Arbitrator finds SEC pay system discriminatory

The government’s effort to deploy pay-for-performance systems suffered a setback Sept. 4 when an arbitrator ruled that the Securities and Exchange Commission discriminated against certain groups of SEC employees in awarding merit pay.

In his ruling, arbitrator James Harkness determined that African-American employees above Grade 8 and employees age 40 and older received significantly fewer pay increases than would be expected under SEC’s performance management system, given their representation in the pool of eligible employees.

“This decision should serve as yet another warning against rushing to implement pay-for-performance systems in the federal workplace,” said Colleen Kelley, president of the National Treasury Employees Union, which filed a grievance with SEC in January 2004 over its system. NTEU represents about 2,200 SEC employees.

SEC began to implement its performance-based system in 2003 after Congress authorized the agency to pay its employees at higher levels of compensation, consistent with merit-pay principles. The agency used a set of “success factors” to determine whether an employee would receive an increase in pay and what the higher rate would be.

In its grievance, NTEU alleged that SEC’s management relied on subjective factors in determining pay increases and failed to include objective factors, such as work product. SEC responded that the system provided “for a consistent process for making merit-pay decisions and requires three levels of review.”

In his ruling, Harkness agreed that SEC’s pay system is a “subjective and discretionary employment policy or practice.”

Harkness based his findings of racial and age discrimination on a statistical analysis furnished by NTEU, concluding that the figures demonstrated a statistically significant disparity in awards of merit pay for employees in those groups.

The arbitrator ordered SEC and NTEU to submit briefs on an appropriate remedy within 60 days.

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