Federal Pay Raise vs. Private Sector: Who Comes Out Ahead in 2004?

Some employees are unhappy with the 2004 pay raise as the federal government is moving toward some pay for performance features in its pay structure. How does the 2004 raise compare to the private sector?

We have heard from some of our readers that they are not happy with the 4.1% pay raise they will get next year as a federal employee.

Without getting into a discussion of what the pay raise should (or should not) have been, how does the raise compare to private sector employees?

This might make you feel better about your upcoming raise. According to a recent Wall Street Journal article, the average white-collar employee or mid-level executive will get a wage increase of between 3% and 3.6% for 2004. Moreover, there is a trend in private companies to shift more of the cost of health insurance to employees which in some cases will exceed the amount of the 3+% raise.

What determines the amount of raise employees get in the private sector? At the bottom line, it is essentially supply and demand. With the current unemployment rate running about 6% and large numbers of jobs being sent to overseas locations, companies aren’t having much trouble keeping or hiring employees. As a result, the raises are lower than some employees would like.

Another trend which is also running through some parts of the federal government (as was done way back in 1978): pay for performance. Companies would rather pay more money to their most productive workers. As a result, some employees won’t get any raise at all. Others, who presumably have impressed the boss with their ability or productivity, will get substantial raises.

As the administration pushes for more of federal employees’ pay to be based on performance instead of seniority, changes are occurring in agencies such as the Department of Homeland Security and Department of Defense. The relative success or failure of these new systems will impact how many agency employees ultimately participate in a similar pay-for-performance system.

There is also little doubt that the federal pay system is changing rapidly as the pressure increases for some kind of pay for performance system. The new Department of Defense personnel system will eliminate the system of within grade increases (or WIGS) that has been in place for decades. In theory, this system was based on performance; in reality, it was as hard to withhold the increases as it was to fire an employee so very few employees were denied an increase.

The change could help employees who get larger raises as a result of superior performance ratings by their supervisor but many will also feel a loss of benefits as a result of lower income without the WIGS.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47