NTEU Wins Important Victory Against SEC Pay System


9/6/07 (A message from NTEU National President Colleen Kelley): NTEU has won an important legal victory against the unfair and fundamentally-flawed pay-for-performance system at the SEC. An arbitrator ruled that the pay system unilaterally-designed and implemented by the agency is illegal because it has resulted in discrimination against large groups of agency employees.

In a case challenging the SEC’s implementation of its 2003 “pay for performance” program, Arbitrator James Harkless found that the agency’s subjective program for awarding merit step increases violated Title VII of the Civil Rights Act, as well as the Age Discrimination in Employment Act (ADEA). The parties have been directed to submit briefs to the arbitrator regarding an appropriate remedy within 60 days.

NTEU is committed to fighting for a fair merit pay system at the SEC. The 2003 grievance is the first of five pending grievances NTEU had filed challenging use of the system for each subsequent year, including the 2007 performance period. Those grievances also allege that the system violates federal law, the NTEU compensation agreement and the NTEU-SEC collective bargaining agreement.


In 2003, the SEC unilaterally abandoned its longstanding practice of using specific, job-related criteria for awarding pay increases to employees. In its place, the SEC implemented an agency-wide system under which supervisors evaluated employees’ entitlement to merit step increases on the basis of four subjective and generic criteria or “Success Factors.” While NTEU did negotiate over a merit pay plan in 2002, the parties could not reach agreement and the matter was forwarded to the politically-appointed Federal Services Impasses Panel (FSIP). The FSIP, which has issued a stream of pro-management decisions over the past several years, imposed a ruling which put in place the current flawed system.

Although NTEU warned the SEC that employees would not know how to satisfy these vague standards, that arbitrary treatment would occur, and that grievances would undoubtedly follow, the agency implemented its new “pay for performance” program, effective October 2003.

NTEU filed a grievance challenging the “pay for performance” program in January 2004. In that grievance, we argued that the SEC’s merit step system violated federal law, the Compensation Agreement, and the NTEU-SEC Collective Bargaining Agreement.

‘Subjective and Discretionary’

In a lengthy decision issued this week, the arbitrator agreed with NTEU that the SEC’s “subjective and discretionary” program for awarding merit pay increases violated both Title VII and the Age Discrimination in Employment Act (ADEA). He found that African-American employees above grade 8 as well as employees age 40 and older (at all grades) received significantly fewer pay increases than would be expected given their representation in the pool of eligible employees.

In examining the system, the arbitrator also found that the SEC had not provided any guidance or training to its managers about how to apply the criteria themselves or how to determine whether an employee should receive one, two, or three step increases or even no increases at all.

While ruling that the agency is liable for discrimination under Title VII and ADEA claims, Arbitrator Harkless declined to state a remedy until the parties had an opportunity to address the issue. Once Arbitrator Harkless issues his final ruling on the appropriate remedy for the violations he found, either party can file an appeal with the Federal Labor Relations Authority.

NTEU was disappointed by Arbitrator Harkless' decision not to address any of the contract violations, including the unfair treatment of lower graded employees. Nevertheless, NTEU remains committed to fighting for the rights of all employees at every opportunity.

Unfair, Flawed System

As you know, this case is about dismantling an unfair and fundamentally-flawed system that, rather than motivating employees as is its stated intention, serves to demoralize dedicated and committed workers.

Even as NTEU works with the SEC to improve its performance management and merit pay systems, there still are serious issues, most notably that the agency retains the discretion to determine the amount of the pay increase associated with each rating level under the new system. And, until the new job specific performance standards are established, employees continue to be evaluated under the vague and subjective “success factors.”

As I have testified repeatedly in Congress, any pay-for-performance system must be fair, credible and transparent or it is doomed to fail. Without those critical elements, such systems result in unfair, arbitrary, and even illegal treatment of employees. The standards against which you are being judged are not clear and managers do not know how to objectively evaluate performance. Instead of rewarding good performance, such programs routinely result in suspicion and mistrust.

NTEU wants the SEC to be successful in accomplishing its mission and will continue to fight for a fair, credible and transparent pay system at the SEC, using all of the tools at our disposal. Through our persistent efforts and your continued support, I am confident that we can make significant strides towards a workplace where you can be successful and your contributions will be recognized.

--Colleen M. Kelley, NTEU National President