01-08-1990 Council Packet - Laserfiche WebLink

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MANAGEMENT ^-nrAQ-MeioT abe Ruth understood pay for performance. In I W 1929, when someone pointed out that he was being paid twice as much money as President I ■ Hoover, the Babe's response was succinct: "I ^ had a better year than he did." It might be going a little far to describe Barry Stevens, a soft-spoken financial manager in Lansing, Michigan, as the Babe Ruth cf state government. But if it turns out that Michigan’s pension fund performed well enough during fiscal 1989, Stevens will earn $130,000. That is twice his regular pay. It is also $50,000 more than the salary of the man who hired him. state Treasurer Robert Bowman, and $24,000 more than the salar>’ of the governor. James J. Blanchard, who has not had nearly as bad a year as Hoover did in 1929. Stevens’ superiors hope he does well enough to claim the money "If he outperforms the averages, he’s earned it. ” says Bowman, who initiated the pay-for-performance system under which Stevens and 44 other professionals who manage the $18 billion fund operate. Under that system, the standards by which the fund and its managei^ will be measured are agreed upon before the fiscal year begins. The better it does, the better they do. Bowman decided to tr> this scheme after he arrived in state government nearly seven years ago from an invest ment banking job at Goldman. Sachs, and found himself without enough opportunities to encourage outstanding work. “You can only give out so many framed awards. ” Bowman says. There is no sure way to tell whether the Bowman bonus plan has improved the performance of Michigan’s pension system, but it does satisfy another important goal of his—it keeps valued employees in place. Before the plan was in effect, says Stevens, “we were losing people, not to Sew York, Los .Angeles or San Francisco but to regional banks. We needed r get more competitive." Since it was implemented in 1987, only one person has left the financial managers’ group. She was not lost to private industry but to motherhood. To ensure such stability Bowman built “golden hand cuffs" into his pay-for-performance plan. If Stevens earns his $65,000 bonus this year, he will see only half of it in ready cash. The other half will be paid out to him in equal quarterly installments over the ne.xt four years. But if he leaves, he forfeits the e.xtra money. Barry Stevens is an atypical state employee in that his performance is easily measured in hard numbers that nobody can really argue about. Even the most passionate advocates of the pay-for-performance approach do not claim that a similarly precise standard can be applied to more than a small number of government employees. I '.at absence of precision inevitably raises the specter of favoritism, which is the single biggest obstacle to an effective pay-for-perioimance system. Many pubUc man agers are nonetheless convinced that such a system is worth trying, even in jobs where measurement is bound to be subjective, and in a number of different places they are developing techniques for dealing with the favoritism issue. The managers who are turning to pay for performance Sugarplums & Lumps Of Coal Giving big raises to some employees and small ones to others isn’t easy. But it may be the only way to keep your best people. Some managers know how to do it. By Elder Witt are doing so because they want a true merit system in which an employee’s compensation reflects his productiv ity', not his longevity. They feel increasingly confined by so-called merit pay systems, most cf which deteriorate into automatic annual step-and-grade increases for every em ployee. regardless of performance level. ■’The system has bwn stood on its head, ” says Charles .\anry. New Jersey’s acting personnel commissioner, “so that not to give an increment is a punishment, but the increment itself is not a reward, it s expected. That is not merit unless you consider meritorious the fact that you’ve lived for another year.” •. Pay for performance is ~ not a new idea for the public sector. It has been dis cussed. defended and criticized for the past de cade. Those who do not like it contin-