As you know, before approving this plan, the President referred it to an Advisory Panel of distinguished citizens under the chairmanship of Mr. Clarence Randall. That Panel also included Mr. John Corson, Mr. Marion B. Folsom, Mr. Theodore V. Houser, Mr. George Meany, Mr. Don K. Price, and Mr. Sydney Stein, Jr. On February 2, 1862, the Panel reported to the President a general endorsement of the plan and especially urged the adoption of the principle of comparability of Federal salary rates with private-enterprise rates as being "not only equitable but valid and eminently desirable." The major points to which I would like to refer briefly are these: 1. That the President's proposal which provides lesser increases in the lower salary grades and greater increases in the upper salary grades is fair and equitable. 2. How salary rates for such Federal positions as Foreign Service officers, customs inspectors, and postal clerks and carriers can be fixed at levels which are comparable with private-enterprise salary for the same work level, since it is agreed that there are insufficient private-enterprise counterparts of such positions. 3. Why adjustments in salary rates for agency heads and Congressmen have not been proposed by the President at this time in view of the fact that salary rates in the upper grades of the statutory salary systems contained in the President's proposal would exceed salary rates now fixed in statute for some heads and assistant heads of executive branch agencies and for Members of Congress. 4. Why it is equitable to apply the standard of comparability with privateenterprise salary rates rather than to apply some other standard-such as the Consumer Price Index, the city worker's family expenditure budget, or the national average increase in productivity-and what are the relationships among these concepts. 5. How the salary increases proposed by the President for Federal statutory salary systems relate to the administration's policy that private wage settlements should hold pay increases within the limits of the increase in overall national productivity. 6. Why the President proposes a 3-year phased program, beginning on January 1, 1963, to achieve full comparability with private enterprise on January 1, 1965, instead of an immediate adjustment of Federal salaries to the levels which the Bureau of Labor Statistics has reported in its 1961 report. PAY INCREASES: PATTERN BY GRADES First is the point that the pay adjustments proposed by the President result in lesser increases in most of the lower grade salaries and larger increases in the higher grade salaries. The reason for this, of course, is that the Bureau of Labor Statistics' survey shows that current Federal salary rates in some of the lower grades are already equal to or better than private industry rates for the same work levels, while Federal rates for positions of greater difficulty and responsibility are lower than private industry pays for similar work levels. The increases in Federal salary rates that are needed to bring them up to the private industry levels, therefore, vary by grades. The grades that have been the most underpaid would require the greatest increase. Pay adjustments in 1945, 1946, 1948, and 1951 were based primarily on changes in the cost of living as measured by the Consumer Price Index. In those years it was felt that the sharp increase in living costs was probably only temporary and that it fell most heavily upon those employees earning modest salaries, that higher paid employees could absorb the lost purchasing power with less hardship, and that the proper objective in Federal pay adjustments was to give special financial aid to the hundreds of thousands of Federal employees in the lower and middle salary brackets. The first postwar pay adjustment in 1945 was largely dictated by the prior. actions of the Wage and Salary Stabilization Board which in the war years had tried to confine pay increases in private industry to changes in the Consumer Price Index. By 1945 the stabilization program had fixed 16 percent as the limit on private-enterprise wage increases. Therefore, it was decided that Federal pay increases in 1945 should be held to this percentage increase. But instead of applying the increase to all levels equally, as had been authorized under the stabilization policy, it was decided to give substantially larger percentage increases to the lower grades and substantially smaller increases to the upper grades, although holding the average to 16 percent. 84357-62-pt. 1-4 The report (H. Rept. 726 of June 1945) of this committee in 1945 pointed out that this approach to pay adjustment was discriminatory and that it should not be a precedent for subsequent adjustments. Nevertheless, subsequent pay raises in 1946, 1948, and 1951 followed the same approach. It was not until 1955 that a nearly uniform percentage pay increase was applied to all Federal salary levels. This more equitable approach was repeated in 1958 and 1960 but the damage to the statutory pay structures had already been done. Federal blue-collar wage board pay rates, of course, have been fixed and adjusted during all this period on the basis of private enterprise rates, and they are relatively free of this distortion. These postwar, cost-of-living, relief adjustments in Federal white-collar pay, made in the absence of any objective standard for determining appropriate compensation for personal services rendered at the various levels of work found in the Federal work force, have resulted in serious distortions of Federal whitecollar pay structures and have made the principle of pay distinctions in keeping with work and performance distinctions, largely ineffective. The net effect of these postwar pay increases is shown for selected groups of Federal employees in the following table, which compares the entry rate for the grade in 1960 with the rate in early 1945 before the first pay adjustment: Postal clerks and carriers (PFS-4). Electrician (Army-Air Force, District of Columbia area). Foreign Service officer (class I). Engineer (GS-13). Division chief (GS-15). VA Physician (chief grade) – Postmaster (largest 1st class, PFS-19) – Percent 155.6 127 123 124. 4 91.7 89.9 71.6 71.6 32.2 This table shows quite clearly why larger increases are required in the upper grades if the camparability principle is to be realized. The standard and the method used in the President's plan are, of course, comparability with private enterprise. The resulting Federal rates are contained in the bill, H.R. 10480. It may be of interest to note the results of this standard and method stated in terms of changes in "real" or constant purchasing power dollars, since 1939, before the war and postwar price increases. In 1939, the Classification Act salary for CAF-4 at the middle step was $1,980. Today, the GS-4 rate is $4,355 in 1962 dollars, but only $2,016 in 1939 dollars, or a gain of about 2 percent in purchasing power-and the President's plan will increase that rate to $4,635, which is an increase of 8.4 percent in purchasing power over 1939. In 1939 the Classification Act salary for CAF-15 at the middle step was $8,500. Today the corresponding GS-15 rate is $14,380, but that is only $6,657 in 1939 dollars, or a loss of about 22 percent in purchasing power-and while the President's plan will increase that rate to $18,285, this still represents no gain in purchasing power over 1939. The point that is emphasized here is that fair and equitable adjustment in Federal salaries based on private enterprise salaries gives each work level the proper salary adjustment, and they are not all the same. Merely applying a purchasing power formula, for example, would not do the job. But when the President's plan is viewed in this light it is seen to provide purchasing power adjustments of a very modest scale, indeed. PFS-4 COMPARABILITY Next is the point about establishing comparability for the PFS-4 level with private enterprise when there are no sufficient private enterprise counterparts of the postal clerk and carrier jobs. The same point could be made, with equal pertinency, about customs inspectors, FBI agents, Foreign Service offificers and a number of other kinds of Federal employees who perform work that is peculiar to Government. The answer is that it is not necessary to find a private enterprise salary rate for each individual Federal job in order to fix a Federal rate that is comparable to salary rates paid in industry-it is, however, necessary, to define with great care the "work level" of each Federal job in terms that can be compared with "work levels” in private companies, and to report the private company salary rates for such Federal work levels. While Federal salary rates do not today reflect it, the Government under most pay systems, like most private enterprise firms in this country, in grading its jobs uses the principle of equal pay for equal work. Jobs are classified by work and skill levels, and common salary rates are set for all of the jobs classified at the same work level. The Bureau of Labor Statistics survey reports the salaries that are paid in private enterprise for various work and skill levels, by gathering salary rates paid in several thousand companies for 70 jobs of carefully defined skill levels which are common to private enterprise and to the Government. Each of the 70 jobs is carefully selected and exactly defined so that it represents a grade, which is a work and skill level, of the Classification Act. At most grades there are several such jobs which are typical of the grade and representative of major occupational groups which combine to form the occupational composition of the grade. It is not necessary to survey every job at the grade in order to obtain the average private enterprise rate for that work level. A 30 or 40 percent sample is usually adequate, and in some cases an even smaller sample will do. The Army-Air Force wage board system surveys, for instance, 25 jobs which are 43 percent representative of the occupational composition. The 70 jobs surveyed by Bureau of Labor Statistics are nearly 60 percent representative of the occupational composition from GS-1 through GS-15. A pay line can be run from GS-1 through GS-15 which truly reflects the average rates paid in private enterprise. In this situation it does not matter that we cannot survey private enterprise counterparts of a customs inspector. His work has been classified at a work level and that work level is represented by some of the 70 jobs which are surveyed. Similarly, the postal clerk and carrier jobs have been classified at a specific work level; namely, PFS 4. The same job evaluation methods which resulted in that classification can determine the relationship of PFS-4 duties and responsibilities to GS work levels, and the appropriate GS comparability rate which has previously been derived from the Bureau of Labor Statistics survey data can then be applied to PFS-4. Such evaluations and interrelationships among the statutory systems not only achieve comparability with private enterprise rates for all the systems, but they also insure equity among Federal employees who are paid salaries under different systems. These job evaluations have been made, linking the other three statutory systems with the Classification Act. In the case of postal clerks and carriers, the duties, responsibilities, and qualifications required are equivalent to those of GS-4. The present salary linkage to GS-5 work level was continued, however, because, unlike most GS-4 employees, clerks and carriers are usually heads of families and usually serve their entire careers at the PFS-4 level. In addition, the PFS-4 within-grade range was increased so that it overlaps all but the last step of GS-6. The salary of a clerk or carrier at the beginning of his career would thus be equivalent to the salary of a GS-5 employee, and during the later part of his career his salary would be equivalent to the salary of a GS-6. It is thus apparent that a Federal salary for any Federal job can be derived from the Bureau of Labor Statistics private enterprise salary report, by the simple process of work level definition and comparison. It is also apparent that the linkage of the PFS-4 salary to the GS-5 and GS-6 salaries recognizes not only the levels of work involved, but also recognizes other special factors. EXECUTIVE AND CONGRESSIONAL PAY The third point has to do with salaries at the level of heads and assistant heads of executive branch agencies. The President said, in his message: "This reform of top career salaries will, of course, boost the pay of many civil servants to a level above that paid to their chiefs in Cabinet, sub-Cabinet and similar positions. I recognize, however, that the salary level of these top executives has been quite properly related in recent years with the salary level of the Congress; and, while both are, in my opinion, inadequate, it is neither customary nor appropriate to either provide such increases during current terms of office or specify congressional increases in a Presidential message. Representatives of the executive branch stand ready, however, to cooperate with the Congress in determining what executive and congressional pay scales would be appropriate following the terms of the present incumbents." We believe that attention to executive and congressional pay is overdue, and that an objective guideline to such action is provided in the pattern of top career salaries contained in the President's salary reform plan. Those top salary levels were derived on the most conservative basis; namely, on the basis of internal alinement with the private enterprise salary rates at GS-15 and below. There are, as yet, no Bureau of Labor Statistics data on private enterprise rates for work above the GS-15 level. However, in 1960 the Civil Service Commission made a cooperative analysis with 21 large companies to determine the rates they paid for work in their companies equivalent to GS-16, 17, and 18 work in Federal programs. These were careful on-the-site job studies which resulted inclassification of the private company jobs. The median rate for the private enterprise equivalents of GS-16 was 23 percent higher than the GS-16 rate proposed in the President's reform, the median private enterprise rate at GS-17 was 40 percent higher, and at GS-18 was 66 percent above that proposed by the President. We know, therefore, that the rates for GS-16 and above are low in relation to these companies. We feel certain that they should be higher; however, we have much more investigation to do in order to provide a basis for determining comparability at these levels. We believe, then, that the salary rates for heads and assistant heads of executive branch agencies would be conservative when fixed in proper relation to these top career salaries. Standards and processes for determining pay levels for heads of agencies should be developed so that these rates will be fair and equitable and so that any needed future adjustments in career salary levels will be permitted. We believe that the Congress and the executive branch should cooperate on readjustment of top executive and congressional pay scales. We are prepared to work with the Congress toward a common conclusion on the level and interrelationship of such salary scales. COMPARISON WITH PRIVATE ENTERPRISE AND OTHER STANDARDS It has in the past been suggested that standards other than comparison with private enterprise salaries should be taken into account in adjusting Federal salaries. The other concepts which have been most emphasized are changes in the cost of living and in the standard in living. Sometimes arguments are made that increases in national productivity and increases in average hourly earnings in manufacturing can be directly reflected in Federal salaries. When the Government adopts the standard of comparability with private enterprise, it adopts, of course, the exact weight given in private enterprise to each of the other concepts mentioned, because the going private enterprise rate is the current decision by private companies and private employees about the relative importance of all pay factors. Nevertheless, it has been suggested in some quarters that even if the Government adopts the standard of comparability with private enterprise salary rates there should also be some add-on based on one or more other factors. The question is how would the Federal Government decide how much weight shall be given to each salary factor at any particular time. It may simplify the consideration of the various factors to find out which of the indicators mentioned can be interpreted to support an upward adjustment in Federal rates, if some objective method could be developed for giving them direct effect in the Federal salary rate. Changes in cost of living, or in the purchasing power of the dollar, are measured by the Bureau of Labor Statistics' national Consumer Price Index, which has risen 115.8 percent since 1939. This percentage rise in the Consumer Price Index has been exceeded by the percentage increases in the Federal salary entry rates of all work or grade levels up through PFS-8 and GS-5. Pay raises for some private enterprise work levels have also, according to available evidence, outrun the changes in the Consumer Price Index since 1939. Increases in national productivity are usually measured by output per manhour, and we have Bureau of Labor Statistics' reports beginning with 1947. Reference to those reports shows that since 1947 output per man-hour has increased from 2.5 to 3.5 percent per year, or 53.3 percent from 1947 to 1961. This national productivity increase has been exceeded by increases in the Federal salary entry rates of all work or grade levels up through PFS-12 and GS-11. Again, private enterprise pay rates for some work levels in some industries have also increased more rapidly than the rise in national productivity. Increases in average hourly earnings in private manufacturing have sometimes been compared with increases in selected Federal salary rates. It should be pointed out that the average earnings figure for manufacturing actually combines earnings data for a wide variety of occupations and work levels, whereas the Federal salary rate attaches to a single work level. The manufacturing average earnings figure is naturally affected by past changes that have taken place in the occupational and work level composition of the work force. Therefore, comparisons between changes in average manufacturing earnings and changes in selected Federal salary rates are not meaningful. It is thus apparent that, whereas Federal professional and managerial salaries in the upper grades lag behind every indicator over this period, salaries for lower postal field service levels and Classification Act grades all show increases greater than the increases in the indicators cited. Any attempt to use these indicators, in other words, even if technically feasible, would promise no profit except to the higher Federal professional and managerial levels. However, we do not believe any of these indicators except the private enterprise going rate can be used directly in any objective way as a standard for judging Federal pay levels. All have had an effect upon, or in some degree reflect, increases in private enterprise pay rates. Many other factors, reflecting employee and company interests have also served to raise private enterprise salary rates. We believe that the only method which weighs all the factors and which serves as a fair, objective, and definite standard for the Government is the method of equating Federal salaries with current private enterprise salaries for the same levels of work. All except the two lowest grades in the Federal service have fallen behind that comparability standard, and would, therefore, benefit from its application. STANDARD OF LIVING FAMILY EXPENDITURES Another concept often mentioned in connection with Federal salary increase legislation is a concept of "standard of living." The question usually raised is whether Federal salaries are high enough to permit employees and their families to maintain a specified level of family expenditure. Two budgets are most frequently mentioned-the Bureau of Labor Statistics "City Worker's Family Budget," which is priced in 20 cities, and the California Heller committee budget, which is priced in San Francisco only. These budgets are compiled by consumer economics experts as lists of goods and services that will maintain an urban family of a particular size and compensation at a level of living that is called modest but adequate. Such family expenditure budgets are designed to serve many social and economic analysis purposes--but wage and salary fixing is not one of them. In the American economy, wages and salaries are paid for services rendered, the wage and salary rate is related to the value of those services, and there is no logical, objective way of fixing the salary for a particular job or work level at a particular family expenditure budget level. Family expenditure budgets are not used in fixing blue-collar wage rates for the approximately two-thirds of a million employees under Federal wage boards. Similarly, the President's white-collar salary plan uses only the standard of the going private enterprise salary rate as the standard for Federal salary setting and does not attempt to relate Federal salaries to family expenditure levels. The BLS city worker's family budget covers a family of four where the male worker, head of the family, is 38 years old, and may be presumed to have been working at least 18 or 20 years. The annual cost of this budget in the 20 cities surveyed in 1959 (the latest data) averaged $6,083, with a cost of $6,147 in Washington, D.C. In normal careers under Federal statutory pay systems, the President's salary reform plan would enable Federal employees of ability to achieve this level. For instance, postal clerks and carriers at PFS-4, after 18 years' service, and about age 38, the same as the BLS city worker's family budget assumption, would be paid a salary rate of $6,130, or higher. This is above the $6,083 average budget cost reported by BLS, and about the same as the $6,147 budget cost for Washington, D.C. PAY INCREASES AND PRICE STABILITY Next is the point about the relationship of the salary increases that would result from the President's salary reform plan, to the increases in national |