I OF 

M E R I T 

i n s i g h t s & a n a l y s e s f o r F e d e r a l h u m a n c a p i t a l m a n a g e m e n t 

J a n u a r y 2 0 0 5 

a publication of 

the U.S. Merit Systems 

Protection Board, 

Office of Policy 

and Evaluation 

W ’ S

I 

Director’s Perspective 

Page 2 

Agency Corner: HHS and 

the Probationary Period 

Page 3 

Can Pay for Performance 

Work? 

Page 4 

Flexibilities from the 

Federal Workforce 

Flexibility Act 

Page 5 

Confirmations Announced 

Page 6 

Tools of the Trade: 

Category Rating 

Page 6 

Visit Ireland’s Civil Service 

Page 7 

The Merit Principles 

Survey is Coming 

Page 7 

continued, page 4 

As the Merit Systems Protection 

Board (MSPB) has previously noted, 

there has been a significant movement 

towards instituting pay for performance 

in the Federal Government. There are a 

variety of reasons advocates believe 

such systems will be beneficial. Some 

believe that pay for performance will help 

organizations recruit and retain a high 

quality workforce. Others believe it puts 

more emphasis on outcomes, thereby 

improving organizational performance. 

Still others believe that it is simply more 

appropriate to compensate employees 

based on contributions.

 Research conducted by a private 

research group, the Corporate Leadership 

Council (CLC), supports the notion that 

pay for performance can help recruit and 

retain high performers.1

necessarily translate to improved organizational performance, as many advocates 

suggest. Simply put, pay does not 

appear to motivate most employees to 

So, if pay for performance 

cannot be expected to improve 

organizational performance, is there 

anything that can? 

According to CLC, one factor that 

most affects organizational performance 

is employee engagement. By this, they 

mean the extent to which employees 

have a positive connection to their 

When employees are actively 

engaged, they are willing to go above 

and beyond the call of duty to help 

Generally speaking, the higher the 

percentage of the workforce that is 

actively engaged, the more productive 

the organization is likely to be.

about 11 percent of the employees in 

the organizations they studied are 

actively engaged. 

dramatic differences between 

companies—with the highest scoring 

company having almost a quarter of its 

workforce actively engaged and the 

lowest scoring only three percent.

 Clearly there is room for improvement in many companies. Even a small 

increase in the percentage of actively 

engaged employees could result in 

improved organizational performance. 1

 Corporate Leadership Council, Driving 

Performance and Retention Through Employee 

Engagement. 

S S U E S 

H A T

N S I D E 

Improving Organizational 

Performance 

Engaging employees takes more than pay, study finds.

 However, the 

research does not indicate that this will 

perform better. 

employer. 

meet their organization’s goals. 

 Unfortunately, CLC found that only 

However, there were 
D I R E C T O R ’ S P E R S P E C T I V E

The Challenge of Category Rating

Why Aren’t You Using It? 

For many years, MSPB 

championed the demise of the “rule of 

three,” where selecting officials were 

restricted to hiring only from the top 

three candidates. Managers and 

candidates alike were stymied by this 

rule and its application. Often, efforts 

to distinguish between the third and 

fourth candidate were futile. Candidate “scores” could be so close (97.5 

versus 97) that saying 

one candidate was 

selectable and the other 

was not made little sense. 

On occasion, candidates 

had identical scores, and 

a random number was 

used to break the tie to 

determine which one 

would not be considered. That type of 

action certainly was not merit-based. 

Additionally, some officials viewed 

extra points for veterans as an unfair 

advantage for lesser qualified 

candidates. Further, public policy 

application on veteran’s preference 

came head to head with public policy 

efforts to expand diversity through 

targeted recruitment. There was 

insufficient flexibility for managers to 

meet both of these goals. For these 

and other reasons, we have long 

viewed the rule of three as inconsistent with the public’s interest in a 

merit-based civil service. 

We have welcomed the advent of 

category rating to replace this system. 

Several agencies, including notable 

demonstration projects within 

Agriculture, have been using it with 

great success for over 10 years. 

Success is defined in terms of 

managers perceiving higher quality 

I OF 

M E R I T 

i n s i g h t s & a n a l y s e s f o r F e d e r a l 

h u m a n c a p i t a l m a n a g e m e n t 

U.S. Merit Systems 

Protection Board 

CHAIRMAN 

Neil A. G. McPhie 

MEMBER 

Susanne T. Marshall 

MEMBER 

Barbara J. Sapin 

Office of Policy and Evaluation 

DIRECTOR 

Steve Nelson 

DEPUTY DIRECTOR 

John Crum 

Our Mission 

The MSPB Office of Policy and 

Evaluation conducts studies to 

assess the health of Federal merit 

systems and to ensure they are 

free from prohibited personnel 

practices. 

Issues of Merit 

We offer insights and analyses on 

topics related to Federal human 

capital management, particularly 

findings and recommendations 

from our independent research. 

Reprint Permission 

We invite you to reprint any of our 

articles. If you do so, please 

include the following attribution: 

Reprinted from Issues of Merit, a 

publication of the Office of Policy 

and Evaluation, U.S. Merit 

Systems Protection Board. 

For More Information 

Contact us at: 

www.mspb.gov 

(select STUDIES page) 

STUDIES@mspb.gov 

202-653-6772 x1350 

1-800-209-8960 

V/TDD: 202-653-8896 

(TTY users may use the Federal 

Relay Service,800-877-8339) 

U.S. Merit Systems Protection Board 

Office of Policy and Evaluation 

1615 M Street, NW 

Washington, DC 20419 

S S U E S 

selections, as well as higher numbers 

of veterans actually being selected and 

greater flexibility to hire people the 

Government just spent money to 

recruit. The Department of Homeland 

Security’s enabling legislation offers 

this flexibility to all Federal agencies. 

Why aren’t agencies using it yet? 

Reasons offered by agencies for 

not yet picking up this authority have 

ranged from waiting 

for the Office of 

Personnel Management (OPM) or the 

agency headquarters 

to issue implementing 

instructions to 

complaints that 

category rating still 

does not provide the ability to hire who 

you want without regard to veteran’s 

preference. These explanations arise 

from a lack of knowledge and understanding of how category rating works, 

its benefits, and the underlying 

concept of job analysis. We provide 

implementation guidance in the Tools 

of the Trade article on page 6. But 

agencies need to look beyond the 

authority’s mechanics as well. 

Line managers are generally the 

drivers of change, and many have not 

yet seen a compelling business case 

presented by their human resource 

(HR) partners for category rating. The 

HR community is often too busy 

implementing automation and dealing 

with day-to-day needs to undertake 

what may be viewed as just another 

initiative. Automating an improved 

process like category rating is far 

preferable to paving the cow-path of 

continued, page 3 

2 
Category Rating 

(continued from page 2) 

the rule of three. Discussions need to occur with 

agency Chief Human Capital Officers, HR Directors, and 

all levels of management about how category rating can 

be used to improve your organization’s selection 

procedures and the quality of selections. 

Within the HR community, encouragement for the 

use of this authority is also needed. So too is the 

support for critical job analysis training and skills 

development to optimize this authority. Entities that 

provide HR technical training or staffing and automation 

services will be able to provide such training. An 

improvement through training in job analysis is needed 

not just for category rating, but as the keystone of any 

rigorous assessment process. Flexibilities in varied 

appointment authorities such as the Federal Career 

Intern Program, Veterans Recruitment Appointments, 

Agency Corner: 

Student Career Experience Program, Presidential 

Management Fellows Program, and the like will benefit 

from improving the fundamental skill of job analysis to 

best identify the skills we need in that particular job. 

Using those identified skills or competencies to create 

categories of qualified candidates helps sift out the star 

candidates from the good candidates. 

Category rating is a great tool that can help improve 

assessment, raise the caliber of new hires, improve hiring 

rates of qualified veterans, and provide some needed 

flexibilities to leverage the benefits of recruitment 

investments. Why hasn’t your agency used it yet? 

Steve Nelson

Director, Policy and Evaluation 

Department of Health and Human Services 

Administering the Probationary Period 

One of the most critical steps in the process of 

hiring a new Federal employee is orienting that employee 

to the organization and to the Federal service. The 

Department of Health and Human Services is an example 

of one agency that provides noteworthy guidance to 

supervisors to help them meet this goal. 

As part of an ongoing study on the probationary 

period, the Centers for Medicare and Medicaid Services 

(CMS) shared with us their process for educating 

supervisors about their responsibilities to a new Federal 

employee. Upon hiring a probationary or trial period 

employee, the CMS human resources office sends the 

supervisor a letter by either paper or electronic means. 

The notice informs the supervisor if the new employee is 

in a trial or probationary period and the resulting length 

of the probationary/trial period. The notice also 

instructs the supervisor to: 

• Provide the employee with an explanation of the 

mission and the employee’s role in that mission; 

• Provide the employee with both a copy of the position 

description and a detailed explanation of the duties; 

• Provide the employee with a performance plan that 

includes critical performance standards and the 

measures against which performance is appraised; 

• Explain the organization’s work rules in detail; 

• Observe the employee’s conduct and work performance to determine if there are developing problems; 

• Regularly communicate with the employee on how he 

or she is doing in relation to established expectations; 

• Give assistance where needed; and 

• Conduct regular employee counseling sessions.

 This is excellent advice. Research has shown that 

employees will be more engaged and give greater effort if 

managers: 

• Clearly explain why the job is important to the mission; 

• Explain the organizational vision and strategy; 

• Provide insight about the work unit; 

• Clearly explain the performance objectives; and 

• Clearly explain the job responsibilities.2

 Look for more information about agency best practices 

pertaining to the probationary period and recommendations to effectively manage probationers in our 

upcoming report on the probationary period. 

2 Corporate Leadership Council, Driving Performance and Retention 

Through Employee Engagement. 

3 
Organizational Performance 

(continued from page 1) 

But how do we go about increasing employee engagement?

 CLC found that employee engagement has two main 

components. The first and most fundamental is what 

they term “rational commitment.” Rational commitment is 

the extent to which an organization meets employees’ 

professional, financial, and developmental needs. 

Meeting these needs will likely reduce turnover and 

perhaps improve the organization’s ability to recruit new 

employees. But CLC’s research suggests that increasing 

rational commitment will not do much to improve 

employees’ discretionary efforts and overall 

organizational performance. 

To optimize performance, an organization must first 

secure the rational commitment and then attempt to 

obtain employees’ “emotional commitment.” Emotional 

commitment is the extent to which employees identify 

with the missions, processes, and culture of an 

organization. CLC found that emotional commitment has 

the strongest effect on an employee’s discretionary 

effort; so strong, in fact, that emotional commitment to 

the job, organization, team, and manager has greater 

impact than any form of rational commitment.

 The most important factor in securing emotional 

commitment is the role played by managers. They enable 

employee commitment to the job, team, and organization 

by providing feedback, developing employees, finding 

solutions to work-related problems, and recognizing and 

rewarding achievement.

 Therefore, organizations that want to improve their 

performance need to first make sure that the rational 

needs of the workforce are being met and then focus on 

leveraging managerial behaviors to increase emotional 

commitment. It appears that our best chance for 

improving overall workforce performance requires 

addressing both of these issues and not just counting on 

pay for performance systems alone to get us there. 

From Theory to Practice: Can Pay for Performance Work? 

The critical success factors may be different than you think. 

Calls to better manage “human capital” have led many 

agencies to take a hard look at their human resources 

practices. That look includes pay, and many agencies 

are examining the effectiveness of their pay practices in 

recruiting and retaining top performers and eyeing pay 

for performance as a means to influence employee 

behavior and focus activities on agency goals.

 Is pay an effective tool? Of course pay matters—few 

people are willing to work for free. However, research 

has not consistently linked pay policies to desirable 

staffing and productivity outcomes, as discussed in our 

front page article. In some cases, pay for performance 

improved recruitment and retention of high performing 

employees; in other cases, it did not. Clearly, good 

theory and good intentions are not enough.

 Is pay for performance worth the effort? Pay for 

performance is not a panacea for organizational ills. 

However, if done properly, it may help agencies better 

realize the merit system ideal of equal pay for work of 

equal value. The value of an employee’s work is not 

determined solely by the nature of the job and time on 

the job. Through pay for performance, an organization 

can acknowledge that “value” includes quality of work, 

quantity of work, and results, and that value can be 

recognized through awards and pay increases. 

What is needed to make pay for performance work? 

Quite a bit, as it turns out. Several factors are critical to 

the success of pay for performance. As shown below, 

those factors are not purely—or even primarily—financial. Although funding matters, agencies cannot expect 

to spend their way to success. Critical success factors 

include: 

Organizational Culture 

• Leadership commitment. 

• Open communication. 

• Employee trust of supervisors and leaders. 

Effective Supervision 

• Fair treatment of employees when assigning work, 

providing training opportunities, evaluating 

performance, and allocating awards and pay increases. 

• Continuous monitoring and documentation of 

performance. 

• Timely, accurate, and constructive performance 

feedback. continued, page 5 

4 
Flexibility 

(effective Oct. 30, 2004) adjust basic pay for their critical

)

i

agency’s mission. 

(effective Jan. 28, 2005) 

l

their normal working hours. 

relocation, and retention •

•

positions. 

•

basic pay. 

•

critical needs. 

•

the end of an agreed-upon service period. 

years. 

l 

) and 

l 

for newly hired employees l

New Flexibilities in Pay and Benefits 

the right talent to accomplish their mission. 

Description 

Streamlined critical pay authority Agencies may now ask OPM—rather than the Office of Management and Budget—to 

 positions at a rate higher than what is normally payable, up 

to level 1 of the Executive Schedule (EX ($175,700 in 2004). “Critical positions” are 

positions that: 1) require a very high level of expertise in a sc entific, technical, 

professional, or administrative field and 2) are crucial to the accomplishment of the 

Compensatory time off for travel Compensatory time off for travel time will be granted to emp oyees who must travel outside 

Enhanced recruitment, 

bonuses (effective May 1, 2005) 

The new law allows agencies to: 

Pay recruitment bonuses to current Federal employees. 

Pay retention bonuses to employees who are likely to leave for other Federal 

Pay recruitment and relocation bonuses up to 100% of the employee’s annual 

Ask OPM to allow them to pay retention bonuses up to 50% of salary based on 

Pay recruitment, relocation, and retention bonuses in installments or lump sum at 

Service periods may not exceed 4 

Enhanced annual leave accrua

for senior executives (SES

senior level employees (SL and 

ST) (effective Oct. 30, 2004) 

Employees in the SES, SL/ST, and equivalent pay systems will now accrue 8 hours of 

annual leave per biweekly pay period. Newly hired executives or senior level employees, 

whether hired from the private sector or internally, will also receive 8 hours of annual leave. 

Enhanced annual leave accrua

(effective Apr. 28, 2005) 

Newly hired employees’ work experience directly related to the position can be credited 

when determining the amount of annual leave they wil accrue every pay period. 

The fifth in our series on Federal human resources management flexibilities, this chart outlines the new pay and benefits flexibilities under 

the Federal Workforce Flexibility Act of 2004. The Act was passed to ensure that agencies have the tools they need to attract and retain 

Pay for Performance 

(continued from page 4) 

Fairness 

• A system of checks and balances. 

• Pay and awards distributed according to performance. 

Training 

• Education on how the pay system works. 

• Education on the values underlying the pay system. 

Funding 

• An organizational commitment to paying for 

performance. 

• Sufficient funding to provide rewards commensurate 

with employee contributions and organizational 

results. 

Effective Measurement 

• Performance measures that capture the most important 

critical behaviors and outcomes. 

• Evaluation of performance at the appropriate level(s), 

e.g., individual, team, and organizational. 

• Reliably distinguish among levels of performance. 

Evaluation and Improvement 

• Systematic assessment of the effects of the pay for 

performance system, including effects on recruitment 

and retention, employee attitudes and behaviors, the 

distribution of pay and awards, and organizational 

finances and performance.

 Pay for performance has many organizational benefits, 

and attending to these critical success factors will help 

agencies achieve those benefits. 

5 
T O O L S 

O F T H E 

T R A D E 

How-to on Category Rating 

Are you one of the many people in the Federal 

Government who wanted to use category rating, but 

didn’t because you’re not sure how? Here’s a quick 

reference, based on guidance from OPM. 

First, your agency must have an established policy 

on the use of category rating. Further, the use of 

category rating must be predetermined and spelled out in 

vacancy announcements; otherwise, it is presumed that 

the rule of three will be used. 

Second, define at least two quality categories to 

differentiate between candidates’ relative ability. The 

quality categories are where qualified job applicants with 

similar levels of job-related competencies will be grouped. 

When defining the categories, consider the increasing 

levels of difficulty or complexity of the job, the breadth 

and scope of the required KSAs or competencies, and the 

requirements for successful job performance. 

Third, assess candidates and place them in the 

appropriate quality category based on your assessment 

of their KSAs or competencies directly related to the job. 

Once all the candidates have been placed in their 

appropriate categories, apply veteran’s preference by 

placing preference eligibles ahead of non-preference 

eligibles within the quality category. Note that for 

positions other than professional and scientific at the GS9 and above, compensably disabled preference eligibles 

(those veterans with at least 10 percent serviceconnected disability) are placed within the highest quality 

category, meaning that they “float to the top” as they do 

in the rule of three. 

Fourth, select from among the candidates in the 

highest quality category. Be aware that veterans who 

have preference and are on the top of the category must 

be selected before any non-preference eligibles in that 

category, unless the requirements of 5 U.S.C. 3317(b) or 

3318(b), as applicable, are satisfied. For example, the 

following table shows how the candidates were rated in a 

2-quality category grouping. 

Q 

HQ 

HQ 

HQ 

Candidate Ratings 

(unordered) 

Order of Referra l 

Claudia Q (CP) 

John 

Vivian HQ 

Nancy HQ (TP) 

Henry 

Stuart 

Bill Q (TP) 

Claudia Q (CP) 

Nancy HQ (TP) 

Vivian HQ 

Henry 

Stuart HQ

Note: Q = Qualified, HQ = Highly Qualified, TP = 

preference eligible, CP = veteran with 10% service 

connected disability 

These steps are a brief view of category rating 

procedures. For more information on this new flexibility, 

contact your personnel office. 

On November 21, 2004, Neil Anthony Gordon McPhie was 

confirmed as Chairman of the Merit Systems Protection Board for 

the term of seven years expiring March 1, 2009. 

Director of the Virginia Department of Employment Dispute 

Resolution. He earned his bachelor’s degree from Howard 

On November 21, 2004, Barbara J. Sapin was confirmed as 

Member of the Merit Systems Protection Board for the term of 

seven years expiring March 1, 2007. Ms. Sapin previously 

served as Vice Chairman of the Board from December 2000– 

December 2001. Before joining the Merit Systems Protection 

Board, Ms. Sapin served in a number of labor and 

employment law related positions, including General Counsel 

1990 to 2001. She earned her bachelor’s degree from Boston 

Please join the employees of the Board in congratulating and 

. . . A . . . 

MSPB CONFIRMATIONS 

Mr. McPhie had 

served as Acting Chairman since December 10, 2003. Previously, 

he worked in Virginia’s Attorney General’s Office and served as 

University and his J.D. from Georgetown University.

and Labor Counsel to the American Nurses Association from 

University and her J.D. from Catholic University of America.

welcoming Mr. McPhie and Ms. Sapin. 

N N O U N C I N G

6 
Get Ready to be Heard 

The Merit Principles Survey is coming.

Are you unhappy with some of the changes you see 

occurring in the Federal Government? Or maybe you’re 

thrilled with the direction we are heading. Soon, MSPB 

will ask many of you to voice your opinion in our Merit 

Principles Survey (MPS) 2005. The MPS measures and 

tracks the “health” of Federal merit systems over time. 

MSPB has been conducting this survey for over 20 years, 

and the results are widely disseminated among Federal 

policy and decision-makers.

 The MPS is particularly important right now 

considering the workforce challenges facing the Federal 

Government. We recently saw the largest reorganization 

in 50 years with the establishment of the Department of 

Homeland Security. Agencies are requesting legislative 

relief from many regulations originally designed to protect 

merit. Large numbers of Federal employees are reaching 

retirement eligibility, potentially leading to gaps in 

mission accomplishment. These changes may likely 

change the way some employees view their agencies, 

their jobs, and their future.

 Using the survey results, MSPB will be able to report 

to the President, Congress, and other Federal decisionmakers on the state of merit and fairness in the Federal 

Government. This is an opportunity for Federal 

employees to inform policy by voicing their opinions 

and concerns about workforce issues.

 For the first time, MSPB will deliver the survey 

electronically. Technology will enable us to reach out 

to a wider audience and obtain and report survey results 

faster than ever before. All major departments and 

agencies will participate to ensure that MSPB can 

accurately assess the overall health of Federal merit 

systems. 

The MPS should not be confused with OPM’s Federal 

Human Capital Survey (FHCS). The FHCS is primarily 

designed to measure employees’ perceptions of whether 

and to what extent conditions that characterize successful 

organizations, as defined by the President’s Management 

Agenda, are present in their agencies. The MPS is 

designed to track specific merit system indicators over 

time and also to evaluate how changes in human resource 

policies and regulations affect merit and fairness. Our 

questions are driven by the Board’s mission to protect 

merit and to study and report on the state of merit in 

Federal personnel systems. 

In Ireland, the Times Are 

Changing 

 MSPB’s contacts with the international personnel 

community confirm that change is prevalent worldwide. 

The Irish Civil Service is reforming itself to take on the 

challenges of the new century, and MSPB was invited to 

see the changes taking place. Under the Public Service 

Management (Recruitment and Appointments) Act 2004, 

the Irish Civil Service has decentralized its recruitment 

and staffing process.

 The legislation establishes two new civil service 

entities. The Commission for Public Service Appointments is responsible for regulating recruitment and 

ensuring that hiring is based on merit. The Public 

Appointments Service (PAS) functions as the centralized 

recruitment, assessment, and selection body for 

government departments. Further, individual agencies 

may be licensed to recruit staff directly instead of through 

the Civil Service Commission for the first time in 50 years.

 This decentralized approach helps the Irish 

government in two respects; it provides departments and 

public service bodies the flexibility they need to meet 

individual recruitment challenges and preserves the key 

public value of integrity long instilled in the Irish Civil 

Service. These goals are not at all foreign to those of us 

in the U.S. Civil Service.

 To kick off its new mission focus and its modernized 

approach to recruitment, the PAS joined with the Institute 

of Public Administration, a professional organization, to 

hold an international conference on the challenges facing 

the public sector in sourcing and managing talent. MSPB 

presented findings from recent research and shared views 

of where personnel is today and where it needs to go in 

the future. 

We were also honored to exchange information with a 

number of senior officials from both the Irish Civil Service 

and the Northern Ireland Civil Service. The meetings 

gave us a chance to discuss challenges we all face, such 

as how to recruit the best and the brightest, how to 

motivate the workforce, and how to provide the workforce 

with the tools necessary to serve the public good. To see 

more on PAS’s new recruitment and marketing strategy, 

go to www.publicjobs.ie. 

7 
U. S. Merit Systems Protection Board

1615 M Street, NW 

Washington, DC 20419 

I S S U E S OF 

J a n u a r y 2 0 0 5 M E R I T V o l u m e 10 I s s u e 1 

I N T H I S I S S U E * I N T H I S I S S U E * I N T H I S I S S U E 

Improving Organizational 

Performance. Agencies that 

don’t have the rational and emotional commitment of their employees will find that pay for performance is no panacea. 

Director’s Perspective. 

(Page 1) 

Category rating has been sought by 

agencies for many years. So why 

are few using it? (Page 2) 

Agency Corner. Find out how 

the Department of Health and 

Human Services helps its managers 

to make the most of the probationary 

period. (Page 3) 

Can Pay for Performance 

Work? Here are the critical 

success factors to implementing an 

effective pay for performance system. 

They may not be what you think. 

(Page 4) 

Federal Workforce 

Flexibility Act. What it is and 

what it means for you and your 

agency in terms of pay and benefits 

flexibilities. (Page 5) 

Tools of the Trade: 

Category Rating. So, you say 

your agency wants to use category 

rating, but doesn’t know how? A 

quick reference available inside. 

(Page 6) 

Confirmations. MSPB now has 

a full Board ready to attend to 

business. Meet the “new” Chair and 

Member. (Page 6) 

Ireland’s Own. Another 

installment from our series on what’s 

going on in personnel internationally. Take a trip to Ireland. (Page 7) 

Federal Employees Get a 

Voice. Soon, MSPB will administer its Merit Principles Survey. Find 

out what the survey is, why it’s 

important, and how it differs from 

the other surveys out there. 

(Page 7)