What’s the best way to encourage good performance? Employers have always struggled with this question. One answer is to pay employees based on how well they perform their jobs. Many private sector employers have adopted pay-for-performance (PFP) programs, and several federal agencies have also experimented with PFP. Some federal PFP programs have operated successfully for many years; others have been more controversial. Last year, Congress terminated a PFP program at the Defense Department. Employees complained that the program was arbitrary and lacked transparency. Clearly, designing a successful PFP program is not always easy.
The Postal Service adopted an annual PFP program in 2003. PFP is the only source of annual pay adjustments for Postal Service non-bargaining employees. Employees and their managers review targets and expectations at the beginning of the year. During the year, managers provide feedback to employees through mid-year performance reviews. Then, at the end of the year, employees receive a rating.
For most employees, the rating is based on a combination of their individual accomplishments and how well certain targets have been met by the unit, district, area, or the Postal Service as a whole. The employee’s position determines the choice of targets included. For example, the rating for a postmaster of a small Post Office would be based on factors such as how well Post Offices in his or her group met revenue and expense targets and how well the district met delivery performance goals.
The Postal Service’s PFP program has won awards and been cited by other organizations as a model to emulate, but there have been some criticisms. Some of the factors on which an employee is evaluated may be outside the employee’s immediate control. Given the Postal Service’s current financial condition and the drop in mail volume, it can be difficult for even high-performing employees to receive an increase.
What do you think? What makes for a good system of rewarding performance?
This topic is hosted by the OIG’s Risk Analysis Research Center (RARC).
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