EXECUTIVE PAY The pay raises for Federal executives of December 31, 1981, and December 17, 1982, helped to alleviate one of the most critical but perhaps least understood and appreciated problems that faced the Federal government. Prior to these recent increases, the executive pay ceiling had only been increased by 5.5 percent since March 1977. During that same period, retired Federal executives received annuity cost-of-living adjustments totaling 55 percent; Federal white-collar pay rates had increased by 38 percent; and private sector executive pay had gone up by about 40 percent. Federal executives had been denied scheduled increases totaling 22.6 percent during the three year period of October 1978 to October 1981. During this same period, the Consumer Price Index recorded increases of 52 percent due to inflation. This situation created a multitude of recruitment, retention, morale, and other problems and, if allowed to continue, probably would have adversely impacted the management and operation of Government programs. From 1978 to 1980, there was an increase government-wide in retirement rates of Federal personnel. This increase resulted in part from the 1977 executive pay increase artifically depressing retirement rates for about two years as people who had been at the pay ceiling extended their service in order to gain larger retirement benefits. Since 1969, retirement annuities have been tied automatically to the Consumer Price Index, presenting employees at the pay cap with the option of selecting retired pay, which goes up while fulltime salaries remain frozen. In 1980, persons at the pay cap who were eligible to retire did so at 154 percent of the rate for all federal employees. The loss of executives is more severe in the high technology occupations. Government programs are becoming more and more scientific, particularly in fields such as health and defense, but the inability to attract and keep doctors and science administrators has clearly been a most serious recruitment problem. The results of OPM surveys of both those executives who stay and those who leave Federal service demonstrate that pay cap and salary compression issues have been the major factors in the critically low morale of senior executives. Quoting from testimony by the Director of the Office of Personnel Management at a September 14, 1981, hearing before the Senate Committee on Governmental Affairs: "Of those executives who leave Federal service, pay is by far the major reason. In fact, a recent survey found that 65% of those executives who quit cited inadequate pay as their chief reason. It is significant that 75% also said the jobs they left were challenging and satisfying. These statistics concern me very much, because they indicate that pay compression is driving out employees who are not only competent and seasoned but satisfied and challenged." Quoting from the Chairman of the Securities and Exchange Commission at the same hearing: "While realistically salaries of senior public officials will never compare favorably with those of senior executives in the private sector, it must be recognized that when the disparity becomes as great as it has, government service becomes not only less attractive to many but unfeasible for most. Ultimately, the government will have to rely on executives who are rejected by the private sector or executives who are capable of "subsidizing" their employment." Quoting from the Assistant Secretary of Defense for Manpower, Reserve Affairs, and Logistics at the same hearing: "Illustrative of the recruiting problem from within the Government are two examples from the Air Force. First, at the Air Force Accounting and Finance Center, only one of eight senior GS-15 employees applied for a recently advertised Senior Executive Service position. Second, when a candidate development program for the Senior Executive Service was announced last year, only 196 of 935 Air Force employees at the GS-15 level applied. Those who applied generally were not considered by the top functional managers as being the best qualified for entry into the Senior Executive Service. Our problems with both recruitment and retention are caused almost exclusively by the current compensation situation. Executive salaries in the private sector and the cost of living have risen significantly in recent years, while salaries for our senior executives have remained unchanged. As a result, it has become more and more difficult to attract high-quality individuals from the private sector to fill our senior executive positions. They are not willing to take the reduction in salary which would be required. Recruitment from within the Government has also been adversely affected by frozen executive salaries. Those individuals who would normally compete for our senior executive positions are not doing so because such a promotion would not provide any increase in pay or any prospect of an increase in the future. Because of the $50,112.50 pay ceiling, we now have senior executives and managers at seven different levels of responsibility all receiving the same salary. Thus, there is little incentive to seek a more responsible and difficult position, when there is no difference in salary." Government organizations such as the FBI, IRS, Federal Reserve, Public Health Service, and GAO are dependent upon highly skilled, professional staffs. Without adequate pay, the federal investment in education, training and especially experience is jeopardized by the exodus of this most valuable resource to early retirements and resignations, which are generally for better compensated positions in private industry. Quoting from the Executive Assistant to the Director, Federal Bureau of Investigations at that September 1981 hearing: "Many agents are leaving as soon as they become eligible in the FBI, after reaching 50 years of age with 20 years of service. There are some fairly dramatic figures on this that I think are comparable to the rest of the Government service. In 1978, in the senior grades, we had 20 such retirements and 65 percent of them were people who had just reached age 50. In 1979, we had 35 and there were 80 percent of those that were eligible. Then in 1980, we had 42 retirements of our administrators and 90 percent of them had just reached age 50. "So trends are certainly away from being able to attract and then retain the kind of administrative experience that we find so necessary in the Bureau. It takes years for the development of executives who can be so flexible, work long hours, sustain transfers and include an individual who is capable of often having to make life and death decisions for us." Quoting from the President of the Senior Executives Association at that hearing: "The current situation provides almost no incentive to those who would stay with the expectation that remedial action will be taken to correct the situation. There really is no demonstrated commitment that the future will be better. In fact, many of those now retiring can recall former executives going almost 10 years in the 1960's and 1970's without a pay raise. They do not want to repeat that kind of history--nor do their potential successors... "In some circles there has developed a certain cynicism about the ability of Government executives to leave the Government. While that may be true in some fields, a large percentage of Federal executives are indeed very marketable-over 50 percent of the SES for example is composed of scientists, lawyers, and engineers--professions affording considerable transferability of skills. "But even for those fields where lengthy Government service makes mobility more difficult, the issue remains one of motivating and keeping effective the considerable talents in which we, the people, have invested years of development." As GAO testified at that hearing: "Effective Government does not just happen; it needs good people to run it. Executives and senior managers comprise only a small segment of the Federal work force, but this group is one of the most vital factors for assuring the success of government programs. То effectively manage Federal programs which affect the life, health, and safety of all Americans, the Government must obtain and retain capable professionals and executives. "Especially in today's environment, experienced executives are needed to offer and properly execute workable solutions to the ever-increasing demand for better services and increased productivity. With continuing inflation, declining productivity, and mounting pressure to further reduce the level of Federal spending, U.S. taxpayers need and deserve the best managerial talent available." Although the December 1981 executive pay raise provided some relief, it did not fully alleviate the critical pay compression problem. Thus, another pay raise was certainly needed to relieve pay compression resulting from absorbing the gross effect of inflation and to reestablish the pay distinctions among the various executive levels. The December 1982 pay raise provided executives with up to a 15 percent increase over the year earlier level. Although it is too early to evaluate the effect of the recent pay increase, the Office of Personnel Management agrees that the recent increase should have a positive effect on executive morale and productivity. Information should be available later this year which would permit OPM to show changes in retirement rates of executives. Also, OPM will conduct a Federal employee attitude survey in late spring that should show the effect on executive morale. Included herewith is a schedule which shows by government branch and pay level the number of employees affected by the pay cap before and after the December 17, 1982, increase. SES BONUS SYSTEM GAO performed a review of the SES Bonus System and issued a report, "Actions Needed to Enhance the Credibility of Senior Executive Service Performance Award Programs" (FPCD-81-65), in September 1981. Our report (attached) provides an indepth discussion of the SES performance award system. The report points out that the agencies which we had reviewed generally appeared to be 17-831 0-83-11 making reasonable efforts to administer and refine workable performance award systems. However, we also documented that members of Congress, senior executives, and the press had criticized the administration of SES awards. recommendations to OPM designed to correct those perceptions. We made The Office of Personnel Management agreed to take actions to enhance the integrity, credibility and equity of agencies' performance award programs. We plan to do additional work on the SES performance award program later this year. |