FIRST LOOK AT SENIOR EXECUTIVE SERVICE PERFORMANCE AWARDS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP95-00535R000300040008-2
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 50
• Document Creation Date: December 23, 2016
• Document Release Date: September 30, 2013
• Sequence Number: 8
• Publication Date: August 15, 1980
• Content Type: REPORT

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REPORT BY THE
Comptroller General
OF THE UNITED STATES
First Look At Senior Executive Service
Performance Awards
A major tenet of civil service reform is the sys-
tem of performance awards (bonuses and
ranks) to top Federal executives. As of July
1980, three agencies had awarded bonuses to
the senior executives. GAO found that the
bonuses and the procedures agencies followed
complied with the law and OPM guidance. Al-
though each agency encountered problems,
it should not be inferred that the performance
appraisal and award system is flawed.
The Congress and the administration need to
consider a number of issues which may affect
the success of the Senior Executive Service:
the effect of pay compression and restrictions
on awarding bonuses and the ability of bo-
nuses to act as an incentive for improved per-
formance.
The innovative features of the Senior Execu-
tive Service should not be curtailed or aban-
doned before they have been given a chance
to work. GAO recommends that the Congress
allow the bonus and rank provisions to take
effect and allow the system to be thoroughly
tested. The Office of Personnel Management
should act to increase the credibility and ob-
jectivity of bonus decisions and step up its
oversight of agency plans.
FPCD-80-74
AUGUST 15, 1980
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COMPTROLLER GENERAL OF THE UNITED STATES
WASH I NGTON. O.C. 20548
The Honorable Jamie L. Whitten
Chairman, Committee on Appropriations
House of Representatives
The Honorable James M. Hanley
Chairman, Committee on Post Office
and Civil Service
House of Representatives
The Honorable Warren G. Magnuson
Chairman, Committee on Appropriations
United States Senate,
The Honorable Abraham A. Ribicoff
Chairman, Committee on Governmental
Affairs
United States Senate
The Honorable Jim Sasser
Chairman, Subcommittee on Legislative
Branch
Committee on Appropriations
United States senate
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The Honorable Thomas F. Eagleton
Chairman, Subcommittee on Agriculture
and Related Agencies
Committee on Appropriations 1
United States Senate
The Senior Executive Service (SES), established by title
IV of the Civil Service Reform Act of 1978 (Public Law 95-454),
went into effect on July 13, 1979, and with it a system of per-
formance awards (bonuses and ranks) to encourage excellence in
performance among career appointees. SES serves as a signifi-
cant attempt to inspire and motivate Federal executives to
better performance and higher productivity. The awarding of
bonuses and Meritorious and Distinguished Executive ranks with
large cash stipends, two of the most innovative and important
features of SES, are in a very early stage of implementation.
On the other hand, as many executives have already observed,
the performance appraisal process leading to these awards is
already proving to be a major management tool that helps
agencies to more sharply focus resources on accomplishing
their overall missions and specific goals.
The first bonuses under this system were paid by the
Small Business Administration (SBA) in April 1980 and to the
National Aeronautics and Space Administration (NASA) and the
Merit Systems Protection Board (MSPB) in May 1980. Concerned
about the number and amounts paid by the first two agencies
and about potential abuse of the system, the House of Repre-
sentatives initiated action in June 1980 to limit payment of
SES performance awards through the appropriations process.
Disagreement between the Senate and House on limiting SES
bonuses resulted in a compromise agreement by the conferees
on the Fiscal Year 1980 Supplemental Appropriations Act that
"no more than 25 percent of the number of Senior
Executive Service position, or positions under
similar personnel systems, in any agency may
receive performance awards."
The conferees also directed our Office, in cooperation with the
Office of Personnel Management (OPM), to thoroughly study SES
bonus system payments to identify potential abuses of the system.
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Because the actions of the Congress and the directive to
our Office resulted primarily from the payment of bonuses by
NASA and SBA, we reviewed the SES bonuses paid in these two
agencies. We also reviewed the bonuses paid by MSPB. The
National Capital Planning Commission (NCPC) awarded bonus pay-
ments but withdrew them at OPM's request. We also reviewed
the circumstances in this case. According to OPM officials,
these four agencies are the only ones which paid, or attempted
to pay, bonuses as of July 7, 1980. On this date, OPM re-
quested agencies to suspend further bonus payments pending
issuance of additional guidance. OPM issued this guidance
on July 21, 1980.
This letter summarizes the results of our study of SES
bonus system payments. We are recommending that the Congress
allow the SES bonus and rank provisions to take effect except
that the percent limit be based on eligible career executives
(see p. 10). Recommendations are also made to the Director,
OPM (see p. 11). (See appendix for SES compensation matters,
the processes used by the above agencies in awarding bonuses,
and our comments on the processes.)
BONUS PAYMENTS AT NASA, SBA, MSPB, AND NCPC
We did not detect any abuse and believe that the respon-
sible officials at these four agencies have acted in good
faith and generally with reasonable logic in the administra-
tion of the SES performance appraisal and award system. Each
of the processes and related awards were within the parameters
of the Reform Act and OPM guidance in effect when the awards
were made.
Research of private industry experience, however, has shown
that an innovative concept that demands such an enormous and
abrupt change in organizational behavior, as does SES, cannot
be expected to operate optimally at its inception. Several
years of experience with the system may be necessary to dis-
cover the changes that will be required to make it run well.
Although the agencies operated within guidelines, we did
observe a few initial policies or procedures that need improve-
ment. These matters are agency specific and should not be gen-
eralized or reflect negatively on the credibility of the sys-
tem. These matters are
--the composition of NASA's Performance Review Board
(PRB) and Senior Executive Committee in reviewing the
performance appraisal and bonus recommendations of
top agency officials and PRB members,
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--the intention of SBA to pay a second round of bonuses
again in the fall of 1980 for the remainder of fiscal
year 1980 performance, and
--the senior executives at MSPB not establishing perform-
ance objectives until nearly three-quarters of the way
through the performance period for which they were
awarded bonuses.
NASA
NASA awarded bonuses within the parameters of the Reform
Act and OPM guidance, which permitted bonus payments up to
50 percent of SES positions. Bonuses were paid to 240, or
56 percent, of the 427 incumbent career executives eligible
to receive bonuses in May 1980; this amounted to 46 percent
of 520 positions OPM allotted to NASA.
However, because (1) all of NASA's Executive Position
Managers (EPMs)--major component organization directors--and
PRB members received either bonuses or meritorious or distin-
guished rank nominations (rank nominees were ineligible for
bonuses at NASA), (2) there was no representation of lower
level SES members or non-NASA representatives on PRB, (3) the
Senior Executive Committee, serving as the PRB for EPM bonus
and performance rating recommendations, is chaired by the
Deputy Administrator, who also rates the EPMs and Senior Ex-
ecutive Committee members, and (4) the percentage of execu-
tives receiving bonuses or rank nominations, as well as the
greater dollar amounts of bonuses, were skewed toward the top
of NASA's organizational hierarchy (see app., p. 15), NASA's
performance award decisions lack the appearance of objectivity.
According to agency officials, EPMs gained their key po-
sitions by virtue of demonstrated performance and accomplish-
ments; also PRB members were chosen for their long-standing
reputation for integrity and competence. For the most part,
awards were made to the better rated executives (see app.,
p. 14). Also, through a special commendation, OPM singled out
NASA for its leadership in implementing the SES provisions of
Civil Service Reform.
The skewing apparently occurred because of NASA's
philosophy about the factors to be considered in evaluating
individual performance. Although NASA considers an execu-
tive's performance rating the primary basis for an award,
it believes the rating cannot be the sole basis for determin-
ing the value of an individual's performance. It believes
consideration must also be given to the individual's job im-
portance and complexity, the degree of risk and responsibility,
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and the individual's specific or overall contributions to the
agency. These factors are not necessarily reflected in the
rating and are generally more prevalent at the highest posi-
tions in the organization. It believes that fully successful
performance in more challenging and higher level positions
may be more valuable to the organization than fully successful
or better performance in less challenging or lower level posi-
tions, and thus more deserving of an award and in a greater
amount. (See app., p. 10.)
SBA
SBA complied with the parameters of the Reform Act and
OPM guidance, which permitted bonus payments up to 50 percent
of SES positions. Bonuses were paid on April 16, 1980, to
15, or 48 percent, of the 31 incumbent career executives
eligible to receive them. This amounted to 28 percent of 53
positions OPM allotted to SBA.
Although SBA's PRB recommended making bonus payments to
38 percent of its SES positions, the Administrator, after con-
ferring with OPM officials, elected to reduce the number of
awards to 28 percent and base the awards on a half year's sal-
ary. Also, SBA paid bonuses on a 6-month cycle and plans to
again pay bonuses for second half fiscal year 1980 performance
in the fall of 1980 with fiscal year 1981 money. It plans to
then shift to an annual bonus cycle, paying bonuses in each
October. This is not consistent with other agencies' prac-
tices and raises questions of equity to other SES members be-
cause, in effect, SBA would be paying a second round of bonuses
for fiscal year 1980 performance. Most other Federal agencies
will pay only one round of bonuses for fiscal year 1980 per-
formance in the fall or early winter of 1980.
SBA will need to be very careful about the manner in
which it pays bonuses in October to avoid perceived misuse of
the 25-percent limit set by the Fiscal Year 1980 Supplemental
Appropriations Act. This might lead SBA to consider making
its bonus award decisions on the basis of previous recipients
rather than to the most deserving performers. This would vio-
late the intent of SES performance awards. Moreover, SBA has
already exceeded the 20 percent limit other agencies will be
expected to pay, based on July 21, 1980, OPM guidelines.
We also noted that, as with NASA, all eligible members
of SBA's PRB were awarded bonuses and some were also nominated
for ranks. Representation from outside SBA would have enhanced
the objectivity of SBA's awards. (See app., p. 18.)
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MSPB
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MSPB awarded bonuses within the parameters of the Reform
Act and OPM guidance, which permitted bonus payments up to
50 percent of SES positions. MSPB paid bonuses on May 8,
1980, to four, or 67 percent, of the six incumbent executives
eligible to receive bonuses. This amounted to 50 percent of
eight positions OPM had allotted.
Although the performance appraisal period for which
bonuses were awarded was from March 1979 to March 1980, per-
formance objectives for the executives were not formulated
until November and December of 1979. Thus performance objec-
tives were written nearly three-fourths of the way through
the performance period. MSPB felt this was justified because
it wished to recognize the exceptional efforts made by its
executives in establishing the agency.
Nevertheless, we believe this procedure was improper
because executives received awards for objectives written for
performance that had already been substantially accomplished.
Moreover, the objectives were for a period of time before SES
went into effect. This is a one-time problem that has been
resolved at MSPB by its requiring a review of performance ob-
jectives by PRB at the beginning of the appraisal period.
(See app., p. 27.)
NCPC
NCPC's PRB reviewed the performance of its SES members on
July 2, 1980, and recommended to the NCPC Chairman that two of
its five career senior executives receive bonuses. However,
according to an NCPC official, just before issuing the checks
to the two individuals, the Chairman, through a letter from
OPM, became aware of the congressional action to limit bonus
payments to 25 percent of positions allotted. Consequently,
the Chairman suspended payment of the bonus awards before they
were issued and suspended them until further OPM guidance
would become available. (See app., p. 33.)
REVISED OPM GUIDANCE
In response to the Fiscal Year 1980 Supplemental Appro-
priations Act which restricted bonus payments, OPM issued
revised guidance on July 21, 1980, amplifying its earlier
guidance to agencies in awarding bonuses. This guidance, of
course, limits payments of bonuses to a maximum of 25 percent
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of SES positions. It stated that agencies should generally
limit bonuses to 20 percent of the eligible career employees
and suggests that one or more members from outside the agency
be included on PRBs. It also requires that agencies publish
a schedule for awarding bonuses at least 14 days prior to
the date awards will be paid.
EMERGING ISSUES THAT NEED TO BE RESOLVED
Although only 3 of the more than 70 agencies with SES
executives have awarded bonuses, several interrelated issues
affecting the viability of SES have already emerged and need
to be recognized and resolved by the Congress and the admin-
istration. These issues are:
--Whether the pay compression situation makes it more
difficult to equitably administer bonuses.
--Whether restrictions placed on the awarding of SES
bonuses will diminish executive incentives.
--Whether bonuses will best serve as motivators by being
available and paid to a large number of deserving sen-
ior executives, or only to an elite, relatively small
percentage of outstanding executives.
--Whether factors beyond the rating instrument should be
considered in bonus,decisions.
These issues have emerged and become apparent not only in our
review of bonuses paid to date but also in a number of other
reviews we have underway. We believe that these issues must be
resolved, or they may undermine the ability of SES to achieve
its intended purposes. Some are of such impact that they have
already had a serious effect on the credibility of the SES
system, according to many senior executives, and have dimin-
ished many executives' willingness to view the system seriously
and without cynicism. Not only have officials at several agen-
cies expressed this viewpoint but also a large number of senior
executives have expressed it in comments made in response to a
randomly distributed attitude questionnaire- on performance ap-
praisal processes which we sent out in June 1980.
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We are assessing these issues and have reported some of
our concerns in previous reports. 1/ In these reports we
highlighted problems that have resulted from actions to limit
or deny annual pay adjustments for these executives. The re-
ports also discuss the potential effects of prohibiting or
limiting SES performance awards and ranks. We stated that
SES's success depends on the granting of annual adjustments
to these executives and also on the granting of performance
awards within established guidelines. Without these incen-
tives the success of SES could be undermined and the objec-
tives of greater excellence and improved program management
envisioned by the Reform Act could be seriously impaired.
Continuing executive pay compression and efforts to limit
bonus and rank awards creates turbulence and declining morale
among senior executives. We believe that the innovative fea-
tures of SES should not be curtailed or abandoned before they
have been given a chance to work.
It is these executives who are responsible for adminis-
tering a $600 billion budget and for managing the programs
authorized by the Congress for the public. The potential re-
turns we can receive from their improved performances are over-
whelming. We recommended in these reports that the Congress
improve the pay-setting process for Federal executives by
--allowing the annual adjustments for executives under
Public Law 94-82 to take effect,
--discontinuing the practice of linking congressional
and Executive Level II salaries, and
--allowing SES and performance and rank awards to take
effect without further restrictions on payments.
We are currently working to identify SES implementation
problems, as is OPM and several independent oversight groups.
We expect to publish a report later this year on the processes
that are being implemented to appraise the performance of sen-
ior executives, and we plan to examine every aspect of perform-
ance appraisal and its uses, including performance awards,
1/"First Step Completed in Conversion to Senior Executive
Service" (FPCD 80-54, July 11, 1980).
"Federal Executive Pay Compression Worsens" (FPCD-80-72,
July 31, 1980).
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throughout the next 4 years. We, as well as OPM, will be look-
ing closely for abuses such as politicization and rotation of
awards.
To facilitate the review of agency award practices, OPM
is now establishing a computerized data collection system
that will produce semiannual reports on bonuses, ranks, and
incentive awards by agency, sex, minority group, location,
rating, and pay plan. This system is expected to be oper-
ational early in fiscal year 1981. OPM has also established
a compliance program of onsite visits to agencies to insure
SES activities are performed in accordance with law and regu-
lations.
CONCLUSIONS
The SES performance awards provided to executives at
NASA, SBA, and MSPB were within the requirements of the Civil
Service Reform Act, as well as OPM guidance. The three agen-
cies which paid bonuses generally appear to be making sincere
efforts to establish a workable SES performance appraisal and
awards system, and we did not find evidence of abuse or inten-
tional mismanagement of the system. Generally the better
rated executives received the bonuses or were nominated for
rank awards.
Each of the agencies experienced some procedural diffi-
culties in administering these awards, which could be expected
in the initial implementation. These procedures were agency
specific and should not be perceived as reason to condemn the
system. The following matters requiring improvement occurred
at the three agencies paying bonuses.
--NASA's "special PRB" (Senior Executive Committee) for
EPMs does not have the appearance of objectivity and
its regular PRB has no representation from lower SES
levels;
--SBA intends to pay a second round of bonuses for fiscal
year 1980 performances; and
--MSPB's executives were paid bonuses based on perform-
ance criteria established near the end of the perform-
ance rating period.
We are concerned that certain interrelated issues which
have emerged may undermine the viability of the SES system
and performance awards concept. The questions they raise are:
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--Will it be more difficult to equitably administer SES
performance awards with the existing pay compression?
--Will restrictions on SES bonuses diminish executive
incentive?
--Should bonuses be paid to a small percentage or a
large percentage of career SES members?
--Should additional criteria beyond the rating instrument
be used to determine which executives should receive the
allowable bonuses?
OPM's guidance, issued July 21, 1980, is a responsive
reaction to the desires of the Congress. OPM will need to
undertake a strong monitoring and compliance effort to help
insure the credibility of agency bonus programs and that
these programs are in compliance with law, regulation, and
guidance. This effort is also needed to allow OPM to be more
responsive to the concerns of the Congress and other parties.
Monitoring by OPM will be enhanced by its (1) computer-
ized data collection system being developed to capture agency
performance award information and (2) guidance requiring that
agencies publish a schedule for awarding bonuses at least
14 days prior to the date on which awards will be paid. OPM
will also need to evaluate the adequacy of the bonus system
as it evolves in the Federal sector and make recommendations
for legislative change and adjustments in regulations and
agency guidance as necessary.
(We regret the Congress felt compelled to place further
restrictions on bonuses but believe the decision to permit
the full range of bonus payments (20 percent of base pay) a
wise one, thus allowing the system to develop and OPM and
agencies to explore and recommend better methods.
RECOMMENDATIONS TO THE CONGRESS
We recommend that the Congress allow the SES bonus and
rank provisions to take effect with one exception. The one
exception is that, for equity purposes among agencies, the
;Congress should change the basis for the percent limit on
number of bonuses paid from percent of positions to percent
;of eligible career executives.
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ERRATA
To the recipients of the Comptroller General's report entitled
"First Look At Senior Executive Service Performance Awards" (FPCD-80-74).
Remove page 11 of the letter and insert the attached page.
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RECOMMENDATIONS TO THE DIRECTOR, OPM
To add credibility and additional objectivity to bonus
decisions, we recommend that the Director, OPM, (1) direct
Federal agencies include lower level SES executives, as
well as impartial outside members, to participate in PRB
decisions and also include outside members as participants
on special PRBs (such as NASA's Senior Executive Committee)
and (2) work with SBA to determine an equitable plan for pay-
ing bonuses for the remaining fiscal year 1980 performance.
We recommend also that OPM take a strong role in moni-
toring agency bonus programs and review agency bonus award
plans and policies prior to awards for the first few years,
or until such time OPM is assured that agencies are routinely
following prudent procedures that are within the intent of
the Reform Act. After it is assured agencies are using pru-
dent procedures, OPM should continue to monitor awards on a
postaward basis through its data collection system and com-
pliance visits to agencies.
We recommend further that the Director, with the help of
agencies, study the issues that may affect SES success, such
as those identified in this letter; evaluate the adequacy
of SES bonus systems; and, as necessary, make recommendations
for legislative change. These recommendations should include
methods, amounts, and numbers of performance awards that will
have the maximum effect in carrying out the intent of the
Reform Act.
AGENCY COMMENTS
OPM and the respective agencies were provided a draft of
this report. We discussed the draft with the responsible of-
ficials in these agencies who generally agreed with our find-
ings and recommendations.
Comptroller General
of the United States
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following prudent procedures that are within the intent of
the Reform Act. After it is assured agencies are using pru-
dent procedures, OPM should continue to monitor awards on a
postaward basis through its data collection system and com-
pliance visits to agencies.
We recommend further that the Director, with the help of
agencies, study the issues that may affect SES success, such
as those identified in this letter; evaluate the adequacy
of SES bonus systems; and, as necessary, make recommendations
for legislative change. These recommendations should include
methods, amounts, and numbers of performance awards that will
have the maximum effect in carrying out the intent of the
Reform Act.
AGENCY COMMENTS
? OPM and the respective agencies were provided a draft of
this report. We discussed the draft with the responsible of-
ficials in these agencies who generally agreed with our find-
ings and recommendations.
Comptroller General
of the United States
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APPENDIX APPENDIX
BACKGROUND
SES COMPENSATION
The pay-setting process as envisioned by the Reform Act
and the introduction of performance awards (bonuses and Mer-
itorious and Distinguished Executive ranks) are among the
most innovative and appealing features of SES.
SES pay-setting yrocess
The pay-setting process for SES is linked to the Execu-
tive Schedule and to the General Schedule (GS). The lowest
rate of basic pay for SES positions under the Reform Act can-
not be less than the minimum rate paid to GS-16, step 1. The
highest rate of basic pay cannot exceed that for Executive
Level IV. These "floor" and "ceiling" amounts are determined
independently--the former according to the GS comparability
process (subject to the Executive Level V limitations or other
congressionally imposed limitations on GS pay) and the latter
by the Executive Schedule pay-setting process, also subject
to congressionally imposed limitations.
Within these floor and ceiling limits, the Reform Act
requires at least five rates of basic pay which are initially
established and thereafter adjusted by the President. In
March 1979, the President decided on six SES salary rates.
The Legislative Branch Appropriation Act of 1979 (Public'
Law 95-391) restricted the salary Federal employees could
receive during fiscal year 1979. It limited the rates payable
for Executive Level V and GS positions to $47,500 and to
$50,000 for Executive Level IV, even though their established
rates may have been higher. Therefore, for SES executives
converting to SES from Executive Level IV positions, salaries
actually paid could not exceed $50,000. For those converting
from other positions, salaries paid could not exceed $47,500.
It was anticipated that the pay of SES members would be ad-
justed after congressional action on the fiscal year 1980
pay raise.
Although the fiscal year 1979 salary restrictions
expired, Public Law 96-86, dated October 12, 1979, stipulated
that fiscal year 1980 appropriations may not be used to pay
increases of more than 5.5 percent in rates of basic pay
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APPENDIX APPENDIX
for offices and positions subject to the fiscal year 1979
restrictions. This law has further restricted SES pay.
Executive Order 12165 of October 9, 1979, established
new pay rates for SES reflecting a 7-percent pay increase.
However, these new rates could not be put into effect because
of the fiscal year 1980 fund restrictions. Therefore, a sub-
stantial difference exists between the rates established, by
the President and rates payable as established by the Office
of Management and Budget.
SES pay
level Established rates Payable rates
ES-1
$47,889
$47,889.00
ES-2
49,499
49,499.00
ES-3
51,164
50,112.50
ES-4
52,884
50,112.50
ES-5
54,662
50,112.50
ES-6
56,500
a/ 50,112.50
a/$52,750 for persons in offices or positions at Level IV
of the Executive Schedule before conversion to SES.
The Congress is considering placing further restrictions
on SES pay. One proposal still under consideration would
prohibit the October 1980 pay adjustment.
Two major factors presently compress the salaries of SES
members: (1) linking congressional and Executive Schedule
salaries and (2) limiting the annual pay adjustments of
executives which have been imposed by law. Consequently,
about 90 percent of SES executives receive the same pay. In-
adequate salary levels, irregular adjustments, and distorted
pay relationships for top Federal executives have been areas
of longstanding concern.
The present executive pay-setting system and the effect
of the executive pay system on executives, managers, and
agency operations have been discussed in our previous reports.
One of these was "First Step Completed in Conversion to Senior
Executive Service" (FPCD-80-54, July 11, 1980). The report
makes the following recommendation:
"To improve the pay-setting process for Federal
executives, including those in SES, we recommend
that the Congress (1) allow the annual adjust-
ments for executives under Public Law 94-82 to
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APPENDIX APPENDIX
take effect and (2) discontinue the practice of
linking congressional and Executive Level II
salaries."
SES performance awards
To encourage and reward excellence, career SES members
with fully successful performance can receive lump-sum per-
formance awards (bonuses) of up to 20 percent of their basic
salaries. The Reform Act allows the number of senior execu-
tives receiving awards to be up to 50 percent of the number
of SES positions in an agency.
In addition, career executives can receive the rank of
Meritorious Executive and the rank of Distinguished Executive
for sustained accomplishment and sustained extraordinary ac-
complishment. These ranks carry one-time, lump-sum payments
of $10,000 and $20,000, respectively. The number of execu-
tives receiving them each year is limited to 5 percent and
1 percent of SES executives, respectively. Agency nomina-
tions for Meritorious and Distinguished Exectutive ranks were
to be sent to OPM by April 15, 1980. Total dollar compensa-
tion (basic pay plus rank and performance awards) for SES ex-
ecutives cannot, in any one year, exceed the rate payable for
Executive Level I (presently $69,630). Noncareer SES appoint-
ees--who can comprise up to 10 percent of SES--are not eli-
gible for performance pay or executive ranks.
Agencies are responsible for establishing programs for
paying bonuses. Under OPM guidance, the earliest date agen-
cies could have paid bonuses was February 1980. This date
was 120 days after October 1979, when agencies were to have
had their performance appraisal systems ready for use. First
performance ratings must occur for SES members no later than
October 1980. OPM expects initial bonus payments, in most
cases, will not be payable until late 1980.
By June 1980 three agencies had completed their initial?
performance appraisals of SES members and had made bonus de-
terminations as follows:
SES Number
allocated of career Number of
Agency positions executives bonuses Amount
NASA
520
427
240
$1,372,027
SBA
53
31
15
59,246
MSPB
8
6
4
35,500
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A fourth agency, NCPC, awarded bonuses to two out of five
senior executives on July 3, 1980. However, due to congres-
sional action on bonus limitations the NCPC Chairman re-
scinded his approval of the bonuses pending further guidance
from OPM. (See p. 33.)
Congressional actions
During this period, the Congress was also considering
placing further restrictions on the aggregate amount of pay,
bonuses, and ranks allowed SES executives. A proposal in the
House of Representatives would have limited SES executives to
$60,660 during fiscal year 1980. A later proposal would have
limited SES executives to $52,750, which would, essentially,
have eliminated meaningful bonus and rank payments.
On July 2, 1980, the Congress included language in the
Fiscal Year 1980 Supplemental Appropriations Act which allows
aggregate pay for SES executives up to the level authorized
by the Reform Act but limits bonus payments to 25 percent,
rather than 50 percent, of SES positions. In addition, we
were directed to thoroughly study, in cooperation with OPM,
bonus system payments and to report the findings to the au-
thorizing and appropriations committees.
On July 21, 1980, the House passed a proposal for fis-
cal year 1981 bonuses retaining the same bonus restrictions
as agreed to for fiscal year 1980.
OPM guidance
In October 1979 OPM provided agencies with guidance on
the payment of bonuses. The guidance reiterated the limita-
tions and other provisions of the Reform Act and provided
suggestions on establishing and administering SES bonus pay-
ment programs.
OPM told agencies that they should, as a matter of good
management, guard against any tendency toward awarding maxi-
mum possible bonus amounts (20 percent of base SES pay) to
larger segments of the executive population than can be jus-
tified on the basis of exceptional performance. OPM recom-
mended that generally no bonus payment of less than 3 percent
should be made. It was believed that awards below 3 percent
would tend to not motivate executives. OPM said agencies
were not required to award the maximum number of SES bonuses
and should carefully avoid the automatic use of 50 percent
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APPENDIX APPENDIX
of total SES in making awards. Agencies were required to in-
clude an adequate sum in budget requests to cover SES per-
formance awards and stipends for SES ranks.
On July 21, 1980, OPM issued guidance amplifying its
earlier guidance to agencies in awarding SES bonuses. This
guidance was issued to reflect the new statutory limitation
to 25 percent of SES positions in the agency and to respond
to strong congressional concern that the 25 percent be viewed
as a ceiling, not the norm.
This guidance, of course, limits payment of bonuses to a
maximum of 25 percent of SES positions. It also states that
agencies should generally limit bonuses to 20 percent of the
eligible career employees. Agencies must consult with the
Director, OPM, if an agency head believes a higher proportion
is essential. Also agencies with 100 or more senior execu-
tives should not exceed the following limitations in deciding
the amount of bonuses to be paid.
1. Bonuses of 20 percent should be limited to no more
than 5 percent of those receiving bonuses.
2. Bonuses of 17 to 20 percent should, in total, be lim-
ited to no more than 10 percent of those receiving
bonuses.
3. Bonuses of 12 to 20 percent should, in total, be lim-
ited to no more than 25 percent of those receiving
bonuses.
The guidance also suggests that, although career executives
are eligible for both bonus and rank awards, agencies should
generally avoid giving multiple awards to an individual SES
member in any one year.
The October 1979 guidance from OPM noted that the
20-percent limitation on bonus amounts is calculated on the
basic SES pay rate established by the President, not on pay-
able salary. However, an OPM memorandum to agency personnel
directors in May 1980 required the SES totaL compensation be
based on current payable salary rather than the higher estab-
lished salary.
Our report on SES conversion (FPCD-80-54, July 11, 1980)
points out a systemic potential for inequity in the bonus
system. The Reform Act stipulates that performance awards
may be granted to 50 percent of the total SES positions in
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APPENDIX APPENDIX
an agency. Only career executives are eligible for bonuses.
Therefore, career executives in agencies with a high percent-
age of noncareer executives have a significantly greater op-
portunity to receive bonuses.
Although the Fiscal Year 1980 Supplemental Appropriations
Act limits bonus payments to 25 percent rather than 50 percent
of SES positions, this potential for inequity among agencies
was not addressed. For example, a few small agencies with a
high proportion of noncareer executives would still be able
to give bonuses to half or nearly half of their career execu-
tives. However, this potential for inequity may be tempo-
rarily resolved because the guidance issued by OPM limits
bonuses to 20 percent of the eligible career executives un-
less specific approval from OPM is obtained.
SES rank awards
Agency heads nominated 86 executives for the Distin-
guished Executive rank and 350 for the Meritorious Executive
rank. Panels of executives from within and outside of the
Government were established to review the merits of the exec-
utives nominated for the rank awards. At the time our review
was completed, the panels' conclusions and suggestions for
rank awards had been furnished to the Director, OPM, who
subsequently forwarded his recommendations to the President.
Incentive awards for SES members
OPM initially suggested that excellent performance by
noncareer SES executives could be recognized through the in-
centive awards program. At least one agency we visited was
considering rewarding its noncareer executives in this way.
However, OPM issued new guidance on July 24, 1980, which said
agencies must not use incentive awards to circumvent either
statutory language or OPM's guidance of July 21, 1980, con-
cerning the number and distribution of awards. Thus agencies
cannot use incentive awards to reward sustained superior per-
formances by SES members. Agencies, however, may continue to
use incentive awards to recognize a specific one-time accom-
plishment, a suggestion, an invention, or a specific achieve-
ment made by a senior executive.
EXECUTIVE RESOURCES BOARDS AND PRBS
The Reform Act requires each agency to establish one or
more Executive Resources Boards (ERBs) and PRBs. ERBs conduct
the merit staffing process for career appointees. Also OPM
1
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APPENDIX APPENDIX
has recommended that agencies delegate much more responsibil-
ity to their ERBs for SES management, including executive
personnel planning, staffing and development, position man-
agement, pay management, performance appraisals, performance
awards, and evaluation of executive personnel management.
The act requires each agency to develop, in accordance
with OPM standards, one or more SES performance appraisal
systems designed to
--permit accurate evaluation of performance based on
criteria which specify a position's critical elements;
--provide for systematic appraisals of performance;
--encourage excellence in performance; and
--provide a basis for determining eligibility for reten-
tion and for performance awards.
Each agency must establish one or more PRBs responsible
for making recommendations on performance ratings and awards
to the agency's appointing authority and its ERB. The law
specifically provides that PRB make recommendations on per-
formance ratings and performance awards. The law also stip-
ulates that membership must include a majority of SES career
appointees where a career executive evaluation is being re-
viewed.
OPM also provided agencies with guidance on PRB member-
ship. This guidance included the following:
--Each PRB in an agency should have three or more mem-
bers appointed by the head of the agency or by another
official or group, such as ERB, acting on behalf of
the head of the agency.
--The supervisory official who made the initial appraisal
of an executive should not be a member of PRB consider-
ing the appraisal of that executive.
--Members of a PRB can include all types of Federal ex-
ecutives from within and outside the agency. Gener-
ally, PRB members should be in positions equivalent
to SES positions. Members can include military of-
ficers and noncareer officials.
7
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APPENDIX APPENDIX
--Except where it is impossible because of the level of
the position within the agency, the executive must have
the opportunity to have the appraisal reviewed by a
higher level executive within the agency.
--Federal members of PRB should (1) have current fully
successful performance ratings, or the equivalents of
this rating, in other rating systems, (2) have consist-
ently applied agency appraisal systems effectively in
their own organizations, (3) possess a thorough knowl-
edge and understanding of the agency appraisal system
gained through experience and/or training, and (4) not
be a direct subordinate of the executive whose perform-
ance is under review.
According to OPM guidance on bonuses issued on July 21, 1980,
agencies may wish to include one or more members from another
Federal agency on their PRBs to further add to the objectivity
of the review process.
OPM guidance also suggests that PRBs
--review and evaluate the initial appraisal and rating
by the senior executive's supervisors, the senior ex-
ecutive's written response, if any, and the written
review of the initial appraisal by a higher-level ex-
ecutive, if such a review was made;
--can have a continuing monitoring function designed to
improve and strengthen the entire performance ap-
praisal system;
--should make a written recommendation concerning an
executive's appraisal and rating; and
--are also responsible for making recommendations to the
appointing authority concerning individual awards to
be granted to fully successful career appointees.
SCOPE OF REVIEW
Through discussions with agency officials and examination
of supporting records, we reviewed the performance rating and
bonus and award decision processes at the three agencies that
had made bonus decisions at the time of our study. We also
interviewed NASA's, SBA's, and MSPB's PRB chairmen and re-
viewed records on PRB deliberations.
8
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APPENDIX APPENDIX
We also obtained information on a fourth agency, NCPC,
regarding its performance awards and bonus decisions.
We examined title IV of the Reform Act and reviewed re-
cent congressional actions on limits established for senior
executive bonuses. We also held discussions with OPM offi-
cials and reviewed their guidance to ascertain and assess
OPM's role in the awards made by the agencies.
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APPENDIX APPENDIX
NASA
NASA paid performance awards on May 8, 1980, to 240 or
56 percent, of the 427 career senior executives eligible
under the provisions of title IV of the Civil Service Reform
Act (Public Law 95-454). This amounted to 46 percent of
NASA's 520 SES positions (not all were filled) allocated to
NASA by OPM and was within the parameters of the Reform
Act and OPM guidance in effect at the time.
SES PHILOSOPHY AND POLICIES
In designing the performance appraisal and award system,
NASA officials surveyed a number of private corporations to
seek the experience of industry. Consequently, NASA adopted
the philosophy, based on lessons learned by industry, that in
order for bonuses to be an effective motivator, they should
be paid to as many executives as possible. Recognizing the
restriction imposed on this philosophy by the 50 percent lim-
itation, and being deeply concerned about the negative effect
the 50 percent limitation would have on executives not get-
ting bonuses, NASA, nevertheless, decided to award bonuses
to as many deserving executives as possible under the Reform
Act provisions and OPM guidelines. On the basis of conversa-
tions with cognizant OPM officials, NASA believed this proce-
dure would be acceptable. Wanting the performance appraisals
to reflect true performance, while keeping within the bonus
qualifying provisions of the Reform Act, NASA decided that
executives receiving fully successful ratings (defined as
outstanding, highly successful, and successful at NASA) would
be eligible for awards.
NASA's management system relies heavily on the delega-
tion of decisionmaking to EPMs, defined as directors of major
divisions and field centers (for example, the Johnson Space
Center in Houston). Therefore, in keeping with this philos-
ophy, and in trying to keep the basic decisions about per-
formance ratings and awards close to the supervisory level
most familiar with an individual's performance, NASA delegated
the initial decision for ratings and bonuses to EPMs. Each
EPM was given a pool of award money and basic guidelines under
which to rate performance and distribute bonuses. Performance
appraisal and award decisions, with justifications, were then
to be submitted to PRB for review and ratification. The PRB
role was to basically endorse EPM recommendations, unless the
review showed a strong reason to question EPM's judgment.
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APPENDIX APPENDIX
NASA made a decision that no SES member receiving a rank
nomination this year could also receive a performance award.
Additionally, it decided that incentive awards would not be
used as substitutes for bonuses. The reason given was that
to do so would compromise the credibility of the bonus system.
Also, in guidance to EPMs, NASA specifically states that ro-
tation of awards from year to year ("taking turns") would not
be tolerated and awards given would be tracked to prevent
such an abuse.
In deciding who should receive bonuses and in what
amounts, NASA officials explained that performance ratings,
while providing a primary basis for determining eligibility,
should not be the sole basis for the decision. NASA has
adopted the philosophy that, regardless how well a performance
appraisal system is designed, it will not be a perfect system
for distinguishing performances among individuals. To do so
would require ratees and supervisors to perfectly predict
accurate indicators of performance (standards) at the begin-
ning of a cycle; to accurately assess performance against
those criteria; to perfectly balance standards among various
positions of responsibility, complexity, and difficulty; and
to make uniform comparisons of performance among vastly dif-
ferent jobs. Therefore, NASA officials maintain that, at
the end of an appraisal period, supervisors must be delegated
authority to use judgment to consider other factors, such
as responsibility, risk, complexity, environment, and overall
contribution to the agency in deciding on performance ratings
and awards. Furthermore, NASA officials observed that EPMs
vary in the standards they use to judge their subordinates
performance and that it would be extremely difficult to com-
pare one EPM's ratings with those of another.
Hence, NASA's ratings and award distribution vary consid-
erably from one EPM's organization to another. Some senior
executives receiving outstanding ratings in one EPM's organi-
zation did not receive bonuses, while individuals receiving
successful ratings in another EPM's organization did; In
addition, four EPMs recommended bonuses for individuals with-
in their organization who had lower performance ratings than
other individuals in their organization who were not recom-
mended for bonuses. Finally, there were several instances in
which individuals in lower pay levels received higher bonuses
than other individuals in the same EPM organization who had
the same rating but a higher pay level.
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APPENDIX APPENDIX
PROCEDURES FOR MAY 1980 AWARDS
NASA's first performance appraisal rating and award
period covered the period of October 1, 1979, to March 31,
1980, after which an annual cycle was implemented from
April 1 to March 31. Performance plans (objectives and stand-
ards) were put into effect on October 1, 1979, and reviewed
locally within each EPM center at the EPM's discretion; that
is, some EPMs reviewed them personally, some were reviewed by
local committees, and some reviewed only by the next higher
supervisory level. PRB did not review the appraisal plans
until after ratings and award recommendations were made by
the EPMs in May 1980.
Bonus allotments by total dollar amounts and number of
bonus recommendations allowed were given by PRB to EPMs in
March 1980, along with guidance for decisions. Each EPM re-
viewed performance appraisals for the individual's organization
in April 1980 and submitted recommendations to PRB along with
narrative explanations of its decisions. Specific bonus deci-
sions were left to each EPM's discretion, but instructions
were given by PRB to recommend bonuses in 5, 10, 15, and
20 percent amounts.
PRB, consisting of eight EPMs and deputy center direc-
tors, met on May 2, 1980. (One board member was absent due
to work conflict.) Each EPM organization's performance ap-
praisals, ratings, and bonus recommendations were reviewed by
at least two PRB members, neither of which could be from the
organization being reviewed. Additionally, the PRB Chairman
(NASA's Associate Deputy Administrator) personally reviewed
all summary ratings, narratives, and a large sample of per-
formance appraisals from each EPM organization in detail.
All executives who requested a higher level review were
contacted by PRB. According to the PRB Chairman, only one
appraisal had not been resolved locally to the executive's
satisfaction. In this case, PRB interviewed the individual
and his supervisor and sustained the supervisor's recommen-
dation. The individual, still not satisfied, was allowed to-
present his case to the Administrator, NASA, who also sus-
tained the recommendation.
PRB reviewed EPMs' recommendations and accepted them as
submitted. In doing so, PRB made certain that decisions were
within its guidelines and looked for anomalies in judgment.
PRB members whose ratings and award recommendations were re-
viewed by PRB were excused from the meeting while their rec-
ommendations were being discussed.
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APPENDIX APPENDIX
EPMs' performance appraisals and bonus recommendations
were not reviewed by PRB but were reviewed by the Senior
Executive Committee consisting of the Deputy Administrator
and the ERB and PRB Chairmen (both EPMs). However, EPMs, in-
cluding the ERB and PRB Chairmen, were appraised, rated, and
recommended for bonuses by the Deputy Administrator. However,
as in PRB, each member was excused while his own recommenda-
tions were being discussed.
After bonuses had beenapproved by NASA's Administrator
and paid, PRB met again during May 19 to 21, 1980, to review
how the appraisal system functioned during the first cycle.
As a result, several EPMs were given instructions for making
ratings more consistent and several improvements in procedures
were recommended to all EPMs.
Overpayment of bonuses
On the basis of numerous discussions with OPM officials
and on OPM guidance in effect, NASA determined bonus amounts
on established rates of pay rather than payable rates. Subse-
quent to NASA's awards, OPM changed its guidelines to require
that bonuses be paid based on payable salaries ($50,112.50
limit). This resulted in 20 senior executives having been
paid bonuses in excesses of 20 percent of their payable sal-
ary, amounting to overpayments of $554 to $1,278. Conse-
quently, NASA is requiring affected executives to repay these
overpayments.
Pay level adjustments
NASA made no pay level adjustments as a direct result of
the performance rating and bonus process. SES pay level adjust-
ments at NASA are made through separate personnel processes
from the bonus process and are not considered by PRB. Ad-
justments are made through approval of EPM recommendations by
the Administrator and do not necessarily occur at the end of
a performance appraisal period.
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NASA BONUS AND RANK STATISTICS BY RATING
Rating
Executives rated
Awarded bonuses
Average
amount of
bonuses
Total amount
of bonuses
awarded
Nominated for
rank awards
Percent
Number of rated
Number
Percent
of rated
Number
Percent
Outstanding
139
34
99
71
$6,631
$ 656,463
19
14
Highly successful
216
52
129
60
5,166
666,439
12
6
Successful
59
14
12
20
9,094
49,125
1
Minimally satisfactory
1
Unsatisfactory
Total
32
d/ 8
a/ 415
?
100
240
b/ 58
c/ $5,717
$1,372,027
a/12 retired executives who were eligible
b/240 divided by 415.
c/$1,372,027 divided by 240 (46 percent of the 520 positions).
d/32 divided by 415.
for bonuses were not rated.
XIGNaddV
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Executives
eligible
NASA BONUS AND RANK STATISTICS BY SES PAY LEVEL
Nomination for
rank awards
Awarded bonuses
Average
Percent of
Total amount
SES pay
Percent Percent of
amount of
average bonus to
of bonuses
Percent
level Number
(note a) Number eligibles
bonuses
payabale salary
awarded
Number
of eligibles
ES-6 30
7 12 40
$ 9,898
19.8
$ 118,650
18
60
ES-5 98
23 79 81
7,023
14.2
554,819
11
11
ES-4 216
51 115 53
4,714
9.5
542,061
3
1
ES-3 43
10 22 51
4,651
9.0
102,328
ES-2 15
4 7 47
4,596
9.3
32,174
ES-1 12
3 4 33
2,993
6.3
11,972
Retired
(note b) 12
3 - -
-
0.0
EL-V
(note c) 1
1 100
10,023
20.0
10,023
_7
Total 427
100 240 d/ 56 e/
_
$ 5,717
$1,372,027
32
f/ 8
===
a/Does not add to 100
percent due to rounding.
b/12 retired senior executives were eligible for bonuses.
c/Individual was converted to Executive Level V after joining SES but retained SES
rights under 5
U.S.C. 3392(c).
d/240 divided by 427 (46 percent of 520 positions).
e/$1,372,027 divided by 240.
f/32 divided by 427.
Note: According to NASA officials, SES pay levels generally correspond to the
individual's position in the organizational hierarchy. For example, ES-5
and ES-6 levels tend to be assigned to EPMs and deputy EPMs, while ES-4
level and below generally correspond to individuals at lower levels.
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NASA BONUS AND RANK NOMINATIONS FOR PRB MEMBERS
Percent
SES pay
Rank
Bonus
of salary
level
Rating
nomination
amount
(note a)
ES-6
Outstanding
-
$11,300
20.0
ES-6
Outstanding
Meritorious
-
-
ES-6
Outstanding
Meritorious
-
-
ES-5
Outstanding
-
10,932
20.0
ES-6
Highly
successful
11,300
20.0
ES-6
Highly
successful
Meritorious
ES-6
Highly
successful
Meritorious
ES-5
Highly
successful
-
8,199
15.0
ES-5
Successful
-
2,733
5.0
a/Based on scheduled salary.
_
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SES pay
level
ES-6
ES-6
ES-6
ES-6
ES-6
ES-6
ES-6
ES-6
ES-5
ES-6
ES-6
ES-6
ES-6
ES-6
ES-6
ES-6
ES-6
ES-6
ES-6
ES-6
ES-6
ES-5
ES-4
ES-4
ES-2
ES-6
ES-6
ES-6
APPENDIX
BONUS AND RANK NOMINATIONS FOR EPMs
AND OTHERS REPORTING TO DEPUTY ADMINISTRATOR
Rating
Outstanding
Outstanding
Outstanding
Outstanding
Outstanding
Outstanding
Outstanding
Outstanding
Outstanding
Highly successful
Highly successful
Highly successful
Highly successful
Highly successful
Highly successful
Highly successful
Highly successful
Highly successful
Highly successful
Highly successful
Highly successful
Highly successful
Highly successful
Highly successful
Highly successful
Successful
Successful
Successful
a/Based on scheduled salary.
Rank
nomination
Percent
Bonus of salary
amount (note a)
Distinguished $ -
Distinguished
Distinguished
Meritorious
None
Distinguished
Distinguished
None
Distinguished
None
Meritorious
Meritorious
Meritorious
None
None
Meritorious
Meritorious
Meritorious
Meritorious
Meritorious
Meritorious
None
None
None
None
Meritorious
None
None
11,300
8,475
11,300
11,300
11,300
8,199
5,288
7,933
4,950
8,475
5,650
20.0
15.0
20.0
20.0
20.0
15.0
10.0
15.0
10.0
15.0
10.0
17
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APPENDIX APPENDIX
SBA
On April 16, 1980, SBA awarded bonuses, ranging up to
$5,300, to 15 of 31, or 48 percent, of the eligible career
senior executives. While the Reform Act allows awards to be
given to up to 50 percent of the SES positions within an agency,
SBA gave awards amounting to 28 percent of its 53 allotted
positions. The total amount paid in bonuses for this evalua-
tion period was $59,246, although OPM guidelines could have
permitted the agency to pay out some $270,000.
SBA's policies or procedures in awarding bonuses were
in accordance with the Civil Service Reform Act and OPM guid-
ance in effect at the time. Additionally, the Administrator,
SBA, said that he wanted to reward those people who have ex-
celled but that he was very much concerned about Government
expenses in these inflationary times.
PERFORMANCE APPRIASAL AND
AWARD SYSTEM IMPLEMENTATION
In May 1979 SBA began the design of its SES system. OPM
approved 53 positions to be included in SBA's SES, and on
July 13, 1979, all SBA executives elected to convert to SES.
The Administrator established a single performance appraisal
system under which all senior executives are evaluated. SBA
executives, in conjunction with their supervisors, established
performance objectives in October 1979 for the performance
year ending September 30, 1980. Executives were informed that
the first appraisal period would end on February 29, 1980, and
that they would receive their first performance rating in
March 1980. In SBA's system each executive is rated using one
of four adjective ratings (highly successful, fully successful,
minimally satisfactory, and unsatisfactory). SBA has one PRB
consisting of nine members, including the chairperson. There
are seven voting members and two advisory positions on PRB.
At least four of the seven voting members are required to be
career senior executives, and PRB is required to have at
least one regional representative. All PRB members are SBA
executives.
PRB philosophy, policy and procedures
SBA's PRB has several responsibilities which are key
to the effective functioning of the SES system: (1) reviewing
the individual appraisals of all SES members (career and non-
career) for accuracy and consistency in the application of
ratings, (2) recommending career executives for bonus awards
and noncareer executives for incentive awards, (3) recom-
mending meritorious and distinguished rank nominations, and
(4) recommending supervisory base salary adjustments.
18
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?
APPENDIX APPENDIX
Additionally, the Deputy Administrator gave guidance
to PRB that it should
--be mindful that SBA was not fully successful in all
its endeavors; therefore, not all of of its executives
were fully successful and
--judge career and noncareer executives as part of the
same management team but recognize differences between
the two groups, such as the expectation that noncareer
executives be held to higher risk-taking standards.
Rating yrocess
PRB made its review from March 31 through April 4, 1980.
The first step was to determine the appropriate level of ra-
ting for each senior executive. All appraisals were reviewed
individually by PRB members to determine the appropriateness
of the performance rating recommended by the supervisor. All
decisions were reached through majority voting; no PRB member
or adviser was present when his/her appraisal was discussed.
Six appraisals were returned to supervisors where PRB felt
that they had not been adequately completed. Also meetings
were held with the executives' supervisors to discuss any
rating for which PRB felt an adjustment was warranted.
As shown in the following table, of the 45 executives'
appraisals PRB reviewed, the SBA supervisors initially rated
12 executives as highly successful, 30 executives fully
successful, and 3 executives minimally satisfactory. After
PRB reviewed the decisions three ratings were changed. Two
ratings were changed from highly successful to fully success-
ful, and one rating was reduced from fully successful to min-
imally satisfactory. The Administrator upheld the rating
recommendations of PRB.
19
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APPENDIX APPENDIX
Rating of Recommendation approval by
supervisor by PRB
Career executives:
Administrator
Highly successful
9
7
7
Fully successful
20
21
21
Minimally satis-
factory
2
3
3
Unsatisfactory
Noncareer executives:
Highly successful
3
3
3
Fully successful
10
10
10
Minimally satis-
factory
1
1
1
Unsatisfactory
Total executives
rated
45
45
45
Bonus process
After PRB agreed on the individuals' performance ratings,
the executives were ranked in order of excellence. Career and
noncareer executives were ranked separately, the ranking with-
in the various rating categories were determined on the basis
of significant differences in contribution within the overall
category. One major aspect of the ranking process was that a
number of executives considered fully successful were pre-
cluded from receiving a bonus because they were either in the
SES for too short a period of time or their performance was
only at the expected level of performance and not higher. As
required by the Reform Act, noncareer executives were not
eligible to receive performance awards. Therefore, PRB nomi-
nated deserving noncareer executives for cash awards under
the incentive awards program. PRB recommended the exact
amount of bonus or incentive award an individual was to re-
ceive and also provided a range that the performance award
could fall within. Also PRB left the choice with the Admin-
istrator to decide whether to pay bonuses based on 9 months'
or 6 months' salary.
Although the distribution of performance awards as rec-
ommended by PRB were within the limits of the law, the Admin-
istrator was not willing to reward all executives who were
nominated. As shown in the following chart, PRB recommended
20 of 31, or 64 percent, of the career executives for bonuses
and 9 of 14 noncareer executives for incentive awards. The
bonus amounts recommended for career executives ranged from
$3,826 to $10,577, which was from 7 percent of the scheduled
20
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APPENDIX APPENDIX
salary rate to 20 percent. The recommended range of incentive
awards to noncareer executives was from 5 percent to 20 per-
cent of the executives' scheduled salary rate. If PRB had rec-
ommended bonuses up to the maximum allowed by the Reform Act,
87 percent of SBA career executives could have been nominated
for a performance award. There is no limit on the number of
noncareer executives who are eligible to receive incentive
awards.
No. of
Number of SES
executives
No. of PRB recommenda-
tions for bonuses or
incentive awards
awards
approved by
Administrator
Career
executives
31
20
15
Noncareer
executives
14
9
Total
45
29
15
On April 16, 1980, the SBA Administrator announced that
15 of SBA's senior executives received cash bonuses for ex-
ceptional performance. This amounted to 28 percent of SES
allocations, or 48 percent of eligible career executives at
the time awards were made. The 15 bonuses ranged from $2,644
to $5,289, for an average of $3,950, and were based on one-
half-year salaries. The total amount of bonuses paid the ex-
ecutives was $59,246, which was about 3 percent of total SES
salaries (6 percent of one-half-year salaries). OPM guidance
recommends percentages at 6,to 10 percent of total salaries.
After receiving the recommendations from PRB, the Adminis-
trator met with the Director, OPM, and his staff. According to
an OPM official present at the meeting, the actual number or
dollar amounts of awards which were to be distributed to SBA
executives was not discussed--OPM provided only general advice
to SBA to assist the Administrator in making his bonus deci-
sions. OPM informed SBA that the Reform Act set the limit
for performance awards at up to 50 percent of an agency's
SES positions. OPM suggested, however, that SBA make some
hard choices and award bonuses to only those executives who
were clearly the best performers and that awards be based on
performance and not the desire to reward as many executives
as possible.
Also during the meeting a discussion of the length of
SBA's performance cycle took place. SBA's performance
21
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APPENDIX
APPENDIX
appraisal cycle for fiscal year 1980 bonuses was from October.1,
1979, through February 29, 1980. SBA also plans to award
bonuses about December 1980 for performance from March 1,
1980, through September 30, 1980. Since SBA's first appraisal
and bonus cycle was for less than a half-year period, OPM
encouraged SBA to base bonus determinations on 6 months' sal-
ary, thereby effectively reducing the maximum percentage on
executives performance awards from 20 percent of basic pay
to 10 percent of basic pay.
Finally, the advisability of giving incentive awards to
SBA's noncareer executives not eligible to receive bonuses
was discussed. Generally, it was determined that it would
not yet be advisable to use the incentive awards program
for that purpose.
The SBA Administrator followed the advice given him by
OPM to a great extent. He made the bonus reductions, chose
to calculate bonuses based on 6 months' salaries, and decided
not to give incentive awards to ?noncareer executives.
SBA'S RANK NOMINATIONS
SBA's policy on nominations for Presidential rank awards
is that career SES members whose performance is exceptional
for an extended period of time may be granted, in addition
to base pay and performance awards, one of two Presidential
ranks: Meritorious Executive and Distinguished Executive.
PRB at SBA considered not recommending any of these
awards to its executives this year. But upon reflection, it
decided the importance of this recognition in the overall
scheme of SES was such that the awards would serve as an ex-
ample to other executives. PRB provided the Administrator
with a rank order listing of eight executives who it felt
should be considered for nomination of a rank award. The
suggested number of rank nominations was one distinguished
and two meritorious rank awards. The Administrator held his
selections to the suggested numbers and submitted his recom-
mendations to OPM.
Under SBA policy, individuals are allowed to receive
performance awards as well as rank awards within the same
year. The reason given for this policy is that the perform-
ance award is in recognition of successful performance within
the time frames of the rating cycle (that is annual ratings)
and the rank awards recognize prolonged, high-quality accom-
plishments by SES members. All three of the executives who
have been recommended for rank awards have also received per-
formance awards.
22
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? APPENDIX APPENDIX
INCENTIVE AWARDS
An SBA official stated that the agency does not plan to
use the incentive awards program to recognize career execu-
tives who do not receive bonuses, nor will it use incentive
awards as an addition to a performance award received by an
executive. However, SBA plans to use incentive awards to a
moderate extent to recognize noncareer executives who are not
eligible to receive performance awards under the Reform Act.
The incentive awards program, as previously stated, was
recommended for use by PRB in rewarding 9 of SBA's 14 nonca-
reer executives for exceptional performance. However, for
this rating cycle, the SBA Administrator decided not to allow
the use of incentive awards for the noncareer executives.
PAY LEVEL ADJUSTMENTS
PRB also considered pay level adjustments for executives.
SBA's policy is that salary adjustments should be made when
an executive's sustained increase or decline in contribution
relative to the entire executive group warrants a change. PRB
did not feel that the current length of time under SES was
sufficient to make this determination and, therefore, recom-
mended that no adjustments be made until the October 1980
appraisal. However, the SBA Administrator granted pay level
increases to two noncareer executives: one from ES-4 to ES-5
(no change in payable salary) and one from ES-2 to ES-4 (in-
crease of $614 in payable salary).
23
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SBA BONUS AND RANK STATISTICS BY RATING
Executives rated
Awarded bonuses
Average
amount of
bonuses
Total amount
of bonuses
awarded
(note b)
Nominated for
rank awards
Number
Percent
(note a)
Percent
Number of rated
Number
Percent
of rated
Highly successful
7
23
7
100
$4,628
$32,396
3
43
Fully successful
21
68
38
3,356
26,850
Minimally satis-
factory
3
10
Unsatisfactory
-
Total
31
100
15
LI 48
d/ $3,950
$59!246
3
/1O
a/Does not add to 100 percent due to rounding.
b/Based on 6 months salary.
c/15 divided by 31 (26 percent of 53 positions).
d/$59,246 divided by 15.
e/3 divided by 31.
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XICINScIdNi
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SBA BONUS AND RANK STATISTICS BY SES PAY LEVEL
Executives Awarded bonuses
SES pay eligible percent of
level Number Percent Number ,eligibles
ES-6 - - -
ES-5 1 3 - -
ES-4 23 74 13 57
ES-3 4 13 2 50
ES-2 2 7 -
ES-1 1 3 -
Total 31 100 15 b/ 48 2/
a/Based on 6 months salary.
_
,
b/15 divided by 31 (28 percent of 53 positions).
c/$59,246 divided by 15.
d/3 divided by 31.
Average
amount of
bonuses
Percent of
average bonus, to.
payable salary
(note a)
Total amount
of bonuses
awarded
(note a)
Nominations for
rank awards
Percent
Number of rated
-
_
3 13
$3,967
8
, $51,570
3,838
8
74.676
-
$3,950
$59-,246
d/ 10
xiaNaaav
XICINaddY
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APPENDIX APPENDIX
SBA BONUS AND RANK NOMINATIONS FOR PRB MEMBERS
SES pay
level
Rank
Rating nomination
Bonus
amount
(note a)
Percent of
salary
ES-4
Highly successful Distinguished
- $5,289
20.0
ES-4
Highly successful None
4,760
18.0
ES-4
Highly successful Meritorious
4,760
18.0
ES-4
Highly successful Meritorious
3,967
15.0
ES-5
(note b)
Fully successful None
ES-4
Fully successful None
3,173
12.0
ES-4
Fully successful None
2,644
10.0
?ES-5
(note b)
Fully successful None
ES-3
a/Based on
.Fully successful None
6 months' scheduled salary.
3,838
15.0
b/Noncareer executives--not eligible for bonuses or ranks.
26
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APPENDIX A4PENDIX
MSPB
MSPB paid bonus awards May 8, 1980, to four of its six
eligible career senior executives. This constituted 67 per-
cent of MSPB's eligible senior executives and 50 percent of
the eight senior executive positions that had been allotted
by OPM during the performance period.
MSPB was established by the Civil Service Reform Act
(Public Law 95-454) on October 13, 1978. It was originally
allocated 13 senior executive positions from OPM, 5 of which
were specifically allocated to its Office of Special Counsel.
In March 1980, when the first performance appraisal period
was nearing completion, MSPB was allocated an additional 10
senior executive positions, bringing its total to 18, with the
Office of Special Counsel's total staying at 5. The Office
of Special Counsel, however, was not included in MSPB's per-
formance appraisal and bonus system in fiscal year 1980 be-
cause it operates independently from the rest of MSPB.
The staffing of MSPB's authorities proceeded slowly, and
PRB decided that only those career senior executives who had
been onboard by March 1979 would be included in the first
performance appraisal cycle, which would be from March 1979
to March 1980. This decision meant that only six career sen-
ior executives would be eligible for bonuses. However, by
excluding career senior executives who were hired after March
1979, PRB decided that performance appraisals and bonuses
could be based on a full year's performance.
PROCEDURES FOR MAY 1980 AWARDS
MSPB developed one performance appraisal system for its
senior executives during its first appraisal cycle. The
first step in this new performance appraisal system was for
the supervisor, with his or her subordinates' input, to de-
velop a performance appraisal plan for each senior executive
under his/her direct supervision. These plans were not re-
viewed by PRB nor any individual or group for assuring con-
sistency. However, PRB plans to conduct this type of review
in the next appraisal cycle.
Not all plans were finalized by both the senior executive
and his supervisor until November and December 1979. However,
the performance appraisal period used was from March 1979 to
March 1980. This approach was contrary to MSPB's own perform-
ance appraisal system plan which states that performance plans
should be developed before the beginning of the rating period.
The result was that performance objectives were not written
until near the end of the performance appraisal period. This
27
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APPENDIX APPENDIX
occurred because MSPB was just becoming administratively oper-
ational during 1979, and the development and implementation
of the SES performance appraisal system was not fully developed
until later in this period.
The performance appraisal period closed in March 1980,
and by mid-April all senior executives had been appraised and
recommended for a specific bonus amount, where applicable, by
their supervisors. In two cases, a higher level review also
took place due to the lower position of these two senior exec-
utives in the MSPB organizational structure. In one of these
cases, however, the bonus amount recommended by the supervisor
was increased from $5,000 to $9,000 due to the higher author-
ity's view that the senior executive's performance was worthy
of a higher bonus.
PRB began reviewing the six performance appraisals and
supervisor's bonus recommendations at the end of April 1980.
PRB was composed of three MSPB senior executives, three exec-
utives from outside agencies and the PRB Chairman. The three
executives from outside agencies were included in PRB to in-
crease its breadth of managerial expertise as well as its
objectivity of balancing the other half of the PRB membership.
Each of the following agencies sent one representative
to sit on MSPB's PRB: the Federal Labor Relations Authority,
the National Labor Relations Board, and the Alaska Natural Gas
Transportation System. The first two representatives were
chosen because of their agencies' similarity to MSPB, and the
latter was chosen because he worked in an agency which, like
MSPB, was recently established.
The PRB members decided that, to enhance their objectiv-
ity and to preclude them from being put in the position of
having to review their colleagues, the three MSPB members
should not participate in PRB's appraisal and bonus de-
liberations. Furthermore, the full PRB decided that only
a maximum of four bonuses would be awarded, based upon 50
percent of MSPB's initial allocation of eight SES positions.
The Alaska Natural Gas Transportation System representative
was unable to attend any of the PRB deliberations concerning
ratings or bonuses. This left only the two other outside
members and the PRB Chairman, the minimum number necessary
to review ratings and bonuses according to OPM guidance.
Initially, each of the three PRB members independently
reviewed each of the six senior executives' performance plans
and ratings. Then they met on April 30, 1980, and made bonus
28
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APPENDIX APPENDIX
recommendations. All ratings and bonus amounts recommended
by supervisors were supported by PRB except in one case where
PRB agreed with the decision made at the higher level review
raising the recommended bonus amount. PRB based its review
on both individual and organizational performance, but there
was no pre-set list of criteria upon which PRB should base
its judgments.
PRB recommended bonuses for four of the six eligible
senior executives. The appointing authority--the Chairwoman
of MSPB--approved all of PRB's bonus recommendations and
amounts. Bonuses were paid to senior executives on May 8,
1980.
The four senior executives awarded bonuses constituted'
50 percent of MSPB's authorized senior executive allocation
and 67 percent of all eligible executives rated. All the
executives awarded bonuses had fully successful ratings or
better and all bonuses were 20 percent or less of the exec-
utives' payable salaries. The average bonus was $8,875. PRB
noted that the bonus amounts were higher than "might routinely
be expected in normal years" but stated that the unusual dif-
ficulties and accomplishments of the agency during the rating
period fully justified the relatively high bonus recommenda-
tions made.
RANKS AND INCENTIVE AWARDS
MSPB views bonuses, ranks, and incentive awards each as
separate management programs, each serving a separate purpose:
--Bonuses are for rewarding career senior executive
performance during a specified rating period.
--Incentive awards are for any MSPB employee, including
senior executives, who performs a specific act worthy
of being singled out and rewarded.
--Rank awards are for career senior executive long-term-
sustained superior performance.
Thus, in MSPB, a career senior executive could receive a
bonus, a rank award, and an incentive award all in any one year.
While this did not happen for the May 1980 bonuses, one career
senior executive who received a bonus was nominated to OPM
for a Distinguished Executive rank. Also, two career senior
executives who received bonuses also received incentive
awards of $750 in fiscal year 1980. MSPB officials believed
the policy of giving out or nominating senior executives for
two or even three types of awards in any one year, if deserv-
ing, was appropriate. However, an MSPB official noted that
29
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APPENDIX APPENDIX
this policy would be revised in the light of OPM's recently
issued guidance recommending that multiple awards in any
one year should be avoided if possible.
PAY LEVEL ADJUSTMENTS
For one senior executive, who also received a bonus,
PRB recommended that his pay level be increased from ES-2
to ES-4. This recommendation was based on PRB's assessment
that the duties and difficulty of the standards and objec-
tives established for this individual justified a higher
ES level. The appointing authority concurred in PRB's
recommendation, and the executive was raised to the ES-4
level.
30
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MSPB BONUS AND RANK STATISTICS BY
RATING
Rating
Executives rated
Awarded bonuses
Average
amount
of bonuses
Total amount
of bonuses
awarded
(note a)
Nominated for
rank awards
Percent
.Number of rated
Number
Percent
of rated
Number
Percent
Meritorious
1
17
1
100
$10,000
$10,090
100
Highly successful
3
50
3
100
8,500
25,500
Fully successful
2
33
Minimally satis-
factory
Unsatisfactory
Total
6
100
4
b/ 67
c/ $ 8,875
$35,500
1
a/ 17
a/1 divided by 6.
b/4 divided by 6 (50 percent of 8 positions).
c/$35,500 divided by 4.
XICINaddV
XICINaddli
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.p.J
1?1
Executives
SES pay eligible
MSPB BONUS AND RANK STATISTICS BY SES PAY LEVEL
Nominated for
rank awards
1
00
W
D
N
M
0_
C)
0
73
,<
I>
73
73
8
<
M
0_
8'
70
M
(IT_
su
w
M
NJ
CD
-
00
CD
CO
00
CD
..
0-
0
-0
01
0
Awarded bonuses
Average
amount of
bonuses
Percent of av-
erage bonus to
payable salary
(note a)
Total amount
of bonuses
awarded
Percent of
Number eligibles
Percent of
Number eligibles
level Number Percent
ES-6 2 33
ES-5 1 17
ES-4 1 17
ES-3 ' - -
ES-2 2 33
ES-1 - -
1 50
- -
1 100
- -
a/ 2 100
_
- -
$10,000
-
7,500
-
9,000
-
20
-
15
-
18
-
$10,000
-
7,500
-
18,000
-
1 50
- -
- -
- -
- -
--
_
d/ 17
Total 6 100
4 b/ 67 c/ $8,875
_
in bonus decisions).
of 8 positions).
$35,500
=
a/PRB members (did not participate
_
b/4 divided by 6 (50 percent
c/$35,500 divided by 4.
d/1 divided by 6.
cn
cA)
cn
IC/ 0
0
0
0
0
0
0
0
0
n.)
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APPENDIX APPENDIX
NCPC
On July 2, 1980, NCPC's PRB recommended to the NCPC
Chairman that two of five senior executives (40 percent) re-
ceive performance awards. The Chairman initially approved
the performance awards but then rescinded them at the request
of OPM.
NCPC's SES performance appraisal system was approved
by OPM on October 2, 1979. At that time, the agency's five
senior executives (all career executives) had established
performance standards, and the system was set into motion.
NCPC's performance rating and bonus cycle ran from October 1,
1979, through June 15, 1980. NCPC's subsequent performance
rating and bonus cycles will follow an annual cycle concluding
in mid-June each year.
NCPC's PRB is comprised of all five of the agency's sen-
ior executives. As with SBA and NASA, there was do outside
agency representation on PRB. PRB members met to discuss
ratings and performance awards on July 2, 1980, add recom-
mended to the NCPC Chairman that two of the five senior
executives (40 percent) receive performance awards. On the
same day, the Chairman approved PRB's recommendations.
But on July 2, 1980, the Congress had passed the Fiscal
Year 1980 Supplemental Appropriations Act limiting bonus
awards to no more than 25 percent of Senior Executive Service
positions in an agency. However, the NCPC Chairman stated
in a July 11, 1980, letter to the Director, OPM, that the
timing of the PRB meeting. was in no way related to the con-
gressional review of the SES bonus system. He added that,
at the time PRB met and he approved its recommendations, he
was unaware of the 25-percent limitation agreed to by the
conferees.
On July 10, 1980, the Deputy Director, OPM, wrote to NCPC
alerting it of the Supplemental Appropriations Act's limita-
tion on performance awards and the Director's position that
all agencies should exercise extreme caution and restraint in
awarding bonuses. OPM recommended that, since the,NCPC's
action on bonuses was clearly contrary to expressed congres-
sional intent to limit bonuses, the awards should be rescinded
until OPM issues further guidance. On July 11, 1980, in re-
sponse to OPMIs request, the NCPC Chairman rescinded his ap-
proval of the bonuses which had not yet been paid. According
to an NCPC official, all bonus decisions will be held off
until August, and will comply with the current 25-percent
limitation established by the Congress.
(961113)
33
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AN EQUAL OPPORTUNITY EMPLOYER
UNITED STATES
GENERAL ACCOUNTING OFFICE
WASHINGTON, D.C. 20548
OF FICIAL BUSINESS
PEN ALTY FOR PRIVATE USE. 1300
POSTAGE AND FEES PAID
V. S. GENERAL ACCOUNTING OFFICE
THIRD CLASS
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CIA-RDP95-00535R000300040008-2 ISLIP
'I I I
TO: (Name, office symbol, room num
building, Agency/Post)
1. ci1SS
Initials
Af
Date
2.
4,
&
File
Note and Return
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Approval
For Clearance
Per Conversation
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REMARKS
STAT
565,
DO NOT use this form as a RECORD of approvals, concurrences, disposals,
clearances, and similar actions
FROM: (Name, org, symbol, Agency/Post)
Room No.?Bldg.
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5041-102 OPTIONAL, FORM 41 (Rev. 7-76)
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