The Government’s Pay System Needs to Be Fixed. The Federal Salary Council Can (and Should) Lead the Charge.

Real pay disparities do exist between many federal occupations and their non-federal counterparts, and the deleterious effects of those disparities are manifesting themselves as we speak, as the federal government tries to attract talent in a hypercompetitive labor market. To address this challenge and help agencies compete in today’s talent market, reforming the government’s white collar pay system is essential. The Federal Salary Council is in a strong position to lead the way on these reforms.

The council under the previous administration attempted to make changes that I, along with my two fellow appointees from that administration, believe would have helped improve and modernize the pay system. President Biden’s nominees should consider taking up some of our unfinished business.

Systemic and Methodological Flaws in Setting Pay

The most obvious of the flaws in today’s pay system is also the most widely reported. Every year, the Federal Salary Council endorses a single percentage that purports to represent the current pay lag between all federal and non-federal white-collar jobs. But that single number (in effect, a mathematical average of averages) masks all kinds of occupational and grade-level differences, both nationally and locally. Those differences are real and they have real consequences, with the result that the federal government overpays for some jobs and is literally being priced out of the labor market for others, including STEM-related and cybersecurity positions.

Indeed, that single percentage representing the pay gap has become so large (and in our view, so politically and financially untenable) that every president since the inception of the 1990 Federal Employees Pay Comparability Act—both Republican and Democrat—has had to declare an economic emergency in order to escape its automatic, and fiscally disastrous, adoption.  

To make matters worse, the data that drives that single hyperbolic number comes from a random national survey of jobs and pay conducted by the Bureau of Labor Statistics, a survey that—depending on the luck of the draw in any particular locality—may or may not include federal white collar positions. This particular Bureau of Labor Statistics survey was never intended to apply to federal locality pay, but it was adopted out of budgetary necessity. In other words, it was all that the government could afford. But we believe that there are lots of better ways to gauge how federal and private sector pay compares, assuming sufficient attention and increased funding, and we urge the council to aggressively seek both, as we did.

That imprecise method of measuring the pay gap has other consequences as well. For example, the current "comparability" system does not take federal employee benefits such as civil service pensions and health insurance coverage into account, even though in theory, these benefit programs are deliberately generous to offset the pay lag with the private sector. Thus, those benefits are a critical part of the federal government’s ability to attract and retain talent, and they should at least be considered as part of total compensation, just as they are by most non-federal employers in setting salary levels.

While federal fringe benefits are completely ignored in pay gap calculations as a matter of law, that law does not prevent the Federal Salary Council from taking them into account in other ways, for example, by highlighting them for better or worse, and assessing their relative impact on pure salaries. As council members, we argued as much, and the Bureau of Labor Statistics even has existing survey data that could help. We also argued that federal civil service compensation—both pay and benefits—deserves the same comprehensive blue ribbon quadrennial review that U.S. military compensation receives.

The salary council’s federal employee representatives argued to the contrary, and that is their prerogative. But we made sure that all of those views were communicated to the President’s Pay Agent—the secretary of Labor and the directors of the Office of Personnel Management and Office of Management and Budget. They (and we) left after the 2020 election, and the matter seems to have disappeared. It should not.

Is This the Best Pay System the U.S. Government Can Afford?

Many of the problems with pay gap calculations are the consequence, unintended and otherwise, of programmatic inattention and egregious underfunding that continue despite the magnitude of the federal government’s payroll. OPM and the salary council are too often forced to adopt actions and decisions by other agencies that were never intended or designed to apply to federal pay comparability.

The random BLS pay survey cited above is one example, but here’s another. In 2018 and again in 2020, the Office of Management and Budget changed the geographic definitions of combined and metropolitan statistical areas used by the federal government, which among other things define labor markets in their corresponding geographic areas. Those definitions have also traditionally been used by the Federal Salary Council to define federal locality pay areas in those geographical regions, though that is not required by law. It often does not matter if the definitions have been changed; however, in this case it did.

In changing those definitions, OMB unintentionally expanded the county-by-county coverage of some of the federal government’s locality pay areas, and in other cases, it potentially shrunk them, excluding those counties from the updated definition of “labor market” in those areas. This was inadvertent, as OMB was not required to consult with the Federal Salary Council in establishing those labor market definitions, nor did it do so. Nevertheless, its determinations had real consequences for federal employees, and once again, the council was faced with defaulting to OMB, as it had traditionally done, or going its own way.

This came at a time when traditional deference to OMB was more than just an intellectual question. Readers may recall that back then, OMB was championing the veritable dissolution of OPM, the Federal Salary Council’s parent agency, and if for no other reason, some of us felt compelled to take a decidedly more independent course. After all, we were an independent body reporting to an independent agency. As a consequence, we forced an arduous and protracted case-by-case review of OMB’s determinations, the results of which were later rejected by the current Federal Salary Council. Obviously, that is its prerogative, but at that time, OPM’s independence was still in doubt, and we still believe that any automatic deference to OMB is problematic. 

The point here is that because the current approach to gauging “comparability” is significantly underfunded given the huge size of the federal payroll, it forces the Federal Salary Council to depend too much on other agencies—agencies that are not required to take the impact of their determinations on federal employees into account. For our part, we believe that the federal compensation system should be granted adequate resources to devise and employ the very best methodology the government’s budget can buy, and not be forced to accept bureaucratic hand-me-downs, especially not when the U.S. government has such a large employee payroll.

Considering All Views

The willingness and wherewithal to consider and where appropriate, champion, these changes reveals yet another flaw in the system: how the council actually decides what it will recommend to the President’s Pay Agent. This is a flaw that the council itself can do something about.

The law that established the council gives no guidance on how its nine members—six representing employee organizations, and a minority of three representing any given administration—will decide on its recommendations to the Pay Agent.  Traditionally, the council has done so by either consensus or majority vote of its members, both of which guarantee that the views of its six employee representatives will almost always prevail, regardless of those offered by any administration’s three nominees. If one or more of the administration’s appointees—or even of the employee representatives, for that matter—have a different perspective, either requiring a consensus or even a majority to make a decision could be used to bury or ignore dissent. That too is problematic.  

In our opinion, all views should be made known to the Pay Agent, whether or not the views represent the majority or plurality of others on the council. In that regard, while we always believed that our union colleagues had the best interests of their particular constituency in mind when they opined on these issues—indeed, we can understand their default to the suboptimal devil that they know, rather than the uncertain one that they don’t—someone needs to focus on the efficacy of the entire system, and we argue that can and should be the role of the Federal Salary Council. And in so doing, all views should be communicated to the Pay Agent for a final decision.

The Council’s Leadership Role

We hope we can all agree that federal employees should receive pay and benefits that are comparable to and competitive with their non-federal counterparts, and that the system that determines how pay compares needs to be fully funded and modernized. But while the nature of those fixes—and whether and how they may be applied to some, many, most, or even all federal employees—was and remains a matter of debate, that debate is healthy, even if some of those fixes require a change in law.

Here’s our bottom line: We believe that the Federal Salary Council and all of its individual members have a right and a duty to speak out and have their views on these issues heard and considered, whether they agree with others or not. And in so doing, the council can serve as the independent conscience of both the administration and the Congress when it comes to finally fixing federal employee compensation. 

Ronald Sanders served as chair of the Federal Salary Council from 2018 to 2020.