Rebooting Reform

Dismantling the embattled Defense personnel system could spark a reinvention of performance management across government.

When President Obama signed legislation that repealed the National Security Personnel System, on a warm day in late October, the Rose Garden celebration seemed like a bit of a letdown. The rollback of the controversial Defense Department pay program was just one of many federal employee provisions bundled into the fiscal 2010 National Defense Authorization Act and was largely overshadowed by hate crimes legislation. Unlike the protests outside the meetings of a review board assigned to assess NSPS this summer and the heated lawsuits challenging the system, the work that went into passing the rollback took place largely behind the scenes.

Despite the massive push by federal employee unions, lawmakers and outside experts to end NSPS-the biggest symbol of the Bush administration's personnel experiments-the real work begins now.

The Defense Department must find a way to return 200,000 workers to the pay systems that covered them previously, and to make sure no one's salary is reduced along the way. Working in conjunction with the Office of Personnel Management, Defense has until April 2010 to propose yet another alternative pay system, and until October 2010 to design a performance management system that will cover its employees. As OPM begins work on a governmentwide package of personnel reforms, the demise of a program federal employee groups almost uniformly referred to as "toxic" could create the good will necessary for much broader changes.

Rollback Rules

Eight months ago, at an April House Armed Services Readiness Subcommittee hearing, witnesses from Defense and the Government Accountability Office acknowledged that no law or concrete plan existed for undoing the National Security Personnel System. "Certainly, we were mindful of some potential issues we'd have to look at," says Tim Curry, acting program executive officer for NSPS. But the department is only now beginning its formal planning process for transferring employees out of the program. "We're proceeding cautiously and deliberately," he says.

The Defense authorization established only basic rules for the rollback. The Defense Department must begin shifting employees back into the pay systems that covered them before they moved into NSPS, a transition that must be completed by Jan. 1, 2012. The legislation declared that "no employee shall suffer any loss of or decrease in pay" when they are returned to their old system. But it does not specify whether employees, who were moved into NSPS in stages called spirals, should be converted back in any particular order. And it doesn't account for the fact that after several years of evaluations and raises, not all NSPS employees fit neatly into their previous grades and steps.

One place to start, say the leaders of some employee groups, might be with people who were moved into NSPS most recently.

From the perspective of a culture change, those employees "aren't really entrenched in the system yet, and the same goes for their managers," says Matt Biggs, legislative director for the International Federation of Professional and Technical Engineers. The newest entrants haven't even gone through their first rating cycle under NSPS, and the more recently they moved into the system the less their pay changed from what it was in the General Schedule. That makes it easier to slot them back into their old job classifications without worrying about how to accommodate their new salaries, according to Biggs.

Much more challenging is the situation for employees whose salaries rose significantly under NSPS, enough that they are bumping up against the $153,200 pay cap in the General Schedule. Some are being paid more than the highest step in the GS grade to which they will be reassigned.

One immediate step could be to raise the federal pay cap, which would require congressional action. "There's been talk a long time of lifting the pay cap, and here's an opportunity to do that," Biggs says. "It's not an outrageous thing to do- it's probably timely." Employees who are not at the top of the GS pay schedule, but whose pay exceeds the highest step within their grade, will need another solution. Simply moving them up to the next grade amounts to noncompetitive promotions. One option could be to add steps to the GS system to accommodate those employees.

Darryl Perkinson, president of the Federal Managers Association, says creating a temporary supplemental pay scale like the General Managers schedule used to ease the transition to the GS system, could allow returning NSPS employees to keep salaries that do not fit neatly into General Schedule steps until governmentwide pay levels rise to meet them, or until they have earned promotions into higher pay grades.

Perkinson also suggested the transition might be an opportunity to examine federal job classification more broadly to see whether the current career paths and associated salaries are actually the best categories for ranking federal employees.

William R. Dougan, president of the National Federation of Federal Employees, says in previous transitions between pay systems, some employees whose salaries exceeded the new scale were allowed to keep their pay, but received lower annual raises until their colleagues' salaries caught up. Such a solution could be interpreted as a violation of Congress' directive to preserve all NSPS employees' salaries, Dougan cautions. And Perkinson, Biggs, and leaders of other federal employee groups say any kind of pay freeze for returning NSPS employees is not an acceptable compromise.

Any decision will hinge on the number of people who cannot neatly fit back into the GS system, something Curry says the department has yet to determine. And that is only part of the puzzle, according to Curry. Some at Defense were moved into NSPS from personnel demonstration projects that no longer exist, raising complicated regulatory questions about whether those programs should be resurrected and whether those employees can be returned to the General Schedule system instead.

Perkinson warns that as Defense officials sort through these issues, they should keep in mind that employees might not be unambiguously happy about the switch back to their old pay systems.

"NSPS was one of the hardest issues I've ever had to deal with, because it wasn't as despised as it was made out to be," he says. "There are a lot of people who will tell you that for the first time in their life, they felt like they were being rewarded for the work they were doing."

Drawing Up Blueprints

As Defense officials make plans for the great pay migration, some advocates suggest they should be thinking about the future. While Congress did not offer many instructions on how to conduct a rollback, it did provide some parameters. Among them was a requirement that Defense work with OPM to create a performance management system-though not a pay-for-performance system-to cover the entire department.

OPM Director John Berry should go a step further, according to Robert M. Tobias, who served on a panel appointed by the Defense Business Board to conduct a comprehensive review of NSPS this summer. He is former president of the National Treasury Employees Union and distinguished practitioner in residence at American University. Berry has expressed a desire to create a governmentwide performance management system. While the report Tobias helped craft said NSPS needed gut renovations and a name change, it also noted that the Defense Department had moved in the right direction with its efforts to link employees' successes to organizational performance. Some form of performance management should be preserved, the report said. Because Berry will have to work with Defense to create a performance management system for the department, Tobias thinks he should use that requirement to move swiftly on designing a governmentwide structure. If he could do so within six months, Defense could combine two transitions into one, moving Defense employees into their old pay systems and a new evaluation system all at once.

"I don't think it's an impossible time period. I think it can be done. And I think it should be done," Tobias says. "It would be possible to integrate a solid performance management system into a General Schedule or a modified General Schedule system."

Such a timeline would demand extraordinary effort from people who are extremely busy, says Max Stier, president of the nonprofit Partnership for Public Service. But given that Defense is legally required to develop and implement a performance management system for its employees, he says doing so quickly and integrating it with another transition might ease the burden for employees who already have experienced considerable upheavals in the methods used to pay and evaluate them.

"Change is already hard, and the transaction costs are huge," Stier says. "There should be a strong premium placed on minimizing the disruptions involved in moving people from system to system."

Whether it's possible to design a governmentwide performance management system by spring, the demise of NSPS has made it substantially easier for federal employee groups and agency officials to have a conversation about such a system at all.

"NSPS was toxic for us," says John Gage, president of the American Federation of Government Employees, which took a lawsuit against NSPS all the way to the Supreme Court. "We saw how it was built. We saw who built it. We saw why it was built. We weren't going to stop until we took it down. There was no one reaching out to talk about anything positive during those last eight years anyway. Now with that out of the way, it does open up the administration to a fresh look."

Curry says the Defense Department is committed to rebuilding relationships with employee groups that were damaged during the fight over NSPS, and he had hoped an executive order re-establishing labor-management partnerships would provide a venue for future collaboration. Stier agrees employee involvement is critical not only for the sake of the relationship but for the success of whatever evaluation system comes next.

"There was no buy-in, no sense that the employees for whom the system was designed felt like this was the right system for them," Stier says of NSPS. "We need to have a true collaborative process that involves everyone from the front end. It can't mean no one's happy-that's a recipe for failure."

A Different Path

The Defense authorization bill allows the department to seek congressional approval for personnel flexibilities, including a new pay-for-performance system, but lawmakers and employee groups alike say performance management and new hiring authorities included in the law should be enough.

"They would have to demonstrate that they do not already have, with enactment of this year's National Defense Authorization Act, the hiring and pay flexibilities that they need," says Rep. Carol Shea-Porter, D-N.H., whose amendment repealing NSPS was edited into the version that finally became law. "It is doubtful that could be demonstrated since they now have even more robust flexibilities than they had before. And whether they used them or not, their previous flexibilities were extensive. The pay-for-performance aspect of NSPS is not something I would be prepared to accept again."

Tobias is skeptical that Defense could resurrect the pay pool system used to allocate raises under NSPS in its current form. That approach requires managers to submit their ratings to a panel for review. The panels then allocate the pool of money they have been given to employees based on a share system. The system has been plagued with allegations of bias and concerns that the panels undermine managers' authority.

"The pay pool system that was implemented in DoD really can't be fixed in the current way it's done," he says. "It's not transparent, it's not understandable. Most importantly, there's no evidence that the system motivated people to increase their performance. That's why you do all this work, and there's no evidence that occurred."

Curry says the NSPS program office is focused largely on how to get employees back into their old systems and is only at the early stages of examining the other requirements and options written into the authorization bill.

Gage says he intends to stay on guard in case the Defense Department tries to re-create NSPS by other means. "They might come back with something that's like ice cream. It might be good," he says. "I tend to doubt it."

Not all observers are inclined to view what comes next for Defense personnel policy with the same suspicion Gage does. Indeed, it seems the legal repeal of the National Security Personnel System might have been the end of a heated battle. But it is the beginning of a long and complicated process, one with implications far beyond the 200,000 employees whose pay and evaluations are most directly affected.

Recently, the Office of Personnel Management has been focused on significant changes to the federal hiring and recruitment system, veterans' preference initiatives, and campaigns to improve the health and wellness of federal employees. But the timelines established by the Defense authorization act push performance management, something Berry describes as a long-term goal, to the front burner of federal personnel policy. The supposedly simple act of reversing NSPS is raising complicated questions about how well-suited the federal government's largest pay and classification system is to the way agencies operate today.

Over the next two years, NSPS employees might return to their old pay systems. But before they settle in, it's possible they-along with workers in the rest of government-will set off into dramatically different personnel territory. NSPS might be dead, but its repeal cleared the path down which they'll walk.