Relentless attacks on federal compensation have served to lower both the morale and productivity of federal employees.
Any objective review of the past decade reveals that the pay system has been repressed, while pension costs have greatly increased. It is clear that we must restore balance among both current and deferred compensation and security in the compensation system. But it is neither fair nor practical to suggest, as some have, that at a time when federal white-collar pay averages about 22 percent below prevailing private levels, balance should be restored by major cuts in the pension plan.
Since 1962, the federal pay system has been based on the principle of comparability with prevailing private-sector salary levels. It was reinforced with the passage of the Federal Pay Comparability Act of 1970.
When President Ford established the Rockefeller Panel on Federal Compensation in 1975 to critique the entire pay-setting method, it concluded that "the principle of comparability with the private sector has proved to be a sound and effective basis for setting Federal pay rates." The comptroller general's office and the Congressional Budget Office have also conducted reviews, with similar conclusions.
The Advisory Committee on Federal Pay has itself repeatedly evaluated the system. We compared the federal paysetting method to other mechanisms, and it is clear that the current approach saves money. If, for example, the consumer price index had been the basis for adjusting pay, pay packages for federal white-collar workers would have been $9.5 billion higher in fiscal 1983. And if increases had tracked the increases the Postal Service won through collective bargaining, $22 billion would have been added to the payroll. Nevertheless, critics continue to exaggerate the pay itself by using inappropriate comparisons.
Inevitably, these criticisms have been reinforced by ballooning federal deficits, which are really separate and apart from the question of federal pay. Budgetary considerations persuaded Presidents Nixon, Ford, Carter and Reagan to adopt alternative pay plans, which reduced the pay adjustment in seven of the past 13 years. Now, under budgetary duress, President Reagan has recommended a 3.5 percent increase in federal pay to be effective in January 1984. Based on an annualized calculation, this is 2.6 percent pay adjustment, or about 10 percent of the increase required under this year's comparability figures.
While the salaries of white-collar workers have lagged over the last six years, pension costs have forged ahead. Three interrelated factors were responsible for this imbalance: 1) the pay catch-up that took place in the late 1960s raised salaries, which then became the basis for pensions in the 1970s; 2) the pension formula was changed to base benefits on the three highest salary years instead of the five highest salary years; and 3) a cost-of-living escalator was adopted to keep pension benefits in line with the rate of inflation. These three factors were compounded by double-digit inflation in the 1970s.
Federal pensions have been a mainstay of the total compensation package, serving to attract and retain valuable people through the promise of earlier retirement and benefits that were protected against inflation. The pension promise was well worth sacrifice. It was worth a 7 percent employee contribution when most private plans were--and still are--noncontributory (except for Social Security); it was worth pay disappointments; it was even worth enduring the public's scathing comments on the bureaucracy. If in certain years the pay was lower than pay in the private sector, the pension compensated.
Pension policy has also provided a safety valve. The early retirement provisions of the pension plan have opened an exit for long-service (30 years), relatively young (age 55) career people, thus encouraging a system of turnover and promotion from within. This voluntary turnover compensates for the other rigidities inherent in Civil Service employment and prevents the petrification of the system. New pension proposals could undermine the flexibility of the system by extending required working life 10 years to age 65.
Pensions need reform and reshaping in a meaningful, reasonable way. Integration with the Social Security system, a review of retirement age and a modification of the cost-of-living escalator all are worthy of consideration. But any changes should be accomplished gradually, without shaking the confidence of federal workers and their families. A broadside attack on what is essentially deferred compensation cannot be considered either equitable or fair at a time when federal pay lags the private sector by about 20 percent and the entire pay system is undergoing a crisis of confidence.
A word about productivity. Although the general impression of taxpayers and political leaders is that the performance of federal employees is poor, the productivity of these workers increased an average of 1.5 percent per year between 1967 and 1981--almost double the national (nonfarm) average gain of eight-tenths of a percent per year. With federal civilian employment (including Postal Service) flat at 2.7 million since 1970, and a federal budget that has jumped almost fourfold during the same period, payroll expenditures have declined from 5.1 percent of the GNP to 3.2 percent. The record is remarkable and does not reflect any proportionate growth in personnel costs that could be traced to widespread inflation of pay levels.
On all three counts--pay, pension and performance--federal employees deserve the consideration of the American people. Although it is desirable to continue to improve the federal compensation system, we must beware of "reforms" that would have the effect of undermining this system and destroying its viability. In the final analysis, the federal government requires career employees of uncommon ability to serve the national interest--and it depends upon fair, equitable and attractive compensation programs to attract and retain people of this caliber in public service.