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Key developments in the world of federal employee benefits: health, pay, and much more.

Pay gap takes center stage again

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Federal labor unions and other employee groups are gearing up for a big battle in 1999 over annual federal pay raises. Their main weapon is evidence that the long-lamented gap between federal and private sector salaries is widening.

Estimates of just how large the pay gap is vary widely. According to a 1997 Congressional Budget Office analysis, it's 22 percent. The Federal Salary Council said it was 30 percent in a 1997 report. Rep. Steny Hoyer, D-Md., claimed last August that an analysis of Clinton administration data showed the gap is 70 percent.

Regardless of how large the pay gap is, unions want what they have wanted for years--legislation that actually shrinks it.

Our goal "is to focus the Congress on the tremendous federal employee pay gap and have Congress come to grips with the fact that in order to attract and retain a qualified and dedicated workforce, it has to pay for it," National Treasury Employees Union President Bob Tobias said in November.

Congress attempted to address the pay gap in 1990 when it passed the Federal Employees Pay Comparability Act (FEPCA). Under the act, a formula was created to close the gap over ten years beginning in 1994. The pay gap at that time was calculated at an average of about 28 percent (see the detailed description of the formula in the left column).

Former Office of Personnel Management Director Constance Newman, who played a lead role in drafting FEPCA, said the law was designed to address the pay gap by occupational grouping and locality, rather than across the board. The FEPCA methodology was designed to make the government more competitive in tight labor markets and in job categories where demand for skilled workers was high.

FEPCA has not worked, however. The Clinton administration has used a loophole in the law to issue smaller raises each year because it believes the FEPCA methodology is flawed and because it does not want to increase federal spending with the higher FEPCA-formulated raises. For example, the FEPCA formula called for a 13 percent average raise in 1999, according to the Federal Salary Council. Instead, President Clinton issued a 3.6 percent average raise.

"This administration, from the start, indicated it thought the methodology inherent in FEPCA was flawed in terms of what was going to be looked at and how those numbers were going to be crunched," said Henry Romero, the workforce compensation and performance service associate director at the Office of Personnel Management, on the Washington radio program "Fedtalk," on Dec. 19.

Romero is heading an OPM review of federal pay and benefits packages. OPM expects to develop comprehensive legislative changes to federal pay and benefits by 2002. In the meantime, OPM is working on an alternative way to determine pay raises for 2000.

The FEPCA methodology does not consider other benefits of federal employment that may make up for lower federal salaries, the administration contends. For example, a 1998 Congressional Budget Office study found that retirement, vacation, holiday, disability and retiree health benefits offered by the federal government are more generous than those in the private sector.

Critics of the administration's position and the CBO analysis argue that studies comparing benefits often ignore many perks available to private sector workers.

"I haven't seen one study yet that's added up all the benefits and compensations to my satisfaction," said Ray Woolner, president of the Professional Managers Association.

Romero agreed that studies comparing benefits are of limited usefulness, citing the difference between executive benefits in the public and private sector as a prime example.

"There really is no comparison," Romero said. "Whether it's use of private cars, whether it's stock options, whether it's membership in clubs or other kinds of access to privileges that are accepted in the corporate world, there's no way that federal benefits for our senior executives could ever compare."

Even in pay, the government is not trying to match salaries with the private sector dollar-for-dollar. FEPCA, for example, mandated that federal paychecks be within five percent of the prevailing wages for similar jobs in the same localities, not at the same level.

But a salary gap that by most estimates is at least 20 percent does take its toll on agencies' ability to recruit and retain employees, particularly in certain occupations, managers say.

Former OPM chief Newman, now undersecretary of the Smithsonian Institution, sees the pay gap arise when the Smithsonian tries to attract and retain information technology professionals.

"People in the private sector are paying IT professionals more," Newman said. "Anyone who's fair can see the government is not paying comparably enough to hold on to the best people."

At the IRS, managers make two to three times less than the corporate tax executives with whom they deal, said Woolner, an IRS manager himself.

"I have seen people leave agencies to go to the private sector at the end of their federal careers who command sometimes double the salary they were making in the government," Woolner said. "If someone was making X salary in the government, why do they suddenly get twice X when they start doing something similar from the outside?"

Executives report similar stories across government. At the Patent and Trademark Office, for example, outgoing administrator Bruce Lehman told Government Executive that patent examiners often gain valuable training and experience in his agency, only to be lured away after five years by more lucrative salaries at private law firms.

OPM has pledged to work on interim adjustments to the pay raise formula this year, while more lasting legislative reforms are prepared for the year 2002. The unions, meanwhile, are gathering their strength to push the administration and lobby Congress for more generous raises.

Despite their efforts, observers say the pay gap will never be fully closed.

"People do not come work for the U.S. government to become rich," Romero said.

IN THE COMING WEEKS

Pay and Benefits Watch will continue to explore the pay gap issue over the next year. This column will cover other topics as well, including overtime pay, executive pay compression, broad-band pay systems, retirement issues, the Thrift Savings Plan, health insurance coverage, long-term care insurance, and legislative pay and benefits proposals. To suggest topics or comment on this week's column, e-mail letters@govexec.com.

Brian Friel is founder of One Nation Analytics, an independent research, analytics and consulting firm for the federal market.

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