SEC Announces Reduced Merit Pay Funding for Second Consecutive Year


7/25/07: Last Friday, SEC management announced that the Merit Pay budget for this year will be 2% of the agency’s current compensation level. This is the second consecutive year that the SEC has chosen not to fully fund the budget for the Merit Pay process at a level necessary to accomplish the program’s stated goals.

Due to the fact that each step increase under the Merit Pay program is worth approximately 1.5%, the SEC’s decision to fund the program at 2% will mean that the average Merit Pay step increase will be worth only approximately 1⅓ steps. The net result will be that managers will have a limited number of steps to distribute. As a consequence, most employees will receive lower step increases, without regard to the quality of their contributions during the rating period.

This year’s funding decision comes on the heels of a similar decision last year. According to a recent GAO report, the SEC’s 2006 Merit Pay budget was also approximately 2%. During the Merit Pay process last summer, many employees were told by management that the fact that they were receiving lower merit pay increases than they had received in the past should not be viewed as a reflection of the quality of the work that they had performed. Of course, a pay-for-performance system is supposed to reflect precisely that – the quality of the work performed by employees. Many employees believed that the reason for this budget cut last year was related to a temporary shortfall, rather than a policy decision by the agency to reduce funding for the Merit Pay process.

Prior to last year, the SEC consistently funded the Merit Pay system at 3% each year, or an average of two steps. This year, NTEU urged the agency to restore employee confidence in the system by returning to this previous funding level of 3%. This level would have permitted agency management to distribute Merit Pay at each of the performance levels provided under the system. Although fundamental problems still would have remained with respect to the continuing lack of written performance standards and transparency in the system, at least there would have been some distribution of step increases across the Merit Pay categories. However, when a performance based pay system is funded in a fashion that does not even permit managers to distribute higher performance awards to their employees at all, it can no longer be considered to be “performance based.”

Over the past several days, Chapter 293 leaders have heard from SEC employees who are having difficulty understanding the agency’s decision not to fund the Merit Pay system at past levels for two consecutive years. Given the sophisticated work performed by the SEC, human capital is the agency’s most important asset. Furthermore, due to the fact that replacements for departing staff were not hired for a substantial period of time over the past few years, employees are now being asked to do more than ever to meet the agency’s priorities. SEC employees have risen to meet these challenges, but many feel that their accomplishments are not being fully recognized by the agency.

Similarly, many managers at the agency also have difficulties with the Merit Pay system due to the current funding levels. Because the system has been funded at 2%, if managers opt to reward any top performers with three steps (a 4.5% raise), as the system is supposed to permit them to do, they will be required to give one-step increases to several other employees (or distribute more zeros), just to ensure that the overall average of 2% is maintained. Managers thus face the Hobson’s choice of attempting to motivate their employees’ performance by engaging in what can only be viewed as a “zero sum game” in which one employee’s success may be recognized with a higher step increase only at the expense of several fellow employees.

NTEU will be meeting with management officials soon to obtain more information regarding the budget choices with respect to Merit Pay. The union also will continue to push for increased transparency in the system this year, to address problems recently identified by the Federal Service Impasses Panel and in a report by the Government Accountability Office (to review a recent article on this GAO report, click here). We will keep you updated on regarding this process, and the steps taken by the union to improve the Merit Pay system at the SEC.