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ROBBING MARY TO PAY PETER AND PAUL: THE

ADMINISTRATION’S PAY–FOR–PERFORMANCE

SYSTEM

HEARING

BEFORE THE

SUBCOMMITTEE ON FEDERAL WORKFORCE,

POSTAL SERVICE, AND THE DISTRICT

OF COLUMBIA

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

FEBRUARY 12, 2008

Serial No. 110–203

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

HENRY A. WAXMAN, California, Chairman

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

BRIAN HIGGINS, New York

JOHN A. YARMUTH, Kentucky

BRUCE L. BRALEY, Iowa

ELEANOR HOLMES NORTON, District of

Columbia

BETTY MCCOLLUM, Minnesota

JIM COOPER, Tennessee

CHRIS VAN HOLLEN, Maryland

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

JOHN P. SARBANES, Maryland

PETER WELCH, Vermont

——— ———

TOM DAVIS, Virginia

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

VIRGINIA FOXX, North Carolina

BRIAN P. BILBRAY, California

BILL SALI, Idaho

JIM JORDAN, Ohio

PHIL SCHILIRO, Chief of Staff

PHIL BARNETT, Staff Director

EARLEY GREEN, Chief Clerk

DAVID MARIN, Minority Staff Director

SUBCOMMITTEE ON FEDERAL WORKFORCE, POSTAL SERVICE, AND THE DISTRICT OF

COLUMBIA

DANNY K. DAVIS, Illinois

ELEANOR HOLMES NORTON, District of

Columbia

JOHN P. SARBANES, Maryland

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio, Chairman

WM. LACY CLAY, Missouri

STEPHEN F. LYNCH, Massachusetts

KENNY MARCHANT, Texas

JOHN M. MCHUGH, NEW YORK

JOHN L. MICA, Florida

DARRELL E. ISSA, California

JIM JORDAN, Ohio

TANIA SHAND, Staff Director

(III)

C O N T E N T S

Page

Hearing held on February 12, 2008 ....................................................................... 1

Statement of:

Kelley, Colleen, president, National Treasury Employees Union; John

Gage, president, American Federation of Government Employees; Gregory Junemann, president, International Federation of Professional and

Technical Engineers; and Carol Bonosaro, president, Senior Executives

Association ..................................................................................................... 123

Bonosaro, Carol ......................................................................................... 168

Gage, John ................................................................................................. 137

Junemann, Gregory ................................................................................... 148

Kelley, Colleen ........................................................................................... 123

Ruiz, Diego, Executive Director, Securities and Exchange Comission;

Richard A. Spires, Deputy Commissioner for Operational Support, Internal Revenue Service; and Ronald P. Sanders, Chief Human Capital

Officer, Office of the Director of National Intelligence .............................. 91

Ruiz, Diego ................................................................................................. 91

Sanders, Ronald P. .................................................................................... 108

Spires, Richard A. ..................................................................................... 99

Tiefer, Charles, professor, University of Baltimore School of Law; J. Russell George, Inspector General, U.S. Treasury Tax Administration;

Charles Fay, professor, School of Management and Labor Relations,

Rutgers University; Robert Tobias, director, public-sector executive programs, and director, ISPPI, School of Public Affairs, American University; Stanley Ridley, president and CEO of Ridley & Associates, LLC;

and Max Stier, president and CEO, the Partnership for Public Service . 9

Fay, Charles ............................................................................................... 39

George, J. Russell ...................................................................................... 29

Ridley, Stanley ........................................................................................... 57

Stier, Max .................................................................................................. 72

Tiefer, Charles ........................................................................................... 9

Tobias, Robert ............................................................................................ 40

Letters, statements, etc., submitted for the record by:

Bonosaro, Carol, president, Senior Executives Association, prepared statement of ........................................................................................................... 170

Davis, Hon. Danny K., a Representative in Congress from the State

of Illinois, prepared statement of ................................................................ 4

Gage, John, president, American Federation of Government Employees,

prepared statement of ................................................................................... 140

George, J. Russell, Inspector General, U.S. Treasury Tax Administration,

prepared statement of ................................................................................... 31

Junemann, Gregory, president, International Federation of Professional

and Technical Engineers, prepared statement of ....................................... 150

Kelley, Colleen, president, National Treasury Employees Union, prepared

statement of ................................................................................................... 125

Ridley, Stanley, president and CEO of Ridley & Associates, LLC, prepared statement of ........................................................................................ 60

Ruiz, Diego, Executive Director, Securities and Exchange Comission, prepared statement of ........................................................................................ 94

Sanders, Ronald P., Chief Human Capital Officer, Office of the Director

of National Intelligence, prepared statement of ......................................... 111

Spires, Richard A., Deputy Commissioner for Operational Support, Internal Revenue Service, prepared statement of .............................................. 101

Stier, Max, president and CEO, the Partnership for Public Service, prepared statement of ........................................................................................ 74

Page

IV

Letters, statements, etc., submitted for the record by—Continued

Tiefer, Charles, professor, University of Baltimore School of Law, prepared statement of ........................................................................................ 11

Tobias, Robert, director, public-sector executive programs, and director,

ISPPI, School of Public Affairs, American University, prepared statement of ........................................................................................................... 42

(1)

ROBBING MARY TO PAY PETER AND PAUL:

THE ADMINISTRATION’S PAY-FOR-PERFORMANCE SYSTEM

TUESDAY, FEBRUARY 12, 2008

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON FEDERAL WORKFORCE, POSTAL

SERVICE, AND THE DISTRICT OF COLUMBIA,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 2:05 p.m., in room

2154, Rayburn House Office Building, Hon. Danny K. Davis (chairman of the subcommittee) presiding.

Present: Representatives Davis of Illinois, Norton, Sarbanes, and

Kucinich.

Staff present: Tania Shand, staff director; Lori Hayman, counsel;

LaKeshia Myers, clerk; Mason Alinger, minority deputy legislative

director; and Alex Cooper, minority professional staff member.

Mr. DAVIS OF ILLINOIS. The subcommittee will come to order. I

know that the ranking member is on his way from Texas, and, of

course, depending on where you are in Texas, that could be coming

a long ways. But we will go ahead and proceed with the hearing.

Let me welcome members of the subcommittee, hearing witnesses, and all of those in attendance. I welcome you to the Federal

Workforce, Postal Service, and the District of Columbia Subcommittee hearing, ‘‘Robbing Mary to Pay Peter and Paul: The Administration’s Pay-for-Performance System.’’

The purpose of the hearing is to examine the executive branch’s

implementation of pay-for-performance systems.

Hearing no objection, the Chair and ranking member and subcommittee members will each have 5 minutes to make opening

statements, and all Members will have 3 days to submit statements for the record.

Good afternoon, and to the ranking member and subcommittee

members and all of those present, welcome to the subcommittee’s

first hearing of the second session of the 110th Congress. Today’s

hearing continues the subcommittee’s examination of the implementation of pay-for-performance systems at various Federal agencies.

Last March, the subcommittee held a hearing on Federal personnel reforms, followed by a hearing in May on the personnel and pay

reforms implemented at the Government Accountability Office

[GAO].

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Today we turn our attention to the pay-for-performance systems

at the Securities and Exchange Commission and the Internal Revenue Service. We will also take a look at the pay-for-performance

system that the Office of the Director of National Intelligence

would like to impose on the Intelligence Community.

The implementation of these systems must be evaluated with the

same intensity that the Bush administration and other pay-for-performance proponents advocated that these systems will be implemented.

The title of the hearing, ‘‘Robbing Mary to Pay Peter and Paul,’’

reflects our intent to personalize the impact these systems have on

Federal employees. Our work force is made up of individuals sharing a commitment to public service with personal goals and needs.

They should not be viewed as or treated as a bunch of bureaucrats

who can be driven to better performance by the prospect of monetary rewards.

The title also helps explain how the administration’s pay-for-performance system really works. Under the system, Mary, who is a

good performer and meeting established performance expectations,

may not receive a cost-of-living increase [COLA], needed to offset

inflation because her increases are needed to reward Peter and

Paul, who were subjectively judged to be slightly better performers.

That is the aspect of pay for performance that is so infrequently

discussed; that in the absence of a significant increase in funds,

performance-based increases are often funded by denying or reducing other employees’ COLAs and bonuses. Also, if Mary is an African American, the likelihood of her being adversely impacted by

the subjective application of the performance standards is increased.

Next year, after his agency has conducted a market-based study,

Peter will be classified as overpaid. Though Peter, with 30 years

of service, has been a good performer, he will receive a small

bonus, but no COLA. Bonuses are not counted toward base pay,

which will affect Peter’s high three and, consequently, his retirement benefit.

After a year or two, Peter, Paul and Mary are demoralized, and

their teamwork has suffered. They are uncertain about their pay,

have little faith in the system, and are looking for jobs in agencies

that do not have a pay-for-performance system.

Peter, Paul and Mary are representative of real Federal employees whose pay and retirement are being similarly affected as we

speak. If these systems are not fair and equitable, transparent and

credible, and do not have the—buy-in of Federal employees, I do

not believe that they have a place in the Federal Government.

Federal agencies cannot say that they did not know that credibility, employee buy-in and equity were key to the successful implementation of these systems. These issues were raised up front by

this subcommittee and others, yet agencies are failing in all these

areas. Further, these systems do not appear to retain employees or

increase their performance as the administration advertised.

I ask unanimous consent that the Treasury Inspector General for

the Tax Administration report on the IRS’s pay-for-performance

system be submitted for the record along with arbitrator James M.

Harkless’ decision that the pay-for-performance system at the SEC

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resulted in discrimination against African-Americans and employees who are 40 and older.

Today’s witnesses are here to help us evaluate these systems

and, where needed, to recommend corrective measures.

[The prepared statement of Hon. Danny K. Davis follows:]

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Mr. DAVIS OF ILLINOIS. Now I would like to ask Delegate Norton

if she has a statement that she would like to make.

Ms. NORTON. Yes, Mr. Chairman, beginning with expressing my

gratitude that you have continued to do a great deal of due diligence here. I just regret that the subcommittee continues to be ignored, because it’s going to make the task before us harder, but inevitably I want to say a few words about why I think the outcome

is assured.

Now, even after the GAO debacle, we now have this administration trying essentially to move the same pay systems to what

amounts to a half of the work force. When I say ‘‘debacle,’’ I don’t

consider getting a union a bad thing, but I get the GAO does. Of

course, as the COLA for 2008 is restored, there is more work for

this Congress to do.

Let me first say a word about standards. As I read what the administration seeks to do, I had worse than a feeling of deja vu, because these issues have been litigated and settled for decades. To

show you how far afield you are and where I come from, it certainly is not that there is no conceivable way for pay for performance to be done; nobody has even tried to implement what the

courts have said you have to do if you want to create new standards.

As it turns out, these matters came forward first in the discrimination laws, but the courts have said they apply across the board.

Simply stated—and here is decades of court of appeals and Supreme Court law—simply stated, let me just move to the private

sector first, if you want to use a pay system, a promotion system,

a testing system, or any other term and condition of employment,

it must be race- and sex- and age-neutral, end of litigation.

I don’t know whether the administration enjoys a class action,

but that’s what it’s going to get any day now, and class actions that

will inevitably lose.

Members of Congress, I have said, please save us some money

and listen to the subcommittee, although I assure you that what

the administration is doing now is courting not litigation, but legislation. That’s the rule. If any of our witnesses can tell us that rule

has been revised or changed, I would like to hear it, since I make

it my business to keep up with Supreme Court litigation.

Now, if that is the rule that was developed mostly in private-sector litigation, let’s add on to it government, Federal, State or local

government and ask what would the rule there be? I think we can

agree it would at least be what the rule is for the private sector,

but—and here is where the administration is brain dead, if you

would forgive me—this is a Civil Service system. Read my lips,

Civil Service system. It wasn’t formed that way because someone

woke up and said this is the only way to do government. It came

out of hard experience with corruption, to be sure. But its main importance today is that the government is subject to due process, the

due process clause of the fifth amendment. That’s why, for example, you can fire a private-sector employee, but a public-sector employee has to have a hearing.

Why would you have to do that? Because the fifth amendment

kicks in, the Constitution kicks in when there is State action. The

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State action is the government employing people, and certain due

process standards adhere.

This administration has never understood the difference between

a Civil Service system and a private system. I have just told you

that even the private system now has to operate under race-, sexand age-neutral standards.

As if that weren’t enough, what is truly hard to understand is

how the administration would believe, given the actions of this

Congress, without exception, that it could fail to provide money to

reward people in its proposed pay system and take the money from

COLAs or locality pay. How in the world does the administration

think it has the statutory authority to do that?

Let me cite for you what the Congress does each and every year

with COLAs. The administration sends over a COLA. It inevitably

divides military from Civil Service. Inevitably, overwhelmingly the

Congress passes a COLA for every single civil servant equal to the

COLA for the military. Yet the administration believes that it can

take some people’s COLAs, and that the Congress would just sit by

and let that happen.

If the administration wants that to happen, it seems to me it has

to talk with the chairman, with the committee and with the Congress, and that would be difficult to effect, but at least we would

be having a conversation about what you are after.

So I am here, Mr. Chairman, because I think you are doing the

right thing in bringing forward the difficulties we see, but also asking the administration to come in and describe in detail how it is

able to skip over just the handful of things that I have pointed out

that I regard as huge barriers built into the system, and to hear

from experts who might enlighten us so that together we might

come to some accommodation and would not have to rely upon, on

the one hand, litigation from employees, or, on the other hand, legislation from the Congress of the United States.

Thank you again, Mr. Chairman, for this very important hearing.

Mr. DAVIS OF ILLINOIS. Thank you very much, Delegate Norton.

Mr. Kucinich.

Mr. KUCINICH. I want to thank you for holding this hearing, Mr.

Chairman. I think it’s important that we thank those who work for

the government for the work that they do and indicate that they

ought to be well paid, but they ought not to be manipulated; that

if they are doing a good job, they should be compensated for it, and

they shouldn’t be pitted against each other in any way.

I want to thank all of you for the work that you do. I came here

to make that statement, Mr. Chairman. I am glad you are looking

at this, because this is certainly something that deserves to be

looked at in the interest of those who serve the same public that

we serve.

Thank you.

Mr. DAVIS OF ILLINOIS. Thank you very much.

We will now hear from our witnesses, and I will introduce the

first panel.

Our first panel of witnesses is Dr. Charles Tiefer, who is a professor of law at the University of Baltimore School of Law. Prior

to joining the University of Baltimore’s faculty in 1995, Dr. Tiefer

served as Solicitor and Deputy and General Counsel of the U.S.

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House of Representatives for 11 years. He is a quoted expert on

Federal, governmental and constitutional law.

Dr. Tiefer, thank you so much.

The Honorable J. Russell George was nominated by President

Bush and confirmed by the U.S. Senate in November 2004 as the

Treasury Inspector General for Tax Administration. Prior to assuming this role, Mr. George served as the inspector general of the

Corporation for National and Community Service.

Thank you very much, Mr. George.

Dr. Charles Fay is a professor and chair of human resource management at the School of Management and Labor Relations at Rutgers University. He has worked over the last 5 years as a consultant to the Bureau of Labor Statistics on the National Compensation Survey. He was a Presidential appointee to the Federal Salary

Commission and also served as chair of the research committee of

the American Compensation Association.

Thank you, Dr. Fay.

Mr. Robert Tobias is currently the director of public-sector executive programs at American University. Mr. Tobias was nominated

by President Clinton, and the Senate confirmed him for a 5-year

term, as a member of the Internal Revenue Service Oversight

Board. The Board has broad and strategic oversight authority, responsibility for the IRS.

Thank you, Mr. Tobias.

Dr. Stan Ridley is president and CEO of Ridley & Associates, a

human- and organization-development consulting firm in Washington, DC. Dr. Ridley has served on national training committees and

developed training on such topics as managing diversity, performance appraisal and strategic planning.

Dr. Ridley, we thank you.

Mr. Max Stier is the president and CEO for the Partnership for

Public Service. The partnership is a nonpartisan, nonprofit organization dedicated to revitalizing the public service through a campaign of educational efforts, policy, research, public-private partnerships and legislative advocacy.

It is the policy of this committee that all witnesses be sworn. So,

if you would stand and raise your right hands.

[Witnesses sworn.]

Mr. DAVIS OF ILLINOIS. The record will show that each one of the

witnesses answered in the affirmative.

Gentlemen, we thank you all for being here. Of course, the green

light indicates that you have 5 minutes in which to summarize

your statement, which is already in the record. The orange and yellow light indicates that your time is running down, and the red

light indicates that it’s time to stop.

We thank all of you again for being here, and we will begin with

Dr. Charles Tiefer.

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STATEMENTS OF CHARLES TIEFER, PROFESSOR, UNIVERSITY

OF BALTIMORE SCHOOL OF LAW; J. RUSSELL GEORGE, INSPECTOR GENERAL, U.S. TREASURY TAX ADMINISTRATION;

CHARLES FAY, PROFESSOR, SCHOOL OF MANAGEMENT AND

LABOR RELATIONS, RUTGERS UNIVERSITY; ROBERT TOBIAS,

DIRECTOR, PUBLIC-SECTOR EXECUTIVE PROGRAMS, AND

DIRECTOR, ISPPI, SCHOOL OF PUBLIC AFFAIRS, AMERICAN

UNIVERSITY; STANLEY RIDLEY, PRESIDENT AND CEO OF

RIDLEY & ASSOCIATES, LLC; AND MAX STIER, PRESIDENT

AND CEO, THE PARTNERSHIP FOR PUBLIC SERVICE

STATEMENT OF CHARLES TIEFER

Mr. TIEFER. Thank you, Mr. Chairman, and members of the subcommittee. I am a professor at the University of Baltimore Law

School, and the author of books and articles and testimony before

House and Senate committees on Federal employment policies.

In the past year, since my last testimony on these pay-for-performance systems, the rollout of these systems has revealed serious

costs and impacts. First and most dramatically, we have seen this

year that they pose systemic discrimination risks. Unlike objective

governmentwide pay increases, which are race-neutral, these systems work by evaluative ratings, using loose subjective evaluation

criteria; for example, whether employees are considered to be ‘‘collaborating with others.’’

These systems are vulnerable to supervisors’ stereotyping, diversity-disparaging attitudes and issues of communications. Just as in

the past, a host of scholarly studies, of which a leading collection

is Professor Naff’s book, To Look Like America: Dismantling Barriers for Women and Minorities in Government—studies have

shown that Federal promotion and discipline is vulnerable to such

discriminatory biases when it works by purely subjective and loose

evaluative criteria.

Now, the particular finding that we had this year was on September 4th when the arbitrator’s ruling agencywide about the SEC

found systemic age and race discrimination. As Stephen Barr of the

Washington Post summarized, the ruling ‘‘found the SEC pay system led to discrimination against 324 black employees and 1,109

employees who were 40 or older.’’

Now, the other agencies who are still aggressively rolling out

pay-for-performance systems, from the Defense Department with

NSPS to the Intelligence Community, which will testify today, will

want to contend that they have set up neutral systems, and they

are doing it under plans, and that their officers have the opposite

of an intent to discriminate, and that there’s no evidence that they

will intend to discriminate. But, as you will read, the SEC says in

its statement here today, and as the arbitrator found, the SEC did

not have intent to discriminate. Intent to discriminate is not necessary to have discrimination found in an agencywide system.

What they had were a set of statistics that showed a prima facie

case of rampant age and race discrimination, which followed from

their using subjective evaluative criteria without a system to check

what that would mean and without validation.

Now, the SEC will also tell you today that they have revamped

their program, but the most important lesson they learned, as they

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say toward the very end of their statement, is that ‘‘the Commission has decided to temporarily separate our performance management system from the merit pay system.’’

Translation: They have stopped linking pay to performance. They

have spent some years trying to come out with an evaluative system that can work at all, and only then will they consider linking

it to pay. By ‘‘some years,’’ they aren’t even going to have the performance system in place for the rest of the Commission under the

top levels until around starting 2009. That’s the kind of schedule

that an agency soberly sets in this kind of transition, but it’s not

the schedule that other agencies are considering.

Are other agencies going to produce numbers similar to the

SEC’s? If we were to check, well, absolutely, I am afraid. A study

for this subcommittee last year by GAO Strategic Issues Office

found that by studying the SES governmentwide, a shockingly low

level of minorities in the SES at the Defense Department, half of

what is found in the other departments. The governmentwide figure for minorities in the Senior Executive Service is 16 percent; the

Defense Department figure a mere 8 percent. That was the testimony given to this committee May 2007 in this GAO report.

The pay-for-performance system’s furthermore disregard just like

that shouts that in the Defense Department there’s a big problem

in minority manager promotion and recruiting policy. So the payfor-performance system’s disregard of seniority and experience and

evaluations has sent a not-too-subtle signal to withhold raises from

older employees, which the SEC arbitrator found led to a case of

illegal age discrimination.

Now, you will also hear today that the Intelligence Community

is pushing ahead with its program, but you will hear very little of

the skeptical and critical congressional oversight provision, section

308 of the Intelligence Authorization Conference Report, which has

demanded answers from the DNI about the alarming threat concerning minority and age discrimination in the Intelligence Community, because the intelligence agencies have a history of much

worse numbers on minority employees than the civilian departments. If you go back not that far and put it frankly, some of those

intelligence agencies were lily white.

Now, is DNI making a recruitment and promotion of minorities

a top priority? No. Like the SEC, they are instituting a program

of subjective performance evaluations on criteria like, ‘‘Do they collaborate with others.’’

I might say second that the administration’s no new regular

funding basis does what the title of this hearing said: It robs Mary

to pay Peter and Paul. I summarize in my testimony why the

NSPS recent pay raise does not include regular funding, and I will

refer to the balance of my statement.

Thank you.

Mr. DAVIS OF ILLINOIS. Thank you very much.

[The prepared statement of Mr. Tiefer follows:]

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Mr. DAVIS OF ILLINOIS. We will go to the Honorable J. Russell

George.

STATEMENT OF J. RUSSELL GEORGE

Mr. GEORGE. Thank you, Mr. Chairman, Delegate Norton. It’s a

pleasure to be before you today to discuss the Internal Revenue

Service’s pay-for-performance system.

The Federal Government is faced with a human capital crisis,

and the IRS is no exception. By the end of fiscal 2010, 66 percent

of the IRS’s executives, 50 percent of its senior managers and 36

percent of its front-line managers will be eligible to retire.

To its credit, the IRS has already begun efforts to address its

human capital challenges. It has made progress in transforming

the agency into a more efficient, modern and responsive organization.

A tool that should help recruit, retain and motivate managers is

a pay-for-performance system, but to do so, it needs a good design

and an even better implementation.

TIGTA has looked closely at the IRS pay-for-performance system.

If I were to issue a grade on the system similar to the report cards

that former Representative Steve Horn issued when he was a subcommittee chairman on this committee, I would have to give the

IRS a C.

The IRS’ efforts to implement a pay-for-performance system

began after enactment of the IRS Restructuring and Reform Act of

1998. The IRS has implemented its pay-for-performance system in

three phases. Phase 1 for senior managers was launched in March

2001. It placed all grades 14 or 15 mid level managers into one pay

band. Phase 2 for department managers was launched in November 2001. It placed all grades 11 to 13 second-level managers at

IRS campuses into one pay band. Phase 3, which was launched in

2005, placed all front-line managers from grade 5 to 15 into 11 pay

bands.

TIGTA’s July 2007 audit of the pay-for-performance system

found three major shortcomings in its design. First, the IRS’s payfor-performance structure did not provide the benefits envisioned in

the Reform Act. These benefits include the flexibility to assign new

or different work, a greater ability to hire more quickly and offer

more competitive salaries, and the ability to provide employees

with better opportunities to enhance their knowledge and advance

their careers.

Second, the method for determining annual salary increases for

managers on all three pay systems may result in pay inequities.

For example, managers could receive increases that are less than

those received by other nonmanagerial employees who automatically receive the annual across-the-board salary increases established by the President.

Third, the Office of Personnel Management requires that the lowest and highest salaries for each pay band must be commensurate

with the corresponding GS pay system’s salary changes. As a result, managers at either end of a pay band would automatically receive annual across-the-board salary increases regardless of their

performance rating. However, managers whose salary fall in the

middle of the pay bands are rewarded based on their performance.

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Regarding implementation, TIGTA found that the IRS did not

allow sufficient time to educate managers on the details of the

front-line manager system. This resulted in increased opposition

and decreased morale among the 6,600 front-line managers. Unfortunately, this lack of communication occurred because the IRS accelerated implementation of the system by at least a year in order

to minimize the conversion costs in fiscal year 2005. This acceleration left little time to explain the system and no time at all to receive feedback prior to its implementation. Predictably this caused

significant frustration.

The IRS responded to TIGTA’s finding by initiating a third-party

evaluation to be conducted in three phases over 5 years. This

lengthy timeframe is of concern. We are monitoring the IRS’ corrective actions and will conduct a followup review. In addition, the

IRS plans to continue partnering with the management associations representing a number of IRS managers on pay-for-performance issues. The IRS has also agreed to communicate more effectively with employees before, during and after any additional

changes to the system.

However, the IRS disagreed with our recommendation to reinstate its policy of providing across-the-board adjustments to managers who receive a satisfactory or higher performance rating. The

IRS stated that the authority for determining salary increases rests

with the IRS Commissioner. The Commissioner does, indeed, have

the authority to set pay increases, and I would not suggest that

this authority be removed; however, the Commissioner can reinstate the policy of providing across-the-board adjustments and still

give higher pay raises to highly rated managers. The Commissioner

could allocate amounts that have previously been designated for

within-grade step increases and quality step increases to recognize

higher-rated managers.

The difficulty of designing and implementing a pay-for-performance system in an agency as large and complex as the IRS cannot

be overstated. TIGTA is dedicated to helping the IRS navigate

through this difficult project, as well as the many other human

capital challenges that it faces.

Thank you, Mr. Chairman.

Mr. DAVIS OF ILLINOIS. Thank you very much.

[The prepared statement of Mr. George follows:]

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Mr. DAVIS OF ILLINOIS. And we will go to Dr. Charles Fay.

STATEMENT OF CHARLES FAY

Mr. FAY. Thank you, Chairman Davis and Delegate Norton.

Let me start out by saying that my whole background leads me

to be in favor of pay for performance and performance management. Those two things, in conjunction together, have been shown

in many cases in the private sector to work very well.

When I look at the public-sector case, and the systems of the

SEC, the IRS and even the DOD, I am deeply disappointed. Those

systems don’t work. I don’t think they are likely to work. They

seem to me to violate many of the requirements for a good pay-forperformance system that my coauthor and I set out in the publication that was submitted as part of my testimony that was sponsored by the IBM Center for the Business of Government.

Let me do a couple of things; first, separate the notion of performance management and compensation, or pay for performance.

Performance management is the key point. If people get that right,

then the pay for performance becomes much easier, and it is clear

in these systems that they have not gotten the performance management part right, not at all. In addition, as several people have

noted, the SEC also messed up seriously on the pay-for-performance part of it. So they struck out in both cases.

Let me just tell you some of the things that I see in this that

violate the basic principles of a pay-for-performance system and a

merit-pay system. The first of those is that performance criteria

need to be job-specific. That’s performance management 101. When

you have criteria for someone’s performance, those have to be specific to that job.

Second, the general competencies and criteria that have been

used by at least two of the systems that I have seen, DOD and IRS,

who have published portions of them, are very general and very

subject to bias, as a couple of people have mentioned. This is just

asking for trouble when you ask managers to make decisions based

on these kinds of things.

Third, and perhaps most important from my perspective, it’s critical that raters and the people who are rated be trained in how to

do performance management from both sides of the aisle. Both the

management and the director need to be able to know how to work

this system, know how to use it correctly and to have some understanding for the reason for the system. In the documentation I see,

there does not appear to be any, or at least not much, training of

people.

Third, the instructions should be written in plain English. The

IRS reminds me of tax forms that I tried to fill out every year, and

the DOD, pure ‘‘mil spec.’’ I have a Ph.D. I consider myself to be

fairly reasonably cognizant of the English language, and I had a

hard time figuring out what you are really supposed to do with

some of these languages.

Finally, I would like to stress that all of these systems are subjective by their nature. No performance management system or

performance appraisal system is not subjective. They cannot be objective. If anyone has issues with that, think about the last time

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you had overhead allocated to a program that’s highly objective.

But it’s very subjective how those dollars get allocated.

So, again, I still believe people should manage performance. I believe the government should investigate performance management,

should work at pay for performance, but I think they need to do

a much better job than has been done so far.

Thank you.

Mr. DAVIS OF ILLINOIS. Thank you very much.

We will go to Mr. Tobias.

STATEMENT OF ROBERT TOBIAS

Mr. TOBIAS. Thank you very much, Mr. Chairman.

As Inspector General George pointed out, the Internal Revenue

Service got the authority to create pay-for-performance systems,

and what I did was take a look at some employee surveys of the

senior managers, the departmental managers that were conducted

to determine whether or not the IRS achieved its goals.

I think the results of these surveys reveal very clearly that the

IRS has not achieved its goals of creating a pay-for-performance

system that links individual and organizational goals with compensation, or that supports better rewards for better performance.

For example, only one in four senior managers agree that the payfor-performance system is a fair system for evaluating or rewarding

job performance; 58 percent of the managers stated that the payfor-performance system had no impact, no impact on their motivation to increase performance; and 18 percent stated it had a negative impact.

Less than 20 percent of the senior managers agreed that the payfor-performance system is linked to organizational results or has

improved business unit or IRS performance. Only 17 percent stated

that their performance was linked to their pay, and only 16 percent

stated that their performance was linked to strategic business

goals; 46 percent state that had they preferred the GS system.

Now, I think there are several reasons why the IRS goals have

not been achieved. First, the data does not reveal that employees

are motivated by pay; rather, I believe Federal employees are motivated to increase their performance far more by effective leadership

and an effective performance management system.

Second, I think it’s difficult, if not impossible, to have a successful pay-for-performance system if the leadership and the agency

does not support it. In a 2006 survey of the Senior Executive Service, the persons who must be counted on to implement a pay-forperformance system, reveal that they are extremely unhappy with

their pay-for-performance system; 83 percent stated it had no impact on their performance, and 33 percent indicated it had a negative impact on morale; 54 percent indicated their pay-for-performance system had no impact on their motivation to increase performance, and 8 percent indicated it had a negative impact; 44 percent

felt their ratings were fair and accurate, but 33 percent disagree,

and 23 percent did not know.

Since the organizational change necessary to support the introduction of a pay-for-performance system is not enthusiastically endorsed by senior career leaders, it’s no surprise that those they

lead do not endorse it.

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Third, trust is a critical component necessary to implement any

significant organizational change effort, and particularly pay for

performance. Only 50 percent of the close to one-quarter of a million Federal employee respondents to the Federal Human Capital

Survey answered ‘‘strongly agree’’ or ‘‘agree’’ to the statement, ‘‘My

organization’s leaders maintain high standards of honesty and integrity;’’ 20 percent reported either ‘‘strongly disagree’’ or ‘‘disagree.’’

In the IRS work force, only 43 percent ‘‘strongly agree’’ or ‘‘agree’’

with the statement, and 23 percent ‘‘strongly disagree’’ or ‘‘disagree.’’

The IRS has even more work to do if it wants to successfully implement a pay-for-performance system.

Now, can the IRS achieve its stated goals in the future? I think—

because the data shows that Federal employees are not necessarily

motivated to increase their performance solely because of monetary

rewards, I believe it’s highly questionable that the IRS can successfully implement a pay-for-performance system.

Because Federal employees are motivated to increase their performance when they are effectively led and their skills are matched

to their mission, I believe it is possible to increase individual and

organizational performance results with the design, development

and implementation of a performance management system.

Now, I believe Presidents, political appointees, members of the

Senior Executive Service, midlevel managers, union leaders and

employees all want increased performance. That’s why they are

part of public service. Harnessing that energy to actually improve

performance in the executive branch requires the collaborative involvement of all parties. I believe it can be done, but I don’t see

any real evidence of a focus on improving performance management.

Thank you very much, Mr. Chairman.

Mr. DAVIS OF ILLINOIS. Thank you. Thank you very much.

[The prepared statement of Mr. Tobias follows:]

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Mr. DAVIS OF ILLINOIS. We will now proceed to Dr. Stan Ridley.

STATEMENT OF STANLEY RIDLEY

Mr. RIDLEY. Thank you, Mr. Chairman.

Most of us remember the political quip, ‘‘It’s the economy, hmm.’’

To cut to the basics here, it’s the basics, hmm, and the people,

hmm.

What Delegate Norton pointed out was that to design and implement an effective performance appraisal, performance management, and even a pay-for-performance system, the knowledge and

skills have been here for decades. People get in the way.

I should mention that my roles in the government over a decade

have included being a coach, an organizational change management expert, a performance appraisal and management developer,

teaching courses on supervising and human resources, etc.

The bottom line is that these things do not work as they should

because they are either designed inappropriately, or, more often,

they are implemented in a way that are not consistent with the basics of how they’re supposed to be done. That is the fundamental

problem.

When you look at the SEC, an article is attached my testimony

about pass/fail. Over a decade ago I used a group of employees in

the government, all levels, and we went through an exercise the

appropriate way, and they discerned that pass/fail had no chance

of being successful. About 6 months later, pass/fail was chosen. Did

anybody mention pass/fail today? In the SEC case, they used pass/

fail. The bottom line is that the basics and cycle metrics would tell

you that pass/fail could never work, and a group of employees,

when given the right information, were able to make that decision

more than a decade ago.

The bottom line is that the knowledge and skills are there to

make any system that is designed to motivate employees to perform at their maximum and then to compensate them appropriately, but if we do not employ those the right way, it would

never work.

The key thing I learned about 10 years ago was that the biggest

problem in terms of the government—they have some excellent employees, and I am not saying that to be PC—accountability. That

was such an issue that I had to define it, and by that I meant consequences, positive or negative, based on how well you do what you

are supposed to do.

How is it that we have the knowledge and skills to design these

programs and implement them the correct way, but they have

failed? It is not a knowledge or a skill issue. It is the failure to use

the knowledge and skill issue and to adhere to whatever it is that

you develop.

One of the things I should say about the Federal Government,

when I read these documents, boy, they sure look good. You even

see in my testimony, I made a faux pas when I made a comment,

although I did use the word ‘‘appear,’’ about what I call the pay

side of pay for performance. I say, well, it appears like that is not

too much of a problem, OK? But if you delineated an example of

how that particular approach has been misused—and that is what

I have seen over time, either underuse, nonuse or misuse of the baVerDate 11-MAY-2000 11:54 Dec 17, 2009 Jkt 000000 PO 00000 Frm 00061 Fmt 6633 Sfmt 6633 U:\DOCS\53641.TXT KATIE PsN: KATIE
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sics that will allow you to design and implement these systems correctly, and the way in which you make sure that people actually

do that is that you consistently and appropriately hold them accountable.

Any time you see a system that has failed, I will show you, I can

show you, that there was a failure to appropriately and consistently hold people accountable for what it is that they do.

That’s the short version of my presentation. I will make a couple

of recommendations, because that’s what this really should be

about, as to the performance appraisal side of this.

We have—the OPM developed what is called a PAAT, a performance appraisal assessment tool. It’s a good tool. It shows that they

have made progress over the last 10 years. But that tool is not sufficiently aligned with what we want pay for performance to be. A

concrete example, the tool says that if you meet the criteria at the

80 percent level, you are certified. The problem is that tool includes

some very good items. Ask yourself this question: If the item is important, why is it that you can fail on 20 percent of them, and then

you are certified? These are basics.

The next thing in that tool, they have items that use the word

‘‘adequate.’’ Why would you have as a standard—Delegate Norton,

you mentioned standards—adequate in a tool that’s for the whole

government that is supposed to let us know what we are supposed

to be able to do.

Other inconsistencies, these are basics, is the pay for performance is supposed to be results-focused. Great concept, no problem.

Yet in the actual performance appraisal plans, individuals are required to have at least one performance element that is results-focused. That’s what we call internal inconsistency. If results focus

in what it’s about, and I have five elements, why is it that only one

is required to be results-focused? These are all basics.

To cut to the chase further, in the PAAT, a number of excellent

things they have are either suggested or recommended. If they are

so good, why is it not required?

When you start talking about pay for performance and the valuable performance management, how about this as a recommendation? A sizable bonus should be awarded to each agency executive

whose performance appraisal system is shown to be clearly valid

and reliable in design, and here is the key thing: design and practice. Where we come up short most times is in the practice, based

on a qualified objective review and a 100 percent pass score.

My point is really simple. The knowledge and skills necessary to

have an appropriate performance appraisal, performance management, pay for performance, whatever you call it, those requisite

knowledge and skills have been here for decades. We misuse,

underuse or fail to use the appropriate criteria.

For example, I was surprised when you mentioned this misuse

about COLAs. That shows a fundamental lack of understanding

about what we call systems. See, a performance management approach should involve the PAAT system so you shouldn’t be robbing

Peter to pay Paul if it’s unfair.

So when you sit down to design these things, what you tend to

do, we design processes, not systems. Concrete example I use is a

car. Why would you suggest that you could have an effective perVerDate 11-MAY-2000 11:54 Dec 17, 2009 Jkt 000000 PO 00000 Frm 00062 Fmt 6633 Sfmt 6633 U:\DOCS\53641.TXT KATIE PsN: KATIE
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formance appraisal system, and you don’t have to have a real performance plan, a valid and reliable one?

I had mentioned in my testimony, it’s kind of analogous to having a car and saying, we recommend that you have a steering

wheel and a speedometer, but you don’t have to have one. The performance plan is supposed to guide that person throughout the

year, but you are supposed to get clear expectations up front and

then reinforce then.

The last one I will mention is the acronym that I used. It is so

simple, but if it is used consistently in the design and implementation and evaluation of any system, that system will work better.

It’s called CARE. You must have Clear, Aligned and Reinforced Expectations. Any system that you all point out that has failed, I will

show that you there is a failure in one or more of those four pieces.

Thank you.

Mr. DAVIS OF ILLINOIS. Thank you very much.

[The prepared statement of Mr. Ridley follows:]

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Mr. DAVIS OF ILLINOIS. We will go to Mr. Max Stier.

STATEMENT OF MAX STIER

Mr. STIER. Thank you.

Thank you as well, Congresswoman Norton.

It’s a pleasure to be here. It’s very important that you hold this

hearing.

I would ask that this committee take a step backward for a moment and ask about not just pay for performance, but pay for performance more generally, because what I would argue is that the

government is making distinctions around personnel issues in a variety of areas that don’t receive sufficient attention. So, for example, whether it is hiring or promotion or decisions around pay, government managers are making decisions that are based upon systems that sometimes are working and sometimes not. It’s only because we are looking at efforts to change the system right now that

there’s real attention being paid here, and I think it would be

worthwhile to focus on performance issues more generally, understanding how it is we are making distinctions, and how to use

those distinctions in a way that truly and effectively and appropriately promote performance.

Rather than looking backward, looking at issues and the stakes

or problems, I would propose six different recommendation that we

would make; first and foremost and most important, the clear need

to collect data and publish that data on a regular basis. We see examples here of that, when Mr. Tobias talks about the Human Capital Survey. In fact, his data points to the fact that it is not payfor-performance systems that are generating problems in the work

force, it’s actually the whole system itself.

General Schedule employees are raising issues about the pay

that they are receiving, about the leadership that they are receiving. These are issues that are systemic and that we need to address governmentwide. We need specific data efforts, collection efforts. When you are talking about system change, we propose seven

different buckets of data that ought to be collected around recruitment, retention, skills gap, performance distinctions, performance

culture and, ultimately, as the last witness has testified, around

implementation. That data is quite important because it will allow

you and other decisionmakers to understand what is happening in

real time when these changes are being implemented.

Second, fundamentally, I believe, and you see this again and

again, you need true engagement and buy-in from the employees

and employee organizations. Unless that happens, there is simply

not going to be any success. Ultimately, when you think about performance management systems, you are ultimately trying to encourage employees to provide this, as Bob would say, their discretionary energy. How can they do that if they don’t buy into the system? Therefore, that has to be a foundational element of success.

Third, before moving to pay systems, again, and this is something you have heard from other witnesses, you really need to

make sure that your performance evaluation and your larger performance management system is working.

Fourth, managers have to receive the training, the support in

order to be able to successfully use these systems. When you are

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asking them to make distinctions, you need to make sure that they

are getting the tools that will enable them to make them appropriately. Ultimately they need to be held accountable. They need to

understand that organizationally this is an important part of their

work. By and large these are challenging, difficult issues, and,

given a choice, most managers would rather do other things. So it’s

very important to make sure that they understand that they themselves are being judged on their performance with respect to the

way that they are judging the employees that they are supervising.

Fifth, we need to make sure that we give these systems time to

actually change and time to actually work. It’s important to collect

the data. It’s important also to realize that change is difficult of

this sort all the time, and you are not going see a turnaround immediately.

If you look at some of the data points from some of the demo

projects, you actually see increased buy-in from the employee base

over time, and that is something I think again is vital; that we

make sure we understand that these things, A, are not likely to be

gotten right the very first time, that they are going to take time

to actually work through the issue and to get the buy-in that’s necessary.

Finally, No. 6, I would propose that this committee and Congress

more generally has a critical role in providing the resources to

make sure that the systems are resourced appropriately, and that

the work force is resourced appropriately, and that you give this

kind of attention to the changes that are necessary.

So thank you very much.

[The prepared statement of Mr. Stier follows:]

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Mr. DAVIS OF ILLINOIS. Thank you very much, and I want to

thank each of you.

I want to ask each of you one question. I will begin with you, sir.

In your testimony, you recommend that GAO conduct a study

and audit of statistics that involve pay for performance. Would you

explain why?

Mr. STIER. Certainly, Mr. Chairman. In the past year, GAO’s Office of Strategic Studies has done two extensive surveys, one governmentwide about the SES and the other governmentwide about

Hispanics, of employment statistics. They have experience, and

they have the data base. There is the CPPF data base. It exists already. It is not just that it has to be brought into existence.

Using this data base and perhaps a limited supplemental information, which this same office has used before, they did a report

in 2004 about the demonstration pay-for-performance projects in

existence at the time. Using their existing skill set and their existing data base, they could produce the statistics that would show

who the raises have been going to in SES and NSPS and the IRS

managers system and so forth. The statistics that they could

produce would determine which units in the government have the

kind of statistics that the arbitrator found at the SEC, that the arbitrator ruled that the SEC made out a prima facie case of discrimination.

If they simply run the numbers up—I say simply, it’s a considerable effort to do that—but if they were to take the systems that

they are operating now, we could find out which units have what

is in effect a prima facie case of discrimination going on using the

pay-for-performance system.

Mr. DAVIS OF ILLINOIS. Let me ask. Why do you think that the

Federal pay-for-performance systems are failing? And what if any

legislative changes would you recommend?

Mr. TIEFER. Well, I think they are failing to take them in a different order than I originally stated it. The No. 1 reason that

they’re failing is that there is no new regular funding, basically no

new funding being put in for the performance bonuses. And if you

look at this—if you survey the literature on pay-for-performance,

what makes for success is if new money is put in so that the employees accept—employee acceptance goes with the system. Even if

some employees don’t get bonuses, they say, well, we didn’t lose

anything from it, so we are not going to fight the system; it’s not

embittering us.

The fact that no new money is put in is exactly why the title of

this hearing, robbing Mary to—I’m sorry—I get it mixed up. I get

it mixed up. I get it mixed up between Mary, Peter and Paul. It’s

the same as the pay-for-performance system. It is hard to figure

out who it is coming from and who it is going to. But if you don’t

put new money into it, you know, you don’t have any net winners;

just as many losers as winners.

And that is unfortunate because—let me add—a second—the second reason is that we’re using not—we’re using a value of ratings

which were rushed into operation without giving them time to

reach the validated stage. Ms. Norton talked about—and rightly

so—the criteria that are used to determine whether you have employment discrimination in the private sector. If you’re going to

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have an impact, if you are going to have an employment system

that may have a statistical impact that is not age neutral and is

not race neutral, then it has to be the private sector title 7 litigation as shown validated. The systems we’re talking about here have

not been validated. They couldn’t be validated. Those are the two

basic reasons.

Mr. DAVIS OF ILLINOIS. Thank you very much. Dr. Fay, last year

you testified before the subcommittee regarding a market based

compensation study conducted by Watson Wyatt for GAO. Given

your findings, would you recommend that GAO continue to use the

Watts Wyatt study as a basis for determining pay at the GAO?

Mr. FAY. I wouldn’t use that study for the basis of anything.

Mr. DAVIS OF ILLINOIS. Could you elaborate?

Mr. FAY. Well, as I testified before, the method of data collection

for that survey, the definition of jobs, the job comparability, that

is, the market matches that they made were inadequate. The surveys they used did not have, in my judgment, the appropriate sample comparators, and the way they utilized the data to come up

with the numbers they did—well, the second or third time they did

it—were I think misleading and inaccurate or gave inaccurate results.

Mr. DAVIS OF ILLINOIS. Well, let me ask you. If validated performance management systems are a prerequisite to the implementation of successful pay-for-performance systems, why do you think

agencies have focused more on implementing credible performance

management systems?

Mr. FAY. Well, I would disagree that—it is very difficult to validate a performance appraisal. Performance measures are usually

what is called a criterion variable. In selection, for example, you

predict in the selection process, you predict toward performance.

You have to use content validation methods with performance appraisal systems. And my dissertation was on errors and performance rating. And I recall all too well how many rating errors can

dance on the head of a pin. It is not easy to do. And for that reason, there is a number of people who have said it is really critical

that you get buy in from employees and employee organizations.

This has to be a collaborative process, whereby people recognize

that what they’re doing is aimed toward improving performance of

the organization as a whole and rewarding those who most help

that; not a system where you have kind of a gotcha after the fact.

This is a—one person mentioned that planning is critical. If performance planning is done correctly by a manager and his or her

direct reports, much of the rest of it falls into place. The problem

is when you have these generic criteria—which by the way in my

opinion are against the OCCP rules on dealing with selection and

so forth and validation of decisions, primarily selection decisions.

They state specifically in those rulings that they have to be job-specific. And these are not job-specific. And you see people twisting,

trying to get an employee’s actual duties and responsibilities and

behavior and so forth, outcomes to match those. If you’re going to

be rating performance, you should decide what is important in performance on an individual and discuss it with them, coach and

counsel them over the year to get them there. And the summary

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rating at that point becomes a—almost a nonevent. In these systems, the summary rating is to me the total event.

Mr. DAVIS OF ILLINOIS. Thank you very much.

Delegate Norton.

Ms. NORTON. Mr. Chairman, let me try to get my arms around

some of this.

Mr. Stier, in describing failure or success on page 4 of your testimony, problems with unsuccessful systems often traced—and then

you list—communication with employees, overly ambitious

timelines, ambitious goals, inadequate guidance and poor assessment. Do you believe that you can implement—because you have

been a defender of these systems. And as I’ve indicated, there are

circumstances in which these systems are more than defensible. Do

you believe you can—you can have a successful pay-for-performance system if there has been no validation of the performance criteria?

Mr. STIER. I would say—I mean, I think the position of the partnership is very much akin to—I’m sorry—the position of the partnership for public service is very, very much akin to what you describe, which is that these are very difficult systems to get right.

It is possible to get right, but they require quite a bit of effort and

effort that is really very much focused on the individual manager

in that relationship between the manager and the——

Ms. NORTON. What do you think the systems—the criteria—the

criteria for judging the employee would need to be validated?

Mr. STIER. I think that, again, as some of the earlier witnesses

stated, that you’re not going to be able to validate each individual

performance plan that the employee has. You can and ought to be

collecting information on whether there is an adverse impact with

any system that is being put in place.

Ms. NORTON. You just described what happens if a plan has not

been val—in other words, you’re all saying that you do not believe

that a system would be valid if it discriminated on the basis of

race, sex or age?

Mr. STIER. Correct, correct. I think you have to look——

Ms. NORTON. The only way in which we found to keep that from

happening is to require employees to suspend what has now been

if I can be clear, since 1960, billions of dollars, an incalculable

amount of dollars, in order to validate systems so that indeed they

can use them. And here I’ve not gotten to the Federal employ—the

Federal Government has paid—and I don’t know how much—but

it also has paid a boatload of dollars. But in the private sector,

which led the way on validation, people went to the trouble of the

kind Dr. Fay has described of validating each job. And you have

just told me what you can expect to do that.

Mr. STIER. To be clear, my point is that I think you’re absolutely

right that we’ve under-invested in ensuring that these are the right

systems. I think——

Ms. NORTON. I just want to know—you can’t take—the position

that you’re taking is a position to which I’m sympathetic. You are

not the best defender of that position if you seem to be, as you—

as part of your answer seems to say, that even in the Federal Government, those systems can be used if they show discrimination.

This is very late in the game for either the private sector—and I

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want to stress this—or the public sector, either sector to put into

place performance criteria that discriminate, except the private sector doesn’t have the overlay of the Civil Service system so the arbitrator throws the whole kit and caboodle out. Do you think that

would, if it were appealed to court, survive?

Mr. STIER. Congresswoman Norton, just to be clear, if I have left

you with the impression——

Ms. NORTON. You certainly have left me with the impression that

you are generalizing across the board. This testimony does not even

mention validation.

Mr. STIER. Oh, I think it does. It certainly talks about adverse

impact, and it refers to the finding that you’re describing there.

Ms. NORTON. You can’t avoid—you can’t avoid what we’re investigating here. What does the Government have to do in order to

avoid adverse impact? And that’s what I’m asking you. Isn’t the

case law—isn’t the state of art of the profession that you have to

take the trouble and you have to spend the money to validate

whether you’re a GM, Toyota or the Government of the United

States?

Mr. STIER. I will—there are other experts on the validation process here on this panel. What my understanding is, you certainly

need to look to see if there is any adverse impact. If you will look

at our testimony, we are very supportive of the idea——

Ms. NORTON. I take it you’re for validation. That’s all I wanted

to make sure.

Mr. STIER. Certainly.

Ms. NORTON. But you have something in your testimony that

concerned me. You haven’t paid—something else in your testimony.

You see, the over—what you are trying to do overall is important.

But you don’t do a service by mitigating how difficult it is going

to be. And you particularly don’t do us a service—if I may say so,

I’ve been on the other end of this where I have been part of an enforcement agency that forced the private sector to spend all of this

money. Here I now come to the Congress of the United States having remembered all that, billions of dollars that the private sector

had to spend. Which, yeah, they’ll say the same thing, could it have

gone for something else. And we want to apply a lesser criteria to

a system that has also due process built into it. On page 4, you tell

us—boy, I think this would be a headline, and I’m going to let

them speak for themselves. But you tell us that the NTEU has

reached agreement with the National Credit Union Administration

on a compensation system. See? It can be done. One of the—one of

the great unions in—who is a tough union, has already reached

agreement that will reward the employees commensurate with

their performance. Did you think we weren’t going to check that

out? Especially since—as a matter of fact, we know they can bargain for pay-for-performance. And then you say previously NTEO,

EEU—and again I just think this ought to be a banner headline,

particularly in the Washington Post also where so many Federal

employees are—also reached a collective bargaining agreement

with the Security and Exchange Commission and the Federal Deposit Insurance Corporation on their performance pay system. Why

didn’t you say the arbitrator had thrown it out?

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Mr. STIER. Congresswoman, I’m very confused here as to what

your concern is. These are all factually correct statements. We have

not misrepresented anything at all. And I’m happy to explain

any——

Ms. NORTON. I have just—you can explain—you can correct what

I just asked you. I have put facts before you. I said they can bargain for pay-for-performance.

Mr. STIER. I’m sorry. As I understood what you said, is you said

we had made a statement that there had been an agreement between the National Credit Union Administration [NTEU], and in

fact, that is correct. There has been an agreement. I’m not understanding exactly——

Ms. NORTON. According to the union, there has been no such

agreement. I’d be very interested in hearing that statement because there has in fact been a——

Ms. NORTON. And according to the union—and according to the

union, with the SEC, there was impasse. And you know what impasse means?

Mr. STIER. I do.

Ms. NORTON. It means that you can’t reach agreement with your

union, so you then go to have—have the system impose——

Mr. STIER. Congresswoman Norton, the testimony is intended to

be helpful to you. I apologize if it is not. I don’t believe there are

any factual inaccuracies, but we’ll of course correct them if there

are any.

Ms. NORTON. I’m going to let them speak for themselves.

Mr. STIER. I’d like to hear if there are any——

Ms. NORTON. This is a fine art, and this is a very technical matter. And really what we have to get down—down to because I find

most of your points, points I’m in agreement with, and I think everybody else on the panel would be in agreement with your points

about, you know, getting employees to buy in and the rest. You

know, that doesn’t get to what is the nub of the problem, extremely

technical, reams of litigation, lots of money spent both on litigation

and on validating system, shouldn’t have to go back and start all

over again.

I want to ask—ask you—you all this question, all of you. The notion that most of you at least have indicated that a system has to

be validated in order to be valid if you’re going to judge people. And

you can’t judge people on the basis of subjective criteria. Now, employees all get evaluated now. Are the systems by which employees

get evaluated now valid? How do you explain that? Do they use any

subjective criteria?

Mr. RIDLEY. I would say, much too often, they clearly are not.

And that is based on years of experience doing this.

One quick thing about—in terms of my colleague who noticed

that they are subjective, this is one of the things that I call manager/supervisor learning disabilities. That if it is really all that

subjective, why do we go through the time trying to do what Delegate Norton is talking about? If it is all subjective as we just said,

then we just said, we don’t need all these systems. The fact of the

matter is, is that subjectivity and objectivity are matters of degree.

And what you want to do is curtail the subjectivity; increase the

objectivity. And how do you do that? You dial up to get as much

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clarity as you can so at the very least you have a shared understanding of what is expected concretely from the supervisor. And

I say that your report must be written well, and you say, what does

that mean? I will be specific with you. I would mean that the right

content must be in there. If it is not, that is a problem. I would

suggest it needs to be well organized. If it is all over the place, that

is a problem. If there is a problem with format, spelling—you need

to be specific. And my point here—and I’ll let this go—is that we

can do these things. We can do them well. But any time you engage

in a false dichotomy in terms of something being either subjective

or objective, you get no place. It’s a matter of degrees.

Ms. NORTON. I want to get to whether or not we can do them so

easily if we just kind of do them well.

Mr. TOBIAS. I think you’re using——

Ms. NORTON. I’m really looking for the answer to my question

about what is it that keeps the present system from being attacked? Now, in his testimony—in his testimony, Mr. Stier correctly says Title V recognizes that incentives and recognition for

excellence are appropriate. Then he says but the current 1949 era

general service system does not reward high performance. It rewards above all else longevity. Well, he is right. Why does it do

that, gentlemen? Why didn’t it start out doing exactly what Mr.

Stier wanted to do? That is the point I’m trying to get somebody

to speak to since it is obvious that if you can do it other than by

time and service or the like, that you’d expect the Federal Government to go to that system.

Mr. Tobias.

Mr. TOBIAS. I think that you’re using the term validated as a

term of art. And as a term of art, there is no performance evaluation system in the Federal Government today that has been validated as you’re using that term. With respect to the issue of longevity, in many agencies, within grade increases have been equated

with longevity. That is not the intent of the statute. And if the

statute were incremented properly, performance would be an integral part of whether or not people receive within-grade increases

or not.

However, to get back to your original point, there is no performance evaluation system in the Federal Government that has been

validated as you’re using that term.

Ms. NORTON. Well, I believe that is the honest answer, and I believe there is a reason for it. And if you want to be helpful to us,

you can help us get to the point where you could set up a performance-based pay or any other system—obviously you have a system

which, confronting the difficulty of finding and identifying objective

criteria, default on that and go to an overall system that is not inherently unfair but is not the best system. It says at least if an employee lasts long enough and is satisfactory, then that employee

ought to receive an increment in pay. And essentially what you are

confronting and what you especially, Mr. Stier, are avoiding, is that

it is the difficulty, some would say, in a system of 3 million employees, perhaps impossibility, of coming up with a system that would

meet validation standards that sends the Federal Government to

broader standards, to avoid just the kind of litigation that we have

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already seen at the SEC, the same kind of results we’ve seen at

the GAO.

So that if there are short cuts to what the Supreme Court has

made the public and private sector do in order to implement systems of pay or any other term and condition of employment since

the late 1960’s, if there are short cuts, it is—that is what we’re

looking for. If there are not short cuts, then we need to tell the

Federal Government the truth. We need to send the Federal Government to AT&T, who got sued in a nationwide class action suit,

and say how did you, in fact, finally get out of the consent decree?

And then AT&T will tell the OPM we did so first by saying a lot

of back pay and second by validating everything in this place, and

it cost us billions of dollars. I don’t think you do us any service by

saying that the Federal Government, which paid the private sector

to do that and has made other Federal agencies do that, can now

implement the same kind of system on its own without going

through the same rigorous process and adding in the additional

step that will be required because it is a Civil Service system. If

you mitigate the difficulty, then you invite SEC-type overturns and

a lot of waste of the taxpayers’ money.

And, Mr. Chairman, I must say that I think, if not before the end

of this year, but quickly, as soon as we can, we have to find a way

to roll back the pay-for-performance so that we do not subject ourselves to inevitable litigation, lose Federal employees at the height

of when we’re trying to keep them, at the height of when we can’t

compete with the private sector on many grounds. This has been

a real lose-lose for us. And if you want to sit down with any of us

who have been in touch with this work for a long time, I am open

to seeing if there are ways—some of the broadbanding ways have

some—some suggestions within them.

What I’m not open to is saying to the Federal Government on the

part of this subcommittee, go ahead, try it out; if you get sued,

you’ve got a lot of lawyers, let them take care of it.

Mr. STIER. Congresswoman Norton, I’d love to take you up on the

offer.

Ms. NORTON. I’d be glad to meet with you.

Mr. STIER. Thank you.

Mr. DAVIS OF ILLINOIS. Thank you very much, Delegate Norton.

Mr. Tobias, you noted that you collaborated with the Partnership

for Public Service on a study that found that Federal employees are

not motivated to increase their performance solely because of monetary rewards. Federal employees are motivated to increase their

performance when they are effectively led and their skills are

matched to the agency’s mission. Despite having access to the same

information, you and Mr. Stier have reached two different conclusions. You suggest that it is highly unlikely that the IRS can successfully implement a pay-for-performance system. Mr. Stier suggests moving forward with these systems.

If Federal agencies have already shown not to seek employee

buy-in and have difficulty linking agency mission with measurable

standards, is it fair to continue to allow Federal employees to labor

under these systems?

Mr. TOBIAS. Well, I think the risk, Mr. Chairman, of a failed payfor-performance system is what is shown in the data from the IRS,

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and that is, rather than motivating, morale drops and people perform at a lower level than they would with a pay-for-performance

system. I think that is the real risk of a malimplemented,

maldesigned, maladministered pay-for-performance system. I think

it is a significant risk, and the IRS hasn’t gotten over the hump

based on their own survey data.

Mr. DAVIS OF ILLINOIS. Both you and Mr. Stier recommend closer

involvement and oversight of these systems by Congress. You note

that the Controller General deserves congressional committee jurisdiction to hold oversight hearings on each of the major agencies

once a year. The subcommittee has not taken no for an answer, but

agencies have been reluctant to testify before this subcommittee on

these issues and have ignored our recommendations and findings.

This includes the GAO and one of today’s witnesses. This leaves

the subcommittee with no choice but to legislate to effect change

which can be long and difficult. Given these facts, is it reasonable

to expect Congress to assist with and examine every agency’s payfor-performance to ensure that they are fair and equitable, credible

and transparent and have the support of agency employees?

Mr. TOBIAS. I think if the—if the data were developed by the

agency, I think it would be rather easy for Congress to determine

whether the goals and objectives are being achieved. IRS had stated goals. The data showed that the goals weren’t being achieved.

It—it is not a complex matter to measure the effectiveness based

on what employee surveys say and whether or not the organizational goals and objectives are being achieved. I think it is more

that Congress is interested in performance and performance results. And that is really the thrust of my testimony. I believe that

it takes the interest of Congress, the dedicated time of a President

and the support of political appointees to really have a performance

management—an effective performance management system. And

as I said in my testimony, I believe that the implementation of an

effective performance management system with the corollary of a

better led work force would have a significant, positive impact on

performance in the Federal Government.

Mr. DAVIS OF ILLINOIS. Thank you.

Dr. Fay, a senior management analyst with DNI wrote in a November 12, 2007, commentary for the Federal Times that pay-forperformance suffers from two false assumptions: First is that what

is the best for business must be best for government; and the second is that pay-for-performance will be effective for the entirety of

a work force as diverse the Civil Service. What are your views on

this analyst’s assessment?

Mr. FAY. I would agree that what is good in the private sector

is not necessarily appropriate for the public sector. I think both

sectors have an interest in improving performance of the work

force, and I think they might need to go about it in different ways.

With respect to your second question, could you repeat that,

please? The second question.

Mr. DAVIS OF ILLINOIS. I think it was only one, and that is your

assessment of the analyst’s——

Mr. FAY. Well, his second point.

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Mr. DAVIS OF ILLINOIS. Let’s see. His second point, I believe—oh,

his second is that pay-for-performance will be effective for the entirety of a work force as diverse——

Mr. FAY. Generally, I think that is probably true. That is, the

same system would be—the kind of system you use with one job

family is likely to be different from that used with another. And

as I recall, the rationale that was developed by the agencies and

accepted by OPM for each unit having its own performance management system, performance appraisal system was that there

were two diverse set of needs across agencies for one system to

cover everybody. And my reading of the DOD system was that is

probably true of DOD as well, having a single system with some

subsets to cover all the civilian employees of DOD strikes me that

it is unlikely that it is going to be highly workable.

Again, in the private sector what works best is a system that is

customized to each employee’s job. As I said, the EEO rulings of

the past suggest that any criterion measure, any performance

measure that is not based on job-specific information is of necessity

biased and illegal.

Mr. DAVIS OF ILLINOIS. Thank you very much.

And Mr. Philips, let me thank you for joining us. Let me ask you,

what can the IRS do to improve the effectiveness of its pay-for-performance system?

Mr. PHILLIPS. Thank you, Chairman Davis.

My name is Mike Phillips, and I’m the deputy inspector general

for audit for TIGDA. And—well, we’ve heard some of the same

themes here today. The IRS took its system of 11 grades for frontline managers in 2005 and converted it to an 11 pay band system

for its frontline managers. The problem was they could not reach

consensus—senior management could not reach consensus in terms

of—because of the variety of—of positions—of which positions—and

how large the band should be.

So what we would recommend is to look to consolidate their

bands from 11 to a smaller number to move more toward the flexibility and the opportunities for managers in those different pay

bands to diversify their knowledge as well as their experience and

also present them greater opportunities to advance their careers

within those individual pay bands.

We also felt like—feel that those managers who are receiving at

least a fully satisfactory or a net or higher assessment—performance assessment should receive at least the salary raise that is

equivalent to the across-the-board adjustment that is given to all

nonmanagerial IRS employees under the GS based system.

And then, finally, for those truly exceptional and outstanding

managers, we feel like that the IRS needs to work with the Office

of Personnel Management to look for additional flexibilities to provide appropriate salary increases that would maybe even take

those managers above the pay band that they are in to recognize

their performance.

Mr. DAVIS OF ILLINOIS. Well, let me ask you, do you have any

concerns about the IRS’s decision to hire a contractor to evaluate

the IRS’s pay-for-performance system?

Mr. PHILLIPS. Yes, Chairman Davis. The IRS has worked with a

third-party contractor to—to do a three-phased assessment of its

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pay-for-performance system over a 5-year period. And we really feel

that is too long a period for making any significant changes to the

system. Particularly at this point in time, as Mr. George mentioned, the IRS is faced, like all other Federal agencies, with a tremendous wave of retirements at its executive and managerial

ranks over the next few years. So we really feel that it needs to

shorten the amount of time that it is going to take to assess the

system.

Mr. DAVIS OF ILLINOIS. Did your audit examine the impact of the

IRS’s pay-for-performance system on minorities and older workers?

Mr. PHILLIPS. No, sir. We do not look at those aspects.

Mr. DAVIS OF ILLINOIS. Would you recommend that such a study

be conducted?

Mr. PHILLIPS. We are planning, as the IRS continues to implement its system, to do further study in that area, and we would

take that certainly under consideration.

Mr. DAVIS OF ILLINOIS. Thank you very much.

And let me thank all of the witnesses for the hearing this afternoon. We thank you for your insight as well as for your patience

and thank you indeed. You’re excused.

And we’ll seat our second panel. While our witnesses are being

seated, I’ll go ahead and introduce them. We have Mr. Diego Ruiz,

who is the Executive Director of the Securities and Exchange Commission. For 10 years, Mr. Ruiz served as a business executive with

Univision Communications, Inc., a leading Spanish language media

company. In January 2006, Mr. Ruiz left Univision to serve at the

Federal Communications Commission in Washington, DC, as Deputy Chief of the Office of Strategic Planning and Policy Analysis.

Mr. Richard Spires is the Deputy Commissioner for Operational

Support at the Internal Revenue Service. He is responsible for

overseeing the development of policy for IRS Personnel Services,

Technology and Security. Mr. Spires previously served as the IRS’s

Chief Information Officer.

Dr. Ronald Sanders is Associate Director of the National Intelligence for Human Capital.

And I believe that constitutes our panel. Gentlemen, it is our

custom that all witnesses be sworn in. So if you will would stand

and raise your right hands.

[Witnesses sworn.]

Mr. DAVIS OF ILLINOIS. The record will show that the witnesses

answered in the affirmative. And, gentlemen, we’re delighted that

you’re here. Of course, the drill is that the green light indicates

that you have 5 minutes in which to summarize your statement,

which is already included in the record. The yellow light indicates

that the time is running out. Of course, the red light indicates that

it is time to stop.

So we thank you very much, and we’ll begin with Mr. Ruiz.

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STATEMENTS OF DIEGO RUIZ, EXECUTIVE DIRECTOR, SECURITIES AND EXCHANGE COMISSION; RICHARD A. SPIRES, DEPUTY COMMISSIONER FOR OPERATIONAL SUPPORT, INTERNAL REVENUE SERVICE; AND RONALD P. SANDERS, CHIEF

HUMAN CAPITAL OFFICER, OFFICE OF THE DIRECTOR OF

NATIONAL INTELLIGENCE

STATEMENT OF DIEGO RUIZ

Mr. RUIZ. Thank you, Mr. Chairman. I appreciate the opportunity to appear before you today to discuss the SEC’s pay-for-performance system. The SEC is phasing in a new pay-for-performance system that was developed in cooperation with the National

Treasury Employees Union, which we believe will provide meaningful rewards to employees for strong performance and will facilitate

the accomplishment of the SEC’s statutory mission to protect investors, promote capital formation and foster market efficiency.

In response to chronic difficulties by the SEC in recruiting and

retaining mission critical staff, in December 2001, Congress passed

the Pay Parity Act which authorized the SEC to increase its pay

and benefits to levels comparable to those of other financial regulatory agencies while adhering to merit system principles. The

SEC, with the support of OMB, obtained additional funding to implement a new compensation system that would improve base pay

while increasing accountability by linking pay increases to individual performance.

In early 2002, after the development of the new compensation

and pay-for-performance systems, the SEC and the NTEU entered

into compensation negotiations but were unable to reach agreement

over several issues. Subsequently, the matter was submitted to

Federal Services Impasse Panel, and in November 2002, the FSIP

issued a decision and order that supported the SEC’s arguments

and the substance of the SEC’s proposal, including that the SEC’s

compensation proposal was the product of extensive research carefully tailored to meet the specific needs of the SEC and the comparability and the overall fairness were established. The FSIP

order allowed the agency to provide an annual merit increase based

on individual performance. In the same year that the SEC obtained

pay parody, the SEC’s mission was expanded by the enactment of

the Sarbanes-Oxley Act. The additional responsibilities and the requirements of the act demanded a corresponding increase in the

SEC’s mission critical staff.

The SEC’s then relatively new compensation system proved its

effectiveness by allowing the SEC to increase staffing by a third in

less than 12 months. In addition, in the time since the compensation system was established, attrition rates have fallen dramatically to as low as 6 percent, which at that time was a 10-year low

for the SEC and well below governmentwide averages.

As part of the SEC’s continuous re-assessment and refinement of

the pay-for-performance system, in May 2003, the SEC adopted our

current two-tiered management system to assess individual performance, which can be rated either acceptable or unacceptable

based on several agency-wide success factors. To link performance

with compensation, only employees who receive an acceptable asVerDate 11-MAY-2000 11:54 Dec 17, 2009 Jkt 000000 PO 00000 Frm 00095 Fmt 6633 Sfmt 6633 U:\DOCS\53641.TXT KATIE PsN: KATIE
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sessment are eligible for, although not guaranteed, a merit increase.

After the first merit pay cycle in 2003, the NTEU filed a grievance against the merit pay process alleging that it discriminated

against employees in several protected classes. Although the arbitrator ruled that the statistical evidence concerning the commission’s compensation system in 2003 supported a finding of impact

discrimination for two classes of employees, the arbitrator’s ruling

made clear there was no evidence of any intentional discrimination

on part of the commission or any of its employees.

The administrator did not make a ruling on the appropriate remedy and has asked that the parties present briefs on how to resolve

the issue. The briefs have been submitted to the arbitrator, and

briefing on all issues should be complete this month. We await the

arbitrator’s decision.

Even before the arbitrator’s ruling, the SEC had identified a

number of areas where the two-tiered system could be improved.

Thus, in September 2006, the commission established the Performance and Accountability Branch within the Office of Human Resources, which is leading the implementation of a new five-tiered

performance management program for the commission that will

help establish unambiguous criteria from which fair, credible and

transparent rating and merit increase decisions can be made.

The new five-tier program is designed specifically for the commission’s unique business needs. A joint labor management team

comprised of senior human resources staff and NTEU officials is

working collaboratively on our transition to this program. This

transition began in September 2006 with a pilot program involving

all SEC Office of Human Resources personnel. Following significant adjustments based on lessons learned from the pilot program

and feedback from SEC managers and supervisors, the commission’s management is now being transitioned into the new system.

We anticipate transitioning the rest of the commission beginning in

2009. The commission is purposely taking its time in starting with

leadership to allow them to become comfortable with a new process

before being required to manage subordinates on it. Also, the commission has decided to temporarily separate our performance management system from the merit-based system until the new performance management system is completely implemented. This will

allow the agency to focus all its efforts on effectively implementing

all aspects of the new system before relying on it to provide performance information to support paid decisions. During the transition to the five-tier system, all employees receiving an acceptable

performance rating will receive an equivalent share of the funds

the agency has available for merit-pay increases. The new performance management program was developed based on best practices

both from other Federal agencies and the private sector. Additionally, it responds to several performance-related recommendations

from the GAO and OPM.

Finally, the new program addresses issues raised by the SEC’s

own Office of the Inspector General. To underscore the SEC’s resolve to improve continuously in this area, the Inspector General

has agreed to perform another full audit of the performance management program in 2 years. Thank you for providing me the opVerDate 11-MAY-2000 11:54 Dec 17, 2009 Jkt 000000 PO 00000 Frm 00096 Fmt 6633 Sfmt 6633 U:\DOCS\53641.TXT KATIE PsN: KATIE
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portunity to update you on the SEC’s pay-for-performance system,

and I would be happy to address any questions you may have.

[The prepared statement of Mr. Ruiz follows:]

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Mr. DAVIS OF ILLINOIS. Thank you very much. Mr. Spires.

STATEMENT OF RICHARD A. SPIRES

Mr. SPIRES. Thank you, Chairman Davis.

I’m pleased to be here today to discuss the Internal Revenue

Service’s efforts to implement pay-for-performance and respond to

questions from the subcommittee. This is an important issue as the

Federal Government continues to look at ways to recruit and retain

talented managers. While I’ve worked at the IRS in various capacities since 2004, I’ve spent more than 20 years in private industry

where pay-for-performance is commonplace and, from the perspective of the companies with which I was associated, has had great

success.

I recognize that there is not a perfect correlation between government and private enterprise and what works in one may not in the

other. And in my 4-year tenure at the IRS, I’ve seen some of the

reasons why. However, the development of a strong pool of talented

employees is such a critical issue for any enterprise; it is important

that innovative programs be attempted.

In many respects, the IRS has been at the forefront of the payfor-performance program in the Federal Government. We’ve been

dealing with it for over 7 years as we’ve implemented such a system for our more than 7,000 managers. Though there have been

some bumps along the way, the creation of pay bands and compensating employees for the quality of their work rather than their

tenure with the agency has helped the IRS respond to the challenges presented in turning the agency into a modern and more efficient organization.

My written statement lays out much of the background of how

we got into pay-for-performance and describes in some detail how

we implemented the program and discusses some of the obstacles

we faced.

I want to focus my remarks this afternoon on two things. First,

I want to outline the areas in which pay-for-performance has benefited our agency. Second, I want to offer some of the lessons we’ve

learned so that the agencies that follow us can benefit from our experiences and have an easier transition.

Perhaps the greatest benefit of pay-for-performance for the IRS

has been the opportunities afforded to us in implementing the dramatic overhaul of the agency mandated by the IRS Restructuring

and Reform Act of 1998. Specifically, the implementation of a new

performance management system allowed us to link manager performance to the functional goals of the organization. Managers and

their supervisors jointly developed specific performance commitments as part of an annual performance plan that are designed to

further the goals of the functional unit and the IRS. The pay flexibilities have enabled the IRS to strengthen the linkage between

manager performance and the overall IRS goals.

Despite these benefits, the road has not always been smooth and

without controversy. Let me offer several lessons we’ve learned

and, frankly, are still learning that may benefit other agencies in

the Federal Government. First, agencies should move deliberately

and cautiously to implement the program that is right for their organization, recognizing that any change in the way employees are

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paid will raise concerns on their part. Second, communication is

critical. Employees must understand how the program will work

and how they will be affected. There also must be forums that have

their questions answered. Third, an effective performance evaluation system must be in place. Employees must understand the

basis for their evaluation, and there should be a review system in

place to make sure evaluations are being made on a consistent and

fair basis. Fourth, supervisors and employees must be trained properly on how to use the system and make sound evaluations. Fifth,

ongoing program evaluation is essential to ensure that the pay-forperformance system is operating as intended, and agencies must be

willing to modify and revise to meet the changing needs of their organization. And finally, evaluations must be made free of any discrimination based on race, gender, age or national origin.

I’m proud to say that an overall evaluation of our program by a

third party contractor found that, since fiscal year 2004, there has

been no disparate impact on any group of our managers. The contractor analyzed the trends of the ratings data grouped by race,

gender, age and national origin. In each group, ratings trended in

a similar path to the average ratings across all groups.

Thank you, again, Mr. Chairman, for the opportunity to be here.

And I’ll be happy to respond to any questions.

[The prepared statement of Mr. Spires follows:]

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Mr. DAVIS OF ILLINOIS. Thank you very much, Dr. Sanders.

STATEMENT OF RONALD P. SANDERS

Mr. SANDERS. Thank you, Mr. Chairman.

It is good to be back. Thank you for the invitation to testify at

today’s hearing. Specifically I understand that the subcommittee is

interested in learning more about our plans for designing, developing and implementing a more modern compensation system for civilian employees in the U.S. Intelligence Community—I’m sorry.

I’ve got it now.

Of interest to these proceedings, we do have a few IC elements

that are covered by Title V of the U.S. Code to include analytic

functions in the Departments of Energy, State and Treasury. Unfortunately, I’m unable to share any details of that proposed system with the subcommittee at this time. We’re still very much in

a predecisional phase. In this regard, the most salient features and

likely those that are of most interest to the subcommittee remain

under deliberation and discussion amongst the six Cabinet Departments and seven agencies and elements that comprise the IC, with

the various IC directives that will enable and establish the system’s framework still in formal interagency coordination.

As you may know, Section 308 of H.R. 2082, the Intelligence Authorization Act for Fiscal 2008, require the Office of the Director

of National Intelligence to submit a report of the IC’s pay modernization initiative. And although that bill is not yet law, we fully

intend to comply with the congressional wishes. We’d be glad to

provide your subcommittee a copy of that report as soon as it has

been submitted to the Intelligence Oversight Committees on the

Hill.

What I can discuss with the subcommittee today is a related initiative now proved to establish common performance management

requirements for the IC civilian work force. Those requirements are

set by an IC directive issued by Director McConnell last November,

and I’d be pleased to do so. Also I can discuss one of our legislative

proposals from last year that did not make it into H.R. 2082 but

may be of some interest to the subcommittee given your focus

today.

First, our performance and management directive. The DNI believes strongly that a common set of core performance management

policies are an essential requirement for the IC as a way of

strengthening the community. In the past, performance appraisal

systems varied widely across the IC, and they did not consistently

reinforce the common behaviors and values which are critical to the

modern Intelligence profession, such as collaboration and critical

thinking.

. To remedy this, the DNI’s 100-day plan called for the completion of a directive of establishing performance management requirements for the IC civilian work force. That directive does not

establish a common system. Instead it establishes common core requirements and processes for managing the performance of IC employees that are to be incorporated into the performance systems

established and administered by the 16 separate IC elements and

their 6 parent Cabinet Departments.

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Employees will be evaluated on what they achieve, their results,

performance objectives developed jointly between manager and employee, and in the manner in which those results were achieved.

How, their manner of performance, with the latter focusing on six

common performance elements, which by the way have been validated. They include such transformational competencies such as

critical thinking, collaboration, personal leadership and integrity

and technical expertise. These go to the heart of Intelligence reform.

This performance management directive does not cover our senior executive or equivalent senior level positions. They’ll soon be

covered by a similar policy. All departments and agencies in the IC

are to implement the directive not later than October 1, 2008 for

application in the 2009 appraisal cycle. I would note here that the

implementation of the ICD does not require any special or unique

statutory authority. It can be implemented as is by all IC elements,

including those covered by Title V. I’d also note that the directive

is a necessary antecedent of a modern performance-based compensation system; although it is a separate and critical strategic

human capital initiative in its own right. For example, the IC

deems common performance management requirements are essential to the success of our Civilian Joint Duty Program. They also

provide a mechanism to reward and reinforce our core IC values,

as well as some of the transformational behaviors I mentioned before.

Let me turn now quickly to a related legislative proposal. As part

of the administration’s fiscal 2008 Intelligence Authorization request, we asked Congress to give the DNI the ability to extend already authorized personnel flexibilities from one IC agency to another; this in order to maintain a level playing field across the community. In short, we wanted to be able to share the myriad special

personnel flexibilities, for example, deployment incentives, foreign

language incentive pay, various scholarship authorities, etc., that

have been authorized for one or more but not all of our agencies

by Congress over the years. And in the longer term, we wanted to

allow our smaller IC elements, those covered by Title V, to be able

to take advantage of our new pay-for-performance system.

As you know, there is no direct legal authority for those elements

for Title V employees to be covered by that new system, and we’re

concerned that, as the rest of the community moves to a system

over the next few years that is more performance-based and market-sensitive, our smaller elements may be placed at a competitive

disadvantage. To remedy this, we propose that the DNI, with the

concurrence of the head of the department or agency, could authorize adoption of a flexibility already granted to another IC element.

But those IC elements with employees covered by Title V, the director of OPM would also have a say. Although this was included

in the Senate Intelligence Authorization, it was not included in the

conference report, nor has that conference report become law. We’re

now in the process of developing our legislative proposals for the

2009 Intelligence Authorization. Thus I must add that, while we

again requesting this provision, it has not yet cleared the Office of

Management and Budget.

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Thank you very much, Mr. Chairman. I’ll look forward to answering your questions.

[The prepared statement of Mr. Sanders follows:]

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Mr. DAVIS OF ILLINOIS. Thank you very much, Dr. Sanders.

Mr. Ruiz, let me begin with you. In retrospect, do you—do you

think it was prudent for the SEC to implement a pay-for-performance system without buy-in from the National Treasury Employees

Union?

Mr. RUIZ. Thank you, Mr. Chairman. As I stated in my testimony, the circumstances around the time of our setting up the payfor-performance system that we are currently under were unique in

the life of the agency. We were undergoing a number of years of

pretty significant attrition, having a hard time remaining competitive with other Federal regulators and retaining staff. And we received from the Congress additional funding to be able to increase

pay for our staff to be more competitive with other areas of the government. So we were operating under the significant constraints

and operating under a fairly accelerated schedule at the time. We

take very seriously any concerns that—the concerns that have been

raise about the 2003 merit pay cycle. And as I noted, we’re in the

process of discussing the remedy phase of that arbitration decision

with the arbitrator and with NTEU.

Mr. DAVIS OF ILLINOIS. Let me see if I’m understanding. Are you

saying that, given a different set of circumstances, where some of

the pressures that you were experiencing in the agency at that

time, if those were not present, then you would find employee buyin to be desirable, a desirable part?

Mr. RUIZ. Absolutely. I think it is. At the end of the day, any performance management system is meant to improve the quality of

the work force and the caliber of the work being performed by the

agency, and I don’t think that is doable in any meaningful way unless the entire team, both management and employees, has clear

objectives; there is a commonality in terms of the goals for the

agency. And so I think it is a very important component of any successful pay-for-performance system that—any performance management system period, that there be significant commonality of

objectives among those staff.

Mr. DAVIS OF ILLINOIS. While the arbitrator found no evidence of

intentional discrimination on the part of the SEC, hundreds of minorities and older workers were adversely impacted by the system.

How does the SEC intend to make the affected employees whole or

to rectify that situation?

Mr. RUIZ. Let me just say, Mr. Chairman, that the case is still

going through the arbitration process. And so I have to be careful

of exactly what I say about it so as not to prejudge the manner.

But as you’ve stated, the arbitrator did not find any evidence of intentional discrimination, but there—statistically—a statistical—regarding the disparate impact. We’ve submitted briefs to the arbitrator. He has asked the SEC to do so as well, specifically regarding the remedy—and we’re awaiting for the arbitrator’s decision on

that.

Mr. DAVIS OF ILLINOIS. Now, the arbitrator’s decision applies

only to the first merit based cycle in 2003. The National Treasury’s

Employee Union has filed grievances against the merit pay system

for 2004, 2005, 2006 and etc. Has the SEC made any attempt to

settle with the union regarding the subsequent years this problematic pay-for-performance system has been in place?

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Mr. RUIZ. Mr. Chairman, we’ve been in discussions with the

union concerning the 2003 case, including discussions and that—

seeing if there are grounds for settlement on that. In the subsequent years, 2004 and beyond, I do not believe we have engaged

in those discussions. And again, this is simply because we’re still

going through the process of the 2003 merit cycle arbitration decision. And I believe it is not yet—the issue is not yet right to gather

the lessons we can draw from the 2003 cycle and apply it to those

other years. But we certainly, I think, have a good working relationship with our union and have been engaged in discussions

throughout this process and are open to further discussions in the

future, certainly.

Mr. DAVIS OF ILLINOIS. I note that instead of denying the SEC

employees a COLA, that the SEC can deny its employees an automatic within-grade increase. Could you explain for the committee

what an automatic within-grade increase is and whether or not an

employee who meets expectations can be denied such an increase?

Mr. RUIZ. I am sorry, Mr. Chairman, I didn’t hear the beginning

of your question. I didn’t quite make it out. Could you state it

again?

Mr. DAVIS OF ILLINOIS. Instead of denying a COLA, that the SEC

can deny employees an automatic within-grade increase. And I am

trying to find out what is an automatic within-grade increase, and

whether or not an employee who meets expectations can be denied

such an increase.

Mr. RUIZ. Under our current system, Mr. Chairman, we have basically a two-tier performance process. An employee can be classified either as acceptable or unacceptable, which, I think, was referred to in the earlier panel as essentially pass/fail. So employees

that are rated at the unacceptable level are not eligible for a merit

pay increase. They do receive the full COLA, as does the rest of the

Federal Government.

If an employee is classified at the acceptable level, again, under

the current system that we are under, they can be given a range

of steps in merit pay increases each year. And, of course, we are

an appropriated agency, and so this is subject to what our level of

funding is for the year.

So the decision on whether or not an employee receives a merit

pay increase, again, I am talking about merit pay above and beyond the COLA, is dependent on that unacceptable rating.

I should say, just by way of context, in this past performance

cycle, I don’t believe that we have had any unacceptable ratings.

Mr. DAVIS OF ILLINOIS. But it is considered merit pay, and if a

determination is made that the employee does not merit this, for

all practical purposes, bonus, that it can be denied them?

Mr. RUIZ. The merit pay component, yes, that is correct.

Mr. DAVIS OF ILLINOIS. Thank you very much.

Mr. Spires, let me ask you, can you explain how budgetary constraints prohibit the IRS from establishing a policy providing mandatory minimum increase in salary, which is equivalent to an

across-the-board adjustment?

Mr. SPIRES. The statute RRA 98 delegated decisions regarding

those increases of COLA to—I believe, the Secretary of the Treasury would then delegate it to the IRS Commissioner. We have

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made a decision that we would not mandate that, that we would

live by that statute.

However, the practical application is that since we have implemented a pay-for-performance system in the IRS for managers 7

years ago, we have always granted that COLA increase for all

managers that are fully successfully rated or above.

Mr. DAVIS OF ILLINOIS. Do you believe that the IRS pay-for-performance system is actually providing an incentive to managers,

given that employees who are rated fully satisfactory receive both

step increases and the across-the-board-adjustment, while managers who are rated fully satisfactory are assured of neither?

Mr. SPIRES. I believe, Mr. Chairman, that our pay-for-performance system, while certainly not perfect, is helping the organization

meet its overall objectives. We did have some bumps in the road,

and I allude back to my testimony where I talk about the fact, and

TIGTA alluded to this, we didn’t communicate and train the management staff as well as we needed to on the system. And I think

that’s led to some of the kinds of employee satisfaction ratings that

Dr. Tobias stated on the previous panel.

That being said, time-specific objectives to each manager in their

performance plan that roll up to that organization’s overall goals

and objectives, that then roll up to the overall IRS mission, I think,

has really helped us in overall performance. If you look at the overall performance of the IRS over the last 5 years, in almost every

category we measure, we have performed markedly better, in taxpayer service, in our compliance function.

In our modernization, compliance, for instance, from 2002 to

2007, we increased our enforcement revenues more than 70 percent

in an era of essentially flat budgets, and we have 10,000 employees

less than we had then.

I think that speaks to good management, and I believe that a

pay-for-performance system—and echoing what Dr. Tobias said, a

good performance management system are keys to have made that

happen.

Mr. DAVIS OF ILLINOIS. Let me ask, has the IRS made a decision

on whether to implement a pay-for-performance system for the rest

of the approximately 900,000 employees?

Mr. SPIRES. Sir, we have not. We—as I said earlier, it’s not perfect. We do believe we need more time to get it right for the management ranks. We are still assessing whether it makes sense to

engage with the NTEU and discussions regarding doing it for nonmanagerial employers. We have not made any decision yet as to

whether we are going to move forward.

Mr. DAVIS OF ILLINOIS. Recognizing that there is some decrease

in morale among some managers within the agencies, and employees that might be considering managerial positions, what is the

IRS doing to try and beef that up or to have cut it off?

Mr. SPIRES. Well, we recognize that there may be a perception

of a disincentive, if you will, for nonmanagerial employees to move

into the managerial ranks. We are studying that right now, sir.

This goes well beyond pay-for-performance issues, but given the

pay compression that you see in the Federal Government pay scale,

what can we do to incentivize those that really have the capability

to manage, to move into the management ranks?

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I personally believe, and I think it’s bearing out in the IRS, that

the pay-for-performance system does not need to be a disincentive.

I think with the kinds of studying we are doing regarding ours, the

training we are doing, the education, I believe we can move past

that. But there are other disincentives. Particularly in the IRS, we

have issues around mobility. Many times we ask those going into

management ranks to actually relocate, given the disparate nature

of the IRS and our function. There are just issues like that also

loom large in trying to get employees interested in becoming managers.

Mr. DAVIS OF ILLINOIS. Can you tell me what the critical pay authority is?

Mr. SPIRES. Sure. As part of the enactment of RRA 98, the IRS

was given the authority to hire up to 40 individuals meant to come

out of the private sector into the executive ranks in order to help

the IRS bring best practices, appropriate best practices, from the

private sector into the government, and it was more pay flexibility,

although none of the critical pay executives can earn more than the

Vice President of the United States.

Mr. DAVIS OF ILLINOIS. Have you been able to evaluate that to

determine what it is that the IRS might have been able to accomplish with this authority and with these individuals that it was not

able to accomplish without them?

Mr. SPIRES. Well, you are right in my wheelhouse, sir, because

I am one of those critical pay executives.

Most of them, about 75 percent, and I believe we have about 25

on board right now, although I am not sure of the exact number,

most of them are in our information technology organization, our

IT organization.

Most of them were brought in because they brought in specific

skills where we felt we were lacking in the IRS, in information

technology, management in particular, and I believe that it has

been a major benefit to the organization. We have great individuals

in our IT organization that are career people, but there’s a new set

of technologies, a new set of disciplines that they weren’t familiar

with. By being able to bring in people from the private sector with

those skills for a 4-year period, I think, has been a very big help

in moving our whole modernization program along on the IT side.

Mr. DAVIS OF ILLINOIS. Thank you very much.

Dr. Sanders, let me ask you, you testified that you cannot provide any details on the DNI’s proposed pay-for-performance system

because it is in a predecisional phase.

Could you explain what the predecisional phase means?

Mr. SANDERS. Certainly, Mr. Chairman.

When you began the hearing, you talked about the pay-for-performance system that the Director of National Intelligence wants

to impose on the Intelligence Community.

Mr. Chairman, the DNI does not have the statutory authority to

do that. Instead, we must achieve agreement amongst the 16 intelligence agencies and elements and their six parent Cabinet departments, who have six different personnel systems in different titles

of the U.S. Code.

Again, only a very small minority of our employees are covered

by Title V. The rest are Title X and Title XV and other parts of

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the law. So given that the DNI cannot impose this system on them,

we must achieve agreement amongst them.

Literally 2 years from last week, then principal Director of National Intelligence, General Mike Hayden, commissioned a feasibility study to look at whether we could and should develop a common

compensation framework for the Intelligence Community. This was

one of the critical recommendations made by the President’s Commission on the Intelligence Capabilities of the United States with

regard to weapons of mass destruction—let me take a deep

breath—other wise known as the Silverman-Robb Commission, and

they viewed it and we view it as an essential way of trying to glue

this community together, 6 departments, 16 agencies, all with different chains of command.

And one of the things I lose sleep over, Mr. Chairman, is different pay and other personnel practices across that community. If

we have those kinds of disparities, there will be no community, and

we won’t be able to achieve the purposes of the Intelligence Reform

Act.

Mr. DAVIS OF ILLINOIS. Now, let me make sure, because I understand that this Thursday the Director of the DNI, Mike McConnell,

is scheduled to testify before an open Senate Select Intelligence

hearing on DNI’s authorities and personnel issues. Will Mr.

McConnell provide the Select Intelligence Committee with details

of its pay-for-performance proposal, or do you know?

Mr. SANDERS. No, again, Mr. Chairman, he is in no different situation than I am. The directives that we are developing over those

16 agencies and 6 departments are, in effect, treaties. We need everyone’s agreement to move forward in a common way. We don’t

have that agreement yet. We have been at this for 2 years. This

is very much an event-driven process, and the first and most critical event is to try to reach some consensus amongst the intelligence

agencies and elements to proceed forward in a common way.

Mr. DAVIS OF ILLINOIS. The administration—the fiscal year 2008

budget contained funds to increase diversity in the Intelligence

Community. Each year the DNI reports to the House Permanent

Select Committee on Intelligence on diversity in six of the largest

intelligence components.

In fiscal year 2006, the DNI reported that the IC was 21 percent

minority compared with 37 percent of the overall population, and

39 percent women compared with 51 percent of the overall population. DNI has acknowledged that the Intelligence Community

needs to make progress on diversity.

Given the adverse impact pay-for-performance systems seem to

have on minorities and older workers, how can you assure the subcommittee that the DNI system will be any different?

Mr. SANDERS. Let me respond in a couple of ways. First, we are

in the process of completing our fiscal 2007 report on EEO and diversity in the Intelligence Community, and I am not sure it has

been submitted to our oversight committees, but, as it is, as we do

so, you will see that we have made modest progress.

We have made modest progress each year for the last 3 years in

almost every category; for example, recruiting and promotion rates.

The percentages exceed our representation rates. So while admittedly our representation rate is below, for example, the civilian

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labor force, the fact is that we are hiring at a greater rate than our

current representation rate for women and minorities. So we are

making modest progress. That’s progress we don’t want to retrench

in that regard. We need a work force that looks like America and,

frankly, to be able to deal with all the diverse peoples of the world.

It’s a very high priority of Director McConnell’s. We would not

be moving forward with pay for performance if we thought for one

instant that it would have adverse impact. Pay-for-performance

systems are not inherently discriminatory.

Frankly, I agree completely with Congresswoman Norton on the

notion of trying to set up a validated system so that behaviors you

are rewarding people on are, in fact, resident in the work that they

do. We have spent a lot of money and a lot of time engaging hundreds of our employees, our best subject matter experts, to develop

the performance elements that I talked about earlier, collaboration,

critical thinking and the like, as well as performance standards,

specific behavioral definitions of what those look like.

I would just like to add, my colleague on the previous panel who

seemed to scoff at the notion of evaluating employees on collaboration—Mr. Chairman, you know this—the 9/11 Commission said one

of the causes of that tragedy was that we had not collaborated and

shared information across the Intelligence Community.

We have 16 agencies and stovepipes and 6 Cabinet departments.

If we don’t put it in our performance evaluation system, and we

don’t validate it, and we don’t reinforce those kinds of behaviors,

we won’t improve, and our improvement is a matter of national security.

So we are not going to—we are not going to shortcut this. We

have spent the money to validate our elements and our standards.

We have oversight built into our proposed rules. We have training

built into our proposed rules, not just general training for managers and supervisors and how to administer the system, but we

are going to include specifically training on how to guard against

implicit bias, subconscious bias.

So we have standards that are validated. We have oversight

mechanisms, literally five levels of oversight from the first level of

supervisor all the way up to a body called the IC Human Capital

Board that will look for and guard against unlawful discrimination.

In fact, the charter board specifically says, among other things, it

will guard against unlawful discrimination.

So we have accountability, we have transparency, we have oversight, we have the standards, we have the training to make sure

that we don’t have any adverse impact on women and minorities.

Our goals there have been too hard won to risk them.

Mr. DAVIS OF ILLINOIS. Thank you.

The last question I think I have is given the statutory authority

you are seeking for civilian personnel changes fall within Title V

of this subcommittee’s jurisdiction, when do you intend to brief the

members of this subcommittee on the pay provisions of your proposal, and do you have a timeline for each phase of your pay-forperformance proposal?

Mr. SANDERS. I am happy to brief you, your colleagues and your

staff as soon as we get past the predecisional stage. I can tell you,

Mr. Chairman, no one in this room more than I do wants to get

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past that predecisional stage. This has been 2 years in the making.

It is event-driven and time-phased. This would literally be implemented through fiscal 2012.

So we want to do this right. It will start with a single agency

and proceed in gradually expanding phases until the entire Intelligence Community is covered.

Mr. Chairman, we want to make sure you are on board, because

one of the things I worry about—and we do need your committee’s

indulgence on this—at some point we have to be able to extend the

system to our Title V agencies. In relative terms they are very

small, they are vulnerable to interagency competition, and we don’t

want to leave them behind. So we are going to have to brief you;

we are going to have to get you on board; we are going to have to

convince you that this pay system won’t work, that we have

learned from lots of other mistakes, including many I have made

myself, so that we can get it right the first time and then, with

your permission, be able to extend it to our smaller elements so

they are literally not cherry-picked as they move forward.

Mr. DAVIS OF ILLINOIS. Well, I have no more questions.

I want to thank you gentlemen very much for your testimony and

for your patience. You are excused.

Thank you very much.

Mr. DAVIS OF ILLINOIS. While we are seating our third and last

panel, I will go ahead with the introductions. We are pleased to

have Ms. Colleen Kelley. She is the president of the National

Treasury Employees Union [NTEU], the Nation’s largest independent Federal-sector union, representing employees in 31 different

government agencies. As the union’s top elected official, she leads

NTEU’s efforts to achieve the dignity and respect Federal employees deserve.

Ms. Kelley represents NTEU before Federal agencies and the

media and testifies before Congress on issues of importance to

NTEU members and Federal employees.

Mr. John Gage is the national president of the American Federation of Government Employees [AFGE], of the AFL–CIO. Mr. Gage

watches over the rights of some 600,000 Federal and D.C. Government employees. Mr. Gage was elected national president at

AFGE’s 2003 national convention in Las Vegas, Nevada.

Mr. Gregory Junemann was unanimously selected to serve as

president of the International Federation of Professional and Technical Engineers [IFPTE], AFL–CIO, at the union’s 54th convention

in March 2001.

On Tuesday, May 8th, the IFPTE filed a petition to hold an election at the Government Accountability Office. On September 19,

2007, GAO analysts voted overwhelmingly to join the International

Federation of Professional and Technical Engineers [IFPTE]. The

vote was 897 to 485, a 2 to 1 margin in favor of IFPTE representation for 1,800-plus analysts at the Government Accountability Office.

Ms. Carol Bonosaro is president of the Senior Executives Association [SEA], the professional association representing the top career

executives in the Federal Government. Ms. Bonosaro was, herself,

a senior executive until her retirement from Federal service in

1986 to become SEA’s full-time president.

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Let me thank all of you for being here, for your patience, your

indulgence, and, of course, as is tradition with this committee, all

witnesses are asked to be sworn in. So if you would stand and raise

your right hands.

[Witnesses sworn.]

Mr. DAVIS OF ILLINOIS. The record will show that the witnesses

answered in the affirmative.

Again, thank you all very much for being here with us, and we

will begin with you, Ms. Kelley.

STATEMENTS OF COLLEEN KELLEY, PRESIDENT, NATIONAL

TREASURY EMPLOYEES UNION; JOHN GAGE, PRESIDENT,

AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES;

GREGORY JUNEMANN, PRESIDENT, INTERNATIONAL FEDERATION OF PROFESSIONAL AND TECHNICAL ENGINEERS;

AND CAROL BONOSARO, PRESIDENT, SENIOR EXECUTIVES

ASSOCIATION

STATEMENT OF COLLEEN KELLEY

Ms. KELLEY. Thank you very much, Chairman Davis. I appreciate the invitation and the opportunity to speak with you today.

This distinguished subcommittee has heard testimony today from

Federal agency heads and renowned experts from academia. I am

here today to present the viewpoint of the tens of thousands of

dedicated public servants who are currently on the ground working

in the government. These Federal employees are the ones for whom

alternative pay systems are a looming reality, not just an abstract

concept.

The President’s fiscal year 2009 budget submission reaffirmed a

commitment to replace the current GS system with a ‘‘modern classification, pay, and performance management system that is both

results-driven and market-based.’’

OPM just released its December 2007 report on performancebased pay systems in Federal agencies touting their success in

leading to a better government. I am here to refute that.

No. 1, the notion that the GS system needs to be replaced is not

true; and, two, that current pay-for-performance systems have

shown widespread success. To the contrary, NTEU’s experience

shows that the alternative pay systems at many of the agencies in

the OPM report are characterized by a slew of grievances, arbitrations, litigation, high attrition rates and rock-bottom employee morale.

Nothing in this OPM report or any other government study I

have found presents data documenting the need to eliminate the

GS system. The GS system is market-based. It has the goal of

achieving comparability with the private sector through 32 different locality pay areas, and employees receive raises based on

merit, which is synonymous with performance and achieving results.

The GS system is transparent. It has rules, standards and evaluations which must be written. If managers currently have trouble

with the GS system it does not make sense to go to a more subjective pay system.

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The Transportation Security Administration’s past pay system is

a prime example of failure. Employees are constantly tested, but if

they fail, they are not told what they did wrong. The training is

minimal, and a majority of airport screeners don’t know what is expected to get a pay raise. The uncertainty impasse has resulted in

the highest attrition rate in the government. The TSA past system

should be eliminated, and legislation should be enacted to put TSA

screeners onto the GS pay system.

NTEU strongly believes that in the absence of a statutorily defined pay system like the GS system, pay should be subjective to

collective bargaining as it is in the private sector. At the SEC and

FDIC, NTEU bargains for pay on behalf of its employees, yet problems still exist.

These alternative pay systems must be seen as fair, as credible

and as transparent. Employees must know what their work expectations are and what they need to do to improve. Unfortunately,

the SEC has failed on all accounts.

In September 2007, as you know, NTEU won an important legal

battle when an arbitrator ruled for the union and for employees

that SEC’s implementation of its 2003 pay-for-performance system

was illegal. This faulty system was found to be discriminatory

against African American employees above grade 8 and employees

aged 40 and older.

The SEC system used a set of vague and subjective what they

call agency success factors to determine whether and how much of

a merit increase an employee would receive. The generic factors

were not linked to employees’ job duties, and they applied to every

position within the SEC. They were based on amorphous criteria.

NTEU warned the SEC that employees would not know how to

satisfy the vague standards, and that arbitrary treatment would

occur. This was compounded by a lack of training and guidance for

managers.

As you noted, four additional grievances are pending, yet the

SEC continues to determine pay increases based on the flawed system currently in place.

FDIC’s pay system, too, was problematic. The system had established a separate set of what they call corporate contributions.

These factors were used to determine an employee pay raise increase, which generated a great deal of resentment and did little

to motivate employees to foster teamwork. So to its credit, however,

working with NTEU, the FDIC has agreed to suspend its pay-forperformance system, hiring employees for the 2007 performance

cycle. However, IRS managers have not embraced their pay-banding system. In their public comments on OPM’s regs, the Federal

Managers Association spoke against these forced pay quotas.

In conclusion, I would like to emphasize a few things. There is

no hard evidence that the current pay system for Federal employees needs to be changed. The current experiments with alternative

pay systems are failing, and, most importantly, pay systems must

be fair, credible and transparent to be successful.

Thank you for the opportunity again, Mr. Chairman, and I would

be happy to answer any questions.

Mr. DAVIS OF ILLINOIS. Thank you very much.

[The prepared statement of Ms. Kelley follows:]

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Mr. DAVIS OF ILLINOIS. Mr. Gage.

STATEMENT OF JOHN GAGE

Mr. GAGE. Thank you, Mr. Chairman. It’s a pleasure to appear

before you today.

I will focus my remarks on DOD’s national security personnel

system and TSA’s pay system for transportation security officers.

Recent press reports of the 2008 NSPS payout for employees have

been highly misleading, and we urge this subcommittee to demand

data from DOD to explain how the system has been applied, because what they have provided so far makes any evaluation impossible.

But what we do know is subjectivity and bias plague the entire

system. NSPS is supposed to set base pay and future salary increases on individual performance, judged by a hierarchy of supervisors, but senior managers at DOD have told us that different pay

pools have different rules for distribution, and that supervisors

have an order to tell their subordinates only their narrative ratings, not their numeric ratings, so that the latter can be changed

after the fact. Surely it violates the principle of transparency if an

employee cannot even see their supervisor’s rating.

Because NSPS is not supposed to exceed the cost of the GS system, it must fit performance ratings into a normal distribution or

bell curve. In practice, this means that numerical ratings can be

changed not because of failure of employees to reach performance

objectives, but to align with preset ceilings on the number of 5, 4,

3s necessary to match preordained funding for pay pool distributions. Far too many managers have carefully rated their subordinates as objectively as possible, only to be forced by the pay pool

manager to reduce their ratings in order to get to the bell curve.

But it becomes more complicated than that. Employees in the

same pool who were rated 3, for example, might not get the same

number of shares. Further, the money put into the shares varies

enormously. In some places, a share was worth 1 percent of salary;

in others, it was worth 1.5; in others, it was worth 2. In some

workplaces an employee who got a 3 could get more than someone

else who got a 4.

Just to make matters even more complex, pay pool managers can

decide how much of a share can be put into an employee’s salary

increase versus cash bonus, and this is enormously important. Obviously, this can affect the employee’s standard of living not only

while he is still working, but profoundly into retirement.

In addition, there appears to be a bias in favor of employees who

work higher up the chain of command or closer to the Pentagon.

I would think Members of Congress would be particularly interested in what is so obviously an inside-the-Beltway bias.

We are also concern about the elimination of merit promotion.

Under the GS system, an employee’s ability to get promoted is

clear from the position description. If the job is based on the career

ladder, say, and starts as a GS–5, goes to a 7 and then a 9, employees know what is expected of them, and they can look forward to

those promotions if their performance so warrants.

Under NSPS, promotions are likely to be far rarer. Employees

might be given additional duties by their supervisor in order to adVerDate 11-MAY-2000 11:54 Dec 17, 2009 Jkt 000000 PO 00000 Frm 00141 Fmt 6633 Sfmt 6633 U:\DOCS\53641.TXT KATIE PsN: KATIE
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vance inside the pay band, but there will be no pathway, no clear

pathway, to that advancement. Nor is there a requirement that a

job at the higher level be open to competition. Bias and favoritism

are inevitable.

Mr. Chairman, I have dwelled on the details of NSPS for good

reason. It has been so easy for the administration to spin pay for

performance as a great idea. Who can argue with rewarding excellence and punishing the lazy and incompetent? AFGE argued

against the establishment of the authorities that gave DOD, DHS

and TSA the ability to create new pay systems. We have testified

numerous times before, and we reaffirmed today that no matter

how successful people may think pay for performance is in privatesector settings, it is inappropriate for the government where merit

system principles must be upheld, where teamwork is paramount,

where politics always threatens to corrupt the workplace, and

where profit has no place.

But the administration argued that they can be trusted to create

fair systems, that best practices would be followed, and that we

should just wait and see how happy and motivated everyone will

be once they get rewarded for their contributions.

But the reality of pay for performance is different. In any pay

system like NSPS, with this much flexibility, the results must be

exposed to a great deal of sunshine. The fairness, transparency and

accountability promised by NSPS can only be evaluated looking at

the numbers.

We urge the committee to acquire the data listed in the appendix

that we are provided and to make it public. If the system is any

good, it will withstand the scrutiny. If it is not, AFGE and other

unions will negotiate for its improvement.

Now, transportation security officers. Just briefly, despite the

public’s call for a Federalized, well-trained and well-compensated

screener work force following 9/11, TSOs continue to be drastically

underpaid. The average salary is $30,000, approximately equal to

that of a GS–5, while other law enforcement officers at DHS are

classified at much higher grades.

TSOs are also subject to the unaccountable and highly subjective

performance-based pay system known as PASS. While it is virtually impossible for us to obtain data or even basic information

about how this system is supposed to work, to make matters worse,

TSA continually changes the system. While understandably confused about the details, employees tell us that PASS is based on

favoritism, not performance.

Last December, TSA disclosed that TSO officers—that TSO officers would receive a smaller pay raise in 2008 than in 2007, even

if they receive the same performance rating as the previous year.

TSA consistently ranks at the bottom of any survey of employee

morale.

We all know it from the tragedy suffered on 9/11 that this work

force is too important to be treated so callously. It is time to provide a rational pay system for these workers before the attrition

rate climbs any higher. AFGE urges the subcommittee to end the

PASS system and instead place TSOs under the pay system that

it applies to other Federal workers, including their colleagues

throughout the DHS.

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That concludes my statement, and I will be happy to address any

questions.

Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Gage.

[The prepared statement of Mr. Gage follows:]

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Mr. DAVIS OF ILLINOIS. Mr. Junemann.

STATEMENT OF GREGORY JUNEMANN

Mr. JUNEMANN. Thank you, Mr. Chairman, and thank you and

Congressman Sarbanes for allowing me here to testify today.

IFPTE is a labor organization representing over 80,000 highly

skilled professional and technical workers in the private, Federal

and public sectors throughout the United States and Canada.

IFPTE represents up to 20,000 workers of the Department of Defense, civil servants and 1,800-plus analysts within the Government Accountability Office.

IFPTE also represents Federal employees at the Department of

Interior, Department of Energy, NOAA, NASA, EPA, CRS, the Executive Office of Immigration Review, and the administrative law

judges within the Social Security Administration.

Having said that, IFPTE has significant experience with pay for

performance, particularly at DOD and GAO, where our members

are either currently experiencing this firsthand or have been

threatened by its implementation over the past years.

IFPTE is somewhat unique when it comes to this controversial

issue. For one, in the private sector we have represented members

who for years have been on a pay-for-performance system. While

most of our Federal locals have clearly said no to pay for performance, some of our members do welcome the concept and believe

that if properly and fairly implemented, it may be able to work.

This is the case among our GAO membership.

One thing is clear, however. The proper application of pay for

performance in the Federal Government has yet to be realized, and

one could argue that its success is many years away, if it is possible at all.

It’s been the IFPTE’s experience that pay-for-performance

schemes, whether they are in the short demo projects or largest

agencywide efforts, such as DHS or DOD, for the most part have

not worked in the Federal Government. Despite what some supporters would contend, these pay systems have provided little evidence that productivity of the workers is enhanced.

In my written testimony, I also argue that the recent report of

a 7.6 percent pay increase in the first year of spiral 1 of DOD is

inflated and unsubstantiated. Quite to the contrary, in fact, IFPTE

has seen negative impacts on the concept of teamwork, morale, potential problems related to safety in such places as shipyards, and

discrimination toward women and people of color in many instances.

One of the more troubling trends with pay for performance recently has been the misguided belief by management that it is

somehow acceptable to pick and choose who receives congressionally mandated yearly pay increases intended to all Federal workers

who meet satisfactory ratings. Since when was it the prerogative

of management to unilaterally decide to circumvent Congress’ intent on annual pay increases through pay-for-performance systems?

IFPTE believes that regardless of what pay system an employee

is under, when it comes to the yearly pay increases approved by

Congress for Federal employees, there should be no losers and winners.

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We at IFPTE are well aware of this ‘‘race to the bottom’’ practice,

both at GAO and at DOD through NSPS. In order to even start

thinking about an effective pay-for-performance system, I think we

can all agree that it would have to have a strong employee buyin; otherwise, morale, recruitment and retention will suffer, and

these are things the Federal Government can ill afford.

As a foundation for any pay-for-performance system, IFPTE

would argue that, at the very least, pay parity among all Federal

employees who have satisfactorily or meet the expectation ratings

should be achieved. This can be done by mandating the annual congressionally approved pay raises guaranteed to all Federal workers,

as is the intent of Congress. Given management’s prerogative to ignore Congress’ intent on the pay raise, IFPTE believes that guaranteed pay parity between agencies and various pay systems can

only be achieved through legislation. Obviously, this is legislation

that the union would ask your subcommittee to champion through

Congress.

In my written testimony, I elaborate specifically on some of the

problems within DOD and GAO relative to the pay-for-performance

system, and I welcome the opportunity to discuss these with you.

Again, I thank the subcommittee for taking on this very important project and issue, and I look forward to any questions you

might have.

Mr. DAVIS OF ILLINOIS. Thank you very much.

[The prepared statement of Mr. Junemann follows:]

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Mr. DAVIS OF ILLINOIS. Ms. Bonosaro.

STATEMENT OF CAROL BONOSARO

Ms. BONOSARO. The Senior Executives Association very much appreciates the opportunity to share our experiences and views related to the current SES pay-for-performance system. With the creation of the SES in 1978, its members were subject to what we

thought was, indeed, a pay-for-performance system requiring performance standards, detailed appraisals, and providing performance awards when warranted.

The SES pay system was changed in 2003, and for the past three

annual performance cycles, senior executives have been under a

new system, the principal features of which are the absence of locality pay, absolute and unreviewable agency discretion in determining annual salary adjustments, and the availability of higher

pay caps to pay higher salaries to senior executives if OPM certifies

an agency’s SES pay and performance management system is making meaningful distinctions based on relative performance.

Our opinions about the SES pay and performance system are

formed with frequent interaction with our members and by a comprehensive survey of the SES that SEA undertook just over a year

a half ago. Both the survey results and the continued feedback

from our membership show that changes to the pay-for-performance system need to be made. Our goal in recommending changes

to that system is to develop one which is viewed fair and reasonable by both those subjected to it and those who might aspire to

the SES.

One of the more disturbing findings of SEA’s survey was the

opinion of 47 percent of the respondents that GS–14s and 15s are

losing interest in applying to the SES. Anecdotal evidence we have

continued to receive indicates that the narrowing gap between SES

pay and the General Schedule, coupled with the uncertainty and

inconsistency of the SES system, the loss of locality pay, increased

responsibilities and fewer rights, results in a less attractive Senior

Executive Service.

A significant finding of our survey, which persists to this day, is

the perception that agency quotas, not actual performance levels,

sometimes drive decisions about performance ratings and salary

adjustments. Quotas are, of course, illegal according to the regulation, but de facto or notional quotas seem to flourish. Most agencies

perceive that a key factor in receiving OPM certification is to reduce the number of outstanding ratings, so downward pressures on

rating levels exist within many agencies.

The certification process itself is a problem. It’s an arcane, timeconsuming and cumbersome process which seems to change each

year. It must also be done every 1 or 2 years, and often the decision whether to certify does not come until well into the performance cycle.

Another concern is inconsistency among agencies and sometimes

from year to year within an agency on how the performance systems are implemented. This inconsistency makes it difficult to assess which agencies are doing the best job of rewarding good performance.

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In the 3 years of experience under the new SES performance system, one of the most striking results is the very low salary adjustments that have occurred. In the most recent year for which data

is available, 2006, those senior executives rated fully successful received an average salary increase of 2 percent, far below the increase received by the General Schedule. Higher-rated executives

fared only slightly better with those whose performance exceeded

the successful—fully successful level receiving a 3 percent salary

adjustment, and those whose performance was outstanding receiving 3.7 percent.

For the rating cycle that just ended, we have learned of a fully

successful senior executive who received an annual salary increase

of $323, less than one-third of 1 percent of the minimum SES salary. We have also learned of an outstanding senior executive who

was denied any salary increase or any performance award.

Attached to my written testimony is a copy of SEA’s recommendations for legislative changes to fix the SES system. Our

two principal provisions are to assure a minimum annual increase

for those SES’ers at the fully successful or higher level, and to include performance rewards and retention allowances in the high

three retirement calculation.

We also have recommendations concerning a longer certification

period, minimum funding of SES salary adjustments, a minimum

increase in pay for new senior executives, rules for pay tiers which

a number of agencies have developed and are developing, feedback

to senior executives, and greater transparency in the administration of these systems.

It is our hope that with the adoption of SEA’s recommendations,

the SES pay system will be one that adequately and fairly compensates those who perform the most challenging and important

jobs in the career Civil Service, and a very important one which

will attract quality candidates for the future.

Thank you.

Mr. DAVIS OF ILLINOIS. Let me thank you very much.

[The prepared statement of Ms. Bonosaro follows:]

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Mr. DAVIS OF ILLINOIS. Let me thank all of you for your testimony.

Let me ask one boilerplate kind of question, and perhaps I will

begin with you, Ms. Kelley. What do you think is driving the movement toward pay for performance in the public sector?

Ms. KELLEY. I think that agencies are looking for ways to be able

to hand managers the unilateral authority to determine pay raises

without having a lot of accountability required or attached to that.

You know, the complaints that we hear about the GS system

really are not based on fact at all. If a—you know, I hear things

from agencies such as pay raises are automatic, and they reward

longevity, and that is not how the GS system is built. If that is how

managers are implementing it, the problem is with the implementation by the managers, the problem is not with the system. So

rather than dealing with training managers and holding them accountable for giving appropriate ratings within the GS system, they

try to find fault with the system.

And also, we are looking for ways, I believe, to move the limited

funds—because agencies have been faced with, in many cases, flatline budgets—and they are looking for ways to take the money

from the front-line employees and use it to recognize or reward the

few that they see fit, or to use it with other things within the agency.

I just think they are not using the GS system appropriately, and

I think that they are really not interested in recognizing and rewarding the front-line Federal employees. Every Federal employee

I talk to, they tell me they would like to know what it is they need

to do not just to succeed, but to excel at what they do. They want

to be told what that is so that they can strive to achieve it. At the

end of that, when they do succeed, they want the appropriate recommendation and reward attached to it, and the interested agencies are not willing to do that.

Mr. DAVIS OF ILLINOIS. Mr. Gage.

Mr. GAGE. I am probably of—well, to state it frankly, I think we

just have to look at where this stuff came from. It came from people who have almost a hatred for government service, who want to

shrink government service; in fact, who want to drown it in a bathtub, as one said.

I think, very clearly, that this whole pay for performance is designed for one reason, and that is to lower overall Federal pay. I

think, too, that when you see some of the schemes, if we could just

get the numbers on what DOD or any of these agencies are doing,

I think it will really show exactly what this is all about.

But the one thing I would like to bring up to you, Mr. Chairman,

about it, it’s—it’s so wrong where you give people a bonus that

would probably have added up to the pay raise they got under the

GS, but that money does not count for their pensions. That’s really

disingenuous, and I think that’s—that in itself, these agencies

these agencies won’t be able to stop themselves from saving money

by not being able to put it into the Federal pension system.

Mr. DAVIS OF ILLINOIS. All right. Mr. Junemann.

Mr. JUNEMANN. Yes, I guess I could certainly echo what’s been

said here by my two colleagues on this. When I look at what happened with the NSPS, really shortly after the Bush administration

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came on, some people came over from Heritage Foundation and

brought this idea of scuttling the GS system. And I had no idea it

was since 1949 until I started reading these papers from the Heritage Foundation that said, OK, now, it’s old, it’s Truman-era legislation, and now it has to be replaced.

A lot of what President Kelley talked about was really true; that

it is—in essence, there is the ability to measure and to rate employees within the GS system.

When we were in what we used to call ‘‘no-gotiations’’ when we

were developing the NSPS meet-and-confer process, that was told

to us: Well, it’s an automatic increase. Well, it’s really not, and if

it’s implemented that way because the supervisors weren’t doing it

properly or improperly trained, then that’s what should have been

fixed.

But I think it was really—it was sort of an idea that people had

been sitting on for years and years, and then they finally saw they

had the power to implement it, and they did. I think it was nothing

more than wanting to, you know, lower the pay of Federal workers

by people who have some sort of animus against Federal workers,

and then they put it in NSPS, they wrapped it into that, and then

said, in addition to that, let’s put national security on the table

with it and see if we can get rid of collective bargaining at the

same time.

So I don’t think there was a heck of a lot good about this. Nobody

can tell me that everybody is a winner on these systems, because

that’s not what we have seen. There’s been just thousands and

thousands of losers. That has been our experience.

Mr. DAVIS OF ILLINOIS. Ms. Bonosaro.

Ms. BONOSARO. Well, I am going to speak from my parochial perspective of how this came to be in the Senior Executive Service. I

think, initially, I thought this is the management theory du jour.

We like to look at what the private sector is doing, say to them,

this would be a good idea.

Actually, I think virtually every administration comes in and

very often looks for a way to manage the Senior Executive Service,

because people who come in from the outside are used to, perhaps,

very often having the ability to pick their own team, and they find

a lot of career executives in place that are pretty much going to be

there, at least during their, ‘‘get-acquainted period.’’

So we went through something called recertification a number of

years ago that was proposed in the first Bush administration. It

has since been thrown overboard. But that was looked at a way—

it was looked at a way to get a handle on the Senior Executive

Service.

I think to some degree this system is looked at that way, that

you can—yes, you are assessing performance, but you are going to

be able to send some messages. And with pay adjustment decisions,

it is a system which can be manipulated. But I look back, too, to

initially the reason that this system was able to get put in place.

We had 70 percent of all senior executives capped and earning exactly the same salary.

The day that I met with then-OMB Director Mitch Daniels and

OPM Director Kay Coles James, and they said, we are going to

solve this problem of the pay compression, but not everyone who

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is capped is going to get a pay raise. And I walked out scratching

my head for a few days, because I couldn’t think out of the box.

And, obviously, what they had come up with was a way to eliminate the S ranks and come up with a pay-for-performance system,

because there was also a sense that a lot of these executives somehow or other were vastly overrated. There could not possibly be

this many people who were performing that well. I think that was

a very unfortunate premise, by the way, and a wrong one.

Mr. DAVIS OF ILLINOIS. Thank you very much.

I see that we’ve been joined by Mr. Sarbanes. Is the election

over? I thought there was—well, some people don’t have to worry.

Mr. SARBANES. We don’t take anything for granted, but I voted

this morning. I did vote for myself. So hopefully that—thank you,

Mr. Chairman. And thank you to the panel.

Just a couple of comments, and then one or two questions. Listening to the testimony today, I was able to hear some of it on the

radio as well before I got here. You would imagine that to put a

system like pay for performance into place, you would need to do

it under the best of circumstances to make it work, and it seems

that this has been done really under the worst of circumstances.

I’ll leave aside for a moment whether I think it can work anyhow.

But everyone—if you assumed under the best of circumstances you

could implement it, you had the worst circumstances here. You had

inadequate funding, so you get the result that Mr. Gage referred

to where you have certain limited amount of resources for each performance pool, and then you get into this sort of allocation system

which ends up resulting in very arbitrary systems, highly subjective decisions that are designed to just meet an overall agenda that

is in place.

You have the fact that this is being done at a time when we’re

still far away from comparability between what Federal employees

are making and what their counterparts are making in the private

sector, and obviously that is something you need to move to, it

seems to me, first before you start tinkering around with these

other things.

And then you have the other fact that those implementing the

system betrayed at every turn a fundamental lack of respect, and

a number of you have alluded to it, for the Federal worker. And

what they’re trying to do—and the fact that they’re—they’re not

just bureaucrats as they’d have you believe, they are people that

are really committed to what they’re doing. They have a sense of

mission, and they want to perform well. They want to perform well,

If you give them the tools and the resources and the support that

they deserve and the leadership that they deserve.

And so this effort has been undertaken with a sort of thinly disguised agenda, it seems to me, to attack the integrity and the function of the Federal worker, and that is, I think, why there is so

much resentment to it. It also comes at a time sadly when we’re

trying to recruit into the ranks of our agencies and the Federal

Government the best and the brightest to serve there and to address some of the attrition that has occurred, some just because of

the passage of time, but some as a result of this conduct on the

part of the administration which has undermined morale.

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There is hundreds of thousands of jobs that need to be filled in

the coming years, and we need to make sure that the Federal agencies are modeling absolutely the best behavior and the best kind

of leadership when it comes to rewarding people for what they do

and showing them basic respect.

The chairman did ask a question that I was going to ask, which

was sort of to describe your views of what—what the agenda was

here. I think that the administration—well, let me ask you this: Do

you think, for example, with respect to collective bargaining rights,

that the NSPS was launched and pursued with the purpose of attacking collective bargaining rights, among other goals that it had,

or was it launched with maybe more responsible objectives and

then got hijacked by a very strong ideology within this administration along the way? I mean, I would be interested in your comments on that.

Mr. GAGE. That is interesting.

By the way, I voted not far from where your brother lives up in

Baltimore today, too.

But I think that—you know, I almost don’t want to look back

over the last 4 years, the fight we had about our collective bargaining rights which we saw were—it was just so wrong to take away

our rights that used any type of a national security reason for it,

and—but I always thought the pay for performance was really

what they wanted. And to put in pay for performance, at least the

pay for performance that I think they really want, it would be a

lot easier to do without a union there and without any voice of employees to be able to bargain any fairness or transparency into this

system. So maybe that is just a conspiracy part of me, but through

this whole exercise, I always felt that the pay for performance was

what they really wanted, and to get rid of the unions was a step

there.

Mr. SARBANES. Yeah. Let me—can I just ask a quick question,

Mr. Chairman? I know my time has run out. But to look positively

toward the future in terms of fixing—I mean, you’ve all commented

on the fact that the General Schedule can work well, that the systems that were in place can work well if they got the right kind

of resources and leadership behind them. Maybe speak for 30 seconds if you—anyone who wants to jump in—on your hope for how

that can happen moving forward?

Ms. KELLEY. Well, I would hope that there is a recognition of the

front-line employees that are there, and that they should be supported in the work that they’re doing. You know, the overall question of pay for performance, at first blush it is a pretty good sound

bite, and many Federal employees at first blush say, I’d love to be

under a pay-for-performance system; maybe then I would be paid

appropriately, equitable to the private sector. Then when they recognize pay for performance under this administration is about no

more funding for the agency, so it goes to the name of the hearing

today, robbing Mary to pay Peter and Paul, and also to the fact

that managers will be—have this authority to decide who gets how

much money without any accountability, then they recognize that

it is a good sound bite, and that is all that is.

Mr. GAGE. I don’t think this system will work. I don’t think it

is salvageable. I do think that many of the ideas that our union has

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put forth, that Colleen has put forth about the existing GS, we can

do a lot on that classification system. And it was really ironic to

hear OMB and OPM say it is an outdated system, and it has to

be scrapped, where we’ve been arguing for years that it needed to

be adjusted, and it needed to be fixed. And to see them say, no, it

so out—and they were the ones that were blocking trying to fix it

in many areas.

But I’m very optimistic that I think that we can—now that this

issue is so much on the table, that the ideas that we have for improving on the Civil Service can really maybe come forward again,

and that we can put out some really positive ideas on how we can

improve the Civil Service, protect the Civil Service, and really

make our country terrific.

And one thing you said about it, Congressman, why would they

do this or start this in DOD and DHS, you know, two of the most—

well, we’ve got two wars going on, and our DOD employees are

working mandatory overtime right on down the line. And DHS, 40

agencies coming together, the whole thing is a mishmash. And to

try to overlay that with a new personnel system, I think, was really

short-sighted and wrong.

Mr. SARBANES. Thank you.

Mr. JUNEMANN. I think one of the things that you brought up before that kind of addresses this really helps. Now, under DOD—because thanks to your legislation that the Congress pushed through,

we actually sort of have a two-tier thing going on here. Where

there is a union in place, they are still under the GS system.

Where there is no union, they fall under the spiral thing.

Now, our union is not alone in this. We’re involved heavily with

recruiting, you know, college graduates. And we can really use and

have used—when my members go out and meet with college grads

to try to get them to come into the naval shipyards as a for instance, they can look at the GS system and say, OK, if you have

a 3 point or higher, you start with a GS–7. You’re going to move

to a GS–9 over a certain period of time, and a year later you’ll go

to a GS–11. If you’re under a 3 point, you start at a GS–5, and they

can show them this is how you’re going to move through the ranks.

And if you’re able to get into a more accelerated program, you can

get into a GS–12, and here is how long that is going to take. And

it works. I mean, it really works with people where they can see,

OK, you know, I’m going to actually have to perform to do this, but

there is guaranteed raises in there. There is a guarantee that if I

do something, I can make it to the next level and the next level.

Under the spiral system, they don’t have that. And I think what

this is going to show, sort of the good news of all of this, is, you

know, the agencies that are unionized, that are under the GS system, are going to find that they’re able to actually recruit the best

and the brightest because they’re going to be motivated by this.

And I really need to speak to something I think that Dr. Tobias

brought up earlier where he talked about the fact that money is

not a motivator, yet—and we agree with that and—at least I do.

I agree with that; however, I still say, well, this hurts morale. Well,

because I think that the employees that I represent are motivated

by the mission of the agency they work for, whether it is GAO,

NASA, CRS, the Department of Defense, they’re motivated by that,

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that they see that their efforts make a difference and that they

really—and that they have to make a difference, and that they

really perform a service for the taxpayer. However, they also understand that—when they get cheated.

So it is not like that they are working for the money, but when

it is not there, you know, when they’re not adequately compensated, when suddenly they find that, you know—that the director of their agency gets COLA and they don’t, you know, they feel

cheated by that, and that is where the morale sets in. And that’s

when maybe they start looking around to other agencies or in the

private government to maybe find something better.

So you can’t have both with this. I mean, they’re not motivated

by the money under a merit system; however, you know, the lack

of proper recognition in their paycheck also—you know, it hurts

morale.

Ms. BONOSARO. Let’s see, we need, I think, three things, and first

is a behavior change, which I would be very surprised to see, but

be very welcome, which is for those who are running these systems

in the agencies at least with regard to Senior Executive Service to

totally divest themselves of the notion that there is or should be

a normal distribution curve of ratings, and to rate people honestly

and these executives honestly and fairly. I think that would first

go a long way to starting to fix this system.

But I do think that we need some structural changes. I mean,

if you were a fully successful senior executive, and the OPM Director says that should be and is a very good rating, there is no reason

you should be getting an annual pay adjustment that is far less

than the people that you supervise. I mean, a 2 percent adjustment

for a fully successful executive makes no sense.

I’m afraid that we’re going to need legislation to fix those kinds

of issues, including the—counting the performance of words in the

high three and some other issues.

And there is a third issue. I think it is a long-range one, but it

is getting shorter- and shorter-range every day, and that is how the

General Schedule is—is creeping far into the SES pay scale, and

that is turning off a lot of potential, really superb SES candidates.

And we’re going to have to take a look at that SES pay cap and

see what we can do with it, because right now I think most rational

GS–15s would say, why do I want the additional responsibility,

fewer rights, no annual pay adjustment, no locality pay, etc? Yes,

I love my job, I love my country, I love public service, but—so I

think that is the third one we’re going to have to fix, and it is a

tough fix, but we’re going to have to address it at some point.

Mr. SARBANES. Thank you.

Mr. DAVIS OF ILLINOIS. Thank you very much, and I have a couple of last questions.

Ms. Kelley, you refer to the term ‘‘amorphous criteria’’ used in

the SEC pay system. Could you explain what you mean by that

term?

Ms. KELLEY. It is a criteria that is unknown to employees, it cannot be defined. In the SEC they call it an agency contribution factor, and in the FDIC they call it a corporate success factor, but no

one can tell you what that is. They kind of describe it as ‘‘I’ll know

it when I see it.’’ And it has zero correlation to your performance

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appraisal or your evaluation based on the requirements and criteria for your job. They intentionally delinked the rating to the—

what they call a merit increase.

Mr. DAVIS OF ILLINOIS. Given—and perhaps this might be our

last question. Given all of the problems and the controversy that

we hear, one side I suppose we get certain kinds of arguments and

discussions. From other sides, we get a different set of discussions

and arguments and criteria. And, of course, we sit kind of in the

seat where ultimately decisions have to get made. And if you were

in the business of recommending to Congress that we do something

about this controversy, what would your recommendation be? Perhaps we’ll begin with you, Ms. Bonosaro.

Ms. BONOSARO. Well, our recommendation is attached to my testimony. We have a legislative package that we think will help fix

this, because we really are concerned an awful lot of senior executives are eligible to retire and probably will go out. I mean, as we

were saying earlier, pay is not the motivator, but it sure can be a

demotivator when it is handled incorrectly. So I’m afraid that for

us nothing short of getting that bill moving is going to do it, because just some of this is not going to happen without that, and

they are the recommendations I mentioned earlier. So I won’t take

your time up with them again.

Mr. DAVIS OF ILLINOIS. Well, you know, the blues singers say the

best things in life are free, but you can give it to the birds and bees

because I need money.

Mr. JUNEMANN. And that is pretty much my answer. I think

what it is going to take to fix this is funding; not only just funding

for training—and I would say not to fix the pay-for-performance

system, but to fix the GS system. You know, you’re going to need

additional funding for training. If there is going to be anything resembling pay-for-performance systems, whether they are at GAO or

wherever, there has to be—it has to be properly funded.

If we’re going to use a given pool—and let me use an example.

And we tried discussing this with the DOD folks when we were

going through the negotiations. What we do in the private sector

is we negotiate a cap of money, and it is funded, you know. So we

say, OK, everybody is going to get, you know, a 2 percent across

the board, and then there will be merit above that, say, up to 6

percent. That money is funded because what happens otherwise is

you’ve got the four of us going for three $20 bills, and somebody

is going to come up short. And that is what happens when you

have this small capped pool where everybody can’t win no matter

what their performance is. And then what happens is—and we’ve

alluded to it—is team work suffers, because if I see that she is not

doing her job properly, and yet if I help her, if I train her, if I help

make her look better, it might cost me my pay, you know, that

can’t work.

And this also even leads to, I think, the issue of training—I

mean, the issue of safety, you know, within nuclear—within nuclear refueling, that if somebody again saw that they had made a

mistake and they thought, geez, maybe I better tell somebody—and

I’m not talking anything dramatic or drastic, but even if it is something small, you know, that they’d go back and tell their supervisor, I think I goofed something up here, we better go back and

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take a hard look at it, and they know it’s going to cost them money

if they do that. You know, that is a position we really can’t be in.

But I think the No. 1 thing that has happened—you know, a system like this, two things really. It has to be developed with the employees in mind, whether they’re unionized or not. It works better

when there is a union, but it has to be developed from the ground

up with employee buy-in, and that means just have an idea, not

throw a program at them and expect them to sign onto it. And then

it has to be funded properly so that, again, the money is there to

reward people, and money is there to train not only employees affected, but the supervisors who are doing the evaluations.

Mr. DAVIS OF ILLINOIS. Thank you.

Mr. Gage.

Mr. GAGE. Yeah. I’ll be brief.

I think just two things. I think first the classification system, it

really could be an opportunity to look at that and remove barriers

that really stop people from moving up within the GS system because of really antiquated barriers which don’t take into account

how well the person works and how well they perform. It is just

some qualification that has been in there for 30 years. Now, I’d like

to see the classification system really tweaked and fixed. Now, I

don’t think you can remove it as a basis, though, of the Civil Service.

And the second thing, a real practical thing—and we’ve been trying to push this, you know, for years—is more use of this career

ladder, a system that we already have in the government. Many

agencies use them. It is very similar to pay banding, although it

has set criteria for what you have to do to be promoted. And these

things have really worked good. I don’t know why we’re moving

away from things that have worked well into this unknown.

But, again, Mr. Chairman, I just think this pay for performance

is built on false premises, and I don’t think it will ever work. I

think that putting as much time into the classification system and

some techniques in the Federal Government would pay off much

more than to continue on with this expensive disaster.

Ms. KELLEY. I would ask that if the GS system is not going to

be the pay system for Federal employees, that the right to collectively bargain pay be given to the unions and the Federal sector,

because if there is not going to be the GS system, a known and established system, then that’s what should happen. We should have

the right to collectively bargain.

The GS system is not perfect. There are changes that could be

made to it to allow the agencies more opportunity to reward employees at the high end, and we have offered more than once to

work with the agencies to adjust that system to those realities.

They have never taken us up on that offer. We have given them

very specific proposals on how the GS system could be used to be

better able to attract, retain and reward. And without collective

bargaining, there is nothing there that requires them to do that,

to talk to us.

Funding is an issue because of the forced distributions that you

see in all of these alternative pay-for-performance systems. To say

that 25 percent of the employees will be given the top raise, well,

if only 25 percent of the employees are performing at the top level,

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then that’s appropriate. But what if you have an agency with 60,

70, 80 percent top performers? Why penalize them because of a

funding issue or having to take from one to give to somebody else?

So I would ask for your help there.

I would also ask for any opportunity you have to hold agencies

accountable for what they do with these alternate systems. You

heard from the SEC today, a 2003 arbitration win, that they still

have not made these employees whole who were harmed. You

know, the idea that they have not stepped up to this issue, not

made those employees whole and stepped up to the fact that they

made the same mistake in 4, 5, 6 and 7, and here we are in 2008,

and yet they think it is OK to be—you know, writing briefs to have

the arbitrator tell them what the remedy will be. I think that is

unconscionable. They should be held accountable for that and they

are not.

And the idea that anyone points to SEC, FDIC or the IRS manager’s pay banding as a success should be an opportunity for anyone who can influence this to say that these are all failures. And,

you know, this sound bite needs to stop, and they really need to

get down to the business of managing the work force and properly

compensating and rewarding them, which they are not doing today.

Mr. DAVIS OF ILLINOIS. Well, thank you all so very much. Mr.

Sarbanes, if you have no further——

Mr. SARBANES. I just wanted to say that I’m very excited about

the prospects for doing the right thing going forward, because, you

know, there is this phrase, if it is not broke, don’t fix it. But a better way of saying that is if it is not broken, make it better. And

there is no shortage of good ideas that you have identified in a very

responsible way, which signals that if we get the kind of leadership

in place at the levels where it can make a difference in collaboration with you in taking up the ideas that you’ve offered, we can

really start to set a new standard and model as the Federal Government should, the kind of behavior that every business in society

can emulate. So I’m very excited about what is to come based on

what I’ve heard here today.

Thank you for the hearing, Mr. Chairman.

Mr. DAVIS OF ILLINOIS. Well, thank you all so much. We appreciate your being here, your testimony, your patience. And perhaps

good, better and best; never let it rest until your good becomes better and your better becomes best. Maybe we’ll end up with the very

best system that decisions can make.

Thank you so much. This hearing is adjourned.

[Whereupon, at 5:25 p.m., the subcommittee was adjourned.]

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