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In entering the presidency under controversial circumstances, Hayes looked for another issue on which to distinguish himself and his presidency. That issue turned out to be civil service reform. In the course of fighting that battle that Hayes would come into conflict with another Republican who would sit in the oval office less than five years later.
Hayes took office determined to end the practice of making civil service appointments based on the "spoils system", something that had been done since the time when Andrew Jackson was president. Instead of giving federal jobs to political supporters, Hayes wanted to award them by merit according to an examination that all applicants would take. This idea immediately met with resistance from the Stalwart wing of the Republican Party, a group that proudly supported the spoils system. The Stalwarts used the spoils system not only as a means of rewarding their friends, but also to require those they had put in government offices to finance the party by giving back some of their salary as part of what were known as "assessments". Senators from both parties were accustomed to being consulted about political appointments. They immediately turned against Hayes on the issue. Foremost among this group was New York Senator Roscoe Conkling, the leader of the New York Stalwarts, and a mentor to future President Chester Alan Arthur.
Hayes appointed one of the best-known advocates of civil service reform to his cabinet. Former Missouri Senator Carl Schurz was appointed to be Secretary of the Interior in Hayes' cabinet. Hayes asked Schurz and William M. Evarts, his Secretary of State, to lead a special cabinet committee charged with drawing up new rules for federal appointments. As part of the proposed reform, John Sherman, the Treasury Secretary, ordered an investigation of the New York Custom House, led by John Jay. The Custom House was full of political hacks appointed by Conkling. Jay's report concluded that the New York Custom House was overstaffed with political appointees and that at least 20% of the employees were expendable.
Hayes knew that he could not convince Congress to outlaw the spoils system, so he used the limited authority that was available to him to do what he could. He issued an executive order that forbade federal office holders from being required to make campaign contributions or otherwise taking part in party politics. At the time Chester A. Arthur was the Collector of the Port of New York, and was also a leading member of the Stalwarts. Arthur and his subordinates Alonzo B. Cornell and George H. Sharpe, all Conkling supporters, refused to obey the president's executive order. Met with their defiance of his authority, in September 1877, Hayes demanded that all three men tender their resignations. They refused to do so. Hayes submitted the names of Theodore Roosevelt, Sr., L. Bradford Prince, and Edwin Merritt, all members of the Stalwarts' rival faction, to the Senate for confirmation to fill the positions held by Arthur, Cornell and Sharpe. The Senate's Commerce Committee, which was chaired by Conkling, voted unanimously to reject the nominees. The full Senate rejected Roosevelt and Prince by a vote of 31–25, and confirmed Merritt only because Sharpe's term had expired.
In July of 1878, when Congress was in recess, Hayes fired Arthur and Cornell. He made recess appointments to replace them, appointing Edward Merritt and Silas W. Burt for the vacant positions. Conkling opposed the appointees' confirmation when the Senate reconvened in February 1879, but despite his opposition, Merritt was approved by a vote of 31–25, and Burt by a vote of 31–19, in the Senate. Hayes had won a most significant civil service reform victory.
For the remainder of his term, Hayes pressed Congress to enact permanent reform legislation and fund the United States Civil Service Commission, but he lacked sufficient support to achieve this goal. He used his last annual message to Congress in 1880 to appeal for reform. While reform legislation did not pass during Hayes's presidency, he brought awareness to an important issue that soon gained favor in the court of public opinion. It soon became apparent from the results of mid-term elections that the public had an appetite for civil service reform and that those wanting the retention of the spoils system were on the wrong side of history.
In the election of 1880, Republicans kept the White House as James Garfield was elected President. Chester Alan Arthur was chosen as Garfield's running mate in an effort to keep the support of the Stalwarts. Arthur accepted the offer to be Garfield's running mate even though Conkling was opposed to the idea and in spite of the fact that he had never held any elected office before. The Vice-Presidency was viewed as an insignificant and ceremonial office and Garfield was in good health, so no one expected Arthur to emerge from the obscurity of the office. Garfield took up the mantle of civil service reform. But in July of 1881 Garfield was shot by disgruntled office seeker Charles Guiteau. He died from his wounds on September 19, 1881 and Arthur, the former Stalwart and spoilsman, was now President.
Many expected that Arthur's succession as President would return Senator Conkling to a position of influence and that it would also mean the death of any meaningful civil service reform. Arthur surprised everyone however, first by not putting Conkling in his cabinet, by not giving him any position of influence for that matter. When it became clear from the results of the mid-term elections of 1882 that the public wanted civil service reform, a bipartisan effort began in favor of reform.
In 1880, Democratic Senator George H. Pendleton of Ohio had introduced legislation that required selection of civil servants based on merit as determined by an examination. In his first annual presidential address to Congress in 1881, Arthur requested civil service reform legislation and Pendleton again introduced his bill, but Congress did not pass it. Republicans lost seats in the 1882 congressional elections, in which Democrats campaigned on the reform issue. As a result, the lame-duck session of Congress was more amenable to civil service reform. The Senate approved Pendleton's bill 38–5 and the House soon concurred by a vote of 155–47. President Chester Alan Arthur signed the Pendleton Civil Service Reform Act into law on January 16, 1883. This former key member of the Stalwart faction had now become the president who ushered in long-awaited civil service reform.
Even after he signed the act into law, many doubted Arthur's commitment to reform. He surprised them by soon appointing the members of the Civil Service Commission that the law created. He named three reform-minded commissioners and also named Silas W. Burt, a long-time reformer who had been Arthur's opponent when the two men worked at the New York Customs House, as the Commission's Chief Examiner. The commission issued its first rules in May 1883 and by 1884, half of all postal officials and three-quarters of the Customs Service jobs were to be awarded by merit. Arthur publicly praised the effectiveness of the new system, stating: "in securing competent and faithful public servants and in protecting the appointing officers of the Government from the pressure of personal importunity and from the labor of examining the claims and pretensions of rival candidates for public employment."