A basic flaw in the federal pay system

A growing number of federal agencies are understaffed. Some have announced plans to add significant numbers of new hires, but they face increased competition from employers in other sectors that are also experiencing costly worker shortages. Observers frequently contend that federal salaries are too low to attract talent.

The core problem is that the General Schedule pay system was not planned to compete for talent. At no point are federal white collar salaries compared with the market pay of similar jobs in other sectors. When the system was adopted in the mid-20th century, labor markets were very different. Workers were hired soon after graduation and stayed with the same employer until they retired. Workers were seen as interchangeable, almost like a burned-out light bulb.

For a quarter of a century both public and private employers relied on rigid salary systems, with pay increases based on rising living costs. The start of locality pay for federal workers in 1990 did not change the underlying pay philosophy.

Today employers in every sector are struggling to fill job vacancies. Recent headlines have reported shortages in every sector. The COVID-19 pandemic triggered what appear to be permanent changes in worker expectations and the worker-employer relationship. 

In 2009 there were 6.5 unemployed workers for each job opening. Employers, including public agencies, could simply post job openings and wait for applicants. But the ratio began to decline, dropping to a low 0.8 in early 2020. It jumped dramatically when workers lost their jobs in the pandemic, climbing to 4.9 workers per job opening. But with end of the pandemic and employers again hiring, the ratio fell to a new low of 0.5—one worker for every two job openings. Data posted by Moody’s and others show there will be shortages for years. Agencies need to expect intense competition for talent.

Making Government More Competitive

It’s in the new world of work that federal agencies need to become more competitive. The Republican Study Committee argued recently government should adopt the private sector’s more “efficient” approach to compensation management. What they may not fully understand is that the country’s leading companies manage their compensation programs aggressively to ensure they attract qualified talent. 

Hundreds of salary surveys are conducted every year for that purpose. Businesses, hospitals and colleges all base their pay programs on market pay rates. It’s a simple and logical philosophy.

The General Schedule system’s “special rates” serve to highlight the shortcomings of Bureau of Labor Statistics surveys. Special rates to attract talent for harder to fill positions have been approved for over 150 job series, from Messenger (302) to Medical Officer (602), and for over 850 locations. The numbers have mushroomed.

Government’s true competitors— larger private employers—are far more likely to provide comparable benefits, which makes total compensation an issue. Yes, federal benefits are generally better. However, in competing for talent the “value” of benefits depends on the age of job seekers. 

More importantly, for young workers, pay is important but they also look for a healthy work-life balance, training opportunities, good managers, respect, and a positive workplace culture. All of that is referred to now as the Employee Value Proposition (EVP); that is, the financial and non-financial benefits of the job.  Understanding how government’s EVP is assessed by prospective applicants should be a priority.

An Urgent Situation

This is a problem that should not be ignored. With over 550,000 employees 55 or older, the vacancies are likely to increase. Documenting current vacancies by job series, grade and location along with the age and service of those a few years from normal retirement would enable agencies to anticipate and plan for the future.

The contrast with textbook competitive practices is most obvious in the management of the pay of high demand technology specialists. New job specialties emerge frequently. Traditional job descriptions no longer make sense. Each has a somewhat unique labor market. They are too important to classify them in the catch-all GS-2210 series with its rigid special rates. A better answer would be to rely on a team of experts, possibly in the White House Office of Science and Technology Policy, to develop a government-wide staffing strategy.

Looking to leaders in each field to stay abreast of labor market developments would enable Congress and the White House to consider what’s needed to compete for talent. Today, a long list of jobs would benefit from a separate pay system–Border Patrol agents and wildland firefighters were in recent headlines. The GS pay system should not be a barrier to staffing essential jobs.

Significantly, the model for future federal pay programs is very likely to be similar to recommendations described in a 1991 National Academy of Public Administration report, “Modernizing Federal Classification: An Opportunity for Excellence” (and repeated in several subsequent reports). It’s a simple approach, based on salary bands aligned with market data for similar occupations (e.g., scientists and engineers). The Federal Aviation Administration salary program is based on that model.

The Office of Personnel Management should oversee the planning but the issue today is not program administration, it’s building a committed workforce. Continued job vacancies will both increase worker burnout and impair public service. It would be a mistake to ignore the changes needed to compete for talent.