Another year, another call for ‘major legislative reforms’ to the federal pay system

The Biden administration took a look at the federal pay system and apparently came to the conclusion that many of its predecessors have before it: the current methodology used to set General Schedule salaries isn’t working, or at least not well.

The administration so far hasn’t said such much about whether it will seriously pursue major reforms to the federal pay system.

But a recent report from the president’s pay agent, which consists of Labor Secretary Marty Walsh, acting Office of Management and Budget Director Shalonda Young and Office of Personnel Management Director Kiran Ahuja, hints at the new administration’s thinking on the topic.

“As has been noted in earlier pay agent reports and discussed in other venues, we believe there is a need to consider major legislative reforms of the white-collar federal pay system, which continues to utilize a process requiring a single percentage adjustment in the pay of all white-collar civilian federal employees in each locality pay area without regard to the differing labor markets for major occupational groups,” the pay agent said.

Previous pay agents, including those from both the Obama and Trump administrations, have similarly suggested the government should consider “reforms to the white-collar federal pay system,” as a 2015 report, for example, said.

Prior reports from the Trump administration focused on how the federal pay system rewarded employee longevity over their performance, though political appointees also noted shortcomings with the existing methodology used to set locality pay adjustments.

But the latest comments from Biden’s pay agent go a bit further, suggesting the current federal pay system rewards employees in certain occupations, while leaving others far behind.

“The current pay comparison methodology used in the locality pay program ignores the fact that non federal pay in a local labor market may be very different between different occupational groups,” the 2022 report reads. “As currently applied, locality payments in a local labor market may leave some mission-critical occupations significantly underpaid while overpaying others.”

Locality pay began back in the mid-1990s, when Congress passed the Federal Employee Pay Comparability Act (FEPCA). The law was originally designed to eliminate what federal economists had observed was a growing pay gap between non-federal and civil service salaries.

FEPCA uses a formula that technically authorizes the full amount necessary to reduce the pay gap between federal and non-federal salaries in 54 broad “locality pay areas” to 5%.

But virtually every administration has ignored those rates set in law, leading experts in the field to question whether FEPCA and the methodology used to set locality pay ever truly made sense at all.

It’s unclear if the Biden administration will pursue such serious legislative legislative changes to the federal pay system, and prior administrations have made little traction in Congress on this particular topic.

President Biden hasn’t nominated new political appointees to serve on the Federal Salary Council, and the panel, which also consists of top union officials, hasn’t met yet under this administration to discuss pay issues.

Until there is a new council, those discussions will remain largely on hold, the president’s pay agent said. It also declined to weigh in on the recommendations from the prior Federal Salary Council.

The previous council, for example, couldn’t agree on whether it should adopt OMB’s new metropolitan statistical areas and combined statistical areas. Adopting those new areas would likely change the geographic definitions of each locality area, and could potentially alter pay for certain employees.

The pay agent said a new Federal Salary Council should take “a fresh look” at this topic next year.

The pay agent also dismissed recommendations from some of the previous council members, who suggested it consider additional human capital indicators, such as recruitment and retention data, when making locality pay decisions.

While such data can help agencies identify recruitment and retention challenges, the pay agent said agencies should instead use that information to apply the appropriate pay and leave flexibilities to address those problems.

The pay agent did approve a small change to the Davenport, Iowa/Moline, Illinois locality pay area. It will allow Carroll County, Illinois to join that particular locality pay region, meaning General Schedule employees in that area may eventually see a slight pay boost.

OPM must still approve the change through the rulemaking process, so it will take some time before federal employees in that particular region see noticeable changes to their pay. The American Federation of Government Employees (AFGE) said the locality pay change will benefit their members at U.S. Penitentiary Thomson in northern Illinois, which has struggled with staffing shortages in recent years.

“We are beyond pleased that our hard-working employees will be moved into the higher paying locality,” Jon Zumkehr, the AFGE president of the local representing BOP employees in the area, said in a statement last week. “This change, in addition to the 25% retention pay we already secured, will go a long way toward helping us retain our experienced staff and recruit the additional staff we desperately need.”

The president’s pay agent made no other major changes to the locality pay areas for 2022.

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