3/15/10: Last week, NTEU Chapter 293 and the SEC signed a Memorandum of Understanding (MOU) reflecting an agreement on certain aspects of the Enforcement Division’s ongoing reorganization effort. The principal features of this agreement deal with the creation of five new “specialized units,” the promotion of a number of supervisory Grade 15 branch chiefs to Grade 17 assistant director positions, the conversion of the remaining Grade 15 branch chiefs to bargaining unit frontline investigative staff, the use of a seniority-based selection process for staffing the new AD Groups, and new more uniform position descriptions and career ladders for Division Paralegals.

Management Flattening and the AD Group Selection Process

Since the previous administration, the Union has consistently advocated for a real “flattening” of Division management by designating branch chiefs as frontline investigative staff with no residual supervisory authority over other Division employees, which would have raised the ratio of staff to frontline management to 10 to 1. Such a change would have substantially increased the Division’s frontline investigatory staff, improved the speed and efficiency of the decision making process within the Division, and empowered investigative staff to fully employ their experience in connection with the Division’s investigative work in a fashion similar to the Justice Department.

The Division has instead adopted a much more incremental approach to management flattening. It has eliminated the branch chief position as proposed by the Union, and last week’s MOU includes an agreement that former Grade 15 branch chiefs will no longer supervise other Division employees. As you are by now aware, however, the Division has simply promoted many of these same Grade 15 branch chiefs into a large number of new Grade 17 assistant director positions. As a consequence, the final ratio of staff to frontline management will be closer to 6 to 1.

A key feature of the new MOU with the Union provides that bargaining unit employees will make seniority-based selections of slots in these new AD Groups. The Union strongly advocated that providing such employee choice would have a significant positive impact upon the Division’s work. Although not all employees will find an open slot in their first choice AD Group, the ability to choose will greatly enhance the likelihood that the AD Groups will be staffed with frontline staff and managers who compliment one another, thereby increasing the morale and effectiveness of the Division as a whole.

In order to address management concerns about potential experience imbalances across the Division, the Union proposed that these seniority selections be made by alternating between two seniority lists in each office for attorneys at the SK-14 level. These two seniority lists will divide each particular office and Headquarters into two equal groups based upon years of SEC experience. Each attorney on the AD Group Reassignment Seniority List will be afforded an opportunity to accept an available slot at the appropriate grade level in a new AD Group, in the order that their names appear on the AD Group Reassignment Seniority List, until all of them have been reassigned. Union stewards in each regional office and in Headquarters will supervise this selection process.

After the selection process has been completed, Division management will evaluate the results and will have the option of proposing to the Union any adjustments to the reassignments that it believes are necessary based upon legitimate management considerations. If the parties are unable to agree to any such proposed adjustments, however, they have agreed to return to the negotiating table for full formal negotiations.

Specialized Units

Under the Division’s reorganization plan, approximately 20% of the Division’s staff will work in five new “Specialized Units” – Market Abuse, Structured and New Products, Foreign Corrupt Practices Act, Municipal Securities and Public Pensions and Asset Management. Positions in these Specialized Units will all be announced internally within the Division only, and all bargaining unit Enforcement attorneys will be eligible to apply. The remaining 80% of the staff will be assigned to AD Groups outside the Specialized Units, utilizing the process outlined above. However, based on Division staffing needs, unit staff will be permitted to work on non-unit cases and non-unit staff will be permitted to work on unit cases.

Division management rejected several provisions requested by the Union in connection with the Specialized Units. For example, the Union sought an agreement on “tours of duty” or “rotations” for Specialized Unit staff, under which employees would serve in a Specialized Unit for some defined period of years. The Union cited substantial staff input that overwhelmingly supported rotations as critical to their interest in working in Specialized Units, and also as vital to the overall strategic benefit of increasing the number of Division staff with specialized knowledge. Indeed, the Division’s new Director has on several occasions acknowledged these same benefits, and indicated that rotations would be built into the specialization model. The Division, however, ultimately refused to include rotations. Employees who apply for Specialized Units positions should be aware of the fact that, if they are selected by management, they may be permanently assigned to those units.

Without rotations, opportunities to apply for Specialized Unit positions may be infrequent going forward. For that reason, the Union obtained an agreement in the MOU that the pools of money available for merit pay and performance awards will be the same, on a pro rata basis, for both unit and non-unit employees.

The Union also sought the Division’s commitment to a mechanism that would make Specialized Unit training available to non-unit staff on some standardized basis, but the Division refused to make this commitment. Training was another key benefit of the specialization model that staff members have consistently communicated to the Union. These staff members cited their interest in their own professional development and also the obvious benefit such training would provide in handling their own investigations. Although we understand the Division’s concern that training be effectively and efficiently employed, we believe that reasonable standards would have permitted wider access to training while at the same time addressing these concerns. Insofar as the Division anticipates assigning many cases that involve Specialized Unit subjects to staff outside the units, this lack of a commitment to training may create an imbalance that could hinder the Division’s work.

The Union also asked for transparency in the selection of Specialized Unit staff by including in the MOU the Division’s selection criteria, but the Division refused. We proposed this because of the high number of inquiries we received from staff members about the process for selecting Specialized Unit employees. We understand that certain parts of the selection process should remain confidential, but we agree with the many staff members who feel that disclosing the selection criteria would inspire confidence in the process, at no cost to the actual selection process. We viewed this as particularly important in light of the recent Federal Human Capital Survey results, which reflected the reality that only about one third of SEC employees currently believe that promotions and awards are based upon merit.

Finally, because not all regional offices will have Specialized Unit staff, the Union also sought to include in the MOU the Division’s commitment to greater opportunities for Division staff to transfer from one office to another. Currently, it is often far more difficult for a staff attorney with a solid performance record to transfer from one office to another than it is for an outside lawyer with no SEC experience at all to be hired for the very same Enforcement position. Our input from staff on this issue was extensive. The Union believes that this proposal was appropriate given the Division’s recent touting of its “national program” approach which is ostensibly designed to encourage and incentivize collaboration across the regions. Nevertheless, the Division refused to include this provision in the MOU.

Uniformity for Enforcement Paralegal Career Ladders

The MOU also includes a provision for standardizing the position descriptions and career ladder opportunities of Paralegals throughout the Division. By the end of 2010, based upon the determinations of a formal classification study, regional office Paralegals currently performing similar trial and collections duties to those performed by Grade 12 Paralegals at Headquarters will be given a uniform position description with a career ladder to Grade 12. In addition, all other Paralegals will be given a uniform position description with a career ladder to Grade 11.

Enforcement Secretaries

The MOU also provides for a formal classification study after which all Division Secretaries will be given the designation of Legal Technician with a uniform position description. The Division has also agreed to provide legal assistant training to interested Secretaries and Legal Technicians.

Conclusion

Although some anticipated a dramatic change in the way the Division operates, the actual reorganization program has proven to be relatively narrow in scope. Indeed, the Specialized Units are essentially a formalization and consolidation of the working group models that have existed in the Division for years. And because so many of the Grade 15 supervisors were simply promoted to higher paying positions as Grade 17 supervisors, we do not anticipate that the “management restructuring” component of the reorganization will result in a significant increase in frontline investigators. Nor have we seen any real evidence that the Division intends to change the basic management model that it has employed over the past decade.

As the Union has previously stated, in our view the Division’s past failings were not caused by a lack of specialized knowledge. Whether it involved market timing, options backdating, the subprime mortgage crisis or the Madoff ponzi scheme, the SEC had all of the information and expertise it needed to fulfill its regulatory mandate. What it lacked was a performance oriented culture that empowered its own staff to think strategically and act swiftly, independently and creatively to pursue the Division’s programmatic goals. Instead, frontline staff was often handcuffed by multiple layers of bureaucratic process, and management success at the SEC was measured by the number of cases they pursued, with little accountability for the cases that they did not pursue. Thus, whatever the benefits of Specialized Units prove to be, they will not on their own fix what has previously ailed the Division of Enforcement.

Although the Union is disappointed that this reorganization effort is not as extensive as we had originally proposed, in fairness to management it is a work in progress. Combined with Chairman Schapiro’s steady stream of positive reforms, we generally view Enforcement’s willingness to make some changes as positive steps. We encourage management to continue down the path of empowering frontline employees to act more freely in identifying and pursuing investigative opportunities by freeing them from the rigid, centralized “stats” oriented culture that has dominated the Division for years. Change is not always easy, but where it makes us better at our mission of protecting investors and the integrity of our capital markets, we applaud it.