Financial Regulators:

Agencies Have Implemented Key Performance Management Practices, but Opportunities for Improvement Exist

GAO-07-678: Published: Jun 18, 2007. Publicly Released: Jun 18, 2007.

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Congress granted financial regulators flexibility to establish their own compensation systems and required certain agencies to seek to maintain comparability with each other in pay and benefits to help the agencies overcome impediments to recruiting and retaining employees and avoid competing for the same employees. In response to a request, this report reviews (1) how the performance-based pay systems of 10 financial regulators are aligned with six key practices for effective performance management systems, (2) the actions these agencies have taken to assess and implement comparability in pay and benefits, and (3) the extent to which employees in selected occupations have moved between or left any of the agencies. GAO analyzed agency guidance and policies, agency data on performance ratings and pay increases, agency pay and benefits surveys, data from the Central Personnel Data File, and interviewed agency officials.

The 10 federal financial regulatory agencies have generally implemented key practices for effective performance management but could improve implementation of certain practices as they continue to refine their systems. All of the financial regulators awarded some pay increases during the appraisal cycles we reviewed that were linked to employees' performance ratings, although two also provided across-the-board pay adjustments, even to employees who had not received acceptable performance ratings, weakening the linkage of pay to performance. Both agencies have indicated in the future annual pay adjustments will not be awarded to unsuccessful performers. The agencies have generally aligned individual performance expectations and organizational goals, connected performance expectations to crosscutting goals, used competencies to provide a fuller assessment of performance, and involved employees and stakeholders in the process. All of the agencies built safeguards into their performance management systems to enhance credibility and fairness. However, the extent to which the agencies communicated overall results of performance rating and pay increase decisions to all employees varied, and some could increase transparency by letting employees know where they stand relative to their peers in the organization, while protecting individual confidentiality. Financial regulators have hired external compensation consultants to conduct pay and benefits comparability surveys, exchanged pay and benefits information, explored the feasibility of conducting a common survey, and adjusted pay and benefits to seek to maintain comparability with each other. Although financial regulators have adjusted pay and benefits partly based on the results of their comparability efforts, there is some variation in pay ranges and benefit packages among the agencies. According to agency officials, factors such as the year the agencies first became subject to comparability provisions, budget constraints, and the needs and preferences of workforces play a role in compensation decisions and contribute to this variation. Furthermore, agency officials emphasized that it was not their goal to have identical pay and benefits packages; rather, they considered pay and benefits as a total package when seeking to maintain comparability and when setting pay policies aimed at recruiting and retaining employees. Between fiscal years 1990 and 2006, few employees moved among financial regulators and the movement among these agencies presented no discernible trend. Specifically, 86 percent (13,433) of the 15,627 employees that left during this period (i.e., moving or resigning but not retiring), resigned from federal employment. Annually, the percentage of employees who moved to another financial regulator ranged from a low of 1 percent in fiscal year 1997 (16 out of the 1,362 who moved or resigned) to a high of 8 percent in fiscal year 1991 (97 out of the 1,229 who moved or resigned). The total number of financial regulatory employees was 15,400 and 19,796 during those 2 years, respectively.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Consistent with GAO's recommendations, the Chairman of SEC has worked with the union to communicate the overall results of performance appraisal and pay increase decisions to all employees agency wide while protecting individual confidentiality. The union has been an active partner in the development of the agency's new performance management system. Specifically, since 2008, at the conclusion of each performance cycle, SEC's union receives data on performance ratings across the agency. The union also receives various demographic data for its analysis. The union prepares reports based on these data and distributes them to its members and SEC's management. However, due to declining budgets, SEC has not been able to make pay distinctions in the last 3 years. Essentially, all employees who meet expectations for their position have received the same percentage increase in merit pay.

    Recommendation: The Chairman of the Securities and Exchange Commission should work with the union to communicate the overall results of the performance appraisal and pay increase decisions to all employees agencywide while protecting individual confidentiality.

    Agency Affected: Commodity Futures Trading Commission

  2. Status: Closed - Implemented

    Comments: Consistent with GAO's recommendations, the Chairman of SEC has communicated clearly the criteria for making performance rating and pay increase decisions to nonexecutive employees. Specifically, since 2007, SEC has been implementing a new five-level performance management system. The system, which replaces a pass/fail system, is now in place for all nonexecutive employees. To communicate clearly to employees during system development, SEC conducted numerous focus groups and used subject matter experts and an agency-wide validation survey to build greater accountability and transparency into the rating system.

    Recommendation: The Chairman of the Securities and Exchange Commission should communicate clearly the criteria for making performance rating and pay increase decisions to nonexecutive employees.

    Agency Affected: Department of Housing and Urban Development: Office of Federal Housing Enterprise Oversight

  3. Status: Closed - Implemented

    Comments: The Commodity Futures Trading Commission shared information with employees through an internal memo dated November 14, 2007, on performance ratings and bonus amounts paid across the CFTC, as well as information on bonuses paid within divisions and offices. By adopting this safeguard of sharing information on the results of performance rating and performance-based pay increase decisions with employees, while protecting individual confidentiality, CFTC increased transparency. CFTC reportedly plans to share this type of information with all employees each year.

    Recommendation: The Chairman of the National Credit Union Administration and the Chairman of the Commodity Futures Trading Commission should work with unions to communicate the overall results of the performance appraisal and pay increase decisions to all employees agencywide while protecting individual confidentiality.

    Agency Affected: National Credit Union Administration

  4. Status: Closed - Implemented

    Comments: An important aspect of implementing the key practice of linking pay to performance involves building safeguards into the performance management system to enhance the credibility and fairness of the system. Communicating the overall results of performance rating and performance-based pay increases to all employees while protecting individual confidentiality can improve transparency by letting employees know where they stand in the organization. In our June 2007 report on the performance-based pay systems of 10 federal financial regulatory agencies, we found that some were not sharing this type of information. In particular, the National Credit Union Administration (NCUA) was not sharing this type of information with all employees. We recommended that NCUA share this information with all employees. NCUA communicated results of performance appraisal and pay increase decisions to employees covered by the bargaining agreement in 2008 and 2009, in accordance with a collective bargaining agreement between the agency and the union. NCUA also posted 2010 summary data on performance ratings and merit pay percentage increases for non-bargaining unit employees online in May and June of 2010, thus increasing the transparency of the performance management system. The data included the number and percentage of employees within each pay pool that received different categories of performance rating, as well as the range of merit pay increase percentages associated with each rating category.

    Recommendation: The Chairman of the National Credit Union Administration and the Chairman of the Commodity Futures Trading Commission should work with unions to communicate the overall results of the performance appraisal and pay increase decisions to all employees agencywide while protecting individual confidentiality.

    Agency Affected: Federal Housing Finance Board

  5. Status: Closed - Implemented

    Comments: The Farm Credit Administration shared information with employees through an internal newsletter dated June 27, 2007, on the number of individuals who received each of the 5 possible summary performance ratings for 2006, as well as the pay increase percentages for each rating. By adopting this safeguard of sharing information on the results of performance rating and performance-based pay increase decisions with employees, while protecting individual confidentiality, FCA increased transparency. FCA reportedly plans to share this type of information with all employees each January.

    Recommendation: The Chairman of the Board and Chief Executive Officer of the Farm Credit Administration, the Chairman of the Federal Housing Finance Board, and the Director of the Office of Federal Housing Enterprise Oversight should communicate the overall results of the performance appraisal and pay increase decisions to all employees agencywide while protecting individual confidentiality.

    Agency Affected: Farm Credit Administration

  6. Status: Closed - Implemented

    Comments: The Office of Federal Housing Enterprise Oversight shared information with employees through a memo dated June 28, 2007 on the percentage of employees who received each of the possible different summary performance ratings for 2005, 2006, and 2007. OFHEO also shared with employees in a May 15, 2007, memo the performance-based pay increase percentages to be awarded to employees in the various rating categories for 2007. By adopting this safeguard of sharing information on the results of performance rating and performance-based pay increase decisions with employees, while protecting individual confidentiality, OFHEO increased transparency. OFHEO reportedly plans to share this type of information with all employees in the future.

    Recommendation: The Chairman of the Board and Chief Executive Officer of the Farm Credit Administration, the Chairman of the Federal Housing Finance Board, and the Director of the Office of Federal Housing Enterprise Oversight should communicate the overall results of the performance appraisal and pay increase decisions to all employees agencywide while protecting individual confidentiality.

    Agency Affected: Department of Housing and Urban Development: Office of Federal Housing Enterprise Oversight

  7. Status: Closed - Implemented

    Comments: The Federal Housing Finance Board provided all employees with overall results of the performance appraisal and pay increase decisions for 2007 and 2008 in a January 2008 email. By adopting this safeguard of sharing information on the results of performance rating and performance-based pay increase decisions with employees, while protecting individual confidentiality, FHFB increased transparency.

    Recommendation: The Chairman of the Board and Chief Executive Officer of the Farm Credit Administration, the Chairman of the Federal Housing Finance Board, and the Director of the Office of Federal Housing Enterprise Oversight should communicate the overall results of the performance appraisal and pay increase decisions to all employees agencywide while protecting individual confidentiality.

    Agency Affected: Farm Credit Administration

  8. Status: Closed - Implemented

    Comments: Consistent with GAO's suggestions, the Chairman of SEC has assessed senior executives' performance on an annual basis. Specifically, since 2008, each office in SEC has used a 100-point scoring system to recommend rating points across the executive corps for bonuses and merit pay. The bonus and merit pay depends on the budget allocated for that purpose. Under the scoring system, employees and their managers prepare performance contribution statements that highlight accomplishments during the performance cycle. Point allocations are based on these statements. As a result of SEC's efforts, the potential exists that SEC was able help employees improve their performance and assess how their work contributed to achieving organizational goals.

    Recommendation: The Chairman of the Securities and Exchange Commission should assess senior executives' performance at the end of the performance appraisal cycle regardless of the amount of funding available for performance-based pay increases.

    Agency Affected: National Credit Union Administration

 

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