page_title: Pay-for-Performance (Federal Government)
section_title: History
hierarchical_section_title: Pay-for-Performance (Federal Government) / History
context_page_description: Pay-for-Performance is a method of employee motivation meant to improve performance in the United States federal government by offering incentives such as salary increases, bonuses, and benefits. It is a similar concept to Merit Pay for public teachers and it follows basic models from Performance-related Pay in the private sector. According to recent studies, however, there are key differences in how pay-for-performance models influence federal employees in public service roles. James Perry is one scholar who has conducted such studies. His research reveals that public servants tend to be more intrinsically motivated, and thus, are prone to have a negative reaction to monetary incentives. There is still debate, however, on what exactly makes the public sector different.
context_section_description: Pay-for-performance programs first began in the private sector. As consultants, academic experts, and employee advocate groups analyzed merit pay systems' success in private businesses, they recommended expanding this method into the public sector.   One vital omission in the process of implementation, however, is that the policy makers failed to consider that the stakeholders in the private sector differ from those in the public sector.
  The first trial run of a pay-for-performance system came in the late 1970s.  In 1978 U.S. President Jimmy Carter introduced the broad outlines of the Civil Service Reform Act in his State of the Union message.  It was the first time a U.S. President had ever included civil service reform among his major legislative proposals.
  The Civil Service Reform Act of 1978 created the Office of Personnel Management, to oversee the human resource management of the federal government, and the Merit Systems Protection Board, to regulate the merit system and prevent any abuse. The major provisions in the act included, but were not limited to, performance appraisals for all employees, merit pay on a variety of levels (but focusing on managerial levels), and modifications for dealing with poor performers. This merit pay system was a break in the long tradition of automatic salary increases based on length of service. Under the new act, employees only got half of their traditional automatic salary increase. The remaining non-automatic portion was divided up according to performance rating. A key part of this system was that it was revenue neutral—this meant that when some employees benefited under the new system, others would of necessity be receive less than in the previous system.
  The greatest benefits of the Act were that it clarified job expectations and defined goals and objectives. The clearest shortcoming was that it failed to establish a “demonstrable relationship between pay and performance.”  This failure had a number of causes—most notably a lack of adequate funding. Managers who performed satisfactorily often found themselves receiving less pay than their non-managerial counterparts because the non-managerial employees were still under the previous pay system. Some complained that this merit system seemed arbitrary and many employees did not perceive it as a fair assessment of performance and effort.  Furthermore, the public became upset when they saw certain senior executives in the government receiving large paychecks. It became apparent that the Act was not an effective means of civic service reform.
  When Ronald Reagan was elected in 1982, he significantly reduced the size and cost of many portions of government, thereby greatly limiting the Civil Service Reform Act. Satisfying the need for new legislation, the Performance Management and Recognition System (PMRS) was enacted on November 8, 1984. Most notably, the PMRS provided a greater level of evaluation accuracy and imposed minimum and maximum levels of pay increase to limit disparity among merit pay employees. PMRS also created Performance Standard Review Boards for each department and required that at least half of the board be members who were under the merit pay system. This requirement ensured that at least some board members had a vested interest in dealing with potential problems and concerns.
  Although it was considered a significant improvement over its predecessor, PMRS only lasted from 1984 to 1991. The demise of PMRS was caused by poor discrimination among performance levels, inadequate performance findings, and little demonstrable evidence that the system improved performance.  Over 50 percent of the employees felt like the size of the rewards was inadequate, and more than 75 percent of the managers stated that their performance evaluations provided little guidance for development purposes, mentioning that “insufficient funds [had] resulted in meaningless performance awards.”
  Since the PMRS was abandoned, various proposals have surfaced and even a few agencies have tried variations of pay-for-performance systems.  The Departm
caption: President Ronald Reagan
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