Fixing Federal Compensation Should Be Civil Service Reform Priority No. 1

The transition from the Trump administration to the Biden administration has orchestrated a crescendo of views about fixing the federal civil service. Most of those involve eliminating Schedule F; honoring civil service; increasing diversity, equity, and inclusion efforts; and restoring labor-management collaboration.      

Few of the proposals I’ve seen put pay reform at the top of the list. It deserves to be there. The strongest voice for pay reform in the run-up to the transition is the President’s Pay Agent, whose mid-December report reiterated previous assessments that the General Schedule is broken and should be significantly changed. If we want to fix the federal civil service, then we need to act with urgency and make pay reform the top priority.                 

We are stuck in neutral in advancing pay reform. How do I know that? Consider that GAO has had federal civil service on its high-risk list for 20 years. The devil, indeed, seems to be in the details. I offer seven specific proposals to flesh out details for long-awaited pay reform.      

1. Make pay and benefits negotiable across the federal government. Although pay is not within the scope of bargaining in Title V agencies, the gradual dismantling of Title V means that pay is more frequently an object for negotiation. Making pay and benefits negotiable could facilitate several changes. It would immediately make labor organizations more meaningful partners in representing employees. 

Fundamental changes in the Federal Labor Relations Act would help to end the partisan battle of labor-related executive orders at presidential transitions. At least three Trump administration executive orders involved unions and collective bargaining. FLRA reform would end the ping-pong back and forth regarding labor-management forums and move responsibility for labor-management collaboration to the parties themselves rather than executive orders.      

Expanding the scope of bargaining would also make pay setting more transparent. The powerlessness of the Federal Salary Council and President’s Pay Agent to advance change has sustained weaknesses in the current system. If federal pay is broken, then we need to look not only at substantive pay policies, but the way we make decisions about the system.          

Negotiating pay and benefits will require other changes, like allocating governmentwide authority for representing the Executive’s interests. The focal solution might be a responsibility-sharing arrangement between the Office of Management and Budget Office and Congressional Budget Office to assure Congress has final say for expenditures under the new authority. The structural choice strikes me as a secondary detail, subordinate to the mechanisms by which we reach a collective choice.           

2. Use total compensation as the benchmark for market comparisons. In the run up to the transition, I read a lot about restoring trust in our federal government. How do we do that? One step is to affirm our civil service’s commitment to public service. A symbol of that commitment is putting federal civil servants on an equal footing with their private counterparts. Although public policy has long called for pay comparability, the policy has lacked widespread approval because of public perceptions that federal employees may realize premiums in the realm of benefits and pensions, if not in pay itself. The perceptions may not be factually correct, but they are credible because decisions about federal pay, benefits and pensions occur in different forums. The status of federal public service would benefit from establishing a higher standard of comparability. Total compensation comparability will move the conversation in that direction.          

3. Redesign Title V pay as occupation-specific, market-sensitive compensation systems and integrate all federal systems under a common set of principles. Rather than searching for a comprehensive design for pay systems across the federal government, policy makers should pursue a strategy of incremental, but coordinated and integrated, change. Many reform proposals, including those advanced by the Partnership for Public Service and Volcker Alliance, have called for attention to learning from past demonstrations (e.g., China Lake) and aggressively using new demonstrations to pilot new pay systems. Some reforms, such as broadbanding, have been used widely across demonstration sites and other federal agencies, in some cases for decades. We have already learned enough about the operation of broadbanding and related practices to introduce such systems across the federal government. 

Another source for new compensation systems is foreign experience. Countries like Australia, Canada, Singapore and the United Kingdom have successfully transformed digital and corporate shared services (i.e., human resources and finance) using a professions model. The professions model provides one promising avenue for addressing not only compensation issues, but recruitment, development and retention challenges. While the U.S. federal government has been tied to the same pay and classification system for 70 years, other countries have successfully embraced innovation. We can learn from them.  

4. Improve exponentially in-house capacity to analyze, evaluate and model compensation decisions. Although annual federal outlays for civilian pay and benefits exceed $400 billion, we spend little to monitor, model or analyze the behavioral outcomes of these outlays. Despite professional staff in the Bureau of Labor Statistics and other units across the federal government, data to illuminate compensation-related decisions are almost non-existent. We have no capacity to model the budgetary or behavioral consequences of a policy decision like, for example, increasing Senior Executive Service salaries 25%. Given both the costs and consequences of compensation decisions, the federal government needs to create significant in-house capacity to become smarter about its choices.  

5. Extend models for base-pay comparability beyond salary surveys. The models should include a variety of additional indicators, including job application queues, offer turn-down rates, quit rates and other measures of the attractiveness of jobs relative to the labor market.

A move to market-sensitive compensation is one reason for improving data quality and analytic capacity for federal officials to make “smart” pay decisions. Another reason for improving capacity is that we have known for decades that pay comparisons alone are an imprecise way to monitor behavior in labor markets. Identifying the alternate wage—i.e., comparing public and private sector wages for the same position or occupation, controlling for age, education and other variables that might affect comparability—is more complex than the process used since passage of the Federal Employees Pay Comparability Act of 1990. It is time to implement more valid ways to assess comparability.    

6. Reduce salary compression by increasing pay ceilings. We know that pay compression in the federal government is severe and has deleterious consequences. Compression is a strong sign that highly skilled workers are likely underpaid, which is consistent with claims that pay for skills like cybersecurity specialists is inadequate. Increasing pay ceilings would improve opportunities to recruit and retain high-end professional and managerial talent. Reducing compression would also remove an impediment to developing more meaningful relationships between pay and performance. 

Reducing pay compression requires legislative action. Congress needs to eliminate ties between its salaries and those in the executive branch. Now is the time to abandon the fiction that linking Congressional and executive salaries produces effective compensation systems for both forums.      

7. Design rewards and incentives to reinforce a public service culture. We have substantial behavioral science evidence, much of it emanating from research in government, that informs us about how to effectively reward performance and other desired behaviors. Large monetary rewards are not the answer—even if we could deliver such awards, which we have been incapable of doing in the context of the rules and norms of government institutions. Low-powered incentives, like employee recognition, are more influential and powerful for energizing and directing employee behavior. If we are interested in building a responsive and resilient public service, then we need to design our systems to honor and reward the prosocial, intrinsic and autonomous motivations of public servants.      

Some of my proposals require legislative action. Others can be advanced by executive action. I encourage leaders from both Congress and the Biden administration to put pay reform on the front burner. It is time to get on with changing federal compensation to help realize a larger goal—an effective federal public service.  

James L. Perry is Distinguished Professor Emeritus in the Paul H. O’Neill School of Public and Environmental Affairs, Indiana University, Bloomington. From 2012 through 2017 he was editor in chief of Public Administration Review. He is editor of Public Service and Good Governance for the Twenty-first Century (University of Pennsylvania Press, 2020) and author of Managing Organizations to Sustain Passion for Public Service (Cambridge University Press, 2021).