State Department Should Improve Foreign National Pay Setting

FPCD-78-81: Published: Jan 8, 1979. Publicly Released: Jan 8, 1979.

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Federal agencies overseas employ about 178,000 foreign citizens at a cost of about $1.5 billion annually. Legislation provides that compensation for foreign national employees will be based on locally prevailing wage rates that are consistent with the public interest. In adopting foreign national labor provisions, Congress expected U.S. agencies in a particular locale to establish uniform wage rates and employment practices. GAO visited Germany, Italy, Japan, Korea, and the Philippines to determine if employees were paid local rates and to what extent U.S. Government agencies coordinate compensation plans.

The Departments of State and Defense vary in the compensation they establish for their foreign employees, and in general, the Department of State pays more than the Department of Defense. State Department officials contended the differences were justified because of different duties and responsibilities. GAO found little to support that job demands were consistently or appreciably greater in one agency or the other. State Department wage survey techniques generally provided a valid base for applying total comparability principles to periodically adjust wages. Nonetheless, wage setting would be improved if: (1) Embassy salary schedules reflected average private sector rates, (2) the true costs of retirement and separation pay benefits were included in comparability adjustments, (3) surveyed jobs were representative of the Embassy's work force, and (4) State Department wage survey guidance was followed more closely. Despite State Department urgings to adopt local retirement plans, most of the Department's overseas posts still enroll foreign national employees in the U.S. civil service retirement system. GAO believes the disadvantages of enrolling foreign employees in civil service far outweigh the advantages. Some of the disadvantages are: (1) annuities stated in dollars but paid in local currency and thus subject to windfall gains or losses from currency fluctuations, (2) annuities adjusted according to domestic cost-of-living indexes, and (3) minimum annuities clearly excessive in low wage countries such as the Philippines.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: GAO recommends that the Secretary of State improve coordination of foreign national pay systems and wage schedules with the Department of Defense and other overseas agencies to the extent that: (1) joint wage surveys and uniform pay schedules are adopted in countries where both agencies directly employ foreign nationals, and (2) Defense wage rates are included in State Department wage surveys where Defense operates under indirect hire arrangements. The Secretary should also monitor overseas wage setting more closely to insure that missions: (1) have salary schedules that reflect private sector average pay or average pay ranges, (2) include the cost of severance in pay adjustments, (3) survey private sector jobs that represent the mission's work force as closely as possible, and (4) correct other wage setting errors such as occurred in Korea and Italy. Finally, the Secretary of State should replace civil service retirement with prevailing local plans.

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