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  1. 1. STRATEGIC COMPENSATION UPDATE United States Office of Personnel Management Workforce Compensation and Performance Service
  2. 2. STRATEGIC COMPENSATION UPDATE • Strategic Compensation Initiative • The Process • Research Findings and Issues • Next Steps United States Office of Personnel Management Workforce Compensation and Performance Service
  3. 3. STRATEGIC COMPENSATION UPDATE 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.” United States Office of Personnel Management Workforce Compensation and Performance Service
  4. 4. STRATEGIC COMPENSATION INITIATIVE Process • Research on compensation practices and issues • Outreach to Federal community to inform and involve • Cooperative development of possible changes with Federal stakeholders United States Office of Personnel Management Workforce Compensation and Performance Service
  5. 5. Strategic Compensation Development Process Stakeholders Stakeholders Stakeholders Cost Collective Other Equity Management Bargaining Issue(s) Legislative & Regulatory Proposals Performance Management History and Background Goals and Principles Integrate Component Results Structure Setting & Adjustment Draft Proposed Changes Job/Work Evaluation Pay Progression Strategies Variable Pay Premium/Special Pay Paid Time Off Other Strategic Rewards Strategic Compensation Policy Center with External Support FY 1999 - FY 2002 Retirement and Insurance/Workforce Relations/Executive and Management Development/Employment Service
  6. 6. STRATEGIC COMPENSATION UPDATE 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 Strategies • Performance Management • Variable Pay • Premium/Special Pay United States Office of Personnel Management • Paid Time Off Workforce Compensation and Performance Service
  7. 7. STRATEGIC COMPENSATION UPDATE Findings Private Sector • 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 United States Office of Personnel Management Workforce Compensation and Performance Service
  8. 8. STRATEGIC COMPENSATION UPDATE Findings Private Sector • 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. United States Office of Personnel Management Workforce Compensation and Performance Service
  9. 9. JOB/WORK EVALUATION 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. United States Office of Personnel Management Workforce Compensation and Performance Service
  10. 10. JOB/WORK EVALUATION Findings Private Sector • 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 United States Office of Personnel Management Workforce Compensation and Performance Service
  11. 11. JOB/WORK EVALUATION Findings Public Sector • 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 United States Office of Personnel Management Workforce Compensation and Performance Service
  12. 12. JOB/WORK EVALUATION Findings Non-Title 5 • 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 United States Office of Personnel Management Workforce Compensation and Performance Service
  13. 13. JOB/WORK EVALUATION Findings Demonstration projects • 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 United States Office of Personnel Management Workforce Compensation and Performance Service
  14. 14. JOB/WORK EVALUATION 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 United States Office of Personnel Management Workforce Compensation and Performance Service
  15. 15. STRUCTURE SETTING AND ADJUSTMENT Definition • 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. United States Office of Personnel Management Workforce Compensation and Performance Service
  16. 16. STRUCTURE SETTING AND ADJUSTMENT Findings • Private Sector • Public Sector  Market data -primary role  Market data - plays a limited  Competitiveness is critical role  No external approval is  Affordability is critical required  Adjustments are subject to  Public perception is not external (legislative ) important approval  Public perception is important United States Office of Personnel Management Workforce Compensation and Performance Service
  17. 17. STRUCTURE SETTING AND ADJUSTMENT Findings • Private Sector • Public Sector  1-3 structures  1-10 or more structures  Structures divided by  Structures divided by exempt; non-exempt; occupational or bargaining executive unit lines  Occupation specific  Grades & ranges- structures to address broadbanding rare competition  Geographical differentials  Grades & ranges-some uncommon, but broadly broadbanding applied when used  Geographic differentials  Range width of less than limited to non-exempt 40% United States Office of Personnel Management positions Workforce Compensation and Performance Service
  18. 18. STRUCTURE SETTING AND ADJUSTMENT 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) United States Office of Personnel Management – Union agreement required Workforce Compensation and Performance Service
  19. 19. STRUCTURE SETTING AND ADJUSTMENT Issues • 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 United States Office of Personnel Management Workforce Compensation and Performance Service
  20. 20. STRUCTURE SETTING AND ADJUSTMENT Issues(continued) • 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 United States Office of Personnel Management Workforce Compensation and Performance Service
  21. 21. PAY PROGRESSION STRATEGIES Definition Pay progression refers to changes in basic pay, other than general adjustments or increases. Under the General Schedule, there are three primary means of pay progression: • “Career ladder” promotion • Competitive promotion • Performance-based increases, including the within-grade increases (WIG) and the quality step increase (QSI). United States Office of Personnel Management Workforce Compensation and Performance Service
  22. 22. PAY PROGRESSION STRATEGIES Findings Private sector • 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. United States Office of Personnel Management Workforce Compensation and Performance Service
  23. 23. PAY PROGRESSION STRATEGIES Findings Public sector systems reflect values and objectives such as internal equity, cost control and an emphasis on experience and longevity. Such systems typically have: – limited progression potential – time-based pay progression, and – limited performance-based progression United States Office of Personnel Management Workforce Compensation and Performance Service
  24. 24. PAY PROGRESSION STRATEGIES Issues Additional or alternate means of pay progression such as: • Progression on attainment of key skills or competencies • Progression based on specific accomplishments • Accelerated progression based on performance (over and above the QSI) United States Office of Personnel Management Workforce Compensation and Performance Service
  25. 25. PAY PROGRESSION STRATEGIES Issues • 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 United States Office of Personnel Management Workforce Compensation and Performance Service
  26. 26. PERFORMANCE MANAGEMENT Definition • 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 United States Office of performance rating. Personnel Management Workforce Compensation and Performance Service
  27. 27. PERFORMANCE MANAGEMENT Findings: • 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 United States Office of Personnel Management Workforce Compensation and Performance Service
  28. 28. PERFORMANCE MANAGEMENT Findings: • 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 United States Office of Personnel Management Workforce Compensation and Performance Service
  29. 29. PERFORMANCE MANAGEMENT Findings: • 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 United States Office of Personnel Management Workforce Compensation and Performance Service
  30. 30. PERFORMANCE MANAGEMENT Issues • 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 United States Office of Personnel Management Workforce Compensation and Performance Service
  31. 31. VARIABLE PAY Definition Variable pay is non-recurring pay based on individual, group, or organizational performance. United States Office of Personnel Management Workforce Compensation and Performance Service
  32. 32. VARIABLE PAY Findings Private Sector – Two-thirds of 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 United States Office of Personnel Management Workforce Compensation and Performance Service
  33. 33. VARIABLE PAY Findings Public Sector – 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 United States Office of Personnel Management Workforce Compensation and Performance Service
  34. 34. VARIABLE PAY Findings • 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) United States Office of Personnel Management Workforce Compensation and Performance Service
  35. 35. VARIABLE PAY Issues • 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? United States Office of Personnel Management Workforce Compensation and Performance Service
  36. 36. PREMIUM/SPECIAL PAY Definition 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). United States Office of Personnel Management Workforce Compensation and Performance Service
  37. 37. PREMIUM/SPECIAL PAY Findings Private Sector – 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 United States Office of Personnel Management Workforce Compensation and Performance Service
  38. 38. PREMIUM/SPECIAL PAY Findings Public Sector • 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 United States Office of Personnel Management Workforce Compensation and Performance Service
  39. 39. PREMIUM/SPECIAL PAY Findings Non-Title 5 – 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) United States Office of Personnel Management Workforce Compensation and Performance Service
  40. 40. PREMIUM/SPECIAL PAY Issues • 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? United States Office of Personnel Management Workforce Compensation and Performance Service
  41. 41. PAID TIME OFF Definition Paid time off (PTO) refers to time off work with pay United States Office of Personnel Management Workforce Compensation and Performance Service
  42. 42. PAID TIME OFF Findings Private Sector –Similar categories –some use of PTO banks –Service-based accrual –Limited carry-over –“Cash out” provisions common United States Office of Personnel Management Workforce Compensation and Performance Service
  43. 43. PAID TIME OFF Findings Public Sector – Most similar to Federal –separate annual and sick leave –service-based annual leave accrual –no PTO banks United States Office of Personnel Management Workforce Compensation and Performance Service
  44. 44. PAID TIME OFF Findings • Non-Title 5 Standard Federal accrual and use provisions • Demonstration Projects Not authorized to deviate from current leave structure United States Office of Personnel Management Workforce Compensation and Performance Service
  45. 45. PAID TIME OFF Issues • Single or multiple types annual and sick leave vs. PTO banks • PTO to support employer goals • Volunteer work • Sabbaticals • Public policy (court, military leave) • Sharing/donation provisions United States Office of Personnel Management Workforce Compensation and Performance Service
  46. 46. STRATEGIC COMPENSATION UPDATE NEXT STEPS • Work with Federal stakeholders underway • Webpage for research information • Begin developing proposed changes United States Office of Personnel Management Workforce Compensation and Performance Service
  47. 47. STRATEGIC COMPENSATION UPDATE United States Office of Personnel Management Workforce Compensation and Performance Service

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