Defense Begins Transition to Merit-Based Pay

Bush officials have held out the Pentagon's new pay system as a model that could be expanded to the rest of the government. The NSPS is built around occupation-related pay bands, which combine multiple General Schedule salary grades, making it possible to match salaries to performance rather than any one position. Managers tend to like pay bands because it permits them to offer higher starting salaries when recruiting for hard-to-fill jobs.

Under tentative plans, officials said, if Congress approves a government-wide raise of 3.5 percent in January, the NSPS raise would be allocated in this fashion:

? 1.25 percent for a base pay increase, provided eligible employees.

? 1 percent as a local-market supplement, provided eligible employees. It would mirror the "locality pay" provided other federal employees, and the actual amount would vary by metropolitan area.

? 1.25 percent for performance raises, awarded after managers have evaluated employees based on a five-level rating system. (Under NSPS, employees who have been rated as "unacceptable" in their job do not receive any raises.)

The allocation for performance raises would go into a pot of money that includes other funding streams, such as the 2.26 percent of the Pentagon payroll that used to go for quality step increases and promotion raises in the old system. Funds set aside for bonuses, usually 1 percent to 1.5 percent of payroll, also go into this pot.

For the pay transition, Defense has been training managers and employees on the new system and conducting some trial runs during the last two years. The NSPS was originally designed to cover the department's 650,000 civilian employees, but opposition by unions and some congressional Democrats has slowed some changes.

To reduce friction with unions, Pentagon officials have limited the rollout to employees who are not covered by labor contracts. The department plans to convert 20,000 more employees to the NSPS later this fall and an additional 70,000 in the spring, bringing the total number under the system to about 200,000.

Some Defense employees, including nonunion workers, fret they will fall behind their counterparts in the General Schedule. Some are concerned that managers still do not have enough training to make pay decisions in a fair and consistent manner. Some believe that managers will give one another higher job ratings than they give rank-and-file employees, tilting more of the merit pay and bonuses into their pockets.

Defense officials prefer to avoid comparisons with the General Schedule and instead emphasize their belief that the NSPS will give employees a greater opportunity to make higher salaries because of their job performance.

Stephen Barr's e-mail address isbarrs@washpost.com.