses** | anding | Struct | we      | agreement,   |
|        |        |       | , use  | ures** | b-based | c            |
|        |        |       | of IT  |        | adver   | ertification |
|        |        |       | pr     |        | tising, | training,    |
|        |        |       | ofessi |        | decent  | maximizing   |
|        |        |       | onals, |        | ralized | use of       |
|        |        |       | total  |        | se      | lateral      |
|        |        |       | c      |        | lection | assignments  |
|        |        |       | ompens |        | p       | and          |
|        |        |       | ation, |        | rocess, | promotions,  |
|        |        |       | etc)** |        | etc.**  | etc.)**      |
+--------+--------+-------+--------+--------+---------+--------------+
| CO     | X      |       | X      |        | X       |              |
| MMERCE |        |       |        |        |         |              |
+--------+--------+-------+--------+--------+---------+--------------+
| ENERGY | X      |       | X      |        |         |              |
+--------+--------+-------+--------+--------+---------+--------------+
| GSA    | X      |       | X      |        |         |              |
+--------+--------+-------+--------+--------+---------+--------------+
| L      | X      |       |        |        |         |              |
| IBRARY |        |       |        |        |         |              |
| OF     |        |       |        |        |         |              |
| CO     |        |       |        |        |         |              |
| NGRESS |        |       |        |        |         |              |
+--------+--------+-------+--------+--------+---------+--------------+
| AGRIC  |        |       |        |        |         |              |
| ULTURE |        |       |        |        |         |              |
+--------+--------+-------+--------+--------+---------+--------------+
| ARMY   |        | X     |        |        | X       |              |
+--------+--------+-------+--------+--------+---------+--------------+
| SOCIAL | X      | X     | X      |        |         |              |
| SE     |        |       |        |        |         |              |
| CURITY |        |       |        |        |         |              |
+--------+--------+-------+--------+--------+---------+--------------+
| STATE  |        | X     |        |        |         |              |
| DEPA   |        |       |        |        |         |              |
| RTMENT |        |       |        |        |         |              |
+--------+--------+-------+--------+--------+---------+--------------+
| OPM    | > X    | X     | X      |        | X       |              |
+--------+--------+-------+--------+--------+---------+--------------+
| DEPA   |        |       |        |        | X       | X            |
| RTMENT |        |       |        |        |         |              |
| OF     |        |       |        |        |         |              |
| J      |        |       |        |        |         |              |
| USTICE |        |       |        |        |         |              |
+--------+--------+-------+--------+--------+---------+--------------+
| DISA   |        | X     | X      |        |         | X            |
+--------+--------+-------+--------+--------+---------+--------------+
| GAO    |        |       | X      |        |         |              |
+--------+--------+-------+--------+--------+---------+--------------+
| FAA    |        |       |        | X      | X       |              |
+--------+--------+-------+--------+--------+---------+--------------+
| IRS    | X      | X     | X      |        | X       | X            |
+--------+--------+-------+--------+--------+---------+--------------+

Appendix I: Innovative Practices

Public Sector: States

  --------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
                        NJ   SC   VA   KS   MN   WS   MO   NV   OR   UT   WA   AZ   TX

  Special Salary Rates/           X              X                   X         X    
  Differential Pay                                                                  

  Broadbanding/              X    X              X                                  
  Paybanding                                                                        

  Recruitment/Signing             X         X    X         X                        X
  Bonuses                                                                           

  Referral Bonuses                          X              X         X              

  Hiring Above Minimum       X    X         X                   X                   
  Rate                                                                              

  Skills Bonus                         X         X         X         X              X

  Skills Acquisition/        X    X    X         X         X                        
  Bonus Pay                                                                         

  Specific or Mission                  X                   X         X              
  Critical Project                                                                  
  Bonus/Pay                                                                         

  Pay for Performance        X    X                                  X              
  Increases                                                                         

  Use of Market Based        X    X                                  X              
  Survey Data                                                                       

  Improvements to       X    X    X    X    X    X    X    X    X    X    X    X    X
  Recruiting and Hiring                                                             
  Processes                                                                         

  Retention bonuses               X              X                                  

  Alternate Work                  X    X    X         X                   X    X    X
  Schedule/ FlexTime                                                                

  Telecommuting                   X    X    X         X         X    X    X    X    X

  Education             X                             X    X    X              X    X
  Reimbursement                                                                     

  Enhanced IT Training/ X    X    X    X    X              X    X         X    X    X
  Employee Development                                                              
  Programs                                                                          

  Employee Contracting  X              X                                       X    

  Base Pay Increase for X         X    X    X              X    X    X    X         X
  IT                                                                                

  Higher Profile                       X                                       X    
  Projects                                                                          
  --------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----

Appendix I: Innovative Practices

Public Sector: States

Other :

NJ simplified classifications by implementing competency-based model

MN reduced waiting period for pay adjustments

WS repeal of several Civil Service recruiting restrictions

MO Deferred Comp, cafeteria plan for benefits

OR Formed IS Cooperative training Program for filling permanent jobs.

WA Enhanced Benefit package

Appendix I: Innovative Practices

Public Sector: Local Government and Universities

<table style="width:100%;">
<colgroup>
<col style="width: 31%" />
<col style="width: 8%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 5%" />
<col style="width: 5%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 7%" />
<col style="width: 8%" />
<col style="width: 8%" />
</colgroup>
<tbody>
<tr class="odd">
<td></td>
<td><blockquote>
<p>Ft Worth, TX</p>
</blockquote></td>
<td><blockquote>
<p>Phoenix, AZ</p>
</blockquote></td>
<td><blockquote>
<p>Virginia Beach, VA</p>
</blockquote></td>
<td><blockquote>
<p>SanDiego, CA</p>
</blockquote></td>
<td><blockquote>
<p>Charlotte, NC</p>
</blockquote></td>
<td><blockquote>
<p>Fairfax County, VA</p>
</blockquote></td>
<td><blockquote>
<p>University of Chicago</p>
</blockquote></td>
<td><blockquote>
<p>Duke University</p>
</blockquote></td>
<td><blockquote>
<p>California State University</p>
</blockquote></td>
<td><blockquote>
<p>University of Pennsylvania</p>
</blockquote></td>
</tr>
<tr class="even">
<td>Special Salary Rates/ Differential Pay</td>
<td>X</td>
<td></td>
<td></td>
<td></td>
<td>X</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td>Broadbanding/ Paybanding</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>X</td>
<td></td>
<td>X</td>
<td>X</td>
<td>X</td>
<td>X</td>
</tr>
<tr class="even">
<td>Recruitment/Signing Bonuses</td>
<td></td>
<td></td>
<td>X</td>
<td></td>
<td>X</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td>Referral Bonuses</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td>Hiring Above Minimum Rate</td>
<td></td>
<td>X</td>
<td>X</td>
<td></td>
<td>X</td>
<td>X</td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td>Skills Bonus</td>
<td>X</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td>Skills Acquisition/ Bonus Pay</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td>Specific or Mission Critical Project Bonus/Pay</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>X</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td>Pay for Performance Increases</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>X</td>
<td></td>
<td>X</td>
<td>X</td>
<td>X</td>
<td>X</td>
</tr>
<tr class="odd">
<td>Use of Market Based Survey Data</td>
<td>X</td>
<td></td>
<td>X</td>
<td>X</td>
<td>X</td>
<td>X</td>
<td>X</td>
<td>X</td>
<td>X</td>
<td>X</td>
</tr>
<tr class="even">
<td>Improvements to Recruiting and Hiring Processes</td>
<td>X</td>
<td>X</td>
<td></td>
<td>X</td>
<td>X</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td>Retention bonuses</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>X</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td>Alternate Work Schedule/ FlexTime</td>
<td></td>
<td>X</td>
<td></td>
<td></td>
<td></td>
<td>X</td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td>Telecommuting</td>
<td>X</td>
<td>X</td>
<td></td>
<td></td>
<td></td>
<td>X</td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td>Education Reimbursement</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>X</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td>Enhanced IT Training/ Employee Development Programs</td>
<td>X</td>
<td></td>
<td></td>
<td>X</td>
<td>X</td>
<td>X</td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td>Employee Contracting</td>
<td>X</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td>Base Pay Increase for IT</td>
<td></td>
<td>X</td>
<td></td>
<td></td>
<td>X</td>
<td>X</td>
<td>X</td>
<td>X</td>
<td>X</td>
<td>X</td>
</tr>
<tr class="even">
<td>Higher Profile Projects</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>X</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>

Appendix I: Innovative Practices

Public Sector: Local Government and Universities

Other:

Phoenix AZ has a Child Care Center

Virginia Beach, VA Relocation expenses

San Diego, CA created non-profit organization for IT support

Appendix I: Innovative Practices

Private Sector

+-----------+---------+--------+--------+---------+---------+--------+
|           | **Large | Large  | **     | **Insu  | **IT    | **IT   |
|           | Defense | D      | Bank** | rance** | Consu   | Prod   |
|           | Contr   | efense |        |         | lting** | ucts** |
|           | actor** | Cont   | **C    | **      |         |        |
|           |         | ractor | ompany | Company | **      | **C    |
|           | **      |        | C**    | D**     | Company | ompany |
|           | Company | **C    |        |         | E**     | F**    |
|           | A**     | ompany |        |         |         |        |
|           |         | B**    |        |         |         |        |
+-----------+---------+--------+--------+---------+---------+--------+
| IT        | N       | N      | N      | N       | N       | N      |
| Com       |         |        |        |         |         |        |
| pensation |         |        |        |         |         |        |
| System    |         |        |        |         |         |        |
| Separate? |         |        |        |         |         |        |
| (Y/N)     |         |        |        |         |         |        |
+-----------+---------+--------+--------+---------+---------+--------+
| COM       |         |        |        |         |         |        |
| PENSATION |         |        |        |         |         |        |
| SYSTEM    |         |        |        |         |         |        |
+-----------+---------+--------+--------+---------+---------+--------+
| Market    | X       | X      | X      | X       | X       | X      |
| Based     |         |        |        |         |         |        |
+-----------+---------+--------+--------+---------+---------+--------+
| Broad Pay | X       | X      | X      | X       | X       | Varies |
| Bands     |         |        |        |         |         |        |
+-----------+---------+--------+--------+---------+---------+--------+
| Regular   | X       | X      | X      |         | X       | X      |
| Merit     |         |        |        |         |         |        |
| Increase  |         |        |        |         |         |        |
+-----------+---------+--------+--------+---------+---------+--------+
| Regular   |         |        |        |         |         |        |
| COLA      |         |        |        |         |         |        |
+-----------+---------+--------+--------+---------+---------+--------+
| Number of | 1       | 1      | 1      | 1       | 2       | 1      |
| Times per |         |        |        |         |         |        |
| Year      |         |        |        |         |         |        |
| Survey    |         |        |        |         |         |        |
| Salaries  |         |        |        |         |         |        |
+-----------+---------+--------+--------+---------+---------+--------+
| SU        |         |        |        |         |         |        |
| PPLEMENTS |         |        |        |         |         |        |
| TO BASE   |         |        |        |         |         |        |
| PAY       |         |        |        |         |         |        |
+-----------+---------+--------+--------+---------+---------+--------+
| Signing   | X       | X      | X      | X       | X       |        |
| Bonus     |         |        |        |         |         |        |
+-----------+---------+--------+--------+---------+---------+--------+
| Retention | X       |        | X      |         | X       |        |
| Bonus     |         |        |        |         |         |        |
+-----------+---------+--------+--------+---------+---------+--------+
| Referral  | X       | X      | X      | X       | X       |        |
| Bonus     |         |        |        |         |         |        |
+-----------+---------+--------+--------+---------+---------+--------+
| On        |         | X      | X      | X       | X       |        |
| -the-spot |         |        |        |         |         |        |
| Awards    |         |        |        |         |         |        |
+-----------+---------+--------+--------+---------+---------+--------+
| Hot       |         |        |        |         | X       |        |
| skills    |         |        |        |         |         |        |
| premium   |         |        |        |         |         |        |
+-----------+---------+--------+--------+---------+---------+--------+
| Paid OT   | X       |        |        |         |         | X      |
+-----------+---------+--------+--------+---------+---------+--------+
| Variabl   |         | X      |        |         |         |        |
| e/At-Risk |         |        |        |         |         |        |
| Pay       |         |        |        |         |         |        |
+-----------+---------+--------+--------+---------+---------+--------+
| Stock     |         |        |        |         |         |        |
| Options   |         |        |        |         |         |        |
+-----------+---------+--------+--------+---------+---------+--------+
| QUALITY   |         |        |        |         |         |        |
| OF LIFE   |         |        |        |         |         |        |
| FEATURES  |         |        |        |         |         |        |
+-----------+---------+--------+--------+---------+---------+--------+
| Tele      | X       |        | X      | X       | X       | X      |
| commuting |         |        |        |         |         |        |
+-----------+---------+--------+--------+---------+---------+--------+
| Flexible  | X       | X      | X      | X       | X       | X      |
| Schedule  |         |        |        |         |         |        |
+-----------+---------+--------+--------+---------+---------+--------+
| Special   |         |        |        |         |         |        |
| Projects  |         |        |        |         |         |        |
+-----------+---------+--------+--------+---------+---------+--------+
| Paid Time |         |        |        |         |         | X      |
| Off       |         |        |        |         |         |        |
+-----------+---------+--------+--------+---------+---------+--------+
| Concierge | X       | X      |        | X       |         | X      |
| Service   |         |        |        |         |         |        |
+-----------+---------+--------+--------+---------+---------+--------+
| Dependent | X       | X      | X      |         |         | X      |
| Care      |         |        |        |         |         |        |
+-----------+---------+--------+--------+---------+---------+--------+
| R         |         |        |        |         |         |        |
| ECRUITING |         |        |        |         |         |        |
+-----------+---------+--------+--------+---------+---------+--------+
| D         | X       |        | X      | X       | X       | X      |
| eveloping |         |        |        |         |         |        |
| a Brand   |         |        |        |         |         |        |
| Name      |         |        |        |         |         |        |
+-----------+---------+--------+--------+---------+---------+--------+
| Involve   | X       | X      | X      | X       | X       | X      |
| IT        |         |        |        |         |         |        |
| Prof      |         |        |        |         |         |        |
| essionals |         |        |        |         |         |        |
+-----------+---------+--------+--------+---------+---------+--------+
| Reduce    | X       |        |        |         |         |        |
| R         |         |        |        |         |         |        |
| ecruiting |         |        |        |         |         |        |
| Time      |         |        |        |         |         |        |
+-----------+---------+--------+--------+---------+---------+--------+

**Appendix J:**

**National Industry-Occupation Employment Matrix**[^1]

**Industry Report**

Below are the 10 occupations selected employed in the Federal government
industry sorted by 2008 projected employment**.**\
\
Note: Total, all occupations is presented for comparison purposes.

  -------------------- -------------- ---------------- -------------- ---------------- ------------- -------------
  **Occupation**       **1998                          **Projected                     **Change,     
                       employment**                    2008                            1998-2008**   
                                                       employment**                                  

                       **Number**     **Percent        **Number**     **Percent        **Number**    **Percent**
                                      distribution**                  distribution**                 

  Total, all           1,819,100      100.00           1,654,600      100.00           -164,500      -9.0
  occupations                                                                                        

  Systems analysts     54,357         2.99             71,634         4.33             17,277        31.8

  Computer operators,  20,853         1.15             11,909         0.72             -8,945        -42.9
  except peripheral                                                                                  
  equipment                                                                                          

  Engineering, natural 10,430         0.57             10,721         0.65             291           2.8
  science, and                                                                                       
  computer and                                                                                       
  information systems                                                                                
  managers                                                                                           

  Computer programmers 7,213          0.40             4,881          0.30             -2,331        -32.3

  All other computer   3,247          0.18             4,292          0.26             1,046         32.2
  scientists                                                                                         

  Computer engineers   2,460          0.14             2,781          0.17             321           13.1

  Data entry keyers    2,885          0.16             2,028          0.12             -857          -29.7

  All other            1,588          0.09             960            0.06             -628          -39.5
  communications                                                                                     
  equipment operators                                                                                

  Data processing      671            0.04             590            0.04             -82           -12.1
  equipment repairers                                                                                

  All other            88             0.00             69             0.00             -19           -21.9
  telecommunications                                                                                 
  equipment mechanics,                                                                               
  installers, and                                                                                    
  repairers                                                                                          
  -------------------- -------------- ---------------- -------------- ---------------- ------------- -------------

Appendix K: IT OF THE FUTURE

An important issue is the definition of who is an IT professional. Most
of the studies and articles focus on IT professionals with traditional
roles such as programming, systems analysis, computer engineering, and
the like. But the rapid and continuous change of every aspect of IT
(hardware, software, telecommunications, storage, speed, function,
skills, etc) is changing this definition. Now a combination of
technology, business process, interpersonal skills and other
competencies is necessary to be successful in the IT work environment.

At the same time the organizational location of the IT worker is also
changing. No longer are all IT workers located in a central
organization. Many are dispersed throughout the business and program
offices in supporting roles.

# **Increased Reliance on IT Systems**

Federal agencies have developed IT solutions in response to slower
budget growth and the demand for increased productivity and service
delivery. Additionally, agencies are moving to e-government solutions
for service delivery to their customers and the public. There is
increasing pressure on the federal government as a whole to provide real
time delivery and management of government information as use of the
Internet and other IT systems becomes a ubiquitous resource in many
aspects of our society.

# 

# **Range of Different Solutions**

At the same time, many federal agencies are still dependent to a greater
or lesser extent on "legacy" systems. These "legacy" systems require IT
skills such as ability to program in older computer languages, e.g.
COBOL, or knowledge of older operating systems and hardware. Other
agencies have replaced some or all of their "legacy" systems or
developed new front ends to these "legacy" systems to provide their
users more access to information. These new systems require IT expertise
in use of the Web, newer operating systems, software and hardware.

This creates a dual challenge for IT departments that must first support
the older "legacy" systems with the requisite skills, while building new
modernized and technological innovations with a new skill set. This
situation is particularly true in the federal agencies that cannot
abandon their "legacy" systems since many of them are linked with
customers' systems. Yet, at the same time, new systems that are more
user friendly and often Web-based are being designed and implemented
with the same agencies still maintaining the older systems. Skill sets
to support both levels must be available to federal agencies and their
IT managers. These skill sets may be in house or contract, full time or
temporary, bought (hired fully skilled) or "home grown" (trained or
mentored).

Based on this research, no one specific solution will meet all of the
needs of every federal organization. Instead, any recommendations must
be able to handle the full range of IT approaches that exist today and
that will exist in the future in federal agencies nationwide. This will
by definition include access to legacy system skills, as well as access
to new skills that exist today and new skills that will exist in the
future.

# **Three Elements of the Future of IT**

Adapting to and accommodating IT change and the rapid pace of IT change
is a fundamental aspect of the workplace today and in the future. Given
the history of IT and the evolution of IT in the last 10 years, it is
impossible to predict with specificity or accuracy what IT will look
like and what IT skills will be needed over the next 10 years. The only
thing that is certain is that IT will continue to rapidly evolve and
improve and offer new and innovative solutions to the business and
mission needs of the federal government. The study assumes three
elements of the future of IT:

1.  Cross department alliance management

> As new business requirements are being introduced, there is a need for
> strong partnerships between IT and program departments to improve
> organizational effectiveness and to solve business challenges. IT
> experts must increasingly have strong business knowledge and
> program/business experts must understand the value and function of IT.
> For example, to develop the requirements, build and implement a new
> Human Resources (HR) system, an inter-disciplinary team with
> representation from, at a minimum, the IT, HR, Finance and program
> offices would be required to ensure that the new system would address
> all of the necessary requirements to function effectively. Managing
> such a cross department/cross functional team would in turn require
> strong alliances between the key managers in each of these departments
> and strong top management support to achieve a successful result.
> Today's organizations must share information and coordinate their
> actions in many aspects of their business in order to accomplish the
> agency or organization mission. IT is no exception.

2.  Contract management and system integrity

> A key factor in the future of IT will be the continued use of outside
> contract support in lieu of, or to supplement, in-house staff. The
> growing complexity of IT applications mandates that some of this new
> work will of necessity be performed through outsourcing, a phenomenon
> which is expanding in both private and public sectors. Companies and
> governmental agencies are recognizing the need to rely on outside
> expert help to keep up with the dynamics of the technologies and to
> concentrate internal resources on core functions, which will certainly
> include contract and project management, but may required broad
> technical skills for oversight and review purposes. Blending internal
> and external, as well as business and IT, workers into
> multi-disciplinary teams to accomplish the evolving work will required
> a balanced view of program and technical competencies, and fair and
> competitive compensation and rewards. This practice brings into focus
> the question about what is the proper balance of core and contingent
> workforces and the appropriate infrastructure, including contracting
> and human resource management systems, needed to maintain equity and
> retain the commitment of the workers.
>
> Increasingly, IT systems are required to share data to promote greater
> efficiency, fewer inaccuracies and inconsistencies, and greater
> productivity (e.g., one source data entry). System integrity within
> and between systems is therefore increasingly important for IT
> functions.

3.  Citizen centric requirements

> Federal agencies are moving to the use of e-government strategies
> which will change the frame of reference for federal IT. Agencies used
> to collect and organize data to give to decision makers, the public,
> Congress, etc. The source for this data is now electronic instead of
> hard copy. This is an important change in and of itself. However, IT
> and Web-based technologies provide for moving from simply providing
> data to developing institutional mechanisms that will provide citizens
> with access to the transaction itself. In the future, agencies will
> provide the means to let citizens "do their own thing" and accomplish
> mission delivery more directly, more rapidly and electronically to the
> individual citizen where and when the service is needed. Social
> Security benefits calculation, visa or passport, income tax return are
> current examples of a trend which will grow exponentially in the years
> ahead. This electronic service delivery has important privacy
> implications which will need to be resolved prior to implementation of
> such systems.

# **Demand for Different IT Skills**

In the assumptions made for this study and based on the Phase I
research, IT skills required in the future will be different from IT
skills required today. IT expertise will need to accommodate changes in
system programming languages, operating systems, telecommunications,
networking, hardware and software. As technology grows and permeates all
business units and program areas, it becomes more difficult to define
the complex and increasingly diverse IT workforce. It is no longer
possible to think of a monolithic workforce or singular job series as it
related to acquiring, retaining and developing the necessary sills to
accomplish ever-changing, cutting-edge IT work.

At the same time that IT is diversifying, the IT workforce will need to
have more than these specific and technical skills. Increasingly, IT
projects are bigger, more complex, more costly and more cross functional
(involving many organizations and disciplines to solve a given business
problem). IT experts will need to have "soft" skills as well as the
"hard" technical skills. The "soft" skills include project management,
business area expertise, understanding of the strategy and mission of
the organization (big picture), contract administration, business
process, interpersonal, leadership, communication, etc.

# **Growth and Flexibility Over Time**

Based on these assumptions, any study of IT skills requirements and any
compensation system solution must be flexible and able to adapt to and
accommodate changing needs and changing environments over time. It must
be adaptable to the specific needs and strategic decisions of any given
agency and provide a means of addressing the very different skills sets
of both legacy and modern systems and the transition from one to the
other within the resources, risks and mission needs of different federal
organizations and agencies, as well as the changing skills, both "hard"
and "soft" required for IT jobs over the next 10 and more years.

> **Appendix L: Implementation Issues of an HR System**

# **PAY**

It would be a mistake to ignore government's poor track record with the
traditional merit pay. This is a broad problem at all levels in
government and that record often makes public employers reluctant to
tackle the problem.

Significantly, there is a high level of interest across government in
moving to a pay-for-performance platform. Realistically the
step-in-grade practice that has been a core principle of the General
Schedule has few supporters. At least one book and any number of
articles have been written about the problem of entitlement in
government. There are few supporters of the virtually automatic,
"living-and-breathing" increases in the federal pay system.

All of the demonstration pay systems starting with China Lake in 1980
have adopted some form of pay-for-performance or pay-for-contribution as
the basis for granting salary increases. That is also true of the
agencies that have been granted authority to adopt new pay systems,
including FAA and IRS. John Sturdivant, the former President of AFGE,
was quoted some years ago as believing his "union has to learn to live
with merit pay."

For reasons that go beyond the federal experience, the traditional
phrase "merit pay" has been effectively dropped in government
discussions. It has been replaced by references to pay-for-performance
and to pay-for-contribution. It is still the dominant phrase in the
private sector but it is slowly being supplanted by other phrases.

Actually in the corporate world, pay-for-performance encompasses two
separate but related concepts -- the policy governing annual salary
increases and a second policy providing for cash incentives to reward
employees for performance. The latter is seen as a more flexible and
effective way to reinforce the importance of performance. Corporate
executives, of course, have traditionally had a portion of their
compensation package tied to company performance. Now that philosophy is
being extended down to the non-management work force.

In the public sector, pay-for-contribution is the phrase that is widely
used in discussions of alternatives to the step increase policy.
Although a fully defined operational definition has not emerged, it is
the basis for determining salary increases in at least three demo
projects, including the pay systems being tested in the Naval Research
Laboratory, the Air Force Research Laboratory, and the DoD Acquisition
Workforce.

In concept, pay-for-contribution is very similar to "competency-based
pay", a new model for salary management that is emerging rapidly in the
private sector. Most competency-based pay programs are only a year or
two old and there is not enough experience to fully evaluate them. There
are, however, a number of compensation experts who contend it will
become the next model for salary management. One of the most important
features of a competency-based program is the emphasis that can be
placed on technical knowledge where it is important to a job family. The
concept is important in each of the three proposed models for the IT
workforce.

## Continuous Learning

To reduce the overall investment required and to vastly improve training
effectiveness, organizations are turning more and more to computer-based
training or e-learning. In a December 2000 article, \"The E-Learning
Revolution,\" in ASTD\'s Virtual Community, Patricia Galagan identifies
e-learning most compelling features as accessibility and scalability.
She also explains that technology has given training \"the possibility
of one-on-one for every learner. In its July 2000 report of findings,
the Task Force on Federal Training Technology noted that \"Access to
training is the key to a competent and responsive workforce.\" The Task
Force outlines recommendations for accelerating the use of learning
technology across the federal government. Among the recommendations are
an endorsement of establishing external partnerships with the private
sector, academia, and non-federal stakeholders; and the establishment of
a government-wide fund for learning technology.

Another cost-related issue is the [pattern]{.underline} of training
spending. The Department of the Treasury study found that, to a large
extent, money spent on federal training is not well targeted. The study
cited a survey of managers and executives at the General Services
Administration, where 37 percent agreed with the statement that funds
were \"spent loosely without much oversight or review.\" The Treasury
study cites various training programs in the federal government that do
a good job in targeting training spending. These include the U.S. Secret
Service, where each staff member has an individual development plan that
are the basis of a yearly supervisor/employee discussion and that feed
into agency-wide strategies and programs; and the Bureau of the Public
Debt, which estimates and plans for its needs in some detail two years
in advance.

These approaches\--extensive use of \"learning assignments\" and
e-learning approaches, government-wide consortium, partnering with the
private sector and academia, and more targeted training\--continuous
learning will require an investment, and a relatively heavy up-front
investment. Without this investment, though, the federal government will
not be able to attract or retain qualified IT professionals; nor will it
be able to maintain a workforce of qualified IT professionals.

***Competency Framework***

To help to achieve targeted spending and to provide basic informational
tools for organizations and IT professionals, all of the proposed HRM
Models include a government-wide competency framework. The Chief
Information Officers\' Council (CIO Council) is the in the best position
to develop and maintain this framework.

Such a framework would be broad, defining the required competencies and
associated learning opportunities for the various IT specializations and
levels. The use of competencies drives a process that relies on modeling
high performers. The development, transfer and application of learning
are then integrated into one continuous framework. The framework should
include techniques and approaches to enhance individual learning such as
self-assessment tools, personal learning plans, modeling, learning
diaries, learning contracts or agreements with defined measurements,
supervisory feedback and networks.

Each agency must carefully review the overall government-wide framework
for application to its own IT workers. Individual agencies or
professional workgroups should then define and incorporate additional
specifics that apply locally. Certifications or skills measurement tests
could be included in the list of competencies for those specialties
requiring such qualifications.

***Responsibility and Commitment***

For continuous learning to work, there needs to be a balance between
management responsibility and employee initiative. While a certain level
of responsibility rests with the individual to seek out training that
expands his/her IT skills base, federal managers must be the ones to pay
for training that supports the technology evolution occurring in their
agencies. Managers must provide learning opportunities that are directly
related to the IT worker\'s job or project as well as those that support
anticipated future work requirements. The individual IT worker, though,
must also accept responsibility for participating in those activities
that enhance his/her value by making investments of time and dollars as
appropriate.

Organizations that recognize the importance of continuous learning are
ready to commit the resources, structures, and policies to support and
enhance learning. IT organizations, in particular, often request
employees to quickly acquire experience while minimally interfering with
the ongoing work of the organization. The individual IT employee must
figure out how to balance these dimensions.

***Cost of Continuous Learning***

A July 1995 U.S. Merit Systems Protection Board study (*Human Resource
Development in the Federal Government*) found that federal training
budgets were 0.75 to 1.0 percent of payroll. More recently, a Department
of Treasury Study (*Responding to the Crisis in Information Technology
Skills*) found that Department-wide training for IT professionals was
1.53 percent of payroll; or about \$1,000 per IT employee.

A 1998 study by the American Society for Training and Development
benchmarked 750 organizations to identify the state of the industry
regarding training and development. All benchmarked firms spent an
average of 1.81 percent of payroll on training, or \$649 per employee.
\"Leading edge\" firms\--those that ASTD say represent the \"pinnacle\"
of training practice in the United States\--spent an average of 4.39
percent of payroll on training, or \$1956 per employee.

Clearly, the federal government under-invests in training. In fact, The
National Performance Review found that federal managers tend to view
training as a cost, whereas leading edge firms view it as an investment.

Although an investment in training does not come cheap, the cost of
continuous learning, though, need not be prohibitive. In fact, the ASTD
study, *Sharpening the Leading Edge*, states that \"A good starting
place for your leading edge make-over isn\'t how much you spend on
training, but rather the things you do to improve workplace learning and
performance in general.\" The study goes on to explain that leading edge
firms align their training with a number of innovative practices that
can be categorized into three groups:

-   High performance work practices, such as self-directed teams, and
    access to business information.

-   Innovative compensation practices, such as profit-sharing or
    group-based pay.

Innovative training practices, such as mentoring or coaching programs
and training information systems.

***Involving IT Managers and Professionals in Recruiting***

Some human resources professionals have engaged their agency line
managers as partners in seeking new ways of attracting and hiring
quality candidates in hard-to-fill occupations such as information
technology. When this partnership has been formed, agencies have been
able to experiment with improved \"selling\" techniques that highlight
their challenging missions and accompanying occupations.

In redefining recruitment, agencies should replicate what the private
sector does in developing formal recruitment plans in which program
managers are held responsible for recruitment with support from the
human resources office. This approach is also being used by many states,
local governments, colleges/universities and non-profit organizations.

***Use of Recruitment and Referral Bonuses***

Every private sector company interviewed and almost every public sector
organization researched for this project offer signing or recruitment
bonuses. While the use of such bonuses is on the increase in most IT
employment arenas, the federal government has been inconsistent in their
use. Some agencies are adopting them more readily for difficult-to-fill
jobs while others have not used them at all.

Regardless of the basic structure of a new compensation model for the IT
occupation, signing or recruitment bonuses should serve as an integral
component. The amount of the bonuses should also be significant enough
to serve as a motivator for highly competitive positions. Existing law
allows for up to 25% of base salary and agencies should consider
offering the maximum amount to attract highly talented IT workers. The
approval of such awards should also be assigned to the lowest management
level possible\--preferably the hiring manager\--with guidance and
support from the human resources office.

Referral bonuses have been effectively used by private and public sector
organizations, particularly for IT jobs. The benefits of referral
bonuses are numerous: candidates are \"pre-screened\" by the referring
employee; the referee has already done his/her \"homework\" in learning
about the organization; referred candidates who are hired usually stay
longer than other candidates; and, recruitment costs and time are
reduced. A few federal agencies were offering referral bonuses until
early 2001 when the Office of Personnel Management (OPM) issued a notice
to agencies that these bonuses were in violation of federal law.
Agencies were advised to immediately stop using referral bonuses.
However, recently OPM reversed this decision and has now advised
agencies that they may offer referral bonuses. This reversal is a good
decision since referral bonuses should be integrated into the overall IT
compensation structure and used by agencies to locate and attract the
required IT talent. Agencies will also have the flexibility to design
their offerings of bonuses to meet their respective cultures and needs.

To date, a number of federal agencies have begun to redefine how
recruitment is carried out in the federal sector. The Social Security
Administration (SSA), with its headquarters in Baltimore, Maryland,
provides a good example of federal branding. SSA has identified those
things that are valuable to potential candidates and communicates these
things in all of its vacancy advertising\--the broad scope and
importance of the agency\'s mission, rapid pay increases for entry-level
hires, paid overtime, flexible schedule, free parking, on-site child
care and fitness facility, a campus-like environment, and excellent
retirement.

## Branding

Getting the message out about one\'s organization should include many
outreach activities. In addition to vacancy announcements and
advertisements, outreach activities could include information provided
on internet sites, job fairs, relationships with high schools and
universities, intern and cooperative education programs, press releases,
paid advertising, unpaid advertising, and any other means of getting the
word out. In addition, effective new mechanisms of advertising job
opportunities and accompanying benefits are used by private sector
companies and many public sector organizations. Advertising on the
Internet is increasing, as is use of paid advertising in professional
journals, local newspapers, radio announcements and other media. Unpaid
advertising is also being tapped by private and public sector
organizations competing for IT talent. Press releases, articles in
newspapers and other unpaid chances to \"sell\" the organization are
used to catch the eye of potential IT workers. Federal agencies not
already utilizing these vehicles should explore them since potential
candidates want to gain a sense of the employer\'s offerings in ways
that a job vacancy announcement cannot provide.

A number of federal agencies have moved past the traditional way of
posting vacancy announcements with the hope that well-qualified
candidates will see the announcements on USAJOBS or their agency\'s own
website. The key is to operate under a new paradigm that goes beyond
posting announcements and waiting for the lists of eligible candidates.

Appendix M:

**Important Considerations in Designing a System for Total
Compensation**

## *Market Surveys*

Market surveys are a necessary tool and standard practice for managing a
market-based pay system. Market surveys enable organizations to
determine salary levels for its employees based on prevailing or
competitive rates in the labor market. As a market-based system, Model
Two requires a market survey for initial design and ongoing maintenance.

# **Alternative Sources of Market Data**

Private sector organizations use one or more of a number of approaches
to obtain prevailing or competitive rates in the labor market.

***Off-the-Shelf Surveys*** There are three consulting organizations
that conduct national salary surveys of IT employers. The three are:
William M. Mercer, Watson Wyatt, and People^3^, a subsidiary of the
Gartner Group that specializes in human resource issues. The former two
firms are prominent compensation and benefits consulting firms, while
the Gartner Group consults on IT problems.

Mercer actually conducts four relevant surveys: (1) the Information
Technology Compensation Survey, (2) the eCommerce Compensation Survey,
(3) the Telecommunications Compensation Survey, and (4) the Information
Technology Association of America Compensation Survey. Although a number
of the benchmark jobs are the same in each survey, the survey reports
are designed for different industry segments.

Watson Wyatt publishes an Industry Report on Information Technology
Personnel Compensation. The most recent edition included data from over
4,000 employers. In addition, Wyatt covers selected IT jobs in its top
management, middle management, supervisory and professional/scientific
surveys.

People^3^ publishes a survey similar to Mercer and Wyatt but since it
recently entered this business market, its database is smaller. It
claims to offer supplemental information on recruiting, retention,
career development, and reward practices. It also produces a quarterly
reports capturing emerging trends.

Each of the survey organizations collects data for roughly 200 benchmark
jobs and levels, and reports results for 100 or so industry groups.
Mercer's database appears to be the largest and the People^3^ database
the smallest. The level of detail reported makes each survey far more
extensive than the old BLS surveys. Each survey has its proponents and
is widely used.

None of these surveys, however, meets the standard for quality
established by the Bureau of Labor Statistics. Each of the firms relies
on mailing out thousands of questionnaires, with the incentive to
participate a reduced price for submitting pay information. The job
matching is left completely to the participating companies where it is
typically done by a junior specialist in compensation. For quality
control, the firms rely on data entry software to check for outliers.
There is no way to determine if the matches are valid or reliable.

Perhaps more important is the validity of the employers as a
representative sample, particularly in local areas. The federal IT work
force is concentrated in the Washington-Baltimore corridor, and in
another handful of cities (e.g., Atlanta, Columbus, Denver, etc.). A
full 30% of the work force is located, according to OPM, in the "rest of
U.S." That means the survey data have to be representative of the
employers in the cities where IT jobs are concentrated and also across
the country. Unfortunately the surveys as published by these firms do
not fully meet this test.

***By-Invitation-Only Surveys*** It is particularly important to point
out that the leading IT firms typically do not participate in these
broader, off-the-shelf salary surveys. While they do not all follow the
same practice, they tend to focus on more private, "by-invitation-only"
surveys of competing companies. That enables them to develop a more
precise understanding of their labor markets and to control the
companies that exchange data. Typically these surveys are conducted by
consulting firms (to avoid anti-trust charges) but the surveys are
available only to participating companies. It is unlikely that the
companies will provide access to the data or allow the federal
government to participate.

***Bureau of Labor Statistics Survey*** A third source for salary data
is the Bureau of Labor Statistics (BLS). The current federal government
process for making adjustments to the General Schedule has been based on
pay survey data developed by the BLS, or at least it was until the BLS
changed its survey methodology several years ago. For reasons that were
not fully explained at the time, the BLS stopped its traditional salary
survey based on benchmark jobs, and is now focusing on its Employment
Cost Index (ECI) and collecting data based on a sample of the workers in
each employer that participates in its surveys. The new methodology
makes it impossible to determine the level of pay for incumbents in a
specific job. As a result, the Pay Agent, which recommends the annual
adjustment to the General Schedule to the President, informed the BLS
that it would no longer use the BLS survey information for this purpose.

The BLS surveys were never fully adequate for "pricing" IT jobs. The
time it took the BLS to collect and publish the results of its survey
was always too long to be useful in the dynamic IT market. Moreover,
their surveys did not cover the specific, high demand jobs that are
covered in other IT industry surveys.

The BLS surveys did, however, establish high standards for conducting
surveys. BLS plans its surveys as a stratified sample of employers by
industry and size (based on number of employees in an establishment or
work site). The sampling strategy also covers all industry sectors,
including government, health care, and all of the major business groups.
That enables them to defend their summary statistics as valid. Finally,
until they changed their methodology and moved away from the benchmark
job concept, they took the time to meet with each participating employer
and carefully matched the employer's jobs to the benchmark job
descriptions.

***Commissioned Survey*** An alternative would be to commission one or
more of these firms to conduct a national survey that meets federal
requirements. Since this represents an extension of the existing
surveys, the firms have expressed a high level of interest in this
prospect. It may be that the cost could be held down if the firm(s) was
free to sell the summary report. One of the reasons firms participate in
surveys is that they have the same need for market data as the federal
government, and if there is a commissioned survey, the participants
would expect access to the data on some basis.

If the decision is to contract for the survey, then there is a fourth
possibility -- the office within DOD's Civilian Personnel Management
Service (CPMS) that conducts the Federal Wage System (FWS) surveys. That
office, with its data collectors across the country, rivals BLS in its
survey capability. Since they already conduct surveys in over 100
locations nationwide, they could readily gear up to conduct an IT
survey. While the three firms could also conduct a similar survey, with
client meetings for job matching, only the FWS survey people are
accustomed to this approach.

Regardless of which organization conducts the survey, the CIO Council
will need to play an ongoing role in planning and conducting any survey.
The survey plan, including the choice and descriptions of the benchmark
jobs and the sampling strategy, will need to satisfy federal
requirements.

# ***Specifying the Compensation Alignment with Market Pay Rates***

The collection of market data is only the starting point. The goal is to
maintain a compensation program that enables the organization to
recruit, hire and retain an adequately qualified staff. The base salary
is only a piece of that puzzle. In the private sector, employers are
ready to offer an array of cash bonuses, stock ownership opportunities,
along with a variety of work/life benefits that often vary from region
to region and industry to industry.

The IT labor market and particularly the "scarce skill" (or hot skill)
market is intensely competitive. In that environment, responding quickly
to trends and new practices is essential to being competitive. Despite
the recent economic downturn, there is still an imbalance of supply and
demand that will provide justification for IT employers to adopt
unprecedented practices to attract necessary talent. New practices gain
acceptance quickly and a willingness to innovate is important.

With a traditional salary program, the salary range midpoints are
normally aligned with a specific market pay level. For most companies,
that level is the market average or mean salary. In other words, the
average of the salaries for jobs assigned to a salary range is
established as the midpoint, and the minimum and maximums of the range
are calculated from the midpoint. On that basis, when someone is paid at
the midpoint, his or her salary is competitive with the labor market.
For a few, more aggressive companies, the midpoints might be based on
the 75^th^ percentile salary or the mean plus 10%. These decisions
reflect the company's compensation strategy, which is related to the
caliber of employees they want to hire.

Generally it is argued that pay at the midpoint is appropriate for an
average performer who has been in the job long enough to perform all
facets of the job. In other words, they are at the full performance
level. People who are still learning their jobs are logically paid below
the midpoint and therefore below market. The "star" performers should be
paid above midpoint. That is a common salary management strategy in the
corporate world.

In the studies preceding the enactment of FEPCA in 1989, the fourth step
in each range was aligned for planning purposes with the market median
less 5%. Of course the General Schedule was never increased to this
level so it is a theoretical linkage only.

In a broad banding environment, there are no range midpoints. Moreover,
each job is paid within the range based on market data. The bands are
planned so the bottom of the band is lower than the starting salaries
for the lowest paid job and the top is above the highest pay for the
jobs assigned to the band. Within that range, market data are used to
determine appropriate pay rates.

***Policy Considerations***

The basic policy question relates to the quality of IT specialists the
federal government wants to attract and retain. The underlying
assumption with a market-based pay program is that higher salaries
enable an employer to attract higher better qualified job candidates.
The argument has never been fully tested but average market salaries
presumably lead to average candidates.

However, that is probably overly simplistic. In the IT labor market,
base salary is only one of several job considerations that affect a
candidates search for a job. Among those considerations are the
prospective employer's commitment to continuous learning, opportunities
to work on leading edge systems, the quality of management, and flexible
work hours.

Employers competing in the IT labor market have also adopted a variety
of additional cash payments, including recruiting and retention bonuses,
hot skill bonuses, and performance incentives. In a high demand
environment, job candidates can select the employer that best fits their
requirements and that promise the best job and career prospects.

The fact is that IT labor markets tend to emphasize somewhat different
practices in different labor markets. The supply and demand for specific
skills varies, depending on the mix of local employers. San Jose, for
example, is a very different IT labor market than Columbus, Ohio.
Corporations have enormous flexibility and can respond very quickly to
new practices. That makes it important to monitor local trends, and to
adopt policies that provide comparable flexibility.

Federal agencies need to develop a recruiting and retention strategy
that builds on their strengths as employers and downplays possible
deficiencies (e.g., the lack of opportunities for stock ownership).
Within that context, the alignment of the salary program with prevailing
market pay rates and the use of other cash payments is a focal program
design issue. Employers that are known in the labor market as
unattractive places to work often are forced to pay above average
salaries simply to offset deficiencies. Conversely, the better employers
may not have to offer fully competitive salaries.

One issue that may be an unresolvable problem is the importance of a
promising future and continued competitive salary increases. The annual
adjustments to the General Schedule have not been fully competitive in
the IT labor market and that cannot continue if federal agencies want to
attract and retain fully qualified IT workers. Moreover, the roughly
two-year time lag in adjusting the General Schedule is also a problem.
In some markets, IT employers have made market adjustments twice a year.
Job candidates need to believe that their pay will remain competitive
over time. There has to be a commitment to keeping the program
competitive.

The commitment has to be considered relative to another policy issue --
the goal of paying for performance or contribution. It has proven to be
politically difficult to gain support for fully competitive salary
increases when those increases are across-the-board. That practice has
effectively kept most IT salaries below market levels. If there is solid
support for pay-for-performance, then it will be necessary only to pay
the better performers competitively.

# The alignment of base salaries with market rates is then a fundamental policy decision. It controls the incremental cost of the program. It also influences the caliber of employees federal agencies will be able to attract. If those agencies are able to enhance the non-cash elements of the total compensation program, it may not be necessary to pay everyone fully competitive salaries. 

### Appendix N: PAY ISSUES

### 

**Cash Compensation**

The current federal system for cash compensation includes base salary in
addition to bonuses or lump-sum payments. The General Schedule (GS)
system is the mechanism in the federal government that governs how base
pay is initially set and subsequently managed. The GS system provides
for fifteen grades in addition to various executive-type levels. The
system is particularly inflexible, as distinctions between grades are
small and pay ranges associated with each grade are very narrow.

To improve the federal government\'s ability to attract and retain IT
talent, two different alternatives to the current system are laid out
below. Both approaches increase the flexibility. The first
approach\--Model One\--makes minimal changes and, therefore, increases
flexibility only marginally. The second approach\--Model Two\--goes to a
broad and very flexible system.

### 

### *Pay-for-Performance Differences Between the Private and Public Sectors*

Pay for performance has always been central to salary management in the
private sector. Despite criticism from people as prominent as Dr. W.
Edwards Deming, it is more prevalent today than it was 20 or 30 years
ago. One of the reasons for its popularity is the overriding importance
of performance in the corporate culture. The criticality of performance
is accepted and understood by every employee. Another reason for its
popularity is the rejection of the alternatives -- e.g., step increases
-- in the corporate environment. There has been a strong backlash
against any policy that creates a sense of entitlement. Finally, there
are widely shared corporate beliefs that hard work and high levels of
performance should be recognized and rewarded.

The fact is that it is easier to make pay for performance successful in
the private sector for the following reasons.

-   There is still a veil of confidentiality that surrounds the
    performance appraisal and merit increase process. Employees
    certainly know which of their co-workers are seen as the stars but
    they do not have access to the ratings of their co-workers.

-   Corporate employees do not typically have the right to grieve or
    question their ratings. Few corporate employees are unionized (now
    less than 10%) and pay for performance is not common in those work
    groups. There may be informal grievance procedures but employees
    have to be concerned about questioning their supervisor's judgment.

-   The pay for performance policy covers everyone from the CEO to the
    lowest office support positions. Executives and managers have
    matured and moved into management ranks in a culture where pay for
    performance is taken for granted. Moreover, their salary increases
    are based on an appraisal of their performance; that is true for
    everyone. The managers are probably no more comfortable with their
    role in discussing appraisal results with their people but they know
    it's required. They also have significant income riding on the
    corporation's performance.

-   Corporations tend to invest more time and money to help managers
    develop the skills they need to manage their subordinates. There are
    stories about how much time people like GE\'s Jack Welch spend
    discussing performance with their subordinates. Corporations also
    spend more time and money developing their performance management
    process and in communicating with managers and employees on issues
    like compensation and pay for performance. There are still problems
    but corporations take these issues seriously and work at improving
    their practices.

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-   Corporations are more likely to maintain competitive pay programs.
    That means salaries and salary increase budgets are in line with
    market levels. When salaries are allowed to fall behind the market,
    managers and supervisors are more likely to feel pressured to give a
    full increase to everyone.

-   The budget for salary increases imposes a discipline and forces
    managers to differentiate among their people. Salary increase
    budgets are planned so funds are adequate to reward only a limited
    number of high performers. Actually the trend to introduce cash
    incentives has reduced the pressure on managers.

-   The unstated but common purpose is to recognize and reward the
    better performers. There are poor performers who are occasionally
    dismissed because of poor performance. However, the focus is on the
    "stars" which gives the merit policy a much more positive
    connotation than it has in the public sector. In government, there
    is a tendency on the part of some political leaders to define the
    purpose in demanding pay for performance as denying increases to
    poor performers. Too often there is little mention of the stars or
    their value.

Significantly, most of these differences can be addressed in planning
the transition to a pay-for-performance policy. The transition to a
pay-for-contribution policy represents a significant organizational
change. It will affect the culture and the way employees view the
organization. The shift to a pay-for-performance policy is more than a
system change. It is a major shift in the values that drive a new human
resource management system to more effectively support organizational
performance and mission accomplishment.

**GPRA, Performance Measurement, and Pay-for-Performance**

The Government Performance and Results Act has opened the door to a new
basis for managing performance that is consistent with corporate
practice. Strategic planning and goal setting is now an established way
to manage federal operations. There is a concomitant interest in another
corporate concept, the Balanced Scorecard, which imposes a logical
framework for measuring organization performance. OPM has been "selling"
the effectiveness of the Scorecard concept as a sound approach for
evaluating senior executive performance.

The combination of both represents the foundation of a performance
planning and measurement process that is similar to that which would be
found in many companies. Last fall OPM incorporated the basic logic of
this approach in new regulations governing SES performance management.
They also focused on executive performance management at a November 2000
conference that included several agency case studies of agencies
employing this strategy.

The new regulations give agencies more flexibility to develop their own
performance systems. That is seen as a key issue. The regulations also
shift the emphasis to results, and institutionalize the balanced
scorecard by requiring agencies to evaluate performance using measures
that "balance organizational results with customer satisfaction,
employee perspectives, and any other measures" an agency thinks is
appropriate. OPM stressed that agencies should use performance appraisal
results as the basis for pay, awards and other personnel decisions.

Below the SES level, an interagency work group on performance management
issued a report in February 2000 that communicated a similar message to
the President's Management Council. The group was composed of senior
Human Resource executives from seven Departments, OPM, and NPR. It
discussed three major themes central to effective performance
management: 1 - Expect Excellence, 2 -- Establish Accountability, and 3
-- Take Timely Action. NPR issued a complementary report on performance
management in 1999. OPM has developed an excellent website that makes
available a wealth of information on performance management.

It is apparent that performance management has become a high priority in
the past year or two. GPRA triggered a need to re-examine the way
agencies develop annual operating plans. In doing so, the law also
triggered a slow but in hindsight inevitable transformation to a
performance culture. It is widely understood that people perform at
higher levels when they are working to accomplish goals and have a clear
understanding of what's expected of them.

It is only now that federal agencies are working to develop the
performance planning and management systems for lower organization
levels. OPM's website describes the performance management system
developed at the Kennedy Space Center which provides a linkage from each
employee's performance plan, to their office, independent
directorate/department, and ultimately the agency\'s goals and
objectives. It may be that NASA and the Space Center have goals that are
more readily defined but there are a growing number of success stories
across government.

The standard argument is that performance goals and criteria should be
objective or at least verifiable. It is rare that a meaningful goal
cannot be defined in specific terms and broken down into tasks and time
deadlines. That is important because it enables employees at all levels
to understand how their efforts contribute to the achievement of the
goal. Quantifiable measures do not exist for many job duties and even
when they can be identified, they often look at only a portion of what's
expected. And despite employee support for objective measures, when they
are to be evaluated against an objective standard, they will be quick to
point out the inequities that will result if there is no flexibility in
evaluating their performance.

To reiterate from the interagency HR group report, employees need to
understand what's expected of them, and how their performance will be
evaluated. The more specific and objective the expectations, the easier
it is for supervisors and their subordinates to discuss expectations and
to agree on the performance level attained. In industry, it is common to
define expectations with performance goals or targets. Companies have
relied on management-by-objectives for over 30 years. The best practice
would be to also define two additional levels of performance \-- a
threshold or minimum acceptable level of performance and also the
highest expected or outstanding performance level. That effectively
defines the expected range of acceptable performance, and provides an
explicit basis for assessing performance.

When performance expectations and the basis for assessing performance
are specified adequately, it makes it relatively easy to rely on those
criteria in evaluating employee performance. It also provides a
defensible linkage to financial rewards. The evaluation can affect
salary increases or it can also be used to determine performance
incentives.

**Rating Performance**

The best practice model from industry combines an assessment on the
results achieved and on the selected competencies. In light of the GPRA
requirements, results should be part of the equation. The emphasis in IT
on knowledge and skills also makes it important to involve some version
of a competency assessment.

In the past OPM regulations led to the use of a five-point rating scale.
However, when rating inflation pushed the average rating close to five,
OPM backed off of the requirement and gave agencies the discretion to
establish their own rating scales.

The problems with inflated ratings led a few agencies to adopt two-level
scales, essentially a pass-fail system. That, however, has proven to
have it's own problems. It effectively means that everyone who reaches
at least the threshold or minimum acceptable level of performance is
rated as satisfactory. While this approach overcomes some of the
problems with the five-level scales, it means that employees frequently
get little, if any, useful feedback and it fails to provide a basis for
recognizing and celebrating outstanding performance.

Organizations need to know which employees need to improve their
performance. When poor performers are allowed to continue with little or
no consequence, it affects employee morale. They know some action should
be taken and if affects their confidence in management. A poor performer
affects many people; the problem has been described as a cancer on the
organization. The Performance Improvement Plan is an important first
step but that depends on an effective performance management system.

More important, however, is management's need to identify the star
performers. They are the employees the organization cannot afford to
lose. They need to be recognized and rewarded as recognition of their
value to the organization. It makes sense to develop a plan to fully
utilize their talents. Companies have specific policies to manage high
potential people.

That translates into a three-level rating scale. Research shows that
employees know and generally agree on who is a star performer and whose
performance is unsatisfactory. In the typical organization, the stars
account for roughly 15 to 20% of a work group, and the poor performers
no more than 2 to possibly 5%. The balance, roughly 80% of the work
force, is performing at a satisfactory level, and contributing solidly
to the organization's success. That breakdown seems to fit almost all
work groups and is true in both the private and public sectors.

The three-level approach meets the organization's needs and also can be
defended in light of the criticism of appraisal systems that was first
voiced by Dr. W. Edwards Deming. No rating system is perfect. Deming,
however, highlighted a serious problem with scales that have too many
rating levels. With the classic five-level scale, for example, one
supervisor might say an employee's performance is a "4" while another
might say exactly the same performance is a "3". When that happens, the
rating process is not valid. The three-level scale minimizes that
problem.

Deming also made the point, although not in these words, that everyone
thinks they are above average. Any rating process that tells people they
are average or below average creates a reaction that is
counterproductive. That makes it important to define specific
expectations for a job and to evaluate people relative to those
expectations. Then an employee can meet expectations, exceed
expectations, or fail to meet expectations. That is a simple appraisal
construct that serves the purposes of the organization as well as the
employee. It serves little purpose to compare an employee with others in
different jobs.

With the three-level rating scale, the "meets expectations" performers
should all be treated for reward purposes as equal. The rating system
may generate a range of rating scores (e.g., 2.0 to 2.75) but the
problems associated with defending personnel actions based on those fine
distinctions dictate that people be treated the same. In traditional
terms, they would be granted a step increase.

The people who "exceed expectations" would be granted their step
increase but they might also be eligible, using the traditional terms,
for a quality step increase. The reward might be a larger salary
increase or it could also be a lump-sum bonus. People evaluated at this
level might also earn a performance award.

The small group whose performance is unacceptable would trigger the
normal federal personnel actions, which can include the denial of a
salary increase. There should be very few people who fall into this
category.

Although the discussion of financial rewards follows in the next
section, it is important to note that pay for performance or any
financial reward system works best when managers and supervisors have to
live with and manage the rewards from a fixed budget. That imposes
discipline and they have to make the hard decisions. Everyone is not a
star despite the experience with PMRS. When there are no consequences to
the supervisor, it is not surprising that s/he wants to make everyone
feel good. Significantly, no one, including employees, views that as a
credible process.

***Competency-Based Pay***

Both total compensation models link pay increases and promotions to
acquisition of new or higher level competencies. Developing and
maintaining competencies are crucial to the IT profession and,
therefore, are central to the proposed alternative HRM system.

Traditional merit pay policy looks at an individual's performance over
the prior year, or at least that is how the policy is described in
textbooks. Competency-based pay, in contrast, looks into the future. The
assumption is that more competent employees can be expected to
accomplish more, and are therefore more valuable. Thus, as employees
develop new capabilities or improve existing skills, it is justification
for paying higher salaries. The different perspectives, past versus
future, make competency-based pay a very different reward policy.

In the U.S. society, it is widely accepted that the most competent
people should be paid the highest salaries. That is consistent with the
view of the U.S. as a meritocracy. That may help to explain why the idea
has generated such a high level of interest.

Competencies in this context are normally defined to include the
knowledge, skills and learned behaviors required for job success. A
common strategy for identifying and defining competencies is to ask the
best performing job incumbents. For most jobs, a profile of perhaps 10
or so competencies captures the key capabilities that differentiate the
best performers.

In IT, with the importance of getting up to speed on new technologies or
systems, and on demonstrating "hot" skills, the logic of paying
employees for what they can do is compelling. Competency-based pay could
readily accommodate and expand the hot skill bonus concept.

This is consistent with OPM's focus on identifying and defining
competencies in its new job profiles that are now replacing the
qualification standards. They have identified over 90 competencies
relevant to the broad range of jobs now covered under the draft
qualification standard for IT occupations. Those are categorized as
"general" (e.g., problem solving) or "technical"(e.g., electronic
commerce, Web technology). The latter encompass the bodies of knowledge
relevant to planning, developing and managing IT systems.

Competency-based pay is a relatively new concept that has emerged only
in the past five years or so. It is not widely used but there is an
extremely high level of interest in all sectors. That reflects the
recognition that employee knowledge and the development of new or
enhanced capabilities have become important in every organization. It
also perhaps reflects the level of dissatisfaction or discomfort with
the traditional merit pay increase policy.

Competencies are identified and defined for each job and level in a
career ladder. The competencies effectively establish the capabilities
that employees are expected to develop at each level. Employees are then
assessed relative to the competency expectations, and that serves as the
basis for determining the appropriate salary increase. "Fast track"
employees who demonstrate rapid learning and skill development can
expect the largest increases, while employees who stagnate and fail to
develop new skills may be denied increases. Those employees who continue
to grow and expand their capabilities are in line for promotions.

The competencies required for specialists in one career ladder may be
completely different from those identified for other career ladders.
Moreover, new competencies may be added at higher rungs in the ladder.
For example, developing analytical skills might be important for entry
level employees while strategic thinking skills become important at
senior levels.

The best practice with competency-based systems is to specify the
behaviors associated with each performance level in the appraisal
system. With a three-level system, the behaviors define the "Meets
Expectations" level, the "Exceeds Expectations" level, and the "Failed
to Meet Expectations" Level. When the behaviors are spelled out, it
helps to create a common understanding of the competency and the basis
for evaluating performance.

For example, if "Giving Purpose and Direction" is an executive
competency, a Failed to Meet behavior might be "Looks to others to
provide direction." A Meets Expectations behavior for this competency
might be "Sets clear short and long term objectives." An Exceeds
Expectations behavior might be "Communicates a compelling view of the
future that generates staff commitment."

In a competency-based pay system, the goal is to develop a framework of
expected behaviors that clearly differentiate between levels of
performance. The supervisor's assessment then determines the performance
level and that in turn is the basis for granting a salary increase. That
model is similar to many older performance appraisal and merit increase
systems. The difference is that the competencies and behaviors are
job-specific and defined in terms that are credible and understandable
to both the manger and the subordinate.

In the corporate world, the emerging model for compensating employees
relies on cash incentives as the reward for results and salary increases
as the basis for recognizing individual growth and development. The
latter is often in the form of a group incentive such as goal sharing.
The payments send the message that both individual growth and results
are important to the organization.

The alternative, when incentive plans are not appropriate, would be to
base salary increases on a combined evaluation of results and enhanced
competence. This strategy is reflected in a matrix that serves as the
basis for deciding salary increases, where results are on one side of
the matrix and assessed competence on the other side. The cells of the
matrix then show the percent increase permitted for each combination of
the two measures. Those employees generating the best results and
individual development can expect the largest increases.

The competency concept is applicable for all jobs, from senior
executives to FWS jobs. The SES ECQs and leadership competencies could
be used as the basis for salary increase decisions for IT executives in
the same way that a competency such as problem solving might be used
with lower level IT specialists. An assessment of an employee on the
profile of competencies relevant to his or her job can also be used as
the basis for promotions, career management, coaching, and for preparing
individual development plans. The database of competencies represented
in the work force can also be used for human capital planning and for
evaluating staffing requirements.

# 

# **Cash Incentives**

Easily the most significant difference between the compensation programs
common to the private and public sectors is the importance of cash
incentives in the corporate world. Executive and management incentive
plans are virtually universal in public companies and one of he
important trends is the expansion of incentive plan participation to
lower job levels. This is consistent with the commitment to a
pay-for-performance philosophy.

To be sure, federal executives are eligible for bonus awards.
Performance awards are also made to employees below the executive level.
But those payments are best categorized as bonus awards with the
distinction that the payments are made selectively and typically without
rigorous criteria. Recipients do not know that they will receive an
award until selections are announced.

With corporate incentive plans, there is little subjectivity, awards are
determined systematically with a formula-approach. Corporate incentives
at all levels are primarily team or group awards. Individual performance
may affect the actual payments but commonly the pool of money limiting
all awards is dependent on company, group and/or team performance
results. It would be unusual for an employee to be denied an award if
they are made to his or her co-workers. The implicit message is that
everyone benefits when the company or group performs well.

There is a solidly entrenched and widely shared belief among corporate
leaders that pay-for-performance can be a powerful incentive to improve
performance (or otherwise influence behavior). The era of TQM and
reengineering highlighted the importance of first-line workers and that
in turn triggered an interest in extending incentives to people below
the management ranks. There are now a growing number of companies where
every employee participates in some form of incentive plan.

It is important to appreciate that the earliest incentives were based on
a profit sharing concept, and that was the common model until a decade
or so ago. According to a widely espoused argument, since public
employers obviously are not profit oriented, incentives cannot and
should not play a similar role in government. At one time, there was
also a related argument that had supporters in both the private and
public sectors. To paraphrase the point in that argument, "We're already
paying them a good wage. We shouldn't have to pay them cash incentives?"

Now, however, those arguments are rarely heard at least in the corporate
world. The prevailing model in the private sector is best seen as an
equation -- on one side are the planned or desired performance results,
on the other side are the planned payouts. As performance improves,
there is a direct and explicit, almost formula-driven linkage to the
cash payouts. Those payouts continue to be tied at least in part to
company success but there are separate measures or criteria to determine
a portion of each individual's award based on how well their group or
team performs.

A widely used concept in planning cash incentives is the "guideline" or
"target" award. A guideline award is expressed as percentage of salary
and is the amount a plan participant can expect for achieving the
performance goals. If performance exceeds the goals, participants can
generally expect more than the guideline amount. When they fail to reach
the goal(s), the awards are below the guideline amounts.

For executives, guideline percentages are typically in the range of 50%
for the CEO to 25% for lower level executives. The percentages
progressively diminish for lower level plan participants to perhaps 5%
for non-exempts and entry-level professionals. Actual incentive payments
would then depend on performance and be above or below these
percentages.

The guideline concept facilitates communication, serves as the basis for
budgeting, and enables plan participants to estimate their payouts
throughout the performance period. They know what the can expect at all
times.

As a point of clarification, those percentages do not include other
income, primarily from stock options. The option-related income tends to
be the large amounts that are often the focus of the media. The income
from option shares is sometimes combined in newspaper and magazine
articles with incentive payouts, which masks and tends to exaggerate the
amounts paid as incentives.

At the executive level, the most common criteria are performance goals
for the corporation or business unit, an executive's function, or
personal goals. In keeping with the accepted practice for goal setting,
it would be unusual to see more than five or six performance goals. The
CEO may retain the authority to increase or decrease individual awards,
based on his assessment of the individual's contribution, but for the
most part the awards are calculated according to a formula.

Below the executive level, industry has recently adopted a mushrooming
number of group incentive plans. These plans are referred to with
several names -- gain sharing, goal sharing, and results sharing, are
among the widely used phrases. A true gain-sharing plan is similar to a
profit sharing plan, with payouts linked to savings in labor costs. The
gain sharing concept was developed by a union leader in the 1930s so it
has been around a long time. Now, however, the phrase is often used
loosely to refer to any group incentive.

One of the most important plan design considerations, particularly for
non-management participants, is the "line-of-sight" argument. In this
context, line-of-sight refers to the perceived ability of a worker to
control or influence the performance measures. That, it is argued, is a
key to a successful incentive plan. It explains why profit sharing plans
are seldom effective -- employees simply cannot control profitability.
When employees are in a position to control or influence, the prospect
of monetary rewards can provide an incentive to perform at high levels.

Cash incentives have a variety of uses in the private sector. In the IT
industry, cash payments are used widely in recruitment -- "signing
bonuses" -- in the same way they are used in sports. Bonus payments are
also used as an incentive for retention. Another application is the
completion of important courses or for the demonstration of new skills.

The latter is of course related to the use of salary increases in
competency-based pay systems. While incentives are often dealt with
separately from salary management, both are components of a total
compensation program and need to be managed within an integrated
framework.

A final distinction between the private and public sectors is the
universal corporate practice of budgeting for all payments to employees.
Incentives are a business expense and treated as a line item in the
budget. That is a very different philosophy than that which prevails in
government, where employee bonuses are frequently paid only if money is
"left over."

# **Appendix O:**

# Finance/Payroll/HRIS Impact

## *Approach*

As part of the IT pay study, the Academy's project team examined the
potential impact of a new pay system on existing financial, payroll,
and/or human resource information systems (HRIS).

The team distributed a questionnaire listing possible pay system changes
and asked respondents to assess the degree of difficulty in
implementation, potential cost impacts, and lead time needed on
specified components of their financial, payroll, and HR information
systems. These components included requirements, software, hardware,
telecommunications, system documentation, policies and procedures,
training materials and user guides.

The questionnaire was distributed electronically to financial, payroll,
and HR information system professionals within the following information
sources:

(1) Human Resources Technology Council and member agencies

(2) Office of Personnel Management (specifically, the Office of
    Workforce Information and the Human Resources Data Network Project
    staff)

(3) Office of Management and Budget

(4) Key functional organizations (e.g., CIO Council, Joint Financial
    Management Improvement Program)

(5) Major payroll processors (e.g., DoD, USDA/NFC, VA, GSA, and
    Interior)

(6) Primary HRIS vendors

A sufficient number of responses were received to provide a
representative sample of the Government-wide impact of a potential new
pay system with unique features.

TABLE 1 - Respondents summarizes sources of responses received:

### 

### [TABLE 1 - Respondents]{.underline}

+--------------------+--------+-------+-----------+------------------+
| ### A              | ## Fu  |       |           |                  |
| gency/Organization | nction |       |           |                  |
+--------------------+--------+-------+-----------+------------------+
|                    | **Fin  | ## Pa | ##        | ## Consolidated  |
|                    | ance** | yroll | #### HRIS |                  |
+--------------------+--------+-------+-----------+------------------+
| # AOUSC            |        | 1     | 1         |                  |
+--------------------+--------+-------+-----------+------------------+
| USDA (NFC)         | 1      | 4     | 1         |                  |
+--------------------+--------+-------+-----------+------------------+
| DoD (DFAS)         |        | 1     |           |                  |
+--------------------+--------+-------+-----------+------------------+
| FAA                |        |       |           | 1                |
+--------------------+--------+-------+-----------+------------------+
| GSA                |        | 1     |           |                  |
+--------------------+--------+-------+-----------+------------------+
| Interior (NBC)     |        |       |           | 1                |
+--------------------+--------+-------+-----------+------------------+
| JFMIP              |        |       |           | 1                |
+--------------------+--------+-------+-----------+------------------+
| Justice            |        |       |           | 1                |
+--------------------+--------+-------+-----------+------------------+
| OPM (HRDN)         |        |       | 1         |                  |
+--------------------+--------+-------+-----------+------------------+
| State              |        |       |           | 1                |
+--------------------+--------+-------+-----------+------------------+
| Treasury           |        |       |           | 1                |
+--------------------+--------+-------+-----------+------------------+
| Veterans Affairs   | 1      |       | 1         |                  |
+--------------------+--------+-------+-----------+------------------+
| Vendors:           |        |       |           | 1                |
|                    |        |       |           |                  |
| PeopleSoft         |        |       |           |                  |
+--------------------+--------+-------+-----------+------------------+
| *Total: 20*        | *2*    | *7*   | *4*       | *7*              |
+--------------------+--------+-------+-----------+------------------+

## 

## *Findings*

The team identified the following trends among responses:

-   In general, the possible pay system changes would have a lower
    impact on agency financial systems than on payroll or HRIS.

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```
-   Legacy payroll and HRIS systems (e.g., DoD/DFAS, VA, USDA/NFC) will
    be more difficult to change.

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```
-   More modern payroll and HRIS systems (e.g., AOUSC, Interior, GSA)
    systems would be relatively easy to change.

```{=html}
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```
-   Most respondents emphasized that policy and procedural requirements
    must be defined clearly up front. If not, costs will escalate and
    delays will occur.

```{=html}
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```
-   The Payroll/HRIS interface is a potential problem area, especially
    in those agencies where the two systems are not currently
    integrated.

```{=html}
<!-- -->
```
-   Of the seven components rated for each system, the majority of
    respondents rated the degree of difficulty in implementation as
    follows:

    -   High -- requirements and software

    -   Medium -- system documentation, policies and procedures,
        training materials and user guides

    -   Low/None-- hardware and telecommunications

TABLE 2 -- Cost Implications summarizes projected cost implications, by
information source.

### [TABLE 2 -- Cost Implications]{.underline}

  ---------------------------------- ------------------------------------
  Agency                             Cost Implication

  AOUSC                              No significant impact (new system);
                                     some cost (legacy system)

  USDA (NFC)                         None- HRIS; Some payroll costs

  DoD (DFAS)                         Already accommodates numerous
                                     "demonstration" pay plans (but some
                                     costs identified

  FAA                                None

  GSA                                None

  Interior (NBC)                     No significant impact

  Justice                            No significant impact

  OPM (HRDN)                         Multiple adjustments

  State                              Some cost re: pay plan different
                                     from GS, broadbanding, special
                                     allowances, and adjustments to pay
                                     schedule more than once per year; in
                                     addition, will impact State
                                     Department's separate Foreign HR
                                     system allowances

  Veterans Affairs                   Some cost re: pay plan different
                                     from GS and broadbanding

  PeopleSoft                         No significant impact
  ---------------------------------- ------------------------------------

TABLE 3 -- Lead Time summarizes, by information source, minimum lead
time needs required to implement the software, hardware, or other
modifications resulting from these types of pay changes, based on
experience with similar changes in the past and assuming normal
resources available.

#### TABLE 3 -- Lead Time

  ---------------------------------- ------------------------------------
  [Agency]{.underline}               [Minimum Lead Time]{.underline}

  AOUSC                              4-6 months(new system); 6-12
                                     months(legacy system)

  USDA (NFC)                         6-12 months

  DoD (DFAS)                         11 months

  FAA                                3-5 months

  GSA                                Not provided

  Interior (NBC)                     4 months

  Justice                            limited (no specific range provided)

  OPM (HRDN)                         12-18 months

  State                              6 months

  Treasury                           6 months

  Veterans Affairs                   6-12 months

  PeopleSoft                         6 months
  ---------------------------------- ------------------------------------

## *Conclusions*

-   Overall, the degree of implementation difficulty is expected to be
    moderate. Respondents stated that the types of changes proposed are
    no more difficult or unusual than the frequent and numerous changes
    made to pay and benefits systems for a variety of purposes, such as
    for demonstration projects or special categories of employees like
    law enforcement officers or firefighters.

-   The consensus among respondents involved in operating and
    maintaining financial, payroll and HR information systems is that
    there are no significant government wide implementation-cost
    implications. (Both of the above conclusions are predicated on the
    assumption that requirements and procedures are clearly defined at
    the outset.)

-   Lead-time needed to implement changes would likely be in the 4-12
    month range, depending on the agency. Respondents stated that these
    estimates assume requirements are defined and implementation funds
    are available.

In summary, the implementation of a new pay system for IT professionals
will carry some cost, and will require some lead time; however, this
impact should not be a significant obstacle to the establishment such a
system.

Appendix P: Federal Demonstration Projects

Introduction

A major provision of the Civil Service Reform Act of 1978 was to permit
federal agencies to conduct personnel management demonstration projects
under waivers of personnel laws and regulations. Seven demonstration
projects have been implemented since 1980 in order to test more flexible
alternatives to current personnel management programs and systems
including job classification, performance management, recruitment
methodology, and employee compensation practices.

Federal agencies obtain demonstration project authority from the Office
of Personnel Management (OPM). Under prescribed conditions, OPM allows
requesting organizations to waive existing Federal human resources
management law and regulations in title 5, United States Code, and title
5, Code of Federal Regulations. This waiver permits proposal,
development, testing and evaluation of interventions for human resources
management with an eye toward improving the capacity and value-added
contribution of human resource management programs and systems in the
federal sector.

Examples of laws and regulations that may be waived under Title 5
include:

-   qualification requirements, recruitment, and appointment to
    positions;

-   [classification](../../fedclass/index.htm) and
    [compensation](../../oca/index.htm);

-   assignment, reassignment, or promotions;

-   disciplinary actions;

-   providing incentives;

-   establishing hours of work;

-   involving employees and labor organizations in personnel decisions;
    and

-   reducing overall agency staff and grade levels.

Legal requirements for the scope of demonstration projects are that:

-   the length of the project be no more than 5 years (with some
    extension permitted);

-   there be no more than 5,000 employees per project;

-   OPM oversee no more than 10 active demonstration projects at one
    time;

-   there be consultation and negotiation with affected employees and
    unions;

-   the agency submit a formal project plan;

-   Congress and employees be notified; and

-   an evaluation be done.

Many of the demonstration projects have broach interventions that are
directly related to suggested methods of approach contained in this
report for improving the federal government\'s capacity to recruit,
retain and compensate its IT workforce. Relevant information about the
results these projects, specifically those conducted at the National
Institute of Science and Technology, Department of the Navy (NWC and
NOSC \-- \"China Lake\"), Department of Commerce and the Naval Research
Laboratory, is highlighted in succeeding pages of this appendix.

**I. NATIONAL INSTITUTE OF SCIENCE AND TECHNOLOGY (NIST)** [^2]

**About the Demonstration Project**

The demonstration project was implemented January 1, 1988, at both NIST
locations in Gaithersburg, Maryland, and Boulder, Colorado, and covered
3,050 employees representing the four major occupational groups:
scientists and engineers, administrative staff, technicians and support
staff. The project was originally scheduled to expire at the end of its
5-year statutory period. OPM granted an extension until September 15
1995 to evaluate the effects made to the performance evaluation program
in 1990. A second extension to September 30, 1998 was granted to test
changes to the salary payout formula, in an effort to slow salary growth
and project costs. The project was made permanent March 7, 1996, by
Public Law 104-113.

The NIST Demonstration Project implement seven major personnel system
changes or interventions:

1.  Consolidation of the 15-grade General Schedule into 5 broad bands in
    each of 4 career paths;

2.  Simplified, automated job classification based on broad bands and
    grouping of similar occupations into career paths; classification
    authority delegated to managers;

3.  Pay for performance for all exempt and non-exempt employees;

4.  Agency-based hiring and expanded use of direct hire authority;

5.  Recruitment bonuses, travel and relocation allowances, and retention
    allowances;

6.  Extended probationary period for scientists and engineers from 1 to
    a maximum of 3 years; and

7.  Total compensation comparability.

OPM analyzed NIST\'s pay banding program in comparison with similar
progression under the GS system. All salary differences were adjusted
for pre-existing baseline differences and thus represented the
difference that could be attributed to the demonstration project. The
consolidation of grades into broad bands provides NIST employees with
increased pay potential, but progression through the bands is contingent
on performance.

After eight years, mean salaries at NIST were 10 percent higher than for
the GS comparison group. Salaries of administrative employees rose the
most and after eight years, the salary difference between NIST and the
comparison group increased to 21 percent over the baseline difference.
There are two reasons for this difference. At baseline, salaries were
five percent lower due to a more junior population. The second reason is
that the banding of grades 13 and 14 combines what was the full
performance level for many of these employees (GS-13) with a senior
expert/supervisory level. Between 1988 and 1995, most employees migrated
into the upper (GS-14) part of the band.

The NIST pay pool is currently 2.45 percent of payroll, down from 2.9
percent in the first three years and a separate cash bonus pool of 1.5
percent. Government annual pay adjustments are also contingent on
performance and added to the pay pool. Individual merit increases range
from zero to 20 percent plus comparability depending on an employee\'s
band or position within a band. NIST also has supervisory differentials
adding 3 percent for team leaders and 6 percent for managers who occupy
the same bands as non-supervisors. At NIST, salaries were 4.4 percent
higher after five years (but this was later lowered via an adjustment to
pay pools affecting payouts for administrative employees).

In 1991, NIST adjusted its base pay formula to slow salary growth. The
data show that overall salary growth declined until 1994, when it rose
again. At that time, salary growth was continuing at a faster rate than
under the GS system.

**Simplified Classification System**

The project introduced a simplified and automated classification system,
with classification authority delegated to line managers.

> [Employee Impact]{.underline}
>
> Average salaries increased under banding and after five years were
> four percent higher than for the comparison group that remained under
> the old system. However, satisfaction with the new performance
> management system increased, and according to the 1993 attitude
> survey, 67 percent of employees were in favor of the project. The
> original five-level rating system was changed in 1990 to a two-level
> system that was linked to ranking for pay purposes using a 100-point
> scale. Rating distributions remained consistent across time. In
> contrast, ratings for the comparison group under the old system showed
> a steady rise during the same period.
>
> *Employee Perceptions of Pay Equity*
>
> Compensation systems are generally designed to provide for both
> internal and external pay equity in order to attract and retain
> employees. While it is generally acknowledge that the GS system comes
> close to the goal of internal equity, in 1995, NIST employees
> perceived greater internal equity than the GS comparison group (53
> percent versus 42 percent).
>
> While external equity perceptions among employees were equally
> negative for the demonstration and GS comparison group at the
> beginning of the NIST demonstration project, in 1995 48 percent of
> NIST employees reported that they were underpaid (versus 55 percent of
> other Department of Commerce employees).
>
> In general, pay satisfaction is high at NIST than at comparison sites.
> 56 percent of NIST employees, compared with 42 percent of comparison
> group employees, were satisfied with their pay in 1995.
>
> NIST developed two different approaches for controlling salary costs -
> a top down and a bottom up approach. The bottom-up approach
> established a budget pool by examining every personnel action ion the
> base year (year prior to the demonstration project being implemented)
> that involved performance-based increases, cost-of-living adjustments,
> cash awards, and any others that had a salary cost associated with
> them. NIST calculated the total annual pay pool by adding up all of
> the salary costs of these personnel actions in the base year and this
> became their controlling number.
>
> While NIST concluded they had maintained budget neutrality, OPM found
> that their increases exceeded those of the other labs and that they
> were spending more money in the administrative career path. This was
> as a result of most employees in the administrative career path being
> in a single operating unit that received salary funds out of overhead
> (vs. scientists and engineers who were paid from direct labor funds).
> To deal with this, NIST revised its base pay funding formula and
> reduced the Administration funding allocation to bring salaries in
> these occupations in line with its other career paths. It is also
> important to note that despite the higher rate of salary growth at
> NIST (relative to the GS comparison group), NIST has remained \"budget
> neutral\" at the organizational level.
>
> [Program Impact]{.underline}
>
> Supervisors continue to find the system easy to use; they feel that
> they devote less time to position classification and that they have
> more authority to influence classification decisions.
>
> *Perceived Classification Authority*
>
> Managers have delegated classification authority to allocate positions
> to career paths and pay bands. The demonstration project assigned
> levels of classification authority to supervisors. Upper level
> managers have approval authority and line managers have classification
> or recommending authority, depending on the career path, and pay band
> of a position. Significantly more NIST managers (60 percent) than GS
> managers (34 percent) reported adequate classification authority in
> 1995.
>
> *Improved Management-Personnel Staff Relations*
>
> Delegated classification authority and simplification of the
> classification system reduced conflict over classification between
> management and personnel and allowed personnel to take a more advisory
> role. Approval of position descriptions became a less adversarial
> process. (Only nine percent of NIST supervisors found the process
> adversarial, compared to 30 percent of GS supervisors based on a 1995
> survey. Similarly, NIST supervisors were significantly more satisfied
> with the classification system than were GS supervisors: 69 percent
> versus 38 percent.)
>
> *Time spent on the Classification Process*
>
> In 1995, very few NIST managers (9 percent) agreed that they devote
> too much time to position classification, compared to 25 percent of GS
> managers. Similarly, only 13 percent of NIST managers, but 48 percent
> of GS managers, indicated that classification decisions take too long.
>
> *Ease of use of the Classification System*
>
> NIST\'s automated classification system produces two-page position
> descriptions using factor groupings: (1) duties and responsibilities
> and (2) knowledge, skills and abilities. While there was an unexpected
> decrease in the number of supervisors who agree the automated system
> is easy to use (from 80 percent in 1991 to 55 percent in 1995,
> supervisors were still significantly more satisfied with the program
> than were GS supervisors of the traditional classification system (69
> percent versus 38 percent in 1995).
>
> *Supervisory Authority Over Pay*
>
> During the demonstration, NIST supervisors reported dramatically
> increased authority over pay determination compared to their GS
> counterparts (54 percent versus 12 percent in 1995). Authority to
> promote people, unrelated to broad banding, was also seen as greater
> by NIST supervisors (59 percent versus 34 percent).

**Performance-based Pay**

The NIST pay-for-performance system was initially modeled after the
government-wide Performance Management and Recognition System (PMRS) but
was changed after three years to a two-level system linked to numerical
ratings for pay purposes. The system has two components including the
performance rating and the method for translating numerical scores into
salary increases and bonuses.

[Employee Impact]{.underline}

> Under the NIST program, merit increases are distributed from pay
> pools. Pay pools consist of groups of employees in the same career
> paths within an operating unit.
>
> *Pay Pools*
>
> Each pool had a pay manager who made final decisions about awarding
> merit increases. Supervisors submitted their subordinates\' scores and
> recommended merit increases and the pay pool manager uses this
> information to rank everyone in the pay pool. This ranking then formed
> the basis for determining the amount employees receive for their
> annual merit increases.
>
> *Bonuses*
>
> Additionally, performance bonuses are granted for special
> contributions, reinforcing and motivating employees who make the extra
> discretionary effort which otherwise might not be recognized in the
> normal performance planning and evaluation process. The awarding of
> bonus payments increased between 1988 and 1995 both at NIST and in the
> GS comparison group, but the NIST increase was greater (56 to 94
> percent versus 68 to 70 percent, respectively). Overall, NIST
> employees were more likely to receive bonuses than those in the
> comparison group. Top rated support staff were even more likely to
> receive a bonus.

[Program Impact]{.underline}

> At NIST, the managers role in personnel management has been
> strengthened through the delegation of personnel authorities without
> negatively impacting job satisfaction.
>
> *Lower Turnover*
>
> Turnover was lower following the implementation of the project which
> can to a degree be attributed to higher rates of satisfaction among
> employees. However, there were also important economic factors at that
> time which influenced this condition.
>
> *Enhanced Ability to Recruit and Retain*
>
> Recruitment interventions have helped NIST to hire and maintain a
> workforce that continues to be high in quality. Data show that NIST
> has become more competitive with the private sector and that employees
> were less likely to leave for reasons of pay.

**Summary of Results of the Demonstration Project**

-   Recruitment bonuses have been used sparingly by successfully to
    attract candidates that might not have accepted federal jobs
    otherwise. Data show that NIST has become more competitive with the
    private sector and that employees are less like to leave for reasons
    of pay.

-   The manager\'s role in personnel management has been strengthened
    through the delegation of personnel authorities without negatively
    impacting job satisfactions which has remained higher after
    implementation of the demonstration project.

-   NIST has implemented a more flexible and less cumbersome personnel
    system. Nevertheless, the broad-banding system has led to higher
    salary costs. Salary costs could be reduced by making changes to the
    banding structure, especially for administrative staff, and by
    reducing funding for merit pay increases and using mixed bonus and
    base pay increases.

-   NIST has succeeded in implementing successful pay for performance
    system. Some improvements in the performance feedback and rating
    process are recommended.

-   More than two-thirds of NIST employees support the demonstration
    project, which compares favorably with the Navy Demonstration
    Project.

II\. NAVY DEMONSTRATION PROJECT [^3]

**About the Demonstration Project**

The Department of the Navy (DON) Demonstration Project was implemented
in July 1980 at two DON research and development laboratories, the Naval
Weapons Center (NWC), China Lake, California, and the Naval Ocean
Systems Center (NOSC), San Diego, California. Implementation was phased
in by occupational group, with nearly all workers brought into the
project by the end of 1982. In November 1987, the last remaining group
of white-collar workers, clerical employees at NWC, entered the project.
As of January 1990, there were 5384 covered employees at NWC and 3291 at
NOSC.

Throughout the course of the project, data had been gathered for
comparison purposed from two other research and develop facilities in
DON: the Naval Surface Warfare Center (NSWC) located in Dahlgren,
Viriginia and White Oak, Maryland, and the Naval Air Development Center
(NADC) in Warminster, Pennsylvania. The demonstration-equivalent
population at these labs is 2669 for NADC and 4920 for NSWC.

Four relevant personnel system changes or interventions were implemented
at NOSC and NWC under the demonstration project: pay banding with
flexible starting salaries, recruitment bonuses, pay for performance,
and objectives-based performance appraisal.

**Simplified Classification Program**

The project tested a simpler and more flexible classification system
feature career paths and broad pay bands in which line managers have
more responsibility for classification. Each career path is divided into
broad pay band instead of the traditional General Schedule (GS) grades
and each band incorporates at least two GS grades. Starting salaries
could be set anywhere within the bank in which the position to be filled
is classified.

**Recruitment Bonuses**

In 1987, OPM approved addition of recruitment bonuses to give
demonstration labs another incentive to offer candidates. Bonuses were
paid out either in lump sums or in installments over a period of up to
three years and are limited to a maximum of 15 percent of a new hire\'s
starting salary.

**Pay for Performance**

Annual increases to base pay are determined according to payout formulae
which link the increases to summary performance ratings. Payouts are
made from pay pools established at each lab on the basis of historical
spending for within-grade increases, sustained superior performance
awards, and promotions between grades that were merged into a single pay
band. A smaller performance bonus pool was also created to fund lump-sum
bonuses.

**Objectives Based Appraisal**

The appraisal system is based on the principles of management by
objectives which is based on an annual appraisal cycle with three
phases:

1.  Development of performance objectives, which can be modified during
    the year;

2.  Interim reviews of performance after six months; and

3.  A year-end appraisal culminating in a summary rating at one of five
    levels of performance.

[Employee Impact]{.underline}

> Average salaries have increased two to three percent under banding.
> However, Recruitment, retention and reduced turnover of high
> performers and increased turnover of low performers have all improved.
>
> *Additional Salary Costs*
>
> According to demonstration evaluation reports, additional salary costs
> which have resulted at the various demonstrations did not appear to be
> inevitable consequences of the projects. They simply represented a
> dollar investment the demonstrations chose to make one that other
> organizations may or may not wish to duplicate. The demonstrations
> could have controlled salary costs in a number of ways by:

-   limiting the pay pool from which salary increases are paid, perhaps
    by excluding funds previously distributed as incentive awards;

-   eliminating the special salary rates for certain groups of
    employees; or

-   omitting the buy­out feature implemented at the time employees were
    brought under the demonstration system.

> Had any of these strategies been used project results might well have
> been less favorable in terms of recruitment and retention. This, in
> turn, may have manifested itself in increased program development
> costs associated with acquiring and training new talent.
>
> [Program Impact]{.underline}
>
> The demonstration projects focused on improving recruitment and
> retention of high quality workers and \"letting managers manage\" by
> increasing their control over classification, pay, and other personnel
> matters. Classification was simplified and delegated to managers. Pay
> increases within broad pay bands were linked closely to performance
> ratings. Starting salaries were made more flexible.
>
> *Reduced Time and Less Conflict in Classification Decisions*
>
> Simplified delegated job classification based on generic standards
> reduced the time for classification actions and reduced conflict
> between personnel and managers. Perceived supervisory authority over
> classification, pay and hiring increased, as did employee satisfaction
> with pay and performance management; more than 70 percent of employees
> are supporting the demonstration system. In addition, the following
> benefits were achieved (China Lake)[^4]:

-   Administrative cost savings of 0.8 percent of payroll from reduced
    paperwork and less time spent on classification due to broad
    banding.

-   Reduced turnover of high performers: turnover among high performers
    was reduced by 50 percent. Between 1984 and 1992, turnover of
    top-rated scientists (two highest ratings on a 5-point scale)
    averaged 3.5 percent at the demonstration labs, compared to 5.5
    percent at comparison sites which used traditional grades and
    longevity-based pay progression.

-   Increased turnover of low performers: over a 10-year, period,
    turnover of marginal and unacceptable performers ranged from 20 to
    50 percent. Those who were not separated improved their performance.

-   Pay satisfaction was significant higher under broad banding and pay
    for performance; 55 percent of China Lake employees reported being
    satisfied with their pay, compared to 45 percent of employees in
    other DoD labs.

-   Demo managers reported increased authority of HR functions,
    especially classification and pay.

-   Improved organizational performance: broad banding and pay for
    performance have helped the two original Navy labs become a model
    for other DoD research labs and given them a competitive edge.

**Summary of Results of the Demonstration Project**

-   Navy achieved its main objective: increased retention of high
    performers. Turnover among high performers at the demonstration labs
    has been consistently lower (3.5 percent) than at the comparison
    sites (5.5 percent) that had no organization-wide pay for
    performance system.

-   Performance rating distributions in the Navy demonstrations were
    found more rigorous than in the rest of government. In most years,
    about 50 percent of employees were rated average, and no more than
    10 to 12 percent were rated outstanding. Under the federal merit pay
    system, the percentage of those rated above average rose to 82
    percent in 1991.

-   Using historical spending levels as a basis, the Navy labs came up
    with annual funding levels of 2.3 to 2.4 percent of payroll to fund
    their pay for performance system. An addition .8 to 1 percent was
    reserved for cash bonuses. The annual comparability increase was
    also added to the merit pay pool and made contingent on performance.
    The labs used a 5-level rating system linked to a system of annual
    pay increases ranging from 0 to about 6.0 percent, plus
    comparability (provided performance was at least at the satisfactory
    level). During the 1980s, a high performer was able to earn merit
    increases of up to 10 percent. In contrast, the federal merit pay
    system provided for a maximum merit increase of 7.0 percent
    (including comparability). The Navy demonstration labs showed the
    lowest cost for their pay for performance system, with average
    salaries about 2.0 percent higher after 10 years than their control
    sites under the GS system.

**III. DEPARTMENT OF COMMERCE** [^5]

**About the Demonstration Project**

The Department of Commerce Personnel Management Demonstration Project
was implemented on March 29, 1998 and is scheduled to last five years
(March 2003). It was designed to apply several of the human resource
interventions from an early demonstration project within DOC to a wider
range of occupational areas within organizations with different
missions. The first demonstration project involved employees at NIST
(and is discussed earlier in this appendix). The NIST project was
considered to be highly successful by OPM. This project seeks to build
on the NIST venture and determine whether interventions in that project
can be successfully implemented in other DOC organizations. Project
elements included simplifying the current position classification
system; establishing a performance management and rewards system that
will improve individual and organizational performance; and improving
recruiting and examining to attract highly qualified candidates and get
new hires aboard faster. The demonstration project pay-for-performance
system was designed to better reward both individual and overall
organizational performance. It encourages better teamwork by providing
greater incentives for each team member to achieve a higher level of
individual accomplishment while contributing to the success of the team
(extracted from OPM Website, Demonstration Projects, Department of
Commerce).

> [Employee Impact]{.underline}
>
> *Higher Pay Increases*
>
> Performance‑based pay increases were higher for those who remained in
> the organization compared with those who left; turnover was lower
> among supervisors receiving supervisory performance pay, and
> Demonstration Group participants received higher pay increases than
> their counterparts in the Comparison Group.
>
> It is important to note that employees' salaries did not change upon
> conversion to the demonstration project. Those moved to positions
> outside the demonstration project were adjusted to the proper grade
> level and step. All demonstration project employees with an *Eligible*
> rating continued to receive the annual General Schedule pay increase
> and locality pay increases. The minimum and maximum rates of each pay
> band were adjusted to reflect these increases. Funds previously used
> for promotions which would have occurred within pay bands,
> within-grade increases, and quality step increases were used to fund
> incentive pay pools. Funds previously used for cash awards such as
> special act or service awards were used to fund bonus pools. Funds for
> these separate pools could not be spent for any other purposes.
>
> Supervisors in all career paths were eligible for supervisory
> performance pay, which had the potential for increasing their salaries
> by up to six percent higher than the maximum rate of their pay bands.
>
> *Higher Ratings Translate to Higher Pay*
>
> According to Booze-Allen and Hamilton (BAH), the first year of project
> implementation, the NFC's Payroll/Personnel System indicates that
> high-rated employees received higher pay raises and bonuses under the
> new system. This positive relationship indicates that as performance
> increases, so does salary received. These results provide evidence
> that the pay band structure provides the flexibility to reward high
> performers with financial gains. Objective data show that
> Demonstration Group employees received salary increases ranging from
> 0.0 to 12.2 percent based on performance. The average increase was
> 2.73 percent, that almost two-thirds received increases of less than
> 3.0 percent, and that almost 12 percent did not receive a salary
> increase. The percent salary increases given to employees spanned a
> wide range (0-12%). The fact that almost 8.0 percent of Demonstration
> Group employees received percent salary increases of 6.0 percent or
> above (linked to the prior finding that percent increases were
> directly related to performance scores) indicates that DOC managers
> are making use of the higher percentages available to reward higher
> performing employees.
>
> *Greater Pay Flexibility Perceived as Competitive Edge*
>
> Employees believe that pay bands provide a tool whereby DOC can be
> more competitive with other agencies within the federal government as
> well as public sector companies. By increasing a hiring official's
> flexibility in establishing a new employee's base pay, DOC can attract
> candidates that would have otherwise taken a position elsewhere.
>
> BAH reported that supervisors in the Demonstration Group agreed more
> frequently that their pay system is more flexible than did Comparison
> Group participants. Additionally, information from interviews with pay
> pool managers indicates a new flexibility previously unavailable to
> them. Pay pool managers stated that the new pay bands are easy to use
> and understand. They perceive that the flexibility they provide helps
> their organization to establish competitive starting salaries. Pay
> pool managers state that this system has already made a difference to
> their organizations. The ability to start a highly qualified candidate
> at a higher rate than he/she would have under the old system increases
> the likelihood of hiring a sought-after candidate.
>
> [Program Impact]{.underline}
>
> *Initially More Work for Supervisors*
>
> The demonstration increased delegated authorities, simplified and
> streamlined classification and provided greater flexibilities in
> decision making. Some functions, such as position classification and
> staffing, consequently required less time, whereas performance
> management required more. BAH found that the workload of supervisors
> and managers increased substantially with the implementation of the
> project. Managers and supervisors stated that while they wanted the
> flexibility provided by the project, they were surprised at the amount
> of work that it took to initially implement them and manage the
> project during the first year. Non-supervisory focus group
> participants said that the performance appraisal system would have
> worked better if supervisors had not been so overworked, doing
> appraisals and doing their own technical work. This is in spite of the
> fact that supervisors were given an incentive (via supervisory
> performance pay) to find creative ways to balance the amount of time
> spent on their technical vs. supervisory tasks.
>
> *More Autonomy for Work Units*
>
> BAH focus groups revealed that supervisors from the Demonstration
> Group did not feel that the new automated classification system was a
> drastic change from the old system. However, supervisors did indicate
> that the new system offered them more control over the classification
> process. Supervisors agreed that this was an important step in
> providing more autonomy for their work unit.
>
> *Less Need for Interaction with HR Office*
>
> BAH employee focus groups also noted that DOC employees believe the
> new automated classification system does not improve upon the
> classification decisions but instead improves the process of
> classification. By allowing managers to perform this role, managers
> can reduce the required interaction with the Human Resources Offices.

IV. **NAVAL RESEARCH LABORATORY** (NRL) [^6]

**About the Demonstration Project**

NRL\'s Personnel Demonstration Project included a broad band
classification/pay system similar to the proposed market driven reform
model. The project reallocated positions to one of four career tracks
and each track consists of three to five career levels or broad bands.
Most career levels in the new system contain two or more general
schedule grade levels.

[Employee Impact]{.underline}

> The broad band feature of NRL\'s Personnel Demonstration Project had
> the potential of escalating costs if employees were moved unchecked
> through their pay bands or career levels. This is because most career
> levels combine two or more GS grade levels allow pay to exceed the
> highest step of an employee\'s full performance grade level without
> the employee receiving a promotion.
>
> To control costs (maintain cost neutrality), NRL benchmarked several
> organizations which developed successful mitigation strategies. Two
> similar research and development laboratories, Lawrence Livermore and
> Sandia, which both have broad banding systems, use a top down
> approach. Overall salary increase guidelines are provided from the top
> and implementation, in terms of decisions on individual increases, is
> at the working level. To maintain cost neutrality, all increases must
> be within the total increase budget which is stated in terms of a
> percentage of the current salary budget.

-   At Livermore, three lab-wide salary committees allocate a fixed
    amount of money to three directorates ( scientists and engineers:
    technicians; and administrative personnel) for salary increases.
    Ranking for increases is based on three criteria: knowledge skills
    and abilities; importance of the job to the overall program; and
    performance. Salary increases are then granted based on an
    employee's relative ranking.

-   Sandia's process is slightly different with respect to the structure
    of its salary committees and it also expands on criteria used to
    rank employee contributions. As part of the performance management
    process, managers rate "Value of Contribution" for all employees
    which includes performance, job knowledge, task management,
    customer, supplier relations, team work, communications
    effectiveness, scope of responsibility and complexity of work.

> [Program Impact]{.underline}
>
> The implementation of pay banding has afforded NRL the opportunity to
> restructure its research and development organizations to take
> advantage of new HRM flexibilities. Such restructuring has the
> potential advantage of freeing scientists and engineers to concentrate
> on research and development work and to generate administrative
> overhead savings in terms of work processes. This assumes that there
> will be additional professional work available for these employees in
> lieu of administrative tasks. The professional work would generate
> more revenue by increasing the productivity and amount of direct work
> performed by scientists and engineers.

**Conclusions About the Demonstration Projects**[^7]

The federal demonstration projects have moved toward a decentralized,
professionalized service that gives managers more control over hiring,
firing, and paying employees. The evaluation results show that
increasing managerial authority did not negatively affect employees.
However, managers need to be well trained to ensure that these programs
are administered in a fair and equitable manner, and they have to be
held accountable for the results.

Organizational change experts tell us that for mature organizations, the
cycle time for creating fundamental, cultural change is twice that need
for introducing a new technology. For the federal personnel system, the
demonstration projects can be considered new technology. Given that it
has taken fourteen years to implement the first successful demonstration
project on a permanent basis, it may take another fourteen years for the
federal personnel system to succeed in renewing itself.

The demonstration projects have taught us that commitment to change can
overcome the absence of preexisting ideal conditions. Both Navy and NIST
gradually moved toward a performance culture over time. The data from
their demonstrations show that resistance to change can be overcome if
there is a strong, long-term commitment to making the change successful.

[^1]: Taken from Bureau of Labor Statistics (BLS) database by defining
    Information Technology (IT) as an industry for comparison purposed.

[^2]: Summative Evaluation Report on NIST Demonstration Project
    1988-1995, Office of Personnel Management, June 27, 1997

[^3]: Management Report XIV for the Navy Personnel Demonstration
    Project, USOPM, August 1991

[^4]: OPM Status Report on DOD S&T Reinvention Laboratory Demonstration
    Program, June 1998

[^5]: Department Of Commerce Personnel Management Demonstration Project
    Evaluation

    Implementation Report, Washington, DC, June 5, 2000, Booz-Allen and
    Hamilton

[^6]: Naval Research Laboratory: Position Management Analysis, A Report
    from a Panel of the National Academy of Public Administration, March
    1999

[^7]: Paying for Performance: Lessons Learned in Fifteen Years of
    Federal Demonstration Projects, Brigitte W. Schay