NTEU Secures $2.7 Million Settlement and Pay Adjustments for SEC Employees Subject to Discriminatory Impact under Pay System


NTEU has reached a favorable settlement agreement with the SEC calling for payment of a total of $2.7 million to African-American employees and employees ages 40 and older who suffered discrimination under the agency’s embattled merit pay program. The settlement also provides for current salary adjustments for these employees. In addition, it includes provisions for the SEC to execute a Memorandum of Understanding with Chapter 293 that will implement a variety of initiatives focused on diversity issues at the agency, which were recommended by Chapter 293 President Greg Gilman.

NTEU National President Colleen Kelley called the settlement “a welcome end to a long battle to achieve the right result. It was clear from the beginning that the SEC’s merit pay system lacked fairness, credibility and transparency.” The union challenged the SEC’s system – unilaterally designed and implemented by the agency in 2003 – with grievances for each year through 2007. This settlement covers that entire period. The challenged merit pay program was suspended earlier this year, while negotiations continue between the parties over new performance management and merit pay systems.

A year ago, an arbitrator agreed with NTEU that the SEC’s merit pay program is illegal because the subjective standards and procedures used to make merit pay decisions had an adverse impact against large groups of agency employees. The arbitrator found that African-American employees in grade 8 and above, and older employees at all grades, received significantly fewer increases than would be expected given their representation in the pool of eligible employees. He ruled that because the SEC’s subjective system for awarding pay increases was not valid or even reasonable, the pay-for-performance program violated Title VII of the Civil Rights Act and the Age Discrimination in Employment Act.

A formula will be used to distribute the $2.7 million in monetary relief to current SEC employees within the two affected classes who were victims of the discriminatory merit pay system from 2003 to 2007. The formula will be based on employees’ grade levels and the number of years the employees suffered discrimination under the program. These shares will be distributed to employees by no later than February 18, 2009.

The affected employees will also receive salary adjustments ranging between $266 and $2,482, as determined by a similar formula. These separate salary adjustments will be made within 90 days of the date that Congress enacts the SEC’s appropriations bill for FY 2009, or by the end of FY 2009, whichever occurs first. If some or all of the adjustment to an employee’s salary would result in the employee’s salary exceeding the salary grade maximum, the excess amount will be paid to the employee as a lump sum.

The SEC will email a notice and employee statement to each affected employee by November 20, 2008, which will contain information that will be needed to calculate individual shares of the monetary settlement, including years of service and grade level. The notice will also include instructions concerning how to seek corrections. Employees who do not receive an email notice by that date, but who believe that they are members of one of the affected groups of employees, may request a notice and employee statement within 30 days of the original notices.

The SEC has statutory authority to establish a pay system outside of the General Schedule, and NTEU is able to negotiate with the agency over these issues. The parties bargained over the establishment of an initial merit pay plan briefly in 2002, but when they were unable to reach agreement, the Federal Service Impasses Panel issued an order imposing the flawed system advanced by the SEC.

When the SEC put its merit pay program in place, NTEU warned the agency that the vague and subjective “agency success factors” to be used to determine whether an employee would receive an increase, and how much of an increase an employee would receive, would simply not work, largely because the factors were not linked to employees’ job duties and applied to every position within the agency regardless of grade. The union also voiced concern that the subjective and arbitrary judgments managers were required to make using these factors was compounded by the lack of training and guidance that the SEC provided them.

The diversity initiatives recommended by Chapter 293 President Gilman, which will be implemented through a Memorandum of Understanding, include a role for Chapter 293 on each of the agency’s four diversity executive committees; an annual report from each of the committees on its goals and accomplishments; additional mandatory diversity training for managers each year; establishment of a 360 degree review mechanism within the performance management process through which employees will be able to communicate to senior managers regarding their concerns about diversity issues impacting race, gender, age and ethnicity; and other steps.

“This settlement, along with the temporary suspension of the merit pay system earlier this year, represents a significant shift in the view of SEC management regarding how to deal with performance management and merit pay at the agency,” Gilman recently noted. “I am pleased that we were able to negotiate this result, and I hope that we will now be able to move toward a new performance based pay system that is fairer, more transparent, and sufficiently funded to work properly.”