Wednesday, November 10, 2010

A short note on soaring government salaries 

At a time when private sector compensation is compressing (in part because of the slack labor market), the federal government is shoveling money at the bureaucrats. Both George W. Bush and Barack Obama are guilty, but the latter has tremendously accelerated the trend of the former.

The number of federal workers earning $150,000 or more a year has soared tenfold in the past five years and doubled since President Obama took office, a USA TODAY analysis finds....

Top-paid staff have increased in every department and agency. The Defense Department had nine civilians earning $170,000 or more in 2005, 214 when Obama took office and 994 in June...

The biggest pay hikes have gone to employees who have been with the government for 15 to 24 years. Since 2005, average salaries for this group climbed 25% compared with a 9% inflation rate....

Since 2000, federal pay and benefits have increased 3% annually above inflation compared with 0.8% for private workers, according to the Bureau of Economic Analysis.

To me, the most suspect of the foregoing factoids relates to widespread above-inflation increases for the longstanding employees. This reverses the structure of private sector compensation, which goes up largely (i) to perceived top-performers at risk of being snapped up by other companies, and (ii) to attract perceived top-performers from other companies. Average performers usually stay with a company or leave it for reasons largely unrelated to pay, and the longer they stick around the more you know that they are motivated by non-monetary benefits.

The soaring government pay is itself a measure of bad management. Why? Because compensation efficiency is one important measure of managerial effectiveness. An effective executive does such a good job of motivating his employees that they will tolerate a large gulf between what they are actually paid and what they might get from a competitor because the non-monetary benefits of staying put outweigh the increased monetary compensation available by switching jobs. If an executive only loses employees who are bid away with large increases, you know he or she is doing a better job of leading and managing than an executive who loses people for little or no increase.

Nobody in government seems to understand that basic point.


By Blogger Ray, at Wed Nov 10, 11:36:00 AM:

For some perspective on this: it was a widely spoken complaint (with a good deal of truth) that, in the roaring Noughts, the government had trouble attracting bright young workers, or, for that matter, retaining highly competent older ones, in certain technical specialties.

Somehow, well-intentioned but not terribly detail-oriented plans to fix this have devolved into stratospheric pay raises for long-time federal managers with few job skills marketable outside government, and the recession has solved the government's hiring problem with respect to technical specialists. Imagine that.  

By Blogger KDaunt, at Wed Nov 10, 12:36:00 PM:

"Nobody in government seems to understand that basic point."

I do agree with your concern that government workers are, often (but not always, especially at the bottom rungs) over-compensated. But the problem is not whether or not managers and directors "understand" basic principles of business. The problem is that the government is not in business.

Free market pressures to not apply. Govt agencies are not at risk of going "out of business". The organization's budget is rarely, if ever, tied to performance. I've known civil service managers who tried to run a customer oriented operation, but the forces at work against them are overwhelming. It's hard to motivate employees who know they can't simply be fired.  

By Blogger SR, at Wed Nov 10, 12:47:00 PM:

This is where the Republicans, if they have the stones can make some headway with the "Governor Awesome" approach. By touting the government pay disparity, they can propose a two year pay freeze across all government agencies and realize actual budget improvement. It is the "we're all in in together approach.
No pay cuts, attrition and pay and benefit freezes.  

By Anonymous Mike M., at Wed Nov 10, 01:31:00 PM:

One point...there are almost NO working-level federal employees making anywhere near $150K/year. Go over to http://opm.gov/oca/10tables/html/dcb.asp and have a look at the Washington-area pay scales. A GS-15 might get all the way to $155,500 per year...but these are people who supervise many hundreds of professional workers.

No. This money is going to the political nomenclatura. And the heat shoud be directed at their political masters, not the hapless Civil Service whipping boys.  

By Anonymous Anonymous, at Wed Nov 10, 02:33:00 PM:

Is it indeed going to the political class? I wonder how the median W-2 total compensation has changed over the same period.

If the facts are that these are political payoffs to a relatively small number of people, then the political argument becomes even more pointed.  

By Anonymous Anonymous, at Wed Nov 10, 02:34:00 PM:

quite simple, really. the proles daily grow more assertive and uppity, ergo they require more and enhanced supervision.

like when some troublesome commie-terrorist-right-wing-whacko declines to be irradiated at the airport.

ensuring that the whole TSA 'security' team all scream "opt out!!" and make darkly threatening comments before the grope-assault-"search" isn't something you're going to be able to get for a mere $100K.

no, it'll take the BIG bucks to keep the sheep in line. you think the legal eagles who railroaded....er, "prosecuted" randy weaver worked for peanuts? hmmm? or the fierce warriors who bravely shot the a) kid's dog b) the 13-year-old boy in the back and c) the unarmed mother holding the infant at ruby ridge, [and then, a few months after things had quieted down, all gave themselves medals for it]...you think you can get top-quality law enforcement of that caliber for a lousy middle-class wage?

how naive can ya BE??  

By Anonymous Anonymous, at Wed Nov 10, 02:47:00 PM:

Down with government! (salaries)  

By Anonymous Anonymous, at Wed Nov 10, 03:42:00 PM:

The Presidential Commission, chaired by Erskine Bowles and Alan Simpson is releasing it's report, now that the election is over and discussion will largely be confined to the safety of Washington DC cocktail parties, and it advocates cuts both in individual compensation and the size of the federal workforce.

"Discretionary spending cuts in the plan include reducing congressional and White House budgets by 15 percent, freezing federal salaries and cutting the federal workforce by 10 percent. The discretionary reductions of $1.4 trillion would be split equally between defense and domestic programs, Bowles said."

Cuts in Congressional salaries? Yeah, that'll happen.


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By Anonymous MarkJ, at Wed Nov 10, 04:25:00 PM:

One way to get a handle on things would likely be to abolish public employee unions like AFGE, etc, and their right to collectively bargain.

I daresay we can all thank "St. John Kennedy" for signing, way back in 1962, Executive Order 10988and the Salary Reform Act of 1962, which started us on the road to where we are today. Needless to say, if E.O. 10988 is still the main mechanism allowing unionization of government employees, then I strongly suspect a future President Palin or Christie will be very interested in either revoking or amending it.  

By Blogger Georg Felis, at Wed Nov 10, 06:54:00 PM:

To pile on comments made by Ray and such: Federal Civil Service thru the "normal" pay ranges (GS1-12) are fairly static, and therefore somewhat overpaid during periods of economic slowdown, and underpaid during periods of economic growth. This is the reason for Federal retention problems during "Booms", everybody wants to work where the money is. During these wonderful economic times when the money is rolling into Washington, and the "good" employees are fleeing for those nice Private Industry high-paid jobs, Congress gets a little liberal with the pay raises and job classifications. Now that the opposite is happening, the chickens, as to say, are coming home to roost. Not to mention the sudden proliferation in "Consultants" and "Contractors".

Second thing to look for: What Federal Agencies are gaining the employees? Because you can bet that when the "cuts" happen, they will fall mostly on the other Agencies who have as little impact with the Liberals as possible. (like those darned Republican farmers...)

Third thing: I thought Obama was enforcing a pay freeze on White House personnel? I don't seem to read much about it anymore, just like it fell down the rabbit hole or something....  

By Anonymous Anonymous, at Wed Nov 10, 10:06:00 PM:

Agree with Mike M above: a lot of this growth is due to political employees burrowing into the system.  

By Anonymous Adam Smith, at Thu Nov 11, 01:14:00 AM:

Government incentives and private sector incentives are not wholly comparable.

Having said that, the basic underlying facts strike me as true.

The difficulty is an odd one. The vast majority of government employees (federal) are in the beltway. A $175,000 salary in Iowa buys a large home; in DC it might buy a townhome, after years of saving, in a "townhome" park.... There are lobbyists and others (law firm folk) bidding up the pay.

Now for those in government agencies whose experience readily translates into outside opportunities - there is a need to compete for talent. But for agencies which provide important services and require good employees, but whose skills don't readily translate into private sector opportunities (AS a matter of fact, the Department of Justice and Treasury and State Department are all like this), if one cuts salaries, the results will be predictable -- and we really don't want those results.

Unfortunately, no one in DC is allowed to say that DOJ is more important than HUD, so the salary scales remain comparable (though I don't know the stats about % of employees in different paygrades).

I know guys in the SGs office who are EXTREMELY able - if not some of the best appellate lawyers in the country. Two guys I know are clearly the best criminal appellate lawyers. But they probably make, respectively, $155K and $170K. Both are over 50. One clerked for Scalia. The other is extraordinarily bright.

So the government sometimes gets - often gets - a real bargain for its money.

To people outside the beltway, where home prices are much cheaper, though, it's quite an eye-opener.  

By Anonymous adam Smith, at Thu Nov 11, 01:16:00 AM:

Of course, I think TH is a tremendously overpaid exec.

Which he never discusses (exec comp).  

By Blogger Gary Rosen, at Thu Nov 11, 04:05:00 AM:

"AS a matter of fact, the Department of Justice and Treasury and State Department are all like this"

I am strongly in favor of everyone in the State Department being paid what they are worth - about half of minimum wage.  

By Anonymous Anonymous, at Thu Nov 11, 10:58:00 AM:

You miss a key point that makes the thesis that these guys don't understand compensation philosophy. They are rewarding folks who are unemployable elsewhere, folks who are blocking slots so that younger, brighter folks can't get advancement (and, maybe, move somewhere else). But, I'd like to know the racial composition of of the group making in excess of $175K/yr.  

By Anonymous Dennis, at Thu Nov 11, 11:22:00 AM:

I think Mike is on the right track, but I suspect it's not in the political positions. It's probably also not in th General Schedule (GS) employees ranks (and these are the people who do actual productive work...I know, I know). I suspect the increases are in the Senior Executive Service which employees are sort of quasi-political and ther pay is less a matter of merit and procession and more a matter of pleasing the right people. I would rather know where these increases have taken place (and, no I don't think they are spread evenly through the government)and what, specifically, these people have been doing.  

By Anonymous IndispensableDestiny, at Fri Nov 12, 10:12:00 AM:

In the Washington DC metro area, the GS pay scale tops out at $155,500. The ES scale (Senior Executive Service) goes up to $179,700. The EX scale (Executive Scale, political appointees) goes up to $199,700.

I think the doubling of employees making over $150k is just salary creep based on an aging workforce and annual pay scale increases. It's also an arbitrary number, likely picked to show the greatest increase.

This will likely change in about 10 years as the last of the employees hired under the CSRS pension system retire. As those with defined pensions leave the system, fewer Feds will choose to hang on in order to maximize their benefits. Those hired after about mid-1984 are under FERS, they have a much smaller defined pension, 401k plans, and social security.  

By Anonymous IndispensableDestiny, at Fri Nov 12, 10:22:00 AM:

Here's the effect of picking $150,000 as the reference point. The GS-15 step 10 pay for:

2008: $149,000
2009: $153,200
2010: $155,500

USA Today's analysis would not likely be as inflammatory if they picked $156,000 as the threshold.  

By Blogger gs, at Sat Nov 13, 02:23:00 PM:

Someone said that Obama is Bush on steroids. As they berate Obama, all too many on the Right all too conveniently forget the Bush domestic record.

Both George W. Bush and Barack Obama are guilty, but the latter has tremendously accelerated the trend of the former.


By Blogger Noumenon, at Thu Nov 18, 07:50:00 PM:

The part of the article TigerHawk quoted contradicts that statement, though. If "the number of federal workers earning $150,000 or more a year has soared tenfold in the past five years and doubled since President Obama took office," then that number was growing at a rate of 70% a year under Bush and decelerated to 39% a year under Obama.  

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