Rethinking Pay Programs Is Now Urgent

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.

Like it or not, in this period of talent shortages, public employers need to recognize they are competing with the business world.  A few jurisdictions have reformed their talent management practices but the common civil service model reflects century-old thinking.  It was developed at a time when employers were ‘small cogs in a large wheel’.  Then, as long as employees did what they were told, they could count on job security and a steady income.  Public employers have managed employees as a cost to be minimized.

The talent shortages are projected to continue for several years.  In October Fortune reported 73% of business leaders are concerned the shortages “will disrupt their businesses over the next 12 months.”  Recent reports show companies are acting aggressively to introduce changes to recruit needed talent.  A December CNN headline read, “Employers are preparing for big pay raises in 2022.” 

The changes in the way work is organized and managed started when the 1990 recession prompted companies to cut costs.  Change has been ongoing.  The “new normal” work management paradigm is very different.  Employers committed to the new paradigm can attract better-qualfied workers and raise performance levels.  They are among the most successful companies.  Today the ‘best places to work’ are recognized in industry publications as well as by states and cities.  The “work revolution” as it’s been called has made headlines for years.  But it’s been largely ignored in government.

Then the COVID-19 crisis hit unexpectantly, forcing employers to shift to remote working. The crisis triggered layoffs through 2020.  Working at home triggered increased job satisfaction but it also prompted workers to think about their work life. Starting in early 2021 workers started resigning in large numbers.  A record 4.0 million Americans quit their job last April.  The number of job openings ran above 10 million through the last half of 2021.  The monthly totals show the openings exceed the number of workers looking for jobs by more than a million.

The talent shortage is not new.  In 2019 CNBC reported, “7 in 10 companies reported talent shortages”.  Reports show it’s been a concern for public employers since at least 2017.

Today public agencies are reporting shortages in education, law enforcement, public health, nursing homes, libraries – the list is long.  Florida recently reported applications to government jobs dropped 35 percent over three years.  Research shows the interest of students majoring in government declines as they near graduation.  And of course, government continues to lose workers to retirement.

An added issue is that large percentages of government employees are thinking about quitting.  A recent survey sponsored by MissionSquare found 52% of state and local public sector workers are “considering abandoning their jobs”.  “Burnout and inadequate pay” were mentioned as two reasons.  Burnout is in part triggered by high turnover.  The author stated, “. . . we are teetering on the brink of a public sector workforce crisis.”  Employee turnover as high as 75% has been reported.  That is a crisis.

Companies are taking the necessary steps to retain needed talent.  A December Wall Street Journal column reported, “For many college-educated workers, 2021 will close with big bonus payouts and raises in sectors such as finance, law, and technology.”  Apple reportedly awarded stock grants worth as much as $180,000 to retain engineers.

The Key to Recruiting Talent Is More Than Pay But . . .

Aside from a few states that have announced plans to move to a $15 minimum pay, there are no known plans to adjust pay to respond to the staffing crisis.  There have been reports of plans for across the board increases of 5% or more.  But in light of the size of the pay gaps that is hardly a solution.  It also ignores the market trends in managing pay.

Studies show wages and salaries do not have to be fully competitive.  Other job characteristics – the approach to supervision, benefits, development opportunities, collegial work relationships, etc – are also important to job seekers.  However, being paid ‘fairly’ is always at or close to the top of every applicant’s list. 

For young job seekers, ‘benefits’ now go far beyond the traditional paid time off, insurance, and savings plans.  The most-wanted benefits include “flextime and remote work opportunities, corporate recreation centers and gym memberships, free food or catered meals, mentoring and development programs, and casual dress code.”  Note — the priorities of Gen Z job seekers do not include retirement benefits.

The renewed focus on pay equity is making it increasingly common to find salary ranges shown on vacancy announcements.  Websites like Glassdoor make it easy to search for salaries.  In highly competitive markets, transparency and a commitment to fair pay is a key to attracting young job seekers.

Saying pay does not have to be competitive does not mean below-market salaries are of no consequence.  When gaps grow to 10%, 15%, or larger percentages, job seekers start to turn away.  Public employers may offer better benefits but that is not going to attract recent graduates.

In other sectors, HR offices routinely participate in surveys of wage and salary levels.  They monitor developments in local labor markets. The textbook practice is to adjust pay programs annually to maintain a planned alignment with market pay levels.  In periods like today, companies have the agility to react quickly with increases to stay competitive.  Websites and social media enable everyone to know what’s unfolding.   

Public employers, in contrast, are rarely as responsive to market developments.  Possibly the worst is the federal pay system.  To illustrate, federal white collar salaries were adjusted for 2022 based on survey data from March 2020.  The delay in using the data to adjust salaries – 16 months — voids the relevance of the data.  The GS system remains, except for the 1990 introduction of locality pay, essentially unchanged since 1948.  Annual reports show federal pay is below market but presidents have repeatedly rejected recommended increases.

In the federal system, the 2022 starting salary for new graduates in all but major urban areas is $44,740.  (The highest locality area is San Francisco/San Jose at $54,959.)  Those pay levels are significantly below the average for graduates in several high-demand fields.  For the 2020 graduating class the highest were in technology (Computer Programming graduates started at $86,098) and engineering (Electrical engineering graduates started at $80,819). 

Federal salaries are competitive in a few fields.  The lowest average salary was for graduates in social work, $35,662.  The average graduate in public administration started at $40,122.  Keep in mind that these are 2020 national averages (from a survey conducted by the National Association of Colleges and Employers).  

The salaries offered to new graduates of top schools like MIT and Stanford typically are significantly higher.  Graduates with the best GPAs can also expect above-average salaries.  That’s also true for jobs in urban areas.  In managing pay, employers also take into account commuting difficulties, the essential nature of the expertise, and the local availability of talent.  The best private employers work to attract the best talent.

The problem will get worse. The starting salaries for new graduates in the class of 2022 are expected to be at least 10 percent higher. 

An obvious problem with the GS system, which is common to all but a handful of government pay programs, is that graduates, regardless of field, start at the same salary.  The “schedules” are static; annual increases are the same for everyone. That is obviously out of sync with dynamic labor markets.  Public employers have ignored new thinking in other sectors. 

Another problem is the failure to focus on the pay practices of the true competitors for talent.  In other sectors, employers in an industry agree to exchange pay information through a third party paid to compile and report summary pay data.  Hospitals, for example, rely on surveys of other local hospitals. All those flower shops, restaurants, dry cleaners, etc — the mom-and-pop businesses found in every community — have no relevance for planning government pay programs.

The common goal, of course, is to attract applicants with essential skills.  That makes it important to rely on survey data for the employers where those specialists work. 

Unfortunately, government pay systems have proven to be extremely difficult to change.  Budget concerns, union resistance to change, legislative disinterest in workforce problems, and the failure to value employees make it extremely difficult to build support for maintaining a competitive pay program. History suggests the longer they remain static, the more difficult it is to agree change is needed.  But now and for the foreseeable future, with the public’s trust in government declining, agencies will need to balance the cost with the need to satisfy the public’s expectations. 

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Today public agencies are reporting shortages in education, law enforcement, public health, nursing homes, libraries – the list is long.


A Solution to the Core Pay Problem

A core problem is the force-fitting of very different job families into a one-size-fits-all salary system with across-the-board salary adjustments.  Decades ago the federal GS system was the program model adopted by state and local public employers.  Today that model is out of sync with the talent shortages. The changes in jobs, occupations, and labor markets have been huge but the internal administration is the same today as it was in the late 1940s.  It’s costly and does not work with jobs that are hard to fill. That continues to be the basic model used in government, but it will not solve the government’s staffing problems.  

Workforce planning to document essential skills and difficult-to-fill vacancies would be a valuable first step.  It would also be valuable to document the jobs where vacancies are undermining agency missions.  The staffing problem in prisons is an obvious example.

Documenting the problems is the first step in defining the scope of the crisis.  It will also highlight the fields where the government is having trouble attracting applicants.   The current crisis combined with the inflexibility of the common program model is a compelling argument for new approaches.   

A proven strategy is creating new occupation-specific pay systems.  There are well-established examples of job families that have had separate pay programs for decades – teachers, police, firefighters, and judges stand out.  Hospitals maintain a number of separate pay systems. There are many other examples. 

Currently, the federal government is developing a separate pay system for cybersecurity specialists.  That program model could be extended to the full range of STEM occupations – Science, Technology, Engineering, and Mathematics.  Survey data show the starting salaries of each of these specialists are well above the NACE national average, $55,250 in 2020.

There are other knowledge fields important to government.  Although sometimes omitted from lists of sciences, the specialists focused on climate and weather is another group where their expertise warrants higher salaries.  Economics is another field where expertise is essential.  

With these so-called knowledge occupations, an employee’s value depends on what they know.  Their career progress depends on demonstrated job skills and achievements.  Years of experience and seniority are not relevant.  The pay program model that fits knowledge occupations is based on a small number of salary bands, defined by market pay at each career stage.  Pay increases are based on an assessment of an employee’s growth and expertise.  The program model is very similar to college faculty pay systems (i.e., professor, assistant professor, etc).

Another important group of knowledge occupations is the medical and public health job families now in the headlines.  The long hours and health concerns in those fields is exacerbating what has been recognized as a long-standing staffing crisis.  Separate pay systems and higher salaries will not solve the staffing problem, but it will over time attract more interest in these careers.  The pay programs for these specialists should follow the hospital model and be locally controlled.  An important measure of their expertise, as well as other knowledge occupations, is the ability to work autonomously, react quickly and address problems successfully.

In other sectors, the pay of skilled and unskilled hourly workers is governed by local supply and demand.  The Federal Wage System is based on this model.  Significantly, the FWS is a large, successful program, covering 36 job families, over 200 local pay programs across the country, and almost 200,000 workers but the program is rarely mentioned by the White House or members of Congress. 

Companies routinely delegate pay management to local executives and managers.  That has been the model for paying non-exempt workers in the private sector going back to the 1930s when the Fair Labor Standards Act was passed.  In large, diversified companies those pay decisions rarely rise to the attention of headquarters staff.  In unionized companies and in the FWS, union representatives play a role in local pay administration. Government should trust its local managers and also hold them accountable.

It’s Time to Talk to Young Employees

A central issue is the difference in job /career priorities of Gen Z workers and those in their 40s, 50s, and 60s.  Older workers typically dominate the governance of unions and employee associations.  Many are accustomed to addressing pay issues in negotiations.  Those discussions traditionally focus on across the board increases.  But the priority now and going forward has to be on creating a work environment that attracts new talent, typically under age 40, to careers in government.

Leaders are naturally hesitant to advocate for change in traditional work management approaches, especially where those practices have seen little change in years.  Too often there is little or no trust, and they anticipate push back.  However, with the pandemic and working remotely, employees at all levels have been forced to accept significant change.  Anxiety, stress, and burnout are now all too common.  For change to go forward, the reasons and the benefits of rebuilding the workforce need to be highlighted and the reasons for addressing sensitive concerns.

The reason for tackling this problem is the critical need to attract and retain the talent needed going forward.  Everyone should understand the importance of becoming more competitive.

A place to start is meeting with current employees to understand their concerns and the changes in work management practices that would make their experience more satisfying.  It would be useful to hold local meetings across jurisdictions to understand local issues.  The groups should have an ongoing role as the data gathering and planning proceed. 

That is a common practice in higher education.  It contributes to a sense of ownership and those involved are credible sources of information to their peers.

Gen Z employees are the future.  Employers that fail to gain their commitment have a dark future.

New Roles for Retirees

Decades ago public employers adopted retirement plans that enabled employees to retire comfortably.  Retirement is possible as early as 55 in many jurisdictions if they meet service requirements.  (At the federal level anyone with 25 years of service can retire regardless of age.)  When and if the plans are amended, employees are vested in accrued benefits.  Today those plans are far more generous and costly than similar plans in the private sector.

The most recent data show 28% of the public sector workforce (over age 24) is 55 or older.  That’s over two million employees.  When employees working in law enforcement are not counted, the average age is close to 50.  At the federal level it’s 29%, with 5% over age 65.  Older workers are often seen as the experts.  When they retire, agencies lose their accumulated knowledge of agency operations.

Now with life expectancy moving higher, surveys show a high percentage of employees would like to continue working on some basis.  Research shows having a purpose helps people live longer.  Retirees have an understanding of their employer’s problems that new graduates would require years to develop.  As retirees, they are a largely untapped resource to fill vacancies temporarily.

Working beyond 65 is not unusual.  Many work into their 70s and remain fully productive.  Medicine, law, higher education, and the arts have many examples.  Elected officials are often older than 70.  Any bias against older workers is unfounded.

There is the ‘double dipper’ concern, but laws generally allow government retirees to work as contractors.  Using contractors, agencies save on the cost of benefits – 40% of base pay – and the time and cost to provide training.  Filling vacancies will also reduce the costs of burnout.  Agencies, retirees, and society benefit when retirees continue to play a role.

Managing Employees as Assets

Maybe there was a time when employees were properly seen as a cost to be controlled and minimized.   But not today.  Technology is slowly replacing workers but for the foreseeable future employees and their job knowledge are essential for addressing problems.  Employee capabilities play a more important role in government than in the typical business. The pandemic made that very clear.  

It’s time to recognize the essential role and value of public employees. Government pay systems fail badly on that point.  If the pay problems are ignored, the vacancies will increase as employees retire.   The changes that make employers a ‘great place to work’ are well documented.  Fair pay is a core issue.  Current government pay systems are a barrier to recruiting and retaining well-qualfied talent.

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