Can a North Carolina state agency deny a performance-pay raise to an employee who has already hit the top of the salary range for the job?

Plain-English summary

Senator Joseph E. Johnson asked the AG whether the State Personnel Commission was correctly interpreting the State Personnel Act when it told agencies to deny performance pay increases to employees already at the maximum salary rate for their classification. The 1989 General Assembly had revamped the State Personnel Act's performance pay framework, and § 126-7(c)(4)'s language read like a mandatory rule: 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." If that text were absolute, an employee at the maximum of the salary range would seemingly get the increase anyway, pushing them above the statutory maximum.

Assistant Attorney General Norma S. Harrell concluded that the Personnel Commission's interpretation (max-rate employees ineligible) was correct.

The reasoning works through several layers.

The conflict between § 126-7(c)(4) and § 126-4(2) is real. § 126-4(2) gives the State Personnel Commission authority to establish "minimum, maximum, and intermediate rates of pay" for each classification. If the performance pay increase in § 126-7(c)(4) is truly mandatory regardless of where the employee sits in the range, an exceptional performer who stays in the same job long enough would float past the maximum, eventually reaching pay levels untethered from the salary range structure. The salary ranges are designed to keep state pay competitive with the external labor market and internally consistent across positions. Permitting unbounded performance pay would defeat that structure.

Reading the two statutes in pari materia (the canon from In re Hardy and Becker County Sand & Gravel Co. v. Taylor), both have to be given effect. The only reading that does so is to treat the performance pay mandate in § 126-7(c)(4) as subject to the salary range maximums under § 126-4(2). The performance review system serves other purposes besides pay (employee feedback, training opportunities, fair documentation), so requiring appraisals of all employees does not imply all employees are eligible for performance pay.

The General Assembly itself recognized the salary range interaction. The opinion cites prior Budget Acts where the General Assembly specifically directed the Personnel Commission to add new steps at the top of the salary range when merit pay was funded (1980, 1981, 1985), so that maximum-rate employees could receive merit increases without breaking the range structure. The 1989 Expansion Budget Act, which funded the new performance pay system, did not include such a direction. The Office of State Personnel reported that there was no discussion of increasing maximum salary rates while the legislation was under consideration. The absence of an explicit instruction was telling: the General Assembly knew how to direct salary range expansion when it wanted to, and chose not to here.

Other limits on performance pay confirm the reading. § 40(a) of Chapter 752 limited performance pay funding to the proportional source of an employee's salary (General Fund or Highway Fund). Subsections (d) and (d1) excluded employees separated from service or in disciplinary procedures from receiving the increases. Those limits show that the General Assembly did not view the performance pay framework as absolute even for otherwise qualifying employees; the framework was always intended to operate within other rules.

The AG's conclusion gives effect to both statutory provisions. § 126-7(c)(4) means an employee rated as exceeding requirements must receive the increase unless either the supervisor justifies a denial in writing or some other legal restriction prevents the increase. Being at the maximum salary rate, set by Commission rule pursuant to § 126-4(2), is one of those other legal restrictions.

The Personnel Commission also had an alternative path forward: it could amend its rules to expand the maximum salary rates, which would let max-rate employees receive performance pay increases. The opinion noted that the Commission could have done that but had not. The choice was the Commission's to make.

Currency note

This opinion was issued in 1990. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The State Personnel Act has been amended substantially since 1990 (and is now codified largely in Chapter 126 of the General Statutes, with the State Human Resources Commission having replaced the State Personnel Commission). The salary range and performance pay frameworks have changed multiple times, including significant restructuring around career banding in the mid-2000s. The basic principle (the Commission's salary range maximums constrain performance pay eligibility unless changed by rule or by statute) remains intact.

Background and statutory framework

The State Personnel Act is the comprehensive statute governing employment with North Carolina state government. Chapter 126 sets up the Commission, defines the personnel system, and creates the framework for classification, pay, performance review, and discipline. The 1989 amendments in Chapter 796 of the Session Laws restructured the performance pay system to provide more accountability: performance ratings tied to specific pay outcomes, with supervisor documentation required for any denial.

The salary range framework that § 126-4(2) underwrites is the heart of the classification-and-pay system. Each classification is assigned a pay grade, and each pay grade has a minimum, maximum, and intermediate rate. The range is the design feature that keeps state pay both externally competitive (the maximum is high enough to attract qualified candidates) and internally fair (similar jobs pay similar money). An unbounded performance pay system would gradually erode that structure.

The "longstanding policy" the AG relied on (treating maximum-rate employees as ineligible for performance pay) sat in 25 NCAC 1D .1123(a) and the Personnel Manual at Section 7, page 33. The Personnel Commission had treated max-rate employees this way long before the 1989 amendments, and the General Assembly was aware of that practice. Under the doctrine of legislative acquiescence (the canon that an administrative interpretation undisturbed by the legislature over time is highly relevant evidence of the statute's meaning), that consistent practice supports the AG's reading.

The opinion's frame of "the Commission could have expanded the range" preserves the policy flexibility for future iterations. If the Commission concluded that the salary range maximums were too low and were unfairly capping exceptional performers, it had the authority to raise the maximums. Alternatively, the General Assembly could include a salary range expansion directive in a future Budget Act, as it had in 1980, 1981, and 1985. The opinion is a statutory construction, not a policy preference; it tells the parties what the current rules require.

Common questions

Could an employee at the maximum salary rate get any kind of pay increase under this opinion?

Yes, but not a performance pay increase that would push them above the maximum. Across-the-board increases that came with simultaneous maximum salary range expansion would still flow through. Promotions to a higher classification with a higher range would also be available.

Did this opinion mean the Personnel Commission's rule was correct as a matter of policy, or just as a matter of statutory interpretation?

The opinion was strictly about whether the Commission's interpretation was within its authority. The policy question (whether max-rate employees should be eligible) was left to the Commission and the General Assembly.

What did "exceeding requirements" mean in the performance rating system?

The 1989 framework used performance ratings that included "exceeds requirements" as one of the levels above "satisfactory." Only employees rated as exceeding requirements were eligible for performance pay; satisfactory or below-satisfactory ratings did not qualify. The opinion did not address the specific performance criteria.

Could the supervisor's written justification for denial just say "at maximum salary rate"?

The opinion's framework suggests that the maximum salary rate is itself a sufficient legal reason for denial, separate from the supervisor's discretionary judgment. A supervisor was not required to justify denying performance pay to an employee at the maximum; the eligibility rule made that step unnecessary.

Did this opinion preview any later state employee benefits litigation?

The opinion's reasoning on statutory construction is a general framework that applies to many other state employee benefit questions. The principle that the Personnel Commission's interpretation of its own statutory authority is entitled to deference, especially when the General Assembly has acquiesced in the interpretation, has continued to be applied in subsequent disputes.

Citations

• N.C.G.S. § 126-4(1), (2), § 126-7, § 126-7(c), § 126-7(c)(4)
• Chapter 752, 1989 Session Laws (Expansion Budget Act)
• Chapter 796, 1989 Session Laws (Personnel Act amendments)
• 25 NCAC 1D .0102(a), .1123(a)
• 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 257 (1967)
• 52 N.C.A.G. 81 (1983)

Source

• Landing page: https://ncdoj.gov/opinions/salaries-state-employees-denial-of-performance-pay-to-employees-at-the-maximum-salary/

Original opinion text

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. § 126-7(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 policies 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