Subject:  Straight Talk on the Overseas Pay Gap

From AFSA President John Naland (naland@afsa.org)

1.  Summary:  We are at a make-or-break point in the effort to end the overseas pay gap.  AFSA recently advanced the issue past a key sticking-point.  Now it is up to Congress and the Bush Administration to decide if they are willing to take the steps required in the next few months to finish the job before the 2008 legislative calendar begins to run out.  If no action is taken, the problem would be deferred to the next President and the 111th Congress.  While we might hope for quick and sympathetic action under a new President, it is also possible that 2009 could be lost educating the new Administration about the issue.  Thus, the time to act is now.  End of Summary

BACKGROUND

2.  AFSA has been working to end the overseas pay disparity since 2001.  Congress fixed the problem for the Senior Foreign Service in 2004 as a side-effect of a government-wide pay reform for senior executives.  Little progress was made on addressing the rest of the Foreign Service until late 2005 when Secretary Rice and her management team convinced the Office of Management and Budget (OMB) at the White House to endorse the effort and seek funding for it.  However, OMB rejected a simple upward adjustment in overseas pay.  Instead, they proposed converting the Foreign Service to a pay-for-performance system that would abolish annual “step” increases in pay to all employees.  That new system would establish a worldwide base salary schedule equal to what employees in D.C. earn (thus bringing overseas base pay up to domestic levels) and would then add yearly performance-pay adjustments for some, but not all, employees.

3.  Unfortunately, the OMB pay-for-performance proposal carried with it significant baggage.  OMB initially insisted that the Secretary of State have “sole and exclusive discretion” over who received salary adjustments.  Thus, instead of basing pay adjustments on rank-order merit lists produced by Foreign Service selection boards, management could theoretically “cherry-pick” by awarding pay increases on the basis of personal favoritism.  During the course of 2006, it became clear that key Members of Congress in both political parties would not accept such an abuse-prone mechanism.  Finally, AFSA and State's Bureau of Human Resources, working with the 109th Congress, secured agreement on a revised proposal that would guarantee a merit-based process.  We accepted the revised pay-for-performance mechanism as a quid pro quo for OMB's support for moving forward.  Unfortunately, this compromise was reached very late in the year.  The effort came to naught when the House Republican leadership expressed last minute concerns over the cost of the pay adjustment -- despite AFSA's and State's arguments that those costs would only grow without an immediate fix.

4.  When the Democratic-controlled 110th Congress convened in January 2007, key leadership positions were assumed by lawmakers skeptical of the Bush Administration's pay-for-performance initiatives at the Department of Defense and Department of Homeland Security.  During the course of 2007, AFSA and State continued working in parallel to advance a legislative fix to the overseas pay gap problem.  However, lawmakers apparently wanted to resolve the pay-for-performance issue at the larger agencies first.  Although DHS pay reform efforts became hopelessly mired in legal challenges, agreement was finally reached on the much larger DOD civilian workforce in December 2007.  That is when Congress and the Administration reached a compromise agreement, now enacted in law, putting most DOD civilian employees (scheduled to cover 185,000 employees by summer 2008) under a hybrid pay system that includes some guaranteed annual pay increase for all employees along with an additional pay-for-performance salary boost for top performers.

RECENT DEVELOPMENTS

5.  With the larger agency issues finally out of the way, AFSA has been working very hard since the start of this year to refocus lawmakers on addressing the Foreign Service overseas pay disparity.  Our renewed push coincides with the overseas pay gap passing the 20 percent level.  A key break came when we secured a meeting with Representative Henry Waxman (D-CA).  As the powerful Chairman of the House Oversight and Government Reform Committee, he must approve any change to the Foreign Service Act.  At our March 13 meeting with Chairman Waxman, we explained that AFSA supports the Administration's proposal to close the overseas pay gap via a pay-for-performance system tied to rank-order merit lists produced by Foreign Service selection boards.  We asked him to support moving forward this spring to enact that Administration-endorsed legislative fix.  But we added that, if he could not support the pay-for-performance mechanism, then we would ask him to inform the Administration.

6.  Chairman Waxman's decision was that he will not advance legislation to fix the Foreign Service pay disparity if it includes a pay-for-performance mechanism.  Chairman Howard Berman (D-CA) who, as Chairman of the House Foreign Affairs Committee, runs the other House committee which must approve any change to the Foreign Service Act, has deferred to Chairman Waxman on this issue for jurisdictional principles.  Thus, as a result of AFSA pressing the question, we are now finally beyond the sticking-point of uncertainty over the position of the majority party in the House of Representatives regarding the pay-for-performance mechanism.    

NEXT STEPS

7.  This brings us to a make-or-break point in the effort to end the overseas pay gap.  Given the House opposition to the pay-for-performance mechanism, it leaves it up to Secretary Rice and OMB to decide if they are willing to compromise with the Democratic-controlled Congress on this issue.  When Congress and the Bush Administration sat down last December to hash out the Department of Defense personnel system, they were able to reach a compromise agreeable to all sides.  We believe that the same could be done for the Foreign Service if only the two sides would make a good faith effort.

8.  Thus, AFSA urges the Administration and key decision-makers in Congress (including, obviously, the Senate) to reach out to one another to arrange a negotiating session this month (April).  We have communicated that message to State Department managers and key Congressional staffers.  Such a meeting is needed to resolve, once and for all, the pay-for-performance issue as it applies to closing the overseas pay gap.  If agreement can be reached on that key point, then the parties would need to reach agreement on other aspects of the specific language and timing of the final legislation.

9.  Meeting or no meeting, Congress has the power to move forward right now.  Since the House Committee Chairmen seem to want to implement a straightforward fix of the overseas pay gap without tying it to the unrelated proposal to implement a pay-for-performance mechanism, AFSA has urged them to move forward on that basis.  If, in the next few critical months, such legislation begins to move, then the Administration will have to decide, once and for all, if they want to see the overseas pay disparity closed before their eight years in office ends.  That may require compromising with Congress.  If, on the other hand, Congress does not move forward any legislative fix in the next few months, then Foreign Service members worldwide will know that Capitol Hill is where the failure to act took place.      

10.  For our part, AFSA's position could hardly be more flexible.  In order to bring overseas base pay up to the Washington, D.C. level over no more than a two-year phase-in period, we would accept a legislative fix with pay-for-performance, without pay-for-performance, or with a hybrid scheme such as was adopted for Department of Defense civilians.

11.  Unless a legislative fix starts to move forward very soon, AFSA sees no chance of ending the pay gap before the 2008 legislative calendar begins to run out.  That would defer the issue to the next President and the 111th Congress.  While the Foreign Service might hope for quick and sympathetic action under a new President, it is also possible that 2009 could be lost educating the new Administration about the issue.  Thus, the time to act is now.

12:  For more background on the overseas pay gap, see "Pay Equity Q & A" at < http://www.afsa.org/OCP2008Jan.pdf > and "Crossing the Rubicon on the Overseas Pay Gap" at < http://www.afsa.org/011108overseas.cfm >.