Report outlines problems with federal pay

The government's current system of classifying and paying workers is outdated, fails to reward individual achievements and does not reflect market pay levels, according to a new white paper on federal pay from the Office of Personnel Management.

The report, "A Fresh Start for Federal Pay: The Case for Modernization," looks at the history of the General Schedule, the government's white-collar pay system. While the report outlines problems with the system, it does not propose solutions for fixing them. Rather, the report "is merely intended to open the conversation on the possibilities for a modernized federal pay system for the 21st century," OPM Director Kay Coles James wrote in the introduction.

The report argues that the General Schedule is a great pay system-for the workforce of the late 1940s. The General Schedule was established under the 1949 Classification Act. At that time, 70 percent of federal white-collar jobs were clerical. The General Schedule's system of classifying and paying employees based on their position, rather than performance, made sense since almost everyone did the same type of work. But today that system no longer works, the report says, since employees perform multiple tasks, are highly skilled and have specialized knowledge.

Another problem with the current compensation system is that the government has not found a way to compare federal pay to similar work in the private sector. The 1990 Federal Employees Pay Comparability Act (FEPCA) tried to tackle the pay gap between the federal and private sectors by creating a formula to close it. But FEPCA has not worked because lawmakers have never fully funded it and because government leaders have disagreed about the usefulness of its methodology.

FEPCA's biggest flaw is that it doesn't allow comparisons between occupations in the private and federal sector, the report states. For example, the FEPCA methodology would not look at what a computer engineer in the private sector earns to determine what a computer engineer in the federal sector should earn. Instead it might compare salaries for all technology jobs without differentiation.

The government needs a way to compare pay rates in the federal and private sectors by occupation, not across-the-board, the report says, because only "a nimble system can recognize and accommodate strategic occupational differences."

The report also argues that a performance-based government needs a compensation system that recognizes and rewards performance. Under the General Schedule, a pay raise is always earned after a certain length of time, but is not guaranteed for outstanding performance. The defining characteristics of the General Schedule--narrow pay ranges, time-based automatic pay increases and across-the-board annual pay raises--all send the message that performances doesn't matter, the report says.

But the American Federation of Government Employees scoffed at the idea of pay for performance. In a statement issued prior to the report's official release, AFGE President Bobby Harnage said, "merit pay invites favoritism and favoritism invites corruption."

Finally, the current system is inflexible, the report says. Since the federal workforce is nowhere near as homogenous as it used to be, a single pay system no longer meets all the needs of various federal agencies. Strategic management of human capital, one of five governmentwide initiatives that make up the Bush management agenda, requires that compensation be tailored to the needs of an agency. While some agencies already have the authority to design their own pay systems, this should be "the rule, rather than the exception," the report says.

Some of the flaws with the General Schedule that the paper points to would be addressed under legislation introduced by the Bush administration in October. The proposed Managerial Flexibility Act, for example, would allow federal managers to make on-the-spot hiring decisions and design personnel systems that could be permanently exempt from portions of the Civil Service Code.

Rep. Steny Hoyer, D-Md., welcomed the report as an opportunity for "an honest conversation on modernizing federal pay," but said it does nothing to address the private-federal pay gap. "The first step in any modernization is to address the enormous pay disparity between the federal employees and their private sector counterparts. Unfortunately, I don't see anything in this report that gives me the confidence that this will happen," he said.

Paul Light, director of governmental studies at the Brookings Institution, also praised the report for starting a dialogue on pay modernization. "This is a pay system designed for a workforce that hasn't shown up for the better part of a half century and desperately needs to be modernized. This report marks the opening bell in a long-overdue conversation based on an honest, rigorous assessment."

OPM will formally issue the report at a closed gathering of civil service experts sponsored by Harvard University's Kennedy School of Government on Monday. OPM will post the report to its Web site on Tuesday.