SEC scales back pay-for-performance ambitions

The Securities and Exchange Commission is moving more cautiously before using employees' performance reviews as a basis for pay decisions, the agency's executive director said Tuesday.

Diego Ruiz told a House subcommittee that the SEC is putting a fresh face on its controversial personnel system, and vowed to implement a completely new performance management system as a first step.

"This will allow the commission to focus all of its efforts on effectively implementing all aspects of the new system before relying on it to provide performance information to support pay decisions," he testified.

In the meantime, Ruiz said, employees receiving an "acceptable" performance rating will receive an equivalent share of the funds the agency has available for merit pay increases.

The new performance management system at SEC was developed using best practices from other federal agencies and the private sector. It also addresses several performance-related recommendations from the Government Accountability Office, the Office of Personnel Management and the SEC's inspector general, Ruiz said.

Still, to ensure SEC is improving performance management, he added, the inspector general will perform another full audit of the program in two years.

"This is a welcome decision by the agency," said Colleen Kelley, president of the National Treasury Employees Union. "It has been clear for some time that the SEC system, as it has been designed and implemented, needs to be significantly revamped so that it is fair, credible and transparent."

In September, an arbitrator ruled that the SEC's pay-for-performance system was illegal because it resulted in discrimination against African-Americans and employees who are 40 and older. The grievance, filed by NTEU, covered the 2003 performance period; grievances are pending for every year since then.

The arbitrator did not rule on an appropriate remedy for the discrimination, but asked the SEC and NTEU to submit briefs on how to resolve the issue. On Tuesday, Ruiz said SEC proposed that, for all employees in the two affected categories, the agency would individually reconsider the merit pay awards for 2003, with retroactive pay adjustments for employees who received upgraded awards.

"NTEU would be provided a summary of the pay adjustments," he said, "and individual employees who remain dissatisfied would be permitted to file grievances in accordance with the collective bargaining agreement."

SEC's decision to scale back its personnel plans follows similar efforts at other agencies over the past year. The Federal Deposit Insurance Corporation, for instance, recently agreed to suspend a system that garnered little buy-in from employees. And last February, officials at the Homeland Security Department pledged to scale back the agency's pay-for-performance ambitions after determining that a new pay system was a great source of anxiety to employees.

A lack of clearly defined work and performance expectations is one of the most widespread and serious problems with alternative pay systems, including the one at SEC, Kelley said.

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