SEC case proves merit pay is hard

Arbitrator identifies subjective practices in SEC’s merit compensation system

Sometimes the devil is in the details. That’s the case with the Securities and Exchange Commission’s pay-for-performance system, which suffered a setback Sept. 4 when an arbitrator ruled that the agency discriminated against black employees and older workers in awarding merit pay.In his ruling, arbitrator James Harkness called SEC’s pay system a “subjective and discretionary employment policy or practice.”Harkness’ 102-page decision provides a detailed narrative of the daunting complexities involved in implementing aperformance-based pay system, even when a labor union is involved in negotiating its terms. It illustrates the challenges of developing performance measures that are fair and objective.SEC began to build a performance-based pay system in 2002 after Congress authorized the agency to pay its employees — many of them skilled attorneys and analysts — at higher levels of compensation, consistent with merit pay principles.But negotiations over compensation issues between SEC officials and representatives of the National Treasury Employees Union soon broke down. NTEU, which represents about 2,200 SEC employees, then turned to the Federal Service Impasse Panel (FSIP) to resolve the stalemate.In November 2002, the impasse panel issued a binding order requiring SEC and NTEU to adopt a system of merit pay increases based on standardized performance measures developed and tailored for each office and division within the agency.A group of 12 senior managers in each of SEC’s major divisions and offices began to develop a set of performance measures under the FSIP order. They decided to base the system on generic performance measures, or success factors, that would fit employees in all divisions and offices. The managers selected four performance measures for determining whether an employee deserved a merit pay increase: achieves SEC objectives, presents information, analysis and evaluation, and collaborates with others. Each measure had multiple submeasures.In early 2004, NTEU filed a grievance, which states that SEC management “improperly relied on subjective factors” in determining merit pay increases.SEC responded that the system provided a consistent process for making merit pay decisions, noting that it required three levels of review. SEC denied the grievance, and the case was sent to the arbitrator.In his finding that SEC’s pay system is discriminatory, Harkness cited a statistical analysis furnished by NTEU that showed black employees above Grade 8 and employees age 40 and older are adversely affected. Those employees received significantly fewer pay increases than other employees, given their representation in the pool of eligible employees, he said.“The arbitrator’s factual findings fully demonstrate that the agency’s merit pay system is a subjective and discretionary employment practice or policy,” Harkness said.NTEU “warned the SEC that employees would not know how to satisfy these vague standards, that arbitrary treatment would occur and that grievances would undoubtedly follow,” said Colleen Kelley, NTEU’s national president.The arbitrator ordered SEC and NTEU to submit briefs on an appropriate remedy within 60 days.

The roots of SEC’s pay system

The Securities and Exchange Commission’s pay-for-performance system had its origins in a 2001 Government Accountability Office report on employee turnover at SEC.

GAO’s auditors reported that SEC wasn’t fulfilling its mission because of high turnover among its attorneys, accountants and examiners. The primary reason was low pay compared with similar positions in the private sector and at other federal regulatory agencies.

Congress responded by enacting the Investors and Capital Markets Fee Relief Act of 2002, also known as the Pay Parity Act. The law authorized SEC to pay its employees at higher, market rates and establish a performance-based pay system.

- Richard W. Walker

NTEU “warned the SEC that employees would not know how to satisfy these vague standards.” Colleen Kelley, National Treasury Employees Union

Stan Barouh


























X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.