The SES is relatively small—about 7,900 members in 2013—and represents less than one percent of the over two million federal civilian employees. As a corps of executives selected for their leadership qualifications, members serve in the key positions just below the top presidential appointees. SES members are the major link between these appointees and the rest of the federal work force. They operate and oversee nearly every government activity in approximately 75 federal agencies. OPM manages the overall federal executive personnel program, and OPM staff provides the day-to-day oversight of and assistance to executive branch agencies as they develop, select, and manage their federal executives. OPM has a key leadership and oversight role in the design and implementation of executive branch agencies’ SES performance-based pay systems by certifying that the agencies’ systems meet certain criteria. Specifically, agencies are allowed to raise SES basic pay and total compensation caps if OPM certifies, with the concurrence of OMB, that agencies’ performance appraisal systems make—in design and application—meaningful distinctions based on relative performance. Agencies’ performance appraisal systems are evaluated against certification criteria, including linking performance for senior executives to the organization’s goals. Barring any compliance problems that might arise after certification has been awarded, full certification is for about 24 months. Provisional certification for about 12 months is awarded when an appraisal system meets design requirements, but there is insufficient documentation to determine whether implementation meets certification requirements. Certifying SES performance appraisal systems is also OPM’s opportunity to ensure that these systems meet statutory requirements. From July 2011 through January 2012, OPM, SES members, and other agency representatives from various agencies and organizations developed a new SES performance appraisal system to try to meet the needs of executive branch agencies and their SES members. Under the new system, agencies were intended to have a more consistent and uniform framework to communicate expectations and evaluate the performance of SES members. While promoting greater consistency, the new system was also designed to enhance clarity, transferability, and equity in the development of performance requirements, the delivery of feedback, the development of ratings, and the link to compensation. OPM stressed that a major improvement of the new system included dealing with the wide disparity in distribution of ratings by agency through the provision of clear, descriptive performance standards and rating score ranges that establish mid-level ratings as the norm and top-level ratings as truly exceptional. While agencies are not required to adopt the new system, OPM encourages agencies to do so. Table 1 shows the criteria and documentation needed for distinctions in performance and differentiation in pay and a description of the guidelines used for those criteria. (Appendix II has a complete copy of OPM’s certification report form.) In our 2008 report on SES performance management systems, we noted that while OPM certified that the selected agencies were making meaningful distinctions based on relative performance as measured through the pay and performance differentiation certification criteria, performance ratings at the selected agencies raised questions about the extent to which meaningful distinctions based on relative performance were being made and how OPM applied these criteria. For example, we reported that fiscal year 2007 SES ratings were concentrated at the top two levels. As part of making meaningful distinctions in performance, OPM has emphasized to agencies through its certification guidance that its regulations prohibit forced distribution of performance ratings and that agencies must avoid policies or practices that would lead to forced distributions or even the appearance of it. We recommended that OPM strengthen communication with agencies and executives regarding the importance of using a range of rating levels when assessing performance while avoiding the use of forced distributions. We also noted that communicating this information to agencies will help them begin to transform their cultures to ones where a “fully successful” rating is valued and rewarded. OPM implemented the recommendation, and the agency has been communicating the importance of using a range of rating levels through the new SES performance management system. In 2003, when Congress refined the pay systems for members of the SES by requiring a clearer link between performance and pay, many senior executives were receiving the top rating. Under its regulations, OPM requires agencies to write performance requirements for each senior executive at the “fully successful” level. In addition, under OPM’s new SES performance appraisal system, a “fully successful” rating indicates a “high level of performance” and “effective, solid, and dependable” leadership. A rating of 5 is the highest, (labeled “outstanding”), followed by 4 (“exceeds fully successful”), 3 (“fully successful”), 2 (“minimally satisfactory”), and the lowest rating of 1 (“unsatisfactory”). Executives with a rating of 2 or 1 are ineligible for performance awards, and a rating of 1 also triggers immediate additional performance actions. An executive receiving a rating of 1 must either be reassigned or transferred within, or removed from, the SES. For fiscal years 2010 through 2013, all of the CFO Act agencies had four or five rating levels in place for assessing SES performance. Figure 1 shows SES performance rating distributions for the CFO Act agencies for those years. As the figure shows, more than 85 percent of career SES were given a rating of either 5 or 4 each year. For the same four years, approximately 46 percent of career SES members received the highest possible rating. At a few agencies, the proportion of senior executives who received a rating of 5 was larger than 70 percent. Table 2 shows the number of career SES rated and the percentage at each rating level for the 24 CFO Act agencies for fiscal year 2013. (Appendix III shows career SES ratings and performance awards for the 24 CFO Act agencies for fiscal year 2013.) A small proportion of senior executives received a rating of 3 or lower. For fiscal years 2010 through 2012, about 13 percent of career executives were given a rating of 3. For fiscal year 2013, 641 (or 10.3 percent) of executives received a rating of 3, and at a third of the agencies, less than 5 percent were given a rating of 3 or lower. Twenty-one (or 0.3 percent) senior executives were rated less than fully successful. Across all of the CFO Act agencies, 17 executives received a rating of 2 for fiscal year 2013, and 4 executives received a rating of 1. Budget constraints have affected SES performance awards in recent years, and the number of executives receiving performance awards and the size of awards has decreased since fiscal year 2010. While legal requirements have not changed—that SES performance awards be between 5 and 20 percent of an individual executive’s rate of basic pay— OPM and OMB issued guidance in June 2011 that capped spending on SES performance awards at no more than 5 percent of aggregate SES salaries at a given agency, rather than the normal cap of 10 percent. This cap was further reduced in February 2014 to 4.8 percent of aggregate salaries. Additionally, senior executives did not receive pay adjustments for three years (from January 1, 2011 through December 31, 2013) due to federal pay-freeze legislation, which included a prohibition on SES pay increases. Figure 2 shows a timeline of selected events affecting SES performance awards from 2003 through 2014. Table 3 shows the average SES performance awards for the four fiscal years in inflation-adjusted dollar amounts and as a percentage of base salary. To deal with the effects of sequestration, DOD chose to limit funding for SES performance awards to 1 percent of aggregate career SES salaries for fiscal year 2013. Several other agencies also limited funding for performance awards to around 1 percent of aggregate career SES salaries. This is one reason for the sharp decrease in the percentage of SES receiving performance awards and the decrease in average award amounts across the 24 CFO Act agencies for fiscal year 2013. Officials at several agencies said that in recent years, budget constraints have forced them to make difficult decisions about how to allocate limited award money and still make distinctions in performance pay. Figure 3 shows the average SES performance awards by rating level for the 24 CFO Act agencies for fiscal years 2010 through 2013. Since 2010, agencies have made smaller distinctions in performance award amounts between senior executives rated at different levels of performance. For example, for fiscal year 2010, the average performance award for an executive with a rating of 5 was $4,991 more than the average award for an executive with a rating of 4. By fiscal year 2013, the average performance award for a rating of 5 was $2,604 more than the average award for a rating of 4. In a report on federal performance management, we noted that it was frequently perceived that ratings were inflated by supervisors because, among other things, they were used for multiple decisions involving pay and awards, which can create a situation in which a significant number of employees are rated in the “outstanding” and “exceeds fully successful” levels. To the extent that employees with such high ratings do not receive a monetary award, the perception that rewards are not directly linked to performance is reinforced. On the other hand, as the number of individuals receiving monetary awards increases, the average dollar award will be reduced, resulting in the perception that the awards are less motivating. Since fiscal year 2010, the percentage of eligible SES receiving a performance award at each rating level has decreased. Figure 4 shows the percentage of SES receiving a performance award by rating for fiscal years 2010 through 2013. To help assess how agencies are meeting the certification requirement to make distinctions in pay based on performance, OPM uses Pearson correlation coefficients as a metric to analyze the strength of the relationship between executives’ pay adjustments and performance awards and their ratings. Correlation coefficients measure the linear association between SES performance pay and senior executives’ ratings, and the value of the coefficient will be lower if the actual relationship between the two is not a straight line. For this reason, differences between years or agencies in the value of the correlation coefficient may not be meaningful.