The Federal Pay Freeze that Isn't

We were heartened when we saw that President Obama announced a "pay freeze" for federal workers. The Free Enterprise Nation has spent more than a year educating Americans about the pay and benefits imbalance that exists between the private sector and the public sector. Federal employee total compensation and benefits had risen from 60% above private sector averages to 103% higher in the last decade, reaching $103,000 in 2009. Perhaps our trips to Capitol Hill, dozens of radio and TV appearances, and the book, "Unsustainable", had finally found an audience with Presidential advisors? We were anxious to look at the details of this latest effort to become fiscally conservative and to “rein in” government spending. To us at FEN, a “pay freeze” would mean that no one’s pay could go up. But we found that, as usual, the government does things differently, and in their line of work, a "freeze" isn't really a "freeze" at all.

The “pay freeze” that was recommended by President Obama only affects the annual “cost of living” increase that federal workers usually receive each year. It had already been decided that Social Security recipients wouldn’t receive a cost-of-living raise on January 1 of next year. But federal workers were slated to get an increase of 1.4%. Imagine the furor that would ensue once that happened? The solution was for the president to recommend that federal workers not receive the planned raise, allowing him to announce that he was calling for a “pay freeze”. But of course nothing is really frozen. Federal workers will still continue to enjoy their annual “time in service” raises, promotions, and bonuses.

Base salaries for most federal employees are based on 15 different pay grades. Within each pay grade, there are 10 "steps," and moving up between the steps is referred to as step increases, or "within-grade increases (WGIs)." In order to be eligible for a step increase, which averages 3%, an employee's performance must be at a level 3 out of 5, which is defined as "fully successful." Within the private sector, a 3 out of 5 would most likely be defined as "adequate," or for those of you who are still in school, a C. The amount of time after which an employee is eligible for a step increase varies. For the first three steps within a pay grade, an employee is eligible every year. The next three increases are available every other year, and the final three increases are available after three years. However, managers can give employees a "QSI," or quality step increase, without making the employee wait the obligatory time frame simply by giving the employee the top performance rating. And if the employee is not eligible for a regular step increase or a QSI, there is always the opportunity for a bonus.

The Office of Personnel Management has an eight-page document outlining the multitude of ways an employee can be eligible for a bonus. These include performance-based bonuses, referral bonuses, recruitment bonuses, retention bonuses, separation bonuses… The list goes on and on. In fact, there is a bonus available if a person has reached the maximum amount allowed by the general schedule pay grade and is therefore not eligible for a raise. The Asbury Park Press reviewed records through a freedom of information act request, and found that the federal government awarded bonuses totaling $408 million to 1.3 million employees in 2009. While $408 million is a shocking amount to hand out in bonuses during a time when the private sector was suffering through the worst recession in decades, the amount only covers 65% of the federal workforce. The Asbury Park Press review did not include information on the Department of Defense, the Treasury, the White House, and various other federal agencies and departments. Based simply on percentages, the federal government likely handed out over half of a billion dollars in bonuses that year.

So even if Congress approves the President's proposed “pay freeze”, it is not really a pay freeze at all. Federal workers will still enjoy receiving their average 3% step increases each year, the half a billion in annual bonuses, and the average raise of nearly 15% for employees who are promoted to higher pay grades. They are actually not “freezing” anyone’s pay at all.

Imagine how many Americans read the newspaper headlines and were delighted to see that the President had taken the bold step of leading the way to rein in government spending by freezing federal worker pay? It will take more than press hoopla and misleading presidential announcements for us to dig our way out of the $100 trillion hole we’re in. If we are to accomplish that, we need to know the facts, not the spin.