Agencies use special rates to close public-private pay disparity

Office of Personnel Management asks agencies to consider how the proposed across-the-board 1 percent pay increase for all federal employees will impact the spec...

The Office of Personnel Management is seeking input from agencies on whether to adjust the way some General Schedule (GS) employees will be paid in 2015.

OPM Director Katherine Archuleta wrote a memo to Chief Human Capital Officers, calling for data on GS employees who are paid using special rates authorized under 5 U.S.C. 5305 and 5 CFR part 530, subpart C.

A special rate is an alternate adjustment — separate from locality pay adjustments — made either through a flat dollar amount or a percentage of the base pay. OPM can authorize higher rates of pay for specific occupations and locations to address significant challenges in recruitment or retention.

The request comes at a significant moment as President Barack Obama has proposed a 1 percent pay increase for all federal employees in his budget for fiscal year 2015. Agencies must determine how that increase, if Congress doesn’t remove it, will impact GS employees who are being paid using special rates.

“The President’s budget for fiscal year 2015 proposes a total pay increase costing 1 percent of basic payroll,” Archuleta said in the memo. “In other words, any across-the-board general increase in GS base rates combined with any locality pay increases (which could vary by locality pay area) would be limited to a 1 percent overall increase in the basic payroll. As of the date of this memorandum, the President has not exercised his alternative adjustment authorities or indicated whether the increase proposed in the budget would be implemented through an across-the-board increase in GS base rates and/or locality pay increases. The President would exercise his alternative plan authority for the GS base rate increase under 5 U.S.C. 5303 by August 31, 2014.”

Ron Sanders, vice president and Booz Allen fellow at Booz Allen Hamilton, said the memo itself is not unusual. It’s something OPM sends out annually to solicit information from agencies on existing special rates to determine if they should be reduced, increased or terminated or new ones implemented based on staffing changes.

“What may be significant this year — in addition to the fact that there may actually be a 1 percent pay raise — is that because of all the past years where there has been no General Schedule increase, there are some occupations, maybe now bordering on many occupations, where federal salaries pay significantly below market,” Sanders said. “So, agencies have to take a look at that and decide whether it’s necessary to go after special salary rates for those occupations.”

Years without pay increases create disparity

The cumulative effect of multiple years without a federal pay raise is a widening disparity between private and public sector pay rates for particular occupations.

“Let’s take the base General Schedule salary rate for a GS-12 financial management specialist,” Sanders said. “Three or four years ago, the GS salary for financial management specialist either nationwide or in any given locale, may have been competitive enough to recruit and retain. But, over the last three, four, five years, where the regular GS salary schedule did not increase, the salaries for those federal jobs may have fallen significantly below market such that an agency would come in for a special rates request in order to remain competitive.”

The special rates adjustment can be applied by occupation nationwide or in a particular labor market.

“Right now, the special rates authority is the only way that OPM … has to deal with significant labor market disparities,” Sanders said.

The General Schedule salary rates have failed to keep up with the private sector by grossly underpaying or overpaying federal employees for the work they do.

“While no one has ever suggested that we reduce the rates of existing federal employees, the fact that what we overpay and we underpay are probably more or less a wash,” he said. “When you try a one-size-fits-all 1 percent, in effect there are winners and losers. One percent does very little to keep us competitive in IT/cyber work and, in many respects, it’s over-competitive in some locales for lower graded GS groups.”

The pay disparity in the IT and cybersecurity fields is a particular sore spot for agencies when it comes to retention and recruitment. When agency recruiters go to campuses, for example, they have a difficult time competing for the top-tier cybersecurity graduates,

“Even with special rates in effect, all that does is it ups the ante,” Sanders said. “If you’re a Google or a Microsoft, you know that there is still an absolute limit that the government can pay. If you’re competing for the top 10 percent of the graduating class of Carnegie Mellon, you don’t have to offer a whole lot more to know you’re going to land the recruit. The special rates process is a Band-Aid on the General Schedule salary or a pay process that’s very much broken. This is this year’s version of a Band-Aid and it will stop some of the bleeding, but it won’t stop all of it and we really need to worry about a longer term solution.”

Sanders and others have long advocated for overhauling the civil service pay system to keep it more competitive with the labor market. One of his suggestions is for Congress to authorize a 1 percent increase to payroll rather than the 1 percent across-the-board pay raise for every GS employee.

“You manage to that new payroll budget,” he said. “It’s a 1 percent increase, but underneath that 1 percent you may give some occupations a higher, across-the-board increase because the labor market warrants it and some occupations less. You wouldn’t cut anybody’s pay, but they would get less — they may not get anything because the labor market says salaries haven’t gone up. So, I’ve long been an advocate for sort of taking special rates one step further and setting all of the General Schedule salaries by occupation and location, not across-the-board, one-size-fits-all.”

Sanders advocates for doing this systemically for all of the General Schedule, although he admitted that the political winds may be too tough right now for such a move.

“So, think about this incrementally,” he said. “Maybe it is IT-cyber professionals first because they’re so out-of-whack and eventually some other occupation is going to be in the same boat and maybe you attack them then, piece by piece.”


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