October 1998

Pay Progression Strategies Involve Performance Management Issues

When designing pay progression strategies for new pay systems, performance management becomes an important factor. A TRANSFORMATIONS '98 session entitled "Pay Progression Strategies in Broadbanding Systems" alerted attendees to performance management issues that are significant when designing pay systems. If you are responsible for performance management programs in your organization, you need to know that performance management is an integral part of pay system design.

• What is pay progression?
• What are the current pay progression strategies for the General Schedule?
• What is an example of a pay progression strategy used by an agency not under the General Schedule?
• How can I get more information?

What is pay progression? The term "pay progression" refers to how the pay rates of employees are adjusted over time. Generally, pay progression strategies fall into three categories that can be used singly or in combination:

• Time-based strategies determine pay increases based solely on time spent at a pay level.
• Performance-based strategies include a wide variety of approaches that all use the employee's level of performance to determine the amount of pay increase.
• Skill/competency development-based strategies reward the employee's development and demonstrated proficiency in newly-learned knowledge, skills, abilities, value-adding characteristics, and/or other attributes.

What are the current pay progression strategies for the General Schedule? The General Schedule combines time-based, performance-based, and skill/competency development-based pay progression strategies. For example, each General Schedule grade's pay range from the minimum rate to the maximum rate is subdivided into ten steps or fixed rates of pay. Within-range pay progression is achieved through the use of periodic step increases, or within-grade increases. Step increases generally are granted on a time schedule set by statute (i.e., time based) and can be given only to an employee who is performing at an "acceptable level of competence" (i.e., performance based).

This stable, predictable progression scheme actually carries with it a meaning. Progressing through fixed steps at fixed intervals that get longer over time is based on a "learning curve theory." That is, initial annual pay increases reward a substantial increase in skills, knowledge, and improved performance presumed to occur during the first few years in the grade while in steps 1-4 (i.e., skill/competency development based). Pay progression slows once full mastery is achieved (steps 4-7 delivered biannually). Finally, skill acquisition is presumed to taper off and the final step increases are granted at extended 3-year intervals to reward the loyalty, longevity, and continued mastery of long-term employees, short of promoting them.

What is an example of a pay progression strategy used by an agency not under the General Schedule? During the conference session, Gil Fitzhugh and Carolyn Taylor of the General Accounting Office (GAO) explained the performance-based strategy that GAO has designed into its broadbanding system. GAO uses panels of unit managers to determine pay increases. The panel considers:

• the employee's performance appraisal for the year, which includes only the appraisal of elements, with no rating of record assigned;
• a contribution statement, which is prepared by the employee to highlight his or her accomplishments during the year; and
• the panelists' knowledge of employee work.

Using these sources of information, employees are assessed against each other in terms of:

• the extent to which they exceeded job expectations;
• the magnitude and significance of contributions to GAO mission, operations, and teamwork; and
• the employee's performance in relation to that normally expected of his or her level of responsibility.

The panelists can give top performers as much as a 6 percent pay increase.

How can I get more information? Contact us to order a copy of a paper entitled Alternative Pay Progression Strategies: Broadbanding Applications. For more information about GAO's system, you may contact Mr. Fitzhugh at 202-512-5525.