Pay-for-Performance Pointers

It's unclear how President Obama will approach pay for performance, but a group representing federal managers has some advice.

In a recent position paper on the Pentagon's National Security Personnel System, the Federal Managers Association acknowledged that agencies must move toward performance-based compensation to recognize outstanding employees and compete with the private sector for talent.

"The time for rewarding employees simply for longevity has passed," the association stated. "Many of the hard-working federal managers entering NSPS want to be rewarded for the job they do, and they are excited to finally have this opportunity. However, the system is not without its flaws."

The biggest cause for concern is the distribution of the NSPS pay pool, according to FMA. In 2007, for example, lawmakers said Defense must grant no less than 60 percent of the General Schedule raise to employees who earned satisfactory performance ratings (a 3 or higher on the NSPS scale), and the full locality pay adjustment to anyone with a rating of 2 or better. The department was free to allocate the remaining 40 percent of the GS hike to the pay pools.

But FMA said all employees who received a rating of "valued performer" (a 3 on the scale) or better should have been guaranteed the full congressionally approved pay increase at a minimum. "Issues of fairness and low morale would certainly surface if a valued performer were to receive less than the GS raise," the association noted. "Employees who are considered valued performers but receive less than they would have under the General Schedule have no confidence in the system."

The group also cited concerns that compensation beyond the required raise would be distributed in the form of bonuses, which would not count toward basic pay for retirement purposes, and that the pay pools would not be large enough to grant employees the boost they had earned.

And FMA voiced concerns about the potential for a bell curve distribution of pay hikes, noting that managers and supervisors have reported extreme pressure from higher-ups to maintain a specified distribution of funds or performance ratings within each pay pool. "There is severe danger of ratings being deflated or inflated to accommodate a small section of the population," the association said. "Forced distribution does nothing but contradict a pay-for-performance system."

Additionally, many managers believe the pay pool panel is out of touch with the objectives and functions of the employees they are rating, according to FMA. The panel should give employees an explanation and justification whenever it decides to override their direct supervisor's ratings, the paper stated.

Meanwhile, managers are having a difficult time filling critical positions with highly qualified in-house personnel, largely because movement within the department is considered a reassignment, not a promotion. That translates into a 5 percent maximum salary increase, according to FMA. "Qualified employees may be unwilling to take on the added responsibility associated with mission-critical positions if they are not adequately compensated," the association noted.

FMA recommended that Defense provide better training to employees on writing self-assessments and streamline the ratings process. And it advised Defense officials to ensure the department's varying pay systems -- NSPS, Wage Grade and the General Schedule -- are cohesive and foster a greater sense of equality across the workforce.

Despite these concerns with NSPS, FMA President Darryl Perkinson said last week that he was not aware of any employees in his division at the Norfolk Naval Shipyard who received less than the General Schedule pay boost in 2009. "It's hard for us to say a system is not working, or is a detriment to us if our people are saying that they're getting pay increases larger than what the General Schedule got," he said.

Still, NSPS' future under the new administration is uncertain. In a Sept. 16, 2008, letter to the International Federation of Professional and Technical Engineers, Obama expressed concerns with NSPS and said he planned to revise the system or consider a complete repeal.

Union officials have said they would lobby for a complete repeal of the system. Regulations implemented in the final days of the Bush administration limited collective bargaining and advanced a range of flawed hiring and promotion rules, they said.

Terry Rosen, a labor relations specialist for the American Federation of Government Employees, said last week that the union would contest the new labor relations and hiring regulations in court. Defense officials announced in September that they would halt plans to convert bargaining unit employees to NSPS, meaning any labor relations rules would apply only to employees who form a bargaining unit after converting to the system. But, Rosen said, AFGE has a stake in contesting the new rules, because about 300 Defense employees nationwide formed bargaining units with AFGE after switching to the system.

"It's not a moot point for us," Rosen said. "We don't know what's going to happen, and certainly, we would like to see it go away. We think it's a bad system."