The Navy, the second-largest employer inthe Washington area, is planning changes that could remove many of its managers from the controversial merit-pay system that covers more than 150,000 people government-wide in Grades 13, 14 and 15.

The Navy shift, due to be completed by mid-August, is being watched by other government agencies whose employes are generally unhappy about the payouts they get from merit pay.

People under merit pay -- there are about 60,000 of them here -- are guaranteed only one-half of the October percentage pay raise that goes automatically to other white-collar workers. To get more, they must get top ratings from their bosses.

When merit pay was set up as part of President Carter's civil service reform act, most GS 13 through 15 people went under it. Those under merit pay do not get longevity raises (worth 3 percent) that other civil servants get automatically every one to three years.

Last year, thousands of people under merit pay got smaller percentage increases than their subordinates who got the full 4.8 percent pay raise, plus any longevity raise due them. This year's federal pay raise is expected to be 4 percent.

Defense agencies -- which account for about half the federal civilian work force -- used a broad definition of who was a manager/supervisor to decide who went into merit pay.

Now, because of recent rulings by the Federal Labor Relations Authority, a number of agencies are reviewing who is required to be under merit pay. FLRA's tighter definition of what constitutes a "management official" could provide a merit pay escape hatch for many people. For example, managers who do not supervise people and do not make policy could be taken out of the merit pay pool.

Navy estimates that about one-third of its merit pay people are based here. After it reviews the new definition of management official, it could remove several thousand people from merit pay and put them back under the system of regular guaranteed raises and eligibility for longevity pay hikes too.