The Federal Pay Equity Quandary

Federal agencies have a fair pay problem. It has been compounded by agencies’ need to compete for high demand talent in tight labor markets and overall neglect by elected officials, who have allowed the alignment of General Schedule salaries with market pay levels to become very unclear. An added element of the problem is that, over the years, selected agencies were authorized to create separate pay systems and, more recently, allowed to pay higher “special rates.”

Government’s pay policy is stated in Merit System Principle 3: 

“Equal pay should be provided for work of equal value, with appropriate consideration of both national and local rates paid by employers in the private sector, and appropriate incentives and recognition should be provided for excellence in performance.”

Ignoring for the moment all the separate salary systems, the Classification Act of 1949 and the classification system operationally defined the basic standard expressed in Principle 3. “Work of equal value” is or was essentially the same as the standard under the Equal Pay Act, which requires that “employees of both sexes be paid equitably for work requiring equal skill, effort, and responsibility performed under similar working conditions.” The classification standards ostensibly enable agencies to assign jobs of “equal value” in hundreds of occupations to salary grades. That model was common in the 1950s, but rejected decades ago by leading employers.

In 1949, the world of work was very different. There was minimal competition for talent. Workers started in entry level jobs and stayed with the same employer through their careers. Salary surveys did not exist. “Internal equity” was the announced goal. It was decades before the acronym STEM came into use. Pay increases were based on seniority. Today, non-government employers rely on a different program model.

‘Just Anyone With Some Basic Skills’

Recently, Ronald Sanders, who resigned late last year as the chair of the Federal Salary Council, posted a jointly authored column with former IRS Commissioner Charles Rossotti: “Shrinking the Tax Gap Requires a Renewed IRS Workforce.” Sanders served as the IRS chief human capital officer when Rossotti was commissioner. They argue the IRS needs to add “specialists in applied information technology (such as AI and machine learning); data scientists and analysts; accounting and tax professionals with expertise in specialized areas such as partnership accounting; systems architects; and cyber security experts.” Sanders knows better than anyone that GS salaries lag the private sector for many job categories, especially when it comes to jobs that require the advanced technological and analytical skills the IRS needs. A key point is that government’s basic hiring policy is “like saying you don’t want the best people you can attract, just anyone with some basic skills,” they wrote. As current IRS Commissioner Charles Rettig recently testified, the IRS is often “outgunned” when taxes are disputed. 

A second recent column highlights an element of the problem, “How ‘Degree Discrimination’ Can Affect Feds’ Pay.” The author, Lindy Kyzer, is correct: college degrees are a “path to higher compensation.” “Regardless of industry or experience, more education means more money.” 

However, the column misses an important nuance. It’s the same nuance that is too often missed in pay equity analyses. Yes, years of school and degree levels are correlated with salaries but as used in the analyses, those metrics are not useful in addressing equity concerns. Employers look for applicants with specific skills, not years of school, and make hiring decisions based on the relevance and quality of the education and skills of an applicant. Simply having a degree does not make an applicant attractive 

In other sectors, it’s the college major and the quality of the college program that are evaluated in making hiring decisions. Only fragmented data are available but it consistently confirms the expected—graduates of colleges like Stanford and MIT start at significantly higher salaries than those with degrees from unknown schools. Buying an online degree would not get an applicant hired at leading companies. 

Sanders is correct. The IRS needs to be able to pay competitive salaries to attract the better qualified specialists. That’s true as well for specialists in other fields and other agencies relevant to the nation’s urgent problems. It was the rationale in 1989 when Congress, through 1989 Financial Institutions Reform, Recovery, and Enforcement Act, authorized certain agencies to create separate pay systems. It was again the argument for creating the National Security Personnel System after 9/11. Pay was also a prime consideration in creating the Title 38 salary program for healthcare specialists. The fact that there are so many vacancies suggests salaries are not fully competitive.

For the IRS to be successful, the agency requires a workforce that is not only numerically larger but also fundamentally transformed from a skills standpoint. That’s true for specialists in information technology, the hard sciences, economics, math, and medicine. The COVID-19 health crisis has made it all too obvious that “just anyone” with basic medical credentials is not what government and the country needs.

The caveat is that there are many jobs that require little or no specialized skills or expertise. Every organization has them. For these jobs, degrees might prepare individuals for better lives but they add little if anything to job performance. Pay programs have to assure “fair pay” to all employees. That’s become a highly contentious issue.

It’s Essential That Agencies Value Talent 

Here is where federal pay is truly deficient. Basing pay increases on seniority is a practice that is out of sync in any situation where highly-skilled people are employed and where high performance is needed. The business world makes pay for performance in multiple practices central to their pay strategies. Even the academics who have criticized the practice are paid for their performance (although the model for evaluating performance is unique to higher education). It’s also deeply entrenched in raising and educating children. It's important in sports, the arts, literature—every sector except government.

To quote from the Great Places to Work website, “Employee recognition has long been a cornerstone of effective management. But today, as the competition for talent escalates, how organizations value their employees has become more important than ever.”

It's also a proven practice where behavior needs to change. People have trouble changing established behaviors. Rewards are effective in reinforcing new, desired behavior. We do that routinely with children.

During the debate preceding passage of the Civil Service Reform Act of 1978, then-Senator Joe Biden was quoted, “the most important part of civil service reform must be to motivate good employee performance.” That is from an Merit Service Protection Board report where “recognition of employees’ performance contributions is one of the key ‘drivers’ of positive employee engagement and retention.” The failure to recognize and reward performance may well explain the heavy turnover among recent hires.

At this point it is clear: Transitioning to “merit pay” will require a significant culture change and possibly years to accomplish. It will also require strong leadership. Tennessee invested three years in planning and preparing the state’s managers with training and coaching to shift successfully to pay for performance. 

Today, government is not in compliance with Merit System Principle 3. 

Implications for Pay Equity

Employee salaries are best understood as a composite of decisions made both by HR specialists and by managers over an employee’s career. Discrimination is possible at any point—when jobs are classified, in the descriptions offered when vacancies are posted, in evaluating applicant credentials, in promotions, etc. The argument that applicants should not be asked for their salary history recognizes the problem and how discrimination can be perpetuated unintentionally. Agencies need to evaluate relevant practices in each unit and location to assure fair personnel actions.

The basic equal pay test appears at one level to be straightforward—equal skills, effort, responsibility and working conditions. Originally, equal jobs were those defined by the same job description. But at the state level, the laws and court decisions are gradually expanding the interpretation. As this unfolds, the basis for comparing jobs will have to be reconsidered.

What are equal skills? Degree level is hardly a valid measure. What is equal effort? Equal responsibility? The words have appeared in job evaluation/classification systems for decades. As used in this context, skill, effort and responsibility are abstract, comparative ideas that are best “measured” with a series of scaled response questions. Three or four questions for each, depending on job level, provides a more credible database for comparing jobs.

Research has shown that gaps in equal pay are largely explained by sex and racial segregation. Women as well as minorities are underrepresented in higher level jobs. That is a different problem and is not solved with pay adjustments. They are also underrepresented in science, technology, engineering, mathematics, and medicine. Should social scientists be paid the same as specialists in the hard sciences? The former are more likely to be female and the latter male.

The demand for specialists in STEMM fields forces employers to raise salaries. Authorizing special rates appears to be contrary to pay equity. More importantly, shifting budget dollars to close pay gaps would reduce the funds needed to remain competitive.

The existence of multiple salary programs prompts several questions. One is the straightforward question of pay for the same job in different agencies. For example, should a female accountant at the Federal Deposit Insurance Corporation be paid the same as male accountants in other agencies? Or should all federal accountants be paid the same? 

Rebuilding the workforce will require a pay system that is seen as fair to highly qualified men and women. It also has to enable agencies to compete for talent. The planning needs to start soon.