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A better way to pay

Apr. 14, 2013 - 12:26PM   |  
By HOWARD RISHER   |   Comments

When Mark Twain used the phrase “lies, damned lies and statistics” he could have been discussing the federal pay gap.

Democrats, who tend to argue that federal employees are underpaid compared with their private-sector counterparts, and Republicans, who argue the opposite, both have their statistical “facts’’ but cannot prove the other side is wrong. Unless credible facts are developed, this pernicious debate could go on for years.

The 2012 Congressional Budget Office analysis of federal pay gives the critics added credibility. It’s been cited frequently in the year since its release.

The fundamental problem is that neither side — nor CBO — has developed readily understood comparative pay data. The decision logic and analyses used in adjusting the General Schedule are different from those used by other employers. Furthermore, both sides rely on survey data that would never be used by other employers. Finally, neither side has produced data showing, for example, how much a chemist, budget analyst or any employee is paid in labor markets across the country.

For years, the Office of Personnel Management relied on a Bureau of Labor Statistics survey based on the same basic idea used in hundreds of pay surveys. OPM identified federal jobs commonly found in other organizations — the “benchmark’’ jobs — and BLS collected survey data for those jobs. Multiple surveys based on benchmark jobs were used in the analyses preceding passage of the Federal Employee Pay Comparability Act. The continuation of that approach was a key in drafting the legislation.

But in the mid-90s, BLS switched to a new survey strategy that does not generate comparative pay data.

The fact is that OPM would never have agreed to the change in survey methodology if it had been proposed in the meetings leading to FEPCA — I was involved in those meetings.

Another fact is that it’s been almost two decades since OPM completed a market analysis comparable to those common in other sectors. There seems to be general agreement that some jobs are overpaid and others underpaid — but we don’t know which ones.

Both sides agree in concept that federal employees should be paid market rates. The Federal Wage System covering blue-collar employees, unlike the General Schedule, has been market-based for years and rarely makes the headlines.

More important is a third fact: The GS system is badly out of sync with developments in the labor market. Employers outside the public sector stopped relying on general increases and increases based on years of service years ago. Aside from locality pay, the system has been unchanged for 60-plus years.

Market pay rates are driven by supply and demand. It should not be surprising that engineers are paid more than historians or psychologists. Even within an occupational group like engineering, there are differences in annual increase rates.

For example, data compiled in late 2012 by the survey organization Economic Research Institute show that the salaries of petroleum engineers increased by 3.9 percent, while civil engineering salaries increased by only 1.4 percent.

Supply and demand and market pay differentials vary from region to region. The mix of industries also varies. Businesses rely on flexible pay systems to respond to market trends.

A final important fact is that no employers in the private sector would freeze wages for three years if they had any hope of continuing as competitive entities. There were, to be sure, employers that froze pay in the months immediately after the downturn in late 2008, but few froze pay through all of 2009. Pay levels have increased steadily since then.

Significantly, in a February 2012 column, three senior analysts from the Heritage Foundation and the American Enterprise Institute, who published previous columns critical of federal pay, issued a joint statement supporting the CBO conclusions. They also stated that “an across-the-board pay freeze is a blunt instrument that does not ensure that each employee is paid appropriately. A better approach would be to reform the General Schedule.”

On this issue, I solidly concur. When President Obama was still a candidate in 2008, he advocated reform. OPM Director John Berry also voiced support for reform. Unfortunately, mistakes made in the Bush administration’s pay initiatives undermined support to replace the GS system.

That reform is badly needed. Skill shortages have already triggered staffing problems for a growing number of employers. Efforts to create “great places to work’’ and high-performance organizations have intensified corporate efforts to attract the best-qualified job candidates. That is already reflected in pay strategies. Before another across-the-board increase is granted, government needs to identify key jobs where pay is not competitive. Government needs the talent to tackle increasingly complex problems.

Howard Risher is a consultant and writer on federal pay and performance issues. He was the managing consultant for the studies leading to the 1990 Federal Employees Pay Comparability Act and is author of “Planning Wage and Salary Programs.”

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