Report - Government Executive

APPENDIX G
APPENDIX G
MITRE’S PERFORMANCE-BASED COMPENSATION SYSTEM
An Example of Equitable Treatment 2
Since 1996, MITRE has used a merit-based compensation system that ties individual
performance to pay. The system is viewed as a success for the following reasons:
• Since the system was implemented, MITRE has scored in the top 25 percent of
Fortune 500 companies on a survey that asks employees if they are paid fairly; and
• MITRE’s attrition rate is very low. 3
“Near Broad Bands.” MITRE groups its employees into six basic job levels, similar to pay
bands, with each job level having a 100 percent spread from top to bottom. Pay bands have four
quartiles, or “sections.” Movement within the bands is based on performance, but MITRE’s
system does not rely on the principle of moving most employees toward the middle of the band.
Rather, pay corresponds to the employee’s value to the organization and how rapidly employees
are building capabilities to better serve the organization.
Rating Process. MITRE rates its employees on a three-level scale. Top performers are rated at
Level 1; successful performers are rated at Level 2; and employees who need improvement are
rated at Level 3. Within this three-level rating scale, most employees are rated at Level 2, with
the possibility of “refining” the rating, e.g., 2+ or 2-. Like DCIPS, individual employee
objectives are set at the beginning of the year so that employees know what is expected of them.
When ratings are completed at the end of the year, a group of managers across the organization
come together to normalize the ratings and identify the top 10 percent of performers, as well as
the next top 10 percent, so that the top 20 percent are agreed upon by all senior managers. It is
agreed by managers, and understood by all employees, that this top 20 percent of performers will
receive noticeably higher pay increases.
Salary Review/Merit Increase. At MITRE, as is true under DCIPS, the performance rating
process is completed before payouts are considered. After the ratings are finalized, managers use
the “Merit Matrix” to guide the decision-making process to determine merit increases. The
Matrix lists a range of percentages for each section (quartile) of the band to be used as a
guideline. The Matrix promotes the concept that larger pay increases should be given to the best
performers, but payouts are funded at higher levels for employees who are “low to market.” This
means that the budget is larger to fund pay increases for those employees who are new to the
organization and who are more likely to be recruited by other organizations. Transparency is a
key feature of the system, and the employee’s “personal budget” and the Merit Matrix are
2
MITRE Information Infrastructure.
3 As reported in an interview with MITRE’s compensation expert.
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