4. Provide agencies under the standard 15-grade system with additional flexibilities in setting base pay rates. The director of OPM should submit proposed legislation to Congress by fall 1994 that will modify the GS within-grade pay progression scheme. In addition, OPM should submit proposed legislation to Congress by fall 1994 that will provide employing agencies with certain additional flexibilities in setting base pay rates, effective one year after enactment (to correspond with the effective date of the classification system modifications). This latter piece of legislation will include provisions making clear that agency decisions to use or stop using any of the new pay flexibilities are not subject to collective bargaining. The 15-grade pay structure and a standard within-grade pay progression scheme similar to the current scheme will be retained. However, the rigid 10-step framework for progression within each pay grade will be abandoned. Within-grade increases will be equal in dollar value to the current step increases and the waiting periods will remain essentially the same.(21) The main differences will be that Quality Step Increases or QSI's (perhaps renamed as Exceptional Performance Increases) can be less than a full within-grade increment and that an employee's initial rate in grade (upon hire or promotion) will not be required to equal a fixed step rate. This modified standard within-grade progression scheme will also apply to GS-13 to -15 managerial employees who are now covered by PMRS, which expires on October 31, 1993. Agencies should also be able to establish special, alternative within-grade pay progression schemes through a revised demonstration project authority. For example, agencies may wish to experiment with schemes that base within-grade pay progression on the acquisition of specific skills and competencies or that move toward greater use of variable pay (i.e., one-time bonuses and awards) instead of base pay adjustments. Agencies should be given discretionary authority to approve a base pay differential of 10 percent (of the GS base rate) for mission- critical positions with a grade no higher than GS-14 that, in the agency's judgment, are significantly undervalued under the standard classification criteria, based on the value assigned by the agency to those mission-critical positions relative to the value (i.e., grades) of other positions in the agency. Agencies should be given discretionary authority to set entry pay up to 10 percent higher than the minimum rate of the entry grade if, in the agency's judgment, it is necessary to meet its recruitment goals. (The authority to set entry pay at any rate in the entry grade based on superior qualifications will also continue.) Agencies should be given discretionary authority to establish, for grades GS-14 and below, local special rate schedules up to 10 percent higher than regular rates (including any locality pay adjustment) for occupations in which recruitment and retention efforts are significantly handicapped due to inadequate pay levels. These special rates can be phased out, at agency discretion; however, the phase-out must be conducted in a way that prevents any employee from suffering an absolute reduction in pay. Thus, agencies should be required to time the phase-out of a special rate to coincide with the effective date of general pay increases. (OPM's authority to approve higher special salary rates upon agency request will also continue. However, the rules for administering OPM-approved special rates should be modified expressly to allow agencies to phase out special rates at their discretion, consistent with the rules for agency-approved special rates.)(22) The intent of the recommended changes is to provide agencies with greater flexibility. While the modifications to the standard within- grade pay progression scheme are not dramatic, they will eliminate unnecessary rigidity and allow agencies to make finer distinctions with respect to certain pay decisions. Also, those agencies that wish to adopt a special pay progression scheme can do so through the liberalized demonstration project authority, which will allow for permanent adoption of a successful project as an alternative system. The new flexibilities to increase base pay (subject to overall budget constraints) will permit agencies to respond quickly to special situations and reduce the temptation to manipulate the classification system. Given the visibility of the proposed pay flexibilities, agencies would have strong internal and external incentives to use them prudently. OPM evaluation and reporting on agency pay practices would reinforce accountability. The new rules for phasing out special salary rates would make clear that special rates are paid at agency discretion and are not a matter of statutory entitlement. Endnotes 21. See "HRM05, Strengthen Systems to Support Management in Dealing with Poor Performers," regarding proposed change that would bar a period of inadequate performance from being counted toward the waiting period for a within-grade increase. 22. Under current law, employees' special rates can be reduced or terminated; however, such employees are covered by statutory pay retention rules that may provide entitlement to partial annual increases. At the same time, the law can be read to limit agencies' discretion to not apply general increases in pay and, thus, to effect a phase-out of special rates without absolute reductions in basic pay entitlement. Under the proposal, the law would be amended to make it clear that employees are not entitled to have a special salary rate automatically adjusted when there is a general increase in General Schedule rates.
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