Government’s Equal Pay Quandary

Howard Risher has 40 years of experience as a consultant and HR executive with clients in every sector. He has published frequently in HR journals and websites.  He is the author or co-author of six book and a growing list of ebooks. The most recent is Building the Workforce Government Needs.  He is associated with Grahall Consulting Partners.

Government agencies have a dilemma. They are confronted by all of the workforce problems triggered by the pandemic as well as the reality of relying on pay programs from a past era.  Experts contend employers need to anticipate and plan for talent shortages for the foreseeable future.  Government agencies are losing experienced workers to retirement.  The problems filling vacancies have prompted employers in other sectors to raise salaries and offer as much as $15,000 in hiring bonuses. 

The thread running through virtually all government pay programs goes back to the creation of civil service systems starting in the late 19th century.  The basic model was captured in the Merit System Principles which are reflected in every government personnel system.  The foundation of government pay systems is captured in Merit System Principle 3:

“Equal pay should be provided for work of equal value, with appropriate consideration of both national and local rates paid by employers in the private sector, and appropriate incentives and recognition should be provided for excellence in performance.”

The original model for government salary systems is the federal General Schedule, which has been essentially unchanged (except for the introduction of locality pay) since 1949.  The underlying pay philosophy dates to decades earlier.  The focus is internal; job classification systems assign jobs to salary ranges. In a number of state and local jurisdictions unions play a role in determining annual pay adjustments and at the federal level influence congressional actions.  Individual pay increases are based primarily on seniority with a few exceptions, most recently Tennessee, that have shifted to pay for performance.  Programs are significantly different than the more flexible, market-responsive systems now common in the private sector.

The core commitment to “work of equal value” is or was essentially the same as the standard under the Equal Pay Act of 1963, which requires that “employees of both sexes be paid equitably for work requiring equal skill, effort, and responsibility performed under similar working conditions.”  Classification systems ostensibly enable HR specialists to assign jobs in hundreds of occupations to “correct” salary grades.

When that program model was adopted the world of work was very different.  Workers started in entry-level jobs and stayed with the same employer through their careers.  Salary surveys did not exist.  In that era the majority of women worked only a few years, typically in office support or service jobs, before they had children.  The women’s movement starting in the 1970s with the focus on the pay gap and comparable worth triggered the ongoing concern with discrimination.

It was another decade before personal computers and cell phones gained wide usage, and the acronym STEM came into use.  It was in the 1980s that businesses began to emphasis pay for performance and the use of cash incentives below the executive level.  Also important is the effective end of union influence in the private sector, giving employers increased pay flexibility.  Now there are pay surveys in every sector along with websites like Glassdoor that enable employees to decide if they are paid fairly.

‘Just Anyone With Some Basic Skills’

The pandemic and working remotely have forced employers to abandon close supervision, recognizing the impact of employee autonomy and empowering them to work independently.  The ‘new normal’ shifts the focus to performance management, agreeing on planned results, and gives new and still unfolding emphasis on recognizing employees’ contributions.  It also highlights the skills workers need to function independently.  In key medical care occupations related to COVID 19 and in technical jobs central to tomorrow’s workplace, primarily the STEM job families, there is an emerging recognition that government needs talent with the latest job knowledge and skills.  It’s an important development.

That argument was the basis for a recent column on the GovExec.com website authored by former IRS Commissioner Charles Rossetti and his HR executive, Dr. Ronald Sanders, “Shrinking the Tax Gap Requires a Renewed IRS Workforce.”  Sanders served until he resigned late last year as the chair of the Federal Salary Council, which prepares an annual report on how federal compares with market rates.  They argue the IRS needs to add “specialists in applied information technology (such as AI and machine learning); data scientists and analysts; accounting and tax professionals with expertise in specialized areas such as partnership accounting; systems architects; and cyber security experts.” A key point is that government’s basic hiring policy is “like saying you don’t want the best people you can attract, just anyone with some basic skills,” they wrote.  The lack of skills, as current IRS Commissioner Charles Rettig recently testified, is the reason the IRS is often “outgunned” when taxes are disputed.

A second recent column on GovExec highlights an element of the problem, “How ‘Degree Discrimination’ Can Affect Feds’ Pay.” The author, Lindy Kyzer, is correct: college degrees are a “path to higher compensation.” “Regardless of industry or experience, more education means more money.”

However, the column misses an important nuance. It’s the same nuance that is too often missed in pay equity analyses. Yes, years of school and degree levels are correlated with salaries but as used in the analyses, those metrics are not useful in addressing equity concerns. Leading companies, hospital systems, and universities all look for applicants with specific skills, not years of school, and make hiring decisions based on the relevance and quality of the education and prior experience of applicants. Simply having a degree does not make an applicant attractive – but with a “just anyone” staffing strategy all degrees at each level are somehow equal.

In other sectors, it’s the college major and the quality of the college program that is evaluated in making hiring decisions. Only fragmented data are available but it consistently confirms the expected—graduates of colleges like Stanford and MIT start at significantly higher salaries than those with degrees from unknown schools. Buying an online degree would not get an applicant hired at leading companies.  That is contrary to a simplistic equal pay focus.

Rossetti and Sanders are correct. The IRS, as well as other agencies that need highly skilled talent, need to be able to pay competitive salaries to attract and retain fully qualified applicants. That’s true in every field and agency relevant to the nation’s urgent problems. At the federal level, it was the rationale when Congress authorized the financial regulatory agencies to create separate pay systems. It was again the argument for creating DoD’s National Security Personnel System after 9/11. Competing for talent was also a prime consideration in creating the Title 38 salary program for healthcare specialists.

For the IRS to be successful, the agency requires a workforce that is not only numerically larger but also fundamentally transformed from a skills standpoint. That’s true for specialists in information technology, the hard sciences, economics, math, and medicine. The COVID-19 health crisis has made it all too obvious that “just anyone” with basic medical credentials is not what government and the country needs.

In the business world, there are companies that pay selected, critical jobs at the 90th percentile to attract the very best, others at the 75th percentile to attract better than average candidates, and where specific skills are not needed, employees are paid average salaries.  It’s based on their business strategy.  Arguably employers should be allowed to recognize and reward individual knowledge and skills.  But the practice conflicts with traditional equal pay thinking.

A caveat is that there are many jobs that require little or no specialized skills or expertise. Every organization has them. For these jobs, degrees might prepare individuals for better lives but they add little if anything to job performance. Pay programs have to assure “fair pay” to all employees. The equal pay debate is likely to end up in the courts.

video presentation

Building tomorrow’s workforce will require a pay system that is seen as fair to highly qualified men and women.  

HOWARD RISHER

It’s Essential That Agencies Value Talent

Here is where government pay programs are too often deficient. Basing pay increases on seniority is a practice that is out of sync in any situation where highly-skilled people are employed and where high performance is needed. The business world makes pay for performance in multiple practices central to their pay strategies. Even the academics who have criticized the practice are paid for their performance (although the model for evaluating performance is unique to higher education). It’s also deeply entrenched in raising and educating children. It’s important in sports, the arts, literature—every sector except government.

To quote from the Great Places to Work website, “Employee recognition has long been a cornerstone of effective management. But today, as the competition for talent escalates, how organizations value their employees has become more important than ever.”

It’s also a proven practice where behavior needs to change. People have trouble changing established behaviors. Rewards are effective in reinforcing new, desired behavior. We do that routinely with children.

During the debate preceding passage of the Civil Service Reform Act of 1978, then-Senator Joe Biden was quoted, “the most important part of civil service reform must be to motivate good employee performance.” That is from a Merit Service Protection Board report where “recognition of employees’ performance contributions is one of the key ‘drivers’ of positive employee engagement and retention.” The failure to recognize and reward performance may well explain the heavy turnover problem federal agencies have experienced among recent hires.

At this point, it is clear: Transitioning to “merit pay” will require a significant culture change and possibly years to accomplish. It will also require strong leadership. Tennessee was successful but the state invested three years in planning and preparing managers with training and coaching to shift successfully to pay for performance.

Today, government pay programs too often are planned and administered independently of agency workforce plans and performance goals.  It affects their value to society.

Implications for Equal Pay

Employee salaries are best understood as a composite of decisions made both by HR specialists and by managers over an employee’s career.  Pay policies also affect how salaries compare internally and externally.  Discrimination is possible at any point—when jobs are classified, in the descriptions offered when vacancies are posted, in evaluating applicant credentials, in promotions, etc. The argument that applicants should not be asked for their salary history recognizes one of the potential problems.  Bias and discrimination exist although until recently the problems were largely ignored.  Public employers need to evaluate relevant practices in each unit and location to assure fair personnel actions.

The basic equal pay test appears at one level to be straightforward—equal skills, effort, responsibility, and working conditions. Originally, equal jobs were those defined by the same job description. But at the state level, the laws and court decisions are gradually expanding the interpretation.

What are equal skills? Degree level is hardly a valid measure. What is equal effort? Equal responsibility? The words have appeared in job evaluation/classification systems for decades. As used in this context, skill, effort, and responsibility are abstract, comparative ideas that are best “measured” with a series of scaled response questions. Three or four questions for each, depending on job level, provides a more credible database for comparing jobs.

Research has shown that gaps in equal pay are largely explained by gender and racial segregation. Women, as well as minorities, are underrepresented in higher-level jobs. That’s the classic “glass ceiling” problem and the evidence shows there is often discrimination at each level.  However, there are job-related factors associated with career and job choice that contribute to both segregation and differences in pay.  For example, executive and manager positions often require long and irregular hours, and research shows historically women have declined interest in jobs that affect their role in family life.  Those factors need to be discussed.

They are also underrepresented in science, technology, engineering, mathematics, and medicine. Should social scientists be paid the same as specialists in the hard sciences? The former is more likely to be female and the latter male.  That is central to the quandary.

The demand for specialists in STEM fields and most recently cybersecurity specialists forces employers to raise salaries to compete for essential skills.  Authorizing higher salaries to attract and retain essential talent appears to be contrary to pay equity. More importantly, if budget dollars are shifted to close pay gaps, it would reduce the funds needed to remain competitive.  That needs to be discussed.

Building tomorrow’s workforce will require a pay system that is seen as fair to highly qualified men and women.  It also has to enable agencies to compete for talent. The planning needs to start soon.

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