President’s Pay Agent Report Calls for Changes to Federal Compensation System

The trio of officials that comprise the President’s Pay Agent has issued its annual report, and has once again stressed that substantial reforms be made to the federal pay system.

Consisting of Office of Personnel Management Director Kiran Ahuja, Labor Secretary Marty Walsh and Office of Management and Budget Director Shalanda Young, the pay agent delivered the report ahead of President Biden’s executive order finalizing a 4.6% pay raise for the federal workforce in 2023.

Approving recommendations the Federal Salary Council made earlier this year, the pay agent added four new pay localities: Fresno, Calif; Reno, Nev.; Rochester, N.Y.; and Spokane, Wash. These changes will not be implemented until the 2024 pay raise at the earliest, as the Office of Personnel Management must issue regulations to finalize their inclusion, as Government Executive’s Erich Wagner recently pointed out.

In addition, Dukes and Nantucket counties in Massachusetts will join the Boston locality pay area, while Huron County, Mich. Will join the Detroit locality pay area. Pacific and San Juan counties in Washington will be included in the Seattle locality pay area, pending updates to federal regulations. Greensville County in Virginia will become part of Richmond’s locality pay area.

Making Recommendations for Reform

With this year’s report, the pay agent “finally took action on a series of long-debated changes to how locality pay areas are evaluated,” Wagner wrote, noting that the pay agent adopted a council recommendation to take an additive approach to updating the locality pay area map in accordance with the Office of Budget and Management’s updated map of metropolitan statistical areas and combined statistical areas. This means that locations added to the OMB map were also added to their relevant locality pay areas, while areas that were removed were held harmless.

The report also notes that the Council once again recommended eliminating the general schedule (GS) employment criteria for evaluating adjacent areas. The Council also resubmitted its recommendation made during the Obama Administration to raise the employment interchange criterion for adjacent single counties, from 7.5% to 20%, except for single-county metropolitan statistical areas, which under this recommendation would have the same employment interchange criterion as multi-county metropolitan areas (7.5% or greater).

In addition, the Council also resubmitted the recommendation it made during the Obama Administration to treat multi-county micropolitan areas the same in the locality pay program as MSAs for purposes of defining areas of application. If approved, the changes the Council recommended for evaluating adjacent areas as potential areas of application would add a number of multi-county metropolitan areas and single counties to existing locality pay areas.

“While the [Federal Salary] Council made this recommendation several times during the Obama administration and the pay agent did not approve it at that time, we now tentatively agree with this council recommendation based on the recent increase in agency use of remote work arrangements to advance agency mission and service delivery,” the report stated.

In addition to the approved changes, the pay agent repeated what Wagner described as “its nearly annual call” for a solution to maintaining competitiveness in compensation than improves upon the General Schedule pay system and accompanying map of locality pay areas.

“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,” according to the report.

“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. As currently applied, locality payments in a local labor market may leave some mission-critical occupations significantly underpaid while overpaying others.”