GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1989

H	3 

HOUSE BILL 73*
Committee Substitute Favorable 4/21/89
Third Edition Engrossed 4/26/89

Short Title:  Performance-Based Pay System.	(Public)
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Sponsors:
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Referred to:
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January 24, 1989

A BILL TO BE ENTITLED
AN ACT TO REVISE THE PERFORMANCE PAY SYSTEM IN EFFECT FOR STATE EMPLOYEES SUBJECT TO THE PROVISIONS OF CHAPTER 126 OF THE GENERAL STATUTES.
The General Assembly of North Carolina enacts:
Section 1.  G.S. 126-7 is rewritten to read:
"§ 126-7. Compensation of State employees.
(a)	It is the policy of the State to compensate its employees at a level sufficient to encourage excellence of performance and to maintain the labor market competitiveness necessary to recruit and retain a competent work force.  To this end, salary increases to State employees shall be based, in part, on each individual employee's job performance and, in part, on general increases given to all State employees.
(b)	To guide the Governor and the General Assembly in making appropriations to further the compensation policy of the State, the State Personnel Commission shall conduct annual compensation surveys.  The Commission shall determine the percent of funds appropriated for salary increases to be reserved for a general increase for all State employees and the percent to be reserved for performance-based increases for eligible employees.  The Commission shall present its recommendation on the percentages and the results of the compensation survey to the Appropriations Committees of the House and Senate no later than two weeks after the convening of the legislature in odd years and May 1st of even years.  The amount reserved for performance increases shall not be less than twenty-five percent (25%) nor more than seventy-five percent (75%) of the total allocation.
(c)	Performance increases shall be based on performance appraisals of all employees conducted by each employing unit.  The State Personnel Commission, under the authority of G.S. 126-4(8), shall adopt policy and regulations for performance appraisal.  The policy and regulations shall include the following:
(1)	Each employing unit's appraisal system shall be designed and administered to ensure that performance increases are distributed fairly and reward only performance that exceeds performance expectations.
(2)	To be eligible to distribute its share of the performance increase allocation, an employing unit shall have an operative performance appraisal system which has been approved by the State Personnel Director.  The performance appraisal system adopted shall use a rating scale of at least five points, with the top three points qualifying for performance increases, and shall adhere to modern personnel management techniques and practices in common use in the public and private sectors.  Employing units with an existing performance appraisal system which uses a rating scale with fewer than five points shall have until July 1, 1990 to bring their systems into compliance with this subdivision.
(3)	The State Personnel Director shall help employing units to establish and administer their performance appraisal systems and shall provide initial and ongoing training in performance appraisal and performance system administration.
(4)	An employee whose performance exceeds performance expectations shall receive a performance increase.  An employee whose performance does not exceed performance expectations shall not receive a performance increase.
(5)	The State Personnel Director shall set the performance increases allowable for levels of performance that exceed performance expectations.  Individual performance increases shall be awarded according to the rating scale level at which an employee's performance exceeds expectations.  Employees with performance ratings at the highest level shall receive the maximum percentage increase allowed.  Employees rated at the next highest performance level shall receive one-half of the maximum percentage increase allowed and employees rated at the next highest performance level shall receive one-fourth of the maximum percentage increase allowed.  A supervisor's performance appraisal plan, evaluation standards for each employee, and individual employee ratings and performance increase amounts shall be reviewed by the immediate supervisor who can recommend increases up to the maximums set by the State Personnel Director.
(6)	An employee who disputes the fairness of his performance evaluation or the sufficiency of the increase awarded or who believes that he was unfairly denied a performance increase shall first discuss the problem with his supervisor.  Appeals of the supervisor's decision shall be made only to the employing unit's grievance committee or internal performance review board.  The State Personnel Director shall help an employing unit establish an internal performance review board or, if it includes employee members, to use its existing grievance committee to hear performance pay disputes.  Performance pay disputes shall not be considered contested cases as that term is defined in G.S. 150B-2(2) and shall not be entitled to any review, administrative or quasi-judicial, beyond the internal review in the employing unit provided for in this subsection.
(7)	The State Personnel Director shall monitor the performance appraisal system and performance increase distribution of each employing unit.  Each unit shall submit annual reports to the Director which shall include data on the demographics of performance ratings, the frequency of evaluations, the performance pay increases awarded, and the implementation schedule for performance pay increases.  The Director shall analyze the data to ensure that performance increases are distributed fairly within individual employing units and across all such units of State government and shall report back to each unit on its appraisal and distribution performance.
(8)	The State Personnel Director shall report annually on the performance pay program to the Commission.  The report shall evaluate the performance of each employing unit in the administration of its appraisal system and the distribution of performance increases within each unit and across State government.  The report shall include recommendations for improving the performance appraisal system and alleviating inequities.  Copies of the report shall be sent to the State Auditor.
(9)	The Commission shall report annually to the Governor, the Lieutenant Governor, the President Pro Tempore of the Senate, the Speaker of the House of Representatives, and the Standing Personnel Committees of the House and the Senate.  The Commission report shall include an evaluation of each employing unit's administration of its appraisal system and distribution of performance increases.  The State Personnel Director shall recommend to the General Assembly for its approval  sanctions to be levied against employing units that have deficient appraisal systems or that do not link performance increases to performance.  These sanctions may include withholding performance increases from the heads of these employing units.
(d)	The provisions of subsections (a), (b), and (c) shall not affect the system of longevity payments established by the State Personnel Commission."
Sec. 2.  This act shall become effective July 1, 1989.