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Using variable pay to reward workers for meeting or surpassing annual goals has become common in the private sector. For federal workers, however, civil service pay is still largely set by education and job position, with automatic increases over time based on tenure.
White House budget plan released on Feb. 12 is the latest attempt to tie federal workers' pay to performance evaluations. The plan also calls for revising policies that make it difficult to discipline and fire federal employees. Federal worker unions are pledging to fight these reforms.
How Federal Workers' Pay Might Change
The proposal would reduce automatic pay raises and use that savings to fund a performance-bonus pool. Under the current system, federal employees' pay is reviewed every one to three years. Employees whose performance is "fully successful"—as 99.7 percent are—get a within-grade step increase in addition to annual cost-of-living increases.
Trump's plan would stretch out the amount of time to go from step 1 to step 10 from 18 years to 27 years, reducing salary budgets by $10 billion over the next decade, officials said. That money would then be go to high-performing employees either as merit raises or one-time bonuses. (USA Today)
Unions Protest Pay-for-Performance Plan
Federal labor organizations are vowing to fight the Trump administration's pay-for-performance plan. J. David Cox Sr., president of the American Federation of Government Employees, the largest federal union, called the proposal a "nail in the coffin of the apolitical, professional civil service." An earlier effort to move toward pay-for-performance under President George W. Bush came under harsh criticism for unfairness from labor organizations and Democrats, and it was
abolished early in the Obama administration.
"Congress repealed authority for that system after just three years because it resulted in tremendous pay discrimination against women and racial minorities," Cox said. "These subjective pay systems open the door to corruption, favoritism and discrimination." (Washington Post)
Private Sector Raises Are Turning into Bonuses
A growing preference among private-sector employers for one-time awards instead of annual salary increases that build over time has been transforming the employment landscape for two decades.
According to a report by consultancy Aon Hewitt, variable-pay spending for salaried employees in 1991 accounted for an average of 3.1 percent of total compensation budgets while salary increases amounted to 5 percent. In 2017, variable pay consumed 12.7 percent to those budgets while raises amounted to just 2.9 percent.
"Pressure to increase productivity and minimize costs," the report concluded, had pushed employers "to forgo raises and rely more on short-term awards as the primary means of rewarding for performance." (New York Times)
[SHRM members-only toolkit: Designing and Managing Incentive Compensation Programs]
Variable Rewards Require Clear Metrics
Variable rewards should be tied to meeting performance goals, with a direct connection between the goal and the payout, compensation specialists say. In addition, payouts should be substantial enough to motivate performance. A $5,000 lump sum to a secretary earning $30,000 is substantial. To a well-paid CEO, it's not.
Performance criteria in a successful program should include a combination of quantitative and qualitative measures that are simple to understand, supported by valid competitive data and monitored through strong controls. (SHRM Online)
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