After reading the case, answer the following three questions

1. What dynamics at the IRS and VA may have contributed to actions employee took to earn a bonus?

2. What recommendations would you have for using incentive programs at these agencies in the future?

3. If you were able to vote on this pay package ("say on pay"), how would you vote and why?

61. Don Nemerov, "Are Performance 65. Gretchen Gavett, "CEOs Get Paid 23, 2014, p. A4; Dustin Racioppi, Based ITI Plans Effective?" Work- Too Much, According to Pretty Much "Report: VA Gave $100M in span, June 2012, pp. 32-38. Everyone in the World," HER Blog Bonuses as Vets Awaited Care," 62. Knowledge@Wharton, "The End to Network, September 23, 2014, http:/ USA Today, June 11, 2014; Keith Exorbitant CEO Exit Packages? Don't blogs.hbr.org/2014/09/ceos-get-paid- Rogers and Steve Tetreault, "VA Hold Your Breath," July 18, 2012, too-much-according-to-pretty-much- Hospital Director Gets Bonus http://knowledge.wharton.upenn.edu/ everyone-in-the-world! despite Problems," Las Vegas article the-end-of-exorbitant-ceo-exit- 66. Lee Dunham and Ken Washer, "The Review-Journal, July 7. 2014; Pete packages-dont-hold-your-breath. Ethics of Hedging by Executives," Kasperowicz, "VA Officials Will 63. Kate Linebaugh and Joann Lublin, Journal of Business Ethics 111, no. 2 Get Millions of Dollars in Bonuses "For Retired GE Executive, $89,000 (December 2012), 1547-1164. under House-Senate Agreement," a Month Not to Work," Wall Street 67. Kevin Hallock, "CEO Pay and Blaze, July 29, 2014; Mary Shinn, Journal, August 2, 2012, p. Al. Layoffs," Workspan, June 2013, Daniel Moore, and Steven Rich, 64. Christina Rexrode, "Payouts for pp- 12-13. "Despite Backlogs, VA Disability Government Job Takers under Fire," 68. Based on John Mckinnon, "Penal- Claims Processors Get Bonuses," Wall Street Journal, November 20, ized IRS Workers Were Awarded Washington Post, August 2014, p. C3. Bonuses," Wall Street Journal, April 25, 2013.CASE Want to Earn a Bonus? Work for Uncle Sam There is generally much criticism when it comes was delayed. To encourage higher productivity, the to compensating executives employed in for-profit VA management team changed performance targets business. But federal employees in a number of for claims processors between 2010 and 2012. VA agencies also reaped generous incentive pay despite claims processors would be rewarded for processing subpar performance, including when they made a high volume of claims. Difficult, complicated cases decisions contrary to their agency's mission and were set aside because they were time-consuming values. to process and would result in no bonus for the The Internal Revenue Service (IRS) handed out processor. The incentive system worked, but at nearly $3 million in performance bonuses to 2,800 what cost? employees who had recently been disciplined. The Incentives were not limited to claims proces- employees had committed a wide range of infrac- sors. Executives at the VA earned performance bo- tions, including fraud, failure to pay taxes, and muses as well-totaling $2.7 million. Allegations misuse of government travel cards. Some of the of misrepresenting patient wait times to make it employees had been disciplined with reprimands, appear that services were provided on a timely ba- suspension, and even termination. However, the IRS sis have spread throughout the VA system. Perfor- generally doesn't take into account such conduct is- mance bonuses were paid to VA hospitals that had sues when determining bonuses. IRS employees who low backlogs for treatment. In an effort to earn the are represented by a labor union are not prevented incentives, some employees were directed not to put from receiving a performance bonus even if they are veterans on wait lists, making it appear that wait subject to disciplinary action. times were short. The situation at the Veterans Administration Federal officials took the agency's leadership to was even more outrageous. Nearly $300 million in task and noted that there was an extreme reluctance annual bonuses were distributed at this provider of to hold employees and executives accountable. Deci- health care to American military veterans. A scandal sions made by many of these managers caused harm erupted when it was discovered that to meet agency to veterans seeking health care. After a unanimous performance metrics, treatment for many veterans vote to eliminate all bonuses, lawmakers reversedthemselves a few months later in 2014 when they 2. What recommendations would you have for us- reinstated the bonus program but capped it at $360 ing incentive programs at these agencies in the million per year future? 3. If you were able to vote on this pay package QUESTIONS ("say on pay"), how would you vote and why? 1. What dynamics at the IRS and VA may have contributed to actions employee took to earn a bonus