The House Committee on Oversight and Government Reform held a hearing yesterday (May 18) on the federal government’s pay system. There were two stated purposes for the hearing:
- To discuss the recent Congressional Budget Office (CBO) report comparing federal compensation to that of the private sector.
- To identify potential areas for improvement and modernization in the current federal compensation system.
As background information prior to the hearing, the Committee noted:
- In April, CBO released a report that found federal employees earn 17 percent more than comparable private sector employees in total compensation, with wide variances depending on education.
- The retirement benefits available to most federal employees are an important factor contributing to the compensation differences.
- Entities such as the Heritage Foundation and the Government Accountability Office have offered reform proposals to make federal compensation more performance-oriented, affordable and sustainable.
Findings of the Congressional Budget Office (CBO)
In April 2017, the CBO issued a report on federal pay and benefits. It concluded:
- Federal civilian workers whose highest level of education was a bachelor’s degree earned 5 percent more, on average, in the federal government than in the private sector.
- Federal civilian workers with no more than a high school education earned 34 percent more, on average, than similar workers in the private sector.
- Federal workers with a professional degree or doctorate earned 24 percent less, on average, than their private-sector counterparts.
The primary difference between federal and private sector pay and benefits is the more expensive benefits package provided by the federal government. On average, federal benefits are 52 percent higher for federal employees than private sector employees according to the CBO.
Overall, there is a significant difference in compensation between federal employees based upon education levels:
- Among workers whose education culminated in a bachelor’s degree, the cost of total compensation averaged 21 percent more for federal workers than for similar workers in the private sector.
- Among workers with a high school diploma or less education, total compensation costs averaged 53 percent more for federal employees than for their private-sector counterparts.
- Total compensation costs among workers with a professional degree or doctorate, by contrast, were 18 percent lower for federal employees than for similar private-sector employees, on average.
Lies, Damn Lies and Statistics
Many of the groups compiling reports on federal pay have their own agenda. Those that favor higher pay (the Federal Salary Council) compile statistics showing a significant underpayment.
Other groups such as the Cato Institute compile statistics showing federal employees are paid much higher salary and benefits than private sector employees. The CBO generally comes across as in the middle of the competing statistical compilers.
On an issue as important to the federal workforce as salary and benefits, one would expect interest groups to start issuing press releases and doing what they can to influence the actions of the Committee reviewing federal compensation. And, in fact, that is what is occurring.
AFGE’s press release states “Federal employees earn a living wage and benefits – and that’s nothing to apologize for.” The release highlights the salaries of chief executive officers in private industry contending the average CEO salary “on the S&P 500 Index was paid $13.1 million last year – 347 times more than the average rank-and-file worker, and a six percent increase from the previous year….”
The union also notes “The highest paid employee in the federal government earns $400,000 a year – and that’s the president of the United States. About 600,000 federal employees earn less than $50,000 per year, and about 900,000 federal employees make under $60,000 per year, according to the Office of Personnel Management.”
The union refers to the federal employee benefits package as “slightly ahead” of the private sector but “becoming less generous by the year….”
The National Active and Retired Federal Employees Association (NARFE) highlights in its press release:
This hearing is about more than pay. It is about how we value public service, and whether we, as a nation, will support federal compensation strategies that ensure American citizens are served by a competent and well-qualified federal workforce.
NARFE also cites the report of the Federal Salary Council and contends that the CBO “report suffers from several limitations and analytical flaws.”
NARFE states in its release:
It is worth noting that, both with respect to total compensation and benefits, the CBO’s findings do not support across-the-board pay or benefit cuts. If implemented, these cuts would fail to distinguish between varying geographic and occupational labor markets, and result in pay cuts for employees the CBO report concludes are underpaid compared to their private-sector counterparts.
Pay Systems Vary in Federal Government
At least some FedSmith readers often assume the pay system in their agency is the one used by all agencies. In reality, there are numerous pay systems as the General Schedule (GS) system has been breaking down over time.
Many cities and metropolitan areas in the country receive locality pay. The Federal Salary Council has been pressing the President’s Pay Agent to expand locality pay into more areas. They have been successful in these efforts. Federal employees in locality pay areas receive higher pay than those in the “rest of the U.S.”
The average salary in Washington, DC, based on 2016 data, was $112,000. At the other end of the scale, the average federal employee salary in South Dakota was $65,782. Locality pay is part of the reason for the disparity between states. The average salary grade level in Washington, DC is also often higher than areas outside of Washington.
Andrew Biggs, from the American Enterprise Institute, testified with regard to federal salaries:
A married couple with two GS-15 federal employees could collect nearly $300,000 in annual salaries plus perhaps another $120,000 in current or future fringe benefits. Four of the five highest-income counties in the United States are in the suburbs of Washington, DC. That doesn’t come from the federal government paying low salaries.
A number of agencies have different pay systems and, in some cases, unions negotiate the wages of those employees. The agency with the highest average pay, for example, is the Securities and Exchange Commission with an average of $173,587. Here is a list of the average salaries for the top 10 federal agencies with the highest salaries.
At the other end of the scale are agencies such as the Transportation Security Administration ($52,269) and the Census Bureau ($50,849) and the National Institute for Literacy ($26,088).
There are also federal organizations such as the Tennessee Valley Authority (TVA) where the agency head makes almost $1,000,000 per year.
Counting the TVA and other agencies that have unique federal pay systems, here is a breakdown of the highest paid federal employees:
|Salary||Number of Employees|
FedsDataCenter.com allows sorting salaries from highest to lowest or from lowest to highest by clicking on the “salary” column.
The data outlining federal salaries vary widely. There are figures to support arguments for higher or lower federal employee salaries.
There are frequently arguments made for instituting a pay-for-performance system in the federal government. With strong unions, lack of financial incentives for managers or supervisors to become embroiled in the long-lasting appeals, and the morass of federal appeals available, pay-for-performance systems have not been long lasting or successful in the federal government.
The Committee will presumably look at a number of options including those from the Heritage Foundation that would have an impact on many federal employees. These options include altering the federal retirement system, pay-for-performance, and instituting financial incentives for managers to reward the highest performing employees. (See Proposed Changes to Federal HR: From Worst Case to Possible)
Predicting what will transpire after the hearing is not possible. We can assume a wide variety of options will be considered. What changes, if any, will be made in Congress to federal pay and benefits or when changes will occur are unpredictable.