• Strategic Compensation Initiative
• The Process
• Research Findings and Issues
• Next Steps

OPM Strategic Goals include developing:

"a flexible, competitive and performance-oriented compensation and benefits environment that allows the Government to recruit, manage, and retain a quality Federal workforce."

• Research on compensation practices and issues
• Outreach to Federal community to inform and involve
• Cooperative development of possible changes with Federal stakeholders

• The first two stages will look at the history and background of the Government's compensation system in order to develop goals and principles to guide the process.
• The largest stage will encompass using various workgroups to look at issues such as cost management, equity, and collective bargaining, among others.
• The work groups will focus on performance management, structure setting and adjustment, job/work evaluation, pay progression strategies, variable pay, premium/special pay, paid time off, and other strategic rewards.
• The next stage will integrate the component results, which will lead to the next-to-the-last stage of drafting proposed changes.
• The final stage is producing legislative and regulatory proposals.

• Research Findings
• Private Sector
• Non-Federal Public Sector
• Federal Non-Title 5 agencies
• Organized by 7 components
• Job/Work Evaluation
• Structure Setting and Adjustment
• Pay Progression
• Performance Management
• Variable Pay
• Premium/Special Pay
• Paid Time Off

• Companies tend to match competitors in salary & benefits; they vary considerably in bonuses/variable pay and stock options
• External competitiveness more important than internal equity or affordability in setting compensation policy, although its relative importance may be tied to current market conditions
• Most companies use some form of variable pay; of those who do not, most have bonus or stock option programs for managers or top performers

• Compensation Competition in the marketplace is the major driver for making changes to compensation policy
• Compensation practices in the private sector do not follow a "one-size-fits-all" model
• Practices vary widely with companies designing their practices so they are aligned to meet their specific business needs, workforce needs, their culture/philosophy, and the needs of employees expressed through collective bargaining.

• Definition
• Job evaluation is a formal process for:  determining the relative value of various jobs within the organization, and assigning jobs to a grade structure or some other hierarchical index of job value
• Work evaluation includes methods for valuing work that are not centered on job tasks. For example, work evaluation could be based on roles or competencies.

• Market pricing and job slotting were most common approaches
• A substantial minority used point factor systems
• Firms without formal job evaluation system had monitoring and review mechanisms to ensure compliance with Equal Pay Act

• OPM survey indicates states use formal job evaluation systems
• States use job evaluation to identify qualification requirements, place jobs in salary structures, and maintain internal equity
• Some states, job evaluation results are used in conjunction with market rates, internal salary relationships and other factors to assign a job to a grade or pay range

• Variety of methods, sometimes combined
• Some use market-pricing for specific jobs
• Often used with broad pay ranges
• Some reference to GS structure or OPM standards

• Some person-based approaches
• Often used with broad pay ranges
• Strong linkage to pay
• Direct translation from GS grades to broad grades
• Union agreement required

Issues

Should there be one job/work evaluation system or should approaches vary--

• position-based systems
• person-based systems
• skill or competency-based systems
• hybrid systems

• A pay structure is a collection of pay rates or ranges.
• Structure setting and adjustment is the process of developing, adjusting, and maintaining a pay structure.

Findings

Findings

• Non-Title 5
• Single structures
• Wider ranges
• Market-based adjustments
• Adjustments often performance-contingent
• Demonstration Projects
• Banding prevails
• Adjustments sometimes performance-contingent
• GS linkage continues in practice
• Union agreement required

• The number and coverage of schedules
• The relationship between schedules
• The size and variability of pay ranges
• Whether the schedule(s) will be divided into discrete pay ranges and levels
• How schedules will be developed and adjusted - role of negotiation, surveys, cost controls

• Equity - what is the acceptable level of variation across employees, occupations, organizations
• Cost control and accountability - will pay levels be affordable and defensible
• Feasibility - what resources will be needed to maintain and administer the schedules

• Career ladder" promotion
• Competitive promotion
• Performance-based increases, including the within-grade increases (WIG) and the quality step increase (QSI).

• pay progression based primarily on performance is a widespread practice
• merit pay is common, particularly in large organizations
• time-based pay progression (longevity increases) is much more common under collective bargaining agreements

• limited progression potential
• time-based pay progression, and
• limited performance-based progression

• Progression on attainment of key skills or competencies
• Progression based on specific accomplishments
• Accelerated progression based on performance (over and above the QSI)

• Equity - are differing rates of pay progression acceptable?
• Pay-at-risk vs. guarantees - is variability acceptable?
• Performance management - how will performance be measured and linked to pay?
• Cost - how will pay increases be funded and budgeted?
• Accountability - how will pay increases be justified to the public?

• Performance management includes all activities associated with planning, monitoring, developing, rating and rewarding performance.
• For purposes of compensation system development, "performance management" is limited to activities that inform compensation decisions.This component considers two aspects of performance management, employee development and performance rating.

• Private Sector
• Pay-for Performance is a common element of corporate compensation philosophy, and
• Many organizations use performance as a primary determinant of pay progression

• Public Sector
• Most States have formal performance evaluation systems
• Most States use summary ratings, following standard rating patterns and
• Most States use pay and performance linkages similar to those in the Federal sector

• Non-Title 5:
• Performance appraisal (Title 5) used for both merit pay and adverse action
• Employees who receive ratings below fully successful do not receive merit pay increases
• Demonstration Projects:
• Link to pay
• Systems beyond summary ratings

• Level of performance management - individual, team or group, business unit, organization
• Types of performance evaluated - outputs, results, behaviors or attributes, combinations
• Methods - supervisory assessment, self-assessment, peer assessment, customer satisfaction, quantitative or qualitative measures
• Outputs - narrative assessment, performance score or index, ranking and combinations
• Uses - provide feedback, relate individual to organizational performance

Definition

Variable pay is non-recurring pay based on individual, group, or organizational performance.

• Two-thirds of all companies offer at least one variable pay plan for non-sales employees today, compared to about half in 1990
• Proportion of overall payroll expenses represented by variable pay has doubled from about 4 percent to about 8 percent
• Most popular basic variable pay plans are incentive awards based on meeting organizational goals and individual employee recognition awards

• Payment to individuals based on individual performance
• Payment on top of base pay (no "pay-at-risk")
• Tight agency-imposed limits on individual award values, and
• Limited managerial discretion to vary individual award values

• Non-Title 5
• "Add-on" rather than "at risk"
• Similar to Title 5
• Demonstration Projects
• Not a cornerstone
• Most focus on base pay
• Positioned as a partial alternative to base pay
• Exception: Pacer Share (gainsharing)

• How much pay should be "guaranteed governmentwide?
• How much "pay-at-risk" should be allowed in one agency versus another? What levels of individual total compensation are acceptable?
• Should there be any budgetary limits on how much an agency can spend on directly compensating employees?
• Could agencies be able to defend larger (and more varied) awards and total compensation to Congress and the public?

Premium/Special pay is compensation, in addition to an employee's normal salary or wage (basic pay), for extraordinary job demands or working conditions or to meet a special need of the organization (e.g., an allowance to retain needed staff).

• Private sector firms premium/special payments include:
• Overtime
• Shift differentials
• Holiday and weekend work
• Availability pay
• Hazardous, dangerous or unpleasant work
• Most private sector firms do not pay for special work conditions for white-collar employees

• State governments premium/special payments include:
• Environmental differentials
• Overtime
• Sunday pay
• Holiday pay
• Shift differentials
• Premium pay is either paid as a percentage of basic pay or a lump-sum premium payment

• Supervisory duties - uses different (higher) set of bands, for each job category
• Overtime -paid based on time worked in excess of scheduled tour-not keyed to day worked, or a set 24-hour period
• May offer time-and-a-half as alternative to comp time
• One agency eliminated biweekly and total annual pay caps, dual compensation restriction for military retirees
• Compensatory time for exempt employees (with prior approval); use is limited
• Night differential paid (relatively few employees covered)

• What hazards, demands should be compensated?
• What segments of the workforce should be covered?
• Criteria for payment and form of payment
• What constitutes fair compensation for job hazards and special demands?
• Is it acceptable to allow cost or labor market considerations to influence premium pay policy?
• Do provisions encourage agencies and employers to mitigate hazards?

Paid time off (PTO) refers to time off work with pay

• Similar categories
• some use of PTO banks
• Service-based accrual
• Limited carry-over
• "Cash out" provisions common

• Most similar to Federal
• separate annual and sick leave
• service-based annual leave accrual
• no PTO banks

• Non-Title 5
  Standard Federal accrual and use provisions
• Demonstration Projects
  Not authorized to deviate from current leave structure

• PTO to support employer goals
• Volunteer work
• Sabbaticals
• Public policy (court, military leave)
• Sharing/donation provisions

• Work with Federal stakeholders underway
• Webpage for research information
• Begin developing proposed changes