April 24, 1990
Subject:
Salaries; State Employees; Denial of Performance Pay to Employees at the Maximum Salary;
G.S. §§ 126-4(2), 126-7(c)
Requested By:
Honorable Joseph E. Johnson, Senator Fourteenth Senatorial District
Question:
May a State employee subject to the State Personnel Act be denied a performance pay increase solely on the grounds that he is already at the maximum rate of the salary range for his pay grade?
Conclusion:
Yes.
The question has arisen whether a state employee may be denied a performance pay increase solely on the grounds that he is at the maximum rate of the salary range for his classification and pay grade. For the reasons set out below, we conclude that a state employee at the maximum rate of the salary range for his classification and pay grade may be denied a performance pay increase.
The 1989 General Assembly amended Chapter 126 of the General Statutes, the State Personnel Act, to revise the system of performance pay. (Ch. 796, 1989 S.L.) Under G.S. § 126-7(c), performance appraisals of all employees must be conducted regularly pursuant to policies and regulations adopted by the State Personnel Commission. An employee whose performance is rated as exceeding "requirements shall receive a performance increase unless the employee’s supervisor justifies in writing the decision not to award the performance increase." G.S. § 1267(c)(4) (emphasis added).
Pursuant to G.S. 126-4(1) and (2), the State Personnel Commission has adopted a classification and pay plan for state employees which assigns all positions to particular classifications and all classifications to particular pay grades. Within each pay grade, the Commission has established "minimum, maximum, and intermediate rates of pay for all employees subject to the provisions of" Chapter 126. G.S. 126-4(2). The State Personnel Commission has adopted polices governing performance pay increases which provide that employees already at the maximum rates of pay for their pay grades are ineligible for performance pay increases. See 25 NCAC 1D .1123(a); Personnel Manual, Section 7, p. 33. The question is whether the Personnel Commission has correctly interpreted the relevant statutory provisions and its authority under them or whether the language of G.S. § 126-7(c)(4) overrides the legislative directive of G.S. 126-4(2) to limit salary rates.
"Performance increases shall be based on performance appraisals of all employees conducted by each department, agency, and institution." G.S. § 126-7(c). It has been suggested that the statute would not require performance appraisals of all employees if they were not all eligible for performance increases. Yet, the performance appraisal system serves other purposes besides determining who may receive increases. The State Personnel Manual indicates that performance appraisals ensure that all employees know what is expected of them, receive feedback about their performance, and are given opportunities for education, training, and development, besides being financially rewarded fairly and equitably. Personnel Manual, Sec. 12, p. 1. In February, 1983, the Personnel Commission adopted a Work Planning and Performance Review Policy, requiring agencies to evaluate and appraise their employees’ performance on a regular basis. A Performance Appraisal Summary was required before an agency could make decisions about promotion, demotion, performance or merit increases, or reduction in force concerning a particular employee. See, 52 N.C.A.G. 81, Opinion to Harold W. Webb, State Personnel Director, March 21, 1983. There was no statutory performance pay increase policy in existence then. Nevertheless, the Personnel Commission had a performance review and appraisal system which served a number of purposes in addition to its relevance to any performance or merit pay which might be authorized by the General Assembly. Clearly, eligibility for performance pay increases is not the sole justification for conducting performance appraisals.
The language of G.S. § 126-7(c)(4), that an employee shall receive a performance increase if he is rated as exceeding requirements and if the supervisor does not justify in writing the denial of the performance increase, appears at first glance to be mandatory and without exceptions. That interpretation would virtually negate the statutory directive to the Personnel Commission to establish maximum rates for each salary range. Maximum salary ranges would then apply only to limit the level of increase an employee could receive on a promotion or reallocation upward or to limit the maximum salary which could be offered to an employee who was being hired from outside the State Personnel System. The salary ranges are designed to provide a range of pay appropriate to the type of position competitive with rates in the external labor market and consistent with internal equity within state government as well as with the State’s ability to pay. Personnel Manual, Sec. 7, page 1; 25 N.C.A.C. ID .0102(a). If employees at the maximum can receive performance pay increases, individuals who perform exceptionally well and who remain with state government over a long period of time could end up with rates of pay totally disproportionate to the jobs being performed and to salary rates for similar jobs in the external labor force. Distorted relationships of pay rates between employees in various positions in state government would also result. This outcome is inconsistent with the Personnel Act’s evident purpose of establishing a uniform and professional system of personnel administration, classification and pay for state employees. Statutes related to the same subject matter should be construed in pari materia to give effect to both if possible. See, e.g., In re Hardy, 294 N.C. 90, 240 S.E.2d 367 (1978); Becker County Sand & Gravel Co. v. Taylor, 269 N.C. 617, 153 S.E.2d (1967); Strong’s N.C. Index 3d, Statutes § 5.4 (1978). Construing these two statutory provisions in pari materia to give effect to both therefore demands the conclusion that employees at the maximum salary rate cannot receive performance pay increases.
This conclusion is buttressed by the fact that there are other situations in which an employee will not receive a performance pay increase even though his performance exceeds requirements. First, the performance pay increases appear to be limited by other provisions outside G.S. § 126-7. For example, in the Expansion Budget Act, Chapter 752 of the 1989 Session Laws, the General Assembly specifically provided that salaries should be increased from the General Fund or Highway Fund only to the extent of the proportion of an individual’s salary paid from the General Fund or Highway Fund. § 40(a). Presumably, if funds are not available from the particular source from which an individual is paid to provide him or her with a performance pay increase, that individual cannot receive the increase. There would be no money which could be lawfully spent for that purpose. This situation may well arise for employees whose salaries are paid wholly or partly from federal funds or agency receipts.
The General Assembly provided the funding for performance pay increases for the 1989-90 fiscal year and the 1990-91 fiscal year in §§ 36(b) and 37(b) of Chapter 752. At the same time, it specifically stated that the salary increases provided by that Part would not apply to persons separated from state service on the effective day of the funding for those increases "or to employees involved in written disciplinary procedures." §§ 40(d), (d1). Thus, this same General Assembly, in the Expansion Budget Act, limited the availability of performance pay. If the restrictions in the Expansion Budget Act are given effect, then clearly there will or may be people otherwise eligible for performance pay increases who cannot receive those increases despite the language of G.S. § 126-7(c)(4).
On numerous occasions, the General Assembly has specifically recognized that increases authorized in budgetary provisions might not be available because of the salary range policies. Sometimes it has specifically directed the State Personnel Commission to increase the maximum salary rates in order to allow persons already at the maximum to receive salary increases. When merit pay or similar funds were provided in 1980, 1981, and 1985, there were explicit directions in the respective Budget Acts to add additional steps in the salary scales to allow qualified employees at the top of the range to receive the maximum merit increments available. Sess. L. 1979, c. 1137, § 22 (2nd Sess. 1980); Sess. L. 1981, c. 1127, § 18; Sess. L. 1985, c. 479, § 197. The only recent instance in which there was no explicit direction to increase the salary range when merit pay was provided was in 1986. Even then, the Budget Act specifically provided that all permanent employees paid from either the General Fund or the Highway Fund with at least two years experience were eligible for the increases. Sess. L. 1985, c. 1014, § 19(b) (Reg. Sess. 1986) (emphasis added). This year the Expansion Budget Act, Chapter 752, made no reference to increasing the maximum of the salary ranges for performance pay. See, § 36(b). Nor did it say that all employees would be eligible. It simply provided for a transfer of the funds to be awarded to employees on the basis of job performance exceeding satisfactory levels and pursuant to the rules, regulations, and policies of the State Personnel Commission. The Office of State Personnel reports that there was no discussion of the issue of increasing the maximum salary rates between the Office of State Personnel and legislative representatives while performance pay legislation was under consideration. In contrast, there is an explicit legislative direction that the salary range maximums are to be increased to absorb the across-the-board increases which were also provided for by the General Assembly in the Expansion Budget Act. Sess. L. 1989, c. 752, § 40(c).
In summary, if the authority of the State Personnel Commission to set salary ranges with maximum rates of pay is to have any meaning, employees at the maximum rates of pay clearly can be denied performance pay increases even though they otherwise qualify. On the other hand, the State Personnel Commission could have increased the maximum salary rates to allow performance pay increases for persons at the existing maximum salary rates. This conclusion gives effect both to the statutory authority of the Personnel Commission to set minimum, maximum, and intermediate rates of pay and to the legislative provisions governing performance appraisals and performance pay. In effect, an employee who is rated as exceeding requirements whose supervisor does not justify a denial of a performance pay increase must receive the increase unless some other legislative enactment or regulation authorized by law prohibits the increase. It removes the discretion from management which existed under the old merit pay system, but does not override other legal restrictions on the awarding of performance pay. This conclusion is consistent with other actions of the General Assembly in prior years in providing money for merit pay and this year in providing money for across-the-board increases, when the applicable appropriations acts directed that all employees should receive the increases or that the maximum salary rate should be increased in amounts or percentages comparable to the amounts available under the legislative appropriation.
LACY H. THORNBURG ATTORNEY GENERAL
Norma S. Harrell Assistant Attorney General