Issue Briefs

Following is a portion from a CRS report that says that Congress and the executive branch should look to the experience of the DoD NSPS personnel system for lessons during any consideration of revamping personnel policies in general.



DOD is one of many federal departments and agencies seeking to create a more effective workforce. The elimination of NSPS will affect the pay system of more than 200,000 federal employees, all within DOD. Modifying Title 5 of the U.S. Code, another approach, could affect more than 2 million federal employees. Although Congress has mandated the elimination of NSPS, it has not eliminated all performance-based pay systems across the federal government. Congress may choose to keep the GS as the primary pay system for federal employees, or it may choose to create a new performance-based pay system in the future. This section analyzes possible legislative, oversight, and policy options for the future of performance-based pay, using examples from DOD’s experience with NSPS.


DOD officials have stated that one particularly beneficial flexibility of NSPS is the ability of the department to use higher starting salaries than are available under the GS scale to attract a higher caliber of college graduates to the workforce. Under Title 5 statutes, federal agencies and departments may offer a one-time lump sum recruitment bonus to employees "if the agency has determined that the position is likely to be difficult to fill in the absence of an incentive." In contrast, the pay banding system under NSPS allows a department or agency to offer a new recruit a higher starting salary because the bands include a range of pay options that are much wider than the spectrum within individual GS pay grades. Although DOD has cited this pay flexibility as an advantage of the NSPS, the department has presented no data on how many DOD employees were recruited under the NSPS flexibility, the pay levels at which such recruits were hired, or whether these recruits received higher performance appraisal ratings than similar employees hired without (or prior to) use of the NSPS pay flexibilities.

Recruitment and Retention

Prior to the phase out of NSPS, Congress may choose to require DOD to collect data on how it used pay flexibilities to recruit—and possibly retain—effective and efficient federal employees under NSPS. Such information may be useful to Congress in the future if it chooses to authorize a new performance-based pay system. The information could show whether NSPS flexibilities aided in recruitment and retention of effective employees. Measuring effective employee performance, however, is a controversial topic. Sometimes the executive and legislative branches disagree on how an agency’s workforce can best achieve its mission. Congress may need to specifically identify how it would want DOD to define the term "effective employee," to ensure that any data collected would reflect the policy designs of Congress.

P.L. 108-136

Employee Resignation

Prior to the NSPS phase out, data could also be collected to determine whether NSPS encouraged employees who did not receive successful performance ratings to leave their positions. NSPS does not give supervisors any additional flexibilities from Title 5 to fire employees. An employee rated a "2" under the NSPS rating system, however, does not receive a performance-based pay increase. An employee who is rated "1" receives neither a performance-based pay increase nor the annual across-the-board pay adjustment that is annually enacted. Mr. Bunn suggested that an employee who does not receive performance-based or other pay increases would be likely to resign from his or her position. Congress may consider requiring DOD to compile records on employees with low ratings, and study whether NSPS’s policies to deny such pay increases were, in fact, prompting low performers to resign. Such information may be useful to Congress and the Administration in future determinations of how federal employees should be paid.


NSPS currently covers approximately one-third of the personnel coverage initially planned. DOD estimated that $158 million was spent implementing the new pay system from 2005 through 2008. In September 2008, DOD and OPM estimated that $143 million will be spent on NSPS from 2009 through 2011. According to Mr. Bunn, the NSPS pay system does not receive congressional appropriations in excess of what it would have received if it had remained the GS pay system. Instead, any needed additional funding comes from within the DOD’s overall appropriations. Additional costs for NSPS, therefore, consist mainly of the expenses to run the NSPS resources office in Arlington, VA, and costs to create and install performance appraisal software.

DOD employees are covered by a variety of pay scales. The complete cost of running several pay systems within one department has not been calculated. Congress might consider requiring DOD to calculate the costs of creating software for, and implementation of, each unique pay system. This cost could then be compared to costs for pay systems of other agencies (e.g., the Department of Veterans Affairs, the Department of Homeland Security, the Department of Treasury, or the Department of Transportation). Congress would then have more thorough information on the costs of running a variety of pay systems, and may gain a greater understanding of which pay systems are more efficient and effective for the federal workforce.

Pay Pools

The 211,000 employees currently in NSPS are divided into roughly 1,600 "pay pools." Each pay pool consists of between 35 and 150 employees. Employees assigned to a pay pool draw their performance-based pay increases from the same funds. In NSPS, pay pool managers have the authority to increase the size of the funding pot by adding an overall performance bonus to the pool if, for example, the pool’s members as a whole accomplish pre-set goals as a unit. The bonus increase may be small, but could increase the pay of all employees who qualify for performance-based pay increases at the end of the year.

Authorities granted to pay pool managers can help the manager use pay to further motivate employees to perform their jobs. Allowing individual pay pool managers to influence the size of the pay pool pot, however, may prompt employees to believe the payout process is unfair – especially if they are in a pay pool with a manager that does not increase the funding pot. Moreover, if an employee is assigned to a pay pool with colleagues who have disparate job assignments, it may be difficult for a pay pool manager to define overall pay pool goals to which all employees could contribute equally. Some employees may believe that their job assignment may not affect whether pay pool goals are reached. Other employees may believe that their job assignment carries most of the burden toward reaching their assigned pay pool’s goals. If Congress decides to authorize a performance-based pay system in the future, it may choose to remove the ability of pay pool managers to change the size of the funding pot for employees.

Anonymous Pay Pool Ratings

Performance-based bonus amounts in NSPS are determined by both a pay pool manager and pay pool panel, which is a collection of higher-level supervisors within DOD. Each pay pool is assigned its own pay pool panel. Employees are informed of which supervisors serve on their pay pool’s panel. Some employees may personally know members of the pay pool panel or the pay pool manager, while other employees may not. NSPS policies do not require pay pool managers or panel members to remove employees’ names from performance appraisals when they are using the rating scores to determine individual annual payouts. Keeping the names of employees visible during payout determination may cause certain employees to believe favoritism may influence pay pool panel decisions. If Congress chose to create a performance-based pay system in the future, it may consider removing the employee’s name from a performance appraisal to eliminate concerns of favoritism toward a well-known and well-liked employee. Such action may also eliminate concerns of an employee who believes knowledge of his or her identity could harm the payout determination.

Outlier Ratings

Certain organizations within DOD may be staffed with employees who collectively perform either much higher, or much lower, than average units. These outlier units may be assigned to their own pay pool. If an outlier group consists of extraordinarily high-performing employees, then the performance-based pay increases for these employees may be less than that of employees with similar ratings in pay pools with colleagues who receive average rating scores. The pay pool is a finite amount of money from which to draw pay increases. If every employee achieves high ratings, the size of the pay pool remains the same. The size of an individual’s share, however, may be less than an employee with a similar rating in a different pay pool if his or her pay pool colleagues all receive high ratings. The size of the pay pool’s funding pot would remain constant whether the pool was high-performing or low performing. A pay pool that received comparatively low ratings (mostly 2s and 3s), therefore, may have members that receive a disproportionately high payout when compared to a colleague with a similar performance rating from an average or high-performing pay pool. An employee who received a rating of 3 in a low-performing pay pool may receive a payout equal to or greater than an employee who received a 4 in a higher-performing pay pool.

Congress may consider NSPS’s payout process the appropriate payout process, or it may choose to consider a different payout process if a performance-based pay system is authorized in the future. Performance-based pay system administrators may consider adding or subtracting funding from individual pay pools based on the average performance ratings of the individuals that compose the pay pool. In the case of a comparatively high-performing collection of workers, they could have additional funding added to their pay pool because their ratings were statistically higher than those of average or underperforming divisions. This pay increase would increase the payouts for those high-performing employees. Conversely, employees in comparatively low-performing divisions could have funding removed from their pay pool and decrease the payout for employees with statistically lower performance ratings. Money taken away from pay pools of lower-performing divisions could be reallocated into the pay pools of higher performing divisions. Adding such a provision to a performance-based pay system, however, may cause confusion and frustration among employees. The provision could prompt employees to believe that payout results are inconsistent and arbitrary, and based more on variations among supervisors’ ratings approaches than on the relative strengths of individual pools. If employees do not believe their performance will lead to a pay increase of a sizeable value, the system may not operate properly. Additionally, because employee performance may stay consistent from year to year while payouts vary, employees may fail to see a solid link between their performance and their pay increase.

Opportunities for Employee Grievance

Pursuant to NSPS policy, an employee who is dissatisfied with his or her performance appraisal may request a reconsideration of the employee’s rating within 10 days of receiving his or her rating by submitting "a written request for reconsideration to the pay pool manager." The request must include a copy of the rating and a statement clarifying which part of the rating is being challenged. Within 15 days of receiving the request, the pay pool manager is to render a written statement that explains his or her determination. If the employee remains unsatisfied, he or she may—within five days of receiving the pay pool manager’s decision—submit a written request for final review with the Performance Review Authority (PRA), which oversees all pay pools and ensures consistency in performance and evaluations across the agency. The PRA has 15 days to respond to the request. Bargaining employees may also file a grievance under the agency’s negotiated grievance process.

Congress may consider the NSPS reconsideration process appropriate, or it may choose to consider other options for reconsideration in any future performance-based pay system. Some government agencies have created complaint-handling or internal ombudsman offices. Creation of an ombudsman-like office could serve as a resource for employees who believe the pay system is flawed or treated them unfairly. These offices can be designed in a variety of ways. Among the most essential design decisions are determining the powers and duties of the office, the jurisdiction of the office, and the office’s location within a department or agency. The office’s location would determine to whom the ombudsman would report any findings or recommendations. If, for example, the ombudsman reported to DOD officials, the office may have less influence than if it reported to the Secretary of Defense, President, or Congress. Other decisions to consider when designing an ombudsman’s office are determining who would select and appoint the ombudsman, whether the ombudsman would serve as a neutral fact-finder or an employee advocate, and the office’s annual budget.

New Hires

NSPS requires employees to work with supervisors at the beginning of the performance-appraisal year to determine goals for the year. A new hire, who serves at least his or her first year of federal service on a probationary period, may not have the necessary information available to determine achievable and effective work goals. Congress may consider the policies adopted by NSPS appropriate. On the other hand, Congress may choose to consider a different performance-based pay system design for future pay systems that could include additional performance-appraisal consultations for new hires during their probationary period. The additional consultations could be used to give probationary employees opportunities to discuss and modify the goals that they and their supervisor create. Congress also may consider requiring additional training for supervisors on how to help acclimate new hires to any federal pay system.

Measuring Success

DOD asked Congress to grant the department flexibilities from Title 5 of the U.S. Code to make the workforce more agile and effective. DOD, however, has not provided to Congress data that would clearly demonstrate the agency has been working toward the goals it sought to achieve when requesting workforce flexibilities. Congress may choose to directly ask for aggregate data on how many employees have been recruited under the NSPS pay system, how quickly employee pay increased in the pay band structure, and how many applications for promotion into a new pay band were processed.

In addition, NSPS administrators could aggregate data on information already collected. For example, the Performance Appraisal Application requires supervisors to select the method by which they conduct each of the three annually required employee meetings. These data could demonstrate whether NSPS met its goal of encouraging employee-supervisor face-to-face interaction if they were looked at over time. NSPS has not aggregated such data to determine what percentage of employee performance appraisals are performed face-to-face, via telephone, or via computer. Such information may be helpful when attempting to design a more effective performance-based pay system.

Workplace Incentives

Currently, the federal government can offer its employees a variety of incentives to enhance job performance other than pay increases (5 U.S.C. 5753 and 5754), including retention, recruitment, and relocation incentives. As noted earlier, Congress could enact legislation that would modify Title 5 and create additional recruitment, retention, and relocation flexibilities for a majority of federal departments and agencies. Congress may choose to allocate more funding for existing incentives or enact laws that would create new incentives, giving agencies a variety of rewards for effective employee performance. Among many options is the possibility of permitting departments and agencies to offer additional vacation days or sick leave in order to attract and retain employees. Congress could also require federal employers to offer programs that help employees pay back school loans. Such programs may attract more recent graduates to federal service. Congress could also consider creating programs that would make child care more accessible to federal employees. Making child care more accessible to federal employees could make federal government an attractive option for potential employees starting a family. President Obama and the Office of Personnel Management have also announced their intention to seek health and other benefits for the domestic partners of employees involved in same-sex relationships. Adding new flexibilities to Title 5 could give all government agencies and departments a variety of new options to attract and retain effective federal employees. All of these options may require additional congressional appropriations, as well as changes or additions to existing federal statutes. Congress may also be concerned that such additional incentives may not be necessary during a time of increasing unemployment rates. Instead, the additional incentives could be made available only in federal agencies where there has been difficulty hiring or maintaining staff.

Concluding Observations

Congress created NSPS and granted DOD pay flexibilities to run the performance-based system. Many members have consistently been interested in ensuring that the federal government maintains a transparent and fair pay system that is trusted by administrators, supervisors, and employees. Unions have, historically, not favored pay-for-performance systems, and DOD’s NSPS was no exception. Congress may use NSPS as a model—evidencing both good and bad experiences—for a federal workforce that may transition to a performance-based pay system in the future. NSPS has faced, solved, and failed to solve a variety of challenges in its attempt to attract and retain a high-quality workforce. Overall, NSPS serves as a demonstration of how elements of a performance-based pay system can work or cannot work in certain large federal agencies.


statutorily required DOD to create a pay system that linked pay to employee performance. The performance appraisal system could be used to measure and compare performance ratings among its employees, and provide the federal government an opportunity to record how many employees were recruited or retained with use of this performance-based pay system’s flexibilities. Moreover, the system could be used to compare performance ratings between employees recruited or retained with use of the flexibilities to those NSPS employees who were already in the pay system and were not recruited or retained as a result of new pay flexibilities. Such a comparison may identify whether NSPS attracted and retained more effective government employees than other pay systems—a primary goal of the more flexible pay system. Such analyses may be useful as both Congress and the Administration face whether to maintain the GS pay scale or create a new pay scale that more directly links pay to an employee’s performance.