	Factoring Organizational Performance into Senior Executive Performance Appraisal Decisions

In our past work on performance management, we have identified the  alignment of individual performance expectations with organizational  goals as a key practice for effective performance management systems. Further, OPM requires agencies to consider organizational performance in  appraising senior executive performance to receive certification of their  SES appraisal systems. All of the selected agencies have policies in place for factoring  organizational performance into senior executive appraisal decisions. The selected agencies varied in how they provided and communicated  organizational performance assessments to PRB members and other  reviewing officials to help inform senior executive appraisal  recommendations. All of the selected  agencies have four or five rating levels in place for assessing senior  executive performance. While the selected agencies designed their  appraisal and pay systems to help make meaningful distinctions in  performance through ratings, our analysis shows that the senior  executives were concentrated at the top two rating levels for the most  recently completed appraisal cycle, as shown in figure 1. These results show that making meaningful  distinctions in bonuses and pay can be a challenge. All of the selected agencies have built safeguards into their senior  executive performance appraisal and pay systems—such as predecisional  checks of performance appraisal recommendations through higher-level  reviews and PRBs as well as transparency in communicating the aggregate  results—to help enhance the credibility, fairness, and transparency of their  systems, although they varied in how the safeguards have been  implemented. Our preliminary results show that there are opportunities  for improvement in the communication of aggregate appraisal results to all  senior executives. Appendix I: Background on the Senior Executive Performance-Based Pay System and Certification Criteria

In November 2003, Congress authorized a new performance-based pay  system for members of the Senior Executive Service (SES). If an agency’s senior executive performance  appraisal system is certified by the Office of Personnel Management  (OPM) and the Office of Management and Budget (OMB) concurs, the caps  are increased to $172,200 for base pay (Level II of the Executive Schedule)  and $221,100 for total compensation (the total annual compensation  payable to the Vice President).
Why GAO Did This Study

In 2003, Congress and the administration established a performance-based pay system for Senior Executive Service (SES) members that requires a link between individual and organizational performance and pay. Specifically, agencies are allowed to raise SES pay caps if their systems are certified by the Office of Personnel Management (OPM) with concurrence by the Office of Management and Budget (OMB) as meeting specified criteria. GAO was asked to testify on preliminary results of ongoing work analyzing selected executive branch agencies' policies and procedures for their SES performance-based pay systems in the following areas: (1) factoring organizational performance into senior executive performance appraisal decisions, (2) making meaningful distinctions in senior executive performance, and (3) building safeguards into senior executive performance appraisal and pay systems. GAO selected the U.S. Departments of Defense (DOD), Energy (DOE), State, and the Treasury; the U.S. Nuclear Regulatory Commission (NRC); and the United States Agency for International Development (USAID) based on variations in agency mission, organizational structure, and size of their career SES workforces. To date, GAO has analyzed agencies' SES performance management policies and guidance and analyzed aggregate SES performance appraisal data as provided by the agencies for fiscal year 2007.

What GAO Found

Overall, the selected agencies are making positive steps toward three key areas related to OPM and OMB's certification criteria, with some opportunities for refinements in these areas: (1) Factoring organizational performance into senior executive performance appraisal decisions: -all of the selected agencies have policies in place that require senior executives' performance expectations to be aligned with organizational results and organizational performance to be factored into appraisal decisions. Improvements in communicating organizational performance to reviewing officials could be made. (2) Making meaningful distinctions in senior executive performance: -while all of the selected agencies have multiple rating levels in place for assessing senior executive performance, senior executives were concentrated at the top two rating levels in the fiscal year 2007 appraisal cycle. (3) Building safeguards into senior executive performance appraisal and pay systems: -the selected agencies varied in how they implemented predecisional checks of appraisal recommendations through higher-level reviews and Performance Review Boards as well as transparency in the aggregate results with opportunities to improve communication of aggregate appraisal results to all senior executives.