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Government's Core Staffing Problem: Inflexible Pay Systems

Competition for talent is going to intensify. Government needs new approaches to how it compensates its workforce.

A recent National Association of State Chief Administrators report concludes that "as the public and private sectors battle for talent, government is falling too far behind in preparing for the workforce of the future." One statistic from the NASCA report suggests that the public sector is already well along the way to losing that battle: Since 2013, job applications submitted to state agencies have declined by 24 percent.

The aging government workforce makes the challenge particularly acute for government. According to the most recent data, 30.9 percent of the public-sector workforce (excluding law enforcement and other public-safety occupations) is age 55 or older, compared to 23.1 percent in the private-sector workforce.

Looking to the future, the projected increases in demand across occupational groups in which government must compete directly for talent shows that public-sector staffing problems will become more complicated. According to the most recent Bureau of Labor Statistics projections, from 2016 to 2026 the U.S. workforce will have grown to 168 million, an increase of 11.5 million, or 7.4 percent. But for the computer and mathematical operations occupational group, the increase will be 13.7 percent -- nearly double the overall growth rate -- and the projected increases are even larger for occupational groups with significantly larger employment numbers: 15.3 percent for health care practitioners, 23.6 percent for health care support workers, 19.1 percent for personal care and related service occupations, and 14.5 percent for community and social service occupations.

With rare exceptions, these high-demand jobs require education and training beyond high school. That intensifies competition for the best-qualified job seekers. While the NASCA report calls for "significant change and modernization at every phase of the employment lifecycle -- from recruitment, hiring and onboarding to training, development and retention," it nevertheless concludes that the inability to offer competitive salaries is by a large margin the biggest barrier to attracting qualified talent.

But there's more to the challenge of meeting government's staffing needs than simply increasing salaries to be more competitive. A subtle and deeply entrenched problem is the philosophy that historically has been the foundation of government pay programs. They are based on an argument that has long been discarded in the private sector: "internal equity," the idea that internal salary relationships are paramount. Job classification systems were developed to assure that all jobs are assigned to the "right" salary grade. That form of job classification impedes responding to change.

For decades after World War II, companies relied on that philosophy. But when they were hit with global competition and the 1990 recession, they began eliminating costly bureaucratic practices. That was followed in the 1990s by the increasing importance of knowledge jobs and the struggle to remain competitive for talent. Traditional salary-management practices were replaced with more flexible approaches such as salary banding, market-based pay and performance pay. Today the dominant practice in business is to rely on salary surveys to decide pay levels for different occupations. Its simple and easily explained to everyone.

Governments also should consider further emulating the virtually universal private-sector practice of separate pay systems for "nonexempt" employees -- hourly workers and clerical/office support workers who are covered by the wage, overtime and other rules of the Fair Labor Standards Act -- and for "exempt" professionals and managers. Each pay system is adjusted to reflect market increases.

Government has a far more diverse group of occupations than the private sector, and there is also a long history of maintaining separate pay systems for police, firefighters and teachers. A possible solution for public employers would be creating additional separate systems covering related jobs, starting with technology or a somewhat broader group of STEM occupations (science, technology, engineering and mathematics) since they are all high-demand knowledge jobs. A similar group might include the patient-care occupations.

The idea of a wider range of pay systems in government is not new. In 1990, a team from the National Academy of Public Administration developed the idea as an alternative to modify the rigid federal General Schedule. In the 1990s, Congress authorized a patient-care pay system for federal medical-care facilities as well as separate pay systems for financial regulatory agencies. In 2001, a project to develop a separate system for technology jobs was interrupted by 9/11 and eventually shelved, but now work has begun to develop a separate cybersecurity pay system.

Pay systems that are more responsive to market forces can go a long way toward addressing government's staffing problems; simply granting across-the-board increases ignores them. Replacing antiquated, inflexible pay systems is essential to enable the public sector to compete effectively for talent.

A consultant focusing on public-sector pay and performance
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