Issue Briefs

Following is the section of the recent Federal Salary Council report to the President’s Pay Agent on the pay gap between federal employees and the private sector.

The Federal Salary Council reviewed comparisons of GS and non-Federal pay based on data from two BLS surveys, the National Compensation Survey (NCS) and the Occupational Employment Statistics (OES)program. As explained in previous Council documents, BLS uses NCS data to assess the impact of level of work on occupational earnings, and applies factors derived from the NCS sample to occupational average salaries from OES to estimate occupational earnings by level of work in each locality pay area. Taken together, this process is called the NCS/OES model. (A further explanation of the NCS/OES model and pay disparity calculations is provided in Attachment 2.) Based on that model, Office of Personnel Management (OPM) staff calculated a weighted average of the estimated locality pay disparities as of March 2017.

According to those calculations, the estimated overall disparity between (1) base GS average salaries and (2) non-Federal average salaries as estimated by BLS in locality pay areas was 61.48 percent.2 In theory, therefore, the amount needed to reduce the pay disparity to 5 percent (the target disparity established by FEPCA) averages 53.79percent. Thus, when existing locality pay rates (averaging 22.35 percent) are taken into account, the overall remaining pay disparity is estimated at 31.98 percent. Using estimated data from the salary survey and pay comparison methodology described above, we recommend the Pay Agent adopt the estimated locality rates set forth in Attachment 1 as those that, absent some other provision of law, would go into effect under FEPCA in January 2019. These locality rates would be in addition to the increase in GS base rates under 5 U.S.C. 5303(a). This provision calls for increases in basic pay equal to the percentage increase in the Employment Cost Index (ECI),wages and salaries, private industry workers, between September 2016 and September 2017, less half a percentage point. The ECI increased 2.6 percent during that period, so the base GS increase in 2019 would be 2.1 percent.

The Pay Agent should take note that the Council plans to further review the NCS/OES model, as well as alternatives thereto, and make recommendations to the Pay Agent, if and as warranted, as part of its deliberations regarding locality pay in 2020. Thus, while the estimated pay disparities set forth in Attachment 1 were calculated using the same general weighting and aggregation methods used since 1994, the Council has expressed concerns about the locality pay program’s salary survey methodology and the NCS/OES model which was adopted for use in the locality pay program in 2012. For example, the Council expressed concern about the significant reduction of the NCS sample (by roughly half) that preceded deliveries of the first NCS/OES salary data used in the locality pay program, and although the Council recommended the full NCS sample be restored, it was not—primarily because of BLS resource constraints.

The Pay Agent has also expressed concerns about pay disparities calculated using the NCS/OES model, and as a consequence, some Council members believe it is time for the Council to review the current methodology. Other members of the Council consider the current methodology to be sound but welcome discussion with BLS and other Federal Government experts regarding potential improvements. The Council members are not in full agreement as to whether changes in the locality pay program’s methodology are warranted; however, the Council’s statutory mandate and regulatory charter both call upon it to periodically review the methodology, and Council members are in agreement that further review and discussion of the locality pay program’s methodology are warranted.

Another area the Council intends to review and discuss focuses on the criteria for establishing areas of application. In recent years, the Council has recommended changes in those criteria. While the Pay Agent has not approved changes in the current criteria for establishing areas of application, it has indicated it may be open to considering alternatives to those criteria. Accordingly, we believe reviewing the criteria for areas of application is warranted.

Attachment 3 lists 40 “Rest of U.S.” locations from which groups or individuals have contacted the Council or OPM staff to express concerns about pay levels or the geographic boundaries of locality pay areas. These locations do not meet criteria approved by the Pay Agent for inclusion in a new or existing locality pay area, yet representatives from some of these locations report that Federal agencies in their area have recruiting and/or retention problems. What we have heard regarding locality pay and its impact on staffing for these areas concerns us and indicates a need to review both the salary survey methodology and the criteria for areas of application.

The Council believes such review should be conducted carefully and requires more time than is available to the Council for completing recommendations for locality pay in 2019. Thus, we plan to begin our review of the salary survey methodology and criteria for areas of application as part of our deliberations for locality pay in 2020. In the meantime, we recommend OPM continue to encourage agencies to consider using pay flexibilities such as recruitment, retention, and relocation payments, and special salary rates to ease any staffing problems that may exist in “Rest of U.S.” locations.