The cap on federal executive pay has reached new lows. This year, the effects of pay compression have reached down into the fifth-lowest pay level for members of the Senior Executive Service who work in San Francisco and Houston, meaning more executives than ever make the same salary regardless of rank. Federal executives receive annual pay increases using the same formula used for most federal employees' annual increases: they get an across-the-board increase based on increases in the Labor Department's Employment Cost Index, plus additional "locality pay" increases based on Labor Department surveys of wages in 31 metropolitan areas or the "Rest of the U.S." area that covers everyone who doesn't live in one of those 31 cities. In 2002, most federal employees were due a 3.6 percent across-the-board increase, plus locality pay increases that pushed employees' total raises to between 4.52 percent and 5.42 percent. But federal executives' salaries run into a statutory cap on their pay based on congressional and Cabinet-level salaries. Executives can't make more than Level III of the Executive Schedule, which was $133,700 in 2001 and is $138,200 in 2002. The congressional salaries are set by a formula that results in lower raises (about 3.4 percent for 2002, for example), so every year that federal employees' raises outpace congressional raises, more and more senior executives hit the statutory cap. In 2002, every federal executive at the top three levels of the SES--ES-6, ES-5 and ES-4--will make $138,200. All of those executives made $133,700 in 2001. Executives at the fourth level, ES-3, in 15 of the 32 federal locality pay areas will make $138,200 in 2002. Executives at ES-3 in eight locality pay areas made the 2001 top rate of $133,700. The ES-2 level executives in San Francisco and Houston will make $138,200 this year; no executives at the ES-2 or ES-1 level in 2001 made the top rate. A similar trend has occurred year after year, suggesting that eventually there could be no pay differentials in the Senior Executive Service. Carol Bonosaro, president of the Senior Executives Association, said executives aren't in government for the money, but the increasing pay compression makes it more likely that executives will leave federal service. Executives who are offered a promotion to the ES-5 level, for example, might turn it down because the ES-5 level carries stricter, post-federal employment restrictions than lower executive levels. Since their pay won't increase with the promotion, they might as well stay where they are. Furthermore, the compression increases pressure for agencies to seek special executive hiring authority from Congress, Bonosaro said. Higher executive salaries are being established in pockets of agencies in an ad hoc way, rather than in a systematic way so that all agencies can make executive compensation effective. "It's like the classic expression about the elephant in the living room," Bonosaro said. "Everyone agrees it's there. Everyone recognizes this tremendous level of pay compression. But everyone is going to walk around this elephant rather than open the door and let it out. It just makes no sense." Sen. John Warner, R-Va., and Rep. Tom Davis, R-Va., have been pushing for relief of the pay compression problem. But the Bush administration decided not to include pay compression relief in the federal management reform legislation that it introduced last year, and other lawmakers have expressed little interest in the issue.
