The forgotten keys to agency performance: Senior Executives

When companies fail, it’s not because of the performance of front-line workers. The same is true in health care. The current crisis in health care is unrelated to the care provided to patients or the people who process health insurance claims. That’s true in government as well. In business, workers play an important role but success starts at the top, with executives held accountable for company performance.

In other sectors, executive selection and development are board-level priorities. Business executives know they are accountable for achieving goals. Their compensation is reviewed annually by the board. Rewards based on year-end results contribute to a shared team culture. The word “accountability” rarely appears in business reports, but the concept is entrenched in the culture, and reinforced by pay for performance. 

The salary increases for 2025 highlight the problem. The announced pay increases included a 1.7% increase in the Senior Executive Service salary schedule. Surveys show employers in the private sector are planning 3.7% increases, and typically executive increases are somewhat higher. That has been the norm – increases in the private sector have been higher. The differences compound, with SES salaries falling steadily behind their counterparts in business.

But the problem is broader than pay. Appointed agency heads often do not have the experience to create and lead results-focused organizations. Improving performance rides on creating a positive work culture where trust and engagement are priorities and that, in government, starts with senior executives.

Executive Performance Has Not Been a Priority

The SES salary system is essentially the same today as created under the Civil Service Reform Act of 1978. Then a stated goal was “To hold executives accountable for individual and organizational performance.” However, possibly the last Presidential statement on the subject, Obama’s 2015 “Strengthening the Senior Executive Service,” is silent on the subject.  Furthermore, multiple “Results Oriented Management” reports from the Government Accountability Organization failed to find evidence that SESrs are rewarded for agency performance.  

Significantly, senior executives are rarely mentioned in discussions of agency performance. OPM’s description of the “SES performance appraisal systems” has all the right words but the limited evidence suggests SESrs are not seen as accountable for results.

For years OPM posted a summary of SES ratings, Report on Senior Executive Pay and Performance Appraisal Systems, but the last was released in 2016. That year 51.7% of the ratings were at the highest level.  Only 15 executives had a rating of Minimally Satisfactory and 13 were Unsatisfactory.  Combined that’s 0.4% of the 6,664 SESrs. Agencies should post agency performance metrics along with SES ratings and performance awards.  

SESrs work in theory under a pay for performance system but that 2016 report shows the best performers received a mere 2.1% increase.  The same year CEO pay in business increased 5.3%.

A literature search found only one relevant article, “Evaluating Executive Performance in the Public Sector,” from 2005. The same search, switching “Business” for “Public Sector,” produced 7.6 million results. In business, executive performance gets far more attention.

The CSRA also introduced a pay for performance policy for managers. It started in 1981 but the new policy failed and reverted to the General Schedule in 1984. Performance pay is all but universal for managers in other sectors.

The Ceiling on SES Salaries

Comparative data show SES salary increases are significantly lower than for similar jobs in other sectors. That’s been a pattern for decades, and the gaps are growing at all levels of management.

When Congress established the Commission on Executive, Legislative, and Judicial Salaries in 1967, it started regular reviews – here “QuadCom” reports -- of the “appropriate pay levels” for government leaders. Recommendations were developed every four years until passage of the Ethics Reform Act of 1989.  There has not been a rigorous assessment of the compensation of leaders since then.

From that point, Executive Schedule (ES) salary increases were to be based on increases in the BLS Employment Cost Index, but looking back for what is now 35 years, executive pay increases in business have been consistently higher. Simply stated, the ECI understates increases in executive compensation.

Federal agencies compete for talent in a myriad of labor markets. The QuadCom reports focused on trends and broad comparisons with jobs associated with high-level federal jobs. One showed federal judges were paid more than law school deans. That’s no longer true. For 2025, district judges will be paid $247,400. In 2024 the average dean was paid $328,940 and the highest paid deans now earn more than $450,000. That data might have supported the Judges Act that President Biden vetoed recently.

Finally, ES salaries serve as a political “ceiling” for the SES. The 2025 maximum salary for the SES is $225,700, the same as the ES II salary. There are a number of occupations where managers and high performers in the private sector are paid above that level.  There is anecdotal evidence the ceiling is a disincentive for promotion to SES positions.

In 1965 CEO pay was 20 times “worker” pay, $819,000 to $39,500 (from a 2013 study). That ratio has gotten steadily larger. A CNN headline from June reported, “CEOs are making almost 200 times what workers are.”

Today, top level executive jobs – top finance, top legal, top IT and top HR – were paid significantly less than their CEO but follow the same pattern. In Fortune’s annual list of top companies, the average pay of top financial executives is $446,690. Top legal executives earn $391,551, top engineering earns $297,954, etc. – the numbers vary with the industry, location and size of the company. In larger companies, managers two or three levels down are paid more than SESrs. If nothing changes, SES salaries will fall further behind.

Pay and Performance Management in Comparable Systems

There are few organizations comparable in purpose and size to federal agencies.  The best comparators are the country’s larger health care systems. Several of the Veterans Affairs secretaries previously worked in one or more of the large systems.  

In the best-known hospital systems like the Mayo Clinic and Mass General, CEOs are paid $3 million or more. Two executive positions – top finance and top legal – typically earn $1 million or more. 

Government of course will never pay salaries close to those levels, but a key point is that there is a huge drop to the highest SES salaries. The textbook practice in for profit and not-for-profit hospital systems is adjusting pay levels regularly to remain competitive. 

When the salaries of executive leaders are significantly below market pay levels, it holds down salaries at lower levels of management. It cannot be verified, but the gaps diminish the pool of managers interested in filling vacancies. It also violates the “fair pay” principle. The SES gaps are huge. 

Perhaps more important is compensation management in the current operating environment for hospitals.  A report from The Governance Institute, “Modernizing Healthcare Executive Compensation: A Deep Dive or the Board” (December 2023), highlights the problems in the health care sector and the importance of the team in the current “period of crisis.”  Data analyses show, “Over the last 20 years, annual variable performance-based compensation has grown exponentially. . . Over that time, goal setting has become more sophisticated, tightly focused, and predicated on outcomes as opposed to process measures.” 

Health care providers are certainly not unique. Management incentives are effectively universal. Also close to universal is the use of cascading SMART (Specific, Measurable, Achievable, Relevant, Timely) goals to link together levels of management. Executives and managers are rewarded as a “team,” based on organization results as well as for achieving individual goals. It’s a proven practice. 

It's Time for a New ‘QuadCom’

It’s been 35 years since the Ethics Act ended the QuadCom reviews. The latest Federal Salary Council report shows the average pay disparity for white-collar employees is 59%. It’s 81% in the Washington-Baltimore area. The history of executive pay in larger organizations – those similar to federal agencies – suggests SES compensation gaps are far worse.

Government needs to employ specialized experts – Senior-Level and Scientific or Professional positions – for the same reason President-elect Trump now supports recruiting foreign experts. Agencies should be able to pay market competitive salaries to recruit experts in all knowledge fields. There are serious shortages in the STEM fields and medical specialties. Multiple surveys provide market data for these occupations..

Continuing the EX salary ceiling perpetuates a problem. Members of Congress as well as appointees have had successful careers in other sectors. Many are wealthy, and their time in government is limited. SESrs and those who will fill SES vacancies are career workers. Increasing SES salaries will help to attract well qualified talent for the future. 

The Quadrennial Commissions gave recognition to the importance of the individuals most directly responsible for leading and managing federal agencies. Raising senior salaries would make all management levels more attractive career opportunities.  

Public agencies have something in common with all other organizations – agency performance is directly tied to the effectiveness of management, and that starts at the highest levels.