EMPLOYEE SENIORITY has traditionally governed at those times when federal agencies facing layoffs must deal with the difficult question of who is to be the last and first fired. In 1983 the Reagan administration suggested that performance should play an important part as well. Congress thought the first administration proposal went too far, and blocked it. When the abrasive Donald Devine, then director of the Office of Personnel Management, tried to put it into effect anyway, he had to be taken to court. Now Mr. Devine's level-headed successor, Constance Horner, has worked out a better balance with the interested members of Congress, including local representatives Steny Hoyer and Frank Wolf. Among other things, you have here an important lesson in technique.

There have been efforts to make performane more of a factor in personnel decisions all across the public sector in recent years. The fight over testing and merit pay for teachers is part of such efforts. Tightened budgets are a partial explanation of the movement. The argument is also made that the merit principle will liven the bureaucracies and make them more responsive.

The civil service reforms of the Carter administration, which Congress approved in 1978, created, on paper at least, a new set of rules for the three highest levels of career civil servants -- bonuses if they did well, less right to remain in their jobs if they did not. A limited merit pay system was also created for the next tier of employees, in grades GS-13 through 15.

The Reagan administration in 1983 proposed to take two further steps, affecting not just the upper grades but the entire civil service. The federal pay schedule now provides within each grade for so- called step increases. These tend to come automatically with seniority. The administration wanted them governed by performance ratings as well. It also suggested that performance ratings be combined with seniority, in a point system, to decide which employees to keep and which to let go in layoffs.

There had been some layoffs in the early Reagan years. Career employees, their unions and defenders in Congress were unaccustomed to these, and apprehensive. Administration bureaucrat-bashing did little to reassure them. They said the proposed point system would allow very senior employees who happened not to be in favor to be displaced by much more junior employees who were. An employee of long standing has a claim on an employer just as an employee of ability does.

The new point system is a better weave between these claims. Yet Director Horner noted in a letter to White House chief of staff Donald Regan that it still "doubles the weight given to performance compared to the status quo," so that it "is not, I believe, a bad outcome to this long struggle." She is right. On to pay.