Between 2001 and 2003, as tax law enforcement slipped and budgets were stretched, the Internal Revenue Service routinely paid its top lawyers bonuses averaging nearly $20,000, with the highest award reaching nearly $47,000, according to IRS data.
The bonuses have raised eyebrows on Capitol Hill and have become a source of friction between the IRS and the National Treasury Employees Union, which contends that performance pay is now a matter of course for the service's upper echelon. For frontline IRS employees, such awards are parceled out considerably more judiciously, the union said.
Nearly 95 percent of eligible managers in the IRS chief counsel's office and lawyers in the Senior Executive Service -- or SES -- received cash bonuses last year, union officials calculate, while 55 percent of non-management employees were similarly compensated. Dennis Ferrara, the IRS's associate chief counsel for finance and management, had different statistics: 75 percent of chief counsel officials outside the union's bargaining unit received bonuses last year, compared with 64 percent in the bargaining unit. But the statistics may be comparable, since the non-bargaining unit group includes many employees who are not managers or supervisors.
"Nearly every lawyer at the IRS is getting a big bonus," said Senate Finance Committee Chairman Charles E. Grassley (R-Iowa). "This raises the question of what you have to do not to get a bonus. . . . The IRS is always rattling its tin cup for more money, yet if the agency did a better job of using the money it has, that would go a long way toward meeting its needs."
Last year, 25 senior executives in the counsel's office received bonuses totaling $510,660, an average of $20,426. One lawyer, Sarah Hall Ingram, received a $46,900 award, after being singled out for distinguished service by President Bush. Two others, Deborah A. Butler and Cynthia J. Mattson, also were cited by Bush for meritorious service and rewarded with bonuses of $26,760 and $24,600, respectively.
But it did not take a presidential commendation to snare large bonuses. Emily Parker, then the IRS's acting chief counsel, received a $26,700 bonus, as did her deputy, Gary Wilcox. In February, just months after Wilcox received his bonus, the IRS announced that he had left for the private sector.
A presidential commendation may have secured Ingram her biggest award last year, but she also received $24,140 in 2001 and $21,000 in 2002. Indeed, 13 senior executives pulled in five-digit bonuses for each of the last three years.
"The question here is, is this a method for increasing pay for senior executives or is it a method for encouraging higher performance?" asked former NTEU president Robert Tobias, a professor of public administration at American University and a member of the IRS Oversight Board. "If it's supposed to encourage higher performance, there has to be some method to differentiate between top performers and everyone else. It would seem as if there's not much distinction at all."
"Ninety-five percent of employees are above average?" scoffed David Burnham, co-founder of the Transactional Records Access Clearinghouse at Syracuse University, which tracks IRS tax law enforcement. "Isn't that the way Garrison Keillor puts it for Lake Wobegon?"
Ferrara strongly defended the system, saying that senior executives must set performance goals, then demonstrate to a performance review board that those goals were met before performance pay is parceled out. Ferrara, who received bonuses of $15,000 and $16,000 in 2001 and 2002, confirmed that a sizable majority of the 525 managers in the counsel's office received bonuses in the past three years. But, he noted, of the counsel's 50 Senior Executive Service employees, only half received end-of-year cash awards in 2003.
"We've got a talented and motivated workforce, and the fact that we have this award program is why we can keep them," he said.
The bonuses also help close the yawning gap between what top-flight tax lawyers can earn at the IRS versus the private sector, said Pamela Olson, a former assistant Treasury secretary for tax policy. She said the bonuses were worth the price, considering how much more money it would have cost the government to contract out the work done in the counsel's office.
"I was impressed repeatedly with the people I saw in chief counsel's office at the SES level," Olson said. "And I often said I couldn't imagine what we'd have to pay if their work was done in the private sector."
Olson singled out Ingram, now the deputy commissioner of the IRS's tax exempt and government entities division, as "worth every penny of" her bonuses.
But Republican and Democratic aides on the Senate Finance Committee said performance bonuses are not supposed to be used to augment federal salaries. A Finance Committee investigation two years ago found that the IRS was using performance bonuses, recruitment bonuses and relocation expenses to nearly double salaries currently capped at $144,600 .
And if bonuses are handed out as a matter of routine, their effectiveness as performance incentives will be wiped out, aides complained.
"I'm worried that these sweeping, big bonuses are really just designed to circumvent the federal pay scale system," Grassley said. "I'm also worried that the IRS isn't being a good steward of the taxpayers' money when it takes money meant to reward only the top performers and gives it to nearly everyone."