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A GAO decision was requested as to whether a wage increase, which was approved for employees under the Panama Canal Employment System, could be implemented retroactively. Changes in wage rates effected by the Panama Canal Act have adversely affected employee morale, since employees hired after the effective date of the act receive basic pay and annual cost-of-living increases at a rate substantially lower than employees paid at U.S. wage rates. Further, the Government of Panama and labor organizations have charged that the wage system is discriminatory because it violates the equal work-equal pay principle. To respond to these concerns, the Panama area wage base was revised to provide regular within-grade increases for deserving employees. These changes were to be reviewed after a year to determine whether further adjustments were required. A minimum 2-percent wage increase was granted on October 1, 1982. This was reviewed in January 1983, and it was determined that an additional 2-percent wage increase was necessary. This increase was granted retroactive to October 1, 1982, to reduce the disparity of wages between pre-treaty and post-treaty employees. GAO was unable to find authority in the Panama Canal Act for retroactive implementation of annual wage increases approved subsequent to the increase date. An increase in compensation resulting from the exercise of discretionary administrative authority is effective only on the approval date or later, even though the conditions justifying the increase existed prior to the date of the action. Because the action constituted the exercise of administrative discretion, the increase may be implemented only on a prospective basis. Accordingly, the wage increase may not be retroactively implemented.

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