Alternative pay systems. For many top-level appointees in the current administration, the phrase has a certain curb appeal. The president has been pushing alternative pay systems, also known by their alias—pay-for-performance systems—since the day he walked into the White House. And he apparently intends to pursue them until the day he walks out.

Just last month, in his 2009 budget proposal to Congress, he reaffirmed his commitment to “replace the General Schedule pay system with a modern classification, pay, and performance management system.”

In its years of experience with alternative pay systems, NTEU has found one constant—inevitably, they generate grievances, arbitrations, litigation, high attrition rates and rock-bottom employee morale. Much of that is caused by the fact that such systems are not fair, maintain virtually no credibility with employees, and are anything but transparent.

This is a message NTEU President Colleen M. Kelley delivers regularly to agency leaders, lawmakers on Capitol Hill and in interviews with media outlets.

“The problems may differ from agency to agency,” she said, “but the reality is that each of these programs is terribly flawed.”

NTEU Exposes Alternative Pay System Problems
When NTEU pulls back the curtain and take a good look at alternative pay systems already in place as well as proposed systems, their multiple flaws become apparent.
Flaws like:
• Subjective performance criteria that leave employees substantially in the dark about what they have to do to earn higher pay;
• Managers poorly trained in making meaningful distinctions in performance between and among those they supervise;
• Arbitrary quotas demanding placement of a specific percentage of employees, and no more, in each tier of performance rankings, often forcing equally high performers into a lower level;
• No meaningful way for employees to question a management performance and rating decision;
• Not nearly enough funding to make any such system work;
• Favoritism, cronyism and discrimination in implementation; and
• No capability for rewarding team performance, thus driving a wedge among those on workplace teams.

The NTEU Experience
NTEU’s concerns about these alternative pay systems aren't based on theory; instead, they are grounded in the union’s experiences with them at one agency after another. Look at these examples:

• At the Transportation Security Administration, the merit pay system is both widely-despised and distrusted by employees, and has done nothing to stem the agency’s outrageously high attrition rate—at 16.5 percent it is by far the highest governmentwide;

• The Internal Revenue Service covers only managers with its system, but has discovered that managers dislike it—a lot. Not only that, the agency’s inspector general found the system contains serious deficiencies and suggested it is hindering the IRS’s ability to recruit, retain and motivate skilled leaders, which will impact its ability to serve taxpayers. With 66 percent of executives and 50 percent of senior managers eligible to retire by 2010 this could seriously disadvantage the agency;

• An NTEU grievance at the Bureau of Alcohol, Tobacco, Firearms and Explosives forced that agency to reverse its unilateral decision to direct half the performance pay into a lump-sum payment rather than into base pay, which is more favorable for employees. The agency action violated an NTEU agreement; and

• There is the Department of Homeland Security. This agency wants desperately to move to a performance management system but NTEU has managed to nearly zero out its funding; according to recent media reports, DHS would still like to move ahead in 2009.

System Failure
Two agencies—the Securities and Exchange Commission (SEC) and the Federal Deposit Insurance Corporation (FDIC)—had merit pay systems that were clearly flawed. At the SEC, an arbitrator agreed with NTEU that implementation of its system had illegal discriminatory age and race impacts. NTEU had warned the SEC that would be the result, but the agency went ahead anyhow. That first arbitration decision covered NTEU’s initial grievance; the union has four additional grievances pending for subsequent years.

At a recent congressional hearing, an independent expert testified that such discrimination doesn’t even have to be intentional; often, he said, it is built into the system.

In mid-February, and as NTEU had urged, SEC temporarily separated that system from its performance management system while it revamps the latter program. The immediate impact is to provide all employees who have an ‘acceptable’ performance rating with an ‘equivalent share’ of the available merit pay funds.

Meanwhile, at the FDIC, an employee survey found that a mere 12 percent of agency employees believed the merit pay system accurately reflected their performance. Again, acting at NTEU’s urging, FDIC suspended that system while the parties review options for a new one. In its place for 2007, employees will get an across-the-board basic pay raise as well as a percentage of basic pay in a lump-sum payment.

What Does Work
NTEU is not opposed to performance-based systems and President Kelley is quick to point out that there is one in our midst—the General Schedule—which is far better than any alternative pay system being proposed or tried in federal workplaces today.
The GS has some market-based elements, rewarding people for the successful performance of their work and achieving results. The GS system is not perfect but it provides pay raises based on merit and, most importantly, it is clear in its expectations. Under it, federal employees know what their work expectations are, and what they must do to succeed. This pay system has worked successfully for many years, and as President Kelley points out, there is no hard evidence that it needs to be changed.

Where there may be shortcomings to considerations of merit in the GS system, these can be tied back to the failure of agencies to properly utilize its performance management features. There are a number of awards managers can use as incentives to employees and to reward excellent work but agencies simply fail to make full use of them. They include cash awards to individuals and groups, quality step increases, retention allowances, foreign language awards, travel incentives and referral bonuses.

“Before we spend more taxpayers’ money designing entirely new compensations systems, agencies must be made aware of these existing flexibilities and given the tools and resources to use them,” President Kelley said.

Sidebar: Robbing Mary to Pay Peter and Paul
As chairman of a key House subcommittee, Rep. Danny K. Davis (D-Ill.) is a major player in matters impacting federal employees—and he is growing increasingly skeptical about alternative pay plans.

In February, the six-term House member, who chairs the Oversight and Government Reform Subcommittee on the Federal Workforce, held a hearing on alternative pay plans—his third hearing in this Congress on federal pay and personnel issues. He titled it: “Robbing Mary to Pay Peter and Paul: The Administration’s Pay-for-Performance System.”

Rep. Davis described the administration’s approach essentially as playing one employee off another, juggling available funds on the basis of subjective judgments about who was deemed to be a slightly better performer. And he clearly said, “If these systems are not fair and equitable, transparent and credible, and do not have the buy-in of federal employees, I do not believe they have a place in the federal government.”

He added that the “implementation of these systems must be evaluated with the same intensity that the Bush administration, and other pay-for-performance proponents, advocated that these systems be implemented.”

“Rep. Davis stands out among lawmakers with his interest and concern that federal employees be treated with dignity, respect and fairness,” said President Kelley, who testified at that hearing. “I am grateful for his continuing interest in ensuring equitable and transparent pay and personnel policies for the entire federal workforce.”