How Well Are Government Employees Paid? Author Responds to Reader Comments

By • July 15, 2012 0 Comments

Several days ago, we ran an article entitled How Well are Government Employees Paid? based on a new article by Dr. Howard Risher, editor of Compensation and Benefits.

The article generated a number of comments from readers. While the comments were numerous and varied, there were several major themes that emerged in the comments. These themes can be summarized as follows:

1. The private sector is in a “race to the bottom” and the federal government should not follow this route. Federal employees are already underpaid by a significant amount;

2. A number of comments were along the lines of “we are already underpaid” and pay-for-performance will make it worse;

3. Pay-for-performance won’t work in government.

While it is not possible to respond to every comment, Dr. Risher has taken the time to respond to these overall themes for the benefit of our readers. Here are the comments from Dr. Risher responding to the themes listed above.

1. The private sector may be in a race to the bottom but that only affects the Bureau of Labor Statistics (BLS) survey.

  • They try to base their survey a representative sample of the US workforce. Actually if lower paid employees are laid off, it would skew the survey results to the remaining higher pay workers.
  • Unemployed individuals would not be counted in the BLS analysis.
  • Salaries in the private sector were frozen for a brief period but it would be rare to find salaries that were reduced permanently. I would not expect average salaries to be lower.
  • The universal approach in every other sector is to compare salaries, using salary surveys, for ‘benchmark´ jobs. That assumes a chemist is a chemist or an accountant is an accountant. The results are transparent and easy to interpret. I’ve recommended that in several columns.
  • Companies conduct market analyses every year to determine how much they need to budget to maintain their planned alignment with market levels.
  • On a related point, I disagree strongly with BLS and the think tanks. Federal agencies are competing for talent with the larger employers, not the mom-and-pop businesses. The small employers should not be included in the market comparisons. The director of the Office of Personnel Management (OPM), John Berry, has stated his agreement with that argument. Larger companies tend to pay somewhat higher salaries for comparable jobs.

2. I strongly disagree that federal pay is significantly lower than prevailing market levels. That in no way is to suggest feds are overpaid.

I also reject the conclusions of the think tanks. No one can say definitively until a credible “benchmark” market analysis is completed. There is a very good survey with something like 300 employers conducted each year in the Washington-Baltimore area and I can say with certainty that the job by job comparisons are mixed. But I can also say I do not recall any “gaps” of 30% as BLS claims

I also disagree with the occasional comments about large bonuses, generous pensions, etc. So-called defined benefit plans were ended in most companies years ago and replaced with defined contribution, savings plans. Benefits were grandfathered. Government benefits are definitely more generous. The rich benefits are limited to a few executives.

Bonuses for the ‘normal’ employees (i.e., chemists, accountants, etc) are rarely larger than 20% of salary. Yes there are jobs with significant incentives but for probably 75% of the private sector workforce the average bonus might be 5%. The majority of employees are not eligible for annual bonuses. The large bonuses are reserved for executives, usually limited to the top 1% — 10 in a company of 1000 employees. Keep in mind that the DC area is unique with a bunch of professional firms and lawyers plus the high paid lobbyists.

The big dollars come from stock options but for the typical employee who might be granted an option the annual income is nominal except in a few companies. The exceptions are in startups or high flying companies. Keep in mind that stock values go down as well so appreciation can be wiped away. The media focuses not surprisingly on the big dollar jobs.

For roughly two decades (prior to the recession) the average budget for salary increases was 3-3.5%. A high performer could expect maybe 8% tops.

The budgets are determined each year as the percentage needed to maintain a planned alignment with other employers seen as labor market competitors.

It is important to understand – and I should underline this – that the appropriate comparison each year would be the GS schedule adjustment PLUS the dollars for step increases. That would be a valid comparison.

3. Yes, I am an advocate of pay for performance.

Yes, I agree it is a very complex problem to make it ‘work’ in government. There are hundreds and I am sure thousands of public employers across the country where its accepted. It’s been working in a number of federal demos for years. It’s universal for white collar workers in other sectors.

Anyone who has studied the history of the United States knows it is important to our culture to recognize and reward the top performers. We are or were a meritocracy. We celebrate the ‘best and brightest.’ We pick the most valuable players (MVPs) in almost every field of endeavor. Employers that do not recognize and reward the best performers are the exception.

NSPS was a failure but unfortunately it’s never been adequately studied. I have included several questions at the end and want to invite comments – but only serious comments please. If I learn anything, I will develop a column discussing what I learn.

As a generalization, I am convinced managers and employees need to be heavily involved in planning a new pay system. I also believe top management – the highest levels – has to make the transition planning and implementation a priority. My experience tells me the problem is generally the performance management process. If the ratings are credible, the pay policy is much more likely to be accepted.

I could go on but this is already too long.

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