Pay-for-Performance System in the Department of Defense: A Case Study of the National Security Personnel System

The National Security Personnel System was authorized at the request of Department of Defense (DOD), which complained of inflexibilities in the traditional federal General Schedule system, established under the classification Act of 1949. The department claimed that the traditional system was cumbersome even during normal peacetime operations; during wartime, when the system faced additional stresses, it was more problematic. Some of DOD’s concerns with the General Schedule system were also shared by other government agencies and officials who perceived that the system was defining jobs too narrowly and prescribing too many procedures for filling those jobs, limiting the ability of the federal government to compete for and/or retain the best workers (Sunshine 2008, 1). The National Defense Authorization Act (NDAA) for Fiscal Year 2004 granted the Department of Defense the authority to develop the National Security Personnel System (NSPS), which was intended to strengthen the work performance of its government employees. From its inception, NSPS was criticized and faced challenges from unions and employees regarding several issues, including inconsistent application of the system, pay inequities, and a lack of stakeholder involvement. In light of these concerns and challenges facing NSPS, the NDAA for FY 2010 contained provisions to terminate the system. The act also provided direction to DOD and the Office of Personnel Management (OPM) to establish regulations providing for, among other things (1) a “fair, credible, and transparent” performance appraisal system that links employees to bonuses and other performance-based actions to performance appraisals, (2) a process of ensuring ongoing feedback and dialogue, and (3) development of a plan designed to give employees training, counseling, mentoring, and other assistance (U.S. Government Accountability Office 2011). DOD’s struggled to accurately address the employee performance rating process, which proved to be detrimental to the overall success of the National Security Personnel System. Fundamentally, DOD appears to have fallen short in applying critical thought and time needed to meet the complexity of developing a process that influences human behavior in such a way that fosters performance improvement in achieving organizational goals. DOD’s short sided attempt failed to ensure that employees clearly understood the performance-rating process as well as promote employee trust and confidence in its personnel management system. The purpose of this study is to explore the Department of Defense\u27s pay-for-performance system and the lessons learned in attempting to increase civilian employee performance without implementing effective changes to its personnel management system. This case study makes use of numerous documents, archival information, and academic literature to provide a descriptive assessment of the perception and controversy involving performance-based pay in the Department of Defense. This study concludes that pay-for-performance is a complex issue that requires a system, which supports the effective communication between managers and employees in its processes and points out a topic of a wicked problem for future public administration research