Making Federal Jobs Competitive by Paying the 3 Rs (Recruitment, Retention, And Relocation).

Can the Department of Defense (DoD) compete effectively for talent in today's tight labor market? Many would say no because we are not identified as "DoD.com," we cannot offer stock options, and we have no flexibility in compensation.

But that response overlooks several critical factors. First, one of the primary reasons people have always had for joining DoD is the range and challenge of the work. There simply is no other organization that can provide as many opportunities to work on the range of advanced systems and projects that DoD sponsors.

Second, working for DoD gives people a strong sense that they are contributing to the nation's welfare, that they are fulfilling a civic responsibility to help make society safer and better. Also, the relative stability of a career in the civil service continues to have a substantial appeal at certain points in one's life.

But leaving these intangibles aside, there is the issue of compensation flexibility. It is painfully obvious that the federal government does not have the same level of flexibility as a private employer.

For one thing, governmental pay scales are publicly available and are tied to a strict classification system. Both factors promote consistency and work against the favoritism or the special incentives that may exist in a non-publicized system. For another, the federal pay scales are based on surveys and set by regulatory and legislative processes that reflect what has been happening; they are not geared to anticipate changes. In addition, the basic schedules are set annually. Only very special circumstances warrant alterations outside the normal annual cycle.

For three of those circumstances, though, each manager has a set of tools that can make a substantial difference in the ability to attract and retain the very best employees. In the world of personnel management, these are known as the 3 Rs:

* Recruitment Bonus: An agency may pay a lump-sum bonus of up to 25 percent of the annual rate of basic pay to an individual who is newly appointed to a difficult-to-fill General Schedule or executive position (except the head of an agency).

* Retention Allowance: An agency may pay a bi-weeldy allowance of up to 25 percent of an employee's basic pay if his or her unusually high or unique qualifications or the agency's special need for the employee's services makes it essential to retain the individual, and if the agency determines that the employee would be likely to leave federal service without the allowance. Such allowances may be paid to people in General Schedule or executive positions (except agency heads).

* Relocation Bonus: An agency may pay a lump-sum bonus of up to 25 percent of annual basic pay to someone who must relocate to accept a difficult-to-fill position in a different commuting area. This applies to people in General Schedule or executive positions, but not to newly appointed employees.

These three options were created by the 1990 Federal Employees Pay Comparability Act (FEPCA) to help federal agencies recruit, retain, and relocate employees. An expansion in June 1998 permitted the use of retention allowances for groups or categories of workers in certain circumstances, such as COBOL experts during the Y2K preparations. Dubbed the 3 Rs, the tools have been available for use since May 1991.

Governmental and DoD Use Over Time

Overall, however, supervisors and managers have not made extensive use of any of the 3 Rs over the past nine years. According to the Office of Personnel Management, [1] 42 departments and agencies have used one or more of the incentives since May 1991. By far the most popular has been the retention allowance, which grew from 113 recipients in Fiscal Year (FY) 1992 to 2361 in FY 1998 (the latest year for which government-wide data are available). More than half of that growth occurred during FY 1998, primarily because of the Y2K-amplified need for computer specialists (47%).

Recruitment bonuses grew at half that rate, from 41 to 1089, also with a pronounced spike in FY 1998; here the largest single occupation was that of patent examiner (26%). Relocation bonuses were used much more sparingly, but also rose from 74 to 403 over the seven years. The primary recipients were nuclear engineers (11%), criminal investigators (10%), and general engineers (9%).

Despite this growth, only 0.14 percent of Executive Branch employees received any of the 3 Rs in FY 1998. Essentially the same percentage of DoD employees received one of the incentives, as Table 1 illustrates.

Placing its emphasis on retaining key employees, DoD accounted for half of the retention allowances paid in the Executive Branch in FY 1998. However, the Department accounted for less than a fifth of the use of the two other incentives that year.

In late 1998 and 1999, DoD's personnel community increasingly called attention to the existence of these tools as ways of meeting the competitive pressures from private-sector employers who had greater compensation flexibility. Particular emphasis was placed in the areas of science and technology.

That effort, plus the search for a marketing edge, significantly increased the use of the 3 Rs. Indeed, the number of retention allowances nearly doubled in FY 1999 (from 1180 to 2168), as did the relocation bonuses (from 78 to 139), while the use of recruitment bonuses more than tripled (from 200 to 632). Figure 1 shows the growth in FY 1999, as well as the trends for the past six years.

Changes in DoD Use

The use of recruitment bonuses saw major changes over the past six years, primarily because the Department began targeting them at younger workers. Over this period, the average age of a recruitment incentive recipient fell from 41.2 to 30 years, with the average grade falling from 11.5 to 7.8. Not surprisingly, then, because these bonuses are calculated as a percentage of pay, the average bonus fell from $10,500 to $6200.

There was also an occupational shift. In FY 1994, six of every seven recipients worked in a health occupation; in FY 1999, the majority worked as engineers (57%). Clearly, labor markers change over time, and the recruitment bonus can permit managers to make necessary adaptations.

As mentioned earlier, retention pay saw the greatest increase in DoD, rising from 67 recipients in FY 1992 to 2168 in FY 1999. The average retention allowance peaked in FY 1996, at $9800, and then fell to $8300 in FY 1999. This area saw the same type of occupational shift as did recruitment bonuses. In FY 1992, five of every six recipients were health workers; in FY 1999, the largest category was "miscellaneous technicians," with an emphasis on engineering. In the first eight years of availability, the Army paid the most retention allowances; that place went to the Air Force in FY 1999.

The least frequently used of the 3 Rs, relocation bonuses were fairly consistently likely to go to a GS-12 who was 44.5 years old. The most common occupation for a recipient has consistently been that of engineering. Also, in each year, the Navy has made the greatest use of this incentive, with the highest payment being $11,300 in FY 1999.

DoD's Patterns in FY 1999

To provide the most current profile of incentive recipients, Table 2 summarizes characteristics for FY 1999.

Across the board, 3 R incentives were much more likely to go to men than to women in FY 1999. This ratio is higher than that in the current DoD workforce (62:38%) and that reported by OPM for government-wide use in FY 1998. Similarly, recruitment and retention payments were somewhat more likely to go to White employees than would have been expected, given their share of the DoD workforce.

Relocation bonuses, however, saw an expected distribution for three categories but proportionately more for Hispanics and less for Blacks than their shares of the overall workforce. It appears, then, that none of the tools has been used to enhance workforce diversity.

Across the board, the incentives were most likely to go to people with at least a bachelor's degree. This tendency reflects the Department's growing technological sophistication and the value attached to investment in human capital. (Across the eleven years of downsizing, the only category to hold its own has been that of people with advanced degrees. Indeed, we now have some 78 percent fewer people lacking a high school diploma than in FY 1989.)

As expected, recruitment bonuses were most likely to go to a young person being brought in for an entry-level professional or technical position. Retention pay and relocation bonuses were primarily used to retain journey-level and pre-managerial employees (grade 11.4) in their mid-40s. Fully a fourth of those receiving relocation bonuses and a fifth of those receiving retention paywere eligible for some type of retirement, reflecting the need to maintain some experience while recruitment and training of younger workers begins again.

Amount and Percentage of Pay

Although each of the 3 Rs could pay up to 25 percent of basic pay, Table 3 shows that actual payments were generally set at lower rates.

The average salaries of incentive recipients reflect the average grade mentioned above. The percentages, however, reflect what managers believed would be required to induce specific types of behavior.

At least a third of the time, managers made supplementary payments of at least a third of an employee's basic pay. Because of the difficulties involved in relocating a professional or technical worker in his or her mid-40s, the relocation bonus was a significantly higher percentage than the other two. Nearly half of the recipients were paid the maximum possible percentage, or very close to it.

Table 3 suggests that DoD's managers are using the incentives differently from how government-wide managers did in FY 1998. During that year, about 60 percent of the 3 Rs amounted to 10 percent or less of basic pay, according to the OPM study cited earlier. The higher rates could have been needed to recruit or retain people in view of the Department's eleven consecutive years of downsizing and the probability of further workforce declines in the next several years.

Conclusion

In many parts of this country, labor markets reflect unemployment rates so low that the areas are technically beyond what had traditionally been known as a "full-employment" economy. Such circumstances generate intense competition for workers, both those new to the market and those already there but willing to switch employers. They also work to increase overall compensation, as the media regularly report for "hot" occupations.

Such circumstances affect the Department of Defense no less than every other governmental, nonprofit, and commercial employer. Therefore, we need tools to help us develop or maintain a competitive edge. At present, three of the most effective tools we have are the 3 Rs: recruitment bonuses, retention allowances, and relocation bonuses. We can expect their use to continue to increase.

(1.) Office of Merit systems Oversight and Effectiveness, The Three Rs: Lessons teamed from Recruitment Retention, and Relocation Incentives (Washington, DC: United States Office of Personnel Management, December 1999), p. 5.

(2.) DoD figures were derived from files of the Defense Manpower Data Center.

                  3 R Use in Fiscal Year 1998 [DoD.sup.2]
                  and the Rest of the Federal Government
              [DoD.sup.2] Other Agencies TOTAL
Recruitment   200 (18.4%)    889 (81.6%) 1,089
Retention   1,180 (50.0%)  1,181 (50.0%) 2,361
Relocation     78 (19.4%)    325 (80.6%)   403
TOTAL       1,458 (37.8%)  2,395 (62.2%) 3,853
              Characteristics of DoD's 3R Recipients, FY 1999
Characteristic              Recruitment   Retention    Relocation
Average GS/GM                   7.8         11.4         11.5
SEX
Male                           72.2%        75.7%        79.0%
Female                         27.8%        24.3%        21.0%
Race/Ethnicity
Black                           9.8%         6.2%         8.1%
Hispanic                        4.5%         4.6%        10.5%
Am Indian/Alask.                0.2%         0.6%         1.6%
Asian/PI                        5.3%         4.5%         4.0%
White                          80.2%        84.1%        75.8%
Average Age                    30.0 years   43.9 years   44.6 years
Not Eligible for Retirement    99.3%        80.7%        75.0%
BA/BS or Higher                70.8%        62.6%        71.0%
Member of Bargaining Unit      32.6%        43.2%        27.4%
                         Amounts and Rates of 3 R
                         Payments in DoD, FY 1999
                      Recruitment  Retention Relocation
Average Amount         $38,966.20 $56,519.70 $58,575.30
0 - 10%                     34.8%      30.7%      15.8%
[greater than]10%-20%       28.2%      36.2%      29.5%
[greater than]20%           33.5%      33.1%      48.2%
Unknown                      3.5%         --       6.5%