GovernmentExecutive.com

The 110,000 employees working under the first wave of the Defense Department's new personnel system will not receive the across-the-board pay increase they expected next year.

This week, Deputy Defense Secretary Gordon England made managers aware of a new policy that will change the way some department employees will receive the 2008 governmentwide pay and cost-of-living increase, which is expected to be 3.5 percent.

According to NSPS spokeswoman Joyce Frank, the 110,000 employees working under the National Security Personnel System's Spiral 1 conversion will receive half of the 2008 pay increase as an adjustment to their base salary, provided they earn an acceptable performance rating. The other half of the pay increase will be added to performance pay pools and distributed based on performance, Frank said. Increases in local market supplements will be the same as the governmentwide increases for locality pay.

"The department leadership has decided to take the next step toward a more robust pay-for-performance system," Frank said. "These decisions reinforce the department's commitment to the NSPS pay-for-performance system, which rewards and compensates employees based on performance."

The 90,000 employees in the system's next wave of conversion -- Spiral 2 -- will get the 2008 governmentwide pay increase, since they will not have received an NSPS performance evaluation, Frank said.

According to one Spiral 1.1 employee, who spoke under condition of anonymity, the new policy could mean that many employees could receive a raise lower than those on the General Schedule. "What this in effect will mean is employees rated 'valued employee,' and assigned a three rating, will get something less than the 1.5 percent raise that went into the pay pool," the employee said, "since every four- and five-rated person will get more shares, and the amount of money in the pool is fixed."

But according to Frank, that is not necessarily true. "There are several factors," she said. "The amount of increase for an employee is determined by the value of a share."

Another change is expected in 2009, when the full governmentwide increase will be allocated to the performance pay pools and distributed based on performance, Frank said.

This year, all Spiral 1.1 employees with an acceptable performance rating received the full across-the-board pay increase of 2.2 percent. Employees with acceptable ratings also were awarded shares based on the average of their performance marks in several categories.

To calculate payouts under the new system, the department multiplies employees' base salaries by their ratings and adds the results to arrive at a "Total Salary Share Product." The pay pool is divided by the Total Salary Share Product to calculate the value of a single share. Shares are thus worth different amounts depending on how the rest of the employees in a pay pool performed.

The department plans to add an additional 90,000 nonbargaining unit employees to the personnel system in fiscal 2008. Eventually, the system is slated to encompass 700,000 civilian employees.