PerformanceOriented Payband Systems: Are They for You

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Performance-Oriented Payband Systems Are They
for You?

• James R. Thompson
• Graduate Program in Public Administration
• University of Illinois Chicago

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Overview

• What is paybanding?
• Advantages of paybanding
• History of paybanding in the federal government
• Payband system design
• Case studies
• Design fundamentals
• Design specifics

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What is paybanding?

• Career groups and bands replace grades
• Each band is equivalent to multiple grades
• No steps within bands

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What is paybanding?Career groups and bands
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What is paybanding?Bands replace grades
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Advantages of paybanding

• Accommodates pay-for-performance
• Recruitment
• Provides managers with greater authority over pay
  matters
• Less attention to fine distinctions in job
  classification
• Less time and attention to gaming the
  classification system

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History of paybanding in the federal government

• Navy Demonstration Project 1980
• NIST 1988
• FIREA agencies 1989
• Defense ST Labs/Acquisition 1996-7
• FAA 1996
• Commerce (parts) - 1998
• IRS 2001
• Homeland Security 2003
• Defense 2006

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Payband system design

• Pay system objectives
• Equity
• Internal
• External
• Contribution
• Cost control
• Employee acceptance
• Understandability

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Payband system designNavy Demonstration Project
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Payband system design

• GAO
• Standardized rating score
• Annual adjustment
• Budget factor
• Range position
• Base pay increase versus bonus

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Payband system design

• Design issues
• Trade-offs among objectives
• Pay system complexity
• Cultural dimensions of paybanding

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Payband system designTrade-offs among objectives
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Payband system designTrade-offs among objectives
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Payband system designTrade-offs among objectives
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Pay system designPay system complexity
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Pay system designPay system complexity

• Alternative means of cost control
• More bands
• Create a pay pool
• Manipulate key variables in pay setting formula
• Alternative means of forcing performance
  distinctions
• Percentage restrictions on top performers
• Point budget
• Rate supervisors on how well they administer the
  system

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Pay system design

• Cultural dimension of paybanding
• Force communication
• Supervisor employee
• Conveying performance expectations
• Have employee complete self-assessment
• Allow employee to comment on the form
• Among supervisors and managers
• Implementation of rating criteria
• Review boards
• Creating an atmosphere of trust

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Case studyNIST I/Commerce

• High degree of managerial discretion
• Rating elements
• Weight given each element
• Rating (40 100)
• Recommended pay increase
• Maximum allowable pay increase varies by band and
  level.
• Percent of percent rule

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Case studyNIST II
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Case studyAir Force Research Lab

• Contribution-based
• Pay increase is linked to overall contribution
  not performance over the rating period
• Common rating elements
• Standard Pay Line
• Rails
• Seamless movement between levels

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Case studyAir Force Research Lab
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Case studyIRS

• IRS Managers only
• Senior managers
• Departmental managers
• Frontline managers

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Case studyIRS

• Commissioner decides what percentage increase
  will be associated with each rating level on a
  yearly basis
• For 2007, each manager with a met rating (level
  3 in a five level system) received an increase
  equivalent to the general pay increase

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Case studyGAO

• No overall rating
• Common elements
• Standardization of rating averages by pay group
• Annual adjustment (general pay increase) set
  annually by CG
• Budget factor affects size of performance-based
  pay increases
• Market-based
• Understandability

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Case studyFDIC Nonmanagerial

• 15 bands
• Four pay groups
• PG 1 Top 25 percent
• 5 base pay increase 1 bonus
• PG 2 Next 50 percent
• 3.2 base pay increase 1 bonus
• PG 3 All other employees with a meets
  expectations rating
• 2.4 base pay increase
• PG 4 Everyone else
• No pay increase

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Case studyDoD - NSPS

• Five-level rating system
• Employees allocated shares
• Share value fluctuates
• Flexibility with regard to general pay increase
  monies

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Case studyDoD - NSPS
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Design fundamentals

• How performance-oriented should the system be?
• Should the general pay increase monies be
  included in the pay pool?
• Should limits be placed on the number of high
  ratings?
• Should bands include control points?
• Should a portion of the pay increase be paid as a
  bonus?
• 5-3-1 vs. 3-2-1

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Design fundamentals

• How much discretion should managers be given in
  the pay setting process? (hardwiring)
• Two extremes
• GAO managers only rate individual elements
• Commerce managers determine rating elements,
  weights, rating, and pay increase

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Design fundamentalsManagerial discretion

• Granting managerial discretion compensates for
  imperfections in the rating process.
• Limiting managerial discretion (hardwiring) can
  make the system more performance-oriented.
• Issues of rating system integrity where a
  specific rating translates into a specific pay
  increase
• Issues of equity when there is a high degree of
  managerial discretion
• NSPS achieves a middle ground

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Design fundamentals

• Should the system be market-based?
• GAO
• NSPS

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Design specifics

• Payband structure
• How will career groups be defined?
• How many bands for each career group?
• How wide are the bands?
• How and on what basis will the bands be adjusted?
• Will the bands have steps?
• Will the bands have control points?

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Design specifics

• Performance criteria
• How many performance elements and what types?
• Should all employees be assessed according to the
  same elements?
• Should elements be weighted?
• What is the relative importance of results vs.
  behaviors?

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Design specifics

• Rating system
• How many rating levels should there be?
• Should overall performance or only individual
  elements be rated?
• Should limits be placed on the number of high
  ratings?
• Should the same rating translate to the same
  percentage pay increase across the organization?

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Design specificsAlternative rating systems
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Design specifics

• Funding availability
• How will pay increase costs be constrained?
• How will general pay increase monies be
  allocated?
• What percentage of the annual increase will be
  paid as a bonus vs. a base pay increase?

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Design Specifics

• Pay increases
• How to performance ratings translate into pay
  increases?
• Should current salary be taken into account in
  the pay-setting process?
• Should organizational performance be taken into
  account in the pay-setting process?

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Design specifics

• Review process
• Which groups are involved in the rating/pay
  increase decision process?
• Should employees perform a self-assessment?
• How transparent is the process with regard to
  outcomes?

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Recommendations

• Determine system objectives
• Determine design principles
• Is cost control an objective?
• Tailor system to organization
• Attend to cultural aspects of pay system
• Train managers

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Payband Report athttp//www.businessofgovernment.
org/pdfs/ThompsonPaybandReport.pdf