Hitting Merit Pay With a Fair-Play Standard

Rep. Danny K. Davis (D-Ill.), chairman of the House federal workforce subcommittee, is increasingly skeptical of pay-for-performance systems in the federal government. He's also a little frustrated.

At a hearing Tuesday afternoon, Davis recalled that federal agencies and compensation experts appeared before the subcommittee in years past and testified that "employee buy-in," credibility and equity were keys to successful systems. "Yet, agencies are failing in all these areas," Davis said.

"If these systems are not fair and equitable, transparent and credible, and do not have the buy-in of federal employees, I do not believe they have a place in the federal government," he concluded.

Davis also questioned whether the government should set up systems that may not provide an annual cost-of-living increase to employees and may foster discrimination against minorities and older workers.

He pointed to the Internal Revenue Service, where managers may receive smaller pay raises than rank-and-file employees, and the Securities and Exchange Commission, where an arbitrator found the pay system discriminated against African American employees and employees who were 40 and older.

The hearing was Davis's third on federal pay and personnel issues. Many of the changes in pay rules, such as those at the departments of Defense and Homeland Security, were sought by the Bush administration and authorized when Republicans held the majority in Congress. While the Defense and Homeland Security systems have drawn strong opposition from federal unions and Democrats, some pay-for-performance systems were created with bipartisan support.

The new pay system at the IRS grew out of a 1998 law that reorganized the tax agency. J. Russell George, Treasury inspector general for tax administration, testified that design shortcomings and a lack of communication had created morale problems in management ranks.

Richard A. Spires, deputy IRS commissioner for operations support, said that in theory the IRS could withhold a pay raise for a manager meeting expectations but it has never done so. The agency is moving to improve communications with managers and has hired a contractor to review the pay system, he said.

The SEC overhauled its pay system in 2002 when it was struggling with a high rate of turnover among lawyers, accountants and examiners. But the system quickly drew scrutiny from the National Treasury Employees Union, which questioned SEC pay decisions in 2003.

The union's grievances led to an arbitrator's ruling last year that said black employees and older employees received significantly fewer pay increases than would be expected given their representation at the agency.

Diego Ruiz, executive director at the SEC, said the arbitrator found no evidence of intentional discrimination on the part of the agency. The SEC is working with the arbitrator to find a remedy, he said.

The agency also plans to replace the system that's in the arbitration dispute. Until a new system for rating employees is in place, SEC employees performing at an acceptable level will receive the same percentage increase in pay, Ruiz said.