June 2008 · Volume 90 · Number 5

Checklist

13 Steps for a Smoother Transition to Performance-Based Pay

Every local government is different, but the following steps should be considered to assess readiness and prepare the organization for a switch to pay for performance.

1. Discuss and secure the commitment of elected officials, political appointees, and senior executives to the change. Identify one or more of these individuals to become public proponents or champions of the change.
2. Draft a statement of compensation philosophy, including the planned linkage to salary increases, and gain consensus at senior levels. The statement should say that performance-based pay will benefit the organization and create a better work environment.
3. Develop a communications strategy to help employees understand why the change is needed, how it is expected to benefit the organization, and what they can expect. Commit to seeking ongoing employee input and emphasize the goal of fairness.
4. Assess the current pay system for executives and managers. If an effective linkage between pay and performance does not exist, start at that level. It is always easier to assess performance against measurable results, and this will help to confirm the intent in changing the policy.
5. Assess the current organizational performance planning process to determine whether the mission and goals can be translated into job-related expectations for individual performance planning.
6. Analyze available performance-rating data for evidence of inflation and bias across departments. If there are pockets where it is clear that managers are not making reasonable rating decisions, that needs to be addressed.
7. Create a task force of managers and respected employees to plan and oversee the implementation of the change in policy. It may make sense to assign one or more people full time to the planning. In larger organizations, it is advantageous to create a project management office.
8. Assess the current pay and performance systems through a series of focus groups, including separate groups of managers and employees. The goal is to identify and confirm problems and to give participants the background on what is planned.
9. Assess the culture to identify ways to strengthen and reinforce the commitment to performance. This can also be accomplished in focus groups. There are likely to be differences across departments. Those differences should be discussed and possibly accommodated in planning the new system.
10. Conduct a labor market analysis to determine whether pay levels are generally competitive. If wage and salary levels are too far below market levels, switching to pay for performance may not be feasible.
11. Make a commitment to train both managers and employees on performance management, and allow a period for them to practice and become comfortable with the new practices before tying ratings to pay increases.
12. Consider running the new systems and practices alongside current pay and performance policies as a trial. This will allow employees to understand how pay for performance will affect them and to take the steps necessary to satisfy new expectations.
13. Include a grievance procedure.

Copyright 2007 ICMA. Excerpted from Pay for Performance: The Road to Success IQ Report Online, published by ICMA. To download the full report, go to icma.org/payforperformance.

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