4
Federal Pay Reform

The Federal Employees Pay Comparability Act (FEPCA), if fully implemented, has the potential to improve greatly the federal government's capacity to recruit and retain highly qualified scientists and engineers. FEPCA, passed in November 1990, established new procedures for setting civil service pay levels to make them nearly comparable to private-sector salaries for similar work. First, the act provides a mechanism for automatic annual adjustments based on changes in an index of private-sector salaries. As a result, federal civil service salaries increased by 4.2 percent on January 1, 1992, and by 3.7 percent on January 1, 1993.

Second, the act lays out procedures for increasing salaries in high-wage areas beginning in 1994 to make federal pay nearly comparable to nonfederal pay in each local labor market in steps to be completed in 2002. The president was also given authority to make interim locality adjustments of 8 percent, which were granted in December 1990 to employees in New York, San Francisco, and Los Angeles.

Third, FEPCA provides a number of pay-related flexibilities, such as recruitment bonuses, retention allowances, expanded authority to pay new hires above the minimum rates, designation of critically needed positions so they can be paid above General Schedule (GS) and even Senior Executive Service (SES) levels, and performance awards. These new or expanded flexibilities should help government agencies to fill important positions with leading experts who otherwise would be difficult to recruit and retain.

Finally, FEPCA established a more flexible personnel system for senior scientists in one agency (the Senior Biomedical Research Service in the Public Health Service), and it authorized the director of the Office



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Improving the Recruitment, Retention, and Utilization of Federal Scientists and Engineers: A Report to the Carnegie Commision on Science, Technology and Government 4 Federal Pay Reform The Federal Employees Pay Comparability Act (FEPCA), if fully implemented, has the potential to improve greatly the federal government's capacity to recruit and retain highly qualified scientists and engineers. FEPCA, passed in November 1990, established new procedures for setting civil service pay levels to make them nearly comparable to private-sector salaries for similar work. First, the act provides a mechanism for automatic annual adjustments based on changes in an index of private-sector salaries. As a result, federal civil service salaries increased by 4.2 percent on January 1, 1992, and by 3.7 percent on January 1, 1993. Second, the act lays out procedures for increasing salaries in high-wage areas beginning in 1994 to make federal pay nearly comparable to nonfederal pay in each local labor market in steps to be completed in 2002. The president was also given authority to make interim locality adjustments of 8 percent, which were granted in December 1990 to employees in New York, San Francisco, and Los Angeles. Third, FEPCA provides a number of pay-related flexibilities, such as recruitment bonuses, retention allowances, expanded authority to pay new hires above the minimum rates, designation of critically needed positions so they can be paid above General Schedule (GS) and even Senior Executive Service (SES) levels, and performance awards. These new or expanded flexibilities should help government agencies to fill important positions with leading experts who otherwise would be difficult to recruit and retain. Finally, FEPCA established a more flexible personnel system for senior scientists in one agency (the Senior Biomedical Research Service in the Public Health Service), and it authorized the director of the Office

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Improving the Recruitment, Retention, and Utilization of Federal Scientists and Engineers: A Report to the Carnegie Commision on Science, Technology and Government of Personnel Management (OPM) to create additional occupational pay systems for classes of employees for whom the General Schedule pay system is not suitable. OPM is currently studying the desirability of establishing a separate pay system for physicians, dentists, nurses, and other hard-to-recruit health care professionals. In the past, this approach has been suggested for scientists and engineers involved in research and development activities in the federal government. We believe that FEPCA is an important step in revamping the civil service so that it can attract and keep well-qualified scientific and technical experts. It could go a long way toward improving the government's capacity to compete for scarce talent in the labor market. FEPCA does not, however, address all the important problems associated with the recruitment, retention, and utilization of federal scientists and engineers. For example, it does not change the current position classification system, which is another major cause of the rigidities of the GS system (NAPA, 1991). Simplification of position classification would greatly increase the flexibility of the pay-related features of FEPCA, as the Navy and other personnel management demonstration projects demonstrate. FEPCA does not change recruitment procedures per se or address employee development, issues that merit attention. For example, given the increasing proportions of women, minorities, and other groups among new entrants to the workforce, a special focus may be required for these groups. It also does not address the tenuous linkage between performance and pay in the GS system, although it created a Pay-for-Performance Labor-Management Committee to study and report on the design and implementation of a stronger pay-for-performance system. FEPCA PROVISIONS FEPCA is primarily intended to achieve general comparability of

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Improving the Recruitment, Retention, and Utilization of Federal Scientists and Engineers: A Report to the Carnegie Commision on Science, Technology and Government federal with nonfederal salaries in each locality.1 It also permits use of a number of pay-related flexibilities to enable the government to offset any remaining pay disparities in areas or occupations for which there is a special need or special expertise is required, or both. Third, the new law also authorizes creation of separate pay systems for occupational groups that do not fit the general system. General Pay Comparability Pay comparability for GS employees will be achieved in two ways: (1) annual nationwide adjustments and (2) locality-based comparability adjustments. Nationwide Salary Adjustments GS pay increases will be effective January 1 of each year. They will be based on the change in the Employment Cost Index (ECI) for the wages and salaries of private-industry workers between the third quarter of the year before the preceding calendar year and the third quarter of 1   According to FEPCA, "It is the policy of Congress that federal pay fixing for employees under the General Schedule be based on the principles that—— there be equal pay for substantially equal work within each local pay area; within each local pay area, pay distinctions be maintained in keeping with work and performance distinctions; federal pay rates be comparable with non-federal pay rates for the same levels of work within the same local pay area; and any existing pay disparities between federal and non-federal employees should be completely eliminated."

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Improving the Recruitment, Retention, and Utilization of Federal Scientists and Engineers: A Report to the Carnegie Commision on Science, Technology and Government the second year before the preceding calendar year.2 The ECI was developed by the Bureau of Labor Statistics (BLS). It is "a fixed employment-weighted index which tracks the quarterly change in labor costs (wages, salaries, and employer costs for employee benefits), free from the influence of employment shifts among occupations and industries" (BLS, 1989). FEPCA prescribes the use of the ECI series pertaining to the salaries and wages (excluding employer costs for employee benefits) of private-industry workers (excluding federal, state, and local government, farm, and household workers). Because the ECI tracks the Consumer Price Index fairly closely, its use should ensure that the gap between federal and private salaries does not increase (Gressle, 1990, compares GS salary increases with index data). FEPCA stipulates that the annual GS increase will equal the ECI in 1992 and 1993; in 1994 and after, the increase will be 0.5 percentage points less than the ECI. Thus the January 1, 1993, pay adjustment was 3.7 percent, based on the increase in the ECI from the third quarter of 1990 to the third quarter of 1991. The January 1994 increase is slated to be 2.2 percent, unless it is reduced by the President because of "severe economic conditions" (this procedure is described below). Locality-Based Comparability Adjustments Annual surveys conducted by the BLS will be used to determine the average federal-nonfederal pay gap in each locality. Beginning in 1994, GS employees in localities determined to have a pay disparity 2   The 1989 Ethics Reform Act mandated use of the same ECI to determine annual increases for congressional and executive-level salaries. However, the base period is different (December to December rather than October to October for the year ending a year before the adjustment) and the 0.5 percentage point reduction took effect in 1992, not 1994. This means the increases will usually be different for GS employees and executive-level appointees. In 1992, for example, executive-level appointees and congressmen received an increase of 3.5 percent (4.0 percent change in the ECI from December 1989 to December 1990 minus 0.5 percentage points), compared with the 4.2 percent given to GS employees.

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Improving the Recruitment, Retention, and Utilization of Federal Scientists and Engineers: A Report to the Carnegie Commision on Science, Technology and Government greater than 5 percent will receive salary adjustments in addition to the annual cost-of-living adjustment. For 1994, the adjustment for each such locality will equal 20 percent that amount necessary to reduce the pay gap between public-and private-sector pay for that area to no more than 5 percent, and the gap will continue to be reduced gradually to no more than 5 percent over the next eight years. Presidential Discretion to Reduce Increases As discussed in Chapter 3, before FEPCA, presidents had discretion to reduce or eliminate pay increases under the Federal Pay Comparability Act of 1970 for reasons of economic conditions or national emergency. Although such an action was originally intended to be a last resort, presidents used their authority to issue an alternative pay plan every year beginning in 1978 (the actual adjustments and cumulative gap in comparability were shown in Table 3-1 on page 40). The congressional sponsors of FEPCA wanted to eliminate presidential discretion altogether, but a veto threat resulted in a compromise meant to give presidents some discretion, but less than under the 1970 act. The President may reduce the level of annual nationwide adjustments or locality payments, or both, in the face of a national emergency or serious economic conditions affecting the general welfare. If the President does reduce the increase, he must report to Congress the reasons and provide an assessment of the impact of the alternative pay adjustment on the government's ability to recruit and retain well-qualified employees. During the 1992–1994 period, however, the President's discretion is limited as follows: (1) adjustments of up to five percent may not be reduced unless "a state of war or severe economic conditions" exist;3 and (2) adjustments greater than five percent may be reduced to five percent under the less stringent conditions of "national emergency or serious economic conditions." Also, in 1994, if the locality-based adjustments 3   Severe economic conditions are defined as two consecutive quarters of negative growth in the gross national product (GNP).

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Improving the Recruitment, Retention, and Utilization of Federal Scientists and Engineers: A Report to the Carnegie Commision on Science, Technology and Government would be less than $1.8 billion, the president may not reduce them unless there is a state of war or there are severe economic conditions. If they amount to $1.8 billion or more, he may adjust them to $1.8 billion for reasons of national emergency or serious economic conditions affecting the general welfare or to less than $1.8 billion on the more stringent grounds. It is too soon to tell whether or not the FEPCA procedures for making federal pay nearly comparable to nonfederal pay will be more successful than the 1970 comparability act procedures.4 Because current economic conditions were poor in the first several years of FEPCA, the President could have reduced the 1992 pay raise on the basis of consecutive quarters of negative GNP growth, but did not. President Bush suggested postponing the 1993 pay increase for one quarter in order to reduce the fiscal year 1993 budget by $460 million, but there was no support for this in Congress, which would have had to pass legislation. In February 1993, President Clinton proposed postponing the 1994 pay adjustment for one year and revising the adjustment formula thereafter to be another percentage point less than the ECI (i.e., 1.5 percentage point in all). He also proposed postponing the locality-based comparability adjustment from 1994 to 1995 (OMB, 1993:85)5 4   FEPCA also establishes a pay agent and a Federal Salary Council with nine members—six representatives of employee organizations and three knowledgeable public members. The pay agent sets the pay locality boundaries and recommends to the President comparability payments that would eliminate pay disparities. The pay agent also transmits the views and recommendations of the Federal Salary Council to the president on the procedures for determining locality-based comparability payments and on the levels of comparability payments needed to reduce the disparities. 5   OMB also said that the methodology for determining locality based comparablity was flawed and would be revised to "permit more equitable and accurate determinations."

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Improving the Recruitment, Retention, and Utilization of Federal Scientists and Engineers: A Report to the Carnegie Commision on Science, Technology and Government Pay-Related Flexibilities FEPCA includes a number of authorities to pay individuals more when needed to recruit and retain highly qualified personnel in high-pay areas or occupations. The first two provisions broaden the application of current authorities; the rest are mechanisms that have been tested in the personnel demonstration projects (they are listed in Table 4-1). Broader Special Pay Authority The President may establish higher minimum pay rates in an area or areas where the government is likely to be handicapped in recruiting and retention due to higher private wages, hazardous working conditions, geographic remoteness, or other circumstances that the President or OPM considers appropriate. The special rate cannot exceed the regular pay rate by more than 30 percent, however, although covered employees may also receive locality-based payments. Authority to Start New Hires Above Minimum Rate This authority for advance in-step hiring, previously authorized for GS-11 and above, was extended to all GS levels and permits an agency to offer a higher starting salary to a desired candidate who is already being paid more, or who has unusually high or unique qualifications, or who is needed to meet the government's special need for the candidate's skills and experience. Critical Positions The Office of Management and Budget (OMB), in consultation with OPM, may authorize agency heads to fix pay rates for up to 800 positions governmentwide deemed ''critical'' for accomplishing an important government mission. The authority is to be used if needed to recruit or retain an exceptionally well qualified individual, and they may

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Improving the Recruitment, Retention, and Utilization of Federal Scientists and Engineers: A Report to the Carnegie Commision on Science, Technology and Government Table 4-1. Flexibility Provisions of FEPCA Broader Special Pay Authority Expanded Authority to Start New Hires Above the Minimum Rate (Advance In-Step Appointments) Critical Positions Senior-Level Pay Band Recruitment Bonuses Relocation Bonuses Retention Allowances Advances of Pay to New Hires Travel and Transportation Expenses Time Off as Incentive Award Performance-Based Cash Awards Reemployment of Retirees Application of Title 38 Provisions to All Patient Care Positions Senior Biomedical Research Service Special Occupational Pay Systems

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Improving the Recruitment, Retention, and Utilization of Federal Scientists and Engineers: A Report to the Carnegie Commision on Science, Technology and Government be paid up to level I of the Executive Schedule ($143,800 in 1992) or even higher, on written approval of the President. It is expected that OMB will control the number of positions closely, however, and agencies may find it easier and faster to use recruitment bonuses and retention allowances in conjunction with SES or Senior-Level positions (described in next section) to pay adequate salaries for top scientists and engineers.6 Senior-Level Pay Band The approximately 270 employees still in GS-16,-17, and-18 positions and another 250 in so-called ST positions for specially qualified R&D scientists and professionals will now be paid within a single, ungraded pay band extending from 120 percent of the top GS-15 rate to the rate for level IV of the Executive Schedule. Since ST positions were limited to 517, OPM was going to limit the senior-level to 517, but that limitation was removed by technical amendments to FEPCA in 1992 (P.L. 101–378). Recruitment, Relocation, and Retention Payments Under OPM regulations, agency heads may pay lump-sum bonuses of up to 25 percent of base pay to a new employee or one asked to relocate, if the agency would otherwise have a problem in filling the position. Agency heads also may pay an annual retention allowance of up to 25 percent of base pay if needed to keep an employee with unusually high or unique qualifications or to fill a special need of the agency for the employee's services. The employee must agree to stay for a certain number of years to receive the allowance. 6   For example, an appointee to an SES-6 position with a 25 percent recruitment bonus could be paid more than $140,000 without OMB approval of a critical pay position.

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Improving the Recruitment, Retention, and Utilization of Federal Scientists and Engineers: A Report to the Carnegie Commision on Science, Technology and Government Advances of Pay An agency head may authorize advance pay of up to two pay periods in amount to new hires. Travel and Transportation Expenses Agencies can pay travel or transportation expenses to and from pre-employment interviews for individuals being considered for employment and for new appointees or student trainees if they are entering federal employment on completion of college. Time Off as an Incentive Award Agencies may grant time off, without loss of pay or charge to leave, as an award "in recognition of superior accomplishment or other personal effort that contributes to the quality, efficiency, or economy of government operations." Performance-Based Cash Awards Agency heads are authorized to pay lump-sum cash awards to employees with at least "fully successful" performance ratings (or the equivalent). The award is limited to 10 percent of base pay (or up to 20 percent for "exceptional" performance). Reemployment of Retirees The director of OPM may, on a case-by-case basis, waive the law prohibiting double payments—salary and pension—for civilian and military retirees if they take positions for which there is "exceptional difficulty in recruiting or retaining a qualified employee," and agency heads may exercise the same authority temporarily "due to an emergency

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Improving the Recruitment, Retention, and Utilization of Federal Scientists and Engineers: A Report to the Carnegie Commision on Science, Technology and Government involving a direct threat to life or property or other unusual circumstances." OPM plans to allow the waiver only in "very rare cases" (Laurent, 1991:3). Health Care Positions OPM may extend the position classification, pay, and hours-of-work provisions of Title 38 of the United States Code to employees of any department and agency working in patient care services. Additional Pay Systems FEPCA mandated creation of two new pay systems, one of them for biomedical researchers (the other is for law enforcement personnel), and it authorized creation of additional "special occupational pay systems" for which the classification and pay level systems of Title 5 "do not function adequately." Senior Biomedical Research Service The Senior Biomedical Research Service (SBRS) of up to 350 positions was established in the Public Health Service (PHS). SBRS positions are for outstanding basic science or clinical researchers with doctoral-level degrees in a biomedical or related field. They are not subject to Title 5 provisions concerning GS pay rates, classification, performance appraisal and performance actions, retention preference, and adverse actions. The secretary of Health and Human Services was authorized to set pay, although the act specifies that it may not be less than the minimum rate for GS-15s ($64,233 in 1992) or exceed level I of the Executive Schedule ($143,800 in 1992), unless approved by the President. The secretary is also directed to develop a systematic performance appraisal system to encourage excellence. To encourage recruitment from academia, the PHS may contribute an annual amount

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Improving the Recruitment, Retention, and Utilization of Federal Scientists and Engineers: A Report to the Carnegie Commision on Science, Technology and Government up to 10 percent of the base pay to an employee's retirement program at an institution of higher learning. Special Occupational Pay Systems FEPCA recognizes that Title 5 may not be suitable for certain occupations, even with locality-based comparability pay and special provisions to deal with specific high-pay areas and occupations. Accordingly, sec. 105 of the act authorizes the President's pay agent to create special pay systems for individual occupations or groups of occupations that should not be under Title 5 or subject to the General Schedule "for reasons of good administration." They are not subject to those laws, rules, and regulations of Title 5 that currently may be waived for personnel management demonstrations. Thus position classification could be simplified and broad pay bands used, as at China Lake and NIST. The top pay would be capped, however, at the lowest level (level V) of the Executive Schedule, which means that it would not be comparable to the SES pay level, which may higher, to level IV of the Executive Schedule. OPM is currently conducting studies of two potential occupational pay systems, one of them covering health care professionals.7 OPM does not have plans to look at other occupations at this time, although other groups have been suggested for study in the past, including scientists and engineers in research and development, attorneys, and teachers (OPM, 1989c:6–7). 7   The other study is to develop a plan for a protective services pay system, which would include the congressionally mandated law enforcement pay system. It would use the general authority to create special pay systems to extend the plan to guards and security personnel.