The Department of Homeland Security may not shift to new salary scales until 2006 in order to provide more time for testing and refining the management system that will be used to rate employees on how well they do their jobs, a senior official said.

The original timetable called for simultaneously rolling out a new performance management system and a new pay system, starting with a relatively small number of employees and expanding coverage in phases. The first phase had been scheduled to start in early 2005.

But federal unions have lobbied the department to spend more time on preparing the performance management system before using it to make pay decisions, an approach "that makes sense," the senior official said.

The official cautioned that no decision has been made, but said the department may split the package and roll out the performance management changes first.

"We are looking at the option of extending the implementation schedule on the pay and performance management side of the ledger," the official said.

The official asked not to be identified, in part because of the issue's sensitivity. The department is in the final stages of writing regulations and hopes to have them published in the Federal Register before year's end.

The stakes are high for Homeland Security. The department needs to sell the system to about 110,000 employees, maintaining morale and assuring them that they are being treated fairly on pocketbook issues. If successful, the system probably will become a model for the rest of the government, according to civil service experts.

Union leaders have urged the department to move carefully on pay system changes, pointing out repeatedly that many employees, in town-hall meetings and in focus groups, said they would prefer to stay on the General Schedule, the government's 15-grade, white-collar pay system.

In particular, unions have warned that department managers will need extensive training on how to use a system that more closely links pay to job performance, provides higher raises to the best workers and takes into account that some occupations are more critical than others.

Bush administration officials acknowledge that managers will need more training, but say that giving them more discretion in setting salaries will make it easier to recruit talented professionals and retain experienced hands.

Typically, performance management systems lay out objectives for employees to meet and often tie them to agency goals. Employees get feedback on whether they are meeting management's expectations and, at the end of a rating cycle, receive a written assessment of their performance.

Managers use those evaluations to make distinctions among employees when making decisions on pay raises.

The department's plan, as originally described, would replace the GS with broad salary ranges called "pay bands" for "occupational clusters." The salary range of each band would be based on local labor market rates.

Annual raises would be determined by the department after taking into account labor market conditions, the department's budget and pay raises received by employees elsewhere in the government.

Employees who meet expectations would be eligible for across-the-board raises set according to occupation; locality pay adjustments also set according to occupation; and an additional increase in base pay determined by job performance.

During a comment period on the plan, some employees and numerous union members complained that they needed more details about how such a system would affect them.

The Homeland Security official said that if final regulations can be issued this year, then the department could spend the balance of this fiscal year implementing a performance management system and studying its effects. Under that scenario, decisions on employee pay would likely not begin until the end of 2005 or the start of 2006.

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