This year witnessed the beginning of the end of the federal government's largest, most ambitious experiment in pay-for-performance.

The Defense Authorization Act signed in October ordered the Defense Department to kill the controversial National Security Personnel System (NSPS) and move its 220,000 employees back to their previous pay systems by 2012. Most will end up transitioning back to the General Schedule (GS).

Besides the administrative challenges involved, there will also be controversial financial challenges for some. As many as 4,000 employees received larger-than-usual pay raises under NSPS and now have salaries above their corresponding GS-grade salary caps. They will have their future pay raises halved until their GS pay scales catch up over time with their salaries.

Some organizations could begin transferring employees out of NSPS as soon as February.

Critics said NSPS was unfair and possibly discriminatory, took too much time out of managers' schedules, and did not accurately measure how well employees did their jobs. But supporters of NSPS said it successfully rewarded employees who performed well instead of paying employees based solely on how long they had been with the government.

The end of NSPS also took the wind out of the effort to create a pay-for-performance system across the entire government. When Office of Personnel Management Director John Berry took charge earlier this year, he spoke about eventually placing most federal employees under some form of pay-for-performance. But after NSPS was killed, Berry told reporters that pay-for-performance was not an immediate priority. Serious discussions on how to overhaul the government's civil service system have not yet begun.

The Defense Authorization Act also allows employees under the Federal Employees Retirement System to count unused sick leave toward their retirement calculations. Agencies often complain that FERS employees, who previously could not get credit for unused sick leave as Civil Service Retirement System employees do, catch the so-called "FERS flu" and use up their sick leave as they near retirement, costing the government an estimated $68 million in lost productivity each year.

Under the change in law, half of a FERS employee's unused sick leave will count toward his annuity until Dec. 31, 2013. Beginning in 2014, FERS employees will get all their leave credited toward their annuities.

Congress also passed the smallest federal pay raise since 1988 for 2010. Federal employees will receive a 2.0 percent average pay raise in January — smaller than the 3.4 percent pay raise military service members will receive.

President Barack Obama signed an executive order Dec. 23 to pay the raises beginning in January. For civilians, the pay raise contains a 1.5 percent base pay raise and an average 0.5 percent locality pay raise. A GS-10's base pay will range from $45,771 to $59,505, while a GS-15's base pay will range from $99,628 to $129,517.

Members of the Senior Executive Service at agencies with a certified SES performance appraisal system will make a minimum of $119,554 and a maximum of $179,700. For senior executives at agencies without the performance system, pay will range from $119,554 to $166,300.

In originally proposing the smaller raise for civilian employees, Obama said he could not justify a larger pay raise for feds given the recession and strained government budgets.

Berry has promised the administration will propose equal pay raises for federal employees and military service members in the 2011 budget that will be released in February.