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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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