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Pay-banding pros and cons

President Bush on Monday officially unveiled legislation under his Freedom to Manage initiative that would allow federal agencies to pull out of the General Schedule and set up pay-banding systems. For background on pay-banding, see the Oct. 4 and Sept. 6 installments of Pay and Benefits Watch. In the Oct. 4 column, Pay and Benefits Watch asked for managers' and employees' thoughts on pay-banding. Responses came from people in pay-banding systems and from people in the General Schedule. While some people like the idea, others hate it. Still others have only mild concerns. Presented here is a summary of the pros and cons of pay-banding as seen by this column's readers. Pay-banding Pros
  • Higher salaries. Some readers who are in pay-banding systems say they get paid more than they would if they were still in the General Schedule. Pay-banding gives managers the ability to set pay within a broad range, rather than at gradually increasing specific intervals on the General Schedule ladder. In the General Schedule, employees at steps 7 through 9 of any given grade have to wait three years for their regularly scheduled increases, while those at step 10 are stuck. "My husband is in the GS system and is topped out in his grade," one reader in a pay-banding system said. "I now make more than he does." Managers who support pay-banding like the idea of rewarding long-time employees at the high end of a grade. Pay-banding can also help managers counter offers from the private sector when experience has made employees very valuable.
  • Rewarding performance. A reader who said he is a high performer thinks pay-banding would be beneficial if it actually draws a distinction between stars and clock-watchers. Pay-banding offers the promise, when tied to a well-designed performance appraisal system, of letting managers give big raises to top performers and low-or even no-raises to people who aren't up to snuff. Defense Department contracting has undergone significant changes in recent years. "Pay-banding would allow supervisors to reward those who have accepted change and are looking for new and better ways to do business, while sending a message to those who are slow to come from the dark ages," one Defense contract office manager says. "Even among those who have embraced change, there are those who continually step up to what is asked of them and more, while there are those who do no more than the bare minimum. Pay-banding would allow those who are working well beyond requirements to be rewarded for their hard work, while sending a message to those who do the bare minimum."
  • Recruitment and retention. Here are the words of a federal manager: "We're having a very difficult time recruiting and retaining top young talent. It seems to me that pay-banding would be a tool for use in this area. Without it, I don't see much changing. As a 50-year-old manager, I have this dwindling staff of old folks like me that are tied to their work by CSRS (and a sense of duty). We can occasionally attract some great young talent, but these folks are FERS. Just as you start feeling comfortable that you are starting to assure the continuity of the organization for the long term, here comes an outside firm that also recognizes these people's value and hires them away. My impression is that most of the people that leave actually like our work better than what they are leaving to do, but the financial package they have been offered tips the balance. Pay-banding would at least put an arrow in an empty quiver. Without something, I worry about my organization when my contemporaries and I retire."
Pay-banding Cons
  • Managerial weakness. Some readers said the managers of their agencies would be lousy at making performance-related pay decisions in pay-banding systems because they make lousy decisions in the General Schedule. One commonly cited reason for managerial incompetence was that politics, rather than performance, drives many managers' opinions of their employees, thus raising the issue of favoritism versus real accomplishment. One reader who generally favors pay-banding made the following observation: "Those who currently occupy senior positions are the product of the old seniority systems. In my opinion, far too many of them are not deserving of the positions they have now-their technical knowledge and their ability to lead and manage are questionable, but the current system is geared to never admit that some of the wrong people were selected for leadership positions. Are these the ones who will sit in judgment of others? Will they set the standards of what constitutes 'worthiness'?" Some readers predicted that discrimination would soar under pay-banding systems and that grievances would skyrocket. But under the General Schedule, employees have protections and managers have some methods of rewarding performance, pay-banding opponents said.
  • Cost considerations. Pay-banding will increase the government's costs, some readers said. If the General Schedule's grade inflation carried over into pay-banding systems, then most employees' salaries would jump. "I have seen subordinate supervisors give every employee an outstanding rating," one manager said. Said another: "By nature, a pay-for-performance system should result in an increase in payroll costs. Otherwise, the system is not working." Other readers worried that pay-banding would be a problem for budget forecasters, who wouldn't be able to determine salary needs in time for budget submissions. That could siphon some salary money off to other areas, one reader said.
  • Bye, bye teamwork. One federal employee said that the pay-banding system in his office has turned his colleagues into kiss-ups, snitches and competitors. "Pay-banding seems to have caused an increase in situations where employees feel the need to blow imaginary whistles on each other in order to solidify their standing with their manager," the employee said. An employee in a different agency said the pay-banding system there is a zero-sum game. In order to maintain a bell curve of pay raises, some employees must be punished so that others get large rewards. "Quota-type systems should be illegal," the employee said.
In the coming months, Pay and Benefits Watch will continue to explore pay-banding systems and the administration's proposal to allow more agencies to adopt them. Stay tuned.

Brian Friel is founder of One Nation Analytics, an independent research, analytics and consulting firm for the federal market.

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