a

GAO

United States General Accounting Office

Report to Congressional Requesters

January 2004 HUMAN CAPITAL

Implementing Pay for 

Performance at 

Selected Personnel 

Demonstration 

Projects

GAO-04-83
www.gao.gov/cgi-bin/getrpt?GAO-04-83.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact J. Christopher 

Mihm at (202) 512-6806 or mihmj@gao.gov.

Highlights of GAO-04-83, a report to 

congressional requesters 

January 2004

HUMAN CAPITAL

Implementing Pay for Performance at 

Selected Personnel Demonstration 

Projects 

The demonstration projects took a variety of approaches to designing and 

implementing their pay for performance systems to meet the unique needs of 

their cultures and organizational structures, as shown in the table below. 

Demonstration Project Approaches to Implementing Pay for Performance 

Using competencies to evaluate employee performance. 

High-performing organizations use validated core competencies as a key part of evaluating 

individual contributions to organizational results. To this end, AcqDemo and NRL use core 

competencies for all positions. Other demonstration projects, such as NIST, DOC, and China 

Lake, use competencies based on the individual employee’s position. 

Translating employee performance ratings into pay increases and awards. 

Some projects, such as China Lake and NAVSEA’s Newport division, established predetermined 

pay increases, awards, or both depending on a given performance rating, while others, such as 

DOC and NIST, delegated the flexibility to individual pay pools to determine how ratings would 

translate into performance pay increases, awards, or both. The demonstration projects made 

some distinctions among employees’ performance. 

Considering current salary in making performance-based pay decisions. 

Several of the demonstration projects, such as AcqDemo and NRL, consider an employee’s 

current salary when making performance pay increases and award decisions to make a better 

match between an employee’s compensation and contribution to the organization. 

Managing costs of the pay for performance system. 

According to officials, salaries, training, and automation and data systems were the major cost 

drivers of implementing their pay for performance systems. The demonstration projects used a 

number of approaches to manage the costs. 

Providing information to employees about the results of performance appraisal and pay 

decisions. 

To ensure fairness and safeguard against abuse, performance-based pay programs should have 

adequate safeguards, including reasonable transparency in connection with the results of the 

performance management process. To this end, several of the demonstration projects publish 

information, such as the average performance rating, performance pay increase, and award. 

 Source: GAO. 

GAO strongly supports the need to expand pay for performance in the 

federal government. How it is done, when it is done, and the basis on which 

it is done can make all the difference in whether such efforts are successful. 

High-performing organizations continuously review and revise their 

performance management systems. These demonstration projects show an 

understanding that how to better link pay to performance is very much a 

work in progress at the federal level. Additional work is needed to 

strengthen efforts to ensure that performance management systems are tools 

to help them manage on a day-to-day basis. In particular, there are 

opportunities to use organizationwide competencies to evaluate employee 

performance that reinforce behaviors and actions that support the 

organization's mission, translate employee performance so that managers 

make meaningful distinctions between top and poor performers with 

objective and fact-based information, and provide information to employees 

about the results of the performance appraisals and pay decisions to ensure 

reasonable transparency and appropriate accountability mechanisms are in 

place. 

There is a growing understanding 

that the federal government needs 

to fundamentally rethink its current 

approach to pay and to better link 

pay to individual and organizational 

performance. Federal agencies 

have been experimenting with pay 

for performance through the Office 

of Personnel Management’s (OPM) 

personnel demonstration projects. 

GAO identified the approaches that 

selected personnel demonstration 

projects have taken to implement 

their pay for performance systems. 

These projects include: the Navy 

Demonstration Project at China 

Lake (China Lake), the National 

Institute of Standards and 

Technology (NIST), the 

Department of Commerce (DOC), 

the Naval Research Laboratory 

(NRL), the Naval Sea Systems 

Command Warfare Centers 

(NAVSEA) at Dahlgren and 

Newport, and the Civilian 

Acquisition Workforce Personnel 

Demonstration Project (AcqDemo). 

We selected these demonstration 

projects based on factors such as 

status of the project and makeup of 

employee groups covered. 

We provided drafts of this report to 

officials in the Department of 

Defense (DOD) and DOC for their 

review and comment. DOD 

provided written comments 

concurring with our report. DOC 

provided minor technical 

clarifications and updated 

information. We provided a draft 

of the report to the Director of 

OPM for her information. 
Page i GAO-04-83 Pay for Performance

Contents

Letter 1

Results in Brief 4

Background 6

Selected Demonstration Projects Took Various Approaches to 

Implement Their Pay for Performance Systems 9

Concluding Observations 39

Agency Comments 40

Appendixes

Appendix I: Objective, Scope, and Methodology 41

Appendix II: Demonstration Project Profiles 43

Navy Demonstration Project at China Lake (China Lake) 43

National Institute of Standards and Technology (NIST) 47

Department of Commerce (DOC) 51

Naval Research Laboratory (NRL) 55

Naval Sea Systems Command Warfare Centers (NAVSEA) 59

Civilian Acquisition Personnel Demonstration Project 

(AcqDemo) 63

Appendix III: Comments from the Department of Defense 67

Appendix IV: GAO Contacts and Staff Acknowledgments 68

GAO Contacts 68

Acknowledgments 68

Tables Table 1: Selected GS Funding Sources Available for Employee 

Salary Increases 8

Table 2: China Lake’s Pay Increase Distribution (2002) 16

Table 3: NAVSEA Newport Division’s Pay Increase and Award 

Distribution (2002) 19

Table 4: DOC’s Pay Increase and Award Distribution (2002) 22

Table 5: Cumulative Percentage Increase in Average Salaries for 

Demonstration Project and Comparison Group Employees 

by Year of the Project, as Reported by the Demonstration 

Projects 27

Table 6: Direct Inflation-Adjusted Cost of Training in the First 5 

Years of the Demonstration Projects (in 2002 Dollars), as 

Reported by the Demonstration Projects 33
Contents

Page ii GAO-04-83 Pay for Performance

Table 7: Inflation-Adjusted Cost of Automation and Data Systems 

for Selected Demonstration Projects (in 2002 Dollars), as 

Reported by the Demonstration Projects 35

Figures Figure 1: China Lake’s Rating and Pay Distribution Structure 14

Figure 2: China Lake’s Rating Distribution by Numerical Rating 

(2002) 15

Figure 3: NAVSEA Newport Division’s Rating and Performance Pay 

Distribution Structure 17

Figure 4: NAVSEA Newport Division’s Rating Distribution 

(2002) 18

Figure 5: DOC’s Rating Distribution (2002) 21

Figure 6: AcqDemo’s Consideration of Current Salary in Making 

Performance Pay Decisions 24

Figure 7: Funding Sources Linked to Pay Decisions in Selected 

Personnel Demonstration Projects as of Fiscal Year 

2003 26

Figure 8: Pay Bands, Intervals, and Corresponding Permanent Pay 

Increases for NIST’s Scientific and Engineering Career 

Path 30

Figure 9: Sample of NAVSEA Newport Division’s Rating Category 

Distribution Data Provided to Employees 37

Figure 10: Sample of NIST’s Distribution of Average Performance 

Rating Scores Provided to Employees 38

Figure 11: Selected Employee Attitude Data for China Lake 45

Figure 12: Selected Employee Attitude Data for NIST 49

Figure 13: Selected Employee Attitude Data for DOC 53

Figure 14: Selected Employee Attitude Data for NRL 57

Figure 15: Selected Employee Attitude Data for NAVSEA 61

Figure 16: Selected Employee Attitude Data for AcqDemo 65

Abbreviations

AcqDemo Civilian Acquisition Workforce Personnel Demonstration 

Project

CPDF Central Personnel Data File

DOC Department of Commerce

DOD Department of Defense

FEPCA Federal Employees Pay Comparability Act of 1990

GPI general pay increase

GS General Schedule
Page iii GAO-04-83 Pay for Performance

NAVSEA Naval Sea Systems Command Warfare Centers

NIST National Institute of Standards and Technology

NRL Naval Research Laboratory

OPM Office of Personnel Management

QSI quality step increase

WGI within-grade increase

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Page 1 GAO-04-83 Pay for Performance

United States General Accounting Office

Washington, D.C. 20548

A

January 23, 2004 Leter

The Honorable George V. Voinovich

Chairman

Subcommittee on Oversight of Government Management, the Federal 

Workforce, and the District of Columbia

Committee on Governmental Affairs

United States Senate

The Honorable Jo Ann Davis

Chairwoman

Subcommittee on Civil Service and Agency Organization

Committee on Government Reform

House of Representatives 

To successfully transform themselves, high-performing organizations have 

found that they must fundamentally change their cultures so that they are 

more results-oriented, customer-focused, and collaborative in nature, and 

have recognized that an effective performance management system can 

help them drive internal change and achieve desired results. Our prior 

work, done at your request, has identified nine key practices for effective 

performance management based on experiences in public sector 

organizations both in the United States and abroad.1

 The key practices are 

as follows:

1. Align individual performance expectations with organizational goals. 

2. Connect performance expectations to crosscutting goals. 

3. Provide and routinely use performance information to make program 

improvements. 

4. Require follow-up actions to address organizational priorities. 

5. Use competencies to provide a fuller assessment of performance.

6. Link pay to individual and organizational performance. 

1

U.S. General Accounting Office, Results-Oriented Cultures: Creating a Clear Linkage 

between Individual Performance and Organizational Success, GAO-03-488 (Washington, 

D.C.: Mar. 14, 2003).
Page 2 GAO-04-83 Pay for Performance

7. Make meaningful distinctions in performance. 

8. Involve employees and stakeholders to gain ownership of performance 

management systems. 

9. Maintain continuity during transitions. 

Among these practices, there is a growing understanding that the federal 

government needs to fundamentally rethink its current approach to pay 

and better link pay to individual and organizational performance. To this 

end, Congress has taken important steps to implement results-oriented pay 

reform and modern performance management systems across government. 

Most recently, Congress provided the Department of Defense (DOD) 

flexibility to revise its performance management system to better link pay 

to performance and required DOD to incorporate employee involvement, 

provide ongoing performance feedback, and include effective safeguards to 

ensure fairness and equity, among other things, in DOD’s revised system.

Congress also established a Human Capital Performance Fund to reward 

agencies’ highest performing and most valuable employees. To be eligible, 

agencies are to submit plans for approval by the Office of Personnel 

Management (OPM) that incorporate a link between pay for performance 

and the agency’s strategic plan, employee involvement, ongoing 

performance feedback, and effective safeguards to ensure fair management 

of the system, among other things. In the first year of implementation, up 

to 10 percent of the amount appropriated is to be available to train those 

involved on making meaningful distinctions in performance. In addition, 

Congress created a wider, more open pay range for senior executive 

compensation, thus allowing for pay to be more directly tied to individual 

performance, contribution to the agency’s performance, or both, as 

determined under a rigorous performance management system that as 

designed and applied, makes meaningful distinctions based on relative 

performance.

Further, in November 2002, Congress established the Department of 

Homeland Security and provided it human capital flexibilities to design a 

performance management system and specifically to consider different 

approaches to pay. We reported that the department’s effort to design its 

system could be particularly instructive in light of future requests for
Page 3 GAO-04-83 Pay for Performance

human capital flexibilities.

2 Legislation is currently pending, which you 

sponsored and introduced, that would provide GAO additional authority to 

more fully link employees’ annual salary increases to performance.

Federal agencies have been experimenting with pay for performance 

through OPM’s personnel demonstration projects. Over the past 25 years,

OPM has approved 17 projects, 12 of which have implemented pay for 

performance systems. At your request, this report identifies the 

approaches that 6 of these personnel demonstration projects have taken to 

implement their pay for performance systems. These projects are

• the Navy Demonstration Project at China Lake (China Lake),

• the National Institute of Standards and Technology (NIST),

• the Department of Commerce (DOC),

• the Naval Research Laboratory (NRL),

• the Naval Sea Systems Command Warfare Centers (NAVSEA) at 

Dahlgren and Newport, and

• the Civilian Acquisition Workforce Personnel Demonstration Project

(AcqDemo).

To address the objective of this report, we focused on OPM’s personnel 

demonstration projects because they are required to prepare designs, 

conduct employee feedback, and complete evaluations of their results,

among other things. We selected these demonstration projects based on 

factors such as status of the project and makeup of employee groups

covered. We analyzed Federal Register notices outlining the major 

features of each demonstration project, operating manuals, annual and

summative evaluations, employee attitude survey results, project briefings, 

training materials, rating and payout data, and cost data as reported by the 

agencies without verification by GAO, as well as other relevant 

documentation. We also interviewed cognizant officials from OPM; 

demonstration project managers, human resource officials, and 

2

U.S. General Accounting Office, Human Capital: DHS Personnel System Design Effort 

Provides for Collaboration and Employee Participation, GAO-03-1099 (Washington, D.C.:

Sept. 30, 2003).
Page 4 GAO-04-83 Pay for Performance

participating supervisors and employees; and union and other employee 

representatives. We did not independently evaluate the effectiveness of the 

demonstration projects. We assessed the reliability of cost, salary, rating, 

and performance pay distribution data provided by the demonstration 

projects and determined that the data were sufficiently reliable for the 

purposes of this report, with the exception of the DOC salary data, which 

we do not present. 

We performed our work in the Washington, D.C., metropolitan area from 

December 2002 through August 2003 in accordance with generally 

accepted government auditing standards. Appendix I provides additional 

information on our objective, scope, and methodology. Appendix II 

presents profiles of the demonstration projects, including selected 

elements of their performance management systems, employee attitude 

data, and reported effects.

Results in Brief We found that the demonstration projects took a variety of approaches to 

designing and implementing their pay for performance systems to meet the 

unique needs of their cultures and organizational structures. Specifically, 

the demonstration projects took different approaches to

• using competencies to evaluate employee performance,

• translating employee performance ratings into pay increases and 

awards,

• considering current salary in making performance-based pay decisions,

• managing costs of the pay for performance system, and

• providing information to employees about the results of performance 

appraisal and pay decisions.

Using competencies to evaluate employee performance. Highperforming organizations use validated core competencies as a key part of 

evaluating individual contributions to organizational results. Core 

competencies applied organizationwide can help reinforce employee 

behaviors and actions that support the organization’s mission, goals, and 

values and can provide a consistent message to employees about how they 

are expected to achieve results. AcqDemo and NRL use core competencies 

for all positions across the organization to evaluate performance. Other 
Page 5 GAO-04-83 Pay for Performance

demonstration projects, such as NIST, DOC, and China Lake, use 

competencies based primarily on the individual position. (See p. 9.)

Translating employee performance ratings into pay increases and 

awards. High-performing organizations seek to create pay, incentive, and 

reward systems that clearly link employee knowledge, skills, and 

contributions to organizational results. These organizations make 

meaningful distinctions between acceptable and outstanding performance 

of individuals and appropriately reward those who perform at the highest 

level. To this end, the demonstration projects took different approaches in 

translating individual employee performance ratings into permanent pay 

increases, one-time awards, or both in their pay for performance systems. 

Some projects, such as China Lake and NAVSEA’s Newport division, 

established predetermined pay increases, awards, or both depending on a 

given performance rating, while others, such as DOC and NIST, delegated 

the flexibility to individual pay pools to determine how ratings would 

translate into pay increases, awards, or both. While the demonstration 

projects made some distinctions among employees’ performance, the data 

and experience show that making such meaningful distinctions remains a 

work in progress. (See p. 12.)

Considering current salary in making performance-based pay 

decisions. Several of the demonstration projects consider an employee’s 

current salary when making pay increase and award decisions. By 

considering salary in such decisions, the projects intend to make a better 

match between an employee’s compensation and his or her contribution to 

the organization. Thus, two employees with comparable contributions 

could receive different performance pay increases and awards depending 

on their current salaries. For example, AcqDemo determines if employees 

are “appropriately compensated,” “under-compensated,” or “overcompensated” when it compares employee contribution scores to salary. 

(See p. 23.)

Managing costs of the pay for performance system. According to 

OPM, the increased costs of implementing alternative personnel systems 

should be acknowledged and budgeted for up front. Based on data the 

demonstration projects provided, direct costs associated with salaries, 

training, and automation and data systems were the major cost drivers of 

implementing their pay for performance systems. The demonstration 

projects used a number of approaches to manage the direct costs of 

implementing and maintaining pay for performance systems. In making 

their pay decisions, some of the demonstration projects use funding 
Page 6 GAO-04-83 Pay for Performance

sources such as the annual general pay increase and locality pay 

adjustment. Several demonstration projects managed salary costs by 

considering fiscal conditions and the labor market when determining how 

much to budget for pay increases, managing movement through the pay 

band, and providing a mix of one-time awards and permanent pay 

increases. (See p. 25.)

Providing information to employees about the results of 

performance appraisal and pay decisions. We have observed that a 

more performance-based pay system should have adequate safeguards to 

ensure fairness and guard against abuse. One such safeguard is to ensure 

reasonable transparency and appropriate accountability mechanisms in 

connection with the results of the performance management process. To 

this end, several of the demonstration projects publish information for 

employees on internal Web sites about the results of performance appraisal 

and pay decisions, such as the average performance rating, the average pay 

increase, and the average award for the organization and for each 

individual department, while other demonstration projects publish no 

information on the results of the performance cycle. (See p. 36.)

We provided drafts of this report to the Secretaries of Defense and 

Commerce for their review and comment. DOD’s Principal Deputy, Under 

Secretary of Defense for Personnel and Readiness, provided written 

comments, which are presented in appendix III. DOD concurred with our 

report and stated that it is a useful summary of the various approaches that 

the demonstration projects undertook to implement their pay for 

performance systems and that their experiences provide valuable insight 

into federal pay for performance models. DOD also noted that the NAVSEA 

demonstration project training and automation cost data are estimated 

rather than actual costs. We made the appropriate notation. While DOC 

did not submit written comments, DOC’s Classification, Pay, and HR 

Demonstration Program Manager provided minor technical clarifications 

and updated information. We made those changes where appropriate. We 

provided a draft of the report to the Director of OPM for her information.

Background Congress granted OPM the authority to conduct personnel demonstration 

projects under the Civil Service Reform Act of 1978 to test new personnel
Page 7 GAO-04-83 Pay for Performance

and pay systems.3 A federal agency is to obtain the authority from OPM to 

waive existing laws and regulations in Title 5 to propose, develop, test, and 

evaluate alternative approaches to managing its human capital. Under the 

demonstration project authority, no waivers of law are to be permitted in 

areas of employee leave, employee benefits, equal employment 

opportunity, political activity, merit system principles, or prohibited 

personnel practices. The law also contains certain limitations and 

requirements, including

• 5-year time limit for duration of projects,

• 5,000 employee cap on participation,

• restriction to 10 concurrent demonstration projects governmentwide,

• union and employee consultation,

• published formal project plan in the Federal Register,

• notification of Congress and employees of the demonstration project, 

and

• project evaluations. 

OPM guidance requires that agencies conduct at least three evaluations—

after implementation, after at least 3 and a half years, and after the original 

scheduled end of the project—that are to address the following questions:

• Did the project accomplish the intended purpose and goals? If not, why 

not? 

• Was the project implemented and operated appropriately and 

accurately? 

• What were the costs, relative to the benefits of the project?

3

Two governmentwide initiatives were intended to implement pay for performance systems 

for supervisors and managers. The Merit Pay System was established under the Civil 

Service Reform Act of 1978 and ended in 1984. Its successor—the Performance 

Management and Recognition System—ended in 1993. 
Page 8 GAO-04-83 Pay for Performance

• What was the impact on veterans and other equal employment 

opportunity groups?

• Were merit systems principles adhered to and prohibited personnel 

practices avoided?

• Can the project or portions thereof be generalized to other agencies or 

governmentwide?

The demonstration projects can link some or all of the funding sources for 

pay increases available under the current federal compensation system, the 

General Schedule (GS), to an employee’s level of performance.4

 Table 1 

defines selected funding sources. 

Table 1: Selected GS Funding Sources Available for Employee Salary Increases

4

The GS is the federal government’s main pay system for “white-collar” positions. The GS is 

composed of 15 grade levels. Each grade is divided into 10 specific pay levels called “steps.”

Funding source Description

General pay increase 

(GPI)

Established under the Federal Employees Pay Comparability Act of 1990 (FEPCA), the GPI is to be determined 

annually and delivered automatically and uniformly to GS employees. The GPI is to be based on the 

Employment Cost Index, which is a statistical measure maintained by the Bureau of Labor Statistics that 

considers changes in private sector labor costs. 

Locality pay adjustment Established under FEPCA, locality pay is to address any gap between federal and nonfederal salaries and is to 

be determined annually and delivered automatically and uniformly to most GS employees within a given locality. 

Locality pay is to supplement the rate of basic pay in the 48 contiguous states where nonfederal pay exceeds 

federal pay by more than 5 percent. The President’s Pay Agent, comprised of the Secretary of Labor and the 

Directors of the Office of Management and Budget and OPM, is to recommend and the President is to approve 

what, if any, the percentage of increase should be. 
Page 9 GAO-04-83 Pay for Performance

Source: OPM. 

a

U.S. Office of Personnel Management, A Fresh Start for Federal Pay: The Case for Modernization

(Washington, D.C.: April 2002).

Selected 

Demonstration 

Projects Took Various 

Approaches to 

Implement Their Pay 

for Performance 

Systems

High-performing organizations seek to create pay, incentive, and reward 

systems based on valid, reliable, and transparent performance management 

systems with adequate safeguards and link employee knowledge, skills, 

and contributions to organizational results. To that end, we found that the 

demonstration projects took a variety of approaches to designing and 

implementing their pay for performance systems to meet the unique needs 

of their cultures and organizational structures. Specifically, the 

demonstration projects took different approaches to

• using competencies to evaluate employee performance,

• translating employee performance ratings into pay increases and 

awards,

• considering current salary in making performance-based pay decisions,

• managing costs of the pay for performance system, and

• providing information to employees about the results of performance 

appraisal and pay decisions.

Using Competencies to 

Evaluate Employee 

Performance

High-performing organizations use validated core competencies as a key 

part of evaluating individual contributions to organizational results. 

Competencies define the skills and supporting behaviors that individuals 

Within-grade increase 

(WGI)

The WGI, also known as a “step increase,” is a periodic increase in a GS employee's rate of basic pay to the 

next higher pay level or “step” of that grade. To receive a WGI, an employee must wait a prescribed amount of 

time and be performing at an acceptable level of competence. OPM reports that the WGI is designed to reward 

experience and loyalty and is based on a judgment that the employee's work is of an "acceptable level of 

competence” but does not distinguish between very good and moderately good performance.a

 

Quality step increase 

(QSI)

A QSI is to recognize high-quality performance. Similar to a WGI, a QSI advances the employee to the next 

higher step but ahead of the required waiting period. To receive a QSI, an employee must demonstrate 

sustained high-quality performance.

Career ladder 

promotion 

Federal employees may be appointed to positions with "career ladders," a series of developmental positions of 

increasing difficulty, through which an employee may be promoted to higher grade levels without competition. 

(Continued From Previous Page)

Funding source Description
Page 10 GAO-04-83 Pay for Performance

are expected to demonstrate and can provide a fuller picture of an 

individual’s performance. To this end, we found that the demonstration 

projects took different approaches to evaluating employee performance. 

AcqDemo and NRL use core competencies for all positions across the 

organization. Other demonstration projects, such as NIST, DOC, and China 

Lake, use competencies based primarily on the individual employee’s 

position.

Applying competencies organizationwide. Core competencies applied 

organizationwide can help reinforce employee behaviors and actions that 

support the organization’s mission, goals, and values and can provide a 

consistent message to employees about how they are expected to achieve 

results. AcqDemo evaluates employee performance against one set of 

“factors,” which are applied to all employees. “Discriminators” and 

“descriptors” further define the factors by career path and pay band. 

According to AcqDemo, taken together, the factors, discriminators, and 

descriptors are relevant to the success of a DOD acquisition organization.5

 

AcqDemo’s six factors are (1) problem solving, (2) teamwork/cooperation, 

(3) customer relations, (4) leadership/supervision, (5) communication, and 

(6) resource management. Discriminators further define each factor. For 

example, discriminators for problem solving include scope of 

responsibility, creativity, complexity, and independence. Descriptors 

identify contributions by pay band. For example, a descriptor for problem 

solving at one pay band level is “resolves routine problems within 

established guidelines,” and at a higher level, a descriptor is “anticipates 

problems, develops sound solutions and action plans to ensure 

program/mission accomplishment.”

All factors must be used and cannot be supplemented. While the pay pool 

manager may weight the factors, according to an official, no organization 

within AcqDemo has weighted the factors to date. Managers are 

authorized to use weights sparingly because contributions in all six factors 

are important to ensuring AcqDemo’s overall success as well as to 

developing the skills of the acquisition workforce. If weights are used, they 

are to be applied uniformly across all positions within the pay pool. The six 

5

See U.S. General Accounting Office, An Evaluation Framework for Improving the 

Procurement Function (Exposure Draft) (Washington, D.C.: October 2003), for more 

information on a framework to enable a high-level, qualitative assessment of the strengths 

and weaknesses of agencies’ procurement functions.
Page 11 GAO-04-83 Pay for Performance

factors are initially weighted equally and no factor can be weighted less 

than one-half of its initial weight. Employees are to be advised of the 

weights at the beginning of the rating period. 

While AcqDemo applies organizationwide competencies across all 

employees, NRL has established “critical elements” for each career path 

and allows supervisors to add individual performance expectations. The 

critical elements are the key aspects of work that supervisors are to 

consider in evaluating employee performance. Each critical element has 

discriminators and descriptors. Specifically, for the Science and 

Engineering Professionals career path, one critical element is “scientific 

and technical problem solving.” That element’s discriminators are (1) level 

of oversight, (2) creativity, (3) technical communications, and

(4) recognition. For recognition, the descriptors include “recognized 

within own organization for technical ability in assigned areas” as one level 

of contribution and “recognized internally and externally by peers for 

technical expertise” as the next level of contribution. 

NRL’s system allows supervisors to supplement the descriptors to further 

describe what is expected of employees. According to an NRL 

demonstration project official, this flexibility allows the supervisor to 

better communicate performance expectations. Further, pay pool panels 

may weight the critical elements, including a weight of zero. Weighted 

elements are to be applied consistently to groups within a career path, such 

as Bench Level, Supervisor, Program Manager, or Support for the Science 

and Engineering Professionals career path. According to an NRL official, 

panels commonly weight critical elements but rarely weight an element to 

zero. Further, panels use weighting most often for the Science and 

Engineering Professionals career path.

Determining individual position-based competencies. Other 

demonstration projects determine competencies based primarily on the 

individual position. NIST and DOC identify “critical elements” tailored to 

each individual position.6

 According to a DOC demonstration project 

official, DOC tailors critical elements to individual positions because their 

duties and responsibilities vary greatly within the demonstration project. 

6

At DOC, all managerial and supervisory employees are also evaluated on core critical 

elements, such as recommending or making personnel decisions; developing and appraising 

subordinates; and fulfilling diversity, equal opportunity, and affirmative action 

responsibilities, in addition to program responsibilities.
Page 12 GAO-04-83 Pay for Performance

Each employee’s performance plan is to have a minimum of two and a 

maximum of six critical elements along with the major activities to 

accomplish the element. Supervisors are to assign a weight to each critical 

element on the basis of its importance, the time required to accomplish it, 

or both. According to NIST and DOC officials, weighting is done at the 

supervisory level and is not tracked at the organizational level.

To evaluate the accomplishment of critical elements, DOC uses its 

organizationwide Benchmark Performance Standards. They range from 

the highest standard of performance, “objectives were achieved with 

maximum impact, through exemplary work that demonstrated exceptional 

originality, versatility, and creativity” to the lowest, “objectives and 

activities were not successfully completed, because of failures in quality, 

quantity, completeness, or timelines of work.” Supervisors can develop 

supplemental performance standards as needed. 

Similarly, each China Lake employee has a performance plan that includes 

criteria tailored to individual responsibilities. The criteria are to be 

consistent with the employee’s work unit’s goals and objectives and can be 

set in two ways, depending on the nature of the position. The “task 

approach” defines an individual’s output. The “function approach” defines 

the required skills and how well they are to be performed. Employees and 

supervisors choose from a menu of skills, such as planning, analysis, 

coordination, and reporting/documentation. A China Lake official stated 

that some of its work units require core competencies, such as teamwork 

and self-development, for all employees. According to the official, while 

developing core competencies sends a message about what is important to 

the organization, tailoring individual performance plans can focus 

employees’ attention on changing expectations. 

Translating Employee 

Performance Ratings into 

Pay Increases and Awards

High-performing organizations seek to create pay, incentive, and reward 

systems that clearly link employee knowledge, skills, and contributions to 

organizational results. These organizations make meaningful distinctions 

between acceptable and outstanding performance of individuals and 

appropriately reward those who perform at the highest level. Performance 

management systems in these leading organizations typically seek to 

achieve three key objectives: (1) provide candid and constructive feedback 

to help individual employees maximize their potential in understanding and 

realizing the goals and objectives of the agency, (2) provide management 

with the objective and fact-based information it needs to reward top 
Page 13 GAO-04-83 Pay for Performance

performers, and (3) provide the necessary information and documentation 

to deal with poor performers.

To this end, the demonstration projects took different approaches in 

translating individual employee performance ratings into permanent pay 

increases, one-time awards, or both in their pay for performance systems. 

Some projects, such as China Lake and NAVSEA’s Newport division, 

established predetermined pay increases, awards, or both depending on a 

given performance rating. Others, such as DOC and NIST, delegated the 

flexibility to individual pay pools to determine how ratings translate into 

pay increases, awards, or both. Overall, while the demonstration projects 

made some distinctions among employees’ performance, the data and 

experience to date show that making such meaningful distinctions remains 

a work in progress.

Setting predetermined pay increases and awards. China Lake’s 

assessment categories translate directly to a predetermined range of 

permanent pay increases, as shown in figure 1.7

 Supervisors are to rate 

employees in one of three assessment categories and recommend 

numerical ratings, based on employees’ performance and salaries, among 

other factors. For employees receiving “highly successful” ratings, a 

Performance Review Board assigns the numerical ratings. For “less than 

fully successful” ratings, the first-line supervisor and a second-level 

reviewer assign the numerical ratings, based on a problem-solving team’s 

findings and a personnel advisor’s input. The numerical rating determines 

how many “increments” the employee will receive. An increment is a 

permanent pay increase of about 1.5 percent of an employee’s base salary. 

7

China Lake gives managers discretion in determining how awards are distributed among 

employees with ratings of “fully successful” or above.
Page 14 GAO-04-83 Pay for Performance

Figure 1: China Lake’s Rating and Pay Distribution Structure

Note: All employees receive the locality pay adjustment regardless of assessment category or 

numerical rating.

China Lake made some distinctions in performance across employees’ 

ratings, as shown in figure 2:8

• 11.3 percent of employees received a “1,” the highest numerical rating, 

and

• a total of six employees (0.2 percent) were rated “less than fully 

successful” and received numerical ratings of “4” or “5.”

8

As a point of comparison, in 2002, about 48 percent of GS employees across the executive 

branch under a similar five-level rating system were rated in the highest category and less 

than 1 percent were rated as less than fully successful.

Less than fully successful

Fully successful

Highly successful

Assessment 

category

Numerical 

rating

Increments to determine 

performance pay increase

3 or 4 increments (plus GPI)

2 increments (plus GPI)

0 or 1 increments (plus GPI)

0 increments (plus half of GPI)

Source: GAO, based on DOD data.

0 increments (no GPI) 

3

5

4

2

1
Page 15 GAO-04-83 Pay for Performance

Figure 2: China Lake’s Rating Distribution by Numerical Rating (2002) 

Note: Percentages total more than 100 percent due to rounding.

At China Lake, the average pay increase rose with performance, as shown 

in table 2. 

• The average permanent pay increase ranged from 1.8 to 5.3 percent.

• Six employees were rated as “less than fully successful” and thus were 

to receive no performance pay increases and half or none of the GPI. 

According to a China Lake official, employees rated as “less than fully 

successful” are referred to a problem-solving team, consisting of the 

supervisor, reviewer, personnel advisor, and other appropriate officials, 

that determines what corrective actions are necessary. 

44.6%

Source: GAO analysis of DOD data.

Highly successful-1

415 employees

44.0%

11.3%

Highly successful-2

1,639 employees 

Fully successful-3

1,617 employees 

Less than fully successful-4

4 employees 

0.1%

0.1%

Less than fully successful-5

2 employees
Page 16 GAO-04-83 Pay for Performance

Table 2: China Lake’s Pay Increase Distribution (2002)

Source: DOD.

Legend: N/A= data are not applicable.

Notes: Data do not include the GPI or the locality pay adjustment.

Employees whose salaries are at the top of the pay band cannot receive permanent pay increases; 

therefore, the number of employees receiving pay increases differs from those receiving ratings.

Similar to China Lake, at NAVSEA’s Newport division, a performance rating 

category translates directly to a predetermined range of permanent pay 

increases, one-time awards, or both, as shown in figure 3. Newport 

translates ratings into pay increases and awards in three steps. First, 

supervisors are to rate employees as “acceptable” or “unacceptable.” 

Employees rated as unacceptable are not eligible for pay increases or 

awards. Employees rated as acceptable are to be further assessed on their 

performance relative to their salaries. Supervisors assess acceptable 

employees into three rating categories: contributors, major contributors, or 

exceptional contributors. Supervisors also make recommendations for the 

number of pay points to be awarded, from 0 to 4, depending on the rating 

category and the employees’ salaries. Pay pool managers review and 

department heads finalize supervisor recommendations. A pay point 

equals 1.5 percent of the midpoint salary of the pay band. Pay points may 

be permanent pay increases or one-time awards. 

Assessment category Numerical rating

Number of 

employees receiving 

permanent pay 

increases

Increase as a percentage of base pay

Average Lowest Highest

Highly successful 1 191 5.3 1.5 9.3

2 929 3.4 1.5 5.6

Fully successful 3 526 1.8 1.3 2.7

Less than fully 

successful

4 0 N/A N/A N/A

5 0 N/A N/A N/A

Total 1,646
Page 17 GAO-04-83 Pay for Performance

Figure 3: NAVSEA Newport Division’s Rating and Performance Pay Distribution 

Structure

Note: All employees receive the full GPI and locality pay adjustment regardless of rating category.

Newport allows for some flexibility in deciding whether employees receive 

permanent pay increases, one-time awards, or both. Newport’s guidelines 

state that those who make greater contributions should receive permanent 

increases to base pay, while employees whose contributions are 

commensurate with their salaries receive one-time awards. In addition, 

employees whose salaries fall below the midpoint of the pay band are more 

likely to receive permanent pay increases, while employees above the 

midpoint of the pay band are more likely to receive one-time awards. 

NAVSEA’s Newport division made some distinctions in performance across 

employees’ ratings.9

 As shown in figure 4,

• about 80 percent of employees were rated in the top two categories 

(exceptional contributor and major contributor) and 

• no employees were rated unacceptable.

9

As a point of comparison, in 2002, about 92 percent of GS employees across the executive 

branch under a similar four-level rating system were rated in the top two categories and 

about 0.1 percent were rated as unacceptable.

Unacceptable

Contributor

Exceptional contributor

Major contributor

Rating category

Points to determine 

performance increase/award

Source: GAO, based on DOD data.

2 to 4 pay points

1 to 3 pay points

0 to 2 pay points

0 pay points
Page 18 GAO-04-83 Pay for Performance

Figure 4: NAVSEA Newport Division’s Rating Distribution (2002)

Note: Percentages total less than 100 percent due to rounding.

In addition, at NAVSEA’s Newport division, the average pay increase and 

award amount rose with performance, as shown in table 3.

• The average permanent pay increase ranged from 1.6 to 2.9 percent.

• The average performance award ranged from $1,089 to $2,216.

39.6%

Source: GAO analysis of DOD data.

40.3%

20.0%

Exceptional contributor

837 employees 

Major contributor

851 employees 

Contributor

423 employees 

Unacceptable

0 employees
Page 19 GAO-04-83 Pay for Performance

Table 3: NAVSEA Newport Division’s Pay Increase and Award Distribution (2002)

Source: DOD.

Legend: N/A= data are not applicable.

Notes: Data do not include the GPI or locality pay adjustment. 

Employees can receive their pay as permanent increases or one-time awards; therefore, the number of 

employees receiving pay increases and awards differs from those receiving ratings.

Delegating pay decisions to pay pools. Some demonstration projects, 

such as NIST and DOC, delegate the flexibility to individual pay pools to 

determine how ratings translate into permanent pay increases and one-time 

awards. For example, supervisors are to evaluate employees on a range of 

performance elements on a scale of 0 to 100. Employees with scores less 

than 40 are to be rated as “unsatisfactory” and are not eligible to receive 

performance pay increases, awards, the GPI, or the locality pay adjustment. 

Employees with scores over 40 are to be rated as “eligible;” receive the full 

GPI and locality pay adjustment; and be eligible for a performance pay 

increase, award, or both.

Pay pool managers have the flexibility to determine the amount of the pay 

increase, award, or both for each performance score, depending on where 

they fall within the pay band. Employees lower in the pay band are eligible 

for larger pay increases as a percentage of base pay than employees higher 

in the pay band, and employees whose salaries are at the top of the pay 

band and who therefore can no longer receive permanent salary increases 

may receive awards. 

Rating

Permanent pay increase Performance award

Number of 

employees 

receiving 

permanent pay 

increases

Increase as a percentage of base pay Number of 

employees 

receiving 

performance 

awards

Performance award amount

Average Lowest Highest Average Lowest Highest

Exceptional 

contributor

686 2.9 0.1 7.0 615 $2,216 $561 $5,680

Major contributor 602 2.0 0.9 5.3 613 1,592 561 4,260

Contributor 124 1.6 1.2 1.8 143 1,089 519 2,212

Unacceptable 0 N/A N/A N/A 0 N/A N/A N/A

Total 1,412 1,371
Page 20 GAO-04-83 Pay for Performance

According to our analysis, in its 2002 rating cycle, DOC made few 

distinctions in performance in its distribution of ratings.10 As shown in 

figure 5,

• 100 percent of employees scored 40 or above and over 86 percent of 

employees scored 80 or above and

• no employees were rated as unsatisfactory. 

10As a point of comparison, in 2002, about 99.9 percent of GS employees across the 

executive branch under a similar two-level rating system passed and about 0.1 percent 

failed.
Page 21 GAO-04-83 Pay for Performance

Figure 5: DOC’s Rating Distribution (2002)

According to a DOC official, a goal of the demonstration project is to 

address poor performance early. An official also noted that poor 

performers may choose to leave the organization before they receive 

ratings of unsatisfactory or are placed on a performance improvement 

plan. Employees who are placed on a performance improvement plan and 

improve their performance within the specified time frame (typically less 

than 90 days) are determined to be eligible for the GPI and locality pay 

adjustment for the remainder of the year. 

Our analysis also shows that DOC made few distinctions in performance in 

its distribution of awards. As shown in table 4, 10 employees who scored 

from 60 to 69 received an average performance award of $925, while 

45.1%

Source: GAO analysis of DOC data.

90-100

1,094 employees

41.7%

11.0%

1.7%

0.2%

80-89

1,183 employees 

50-59

6 employees

60-69

44 employees

0.3%

40-49

8 employees

0%

Unsatisfactory

0 employees

70-79

289 employees
Page 22 GAO-04-83 Pay for Performance

employees who scored from 70 to 79 received an average of $742. Our 

analysis suggests that DOC’s policy of delegating flexibility to individual 

pay pools to determine performance awards could explain why, without an 

independent reasonableness review, some employees with lower scores 

receive larger awards than employees with higher scores. According to 

DOC, it reviews pay pool decisions within but not across organizational 

units.

Table 4: DOC’s Pay Increase and Award Distribution (2002)

Source: GAO analysis of DOC data.

Legend: N/A= data are not applicable.

Notes: Data do not include the GPI or the locality pay adjustment.

Not all employees who receive ratings receive pay increases or awards; therefore, the number of 

employees receiving pay increases or awards differs from those receiving ratings.

NIST also delegates pay decisions to individual pay pools. The NIST 100-

point rating system is similar to DOC’s system. Employees with scores 

under 40 are rated as “unsatisfactory” and do not receive the GPI, locality 

pay adjustment, or performance pay increases or awards. Employees with 

scores over 40 receive the full GPI and locality pay adjustment and are 

eligible to receive performance pay increases, awards, or both. Similar to 

DOC, in its 2002 rating cycle, NIST made few distinctions in performance in 

its distribution of ratings. Specifically,

Rating

Permanent pay increase Performance award

Number of 

employees 

receiving 

permanent 

pay increases

Average as a percentage of base pay Number of 

employees 

receiving 

performance 

awards

Performance award amount

Average Lowest Highest Average Lowest Highest

Eligible

90-100 1,014 3.9 0.7 15.0 1,079 $1,781 $250 $7,500

80-89 1,121 3.1 0.02 11.0 1,099 1,117 100 6,000

70-79 250 2.4 0.2 9.0 181 742 50 2,000

60-69 18 0.9 0.2 3.2 10 925 300 2,500

50-59 1 1.2 1.2 1.2 1 300 300 300

40-49 0 N/A N/A N/A 1 200 200 200

Unsatisfactory 0 N/A N/A N/A 0 N/A N/A N/A

Total 2,404 2,371
Page 23 GAO-04-83 Pay for Performance

• 99.9 percent of employees scored 40 or above, and nearly 78 percent of 

employees scored 80 or above, and

• 0.1 percent, or 3 employees, were rated as unsatisfactory.

Considering Current Salary 

in Making PerformanceBased Pay Decisions

Several of the demonstration projects consider an employee’s current 

salary when making decisions on permanent pay increases and one-time 

awards. By considering salary in such decisions, the projects intend to 

make a better match between an employee’s compensation and his or her 

contribution to the organization. Thus, two employees with comparable 

contributions could receive different pay increases and awards depending 

on their current salaries. 

At AcqDemo, supervisors recommend and pay pool managers approve 

employees’ “contribution scores.” Pay pools then plot contribution scores 

against the employees’ current salaries and a “standard pay line” to 

determine if employees are “appropriately compensated,” “undercompensated,” or “over-compensated,” given their contributions.11 Figure 6 

shows how AcqDemo makes its performance pay decisions for employees 

who receive the same contribution scores but earn different salaries.

11The “standard pay line” spans from the dollar equivalent of GS-1, step 1, to the dollar 

equivalent of GS-15, step 10. Appropriately compensated employees’ salaries fall within the 

“normal pay range,” which encompasses an area of +/- 4.0 points from the standard pay line.
Page 24 GAO-04-83 Pay for Performance

Figure 6: AcqDemo’s Consideration of Current Salary in Making Performance Pay Decisions

AcqDemo has reported that it has made progress in matching employees’ 

compensation to their contributions to the organization. From 1999 to 

2002, appropriately compensated employees increased from about 63 

percent to about 72 percent, under-compensated employees decreased 

from about 30 percent to about 27 percent, and over-compensated 

employees decreased from nearly 7 percent to less than 2 percent.

NRL implemented a similar system intended to better match employee 

contributions with salary. Data from NRL show that it has made progress 

in matching employees’ compensation to their contributions to the 

organization. From 1999 to 2002, “normally compensated” employees, or 

employees whose contributions match their compensation, increased from 

about 68 percent to about 81 percent; under-compensated employees 

decreased from about 25 percent to about 16 percent; and over0

10,000

Source: DOD.

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

0 10 20 30 40 50 60 70 80 90 100

Contribution score

Dollars

Over-compensated

Under-compensated

Appropriately compensated

A

C

B

A

B

C

An employee who received a 

contribution score of 60 and earns a 

$60,000 base salary is considered overcompensated given his or her level of 

contributions and may receive a reduced 

or no GPI and will not receive a 

permanent pay increase or award.

An employee who received a contribution 

score of 60 and earns a $20,000 base 

salary is considered under-compensated 

given his or her level of contributions and 

receives the GPI and is eligible for a 

permanent pay increase and award.

An employee who received a contribution 

score of 60 and earns a $40,000 base 

salary is considered appropriately 

compensated given his or her level of 

contributions and receives the GPI and 

may receive a permanent pay increase, 

award, or both. However, the system is 

designed so that the pay increase does 

not move the employee outside of the 

normal pay range.
Page 25 GAO-04-83 Pay for Performance

compensated employees decreased from about 7 percent to about 3 

percent. 

Similar to AcqDemo’s and NRL’s approach, NAVSEA’s Dahlgren division 

recently redesigned its pay for performance system to better match 

compensation and contribution. Because Dahlgren implemented its new 

system in 2002, performance data were not available. Less systematically, 

China Lake and NAVSEA’s Newport division consider current salary in 

making pay and award decisions. For example, at Newport, supervisors 

within each pay pool are to list all employees in each pay band by salary 

before a rating is determined and then evaluate each employee’s 

contribution to the organization considering that salary. If their 

contributions exceed expectations, employees are considered for 

permanent pay increases. If contributions meet expectations, employees 

are considered for one-time awards. 

Managing Costs of the Pay 

for Performance System

OPM reports that the increased costs of implementing alternative 

personnel systems should be acknowledged and budgeted for up front.12 

Based on the data the demonstration projects provided us, direct costs 

associated with salaries, training, and automation and data systems were 

the major cost drivers of implementing their pay for performance systems. 

The demonstration projects reported other direct costs, such as 

evaluations and administrative expenses. The demonstration projects used 

a number of approaches to manage the direct costs of implementing and 

maintaining their pay for performance systems. 

Salary Costs Under the current GS system, federal employees annually receive the GPI 

and, where appropriate, a locality pay adjustment, as well as periodically 

receiving WGIs. The demonstration projects use these and other funding 

sources under the GS to make their pay decisions, as shown in figure 7. 

12U.S. Office of Personnel Management, Demonstration Projects and Alternative Personnel 

Systems: HR Flexibilities and Lessons Learned (Washington, D.C.: September 2001).
Page 26 GAO-04-83 Pay for Performance

Figure 7: Funding Sources Linked to Pay Decisions in Selected Personnel 

Demonstration Projects as of Fiscal Year 2003

a According to AcqDemo officials, some AcqDemo organizational units guaranteed the GPI for the first 

year to assure employees’ understanding and fair implementation of the process and others 

guaranteed the GPI for additional, but limited, years to obtain local union agreement to enter the 

demonstration project. 

The aggregated average salary data that some of the demonstration 

projects were able to provide do not allow us to determine whether total 

salary costs for the demonstration projects are higher or lower than their 

GS comparison groups. However, our analysis shows that the 

demonstration projects’ cumulative percentage increases in average 

salaries varied in contrast to their GS comparison groups. For example, as 

shown in table 5, after the first year of each demonstration project’s 

implementation, the differences in cumulative percentage increase in 

average salary between the demonstration project employees and their GS 

comparison group ranged from –2.9 to 2.7 percentage points. 

China

Funding source Lake NIST DOC NRL NAVSEA AcqDemo

GPI a

Locality pay adjustment

WGI and QSI

Career ladder promotions 

Source: GAO.
Page 27 GAO-04-83 Pay for Performance

Table 5: Cumulative Percentage Increase in Average Salaries for Demonstration Project and Comparison Group Employees by 

Year of the Project, as Reported by the Demonstration Projects 

Source: GAO analysis of OPM, DOC, and DOD data.

Legend: D = demonstration project; C = comparison group for the demonstration project in the GS 

system.

Notes: We calculated the percentage increase in average salaries using the demonstration project’s or 

comparison group’s aggregated average salary in the year prior to the project’s implementation as the 

baseline. 

Data are as reported by the demonstration projects without verification by GAO.

Shaded areas indicate that the demonstration project has not yet reached those years.

Based on our review of the DOC salary data, we determined that the data were not adequate for use in 

our comparative analyses of salary growth. Therefore, we do not present DOC’s salary data.

According to a demonstration project official, AcqDemo does not collect comparable salary data due to 

its constantly changing and growing participant base. Therefore, we do not present AcqDemo’s 

average salary data. AcqDemo reports that demonstration project salaries increased 0.7 percent 

higher than GS salaries in fiscal year 2000 (year 1) and 2001 (year 2) and 0.9 percent higher in fiscal 

year 2002 (year 3). 

The demonstration projects used several approaches to manage salary 

costs, including (1) choosing the method of converting employees into the 

demonstration project, (2) considering fiscal conditions and the labor 

market, (3) managing movement through the pay band, and (4) providing a 

mix of awards and performance pay increases. 

Choosing the method of converting employees into the 

demonstration project. When the demonstration projects converted 

employees from the GS system to the pay for performance system, they 

compensated each employee for the portion of the WGI that the employee 

had earned either as a permanent increase to base pay or a one-time lump 

Year 1 Year 2 Year 3 Year 4 Year 5

D

%

C

%

Difference

%

D

%

C

%

Difference

%

D

%

C

%

Difference

%

D

%

C

%

Difference

%

D

%

C

%

Difference

%

China 

Lake 10.3 7.6 2.7 17.7 14.6 3.1 24.7 20.1 4.6 28.0 23.5 4.5 31.6 27.7 3.9

NIST 4.2 2.7 1.5 10.1 7.1 3.0 17.3 12.1 5.2 24.2 16.6 7.6 31.1 21.

9 9.2

NRL 1.9 4.8 -2.9 5.4 8.6 -3.2 10.4 13.6 -3.2

NAVSEA

Dahlgren 3.5 4.9 -1.4 7.8 10.0 -2.2 10.8 13.8 -3.0 13.6 19.1 -5.5

NAVSEA 

Newport 3.8 4.8 -1.0 8.5 8.6 -0.1 11.0 13.6 -2.6
Page 28 GAO-04-83 Pay for Performance

sum payment. Four of the six demonstration projects (China Lake, NRL, 

NAVSEA, and AcqDemo) gave employees permanent increases to base pay, 

while the remaining two demonstration projects (NIST and DOC) gave 

employees one-time lump sum payments. 

Both methods of compensating employees have benefits and drawbacks, 

according to demonstration project officials. Giving permanent pay 

increases at the point of conversion into the demonstration project 

recognizes that employees had already earned a portion of the WGI, but a 

drawback is that the salary increases are compounded over time, which 

increases the organization’s total salary costs. However, the officials said 

that giving permanent pay increases garnered employees’ support for the 

demonstration project because employees did not feel like they would have 

been better off under the GS system. 

Considering fiscal conditions and the labor market. In determining 

how much to budget for pay increases, demonstration projects considered 

the fiscal condition of the organization as well as the labor market. For 

example, China Lake, NIST, NRL, and NAVSEA receive a portion of their 

funding from a working capital fund and thus must take into account fiscal 

conditions when budgeting for pay increases and awards. These 

organizations rely, in part, on sales revenue rather than direct 

appropriations to finance their operations. The organizations establish 

prices for their services that allow them to recover their costs from their 

customers. If the organizations’ services become too expensive (i.e., 

salaries are too high), they become less competitive with the private sector. 

A demonstration project official at NAVSEA’s Newport division said that as 

an organization financed in part through a working capital fund, it has an 

advantage over organizations that rely completely on appropriations 

because it can justify adjusting pay increase and awards budgets when 

necessary to remain competitive with the private sector. Newport has had 

to make such adjustments. In fiscal year 2002, the performance pay 

increase and award pools were funded at lower levels (1.4 percent and 1.7 

percent of total salaries for pay increases and awards, respectively) than in 

2001 (1.7 percent and 1.8 percent, respectively) because of fiscal 

constraints. As agreed with one of its unions, Newport must set aside a 

minimum of 1.4 percent of salaries for its pay increases, which is equal to 

historical spending under GS for similar increases.

NAVSEA’s Newport division also considers the labor market and uses 

regional and industry salary information compiled by the American 
Page 29 GAO-04-83 Pay for Performance

Association of Engineering Societies when determining how much to set 

aside for pay increases and awards. In fiscal year 2001, Newport funded 

pay increases and awards at a higher level (1.7 percent and 1.8 percent of 

total salaries, respectively) than in fiscal year 2000 (1.4 percent and 1.6 

percent, respectively) in response to higher external engineer, scientist, 

and information technology personnel salaries. 

Managing movement through the pay band. Because movement 

through the pay band is based on performance, demonstration project 

employees could progress through the pay band more quickly than under 

the GS. Some demonstration projects have developed ways intended to 

manage this progression to prevent all employees from eventually 

migrating to the top of the pay band and thus increasing salary costs.

NIST and DOC manage movement through the pay band by recognizing 

performance with larger pay increases early in the pay band and career 

path and smaller increases higher in the pay band and career path. Both of 

these demonstration projects divided each pay band into five intervals. The 

intervals determine the maximum percentage increase employees could 

receive for permanent pay increases. The intervals, shown in figure 8, have 

helped NIST manage salary costs, according to a NIST official. 
Page 30 GAO-04-83 Pay for Performance

Figure 8: Pay Bands, Intervals, and Corresponding Permanent Pay Increases for 

NIST’s Scientific and Engineering Career Path

Similarly, some of the demonstration projects, including China Lake and 

NAVSEA’s Dahlgren division, have checkpoints or “speed bumps” in their 

pay bands intended to manage salary costs as well as ensure that 

employees’ performance coincides with their salaries as they progress 

through the band. These projects established checkpoints designed to 

ensure that only the highest performers move into the upper half of the pay 

band. For example, when employees’ salaries at China Lake reach the 

midpoint of the pay band, they must receive ratings of highly successful, 

which are equivalent to exceeding expectations, before they can receive 

additional salary increases. A Performance Review Board, made up of 

senior management, is to review all highly successful ratings.

Pay band Interval

Permanent 

pay increase 

(percentage of 

base pay)

5

Differences within 

a pay band

Differences within 

a career path

0 - 4

4 0 - 4

3 0 - 4

2 0 - 5

1 0 - 6

4-5 0 - 6

3 0 - 6

2 0 - 8

1 0 - 10

4-5 0 - 7

3 0 - 7

2 0 - 12

1 0 - 15

4-5 0 - 8

3 0 - 8

2 0 - 16

1 0 - 20

4-5 0 - 7

3 0 - 7

2 0 - 12

1 0 - 14

II

(GS 7-10)

I 

(GS 1-6)

V 

(GS 15)

IV 

(GS 13-14)

III

(GS 11-12)

Source: DOC.
Page 31 GAO-04-83 Pay for Performance

Providing a mix of awards and pay increases. Some of the 

demonstration projects intended to manage costs by providing a mix of 

one-time awards and permanent pay increases. Rewarding an employee’s 

performance with an award instead of an equivalent increase to base pay 

can reduce salary costs in the long run because the agency only has to pay 

the amount of the award one time, rather than annually. For example, at 

NAVSEA’s Newport division, as employees move higher into the pay band, 

they are more likely to receive awards than permanent increases to base 

pay. According to a Newport official, expectations increase along with 

salaries and thus it is more likely that their contributions would meet, 

rather than exceed, expectations. 

To manage costs, China Lake allows pay pools to transfer some of their 

budgets for permanent pay increases to their budgets for awards. A China 

Lake official said that because China Lake receives a portion of its funding 

from a working capital fund, it is not only important to give permanent 

salary increases to high-performing employees, but also to give increases 

China Lake can afford the next year. China Lake does not track how much 

funding is transferred from performance pay increase budgets to awards 

budgets.

Training Costs We have reported that agencies will need to invest resources, including 

time and money, to ensure that employees have the information, skills, and 

competencies they need to work effectively in a rapidly changing and 

complex environment.13 This includes investments in training and 

developing employees as part of an agency’s overall effort to achieve costeffective and timely results. Agency managers and supervisors are often 

aware that investments in training and development initiatives can be quite 

large. However, across the federal government, evaluation efforts have 

often been hindered by the lack of accurate and reliable data to document 

the total costs of training efforts. Each of the demonstration projects 

trained employees on the performance management system prior to 

implementation to make employees aware of the new approach, as well as 

periodically after implementation to refresh employee familiarity with the 

system. The training was designed to help employees understand 

competencies and performance standards; develop performance plans; 

write self-appraisals; become familiar with how performance is evaluated 

13U.S. General Accounting Office, Human Capital: A Guide for Assessing Strategic 

Training and Development Efforts in the Federal Government (Exposure Draft), GAO-03-

893G (Washington, D.C.: July 1, 2003).
Page 32 GAO-04-83 Pay for Performance

and how pay increases and awards decisions are made; and know the roles 

and responsibilities of managers, supervisors, and employees in the 

appraisal and payout processes.

Generally, demonstration projects told us they incurred direct and indirect 

costs associated with training. Direct training costs that the demonstration 

projects reported included costs for contractors, materials, and travel 

related to developing and delivering training to employees and managers. 

As shown in table 6, total direct costs that the demonstration projects 

reported for training through the first 5 years of the projects’ 

implementation range from an estimated $33,000 at NAVSEA’s Dahlgren 

division to more than $1 million at China Lake.14 (NIST reported no direct 

costs associated with training.) Training costs, as indicated by the cost per 

employee, were generally higher in the year prior to implementation, 

except for AcqDemo’s, which increased over time.

14All dollars were inflation-adjusted to 2002 dollars because the demonstration projects took 

place over a variety of years.
Page 33 GAO-04-83 Pay for Performance

Table 6: Direct Inflation-Adjusted Cost of Training in the First 5 Years of the Demonstration Projects (in 2002 Dollars), as 

Reported by the Demonstration Projects 

Source: GAO analysis of DOC and DOD data.

Notes: The cost per demonstration project employee is based on the number of employees in the 

demonstration project at the same time each year, not the actual number of employees trained on the 

demonstration project, because the demonstration projects do not collect this information. 

Data are as reported by the demonstration projects without verification by GAO.

Shaded squares indicate that the demonstration project has not yet reached those years.

While the demonstration projects did not report indirect costs associated 

with training employees on the demonstration project, officials stated that 

indirect costs, such as employee time spent developing, delivering, or 

attending training, could nonetheless be significant. Likewise, the time 

spent on the “learning curve” until employees are proficient with the new 

system could also be significant. For example, although NIST did not 

capture its indirect training costs, agency officials told us that prior to 

implementation, each NIST employee was in training for 1 day. Since its 

implementation, NIST offers optional one-half day training three times a 

year for all employees. AcqDemo offered 8 hours of training for employees 

prior to implementation and a minimum of 4 hours of training after 

implementation. All potential new participants also received eight hours of 

training prior to implementation at their site. Supervisors and human 

resources professionals at AcqDemo were offered an additional 8 hours of 

training each year after the demonstration project was implemented. 

According to a DOC official, prior to conversion to the demonstration 

project, DOC provided a detailed briefing to approximately 400 employees 

to increase employee understanding of the project. In addition, employees 

Cost per demonstration project employee Total cost

Demonstration 

project

Year prior to 

implementation

Year 1 Year 2 Year 3 Year 4 Year 5 Prior to 

implementation 

through year 5

China Lake $203 $21 No data No data No data No data $1,226,000

NIST 0 0 0 0 0 0 0

DOC 12 6 $5 $8 $8 No data 105,000

NRL 84 5 4 0 248,000

NAVSEADahlgren17

(estimate)

0

(estimate)

0

(estimate)

0

(estimate)

0

(estimate)

 0

(estimate)

33,000

(estimate)

NAVSEA 

Newport

26

(estimate)

4

(estimate)

1

(estimate)

1

(estimate)

1

(estimate)

68,000

(estimate)

AcqDemo No data 8 10 9 20 $19 458,000
Page 34 GAO-04-83 Pay for Performance

could schedule one-on-one counseling sessions with human resources staff 

to discuss individual issues and concerns. 

Some of the demonstration projects, including China Lake, DOC, and 

NAVSEA’s Dahlgren and Newport divisions, managed training costs by 

relying on current employees to train other employees on the 

demonstration project. According to demonstration project officials, while 

there are still costs associated with developing and delivering in-house 

training, total training costs are generally reduced by using employees 

rather than hiring contractors to train employees. For example, China Lake 

took a “train the trainer” approach by training a group of employees on the 

new flexibilities in the demonstration project and having those employees 

train other employees. According to a demonstration project official, an 

added benefit of using employees to train other employees is that if the 

person leading the training is respected and known, then the employees are 

more likely to support the demonstration project. The official said that one 

drawback is that not all employees are good teachers, so their skills should 

be carefully considered. 

AcqDemo used a combination of contractors and in-house training to 

implement its training strategy. According to an AcqDemo official, the 

relatively higher per demonstration project employee costs in years 4 and 5 

are a result of AcqDemo’s recognition that more in-depth and varied 

training was needed for current AcqDemo employees to refresh their 

proficiency in the system; for new participants to familiarize them with 

appraisal and payout processes; as well as for senior management, pay pool 

managers and members, and human resources personnel to give them 

greater detail on the process.

Automation and Data Systems 

Costs

As a part of implementing a pay for performance system, some of the 

demonstration projects installed new or updated existing automated 

personnel systems. Demonstration projects reported that total costs 

related to designing, installing, and maintaining automation and data 

systems ranged from an estimated $125,000 at NAVSEA’s Dahlgren division 

to an estimated $4.9 million at AcqDemo, as shown in table 7. 
Page 35 GAO-04-83 Pay for Performance

Table 7: Inflation-Adjusted Cost of Automation and Data Systems for Selected Demonstration Projects (in 2002 Dollars), as 

Reported by the Demonstration Projects

Source: GAO analysis of DOC and DOD data.

Notes: Data are as reported by the demonstration projects without verification by GAO. 

Costs may not sum to totals due to rounding.

a

Automation and data systems were not widely used when the China Lake demonstration project was 

implemented in 1980. 

To manage data system costs, some demonstration projects modified 

existing data systems rather than designing completely new systems to 

meet their information needs. For example, NAVSEA’s divisions worked 

together to modify DOD’s existing Defense Civilian Personnel Data System 

to meet their needs for a revised performance appraisal system. Similarly, 

DOC imported the performance appraisal system developed by NIST and 

converted the payout system to a Web-based system. While NIST reported 

that it incurred no direct costs for automation and data systems, officials 

told us it used in-house employees, NIST’s Information Technology 

Laboratory staff, to develop a data system to automate performance 

ratings, scores, increases, and awards. 

NRL used a combination of in-house employees and contractors to 

automate its performance management system. While reported 

automation and data systems’ costs were higher for NRL than for most 

other demonstration projects, NRL reports that its automated system has 

brought about savings each year of an estimated 10,500 hours of work, 

$266,000, and 154 reams of paper since the demonstration project was 

implemented in 1999.

Dollars in thousands

China 

Lakea

NIST DOC NRL NAVSEADahlgrenNAVSEA 

Newport

AcqDemo

Prior to implementation No data 0 0 $1,467 $125

(estimate)

$333

(estimate) 0

Cumulative cost since 

implementation No data 0 $2,317 2,166 0(estimate)

463

(estimate)

$4,871

(estimate)

Total No data 0 $2,317 $3,633 $125

(estimate)

$796

(estimate)

$4,871

(estimate)
Page 36 GAO-04-83 Pay for Performance

Providing Information to 

Employees about the 

Results of Performance 

Appraisal and Pay Decisions

We have observed that a performance management system should have 

adequate safeguards to ensure fairness and guard against abuse. One such 

safeguard is to ensure reasonable transparency and appropriate 

accountability mechanisms in connection with the results of the 

performance management process. To this end, NIST, NAVSEA’s Newport 

Division, NRL, and AcqDemo publish information for employees on 

internal Web sites about the results of performance appraisal and pay 

decisions, such as the average performance rating, the average pay 

increase, and the average award for the organization and for each 

individual unit. Other demonstration projects publish no information on 

the results of the performance cycle.

NAVSEA’s Newport division publishes results of its annual performance 

cycle. Newport aggregates the data so that no individual employee’s rating 

or payout can be determined to protect confidentiality. Employees can 

compare their performance rating category against others in the same unit, 

other units, and the entire division, as shown in figure 9.
Page 37 GAO-04-83 Pay for Performance

Figure 9: Sample of NAVSEA Newport Division’s Rating Category Distribution Data Provided to Employees

Until recently, only if requested by an employee would NIST provide 

information such as the average rating, pay increase, and award amount for 

the employee’s pay pool. To be more open, transparent, and responsive to 

employees, NIST officials told us that in 2003, for the first time, NIST began 

to publish the results of the performance cycle on its internal Web site. 

NIST published averages of the performance rating scores, as shown in 

figure 10, as well as the average recommended pay increase amounts and 

the average awards by career path, for the entire organization, and for each 

organizational unit. According to one NIST official, the first day the results 

were published on the internal Web site, the Web site was visited more than 

1,600 times. 

0

10

20

30

40

50

60

70

80

Division

n=2020

Unit 1

n=75

Unit 2

n=718

Unit 3

n=62

Unit 4

n=294

Unit 5

n=362

Unit 6

n=190

Unit 7

n=151

Unit 8

n=159

Unit 9

n=132

Unit 10

n=32

Unit 11

n=182

Unit 12

n=381

Unit 13

n=202

Unit 14

n=176

Unit

Percentage of employees

Contributor

Major contributor

Source: DOD.

Exceptional contributor

0
Page 38 GAO-04-83 Pay for Performance

Figure 10: Sample of NIST’s Distribution of Average Performance Rating Scores 

Provided to Employees 

a

Indicates that there were not enough employees in the unit to protect confidentiality; therefore, no data 

are reported.

Publishing the results of the performance management process can provide 

employees with the information they need to better understand the 

performance management system. However, according to an official, DOC 

does not currently publish performance rating and payout results even 

though DOC’s third year evaluation found that demonstration project 

participants continued to raise concerns that indicated their lack of 

understanding about the performance appraisal process. According to the 

evaluation, focus group and survey results indicated the need for increased 

understanding on topics such as how pay pools work, how salaries are 

determined, and how employees are rated. Employees were also interested 

in knowing more about the results of the performance appraisal process. 

One union representative told us that a way to improve the demonstration 

project would be to publish information. In past years, according to 

employee representatives, some employees and union representatives at 

DOC have used the Freedom of Information Act to request and obtain the 

information. According to a DOC official, DOC plans to discuss the 

publication of average scores by each major unit and look for options to 

Professional Scientific and

Engineering Technical

80

82

85

Career path

Organizational unit Administrative

0

81

82

0

0

80

81

82

85

81

83

a

86

78

82

87

91

83

82

83

85

81

84

84

78

84

91

90

82

83

85

88

81

82

81

85

81

84

85

81

84

90

86

80

83

88

86

82

83

84

89

81

86

83

80

84

89

Source: DOC.

1

2

3

4

5

6

7

8

9

10

11

12

Low

Average

High
Page 39 GAO-04-83 Pay for Performance

increase employee understanding of the performance management system 

at upcoming Project Team and Departmental Personnel Management 

Board meetings.

Concluding 

Observations

Linking pay to performance is a key practice for effective performance 

management. As Congress, the administration, and federal agencies 

continue to rethink the current approach to federal pay to place greater 

emphasis on performance, the experiences of personnel demonstration 

projects can provide insights into how some organizations within the 

federal government are implementing pay for performance. The 

demonstration projects took different approaches to using competencies to 

evaluate employee performance, translating performance ratings into pay 

increases and awards, considering employees’ current salaries in making 

performance pay decisions, managing costs of the pay for performance 

systems, and providing information to employees about the results of 

performance appraisal and pay decisions. These different approaches 

were intended to enhance the success of the pay for performance systems 

because the systems were designed and implemented to meet the 

demonstration projects’ unique cultural and organizational needs. 

We strongly support the need to expand pay for performance in the federal 

government. How it is done, when it is done, and the basis on which it is 

done can make all the difference in whether such efforts are successful. 

High-performing organizations continuously review and revise their 

performance management systems to achieve results, accelerate change, 

and facilitate two-way communication throughout the year so that 

discussions about individual and organizational performance are integrated 

and ongoing. To this end, these demonstration projects show an 

understanding that how to better link pay to performance is very much a 

work in progress at the federal level. 

Additional work is needed to strengthen efforts to ensure that performance 

management systems are tools to help the demonstration projects manage 

on a day-to-day basis. In particular, there are opportunities to use 

organizationwide competencies to evaluate employee performance that 

reinforce behaviors and actions that support the organization's mission, 

translate employee performance so that managers can make meaningful 

distinctions between top and poor performers with objective and factbased information, and provide information to employees about the results 

of the performance appraisals and pay decisions to ensure that reasonable 

transparency and appropriate accountability mechanisms are in place. 
Page 40 GAO-04-83 Pay for Performance

Agency Comments We provided drafts of this report to the Secretaries of Defense and 

Commerce for their review and comment. DOD’s Principal Deputy, Under 

Secretary of Defense for Personnel and Readiness, provided written 

comments, which are presented in appendix III. DOD concurred with our 

report and stated that it is a useful summary of the various approaches that 

the demonstration projects undertook to implement their pay for 

performance systems and that their experiences provide valuable insight 

into federal pay for performance models. DOD also noted that the NAVSEA 

demonstration project training and automation cost data are estimated 

rather than actual costs. We made the appropriate notation. While DOC 

did not submit written comments, DOC’s Classifcation, Pay, and HR 

Demonstration Program Manager provided minor technical clarifications 

and updated information. We made those changes where appropriate. We 

provided a draft of the report to the Director of OPM for her information.

As agreed with your offices, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 30 days after its 

date. At that time, we will provide copies of this report to other interested 

congressional parties, the Secretaries of Defense and Commerce, and the 

Director of OPM. We will also make this report available to others upon 

request. In addition, the report will be available at no charge on the GAO 

Web site at http://www.gao.gov.

If you have any questions about this report, please contact me or Lisa 

Shames on (202) 512-6806. Other contributors are acknowledged in 

appendix IV.

J. Christopher Mihm

Director, Strategic Issues
Page 41 GAO-04-83 Pay for Performance

Appendix I

Objective, Scope, and Methodology ApApenednxidexiIs

To meet our objective to identify the approaches that selected personnel 

demonstration projects have taken to implement their pay for performance 

systems, we chose the following demonstration projects: the Navy 

Demonstration Project at China Lake (China Lake), the National Institute 

of Standards and Technology (NIST), the Department of Commerce (DOC), 

the Naval Research Laboratory (NRL), the Naval Sea Systems Command 

Warfare Centers (NAVSEA) at Dahlgren and Newport, and the Civilian 

Acquisition Workforce Personnel Demonstration Project (AcqDemo). We 

selected these demonstration projects based on our review of the projects 

and in consultation with the Office of Personnel Management (OPM). 

Factors we considered in selecting these demonstration projects included 

the type of pay for performance system, type of agency (defense or 

civilian), status of the project (ongoing, permanent, or complete), date the 

project was implemented, and number and type of employees covered 

(including employees covered by a union).

To identify the different approaches that the demonstration projects took 

in implementing their pay for performance systems, we analyzed Federal 

Register notices outlining the major features and regulations for each 

demonstration project, operating manuals, annual and summative 

evaluations, employee attitude survey results, project briefings, training 

materials, rating and payout data, cost data, rating distribution data from 

OPM’s Central Personnel Data File (CPDF), and other relevant 

documentation. In addition, we spoke with cognizant officials from OPM; 

demonstration project managers, human resource officials, and 

participating supervisors and employees; and union and other employee 

representatives. 

We prepared a data collection instrument to obtain actual and estimated 

cost data from the six demonstration projects. We tested the instrument 

with a demonstration project official to ensure that the instrument was 

clear and comprehensive. After revising the instrument based on the 

official’s recommendations, we administered the instrument via e-mail and 

followed up with officials via telephone, as necessary. Officials from the 

six demonstration projects provided actual cost data where available and 

estimated data when actual data were not available. Cost data reported are 

actual unless otherwise indicated. We adjusted cost data for inflation using 

the Consumer Price Index, in 2002 dollars. We provide average salary data, 

as reported by the demonstration projects and OPM without verification by 

GAO. The aggregated average salary data do not allow us to determine 

whether total salary costs for the demonstration projects are higher or 

lower than their General Schedule (GS) comparison groups.
Appendix I

Objective, Scope, and Methodology

Page 42 GAO-04-83 Pay for Performance

We did not independently evaluate the effectiveness of the demonstration 

projects or independently validate the data provided by the agencies or 

published in the evaluations. We assessed the reliability of cost, salary, 

rating, and performance pay distribution data provided by the 

demonstration projects by (1) performing manual and electronic testing of

required data elements, (2) reviewing existing information about the data, 

and (3) interviewing agency officials knowledgeable about the data. We 

determined that the data were sufficiently reliable for the purposes of this

report, with the exception of the DOC salary data, which we do not present. 

Based on our review of the DOC salary data we determined that the data 

were not adequate for use in our comparative analyses of salary growth. 

An evaluation of the DOC demonstration project reported that data were 

missing in critical fields, such as pay and performance scores.

1

We did not independently verify the CPDF data for September 30, 2002. 

However, in a 1998 report (OPM's Central Personnel Data File: Data 

Appear Sufficiently Reliable to Meet Most Customer Needs, GAO/GGD-98-

199, Sept. 30, 1998), we reported that governmentwide data from the CPDF 

for key variables, such as GS-grade, agency, and career status, were 97 

percent or more accurate. However, we did not verify the accuracy of 

employee ratings.

We performed our work in the Washington, D.C., metropolitan area from 

December 2002 through August 2003 in accordance with generally 

accepted government auditing standards. 

1

Booz Allen Hamilton, Department of Commerce Personnel Management Demonstration 

Project Evaluation Year Four Report (McLean, Va.: September 2003).
Page 43 GAO-04-83 Pay for Performance

Appendix II

Demonstration Project Profiles ApendxiI

Navy Demonstration 

Project at China Lake 

(China Lake)

Source: GAO analysis of DOD and OPM data

Purpose The Navy Demonstration Project1

 was to

• develop an integrated approach to pay, performance appraisal, and 

classification; 

• allow greater managerial control over personnel functions; and 

• expand the opportunities available to employees through a more 

responsive and flexible personnel system. 

Selected Elements of the 

Performance Management 

System

Competencies: Competencies are tailored to an individual’s position. The 

employees and their supervisors are to develop performance plans, which 

identify the employees’ responsibilities and expected results. In addition, 

all supervisors are to include certain management competencies from a 

menu of managerial factors that best define their responsibilities, such as 

developing objectives, organizing work, and selecting and developing 

people.

Feedback: Supervisors are to conduct two progress reviews of 

employees’ performance, set at 5 and 9 months in the performance cycle. 

Status: Permanent 

Demonstration sites: Naval Air Warfare 

Center Weapons Division (sites in China 

Lake, CA and Point Mugu, CA) 

Participants: Approximately 3,900 

employees as of August 2003

Unions: None

Milestones:

● December 1979: Published proposed project plan in the Federal Register

● April 1980: Published final project plan in the Federal Register

● July 1980: Began project implementation

● October 1994: Made project permanent by Pub. L. No. 103-337

1

The Navy Demonstration Project was also implemented at the Space and Naval Systems 

Command in San Diego, California. 
Appendix II

Demonstration Project Profiles

Page 44 GAO-04-83 Pay for Performance

Self-assessment: Employees are strongly encouraged to list 

accomplishments for their supervisors’ information when determining the 

performance rating.

Levels of performance rating: The levels are highly successful (rating 

levels 1 or 2), fully successful (rating level 3), or less than fully successful 

(rating levels 4 or 5).

Safeguards:

• Second-level review: Second-level supervisors are to review all 

assessments. In addition, an overall assessment of highly successful is 

to be sent to the appropriate department’s Performance Review Board 

for the assignment of an official rating of “1” or “2.” The supervisor and 

reviewer are to assign a “4” or “5” rating based on a problem-solving 

team’s findings and a personnel advisor’s input.

• Grievance process: Generally, employees may request reconsideration 

of their ratings in writing to the third-level supervisor and indicate why a 

higher rating is warranted and what rating is desired. The third-level 

supervisor can either grant the request or request that a recommending 

official outside of the immediate organization or chain of authority be 

appointed. The employee is to receive a final decision in writing within 

21 calendar days.
Appendix II

Demonstration Project Profiles

Page 45 GAO-04-83 Pay for Performance

Selected Employee Attitude 

Data 

Figure 11: Selected Employee Attitude Data for China Lake

Source: DOD.

Legend: N/A = data are not applicable; N = number of respondents.

Other Interventions Reduction in force. To allow for increased retention of high-performing 

employees at all levels by ranking employees based on performance for 

retention standings.

Salary flexibility. To set entry-level salaries to take into account market 

conditions.

Selected Reported Effects A demonstration project evaluation reported the following effects.2

Demonstration group Comparison group

Agree 

%

Disagree 

%

N Agree 

%

Disagree 

%

N

“Under the present system, financial rewards 

are seldom related to employee performance.” 

Baseline (1979) 37 39 2,221 No data No data No data

“Pay raises depend on how well employees 

perform their jobs.”

2003 40 40 1,149 No data No data No data

“Job satisfaction—your pay.”

“All in all, I am satisfied with my pay.”

Baseline (1993) 59 28 1,200 No data No data No data

2003 52 25 1,149 No data No data No data

“I feel that my supervisor will rate my 

performance (and set my pay) in a fair, impartial 

manner.”

Baseline (1979) 63 14 2,221 No data No data No data

“My performance rating represents a fair and 

accurate picture of my actual job performance.”

1993 56 26 1,200 No data No data No data

“I am in favor of the demonstration project.” Baseline (1979) 29 No data 2,221 N/A N/A N/A

1998 71 13 No data N/A N/A N/A

2

Source: U.S. Office of Personnel Management, A Summary Assessment of the Navy 

Demonstration Project (Washington, D.C.: February 1986).
Appendix II

Demonstration Project Profiles

Page 46 GAO-04-83 Pay for Performance

• Employees viewed performance improvements within their control and 

reported increased recognition of individual performance.

• The perception of a pay-performance link was significantly 

strengthened under the demonstration pay for performance system, but 

not in the comparison group.

• Pay satisfaction increased slightly at the demonstration sites and 

declined at the control laboratories.

• Employees and supervisors cited improved communication, a more 

objective focus, and clearer performance expectations as major system 

benefits.

• Employees and supervisors perceived their performance appraisal 

system to be more flexible than the comparison group, to focus more on 

actual work requirements, and thus to be more responsive to laboratory 

needs.

• Employees at the demonstration project reported having more input 

into the development of performance plans than employees in the 

comparison group.

Sources for Additional 

Information

http://www.nawcwpns.navy.mil/~hrd/demo.htm (Last accessed on Nov. 7, 

2003) 

http://www.opm.gov/demos/main.asp (Last accessed on Nov. 7, 2003)
Appendix II

Demonstration Project Profiles

Page 47 GAO-04-83 Pay for Performance

National Institute of 

Standards and 

Technology (NIST)

Source: GAO analysis of DOC and OPM data.

Purpose The NIST demonstration project, formerly known as the National Bureau 

of Standards, was to

• improve hiring and allow NIST to compete more effectively for highquality researchers,

• motivate and retain staff,

• strengthen the manager’s role in personnel management, and 

• increase the efficiency of personnel systems. 

Selected Elements of the 

Performance Management 

System

Competencies: Competencies, called “critical elements,” are based on the 

individual position. Employee performance plans are to have a minimum 

of two and a maximum of six critical elements, which the supervisor 

weights, based on the importance of the critical element, the time required 

to accomplish the critical element, or both. Managers’ and supervisors’ 

performance plans are to include a critical element on diversity and it must 

be weighted at least 15 points. 

Milestones:

● October 1986: Established demonstration project by Pub. L. No. 99-574

● July 1987: Published proposed project plan in the Federal Register

● October 1987: Published final project plan in the Federal Register

● January 1988: Began project implementation

● October 1991: Extended project until September 1995 

● May 1995: Extended project through September 1998

● March 1996: Made project permanent by Pub. L. No. 104-113

Status: Permanent

Demonstration sites: Gaithersburg, MD, 

and Boulder, CO

Participants: Approximately 3,000 

employees as of May 2003

Unions: International Association of 

Firefighters, International Association of 

Machinists and Aerospace Workers, and 

American Federation of Government 

Employees 
Appendix II

Demonstration Project Profiles

Page 48 GAO-04-83 Pay for Performance

Feedback: Supervisors are to conduct midyear reviews of all employees to 

discuss accomplishments or deficiencies and modify the initial 

performance plans, if necessary. 

Self-assessment: Employees are to submit lists of accomplishments for 

their supervisors’ information when determining the performance ratings. 

Levels of performance rating: The levels are “eligible” or 

“unsatisfactory.” On a scale of 0 to 100, employees who receive scores over 

40 are rated eligible and those with scores below 40 unsatisfactory.

Safeguards:

• Second-level review: Pay pool managers are to review recommended 

scores from supervisors and select a payout for each employee. Pay 

pool managers are to present the decisions to the next higher official for 

review if the pay pool manager is also a supervisor. The organizational 

unit director is to approve awards and review all other decisions.

• Grievance procedure: Employees may grieve their performance 

ratings, scores, and pay increases by following DOC’s Administrative 

Grievance Procedure or appropriate negotiated grievance procedures.
Appendix II

Demonstration Project Profiles

Page 49 GAO-04-83 Pay for Performance

Selected Employee Attitude 

Data

Figure 12: Selected Employee Attitude Data for NIST

Sources: U.S. Office of Personnel Management, Implementation Report National Institute of Standards and Technology Personnel Management Demonstration Project (Washington, D.C.: Aug. 18, 1989) and 

Summative Evaluation Report National Institute of Standards and Technology Demonstration Project: 1988-1995 (Washington, D.C.: June 27, 1997).

Legend: N/A = data are not applicable; N = number of respondents.

a

OPM reported that 47 percent of 3,200 NIST employees and 44 percent of 2,392 comparison group 

employees responded to the survey.

Other Interventions Reduction in force. To credit an employee with an overall performance 

score in the top 10 percent of scores within a peer group with 10 additional 

years of service for retention purposes.

Supervisory differential. To establish supervisory intervals within a pay 

band that allow for a maximum rate up to 6 percent higher than the 

maximum rate of the nonsupervisory intervals within the pay band.

Hiring flexibility. To provide flexibility in setting initial salaries within 

pay bands for new appointees, particularly for hard-to-fill positions in the 

Scientific and Engineering career path.

Demonstration group Comparison group

Agree 

%

Disagree 

%

N Agree 

%

Disagree 

%

N

“Under the present system, financial 

rewards are seldom related to employee 

performance.”

Baseline (1987/1988) 38 47 2,319 36 44 396

1995 24 56 a 44 36 a

“All in all, I am satisfied with my pay.” Baseline (1987/1988) 49 39 2,319 34 56 395

1995 56 27 a 42 39 a

“My performance rating represents a fair 

and accurate picture of my actual 

performance.”

Baseline (1987/1988) 58 29 2,319 61 20 397

1995 56 21 a 56 25 a

“I have trust and confidence in my 

supervisor.”

Baseline (1987) 71 17 2,319 No data No data No data

1995 65 18 a 58 23 a

“I am in favor of the demonstration project.” 1989 47 18 2,319 N/A N/A N/A

1995 70 8 a N/A N/A N/A
Appendix II

Demonstration Project Profiles

Page 50 GAO-04-83 Pay for Performance

Extended probation. To require employees in the Scientific and 

Engineering career path to serve a probationary period of 1 to 3 years. 

Selected Reported Effects A demonstration project evaluation reported the following effects.3

• Recruitment bonuses were used sparingly but successfully to attract 

candidates who might not have accepted federal jobs otherwise. 

• NIST has become more competitive with the private sector and 

employees are less likely to leave for reasons of pay.

• NIST was able to provide significant performance-based awards, some 

with merit increases as high as 20 percent. NIST succeeded in retaining 

more of its high performers than the comparison group.

• Managers reported significantly increased authority over hiring and pay 

decisions.

• Managers reported that they felt significantly less restricted by 

personnel rules and regulations than other federal managers.

Source for Additional 

Information

http://www.opm.gov/demos/main.asp (Last accessed on Nov. 7, 2003)

3

Source: U.S. Office of Personnel Management, Summative Evaluation Report National 

Institute of Standards and Technology Demonstration Project: 1988-1995 (Washington, 

D.C.: June 27, 1997).
Appendix II

Demonstration Project Profiles

Page 51 GAO-04-83 Pay for Performance

Department of 

Commerce (DOC)

Source: GAO analysis of DOC and OPM data.

Purpose The DOC demonstration project was to test whether the interventions of 

the NIST demonstration project could be successful in environments with 

different missions and different organizational hierarchies. 

Selected Elements of the 

Performance Management 

System

Competencies: Competencies, called “critical elements,” are tailored to 

each individual position. Performance plans are to have a minimum of two 

and a maximum of six critical elements. The supervisor is to weight each 

critical element, based on the importance of the element, the time required 

to accomplish it, or both, so that the total weight of all critical elements is 

100 points. Organizationwide benchmark performance standards are to 

define the range of performance, and the supervisor may add supplemental 

performance standards to a performance plan. Performance plans for 

managers and supervisors are to include critical elements such as 

recommending or making personnel decisions; developing and appraising 

subordinates; fulfilling diversity, equal opportunity, and affirmative action 

responsibilities; and program and managerial responsibilities.

Feedback: Supervisors are to conduct midyear reviews of all employees to 

discuss accomplishments or deficiencies and modify the initial 

performance plans, if necessary. 

Milestones:

● May 1997: Published proposed project plan in the Federal Register

● December 1997: Published final project plan in the Federal Register

● March 1998: Began project implementation

● February 2003: Extended project to March 2008

Status: Active

Demonstration sites: Technology 

Administration, Economics and Statistics 

Administration, National 

Telecommunications and Information 

Administration, and National Oceanic and 

Atmospheric Administration 

Participants: Approximately 2,900 

employees as of August 2003

Unions: American Federation for 

Government Employees, National 

Federation of Federal Employees, and 

National Weather Service Employees 

Union 
Appendix II

Demonstration Project Profiles

Page 52 GAO-04-83 Pay for Performance

Self-assessment: Employees are to submit lists of accomplishments for 

their supervisors’ information when determining the performance ratings.

Levels of performance rating: The levels are “eligible” or 

“unsatisfactory.” On a scale of 0 to 100, employees who receive scores over 

40 are rated eligible and those with scores below 40 unsatisfactory. 

Safeguards:

• Second-level review: The pay pool manager is to review 

recommended scores from subordinate supervisors and select a payout 

for each employee. The pay pool manager is to present the decisions to 

the next higher official for review if the pay pool manager is also a 

supervisor. 

• Grievance procedure: Employees may request reconsideration of 

performance decisions, excluding awards, by the pay pool manager 

through DOC’s Administrative Grievance Procedure or appropriate 

negotiated grievance procedures.
Appendix II

Demonstration Project Profiles

Page 53 GAO-04-83 Pay for Performance

Selected Employee Attitude 

Data

Figure 13: Selected Employee Attitude Data for DOC

Source: Booz Allen Hamilton, Department of Commerce Personnel Management Demonstration Project Evaluation Operational Year Technical Report (Washington, D.C.: Oct. 8, 2002).

Legend: N = number of respondents.

Other Interventions Reduction in force. To credit employees with performance scores in the 

top 30 percent of a career path in a pay pool with 10 additional years of 

service for retention purposes. Other employees rated “eligible” receive 5 

additional years of service for retention credit. 

Supervisory performance pay. To offer employees who spend at least 25 

percent of their time performing supervisory duties pay up to 6 percent 

higher than the regular pay band. 

Probationary period. To require a 3-year probationary period for newly 

hired science and engineering employees performing research and 

development duties. 

Demonstration group Comparison group

Agree 

%

Disagree 

%

N Agree 

%

Disagree 

%

N

“Pay raises depend on how well you perform.” Baseline (1998) 36 39 1,024 34 44 512

2001 52 28 1,112 33 40 609

“All in all I am satisfied with my pay.” Baseline (1998) 47 35 1,024 41 39 512

2001 58 30 1,112 46 41 609

“My performance rating represents a fair and 

accurate picture of my actual performance.”

Baseline (1998) 59 22 1,024 58 23 512

2002 56 24 1,112 54 26 609

“I have trust and confidence in my supervisor.” Baseline (1998) 59 22 1,024 60 23 512

2001 62 23 1,112 59 25 609

“I am in favor of the demonstration project.” Baseline (1998) 37 26 1,024 25 13 512

2001 47 29 1,112 22 24 609
Appendix II

Demonstration Project Profiles

Page 54 GAO-04-83 Pay for Performance

Selected Reported Effects A demonstration project evaluation reported the following effects.4

• The pay for performance system continues to exhibit a positive link 

between pay and performance. For example, in year 4 of the 

demonstration project, employees with higher performance scores were 

more likely to receive pay increases and on average received larger pay 

increases than employees with lower scores.

• Some of the recruitment and staffing interventions have been 

successful. For example, supervisors are taking advantage of their 

ability to offer more flexible starting salaries. Additionally, the 

demonstration project has expedited the classification process. DOC’s 

evaluator recommended that DOC should more fully implement the 

recruitment and staffing interventions.

• The 3-year probationary period for scientists and engineers continues to 

be used, but assessing its utility remains difficult.

• On the other hand, some retention interventions receive little use or 

have not appeared to affect retention. For example, the supervisor 

performance pay intervention is not affecting supervisor retention.

Sources for Additional 

Information

http://ohrm.doc.gov/employees/demo_project.htm (Last accessed Nov. 7, 

2003)

http://www.opm.gov/demos/main.asp (Last accessed Nov. 7, 2003)

4

Source: Booz Allen Hamilton, Department of Commerce Personnel Management 

Demonstration Project Evaluation Year Four Report (McLean, Va.: September 2003).
Appendix II

Demonstration Project Profiles

Page 55 GAO-04-83 Pay for Performance

Naval Research 

Laboratory (NRL)

Source: GAO analysis of DOD and OPM data.

Purpose The NRL demonstration project was to 

• provide increased authority to manage human resources, 

• enable NRL to hire the best qualified employees,

• compensate employees equitably at a rate that is more competitive with 

the labor market, and 

• provide a direct link between levels of individual contribution and the 

compensation received.

Selected Elements of the 

Performance Management 

System

Competencies: Each career path has two to three “critical elements.” 

Each critical element has generic descriptors that explain the type of work, 

degree of responsibility, and scope of contributions. Pay pool managers 

may weight critical elements and may establish supplemental criteria.

Feedback: Supervisors and employees are to, on an ongoing basis, hold 

discussions to specify work assignments and performance expectations. 

The supervisor or the employee can request a formal review during the 

appraisal process.

Milestones:

● October 1994: Authorized Science and Technology Demonstration Project Reinvention 

 Laboratories by Pub. L. No. 103-337

● February 1999: Published proposed project plan in the Federal Register

● June 1999: Published final project plan in the Federal Register

● September 1999: Began project implementation

● October 2000: Removed OPM review of Authorized Science and Technology Demonstration 

 Project Reinvention Laboratories by Pub. L. No. 106-398

Status: Active

Demonstration sites: Washington, DC; 

Chesapeake Beach, MD; Stennis Space 

Center, MS; Monterey, CA; Mobile, AL; and 

Arlington, VA

Participants: Approximately 2,600 

employees as of May 2003

Unions: None
Appendix II

Demonstration Project Profiles

Page 56 GAO-04-83 Pay for Performance

Self-assessment: Employees are to submit yearly accomplishment reports 

for the supervisors’ information when determining the performance 

appraisals. 

Levels of performance rating: The levels are acceptable or 

unacceptable. Employees who are rated acceptable are then determined to 

be “over-compensated,” “under-compensated,” or within the “normal pay 

range,” based on their contribution scores and salaries.

Safeguards:

• Second-level review: The pay pool panel and pay pool manager are to 

compare element scores for all of the employees in the pay pool; make 

adjustments, as necessary; and determine the final contribution scores 

and pay adjustments for the employees.

• Grievance procedure: Employees can grieve their appraisals through a 

two-step process. Employees are to first grieve their scores in writing, 

and the pay pool panel reviews the grievances and makes 

recommendations to the pay pool manager, who issues decisions in 

writing. If employees are not satisfied with the pay pool manager’s 

decisions, they can then file formal grievances according to NRL’s 

formal grievance procedure.
Appendix II

Demonstration Project Profiles

Page 57 GAO-04-83 Pay for Performance

Selected Employee Attitude 

Data

Figure 14: Selected Employee Attitude Data for NRL

Source: DOD.

Legend: N/A = data are not applicable; N = number of respondents.

Other Interventions Reduction in force. To credit an employee’s basic Federal Service 

Computation Date with up to 20 years based on the results of the appraisal 

process. 

Hiring flexibility. To provide opportunities to consider a broader range 

of candidates and flexibility in filling positions. 

Extended probationary period. To extend the probationary period to 3 

years for certain occupations. 

Demonstration group Comparison group

Agree

%

Disagree 

%

N Agree 

%

Disagree 

%

N

“Pay raises depend on how well I perform.” Baseline (1996) 41 38 1,656 No data No data No data

2001 61 22 678 No data No data No data

“All in all, I am satisfied with my pay.” Baseline (1996) 41 40 1,663 No data No data No data

2001 48 35 675 No data No data No data

“My performance rating represents a fair and 

accurate picture of my actual performance.”

Baseline (1996) 63 22 1,656 No data No data No data

2001 59 19 676 No data No data No data

“I have trust and confidence in my supervisor.” Baseline (1996) 61 20 1,639 No data No data No data

2001 67 16 674 No data No data No data

“I prefer the following personnel system.” 2001 667 N/A

Demonstration system 46 N/A

Traditional personnel system 28 N/A
Appendix II

Demonstration Project Profiles

Page 58 GAO-04-83 Pay for Performance

Selected Reported Effects A demonstration project evaluation reported the following effects.

5

From 1996 to 2001:

• Managers’ satisfaction with authority to determine employees’ pay and 

job classification increased from 10 percent of managers to 33 percent. 

• Employees’ satisfaction with opportunities for advancement increased 

from 26 percent to 41 percent.

• The perceived link between pay and performance is stronger under the 

demonstration project and increased from 41 percent to 61 percent.

• On the other hand, the percentage of employees who agreed that other 

employers in the area paid more than the government for the kind of 

work that they do increased from 67 to 76 percent.

Sources for Additional 

Information

http://hroffice.nrl.navy.mil/personnel_demo/index.htm (Last accessed on 

Nov. 7, 2003)

http://www.opm.gov/demos/main.asp (Last accessed on Nov. 7, 2003)

5

Sources: U.S. Office of Personnel Management, 2002 Summative Evaluation DOD S&T 

Reinvention Laboratory Demonstration Program (Washington, D.C.: August 2002), and 

DOD. The OPM report evaluated all of the projects in the Science and Technology 

Reinvention Laboratory Demonstration Program and presented the results together, rather 

than by demonstration project. Data are based on survey information provided by DOD.
Appendix II

Demonstration Project Profiles

Page 59 GAO-04-83 Pay for Performance

Naval Sea Systems 

Command Warfare 

Centers (NAVSEA)

Source: GAO analysis of DOD and OPM data.

Purpose The NAVSEA demonstration project was to

• develop employees to meet the changing needs of the organization; 

• help employees achieve their career goals;

• improve performance in current positions;

• retain high performers; and

• improve communication with customers, colleagues, managers, and 

employees.

Selected Elements of the 

Performance Management 

System

Competencies: Each division may implement regulations regarding the 

competencies and criteria by which employees are rated. NAVSEA’s 

Dahlgren division uses three competencies for all employees, and the 

Newport division uses eight competencies.

Milestones:

● October 1994: Authorized Science and Technology Demonstration Project Reinvention 

 Laboratories by Pub. L. No. 103-337

● February 1997: Published proposed project plan in the Federal Register

● December 1997: Published final project plan in the Federal Register

● March 1998: Began project implementation

● July 1999: Expanded to include over 24,000 employees

● October 2000: Removed OPM review of Science and Technology Demonstration Project 

 Reinvention Laboratories Pub. L. No. 106-398

Status: Active

Demonstration sites: Carderock Division, 

Crane Division, Corona Division, Dahlgren 

Division, Indian Head Division, Port 

Hueneme Division, Keyport Division, and 

Newport Division

Participants: 21,000 employees as of 

April 2003

Unions: American Federation of 

Government Employees, National 

Association of Government Employees, 

National Federation of Federal Employees, 

Metal Trades Council, International 

Association of Machinists, and Fraternal 

Order of Police 
Appendix II

Demonstration Project Profiles

Page 60 GAO-04-83 Pay for Performance

Feedback: Each division may implement regulations regarding the timing 

and documentation of midyear feedback. Dahlgren requires at least one 

documented feedback session at midyear. Beginning in fiscal year 2004, 

Newport requires a documented midyear feedback session.

Self-assessment: Each division has the flexibility to determine whether 

and how employees document their accomplishments. Dahlgren requires 

employees to provide summaries of their contributions for their 

supervisors’ information. Newport encourages employees to provide selfassessments. 

Levels of performance rating: All of the divisions use the ratings 

“acceptable” and “unacceptable.” 

Safeguards:

• Second-level review: Divisions are to design the performance 

appraisal and payout process. Supervisors at Dahlgren’s division and 

department levels review ratings and payouts to ensure that the 

competencies are applied uniformly and salary adjustments are 

distributed equitably. At Newport, second-level supervisors review 

recommendations by direct supervisors, make changes to achieve 

balance and equity within the organization, then submit the 

recommendations to pay pool managers, who are to go through the 

same process and forward the recommendations to the department 

head for final approval.

• Grievance procedure: Divisions are to design their grievance 

procedures. Dahlgren and Newport have informal and formal 

reconsideration processes. In Dahlgren’s informal process, the 

employee and supervisor are to discuss the employee’s concern and 

reach a mutual understanding, and the pay pool manager is to approve 

any changes. If the employee is not satisfied with the result of the 

informal process, the employee is to submit a formal request to the pay 

pool manager, who is to make the final decision. In Newport’s informal 

process, the employee is to submit a written request to the pay pool 

manager, who may revise the rating and payout decision or confirm it. If 

the employee is not satisfied with the result of the informal process, the 

employee may formally appeal to the department head, who is to render 

a decision.
Appendix II

Demonstration Project Profiles

Page 61 GAO-04-83 Pay for Performance

Selected Employee Attitude 

Data

Figure 15: Selected Employee Attitude Data for NAVSEA

Source: DOD.

Legend: N/A = data are not applicable; N = number of respondents.

Other Interventions Advanced in-hire rate. To set, upon initial appointment, an individual’s 

pay anywhere within the band level consistent with the qualifications of the 

individual and requirements of the position. 

Scholastic achievement appointments. To employ an alternative 

examining process that provides NAVSEA the authority to appoint 

undergraduates and graduates to professional positions. 

Demonstration group Comparison group

Agree

%

Disagree 

%

N Agree 

%

Disagree 

%

N

“Pay raises depend on how well I perform.” Baseline (1996) 23 56 6,372 No data No data No data

2001 50 32 2,606 No data No data No data

“All in all, I am satisfied with my pay.” Baseline (1996) 34 47 6,397 No data No data No data

2001 49 32 2,603 No data No data No data

“My performance rating represents a fair and 

accurate picture of my actual performance.”

Baseline (1996) 56 27 6,400 No data No data No data

2001 55 25 2,609 No data No data No data

“I have trust and confidence in my supervisor.” Baseline (1996) 57 22 6,350 No data No data No data

2001 64 18 2,602 No data No data No data

“I prefer the following personnel system.” 2001 2,563 N/A

Demonstration system 43 N/A

Traditional personnel system 36 N/A
Appendix II

Demonstration Project Profiles

Page 62 GAO-04-83 Pay for Performance

Selected Reported Effects A demonstration project evaluation reported the following effects.6

From 1996 to 2001:

• The percentage of people who agreed that their managers promote 

effective communication among different work groups increased from 

31 to 43 percent.

• On the other hand, NAVSEA employees’ response to the statement “High 

performers tend to stay with this organization” stayed constant at about 

30 percent during this time.

• Additionally, the percentage of employees who said that they have all of 

the skills needed to do their jobs remained consistent at 59 and 62 

percent, respectively.

Sources for Additional 

Information

http://www.nswc.navy.mil/wwwDL/XD/HR/DEMO/main.html (Last 

accessed on Nov. 7, 2003)

http://www.opm.gov/demos/main.asp (Last accessed on Nov. 7, 2003)

6

Sources: U.S. Office of Personnel Management, 2002 Summative Evaluation DOD S&T 

Reinvention Laboratory Demonstration Program (Washington, D.C.: August 2002), and 

DOD. The OPM report evaluated all of the projects in the Science and Technology 

Reinvention Laboratory Demonstration Program and presented the results together, rather 

than by demonstration project. Data are based on survey information provided by DOD.
Appendix II

Demonstration Project Profiles

Page 63 GAO-04-83 Pay for Performance

Civilian Acquisition 

Personnel 

Demonstration Project 

(AcqDemo)

Source: GAO analysis of DOD and OPM data.

a

Pub. L. No. 105-85 removed the 5,000 employee participant cap at AcqDemo.

Purpose AcqDemo was to 

• attract, motivate, and retain a high-quality acquisition workforce;

• achieve a flexible and responsive personnel system;

• link pay to employee contributions to mission accomplishment; and

• gain greater managerial control and authority over personnel processes.

Selected Elements of the 

Performance Management 

System

Competencies: Six core contribution “factors,” as well as “discriminators” 

and “descriptors,” are used to evaluate every employee.

Feedback: AcqDemo requires at least one formal feedback session 

annually and encourages informal and frequent communication between 

supervisors and employees, including discussion of any inadequate 

Milestones:

● February 1996: Established demonstration project authority by Pub. L. No. 104-106

● March 1998: Published proposed project plan in the Federal Register

● January 1999: Published final project plan in the Federal Register

● February 1999: Began phased implementation 

● December 2002: Extended project authority to 2012

Status: Active

Demonstration sites: Various 

organizational units of the Air Force, Army, 

Navy, and Marine Corps and the Office of 

the Under Secretary of Defense 

(Acquisition, Technology and Logistics)

Participants: 6,500 employees as of 

February 2003a

Unions: American Federation of 

Government Employees, National 

Federation of Federal Employees, and 

National Association of Government 

Employees
Appendix II

Demonstration Project Profiles

Page 64 GAO-04-83 Pay for Performance

contribution. Each service, agency, or organization may require one or 

more additional formal or informal feedback sessions.

Self-assessment: Employees can provide a list of contributions for each 

factor. 

Levels of performance rating: The levels are “appropriately 

compensated,” “over-compensated,” and “under-compensated.”

Safeguards:

• Second-level review: The supervisors and the pay pool manager are to 

ensure consistency and equity across ratings. The pay pool manager is 

to approve the employee’s overall contribution score, which is 

calculated based on the employee’s contribution ratings. 

• Grievance procedure: Employees may grieve their ratings and actions 

affecting the general pay increase or performance pay increases. An 

employee covered by a negotiated grievance procedure is to use that 

procedure to grieve his or her score. An employee not under a 

negotiated grievance procedure is to submit the grievance first to the 

rating official, who will submit a recommendation to the pay pool panel. 

The pay pool panel may accept the rating official’s recommendation or 

reach an independent decision. The pay pool panel’s decision is final 

unless the employee requests reconsideration by the next higher official 

to the pay pool manager. That official would then render the final 

decision on the grievance.
Appendix II

Demonstration Project Profiles

Page 65 GAO-04-83 Pay for Performance

Selected Employee Attitude 

Data

Figure 16: Selected Employee Attitude Data for AcqDemo

Source: DOD.

Legend: N/A = data are not applicable; N = number of respondents.

Other Interventions Voluntary emeritus program. To provide a continuing source of 

corporate knowledge and valuable on-the-job training or mentoring by 

allowing retired employees to voluntarily return without compensation and 

without jeopardizing retirement pay.

Extended probationary period. To provide managers a length of time 

equal to education and training assignments outside of the supervisors’ 

review to properly assess the contribution and conduct of new hires in the 

acquisition environment. 

Scholastic achievement appointment. To provide the authority to 

appoint degreed candidates meeting desired scholastic criteria to positions 

with positive education requirements. 

Demonstration group Comparison group

Agree

%

Disagree 

%

N Agree 

%

Disagree 

%

N

“In this organization, my pay raises depend on 

my contribution to the organization’s mission.”

Baseline (1998) 20 54 2,748 12 67 470

2003 59 28 2,027 18 60 275

“All in all, I am satisfied with my pay.” Baseline (1998) 49 32 2,748 45 39 470

2003 57 32 2,027 52 35 275

“My performance rating represents a fair and 

accurate picture of my actual performance.”

Baseline (1998) 75 14 2,748 62 26 470

2003 54 33 2,027 66 20 275

“I have trust and confidence in my supervisor.” Baseline (1998) 63 18 2,748 60 20 470

2003 66 18 2,027 77 9 275

“I am in favor of the demonstration project.” Baseline (1998) 25 48 2,748 N/A N/A N/A

2003 52 30 2,027 N/A N/A N/A
Appendix II

Demonstration Project Profiles

Page 66 GAO-04-83 Pay for Performance

Flexible appointment authority. To allow an agency to make a modified 

term appointment to last from 1 to 5 years when the need for an employee’s 

services is not permanent.

Selected Reported Effects A demonstration project evaluation reported the following effects.

7

• Attrition rates for over-compensated employees increased from 24.1 in 

2000 to 31.6 percent in 2002. Attrition rates for appropriately 

compensated employees increased from 11.5 in 2000 to 14.1 percent in 

2002. Attrition rates for under-compensated employees decreased from 

9.0 in 2000 to 8.5 in 2001 and then increased to 10.2 percent in 2002.

• Increased pay-setting flexibility has allowed organizations in AcqDemo 

to offer more competitive salaries, which has improved recruiting.

• Employees’ perception of the link between pay and contribution 

increased, from 20 percent reporting that pay raises depend on their 

contribution to the organization’s mission in 1998 to 59 percent in 2003.

Sources for Additional 

Information

http://www.acq.osd.mil/acqdemo/ (Last accessed on Nov. 7, 2003)

http://www.opm.gov/demos/index.asp (Last accessed on Nov. 7, 2003)

7

Source: Cubic Applications, Inc., DOD Civilian Acquisition Workforce Personnel 

Demonstration Project: Interim Evaluation Report Volume I – Management Report 

(Alexandria, Va.: July 2003).
Page 67 GAO-04-83 Pay for Performance

Appendix III

Comments from the Department of Defense ApendxiI
Page 68 GAO-04-83 Pay for Performance

Appendix IV

GAO Contacts and Staff Acknowledgments ApendxiIV

GAO Contacts J. Christopher Mihm, (202) 512-6806 or mihmj@gao.gov

Lisa Shames, (202) 512-6806 or shamesl@gao.gov

Acknowledgments In addition to the individuals named above, Michelle Bracy, Ron La Due 

Lake, Hilary Murrish, Adam Shapiro, and Marti Tracy made key 

contributions to this report.

(450183)
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