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Washington, D.C.—The National Treasury Employees Union (NTEU) has reached a favorable agreement with the Securities and Exchange Commission (SEC) calling for payment of $2.7 million as well as current salary adjustments to African-American employees at grades 8 and above and employees ages 40 and older at all grade levels who were adversely impacted by the unlawful subjective standards and procedures used to determine salary increases under the agency’s embattled merit pay program. The settlement also includes provisions for the SEC to execute a Memorandum of Understanding with NTEU that will implement a variety of initiatives focused on diversity issues at the agency.
NTEU President Colleen M. 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 has been suspended, pending negotiations 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 grades 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 supported by a business necessity 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 illegal pay system from 2003 to 2007. The formula will be based on employees’ grade levels and the number of years the employees were adversely impacted under the program. These employees will also receive salary adjustments ranging between $266 and $2,482, as determined by a similar formula.
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 and how much of an increase an employee would receive under the program 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 were compounded by a lack of training and guidance.
The diversity initiatives that will be implemented through the Memorandum of Understanding include a role for NTEU Chapter 293, which represents SEC employees, 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 mechanism within the performance management process through which employees can communicate to senior managers their concerns about diversity issues impacting race, gender, age and ethnicity; the creation of hiring committees within each SEC office and division that makes final hiring decisions at the agency; and other steps.
“This case is another example that the best way for agencies to deal with sensitive, complex matters such as merit pay and the range of diversity issues is to work with employees and their representatives, and not try to go it alone,” President Kelley said. “When pay-for-performance systems are not fair, credible and transparent, unintended consequences, such as systemic discrimination, can result.”
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. In this instance, the parties bargained over the establishment of an initial merit pay plan 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.