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.

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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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Comments (105)

  • anon

    The USPS likes to claim that their two most important goals are ensuring employee safety and improving customer service. BALONEY! The PFP system rewards really one thing: Beating SPLY (same period last year) and "Making the numbers." Those numbers to beat are last years, so eventually something has to break down. So "The beatings will continue until morale improves." Any ex-serviceman will tell you that without positive morale, and the cooperation of your subordinates, no officer will ever be successful in achieving their goals. The way management reacts to low or high mail volume days tells the whole story of why this is a dysfunctional organization, caused in large part by PFP. Low volume day: "GREAT! We'll make our numbers today! No overtime, and we can cut loose the T.E.'s and PTF's early!!!! High volume day: They all have scowls on their faces as they march in goose-step fasion crowing "C'mon! Let's Go! Move it!" They see their PFP going "POOF". Let's see that same behavior work in a Pizza Place or ANY OTHER business. "Hey Jonny, hows business today?" Jonny: "GREAT! Look around! No customers! Easy day! I can send all the workers home! No overtime to pay! Or the opposite: "Hey Jonny, how's business? "Terrible! Look at that line out the door, and every table is full! I have to pay overtime today! I'll never make my numbers!" How about an Oil Change Garage suggesting that since business is slow, they should raise rates and stop performing oil changes on Saturdays? Good idea, or suicidal business model? But that's what these "Management Morons" are proposing. Scrap PFP, NOW. Eliminate either the District or Area level, since they are redundant and one is obviously not needed. Get rid of the micro-managing from those levels and return autonomy to the local PM's. Let them do what they're paid to do: MANAGE THEIR OFFICE. Set worker compliment, route configuration, customer service requirements, and THEN evaluate each office as a group. Replace the under-achievers and promote the winners. Does that sound drastic, or is it just common sense?

    Sep 06, 2010
  • anon

    Managers routinely violate the contract to increase their PFP bonuses because they are not held accountable for the hundreds of millions paid out each year in grievance settlements

    Sep 06, 2010
  • anon

    The biggest flaw with PFP is that personal greed continues to lead to overall poor business decisions at all levels... from local, to districts, to areas, and to hq's

    Sep 06, 2010
  • anon

    The problem with PFP is people who do not touch the mail get bonuses. This leads to strictly awarding PFP based on who can crunch and manipulate numbers the best, not necessarily who's doing the best job for the american public.

    Sep 06, 2010
  • anon

    Why is it that only management gets these bonuses? They earn in off the backs of the people who actually touch the mail. And for a business that is losing money every quarter, you would think they would do away with it. The way this article reads, you would think that ALL employees get a bonus, tell the truth!

    Sep 06, 2010

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