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When organizations base compensation in any way on employee performance, redesigning a compensation system requires examination of the performance management program. At OPM's 2001 Strategic Compensation Conference, representatives of the Office of the Comptroller of the Currency (OCC) and their adviser, Steve Safier from the Hay Group, described how OCC redesigned its compensation system, which required it to also redesign its performance management program.
OCC is not covered by General Schedule pay requirements and had been using a 25-grade classification system and a 5-level performance management program. It found that while 25 grades allowed frequent promotions, the system was too complex and made it difficult for managers and employees to differentiate between grades. The base salary system was perceived to be comparable to systems used by similar Federal agencies but not believed to be competitive with private-sector financial institutions. While the performance management program used generic, skill-based standards to make the process easier and provided some differentiation among performance levels and pay increases, the agency perceived that generic standards were not accurate for all employees and that the limited merit budget was not enough for adequate recognition. OCC decided it needed to redesign these systems
OCC used leadership interviews, employee focus groups, and surveys to develop its top 10 compensation objectives. OCC wants:
Based on these objectives, OCC used a decision-making tool to help determine which type of classification and pay system supports those objectives best - a 25-grade system, a 12-grade system, or a 9-grade system. By rating these three options as to whether their level of support for the objective is high, medium, or low, OCC found that a 9-grade system supported its objectives best. Next, it turned its attention to designing a supportive performance management program.
OCC redesigned its performance management program to include the following changes:
Salary increases are based on employee appraisal ratings. Employees rated 1 or 2 receive no increases at all, not even the general increase given in January. Employees rated 3 or 4 are eligible for a salary increase within a specific range established for each rating. Managers determine the final salary increase.
Redesign lessons learned include:
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