APPROACHES TO THE REFORM OF FEDERAL WHITE COLLAR PAY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85B01152R001201450015-1
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 4
• Document Creation Date: December 21, 2016
• Document Release Date: March 5, 2008
• Sequence Number: 15
• Publication Date: September 28, 1983
• Content Type: MEMO

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UNITED STATES
OFFICE OF PERSONNEL MANAGEMENT
WASHINGTON, D.C. 20415
September 28, 1983
TO: Cabinet Council on Management and Administration
FROM: Donal d
Director '-
SUBJECT: Approaches to the Reform of Federal White Collar Pay
I. BACKGROUND
For the sixth consecutive year, a president has submitted an
"alternative plan" rather than adopting the rate of pay for government
employees reported in the President's Pay Agent salary survey. By law,
the Pay Agent (consisting of the Director of OPM, Director of OMB and
Secretary of Labor.) devises a methodology to measure pay comparability
with the private sector, in consultation with the Federal Employees Pay
Council (consisting of employee union representatives). As a result of
past concessions made to the unions, the present pay methodology is
completely unsupportable from a technical standpoint. This year the
methodology reported that Federal employees need a pay increase of 21.5
percent to be comparable to the private sector. No one believes this,
and this is why alternative plans have been supported by presidents
rather than the "comparability" expected to be paid under the statute.
The same lack of faith in its methodology has also led Congress to vote
lower pay increases than. comparability in the last two budgets..
II. CURRENT STATUS
The 1982 Pay Agent report to the president promised a review of
legislative and administrative approaches to improve the measurement of
comparability. Several meetings were held with the Federal Employees
Pay Council (FEPC) to exchange views and consider possible reforms. In
December 1982, the Office of Personnel Management released a comprehen-
sive study of different approaches to reforming Federal pay. After
further exchange, on February 17, 1983, the FEPC informed the Pay Agent
that further meetings would be "fruitless". One of the "approaches"
reviewed before the breakdown of communication, which would not neces-
sitate a change in law, was a reweighting of the comparability survey
to make it more representative. Since it was already discussed with`
the FEPC, it could have been presented as the official report of the
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Pay Agent this year. OPM favored reporting this new methodology this
year as the Pay Agent recommendation but finally the old method'ol?ogy
was used to show that Federal employees were entitled to a 21.5 percent
pay raise. Since this was clearly unacceptable, the President
submitted an alternative pay plan proposing a 3.5 percent pay increase,
delayed to January 1, 1984.
Congress is expected to include a 4 percent pay raise, payable in
January, in a reconciliation bill. The Directors of OMB and OPM met
with Congressional leaders in early August and found them rather
adamant. The Director of OMB expects that he will be able to move
Congress towards the alternative of 3.5 percent. Everyone recognizes,
however, that this kind of bargaining over pay represents a less than
desirable process to determine employee salary. The unpredictability
of the processes is further enhanced due to the Chadha decision, which
questions the legitimacy of the Congressional veto of the alternative
plan, and perhaps of the alternative plan itself. So both Congress and
the Executive Branch are considering new alternatives.
Option 1: Maintain the present methodology. The present
methodology is technically unsupportable. Among its more glaring
failures, it severely underepresents small firms, the survey is not
representative of the occupational mix either of the private sector or
the Federal Government, and it compares average salaries rather than
the more critical entry rates. There are also other problems, which
would require a change in the law, such as the fact that the survey
does not take into account local wage rates, nor is it allowed to use
the most comparable occupations, i.e., in state and local government
employment. There is one benefit to keeping the present system,
however. The pay increases generated by the survey are so
unrealistically large and the methodology so poor that there is, very
little chance Congress will take the pay results of the survey
seriously. This makes Congress very reluctant to override an
alternative plan, although this has become more clouded with the Chadha
decision, and Congress' more frequent recent use of the reconciliation
process to set its own pay rate independent both of "comparability" and
the alternative plan.
Option 2: Legislative change. Legislative proposals to overhaul
the current pay system were sent to Congress by the Carter
administration in 1979, and by this administration in 1981. The thrust
of both approaches was to move from salary. comparability to total
compensation comparability (i.e. including retirement, health and other
benefits in the survey in addition to pay). These proposals were
vigorously opposed in Congress, leading to the formal withdrawal of the
legislation by this administration in 1982. The Pay Agent accepted the
recommendation of the Advisory Committee on Federal Pay that benefits
should be separated from pay, and reforms concentrated in each area
separately.
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Although a legislative solution on pay would be the most rational
solution, it can be expected to be very difficult to pass through
Congress. The Congressional proposal on pay-for-performance to allow
bargaining over pay, has whetted the unions appetite for a legislative
solution involving collective bargaining. The administration would
presumably support legislation which would more accurately compare the
two systems, perhaps shifting to more market related solutions (such as
comparing employees rather than jobs, or by measuring demand -for
Federal employment rather than wages directly). With the administra-
tion and the Congress on such radically different courses, it is
unlikely that legislation acceptable to the administration could be
passed,. especially in time for next year's pay decision.
Option 3: Reweighting of the present comparability methodology.
OPM's "Study of Approaches to Federal Pay presented a methodology to
more accurately weight the present survey,.within the present
constraints of the law. Had that methodology been applied in 1982, the
recommended pay adjustment would have been 2.53 percent, instead of
18.5 percent. For 1983, the adjustment would have been 3.89 percent,
instead of 21.5 percent.
The weighting methodology had the following four components: (1)
weighting the survey to account for as much as 60 percent of the
private nonfarm workforce presently excluded in small firms, (2)
comparing entry rates instead of average salaries to account for the
Government worker's faster movement through the step-rate range, (3)
adjusting current salary data to account for the approximately 93
percent of Federal administrative workers for whom no private sector
counterparts are included in this survey, and (4) eliminating the
extremes of the private sector salary averages to achieve an improved
statistical comparison.
This option can be adopted merely by including it in next year's
Pay Agent report. Congress might resent the process being reformed by
administrative action rather than by statute, but they obviously could
overrule the decision legislatively if they really wanted. The fact
that the new weighting formula is reasonable and results in a more
realistic pay increase, having the face validity of being very close to
both the 4 percent reported by Congress and the 3.5 percent reported in
the alternative plan, gives it great legitimacy to Congress. For two
years it would have resulted in reasonable pay increases, compared to
the unrealistic results of. the present process.
In addition, the present process results in an extremely serious
morale problem among Federal employees. The present process allows
employees to refer to an official report of the President's Pay Agent
to support their belief that they are being denied pay actually due
them. If the present process is modified and replaced by a credible
alternative, this serious morale problem can be attenuated.
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Option 4: Legislative Strategy with Reweighting Adjustment As
Fall-Back. Although legislation acceptable to the Administration is
unlikely, it is possible. This option would set-a strategy to try. for a
comprehensive legislative solution but to make adjustments to the pay
computation process if legislation is not feasible. This option would:
1) first seek a comprehensive legislative solution which would be modeled
along past Carter and Reagan comprehensive reforms of pay computation,
but also would use objective measures of private sector pay movement,
such as a modified Employment Cost Index to eliminate "carry-over"
increase and to eliminate "rate to rate" comparisons, while at the same
time giving the President greater flexibility in distributing pay by
grade, occupation and locality. (2) If the former is too comprehensive
to be legislatively viable, make the following less comprehensive, but
still important legislative changes: include state and local governments
in the comparison, include special pay systems for selected occupations
with recruiting and retention problems, and allow the Pay Agent to use
methodology other than job-to-job comparisons. (3) If acceptable
legislation cannot be passed, improve the current process by having BLS
fully survey smaller establishments and excluded industries, increase job
representativeness by using indirect matching methods, and make
comparisons at the entry rates to compensate for faster Federal
government through the rate range. (4) If BLS cannot make acceptable
changes for next year's Pay Agent report, adopt the new methodology
developed by OPM for use in the 1985 report, and modify it later by the
BLS methodology (Same as Option 3).
I recommend the adoption of Option 3. The present methodology is
unsupportable, and it is a serious drain on employee morale. No
conceivable legislation which could pass Congress could result in a pay
adjustment more reasonable than one weighted by the Pay Agent. If the
comparability figure is reasonable, there is no necessity for an
alternative plan. This approach would regularize the process and give it
legitimacy. It is critical that this decision be made early to remove it
from the politics of an election year. Option 3 is the most reasonable
and rational, and should not be colored by politics.
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