As the SEC faces what is perhaps the most challenging period in its history, its single most important asset continues to be its human capital – the stock of skills and knowledge embodied by the talented group of individuals who work at the agency and carry out its complex mission every day. For that reason, maintaining a sound strategy to both attract and retain the best possible work force is critical to the agency’s long term success. This is even more the case given that a large majority of the federal work force will be eligible for retirement in the coming decade. For years, however, the SEC has displayed what could only be viewed as a marked indifference to human capital issues.

The SEC’s continuing failure to deliver on its agreement during the 2006 compensation negotiations to increase the SEC’s retirement match is a good example. Another is the SEC’s approach to pay. The so-called “merit pay” system has had many flaws, both in its implementation and execution, but the most glaring problem in the past few years has been the SEC’s conscious decision to inadequately fund the system. Indeed, in 2007, 2008 and 2009, the agency slashed its budget for merit pay, culminating in its most recent request to Congress for only a 1.5% increase for FY 2009. This amount represented only half of the historic merit pay budget of 3%.

Now that Congress has recently passed a FY 2009 budget that includes $37 million in additional funding over the SEC’s original request, the agency has determined that it will not spend even a small fraction of these additional funds on employee compensation. This is an extremely disappointing decision.

SEC employees will recall that, last year, on your behalf, NTEU continued to press the case in Congress for additional SEC staffing and an increase over the 1.5% merit pay budget requested by the SEC, even as erstwhile SEC Chairman Chris Cox testified before Congress that the agency did not need any additional funds and, furthermore, that he expected attrition of almost 100 employees. As a direct result of the Union’s efforts, the House Appropriations Committee voted to provide $15 million in additional SEC funding for FY 2009, and the Senate Appropriations Committee voted to provide $25 million in additional funding. At NTEU’s urging, the House Committee report in particular made it clear that it expected the agency to use “at least half” of these extra funds to increase the merit pay budget in FY 2009: 

The Committee also expects that at least half of the increase over the President’s request will be used to augment funds budgeted for merit pay under the SEC’s performance-based pay system.

When Congress finally returned to the FY 2009 budget last month, these funds that NTEU had labored hard to include in the SEC’s budget, over objections of SEC management during the budget process, were still on the table. Ultimately, the the agency’s budget was passed with an additional $37 million. It cannot be gainsaid that, without the Union’s efforts, a budget increase of this magnitude likely would never have happened.

The SEC admittedly faces unique challenges this year. However, the current fiscal year’s budget clearly includes items that could never be viewed as being as important as a renewed commitment to investing in human capital after years of neglect by past management of the agency. Just one example is the SEC’s decision to spend millions of dollars in FY 2009 on the so-called “restacking” project in Headquarters – a project to shift the office locations of hundreds of employees that has been lambasted by a recent Inspector General’s report and that has been likened in the media to “rearranging the deck chairs on the Titanic.” Similarly, increased funding for improvements to the Enforcement Division’s “HUB” database system during FY 2009 could hardly be viewed as being more important than investing in the agency’s human capital in the wake of a drought in such investment for several years.

Last year, the SEC pointed to the 3.9% federal pay raise that all federal employees received in January 2009, suggesting that it somehow makes the agency’s paltry 1.5% merit pay increase more acceptable. Of course, it is only because of NTEU’s hard work on Capitol Hill on your behalf that this raise ended up being a full 1% higher than the 2.9% raise originally proposed by the administration. More importantly, however, the amount of the January federal pay raise is an entirely separate issue from the adequacy of the budget for the SEC’s merit pay system. The federal pay raise is intended, under the 1990 Federal Employees Pay Comparability Act, to help close the gap between federal and private sector pay. The expectation of an adequate federal pay raise in January as a result of NTEU’s hard work should in no way be perceived as somehow relieving the SEC of its obligation to adequately fund its own merit pay system.

Where Do We Go From Here?

The SEC needs to make a clean break from the policies of the past administration by demonstrating a real commitment to human capital. Fundamental change is needed.

The agency has not communicated to NTEU its final decision regarding the 2010 merit pay budget. It is clear that this budget needs to be substantially increased from those of the past few years. It would be untenable for the SEC to continue to assert that a 1.5% annual increase is the “normative” raise at the agency. If it does, consider how long it would take you to advance to the top of your grade – in many cases, over twenty years. And consider the negative impact that such a pay system would have upon the agency’s ability to recruit and retain talented people going forward. Such an inadequate commitment to human capital investment would be simply untenable.

Furthermore, if the SEC is unable to commit to an adequate merit pay budget going forward, it will draw into serious question its commitment to the creation of a new merit pay system that has any hope of succeeding. Without adequate funding such a system could not possibly work.

The Union will continue to press the case in Congress on your behalf for a significantly increased human capital investment at the SEC, even as we continue to urge the agency itself to commit to a fundamental change in direction on human capital issues. Thank you to all the dues paying union members at the SEC for making this advocacy possible.