Order Code RL33128
CRS Report for Congress
Received through the CRS Web
Senior Executive Service (SES) Pay System
October 25, 2005
L. Elaine Halchin
Analyst in American National Government
Government and Finance Division
Congressional Research Service ˜ The Library of Congress

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Senior Executive Service (SES) Pay System
Summary
A new pay system for the Senior Executive Service (SES) was established in
2004 by Section 1125 of the FY2004 National Defense Authorization Act (P.L. 108-
136). This legislative provision capped several years when the Director of the Office
of Personnel Management (OPM) had advised federal agencies that they needed to
provide more rigorous and realistic ratings of their senior executives. (In FY2002,
69% of career senior executives received the highest rating.) Additionally, certain
components of the new system could help resolve the long-standing problem of pay
compression within the SES. Key features of the new pay system, which took effect
on January 11, 2004, include the elimination of locality pay and annual pay
adjustments (which were provided in conjunction with annual adjustments for
General Schedule and Executive Schedule employees); the replacement of six pay
rates (ES-1 through ES-6) with one broad pay range; an increase in the cap on base
pay from Executive Schedule IV (EX-IV) to EX-III; and the addition of a second,
higher cap, EX-II, for SES appraisal systems that have been certified by OPM.
The certification process involves, in part, designing and implementing a
performance appraisal system that makes meaningful distinctions based on the
relative performance of senior executives (or senior-level (SL), or scientific or
technical (ST) professionals). With the concurrence of the Office of Management
and Budget (OMB), OPM developed a certification regulation, which includes nine
criteria agencies must meet in the design and administration of their appraisal
systems. Barring any compliance problems that might arise after certification has
been awarded, full certification is for two calendar years. Provisional certification
for one calendar year is awarded when an appraisal system meets design
requirements, but there is insufficient documentation to determine whether
implementation meets certification requirements. Certification also determines the
cap on aggregate compensation for senior executives and SL and ST employees. For
an appraisal system that has not been certified, the cap is EX-I; for an appraisal
system that has been certified, the cap is the equivalent of the Vice President’s salary.
The second, higher cap (Vice President’s salary) and the establishment of a
certification process were enacted by Section 1322 of the Homeland Security Act of
2002 (P.L. 107-296). (For SL and ST employees, certification does not affect their
base pay.)
Some of the issues that might arise with the implementation of the new SES pay
system and certification process are how to define “meaningful distinctions,” the
potential for the politicization of senior executives, and the system’s implications for
the notion of “rank in person,” which is a key feature of the SES. This report will be
updated as events warrant.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Pay Compression . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
President’s Management Agenda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
New SES Pay-for-Performance System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Senior Level and Senior Technical Positions . . . . . . . . . . . . . . . . . . . . . . . 11
Comparison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Conversion to the New Pay System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Remedy for the Senior Foreign Service (SFS) and Senior
Executives Stationed Overseas . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Certification of Performance Appraisal Systems . . . . . . . . . . . . . . . . . . . . . . . . . 15
Certification Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Full and Provisional Certification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Policy Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Meaningful Distinctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
A Focus on the Highest Level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Ratings Distributions by Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Potential for Politicization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
DOD Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
NASA Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
The Importance of Early Experiences . . . . . . . . . . . . . . . . . . . . . . . . . 31
Rank in Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Tracking New Pay System Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Appendix A. Senior Executive Annual Summary Ratings Distribution by
Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 1126, P.L. 108-136 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Government Accountability Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Coalition for Effective Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Robert D. Behn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
List of Tables
Table 1. SES Pay Schedule, 1999-2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Table 2. SES Basic Pay and Pay Rate Distribution, 1999-2002 . . . . . . . . . . . . . . 6
Table 3. Comparison of Selected Features of Former and Current SES Pay
Systems in 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

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Table 4. Career SES Performance Ratings by Agency in Five-Level
Systems, FY2000-FY2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Table 5. Career SES Performance Ratings by Agency in Four-Level
Systems, FY2000-FY2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Table 6. Career SES Performance Ratings by Agency in Three-Level
Systems, FY2000-FY2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Table 7. Agencies Whose Percentage of Top Executives Receiving the
Highest Rating Was Less Than 60% in FY2002 and FY2003 . . . . . . . . . . 26

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Senior Executive Service (SES) Pay System
Introduction
The Senior Executive Service (SES), established by the Civil Service Reform
Act of 1978 (P.L. 95-454, 92 Stat. 111), consists of approximately 7,000 top-level
federal executives. Creation of the SES was undertaken with the goal of remedying
problems related to the recruitment, retention, development, and management of
senior executives. Highly competent and skilled as leaders and managers, members
of the SES constitute a major link between top presidential appointees and other
federal employees. About 90% of senior executives are career appointees, who were
selected for the SES on the basis of meeting executive core qualifications.1
Noncareer appointees do not have to meet the same competitive selection
requirements, but they also do not receive the same entitlements as career senior
executives do.2 Approximately 70% of senior executives are in Washington, DC,
Virginia, and Maryland.
Two notable features of the SES are pay for performance and rank residing in
the person, not the position. For senior executives, SES offers a trade-off. In return
for the opportunity to earn greater financial rewards through outstanding job
performance, executives give up some of the usual job security associated with the
civil service. The concept of rank residing in the individual is based on the notion
that it facilitates reassignment of executives to functions, agencies, or positions
where they are needed.
In 2004, the SES pay system was changed dramatically, with these changes
driven by two factors: pay compression, which has been a long-standing problem for
senior executives, and the President’s Management Agenda (PMA), which was
instituted in 2001 by the Bush Administration. The previous pay system had six pay
levels, and pay compression resulted in senior executives at the top three SES pay
levels receiving essentially the same amount of base (or basic) pay in a given year.
Under the PMA, the Bush Administration has emphasized pay for performance for
senior executives, and has criticized agency performance management systems that
apparently fail to make meaningful distinctions among senior executives’ job
performances.
1 See U.S. Office of Personnel Management, “Executive Core Qualifications (ECQ’s),”
available at [http://www.opm.gov/ses/ecq.asp], for detailed information.
2 For more information on the noncareer SES, see U.S. Office of Personnel Management,
The Senior Executive Service, Feb. 2004, p. 3, available at [http://www.opm.gov/ses/pdf/
SESGUIDE04.pdf].

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CRS-2
The next section of this report examines the new SES pay system, and includes
a comparison between the new system and the previous system and an explanation
of the caps on aggregate compensation. An overview of the certification process and
a discussion of policy issues follows. Appendix B contains four sets of guidelines
developed by different parties that are intended to describe key principles and
activities necessary for the establishment and operation of an effective, credible pay-
for-performance system.
Pay Compression
A combination of factors created salary compression within the ranks of the
SES. As noted previously, under the previous pay system, there were six rates of
base pay, ES-1 through ES-6. The lowest rate could not be less than “120 percent
of the minimum rate of basic pay for GS-15 of the General Schedule,” and the
highest rate of basic pay could not exceed Executive Schedule Level IV (EX-IV).3
Within these parameters, the President was required to adjust the rates of basic pay
for senior executives whenever an adjustment was made, under 5 U.S.C. § 5303, in
the General Schedule rates of pay. However, the President determined the amount
by which to adjust SES base pay.4 Also, under the former pay system, SES members
received locality pay when the Pay Agent decided to extend it to the SES, which had
been done every year.5 The combination of basic pay and locality pay for senior
executives was capped at EX- III.6
While the statutorily-imposed floor pushed up from the bottom, annual salary
adjustments increased SES basic pay and, in the absence of significant increases in
Executive Schedule salaries, statutory salary caps squeezed down from the top.
Consequently, as shown in Table 1, the differences in amounts of pay between some
SES pay levels were nonexistent or negligible. In each column, the amount entered
in “ES-6” is the maximum amount of basic pay, or basic pay and locality pay,
payable to senior executives for that year. In columns where the same amount for
basic pay and locality pay is entered in two or more rows (for example, ES-5 and ES-
6), senior executives in all localities at those pay levels received the same
(maximum) amount of basic and locality pay. Otherwise, the amount of base pay
plus locality pay was not the same in every locality.
3 5 U.S.C. § 5376(b)(1)(A); 5 U.S.C. § 5382(b). These citations refer to sections of the U.S.
Code that were subsequently amended by Sec. 1125 of P.L 108-136, which effected the
changes in the SES pay system.
4 5 U.S.C. § 5382(c). This citation refers to a section of the U.S. Code that was subsequently
amended by Sec. 1125 of P.L 108-136.
5 The President’s Pay Agent consists of the Secretary of Labor and the Directors of the
Office of Management and Budget and the Office of Personnel Management. The President
delegated authority to the Pay Agent, through Executive Order 12883, to extend locality pay
to certain categories of positions, including SES positions.
6 5 U.S.C. § 5304(g)(2). This citation refers to a section of the U.S. Code that was
subsequently amended by Sec. 1125 of P.L 108-136.

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CRS-3
Table 1. SES Pay Schedule, 1999-2003
1999
2000
2001
2002
2003
Pay
Level
Basic Pay &
Basic Pay &
Basic Pay &
Basic Pay &
Basic Pay &
Basic Pay
Basic Pay
Basic Pay
Basic Pay
Basic Pay
Locality Pay
Locality Pay
Locality Pay
Locality Pay
Locality Pay
ES-1
$102,300
$108,305-
$106,200
$113,400-
$109,100
$117,479-
$113,000
$122,763-
$116,500
$127,707-
$115,660
$121,141
$127,625
$134,515
$141,417
ES-2
$107,100
$113,387-
$111,200
$118,739-
$114,200
$122,971-
$118,300
$128,521-
$122,000
$133,736-
$121,087
$127,891
$133,591
$138,200i
$142,500k
ES-3
$112,000
$118,574-
$116,300
$124,185-
$119,400
$128,570-
$123,700
$134,388-
$127,500
$139,766-
$125,900b
$130,200f
$133,700h
$138,200j
$142,500l
ES-4
$118,000
$124,927-
$122,200
$130,200g
$125,500
$133,700g
$129,800
$138,200g
$133,800
$142,500g
$125,900c
ES-5
$118,400a
$125,350-
$122,400a
$130,200g
$125,700a
$133,700g
$130,000a
$138,200g
$134,000a
$142,500g
$125,900d
ES-6
$118,400a
$125,350-
$122,400a
$130,200g
$125,700a
$133,700g
$130,000a
$138,200g
$134,000a
$142,500g
$125,900e
Sources: U.S. Office of Personnel Management, “Rates of Basic Pay for Members of the Senior Executive Service, Employees in Senior-Level and Scientific or Professional Positions,
Administrative Law Judges, and Members of Boards of Contract Appeals,” Jan. 1999; U.S. Office of Personnel Management, “1999 Locality Rates of Pay for Members of the Senior
Executive Service,” Jan. 1999; U.S. Office of Personnel Management, “2000 Scheduled Rates of Basic Pay for Members of the Senior Executive Service and Employees in Senior-Level
and Scientific or Professional Positions,” Jan. 2000; U.S. Office of Personnel Management, “2000 Locality Rates of Pay for Members of the Senior Executive Service,” Jan. 2000;
U.S. Office of Personnel Management, “2001 Scheduled Rates of Basic Pay for Members of the Senior Executive Service, Employees in Senior-Level and Scientific or Professional

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CRS-4
Positions, Administrative Law Judges, and Members of Boards of Contract Appeals,” Jan. 2001; U.S. Office of Personnel Management, “2001 Locality Rates of Pay for Members of
the Senior Executive Service and Employees in Senior-Level and Scientific or Professional Positions,” Jan. 2001; U.S. Office of Personnel Management, “2002 Scheduled Rates of
Basic Pay for Members of the Senior Executive Service, Employees in Senior-Level and Scientific or Professional Positions, Administrative Law Judges, and Members of Boards of
Contract Appeals,” Jan. 2002; U.S. Office of Personnel Management, “2002 Locality Rates of Pay for Members of the Senior Executive Service and Employees in Senior-Level and
Scientific or Professional Positions,” Jan. 2002; U.S. Office of Personnel Management, “Salary Table 2003-ES, Rates of Basic Pay for Members of the Senior Executive Service (SES),”
Jan. 2003; U.S. Office of Personnel Management, “Locality Rates of Pay for Members of the Senior Executive Service,” Jan. 2003.
Notes:
a. This is the maximum amount of basic pay allowed for senior executives.
b. In 2 of 32 localities, ES-3 basic pay and locality pay was $125,900.
c. In 22 of 32 localities, ES-4 basic pay and locality pay was $125,900.
d. In 27 of 32 localities, ES-5 basic pay and locality pay was $125,900.
e. In 27 of 32 localities, ES-6 basic pay and locality pay was $125,900.
f. In 4 of 32 localities, ES-3 basic pay and locality pay was $130,200.
g. This is the maximum amount of basic pay and locality pay allowed for senior executives, and senior executives at this pay level in all localities received the same amount.
h. In 8 of 32 localities, ES-3 basic pay and locality pay was $133,700.
i. In 2 of 32 localities, ES-2 basic pay and locality pay was $138,200.
j. In 15 of 32 localities, ES-3 basic pay and locality pay was $138,200.
k. In 4 of 32 localities, ES-2 basic pay and locality pay was $142,500.
l. In 20 of 32 localities, ES-3 basic pay and locality pay was $142,500.

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CRS-5
The information displayed in Table 1 shows the extent of pay compression for
the period 1999-2003. The amount of base pay was virtually the same at the top
three pay levels for each year. Beginning in 2000, there were no differences among
the combinations of base pay and locality pay at the top three pay levels for each
year. The greatest variation in base pay occurred at the three lowest pay levels, ES-1
through ES-3, and the pay range for these three levels increased slightly over five
years. The difference between ES-1 and ES-3 base pay in 1999 was $9,700; the
difference in 2003 was $11,000.
Table 2 contains the pay rate distribution for these same years, which shows
how many senior executives were assigned to each pay level.

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CRS-6
Table 2. SES Basic Pay and Pay Rate Distribution, 1999-2003
1999
2000
2001
2002
2003
Pay
Level
# Sr.
% Sr.
# Sr.
% Sr.
# Sr.
% Sr.
# Sr.
% Sr.
# Sr.
% Sr.
Basic Pay
Basic Pay
Basic Pay
Basic Pay
Basic Pay
Execs
Execsa
Execs
Execsa
Execs
Execsa
Execs
Execsa
Execs
Execsa
ES-1
$102,300
915
14%
$106,200
1,012
15%
$109,100
1,047
16%
$113,000
1,099
16%
$116,500
1,182
18%
ES-2
$107,100
787
12%
$111,200
877
13%
$114,200
845
13%
$118,300
927
14%
$122,000
931
14%
ES-3
$112,000
993
15%
$116,300
937
14%
$119,400
949
14%
$123,700
955
14%
$127,500
1,023
15%
ES-4
$118,000
2,413
36%
$122,200
2,447
36%
$125,500
2,344
35%
$129,800
2,288
34%
$133,800
2,262
34%
ES-5
$118,400
1,100
16%
$122,400
1,074
16%
$125,700
1,003
15%
$130,000
1,011
15%
$134,000
930
14%
ES-6
$118,400
510
7%
$122,400
484
7%
$125,700
439
7%
$130,000
423
6%
$134,000
408
6%
Sources: U.S. Office of Personnel Management, “SES Pay Rate Distribution as of September 30, 1999”; U.S. Office of Personnel Management, “Senior Executive Service Pay Rate
Distribution as of September 30, 2002,” available at [http://www.opm.gov/ses/index_demograph.asp]; U.S. Office of Personnel Management, “Senior Executive Service Pay Rate
Distribution as of September 30, 2001,” available at [http://www.opm.gov/ses/index_demograph.asp]; U.S. Office of Personnel Management, “Senior Executive Service Pay Rate
Distribution as of September 30, 2002,” available at [http://www.opm.gov/ses/index_demograph.asp]; U.S. Office of Personnel Management, “Senior Executive Service Pay Rate
Distribution as of September 30, 2003,” available at [http://www.opm.gov/ses/index_demograph.asp].
Note:
a. Percentages have been rounded.

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CRS-7
Nearly 60% of senior executives in any given year were paid at ES-4, ES-5, or
ES-6, which means that all of these executives earned virtually the same amount of
basic pay. Negation of the financial distinctions among these three pay levels could
undermine the concept of rank in person. It is also possible that pay compression
could affect recruiting, retention, and reassignments within the SES. Comparison
among the four years shows that a similar pattern occurred each year, with the highest
percentage of senior executives (34%-36%) clustered at ES-4. The smallest
percentage of executives — 6%-7% — were paid at the ES-6 level. The remaining
senior executives were evenly distributed (in terms of percentages) across the
remaining four pay levels. It is not clear why the highest percentage of senior
executives is found at ES-4. A possible explanation is that, because of pay
compression, there was no financial reason for moving senior executives to ES-5 and,
ultimately, ES-6.
President’s Management Agenda
Whereas pay compression has been a long-standing problem for members of the
SES, the other impetus for altering the SES pay system has its roots in the
President’s Management Agenda. Introduced in 2001, the PMA is focused on
fostering a government that is citizen-oriented, market-driven, and results-oriented.
The strategic management of human capital is one of five PMA initiatives.7 An
excerpt from the PMA chapter on human capital states:
The managerial revolution that has transformed the culture of almost every other
large institution in American life seems to have bypassed the federal workforce.
Federal personnel policies and compensation tend to take the same “one-size-
fits-all” approach they took in 1945. Excellence goes unrewarded; mediocre
performance carries few consequences; and it takes months to remove even the
poorest performers .... These realities contribute to the growing consensus that
action is required. The federal government has a unique opportunity to redefine
the way it manages human capital .... [The Administration’s assessment of
personnel flexibilities] and outcomes achieved under demonstration projects ...
will help ... permit more performance-oriented compensation .... Accountability
for results will be clear and meaningful, with positive rewards for success and
real consequences for failure.8
The Bush Administration’s interest in the performance of senior executives and
how it could be connected to results, organizational excellence, and the
Administration’s priorities was articulated initially in a November 1, 2001,
memorandum that focused exclusively on the SES. In the memorandum to agency
human resources directors, the Director of the Office of Personnel Management
(OPM) wrote:
Although many of you have only been confirmed recently, you can still use the
appraisal process to reinforce our commitment to a results-oriented Government.
7 Executive Office of the President, U.S. Office of Management and Budget, The President’s
Management Agenda, Fiscal Year 2002, available at [http://www.whitehouse.gov/omb/
budget/fy2002/mgmt.pdf].
8 Ibid., pp. 11-13, 15.

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CRS-8
You can ensure that measurable results, not anecdotes, form the basis of
executive appraisals. It is completely appropriate to use this opportunity to ask
as many follow-up questions as possible and to obtain documentation of results.
You can direct rating officials and Performance Review Board members to be
rigorous in preparing recommendations on ratings and bonuses. And, most
importantly, you can personally communicate your intent to use the SES
appraisal system to drive organizational excellence .... It is important that
agencies ensure that executive performance plans reflect this Administration’s
priorities, including the President’s Management Agenda. A critical aspect of
this process is establishing executive performance goals and expectations in line
with agency strategic goals and objectives, regularly assess[ing] performance
against these goals, and [using] performance as a true basis for pay, development,
and other personnel decisions.9
Noting that agencies had “rated 85% of their executives at the highest level their
system permits,” the Director added: “... [T]hese statistics suggest that agencies are
not making meaningful distinctions between those who merely do what’s expected
and those with a consistent track record of outstanding performance.”10
A second memorandum on senior executives from the OPM Director to
department and agency heads, dated September 27, 2002, expressed a similar theme,
reminding agency officials that performance appraisals should be based on results,
and urging them to be more discerning in preparing recommendations on ratings and
bonuses. The Director wrote:
I believe that we have begun to see some shift toward results-based appraisals
and greater accountability. However, we have a long way to go. As your
FY2002 appraisal cycles come to a close, I once again urge you to ensure that
measurable results, not anecdotes, from the basis of your senior executives’
performance appraisals. By directing your Performance Review Boards to be
rigorous in preparing recommendations on ratings and bonuses, you
communicate your intention to use SES performance management systems to
drive organizational excellence and hold executives accountable.
To facilitate this effort, OPM implemented new requirements in FY2001 for
managing senior executive performance that emphasized results over process and
gave agencies considerable flexibility to design systems tailored to their unique
and changing missions, cultures, and needs. These requirements call for the
establishment of executive performance standards that are in line with agency
strategic goals and objectives. They also require agency leadership to expect
excellence, communicate performance expectations, and appraise performance
against those expectations, take action to reward outstanding performers, and
deal appropriately with those who do not measure up.
One of the dimensions of the Human Capital Scorecard [a device used by the
Office of Management and Budget (OMB) to measure agencies’ success in
meeting PMA standards] is the creation of a performance culture that motivates
9 U.S. Office of Personnel Management, “Senior Executive Excellence and Accountability,”
memorandum, transmittal #MSG-091a, Nov. 1, 2001, available at [http://www.opm.gov/
hrmc/2001/msg-091a.htm].
10 Ibid.

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CRS-9
employees for high performance. Since establishing performance management
systems that truly distinguish between levels of performance is a key element of
success, your agency’s progress in managing senior executive performance will
be considered in determining success on this measure. By ensuring that your
executives’ performance plans and appraisal systems are linked to your
organizations’ strategic plans and reflect the Administration’s priorities, the
President’s Management Agenda, we can continue moving in the right
direction.11
In 2003, the Administration undertook a new effort to link appraisals and
financial compensation more closely to senior executive performance by proposing
changes to the SES pay system. The President’s FY2004 budget request summarized
the problem and offered a solution:
... [I]t’s not easy [to reform the management of human capital]. Consider the
Office of Personnel Management (OPM) Director Kay James’ effort to make
senior government executives more accountable. She learned that in 2000,
federal agencies gave 85 percent of their senior executives the highest possible
performance rating — an assertion that virtually everyone in Washington is way
above average. Despite James’ urging agencies to begin distinguishing the best
performers from others, almost nothing changed. In 2001, more than 83 percent
of senior executives received the highest possible rating. Five agencies gave 100
percent of their senior executives the highest rating and six more gave it to 90
percent of their senior ranks. Such figures let the public know that federal
managers are not yet serious about holding themselves or their staffs
accountable.12
The Administration ... proposes to eliminate the current pay structure for senior
managers [senior executives] and increase their pay ceiling. Under this proposal,
each agency will adjust pay for its senior managers on the basis of individual
performance, which will help address the current lack of meaningful senior
manager appraisal systems.13
In the meantime, while the Administration’s legislative proposal was
considered, enacted, and implemented, OPM continued to express concern about the
percentage of senior executives rated at the highest level. The OPM Director issued
a memorandum in early 2004 which noted that the distribution of SES appraisal
ratings had improved in some agencies, but not in others. She wrote:
11 Kay Coles James, Director, U.S. Office of Personnel Management, “Senior Executive
Excellence and Accountability,” memorandum, transmittal #MSG-067a, Sept. 27, 2002,
available at [http://www.opm.gov/hrmc/archive2000.asp].
12 U.S. Office of Management and Budget, Budget of the United States Government, Fiscal
Year 2004 (Washington: GPO, 2003), p. 38.
13 U.S. Office of Management and Budget, Budget of the United States Government, Fiscal
Year 2004, Analytical Perspectives (Washington: GPO, 2003), p. 15. See U.S. Office of
Management and Budget, Budget of the United States Government, Fiscal Year 2004,
Appendix (Washington: GPO, 2003), p. 13, for the Administration’s proposed legislative
language to revise the SES pay system.

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CRS-10
The data [from FY2000 and FY2001] indicate a growing number of agencies
have taken seriously the need to improve the distribution of SES ratings and
awards to support the high performance culture the President is determined to
establish. However, these data also suggest that more work [is] still ... required,
and we will be extremely interested in the information you report for fiscal year
2003. The necessity for more rigorous and realistic ratings is especially clear in
instances where agencies are not fulfilling their missions and reporting
demonstrable results.14
OPM’s Acting Director followed suit in March 2005, writing in a memorandum on
SES performance ratings and awards that:
[An OPM] report shows that in FY2003, over 74% of agency executives received
the highest performance rating possible under the applicable performance
appraisal system, and more than half of those eligible received substantial
performance bonuses. Both of these figures are essentially unchanged from
FY2002. These results do not reflect the requirements of the new SES pay-for-
performance system .... Among other things, ... regulations [established by OPM
and OMB] require that agencies make meaningful distinctions in the
performance ratings and pay of their SES members, and that those ratings and
pay decisions be consistent with organizational results, overall and with respect
to an executive’s particular area of responsibility.15
New SES Pay-for-Performance System
A new SES pay system, consistent with the language in the President’s FY2004
budget message, was enacted, by Section 1125 of the FY2004 National Defense
Authorization Act (P.L. 108-136), on November 24, 2003.16 In amending portions
of 5 U.S.C. §§ 5304, 5382, and 5383, Section 1125 modified the SES pay system by:
! Eliminating locality pay from the SES.
! Replacing six SES pay rates or levels (ES-1 through ES-6) with one
broad pay range.
! Increasing the cap on SES base pay from Executive Schedule Level
IV (EX-IV) to EX-III.
! Adding a second, higher cap on base pay — EX-II — for agencies
that have SES performance appraisal systems (and equivalent
14 Kay Coles James, Director, U.S. Office of Personnel Management, “Reporting SES
Performance Ratings and Awards for FY2003,” memorandum, Feb. 12, 2004, available at
[http://www.opm.gov/hrmc/2004/msg-011.asp].
15 Dan G. Blair, Acting Director, U.S. Office of Personnel Management, “FY2003 SES
Performance Ratings and Awards,” memorandum, Mar. 16, 2005, available at
[http://www.chcoc.gov/transmittal_detail.cfm?ID=635].
16 117 Stat. 1392, at 1638.

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CRS-11
systems as determined by the President’s Pay Agent) which have
been certified by OPM, with the concurrence of OMB.
The foundation for the new SES pay system was laid in 2001, when the
Administration proposed the Managerial Flexibility Act of 2001.17 This legislation
introduced the idea of instituting a two-cap system for total, or aggregate,
compensation for senior executives (and certain other groups of employees), with the
higher cap applicable to agencies whose SES performance appraisal systems had
been certified by OPM. (Aggregate compensation may include, for example, basic
pay, premium pay, incentive awards, recruitment and relocation bonuses, retention
allowances, danger pay allowances, and physicians’ comparability allowances.) In
2002, the Director of OPM offered a brief rationale at a congressional hearing for this
provision: “We believe the changes we are proposing with respect to senior
executives will strengthen the links between their performance and their pay and
awards. This portion of our proposal would amend an aggregate pay limitation that
prevents senior executives from receiving some award payments in a timely way.”18
Eventually, this provision was enacted as part of the Homeland Security Act.19
Section 1322 of the Homeland Security Act of 2002 shifted the cap on total
compensation from EX-I to the equivalent of the Vice President’s salary ($208,100
in 2005) for agencies that have certified performance appraisal systems. If an agency
does not have a certified system, the cap on aggregate compensation remains EX-I
($180,100 in 2005). Shifting the cap on total compensation does not represent an
increase in compensation; it will not affect the amount of money an individual may
receive. The cap on total compensation is a limit placed on the amount of
compensation a senior executive may receive in any one year. If a senior executive’s
total compensation exceeds the applicable cap, the difference between the two
amounts is deferred to, and paid, the next calendar year. Thus, senior executives
whose agencies have certified SES appraisal systems are more likely to receive all
of their compensation in one year instead of having some of their compensation (for
example, performance awards) deferred to the following year.
Senior Level and Senior Technical Positions
Changes involving the cap on total compensation for senior executives also
affect two other categories of senior employees in the federal government: senior
level (SL) and scientific/professional (ST).20 SL and ST personnel systems are for
17 A copy of the bill that was proposed is available at [http://www.whitehouse.gov/
omb/legislative/mfa_bill.pdf]. A summary of the Managerial Flexibilty Act is available at
[http://www.whitehouse.gov/omb/legislative/mfa_summary. pdf].
18 U.S. Congress, Senate Committee on Governmental Affairs, Subcommittee on
International Security, Proliferation and Federal Services, statement of Kay Coles James,
Director, U.S. Office of Personnel Management, unpublished hearing, 107th Cong., 2nd sess.,
Mar. 18, 2002, pp. 5-6, available at [http://hsgac.senate.gov/031802james.htm].
19 Sec. 1322, P.L. 107-296; 116 Stat. 2135, at 2297.
20 The term “senior employees” includes members of the SES, senior level employees (SL)
(continued...)

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CRS-12
nonexecutive positions classified above GS-15. Where leadership and management
skills and experience are paramount for senior executives, technical expertise is the
hallmark of SL and ST employees. An SL system includes positions “that do not
meet the criteria for the SES, nor do they involve the fundamental research and
development responsibilities that are characteristic of the Scientific/Professional (ST)
system.”21
Whereas the status of an SES appraisal system — certified or not certified —
determines the caps on base pay and total compensation for senior executives, the
certification status of an SL or ST appraisal system only affects the cap on total
compensation for these employees.22 (Additionally, the language in P.L. 108-136 that
eliminated locality pay for members of the SES did not eliminate locality pay for SL
and ST employees.) As with the SES, the two caps on total compensation for SL and
ST personnel systems are the equivalent of the Vice President’s salary for appraisal
systems that have been certified by OPM, and EX-I for appraisal systems that have
not been certified.
Comparison
The SES base pay provisions took effect on the first day of the first pay period
that began after January 1, 2004, which was January 11, 2004. A comparison of
selected features of the former SES pay system and the new system is provided in
Table 3.
It remains to be seen whether the combination of higher caps on basic pay, the
shift to one pay band, and the elimination of automatic pay increases will help to
alleviate the problem of pay compression. The requirement, for agencies that seek
certification, to make meaningful distinctions also could be a factor in facilitating the
distribution of senior executives across the entire SES pay range over time.
20 (...continued)
and senior technical (ST) employees. SL and ST members may be referred to collectively
as “senior professionals.” Senior level positions are positions classified above GS-15
pursuant to 5 U.S.C. § 5108. Scientific/professional positions are established under 5
U.S.C. § 3104.
21 U.S. Office of Personnel Management, The Senior Executive Service, Feb. 2004, p. 7,
available at [http://www.opm.gov/ses/pdf/SESGUIDE04.pdf].
22 5 U.S.C. § 5307(d)(1).

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CRS-13
Table 3. Comparison of Selected Features of Former and
Current SES Pay Systems in 2005
Feature
Former Pay System
Current Pay System
Minimum base pay, 2005
$107,550
$107,550
(120% of GS-15, step 1)
(same)
Maximum base pay, 2005
$140,300
1. $149,200 for agencies
(if EX- IV was still the
without certificationc
cap)
(EX-III is the cap)
2. $162,100 for agencies
with certification
(EX-II is the cap)
Cap on aggregate
$180,100
1. $180,100 for agencies
compensation, 2005a
(EX-I was the cap)
without certification
(EX-I is the cap)
2. $208,100 for agencies
with certification
(the Vice President’s
salary is the cap)
Number of pay levels
Six
One
Automatic pay increase (in
conjunction with annual
adjustment for General
Yes
No
Schedule and Executive
Schedule employees)
Locality pay
Yes
No
Certification of agencies’
No
Necessary if an agency
performance appraisal
wants to apply EX-II as
systems as making
the cap on SES basic rate
“meaningful distinctions”
of salary, and to apply the
Vice President’s salary as
the cap on aggregate
compensation.
Sources: U.S. Office of Personnel Management, “2004 Pay Tables for Executive and Senior Level
Employees,” available at [http://www.opm.gov/oca/ 04tables/indexSES.asp]; U.S. Office of Personnel
Management, “Senior Executive Service Pay and Performance Awards and Aggregate Limitation on
Pay,” Federal Register, vol. 69, no. 145, July 29, 2004, pp. 45543-45545; Kay Coles James, Director,
U.S. Office of Personnel Management, “New Performance-Based Pay System for the Senior Executive
Service,” memorandum, Dec. 16, 2003, CPM 2003-19, available at [http://www.om.gov
/oca/compmemo/2003/2003-19.asp].

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CRS-14
Conversion to the New Pay System
For most employees affected by the changes to the SES pay system, conversion
to the new system occurred on January 11, 2004. Conversion to the new system, or
an equivalent pay system, did not qualify as a pay adjustment.23 (Except as provided
in OPM regulations, a senior executive’s rate of base pay may not be adjusted more
than once during a 12-month period.24) The basic pay of a senior executive could not
be reduced by the amendments made by Section 1125(a) of P.L. 108-136 during the
first year after the effective date (January 11, 2004) of this provision.25
General. As of the conversion date, an individual’s rate of basic pay, plus any
applicable locality pay in effect prior to that date, became a senior executive’s
converted, or new, rate of basic pay. The converted rate is the rate of basic pay to be
used for all pay computation purposes. This provision also applies to senior
executives employed by the Federal Bureau of Investigation (FBI) and the Drug
Enforcement Administration (DEA).26
Remedy for the Senior Foreign Service (SFS) and Senior
Executives Stationed Overseas. When members of the SFS and SES who were
stationed overseas as of the conversion date entered the new pay system, their salaries
included only base pay, which became their converted pay.27 Because local pay was
not included, these two groups of federal employees entered the new pay system at
a financial disadvantage compared with members of the SFS and SES who were
stationed in the United States at the time of the conversion and whose converted pay
included locality pay.
23 Kay Coles James, Director, U.S. Office of Personnel Management, “Conversion to New
SES Performance-Based Pay System,” memorandum CPM 2004-03, Jan. 9, 2004, available
at [http://www.opm.gov/oca/compmemo/2004/2004-03.asp]. Detailed information about
pay adjustments under the new system may be found in U.S. Office of Personnel
Management, “Senior Executive Service Pay and Performance Awards; and Aggregate
Limitation on Pay,” Federal Register, vol. 69, no. 233, Dec. 6, 2004, pp. 70355-70367; Kay
Coles James, Director, U.S. Office of Personnel Management, “Final Regulations on
Performance-Based SES Pay System,” memorandum CPM 2004-25, Dec. 2, 2004, available
at [http://www.opm.gov/oca/compmemo/2004/2004-25.asp].
24 5 U.S.C. § 5383(c).
25 Sec. 1125(c)(2) of P.L. 108-136.
26 Kay Coles James, Director, U.S. Office of Personnel Management, “Conversion to New
SES Performance-Based Pay System,”p. 2.
27 The SFS pay system is separate from, yet related to, the SES pay system. Under 22 U.S.C.
§ 3962(a)(1), the President prescribes salary classes for the Senior Foreign Service. The
basic pay rates for the SFS cannot be less than the minimum rate and cannot exceed the
maximum rate for SES and “shall be adjusted at the same time and in the same manner as
rates of basic pay are adjusted for the Senior Executive Service.” (5 U.S.C. § 5382.) As of
May 31, 2005, 556 members of SFS were stationed overseas. (Information provided by
telephone by the Department of State, Bureau of Human Resources, to the author on June
24, 2005). As of Sept. 30, 2004, 27 members of the SES were stationed outside the United
States. (Information provided electronically by the U.S. Office of Personnel Management
to the author on July 15, 2004.)

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CRS-15
Executive Order (E.O.) 13325, dated January 23, 2004, offered a remedy to this
problem for members of the SFS. E.O. 13325 stated:
... [A]s of the first day of the first applicable pay period beginning on or after
January 1, 2004, a member of the Senior Foreign Service shall receive the rate
of basic pay to which he or she was entitled immediately before that date,
including any locality-based comparability payment authorized under 5 U.S.C.
5304(h)(2)(C) that the member was receiving immediately before that date.28
Explaining how officials might use the executive order to adjust the pay of SFS
officers serving overseas, the Deputy Assistant Secretary for Human Resources at the
State Department said, “Basically, we can do it either as a pay-for-performance
consideration or do the one-time adjustment when they return to the United States.”29
If corrective action had not been taken, not only would SFS officers stationed abroad
have had lower basic pay rates than SFS officers and senior executives stationed in
the United States, but also their retirement benefits, which are calculated using basic
pay, would have been adversely affected.30
Remedying the financial disparity for senior executives stationed overseas at the
time of the conversion was accomplished by 5 CFR § 534.406, which provides that
the new, or converted, base pay of this particular group is to include their current
base pay (as of January 11, 2004) plus the applicable locality pay amount upon their
reassignment to Washington, DC, or the contiguous 48 states. This adjustment is
prospective, not retroactive, and will not be considered a pay adjustment “for the
purpose of applying” 5 CFR § 534.404(c).31 (As noted above, only one pay
adjustment per 12-month period is allowed for each senior executive.)
Certification of Performance Appraisal Systems
As noted earlier, the changes effected by P.L. 108-136 allow agencies with
certified SES performance appraisal systems to apply a higher cap to SES basic pay
and total compensation. The crux of the certification process is the design and
implementation of performance appraisal systems that make “meaningful distinctions
28 The President, “Amendment to Executive Order 12293, the Foreign Service of the United
States,” E.O. 13325, Federal Register, Jan. 28, 2004, vol. 69, no. 18, p. 4217.
29 Tim Kauffman, “Executive Order Fixes Senior Foreign Service Pay,” Federal Times, Feb.
2, 2004, p. 6.
30 While SFS officers did not receive locality pay when stationed abroad, because the State
Department “had such a problem retaining senior officers at overseas posts ... [it] received
special authority from Congress two years ago to include locality pay in the retirement
calculations of overseas officers.” (Tim Kauffman, “New Law Shortchanges Foreign
Service Officers,” Federal Times, Dec. 22, 2003, p. 8.)
31 5 CFR § 534.406(c).

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CRS-16
based on relative performance.”32 An agency may have more than one performance
appraisal system for senior employees, and each system must be certified separately.33
Certification Process
With OMB’s concurrence, OPM developed regulations for certification, and is
responsible for certifying, and, if warranted, decertifying performance appraisal
systems.34 As summarized by OPM, an agency’s appraisal system(s) must fulfill
these criteria:
Alignment: Individual performance expectations must be derived from/linked to
the agency’s mission, strategic goals, program/policy objectives, and/or annual
performance plan.
Consultation: Individual performance expectations are developed with senior
employee involvement and must be communicated at the beginning of the
appraisal cycle.
Results: Individual expectations describe performance that is measurable,
demonstrable, or observable, focusing on organizational outputs and outcomes,
policy/program objectives, milestones, etc.
Balance: Individual performance expectations must include measures of results,
employee and customer/stakeholder satisfaction and/or competencies or
behaviors that contribute to outstanding performance.
Assessments and Guidelines: Agency head/designee provides assessments
comparing performance of agency and each major program and functional areas
with agency’s GPRA [Government Performance Results Act of 1993] goals and
other program performance measures.35
Oversight: Agency head/designee must certify (1) appraisal process makes
meaningful distinctions based on relative performance, (2) results take into
account, as appropriate, the agency’s performance, and (3) pay adjustments and
awards recognize individual/organizational performance.
Accountability: Senior employee ratings (and subordinates’ [ratings], as
applicable) appropriately reflect performance expectations, program performance
measures, and other factors.
Performance Differentiation: Agency must provide for at least one rating level
above Fully Successful (must include an Outstanding level), and in the
32 U.S. Office of Personnel Management and U.S. Office of Management and Budget,
“Executive Performance and Accountability,” Federal Register, vol. 69, no. 145, July 29,
2004, p. 45551.
33 U.S. Office of Personnel Management, “Executive Performance and Accountability,” p.
45548.
34 5 U.S.C. § 5307; 5 CFR 430.403-430.405.
35 P.L. 103-62; 31 U.S.C. § 1115.

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CRS-17
application of those ratings, make meaningful distinctions among executives
based on their relative performance. SES appraisal systems must include four or
five summary rating levels: outstanding, fully successful, minimally satisfactory,
and unacceptable. An optional fifth level would be between “outstanding” and
“fully successful.” (Senior professional — SL and ST — appraisal systems must
include three to five summary rating levels: outstanding, fully successful, and
unacceptable. Two optional levels are allowed: between “outstanding” and
“fully successful,” and between “fully successful” and “unacceptable.”)36
Pay Differentiation: Agency should be able to demonstrate that the largest pay
adjustments and/or highest pay levels (base and performance awards) are
provided to its highest performers, and that overall, the distribution of pay rates
in the SES rate range and pay adjustments reflects meaningful distinction among
executives, based on their relative performance.37
The certification process begins when an agency submits a written request to
OPM for full or provisional certification. An agency’s written request for
certification must include:
! A description of the appraisal systems(s) to be certified. The
description should identify the employees and organizations covered
by the performance appraisal system, contain guidance for the
system’s administration and implementation, and describe how the
system uses rating levels to clearly differentiate among senior
employees (SES, SL, and ST).38
! A description of the review process used to review initial summary
ratings and ratings of record, as applicable.
! Documentation that shows the appraisal system(s) meet the
applicable certification criteria for full, or provisional, certification,
whichever is applicable.
! Documentation from the two appraisal periods preceding the request
on senior executive annual summary ratings (or ratings of record for
senior professionals) and corresponding pay adjustments, cash
awards, and levels of pay provided to the senior executives and
senior professionals.
36 U.S. Office of Personnel Management, “Executive Performance and Accountability,”
Federal Register, p. 45549.
37 U.S. Office of Personnel Management and U.S. Office of Management and Budget,
“Senior Executive Service Performance-Based Pay System,” briefing slides, July 2004,
available from author. For more details, see U.S. Office of Personnel Management and U.S.
Office of Management and Budget, “Executive Performance and Accountability,” pp.
45552-45553.
38 U.S. Office of Personnel Management and U.S. Office of Management and Budget,
“Executive Performance and Accountability,” p. 45548.

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CRS-18
! Any additional information that OPM and OMB may require to
make a determination of an agency’s performance appraisal
system(s).39
Full and Provisional Certification
Full certification of an agency’s SES performance appraisal system is for two
calendar years, but OPM, with OMB’s concurrence, may terminate certification if it
determines that an agency has failed to continue to adhere to applicable requirements.
If an agency fulfills OPM’s annual reporting requirements, and the information
contained in the agency’s reports supports continued certification, full certification
will be renewed automatically. Annual reports are to include a synopsis of annual
summary ratings and ratings of record, rates of basic pay, pay adjustments, cash
awards, and aggregate total compensation.40
Provisional certification may be granted by OPM, with OMB’s concurrence, for
appraisal systems that meet design requirements, but for which insufficient
documentation exists to determine whether the implementation of the system meets
certification requirements. Provisional certification is for only one calendar year,
though OPM may extend provisional certification into the following calendar year,
if warranted. An agency may apply for, and receive, provisional certification more
than once.41
No senior executive can have his or her pay reduced because he or she
transferred from an agency that has a certified system to an agency that does not have
a certified system.42 Similarly, if an agency loses its certification, any senior
executive whose base pay is higher than EX-III (the cap for appraisal systems that
have not been certified) cannot have his or her base pay reduced for this reason.
However, a senior executive in this situation “is not eligible for a pay adjustment
until the senior executive is assigned to a position that would allow the employee to
receive a pay adjustment or until certification of the employing agency’s applicable
performance appraisal system is reinstated ....”43
The new system represents a trade-off for senior executives: higher caps on base
pay (EX-III for agencies without a certified appraisal system, and EX-II for agencies
with certified appraisal systems) versus the elimination of locality pay and annual
across-the-board pay adjustments. For some senior executives, these changes may
mean they receive relatively small increases in their base pay, while others may
receive increases comparable to pay increases they received under the old pay system.
39 5 CFR § 430.405(b).
40 5 CFR § 430.405(c) and (e)(3).
41 5 CFR § 430.405(c)(2) and (f).
42 5 CFR § 534.404(h)(2).
43 5 CFR § 534.403(b).

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CRS-19
The Office of Personnel Management maintains a current list of agencies whose
SES performance appraisal systems have been fully or provisionally certified. Only
one agency , the General Services Administration (GSA), has received full
certification for its SES appraisal system. Certification is for 2004-2005. (The
Pension Benefit Guaranty Corporation (PBGC) also received full certification, 2004-
2005, for its SL and ST employees.) Numerous other departments and agencies
received provisional certification for 2005.44
Policy Issues
The new pay system for the SES ushered in some fairly significant changes for
senior executives and their supervisors. Implementation of a rigorous performance
management system that directs agencies to assign performance ratings based on
measurable results and to make distinctions among senior executives based on their
job performances promises to mitigate against, if not eliminate, rating inflation.
Performance ratings are intended to accurately reflect the job performances of senior
executives, thus helping to ensure that they are being held accountable for their work.
In practical terms, the new system is configured to ensure that top performers in the
SES receive the greatest rewards in terms of performance ratings and, by extension,
pay increases. Average performers will receive ratings and pay increases, if
warranted, commensurate with their performances as well. When coupled with the
increase in the cap on base pay, and the addition of a higher cap for performance
management systems certified by OPM, these changes represent a substantial effort
to identify and reward the best performers in the SES.
While the anticipated benefits of the new system are significant, several policy
issues touch on the implications of certain aspects of this system, notably the
emphasis on meaningful distinctions, the potential for the revamped system to
facilitate the politicization of the SES, and how the concept of rank in person might
be altered. Additionally, this section addresses the idea that it may be useful to assess
the implementation of the new pay system.
Meaningful Distinctions
Part of the Administration’s reasoning for the new pay system is that requiring
agencies to make meaningful distinctions based on the relative performances of
senior executives is essential in helping to ensure that individuals reap rewards
commensurate with their performance, and, in particular, that only outstanding
performers receive the greatest rewards. While OPM has clearly stated the objective
and rationale for this goal, it has not explicitly defined or described what is meant by
the term “meaningful distinctions.” In memoranda it has released on this subject,
OPM makes general statements about agency ratings of senior executives, indicating
that some progress has occurred, but also noting that more needs to be done.
Although the evidence presented by OPM consists of tables that list individual
agencies (see Tables 4, 5, and 6), none is identified by name as an example of an
44 The list of these departments and agencies is available at [http://www.opm.gov/ses/
certification.asp].

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CRS-20
organization that is making progress or that has failed to improve. Thus, there is no
indication as to what precisely constitutes “progress” or what percentage of senior
executives who have received the highest rating in the agency’s SES appraisal system
would render a system acceptable.
In the absence of a definition or explanation of the term “meaningful
distinctions,” OPM officials possibly are able to exercise a significant degree of
discretion in determining whether an agency has met the requirement to make
meaningful distinctions among the performances of its senior executives. Another
potential result is that OPM’s view or criterion of what type(s) of rating distributions
qualify as reflecting meaningful distinctions could shift over time. Because forced
distributions of ratings (or quotas) are not permitted for senior executives,45 OPM
employees cannot communicate to agencies that certain distributions of ratings would
be preferable to others. While the lack of a definition possibly aids in avoiding the
problem of forced distributions, agency officials may be uncertain of the standard to
which they are being held regarding meaningful distinctions.

A Focus on the Highest Level. What is clear about OPM’s approach is that
it focuses exclusively on only one portion of agencies’ rating distributions: the
percentage of senior executives who receive the highest summary appraisal rating.
Tables 4, 5, and 6 display the data that were included in OPM’s 2004 and 2005
memoranda on SES performance ratings and awards.46 (The data in the tables refer
to FY2000-FY2003.) Data provided subsequently by OPM showed that several
agencies changed the number of levels in their SES appraisal systems during this
period. Agencies that changed their appraisal systems are listed only in one table —
the table that reflects the type of appraisal system the agency had in 1999. The
change to an agency’s appraisal system is noted in the appropriate table.
45 5 CFR § 430.304(c)(3).
46 The tables in the 2004 and 2005 OPM memoranda included rows for “all others” (all other
agencies not already listed in the tables) and “government-wide.” These rows are not
included here because the information was aggregated and thus does not belong in rating
system-specific (three-, four-, and five-level) tables.

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CRS-21
Table 4. Career SES Performance Ratings by Agency in
Five-Level Systems, FY2000-FY2003
Percentage of Career Senior Executives Rated at
Agency
the Highest Level a
FY2000
FY2001
FY2002
FY2003
Dept. of Agriculture (USDA)
35%
36%
35%
38%
Dept. of Commerce
88%
80%
81%
80%
Dept. of Defense (DOD)b
99%
99%
97%
96%
Dept. of Justice
91%
91%
88%
85%
Dept. of Labor
69%
61%
48%
33%
Dept. of the Treasuryc
66%
63%
59%
52%
Dept. of Veterans Affairs (VA)
56%
56%
57%
67%
Environmental Protection
85%
85%
69%
64%
Agency (EPA)
General Services
96%
92%
53%
55%
Administration (GSA)
National Aeronautics and
73%
76%
76%
76%
Space Administration (NASA)
Office of Personnel
90%
37%
46%
31%
Management (OPM)
Small Business Administration
79%
82%
50%
45%
(SBA)
U.S. Agency for International
95%
79%
42%
38%
Development (USAID)
Sources: Kay Coles James, Director, U.S. Office of Personnel Management, “Reporting SES
Performance Ratings and Awards for FY2003,” memorandum, Feb. 12, 2004, available at
[http://www.opm.gov/hrmc/2004/msg-011.asp]; Dan G. Blair, Acting Director, U.S. Office of
Personnel Management, “FY2003 SES Performance Ratings and Awards,” memorandum, Mar. 16,
2005, available at [http://www.chcoc.gov/transmittal_detail.cfm?ID=588#career_perf].
Notes:
a. The percentages have been rounded.
b. The Department of Defense does not include the Office of the Secretary of Defense, which instead
is found in Table 6.
c. One or more components of the Department of the Treasury changed to a three-level system in
2003.

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CRS-22
Table 5. Career SES Performance Ratings by Agency in
Four-Level Systems, FY2000-FY2003
Percentage of Career Senior Executives Rated at
Agency
the Highest Levela
FY2000
FY2001
FY2002
FY2003
Dept. of Energy (DOE)b
100%
99%
18%
38%
Dept. of Statec
100%
100%
99%
98%
Federal Emergency
90%
31%
0%d
46%
Management Agency
(FEMA)
Merits Systems Protection
100%
89%
11%
not listed
Board (MSPB)e
Office of Management and
88%
20%
25%
32%
Budget (OMB)f
Sources: Kay Coles James, Director, U.S. Office of Personnel Management, “Reporting SES
Performance Ratings and Awards for FY2003,” memorandum, Feb. 12, 2004, available at
[http://www.opm.gov/hrmc/2004/msg-011.asp]; Dan G. Blair, Acting Director, U.S. Office of
Personnel Management, “FY2003 SES Performance Ratings and Awards,” memorandum, Mar. 16,
2005, available at [http://www.chcoc.gov/transmittal_detail.cfm?ID=588#career_perf].
Notes:
a. The percentages have been rounded.
b. The Department of Energy changed from a three-level system in 2002.
c. The Department of State changed from a five-level system in 2002.
d. Other information provided by OPM (see FEMA table in Appendix A) shows that 10% of FEMA’s
senior executives received the highest rating in FY2002.
e. The Merit Systems Protection Board changed from a five-level system in 2002.
f. The Office of Management and Budget changed from a five-level system in 2002.
Table 6. Career SES Performance Ratings by Agency in Three-
Level Systems, FY2000-FY2003
Percentage of Career Senior Executives Rated
Agency
at the Highest Levela
FY2000
FY2001
FY2002
FY2003
Office of the Secretary of
100%
99%
100%
99%
Defense (OSD)
Dept. of Education
100%
100%
100%
98%
Dept. of Health and Human
90%
91%
99%
100%
Services (HHS)
Dept. of Housing and Urban
100%
99%
100%
100%
Development (HUD)

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CRS-23
Percentage of Career Senior Executives Rated
Agency
at the Highest Levela
FY2000
FY2001
FY2002
FY2003
Dept. of the Interior
100%
100%
100%
100%
Dept. of Transportation (DOT)
99%
100%
100%
100%
Nuclear Regulatory Commission
100%
100%
99%
100%
(NRC)
Social Security Administration
100%
100%
100%
41%
(SSA)b
Sources: Kay Coles James, Director, U.S. Office of Personnel Management, “Reporting SES
Performance Ratings and Awards for FY2003,” memorandum, Feb. 12, 2004, available at
[http://www.opm.gov/hrmc/2004/msg-011.asp]; Dan G. Blair, Acting Director, U.S. Office of
Personnel Management, “FY2003 SES Performance Ratings and Awards,” memorandum, Mar. 16,
2005, available at [http://www.chcoc.gov/transmittal_detail.cfm?ID=588#career_perf].
Notes:
a. The percentages have been rounded.
b. The Social Security Administration changed to a five-level system in 2003.
As is apparent from these tables, some agencies have evidenced a significant
change in the percentage of their senior executives who received the highest rating
— particularly those in four-level and five-level systems. Examples include the
Department of Labor, OPM, and DOE. On the other hand, other agencies,
particularly those with three-level systems, continued to rate all or nearly all of their
senior executives in the top rating category.
Awarding the top-level rating to all senior executives in a given agency would
not appear to meet OPM’s broad concept of “meaningful distinctions.” However,
because OPM at present is emphasizing only the percentage of executives who
receive the top-most rating, it is conceivable that an agency could, in a five-level
appraisal system, cluster its senior executives at the top two rating levels as long as
the percentage of individuals who receive a rating of 5 does not exceed the
(unknown) threshold or criterion OPM is using.
Under the new pay system, one of the certification requirements is that agencies
must have at least four, but no more than five, levels in their appraisal systems for
senior executives.47 Increasing the minimum number of levels required would seem
to be a move toward facilitating meaningful distinctions by increasing the
opportunity for making finer distinctions among the performances of senior
executives. A distribution of ratings across all four or five levels in a given system
would seem to be more indicative of meaningful distinctions than the current
criterion used by OPM. Perhaps, though, OPM’s focus on having agencies reduce
the percentage of senior executives rated at the highest level is only an initial step
47 5 CFR § 430.405(b)(1)(iii)(A). Appraisal systems for senior professionals (SL and ST
employees) may include three, four, or five levels. (5 CFR § 430.405(b)(1)(iii)(B).)

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CRS-24
and, as such, is a way to help agencies make the transition from the former system
to the requirements of the new system. As another alternative, OPM could address
the remainder of an agency’s ratings distribution. Assuming that OPM does, or may,
want to promote or require a more widespread distribution of agency ratings than
existed during the period FY1999-FY2003, a gradual move toward this goal could
be more acceptable to agency officials than an abrupt shift.
In the event that OPM does expand its focus to include the entire ratings
distributions of agencies, the issue of forced distributions possibly could arise. A
significant redistribution of ratings within an appraisal system might lead to
questions about whether such an action reflects a natural distribution or a forced
distribution. As used here, the term “natural distribution” refers to a ratings
distribution that accurately reflects the relative job performances of senior executives.
Some might interpret a significant redistribution of ratings as evidence that the new
system is functioning as intended. As reported in Government Executive, comments
made by a senior OPM official support this interpretation: “... [F]ederal agencies
must do a more credible job of distributing performance rankings among their top
executives” if the new pay system “is to succeed.”48 (A corollary of this interpretation
would be that previous ratings were inflated.) A competing interpretation that others
might offer is that a redistribution of ratings occurred as the result of a forced
distribution, not a natural distribution. One could argue that the financial incentives
— higher caps on base pay and total compensation — that can be achieved by
obtaining certification could influence agency personnel responsible for rating senior
executives. As reported in a news article, the President of the Senior Executives
Association (SEA) shares this concern: “The unanswered question is, to what degree
are agencies going to feel they have to make the numbers go down, irrespective of
their judgment of executive performance, in order to gain certification.”49 However,
it has been reported that OPM’s Associate Director for Strategic Human Resources
Policy indicated that his agency “...would not set quotas on the number of high
rankings that agencies could hand out, and would allow agencies to continue to rate
most employees highly as long as the agencies were able to justify the rankings.”50
Determining whether significant movement in an agency’s ratings distribution is the
result of a forced distribution, or accurately reflects the performance of the agency’s
senior executives, might not be feasible.
Ratings Distributions by Agency. Appendix A displays the SES annual
summary rating distributions, FY1999-FY2003, for the same agencies that OPM
includes in its memoranda on SES performance ratings and awards. (FY2003 data
are the most current data available.) Comparisons of ratings distributions before and
after the implementation of the new SES pay system could aid in understanding what
48 David McGlinchey, “OPM Seeks ‘Rigorous and Realistic’ Executive Ratings,”
Government Executive, Daily Briefing, Feb. 19, 2004, available at
[http://www.govexec.com/dailyfed/0204/021904d2.htm].
49 Kauffman, “OPM Urges Tougher Ratings for Execs,” p. 4. The Senior Executives
Association is an organization that represents the interests of career senior executives.
50 Shawn Zeller, “Senior Executive Corps to See Base Salary Increases,” Government
Executive, Daily Briefing, July 26, 2004, available at [http://www.govexec.com/dailyfed/
0704/072604sz1.htm].

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CRS-25
constitutes “meaningful distinctions” and could show how senior executives in those
agencies have fared under the new system. Several years of post-implementation
data (beginning with FY2004 data) will be needed in order to make this comparison
and discern the effects on members of the SES. (All references to tables in this
section refer to the tables in Appendix A, except as otherwise noted.)
Some of the tables may include data from more than one appraisal system.
Federal agencies are permitted to establish more than one performance appraisal
system for their senior executives, and different agency components may choose to
establish different — three-level, four-level, or five-level — appraisal systems. Two
departments, Health and Human Services and Treasury, have both three-level and
five-level SES appraisal systems. Additionally, some agencies changed the number
of levels in their appraisal systems during the period FY1999-FY2003, and these
changes are also noted in the appropriate tables.
! The Department of Energy changed from a three-level system to a
four-level system in 2002.
! The Department of Housing and Urban Development changed from
a five-level system to a three-level system in 2000.
! The Department of State changed from a five-level system to a four-
level system in 2002.
! One or more components of the Department of the Treasury changed
from a five-level system to a three-level system in 2003.
! The Merit Systems Protection Board changed from a five-level
system to a four-level system in 2002.
! The Office of Management and Budget changed from a five-level
system to a four-level system in 2002.
! The Social Security Administration changed from a three-level
system to a five-level system in 2003.
As noted previously, only one federal agency, GSA, had received full
certification for its SES appraisal system(s) for 2004-2005; and PBGC had received
full certification for its SL/ST appraisal system for the same period. Since an agency
has to provide data from the two most recent appraisal cycles in its application for
certification, GSA apparently used 2002 and 2003 data. In each of these years, no
senior executives received the lowest rating of “1”; fewer than 10% received a “2”
or “3”; and 39% received a “4.” In 2002, 53% received a “5”; in 2003, 55%. As
Table 7 shows, in nine other agencies, the percentage of senior executives receiving
the highest rating was comparable to, or lower than, GSA’s figures in 2002 and 2003.

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CRS-26
Table 7. Agencies Whose Percentage of Top Executives
Receiving the Highest Rating Was Less Than 60% in
FY2002 and FY2003
Percentage of Senior Executives Receiving the
Agency
Highest Rating
2002
2003
Department of Agriculture
34%
38%
Department of Energy
18%
38%
Department of Labor
48%
33%
Department of the Treasury
39%
42%
(five-level system)
Federal Emergency Management
10%
46%
Agency
General Services Administration
53%
55%
Office of Management and
25%
32%
Budget
Office of Personnel Management
54%
31%
Small Business Administration
56%
45%
U.S. Agency for International
42%
38%
Development
Source: Information provided electronically by the U.S. Office of Personnel Management to the
author on July 22, 2005.
As noted earlier, making meaningful distinctions among the performances of
senior executives is only one of several requirements that agencies must meet to
obtain full certification. Apparently, the agencies listed in Table 7 have not met all
of the other requirements (see “Certification of Performance Appraisal Systems”
above). A number of agencies have received provisional certification, but agencies
seeking this status are not required to submit ratings data for their senior executives.51

During the period FY1999-FY2003, the percentage of senior executives
receiving top-level ratings changed significantly at six agencies (see also the tables
in Appendix A).
! In FY2001, when the Department of Energy still had a three-level
system, 99% of the department’s career senior executives received
the highest summary rating. In FY2002, the department changed to
51 Agency certification status is available at [http://www.opm.gov.ses.certification.asp].

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CRS-27
a four-level system, and only 18% of senior executives received the
highest rating. The following year, 38% received the highest rating.
! In FY2002, 94% of the career senior executives evaluated under
five-level performance management systems at the Department of
Health and Human Services received the highest rating. The next
year, only 48% received that rating. (The department also has three-
level rating systems for other senior executives.)
! From a high of 86% in FY1999, the number of career senior
executives at FEMA receiving the highest rating dropped to 10% in
FY2002, then increased to 46% in 2003.
! After at least two years in which at least 90% of GSA’s career senior
executives received the highest rating, the percentage dropped to
53% in FY2002 and 55% in FY2003.
! The percentage of career senior executives receiving the highest
rating at OMB in FY2000 was 88%. This percentage dropped to
20% in FY2001, then increased to 32% in FY2003.
! At OPM, 91% of the senior executives received the highest rating in
FY1999 and FY2000. This figure dropped to 31% in 2003.
As suggested by these data, Appendix A shows that, for the time period covered,
it was very rare for a senior executive to receive a rating of “1” or “2” in a four-level
or five-level system, or to receive a rating of “1” in a three-level system. Ratings
were almost always clustered at the top three (five-level) or two (four-level) levels,
or the top level (three-level).
Excluding agencies where at least 90% of the senior executives were awarded
the highest ratings over several years, a discernible pattern or distribution is evident
at some agencies. That is, the distribution of ratings was fairly consistent from year
to year. A summary of five years of data from Appendix A shows these patterns:
! Department of Agriculture: fewer than 10% at level 3; 50%-60% at
level 4; 35%-38% at level 5.
! Department of Commerce: 3%-4% at level 3; 9%-17% at level 4;
80%-88% at level 5.
! Department of Justice: 1%-2% at level 3; 8%-14% at level 4; 85%-
91% at level 5.
! Department of Veterans Affairs: 1%-2% at level 2; 8%-16% at level
3; 25%-33% at level 4; and 56%-67% at level 5.
! Environmental Protection Agency: 1%-3% at level 3; 14%-33% at
level 4; and 64%-86% at level 5.

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CRS-28
! National Aeronautics and Space Agency: fewer than 1% at level 2;
2%-4% at level 3; 20%-24% at level 4; and 73%-76% at level 5.
As noted previously, similar distribution patterns across five years could reflect
consistent job performances among senior executives and/or the consistent
application of performance management standards. Another possibility is that
similar patterns over several years reflects an internally imposed distribution scheme.
Potential for Politicization
Whereas some believe the new SES pay system promises to be effective and
credible, the judgment of other interested parties, including some senior executives
and other federal government employees, will apparently hinge on whether they
perceive the system as being equitable, including being free from partisan influence,
and transparent. The general acceptance of the new pay system may be contingent,
at least in part, upon how it is implemented and how it is perceived.
Some have expressed concern about whether implementation of the new pay
system will be carried out in an equitable manner. In the following comments,
several members of SEA suggest that the new pay system could lead to the
politicization of the SES.
Having worked as a career SES in several agencies for the past 22 years and
witnessed the games that some politicals [political appointees] play with the SES,
I would insist upon sufficient safeguards. For example, agency head A wants to
free up some SES slots for his or her “supporters” by encouraging current career
SES staff to retire. An arbitrary salary cut of let’s say $20,000 per year in salary
for alleged poor performance, impacting the person’s high-3 retirement annuity
calculation, would drive many retirement-eligible SES out the door.
I’ve worked directly for a large number (and variety) of political appointees,
more than a few of whom responded to career executives on a purely visceral
level. If they liked you, your errors were a reflection of desirable risk-taking. If
they didn’t like you, your less than total successes were a reflection of your lack
of initiative. In other words, I find pay compression under the current system to
be more desirable than a wild card system, which is what the proposal looks like
to me.
Having the agency set the basic pay would always be “political” whether stated
or not. Those on the “right side” or politically connected will be the ones to
benefit and those on the “other side” (depending on what party is running the
Administration) will not benefit regardless of performance.52
One of the specific issues raised by the SEA concerns the increase in the amount
that a senior executive’s pay could be reduced for performance or conduct reasons.
52 Carol A. Bonosaro, President, and William Bransford, General Counsel, Senior
Executives Association, “Comments of the Senior Executives Association on the Proposed
Rule Regarding ‘Senior Executive Service Pay and Performance Awards and Aggregate
Limitation on Pay,” pp. 9-10, Aug. 30, 2004, available at [http://seniorexecs.org/fileadmin
/user_upload/Letter/08-30-2004_PayRegsFinalComments.pdf].

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CRS-29
Under the old system, an executive’s pay could be reduced no more than one pay
level per year. In 2003, for example, a senior executive who was moved from pay
level ES-4 to ES-3 would have experienced a 4.7% decrease in base pay. (Moving
from ES-3 to ES-2 represented a 4.3% decrease; ES-2 to ES-1 would have resulted
in a 4.5% decrease in base pay.) The new rules allow for an annual pay reduction
of up to 10% in base pay. In comments it provided to OPM, the SEA stated that
... with regard to the career SES, it is important to remember the need to avoid
the fray of politics and the specter of undue politicization. One of the purposes
of the SES is to help maintain consistency during political change. Given human
nature, there is a strong probability that, at some point, the allowed 10%
reduction will be misused by a political appointee in order to affect or influence
a desired politically motivated decision. The mere threat or existence of the 10%
reduction has the potential to become a subtle and negative influence that can
well contribute to the politicization of the career SES, or at a minimum, result in
arguments or perceptions that the career SES has been subject to improper
political pressure. This is particularly true considering the impact on a career
Senior Executive’s retirement annuity that will result when pay is reduced.53
In its response to SEA’s concerns about possible politicization of the SES under the
new pay system, OPM officials wrote: “The new SES pay system provides greater
opportunities for higher rates of basic pay and larger pay adjustments, and with these
opportunities come greater risks. We believe it is necessary to provide agencies with
the authority to reduce basic pay up to 10 percent. Therefore, we made no changes
in the regulations.”54 Those parties concerned that the new system possibly could
facilitate the politicization of the SES suggest that the withholding of pay
adjustments or the offering of pay increases also could be used in attempts to exert
undue influence over senior executives.
DOD Experience. A situation that arose at DOD in 2005 involving pay
increases for career senior executives and noncareer senior executives demonstrates
how differential treatment may be perceived. In a memorandum dated January 12,
2005, the Director of Administration and Management in the Office of the Secretary
of Defense outlined an SES pay increase proposal that would have permitted
noncareer SES members to receive a higher increase in base pay than certain
categories of career SES members. While noncareer senior executives — who are
also sometimes referred to as political appointees — would have received a 2.5%
increase in base pay, career senior executives in certain categories (as described in
the memorandum) would have received a 2.38% or 2% increase in base pay in 2005.
By way of explanation for these differences, the Director wrote that noncareer SES
“members occupy some of the most senior positions in the Department, are ineligible
for performance awards and Presidential Rank Awards and did not receive the
CY2004 pay adjustment until late in the year.”55 In a letter to the head of OPM,
53 Ibid., p. 2.
54 U.S. Office of Personnel Management, “Senior Executive Service Pay and Performance
Awards; Aggregate Limitation on Pay,” p. 70358.
55 Raymond F. DuBois, Director, Administration and Management, Office of the Secretary
(continued...)

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CRS-30
SEA’s President noted that OPM regulations governing salary adjustments for
members of the SES do not mention “allowing an adjustment solely because of the
political character of an appointment ....” The SEA letter also noted that DOD’s
proposed policy would have violated 5 U.S.C. § 2302(b)(1)(E), which prohibits
discriminating for, or against, any employee on the basis of political affiliation.
Congress’s response to what occurred at DOD was Section 1020 of P.L. 109-13,
Emergency Supplemental Appropriations Act for Defense, the Global War on Terror,
and Tsunami Relief, 2005 (119 Stat. 231, at 251). Section 1020 states:
None of the funds appropriated to the Department of Defense by this Act or any
other Act for fiscal year 2005 or any other fiscal year may be expended for any
pay raise granted on or after January 1, 2005, that is implemented in a manner
that provides a greater increase for non-career employees than for career
employees on the basis of their status as career or non-career employees, unless
specifically authorized by law: Provided, That this provision shall be
implemented for fiscal year 2005 without regard to the requirements of section
5383 of title 5, United States Code: Provided further, That no employee of the
Department of Defense shall have his or her pay reduced for the purpose of
complying with the requirements of this provision.
The Washington Post and Government Executive reported that a July 1, 2005,
memorandum, issued by the Principal Deputy Under Secretary of Defense for
Personnel and Readiness, directed DOD offices to implement retroactive 2.5% pay
increases to career senior executives who were initially denied the 2.5% raise.56
According to the Government Executive article, the retroactive raise will apply to 358
career senior executives in DOD.
NASA Experience. Questions also have been raised about pay raises for
senior executives employed by NASA. As reported in the news, approximately 50%
of NASA’s senior executives received a 2.5% pay raise; another 27% received raises
ranging from 0.5% to less than 2.5%; and the remaining 23% did not receive pay
raises. The fact that NASA considered the importance of jobs held by senior
executives as part of its calculations troubled some NASA executives. Reportedly,
one executive stated: “The system is geared toward going along to get a raise or
performance bonus.”57 A NASA official responded: “We did establish a structure
based on position worth — positions with the greatest responsibility were eligible for
the greatest increases. The actual fact is that we rewarded the people that are
responsible for the mission implementation in the agency, and they happen to be the
55 (...continued)
of Defense, “Increase in the Senior Executive Service and Defense Intelligence Senior
Executive Service Base Pay,” memorandum, Jan. 12, 2005.
56 Stephen Barr, “Retroactive Salary Increases Ordered for Some Pentagon Career
Executives,” Washington Post, July 12, 2005, p. B2; Karen Rutzick, “Pentagon Gives
Retroactive Pay Raise to Career Executives,” Daily Briefing, Government Executive, July
18, 2005, available at [http://www.govexefc.com/dailyfed/0705/071805r2.htm].
57 Stephen Barr, “Complaints about NASA Raises Follow Switch to Performance-Based
System,” Washington Post, Mar. 2, 2005, p. B2.

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CRS-31
people in the senior leadership positions.” Another NASA official added that
“decisions were based on performance primarily.”58
While the news article is obviously not evidence that anyone acted improperly
at NASA, it demonstrates the importance of employees’ perceptions. Speculation
within the SES ranks as to why certain members of the service fared better than
others on performance appraisals might be fueled by, or lead to, charges of
favoritism. Perhaps such concerns have existed previously, but the perceived
increase in latitude afforded supervisors under the new system has led some to
suggest that perceived favoritism may be a problem, or a greater problem, under the
new system than it was under the previous system.
The Importance of Early Experiences. Some have suggested that the
combination of senior executives’ observations and perceptions of the new system
might constitute a form of passive influence. As one observer has written,
... [T]here is considerable evidence that employee morale influences employee
performance, and employee perceptions of workplace fairness influence the
willingness of employees to go above and beyond the specifics of their job
description to demonstrate what researchers call good ‘organizational
citizenship’.59
Depending upon how the implementation of the SES pay system proceeds, the
experience possibly could help to promote, or undermine, other pay-for-performance
initiatives within the federal government. As reported by the Washington Post,
several Senators, including the Chairman of the Senate Committee on Armed
Services, expressed concern that DOD’s handling of SES pay in 2005 could affect
other employees:
The decision to use the status of an employee — as either career or non-career
— as a factor in the awarding of a pay raise appears to be inconsistent with the
law, and the department’s stated intent to pay employees on the basis of their
performance .... We are concerned that this decision could undermine the
credibility of DOD pay systems not only with senior executives, but also with
other employees who will be entering pay-for-performance systems when the
new National Security Personnel System is implemented.60
In a letter sent to the Secretary of Defense and the Acting Director of OPM, other
Members wrote:
We believe the importance of maintaining high morale among career DOD
employees far outweighs the benefits of giving slightly higher pay raises to
political appointees. The new DOD policy has the effect of valuing the work of
58 Ibid.
59 Steven Kelman, “The Right Pay,” Government Executive, May 2003, p. 94.
60 Sen. John W. Warner, Chairman, Senate Committee on Armed Services, Sen. Susan M.
Collins, Sen. Carl M. Levin, and Sen. Joseph I. Lieberman, letter to Donald Rumsfeld,
Secretary of Defense, Feb. 4, 2005, cited in Stephen Barr, “Defense Pay-Raise Flap Shaking
NSPS Confidence,” Washington Post, Apr. 24, 2005, p. C2.

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CRS-32
career employees less than that of political appointees. This is the wrong
message to be sending to 700,000 career DOD employees .... We are also
concerned that the new pay policy for SES employees will serve as a precedent
for the pay-for-performance system that DOD is currently developing for all
Department employees.61
The extent to which the administration of the SES pay system is transparent also
might play a significant role in how senior executives, and other employees, view the
system, and, accordingly, might aid in precluding or alleviating concerns about
whether the system has been implemented in an equitable manner. The final rule for
the SES pay system requires agencies to “provide for transparency in the processes
for making pay decisions, while assuring confidentiality.”62 However, this is a broad
statement, and the lack of detailed guidelines could allow agency personnel broad
discretion in determining the extent and type of information they disclose. Uneven
disclosure policies and practices across the federal government could be problematic,
particularly if some agencies appear less forthcoming than others. Additionally, a
lack of standardization among agency disclosure policies might undermine the
usefulness of information that is made available to the public. The Senior Executives
Association has called for greater transparency, with disclosure of “all information
about the operation of the performance management system in an agency, including
any guidance or advice provided by the agency official designated to provide
oversight to the annual performance appraisal process in the agency ... summary
information concerning performance ratings, annual salary adjustments, [and] the
percentage of executives who receive bonuses and the range of bonus awards.”63 It
remains to be seen whether OPM provides additional guidance on this matter, and
how agencies comply with the regulation.
Rank in Person
A fundamental principle of the Senior Executive Service is that rank resides in
the individual. The final rule for the new pay system, in discussing how to set pay
for an individual upon his or her initial appointment to the SES, supports this
concept: “In setting a new senior executive’s rate of basic pay, an agency must
consider the nature and quality of the individual’s experience, qualifications, and
accomplishments as they are related to the requirements of the SES position, as well
61 Rep. Henry A. Waxman, Ranking Minority Member, House Committee on Government
Reform, Sen. Daniel K. Akaka, Ranking Minority Member, Senate Committee on Homeland
Security and Governmental Affairs, Subcommittee on the Oversight of Government
Management, the Federal Workforce, and the District of Columbia, and Rep. Danny K.
Davis, Ranking Minority Member, House Committee on Government Reform,
Subcommittee on Civil Service and Agency Organization, letter to Donald H. Rumsfeld,
Secretary of Defense, and Dan G. Blair, Acting Director, U.S. Office of Personnel
Management, Feb. 8, 2005.
62 U.S. Office of Personnel Management, “Senior Executive Service Pay and Performance
Awards; Aggregate Limitation on Pay,” p. 70365.
63 Senior Executives Association, “Comments of the Senior Executives Association on the
Proposed Rule Regarding ‘Senior Executive Service Pay and Performance Awards and
Aggregate Limitation on Pay;,” n.d., p. 6, available at [http://www.seniorexecs.org/
fileadmin/ user_upload/Letter/08-30-2004_PayRegsFinalComments.pdf].

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CRS-33
as the individual’s current responsibilities.”64 Another excerpt from the final rule,
however, might undermine the concept of rank in person. Under the new pay system,
a pay adjustment is permitted when an increase in pay
is necessary to reassign a senior executive to a position with substantially greater
scope and responsibility or to recruit a senior executive with superior leadership
or other competencies from a position in another agency ... [or] [t]he retention
of the senior executive is critical to the mission of the agency and the senior
executive would be likely to leave the agency in the absence of a pay increase.65
While the principle of rank in person may have been undermined incrementally over
the years through pay compression and through individual decisions that linked pay
with the level of responsibility of a particular position, the rule issued by OPM in
December 2004 could be construed as validating this linkage. Reassigning a senior
executive and providing him or her a pay increase based on the fact that the new
position includes greater responsibility than the former position runs counter to the
notion that rank resides in the person. It remains to be seen whether, and how, these
two somewhat contradictory concepts — rank in person and rank associated with
position — will be reconciled.
Tracking New Pay System Effects
OPM’s regulations and guidance on the new pay system, including the
certification process, show that it has established objectives, in the form of
requirements (such as making meaningful distinctions), for agencies. Additionally,
OPM apparently plans to hold agencies accountable for meeting these requirements.
As reported in a Washington Post article, the Senior Policy Advisor to the Director
of OPM characterized the December 2004 regulation on SES pay and performance
awards as making “the most far-reaching changes in the Senior Executive Service
since it was formed almost 25 years ago ....”66 The significance of these changes, and
the potential for unintended consequences, give rise to a series of questions:
! Does OPM plan to evaluate the new pay system? If so, what factors
or criteria will OPM use in its evaluation? Will the evaluation take
into account unintended consequences?
! Will the new system help to alleviate pay compression? If OPM
does evaluate the new system, will it include this issue? If pay
compression continues, will OPM take steps to address this
problem?
! What effects, if any, has the new system had on the performance and
retention of senior executives? How many senior executives
64 U.S. Office of Personnel Management, “Senior Executive Service Pay and Performance
Awards; Aggregate Limitation on Pay,” p. 70363.
65 Ibid., p. 70364.
66 Stephen Barr, “For Senior Executives, Pay Relief with a Twist,” Washington Post, Dec.
5, 2004, p. C2.

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CRS-34
received lower summary ratings under the new system than they had
previously? How does their post-rating performance compare with
their previous performance?
! What effect might a decrease in some executives’ summary ratings
have on the employing agency? If these individuals question why
they received lower ratings than they had previously, how is
management going to explain its decisions?
! Do senior executives view the new system as equitable and credible?
Conclusion
The SES pay system, including the certification option, that was established in
2004 is the most significant change to the SES since its inception in 1978. While the
new system has higher caps on base pay than the previous system and may help to
alleviate pay compression, its implementation signaled the elimination of locality pay
and annual pay adjustments for senior executives. The Administration’s emphasis
on results, performance, and accountability has been interpreted, in part, as the
requirement that agencies which seek certification of their appraisal system(s) must,
among other things, make meaningful distinctions among their senior executives.
Compensation for senior executives is expected to be commensurate with their
relative performance. An agency may receive full certification or provisional
certification for each of its appraisal systems. Whether an appraisal system has been
certified by OPM, with OMB concurrence, also determines which cap applies to
aggregate compensation for senior executives and SL and ST employees. Whereas
OPM’s regulation and guidance provide one standard for gauging the success of the
new pay system, others, including senior executives, might be more concerned with
different outcomes, unintended consequences, and issues involving the credibility of
the new system.

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CRS-35
Appendix A. Senior Executive Annual Summary
Ratings Distribution by Agency
The source of information for the tables is OPM, and percentages have been
rounded.67
Department of Agriculture (USDA)
Senior Executive Annual Summary Ratings Distribution
Rating Levels
Fiscal Year
1
2
3
4
5
1999
3 (1%)
1 (<1%)
14 (5%)
162 (58%)
97 (35%)
2000
3 (1%)
0
6 (2%)
166 (60%)
102 (37%)
2001
0
0
15 (5%)
163 (57%)
106 (37%)
2002
0
0
22 (7%)
172 (58%)
102 (34%)
2003
0
1 (<1%)
21 (7%)
161 (55%)
112 (38%)
Department of Commerce
Senior Executive Annual Summary Ratings Distribution
Ratings
Fiscal Year
1
2
3
4
5
1999
0
0
0
35 (15%)
206 (85%)
2000
0
0
7 (3%)
20 (9%)
196 (88%)
2001
0
0
10 (4%)
42 (16%)
211 (80%)
2002
0
0
6 (3%)
36 (17%)
173 (80%)
2003
0
1 (<1%)
9 (4%)
39 (16%)
201 (80%)
67 Information provided electronically by the U.S. Office of Personnel Management to the
author on July 22, 2005.

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CRS-36
Department of Defense
Senior Executive Annual Summary Ratings Distribution
Ratings
Fiscal Year
1
2
3
4
5
1999
0
0
2 (<1%)
12 (2%)
668 (98%)
2000
0
0
0
11 (2%)
685 (98%)
2001
0
0
1 (<1%)
9 (1%)
716 (99%)
2002
1
0
3 (<1%)
29 (5%)
571 (95%)
2003
1 (<1%)
2 (<1%)
11 (2%)
24 (4%)
608 (94%)
Note: The Office of the Secretary of Defense (OSD) is not included in this table. There is a separate
table for OSD. The Army Corps of Engineers (ACE) SES ratings are included only in the figures for
FY1999-FY2001. ACE data for the remaining two fiscal years were not provided.
Department of Education
Senior Executive Annual Summary Ratings Distribution
Ratings
Fiscal Year
1
2
3
1999
0
0
57 (100%)
2000
0
0
53 (100%)
2001
0
0
66 (100%)
2002
0
0
63 (100%)
2003
0
1 (2%)
53 (98%)

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CRS-37
Department of Energy (DOE)
Senior Executive Annual Summary Ratings Distribution
Ratings
Fiscal Year
1
2
3
4
1999
0
1 (<1%)
327 (100%)
NA
2000
0
0
347 (100%)
NA
2001
0
4 (1%)
394 (99%)
NA
2002a
0
7 (2%)
273 (80%)
63 (18%)
2003
0
1 (<1%)
206 (61%)
129 (38%)
a. The Department of Energy changed to a four-level system in 2002.
Department of Health and Human Services (HHS)
Senior Executive Annual Summary Ratings Distribution
(three-level)
Ratings
Fiscal Year
1
2
3
1999
0
0
253 (100%)
2000
0
0
253 (100%)
2001
0
0
238 (100%)
2002
0
1 (<1%)
327 (100%)
2003
1 (<1%)
0
213 (100%)

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CRS-38
Department of Health and Human Services (HHS)
Senior Executive Annual Summary Ratings Distribution
(five-level)
Ratings
Fiscal Year
1
2
3
4
5
1999
0
0
32 (26%)
16 (13%)
76 (61%)
2000
0
0
22 (19%)
13 (11%)
83 (70%)
2001
0
0
21 (17%)
12 (10%)
90 (73%)
2002
0
0
0
2 (6%)
32 (94%)
2003
0
0
0
31 (52%)
29 (48%)
Department of Housing and Urban Development (HUD)
Senior Executive Annual Summary Ratings Distribution
Ratings
Fiscal Year
1
2
3
4
5
1999
1 (2%)
0
12 (18%)
10 (15%)
42 (65%)
2000a
0
0
66 (100%)
NA
NA
2001
0
1 (1%)
67 (99%)
NA
NA
2002
0
0
64 (100%)
NA
NA
2003
0
0
69 (100%)
NA
NA
a. HUD changed to a three-level system in 2000.

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CRS-39
Department of the Interior
Senior Executive Annual Summary Ratings Distribution
Ratings
Fiscal Year
1
2
3
1999
0
0
180 (100%)
2000
0
0
183 (100%)
2001
0
0
191 (100%)
2002
1 (<1%)
0
191 (100%)
2003
0
0
190 (100%)
Department of Justice
Senior Executive Annual Summary Ratings Distribution

Ratings
Fiscal Year
1
2
3
4
5
1999
0
0
0
28 (10%)
245 (90%)
2000
0
0
0
25 (9%)
262 (91%)
2001
0
0
2 (<1%)
24 (8%)
269 (91%)
2002
0
0
4 (2%)
28 (11%)
226 (88%)
2003
0
0
3 (1%)
37 (14%)
223 (85%)
Department of Labor
Senior Executive Annual Summary Ratings Distribution
Ratings
Fiscal Year
1
2
3
4
5
1999
0
0
12 (9%)
42 (32%)
76 (58%)
2000
0
0
18 (13%)
26 (19%)
92 (68%)
2001
0
0
21 (16%)
36 (27%)
78 (58%)
2002
0
0
14 (11%)
52 (41%)
61 (48%)
2003
0
1 (<1%)
17 (13%)
69 (53%)
42 (33%)

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CRS-40
Department of State
Senior Executive Annual Summary Ratings Distribution
Ratings
Fiscal Year
1
2
3
4
5
1999
0
0
0
2 (2%)
83 (98%)
2000
0
0
0
0
101 (100%)
2001
0
0
0
2 (2%)
95 (98%)
2002a
0
0
1 (<1%)
110 (99%)
NA
2003
0
0
2 (2%)
107 (98%)
NA
a. The Department of State changed to a four-level system in 2002.
Department of Transportation (DOT)
Senior Executive Annual Summary Ratings Distribution
Ratings
Fiscal Year
1
2
3
1999
0
0
160 (100%)
2000
1 (<1%)
0
165 (99%)
2001
1 (1<%)
0
194 (99%)
2002
0
0
177 (100%)
2003
0
0
155 (100%)
Department of the Treasury
Senior Executive Annual Summary Ratings Distribution
(five-level)
Ratings
Fiscal Year
1
2
3
4
5
1999
0
0
62 (13%)
169 (35%)
248 (52%)
2000
0
0
75 (14%)
176 (33%)
289 (54%)
2001
0
0
112 (20%)
161 (29%)
274 (50%)
2002
0
0
161 (30%)
165 (31%)
207 (39%)
2003
0
0
34 (11%)
143 (47%)
130 (42%)

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CRS-41
Department of the Treasury
Senior Executive Annual Summary Ratings Distribution
(three-level)
Ratings
Fiscal Year
1
2
3
1999
NA
NA
NA
2000
NA
NA
NA
2001
NA
NA
NA
2002
NA
NA
NA
2003a
0
0
62 (100%)
a. Apparently, one or more Treasury components changed from a five-level system to a three-level
system in 2003.
Department of Veterans Affairs
Senior Executive Annual Summary Ratings Distribution
Ratings
Fiscal Year
1
2
3
4
5
1999
0
2 (<1%)
25 (10%)
79 (33%)
137 (56%)
2000
0
3 (1%)
41 (16%)
68 (27%)
142 (56%)
2001
1 (<1%)
1 (<1%)
32 (11%)
89 (32%)
156 (56%)
2002
0
6 (2%)
34 (13%)
76 (28%)
154 (57%)
2003
0
0
20 (8%)
65 (25%)
176 (67%)

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CRS-42
Environmental Protection Agency (EPA)
Senior Executive Annual Summary Ratings Distribution
Ratings
Fiscal Year
1
2
3
4
5
1999
0
0
2 (<1%)
34 (15%)
196 (84%)
2000
0
0
1 (<1%)
34 (14%)
212 (86%)
2001
0
0
3 (1%)
39 (16%)
202 (83%)
2002
0
1 (<1%)
4 (2%)
71 (29%)
166 (69%)
2003
0
0
8 (3%)
83 (33%)
164 (64%)
Federal Emergency Management Agency (FEMA)
Senior Executive Annual Summary Ratings Distribution
Ratings
Fiscal Year
1
2
3
4
1999
0
0
4 (14%)
25 (86%)
2000
0
0
4 (13%)
28 (88%)
2001
0
0
20 (63%)
12 (38%)
2002
0
0
28 (90%)
3 (10%)
2003
0
0
13 (54%)
11 (46%)
General Services Administration (GSA)
Senior Executive Annual Summary Ratings Distribution
Ratings
Fiscal Year
1
2
3
4
5
1999
0
0
1 (1%)
7 (9%)
73 (90%)
2000
0
0
1 (1%)
2 (3%)
76 (96%)
2001
0
0
0
6 (7%)
76 (93%)
2002
0
0
7 (9%)
31 (39%)
42 (53%)
2003
0
1 (1%)
4 (5%)
29 (39%)
41 (55%)

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CRS-43
Merit Systems Protection Board (MSPB)
Senior Executive Annual Summary Ratings Distribution
Ratings
Fiscal Year
1
2
3
4
5
1999
0
0
0
0
8 (100%)
2000
0
0
0
0
9 (100%)
2001
0
0
0
1 (11%)
8 (89%)
2002a
0
0
0
9 (100%)
NA
2003
0
0
0
10 (100%)
NA
a. The Merit Systems Protection Board switched to four-level system in 2002.
National Aeronautics and Space Administration (NASA)
Senior Executive Annual Summary Ratings Distribution
Ratings
Fiscal Year
1
2
3
4
5
1999
0
0
13 (4%)
85 (23%)
268 (73%)
2000
1 (<1%)
0
9 (2%)
91 (24%)
276 (73%)
2001
0
1 (<1%)
10 (3%)
80 (21%)
290 (76%)
2002
0
2 (<1%)
11 (3%)
74 (21%)
271 (76%)
2003
0
3 (<1%)
16 (4%)
75 (20%)
290 (76%)
Nuclear Regulatory Commission (NRC)
Senior Executive Annual Summary Ratings Distribution
Ratings
Fiscal Year
1
2
3
1999
0
1 (<1%)
152 (99%)
2000
0
0
135 (100%)
2001
0
0
139 (100%)
2002
0
2 (1%)
138 (99%)
2003
0
0
137 (100%)

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CRS-44
Office of Management and Budget (OMB)
Senior Executive Annual Summary Ratings Distribution
Ratings
Fiscal Year
1
2
3
4
5
1999
0
0
1 (2%)
10 (18%)
46 (81%)
2000
0
0
1 (2%)
5 (10%)
45 (88%)
2001
0
0
0
37 (80%)
9 (20%)
2002a
0
0
40 (75%)
13 (25%)
NA
2003
0
0
39 (68%)
18 (32%)
NA
a. The Office of Management and Budget switched to a four-level system in 2002.
Office of Personnel Management (OPM)
Senior Executive Annual Summary Ratings Distribution
Ratings
Fiscal Year
1
2
3
4
5
1999
0
0
0
3 (9%)
29 (91%)
2000
0
0
1 (3%)
2 (6%)
32 (91%)
2001
0
0
2 (6%)
15 (47%)
15 (47%)
2002
0
0
1 (4%)
11 (42%)
14 (54%)
2003
0
0
3 (10%)
17 (59%)
9 (31%)
Office of the Secretary of Defense (OSD)
Senior Executive Annual Summary Ratings Distribution
Ratings
Fiscal Year
1
2
3
1999
0
3 (<1%)
394 (99%)
2000
0
0
403 (100%)
2001
0
2 (<1%)
310 (99%)
2002
1
0
397 (100%)
2003
0
3 (<1%)
389 (99%)

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CRS-45
Small Business Administration (SBA)
Senior Executive Annual Summary Ratings Distribution
Ratings
Fiscal Year
1
2
3
4
5
1999
0
0
0
7 (23%)
24 (77%)
2000
0
0
1 (3%)
7 (21%)
26 (76%)
2001
0
0
1 (3%)
6 (16%)
29 (81%)
2002
0
0
7 (18%)
10 (26%)
22 (56%)
2003
0
0
5 (16%)
12 (39%)
14 (45%)
Social Security Administration (SSA)
Senior Executive Annual Summary Ratings Distribution
Ratings
Fiscal Year
1
2
3
4
5
1999
0
0
90 (100%)
NA
NA
2000
0
0
122 (100%)
NA
NA
2001
0
0
122 (100%)
NA
NA
2002
0
0
116 (100%)
NA
NA
2003a
0
0
13 (12%)
53 (47%)
46 (41%)
a. The Social Security Administration switched to a five-level system in 2003.
U.S. Agency for International Development (USAID)
Senior Executive Annual Summary Ratings Distribution
Ratings
Fiscal Year
1
2
3
4
5
1999
0
0
4 (18%)
1 (5%)
17 (77%)
2000
0
0
1 (5%)
0
18 (95%)
2001
0
0
2 (8%)
6 (25%)
16 (67%)
2002
0
0
5 (21%)
9 (38%)
10 (42%)
2003
0
0
9 (43%)
4 (19%)
8 (38%)

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CRS-46
Appendix B
Section 1126, P.L. 108-136
Section 1126 of the FY2004 National Defense Authorization Act (P.L. 108-136;
117 Stat. 1392, at 1640) lists design elements for pay-for-performance systems
initiated under Chapter 47 of Title 5 of the United States Code. These elements do
not apply to the SES pay system, which is found in Chapter 53 of Title 5. However,
they might be instructive when reviewing the elements of the new SES pay system.
The elements are
! Adherence to merit principles set forth in section 2301 of such [Title 5 of
the United States Code]
! A fair, credible, and transparent employee performance appraisal system.
! A link between elements of the pay-for-performance system, the employee
performance appraisal system, and the agency’s strategic plan.
! A means for ensuring employee involvement in the design and
implementation of the system.
! Adequate training and retraining for supervisors, managers, and
employees in the implementation and operation of the pay-for-
performance system.
! A process for ensuring ongoing performance feedback and dialogue
between supervisors, managers, and employees throughout the appraisal
period, and setting timetables for review.
! Effective safeguards to ensure that the management of the system is fair
and equitable and based on employee performance.
! A means for ensuring that adequate agency resources are allocated for the
design, implementation, and administration of the pay-for-performance
system.
Government Accountability Office
Employing a slightly different perspective, GAO identified the following key
practices for effective performance management:
! Align individual performance expectations with organizational goals.
! Connect performance expectations to crosscutting goals.

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CRS-47
! Provide and routinely use performance information to track organizational
priorities. (A subsequent GAO report stated: “Provide and routinely use
performance information to make program improvements.”68)
! Require follow-up actions to address organizational priorities.
! Use competencies to provide a fuller assessment of performance.
! Link pay to individual and organizational performance.
! Make meaningful distinctions in performance.
! Involve employees and stakeholders to gain ownership of performance
management systems.
! Maintain continuity during transitions.69
Coalition for Effective Change
The Coalition for Effective Change, self-described as a “non-partisan alliance
of associations representing current and retired federal managers, executives, and
professionals,” offers the following factors as a foundation for any system that links
pay and performance:70
! Gaining Consensus on the Basis for Rewards and Corrective Actions:
Determinations to award higher pay and bonuses, and to take corrective
actions because of poor performance, must be based on a credible process
for evaluating performance that is tailored to the individual needs and
culture of each organization (avoiding the temptation to implement a “one
size fits all approach”) and which is developed, implemented, evaluated,
and adjusted over time with the active involvement of employees and
managers. Employees not represented by a union should have
representation through their professional or managerial associations.
! Allowing for the Exercise of Reasonable Judgment: We [Coalition for
Effective Change] recognize that judging overall performance and
contributions involves a degree of subjective judgment by the rater[;
therefore], the system should strive for as much objectivity as possible
while recognizing that an inherent aspect of good management is the
ability to exercise and support sound judgment with regard to the quality
and quantity of work, the effects outcomes of inputs, and the impact of
environment and unforeseen developments.
68 U.S. General Accounting Office, Human Capital: Implementing Pay for Performance at
Selected Personnel Demonstration Projects, GAO Report GAO-04-83 (Washington: 2004),
p. 1.
69 U.S. General Accounting Office, Results-Oriented Cultures: Creating a Clear Linkage
Between Individual Performance and Organizational Success, GAO Report GAO-03-488
(Washington: 2003), p. 4.
70 Coalition for Effective Change, available at [http://www.effective-change.org/
about.html].

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CRS-48
! Flexible: Recognizing that the proportion of high performers differs
among agencies and work groups within agencies, the amount and
distribution of awards should be controlled via budget allocations and not
by arbitrary quotas or forced distribution. In addition, the system
should specifically allow for the possibility of team awards rather than
individual awards where that makes the most sense.
! Reviewable: A credible system will provide for third party review
(preferably peer review) and a rational and reasonable process for the
appeals of actions having a material effect upon the employee. Results or
outcomes of the pay for performance system should be openly available
to those participating in the system to build the credibility of the system
over time.
! Periodically evaluated and adjusted: Any new or revised performance
management system should be tested and evaluated on an ongoing basis
and refined based on the results, all with stakeholder participation. The
test should be communicated to all employees before starting, and the
results and actions to be taken based on those results should also be
communicated. Finally, reviews of the system by an agency or by the
Office of Personnel Management should include an assessment of the
impact of the system on agency workforce diversity goals and initiatives.
! Adequately funded: The performance award system, both in testing and
full implementation, must be adequately funded with a specific allocation
of funds for both implementation and ongoing operation. If unforeseen
and uncontrollable circumstances intervene, the circumstances and effect
on performance awards should be immediately communicated to all
participants. At a minimum, any employee whose performance is deemed
to be satisfactory should expect to receive an annual pay increase that at
least keeps pace with cost of living increases in [his or her] area.71
Robert D. Behn
Dr. Robert D. Behn, a lecturer in the Kennedy School of Government, Harvard
University, suggests these eight principles for improving human and organizational
performance:
! Offer enough base pay to attract talented, dedicated people.
! Give people an important mission to achieve.
! Don’t create systems that automatically label lots of people as losers.
! Find lots of mechanisms to tell people they are winners. (And don’t rely
on financial incentives.).
! Reward teamwork.
71 Coalition for Effective Change, “Linking the Pay of Federal Employees to Their
Performance,” Aug. 2004, available at [http://www.effective-change.org/
CECPublications.html]. (Italics in original.)

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CRS-49
! Make it easy to terminate obnoxiously poor performers.
! Ask line managers if your system helps them to improve performance.
! Don’t carve your new system in stone; rather, be prepared to make the
inevitably necessary changes.72
72 Robert D. Behn, “Performance, People, and Pay,” Bob Behn’s Public Management
Report, 2000, pp. 8-9, available at [http://www.ksg.harvard.edu/TheBehnReport/].

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