GovernmentExecutive.com

Congress has dealt a lethal blow to the Defense Department's controversial pay-for-performance system.

The conference committee working on the fiscal 2010 Defense authorization bill on Wednesday released a report of the final legislation that repeals the law authorizing the National Security Personnel System, and mandates the return of all NSPS employees to their previous pay system by Jan. 1, 2012. The House and Senate are expected to approve the conference agreement.

"I am pleased my fellow Armed Services conferees agreed that it is time to end this short-sighted policy, which threatens the rights and protections of the DoD civilian workforce," said Sen. Daniel Akaka, D-Hawaii. "Employees throughout the federal government, especially those charged with defending the nation, deserve a fair personnel system. I believe this agreement will more appropriately protect DoD employee rights while giving DoD the additional performance management and hiring flexibility it needs."

The report also gives the Defense secretary the ability to propose new personnel flexibilities, but would subject those to congressional approval.

Under the agreement, the Defense secretary would have to begin returning the 200,000 Defense employees covered by NSPS to their previous pay system within six months of the law's enactment. The conference report said "no employee shall suffer any loss of or decrease in pay" when they revert to the previous personnel system.

The Federal Managers Association had been concerned that highly-rated employees who received significant pay increases under NSPS would be financially penalized when they returned to the General Schedule or another personnel system, said FMA President Darryl Perkinson.

The conference report also stated that until NSPS employees are returned to their earlier pay systems, they are entitled to 100 percent of pay raises granted to General Schedule workers in other departments.

Defense Secretary Robert Gates announced on Sept. 25 that all Defense employees who received ratings above "unacceptable" would receive the full raise given to General Schedule employees. Previously, employees had been entitled to at least 60 percent of that raise, but the Defense secretary had the authority to allocate 40 percent of the raise to pay pools to be distributed as performance increases and bonuses.

Federal employee unions strongly praised the conferees for choosing to repeal the authorizing legislation behind NSPS, a more aggressive action than those proposed in the House and Senate Defense authorization bills. The House version of the provision would have rolled back NSPS within one year, unless the Defense secretary argued for its reform and Congress passed legislation to preserve the system. The Senate provision would have eliminated NSPS within the same period of time, but allowed the Defense Secretary to establish a new pay-for-performance system that was "fair, credible and transparent."

House Oversight and Government Reform Committee Chairman Rep. Edolphus Towns, D-N.Y., said that the decision to repeal NSPS was a necessary first step toward the "reconstruction" of the Pentagon's personnel system, recommended by the Defense Business Board's review panel, which issued its final report in August.

While the conference report does not give the Defense secretary authority to establish a new pay system unilaterally, it does direct him to make substantial changes to performance management within the department. The report directs the secretary to work with the head of the Office of Personnel Management to create a "fair, credible and transparent performance appraisal system" for employees; a "fair, credible and transparent system for linking employee bonuses and other performance based actions to performance appraisals of employees;" and a system to provide employees with "performance assistance plans" that would give them access to on-the-job training and mentoring.

And the report gives the Defense secretary the authority to create a "Department of Defense Civilian Workforce Incentive Fund." Money appropriated for the fund could be used to award performance, hiring and retention bonuses to Defense employees.

The agreement opens the door to the creation of additional personnel flexibilities other than the changes outlined in the conference report, but says the Pentagon chief must work with the OPM director to develop a plan for those changes and justification for how they would avoid the pitfalls of NSPS identified in the Defense Business Board review panel's report. Congress would have to approve those changes.

"NSPS has been on the wrong track since its inception, and I am glad to see the conference committee take a strong stand against this failed system," said William Dougan, president of the National Federation of Federal Employees. Dougan cautioned that the conference report still had to pass, but said Wednesday had been "a very good day for the federal workforce."