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STATEMENT OF
JOHN GAGE, NATIONAL PRESIDENT
AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES
AFL-CIO
BEFORE THE
DEFENSE BUSINESS BOARD TASK GROUP ON
THE NATIONAL SECURITY PERSONNEL SYSTEM
June 25, 2009
AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES, AFL-CIO
80 F STREET, NW
WASHINGTON, DC 20001
202-737-8700 % F A X 2 0 2 - 6 3 9 - 6 4 9 0
w w w . a f g e . o r g
M r . C h a i r m a n a n d M e m b e r s o f t h e T a s k G r o u p ,
M y n a m e i s J o h n G a g e , a n d I a m t h e N a t i o n a l P r e s i d e n t o f t h e A m e r i c a n F e d e r a t i o n o f G o v e r n m e n t E m p l o y e e s , A F L - C I O ( A F G E ) . O n b e h a l f o f t h e m o r e t h a n 2 6 0 , 0 0 0 c i v i l i a n e m p l o y e e s of the Department of Defense (DoD) represented by AFGE, I thank you for the opportunity to testify today.
The National Security Personnel System (NSPS) is a failed system, disliked by employees under it and feared by employees concerned they will come under it. NSPS should be done away with completely, not tinkered with or modified.
NSPS was created by people with ulterior motives, who tried to hide their real agenda from DoD employees, their unions, Congress and the public. After September 11, 2001, the Department of Defense exploited the national fear of another terrorist attack and determination to protect our country to advocate for what was in reality a profound erosion of civil service protections and collective bargaining rights that had nothing whatsoever to do with national security.
The Beginning of NSPS
In 2003, then Secretary of Defense Donald Rumsfeld insisted that the Defense Authorization bill include provisions that attacked the civil service protections and collective bargaining rights of 700,000 Department of Defense civilian employees. Despite months of debate over serious objections raised by AFGE, other unions, and Representatives and Senators from both parties, the Department was granted the ability to write regulations creating a new personnel system in the FY 2004 National Defense Authorization Act (Public Law 108-136). This included the right to create a new labor relations system, but Congress said the collective bargaining rights of DoD civilian employees must be ensured.
The law required NSPS to be established jointly with unions through a Meet and Confer process. It also required ongoing union participation in the planning and development of the system. In order to ensure that the meet and confer process did not bog down, over 30 unions representing employees in DoD formed a joint United Department of Defense Workers Coalition (UDWC), which continues to operate to this day. Early in 2004, DoD began meeting with the UDWC.
Outline for Disaster
On February 6, 2004, DoD presented the UDWC with its Outline of Proposed NSPS Labor Relations System Concepts (Outline), a paper so outrageous it surpassed even our worst fears about DoDs intentions. According to the Outline, labor-management disputes, bargaining unit status decisions, and employee appeals would be handled by an internal Defense Labor Relations Board (DLRB) whose members would be chosen by the Secretary of Defense. The Outline greatly expanded the numbers of employees who would be prohibited from being in a bargaining unit and enjoying the rights and benefits of union representation.
Not satisfied with decreasing the number of employees eligible for union representation and creating an internal Board to deal with most disputes, the February 6th Outline contained a sharp attack on the collective bargaining rights of DoD employees who would be allowed to be in bargaining units. It defined collective bargaining as a mutual obligation to consult on matters concerning conditions of employment. The DoD Outline went even further, by declaring that management would only have a duty to bargain (or consult) if a change it wanted to make to workers conditions of employment would have significant impact on the bargaining unit. The meaning of significant would be determined later by unilateral management guidelines.
The Outline laid out a process in which the parties would exchange views in an attempt
to reach agreement. Ultimately, however, management would decide the action it would take and give the union a copy of its policy and the reason for its decision. The union would have the right to go to the internal Department DLRB for a review of procedural compliance. Consultation is a much lower level of interaction and obligation between employees and their employer than is collective bargaining. Collective bargaining has neutral external dispute resolution processes and results in an enforceable written agreement between the parties. Congress required collective bargaining, not consultation.
Under the current 5 U.S.C. Chapter 71 collective bargaining rules, the scope of topics subject to negotiation can be limited by laws and government-wide regulations. Agency-wide regulations, however, only limit bargaining if the agency can show a compelling need for excluding them from negotiations. DoD, however, did not want to be accountable for showing a compelling need to avoid bargaining. Instead, the Outline said that existing and new DoD and Component-wide regulations would automatically supersede collective bargaining agreements. In other words, DoD took to itself the unilateral right to limit bargaining whenever it wished.
In addition, in the Outline, DoD said it would keep all existing Management Rights under 5 U.S.C. Chapter 71 and add several more to the list. DoD also said it would no longer comply with the procedures in 5 U.S.C. for giving the union information necessary for it to carry out its bargaining and representational responsibilities. Instead, the union could only get information through the Freedom of Information Act (FOIA), a lengthy and cumbersome process not suited to parties with a mutual obligation to negotiate with one another in good faith over workplace matters.
The Outline also severely reduced the number of situations in which the union would be invited to be present during management discussions with bargaining unit employees, greatly increasing the possibility for misinformation, inappropriate deal making, and intimidation. Bargaining unit employees also currently have the right to have a union representative present during certain investigatory meetings with management, called Weingarten rights. The Outline cut back on the kinds of investigations that would trigger these rights and would have allowed management to make it more difficult for the union to supply a representative.
Change, but no Change
This DoD Outline was so blatantly anti-union and anti-federal employee that it generated wide-spread outrage and action. AFGE and its sister unions in the UDWC began a campaign of educating the employees we represent about DoDs Outline, holding demonstrations and grass roots lobbying efforts, sending hundreds of letters to Members of Congress, and airing our concerns in the press and in our communities. Anxiety and mistrust in the DoD civilian workforce soared while morale plummeted. By late March, DoD knew that it could not continue on the same path. The original lead employees on NSPS were replaced. Then Secretary of the Navy Gordon England was named to head DoDs efforts to develop NSPS. Secretary England sent out an open letter to DoDs Civilian Employees reassuring them that the Department would take the time necessary to do the job right, and that the development of NSPS would be done collaboratively.
AFGE was hopeful that this change in leadership would bring about meaningful discussions and constructive compliance with the laws requirement for the involvement of employee representatives in the design, implementation and adjustment of NSPS, but we were also wary. So far, DoD had demonstrated to us that its primary goal was to destroy collective bargaining, marginalize the unions, and weaken employee protections, not to create a better personnel system for civilian employees and improve the Departments ability to protect national security.
Collective Bargaining Now You See it, Now You Dont
On February 14, 2005, DoD published draft regulations to create the National Security Personnel System (NSPS) that confirmed our worst fears. Those sweeping regulations would have replaced current provisions of Title 5, U.S. Code, affecting pay, classification, personnel management, employee appeal rights, and collective bargaining for 700,000 civilian employees in the Department. The proposed rules generated an unprecedented 58,000 public comments when they were published in the Federal Register. Almost all of the comments were negative and urged the Department not to proceed with NSPS as described in the regulations.
The February 14, 2005 proposed regulations described a labor relations system and employee appeals processes that were as objectionable as the earlier Outline. An internal Board whose members would be chosen by the Secretary of Defense would decide labor-management disputes, but now it would be called the National Security Labor Relations Board (NSLRB) rather than the Defense Labor Relations Board. The Department could override collective bargaining agreements by issuing an internal document called an Issuance. Subjects outside the duty to bargain by DoD were greatly expanded. The unions right to protect employees in management meetings, investigations, or grievances was greatly diminished. The rules involving information requests, standards of evidence in employee appeals and many other issues of due process and labor relations were revised to tip the scales heavily in favor of DoD.
The law said that whatever personnel system DoD adopted had to ensure collective bargaining. It did not allow DoD to claim to be ensuring collective bargaining by giving that name to a process that eliminated and prohibited almost everything that defines collective bargaining.
While the proposed rules gave many details about how DoD planned to shrink employees union rights and appeal rights, they were remarkably skimpy in their description of the proposed pay, performance, and classification systems. This was no oversight on the part of DoD. On March 9, 2004, then Director of OPM Kay Coles James sent then Secretary of Defense Donald Rumsfeld a letter criticizing draft NSPS regulations the Department of Defense had written. According to her, these draft regulations had too much excessive and unnecessary detail. In her letter, Director James said:
In point of fact, the issuance of broad enabling regulations will give you far more internal flexibility as you implement NSPS. Once those enabling regulations are published in the CFR, you will be in a position to issue as many standardized, detailed internal NSPS implementing directives as and when you see fit, including the document you have provided us for comment generally without further public comment, formal collaboration with unions, or OPM approval.
At the time of this letter, we were dealing with the NDAA 2004, which said that the Meet and Confer process over the regulations and continuing collaboration were the only ways that employee organizations were to be involved in the design, implementation and adjustment of NSPS. The Meet and Confer process was to take place after proposed regulations were issued and before the final regulations were published.
DoD and OPM proposed a labor relations system that allowed Implementing Issuances, the standardized, detailed internal NSPS implementing directives referred to in the James letter, to override existing collective bargaining agreements and otherwise bar bargaining. So, with the goal of minimizing, if not eliminating collective bargaining, the proposed regulations were published on February 14, 2005 with almost no details regarding the Departments planned pay, performance management, or classification systems.
Meet and Confer or Meet and Defer?
Instead of providing technical details of the pay bands, how annual pay adjustments would be determined, how the performance management system would work, etc., the proposed regulations said things like, The Secretary may establish a pay-banding system, or The Secretary may establish a performance management system, etc. This meant that AFGE and the other unions in the UDWC were forced to go through the Meet and Confer process, which the law intended to be a meaningful way for employee organizations to participate in the design, implementation and adjustment of NSPS, without actually discussing the details. The details, we were told, would come out later in Implementing Issuances.
We strenuously objected to going through the statutory Meet and Confer process dealing only with meaningless generalities. But AFGE, as a part of the UDWC, did not simply oppose the DoD regulations. We listened carefully to the concerns of DoD and made concrete proposals to address them in a constructive framework. We offered to engage in national-level bargaining, as DoD said it needed. We also offered to speed up the timeframes for bargaining, to work with a new concept of post-implementation bargaining when necessary to protect national security and defense, and to engage in mediation-arbitration processes by mutually selected independent arbitrators in order to quickly resolve any bargaining disputes. We believe these changes would have allowed DoD to succeed in implementing new processes that would enhance the mission of the agency.
But, despite months of meetings, DoD failed to take the process seriously and, for all practical purposes, ignored UDWC proposals. DoD made clear that it simply wanted unlimited authority with no effective outside review. It should be noted that almost every member of the union side of these meetings came away with a clear sense that they were held simply to meet the technical requirements that they occur and DoD lacked any desire to reach any agreement that was mutually beneficial. To the surprise of no one on the union side, at the end of the process, DoDs NSPS regulations, published in final form on November 1, 2005, were unilateral, unfair, and unworkable.
While the unions in the UDWC were forced to go through the Meet and Confer process without the pay, performance management, and classification details necessary to make that statutory process meaningful, shortly before Thanksgiving, in November 2005, we were deluged with 369 pages of highly technical Implementing Issuances, with just a 30-day period for us to comment. Clearly, DoD had decided on many of the details that went into these Issuances, but withheld them from us during the very process Congress had intended for the unions and DoD to collaborate on the development of NSPS. The DoD-designed labor relations system at that time held that these Issuances were not only non-negotiable, but also that they would override previously negotiated collective bargaining agreements. DoD tried not only to avoid bargaining over these, but even to avoid dealing with them in the Meet and Confer process designed for that very purpose by Congress.
On November 7, 2005, ten federal employee unions jointly filed suit against the regulations, and on February 27, 2006, Federal District Court Judge Emmett G. Sullivan ruled illegal several key labor-management components of the new system, including collective bargaining and independent third-party review of labor-management disputes. The labor relations portion of NSPS was enjoined and DoD did not convert any bargaining unit employees to NSPS pending resolution of the issue. DoD appealed the case to the U.S. Court of Appeals for the District of Columbia. On May 18, 2007, in a two to one decision, the appeals court ruled in DoDs favor.
The NDAA 2008
On January 28, 2008, Congress passed the National Defense Authorization Act for Fiscal Year 2008 (Pub. L. 110-181) (NDAA 2008). Section 1106 of that law restored employee appeal rights, government-wide RIF rules, and the collective bargaining rights of 5 U.S.C. Chapter 71, removing the authority of DoD and OPM to create a new labor relations system. No longer could DoD avoid bargaining by promulgating sparse regulations and detailed internal issuances. No longer could DoD have its own internal board deal with labor-management disputes. No longer could DoD call all the shots and decide when it would or would not bargain.
The NDAA 2008, in section 1106(b), speaks about the ways that the National Security Personnel System, as amended by the law, may be implemented. It may be implemented, through rules promulgated jointly by the Secretary of Defense and the Director of the Office of Personnel Management after notice and opportunity for public comment or through Department of Defense rules or internal agency implementing issuances. The law goes on to say that rules jointly promulgated by OPM and DoD shall be treated as major rules for the purpose of section 801 of title 5, United States Code, and, if they are uniformly applicable to all organizational or functional units included in NSPS, they shall be treated in the same manner as government-wide rules for the purpose of collective bargaining. Government-wide rules significantly limit collective bargaining. The second option for implementing NSPS, internal agency implementing issuances, are subject to bargaining under 5 U.S.C. Chapter 71under the NDAA 2008.
Shrinking Collective Bargaining Rights After the NDAA 2008
On May 22, 2008, DoD published its proposed revised regulations to conform to the NDAA 2008 changes to NSPS authority. Unlike the November 1, 2005 final NSPS regulations, these proposed regulations included many of the technical details of the pay, performance management, and classification systems.
A mere four years prior to passage of the NDAA 2008, then OPM Director James warned then Secretary of Defense Rumsfeld about regulations that contain the details of the system compared with broad regulations that contain few details. In her March 9, 2004 letter cited above, James said:
In contrast, if issued in its present form, the NSPS proposal will be as rigid and inflexible as the system we are trying to transform. Its excessive and unnecessary detail, once locked in regulations, will be extremely difficult to change. By law, each time DoD needs to modify its content in any substantive way, it will be required to invoke the statutory union notification and collaborative process, obtain formal OPM approval, and notify Congress. Surely, this is not the result you intended; it certainly is not what we envisioned when we fought for NSPS.
It is clear from this letter, that among other things, when OPM and DoD were fighting for NSPS, they envisioned a system they could control with minimal union and employee involvement, minimal accountability to Congress, and no need for formal OPM approval. Apparently, the desire to limit bargaining was so strong, that DoD and OPM now decided they would rather deal with the rigid and inflexible system resulting from detailed regulations published in the Federal Register since Congress removed the power of internal issuances to bar bargaining. In order to make these regulations limit bargaining in the way that laws and government-wide regulations would, DoD also had to remove some flexibilities previously given to its Components and managers by putting them in the regulations and requiring uniform application among all NSPS entities.
Rate of Pay
DoD went even further in its attempt to ensure that it would have minimal bargaining obligations under NSPS. The NDAA 2008 in section 9902(e)(9) says:
Any rate of pay established or adjusted in accordance with the requirements of this section shall be non-negotiable, but shall be
subject to procedures and appropriate arrangements of paragraphs (2)
and (3) of section 7106(b)
By this language, Congress intended that the scope of bargaining under NSPS not expand to include setting the actual amount of pay an employee receives, the amount of the annual increase all employees rated above unacceptable would receive, and other specific pay amounts. Congress also clearly stated its intent that DoD would have a duty to bargain over the procedures that would be used to set pay and appropriate arrangements to deal with any adverse impact that DoDs greater flexibility to set pay under NSPS might have on employees.
In its May 22, 2008 proposed regulations, DoD tried to extricate itself from the bargaining obligations Congress intended by defining rate of pay in such a way that it could include almost anything remotely related to setting the rate. These would include much of what is generally understood to fall under the procedures and appropriate arrangements of 5 U.S.C. 7106(b)(2) and (3).
In its May 22, 2008 proposed regulations, DoD defined rate of pay as:
(a) The term rate of pay in 5 U.S.C. 9902(e)(9) means
(1) An individual employees base salary rate, local market supplement rate, and overtime and other premium pay rates (including compensatory time off);
(2) The rates comprising the structure of the pay system that govern the setting and adjusting of the individual employee rates identified in paragraph (a)(1) of this section, including the amount of each rate in the pay structure (expressed as a dollar amount or a percentage) and the conditions defining applicability of each rate
By adding the phrase and the conditions defining applicability of each rate to the definition of rate of pay, DoD was broadening the definition, and thereby narrowing the scope of bargaining. Conditions defining applicability of each rate could be interpreted to include the very procedures and arrangements Congress intended DoD to bargain. AFGE and others objected to the use of the phrase and the conditions defining applicability of each rate in our comments to the proposed regulations.
In the final regulations issued September 26, 2008, DoD changed the phrase to the eligibility requirements associated with the type and level of pay in question. In our opinion, this does not alleviate the problem and also is likely to result in unnecessary litigation over whether something is a procedure and thus negotiable or an eligibility requirement and thus non-negotiable. It is an act of cynicism and defiance on DoDs part to think it can define itself out of its obligations. This is no small matter. DoD has used rate of pay to describe numerous aspects of NSPS that we believe Congress intended DoD to bargain, at least over the procedures it will use and appropriate arrangements for employees adversely affected by these actions.
For example:
We currently bargain over procedures and arrangements for determining fair distribution of overtime work, including rotations, seniority, or other methods for selecting employees. Management always has the right to determine the qualifications needed for that overtime work and whether or not specific employees meet those qualifications. Once that is done, however, we have negotiated processes in place to make sure that desirable assignments aren't given out based on favoritism or discrimination and that undesirable assignments aren't given based on reprisal. The September final regulations included premium pay rates in the definition of "rate of pay," for the purpose of asserting non-negotiability under 5 U.S.C. 9902(e)(9).
We have no argument with the non-negotiability of the value of the rate or management's right to determine the type of work needed on overtime and which employees are qualified. But, DoDs assertion that "eligibility requirements" are part of the definition of rate of pay can be used to preclude bargaining over seniority, rotations, or other systems to distribute overtime fairly.
Also included in the rate of pay definition is the amount of various adjustments in an employee's base salary rate such as performance pay increases, reassignment increases and decreases, promotion increases, etc. Once again, we do not expect to bargain over the amount of the adjusted rate of pay. Congress, however, meant for us to bargain over such procedures and arrangements as the rules that pay pools will follow to ensure fairness, transparency, and accuracy.
Under NSPS, supervisors can reassign employees within a pay band or to a comparable pay band. Unlike the general understanding of the meaning of reassignment outside of NSPS, reassignments within NSPS may carry with them an unlimited number of pay increases of up to 5% each. There is no requirement in NSPS, however, that other employees be given a chance to compete for the increases, or even that they be notified that such opportunities exist. We believe we should be able to bargain over notices, competitive processes, and other procedures and appropriate arrangements to ensure fairness and transparency. AFGE is greatly concerned that the inclusion of eligibility requirements in the definition of rate of pay will interfere with our ability to bargain as Congress intended. These non-competitive reassignment pay raises are separate from and in addition to the pay-for-performance part of NSPS. Without the safeguards we would expect to negotiate in our bargaining units, this will be a fertile breeding ground for discrimination, favoritism and abuse.
Restoring Some Pay Stability
In addition to restoring collective bargaining (which DoD has tried to evade through its regulations), the 2008 Act ensured that all NSPS employees at DoD will be guaranteed 60% of the General Pay Increase (GPI), and 100% of the locality adjustment granted every year to General Schedule (GS) workers, provided that the employees are in good standing, rated above unacceptable. As we had already seen, DoD was prepared to give only 50% of the pay adjustment to employees in 2008 and none of it as an annual adjustment in 2009 the whole amount would have been put into the pay pools to be given as performance payouts. Even there, DoD might not have paid all of it out as base pay increases, but could have given cash bonuses instead. The NDAA 2008 required that the full amount of the GPI go for base pay increases, at least 60% to all employees rated Level 2 or above and the remaining percentage to go into the pay pool funds to be paid out as pay increases, not cash bonuses.
Performance Pay Pool Funding
The funding of performance pay pools is one of the most consequential decisions DoD makes involving the amount of any individual employees payout. DoD funds pay pools prior to learning employees performance ratings, and there is no formula that guarantees equitable treatment among or between NSPS employees. On June 10, 2005, the Defense Business Board (DBB) presented its report on the Implementation of National Security Personnel System (NSPS) to the Secretary of Defense. One of the DBBs recommendations was:
Establish fire walls between the various pay bands of an organizations pay pool. Do not permit merit and bonus money to move between pay bands, or renamed GS grades, except under exceptional circumstances.
The DBB said that without these firewalls:
The likely result will be a natural movement of pay pool money from the lower-levels to the upper levels, unfairly depriving lower-level employees of an equal opportunity to compete for merit pay increases and bonus dollars.
Unfortunately, DoD did not take the Boards advice and the predictable outcome has been exactly what the report warned.
There are four parts to NSPS pay pool funding. Element 1 is made up of base pay funds that were historically spent on within-grade increases, quality step increases, and promotions between GS grade levels that no longer exist under NSPS. Element 2 is the balance of the amount that would have been available for an annual adjustment after the Secretary determines the amount of the NSPS general salary increase. Element 3 represents funds historically spent for performance-based cash awards and is available only for bonuses. In addition, the Implementing Issuances say that DoD Components may allocate additional funds to the pay pool fund.
DoD has told us that Element 2 this year represents the 40% of the GPI left after the Secretary determined that he would give the minimum 60% required by the NDAA 2008 to all employees rated above unacceptable. According to DoD, all pay pools received this 40% of the GPI. This is not true for Elements 1 and 3 or the additional funds Components may allocate to the pay pools. Elements 1 and 3 represent the amounts historically spent for within-grade increases, quality step increases, and promotions between grades that no longer exist and for cash awards respectively, but this is in the aggregate for the organization. These funds, and the discretionary additional funds, do not have to be distributed proportionally among the pay pools. As a result, some pay pools can be funded with less than the compensation that would have been available to the employees in them had they not converted to NSPS while others can be funded higher. Before they even receive a performance rating, compensation can be taken away from some good employees to sweeten the pot for others.
DoDs Own Internal Evaluation
The Defense Department contracted out its own internal evaluation of NSPS results for 2008 to SRA International. The SRA report, released June 22, 2009, was structured around the question of whether NSPS had met the key performance parameters DoD had identified as so significant that failure to meet a minimum threshold can be cause for that element, concept or system to be reevaluated, or the program to be reassessed or terminated. The key performance parameters are:
High-Performing Workforce and Management;
Agile and Responsive Workforce and Management;
Credible and Trusted System;
Fiscally Sound System; and
Supporting Infrastructure Information Technology Support.
The contractor used a combination of DoDs data on payouts, focus groups of employees, and an attitudinal survey.
In broad strokes, it can be said that the SRA study corroborates much of AFGEs criticism of NSPS. With respect to the first parameter, High-Performing Workforce and Management, a majority of NSPS participants told SRA that NSPS has not improved the link between pay and performance and that NSPS had not improved communications between supervisors and employees regarding performance expectations or feedback. Employees reported that the reassignment caps and control points undermined the performance pay system, negatively affecting retention. Furthermore, focus groups expressed doubt over whether performance ratings matched actual performance. The data also showed that NSPS had failed in its goal of encouraging poor performers to leave, since these employees felt that their low ratings had made transferring or finding new employment too difficult. All in all, NSPS was viewed by employees as a failure in the key parameter of High-Performing Workforce and Management.
On the Agile and Responsive Workforce and Management parameter, NSPS fared even worse, according to SRAs findings. Employees did not credit NSPS for any improvements DoD had in hiring or the performance of new employees. The results showed that employees generally see NSPS as worse than the GS system for hiring, placement, and promotion.
On the Credible and Trusted System parameter, the report says that a majority of employees do not believe that pay pool panels help ensure fair ratings and payouts. With regard to credibility, over half consider NSPS worse than the GS system in terms of performance management. The study also reports that when it comes to dealing with poor performers, employees were unwilling to credit NSPS with improving such situations. More than half of the responders to one study felt that NSPS had not improved the disciplining or correcting of poor work performance. The study also found that employees did not like the fact that part of the GPI received by GS employees was instead put into the pay pools for NSPS employees and they were worried about the effect on their future retirement of cash bonuses rather than pay increases.
The study results of the Fiscally Sound System parameter demonstrated problems with the disparate funding of NSPS in different parts of the Department. Some employees were in DoD organizations that had added additional money to their pay pools, but the employees doubted that these higher funding levels would continue over time. Employee concerns about more money going into cash bonuses than pay increases turned out not to have been misplaced. The report showed that in the aggregate for 2008, DoD under spent the funding for salary increases in the pay pools by 3.1 percent and over spent the funding for bonuses by 5.5%. The total payouts from pay pools were lower by 0.2 percent of the funding amount.
The report on the Supporting Infrastructure parameter found that both employees and supervisors wanted to have a better understanding of the pay pool panel process. They also felt they needed more training on the performance appraisal system, including writing performance objectives and assessments.
The internal DoD evaluation unveiled many dimensions of unfairness inherent in the NSPS pay system. Chapter Two of the SRA study shows not only that employees with the same performance ratings received different numbers of shares, but also that the share values varied throughout DoD. Perhaps the most damning statistic was that the percentage salary increases, and the percentage value of bonuses were more correlated with income level than with performance level. In addition, when pay pool managers exercised their discretion over how many shares to award to an employee with a given performance rating, the answer appears to have depended upon the salary range of the employee. For those with a performance rating of 3, 80% of those earning over $100,000 got the higher number of shares, while 61.3% of those earning below $40,000 did so. For those with a rating of 4, those earning over $100,000 were almost twice as likely to receive the higher number of shares than those whose earnings were below $40,000.
The report states the facts plainly: in general, the higher the pay, the higher the rating, the higher the proportion getting the higher number of shares for ratings of 3 or 4, the higher the percent who received an increased rating due to the contributing factors, the higher the payout percentage. This result shows the wisdom of the 2005 Defense Business Board report that called for fire walls to prevent the very migration of compensation funds from lower-graded to higher-graded employees found in the 2008 study. As for other broad categories of factors such as length of service race, gender, occupational category, and component, the study assigned factors that described how much these contributed to ratings. In general, being a racial minority had a negative effect, and being black had a more negative effect than membership in other racial groups. This combination of racial and class bias in ratings, and in the distribution of shares to workers with the same performance ratings is unconscionable.
We know that DoD has submitted its contractors study to the task group, and we urge you to carefully consider the findings. Although the report strains to put a positive spin on its overall findings, it is forced to admit that from employees perspectives, it might require a generational turnover, when no current employee remembers the GS system, before NSPS is perceived as either fair or superior to the former system.
Compensation Suppression
We believe that it was a significant improvement in the NDAA 2008 to require paying out the full amount of the nationwide GS pay adjustment and 100% of the locality adjustment as base pay increases to employees. These requirements signal that Congress recognizes that the General Schedule as the standard for market-based adjustments for federal employees. But this is not enough to ensure the viability of the DoD pay system. DoD must not be allowed to let its overall pay structure shrink relative to the rest of the Federal government. Currently, in its September final regulations, DoD has retained for the Secretary of Defense the authority to adjust different pay bands by different amounts and the minimum and maximum rates of each pay band by different amounts. This is because DoD wants to be able to suppress wages over time. The DoD pay structure must keep up with the general pay increases provided to GS employees or wage suppression will, in fact, be the result.
It is important to understand the anti-union, anti-federal employee environment that surrounded and continues to surround the creation of NSPS. This poisonous atmosphere affected the creation of other parts of NSPS, such as pay, performance management, classification, and staffing and hiring. Employees do not believe that the Department that tried so hard and continues to try to destroy collective bargaining, marginalize their unions, and weaken their workplace rights can be trusted to create, implement or administer a fair pay and performance management system.
Pay-for-Performance or Dealing with Poor Performers?
NSPS has been presented as a pay-for-performance system. In fact, it is not a true pay-for-performance system. Pay-for-performance sounds like such an obviously good idea it seems that no one could possibly oppose it. In reality, it is far more complicated than the simple words in the phrase would indicate. It is important to understand what we are really talking about when we say pay-for-performance.
The concept of pay-for-performance is talked about frequently but not understood well. What is the purpose of the system? Is it designed to improve performance, productivity, and quality? Is it designed to engage employees? Is the purpose to reward high performance? Is it really about dealing with poor performers? Over the years, when we have questioned pay-for-performance schemes in the federal government, inevitably we would hear something like, Hard-working employees resent getting paid the same as their co-worker who sits with his feet up on the desk and doesnt do his job. An employee who doesnt do his or her job most likely is a poor performer and that poor performance should be addressed. Pay-for-performance should be about making performance distinctions among good employees a very difficult thing to do well, and something that should not be confused with dealing with poor performance.
Federal employees do care about performance. They dont want to work with co-workers who cannot or will not do the job. We support dealing with poor performers, as long as they are given a meaningful opportunity to improve and there are fair and independent appeals processes for them. But why build a system, and go through such disruptive and radical change, because you believe that some employees sit at their desks and pout about how much their co-worker is making? If some employees are being allowed to fail to perform their duties or to perform them badly without consequences then this is a different problem that will never be fixed by a pay-for-performance system.
Does Pay-for-Performance Improve Agency Performance?
Sometimes pay-for-performance is raised as a potential cure for real or perceived shortcomings in government agencies. The proponents of pay-for-performance would have us believe that if there are backlogs that delay benefits for veterans, senior citizens, disabled Americans or others, it must be because some employees are not working hard enough or well enough. Is an office under-performing? Proponents insist that pay-for-performance will fix that. When citizens complain about being treated discourteously by public employees or about having to wait too long for service, politicians frequently call for pay-for-performance as a way of addressing the problem.
When public agencies are not fulfilling their missions it is important to find and fix the causes. Many times, the problem is a lack of funding, resources, or effective work processes problems that pay-for-performance will exacerbate, not alleviate. This is a time when it is very important to have employees pulling together and bringing their ideas and concerns to the cause of solving the problems. This is a time when there must be a safe environment that allows employees to do an honest assessment of the work they do and how it could be done better without fear. Pay-for-performance establishes the wrong kind of environment, one that pits employees against each other and is a disincentive to honest assessments of mistakes and problems.
Did DoD propose pay-for-performance based on facts or ideology? Does the research and evidence support the idea that pay-for-performance enhances organizational success? Empirical evidence simply is not there to show a correlation between pay-for-performance and improved organizational performance. OPMs Summative Evaluation 2002: DOD S&T Reinvention Laboratory Demonstration Program studied twelve DOD pay-for-performance demonstration projects. OPM could only find one laboratory that had any improvement in its performance that could be correlated to the pay-for-performance system. That improvement was an increase of one article published in a scientific journal.
AFGE participated for six months on the Design Team that was supposed to develop options for a new personnel system for the Department of Homeland Security (DHS), including a pay-for-performance system. The Team interviewed managers and frontline employees who had dealt with pay-for-performance, visited worksites, and read and talked to academic experts. We found no evidence that pay-for-performance systems improve the performance of the organization itself. If DoD has any empirical evidence that pay-for-performance, whether in NSPS or in the various personnel management demonstration projects in the Department, has resulted in more effective achievement of the activitys mission, it has not provided this evidence to Congress or the public.
How Common is Pay-for-Performance?
This year, the Economic Policy Institute (EPI) released Teachers, Performance Pay, and Accountability: What Education Should Learn From Other Sectors. University of Wisconsin Professors Scott J. Adams and John S. Heywood found that pay-for-performance is far less prevalent in the private sector than proponents would have us believe. For example, in data collected for 2005, the authors found that only 6% of private sector workers were paid based on explicit measures of employee or group output. Bonuses, less explicitly tied to productivity are more common, but still make up only 2% to 3% of total pay. Bonuses are most common, and have been growing mainly in the finance, insurance, and real estate industries. Our current economic crisis certainly may change this in the future.
Our experience on the DHS Design Team backs up this finding. We talked to many private sector companies. We found that some did not have pay-for-performance. Other companies did have pay-for-performance but just for their top executives, or their sales staff, or some other discrete part of the organization. Pay-for-performance across the board was extremely rare. Despite this, both in dealing with DHS and with DoD, there has been the constant, but false refrain that everyone in the private sector is under a pay-for-performance system.
Professors Adams and Heywoods research showed that pay-for-performance in the private sector is not only relatively rare, but that it is directly related to the incentive of higher productivity that makes extra money available for employee compensation. This is in contrast to a system, such as NSPS, which takes existing payroll money and redistributes it among members of the workforce. Under NSPS, employees who meet all expectations can feel punished when they realize they earned less than they would have under the GS system because some of the finite funds available for performance pay was taken from them to increase the compensation of other employees.
Unintended Consequences
The EPI study also discussed the unintended consequences of pay-for-performance in a paper by EPI Research Associate Richard Rothstein. He wrote about the difficulty in choosing what to measure and then measuring it accurately when allocating pay according to performance or in measuring whether a pay-for-performance system achieved its goals. He discussed numerous examples of pay-for-performance systems backfiring and creating problems rather than improving performance. One example he gave was from the former Soviet Union, where factories were given targets for the number of shoes to produce. Many factories met or exceeded their goals with the limited amount of leather available by producing more shoes in sizes too small for the population to wear. U.S. Hospitals and surgeons rated on their successful treatment of cardiac patients found their ratings were higher if they refused care to the most risky patients, who might have benefited from treatment, but also threatened to raise the failure rate. Employees charged with improving the health and safety of U.S. workplaces, got higher ratings by emphasizing improvements in accident prevention, because the results would show up in the rating period, than by pushing for reductions in carcinogens, because the results might not show up for 15 years.
Why Not to do Pay-for-Performance
During the time we were involved with the DHS Design Team, we spoke to many employees in the federal government and to other organizations about pay-for-performance. Here are some of the things we heard:
We talked to the personnel department of the Kings County Sheriffs Department in Washington State. The Personnel Manager told us that he does not recommend pay-for-performance for public sector employees. He said it creates three to four months of chaos and resentment and there is no return on investment. It is hard to measure things objectively. Counting arrests sends the wrong message to the public. Having officers arrest lots of people for things like not wearing a seat belt in order to make the numbers to get higher pay is neither popular with the public nor productive. Being able to exceed numerical standards for higher pay can also turn out to be the luck of the draw, such as with the latent fingerprint examiners. Latent fingerprints are undetectable to the naked eye, in contrast to patent fingerprints, which are readily visible. Identifying latent fingerprints is an important part of evidence collection, and many technicians specialize in retrieving fingerprints from crime scenes and analyzing them in the lab in order to assist law enforcement with apprehending criminals. The Sheriffs Department told us that one examiner can have many cases that each take a short time while another can get a case that takes years of hard and careful work to resolve.
We heard something similar when we met with Secret Service employees on a site visit to New York. The Secret Service has two broad missions to protect important domestic and foreign public officials, including the President; and to guard against and investigate the counterfeiting of U.S. currency and Treasury bonds. Employees told us that they could be sent out for long periods of time protecting an official, away from the manager who rates them. Ultimately, if nothing happens theyve done their job well. But how does one measure this? Meanwhile, a colleague could be assigned to investigate a counterfeit operation and make a major breakthrough that results in convictions and a high performance rating and payout.
This was a theme we encountered wherever we talked to employees. We represent employees who provide security by screening passengers and baggage at airports. Most of the time there is nothing wrong and the job is routine no less important, but routine. Then one employee finds drugs or a weapon or some other forbidden item. Does this mean that employee is better than his or her co-workers and deserves a performance-based pay increase? Under a pay-for-performance system looking for things to measure, this might be the outcome.
We met with employees in an ICE unit in New York. One employee said, In a perfect world, pay-for-performance might work. In my universe, I couldnt identify any place where pay-for-performance would work. Several expressed concerns about the good old boy network. Many employees said that they work as a team. With pay-for-performance, they feared that employees wouldnt share cases and there will be a loss of cooperation. Several remarked that favoritism would lead to some employees getting the assignments and training that would allow them to get higher ratings while others did not.
In our discussions with DoD employees, we hear the same things. The good old boy network is still alive and well in many DoD workplaces. Access to the kind of training and assignments that would have you doing things that are respected by the pay pool panel and more likely to get you higher ratings are up to your supervisor. In addition, some tasks are routine and those that are not are hard to measure objectively. If performance ratings and pay depend upon sticking out visibly over your peers, employees say it will be a disincentive to collaborate and share information and help each other get the job done.
Hierarchies of Value
We have even heard from some DoD managers who are under NSPS and say that it is considered difficult, if not impossible for any employee who works outside the Pentagon or the headquarters of a major command to be doing work considered important enough to the mission to deserve the highest rating, no matter how good their performance might be. There appears to be a profound bias in favor of employees who work higher up the chain of command or closer to the Pentagon, as compared to those who do not. Apparently, the assumption is that no matter how significant ones assignment might be to national security, the simple fact of working farther from the Pentagon is evidence that performance of that job is not as valuable. There also appear to be hierarchies of this bias; we are told that while it is best to work in the Pentagon, second best is a regional command, and yet further down the ladder are those working at military installations. Good performance under NSPS can have much more to do with geography and status than how one does ones job.
Senior DoD managers, who have requested anonymity, have also explained to us how the work of employees in the lower grades, which cannot be linked directly to the strategic military objectives of the Pentagon, is also systematically undervalued in the NSPS pay system. For those employees, it is not enough to perform extra work or exceed their written objectives. The accomplishments of subordinates are written into the accomplishments of their superiors, even if these higher-graded people were entirely uninvolved in the work. Sometimes lower-level employees are even assigned to write up their bosses accomplishments, and told to describe their own work as having been done by others.
Pay-for-Performance, Market-Based Pay, or Cost Containment?
Another problem with many so-called pay-for-performance systems, including NSPS, is that when you scratch the surface, you find what is really a market-based, cost-containment system. What is being presented to DoD employees as pay-for-performance is really more about recruitment or retention issues, the importance placed on one employees occupation in achieving the organizations mission over another employees occupation, or the supposed value of the job in the local or national labor market. The pay pool panel, in making its decisions about whether to accept or change an immediate supervisors recommendation for a rating and payout considers all these things, not just the employees performance in his or her job objectives. This is confusing and demeaning to employees.
One of the ways this plays out is in the imposition of control points in employees pay bands. These control points are actually grade-like barriers that prevent some employees from reaching the top of their bands no matter how outstanding their performance may be. According to 5 CFR 9901.321(c):
The Secretary may set control points within a pay band to manage compensation (e.g., limitations on pay setting and pay progression within a pay band that apply to specific positions). The Secretary may consider only the following factors in developing control points: mission requirements, labor market conditions, and benchmarks against duties, responsibilities, competencies, qualifications, and performance.
Throughout the regulations and the issuances, various pay decisions about reassignments, performance payouts, and other potential pay increases are supposed to be limited by these control points. An employee may be hired into a pay band that goes from $37,000 to $80,000. That employee, however, may be in a job considered in the labor market to be worth $40,000 to $60,000. No matter how well that employee performs, it will be difficult if not impossible for him or her to advance beyond the $60,000 point in their band. In contrast, the GS system closely fits actual jobs. Why put an employee in a pay band that gives the false illusion of pay potential up to $80,000 if the employee performs exceedingly well, when his or her occupation, not performance will limit progression to a point far from the top of the band?
NSPS employees are told that their pay is based on their performance, but many more things, such as interpretations of the market, budget constraints, internal agency policies, and the political agendas of different Administrations, make advancement and pay progression murky rather than transparent for employees. An employee may be told that if he or she performs really well, it will result in more pay. In reality, no matter how good the performance is, there may be little or no pay increase if the job is considered easy to fill, not key to mission accomplishment, or the agency decides that it currently is being paid over-market. No matter how good the performance is, there may only be a small increase if the money available for the workers compensation, such as the pay pool, is funded at less than would have been available had he or she not been converted to NSPS. It is hard to find any part of NSPS that is truly pay-for-performance.
Pay-for-Performance is Expensive
AFGE does not have a knee-jerk opposition to pay-for-performance systems that provide good opportunities for employees. We do believe that it is important to have a realistic understanding that a fair pay-for-performance system costs more than the GS system. It costs more because it really is not pay-for-performance unless you start with market salaries for all good employees and then budget additional money for excellent performers. In the private sector, pay-for-performance theoretically pays for itself. In an appropriated fund context, the money available for salaries is fixed increased productivity and/or higher quality do not translate into more funding for pay. DoD has told us that pay pool funding is based upon historical data on such things as performance awards. A unit that improves its performance above historical levels could find itself without the money to reward the performance the system purports to encourage. Taking money from good employees to pay more to other good employees is a recipe for failure.
Pay-for-performance also costs more because it requires an investment in training for both managers and employees and an investment in creating a performance culture in the workplace. Performance management cannot just be an add-on to the already full plates of most managers. If the goal truly is to improve the performance of government agencies, then that must be a priority, deserving of an investment of time and funds. If good employees pay is going to be affected by their performance ratings, then other duties must be taken away from their managers so they can give more of their attention to performance management. In addition, managers should be chosen for their skills in motivating, fostering and evaluating performance. We hear that it is the exception rather than the rule for an employee to have a supervisor who regularly and constructively communicates with him or her about performance and about the agencys goals.
During the DHS Design Team process, we interviewed Stanford University Business School Professor Dr. Jeffrey Pfeffer. He reminded us that effective evaluation systems are resource intensive. Southwest Airlines actually increased the supervisor to employee ratio to ensure that managers could spend the time necessary to make the system work. He also said we should ask if there is monetary support for a pay-for-performance system. If everyone did a better job do we have resources to reward them? Performance pay should be an add-on to adequate and competitive base pay. He said that unfortunately, all too often it is easier to tinker with a pay system than to deal with the systemic problems that make systems fail, such as lack of training and support for a high performance culture.
If an agency is unwilling or unable to pay more for higher performance, it should not
be allowed to implement what it cannot afford. Without adequate funding, pay-for-performance cannot succeed. Unless you are planning to put more money into the system, you are not planning for true pay-for-performance. There are many ways that agencies try to implement pay-for-performance in a zero-sum environment. These methods create cynicism and a negative attitude among workers rather than motivation. Unfunded pay-for-performance systems actually may lead to declines in performance.
Making Payouts without Adequate Funding
Among the ideas agencies use in inadequately-funded pay-for-performance systems are:
Require forced distributions no more than a certain percentage of the workforce is eligible for high ratings and larger payouts. This approach skews ratings to fit the budget instead of measuring actual performance and providing an incentive to the entire workforce to excel. It also forces managers to make meaningless distinctions among employees whose performance is similar. It redistributes pay, effectively lowering pay for some in order to reward others regardless of any real differences in performance.
Expand the number of high ratings given, but simultaneously lower the value of each. Although this may allow for a larger number of fair ratings, the benefits become too small to justify the efforts and problems associated with pay-for-performance. Further, if it is successful it will approach the pay distribution that characterizes the current GS. This outcome is both ironic and wasteful because administering pay for performance is far costlier and burdensome for agencies than the GS.
Give acceptable employees small increases or no increases in order to pay others larger increases this takes money out of the pockets of good employees to pay a few so-called stars guaranteed to demoralize the majority of the workforce.
Rotate who gets the outstanding rating and larger payout from year to year. This cynical approach tries to make the best of a bad system that forces meaningless distinctions among workers.
Give one outstanding employee a larger amount because that employee is lower in the pay range or did not get a promotion recently, or is being pursued by another employer, or for some other reason not directly related to their performance. This is not pay for performance and employees should not be misled that they are under a system that rewards them for their performance if decisions actually will be made that have more to do with who is considered to be more important, or whose job is more difficult to fill or who is able to threaten a project by leaving. The GS System has the flexibility to provide retention bonuses of up to 100% of salary, with a four-year work requirement, to accommodate these situations a much better strategy than using co-workers pay to fund a large pay increase for an employee who might be a flight risk.
NSPS is a zero sum system DoD is not investing more money into it in order to encourage exceptional performance. It is cost-containment, disguised as pay-for-performance. We vehemently oppose lying to workers, lying to the taxpayers whose money is being spent, and lying to Congress by trying to pass off an attempt to contain and even cut costs as a system designed to improve national security.
Pay for Performance is Wrong for Many Jobs and Workplaces
Pay-for-Performance also is not appropriate for all occupations, organizations or work cultures. The common wisdom is that it is easy to measure performance in certain jobs, such as manufacturing, where you can count the number of items produced. Even there, however, it is far more complex. Mike Simms, the former plant manager at Wainwright Industries, which won the Malcolm Baldrige National Quality Award in 1994, has some cautionary words about measuring individual performance. In an interview he said, The machine tool operator-which [is] portrayed as being the easy case for tying pay for performance-is a great example. It doesnt work even with widgets because you dont know the true cause of improved or decreased performance. Is it the machine? Is it the material? Is it the maintenance? There is no way of really knowing.
In its June 2005 report to the Secretary of Defense about the implementation of NSPS, the Defense Business Board warned against going to pay bands and pay-for-performance for the entire workforce. In the report, the DBB told the Secretary of Defense:
Pay bands are appropriate for professional career groups, such as engineers, scientists, lawyers, etc., where advancement in experience, value and contribution can occur without changing the basic job description.
However, substituting three to five pay bands for the full GS 01-15 grade structure may be inappropriate for those in hierarchical management or administrative positions, because it eliminates the incentive and reward potential of promotions
The report further stated:
The Board raises a note of caution with respect to the plans to eliminate the 10-step pay progression system within the GS levels for all employees in Spiral One units, and replace the 10-step pay progression for all grades with merit pay increases and bonuses based on evaluations of individual performance.
The main value of merit pay and performance-based management is in the higher-level positions, where individual discretion, impact and accountability are the greatest.
Elimination of the 10-step pay progression structure in lower GS grades may cause stress and resentment in excess of any benefits gained by implementing the system to these grades.
Clearly, there is no evidence to support and much evidence to oppose putting all employees into pay bands and pay-for-performance systems whether or not their jobs or their workplaces are suited to such systems.
DoD and its Components should ask themselves and honestly answer several important questions:
Are all employees who do everything they are asked to do being paid fairly and competitively?
Is there adequate funding to pay more to employees whose productivity or exceptional quality warrant it?
Does the work of your organization lend itself to individualized measures of performance or productivity that can be compared objectively against co-workers performance?
Does the increase in performance, productivity or quality offset the cost of the training, development, tools, and other resources necessary for ongoing increases in performance?
Can DoD afford to release supervisors from other duties to allow them to spend more time communicating with employees, helping to remove barriers to their performance, evaluating performance, and advocating for scarce resources in a pay pool competition?
Reports from senior managers in DoD administering the NSPS system for those not in bargaining units have described its implementation as extremely problematic. We are told that different pay pools have different rules for distribution and for funding. A share in one pay pool may be worth more than one in another pay pool. Employees with the same job and same performance rating can get different performance payouts even if they are in the same pay pool.
Performance Management
NSPS has a complicated process for coming up with employees ratings. Each employee is given job objectives. Each job objective will have one or more contributing factors. Contributing factors include such things as cooperation and teamwork, leadership, and customer focus. The supervisor is supposed to assign a rating from 1 to 5 on each job objective. Then he or she rates the employee on the contributing factors associated with that job objective. If the employee meets the expected benchmark descriptor on the contributing factor it will have no effect on the rating on that job objective. If the employee fails to meet the expected benchmark descriptor, the job objective rating is lowered by one point. If the employee meets or exceeds the enhanced benchmark descriptor, the job objective rating is raised by one point.
If an employee has a rating of 1 on a job objective, however, the contributing factors are not applied. It is not possible to adjust upward a Level 1, or unacceptable, rating on an objective because of a contributing factor. If a job objective is scored at level 2, the Contributing Factors cannot be used to lower the job-objective rating to a level 1. If the job objective is rated at level 5, it is not possible to change the rating upward because level 5 is the highest rating possible. However, there is a potential for an employee to receive an extraordinary pay increase (EPI). This is hardly a transparent, credible or streamlined system.
Pay Pool Panel Deliberations: The Mystery
Supervisors are supposed to send their recommendations for ratings and payouts, along with their written assessments, to the pay pool panel, which can change them, and determine different performance pay than the supervisor believed was warranted. Supervisors have been ordered NOT to reveal to their subordinates the ratings and payouts they are recommending to the pay pool panels. Some supervisors have been given scripted language they should use if their subordinates ask for their ratings. According to an Army instruction guide for training supervisors on NSPS:
Employees may want you to share your recommended rating and/or number of shares with them, but this information is not to be shared with employees at this point. What do you say?
My recommendation is just that a recommendation that I will not share with you. The higher level reviewer, and the pay pool panel, will be looking at my recommendations in terms of the larger organization.
They can see how our work units contributions fit into the larger picture.
They can also compare individual employee performance across the organization.
This hardly encourages meaningful performance communication between employees and their supervisors.
In many cases, the pay pool panel that first considers the supervisors recommendations is only a sub-pay pool panel. The recommendations of various sub-pay pool panels then go to the over-arching pay pool for final determination of employees ratings, shares and payouts. As a result, the direct connection between performance and the employees compensation is lost. Without the direct feedback, the premise of pay-for-performance is undermined. Surely it violates the principle of transparency if an employee cannot see the supervisors rating and the final rating and payout are the result of a bureaucratic process that goes on behind closed doors among people far removed from the work and workers.
From the time supervisors submit their recommended ratings and payouts to the pay pool panel, a good three months go by until the payout decisions are made. Supervisors are allowed to tell their employees their ratings and payouts only shortly before they receive their checks in January. The whole pay pool process takes place in secrecy and the various participants are required to sign non-disclosure agreements. Components instruct their supervisors to go into the performance management system, whether electronic or paper, and change the recommendations they made and any write-ups they did supporting those recommendations, so that they conform to the final decisions of the pay pool panel. At least one agency goes so far as to tell supervisors that no matter what their original recommendations were, what the pay pool panel decided is now how they rated their subordinates a chilling example of revisionist history.
Supervisors are supposed to make their recommendations to the pay pool panel in October. They will not be told, however, whether the pay pool panel agreed with their recommendations until December at the earliest. They will not know if the pay pool panel thought they developed poor job objectives, wrote up their assessments poorly, or did a bad job using contributing factors. Employees will get their ratings and their payouts in January. Meanwhile, in October, three months before supervisors and employees know how good a job the pay pool panel thought they did in developing their performance plans for the prior rating period, they must sit down and develop the plans for the new rating period. By the time they do get the feedback, three precious months of the rating period have passed.
Bell Curves and Other Distortions
In 2008, many distraught DoD managers sought AFGE out to tell us their NSPS woes. What they told us is that they had carefully rated their subordinates as objectively as possible, only to be told by the pay pool manager that their ratings must be lowered in order to get to the bell curve. But it gets even more complicated than that.
Employees in the same pool who were rated 3, for example, might not get the same number of shares. That number varies on the basis of:
the component/activity/workplace
the pay band (individual workplaces gave out different numbers of shares to professionals vs. technicians vs. supervisors/managers.)
the location of the workplace
the pay pool managers opinion of how an employee rated relative to other 3s submitted by other supervisors
how crucial the employees job is judged to be relative to the Pentagons strategic military objectives.
Further, the money put into shares would vary enormously. In some places, a share was worth 1% of salary, in others it was worth 1.5% and in others it was worth 2%. Again, these could vary among and within components and all the way down to individual workplaces and individual employees. In some workplaces, an employee who got a 3 could get more than someone elsewhere who got a 4 or even a 5. Also, as mentioned above, some pay pools made distinctions among 3s, 4s, and 5s giving individuals who got the same ratings different numbers of shares. In other words, there is no consistency whatsoever.
To make matters even more complex, the pay pool managers have flexibility in deciding how much of a share should be put into an employees salary increase versus cash bonus. This fact was confirmed by NSPS Program Executive Officer Bradley Bunn in a conference call with AFGE staff. Obviously, the more compensation placed in bonuses as opposed to salary increases has profound implications for the employees standard of living not only in subsequent years while he or she is still working, but also into retirement. Once he or she retires, both the defined benefit portion of the pension (based on a formula using the high-3 years of salary) as well as the agencys contribution to the Thrift Savings Plan (TSP) (based on a percentage of salary) will be reduced commensurate with reduction or stagnation of salaries.
In its September 2008 report, HUMAN CAPITAL: DoD Needs to Improve Implementation of and Address Employee Concerns about its National Security Personnel System, GAO said:
NSPS guidance may discourage rating officials from making meaningful distinctions in employee ratings because it indicated that the majority of employees should be rated at the 3 level on a scale of 1 to 5, resulting in a hesitancy to award ratings in other categories.
The forced distribution model is evident in the way DoD established performance pay with its non-union NSPS employees in 2008. Fifty-seven percent were rated 3 or average; 36 percent got a 4 rating, and just five percent received the highest rating of 5. Two percent were rated either 1 or 2 and thus received little or no raise. And despite triumphant headlines touting average raises of 7.6%, the ugly fact is that not all those rated in the middle level 3 got the same percentage raise. In fact, among the 62,700 valued employees, DoD decided that 5,425 were of so little value that they got raises smaller than their GS counterparts, or less than 3.5%.
In many ways DoDs regulations violate the clear mandate of the NDAA 2008 for the system to be transparent. Under DoDs system, employees will not know how pay pool money is distributed, whether or not they are in a pay pool that has been funded below the amount that would have been available to them had they not converted to NSPS, and how and why such decisions were made. Employees will not know what rating their supervisor recommended, and who, in the hierarchy of managers in the pay pool process actually determined their rating and payout and why. Unlike the GS system, in which employees know the grade and step of their fellow employees, NSPS workers will not know who is getting what in their workplace. Without this information, managers can manipulate workers and keep them from being able to evaluate the relative equity of their own compensation. DoD should not be allowed to keep everything behind closed doors, require managers to sign non-disclosure agreements, and hide the facts about the distribution of pay. Employees should be able to get reports of how the money is distributed to pay pools, who got what in the work place, and how and by whom their own rating and payout were determined.
In addition to concerns about loss of salary, and corresponding reductions in pensions and thrift savings plans, AFGE is also very concerned about the elimination of merit promotion and violations of the merit principles required by law that were recently reinforced by the NDAA 2008. Under NSPS, promotions are very rare. Employees might be given additional duties by their supervisor in order to advance inside the pay band what NSPS calls reassignments, but there will be no clear pathway to that advancement, nor is there a requirement that a job at the higher pay level be open to competition or even that other employees know about the opportunity. The merit promotion system under NSPS is all but dead. Bias and favoritism are inevitable, along with an erosion of the merit principles so important to the quality of the Civil Service.
Grievance and Arbitration
Outside the context of union representation, DoD employees are reluctant to utilize the formal process set up to challenge their numerical performance rating, as it is widely viewed as career suicide to do so. Bargaining unit employees with exclusive representatives will be able to use a negotiated grievance and arbitration process to challenge their performance ratings. In 5 CFR 9901.413(c), however, DoD says:
Recalculations based on adjusted job objective rating or rating of record. In the event a reconsideration or negotiated grievance decision results in an adjusted job objective rating or rating of record the revised rating will be referred to the Pay Pool Manager for recalculation of the employees performance payout amount and distribution.
AFGE strongly objected to this apparent unilateral determination of the scope of that grievance procedure, something normally negotiated by the parties. It would seem, according to these regulations, that the Arbitrator can change an employees rating but then must remand the rating back to the same pay pool manager whose decision was challenged, to come up with the actual shares and payout. In response to our comments, DoD has insisted that it is still up to the parties to decide what will be in their negotiated grievance procedure. In the Supplementary Information to the September 26, 2008 final regulations, DoD says:
Another commenter requested that the language be amended to include payouts under the jurisdiction of the negotiated grievance process. This provision does not impact the ability of the parties to negotiate on a negotiated grievance procedure. Payout decisions are not explicitly excluded from, nor are they covered by, negotiated grievance procedures because of any provision of the regulations. To the extent that matters related to NSPS payout decisions can be covered by a negotiated grievance procedure they are, but any grievance arbitration decision must be consistent with these regulations
What amazing double speak! The regulations clearly say that if an arbitrator changes a rating, the revised rating will be sent to the Pay Pool Manager who will decide how the employees payout amount and distribution between pay increase and cash bonus will be recalculated. The Supplementary Information says that if something is grievable, it is grievable. It also says that the arbitrators decision must be consistent with the regulations, presumably including the part that says the revised rating goes back to the Pay Pool Manager to determine the payout. If NSPS remains, this will be a fertile field for litigation.
AFGE has been told by senior managers at DoD that there are many problems with the NSPS pay system and we have no reason to doubt them. They are not obligated to discuss any of these matters with us at this time, but choose to do so in the hopes that we can stop the system. The system they describe is not flexible or contemporary; is subject to abuse and discrimination; does not adequately ensure collective bargaining; does not contain a fair, credible, and transparent employee performance appraisal system; and does not have effective safeguards to ensure fairness. American taxpayers and the employees of DoD deserve better.
Prohibited Discrimination in NSPS
The proponents of NSPS claim, falsely, that NSPS is designed to adhere to the merit system principle of equal pay for substantially equal work. Employees who have had the misfortune of working under pay for performance systems know otherwise. When surveyed, federal workers express skepticism about their chances to excel in the workforce because their opportunities and evaluations depend so much upon expectations that are frequently arbitrary, subjective and unclear. NSPS leads to unfairness in the workplace, not greater fairness. The SEC recently lost a major arbitration case because its pay-for-performance system was shown to discriminate against black employees.
Stanford University Professor Jeffrey Pfeffer understands employee apprehension about individualized pay systems, noting that supervisors in charge of judging employees have a natural tendency to favor people like themselves. These proclivities tend to result in adverse effects on women, minorities, and sometimes older workers, who are underrepresented in the ranks of management. Indeed, women and minorities have been most likely to report dissatisfaction with pay for performance demonstration projects, arguing that pay raise decisions reflected bias rather than objective assessments of a workers performance. If employees in an organization believe that they and their co-workers are not being evaluated properly, this is a performance management problem that pay-for-performance systems like NSPS will exacerbate rather than solve.
Subjectivity and bias pervade the NSPS pay system. Unlike the NSPS, the GS system and the pay adjustment process contained in the Federal Employees Pay Comparability Act (FEPCA) were established upon the pay principles of neutrality and market sensitivity or comparability with the private sector. Salaries are set on the basis of job responsibilities, and annual adjustments reflect both the performance and experience of the job holder, and market data from the Employment Cost Index (ECI) and locality surveys.
Although DoD has not published data in any regular manner, on August 10, 2008, the Federal Times published an article describing the results of its request for data concerning the NSPS performance payouts. What reporter Stephen Losey found was that, White employees received higher average performance ratings, salary increases and bonuses in January than employees of other races and ethnicities. In addition, the Federal Times analysis showed that employees who worked for the Defense agencies, including the Office of the Secretary of Defense, received higher ratings and payouts overall than did their civilian counterparts in the three military service branches. In the article, the Department stated that it did not know the reason for the inequalities in ratings and compensation, but said that the fact that different organizations within the Department can fund their pay pools differently could account for part of it.
On June 8, 2009, the Federal Times said, The Defense Departments controversial pay-for-performance system still gives larger raises and bonuses to white employee than to minorities, according to a Federal Times analysis of the latest round of payouts given in January. The problems of discrimination and bias, whether intentional or unintentional, are pervasive in NSPS. It is no wonder that employees do not trust NSPS and do not believe it is fair, credible or transparent.
NSPS Creep
DoD has said that it does not intend to convert any bargaining unit employees into NSPS. At this point that is a statement of intent nothing prevents DoD from reversing this policy in the future. But it is not enough to refrain from converting current bargaining unit employees to NSPS. DoD can start hiring most new employees into positions it places in NSPS. We have already started to see this. DoD can convert employees to NSPS as a result of reorganizations or base closures. Employees who are now covered by NSPS can organize and join the approximately 300 AFGE bargaining unit members who became part of the union after they converted to NSPS. Having part of the workforce under NSPS is troubling for many reasons. DoD can divert discretionary funds that normally would be available for awards or other economic benefits to GS employees and use them to increase the pay pools for NSPS employees. DoD managers can create advancement opportunities but only make them known to a favored few.
Conclusion
Although NSPS calls itself a pay-for-performance system, the reality is anything but. An employee can end up in a pay pool that is funded proportionally lower than other pay pools for reasons that have nothing to do with his or her performance. An employee can have his or her rating and payout determined by managers several levels up in the chain of command who may know nothing about that employees work. An employee can be in a job or in a job location considered to be too far away from the Pentagon to possibly be doing anything important enough to deserve a level 5 no matter how much the employee exceeds the job objectives. An employees rating may be lowered to fit the bell curve explicitly or implicitly enforced in the pay pool. And, many times it is more about an employees or supervisors ability to write and advocate than about that employees actual performance. We hear from employees that they have been told that their recommended ratings were lowered because the pay pool panel thought the supervisor wrote poor job objectives, although the employee worked in good faith to exceed those objectives. And, employees who are skilled at writing their self-assessments, blowing their own horns and tying everything they did to the mission of the agency, may get better ratings than employees whose actual performance was better, but had weaker writing skills.
Wherever we have talked with federal employees, they have been unanimous in their rejection of pay for performance. No matter how the question is framed and no matter which version of pay for performance is involved, the message is the same. Federal employees are not in favor of replacing their current annual pay adjustment, passed by Congress, for a pay adjustment that is subject to favoritism and discrimination and other unrevealed elements outside of market data and performance.
The NDAA 2008 established specific criteria that DoD must meet in its NSPS performance management system. According to the law, the system must incorporate the following elements:
Adherence to merit principles set forth in section 2301.
A fair, credible, and transparent employee performance appraisal system.
A link between the performance management system and the agencys strategic plan.
A means for ensuring employee involvement in the design and implementation of the system.
Adequate training and retraining for supervisors, managers, and employees in the implementation and operation of the performance management system.
A process for ensuring ongoing performance feedback and dialogue between supervisors, managers, and employees throughout the appraisal period, and setting timetables for review.
Effective safeguards to ensure that the management of the system is fair and equitable and based on employee performance.
A means for ensuring that adequate agency resources are allocated for the design, implementation, and administration of the performance management system.
A pay-for-performance evaluation system to better link individual pay to performance, and provide an equitable method for appraising and compensating employees.
NSPS fails in every one of these requirements of the law.
In its September 2008 report, GAO said that the percent of NSPS employees who believe the system will have a positive effect on DoDs personnel practices declined from 40% in 2006 to 23% in 2007. The percent of employees who agreed that their performance appraisal was a fair reflection of their performance declined from 67% in 2006 to 52% in 2007. Over time, employees are more negative about NSPS and less confident in its credibility or fairness.
In the February 2009 issue of Issues of Merit, published by the Merit Systems Protection Board (MSPB), Dr. John Crum, director of the MSPB Office of Policy and Evaluation wrote about pay for performance. In the article, Dr. Crum remarked on the problems that DoD and DHS have had trying to implement their systems. He noted that the GS system was designed as a pay for performance system, but that managers rarely use its performance-based features. Dr. Crum suggests that before agencies create new systems, they should first start "using the options that are currently available to them in an appropriate and transparent manner." This can allow supervisors to be "able to demonstrate to employees that they can be trusted to make fair decisions that affect their subordinates' pay..."
NSPS is a tainted, fatally flawed system, created in a poisonous atmosphere by ideologues seeking to destroy collective bargaining, federal unions and employee rights and protections. The pay, performance management, classification, and staffing systems created under NSPS are unwieldy, discriminatory, complicated, costly, opaque, and mistrusted by DoD civilian employees at all levels. Despite its short existence, unlawful discriminatory practices are already coming to light. NSPS must be killed. No amount of rehabilitation can make it acceptable or workable. We are willing and eager to work together with the Department and the Administration to find ways to improve the personnel systems so that they better meet the needs of federal workers, their agencies, and the American people. But that must be a future step, after NSPS no longer exists.
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