Problems with Merit Pay System Persist; SEC Will Continue with “Equivalent Share” for FY 2011


9/30/11: This fall, the SEC is rolling out its new so-called “evidence-based” performance management/merit pay system nationwide for the rating period that ends today. The SEC has advised the Union, however, that any merit pay distribution for FY 2011 will not be based on the new rating system, but will instead again consist of “equivalent share” merit awards. This decision was made on the heels of the new system’s unsuccessful 2010 Pilot program in OCIE and Enforcement, which produced substantial inconsistencies in how managers rated performance. As the Union previously reported here, the 2010 data indicated that employees performing at the same level were often awarded different ratings depending on who their manager was or what group or office they worked in.  

It is difficult to argue with the agency’s decision to utilize equivalent share ratings once again. The 2010 data reflect fundamental flaws in the system that would make any awards based upon it unfair. 

As the SEC moves forward with the FY 2011 rating period, however, the Union has several serious concerns. First, the Union is receiving reports related to how the performance management team is currently training managers to use the system. According to these reports, the SEC is encouraging even greater subjectivity in the system in ways that are unfair and potentially in violation of federal law. 

Second, the Union also continues to be concerned that the SEC is developing the system unilaterally without the collaborative effort with the Union required by this 2006 order of the Federal Service Impasses Panel. The SEC’s unilateral approach also fails to comply with the President’s 2009 Executive Order on labor-management partnership. 

Finally, the Union is troubled by the fact that the SEC has failed to implement improvements to the system that were agreed upon in a memorandum of understanding signed by the agency and the Union last spring.

The Union continues to support a solid performance system that will enable the SEC to identify and reward top performers. We also believe those whose performance is deficient should be identified and held accountable. But any system that links performance to pay must be fair, transparent and credible. The SEC’s current path appears highly unlikely to produce that result.

Training Managers to Apply Different Standards to Employees Performing the Same Work in the Same Grade

The Union is receiving reports that the SEC’s performance management team is currently instructing managers how to give different ratings to two employees performing the same job in the same grade, even when both employees have satisfied the performance objectives and standards that relate to their job. The SEC trainers have repeatedly stated that such employees may be awarded different performance ratings if a manager asserts that he or she “expected” more from one employee as compared to the other given the employees’ “level of experience.” This would result in two employees performing exactly the same work and meeting exactly the same standards nevertheless receiving different “performance-based” pay awards. The trainers have characterized this as an exercise of “management judgment.”

Even more troubling, SEC trainers have also used as a training example a hypothetical “veteran” employee “in his fifties” who has been in the job for “twenty years” and a more junior employee who is performing the same job at the same grade. In this hypothetical, managers have been instructed that they could justify giving the older, more experienced employee a lower rating – even if the two employees both met an identical performance objective at the same performance level. According to the trainers, the manager could assert that, given the older employee’s greater experience, he should be meeting a higher standard of performance. This express reference to an employee’s age is remarkable – particularly in light of the fact that the SEC was required to pay millions of dollars in damages just a few years ago for illegally discriminating against older employees in its last attempt at a performance-based pay system.

While the Union has consistently raised the new performance management system’s failure to make meaningful distinctions between performance levels as a critical flaw, it is becoming increasingly apparent that the system has been designed to be subjective. This subjectivity will provide managers maximum flexibility in handing out employee raises without being limited by clear performance standards. But it also will very likely lead to unfair and possibly illegal results.

James Fay, a BRO senior counsel who represents the bargaining unit in performance pay negotiations with SEC management, recently noted, “Unfortunately, the SEC’s performance management team appears to be choosing flexibility over transparency and credibility. Managers, particularly front-line managers, need a credible system that they can use as a basis for performance-related discussions with their staff.  And employees need a clear path to success at the Agency. The current system fails on both counts.”

Lack of Collaboration in Developing the New System

Although the Union’s negotiating team has persisted in its efforts to engage the SEC’s performance management team in a constructive discussion concerning the continuing flaws in the system and ways to address those flaws, the SEC has all but ended these discussions. This is best reflected by the fact that, although the SEC held focus groups of SEC managers to review the 2010 OCIE and Enforcement pilot program, it failed to include any bargaining unit staff in this process. SEC managers are obviously key stakeholders and soliciting their feedback is critical to any review of the system. However, the failure to solicit feedback from frontline bargaining unit staff undermines the quality and credibility of SEC’s review of the pilot program. It is also a sign of a disturbingly unhealthy perspective on the role of human capital at this agency.

The Union has also been unsuccessful in obtaining sufficient documents to complete its own review of the 2010 pilot program. For example, the SEC has refused to produce to the Union employee Performance Work Plans (“PWP”) (redacted to shield identifying information). These documents are a key component of the system. The Union’s request for them was based, in part, on numerous employee complaints about errors and irregularities in the PWPs. The SEC has also failed to produce sufficient data to evaluate Enforcement ratings given to specialized unit and non-unit staff. The parties will soon be going to arbitration over the SEC’s refusal to provide this information.

Before he left the Agency, former OHR Director Jeff Risinger reached an interim agreement with the Union that would mitigate some of the ambiguity around how the performance levels are defined. That agreement also called for an independent study of the system following the FY 2011 rating cycle. Both Risinger and the Union saw this agreement as a positive step forward. Since Risinger’s recent departure from the agency, however, the SEC’s new Human Resources team has refused to implement some of the key terms of this agreement. The Union may soon be required to file a national grievance for its breach.

New System Will Likely Feed Into Already High Levels of Distrust about Awards and Promotions

The current SEC approach to performance management seems to discount the steadily declining scores the SEC has been receiving in connection with performance based awards and promotions on the Federal Human Viewpoint Survey (“FHVS”), which the Office of Personnel Management administers across the federal government. This negative trend that started at the end of Chairman Cox’s tenure has steadily worsened under Chairman Schapiro. 

The 2011 FHVS was the first survey conducted after employees in Enforcement and OCIE participated in the 2010 Pilot of the new performance management system. The results reflect that SEC employee perceptions in connection with awards and promotions dropped again. According to the survey, less than 30% of SEC employees (including SEC managers) now believe promotion and award decisions are based on merit. This represents a decline over the already poor 2010 results. Furthermore, according to this list published by the Washington Post this week, the SEC received the lowest “Results Oriented Performance Culture” score (47) of all of the agencies on the list.

Perhaps even more troubling, less than half of SEC employees surveyed (46.1%) were able to agree with the following statement: “Arbitrary action, personal favoritism and coercion for partisan political purposes are not tolerated.” In view ofthese disturbing results, the SEC’s apparent determination to give even more discretion to managers in evaluations is difficult to explain. 


Needless to say, the Union continues to believe the SEC’s new performance management system is far too subjective to be successful. And we strongly disagree with the move toward even greater subjectivity reflected in the recent management training on the use of “management judgment,” which is unfair and potentially in violation of federal law.

Given the SEC’s unwillingness to collaborate with SEC employees in connection with addressing the system’s obvious flaws, and the likelihood that the SEC will choose to unilaterally implement the new system, we are not hopeful that the institutionalized distrust of the merit process at the SEC will abate any time soon.  It is not clear to the Union how it will be in the SEC’s institutional best interests to unilaterally implement a highly subjective performance system that is so extensively dependent on “management judgment.”

Notwithstanding these concerns, the Union continues to stand ready to work with SEC management on performance management issues and equally ready to enforce the rights of SEC employees if they are violated.