The Pandemic Drove the Final Nail in the GS System

The coronavirus pandemic has cast the government’s HR crisis into stark relief: both the public’s need for government services and the government’s future staffing needs for essential employees are uncertain. Responding to COVID-19 has also made individual expertise and credentials a front burner concern. In the new work environment individual initiative, agility and performance are highly valued. The pandemic also requires flexible and responsive staffing practices. Government is confronted with a different workforce management reality than at any time in the past.

Government’s staffing problems predate the pandemic. The aging workforce, demographic trends, a tight labor market, a shortage of essential skills and a tarnished brand are all factors.  

With millions of workers laid off, agencies will likely be inundated with job applications but the protracted hiring process and below-market starting salaries will continue to be barriers to hiring and retaining qualified talent. New hires with private sector experience will only increase the pressure on agencies to change the way they manage people.  

In this context, the General Schedule salary system is a core problem. It’s an anachronism that undermines initiatives to improve government performance. It is broken from every perspective.

• It's staggeringly bureaucratic and costly to administer; the Office of Personnel Management no longer maintains the GS system as it was conceived. More than a few class standards have not been updated for years. OPM no longer has the staff to confirm jobs are correctly graded.
• Starting salaries for essential knowledge jobs are below market, adding to government’s staffing problem. Cybersecurity jobs top a long list. The pandemic makes new specialists essential.
• In other sectors employers rely on the simple idea of comparing salaries with those paid by competitors. But the BLS/OPM analyses ignore competitor pay levels and practices. OPM does not know if jobs are overpaid or underpaid relative to market levels.
• The step increases contribute to and reinforce the “culture of compliance” underscored by the National Academy of Public Administration as an impediment to good government. 
• The step increases are a turnoff to high performers and a barrier to results-based management.
• The rigid hierarchy of jobs is badly out of sync with today’s labor markets. Many knowledge jobs today would have been impossible to conceive in 1949. Further, the BLS/OPM data analyses do not produce valid measures of the market pay of knowledge jobs or any other jobs.
• The annual ritual to adjust the salary ranges to reflect pay increases in the labor market is a statistical black box that few understand and is totally different from accepted practice.

It's highly likely that no single person, including those who administer the program, is capable of explaining the total administrative process.  

COVID-19 Has Undermined BLS Pay Surveys 

When the Federal Employee Pay Comparability Act was passed in 1990, the world of work was largely unchanged from the scene that emerged after World War II, although business would soon undertake revolutionary change. The analyses and discussions that led to FEPCA reflected practices common at the time in industry. The Bureau of Labor Statistics then conducted an annual survey—the National Survey of Professional, Administrative, Technical and Clerical Pay—that was similar to those used in business. The so-called PATC survey data were broadly accepted by stakeholders.

Then in the mid-1990s, BLS discontinued the PATC survey. The plan was to replace it with Employment Cost Index data. It was rumored that BLS had not informed OPM of their plans. OPM evaluated the use of replacement commercial surveys but each was rejected for technical problems.  

However, the ECI data are valid only as estimates of pay increase rates. The survey was not planned to generate estimates for what specific jobs are paid. Further, it is unable to estimate differences in pay increases by job family or by job level. That’s normally the foundation for pay programs.

Over more than two decades OPM has worked with BLS to fix the problems. Today the ECI data are combined with data from the Occupational Employment Statistics Survey but with the layers of statistical “fixes” it's become a black box that policy makers do not appear to understand. Despite BLS marketing efforts, the data are not used by private sector employers.

Now the COVID19 crisis has radically changed labor markets across the country, with layoffs of millions of workers. As coronavirus hot spots continue to flare up, the local demand for front line workers and healthcare specialists will spike. Layoffs and pay freezes are having a pronounced effect on market pay levels.

In April 2019 there were 5.2 million unemployed workers, a year later the total was 20.9 million. The week ending May 9 saw a surge in claims for unemployment benefits to more than 25 million, an indication that many workers have not returned to their jobs since being laid off or furloughed. That does not include 9.8 million workers who wanted a job but had not looked for work in the past four weeks and were categorized as “not in the labor force.”

The layoffs have affected workers across all occupations and job levels. The April workforce data, for example, show a loss of 2.2 million “professional and business service” employees in a month. In healthcare, despite the pandemic, the total was down 1.4 million.

The job losses have a clear and obvious impact on BLS pay data. Keep in mind the layoffs have been disproportionately in female and lower level jobs. Despite that, BLS reported pay in the private sector increased 7.5 percent from April 2019 to April 2020. That’s not higher salaries; it's attributable to the loss of lower paid jobs. That single number undermines the credibility of the BLS survey methodology.

BLS data collectors have had to discontinue personal meetings and now depend for data collection on employer representatives. As the BLS website states, “It will not be possible to precisely quantify the impact of COVID-19” on pay estimates. If an employer states that laid off employees are expected to return, “The costs for workers temporarily absent are included.” Stated differently, the surveys now include phantom employees.  

BLS statistics were always problematic. First, the data are limited to workers covered by state unemployment insurance laws, and since state laws vary, the data were never truly comparable. More importantly, an estimate in the Federal Reserve’s May 2018 report on the economic well-being of U.S. households, found that 31% of adults are engaged in independent work, up 3 percentage points from the 2016 report. Other studies by McKinsey and Upwork show that 36% of the American working age population engages in independent work. They and their compensation are not reflected in BLS statistics  and workforce trends suggest those workers will grow in importance.

To highlight the core problem, BLS surveys do not generate market pay data indicating if federal jobs are overpaid or underpaid. A Federal Salary Council report from April shows white collar employees are underpaid by a superficially precise 26.71 percent but those reports are always silent on how well federal employees are paid relative to their counterparts in other sectors. In other sectors, salary planning is routinely based on comparisons with market data and the goal of remaining competitive.

Government Needs a New White Collar Pay Program

Every time a proposal surfaces to replace the GS system there is staunch opposition, but it’s opposition to change itself; nobody tries to defend the system. Unstated—but an obvious factor—is distrust and fear of the unknown.

The solution, discussed in a Harvard Business Review article, “If Employees Don’t Trust You, It’s Up to You to Fix It,” is for leaders to build trust. Here, that means developing credible job-specific market data. That’s basic and universal in other sectors. There are more than 1,000 annual surveys across the country covering every job family; many would be available for government use. Local teams should play a role in the analyses. The goal is to build credibility and agreement on the facts.

Programmatic change will be possible only with strong, trusted leadership. That was the lesson from the successful reform in Tennessee where a newly elected governor made transitioning to goal-based management and pay for performance a priority. The state invested three years in training and coaching to prepare managers and employees for the change.

The model that has worked best in demonstration projects is based on broad salary bands, defined by steps in career ladders. Public and private employers have four decades of experience with banded salary programs. In several reports NAPA has recommended developing separate banded systems for broad occupational groups—science and engineering, technology, office support, program management, etc.  Each would be managed to follow market trends. That builds on the Title 38 pay system.

The crisis has made it clear that purpose is important to workers in all age groups. In this new environment, employee empowerment and initiative are important. Recognition practices should reinforce what’s valued. Government salaries may never be fully competitive but drafting an employee value proposition for recruiting would help job seekers appreciate the rewards of working in government.  

Government spends over $100 billion a year on white collar salaries but has ignored questions about the efficacy of pay and performance practices. After the pandemic begins to wind down, agencies should undertake internal analyses to understand how the GS system impacts staffing and employee performance. Comparisons with private sector employers would provide valuable insight.