Senior Executive Service (SES) Pay for Performance System

Congressional research reportFeb 9, 2007

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Order Code RL33128

Senior Executive Service (SES) Pay for

Performance System

Updated February 9, 2007

L. Elaine Halchin

Analyst in American National Government

Government and Finance Division

Senior Executive Service (SES) Pay for

Performance System

Summary

A new pay system for the Senior Executive Service (SES) was established in

2004 by Section 1125 of the FY2004 National Defense Authorization Act (P.L. 108136). This legislative provision capped several years when the Director of the Office

of Personnel Management (OPM) had advised federal agencies that they needed to

provide more rigorous and realistic ratings of their senior executives. (In FY2002,

69% of career senior executives received the highest rating.) Additionally, certain

components of the new system could help resolve the long-standing problem of pay

compression within the SES. Key features of the new pay system, which took effect

on January 11, 2004, include the elimination of locality pay and annual pay

adjustments (which were provided in conjunction with annual adjustments for

General Schedule and Executive Schedule employees); the replacement of six pay

rates (ES-1 through ES-6) with one broad pay range; an increase in the cap on base

pay from Executive Schedule IV (EX-IV) to EX-III; and the addition of a second,

higher cap, EX-II, for SES appraisal systems that have been certified by OPM.

The certification process involves, in part, designing and implementing a

performance appraisal system that makes meaningful distinctions based on the

relative performance of senior executives (or senior-level (SL), or scientific or

technical (ST) professionals). With the concurrence of the Office of Management

and Budget (OMB), OPM developed a certification regulation, which includes nine

criteria agencies must meet in the design and administration of their appraisal

systems. Barring any compliance problems that might arise after certification has

been awarded, full certification is for two calendar years. Provisional certification

for one calendar year is awarded when an appraisal system meets design

requirements, but there is insufficient documentation to determine whether

implementation meets certification requirements. Certification also determines the

cap on aggregate compensation for senior executives and SL and ST employees. For

an appraisal system that has not been certified, the cap is EX-I; for an appraisal

system that has been certified, the cap is the equivalent of the Vice President’s salary.

The second, higher cap (Vice President’s salary) and the establishment of a

certification process were enacted by Section 1322 of the Homeland Security Act of

2002 (P.L. 107-296). (For SL and ST employees, certification does not affect their

base pay.)

Some of the issues that might arise with the implementation of the new SES pay

system and certification process are how to define “meaningful distinctions,” the

possibility that some agencies might use forced distributions, the potential for the

politicization of senior executives, and the system’s implications for the notion of

“rank in person,” which is a key feature of the SES. This report will be updated as

events warrant.

Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Pay Compression . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

President’s Management Agenda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

New SES Pay-for-Performance System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Senior Level and Senior Technical Positions . . . . . . . . . . . . . . . . . . . . . . . 12

Comparison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Conversion to the New Pay System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Remedy for the Senior Foreign Service (SFS) and Senior

Executives Stationed Overseas . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Certification of Performance Appraisal Systems . . . . . . . . . . . . . . . . . . . . . . . . . 16

Certification Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Full and Provisional Certification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Policy Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Meaningful Distinctions and Ratings Distributions . . . . . . . . . . . . . . . . . . . 20

“Meaningful Distinctions” Is Not Defined . . . . . . . . . . . . . . . . . . . . . 20

A Focus on the Highest Level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Explanations for the Decrease in Top Ratings . . . . . . . . . . . . . . . . . . . 29

Trends in Ratings, Awards, and Pay . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Ratings Distributions by Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Senior Executives’ Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Potential for Politicization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

DOD Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

NASA Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Senior Executives Association Survey . . . . . . . . . . . . . . . . . . . . . . . . 37

Institutional Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Rank in Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Transparency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Provisional Certification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Appendix A. Senior Executive Annual Summary Ratings Distribution

by Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Section 1126, P.L. 108-136 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Government Accountability Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Coalition for Effective Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

Robert D. Behn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Symposium on Designing and Managing Market-Based and More

Performance-Oriented Pay Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

List of Tables

Table 1. SES Pay Schedule, 1999-2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Table 2. SES Basic Pay and Pay Rate Distribution, 1999-2003 . . . . . . . . . . . . . . 6

Table 3. Comparison of Selected Features of Former and

Current SES Pay Systems in 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Table 4. Career SES Performance Ratings by Agency, FY2000-FY2005 . . . . . . 23

Table 5. Governmentwide Trends in Ratings and Awards for

Senior Executives, FY2001-FY2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Table 6. Agency Certification Status, CY2004-CY2006 . . . . . . . . . . . . . . . . . . . 41

Senior Executive Service (SES) Pay for

Performance System

Introduction

The Senior Executive Service (SES), established by the Civil Service Reform

Act of 1978 (P.L. 95-454, 92 Stat. 111), consists of approximately 7,000 top-level

federal executives. Creation of the SES was undertaken with the goal of remedying

problems related to the recruitment, retention, development, and management of

senior executives. Highly competent and skilled as leaders and managers, members

of the SES constitute a major link between top presidential appointees and other

federal employees. About 90% of senior executives are career appointees, who were

selected for the SES on the basis of meeting executive core qualifications.1

Noncareer appointees do not have to meet the same competitive selection

requirements, but they also do not receive the same entitlements as career senior

executives do.2 Approximately 70% of senior executives are in Washington, DC,

Virginia, and Maryland.

Two notable features of the SES are pay for performance and rank residing in

the person, not the position. For senior executives, SES offers a trade-off. In return

for the opportunity to earn greater financial rewards through outstanding job

performance, executives give up some of the usual job security associated with the

civil service. The concept of rank residing in the individual is based on the notion

that it facilitates reassignment of executives to functions, agencies, or positions

where they are needed.

In 2004, the SES pay system was changed dramatically, with these changes

driven by two factors: pay compression, which has been a long-standing problem for

senior executives, and the President’s Management Agenda (PMA), which was

instituted in 2001 by the Bush Administration. The previous pay system had six pay

levels, and pay compression resulted in senior executives at the top three SES pay

levels receiving essentially the same amount of base (or basic) pay in a given year.

Under the PMA, the Bush Administration has emphasized pay for performance for

senior executives, and has criticized agency performance management systems that

it believes fail to make meaningful distinctions among senior executives’ job

performances.

See U.S. Office of Personnel Management, “Executive Core Qualifications (ECQ’s),”

available at [http://www.opm.gov/ses/ecq.asp], for detailed information.

For more information on the noncareer SES, see U.S. Office of Personnel Management,

The Senior Executive Service, Feb. 2004, p. 3, available at [http://www.opm.gov/ses/pdf/

SESGUIDE04.pdf].

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The next section of this report examines the new SES pay system, and includes

a comparison between the new system and the previous system and an explanation

of the caps on aggregate compensation. An overview of the certification process and

a discussion of policy issues follows. Appendix B contains four sets of guidelines

developed by different parties that are intended to describe key principles and

activities necessary for the establishment and operation of an effective, credible payfor-performance system.

Pay Compression

A combination of factors created salary compression within the ranks of the

SES. As noted previously, under the previous pay system, there were six rates of

base pay, ES-1 through ES-6. The lowest rate could not be less than “120 percent

of the minimum rate of basic pay for GS-15 of the General Schedule,” and the

highest rate of basic pay could not exceed Executive Schedule Level IV (EX-IV).3

Within these parameters, the President was required to adjust the rates of basic pay

for senior executives whenever an adjustment was made, under 5 U.S.C. § 5303, in

the General Schedule rates of pay. However, the President determined the amount

by which to adjust SES base pay.4 Also, under the former pay system, SES members

received locality pay when the Pay Agent decided to extend it to the SES, which had

been done every year.5 The combination of basic pay and locality pay for senior

executives was capped at EX- III.6

While the statutorily-imposed floor pushed up from the bottom, annual salary

adjustments increased SES basic pay and, in the absence of significant increases in

Executive Schedule salaries, statutory salary caps squeezed down from the top.

Consequently, as shown in Table 1, the differences in amounts of pay between some

SES pay levels were nonexistent or negligible. In each column, the amount entered

in the “ES-6”row is the maximum amount of basic pay, or basic pay and locality pay,

payable to senior executives for that year. In columns where the same amount for

basic pay and locality pay is entered in two or more rows (for example, ES-5 and ES6), senior executives in all localities at those pay levels received the same

(maximum) amount of basic and locality pay.

5 U.S.C. § 5376(b)(1)(A); 5 U.S.C. § 5382(b). These citations refer to sections of the U.S.

Code that were subsequently amended by Sec. 1125 of P.L 108-136, which effected the

changes in the SES pay system.

5 U.S.C. § 5382(c). This citation refers to a section of the U.S. Code that was subsequently

amended by Sec. 1125 of P.L 108-136.

The President’s Pay Agent consists of the Secretary of Labor and the Directors of the

Office of Management and Budget and the Office of Personnel Management. The President

delegated authority to the Pay Agent, through Executive Order 12883, to extend locality pay

to certain categories of positions, including SES positions.

5 U.S.C. § 5304(g)(2). This citation refers to a section of the U.S. Code that was

subsequently amended by Sec. 1125 of P.L 108-136.

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Table 1. SES Pay Schedule, 1999-2003

1999

2000

2001

2002

2003

Pay

Level

Basic Pay

ES-1

$102,300

$108,305$115,660

$106,200

$113,400$121,141

$109,100

$117,479$127,625

$113,000

$122,763$134,515

$116,500

$127,707$141,417

ES-2

$107,100

$113,387$121,087

$111,200

$118,739$127,891

$114,200

$122,971$133,591

$118,300

$128,521$138,200i

$122,000

$133,736$142,500k

ES-3

$112,000

$118,574$125,900b

$116,300

$124,185$130,200f

$119,400

$128,570$133,700h

$123,700

$134,388$138,200j

$127,500

$139,766$142,500l

ES-4

$118,000

$124,927$125,900c

$122,200

$130,200g

$125,500

$133,700g

$129,800

$138,200g

$133,800

$142,500g

ES-5

$118,400a

$125,350$125,900d

$122,400a

$130,200g

$125,700a

$133,700g

$130,000a

$138,200g

$134,000a

$142,500g

ES-6

$118,400a

$125,350$125,900e

$122,400a

$130,200g

$125,700a

$133,700g

$130,000a

$138,200g

$134,000a

$142,500g

Basic Pay &

Locality Pay

Basic Pay

Basic Pay &

Locality Pay

Basic Pay

Basic Pay &

Locality Pay

Basic Pay

Basic Pay &

Locality Pay

Basic Pay

Basic Pay &

Locality Pay

Sources: U.S. Office of Personnel Management, “Rates of Basic Pay for Members of the Senior Executive Service, Employees in Senior-Level and Scientific or Professional Positions,

Administrative Law Judges, and Members of Boards of Contract Appeals,” Jan. 1999; U.S. Office of Personnel Management, “1999 Locality Rates of Pay for Members of the Senior

Executive Service,” Jan. 1999; U.S. Office of Personnel Management, “2000 Scheduled Rates of Basic Pay for Members of the Senior Executive Service and Employees in Senior-Level

and Scientific or Professional Positions,” Jan. 2000; U.S. Office of Personnel Management, “2000 Locality Rates of Pay for Members of the Senior Executive Service,” Jan. 2000;

U.S. Office of Personnel Management, “2001 Scheduled Rates of Basic Pay for Members of the Senior Executive Service, Employees in Senior-Level and Scientific or Professional

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Positions, Administrative Law Judges, and Members of Boards of Contract Appeals,” Jan. 2001; U.S. Office of Personnel Management, “2001 Locality Rates of Pay for Members of

the Senior Executive Service and Employees in Senior-Level and Scientific or Professional Positions,” Jan. 2001; U.S. Office of Personnel Management, “2002 Scheduled Rates of

Basic Pay for Members of the Senior Executive Service, Employees in Senior-Level and Scientific or Professional Positions, Administrative Law Judges, and Members of Boards of

Contract Appeals,” Jan. 2002; U.S. Office of Personnel Management, “2002 Locality Rates of Pay for Members of the Senior Executive Service and Employees in Senior-Level and

Scientific or Professional Positions,” Jan. 2002; U.S. Office of Personnel Management, “Salary Table 2003-ES, Rates of Basic Pay for Members of the Senior Executive Service (SES),”

Jan. 2003; U.S. Office of Personnel Management, “Locality Rates of Pay for Members of the Senior Executive Service,” Jan. 2003.

Notes:

a. This is the maximum amount of basic pay allowed for senior executives.

b. In 2 of 32 localities, ES-3 basic pay and locality pay was $125,900.

c. In 22 of 32 localities, ES-4 basic pay and locality pay was $125,900.

d. In 27 of 32 localities, ES-5 basic pay and locality pay was $125,900.

e. In 27 of 32 localities, ES-6 basic pay and locality pay was $125,900.

f. In 4 of 32 localities, ES-3 basic pay and locality pay was $130,200.

g. This is the maximum amount of basic pay and locality pay allowed for senior executives, and senior executives at this pay level in all localities received the same amount.

h. In 8 of 32 localities, ES-3 basic pay and locality pay was $133,700.

i. In 2 of 32 localities, ES-2 basic pay and locality pay was $138,200.

j. In 15 of 32 localities, ES-3 basic pay and locality pay was $138,200.

k. In 4 of 32 localities, ES-2 basic pay and locality pay was $142,500.

l. In 20 of 32 localities, ES-3 basic pay and locality pay was $142,500.

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The information displayed in Table 1 shows the extent of pay compression for

the period 1999-2003. The amount of base pay was virtually the same at the top

three pay levels for each year. Beginning in 2000, there were no differences among

the combinations of base pay and locality pay at the top three pay levels for each

year. The greatest variation in base pay occurred at the three lowest pay levels, ES-1

through ES-3, and the pay range for these three levels increased slightly over five

years. The difference between ES-1 and ES-3 base pay in 1999 was $9,700; the

difference in 2003 was $11,000.

Table 2 contains the pay rate distribution for these same years, which shows

how many senior executives were assigned to each pay level.

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Table 2. SES Basic Pay and Pay Rate Distribution, 1999-2003

1999

Pay

Level

2000

2001

2002

2003

Basic Pay

# Sr.

Execs

# Sr.

% Sr.

Basic Pay

Execs

Execsa

% Sr.

# Sr.

Basic Pay

Execsa

Execs

% Sr.

# Sr.

Basic Pay

Execsa

Execs

% Sr.

Execsa

Basic Pay

# Sr.

Execs

% Sr.

Execsa

ES-1

$102,300

915

14%

$106,200

1,012

15%

$109,100

1,047

16%

$113,000

1,099

16%

$116,500

1,182

18%

ES-2

$107,100

787

12%

$111,200

877

13%

$114,200

845

13%

$118,300

927

14%

$122,000

931

14%

ES-3

$112,000

993

15%

$116,300

937

14%

$119,400

949

14%

$123,700

955

14%

$127,500

1,023

15%

ES-4

$118,000

2,413

36%

$122,200

2,447

36%

$125,500

2,344

35%

$129,800

2,288

34%

$133,800

2,262

34%

ES-5

$118,400

1,100

16%

$122,400

1,074

16%

$125,700

1,003

15%

$130,000

1,011

15%

$134,000

930

14%

ES-6

$118,400

510

$122,400

484

$125,700

439

$130,000

423

$134,000

408

Sources: U.S. Office of Personnel Management, “SES Pay Rate Distribution as of September 30, 1999”; U.S. Office of Personnel Management, “Senior Executive Service Pay Rate

Distribution as of September 30, 2002,” available at [http://www.opm.gov/ses/index_demograph.asp]; U.S. Office of Personnel Management, “Senior Executive Service Pay Rate

Distribution as of September 30, 2001,” available at [http://www.opm.gov/ses/index_demograph.asp]; U.S. Office of Personnel Management, “Senior Executive Service Pay Rate

Distribution as of September 30, 2002,” available at [http://www.opm.gov/ses/index_demograph.asp]; U.S. Office of Personnel Management, “Senior Executive Service Pay Rate

Distribution as of September 30, 2003,” available at [http://www.opm.gov/ses/index_demograph.asp].

Note:

a. Percentages have been rounded.

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Nearly 60% of senior executives in any given year were paid at ES-4, ES-5, or

ES-6, which means that all of these executives earned virtually the same amount of

basic pay. Negation of the financial distinctions among these three pay levels could

undermine the concept of rank in person. It is also possible that pay compression

could affect recruiting, retention, and reassignments within the SES. Comparison

among the four years shows that a similar pattern occurred each year, with the highest

percentage of senior executives (34%-36%) clustered at ES-4. The smallest

percentage of executives — 6%-7% — were paid at the ES-6 level. The remaining

senior executives were evenly distributed (in terms of percentages) across the

remaining four pay levels. It is not clear why the highest percentage of senior

executives is found at ES-4. A possible explanation is that, because of pay

compression, there was no financial reason for moving senior executives to ES-5 and,

ultimately, ES-6.

President’s Management Agenda

Whereas pay compression has been a long-standing problem for members of the

SES, the other impetus for altering the SES pay system has its roots in the

President’s Management Agenda. Introduced in 2001, the PMA is focused on

fostering a government that is citizen-oriented, market-driven, and results-oriented.

The strategic management of human capital is one of five PMA initiatives.7 An

excerpt from the PMA chapter on human capital states:

The managerial revolution that has transformed the culture of almost every other

large institution in American life seems to have bypassed the federal workforce.

Federal personnel policies and compensation tend to take the same “one-sizefits-all” approach they took in 1945. Excellence goes unrewarded; mediocre

performance carries few consequences; and it takes months to remove even the

poorest performers .... These realities contribute to the growing consensus that

action is required. The federal government has a unique opportunity to redefine

the way it manages human capital .... [The Administration’s assessment of

personnel flexibilities] and outcomes achieved under demonstration projects ...

will help ... permit more performance-oriented compensation .... Accountability

for results will be clear and meaningful, with positive rewards for success and

real consequences for failure.8

The Bush Administration’s interest in the performance of senior executives and

how it could be connected to results, organizational excellence, and the

Administration’s priorities was articulated initially in a November 1, 2001,

memorandum that focused exclusively on the SES. In the memorandum to agency

human resources directors, the Director of the Office of Personnel Management

(OPM) wrote:

Although many of you have only been confirmed recently, you can still use the

appraisal process to reinforce our commitment to a results-oriented Government.

Executive Office of the President, U.S. Office of Management and Budget, The President’s

Management Agenda, Fiscal Year 2002, available at [http://www.whitehouse.gov/omb/

budget/fy2002/mgmt.pdf].

Ibid., pp. 11-13, 15.

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You can ensure that measurable results, not anecdotes, form the basis of

executive appraisals. It is completely appropriate to use this opportunity to ask

as many follow-up questions as possible and to obtain documentation of results.

You can direct rating officials and Performance Review Board members to be

rigorous in preparing recommendations on ratings and bonuses. And, most

importantly, you can personally communicate your intent to use the SES

appraisal system to drive organizational excellence .... It is important that

agencies ensure that executive performance plans reflect this Administration’s

priorities, including the President’s Management Agenda. A critical aspect of

this process is establishing executive performance goals and expectations in line

with agency strategic goals and objectives, regularly assess[ing] performance

against these goals, and [using] performance as a true basis for pay, development,

and other personnel decisions.9

Noting that agencies had “rated 85% of their executives at the highest level their

system permits,” the Director added: “... [T]hese statistics suggest that agencies are

not making meaningful distinctions between those who merely do what’s expected

and those with a consistent track record of outstanding performance.”10

A second memorandum on senior executives from the OPM Director to

department and agency heads, dated September 27, 2002, expressed a similar theme,

reminding agency officials that performance appraisals should be based on results,

and urging them to be more discerning in preparing recommendations on ratings and

bonuses. The Director wrote:

I believe that we have begun to see some shift toward results-based appraisals

and greater accountability. However, we have a long way to go. As your

FY2002 appraisal cycles come to a close, I once again urge you to ensure that

measurable results, not anecdotes, from the basis of your senior executives’

performance appraisals. By directing your Performance Review Boards to be

rigorous in preparing recommendations on ratings and bonuses, you

communicate your intention to use SES performance management systems to

drive organizational excellence and hold executives accountable.

To facilitate this effort, OPM implemented new requirements in FY2001 for

managing senior executive performance that emphasized results over process and

gave agencies considerable flexibility to design systems tailored to their unique

and changing missions, cultures, and needs. These requirements call for the

establishment of executive performance standards that are in line with agency

strategic goals and objectives. They also require agency leadership to expect

excellence, communicate performance expectations, and appraise performance

against those expectations, take action to reward outstanding performers, and

deal appropriately with those who do not measure up.

One of the dimensions of the Human Capital Scorecard [a device used by the

Office of Management and Budget (OMB) to measure agencies’ success in

meeting PMA standards] is the creation of a performance culture that motivates

U.S. Office of Personnel Management, “Senior Executive Excellence and Accountability,”

memorandum, transmittal #MSG-091a, Nov. 1, 2001, available at [https://www.opm.gov/

ses/memo11-1-01.asp].

Ibid.

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employees for high performance. Since establishing performance management

systems that truly distinguish between levels of performance is a key element of

success, your agency’s progress in managing senior executive performance will

be considered in determining success on this measure. By ensuring that your

executives’ performance plans and appraisal systems are linked to your

organizations’ strategic plans and reflect the Administration’s priorities, the

President’s Management Agenda, we can continue moving in the right

direction.11

In 2003, the Administration undertook a new effort to link appraisals and

financial compensation more closely to senior executive performance by proposing

changes to the SES pay system. The President’s FY2004 budget request summarized

the problem and offered a solution:

... [I]t’s not easy [to reform the management of human capital]. Consider the

Office of Personnel Management (OPM) Director Kay James’ effort to make

senior government executives more accountable. She learned that in 2000,

federal agencies gave 85 percent of their senior executives the highest possible

performance rating — an assertion that virtually everyone in Washington is way

above average. Despite James’ urging agencies to begin distinguishing the best

performers from others, almost nothing changed. In 2001, more than 83 percent

of senior executives received the highest possible rating. Five agencies gave 100

percent of their senior executives the highest rating and six more gave it to 90

percent of their senior ranks. Such figures let the public know that federal

managers are not yet serious about holding themselves or their staffs

accountable.12

The Administration ... proposes to eliminate the current pay structure for senior

managers [senior executives] and increase their pay ceiling. Under this proposal,

each agency will adjust pay for its senior managers on the basis of individual

performance, which will help address the current lack of meaningful senior

manager appraisal systems.13

In the meantime, while the Administration’s legislative proposal was

considered, enacted, and implemented, OPM continued to express concern about the

percentage of senior executives rated at the highest level. The OPM Director issued

a memorandum in early 2004 which noted that the distribution of SES appraisal

ratings had improved in some agencies, but not in others. She wrote:

Kay Coles James, Director, U.S. Office of Personnel Management, “Senior Executive

Excellence and Accountability,” memorandum, transmittal #MSG-067a, Sept. 20, 2002,

available at [https://www.opm.gov/ses/memo09-20-02.asp].

U.S. Office of Management and Budget, Budget of the United States Government, Fiscal

Year 2004 (Washington: GPO, 2003), p. 38.

U.S. Office of Management and Budget, Budget of the United States Government, Fiscal

Year 2004, Analytical Perspectives (Washington: GPO, 2003), p. 15. See U.S. Office of

Management and Budget, Budget of the United States Government, Fiscal Year 2004,

Appendix (Washington: GPO, 2003), p. 13, for the Administration’s proposed legislative

language to revise the SES pay system.

CRS-10

The data [from FY2000 and FY2001] indicate a growing number of agencies

have taken seriously the need to improve the distribution of SES ratings and

awards to support the high performance culture the President is determined to

establish. However, these data also suggest that more work [is] still ... required,

and we will be extremely interested in the information you report for fiscal year

2003. The necessity for more rigorous and realistic ratings is especially clear in

instances where agencies are not fulfilling their missions and reporting

demonstrable results.14

OPM’s Acting Director followed suit in March 2005, writing in a memorandum on

SES performance ratings and awards that:

[An OPM] report shows that in FY2003, over 74% of agency executives received

the highest performance rating possible under the applicable performance

appraisal system, and more than half of those eligible received substantial

performance bonuses. Both of these figures are essentially unchanged from

FY2002. These results do not reflect the requirements of the new SES pay-forperformance system .... Among other things, ... regulations [established by OPM

and OMB] require that agencies make meaningful distinctions in the

performance ratings and pay of their SES members, and that those ratings and

pay decisions be consistent with organizational results, overall and with respect

to an executive’s particular area of responsibility.15

In late 2005, OPM reported on FY2004 SES performance ratings, awards, and

salaries. In a related news release, the Director of OPM is quoted as saying that the

report is “reflective of the transition to the new Senior Executive Service pay-forperformance system,” and that it “documents some good early news about SES pay

and recognition and should reinforce that managers are taking the evaluation process

more seriously.”16 Several months later, in January 2006, the Director, in a

memorandum to chief human capital officers, addressed the issue of emphasizing

results in SES appraisal systems. The director wrote:

I want to be clear that agency SES appraisal systems will not be certified for

calendar year 2006 if the performance plans do not hold executives accountable

for achieving measurable business outcomes. By aligning employee performance

plans with organizational goals and holding employees accountable, agencies are

well on the way to establishing a results-oriented performance culture. We must

now place an even greater emphasis on achieving results. While Senior

Executive Service (SES) appraisal and certification regulations require

Kay Coles James, Director, U.S. Office of Personnel Management, “Reporting SES

Performance Ratings and Awards for FY2003,” memorandum, Feb. 12, 2004, available at

[http://www.usda.gov/da/SESratings_awards_2003_data_call.pdf].

Dan G. Blair, Acting Director, U.S. Office of Personnel Management, “FY2003 SES

Performance Ratings and Awards,” memorandum, Mar. 16, 2005, available from the author.

U.S. Office of Personnel Management, “OPM Report Shows Agency Progress on

Evaluating SES Performance and Rewarding Federal Executives,” news release, Oct. 18,

2005, available at [http://www.opm.gov/news/opm-report-shows-agency-progress-onevaluating-ses-performance-and-rewarding-federal-executives,968.aspx].

CRS-11

executives to be appraised based on their performance, we have found some

plans in some agencies that are weak in measuring results or setting targets.17

New SES Pay-for-Performance System

A new SES pay system, consistent with the language in the President’s FY2004

budget message, was enacted, by Section 1125 of the FY2004 National Defense

Authorization Act (P.L. 108-136), on November 24, 2003.18 In amending portions

of 5 U.S.C. §§ 5304, 5382, and 5383, Section 1125 modified the SES pay system by:

Eliminating locality pay from the SES.

Replacing six SES pay rates or levels (ES-1 through ES-6) with one

broad pay range.

Increasing the cap on SES base pay from Executive Schedule Level

IV (EX-IV) to EX-III.

Adding a second, higher cap on base pay — EX-II — for agencies

that have SES performance appraisal systems (and equivalent

systems as determined by the President’s Pay Agent) which have

been certified by OPM, with the concurrence of OMB.

The foundation for the new SES pay system was laid in 2001, when the

Administration proposed the Managerial Flexibility Act of 2001.19 This legislation

introduced the idea of instituting a two-cap system for total, or aggregate,

compensation for senior executives (and certain other groups of employees), with the

higher cap applicable to agencies whose SES performance appraisal systems had

been certified by OPM. (Aggregate compensation may include, for example, basic

pay, premium pay, incentive awards, recruitment and relocation bonuses, retention

allowances, danger pay allowances, and physicians’ comparability allowances.) In

2002, the Director of OPM offered a brief rationale at a congressional hearing for this

provision: “We believe the changes we are proposing with respect to senior

executives will strengthen the links between their performance and their pay and

awards. This portion of our proposal would amend an aggregate pay limitation that

Linda M. Springer, Director, U.S. Office of Personnel Management, “Building a ResultsOriented Performance Culture,” memorandum, Jan. 30, 2006, available at

[http://www.chcoc.gov/transmittal_detail.cfm?ID=708].

117 Stat. 1392, at 1638.

A copy of the bill that was proposed is available at [http://www.whitehouse.gov/

omb/legislative/mfa_bill.pdf]. A summary of the Managerial Flexibilty Act is available at

[http://www.whitehouse.gov/omb/legislative/mfa_summary. pdf].

CRS-12

prevents senior executives from receiving some award payments in a timely way.”20

Eventually, this provision was enacted as part of the Homeland Security Act.21

Section 1322 of the Homeland Security Act of 2002 shifted the cap on total

compensation from EX-I to the equivalent of the Vice President’s salary ($215,700

in 2007) for agencies that have certified performance appraisal systems. If an agency

does not have a certified system, the cap on aggregate compensation remains EX-I

($186,600 in 2007). Shifting the cap on total compensation does not represent an

increase in compensation; it will not affect the amount of money an individual may

receive. The cap on total compensation is a limit placed on the amount of

compensation a senior executive may receive in any one year. If a senior executive’s

total compensation exceeds the applicable cap, the difference between the two

amounts is deferred to, and paid, the next calendar year. Thus, senior executives

whose agencies have certified SES appraisal systems are more likely to receive all

of their compensation in one year instead of having some of their compensation (for

example, performance awards) deferred to the following year.

Senior Level and Senior Technical Positions

Changes involving the cap on total compensation for senior executives also

affect two other categories of senior employees in the federal government: senior

level (SL) and scientific/professional (ST).22 SL and ST personnel systems are for

nonexecutive positions classified above GS-15. Where leadership and management

skills and experience are paramount for senior executives, technical expertise is the

hallmark of SL and ST employees. An SL system includes positions “that do not

meet the criteria for the SES, nor do they involve the fundamental research and

development responsibilities that are characteristic of the Scientific/Professional (ST)

system.”23

Whereas the status of an SES appraisal system — certified or not certified —

determines the caps on base pay and total compensation for senior executives, the

certification status of an SL or ST appraisal system only affects the cap on total

compensation for these employees.24 (Additionally, the language in P.L. 108-136 that

eliminated locality pay for members of the SES did not eliminate locality pay for SL

U.S. Congress, Senate Committee on Governmental Affairs, Subcommittee on

International Security, Proliferation and Federal Services, statement of Kay Coles James,

Director, U.S. Office of Personnel Management, unpublished hearing, 107th Cong., 2nd sess.,

Mar. 18, 2002, pp. 5-6, available at [http://hsgac.senate.gov/031802james.htm].

Sec. 1322, P.L. 107-296; 116 Stat. 2135, at 2297.

The term “senior employees” includes members of the SES, senior level employees (SL)

and senior technical (ST) employees. SL and ST members may be referred to collectively

as “senior professionals.” Senior level positions are positions classified above GS-15

pursuant to 5 U.S.C. § 5108. Scientific/professional positions are established under 5

U.S.C. § 3104.

U.S. Office of Personnel Management, The Senior Executive Service, Feb. 2004, p. 7,

available at [http://www.opm.gov/ses/pdf/SESGUIDE04.pdf].

5 U.S.C. § 5307(d)(1).

CRS-13

and ST employees.) As with the SES, the two caps on total compensation for SL and

ST personnel systems are the equivalent of the Vice President’s salary for appraisal

systems that have been certified by OPM, and EX-I for appraisal systems that have

not been certified.

Comparison

The SES base pay provisions took effect on January 11, 2004. A comparison

of selected features of the former SES pay system and the new system is provided in

Table 3. It remains to be seen whether the combination of higher caps on basic pay,

the shift to one pay band, and the elimination of automatic pay increases will help to

alleviate the problem of pay compression. The requirement, for agencies that seek

certification, to make meaningful distinctions also could be a factor in facilitating the

distribution of senior executives across the entire SES pay range over time.

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Table 3. Comparison of Selected Features of Former and

Current SES Pay Systems in 2007

Feature

Former Pay System

Current Pay System

Minimum base pay, 2007

$111,676

(120% of GS-15, step 1)

$111,676

(same)

Maximum base pay, 2007

$145,400

(if EX- IV were still the

cap)

1. $154,600 for agencies

without certificationc

(EX-III is the cap)

2. $168,000 for agencies

with certification

(EX-II is the cap)

Cap on aggregate

compensation, 2007a

$186,600

(EX-I was the cap)

1. $ 186,600 for agencies

without certification

(EX-I is the cap)

2. $215,700 for agencies

with certification

(the Vice President’s

salary is the cap)

Number of pay levels

Six

One

Automatic pay increase (in

conjunction with annual

adjustment for General

Schedule and Executive

Schedule employees)

Yes

Noa

Locality pay

Yes

Certification of agencies’

performance appraisal

systems as making

“meaningful distinctions”

Necessary if an agency

wants to apply EX-II as

the cap on SES basic rate

of salary, and to apply the

Vice President’s salary as

the cap on aggregate

compensation.

Sources: U.S. Office of Personnel Management, “Salary Table No. 2007-ES, Rates of Basic Pay for

Members of the Senior Executive Service (SES),” Jan. 2007, available at

[http://www.opm.gov/oca/07tables/pdf/es.pdf]; U.S. Office of Personnel Management, “Salary Table

No. 2007-EX, Rates of Pay for the Executive Schedule (EX),” Jan. 2007, available at

[http://www.opm.gov/oca/07tables/pdf/ex.pdf]]; U.S. Office of Personnel Management, “Senior

Executive Service Pay and Performance Awards and Aggregate Limitation on Pay,” Federal Register,

vol. 69, no. 145, July 29, 2004, pp. 45543-45545; Kay Coles James, Director, U.S. Office of

Personnel Management, “New Performance-Based Pay System for the Senior Executive Service,”

memorandum, Dec. 16, 2003, CPM 2003-19, available at [http://www.om.gov

/oca/compmemo/2003/2003-19.asp].

Note:

a. Although automatic pay increases no longer occur, an agency may increase a senior executive’s pay,

as long as his or her performance or contributions warrant an increase, in order to maintain the

individual’s relative position within the SES pay rate range. (5 CFR 534.404(b)(3).)

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Conversion to the New Pay System

For most employees affected by the changes to the SES pay system, conversion

to the new system occurred on January 11, 2004. Conversion to the new system, or

an equivalent pay system, did not qualify as a pay adjustment.25 (Except as provided

in OPM regulations, a senior executive’s rate of base pay may not be adjusted more

than once during a 12-month period.26) The basic pay of a senior executive could not

be reduced by the amendments made by Section 1125(a) of P.L. 108-136 during the

first year after the effective date (January 11, 2004) of this provision.27

General. As of the conversion date, an individual’s rate of basic pay, plus any

applicable locality pay in effect prior to that date, became a senior executive’s

converted, or new, rate of basic pay. The converted rate was the rate of basic pay to

be used for all pay computation purposes. The converted rates of basic pay for senior

executives employed by the Federal Bureau of Investigation (FBI) and the Drug

Enforcement Administration (DEA) also included any applicable locality payment

that was in effect immediately before January 11, 2004.28

Remedy for the Senior Foreign Service (SFS) and Senior

Executives Stationed Overseas. When members of the SFS and SES who were

stationed overseas as of the conversion date entered the new pay system, their salaries

included only base pay, which became their converted pay.29 Because local pay was

not included, these two groups of federal employees entered the new pay system at

a financial disadvantage compared with members of the SFS and SES who were

Kay Coles James, Director, U.S. Office of Personnel Management, “Conversion to New

SES Performance-Based Pay System,” memorandum CPM 2004-03, Jan. 9, 2004, available

at [http://www.opm.gov/oca/compmemo/2004/2004-03.asp]. Detailed information about

pay adjustments under the new system may be found in U.S. Office of Personnel

Management, “Senior Executive Service Pay and Performance Awards; and Aggregate

Limitation on Pay,” Federal Register, vol. 69, no. 233, Dec. 6, 2004, pp. 70355-70367; Kay

Coles James, Director, U.S. Office of Personnel Management, “Final Regulations on

Performance-Based SES Pay System,” memorandum CPM 2004-25, Dec. 2, 2004, available

at [http://www.opm.gov/oca/compmemo/2004/2004-25.asp].

5 U.S.C. § 5383(c).

Sec. 1125(c)(2) of P.L. 108-136.

Kay Coles James, Director, U.S. Office of Personnel Management, “Conversion to New

SES Performance-Based Pay System,” p. 2.

The SFS pay system is separate from, yet related to, the SES pay system. Under 22 U.S.C.

§ 3962(a)(1), the President prescribes salary classes for the Senior Foreign Service. The

basic pay rates for the SFS cannot be less than the minimum rate and cannot exceed the

maximum rate for SES and “shall be adjusted at the same time and in the same manner as

rates of basic pay are adjusted for the Senior Executive Service.” (5 U.S.C. § 5382.) As of

May 31, 2005, 556 members of SFS were stationed overseas. (Information provided by

telephone by the Department of State, Bureau of Human Resources, to the author on June

24, 2005). As of Sept. 30, 2004, 27 members of the SES were stationed outside the United

States. (Information provided electronically by the U.S. Office of Personnel Management

to the author on July 15, 2004.)

CRS-16

stationed in the United States at the time of the conversion and whose converted pay

included locality pay.

Executive Order (E.O.) 13325, dated January 23, 2004, offered a remedy to this

problem for members of the SFS. E.O. 13325 stated:

... [A]s of the first day of the first applicable pay period beginning on or after

January 1, 2004, a member of the Senior Foreign Service shall receive the rate

of basic pay to which he or she was entitled immediately before that date,

including any locality-based comparability payment authorized under 5 U.S.C.

5304(h)(2)(C) that the member was receiving immediately before that date.30

Explaining how officials might use the executive order to adjust the pay of SFS

officers serving overseas, the Deputy Assistant Secretary for Human Resources at the

State Department said, “Basically, we can do it either as a pay-for-performance

consideration or do the one-time adjustment when they return to the United States.”31

If corrective action had not been taken, not only would SFS officers stationed abroad

have had lower basic pay rates than SFS officers and senior executives stationed in

the United States, but also their retirement benefits, which are calculated using basic

pay, would have been adversely affected.32

Remedying the financial disparity for senior executives stationed overseas at the

time of the conversion was accomplished by 5 CFR § 534.406, which provides that

the new, or converted, base pay of this particular group is to include their current

base pay (as of January 11, 2004) plus the applicable locality pay amount upon their

reassignment to Washington, DC, or the contiguous 48 states. This adjustment is

prospective, not retroactive, and will not be considered a pay adjustment “for the

purpose of applying” 5 CFR § 534.404(c).33 (As noted above, only one pay

adjustment per 12-month period is allowed for each senior executive.)

Certification of Performance Appraisal Systems

As noted earlier, the changes effected by P.L. 108-136 allow agencies with

certified SES performance appraisal systems to apply a higher cap to SES basic pay

and total compensation. The crux of the certification process is the design and

implementation of performance appraisal systems that make “meaningful distinctions

The President, “Amendment to Executive Order 12293, the Foreign Service of the United

States,” E.O. 13325, Federal Register, Jan. 28, 2004, vol. 69, no. 18, p. 4217.

Tim Kauffman, “Executive Order Fixes Senior Foreign Service Pay,” Federal Times, Feb.

2, 2004, p. 6.

While SFS officers did not receive locality pay when stationed abroad, because the State

Department “had such a problem retaining senior officers at overseas posts ... [it] received

special authority from Congress two years ago to include locality pay in the retirement

calculations of overseas officers.” (Tim Kauffman, “New Law Shortchanges Foreign

Service Officers,” Federal Times, Dec. 22, 2003, p. 8.)

5 CFR § 534.406(c).

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based on relative performance.”34 An agency may have more than one performance

appraisal system for senior employees, and each system must be certified separately.35

Certification Process

With OMB’s concurrence, OPM developed regulations for certification, and is

responsible for certifying, and, if warranted, decertifying performance appraisal

systems.36 Additionally, OPM issues certification guidance each year.37 As

summarized by OPM, an agency’s appraisal system(s) must fulfill these criteria:

Alignment: Individual performance expectations must be derived from/linked to

the agency’s mission, strategic goals, program/policy objectives, and/or annual

performance plan.

Consultation: Individual performance expectations are developed with senior

employee involvement and must be communicated at the beginning of the

appraisal cycle.

Results: Individual expectations describe performance that is measurable,

demonstrable, or observable, focusing on organizational outputs and outcomes,

policy/program objectives, milestones, etc.

Balance: Individual performance expectations must include measures of results,

employee and customer/stakeholder satisfaction and/or competencies or

behaviors that contribute to outstanding performance.

Assessments and Guidelines: Agency head/designee provides assessments

comparing performance of agency and each major program and functional areas

with agency’s GPRA [Government Performance Results Act of 1993] goals and

other program performance measures.38

Oversight: Agency head/designee must certify (1) appraisal process makes

meaningful distinctions based on relative performance, (2) results take into

account, as appropriate, the agency’s performance, and (3) pay adjustments and

awards recognize individual/organizational performance.

U.S. Office of Personnel Management and U.S. Office of Management and Budget,

“Executive Performance and Accountability,” Federal Register, vol. 69, no. 145, July 29,

2004, p. 45551.

U.S. Office of Personnel Management, “Executive Performance and Accountability,” p.

45548.

5 U.S.C. § 5307; 5 CFR 430.403-430.405.

Certification guidance for calendar year 2007 may be found in this OPM memorandum:

Linda M. Springer, Director, U.S. Office of Personnel Management, “Certification of

Performance Appraisal Systems for Senior Employees for Calendar Year 2007,

memorandum, Oct. 31, 2006.

P.L. 103-62; 31 U.S.C. § 1115.

CRS-18

Accountability: Senior employee ratings (and subordinates’ [ratings], as

applicable) appropriately reflect performance expectations, program performance

measures, and other factors.

Performance Differentiation: Agency must provide for at least one rating level

above Fully Successful (must include an Outstanding level), and in the

application of those ratings, make meaningful distinctions among executives

based on their relative performance. SES appraisal systems must include four or

five summary rating levels: outstanding, fully successful, minimally satisfactory,

and unacceptable. An optional fifth level would be between “outstanding” and

“fully successful.” (Senior professional — SL and ST — appraisal systems must

include three to five summary rating levels: outstanding, fully successful, and

unacceptable. Two optional levels are allowed: between “outstanding” and

“fully successful,” and between “fully successful” and “unacceptable.”)39

Pay Differentiation: Agency should be able to demonstrate that the largest pay

adjustments and/or highest pay levels (base and performance awards) are

provided to its highest performers, and that overall, the distribution of pay rates

in the SES rate range and pay adjustments reflects meaningful distinction among

executives, based on their relative performance.40

The certification process begins when an agency submits a written request to

OPM for full or provisional certification. An agency’s written request for

certification must include the following:

A description of the appraisal systems(s) to be certified. The

description should identify the employees and organizations covered

by the performance appraisal system, contain guidance for the

system’s administration and implementation, and describe how the

system uses rating levels to clearly differentiate among senior

employees (SES, SL, and ST).41

A description of the review process used to review initial summary

ratings and ratings of record, as applicable.

Documentation that shows the appraisal system(s) meet the

applicable certification criteria for full, or provisional, certification,

whichever is applicable.

U.S. Office of Personnel Management, “Executive Performance and Accountability,”

Federal Register, p. 45549.

U.S. Office of Personnel Management and U.S. Office of Management and Budget,

“Senior Executive Service Performance-Based Pay System,” briefing slides, July 2004,

available from author. For more details, see U.S. Office of Personnel Management and U.S.

Office of Management and Budget, “Executive Performance and Accountability,” pp.

45552-45553.

U.S. Office of Personnel Management and U.S. Office of Management and Budget,

“Executive Performance and Accountability,” p. 45548.

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Documentation from the two appraisal periods preceding the request

on senior executive annual summary ratings (or ratings of record for

senior professionals) and corresponding pay adjustments, cash

awards, and levels of pay provided to the senior executives and

senior professionals.

Any additional information that OPM and OMB may require to

make a determination of an agency’s performance appraisal

system(s).42

Full and Provisional Certification

Full certification of an agency’s SES performance appraisal system is for two

calendar years, but OPM, with OMB’s concurrence, may terminate certification if it

determines that an agency has failed to continue to adhere to applicable requirements.

If an agency fulfills OPM’s annual reporting requirements, and the information

contained in the agency’s reports supports continued certification, full certification

is to be renewed automatically. Annual reports are to include a synopsis of annual

summary ratings and ratings of record, rates of basic pay, pay adjustments, cash

awards, and aggregate total compensation.43

Provisional certification may be granted by OPM, with OMB’s concurrence, for

appraisal systems that meet design requirements, but for which insufficient

documentation exists to determine whether the implementation of the system meets

certification requirements. Provisional certification is for only one calendar year,

though OPM may extend provisional certification into the following calendar year,

if warranted. An agency may apply for, and receive, provisional certification more

than once.44

No senior executive can have his or her pay reduced because he or she

transferred from an agency that has a certified system to an agency that does not have

a certified system.45 Similarly, if an agency loses its certification, any senior

executive whose base pay is higher than EX-III (the cap for appraisal systems that

have not been certified) cannot have his or her base pay reduced for this reason.

However, a senior executive in this situation “is not eligible for a pay adjustment

until the senior executive is assigned to a position that would allow the employee to

receive a pay adjustment or until certification of the employing agency’s applicable

performance appraisal system is reinstated ....”46

The new system represents a trade-off for senior executives: higher caps on base

pay (EX-III for agencies without a certified appraisal system, and EX-II for agencies

5 CFR § 430.405(b).

5 CFR § 430.405(c) and (e)(3).

5 CFR § 430.405(c)(2) and (f).

5 CFR § 534.404(h)(2).

5 CFR § 534.403(b).

CRS-20

with certified appraisal systems) versus the elimination of locality pay and annual

across-the-board pay adjustments. For some senior executives, these changes may

mean they receive relatively small increases in their base pay, while others may

receive increases comparable to pay increases they received under the old pay system.

The Office of Personnel Management maintains a current list of agencies whose

SES performance appraisal systems have been fully or provisionally certified.47 To

date, two agencies have received full certification for an SES appraisal system. The

General Services Administration (GSA) received full certification for 2004-2005; the

Department of Labor for 2006-2007. Numerous other departments and agencies

have received provisional certification. See Table 5 for agency certification status.

Policy Issues

The new pay system for the SES ushered in some fairly significant changes for

senior executives and their supervisors. Implementation of a rigorous performance

management system that directs agencies to assign performance ratings based on

measurable results and to make distinctions among senior executives based on their

job performances it intended to mitigate against, if not eliminate, rating inflation.

Performance ratings are intended to accurately reflect the job performances of senior

executives, thus helping to ensure that they are being held accountable for their work.

In practical terms, the new system is configured to ensure that top performers in the

SES receive the greatest rewards in terms of performance ratings and, by extension,

pay increases. Average performers are to receive ratings and pay increases, if

warranted, commensurate with their performances as well. When coupled with the

increase in the cap on base pay, and the addition of a higher cap for performance

management systems certified by OPM, these changes represent a substantial effort

to identify and reward the best performers in the SES.

While the anticipated benefits of the new system are significant, several policy

issues related to the system’s implementation have been mentioned, including its

implementation and implications, the system’s emphasis on meaningful distinctions,

the concerns of senior executives, and institutional issues.

Meaningful Distinctions and Ratings Distributions

“Meaningful Distinctions” Is Not Defined. According to the

Administration, requiring agencies to make meaningful distinctions in the relative

performances of senior executives is essential to ensuring that individuals reap

rewards commensurate with their performance, and, in particular, that only

outstanding performers receive the greatest rewards. While OPM has clearly stated

the objective and rationale for this goal, it has not explicitly defined or described

what is meant by the term “meaningful distinctions.” For example, OPM’s Associate

Director for Strategic Human Resource Policy reportedly said: “We are interested in

agencies making distinctions, which means we don’t want everybody to be rated the

The list of these departments and agencies is available at [http://www.opm.gov/ses/

certification.asp].

CRS-21

same.”48 In memoranda it has released on this subject, OPM makes general

statements about agency ratings of senior executives, indicating that some progress

has occurred, but also noting that more needs to be done. Although the evidence

presented by OPM consists of tables that list individual agencies (see Table 4), none

is identified by name as an example of an organization that is making progress or that

has failed to improve. Thus, there is no indication as to what precisely constitutes

“progress” or what percentage of senior executives who have received the highest

rating in the agency’s SES appraisal system would render a system acceptable.

From OPM’s perspective, the lack of an explicit definition or description of

“meaningful distinctions” may be considered a necessity. Forced distributions of

ratings (that is, quotas) are not permitted for senior executives,49 and thus OPM

employees may not want to communicate to agencies that certain distributions of

ratings would be preferable to others. A possible advantage of this approach is that

OPM officials are able to exercise a significant degree of discretion in determining

whether an agency has met the requirement to make meaningful distinctions among

the performances of its senior executives. Additionally, in the absence of an explicit

definition, OPM’s view or criterion of what type(s) of rating distributions qualify as

reflecting meaningful distinctions could shift over time.

A Focus on the Highest Level. What is clear about OPM’s approach is that

it focuses exclusively on only one portion of agencies’ rating distributions: the

percentage of senior executives who receive the highest summary appraisal rating.

Referring to the implementation of the new SES pay system, OPM noted in a report

on alternative pay systems that “[s]tronger distinctions are being made, with previous

cases of extremely high and implausible percentages of Outstanding ratings declining

so that the ‘outstanding’ description can truly carry its intended connotation of

‘stands out as an exception.’”50 Table 4 displays the data that were included in

OPM’s 2004, 2005, and 2006 memoranda on SES performance ratings and awards.51

(The data in the tables refer to FY2000-FY2005.)

Data provided subsequently by OPM show that several agencies changed the

number of levels in their SES appraisal systems during this period. Most changes

during the period 2003-2005 were necessitated by a requirement that, under the new

pay system, agencies’ appraisal rating systems have at least four levels.52 The

number of levels in an agency’s appraisal system is included in the following table.

Tim Kauffman and Mollie Ziegler, “Fewer Execs Get Top Ratings,” Federal Times, Oct.

24, 2005, p. 1.

5 CFR § 430.304(c)(3).

U.S. Office of Personnel Management, Alternative Personnel Systems in Practice and a

Guide to the Future, Oct. 2005, available at [http://www.opm.gov/publications/

AlternativePersonnelSystemsOct2005.pdf], p. 17. (Italics in original.)

The tables in the 2004, 2005, and 2006 OPM memoranda included rows for “all others”

(all other agencies not already listed in the tables) and “government-wide.” These rows are

not included here because the information was aggregated, which undermines the usefulness

of the information.

5 CFR § 430.405(b)(1)(iii)(A).

CRS-22

This information aids in making comparisons among agencies with the same number

of rating levels, and in attempting to discern whether shifting from a three-level

system, popularly known as a “pass-fail” system, to a four- or five-level system might

have contributed to a decrease in the percentage of senior executives receiving the

highest rating.53 For example, Table 4 shows that the Department of Education

moved from a three-level to a five-level appraisal system in FY2005; that year, its

percentage of SES employees rated at the highest level dropped to 53%. In previous

years, the percentage was between 98% and 100%.

The three-level system was referred to as a “pass-fail” system because, in practice, it

functioned as a two-level system. It has been and continues to be very rare for a senior

executive to receive the lowest rating (“1”).

CRS-23

Table 4. Career SES Performance Ratings by Agency, FY2000-FY2005

Percentage of Career Senior Executives Rated at the Highest Level

and Number of Levels in the Appraisal Systema

Agency

Dept. of Agriculture (USDA)

FY2000

FY2001

FY2002

FY2003

FY2004

FY2005

35%

36%

35%

40%

Dept. of Commerce

88%

80%

Dept. of Defense (DOD)b

99%

100%

99%

Dept. of Health and Human Services

(HHS)

90%e

18%

91%e

99%e

40%

52%f

53%

42%

100%e

32%

99%

38%

45%

100%

98%

49%

96%

100%

80%

97%

100%

Dept. of Energy (DOE)

81%

Dept. of Education

56%

CRS-24

Percentage of Career Senior Executives Rated at the Highest Level

and Number of Levels in the Appraisal Systema

Agency

Dept. of Homeland Security (DHS)

FY2000

FY2001

FY2002

FY2003

FY2004

FY2005

N/A

83%

54%

Dept. of Housing and Urban Development

(HUD)

100%

99%

Dept. of the Interior

100%

Dept. of Justice

91%

100%

Dept. of Transportation (DOT)

99%

100%

60%

32%

39%

94%

100%

62%

35%

98%

18%

60%

33%

22%

85%

48%

55%

100%

88%

61%

41%

Dept. of State

100%

91%

69%

100%

Dept. of Labor

100%

23%

CRS-25

Percentage of Career Senior Executives Rated at the Highest Level

and Number of Levels in the Appraisal Systema

Agency

Dept. of the Treasuryc

FY2000

FY2001

FY2002

FY2003

FY2004

FY2005

66%

63%

59%

52%

41%

44%

Dept. of Veterans Affairs (VA)

56%

Environmental Protection Agency (EPA)

85%

90%

96%

92%

Merit Systems Protection Board (MSPB)

100%

89%

National Aeronautics and Space

Administration (NASA)

53%

73%

76%

N/Af

N/A

25%

33%

Not listedh

76%

31%

Not listedg

76%

55%

11%

60%

46%

62%

65%

64%

0%e

67%

69%

31%

General Services Administration (GSA)

57%

Federal Emergency Management Agency

(FEMA)

Not listedi

N/A

76%

53%

CRS-26

Percentage of Career Senior Executives Rated at the Highest Level

and Number of Levels in the Appraisal Systema

Agency

Nuclear Regulatory Commission (NRC)

FY2000

FY2001

FY2002

FY2003

FY2004

FY2005

100%

99%

100%

Office of Management and Budget (OMB)

88%

20%

Office of Personnel Management (OPM)

90%

37%

100%

79%

82%

Social Security Administration (SSA)

100%

U.S. Agency for International

Development (USAID)

50%

95%

79%

Not listedj

Not listedk

70%

52%

55%

38%

42%

41%

42%

45%

99%

23%

50%

99%

35%

31%

100%

32%

46%

99%

Small Business Administration (SBA)

25%

Office of the Secretary of Defense (OSD)

58%

53%

CRS-27

Sources: Kay Coles James, Director, U.S. Office of Personnel Management, “Reporting SES Performance Ratings and Awards for FY2003,” memorandum, Feb. 12, 2004, available

at [http://www.opm.gov/hrmc/2004/msg-011.asp]; Dan G. Blair, Acting Director, U.S. Office of Personnel Management, “FY2003 SES Performance Ratings and Awards,”

memorandum, Mar. 16, 2005, available at from the author; Linda M. Springer, Director, U.S. Office of Personnel Management, “FY2004 SES Performance Ratings, Awards, and

Salaries,” memorandum, Oct. 4, 2005, available at [http://www.chcoc.opm.gov/transmittal_detail.cfm?ID=588]; U.S. Office of Personnel Management, Report on Senior Executive

Pay for Performance for Fiscal Year 2005, available at [http://www.chcoc.gov/transmittal_detail.cfm?ID=752], July 2006, p. 5.

Notes:

a. The percentages have been rounded. Some of the data in this table do not match the information found in the tables in Appendix A. It is unclear why there are discrepancies, since

the information for both tables came from OPM. However, the information was obtained from two different sources within OPM. The memoranda issued by the Director of

OPM do not indicate the number of levels in each agency’s system or systems; hence, the number of levels was discerned using the OPM-provided data found in Appendix A.

b. From FY2000 through FY2003, the Department of Defense (DOD) information did not include the Office of the Secretary of Defense (OSD). Beginning in FY2004, apparently,

OSD apparently is included with DOD.

c. Based on the information provided by OPM to the author, HHS had both 3-level and 5-level systems during the period FY2000-FY2003. However, the ratings information provided

in OPM memoranda (which are the source for this table) do not provide two separate entries for HHS. It is not known how OPM compiled the data from two different rating

systems into one entry. See the HHS tables (3-level and 5-level) in Appendix A.

d. Apparently, HHS converted both its 3-level and 5-level systems into one or more 4-level systems in FY2004. See the HHS tables in Appendix A.

e. Other information provided by OPM (see the FEMA table in Appendix A) shows that 10% of FEMA’s senior executives received the highest rating in FY2002.

f. The Federal Emergency Management Agency became part of DHS in 2003, and its SES performance rating data are reported as part of the department’s data beginning in FY2004.

g. The MSPB table in Appendix A shows that 100% of the agency’s senior executives were rated at the highest level. The number of rating levels was four.

h. Information on MSPB was not included in the applicable memorandum or the FY2004 data provided by OPM to the author.

i. The MSPB table in Appendix A shows that 36% of the agency’s senior executives were rated at the highest level. The number of rating levels was five.

j. The OSD table in Appendix A shows that 100% of the organization’s senior executives were rated at the highest level. The number of rating levels was three.

k. Apparently, OSD was included with DOD in FY2004.

CRS-28

The data in the preceding table show that only six agencies had to change the

number of rating levels in their appraisal systems as a result of the new pay system

requirements. In 2004 or 2005, the Department of Health and Human Services

moved from a 3-level to a 4-level system while the NRC, HUD, DOT, Department

of the Interior, and Department of Education changed from 3-level to 5-level systems.

Although not required, the Department of State shifted from a 4-level to a 5-level

system, and the Department of Energy returned to a 4-level system in 2005 after

using a 5-level system for one year (2004). All other agencies or organizations,

excluding those for which OPM no longer reports data, retained the number of rating

levels they had prior to the implementation of the new pay system.

Fifteen agencies experienced substantial decreases, from 2003 to 2004, or from

2004 to 2005 in the proportion of senior executives receiving the highest rating. The

smallest of these decreases, 23 percentage points, occurred at NASA. The Nuclear

Regulatory Commission had the largest decrease, 91 percentage points. Except for

DOD, which had a decrease of 68 percentage points, the largest decreases were

experienced by agencies that shifted to a 4- or 5-level system in 2004 or 2005:

Department of Education, 46 percentage points; HHS, 48 percentage points; HUD,

59 percentage points; Interior, 78 percentage points; State, 34 percentage points;

DOT, 68 percentage points; the NRC, 91 percentage point; and SSA, 58 percentage

points.54 Agencies that had decreases between 23 and 31 percentage points were

organizations that already had 5-level systems. These were the Department of

Commerce, DHS, the Department of Justice, the EPA, GSA, and NASA. The Small

Business Administration’s percentage actually increased initially, from 45%

(FY2003) to 70% (FY2004), and then decreased to 52% for FY2005.

Aside from the Department of Agriculture (USDA), which had the same

percentage (40%) of senior executives receive the highest rating for each year from

FY2003 through FY2005, and the VA, which had minimal changes during the same

period, the remaining agencies showed some variations over the years. The

percentages at Labor and Treasury decreased gradually over six years, from 69% to

39% (Labor) and from 66% to 44% (Treasury). The remaining six agencies

experienced dramatic drops in percentages from one year to the next, and, in some

cases, increases in later years. The agencies that experienced a significant one-year

decrease prior to 2004, when the new pay system was implemented, are as follows:

the Department of Energy decreased from 99% (2001) to 18% (2002); OMB

decreased from 88% (2000) to 20% (2001); OPM dropped from 90% (2000) to 37%

(2001); SBA decreased from 82% (2001) to 50% (2002); SSA dropped from 99%

(2002) to 41% (2003); and USAID decreased from 79% (2001) to 42% (2002). It is

notable that these significant decreases occurred prior to the implementation of the

new SES pay system, although, as discussed above, the Bush Administration, through

OPM, had encouraged agencies, beginning in 2001, to make meaningful distinctions

among their senior executives. Possibly, then, the changes noted here reflect these

agencies’ efforts to recast how they administered their SES appraisal systems.

Regarding DOD, the significant decrease may be attributable, at least in part, to two

related factors: OSD shifted from a 3-level system to a 4- or 5-level system, and OSD figures

are included with DOD figures beginning in FY2005.

CRS-29

Awarding the top-level rating to all, or virtually all, senior executives in a given

agency would not appear to meet OPM’s broad concept of “meaningful distinctions.”

However, because OPM at present is emphasizing only the percentage of executives

who receive the top-most rating, it is conceivable that an agency could, in a five-level

appraisal system, cluster virtually all of its senior executives at the top two rating

levels as long as the percentage of individuals who receive the highest rating does not

exceed certain levels.

Explanations for the Decrease in Top Ratings. The Office of Personnel

Management contends that the lower percentage of employees receiving the top

rating in recent years reflects the success of agencies’ efforts to make meaningful

distinctions among the performances of their senior executives. For example, in her

2006 memorandum that touched on this issue, the Director of OPM wrote:

The data indicate that Federal agencies are taking seriously the requirement to

develop rigorous appraisal systems and to make meaningful distinctions in

performance ratings and pay. In this regard, reporting agencies shifted to

appraisal systems with at least one level above fully successful systems and away

from pass/fail systems.... We expect the 2006 rating cycle to continue

improvement in holding senior executives accountable for achieving results, and

rating and rewarding them accordingly.55

As the OPM Director’s comments suggest, one factor that seems to have facilitated

a decrease in the number of top ratings in some agencies has been the elimination of

3-level appraisal systems in favor of 4- and 5-level systems. In every instance,

adoption of a 4- or 5-level system in 2004 or 2005 resulted in a significant drop in

the percentage of senior executives receiving the highest rating. (Prior to the

implementation of the new SES pay system, the percentage of top ratings at some

agencies had decreased. These changes might have been related to the

Administration’s encouragement, beginning with a November 1, 2001 OPM

memorandum (which is cited above), that agencies make meaningful distinctions

among their senior executives).

Others have suggested, however, that the reduction is a function of forced

distributions, with limits on the number of top ratings that can be given to senior

executives. For example, the Senior Executives Association (SEA) raised the issue

of quotas with OPM in late 2005, noting two instances in which it appeared that

agencies had established quotas, or were directing employees to take actions that

amounted to applying a forced distribution. In its letter to the OPM Director, SEA

stated that the Navy’s rating plan included a page titled “Expectations” and set “forth

percentages of executives who may be rated as ‘Exceptional’.” The association went

on to say in its letter that “[The Navy’s plan] anticipates de facto forced distribution

for rating levels rather than an objective analysis of achievements.”56

Linda M. Springer, Director, U.S. Office of Personnel Management, “Report on Senior

Executive Service Pay for Performance for Fiscal Year 2005,” memorandum, July 11, 2006,

available at [http://www.chcoc.gov/transmittal_detail.cfm?ID=752].

Carol Bonosaro, President, and William L. Bransford, General Counsel, Senior Executives

Association, letter to Linda M. Springer, Director, U.S. Office of Personnel Management,

(continued...)

CRS-30

The SEA letter also discussed the USDA’s Agricultural Research Service,

recounting the experience of one of its members. Apparently, a senior executive in

the Agricultural Research Service was told that no more than 25% of the senior

executives in the research service could receive the highest rating, and that she and

a colleague were going to be downgraded. Both had received “outstanding” ratings

in previous years. The senior executive was instructed to lower “whatever critical

element she wanted” in rating her colleague (also a senior executive).57 In the

January 2006 issue of Action, an SEA publication, it was noted that the OPM

Director had responded to SEA and “promised to follow up with the two agencies to

share SEA’s concerns.” The OPM Director reportedly also said “we will continue

to work with all agencies to ensure they operate in accordance with regulatory

requirements....”58

One of the provisions in the 2007 certification guidance issued by OPM

apparently is intended to address this problem. In her memorandum accompanying

the guidance, the OPM Director stated:

I want to call your attention to a concern we have about the implementation of

the system, specifically with the communications and training that agencies are

providing. For this reason, we are asking agencies to submit a narrative

statement describing the relevant briefings, [and] other communications and

training provided to their senior employees, rating officials, Performance Review

Boards (PRBs), and human resources staff both in preparation for and after the

annual performance cycle.

We are asking for this information because of an apparent lack of knowledge

among senior executives regarding their performance and pay systems. We are

also concerned that some executives perceive their agencies are using quotas, or

forced distributions, to determine ratings.... To avoid even the appearance of

such a practice, it is particularly important that executives understand the effect

organizational performance can have on individual ratings and the overall rating

distribution.... Even the best-intentioned, best-designed system can fail if not

implemented properly, and a major aspect of any successful system

implementation is effective communication of the system and its results to

participants and appropriate training for those responsible for its operation....

We will factor the adequacy of your communication plan and training into the

certification decision.59

OPM noted in the same memorandum that it had developed briefing slides for

agencies to use in explaining, from a governmentwide perspective, the pay for

performance system for senior executives (and SL/ST employees).

(...continued)

Nov. 9, 2005.

Ibid.

“OPM Responds to Report of Quota Use,” Action, Jan. 2006, p. 1.

Springer, “Certification of Performance Appraisal Systems for Senior Employees for

Calendar Year 2007,” pp. 1-2.

CRS-31

It is unclear whether OPM’s approach will be sufficient in addressing the

question of forced distributions. As demonstrated by the text of the memorandum,

it appears that OPM characterizes this issue as stemming from poor communications

(“a concern we have ... about the implementation of the system, specifically with the

communications”), insufficient information (“lack of knowledge”), and erroneous

perceptions (“some executives perceive their agencies are using quotas”). No

specific mention is made of the SEA allegations involving the Navy or USDA, or any

efforts by OPM to verify independently whether ratings accurately reflect the

performances of senior executives. However, it has been reported that OPM’s

Associate Director for Strategic Human Resources Policy indicated that his agency

“... would not set quotas on the number of high rankings that agencies could hand

out, and would allow agencies to continue to rate most employees highly as long as

the agencies were able to justify the rankings.”60

Aside from the information provided by the SEA about the Navy and the

Agricultural Research Service, there does not appear to be any data available that

either confirms or disproves the use of quotas. For this and other reasons, forced

distributions could remain a sensitive issue for some time, particularly if similar payfor-performance systems are implemented throughout the federal government (for

example, the General Schedule (GS) pay system).

Trends in Ratings, Awards, and Pay. Table 5 shows that as the

percentage of senior executives governmentwide receiving the highest rating has

been decreasing since FY2001, the percentage of senior executives receiving awards

has been generally increasing, as has the average amount of awards.

Table 5. Governmentwide Trends in Ratings and Awards for

Senior Executives, FY2001-FY2005

FY2001

FY2002

FY2003

FY2004

FY2005

Percentage of

Senior Executives

Receiving the

Highest Rating

84%

75%

59%

43%

Percentage of

Senior Executives

Receiving Awards

52%

49%

57%

58%

67%

Average Amount of

Award

$12,324

$12,444

$12,883

$13,734

$13,814

Sources: Dan G. Blair, Acting Director, U.S. Office of Personnel Management, “FY2003 SES

Performance Ratings and Awards,” memorandum, Mar. 16, 2005, available from the author; Linda

M. Springer, Director, U.S. Office of Personnel Management, “FY2004 SES Performance Ratings,

Awards, and Salaries,” memorandum, Oct. 4, 2005, available at [http://www.chcoc.opm.

Shawn Zeller, “Senior Executive Corps to See Base Salary Increases,” Government

Executive, Daily Briefing, July 26, 2004, available at [http://www.govexec.com/dailyfed/

0704/072604sz1.htm].

CRS-32

gov/transmittal_detail.cfm?ID=588]; and Linda M. Springer, Director, U.S. Office of Personnel

Management, “Report on Senior Executive Service Pay for Performance for Fiscal Year 2005,”

memorandum, July 11, 2006, available at [http://www.chcoc.gov/ transmittal_detail.cfm?ID=752].

Note:

a. Percentages have been rounded.

The Bush Administration, as noted above, began promoting the idea of

meaningful distinctions in fall 2001, which may have contributed to the 9% decrease

in the percentage of highest ratings from FY2001 to FY2002. The largest decreases

occurred, however, after implementation of the new pay system. From FY2003 to

FY2005, the percentage of senior executives receiving the highest rating dropped by

32 percentage points. Overall, from FY2001 through FY2005, this percentage

decreased by nearly one-half, from 84% to 43%. During the same period, the

percentage of executives who received awards grew from 52% to 67%, and the

average amount of awards went from $12,324 to $13,814, an increase of $1,490, or

12%.

The seeming disconnect between the decreasing percentage of executives

receiving the highest ratings, and the increasing percentage of individuals receiving

awards and the growth in the average size of awards has several possible

explanations. Individual agencies may be using the awards system to compensate for

lower ratings or the loss of locality pay. In a variation on the latter, the SEA

President reportedly has suggested that some agencies could be using larger awards

to “counteract any negative reaction from reducing performance ratings.”61 An

alternative explanation reportedly offered by OPM’s Associate Director of the

Strategic Human Resources Policy Division is that “the Bush administration’s

heightened focus on evaluating, recognizing and rewarding individual performance

likely has contributed to the larger payouts. [The Associate Director said:] ‘There is

a potential here that we’ve raised the agencies’ sensitivity to the value of their

executives. They’re really looking at what their executives are doing and what

they’re producing....’”62

As reported in the Federal Times, whether a senior executive receives a pay

raise, and the amount of any raise, varies from agency to agency.63 For example, in

2006, senior executives who met or exceeded performance expectations (that is,

individuals who received a “fully successful” or higher rating) were eligible for a

1.9% pay increase. However, according to this publication, three of the five agencies

that provided data to the Federal Times did not give the 1.9% increase to all eligible

Tim Kauffman and Mollie Ziegler, “Fewer Execs Get Top Ratings,” Federal Times, Oct.

24, 2005, p. 6.

Tim Kauffman, “Fewer Glowing Appraisals, But More Bonuses for Senior Execs,”

Federal Times, July 24, 2006, p. 4.

Tim Kauffman, “What’s a Top-Performing Exec Worth? Depends on the Agency,”

Federal Times, Feb. 6, 2006, p. 1

CRS-33

executives. The three agencies were HHS, HUD, and the VA.64 While some might

question the lack of consistency or standardization across the government, the Senior

Policy Advisor to the OPM Director reportedly said: “‘The fact that there are

differences across agencies might make great strategic sense.’”65 Possible reasons for

differences among agencies include the following:

Agencies adopted performance-based [SES] pay systems at different times, so

those who got a late start may offer higher raises in an effort to quickly get their

executives up to par on the more lucrative pay scale afforded under a certified

performance-based pay system. Some have adopted a tiered pay structure, in

which different ranges of raises are available to executives holding different

levels of responsibility and importance in their agency. Still other agencies could

be making greater use of bonuses than others to augment raises for high

performers.66

Ultimately, the significance of the differences in how agencies allocate pay increases

may be determined by senior executives themselves. Will they view the lack of

standardization as inequitable, or desirable, whereby agencies are allowed to exercise

discretion? Answers may vary depending upon, perhaps, where a senior executive

is employed.

Ratings Distributions by Agency. Appendix A displays the SES annual

summary rating distributions, FY1999-FY2005, for the same agencies that OPM

includes in its memoranda on SES performance ratings and awards.67 (FY2005 data

are the most current data available.) Comparisons of ratings distributions before and

after the implementation of the new SES pay system could aid in understanding what

constitutes “meaningful distinctions” and could show how senior executives in those

agencies have fared under the new system. Several years of post-implementation

data (beginning with FY2004 data) will be needed in order to make this comparison

more definitively and discern the effects on members of the SES. (All references to

tables in this section refer to the tables in Appendix A, except as otherwise noted.)

Excluding agencies where at least 90% of the senior executives were awarded

the highest ratings over several years, a discernible pattern or distribution is evident

at a few agencies. That is, the distribution of ratings was fairly similar from year to

year. A summary of seven years of data from Appendix A shows these patterns:

Department of Agriculture: 10% or fewer at level 3; 46%-60% at

level 4; 35%-44% at level 5.

Ibid., p. 6.

Ibid.

Some of the tables may include data from more than one appraisal system. Federal

agencies are permitted to establish more than one performance appraisal system for their

senior executives, and different agency components may choose to establish different

appraisal systems. Additionally, some agencies changed the number of levels in their

appraisal systems during the period FY1999-FY2005, and these changes are noted in the

appropriate tables.

CRS-34

Department of Veterans Affairs: 1%-2% at level 2; 8%-16% at level

3; 25%-33% at level 4; and 56%-67% at level 5.

Department of the Treasury: 11%-30% at level 3; 29%-47% at level

4; and 39%-54% at level 5.

Senior Executives’ Concerns

Potential for Politicization. Whereas some believe the new SES pay system

promises to be effective and credible, the judgment of other interested parties,

including some senior executives and other federal government employees, will

apparently hinge on whether they perceive the system as being equitable, including

being free from partisan influence, and transparent. The general acceptance of the

new pay system may be contingent, at least in part, upon how it is implemented and

how it is perceived.

Some have expressed concern about whether implementation of the new pay

system will be carried out in an equitable manner. In the following comments,

several members of SEA suggest that the new pay system could lead to the

politicization of the SES.

Having worked as a career SES in several agencies for the past 22 years and

witnessed the games that some politicals [political appointees] play with the SES,

I would insist upon sufficient safeguards. For example, agency head A wants to

free up some SES slots for his or her “supporters” by encouraging current career

SES staff to retire. An arbitrary salary cut of let’s say $20,000 per year in salary

for alleged poor performance, impacting the person’s high-3 retirement annuity

calculation, would drive many retirement-eligible SES out the door.

I’ve worked directly for a large number (and variety) of political appointees,

more than a few of whom responded to career executives on a purely visceral

level. If they liked you, your errors were a reflection of desirable risk-taking. If

they didn’t like you, your less than total successes were a reflection of your lack

of initiative. In other words, I find pay compression under the current system to

be more desirable than a wild card system, which is what the proposal looks like

to me.

Having the agency set the basic pay would always be “political” whether stated

or not. Those on the “right side” or politically connected will be the ones to

benefit and those on the “other side” (depending on what party is running the

Administration) will not benefit regardless of performance.68

One of the specific issues raised by the SEA concerns the increase in the amount

that a senior executive’s pay could be reduced for performance or conduct reasons.

Carol A. Bonosaro, President, and William Bransford, General Counsel, Senior

Executives Association, “Comments of the Senior Executives Association on the Proposed

Rule Regarding ‘Senior Executive Service Pay and Performance Awards and Aggregate

Limitation on Pay,” pp. 9-10, Aug. 30, 2004, available at [http://seniorexecs.org/fileadmin

/user_upload/Letter/08-30-2004_PayRegsFinalComments.pdf].

CRS-35

Under the old system, an executive’s pay could be reduced no more than one pay

level per year. In 2003, for example, a senior executive who was moved from pay

level ES-4 to ES-3 would have experienced a 4.7% decrease in base pay. (Moving

from ES-3 to ES-2 represented a 4.3% decrease; ES-2 to ES-1 would have resulted

in a 4.5% decrease in base pay.) The new rules allow for an annual pay reduction

of up to 10% in base pay. In comments it provided to OPM, the SEA stated that

... with regard to the career SES, it is important to remember the need to avoid

the fray of politics and the specter of undue politicization. One of the purposes

of the SES is to help maintain consistency during political change. Given human

nature, there is a strong probability that, at some point, the allowed 10%

reduction will be misused by a political appointee in order to affect or influence

a desired politically motivated decision. The mere threat or existence of the 10%

reduction has the potential to become a subtle and negative influence that can

well contribute to the politicization of the career SES, or at a minimum, result in

arguments or perceptions that the career SES has been subject to improper

political pressure. This is particularly true considering the impact on a career

Senior Executive’s retirement annuity that will result when pay is reduced.69

In its response to SEA’s concerns about possible politicization of the SES under the

new pay system, OPM officials wrote: “The new SES pay system provides greater

opportunities for higher rates of basic pay and larger pay adjustments, and with these

opportunities come greater risks. We believe it is necessary to provide agencies with

the authority to reduce basic pay up to 10 percent. Therefore, we made no changes

in the regulations.”70 Those parties concerned that the new system possibly could

facilitate the politicization of the SES suggest that the withholding of pay

adjustments or the offering of pay increases also could be used in attempts to exert

undue influence over senior executives.

DOD Experience. A situation that arose at DOD in 2005 involving pay

increases for career senior executives and noncareer senior executives demonstrates

how differential treatment may be perceived. In a memorandum dated January 12,

2005, the Director of Administration and Management in the Office of the Secretary

of Defense outlined an SES pay increase proposal that would have permitted

noncareer SES members to receive a higher increase in base pay than certain

categories of career SES members. While noncareer senior executives — who are

also sometimes referred to as political appointees — would have received a 2.5%

increase in base pay, career senior executives in certain categories (as described in

the memorandum) would have received a 2.38% or 2% increase in base pay in 2005.

By way of explanation for these differences, the Director wrote that noncareer SES

“members occupy some of the most senior positions in the Department, are ineligible

for performance awards and Presidential Rank Awards and did not receive the

CY2004 pay adjustment until late in the year.”71 In a letter to the head of OPM,

Ibid., p. 2.

U.S. Office of Personnel Management, “Senior Executive Service Pay and Performance

Awards; Aggregate Limitation on Pay,” p. 70358.

Raymond F. DuBois, Director, Administration and Management, Office of the Secretary

(continued...)

CRS-36

SEA’s President noted that OPM regulations governing salary adjustments for

members of the SES do not mention “allowing an adjustment solely because of the

political character of an appointment ....” The SEA letter also noted that DOD’s

proposed policy would have violated 5 U.S.C. § 2302(b)(1)(E), which prohibits

discriminating for, or against, any employee on the basis of political affiliation.

Congress’s response to what occurred at DOD was Section 1020 of P.L. 109-13,

Emergency Supplemental Appropriations Act for Defense, the Global War on Terror,

and Tsunami Relief, 2005 (119 Stat. 231, at 251). Section 1020 states:

None of the funds appropriated to the Department of Defense by this Act or any

other Act for fiscal year 2005 or any other fiscal year may be expended for any

pay raise granted on or after January 1, 2005, that is implemented in a manner

that provides a greater increase for non-career employees than for career

employees on the basis of their status as career or non-career employees, unless

specifically authorized by law: Provided, That this provision shall be

implemented for fiscal year 2005 without regard to the requirements of section

5383 of title 5, United States Code: Provided further, That no employee of the

Department of Defense shall have his or her pay reduced for the purpose of

complying with the requirements of this provision.

The Washington Post and Government Executive reported that a July 1, 2005,

memorandum, issued by the Principal Deputy Under Secretary of Defense for

Personnel and Readiness, directed DOD offices to implement retroactive 2.5% pay

increases to career senior executives who were initially denied the 2.5% raise.72

According to the Government Executive article, the retroactive raise will apply to 358

career senior executives in DOD.

NASA Experience. Questions also have been raised about pay raises for

senior executives employed by NASA. As reported in the news, approximately 50%

of NASA’s senior executives received a 2.5% pay raise; another 27% received raises

ranging from 0.5% to less than 2.5%; and the remaining 23% did not receive pay

raises. The report that NASA considered the importance of jobs held by senior

executives as part of its calculations troubled some NASA executives. Reportedly,

one executive stated: “The system is geared toward going along to get a raise or

performance bonus.”73 A NASA official responded: “We did establish a structure

based on position worth — positions with the greatest responsibility were eligible for

the greatest increases. The actual fact is that we rewarded the people that are

responsible for the mission implementation in the agency, and they happen to be the

(...continued)

of Defense, “Increase in the Senior Executive Service and Defense Intelligence Senior

Executive Service Base Pay,” memorandum, Jan. 12, 2005.

Stephen Barr, “Retroactive Salary Increases Ordered for Some Pentagon Career

Executives,” Washington Post, July 12, 2005, p. B2; Karen Rutzick, “Pentagon Gives

Retroactive Pay Raise to Career Executives,” Daily Briefing, Government Executive, July

18, 2005, available at [http://www.govexec.com/dailyfed/0705/071805r2.htm].

Stephen Barr, “Complaints about NASA Raises Follow Switch to Performance-Based

System,” Washington Post, Mar. 2, 2005, p. B2.

CRS-37

people in the senior leadership positions.” Another NASA official added that

“decisions were based on performance primarily.”74

While the news article is obviously not evidence that anyone acted improperly

at NASA, it demonstrates the importance of employees’ perceptions. Speculation

within the SES ranks as to why certain members of the service fared better than

others on performance appraisals might be fueled by, or lead to, charges of

favoritism. Perhaps such concerns have existed previously, but the perceived

increase in latitude afforded supervisors under the new system has led some to

suggest that perceived favoritism may be a problem, or a greater problem, under the

new system than it was under the previous system.

Senior Executives Association Survey. In 2006, the Senior Executives

Association conducted a non-scientific survey of members of the SES in an effort to

determine the impact of the new pay system on senior executives. The resulting

report provided this summary of significant findings:75

1. Members of the Senior Executive Service support effective performance

management and believe they should be held accountable for agency

performance.

2. A majority of respondents believe that de facto quotas are affecting final

performance ratings.

3. Respondents reported disconnects between ratings, pay adjustments, and

bonuses.

4. Respondents reported that the new system has not affected their performance

or the performance of their peers; however, the new system has negatively

affected morale.

5. Respondents reported the new system has been implemented with a lack of

adequate communication and a resultant lack of transparency.

6. Survey respondents noted that the abolishment of the SES ranks [pay levels]

and locality pay have resulted in negative impacts on the SES.76

Ibid.

Senior Executives Association and Avue Technologies Corporation, Survey of the Senior

Executive Service Pay and Performance Management System: Lost in Translation, 2006,

available at [http://seniorexecs.org/fileadmin/user_upload/SEA_Mainstays/SEA_Avue_Pay

_For_Performance_Survey_Results_Report.pdf]. It bears noting that, although 830 of the

respondents are similar to the entire population (6,837) of senior executives in terms of

demographic characteristics, the group of respondents was self-selected. The survey was

available online, and the decision to participate or not participate was made by each

individual. That is, no sampling method was used to select respondents. In survey research,

self-selection may yield results that are not representative of the population of subjects.

Ibid., p. 3.

CRS-38

The survey provides some insight into the implementation of the new pay

system, but at the same time it raises several questions. Although the first finding is

positive, the remaining findings show that implementation of the new pay system has

been, at least according to some survey respondents, problematic. Furthermore, the

immediate (negative) effects that the pay system has had on some senior executives

may serve as a caution to other government employees and may influence efforts to

implement pay-for-performance elsewhere in the federal government. Although the

survey’s findings may not accurately portray the implementation process, the

perceptions and beliefs of some senior executives may persist, prove resistant to

change, and have far-reaching implications.

Missing from the SEA survey, however, is any tangible evidence of problems

caused by the shift to the new pay system. One of the findings of the SEA survey

was that the morale of senior executives has been affected negatively. Next

questions may include the following: Has this change in morale had any visible effect

on individuals? For example, has attrition, whether through retirement, resignation,

or other means, increased significantly since the new pay system was implemented?

For its part, OPM has not conducted its own survey and has not indicated that

it plans to do so. In her prepared remarks at a 2006 hearing on the SES pay system,

the OPM Director stated that her agency was reviewing the SEA survey and

“believe[d] it will help us understand areas where managers may be executing the

system improperly.”77 Possibly OPM will use the SEA survey, then, as an

opportunity to explore any unintended consequences of the new pay system and the

sources and implications thereof.

Institutional Issues

Rank in Person. As noted previously, a fundamental principle of the Senior

Executive Service is that rank resides in the individual. The final rule for the new

pay system, in discussing how to set pay for an individual upon his or her initial

appointment to the SES, supports this concept: “In setting a new senior executive’s

rate of basic pay, an agency must consider the nature and quality of the individual’s

experience, qualifications, and accomplishments as they are related to the

requirements of the SES position, as well as the individual’s current

responsibilities.”78 Another excerpt from the final rule, however, might undermine

the concept of rank in person. Under the new pay system, a pay adjustment is

permitted when an increase in pay

is necessary to reassign a senior executive to a position with substantially greater

scope and responsibility or to recruit a senior executive with superior leadership

U.S. Congress, Senate Committee on Homeland Security and Governmental Affairs,

Subcommittee on the Oversight of Government Management, the Federal Workforce, and

the District of Columbia, statement of Linda M. Springer, Director, Office of Personnel

Management, unpublished hearing, 109th Cong., 2nd sess., Sept. 26, 2006, available at

[http://hsgac.senate.gov/_files/testimonyspringer.pdf], p 4.

U.S. Office of Personnel Management, “Senior Executive Service Pay and Performance

Awards; Aggregate Limitation on Pay,” p. 70363.

CRS-39

or other competencies from a position in another agency ... [or] [t]he retention

of the senior executive is critical to the mission of the agency and the senior

executive would be likely to leave the agency in the absence of a pay increase.79

Another indication that the principle of rank residing in the individual is not

necessarily being followed is found in a 2006 OPM memorandum on SES pay

regulations. Referring to “situations where a higher [pay] rate may be warranted,”

the Director of OPM includes, as an example, the reassignment of “current SES

members into positions with substantially greater responsibility.”80

While the principle of rank in person may have been undermined incrementally

over the years through pay compression and through individual decisions that linked

pay with the level of responsibility of a particular position, the rule issued by OPM

in December 2004 and the [language in the 2006 memo} could be construed as

validating this linkage. Reassigning a senior executive and providing him or her a

pay increase based on the fact that the new position includes greater responsibility

than the former position runs counter to the notion that rank resides in the person.

It remains to be seen whether, and how, these two somewhat contradictory concepts

— rank in person and rank associated with position — will be reconciled.

Transparency. The extent to which the administration of the SES pay system

is transparent might aid in alleviating concerns about whether the system has been

implemented in an equitable manner. The final rule for the SES pay system requires

agencies to “provide for transparency in the processes for making pay decisions,

while assuring confidentiality.”81 This is a broad statement, and the lack of detailed

guidelines could allow agency personnel broad discretion in determining the extent

and type of information they disclose. Uneven disclosure policies and practices

across the federal government could be problematic, particularly if some agencies

appear less forthcoming than others. Additionally, a lack of standardization among

agency disclosure policies might undermine the usefulness of information that is

made available to the public. The Senior Executives Association has called for

greater transparency, with disclosure of “all information about the operation of the

performance management system in an agency, including any guidance or advice

provided by the agency official designated to provide oversight to the annual

performance appraisal process in the agency ... summary information concerning

performance ratings, annual salary adjustments, [and] the percentage of executives

who receive bonuses and the range of bonus awards.”82 As noted above, in response

to the possible use of forced distributions, OPM requires agencies, beginning in

Ibid., p. 70364.

Linda M. Springer, Director, U.S. Office of Personnel Management, “Proposed

Amendments to SES Pay Regulations,” memorandum CPM 2006-01, Mar. 3, 2006, available

at [http://www.opm.gov/oca/compmemo/2006/2006-01.asp], p. 1.

U.S. Office of Personnel Management, “Senior Executive Service Pay and Performance

Awards; Aggregate Limitation on Pay,” p. 70365.

Senior Executives Association, “Comments of the Senior Executives Association on the

Proposed Rule Regarding ‘Senior Executive Service Pay and Performance Awards and

Aggregate Limitation on Pay’,” n.d., p. 6, available at [http://www.seniorexecs.org/

fileadmin/ user_upload/Letter/08-30-2004_PayRegsFinalComments.pdf].

CRS-40

2007, to provide to OPM copies of materials they use to explain the pay-forperformance system to senior executives. Aside from this new requirement, it

remains to be seen whether OPM systematically monitors agencies, provides any

additional guidance related to transparency, and ensures that agencies comply with

the regulation.

Provisional Certification. There is no publicly-announced limit on the

number of times an agency may receive provisional certification, which is valid for

only one year at a time, but has fewer requirements than full certification. That is,

provisional certification permits agencies to use the higher cap on base pay for SES

members (and the higher cap on total compensation for senior executives and SL/ST

employees) without having to comply with all of the certification requirements. The

Government Accountability Office has noted that it is:

... important for OPM to continue to monitor the certification process, determine

whether any obstacles are impeding agencies from receiving full certification,

and take appropriate measures to address them. These actions will help ensure

that agencies continue to make substantive progress toward modernized

performance management, and that provisional certifications do not become the

norm.”83

Although it may be premature to ascertain whether there is a trend toward serial

provisional certification on the part of any agencies, Table 6 shows the history of

agencies’ certification status as reported by OPM. To date, very few agencies have

received full certification. Most agencies have received provisional certification,

which is valid for only one year. If there is no entry in a column, that means the

agency’s system was not certified for that year. In such cases, it is possible that an

agency did not submit a certification request, or that an agency did submit a request

which, upon review by OPM, was not approved.

U.S. Congress, Senate Committee on Homeland Security and Governmental Affairs,

Subcommittee on the Oversight of Government Management, the Federal Workforce, and

the District of Columbia, statement of Brenda S. Farrell, Acting Director, Strategic Issues,

U.S. Government Accountability Office, unpublished hearing, 109th Cong., 2nd sess., Sept.

26, 2006, available at [http://hsgac.senate.gov/_files/testimonyspringer.pdf], p. 10.

CRS-41

Table 6. Agency Certification Status, CY2004-CY2006

Calendar Year and Type of Certificationa, b

Agency

System

2004

2005

2006

Broadcasting Board of

Governors

SES

Provisional

Consumer Product Safety

Commission

SES

Provisional

Dept. of Agriculture

SES

Provisional

Dept. of Commerce

SES

Provisional

Dept. of Defense

SES

Provisional

Dept. of Defense

SL/ST

Provisional

Dept. of Education

SES

Provisional

Dept. of Energy

SES

Provisional

Dept. of Health and

Human Services

SES

Provisional

Dept. of Homeland

Security

SES

Provisional

Dept. of Housing and

Urban Development

SES

Provisional

Dept. of Housing and

Urban Development,

Office of the Inspector

General

SES

Provisional

Dept. of the Interior

SES

Provisional

Dept. of Justice

SES

Provisional

Dept. of Labor

SES

Provisional

Fullc

Dept. of State

SES

Provisional

Dept. of Transportation

SES

Provisional

Dept. of the Treasury

SES

Provisional

Dept. of Veterans Affairs

SES

Provisional

Environmental Protection

Agency

SES

Provisional

Equal Employment

Opportunity Commission

SES

Provisional

CRS-42

Calendar Year and Type of Certificationa, b

Agency

System

2004

2005

2006

Federal Communications

Commission

SES

Provisional

Federal Energy

Regulatory Commission

SES

Provisional

Federal Trade

Commission

SES

Provisional

General Services

Administration

SES

Full

Provisional

Merit Systems Protection

Board

SES

Provisional

National Aeronautics and

Space Administration

SES

Provisional

National Aeronautics and

Space Administration

SL/ST

Provisional

National Aeronautics and

Space Administration,

OIG

SES

National Endowment of

the Arts

SES

Provisional

National Labor Relations

Board

SES

Provisional

National Transportation

Safety Board

SES

National Science

Foundation

SES

Provisional

Nuclear Regulatory

Commission (NRC)

SES

Provisional

Office of Government

Ethics

SES

Provisional

Office of Management

and Budget

SES

Provisional

Office of National Drug

Control Policy

SES

Provisional

Office of Navajo and

Hopi Indian Relocation

SES

Provisional

Office of Personnel

Management

SES

Provisional

Fullc

Provisional

CRS-43

Calendar Year and Type of Certificationa, b

Agency

System

2004

Patent and Trademark

Office

SES

Pension Benefit Guaranty

Corporation

SL/ST

Railroad Retirement

Board

2005

2006

Provisional

Fullc

Full

Provisional

SES

Provisional

Small Business

Administration

SES

Provisional

Small Business

Administration, Office of

Inspector General

SES

Provisional

Social Security

Administration

SES

Provisional

Surface Transportation

Board

SES

U.S. Agency for

International

Development

SES

Provisional

Sources: U.S. Office of Personnel Management, “Agency Certification Status Archive (2004/2005),”

available at [http://www.opm.gov/ses/certification-archive.asp]; U.S. Office of Personnel

Management, “Agency Certification Status [2006],” available at [http://www.

opm.gov/ses/certification.asp].

Notes:

a. Provisional certification is for only one year. Full certification is for two years.

b. If there is no entry in a column, the agency did not receive certification for that year. For example,

the agency may not have submitted a certification application to OPM, or the agency may have

submitted an application and OPM did not approve it.

c. This is the year in which the department or agency received full certification. Full certification is

for two years.

Conclusion

The SES pay system (including the certification option) that was established in

2004 is the most significant change to the SES since its inception in 1978. While the

new system has higher caps on base pay than the previous system and may help to

alleviate pay compression, its implementation signaled the elimination of locality pay

and annual pay adjustments for senior executives. The Administration’s emphasis

on results, performance, and accountability has been interpreted, in part, as the

requirement that agencies which seek certification of their appraisal system(s) must,

among other things, make meaningful distinctions among their senior executives.

CRS-44

Compensation for senior executives is expected to be commensurate with their

relative performance. An agency may receive full certification or provisional

certification for each of its appraisal systems. Whether an appraisal system has been

certified by OPM, with OMB concurrence, also determines which cap applies to

aggregate compensation for senior executives and SL and ST employees. Whereas

OPM’s regulation and guidance provide one standard for gauging the success of the

new pay system, others, including senior executives, might be more concerned with

different outcomes, unintended consequences, and issues involving the credibility of

the new system.

CRS-45

Appendix A. Senior Executive Annual Summary

Ratings Distribution by Agency

The source of information for the tables is OPM, and percentages have been

rounded.84 Some of the data in these tables do not match the information found in

Table 4. It is unclear why there are discrepancies, since the information for both

tables came from OPM. However, the information was obtained from two different

sources within OPM.

Department of Agriculture (USDA)

Senior Executive Annual Summary Ratings Distribution

Rating Levels

Fiscal Year

1999

3 (1%)

1 (<1%)

14 (5%)

162 (58%)

97 (35%)

2000

3 (1%)

6 (2%)

166 (60%)

102 (37%)

2001

15 (5%)

163 (57%)

106 (37%)

2002

22 (7%)

172 (58%)

102 (34%)

2003

1 (<1%)

21 (7%)

161 (55%)

112 (38%)

2004

30 (9%)

149 (47%)

138 (44%)

2005

33 (10%)

147 (46%)

141 (44%)

Department of Commerce

Senior Executive Annual Summary Ratings Distribution

Rating Levels

Fiscal Year

1999

35 (15%)

206 (85%)

2000

7 (3%)

20 (9%)

196 (88%)

2001

10 (4%)

42 (16%)

211 (80%)

2002

6 (3%)

36 (17%)

173 (80%)

2003

1 (<1%)

9 (4%)

39 (16%)

201 (80%)

2004

1 (<1%)

22 (7%)

132 (44%)

147 (49%)

2005

1 (<1%)

26 (9%)

129 (46%)

127 (45%)

Information provided electronically by the U.S. Office of Personnel Management to the

author on July 22, 2005 and June 13, 2006.

CRS-46

Department of Defense

Senior Executive Annual Summary Ratings Distributiona

Rating Levels

Fiscal Year

1999

2 (<1%)

12 (2%)

668 (98%)

2000

11 (2%)

685 (98%)

2001

1 (<1%)

9 (1%)

716 (99%)

2002

3 (<1%)

29 (5%)

571 (95%)

2003

1 (<1%)

2 (<1%)

11 (2%)

24 (4%)

608 (94%)

2004b

—

2005

2 (<1%)

162 (15%)

598 (54%)

351 (32%)

Notes:

a. The Office of the Secretary of Defense (OSD) is not included in this table for the years FY1999FY2004. There is a separate table for OSD. The Army Corps of Engineers (ACE) SES ratings

are included only in the figures for FY1999-FY2001. ACE data for the remaining fiscal years

were not provided, or, for FY2005, may have been included in the aggregate figure provided

for DOD.

b. For FY2004, OPM provided information for 10 DOD components: Air Force (USAF), Army

(USA), Defense Contract Audit Agency (DCAA), Defense Information Systems Agency

(DISA), Defense Logistics Agency (DLA), Defense Nuclear Safety Facilities Board, Defense

Threat Reduction Agency, Office of Inspector General (OIG), Navy (USN), and Office of the

Secretary of Defense (OSD). Three components (USAF, Army, and OIG) had five-level

systems. The remaining seven components had three-level systems in FY2004. The data for

OSD may be found in the OSD table in this report (see below). Information on the other nine

components are provided in two separate tables (five-level systems and three-level systems).

It is unclear whether, for previous fiscal years, OPM combined data from different ratings

systems (for example, three-level and five-level systems) into one set of data.

Selected Components of the Department of Defensea

Senior Executive Annual Summary Ratings Distribution, FY2004

(five-level)

Rating Levels

Fiscal Year

2004

1 (<1%)

4 (1%)

404 (98%)

Note:

a. This table includes the Air Force, Army, Defense Nuclear Safety Facilities Board, and the Office

of the Inspector General. Other components are included in the following table. See note b. in the

preceding table for an explanation of why two separate tables are provided for FY2004 for DOD.

CRS-47

Selected Components of the Department of Defensea

Senior Executive Annual Summary Ratings Distribution, FY2004

(three-level)

Rating Levels

Fiscal Year

2004

13 (2%)

26 (4%)

678 (95%)

Note:

a. This table includes the Defense Contract Audit Agency (DCAA), Defense Information Systems

Agency (DISA), Defense Logistics Agency (DLA), Defense Threat Reduction Agency, Navy (USN),

and Office of the Secretary of Defense (OSD). Other components are included in the preceding table.

See note b. in the main DOD table above for an explanation of why two separate tables are provided

for FY2004 for DOD.

Department of Education

Senior Executive Annual Summary Ratings Distribution

Rating Levels

Fiscal Year

1999

57 (100%)

N/A

2000

53 (100%)

N/A

2001

66 (100%)

N/A

2002

63 (100%)

N/A

2003

1 (2%)

53 (98%)

N/A

2004

1 (1%)

74 (99%)

N/A

2005

9 (12%)

30 (39%)

37 (49%)

Note:

a. The Department of Education changed to a five-level system in 2005.

CRS-48

Department of Energy (DOE)

Senior Executive Annual Summary Ratings Distribution

Rating Levels

Fiscal Year

1999

1 (<1%)

327

(100%)

N/A

2000

347

(100%)

N/A

2001

4 (1%)

394 (99%)

N/A

2002a

7 (2%)

273 (80%)

63 (18%)

N/A

2003

1 (<1%)

206 (61%)

129 (38%)

N/A

2004b

217 (56%)

173 (44%)

2005c

2 (<1%)

223 (61%)

142 (39%)

N/A

Notes:

a. The Department of Energy changed to a four-level system in 2002.

b. The Department of Energy changed to a five-level system in 2004.

c. The Department of Energy changed to a four-level system in 2005.

Department of Health and Human Services (HHS)

Senior Executive Annual Summary Ratings Distribution

(three-level)

Rating Levels

Fiscal Year

1999

253 (100%)

2000

253 (100%)

2001

238 (100%)

2002

1 (<1%)

327 (100%)

2003

1 (<1%)

213 (100%)

2004a

N/A

2005a

N/A

Note:

a. Apparently, the Department of Health and Human Services changed both its three-level and fivelevel systems to a single four-level system in 2004. See the next table for FY2004 and FY2005

data.

CRS-49

Department of Health and Human Services (HHS)

Senior Executive Annual Summary Ratings Distribution

(five-level)

Rating Levels

Fiscal Year

1999

32 (26%)

16 (13%)

76 (61%)

2000

22 (19%)

13 (11%)

83 (70%)

2001

21 (17%)

12 (10%)

90 (73%)

2002

2 (6%)

32 (94%)

2003

31 (52%)

29 (48%)

2004a

6 (2%)

167 (47%)

184 (52%)

N/A

2005

2 (1%)

152 (42%)

211 (58%)

N/A

Note:

a. Apparently, the Department of Health and Human Services changed both its three-level and fivelevel systems to a single four-level system in 2004.

Department of Homeland Security (DHS)

Senior Executive Annual Summary Ratings Distribution

Rating Levels

Fiscal Year

2005

4 (1%)

20 (7%)

88 (33%)

155 (58%)

Note:

a. This is the first year for which OPM provided data for the Department of Homeland Security, which

was established in 2003.

CRS-50

Department of Housing and Urban Development (HUD)

Senior Executive Annual Summary Ratings Distribution

Rating Levels

Fiscal Year

1999

1 (2%)

12 (18%)

10 (15%)

42 (65%)

2000a

66 (100%)

N/A

2001

1 (1%)

67 (99%)

N/A

2002

64 (100%)

N/A

2003

69 (100%)

N/A

2004

10 (11%)

38 (44%)

39 (45%)

2005

11 (14%)

20 (25%)

50 (62%)

Note:

a. The Department of Housing and Urban Development changed to a three-level system in 2000.

Department of the Interior

Senior Executive Annual Summary Ratings Distribution

Rating Levels

Fiscal Year

1999

180

(100%)

N/A

2000

183

(100%)

N/A

2001

191

(100%)

N/A

2002

1 (<1%)

191

(100%)

N/A

2003

190

(100%)

N/A

2004a

96 (39%)

99 (40%)

54 (22%)

2005

1 (<1%)

98 (40%)

104 (42%)

45 (18%)

Note:

a. The Department of the Interior changed to a five-level system in 2004.

CRS-51

Department of Justice

Senior Executive Annual Summary Ratings Distribution

Rating Levels

Fiscal

Year

1999

28 (10%)

245 (90%)

2000

25 (9%)

262 (91%)

2001

2 (<1%)

24 (8%)

269 (91%)

2002

4 (2%)

28 (11%)

226 (88%)

2003

3 (1%)

37 (14%)

223 (85%)

2004

1 (<1%)

33 (6%)

181 (32%)

355 (62%)

2005

14 (2%)

193 (33%)

375 (64%)

Department of Labor

Senior Executive Annual Summary Ratings Distribution

Rating Levels

Fiscal Year

1999

12 (9%)

42 (32%)

76 (58%)

2000

18 (13%)

26 (19%)

92 (68%)

2001

21 (16%)

36 (27%)

78 (58%)

2002

14 (11%)

52 (41%)

61 (48%)

2003

1 (<1%)

17 (13%)

69 (53%)

42 (33%)

2004

20 (12%)

76 (44%)

77 (45%)

2005

14 (8%)

82 (49%)

72 (43%)

CRS-52

Department of State

Senior Executive Annual Summary Ratings Distribution

Rating Levels

Fiscal Year

1999

2 (2%)

83 (98%)

2000

101 (100%)

2001

2 (2%)

95 (98%)

2002a

1 (<1%)

110 (99%)

N/A

2003

2 (2%)

107 (98%)

N/A

2004

22 (14%)

134 (86%)

N/A

2005b

3 (2%)

52 (40%)

75 (58%)

Notes:

a. The Department of State changed to a four-level system in 2002.

b. The Department of State changed to a five-level system in 2005.

Department of Transportation (DOT)

Senior Executive Annual Summary Ratings Distribution

Rating Levels

Fiscal Year

1999

160

(100%)

N/A

2000

1 (<1%)

165 (99%)

N/A

2001

1 (1<%)

194 (99%)

N/A

2002

177

(100%)

N/A

2003

155

(100%)

N/A

2004a

1 (<1%)

46 (23%)

87 (43%)

67 (33%)

2005

62 (34%)

76 (41%)

45 (24%)

Note:

a. The Department of Transportation changed to a five-level system in 2004.

CRS-53

Department of the Treasury

Senior Executive Annual Summary Ratings Distribution

(five-level)

Rating Levels

Fiscal Year

1999

62 (13%)

169 (35%)

248 (52%)

2000

75 (14%)

176 (33%)

289 (54%)

2001

112 (20%)

161 (29%)

274 (50%)

2002

161 (30%)

165 (31%)

207 (39%)

2003

34 (11%)

143 (47%)

130 (42%)

2004

1 (<1%)

56 (14%)

174 (42%)

182 (44%)

2005

55 (13%)

164 (40%)

189 (46%)

Department of the Treasury

Senior Executive Annual Summary Ratings Distribution

(three-level)

Rating Levels

Fiscal Year

1999

N/A

2000

N/A

2001

N/A

2002

N/A

2003a

62 (100%)

Notes:

a. Apparently, one or more Treasury components changed from a five-level system to a three-level

system in 2003.

b. Apparently, the Department of the Treasury changed this system from three levels to five levels in

2004. All Treasury figures are provided in the preceding table.

CRS-54

Department of Veterans Affairs

Senior Executive Annual Summary Ratings Distribution

Rating Levels

Fiscal

Year

1999

2 (<1%)

25 (10%)

79 (33%)

137 (56%)

2000

3 (1%)

41 (16%)

68 (27%)

142 (56%)

2001

1 (<1%)

32 (11%)

89 (32%)

156 (56%)

2002

6 (2%)

34 (13%)

76 (28%)

154 (57%)

2003

20 (8%)

65 (25%)

176 (67%)

2004

27 (10%)

70 (26%)

175 (64%)

2005

1 (<1%)

31 (11%)

70 (26%)

169 (62%)

Environmental Protection Agency (EPA)

Senior Executive Annual Summary Ratings Distribution

Rating Levels

Fiscal Year

1999

2 (<1%)

34 (15%)

196 (84%)

2000

1 (<1%)

34 (14%)

212 (86%)

2001

3 (1%)

39 (16%)

202 (83%)

2002

1 (<1%)

4 (2%)

71 (29%)

166 (69%)

2003

8 (3%)

83 (33%)

164 (64%)

2004

2 (1%)

9 (3%)

98 (35%)

172 (61%)

2005

76 (26%)

113 (39%)

98 (34%)

CRS-55

Federal Emergency Management Agency (FEMA)

Senior Executive Annual Summary Ratings Distributiona

Rating Levels

Fiscal Year

1999

4 (14%)

25 (86%)

2000

4 (13%)

28 (88%)

2001

20 (63%)

12 (38%)

2002

28 (90%)

3 (10%)

2003

13 (54%)

11 (46%)

Notes:

a. As of FY2004, Federal Emergency Management Agency (FEMA) figures are included in the DHS

table.

General Services Administration (GSA)

Senior Executive Annual Summary Ratings Distribution

Rating Levels

Fiscal Year

1999

1 (1%)

7 (9%)

73 (90%)

2000

1 (1%)

2 (3%)

76 (96%)

2001

6 (7%)

76 (93%)

2002

7 (9%)

31 (39%)

42 (53%)

2003

1 (1%)

4 (5%)

29 (39%)

41 (55%)

2004

1 (1%)

28 (29%)

40 (42%)

27 (28%)

2005

29 (30%)

37 (38%)

32 (33%)

CRS-56

Merit Systems Protection Board (MSPB)

Senior Executive Annual Summary Ratings Distribution

Rating Levels

Fiscal Year

1999

8 (100%)

2000

9 (100%)

2001

1 (11%)

8 (89%)

2002a

9 (100%)

N/A

2003

10 (100%)

N/A

2004b

—

2005c

1 (7%)

8 (57%)

5 (36%)

Notes:

a. The Merit Systems Protection Board switched to four-level system in 2002.

b. The Merit Systems Protection Board was not included with the FY2004 data provided by OPM to

the author.

c. The board changed to a five-level system in 2005.

National Aeronautics and Space Administration (NASA)

Senior Executive Annual Summary Ratings Distribution

Rating Levels

Fiscal Year

1999

13 (4%)

85 (23%)

268 (73%)

2000

1 (<1%)

9 (2%)

91 (24%)

276 (73%)

2001

1 (<1%)

10 (3%)

80 (21%)

290 (76%)

2002

2 (<1%)

11 (3%)

74 (21%)

271 (76%)

2003

3 (<1%)

16 (4%)

75 (20%)

290 (76%)

2004

16 (4%)

82 (20%)

312 (76%)

2005

1 (<1%)

18 (4%)

171 (42%)

216 (53%)

CRS-57

Nuclear Regulatory Commission (NRC)

Senior Executive Annual Summary Ratings Distribution

Rating Levels

Fiscal Year

1999

1 (<1%)

152 (99%)

N/A

2000

135

(100%)

N/A

2001

139

(100%)

N/A

2002

2 (1%)

138 (99%)

N/A

2003

137

(100%)

N/A

2004a

31 (21%)

105 (70%)

14 (9%)

2005

1 (1%)

24 (17%)

107 (74%)

13 (9%)

Note:

a. The Nuclear Regulatory Commission changed to a five-level system in 2004.

Office of Management and Budget (OMB)

Senior Executive Annual Summary Ratings Distribution

Rating Levels

Fiscal Year

1999

1 (2%)

10 (18%)

46 (81%)

2000

1 (2%)

5 (10%)

45 (88%)

2001

37 (80%)

9 (20%)

2002a

40 (75%)

13 (25%)

N/A

2003

39 (68%)

18 (32%)

N/A

2004

44 (67%)

22 (33%)

N/A

2005

41 (77%)

12 (23%)

N/A

Note:

a. The Office of Management and Budget changed to a four-level system in 2002.

CRS-58

Office of Personnel Management (OPM)

Senior Executive Annual Summary Ratings Distribution

Rating Levels

Fiscal Year

1999

3 (9%)

29 (91%)

2000

1 (3%)

2 (6%)

32 (91%)

2001

2 (6%)

15 (47%)

2002

1 (4%)

11 (42%)

14 (54%)

2003

3 (10%)

17 (59%)

9 (31%)

2004

10 (18%)

19 (35%)

26 (47%)

2005

8 (15%)

25 (48%)

19 (37%)

Office of the Secretary of Defense (OSD)

Senior Executive Annual Summary Ratings Distribution

Rating Levels

Fiscal Year

1999

3 (<1%)

394 (99%)

2000

403 (100%)

2001

2 (<1%)

310 (99%)

2002

397 (100%)

2003

3 (<1%)

389 (99%)

2004

372 (100%)

2005a

—

Note:

a. Apparently, Office of the Secretary of Defense figures were included with DOD figures in FY2005.

CRS-59

Small Business Administration (SBA)

Senior Executive Annual Summary Ratings Distribution

Rating Levels

Fiscal Year

1999

7 (23%)

24 (77%)

2000

1 (3%)

7 (21%)

26 (76%)

2001

1 (3%)

6 (16%)

29 (81%)

2002

7 (18%)

10 (26%)

22 (56%)

2003

5 (16%)

12 (39%)

14 (45%)

2004

3 (7%)

10 (23%)

31 (70%)

2005

8 (19%)

12 (29%)

22 (52%)

Social Security Administration (SSA)

Senior Executive Annual Summary Ratings Distribution

Rating Levels

Fiscal Year

1999

90 (100%)

N/A

2000

122 (100%)

N/A

2001

122 (100%)

N/A

2002

116 (100%)

N/A

2003a

13 (12%)

53 (47%)

46 (41%)

2004

12 (8%)

50 (35%)

80 (56%)

2005

7 (5%)

47 (34%)

83 (61%)

Note:

a. The Social Security Administration switched to a five-level system in 2003.

CRS-60

U.S. Agency for International Development (USAID)

Senior Executive Annual Summary Ratings Distribution

Rating Levels

Fiscal Year

1999

4 (18%)

1 (5%)

17 (77%)

2000

1 (5%)

18 (95%)

2001

2 (8%)

6 (25%)

16 (67%)

2002

5 (21%)

9 (38%)

10 (42%)

2003

9 (43%)

4 (19%)

8 (38%)

2004

2 (12%)

6 (35%)

9 (53%)

2005

3 (16%)

6 (32%)

10 (53%)

CRS-61

Appendix B

Section 1126, P.L. 108-136

Section 1126 of the FY2004 National Defense Authorization Act (P.L. 108-136;

117 Stat. 1392, at 1640) lists design elements for pay-for-performance systems

initiated under Chapter 47 of Title 5 of the United States Code. These elements do

not apply to the SES pay system, which is found in Chapter 53 of Title 5. However,

they might be instructive when reviewing the elements of the new SES pay system.

The elements are

Adherence to merit principles set forth in section 2301 of such [Title 5 of

the United States Code]

A fair, credible, and transparent employee performance appraisal system.

A link between elements of the pay-for-performance system, the employee

performance appraisal system, and the agency’s strategic plan.

A means for ensuring employee involvement in the design and

implementation of the system.

Adequate training and retraining for supervisors, managers, and

employees in the implementation and operation of the pay-forperformance system.

A process for ensuring ongoing performance feedback and dialogue

between supervisors, managers, and employees throughout the appraisal

period, and setting timetables for review.

Effective safeguards to ensure that the management of the system is fair

and equitable and based on employee performance.

A means for ensuring that adequate agency resources are allocated for the

design, implementation, and administration of the pay-for-performance

system.

Government Accountability Office

Employing a slightly different perspective, GAO identified the following key

practices for effective performance management:

Align individual performance expectations with organizational goals.

Connect performance expectations to crosscutting goals.

CRS-62

Provide and routinely use performance information to track organizational

priorities. (A subsequent GAO report stated: “Provide and routinely use

performance information to make program improvements.”85)

Require follow-up actions to address organizational priorities.

Use competencies to provide a fuller assessment of performance.

Link pay to individual and organizational performance.

Make meaningful distinctions in performance.

Involve employees and stakeholders to gain ownership of performance

management systems.

Maintain continuity during transitions.86

Coalition for Effective Change

The Coalition for Effective Change, self-described as a “non-partisan alliance

of associations representing current and retired federal managers, executives, and

professionals,” offers the following factors as a foundation for any system that links

pay and performance:87

Gaining Consensus on the Basis for Rewards and Corrective Actions:

Determinations to award higher pay and bonuses, and to take corrective

actions because of poor performance, must be based on a credible process

for evaluating performance that is tailored to the individual needs and

culture of each organization (avoiding the temptation to implement a “one

size fits all approach”) and which is developed, implemented, evaluated,

and adjusted over time with the active involvement of employees and

managers. Employees not represented by a union should have

representation through their professional or managerial associations.

Allowing for the Exercise of Reasonable Judgment: We [Coalition for

Effective Change] recognize that judging overall performance and

contributions involves a degree of subjective judgment by the rater[;

therefore], the system should strive for as much objectivity as possible

while recognizing that an inherent aspect of good management is the

ability to exercise and support sound judgment with regard to the quality

and quantity of work, the effects outcomes of inputs, and the impact of

environment and unforeseen developments.

U.S. General Accounting Office, Human Capital: Implementing Pay for Performance at

Selected Personnel Demonstration Projects, GAO Report GAO-04-83 (Washington: 2004),

p. 1.

U.S. General Accounting Office, Results-Oriented Cultures: Creating a Clear Linkage

Between Individual Performance and Organizational Success, GAO Report GAO-03-488

(Washington: 2003), p. 4.

Coalition for Effective Change, available at

about.html].

[http://www.effective-change.org/

CRS-63

Flexible: Recognizing that the proportion of high performers differs

among agencies and work groups within agencies, the amount and

distribution of awards should be controlled via budget allocations and not

by arbitrary quotas or forced distribution. In addition, the system

should specifically allow for the possibility of team awards rather than

individual awards where that makes the most sense.

Reviewable: A credible system will provide for third party review

(preferably peer review) and a rational and reasonable process for the

appeals of actions having a material effect upon the employee. Results or

outcomes of the pay for performance system should be openly available

to those participating in the system to build the credibility of the system

over time.

Periodically evaluated and adjusted: Any new or revised performance

management system should be tested and evaluated on an ongoing basis

and refined based on the results, all with stakeholder participation. The

test should be communicated to all employees before starting, and the

results and actions to be taken based on those results should also be

communicated. Finally, reviews of the system by an agency or by the

Office of Personnel Management should include an assessment of the

impact of the system on agency workforce diversity goals and initiatives.

Adequately funded: The performance award system, both in testing and

full implementation, must be adequately funded with a specific allocation

of funds for both implementation and ongoing operation. If unforeseen

and uncontrollable circumstances intervene, the circumstances and effect

on performance awards should be immediately communicated to all

participants. At a minimum, any employee whose performance is deemed

to be satisfactory should expect to receive an annual pay increase that at

least keeps pace with cost of living increases in [his or her] area.88

Robert D. Behn

Dr. Robert D. Behn, a lecturer in the Kennedy School of Government, Harvard

University, suggests these eight principles for improving human and organizational

performance:

Offer enough base pay to attract talented, dedicated people.

Give people an important mission to achieve.

Don’t create systems that automatically label lots of people as losers.

Find lots of mechanisms to tell people they are winners. (And don’t rely

on financial incentives.).

Reward teamwork.

Coalition for Effective Change, “Linking the Pay of Federal Employees to Their

Performance,” August 2004, available at [http://www.effective-change.org/

CECPublications.html]. (Italics in original.)

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Make it easy to terminate obnoxiously poor performers.

Ask line managers if your system helps them to improve performance.

Don’t carve your new system in stone; rather, be prepared to make the

inevitably necessary changes.89

Symposium on Designing and Managing Market-Based

and More Performance-Oriented Pay Systems

Participants in a March 2005 symposium that was convened by the Government

Accountability Office, OPM, the U.S. Merit Systems Protect Board, the National

Academy of Public Administration, and the Partnership for Public Service developed

these key themes:

Focus on a set of values and objectives to guide the pay system. Values

represent an organization’s beliefs and boundaries and objectives

articulate the strategy to implement the system.

Examine the value of employees’ total compensation to remain

competitive in the market. Organizations consider a mix of base pay plus

other monetary incentives, benefits, and deferred compensation, such as

retirement pay, as part of a competitive compensation system.

Build in safeguards to enhance the transparency and ensure the fairness of

pay decisions. Safeguards are the precondition to linking pay systems

with employee knowledge, skills, and contributions to results.

Devolve decision making on pay to appropriate levels. When devolving

such decision making, overall core processes help ensure reasonable

consistency in how the system is implemented.

Provide training on leadership, management, and interpersonal skills to

facilitate effective communication. Such skills as setting expectations,

linking individual performance to organizational results, and giving and

receiving feedback need renewed emphasis to make such systems.

Build consensus to gain ownership and acceptance for pay reforms.

Employee and stakeholder involvement needs to be meaningful and not

pro forma.

Monitor and refine the implementation of the pay system. While changes

are usually inevitable, listening to employee views and using metrics helps

identify and correct problems over time.90

Robert D. Behn, “Performance, People, and Pay,” Bob Behn’s Public Management

Report, 2000, pp. 8-9, available at [http://www.ksg.harvard.edu/TheBehnReport/].

U.S. Government Accountability Office, Symposium on Designing and Managing MarketBased and More Performance-Oriented Pay Systems, GAO-05-832SP, July 2005,

“Highlights” (n.p.).

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.