The Foreign Service and a New Worldwide Compensation System
The Foreign Service and a New Worldwide
Updated February 22, 2007
Kennon H. Nakamura
Foreign Affairs Analyst
Foreign Affairs, Defense, and Trade Division
The Foreign Service and a New Worldwide
At a time when increasing numbers of Foreign Service personnel are going to
posts of greater hardship and danger, an 18.5% pay differential that currently exists
between service in Washington, DC, and service abroad is impacting morale and
assignment considerations. Provisions implementing a new compensation system to
address this issue were developed and supported by the George W. Bush
administration, the American Foreign Service Association (AFSA), and the
bipartisan leadership of both the House Committee on International Relations (HIRC)
and the Senate Committee on Foreign Relations (SFRC). These provisions, which
were to be part of the Department of State Authorities Act of 2006 (P.L. 109-472;
H.R. 6060), were dropped from the final version of the bill because of House
Republican Leadership concerns over the five-year cost of implementing the new
The Bush administration, AFSA, and the leadership of both HIRC and the SFRC
were in discussion and negotiations for more than a year before developing the
consensus compensation provisions. These provisions, the Foreign Service
Compensation Reform proposal, would institute a new worldwide, performance-
based system for the Foreign Service that would be tied to Washington, DC, salary
rates. The compromise language addressed two outstanding issues — the morale-
impacting pay disparity, and the institution of a performance-based pay system that
the Administration believed would improve the Service. The Administration, once
again, requested enactment of a new worldwide, performance-based, compensation
system in its fiscal year 2008 budget request.
The concepts behind the agreed upon Foreign Service compensation system
have wide support. However, support is not unanimous. Some members of the
Foreign Service are concerned about the elimination of automatic pay increases that
are inherent to the proposed performance-based system. Others question the
Administration’s intent with regard to the rights of labor. Further, House Republican
Leadership expressed concerns regarding the reaction of some of the more fiscally
conservatives Members to the more than $500 million five-year cost that is
associated with the full implementation of this new compensation system.
This report discusses (1) the background leading to a proposal to change the
compensation system from both an Administration and Foreign Service perspective,
(2) the current Foreign Service (FS) System as established in the Foreign Service Act
of 1980 and why the Foreign Service views its personnel system as already a
performance-based system, (3) the 109th Congress agreements on this legislation, (4)
major issues that remained to be resolved in arriving at the agreement, (5) continuing
concerns, and (6) cost estimates.
Most Recent Legislative Developments ................................1
Why Change the Compensation System? ...............................4
The Foreign Service Perspective: To Eliminate a Major Pay Disparity....4
The Administration Perspective: To Move Another Element of the
Federal Service to a Full Pay-for-Performance Personnel System....6
A Merging of Interests into Legislation.............................7
The Current Foreign Service Compensation System.......................8
Similarities to the Civil Service System............................9
Differences to the Civil Service...................................9
The Foreign Service Compensation Reform Proposal.....................10
Foreign Service Compensation Reform: A Possible Alternative for th
the 110 Congress ........................................11
The Resolution of House and Senate Differences....................13
Sole and Exclusive Discretion of the Secretary..................13
Frequency of the President’s Review of the Foreign Service
Area of Continuing Concern Regarding the Legislative Proposal .......14
Impact of the Loss of Automatic Pay Adjustments...............14
Anticipated Cost .............................................14
The Foreign Service and a New Worldwide
Most Recent Legislative Developments
In its FY2008 Budget Request, the Administration requested the 110th Congress
to enact a new performance-based compensation system for the Foreign Service.
By the close of the 109th Congress, the Administration, the American Foreign
Service Association (AFSA), which is the recognized bargaining agent for the
members of the Foreign Service, and the leadership of House Committee on
International Relations (HIRC) and the Senate Committee on Foreign Relations
(SFRC) agreed on provisions establishing a new Foreign Service compensation
system. They unsuccessfully tried to bring this language to the floor of the House for
The provisions would allow the Administration to establish a new Foreign
Service performance-based compensation schedule for those at the upper mid-level
rank of FS-01 and below. The new compensation system would also eliminate an
18.59% higher pay level that Foreign Service personnel receive for being posted in
the Washington, DC, area than for being posted abroad. The pay disparity was
resolved in 2005 for the Senior Foreign Service when its compensation system was
converted to a performance-based system and all in the Senior Service began being
paid at the Washington, DC, level regardless of their posting.
Secretary of State Rice wrote to the House leadership on November 30, 2006,
supporting the proposed Foreign Service Compensation Reform proposal, and stated
that it was the intent of the Administration to fund the new system out of its FY 2007
budget request and out year estimates.
The House Republican Leadership, however, omitted the provisions from the
final bill providing certain State Department authorities, H.R. 6060, the day before
it was to be considered by the full House. The Leadership expressed concerns over
whether the bill could get the necessary votes under a Suspension of Rules procedure
because of costs involved. Thus on December 8, H.R. 6060 passed the House of
Representatives without the new Foreign Service performance-based compensation
The 110th Congress may choose to decide if and how to address an issue that
both the Department of State and the American Foreign Service Association (AFSA)
consider to be a high priority personnel issue for the Foreign Service — the
elimination of a 18.59 % pay disparity between service in the continental United
States and service abroad. The Administration, in its February 2007 Budget Request
to the Congress for FY 2008, urged the enactment of legislation creating a new
compensation system for the Foreign Service, and the appropriation of $34.5 million
needed to implement the first phase of the new compensation system.
During the 109th Congress, Republican and Democratic leadership of both the
House Committee on International Relations and the Senate Committee on Foreign
Relations worked to resolve this issue by developing the Foreign Service
Compensation Reform proposal. This proposal would (1) place the Foreign Service
compensation system on a pay-for-performance basis, and (2) eliminate the current
pay disparity by creating a new worldwide pay structure at the Washington, DC,
salary level. However, reportedly due to cost concerns among the House Republican
leadership,1 this proposal was not included in the final version of H.R. 6060, which
was passed by the House and Senate, and enacted as P.L. 109-472.
The Foreign Service personnel and compensation system is separate and quite
different from the federal government’s General Service (GS) system. The current
Foreign Service system was created under the authorities provided by the Foreign
Service Act of 1980 (P.L. 96-465). There are about 13,000 Foreign Service Officers
and Specialists with two-thirds of them serving abroad at over 250 posts and
missions at any one time. The remaining third is generally posted in Washington,
DC. Typically, members of the Foreign Service spend two-thirds of their careers
abroad serving at a post from one to three years, and then are assigned elsewhere in
the world. In terms of levels or rank within the Foreign Service, it is divided into two
categories. The Senior Foreign Service (SFS) is divided into 5 pay categories and,
like the Civil Service Senior Executive Service (SES), requires a presidential
appointment into the senior service. The regular Foreign Service is divided into nine
ranks or classes with the FS-01 level the highest. Most Foreign Service Officers
enter the Foreign Service at the 05 or 06 levels, and generally serve for four to five
years before being tenured and commissioned as Foreign Service Officers. The
personnel system is basically an “up-or-out” system that reviews the members of the
Foreign Service annually and has both Time-in-Class (TIC) and Time-in-Service
(TIS) limitations that require promotions within certain time frames or the person is
separated from the Service. Because of this system, most members of the Foreign
Service leave the service after a full and distinguished career in their mid-50s at an
With the creation of locality pay adjustments for federal employees in 1990, a
pay gap began for the Foreign Service depending upon whether one was posted in
Washington, DC, or abroad because locality pay adjustments were not available for
positions abroad. Each year the gap increased and by 2007, an individual’s salary
was 18.59% higher if he/she served in Washington as opposed to serving abroad.
Proponents of revision to the Foreign Service system indicated that the gap impacts
morale and the assignments procedure, and diminishes the intent of adjustments such
1 J. Anthony Holmes (Amb.), “President’s Views — Sisyphus Chained: Overseas Locality
Pay Sacrificed to ‘Budget Reality’,” The Foreign Service Journal, January 2007, p. 5.
as the hardship and danger pay differentials. They point out that if a person were to
go to a 15% hardship post from a Washington assignment, he or she would still
experience nearly a 3.6% decrease in salary. The elimination of this difference is a
major issue for the members of the Foreign Service and its union, the American
Foreign Service Association.
The Bush Administration, however, opposes any changes in the Foreign Service
compensation system unless it is linked to performance, and part of an overall review
of Foreign Service personnel modernization. The Administration states its belief that
the current civil service system is ineffective and needs to be tied to a
market-sensitive, performance-based system. Thus for the Administration, any
changes for Foreign Service also would have to include a performance-based pay
The 109th Congress’s HIRC and SFRC leadership developed provisions
addressing both the Foreign Service and the Administration’s views. These
provisions, which were designated as the Foreign Service Compensation Reform
proposal, were supported by the Administration and AFSA. On November 30, 2006,
Secretary of State Rice wrote the House Leadership expressing her support for these
provisions and urging prompt consideration and passage by the House of
R epresent at i v es. 2
For the Administration to support a legislative proposal overhauling the Foreign
Service pay structure, the proposal needed to eliminate automatic pay increases and
base all salary adjustments on performance. AFSA also sought certain basic
assurances in order to support the move to a new pay-for-performance/global rate of
pay system. These assurances included a sufficiency of funds to implement and
sustain the new system, maintenance of the traditional role of the selection boards,
and the traditional relationship between the Foreign Service’s recognized bargaining
agent and management. Ultimately AFSA needed to believe that the move to a
pay-for-performance system from one that included automatic salary increases would
be in the best interests of the members of the Foreign Service.
The 109th Congress Foreign Service Compensation Reform proposal had the
support of the Administration, the Foreign Service union, and broad support on
Capitol Hill. That support, however, was not unanimous. There were some members
of the Foreign Service, as well as some Members and staff, concerned about the loss
of the current system’s automatic increases in salary with the elimination of both the
step increases and the tie to the annual Employment Cost Index (ECI) adjustment.
There were others who question the Administration’s intent, considering the
difficulty between labor and the Administration at the Departments of Defense and
of Homeland Security as the Administration attempts to institute a new
performance-based personnel structure at these two departments.
Some of Members and congressional staff who are concerned about the
proposed performance-based system state that congressional dynamics have changed
2 Secretary of State Condoleezza Rice, letter to the Honorable J. Dennis Hastert, Speaker of
the House of Representatives, Washington, Nov. 30, 2006.
with the 2006 election. They believe the elimination of the pay disparity between
service in Washington and abroad is reasonable. However, they state that the
elimination of the pay disparity does not need to be linked to a pay-for-performance
Why Change the Compensation System?
The Foreign Service Perspective: To Eliminate a Major Pay
The top legislative issue for members of the Foreign Service and AFSA is
elimination of the pay disparity that exists between service in Washington, DC,
where most Foreign Service personnel are domestically assigned, and service
The Federal Pay Comparability Act of 1990 excludes federal employees posted
outside the continental United States from receiving locality pay adjustments.4
Locality pay is designed to create pay comparability between federal employees and
non-federal workers doing the same levels of work within a specific geographic
locality in the continental United States.5 Because there is no basis for comparison
of Foreign Service personnel posted abroad to non-federal workers in the United
States, those in the Foreign Service, who spend about two-thirds of their careers
posted abroad, receive less salary while serving abroad than their colleagues in
Washington, DC. This pay difference affects both morale and decisions Foreign
Service personnel make when applying for assignments.
Supporters of changing the pay system argue that by FY2006 this difference
resulted in more than a 17% pay disparity and “created an increasing pay disincentive
to overseas service.”6 However, this Foreign Service pay difference exists only for
those at the 01 level and below. In 2005, the pay difference was eliminated for those
in the Senior Foreign Service as they went to a pay-for-performance system. At that
time, all members of the Senior Foreign Service were brought to the Washington,
3 J. Anthony Holmes (Amb). “President’s Views — Overseas Comparability Pay: Defining
Issue and Litmus Test,” The Foreign Service Journal, November 2005, p. 5.
4 5 U.S.C. 5304(c)(4)(B), Locality-based Comparability Pay states: “Comparability
payments shall not be payable for service performed in any position which may not, under
subsection (f)(1)(A), be included within a pay locality.” 5 U.S.C. 5304(f)(1)(A) excludes
any position area outside the continental United States as a pay district.
5 5 U.S.C. 5304(d)(1)(A) Locality-based Comparability Pay states: “compares the rates of
pay under the General Schedule...with the rates of pay generally paid to non-Federal workers
for the same levels of work within each pay locality, as determined on the basis of
appropriate surveys that shall be conducted by the Bureau of Labor Statistics.”
6 U.S. Department of State. “Foreign Service Modernization Transition: $32,000,000,” The
Budget in Brief Fiscal Year 2007, February 2006, p. 28.
DC, salary levels regardless of where they were posted.7 AFSA reportedly estimated
in 2005 that a member of the Foreign Service who had been hired in 1995 and served
a standard 27-year career, leaving at the 01 level, would lose $444,162 in pay and
retirement benefits over the course of that career when compared to a similar
individual in the Civil Service who served only in Washington, DC.8
Surveying its members in August 2005, AFSA reported that “getting overseas
comparability pay (OCP, a.k.a. ‘locality pay’) for nonsenior FS personnel posted
overseas is overwhelmingly our members’ highest priority.”9
A 2006 Government Accountability Office (GAO) study discussing obstacles
to attracting mid-level officers to hardship posts also noted the impact of the pay
disparity as a deterrent to bidding for hardship assignments:
...officers and State personnel we interviewed both at hardship posts and in
Washington, D.C. consistently cited the lack of locality pay as a deterrent to
bidding at hardship positions. In 2002, we reported that the differences in the
statutes governing domestic locality pay and differential pay for overseas service
had created a gap in compensation penalizing overseas employees. This gap
grows every year, as domestic locality pay rates increase, creating an ever-
increasing financial disincentive for overseas employees to bid on hardship posts.
After accounting for domestic locality pay for Washington, D.C., a 25 percent
hardship post differential is eroded to approximately 8 percent. As estimated in
our 2002 report, differential pay incentives for the 15 percent differential
hardship posts are now less than the locality pay for Washington, D.C., which is
currently 17 percent and can be expected to soon surpass the 20 percent10
differential hardship posts.
On July 20, 2005, the House of Representatives passed H.R. 2601, the Foreign
Relations Authorization Act 2006 and 2007.11 Section 305 of H.R. 2601 created an
Overseas Comparability Pay Adjustment for those at 01 levels and below posted
abroad that, over a three year period, would become equal to, and then be maintained
at the Washington, DC, locality pay level.
The Administration opposed the proposed pay adjustment system for the
Foreign Service in H.R. 2601, and for the first time stated under what conditions it
would consider any Foreign Service pay adjustment. The Administration said,
7 Sec. 402(a), “Salaries of Senior Foreign Service members,” of P.L. 96-465, the Foreign
Service Act of 1980 (22 U.S.C. 3962(a)).
8 Stephen Barr, “Effort Renewed to Bridge ‘Locality Pay’ Gap for Foreign Service
Officers,” Washington Post, March 14, 2005, p. B2.
9 J. Anthony Holmes (Amb). “President’s Views — Overseas Comparability Pay: Defining
Issue and Litmus Test,”op cit.
10 U.S. Government Accountability Office. “Department of State: Staffing and Foreign
Language Shortfalls Persist Despite Initiatives to Address Gaps”, GAO-06-894, August
11 H.R. 2601 was not enacted by the 109th Congress because of the lack of action on the part
of the Senate to pass similar authorizing legislation.
“Adjustments to overseas compensation levels should be linked to performance and
considered as part of an overall review of Foreign Service personnel
The Administration Perspective: To Move Another Element of
the Federal Service to a Full Pay-for-Performance Personnel
The Bush Administration contends that the current GS pay framework is a
“failure.” It maintains that the “one size fits all” approach of the GS pay schedule
can mask dramatic disparities in the market value of different federal jobs, and uses
on-the-job longevity as a substitute for performance.13 The Administration proposes
repealing the current GS Schedule by 2010, and replacing it with “a system of
occupational pay groups, pay bands within those groups and pay for performance
across the federal government. The new system would be a pay-for-performance
At the request of the Administration, Congress developed new structures for15
civilians working for the Departments of Defense (DOD) and Homeland Security
(DHS).16 These personnel systems, which are currently being challenged in the17
courts by federal employee unions, would cover nearly one-half of all non-
uniformed federal employees if fully implemented.
The Administration sought to change the entire Civil Service system through its
2005 draft legislative request, the “Working for America Act (WFAA),” and also the
separate request for the Foreign Service system. During much of the fall of 2005,
discussions within the Administration regarding a new Foreign Service personnel
modernization system took place. In February 2006, Secretary of State Rice said,
“the President has requested funding to modernize the Foreign Service pay system
and in so doing address the problem of the ever-growing overseas pay gap for FS 01s18
and below.” The Department of State’s Budget in Brief for Fiscal Year 2007
12 Executive Office of the President, Office of Management and Budget. “Statement of
Administration Policy — H.R. 2601 - Foreign Relations Authorization Act, Fiscal Years
13 David McGlinche, “Bush administration developing government wide personnel reform
bill,” GovEXEC.Com, National Journal Group, July 7, 2005.
15 See Title XI, “Civilian Personnel Matters — Subtitle A: Department of Defense National
Security Personnel System” in P.L. 108-136, the National Defense Authorization Act for
Fiscal Year 2004.
16 See Title VIII Subtitle E, “Human Resources Management,” in P.L. 107-296 Homeland
Security Act of 2002.
17 Stephen Barr, “Homeland Security Department Ends Litigation on Workplace Rules,”
Washington Post, September 27, 2006, p. D4.
18 Secretary of State Rice. “Foreign Service Pay-For-Performance and Transition to a
elaborated on the funding request, explaining that this was “the first step of transition
to a performance-based pay system and global rate of pay for Foreign Service
personnel grade FS-01 and below.”19
A Merging of Interests into Legislation
On July 28, 2006, after months of discussions among the Office of Management
and Budget (OMB), the Office of Personnel Management (OPM), various
Departments and agencies with Foreign Service personnel, AFSA, and Members and
congressional staff, an agreed-upon legislative text was developed that served as the
basis of the Administration’s request to the Congress for a new Foreign Service
compensation system. This text, in large measure, served as the basis of discussion
in developing the Foreign Service pay-for-performance/compensation sections in the
House bill, H.R. 6060 as reported, and S. 3925 in the Senate.
In arriving at this merging of views, the draft bill submitted by the
Administration addressed the concerns of both the Administration and AFSA, the
Foreign Service’s union. For the Administration with its desire for a performance-
base system, the proposal contained a new personnel/compensation system that
maintains the current nine classes with the 01 level as the highest, but within those
classes there are no intervening steps. The Secretary of State determines which basic
salary rate within a salary class would be paid to the members of that class, but the
Secretary’s determination would take into consideration several factors, some of
which are negotiated with AFSA. The draft stated that salary adjustments would be
based on performance, and that individuals found to be performing below the
standards of their class would receive no salary adjustment.
The following issues were advocated by AFSA:
!the role of the Selection Boards in determining performance and
promotion recommendations to the Secretary is incorporated into the
!the current requirement that the Selection Board recommendations
be followed in the order that they are presented is also maintained.
The Secretary continues to have the authority to withhold action
temporarily on the recommendations of the Selection Boards, but to
do so would be under transparent procedures negotiated in advance
!the role of the Foreign Service’s union is recognized and is
consistent with current procedures.
!assurances that a sufficient pool of funds will be allocated to
implement a pay-for-performance system, and
!an assurance that in April 2008, a new Foreign Service worldwide
compensation schedule shall become effective with pay at the
Washington, DC, level.
Global Pay Scale,” Unclassified State ALDAC Cable 028491, February 2006.
19 United States Department of State. Budget in Brief, op. cit.
However, a key question for the Department of State and the Foreign Service
was whether the proposal would avoid the labor-management problems affecting
DOD and DHS. Currently the full implementation of the personnel systems for DOD
and DHS is being contested by actions in the courts as federal employee unions seek
to block the pay-for-performance system and the associated labor-management rules,
contending that they do not provide for adequate employee protection and collective
bargaining rights.20 Because the Foreign Service would forgo an automatic 3% in-
grade step increase plus the annual ECI and locality pay adjustments and accept
performance based adjustments with unknown percentages of increases, AFSA
sought assurances that the system would be fair to its employees. In this case, both
labor and management concluded that the Administration/AFSA agreed upon
proposal of July 28 was significantly different enough from the other pay-for-
performance proposals, and the Foreign Service system was unique enough, that a
conversion to a pay-for-performance system could be mutually beneficial.
The AFSA President, Ambassador J. Anthony Holmes, earlier explained his
views regarding the general concept of tying a pay-for-performance system with an
overseas comparability pay system stating:
Pay for performance is an unknown for most of us. From media reports of
DOD/DHS efforts to convert their civil servants to a PFP system and the
administration’s Working for America Act targeting the rest of the Civil Service,
one can easily view it as menacing, ideological, and anti-employee. But it is
clear from State’s own experience with the Senior FS conversion to PFP two
years ago that it should be possible to make this work and have a win-win
situation all around. The reality is that the present FS personnel system, with its
rank-in-person, not in-job, annual evaluations, and competitive up-or-out system
is inherently PFP already. So the changes in the system should be much less21
dramatic than many of our members fear.
The Current Foreign Service Compensation System
The Foreign Service personnel and compensation systems are very different
from the Civil Service system. As Ambassador Holmes stated, the Foreign Service
system resembles more a pay-for-performance system than it does the Civil Service
system. Proponents of the change to a new system believe it is important to
understand these differences because the impact that a performance-based
compensation system would have on the Foreign Service is less dramatic than many,
especially those who are familiar with the Civil Service system, might anticipate.
Further, the Senior Foreign Service (SFS) personnel system became performance-
based in 2005 when the Senior Executive Service (SES) was changed. But unlike the
20 Stephen Barr, “Homeland Security Department Ends Litigation on Workplace Rules,”
Washington Post, op cit.
21 J. Anthony Holmes (Amb). “President’s Views: The Pay-for-Performance/OCP Trade-
Off: Poisoned Chalice or Win-Win,” The Foreign Service Journal, April 2006, p. 5.
SES,22 the experience for the SFS has been viewed more positively because of the
different nature of the existing, decades-old Foreign Service personnel system.
Similarities to the Civil Service System
!Like the Civil Service system, the Foreign Service system currently
has both levels or ranks, and within these levels there are in-grade
step adjustments that periodically allow an individual’s salary to
increase without getting a promotion.
!The members of the Foreign Service regularly receive an
Employment Cost Index (ECI) adjustment equivalent to their Civil
Service counterparts. Foreign Service personnel serving in a
Locality Pay area also receive a Locality Pay adjustment equal to
that which Civil Service personnel receive in the same locale.
Differences to the Civil Service
!Foreign Service (FS) personnel carry their rank in person and not in
position as do members of the Civil Service. Thus a member of the
Foreign Service may be an 02 Officer successfully holding an 01
position, but receives the salary of an 02 officer, and when evaluated
for a promotion, may or may not receive a promotion to an 01 level.
!FS personnel have their performance reviewed annually for
promotions regardless of the position they hold.
!FS personnel are judged for promotions by Selection Boards of their
colleagues and not by their supervisors, and the performance
determinations are based on Employee Evaluation Reports (EER).
The factors used to judge performance are negotiated with AFSA
about a year ahead of the reviewing cycle, and those involved are
supposed to be aware of the criteria upon which they will be judged.
AFSA is present when management briefs the Selection Boards on
the criteria and expectations are explained.
!Selection Boards make their recommendations for promotions to the
Secretary, and, by law, the Secretary must follow those
recommendations in the order presented. The Secretary can
22 Testimony of Carol A. Bonosaro, President of the Senior Executives Association before
the Senate Homeland Security and Governmental Affairs Committee’s Subcommittee on the
Oversight of Government Management, the Federal Workforce and the District of Columbia,
September 26, 2006. Carol Bonosaro stated that “(1) Many Senior Executives believe that
de facto quotas are being enforced that are affecting final performance ratings; (2) Senior
Executives see no clear, consistent correlation between ratings and pay adjustments or how
bonuses are distributed; and (3) Senior Executives doing a good job at the fully successful
or higher level often receive no salary adjustment.... 40 percent see the system as having a
negative effect on morale.”
temporarily withhold the recommendations of a Selection Board
under negotiated procedure but the final decision is left to a
Selection Board for action.23
!The FS is an up-or-out system with promotions required in terms of
both “Time-in-Class” (TIC) and “Time-in-Service” (TIS). If an
individual exceeds these limits, the individual is separated/retired
from the Service. In general, because of this system, an individual
is separated/retired from the Service when they are in their mid-50s
as an 01 or 02 rank.
!Selection Boards are required to identify and designate those
individuals who are ranked at the bottom 5% of their class. If an
individual is “low ranked” twice in a five-year period, and the
employee had different rating officials in these two years of “low
ranking,” that individual is referred to a Performance Standards
Review Board for possible separation from the Service.24 Beyond
the low ranking procedure, however, the Selection Board also can
refer others directly to the Performance Standards Review Board to
be considered for separation from the Service.
The Foreign Service Compensation Reform
The Administration’s draft bill served as the basis for the bills H.R. 6060 as
approved by HIRC and S. 3925 as introduced in the Senate during the 109th
Congress. Both bills contained many similar ideas such as maintaining the nine
classes but not having any intervening steps within those classes, or requiring that all
salary adjustments be made on the basis of performance.
Important differences also existed between the two bills. However, on
November 28, 2006, SFRC and HIRC leadership agreed to final language, the
Foreign Service Compensation Reform proposal, and it was hoped that the proposal
could be brought before the House and Senate under expedited procedures.
On November 30, 2006, Secretary of State Rice wrote to the House and Senate
leadership expressing the Administration’s support for the provisions in the Foreign
Service Compensation Reform title, and requesting prompt consideration and
passage. She also stated that the Administration intends to fund this initiative within
its FY 2007 budget request and out year estimates.
23 Sec. 605, “Implementation of Selection Board Recommendations,” P.L. 96-465, the
Foreign Service Act of 1980 (22 U.S.C. 4005).
24 Sec. 231(b), “Expedited Separation Out,” P.L. 105-277, the Foreign Relations
Authorization Act of 1998 and 1999 (112 Stat. 2681-826).
Foreign Service Compensation Reform: A Possible
Alternative for the 110th Congress
If the 110th Congress chooses to address the elimination of the Foreign Service
“service in Washington/service abroad” pay disparity, one possible approach would
be to reintroduce the agreed upon authorization language of the Foreign Service
Compensation Reform proposal. Such language would authorize the following:
!The President establishes, reviews on an annual basis, and
periodically adjusts a new worldwide Foreign Service schedule
consisting of nine classes with no intervening steps within each
class. The annual review shall include consideration of pertinent
economic measures, including changes in the Economic Cost Index
(ECI). The new system becomes effective April 2008.
!The Secretary determines, on at least an annual basis, the size of any
salary adjustment, expressed as a percentage or otherwise, which
shall be paid to members of a salary class. The Secretary’s
determination takes into account several factors, some of which are
negotiated with AFSA as the recognized bargaining agent for the FS.
!All subsequent salary adjustments are based on performance. If an
individual is performing below his or her class, that individual
receives no salary adjustment for that year.
!Selection Boards make recommendations to the Secretary regarding
performance-based salary adjustments. As with promotions, AFSA
negotiates the standards to be used by the Selection Boards in its
performance determinations. Also, as in the case of promotion
recommendations, the Secretary must follow the recommendations
of the Selection Board, except in those cases and through procedures
previously negotiated with AFSA.
!After conversion to the new system, members of the Foreign Service
will not be eligible for the January ECI adjustment, locality pay, or
the non-foreign area salary allowances.
!Each year, the Secretary must allocate funds to ensure that, in the
aggregate, a minimum funding pool is available for performance-
based adjustments that would not disadvantage employees due to the
conversion to the new system. The funds to be allocated would be
equal to or greater than the sum of an amount that would be required
if the within grade step increase system still existed, plus amounts
that would cover adjustments for an ECI increase that would be
provided to the Civil Service under 5 U.S.C. 5303, and funds that
would cover locality pay adjustments if the Foreign Service were
still covered under 5 U.S.C. 5304.
!For those members of the Foreign Service posted in areas where
locality pay is higher than the Washington, DC level or are receiving
a non-foreign area allowance, the Secretary may establish a special
transition rule to prevent those personnel from suffering a salary
decrease. Once that person is rotated out of that assignment,
however, the compensation level for that post will be set at the
!A one year transition compensation system is established which
maintains the current nine levels and 14 steps. Pay is tied to the
January ECI increase and to locality pay adjustments as appropriate.
Beginning in April 2007, those members of the Foreign Service who
are posted in non-locality pay, non-foreign area allowance areas
would receive a 9% pay increase (unless the President sets a lower
level) in their salary levels.
!Management has as “Management Rights” certain authorities
regarding performance pay provisions for members of the Senior
Foreign Service, within-grade salary adjustments for those ranked 01
and below, salary adjustment for those not yet reviewed, and the
allocation of funds for the pay-for-performance system. Designated
as “Management Rights,” these authorities are not subject to
negotiation with labor.25
!The new system adds authorities to existing “Management Rights,”
but it also recognizes the ability of management and labor to
negotiate the procedures that management officials observe in
exercising their rights, and an appropriate process to consider the
situation of those adversely affected by management
!The list of issues excluded from the definition of “grievance” is
amended and the provisions clarify that judgments with respect to
pay determinations, within-grade pay adjustments, and the allocation
determined to meet performance pay requirements are not subject to
25 Sec. 1005(a) “Management Rights” in the Foreign Service Act of 1980, P.L. 96-465 (22
26 Sec. 1005 (b) “Management Rights” in the Foreign Service Act of 1980, P.L. 96-465 (22
27 Sec. 1101(b) “Definition of Grievance,” in the Foreign Service Act of 1980, P.L. 96-465
(22 U.S.C. 4131(b)).
The Resolution of House and Senate Differences
As the Foreign Service Compensation Reform proposal was being developed
in the closing days of the 109th Congress, important differences between H.R. 6060
and S. 3925 were resolved for Republican and Democratic leaders on both HIRC and
SFRC, the Administration, and AFSA to agree to common language. These
compromises were made under a deadline in order to move the legislation to the floor
before adjournment. If the Foreign Service compensation issue is addressed in the
Sole and Exclusive Discretion of the Secretary. The key difference
between the HIRC-reported version of H.R. 6060 and S. 3925 was that H.R. 6060
provided the Secretary sole and exclusive discretion in making certain
determinations, such as which basic salary rate within a band of rates of pay members
of the Foreign Service would receive. S. 3925 did not include that discretionary
Initially, the Administration insisted upon the phrase “in the Secretary’s sole and
exclusive discretion.” Many who are concerned about employee rights questioned
whether the phrase should be included in the legislation. They were concerned that
it could be interpreted as curtailing traditional bargaining rights to negotiate
procedures for the pay for performance system and appropriate arrangements for
employees adversely impacted by the change to such a system. Those Members and
Congressional staff asserted that it is contradictory to use the phrase “sole and
exclusive” and then put limitations on the exercise of that discretion. They were
concerned that in the end, “the Secretary’s sole and exclusive discretion” would have
greater standing than the limitations if an issue had to be resolved in court.
The Foreign Service Compensation Reform provisions did not include the
phrase “in the Secretary’s sole and exclusive discretion.” Instead, existing
“Management Rights” authorities under the Foreign Service Act of 1980 were
expanded to include certain salary adjustments and the allocation of funds to cover
these adjustments. The existing provisions regarding “Management Rights” also
continued providing for labor and management to negotiate procedures in making
within grade salary adjustment determinations, and appropriate arrangements for
those adversely affected by management decisions. These provisions further clarified
that those areas reserved as “Management Rights” were not subject to a grievance.
Frequency of the President’s Review of the Foreign Service
Schedule. H.R. 6060 as reported, and S. 3925 as introduced, required the President
to establish and periodically adjust a new worldwide Foreign Service schedule.
There was no agreed upon language in the bills as to how often the President would
The salary range of the class created by the President would establish a floor and
ceiling for a person in a particular class. The concern was that the ceiling for that
class could end up below what would be an inflation-adjusted level if the class ranges
were not adjusted by the President frequently enough.
The provisions in the Foreign Service Compensation Reform proposal provided
that the President establish, review on an annual basis, and periodically adjust a new
worldwide Foreign Service schedule consisting of nine classes with no intervening
steps within each class. The annual review would include consideration of pertinent
economic measures, including changes in the Economic Cost Index.
Area of Continuing Concern Regarding the Legislative
Impact of the Loss of Automatic Pay Adjustments. Some members of
the Foreign Service expressed concern that due to the lack of automatic increases in
the new system because of the elimination of both the step adjustments and the ties
to the ECI and Locality Pay increases, the Foreign Service compensation system
could fall behind the Civil Service. The Foreign Service Compensation Reform
proposal stated that the Secretary would annually allocate sufficient funds so that
“employees, in the aggregate, are not disadvantaged in terms of the overall amount
of pay available as a result of conversion to the new foreign service performance-
based compensation system....”28 Some were concerned that on an individual basis,
without the automatic 3% step increase and the ECI adjustment, among other things,
an individual could fall behind what he or she would have been receiving under a
system that was tied to those automatic adjustments. Those supporting the
performance-based system argued that the automatic increases were part of the
problem of the old system that did not recognize performance.
In its February 2008 budget submission, the Administration requested $34.5
million to begin implementing the new system. During the 109th Congress with the
lower budget request of $32 million and the pre-January 2007 salary adjustment, the
Congressional Budget Office (CBO) estimated that the costs resulting from the new
Foreign Service Compensation System then being proposed would “cost about $32
million in 2007, $99 million in 2008, and an average of $141 million a year over the
2009-2011 period, assuming appropriation of the necessary funds.”29 The estimate
total, at that time, was $554 million over five years. CBO’s cost estimate would be
higher for the 110th Congress to implement a similar program.
28 Representative Christopher Smith’s Sec. 101(d)(2) of the draft substitute amendment to
bill, H.R. 6060, November 28, 2006 (1:16 P.M.) version, Washington, DC.
29 U.S. Congress, House Committee on International Relations, “The Department of State
Authorization Act of 2006,” Report to accompany H.R. 6060, 109th Cong. 2nd Sess., H.Rept.