Defense Begins Transition to Merit-Based Pay

By Stephen Barr
Monday, September 17, 2007; D01

The Pentagon is taking its first big step to break away from the government's primary pay system, sending a strong signal to Defense Department civilian workers that their salaries will increasingly hinge on job performance.

The department's change in pay strategy applies to about 110,000 civil service employees who are in the first phase of the new National Security Personnel System, known as NSPS.

The Pentagon will divert money that would have been paid out across the board to these employees and use it instead to give performance-based raises and bonuses, Gordon R. England, the deputy defense secretary, said in a Sept. 7 memo.

That will make more money available to reward the best workers in the NSPS, England said. He called the reallocation "a major opportunity to emphasize that performance is the primary factor in progressing to a higher salary under NSPS."

Although Defense officials have repeatedly said the NSPS will seek to more rigorously link pay raises to job ratings, England's memo prompted concern among some workers when it reached field offices and military bases last week.

Some employees are confused about how the new pay system will work; some are skeptical that their managers will administer the system fairly.

The American Federation of Government Employees, which opposes the NSPS as an effort to contain or reduce payroll costs at Defense, said the employees should be worried.

"They are going to be shocked that their [cost-of-living adjustments] are coming to an end," said Brian J. DeWyngaert, chief of staff at the AFGE, referring to the annual general increase in pay.

"The Defense Department is hurting for money in lots of places, including for Iraq. Their maintenance is being squeezed; their purchases are being squeezed. They are going to squeeze employees, and siphon that money off for other purposes," DeWyngaert said.

Defense officials dispute contentions that the new pay system will financially penalize employees, and have told Congress that arrangements have been made to wall off payroll accounts from the rest of the department's budget.

The private sector has long used merit pay and bonuses to reward high performers or employees in certain occupations, but the practice has been adopted in only a few agencies in the government. The government's major pay system, the General Schedule, passes along the pay raise set by the Congress to about 1.6 million workers in a predictable fashion each year.

The salary scale, which goes back to 1949, has 15 grades and 10 steps. It has been faulted by Bush administration officials for tending to reward longevity and for burdening personnel decisions with red tape.

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.