Raises are not an entitlement

Officials say fed pay must be merit-based

Union leaders who are critical of proposals to scrap the General Schedule pay system for federal employees say that alternatives have produced negligible benefits. But Bush administration officials who favor more flexibility say the schedule, with its automatic pay raises, is outmoded and sends the wrong message.

Testifying at a recent Senate hearing, Dan Blair, deputy director of the Office of Personnel Management, described a dysfunctional federal pay system that does not reward hard work and productivity. "When you give poor performers and high performers the same pay raise, what message does that send?" he asked.

But Blair said most federal agencies are unprepared for alternative pay systems based entirely on merit. Managers and supervisors are not ready because they are unaccustomed to conducting meaningful appraisals of employee performance, he said.

"What we've heard from the field is…'My manager's a bonehead. What am I supposed to do when that manager is in charge of my pay?' It's a legitimate question," Blair said.

Officials who testified at the Sept. 27 hearing said OPM's performance would be critical to the success of the federal government's attempt to overhaul its 50-year-old pay system.

Under draft legislation proposed by the Bush administration, known as the Working for America Act, agencies could not introduce pay-for-performance systems until OPM certifies those systems according to nine criteria.

Comptroller General David Walker said he had reservations about whether OPM had "adequate capacity and the skills and knowledge to deal with a significant volume of such certifications." But Blair defended OPM's ability to handle the new workload, adding that it has made progress in preparing agencies for the changes that he thinks are necessary.

"Using the President's Management Agenda score card, we have set goals for agencies to demonstrate they are ready to move to systems where pay is more directly linked to performance," Blair said.

Agencies pay about 90,000 federal employees based on systems created as alternatives to the General Schedule. In the Civil Service Reform Act of 1978, lawmakers gave federal agencies authority to create alternatives for groups of no more than 5,000 employees.

Several agencies, including the Government Accountability Office, have demonstrated successful alternative systems, according to agency leaders.

"These organizations recognize that pay increases are no longer an entitlement but should be based on employees' contributions to the organization's mission and goals," Walker said.

The Federal Deposit Insurance Corp. operates under a pay-for-performance system that includes unionized employees.

"There's no question we are doing much more work with fewer resources," said Arleas Upton Kea, director of administration at FDIC.

She added that "the pay-for-performance system provides some sense of motivation and encouragement."

Affirmative testimony about opting out of the General Schedule also came from Hratch Semerjian, deputy director of the National Institute of Standards and Technology, which has 2,500 employees working under an alternative pay system.

"Evaluations and feedback from managers and employees show that these changes have significantly improved NIST's ability to recruit and retain high-quality staff," he said.

NIST uses the results of employee performance appraisals to grant pay increases and bonuses based on merit and geographic location. Designated pay pool managers are in charge of managing their groups' pay increases and bonuses.

On Oct. 1, NIST began using an employee rating system with six levels. It stopped using a 100-point rating scale that proved too complicated, Semerjian said.

Despite such testimony, leaders of federal employee unions remain skeptical about eliminating the General Schedule. Colleen Kelley, president of the National Treasury Employees Union, testified at the hearing that alternative personnel systems "have a very small, if not negligible, impact on recruiting, retaining and maximizing the performance of federal employees."

Most federal agencies have a leadership deficit, Kelley said. "Rules and systems don't motivate people," she said. "Leaders do."

She added that federal pay-for-performance systems are administratively burdensome and result in employees competing against one another for small amounts of money.

On that point, Blair agreed with Kelley. Agencies have created alternatives to the 15-grade General Schedule with the same level of appropriations — about $108 billion — they received to pay employees under the old system. The difference, he said, is in how it is distributed.

But over time, distribution based on performance can produce significant differences in pay, as it should, Blair said. At the Naval Air Warfare Center Weapons Division at China Lake, Calif., which developed the first alternative federal pay system, the pay gap between the best and worst performers who held the same type of job grew to 40 percent after 10 years, he said.

Payday a whole new way

In making the case for alternatives to the General Schedule pay system for federal employees, senior agency officials at a recent Senate hearing testified that alternative pay systems work. In his testimony, Dan Blair, deputy director of the Office of Personnel Management, said agencies that have experimented with alternative systems have found that:

  • High performers can earn annual pay increases of as much as 20 percent.
  • Agencies can implement the new pay systems within their existing budgets.
  • The systems significantly reduce turnover among high performers.

— Florence Olsen

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