oversight

Results-Oriented Cultures: Creating a Clear Linkage between Individual Performance and Organizational Success

Published by the Government Accountability Office on 2003-03-14.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States General Accounting Office

GAO          Report to Congressional Requesters




March 2003
             RESULTS-ORIENTED
             CULTURES
             Creating a Clear
             Linkage between
             Individual
             Performance and
             Organizational
             Success




GAO-03-488
             a
                                               March 2003


                                               RESULTS-ORIENTED CULTURES

                                               Creating a Clear Linkage between
Highlights of GAO-03-488, a report to          Individual Performance and
congressional requesters
                                               Organizational Success



The federal government is in a                 Public sector organizations both in the United States and abroad have
period of profound transition and              implemented a selected, generally consistent set of key practices for
faces an array of challenges and               effective performance management that collectively create a clear linkage—
opportunities to enhance                       “line of sight”—between individual performance and organizational success.
performance, ensure                            These key practices include the following.
accountability, and position the
nation for the future. High-
performing organizations have                  1. Align individual performance expectations with organizational
found that to successfully                     goals. An explicit alignment helps individuals see the connection between
transform themselves, they must                their daily activities and organizational goals.
often fundamentally change their
cultures so that they are more                 2. Connect performance expectations to crosscutting goals. Placing
results-oriented, customer-focused,            an emphasis on collaboration, interaction, and teamwork across
and collaborative in nature. To                organizational boundaries helps strengthen accountability for results.
foster such cultures, these
organizations recognize that an                3. Provide and routinely use performance information to track
effective performance management
                                               organizational priorities. Individuals use performance information to
system can be a strategic tool to
drive internal change and achieve              manage during the year, identify performance gaps, and pinpoint
desired results.                               improvement opportunities.

Based on previously issued reports             4. Require follow-up actions to address organizational priorities. By
on public sector organizations’                requiring and tracking follow-up actions on performance gaps, organizations
approaches to reinforce individual             underscore the importance of holding individuals accountable for making
accountability for results, GAO                progress on their priorities.
identified key practices that federal
agencies can consider as they                  5. Use competencies to provide a fuller assessment of performance.
develop modern, effective, and                 Competencies define the skills and supporting behaviors that individuals
credible performance management
systems.
                                               need to effectively contribute to organizational results.

                                               6. Link pay to individual and organizational performance. Pay,
                                               incentive, and reward systems that link employee knowledge, skills, and
                                               contributions to organizational results are based on valid, reliable, and
                                               transparent performance management systems with adequate safeguards.

                                               7. Make meaningful distinctions in performance. Effective
                                               performance management systems strive to provide candid and constructive
                                               feedback and the necessary objective information and documentation to
                                               reward top performers and deal with poor performers.

                                               8. Involve employees and stakeholders to gain ownership of
                                               performance management systems. Early and direct involvement helps
                                               increase employees’ and stakeholders’ understanding and ownership of the
                                               system and belief in its fairness.
www.gao.gov/cgi-bin/getrpt?GAO-03-488.

To view the full report, including the scope   9. Maintain continuity during transitions. Because cultural
and methodology, click on the link above.      transformations take time, performance management systems reinforce
For more information, contact J. Christopher
Mihm at (202) 512-6806 or mihmj@gao.gov.       accountability for change management and other organizational goals.
Contents



Letter                                                                                                      1
                           Results in Brief                                                                 3
                           Background                                                                       5
                           Key Practices for Effective Performance Management                               6


Appendix
             Appendix I:   Objective, Scope, and Methodology                                               32


Related GAO Products                                                                                       33


Table                      Table 1: IRS’s Bonus Levels and Bonus Ranges of Base Salary for
                                    Senior Executive Summary Evaluation Ratings for Fiscal
                                    Year 2001                                                              25


Figures                    Figure 1: Key Practices for Effective Performance Management                     4
                           Figure 2: Aligning FAA Individual Goals with DOT and FAA
                                     Organizational Goals                                                   8
                           Figure 3: Alignment of Strategic Goals, Critical Job
                                     Responsibilities, and Supporting Behaviors for
                                     Enforcement Group Managers                                            17
                           Figure 4: Process for Awarding Performance Pay to Executives in
                                     OPS                                                                   22




                           Page i         GAO-03-488 Linking Individual Performance and Organizational Success
Contents




Abbreviations

BLM          Bureau of Land Management
DOT          Department of Transportation
FAA          Federal Aviation Administration
IRS          Internal Revenue Service
OMB          Office of Management and Budget
OPM          Office of Personnel Management
OPS          Ontario Public Service
TSA          Transportation Security Administration
VA           Department of Veterans Affairs
VBA          Veterans Benefits Administration
VHA          Veterans Health Administration
VISN         Veterans Integrated Service Network


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Page ii            GAO-03-488 Linking Individual Performance and Organizational Success
A
United States General Accounting Office
Washington, D.C. 20548



                                    March 14, 2003                                                                          Leter




                                    The Honorable George V. Voinovich
                                    Chairman
                                    Subcommittee on Oversight of Government Management, the Federal
                                     Workforce, and the District of Columbia
                                    Committee on Governmental Affairs
                                    United States Senate

                                    The Honorable Jo Ann Davis
                                    Chairwoman
                                    Subcommittee on Civil Service and Agency Organization
                                    Committee on Government Reform
                                    House of Representatives

                                    The federal government is in a period of profound transition and faces an
                                    array of challenges and opportunities to enhance performance, ensure
                                    accountability, and position the nation for the future. High-performing
                                    public and private organizations here in the United States and abroad have
                                    found that to successfully transform themselves, they must often
                                    fundamentally change their cultures so that they are more results-oriented,
                                    customer-focused, and collaborative in nature. To transform their cultures,
                                    high-performing organizations have recognized that an effective
                                    performance management system can be a strategic tool to drive internal
                                    change and achieve desired results.1

                                    Effective performance management systems are not merely used for once-
                                    or twice-yearly individual expectation setting and rating processes, but are
                                    tools to help the organization manage on a day-to-day basis. These systems
                                    are used to achieve results, accelerate change, and facilitate two-way
                                    communication throughout the year so that discussions about individual
                                    and organizational performance are integrated and ongoing. The Office of
                                    Personnel Management (OPM) recognizes that performance management
                                    systems are to extend beyond rating individual performance.2 According to
                                    OPM, performance management is the systematic process by which an


                                    1
                                    U.S. General Accounting Office, High-Risk Series: Strategic Human Capital Management,
                                    GAO-03-120 (Washington, D.C.: January 2003).
                                    2
                                      U.S. Office of Personnel Management, A Handbook for Measuring Employee Performance:
                                    Aligning Employee Performance Plans with Organizational Goals (Washington, D.C.:
                                    September 2001).




                                    Page 1            GAO-03-488 Linking Individual Performance and Organizational Success
organization involves its employees, as individuals and members of a
group, in improving organizational effectiveness in the accomplishment of
the mission and goals.

Recently, the Congress and the administration have pinpointed potential
solutions for modernizing performance management systems and,
specifically, making meaningful distinctions in performance. In November
2002, the Congress passed the Homeland Security Act of 2002,3 which
provides for the increase of the total annual compensation limit for senior
executives in those agencies that have been certified by OPM and the
Office of Management and Budget (OMB) as having performance appraisal
systems that, as designed and applied, make meaningful distinctions based
on relative performance. For 2003, the senior executive total
compensation limit would increase from $171,900 to $198,600.

In February 2003, the administration proposed for fiscal year 2004 to allow
managers to increase pay beyond annual raises for high-performing
employees. OPM would administer a $500 million Human Capital
Performance Fund for the purpose of allowing agencies to deliver
additional pay to certain employees based on individual performance or
other human capital needs, in accordance with plans submitted to and
approved by OPM. In addition, the administration also has proposed
creating a wider, more open pay range for senior executive compensation,
thus allowing for pay to be more directly tied to performance.

At your request, this report identifies key practices for federal agencies to
consider to develop modern, effective, and credible performance
management systems. To identify the key practices, we reviewed our
issued reports on performance management that draw from the
experiences of public sector organizations both in the United States and
abroad.4 While these organizations developed different performance
management systems to reflect their specific structures, priorities, and
cultures, they implemented these key practices to reinforce individual


3
 Pub. L. 107-296, Sec. 1322.
4
 U.S. General Accounting Office, Results-Oriented Cultures: Using Balanced Expectations
to Manage Senior Executive Performance, GAO-02-966 (Washington, D.C.: Sept. 27, 2002);
Results-Oriented Cultures: Insights for U.S. Agencies from Other Countries’ Performance
Management Initiatives, GAO-02-862 (Washington, D.C.: Aug. 2, 2002); and Managing for
Results: Emerging Benefits From Selected Agencies’ Use of Performance Agreements,
GAO-01-115 (Washington, D.C.: Oct. 30, 2000).




Page 2               GAO-03-488 Linking Individual Performance and Organizational Success
                   accountability for results. Consistent with these key practices, GAO has
                   implemented a performance management system that reinforces individual
                   accountability for results that has features such as broadbanded pay-for-
                   performance and a set of validated competencies intended to link
                   employee performance to our strategic plan and core values. We included
                   the agency examples illustrating the key practices primarily from these
                   issued reports and added examples from other GAO reports, where
                   appropriate. For additional information on our objective, scope, and
                   methodology, see appendix I.



Results in Brief   Federal agencies can develop effective performance management systems
                   by implementing a selected, generally consistent set of key practices.
                   These key practices helped public sector organizations both in the United
                   States and abroad create a clear linkage—“line of sight”—between
                   individual performance and organizational success and, thus, transform
                   their cultures to be more results-oriented, customer-focused, and
                   collaborative in nature. (See fig. 1.)




                   Page 3          GAO-03-488 Linking Individual Performance and Organizational Success
Figure 1: Key Practices for Effective Performance Management



   1. Align individual performance expectations with organizational goals. An explicit alignment of daily activities with broader results helps
      individuals see the connection between their daily activities and organizational goals and encourages individuals to focus on their roles and
      responsibilities to help achieve those goals.


   2. Connect performance expectations to crosscutting goals. High-performing organizations use their performance management systems to
      strengthen accountability for results, specifically by placing greater emphasis on fostering the necessary collaboration, interaction, and teamwork
      across organizational boundaries to achieve these results.


   3. Provide and routinely use performance information to track organizational priorities. High-performing organizations provide objective
      performance information to individuals to show progress in achieving organizational results and other priorities and help them manage during the
      year, identify performance gaps, and pinpoint improvement opportunities.


   4. Require follow-up actions to address organizational priorities. High-performing organizations require individuals to take follow-up actions
      based on performance information available to them. By requiring and tracking such follow-up actions on performance gaps, these organizations
      underscore the importance of holding individuals accountable for making progress on their priorities.


   5. Use competencies to provide a fuller assessment of performance. High-performing organizations use competencies, which define the skills
      and supporting behaviors that individuals need to effectively contribute to organizational results, and are based on valid, reliable, and transparent
      performance management systems.


   6. Link pay to individual and organizational performance. High-performing organizations seek to create pay, incentive, and reward systems
      that link employee knowledge, skills, and contributions to organizational results.


   7. Make meaningful distinctions in performance. Effective performance management systems seek to achieve three key objectives to help
      make meaningful distinctions in performance. First, they strive to provide candid and constructive feedback to help individuals maximize their
      contribution and potential in understanding and realizing the goals and objectives of the organization. Second, they seek to provide management
      with the objective and fact-based information it needs to reward top performers. Third, they provide the necessary information and
      documentation to deal with poor performers.


   8. Involve employees and stakeholders to gain ownership of performance management systems. High-performing organizations have found
      that actively involving employees and stakeholders in developing the performance management systems and providing ongoing training on the
      systems helps increase their understanding and ownership of the organizational goals and objectives.


   9. Maintain continuity during transitions. High-performing organizations recognize that because cultural transformations take time, they need to
      reinforce accountability for organizational goals.



Source: GAO.




                                                     Page 4                 GAO-03-488 Linking Individual Performance and Organizational Success
             Beyond implementing these key practices, high-performing organizations
             understand that their employees are assets whose value to the organization
             must be recognized, understood, and enhanced. They view an effective
             performance management system as an investment to maximize the
             effectiveness of people by developing individual potential to contribute to
             organizational goals. To maximize this investment, an organization’s
             performance management system is designed, implemented, and
             continuously assessed by the standard of how well it helps the employees
             help the organization achieve results and pursue its mission.

             Because the key practices and examples were drawn from previously
             issued GAO reports, we did not seek official comments on the draft report
             from agency officials. We provided the draft report to the Director of OPM
             for her information.



Background   Strategic human capital management is receiving increased attention
             across the federal government. In January 2001, we designated strategic
             human capital management as a governmentwide high-risk area and
             continued this designation with the release of High-Risk Series: An Update
             in January 2003.5 Despite the considerable progress over the past 2 years, it
             remains clear that today’s federal human capital strategies are not
             appropriately constituted to meet current and emerging challenges or drive
             the needed transformation across the federal government. One of the key
             areas that federal agencies continue to face challenges in is creating
             results-oriented organizational cultures. Agencies lack organizational
             cultures that promote high performance and accountability and empower
             and include employees in setting and accomplishing programmatic goals,
             which are critical to successful organizations. To help agency leaders
             effectively lead and manage their people and integrate human capital
             considerations into daily decision making and the program results they
             seek to achieve, we developed a strategic human capital model. The model
             highlights the kind of thinking that agencies should apply, as well as some
             of the steps they can take, to make progress in managing human capital
             strategically.6


             5
               GAO-03-120 and U.S. General Accounting Office, High-Risk Series: An Update, GAO-03-119
             (Washington, D.C.: January 2003).
             6
              U.S. General Accounting Office, A Model of Strategic Human Capital Management, GAO-
             02-373SP (Washington, D.C.: Mar. 15, 2002).




             Page 5             GAO-03-488 Linking Individual Performance and Organizational Success
                        Since we designated strategic human capital management as a high-risk
                        area in January 2001, the President’s Management Agenda, released in
                        August 2001, placed the strategic management of human capital at the top
                        of the administration’s management agenda. In October 2002, OMB and
                        OPM updated the standards for success in the human capital area of the
                        President’s Management Agenda, reflecting language that was developed
                        in collaboration with GAO. To assist agencies in responding to the revised
                        standards and addressing the human capital challenges, OPM released the
                        Human Capital Assessment and Accountability Framework. One of the
                        standards of success in the framework is a results-oriented performance
                        culture, specifically a performance management system that effectively
                        differentiates between high and low performance.

                        On September 24, 2002, we convened a forum to discuss useful practices
                        from major private and public sector organizational mergers, acquisitions,
                        and transformations that federal agencies could learn from to successfully
                        transform their cultures and that the then proposed Department of
                        Homeland Security could use to merge its various originating agencies or
                        their components into a unified department.7 The participants identified
                        the use of performance management systems as a tool to help manage and
                        direct the transformation process. Specifically, performance management
                        systems must create a line of sight showing how team, unit, and individual
                        performance can contribute to overall organizational results. The system
                        serves as the basis for setting expectations for employees’ roles in the
                        transformation process and for evaluating individual performance and
                        contributions to the success of the transformation process and, ultimately,
                        to the achievement of organizational results.



Key Practices for       An effective performance management system can be a strategic tool to
                        drive internal change and achieve desired results. We found that public
Effective Performance   sector organizations in the United States and abroad have implemented a
Management              selected, generally consistent set of key practices as part of their
                        performance management systems. Federal agencies can implement these
                        practices to develop effective performance management systems that help
                        create the line of sight between individual performance and organizational



                        7
                          U.S. General Accounting Office, Highlights of a GAO Forum: Mergers and
                        Transformation: Lessons Learned for a Department of Homeland Security and Other
                        Federal Agencies, GAO-03-293SP (Washington, D.C.: Nov. 14, 2002).




                        Page 6            GAO-03-488 Linking Individual Performance and Organizational Success
                            success and transform their cultures to be more results-oriented, customer-
                            focused, and collaborative in nature.



Align Individual            An explicit alignment of daily activities with broader results is one of the
Performance Expectations    defining features of effective performance management systems in high-
                            performing organizations. These organizations use their performance
with Organizational Goals   management systems to improve performance by helping individuals see
                            the connection between their daily activities and organizational goals and
                            encouraging individuals to focus on their roles and responsibilities to help
                            achieve these goals. Such organizations continuously review and revise
                            their performance management systems to support their strategic and
                            performance goals, as well as their core values and transformational
                            objectives.

                            High-performing organizations can show how the products and services
                            they deliver contribute to results by aligning performance expectations of
                            top leadership with organizational goals and then cascading those
                            expectations down to lower levels. To this end, we reported that in fiscal
                            year 2000 the Federal Aviation Administration (FAA) was able to show how
                            the Department of Transportation’s (DOT) strategic goal to promote public
                            health and safety was cascaded through the FAA Administrator’s
                            performance expectation to reduce the commercial air carrier fatal
                            accident rate to a program director’s performance expectation to develop
                            software to help aircraft maintain safe altitudes in their approach paths, as
                            shown in figure 2.8




                            8
                             GAO-01-115.




                            Page 7           GAO-03-488 Linking Individual Performance and Organizational Success
Figure 2: Aligning FAA Individual Goals with DOT and FAA Organizational Goals




Source: GAO, DOT, and FAA.


                                         Note: GAO analysis of DOT and FAA planning documents.




                                         Page 8              GAO-03-488 Linking Individual Performance and Organizational Success
The FAA Administrator’s performance agreement for fiscal year 2000
included a performance expectation to reduce the commercial air carrier
fatal accident rate by implementing the Safer Skies Agenda. As part of
implementing the Safer Skies Agenda, the Flight Standards Service
Director had a performance expectation to meet milestones for reducing a
type of crash called controlled flight into terrain, which occurs when pilots
lose their sense of the plane’s relation to the surface below. Among these
milestones included validating Minimum Safe Altitude Warning software,
which had to be developed by the Aviation Systems Standards Program
Director. This software system is designed to aid air traffic controllers
through both visual and aural alarms by alerting them when a tracked
aircraft is below, or predicted by the computer to go below, a
predetermined minimum altitude.

Similarly, we recently reported that as a first step in establishing a
permanent performance management system, the Transportation Security
Administration (TSA) has implemented standardized performance
agreements for groups of employees, including transportation security
screeners, supervisory transportation security screeners, supervisors, and
executives.9 These performance agreements include both organizational
and individual goals and standards for satisfactory performance that can
help TSA establish a line of sight showing how individual performance
contributes to organizational goals. For example, each executive
performance agreement includes organizational goals, such as to maintain
the nation’s air security and ensure an emphasis on customer satisfaction,
as well as individual goals, such as to demonstrate through actions, words,
and leadership, a commitment to civil rights. To strengthen its current
executive performance agreement and foster the culture of a high-
performing organization, we recommended that TSA add performance
expectations that establish explicit targets directly linked to organizational
goals, foster the necessary collaboration within and across organizational
boundaries to achieve results, and demonstrate commitment to lead and
facilitate change. TSA agreed with this recommendation.

We reported in September 2002 that some agencies set targets for
individual performance that were linked to organizational goals. For
example, the Veterans Benefits Administration (VBA) identified targets
with specific levels of performance for senior executives that were


9
U.S. General Accounting Office, Transportation Security Administration: Actions and
Plans to Build a Results-Oriented Culture, GAO-03-190 (Washington, D.C.: Jan. 17, 2003).




Page 9             GAO-03-488 Linking Individual Performance and Organizational Success
                      explicitly linked to VBA’s priorities for fiscal year 2001 and the Department
                      of Veterans Affairs’ (VA) strategic goals for fiscal years 2001 to 2006.10 For
                      example, to contribute to VA’s strategic goal to “provide ‘One VA’ world
                      class service to veterans and their families through the effective
                      management of people, technology, processes and financial resources” and
                      to address its priority of speed and timeliness, VBA set a national target for
                      property holding time—the average number of months from date of
                      acquisition to date of sale of properties acquired due to defaults on VA
                      guaranteed loans—of 10 months for fiscal year 2001. To contribute to the
                      national target, the senior executive in the Nashville regional office had a
                      performance expectation for his office to meet a target of 8.6 months.



Connect Performance   As public sector organizations shift their focus of accountability from
Expectations to       outputs to results, they have recognized that the activities needed to
                      achieve those results often transcend specific organizational boundaries.
Crosscutting Goals
                      Consequently, organizations that are flatter and focused on collaboration,
                      interaction, and teamwork across organizational boundaries are
                      increasingly critical to achieve results. High-performing organizations use
                      their performance management systems to strengthen accountability for
                      results, specifically by placing greater emphasis on fostering the necessary
                      collaboration both within and across organizational boundaries to achieve
                      results.

                      For example, in August 2002, we reported that Canada’s agricultural
                      department, Agriculture and Agri-Food Canada, used individual
                      performance agreements to specify the internal or external organizations
                      whose collaboration is needed to help individuals contribute to the
                      departmental crosscutting goals or areas.11 Specifically, the head of the
                      department’s Market and Industry Services Branch had in his 2001-02
                      performance agreement the expectation to “lead efforts to develop the
                      department’s ability to deal with emerging technical trade issues” that
                      aligned with the crosscutting area of “international issues.” The agreement
                      also listed two internal units whose collaboration was needed to meet the
                      expectation—the department’s Research Branch and its Strategic Policy
                      Branch—as well as two external organizations—the Canadian Food
                      Inspection Agency and Health Canada. While the performance agreement


                      10
                           GAO-02-966.
                      11
                           GAO-02-862.




                      Page 10            GAO-03-488 Linking Individual Performance and Organizational Success
                             provides a vehicle for identifying and communicating with the various
                             organizations associated with each crosscutting performance expectation,
                             the department leaves it up to individuals to determine how to collaborate
                             with their organizations when working to fulfill their performance
                             agreements.

                             Similarly, we reported in October 2000 that the Veterans Health
                             Administration’s (VHA) Veterans Integrated Service Network (VISN)
                             headquartered in Cincinnati implemented performance agreements that
                             focused on patient services for the entire VISN and were designed to
                             encourage the VISN’s medical centers to work collaboratively.12 In 2000,
                             the VISN Director had a performance agreement with “care line” directors
                             for patient services, such as primary care, medical and surgical care, and
                             mental health care. In particular, the mental health care line director’s
                             performance agreement included improvement goals related to mental
                             health for the entire VISN. To make progress towards these goals, this care
                             line director had to work across each of the VISN’s four medical centers
                             with the corresponding care line managers at each medical center. As part
                             of this collaboration, the care line director needed to establish consensus
                             among VISN officials and external stakeholders on the strategic direction
                             for the services provided by the mental health care line across the VISN;
                             develop, implement, and revise integrated clinical programs to reflect that
                             strategic direction for the VISN; and allocate resources among the centers
                             for mental health programs to implement these programs.



Provide and Routinely Use    High-performing organizations provide objective performance information
Performance Information to   to individuals to show progress in achieving organizational results and
                             other priorities, such as customer satisfaction and employee perspectives,
Track Organizational         and help individuals manage during the year, identify performance gaps,
Priorities                   and pinpoint improvement opportunities. Having this performance
                             information in a useful format also helps individuals track their
                             performance against organizational goals and compare their performance
                             to that of other individuals.

                             To this end, we described in September 2002, the Bureau of Land
                             Management’s (BLM) Web-based data system called the Director’s Tracking
                             System that collects and makes available on a real-time basis data on each


                             12
                                  GAO-01-115.




                             Page 11            GAO-03-488 Linking Individual Performance and Organizational Success
senior executive’s progress in his or her state office towards BLM’s
organizational priorities and the resources expended on each priority.13 In
particular, a BLM senior executive in headquarters responsible for the wild
horse and burro adoptions program can use the tracking system to identify
at anytime during the year where the senior executives in the state offices
responsible for this program are against their targets and what the program
costs have been by state.

To address progress towards its performance goals, we reported in October
2000 that VHA produced quarterly Network Performance Reports that
presented both VHA-wide and VISN-specific progress on each of the goals
in the then 22 VISN directors’ performance agreements.14 VHA’s then Chief
Network Officer and each of the VISN directors used these performance
reports to inform quarterly meetings they had and to discuss each VISN’s
progress towards the goals in the director’s performance agreement.
Specifically, the Network Performance Report issued in May 2000 showed
that 90 percent of the patients in VISN 5 located in Baltimore received
follow-up care after hospitalization for mental illness in the third quarter of
fiscal year 2000. Further, that VISN produced biweekly performance
reports that allowed it to monitor its three medical centers’ progress on the
VHA-wide performance goals in the VISN director’s performance
agreements. For example, the VISN’s biweekly performance report for
August 2000 showed that the VISN-wide rate for follow-up care after
hospitalization for mental illness remained at 90 percent, while its three
medical centers ranged from 89 to 91 percent for follow-up care.

In addition to showing progress in achieving organizational results, high-
performing organizations also provide performance information on other
priorities, such as customer satisfaction and employee perspectives. We
reported in September 2002 that to emphasize a balanced set of
performance expectations, some agencies disaggregated customer and
employee satisfaction survey data so that the results were applicable to an
executive’s customers and employees.15 For example, from its Use
Authorization Survey administered to various customers in fiscal year 2000,
BLM disaggregated the survey data to provide the applicable results to
individuals who head the state offices. Specifically, the executive in the

13
     GAO-02-966.
14
     GAO-01-115.
15
     GAO-02-966.




Page 12            GAO-03-488 Linking Individual Performance and Organizational Success
                            Montana state office received data for his state showing that 81 percent of
                            the grazing permit customers surveyed gave favorable ratings for the
                            timeliness of permit processing and for service quality. The executive
                            addressed the results of the customer survey in his self-assessment for the
                            2001 performance appraisal cycle.

                            We also reported that to help senior executives address employee
                            perspectives, the Internal Revenue Service (IRS) disaggregated data to the
                            workgroup level from its IRS/National Treasury Employees Union
                            Employee Satisfaction Survey, which measures general satisfaction with
                            IRS, the workplace, and the union.16 The Gallup Organization administered
                            this survey to all IRS employees. The survey comprised Gallup’s 12
                            questions (Q12);17 additional questions unique to IRS, such as views on
                            local union chapters and employee organizations; and questions on issues
                            IRS has been tracking over time. Gallup provided the results for each
                            workgroup. For example, an executive could compare the performance of
                            his or her workgroup to that of other operating divisions and to that of IRS
                            as a whole. Specifically, for the 2001 survey, an executive’s workgroup
                            scored 3.68 out of a possible 5 for the question “I have the materials and
                            equipment I need to do my work right” compared to the IRS-wide score of
                            3.58. To allow individuals to benchmark externally, Gallup compared each
                            workgroup’s results to the 50th (median) and 75th (best practices)
                            percentile scores from Gallup’s Q12 database. To benchmark internally,
                            IRS provided the servicewide results from the previous year’s survey in
                            each workgroup report.



Require Follow-up Actions   High-performing organizations require individuals to take follow-up actions
to Address Organizational   based on the performance information available to them. By requiring and
                            tracking such follow-up actions on performance gaps, these organizations
Priorities
                            underscore the importance of holding individuals accountable for making
                            progress on their priorities.

                            To help address employee perspectives in their senior executive
                            performance management system, we reported in September 2002 that the
                            Federal Highway Administration required senior executives to use 360-


                            16
                                 GAO-02-966.
                            17
                             Gallup identified 12 questions that measure employee perspective and, according to
                            Gallup, the responses to these questions link directly to organizational outcomes.




                            Page 13            GAO-03-488 Linking Individual Performance and Organizational Success
degree feedback instruments to solicit employees’ views on their
leadership skills.18 Based on the 360-degree feedback, senior executives
were to identify action items and incorporate them into their individual
performance plans for the next fiscal year. While the 360-degree feedback
instrument was intended for developmental purposes to help senior
executives identify areas for improvement and was not included in the
executive’s performance evaluation, executives were held accountable for
taking some action with the 360-degree feedback results and responding to
the concerns of their peers, customers, and subordinates. For example,
based on 360-degree feedback, a senior executive for field services
identified better communications with subordinates and increased
collaboration among colleagues as areas for improvement, and as required,
he then incorporated action items into his individual performance plan. In
fiscal year 2001, he set a performance expectation to develop a leadership
self-improvement action plan and identify appropriate improvement goals.
In his self-assessment for fiscal year 2001, he reported that he improved his
personal contact and attention to the division offices as evidenced by a 30
percent increase in visits to the divisions that year. Also, he stated that he
encouraged his subordinates to assess their leadership skills.
Consequently, 9 of his 11 subordinates used 360-degree feedback
instruments to improve their personal leadership competencies.

We also reported that to address employee perspectives based on the
performance information obtained through its employee survey, IRS
required senior executives to hold workgroup meetings with their
employees to discuss the workgroups’ survey results and develop action
plans to address these results.19 According to a senior executive in IRS’s
criminal investigation unit, the workgroup meetings were beneficial
because they increased communication with employees and identified
improvements in the quality of worklife. For example, through this
executive’s workgroup meetings on the 2001 employee survey results,
employees identified the need for recruiting supervisory special agents to
even out some of the workload. Subsequently, the senior executive set a
performance expectation in his fiscal year 2002 individual performance
plan to ensure that the field office had a strong recruitment program to
attract viable candidates.



18
     GAO-02-966.
19
     GAO-02-966.




Page 14            GAO-03-488 Linking Individual Performance and Organizational Success
                              Similarly, for its customer satisfaction survey, the former Commissioner of
                              Internal Revenue set an expectation that the senior executives who head
                              the business units develop action plans based on the performance
                              information from IRS’s customer survey that are relevant to the needs of
                              their particular customers.20 For example, an IRS senior executive who is
                              the area director for compliance in Laguna Niguel, California, developed a
                              consolidated action plan based on the plans he required from each of his
                              territory managers that identified ways to improve low scores from the
                              customer survey. Specifically, the senior executive had an expectation in
                              his action plan to improve how customers were treated during collection
                              and examination activities by ensuring that examiners explain to
                              customers their taxpayer rights, as well as why they were selected for
                              examination and what they could expect. Further, the senior executive
                              planned to ensure that territory managers solicited feedback from
                              customers on their treatment during these activities and identify specific
                              reasons for any customer dissatisfaction. In his midyear self-assessment
                              for fiscal year 2002, the senior executive stated that substantial progress
                              was being made in achieving the collection and examination customer
                              satisfaction goals.



Use Competencies to           High-performing organizations use competencies to examine individual
Provide a Fuller Assessment   contributions to organizational results. Competencies, which define the
                              skills and supporting behaviors that individuals are expected to exhibit to
of Performance
                              carry out their work effectively, can provide a fuller picture of an
                              individual’s performance.

                              To help reinforce employee behaviors and actions that support the agency’s
                              mission, we reported that in fiscal year 2000, IRS implemented a
                              performance management system that requires executives and managers to
                              include critical job responsibilities with supporting behaviors in their
                              performance agreements, which serve as the basis for their annual
                              performance appraisals.21 The critical job responsibilities, which represent
                              IRS’s core values, include leadership, employee satisfaction, customer
                              satisfaction, business results, and equal employment opportunity and are


                              20
                                   GAO-02-966.
                              21
                               U.S. General Accounting Office, Performance Management Systems: IRS’s Systems for
                              Frontline Employees and Managers Align with Strategic Goals but Improvements Can Be
                              Made, GAO-02-804 (Washington, D.C.: July 12, 2002).




                              Page 15            GAO-03-488 Linking Individual Performance and Organizational Success
further defined by supporting behaviors—broad actions and competencies
that IRS expects its executives and managers to demonstrate during the
year. The critical job responsibilities and supporting behaviors are
intended to provide executives and managers with a consistent message
about how their daily activities are to reflect the organization’s core values.
Three of the five critical job responsibilities—customer satisfaction,
business results, and employee satisfaction—align with IRS’s strategic
goals as shown in figure 3. For example, by establishing a critical job
responsibility and supporting behavior in customer satisfaction, IRS aligns
managers’ performance to its strategic goal of “top-quality service to each
taxpayer in every interaction.”




Page 16          GAO-03-488 Linking Individual Performance and Organizational Success
Figure 3: Alignment of Strategic Goals, Critical Job Responsibilities, and Supporting Behaviors for Enforcement Group
Managers


                                     Top-quality service to each            Top-quality service to all
          Strategic goal                 taxpayer in every                 taxpayers through the fair       Productivity through a
                                            interaction                    and uniform application of      quality work environment
                                                                                    the law




                                                                           Business results (quality
  Critical job responsibility           Customer satisfaction
                                                                                and quantity)                Employee satisfaction




                                   Listens to customers, constantly      Develops and executes plans       Promotes cooperation and
   Example of supporting               gathering their feedback            to achieve organizational     teamwork among employees;
         behavior                        and actively seeking to          goals, leveraging resources        coaches and develops
                                        identify their needs and            (human and financial) to        employees so that they
                                              expectations                    maximize efficiency           realize their full potential




 Source: GAO and IRS.


                                            Note: GAO analysis of IRS’s group manager performance management system.


                                            The other two critical job responsibilities, leadership and equal
                                            employment opportunity, reinforce behaviors that IRS considers necessary
                                            for organizational change and an open and fair work environment.




                                            Page 17                GAO-03-488 Linking Individual Performance and Organizational Success
We described in August 2002 how the United Kingdom considers
competencies in evaluating executives.22 The executives in the Senior Civil
Service have performance agreements that include both business
objectives and certain core competencies that executives should develop in
order to effectively achieve these objectives. For example, an executive
and his supervisor select one or two competencies, such as “thinking
strategically,” “getting the best from people,” or “focusing on delivery.”
Each competency is further described by several specific behaviors. For
example, the competency of “getting the best from people” includes
behaviors such as “developing people to achieve high performance;”
“adopting a leadership style to suit different people, cultures, and
situations;” “coaching individuals so they achieve their best;” and “praising
achievements and celebrating success.” The supervisor evaluated the
executive’s demonstration of these selected competencies and the
achievement of business objectives when determining the size of the
annual pay award.

Similarly, we described in August 2002 how New Zealand’s Inland Revenue
Department evaluated the performance of its employees against results and
core and technical competencies and weighted these results and
competencies differently in each employee evaluation depending on the
position.23 All employees were evaluated on their commitments to deliver
results, which account for 40 to 55 percent of their overall performance
evaluations. In addition, all employees were evaluated against core
organizational competencies such as customer focus, strategic leadership,
analysis and decision making, and communication, which make up 20 to 50
percent of their evaluations. Some employees who have special knowledge
and expertise in areas such as tax policy, information technology, and
human capital were also evaluated against technical competencies that
may account for 20 to 35 percent of their overall performance evaluations.24
An employee who was considered fully successful in achieving his or her
performance commitments, but does not demonstrate the expected
competencies, may not be assessed as fully successful in his or her

22
     GAO-02-862.
23
     GAO-02-862.
24
 The precise mix and weight is based on considerations such as job requirements and
specific agency initiatives that place a greater emphasis on a particular competency, such as
customer service. The system permits flexibility provided that the mix and weighting for
each employee adhere to the ranges set by the department and are clearly articulated,
consistently applied, and transparent.




Page 18             GAO-03-488 Linking Individual Performance and Organizational Success
                             particular position. Conversely, if an employee demonstrated the expected
                             competencies, but did not achieve the agreed to performance
                             commitments, he or she could also be considered less than fully successful.
                             As part of the department’s review of the program conducted in 2000, both
                             managers and staff cited the department’s policy of evaluating individual
                             performance based on both results and competencies as a better way to
                             measure staff performance than focusing on only results or competencies
                             alone.



Link Pay to Individual and   High-performing organizations seek to create pay, incentive, and reward
Organizational Performance   systems that clearly link employee knowledge, skills, and contributions to
                             organizational results. At the same time, these organizations recognize that
                             valid, reliable, and transparent performance management systems with
                             adequate safeguards for employees are the precondition to such an
                             approach.

                             For example, we reported in August 2002 how Canada links pay to the
                             performance of its senior executives through its Performance Management
                             Program.25 Under the Performance Management Program, introduced in
                             1999, a significant portion of the total cash compensation package that top
                             and senior executives can receive takes the form of “at-risk” pay. This
                             annual lump-sum payment ranges from 10 to 15 percent of base pay for
                             senior executives, and as high as 25 percent for deputy ministers. Another
                             central feature of Canada’s Performance Management Program is that both
                             increases in base salary and at-risk pay are only awarded to executives who
                             successfully achieve commitments agreed to in their annual performance
                             agreements. These commitments are of two types: “ongoing
                             commitments,” which include continuing responsibilities associated with
                             the position, and “key commitments,” which identify priority areas for the
                             current performance cycle. Departments award increases in base pay to
                             executives who successfully carry out their ongoing commitments and
                             award at-risk pay to individuals who, in addition to meeting all ongoing
                             commitments, also successfully deliver on key commitments. Executives
                             who do not meet at least one key commitment are not eligible for this lump-
                             sum performance award. Under the Performance Management Program,
                             there are no automatic salary increases connected with length of service.




                             25
                                  GAO-02-862.




                             Page 19            GAO-03-488 Linking Individual Performance and Organizational Success
The Ontario Public Service (OPS) links executive performance pay to the
performance of the provincial government as a whole, the performance of
the executive’s home ministry, the contribution of that ministry to overall
governmentwide results, as well as the individual’s own performance.26
The amount of the award an individual executive can receive ranges from
no payment to a maximum of 20 percent of base salary. To determine the
amount of performance pay for any given fiscal year, the Premier and
Cabinet, the top political leadership of the Ontario government, first
determine whether and to what extent the government as a whole has
achieved the key provincial goals it established at the beginning of the
fiscal year. If they determine that the government has met a threshold of
satisfactory performance, these officials designate a certain percentage as
the governmentwide “incentive envelope,” which represents the
percentage that will be the basis for subsequent calculations used to
determine performance awards. The Secretary of Cabinet, in consultation
with the Premier, then assesses each ministry’s performance based on the
ministry’s relative contribution enabling Ontario to achieve its key
provincial goals and the ministry’s performance against its own approved
business plan. As a result of this assessment, each ministry receives an
amount equivalent to a specific percentage of the ministry’s total executive
payroll for performance awards. Finally, each ministry determines the
actual amount of an executive’s performance award by assessing both the
individual’s actual performance against his or her prior performance
commitments as well as the individual’s level of responsibility.

For example, in the 1999–2000 performance cycle, the Premier and Cabinet
determined that the government as a whole had met a threshold of
satisfactory performance and set an incentive envelope of 10 percent. The
Secretary of Cabinet and the Premier then assessed the performance of a
particular ministry deciding that it had a “critical impact” on the
government’s ability to deliver on its results that year, including the roll out
of its quality service and e-government initiatives. They also found that this
ministry “exceeded” the key commitments established in its business plan.
In this case, the ministry received an amount equivalent to 12.5 percent of
its executive payroll towards performance payments. Individual awards,
depending upon the performance and position of the executive, ranged
from no payment to 15 percent, and could have reached as high as 20
percent under the program’s regulations. In contrast, during the same
performance cycle, the Secretary of Cabinet and the Premier found that


26
     GAO-02-862.




Page 20            GAO-03-488 Linking Individual Performance and Organizational Success
another ministry had only “contributed” to governmentwide goals while
having “met” its business commitments. Accordingly, this ministry
received only 5 percent of its executive payroll towards performance
payments. Individual awards in this case ranged from no payment to 7.5
percent. (See fig. 4.)




Page 21         GAO-03-488 Linking Individual Performance and Organizational Success
Figure 4: Process for Awarding Performance Pay to Executives in OPS

                                                 What is assessed?

        Assess               1        The Premier and Cabinet assess overall performance
governmentwide                        of Ontario government against key priorities set at the
   performance                        beginning of the year and, if a performance threshold
                                      is met, they decide on a governmentwide “incentive
                                      envelope.”




           Assess            2        The Secretary of Cabinet, in consultation with the
          ministry                    Premier, assesses each ministry’s performance and
      performance                     assigns each ministry a percentage that is based on

                                      • the contribution the ministry has made to achieving
                                        governmentwide results, and
                                      • the ministry’s performance against its own business
                                        plan




           Assess 3                   Each ministry calculates an individual performance
         individual                   award based on
      performance
                                      • a rating of the executive’s individual performance
                                        by his or her manager based on the commitments
                                        contained in the executive’s individual performance
                                        agreement, and
                                      • the individual executive’s position and
                                        accompanying level of responsibility as reflected in
                                        one of four executive positions: manager, director,
                                        assistant deputy minister, and deputy minister.



Source: GAO and Centre for Leadership, Ontario Cabinet Office.




Page 22                    GAO-03-488 Linking Individual Performance and Organizational Success
                    How does the process work?
An example of how OPS awarded executive performance pay in 1999-2000.

                           Governmentwide performance
                        In 1999-2000, the Premier and Cabinet
                            set 10% as the governmentwide
                                  “incentive envelope.”

                                        10%
                       Governmentwide “incentive envelope”
                                 is applied to...




  Lower performing agency                   Higher performing agency
  A ministry that “contributed” to          A ministry that had a “critical impact” in
  governmentwide goals and “met” its key    achieving governmentwide goals and
  business commitments received 5% of       “exceeded” its key business commitments
  its executive payroll for performance     received 12.5% of its executive payroll
  awards.                                   for performance awards.
                    5%                                       12.5%
           Ministry percentage                        Ministry percentage
              is applied to...                           is applied to...



   Lower performing individual              Higher performing individual
   An executive who performed the job       An executive who performed the job of
   of a “manager,” the least senior         an “assistant deputy minister,” the
   executive position, and had “met”        second most senior executive position,
   some commitments contained in his        and had “exceeded” commitments
   or her performance agreement             contained in his or her performance
   received a performance award of          agreement received a performance
   2.5% of base pay.                        award of 15% of base pay.

                  2.5%                                          15%
      Individual performance award               Individual performance award



                       Note: GAO presentation of information from the Centre for Leadership, Ontario Cabinet Office.




                       Page 23               GAO-03-488 Linking Individual Performance and Organizational Success
Make Meaningful               Effective performance management requires the organization’s leadership
Distinctions in Performance   to make meaningful distinctions between acceptable and outstanding
                              performance of individuals and to appropriately reward those who perform
                              at the highest level. In doing so, performance management systems in high-
                              performing organizations typically seek to achieve three key objectives:
                              (1) they strive to provide candid and constructive feedback to help
                              individuals maximize their contribution and potential in understanding and
                              realizing the goals and objectives of the organization, (2) they seek to
                              provide management with the objective and fact-based information it needs
                              to reward top performers, and (3) they provide the necessary information
                              and documentation to deal with poor performers.

                              We reported that IRS recognizes that it is still working at implementing an
                              effective performance management system that makes meaningful
                              distinctions in senior executive performance.27 For example, IRS
                              established an executive compensation plan for determining base salary,
                              performance bonuses, and other awards for its senior executives that is
                              intended to explicitly link individual performance to organizational
                              performance and is designed to emphasize performance. IRS piloted the
                              compensation plan in fiscal year 2000 with the top senior executives who
                              report to the Commissioner of Internal Revenue and used it for all senior
                              executives in fiscal year 2001. To recognize performance across different
                              levels of responsibilities and commitments, IRS assigned senior executives
                              to one of three bonus levels at the beginning of the performance appraisal
                              cycle. Assignments depend on the senior executives’ responsibilities and
                              commitments in their individual performance plans for the year, as well as
                              the scope of their work and its impact on IRS’s overall mission and goals.
                              For example, the Commissioner of Internal Revenue or the Deputy
                              Commissioner assigns senior executives to bonus level three—considered
                              to be the level with the highest responsibilities and commitments—only if
                              they are part of the Senior Leadership Team. IRS restricts the number of
                              senior executives assigned to each bonus level for each business unit.

                              In addition, for each bonus level, IRS establishes set bonus ranges by
                              individual summary evaluation rating, which is intended to reinforce the
                              link between performance and rewards. The bonus levels and
                              corresponding bonus amounts of base salary by summary rating are shown
                              in table 1.


                              27
                                   GAO-02-966.




                              Page 24            GAO-03-488 Linking Individual Performance and Organizational Success
Table 1: IRS’s Bonus Levels and Bonus Ranges of Base Salary for Senior Executive
Summary Evaluation Ratings for Fiscal Year 2001


Bonus levels                                Met                Exceeded                Outstanding
3                                     5 to 10%                  10 to 15%                  15 to 20%

2                                           5%                   5 to 10%                  10 to 15%

1                                           0%                         5%                   5 to 10%

Source: IRS.

Note: Bonuses paid to IRS career senior executives are governed by the limits set forth in 5 U.S.C.
5384 and 9505, which provide that bonuses shall be not less than 5 percent of basic pay.


To help ensure realistic and consistent performance ratings, each IRS
business unit had a “point budget” for assigning performance ratings that is
the total of four points for each senior executive in the unit. After the
initial summary evaluation ratings were assigned, the senior executives’
ratings were converted into points—an “outstanding” rating converted to
six points; an “exceeded” rating to four points, which is the baseline; a
“met” rating to two points; and a “not met” rating to zero points. If the
business unit exceeded its point budget, it had the opportunity to request
additional points from the Deputy Commissioner. IRS officials indicated
that none of the business units requested additional points for the fiscal
year 2001 ratings. For fiscal year 2001, 31 percent of the senior executives
received a rating of outstanding compared to 42 percent for fiscal year
2000, 49 percent received a rating of exceeded expectations compared to
55 percent, and 20 percent received a rating of met expectations compared
to 3 percent. In fiscal year 2001, 52 percent of senior executives received a
bonus, compared to 56 percent in fiscal year 2000. IRS officials indicated
that they are still gaining experience using the new compensation plan and
will wait to establish trend data before they evaluate the link between
performance and bonus decisions.

To stress making performance results the basis for pay, awards, and other
personnel decisions for senior executives, OPM implemented amended
regulations for senior executive performance management requiring
agencies to establish performance management systems for the rating
cycles beginning in 2001. These systems are to hold senior executives
accountable for their individual and organizational performance by linking
performance management with results-oriented organizational goals and
evaluating senior executive performance using measures that balance



Page 25               GAO-03-488 Linking Individual Performance and Organizational Success
                           organizational results with customer satisfaction, employee perspectives,
                           and other measures agencies decide are appropriate. According to OPM,
                           these regulations require agency leadership to expect excellence and take
                           action to reward outstanding performers and deal appropriately with those
                           who do not measure up.



Involve Employees and      High-performing organizations have found that actively involving
Stakeholders to Gain       employees and stakeholders, such as unions or other employee
                           associations, when developing results-oriented performance management
Ownership of Performance   systems helps improve employees’ confidence and belief in the fairness of
Management Systems         the system and increase their understanding and ownership of
                           organizational goals and objectives. Effective performance management
                           systems depend on individuals’, their supervisors’, and management’s
                           common understanding, support, and use of these systems to reinforce the
                           connection between performance management and organizational results.
                           These organizations recognize that they must conduct frequent training for
                           staff members at all levels of the organization to maximize the
                           effectiveness of the performance management systems.28 Overall,
                           employees and supervisors share the responsibility for individual
                           performance management. Both are actively involved in identifying how
                           they can contribute to organizational results and are held accountable for
                           their contributions.

                           We described in August 2002 that, when reforming their performance
                           management systems, public sector organizations in other countries
                           consulted a wide range of employees and stakeholders early in the process,
                           obtained direct feedback from them, and engaged employee unions or
                           associations.29

                           Consult a Wide Range of Stakeholders Early in the Process. An
                           important step to ensure the success of a new performance management
                           system is to consult a wide range of stakeholders and to do so early in the
                           process. For its new Senior Civil Service performance management and
                           pay system, the United Kingdom’s Cabinet Office recognized the
                           importance of meeting with and including employees and stakeholders in


                           28
                            U.S. General Accounting Office, Human Capital: Practices That Empowered and
                           Involved Employees, GAO-01-1070 (Washington, D.C.: Sept. 14, 2001).
                           29
                                GAO-02-862.




                           Page 26            GAO-03-488 Linking Individual Performance and Organizational Success
the formation of the new system. The Cabinet Office obtained feedback
from various employee associations, a civil servant advisory group, a
project board composed of personnel directors, and permanent secretaries

As part of Canada’s effort to consult stakeholders concerning its new
performance management system, the government convened an
interdepartmental committee to explore and discuss possible approaches,
consulted networks of human capital professionals and executives across
the country, and engaged top executives through the Committee of Senior
Officials, consisting of the Clerk of the Privy Council and heads of major
departments and other top officials.

Obtain Feedback Directly from Employees. Directly asking employees
to provide feedback on proposed changes in their performance
management systems encourages a sense of involvement and ownership,
allows employees to express their views, and helps validate the system to
ensure that the performance measures are appropriate. Asking employees
to provide feedback should not be a one-time process, but an ongoing
process through the training of employees to ensure common
understanding of the evaluation, implementation, and results of the
systems.

For example, the United Kingdom’s Cabinet Office provided a packet
detailing proposed reforms of the existing performance management
system to approximately 3,000 members of the Senior Civil Service in a
large-scale effort to obtain their feedback on the proposed changes. In
addition, each department also held consultations where individuals
listened to proposed reforms. More than 1,200 executives (approximately
40 percent of the Senior Civil Service) participated in the process. The
Cabinet Office then collected and incorporated these views into the final
proposal, which was adopted by the government and implemented in April
2001.

Engage Employee Unions or Associations. We have previously
reported that in the United States obtaining union cooperation and support
can help to achieve consensus on planned changes, avoid
misunderstandings, and assist in the expeditious resolution of problems.30
Agencies in New Zealand and Canada actively engaged unions or employee
associations when making changes to performance management systems.


30
     GAO-01-1070.




Page 27             GAO-03-488 Linking Individual Performance and Organizational Success
                             In New Zealand, an agreement between government and the primary public
                             service union created a “Partnership for Quality” framework that provides
                             for ongoing, mutual consultation on issues such as performance
                             management. Specifically, the Department of Child, Youth, and Family
                             Services and the Public Service Association entered into a joint partnership
                             agreement that emphasizes the importance of mutual consideration of each
                             other’s organizational needs and constraints. For example, two of the
                             objectives stated in the 2001–02 partnership agreement were to (1) develop
                             the parties’ understanding of each other’s business and (2) equip managers,
                             delegates, and members with the knowledge and skills required to build a
                             partnership for a quality relationship in the workplace. Department and
                             union officials told us that this framework had considerably improved how
                             both parties approach potentially contentious issues, such as employee
                             performance management. Also included in the partnership agreement
                             were measures to evaluate the success of the relationship such as
                             (1) sharing ownership of issues, plans, and outcomes and (2) quickly
                             resolving issues in a solution-focused way, with a reduction in grievances.

                             The government of Canada repeatedly consulted with the Association of
                             Professional Executives of the Public Service of Canada (Association)
                             about its proposed reforms to the executive performance management
                             system and accompanying pay-at-risk provisions. This dialogue began
                             prior to the system’s rollout and continued through initial implementation
                             during which the Association was actively involved in collecting feedback
                             from executives as well as making recommendations. For example, as part
                             of an assessment of Canada’s Performance Management Program, based on
                             consultations the Association had with its membership after the first year
                             of the program, the Association identified several issues needing further
                             attention, including the need to provide executives with additional
                             guidance on how to develop their individual performance agreements,
                             particularly with regard to identifying and selecting different types of
                             performance commitments. This recommendation and others were shared
                             with the government, and the official Performance Management Program
                             guidance issued the following year incorporated these concerns.



Maintain Continuity during   The experience of successful cultural transformations and change
Transitions                  management initiatives in large public and private organizations suggests
                             that it can often take 5 to 7 years until such initiatives are fully
                             implemented and cultures are transformed in a substantial manner.
                             Because this time frame can easily outlast the tenures of top political
                             appointees, high-performing organizations recognize that they need to



                             Page 28         GAO-03-488 Linking Individual Performance and Organizational Success
reinforce accountability for organizational goals during times of leadership
transitions through the use of performance agreements as part of their
performance management systems.

At a recent GAO-sponsored roundtable, we reported on the necessity to
elevate attention, integrate various efforts, and institutionalize
accountability for addressing management issues and leading
transformational change.31 The average tenure of political leadership and
the long-term nature of the change management initiatives that are needed
can have critical implications for the success of those initiatives.
Specifically, in the federal government, the frequent turnover of the
political leadership has often made it difficult to obtain the sustained and
inspired attention required to make needed changes.

The average tenure of political appointees governmentwide for the period
1990-2001 was just under 3 years.32 In addition, career executives can help
provide the long-term commitment and focus needed to transform an
agency, but the retirement eligibility of executives is increasing.33 For
example, 71 percent of career senior executive service members will reach
retirement eligibility by the end of fiscal year 2005—an historically high
rate of eligibility. Without careful planning, the retirement eligibility rate
suggests an eventual loss in institutional knowledge, expertise, and
leadership continuity.

High-performing organizations use their performance management systems
to help provide continuity during these times of transition by maintaining a
consistent focus on a set of broad programmatic priorities. Performance
agreements can be used to clearly and concisely outline top leadership
priorities during a given year and thereby serve as a convenient vehicle for


31
 U.S. General Accounting Office, Highlights of a GAO Roundtable: The Chief Operating
Officer Concept: A Potential Strategy to Address Federal Governance Challenges, GAO-03-
192SP (Washington, D.C.: Oct. 4, 2002).
32
  This analysis included only those appointed after October 1, 1989, (fiscal year 1990) who
left before September 30, 2001 (fiscal year 2001). Political appointees who were appointed
before October 1, 1989, or who had not left by September 30, 2001, were not included
because they did not have appointment or separation dates and thus we could not determine
their length of service. Separations included resignations, terminations, retirements, and
deaths.
33
 U.S. General Accounting Office, Senior Executive Service: Enhanced Agency Efforts
Needed to Improve Diversity as the Senior Corps Turns Over, GAO-03-34 (Washington,
D.C.: Jan. 17, 2003).




Page 29             GAO-03-488 Linking Individual Performance and Organizational Success
new leadership to identify and maintain focus on the most pressing issues
confronting the organization as it transforms. We have observed that a
specific performance expectation in the leadership’s performance
agreement to lead and facilitate change during this transition could be a
critical element as organizations transform themselves to succeed in an
environment that is more results-oriented, less hierarchical, and more
integrated.34 More generally, the existence of an established process for
developing and using performance agreements provides new leadership
with a tested tool that it can use to communicate its priorities and instill
those priorities throughout the organization.

We described in August 2002 how OPS and Canada’s Performance
Management Program institutionalized the use of performance agreements
in their performance management systems to withstand organizational
changes and cascaded the performance agreements from top leadership to
lower levels of the organizations.35 Since 1996, OPS has used performance
agreements to align and cascade performance goals down to all
organizational levels and all employees and has required senior executives
to have annual performance agreements that link their performance
commitments to key provincial priorities and approved ministry business
plans. In 2000, OPS extended this requirement so that agreements are now
required of all employees, from senior executives to frontline employees.
Specifically, all employees develop individual performance commitments
that link to their supervisors’ performance agreements and their ministries’
business plans. Senior executives and some middle-level managers and
specialists also link commitments contained in their individual
performance plans to the government of Ontario’s key provincial priorities
in areas such as fiscal control and management, human capital leadership,
and fostering a culture of innovation.

Similarly, Canada’s Performance Management Program cascades goals
down through all levels of senior executives. It requires that each
department’s deputy minister—the senior career public service official
responsible for leading Canadian government departments—has a written
performance agreement that links his or her individual commitments to the
organization’s business plan, strategies, and priorities. From the deputy
minister, commitments cascade down through assistant deputy ministers,


34
     GAO-02-966.
35
     GAO-02-862.




Page 30            GAO-03-488 Linking Individual Performance and Organizational Success
directors general, and directors. At every level, the performance
agreement between each executive and his or her manager is intended to
document a mutual understanding about the performance that is expected
and how it will be assessed. Some agencies, such as Industry Canada and
the Public Service Commission, have established their own programs to
cascade commitments below the director level and require the use of
performance agreements for some middle managers or supervisors within
their organizations.


As agreed with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report for 30 days from its
date. At that time, we will provide copies of this report to interested
congressional committees and the Director of OPM. We will also make
copies available to others upon request. In addition, the report will be
available at no charge on the GAO Web site at http://www.gao.gov.

If you have any questions concerning this report, please contact me or Lisa
Shames on (202) 512-6806 or at mihmj@gao.gov. Anne Kidd and Janice
Lichty were key contributors to this report.




J. Christopher Mihm
Director, Strategic Issues




Page 31          GAO-03-488 Linking Individual Performance and Organizational Success
Appendix I

Objective, Scope, and Methodology                                                                   AA
                                                                                                     ppp
                                                                                                       ep
                                                                                                        ned
                                                                                                          n
                                                                                                          x
                                                                                                          id
                                                                                                           e
                                                                                                           x
                                                                                                           Iis




              To meet our objective to identify key practices for effective performance
              management, we summarized our most recent reports on performance
              management for public sector organizations both in the United States and
              abroad.1 We reviewed and synthesized the information contained in the
              reports to identify key practices for modern, effective, and credible
              performance management systems. We included the agency examples
              supporting the key practices primarily from the previous three reports and
              added examples from other GAO reports where appropriate. The specific
              objectives, scope, and methodology of each of these reports are included in
              the reports.

              We discussed the set of key practices with agency officials at the Office of
              Personnel Management (OPM) responsible for performance management
              of the general workforce. We also spoke with the President of the Senior
              Executives Association and the Director of the Center for Human
              Resources Management at the National Academy for Public Administration
              to obtain any observations or general comments on the key practices we
              identified. Likewise, we provided the key practices, for their general
              comments, to the Presidents for the National Treasury Employees Union
              and the American Federation of Government Employees; the Director of
              the Office of Policy and Evaluation, U.S. Merit Systems Protection Board;
              and the Vice President for Policy and Research, Partnership for Public
              Service.

              We did not seek official comments on the draft report from agency officials
              because the practices and examples were drawn from previously issued
              GAO reports. We provided the draft report to the Director of OPM for her
              information. We also did not update the examples, and as a result, the
              information in the examples may, or may not, have changed since the
              issuance of the report. We performed our work in Washington, D.C., from
              December 2002 through February 2003 in accordance with generally
              accepted government auditing standards.




              1
               U.S. General Accounting Office, Results-Oriented Cultures: Using Balanced Expectations
              to Manage Senior Executive Performance, GAO-02-966 (Washington, D.C.: Sept. 27, 2002);
              Results-Oriented Cultures: Insights for U.S. Agencies from Other Countries’ Performance
              Management Initiatives, GAO-02-862 (Washington, D.C.: Aug. 2, 2002); and Managing for
              Results: Emerging Benefits From Selected Agencies’ Use of Performance Agreements,
              GAO-01-115 (Washington, D.C.: Oct. 30, 2000).




              Page 32            GAO-03-488 Linking Individual Performance and Organizational Success
Related GAO Products


             Major Management Challenges and Program Risks: A Governmentwide
             Perspective. GAO-03-95. Washington, D.C.: January 2003.

             High-Risk Series: Strategic Human Capital Management. GAO-03-120.
             Washington, D.C.: January 2003.

             Transportation Security Administration: Actions and Plans to Build a
             Results-Oriented Culture. GAO-03-190. Washington, D.C.: January 17, 2003.

             Human Capital: Effective Use of Flexibilities Can Assist Agencies in
             Managing Their Workforces. GAO-03-2. Washington, D.C.: December 6,
             2002.

             Highlights of a GAO Forum: Mergers and Transformation: Lessons
             Learned for a Department of Homeland Security and Other Federal
             Agencies. GAO-03-293SP. Washington, D.C.: November 14, 2002.

             Highlights of a GAO Roundtable: The Chief Operating Officer Concept: A
             Potential Strategy to Address Federal Governance Challenges. GAO-03-
             192SP. Washington, D.C.: October 4, 2002.

             Results-Oriented Cultures: Using Balanced Expectations to Manage
             Senior Executive Performance. GAO-02-966. Washington, D.C.:
             September 27, 2002.

             Results-Oriented Cultures: Insights for U.S. Agencies from Other
             Countries’ Performance Management Initiatives. GAO-02-862.
             Washington, D.C.: August 2, 2002.

             Managing for Results: Using Strategic Human Capital Management to
             Drive Transformational Change. GAO-02-940T. Washington, D.C.: July 15,
             2002.

             Managing for Results: Building on the Momentum for Strategic Human
             Capital Reform. GAO-02-528T. Washington, D.C.: March 18, 2002.

             A Model of Strategic Human Capital Management. GAO-02-373SP.
             Washington, D.C.: March 15, 2002.

             Human Capital: Practices That Empowered and Involved Employees.
             GAO-01-1070. Washington, D.C.: September 14, 2001.




             Page 33         GAO-03-488 Linking Individual Performance and Organizational Success
           Related GAO Products




           Human Capital: Taking Steps to Meet Current and Emerging Human
           Capital Challenges. GAO-01-965T. Washington, D.C.: July 17, 2001.

           Managing for Results: Federal Managers’ Views on Key Management
           Issues Vary Widely Across Agencies. GAO-01-592. Washington, D.C.:
           May 25, 2001.

           Managing for Results: Emerging Benefits From Selected Agencies’ Use of
           Performance Agreements. GAO-01-115. Washington, D.C.: October 30,
           2000.

           Human Capital: Using Incentives to Motivate and Reward High
           Performance. GAO/T-GGD-00-118. Washington, D.C.: May 2, 2000.




(450180)   Page 34           GAO-03-488 Linking Individual Performance and Organizational Success
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