The federal government needs to use pay as a strategic weapon in the battle for executive talent with the private sector, says a group studying federal leadership issues.
According to the PricewaterhouseCoopers Endowment for the Business of Government, the government should make executive compensation packages more competitive.
"Pay is a strategic weapon," said Carl Weinberg, a compensation expert with PricewaterhouseCoopers. "It's no longer viewed as a cost of doing business. In the private sector, the company that has the best people wins."
The endowment Wednesday released a survey in which federal executives identified salary as the key problem in recruiting and retaining a talented Senior Executive Service. More than 80 percent of SES members have considered leaving federal service, the survey found. The most often-cited reason: low pay.
Weinberg said the way the federal government handles pay is starkly different from the private-sector approach. He identified three pay practices the government could use to become a more competitive employer.
- Base pay levels on the going rate. Private-sector companies base their managers' and employees' salaries on what other companies are paying for similar positions. "External competitiveness is the key driver of pay levels," Weinberg said. In government, by contrast, pay tends to be figured in relation to other jobs. For example, federal executives' pay is tied to the salaries of the Vice President, members of Congress and Cabinet secretaries. "In government, external competitiveness is not important. Internal equity rules the day," Weinberg said.
- Avoid compression. In private-sector companies that use pay scales, there is typically a 10 to 15 percent differential between grade levels. That makes promotions meaningful. But in the SES, several levels of executives are paid the same because of compression, eliminating the financial incentive to seek promotions.
- Put a premium on excellence. Because private companies have become flatter in recent years, there are fewer opportunities for promotion. So companies are paying excellent employees 20 to 40 percent more than average workers in the same jobs. "You don't see this significant premium for excellence" in the government, Weinberg said.
Mark Abramson, executive director of the endowment, said Congress has taken a piecemeal approach to addressing executive compensation issues. For example, last year Congress approved bonuses for outstanding executives worth 35 percent of base pay. But Congress left intact a cap on executive compensation that will prevent many executives from receiving the full bonuses.
Congress has also addressed the issue of competitive pay, but only for a handful of positions at individual agencies. For example, 40 top executives at the IRS can now receive salaries of $175,400 a year (the same as the Vice President's salary), thanks to last year's IRS restructuring act. But because of the existing federal pay structure, those executives will make $25,000 more than the Secretary of the Treasury and $50,000 more than the IRS commissioner.
In the endowment's survey, almost no federal executives said they think the government will address pay disparities.
"They're realists," said Ian Littman, co-chairman of the endowment. "They know this is a political process. They've seen the history."
Littman said he hopes Congress and the Clinton administration will develop a coherent strategy for dealing with pay issues.
Janice Lachance, director of the Office of Personnel Management, said OPM will use the survey results to help improve the SES.
"The attitudes and values of our executives are important to the administration's efforts to make the SES stronger and a magnet for talented men and women," Lachance said.