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What Exactly is Fair in Federal Compensation?

The reality of pay equity in government.

When it comes to pay, fairness is an elusive concept. What is too much, too little, just right? The answers depend on who’s talking, and when they’re talking.

This is why the debate about whether federal employees are over- or underpaid rages on. It’s complicated, relative, and, of course, political.

Federal compensation once again dominated government news headlines this week. Furloughs for 650,000 Defense Department civilians across the country began on Monday, guaranteeing those employees smaller paychecks this summer. Acting Internal Revenue Service Commissioner Danny Werfel said he wants to get rid of performance bonuses in 2013 to reduce the number of furlough days employees are forced to take. And the Senior Executives Association is trying to reignite a discussion of pay compression, a byproduct of the government’s imperfect pay systems.

Pay compression could be a bigger long-term threat to the government than even furloughs or budget cuts.

Advocates for senior executives, most notably SEA, have argued for years that the structure of the Senior Executive Service’s pay-for-performance system impedes the government’s ability to recruit and retain top employees. In some cases, the pay of senior executives overlaps with that of workers in the top tier of the General Schedule; that pay compression can discourage employees at the GS-14 and GS-15 levels from applying for SES jobs and taking on more responsibilities while receiving less money.

Annual salaries for SES employees in 2013 range from $119,554 to $179,700, and senior executives make up less than 1 percent of the federal workforce.

The salary cap for senior executives now should be $248,600 -- $68,900 more than the current cap -- according to SEA. The group said pay freezes, the elimination of locality pay for SESers in 2004, and smaller annual salary increases than received by General Schedule employees over the years created and have exacerbated the problem.

Approximately 25 percent of the SES earned less than $160,000 in 2012. The highest paid employees on the GS scale -- GS 15, Step 10 -- made $155,500 and Defense employees who were covered under the now-defunct pay-for-performance system known as the National Security Personnel System, earn more than a GS-15, Step 10 salary, according to SEA.

The group also pointed out that the salary reimbursement cap for the highest-paid contractor executives is $950,000 for 2013. The Obama administration, federal employee unions and various lawmakers in recent years have sought to reduce the reimbursement rate set by current law, though major contractors argue such a step would harm their competitive edge in attracting talent.

That’s the argument SEA is making for the government.

“With nearly 70 percent of senior executives managing programs with budgets in excess of $50 million, SEA believes that it is time that Congress address the two-fold pay disparity which discourages managers from entering the executive corps for financial purposes, among other reasons, while also incentivizing the federal government’s top executives to take their talents, skills, and knowledge of government operations to private industry where they can earn in excess of five times their federal salaries,” the association said in a press release.

Pay compression at the upper echelons of the career civil service has been around a long time, and there’s certainly not much appetite right now for increasing federal employee pay at any level. Critics of increasing SES pay argue that government is public service, and as such, its employees shouldn’t expect an industry executive’s wages from the taxpayers who pay their salaries. Advocates for higher pay say the government needs to compensate its best and brightest with better salaries if it hopes to attract and retain talented employees.

So, what’s fair? As my high school P.E. teacher used to say, “Fare is what you pay when you ride the bus.”

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