Order Code RL33721
CRS Report for Congress
Received through the CRS Web
The Foreign Service and a New Worldwide
Compensation System
Updated November 16, 2006
Kennon H. Nakamura
Foreign Affairs Analyst
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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The Foreign Service and a New Worldwide
Compensation System
Summary
The George W. Bush Administration seeks to change the federal personnel
system, which it characterizes as a “one-size fits all,” longevity-based personnel and
pay system, to what it describes as a market sensitive, performance-based pay system.
Removing federal employees at the Departments of Defense and of Homeland
Security from the General Schedule (GS) to separate performance-based systems was
the first major step taken and, if fully implemented, will cover more than half of all
non-uniformed federal employees. The Administration also sent to the House and
the Senate the Working for America Act (WFAA), as a model for legislation to create
a new Federal Schedule for the remaining federal civil service employees. (To date,
WFAA has not been introduced as legislation.)
In this same vein, Congress is currently considering two bills, H.R. 6060 and S.
3925, that would allow the Administration to establish a new Foreign Service
performance-based compensation schedule. These bills also eliminate the current
pay difference between being posted abroad and being posted in the continental
United States for those members of the Foreign Service at the upper mid-level rank
of 01 and below. Currently the difference in pay levels between service abroad and
service in Washington, DC is over 17%. In 2005, because the Senior Foreign Service
personnel system was converted to a performance-based system, the members of the
Senior Foreign Service are paid at the Washington, DC, level regardless of their
postings.
Both of the performance-based systems proposed in the House and Senate bills
are supported by the Administration and the American Foreign Service Association
(AFSA), the recognized bargaining agent for the Foreign Service in the Departments
of State, Commerce, and Agriculture as well as in the United States Agency for
International Development (USAID) and the International Broadcasting Bureau
(IBB). However, while the concepts behind the legislation are supported by the
Administration and the employee union, and appears to have both bipartisan and
bicameral support, some members of the Foreign Service and some labor
representatives of federal employees are concerned about the loss of automatic pay
increases, and some question the intent of the Administration with regard to the rights
of labor.
This report, which will be updated as events unfold, discusses (1) the
background leading to a proposal to change the compensation system from both an
Administration perspective and labor perspective, (2) the current Foreign Service
(FS) System as established in the Foreign Service Act of 1980 (P.L. 96-465) and why
the Foreign Service views its personnel system as already a performance-based
system, (3) the outlines of a new system being proposed in both bills based upon the
commonalities in the bills, (4) the major difference between the two legislative
proposals, and (5) a cost estimate.

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Contents
Most Recent Legislative Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Why Change the Compensation System? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
For the Foreign Service: To Eliminate a Major Pay Disparity . . . . . . . . . . . . 3
For the Administration: To Move Another Element of the Federal
Service to a Full Pay-for-Performance Personnel System . . . . . . . . . . . 5
A Merging of Interests into Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
The Current Foreign Service Compensation System . . . . . . . . . . . . . . . . . . . . . . . 8
Similarities to the Civil Service System . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Differences to the Civil Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Current Legislative Proposals: H.R. 6060 and S. 3925 . . . . . . . . . . . . . . . . . . . . . 9
Similarities Between H.R. 6060 and S. 3925 . . . . . . . . . . . . . . . . . . . . . . . . 10
Difference Between the Two Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Areas of Continuing Concerns Regarding the Legislative Proposal . . . . . . 12
The Secretary’s Sole and Exclusive Discretion Language
Currently in the House-Reported Bill . . . . . . . . . . . . . . . . . . . . . 12
Whether Individual Foreign Service Pay Will Suffer Because of the
Loss of Automatic Pay Adjustments . . . . . . . . . . . . . . . . . . . . . . 13
The Frequency of the President’s Review of the Foreign Service
Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Anticipated Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

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The Foreign Service and a New Worldwide
Compensation System
Most Recent Legislative Developments
On July 31, 2006, the Administration submitted to the House Committee on
International Relations (HIRC) and the Senate Committee on Foreign Relations
(SFRC) draft legislation that would create a new pay-for-performance/world-wide
compensation system for the Foreign Service (FS). This new system, with a one-year
transition period, would become fully effective in April 2008. The proposal is
supported by the American Foreign Service Association (AFSA), the recognized
bargaining agent for the Foreign Service in the Departments of State, Commerce, and
Agriculture as well as in the United States Agency for International Development
(USAID) and the International Broadcasting Bureau (IBB).
On September 29, H.R. 6060, the Department of State Authorization Act of
2006, was placed on the Union Calendar for the Committee of the Whole House.
Earlier on September 13, 2006, the House Committee on International Relations
considered and reported H.R. 6060 (H.Rept. 109-168). Sections 14-16 of the bill
place the Foreign Service on a pay-for-performance system and create a common
worldwide compensation system at the Washington, DC, level for the Foreign
Service. Currently, there is a new discussion draft being developed to be offered
possibly as a substitute when H.R. 6060 goes to the floor of the House for
consideration.
On September 21, 2006, Senator Lugar introduced, as an original measure, S.
3925, the Foreign Affairs Management Authorities Act of 2006. On September 25,
it was placed on the Senate Legislative Calendar. Title I of this bill also creates a
new pay-for-performance system for the Foreign Service and a uniform worldwide
pay scale. Senator Lugar also drafted a substitute amendment to S. 3925 possibly to
be offered when that bill is considered.
Introduction
Two bills introduced in the 109th Congress, H.R. 6060, the Department of State
Authorities Act of 2006, and S. 3925, the Foreign Affairs Management Authorities
Act of 2006, provide differing authorities for the Department of State and the
Broadcasting Board of Governors. However, a key part in each bill proposes to
change the compensation structure of the United States Foreign Service by (1)
placing the Foreign Service compensation system fully on a pay-for-performance
basis, and (2) eliminating the current disparity in pay between service abroad and

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CRS-2
service in the United States by creating a new world-wide pay structure at the
Washington, DC, salary level.
The Foreign Service personnel system, which is separate and quite different
from the General 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 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
01 or 02 rank.
Beginning in 1990, with the creation of locality pay adjustments for federal
employees, 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 2006, an
individual’s salary was 17.5% higher if he/she served in Washington as opposed to
serving abroad. Proponents of revision to the Foreign Service system indicated that
the gap now impacts morale and the assignments procedure, and vitiates the intent
of adjustments like hardship and danger pay differentials. They point out that if a
person were to go to a 15% hardship post from a Washington assignment, that person
would still experience a 2% decrease in salary. The elimination of this difference
became a major issue for the members of the Foreign Service and its union, the
American Foreign Service Association.
The George W. Bush Administration, however, has opposed any changes in the
compensation system of the Foreign Service unless it was linked to performance, and
part of an overall review of Foreign Service personnel modernization. The
Administration has clearly stated 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 would also have to
include a performance-based pay system.
The basic Foreign Service compensation/personnel system framework presented
in both H.R. 6060 and S. 3925 is supported by both the Administration and the
American Foreign Service Association (AFSA).

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CRS-3
For the Administration to arrive at a point where it could support a legislative
proposal overhauling the Foreign Service pay structure, the proposal needed to
eliminate automatic pay adjustments 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. There would have to be sufficient
funds to implement and sustain a pay-for-performance system. Selection boards
would have to continue their important role in evaluating and recommending
promotions and salary adjustments based on performance, and the traditional, long
established relationship between the Foreign Service’s recognized bargaining agent
and management would have to be maintained. 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.
While the Foreign Service pay-for-performance/global pay schedule proposals
in these two bills have the support of both the Administration and the union, and
broad support on Capitol Hill, that support is not unanimous. There are some
members of the Foreign Service, as well as some Members and staff who have
expressed concerns regarding the loss of the automatic nature of the current system
with the elimination of both the step increases and the tie to the annual Employment
Cost Index (ECI) adjustment. There are also others who question the intent of the
Administration, 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.
Those supporting the legislative effort at the Department of State, AFSA, and
the respective authorizing committees in the House and Senate have indicated that
they are hopeful that either of these bills, or a conferenced version, will pass and be
sent to the President during the lame duck session that began on November 13th.
Why Change the Compensation System?
For the Foreign Service: To Eliminate a Major Pay Disparity
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
abroad.1
The Federal Pay Comparability Act of 1990, excludes federal employees posted
outside the continental United States from receiving locality pay adjustments.2
1 J. Anthony Holmes (Amb). “President’s Views — Overseas Comparability Pay: Defining
Issue and Litmus Test,” The Foreign Service Journal, November 2005, p. 5.
2 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
(continued...)

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CRS-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.3 Because there is no basis for comparability
for 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 has been seen as affecting both morale and
decisions Foreign Service personnel make when applying for assignments.
Supporters of a changed pay system argued that by FY2006 this difference
resulted in more than a 17% pay disparity and “created an increasing pay disincentive
to overseas service.”4 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,
DC, salary levels regardless of where they were posted.5 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.6
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.”7
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
2 (...continued)
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.
3 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 (sic)
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.”
4 U.S. Department of State. “Foreign Service Modernization Transition: $32,000,000,” The
Budget in Brief Fiscal Year 2007, February 2006, p. 28.
5 Sec. 402(a), “Salaries of Senior Foreign Service members,” of P.L. 96-465, the Foreign
Service Act of 1980 or (22 U.S.C. 3962(a)).
6 Stephen Barr, “Effort Renewed to Bridge ‘Locality Pay’ Gap for Foreign Service
Officers,” Washington Post, March 14, 2005, p. B2.
7 J. Anthony Holmes (Amb). “President’s Views — Overseas Comparability Pay: Defining
Issue and Litmus Test,”op cit.

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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 percent
differential hardship posts.8
On July 20, 2005, the House of Representatives passed H.R. 2601, the Foreign
Relations Authorization Act 2006 and 2007. Section 305 of H.R. 2601 creates 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, Washington, DC, locality pay levels.
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,
“Adjustments to overseas compensation levels should be linked to performance and
considered as part of an overall review of Foreign Service personnel modernization.”9
For the Administration: To Move Another Element of the
Federal Service to a Full Pay-for-Performance Personnel
System
The George W. Bush Administration contends that the current General Schedule
(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.10 The
Administration proposes to repeal the current GS Schedule by 2010, and replace 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 system.”11
8 U.S. Government Accountability Office. “Department of State: Staffing and Foreign
Language Shortfalls Persist Despite Initiatives to Address Gaps”, GAO-06-894, August
2006, p. 22.
9 Executive Office of the President, Office of Management and Budget. “Statement of
Administration Policy — H.R. 2601 - Foreign Relations Authorization Act, Fiscal Years
2006-2007 — House,” July 20, 2005, p. 2.
10 David McGlinche, “Bush administration developing government wide personnel reform
bill,” GovEXEC.Com, National Journal Group, July 7, 2005.
11 Ibid.

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CRS-6
The Congress responded to the Administration and developed new structures
for civilians working for the Departments of Defense (DOD)12 and Homeland
Security (DHS).13 These personnel systems, which are currently being challenged in
the courts by federal employee unions,14 would cover over one-half of all non-
uniformed federal employees if fully implemented.
The Administration sought to change the entire Civil Service system through its
draft legislative requests 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 01s
and below.”15 The Department of State’s Budget in Brief for Fiscal Year 2007
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.”16
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 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 agreed upon text, in large measure, serves as the basis of discussion for
the pay-for-performance/compensation sections in H.R. 6060 as reported and S. 3925
as introduced.
In arriving at this merging of views, the draft bill submitted by the
Administration had to address 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 contains 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,
12 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, November 24, 2003.
13 See Title VIII Subtitle E, “Human Resources Management,” in P.L. 107-296 Homeland
Security Act of 2002, November 25, 2002.
14 Stephen Barr, “Homeland Security Department Ends Litigation on Workplace Rules,”
Washington Post, September 27, 2006, p. D4.
15 Secretary of State Rice. “Foreign Service Pay-For-Performance and Transition to a
Global Pay Scale,” Unclassified State ALDAC Cable 028491, February 2006.
16 United States Department of State. Budget in Brief, op. cit.

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CRS-7
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 were advocated by the Foreign Service Association. The role of
the Selection Boards in determining performance and promotion recommendations
to the Secretary is incorporated into the legislation. 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 with AFSA. The role of the
Foreign Service’s union is recognized and is consistent with current procedures.
Further, proposed legislation contain 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.
However, a key question for the Department of State and the Foreign Service
is 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.17 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, the Foreign
Service association sought assurances that the system would be fair to its employees.
In this case, both labor and management concluded that the 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 President of the American Foreign Service Association, 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
17 Stephen Barr, “Homeland Security Department Ends Litigation on Workplace Rules,”
Washington Post, op cit.

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CRS-8
is inherently PFP already. So the changes in the system should be much less
dramatic than many of our members fear.18
The Current Foreign Service Compensation System
The Foreign Service personnel and compensation systems are very different
from the Civil Service system. One needs to understand these differences to
appreciate the degree of change that the proposed legislation would affect. Further,
the Senior Foreign Service (SFS) personnel system became performance-based two
years ago when the Senior Executive Service (SES) was changed. But unlike the
SES,19 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 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.
18 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.
19 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.”

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CRS-9
! FS personnel are judged, in terms of 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 everyone is 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
temporarily withhold the recommendations of a Selection Board
under negotiated procedure but the final decision is left to a
Selection Board for action.20
! 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.21 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.
Current Legislative Proposals:
H.R. 6060 and S. 3925
Because the Administration’s draft bill is the basis of discussion for the House
and Senate measures, the basic outline of a possible new system can be derived from
considering the similarities between these two bills. For instance, each calls for the
President to establish for non-SFS a system of nine levels with no intervening steps
in each level. The bills agree that any adjustments to salary will be based on
20 Sec. 605, “Implementation of Selection Board Recommendations,” of P.L. 96-465 the
Foreign Service Act of 1980 (22 U.S.C. 4005).
21 Sec. 231(b) “Expedited Separation Out,” of P.L. 105-277 the Foreign Relations
Authorization Act of 1998 and 1999 (112 Stat. 2681-826).

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CRS-10
performance and that, if a person is judged to perform below the standards of his or
her class, that individual will not receive a salary adjustment of any kind for that year.
There is a role for Selection Boards in both the promotion and performance
determination processes, and AFSA participates in the determination of criteria by
which Foreign Service members will be measured.
Substitutes are currently being considered by the authorizing committees in the
House and the Senate to H.R. 6060 as reported, and S. 3925 as introduced, that could
bring these bills closer together.
Similarities Between H.R. 6060 and S. 3925
Both bills authorize the following:
! The President establishes and periodically adjusts a new worldwide
Foreign Service schedule consisting of nine classes with no
intervening steps within each class. The new system becomes
effective April 2008.
! The Secretary determines which basic salary rate within a salary
class shall be paid to members. 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 upon 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.

! 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,

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however, the compensation level for that post will be set at the
worldwide scale.

! There is a one year transition compensation system in both bills
which maintains the current nine levels and 14 steps. Pay is tied to
the January ECI increase and to locality pay adjustments as
appropriate. In April 2007, those members of the Foreign Service
who are posted in non-locality pay areas receive a 9% pay increase
(unless the President sets a lower level) in their salary levels.
! In both the House and Senate substitute drafts being considered,
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, are designated as “Management Rights” and
not subject to negotiation with labor.22
! Both the House and Senate substitute drafts would add to existing
“management rights,” but they also recognize 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 determinations.23
! Both the House and the Senate drafts being developed also 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 grievances by amending the list of
issues excluded from the definition of “grievance.”24
Difference Between the Two Bills
The key difference between these two bills is that H.R. 6060, as reported,
provides 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, as introduced, does not include the
phrase, “in the Secretary’s sole and exclusive discretion.”
Initially, the phrase “Secretary’s sole and exclusive discretion” was insisted
upon by the Administration. Because this phrase could be interpreted as curtailing
22 Sec. 1005(a) “Management Rights” in the Foreign Service Act of 1980, P.L. 96-465 (22
U.S.C. 4105(a)).
23 Sec. 1005 (b) “Management Rights” in the Foreign Service Act of 1980, P.L. 96-465 (22
U.S.C. 4105(b)).
24 Sec. 1101(b) “Definition of Grievance,” in the Foreign Service Act of 1980, P.L. 96-465
(22 U.S.C. 4131(b)).

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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, many who are concerned about employee rights have
serious concerns about the inclusion of this phrase in the legislation. AFSA has
stated that while it would prefer not having this phrase in legislation, when both the
other provisions also in the bill and the legislative history are considered in toto, it
is clear that the intent of Congress is to not have the Secretary’s authority totally
unfettered.
The draft substitutes being developed for H.R. 6060, as reported, and S. 3925,
as introduced, exclude the phrase “in the Secretary’s sole and exclusive discretion.”
Instead, both substitutes would expand the existing “Management Rights” authorities
under the Foreign Service Act of 1980 to include within grade salary adjustments and
the allocation of funds to cover these adjustments. The existing provisions regarding
“Management Rights” also would continue to provide for labor and management to
negotiate procedures in making within grade salary adjustment determinations, and
appropriate arrangements for those adversely affected by management decisions.
Both substitutes further clarify that those areas reserved as “Management Rights” are
not subject to a grievance.
Areas of Continuing Concerns Regarding the Legislative
Proposal
During the development of the July 28, 2006 Administration-suggested draft
bill, many issues such as a congressionally established role for the selection boards
were resolved. Other issues continue to be of concern to some Members of Congress
and Foreign Service members.
The Secretary’s Sole and Exclusive Discretion Language Currently
in the House-Reported Bill. The main area of concern continues to center on the
use of the term “in the Secretary’s sole and exclusive discretion.” The concern is
based, in part, on how one views the intent of management and the Administration,
and the resulting impact upon the rights of labor. Those who are more concerned
about the Administration’s intent note the difficulties involved regarding the
conversion to a performance-based personnel system at the Departments of Defense
and of Homeland Security. They assert that it is contradictory to use the phrase “sole
and exclusive” and then put limitations on the exercise of that discretion. They are
concerned that in the end, “the Secretary’s sole and exclusive discretion” would have
greater standing than the limitations.
While preferring that the phrase not be included, AFSA’s position is that
because of provisions in other parts of this legislative proposal, such as the
congressionally established role of selection boards in determining pay for
performance salary adjustments, the use of the phrase “precepts prescribed by the
Secretary” with the precepts being negotiable because of the relationship to
members’ conditions of employment, and the legislative history being developed, it
would be clear that the Congress’s intent is that the Secretary’s sole and exclusive
discretion is not unfettered.

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If the language in both the House and Senate substitutes being developed to
eliminate the phase and instead reserve certain authorities as “Management Rights”
were eventually adopted, the question of the standing of the phrase “in the
Secretary’s sole and exclusive discretion” would become moot.
If the phase remains, then ultimately it may be for the courts to decide what
limitations would stand.
Whether Individual Foreign Service Pay Will Suffer Because of the
Loss of Automatic Pay Adjustments. Some express concern that because there
are no automatic increases in the new system due to the elimination of both the steps
adjustments and the ties to the ECI and Locality Pay increases, the Foreign Service
compensation system could fall behind the Civil Service. Both bills state that the
Secretary shall 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....”
The concern for some is that on an individual basis, without the automatic 3% step
increase and the ECI adjustment, among other things, the 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, however,
argue that the automatic increases are part of the problem of the old system.
The Frequency of the President’s Review of the Foreign Service
Schedule. Similarly, while both bills require the President to establish and
periodically adjust a new worldwide Foreign Service schedule, currently there is no
agreed upon language in the bills as to how often the President will make
adjustments.
The salary range of the class created by the President establishes a floor and
ceiling for a person in a particular class. The concern is that the ceiling for that class
could end up below what would be an inflation-adjusted level if the class ranges are
not adjusted by the President frequently enough.
S. 3925 as introduced states that “The President shall establish, annually review,
and periodically adjust....” The House draft being considered as a substitute to H.R.
6060, as reported, now also includes the phrase, “annually review.” This issue may
become moot. However, unlike the Senate bill or the Senate draft substitute, the
House draft bill also provides guidance with regard to periodic adjustments so that,
to the maximum extent practicable, the minimum salary rates for the nine salary
classes of the new Foreign Service Schedule maintain comparability to the minimum
rates of basic pay in effect for the nine highest grades of the General Schedule,
respectively.
Anticipated Cost
In its February budget submission, the Administration requested $32 million to
implement the April 2007 transition phase 9% increase in salaries for those posted
abroad. The Congressional Budget Office (CBO) estimated that the costs resulting
from the new Foreign Service Compensation System being proposed in H.R. 6060
would “cost about $32 million in 2007, $99 million in 2008, and an average of $141

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million a year over the 2009-2011 period, assuming appropriation of the necessary
funds.”25
While the Administration requested funding for FY2007, currently neither the
pertinent appropriations bills, H.R. 5672, the Science, State, Justice, Commerce, and
Related Agencies Appropriations Bill, Fiscal Year 2007, nor the House or Senate
version of H.R. 5522, the Department of State, Foreign Operations, and Related
Programs Appropriations Bill, 2007, contains any set-aside or earmark for funds to
implement this program. If the changes in the Foreign Service personnel system are
enacted without relevant changes in the appropriations bills, the foreign affairs
departments and agencies would have to fund the Foreign Service changes from other
parts of their appropriated budgets or seek additional funding through a supplemental
appropriations.
25 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.
109-706, September 29, 2006, p. 7.

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