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entitled 'Human Capital: Implementing Pay for Performance at Selected 
Personnel Demonstration Projects' which was released on February 25, 
2004. 

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Report to Congressional Requesters: 

January 2004: 

Human Capital: 

Implementing Pay for Performance at Selected Personnel Demonstration 
Projects: 

GAO-04-83: 

GAO Highlights: 

Highlights of GAO-04-83, a report to congressional requesters: 

Why GAO Did This Study: 

There is a growing understanding that the federal government needs to 
fundamentally rethink its current approach to pay and to better link 
pay to individual and organizational performance. Federal agencies 
have been experimenting with pay for performance through the Office of 
Personnel Management’s (OPM) personnel demonstration projects. 

GAO identified the approaches that selected personnel demonstration 
projects have taken to implement their pay for performance systems. 
These projects include: the Navy Demonstration Project at China Lake 
(China Lake), the National Institute of Standards and Technology 
(NIST), the Department of Commerce (DOC), the Naval Research 
Laboratory (NRL), the Naval Sea Systems Command Warfare Centers 
(NAVSEA) at Dahlgren and Newport, and the Civilian Acquisition 
Workforce Personnel Demonstration Project (AcqDemo). We selected these 
demonstration projects based on factors such as status of the project 
and makeup of employee groups covered. 

We provided drafts of this report to officials in the Department of 
Defense (DOD) and DOC for their review and comment. DOD provided 
written comments concurring with our report. DOC provided minor 
technical clarifications and updated information. We provided a draft 
of the report to the Director of OPM for her information. 

What GAO Found: 

The demonstration projects took a variety of approaches to designing 
and implementing their pay for performance systems to meet the unique 
needs of their cultures and organizational structures, as shown in the 
table below. 

Demonstration Project Approaches to Implementing Pay for Performance: 

Using competencies to evaluate employee performance: 

High-performing organizations use validated core competencies as a key 
part of evaluating individual contributions to organizational results. 
To this end, AcqDemo and NRL use core competencies for all positions. 
Other demonstration projects, such as NIST, DOC, and China Lake, use 
competencies based on the individual employee’s position. 

Translating employee performance ratings into pay increases and 
awards: 

Some projects, such as China Lake and NAVSEA’s Newport division, 
established predetermined pay increases, awards, or both depending on 
a given performance rating, while others, such as DOC and NIST, 
delegated the flexibility to individual pay pools to determine how 
ratings would translate into performance pay increases, awards, or 
both. The demonstration projects made some distinctions among 
employees’ performance. 

Considering current salary in making performance-based pay decisions: 

Several of the demonstration projects, such as AcqDemo and NRL, 
consider an employee’s current salary when making performance pay 
increases and award decisions to make a better match between an 
employee’s compensation and contribution to the organization. 

Managing costs of the pay for performance system: 

According to officials, salaries, training, and automation and data 
systems were the major cost drivers of implementing their pay for 
performance systems. The demonstration projects used a number of 
approaches to manage the costs. 

Providing information to employees about the results of performance 
appraisal and pay decisions: 

To ensure fairness and safeguard against abuse, performance-based pay 
programs should have adequate safeguards, including reasonable 
transparency in connection with the results of the performance 
management process. To this end, several of the demonstration projects 
publish information, such as the average performance rating, 
performance pay increase, and award. 

Source: GAO. 

[End of table] 

GAO strongly supports the need to expand pay for performance in the 
federal government. How it is done, when it is done, and the basis on 
which it is done can make all the difference in whether such efforts 
are successful. High-performing organizations continuously review and 
revise their performance management systems. These demonstration 
projects show an understanding that how to better link pay to 
performance is very much a work in progress at the federal level. 
Additional work is needed to strengthen efforts to ensure that 
performance management systems are tools to help them manage on a day-
to-day basis. In particular, there are opportunities to use 
organizationwide competencies to evaluate employee performance that 
reinforce behaviors and actions that support the organization's 
mission, translate employee performance so that managers make 
meaningful distinctions between top and poor performers with objective 
and fact-based information, and provide information to employees about 
the results of the performance appraisals and pay decisions to ensure 
reasonable transparency and appropriate accountability mechanisms are 
in place. 

www.gao.gov/cgi-bin/getrpt?GAO-04-83. 

To view the full product, including the scope and methodology, click 
on the link above. For more information, contact J. Christopher Mihm 
at (202) 512-6806 or mihmj@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Selected Demonstration Projects Took Various Approaches to Implement 
Their Pay for Performance Systems: 

Concluding Observations: 

Agency Comments: 

Appendixes: 

Appendix I: Objective, Scope, and Methodology: 

Appendix II: Demonstration Project Profiles: 

Navy Demonstration Project at China Lake (China Lake): 

National Institute of Standards and Technology (NIST): 

Department of Commerce (DOC): 

Naval Research Laboratory (NRL): 

Naval Sea Systems Command Warfare Centers (NAVSEA): 

Civilian Acquisition Personnel Demonstration Project (AcqDemo): 

Appendix III: Comments from the Department of Defense: 

Appendix IV: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Acknowledgments: 

Tables: 

Table 1: Selected GS Funding Sources Available for Employee Salary 
Increases: 

Table 2: China Lake's Pay Increase Distribution (2002): 

Table 3: NAVSEA Newport Division's Pay Increase and Award Distribution 
(2002): 

Table 4: DOC's Pay Increase and Award Distribution (2002): 

Table 5: Cumulative Percentage Increase in Average Salaries for 
Demonstration Project and Comparison Group Employees by Year of the 
Project, as Reported by the Demonstration Projects: 

Table 6: Direct Inflation-Adjusted Cost of Training in the First 5 Years 
of the Demonstration Projects (in 2002 Dollars), as Reported by the 
Demonstration Projects: 

Table 7: Inflation-Adjusted Cost of Automation and Data Systems for 
Selected Demonstration Projects (in 2002 Dollars), as Reported by the 
Demonstration Projects: 

Figures: 

Figure 1: China Lake's Rating and Pay Distribution Structure: 

Figure 2: China Lake's Rating Distribution by Numerical Rating (2002): 

Figure 3: NAVSEA Newport Division's Rating and Performance Pay 
Distribution Structure: 

Figure 4: NAVSEA Newport Division's Rating Distribution (2002): 

Figure 5: DOC's Rating Distribution (2002): 

Figure 6: AcqDemo's Consideration of Current Salary in Making 
Performance Pay Decisions: 

Figure 7: Funding Sources Linked to Pay Decisions in Selected Personnel 
Demonstration Projects as of Fiscal Year 2003: 

Figure 8: Pay Bands, Intervals, and Corresponding Permanent Pay 
Increases for NIST's Scientific and Engineering Career Path: 

Figure 9: Sample of NAVSEA Newport Division's Rating Category 
Distribution Data Provided to Employees: 

Figure 10: Sample of NIST's Distribution of Average Performance Rating 
Scores Provided to Employees: 

Figure 11: Selected Employee Attitude Data for China Lake: 

Figure 12: Selected Employee Attitude Data for NIST: 

Figure 13: Selected Employee Attitude Data for DOC: 

Figure 14: Selected Employee Attitude Data for NRL: 

Figure 15: Selected Employee Attitude Data for NAVSEA: 

Figure 16: Selected Employee Attitude Data for AcqDemo: 

Abbreviations: 

AcqDemo: Civilian Acquisition Workforce Personnel Demonstration 
Project: 

CPDF: Central Personnel Data File: 

DOC: Department of Commerce: 

DOD: Department of Defense: 

FEPCA: Federal Employees Pay Comparability Act of 1990: 

GPI: general pay increase: 

GS: General Schedule: 

NAVSEA: Naval Sea Systems Command Warfare Centers: 

NIST: National Institute of Standards and Technology: 

NRL: Naval Research Laboratory: 

OPM: Office of Personnel Management: 

QSI: quality step increase: 

WGI: within-grade increase: 

Letter January 23, 2004: 

The Honorable George V. Voinovich: 
Chairman: 
Subcommittee on Oversight of Government Management, the Federal 
Workforce, and the District of Columbia: 
Committee on Governmental Affairs: 
United States Senate: 

The Honorable Jo Ann Davis: 
Chairwoman: 
Subcommittee on Civil Service and Agency Organization: 
Committee on Government Reform: 
House of Representatives: 

To successfully transform themselves, high-performing organizations 
have found that they must fundamentally change their cultures so that 
they are more results-oriented, customer-focused, and collaborative in 
nature, and have recognized that an effective performance management 
system can help them drive internal change and achieve desired results. 
Our prior work, done at your request, has identified nine key practices 
for effective performance management based on experiences in public 
sector organizations both in the United States and abroad.[Footnote 1] 
The key practices are as follows: 

1. Align individual performance expectations with organizational goals. 

2. Connect performance expectations to crosscutting goals. 

3. Provide and routinely use performance information to make program 
improvements. 

4. Require follow-up actions to address organizational priorities. 

5. Use competencies to provide a fuller assessment of performance. 

6. Link pay to individual and organizational performance. 

7. Make meaningful distinctions in performance. 

8. Involve employees and stakeholders to gain ownership of performance 
management systems. 

9. Maintain continuity during transitions. 

Among these practices, there is a growing understanding that the 
federal government needs to fundamentally rethink its current approach 
to pay and better link pay to individual and organizational 
performance. To this end, Congress has taken important steps to 
implement results-oriented pay reform and modern performance management 
systems across government. Most recently, Congress provided the 
Department of Defense (DOD) flexibility to revise its performance 
management system to better link pay to performance and required DOD to 
incorporate employee involvement, provide ongoing performance 
feedback, and include effective safeguards to ensure fairness and 
equity, among other things, in DOD's revised system. 

Congress also established a Human Capital Performance Fund to reward 
agencies' highest performing and most valuable employees. To be 
eligible, agencies are to submit plans for approval by the Office of 
Personnel Management (OPM) that incorporate a link between pay for 
performance and the agency's strategic plan, employee involvement, 
ongoing performance feedback, and effective safeguards to ensure fair 
management of the system, among other things. In the first year of 
implementation, up to 10 percent of the amount appropriated is to be 
available to train those involved on making meaningful distinctions in 
performance. In addition, Congress created a wider, more open pay range 
for senior executive compensation, thus allowing for pay to be more 
directly tied to individual performance, contribution to the agency's 
performance, or both, as determined under a rigorous performance 
management system that as designed and applied, makes meaningful 
distinctions based on relative performance. 

Further, in November 2002, Congress established the Department of 
Homeland Security and provided it human capital flexibilities to design 
a performance management system and specifically to consider different 
approaches to pay. We reported that the department's effort to design 
its system could be particularly instructive in light of future 
requests for human capital flexibilities.[Footnote 2] Legislation is 
currently pending, which you sponsored and introduced, that would 
provide GAO additional authority to more fully link employees' annual 
salary increases to performance. 

Federal agencies have been experimenting with pay for performance 
through OPM's personnel demonstration projects. Over the past 25 years, 
OPM has approved 17 projects, 12 of which have implemented pay for 
performance systems. At your request, this report identifies the 
approaches that 6 of these personnel demonstration projects have taken 
to implement their pay for performance systems. These projects are: 

* the Navy Demonstration Project at China Lake (China Lake), 

* the National Institute of Standards and Technology (NIST), 

* the Department of Commerce (DOC), 

* the Naval Research Laboratory (NRL), 

* the Naval Sea Systems Command Warfare Centers (NAVSEA) at Dahlgren 
and Newport, and: 

* the Civilian Acquisition Workforce Personnel Demonstration Project 
(AcqDemo). 

To address the objective of this report, we focused on OPM's personnel 
demonstration projects because they are required to prepare designs, 
conduct employee feedback, and complete evaluations of their results, 
among other things. We selected these demonstration projects based on 
factors such as status of the project and makeup of employee groups 
covered. We analyzed Federal Register notices outlining the major 
features of each demonstration project, operating manuals, annual and 
summative evaluations, employee attitude survey results, project 
briefings, training materials, rating and payout data, and cost data as 
reported by the agencies without verification by GAO, as well as other 
relevant documentation. We also interviewed cognizant officials from 
OPM; demonstration project managers, human resource officials, and 
participating supervisors and employees; and union and other employee 
representatives. We did not independently evaluate the effectiveness of 
the demonstration projects. We assessed the reliability of cost, 
salary, rating, and performance pay distribution data provided by the 
demonstration projects and determined that the data were sufficiently 
reliable for the purposes of this report, with the exception of the DOC 
salary data, which we do not present. 

We performed our work in the Washington, D.C., metropolitan area from 
December 2002 through August 2003 in accordance with generally accepted 
government auditing standards. Appendix I provides additional 
information on our objective, scope, and methodology. Appendix II 
presents profiles of the demonstration projects, including selected 
elements of their performance management systems, employee attitude 
data, and reported effects. 

Results in Brief: 

We found that the demonstration projects took a variety of approaches 
to designing and implementing their pay for performance systems to meet 
the unique needs of their cultures and organizational structures. 
Specifically, the demonstration projects took different approaches to: 

* using competencies to evaluate employee performance, 

* translating employee performance ratings into pay increases and 
awards, 

* considering current salary in making performance-based pay decisions, 

* managing costs of the pay for performance system, and: 

* providing information to employees about the results of performance 
appraisal and pay decisions. 

Using competencies to evaluate employee performance. High-performing 
organizations use validated core competencies as a key part of 
evaluating individual contributions to organizational results. Core 
competencies applied organizationwide can help reinforce employee 
behaviors and actions that support the organization's mission, goals, 
and values and can provide a consistent message to employees about how 
they are expected to achieve results. AcqDemo and NRL use core 
competencies for all positions across the organization to evaluate 
performance. Other demonstration projects, such as NIST, DOC, and China 
Lake, use competencies based primarily on the individual position. (See 
p. 9.) 

Translating employee performance ratings into pay increases and awards. 
High-performing organizations seek to create pay, incentive, and reward 
systems that clearly link employee knowledge, skills, and contributions 
to organizational results. These organizations make meaningful 
distinctions between acceptable and outstanding performance of 
individuals and appropriately reward those who perform at the highest 
level. To this end, the demonstration projects took different 
approaches in translating individual employee performance ratings into 
permanent pay increases, one-time awards, or both in their pay for 
performance systems. Some projects, such as China Lake and NAVSEA's 
Newport division, established predetermined pay increases, awards, or 
both depending on a given performance rating, while others, such as DOC 
and NIST, delegated the flexibility to individual pay pools to 
determine how ratings would translate into pay increases, awards, or 
both. While the demonstration projects made some distinctions among 
employees' performance, the data and experience show that making such 
meaningful distinctions remains a work in progress. (See p. 12.) 

Considering current salary in making performance-based pay decisions. 
Several of the demonstration projects consider an employee's current 
salary when making pay increase and award decisions. By considering 
salary in such decisions, the projects intend to make a better match 
between an employee's compensation and his or her contribution to the 
organization. Thus, two employees with comparable contributions could 
receive different performance pay increases and awards depending on 
their current salaries. For example, AcqDemo determines if employees 
are "appropriately compensated," "under-compensated," or "over-
compensated" when it compares employee contribution scores to salary. 
(See p. 23.) 

Managing costs of the pay for performance system. According to OPM, the 
increased costs of implementing alternative personnel systems should be 
acknowledged and budgeted for up front. Based on data the demonstration 
projects provided, direct costs associated with salaries, training, and 
automation and data systems were the major cost drivers of implementing 
their pay for performance systems. The demonstration projects used a 
number of approaches to manage the direct costs of implementing and 
maintaining pay for performance systems. In making their pay decisions, 
some of the demonstration projects use funding sources such as the 
annual general pay increase and locality pay adjustment. Several 
demonstration projects managed salary costs by considering fiscal 
conditions and the labor market when determining how much to budget for 
pay increases, managing movement through the pay band, and providing a 
mix of one-time awards and permanent pay increases. (See p. 25.) 

Providing information to employees about the results of performance 
appraisal and pay decisions. We have observed that a more performance-
based pay system should have adequate safeguards to ensure fairness and 
guard against abuse. One such safeguard is to ensure reasonable 
transparency and appropriate accountability mechanisms in connection 
with the results of the performance management process. To this end, 
several of the demonstration projects publish information for employees 
on internal Web sites about the results of performance appraisal and 
pay decisions, such as the average performance rating, the average pay 
increase, and the average award for the organization and for each 
individual department, while other demonstration projects publish no 
information on the results of the performance cycle. (See p. 36.) 

We provided drafts of this report to the Secretaries of Defense and 
Commerce for their review and comment. DOD's Principal Deputy, Under 
Secretary of Defense for Personnel and Readiness, provided written 
comments, which are presented in appendix III. DOD concurred with our 
report and stated that it is a useful summary of the various approaches 
that the demonstration projects undertook to implement their pay for 
performance systems and that their experiences provide valuable insight 
into federal pay for performance models. DOD also noted that the NAVSEA 
demonstration project training and automation cost data are estimated 
rather than actual costs. We made the appropriate notation. While DOC 
did not submit written comments, DOC's Classification, Pay, and HR 
Demonstration Program Manager provided minor technical clarifications 
and updated information. We made those changes where appropriate. We 
provided a draft of the report to the Director of OPM for her 
information. 

Background: 

Congress granted OPM the authority to conduct personnel demonstration 
projects under the Civil Service Reform Act of 1978 to test new 
personnel 
and pay systems.[Footnote 3] A federal agency is to obtain the 
authority from OPM to waive existing laws and regulations in Title 5 to 
propose, develop, test, and evaluate alternative approaches to managing 
its human capital. Under the demonstration project authority, no 
waivers of law are to be permitted in areas of employee leave, employee 
benefits, equal employment opportunity, political activity, merit 
system principles, or prohibited personnel practices. The law also 
contains certain limitations and requirements, including: 

* 5-year time limit for duration of projects, 

* 5,000 employee cap on participation, 

* restriction to 10 concurrent demonstration projects governmentwide, 

* union and employee consultation, 

* published formal project plan in the Federal Register, 

* notification of Congress and employees of the demonstration project, 
and: 

* project evaluations. 

OPM guidance requires that agencies conduct at least three evaluations-
-after implementation, after at least 3 and a half years, and after the 
original scheduled end of the project--that are to address the 
following questions: 

* Did the project accomplish the intended purpose and goals? If not, 
why not? 

* Was the project implemented and operated appropriately and 
accurately? 

* What were the costs, relative to the benefits of the project? 

* What was the impact on veterans and other equal employment 
opportunity groups? 

* Were merit systems principles adhered to and prohibited personnel 
practices avoided? 

* Can the project or portions thereof be generalized to other agencies 
or governmentwide? 

The demonstration projects can link some or all of the funding sources 
for pay increases available under the current federal compensation 
system, the General Schedule (GS), to an employee's level of 
performance.[Footnote 4] Table 1 defines selected funding sources. 

Table 1: Selected GS Funding Sources Available for Employee Salary 
Increases: 

Funding source: General pay increase (GPI); Description: Established 
under the Federal Employees Pay Comparability Act of 1990 (FEPCA), the 
GPI is to be determined annually and delivered automatically and 
uniformly to GS employees. The GPI is to be based on the Employment 
Cost Index, which is a statistical measure maintained by the Bureau of 
Labor Statistics that considers changes in private sector labor 
costs. 

Funding source: Locality pay adjustment; Description: Established 
under FEPCA, locality pay is to address any gap between federal and 
nonfederal salaries and is to be determined annually and delivered 
automatically and uniformly to most GS employees within a given 
locality. Locality pay is to supplement the rate of basic pay in the 
48 contiguous states where nonfederal pay exceeds federal pay by more 
than 5 percent. The President's Pay Agent, comprised of the Secretary 
of Labor and the Directors of the Office of Management and Budget and 
OPM, is to recommend and the President is to approve what, if any, the 
percentage of increase should be. 

Funding source: Within-grade increase (WGI); Description: The WGI, 
also known as a "step increase," is a periodic increase in a GS 
employee's rate of basic pay to the next higher pay level or "step" of
that grade. To receive a WGI, an employee must wait a prescribed 
amount of time and be performing at an acceptable level of competence. 
OPM reports that the WGI is designed to reward experience and loyalty 
and is based on a judgment that the employee's work is of an 
"acceptable level of competence" but does not distinguish between very 
good and moderately good performance[A]. 

Funding source: Quality step increase (QSI); Description: A QSI is to 
recognize high-quality performance. Similar to a WGI, a QSI advances 
the employee to the next higher step but ahead of the required waiting 
period. To receive a QSI, an employee must demonstrate sustained high-
quality performance. 

Funding source: Career ladder promotion; Description: Federal 
employees may be appointed to positions with "career ladders," a 
series of developmental positions of increasing difficulty, through 
which an employee may be promoted to higher grade levels without 
competition. 

Source: OPM. 

[A] U.S. Office of Personnel Management, A Fresh Start for Federal Pay: 
The Case for Modernization (Washington, D.C.: April 2002). 

[End of table] 

Selected Demonstration Projects Took Various Approaches to Implement 
Their Pay for Performance Systems: 

High-performing organizations seek to create pay, incentive, and reward 
systems based on valid, reliable, and transparent performance 
management systems with adequate safeguards and link employee 
knowledge, skills, and contributions to organizational results. To that 
end, we found that the demonstration projects took a variety of 
approaches to designing and implementing their pay for performance 
systems to meet the unique needs of their cultures and organizational 
structures. Specifically, the demonstration projects took different 
approaches to: 

* using competencies to evaluate employee performance, 

* translating employee performance ratings into pay increases and 
awards, 

* considering current salary in making performance-based pay decisions, 

* managing costs of the pay for performance system, and: 

* providing information to employees about the results of performance 
appraisal and pay decisions. 

Using Competencies to Evaluate Employee Performance: 

High-performing organizations use validated core competencies as a key 
part of evaluating individual contributions to organizational results. 
Competencies define the skills and supporting behaviors that 
individuals are expected to demonstrate and can provide a fuller 
picture of an individual's performance. To this end, we found that the 
demonstration projects took different approaches to evaluating employee 
performance. AcqDemo and NRL use core competencies for all positions 
across the organization. Other demonstration projects, such as NIST, 
DOC, and China Lake, use competencies based primarily on the individual 
employee's position. 

Applying competencies organizationwide. Core competencies applied 
organizationwide can help reinforce employee behaviors and actions that 
support the organization's mission, goals, and values and can provide a 
consistent message to employees about how they are expected to achieve 
results. AcqDemo evaluates employee performance against one set of 
"factors," which are applied to all employees. "Discriminators" and 
"descriptors" further define the factors by career path and pay band. 
According to AcqDemo, taken together, the factors, discriminators, and 
descriptors are relevant to the success of a DOD acquisition 
organization.[Footnote 5] 

AcqDemo's six factors are (1) problem solving, (2) teamwork/
cooperation, (3) customer relations, (4) leadership/supervision, (5) 
communication, and (6) resource management. Discriminators further 
define each factor. For example, discriminators for problem solving 
include scope of responsibility, creativity, complexity, and 
independence. Descriptors identify contributions by pay band. For 
example, a descriptor for problem solving at one pay band level is 
"resolves routine problems within established guidelines," and at a 
higher level, a descriptor is "anticipates problems, develops sound 
solutions and action plans to ensure program/mission accomplishment." 

All factors must be used and cannot be supplemented. While the pay pool 
manager may weight the factors, according to an official, no 
organization within AcqDemo has weighted the factors to date. Managers 
are authorized to use weights sparingly because contributions in all 
six factors are important to ensuring AcqDemo's overall success as well 
as to developing the skills of the acquisition workforce. If weights 
are used, they are to be applied uniformly across all positions within 
the pay pool. The six factors are initially weighted equally and no 
factor can be weighted less than one-half of its initial weight. 
Employees are to be advised of the weights at the beginning of the 
rating period. 

While AcqDemo applies organizationwide competencies across all 
employees, NRL has established "critical elements" for each career path 
and allows supervisors to add individual performance expectations. The 
critical elements are the key aspects of work that supervisors are to 
consider in evaluating employee performance. Each critical element has 
discriminators and descriptors. Specifically, for the Science and 
Engineering Professionals career path, one critical element is 
"scientific and technical problem solving." That element's 
discriminators are (1) level of oversight, (2) creativity, (3) 
technical communications, and (4) recognition. For recognition, the 
descriptors include "recognized within own organization for technical 
ability in assigned areas" as one level of contribution and "recognized 
internally and externally by peers for technical expertise" as the next 
level of contribution. 

NRL's system allows supervisors to supplement the descriptors to 
further describe what is expected of employees. According to an NRL 
demonstration project official, this flexibility allows the supervisor 
to better communicate performance expectations. Further, pay pool 
panels may weight the critical elements, including a weight of zero. 
Weighted elements are to be applied consistently to groups within a 
career path, such as Bench Level, Supervisor, Program Manager, or 
Support for the Science and Engineering Professionals career path. 
According to an NRL official, panels commonly weight critical elements 
but rarely weight an element to zero. Further, panels use weighting 
most often for the Science and Engineering Professionals career path. 

Determining individual position-based competencies. Other 
demonstration projects determine competencies based primarily on the 
individual position. NIST and DOC identify "critical elements" tailored 
to each individual position.[Footnote 6] According to a DOC 
demonstration project official, DOC tailors critical elements to 
individual positions because their duties and responsibilities vary 
greatly within the demonstration project. Each employee's performance 
plan is to have a minimum of two and a maximum of six critical elements 
along with the major activities to accomplish the element. Supervisors 
are to assign a weight to each critical element on the basis of its 
importance, the time required to accomplish it, or both. According to 
NIST and DOC officials, weighting is done at the supervisory level and 
is not tracked at the organizational level. 

To evaluate the accomplishment of critical elements, DOC uses its 
organizationwide Benchmark Performance Standards. They range from the 
highest standard of performance, "objectives were achieved with maximum 
impact, through exemplary work that demonstrated exceptional 
originality, versatility, and creativity" to the lowest, "objectives 
and activities were not successfully completed, because of failures in 
quality, quantity, completeness, or timelines of work." Supervisors can 
develop supplemental performance standards as needed. 

Similarly, each China Lake employee has a performance plan that 
includes criteria tailored to individual responsibilities. The criteria 
are to be consistent with the employee's work unit's goals and 
objectives and can be set in two ways, depending on the nature of the 
position. The "task approach" defines an individual's output. The 
"function approach" defines the required skills and how well they are 
to be performed. Employees and supervisors choose from a menu of 
skills, such as planning, analysis, coordination, and reporting/
documentation. A China Lake official stated that some of its work units 
require core competencies, such as teamwork and self-development, for 
all employees. According to the official, while developing core 
competencies sends a message about what is important to the 
organization, tailoring individual performance plans can focus 
employees' attention on changing expectations. 

Translating Employee Performance Ratings into Pay Increases and Awards: 

High-performing organizations seek to create pay, incentive, and reward 
systems that clearly link employee knowledge, skills, and contributions 
to organizational results. These organizations make meaningful 
distinctions between acceptable and outstanding performance of 
individuals and appropriately reward those who perform at the highest 
level. Performance management systems in these leading organizations 
typically seek to achieve three key objectives: (1) provide candid and 
constructive feedback to help individual employees maximize their 
potential in understanding and realizing the goals and objectives of 
the agency, (2) provide management with the objective and fact-based 
information it needs to reward top performers, and (3) provide the 
necessary information and documentation to deal with poor performers. 

To this end, the demonstration projects took different approaches in 
translating individual employee performance ratings into permanent pay 
increases, one-time awards, or both in their pay for performance 
systems. Some projects, such as China Lake and NAVSEA's Newport 
division, established predetermined pay increases, awards, or both 
depending on a given performance rating. Others, such as DOC and NIST, 
delegated the flexibility to individual pay pools to determine how 
ratings translate into pay increases, awards, or both. Overall, while 
the demonstration projects made some distinctions among employees' 
performance, the data and experience to date show that making such 
meaningful distinctions remains a work in progress. 

Setting predetermined pay increases and awards. China Lake's assessment 
categories translate directly to a predetermined range of permanent pay 
increases, as shown in figure 1.[Footnote 7] Supervisors are to rate 
employees in one of three assessment categories and recommend numerical 
ratings, based on employees' performance and salaries, among other 
factors. For employees receiving "highly successful" ratings, a 
Performance Review Board assigns the numerical ratings. For "less than 
fully successful" ratings, the first-line supervisor and a second-level 
reviewer assign the numerical ratings, based on a problem-solving 
team's findings and a personnel advisor's input. The numerical rating 
determines how many "increments" the employee will receive. An 
increment is a permanent pay increase of about 1.5 percent of an 
employee's base salary. 

Figure 1: China Lake's Rating and Pay Distribution Structure: 

[See PDF for image] 

Note: All employees receive the locality pay adjustment regardless of 
assessment category or numerical rating. 

[End of figure] 

China Lake made some distinctions in performance across employees' 
ratings, as shown in figure 2:[Footnote 8] 

* 11.3 percent of employees received a "1," the highest numerical 
rating, and: 

* a total of six employees (0.2 percent) were rated "less than fully 
successful" and received numerical ratings of "4" or "5." 

Figure 2: China Lake's Rating Distribution by Numerical Rating (2002): 

[See PDF for image] 

[End of figure] 

Note: Percentages total more than 100 percent due to rounding. 

At China Lake, the average pay increase rose with performance, as shown 
in table 2. 

* The average permanent pay increase ranged from 1.8 to 5.3 percent. 

* Six employees were rated as "less than fully successful" and thus 
were to receive no performance pay increases and half or none of the 
GPI. According to a China Lake official, employees rated as "less than 
fully successful" are referred to a problem-solving team, consisting of 
the supervisor, reviewer, personnel advisor, and other appropriate 
officials, that determines what corrective actions are necessary. 

Table 2: China Lake's Pay Increase Distribution (2002): 

Assessment category: Highly successful; 
Numerical rating: 1; 
Number of employees receiving permanent pay increases: 191; 
Increase as a percentage of base pay: Average: 5.3; 
Increase as a percentage of base pay: Lowest: 1.5; 
Increase as a percentage of base pay: Highest: 9.3. 

Assessment category: Highly successful; 
Numerical rating: 2; 
Number of employees receiving permanent pay increases: 929; 
Increase as a percentage of base pay: Average: 3.4; 
Increase as a percentage of base pay: Lowest: 1.5; 
Increase as a percentage of base pay: Highest: 5.6. 

Assessment category: Fully successful; 
Numerical rating: 3; 
Number of employees receiving permanent pay increases: 526; 
Increase as a percentage of base pay: Average: 1.8; 
Increase as a percentage of base pay: Lowest: 1.3; 
Increase as a percentage of base pay: Highest: 2.7. 

Assessment category: Less than fully successful; 
Numerical rating: 4; 
Number of employees receiving permanent pay increases: 0; 
Increase as a percentage of base pay: Average: N/A; 
Increase as a percentage of base pay: Lowest: N/A; 
Increase as a percentage of base pay: Highest: N/A. 

Assessment category: Less than fully successful; 
Numerical rating: 5; 
Number of employees receiving permanent pay increases: 0; 
Increase as a percentage of base pay: Average: N/A; 
Increase as a percentage of base pay: Lowest: N/A; 
Increase as a percentage of base pay: Highest: N/A. 

Total; 
Number of employees receiving permanent pay increases: 1,646; 

Source: DOD. 

Legend: N/A= data are not applicable. 

Notes: Data do not include the GPI or the locality pay adjustment. 

Employees whose salaries are at the top of the pay band cannot receive 
permanent pay increases; therefore, the number of employees receiving 
pay increases differs from those receiving ratings. 

[End of table] 

Similar to China Lake, at NAVSEA's Newport division, a performance 
rating category translates directly to a predetermined range of 
permanent pay increases, one-time awards, or both, as shown in figure 
3. Newport translates ratings into pay increases and awards in three 
steps. First, supervisors are to rate employees as "acceptable" or 
"unacceptable." Employees rated as unacceptable are not eligible for 
pay increases or awards. Employees rated as acceptable are to be 
further assessed on their performance relative to their salaries. 
Supervisors assess acceptable employees into three rating categories: 
contributors, major contributors, or exceptional contributors. 
Supervisors also make recommendations for the number of pay points to 
be awarded, from 0 to 4, depending on the rating category and the 
employees' salaries. Pay pool managers review and department heads 
finalize supervisor recommendations. A pay point equals 1.5 percent of 
the midpoint salary of the pay band. Pay points may be permanent pay 
increases or one-time awards. 

Figure 3: NAVSEA Newport Division's Rating and Performance Pay 
Distribution Structure: 

[See PDF for image] 

Note: All employees receive the full GPI and locality pay adjustment 
regardless of rating category. 

[End of figure] 

Newport allows for some flexibility in deciding whether employees 
receive permanent pay increases, one-time awards, or both. Newport's 
guidelines state that those who make greater contributions should 
receive permanent increases to base pay, while employees whose 
contributions are commensurate with their salaries receive one-time 
awards. In addition, employees whose salaries fall below the midpoint 
of the pay band are more likely to receive permanent pay increases, 
while employees above the midpoint of the pay band are more likely to 
receive one-time awards. 

NAVSEA's Newport division made some distinctions in performance across 
employees' ratings.[Footnote 9] As shown in figure 4, 

* about 80 percent of employees were rated in the top two categories 
(exceptional contributor and major contributor) and: 

* no employees were rated unacceptable. 

Figure 4: NAVSEA Newport Division's Rating Distribution (2002): 

[See PDF for image] 

Note: Percentages total less than 100 percent due to rounding. 

[End of figure] 

In addition, at NAVSEA's Newport division, the average pay increase and 
award amount rose with performance, as shown in table 3. 

* The average permanent pay increase ranged from 1.6 to 2.9 percent. 

* The average performance award ranged from $1,089 to $2,216. 

Table 3: NAVSEA Newport Division's Pay Increase and Award Distribution 
(2002): 

Rating: Exceptional contributor; 
Permanent pay increase:
Number of employees receiving permanent pay increases: 686; 

Increase as a percentage of base pay: 
Average: 2.9; 
Lowest: 0.1; 
Highest: 7.0; 

Number of employees receiving performance awards: 615; 
Performance award amount: Average: $2,216; 
Performance award amount: Lowest: $561; 
Performance award amount: Highest: $5,680. 

Rating: Major contributor; 
Permanent pay increase:
Number of employees receiving permanent pay increases: 602; 

Increase as a percentage of base pay: 
Average: 2.0; 
Lowest: 0.9; 
Highest: 5.3; 

Performance awards: 
Number of employees receiving performance awards: 613; 
Performance award amount: Average: 1,592; 
Performance award amount: Lowest: 561; 
Performance award amount: Highest: 4,260. 

Rating: Contributor; 
Permanent pay increase:
Number of employees receiving permanent pay increases: 124; 

Increase as a percentage of base pay: 
Average: 1.6; 
Lowest: 1.2; 
Highest: 1.8; 

Performance awards:
Number of employees receiving performance awards: 143; 
Performance award amount: Average: 1,089; 
Performance award amount: Lowest: 519; 
Performance award amount: Highest: 2,212. 

Rating: Unacceptable; 
Permanent pay increase:
Number of employees receiving permanent pay increases: 0; 

Increase as a percentage of base pay: 
Average: N/A; 
Lowest: N/A; 
Highest: N/A; 

Performance awards: 
Number of employees receiving performance awards: 0; 
Performance award amount: Average: N/A; 
Performance award amount: Lowest: N/A; 
Performance award amount: Highest: N/A. 

Total; 
Permanent pay increase:
Number of employees receiving permanent pay increases: 1,412; 
Performance awards:
Number of employees receiving performance awards: 1,371. 

Source: DOD. 

Legend: N/A= data are not applicable. 

Notes: Data do not include the GPI or locality pay adjustment. 

Employees can receive their pay as permanent increases or one-time 
awards; therefore, the number of employees receiving pay increases and 
awards differs from those receiving ratings. 

[End of table] 

Delegating pay decisions to pay pools. Some demonstration projects, 
such as NIST and DOC, delegate the flexibility to individual pay pools 
to determine how ratings translate into permanent pay increases and 
one-time awards. For example, supervisors are to evaluate employees on 
a range of performance elements on a scale of 0 to 100. Employees with 
scores less than 40 are to be rated as "unsatisfactory" and are not 
eligible to receive performance pay increases, awards, the GPI, or the 
locality pay adjustment. Employees with scores over 40 are to be rated 
as "eligible;" receive the full GPI and locality pay adjustment; and be 
eligible for a performance pay increase, award, or both. 

Pay pool managers have the flexibility to determine the amount of the 
pay increase, award, or both for each performance score, depending on 
where they fall within the pay band. Employees lower in the pay band 
are eligible for larger pay increases as a percentage of base pay than 
employees higher in the pay band, and employees whose salaries are at 
the top of the pay band and who therefore can no longer receive 
permanent salary increases may receive awards. 

According to our analysis, in its 2002 rating cycle, DOC made few 
distinctions in performance in its distribution of ratings.[Footnote 
10] As shown in figure 5, 

* 100 percent of employees scored 40 or above and over 86 percent of 
employees scored 80 or above and: 

* no employees were rated as unsatisfactory. 

Figure 5: DOC's Rating Distribution (2002): 

[See PDF for image] 

[End of figure] 

According to a DOC official, a goal of the demonstration project is to 
address poor performance early. An official also noted that poor 
performers may choose to leave the organization before they receive 
ratings of unsatisfactory or are placed on a performance improvement 
plan. Employees who are placed on a performance improvement plan and 
improve their performance within the specified time frame (typically 
less than 90 days) are determined to be eligible for the GPI and 
locality pay adjustment for the remainder of the year. 

Our analysis also shows that DOC made few distinctions in performance 
in its distribution of awards. As shown in table 4, 10 employees who 
scored from 60 to 69 received an average performance award of $925, 
while employees who scored from 70 to 79 received an average of $742. 
Our analysis suggests that DOC's policy of delegating flexibility to 
individual pay pools to determine performance awards could explain why, 
without an independent reasonableness review, some employees with lower 
scores receive larger awards than employees with higher scores. 
According to DOC, it reviews pay pool decisions within but not across 
organizational units. 

Table 4: DOC's Pay Increase and Award Distribution (2002): 

Rating; Eligible: 90-100; 
Permanent pay increase: 
Number of employees receiving permanent pay increases: 1,014; 
Average as a percentage of base pay: Average: 3.9; 
Average as a percentage of base pay: Lowest: 0.7; 
Average as a percentage of base pay: Highest: 15.0; 

Performance award:
Number of employees receiving performance awards: 1,079; 
Performance award amount: Average: $1,781; 
Performance award amount: Lowest: $250; 
Performance award amount: Highest: $7,500. 

Rating; Eligible: 80-89; 
Permanent pay increase: 
Number of employees receiving permanent pay increases: 1,121; 
Average as a percentage of base pay: Average: 3.1; 
Average as a percentage of base pay: Lowest: 0.02; 
Average as a percentage of base pay: Highest: 11.0; 

Performance award: 
Permanent pay increase:
Number of employees receiving performance awards: 1,099; 
Performance award amount: Average: 1,117; 
Performance award amount: Lowest: 100; 
Performance award amount: Highest: 6,000. 

Rating; Eligible: 70-79; 
Permanent pay increase:
Number of employees receiving permanent pay increases: 250; 
Average as a percentage of base pay: Average: 2.4; 
Average as a percentage of base pay: Lowest: 0.2; 
Average as a percentage of base pay: Highest: 9.0; 

Performance award: 
Number of employees receiving performance awards: 181; 
Performance award amount: Average: 742; 
Performance award amount: Lowest: 50; 
Performance award amount: Highest: 2,000. 

Rating; Eligible: 60-69; 
Permanent pay increase:
Number of employees receiving permanent pay increases: 18; 
Average as a percentage of base pay: Average: 0.9; 
Average as a percentage of base pay: Lowest: 0.2; 
Average as a percentage of base pay: Highest: 3.2; 
Performance award: 

Number of employees receiving performance awards: 10; 
Performance award amount: Average: 925; 
Performance award amount: Lowest: 300; 
Performance award amount: Highest: 2,500. 

Rating; Eligible: 50-59; 
Permanent pay increase:
Number of employees receiving permanent pay increases: 1; 
Average as a percentage of base pay: Average: 1.2; 
Average as a percentage of base pay: Lowest: 1.2; 
Average as a percentage of base pay: Highest: 1.2; 

Performance award: 
Number of employees receiving performance awards: 1; 
Performance award amount: Average: 300; 
Performance award amount: Lowest: 300; 
Performance award amount: Highest: 300. 

Rating; Eligible: 40-49; 
Permanent pay increase:
Number of employees receiving permanent pay increases: 0; 
Average as a percentage of base pay: Average: N/A; 
Average as a percentage of base pay: Lowest: N/A; 
Average as a percentage of base pay: Highest: N/A; 

Performance award: 
Number of employees receiving performance awards: 1; 
Performance award amount: Average: 200; 
Performance award amount: Lowest: 200; 
Performance award amount: Highest: 200. 

Rating; Unsatisfactory: 
Permanent pay increase:
Number of employees receiving permanent pay increases: 0; 
Average as a percentage of base pay: Average: N/A; 
Average as a percentage of base pay: Lowest: N/A; 
Average as a percentage of base pay: Highest: N/A; 
Performance award: 
Number of employees receiving performance awards: 0; 
Performance award amount: Average: N/A; 
Performance award amount: Lowest: N/A; 
Performance award amount: Highest: N/A. 

Total: 
Permanent pay increase: 
Number of employees receiving permanent pay increases: 2,404; 
Performance Award: 
Number of employees receiving performance awards: 2,371. 

Source: GAO analysis of DOC data. 

Legend: N/A= data are not applicable. 

Notes: Data do not include the GPI or the locality pay adjustment. 

Not all employees who receive ratings receive pay increases or awards; 
therefore, the number of employees receiving pay increases or awards 
differs from those receiving ratings. 

[End of table] 

NIST also delegates pay decisions to individual pay pools. The NIST 
100-point rating system is similar to DOC's system. Employees with 
scores under 40 are rated as "unsatisfactory" and do not receive the 
GPI, locality pay adjustment, or performance pay increases or awards. 
Employees with scores over 40 receive the full GPI and locality pay 
adjustment and are eligible to receive performance pay increases, 
awards, or both. Similar to DOC, in its 2002 rating cycle, NIST made 
few distinctions in performance in its distribution of ratings. 
Specifically, 

* 99.9 percent of employees scored 40 or above, and nearly 78 percent 
of employees scored 80 or above, and: 

* 0.1 percent, or 3 employees, were rated as unsatisfactory. 

Considering Current Salary in Making Performance-Based Pay Decisions: 

Several of the demonstration projects consider an employee's current 
salary when making decisions on permanent pay increases and one-time 
awards. By considering salary in such decisions, the projects intend to 
make a better match between an employee's compensation and his or her 
contribution to the organization. Thus, two employees with comparable 
contributions could receive different pay increases and awards 
depending on their current salaries. 

At AcqDemo, supervisors recommend and pay pool managers approve 
employees' "contribution scores." Pay pools then plot contribution 
scores against the employees' current salaries and a "standard pay 
line" to determine if employees are "appropriately compensated," 
"under-compensated," or "over-compensated," given their 
contributions.[Footnote 11] Figure 6 shows how AcqDemo makes its 
performance pay decisions for employees who receive the same 
contribution scores but earn different salaries. 

Figure 6: AcqDemo's Consideration of Current Salary in Making 
Performance Pay Decisions: 

[See PDF for image] 

[End of figure] 

AcqDemo has reported that it has made progress in matching employees' 
compensation to their contributions to the organization. From 1999 to 
2002, appropriately compensated employees increased from about 63 
percent to about 72 percent, under-compensated employees decreased from 
about 30 percent to about 27 percent, and over-compensated employees 
decreased from nearly 7 percent to less than 2 percent. 

NRL implemented a similar system intended to better match employee 
contributions with salary. Data from NRL show that it has made progress 
in matching employees' compensation to their contributions to the 
organization. From 1999 to 2002, "normally compensated" employees, or 
employees whose contributions match their compensation, increased from 
about 68 percent to about 81 percent; under-compensated employees 
decreased from about 25 percent to about 16 percent; and over-
compensated employees decreased from about 7 percent to about 3 
percent. 

Similar to AcqDemo's and NRL's approach, NAVSEA's Dahlgren division 
recently redesigned its pay for performance system to better match 
compensation and contribution. Because Dahlgren implemented its new 
system in 2002, performance data were not available. Less 
systematically, China Lake and NAVSEA's Newport division consider 
current salary in making pay and award decisions. For example, at 
Newport, supervisors within each pay pool are to list all employees in 
each pay band by salary before a rating is determined and then evaluate 
each employee's contribution to the organization considering that 
salary. If their contributions exceed expectations, employees are 
considered for permanent pay increases. If contributions meet 
expectations, employees are considered for one-time awards. 

Managing Costs of the Pay for Performance System: 

OPM reports that the increased costs of implementing alternative 
personnel systems should be acknowledged and budgeted for up 
front.[Footnote 12] Based on the data the demonstration projects 
provided us, direct costs associated with salaries, training, and 
automation and data systems were the major cost drivers of implementing 
their pay for performance systems. The demonstration projects reported 
other direct costs, such as evaluations and administrative expenses. 
The demonstration projects used a number of approaches to manage the 
direct costs of implementing and maintaining their pay for performance 
systems. 

Salary Costs: 

Under the current GS system, federal employees annually receive the GPI 
and, where appropriate, a locality pay adjustment, as well as 
periodically receiving WGIs. The demonstration projects use these and 
other funding sources under the GS to make their pay decisions, as 
shown in figure 7. 

Figure 7: Funding Sources Linked to Pay Decisions in Selected Personnel 
Demonstration Projects as of Fiscal Year 2003: 

[See PDF for image] 

[A] According to AcqDemo officials, some AcqDemo organizational units 
guaranteed the GPI for the first year to assure employees' 
understanding and fair implementation of the process and others 
guaranteed the GPI for additional, but limited, years to obtain local 
union agreement to enter the demonstration project. 

[End of figure] 

The aggregated average salary data that some of the demonstration 
projects were able to provide do not allow us to determine whether 
total salary costs for the demonstration projects are higher or lower 
than their GS comparison groups. However, our analysis shows that the 
demonstration projects' cumulative percentage increases in average 
salaries varied in contrast to their GS comparison groups. For example, 
as shown in table 5, after the first year of each demonstration 
project's implementation, the differences in cumulative percentage 
increase in average salary between the demonstration project employees 
and their GS comparison group ranged from -2.9 to 2.7 percentage 
points. 

Table 5: Cumulative Percentage Increase in Average Salaries for 
Demonstration Project and Comparison Group Employees by Year of the 
Project, as Reported by the Demonstration Projects: 

China Lake; 
Year 1; D%: 10.3; 
Year 1; C%: 7.6; 
Year 1; Difference%: 2.7; 
Year 2; D%: 17.7; 
Year 2; C%: 14.6; 
Year 2; Difference%: 3.1; 
Year 3; D%: 24.7; 
Year 3; C%: 20.1; 
Year 3; Difference%: 4.6; 
Year 4; D%: 28.0; 
Year 4; C%: 23.5; 
Year 4; Difference%: 4.5; 
Year 5; D%: 31.6; 
Year 5; C%: 27.7; 
Year 5; Difference%: 3.9. 

NIST; 
Year 1; D%: 4.2; 
Year 1; C%: 2.7; 
Year 1; Difference%: 1.5; 
Year 2; D%: 10.1; 
Year 2; C%: 7.1; 
Year 2; Difference%: 3.0; 
Year 3; D%: 17.3; 
Year 3; C%: 12.1; 
Year 3; Difference%: 5.2; 
Year 4; D%: 24.2; 
Year 4; C%: 16.6; 
Year 4; Difference%: 7.6; 
Year 5; D%: 31.1; 
Year 5; C%: 21.9; 
Year 5; Difference%: 9.2. 

NRL; 
Year 1; D%: 1.9; 
Year 1; C%: 4.8; 
Year 1; Difference%: -2.9; 
Year 2; D%: 5.4; 
Year 2; C%: 8.6; 
Year 2; Difference%: -3.2; 
Year 3; D%: 10.4; 
Year 3; C%: 13.6; 
Year 3; Difference%: -3.2. 

NAVSEADahlgren; 
Year 1; D%: 3.5; 
Year 1; C%: 4.9; 
Year 1; Difference%: -1.4; 
Year 2; D%: 7.8; 
Year 2; C%: 10.0; 
Year 2; Difference%: -2.2; 
Year 3; D%: 10.8; 
Year 3; C%: 13.8; 
Year 3; Difference%: -3.0; 
Year 4; D%: 13.6; 
Year 4; C%: 19.1; 
Year 4; Difference%: -5.5. 

NAVSEA Newport; 
Year 1; D%: 3.8; 
Year 1; C%: 4.0; 
Year 1; Difference%: -1.0; 
Year 2; D%: 8.5; 
Year 2; C%: 8.6; 
Year 2; Difference%: -0.1; 
Year 3; D%: 11.0; 
Year 3; C%: 13.6; 
Year 3; Difference%: -2.6. 

Source: GAO analysis of OPM, DOC, and DOD data. 

Legend: D = demonstration project; C = comparison group for the 
demonstration project in the GS system. 

Notes: We calculated the percentage increase in average salaries using 
the demonstration project's or comparison group's aggregated average 
salary in the year prior to the project's implementation as the 
baseline. 

Data are as reported by the demonstration projects without verification 
by GAO. 

Shaded areas indicate that the demonstration project has not yet 
reached those years. 

Based on our review of the DOC salary data, we determined that the data 
were not adequate for use in our comparative analyses of salary growth. 
Therefore, we do not present DOC's salary data. 

According to a demonstration project official, AcqDemo does not collect 
comparable salary data due to its constantly changing and growing 
participant base. Therefore, we do not present AcqDemo's average salary 
data. AcqDemo reports that demonstration project salaries increased 0.7 
percent higher than GS salaries in fiscal year 2000 (year 1) and 2001 
(year 2) and 0.9 percent higher in fiscal year 2002 (year 3). 

[End of table] 

The demonstration projects used several approaches to manage salary 
costs, including (1) choosing the method of converting employees into 
the demonstration project, (2) considering fiscal conditions and the 
labor market, (3) managing movement through the pay band, and (4) 
providing a mix of awards and performance pay increases. 

Choosing the method of converting employees into the demonstration 
project. When the demonstration projects converted employees from the 
GS system to the pay for performance system, they compensated each 
employee for the portion of the WGI that the employee had earned either 
as a permanent increase to base pay or a one-time lump sum payment. 
Four of the six demonstration projects (China Lake, NRL, NAVSEA, and 
AcqDemo) gave employees permanent increases to base pay, while the 
remaining two demonstration projects (NIST and DOC) gave employees one-
time lump sum payments. 

Both methods of compensating employees have benefits and drawbacks, 
according to demonstration project officials. Giving permanent pay 
increases at the point of conversion into the demonstration project 
recognizes that employees had already earned a portion of the WGI, but 
a drawback is that the salary increases are compounded over time, which 
increases the organization's total salary costs. However, the officials 
said that giving permanent pay increases garnered employees' support 
for the demonstration project because employees did not feel like they 
would have been better off under the GS system. 

Considering fiscal conditions and the labor market. In determining how 
much to budget for pay increases, demonstration projects considered the 
fiscal condition of the organization as well as the labor market. For 
example, China Lake, NIST, NRL, and NAVSEA receive a portion of their 
funding from a working capital fund and thus must take into account 
fiscal conditions when budgeting for pay increases and awards. These 
organizations rely, in part, on sales revenue rather than direct 
appropriations to finance their operations. The organizations establish 
prices for their services that allow them to recover their costs from 
their customers. If the organizations' services become too expensive 
(i.e., salaries are too high), they become less competitive with the 
private sector. 

A demonstration project official at NAVSEA's Newport division said that 
as an organization financed in part through a working capital fund, it 
has an advantage over organizations that rely completely on 
appropriations because it can justify adjusting pay increase and awards 
budgets when necessary to remain competitive with the private sector. 
Newport has had to make such adjustments. In fiscal year 2002, the 
performance pay increase and award pools were funded at lower levels 
(1.4 percent and 1.7 percent of total salaries for pay increases and 
awards, respectively) than in 2001 (1.7 percent and 1.8 percent, 
respectively) because of fiscal constraints. As agreed with one of its 
unions, Newport must set aside a minimum of 1.4 percent of salaries for 
its pay increases, which is equal to historical spending under GS for 
similar increases. 

NAVSEA's Newport division also considers the labor market and uses 
regional and industry salary information compiled by the American 
Association of Engineering Societies when determining how much to set 
aside for pay increases and awards. In fiscal year 2001, Newport funded 
pay increases and awards at a higher level (1.7 percent and 1.8 percent 
of total salaries, respectively) than in fiscal year 2000 (1.4 percent 
and 1.6 percent, respectively) in response to higher external engineer, 
scientist, and information technology personnel salaries. 

Managing movement through the pay band. Because movement through the 
pay band is based on performance, demonstration project employees could 
progress through the pay band more quickly than under the GS. Some 
demonstration projects have developed ways intended to manage this 
progression to prevent all employees from eventually migrating to the 
top of the pay band and thus increasing salary costs. 

NIST and DOC manage movement through the pay band by recognizing 
performance with larger pay increases early in the pay band and career 
path and smaller increases higher in the pay band and career path. Both 
of these demonstration projects divided each pay band into five 
intervals. The intervals determine the maximum percentage increase 
employees could receive for permanent pay increases. The intervals, 
shown in figure 8, have helped NIST manage salary costs, according to a 
NIST official. 

Figure 8: Pay Bands, Intervals, and Corresponding Permanent Pay 
Increases for NIST's Scientific and Engineering Career Path: 

[See PDF for image] 

[End of figure] 

Similarly, some of the demonstration projects, including China Lake and 
NAVSEA's Dahlgren division, have checkpoints or "speed bumps" in their 
pay bands intended to manage salary costs as well as ensure that 
employees' performance coincides with their salaries as they progress 
through the band. These projects established checkpoints designed to 
ensure that only the highest performers move into the upper half of the 
pay band. For example, when employees' salaries at China Lake reach the 
midpoint of the pay band, they must receive ratings of highly 
successful, which are equivalent to exceeding expectations, before they 
can receive additional salary increases. A Performance Review Board, 
made up of senior management, is to review all highly successful 
ratings. 

Providing a mix of awards and pay increases. Some of the demonstration 
projects intended to manage costs by providing a mix of one-time awards 
and permanent pay increases. Rewarding an employee's performance with 
an award instead of an equivalent increase to base pay can reduce 
salary costs in the long run because the agency only has to pay the 
amount of the award one time, rather than annually. For example, at 
NAVSEA's Newport division, as employees move higher into the pay band, 
they are more likely to receive awards than permanent increases to base 
pay. According to a Newport official, expectations increase along with 
salaries and thus it is more likely that their contributions would 
meet, rather than exceed, expectations. 

To manage costs, China Lake allows pay pools to transfer some of their 
budgets for permanent pay increases to their budgets for awards. A 
China Lake official said that because China Lake receives a portion of 
its funding from a working capital fund, it is not only important to 
give permanent salary increases to high-performing employees, but also 
to give increases China Lake can afford the next year. China Lake does 
not track how much funding is transferred from performance pay increase 
budgets to awards budgets. 

Training Costs: 

We have reported that agencies will need to invest resources, including 
time and money, to ensure that employees have the information, skills, 
and competencies they need to work effectively in a rapidly changing 
and complex environment.[Footnote 13] This includes investments in 
training and developing employees as part of an agency's overall effort 
to achieve cost-effective and timely results. Agency managers and 
supervisors are often aware that investments in training and 
development initiatives can be quite large. However, across the federal 
government, evaluation efforts have often been hindered by the lack of 
accurate and reliable data to document the total costs of training 
efforts. Each of the demonstration projects trained employees on the 
performance management system prior to implementation to make employees 
aware of the new approach, as well as periodically after implementation 
to refresh employee familiarity with the system. The training was 
designed to help employees understand competencies and performance 
standards; develop performance plans; write self-appraisals; become 
familiar with how performance is evaluated and how pay increases and 
awards decisions are made; and know the roles and responsibilities of 
managers, supervisors, and employees in the appraisal and payout 
processes. 

Generally, demonstration projects told us they incurred direct and 
indirect costs associated with training. Direct training costs that the 
demonstration projects reported included costs for contractors, 
materials, and travel related to developing and delivering training to 
employees and managers. As shown in table 6, total direct costs that 
the demonstration projects reported for training through the first 5 
years of the projects' implementation range from an estimated $33,000 
at NAVSEA's Dahlgren division to more than $1 million at China 
Lake.[Footnote 14] (NIST reported no direct costs associated with 
training.) Training costs, as indicated by the cost per employee, were 
generally higher in the year prior to implementation, except for 
AcqDemo's, which increased over time. 

Table 6: Direct Inflation-Adjusted Cost of Training in the First 5 
Years of the Demonstration Projects (in 2002 Dollars), as Reported by 
the Demonstration Projects: 

Demonstration project: China Lake; 
Year prior to implementation: $203; 
Cost per demonstration project employee: $21; 
Cost per demonstration project employee: No data; 
Cost per demonstration project employee: No data; 
Cost per demonstration project employee: No data; 
Cost per demonstration project employee: No data; 
Prior to implementation through year 5: $1,226,000. 

Demonstration project: NIST; 
Year prior to implementation: 0; 
Cost per demonstration project employee: 0; 
Cost per demonstration project employee: 0; 
Cost per demonstration project employee: 0; 
Cost per demonstration project employee: 0; 
Cost per demonstration project employee: 0; 
Prior to implementation through year 5: 0. 

Demonstration project: DOC; 
Year prior to implementation: 12; 
Cost per demonstration project employee: 6; 
Cost per demonstration project employee: $5; 
Cost per demonstration project employee: $8; 
Cost per demonstration project employee: $8; 
Cost per demonstration project employee: No data; 
Prior to implementation through year 5: 105,000. 

Demonstration project: NRL; 
Year prior to implementation: 84; 
Cost per demonstration project employee: 5; 
Cost per demonstration project employee: 4; 
Cost per demonstration project employee: 0; 
Cost per demonstration project employee: [Empty]; 
Cost per demonstration project employee: [Empty]; 
Prior to implementation through year 5: 248,000. 

Demonstration project: NAVSEA-Dahlgren; 
Year prior to implementation: 17 (estimate); 
Cost per demonstration project employee: 0 (estimate); 
Cost per demonstration project employee: 0 (estimate); 
Cost per demonstration project employee: 0 (estimate); 
Cost per demonstration project employee: 0 (estimate); 
Cost per demonstration project employee: 0 (estimate); 
Prior to implementation through year 5: 33,000 (estimate). 

Demonstration project: NAVSEA Newport; 
Year prior to implementation: 26 (estimate); 
Cost per demonstration project employee: 4 (estimate); 
Cost per demonstration project employee: 1 (estimate); 
Cost per demonstration project employee: 1 (estimate); 
Cost per demonstration project employee: 1 (estimate); 
Cost per demonstration project employee: [Empty]; 
Prior to implementation through year 5: 68,000 (estimate). 

Demonstration project: AcqDemo; 
Year prior to implementation: No data; 
Cost per demonstration project employee: 8; 
Cost per demonstration project employee: 10; 
Cost per demonstration project employee: 9; 
Cost per demonstration project employee: 20; 
Cost per demonstration project employee: $19; 
Prior to implementation through year 5: 458,000. 

Source: GAO analysis of DOC and DOD data. 

Notes: The cost per demonstration project employee is based on the 
number of employees in the demonstration project at the same time each 
year, not the actual number of employees trained on the demonstration 
project, because the demonstration projects do not collect this 
information. 

Data are as reported by the demonstration projects without verification 
by GAO. 

Shaded squares indicate that the demonstration project has not yet 
reached those years. 

[End of table] 

While the demonstration projects did not report indirect costs 
associated with training employees on the demonstration project, 
officials stated that indirect costs, such as employee time spent 
developing, delivering, or attending training, could nonetheless be 
significant. Likewise, the time spent on the "learning curve" until 
employees are proficient with the new system could also be significant. 
For example, although NIST did not capture its indirect training costs, 
agency officials told us that prior to implementation, each NIST 
employee was in training for 1 day. Since its implementation, NIST 
offers optional one-half day training three times a year for all 
employees. AcqDemo offered 8 hours of training for employees prior to 
implementation and a minimum of 4 hours of training after 
implementation. All potential new participants also received eight 
hours of training prior to implementation at their site. Supervisors 
and human resources professionals at AcqDemo were offered an additional 
8 hours of training each year after the demonstration project was 
implemented. According to a DOC official, prior to conversion to the 
demonstration project, DOC provided a detailed briefing to 
approximately 400 employees to increase employee understanding of the 
project. In addition, employees could schedule one-on-one counseling 
sessions with human resources staff to discuss individual issues and 
concerns. 

Some of the demonstration projects, including China Lake, DOC, and 
NAVSEA's Dahlgren and Newport divisions, managed training costs by 
relying on current employees to train other employees on the 
demonstration project. According to demonstration project officials, 
while there are still costs associated with developing and delivering 
in-house training, total training costs are generally reduced by using 
employees rather than hiring contractors to train employees. For 
example, China Lake took a "train the trainer" approach by training a 
group of employees on the new flexibilities in the demonstration 
project and having those employees train other employees. According to 
a demonstration project official, an added benefit of using employees 
to train other employees is that if the person leading the training is 
respected and known, then the employees are more likely to support the 
demonstration project. The official said that one drawback is that not 
all employees are good teachers, so their skills should be carefully 
considered. 

AcqDemo used a combination of contractors and in-house training to 
implement its training strategy. According to an AcqDemo official, the 
relatively higher per demonstration project employee costs in years 4 
and 5 are a result of AcqDemo's recognition that more in-depth and 
varied training was needed for current AcqDemo employees to refresh 
their proficiency in the system; for new participants to familiarize 
them with appraisal and payout processes; as well as for senior 
management, pay pool managers and members, and human resources 
personnel to give them greater detail on the process. 

Automation and Data Systems Costs: 

As a part of implementing a pay for performance system, some of the 
demonstration projects installed new or updated existing automated 
personnel systems. Demonstration projects reported that total costs 
related to designing, installing, and maintaining automation and data 
systems ranged from an estimated $125,000 at NAVSEA's Dahlgren division 
to an estimated $4.9 million at AcqDemo, as shown in table 7. 

Table 7: Inflation-Adjusted Cost of Automation and Data Systems for 
Selected Demonstration Projects (in 2002 Dollars), as Reported by the 
Demonstration Projects: 

Dollars in thousands: 

Prior to implementation; 
China Lake[A]: No data; 
NIST: 0; 
DOC: 0; 
NRL: $1,467; 
NAVSEA-Dahlgren: $125 (estimate); 
NAVSEA Newport: $333 (estimate); 
AcqDemo: 0. 

Cumulative cost since implementation; 
China Lake[A]: No data; 
NIST: 0; 
DOC: $2,317; 
NRL: 2,166; 
NAVSEA-Dahlgren: 0 (estimate); 
NAVSEA Newport: 463 (estimate); 
AcqDemo: $4,871 (estimate). 

Total; 
China Lake[A]: No data; 
NIST: 0; 
DOC: $2,317; 
NRL: $3,633; 
NAVSEA-Dahlgren: $125 (estimate); 
NAVSEA Newport: $796 (estimate); 
AcqDemo: $4,871 (estimate). 

Source: GAO analysis of DOC and DOD data. 

Notes: Data are as reported by the demonstration projects without 
verification by GAO. 

Costs may not sum to totals due to rounding. 

[A] Automation and data systems were not widely used when the China 
Lake demonstration project was implemented in 1980. 

[End of table] 

To manage data system costs, some demonstration projects modified 
existing data systems rather than designing completely new systems to 
meet their information needs. For example, NAVSEA's divisions worked 
together to modify DOD's existing Defense Civilian Personnel Data 
System to meet their needs for a revised performance appraisal system. 
Similarly, DOC imported the performance appraisal system developed by 
NIST and converted the payout system to a Web-based system. While NIST 
reported that it incurred no direct costs for automation and data 
systems, officials told us it used in-house employees, NIST's 
Information Technology Laboratory staff, to develop a data system to 
automate performance ratings, scores, increases, and awards. 

NRL used a combination of in-house employees and contractors to 
automate its performance management system. While reported automation 
and data systems' costs were higher for NRL than for most other 
demonstration projects, NRL reports that its automated system has 
brought about savings each year of an estimated 10,500 hours of work, 
$266,000, and 154 reams of paper since the demonstration project was 
implemented in 1999. 

Providing Information to Employees about the Results of Performance 
Appraisal and Pay Decisions: 

We have observed that a performance management system should have 
adequate safeguards to ensure fairness and guard against abuse. One 
such safeguard is to ensure reasonable transparency and appropriate 
accountability mechanisms in connection with the results of the 
performance management process. To this end, NIST, NAVSEA's Newport 
Division, NRL, and AcqDemo publish information for employees on 
internal Web sites about the results of performance appraisal and pay 
decisions, such as the average performance rating, the average pay 
increase, and the average award for the organization and for each 
individual unit. Other demonstration projects publish no information on 
the results of the performance cycle. 

NAVSEA's Newport division publishes results of its annual performance 
cycle. Newport aggregates the data so that no individual employee's 
rating or payout can be determined to protect confidentiality. 
Employees can compare their performance rating category against others 
in the same unit, other units, and the entire division, as shown in 
figure 9. 

Figure 9: Sample of NAVSEA Newport Division's Rating Category 
Distribution Data Provided to Employees: 

[See PDF for image] 

[End of figure] 

Until recently, only if requested by an employee would NIST provide 
information such as the average rating, pay increase, and award amount 
for the employee's pay pool. To be more open, transparent, and 
responsive to employees, NIST officials told us that in 2003, for the 
first time, NIST began to publish the results of the performance cycle 
on its internal Web site. NIST published averages of the performance 
rating scores, as shown in figure 10, as well as the average 
recommended pay increase amounts and the average awards by career path, 
for the entire organization, and for each organizational unit. 
According to one NIST official, the first day the results were 
published on the internal Web site, the Web site was visited more than 
1,600 times. 

Figure 10: Sample of NIST's Distribution of Average Performance Rating 
Scores Provided to Employees: 

[See PDF for image] 

[A] Indicates that there were not enough employees in the unit to 
protect confidentiality; therefore, no data are reported. 

Publishing the results of the performance management process can 
provide employees with the information they need to better understand 
the performance management system. However, according to an official, 
DOC does not currently publish performance rating and payout results 
even though DOC's third year evaluation found that demonstration 
project participants continued to raise concerns that indicated their 
lack of understanding about the performance appraisal process. 
According to the evaluation, focus group and survey results indicated 
the need for increased understanding on topics such as how pay pools 
work, how salaries are determined, and how employees are rated. 
Employees were also interested in knowing more about the results of the 
performance appraisal process. One union representative told us that a 
way to improve the demonstration project would be to publish 
information. In past years, according to employee representatives, some 
employees and union representatives at DOC have used the Freedom of 
Information Act to request and obtain the information. According to a 
DOC official, DOC plans to discuss the publication of average scores by 
each major unit and look for options to increase employee understanding 
of the performance management system at upcoming Project Team and 
Departmental Personnel Management Board meetings. 

Concluding Observations: 

Linking pay to performance is a key practice for effective performance 
management. As Congress, the administration, and federal agencies 
continue to rethink the current approach to federal pay to place 
greater emphasis on performance, the experiences of personnel 
demonstration projects can provide insights into how some organizations 
within the federal government are implementing pay for performance. The 
demonstration projects took different approaches to using competencies 
to evaluate employee performance, translating performance ratings into 
pay increases and awards, considering employees' current salaries in 
making performance pay decisions, managing costs of the pay for 
performance systems, and providing information to employees about the 
results of performance appraisal and pay decisions. These different 
approaches were intended to enhance the success of the pay for 
performance systems because the systems were designed and implemented 
to meet the demonstration projects' unique cultural and organizational 
needs. 

We strongly support the need to expand pay for performance in the 
federal government. How it is done, when it is done, and the basis on 
which it is done can make all the difference in whether such efforts 
are successful. High-performing organizations continuously review and 
revise their performance management systems to achieve results, 
accelerate change, and facilitate two-way communication throughout the 
year so that discussions about individual and organizational 
performance are integrated and ongoing. To this end, these 
demonstration projects show an understanding that how to better link 
pay to performance is very much a work in progress at the federal 
level. 

Additional work is needed to strengthen efforts to ensure that 
performance management systems are tools to help the demonstration 
projects manage on a day-to-day basis. In particular, there are 
opportunities to use organizationwide competencies to evaluate employee 
performance that reinforce behaviors and actions that support the 
organization's mission, translate employee performance so that managers 
can make meaningful distinctions between top and poor performers with 
objective and fact-based information, and provide information to 
employees about the results of the performance appraisals and pay 
decisions to ensure that reasonable transparency and appropriate 
accountability mechanisms are in place. 

Agency Comments: 

We provided drafts of this report to the secretaries of Defense and 
Commerce for their review and comment. DOD's Principal Deputy, Under 
Secretary of Defense for Personnel and Readiness, provided written 
comments, which are presented in appendix III. DOD concurred with our 
report and stated that it is a useful summary of the various approaches 
that the demonstration projects undertook to implement their pay for 
performance systems and that their experiences provide valuable insight 
into federal pay for performance models. DOD also noted that the NAVSEA 
demonstration project training and automation cost data are estimated 
rather than actual costs. We made the appropriate notation. While DOC 
did not submit written comments, DOC's Classification, Pay, and HR 
Demonstration Program Manager provided minor technical clarifications 
and updated information. We made those changes where appropriate. We 
provided a draft of the report to the Director of OPM for her 
information. 

As agreed with your offices, unless you publicly announce its contents 
earlier, we plan no further distribution of this report until 30 days 
after its date. At that time, we will provide copies of this report to 
other interested congressional parties, the Secretaries of Defense and 
Commerce, and the Director of OPM. We will also make this report 
available to others upon request. In addition, the report will be 
available at no charge on the GAO Web site at [Hyperlink, http://
www.gao.gov]. 

If you have any questions about this report, please contact me or Lisa 
Shames on (202) 512-6806. Other contributors are acknowledged in 
appendix IV. 

Signed by: 

J. Christopher Mihm: 
Director, Strategic Issues: 

[End of section] 

Appendixes: 

Appendix I: Objective, Scope, and Methodology: 

To meet our objective to identify the approaches that selected 
personnel demonstration projects have taken to implement their pay for 
performance systems, we chose the following demonstration projects: the 
Navy Demonstration Project at China Lake (China Lake), the National 
Institute of Standards and Technology (NIST), the Department of 
Commerce (DOC), the Naval Research Laboratory (NRL), the Naval Sea 
Systems Command Warfare Centers (NAVSEA) at Dahlgren and Newport, and 
the Civilian Acquisition Workforce Personnel Demonstration Project 
(AcqDemo). We selected these demonstration projects based on our review 
of the projects and in consultation with the Office of Personnel 
Management (OPM). Factors we considered in selecting these 
demonstration projects included the type of pay for performance system, 
type of agency (defense or civilian), status of the project (ongoing, 
permanent, or complete), date the project was implemented, and number 
and type of employees covered (including employees covered by a union). 

To identify the different approaches that the demonstration projects 
took in implementing their pay for performance systems, we analyzed 
Federal Register notices outlining the major features and regulations 
for each demonstration project, operating manuals, annual and summative 
evaluations, employee attitude survey results, project briefings, 
training materials, rating and payout data, cost data, rating 
distribution data from OPM's Central Personnel Data File (CPDF), and 
other relevant documentation. In addition, we spoke with cognizant 
officials from OPM; demonstration project managers, human resource 
officials, and participating supervisors and employees; and union and 
other employee representatives. 

We prepared a data collection instrument to obtain actual and estimated 
cost data from the six demonstration projects. We tested the instrument 
with a demonstration project official to ensure that the instrument was 
clear and comprehensive. After revising the instrument based on the 
official's recommendations, we administered the instrument via e-mail 
and followed up with officials via telephone, as necessary. Officials 
from the six demonstration projects provided actual cost data where 
available and estimated data when actual data were not available. Cost 
data reported are actual unless otherwise indicated. We adjusted cost 
data for inflation using the Consumer Price Index, in 2002 dollars. We 
provide average salary data, as reported by the demonstration projects 
and OPM without verification by GAO. The aggregated average salary data 
do not allow us to determine whether total salary costs for the 
demonstration projects are higher or lower than their General Schedule 
(GS) comparison groups. 

We did not independently evaluate the effectiveness of the 
demonstration projects or independently validate the data provided by 
the agencies or published in the evaluations. We assessed the 
reliability of cost, salary, rating, and performance pay distribution 
data provided by the demonstration projects by (1) performing manual 
and electronic testing of required data elements, (2) reviewing 
existing information about the data, and (3) interviewing agency 
officials knowledgeable about the data. We determined that the data 
were sufficiently reliable for the purposes of this report, with the 
exception of the DOC salary data, which we do not present. Based on our 
review of the DOC salary data we determined that the data were not 
adequate for use in our comparative analyses of salary growth. An 
evaluation of the DOC demonstration project reported that data were 
missing in critical fields, such as pay and performance 
scores.[Footnote 15] 

We did not independently verify the CPDF data for September 30, 2002. 
However, in a 1998 report (OPM's Central Personnel Data File: Data 
Appear Sufficiently Reliable to Meet Most Customer Needs, [Hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-98-199] GAO/GGD-98-199, 
Sept. 30, 1998), we reported that governmentwide data from the CPDF for 
key variables, such as GS-grade, agency, and career status, were 97 
percent or more accurate. However, we did not verify the accuracy of 
employee ratings. 

We performed our work in the Washington, D.C., metropolitan area from 
December 2002 through August 2003 in accordance with generally accepted 
government auditing standards. 

[End of section] 

Appendix II Demonstration Project Profiles: 

Navy Demonstration Project at China Lake (China Lake): 

[See PDF for image] 

Source: GAO analysis of DOD and OPM data: 

[End of figure] 

Purpose: 

The Navy Demonstration Project[Footnote 16] was to: 

* develop an integrated approach to pay, performance appraisal, and 
classification; 

* allow greater managerial control over personnel functions; and: 

* expand the opportunities available to employees through a more 
responsive and flexible personnel system. 

Selected Elements of the Performance Management System: 

Competencies: Competencies are tailored to an individual's position. 
The employees and their supervisors are to develop performance plans, 
which identify the employees' responsibilities and expected results. In 
addition, all supervisors are to include certain management 
competencies from a menu of managerial factors that best define their 
responsibilities, such as developing objectives, organizing work, and 
selecting and developing people. 

Feedback: Supervisors are to conduct two progress reviews of employees' 
performance, set at 5 and 9 months in the performance cycle. 

Self-assessment: Employees are strongly encouraged to list 
accomplishments for their supervisors' information when determining the 
performance rating. 

Levels of performance rating: The levels are highly successful (rating 
levels 1 or 2), fully successful (rating level 3), or less than fully 
successful (rating levels 4 or 5). 

Safeguards: 

* Second-level review: Second-level supervisors are to review all 
assessments. In addition, an overall assessment of highly successful is 
to be sent to the appropriate department's Performance Review Board for 
the assignment of an official rating of "1" or "2." The supervisor and 
reviewer are to assign a "4" or "5" rating based on a problem-solving 
team's findings and a personnel advisor's input. 

* Grievance process: Generally, employees may request reconsideration 
of their ratings in writing to the third-level supervisor and indicate 
why a higher rating is warranted and what rating is desired. The third-
level supervisor can either grant the request or request that a 
recommending official outside of the immediate organization or chain of 
authority be appointed. The employee is to receive a final decision in 
writing within 21 calendar days. 

Selected Employee Attitude Data: 

Figure 11: Selected Employee Attitude Data for China Lake: 

[See PDF for image] 

Source: DOD. 

Legend: N/A = data are not applicable; N = number of respondents. 

[End of figure] 

Other Interventions: 

Reduction in force. To allow for increased retention of high-performing 
employees at all levels by ranking employees based on performance for 
retention standings. 

Salary flexibility. To set entry-level salaries to take into account 
market conditions. 

Selected Reported Effects: 

A demonstration project evaluation reported the following 
effects.[Footnote 17] 

* Employees viewed performance improvements within their control and 
reported increased recognition of individual performance. 

* The perception of a pay-performance link was significantly 
strengthened under the demonstration pay for performance system, but 
not in the comparison group. 

* Pay satisfaction increased slightly at the demonstration sites and 
declined at the control laboratories. 

* Employees and supervisors cited improved communication, a more 
objective focus, and clearer performance expectations as major system 
benefits. 

* Employees and supervisors perceived their performance appraisal 
system to be more flexible than the comparison group, to focus more on 
actual work requirements, and thus to be more responsive to laboratory 
needs. 

* Employees at the demonstration project reported having more input 
into the development of performance plans than employees in the 
comparison group. 

Sources for Additional Information: 

[Hyperlink, http://www.nawcwpns.navy.mil/~hrd/demo.htm]; 
[Hyperlink, http://www.nawcwpns.navy.mil/~hrd/demo.htm]; 
(Last accessed on Nov. 7, 2003) 
[Hyperlink, http://www.opm.gov/demos/main.asp. 
(Last accessed on Nov. 7, 2003): 

National Institute of Standards and Technology (NIST): 

[See PDF for image] 

Source: GAO analysis of DOC and OPM data. 

[End of figure] 

Purpose: 

The NIST demonstration project, formerly known as the National Bureau 
of Standards, was to: 

* improve hiring and allow NIST to compete more effectively for high-
quality researchers, 

* motivate and retain staff, 

* strengthen the manager's role in personnel management, and: 

* increase the efficiency of personnel systems. 

Selected Elements of the Performance Management System: 

Competencies: Competencies, called "critical elements," are based on 
the individual position. Employee performance plans are to have a 
minimum of two and a maximum of six critical elements, which the 
supervisor weights, based on the importance of the critical element, 
the time required to accomplish the critical element, or both. 
Managers' and supervisors' performance plans are to include a critical 
element on diversity and it must be weighted at least 15 points. 

Feedback: Supervisors are to conduct midyear reviews of all employees 
to discuss accomplishments or deficiencies and modify the initial 
performance plans, if necessary. 

Self-assessment: Employees are to submit lists of accomplishments for 
their supervisors' information when determining the performance 
ratings. 

Levels of performance rating: The levels are "eligible" or 
"unsatisfactory." On a scale of 0 to 100, employees who receive scores 
over 40 are rated eligible and those with scores below 40 
unsatisfactory. 

Safeguards: 

* Second-level review: Pay pool managers are to review recommended 
scores from supervisors and select a payout for each employee. Pay pool 
managers are to present the decisions to the next higher official for 
review if the pay pool manager is also a supervisor. The organizational 
unit director is to approve awards and review all other decisions. 

* Grievance procedure: Employees may grieve their performance ratings, 
scores, and pay increases by following DOC's Administrative Grievance 
Procedure or appropriate negotiated grievance procedures. 

Selected Employee Attitude Data: 

Figure 12: Selected Employee Attitude Data for NIST: 

[See PDF for image] 

Sources: U.S. Office of Personnel Management, Implementation Report 
National Institute of Standards and Technology Personnel Management 
Demonstration Project (Washington, D.C.: Aug. 18, 1989) and Summative 
Evaluation Report National Institute of Standards and Technology 
Demonstration Project: 1988-1995 (Washington, D.C.: June 27, 1997). 

Legend: N/A = data are not applicable; N = number of respondents. 

[A] OPM reported that 47 percent of 3,200 NIST employees and 44 percent 
of 2,392 comparison group employees responded to the survey. 

[End of figure] 

Other Interventions: 

Reduction in force. To credit an employee with an overall performance 
score in the top 10 percent of scores within a peer group with 10 
additional years of service for retention purposes. 

Supervisory differential. To establish supervisory intervals within a 
pay band that allow for a maximum rate up to 6 percent higher than the 
maximum rate of the nonsupervisory intervals within the pay band. 

Hiring flexibility. To provide flexibility in setting initial salaries 
within pay bands for new appointees, particularly for hard-to-fill 
positions in the Scientific and Engineering career path. 

Extended probation. To require employees in the Scientific and 
Engineering career path to serve a probationary period of 1 to 3 years. 

Selected Reported Effects: 

A demonstration project evaluation reported the following 
effects.[Footnote 18] 

* Recruitment bonuses were used sparingly but successfully to attract 
candidates who might not have accepted federal jobs otherwise. 

* NIST has become more competitive with the private sector and 
employees are less likely to leave for reasons of pay. 

* NIST was able to provide significant performance-based awards, some 
with merit increases as high as 20 percent. NIST succeeded in retaining 
more of its high performers than the comparison group. 

* Managers reported significantly increased authority over hiring and 
pay decisions. 

* Managers reported that they felt significantly less restricted by 
personnel rules and regulations than other federal managers. 

Source for Additional Information: 

[Hyperlink, http://www.opm.gov/demos/main.asp]; 
(Last accessed on Nov. 7, 2003): 

Department of Commerce (DOC): 

[See PDF for image] 

Source: GAO analysis of DOC and OPM data. 

[End of figure] 

Purpose: 

The DOC demonstration project was to test whether the interventions of 
the NIST demonstration project could be successful in environments with 
different missions and different organizational hierarchies. 

Selected Elements of the Performance Management System: 

Competencies: Competencies, called "critical elements," are tailored to 
each individual position. Performance plans are to have a minimum of 
two and a maximum of six critical elements. The supervisor is to weight 
each critical element, based on the importance of the element, the time 
required to accomplish it, or both, so that the total weight of all 
critical elements is 100 points. Organizationwide benchmark performance 
standards are to define the range of performance, and the supervisor 
may add supplemental performance standards to a performance plan. 
Performance plans for managers and supervisors are to include critical 
elements such as recommending or making personnel decisions; developing 
and appraising subordinates; fulfilling diversity, equal opportunity, 
and affirmative action responsibilities; and program and managerial 
responsibilities. 

Feedback: Supervisors are to conduct midyear reviews of all employees 
to discuss accomplishments or deficiencies and modify the initial 
performance plans, if necessary. 

Self-assessment: Employees are to submit lists of accomplishments for 
their supervisors' information when determining the performance 
ratings. 

Levels of performance rating: The levels are "eligible" or 
"unsatisfactory." On a scale of 0 to 100, employees who receive scores 
over 40 are rated eligible and those with scores below 40 
unsatisfactory. 

Safeguards: 

* Second-level review: The pay pool manager is to review recommended 
scores from subordinate supervisors and select a payout for each 
employee. The pay pool manager is to present the decisions to the next 
higher official for review if the pay pool manager is also a 
supervisor. 

* Grievance procedure: Employees may request reconsideration of 
performance decisions, excluding awards, by the pay pool manager 
through DOC's Administrative Grievance Procedure or appropriate 
negotiated grievance procedures. 

Selected Employee Attitude Data: 

Figure 13: Selected Employee Attitude Data for DOC: 

[See PDF for image] 

Source: Booz Allen Hamilton, Department of Commerce Personnel 
Management Demonstration Project Evaluation Operational Year Technical 
Report (Washington, D.C.: Oct. 8, 2002). 

Legend: N = number of respondents. 

[End of figure] 

Other Interventions: 

Reduction in force. To credit employees with performance scores in the 
top 30 percent of a career path in a pay pool with 10 additional years 
of service for retention purposes. Other employees rated "eligible" 
receive 5 additional years of service for retention credit. 

Supervisory performance pay. To offer employees who spend at least 25 
percent of their time performing supervisory duties pay up to 6 percent 
higher than the regular pay band. 

Probationary period. To require a 3-year probationary period for newly 
hired science and engineering employees performing research and 
development duties. 

Selected Reported Effects: 

A demonstration project evaluation reported the following 
effects.[Footnote 19] 

* The pay for performance system continues to exhibit a positive link 
between pay and performance. For example, in year 4 of the 
demonstration project, employees with higher performance scores were 
more likely to receive pay increases and on average received larger pay 
increases than employees with lower scores. 

* Some of the recruitment and staffing interventions have been 
successful. For example, supervisors are taking advantage of their 
ability to offer more flexible starting salaries. Additionally, the 
demonstration project has expedited the classification process. DOC's 
evaluator recommended that DOC should more fully implement the 
recruitment and staffing interventions. 

* The 3-year probationary period for scientists and engineers continues 
to be used, but assessing its utility remains difficult. 

* On the other hand, some retention interventions receive little use or 
have not appeared to affect retention. For example, the supervisor 
performance pay intervention is not affecting supervisor retention. 

Sources for Additional Information: 

[Hyperlink, http://ohrm.doc.gov/employees/demo_project.htm] (Last 
accessed Nov. 7, 2003): 

[Hyperlink, http://www.opm.gov/demos/main.asp] (Last accessed 
Nov. 7, 2003): 

Naval Research Laboratory (NRL): 

[See PDF for image] 

Source: GAO analysis of DOD and OPM data. 

[End of figure] 

Purpose: 

The NRL demonstration project was to: 

* provide increased authority to manage human resources, 

* enable NRL to hire the best qualified employees, 

* compensate employees equitably at a rate that is more competitive 
with the labor market, and: 

* provide a direct link between levels of individual contribution and 
the compensation received. 

Selected Elements of the Performance Management System: 

Competencies: Each career path has two to three "critical elements." 
Each critical element has generic descriptors that explain the type of 
work, degree of responsibility, and scope of contributions. Pay pool 
managers may weight critical elements and may establish supplemental 
criteria. 

Feedback: Supervisors and employees are to, on an ongoing basis, hold 
discussions to specify work assignments and performance expectations. 
The supervisor or the employee can request a formal review during the 
appraisal process. 

Self-assessment: Employees are to submit yearly accomplishment reports 
for the supervisors' information when determining the performance 
appraisals. 

Levels of performance rating: The levels are acceptable or 
unacceptable. Employees who are rated acceptable are then determined to 
be "over-compensated," "under-compensated," or within the "normal pay 
range," based on their contribution scores and salaries. 

Safeguards: 

* Second-level review: The pay pool panel and pay pool manager are to 
compare element scores for all of the employees in the pay pool; make 
adjustments, as necessary; and determine the final contribution scores 
and pay adjustments for the employees. 

* Grievance procedure: Employees can grieve their appraisals through a 
two-step process. Employees are to first grieve their scores in 
writing, and the pay pool panel reviews the grievances and makes 
recommendations to the pay pool manager, who issues decisions in 
writing. If employees are not satisfied with the pay pool manager's 
decisions, they can then file formal grievances according to NRL's 
formal grievance procedure. 

Selected Employee Attitude Data: 

Figure 14: Selected Employee Attitude Data for NRL: 

[See PDF for image] 

[End of figure] 

Legend: N/A = data are not applicable; N = number of respondents. 

Source: DOD. 

Other Interventions: 

Reduction in force. To credit an employee's basic Federal Service 
Computation Date with up to 20 years based on the results of the 
appraisal process. 

Hiring flexibility. To provide opportunities to consider a broader 
range of candidates and flexibility in filling positions. 

Extended probationary period. To extend the probationary period to 3 
years for certain occupations. 

Selected Reported Effects: 

A demonstration project evaluation reported the following 
effects.[Footnote 20] 

From 1996 to 2001: 

* Managers' satisfaction with authority to determine employees' pay and 
job classification increased from 10 percent of managers to 33 percent. 

* Employees' satisfaction with opportunities for advancement increased 
from 26 percent to 41 percent. 

* The perceived link between pay and performance is stronger under the 
demonstration project and increased from 41 percent to 61 percent. 

* On the other hand, the percentage of employees who agreed that other 
employers in the area paid more than the government for the kind of 
work that they do increased from 67 to 76 percent. 

Sources for Additional Information: 

[Hyperlink, http://hroffice.nrl.navy.mil/personnel_demo/index.htm] 
(Last accessed on Nov. 7, 2003) 
[Hyperlink, http://www.opm.gov/demos/main.asp] 
(Last accessed on Nov. 7, 2003): 

Naval Sea Systems Command Warfare Centers (NAVSEA): 

[See PDF for image] 

Source: GAO analysis of DOD and OPM data. 

[End of figure] 

Purpose: 

The NAVSEA demonstration project was to: 

* develop employees to meet the changing needs of the organization; 

* help employees achieve their career goals; 

* improve performance in current positions; 

* retain high performers; and: 

* improve communication with customers, colleagues, managers, and 
employees. 

Selected Elements of the Performance Management System: 

Competencies: Each division may implement regulations regarding the 
competencies and criteria by which employees are rated. NAVSEA's 
Dahlgren division uses three competencies for all employees, and the 
Newport division uses eight competencies. 

Feedback: Each division may implement regulations regarding the timing 
and documentation of midyear feedback. Dahlgren requires at least one 
documented feedback session at midyear. Beginning in fiscal year 2004, 
Newport requires a documented midyear feedback session. 

Self-assessment: Each division has the flexibility to determine whether 
and how employees document their accomplishments. Dahlgren requires 
employees to provide summaries of their contributions for their 
supervisors' information. Newport encourages employees to provide self-
assessments. 

Levels of performance rating: All of the divisions use the ratings 
"acceptable" and "unacceptable." 

Safeguards: 

* Second-level review: Divisions are to design the performance 
appraisal and payout process. Supervisors at Dahlgren's division and 
department levels review ratings and payouts to ensure that the 
competencies are applied uniformly and salary adjustments are 
distributed equitably. At Newport, second-level supervisors review 
recommendations by direct supervisors, make changes to achieve balance 
and equity within the organization, then submit the recommendations to 
pay pool managers, who are to go through the same process and forward 
the recommendations to the department head for final approval. 

* Grievance procedure: Divisions are to design their grievance 
procedures. Dahlgren and Newport have informal and formal 
reconsideration processes. In Dahlgren's informal process, the employee 
and supervisor are to discuss the employee's concern and reach a mutual 
understanding, and the pay pool manager is to approve any changes. If 
the employee is not satisfied with the result of the informal process, 
the employee is to submit a formal request to the pay pool manager, who 
is to make the final decision. In Newport's informal process, the 
employee is to submit a written request to the pay pool manager, who 
may revise the rating and payout decision or confirm it. If the 
employee is not satisfied with the result of the informal process, the 
employee may formally appeal to the department head, who is to render a 
decision. 

Selected Employee Attitude Data: 

Figure 15: Selected Employee Attitude Data for NAVSEA: 

[See PDF for image] 

Source: DOD. 

Legend: N/A = data are not applicable; N = number of respondents. 

[End of figure] 

Other Interventions: 

Advanced in-hire rate. To set, upon initial appointment, an 
individual's pay anywhere within the band level consistent with the 
qualifications of the individual and requirements of the position. 

Scholastic achievement appointments. To employ an alternative examining 
process that provides NAVSEA the authority to appoint undergraduates 
and graduates to professional positions. 

Selected Reported Effects: 

A demonstration project evaluation reported the following 
effects.[Footnote 21] 

From 1996 to 2001: 

* The percentage of people who agreed that their managers promote 
effective communication among different work groups increased from 31 
to 43 percent. 

* On the other hand, NAVSEA employees' response to the statement "High 
performers tend to stay with this organization" stayed constant at 
about 30 percent during this time. 

* Additionally, the percentage of employees who said that they have all 
of the skills needed to do their jobs remained consistent at 59 and 62 
percent, respectively. 

Sources for Additional Information: 

[Hyperlink, http://www.nswc.navy.mil/wwwDL/XD/HR/DEMO/main.html] 
(Last accessed on Nov. 7, 2003) 
[Hyperlink, http://www.opm.gov/demos/main.asp] 
(Last accessed on Nov. 7, 2003): 

Civilian Acquisition Personnel Demonstration Project (AcqDemo): 

[See PDF for image] 

Source: GAO analysis of DOD and OPM data. 

[A] Pub. L. No. 105-85 removed the 5,000 employee participant cap at 
AcqDemo. 

[End of figure] 

Purpose: 

AcqDemo was to: 

* attract, motivate, and retain a high-quality acquisition workforce; 

* achieve a flexible and responsive personnel system; 

* link pay to employee contributions to mission accomplishment; and: 

* gain greater managerial control and authority over personnel 
processes. 

Selected Elements of the Performance Management System: 

Competencies: Six core contribution "factors," as well as 
"discriminators" and "descriptors," are used to evaluate every 
employee. 

Feedback: AcqDemo requires at least one formal feedback session 
annually and encourages informal and frequent communication between 
supervisors and employees, including discussion of any inadequate 
contribution. Each service, agency, or organization may require one or 
more additional formal or informal feedback sessions. 

Self-assessment: Employees can provide a list of contributions for each 
factor. 

Levels of performance rating: The levels are "appropriately 
compensated," "over-compensated," and "under-compensated." 

Safeguards: 

* Second-level review: The supervisors and the pay pool manager are to 
ensure consistency and equity across ratings. The pay pool manager is 
to approve the employee's overall contribution score, which is 
calculated based on the employee's contribution ratings. 

* Grievance procedure: Employees may grieve their ratings and actions 
affecting the general pay increase or performance pay increases. An 
employee covered by a negotiated grievance procedure is to use that 
procedure to grieve his or her score. An employee not under a 
negotiated grievance procedure is to submit the grievance first to the 
rating official, who will submit a recommendation to the pay pool 
panel. The pay pool panel may accept the rating official's 
recommendation or reach an independent decision. The pay pool panel's 
decision is final unless the employee requests reconsideration by the 
next higher official to the pay pool manager. That official would then 
render the final decision on the grievance. 

Selected Employee Attitude Data: 

Figure 16: Selected Employee Attitude Data for AcqDemo: 

[See PDF for image] 

[End of figure] 

Source: DOD. 

Legend: N/A = data are not applicable; N = number of respondents. 

[End of figure] 

Other Interventions: 

Voluntary emeritus program. To provide a continuing source of corporate 
knowledge and valuable on-the-job training or mentoring by allowing 
retired employees to voluntarily return without compensation and 
without jeopardizing retirement pay. 

Extended probationary period. To provide managers a length of time 
equal to education and training assignments outside of the supervisors' 
review to properly assess the contribution and conduct of new hires in 
the acquisition environment. 

Scholastic achievement appointment. To provide the authority to appoint 
degreed candidates meeting desired scholastic criteria to positions 
with positive education requirements. 

Flexible appointment authority. To allow an agency to make a modified 
term appointment to last from 1 to 5 years when the need for an 
employee's services is not permanent. 

Selected Reported Effects: 

A demonstration project evaluation reported the following 
effects.[Footnote 22] 

* Attrition rates for over-compensated employees increased from 24.1 in 
2000 to 31.6 percent in 2002. Attrition rates for appropriately 
compensated employees increased from 11.5 in 2000 to 14.1 percent in 
2002. Attrition rates for under-compensated employees decreased from 
9.0 in 2000 to 8.5 in 2001 and then increased to 10.2 percent in 2002. 

* Increased pay-setting flexibility has allowed organizations in 
AcqDemo to offer more competitive salaries, which has improved 
recruiting. 

* Employees' perception of the link between pay and contribution 
increased, from 20 percent reporting that pay raises depend on their 
contribution to the organization's mission in 1998 to 59 percent in 
2003. 

Sources for Additional Information: 

[Hyperlink, http://www.acq.osd.mil/acqdemo/] 
(Last accessed on Nov. 7, 2003) 
[Hyperlink, http://www.opm.gov/demos/index.asp] 
(Last accessed on Nov. 7, 2003): 

[End of section] 

Appendix III: Comments from the Department of Defense: 

OFFICE OF THE UNDER SECRETARY OF DEFENSE 
4000 DEFENSE PENTAGON 
WASHINGTON, D.C. 20301-4000: 

PERSONNEL AND Readiness: 

DEC 15 2003: 

Mr. J. Christopher Mihm: 
Director, Strategic Issues: 
U.S. General Accounting Office: 
Washington, DC 20548: 

Dear Mr. Mihm: 

This is the Department of Defense response to the GAO draft report, 
GAO-04-XXX, HUMAN CAPITAL: Implementing Pay for Performance at Selected 
Personnel Demonstration Projects, dated November 21, 2003 (GAO Code 
450183). 

We concur with the report but ask that you please add the following 
note to Tables 6 and 7 on pages 30 and 32: NAVSEA-Dahlgren and Newport 
did not separately track the cost of training and automation efforts 
specifically related to the Personnel Demonstration Project over the 
past 5 years. The cost data shown on pages 30-32 of the report are 
estimates and may not accurately reflect the actual costs incurred. 

The report provides a useful summary of the various approaches that the 
personnel demonstration projects undertook to implement their pay for 
performance systems. The experiences of the personnel demonstration 
projects provide valuable insight into federal pay for performance 
models. The Department's review of the successes, lessons learned, and 
challenges of the personnel demonstration projects resulted in the 
identification of the best practices in performance management. In 
collaboration with our employee representatives, the Department will 
now fashion these best practices into a meaningful pay for performance 
model under the new National Security Personnel System. 

We appreciate the opportunity to comment on the draft report. 

Sincerely, 

Signed by: 

Charles S. Abell: 

Principal Deputy: 

[End of section] 

Appendix IV: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

J. Christopher Mihm, (202) 512-6806 or [Hyperlink, mihmj@gao.gov], 
Lisa Shames, (202) 512-6806 or [Hyperlink, shamesl@gao.gov]. 

Acknowledgments: 

In addition to the individuals named above, Michelle Bracy, Ron La Due 
Lake, Hilary Murrish, Adam Shapiro, and Marti Tracy made key 
contributions to this report. 

(450183): 

FOOTNOTES 

[1] U.S. General Accounting Office, Results-Oriented Cultures: Creating 
a Clear Linkage between Individual Performance and Organizational 
Success, GAO-03-488 (Washington, D.C.: Mar. 14, 2003). 

[2] U.S. General Accounting Office, Human Capital: DHS Personnel System 
Design Effort Provides for Collaboration and Employee Participation, 
GAO-03-1099 (Washington, D.C.: Sept. 30, 2003). 

[3] Two governmentwide initiatives were intended to implement pay for 
performance systems for supervisors and managers. The Merit Pay System 
was established under the Civil Service Reform Act of 1978 and ended in 
1984. Its successor--the Performance Management and Recognition System-
-ended in 1993. 

[4] The GS is the federal government's main pay system for "white-
collar" positions. The GS is composed of 15 grade levels. Each grade is 
divided into 10 specific pay levels called "steps." 

[5] See U.S. General Accounting Office, An Evaluation Framework for 
Improving the Procurement Function (Exposure Draft) (Washington, D.C.: 
October 2003), for more information on a framework to enable a high-
level, qualitative assessment of the strengths and weaknesses of 
agencies' procurement functions. 

[6] At DOC, all managerial and supervisory employees are also evaluated 
on core critical elements, such as recommending or making personnel 
decisions; developing and appraising subordinates; and fulfilling 
diversity, equal opportunity, and affirmative action responsibilities, 
in addition to program responsibilities. 

[7] China Lake gives managers discretion in determining how awards are 
distributed among employees with ratings of "fully successful" or 
above. 

[8] As a point of comparison, in 2002, about 48 percent of GS employees 
across the executive branch under a similar five-level rating system 
were rated in the highest category and less than 1 percent were rated 
as less than fully successful. 

[9] As a point of comparison, in 2002, about 92 percent of GS employees 
across the executive branch under a similar four-level rating system 
were rated in the top two categories and about 0.1 percent were rated 
as unacceptable. 

[10] As a point of comparison, in 2002, about 99.9 percent of GS 
employees across the executive branch under a similar two-level rating 
system passed and about 0.1 percent failed. 

[11] The "standard pay line" spans from the dollar equivalent of GS-1, 
step 1, to the dollar equivalent of GS-15, step 10. Appropriately 
compensated employees' salaries fall within the "normal pay range," 
which encompasses an area of +/-4.0 points from the standard pay line. 

[12] U.S. Office of Personnel Management, Demonstration Projects and 
Alternative Personnel Systems: HR Flexibilities and Lessons Learned 
(Washington, D.C.: September 2001). 

[13] U.S. General Accounting Office, Human Capital: A Guide for 
Assessing Strategic Training and Development Efforts in the Federal 
Government (Exposure Draft), GAO-03-893G (Washington, D.C.: July 1, 
2003). 

[14] All dollars were inflation-adjusted to 2002 dollars because the 
demonstration projects took place over a variety of years. 

[15] Booz Allen Hamilton, Department of Commerce Personnel Management 
Demonstration Project Evaluation Year Four Report (McLean, Va.: 
September 2003). 

[16] The Navy Demonstration Project was also implemented at the Space 
and Naval Systems Command in San Diego, California. 

[17] Source: U.S. Office of Personnel Management, A Summary Assessment 
of the Navy Demonstration Project (Washington, D.C.: February 1986). 

[18] Source: U.S. Office of Personnel Management, Summative Evaluation 
Report National Institute of Standards and Technology Demonstration 
Project: 1988-1995 (Washington, D.C.: June 27, 1997). 

[19] Source: Booz Allen Hamilton, Department of Commerce Personnel 
Management Demonstration Project Evaluation Year Four Report (McLean, 
Va.: September 2003). 

[20] Sources: U.S. Office of Personnel Management, 2002 Summative 
Evaluation DOD S&T Reinvention Laboratory Demonstration Program 
(Washington, D.C.: August 2002), and DOD. The OPM report evaluated all 
of the projects in the Science and Technology Reinvention Laboratory 
Demonstration Program and presented the results together, rather than 
by demonstration project. Data are based on survey information provided 
by DOD. 

[21] Sources: U.S. Office of Personnel Management, 2002 Summative 
Evaluation DOD S&T Reinvention Laboratory Demonstration Program 
(Washington, D.C.: August 2002), and DOD. The OPM report evaluated all 
of the projects in the Science and Technology Reinvention Laboratory 
Demonstration Program and presented the results together, rather than 
by demonstration project. Data are based on survey information provided 
by DOD. 

[22] Source: Cubic Applications, Inc., DOD Civilian Acquisition 
Workforce Personnel Demonstration Project: Interim Evaluation Report 
Volume I - Management Report (Alexandria, Va.: July 2003). 

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