The strategies that the organizations at our symposium considered in  designing and managing market-based and more performance-oriented pay  systems and examples of how organizations are implementing them are as  follows. Focus on a set of values and objectives to guide the pay system. Organizations need to focus on a set of values and objectives when  designing and managing their market-based and more performance- oriented pay systems. Examine the value of employees’ total compensation to remain  competitive in the market. Build in safeguards to enhance the transparency and help ensure  the fairness of pay decisions. 4. Devolve decision making on pay to appropriate levels. Provide training on leadership, management, and interpersonal  skills to facilitate effective communication. We have reported that  training and developing new and current staff to fill new roles and work in  different ways will play a crucial part in the federal government’s  endeavors to meet its transformation challenges. Organizations found that training employees and managers on performance  management skills, such as setting expectations, linking individual  performance to organizational results, and effectively giving and receiving  feedback, as well as placing an emphasis on communicating the content of  the pay reforms in a simple and clear format, are needed to make market- based and more performance-oriented pay succeed. Build consensus to gain ownership and acceptance for pay  reforms. Experience shows  that this shift to market-based and more performance-oriented pay must be  part of a broader strategy of change management and performance  improvement initiatives and cannot be simply overlaid on most  organizations’ existing performance management systems. Before  implementing any pay reform, each executive branch agency should have  demonstrated and OPM should have certified that the agency has in place  the institutional infrastructure to help ensure that this reform is effectively  and equally implemented. We need to move forward with human capital reforms. “Highlights” of Selected GAO Reports

Critical to the success of the  federal government’s  transformation are its people— human capital. Yet the government  has not transformed, in many  cases, how it classifies,  compensates, develops, and  motivates its employees to achieve  maximum results within available  resources and existing authorities. One of the questions being  addressed as the federal  government transforms is how to  update its compensation system to  be more market based and  performance oriented. While implementing market-based and more performance-oriented pay  systems is both doable and desirable, organizations’ experiences show that  the shift to market-based and more performance-oriented pay must be part  of a broader strategy of change management and performance improvement  initiatives. 1. To further the discussion of federal  pay reform, GAO, the U.S. Office of  Personnel Management, the U.S. Representatives from  public, private, and nonprofit  organizations made presentations  on the successes and challenges  they experienced in designing and  managing their market-based and  more performance-oriented pay  systems. 3. Safeguards are the precondition to linking pay  systems with employee knowledge, skills, and contributions to results. 6. 7. Monitor and refine the implementation of the pay system. To begin  to make this change, organizations need to build up their basic management  capacity at every level of the organization. 2. 5. Make meaningful distinctions in performance.
Why GAO Did This Study

The federal government must have the capacity to plan more strategically, react more expeditiously, and focus on achieving results. Critical to the success of this transformation are the federal government's people--its human capital. Yet, in many cases the federal government has not transformed how it classifies, compensates, develops, and motivates its employees to achieve maximum results within available resources and existing authorities. A key question is how to update the federal government's compensation system to be market-based and more performance-oriented. To further the discussion of federal pay reform, GAO partnered with key human capital stakeholders to convene a symposium in March 2005 to discuss public, private, and nonprofit organizations' successes and challenges in designing and managing market-based and more performance-oriented pay systems. This testimony presents the strategies that organizations considered in designing and managing market-based and more performance-oriented pay systems and describes how they are implementing them.

What GAO Found

GAO strongly supports the need to expand pay reform in the federal government. While implementing market-based and more performance-oriented pay systems is both doable and desirable, organizations' experiences in designing and managing their pay systems underscored three key themes that can guide federal agencies' efforts. First, the shift to market-based and more performance-oriented pay must be part of a broader strategy of change management and performance improvement initiatives. Second, market-based and more performance-oriented pay cannot be simply overlaid on most organizations' existing performance management systems. Rather, as a precondition to effective pay reform, individual expectations must be clearly aligned with organizational results, communication on individual contributions to annual goals must be ongoing and two-way, meaningful distinctions in employee performance must be made, and cultural changes must be undertaken. Finally, organizations need to build up the basic management capacity of their organizations. Training and developing new and current staff to fill new roles and work in different ways will play a crucial part in building the capacity of the organizations. Organizations presenting at our symposium considered the following strategies in designing and managing their pay systems. (1) Focus on a set of values and objectives to guide the pay system; (2) Examine the value of employees' total compensation to remain competitive in the market; (3) Build in safeguards to enhance the transparency and help ensure the fairness of pay decisions; (4) Devolve decision making on pay to appropriate levels; (5) Provide training on leadership, management, and interpersonal skills to facilitate effective communication; (6) Build consensus to gain ownership and acceptance for pay reforms; and (7) Monitor and refine the implementation of the pay system. Moving forward, it is possible to enact broad-based reforms that would enable agencies to move to market-based and more performance-oriented pay systems. However, before implementing reform, each executive branch agency should demonstrate and the Office of Personnel Management should certify that the agency has the institutional infrastructure in place to help ensure that the pay reform is effectively and equally implemented. At a minimum, this infrastructure includes a modern, effective, credible, and validated performance management system in place that provides a clear linkage between institutional, unit, and individual performance-oriented outcomes; results in meaningful distinctions in ratings; and incorporates adequate safeguards.