Whether the money and power are enough to create an agency that can sniff out the next Enron before the stock collapses is uncertain. But what no one disputes is that digesting the new resources could be as difficult as winning them from Congress. “You have to realize there will be about a two-year time lag between passing this bill and having troops in the field,” says Richard C. Breeden, who chaired the SEC from 1989 to 1993. Turner says it may take three to five years to see any impact from those changes. “Any organization, be it government or be it business, has to have a process in place for managing change,” he says. “As with almost all government agencies, the SEC hasn’t had that in the past.”
A key step in making the SEC more effective is improving staff recruitment and retention. But even with the additional $76 million earmarked for pay increases and $97 million for new hires, accomplishing those goals won’t be easy. For starters, the SEC must deal with a federal hiring system that gives insiders little discretion over the speed or integrity of the process. Second, there are signs that the pay increases (known as “pay parity” because they put SEC salaries on par with those at other federal financial regulatory agencies) aren’t buying the agency the love it needs from employees.
“Employee morale is at an all-time low,” said one SEC attorney as the raises hit paychecks in August. Managers received double the 6 percent raise that union employees got, he says, so employees “feel like the agency basically hijacked pay parity for the managers.”
That sentiment is shared by many in the National Treasury Employees Union (NTEU), which represents about two-thirds of the SEC’s approximately 3,000 employees, says union president Colleen Kelley. “As far as we can tell, about 60 percent of salaries today are paid to front-line [nonmanagement] employees represented by the NTEU,” she says, “but it appears the SEC has allocated only 40 percent [of the money for raises] to those employees.” In addition, Kelley maintains that employees are not satisfied with a new system for promotions that makes advancement criteria more subjective and caps pay raises at half the annual percentage increase previously attainable. “So far, we don’t believe that what they have created is going to solve turnover and retention problems; we think it’s going to exacerbate them, actually,” she says.
Such employee dissatisfaction could dampen the SEC’s ability to hire new staff, some 200 of whom are supposed to be on board by next October, according to the Sarbanes-Oxley Act. And without more people, departments such as the division of corporation finance may fall short of their new mandates.
“Back in 1990, we were able to review about one in four filings with about the same number of accountants,” says Turner. Then, between 1991 and 2000, the number of corporate filings grew by some 60 percent, while related review staff grew only 29 percent, according to an April General Accounting Office (GAO) report. Little wonder that only 16 percent of filers were reviewed last year. “To get it down to one in three, they’ll have to add at least 50 accountants,” says Turner.