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entitled 'Financial Regulators: Agencies Have Implemented Key 
Performance Management Practices, but Opportunities for Improvement 
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Report to Congressional Requesters: 

June 2007: 

Financial Regulators: 

Agencies Have Implemented Key Performance Management Practices, but 
Opportunities for Improvement Exist: 

GAO-07-678: 

GAO Highlights: 

Highlights of GAO-07-678, a report to congressional requesters 

Why GAO Did This Study: 

Congress granted financial regulators flexibility to establish their 
own compensation systems and required certain agencies to seek to 
maintain comparability with each other in pay and benefits to help the 
agencies overcome impediments to recruiting and retaining employees and 
avoid competing for the same employees. In response to a request, this 
report reviews (1) how the performance-based pay systems of 10 
financial regulators are aligned with six key practices for effective 
performance management systems, (2) the actions these agencies have 
taken to assess and implement comparability in pay and benefits, and 
(3) the extent to which employees in selected occupations have moved 
between or left any of the agencies. GAO analyzed agency guidance and 
policies, agency data on performance ratings and pay increases, agency 
pay and benefits surveys, data from the Central Personnel Data File, 
and interviewed agency officials. 

What GAO Found: 

The 10 federal financial regulatory agencies have generally implemented 
key practices for effective performance management but could improve 
implementation of certain practices as they continue to refine their 
systems. All of the financial regulators awarded some pay increases 
during the appraisal cycles we reviewed that were linked to employees’ 
performance ratings, although two also provided across-the-board pay 
adjustments, even to employees who had not received acceptable 
performance ratings, weakening the linkage of pay to performance. Both 
agencies have indicated in the future annual pay adjustments will not 
be awarded to unsuccessful performers. The agencies have generally 
aligned individual performance expectations and organizational goals, 
connected performance expectations to crosscutting goals, used 
competencies to provide a fuller assessment of performance, and 
involved employees and stakeholders in the process. All of the agencies 
built safeguards into their performance management systems to enhance 
credibility and fairness. However, the extent to which the agencies 
communicated overall results of performance rating and pay increase 
decisions to all employees varied, and some could increase transparency 
by letting employees know where they stand relative to their peers in 
the organization, while protecting individual confidentiality. 

Financial regulators have hired external compensation consultants to 
conduct pay and benefits comparability surveys, exchanged pay and 
benefits information, explored the feasibility of conducting a common 
survey, and adjusted pay and benefits to seek to maintain comparability 
with each other. Although financial regulators have adjusted pay and 
benefits partly based on the results of their comparability efforts, 
there is some variation in pay ranges and benefit packages among the 
agencies. According to agency officials, factors such as the year the 
agencies first became subject to comparability provisions, budget 
constraints, and the needs and preferences of workforces play a role in 
compensation decisions and contribute to this variation. Furthermore, 
agency officials emphasized that it was not their goal to have 
identical pay and benefits packages; rather, they considered pay and 
benefits as a total package when seeking to maintain comparability and 
when setting pay policies aimed at recruiting and retaining employees. 

Between fiscal years 1990 and 2006, few employees moved among financial 
regulators and the movement among these agencies presented no 
discernible trend. Specifically, 86 percent (13,433) of the 15,627 
employees that left during this period (i.e., moving or resigning but 
not retiring), resigned from federal employment. Annually, the 
percentage of employees who moved to another financial regulator ranged 
from a low of 1 percent in fiscal year 1997 (16 out of the 1,362 who 
moved or resigned) to a high of 8 percent in fiscal year 1991 (97 out 
of the 1,229 who moved or resigned). The total number of financial 
regulatory employees was 15,400 and 19,796 during those 2 years, 
respectively. 

What GAO Recommends: 

GAO recommends that several regulators take steps to communicate the 
overall results of appraisal and pay increase decisions to all 
employees while protecting individual confidentiality. The regulators 
generally agreed with the recommendations. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-678]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Orice Williams, 202-512-
8678, williamso@gao.gov or Brenda Farrell, 202-512-5140, 
farrellb@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Financial Regulators Generally Have Linked Pay to Performance and Made 
Distinctions in Performance, but Opportunities Exist for Improvements: 

Agencies Have Taken Various Actions to Seek to Maintain Pay and 
Benefits Comparability: 

Few Employees Have Moved among the Financial Regulators, Most Resigned 
from Federal Employment: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendixes: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Information on Agencies: 

Appendix III: Financial Regulators Have Implemented Key Practices in 
Varying Ways: 

Appendix IV: Actions Taken by Financial Regulators to Seek to Maintain 
Pay and Benefits Comparability and Pay and Benefits Data: 

Appendix V: Analysis of Movement Data of Financial Regulator Employees 
from Fiscal Years 1990 through 2006: 

Appendix VI: Comments from the U.S. Commodity Futures Trading 
Commission: 

Appendix VII: Comments from the Board of Governors of the Federal 
Reserve System: 

Appendix VIII: Comments from the Federal Housing Finance Board: 

Appendix IX: Comments from the National Credit Union Administration: 

Appendix X: Comments from the Office of Federal Housing Enterprise 
Oversight: 

Appendix XI: Comments from the Securities and Exchange Commission: 

Appendix XII: GAO Contacts and Staff Acknowledgments: 

Tables: 

Table 1: Federal Financial Regulator Pay Comparability Legislative 
Provisions: 

Table 2: Selected OPM Locality Pay Percentages Compared to Financial 
Regulators' Locality Pay Percentages, Fiscal Year 2006: 

Table 3: Performance Appraisal Cycle by Agency: 

Table 4: Agency Information: 

Table 5: Pay and Benefits Surveys That Federal Financial Regulators 
Conducted through External Compensation Consultants, 1991-2006: 

Table 6: Selected Examples of Benchmarks Agencies Have Used to Assess 
Pay and Benefits Comparability: 

Table 7: Selected Examples of Recent Pay and Benefits Adjustments 
Resulting from Agencies' Comparability Assessments: 

Table 8: Agencies' Current Methods for Determining Locality Pay 
Percentages and Adjustments: 

Table 9: List of Benefits Offered by the 10 Financial Regulators: 

Table 10: Number of Financial Regulator Employees in Mission-Critical 
and other Occupations Who Moved to another Financial Regulator, Fiscal 
Years 1990-2006: 

Table 11: Commodity Futures Trading Commission Employment and Movement 
Data, Fiscal Years 1990-2006: 

Table 12: Farm Credit Administration Employment and Movement Data, 
Fiscal Years 1990-2006: 

Table 13: Federal Deposit Insurance Corporation Employment and Movement 
Data, Fiscal Years 1990-2006: 

Table 14: Federal Housing Finance Board Employment and Movement Data, 
Fiscal Years 1990-2006: 

Table 15: National Credit Union Administration Employment and Employee 
Movement Data, Fiscal Years 1990-2006: 

Table 16: Office of the Comptroller of the Currency Employment and 
Employee Movement Data, Fiscal Years 1990-2006: 

Table 17: Office of Federal Housing Enterprise Oversight Employment and 
Employee Movement Data, Fiscal Years 1990-2006: 

Table 18: Office of Thrift Supervision Employment and Employee Movement 
Data, Fiscal Years 1990-2006: 

Table 19: Securities and Exchange Commission Employment and Employee 
Movement Data, Fiscal Years 1990-2006: 

Table 20: Other Federal Agencies Employment and Employee Movement Data, 
Fiscal Years 1990-2006: 

Figures: 

Figure 1: Percentage of Regulatory Employees by Rating Level for 
Systems with Multiple Rating Levels, for Completed Appraisal Cycles 
Specified: 

Figure 2: Percentage of Regulatory Employees by Rating Level and Merit 
Increase Category for Agencies with Pass/Fail Performance Rating 
Systems, for Completed Appraisal Cycles Specified: 

Figure 3: Nonexecutive Minimum and Maximum Pay Ranges and Average 
Actual Pay for Mission-Critical Occupations by Regulator, 2006: 

Figure 4: Attrition among Financial Regulators, Fiscal Years 1990-2006: 

Figure 5: Excerpt from an OCC Commissioned Examiner's Individual 
Performance Plan: 

Figure 6: Excerpt from an FCA Individual Performance Plan: 

Figure 7: Example of OFHEO's Worksheet for Weighting Performance 
Elements: 

Figure 8: Average Number of Employees in Mission-Critical and other 
Occupations Moving among the 9 Financial Regulators, Fiscal Years 1990- 
2006: 

Abbreviations: 

CFTC: Commodity Futures Trading Commission: 

CPDF: Central Personnel Data File: 

EEO: Equal Employment Opportunity: 

FCA: Farm Credit Administration: 

FDIC: Federal Deposit Insurance Corporation: 

FHFB: Federal Housing Finance Board: 

FIRREA: Financial Institutions Reform, Recovery and Enforcement Act: 

IT: information technology: 

NCUA: National Credit Union Administration: 

OCC: Office of the Comptroller of the Currency: 

OFHEO: Office of Federal Housing Enterprise Oversight: 

OPM: Office of Personnel Management: 

OTS: Office of Thrift Supervision: 

SEC: Securities and Exchange Commission: 

SSP: Senior Staff Position: 

June 18, 2007: 

Congressional Requesters: 

The federal government must adapt to a range of major trends and 
challenges in the nation and the world, and to respond, it must have 
the institutional capacity to plan more strategically, identify and 
react more expeditiously, and focus on achieving results. Critical to 
the success of this transformation are the federal government's people-
-its human capital. Yet the government has not transformed, in many 
cases, how it classifies, compensates, develops, and motivates its 
employees to achieve maximum results within available resources and 
existing authorities. One of the questions being addressed as the 
federal government transforms is how to update its compensation system 
to be more market based and performance oriented.[Footnote 1] In this 
type of system, organizations consider the skills, knowledge, and 
performance of employees as well as the labor market when making pay 
decisions. 

Congress has recognized the need for flexibility in how selected 
agencies compensate employees. Congress granted the federal financial 
regulatory agencies the flexibility to establish their own compensation 
systems recognizing that the existing approach to compensating 
employees could impede these agencies' ability to recruit and retain 
employees critical to meeting their organizational missions. In 
addition to the flexibility provided to the agencies over the years, 
Congress also directed most of the agencies to seek to maintain pay 
comparability and to consult with each other in doing so to ensure the 
agencies do not compete with each other for employees.[Footnote 2] The 
10 federal financial regulatory agencies reviewed in this report are 
the Commodity Futures Trading Commission (CFTC), the Farm Credit 
Administration (FCA), the Federal Deposit Insurance Corporation (FDIC), 
the Federal Housing Finance Board (FHFB), the Board of Governors of the 
Federal Reserve System (Federal Reserve Board), the National Credit 
Union Administration (NCUA), the Office of the Comptroller of the 
Currency (OCC), the Office of Federal Housing Enterprise Oversight 
(OFHEO), the Office of Thrift Supervision (OTS), and the Securities and 
Exchange Commission (SEC). 

In our prior work, we identified key practices for effective 
performance management systems that collectively create a "line of 
sight" showing how team, unit, and individual performance can 
contribute to overall organizational goals and help individuals 
understand the connection between their daily activities and the 
organization's success.[Footnote 3] 

In your February 2006 letter, you noted that the financial regulatory 
agencies are at different stages of implementing their performance- 
based pay systems and compensation authorities and that an examination 
of how they are implementing their systems could be valuable to other 
agencies pursuing performance-based pay systems. Our past work looking 
at agencies' implementation of performance management and performance- 
based pay systems has shown that better linking pay to performance is 
very much a work in progress at the federal level.[Footnote 4] 

In response to your request, this report examines (1) how the 
performance-based pay systems of 10 federal financial regulatory 
agencies are aligned with six key practices for effective performance 
management systems, (2) the actions 10 federal regulatory agencies have 
taken to assess and implement comparability in pay and benefits with 
each other, and (3) the extent to which employees in selected 
occupations have moved between or left any of the agencies. 

For purposes of this review, we focused on six key practices for 
effective performance management, which are more closely related to 
planning, rating, and rewarding individual performance:[Footnote 5] 

1. Align individual performance expectations with organizational goals. 

2. Connect performance expectations to crosscutting goals. 

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

4. Link pay to individual and organizational performance. 

5. Make meaningful distinctions in performance. 

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

In this report, we present important aspects of the agencies' 
implementation of the practices of linking pay to individual and 
organizational performance, which includes providing adequate 
safeguards to help ensure fairness and guard against abuse, and making 
meaningful distinctions in performance. We discuss the agencies' 
implementation of the four other practices included in the list in 
appendix III. 

To address our first objective, we analyzed the selected agencies' 
performance management and pay systems' guidance, policies, and 
procedures and other related documents; interviewed key agency 
officials and representatives of unions or other employee groups; 
examined a small, select set of employees' individual performance plans 
to illustrate annual performance expectations for employees; and 
analyzed agencies' performance management data, such as the 
distribution of performance ratings and performance-based pay 
increases. The individual performance plans, selected in conjunction 
with agency officials to reflect a mix of key locations, occupations, 
and grade levels at each agency, as well as the performance management 
data from each agency that we examined, pertained to each agency's last 
completed performance appraisal cycle when we began this 
review.[Footnote 6] 

To address our second objective, we analyzed relevant statutes and 
legislative histories for the selected agencies; reviewed the most 
recent pay and benefits surveys from these agencies; obtained agency 
pay and benefits data; and discussed agencies' informal interactions to 
assess pay comparability with agency officials. For the third 
objective, we analyzed data from the Central Personnel Data File 
(CPDF), which includes information on pay, benefits, personnel actions, 
and other data to support statistical analyses of executive branch 
personnel management programs, to determine employee movement. 

We conducted various inspections and electronic testing of agency data 
obtained for the first objective for reasonableness and the presence of 
any obvious or potential errors in accuracy and completeness. We also 
reviewed related agency documentation, interviewed agency officials 
knowledgeable about the data, and brought to the attention of these 
officials any concerns or discrepancies we found with the data for 
correction or updating. On the basis of these procedures, we believe 
the data are sufficiently reliable for use in the analyses presented in 
this report. Our data collection strategies were not designed to 
guarantee that we would identify all potential examples of how agencies 
may have implemented the various practices. An agency may have 
implemented a particular practice even if it is not specifically 
mentioned in the report. We did not independently verify the data in 
the pay and benefits comparability surveys the consultants conducted 
for the agencies or the pay and benefits data we received from the 
agencies. On the basis of our data reliability testing of CPDF data, we 
believe the CPDF data are sufficiently reliable for this review. 
Appendix I provides additional information on our scope and 
methodology. We conducted our work from February 2006 through June 2007 
in accordance with generally accepted government auditing standards. 

Results in Brief: 

Overall, the federal financial regulators have implemented key 
practices for effective performance management systems in ways that 
consider the unique needs of their organizational cultures and 
structures, but some have opportunities to improve implementation of 
certain practices as they continue to refine their systems. All of the 
regulators awarded some pay increases during the appraisal cycles we 
reviewed that were linked to employees' performance ratings. However, 
CFTC and SEC also provided across-the-board increases to employees, 
even to the few employees who had not received acceptable performance 
ratings, weakening the linkage of pay to performance. Officials from 
both agencies stated that in the future, annual pay adjustments will 
not be awarded to unsuccessful performers. While all of the regulators 
built safeguards into their performance management systems to enhance 
credibility and fairness, SEC did not establish and communicate 
performance standards to its nonexecutives, which could compromise the 
credibility of the system. Several regulators did not fully implement 
the safeguard of providing overall ratings and pay increase results to 
all employees, affecting employees' ability to understand where they 
stood in their organizations. As a result, some regulators have 
opportunities to strengthen an important safeguard for providing 
transparency within their performance-based pay systems. 

The financial regulators have hired external compensation consultants 
to conduct individual, formal comparability surveys, exchanged pay and 
benefits information, explored the feasibility of conducting a common 
survey, or adjusted pay and benefits to seek to maintain comparability 
requirements. Although officials said that they have adjusted pay and 
benefits partly based on the results of their comparability efforts, 
there is some variation in pay ranges and benefit packages among the 
agencies. For example, the regulators have varying minimum and maximum 
pay ranges for similar job series and offer different benefits such as 
tuition reimbursement and supplemental retirement plans. When 
discussing the reasons that may contribute to this variation, agency 
officials said that the year the agencies first became subject to 
comparability provisions, budget constraints, and the needs and 
preferences of the workforce play a role in compensation decisions and 
contribute to this variation. Furthermore, officials emphasized that it 
was not their goal to have identical pay and benefits packages; rather, 
they considered pay and benefits as a total package when seeking to 
maintain pay and benefits comparability and when setting pay policies 
aimed at recruiting and retaining employees. 

From fiscal years 1990 through 2006, the movement of employees among 
the financial regulators was very low and presented no discernible 
trend over the period, but 86 percent (13,433) of the 15,627 employees 
leaving the regulators voluntarily (i.e., moving or resigning), 
resigned from the federal government.[Footnote 7] The number of 
employees who moved to another financial regulator ranged from a low of 
16 of 1,362 who moved or resigned in fiscal year 1997 to a high of 97 
of 1,229 who moved or resigned in fiscal year 1991. The total number of 
financial regulator employees was 15,400 (1997) and 19,796 (1991) 
during those 2 years. (Federal Reserve Board data are excluded from the 
federal government's personnel database and are not included in these 
analyses.) Some agency officials told us that they believe that the 
Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) 
comparability provision and similar provisions in subsequent laws 
applicable to financial regulators have been effective in ensuring that 
regulators' pay and benefits are generally comparable among the 10 
agencies, which probably helps minimize employee movement among 
financial regulatory agencies. The movement of mission-critical 
employees, including accountants, attorneys, auditors, examiners, 
economists, financial analysts, investigators, information technology 
specialists, and business specialists, to a different financial 
regulator also produced no discernible trends. 

This report includes recommendations to CFTC, FCA FHFB, NCUA, OFHEO, 
and SEC. FCA, FHFB, and OFHEO should communicate the overall results of 
the performance appraisal and pay increase decisions to all employees 
agencywide while protecting individual confidentiality. NCUA, CFTC, and 
SEC should work with unions to communicate the overall results of the 
performance appraisal and pay increase decisions to all employees 
agencywide while protecting individual confidentiality. SEC should 
clearly communicate the criteria for making performance rating and pay 
increase decisions to nonexecutive employees and should assess senior 
executives' performance at the end of the performance appraisal cycle 
regardless of the amount of funding available for performance-based pay 
increases. 

We provided a copy of the draft report to the Chairman, Commodity 
Futures Trading Commission; Chairman of the Board and Chief Executive 
Officer, Farm Credit Administration; Chairman, Federal Deposit 
Insurance Corporation; Chairman, Federal Housing Finance Board; 
Chairman, Board of Governors of the Federal Reserve System; Chairman, 
National Credit Union Administration; Comptroller of the Currency, 
Office of the Comptroller of the Currency; Director, Office of Federal 
Housing Enterprise Oversight; Director, Office of Thrift Supervision; 
and Chairman, Securities and Exchange Commission, for review and 
comment. We received written comments from six of the agencies. They 
generally agreed with the findings and recommendations. See appendixes 
VI, VII, VIII, IX, X, and XI for letters received from CFTC, the 
Federal Reserve Board, FHFB, NCUA, OFHEO, and SEC. These six agencies, 
along with the other four, also provided clarifying and technical 
comments, which we have incorporated as appropriate. Several agencies 
described actions they plan to take to address the recommendation to 
communicate the overall results of the performance appraisal and pay 
increase decisions to all employees on an agency-wide basis while 
protecting individual confidentiality. 

Background: 

The 10 federal financial regulatory agencies in our review vary in 
size, mission, funding structure, whether they bargain with a union, 
and how long they have been implementing aspects of performance-based 
pay systems. For example, FHFB is the smallest agency with just over 
120 employees, while FDIC, the largest agency, had more than 4,300 
employees as of September 2006 and has been implementing pay for 
performance since 1998. Likewise, these agencies regulate a range of 
activities including banking and securities and futures. Appendix II 
includes the financial regulators' missions, funding structures, and 
whether they are unionized and bargain with a union over pay and 
benefits. 

Under Title 5 of the U.S. Code, the financial regulatory agencies have 
the flexibility to establish their own compensation programs without 
regard to various statutory provisions on classification and pay for 
executive branch agencies. At the same time these financial regulators 
received increased flexibility regarding compensation, Congress also 
generally required that they seek compensation comparability with each 
other. A provision in FIRREA requires six agencies--FDIC, OCC, NCUA, 
FHFB, FCA, and OTS--in establishing and adjusting compensation and 
benefits, to inform each other and Congress of such compensation and 
benefits, and to seek to maintain comparability regarding compensation 
and benefits.[Footnote 8] Additional FIRREA provisions require FCA, 
FHFB, NCUA, OCC, and OTS to seek to maintain compensation and benefit 
comparability with the Federal Reserve Board.[Footnote 9] Although the 
Federal Reserve Board is under no obligation to seek to maintain 
compensation or benefit comparability with these or any of the other 
financial regulators, it has agreed to share compensation information 
with the other financial regulators. 

The other three agencies are subject to their own compensation 
comparability provisions. As required by its 1992 enabling legislation, 
OFHEO must maintain comparability with the compensation of employees 
from the Federal Reserve Board, OCC, FDIC, and OTS and consult with 
those agencies in that regard.[Footnote 10] In 2002 legislation, SEC 
and CFTC were placed under comparability requirements. SEC must consult 
with and seek to maintain compensation comparability with FDIC, OCC, 
NCUA, FHFB, FCA, OTS and CFTC.[Footnote 11] However, as shown in table 
1, this legislation did not require these agencies to seek to maintain 
compensation comparability with SEC. Similarly, CFTC must consult and 
seek to maintain compensation comparability with the six FIRREA 
agencies, but those agencies are not required to seek to maintain 
compensation comparability with CFTC.[Footnote 12] 

Table 1: Federal Financial Regulator Pay Comparability Legislative 
Provisions: 

Agency: CFTC; 
Comparability provisions: Post-FIRREA; 
Year of provision: 2002; 
Comparability agencies: FIRREA agencies: FCA: X; 
Comparability agencies: FIRREA agencies: FDIC: X; 
Comparability agencies: FIRREA agencies: FHFB: X; 
Comparability agencies: FIRREA agencies: NCUA: X; 
Comparability agencies: FIRREA agencies: OCC: X; 
Comparability agencies: FIRREA agencies: OTS: X; 
Comparability agencies: CFTC: [Empty]; 
Comparability agencies: Federal Reserve Board: [Empty]; 
Comparability agencies: OFHEO: [Empty]; 
Comparability agencies: SEC: [Empty]. 

Agency: FCA; 
Comparability provisions: FIRREA; 
Year of provision: 1989;  
Comparability agencies: FIRREA agencies: FCA: [Empty]; 
Comparability agencies: FIRREA agencies: FDIC: X; 
Comparability agencies: FIRREA agencies: FHFB: X; 
Comparability agencies: FIRREA agencies: NCUA: X; 
Comparability agencies: FIRREA agencies: OCC: X;   
Comparability agencies: FIRREA agencies: OTS: X; 
Comparability agencies: CFTC: [Empty]; 
Comparability agencies: Federal Reserve Board: X; 
Comparability agencies: OFHEO: [Empty]; 
Comparability agencies: SEC: [Empty]. 

Agency: FDIC; 
Comparability provisions: FIRREA;
Year of provision: 1989;  
Comparability agencies: FIRREA agencies: FCA: X; 
Comparability agencies: FIRREA agencies: FDIC: [Empty]; 
Comparability agencies: FIRREA agencies: FHFB: X; 
Comparability agencies: FIRREA agencies: NCUA: X; 
Comparability agencies: FIRREA agencies: OCC: X; 
Comparability agencies: FIRREA agencies: OTS: X; 
Comparability agencies: CFTC: Empty]; 
Comparability agencies: Federal Reserve Board: [Empty]; 
Comparability agencies: OFHEO: [Empty]; 
Comparability agencies: SEC: [Empty]. 

Agency: FHFB; 
Comparability provisions: FIRREA; 
Year of provision: 1989;  
Comparability agencies: FIRREA agencies: FCA: X; 
Comparability agencies: FIRREA agencies: FDIC: X; 
Comparability agencies: FIRREA agencies: FHFB: [Empty]; 
Comparability agencies: FIRREA agencies: NCUA: X; 
Comparability agencies: FIRREA agencies: OCC: X; 
Comparability agencies: FIRREA agencies: OTS: X; 
Comparability agencies: CFTC: [Empty]; 
Comparability agencies: Federal Reserve Board: X; 
Comparability agencies: OFHEO: [Empty]; 
Comparability agencies: SEC: [Empty]. 

Agency: NCUA; 
Comparability provisions: FIRREA; 
Year of provision: 1989; 
Comparability agencies: FIRREA agencies: FCA: X; 
Comparability agencies: FIRREA agencies: FDIC: X; 
Comparability agencies: FIRREA agencies: FHFB: X; 
Comparability agencies: FIRREA agencies: NCUA: [Empty]; 
Comparability agencies: FIRREA agencies: OCC: X; 
Comparability agencies: FIRREA agencies: OTS: X; 
Comparability agencies: CFTC: [Empty]; 
Comparability agencies: Federal Reserve Board: X; 
Comparability agencies: OFHEO: [Empty]; 
Comparability agencies: SEC: [Empty]. 

Agency: OCC; 
Comparability provisions: FIRREA; 
Year of provision: 1989;  
Comparability agencies: FIRREA agencies: FCA: X; 
Comparability agencies: FIRREA agencies: FDIC: X; 
Comparability agencies: FIRREA agencies: FHFB: X; 
Comparability agencies: FIRREA agencies: NCUA: X; 
Comparability agencies: FIRREA agencies: OCC: [Empty]; 
Comparability agencies: FIRREA agencies: OTS: X; 
Comparability agencies: CFTC: [Empty]; 
Comparability agencies: Federal Reserve Board: X; 
Comparability agencies: OFHEO: [Empty]; 
Comparability agencies: SEC: [Empty]. 

Agency: OFHEO; 
Comparability provisions: Post-FIRREA; 
Year of provision: 1992; 
Comparability agencies: FIRREA agencies: FCA: [Empty]; 
Comparability agencies: FIRREA agencies: FDIC: X; 
Comparability agencies: FIRREA agencies: FHFB: [Empty]; 
Comparability agencies: FIRREA agencies: NCUA: [Empty]; 
Comparability agencies: FIRREA agencies: OCC: X; 
Comparability agencies: FIRREA agencies: OTS: X; 
Comparability agencies: CFTC: [Empty]; 
Comparability agencies: Federal Reserve Board: X; 
Comparability agencies: OFHEO: [Empty]; 
Comparability agencies: SEC: [Empty]. 

Agency: OTS; 
Comparability provisions: FIRREA; 
Year of provision: 1989; 
Comparability agencies: FIRREA agencies: FCA: X; 
Comparability agencies: FIRREA agencies: FDIC: X; 
Comparability agencies: FIRREA agencies: FHFB: X; 
Comparability agencies: FIRREA agencies: NCUA: X; 
Comparability agencies: FIRREA agencies: OCC: X; 
Comparability agencies: FIRREA agencies: OTS: [Empty]; 
Comparability agencies: CFTC: [Empty]; 
Comparability agencies: Federal Reserve Board: X; 
Comparability agencies: OFHEO: [Empty]; 
Comparability agencies: SEC: [Empty]. 

Agency: SEC; 
Comparability provisions: Post-FIRREA; 
Year of provision: 2002; 
Comparability agencies: FIRREA agencies: FCA: X; 
Comparability agencies: FIRREA agencies: FDIC: X; 
Comparability agencies: FIRREA agencies: FHFB: X; 
Comparability agencies: FIRREA agencies: NCUA: X; 
Comparability agencies: FIRREA agencies: OCC: X; 
Comparability agencies: FIRREA agencies: OTS: X; 
Comparability agencies: CFTC: X; 
Comparability agencies: Federal Reserve Board: [Empty]; 
Comparability agencies: OFHEO: [Empty]; 
Comparability agencies: SEC: [Empty]. 

Agency: FRB; 
Comparability provisions: Not required but shares information with a 
number of agencies regarding compensation and benefits. 

Source: GAO analysis of comparability legislative provisions. 

[End of table] 

We previously identified key practices for effective performance 
management based on public sector organizations' experiences both here 
and abroad.[Footnote 13] High-performing organizations seek to create 
pay, incentive, and reward systems that clearly link employee 
knowledge, skills, and contributions to organizational results. 
Performance-based systems reward employees according to their 
performance by using performance ratings as the basis for pay 
increases. Linking pay to performance can help to create a performance- 
oriented culture by providing monetary incentives to become a top- 
performing employee. At the same time, as a precondition to linking pay 
to performance, performance management systems need to provide adequate 
safeguards to ensure fairness and guard against abuse. Providing 
adequate safeguards that help to ensure transparency can improve the 
credibility of the performance-based pay system by promoting fairness 
and trust. Safeguards can include establishing clear criteria for 
making rating decisions and determining merit increases, and providing 
overall results of performance rating and pay increase decisions to all 
employees, while protecting confidentiality. Effective performance 
management systems also make meaningful distinctions between acceptable 
and outstanding performance of individuals and appropriately reward 
those who perform at the highest level. As we have previously reported, 
effective performance management systems can provide management with 
the objective and fact-based information it needs to reward top 
performance and provide the necessary information and documentation to 
deal with poor performers.[Footnote 14] 

Financial Regulators Generally Have Linked Pay to Performance and Made 
Distinctions in Performance, but Opportunities Exist for Improvements: 

Overall, the federal financial regulators have implemented key 
practices for effective performance management systems in ways that 
consider the unique needs of their organizational cultures and 
structures, but some have not fully implemented certain practices. For 
purposes of this section, we focus on the regulators' implementation of 
the two key practices of (1) linking pay to performance (which includes 
building in safeguards), and (2) making meaningful distinctions in 
performance. First, we found that while the regulators generally linked 
pay to performance, two regulators awarded across-the-board increases 
to employees regardless of their performance. Second, while most 
regulators generally used safeguards in varying ways to increase 
transparency, one did not establish and communicate performance 
standards to its nonexecutives, which resulted in questions about how 
decisions were made and could compromise the credibility of the 
performance system. Third, many regulators did not fully implement the 
safeguard of providing overall ratings and pay results to all 
employees, which reduced the transparency of their performance-based 
pay systems. Fourth, we found that while most regulators used multiple 
rating levels to make meaningful distinctions in performance, employees 
were usually concentrated in one or two rating categories and all had 
very few poor performers. Finally, one agency did not complete 
performance ratings for senior officers due to lack of funding for pay 
increases, thereby missing an opportunity to provide valuable feedback. 
For information about the other four key practices as well as 
additional material pertaining to the linking pay to performance 
practice, see appendix III.[Footnote 15] 

Financial Regulators Generally Have Linked Pay to Performance, but Two 
Regulators Still Provided Increases to Performers at All Levels: 

All of the regulators awarded some performance-based increases during 
the appraisal cycles we reviewed that were linked to employees' 
performance ratings, although two financial regulators also provided 
annual pay adjustments to employees, regardless of performance, during 
the appraisal cycles we reviewed. Specifically, CFTC provided an across-
the-board pay increase to all employees to be equivalent to the cost of 
living adjustment received by General Schedule employees of the federal 
government in January 2006. During the 2005 appraisal cycle, SEC also 
provided all employees an across-the-board pay adjustment of 2.1 
percent, regardless of their performance.[Footnote 16] SEC officials 
noted that this across-the-board pay adjustment was in accordance with 
the negotiated compensation agreement with the union.[Footnote 17] 
While the percentages of employees rated as unsuccessful or 
unacceptable at CFTC and SEC during those cycles were extremely small 
(less than 1 percent), these agencies lost opportunities to reinforce 
the linkage of pay to performance in their performance management 
systems. CFTC officials told us that the performance-based pay portion 
of the new performance management system that will begin on July 1, 
2007, will require a minimum threshold performance rating for an 
employee to be eligible for a pay increase.[Footnote 18] SEC and its 
union are currently negotiating implementation of a new Compensation 
and Benefits Agreement, which provides that employees rated as 
unacceptable will not receive annual pay adjustments. SEC officials 
acknowledged that a negative perception occurs when employees who are 
not performing satisfactorily receive a pay increase. 

Most of the financial regulators used their rating systems to 
differentiate individual performance to award performance-based 
increases and reward top performers during the appraisal cycles we 
reviewed. Furthermore, all of the agencies also provided increases 
that, while not directly linked to performance ratings, considered 
employee performance in some way. These increases included special 
bonuses or awards given to individuals or teams for special 
accomplishments or contributions, as well as promotions and within-pay- 
band increases. For example, FCA provided Achievement or Special Act 
Awards to employees for significant achievements or innovations towards 
a special program, project, or assignment that contributed to the 
agency's or organizational unit's mission, goals, and objectives. To 
receive these awards, employees had to have performed their regular 
duties at least at a fully successful level of performance. FCA also 
provided some pay increases for competitive and noncompetitive 
promotions during the completed appraisal cycle we reviewed. 

Pay increases linked to performance ratings accounted for only part of 
the total increases awarded to individual employees during the 
appraisal cycles we reviewed. See appendix III for more information on 
the different ways in which the regulators translated performance 
ratings into pay increases and budgeted for performance-based 
increases, as well as more information on other pay increases that 
involved considerations of performance. 

Financial Regulators Generally Used Safeguards to Increase 
Transparency, but SEC Did Not Establish or Communicate Performance 
Standards for its Nonexecutive Employees: 

All of the financial regulatory agencies have built safeguards into 
their performance management systems to enhance the credibility and 
fairness of their systems, although they varied in how safeguards have 
been implemented. For example, with the exception of SEC, the agencies 
have used the safeguard of establishing and communicating (1) standards 
for differentiating among performance rating categories and (2) 
criteria for performance-based pay decisions, thus enhancing 
transparency, which can improve employee confidence in the performance 
management system. (See app. III for information on the financial 
regulators' implementation of additional safeguards.) 

CFTC's four-level rating system (i.e., unsuccessful, successful, highly 
successful, and exemplary) defined the successful level of performance 
for areas that CFTC had identified as critical to employees' job 
performance, and included some information on how to distinguish 
variations from the successful level of performance. However, an 
employee representative at CFTC maintained that the rating level 
descriptions did not sufficiently communicate to employees the skills 
and behaviors employees needed to demonstrate in order to move, for 
example, from the "successful" to the "highly successful" level. 
Employee representatives stated that even though there was helpful 
guidance on distinguishing between levels of performance in a CFTC 
manual, these descriptions were hard to understand and most employees 
did not refer to the CFTC manual for guidance. An agency official told 
us that the revised performance management system that went into effect 
in October 2006 is a five-level system, and includes descriptions of 
all five performance levels rather than only the successful rating 
level described in the system it replaced. 

Similarly, OFHEO defined how employees would be rated on its five-level 
rating scale for each of the performance elements included in their 
performance plans. These performance standards defined the middle level 
of performance (fully successful), and included what the rater should 
look at to determine if an employee is performing better or worse than 
this benchmark. An employee's performance for each element was assessed 
and a total score was determined. OFHEO further distinguished between 
"high" and "low" levels within rating categories. For example, a rating 
of "outstanding" would be classified as being in either the high or low 
level of the outstanding rating category based on the performance score 
the employee received. Merit increases at OFHEO have been determined 
directly by employees' performance ratings, so employees could 
ascertain the merit increases they would receive for given performance 
ratings. For example, an employee rated "high" commendable receives a 
higher merit pay increase than one who is rated "low" commendable. 
OFHEO employee working group members noted that both supervisors and 
employees understand how the performance elements and standards have 
been applied through rating decisions, and they stated that employees 
generally understood what was expected of them to attain higher levels 
of performance and associated merit increases. However, an employee 
working group member also commented that when distinguishing between 
performance rating levels, some managers seemed to apply the 
performance standards more effectively than others, which could result 
in differences in how rating decisions were made. 

At FDIC, for nonexecutive/nonmanager employees to be eligible for 
performance-based pay increases, employees had to first earn a "meets 
expectations" rating. Then, in a second process called the "Pay for 
Performance" system, FDIC nonexecutive/nonmanagers were placed into one 
of four pay groups, based on an assessment of total performance and 
corporate contributions as compared with other employees in the same 
pay pool.[Footnote 19] The pay for performance program was essentially 
comparative, meaning that the contributions and performance of each 
employee were evaluated and rewarded on a relative basis within his or 
her pay pool, as compared to peers. According to union representatives, 
employees were not informed about how management made the distinctions 
in pay increase groupings. According to FDIC officials, there are no 
definitive descriptions or definitions of the performance levels for 
each of the three pay groups because employees are assessed compared to 
each other, not against fixed standards. Officials also said that 
information on the system for determining pay groups was provided to 
all employees in early 2006 after the compensation and benefits 
agreement became effective, when the system was first rolled out, and 
is explained to new employees at orientation. We did not determine how 
widespread the concern about how management made distinctions in pay 
increase groupings was among FDIC employees. 

In contrast, SEC officials did not establish standards upon which to 
base rating decisions for nonexecutive employees, nor did they 
communicate criteria used to make performance-based pay decisions to 
these employees. For its nonexecutive employees, SEC used a two-level 
rating system in which individuals' performance was rated as acceptable 
or unacceptable. According to agency management, SEC followed the 
definitions under Title 5 that are used by the rest of the government 
for differentiating between acceptable and unacceptable 
performance.[Footnote 20] However, SEC did not establish written 
performance standards for appraising employees' performance as 
acceptable or unacceptable. 

To determine performance-based pay increase amounts for nonexecutive 
employees, SEC developed a second phase process that involved making 
distinctions in contributions for those individuals who received a 
summary performance rating of acceptable. As part of the second phase, 
employees and their supervisors submitted contribution statements 
summarizing the employees' accomplishments during the appraisal cycle. 
Using the summary statements and the supervisors' own assessments, 
supervisors placed employees into one of four categories: (1) made 
contributions of the highest quality, (2) made contributions of high 
quality, (3) made contributions of quality, and (4) made no significant 
contribution beyond an acceptable level of performance. Next, a 
compensation committee within each office or division evaluated the 
contribution statements and the supervisors' placements. For each 
employee, the committee recommended a merit pay increase ranging from 
zero to 4.41 percent (corresponding to "steps" 0 to 3) to an official 
from each office or division, who made the final determination of the 
employee's merit increase.[Footnote 21] 

However, SEC did not develop criteria to differentiate between the four 
contribution categories that the compensation committees considered 
when recommending merit pay step increase amounts. In addition, SEC 
employee representatives told us that it was not clear to employees how 
the contribution statements and the subsequent supervisory 
recommendations were translated into the decisions about the four 
contribution categories into which employees would be placed. SEC 
officials noted that employees received copies of narratives written by 
their supervisors to describe the employees' contributions; however, 
they acknowledged that the system could be more transparent. According 
to SEC officials, in an effort to increase transparency in the future, 
they plan to share with employees information on supervisors' 
preliminary recommendations on ratings that are provided to the 
compensation committee, so that employees can see into which of the 
four contribution categories they were recommended for placement and 
the supporting documentation. If the committee changes an initial 
recommendation from a supervisor, SEC will provide the employee with 
the rationale for the change. An agency official indicated they are 
developing broad statements, such as "the committee had a broader 
perspective of employee contributions," that address a range of 
possible reasons for changes. 

Some Financial Regulators Did Not Fully Implement the Safeguard of 
Providing Overall Ratings and Pay Increase Results to All Employees, 
Which Would Increase Transparency in Their Performance-Based Pay 
Systems: 

The extent to which the financial regulators shared the overall results 
of performance ratings and pay increase decisions with all employees 
varied, and some agencies did not make this information widely 
available to employees. We have previously reported that the safeguard 
of communicating the overall results of performance appraisal and pay 
increase decisions while protecting individual confidentiality can 
improve transparency by letting employees know where they stand in the 
organization.[Footnote 22] An employee's summary performance rating 
conveys information about how well an employee has performed against 
established performance standards, which is important, but not 
sufficient to provide a clear picture of how the employee's performance 
compares with that of other employees within the organization. When the 
organization communicates where an employee stands, management can gain 
credibility by having honestly disclosed to the employee the basis for 
making pay, promotion, or developmental opportunity decisions that may 
have been based upon relative performance. 

The Federal Reserve Board communicated the overall results of the 
performance appraisal decisions to all employees by sharing annual 
performance rating distributions with all employees, disaggregated by 
division. Since this system for determining the amounts of performance- 
based increases for individuals based on their performance ratings is 
essentially driven by formula, employees know what their merit 
increases will be relative to others after receiving their performance 
ratings. 

At FDIC, the distribution of pay group assignments for all 
nonexecutive/ nonmanager employees who passed the first assessment 
process is fixed by the negotiated agreement with the union, so those 
employees know how performance-based pay increases will be distributed 
and the amounts of increases received by the various pay groups. 
Further, FDIC officials told us that, in accordance with the collective 
bargaining agreement, after completion of each annual pay for 
performance cycle they share data on the results of the pay grouping 
decisions for employees covered by the bargaining unit contract with 
union representatives. These include summary pay group data analyzed 
according to the agreement with the union, such as certain demographic 
data and individual rating information. 

According to an agency official, OCC began to post some limited 
information on the average size of some performance-based pay increases 
on the agency intranet in November 2006. The information included the 
average, agencywide percentage increases for merit increases, merit 
bonuses, and special act and spot awards, as well as the percentage of 
employees receiving the increases. 

During the performance appraisal cycle we reviewed, OTS shared with 
union representatives some data on average pay increases. The agency 
did not share ratings distribution data with the union, and did not 
make either performance-based pay increase or rating results 
information available to all employees. However, in November 2006, OTS 
distributed to all employees information for the recently completed 
appraisal cycle on the percentage of employees who received each 
performance rating level and the average pay increase percentages to be 
received by people at each level. The information was disaggregated by 
regions and Washington, D.C. 

While SEC did not make the results of performance rating decisions 
available to all employees, officials said that they reported 
information on performance awards (bonuses) to the union and that, 
under implementation of the compensation and benefits agreement 
currently being negotiated, they plan to publish aggregated information 
on performance ratings under the planned new performance management 
system for nonexecutive employees. SEC officials also told us that they 
plan to provide information at the lowest possible organizational level 
while still protecting individual confidentiality. 

The remaining five financial regulators did not share overall data on 
ratings or performance increases widely with all employees, although in 
some cases some information was shared with managers. The following 
outlines how information was shared: 

* CFTC shared information on the results of ratings and award decisions 
with managers on a Pay Parity Governance Committee, but not with all 
employees, for the appraisal cycle we reviewed. CFTC officials told us 
that there is no prohibition against sharing this type of information 
under the new performance management system directive, and they are 
aware that there is some interest among employees in receiving it. They 
said that the pay parity committee will determine whether there is 
value in releasing this information to all employees in the future. 

* At FHFB, an official told us that office directors see all the 
ratings within their offices and make the decisions about the 
performance-based pay increases for employees, but this information is 
not shared across offices or with all employees. However, the director 
of the Office of Supervision, FHFB's largest office, has shared 
information with all staff in the office on the ranges of pay increases 
corresponding to different performance rating levels and base salary 
levels that were received by staff within the office for a given year, 
as well as the standards used to assign the merit increase amounts. 

* Officials at OFHEO told us that just last year they started sharing 
information on the results of ratings and pay increase decisions with 
management, but that they have not yet shared this type of information 
with all employees. 

* FCA officials told us that they do not share aggregate results of the 
performance rating and pay increase decisions with all employees. They 
explained that, under a previous administration, in early 2000, an 
executive summary was prepared and posted that all employees could 
potentially access, which contained information on the results of 
ratings and pay increases. However, this information was not broadly 
disseminated directly to employees. 

* NCUA shares information on the results of the merit pay decisions 
with directors, but not with all employees. An NCUA official told us 
that it is up to the directors to decide whether or not to share this 
information with their staff. In comments on the draft report, NCUA 
explained that this is one of the issues involved in its current 
negotiations over pay and benefits with the National Treasury Employees 
Union, and that the agency's proposal to the union does provide for 
this type of transparency. 

Agencies provided a variety of reasons for not sharing overall ratings 
and pay increase information more widely. Officials from FHFB and FCA 
told us that the relatively small size of their agencies, 122 and 248 
employees, respectively, makes it harder to share this type of 
information while protecting individual confidentiality and that an 
FHFB official was not aware of employee demand for this type of 
information. FCA officials also mentioned that the emphasis in their 
performance management system is on rating individual employees against 
the standards, not against other employees and they wanted employees to 
focus on their individual ratings and performance. According to union 
representatives at OCC, the union has made multiple requests for data 
on the results of the performance rating and pay increase decisions but 
management has declined to share information that would enable the 
union to, in their words, perform a meaningful independent analysis of 
the ratings and pay increase decisions. OCC officials told us that they 
prefer not to share with employees disaggregated information on ratings 
and pay increase distributions because organizational units administer 
the process differently. For example, the percentages of individuals 
rated at the highest level (4) and next highest level (3) vary from 
unit to unit. Because units receive fixed pools of funds for 
performance-based increases, the average size of a merit increase that 
an employee receiving a level 4 may receive can vary from unit to unit, 
depending on how many individuals receive the highest rating.[Footnote 
23] OCC officials told us that sharing information on average merit 
increases by unit with employees, without sufficient context of the 
factors considered when making these decisions, including more detailed 
rating information (which is privacy protected), could lead to 
misinterpretation of the data. 

However, not sharing information on the results of the performance 
rating and pay increase decisions processes can detract from the goal 
of a transparent and fair performance management system. This 
information needs to be presented in ways that protect individual 
confidentiality, such as by aggregating it. Without access to this type 
of information, individual employees can lose a valuable opportunity to 
understand how their performance stands relative to others in their 
organization. In cases where agencies negotiate agreements with unions, 
an important consideration is to reach agreement to share aggregate 
results of the rating and pay increase decisions with employees, while 
protecting individual confidentiality. 

While Financial Regulators Generally Used Multiple Rating Levels to 
Make Meaningful Distinctions in Performance, Employees at Most Agencies 
Were Concentrated in One or Two Rating Categories, with Very Few Poor 
Performers: 

While most of the financial regulatory agencies used multiple rating 
levels to assess employee performance and make distinctions in 
performance, at most agencies employees were concentrated in one or two 
rating categories and very few received poor performance ratings. By 
using multiple-level rating systems, agencies have the capability to 
make meaningful distinctions in performance. Effective performance 
management systems make meaningful distinctions between acceptable and 
outstanding performance of individuals and appropriately reward those 
who perform at the highest level. As we have previously reported, 
performance management systems can provide management with the 
objective and fact-based information it needs to reward top performers 
and provide the necessary information and documentation to deal with 
poor performers.[Footnote 24] More specifically, using multiple rating 
levels provides a useful framework for making distinctions in 
performance by allowing an agency to differentiate, at a minimum, 
between poor, acceptable, and outstanding performance. We have reported 
that two-level rating systems by definition will generally not provide 
meaningful distinctions in performance ratings, with possible 
exceptions for employees in entry-level or developmental 
bands.[Footnote 25] 

Eight agencies used four or more rating levels. For example, as 
described earlier, OFHEO used a five-level rating category system to 
appraise employee performance and contributions toward achieving agency 
goals, and further distinguished between high and low performance 
scores within rating categories. As shown in figure 1, at the eight 
agencies with four-or five-level rating systems, the largest percentage 
of employees fell into the second highest rating category, except at 
OFHEO and the Federal Reserve Board. At OFHEO, more than half of the 
employees were placed into the high or low levels of the top rating 
category. Conversely, at the Federal Reserve Board (excluding 
economists), almost half of the employees fell into the third highest 
or middle (commendable) rating category. Across the eight agencies 
shown in figure 1, the percentage of employees who fell into the 
highest rating category varied from 10.6 percent for economists at the 
Federal Reserve Board, to 55 percent of employees at OFHEO. 

(This page is left intentionally blank.) 

Figure 1: Percentage of Regulatory Employees by Rating Level for 
Systems with Multiple Rating Levels, for Completed Appraisal Cycles 
Specified: 

[See PDF for image] - graphic text: 

Source: GAO analysis of agency data. 

Note: The dates of the performance appraisal cycles varied across 
agencies, as indicated in this figure and in table 3, appendix I. SEC 
had two distinct cycles affecting two different groups of employees. 

[A] OFHEO distinguished between "high" and "low" level performance 
scores within rating categories. The percentage values shown in the 
graphic include employees with scores at both the high and low levels 
within categories. For example, the percentage value shown in the 
graphic for the "Outstanding" rating category includes those employees 
rated as high-level outstanding and low-level outstanding combined. 
According to OFHEO officials, about 32 percent of employees fell into 
the low-level outstanding category. 

[B] The new CFTC performance management system that went into effect in 
October 2006 has five rating levels. 

[End of figure] - graphic text: 

SEC and FDIC used two-level rating systems (essentially pass/fail 
systems) to appraise the performance of certain groups of employees. 
Although two-level rating systems by definition will not provide 
meaningful distinctions in performance ratings, both SEC and FDIC used 
a second process to determine performance-based pay increases and 
effectively make more meaningful performance distinctions. As figure 2 
shows, the highest percentage of employees at FDIC fell into the second 
highest of four categories, in keeping with the fixed percentages 
included in the negotiated agreement with the union. At SEC, the 
largest percentage of employees fell into the third highest of four 
rating categories. 

Figure 2: Percentage of Regulatory Employees by Rating Level and Merit 
Increase Category for Agencies with Pass/Fail Performance Rating 
Systems, for Completed Appraisal Cycles Specified: 

[See PDF for image] 

Source: GAO analysis of agency data. 

Note: At SEC, senior officers were not rated during this rating cycle 
because, according to officials, the agency did not have the budget to 
fund any merit increases. SK employees at SEC include all employees 
other than senior officers. 

[End of figure] 

As shown in figures 1 and 2, the percentage of employees rated as poor 
performers at each agency was very small during the completed 
performance appraisal cycles we reviewed. Employees rated at below the 
successful and meets expectations rating levels accounted for less than 
3 percent of employees across the agencies.[Footnote 26] OTS had zero 
employees in the bottom two rating categories combined--all OTS 
employees received fully successful or higher ratings. Similarly at 
NCUA, no executives and 2.1 percent of nonexecutives were rated below 
minimally successful. 

While the financial regulators rated very few employees as poor 
performers, all of the agencies have established procedures to deal 
with poor performers. When an employee does not perform up to a 
threshold standard for satisfactory performance, most agencies place 
the employee on a performance improvement plan or provide counseling 
for the employee, and the employee does not receive a performance-based 
increase at the end of the performance cycle. For example, OTS has 
addressed poor performance by working with the employee to improve his 
or her area of deficiency. An employee who receives a rating at the 
unacceptable level is placed on a performance improvement plan for a 
minimum of 90 days. Specifically, OTS policy advises supervisors to 
develop a performance improvement plan by identifying the performance 
areas in which the employee is deficient and the types of improvements, 
including specific work products and steps to be followed which the 
employee must complete to attain the fully successful performance 
level. In addition, according to OTS policy, the agency may provide the 
employee with closer supervision, or on-the-job or formal training. 

However, governmentwide, 29.7 percent of employees indicated in the 
2006 Office of Personnel Management (OPM) Federal Human Capital Survey 
that they agreed or strongly agreed that differences in performance 
within the work unit were recognized in a meaningful way. Positive 
responses to this question for the eight financial regulators who 
participated in the survey ranged from 24.9 percent for CFTC to 41.6 
percent for OCC. None of these agencies had a majority of their 
employees provide positive responses to this question, and only three 
of the eight agencies had more than one third of their employees 
provide positive responses to this question. 

SEC Did Not Complete Performance Ratings for Senior Officers, Missing 
an Opportunity to Provide Valuable Feedback: 

While it may have been an isolated incident, for senior officers, SEC 
effectively did not make distinctions in rating their performance 
during the appraisal cycle we reviewed because the agency did not 
complete performance ratings for them in 2005. According to SEC 
officials, no funds were available for performance-based bonuses (which 
are normally dependent on performance ratings) during that assessment 
cycle. As a result, divisions performed assessments of senior officers, 
but the assessment process was not completed and their ratings were not 
signed by the Chairman for the October 1, 2004, to September 30, 2005, 
performance appraisal cycle. A recent SEC Inspector General report 
confirmed that senior officers in SEC's Enforcement Division did not 
prepare performance review documents for the performance cycle that 
ended on September 30, 2005, and recommended that required steps of the 
senior officer performance appraisal process be conducted in accordance 
with Commission policy, even when merit increases are not 
awarded.[Footnote 27] All senior officers received annual across-the- 
board salary increases during that cycle. Conducting performance 
appraisals and making distinctions in performance are important not 
only for determining performance-based pay increases, but for providing 
feedback to help employees improve their performance and assess how 
their work contributed to achieving organizational goals. By not 
appraising their performance, SEC missed an opportunity to provide 
valuable feedback to senior officers. 

Agencies Have Taken Various Actions to Seek to Maintain Pay and 
Benefits Comparability: 

Financial regulators have hired external compensation consultants to 
conduct individual, formal comparability surveys, exchanged pay and 
benefits information, explored the feasibility of conducting a common 
survey, and adjusted pay and benefits to seek to maintain pay and 
benefits comparability. The majority of the financial regulators 
conducted pay comparability surveys that have included other financial 
regulators and in some instances, private-sector entities. To compare 
pay across agencies, consultants send questionnaires on behalf of the 
sponsoring agency and ask participating agencies to match the jobs 
based on the job descriptions provided. To compare benefits, 
consultants use various methods, such as side-by-side comparisons of 
benefits and calculation of total cost of benefits per employee. In 
addition to these surveys, human capital officials at the 10 financial 
regulators have formed an interagency group to exchange information and 
consult on topics such as updates on merit pay ranges and bonuses. 
However, agency officials told us that because many of the financial 
regulators conduct separate comparability surveys, their staffs have to 
respond to numerous and often overlapping inquiries, which can be 
inefficient. To begin addressing the inefficiencies of this process, 
the agencies formed a subcommittee in December 2006 to study the 
feasibility of conducting a common survey on pay and benefits. 
According to agency officials, the subcommittee also has discussed the 
feasibility of establishing a Web-based data system to make the most 
current pay and benefits information available to participating 
agencies. 

In the absence of a legislative definition of what constitutes 
comparability, agency officials told us that they use various methods 
to assess pay and benefits comparability after they have obtained 
relevant data from the other agencies. For example, FDIC has sought to 
set its total pay ranges (base pay plus locality pay) for specific 
occupations and grade levels within 10 percent of the average of FIRREA 
agencies. FCA used the average market rate paid by other financial 
regulators as a benchmark. Finally, partly on the basis of the results 
of the comparability surveys and discussions among the agencies, the 
financial regulators have adjusted their pay and benefits policies in 
their efforts to seek to maintain comparability. For example, as a 
result of gaining pay flexibilities, CFTC implemented new pay ranges 
for its 2003 pay schedule, and increased base pay by 20 percent for all 
eligible employees to partially close the 25 percent gap between CFTC 
and FIRREA agencies. Appendix IV provides additional information on our 
analysis of individual agency actions. 

While the regulators have taken actions to seek to maintain 
comparability in their pay and benefits, there are some variations in 
base pay ranges and benefit packages among the agencies. Figure 3 shows 
the base pay ranges (minimum and maximum) for the mission-critical 
occupations, excluding executives at the 10 agencies.[Footnote 28] As 
shown in the same figure, the actual average base pay among the 10 
agencies also varies somewhat in relation to the agencies' respective 
base pay ranges, which according to agency officials, could be affected 
by the average length of service of employees, and the fact that some 
agencies tend to hire employees at certain grade levels. 

Figure 3: Nonexecutive Minimum and Maximum Pay Ranges and Average 
Actual Pay for Mission-Critical Occupations by Regulator, 2006: 

[See PDF for image] - graphic text: 

Source: GAO analysis of agency data for pay ranges and Central 
Personnel Data File data for actual pay. 

[A] The figure shows the minimum pay of the lowest level and the 
maximum pay of the highest level of an occupation for which agencies 
have an established occupation. Agencies may not currently have 
incumbents in each level of the occupation. The base pay ranges exclude 
locality pay except for the Federal Reserve Board and OFHEO. 

[B] The actual average base pay data in CPDF did not segregate CFTC's 
examiners and investigators or OFHEO's examiners and financial analysts 
because these occupations are assigned the same OPM job series number. 
Therefore, we did not separately present the actual average pay for 
these four occupations at the two agencies. The combined actual average 
pay for examiners and investigators is $83,501 at CFTC; and $131,294 
for examiners and financial analysts at OFHEO. 

[C] The base pay ranges shown for the Federal Reserve Board and OFHEO 
reflect the agencies' total pay ranges because Washington D.C., is the 
agencies' only duty station. 

[D] The actual average base pay data are provided by the Federal 
Reserve Board because CPDF does not contain data for the Board. 

[End of figure] - graphic text: 

Because each financial regulator sets its own locality pay percentage 
based on its respective policies, locality pay percentages often differ 
from those that OPM sets for General Schedule employees (with the 
exception of CFTC) and vary among agencies for the same duty station. 
For example, in New York City, the OPM locality pay percentage is 22.97 
percent but the regulators' locality pay percentages range from 21.19 
at FDIC and FHFB to 33.20 percent at OTS. Table 2 shows the locality 
pay percentages for OPM and for the eight financial regulators that 
have locality pay percentages for selected cities. 

Table 2: Selected OPM Locality Pay Percentages Compared to Financial 
Regulators' Locality Pay Percentages, Fiscal Year 2006: 

Locality: Atlanta, Ga; 
OPM: 15.10%; 
CFTC: N/A; 
OCC: N/A; 
OTS: 6.50%; 
FDIC: 7.43%; 
FCA: N/A; 
FHFB: 7.43%; 
NCUA: 8.06%; 
SEC: 11.13%. 

Locality: Boston, Mass; 
OPM: 19.99; 
CFTC: N/A; 
OCC: 13.00; 
OTS: 17.50; 
FDIC: 22.67[ A]; 
FCA: N/A; 
FHFB: 22.67; 
NCUA: 18.55; 
SEC: 24.29. 

Locality: Chicago, Ill; 
OPM: 21.15; 
CFTC: 21.15; 
OCC: 8.00; 
OTS: 11.20; 
FDIC: 16.20; 
FCA: N/A; 
FHFB: 16.20; 
NCUA: 22.26; 
SEC: 21.62. 

Locality: Dallas, Tex; 
OPM: 16.39; 
CFTC: N/A; 
OCC: 3.00; 
OTS: N/A; 
FDIC: 9.20; 
FCA: 6.50; 
FHFB: 9.20; 
NCUA: 11.25; 
SEC: 12.92. 

Locality: Denver, Colo; 
OPM: 19.49; 
CFTC: N/A; 
OCC: 8.00; 
OTS: 2.30; 
FDIC: N/A; 
FCA: 10.50; 
FHFB: N/A; 
NCUA: 18.27; 
SEC: 17.72. 

Locality: Los Angeles, Calif; 
OPM: 23.18; 
CFTC: N/A; 
OCC: 18.00; 
OTS: 18.10; 
FDIC: 19.28; 
FCA: N/A; 
FHFB: N/A; 
NCUA: 25.70; 
SEC: 24.35. 

Locality: Miami, Fla; 
OPM: 17.84; 
CFTC: N/A; 
OCC: 3.00; 
OTS: 6.80; 
FDIC: 11.33[ B]; 
FCA: N/A; 
FHFB: N/A; 
NCUA: 15.97; 
SEC: 15.02. 

Locality: Minneapolis, Minn; 
OPM: 17.31; 
CFTC: 17.31; 
OCC: 3.00; 
OTS: 7.30; 
FDIC: 11.76; 
FCA: 8.20[C]; 
FHFB: N/A; 
NCUA: 13.23; 
SEC: N/A. 

Locality: New York City, N.Y; 
OPM: 22.97; 
CFTC: 22.97; 
OCC: 23.00; 
OTS: 33.20; 
FDIC: 21.19; 
FCA: N/A; 
FHFB: 21.19; 
NCUA: 23.61; 
SEC: 24.92. 

Locality: San Francisco, Calif; 
OPM: 28.68; 
CFTC: N/A; 
OCC: 28.00; 
OTS: 46.70; 
FDIC: 32.41; 
FCA: N/A; 
FHFB: 32.41; 
NCUA: 36.43; 
SEC: 25.14. 

Locality: Seattle, Wash; 
OPM: 17.93; 
CFTC: N/A; 
OCC: 8.00; 
OTS: 15.80; 
FDIC: 13.93; 
FCA: N/A; 
FHFB: 13.93; 
NCUA: 14.52; 
SEC: N/A. 

Locality: Washington, D.C; 
OPM: 17.50; 
CFTC: 17.50; 
OCC: 8.00; 
OTS: 25.90; 
FDIC: 13.30; 
FCA: 15.20[D]; 
FHFB: 16.30; 
NCUA: 12.87; 
SEC: 17.50. 

Source: GAO analysis of agency data. 

Note: Washington D.C. is the Federal Reserve Board's and OFHEO's only 
duty station, thus the agencies do not have separate locality pay 
percentages. For the other agencies, N/A indicates localities where 
they had no office. 

[A] Locality includes Braintree, Mass. 

[B] Locality includes Sunrise, Fla. 

[C] Locality includes Bloomington, Minn. 

[D] Locality includes McLean, Va. 

[End of table] 

The benefits that the 10 financial regulators offered also varied, 
which we discuss in detail in appendix IV. For example, half of the 
regulators offer their employees 401(k) retirement savings plans with 
varying employer contributions in addition to offering the 
governmentwide Federal Thrift Saving Plan (except for the Federal 
Reserve Board). According to agency officials, factors such as the year 
an agency first became subject to comparability provisions, budget 
constraints, the needs and preferences of different workforces, and 
ways to attract and retain workforces play a role in compensation 
decisions and contribute to the variations in pay ranges and benefits. 
Moreover, agency officials emphasized that it was not their goal to 
have identical pay and benefits packages; rather, they considered pay 
and benefits as a total package when seeking to maintain pay and 
benefits comparability and when setting pay policies aimed at 
recruiting and retaining employees. 

Few Employees Have Moved among the Financial Regulators, Most Resigned 
from Federal Employment: 

While the total number of financial regulatory employees resigning from 
federal employment between fiscal years 1990 and 2006 generally 
declined, there was no clear trend among the number who moved to 
another financial regulator. As shown in figure 4, the number of 
employees leaving one federal regulator for another declined from the 
previous fiscal year in 10 of the 16 years and increased from the 
previous fiscal year in the other 6 years. Figure 4 also shows the 
percentage of financial regulatory employees who went to another 
financial regulator, went to other federal agencies, and resigned from 
federal employment, and the total number of financial regulatory 
employees during this period. Of all the employees who left their 
financial regulatory agency voluntarily (moved to another financial 
regulator or executive branch agency, or resigned) from fiscal year 
1990 through fiscal year 2006, the vast majority--86 percent (13,433)-
-of the 15,627 employees leaving the regulators voluntarily (i.e., 
moved or resigned), resigned from the federal government. The number of 
employees who moved to another financial regulator ranged from a low of 
16 of 1,362 who moved or resigned in fiscal year 1997 to a high of 97 
of 1,229 who moved or resigned in fiscal year 1991. The total number of 
financial regulator employees was 15,400 and 19,796 during those 2 
years, respectively.[Footnote 29] Similar lows were also experienced in 
1996 and 2003. Some agency officials told us that they believe that the 
FIRREA comparability provision and similar provisions in subsequent 
laws applicable to financial regulators have been effective in ensuring 
that regulators' pay and benefits are generally comparable among the 10 
agencies, which probably helps minimize employee movement among 
financial regulatory agencies. Of the financial regulator employees who 
moved or resigned, the percentage of those who resigned from federal 
employment fluctuated slightly over the period, ranging from a low of 
73.7 percent in fiscal year 2003 to a high of 94.8 percent in fiscal 
year 1996. 

Figure 4: Attrition among Financial Regulators, Fiscal Years 1990-2006: 

[See PDF for image] - graphic text: 

Source: GAO analysis of CPDF data. 

Note: This figure does not include data for the Federal Reserve Board. 

[End of figure] - graphic text: 

The movement of mission-critical employees among financial regulators 
also did not reveal a discernible trend. For the number of employees 
who moved to another financial regulator from fiscal year 1990 through 
fiscal year 2006, see table 10 in appendix V. The numbers ranged from 
no movement for 7 of the 11 occupational categories (accountants, 
auditors, business specialists, economists, financial analysts, 
investigators, and information technology (IT) specialists) in at least 
1 of the fiscal years we reviewed to a high of 37 employees (38.1 
percent of all those who moved that fiscal year) for the "all other" 
occupational category in fiscal year 1991.[Footnote 30] During this 
period (fiscal years 1990 to 2006), some occupational categories 
experienced very little movement. For example, fewer accountants, 
auditors, business specialists, and investigators moved than employees 
in the other categories. In contrast, examiners had the largest number 
of employees moving among financial regulators in 8 of the 17 years, 
including the 3 most recent years for which data were available. The 
average number of employees in mission-critical occupations moving 
among the 9 financial regulators from fiscal year 1990 through fiscal 
year 2006 ranged from 0.1 for investigators to 11.7 for examiners. See 
appendix V for additional data on employee movement. 

For those employees that did not move to another financial regulator, 
we could not determine in all cases where the employees moved because 
CPDF, the most complete data set available with federal employment 
information, does not include information on employment outside 
executive branch agencies. We were able to identify those employees 
that went to another federal agency. These numbers ranged from a low of 
48 in fiscal year 1994 to a high of 128 in fiscal year 1991, higher 
than the number of employees who moved to another financial regulator, 
which was 23 in fiscal year 1994 and 97 in fiscal year 1991. Officials 
from the 9 agencies told us that they do not track the employment of 
their employees after the employees leave their agencies. Further, they 
said that their employees generally sought employment outside the 
federal government, including the private sector and state and local 
government, but that their main competitors were private-sector 
entities. 

Conclusions: 

Like other federal agencies, the experiences of the financial 
regulators illustrate the challenges inherent in establishing well- 
functioning, performance-based pay systems and that these systems are 
works in progress that are constantly evolving. These regulators have 
taken various approaches to revise their performance management systems 
and introduce performance-based pay. Although the regulators have 
incorporated many of the key practices for effective performance 
management systems, opportunities exist for a number of them to make 
improvements as they continue to refine their systems. Specifically, 
some regulators have opportunities in the areas of strengthening 
safeguards to enhance transparency and fairness and making meaningful 
distinctions in performance. As some regulators develop new systems or 
revise their existing systems, they have an opportunity to build in 
aspects of the key practices, such as improving transparency by 
communicating the overall results of performance appraisal rating and 
performance-based pay increase decisions to all employees to help 
employees understand how they performed relative to other employees in 
their organization, while protecting individual confidentiality. For 
regulators that negotiate with unions, there are also opportunities to 
work together to accomplish this. 

SEC has some additional opportunities to pursue improvements in 
specific aspects of its performance management system, which it is in 
the process of revamping. For example, SEC can establish and 
communicate to nonexecutive employees using the new system clear 
criteria for making performance rating and pay increase decisions. 
Finally, while it may have been an isolated incident, by not completing 
performance assessments of senior officers in the 2005 performance 
appraisal cycle we reviewed, SEC missed an opportunity for two-way 
feedback and assessments of individual and organizational progress 
toward organizational goals. While funding circumstances specific to 
that appraisal cycle contributed to this situation, in the future it 
will be important to complete assessments regardless of the 
availability of funding for increases. 

The agencies have taken a variety of actions in seeking to maintain pay 
and benefits comparability. While we did find some variation in base 
pay ranges, locality pay percentages, actual average pay, and benefits 
among the agencies, we found that a number of reasons could contribute 
to the variation, including the following: regulators were granted 
flexibility under Title V and subject to comparability requirements at 
varying times, pay and benefits are considered comprehensively in 
seeking comparability, the average length of service of employees, and 
where employees are located. While pay and benefits comparability 
cannot be precisely determined, all the agencies are working to 
maintain comparability in pay and benefits. One recent initiative-- 
studying the feasibility of conducting a common survey on pay and 
benefits--should help to increase the efficiency of this effort. In 
addition, given the relatively small amount of employee movement among 
federal regulators, the variation in pay, benefits, and locality pay 
percentages in some locations across the regulators does not appear to 
be encouraging large numbers of employees to move among financial 
regulators. This may be an indication that the comparability provisions 
of FIRREA and other pertinent legislation have been working as 
intended. Moreover, from fiscal years 1990 through 2006, the agencies' 
attrition rates have trended downward indicating that a smaller 
percentage of employees were leaving. 

Recommendations for Executive Action: 

The Chairman of the Board and Chief Executive Officer of the Farm 
Credit Administration, the Chairman of the Federal Housing Finance 
Board, and the Director of the Office of Federal Housing Enterprise 
Oversight should: 

* communicate the overall results of the performance appraisal and pay 
increase decisions to all employees agencywide while protecting 
individual confidentiality. 

The Chairman of the National Credit Union Administration and the 
Chairman of the Commodity Futures Trading Commission should: 

* work with unions to communicate the overall results of the 
performance appraisal and pay increase decisions to all employees 
agencywide while protecting individual confidentiality. 

The Chairman of the Securities and Exchange Commission should: 

* communicate clearly the criteria for making performance rating and 
pay increase decisions to nonexecutive employees: 

* work with the union to communicate the overall results of the 
performance appraisal and pay increase decisions to all employees 
agencywide while protecting individual confidentiality and: 

* assess senior executives' performance at the end of the performance 
appraisal cycle regardless of the amount of funding available for 
performance-based pay increases. 

Agency Comments and Our Evaluation: 

We provided drafts of this report to the Chairman, Commodity Futures 
Trading Commission; Chairman of the Board and Chief Executive Officer, 
Farm Credit Administration; Chairman, Federal Deposit Insurance 
Corporation; Chairman, Federal Housing Finance Board; Chairman, Board 
of Governors of the Federal Reserve System; Chairman, National Credit 
Union Administration; Comptroller of the Currency, Office of the 
Comptroller of the Currency; Director, Office of Federal Housing 
Enterprise Oversight; Director, Office of Thrift Supervision; and 
Chairman, Securities and Exchange Commission; for review and comment. 

We received written comments from six of the agencies. See appendixes 
VI, VII, VIII, IX, X, and XI for letters received from CFTC, the 
Federal Reserve Board, FHFB, NCUA, OFHEO, and SEC. These six, along 
with the other four agencies, also provided clarifying and technical 
comments, which we incorporated as appropriate. 

The agencies generally agreed with our recommendations. With respect to 
the recommendation to communicate the overall results of the 
performance appraisal and pay increase decisions on an agency-wide 
basis, CFTC, FCA, FHFB, NCUA, OFHEO, and SEC indicated that they plan 
to implement the recommendation. In describing specific actions, the 
executive director of CFTC explained that the agency has already 
discussed working with the unions to communicate overall results of 
performance appraisal and pay decisions across the agency as part of 
the development of their new performance management and pay-for- 
performance systems. The Chief Human Capital Officer of FCA stated that 
the agency plans to communicate the overall results of the 2006 
performance appraisal and 2007 pay increase decisions to FCA employees 
by the end of June 2007. The Executive Director of NCUA explained that 
sharing overall information on ratings and pay increase decisions with 
all employees is one of the issues being negotiated as part of the 
ongoing negotiations over pay and benefits with the National Treasury 
Employees Union, and stated that the agency's proposal to the union 
provides for this type of transparency. The Executive Director of SEC 
agreed with the report findings and stated that SEC has established a 
new branch within the Office of Human Resources to oversee performance- 
related issues and has launched a new pilot performance management 
system that will address the recommendations. Finally, the Acting 
Director of FHFB and the Chief Human Capital Officer of OFHEO also 
stated that their respective agencies will implement the 
recommendation. 

We will send copies of this report to the appropriate congressional 
committees; the Chairman, Commodity Futures Trading Commission; 
Chairman of the Board and Chief Executive Officer, Farm Credit 
Administration; Chairman, Federal Deposit Insurance Corporation; 
Chairman, Federal Housing Finance Board; Chairman, Board of Governors 
of the Federal Reserve System; Chairman, National Credit Union 
Administration; Comptroller of the Currency, Office of the Comptroller 
of the Currency; Director, Office of Federal Housing Enterprise 
Oversight; Director, Office of Thrift Supervision; Chairman, Securities 
and Exchange Commission; and other interested parties. We will make 
copies available to others upon request. The report will also be 
available at no charge on our Web site at [Hyperlink, 
http://www.gao.gov]. 

If you or your staff have any questions regarding this report, please 
contact Orice M. Williams at (202) 512-8678 or williamso@gao.gov or 
Brenda Farrell at (202)512-5140 or farrellb@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. GAO staff who made major contributions 
to this report are listed in appendix XII. 

Signed by: 

Orice M. Williams, Director: 
Financial Markets and Community Investment: 

Signed by: 

Brenda Farrell, Acting Director: 
Strategic Issues: 

List of Congressional Requesters: 

The Honorable Barney Frank: 
Chairman: 
The Honorable Spencer Bachus: 
Ranking Member:
Committee on Financial Services: 
House of Representatives: 

The Honorable Luis V. Gutierrez: 
Chairman: 
Subcommittee on Domestic and International Monetary Policy, Trade, and 
Technology: 
Committee on Financial Services: 
House of Representatives: 

The Honorable Paul E. Kanjorski: 
Chairman: 
Subcommittee on Capital Markets, Insurance, and Government Sponsored 
Enterprises: 
Committee on Financial Services: 
House of Representatives: 

The Honorable Bernard Sanders: 
United States Senate: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

The objectives of this report were to (1) review how the performance- 
based pay systems of 10 federal financial regulatory agencies are 
aligned with six key practices for effective performance management 
systems, (2) review actions these 10 agencies have taken to assess and 
implement comparability in compensation, and (3) review the extent to 
which individuals in selected occupations have moved between or left 
any of the agencies. These agencies are the Commodity Futures Trading 
Commission (CFTC), the Farm Credit Administration (FCA), the Federal 
Deposit Insurance Corporation (FDIC), the Federal Housing Finance Board 
(FHFB), the Board of Governors of the Federal Reserve System (the 
Federal Reserve Board), the National Credit Union Administration 
(NCUA), the Office of the Comptroller of the Currency (OCC), the Office 
of Federal Housing Enterprise Oversight (OFHEO), the Office of Thrift 
Supervision (OTS), and the Securities and Exchange Commission (SEC). 

To address our first objective, we analyzed documents on the 
regulators' performance management and pay systems, including guidance, 
policies, and procedures on the systems; performance planning and 
appraisal forms; union contracts and agreements; training materials; 
internal evaluations of systems; and materials used to communicate with 
employees about the systems. We also reviewed documents assessing the 
agencies' systems, including results from the 2006 Federal Human 
Capital Survey conducted by the Office of Personnel Management (OPM), 
recent human resources operations audits performed by OPM, and relevant 
material from agencies' offices of inspector general. 

We also interviewed key human resources officials at each agency, as 
well as officials from other functional areas knowledgeable about each 
agency's performance-based pay practices. In addition, we interviewed 
employees at the agencies who served as members of employee groups. At 
six of the agencies, the employees we spoke with were union 
representatives. Specifically, employees at FDIC, OCC, NCUA, and SEC 
are represented by the National Treasury Employees Union, and OTS 
headquarters staff and CFTC staff at two regional offices are 
represented by the American Federation of Government Employees. 
Employees at FCA, the Federal Reserve Board, FHFB, and OFHEO did not 
have a union; at these agencies we spoke with employees who served on 
employee committees or working groups. 

In addition, we examined small, select sets of individual performance 
plans for employees, which outline the annual performance expectations 
for employees. The selection of these performance plans was not 
intended to allow us to make generalizations about all performance 
plans at the agencies, and we have used information from the plans for 
illustrative purposes only. The performance plans we received were 
selected by agency officials based on our request for a mix of 
occupations and grade levels at each agency. The smallest number of 
performance plans we examined from an agency was one, in a case where 
the performance plans for all employees are completely standardized. 
The largest number of plans we reviewed from an agency was 32. The 
individual performance plans we examined pertained to each agency's 
last completed performance appraisal cycle when we began this review. 
Table 3 shows the appraisal cycle by agency. 

Table 3: Performance Appraisal Cycle by Agency: 

Agency: CFTC; 
Performance appraisal cycle: July 1, 2005 to June 30, 2006. 

Agency: FCA; 
Performance appraisal cycle: October 1, 2004 to September 30, 2005. 

Agency: FDIC; 
Performance appraisal cycle: January 1, 2005 to December 31, 2005. 

Agency: Federal Reserve Board; 
Performance appraisal cycle: October 1, 2004 to September 30, 2005. 

Agency: FHFB; 
Performance appraisal cycle: October 1, 2005 to September 30, 2006. 

Agency: NCUA; 
Performance appraisal cycle: January 1, 2005 to December 31, 2005. 

Agency: OCC; 
Performance appraisal cycle: October 1, 2004 to September 30, 2005. 

Agency: OFHEO; 
Performance appraisal cycle: April 1, 2005 to March 31, 2006. 

Agency: OTS; 
Performance appraisal cycle: January 1, 2005 to December 31, 2005. 

Agency: SEC:  

for senior officers; 
Performance appraisal cycle: October 1, 2004 to September 30, 2005. 

for all other employees; 
Performance appraisal cycle: May 1, 2005 to April 30, 2006. 

Source: Various regulators. 

[End of table] 

Finally, we analyzed data from each agency on performance ratings and 
performance-based pay awarded to employees as well as aggregate data on 
all types of pay increases at each agency not linked to performance 
ratings. We used these data to calculate the Spearman rank correlation 
coefficient to show the strength of the relationship between employee 
performance ratings and the associated performance-based percentage pay 
increases at each agency.[Footnote 31] In computing the correlation 
coefficients, we noted that a few agencies used a table or procedure 
that specified particular pay increases corresponding to specific 
ratings. Taken in isolation, the use of the table or procedure would be 
expected to produce a perfect correlation, i.e., +1.0. However, other 
aspects of these agencies' systems contributed to the resulting 
coefficients being less than +1.0. For example, at one agency, 
employees with rating scores below a certain threshold were not 
eligible for any pay increase. While these employees may have had 
different rating scores, none of them received a pay increase, which 
contributed to a coefficient that was less than perfect. Other 
mechanistic factors in these agencies' systems, such as adjusting or 
changing the specified percentage pay increase based on the grade level 
or current salary of the employee, also had the effect of producing a 
less than perfect coefficient at these agencies. Given the influence 
that these procedural but nondiscretionary variations may have had on 
the resulting coefficients at these agencies, the coefficients are 
primarily useful in their overall demonstration of the positive linkage 
between ratings and pay increases at all the agencies, and the range of 
coefficients that occurs. The magnitude of the coefficients, however, 
is not sufficient for ranking the agencies or making other types of 
comparisons. 

We also analyzed agency data on performance ratings to determine the 
distribution of employee performance ratings at each agency. All data 
were provided to us by agency officials, and pertained to the 
performance appraisal cycles noted in table 3. 

To address our second objective, we first analyzed the content of 
compensation comparability provisions in the agencies' laws and related 
legislative histories. We reviewed the most recent pay and benefits 
surveys conducted by external compensation consultants for these 
agencies, obtained agency pay and benefits data, and analyzed actual 
pay data from CPDF. In addition, we interviewed agency officials about 
their experience with these surveys and the agencies' informal 
interactions to assess pay comparability and to determine the 
feasibility of conducting a common survey. 

To report on the pay ranges for non-executive employees in selected 
occupations, we analyzed the base pay data provided to us for mission- 
critical occupations at nine of the agencies in our review. We selected 
the mission critical occupations by: (1) identifying nonclerical and 
nonblue-collar occupations with 45 or more employees in at least one 
financial regulatory agency and (2) vetting this list with the 10 
agencies.[Footnote 32] The agencies provided us with pay range 
information as set forth in each agency's pay policies as of September 
2006 for every job title under each occupational category, including 
jobs with no incumbents at the time the agencies reported the data to 
us. 

To report on the actual average base pay of employees in the selected 
occupations, we analyzed actual pay data from CPDF for fiscal year 
2006. Because the CPDF does not include data for all agencies, the 
Federal Reserve Board provided us with actual pay data for our analysis 
of its employees' actual average pay for fiscal year 2006. To show the 
financial regulators' locality pay percentages and general schedule 
employees' locality pay percentages, we selected the cities where four 
or more financial regulators had duty stations in fiscal year 2006. We 
obtained fiscal year 2006 locality pay percentages information from the 
financial regulators and general schedule locality pay percentages from 
the OPM Web site. To report on the benefits offered by the agencies, we 
obtained and analyzed data from each agency that included a list of 
benefits the financial regulators offered as of September 2006 and 
brief descriptions of each benefit. We also interviewed agency 
officials about the factors that affect the actual average base pay, 
and how each agency sets its locality pay percentage. 

To address our third objective, we analyzed movement data from CPDF for 
fiscal years 1990 to 2006, the most recent available data as of 
December 2006. For each fiscal year, we identified the number of 
employees in selected mission-critical occupations at a financial 
regulator who (1) moved to another financial regulator, (2) moved to 
other federal agencies, and (3) resigned from federal employment. We 
identified those who moved from one financial regulatory agency to 
another by identifying employees who had a CPDF separation code for a 
voluntary transfer and who also had a CPDF accession code from another 
financial regulatory agency within 25 days of the transfer out. Also, 
for each mission-critical occupation, we examined the number of 
financial regulator employees who moved to another financial regulator 
in each fiscal year and the average number of employees who moved among 
the nine financial regulators over the 16 years of our review. Our 
analysis of supervisors included executives, who constituted 1 to 2 
percent of all supervisors who moved to another financial regulator. We 
also included all other agency occupations that were not classified as 
"mission-critical occupations" in an "all other" category, which 
includes occupations such as specialists in human resources management, 
administration, clerical, management and program analysis, blue collar 
occupations, financial administration, and paralegal work. 

We did not include the Federal Reserve Board in our analysis of the 
movement of financial regulator employees because CPDF does not include 
data on the Federal Reserve Board. Federal Reserve Board officials told 
us that data on employee movement for fiscal years 1990 to 1996 are not 
readily accessible. The agency provided us some data for fiscal years 
1997 to 2005, including data on employees who transferred, resigned, 
were fired, were subject to a reduction in force, or otherwise 
separated, and the agency's total number of employees, but was unable 
to identify whether their employees left for another financial 
regulator. Because the data the agency provided were not comparable 
with the CPDF data we used for the other financial regulators, we did 
not include the Federal Reserve Board in our analysis. We also did not 
include information on the employment of financial regulatory employees 
after they left federal employment because CPDF does not include data 
on employment outside some agencies and officials told us that they do 
not track the employment of their employees after the employees leave 
their agencies.[Footnote 33] 

We assessed the reliability of the various sets of data used in our 
study. To assess the reliability of the performance and pay increase 
data provided by the agencies, we conducted various inspections and 
electronic testing of the data for reasonableness and the presence of 
any obvious or potential errors in accuracy and completeness. We also 
reviewed related agency documentation, interviewed agency officials 
knowledgeable about the data, and brought to the attention of these 
officials any concerns or discrepancies we found with the data for 
correction or updating. Based on the results of these procedures, we 
believe the data are sufficiently reliable for use in the analyses 
presented in this report. We did not independently verify the pay and 
benefits data we received from the agencies but consider these data 
sufficiently reliable for the illustrative purpose of our review. Based 
on our data reliability testing of CPDF data, we believe the CPDF data 
are sufficiently reliable for this review. When analyzing employee 
movement using CPDF data, we found exceptions from standard personnel 
procedures, such as employees with a transfer-out code but with an 
accession code in the hiring agency that was not a transfer-in code, or 
employee records with transfer-out and transfer-in dates that exceeded 
3 calendar days. We also found duplicate separation or accession 
records for the same individual on the same day. We deleted one of the 
duplicate records. We also found cases where an individual had two 
separation actions on the same day but they were different types of 
actions (e.g., a transfer out and a resignation). Because we could not 
determine which separation action was the correct one, we deleted both 
records. However, these types of data problems represented less than 
one-tenth of 1 percent of the data used. As a result, we concluded that 
the data were sufficiently reliable to show the magnitude of movement 
between financial regulatory agencies, to other federal agencies, and 
to nonfederal employers. 

We conducted our work from February 2006 through June 2007 in 
accordance with generally accepted government auditing standards. 

[End of section] 

Appendix II: Information on Agencies: 

Table 4: Agency Information: 

Agency: Commodity Futures Trading Commission (CFTC); 
Mission: To protect market users and the public from fraud, 
manipulation, and abusive practices related to the sale of commodity 
and financial futures and options, and to foster open, competitive, and 
financially sound commodity futures and option markets; 
Number of employees[A]: 446; 
Funding[B]: Appropriated; 
Employee representation: The American Federation of Government 
Employees represents employees in CFTC's Chicago and New York offices 
only; 
Performance-based pay: In October 2006, CFTC began transitioning to a 
new performance-based pay system that will be fully implemented 
beginning in July 2007.[C]. 

Agency: Farm Credit Administration (FCA); 
Mission: To promote a safe, sound, and dependable source of credit and 
related services for agriculture and rural America; 
Number of employees[A]: 248; 
Funding[B]: Nonappropriated[D]; 
Employee representation: FCA is not unionized. FCA has an employee 
council; Performance-based pay: 
Performance-based pay began in 1993; the system has had some revisions 
since its inception. 

Agency: Federal Deposit Insurance Corporation (FDIC); 
Mission: To maintain stability and public confidence in the nation's 
financial system by insuring deposits, examining and supervising 
financial institutions, and managing receiverships; 
Number of employees[A]: 4328; 
Funding[B]: Nonappropriated; 
Employee representation: The National Treasury Employees Union has the 
right to bargain over employees' pay and benefits at FDIC; 
Performance-based pay: Performance-based pay began in 1998. FDIC has 
essentially two pay and performance management systems --one that 
applied to senior managers, and one that applied to bargaining unit 
employees as well as nonbargaining unit employees.[E]. 

Agency: Federal Housing Finance Board (FHFB); 
Mission: To ensure that the 12 federal home loan banks are safe and 
sound so they serve as a reliable source of liquidity and funding for 
the nation's housing finance and community investment needs; 
Number of employees[A]: 122; 
Funding[B]: Nonappropriated; 
Employee representation: FHFB is not unionized. FHFB has an employee 
working group; 
Performance-based pay: The performance-based pay system began in the 
mid 1990s; the system has been slightly revised since its inception. 

Agency: Board of Governors of the Federal Reserve System; 
Mission: To foster the stability, integrity, and efficiency of the 
nation's monetary, financial, and payment systems so as to promote 
optimal macroeconomic performance; 
Number of employees[A]: 1855; 
Funding[B]: Nonappropriated; Employee representation: The Board is not 
unionized. The Board has an employee representative committee; 
Performance-based pay: The performance-based pay system began in 1989; 
the system has been slightly revised since its inception. 

Agency: National Credit Union Administration (NCUA); 
Mission: To facilitate the availability of credit union services to all 
eligible consumers, especially those of modest means, through a 
regulatory environment that fosters a safe and sound federally insured 
credit union system; 
Number of employees[A]: 919; 
Funding[B]: Nonappropriated; 
Employee representation: The National Treasury Employees Union has the 
right to bargain over the impact and implementation of changes made to 
NCUA's performance management system; 
Performance-based pay: The performance-based pay system began in 1991. 

Agency: Office of the Comptroller of the Currency (OCC); U.S. 
Department of the Treasury; 
Mission: The OCC was created by Congress to charter national banks, to 
oversee a nationwide system of banking institutions, and to assure that 
national banks are safe and sound, competitive and profitable, and 
capable of serving in the best possible manner the banking needs of 
their customers; 
Number of employees[A]: 2908; 
Funding[B]: Nonappropriated; 
Employee representation: The National Treasury Employees Union has the 
right to bargain over the impact and implementation of changes made to 
OCC's performance management system, but not over employee pay and 
benefits; 
Performance-based pay: Performance-based pay began in 1981; the current 
performance management system began in 2001, although some revisions 
have been made since then. 

Agency: Office Of Federal Housing Enterprise Oversight (OFHEO); 
Mission: To promote housing and a strong economy by ensuring the safety 
and soundness of Fannie Mae and Freddie Mac and fostering the strength 
and vitality of the nation's housing finance system; 
Number of employees[A]: 204; 
Funding[B]: Nonappropriated[D]; 
Employee representation: OFHEO is not unionized. OFHEO has established 
an ad hoc employee working group; 
Performance-based pay: Performance-based pay has existed since the 
agency's inception in 1992. 

Agency: Office of Thrift Supervision (OTS) U.S. Department of the 
Treasury; 
Mission: To supervise savings associations and their holding companies 
in order to maintain their safety and soundness and compliance with 
consumer laws, and to encourage a competitive industry that meets 
America's financial services needs; 
Number of employees[A]: 956; 
Funding[B]: Nonappropriated; 
Employee representation: The American Federation of Government 
Employees represents some employees in OTS's Washington, D.C., office 
only; 
Performance-based pay: Performance-based pay began in 1991. 

Agency: Securities and Exchange Commission (SEC); 
Mission: To maintain fair, orderly, and efficient securities markets, 
facilitate capital formation, and protect investors; 
Number of employees[A]: 3488; 
Funding[B]: Appropriated; 
Employee representation: The National Treasury Employees Union 
represents two-thirds of SEC employees; 
Performance-based pay: Performance-based pay began in 2002. 

Source: Various regulators: 

[A] Employment figure for the Federal Reserve Board is from December 
2006 and includes all regular employees; employment figures for all 
other agencies are for career employees and come from the CPDF as of 
September 2006. 

[B] Some financial regulators receive funding through appropriations 
from Congress while others are funded from fees collected from members 
or assessed on regulated entities. 

[C] CFTC did not have a performance-based pay system prior to October 
2006. 

[D] The business operations of FCA and OFHEO are not financed by 
taxpayer funds. Their annual operating budgets, however, undergo the 
federal budgetary and appropriations process and are constrained by the 
amount approved by Congress and signed into law by the President. 

[E] The nonbargaining unit employees are never "covered" by the 
compensation agreement with the union, but rather, the FDIC Board 
proactively decides annually what performance management and 
performance-based pay standards will apply to this population. During 
the performance appraisal cycle we reviewed, the same system that 
applied to bargaining unit employees was applied to nonbargaining unit 
employees. 

[End of table] 

[End of section] 

Appendix III: Financial Regulators Have Implemented Key Practices in 
Varying Ways: 

High-performing organizations have recognized that a critical success 
factor in fostering a results-oriented culture is a performance 
management system that creates a "line of sight" showing how team, 
unit, and individual performance can contribute to overall 
organizational goals and helping employees understand the connection 
between their daily activities and the organization's success. 
Effective performance management systems are essential for successfully 
implementing performance-based pay. In the letter, we addressed 
important aspects of how 10 financial regulatory agencies have 
implemented two key practices: (1) linking pay to performance and (2) 
making meaningful distinctions in performance. This appendix provides 
detailed information on the financial regulators' implementation of 
four additional key practices important for effective performance 
management systems, as well as some additional material pertaining to 
the linking pay to performance practice covered in the letter. The four 
additional practices are: 

* Align individual performance expectations with organizational goals. 

* Connect performance expectations to crosscutting goals. 

* Use competencies to provide a fuller assessment of performance. 

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

The 10 financial regulatory agencies have implemented these four key 
practices for effective performance management systems in various ways, 
reflecting the unique needs of their organizational cultures and 
structures. 

Agencies Have Aligned Individual Performance Expectations with 
Organizational Goals in Different Ways: 

The 10 federal financial regulatory agencies have implemented the 
practice of alignment in a variety of ways. An explicit alignment of 
daily activities with broader results is a key feature of effective 
performance management systems in high-performing organizations. These 
organizations use their performance management systems to improve 
performance by helping individuals see the connection between their 
daily activities and organizational goals and encouraging individuals 
to focus on their roles and responsibilities in helping to achieve 
these goals. The financial regulators reinforced alignment of 
individual performance expectations to organizational goals in policy 
and guidance documents for their performance management systems, used 
standardized performance elements or standards for employees in their 
performance plans, used customized individual performance expectations 
that contributed to organizational goals in individual performance 
plans, and included the corresponding organizational goals directly on 
the individual performance plan forms.[Footnote 34]  

Agencies Have Reinforced Alignment in Policies and Guidance for 
Performance Management Systems: 

Several of the financial regulatory agencies, including FDIC, OCC, 
FHFB, and OFHEO, have reinforced alignment by including language on 
linking individual performance expectations to organizational goals in 
policy and guidance materials for the performance management systems. 
The following are examples of how selected agencies have reinforced 
alignment through policies and guidance. 

* A key objective of FDIC's performance management program as stated in 
a policy directive is to "establish fair and equitable performance 
expectations and goals for individuals that are tied to accomplishing 
the organization's mission and objectives."[Footnote 35] The directive 
further states that employees at FDIC are assessed against performance 
criteria, which are defined as "the major goals, objectives, and/or 
primary responsibilities of a position which contribute toward 
accomplishing overall organizational goals and objectives" (as found in 
FDIC's strategic plan and annual performance plan). 

* At OCC, the Policies and Procedures Manual for the performance 
management system states that the system is designed to align employee 
performance expectations with organizational objectives and priorities. 
The manual also explains that the starting point for identifying 
individual performance expectations should be unit objectives 
established at the executive committee, district, field office, or 
division level. 

* The handbook and guide for FHFB's and OFHEO's performance management 
systems, respectively, contain several references to alignment of 
individual expectations to organizational goals. 

Agencies Have Included Alignment in Standardized Performance Elements 
for Employees: 

Several of the financial regulators, including FCA, CFTC, FHFB, OCC and 
OTS, have reinforced alignment by including standardized performance 
elements or performance standards that link performance expectations to 
organizational goals in employees' performance plans. We have 
previously reported that results-oriented performance agreements can be 
effective mechanisms to define accountability for specific goals and to 
align daily activities with results.[Footnote 36] Individuals from the 
agencies with standardized performance elements in their individual 
performance plans are assessed against the same set of performance 
elements and standards at the end of the appraisal cycle, as the 
following examples illustrate. 

* FCA has included a requirement to contribute to the achievement of 
organizational goals in standardized performance elements for all 
employees in their individual performance plans. Specifically, FCA has 
developed a set of standardized performance elements for each of its 
four occupational groups and in some of these elements, requires 
individuals to contribute to achieving organizational goals and 
objectives. For the senior manager's occupational group, individuals 
have a standardized performance element--"Leadership and Motivation 
Skills"--in their individual performance plans that measures the 
employees' ability to accomplish the agency's goals and objectives. For 
the other three occupational groups, individuals have a standardized 
performance element--"Teamwork and Interpersonal Skills"--in their 
individual performance plans that measures the extent to which the 
employee places emphasis on achieving organizational and team goals. In 
this way, all employees at FCA are assessed on the extent to which they 
contribute to organizational objectives through a standardized 
performance element. 

* While not requiring a standardized performance element related to 
alignment in the individual performance plans for all employees, CFTC 
has reinforced alignment through the performance standards used for 
rating all employees at the end of the performance appraisal cycle. 
Specifically, in order for all employees to achieve the highest summary 
performance rating, individuals must "achieve element objectives with 
extensive impact on organizational mission," which reinforces the line 
of sight between individual performance and organizational results. In 
this way, for all employees at CFTC, the individual's contributions to 
organizational goals affect his or her ability to achieve the highest 
possible performance rating. Alignment is further reinforced for 
managerial employees at CFTC because they are also assessed on the 
standardized performance element of "Effective Leadership," which 
requires them to, among other things, accomplish the mission and 
organizational goals of the work unit, and communicate organizational 
goals to subordinates. 

* FHFB has reinforced alignment in standardized performance elements 
for several occupational groups. Standardized elements for executives, 
managers/supervisors, staff attorneys, and professional positions 
contain references to aligning with or contributing to organizational 
goals. 

* OCC has applied an alignment focus in a generic performance standard 
for four occupational groups at the agency. Executives, managers, 
commissioned examiners, and specialists are all rated against a 
standardized performance standard that requires them to contribute to 
organizational goals in order to get the highest rating level of 4 for 
a particular performance element. For example, managers have a 
standardized performance element called "leadership skills," for which 
the highest level performance standard includes language on meeting OCC 
goals and objectives. Commissioned examiners and specialists have a 
standardized performance element in their individual performance plans 
called "organizational skills," with an accompanying performance 
standard that requires individuals' work products to be closely aligned 
with OCC's goals, objectives, and priorities in order to receive the 
highest rating level. 

* OTS has reinforced alignment in a standardized performance element 
for managers and senior managers. Under the "Leadership Skills" 
standardized performance element, managers are assessed on 
accomplishing the agency's goals and objectives, taking initiative and 
incorporating organizational objectives into the organization, and 
scheduling work assignments. In addition, senior managers have a 
supplemental performance element that holds them responsible for 
supporting the achievement of OTS's strategic plan. An OTS official 
stated that the agency is considering expanding the requirement for 
alignment as it makes future changes to the performance management 
system. 

Agencies Have Strengthened Alignment by Linking Customized Individual 
Performance Expectations to Organizational Goals: 

Several financial regulatory agencies, including SEC, OCC, and the 
Federal Reserve Board, have reinforced alignment for some individual 
employees through customized performance expectations specific to 
individuals that link to higher organizational goals. We have reported 
that high-performing organizations use their performance management 
systems to improve performance by helping individuals see the 
connection between their daily activities and organizational goals and 
encouraging individuals to focus on their roles and responsibilities to 
help achieve these goals. One way to encourage this is to align 
performance expectations of individual employees with organizational 
goals in individual performance plans. We reviewed a small, select set 
of individual performance plans from each agency, and identified the 
following examples of individual performance expectations that linked 
to higher organizational goals. 

* The performance plan for a senior officer at SEC included the 
performance expectation "Plans and Coordinates Inspection Programs and 
Ensures that Internal Management Controls Exist and Operate 
Effectively" that supports SEC's strategic goal to "Maximize the Use of 
SEC Resources." 

* In individual performance plans, OCC has used customized performance 
expectations unique to the individual in addition to standardized 
performance elements to appraise employees. Specifically, the 
performance plan for an information technology (IT) specialist included 
a customized expectation to provide timely, professional, and quality 
IT support to promote efficient utilization of OCC resources. This 
expectation supported the annual OCC objective--"OCC reflects an 
efficient and effective organization." 

* At the Federal Reserve Board, a performance plan for an economist 
contained a performance expectation to produce a weekly monitoring 
report on Japan and cover Japanese banking and financial issues, which 
contributed to one of the Board's annual performance objectives in the 
area of monetary policy function: "contribute to the development of 
U.S. international policies and procedures, in cooperation with the 
U.S. Department of the Treasury and other agencies." 

Agencies Have Strengthened Alignment by Stating Organizational Goals in 
Individual Performance Plans: 

FHFB and OCC have reinforced the linkage between the individual's 
performance expectations and organizational goals by including the 
corresponding organizational goals directly on the individual 
performance plan forms. This helps make clear the line of sight between 
the employee's work and agency goals, as the following examples 
illustrate. 

* FHFB has included the agency mission statement and office mission 
statement to which an employee is contributing at the top of the first 
page of the performance plan form. 

* In many of the individual performance plans we examined from OCC, the 
annual OCC objective to which each customized performance element 
contributed was listed on the form, along with performance measures. 
According to an official, while OCC's performance management policy 
does not specifically require that the higher organizational objective 
to which each customized performance element contributes be listed on 
the employee's performance evaluation form, managers are advised to 
include the organizational goals and the majority of forms do include 
them. The official stated that it was an oversight not to include this 
requirement in the policy, and they plan to revise the performance 
evaluation form to include space for the corresponding organizational 
objectives. Figure 5 shows an example of how a customized performance 
element on an individual performance plan is linked to an agency goal, 
clarifying the relationship between individual and organizational 
performance. 

Figure 5: Excerpt from an OCC Commissioned Examiner's Individual 
Performance Plan: 

[See PDF for image] - graphic text: 

Source: OCC document; GAO annotation. 

[End of figure] - graphic text: 

Agencies Have Connected Performance Expectations to Crosscutting Goals 
in Different Ways: 

The financial regulatory agencies have connected performance 
expectations to crosscutting goals in several ways. As public sector 
organizations shift their focus of accountability from outputs to 
results, they have recognized that the activities needed to achieve 
those results often transcend specific organizational boundaries. We 
reported that key characteristics of high-performing organizations are 
collaboration, interaction, and teamwork across organizational 
boundaries.[Footnote 37] High-performing organizations use their 
performance management systems to strengthen accountability for 
results, specifically by placing greater emphasis on those 
characteristics fostering the necessary collaboration, both within and 
across organizational boundaries, to achieve results. 

The specific ways in which the financial regulatory agencies have 
connected performance expectations to crosscutting goals vary. In our 
review of a small, select set of performance plans from some of the 
agencies, we identified some examples of customized individual 
performance plans that identified crosscutting goals that would require 
collaboration to achieve, as well as either the internal or external 
organizations with which the individuals would collaborate to achieve 
those goals. All of the agencies recognized the importance of 
collaboration by including performance elements for collaboration or 
teamwork within and across organizational boundaries in individual 
performance plans for at least some employees. Several agencies applied 
standardized performance elements related to teamwork or collaboration 
to employees. 

Agencies Have Identified Crosscutting Goals and Organizations for 
Collaboration in Individual Performance Plans: 

We found examples of performance plans customized to individuals at 
OCC, FCA, the Federal Reserve Board, and SEC that identified 
crosscutting goals, as well as either the internal or external 
organizations with which the individuals would collaborate to achieve 
these goals. We have reported that more progress is needed to foster 
the necessary collaboration both within and across organizational 
boundaries to achieve results.[Footnote 38] One strategy for fostering 
collaboration is identifying in individual performance plans specific 
programmatic crosscutting goals that would require collaboration to 
achieve. Another strategy for fostering collaboration is identifying 
the relevant internal or external organizations with which individuals 
would collaborate to reinforce a focus across organizational boundaries 
in individuals' performance plans, as the following examples 
illustrate. 

* At OCC, an employee had an expectation in his individual performance 
plan to enhance the division's ability to work cooperatively and 
effectively together with other operational risk divisions, as well as 
enhance coordination with federal and state agencies and outside 
banking groups to promote consistency and to advance OCC viewpoints, 
while contributing to OCC's objective for U.S. and international 
financial supervisory authorities to cooperate on common interests. 

* A senior manager at FCA had a customized expectation in his 
individual performance plan to work closely with and coordinate Office 
of Examination initiatives with other offices, notably the Office of 
General Counsel and Office of Public Affairs, to support the FCA 
Chairman and Chief Executive Officer's three strategic goals, which are 
(1) improving communications and relationships with the Farm Credit 
System, (2) gaining greater efficiency and effectiveness of the agency, 
and (3) promoting the Farm Credit System to become the Premier 
Financier of Agriculture and Rural America. 

* An executive at the Federal Reserve Board had an expectation in his 
individual performance plan to undertake expanded discussions with SEC 
on information-sharing, cooperation, and coordination with the aim of 
strengthening consolidated supervision and achieving consistency in the 
implementation of Basel II.[Footnote 39]  

* At SEC, a senior officer in the market regulation division had an 
expectation in his individual performance plan to advance market 
regulation objectives through cooperative efforts by coordinating with 
other SEC offices, other U.S. agencies, self-regulatory organizations, 
international regulators, and the securities industry. 

Agencies Have Included Performance Elements Related to Collaboration or 
Teamwork in Individual Performance Plans: 

All of the financial regulators included performance elements related 
to collaboration or teamwork within and across organizational 
boundaries in individual performance plans for at least some of their 
employees. Performance elements related to collaboration or teamwork in 
individual performance plans can help reinforce behaviors and actions 
that support crosscutting goals and provide a consistent message to all 
employees about how they are expected to achieve results. CFTC, FHFB, 
NCUA, and the Federal Reserve Board provide examples of how 
standardized performance elements pertaining to teamwork or 
collaboration have been applied to employees. 

* CFTC has established a standardized performance element for all 
employees that emphasizes collaboration or teamwork, called 
"Professional Behavior," which requires employees to behave in a 
professional and cooperative manner when interacting with coworkers or 
the public and willingly initiate and respond to collaborative efforts 
with coworkers, among other things. 

* At FHFB, all employees have performance elements or standards related 
to collaboration or teamwork in the standardized performance plans for 
their occupational groups. For example, the standardized performance 
plan for executives includes a performance element for "teamwork" that 
requires executives to collaborate effectively with associates and 
promote positive and credible relations with associates, among other 
things. The standardized performance plan for administrative positions 
also includes a "teamwork" performance element. For the other three 
occupational groups, collaboration or teamwork is captured in a 
performance standard. For example, the standardized performance plans 
for professional positions and managers/supervisors have a performance 
element that emphasizes collaboration or teamwork, called 
"Professionalism," which requires the employee to develop and maintain 
effective working relationships with all employees at all levels 
throughout the agency and external to the agency and foster effective 
internal and external communication, among other things. 

* NCUA has performance elements related to collaboration or teamwork in 
the standardized individual performance plans for some occupational 
groups, such as examiners. For example, in the standardized performance 
plan for some examiners, there is a performance element for "customer 
service and teamwork" that requires the individual to demonstrate 
initiative, responsibility, and accountability to both internal and 
external customers and work in collaboration with coworkers and others 
toward common goals. NCUA officials stated that a collaboration/ 
teamwork performance element may not be applicable to all positions. 
They also said that, to the extent that this is an appropriate 
performance element on which an employee should be rated, the agency 
has or will include it in that employee's performance plan. 

* According to Federal Reserve Board officials, the performance plans 
for some occupations at the agency, such as security and administrative 
positions, include teamwork as a standard element. Officials also said 
that customized performance plans for other occupations typically 
include teamwork or collaboration as a competency. 

Agencies Have Used Competencies in Various Ways to Provide a Fuller 
Assessment of Performance: 

All 10 of the financial regulatory agencies have used competencies, 
which define the skills and supporting behaviors that individuals are 
expected to demonstrate to carry out their work effectively. High- 
performing organizations use competencies to examine individual 
contributions to organizational results. We have reported that core 
competencies applied organizationwide can help reinforce behaviors and 
actions that support the organization's mission, goals, and values and 
can provide a consistent message about how employees are expected to 
achieve results.[Footnote 40] As previously discussed, while some of 
the financial regulatory agencies have included customized performance 
expectations specific to individuals in performance plans, we found 
that all of the agencies have used competencies. There are some 
variations in the ways in which the agencies have structured and 
applied competencies to evaluate employee performance. One of these 
variations concerns whether or not the agency has assigned different 
weights to competencies when determining overall summary ratings for 
individuals. 

Agencies Have Applied Competencies Organizationwide: 

With the exception of the Federal Reserve Board, all of the federal 
financial regulatory agencies have developed sets of core competencies 
that apply to groups of employees, and assess employee performance 
using those competencies as part of the annual performance appraisal 
process. Using competencies can help strengthen the line of sight 
between individual performance and organizational success by 
reinforcing performance expectations that support achievement of the 
agency's goals, as the following examples illustrate. 

* FCA has a different standardized performance plan for each of four 
occupational groups of employees--senior managers, supervisors, 
examiners/attorneys/analysts/other specialists (non-supervisory), and 
administrative/technicians. Each of the plans includes a standard set 
of competencies, called critical elements, which applies to all 
employees in that group. Specifically, the performance plan for 
employees in the examiners/attorneys/analysts/other specialists group 
contains the following competencies--technical and analytical skills; 
organizational and project management skills; teamwork and 
interpersonal skills; written and oral communication skills; and equal 
employment opportunity (EEO), diversity and other agency initiatives. A 
few sentences are included on the performance plan form to describe 
what each element measures in terms of the employee's knowledge, 
skills, and behavior, as shown in figure 6. 

Figure 6: Excerpt from an FCA Individual Performance Plan: 

[See PDF for image] - graphic text: 

Source: GAO analysis of FCA document. 

[End of figure] - graphic text: 

* For the July 2005 to June 2006 performance appraisal cycle we 
reviewed at CFTC, all employees were assessed on a set of five 
competencies, called critical elements. Managerial employees were also 
assessed on three additional competencies having to do with leadership, 
developing staff, and supporting diversity and EEO programs. 

* FDIC has 27 different performance plans with corresponding sets of 
competencies, called performance criteria, to cover all employees. 
According to agency officials, FDIC has learned from experience that 
having a performance management system that is based on standardized 
sets of competencies has allowed employees' performance to be compared 
more easily to the standards from period to period. In addition, FDIC's 
system bases merit pay increases for individuals at least partly on 
corporate contributions (defined as contributions to corporate, 
division, or unit-level goals). Officials said that this type of system 
really enhances employee line of sight and has helped employees focus 
on how their contributions align with the achievement of organizational 
goals. In their view, this type of system promotes alignment and 
consistency more effectively than a system of individual contracts 
between supervisors and their employees. 

* NCUA has approximately 240 detailed performance plans that are 
tailored to specific occupations and grade levels of employees and that 
include competencies, which are called elements. All of the employees 
to whom a particular performance plan applies are assessed on the same 
set of elements and performance standards. Elements for some employees 
within the same occupation are universal, but standards can differ by 
grade level. For example, the performance plans for examiners in grades 
7, 11, and 12 all include basically the same elements, but some of the 
performance standards upon which individuals are to be appraised for 
each element vary by grade level. 

* The Federal Reserve Board differs from the other financial regulatory 
agencies in the way it uses competencies. The agency does not have sets 
of core competencies that apply to specified groups of employees across 
the agency. Instead, divisions have latitude to vary the design and 
implementation of the performance plan form and process. According to 
agency officials, divisions select competencies that best suit 
occupational types and the divisions' goals, because the Board has 
multiple responsibilities dealing with monetary policy and financial 
institution regulation. It is possible for employees in the same 
occupational group, but in different divisions, to be rated against 
different sets of competencies. Agency officials said that they have 
not heard complaints from similar occupational groups that they may be 
assessed against different competencies. Further, all officers, 
managers, and supervisors are rated against the same four management 
objectives of communications, staff development, effective planning and 
administration of financial resources, and equal employment 
opportunity. 

Agencies Have Assigned Weights to Competencies: 

A few of the agencies, such as OFHEO, FCA, and NCUA, allow differing 
weights to be assigned to specific competencies when determining 
overall summary performance ratings for individuals. Using weights 
enables the organization to place more emphasis on selected 
competencies that are deemed to be more important in assessing the 
overall performance of individuals in particular positions. Other 
agencies, including OCC, OTS, FDIC, CFTC, and FHFB, do not assign 
differing weights to competencies, as the following examples 
illustrate. 

* At OFHEO, the rating official for each employee assigns a weight to 
each of the competencies (called performance elements) included in the 
individual's performance plan, in consultation with the reviewing 
official. Each competency must have a minimum weight of at least 5, 
with the total weight of all the competencies in an individual 
performance plan equaling 100. Any competency with a weight of 20 or 
higher is considered to be critical. Each competency element is 
weighted and scored (see figure 7), and then the weighted ratings for 
the competencies are summed to derive the total summary rating for the 
individual.[Footnote 41] 

Figure 7: Example of OFHEO's Worksheet for Weighting Performance 
Elements: 

[See PDF for image] - graphic text: 

Source: GAO analysis of OFHEO document. 

[End of figure] - graphic text: 

* FCA also permits supervisors to assign different weights to 
competencies for individual employees, within the standardized 
performance plans, at the beginning of the appraisal period. No 
competency can be weighted less than 5 percent or more than 40 percent. 

* At NCUA, the elements for the various occupations and grade levels 
have different weights assigned to them, depending on the priorities 
and skills pertaining to the positions. The weights are specified on 
the performance plan form for each position. 

* Some of the financial regulatory agencies, including OCC, OTS, FDIC, 
CFTC, and FHFB, do not assign different weights to competencies when 
appraising employee performance. Instead, all of the competencies in an 
employee's performance plan are equally considered during the 
appraisal. For example, at OCC, all of the competencies (which are 
called skill-based performance elements) that are contained in an 
individual's performance plan are considered to be critical, so they 
receive equal weight when determining the overall summary rating for 
that individual, according to an official. 

Agencies Have Involved Employees and Stakeholders in Various Ways to 
Gain Ownership of Performance Management Systems: 

The financial regulatory agencies have used several strategies to 
involve employees in their systems, including (1) soliciting or 
considering input from employees on developing or refining their 
performance management systems, (2) offering employees opportunities to 
participate in the performance planning and appraisal process, and (3) 
ensuring that employees were adequately trained on the performance 
management system when rolling out the system and when changes were 
made to the system. Overall, the 10 agencies have employed these 
strategies differently. Effective performance management systems depend 
on individuals', their supervisors', and management's common 
understanding, support, and use of these systems to reinforce the 
connection between performance management and organizational results. 
Employee involvement improves the quality of the system by providing a 
front-line perspective and helping to create organizationwide 
understanding and ownership. 

Agencies Have Considered Employee Input for Developing or Refining 
Performance Management Systems: 

All of the financial regulatory agencies, in some way, solicited or 
considered employee input for developing or refining their performance 
management systems by working with unions or employee groups to gather 
employee opinions or conducting employee surveys or focus groups. An 
important step to ensure the success of a new performance management 
system is to consult a wide range of stakeholders and to do so early in 
the process. High-performing organizations have found that actively 
involving employees and stakeholders, such as unions or other employee 
groups that represent employee views, when developing results-oriented 
performance management systems helps to improve employees' confidence 
and belief in the fairness of the system and increase their 
understanding and ownership of organizational goals and objectives. 
Feedback obtained from these sources is also important when creating or 
refining competencies and performance standards used in performance 
plans. However, in order for employees to gain ownership of the system, 
employee input must receive adequate acknowledgement and consideration 
from management. 

Agencies Have Involved Employee Groups in the Performance Management 
System Process: 

Unions and employee groups had some role in providing comments or input 
into the performance management systems at some of the financial 
regulators. Six of the regulators (CFTC, FDIC, NCUA, OCC, OTS, and SEC) 
had active union chapters, and four agencies (FCA, Federal Reserve 
Board, FHFB, and OFHEO) had employee groups.[Footnote 42] We have 
previously reported that obtaining union cooperation and support 
through effective labor-management relations can help achieve consensus 
on planned changes to a system, avoid misunderstandings, and more 
expeditiously resolve problems that occur.[Footnote 43] The degree to 
which unions and employee groups were involved in providing comments or 
input into the development or implementation of performance management 
systems varied from agency to agency. A few of the agencies with unions 
have to negotiate over compensation. Unions at some agencies were 
involved in participating in negotiations, entering into formal 
agreements such as contracts and memoranda of understanding, and 
initiating litigation concerning the development or implementation of 
performance management systems. At other regulators, employee groups 
were invited to comment on aspects of the performance management 
system, as the following examples illustrate. 

* OFHEO has used ad hoc employee working groups to study different 
human capital issues and advise management on recommendations for 
changes. Specifically, OFHEO established a working group to look at 
teamwork and communication in the agency and the group recommended 
changes to the individual performance plans relevant to teamwork and 
communications. As a result of the group's recommendation, OFHEO 
included additional language for the agency's performance plans in the 
performance elements of teamwork and communication. 

* At FDIC, the union participated with management in formal 
negotiations regarding the establishment of the agency's performance 
management and pay for performance systems and how the systems would 
work. Both parties are bound by the terms of the formal agreements that 
resulted. 

* At NCUA, union representatives together with management issued a 
memorandum of understanding in June 2006 detailing how supervisors are 
supposed to introduce new performance plans for specified examiner 
positions. The agreement set the timing of the introduction of new 
performance standards, required training for rating officials, required 
supervisors to give progress reviews to their employees on achievements 
to date, and required supervisors and employees to discuss the new 
standards. 

* SEC will implement a new compensation and benefits system as a result 
of an October 2006 ruling from the Federal Service Impasses Panel 
(Panel).[Footnote 44] The Panel became involved when SEC and union 
negotiations over a compensation and benefits agreement reached an 
impasse. SEC management told us that they have formed a labor- 
management working committee to discuss how to implement the terms of 
the new Compensation and Benefits Agreement as provided for under the 
Panel ruling. 

Agencies Have Directly Engaged Employees in Consultations about the 
Performance Management System: 

The financial regulatory agencies involved employees in different ways 
when developing their performance management systems. This process can 
involve directly engaging individual employees and collecting opinions 
from all employees through focus groups, surveys, or other forms of 
feedback to develop a successful performance management system. 
Further, soliciting employee input is also important when developing or 
revising competencies or performance elements and related performance 
standards in a performance management system in order to ensure that 
the competencies and standards reflect skills and behaviors that are 
relevant to employee tasks and responsibilities. While all of the 
financial regulators involved employees to some degree, as the 
following examples illustrate, NCUA did not consistently solicit input 
on developing or revising the competencies and standards. 

* In 2003-2004, when the Federal Reserve Board sought to revamp its 
performance management system, the agency hired an outside consultant 
to conduct focus groups with the intent of identifying issues raised by 
employees and making recommendations to address any concerns. Some 
focus group participants said that the agency's recommended rating 
distribution guidelines might prevent some employees from achieving a 
rating in the highest category. Furthermore, some employees were 
concerned about possible unfairness in ratings and wanted to see the 
distribution of the performance ratings for all employees published. As 
a result of this feedback, management began publishing the agency's 
ratings distributions, and added information on the system's process to 
the agency's internal Web site on the performance management system. 

* When developing its first performance-based pay system in 2006, CFTC 
solicited employee input through a variety of methods. The agency hired 
a contractor to conduct focus groups and to survey employees about 
transitioning to a performance-based pay system and the administration 
of a performance management system. The contractor also hosted a 
Webinar, a Web-based interactive seminar that allows for the submission 
of anonymous questions and comments, to present the results of the 
employee survey. Additionally, CFTC conducted town hall meetings to 
inform employees about development of the system. As a result of 
employee feedback, management decided to delay the first phase of 
implementation of the system from July 2006 until October 2006 in order 
to allow additional time for employees to learn about the system and 
make the transition. Union representatives at CFTC (Chicago and New 
York) told us that prior to CFTC's transition to performance-based pay, 
the agency's management communicated frequently with the union and 
provided appropriate notice prior to implementing changes. 

* Through internal surveys, OFHEO received feedback on employee 
concerns regarding opportunities for promotion and the frequency of 
progress reviews. According to an agency official, feedback from an 
employee survey indicated that employees wanted more opportunities for 
promotion than the prior six pay-band system allowed. On the basis of 
this employee feedback, OFHEO made the decision to switch to 18 pay 
grades and created career ladders. Further, employees commented through 
the survey that they wanted more feedback on their performance during 
the year. As a result, OFHEO increased the number of progress review 
meetings from two to four per year. An agency official stated that the 
Office of Human Resources Management monitors these meetings to ensure 
that they have been held. 

* SEC has analyzed data on SEC responses to OPM's governmentwide 
Federal Human Capital Survey. According to agency officials, SEC has 
tracked employee responses to questions on, for example, how well the 
agency rewards good performers and deals with poor performers. In 
addition, SEC has created a mailbox for anonymous employee comments and 
constructive criticism on the performance management system. 

* FCA circulated a draft of its proposed performance management system 
in 2002, and solicited comments from employees. As a result of employee 
comments, FCA revised the descriptions of performance elements in the 
performance plans, changed the weight of an element dealing with equal 
opportunity employment, eliminated one element, and provided additional 
guidance and training. To show how employee feedback was addressed, FCA 
management presented a briefing to employees, which listed some of the 
employee comments about the individual performance plans with 
accompanying responses from management. 

* According to an NCUA official present at the time when the agency 
originally developed its performance elements and standards, NCUA 
conducted job analysis studies for all positions, which involved 
employees and supervisors in identifying specific duties, skills, and 
competencies needed to accomplish different jobs. In addition to the 
studies, she said that NCUA surveyed employees and conducted an 
assessment to identify any gaps in the performance elements and 
standards. In 2006, when NCUA revised the elements and standards for 
some examiner positions, NCUA used a committee consisting of managers, 
supervisors, and one employee to develop the new elements and 
standards. Union representatives told us they were briefed on the final 
version of the elements and standards, but were not asked for input. 
NCUA is currently revising individual performance plans for other 
positions and the process does not include provisions for soliciting 
and incorporating employee input. In comments on the draft of this 
report, NCUA officials stated that NCUA sought to solicit input from 
employees for certain positions, but that it was not necessary for 
positions that are common across the government, since NCUA usually 
adopts the competencies established by OPM for those positions. 

Some union and employee group representatives we spoke with did not 
think that management gave adequate consideration to employee input. 
For example, the Employees' Committee at the Federal Reserve Board, 
which provides advice to the Management Division on a variety of 
issues, was asked to provide comments during the latest revision of the 
performance management system. According to committee members, the 
committee submitted a paper containing recommendations in response to 
this management request. The committee, however, did not receive a 
written response from management acknowledging their recommended 
changes. Committee members told us they are now hesitant to submit 
input during the current strategic planning process because they are 
concerned about the usefulness of putting time and energy into 
developing recommendations that may not be considered. According to 
agency officials, the responses from the Employees' Committee and other 
employee focus groups held on this topic were summarized by the 
consultant hired for the project and the consultant presented the 
summary comments to management through the executive oversight 
committee. In addition, management officials stated that they met with 
other committee members (i.e., the heads of special interest groups) to 
discuss their input. The Federal Reserve Board's Administrative 
Governor has also held monthly meetings with randomly selected 
employees as an opportunity for employees to voice their concerns about 
the performance management program, among other topics. 

Agencies Have Encouraged Employee Participation in Performance Planning 
and Appraisals: 

All of the agencies, including FCA and FHFB, required or encouraged 
employee participation in developing individual performance plans or 
writing self assessments, contribution statements, or reports 
summarizing accomplishments at the end of the appraisal cycle. In high- 
performing organizations, employees and supervisors share the 
responsibility for individual performance management and both should be 
actively involved in identifying how individuals can contribute to 
organizational results and be held accountable for their contributions. 
By actively participating, employees are not just recipients of 
performance expectations and ratings, but rather, have their ideas 
heard and considered in work planning and assessment decisions. 
However, employee representatives from some agencies, such as FDIC, 
OTS, and OCC, expressed concern that employees were not actively 
involved in the performance planning and appraisal processes even when 
the agency required or encouraged such participation.[Footnote 45]  

* At FCA, employees could participate in performance planning by 
working with their rating officials to identify accomplishments 
expected to be achieved during the appraisal period. In addition to 
participating in an official mid-year performance review, at the end of 
the appraisal cycle, employees and supervisors could meet for a pre- 
appraisal interview to discuss the employees' accomplishments during 
the previous year. Additionally, employees could submit an optional 
self assessment of their performance. This input was supposed to be 
considered when the supervisor evaluated the employee, according to FCA 
policy. 

* Employees at FHFB had several options for participating in developing 
their performance plans--working with the supervisor to develop the 
plan, providing the supervisor with a draft plan, or commenting on a 
plan prepared by the supervisor. 

Although FDIC, OTS, and OCC provided some opportunities for employee 
participation in the planning and appraisal processes, we heard from 
union representatives at these agencies that this participation did not 
always occur, as the following examples illustrate. 

* FDIC's performance management directive requires that the employee 
and the supervisor have a meeting to discuss all performance criteria 
included in the employee's performance plan and any expectations 
regarding the quality, quantity or timeliness of work assignments. The 
policy also encourages the employee to submit an accomplishment report 
and to submit written comments on his or her supervisor's draft 
assessment of the employee's "Total Performance" before it is forwarded 
to higher levels of review within a pay pool. However, union 
representatives told us that expectation-setting meetings have not been 
consistently conducted; instead, sometimes employees have simply signed 
a form to acknowledge receipt of their performance plans. Additionally, 
employee comments on the appraisal form have not been taken into 
account by supervisors, according to union representatives. FDIC 
officials stated that the rating official and employee are required to 
meet to discuss expectations at the beginning of the rating period or 
whenever there is a change in performance criteria. Officials also 
noted that the performance management program is a collaborative 
process that relies on communication between a manager and his or her 
employees, and that the employee is supposed to seek clarification on 
performance criteria or expectations from the supervisor if necessary, 
as is explained in the directive. 

* An employee union representative at OTS maintained that employees 
have not been very involved in setting their own performance 
expectations; instead, supervisors have informed them about what they 
should do at the beginning of the performance appraisal cycle. The 
representative told us that supervisors may discuss changing 
expectations with employees during the year, but these discussions have 
not always occurred. According to an agency official, OTS has 
encouraged managers to regularly meet with their employees and provide 
a clear picture of what is expected of employees for the year in terms 
of their individual roles and responsibilities for the standardized 
performance expectations and what will be considered in appraising the 
employees' performance. 

* Although OCC provided opportunities for employee participation in the 
performance planning and appraisal processes, union representatives 
told us that this participation did not always occur. At OCC, employees 
may participate in developing their individual performance plans and 
are supposed to submit accomplishment reports. Further, officials 
explained that many employees at OCC have secondary objectives in their 
performance plans. Because secondary objectives are customized, there 
should be a discussion between the supervisor and the employee. 
According to an official, if an employee has customized secondary 
objectives included in his or her individual performance plan, the 
employee and supervisor are supposed to have a discussion about 
it.[Footnote 46] However, representatives from the union at OCC told us 
that performance plans are pretty generic and are distributed to 
individuals based on their grade levels. They said that some employees 
do not sit with their managers to tailor the plans; instead, employees 
just sign the forms to acknowledge receipt of the plans. 

Agencies Have Provided Training on Performance Management Systems: 

All of the financial regulatory agencies have conducted some form of 
training or information dissemination on topics related to performance 
management. Asking employees to provide feedback should not be a one- 
time process, but an ongoing process that occurs through the training 
of employees at all levels of the organization to ensure common 
understanding of the evaluation, implementation, and results of the 
systems. Providing training when changes are made to a performance 
management system can help ensure that employees stay connected to the 
system and reinforce the importance of connecting individual 
performance expectations to organizational goals. At some agencies, 
such as SEC and FHFB, training has been mainly directed at supervisors, 
while at FDIC training has been given to nonmanagers as well. Formal 
training for nonsupervisors at the agencies has typically been directed 
at new employees or has occurred when significant changes were being 
made to a performance management system. Some agencies have distributed 
materials through the agency intranet, memos, emails, or other written 
documents, as the following examples illustrate. 

* SEC has offered several opportunities for supervisors to learn the 
mechanics and skills necessary for administering the performance 
management system. Specifically, new supervisors have received general 
training on supervisory roles and responsibilities, including 
performance management. For supervisors, SEC has offered two levels of 
classes on managing performance and communicating expectations. 
Supervisors have also had the opportunity to receive training on 
managing labor relations, which has included discussions of SEC's 
agreement with the union, and the performance-based pay and award 
systems. Supervisors could also attend a briefing on performance 
management concepts and processes. In addition to offering supervisor 
training, SEC informs new employees about the performance management 
system during the orientation program. Performance management 
information is also available to employees through the agency's 
intranet web site. Finally, supervisors are supposed to brief new 
employees on the performance management system at the beginning of the 
rating cycle, during discussions of individual performance standards. 

* Most employees at FHFB have not received training on performance 
management since the late 1990s, and are expected to learn about the 
system from their supervisors. However, FHFB offered training for 
managers and supervisors in 2004 on the performance management system 
and how to conduct performance appraisals. 

* FDIC has conducted several training sessions and disseminated 
information to managers and employees related to its performance 
management and pay for performance programs. This has included in- 
person training sessions, taped sessions made available for viewing on 
IPTV, and "question and answer" documents and policy directives 
available on the agency intranet. FDIC provided specific training for 
nonsupervisors in 2006 when management and union representatives 
jointly conducted training sessions on the agency's new compensation 
agreement. Training was intended for non-management employees, 
including bargaining unit and non-bargaining unit employees, and was 
conducted in a variety of formats. Sessions included discussions of 
employees' roles and responsibilities in the performance management and 
pay for performance systems. 

Agencies Generally Have Linked Pay to Performance and Built in 
Safeguards: 

As discussed, the 10 financial regulatory agencies linked pay to 
performance and built safeguards into their performance management 
systems but could make improvements to ensure that poor performers do 
not receive pay increases and to improve the communication of 
performance standards and transparency of performance results. This 
section provides more detailed information on the different ways in 
which the agencies translated performance ratings into pay increases 
and used different budgeting strategies for performance-based pay. The 
section also discusses how the agencies awarded pay increases that 
considered performance but were not dependent on ratings. Finally, 
information is presented on agency implementation of two additional 
safeguards: higher-level reviews of performance rating decisions and 
establishing appeals processes for performance rating decisions. 

Agencies Used Differing Methods to Translate Performance Ratings into 
Pay Increases: 

For increases that were linked to performance ratings, the financial 
regulatory agencies used different methods to translate employee 
performance ratings into pay increases. These methods included 
establishing ranges for increases, using formulas, and considering 
current salaries when making decisions on the amounts of performance- 
based pay increases for individuals. 

Several agencies established ranges of potential pay increases 
corresponding to the various performance rating levels. These systems 
gave managers the discretion to determine the exact pay increase 
amounts for individuals, within those ranges, as the following examples 
illustrate. 

* At OTS, employees who received a rating of 5 (on a 5-level scale) 
received between a 5.5 percent and 7.5 percent pay increase, while 
employees who received a rating of 3 received between a 1.5 percent and 
3.25 percent pay increase during the appraisal cycle we reviewed. 
Employees who received a rating of 1 or 2 did not receive any pay 
increase. OTS gave managers the flexibility to determine the specific 
pay amount each employee would receive within the range of possible pay 
increases corresponding to that performance rating. 

* OCC established ranges of potential pay increases that corresponded 
to different performance rating levels and gave managers the 
flexibility to decide on the exact amount of pay increase that each 
individual would receive within the range that corresponded to that 
employee's rating level. Each year OCC adopts a merit pay matrix that 
defines a range of allowable percentage increases that may be paid for 
performance rating levels 3 and 4 (the two highest rating categories). 
During the appraisal cycle we reviewed, individuals with a level 3 
performance rating were eligible to receive a merit increase between 
2.1 percent and 5.5 percent, and individuals with a level 4 rating 
could receive a merit increase between 5 percent and 9 percent. The 
rating official recommended the percentage of merit pay that each 
employee with a summary rating of 3 or 4 should receive. Agency 
officials told us that it can be challenging for managers to determine 
the pay increase amount for each employee within those preestablished 
pay increase ranges. Managers want to ensure consistency among 
employees with similar levels of performance and often consult with 
other managers or human resources staff for advice when making these 
pay increase decisions. Employee representatives expressed some concern 
about the overlapping ranges for pay increases, and a representative 
said that employees are unclear about what performance behaviors are 
needed to achieve merit increases. 

Other agencies used formulas for determining the amounts of pay 
increases linked to performance ratings to be awarded, as the following 
example illustrates. 

* NCUA used a pay matrix tied to employees' performance rating scores 
(which could range from 0 to 300) to calculate the pay increase 
percentages. All employees in the same pay pool that received the same 
performance rating would receive the same pay increase percentage. 
Specifically, an employee who received a performance rating score of 
234 fell within the "fully successful" performance rating range and 
received a pay increase of 3.066 percent. Another employee who received 
a performance rating score of 235 fell within the "highly successful" 
performance rating range and received a pay increase of 3.076 percent. 
Employees who received a performance rating score below 165 fell within 
the "unsatisfactory" or "minimally successful" performance rating 
ranges and did not receive any pay increases. 

Some agencies considered employees' current salaries when deciding on 
the amounts for pay increases linked to performance ratings, as the 
following example illustrates. 

* At FCA, the percentage pay increase an employee received depended on 
where the employee's current salary fell within the pay band. FCA used 
a merit matrix to calculate merit pay increases. The matrix considered 
an employee's existing salary position within the relevant pay band 
(with position defined in terms of one of five possible quintiles), as 
well as the employee's performance rating, and determined the 
percentage pay increase corresponding to those factors. For example, 
for the performance appraisal cycle we reviewed at FCA, the percentage 
increase in pay that an employee who received a fully successful 
performance rating could receive ranged from 3.5 percent (for an 
individual whose salary was in the bottom quintile of the pay band) to 
2.0 percent (for an individual whose salary was in the top quintile of 
the pay band). For employees with the same performance rating, an 
employee whose salary was considered to be below market rate at the 
bottom of the pay band would receive a larger percentage pay increase 
than an employee whose salary was considered to be at or above market 
rate. FCA provided pay increases only to employees who performed above 
a minimally successful rating level. 

At many of the agencies, as an employee's salary approached the top of 
the pay range for a position, increases linked to performance ratings 
could be received as a combination of permanent salary increase and a 
one-time, lump sum cash payment, as the following example illustrates. 

* At FHFB, for an employee in a position with a pay range of $70,000- 
$90,000, if the individual's salary was near the top of the pay range, 
he or she would receive a performance-based merit increase to take his 
or her salary to the top of the salary range and then receive a lump 
sum payment. 

Across the various methods used to translate performance ratings into 
pay increases, the expectation would be that larger pay increases are 
associated with higher performance ratings. As a means of providing a 
quantified descriptor of how strongly increases in ratings were 
associated with increases in pay linked to those ratings at each of the 
agencies, we computed a Spearman rank correlation coefficient between 
employees' performance ratings and the percentage increases in pay that 
were linked to performance ratings.[Footnote 47] Although the 
correlation coefficients for the eight agencies varied from +0.63 and 
+0.94, they all demonstrated a strong positive association between 
higher performance ratings and higher ratings-linked pay increases 
(expressed as a percentage increase in salary).[Footnote 48] 

While the correlation coefficients provide some additional perspective 
on the linkage between performance ratings and pay increases at the 
financial regulatory agencies, they should be viewed as a rough gauge 
of the overall strength of the relationship across the agencies and are 
not sufficient for ranking or making other comparisons between 
agencies.[Footnote 49] In reviewing the coefficients, we noted that 
agencies with some of the lowest correlations were using a four-level 
rating system that produced rather constrained ratings distributions. 
In one instance, for example, employees rated at the two lowest 
performance levels (called levels 1 and 2) were not eligible for pay 
increases, and over two-thirds of all employees received a level 3 
rating. Both the base pay increases and bonus amounts that could be 
awarded for level 3 performance overlapped with those for level 4 (the 
highest level), such that some employees rated at level 3 realized a 
percentage increase in pay that was twice the amount obtained by other 
level-3-rated employees, as well as even some level-4-rated employees. 

Agencies Used Different Budgeting Strategies for Performance-Based Pay: 

The federal financial agencies also varied in their strategies to 
budget for pay increases directly linked to performance ratings. Many 
of the agencies set aside funds each year for performance-based pay 
increases. At some agencies, these funds were treated as an agencywide 
funding pool or pools for performance-based pay increases, as the 
following examples illustrate. 

* According to agency officials, NCUA established two agencywide merit 
funding pools for different employee grade-level groups because higher 
graded employees usually received higher ratings and consequently, 
higher merit pay increases. Officials stated that the establishment of 
two merit funding pools was more advantageous to lower graded employees 
and increased the amount of funds available for their merit pay. 

* SEC established one pool of funds for performance bonuses and quality 
step increases available for senior officers, and another pool for all 
other employees. 

At some agencies the performance-based pay increases budget was divided 
into separate pay pools by suborganizational unit, and the 
responsibility for distributing merit pay increases was delegated to 
management at the subunit level, as the following examples 
illustrate.[Footnote 50] 

* For the "Pay for Performance" program at FDIC that covers bargaining 
unit and nonbargaining unit employees, the agency established pay pools 
at the division level (and at the regional level for the large Division 
of Supervision and Consumer Protection), and allocated funds for 
performance-based pay increases to the pools. Funds were allocated 
through pay pools to each division and office, with subsequent 
separations of each division or office into separate populations for 
bargaining unit and nonbargaining unit employees. (Corporate managers 
and executives at FDIC are covered by a separate pay-at-risk 
compensation system.) 

* FHFB provided each office with a pay pool for performance-based 
annual pay increases. The merit increase pool amounts were determined 
based on the approved governmentwide general increase plus 2.5 percent 
of the total base salaries for all employees in the office. An FHFB 
official stated that the reason each office was provided with a pool of 
funds was to avoid comparing individuals with different functions and 
responsibilities to each other, and this official believed that FHFB 
had greater control when pay decisions were made at the office level. 
For example, an office director could decide to assess all his staff at 
the outstanding level, but less performance-based pay would be 
available for each office employee. Office directors were responsible 
for determining the sum of all merit increases and lump sum payments 
for their offices, while not exceeding their offices' merit increase 
pool allocations. 

Agencies Provided Other Increases That Considered Performance: 

In addition to providing ratings-based pay increases, the financial 
regulatory agencies awarded pay increases that considered individual 
performance in some way without being directly linked to employees' 
performance ratings. The following are additional examples of these 
types of pay increases at the agencies to supplement the material 
presented in the body of the report. 

* The Federal Reserve Board offered a cash awards program, which 
accounted for about 2.5 percent of the total agency salary budget, to 
reward employees who sustained exceptional performance or made 
significant contributions to successful projects, according to 
officials. According to the Federal Reserve Board's criteria for this 
awards program, cash awards could be given to employees who initiated, 
recommended, or accomplished actions that achieved important Federal 
Reserve Board goals, realized significant cost reductions, or improved 
the productivity or quality of Board services. These awards could be 
made in any amount up to a maximum of 10 percent of an employee's base 
pay within the same performance cycle. The 10 percent maximum did not 
apply to variable pay awards, which are given instead of cash awards to 
economists, attorneys, or Federal Reserve Board officers. 

* For some regulators, these types of pay increases were sizeable. For 
example, at OCC, approximately 10 percent of employees were awarded a 
special increase during the completed appraisal cycle we reviewed. The 
awards represented a 5 percent raise for those individuals. According 
to OCC policy, special increases are to be awarded to recognize 
increased value an employee contributes to his or her job by applying 
desirable skills over a significant period of time or by assuming 
higher-level responsibilities within his or her pay band. OCC also 
provided some pay increases for competitive and noncompetitive 
promotions during the appraisal cycle we reviewed. Interestingly, of 
the eight financial regulators that participated in OPM's 2006 Federal 
Human Capital Survey, OCC had the largest percentage of employees 
agreeing with the view that awards in their work units depended on how 
well employees performed their jobs. At OCC, 55.7 percent of employees 
agreed with this view. Governmentwide the corresponding figure was 39.8 
percent of employees. Two other agencies, FCA and NCUA, also had 
slightly over 50 percent of their employees agreeing with this 
statement. 

Results from the 2006 OPM Federal Human Capital Survey suggest that the 
financial regulatory agencies have done relatively better than many 
agencies governmentwide in linking pay to performance. All eight of the 
financial regulators that participated in the 2006 survey had 
percentages of positive responses from their employees that were about 
the same as or better than the governmentwide percentage of 21.7 
positive responses to an item asking employees whether they agreed or 
disagreed with the statement that pay raises depended on how well 
employees performed their jobs at their agencies. The percentage of 
employees giving a positive response to this item was at least twice as 
high as the governmentwide value for a majority of the eight agencies 
participating in the survey. 

Agencies Built in Safeguards: 

While the financial regulatory agencies built safeguards into their 
performance management systems, the agencies established and 
communicated standards for differentiating among performance rating 
categories and criteria for performance-based pay decisions to varying 
degrees. The agencies also built in additional safeguards of 
establishing higher-level reviews of performance rating decisions by 
either higher-level officials or oversight groups, and all have 
established appeals processes for employees to request reconsiderations 
of performance rating decisions. It is important for agencies to have 
modern, effective, credible, and, as appropriate, validated performance 
management systems in place with adequate safeguards to ensure fairness 
and prevent politicization and abuse. We have reported that a common 
concern that employees express about any performance-based pay system 
is whether supervisors have the ability and willingness to assess 
employees' performance fairly.[Footnote 51] Using safeguards can help 
to allay these concerns and build a fair and credible system. 

Agencies Implemented Higher-Level Reviews of Performance Rating 
Decisions: 

Although they have used different approaches, all of the federal 
financial regulatory agencies have provided higher-level reviews of 
individual performance rating decisions to help ensure that performance 
standards were consistently and equitably applied across the agency. 
All of the agencies have established at least one level of review of 
employees' performance ratings to help ensure that performance 
standards were applied appropriately. At some agencies, this oversight 
process has involved a second-line supervisor or higher-level official 
reviewing the employee's performance rating to ensure that the rating 
was appropriate and consistent with any narrative describing the 
employee's performance. Some agencies also have offices outside of the 
employee's team/office, such as the Human Capital Office, review 
employee performance ratings to ensure that rating decisions for groups 
of employees (agencywide, or by division or region) were fair and 
equitable, as the following examples illustrate. 

* OCC officials indicated that at the end of every appraisal cycle, 
they have evaluated the results of the performance management and pay 
system by looking, for example, at the differentiation in ratings and 
pay decisions and how the pay ranges were used. The human resources 
officials have discussed these results with managers to show them how 
their employees' performance ratings and pay decisions influenced OCC's 
overall results. For example, OCC introduced merit bonuses for the 
first time in the 2005 performance appraisal cycle. Upon reviewing the 
results of the merit bonus decisions, OCC officials found that the 
percentage of employees in each organizational unit that received a 
merit bonus varied widely among the units--ranging from a high of over 
80 percent of employees receiving a bonus in one unit to 30 percent in 
another unit. As a result, according to agency officials, OCC decided 
to recommend a minimum amount for bonuses and restrict the percentage 
of staff who can receive a bonus to 50 percent within each 
organizational unit. Agency officials also indicated that they have 
identified areas of future training on the system based on the results 
of reviews and subsequent discussions with managers, in order to 
improve implementation of the system. 

* At NCUA, an employee's performance rating was completed and signed by 
the rating official, and then a reviewing official (an office or 
regional director) reviewed the employee's performance rating to ensure 
that the rating was supported. Reviewers also look for consistency 
throughout the rating process. For example, an Associate Regional 
Director will look across all examiners' ratings in the region for 
consistency. 

* FHFB provided a supervisory review of performance ratings to help 
ensure that an employee's recommended rating was justified as well as 
consistent with other ratings in the employee's work group. Once the 
rating official (usually a first-line supervisor) recommended an 
initial summary rating, the rating official would forward the rating to 
a second-line supervisory reviewer (usually the division director or 
deputy director), called a reviewing official. According to FHFB 
officials, the reviewing official was usually knowledgeable about the 
employee's performance and could discuss the rating narrative and final 
rating decision with the rating official before the rating was shared 
with the employee. In addition, the reviewing official checked whether 
performance rating narratives supported individual performance 
elements, summary ratings were properly calculated and appropriately 
signed, and there was consistency of ratings across the work group. 
FHFB employee representatives with whom we spoke stated a belief that 
the rating review process was effective and that supervisors did not 
give ratings unless they first reviewed their decisions with 
management. Employee representatives noted that there is a commitment 
in the agency to be fair and equitable in assigning ratings. 

* FCA provided multiple levels of reviews of ratings to ensure the 
appropriateness of rating scores and consistency in applying 
performance standards across FCA offices. After the rating official 
completed an initial rating, a second-line reviewer was assigned to 
review each employee's rating against the standards. Before final 
ratings were issued, FCA's Office of Management Services provided a 
check to ensure that offices were appropriately and consistently 
applying performance standards and to look for any significant 
outliers. Employee performance assessments rated as outstanding and as 
less than fully successful would be reviewed to determine whether 
rating scores matched the narrative discussions. Any potential issues 
identified would be brought to the attention of the rating official for 
discussion and resolution. Management officials told us that the Chief 
Human Capital Officer would meet with division management to discuss 
whether the rating criteria were appropriately applied and then 
division managers would determine whether to change any performance 
ratings. In addition, the Office of Management Services performed a 
post-rating distribution audit to review final rating distributions to 
help inform future rating practices. 

Establish Appeals Processes for Performance Rating Decisions: 

As mentioned previously, all of the federal financial regulatory 
agencies have established appeals processes for employees to request 
reconsiderations of performance rating decisions to help ensure 
accuracy and fairness in the process. Providing mechanisms for 
employees to dispute rating decisions when they believe decisions are 
unfair can help employees gain more trust in the system, as the 
following examples illustrate. 

* Employees at CFTC could ask for an appeal of their overall rating 
through the agency's reconsideration process. An employee could first 
appeal his or her rating to the manager who reviewed the rating (called 
the reviewing official) by defending his or her position orally or in 
writing. This Reviewing Official then considered the employee's 
justification as well as the original rater's opinion and provided a 
final decision on the matter. According to CFTC officials, employees 
sometimes wanted to change the wording in their performance 
evaluations. 

* OTS has defined a grievance policy for employees who are dissatisfied 
with their performance ratings. Employees covered by the bargaining 
unit agreement may file a grievance under the negotiated agreement 
while employees not covered by the agreement may request a grievance 
(within 10 days of receiving their ratings) under the agency's 
administrative grievance procedures. OTS' union representative reported 
that in the past, management and union representatives had resolved 
many cases of rating disputes prior to employees filing formal 
grievances. 

* The Federal Reserve Board has established an appeals process so that 
an employee can appeal the fairness of an overall rating decision, the 
rating on an individual element, or any adverse comments appearing on 
the performance assessment form. Employee representatives we spoke with 
said that they believe that employees understand the appeals process, 
but thought that more employees could take advantage of this 
opportunity. An employee may first appeal his or her performance rating 
to a division director, who in turn will notify the appropriate 
supervisor who submitted the rating. Then, the division director will 
determine whether the rating is appropriate based upon a review of 
documentation provided by both the employee and supervisor. If the 
employee is not satisfied with the first-level appeal decision, the 
employee may make a second-level appeal to the Associate Director of 
Human Resources and specify areas of disagreement with the performance 
assessment. The Associate Director for the second-level appeal will 
then determine whether the division has reasonably followed procedures 
and whether performance assessment guidelines were applied consistently 
to other employees reporting to the same supervisor. This supporting 
documentation submitted by the division will be shared with the 
employee, except in cases where doing so infringes on the 
confidentiality of other employees. As a result, first-or second-level 
appeal decisions may result in changes to an overall rating, changes to 
the rating of an individual element, or changes in the language in the 
employee's performance assessment. 

* OFHEO has established a three-level appeals process to ensure that 
employees can dispute rating decisions when they disagree with rating 
decisions. Employees can appeal the overall performance rating or 
individual performance elements within the rating. For the first-level 
appeal, the employee can submit a request with supporting documentation 
to the performance rating official for reconsideration. If an appeal is 
not resolved at the first level, the employee can request that the 
second-level supervisor review the performance rating and supporting 
documentation. Finally, the employee can request a third-level appeal 
by the third-level supervisor, if necessary. 

[End of section] 

Appendix IV: Actions Taken by Financial Regulators to Seek to Maintain 
Pay and Benefits Comparability and Pay and Benefits Data: 

The federal financial regulatory agencies have made an effort to meet 
the comparability requirements as required by the Financial 
Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and 
subsequent legislation.[Footnote 52] However, we found that factors 
such as funding constraints, when the agency was granted flexibility 
under Title V of the U.S. Code, the needs or preferences of their 
respective workforces, and each agency's pay and benefits policies can 
result in some variation in their pay and benefits.[Footnote 53] They 
have also taken steps to explore a common survey that would enable them 
to more efficiently collect information for pay and benefit 
comparability purposes. 

Financial Regulators Have Conducted Individual Pay and Benefits 
Comparability Surveys and Regularly Consult with Each Other, but Noted 
Some Inefficiencies in the Process: 

To seek to maintain pay and benefits comparability, the majority of the 
10 federal financial regulators have hired external compensation 
consultants to conduct individual formal pay and benefits comparability 
surveys that have included the other financial regulators. As shown in 
table 5, 7 of the 10 financial regulators conducted pay and benefits 
comparability surveys. Of the 7, 5 agencies also have included benefits 
in their formal surveys. According to agency officials, because some of 
the 10 agencies perceive the private sector as their main competitor 
for skilled employees, they have included private-sector entities in 
their pay and benefits surveys or have obtained additional private- 
sector data through the Bureau of Labor Statistics and private vendors 
to complement their pay and benefits surveys. 

Table 5: Pay and Benefits Surveys That Federal Financial Regulators 
Conducted through External Compensation Consultants, 1991-2006: 

Agencies: CFTC; 
Hired external compensation consultants to conduct pay comparability 
surveys: No. In 2003 and 2005, used consultant to review existing 
surveys; 
Included benefits in comparability surveys: N/A; 
Years in which agencies have conducted surveys through external 
compensation consultants: N/A; 
Agencies participating in surveys: Used FDIC and OCC 2002 survey 
results in 2003; used interagency group data in 2005. 

Agencies: FCA; 
Hired external compensation consultants to conduct pay comparability 
surveys: Conducts a pay survey once every 2-3 years; 
Included benefits in comparability surveys: No; 
Years in which agencies have conducted surveys through external 
compensation consultants: 1991, 1993, 1996, 1999, 2002; 
Agencies participating in surveys: The 2002 survey included FDIC, FHFB, 
the Federal Reserve Board, NCUA, OCC, OFHEO, and OTS. 

Agencies: FDIC; 
Hired external compensation consultants to conduct pay comparability 
surveys: Conducts pay and benefits survey about once every 3 years; 
Included benefits in comparability surveys: Yes; 
Years in which agencies have conducted surveys through external 
compensation consultants: 1996, 1999, 2002, 2005; 
Agencies participating in surveys: The 2005 pay survey included all 
FIRREA agencies as well as the Federal Reserve Board, CFTC, OFHEO, SEC, 
and several Federal Reserve Banks. 

The 2005 benefits survey included all FIRREA agencies and the Federal 
Reserve Board. 

Agencies: FHFB; 
Hired external compensation consultants to conduct pay comparability 
surveys: Conducted a pay and benefits survey once. Also uses FDIC's pay 
and benefits surveys as a guide; 
Included benefits in comparability surveys: Yes; 
Years in which agencies have conducted surveys through external 
compensation consultants: 2002; 
Agencies participating in surveys: The 2003 survey compared pay and 
benefits with FCA, FDIC, OCC, NCUA, OTS, and the Federal Reserve Board. 

Agencies: Federal Reserve Board; 
Hired external compensation consultants to conduct pay comparability 
surveys: Conducts pay and benefits survey every 1-2 years; 
Included benefits in comparability surveys: Yes; 
Years in which agencies have conducted surveys through external 
compensation consultants: Annual surveys conducted between 1994 and 
2005, excluding 2003; 
Agencies participating in surveys: The 2005 survey included OCC, FDIC, 
NCUA, OFHEO, OTS, SEC, as well as the private-sector entities and 
academia. 

Agencies: NCUA; 
Hired external compensation consultants to conduct pay comparability 
surveys: Conducted pay and benefits surveys twice; 
Included benefits in comparability surveys: Yes; 
Years in which agencies have conducted surveys through external 
compensation consultants: 2000, 2004; 
Agencies participating in surveys: The 2004 pay and benefits survey 
included FDIC, OCC, OTS, FHFB, FCA, SEC, OFHEO, and the private sector. 

Agencies: OCC; 
Hired external compensation consultants to conduct pay comparability 
surveys: Conducted a pay survey every year, alternating between a full 
survey that covered many benchmarked jobs and a simplified survey that 
covered a few of the benchmarked jobs; 
Included benefits in comparability surveys: No; 
Years in which agencies have conducted surveys through external 
compensation consultants: 1999, 2001, 2002, 2003, 2006; 
Agencies participating in surveys: The 2006 pay survey included FCA, 
FDIC, FHFB, NCUA, OTS, OFHEO, SEC, and the Federal Reserve Board. 

Agencies: OFHEO; 
Hired external compensation consultants to conduct pay comparability 
surveys: Conducted pay and benefits surveys every 3 to 5 years; 
Included benefits in comparability surveys: Yes; 
Years in which agencies have conducted surveys through external 
compensation consultants: 2000, 2005; 
Agencies participating in surveys: The 2005 pay and benefits survey 
included OCC, the Federal Reserve Board, FDIC, OTS, FHFB, and FCA. 

Agencies: OTS; 
Hired external compensation consultants to conduct pay comparability 
surveys: No. Conducts informal benchmark surveys as needed; 
Included benefits in comparability surveys: N/A; 
Years in which agencies have conducted surveys through external 
compensation consultants: N/A; 
Agencies participating in surveys: N/A. 

Agencies: SEC; 
Hired external compensation consultants to conduct pay comparability 
surveys: No; 
Included benefits in comparability surveys: N/A; 
Years in which agencies have conducted surveys through external 
compensation consultants: N/A; 
Agencies participating in surveys: N/A. 

Source: GAO summary of agency data. 

[End of table] 

The remaining three regulators (CFTC, OTS, and SEC) have participated 
in the pay and benefits surveys of other agencies, and officials from 
these agencies said that they have used the results of these surveys, 
but have not conducted their own. For example, an SEC official told us 
that his agency often uses FDIC's data because, like SEC, FDIC has a 
large number of compliance examiners and must negotiate pay and 
benefits with the same union as SEC. In 2002 and 2003, CFTC has also 
hired consultants to review existing surveys from FDIC and OCC as well 
as from information gathered from other regulators. 

The agencies hired external compensation consultants to conduct the 
surveys because, according to officials from FCA and FDIC, these 
consultants provide an objective view of their agencies' pay and 
benefits. And, because they have often worked with other FIRREA 
agencies, the consultants can provide insights and perspectives based 
on information from other agencies. For pay comparability surveys, 
external compensation consultants compare base pay ranges for a given 
occupation, locality pay percentages and, to a lesser extent, annual 
bonus and other cash award policies. To compare pay across agencies, 
consultants send questionnaires on behalf of the sponsoring agency and 
ask participating agencies to match the jobs based on the job 
descriptions provided. The job descriptions usually contain information 
on duties, scope of responsibilities, and educational requirements. 
External compensation consultants also have used various methods to 
assess the comparability of benefits. For example, the consultant for 
FDIC did a side-by-side comparison of benefits offered at other 
agencies, and also calculated the total cost of benefits per employee. 

In addition to conducting comparability surveys, agency officials told 
us that human capital officials at the 10 regulators have formed an 
interagency Financial Regulatory Agency Group. The members regularly 
consult with each other on pay and benefits issues, and as they prepare 
their budgets for the coming year, they meet to exchange information on 
potential and actual changes to pay and benefits. For example, the 
group has exchanged information on updates in merit pay ranges, 
bonuses, salary pay caps, and benefits such as flexible work schedules. 
Agency officials also have taken turns to update a spreadsheet that 
lists the pay ranges and benefits for all 10 financial regulators, a 
key document the agencies use to compare pay and especially benefits 
informally across agencies. 

However, in consulting with each other to meet comparability 
requirements, agency officials told us that because many of the 
financial regulators conduct comparability surveys, their staffs have 
had to respond to numerous and often overlapping inquiries, which can 
be burdensome and inefficient. This is especially the case for smaller 
agencies, such as FCA and FHFB, which tend to have smaller human 
capital (personnel) departments than larger agencies that may have pay 
and benefits specialists who can handle comparability issues full time, 
including filling out and processing various comparability surveys. 
According to officials from a few regulators, partly as a result of the 
substantial investment of time and resources, some agencies have not 
been timely or forthcoming in sharing their pay and benefits 
information. 

Regulators Are Exploring the Feasibility of a Common Survey: 

According to several agency officials, in response to renewed interest 
of upper management from several agencies in consolidating pay and 
benefits surveys, the regulators are studying the feasibility of such a 
method. In December 2006, the regulators formed a subcommittee within 
the Financial Regulatory Agency Group to study the feasibility of a 
common survey. Agency officials are exploring whether consolidating the 
various comparability surveys into a common survey will improve the 
process for job matching and result in more efficient use of resources. 
They also told us that the subcommittee also has discussed the 
feasibility of establishing a Web-based data system to make the most 
current pay and benefits information available to participating 
agencies. The subcommittee is working on the details of allocating 
costs of a common survey among the agencies, but has suggested that 
costs might be prorated based on the size of each regulatory agency. As 
of March 2007, agency officials had not yet received cost figures from 
potential consultants. 

Agency officials who attended the first subcommittee meeting told us 
that implementation of a common survey would require collaboration and 
agreement on a number of matters, such as: 

* choice of external compensation consultant to conduct the common 
survey, since different consultants have different approaches to carry 
out the common survey; 

* group of jobs to be benchmarked for the common survey and best 
approach for job matching, as some jobs are unique to certain agencies; 

* timing and frequency of the common survey to meet everyone's needs 
since agencies determine pay and benefits at different times of the 
year and would need the updated information when the need arises; 

* number and types of organizations to include in the common survey 
because while all agencies would want to include the financial 
regulators, some may need information from certain private-sector 
entities; and, 

* cost of the common survey may be substantial, which according to some 
agencies, is a potential concern. 

By forming the subcommittee to explore issues associated with 
developing a common survey, agency officials have adopted some of the 
practices that we identified that would enhance and sustain 
collaborative efforts. These practices include defining and 
articulating a common outcome, establishing means to operate across 
agency boundaries, and leveraging resources.[Footnote 54] 

Agency officials who are members of the subcommittee told us that the 
officials have sent a formal request for information to several 
consultant candidates. The request inquired about the consultants' 
ability to plan and execute a common survey that will provide 
customizable reports for each agency and also create a secure, 
centralized data source on pay and benefits. In addition, agency 
officials asked how the consultants would approach job matching, a 
complicated task. For example, officials from FDIC, OFHEO, and SEC told 
us that the use of different pay plans and grades among agencies and 
the location of field offices in cities with different employment 
market conditions contributed to the difficulty in matching jobs across 
regulators. In addition, some agency officials said that it is 
difficult to match jobs because agencies have different job 
requirements that may differ even when a job title is the same. The 
subcommittee received responses from various consultants and as of 
March 2007 was in the process of contacting the consultants to gather 
more details and to discuss the options available to them. 

Most Regulators Used Benchmarks Developed from Surveys and Other Data 
to Assess Comparability and Make Adjustments to Pay and Benefits: 

In the absence of a legislative definition, agency officials told us 
that agencies have used various benchmarks, as shown in table 6, to 
assess pay and benefits comparability. For example, FDIC has sought to 
set its total pay ranges (base pay plus locality pay) for specific 
occupations and grade levels within 10 percent of the average of FIRREA 
agencies, a benchmark that pay and benefits consultants have used in 
their comparability surveys. FCA uses benchmarks, including average 
market rate paid by other financial regulators. CFTC uses average 
payroll and salary structure relative to other regulators. FHFB, NCUA, 
OTS, and SEC told us that they have not used specific benchmarks, and 
OTS uses informal benchmarks as needed. 

Table 6: Selected Examples of Benchmarks Agencies Have Used to Assess 
Pay and Benefits Comparability: 

Agencies: CFTC; 
Benchmark examples used to assess pay comparability: Average payroll, 
salary structure, etc., relative to other regulators; 
Benchmark examples used to assess benefits: Benefits being of similar 
types, and relative benefits costs as percentage of payroll. 

Agencies: FCA; 
Benchmark examples used to assess pay comparability: Pay at average 
market rate paid by other financial regulators. The goal is to be in 
the middle range of the financial regulators; 
Benchmark examples used to assess benefits: No specific benchmarks. 

Agencies: FDIC; 
Benchmark examples used to assess pay comparability: Since 1999, total 
pay (base pay plus locality pay) within 10 percent of the average of 
FIRREA agencies. Prior to 1999, no specific benchmarks were used; 
Benchmark examples used to assess benefits: Benefits being of similar 
types and having equivalent or similar overall value, without 
necessarily being identical. 

Agencies: FHFB; 
Benchmark examples used to assess pay comparability: No specific 
benchmarks; 
Benchmark examples used to assess benefits: No specific benchmarks. 

Agencies: Federal Reserve Board; 
Benchmark examples used to assess pay comparability: Pay at the average 
of the market, including regulators and other appropriate competitors; 
Benchmark examples used to assess benefits: Benefits being similar 
types. 

Agencies: NCUA; 
Benchmark examples used to assess pay comparability: No specific 
benchmarks; 
Benchmark examples used to assess benefits: No specific benchmarks. 

Agencies: OCC; 
Benchmark examples used to assess pay comparability: Pay within 10 
percent of the other agencies' (or the market's) median base pay plus 
locality pay for each occupation and grade; 
Benchmark examples used to assess benefits: Benefits being similar 
types. OCC does not consider the cost of benefits. 

Agencies: OFHEO; 
Benchmark examples used to assess pay comparability: Pay within 10 
percent of average salary of other agencies or market average for each 
occupation and grade; 
Benchmark examples used to assess benefits: Benefits being of similar 
types and having equivalent or similar overall value, without 
necessarily being identical. 

Agencies: OTS; 
Benchmark examples used to assess pay comparability: No specific 
benchmarks. Informal benchmarks as needed; 
Benchmark examples used to assess benefits: No specific benchmarks. 
Informal benchmarks as needed. 

Agencies: SEC; 
Benchmark examples used to assess pay comparability: No specific 
benchmarks; 
Benchmark examples used to assess benefits: No specific benchmarks. 

Source: GAO summary of agency information. 

[End of table] 

Agency officials told us that all agencies, including the three 
agencies that have not conducted formal benefits surveys, have assessed 
their benefits comparability by comparing individual benefit items as 
well as agency contributions to specific benefits. They added that most 
agencies have used the interagency group spreadsheet that lists all the 
benefits and agency contributions offered. 

According to agency officials, the financial regulators have used 
information from the pay and benefits comparability surveys and 
discussions among the agencies in their efforts to seek to maintain 
comparability. Table 7 provides some recent examples of these efforts. 

Table 7: Selected Examples of Recent Pay and Benefits Adjustments 
Resulting from Agencies' Comparability Assessments: 

Year: 2002; 
Action taken to adjust pay and benefits: FCA adjusted its pay ranges 
based on its comparability survey, which stated that FCA's pay was 
lower than other FIRREA agencies. 

Year: 2002; 
Action taken to adjust pay and benefits: In response to recently 
enacted comparability requirements, SEC substantially increased its pay 
ranges to be comparable to those offered at other FIRREA agencies. 

Year: 2003; 
Action taken to adjust pay and benefits: As a result of gaining pay 
flexibilities, CFTC implemented new pay ranges for its 2003 pay 
schedule; CFTC increased base pay by 20 percent for all eligible 
employees to partially close the 25 percent gap between CFTC and FIRREA 
agencies. 

Year: 2006; 
Action taken to adjust pay and benefits: OFHEO increased its pay ranges 
across the board based on the findings from its 2005 pay and benefits 
survey. 

Year: 2006; 
Action taken to adjust pay and benefits: The FDIC increased its pay 
scale minimums by 1.5 percent and pay scale maximums by 6 percent, 
effective February 18, 2006, based on FDIC's consultant's analysis of 
its pay and benefits survey. 

Source: GAO analysis of agency information. 

[End of table] 

Agency Pay and Benefits Policies and Several Other Factors Contribute 
to Variations in Pay and Benefits: 

Although the financial regulators have adjusted their pay and benefits 
to seek to maintain comparability, several factors influence 
compensation decisions that lead to some variations in pay ranges and 
benefit packages. As shown in figure 3 in the report, with the 
exception of the Federal Reserve Board and OFHEO, the financial 
regulators' total pay ranges consist of base pay and locality pay 
percentages that are calculated based on the employees' duty station. 
The Federal Reserve Board and OFHEO do not have separate locality pay 
percentages because Washington, D.C., is their only duty station. 
Figure 3 also shows that, for examiners, FDIC and NCUA pay ranges 
generally have lower minimum base pay than other agencies, and FDIC and 
OCC have higher maximum base pay for examiners. In addition, for 
economists, CFTC and FDIC pay ranges have lower minimum base pay than 
other agencies, and the CFTC and OCC pay ranges have higher maximum 
base pay.[Footnote 55] 

Actual average base pay figures that we obtained from the Central 
Personnel Data File and from the Federal Reserve Board also vary among 
the 10 agencies in relation to the agencies' respective base pay 
ranges, as shown in figure 3 in the report. For example, the actual 
average base pay for examiners at OCC ($92,371) is 52 percent of the 
maximum pay range of $177,600. However, actual average base pay as a 
percentage of maximum pay can vary considerably, as in the case of SEC 
attorneys. Their actual average base pay ($124,379) is 98 percent of 
the maximum pay range of $126,987. 

According to agency officials, two factors affect where actual average 
base pay falls within an agency's pay range. One is the distribution of 
the length of service among employees. For example, the actual average 
base pay for agencies with a higher proportion of long-tenured 
employees would be closer to the maximum of its pay range. Conversely, 
actual average base pay for agencies with a higher proportion of new 
hires would fall closer to the minimum of the pay scale. An OCC 
official told us that despite the fact that OCC also has a large number 
of experienced examiners, the actual average pay for OCC examiners may 
seem low compared to other agencies because OCC has hired a large 
number of examiners during the last 2 years. Officials from several 
federal regulators also told us that they rarely hire at the lower 
grade level for some occupations. For example, FHFB tends to hire mid- 
level employees because its relatively small office cannot afford a 
long training period for new hires. 

As shown in table 2 in the report, locality pay percentages vary among 
agencies for the same duty station. Table 8 shows the methods that 
agencies are currently using to determine their respective locality pay 
percentages and adjustments. 

Table 8: Agencies' Current Methods for Determining Locality Pay 
Percentages and Adjustments: 

Agency: CFTC; 
Methods for determining locality pay percentages and adjustments: Uses 
OPM locality percentages. 

Agency: FCA; 
Methods for determining locality pay percentages and adjustments: Uses 
the average rate of 5 FIRREA agencies: FDIC, FHFB, NCUA, OCC, and OTS. 

Agency: FDIC; 
Methods for determining locality pay percentages and adjustments: Uses 
a formula jointly developed by the National Treasury Employees Union 
and FDIC primarily based on the Bureau of Labor Statistics National 
Compensation Survey Cost of Labor data for federally defined locality 
pay areas, with Runzheimer International cost of living data influence 
for a very few areas where there are extreme differences between cost 
of living and cost of labor. 

Agency: FHFB; 
Methods for determining locality pay percentages and adjustments: For 
Washington, D.C., considers other federal bank regulatory agencies per 
FHFB's comparability statute. For other locations, uses FDIC locality 
pay percentages. 

Agency: Federal Reserve Board; 
Methods for determining locality pay percentages and adjustments: Not 
Applicable. Washington, D.C., is the only duty station. 

Agency: NCUA; 
Methods for determining locality pay percentages and adjustments: 
Considers other FIRREA agencies. 

Agency: OCC; 
Methods for determining locality pay percentages and adjustments: Uses 
primarily cost of labor data from the Economic Research Institute. 

Agency: OFHEO; 
Methods for determining locality pay percentages and adjustments: Not 
Applicable. Washington, D.C., is the only duty station. 

Agency: OTS; 
Methods for determining locality pay percentages and adjustments: Uses 
Runzheimer International cost of living data. 

Agency: SEC; 
Methods for determining locality pay percentages and adjustments: 
Currently adjusts yearly locality pay percentage increases by at least 
the minimum recommended OPM locality incremental adjustment. 

Source: GAO analysis of agency information. 

[End of table] 

The benefits that the 10 financial regulators offered also varied. 
Although all of the agencies offer standard federal government 
benefits, there are variations in the extent of agency contributions 
and types of additional benefits these agencies offer. For example, all 
financial regulators offer the Federal Employees Health Benefits 
program, but agency contributions differ. Some agencies pay for a 
percentage of the health premium (e.g. 70 percent at FCA and 90 percent 
at OFHEO). CFTC contributes 100 percent for reservists called to active 
duty. The following are selected examples of the additional benefits 
that some financial regulators offer as of September 2006 unless noted 
otherwise: 

* Five of the 10 regulators--FDIC, FHFB, the Federal Reserve Board, 
OCC, and OTS--offer their employees 401(k) retirement savings plans 
with varying employer contributions. In addition, all agencies except 
the Federal Reserve Board offer the federal Thrift Savings 
Plan.[Footnote 56] 

* The Federal Reserve Board and OCC offer domestic partner benefits for 
some types of plans. 

* FCA and SEC offer child care subsidies, and FDIC and OTS offer on- 
site day care. 

* FCA, FDIC, FHFB, and OCC reimburse employee expenses related to items 
such as fitness, recreation, and adoption in their wellness accounts. 
Amounts differ from $250 per year at FDIC to $700 per year at FHFB. 

According to agency officials, a number of factors have influenced 
their pay and benefits policies and could have contributed to the 
variations in their pay ranges and benefits. For example, the length of 
time an agency has been under the comparability requirements and 
related compensation flexibility provisions affected compensation. CFTC 
and SEC officials told us that because their agencies received pay and 
benefits flexibilities and were put under a comparability requirement 
much later (in 2002) than the six FIRREA agencies (in 1989), CFTC and 
SEC have taken an incremental approach to slowly increase their pay and 
benefits to close the gap with the other financial regulators. 
According to a CFTC official, this would allow time for employee input 
and acceptance while building agency capacity to manage the authority. 
Budgetary constraints represent another factor. OFHEO officials told us 
that OFHEO did not implement a new 401(k) retirement savings plan 
recommended by its external compensation consultant, Watson Wyatt, in 
its 2005 comparability survey because OFHEO is working to control the 
growth of its personnel expenses and because budget limitations 
resulting from being part of the appropriations process has caused 
OFHEO to curtail new benefits programs. Furthermore, agency officials 
said that an agency has to consider the particular needs and 
preferences of the agency's workforce as well as ways to attract and 
retain its workforce. For example, CFTC added a fully paid dental 
benefit as a result of an online vote by employees on preferred 
benefits options. FDIC officials indicated that its employees greatly 
value the matching contribution FDIC provides on its 401(k) plan, and 
found that the matching contribution is also an effective retention 
tool. Similarly, OCC added a 401(k) retirement savings plan in order to 
attract and retain employees. According to an SEC official, SEC uses a 
student loan repayment benefit because the benefit helps to attract and 
retain employees, many of whom are recent law school graduates. Agency 
officials emphasized that it was not their goal to have identical pay 
and benefits packages; rather, they considered pay and benefits as a 
total package when seeking to maintain pay and benefits comparability 
and when setting pay and benefits policies aimed at recruiting and 
retaining employees. See table 9 for more detailed information on the 
benefits that the 10 financial regulators offer. 

The following table lists selected benefits identified by 10 financial 
regulators as of September 2006, unless otherwise noted in the table. 
We included the following categories of benefits: insurance, pre-tax 
benefits, child care, leave, travel and relocation, educational and 
professional expenses, retirement, work/life benefits, and other 
benefits and payments. 

Table 9: List of Benefits Offered by the 10 Financial Regulators: 

[See PDF for image] - graphic text: 

Source: GAO analysis of agency data. 

[End of figure] - graphic text: 

[End of section] 

Appendix V: Analysis of Movement Data of Financial Regulator Employees 
from Fiscal Years 1990 through 2006: 

We reviewed the movement of financial regulator employees from fiscal 
year 1990 through 2006 using data from the Central Personnel Data File 
(CPDF). We found that the movement of employees among the financial 
regulators was very low and presented no discernible trend, but that 86 
percent (13,433 of the 15,627) of employees leaving the regulators 
voluntarily (i.e., moving or resigning) resigned from the federal 
government. Our analysis did not include the Federal Reserve Board of 
Governors because CPDF does not contain data from the Federal Reserve 
Board. (For more detail on our methodology, see app. I.) This appendix 
includes additional data for fiscal years 1990 through 2006 on the 
average number of these employees moving among the 9 financial 
regulators; the movement of employees among 9 of the 10 financial 
regulatory agencies by occupation; and employment by occupation and 
employee movement agency snapshots. 

Figure 8 shows the average number of employees in mission-critical and 
other occupations moving among the 9 financial regulators for which we 
have data from fiscal year 1990 through fiscal year 2006. On average, a 
total of 919 employees per year moved or resigned. Movement ranged from 
an average of less than 1 for investigators to an average of over 11 
for examiners. 

Figure 8: Average Number of Employees in Mission-Critical and other 
Occupations Moving among the 9 Financial Regulators, Fiscal Years 1990- 
2006: 

[See PDF for image] - graphic text: 

Source: GAO analysis of CPDF data. 

Note: This table does not include data for the Federal Reserve Board 
because CPDF does not include data for the agency. The "all other" 
category combines specialists in occupations such as human resources 
management, administration, clerical, management and program analysis, 
financial administration, and paralegal work. 

[End of figure] - graphic text: 

Table 10 provides the actual number of financial regulator employees 
for whom we had data, by mission-critical and other occupations, who 
moved to another financial regulator from fiscal year 1990 through 
2006. 

Tables 11 through 19 provide employment by occupation and movement data 
for 9 of the 10 agencies from fiscal year 1990 through 2006.[Footnote 
57] 

Table 10: Number of Financial Regulator Employees in Mission-Critical 
and other Occupations Who Moved to another Financial Regulator, Fiscal 
Years 1990-2006: 

Fiscal year: 1990; 
Accountant: 1; 
Attorney: 9; 
Auditor: 0; 
Business Specialist: 0; 
Economist: 0; 
Examiner[D]: 12; 
Financial Analyst: 1; 
Investigator[C]: 0; 
IT Specialist: 0; 
Supervisor[A]: 9; 
All Other[B]: 30; 
Total: 62. 

Fiscal year: 1991; 
Accountant: 0; 
Attorney: 19; 
Auditor: 0; 
Business Specialist: 0; 
Economist: 1; 
Examiner[D]: 12; 
Financial Analyst: 4; 
Investigator[C]: 0; 
IT Specialist: 3; 
Supervisor[A]: 21; 
All Other[B]: 37; 
Total: 97. 

Fiscal year: 1992; 
Accountant: 2; 
Attorney: 3; 
Auditor: 3; 
Business Specialist: 0; 
Economist: 1; 
Examiner[D]: 21; 
Financial Analyst: 2; 
Investigator[C]: 0; 
IT Specialist: 0; 
Supervisor[A]: 3; 
All Other[B]: 19; 
Total: 54. 

Fiscal year: 1993; 
Accountant: 0; 
Attorney: 3; 
Auditor: 0; 
Business Specialist: 1; 
Economist: 0; 
Examiner[D]: 15; 
Financial Analyst: 1; 
Investigator[C]: 0; 
IT Specialist: 1; 
Supervisor[A]: 3; 
All Other[B]: 8; 
Total: 32. 

Fiscal year: 1994; 
Accountant: 0; 
Attorney: 3; 
Auditor: 0; 
Business Specialist: 0; 
Economist: 0; 
Examiner[D]: 8; 
Financial Analyst: 1; 
Investigator[C]: 0; 
IT Specialist: 0; 
Supervisor[A]: 8; 
All Other[B]: 3; 
Total: 23. 

Fiscal year: 1995; 
Accountant: 0; 
Attorney: 3; 
Auditor: 0; 
Business Specialist: 0; 
Economist: 1; 
Examiner[D]: 6; 
Financial Analyst: 2; 
Investigator[C]: 0; 
IT Specialist: 0; 
Supervisor[A]: 13; 
All Other[B]: 11; 
Total: 36. 

Fiscal year: 1996; 
Accountant: 1; 
Attorney: 4; 
Auditor: 1; 
Business Specialist: 1; 
Economist: 0; 
Examiner[D]: 3; 
Financial Analyst: 0; 
Investigator[C]: 0; 
IT Specialist: 1; 
Supervisor[A]: 2; 
All Other[B]: 5; 
Total: 18. 

Fiscal year: 1997; 
Accountant: 0; 
Attorney: 3; 
Auditor: 0; 
Business Specialist: 0; 
Economist: 1; 
Examiner[D]: 2; 
Financial Analyst: 1; 
Investigator[C]: 0; 
IT Specialist: 1; 
Supervisor[A]: 7; 
All Other[B]: 1; 
Total: 16. 

Fiscal year: 1998; 
Accountant: 0; 
Attorney: 8; 
Auditor: 0; 
Business Specialist: 0; 
Economist: 0; 
Examiner[D]: 28; 
Financial Analyst: 0; 
Investigator[C]: 0; 
IT Specialist: 0; 
Supervisor[A]: 4; 
All Other[B]: 7; 
Total: 47. 

Fiscal year: 1999; 
Accountant: 0; 
Attorney: 5; 
Auditor: 0; 
Business Specialist: 0; 
Economist: 0; 
Examiner[D]: 14; 
Financial Analyst: 4; 
Investigator[C]: 0; 
IT Specialist: 2; 
Supervisor[A]: 2; 
All Other[B]: 8; 
Total: 35. 

Fiscal year: 2000; 
Accountant: 0; 
Attorney: 9; 
Auditor: 0; 
Business Specialist: 0; 
Economist: 1; 
Examiner[D]: 9; 
Financial Analyst: 1; 
Investigator[C]: 1; 
IT Specialist: 0; 
Supervisor[A]: 3; 
All Other[B]: 10; 
Total: 34. 

Fiscal year: 2001; 
Accountant: 1; 
Attorney: 3; 
Auditor: 0; 
Business Specialist: 1; 
Economist: 2; 
Examiner[D]: 15; 
Financial Analyst: 1; 
Investigator[C]: 0; 
IT Specialist: 2; 
Supervisor[A]: 2; 
All Other[B]: 9; 
Total: 36. 

Fiscal year: 2002; 
Accountant: 0; 
Attorney: 7; 
Auditor: 0; 
Business Specialist: 0; 
Economist: 1; 
Examiner[D]: 5; 
Financial Analyst: 0; 
Investigator[C]: 0; 
IT Specialist: 3; 
Supervisor[A]: 7; 
All Other[B]: 4; 
Total: 27. 

Fiscal year: 2003; 
Accountant: 1; 
Attorney: 3; 
Auditor: 0; 
Business Specialist: 1; 
Economist: 1; 
Examiner[D]: 2; 
Financial Analyst: 2; 
Investigator[C]: 0; 
IT Specialist: 0; 
Supervisor[A]: 3; 
All Other[B]: 6; 
Total: 19. 

Fiscal year: 2004; 
Accountant: 1; 
Attorney: 2; 
Auditor: 0; 
Business Specialist: 0; 
Economist: 3; 
Examiner[D]: 17; 
Financial Analyst: 1; 
Investigator[C]: 0; 
IT Specialist: 2; 
Supervisor[A]: 5; 
All Other[B]: 10; 
Total: 41. 

Fiscal year: 2005; 
Accountant: 0; 
Attorney: 1; 
Auditor: 2; 
Business Specialist: 1; 
Economist: 6; 
Examiner[D]: 14; 
Financial Analyst: 2; 
Investigator[C]: 0; 
IT Specialist: 4; 
Supervisor[A]: 5; 
All Other[B]: 7; 
Total: 42. 

Fiscal year: 2006; 
Accountant: 1; 
Attorney: 3; 
Auditor: 1; 
Business Specialist: 0; 
Economist: 0; 
Examiner[D]: 16; 
Financial Analyst: 2; 
Investigator[C]: 0; 
IT Specialist: 0; 
Supervisor[A]: 8; 
All Other[B]: 8; 
Total: 39. 

Source: GAO analysis of CPDF data. 

Note: This table does not include data for the Federal Reserve Board. 

[A] Supervisors included executives, who constituted less than 1 
percent of all supervisors who moved to another financial regulator. 

[B] The "all other" category, which combines specialists in occupations 
such as human resources management, administration, clerical, 
management and program analysis, financial administration, and 
paralegal work. 

[C] CFTC officials told us that some employees in the investigation job 
series 1801 were examiners. Because the CPDF cannot distinguish 
employees in the same job series but in different job titles, we called 
all the CFTC employees classified as 1801 examiners and classified 
those in job series 1802 (compliance investigation and support) as 
investigators at CFTC. 

[D] OFHEO officials told us that some employees in the job series 0501 
(financial administration and program) were examiners; because of 
limitations of the CPDF we put all employees in job series 0501 into 
the examiner job series. 

[End of table] 

Table 11: Commodity Futures Trading Commission Employment and Movement 
Data, Fiscal Years 1990-2006: 

Employment and Movement. 

Employment: All employees; 
1990: 495; 
1991: 559; 
1992: 570; 
1993: 536; 
1994: 516; 
1995: 507; 
1996: 515; 
1997: 521; 
1998: 527; 
1999: 519; 
2000: 515; 
2001: 496; 
2002: 468; 
2003: 492; 
2004: 490;  
2005: 487; 
2006: 446. 

Employment: Accountant; 
1990: 0; 
1991: 0; 
1992: 0; 
1993: 0; 
1994: 0; 
1995: 0; 
1996: 1; 
1997: 1; 
1998: 1; 
1999: 0; 
2000: 0; 
2001: 0; 
2002: 0; 
2003: 1; 
2004: 1; 
2005: 1; 
2006: 1. 

Employment: Attorney; 
1990: 65; 
1991: 83; 
1992: 83; 
1993: 73; 
1994: 73; 
1995: 87; 
1996: 100; 
1997: 114; 
1998: 119; 
1999: 120; 
2000: 117; 
2001: 113; 
2002: 109; 
2003: 145; 
2004: 142; 
2005: 140; 
2006: 123. 

Employment: Auditor; 
1990: 27; 
1991: 29; 
1992: 27; 
1993: 26; 
1994: 24; 
1995: 25; 
1996: 24; 
1997: 25; 
1998: 26; 
1999: 26; 
2000: 27; 
2001: 25; 
2002: 23; 
2003: 23; 
2004: 23; 
2005: 26; 
2006: 26. 

Employment: Business Specialist; 
1990: 4; 
1991: 2; 
1992: 0; 
1993: 0; 
1994: 0; 
1995: 0; 
1996: 0; 
1997: 0; 
1998: 0; 
1999: 0; 
2000: 0; 
2001: 0; 
2002: 0; 
2003: 0; 
2004: 0; 
2005: 0; 
2006: 0. 

Employment: Economist; 
1990: 35; 
1991: 32; 
1992: 35; 
1993: 34; 
1994: 31; 
1995: 25; 
1996: 26; 
1997: 26; 
1998: 27; 
1999: 30; 
2000: 26; 
2001: 26; 
2002: 28; 
2003: 33; 
2004: 35; 
2005: 36; 
2006: 33. 

Employment: Examiner; 
1990: 47; 
1991: 64; 
1992: 69; 
1993: 66; 
1994: 66; 
1995: 70; 
1996: 73; 
1997: 66; 
1998: 61; 
1999: 66; 
2000: 68; 
2001: 66; 
2002: 59; 
2003: 57; 
2004: 62; 
2005: 691; 
2006: 59. 

Employment: Financial Analyst; 
1990: 1; 
1991: 1; 
1992: 1; 
1993: 1; 
1994: 1; 
1995: 1; 
1996: 1; 
1997: 1; 
1998: 1; 
1999: 3; 
2000: 4; 
2001: 4' 
2002: 4; 
2003: 3; 
2004: 3; 
2005: 3; 
2006: 3. 

Employment: Investigator; 
1990: 7; 
1991: 5; 
1992: 7; 
1993: 7; 
1994: 13; 
1995: 13; 
1996: 15; 
1997: 19; 
1998: 20; 
1999: 21; 
2000: 23; 
2001: 22; 
2002: 18; 
2003: 17; 
2004: 14; 
2005: 14; 
2006: 12. 

Employment: IT Specialist; 
1990: 15; 
1991: 15; 
1992: 16; 
1993: 15; 
1994: 16; 
1995: 16; 
1996: 17; 
1997: 17; 
1998: 21; 
1999: 23; 
2000: 25; 
2001: 28; 
2002: 24; 
2003: 28; 
2004: 30; 
2005: 29; 
2006: 29. 

Employment: All other; 
1990: 148; 
1991: 171; 
1992: 174; 
1993: 158; 
1994: 146; 
1995: 139; 
1996: 134; 
1997: 133; 
1998: 133; 
1999: 129; 
2000: 123; 
2001: 112; 
2002: 102; 
2003: 103; 
2004: 97; 
2005: 92; 
2006: 80. 

Employment: Supervisor; 
1990: 146; 
1991: 157; 
1992: 158; 
1993: 156; 
1994: 146; 
1995: 131; 
1996: 124; 
1997: 117; 
1998: 118; 
1999: 101; 
2000: 102; 
2001: 100; 
2002: 101; 
2003: 82; 
2004: 83; 
2005: 85; 
2006: 80. 

Movement. 

To other financial regulator; 
1990: 10; 
1991: 6; 
1992: 5; 
1993: 1; 
1994: 2; 
1995: 6; 
1996: 1; 
1997: 3; 
1998: 10; 
1999: 5; 
2000: 7; 
2001: 4; 
2002: 2; 
2003: 2; 
2004: 1; 
2005: 0; 
2006: 3. 

To other federal agency; 
1990: 16; 
1991: 10; 
1992: 5; 
1993: 6; 
1994: 1; 
1995: 4; 
1996: 2; 
1997: 12; 
1998: 11; 
1999: 12; 
2000: 6; 
2001: 14; 
2002: 8; 
2003: 5; 
2004: 0; 
2005: 3; 
2006: 7. 

Resigned; 
1990: 38; 
1991: 28; 
1992: 23; 
1993: 19; 
1994: 27; 
1995: 23; 
1996: 26; 
1997: 18; 
1998: 28; 
1999: 27; 
2000: 34; 
2001: 20; 
2002: 12; 
2003: 6; 
2004: 15; 
2005: 9; 
2006: 9. 

Retired; 
1990: 7; 
1991: 2; 
1992: 3; 
1993: 6; 
1994: 10; 
1995: 7; 
1996: 7; 
1997: 6; 
1998: 9; 
1999: 13; 
2000: 5; 
2001: 8; 
2002: 31; 
2003: 8; 
2004: 7; 
2005: 9; 
2006: 33. 

Fired, other separations, reductions in force;  
1990: 8; 
1991: 1; 
1992: 2; 
1993: 3; 
1994: 0; 
1995: 2; 
1996: 3; 
1997: 3; 
1998: 1; 
1999: 1; 
2000: 1; 
2001: 1; 
2002: 0; 
2003: 3; 
2004: 3; 
2005: 0; 
2006: 1. 

Source: GAO analysis of CPDF data. 

[End of table] 

Table 12: Farm Credit Administration Employment and Movement Data, 
Fiscal Years 1990-2006: 

[See PDF for image] - graphic text: 

Source: GAO analysis of CPDF data. 

[End of figure] - graphic text: 

Table 13: Federal Deposit Insurance Corporation Employment and Movement 
Data, Fiscal Years 1990-2006: 

[See PDF for image] - graphic text: 

Source: GAO analysis of CPDF data. 

Note: During some of the time under review, FDIC was actively 
downsizing its workforce and achieved that in part by providing buyouts 
and other incentives for employees to leave. 

[End of figure] - graphic text: 

Table 14: Federal Housing Finance Board Employment and Movement Data, 
Fiscal Years 1990-2006: 

[See PDF for image] - graphic text: 

Source: GAO analysis of CPDF data. 

[End of figure] - graphic text: 

Table 15: National Credit Union Administration Employment and Employee 
Movement Data, Fiscal Years 1990-2006: 

[See PDF for image] - graphic text: 

Source: GAO analysis of CPDF data. 

[End of figure] - graphic text: 

Table 16: Office of the Comptroller of the Currency Employment and 
Employee Movement Data, Fiscal Years 1990-2006: 

[See PDF for image] - graphic text: 

Source: GAO analysis of CPDF data. 

[End of figure] - graphic text: 

Table 17: Office of Federal Housing Enterprise Oversight Employment and 
Employee Movement Data, Fiscal Years 1990-2006: 

[See PDF for image] - graphic text: 

Source: GAO analysis of CPDF data. 

[End of figure] - graphic text: 

Table 18: Office of Thrift Supervision Employment and Employee Movement 
Data, Fiscal Years 1990-2006: 

[See PDF for image] - graphic text: 

Source: GAO analysis of CPDF data. 

[End of figure] - graphic text: 

Table 19: Securities and Exchange Commission Employment and Employee 
Movement Data, Fiscal Years 1990-2006: 

[See PDF for image] - graphic text: 

Source: GAO analysis of CPDF data. 

[End of figure] - graphic text: 

Table 20: Other Federal Agencies Employment and Employee Movement Data, 
Fiscal Years 1990-2006: 

[See PDF for image] - graphic text: 

Source: GAO analysis of CPDF data. 

[End of figure] - graphic text: 

[End of section] 

Appendix VI: Comments from the U.S. Commodity Futures Trading 
Commission: 

U.S. Commodity Futures Trading Commission: 
Three Lafayette Centre: 
1155 21st Street, NW, Washington, DC 20581: 
Telephone: (202) 418-5160: 
Facsimile: (202) 418-5541: 
www.cftc.gov: 

Office of the Executive Director: 

Jun 1 2007: 

Ms. Orice M. Williams: 
Director, Financial Markets and Community Investment: 
United States Government Accountability Office: 
Washington, DC 20548: 

Dear Ms. Williams: 

Thank you for providing the Commodity Futures Trading Commission (CFTC) 
with an opportunity to review and comment on your draft report entitled 
Financial Regulators: Agencies Have Implemented Key Performance 
Management Practices, but Opportunities for Improvement Exist. We 
appreciate your study team's thorough and thoughtful approach to 
analyzing this key aspect of our ongoing efforts to advance our mission 
goals through improved strategic management. As an indication of the 
value we place on your efforts, I would like to highlight several areas 
in which we intend to make use of the facts and recommendations 
presented in the draft. 

Above all, the aim of our process for developing our new performance 
management and pay-for-performance systems has been to observe best 
practices by conducting a transparent process to which all employees 
can contribute. Our Pay Parity Governance Committee (PPGC) is the main 
vehicle for this purpose, and has previously found it useful to inform 
staff of practices at the other financial regulators. We will encourage 
our employees to review your report as well, to help further our common 
understanding of the nature and purpose of the CFTC's overall efforts 
to improve our strategic human capital management. 

Those efforts produced a performance-based pay program that 
specifically addressed needs expressed by CFTC employees and managers. 
One such need was for more guidance on how to perform at a higher 
summary rating level. As a result, we describe all five performance 
rating levels in our revised performance management program, which took 
effect in October of last year after mandatory training for all staff. 
The program focused on specific areas that employee focus groups and 
online surveys indicated were primary needs. Results from the previous 
Federal Human Capital Survey (FHCS) were another important source of 
ideas for change. While the CFTC placed last among the ten financial 
regulators in terms of employee confidence in the meaningful 
recognition of performance differences, a key fact is that the survey 
took place before CFTC employees had full information on our new 
program. We will use your final report to again demonstrate that CFTC 
considers employee inputs vitally important to building successful 
human capital programs. 

As we seek to be an employer of choice for staff with competencies 
related to federal oversight of the highly competitive financial 
industry, your report's information on the ten regulators' pay 
comparability efforts will help us communicate the absolute and 
relative value of our total rewards approach to compensation. In March 
2006, the PPGC approved a compensation philosophy to guide our 
stewardship of this authority, as we operate within our appropriation 
but outside of certain Title 5 limitations. We are always looking, 
however, for best practices such as those you cite in this and earlier 
reports we have studied, which help improve our strategic management of 
human capital. For example, we were the first agency to fully adopt the 
competency-based Strategic Workforce Planning system developed by the 
Nuclear Regulatory Commission, the agency that placed first in the 2006 
FRCS and did so based - according to media outlets quoting its Chairman 
- on having a culture of openness and improved communication with 
employees. We will use your report as important third-party input to 
our ongoing assessment of CFTC strategies to recruit, retain, and 
develop mission-critical staff. 

Finally, as recommended in your report, the PPGC has already discussed 
working with our unions to communicate overall results of performance 
appraisal and pay decisions across the agency. As with the other CFTC 
efforts cited in your report and this letter, this is consistent with 
our aim to preserve and enhance the trust and understanding of all 
participants in our performance-based pay system. We have found that a 
transparent and participative approach, such as you recommend, leads to 
sound decisions on the strategic management of human capital. 

Thank you again for conducting this study and for this opportunity to 
comment for the record. 

Sincerely, 

Signed by: 

Madge Bolinger Gazzola: 
Executive Director: 

[End of section] 

Appendix VII: Comments from the Board of Governors of the Federal 
Reserve System: 

Board Of Governors Of The Federal Reserve System: 
Washington, D.C. 20551: 
Stephen R. Malphrus: 
Staff Director For Management: 

May 18, 2007: 

Sent by email to WilliamsO@gao.gov: 

Ms. Orice M. Williams: 
Director, Financial Markets and Community Investment: 
U.S. Government Accountability Office: 
Washington, D.C. 20548: 

Dear Ms. Williams, 

Thank you for the opportunity to comment on the draft report, Financial 
Regulators: Agencies Have Implemented Key Performance Management 
Practices, but Opportunities for Improvement Exist (GAO-07-678). There 
are no recommendations for the Federal Reserve Board and therefore we 
have no formal comments to offer on the report. We would like to 
express our appreciation to the GAO staff for their consideration of 
comments we provided on earlier drafts of the report. 

Sincerely, 

Signed by: 

Stephen R. Malphrus: 

Mail Stop 50, Washington, DC 20551:
Telephone: (202) 452-2801: 
Internet: steve.malphrus@frb.gov: 
Facsimile: (202) 728-5832: 

[End of section] 

Appendix VIII: Comments from the Federal Housing Finance Board: 

Federal Housing Finance Board: 
1625 Eye Street, N.W., Washington. D.C. 20006-4001: 
Telephone (202) 408-2500: 
Facsimile: (202) 408-1435: 
www.fhtb.gov: 

May 23, 2007: 

Anne Inserra: 
Senior Analyst: 
Government Accountability Office: 
441 G St., NW:
Washington, DC 20548: 

Dear Ms. Inserra: 

Thank you for the opportunity to respond to the draft GAO report (GAO- 
07-678) entitled "Financial Regulators-Agencies Have Implemented Key 
Performance Management Practices but Opportunities for Improvement 
Exist." The Finance Board offers two comments. The first is intended to 
clarify a statement in the draft report and the second responds to the 
GAO recommendation. 

The report presently states, in the first bullet point on Page 19, that 
office directors see ratings and make decisions on pay, but the 
information is not shared across offices or with all employees. That 
statement is correct with respect to "all employees." However, 
information on ratings and pay increases is communicated to most agency 
employees. Specifically, the Director of the Office of Supervision 
(OS), the Finance Board's largest office and the office responsible for 
the mission of the agency, sends an annual email to all OS employees 
describing the range of increases for the particular year and the 
standards used in assigning merit increases for that year. A copy of 
the most recent email, describing ratings and merit increases for 
calendar year 2007, is attached. Please include this additional 
information in the report. 

GAO recommends that the Chairman of the Finance Board communicate the 
overall results of the performance appraisal and pay increase decisions 
to all employees on an agency-wide basis while protecting individual 
confidentiality. We agree and will implement that recommendation. Going 
forward, the Finance Board will communicate overall results of the 
performance appraisal and pay increase decisions to all employees on an 
agency-wide basis. 

If you have any questions please contact me at (202) 408-2514 or 
leed@fhfb.gov. 

Sincerely, 

Signed by: 

David A. Lee: 
Acting Director: 

Attachment: 

[End of section] 

Appendix IX: Comments from the National Credit Union Administration: 

May 29, 2007: 

Ms. Belva Martin: 
Assistant Director: 
Financial Markets and Community Interests: 
United States Government Accountability Office: 
Washington, DC 20548: 
martinb@gao.gov: 

Dear Ms. Martin: 

Thank you for the opportunity to comment on GAO-07-678 draft report 
"Agencies Have Implemented Key Performance Management Practices but 
Opportunities for Improvement Exist". 

We agree that under the Financial Institutions Reform, Recovery and 
Enforcement Act of 1989 (FIRREA) the requirement for comparability is 
not to have identical pay and benefit packages but to maintain 
comparability when setting pay policies aimed at recruiting and 
retaining employees. As the report noted, there is little employee 
movement among the financial regulators and the audit found no 
discernible trends in that movement. 

We are providing the following additional information on issues that 
relate to NCUA. 

Some Financial Regulators Did Not Fully Implement the Safeguard of 
Providing Overall Ratings and Pay Increase Results to All Employees, 
Which Would Increase Transparency in Their Performance-based Pay 
Systems: 

The report notes that "NCUA shares information on the results of the 
merit pay decisions with directors, but not with all employees. An NCUA 
official told us that it is up to the directors to decide whether or 
not to share this information with their staff." 

NCUA is in the process of negotiating pay and benefits with the 
National Treasury Employees Union, the exclusive representative for 
NCUA employees, and this is one of the issues presently being 
negotiated. The Agency proposal to the union does provide for this type 
of transparency. 

Agencies Have Aligned Individual Performance Expectations with 
Organizational Goals in Different Ways: 

Agencies Have Reinforced Alignment in Policies and Guidance for 
Performance Management Systems: 

This subsection notes that the FDIC has in its performance management 
policy directive the statement "[to] establish fair and equitable 
performance expectations and goals for individuals that are tied to 
accomplishing the organization's mission and objectives. [t]he 
directive further states `the major goals, objectives, and/or primary 
responsibilities of a position which contribute toward accomplishing 
overall organizational goals and objectives (as found in FDIC's 
Strategic Plan and Annual Performance Plan)." 

While NCUA's present performance management system does not 
specifically state these goals in its policy statement it will 
incorporate these ideas into it. 

Agencies Have Involved Employees and Stakeholders in Various Ways to 
Gain Ownership of Performance Management Systems: 

Agencies Have Considered Employee Input for Developing or Refining 
Performance Management Systems: 

Agencies Have Directly Engaged Employees in Consultation about the 
Performance Management System: 

Here the reports notes that "[w]hile all financial regulators involved 
employees to some degree, NCUA did not consistently solicit input on 
developing or revising competencies and standards." 

Where appropriate NCUA did seek to solicit input from employees for 
certain positions but for other positions it was not necessary. For 
positions that are common across the government, NCUA usually adopts 
the competencies established by OPM for consistency purposes, 
therefore, there is no need to solicit employee input. 

Agencies Have Involved Employees and Stakeholders in Various Ways to 
Gain Ownership of Performance Management Systems: 

Agencies Used Different Budgeting Strategies for Performance-Based Pay 
NCUA established two agency-wide merit funding pools for different 
employee grade level groups because higher graded employees usually 
received higher ratings and consequently, higher merit pay increases. 
The establishment of two merit funding pools was more advantageous to 
lower graded employees and increased the amount of funds available for 
their merit pay. 

Agencies Have Involved Employees and Stakeholders in Various Ways to 
Gain Ownership of Performance Management Systems: 

Agencies Built in Safeguards: 

Establish Appeals Processes for Performance Ratings Decisions: 

NCUA would like to be included in this section of the report because 
its present grievance procedure provides for a two step process for 
appealing performance ratings. NCUA did provide a copy of its grievance 
chapter to GAO during the audit. 

Please make the following corrections to the Tables: 

Table 10.1 - Insurance, Business travel insurance - change to "no". 

Table 10.6 - Educational and Professional Expenses, Student loan 
repayment - change to "no". 

Table 10.8 - Work/Life Benefits, Job sharing - change to "no". 

Table 10.8 - Work/Life Benefits, Other medical services/exams - change 
to read as follows: Yes, annual physical exam for senior staff; exams 
for other staff one to three years." 

In summary, NCUA's pay and benefits package, while not identical to its 
FIRREA counterparts, is still comparable with them as evidenced by its 
low employee attrition rate, including losses to other FIRREA agencies. 
If you have any questions or need further information, please feel free 
to contact me. 

Sincerely, 

Signed by: 

J. Leonard Skiles: 
Executive Director: 

Ms. Belva Martin: 
Assistant Director, GAO: 
May 25, 2007: 

cc: Reading Files (ED, OIG, OHR): 

[End of section] 

Appendix X: Comments from the Office of Federal Housing Enterprise 
Oversight: 

Office Of Federal Housing Enterprise Oversight: 
1700 G Street NW: 
Washington DC 20552: 
(202) 414-3801: 
Office Of The Director: 

May 31, 2007: 

Orice M. Williams: 
Director, Financial Markets & Community Investment (FMCI): 
Government Accountability Office: 
441 G Street, NW Room 2240-C: 
Washington, DC 20548 . 

Dear Ms. Williams: 

Reference: GAO report (GAO-07-678) entitled "Financial Regulators - 
Agencies Have Implemented Key Performance Management Practices but 
Opportunities for Improvement Exist," dated June 2007. 

The Office of Federal Housing Enterprise Oversight (OFHEO) would like 
to thank the General Accountability Office for their comprehensive 
review of the pay systems of the financial regulators. Maintaining pay 
comparability as required by our enabling legislation is an issue of 
utmost importance to OFHEO. As one of the smaller regulators with 
limited resources, it is very helpful to us to have an unbiased 
benchmark review of where we stand as compared to the other 
organizations with which we are working to maintain pay parity. 

Please find enclosed a list on clarifications and technical 
corrections. 

I appreciate the opportunity to provide feedback on the draft report. 
Please contact Janet Murphy, Chief Human Capital Officer at (202) 414- 
8904 if you have questions or would like to discuss our comments. 

Sincerely, 

Signed by: 

James B. Lockhart III: 
Director: 

Enclosure - Clarifications and Technical Corrections: 

[End of section] 

Appendix XI: Comments from the Securities and Exchange Commission: 

United States Securities And Exchange Commission: 
Washington, D.C. 20549: 
Executive Director: 

May 29, 2007: 

Ms. Orice M. Williams Director: 
Financial Markets and Community Investment: 
U.S. Government Accountability Office: 
441 G Street, N.W. 
Washington, D.C. 20548: 

Dear Ms. Williams: 

Thank you for the opportunity to respond to your draft report entitled, 
"Financial Regulators-Agencies Have Implemented Key Performance 
Management Practices but Opportunities for Improvement Exist" (GAO-07- 
678). The SEC agrees with the findings of this report and offers the 
following comments. 

Recognizing deficiencies in the current performance management program 
and opportunities for significant improvement in communicating and 
managing performance expectations of its work force, the SEC 
established a new branch within the Office of Human Resources (OHR). 
The Performance and Accountability Branch, established September 2006, 
teams with the Employee and Labor Relations Branch to oversee the 
Commission's performance-related issues. Currently, this branch is 
developing and implementing a new performance management program for 
the Commission. This new program is being piloted within the OHR, 
emphasizes the need for unambiguous criteria for making rating and 
merit increase decisions, and is based on equity and transparency. The 
new program complies with the Office of Personnel Management's 
Performance Appraisal Assessment Tool (PAAT), makes greater 
distinctions in performance to support our pay-for-performance system, 
governs the performance of Senior Officers as well as SK-level 
personnel, and will address each of the concerns outlined in the 
report. 

The SEC is very confident in our new performance management program and 
believes that once completely implemented this program will strengthen 
the areas of concern cited in the report, as well as provide a solid 
foundation for individual and organizational improvement. 

Sincerely, 

Signed by: 

Diego T. Ruiz:
Executive Director: 

[End of section] 

Appendix XII: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Orice Williams, (202) 512-8678, or williamso@gao.gov Brenda Farrell, 
(202) 512--5140 or farrellb@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Belva Martin and Karen Tremba, 
Assistant Directors; Thomas Beall; Amy Friedlander; Robert Goldenkoff; 
Eugene Gray; Simin Ho; Anne Inserra; Janice Latimer; Donna Miller; Marc 
Molino; Jennifer Neer; Barbara Roesmann; Lou Smith; Tonya Walton; 
Lindsay Welter; Gregory Wilmoth; and Robert Yetvin made major 
contributions. 

(450460): 

FOOTNOTES 

[1] GAO, 21st Century Challenges: Reexamining the Base of the Federal 
Government, GAO-05-325SP (Washington, D.C.: February 2005). 

[2] See, e.g., section 1206 of the Financial Institutions Reform, 
Recovery, and Enforcement Act of 1989 (FIRREA), Pub. L. No. 101-73. See 
also, H. Conf. Rpt. No. 101-222, 457-458 (1989). While FIRREA uses 
"compensation" to mean "pay," for purposes of this report, compensation 
is defined as employee pay and benefits. 

[3] GAO, Human Capital: Preliminary Observations on the 
Administration's Draft Proposed "Working for America Act," GAO-06-142T 
(Washington, D.C.: Oct. 5, 2005); Human Capital: Senior Executive 
Performance Management Can Be Significantly Strengthened to Achieve 
Results, GAO-04-614 (Washington, D.C.: May 26, 2004); and Results- 
Oriented Cultures, Creating a Clear Linkage between Individual and 
Organizational Success, GAO-03-488 (Washington, D.C.: Mar. 14, 2003). 

[4] GAO, Human Capital: Implementing Pay for Performance at Selected 
Personnel Demonstration Projects, GAO-04-83 (Washington, D.C.: Jan. 23, 
2004). 

[5] The other three key practices are: provide and routinely use 
performance information to track organizational priorities, require 
follow-up actions to address organizational priorities, and maintain 
continuity during transitions. 

[6] The smallest number of performance plans we examined from an agency 
was 1, in a case where the performance plans for all employees are 
completely standardized, and the largest number of plans we reviewed 
from an agency was 32. See table 3 in appendix I for more information 
on the dates of the performance appraisal cycles we reviewed at each 
agency. 

[7] Resignations do not include employees who left an agency due to 
retirement. 

[8] Pub. L. No. 101-73, section 1206, 103 Stat. 183, 523 (Aug. 9, 
1989). 

[9] Sections 301, 702, 1202-3, and 1210 of Pub. L. No. 101-73. 

[10] Section 1315 of the Federal Housing Enterprises Financial Safety 
and Soundness Act of 1992, Pub. L. No. 102-550, 106 Stat. 3941 (1992). 

[11] Section 8(a) of the Investor and Capital Markets Fee Relief Act, 
Pub. L. No. 107-123, 115 Stat. 2390 (2002). 

[12] Section 10702(a) of the Farm Security and Rural Investment Act of 
2002, Pub. L. No. 107-171, 116 Stat. 516 (2002). 

[13] GAO-03-488. 

[14] GAO-04-614. 

[15] The other four practices are (1) align individual performance 
expectations with organizational goals, (2) connect performance 
expectations to crosscutting goals, (3) use competencies to provide a 
fuller assessment of performance, and (4) involve employees and 
stakeholders to gain ownership of performance management systems; the 
financial regulators have implemented these important practices in 
various ways. 

[16] SEC had two distinct performance appraisal cycles, one for senior 
officers and one for all other employees. The completed cycles we 
examined were as follows: for senior officers from October 2004 to 
September 2005; for all other employees from May 2005 to April 2006. 

[17] According to SEC officials, all employees received the annual 
across-the-board pay increase that all GS employees received. 

[18] During the completed performance appraisal cycle we reviewed for 
CFTC (July 1, 2005, to June 30, 2006), the agency operated under a 
performance management system in which the only increases directly 
linked to performance ratings were some performance bonuses. In October 
2006, CFTC introduced a new performance management system directive 
that affects the performance planning and appraisal processes. The 
agency will introduce an accompanying new pay policy in July 2007 that 
will complete the transition to a performance-based pay system under 
which merit increases will be linked to performance ratings. The new 
system was developed by an agency committee with employee and union 
input and the final approved system took effect on October 1, 2006. 
(The American Federation of Government Employees union has chapters at 
CFTC's Chicago and New York offices.) CFTC officials informed us that 
they do not plan to continue the annual pay adjustments in the new 
system, but will continue to use locality pay percentages equivalent to 
General Schedule executive order locality percentage increases. 

[19] In the collective bargaining agreement for years 2006-2009, pay 
group 1 will receive a 5 percent pay increase and 1 percent lump sum 
payment, pay group 2 will receive a 3.2 percent pay increase and 1 
percent lump sum, and pay group 3 will receive a 2.4 percent pay 
increase. Pay group 4, containing individuals who did not receive a 
"meets expectations" rating in the first appraisal process, will 
receive no increase. 

[20] Section 4301 of Title 5 of the U.S. Code defines unacceptable 
performance as failure to meet established performance standards in one 
or more critical performance elements. 

[21] SEC used "steps" to indicate performance-based pay increases. Zero 
steps meant no increase, one step corresponded to an increase of 1.47 
percent, two steps to an increase of 2.94 percent, and three steps to 
an increase of 4.41 percent. 

[22] GAO-06-142T and GAO-04-614. 

[23] See appendix III for a discussion of different ways in which 
agencies budgeted for performance-based increases, including use of 
funding pools. 

[24] GAO-03-488. 

[25] GAO-06-142T. 

[26] Rating levels at the agencies that accounted for less than 3 
percent of employees included the following categories: "unacceptable," 
"unsatisfactory," "unsuccessful," "minimally acceptable," "minimally 
successful," "marginal," and "does not meet expectations." 

[27] Securities and Exchange Commission, Office of the Inspector 
General, Enforcement Performance Management, Audit Report No. 423 (Feb. 
8, 2007). 

[28] See appendix I for our criteria for selecting mission-critical 
occupations in our study. We excluded executives from the analysis of 
average actual pay and pay scale. In addition, with the exception of 
the Federal Reserve Board and OFHEO, which do not have separate base 
and locality pay, the base pay shown in figure 3 does not include 
locality pay percentages. 

[29] The analysis of employee movement does not include data for the 
Federal Reserve Board, because the CPDF does not include data for the 
agency. 

[30] The "all other" category combines specialists in occupations such 
as human resources management, administration, clerical, management and 
program analysis, financial administration, and paralegal work. The 
three occupational categories with employee movement were attorney, 
examiner, and supervisor. 

[31] The performance appraisal and pay systems at FDIC and SEC were 
sufficiently different from those of the other eight agencies that a 
correlation coefficient would not be a useful descriptor of the 
relationship between ratings and pay increases at these two agencies. 
Both FDIC and SEC use two-phase performance management systems that 
preclude the meaningful use of a single correlation coefficient. 
Neither the first or second processes in their systems are sufficiently 
comparable to the multilevel performance rating scales and pay increase 
determinations used at the other financial regulators. In the first 
process at FDIC and SEC, almost all employees were rated as 
"acceptable" on what was essentially a two-level, "acceptable/ 
unacceptable" rating scale. The lack of variation in performance 
ratings given in the first process would show little association with 
pay increases, and computing a correlation for this step would yield a 
coefficient at or around zero. In the second process, which was not 
considered to be a performance rating at these agencies, employees were 
assigned to performance groups at FDIC or awarded steps at SEC that 
were associated with specified percentage increases in pay. Computing a 
correlation between group assignment or steps awarded and percentage of 
pay increase would yield a perfect correlation since group or step 
assignment was synonymous with a specific percentage increase in pay. 

[32] OPM's six occupational categories are Professional, 
Administrative, Technical, Clerical, Other White-Collar, and Blue 
Collar, collectively known as "PATCOB." When we sent the list of 
mission critical occupations to the agencies, we listed the 
occupational title and asked the agency to identify the OPM job series 
number they used for that occupation. For some occupations, all 
agencies used the same job series (for example, 0905 for attorneys). 
For other occupations, some agencies used different job series for the 
same or similar occupation (for example, agencies used several agency- 
unique job series for "examiners" such as 1831, 0580, and 0570). Two 
agencies (CFTC and OFHEO) placed employees in the same job series (1801 
for CFTC and 0501 for OFHEO) into two different occupations (examiners 
and investigators, and examiners and financial analysts, respectively). 
In both cases, we placed all employees in the examiner occupation 
because the CPDF does not facilitate separating employees with the same 
job series into separate occupations. For a few occupations, some 
agencies used an OPM job series number that we did not expect (for 
example, OFHEO used 0301 for information technology specialists and FCA 
used 1101 for examiners). When we analyzed CPDF data, we used the 
occupational titles and job series numbers the agencies provided to us. 
Executives were not included in the pay analyses. We excluded 
executives from the analysis of average actual pay and pay scale, 
because we wanted to focus on mid-level management. 

[33] We were not able to always find a transfer-in personnel action to 
match a transfer-out personnel action within the time frames stipulated 
for transfers. Some transfer-in personnel actions that we did not find 
in fiscal year 1990 could be due to the fact that the transfer-out 
personnel action occurred in fiscal year 1989. Similarly, some of the 
transfer-out personnel actions in fiscal year 2006 for which we did not 
find a matching transfer-in personnel action could be due to the fact 
that they occurred in fiscal year 2007. 

[34] According to OPM, performance elements identify the activities, 
skills, or responsibilities that the employee is expected to achieve 
during the year and performance standards identify how well the 
employee must meet each performance element to receive a specific 
performance rating. 

[35] Federal Deposit Insurance Corporation, Performance Management 
Program, Directive System Circular 2430.1, Mar. 28, 2002. 

[36] GAO-04-614; GAO, Managing for Results: Emerging Benefits From 
Selected Agencies' Use of Performance Agreements, GAO-01-115, 
Washington, D.C.: (Oct. 30, 2000). 

[37] GAO, Human Capital: Managing Human Capital in the 21ST Century, 
GAO/T-GGD-00-77 (Washington, D.C.: Mar. 9, 2000). 

[38] GAO-04-614. 

[39] Basel II is a set of proposed changes to the original set of risk- 
based capital rules based on an internationally adopted framework 
developed by the Basel Committee. In the United States, Basel II rules 
are intended to apply primarily to the largest and most internationally 
active banking organizations. 

[40] GAO-04-614. 

[41] According to an agency official, OFHEO's weighting system is 
expected to be modified as revisions are made to the performance 
management system. 

[42] Employees at FDIC, NCUA, OCC, and SEC are represented by the 
National Treasury Employees Union. OTS employees in Washington, D.C., 
and CFTC staff at two offices are represented by the American 
Federation of Government Employees. 

[43] GAO, Human Capital: Practices that Empowered and Involved 
Employees, GAO-01-1070 (Washington, D.C.: Sept. 14, 2001). 

[44] The Federal Service Impasses Panel is part of the Federal Labor 
Relations Authority and resolves impasses between federal agencies and 
labor unions representing federal employees arising from negotiations 
over conditions of employment. The Panel may make recommendations to 
the parties on how to overcome the impasse, if bargaining and mediation 
are unsuccessful. 

[45] We did not assess whether meetings involving employees in 
performance planning or appraisals were conducted in accordance with 
agency policy or the quality of the interactions between supervisors 
and employees. We relied on representatives from employee groups and 
unions to describe their perceptions of actual employee participation 
in expectation-setting meetings and their perceptions of management's 
consideration of employee input into appraisals. 

[46] According to OCC officials, generic performance plans are 
established for examiners because they all perform similar functions. 
The primary objectives in these standardized plans are generic. Any 
additional primary objectives or secondary objectives included in the 
examiner performance plans are tailored to individuals. According to 
officials, commissioned examiners should have at least one secondary 
objective in their performance plans so that they have the potential to 
receive a level 4 (highest) performance rating. Precommissioned 
examiners, who are focused on completing a rigorous training program, 
are not required to have secondary performance objectives, although 
they are not prohibited from having them. 

[47] A correlation coefficient is a measure of association (strength) 
of the relationship between two variables; in this case, ratings and 
percentage increases in pay. A positive correlation coefficient would 
mean that the two variables tend to increase (or decrease) together. A 
positive coefficient would indicate that as the rating goes up, so does 
the percentage increase in pay. A negative coefficient would mean that 
the two factors have an inverse relationship--as one variable 
increases, the other decreases. Values of the coefficient may range 
from -1.0 to +1.0. The percentage increase in ratings-linked pay was 
based on the combined value of both increases in base pay and lump sum 
(one time) payments, relative to prior annual salary. The performance 
appraisal and performance-based pay systems at FDIC and SEC were 
sufficiently different from the other eight agencies that we do not 
include correlation coefficients for these two agencies. See appendix 
I, Objectives, Scope, and Methodology, for additional information 
concerning the exclusion of FDIC and SEC from this analysis. 

[48] In those instances where agency rating scales used lower numeric 
values to indicate higher performance levels, the values were reversed 
so that all coefficients would reflect the relationship of an increase 
in ratings with an increase in pay as a positive coefficient. 

[49] See appendix I for additional information on the limitations of 
the correlation coefficient. 

[50] Officials at one agency told us that setting separate budget 
amounts for merit pay increases for each unit helped to ensure that 
merit pay resources were more fairly distributed across the units. 

[51] GAO-06-142T. 

[52] For the six FIRREA financial regulatory agencies (FCA, FDIC, FHFB, 
NCUA, OCC, and OTS), see sections 301, 702, 120-3, 1206, and 1210 of 
the Financial Institutions Reform, Recovery, and Enforcement Act of 
1989, Pub. L. No. 101-73 (1989); for OFHEO, section 1315 of Pub. L. No. 
102-550 (1992); for SEC, section 8(a) of Pub. L. No. 107-123 (2002), 
and for CFTC, section 10702 (a) of Pub. L. No. 107-171 (2002). 

[53] While many of the financial regulatory agencies received increased 
flexibility under FIRREA in 1989, such flexibility was afforded to 
OFHEO in 1992 and to CFTC and SEC in 2002. 

[54] GAO, Results-Oriented Government: Practices That Can Help Enhance 
and Sustain Collaboration among Federal Agencies, GAO-06-15 
(Washington, D.C.: Oct. 21, 2005). 

[55] We did not include the Federal Reserve Board and OFHEO in our 
example on differences in agencies' base pay because the Federal 
Reserve Board and OFHEO's base pay include the element equivalent to 
other agencies' locality pay for Washington, D.C. 

[56] In addition to these five agencies, FCA offered a 401(k) plan but 
discontinued it in December 2006. 

[57] The data in these tables are for permanent employees only. 

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