# Presentation: 313389

## STRATEGIC 

- COMPENSATION
- UPDATE

## STRATEGIC COMPENSATION UPDATE

- Strategic Compensation Initiative
- The Process
- Research Findings and Issues
- Next Steps

## STRATEGIC COMPENSATION UPDATE

- OPM Strategic Goals include developing:
- 	“a flexible, competitive and performance-oriented compensation and benefits environment that allows the Government to recruit, manage, and retain a quality Federal workforce.”

## STRATEGIC COMPENSATION INITIATIVE

- _Process_
- Research on compensation practices and issues
- Outreach to Federal community to inform and involve
- Cooperative development of possible changes with Federal stakeholders

**Notes:**
Research database of over 300 articles related to seven compensation components
Research for stakeholders and working group members on specific questions related to compensation issues
State and city government studies
Private sector compensation survey
History of General Schedule reflecting changes throughout time
History of job/work evaluation
Outreach - meetings with high level stakeholders
 focus groups - Federal Professional Scientists and Engineers/Interior/Federally Employed women

## Strategic Compensation Development Process

- Integrate Component Results

- Draft Proposed Changes

- Stakeholders

- FY 1999 - FY 2002

- Cost
- Management

- Equity

- Collective
- Bargaining

-    Other
- Issue(s)

- Stakeholders

- Legislative & Regulatory Proposals

- Premium/Special Pay

-   Pay Progression Strategies

- Job/Work Evaluation

**Structure Setting & Adjustment**

-    Performance Management

- Other Strategic Rewards

-    Paid Time Off

- Variable Pay

## STRATEGIC COMPENSATION UPDATE

-   _Research Findings_
- Private Sector
- Non-Federal Public Sector
- Federal Non-Title 5 agencies
- Organized by 7 components
- Job/Work Evaluation
- Structure Setting and Adjustment
- Pay Progression Strategies
- Performance Management
- Variable Pay
- Premium/Special Pay
- Paid Time Off

**Notes:**
Private Sector - survey conducted by Booz.Allen & Hamilton of 41 companies that were identified based on comparison of Federal government work with work performed in the private sector--
   will be discussed in more detail on following 2 slides
Public sector - 15 state governments and 4 city governments compensation practices
Federal non-Title 5 agencies - Review of FIRREA agencies, Postal Service, FAA and others
7 components - stakeholders asked us to develop a process to follow
in looking at compensation redesign -- the 7 components will be discussed further-

## STRATEGIC COMPENSATION UPDATE

- _Findings_
- Private Sector
**Companies tend to match competitors in salary & benefits; they vary considerably in bonuses/variable pay and stock options**
**External competitiveness more important than internal equity or affordability in setting compensation policy, although its relative importance may be tied to current market conditions**
**Most companies use some form of variable pay; of those who do not, most have bonus or stock option programs for managers or top performers**

## STRATEGIC COMPENSATION UPDATE

- _Findings_
- Private Sector
- Compensation Competition in the marketplace is the major driver for making changes to compensation policy
- Compensation practices in the private sector do not follow a “one-size-fits-all” model
- Practices vary widely with companies designing their practices so they are aligned to meet their specific business needs, workforce needs, their culture/philosophy, and the needs of employees expressed through collective bargaining.

## JOB/WORK EVALUATION 

- _Definition  _
- _Job_ evaluation is a formal process for: 		determining the relative value of various jobs within the organization, and* **assigning jobs to a grade structure or some other hierarchical index of job value*
- _Work _evaluation includes methods for valuing work that are not centered on job tasks. For example, work evaluation could be based on roles or competencies.

## JOB/WORK EVALUATION

- _Findings_
- Private Sector
- Market pricing and job slotting were most common approaches
- A substantial minority used point factor systems
- Firms without formal job evaluation system had monitoring and review mechanisms to ensure compliance with Equal Pay Act

## JOB/WORK EVALUATION

-    _Findings_
-    Public Sector
- OPM survey indicates states use formal job evaluation systems
- States use job evaluation to identify qualification requirements, place jobs in salary structures, and maintain internal equity
- Some states, job evaluation results are used in conjunction with market rates, internal salary relationships and other factors to assign a job to a grade or pay range

## JOB/WORK EVALUATION

-     _Findings_
-     Non-Title 5
- Variety of methods, sometimes combined
- Some use market-pricing for specific jobs
- Often used with broad pay ranges
- Some reference to GS structure or OPM standards

## JOB/WORK EVALUATION

-     _Findings_
-     Demonstration projects
- Some person-based approaches
- Often used with broad pay ranges
- Strong linkage to pay
- Direct translation from GS grades to broad grades
- Union agreement required

## JOB/WORK EVALUATION

-      _Issues_
- Should there be one job/work evaluation
- system or should approaches vary--
- position-based systems
- person-based systems
- skill or competency-based systems
- hybrid systems

## STRUCTURE SETTING AND ADJUSTMENT

- _Definition _
- A pay structure is a collection of pay rates or ranges.
- Structure setting and adjustment is the process of developing, adjusting, and maintaining a pay structure.

## STRUCTURE SETTING AND ADJUSTMENT 

- _Findings_
- Private Sector
- Market data -primary role
- Competitiveness is critical
- No external approval is required
- Public perception is not important

- Public Sector
- Market data - plays a limited role
- Affordability is critical
- Adjustments are subject to external (legislative ) approval
- Public perception is important

## STRUCTURE SETTING AND ADJUSTMENT

- Private Sector
- 1-3 structures
- Structures divided by exempt; non-exempt; executive
- Occupation specific structures to address competition
- Grades & ranges-some broadbanding
- Geographic differentials limited to non-exempt positions
- Range width 40% of more

- Public Sector
- 1-10 or more structures
- Structures divided by occupational or bargaining unit lines
- Grades & ranges-broadbanding rare
- Geographical differentials uncommon, but broadly applied when used
- Range width of less than 40%

- _Findings_

## STRUCTURE SETTING AND ADJUSTMENT

- _Findings_
- Non-Title 5
- Single structures
- Wider ranges
- Market-based adjustments
- Adjustments often performance-contingent
- Demonstration Projects
- Banding prevails
- Adjustments sometimes performance-contingent
- GS linkage continues (in practice)
- Union agreement required

## STRUCTURE SETTING AND ADJUSTMENT

- _Issues_
- The number and coverage of schedules
- The relationship between schedules
- The size and variability of pay ranges
- Whether the schedule(s) will be divided
-     into discrete pay ranges and levels
- How schedules will be developed and adjusted - role of negotiation, surveys, cost controls

## STRUCTURE SETTING AND ADJUSTMENT

- _Issues(continued)_
- Equity - what is the acceptable level of variation across employees, occupations, organizations
- Cost control and accountability - will pay levels be affordable and defensible
- Feasibility - what resources will be needed to maintain and administer the schedules

## PAY PROGRESSION STRATEGIES

- _Definition_
- Pay progression refers to changes in basic pay, other than
- general adjustments or increases. Under the General
- Schedule, there are three primary means of pay progression:
- “Career ladder” promotion
- Competitive promotion
- Performance-based increases, including the within-grade increases (WIG) and the quality step increase (QSI).

## PAY PROGRESSION STRATEGIES

- _Findings_
- Private sector
-  pay progression based primarily on   		performance is a widespread practice
-  merit pay is common, particularly in large 	organizations
-  time-based pay progression (longevity 		increases) is much more common under 		collective bargaining agreements.

## PAY PROGRESSION STRATEGIES

- _Findings_
- Public sector systems reflect values and
- objectives such as internal equity, cost control
- and an emphasis on experience and longevity.
- Such systems typically have:
-  limited progression potential
-  time-based pay progression, and
-  limited performance-based progression

## PAY PROGRESSION STRATEGIES

- _Issues _
- 	Additional or alternate means of pay progression such as:
- Progression on attainment of key skills or competencies
- Progression based on specific accomplishments
- Accelerated progression based on performance (over and above the QSI)

**Notes:**
Issues 
	Additional or alternate means of pay progression such as:
Progression on attainment of key skills or competencies
Progression based on specific accomplishments (e.g., contribution-based pay)
Accelerated progression based on performance (over and above the QSI)

## PAY PROGRESSION STRATEGIES

- _Issues_
- Equity - are differing rates of pay progression acceptable?
- Pay-at-risk vs. guarantees - is variability acceptable?
- Performance management - how will performance be measured and linked to pay
- Cost - how will pay increases be funded and budgeted
- Accountability - how will pay increases be justified to the public

## PERFORMANCE MANAGEMENT

- _Definition_
- Performance management includes all activities associated with planning, monitoring, developing, rating and rewarding performance.
- For purposes of compensation system development, “performance management” is limited to activities that inform compensation decisions.This component considers two aspects of performance management, employee development and performance rating.

## PERFORMANCE MANAGEMENT

- _Findings:_
- Private Sector
- Pay-for Performance is a common element of corporate compensation philosophy,  and
- Many organizations use performance as a primary determinant of pay progression

## PERFORMANCE MANAGEMENT

- _Findings:_
- Public Sector
- Most States have formal performance evaluation systems
- Most States use summary ratings, following standard rating patterns and
- Most States use pay and performance linkages similar to those in the Federal sector

## PERFORMANCE MANAGEMENT

- _Findings:_
- Non-Title 5:
- Performance appraisal (Title 5) used for both    merit pay and adverse action
- Employees who receive ratings below fully successful do not receive merit pay increases
- Demonstration Projects:
- Link to pay
- Systems beyond summary ratings

## PERFORMANCE MANAGEMENT

- _Issues_
- Level of performance management - individual, team or group, business unit, organization
- Types of performance evaluated - outputs, results, behaviors or attributes, combinations
- Methods - supervisory assessment, self-assessment, peer assessment, customer satisfaction, quantitative or qualitative measures
- Outputs - narrative assessment, performance score or index, ranking and combinations
- Uses - provide feedback, relate individual to organizational performance

## VARIABLE PAY

-    _*Definition  *_
*   **Variable pay is non-recurring pay    based on individual, group, or organizational performance**.*

## VARIABLE PAY

- _Findings_
- Private Sector
- Two-thirds of companies offer at least one variable pay plan for non-sales employees today, compared to about half in 1990
- Proportion of overall payroll expenses represented by variable pay has doubled from about 4 percent to about 8 percent
- Most popular basic variable pay plans are incentive awards based on meeting organizational goals and individual employee recognition awards

## VARIABLE PAY

-     _Findings_
- Public Sector
- Payment to individuals based on individual performance
- Payment on top of base pay (no “pay-at-risk”)
- Tight agency-imposed limits on individual award values, and
- Limited managerial discretion to vary individual award values

## VARIABLE PAY

- _Findings_
- Non-Title 5
- “Add-on” rather than “at risk”
- Similar to Title 5
- Demonstration Projects
- Not a cornerstone
- Most focus on base pay
- Positioned as a partial alternative to base pay
- Exception: Pacer Share (gainsharing)

**Notes:**
Exception U S Postal Service - Economic Value Added program-pay at risk; 
COLA eliminated
Covers all non-bargaining unit employees
employees earn or lose credits based on organizational and unit performance
1/3 of credit balance paid each year
all credits are paid on separation
credits are paid in lump sums without benefits implications
no credits are paid if separated for cause

## VARIABLE PAY

- _Issues_
- How much pay should be “guaranteed Governmentwide?”
- How much “pay-at-risk” should be allowed in one agency versus another? What levels of individual total compensation are acceptable?
- Should there be any budgetary limits on how much an agency can spend on directly compensating employees?
- Could agencies be able to defend larger (and more varied) awards and total compensation to Congress and the public?

## PREMIUM/SPECIAL PAY

- _	__Definition_
-    Premium/Special pay is compensation, in addition to an employee’s normal salary or wage (basic pay), for extraordinary job demands or working conditions or to meet a special need of the organization (e.g., an allowance to retain needed staff).

## PREMIUM/SPECIAL PAY

- _Findings_
- 	Private Sector
- Private sector firms premium/special payments include:
- Overtime
- Shift differentials
- Holiday and weekend work
- Availability pay
- Hazardous, dangerous or unpleasant work
- Most private sector firms do not pay for special work conditions for white-collar employees

**Notes:**
Availability pay (a differential in lieu of “regular” overtime

## PREMIUM/SPECIAL PAY

- _Findings_
- Public Sector
- State governments premium/special payments include:
***Environmental differentials***
***Overtime***
***Sunday pay***
***Holiday pay***
***Shift differentials***
- Premium pay is either paid as a percentage of basic pay or a lump-sum premium payment

## PREMIUM/SPECIAL PAY

-     _Findings_
- Non-Title 5
- Supervisory duties - uses different (higher) set of bands, for each job category
- Overtime -paid based on time worked in excess of scheduled tour-not keyed to day worked, or a set 24-hour period
- May offer time-and-a-half as alternative to comp time
- One agency eliminated biweekly and total annual pay caps, dual compensation restriction for military retirees
- Compensatory time for exempt employees (with prior approval); use is limited
- Night differential paid (relatively few employees covered)

## PREMIUM/SPECIAL PAY

- _Issues_
- What hazards, demands should be compensated
- What segments of the workforce should be covered
- Criteria for payment and form of payment
- What constitutes fair compensation for job hazards and special demands?
- Is it acceptable to allow cost or labor market considerations to influence premium pay policy?
- Do provisions encourage agencies and employers to mitigate hazards?

## PAID TIME OFF

- _	_
- _	__Definition   _
-    Paid time off (PTO) refers to time off
-    work with pay

## PAID TIME OFF

-     _Findings_
- Private Sector
- Similar categories
- some use of PTO banks
- Service-based accrual
- Limited carry-over
- “Cash out” provisions common

**Notes:**
Subject to collective bargaining

## PAID TIME OFF

-    _Findings_
-    Public Sector
-  Most similar to Federal
- separate annual and sick leave
- service-based annual leave accrual
- no PTO banks

## 		PAID TIME OFF

-    _Findings_
-  	Non-Title 5
- 		Standard Federal accrual and use
- 		provisions
-  Demonstration Projects
- 		Not authorized to deviate from
- 		current leave structure

**Notes:**
Demonstration projects do not permit deviations to leave or benefits

## PAID TIME OFF

- _Issues_
- Single or multiple types
-  annual and sick leave vs. PTO banks
- PTO to support employer goals
- Volunteer work
- Sabbaticals
- Public policy (court, military leave)
- Sharing/donation provisions

## STRATEGIC COMPENSATION UPDATE

- _NEXT STEPS_
- Work with Federal stakeholders underway
- Webpage for research information
- Begin developing proposed changes

## STRATEGIC 

- COMPENSATION
- UPDATE