Summary
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.
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.
Recommendations
Our recommendations from this work are listed below with a Contact for more information. Status will change
from "In process" to "Implemented" or "Not implemented" based on our follow up work.
Director:
Team:
Phone:
Orice M. Williams
Government Accountability Office: Strategic Issues
(202) 512-5837
Recommendations for Executive Action
Recommendation: 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.
Agency Affected: Department of Housing and Urban Development: Office of Federal Housing Enterprise Oversight
Status: Implemented
Comments: The Office of Federal Housing Enterprise Oversight shared information with employees through a memo dated June 28, 2007 on the percentage of employees who received each of the possible different summary performance ratings for 2005, 2006, and 2007. OFHEO also shared with employees in a May 15, 2007, memo the performance-based pay increase percentages to be awarded to employees in the various rating categories for 2007. By adopting this safeguard of sharing information on the results of performance rating and performance-based pay increase decisions with employees, while protecting individual confidentiality, OFHEO increased transparency. OFHEO reportedly plans to share this type of information with all employees in the future.
Agency Affected: Farm Credit Administration
Status: Implemented
Comments: The Farm Credit Administration shared information with employees through an internal newsletter dated June 27, 2007, on the number of individuals who received each of the 5 possible summary performance ratings for 2006, as well as the pay increase percentages for each rating. By adopting this safeguard of sharing information on the results of performance rating and performance-based pay increase decisions with employees, while protecting individual confidentiality, FCA increased transparency. FCA reportedly plans to share this type of information with all employees each January.
Agency Affected: Federal Housing Finance Board
Status: Implemented
Comments: The Federal Housing Finance Board provided all employees with overall results of the performance appraisal and pay increase decisions for 2007 and 2008 in a January 2008 email. By adopting this safeguard of sharing information on the results of performance rating and performance-based pay increase decisions with employees, while protecting individual confidentiality, FHFB increased transparency.
Recommendation: 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.
Agency Affected: Commodity Futures Trading Commission
Status: Implemented
Comments: The Commodity Futures Trading Commission shared information with employees through an internal memo dated November 14, 2007, on performance ratings and bonus amounts paid across the CFTC, as well as information on bonuses paid within divisions and offices. By adopting this safeguard of sharing information on the results of performance rating and performance-based pay increase decisions with employees, while protecting individual confidentiality, CFTC increased transparency. CFTC reportedly plans to share this type of information with all employees each year.
Agency Affected: National Credit Union Administration
Status: In process
Comments: NCUA's collective bargaining agreement with the union became effective in January 2008. According to articles in the agreement, the agency is supposed to provide the union with information on the name, performance pool, grade, and merit pay tier for each merit pay recipient. NCUA officials stated that they provided the merit pay information to the union on March 31, 2008, and that in addition to data on merit pay recipients, the data included information on individuals who were rated "minimally satisfactory" or "unsatisfactory." However, NCUA officials stated that they did not know whether the union had shared this information with bargaining unit employees.
Recommendation: The Chairman of the Securities and Exchange Commission should communicate clearly the criteria for making performance rating and pay increase decisions to nonexecutive employees.
Agency Affected: Securities and Exchange Commission
Status: In process
Comments: SEC is in the process of implementing a new performance management system that will replace its current pass-fail system. According to SEC, the new system is intended to provide greater transparency regarding criteria for making performance rating and pay increase decisions and will use clear performance standards for each employee. Under the new system, each employee should be able to see how performance decisions, derived from an assessment of performance versus the standard, translate to performance ratings and pay increase decisions. The new system is being implemented in phases and the final phase is not expected to begin until FY 2009. For the upcoming performance cycle, SEC is de-coupling merit pay from performance, with all non-executive employees receiving the same percentage increase to basic pay. According to SEC, there is no value in communicating the criteria for making performance rating and pay increase decisions this year. However, SEC stated that once the new system is used to make merit pay decisions, it is committed to clearly communicating criteria for making performance rating and pay increase decisions to all employees.
Recommendation: The Chairman of the Securities and Exchange Commission should 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.
Agency Affected: Securities and Exchange Commission
Status: In process
Comments: According to SEC, the Federal Service Impasses Decision and Order of October 2006 (FSIP 06-54) required the agency to partner with the union in implementing a new performance management/pay-for-performance system. The SEC has formed a Labor Management Work Group consisting of four members representing management and four members representing the union. SEC management intends for this group to remain active following initial implementation and throughout the first few cycles of its new performance management system. According to SEC, an important aspect of the FSIP decision is for the agency to work with union officials to communicate overall results of the performance management process and pay decisions to all employees agency-wide, while protecting individual confidentiality. SEC is implementing the new performance management system in phases, with managers and supervisors being covered under the new program first. Remaining employees are expected to be placed under the new system in the final phase, which is expected to begin in fiscal year 2009.
Recommendation: The Chairman of the Securities and Exchange Commission 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.
Agency Affected: Securities and Exchange Commission
Status: In process
Comments: According to SEC, its new performance management system will include Senior Executives as well as the agency's non-executive employees. The agency stated that its revised senior executive policy is still in draft, but it will include the requirement for the performance of Senior Officers to be assessed at least annually.
