Unshackled

hen President Bush unveiled his plans for a new Homeland Security Department in June, he made an unusual move: He put civil service issues front and center. Bush asked Congress to let him replace the 2,000 pages of personnel rules covering employees slated to move to the new department with a new system defined in just 13 words: "flexible, contemporary and grounded in the public employment principles of merit and fitness." In other words: Leave the details to me.

The Republican-controlled House of Representatives quickly gave Bush much of what he was looking for, while keeping in place some restrictions on the power of executive branch politicians over career employees.

But in the Democratic-controlled Senate, debate over the new department ground to a halt in October over the issue of workers' rights, including Bush's desire to overhaul the personnel system. Still, while Democrats refused to give the president free rein, they showed a willingness to bend in his direction as long as collective bargaining rights were up-held. That's a strong indication that wide-ranging reforms eventually will be extended to the Homeland Security Department-and to other departments as well in the coming years.

In all likelihood, Bush kicked off the most far-reaching reform of the federal civil service in more than a century by declaring that with its current personnel system, the government can't win the war on terrorism.

If Bush and reform-minded members of Congress have their way, federal managers and political appointees will have more say over how they hire, oversee, evaluate, pay, promote, discipline, reward and fire workers than they have had since the mid-20th century, when the basic structure of the modern civil service was established in the 1949 Classification Act. Congress is poised to wipe out many of the limits on executive branch personnel management that have crept into statute since the 1883 Pendleton Act first laid out the basic principles of a merit-based civil service.

Once Congress eases civil service restrictions in the law, it will be up to the Bush administration and career executives to design a "flexible and contemporary" personnel system. Though those adjectives are vague, the outlines and even the details of the new civil service have been in the works for more than two decades. They have been tested in pockets of the federal government granted freedom from civil service law, including Defense Department research and development laboratories, the Commerce Department, financial regulatory agencies, the Federal Aviation Administration and the Internal Revenue Service. The CIA and the National Imagery and Mapping Agency have also tested alternatives to the standard civil service system.

The details of the new system will only become clear over time. But some basic changes are all but certain. The new civil service system will have at its base a new pay and classification structure that gives managers more power over employees, a new hiring system that gives managers more candidates to choose from, and a new performance management system intended to better reward top employees and more easily weed out poor performers.

Whether the new civil service will work as its proponents intend is not certain at all, as the past two decades demonstrate.

THE BASIS FOR REFORM

In 1883, Sen. George Pendleton, D-Ohio, sponsored landmark legislation to overhaul the federal civil service. The Pendleton Act marked the beginning of the end of the spoils system by mandating that federal workers be chosen for their qualifications and retained for their competence. The law was passed in response to a latent decade-long reform movement that moved to the forefront of national debate when President James Garfield was assassinated by a frustrated job seeker 200 days into his presidency.

For the next hundred years, Congress increasingly restricted the executive branch's power to manage personnel, adding layers of rules to make sure that competence and fairness prevailed. In 1978, Congress passed the Civil Service Reform Act, which let small pockets of the government test alternative approaches to personnel management. But the law also put constraints on managers by creating the Merit Systems Protection Board to hear employee appeals of personnel actions and by requiring agencies to bargain with labor unions over some workplace issues.

This year, another Ohio senator, Republican George Voinovich, has pushed legislation that would move beyond such tinkering to a thorough overhaul of the civil service. Voinovich doesn't want to return to a spoils system, but he wants to end a system he views as focused more on filling out paperwork than on attracting, motivating and keeping good employees. Additional parallels to 1883 are noteworthy. Voinovich has become the legislative champion of a latent civil service reform movement that has lurked in think tanks, academia and public administration circles. That reform movement is coming to the fore in the opening created by the Sept. 11 terrorist attacks, which happened just a little more than 200 days into Bush's tenure.

"Suddenly, in the context of this homeland security debate, civil service reform is the issue du jour," Voinovich said on the Senate floor in November. "It is an issue which for years has not been substantively addressed except when agencies become dysfunctional. It is now front and center in the consideration of the most important government reorganization to take place in our nation in half a century. It is about time. In the debate over homeland security, we have backed into this personnel issue that has demanded attention for so many years."

Voinovich echoed the sentiments of administration officials who have argued that civil service reform is essential to ensure that the president can move people around effectively to fight the war on terrorism. Several officials and lawmakers said during the debate this summer that, with current civil service rules, a Border Patrol agent caught drunk on the job could not be fired for at least 30 days-and perhaps as many as 540. They said that with current rules it takes five months to hire employees.

Those charges were exaggerated. For example, while federal employees' appeal rights require written notice of a firing, managers can take someone off the job if he or she is drunk. And many agencies using current civil service rules hire employees in well under five months.

But just as in 1883, reformers today understand the need to capitalize on a crisis to get action.

And certainly many federal managers and employees welcome any effort to reduce the rules that bind them, hoping changes will make it easier for them to do their jobs. Other civil servants worry that eliminating rules will erode protections designed to prevent the reincarnation of the spoils system.

Recent experience with three of the reforms that are most likely to be adopted suggests that both groups have reason to believe they are right. These reforms have gained broad support among civil service reformers on Capitol Hill, in academia, and in the federal personnel world:

• Categorical ranking, which allows managers more latitude in hiring decisions, can make their jobs both easier and harder at the same time.
• Pay-banding compensation systems and simplified job classification make it easier for managers to move people around and set salaries, but can cost supervisors their staffs' trust and dilute employees' understanding of their jobs.
• Increasing managers' discretion to dismiss poor performers and reward strong ones provides them with a powerful motivational tool. But it also can cause angst in the workplace and increase claims of favoritism.

HIRING HURDLES

The federal law known as the "rule of three" requires federal managers to hire an employee from among the top three qualified applicants. The rule was designed to make sure that managers consider more than one person and that they base their hiring decisions on a candidate's technical qualifications.

In practice, the rule has several problems. First, when many applicants are highly qualified, human resources offices simply choose three names at random for consideration by the hiring manager. That keeps managers from reviewing the applications of other qualified candidates. Human resources specialists say assessment procedures are not precise enough to make a meaningful difference between, say, the third most-qualified candidate and the fourth most-qualified candidate.

Second, agencies tend to rate applicants against a single set of minimum qualifications. Additional rounds of ratings against more strict qualifications would yield a better set of candidates than simply identifying the top three candidates who meet the minimum requirements. Third, the rule of three falls apart when a manager is hiring many employees at once for the same jobs. Take the case of a manager who needs to hire 30 call center operators. The human resources office would generate a list of three candidates for the first vacancy, plus an additional name for each additional vacancy. That means the manager would have only 32 candidates to consider for 30 vacancies.

Voinovich and other reformers want Congress to do away with the rule of three and replace it with categorical ranking, a system tested at the Agriculture Department and the Internal Revenue Service. With categorical ranking, human resources offices place candidates in three to four categories-for example, "unqualified," "qualified," "highly qualified" and "most qualified." Managers work with human resources specialists to set the increasingly stringent qualifications that separate the levels.

The IRS has used categorical ranking to hire hundreds of revenue agents over the past two years. The ranking system, coupled with online recruiting and a new assessment tool, cut the agency's average hiring time from several months to less than six weeks. The IRS has hired 700 agents each year, all from the most qualified category, with the exception of agents in California, where the labor market is tight.

Several lessons came out of the Agriculture and IRS experiences:

• Categorical ranking is not a panacea. Agencies also need strong recruiting and effective assessment tools. Steve Nelson, former human resources chief at Agriculture's Forest Service, says appropriately setting qualifications for the different levels is a key to categorical ranking. "You need successive hurdles to distinguish between the good and the great," Nelson says. Under the rule of three, only two levels of qualification need to be set: qualified and unqualified. Categorical ranking requires extra upfront work for managers-and human resources helpers-to define the three to four different levels of qualification. It's sometimes not worth the effort, such as when there is only one vacancy. "We're not sure it's appropriate or necessary for all jobs," says IRS human resources chief Ronald Sanders.
• Veterans weren't hurt by categorical ranking, even though some veterans groups feared they would be. Veterans get extra points in the rating system with the rule of three. With categorical ranking, they are floated to the top of each category. The Forest Service saw a slight increase in the number of veterans it hired through categorical ranking. There was no change at the IRS.
• Categorical ranking makes it easier for managers to pick candidates they already know. With the rule of three, managers are restricted to choosing from among the candidates with the top ranking by the human resources office. But with categorical ranking, managers can pick other candidates, even if they don't get top scores, as long as they are qualified. Still, both the IRS and Agriculture found that diversity was either unaffected or increased with categorical ranking. And managers were happy. They said in surveys at Agriculture that categorical ranking provided a better pool of candidates than the rule of three did.

PEANUT BUTTER PAY

Tests of alternatives to the governmentwide General Schedule pay system, conducted over the past two decades, suggest several different outcomes are possible when federal workers are moved into pay-banding systems. With pay-banding, the 15 grades of the General Schedule are usually merged into four or five salary ranges. Within those ranges, managers typically have more freedom to set salaries than they do with the General Schedule, which limits managers to 10 salary options in each grade.

One possibility is the peanut butter spread, in which managers simply spread out raises evenly across their workforces to avoid demoralizing average employees, or to avoid making painful decisions about who should or shouldn't get raises. With the GS system, with its annual across-the-board increases and tenure-based automatic pay hikes (which are taken away from only the worst employees), federal managers generally follow that route.

But managers also used the peanut butter spread in the old Performance Management and Recognition System, which was a little like a pay-banding system in that it was designed to eliminate automatic increases for federal managers and let their bosses decide whether performance was good enough to merit a raise. "One of the problems was that supervisors who tried to honestly rate subordinate managers caused these managers to earn less money than managers working for supervisors who gave everyone outstanding ratings just to avoid conflict," an Immigration and Naturalization Service manager recalls. That system was killed after nine years.

The Federal Aviation Administration's pay-banding system, known as the Core Compensation system, has a similar peanut butter problem. In January 2002, all employees in the system received a 3.6 percent general increase, a 1 percent organization-wide increase and an additional 0.6 percent raise that normally would have been set aside for individual increases based on merit, but wasn't. Employees also got average locality-based increases of 1 percent. So every FAA employee included in the system got an automatic pay increase averaging 6.2 percent.

A variation on the peanut butter problem took place at the Naval Air Systems Command Weapons Division in China Lake, Calif., which has had a pay-banding system for 20 years. Managers at the division are not allowed to give all of their employees top ratings except under extreme circumstances. Instead, some managers tend to give their most junior employees top ratings so they can move them quickly up through the pay bands. That means veteran employees at the top of the ranges must get lower ratings. Not surprisingly, they tend to feel slighted. Even worse, when the division had to conduct layoffs a few years ago, the ratings played a major role in deciding who got laid off. "Good, honest journeyman workers peak out, and that's bad in a reduction-in-force situation," says one manager.

Critics of pay-banding systems say they give managers too much leeway to reward favored employees. But human resources specialists who have set up such systems say favoritism isn't a problem. Most systems include review boards that double-check managers' decisions. In addition, the systems tend to include limited appeal rights that allow employees to contest lower-than-expected ratings and raises. An increase in appeals would be a sign that favoritism is a problem. At China Lake, appeals declined with pay-banding.

Still, skeptical employees note that review boards and appeal panels are made up of managers' fellow managers, a group more likely to take the side of their colleagues than of employees. Many employees in pay-banding systems, particularly those who have received poor ratings, say subjectivity rules. "Under pay-banding managers have become rulers of their own 'mini-empires' with workers/subjects eager to cater to them and tell on others in order to somehow improve their standing with their managers and hopefully increase their bonus money," says one Army contract specialist.

In an ideal world, pay-banding would allow managers to reward the best workers, keep competent journeymen happy, and weed out poor performers. Ideally, agencies would also be able to show a direct correlation between pay-banding and improved organizational performance. None has yet figured out how to do so.

Agencies have determined, however, that pay-banding doesn't work well when employees distrust managers, when managers fail to set clear expectations or when workers view pay-banding as a way to eliminate jobs or cut salaries rather than improve performance.

Pay-banding advocates say it's important to dispel myths that could doom any reforms. It's worth noting, however, that the very need for pay-banding is predicated on something of a myth: that managers can't reward or punish employees in the General Schedule. In fact, a 2001 RAND review of Defense Department civilians found that in the General Schedule, managers rewarded higher-performing employees by paying them more and promoting them faster. Those factors, not surprisingly, increased retention.

AT-WILL EMPLOYEES

Have you heard the one about the drunk Border Patrol agent? Obviously, he walks into a bar. But then he goes to work and, still intoxicated, lets a terrorist into the country. The punch line is he doesn't get fired, at least not for 30 days. Or maybe it's 540 days, depending on who's telling the story.

That anecdote was heard repeatedly in Washington this summer and fall, first at the White House and then on Capitol Hill. Office of Personnel Management Director Kay Coles James, White House Press Secretary Ari Fleischer, Senate Majority Leader Trent Lott, R-Miss., and Sen. Zell Miller, D-Ga., all used the hypothetical situation to illustrate the perils of the government's current personnel system. The moral of their story: It takes too long to fire people in the federal government. And in the national security arena, that can be fatal.

Miller told the anecdote most colorfully, saying the government needs a new personnel system, "not one where a federal worker can come to work knee-walking drunk and he can't be fired for 30 days, and then he has the right to endless appeals. I ask you: Is that any way to fight a war?"

It's true that in most cases managers must provide 30 days' written notice before firing an employee. That gives the worker time to appeal the action. But in the case of drunkenness, a Border Patrol agent would most likely be put on leave with pay or given a desk job rather than be allowed to remain on post. The reason for such benefit of the doubt is, of course, to prevent managers from firing people for political reasons. "We want checks and balances," says Debra Roth, an attorney who represents federal law enforcement officers. "What if they're innocent? If they engaged in misconduct, they're not going back to work."

Current law also reduces the notice period to seven days when a crime may have been committed. Managers can also suspend employees without pay and then fire them 30 days later when national security is at stake.

In the new civil service, it's likely that the right to an appeal will be curtailed. Several agencies no longer let employees appeal their cases to the Merit Systems Protection Board, an independent agency. Others have cut back their internal appeal processes.

Such changes are likely to increase the number of federal employees fired for performance reasons. And they will be fired more quickly.

In 1996, Georgia, under then-Gov. Zell Miller, eliminated many civil service protections for all new hires and created an at-will employment system. The state requires that all agencies have an internal appeals process for employees who face firing. Still, Marjorie Young, human resources chief for the state, says terminations at the two largest state agencies increased from 346 in 1997 to 496 in 1999, a 43 percent increase in two years.

Steve Nelson, the former Forest Service human resources chief, is now director of policy and evaluation at the Merit Systems Protection Board. Nelson cautions that checks and balances have long been part of public policy, and that methods to ensure fairness are expected in the public service. "Removal is the capital punishment of employment," Nelson says.