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Merit System Principle 3: Equal Pay

“Equal pay should be provided for work of equal value, with appropriate consideration of both national and local rates paid by employers in the private sector, and appropriate incentives and recognition should be provided for excellence in performance.”

What is the intent behind the third Merit System Principle?
The third Merit System Principle embodies the vision that maintaining equitable salaries and rewarding excellent performance will attract and retain the most effective and efficient federal workforce through positive employee engagement. 

The Classification Act requires the classification of federal civil service positions in accordance with their duties, responsibilities, and qualification requirements, and mandates that in determining the rate of basic pay which an employee will receive, “the principle of equal pay for substantially equal work will be followed.”  5 U.S.C. § 5101(1)(A).  The various pay rates and systems in effect today may be found at 5 U.S.C. Chapter 53 and here.

It is the express policy of Congress that “Federal pay fixing” for employees under the General Schedule and the Prevailing Rate Systems (wage grade employees) be based on the principle that there “be equal pay for substantially equal work within each local pay area.”  5 U.S.C. §§ 5301(1), 5341(1). 

What does it mean to give “appropriate consideration [to] both national and local rates paid by employers in the private sector”?  
Congress has codified its policy that federal pay rates be comparable with non-federal pay rates for the same levels of work within the same local pay area, except when the President provides for an alternative level of payment due to a national emergency or other serious economic condition.  5 U.S.C. §§ 5301(3-4), 5304(a), 5341.  The President establishes rates of pay within localities with the advice of his Pay Agent, designated under 5 U.S.C. § 5304(d)(1).  The Pay Agent, in turn, receives salary recommendations from the President’s Federal Salary Council, established under 5 U.S.C. § 5304(e)(1), and the Federal Prevailing Rate Advisory Committee, established under 5 U.S.C. § 5347(a).  The Federal Salary Council evaluates surveys conducted by the U.S. Bureau of Labor Statistics of salary data for non-federal jobs throughout the country.  The Federal Prevailing Rate Advisory Committee surveys private employers, at least every two years, to determine the prevailing wage in designated regions throughout the country.

What is the MSPB’s adjudicatory role in ensuring equal pay is provided for equal work?
Although classification determinations are the purview of the Office of Personnel Management, the MSPB may review pay issues in certain circumstances.  For example, the Equal Pay Act of 1963 amended the Fair Labor Standards Act to forbid employers from engaging in pay discrimination and require that employees of both sexes be paid equitably for work requiring equal skill, effort, and responsibility performed under similar working conditions.  29 U.S.C. § 206(d).  An Equal Pay Act claim may be alleged as an affirmative defense in an MSPB mixed case in which the MSPB has jurisdiction over an adverse action.  5 U.S.C. §§ 2302(b)(1)(C), 7702(a)(1)(B)(ii).  Issues involving pay setting may also come before the MSPB in a whistleblower reprisal case, because “a decision concerning pay” is a covered “personnel action” under 5 U.S.C. § 2302(a)(2)(A)(ix).  Pay issues may also come before the MSPB in situations where the MSPB has ordered status quo ante (make whole) relief, when it has reversed or mitigated an agency action or ordered corrective action.  Kerr v. National Endowment for the Arts, 726 F.2d 730, 733 (Fed. Cir. 1984).

Why is it important to recognize excellent performance?
During debate on the Civil Service Reform Act of 1978, then-Senator Joe Biden stated that “the most important part of civil service reform must be to motivate good employee performance.”  S. Rep. No. 969, at 1718 (1978).  Indeed, in the MSPB’s study entitled “Managing for Engagement– Communication, Connection, and Courage,” the MSPB concluded at pages 43-58 that recognition of employees’ performance contributions is one of the key “drivers” of positive employee engagement and retention. 

In what ways do federal agencies reward excellent performance?
Agencies must construct performance appraisal systems for their employees through which performance may be recognized by granting within-grade salary increases, career ladder promotions, or other awards. See 5 U.S.C. § 4302.  Agencies must maintain an incentive awards program which recognizes and provides various types of awards to individual civil service employees whose significant contributions improve government performance.  5 U.S.C. Chapter 45; 5 C.F.R. Part 451.  These types of awards include performance-based cash and time-off awards, special act awards, awards for beneficial suggestions, and recommendations for Presidential awards. 

What is the MSPB’s adjudicatory role in the performance recognition process?
The MSPB does not generally have jurisdiction over performance recognition questions.  However, the failure of an agency to grant a within-grade salary increase or its decision to demote or remove an employee for poor performance may be appealed to the MSPB.  5 U.S.C. § 4303(e); 5 C.F.R. §§ 432.106(a); 531.410(d); 752.405(a). 

Additionally, issues involving awards and promotions may come before the MSPB in a whistleblower reprisal case, because “a promotion” and “a decision concerning awards” are covered “personnel actions” under 5 U.S.C. § 2302(a)(2)(A)(ii),(ix).  These issues could also come before the MSPB as “conditions of employment” in a military status discrimination case brought under the Uniformed Services Employment and Reemployment Rights Act of 1994 (codified at 38 U.S.C. §§ 4301-4333) (USERRA).  Finally, such issues may come before the MSPB in situations where the MSPB has ordered status quo ante (make whole) relief, when it has reversed an agency action or ordered corrective action.  See Kerr v. National Endowment for the Arts, 726 F.2d 730, 733 (Fed. Cir. 1984).

Has the MSPB studied issues related to compensation?
MSPB studies of compensation have addressed the fairness issue inherent in providing equal pay for equal work, as well as the need to reward excellent performance as a key aspect to merit systems. In the 2011 study, Women in the Federal Government: Ambitions and Achievements, the MSPB compared pay levels between men and women and explored factors that likely contributed to these differences. Pay and status issues across ethnic and racial groups were also examined in the 2009 report Fair and Equitable Treatment: Progress Made and Challenges Remaining. The MSPB concluded that while trends show improvement in closing pay gaps, disparities remain in salary levels for most minority groups and women compared to white men, principally due to their under-representation in certain higher paying occupations and managerial positions.

Designing an Effective Pay for Performance System (2006) summarized key decision points to consider when developing a compensation system that ties pay and awards directly to performance. As noted earlier, in a 2009 study entitled Managing for Engagement–Communication, Connection, and Courage, MSPB’s research noted that recognition of employees’ performance contributions is one of the key “drivers” of positive employee engagement and retention. Additionally, Federal Employee Engagement: The Motivating Potential of Job Characteristics and Rewards (2013) noted that although the majority of employees (78 percent) report that they find cash awards to motivate them to stay with their organizations, eight other factors (e.g., personal satisfaction with work, interesting work, job security, performing public service) were more frequently noted. This serves as a reminder that there are many alternatives to cash as retention incentives.

Nevertheless, it remains essential that supervisors distribute rewards in a fair and equitable manner based on sound and transparent decisions. However, results of the Merit Principles Survey over time indicate that Federal employees remain skeptical about the ability and/or willingness of supervisors to recognize and reward excellent performance. These findings have been summarized in reports such as Managing Public Employees in the Public Interest: Employee Perspectives on Merit Principles in Federal Workplaces (2013), Managing for Engagement: Communication, Connection and Courage (2009), and Accomplishing Our Mission: Results of the 2005 Merit Principles Survey (2007).