NTEU Arbitration Victory Against Merit Pay


In September, NTEU won an important legal victory against the SEC’s pay-for-performance system in a case that challenged the agency’s implementation of its 2003 merit pay program. In a decision dated September 4, Arbitrator James Harkless found that the SEC’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 by early November.

The 2003 grievance is the first of five pending national grievances NTEU has filed that challenged the agency’s 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 provisions of our Collective Bargaining Agreement with the SEC.

NTEU is currently continuing to push ahead with the remaining four national grievances in arbitration, while simultaneously pursuing a remedy in the 2003 matter that would include back pay and engaging the SEC in discussions regarding a possible resolution of the agency’s long-running dispute with its own employees regarding pay for performance. Union representatives are also working on a joint labor-management committee formed to develop a new, fairer performance management system at the SEC, and continuing to discuss interim solutions with management officials to deal with existing problems in the process.

The history of the merit pay dispute goes back to 2003, when the SEC unilaterally abandoned its longstanding practice of using specific, job-related criteria for awarding pay increases to employees. In its place, agency management implemented an agency-wide system under which supervisors evaluate employees’ entitlement to merit step increases on the basis of four subjective and generic “Success Factors.”

While NTEU did negotiate over a possible merit pay plan in 2002, the parties could not reach agreement and the matter was forwarded to the Federal Services Impasses Panel (FSIP). The politically-appointed FSIP, which has issued a stream of pro-management decisions over the past several years, imposed a ruling which put in place the current fundamentally flawed system.

Although NTEU warned the SEC that employees would not know how to satisfy the agency’s vague new standards, that arbitrary treatment would occur, and that grievances would undoubtedly follow, the agency went ahead and implemented its new merit pay program, effective October 2003. NTEU filed a grievance challenging the program in January 2004. The union argued that the SEC’s merit pay system violated federal law, the Compensation Agreement, and the Collective Bargaining Agreement.

In Arbitrator Harkless’ lengthy decision, he 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 in Grades 8 and above, as well as all employees age 40 and older, received significantly fewer pay increases than would be expected given their representation in the pool of eligible employees. 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 no increase at all.

While ruling that the agency is liable for discrimination under the 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 raised by the union, including the unfair treatment of lower graded employees. NTEU remains committed to fighting for the rights of all employees on these issues at every opportunity.

As NTEU continues its efforts to achieve improvements in the SEC’s performance management and merit pay systems, serious issues remain unresolved. For example, the SEC has yet to address fundamental transparency problems with its system by publishing overall merit pay results by category. These transparency issues have remained unresolved for years, and were even pointed out yet again in a recent Government Accountability Office report on performance management systems over the summer. The agency also continues to retain discretion to determine the amount of the pay increase associated with each rating level under the new system. Furthermore, the agency has failed to pursue sufficient funding for the system, leading to poor merit pay distributions for two years in a row. In addition, until new, objective, job-specific performance standards are established, employees continue to be evaluated under the vague and subjective “success factors.”

The union’s position has long been that any performance-based pay 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, with the effect of demoralizing employees rather than motivating them. The standards against which SEC employees are currently being judged are unclear and managers do not know how to objectively evaluate employee 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. The union will continue to fight for a fair, credible and transparent pay system at the agency, using all of the tools at its disposal, to ensure that all SEC employees have the opportunity to be successful and get recognition for their unique contributions.