NCUA and Pay for Performance: IG Report Failed to Provide Necessary, Complete Evaluation and Analysis of NCUA’s PfP Program; PfP Can Be Barrier to Equal Opportunity

The report to Congress (OIG-14-09, issued November 26, 2014) prepared by the Inspector General (IG) of the National Credit Union Administration (NCUA) showed generally that the NCUA was open to investigating potential problems relating to diversity and inclusion issues of its employee rating program (a pay-for-performance-based program). However, the report did not present the structure and rating effect of its pay-for-performance program.

Given this blog’s various postings on pay-for-performance-based evaluation systems, this lack of information is potentially troubling. Pay-for-performance systems can themselves be barriers to equal opportunity. As a result, the pay-for-performance programs cannot be presumed to be without fault. The NCUA’s pay-for-performance program, in totality (structure, operation, and results), should also be audited. In addition, Congress should monitor these agency programs closely as they can interfere with or obstruct goals of diversity and inclusion.

The IG noted on page 16, third full paragraph, second sentence, of the report that management told them that “Employees leave for various personal reasons, including, travel, job fit, and performance.” It is the last word of the sentence that caused me to want more information of the NCUA program. Did the employee leave because of low ratings or did the pay-for-performance program encourage resignations because of the results of the low rating.

There seems to be significant churn in the lower-graded examiners (page 16, third full paragraph), with managers tending to give these entry level workers lower ratings for “lack of demonstrated advanced knowledge, skill, and independence.” But do low ratings encourage improvement or encourage disappointment and departures? If the latter, do people in the lower grades actually advance to higher-graded positions, or do those in higher grades protect their positions by unfairly down rating their subordinates?

Without an examination of the NCUA’s pay-for-performance program, it is hard to evaluate the effect on equal opportunity and achievement of diversity in senior management. The conclusion suggested from the information provided on page 16 is that NCUA has a form of forced distribution rating system (also known as rank and yank, up or out, and so on), with the possible exception that those assigned to the lower ratings are denied pay increases or other benefits rather than being fired. But NCUA must provide more details for a firm determination of what its pay-for-performance program does.

[Postscript: NCUA would be well advised to review the research and ill results of forced distribution systems (for example, at Microsoft and Yahoo Inc.). Also, potential employees should consider, overall, the employee reviews of their employers at websites such as (for example, NCUA and the Federal Reserve Board).]