574-MGT/LBR-l. Report of the Federal Prevailing Rate. Advisory Committee

Transcription

1 574-MGT/LBR-l Report of the Federal Prevailing Rate. Advisory Committee March 2012

2 UNITED STATES OFFICE OF PERSONNEL MANAGEMENT Washington, DC Federal Prevailing Rate Advisory Committee MAR MEMORANDUM FOR DIRECTOR JOHN BERRY FROM: SHELDON FRIEDMAN.hulL )1 <v-"--~i,..r<_ CHAIRMAN, ('\J V1 - (,:p- <- FEDERAL PREVAILING RATE ADVISORY COMMITTEE jl Subject: FPRAC Votes to Reaffirm Recommendation to Consolidate FWS Wage Areas and Transmit Study Group Report to You On March 15,2012, the Federal Prevailing Rate Advisory Committee (FPRAC) voted 5-4 to reaffirm its October 2010 recommendation to you, to consolidate Federal Wage System (FWS) wage areas or portions of wage areas that lie within non-rest of US. General Schedule (GS) locality pay areas. All four FPRAC management members in attendance voted "no." Four labor members voted "yes." I broke the tie by voting with labor to reaffirm the October 2010 recommendation. In deciding how to vote, I found the following points persuasive: The definition of appropriate local labor market areas is an important feature of both the FWS and the GS pay systems. I am aware of no evidence that geographic boundaries of actual local labor markets vary between hourly and salaried employees. Commuting data, which might shed light on this, are not even collected or published separately for these two groups of workers by the statistical agencies of the Federal Government. Many large corporations utilize the concept of geographic pay zones in their pay systems. I am aware of no evidence that corporations draw the boundaries of these zones differently for their hourly vs. their salaried employees. Failing to consider the impact of GS locality pay area boundaries or changes in those boundaries on FWS workers has led to serious pay inequities-as perceived not only by these workers, but also by some of their local managers and many members of Congress. Study Group Report With this memo, I am also transmitting the enclosed report, which you asked FPRAC to provide, on the detailed implications of our October 2010 recommendation. The report is the product offprac's Wage Area Definition Study Group. The Study Group met ten times between August 2011 and February The Study Group report was submitted to Our mission is to ensure the Federal Government has an effective civilian workforce

3 2 FPRAC for consideration at its March 8, 2012 meeting. At that meeting, FPRAC adopted, by 6-5 vote, labor's motion to transmit the report to you. FPRAC then rejected, by 6-5 vote, management's motion to amend the report by adding certain material that FPRAC's management members have now largely incorporated into their minority report. I voted with labor to transmit the report to you because I believe the report does what you asked: it provides a blueprint for how FPRAC's October 2010 recommendation could be implemented, should you decide to do so. The report provides detailed answers to the questions you posed. I voted against management's motion to amend the report because I agreed with labor that if the items management wanted to add were incorporated, then in fairness labor should be afforded an opportunity to respond in writing-and the closure which has eluded this matter far too long already would continue to be delayed. I was also persuaded by labor's view that the Department of Defense's (DOD's) alternative implementation plan was a "poison pill" not in keeping with FPRAC's October 2010 recommendation. DOD's alternative "unintended consequences" document seemed more applicable to the DOD's alternative implementation plan than to the implementation plan in the Study Group report. Minority Report This memo also transmits the minority report filed by FPRAC's management members. They are of course entitled to their views, but I feel obligated to respond. According to the minority report, the FPRAC recommendation would cause "profound changes to the FWS pays system." In fact, the proposed change affects fewer than 10 percent of FWS appropriated fund workers, and there would still be 120 separate appropriated fund wage areas, vs. 132 today. According to the minority report, the main justification for the FPRAC recommendation is "arguments that internal equity with the GS, rather than external equity in keeping with prevailing rate concepts, should drive decisions on how to administer pay for blue-collar Federal employees." In fact, the FPRAC recommendation would keep all existing features of FWS intact, except one: that GS locality pay area boundaries should always be completely ignored when FWS wage area boundaries are drawn. According to the minority report, implementation of the FPRAC recommendation will trigger wage increases that "would exceed 20 percent in several locations" and put "many" FWS workers on retained pay for "up to years." In fact, the average wage increase would be closer to 8 percent. There would indeed be larger increases in certain locations-but in some of them, such as Tobyhanna Army Depot in Monroe County, Pennsylvania, the county in question had been moved some years earlier into a higher-paying GS locality pay area, generating large pay increases for GS employees only. It is indeed possible that some workers placed on retained pay could remain in this status for a number of years-given the cloudy outlook for Federal pay

4 3 increases. Retained pay status for 13 percent of affected workers is not a strong argument against implementation of the recommendation. According to the minority report, no "business case" for implementing the recommendation has been presented. In reality, during 2010 FPRAC heard testimony from local Federal managers from New Jersey and Rhode Island who made a strong business case for implementation. According to the minority report, the recommendation is untimely due to the budget situation and the fact that "Federal pay levels have become increasingly visible and subject to harsh criticism." In reality, it is noteworthy that Congressional support for implementing the recommendation has been bipartisan, notwithstanding the budget situation. As to criticism of Federal pay, as you know so well, much of it has emanated from right-wing think tanks with "shrink government'; agendas and using questionable methodologies. According to the minority report, "DaD staff has demonstrated that data collected by DaD and. the Department of Labor show blue-collar wage areas are determined by smaller local geographic boundaries than the more expansive white collar markets." In reality, the Service Contract Act (SCA) data being referenced do not demonstrate that blue-collar labor markets are smaller geographically than white-collar labor markets. The fact that wage levels for a given occupation may differ between two nearby cities does not mean that those cities must be in..different local labor markets. In reality, wage levels for a given occupation can vary greatly even within a single city, from employer to employer. The minority report also contains a number of procedural objections regarding exclusion of certain material from the Study Group report. You now have most of that material, in the form of attachments to the enclosed minority report. This seems the most appropriate place for these items-rather than a Study Group report intended to serve as a blueprint for implementation, should you choose to implement. As to the SCA material, I have no objection if FPRAC managers wish to provide it, but I doubt you will find it helpful in reaching a decision. I want to note in closing that while I voted with labor on reaffirming FPRAC's October 2010 recommendation and transmitting the Study Group report to you, I do not necessarily agree with the March 15 "labor statements" cited in the minority report. Enclosures (2)

5 OFFICE OF THE UNDER SECRETARY OF DEFENSE 4000 DEFENSE PENTAGON WASHINGTON, D.C PERSONNEL AND READINESS The Honorable John Berry Director U.S. Office of Personnel Management 1900 E Street NW. Washington, DC MAR Dear Director Berry: We, the management members of the Federal Prevailing Rate Advisory Committee (FPRAC), file this minority report to express our objection to the March 15, 2012, FPRAC recommendation to proceed with the American Federation of Government Employees (AFGE) proposal to use General Schedule (GS) locality pay area boundaries to define Federal Wage System (FWS) wage areas. The FPRAC majority recommendation would result in profound changes to the FWS pay system based principally on arguments that internal equity with the GS, rather than external equity in keeping with local prevailing rate concepts, should drive decisions on how to administer pay for blue-collar Federal employees. No business case reasons (i.e., no human resources or financial justifications) are identified by FPRAC or its Study Group report to justify the proposal. That is, in those numerous geographic localities that would be redefined by the recommendation, staffing data do not justify large increases in pay and operating costs. The Department of Defense (DoD) estimates a fully-burdened cost, including employee benefits, would approach $500 million in the first 5 years after implementation. Wage increases would exceed 20 percent in several locations, and many lower-graded FWS employees would be placed in a "retained pay" status that could last for up to years (which would serve as a disincentive from advancing from the lowest skilled grades without losing pay). Finally, we believe this proposal unnecessarily increases labor costs far above local prevailing market levels at a time when agency budgets are shrinking and Federal pay levels have become increasingly visible and subject to harsh criticism. A pay system, as proposed by the FPRAC recommendation, would not be in keeping with the underlying intent of the Prevailing Rate Systems Act and the compensation system elements under which, for the most part, it successfully operates. All parties should recognize that the AFGE proposal will, if implemented, result in unsustainable and unjustifiable wage levels that will adversely impact the important missions at vital military installations, at Department of Veterans Affairs Medical

6 Centers, at Department of Agriculture research centers, and in our National Parks. The required actions contained in the FPRAC recommendation will also worsen the effects of planned budgetary reductions on employees, activities, and agencies as there are no efficiencies to be gained in this proposal. The FPRAC recommendation does not accurately reflect the issues on which FPRAC and its Study Group failed to reach consensus. The Study Group began with the premise that all aspects of the AFGE proposal were to be on the table for in-depth examination and all facts and points of view would be considered. As it turned out, only items that the labor members agreed with have been included in FPRAC' s report to you. Additional items thatthe management members wanted to include to add depth and clarity to their concerns were either omitted or formally voted out of the report. We do not understand why a "study," which is separate and distinct from final recommendations, cannot provide the facts on all sides of the issue. Specifically, you asked that FPRAC's study include an implementation plan and unintended consequences. DoD developed an alternative implementation plan and also developed a list of additional unintended consequences. Both were discussed at the Study Group, but neither were permitted to be part of FPRAC's final report. We believe it is important for you; the decision maker, to take into account all facts and alternative views before you make the final decision. For your consideration, we are attaching two papers that were not accepted after formal FPRAC votes. We believe you should be fully informed of the issues we present in the attached Implementation Plan and Unintended Consequences papers. They are important to fostering a deeper understanding of our pay equity concerns and the potential impact on agency operations. We also wish to present you with our views on statements presented by the labor members at the FPRAC meeting on March 15. Labor statement: The DoD implementation plan is"a radical departure from past practice. " Past practice as it relates to new wage schedules that were not restricted by pay adjustment legislation has affected only small segments of the wage system (e.g., movement of single counties or abolishment of single wage areas). The current proposal is a massive, unprecedented change to the overall system that affects a large number of wage areas across the nation. Past practices and precedents are more supportive to the alternate DoD implementation plan in regards to when the new schedules are implemented for 2

7 combined areas. The FPRAC approved plan deviates from past practice and creates numerous pay inequities and possible staffing difficulties. Labor statement: "The DoD implementation plan is a 'poison pill' that would undermine the intent of the original proposal." The proposed intent ofthe original AFGE proposal was to align GS and FWS boundaries. Although the management members do not agree with the proposal for many reasons including lack of a solid business case, DoD's alternative implementation plan does not undermine or prevent implementation; it addresses how the proposal could be implemented in phases as new surveys are conducted in the new, reconstructed wage areas. We believe a phased-in approach makes more sense than a mechanical conversion for everyone in January 2013 followed by new surveys and realigned pay structures later down the road. During the analysis phase, no data were brought forward showing that any major.private industry blue-collar pay practices follow white-collar pay practices. To the contrary, DoD staffhas demonstrated that the data collected by DoD and the Department of Labor show blue-collar wage areas are determined by smaller local geographic boundaries rather than the more expansive white-collar markets. We presented this information to the FPRAC Study Group, but the information has been excluded from the FPRAC report presented to you at the insistence of the labor members. Labor statement: "DoD's proposed implementation plan is a proposal that would mark a radical and unjustifiable break from decades of pay administration practice in the federal government.". The DoD implementation plan would allow wages to be more aligned to the prevailing rates of the proposed new wage areas based on redesigned surveys and employee weights rather than on mechanical conversions to existing pay schedules. Note that the labor recommendation would carry over the wages that labor is claiming are not representative of their population. In essence the proposal takes the current and proposed systems and "cherry picks" the higher rates of each. Labor statement: DoD's unintended consequences "do not result from the implementation plan that apm staff used in its analysis of the FPRAC-approved consolidation proposal." 3

8 This is an inaccurate characterization of DoD's implementation plan, which attempts only to rectify some of the issues and unintended consequences that would occur under the FPRAC-approved consolidation proposal. DoD's implementation plan attempts to align the proposal with the compliance of legal prevailing rate principles that governs the FWS. Labor statement: "The OPM staff s implementation methodology follows past practice, and would not result in a two-tier system. Only DoD's proposal produces such undesirable consequences.".both implementation plans will result in multi-tier pay systems. The DoD implementation plan will minimize the multi-tier effect while the FPRAC-approvedplan compounds this problem. Labor statement: The FWS wage data "from private sector industry most closely associated with skilled trades is explicitly excluded from consideration." This statement is vague. In compliance with law and OPM regulations, the FWS system collects data from predefined industry groups and jobs that are specifically comparable to the work performed by the blue-collar Federal workforce. Labor statement: The FWS wage data "come only from the small fraction of local employers willing to share information with the Federal government." The average FWS participation rate among surveyed private sector establishments is at 74 percent during 2010 and This is indicative of a tremendously successful wage survey program. The participation rate has been steady throughout the history of the FWS wage survey program and is a tribute to labor and management working together cooperatively at the local level to administer the FWS. The above represents our concerns with AFGE's characterizations of the facts to support its positions and illustrates why management is concerned with key aspects of the FPRAC report. While honest differences of opinion will always exist, the facts should be accurate, and we ask that you consider our rebuttal as you make your final determination. We also have a major concern with the process FPRAC has followed in regard to the AFGE proposal. The FPRAC majority voted that two management positions, which were presented and discussed at the Study Group, could be included as an additional 4

9 ~ management submission, but only as separate documents apart from the FPRAC recommendation. We perceive this as a negative precedent intended to stifle the open sharing of views that detracts from the effective spirit of labor-management cooperation that historically has been the rule at FPMC meetings. We respectfully request that you reject the majority FPRAC recommendation and the Study Group report. The public interest and financial burden would be hard to explain and justify because no business case or supporting staffing data have been presented to support the proposal. We believe the issue remains divisive and distracting to Federal operations and remind you that FPRAC itself rejected a similar proposal in 2008 on a split vote. Finally, the recommendation is a drastic change to the constructs and concepts contained in public law and would result in a weakened and inefficient pay system. Thank you for your consideration of our report. -P~ erome D. Milcowicz. Deputy Associate Director for Pay and Leave Office of Personnel Management ~~;;; Douglas A. LU9dberg.. Director Office of Civilian Human Resources Department of the Navy J)~~ Dana M. Crowe Chie~ Civilian Force Policy Division..Force Management Policy Directorate HQ USAF/AIPC Attachments: As Stated...~~-/~ ~ ~ vp~ Hinkle-Bowles Deputy Assistant Secretary of Pcfense Office of the Secietary ofdefwe Civilian Personnel Policy ~r1~ Anna. Miller - Chief; Employment Policy Division Department of the Army ~cs, C;-----'.f~rTonya M. Deanes Deputy Assistant Secretary for Human Resources Management Department of Veterans Affairs 5

10 IMPLEMENTATION PLAN Management recommends implementation of the proposal in the following manner: 1. Employees in the "outside" wage areas or counties that are combined into the new core area, may transition to the newly defined wage area and wage schedule upon completion of new survey. Impacted employees will transition to new area pay schedule with the initial implementation of survey results and pay schedule. There is precedent for this approach established by the reassignment of counties in abolished wage areas.: a. Timing of each wage area implementation is determined by the regularly scheduled month and year of the full scale wage survey. b. Surveys of "old" wage areas, that are combined into new core areas, will not be conducted in the same fiscal year as implementation of the new core wage area. Only one fiscal year adjustment will be applied to all employees in a fiscal year. 1. This minimizes the number of employees that will have retained rates. 11. This also minimizes the number of rates for the same level/grade that may be paid in a wage area at one period in time This allows for orderly transition and may be accomplished with current technical staff levels. 2. New wage area schedules that have establishment private sector employment changes of more than 10% will have new pay schedules issued (same rule used to determine new survey areas). These schedules will reflect the true prevailing rates determined by the survey of the new wage area. a. The 10% rule is defined when the survey private sector employment ofthe original core survey wage area changes by more than 10% due to the addition of other counties private sector employment to the survey area. b. Employees will receive a more accurate prevailing rate based on the new survey results. This will benefit many upper graded employees who are developing or have developed journeyman skill levels. c. The proposal identifies new wage area boundaries and surveys that are significantly different than the current FWS system. Therefore, current system results should not be applied wholesale in advance of the new Attachment 1 A

11 results as determined from the proposal. New pay rates should be established for all employees from the new survey area results. Employees may be granted retained rates where necessary to maintain pay rates, but no other currently existing rates should be implemented to employees until the new surveys are completed. d. In some cases, retained rates will cause extreme morale problems and difficulties. For example, if schedules were to increase by 2% annually, it is possible that some employees could remain on retained rates for over 30 years. This example illustrates the functioning of a very poorly designed pay system. 1. Paying above prevailing rates disadvantages employees and activities by making their valuable work contributions too expensive to maintain. Inevitably, this results in loss of work and reductions to the workforce. Further, this may also lead to reconsideration of "contracting out" scenarios. 11. Last, pay above the prevailing rate also causes hardship to community businesses in the wage area that compete for employee skills in staffmg their smaller business establishments. This is counter to the FWS public law principles and legislative intent. 3. In the event that a wage area effective date must be moved to accommodate staff levels and survey workload (i.e., Scranton, PA), it will move to the next consecutive month that the survey can be effectively conducted. 2 Attachment A

12 UNINTENDED CONSEQUENCES The recommendation establishes a multi-tier pay system -At times a majority of employees will be on pay retention rates as new surveys are conducted. This creates scenarios where the employees may receive 3-4 different pay rates for the same job in the same wage area. 1. Due to the current economic climate and employees receiving half the increase on pay retention, e.g., (0.5% increase results in employee receiving only.025%) employees could be on pay retention for extended periods. This will have a negative effect on morale and performance. 2. As an example of the retained rate issue, some employees moving from the Baltimore to the Washington, DC schedule could be on pay retention for over 30 years (assuming a 2% increase each year). New employees, hired at the new. significant lower survey rate, will work side by side with these retained rate employees. The recommendation creates under compensated FWS workers - Due to the vast distances (over 200 miles in some areas) that are encompassed in GS (General Schedule) locality pay areas, metropolitan employees would make less based on new survey results. For blue collar pay, the recommendation combines numerous different labor markets into the same mega survey area. To simplify, you are mixing high and low pay areas. The result is that the FWS employees in the high cost metropolitan areas are under compensated compared to their local market. This creates the following issues: 1. Recruitment and retention problems 2. FWS work force with morale issues and less ski11level as activities are lagging market rates 3. Increased special rate applications The recommendation also creates over compensated FWS workers - Based on the same logic as previously stated above, in areas that reside outside metropolitan areas, there is a high potential for overpayment. This creates the following challenges: 1. Expense of overcompensating employees results in serious budget issues 2. Federal government will be leading the local pay market which is not the intent of the system (intent is pay prevailing or average rate) 3. Wage survey participation problems with the private sector businesses which cannot compete with higher Federal pay rates 4. Possibility of increased contracting work to other installations or businesses Attachment 1 B

13 . 5. Difficulty in promoting in-house, the possibility of having lower graded workers making more than the higher grades (ex. Employee at retained rate in Grade 9 making more than Grade 10). This creates scenarios where employees would not benefit from promotions due to a reduction in payor only a minimal increase for the additional duties and responsibilities. Orphan Counties - Counties that are not located within the General Schedule (GS) locality boundary have been added into the adjacent OS locality area only to increase rates of pay. This. decision creates the same pay disparity between the OS and FWS system that this recommendation was meant to solve and has no logic or business case that supports the decision. The recommendation does not support the stated business case (FWS-GS) - The evidence examined by the work group does not support that the recommendation will improve the FWS compensation system by linking to the OS pay system. To the contrary, the factors and evidence all point to a system that will function poorly in its mission to identify appropriate rates of pay required to effectively and efficiently staff blue collar positions in the Federal workforce. This recommendation ignores blue collar pay markets and supporting data in order to over pay employees and provides no remedies to reduce or restrict over pay situations. Due to the design flaws in the proposed pay system, the recommendation results in saddling all participants with a pay system that actually creates large staffmg difficulties as opposed to resolving them - Recommends a pay system where costs increase but staffing difficulties multiply. The end results are that specific and important missions of DoD and VA are impacted negatively and will be difficult.to achieve successfully if the recommendation is accepted. In the coming Federal budget discussions, this recommendation is not even economically feasible without serious consequences to mission. Changes to GS boundaries in future are difficult to predict - It is certainly possible that changes will reduce the scope of some OS areas while increasing the area of others. Blue collar markets are not similar to white collar markets and further disruption creates more pay problems and costs. Thus, it is predictable that further changes will cause more negative impact to the FWS system. Attachment 2 B