GovernmentExecutive.com

Paybanding has become a loaded term, with different meanings for different groups. To top managers, it means pay for performance and an enhanced ability to hold employees accountable. To mid-level managers, it means more control over pay, promotion and assignments. To many rank-and-file employees, it represents a threat to a cherished tradition of guaranteed pay increases.

In my recent report for the IBM Center for the Business of Government, I found that despite all the controversy, most payband systems bring only incremental change from the General Schedule. For example, most are designed to deny poor performers some or all of the annual general pay increase.

The reality is that in most such systems, a small percentage receive low performance ratings. In 2002, only 0.2 percent of workers in the Navy Demonstration Project in China Lake, Calif. -- the first federal payband system -- were rated at the lowest two rungs of the five-level appraisal system.

A few agencies have systems that are a more radical departure from the status quo, the report shows. At the Government Accountability Office, the comptroller general controls the size of the agency's general pay increase each year. In 2006, he set the annual adjustment at 2.6 percent, compared with 3.4 percent for GS employees. The goal is to allocate a higher portion of raise funds on the basis of performance rather than longevity.

And at the Internal Revenue Service, managers given the mid-range "meets expectations" rating receive only the general pay increase, when in the past they also could get a step increase. One result is that high performers can earn proportionately higher pay increases than they could under the General Schedule.

Payband systems provide important recruitment and retention advantages. Many of the organizations with such systems have high numbers of scientists and engineers, whose jobs are difficult to fill. Such is the case at nine research and development laboratories at the Defense Department and the National Institute for Standards and Technology. Paybanding allows the flexibility needed to compete with the private sector for technical talent. With paybanding, salaries can be set anywhere within the employee's relevant band.

Although many are apprehensive about paybanding, experience shows high levels of satisfaction. At China Lake, employee support grew from 29 percent when the system was first implemented in 1980 to 70 percent by 1994. There also have been high levels of satisfaction with the NIST and Commerce demonstration projects.

Some organizations have struggled to ensure that their payband systems are cost neutral. At NIST, salaries increased by 10 percent more than did salaries for a control group during the first seven years of the project, the report shows.

It is ironic, therefore, that paybanding has been proposed as a solution to the high salary costs that result from GS pay policies. But GAO's payband system allows the comptroller general to make annual adjustments taking budgetary considerations into account. The payband system for IRS managers allows the commissioner also to scale pay increases to funding availability.

Although the government's experience with paybanding generally has been positive, there is cause to be wary as it is extended to larger agencies such as the Defense and Homeland Security departments. Experience is mostly in small organizations. Size presents a challenge, particularly because top managers must devote significant attention to design and implementation of these systems. That's why the Pentagon's decision to phase in the new National Security Personnel System is a good one.

Another challenge is management training. Supervisors must be prepared to tell some workers that they are contributing less than others and will receive smaller pay increases. The skills to effectively convey expectations, support employees as they strive to meet expectations and to assist those who are falling short are at a premium. The funds required to provide managers with this type of "soft skill" training is in short supply at most agencies.

Executives contemplating a plunge into paybanding should tread cautiously and heed lessons learned.

James R. Thompson is associate professor and director of graduate studies for the Graduate Program in Public Administration at the University of Illinois-Chicago.

COMMENTS

• Mike, You laid it out succinctly but if you are correct, and I firmly agree with your evaluation, the ultimate goal MUST be to slow, freeze, or even reduce the financial impact of the personnel side of the budget. So saying, all these claims of flexible recruitment (using the carrot of higher than entry level wages to draw in new talent) must come at the expense of current employees; thus aggravating an already presumed exodus problem. Without a serious reduction in personnel numbers, logic dictates that result. I simply can see no positive gain from this initiative for the VAST majority of currently working civil servants (everyone who doesn’t play politics or perform within the top 4%). The only entity to benefit will be the administration-in-power by freeing up funds for other priorities, gaining unreasonable powers of force reduction and deployment, and streamlining the elimination procedures for undesirable workers. I will not define the term “undesirable” in light of the current DOJ “scandal” or the BRAC. Some of these capabilities sound almost reasonable, especially to unknowledgeable non-government taxpayers. That is why we constantly hear disinformation that we need to change management systems while managerial training, and managerial relief from non-critical missions so they can truly manage, is all we really need. One thing I will really give Dubya credit for is the fact that he found the right spin meisters. Disinformation has been taken to heights undreamed of. Tip off Posted August 1, 2007 10:20 AM
• When I hear and read that federal employees receive guaranteed pay increases as though that is accepted fact, it sticks in my crawl. First, the annual “automatic pay increases” are determined by congress and the president and even though they are not technically considered to be cost of living increases that is how most federal employees view them. In my 27 years the largest increase received was 4.8 percent. The majority of these increases have been between 1.8 and 3.5 percent. This is hardly what someone would characterize as a windfall by any stretch of imagination, with actual living and health costs far out pacing these meager increases. On the other hand, there are two existing pay incentives under the current GS system that are tied to performance. One is the employee annual performance award that is received only if the employee’s performance was determined to be outstanding by his or her manager. The other is step increases on the GS pay scale that are determined by both longevity and successful performance in your position. The step increase is not received unless the employee is consistently rated by the manager to be fully successful in his or her position. There is nothing automatic about the federal GS pay system. An employee can not expect to have a long federal career unless he or she is consistently meeting or exceeding their agency’s performance goals. From my experience I’d have to agree with others who say that the primary driver behind the current pay for performance initiative has more to do with holding down future payroll costs than with improving employee performance. Michael Vanater Posted July 31, 2007 11:53 AM
• “Executives contemplating a plunge into paybanding should tread cautiously and heed lessons learned.” Want to learn from a P4P system that does not work (from the workers standpoint)? Look at the FAA’s Core Compensation system. But then again, Core Compensation was really not a P4P system. Core Compensation was a payroll reduction system! Bean Boy Posted July 30, 2007 9:32 PM