We have  testified that such SES and senior-level employee performance-based pay  systems serve as an important step for agencies in creating alignment or  “line of sight” between executives’ performance and organizational  results. VA’s SES Performance Appraisal Process

VA requires that each SES member have an executive performance plan or  contract in place for the appraisal year. According to VA’s policy, the plan  must reflect measures that balance organizational results with customer  satisfaction, employee perspectives, and other appropriate measures. VA uses four PRBs to review and prepare recommendations on SES  member ratings, awards, and pay adjustments: Veterans Affairs, Veterans  Health Administration, Veterans Benefits Administration, and Office of  Inspector General. The Secretary appoints members of three of the four PRBs on an annual  basis; members of the Office of Inspector General PRB are appointed by  the VA Inspector General. According to a VA  official in the Office of Human Resources and Administration,  appointments are made on basis of the position held, and consideration is  given to those positions where the holder would have knowledge about  the broadest group of executives. VA’s PRBs vary in size, composition, and number of SES members  considered for bonuses. Under VA’s policy, each PRB develops its own operating procedures for  reviewing ratings and preparing recommendations. While federal law and OPM regulations permit career  SES members rated fully successful or higher to be awarded bonuses, VA’s  policy calls for bonuses to generally be awarded to only those rated  outstanding or excellent and who have demonstrated significant individual  and organizational achievements during the appraisal period. In 2005, according to OPM’s Report on Senior Executive Pay for  Performance for Fiscal Year 2005, the most recent report available, VA  awarded higher average bonuses to its career SES than any other cabinet- level department. OPM data show that six other cabinet-level departments  awarded bonuses to a higher percentage of their career SES members. OPM’s and OMB’s Roles in the VA Certification Process

Both OPM and OMB play a role in the review of agency’s senior  performance appraisal systems and have jointly developed certification  criteria. Specifically, to qualify for the use of SES pay flexibilities, OPM and OMB  evaluate agencies’ senior performance appraisal systems against nine  certification criteria. VA received provisional certification for each of the years 2004 through  2006. In 2006, the letter from OPM to VA discussing its decision to grant  the VA provisional certification rather than full certification, OPM stated  that while the VA “system met certification criteria, clear alignment and  measurable results must be evident in all plans across the entire agency.”  In addition, OPM said that it expected to see “well over 50 percent of an  executive’s performance plan focused on business results” and that VA  “needs to ensure its 2007 executive performance plans weight business  results appropriately.” VA officials told us that the 2007 submission is in  draft and they expect to submit it to OPM by the June 30, 2007, deadline. Our preliminary review of VA’s requirements for performance plans  contained in its 2006 submission and 2007 draft submission show that VA  made changes to the policy requirements for its performance plans to  reflect a greater emphasis on measurable results. VA has achieved provisional certification of its SES  performance management system for 2004 through 2006.
Why GAO Did This Study

Key practices of effective performance management for the Senior Executive Service (SES) include the linkage or "line of sight" between individual performance and organizational success, the importance of linking pay to individual and organizational performance, and the need to make meaningful distinctions in performance. GAO identified certain principles for executive pay plans that should be considered to attract and retain the quality and quantity of executive leadership necessary to address 21st century challenges, including that they be sensitive to hiring and retention trends; reflect knowledge, skills, and contributions; and be competitive. This testimony focuses on the Department of Veterans Affairs' (VA) process for awarding bonuses to SES members, the amount and percentage of bonuses awarded for fiscal years 2004 through 2006 based on data reported by VA, and the Office of Personnel Management's (OPM) and the Office of Management and Budget's (OMB) roles in certifying federal agencies SES performance appraisal systems. GAO analyzed VA's policies and procedures for awarding bonuses and data provided by VA on the amount and percentages of bonuses and interviewed knowledgeable VA officials. Information on OPM's and OMB's certification process was based on our 2007 report on OPM's capacity to lead and implement reform

What GAO Found

VA requires that each senior executive have an executive performance plan or contract in place for the appraisal year that reflects measures that balance organization results with customer satisfaction, employee perspectives, and other appropriate measures. VA uses four performance review boards (PRB) to review and make recommendations on SES ratings, awards, and pay adjustments based on these performance plans. VA's Secretary appoints members of three of the four boards on the basis of the position held within the agency, and consideration is given to those positions where the holder would have knowledge about the broadest group of executives. Members of the fourth board are appointed by VA's Inspector General. VA's PRBs vary in size, composition, and number of SES members considered for bonuses, and each PRB, within the scope of VA's policies, develops its own procedures and criteria for making bonus recommendations. According to VA policy, bonuses are generally awarded only to those rated outstanding or excellent and who have demonstrated significant individual and organizational achievements during the appraisal period. According to data reported by OPM, in fiscal year 2005, VA awarded higher bonus amounts to its career SES than any other cabinet-level department; however, according to OPM's data, six other cabinet-level departments awarded bonuses to a higher percentage of their career SES. OPM and OMB evaluate agencies' SES performance appraisal systems against nine certification criteria jointly developed by the two agencies and determine that agencies merit full, provisional, or no certification. VA has been granted provisional certification in each of the years 2004 through 2006. Our review of VA's requirements for SES performance plans as represented in both its 2006 submission and 2007 draft submission to OPM show that VA made changes to the requirements for its performance plans to reflect greater emphasis on measurable results.