	Key Practices for Effective Performance Management

We identified specific practices that leading public sector organizations  both here in the United States and abroad have used in their performance  management systems to create a clear linkage—“line of sight”—between  individual performance and organizational success. Federal agencies  should consider these practices as they develop and implement the  modern, effective, and credible performance management systems with the  adequate safeguards, including reasonable transparency and appropriate  accountability mechanisms in place, needed to effectively link pay to  performance. The key practices include the following. Link pay to individual and organizational performance. The most prominent change in human capital  management that we implemented as a result of the GAO Personnel Act of  1980 was a broadbanded pay-for-performance system. As a result of GAO's implementation of its new competency-based  performance management system and other changes to key human capital  programs, GAO has been able to achieve greater dispersion in its  performance appraisals and merit pay decisions. IRS  anticipates that the complete redesign and implementation of the  performance management systems will take about 5 years. However, agencies  should be required to demonstrate to OPM’s satisfaction that they have  modern, effective, credible, and validated performance management  systems in place before they are allowed to use broadbanding or related  pay for performance initiatives. In summary, there is widespread agreement that the basic approach to  federal pay is broken and we need to move to a more market- and  performance-based approach. Doing so will be essential if we expect to  maximize the performance and assure the accountability of the federal  government for the benefit of the American people. Reasonable people can  and will debate and disagree about the merits of individual reform  proposals. However, all should be able to agree that a performance  management system with adequate safeguards, including reasonable  transparency and appropriate accountability mechanisms in place, must  serve as the fundamental underpinning of any fair, effective, and  appropriate results-oriented pay reform. The practices that have been used  by leading organizations in developing and using their performance  management systems to link organizational goals to individual  performance and create a line of sight between an individual’s activities  and organizational results show the way in how to implement performance  management systems with the necessary attributes.
Why GAO Did This Study

There is widespread agreement that the basic approach to federal pay is broken and that it needs to be more market- and performance-based. Doing so will be essential if the federal government is to maximize its performance and assure accountability for the benefit of the American people. While there will be debate and disagreement about the merits of individual reform proposals, all should be able to agree that a performance management system with adequate safeguards, including reasonable transparency and appropriate accountability mechanisms in place, must serve as the fundamental underpinning of any fair, effective, and appropriate pay reform. At the request of the Subcommittee on Civil Service and Agency Organization, House Committee on Government Reform, GAO discussed the key practices for effective performance management that federal agencies should consider as they develop and implement performance management systems as part of any pay reform.

What GAO Found

The need for results-oriented pay reform is one of the most pressing human capital issues facing the federal government today. To implement results-oriented pay reform, commonly referred to as "pay for performance," agencies must have modern, effective, credible, and validated performance management systems that are capable of supporting pay and other personnel decisions. Pay for performance works only with adequate safeguards, including reasonable transparency and appropriate accountability mechanisms in place, to ensure its fair, effective, and responsible implementation. Modern performance management systems are the centerpiece of those safeguards and accountability. Most federal agencies are a long way from meeting this test. All too often, agencies' performance management systems are based on episodic and paper intensive exercises that are not linked to the strategic plan of the organization and have only a modest impact on the pay, use, development, and promotion potential of federal workers. Leading organizations, on the other had, use their performance management systems to accelerate change, achieve desired organizational results, and facilitate two-way communication throughout the year so that discussions about individual and organizational performance are integrated and ongoing. Effective performance management systems are not merely used for once- or twice-yearly individual expectation setting and ratings processes, but are tools to help the organization manage on a day-to-day basis. GAO identified key practices leading public sector organizations both here in the United States and abroad have used in their performance management systems to link organizational goals to individual performance and create a "line of sight" between an individual's activities and organizational results. These practices can help agencies develop and implement performance management systems with the attributes necessary to effectively support pay for performance.