Department of State Overseas Comparability Pay
Gao ID: GAO-11-772R June 30, 2011The Federal Employees Pay Comparability Act (FEPCA) of 1990 established locality pay to achieve pay comparability between federal and nonfederal jobs within the United States. Because FEPCA established pay localities only for areas within the United States, federal employees permanently stationed overseas, including members of the Foreign Service, did not receive locality pay. As the Washington, D.C., locality rate grew to over 24 percent in 2010, the pay gap between federal employees who receive locality pay and those who do not widened considerably. To close this gap, the fiscal year 2009 Supplemental Appropriations Act granted the Department of State (State) temporary authority to provide locality pay at the Washington, D.C., rate, also known as Overseas Comparability Pay, to Foreign Service personnel posted overseas. State is implementing this pay in three phases. Currently, Foreign Service personnel serving overseas receive 16.52 percent comparability pay, approximately twothirds of the Washington, D.C., locality rate. State had planned to implement the third and final phase of comparability pay, raising it to 24.22 percent, in August 2011. However, these plans have been delayed by the administration's freeze on federal salaries and the passage of the Department of Defense and Full Year Continuing Appropriations Act for fiscal year 2011, which prohibited State from using funds to implement the final phase. In December 2010, the National Commission of Fiscal Responsibility and Reform identified comparability pay as a potential source of cost savings. Without a continuation of authority, State cannot continue to provide comparability pay with funds appropriated after fiscal year 2011. State estimates that the cost of implementing all three phases of comparability pay for State would be $302 million in fiscal year 2012. The Congressional Budget Office has estimated that implementing comparability pay for all foreign affairs agencies would cost about $2 billion through fiscal year 2015. In a previous report, we found that State faces challenges filling staffing gaps at hardship posts overseas and cited State officials' claims that the lack of comparability pay may be a deterrent to serving at overseas posts. Congress asked us to review State's request for permanent authority to grant overseas comparability pay to certain members of the Foreign Service posted overseas to inform the fiscal year 2012 State Department authorization process. On May 27, 2011, we provided a briefing to Congressional staff on our preliminary findings. We also agreed to provide the information presented in the briefing, updated with additional material, which describes (1) State's rationale for providing overseas comparability pay, (2) how the provision of overseas comparability pay affects Foreign Service personnel pay and benefits, and (3) how the pay and benefits of Foreign Service personnel posted overseas compare with those of other civilian agency staff overseas.
State has offered several reasons for requesting overseas comparability pay: to establish equity in pay and retirement benefits between Foreign Service personnel stationed in Washington, D.C., and those assigned overseas; to recruit competitively for top candidates; and to retain current Foreign Service personnel. According to State, comparability pay would eliminate an inequity between Foreign Service personnel serving in Washington, D.C., and those in overseas assignments. State has noted that agency contributions to Foreign Service personnel retirement decrease when personnel move overseas from Washington, D.C. In general, retirement benefits for members of the Foreign Service comprise three components: Social Security, annuities, and the Thrift Savings Plan. Our analysis shows that without comparability pay, agency contributions to two of these components--Social Security and the Thrift Savings Plan--would be lower, because they are calculated as a percentage of base pay plus locality/comparability pay. According to State, the lack of comparability pay hinders its ability to compete for top candidates seeking overseas careers in the federal government. Providing comparability pay to Foreign Service personnel posted overseas increases three components of their total compensation: (1) basic pay; (2) allowances and differentials that are based on basic pay; and (3) benefits, such as retirement contributions, that are based on basic pay. Foreign Service personnel from all foreign affairs agencies currently receive comparability pay while serving overseas. Civilians from other agencies on permanent change of station overseas, excluding the Central Intelligence Agency, generally do not However, when civilian employees are posted overseas on temporary duty status (TDY), they generally receive the full locality pay of their home duty station. We are not making any recommendations in this report.
GAO-11-772R, Department of State Overseas Comparability Pay
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GAO-11-772R:
United States Government Accountability Office:
GAO:
June 30, 2011:
The Honorable Ileana Ros-Lehtinen:
Chairman:
Committee on Foreign Affairs:
House of Representatives:
Subject: Department of State Overseas Comparability Pay:
Dear Madam Chairman:
The Federal Employees Pay Comparability Act (FEPCA) of 1990
established locality pay to achieve pay comparability between federal
and nonfederal jobs within the United States.[Footnote 1] Because
FEPCA established pay localities only for areas within the United
States, federal employees permanently stationed overseas, including
members of the Foreign Service, did not receive locality pay. As the
Washington, D.C., locality rate grew to over 24 percent in 2010, the
pay gap between federal employees who receive locality pay and those
who do not widened considerably.
To close this gap, the fiscal year 2009 Supplemental Appropriations
Act[Footnote 2] granted the Department of State (State) temporary
authority to provide locality pay at the Washington, D.C., rate, also
known as Overseas Comparability Pay, to Foreign Service personnel
posted overseas.[Footnote 3] State is implementing this pay in three
phases.[Footnote 4] Currently, Foreign Service personnel serving
overseas receive 16.52 percent comparability pay, approximately two-
thirds of the Washington, D.C., locality rate. State had planned to
implement the third and final phase of comparability pay, raising it
to 24.22 percent, in August 2011. However, these plans have been
delayed by the administration's freeze on federal salaries and the
passage of the Department of Defense and Full Year Continuing
Appropriations Act for fiscal year 2011, which prohibited State from
using funds to implement the final phase.[Footnote 5] In December
2010, the National Commission of Fiscal Responsibility and Reform
identified comparability pay as a potential source of cost savings.
Without a continuation of authority, State cannot continue to provide
comparability pay with funds appropriated after fiscal year 2011.
State estimates that the cost of implementing all three phases of
comparability pay for State would be $302 million in fiscal year 2012.
The Congressional Budget Office has estimated that implementing
comparability pay for all foreign affairs agencies would cost about $2
billion through fiscal year 2015.[Footnote 6] Briefing slides 5-7 in
enclosure I provide more detail on State's and the Congressional
Budget Office's estimates, as well as the status of implementation of
comparability pay.
In a previous report, we found that State faces challenges filling
staffing gaps at hardship posts overseas and cited State officials'
claims that the lack of comparability pay may be a deterrent to
serving at overseas posts.[Footnote 7] You asked us to review State's
request for permanent authority to grant overseas comparability pay to
certain members of the Foreign Service posted overseas to inform the
fiscal year 2012 State Department authorization process. On May 27,
2011, we provided a briefing to your staff on our preliminary findings
(see enclosure I). We also agreed to provide the information presented
in the briefing, updated with additional material, which describes (1)
State's rationale for providing overseas comparability pay, (2) how
the provision of overseas comparability pay affects Foreign Service
personnel pay and benefits, and (3) how the pay and benefits of
Foreign Service personnel posted overseas compare with those of other
civilian agency staff overseas. This report summarizes the
observations conveyed at the briefing and provides updated briefing
slides in enclosure I.
To conduct this work, we reviewed relevant data and documents from
State, the Congressional Research Service, the Congressional Budget
Office, and the American Foreign Service Association, which represents
members of the Foreign Service. We analyzed State's appropriations and
requests for overseas comparability pay, including those reported in
State's annual Congressional Budget Justification document. We
interviewed State officials regarding State's rationale for providing
comparability pay and the President's budget requests. We also
obtained information about State's staffing cost model and allowances
and differentials affected by comparability pay.
To identify the average impact of various rates of comparability pay
on Foreign Service personnel pay, benefits, allowances, and
differentials, we analyzed State personnel data and allowance and
differential rates as of September 2010, applied various rates of
comparability pay, and calculated the resulting impact. To assess the
reliability of the personnel data, we interviewed State officials,
reviewed State documents, and performed relevant data checks. We found
the data to be sufficiently reliable for our purposes in this report.
To identify other federal agencies' policies and practices regarding
locality pay, we solicited written responses from four federal
agencies that, along with State, employ 94 percent of all federal
civilians stationed overseas, according to State data.[Footnote 8] For
more information on our scope and methodology, see slide 20.
We conducted this performance audit from November 2010 to June 2011 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
Summary of Results:
State's Rationale:
State has offered several reasons for requesting overseas
comparability pay: to establish equity in pay and retirement benefits
between Foreign Service personnel stationed in Washington, D.C., and
those assigned overseas; to recruit competitively for top candidates;
and to retain current Foreign Service personnel (see slides 8-12).
However, our analysis found mixed evidentiary support for State's
rationale.
* Pay equity: According to State, comparability pay would eliminate an
inequity between Foreign Service personnel serving in Washington,
D.C., and those in overseas assignments. State has argued that the
lack of comparability pay results in a cut in basic pay when officers
move from Washington, D.C., to an overseas post, creating a
disincentive for overseas service. The Washington, D.C., locality rate
increased from 4.23 percent in 1994, when locality pay was first
implemented, to a cumulative 24.22 percent of base pay in 2011 (see
slide 9). However, as discussed later in this correspondence, Foreign
Service personnel assigned to overseas posts are eligible for
allowances and differentials that they do not receive in Washington,
D.C. While these allowances and differentials are not intended to
compensate for the lack of comparability pay, we found that they
nevertheless result in higher compensation, on average, for overseas
staff.
* Retirement equity: State has noted that agency contributions to
Foreign Service personnel retirement decrease when personnel move
overseas from Washington, D.C. In general, retirement benefits for
members of the Foreign Service comprise three components: Social
Security, annuities, and the Thrift Savings Plan. Our analysis shows
that without comparability pay, agency contributions to two of these
components--Social Security and the Thrift Savings Plan--would be
lower, because they are calculated as a percentage of base pay plus
locality/comparability pay.[Footnote 9] Thus, future retirement
benefits for Foreign Service personnel are lower without comparability
pay. See slide 10 for more detail on comparability pay's impact on
retirement contributions.
* Recruitment: According to State, the lack of comparability pay
hinders its ability to compete for top candidates seeking overseas
careers in the federal government. Specifically, according to State's
Under Secretary for Management, State's primary competitor for
candidates seeking overseas foreign affairs careers is the Central
Intelligence Agency, which provides locality pay to its staff posted
overseas. However, State has not provided any data or analysis to
demonstrate that State's recruitment has been negatively affected by a
lack of comparability pay.
* Retention: State's 2009 business case for comparability pay
estimated that providing comparability pay would save the department
about $47 million by preventing increased attrition among midlevel
Foreign Service personnel. While the business case highlights
important issues, such as the cost of attrition and the potential
negative effects of midlevel staffing gaps, it has several
limitations. For example, State's business case assumed an attrition
rate for mid-level officers that is significantly higher than
historical rates.[Footnote 10] In addition, its estimate of the cost
to replace a midlevel officer includes items such as salary and post
assignment travel that State would incur regardless of the officer's
tenure. Slide 12 discusses State's business case in more detail.
Impact on Compensation and Benefits of Foreign Service Personnel
Posted Overseas:
Providing comparability pay to Foreign Service personnel posted
overseas increases three components of their total compensation: (1)
basic pay; (2) allowances and differentials that are based on basic
pay; and (3) benefits, such as retirement contributions, that are
based on basic pay (see slides 13-17). Foreign Service personnel are
eligible for a range of allowances and differentials while serving
overseas, the total amount of which is based on basic pay--i.e., base
pay plus any locality/comparability pay.[Footnote 11] Our analysis
includes the effect of four such allowances and differentials: danger
pay, post (hardship) differential, post (cost-of-living) allowance,
and service need differential.[Footnote 12] Slide 14 shows the average
compensation and benefits of Foreign Service personnel posted overseas
at three comparability rates (none, two-thirds, and full) compared
with what these personnel would have received in Washington, D.C.
According to our analysis of State personnel data from September 2010,
with full comparability pay, Foreign Service personnel posted overseas
would receive about an additional $23,600 annually, on average. That
amount includes an additional $19,100 in comparability pay and
approximately $4,500 in increased hardship, cost-of-living, danger,
and service-need-differential pay (see slide 15). We also found that
even without comparability pay, the average total compensation of
Foreign Service personnel posted overseas--including allowances and
differentials--is higher than it would be in Washington, D.C.;
however, benefits such as retirement contributions are lower when
Foreign Service personnel are posted overseas than when they are
stationed in Washington, D.C.
Other Agencies' Policies and Practices:
Foreign Service personnel from all foreign affairs agencies currently
receive comparability pay while serving overseas. Civilians from other
agencies on permanent change of station overseas, excluding the
Central Intelligence Agency, generally do not (see slides 18-19).
[Footnote 13] However, when civilian employees are posted overseas on
temporary duty status (TDY), they generally receive the full locality
pay of their home duty station. Of the agencies included in our
review, the percentage of staff on overseas TDY status varies. For
example, nearly 25 percent of Federal Bureau of Investigation
employees stationed overseas were on TDY status in April/May 2011,
compared with about 15 percent of Department of Homeland Security
employees stationed overseas.
Concluding Observations:
Prior GAO work has highlighted human capital challenges at State, such
as staffing gaps at hardship posts, which put U.S. diplomatic
readiness at risk. As State prepares for an expanded diplomatic
footprint in Iraq while continuing to reposition staff to emerging
powers such as China, these challenges may become more pronounced. In
this context, Congress authorized State in 2009 to provide
comparability pay in order to close a widening pay gap between
overseas and Washington, D.C.-based positions. While the challenges
State faces remain, today's budget environment has caused Congress to
take a fresh look for ways to economize. CBO has estimated that fully
implementing comparability pay for State and other agencies would cost
about $2 billion through 2015, and the National Commission of Fiscal
Responsibility and Reform identified this pay as a potential source of
cost savings.
Our assessment shows that the case for continuing to provide
comparability pay to Foreign Service personnel abroad has mixed
evidentiary support. The gap in basic pay between federal employees
who receive locality/comparability pay and those who do not has
widened considerably, leading to lower retirement contributions in the
long term. However, our analysis shows that even without comparability
pay, compensation for Foreign Service personnel overseas is still
higher, on average, than it would be in Washington, D.C., when
allowances and differentials are considered. Furthermore, State has no
evidence to support its claim that the department would be unable to
compete for talent without comparability pay. Nevertheless, despite
flaws in State's business case regarding retention, and the lack of
evidence on the extent to which comparability pay decreases attrition,
we acknowledge that any significant loss of Foreign Service personnel,
especially at the midlevel, could be detrimental to diplomatic
readiness.
As a result, in light of current budgetary constraints, it remains
unclear whether State needs across-the-board comparability pay to
recruit and retain a highly qualified cadre of Foreign Service
personnel.
We are not making any recommendations in this report.
Agency Comments:
After reviewing a draft of this product, State officials said the
department would not provide a formal response. However, State
provided technical comments that have been incorporated as appropriate
in this correspondence.
We are sending copies of this report to the Secretary of State and
appropriate congressional committees. In addition, the report will be
available at no charge on GAO's Web site at [hyperlink,
http://www.gao.gov].
Should you or your staff have questions regarding this report, please
contact me at (202) 512-4268 or fordj@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made key contributions to
this report are listed in enclosure II.
Sincerely yours,
Signed by:
Jess T. Ford:
Director, International Affairs and Trade:
Enclosures (2):
[End of section]
Enclosure I:
Overseas Comparability Pay:
For more information, contact Jess Ford, Director, International
Affairs and Trade, tel. no. 202-512-4268.
Introduction:
In 1990, Congress established locality pay for federal employees:
* Intended to achieve full pay parity between federal and nonfederal
jobs within defined localities of the United States.
* Areas outside the United States were not designated to receive
locality pay.
In 2009, Congress granted the State Department (State) temporary
authority to provide up to the Washington, D.C.-based locality pay to
Foreign Service (FS) personnel overseas, also known as Foreign Service
Comparability Pay or Overseas Comparability Pay.
In December 2010, The National Commission of Fiscal Responsibility and
Reform identified comparability pay as a potential source of cost
savings.
Without a continuation of authority and/or appropriations, State
cannot continue to provide comparability pay beyond fiscal year 2011.
Previous GAO reports found that State faces challenges filling
staffing gaps at hardship posts overseas and cited State officials'
claims that the lack of comparability pay may be a deterrent to
bidding on overseas posts.[Footnote 14]
Objectives:
In order to inform the State Department authorization process for
fiscal year 2012, GAO was asked to analyze State's request for
permanent authority to grant overseas comparability pay to certain
members of the Foreign Service overseas. Specifically, we examined the
following questions:
1. What rationale has State offered for providing comparability pay to
Foreign Service personnel overseas?
2. How does the provision of comparability pay affect overseas Foreign
Service personnel pay and benefits?
3. How do the pay and benefits of Foreign Service personnel overseas
compare with those of other civilian agency staff overseas?
Background: Comparability Pay Timeline:
Figure: Timeline of Selected Legislation Related to Overseas
Comparability Pay:
[Refer to PDF for image: timeline]
1990:
Federal Employees Pay Comparability Act enacted.
1994:
Locality pay implemented in continental United States.
2002:
September: FY 2003 Foreign Relations Authorization Act (Pub. L No. 107-
228) provides that basic pay, for the purposes of annuity computation,
shall be what the Foreign Service member would have been paid if the
member's official duty station had been Washington, D.C.
2004:
December: FY 2005
Consolidated Appropriations Act (Pub. L. 108-447) eliminated the
salary gap for all members of the Senior Foreign Service regardless of
where they are stationed.
2009:
June: FY 2009 Supplemental Appropriations Act (P.L. No. 111-32)
authorized the use of appropriated funds for FY 2009 to pay locality-
based compensation to Foreign Service personnel.
August: State begins to phase in comparability pay at one-third of the
Washington, D.C., locality rate.
December: FY 2010 Consolidated Appropriations (Pub. L. No. 111-17)
extended the authority provided in Public Law 111-32 to remain in
effect through FY 2010.
2010:
August: State implements the second phase of comparability pay,
raising it to approximately two-thirds of the Washington, D.C., rate.
2011:
April: Department of Defense and Full-Year Continuing Appropriations
Act, FY 2011 (Pub. L. No. 112-10), continued funding for the first two
phases but prohibited State from using funds appropriated for State,
foreign operations, and related programs to implement the final phase
of comparability pay.
Source: GAO.
[End of figure]
Background: Cost of Comparability Pay:
According to the Congressional Budget Office (CBO),[Footnote 15]
overseas comparability pay as proposed in S. 2971, the Foreign
Relations Authorization Act for Fiscal Years 2010 and 2011, would cost:
* $1.6 billion over fiscal years 2012-2015 for State and;
* $356 million over fiscal years 2011-2015 for Foreign Service
personnel at the U.S. Agency for International Development (USAID) and
other agencies with Foreign Service personnel.
Background: Implementation Timeline:
State is phasing in comparability pay in three tranches:
* In August 2009, State began to provide comparability pay at one-
third the Washington, D.C., rate.
* In August 2010, State increased comparability pay to approximately
two-thirds the Washington, D.C., rate.
* In April 2011, Congress prohibited State from using fiscal year 2011
funds for implementing the third phase of comparability pay.
Recent budget requests have included specific line items for portions
of comparability pay.
* In the fiscal year 2011 budget, State requested $153.8 million to
fund the second and part of the third tranche of comparability pay.
* The fiscal year 2012 request included a line item of $81.3 million
for a portion of the third tranche. In addition, State officials said
that the overall requirement for comparability pay in fiscal year 2012
is $302 million.
Background: Implementation Timeline:
Figure: Timing and Budget Requests of Overseas Comparability Pay Phase-
In:
[Refer to PDF for image: illustrated line graph]
Numbers represent percentages.
1/3 equals 8.8%;
2/3 equals 167.5%.
Calendar year 2009:
June;
Washington, DC locality rate: 23.1;
Overseas compatibility rate (actual): 0;
July;
Washington, DC locality rate: 23.1;
Overseas compatibility rate (actual): 0;
August;
Washington, DC locality rate: 23.1;
Overseas compatibility rate (actual): 7.7;
September;
Washington, DC locality rate: 23.1;
Overseas compatibility rate (actual): 7.7;
October;
Washington, DC locality rate: 23.1;
Overseas compatibility rate (actual): 7.7;
November;
Washington, DC locality rate: 23.1;
Overseas compatibility rate (actual): 7.7;
December;
Washington, DC locality rate: 23.1;
Overseas compatibility rate (actual): 7.7;
Calendar year 2010:
January;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (actual): 8.82;
February;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (actual): 8.82;
March;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (actual): 8.82;
April;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (actual): 8.82;
May;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (actual): 8.82;
June;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (actual): 8.82;
July;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (actual): 8.82;
August;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (actual): 16.52;
September;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (actual): 16.52;
Fiscal year 2011: Request $153.8 billion.
October;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (actual): 16.52;
November;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (actual): 16.52;
December;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (actual): 16.52;
Calendar year 2011:
January;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (actual): 16.52;
February;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (actual): 16.52;
March;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (actual): 16.52;
April;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (actual): 16.52;
May;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (actual): 16.52;
June;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (actual): 16.52;
July;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (actual): 16.52;
Overseas compatibility rate (proposed): 16.52
August;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (actual): 16.52;
Overseas compatibility rate (proposed): 24.22
September;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (actual): 16.52;
Overseas compatibility rate (proposed): 24.22
Fiscal year 2012: Request $81.3 billion.
October;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (proposed): 24.22
November;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (proposed): 24.22
December;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (proposed): 24.22
Calendar year 2012:
January;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (proposed): 24.22
February;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (proposed): 24.22
March;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (proposed): 24.22
April;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (proposed): 24.22
May;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (proposed): 24.22
June;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (proposed): 24.22
July;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (proposed): 24.22
August;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (proposed): 24.22
September;
Washington, DC locality rate: 24.22;
Overseas compatibility rate (proposed): 24.22
[End of figure]
State's Rationale:
State has offered several reasons for requesting Overseas
Comparability Pay:
1) pay equity between Washington, D.C., and overseas assignments,
2) retirement equity,
3) recruitment, and,
4) retention.
State's Rationale: Pay Equity:
According to State, the lack of overseas comparability pay has created
an inequity between FS personnel serving overseas and those in
Washington, D.C.
From 1994 to 2010, the Washington, D.C., locality rate:
* increased from 4.23 percent to 24.22 percent;
* increased by an average of 11.7 percent per year, while Foreign
Service salaries increased by 2.6 per year on average.
Figure: Base Pay with and without Washington, D.C., Locality Pay,
Foreign Service Grade 3 Step 7, 1994-2010:
Year: 1994;
Base pay, Foreign Service grade 3, step 7: $52,221;
Base pay with Washington, DC locality pay, Foreign Service grade 3,
step 7: $54,430
Year: 1995;
Base pay, Foreign Service grade 3, step 7: $53,265;
Base pay with Washington, DC locality pay, Foreign Service grade 3,
step 7: $56,184
Year: 1996;
Base pay, Foreign Service grade 3, step 7: $54,332;
Base pay with Washington, DC locality pay, Foreign Service grade 3,
step 7: $57,614
Year: 1997;
Base pay, Foreign Service grade 3, step 7: $55,581;
Base pay with Washington, DC locality pay, Foreign Service grade 3,
step 7: $59,533
Year: 1998;
Base pay, Foreign Service grade 3, step 7: $56,860;
Base pay with Washington, DC locality pay, Foreign Service grade 3,
step 7: $60,994
Year: 1999;
Base pay, Foreign Service grade 3, step 7: $58,622;
Base pay with Washington, DC locality pay, Foreign Service grade 3,
step 7: $63,236
Year: 2000;
Base pay, Foreign Service grade 3, step 7: $60,849;
Base pay with Washington, DC locality pay, Foreign Service grade 3,
step 7: $66,356
Year: 2001;
Base pay, Foreign Service grade 3, step 7: $62,491;
Base pay with Washington, DC locality pay, Foreign Service grade 3,
step 7: $68,884
Year: 2002;
Base pay, Foreign Service grade 3, step 7: $64,742;
Base pay with Washington, DC locality pay, Foreign Service grade 3,
step 7: $72,174
Year: 2003;
Base pay, Foreign Service grade 3, step 7: $66,749;
Base pay with Washington, DC locality pay, Foreign Service grade 3,
step 7: $75,253
Year: 2004;
Base pay, Foreign Service grade 3, step 7: $68,551;
Base pay with Washington, DC locality pay, Foreign Service grade 3,
step 7: $78,580
Year: 2005;
Base pay, Foreign Service grade 3, step 7: $70,264;
Base pay with Washington, DC locality pay, Foreign Service grade 3,
step 7: $81,492
Year: 2006;
Base pay, Foreign Service grade 3, step 7: $71,740;
Base pay with Washington, DC locality pay, Foreign Service grade 3,
step 7: $84,295
Year: 2007;
Base pay, Foreign Service grade 3, step 7: $72,959;
Base pay with Washington, DC locality pay, Foreign Service grade 3,
step 7: $86,522
Year: 2008;
Base pay, Foreign Service grade 3, step 7: $74,785;
Base pay with Washington, DC locality pay, Foreign Service grade 3,
step 7: $90,408
Year: 2009;
Base pay, Foreign Service grade 3, step 7: $76,953;
Base pay with Washington, DC locality pay, Foreign Service grade 3,
step 7: $94,729
Year: 2010;
Base pay, Foreign Service grade 3, step 7: $78,107;
Base pay with Washington, DC locality pay, Foreign Service grade 3,
step 7: $97,025
Source: GAO analysis of State end Office of Personnel Management data.
Note: Based on our analysis of State data, the average salary for
overseas Foreign Service personnel in 2010 was about $78,750, which is
roughly equivalent to Foreign Service Grade 3 Step 7 or General
Schedule Grade 13 Step 4.
[End of figure]
State's Rationale: Retirement Equity:
State has also noted that agency contributions to Foreign Service
personnel retirement decrease when officers move overseas from
Washington, D.C.
Under the Foreign Service Pension System (FSPS), employees have three
benefits sources upon retirement:
* FSPS annuities,
* Social Security, and,
* Thrift Savings Plan (TSP).
"Virtual Locality Pay" changed the calculation of the "high 3" salary
based on the Washington, D.C., rate, regardless of where the FS
personnel is stationed, for the purpose of calculating FSPS annuities.
However, Social Security and TSP contributions continue to be based on
basic pay (i.e., base pay plus locality/comparability pay).
Without comparability pay, agency contributions to Foreign Service
members' Social Security and TSP are lower during overseas assignments.
State's Rationale: Recruitment:
According to State, the lack of comparability pay hinders its ability
to compete for employees seeking overseas careers in the federal
government, including in the intelligence community.
However, State has not provided any data or analyses to demonstrate
that recruitment has been negatively affected by the lack of
comparability pay.
State's Rationale: Retention:
State's 2009 business case for comparability pay estimated that
providing this pay to overseas FS personnel would save the department
about $47 million by preventing increased attrition.
Business case raises important issues:
* To the extent that comparability pay decreases attrition, State
would avoid costs associated with replacing staff.
* GAO has previously reported on the negative effects of the midlevel
staffing gap, which may compromise diplomatic readiness. Attrition at
the midlevel would exacerbate these gaps.
Business case has several limitations:
* Some assumptions based on 2006 employee survey.
* Assumes an attrition rate for midlevel officers that is
significantly higher than historical rates.
* Cost estimate includes items such as salary and post assignment
travel that are not related to Foreign Service attrition.
* Costs of comparability pay are recurring, while cost savings are one-
time.
Impact on Compensation: Allowances and Differentials Based on Basic
Pay:
Increases in basic pay (i.e., base pay plus comparability pay) due to
the provision of comparability pay result in increases to the
following allowances:[Footnote 16]
Table: Description of Allowances and Differentials Based on Basic Pay:
Allowances and differentials: Danger pay;
Description: Additional compensation for employees serving at
designated danger pay posts;
Range: 0-35 percent of basic pay.
Allowances and differentials: Post (hardship) differential;
Description: Compensation for employees for service at places where
conditions differ substantially from those in the continental United
States;
Range: 0-35 percent of basic pay.
Allowances and differentials: Service need differential (SND);
Description: Differential paid to an employee assigned to certain
hardship posts when adverse conditions warrant additional pay as a
recruitment and retention incentive to fill the employee's position at
that post;
Range: 15 percent, but SND and danger pay combined cannot exceed 35
percent of basic pay.
Allowances and differentials: Post (cost-of-living) allowance;
Description: Allowance granted to an employee officially stationed at
a post in a foreign area where the cost of living is substantially
higher than in Washington, D.C. The post allowance is designed to
permit employees to spend the same portion of their salaries for their
standard living expenses as they would if they were residing in
Washington, D.C.
Range: Percentage of spendable income, which varies by salary level
and family size.
Allowances and differentials: Language incentive pay[A];
Description: An incentive for proficiency in designated hard and
extremely hard languages;
Range: 0-15 percent of the base salary of an FS-01/step 1 member
abroad.
Source: State.
[A] For our analysis, we excluded language incentive pay because it is
based on an individual officer's skills rather than post conditions.
[End of table]
In addition, Foreign Service personnel overseas are eligible to
receive other allowances, such as housing and education allowances,
that are not based on basic pay.
Impact on Compensation: Average Effect on Foreign Service Personnel:
Figure: Average Impact of No, Two-thirds, and Full Overseas
Comparability Pay on Foreign Service Compensation Overseas:
[Refer to PDF for image: stacked vertical bar graph]
Washington:
Base Pay: $78,754;
Danger Pay: 0;
Hardship Pay: 0;
Service need differential Pay: 0;
COLA Pay: 0;
Comparability Pay: $19,071;
Total pay: $97,813.
Overseas no comparability:
Base Pay: $78,754;
Danger Pay: $3,182;
Hardship Pay: $10,735;
Service need differential Pay: $1,165;
COLA Pay: $6,388;
Comparability Pay: $0;
Total pay: $100,211.
Overseas 2/3 comparability;
Base Pay: $78,754;
Danger Pay: $3,708;
Hardship Pay: $12,508;
Service need differential Pay: $1,357;
COLA Pay: $7,016;
Comparability Pay: $13,008;
Total pay: $116,339.
Overseas full comparability;
Base Pay: $78,754;
Danger Pay: $3,953;
Hardship Pay: $13,334;
Service need differential Pay: $1,447;
COLA Pay: $7,282;
Comparability Pay: $19,071;
Total pay: $123,829.
Benefits:
Washington: $39,291 (24.22% locality0;
Overseas no comparability: $31,631 (0% comparability);
Overseas 2/3 comparability; $36,856 (16.52% comparability);
Overseas full comparability; $39,291 (24.22% comparability).
Source: GAO analysis of State data.
Note: Average salary and allowances of all overseas FS personnel as of
September 30, 2010. Not all FS personnel are at danger, hardship, or
SND posts.
Benefits represent agency contributions to Old Age, Survivors, and
Disability Insurance; Medicare; retirement contributions; Federal
Employee Health Benefits; and Federal Employee General Life Insurance.
[End of figure]
Impact on Compensation: Drivers of Increase:
On average, FS personnel overseas would receive an additional $23,600
with full comparability pay (compared with no comparability)[Footnote
17.
Most of this increase is due to an increase in comparability pay.
Increases in other allowances and differentials account for the
remainder of the increase.
Figure: Drivers of increase in Total Compensation with Full
Comparability Pay:
[Refer to PDF for image: pie-chart]
Comparability pay: $19,100: 81%;
Hardship pay: 11%;
Cost of living pay: 4%;
Danger pay: 3%;
Service need differential pay: 1%;
Last 4 total: $4,500.
Source: GAO analysis of State data.
[End of figure]
Impact on Compensation: Selected Posts:
Figure: Average Impact of No, Two-thirds, and Full Overseas
Comparability Pay on Foreign Service Compensation at Overseas Posts:
[Refer to PDF for image: stacked vertical bar graph]
Post: Washington;
Base pay: $78,741;
Comparability pay: $19,071.
Post: Panama;
0% comparability:
Base pay: $78,278;
Cost of living pay: $2,895.
16.52% comparability:
Base pay: $78,278;
Cost of living pay: $3,184;
Comparability pay: $12,931.
24.22% comparability:
Base pay: $78,278;
Cost of living pay: $3,311;
Comparability pay: $18,959.
Post: Mexico City;
0% comparability:
Base pay: $78,830;
Hardship pay: $11,825;
Cost of living pay: $1,448.
16.52% comparability:
Base pay: $78,830;
Hardship pay: $13,778;
Cost of living pay: $1,591;
Comparability pay: $13,611.
24.22% comparability:
Base pay: $78,830;
Hardship pay: $14,688;
Cost of living pay: $1,647;
Comparability pay: $19,955.
Post: London;
0% comparability:
Base pay: $82,389;
Cost of living pay: $14,903.
16.52% comparability:
Base pay: $82,389;
Comparability pay: $13,610;
Cost of living pay: $16,380.
24.22% comparability:
Base pay: $82,389;
Comparability pay: $19,954;
Cost of living pay: $17,023.
Post: Tokyo;
0% comparability:
Base pay: $83,112;
Cost of living pay: $23,934.
16.52% comparability:
Base pay: $83,112;
Comparability pay: $13,730;
Cost of living pay: $26,330.
24.22% comparability:
Base pay: $8,3112;
Comparability pay: $20,129;
Cost of living pay: $27,222.
Post: Yaounde;
0% comparability:
Base pay: $78,464;
Hardship pay: $19,616;
Service need differential pay: $11,770;
Cost of living pay: $8,669.
16.52% comparability:
Base pay: $78,464;
Hardship pay: $22,857;
Service need differential pay: $13,714;
Cost of living pay: $9,562;
Comparability pay: $12,962.
24.22% comparability:
Base pay: $78,464;
Hardship pay: $24,367;
Service need differential pay: $14,620;
Cost of living pay: $9,910;
Comparability pay: $19,004.
Post: Kabul;
0% comparability:
Base pay: $79,942;
Danger pay: $27,980;
Hardship pay: $27,980.
16.52% comparability:
Base pay: $79,942;
Danger pay: $32,602;
Hardship pay: $32,602;
Comparability pay: $13,207.
24.22% comparability:
Base pay: $79,942;
Danger pay: $34,757;
Hardship pay: $34,756;
Comparability pay: $19,362.
Source: GAO analysis of State data.
Note: Posts selected to represent a range of allowances and rates.
Base salary is average of Foreign Service personnel at that post as of
September 30, 2010. See appendix II for allowance and differential
rates for these posts.
[End of figure]
Impact on Compensation: Grade Level:
Figure: Average Impact of No, Two-thirds, and Full Overseas
Comparability Pay on Foreign Service Compensation Overseas at Selected
Pay Grades:
[Refer to PDF for image: stacked vertical bar graph]
Washington FS Grades 3&4;
Base Pay: $72,030;
Comparability Pay: $17,445.
Overseas FS Grades 3&4;
0% comparability:
Base Pay: $72,030;
Danger Pay: $3,083;
Hardship Pay: $10,290;
Service need differential pay: $11,32;
Cost of living pay: $5,772.
16.52% comparability:
Base Pay: $72,030;
Danger Pay: $3,593;
Hardship Pay: $11,990;
Service need differential pay: $1,319;
Cost of living pay: $6,367;
Comparability Pay: $11,899.
24.22% comparability:
Base Pay: $72,030;
Danger Pay: $3,830;
Hardship Pay: $12,783;
Service need differential pay: $1,406;
Cost of living pay: $6,623;
Comparability Pay: $17,445.
Washington FS Grades 1&2;
Base Pay: $104,053;
Comparability Pay: $25,201.
Overseas FS Grades 1&2;
0% comparability:
Base Pay: $10,4053;
Danger Pay: $3,685;
Hardship Pay: $13,090;
Service need differential pay: $1,338;
Cost of living pay: $8,352.
16.52% comparability:
Base Pay: $10,4053;
Danger Pay: $4,294;
Hardship Pay: $15,253;
Service need differential pay: $1,559;
Cost of living pay: $9,115;
Comparability Pay: $17,189.
24.22% comparability:
Base Pay: $10,4053;
Danger Pay: $4,578;
Hardship Pay: $16,261;
Service need differential pay: $1,662;
Cost of living pay: $9,427;
Comparability Pay: $25,201.
Source: GAO analysis of State data.
Note: Washington base salary is the average of overseas FS personnel
base pay at each grade level.
[End of figure]
Other Agencies:
Currently, certain members of the Foreign Service from all foreign
affairs agencies receive comparability pay when assigned overseas.
[Footnote 17]
In general, staff from the non-foreign affairs agencies we surveyed,
excluding the Central Intelligence Agency, do not receive
comparability pay when assigned overseas on permanent change of
station (PCS).
However, employees on overseas assignments on temporary duty (TDY)
status continue to receive the locality pay of their home duty station.
* The percentage of staff on TDY status overseas varies by agency.
* For example, nearly 25 percent of Federal Bureau of Investigation
employees working overseas are on TDY status, compared with about 15
percent of overseas Department of Homeland Security (DHS) employees.
Table: Summary of Selected Agencies' Policies Regarding Locality Pay
for Employees Assigned Overseas:
USAID[A]:
Employees on TDY receive locality pay? Yes;
Employees on PCS receive locality pay? Yes.
Department of Defense:
Employees on TDY receive locality pay? Yes;
Employees on PCS receive locality pay? No.
DHS:
Employees on TDY receive locality pay? Yes;
Employees on PCS receive locality pay? No.
Department of Justice:
Employees on TDY receive locality pay? Yes;
Employees on PCS receive locality pay? No.
Source: GAO.
[A] USAID staff overseas are members of the Foreign Service. When
assigned overseas, these officers receive comparability pay.
[End of section]
Appendix I: Scope and Methodology:
To identify State's rationale for providing comparability pay, we
reviewed State documents, interviewed relevant officials, and analyzed
historical non-Senior Foreign Service salary data.
To identify the effects of comparability pay on pay and benefits, we
reviewed relevant documents on Foreign Service pay, benefits, and
allowances, and analyzed State personnel data on FS personnel
stationed overseas at the end of fiscal year 2010.
To identify policies and practices of other federal agencies regarding
comparability pay, we used State data to identify four agencies that,
along with State, employ 94 percent of all federal employees working
overseas-the Departments of Defense, Homeland Security, and Justice;
and USAID. We then solicited written responses from these agencies.
Note: In 2004, a legislative change shifted the calculation of Senior
Foreign Service salaries to a pay-for-performance system to mirror
that which was implemented for the Senior Executive Service across
federal agencies at the same time. At that time, all Senior Foreign
Service employees assigned overseas were converted at the Washington,
D.C., locality rate. Senior Foreign Service employees assigned
domestically were converted at the locality rate in which they were
assigned.
[End of section]
Appendix II: Allowance and Differential Rates for Selected Posts:
Table: Allowance and Differential Rates for Selected Posts, as of
September 26, 2010:
Danger pay;
Panama City, Panama: 0%;
Mexico City, Mexico: 0%;
London, United Kingdom: 0%;
Tokyo, Japan: 0%;
Yaounde, Cameroon: 0%;
Kabul, Afghanistan: 35%.
Post (hardship) differential;
Panama City, Panama: 0%;
Mexico City, Mexico: 15%;
London, United Kingdom: 0%;
Tokyo, Japan: 0%;
Yaounde, Cameroon: 25%;
Kabul, Afghanistan: 35%.
Service need differential;
Panama City, Panama: 0%;
Mexico City, Mexico: 0%;
London, United Kingdom: 0%;
Tokyo, Japan: 0%;
Yaounde, Cameroon: 15%;
Kabul, Afghanistan: 0%.
Post (cost-of-living) allowance;
Panama City, Panama: 10%;
Mexico City, Mexico: 5%;
London, United Kingdom: 50%;
Tokyo, Japan: 80%;
Yaounde, Cameroon: 30%;
Kabul, Afghanistan: 0%.
Source: State.
[End of table]
[End of section]
Appendix III: Distribution of Danger and Hardship Posts:
Approximately 17 percent of overseas Foreign Service personnel are at
posts with danger pay, and 73 percent are at posts with a post
(hardship) differential of 5 percent or more.
Table: Percentage of Non-Senior FS Personnel Serving in Danger and
Hardship Posts, as of September 2010:
Danger:
No differential/allowance: 83%;
5-10% differential/allowance: 0%;
15-20% differential/allowance: 9%;
25-35% differential/allowance: 8%.
Hardship:
No differential/allowance: 27%;
5-10% differential/allowance: 18%;
15-20% differential/allowance: 29%;
25-35% differential/allowance: 26%.
Source: GAO analysis of State data.
Note: Based on approximately 7,600 non-Senior Foreign Service Officers
posted overseas as of September 2010.
[End of table]
[End of enclosure]
Enclosure II: GAO Contact and Staff Acknowledgments:
GAO Contact:
Jess T. Ford, Director, International Affairs and Trade, (202) 512-
4268 or fordj@gao.gov:
Staff Acknowledgments:
In addition to the individual named above, Kim Frankena (Assistant
Director), Robert Ball, Martin de Alteriis, Emil Friberg, Grace Lui,
Shirley Min, and Anthony Moran made key contributions to this
correspondence. Tim Carr, David Dayton, Justin Fisher, Cheron Green,
Jackie Nowicki, Neil Pinney, Tony Pordes, Karen Richey, and John Wren
provided additional support.
[End of section]
Footnotes:
[1] Pub. L. No. 101-509. FEPCA provides for a two-part annual pay
adjustment for federal workers: an across-the-board pay adjustment and
a locality pay adjustment that varies by pay locality.
[2] Pub. L. No. 111-32. Previous legislation eliminated the salary gap
for all members of the Senior Foreign Service regardless of where they
are stationed, so our discussion focuses on non-Senior members of the
Foreign Service.
[3] In this report, we use the term "comparability pay" to refer to
additional pay received by members of the Foreign Service while posted
overseas. This pay is based on the Washington, D.C., locality rate.
[4] State implemented the first phase in August 2009 and the second
phase in August 2010.
[5] Pub. L. No. 112-10. See briefing slide 4 in enclosure I for a
detailed timeline of legislation related to comparability pay.
[6] CBO, Cost Estimate: S. 2971 Foreign Relations Authorization Act,
Fiscal Years 2010 and 2011, (Aug. 25, 2010). See slide 5. Other
foreign affairs agencies include the U.S. Agency for International
Development, the Foreign Agricultural Service, the U.S. and Foreign
Commercial Service, and the International Broadcasting Bureau.
[7] GAO, Department of State: Additional Steps Needed to Address
Continuing Staffing and Experience Gaps at Hardship Posts, [hyperlink,
http://www.gao.gov/products/GAO-09-874] (Washington, D.C.: Sept. 17,
2009).
[8] We solicited and received responses from the Departments of
Defense, Homeland Security, and Justice and from the U.S. Agency for
International Development. We separately requested, but did not
receive, information from the Central Intelligence Agency on its
policies.
[9] The Fiscal Year 2003 Foreign Relations Authorization Act (Pub. L.
No. 107-228) provides that basic pay, for the purposes of annuity
computation, shall be what the Foreign Service member would have been
paid if the member's official duty station had been Washington, D.C.
This so-called Virtual Locality Pay changed the calculation of Foreign
Service members' high-three average salary, regardless of where they
are stationed.
[10] The business case uses an attrition rate based on a 2006 survey
of Foreign Service personnel, in which 32 percent of respondents with
6 to 10 years of service indicated that they have "seriously
considered employment elsewhere" because of the difference in pay
received by employees who move from Washington, D.C., to an overseas
post. For its business case, State assumed that half of this cohort,
or 16 percent of personnel with 6 to 10 years of service, would leave
the department. However, according to State data, State's actual
nonretirement separation rate was 0.9 percent for all Foreign Service
personnel in fiscal year 2009.
[11] See slides 13 and 22 for descriptions of these allowances and
differentials and data on their distribution. Not all posts are
eligible for these allowances and differentials, which are not part of
basic pay and are not intended to compensate for the lack of
comparability pay. For example, a post (hardship) differential may be
granted on the basis of conditions of environment that differ
substantially from conditions of environment in the continental United
States and warrant additional pay as a recruitment and retention
incentive. Staff working in hardship locations often encounter
conditions that can include inadequate medical facilities, limited
opportunities for spousal employment, poor schools, high levels of
crime, and severe climate.
[12] In addition, Foreign Service personnel overseas are also eligible
for housing and education allowances, and language incentive pay,
among others. We did not include these allowances and incentives in
our analysis.
[13] In a prior report, we found that employees from a number of
different agencies and pay systems work overseas in close proximity to
one another. Each of these pay systems was authorized by a separate
statute that outlines the compensation to which employees under that
system are entitled, certain elements of which are set without regard
to the location in which the employees are working. When these
employees are assigned overseas and serve side by side, the
differences in pay systems may become more apparent and may adversely
affect morale. See GAO, Human Capital: Actions Needed to Better Track
and Provide Timely and Accurate Compensation and Medical Benefits to
Deployed Federal Civilians, GAO-09-562 (Washington, D.C.: June 26,
2009).
[14] See, for example, GAO, Department of State: Additional Steps
Needed to Address Continuing Staffing and Experience Gaps at Hardship
Posts, [hyperlink, http://www.gao.gov/products/GAO-09-874]
(Washington, D.C.: Sept. 17, 2009).
[15] CBO, Cost Estimate: S. 2971 Foreign Relations Authorization Act,
Fiscal Years 2010 and 2011, (Washington, D.C.: Aug. 25, 2010).
[16] Posts may be eligible for none, some, or all of these allowances
and differentials. See appendix III for information on the percentage
of FS personnel at posts with different danger and hardship rates.
[16] Based on salary data of all overseas FS personnel and allowance
and differential rates as of September 2010.
[17] In addition to the State Department, foreign affairs agencies
include USAID, the Foreign Agricultural Service, the U.S. and Foreign
Commercial Service, and employees of the International Broadcasting
Bureau.
[End of section]
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