Uncharted Territory
Locality pay was never intended to be linked to job performance, but some agencies are trying just that.
In July, the Agriculture Department's Food Safety and Inspection Service will join a variety of agencies testing personnel systems that tie pay more directly to job performance. But in their quest to strengthen that bond, FSIS and others run the risk of undercutting a tool aimed at bridging the gap between public and private sector pay.
FSIS will join the Defense Department in punishing employees who receive low ratings partly by denying them the locality-based portion of their annual pay hikes. Under the Pentagon's National Security Personnel System, employees who receive a rating of 1 (indicating unacceptable performance) are ineligible for local market supplement payments -- the system's version of locality pay. FSIS' standard will be even stricter: Employees placed in the two lowest performance categories will receive pay cuts to offset any benefit they might have enjoyed from locality pay adjustments.
That's in keeping with the philosophy of the FSIS demonstration project.
"FSIS believes that in order to fully test a pay-for-performance system and promote a performance culture, all pay increases should be tied to performance," the regulation establishing the pilot project states.
But locality pay, as it was designed in the 1990 Federal Employees Pay Comparability Act, isn't meant to have anything to do with performance. It's an acknowledgement of a substantial gap between the salaries of federal employees and those of comparable workers in the private sector. And despite debates over the efficacy of the system, it remains the main tool for closing that divide.
Seeing their colleagues make more money while their own salaries fall even farther in comparison to their private-sector counterparts might provide an additional incentive for FSIS employees to work harder. But if employees do not perceive the FSIS pay system as fair, those who receive low ratings could be even more demoralized. The regulation creating the project acknowledges that winning employees' trust is a major challenge, but notes that agency officials hope to address this through training programs and granting employees the opportunity to appeal ratings.
Even if employees do come to trust and like the FSIS system, it's unclear what effect the new rules will have on federal employees' ability to catch up to their private-sector counterparts in terms of pay. And the demonstration project will begin as conversations about locality pay and the pay gap intensify.
On Wednesday, officials from the American Federation of Government Employees said they would push President Obama and congressional leaders to close the pay gap by 2018. That would mean raising federal salaries 23 percent in just nine years, in addition to providing other annual increases to keep pace with the rising cost of living and growth in private-sector salaries.
With the pressure on to close the public-private pay gap to aid federal recruiting and retention, agencies might want to keep locality pay separate as they create incentives for better performance.