The GS System Is a Barrier to Effective Governance

For the record, the General Schedule pay system is broken. It's outdated and it contributes to agency staffing and performance problems. The “pay-related flexibilities” permitted in the Federal Employee Pay Comparability Act are band aids at best. The rigidity of the system, the political pressure to control payroll costs, the importance of tenure, and the restricted authority of managers impede effective workforce management. Executives and managers are responsible for addressing threats to the country and accountable for managing budgets in the millions but are not trusted to deploy talent effectively. 

Pay is generally not the most important issue for new workers but it’s on every job hunter’s list. Many companies pay by policy above market salaries to attract higher qualified talent. And, not surprisingly, below market salaries deter applicants. According to Glassdoor, “low pay” is one of the most common complaints voiced by employees. Pay is relevant to understanding and addressing staffing problems.

For the near term, the government's prospects for raising performance levels depend on more fully tapping the knowledge, skills, and energy of employees. Gallup’s research confirms effective people management practices can raise performance levels significantly. The workforce is replete with employees attracted to government by the prospect of addressing societal problems but who have been constrained by government’s compliance culture. There is a wealth of information available on the practices proven to contribute to high performance.

The automatic step increases do not support improved performance. The focus on the few poor performers is part of the problem. In the private sector, employers manage pay to attract and reward the high performers. That’s basic to changing the culture. It's also important in efforts to add well qualified, young employees.

Here’s the Problem

It’s straightforward: government starting salaries for high demand occupations are not competitive. That contributes to agency staffing problems. That’s thought to be true as well for government’s experienced professionals and managers but that is ignored in the analyses required under the Federal Employee Pay Comparability Act. Salaries are adjusted each year without regard to the impact on staffing or employee morale. 

Hiring new graduates is always important but the success of a new administration is dependent on having a committed staff with the expertise to tackle pressing problems. Fair pay is important to retaining talent.

Market comparisons are complicated by the FEPCA’s required use of Bureau of Labor Statistics survey data. A key point is that BLS surveys ignore the universal approach to reporting pay data showing how much workers in common or benchmark jobs are paid.  Surveys are normally easy to understand. Instead, BLS relies on composite, grade-by-grade summaries based on unreported, multivariate statistical models that would make eyes glaze over. As a result, BLS cannot report if a job is overpaid or underpaid. 

Significantly, in agencies not restricted by the GS system, average salaries are higher and pay issues are rarely in the headlines. To illustrate the difference, the average salary (on FedScope) for white collar employees on the Farm Credit Administration is $145,408. In the Treasury Department, it's $84,041. 

The staffing problems have been discussed regularly at Salary Council meetings. Noncompetitive pay is not the only concern. The Council is precluded, however, from considering other reasons agencies have problems adding needed staff—local cost of living, commuting nightmares, undesirable places to live, federal brand as an employer. Low pay is not the only problem. Early in the Biden administration, agencies need to assess and document staff shortages throughout the country. That’s basic workforce planning.

President-elect Biden has promised to “listen to the scientists.” Government historically has employed many of the country’s experts in their fields. The COVID-19 crisis has forced leaders to rely heavily on experts and now with employees working remotely agencies need fully qualified staff capable of working independently. That needs to be recognized in pay at all career stages. 

The contrary political view voiced by conservatives is that employee compensation is a cost that needs to be controlled. That view dates to pre-World War II management thinking. In their criticism, federal pay is treated as an abstract issue. Their criticism ignores the staffing shortages and harms employee commitment and performance. 

The Facts Have to Be Credible

The argument for raising salaries needs to be based on credible facts. And it’s a fact that a comprehensive analysis of market pay levels has not been completed since 1990.

Focusing on a single percentage “pay gap” makes no sense. The gap is actually a composite of differentials that vary by occupation, career stage, sector, and local area. Focusing on the broad locality areas is itself a misleading practice that ignores the higher pay rates in downtown urban centers. Paying the same salaries in Pennsylvania’s Carbon County and Manhattan makes no sense. Local salary levels in Morgan County, West Virginia, are no doubt lower than in Washington, D.C.

Hospitals exemplify the way pay surveys are planned and used outside of government. They rely on local area hospital surveys to plan staff salaries. Colleges rely on data for regional institutions of similar size and stature. Restaurants focus on their competitors. That simple logic is used to adjust pay scales in every sector.

Missing from the debate is a credible analysis of market pay levels for federal jobs. Private sector surveys were used in the analyses supporting FEPCA. Market data would again be valuable in understanding the reasons for recruiting problems and for developing strategies to fill vacancies. That analysis is a basic step in rebuilding the workforce.

The reported pay gaps over the past three years lost credibility for another reason. The gaps—32% in 2018, 27% in 2019, and, most recently, 23%—portray a striking closure rate. Annual salary increases in the private sector were 3% prior to the pandemic. To close the gap, federal salaries would have had to increase 6%-7% each year.

The purpose of market analyses in every other sector is to track the pay levels for commonly defined jobs in organizations competing for talent. There are over 1,000 surveys conducted across the country every year for that purpose. Pay levels are reported by occupation and career level. Data are reported by the usual descriptive metrics—means, medians and percentiles. A number of websites now make pay data readily available to the public.

With guidance, teams of employees in an agency could easily identify surveys and assemble data relevant to agency jobs. A task force oversaw the FEPCA analyses. In higher education and healthcare, employee teams commonly have the lead in conducting reviews of pay programs. They take their responsibility seriously. There is no reason that approach would not be successful in government. 

Total Compensation Studies are Misleading

Those arguing that federal pay is too high often cite a 2017 Congressional Budget Office report, Comparing the Compensation of Federal and Private-Sector Employees, 2011 to 2015. In many respects this is a solid study; it documents the vast differences in the federal and private sector workforces. However, it’s based on the same, mistaken argument voiced by the critics of federal pay. Here CBO compares federal total compensation with broad based data sources that include data from the Current Population Survey.

The analysis reflects flaws that undermine the conclusions. 

• First, pay surveys are used by employers to determine if pay levels and practices are competitive. It’s wrong to argue that government is competing with mom-and-pop businesses.
• Second, despite reporting the differences in occupational mix, CBO ignored the differences in the analyses. The best companies provide employees with better-than-average benefits.
• Third, the CPS data explicitly ignore income from incentive plans, an integral component of pay for professionals and managers in business. That understates market pay levels.
• Fourth, the report highlights the age differences, but then reports overall averages. Older workers typically have more years of experience, higher salaries and the imputed cost of their benefits is significantly higher. 

Perhaps not a flaw but CBO should have limited their comparison to jobs paid under the GS system. 

The 2017 conclusions contrast with a 1998 CBO study prepared by actuaries from a benefits consulting firm. They found “that, on average, the federal government pays less than private-sector firms for similar jobs. It also offered evidence that low pay means that the government sometimes accepts less experienced workers.” (Italics added.) That was two decades ago but the methodology provides a more meaningful comparison.

Another compensation and benefits consulting firm recently completed a total compensation study for the Office of Management and Budget. It’s never been made public but its completion is noted on a progress report for the President’s Management Agenda. That prompted me to wonder why? I was told it involved a lot of assumptions. My curiosity prompted me to submit a FOIA request for a copy but have not yet received it. 

Pay for Performance

Younger employees would no doubt welcome a new salary system with more competitive salaries. The automatic step increases have contributed to a culture that is not responsive to their desire to be recognized and in control of their careers. Moreover, the inflexibility of the GS system is a high barrier to changing the culture.

The failure of the National Security Personnel System may be that proverbial dark cloud but there are public employers that have successfully transitioned to pay for performance. One that stands out is the Government Accountability Office. The most recent is the state of Tennessee. Both were supported by strong leaders. Tennessee invested three years in training and coaching to prepare managers. It would be useful to document the experience in other federal and state agencies.

It's important to understand that there are many variations for rewarding desired behavior. GAO, for example, relies on inflation-based increases with an additional increase for better performers. That was seen as a more prudent approach. The research has mistakenly assumed performance-related pay is always the same.

An essential step in “Modernizing and Reinvigorating the Public Workforce”—one of the “grand challenges” identified by the National Academy of Public Administration—is investing in developing effective approaches to managing performance. The badly inflated performance ratings have no credibility. Tennessee proved that investment pays off. That should be the initial step in transitioning to pay for performance.