Since 2000, Congress and OPM have gradually shifted to performance- based pay for senior executives through legislative and regulatory changes. In October 2000, OPM amended its senior executive performance management regulations requiring agencies to (1) hold senior executives accountable for their individual and organizational performance by linking performance management with the results- oriented goals of the Government Performance and Results Act of 1993; (2) evaluate senior executive performance using measures that balance organizational results with customer satisfaction, employee perspectives, and any other measures agencies decide are appropriate; and (3) use performance results as a basis for pay, awards, and other personnel decisions. While emphasizing the use of performance results as the basis for pay and other awards, members of the SES still received the annual across-the-board and locality pay adjustments. In 2002, Congress raised the total annual compensation limit—from Executive Schedule (EX) level I to the total annual compensation payable to the Vice President—for senior executives and other senior professionals in agencies with systems that have been certified by OPM with OMB concurrence as having performance appraisal systems which as designed and applied make meaningful distinctions based on relative performance. The act instructed OPM and OMB to promulgate regulations regarding certification that, if met by an agency, would allow it to access the higher total compensation cap, which includes bonuses and other forms of compensation. In 2003, Congress changed the basis for how agencies pay their senior executives and the overall SES pay structure. Beginning in January 2004, senior executives no longer received annual across-the-board or locality pay adjustments. Agencies are to base pay adjustments for senior executives on individual performance and contributions to the agency’s performance by considering the individual’s accomplishments and such things as unique skills, qualifications, or competencies of the individual and the individual’s significance to the agency’s mission and performance, as well as the individual’s current responsibilities. In addition, the SES pay structure changed from six pay levels to a single, open-range pay band with a higher basic pay cap—EX-level III for agencies without certified appraisal systems and EX-level II for agencies with such systems. For calendar year 2008, the pay caps are $158,500 for basic pay (EX-level III) with a senior executive’s total compensation not to exceed $191,300 (EX-level I). If an agency’s senior executive performance appraisal system is certified by OPM and OMB concurs, the caps are increased to $172,200 for basic pay (EX-level II) and $221,100 for total compensation (the total annual compensation payable to the Vice President). To qualify for senior executive pay flexibilities, agencies’ performance appraisal systems are evaluated against nine certification criteria and any additional information that OPM and OMB may require to make determinations regarding certification. OPM’s and OMB’s certification criteria are broad principles that position agencies to use their pay systems strategically to support the development of a stronger performance culture and the attainment of their mission, goals, and objectives. (See app. II for additional information on the certification criteria). Two levels of performance appraisal system certification are available to agencies—full and provisional. Through a law passed in October 2008, an agency’s certification now lasts for up to 24 months, with the possibility of a 6-month extension by the OPM Director, rather than a calendar-year-based coverage. Previously, an agency’s certification lasted for 2 calendar years for full certification and 1 calendar year for provisional certification. In addition to SES employees, many agencies use senior employees with scientific, technical, and professional expertise, commonly known as senior-level (SL) and scientific or professional (ST) positions. An agency may apply to OPM and OMB for certification of its SL/ST performance management system, and if its system is certified as making meaningful distinctions in relative performance, an agency may raise the total annual compensation maximum for SL/ST employees to the salary of the Vice President. Beginning in April 2009, the recently passed law allows certified agencies to raise the basic pay cap for SL/ST employees to EX-level II—the same maximum rate of basic pay as SES members, and also exempts SL/ST employees from receiving locality pay. Previously, SL/ST employees under certified appraisal systems had a maximum rate of basic pay equal to EX-level IV plus locality pay up to EX-level III. However, unlike the SES, their individual rate of pay does not necessarily have to be based on individual or agency performance. OPM has a key leadership and oversight role in the design and implementation of agencies’ SES performance-based pay systems by certifying that the agencies’ systems meet the certification criteria before they can receive the pay flexibilities. In our January 2007 report examining the senior executive performance-based pay system, we made a series of recommendations to OPM designed to address issues specific to the performance-based pay system, such as sharing best practices, tracking progress towards goals, and developing a timeline for issuance of certification guidance. We are following up on the status of these recommendations through this report. The selected agencies are generally addressing three key areas related to OPM’s and OMB’s certification criteria through their SES performance- based pay systems— factoring organizational performance into senior executive performance appraisal systems, making meaningful distinctions in senior executive performance, and building safeguards into senior executive performance appraisal and pay systems. However, USAID did not provide its PRB members and other reviewing officials with any specific information on organizational performance to help inform their senior executive appraisal recommendations. In our past work on performance management, we identified the alignment of individual performance expectations with organizational goals as a key practice for effective performance management systems. Having a performance management system that creates a “line of sight” showing how unit and individual performance can contribute to overall organizational goals helps individuals understand the connection between their daily activities and the organization’s success. To receive certification of their systems, agencies are to align senior executive performance expectations with the agency’s mission, strategic goals, program and policy objectives, or annual performance plan and budget priorities. While many agencies are doing a good job overall of aligning executive performance plans with agency mission and goals, according to OPM some of the plans do not fully identify the measures used to determine whether the executive is achieving the necessary results, which can affect the executive’s overall performance appraisal. This challenge of explicitly linking senior executive expectations to results-oriented organizational goals is consistent with findings from our past work on performance management. To help hold senior executives accountable for organizational results, beginning in 2007, OPM required agencies to demonstrate that at least 60 percent of each senior executive’s performance plan is focused on achieving results and has clear measures associated with those results to show whether the goals have been achieved to be certified. The selected agencies have designed their appraisal systems to address OPM’s requirement of aligning individual expectations with organizational goals. For example, in setting expectations for individual performance plans, DOE requires senior executives and supervisors to identify three to five key performance requirements with metrics that the executive must accomplish in order for the agency to achieve its strategic goals. Weighted at 60 percent of the summary rating, the performance requirements are to be specific to the executive’s position and described in terms of specific results with clear, credible measures (e.g., quality, quantity, timeliness, cost-effectiveness) of performance, rather than activities. For each performance requirement, the executive is to identify the applicable strategic goal in the performance plan. To ensure that agencies are implementing their policies for alignment of performance expectations with organizational goals, OPM requires agencies as part of their certification submissions to provide a sample of executive performance plans, the strategic plan or other organizational performance documents for establishing alignment, and a description of the appraisal system outlining the linkage of executive performance with organizational goals. Further, OPM requires agencies to factor organizational performance into senior executive performance appraisals to receive certification of their SES appraisal systems. According to OPM and OMB officials overseeing the certification review process, the main sources of organizational performance that agencies use are the performance and accountability reports (PAR); program assessment rating tool (PART) summaries, which capture agencywide as well as program- or office-specific performance; and the President’s Management Agenda (PMA) scorecards, as applicable. However, agencies have the flexibility to determine the format and type of organizational performance information for the performance appraisal process and certification submissions, according to OMB’s lead official for the certification review process. All of the selected agencies have policies in place for factoring organizational performance into senior executive appraisal decisions and have identified common organizational assessments—such as the PMA, PAR, or PART results—for highlighting organizational performance results. As a next step, a few of the agencies, such as NRC and Treasury, have developed customized tools summarizing organizational performance at different levels of the organization, such as the bureau, office, or program levels to help ensure that senior executive appraisal decisions are consistent with organizational performance. For example, NRC provides summary reports capturing office-level performance to rating and reviewing officials to ensure that these officials have the information they need to make consistent assessments between senior executive and organizational performance. At the midpoint and end of the appraisal cycle, NRC’s senior performance officials (SPO)—two top-level executives responsible for assessing organizational performance—conduct assessments for each office that take into account quarterly office performance reports on their operating plans, an interoffice survey on the office’s performance completed by the other directors as identified by NRC, as well as the office director’s self-assessment of the office’s performance. To assess bureau-level performance, Treasury uses a departmentwide organizational assessment tool that provides a “snapshot” of each bureau’s performance across various indicators of organizational performance, such as the PAR, PART results, PMA areas, OPM’s Federal Human Capital Survey results, budget data, and information on material weaknesses.