Pay Agent: Pay Disparity Gap Lacks Credibility

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By on February 24, 2019 in Pay & Benefits with 0 Comments

Man's hands helping balance a scale with a percentage on one side and a piggy bank on the other depicting a balance between locality pay percentages and pay raises

Recently, and without fanfare, OPM published the “Annual Report of President’s Pay Agent for Locality Pay in 2019”. We do not know when this was published by OPM, but the report is dated November 30, 2018. The report was posted on the OPM website in early 2019.

Most of the report centers on recommendations of the Federal Salary Council (FSC) and decisions the Pay Agent has made on some of the FSC recommendations. That is what the Pay Agent reports usually do and the reports are generally very complimentary of the FSC’s work.

Credibility Gap

There is one difference in the latest report though. The following comment about the methodology used by the FSC is from the introduction. The Pay Agent is expressing concerns about the method of determining the pay gap between federal and private sector salaries. (The Federal Salary Council routinely finds a pay gap of 32% or more between federal pay and the private sector.) While previous reports have mentioned the methodology used, the criticism in this report is more direct.

Under prior Administrations, the Pay Agent has expressed major methodological concerns about the underlying model used to estimate the pay gaps cited in this report. We share those concerns. The value of employee benefits is completely excluded from the pay comparisons, which take into account only wages and salaries. Also, the comparisons of Federal vs. non-Federal wages and salaries fail to reflect the reality of labor market shortages and excesses….While we recognize that the methodologies used by CBO (Congressional Budget Office) and the Federal Salary Council differ, and that the current locality pay methodology allows the Pay Agent to make distinctions in GS pay levels on a singular geographic basis for each locality pay area, we find the overall scale of the pay disparities presented to us each year using the current locality pay methodology lacks credibility.

In effect, the large gap between federal pay and private sector pay identified by the Salary Council each year “lacks credibility” according to the President’s Pay Agent.

Pay-for-Performance

The Pay Agent also highlighted a common theme: Pay-for-Performance. This observation is also in the introduction of the Pay Agent Report:

[W]e believe in the need for fundamental reforms of the white-collar Federal pay system. We believe it is imperative to develop performance-sensitive compensation systems that will contribute to a Government that is more citizen-centered, results-oriented, and market-based. We need to empower Federal agencies to better manage, develop, and reward employees in order to better serve the American people.

Approval of New & Expanded Locality Pay Areas

The President’s Pay Agent approved adding McKinley County, NM, and San Luis Obispo County, CA to existing locality pay areas. McKinley County, NM will be added to the Albuquerque pay area and San Luis Obispo County, CA will be added to the Los Angeles locality pay area.

The Pay Agent also agreed to creating new locality pay areas for Corpus Christi, TX, and Omaha, NE.

In December 2018, OPM issued a rule adding Corpus Christi, TX and Omaha, NE as new locality pay areas for 2019.

Total Cost of Locality Pay Areas

The total cost attributable to the locality rates over rates currently in effect is estimated by the Pay Agent to be about $25.417 billion on an annual basis. This cost does not include the cost of benefits affected by locality pay raises.

The cost estimate covers only General Schedule employees and employees receiving locality pay by action of the Pay Agent. The cost estimate excludes members of the Foreign Service as the Department of State no longer reports these employees to the Office of Personnel Management.

Here are the definitions for the federal locality pay areas.

© 2019 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.

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About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47

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