	The Regulatory Structure of the Senior Executive Performance Management System Helps Link Executives’ Performance to Organizational Results

Overall, the regulations that OPM developed to administer a performance- based pay system for senior executives serve as a substantive and positive  step for agencies in holding senior executives accountable for their  performance and contributions to organizational success. To qualify for these flexibilities, agencies’ performance management  systems need to meet nine specified certification criteria, including  demonstrating that the systems align individual performance expectations  with the mission and goals of the organization and that its appraisal  system as designed and applied makes meaningful distinctions in  performance. To receive a full 2-calendar-year certification, an agency must provide  documentation that its senior executive performance management system  meets all nine of the criteria. Otherwise, agencies can meet four of nine  criteria and demonstrate that their system in design meets the remaining  certification criteria to receive 1-year provisional certification and use the  higher pay rates. The certification criteria are generally consistent with our body  of work identifying key practices for effective performance management. Specifically, we identified key practices, including aligning individual  performance expectations with organizational goals, linking pay to  individual performance, and making meaningful distinctions in  performance, that collectively create a line of sight between an individual’s  performance and an organization’s success. If provisionally certified, an agency’s  certification is only good for the calendar year in which it applied. Once OMB concurs, the Director of OPM certifies the agency’s  appraisal system and the HCO provides additional comments to the agency  on their system and identifies any improvement needs. Agencies’ Experience in Implementing the Senior Executive Pay System Highlights Areas Where Improvements Might be Needed

In our ongoing work on OPM’s capacity to lead and implement human  capital reform, we asked agency chief human capital officers (CHCO) and  human resource (HR) directors to describe their experiences with OPM’s  administration of the senior executive pay-for-performance certification  process. As the Comptroller General testified before this Subcommittee in  June 2006, we heard a number of concerns from agencies regarding  OPM’s ability to communicate expectations, guidance, and deadlines to  agencies in a clear and consistent manner. In addition, OPM can suspend  certification at any time during the certification period if it determines,  with OMB concurrence, that the agency’s system is not in compliance with  the certification criteria. According to OPM data, 26 performance management systems at 24  agencies were certified during calendar year 2006. Of these 26, only the  Department of Labor’s system received full certification. These findings are not surprising. In our April 2005 testimony before this  Subcommittee, we stated that a number of agencies would be challenged  in the short term to provide the necessary performance data on their  senior executives in order to receive full certification or to maintain their  certification (agencies must provide 2 years of performance rating and  bonus data showing that meaningful distinctions in senior executive  performance were made to qualify). This is  because, as I have stated earlier, agencies with provisional certification  can still receive the flexibilities of the new pay system, even though they  do not meet all of OPM’s certification requirements. These actions will help ensure that agencies continue to  make substantive progress toward modernized performance management  systems, and that provisional certifications do not become the norm. Credible  performance management systems, specifically those that (1) align  individual, team, and unit performance to organizational results; (2)  contain built-in safeguards; and (3) are effectively implemented, can help  manage and direct this process. Moving forward,  what will be important is how OPM works with agencies to provide the  tools and resources they need to design and implement performance  management systems that meet the certification criteria in as streamlined  a fashion as possible. The lessons learned in implementing the senior executive pay-for- performance system will be critical to modernizing the performance  management systems under which other federal employees are  compensated. In particular, establishing an explicit line of sight between  individual, team, and unit performance and organizational success, as well  highlighting opportunities to improve guidance, communications,  transparency, and safeguards, will serve the government well moving  forward.
Why GAO Did This Study

The government's senior executives need to lead the way in transforming their agencies' cultures. Credible performance management systems--those that align individual, team, and unit performance with organizational results--can help manage and direct this process. In past work, GAO found that the performance management systems for senior executives fell short in this regard. In November 2003, recognizing that reforms were needed, Congress authorized a new performance-based pay system that ended the practice of giving annual pay adjustments to senior executives. Instead, agencies are to consider such factors as individual results and contributions to agency performance. If the Office of Personnel Management (OPM) certifies an agency's new performance system and the Office of Management and Budget (OMB) concurs, the agency has the flexibility to raise the pay of its highest performing senior executives above certain pay caps. This testimony addresses (1) the performance management system's regulatory structure, (2) OPM's certification process and agencies' views of it, and (3) OPM's role in monitoring the system, and the number of agencies that have been certified to date. This statement is based on GAO's issued work, which included interviews with senior OPM officials, agency Chief Human Capital Officers and Human Resource officers, and reviews of agency documents.

What GAO Found

Overall, the regulations that OPM and OMB developed to administer a performance-based pay system for executives serve as an important step for agencies in creating an alignment or "line of sight" between executives' performance and organizational results. To qualify for the pay flexibilities included in the statute, OPM must certify and OMB must concur that an agency's performance management system meets nine certification criteria, including demonstrating that its performance management system aligns individual performance expectations with the mission and goals of the organization and that its system as designed and applied makes meaningful distinctions in performance. The certification criteria are generally consistent with key practices for effective performance management systems GAO identified that collectively create a line of sight between an individual's performance and an organization's success. To receive a full 2-calendar-year certification, an agency must document that its senior executive performance management system meets all nine of the criteria. Agencies can meet four of nine criteria and demonstrate that their system in design meets the remaining certification criteria to receive 1-year provisional certification and use the higher pay rates. Two divisions in OPM, as well as OMB, independently review agencies' certification submissions. A number of agencies GAO contacted expressed concern over OPM's ability to communicate expectations, guidance, and deadlines to agencies in a clear and consistent manner. OPM officials agreed that agencies need better guidance and were working on improvements. In monitoring agencies' performance management systems, OPM can suspend an agency's certification at any time with OMB concurrence if an agency is not complying with the certification criteria. According to OPM data, performance management systems at 24 agencies were certified during calendar year 2006. Of these, only the Department of Labor's system received full certification; the remaining systems received only provisional certification. These findings are not surprising. As GAO has noted in its past work, agencies could find it initially difficult to provide the necessary performance data to receive full certification. Going forward, it will be important for OPM to continue to monitor the certification process to help ensure that provisional certifications do not become the norm, and agencies develop performance management systems for their senior executives that meet all of OPM's requirements. The new performance management system for the government's senior executives will help agencies align individual, team, and unit performance with organizational results. Although there have been some implementation challenges, what will be important is how OPM works with agencies to meet the certification criteria. Moreover, the lessons learned in implementing the senior executive performance management system can be applied to modernizing the performance management systems of employees at other levels.