Issue Briefs

Following are excerpts of a recent OPM report on demonstration projects and other alternative pay systems.


This report, A Status Report on Demonstration Projects and Other Performance-Based Pay Systems, is the second comprehensive update on demonstration projects and other performance-based pay systems in the Federal Government. It begins with a brief introduction of the purpose of the report, background information on authorities for agency implementation of alternative personnel systems, and OPM’s authority and role in the various projects. It continues with a description of the current status of each performance-based pay system, which together cover over 363,000 Federal employees. The report concludes with employee survey responses to questions asked on the Federal Human Capital Survey (FHCS) or annual employee surveys that have been identified as key indicators of successful alternative personnel systems.

Several significant changes have occurred in 2008:

The number of employees included in the Department of Defense (DoD) National Security Personnel System (NSPS) increased by over 60,000

The Department of Commerce (Various Components) demonstration project was extended indefinitely by Public Law 110-161


DoD is in the process of converting employees in the Navy "China Lake" demonstration project and many employees currently included in their Acquisition Demonstration Project (AcqDemo) to NSPS

The Department of Energy’s National Nuclear Security Administration (NNSA) implemented a new demonstration project converting slightly over 2,000 employees


The Intelligence Community has begun implementation of its 17 component-wide pay modernization efforts

The Commodity Futures Trading Commission (CFTC) completed the phased implementation of its performance-based pay system

Other agencies, including the Department of Commerce, National Institute of Standards and Technology (NIST); Government Accountability Office (GAO); Department of Homeland Security, Transportation Security Administration (TSA); National Credit Union Administration (NCUA); Federal Deposit Insurance Corporation (FDIC); and the Securities and Exchange Commission (SEC) have implemented modifications to their alternative personnel systems in 2008.

Future demonstration projects have been proposed for the Department of Education’s Office of Federal Student Aid (ED/FSA), the Department of Agriculture’s Food Safety and Inspection Service (USDA/FSIS) and the Department of Veterans Affairs’ Veterans Health Administration (VA/VHA).


While gathering information for this status report, OPM queried agencies mentioned in this report about various practices, processes and policies OPM has identified as key attributes to successful alternative personnel systems. The attributes are included in the evaluation framework published by OPM in 2008 in the Alternative Personnel Systems Objectives-Based Assessment Framework Handbook. Commonalities across many, if not most, of the agencies queried include:

Performance expectations are aligned with mission results

Transparency — most agencies reported they share information about their performance-based pay systems, frequently asked questions, and aggregate results of performance evaluations on intranet websites

Many agencies have increased their employee and union involvement in reviews of, and modification to, their performance-based systems and have indicated positive results


Employee survey results and other forms of employee input are being reviewed and in many cases are driving desired modifications to the systems and/or agency processes and procedures

Many agencies have established oversight entities to ensure fairness and consistency across their systems

Many agencies reported the flexibilities they have in setting initial pay and rewarding high-performers have positively affected their ability to recruit and retain a high-quality workforce.


An Alternative Personnel System (APS) may be established under discrete legislation for an agency or community of agencies, or under the demonstration project provisions of chapter 47 of title 5, United States Code. All demonstration projects are considered alternative personnel systems; however, not all APSs are demonstration projects.


APSs can cover any number of aspects of human resources management; however, the current emphasis is on moving away from traditional classification and pay systems and moving toward alternative systems where market rates and performance are central drivers of pay. Agencies seek to use APSs to implement performance-based pay systems (PPS) to improve the strategic management of their human capital and more effectively compete for and retain talent.

There are currently over 363,000 Federal employees covered by PPSs, which that fall into three categories:

Demonstration Projects: Chapter 47 of title 5, United States Code, authorizes OPM to establish and evaluate personnel demonstration projects, either directly or through agreement with one or more Federal agencies and other public and private organizations. Chapter 47 defines a demonstration project as "a project conducted by OPM, or under its supervision, to determine whether a specified change in personnel management policies or procedures would result in improved Federal personnel management."1 Chapter 47 enables the Government to test alternative, merit-based approaches to specific personnel management tasks and processes before making them more generally applicable.

Independent Systems: These agency-specific systems are established under independent authority granted by Congress either in a particular agency’s authorizing legislation or as a specific authority to implement a separate compensation system.

Executive Pay Systems: These Governmentwide performance-based pay systems require all pay increases to be driven by measured performance against established objectives and expected achievements.



OPM’s Role

The Chief Human Capital Officers Act of 2002 charges OPM with improving the strategic human capital management of the Federal Government’s civilian workforce, including associated planning and evaluation efforts. In meeting this obligation, OPM coordinates with agencies on human capital management transformation efforts, assesses agency efforts in implementing new human capital systems and programs, and leverages program outcomes for future Governmentwide human capital transformation. These overarching activities apply to alternative personnel systems, particularly performance-based pay systems. Thus, OPM has the responsibility to oversee the progress of these systems, to review or conduct evaluations, and to use those results to improve existing human capital management policies, programs, and operations.

Demonstration Projects:

OPM plays a critical role in developing and overseeing alternative personnel systems. Since receiving congressional authority over demonstration projects, OPM has actively supported the design, implementation and evaluation of 18 projects. All but four of these projects have incorporated a performance-based pay component. OPM approves each project after carefully considering the proposed design for conceptual and technical soundness. Comprehensive evaluation plans are required, as well as periodic evaluations and reports. These evaluations have been a rich source of lessons learned and best practices that have been used extensively by agencies in developing proposals for new demonstration projects. The employee perception data included in demonstration project evaluations also provide for comparisons over time as systems mature.


To assist agencies in conducting their periodic evaluations, OPM has developed the APS Objectives-Based Assessment Framework Handbook . It includes standards for evaluating APSs that establish new pay systems and related interventions, including demonstration projects. The Framework was first used to conduct the 2007 assessments of the new Department of Homeland Security APS and the Department of Defense APS — the National Security Personnel System (NSPS).

Independent Systems:

Even where Congress has granted an agency independent authority, OPM still plays a key role. OPM maintains broad oversight and accountability responsibilities, especially when alternatives to title 5 provisions are being used. When OPM observes or foresees difficulties in implementing a system feature, it notifies the agency and offers assistance in making appropriate design corrections or otherwise addresses emerging issues. Congress also may require OPM to play a role in the establishment of alternative personnel systems. For example, under the Internal Revenue Service broad-banding authority, Congress required OPM to issue criteria the IRS had to follow when they established their broad-band pay system.

OPM’s leadership role is essential to the success of APSs. Specifically, OPM’s institutional knowledge of performance-based pay systems across the Government helps agencies be more successful in implementing their APSs by providing lessons learned and best practices – helping them avoid unintended consequences.


All current Federal alternative personnel systems incorporating a performance-based pay system are covered in this report. For the purposes of the report, a pay system is defined as "performance-based" if the system provides at least two levels of performance-based pay increases for employees rated Fully Successful or higher under a regular pay adjustment cycle. Not included are systems that provide the opportunity for higher base pay increases for top performers only on an irregular or ad hoc basis, such as the opportunity to receive quality step increases under the GS.

Other alternative pay systems apply to specialized groups of Federal employees (e.g., Department of Veterans Affairs title 38 pay system and DoD Dependent Schools); however these systems are not included in this report because they do not meet OPM’s definition of "performance-based" pay systems.

Although each of the alternative pay systems are unique in some respects, most systems share common design features. Among these are:

Open ranges of pay rates, rather than fixed steps

Pay increases are usually contingent on a Fully Successful (or equivalent) employee performance evaluation

Pay increases that move employees through their pay ranges are directly – and differentially – linked to performance assessments, rather than the passage of time;

Position classification is streamlined

Pay ranges cover more broadly defined levels of work than the narrow GS grades

Overall, these PPSs emphasize and reward employees’ performance and contribution to the agency’s mission. Employees generally receive an annual pay increase commensurate with their level of performance — the higher the level of performance, the higher the annual pay increase. Annual pay increases range from 0 percent for low performers to as much as 20 percent for top performers.