A 2-Year Appraisal of Merit Pay in Three Agencies

GGD-84-1: Published: Mar 26, 1984. Publicly Released: Apr 2, 1984.

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In response to a congressional request, GAO assessed the merit pay systems at the Departments of Agriculture, Housing and Urban Development, and the Navy during 1981 and 1982.

In fiscal year 1982, about 108,000 federal employees were covered by the merit pay system, which was established by the Civil Service Reform Act of 1978. About half of the merit pay employees that GAO surveyed were dissatisfied with the system because they were not guaranteed the full annual adjustment and within-grade increases granted to other federal employees. GAO found that non-performance-related factors adversely affected merit pay practices and employees' perceptions of the system. Although the act requires that the Office of Personnel Management (OPM) analyze the system's cost and effectiveness and annually publish the results, OPM evaluations have not met the act's requirements. GAO noted that the objectivity of the performance standards and their appropriateness to the job being evaluated improved slightly over the 2-year period. OPM regulations which sought to correct flaws in the merit pay system were declared null and void by a U.S. district court and OPM was enjoined from implementing them. However, GAO stated that the court decision does not preclude OPM from sponsoring legislation or drafting new regulations to address merit pay system problems.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: The November, 1984, legislation requires that OPM submit an annual report to the President and Congress evaluating the effectiveness of the new performance management and recognition system established by the legislation.

    Recommendation: In order to improve the evaluation and administration of the merit pay system and the cash award program, the Director, OPM, should, to the extent that it is legally permissible, publish annual reports which analyze the cost and effectiveness of the merit pay system and the cash award program.

    Agency Affected: Office of Personnel Management

  2. Status: Closed - Implemented

    Comments: Legislation enacted in November 1984 describes the cash award program as it is to be applied to employees covered by the new performance management and recognition system. OPM has issued regulations to implement and provide guidance to agencies.

    Recommendation: In order to improve the evaluation and administration of the merit pay system and the cash award program, the Director, OPM, should, to the extent legally permissible, clarify the intended role of the cash award program for merit pay employees and provide guidance and oversight that will ensure that it is used as an integral part of merit pay.

    Agency Affected: Office of Personnel Management

  3. Status: Closed - Implemented

    Comments: Legislation enacted in November 1984 requires agencies to communicate in writing to employees at the beginning of each appraisal period the performance standards and critical elements against which performance will be evaluated. According to OPM regulations, agencies shall provide written performance plans to employees at the beginning of each appraisal period.

    Recommendation: The Director, OPM, should require that, to the extent that it is legally permissible, standards be communicated to the employee within a specified time after the beginning of the appraisal period.

    Agency Affected: Office of Personnel Management

  4. Status: Closed - Implemented

    Comments: Legislation was enacted in November 1984 which necessitates that agencies' performance appraisal systems for merit pay employees require joint participation between supervisors and employees in establishng performance standards. OPM has issued regulations to implement this provision and provide more specific guidance to agencies.

    Recommendation: The Director, OPM, should require that, to the extent that it is legally permissible, employees be given the opportunity to consult with their supervisors in setting their performance standards.

    Agency Affected: Office of Personnel Management

  5. Status: Closed - Implemented

    Comments: Legislation was enacted in November 1984, which includes a specific provision to implement this recommendation.

    Recommendation: The Director, OPM, should enforce the regulations which prohibit forced distribution of ratings.

    Agency Affected: Office of Personnel Management

  6. Status: Closed - Not Implemented

    Comments: In November 1984, legislation was enacted which eliminated merit pay pools and, thus, negated the need for OPM to implement this recommendation.

    Recommendation: The Director, OPM, should reemphasize the need for agencies to establish separate merit pay pools for its career and noncareer (Schedule C) employees, so that Schedule C employees do not receive larger merit increases at the expense of career employees.

    Agency Affected: Office of Personnel Management

  7. Status: Closed - Implemented

    Comments: OPM Office of Performance and Management was established to develop and administer merit pay policies, provide assistance to agencies in operating their systems, and analyze and evaluate merit pay implementation to identify problem areas and propose corrective actions.

    Recommendation: In order to improve the evaluation and administration of the merit pay system and the cash award program, the Director, OPM, should, to the extent that it is legally permissible, provide adequate resources to maintain planned merit pay evaluation efforts.

    Agency Affected: Office of Personnel Management

  8. Status: Closed - Not Implemented

    Comments: In November 1984, legislation was enacted which eliminated merit pay pools and, thus, negated the need for OPM to implement this recommendation.

    Recommendation: The Director, OPM, should assess the impact of pool composition and agency formulas on merit pay increases and develop criteria that will minimize their possible adverse effects.

    Agency Affected: Office of Personnel Management

  9. Status: Closed - Implemented

    Comments: OPM has issued regulations to implement the legislative provisions. The legislation requires that agencies establish performance standards review boards, which will assess the appropriateness of performance standards developed and used by agencies and provide technical assistance with respect to demonstration projects that may relate to agencies' performance standards.

    Recommendation: The Director, OPM, should improve performance standards and the standard-setting process, to the extent that it is legally permissible, by requiring pool managers or their delegates to review standards at the beginning of each appraisal period. This review should ensure that, to the maximum extent feasible, standards contain the desired characteristics of objectivity and measurability and that they are of comparable difficulty for similar jobs.

    Agency Affected: Office of Personnel Management

 

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