Department of State Overseas Comparability Pay

GAO-11-772R: Published: Jun 30, 2011. Publicly Released: Jun 30, 2011.

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The Federal Employees Pay Comparability Act (FEPCA) of 1990 established locality pay to achieve pay comparability between federal and nonfederal jobs within the United States. Because FEPCA established pay localities only for areas within the United States, federal employees permanently stationed overseas, including members of the Foreign Service, did not receive locality pay. As the Washington, D.C., locality rate grew to over 24 percent in 2010, the pay gap between federal employees who receive locality pay and those who do not widened considerably. To close this gap, the fiscal year 2009 Supplemental Appropriations Act granted the Department of State (State) temporary authority to provide locality pay at the Washington, D.C., rate, also known as Overseas Comparability Pay, to Foreign Service personnel posted overseas. State is implementing this pay in three phases. Currently, Foreign Service personnel serving overseas receive 16.52 percent comparability pay, approximately twothirds of the Washington, D.C., locality rate. State had planned to implement the third and final phase of comparability pay, raising it to 24.22 percent, in August 2011. However, these plans have been delayed by the administration's freeze on federal salaries and the passage of the Department of Defense and Full Year Continuing Appropriations Act for fiscal year 2011, which prohibited State from using funds to implement the final phase. In December 2010, the National Commission of Fiscal Responsibility and Reform identified comparability pay as a potential source of cost savings. Without a continuation of authority, State cannot continue to provide comparability pay with funds appropriated after fiscal year 2011. State estimates that the cost of implementing all three phases of comparability pay for State would be $302 million in fiscal year 2012. The Congressional Budget Office has estimated that implementing comparability pay for all foreign affairs agencies would cost about $2 billion through fiscal year 2015. In a previous report, we found that State faces challenges filling staffing gaps at hardship posts overseas and cited State officials' claims that the lack of comparability pay may be a deterrent to serving at overseas posts. Congress asked us to review State's request for permanent authority to grant overseas comparability pay to certain members of the Foreign Service posted overseas to inform the fiscal year 2012 State Department authorization process. On May 27, 2011, we provided a briefing to Congressional staff on our preliminary findings. We also agreed to provide the information presented in the briefing, updated with additional material, which describes (1) State's rationale for providing overseas comparability pay, (2) how the provision of overseas comparability pay affects Foreign Service personnel pay and benefits, and (3) how the pay and benefits of Foreign Service personnel posted overseas compare with those of other civilian agency staff overseas.

State has offered several reasons for requesting overseas comparability pay: to establish equity in pay and retirement benefits between Foreign Service personnel stationed in Washington, D.C., and those assigned overseas; to recruit competitively for top candidates; and to retain current Foreign Service personnel. According to State, comparability pay would eliminate an inequity between Foreign Service personnel serving in Washington, D.C., and those in overseas assignments. State has noted that agency contributions to Foreign Service personnel retirement decrease when personnel move overseas from Washington, D.C. In general, retirement benefits for members of the Foreign Service comprise three components: Social Security, annuities, and the Thrift Savings Plan. Our analysis shows that without comparability pay, agency contributions to two of these components--Social Security and the Thrift Savings Plan--would be lower, because they are calculated as a percentage of base pay plus locality/comparability pay. According to State, the lack of comparability pay hinders its ability to compete for top candidates seeking overseas careers in the federal government. Providing comparability pay to Foreign Service personnel posted overseas increases three components of their total compensation: (1) basic pay; (2) allowances and differentials that are based on basic pay; and (3) benefits, such as retirement contributions, that are based on basic pay. Foreign Service personnel from all foreign affairs agencies currently receive comparability pay while serving overseas. Civilians from other agencies on permanent change of station overseas, excluding the Central Intelligence Agency, generally do not However, when civilian employees are posted overseas on temporary duty status (TDY), they generally receive the full locality pay of their home duty station. We are not making any recommendations in this report.

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