U.S. Office of Personnel Management - Ensuring the Federal Government has an effective civilian workforce

Fall 2000

Developing Strategic Compensation

The Office of Personnel Management's (OPM) strategic goals include developing a flexible, competitive, and performance-oriented compensation and benefits environment that allows the Government to recruit, manage, and retain a quality Federal workforce. In order to do this, we established the Strategic Compensation Policy Center. At the Strategic Compensation Conference 2000, Greg Zygiel, the Center's Chief, explained our strategic compensation development process, which includes:

• research on compensation practices and issues;
• outreach to the Federal community to inform and involve; and
• involving Federal stakeholders in discussions of possible changes.

OPM's Strategic Objective: A flexible, competitive, and performance-oriented strategic rewards environment that allows the Government to recruit, manage, and retain a quality Federal workforce is developed by fiscal year 2002.

 

Research. The Center is conducting research around seven major components of compensation: performance management, structure setting and adjustment, job-work evaluation, pay progression strategies, variable pay, premium/special pay, and paid time off. So far, findings that relate performance management to other components of compensation include:

• pay progression based primarily on performance is a widespread practice in the private sector, whereas public sector systems reflect values and objectives such as internal equity, cost control, and an emphasis on experience and longevity;
• most private and public sector organizations link pay and performance in some way;
• most States have formal performance evaluation systems that use summary ratings and that link those ratings to pay, similar to the Federal sector;
• two-thirds of private sector companies offer at least one variable pay plan that uses performance measures for non-sales employees;
• variable pay expenses have doubled from about 4 percent to about 8 percent of overall payroll expenses; and
• the most popular basic variable pay plans are incentive awards based on meeting a combination of financial and operational benchmarks.

Policy and design issues related to these components emerged from the research. We must consider these issues related to performance management when developing proposed changes to Federal compensation:

• How will performance be measured and linked to pay?
• Are rates of pay progression that differ based on performance distinctions acceptable? Under what circumstances?
• What types of performance should be measured–outputs, results, behaviors, attributes, or a combination of these?
• If agencies expanded variable pay programs, would they be able to defend larger and more varied awards and higher compensation costs to Congress and the public?

Next Steps. Earlier this year, we met with representatives of Federal stakeholder organizations–Federal agencies, Federal employee unions, management associations, and public interest organizations–to establish workgroups to review the available information about compensation. The workgroups are organized around the various compensation components. The workgroups' review and exchange of ideas will give us a basis to fashion recommendations to improve compensation systems. The recommendations are due in fiscal year 2002.

For more information, you may contact the Center at 202-606-8486 or visit the Center's webpage.