The Defense Department has asked Congress to adopt a sweeping proposal to revamp the federal civil service system by replacing the pay and grade scale with a pay-for-performance approach, according to documents released yesterday by Rep. Michael D. Barnes (D-Md.).

The proposal, called "The Alternative Federal Personnel Management Act of 1985," would give most agencies the authority to establish their own classification, pay and performance systems. The agencies would be directed to give managers maximum flexibility to adjust salaries without the constraints of existing grade and step levels.

The proposal was attacked by Barnes, who said it "would politicize the federal work force by allowing managers to reward political loyalists and penalize career federal employees . . . "

It also was criticized by the Office of Personnel Management, which supervises the federal job system. In a letter dated Sept. 24, Director Constance Horner said that the agency generally supports a pay-for-performance approach, but objected to the Defense Department proposal because it would eliminate OPM's control over the federal job system and disperse it among hundreds of smaller agencies.

The Defense Department sent the proposal to Capitol Hill in June, along with a draft of a bill, according to Barnes. In a letter to House Speaker Thomas P. (Tip) O'Neill Jr., the Defense Department argued that the pay-for-performance approach would enable the government to attract and keep high-quality and motivated staff. The Defense Department has had trouble with this in the past, especially among engineers who are lured away to high-paying jobs in private industry.

Deputy Defense Secretary William H. Taft IV wrote that the federal classification and pay system has remained relatively unchanged since its passage in 1923. "Managers, personnelists and employees tend to agree that the administration of the system is cumbersome, tedious and complex," he wrote.

An internal OPM memo that Barnes released warns that the Defense Department proposal would result in the loss of government uniformity, the fragmentation of the civil service system into hundreds of smaller systems, and a "leap in the dark" on the critical salary issue.

"It proposes a giant and uncertain step -- by extending a trial system developed for engineers and scientists in Navy research laboratories to all positions throughout the civil service," said the OPM memo from Helen J. Christrup, assistant director for staffing policy.

The Defense Department proposal is an extension of pilot projects that the Navy started in 1980 at two research laboratories in California -- the Naval Weapons Center in China Lake and the Naval Ocean Systems Center in San Diego. The original experiment was designed to enable federal laboratories to compete with private industry in attracting, motivating and retaining qualified scientists and engineers.

In the five-year experiment, overall salary costs have risen 5.6 percent and new hire salaries have risen 11.2 percent at the two facilities. OPM said the increase is "cause for concern if the system were expanded, in light of the President's pay freeze and the Administration's position on reducing the cost of government."

Horner suggested that an interagency task force be established to revise the Defense Department proposal.

Barnes said he agreed that there are "some very serious problems with our current federal pay system . . . But this radical alternative is a recipe for mischief that would aggravate an already difficult situation and does not add to a responsible solution to these problems." He said that during times of fiscal austerity, managers might be tempted to reduce the pay of workers.