Performance Pay Idea Still Taking Shape

The Trump administration has not explained more fully a proposal in its budget to place a greater emphasis on performance in federal employee salaries, beyond issuing a fact sheet saying the White House favors creation of a central $1 billion fund that would be used for performance-based payouts.

Says the fact sheet: “It is important to appropriately compensate personnel based on mission needs and labor market dynamics. The existing compensation system fails in this regard. The budget foregoes an across-the-board pay increase for 2019, while proposing to realign incentives by enhancing performance-based pay and slowing the frequency of tenure-based step increases.”

It proposes the $1 billion to be used for an “interagency workforce fund” that would “replace the across-the-board pay raise that provides federal employees with increases irrespective of performance with targeted pay incentives to reward and retain high performers and those with the most essential skills.”

By “tenure-based step increases” the document is referring to within-grade raises, which are worth about 3 percent of salary and are paid at regular intervals under the GS and wage grade systems, until reaching the top step of a grade. The document says that currently, 99.7 percent employees meet the performance standard of “fully successful” and receive them.

Additional “quality step increases” are allowed as a way of rewarding employees for top performance, but they are relatively little used–a report on the most recent year available shows fewer than 41,000 of them in 2014.

Pay for performance based systems generally involve eliminating both types of within-grade raises–while combining grades into pay bands that have no steps–and using that money as a source of funds for performance-based increases. It is not clear whether that would be the source of the proposed $1 billion central fund, or whether that fund would be on top of savings from not paying within-grade raises.

Nor has it been addressed how money from such a fund would be allotted–for example, whether only employees rated at the top level would receive payments, or whether smaller payments also would be made to those below that level.

Another complication is that the administration proposal seems to mix the concepts of performance-based pay and non-competitive salaries for high-demand occupations. There are various forms of incentives for recruiting and retaining employees in such occupations. However, like quality step increases they too are used relatively rarely, paid to only 6 percent of employees over 2014-2016.