As you know, the SEC is currently developing a new performance-based pay system at the agency. This work will have a profound impact upon the culture of the agency. At this point, the Union has serious reservations and concerns regarding the system that is being developed by SEC management.

To understand what is currently happening, it is instructive to consider the history of performance-based pay at the SEC. Since Congress first mandated that the agency implement a pay for performance system nearly a decade ago, NTEU has consistently advocated for a system based upon four basic principles, (1) transparency, (2) objectivity, (3) fairness and (4) adequate funding. None of these factors existed in the SEC’s original Merit Pay system that the agency unilaterally imposed in 2002. After several years of litigation with the Union, and after several independent studies and an independent federal arbitrator all had concluded that the Merit Pay system was a failure, the SEC ultimately suspended the system and reached a settlement with the Union.

In that now abandoned Merit Pay program, the SEC utilized what was essentially a five-level performance rating system, under which employees could receive a “fail” rating, or a successful rating at one of four levels, “0,” “1,” “2” or “3.” The vast lion’s share of the agency’s employees were rated at the top three levels of the five, a “1,” a “2” or a “3,” and received performance-based pay. These employees received one, two or three “career ladder steps,” or the lump sum equivalent if an employee had already reached the top of their grade.

The Merit Pay system ultimately failed for several reasons. There was no transparency regarding what it meant to function at a particular performance level. It was also underfunded in its latter years, to such an extent that funding alone had an impact upon management’s decisional process. And the system included no meaningful or objective performance standards, making it impossible for managers to support a particular rating in an objective fashion. For example, if an employee who had been designated a “2” asked what standard he or she had to meet to be rated as a “3,” management was unable to articulate such a standard. Often, managers simply told employees to “do better.” As a result, this system had no credibility among bargaining unit employees or the managers who rated them.

The new pay-for-performance system that the SEC is currently working on is being developed under an October 2006 order of the Federal Service Impasses Panel (“FSIP”) on compensation and benefits. A key feature of that 2006 FSIP order is the requirement that the new plan make “meaningful distinctions” in performance between the various performance levels. In other words, the new system must have clarity as to what an employee is required to do to be rated at a particular level and receive performance-based pay.

In connection with the SEC’s implementation of the new performance-based pay system, the SEC has sought input from the Union on the fairness, transparency and credibility of the new performance management system that is now under development. For this reason, management, together with an outside contractor the SEC retained to assist in developing the new system, have sponsored numerous “focus groups” comprised of bargaining unit employees in connection with creating various components of the new system, including the development of the distinctions between performance levels. To date, the feedback from these focus groups has revealed that bargaining unit employees believe that the new system’s performance standards and job objectives are vague, and that the distinctions between performance levels are unclear and subjective.

Based on these focus groups, and ongoing review of the new system by NTEU leadership, the Union has expressed its concerns to management about the vague and subjective nature of its key features. The Union has encouraged management to adjust its approach to ensure that the system clearly identifies for employees what management expects of them and that it objectively measures whether an employee meets those expectations. For example, the bargaining unit employee focus groups have advocated for tying performance ratings to specific results, such as whether a particular activity accomplished its intended purpose rather than vague, difficult to define concepts such as whether a particular manager feels that an employee’s work required the “expected level of revisions.”

The Union is in favor of a results oriented approach. We think this is consistent with developing a performance oriented culture at the SEC. In this regard, management should consider the views of the new Director of the Office of Personnel Management (OPM), John Berry, who recently called for a new approach that would reinvigorate the federal workforce by developing flexible, results oriented human resources policies. Berry identifies several key principles upon which to build a modern performance-based pay system. He calls transparency and flexibility the two key principles needed to motivate federal workers, reward good performance and address poor performance without falling back on cronyism or favoritism. He defines transparency as a process that is clearly spelled out for employees, and he asserts that this is absolutely critical to obtaining requisite employee buy-in to any performance-based pay program. He describes flexibility as giving employees enough “room to run,” without running amok.

Unlike the system that the SEC is now developing, Berry encourages federal agencies to move towards a simpler, more straightforward performance appraisal system with three levels of performance, “Outstanding,” “In Good Standing” and “Not in Good Standing.” This reflects a shift away from the cumbersome five-level systems that have been more common across the government but which are increasingly viewed by both employees and managers as difficult to utilize effectively.

Although five-level systems like the one that the SEC is currently developing have some surface appeal insofar as they promise to make fine distinctions between performance levels, in actual practice in the real world they are often plagued by inconsistent and difficult to understand distinctions. This is particularly true when attempting to make meaningful distinctions between generally good performers whose work is not readily or easily evaluated with reference to objective standards, such as SEC attorneys, accountants and examiners. These positions comprise the vast lion’s share of the employees at the SEC, and their performance cannot be tied to billable hours or generating revenue as can their counterparts in the private sector.

The Union has also encouraged management to consider building into the new system intrinsic motivators, which are often more likely to promote a performance culture than the old “carrot and stick” approach. Management commentators are increasingly identifying these intrinsic motivators within successful organizations.

As an example, Daniel Pink, a noted author of several best selling books on the workplace, recently spoke at the SEC as part of OHR’s “Leading Author Series.” Pink’s new book Drive: The Surprising Truth about What Motivates Us, presents substantial data supporting the importance of intrinsic motivators, as opposed to monetary carrots. In Drive, he identifies three key intrinsic motivators – autonomy, mastery and purpose. Pink maintains that to achieve full performance, an employee needs autonomy over tasks (what we do), time (when we do it), team (who we do it with), and technique (how we do it). According to the impressive data he presents, a person’s default setting is to be autonomous and self-directed. To fully achieve, employees must also be able to develop “mastery,” which Pink describes as getting better at something that matters. He also asserts that for workers to be fully successful they must have “purpose,” which he defines as working for a cause greater and more enduring than themselves. Daniel Pink’s speaking engagement at the SEC was timely. The Union believes that management should consider the potential benefits of working towards the utilization of intrinsic motivators at the agency.

At the end of the day, the pay for performance system adopted by the SEC will succeed or fail based upon whether the employees who work at the agency believe in it. The Union will continue to urge management not to repeat the mistakes of the past as this process continues to unfold, and we will keep you apprised of any new developments.