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  Daily Briefing  
       July 14, 1998

     Congress creates performance-based organization

     By Brian Friel

After two years of failed attempts to transform several federal agencies into performance-based organizations, Congress has approved a plan to turn the Education Department's student financial aid office into a PBO.

On Thursday the Senate passed the Higher Education Amendments of 1998, which includes the PBO provision. The House passed the bill in May.

Under the legislation, in return for a shot at substantial bonuses, senior executives in charge of student aid would commit to annual performance goals. The executives would also be given wide-ranging management flexibilities. The top executive--the chief operating officer--would be eligible for bonuses of up to 50 percent of annual salary.

"This performance-based organization will, I believe, ensure the Secretary of Education can recruit the best people for this job and retain them based on their performance," said Sen. Christopher Dodd, D-Conn.

In a June 5 letter to Senate Minority Leader Tom Daschle, D-S.D., Education Secretary Richard Riley said the administration supports the PBO proposal.

Under the measure, the chief operating officer would have to show "demonstrated ability in management and experience in information technology or financial services." The COO would enter into an annual performance agreement with the Education Secretary. The COO would be paid on the Senior Executive Service pay schedule, but with bonuses could make up to the president's annual salary of $200,000.

"For the first time, the day-to-day management of the student aid programs will be in the hands of someone with real-world experience in financial services," said Rep. Howard McKeon, R-Calif., head of the House subcommittee on postsecondary education.

Other senior managers would also have to agree to annual performance plans. Their salary and bonuses would be limited to 125 percent of the maximum Senior Executive Service pay rate.

The bill bestows personnel and procurement flexibilities on the student aid office, allowing executives to experiment with new management techniques.

Vice President Gore originally touted performance-based organizations in a March 1996 speech. The idea of the PBOs, based on a British government model, is to separate policy-making functions from program operations. PBO candidates typically deliver a tangible service or product to the public, which makes setting performance goals easier than for agencies with regulatory or policy functions.

The Clinton Administration has formally proposed four PBO candidates: The Patent and Trademark Office, Defense Commissary Agency, St. Lawrence Seaway Development Corp. and air traffic services at the Federal Aviation Administration. Congress has yet to approve any of the administration's proposals.

House staffers proposed creating the PBO at Education. Administration officials originally approached the idea with hesitation.

The bill now goes to conference so that House and Senate negotiators can reconcile differences in their versions.

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