Defense Department issues final regulations to its controversial pay-for-performance system

The final regulations govern the operation of the NSPS, which was authorized by the National Defense Authorization Act for Fiscal Year 2004 and amended by the NDAA for Fiscal Year 2008. It governs compensation, classification and performance management under NSPS, and aligns DoD's human resources management system with the Department's critical mission requirements and protects the civil service rights of its employees.

The rules spell out details for how employees' performance will be measured, how pay pools operate, and how employees will be rewarded for their performance. It also restates the Pentagon's opinion that the decades-old General Schedule system that rewards people based on how long they have been in government is outdated and must be replaced by a pay-for-performance system.

Specifically, the regulations were designed to bring NSPS in compliance with federal rules covering labor relations, adverse actions and employee appeals, which Congress mandated after years of litigation by federal labor unions against the Pentagon. However, federal labor unions state the provisions that limit collective bargaining could bring the NSPS back to the courts.

According to the American Federation of Government Employees (AFGE), the regulations do not fully follow federal labor law, largely because provisions governing employees' rates of pay narrow the scope of bargaining, and are weighing whether to file a lawsuit against the new regulations.

The new regulations added provisions that require individual agencies to share aggregate pay pool results -- including average ratings, ratings distribution, share value and average payout -- with NSPS employees. They also give employees on the student-pay schedule the opportunity for accelerated compensation.

According to some who commented on the draft regulations, certain portions were too general. To this point, DoD stated that it revised parts to be more specific, largely to ensure a uniform and consistent application of NSPS across the department.

The final version of the NSPS regulations still leaves the pay-for-performance system vulnerable to personal biases and favoritism, and lack of communication between supervisors and employees. Even so, the regulations take effect in November.

Currently, NSPS covers approximately 180,000 DoD civilian employees. DoD states NSPS implementation remains on schedule with the next DoD organizations to convert into NSPS in late 2008 - early 2009.

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