Commentary: The Compensation Fallacy


Everyone professes to be committed to a government of excellence, efficiency and innovation, yet how our political leaders view and treat the very people charged with executing the government’s complex and critical missions suggest otherwise.

Civil servants are straining under unnecessary furloughs, hiring and pay freezes, the elimination of training and development opportunities, and a constantly shifting spending baseline that wreaks havoc with their ability to plan and execute what the administration and Congress demand. But they are still expected to perform excellently, efficiently and innovatively. At the same time, some in Congress and elsewhere accuse them of being overpaid, overindulged and unproductive.

While change is desperately needed in the civil service system, to suggest civil servants are either underworked or overpaid defies all logic. Why do federal agencies have so much trouble attracting adequate personnel, particularly in complex fields? Why does the government, according to the Office of Personnel Management, have seven times as many people over 50 than under 30 in its information technology workforce? Surveys show much of the answer lies in pay and professional development gaps, and an overly risk-averse culture that fails to reward performance. That’s hardly reflective of an underworked and overcompensated workforce.

For contractor employees it’s only marginally better. For a variety of reasons, not the least of which is access to talent, this workforce also is an essential partner in the implementation of government missions. For the most part these employees have traditionally been able to command reasonably competitive compensation, without which companies -- like the government -- would be unable to recruit and retain them. But that could change if any one of several legislative proposals to arbitrarily cap contractor pay goes forward.

These proposals illustrate that instead of focusing on what is required to meet the goal of excellent, efficient and innovative services, attention has been diverted to meaningless sideshows that inhibit achievement of that goal. Just as current wage freezes, hiring freezes and proposals to cut federal pay and benefits greatly inhibit the government’s ability to attract a high-performing workforce, so, too, do proposals to arbitrarily cap the compensation government will reimburse to contractors or to mandate their labor rates be frozen at 2010 levels.

While these proposals make for good rhetoric and sound plausible as a matter of “fairness,” none will move the government forward precisely at the time it is facing some of its greatest challenges. By piling one problem on top of another, they could actually result in just the opposite. And none of these approaches shows any regard for the broader market forces that, unlike government policy, control and determine the compensation and work environment different skills can command.

Because meaningful analytics matter, no high-performing company or institution would allow its business practices to be governed by the kind of false dichotomy being used by the White House and others to justify the recommendation to cap all contractor compensation, from executives on down. All of the proposals are loosely based on an imbalanced comparison of government salaries to total private sector compensation. Aside from that, it is naïve and even disingenuous to argue that no contractor employee should make more than the president or that the president’s salary is any kind of benchmark against which to measure whether the compensation paid to contractor employees or executives is fair and reasonable. Companies aren’t competing with presidential campaigns to attract people. It’s unlikely that anyone has ever run for president because the position paid well and had great benefits, notwithstanding the perks of a taxpayer-provided house,  747, limo, chef, butler, gardener and even dog caretaker.

Companies compete in an open market for human capital where top, excellent and innovative talent is treated as a precious asset, lest it be lost to a competitor. “Adequate” and “acceptable” are not the tenets upon which success is built. Nor do most government employees care to live by the “good enough for government work” stereotype. Yet, as seen in its growing demographic and skills challenges, the federal government hasn’t been allowed to effectively compete in that open market. And some now think it makes sense to saddle contractors -- government’s primary conduits to that top, excellent and innovative talent -- with similar burdens.

Should the government pay unreasonable salaries to its contractors? Of course not. And for the kinds of contracts covered by the proposed legislation, the government already has the full authority and responsibility to approve the compensation paid to all employees working under contract. That approval hinges on the compensation being appropriate, fair and reasonable, and is regularly and effectively exercised by the government.

Rather than arguing over arbitrary caps that will limit government and industry access to critical high end skills, and rather than belittling civil servants and failing to provide them the resources they need to do the jobs we expect them to do, we should be demanding excellence, innovation and efficiency in everything the government does, regardless of the source of performance. And we should be ensuring the tools to get there are available. We can’t invest only for mediocrity and expect something else, from civil servants, the private or nonprofit sectors. The real world simply doesn’t operate like that.

Stan Soloway is president and chief executive officer of the Professional Services Council.

(Image via DiBest/

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