A version of this column appeared on the Washington Business Journal's FedBizDaily blog. You can read it here.
By Stan Soloway, PSC President and CEO
Earlier this year, the Congressional Budget Office released
a comprehensive report that confirmed what many, including the public employee
unions, have long believed: there is a pay gap between the public and private
sectors that becomes increasingly pronounced the higher up the skills ladder
you go. CBO's study also documented that, overall, federal employee benefits
are on average 48 percent higher than those received by private sector
employees.
The pay gap, along with other weaknesses in the federal
personnel system, is one main reason that the government has such a difficult
time hiring and retaining key technology skills to support its vital missions,
including cybersecurity. With the federal retirement rate rising (according to
OPM the retirement pace grew by 30 percent last year), and pay and hiring
freezes in effect across much of the government, the picture is truly
worrisome.
Against that backdrop, both the administration and Sens. Charles
Grassley and Barbara Boxer have come up with proposals that, for lack of a
kinder term, are recipes for disaster. Both want to restructure the way in
which caps on allowable contractor compensation are determined and limit them
to either the President's salary (Grassley/Boxer) or an arbitrary amount
loosely tied to federal salaries (administration). Both ideas lack substantive
merit and both will only exacerbate the government's workforce and mission challenges.
First, a little background. For almost 20 years until last year, the limit
on what the government would reimburse any contractor for the total
compensation of its top five most highly paid executives was based on a formula
that sought to meet two objectives: enable companies to access top executive
talent and ensure the government does not pay exorbitant executive salaries.
Last year, the law was, unfortunately, changed to apply that cap to all
contractor employees. But since the cap itself remains tied to reasonable, fair
and equivalent executive compensation levels in the commercial sector, the
actual impact on contractor access to talent will likely be minimal.
These new proposals are entirely different. While the compensation limit of
$400,000 proposed by Grassley and Boxer is high enough that the majority of
contractor employees won't be impacted, the fact is that some will. And those
"some" will be in the very areas that the government itself cannot
compete for, such as high-end technology skills. It's no secret that there is a
shortage of such skills across the economy and that, in the best traditions of
supply and demand, the compensation commanded by individuals with those skills
is substantial. Hence, by imposing this arbitrary cap, Grassley and Boxer could
actually shut the door on the government's ability to access them. At the same
time, by so significantly lowering the cap on executive compensation, Grassley
and Boxer would also deny companies the ability to access the best executive
talent. How does that help anyone? And, what is relevant about the president's
salary anyway? After all, his total “compensation” includes free rent in an
extraordinary mansion, free household staff, free food, free travel, and more
at the taxpayers’ expense. Where's the connection?
The administration's proposal is even more egregious. First, it too completely
upends the very purpose of the compensation caps. Further, by setting the cap at an arbitrary fixed amount
($200,000)—which the Office of Personnel Management reports is routinely
exceeded by federal employees—the administration proposal would put contractors in as bad, or
even a worse position than its own agencies by making them far less competitive
for critical skills that are in broad demand and short supply. As the CBO
report showed, the market value for some of these skills is far beyond what the
government pays. Thus, if the government has mission needs that require those
skills, there is only one way to get them—through the private sector. The
administration proposal and the Grassley/Boxer legislation ignore this reality.
Instead, the administration and the senators have fallen victim to the same
malady: the seductive quality of rhetoric that sounds good but at its core has
little substance. And while their proposals elicit cheers from the public
employee unions, who miss no opportunity to bash federal contractors, the irony
is that the unions themselves have been the most outspoken advocates for
addressing the pay gap between the public and private sectors. But since pay
comparability is not likely to be addressed in the current fiscal environment,
they would handcuff contractors, even if it means impairing the ability of the
government to deliver for the taxpayer.
Clearly, the government workforce is not the reason we have
spiraling deficits. And the increasing bureaucrat bashing that has become more
prevalent in politics, coupled with the pay and hiring freezes, has created a
“good for the goose, good for the gander” mentality. Yet, understandable as it
is on many levels, even that sentiment misses other key points, not the least
of which is that contractors have to continually compete for their work and their
workforce, and that as budget cuts lead to programmatic and other reductions,
contractor employees lose their jobs. There are additional mandates to freeze
contractor pay where possible and to reduce service contracting as much as 15
percent in some categories. That also means more potential contractor job
losses.
A far wiser path forward would leave the compensation formula alone and deal
more honestly with the bigger, more impactful issues. Among other things, this
would include a focus on giving agencies more flexibility in how they hire, compensate
and develop different employee groups, rather than impose sweeping pay and
hiring freezes. It is the norm in the private sector to focus scarce resources,
including compensation, on critical, core skills. Unfortunately, such
flexibility does not exist in the federal system. That needs to change. But the
current weaknesses of the federal system are a very poor reason to similarly
weaken the government's partners. That's just adding bad to bad.
Despite the senators' or the administration's rhetoric, there
is not a single objective study that says contractor employees or executives
are reimbursed exorbitant sums by the government. Indeed, a significant segment
of contractor employee compensation is dictated by the government via
prevailing wage laws or contract directives and all compensation is subject to
extensive government audit and/or verification that the incurred costs are fair
and reasonable. Moreover, competition
for government work in the professional services sector is at an all time high,
and that, coupled with the environment of budget austerity, means that
contractors are highly incentivized to keep personnel costs as low as possible.
But they don't control the marketplace for talent any more than the government
does.
Under the senators’ and the administration's proposals “fair
and reasonable” would be replaced by “arbitrary” and the realities of the
marketplace for talent will be rendered effectively moot. In short, they have
come up with the proverbial solution in search of a problem. Worse, their
"solution" is an empty vessel that could do real harm to the
government and the interests of the American taxpayer.
