Defense Secretary Robert Gates has challenged the Defense Department to find immediate and enduring financial savings within our layers of bureaucracy, and to provide those savings to our direct war-fighting mission. Realizing these savings cannot just be about using fewer resources. It also must be about getting better performance from resources we already have, including our most important resource — our people. To get there we must do more to creatively incentivize our employees and our organizations as a whole.
The use of incentives has been debated with both the introduction and subsequent demise of the pay-for-performance-based National Security Personnel System. That system was never fully embraced by DoD's work force because of concerns about the fairness and transparency of the evaluation process and the behind-closed-doors pay pools that determined many of the final ratings. DoD's realignment of employees back to the General Schedule system this year provides an opportunity to take the best of both the GS and NSPS systems to support Gates' cost-reduction goals while effectively incentivizing DoD's employees.
Here's how: The GS system values consistency of work over a long period of time. It rewards fulfillment of individual commitments with a reliable method of recognizing solid performance and longevity. For most "valued employees," the GS system maintains a fair and balanced approach with grades and steps consistent with that philosophy.
This system is well-suited to the salary portion of personnel pay that represents the bedrock of compensation. It needs to be something that can be counted on, and as long as performance meets certain standards, the GS system provides this kind of reliability. Using the traditional GS model for salary-based rewards is appropriate for that consistent, reliable compensation model that is objectively applied across the entire population.
While the GS system also provides some incentives for outstanding performance via annual bonuses, this is the area in which the best of NSPS should be employed within the GS system. There is a way to make this bonus portion of compensation both objective and transparent, while also gaining added benefits by incentivizing entire teams to achieve shared objectives.
We use this sort of incentivizing bonus system at the Business Transformation Agency, where we have established quantifiable metrics that measure the agency's performance as a whole. The size of our agency bonus pool is directly tied to our collective performance against those goals.
Specifically, we establish measurable agencywide targets at the beginning of the year, focusing on our highest-priority initiatives. Our average score against these targets at the end of the year determines the size of our bonus pool.
The fact that these are shared targets that require collaboration further focuses behavior not only on individual performance, but also on working as a team to generate desired results. If we perform well collectively, we are rewarded collectively. If we don't, then this portion of our compensation falls. Instead of "hidden" pay pools where lack of trust fueled discontent with NSPS, this approach is transparent with metrics reported every month. Pay pools are replaced by bonus pools that identify performance targets and participants, which could be an entire agency, a program, a unit — whatever grouping makes most sense for a collection of shared, measurable objectives.
To make this work, and to tie into Gates' targets for cost reduction, the performance targets must be aggressive and directly related to cost savings. Setting these targets effectively is the key to the whole process. If we don't generate tangible savings, then we shouldn't be rewarded. But dramatic improvements should yield rewards. As long as results are objectively measured, employees should share in the rewards.
Motivating employees to collaborate on solutions that yield tangible cost reduction benefits will help meet Gates' targets. While we migrate to the GS system for consistency and reliability for salary increases, the department should consider a variable-compensation element that rewards teams with some portion of the department's savings that can be directly tied to their efforts. That would be a win all the way around.
David M. Fisher is director of the Defense Department's Business Transformation Agency.