United States Government Accountability Office

GAO Testimony 

Before the Subcommittee on Oversight of Government 

Management, the Federal Workforce and the District of 

Columbia, Committee on Homeland Security and 

Government Affairs, U.S. Senate 

HUMAN CAPITAL 

Aligning Senior Executives’ 

Performance with 

Organizational Results Is an 

Important Step Toward 

Governmentwide 

Transformation 

Statement of Brenda S. Farrell 

Acting Director 

Strategic Issues 

For Release on Delivery

Expected at 10:45 a.m. EDT 

Tuesday, September 26, 2006

 

GAO-06-1125T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

September 26, 2006

HUMAN CAPITAL

Aligning Senior Executives’ Performance 

with Organizational Results Is an 

Important Step Toward Governmentwide 

Transformation 

Highlights of GAO-06-1125T, testimony 

before the Subcommittee on Oversight of 

Government Management, the Federal 

Workforce and the District of Columbia, 

Committee on Homeland Security and 

Governmental Affairs, U.S. Senate 

The government’s senior 

executives need to lead the way in

transforming their agencies’ 

cultures. Credible performance 

management systems—those that 

align individual, team, and unit 

performance with organizational

results—can help manage and

direct this process. In past work,

GAO found that the performance 

management systems for senior

executives fell short in this regard. 

In November 2003, recognizing that 

reforms were needed, Congress 

authorized a new performancebased pay system that ended the

practice of giving annual pay

adjustments to senior executives. 

Instead, agencies are to consider 

such factors as individual results 

and contributions to agency 

performance. If the Office of

Personnel Management (OPM)

certifies an agency’s new 

performance system and the Office of

Management and Budget (OMB) 

concurs, the agency has the flexibility 

to raise the pay of its highest 

performing senior executives above 

certain pay caps. 

This testimony addresses (1) the 

performance management system’s 

regulatory structure, (2) OPM’s

certification process and agencies’ 

views of it, and (3) OPM’s role in 

monitoring the system, and the 

number of agencies that have been

certified to date. This statement is 

based on GAO’s issued work, 

which included interviews with 

senior OPM officials, agency Chief 

Human Capital Officers and Human 

Resource officers, and reviews of 

agency documents. 

Overall, the regulations that OPM and OMB developed to administer a 

performance-based pay system for executives serve as an important step for 

agencies in creating an alignment or “line of sight” between executives’

performance and organizational results. To qualify for the pay flexibilities 

included in the statute, OPM must certify and OMB must concur that an 

agency’s performance management system meets nine certification criteria, 

including demonstrating that its performance management system aligns

individual performance expectations with the mission and goals of the 

organization and that its system as designed and applied makes meaningful 

distinctions in performance. The certification criteria are generally consistent 

with key practices for effective performance management systems GAO 

identified that collectively create a line of sight between an individual’s 

performance and an organization’s success. To receive a full 2-calendar-year

certification, an agency must document that its senior executive

performance management system meets all nine of the criteria. Agencies

can meet four of nine criteria and demonstrate that their system in design 

meets the remaining certification criteria to receive 1-year provisional 

certification and use the higher pay rates. 

Two divisions in OPM, as well as OMB, independently review agencies’ 

certification submissions. A number of agencies GAO contacted expressed 

concern over OPM’s ability to communicate expectations, guidance, and 

deadlines to agencies in a clear and consistent manner. OPM officials agreed 

that agencies need better guidance and were working on improvements. 

In monitoring agencies’ performance management systems, OPM can 

suspend an agency’s certification at any time with OMB concurrence if an 

agency is not complying with the certification criteria. According to OPM 

data, performance management systems at 24 agencies were certified during 

calendar year 2006. Of these, only the Department of Labor’s system 

received full certification; the remaining systems received only provisional

certification. These findings are not surprising. As GAO has noted in its past 

work, agencies could find it initially difficult to provide the necessary 

performance data to receive full certification. Going forward, it will be 

important for OPM to continue to monitor the certification process to help 

ensure that provisional certifications do not become the norm, and agencies

develop performance management systems for their senior executives that 

meet all of OPM’s requirements. 

The new performance management system for the government’s senior 

executives will help agencies align individual, team, and unit performance with

organizational results. Although there have been some implementation 

challenges, what will be important is how OPM works with agencies to meet 

the certification criteria. Moreover, the lessons learned in implementing the 

senior executive performance management system can be applied to 

modernizing the performance management systems of employees at other 

levels. 

www.gao.gov/cgi-bin/getrpt?GAO-06-1125T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Brenda S. 

Farrell at (202) 512-3604 or farrelb@gao.gov. 
Chairman Voinovich, Senator Akaka, and Members of the Subcommittee: 

Thank you for the opportunity to be here today to discuss the federal 

government’s implementation of pay-for-performance systems for the 

approximately 7,000 members of the Senior Executive Service (SES) and 

those in other senior positions. As we have consistently testified, and as 

the Subcommittee has recognized, an agency’s human capital is its most 

important catalyst for transforming government to meet the current and 

emerging challenges of the 21st century. We have also highlighted how 

federal human capital systems designed in the past are outmoded and, in

some cases, barriers to an agency’s transformation. 

In our earlier work on senior executive performance management, we 

noted how high-performing organizations have recognized that a critical

success factor in fostering a results-oriented culture is a performance 

management system that creates a “line of sight” showing how unit and 

individual performance can contribute to overall organizational goals and 

helping them understand the connection between their daily activities and 

the organization’s success. We also discussed how high-performing 

organizations understand that they need senior leaders who are 

accountable for results, drive continuous improvement, and stimulate and

support efforts to integrate human capital approaches with organizational 

goals and related transformation issues.1

In 2002, we reported that significant opportunities existed to strengthen 

agencies’ efforts to hold senior executives accountable for results through 

their performance management systems.2

 In particular, we reported that 

more progress was needed in explicitly linking senior executives’ 

performance expectations to the achievement of results-oriented 

organizational goals, fostering the necessary collaboration both within and 

across organizational boundaries to achieve results, and demonstrating a 

commitment to lead and facilitate change. 

Over the past few years, Congress and the administration have sought to 

modernize senior executive performance management systems. In 

November 2003, Congress established a new performance-based pay 

 1

GAO, Human Capital: Senior Executive Performance Management Can Be Significantly 

Strengthened to Achieve Results, GAO-04-614 (Washington, D.C.: May 26, 2004). 

2

 GAO, Results-Oriented Cultures: Using Balanced Expectations to Manage Senior 

Executive Performance, GAO-02-966 (Washington, D.C.: Sept. 27, 2002). 

Page 1 GAO-06-1125T 
system as part of the National Defense Authorization Act for Fiscal Year 

20043

 that is designed to provide a clear and direct linkage between 

performance and pay for the government’s senior executives. Additionally, 

aspects of the legislation can help address two shortcomings with the 

previous pay system: pay compression, and the failure of agencies to make 

meaningful distinctions among senior executives’ job performances. Pay 

compression occurred in part because the previous system had six pay 

levels. Because of pay caps and other factors, senior executives at the top 

three levels received essentially the same amount of base pay in a given 

year. For example, we reported that about 70 percent of SES members 

received the same basic pay due to compression in 2003.4

 At the same 

time, the administration believed that agencies’ performance management 

systems were not making meaningful distinctions in senior executives’

performance as demonstrated by the large percentage that consistently 

received the highest ratings possible. 

The new pay system ended the practice of giving annual across-the-board 

or locality pay adjustments to senior executives. Instead, agencies are to 

base pay adjustments for senior executives on individual results and 

contributions to the agency’s performance by considering the individual’s 

accomplishments and such things as unique skills, qualifications, or 

competencies of the individual and the individual’s significance to the

agency’s mission and performance. The system also replaced the six SES 

pay levels with a single, open-range pay band. Further, agencies can apply 

for certification of their performance appraisal systems by the Office of 

Personnel Management (OPM), with Office of Management and Budget 

(OMB) concurrence. Once an agency is certified, it has the flexibility to 

raise the pay of its highest performing SES members above certain pay 

caps. As an example, those agencies with certified performance 

management systems can increase base pay to $165,200 for 2006. This 

compares to a cap of $152,000 for base pay for those agencies without 

certified systems. OPM and OMB jointly issued regulations establishing the 

criteria for obtaining this certification in July 2004. 

In addition to SES employees, many agencies use senior employees with 

scientific, technical, and professional expertise, commonly known as 

senior-level (SL) and scientific or professional (ST) positions. SL/ST 

 3

 Pub.L. No.108-136, Nov. 24, 2003. 

4

GAO, Human Capital: Trends in Executive and Judicial Pay, GAO-06-708 (Washington,

D.C.: June 21, 2006). 

Page 2 GAO-06-1125T 
positions have a lower maximum rate of basic pay than SES employees, 

and unlike the SES, their individual rate of pay does not necessarily have 

to be based on individual or agency performance. However, an agency

may apply to OPM and OMB for certification of its SL/ST performance 

management system, and if the system is certified as making meaningful 

distinctions in relative performance, an agency may raise the total annual

compensation maximum for SL/ST employees to the salary of the Vice

President. However, certification does not affect the maximum rate of 

basic pay of SL/ST employees. 

We believe the new senior executive pay-for-performance system is an 

important step in aligning individual, team, and unit performance with 

organizational results. Indeed, high-performing organizations have 

recognized that their performance management systems are strategic tools 

to help them manage on a day-to-day basis and achieve organizational 

goals in part by linking their senior executive performance management 

systems to their organizations’ success. Moreover, the lessons learned 

from implementing the new senior executive pay system can inform 

efforts to modernize the pay systems under which other federal employees 

are compensated. Indeed, cascading aspects of this approach to other 

levels of employees can help agencies recognize and reward employee 

contributions and achieve the highest levels of individual performance. 

In my remarks today, I will discuss (1) the regulatory structure of the 

senior executive pay system and the importance of achieving a line of sight 

between executives’ performance and organizational success by linking

pay with performance, (2) the agency certification process and agencies’ 

views of it, and (3) OPM’s role in evaluating and monitoring the system, 

and the number of agencies that have been certified to date. 

Mr. Chairman, as you know, the Senate Committee on Homeland Security 

and Governmental Affairs and your Oversight of Government 

Management, the Federal Workforce, and the District of Columbia 

Subcommittee requested that we conduct a review of OPM to identify 

management challenges that could affect its ability to lead human capital 

reform efforts. As part of our review, we have interviewed or obtained 

written responses from all 23 members of the Chief Human Capital 

Officers Council (CHCO) and/or their corresponding agency human 

resource (HR) directors to gain a customer perspective of OPM’s products 

and services and their views of OPM management challenges. We obtained 

agencies’ views on their experiences with OPM’s certification of SES payfor-performance systems. Our forthcoming report on this work will be 

issued in November 2006 and will include the agencies’ experiences with 

Page 3 GAO-06-1125T 
the certification process, as well as recommended actions to enhance 

OPM’s capacity to lead and implement human capital reform overall. My 

statement today is based on our issued products which were conducted in

accordance with generally accepted government auditing standards. 

Overall, the regulations that OPM developed to administer a performancebased pay system for senior executives serve as a substantive and positive 

step for agencies in holding senior executives accountable for their 

performance and contributions to organizational success. The new senior 

executive pay system raises the cap on base pay and total compensation. 

For 2006, the caps are $152,000 for base pay (Level III of the Executive 

Schedule) with a senior executive’s total compensation not to exceed 

$183,500 (Level I of the Executive Schedule). If an agency’s senior 

executive performance management system is certified by OPM and OMB 

concurs, the caps are increased to $165,200 for base pay (Level II of the 

Executive Schedule) and $212,100 for total compensation (the total annual 

compensation payable to the Vice President). 

To qualify for these flexibilities, agencies’ performance management 

systems need to meet nine specified certification criteria, including 

demonstrating that the systems align individual performance expectations

with the mission and goals of the organization and that its appraisal 

system as designed and applied makes meaningful distinctions in 

performance. 

The Regulatory 

Structure of the 

Senior Executive 

Performance 

Management System 

Helps Link 

Executives’ 

Performance to 

Organizational 

Results 

To receive a full 2-calendar-year certification, an agency must provide 

documentation that its senior executive performance management system 

meets all nine of the criteria. Otherwise, agencies can meet four of nine 

criteria and demonstrate that their system in design meets the remaining 

certification criteria to receive 1-year provisional certification and use the 

higher pay rates. Agencies with 1-year provisional certification must 

reapply annually, and agencies with full certification must reapply every 2 

years. Those agencies with more than one performance management 

system for their senior executive employees are to certify each system 

separately. 

The certification criteria are framed as broad principles designed to serve 

as guidelines to position agencies to use their performance management 

system(s) strategically to support the development of a strong 

Page 4 GAO-06-1125T 
performance culture and the attainment of the agency’s mission, goals, and 

objectives. The certification criteria are generally consistent with our body 

of work identifying key practices for effective performance management.5

Specifically, we identified key practices, including aligning individual 

performance expectations with organizational goals, linking pay to 

individual performance, and making meaningful distinctions in 

performance, that collectively create a line of sight between an individual’s 

performance and an organization’s success. These practices are reflected 

in the final certification criteria. 

Key aspects of the OPM certification criteria, as outlined in the 

regulations, are as follows: 

(1) Alignment: Individual performance expectations must be linked to or 

derived from the agency’s mission, strategic goals, program/policy 

objectives, and/or annual performance plan. 

(2) Consultation: Individual performance expectations are developed with 

senior employee involvement and must be communicated at the beginning 

of the appraisal cycle. 

(3) Results: Individual expectations describe performance that is 

measurable, demonstrable, or observable, focusing on organizational 

outputs and outcomes, policy/program objectives, milestones, etc. 

(4) Balance: Individual performance expectations must include measures 

of results, employee and customer/stakeholder satisfaction, and/or 

competencies or behaviors that contribute to outstanding performance. 

(5) Assessments and Guidelines: The agency head or a designee provides 

assessments of the performance of the agency overall, as well as each of 

its major program and functional areas. 

(6) Oversight: The agency head or designee must certify that (1) the 

appraisal process makes meaningful distinctions based on relative 

performance; (2) results take into account, as appropriate, the agency’s 

performance; and (3) pay adjustments and awards recognize

individual/organizational performance. 

 5

GAO, Results-Oriented Cultures, Creating a Clear Linkage between Individual

Performance and Organizational Success, GAO-03-488 (Washington, D.C.: Mar.14, 2003).

Page 5 GAO-06-1125T 
(7) Accountability: Senior employee ratings (as well as subordinate 

employees’ performance expectations and ratings for those with 

supervisor responsibilities) appropriately reflect employees’ performance 

expectations, relevant program performance measures, and other relevant 

factors. 

(8) Performance Differentiation: Among other provisions, the agency must 

provide for at least one rating level above Fully Successful (must include 

an Outstanding level), and in the application of those ratings, make 

meaningful distinctions among executives based on their relative 

performance. 

(9) Pay Differentiation: The agency should be able to demonstrate that the 

largest pay adjustments and/or highest pay levels (base and performance 

awards) are provided to its highest performers, and that, overall, the 

distribution of pay rates in the SES rate range and pay adjustments reflects 

meaningful distinctions among executives based on their relative 

performance. 

In commenting on OPM’s draft regulations, we included suggestions 

intended to help agencies broaden the criteria to reinforce cultures that 

are results oriented, customer focused, and collaborative in nature. For 

example, we suggested that OPM require agencies to have their senior 

executives identify specific programmatic crosscutting, external, and 

partnership-oriented goals or objectives in their individual performance 

plans to help foster the necessary collaboration, interaction, and 

teamwork to achieve results. 

Further, based on our previous testimony that performance management 

processes need to assure reasonable transparency,

6

 we noted the new 

performance management system should have adequate safeguards to 

ensure fairness and guard against abuse.7

 Specifically, we suggested that 

OPM require agencies to build in safeguards as part of their senior 

executive performance management systems when linking pay to 

performance. For example, communicating the overall results of the 

performance management decisions to the senior executives, while 

 6

 GAO, Defense Transformation: Preliminary Observations on DOD’s Proposed Civilian 

Personnel Reforms, GAO-03-717T (Washington, D.C.: Apr. 29, 2003), p. 8. 

7

 GAO, Human Capital: Implementing Pay for Performance at Selected Personnel

Demonstration Projects, GAO-04-83 (Washington, D.C.: Jan. 23, 2004). 

Page 6 GAO-06-1125T 
protecting individual confidentiality, could help enhance the transparency

of the performance management process. We also recognized that 

scalability needs to be considered, and that small agencies might face 

difficulties communicating overall results of the performance management 

process while protecting the confidentiality of the fewer numbers of 

senior executives. In response, OPM changed some aspects of its criteria 

by incorporating these suggestions into the interim final regulations. 

Agencies can submit their applications to OPM for certification anytime 

during the year. If fully certified, the certification is good for the 

remainder of the calendar year in which the agency applied, as well as all

of the following calendar year. If provisionally certified, an agency’s 

certification is only good for the calendar year in which it applied. For 

example, if an agency is provisionally certified in October 2005, its 

certification would expire in December 2005. To ensure the agency’s 

submission is complete, the agency’s OPM contact—the Human Capital 

Officer (HCO)—first verifies that the application contains the required 

materials and documents. If complete, the HCO sends copies to the two 

OPM divisions responsible for reviewing the application, the Human 

Capital Leadership and Merit System Accountability (HCLMSA) division 

and the Strategic Human Resources Policy (SHRP) division, and an 

additional copy to OMB. An agency’s submission is reviewed 

independently by representatives within HCLMSA and SHRP in an attempt 

to bring different organizational perspectives to the review. 

The Process for 

Certifying Agencies’ 

Submissions 

A submission is reviewed against the nine certification criteria, but each 

review team has its own method for analyzing the application. After an 

initial examination, the reviewers from HCLMSA and SHRP hold an 

informal meeting to discuss the submission. The reviewers meet again in a 

formal panel after a more thorough review, and this time they are joined 

by the HCO. This panel decides whether they have enough information to 

reach a certification decision about the agency. If the panel concludes 

there is not enough information to reach a decision, the HCO will request 

that the agency provide any missing or additional supporting information. 

If the panel decides there is sufficient information to reach a decision, it 

will either certify or reject the application. 

When an application is rejected, the HCO works with the agency to help 

modify its appraisal system so that it meets the criteria. If the application 

is approved, the HCO contacts OMB for concurrence. OMB uses the same 

nine criteria to evaluate agency applications, but primarily focuses on 

measures of agency performance. If OMB concurrence is not achieved, the 

Page 7 GAO-06-1125T 
HCO works with the agency to address OMB’s concerns until resolution is 

reached. Once OMB concurs, the Director of OPM certifies the agency’s 

appraisal system and the HCO provides additional comments to the agency 

on their system and identifies any improvement needs. For example, these

comments may direct the agency to focus more on making meaningful 

distinctions in performance. 

Agencies’ Experience in 

Implementing the Senior 

Executive Pay System 

Highlights Areas Where 

Improvements Might be 

Needed 

In our ongoing work on OPM’s capacity to lead and implement human 

capital reform, we asked agency chief human capital officers (CHCO) and 

human resource (HR) directors to describe their experiences with OPM’s 

administration of the senior executive pay-for-performance certification

process. As the Comptroller General testified before this Subcommittee in 

June 2006,8

 we heard a number of concerns from agencies regarding 

OPM’s ability to communicate expectations, guidance, and deadlines to 

agencies in a clear and consistent manner. When the senior executive

certification process began in 2004, OPM provided agencies with limited 

guidance for implementing the new regulations. OPM’s initial guidance

consisted of a list of documents required for provisional and full 

certification and a sample cover letter to accompany each application. The 

lack of more specific guidance created confusion as agencies attempted to 

interpret the broadly defined regulatory criteria and adjust to the 

requirements for certification. Officials at a majority of the CHCO Council 

agencies told us they did not have enough guidance to properly prepare 

for certification. As a result, agencies did not fully understand what was 

required in the regulations to receive certification. 

For example, one official noted that while OPM tries to point agencies in 

the right direction, it will not give agencies discrete requirements. This 

leads to uncertainty about what agencies must and should demonstrate to 

OPM. Some CHCOs and HR directors also told us that, in some cases, OPM 

changed expectations and requirements midstream with little notice or 

explanation. However, OPM explains that it intentionally allowed some 

ambiguity in the regulations for the new senior executive appraisal system, 

in an attempt to provide agencies with management flexibilities. A senior 

OPM official said OPM did not provide agencies with “best practices” 

 8

GAO, Office of Personnel Management: OPM is Taking Steps to Strengthen Its Internal 

Capacity for Leading Human Capital Reform, GAO-06-861T (Washington, D.C: June 27, 

2006). 

Page 8 GAO-06-1125T 
examples because OPM did not want agencies to think there was only one 

“right” way to get certified. 

Agencies also indicated that because OPM did not issue guidance for 

calendar year 2006 submissions until January 5, 2006, some were unable to

deliver their submissions to OPM before the beginning of the calendar 

year. Further, OPM clarified this guidance in a January 30, 2006, 

memorandum to agencies, telling agencies that senior executive 

performance appraisal systems would not be certified for calendar year 

2006 if the performance plans did not hold senior executives accountable 

for achieving measurable business outcomes. As a result, agencies had to 

revise their submissions, where necessary, to meet OPM’s additional 

requirements. 

Some agencies indicated that OPM’s late issuance of guidance also created

an uneven playing field among agencies, as those that chose to wait until 

OPM issued guidance before applying for certification were unable to give

their senior executives higher pay, while those who did not wait got 

certified sooner. OPM officials we spoke with about this agreed that they 

need to be able to provide clear and consistent guidance to agencies and

said they are working to improve this. Further, they said their evaluation 

of agencies’ submissions is evolving as their understanding of the senior 

executive certification criteria is increasing. 

The regulations include several positive internal checks and balances that

should help maintain the rigorous application of the new senior executive 

pay system. As I noted earlier, agencies granted full certification are to 

have their systems renewed for an additional 2 calendar years and 

agencies granted provisional certification are to reapply for certification 

after 1 calendar year in order to continue setting the rate of basic pay for 

senior executives at the higher level. In addition, OPM can suspend 

certification at any time during the certification period if it determines, 

with OMB concurrence, that the agency’s system is not in compliance with 

the certification criteria. OPM’s regulations also require review of each 

senior executive’s rating by a performance review board appointed by the 

agency head. As noted above, the regulations also require oversight of the 

performance appraisal system by the agency head who must certify that 

the system makes meaningful distinctions in relative performance. 

OPM’s Role in 

Evaluating and 

Monitoring the Payfor-Performance 

System

Page 9 GAO-06-1125T 
According to OPM data, 26 performance management systems at 24 

agencies were certified during calendar year 2006.

9

 Of these 26, only the 

Department of Labor’s system received full certification. As of September 

19, 2006, the remaining 25 systems received only provisional certification.

These findings are not surprising. In our April 2005 testimony before this 

Subcommittee, we stated that a number of agencies would be challenged 

in the short term to provide the necessary performance data on their 

senior executives in order to receive full certification or to maintain their 

certification (agencies must provide 2 years of performance rating and

bonus data showing that meaningful distinctions in senior executive 

performance were made to qualify).10 Other factors might also be at work. 

For example, a number of agencies have told us that the certification 

process is burdensome. One agency said that OPM’s requirements for the 

certification of a submission are time intensive, laborious, and can disrupt 

an agency’s recruitment and retention efforts. 

As we also noted at the April 2005 hearing, OPM will need to carefully 

monitor the implementation of agencies’ performance management 

systems, especially those that have provisional certification. This is 

because, as I have stated earlier, agencies with provisional certification 

can still receive the flexibilities of the new pay system, even though they 

do not meet all of OPM’s certification requirements. In other words, 

agencies can receive the benefits of the new pay-for-performance system 

without meeting all of its requirements and safeguards. We believe that, 

going forward, it will be important for OPM to continue to monitor the 

certification process, determine whether any obstacles are impeding 

agencies from receiving full certification, and take appropriate measures 

to address them. These actions will help ensure that agencies continue to

make substantive progress toward modernized performance management 

systems, and that provisional certifications do not become the norm. 

Once agencies have provisional or full certification, OPM monitors senior 

executive performance appraisal systems by measuring the distributions 

of agencies’ performance ratings and pay. This information helps OPM 

 9

 An agency may have multiple performance management systems for senior employees—

including SES and SL/ST members—and an agency must apply to OPM for certification of

each system separately. In 2006, the National Aeronautics and Space Administration 

received separate certification for its Inspector General’s Office and the Department of 

Defense received separate certification for its SL/ST systems. 

10 GAO, Human Capital: Agencies Need Leadership and the Supporting Infrastructure to 

Take Advantage of New Flexibilities, GAO-05-616T (Washington, D.C.: Apr. 21, 2005). 

Page 10 GAO-06-1125T 
determine if agencies are making meaningful distinctions among the 

performance of their senior executives. Such distinctions are important 

because effective performance management requires the organization’s 

leadership to make meaningful distinctions between acceptable and

outstanding performance and appropriately reward those who perform at 

the highest level. 

In its Report on Senior Executive Pay for Performance for Fiscal Year 

2005, OPM stated that the data indicate that federal agencies are taking 

seriously the requirement to develop rigorous appraisal systems and to 

make meaningful distinctions in performance ratings and pay. All 

reporting agencies have moved away from pass/fail appraisal systems and

now have at least one performance level above “fully successful.” In 2005,

43 percent of career SES governmentwide were rated at the highest 

performance level, compared to 75 percent in 2003 prior to the 

implementation of the SES pay-for-performance system. Further, OPM 

reported for fiscal year 2005 that the percentage of SES rated at the 

highest performance level declined 16 percent from the prior year. OPM 

also reported that the largest increases in salary went to SES rated at the 

highest performance level. Although SES pay and performance award 

amounts vary by agency based on factors such as compensation strategy, 

funding, and agency performance levels, OPM believes these general 

trends suggest a further refinement may be occurring in the process of 

distinguishing outstanding performers. 

As we have said in our prior reports and testimonies, senior executives 

need to lead the way in transforming their agencies’ cultures to be more 

results oriented, customer focused, and collaborative in nature. Credible 

performance management systems, specifically those that (1) align 

individual, team, and unit performance to organizational results; (2) 

contain built-in safeguards; and (3) are effectively implemented, can help 

manage and direct this process. 

Concluding Remarks 

The pay-for-performance system for the government’s senior executives 

that I have discussed today is an important milestone on the march toward 

modern compensation systems that are more market based and 

performance oriented. Although OPM and agencies have encountered 

various challenges in implementing the system, such challenges are not 

surprising given the cultural shift that the new system represents. 

Moreover, just 2 years have passed since OPM issued its regulations for 

certifying agencies’ pay-for-performance systems, and some growing pains 

are to be expected given agencies’ lack of experience with performance 

Page 11 GAO-06-1125T 
management systems that meet OPM’s requirements. Moving forward, 

what will be important is how OPM works with agencies to provide the 

tools and resources they need to design and implement performance 

management systems that meet the certification criteria in as streamlined

a fashion as possible. 

The lessons learned in implementing the senior executive pay-forperformance system will be critical to modernizing the performance 

management systems under which other federal employees are 

compensated. In particular, establishing an explicit line of sight between 

individual, team, and unit performance and organizational success, as well 

highlighting opportunities to improve guidance, communications, 

transparency, and safeguards, will serve the government well moving 

forward. We stand ready to assist OPM and Congress in exploring and 

implementing these critical human capital reforms. 

Chairman Voinovich, Senator Akaka, and Members of the Subcommittee, 

this completes my prepared statement. I would be pleased to respond to 

any questions that you may have. 

For further information regarding this statement, please contact Brenda S. 

Farrell, Acting Director, Strategic Issues, at (202) 512-6806 or 

farrellb@gao.gov. Individuals making key contributions to this statement 

include Carole J. Cimitile, William Colvin, Laura Miller Craig, William 

Doherty, Robert Goldenkoff, Janice Latimer, Trina Lewis, Jeffrey 

McDermott, and Michael Volpe. 

Contact and 

Acknowledgments 

Page 12 GAO-06-1125T (450535) 
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