Provide Agency Flexibility in Setting Base Pay

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.