April 1994

Locality Pay and Performance Awards

Federal employees were pleased to see locality pay become a reality in January, 1994 as locality-based adjustments were added to their salary checks. Since then, however, some confusion has arisen about including locality pay when calculating performance awards. We're alerting agencies to a particular legal requirement so that employees won't be misled and award amounts won't have to be refigured.

Congress authorized locality pay under the Federal Employees Pay Comparability Act of 1990 (FEPCA). In that same law, Congress also gave rating-based performance awards a specific legal authority for the first time, but excluded locality pay from award calculations.

Your agency may have set up its rating-based performance award program to calculate an individual award amount as a percentage of the employee's pay. Or your agency may put limits on award amounts by setting maximum percentages of pay for particular performance ratings. In either case, the law specifically requires that you exclude locality pay when calculating award amounts (individual awards or award limits) as a percentage of pay.

The thinking behind this exclusion is fairly simple. It stems from the general guideline by which the amounts of all cash awards are gauged the size of an award should reflect the contribution's value to the Government. A performance award is based on the summary rating of record from an employee's performance appraisal. That summary rating represents "a year's worth of (outstanding, fully successful, etc.) performance." And an award based on such a rating treats that "year's worth of performance" as the contribution to be rewarded.

By excluding locality pay, the Congress was saying in effect that the gauge used to determine the size reward that a contribution deserves should be independent of where the performance took place. In other words, considered as a contribution to the Government and with other things being equal, a year's outstanding effort by a GS-7 accounting technician shouldn't get greater monetary recognition just because it was performed in Houston, Texas, rather than in Memphis, Tennessee.

Percentage-of-pay calculations for performance awards must use rates of basic pay unadjusted for locality pay. In most cases, it will be easiest to refer to the one basic General Schedule that underlies each locality pay area's separate salary table. OPM's Office of Compensation Policy publishes a basic, unadjusted schedule along with the 28 specific locality pay area salary tables .