Pay Fairness Should be a Priority

The author says that replacing the General Schedule pay system is inevitable and that it needs to be done. However, he says that the anxiety and distrust that would come from federal employees upon moving to a new system must be overcome as part of the process and offers some ideas as to how to best manage the transition.

Replacing the General Schedule (GS) salary system is inevitable at some point.  That’s a safe bet.  It’s the oldest, essentially unchanged government salary system in the world.  Federal salary increases starting in 2010 have been below prevailing levels in the labor market each year.  The situation is deteriorating and there is no reason to expect it to turnaround in the foreseeable future.

But despite the poor morale and increased turnover, federal employees are reluctant to see it replaced.  Change is always difficult to accept but here it’s ‘better the devil you know than the devil you don’t.’  Facing the unknown naturally makes people anxious.  As bad as the GS system is, the level of skepticism and distrust has many employees convinced the GS system is the safest bet.

The opposition is unfortunate.  The annual employee surveys confirm employees want change.  Across the questions related to recognition and rewards, employees have expressed increasing dissatisfaction.

First, to make an important point, government needs a new salary system.  The GS system fails on every measure of effectiveness.  It’s an obstacle for recruiting, contributes to bureaucracy, and is an impediment to improving performance.  It has not been properly maintained for years.  It has no true defenders.

There have been success stories.  At the July 15 Congressional hearing, the statement of Patricia Niehaus, President, Federal Managers Association, reads, “The current General Schedule pay and classification system is antiquated. FMA supports changes that establish increased flexibilities, accountability and performance results.”  As a replacement, she voiced support for the pay system in the China Lake demonstration project.  The members of the union “called this merit-based pay system a ‘rewarding experience’ . . .”.

The success of the China Lake demo, as it was explained to me, starts with the leadership of the Naval Commanding Officer who concluded the GS system was an impediment to merging two research labs.  Once he was convinced he had a better answer, he met with his direct reports and told them, “If you have any questions, now is the time to ask.  But once you leave this room, you will be supportive of what we plan to do.”  Leaders have to make it clear the planned change is a priority.

The emphasis on internal equity is older than the GS system.  The idea predates salary surveys as a way to rationalize salaries.  Employees naturally want to be paid fairly relative to the pay of co-workers.  But equity or fairness cannot be measured; it’s strictly an abstract concept — and highly dependent on one’s frame of reference.  In the federal context internal equity is still defined by the 1949 job grading standards.

Today the shared understanding of internal equity is the status quo.  When a new pay system is introduced, some employees will make out better than others.  That’s unavoidable and not surprisingly employees who see others benefiting inevitably think it’s unfair.  That makes communication essential.  Employees need to understand why the new system is necessary.

An employee’s sense of fairness is also based on how his or her pay compares with the pay of similar jobs in other sectors.  The “pay gap” – in Pay Agent reports it’s now 35% — is a very real part of the problem.  The fact that the CBO and the think tanks have reached different conclusions cannot be ignored, however.  At this point a new market analysis is needed that is based on accepted “textbook” practice.  Until credible market data are produced, the impasse is likely to continue.

Realistically the anxiety and distrust triggered by the possible transition to pay for performance will have to be overcome to implement a new salary system successfully.  Employees need to know what they can expect and to believe they will be treated fairly relative to the increases for other employees.  The NSPS pay pool debacle highlights the importance of transparency.

A relatively new idea from the private sector is the use of “calibration committees”.  Managers are required to explain and defend their planned high and low ratings in meetings with peers.  It significantly increases honesty, gives employees the assurance they will be evaluated fairly, and control rating inflation

At least as important is the adoption of a 360-degree or multi-rater feedback process, giving employees a platform to rate their manager’s strengths and weaknesses.  Those who are most effective should be rewarded.  They can also serve as coaches.  Those who are ineffective should be moved to non-supervisory roles.  That sends a powerful message.

The academic phrase ‘procedural justice’ aptly captures the goal.  Employees have to believe reward decisions are fair.

The planning and implementation strategy for a new system can alleviate most of the distrust.  In higher education and healthcare, it’s common to involve managers and employees in planning and implementing new pay systems.  They have to live with the system and are in the best position to decide what is going to best fit their work environment.  With guidance they can develop sound salary programs.  That makes it their system.  There is no reason to believe the practice will not be productive in federal agencies.

They can also take the lead in planning performance management systems.  High performers in an occupation know what’s necessary to succeed.  Small teams can define the performance criteria in a couple of meetings.  There is absolutely no reason to mandate the use of a ‘one-size-fits-all’ performance system across diverse occupations.  That will never gain acceptance.  To be effective, the performance criteria have to be intuitively important to job success.

At the end of each year, managers and employees should also be asked, in surveys and focus groups, what’s working and what’s not working.  Top management needs to commit to addressing any concerns.  That reinforces the promise of fairness.

Pay programs across government will need to conform to a set of overarching principles and rely on a unified market database.  However, agencies need the flexibility to align employee compensation with each agency’s goals and staffing plans.  That’s a proven strategy.

About the Author

Howard Risher is a private consultant who focuses on pay and performance. His career extends over 40 years and includes years managing consulting practices for two national firms. He recently became the editor of the journal Compensation and Benefits Review. He has written four books, including Aligning Pay and Results. He has an MBA and Ph.D from the Wharton School of the University of Pennsylvania.