Raising pay

That vision was at the heart of the 1990 Federal Employees Pay Comparability Act (FEPCA), which featured basic raises tied to private sector raises and locality pay designed to close pay gaps to 5 percent or less by 2002.

It hasn't worked out that way, of course. Year after year, the raises indicated by the law have not been funded. The official pay gap remains huge, and many agencies are finding it increasingly difficult to attract and keep employees.

Several trends have emerged in light of the 1990 law's failures. One is the use of numerous special pay authorities designed to address recruiting and retention problems on a targeted basis. Another involves removing parts of agencies, or even whole agencies, from the jurisdiction of Title 5 of the U.S. Code, the federal employment law that governs pay.

The result is a fractured-some say Balkanized-pay system that has left employees dissatisfied with their pay, managers frustrated by their inability to run their operations and agencies concerned about competition for employees not only from the private sector, but also from each other. And once again, there is talk of a need for pay reform.

Making the personnel system more reflective of the overall labor market and salaries more reflective of employee performance have been at the heart of several federal pay reform efforts that prominently featured pay banding. That's the practice in which several pay grades are combined and management has more leeway in setting employee salaries than under the fixed grade-and-step system. During the mid-1980s, the Reagan administration proposed a pay banding-based compensation system intended to give agencies greater flexibility in classifying employees and tying pay more closely to performance. In 1996 and again in 1998, Rep. John Mica, R-Fla., then chairman of the House Government Reform Civil Service Subcommittee, proposed expanding the authority of agencies to conduct demonstration projects. These pay programs commonly include pay banding, make it easier to deny within-grade increases to poor performers and provide greater job security to employees with high performance ratings, among other changes.

All of those efforts failed, largely due to concerns by unions and other employee groups about the potential for favoritism in the evaluations that would be used to set salaries.

The latest reform effort is brewing in the Senate Governmental Affairs Committee's Government Management Subcommittee, which late last year issued a report recommending more use of pay banding, as well as improvements in hiring, training and disciplinary actions. The subcommittee hopes to draft legislation this year, after consulting with employee groups, the Bush administration, pay experts and others. "We're saying, it is time to look at a governmentwide overhaul of pay banding that gives these special flexibilities to everyone so that you don't have agency after agency coming up to their authorizing committees saying we need new authority," says a Senate Governmental Affairs Committee staffer who asked not to be identified. "If we're looking at overhauling the civil service, let's do the whole thing and not take a piecemeal approach.

"What you might have at the end is a fragmented system. But at the very least, if you come to a fragmented system as a matter of specific policy as opposed to it just developing over time, that would be preferable," the Senate staffer says.

On the House side, Garry Ewing, staff director of the House Civil Service Subcommittee, says the panel recognizes concerns that federal pay is too formula-driven and not responsive enough to market conditions. "There are going to be situations where it's going to be very tough for the government to compete with the private sector, no matter what," Ewing says. "But there are questions about whether we have sufficient sensitivity to market differences.

"There may be areas where government is not competitive but there may be areas, both in occupations and regions, where government salaries are at or above market rates. One thing we need to realize is that today's hot area may be tomorrow's run-of-the-mill-thing. That's how markets operate," he says.

Reform a Tough Sell

The General Accounting Office heartened advocates of pay reform by releasing a report in January calling human capital management among the programs at high risk of allowing fraud, waste and abuse. GAO called for reforms in the way employees are hired, trained and rewarded. But even with the problems arising from the increasingly fractured pay system, pay reform might not be an easier sell now than it was five or 15 years ago. Employee unions remain concerned about tying pay increases more directly to performance appraisal systems.

"While some agencies have been working toward having a performance appraisal system that is more reflective of what employees do, so that they know from the beginning what they're being measured against and what they're striving for, there is still so much work that needs to be done," says Colleen Kelley, president of the National Treasury Employees Union. At most agencies, she adds, employees don't believe the appraisal system reflects their actual performance.

Kelley and Bobby Harnage, president of the American Federation of Government Employees, say that more employee and union involvement in crafting evaluation standards would lead to acceptance of those reforms. But Harnage adds, "I don't know how you get favoritism out of the mix, because whatever procedure you come up with, it's still a human being filling out that form. It will have a tendency to favor some people and punish some others. It doesn't have anything to do with job performance."

The Elusive Pay Gap

The years since the last general pay reform have been filled with debate over whether the officially reported pay gap between the government and private sector-now 21.7 percent by the Office of Personnel Management's figures, about 30 percent by union estimates-is accurate. The Clinton administration announced early on that it thought the method used to produce the figure was flawed and that economic conditions mandated paying smaller raises. Congress didn't object to those assessments, although employee organizations did.

"We've been engaged in this debate over the gap, in my opinion, to prevent closing it. I've been saying, 'I say the gap's 27, you say it's 12. You win, pay up.' I haven't gotten paid yet," says Harnage. "The Band-Aid approach eventually is going to fail. We've got to get real about pay. "If we were raising the pay the way it should be, most of those special pay scales would go out of existence because they no longer would be needed," Harnage says. "I think the best way to deal with it is to go in and make a one-time fix. From that point on it should pretty much take care of itself with some minor tweaking."

Kelley says, "For 10 years it's been in place and it's never been implemented as intended. We need to determine what a credible system would look like and if it's not FEPCA, we need to work together to determine what it is. The good part about it is it's already in the law and it would not take the work needed to design a whole new system.

"If there's work that needs to be done on revamping the appraisal system so that there is a more direct pay for performance system, we can do that. But I think we need to be in a better starting place to have that conversation. Implementation of FEPCA would really help that."

OPM officials say that the 1990 pay reform law has made at least some progress toward closing the gap. But the problems with federal pay go deeper, they say, than what average pay gap numbers reflect.

"We're probably still underpaying by 30 or 40 percent in some occupations with hot skills. But there are other occupations where a federal employee does pretty well compared with a private sector employee," says an OPM official who asked not to be identified. "If you just funded FEPCA, you'd still be underpaying some people and you'd be overpaying some people. "If FEPCA had been funded, maybe there'd be a lessening of the volume about the need for comparability, and whether or not there's a pay gap and all that. But you'd still be facing the issue that the pay system doesn't do the job that a lot of managers need," the official says. "It's still not enough performance-oriented. You'd still have the feature that everybody gets the same increase every January when the markets might be different. I think you'd still have a call for fundamental change."

cracks in the monolith

The federal pay system experiences constant change that belies its reputation as an inflexible monolith. Revisions in 2000 alone included authorizing special salary rates for certain IT employees; extending premium pay authorities to the Secret Service; making comparability allowances for certain physicians permanent and creditable toward retirement; revamping pay-setting for administrative appeals judges; improving overtime pay for accident investigators and wildland firefighters; and turning the Patent and Trademark Office and part of the Federal Aviation Administration into performance-based organizations with greater pay flexibilities.

The General Schedule, widely considered the standard governmentwide pay system, now covers fewer than 1.2 million of the more than 1.8 million executive branch employees. Even the GS population was broken into localities-32, with five more possibly on the way next year-each with different salary rates under the 1990 pay law.

The Wage Grade system for blue-collar employees and associated plans, covering more than 200,000 people, pays salaries that vary among 131 localities. The remainder of the workforce is split into scores of smaller pay categories, some occupation-specific, some agency-specific, some rank-specific. The Senior Executives Association counts 22 pay systems just in the levels above the General Schedule.

In addition, the list of special pay authorities is long. The largest is "special rate" pay in high-demand General Schedule occupations, covering 147,000 employees across 431 different pay schedules. At the beginning of the year, 30,000 employees were added to the special pay pool under a new authority for special rates of up to 30 percent above basic salary for certain IT employees.

Other pay flexibilities include various occupation-based allowances, quality step increases, performance and incentive awards, and recruitment and relocation bonuses and retention allowances-called the "three Rs." Agencies increasingly have turned to such special pay authorities to make up for shortcomings in standard pay rates, often with positive results. For example, quit rates among high-demand engineering occupations getting special rates range from about 1.5 percent to 4 percent, compared with an average of 2.4 percent for all GS occupations, according to OPM data. Agencies presume quit rates would be much higher without special rate pay. And the three Rs are "very helpful. They enable us to address staffing needs as they emerge," says Diane Disney, deputy assistant secretary of Defense for civilian personnel policy. For example, the Y2K-related demand for experts in certain computer technologies was the main reason that the number of retention allowances jumped from 2,361 in 1998 to 3,925 in 1999. The number dropped to 3,295 in 2000, after that concern had passed.

"The real strength of the three Rs is the flexibility, that you can pinpoint problems down to the organizational level," says Disney. "That means you can respond much more quickly to an organization that has the sniffles than to an entire organization that has pneumonia. Through tools such as the three Rs and promotion opportunities and performance evaluations [managers] can sometimes find that they have a more satisfied workforce than they would have had otherwise."

One view is that the growth of such authorities, targeted as they are to areas of greatest concern, amounts to de facto pay reform. However, OPM officials say the incremental approach brings several problems. They cite, as an example, the special authorities given to many financial agencies to attract bank examiners to handle the savings and loan crisis.

"Now everybody gets the benefit of those kinds of increases, including the personnel folks, the facilities folks," says another official. "That crisis has been over for a while and they're still at the higher level. It's like a permanent solution to a temporary problem." Further, legislation is pending to extend those same authorities to the Securities and Exchange Commission.

Similarly, the recent special-rate pay announcement for IT employees brought protests from those in grades GS-13 and above, who were left out because the goal was to improve recruiting and retention among early-career workers. Employees in other technical occupations not getting special rates also objected.

OPM officials also frown on law enforcement agencies' frequent requests for specialized pay provisions from Congress. Once one agency gets such a provision, even though it was based on a unique need, others often ask for-and get-the same, officials say.

Says one OPM official, "Internal equity is a big, big force in the government. You'll always be faced with people saying, 'How come they're getting something we're not? Make it even.' It doesn't matter to them that there might be a different kind of market condition or a different kind of attrition. They say it's unfair, it's illegal, it's disparate treatment. There's constant pressure to ratchet up beyond what the last person got. All you do is wind up driving up the cost."

Breaking Away

The "me too" effect also is at work in pressures to give agencies their own pay authorities by removing them entirely or partly from Title 5. Some agencies-the U.S. Postal Service being the largest-have been exempt for decades. The Veterans Affairs Department's medical care arm, many financial agencies, national security agencies, several arms of Congress and numerous small independent agencies also are fully or partially exempt. The two most notable recent Title 5 exemptions affected the Federal Aviation Administration and the Internal Revenue Service, which in 1996 and 1998, respectively, received pay banding authority and numerous other flexibilities. While they are just now starting to carry out those authorities, they are seen as a precedent for exempting still more agencies. For example, the National Academy of Public Administration last year recommended a new human resources system for the Navy, saying the service is hampered by the central classification, pay and disciplinary systems.

"Title 5 and specifically the parts of it dealing with compensation don't allow the Navy-and we could say the same thing of the other services-to become as linked as they need to be to the world in which they must recruit and keep people," says Frank Cipolla, the academy's director of the Center for Human Resources Management and leader of the study. "If they're going to be in competition with the aircraft industry for talent they ought to be able to be in real competition. But they can't do that," he says. "The leaders of the mission communities are not in a position to lead as a result. They're at the mercy of the central system. They ought to be able to adapt as the markets change and as their own needs change."

The Defense Department has been a leader in the move away from the centralized pay and classification system, starting back in the early 1980s when a Navy demonstration project called China Lake put the term "pay banding" in the federal vocabulary. The China Lake program, named after the Naval Air Warfare Center in California that was the primary test site, was made permanent in 1994. It has been followed by a departmentwide demonstration project in acquisition functions, plus alternative personnel tests at eight Defense research laboratories. One major advantage of pay banding authority is more discretion in setting salaries. "In order to get that person, you might have to spend a couple of hundred dollars more but you don't lose them over a small amount of money," says Janice Lynch, project manager for the planned personnel demonstration project at the Office of Naval Research. Lynch is also the former chair of the Defense Laboratory Quality Improvement Program's personnel subpanel, which oversees the research labs' demonstration projects.

"It doesn't mean you get everybody because there are some people we're probably not going to be able to touch. But you don't lose people because of some arbitrary number," she says.

Such changes don't necessarily require huge infusions of cash to address pay problems, since other benefits of alternative personnel systems-such as quality of work life initiatives and enhanced training-also can improve recruiting and retention. Lynch says the lab demonstration sites put less than 3 percent more into their pay pools, but that was enough to make a difference.

"It's amazing what a few flexibilities and a few delegations and a little bit of money can do to give managers and employees a sense that 'I've got opportunities here,' " she says. Still, there's a perception that alternative pay sites get blank checks that give them advantages over agencies operating under standard rules.

"Dirty looks, no. Envious looks, yes," Lynch says, describing the reaction from officials of agencies without such authorities. "I think a lot of organizations simply think that if they had broad-banding they wouldn't lose people any more and all their problems would be solved. Not true. It's the whole culture. If you've got a miserable organization it doesn't matter what you pay your people. They aren't going to stay long." The Senate staffer says agencies with special pay authorities can be viewed as "agencies of the 'haves.' They've got this great pay authority, they can hire executives, they can pay their people a lot. Maybe that says to other agencies they're not as important. Maybe that says that to other General Schedule employees or members of the SES. "By the end of the day, you're going to have a rump civil service-a few hundred thousand who are under the General Schedule system and everyone else out in these specialized pay systems."

talent wars

Part of the concern about the federal compensation system getting too fractured is financial-a view that agencies shouldn't get into bidding wars with each other. Another concern is that agencies with friends in Congress will get special treatment and others with similar problems will be left to suffer it out.

"In the true market situation, every agency would fight for what it can with its appropriating committees, and we would have 100 different pay systems and everybody's competing for that same labor force," says an OPM official. "If you're an agency that happens to be favored by your oversight committee and you have better funding and a nicer building and covered parking or something, then you're in a better marketing position and you're going to steal people away from the agency across the street. That's what would happen.

"That's the way the private sector works. But that hasn't been the culture of the government, and there's been resistance to allowing that to happen," the OPM official says.

Interagency competition is a growing concern. For example, OPM in January proposed regulations to allow agencies for the first time to use retention allowances, under certain circumstances, to keep employees who might leave to join other agencies offering them better deals.

Statistics on such agency-hopping are scarce, but evidence shows it is happening. A manager at the General Services Administration recounts that he lost one of his best workers to the FAA "because they were able to offer him a $13,000 per year raise for similar work due to pay banding. I think [having] different pay systems puts some agencies like ours at a disadvantage in retaining top-notch employees if another agency like FAA wants them," he says.

The Defense Department also chalked up losses of civilian air traffic controllers to the FAA. Defense still is assembling data, but according to OPM, while Defense's controller attrition has been stable since FAA got its special authorities, higher percentages of those who do leave are going to the FAA. FAA officials declined to be interviewed, saying that it's too soon to assess the effects of the agency's personnel flexibilities.

Some believe such competition among agencies can be healthy, just as competition with the private sector in contracting-out studies sometimes is viewed as a way to shake up functions and make them more efficient.

"If used appropriately, competition between agencies I think actually raises the bar for everybody. It draws everybody up to a higher level of performance," says Ron Sanders, the IRS' chief human resources officer. "If we're doing things well, if we have a very challenging work environment and we're using these authorities to attract people both inside and outside government, others are going to look at those same authorities. But even getting them doesn't mean they're going to use them well. They're going to have to get better at what they do in order to match us.

"I wouldn't, however, argue for unrestrained competition," adds Sanders, who notes that the IRS hasn't yet seen employees being drawn there from other agencies. "As long as there's a common framework within which the competition occurs, I think that would be generally constructive." NAPA's Cipolla, a former director of civilian personnel management at Defense, says that whether the potential for competition in a fractured system is a positive or a negative "depends on where you think you ought to go."

"I'm not one that gets excited about the Balkanization issue. So what if you have competition? So what if you might have to go to the table with the unions to work some of this stuff out?" he asks. "I don't worry about fracturing. I think it's time to do something in the direction of making [pay] systems more responsive."

A new attempt at pay reform would require another foray into the statistical and philosophical thicket of pay comparability with the private sector. Political leaders would have to sort out the value of pay in the total package of compensation and other benefits, as well as other factors that contribute to an individual's decision to join, stay with or leave an organization. Federal personnel experts say it's increasingly clear that issues such as training and career development, work/life balance, benefits such as leave, retirement and insurance and organizational climate can be just as important as pay rates, if not more so.

"I'm not certain that there has been a definitive comparison of federal sector employment and private sector employment," says Disney. "If there were one, it would find differences by occupation, some more pronounced than others, and it would find differences by region. Life would be simple if we could say that all of Category X are paid X percent less than all of those in Category Y, but the comparisons aren't that easy." OPM has been working for several years on such issues with a view toward drafting legislation. Whether and when a proposal might emerge-and in what form-remains for the Bush administration to decide. But OPM officials say that tying pay more closely to the labor market underlies many of the potential solutions.

"Just about any alternative to what we do right now would require more delegation of authority, more discretion, more market sensitivity," says an OPM official. "We know that when you give agencies the flexibilities, they want to have pay banding, they want to be more performance-oriented. If that's the lesson, why don't we do that for the whole government? Why don't we give agencies flexibility to design these kinds of systems?"

OPM officials say that the federal pay structure has as its underlying premise a stable workforce in which employees start at low grades and spend long, continuous careers advancing upward. That premise is outdated in an age when many lower-graded jobs have been privatized or eliminated, technology has raised the level of the work for almost everyone else, and career mobility is greater.

"The General Schedule with 10 steps and everybody gets one increase in January just doesn't fit today's model," the OPM official says. "If we're going to be more like the private sector, there probably ought to be more market sensitivity across occupations. You're looking then at maybe breaking up the General Schedule into two different groupings of occupations that might move separately."

In such a scenario, governmentwide policies might remain for nondiscrimination, veterans preference policies, merit system protections and basic benefits, but pay practices would differ for technical occupations versus administrative occupations, for example. "But then you'll come across the equity issue," the OPM official adds. "There will be some winners, some losers, some people that the market dictates will get big increases for the next few years while others are stable or get small increases. The question is: Can we live with that?"