Results-Oriented Cultures: Creating a Clear Linkage between Individual Performance and Organizational Success
Published: 2003-03-14T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The federal government is in a period of profound transition and faces an array of challenges and opportunities to enhance performance, ensure accountability, and position the nation for the future. High-performing organizations have found that to successfully transform themselves, they must often fundamentally change their cultures so that they are more results-oriented, customer-focused, and collaborative in nature. To foster such cultures, these organizations recognize that an effective performance management system can be a strategic tool to drive internal change and achieve desired results. Based on previously issued reports on public sector organizations' approaches to reinforce individual accountability for results, GAO identified key practices that federal agencies can consider as they develop modern, effective, and credible performance management systems.
section_title: What GAO Found
paragraphs: Public sector organizations both in the United States and abroad have implemented a selected, generally consistent set of key practices for effective performance management that collectively create a clear linkage--"line of sight"--between individual performance and organizational success. These key practices include the following. (1) Align individual performance expectations with organizational goals: An explicit alignment helps individuals see the connection between their daily activities and organizational goals; (2) Connect performance expectations to cross-cutting goals: Placing an emphasis on collaboration, interaction, and teamwork across organizational boundaries helps strengthen accountability for results; (3) Provide and routinely use performance information to track: organizational priorities. Individuals use performance information to manage during the year, identify performance gaps, and pinpoint improvement opportunities; (4) Require follow-up actions to address organizational priorities: By requiring and tracking follow-up actions on performance gaps, organizations underscore the importance of holding individuals accountable for making progress on their priorities; (5) Use competencies to provide a fuller assessment of performance: Competencies define the skills and supporting behaviors that individuals need to effectively contribute to organizational results; (6) Link pay to individual and organizational performance: Pay, incentive, and reward systems that link employee knowledge, skills, and contributions to organizational results are based on valid, reliable, and transparent performance management systems with adequate safeguards; (7) Make meaningful distinctions in performance: Effective performance management systems strive to provide candid and constructive feedback and the necessary objective information and documentation to reward top performers and deal with poor performers; (8) Involve employees and stakeholders to gain ownership of performance management systems: Early and direct involvement helps increase employees' and stakeholders' understanding and ownership of the system and belief in its fairness; and (9) Maintain continuity during transitions: Because cultural transformations take time, performance management systems reinforce accountability for change management and other organizational goals.

section_title: Letter
paragraphs: The federal government is in a period of profound transition and faces an  array of challenges and opportunities to enhance performance, ensure  accountability, and position the nation for the future.  High-performing  public and private organizations here in the United States and abroad have  found that to successfully transform themselves, they must often  fundamentally change their cultures so that they are more results-oriented,  customer-focused, and collaborative in nature.  To transform their cultures,  high-performing organizations have recognized that an effective  performance management system can be a strategic tool to drive internal  change and achieve desired results.
Effective performance management systems are not merely used for once-  or twice-yearly individual expectation setting and rating processes, but are  tools to help the organization manage on a day-to-day basis.  These systems  are used to achieve results, accelerate change, and facilitate two-way  communication throughout the year so that discussions about individual  and organizational performance are integrated and ongoing.  The Office of  Personnel Management (OPM) recognizes that performance management  systems are to extend beyond rating individual performance.  According to  OPM, performance management is the systematic process by which an  organization involves its employees, as individuals and members of a  group, in improving organizational effectiveness in the accomplishment of  the mission and goals.
Recently, the Congress and the administration have pinpointed potential  solutions for modernizing performance management systems and,  specifically, making meaningful distinctions in performance.  In November  2002, the Congress passed the Homeland Security Act of 2002, which  provides for the increase of the total annual compensation limit for senior  executives in those agencies that have been certified by OPM and the  Office of Management and Budget (OMB) as having performance appraisal  systems that, as designed and applied, make meaningful distinctions based  on relative performance.  For 2003, the senior executive total  compensation limit would increase from $171,900 to $198,600.
In February 2003, the administration proposed for fiscal year 2004 to allow  managers to increase pay beyond annual raises for high-performing  employees.  OPM would administer a $500 million Human Capital  Performance Fund for the purpose of allowing agencies to deliver  additional pay to certain employees based on individual performance or  other human capital needs, in accordance with plans submitted to and  approved by OPM.  In addition, the administration also has proposed  creating a wider, more open pay range for senior executive compensation,  thus allowing for pay to be more directly tied to performance.
At your request, this report identifies key practices for federal agencies to  consider to develop modern, effective, and credible performance  management systems.  To identify the key practices, we reviewed our  issued reports on performance management that draw from the  experiences of public sector organizations both in the United States and  abroad.  While these organizations developed different performance  management systems to reflect their specific structures, priorities, and  cultures, they implemented these key practices to reinforce individual  accountability for results.  Consistent with these key practices, GAO has  implemented a performance management system that reinforces individual  accountability for results that has features such as broadbanded pay-for- performance and a set of validated competencies intended to link  employee performance to our strategic plan and core values.  We included  the agency examples illustrating the key practices primarily from these  issued reports and added examples from other GAO reports, where  appropriate.  For additional information on our objective, scope, and  methodology, see appendix I.
subsections: section_title: Background
paragraphs: Strategic human capital management is receiving increased attention  across the federal government.  In January 2001, we designated strategic  human capital management as a governmentwide high-risk area and  continued this designation with the release of High-Risk Series: An Update  in January 2003.  Despite the considerable progress over the past 2 years, it  remains clear that today’s federal human capital strategies are not  appropriately constituted to meet current and emerging challenges or drive  the needed transformation across the federal government.  One of the key  areas that federal agencies continue to face challenges in is creating  results-oriented organizational cultures.  Agencies lack organizational  cultures that promote high performance and accountability and empower  and include employees in setting and accomplishing programmatic goals,  which are critical to successful organizations.  To help agency leaders  effectively lead and manage their people and integrate human capital  considerations into daily decision making and the program results they  seek to achieve, we developed a strategic human capital model.  The model  highlights the kind of thinking that agencies should apply, as well as some  of the steps they can take, to make progress in managing human capital  strategically.
Since we designated strategic human capital management as a high-risk  area in January 2001, the President’s Management Agenda, released in  August 2001, placed the strategic management of human capital at the top  of the administration’s management agenda.  In October 2002, OMB and  OPM updated the standards for success in the human capital area of the  President’s Management Agenda, reflecting language that was developed  in collaboration with GAO.  To assist agencies in responding to the revised  standards and addressing the human capital challenges, OPM released the  Human Capital Assessment and Accountability Framework.  One of the  standards of success in the framework is a results-oriented performance  culture, specifically a performance management system that effectively  differentiates between high and low performance.
On September 24, 2002, we convened a forum to discuss useful practices  from major private and public sector organizational mergers, acquisitions,  and transformations that federal agencies could learn from to successfully  transform their cultures and that the then proposed Department of  Homeland Security could use to merge its various originating agencies or  their components into a unified department.  The participants identified  the use of performance management systems as a tool to help manage and  direct the transformation process.  Specifically, performance management  systems must create a line of sight showing how team, unit, and individual  performance can contribute to overall organizational results.  The system  serves as the basis for setting expectations for employees’ roles in the  transformation process and for evaluating individual performance and  contributions to the success of the transformation process and, ultimately,  to the achievement of organizational results.
section_title: Key Practices for Effective Performance Management
paragraphs: An effective performance management system can be a strategic tool to  drive internal change and achieve desired results.  We found that public  sector organizations in the United States and abroad have implemented a  selected, generally consistent set of key practices as part of their  performance management systems.  Federal agencies can implement these  practices to develop effective performance management systems that help  create the line of sight between individual performance and organizational  success and transform their cultures to be more results-oriented, customer- focused, and collaborative in nature.
subsections: section_title: Align Individual Performance Expectations with Organizational Goals
paragraphs: An explicit alignment of daily activities with broader results is one of the  defining features of effective performance management systems in high- performing organizations. These organizations use their performance  management systems to improve performance by helping individuals see  the connection between their daily activities and organizational goals and  encouraging individuals to focus on their roles and responsibilities to help  achieve these goals.  Such organizations continuously review and revise  their performance management systems to support their strategic and  performance goals, as well as their core values and transformational  objectives.
High-performing organizations can show how the products and services  they deliver contribute to results by aligning performance expectations of  top leadership with organizational goals and then cascading those  expectations down to lower levels.  To this end, we reported that in fiscal  year 2000 the Federal Aviation Administration (FAA) was able to show how  the Department of Transportation’s (DOT) strategic goal to promote public  health and safety was cascaded through the FAA Administrator’s  performance expectation to reduce the commercial air carrier fatal  accident rate to a program director’s performance expectation to develop  software to help aircraft maintain safe altitudes in their approach paths, as  shown in figure 2.
The FAA Administrator’s performance agreement for fiscal year 2000  included a performance expectation to reduce the commercial air carrier  fatal accident rate by implementing the Safer Skies Agenda.  As part of  implementing the Safer Skies Agenda, the Flight Standards Service  Director had a performance expectation to meet milestones for reducing a  type of crash called controlled flight into terrain, which occurs when pilots  lose their sense of the plane’s relation to the surface below.  Among these  milestones included validating Minimum Safe Altitude Warning software,  which had to be developed by the Aviation Systems Standards Program  Director.  This software system is designed to aid air traffic controllers  through both visual and aural alarms by alerting them when a tracked  aircraft is below, or predicted by the computer to go below, a  predetermined minimum altitude.
Similarly, we recently reported that as a first step in establishing a  permanent performance management system, the Transportation Security  Administration (TSA) has implemented standardized performance  agreements for groups of employees, including transportation security  screeners, supervisory transportation security screeners, supervisors, and  executives.  These performance agreements include both organizational  and individual goals and standards for satisfactory performance that can  help TSA establish a line of sight showing how individual performance  contributes to organizational goals.  For example, each executive  performance agreement includes organizational goals, such as to maintain  the nation’s air security and ensure an emphasis on customer satisfaction,  as well as individual goals, such as to demonstrate through actions, words,  and leadership, a commitment to civil rights.  To strengthen its current  executive performance agreement and foster the culture of a high- performing organization, we recommended that TSA add performance  expectations that establish explicit targets directly linked to organizational  goals, foster the necessary collaboration within and across organizational  boundaries to achieve results, and demonstrate commitment to lead and  facilitate change.  TSA agreed with this recommendation.
We reported in September 2002 that some agencies set targets for  individual performance that were linked to organizational goals.  For  example, the Veterans Benefits Administration (VBA) identified targets  with specific levels of performance for senior executives that were  explicitly linked to VBA’s priorities for fiscal year 2001 and the Department  of Veterans Affairs’ (VA) strategic goals for fiscal years 2001 to 2006.  For  example, to contribute to VA’s strategic goal to “provide ‘One VA’ world  class service to veterans and their families through the effective  management of people, technology, processes and financial resources” and  to address its priority of speed and timeliness, VBA set a national target for  property holding time—the average number of months from date of  acquisition to date of sale of properties acquired due to defaults on VA  guaranteed loans—of 10 months for fiscal year 2001.  To contribute to the  national target, the senior executive in the Nashville regional office had a  performance expectation for his office to meet a target of 8.6 months.
section_title: Connect Performance Expectations to Crosscutting Goals
paragraphs: As public sector organizations shift their focus of accountability from  outputs to results, they have recognized that the activities needed to  achieve those results often transcend specific organizational boundaries.   Consequently, organizations that are flatter and focused on collaboration,  interaction, and teamwork across organizational boundaries are  increasingly critical to achieve results.  High-performing organizations use  their performance management systems to strengthen accountability for  results, specifically by placing greater emphasis on fostering the necessary  collaboration both within and across organizational boundaries to achieve  results.
For example, in August 2002, we reported that Canada’s agricultural  department, Agriculture and Agri-Food Canada, used individual  performance agreements to specify the internal or external organizations  whose collaboration is needed to help individuals contribute to the  departmental crosscutting goals or areas.  Specifically, the head of the  department’s Market and Industry Services Branch had in his 2001-02  performance agreement the expectation to “lead efforts to develop the  department’s ability to deal with emerging technical trade issues” that  aligned with the crosscutting area of “international issues.”  The agreement  also listed two internal units whose collaboration was needed to meet the  expectation—the department’s Research Branch and its Strategic Policy  Branch—as well as two external organizations—the Canadian Food  Inspection Agency and Health Canada.  While the performance agreement  provides a vehicle for identifying and communicating with the various  organizations associated with each crosscutting performance expectation,  the department leaves it up to individuals to determine how to collaborate  with their organizations when working to fulfill their performance  agreements.
Similarly, we reported in October 2000 that the Veterans Health  Administration’s (VHA) Veterans Integrated Service Network (VISN)  headquartered in Cincinnati implemented performance agreements that  focused on patient services for the entire VISN and were designed to  encourage the VISN’s medical centers to work collaboratively.  In 2000,  the VISN Director had a performance agreement with “care line” directors  for patient services, such as primary care, medical and surgical care, and  mental health care.  In particular, the mental health care line director’s  performance agreement included improvement goals related to mental  health for the entire VISN.  To make progress towards these goals, this care  line director had to work across each of the VISN’s four medical centers  with the corresponding care line managers at each medical center.  As part  of this collaboration, the care line director needed to establish consensus  among VISN officials and external stakeholders on the strategic direction  for the services provided by the mental health care line across the VISN;  develop, implement, and revise integrated clinical programs to reflect that  strategic direction for the VISN; and allocate resources among the centers  for mental health programs to implement these programs.
section_title: Provide and Routinely Use Performance Information to Track Organizational Priorities
paragraphs: High-performing organizations provide objective performance information  to individuals to show progress in achieving organizational results and  other priorities, such as customer satisfaction and employee perspectives,  and help individuals manage during the year, identify performance gaps,  and pinpoint improvement opportunities.  Having this performance  information in a useful format also helps individuals track their  performance against organizational goals and compare their performance  to that of other individuals.
To this end, we described in September 2002, the Bureau of Land  Management’s (BLM) Web-based data system called the Director’s Tracking  System that collects and makes available on a real-time basis data on each senior executive’s progress in his or her state office towards BLM’s  organizational priorities and the resources expended on each priority.  In  particular, a BLM senior executive in headquarters responsible for the wild  horse and burro adoptions program can use the tracking system to identify  at anytime during the year where the senior executives in the state offices  responsible for this program are against their targets and what the program  costs have been by state.
To address progress towards its performance goals, we reported in October  2000 that VHA produced quarterly Network Performance Reports that  presented both VHA-wide and VISN-specific progress on each of the goals  in the then 22 VISN directors’ performance agreements.  VHA’s then Chief  Network Officer and each of the VISN directors used these performance  reports to inform quarterly meetings they had and to discuss each VISN’s  progress towards the goals in the director’s performance agreement.   Specifically, the Network Performance Report issued in May 2000 showed  that 90 percent of the patients in VISN 5 located in Baltimore received  follow-up care after hospitalization for mental illness in the third quarter of  fiscal year 2000.  Further, that VISN produced biweekly performance  reports that allowed it to monitor its three medical centers’ progress on the  VHA-wide performance goals in the VISN director’s performance  agreements.  For example, the VISN’s biweekly performance report for  August 2000 showed that the VISN-wide rate for follow-up care after  hospitalization for mental illness remained at 90 percent, while its three  medical centers ranged from 89 to 91 percent for follow-up care.
In addition to showing progress in achieving organizational results, high- performing organizations also provide performance information on other  priorities, such as customer satisfaction and employee perspectives.  We  reported in September 2002 that to emphasize a balanced set of  performance expectations, some agencies disaggregated customer and  employee satisfaction survey data so that the results were applicable to an  executive’s customers and employees.  For example, from its Use  Authorization Survey administered to various customers in fiscal year 2000,  BLM disaggregated the survey data to provide the applicable results to  individuals who head the state offices.  Specifically, the executive in the  Montana state office received data for his state showing that 81 percent of  the grazing permit customers surveyed gave favorable ratings for the  timeliness of permit processing and for service quality.  The executive  addressed the results of the customer survey in his self-assessment for the  2001 performance appraisal cycle.
We also reported that to help senior executives address employee  perspectives, the Internal Revenue Service (IRS) disaggregated data to the  workgroup level from its IRS/National Treasury Employees Union  Employee Satisfaction Survey, which measures general satisfaction with  IRS, the workplace, and the union.  The Gallup Organization administered  this survey to all IRS employees.  The survey comprised Gallup’s 12  questions (Q12); additional questions unique to IRS, such as views on  local union chapters and employee organizations; and questions on issues  IRS has been tracking over time.  Gallup provided the results for each  workgroup.  For example, an executive could compare the performance of  his or her workgroup to that of other operating divisions and to that of IRS  as a whole.  Specifically, for the 2001 survey, an executive’s workgroup  scored 3.68 out of a possible 5 for the question “I have the materials and  equipment I need to do my work right” compared to the IRS-wide score of  3.58.  To allow individuals to benchmark externally, Gallup compared each  workgroup’s results to the 50th (median) and 75th (best practices)  percentile scores from Gallup’s Q12 database.  To benchmark internally,  IRS provided the servicewide results from the previous year’s survey in  each workgroup report.
section_title: Require Follow-up Actions to Address Organizational Priorities
paragraphs: High-performing organizations require individuals to take follow-up actions  based on the performance information available to them.  By requiring and  tracking such follow-up actions on performance gaps, these organizations  underscore the importance of holding individuals accountable for making  progress on their priorities.
To help address employee perspectives in their senior executive  performance management system, we reported in September 2002 that the  Federal Highway Administration required senior executives to use 360- degree feedback instruments to solicit employees’ views on their  leadership skills.  Based on the 360-degree feedback, senior executives  were to identify action items and incorporate them into their individual  performance plans for the next fiscal year.  While the 360-degree feedback  instrument was intended for developmental purposes to help senior  executives identify areas for improvement and was not included in the  executive’s performance evaluation, executives were held accountable for  taking some action with the 360-degree feedback results and responding to  the concerns of their peers, customers, and subordinates.  For example,  based on 360-degree feedback, a senior executive for field services  identified better communications with subordinates and increased  collaboration among colleagues as areas for improvement, and as required,  he then incorporated action items into his individual performance plan.  In  fiscal year 2001, he set a performance expectation to develop a leadership  self-improvement action plan and identify appropriate improvement goals.   In his self-assessment for fiscal year 2001, he reported that he improved his  personal contact and attention to the division offices as evidenced by a 30  percent increase in visits to the divisions that year.  Also, he stated that he  encouraged his subordinates to assess their leadership skills.   Consequently, 9 of his 11 subordinates used 360-degree feedback  instruments to improve their personal leadership competencies.
We also reported that to address employee perspectives based on the  performance information obtained through its employee survey, IRS  required senior executives to hold workgroup meetings with their  employees to discuss the workgroups’ survey results and develop action  plans to address these results.  According to a senior executive in IRS’s  criminal investigation unit, the workgroup meetings were beneficial  because they increased communication with employees and identified  improvements in the quality of worklife.  For example, through this  executive’s workgroup meetings on the 2001 employee survey results,  employees identified the need for recruiting supervisory special agents to  even out some of the workload.  Subsequently, the senior executive set a  performance expectation in his fiscal year 2002 individual performance  plan to ensure that the field office had a strong recruitment program to  attract viable candidates.
Similarly, for its customer satisfaction survey, the former Commissioner of  Internal Revenue set an expectation that the senior executives who head  the business units develop action plans based on the performance  information from IRS’s customer survey that are relevant to the needs of  their particular customers.  For example, an IRS senior executive who is  the area director for compliance in Laguna Niguel, California, developed a  consolidated action plan based on the plans he required from each of his  territory managers that identified ways to improve low scores from the  customer survey.  Specifically, the senior executive had an expectation in  his action plan to improve how customers were treated during collection  and examination activities by ensuring that examiners explain to  customers their taxpayer rights, as well as why they were selected for  examination and what they could expect.  Further, the senior executive  planned to ensure that territory managers solicited feedback from  customers on their treatment during these activities and identify specific  reasons for any customer dissatisfaction.  In his midyear self-assessment  for fiscal year 2002, the senior executive stated that substantial progress  was being made in achieving the collection and examination customer  satisfaction goals.
section_title: Use Competencies to Provide a Fuller Assessment of Performance
paragraphs: High-performing organizations use competencies to examine individual  contributions to organizational results.  Competencies, which define the  skills and supporting behaviors that individuals are expected to exhibit to  carry out their work effectively, can provide a fuller picture of an  individual’s performance.
To help reinforce employee behaviors and actions that support the agency’s  mission, we reported that in fiscal year 2000, IRS implemented a  performance management system that requires executives and managers to  include critical job responsibilities with supporting behaviors in their  performance agreements, which serve as the basis for their annual  performance appraisals.  The critical job responsibilities, which represent  IRS’s core values, include leadership, employee satisfaction, customer  satisfaction, business results, and equal employment opportunity and are  further defined by supporting behaviors—broad actions and competencies  that IRS expects its executives and managers to demonstrate during the  year.  The critical job responsibilities and supporting behaviors are  intended to provide executives and managers with a consistent message  about how their daily activities are to reflect the organization’s core values.    Three of the five critical job responsibilities—customer satisfaction,  business results, and employee satisfaction—align with IRS’s strategic  goals as shown in figure 3.  For example, by establishing a critical job  responsibility and supporting behavior in customer satisfaction, IRS aligns  managers’ performance to its strategic goal of “top-quality service to each  taxpayer in every interaction.”
The other two critical job responsibilities, leadership and equal  employment opportunity, reinforce behaviors that IRS considers necessary  for organizational change and an open and fair work environment.
We described in August 2002 how the United Kingdom considers  competencies in evaluating executives.  The executives in the Senior Civil  Service have performance agreements that include both business  objectives and certain core competencies that executives should develop in  order to effectively achieve these objectives.  For example, an executive  and his supervisor select one or two competencies, such as “thinking  strategically,” “getting the best from people,” or “focusing on delivery.”   Each competency is further described by several specific behaviors.  For  example, the competency of “getting the best from people” includes  behaviors such as “developing people to achieve high performance;”  “adopting a leadership style to suit different people, cultures, and  situations;” “coaching individuals so they achieve their best;” and “praising  achievements and celebrating success.”  The supervisor evaluated the  executive’s demonstration of these selected competencies and the  achievement of business objectives when determining the size of the  annual pay award.
Similarly, we described in August 2002 how New Zealand’s Inland Revenue  Department evaluated the performance of its employees against results and  core and technical competencies and weighted these results and  competencies differently in each employee evaluation depending on the  position.  All employees were evaluated on their commitments to deliver  results, which account for 40 to 55 percent of their overall performance  evaluations.  In addition, all employees were evaluated against core  organizational competencies such as customer focus, strategic leadership,  analysis and decision making, and communication, which make up 20 to 50  percent of their evaluations.  Some employees who have special knowledge  and expertise in areas such as tax policy, information technology, and  human capital were also evaluated against technical competencies that  may account for 20 to 35 percent of their overall performance evaluations.   An employee who was considered fully successful in achieving his or her  performance commitments, but does not demonstrate the expected  competencies, may not be assessed as fully successful in his or her  particular position.  Conversely, if an employee demonstrated the expected  competencies, but did not achieve the agreed to performance  commitments, he or she could also be considered less than fully successful.   As part of the department’s review of the program conducted in 2000, both  managers and staff cited the department’s policy of evaluating individual  performance based on both results and competencies as a better way to  measure staff performance than focusing on only results or competencies  alone.
section_title: Link Pay to Individual and Organizational Performance
paragraphs: High-performing organizations seek to create pay, incentive, and reward  systems that clearly link employee knowledge, skills, and contributions to  organizational results.  At the same time, these organizations recognize that  valid, reliable, and transparent performance management systems with  adequate safeguards for employees are the precondition to such an  approach.
For example, we reported in August 2002 how Canada links pay to the  performance of its senior executives through its Performance Management  Program.  Under the Performance Management Program, introduced in  1999, a significant portion of the total cash compensation package that top  and senior executives can receive takes the form of “at-risk” pay.  This  annual lump-sum payment ranges from 10 to 15 percent of base pay for  senior executives, and as high as 25 percent for deputy ministers.  Another  central feature of Canada’s Performance Management Program is that both  increases in base salary and at-risk pay are only awarded to executives who  successfully achieve commitments agreed to in their annual performance  agreements.  These commitments are of two types: “ongoing  commitments,” which include continuing responsibilities associated with  the position, and “key commitments,” which identify priority areas for the  current performance cycle.  Departments award increases in base pay to  executives who successfully carry out their ongoing commitments and  award at-risk pay to individuals who, in addition to meeting all ongoing  commitments, also successfully deliver on key commitments.  Executives  who do not meet at least one key commitment are not eligible for this lump- sum performance award.  Under the Performance Management Program,  there are no automatic salary increases connected with length of service.
The Ontario Public Service (OPS) links executive performance pay to the  performance of the provincial government as a whole, the performance of  the executive’s home ministry, the contribution of that ministry to overall  governmentwide results, as well as the individual’s own performance.   The amount of the award an individual executive can receive ranges from  no payment to a maximum of 20 percent of base salary.  To determine the  amount of performance pay for any given fiscal year, the Premier and  Cabinet, the top political leadership of the Ontario government, first  determine whether and to what extent the government as a whole has  achieved the key provincial goals it established at the beginning of the  fiscal year.  If they determine that the government has met a threshold of  satisfactory performance, these officials designate a certain percentage as  the governmentwide “incentive envelope,” which represents the  percentage that will be the basis for subsequent calculations used to  determine performance awards.  The Secretary of Cabinet, in consultation  with the Premier, then assesses each ministry’s performance based on the  ministry’s relative contribution enabling Ontario to achieve its key  provincial goals and the ministry’s performance against its own approved  business plan.  As a result of this assessment, each ministry receives an  amount equivalent to a specific percentage of the ministry’s total executive  payroll for performance awards.  Finally, each ministry determines the  actual amount of an executive’s performance award by assessing both the  individual’s actual performance against his or her prior performance  commitments as well as the individual’s level of responsibility.
For example, in the 1999–2000 performance cycle, the Premier and Cabinet  determined that the government as a whole had met a threshold of  satisfactory performance and set an incentive envelope of 10 percent.  The  Secretary of Cabinet and the Premier then assessed the performance of a  particular ministry deciding that it had a “critical impact” on the  government’s ability to deliver on its results that year, including the roll out  of its quality service and e-government initiatives.  They also found that this  ministry “exceeded” the key commitments established in its business plan.  In this case, the ministry received an amount equivalent to 12.5 percent of  its executive payroll towards performance payments.  Individual awards,  depending upon the performance and position of the executive, ranged  from no payment to 15 percent, and could have reached as high as 20  percent under the program’s regulations.  In contrast, during the same  performance cycle, the Secretary of Cabinet and the Premier found that another ministry had only “contributed” to governmentwide goals while  having “met” its business commitments.  Accordingly, this ministry  received only 5 percent of its executive payroll towards performance  payments.  Individual awards in this case ranged from no payment to 7.5  percent.  (See fig. 4.) is applied to... is applied to...
An executive who performed the job  of a “manager,” the least senior  executive position, and had “met”  some commitments contained in his  or her performance agreement  received a performance award of  2.5% of base pay.
An executive who performed the job of  an “assistant deputy minister,” the  second most senior executive position,  and had “exceeded” commitments  contained in his or her performance  agreement received a performance  award of 15% of base pay.
section_title: Make Meaningful Distinctions in Performance
paragraphs: Effective performance management requires the organization’s leadership  to make meaningful distinctions between acceptable and outstanding  performance of individuals and to appropriately reward those who perform  at the highest level.  In doing so, performance management systems in high- performing organizations typically seek to achieve three key objectives:  (1) they strive to provide candid and constructive feedback to help  individuals maximize their contribution and potential in understanding and  realizing the goals and objectives of the organization, (2) they seek to  provide management with the objective and fact-based information it needs  to reward top performers, and (3) they provide the necessary information  and documentation to deal with poor performers.
We reported that IRS recognizes that it is still working at implementing an  effective performance management system that makes meaningful  distinctions in senior executive performance.  For example, IRS  established an executive compensation plan for determining base salary,  performance bonuses, and other awards for its senior executives that is  intended to explicitly link individual performance to organizational  performance and is designed to emphasize performance.  IRS piloted the  compensation plan in fiscal year 2000 with the top senior executives who  report to the Commissioner of Internal Revenue and used it for all senior  executives in fiscal year 2001.  To recognize performance across different  levels of responsibilities and commitments, IRS assigned senior executives  to one of three bonus levels at the beginning of the performance appraisal  cycle.  Assignments depend on the senior executives’ responsibilities and  commitments in their individual performance plans for the year, as well as  the scope of their work and its impact on IRS’s overall mission and goals.   For example, the Commissioner of Internal Revenue or the Deputy  Commissioner assigns senior executives to bonus level three—considered  to be the level with the highest responsibilities and commitments—only if  they are part of the Senior Leadership Team.  IRS restricts the number of  senior executives assigned to each bonus level for each business unit.
In addition, for each bonus level, IRS establishes set bonus ranges by  individual summary evaluation rating, which is intended to reinforce the  link between performance and rewards.  The bonus levels and  corresponding bonus amounts of base salary by summary rating are shown  in table 1.
To help ensure realistic and consistent performance ratings, each IRS  business unit had a “point budget” for assigning performance ratings that is  the total of four points for each senior executive in the unit.  After the  initial summary evaluation ratings were assigned, the senior executives’  ratings were converted into points—an “outstanding” rating converted to  six points; an “exceeded” rating to four points, which is the baseline; a  “met” rating to two points; and a “not met” rating to zero points.  If the  business unit exceeded its point budget, it had the opportunity to request  additional points from the Deputy Commissioner.  IRS officials indicated  that none of the business units requested additional points for the fiscal  year 2001 ratings.  For fiscal year 2001, 31 percent of the senior executives  received a rating of outstanding compared to 42 percent for fiscal year  2000, 49 percent received a rating of exceeded expectations compared to  55 percent, and 20 percent received a rating of met expectations compared  to 3 percent.  In fiscal year 2001, 52 percent of senior executives received a  bonus, compared to 56 percent in fiscal year 2000.  IRS officials indicated  that they are still gaining experience using the new compensation plan and  will wait to establish trend data before they evaluate the link between  performance and bonus decisions.
To stress making performance results the basis for pay, awards, and other  personnel decisions for senior executives, OPM implemented amended  regulations for senior executive performance management requiring  agencies to establish performance management systems for the rating  cycles beginning in 2001. These systems are to hold senior executives  accountable for their individual and organizational performance by linking  performance management with results-oriented organizational goals and  evaluating senior executive performance using measures that balance  organizational results with customer satisfaction, employee perspectives,  and other measures agencies decide are appropriate.  According to OPM,  these regulations require agency leadership to expect excellence and take  action to reward outstanding performers and deal appropriately with those  who do not measure up.
section_title: Involve Employees and Stakeholders to Gain Ownership of Performance Management Systems
paragraphs: High-performing organizations have found that actively involving  employees and stakeholders, such as unions or other employee  associations, when developing results-oriented performance management  systems helps improve employees’ confidence and belief in the fairness of  the system and increase their understanding and ownership of  organizational goals and objectives.  Effective performance management  systems depend on individuals’, their supervisors’, and management’s  common understanding, support, and use of these systems to reinforce the  connection between performance management and organizational results.   These organizations recognize that they must conduct frequent training for  staff members at all levels of the organization to maximize the  effectiveness of the performance management systems.  Overall,  employees and supervisors share the responsibility for individual  performance management.  Both are actively involved in identifying how  they can contribute to organizational results and are held accountable for  their contributions.
We described in August 2002 that, when reforming their performance  management systems, public sector organizations in other countries  consulted a wide range of employees and stakeholders early in the process,  obtained direct feedback from them, and engaged employee unions or  associations.
Consult a Wide Range of Stakeholders Early in the Process.  An  important step to ensure the success of a new performance management  system is to consult a wide range of stakeholders and to do so early in the  process.  For its new Senior Civil Service performance management and  pay system, the United Kingdom’s Cabinet Office recognized the  importance of meeting with and including employees and stakeholders in  the formation of the new system.  The Cabinet Office obtained feedback  from various employee associations, a civil servant advisory group, a  project board composed of personnel directors, and permanent secretaries As part of Canada’s effort to consult stakeholders concerning its new  performance management system, the government convened an  interdepartmental committee to explore and discuss possible approaches,  consulted networks of human capital professionals and executives across  the country, and engaged top executives through the Committee of Senior  Officials, consisting of the Clerk of the Privy Council and heads of major  departments and other top officials.
Obtain Feedback Directly from Employees.  Directly asking employees  to provide feedback on proposed changes in their performance  management systems encourages a sense of involvement and ownership,  allows employees to express their views, and helps validate the system to  ensure that the performance measures are appropriate.  Asking employees  to provide feedback should not be a one-time process, but an ongoing  process through the training of employees to ensure common  understanding of the evaluation, implementation, and results of the  systems.
For example, the United Kingdom’s Cabinet Office provided a packet  detailing proposed reforms of the existing performance management  system to approximately 3,000 members of the Senior Civil Service in a  large-scale effort to obtain their feedback on the proposed changes. In  addition, each department also held consultations where individuals  listened to proposed reforms.  More than 1,200 executives (approximately  40 percent of the Senior Civil Service) participated in the process.  The  Cabinet Office then collected and incorporated these views into the final  proposal, which was adopted by the government and implemented in April  2001.
Engage Employee Unions or Associations.  We have previously  reported that in the United States obtaining union cooperation and support  can help to achieve consensus on planned changes, avoid  misunderstandings, and assist in the expeditious resolution of problems.   Agencies in New Zealand and Canada actively engaged unions or employee  associations when making changes to performance management systems.
In New Zealand, an agreement between government and the primary public  service union created a “Partnership for Quality” framework that provides  for ongoing, mutual consultation on issues such as performance  management. Specifically, the Department of Child, Youth, and Family  Services and the Public Service Association entered into a joint partnership  agreement that emphasizes the importance of mutual consideration of each  other’s organizational needs and constraints.  For example, two of the  objectives stated in the 2001–02 partnership agreement were to (1) develop  the parties’ understanding of each other’s business and (2) equip managers,  delegates, and members with the knowledge and skills required to build a  partnership for a quality relationship in the workplace.  Department and  union officials told us that this framework had considerably improved how  both parties approach potentially contentious issues, such as employee  performance management.  Also included in the partnership agreement  were measures to evaluate the success of the relationship such as  (1) sharing ownership of issues, plans, and outcomes and (2) quickly  resolving issues in a solution-focused way, with a reduction in grievances.
The government of Canada repeatedly consulted with the Association of  Professional Executives of the Public Service of Canada (Association)  about its proposed reforms to the executive performance management  system and accompanying pay-at-risk provisions.  This dialogue began  prior to the system’s rollout and continued through initial implementation  during which the Association was actively involved in collecting feedback  from executives as well as making recommendations.  For example, as part  of an assessment of Canada’s Performance Management Program, based on  consultations the Association had with its membership after the first year  of the program, the Association identified several issues needing further  attention, including the need to provide executives with additional  guidance on how to develop their individual performance agreements,  particularly with regard to identifying and selecting different types of  performance commitments.  This recommendation and others were shared  with the government, and the official Performance Management Program  guidance issued the following year incorporated these concerns.
section_title: Maintain Continuity during Transitions
paragraphs: The experience of successful cultural transformations and change  management initiatives in large public and private organizations suggests  that it can often take 5 to 7 years until such initiatives are fully  implemented and cultures are transformed in a substantial manner.   Because this time frame can easily outlast the tenures of top political  appointees, high-performing organizations recognize that they need to  reinforce accountability for organizational goals during times of leadership  transitions through the use of performance agreements as part of their  performance management systems.
At a recent GAO-sponsored roundtable, we reported on the necessity to  elevate attention, integrate various efforts, and institutionalize  accountability for addressing management issues and leading  transformational change.  The average tenure of political leadership and  the long-term nature of the change management initiatives that are needed  can have critical implications for the success of those initiatives.   Specifically, in the federal government, the frequent turnover of the  political leadership has often made it difficult to obtain the sustained and  inspired attention required to make needed changes.
The average tenure of political appointees governmentwide for the period  1990-2001 was just under 3 years.  In addition, career executives can help  provide the long-term commitment and focus needed to transform an  agency, but the retirement eligibility of executives is increasing.  For  example, 71 percent of career senior executive service members will reach  retirement eligibility by the end of fiscal year 2005—an historically high  rate of eligibility.  Without careful planning, the retirement eligibility rate  suggests an eventual loss in institutional knowledge, expertise, and  leadership continuity.
High-performing organizations use their performance management systems  to help provide continuity during these times of transition by maintaining a  consistent focus on a set of broad programmatic priorities.  Performance  agreements can be used to clearly and concisely outline top leadership  priorities during a given year and thereby serve as a convenient vehicle for  new leadership to identify and maintain focus on the most pressing issues  confronting the organization as it transforms.  We have observed that a  specific performance expectation in the leadership’s performance  agreement to lead and facilitate change during this transition could be a  critical element as organizations transform themselves to succeed in an  environment that is more results-oriented, less hierarchical, and more  integrated.  More generally, the existence of an established process for  developing and using performance agreements provides new leadership  with a tested tool that it can use to communicate its priorities and instill  those priorities throughout the organization.
We described in August 2002 how OPS and Canada’s Performance  Management Program institutionalized the use of performance agreements  in their performance management systems to withstand organizational  changes and cascaded the performance agreements from top leadership to  lower levels of the organizations.  Since 1996, OPS has used performance  agreements to align and cascade performance goals down to all  organizational levels and all employees and has required senior executives  to have annual performance agreements that link their performance  commitments to key provincial priorities and approved ministry business  plans.  In 2000, OPS extended this requirement so that agreements are now  required of all employees, from senior executives to frontline employees.   Specifically, all employees develop individual performance commitments  that link to their supervisors’ performance agreements and their ministries’  business plans.  Senior executives and some middle-level managers and  specialists also link commitments contained in their individual  performance plans to the government of Ontario’s key provincial priorities  in areas such as fiscal control and management, human capital leadership,  and fostering a culture of innovation.
Similarly, Canada’s Performance Management Program cascades goals  down through all levels of senior executives.  It requires that each  department’s deputy minister—the senior career public service official  responsible for leading Canadian government departments—has a written  performance agreement that links his or her individual commitments to the  organization’s business plan, strategies, and priorities.  From the deputy  minister, commitments cascade down through assistant deputy ministers,  directors general, and directors.  At every level, the performance  agreement between each executive and his or her manager is intended to  document a mutual understanding about the performance that is expected  and how it will be assessed.  Some agencies, such as Industry Canada and  the Public Service Commission, have established their own programs to  cascade commitments below the director level and require the use of  performance agreements for some middle managers or supervisors within  their organizations.
As agreed with your offices, unless you publicly announce its contents  earlier, we plan no further distribution of this report for 30 days from its  date.  At that time, we will provide copies of this report to interested  congressional committees and the Director of OPM.  We will also make  copies available to others upon request.  In addition, the report will be  available at no charge on the GAO Web site at http://www.gao.gov.
If you have any questions concerning this report, please contact me or Lisa  Shames on (202) 512-6806 or at mihmj@gao.gov.  Anne Kidd and Janice  Lichty were key contributors to this report.
section_title: Objective, Scope, and Methodology
paragraphs: To meet our objective to identify key practices for effective performance  management, we summarized our most recent reports on performance  management for public sector organizations both in the United States and  abroad.  We reviewed and synthesized the information contained in the  reports to identify key practices for modern, effective, and credible  performance management systems.  We included the agency examples  supporting the key practices primarily from the previous three reports and  added examples from other GAO reports where appropriate.  The specific  objectives, scope, and methodology of each of these reports are included in  the reports.
We discussed the set of key practices with agency officials at the Office of  Personnel Management (OPM) responsible for performance management  of the general workforce.  We also spoke with the President of the Senior  Executives Association and the Director of the Center for Human  Resources Management at the National Academy for Public Administration  to obtain any observations or general comments on the key practices we  identified.  Likewise, we provided the key practices, for their general  comments, to the Presidents for the National Treasury Employees Union  and the American Federation of Government Employees; the Director of  the Office of Policy and Evaluation, U.S. Merit Systems Protection Board;  and the Vice President for Policy and Research, Partnership for Public  Service.
We did not seek official comments on the draft report from agency officials  because the practices and examples were drawn from previously issued  GAO reports.  We provided the draft report to the Director of OPM for her  information.  We also did not update the examples, and as a result, the  information in the examples may, or may not, have changed since the  issuance of the report.  We performed our work in Washington, D.C., from  December 2002 through February 2003 in accordance with generally  accepted government auditing standards.
section_title: Related GAO Products
paragraphs: Major Management Challenges and Program Risks: A Governmentwide  Perspective. GAO-03-95. Washington, D.C.: January 2003.
High-Risk Series: Strategic Human Capital Management. GAO-03-120.  Washington, D.C.: January 2003.
Transportation Security Administration: Actions and Plans to Build a  Results-Oriented Culture. GAO-03-190. Washington, D.C.: January 17, 2003.
Human Capital: Effective Use of Flexibilities Can Assist Agencies in  Managing Their Workforces. GAO-03-2. Washington, D.C.: December 6,  2002.
Highlights of a GAO Forum: Mergers and Transformation: Lessons  Learned for a Department of Homeland Security and Other Federal  Agencies. GAO-03-293SP.  Washington, D.C.: November 14, 2002.
Highlights of a GAO Roundtable: The Chief Operating Officer Concept: A  Potential Strategy to Address Federal Governance Challenges. GAO-03- 192SP. Washington, D.C.: October 4, 2002.
Results-Oriented Cultures: Using Balanced Expectations to Manage  Senior Executive Performance. GAO-02-966. Washington, D.C.: September 27, 2002.
Results-Oriented Cultures: Insights for U.S. Agencies from Other  Countries’ Performance Management Initiatives. GAO-02-862.  Washington, D.C.: August 2, 2002.
Managing for Results: Using Strategic Human Capital Management to  Drive Transformational Change. GAO-02-940T. Washington, D.C.: July 15,  2002.
Managing for Results: Building on the Momentum for Strategic Human  Capital Reform. GAO-02-528T. Washington, D.C.: March 18, 2002.
A Model of Strategic Human Capital Management. GAO-02-373SP.  Washington, D.C.: March 15, 2002.
Human Capital: Practices That Empowered and Involved Employees.  GAO-01-1070.  Washington, D.C.: September 14, 2001.
Human Capital: Taking Steps to Meet Current and Emerging Human  Capital Challenges. GAO-01-965T. Washington, D.C.: July 17, 2001.
Managing for Results: Federal Managers’ Views on Key Management  Issues Vary Widely Across Agencies. GAO-01-592. Washington, D.C.:  May 25, 2001.
Managing for Results: Emerging Benefits From Selected Agencies’ Use of  Performance Agreements. GAO-01-115. Washington, D.C.: October 30,  2000.
Human Capital: Using Incentives to Motivate and Reward High  Performance. GAO/T-GGD-00-118. Washington, D.C.: May 2, 2000.
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