After two years of passionate disagreement, the Government Accountability Office and its oversight committee have agreed to give retroactive cost-of-living increases to more than 300 analysts.

Those employees were denied the annual raises in 2006 and 2007 as part of the agency’s switch to a market-based, performance-driven pay system. Ever since, the GAO has been criticized by employees and Members alike — the move even jump-started the agency’s first-ever union.

But after defending the decision for so long, GAO officials are now admitting that it was ill-advised. While the new pay system works, the denial of COLAs tarnished its image, acting Comptroller General Gene Dodaro said last week at a House Oversight and Government Reform subcommittee hearing.

“We didn’t provide a smooth enough transition for people. Lesson learned,” he said during a break in the hearing. “A lot of people worked for many years in a system that was routine. This is a big change.”

The agency pledged last week to support legislation that would require it to pay out the cost-of-living increases it denied. Rep. Danny Davis (D-Ill.), who chaired the hearing held by the subcommittee on Government Management, Organization and Procurement, said he would introduce the bill after the March recess. He said he is still researching how to fund the retroactive pay increase. The precise dollar amount is still unknown.

Davis said his bill also would establish a “floor guarantee” for cost-of-living increases, meaning that all GAO employees who received a “meets expectations” rating would get the same COLAs as the rest of the federal work force. Dodaro said the agency fully supports this, as well.

Davis’ bill also will include most of the provisions of a bill that Rep. Henry Waxman (D-Calif.) introduced at the request of former Comptroller General David Walker. That bill establishes a statutory Inspector General, among other things.

Davis’ planned additions are good news for the agency’s new union.

At last week’s hearing, union representative and GAO senior analyst Jacqueline Harpp said Davis’ provisions could mend a lot of hard feelings.

“We do believe that this will go a long way toward relieving the anxiety of staff,” she said.

GAO’s change of heart coincided with the resignation of Walker, who officially left Wednesday. An outspoken advocate for pay reform, his manner contrasts sharply with that of Dodaro, a career GAO employee who, at least at last week’s hearing, appeared to take a more conciliatory approach toward the House panel.

“We would be very pleased to have this behind us and move forward,” he told panel members, later adding more succinctly: “We’re hoping to never talk about this issue again.”

But even if Davis’ bill passes, more issues on the GAO’s pay system loom. At Thursday’s hearing, The Ivy Planning Group, a private consultant hired by Walker, briefed the subcommittee on its study of the GAO’s performance ratings, which tend to be higher for white employees than black employees. They found that the gap still existed when controlling for education, competency and the race of the rater, among other things.

Since those ratings help determine employees’ annual raises, the union and Members are keeping a close eye on the study’s results. Next month, Ivy will recommend steps the agency should take to correct the disparity.

Dodaro has promised to revisit the ratings system after Ivy’s study is completed.

“It’s premature to say what we’re going to do,” he said. But “we’re going to make sure people are treated equitably.”