Special Message to the Congress on Federal Pay Reform.

To the Congress of the United States:

The success of this Government, and thus the success of our Nation, depend in the last analysis upon the quality of our career services. The legislation enacted by the Congress, as well as the decisions made by me and the Department and Agency heads, must all be implemented by the career men and women in the Federal service. In foreign affairs, national defense, science and technology, and a host of other fields, they face unprecedented problems of unprecedented importance and perplexity. We are all dependent on their sense of loyalty and responsibility as well as their competence and energy; and just as they have responsibilities to the Government, so does the Government have obligations to them.

We properly establish high standards for our public servants. We investigate their character and associations before considering them for employment. We hire them only after they have passed difficult examinations. We require them to abide by rigorous standards of conduct and ethics. We demand consistently high performance from them on the job. Accordingly, the salaries for the services they perform should be fixed under well-understood and objective standards, high enough to attract and retain competent personnel, sufficiently flexible to motivate initiative and industry, and comparable with the salaries received by their counterparts in private life. To pay more than this is to be unfair to the taxpayers--to pay less is to degrade the public service and endanger our national security.

Unfortunately these basic standards for Federal salary systems are not met today. Too many Federal employees are underpaid in proportion to their responsibilities. Too many receive smaller salaries than are paid by many private industries, and even by many state and local governments, for less responsible work. Too many top-grade or supervisory Federal employees are paid little more, and sometimes even less, than their subordinates. Too many key career employees are unable to afford continued public service.

Existing statutory Federal pay structures cannot be justified as sound and equitable, either internally or externally. Internally, salaries between various levels of work should be enough to provide an incentive to undertake more responsible duties and to represent, dollar-wise, fair differences in work requirements. Over the years, piecemeal statutory revisions--with primary emphasis on bringing the lower pay levels abreast of changes in the cost of living-have severely compressed the spread between the top and bottom salaries. The 8.8 to r and 12 to 1 salary ratios between the highest and lowest Classification Act and Postal Field Service grades existing prior to World War II have shrunk to ratios of less than 6 to 1, making it impossible to offer pay increases consistent with the added responsibilities of grade to grade promotion, or to offer an appropriate range of incentives within a particular grade. There is little consistency or logic in the salary differences between existing grade levels. And employees paid under a wage board system, with wages based on the prevailing rates in industry, are frequently paid more than their supervisors whose salaries are fixed by the more rigid and less logical provisions of the Classification Act.

Externally, except for employees paid under wage board systems, Federal salaries generally do not compare favorably and cannot compete successfully with private industry. Every objective survey has demonstrated that salaried Government employees at almost every work level receive less compensation, on a national average basis, than private employees performing similar work--and the greater the level of difficulty and responsibility, the greater the gap between Federal and private pay. A Federal employee beginning a professional or administrative career can look forward to a maximum salary increase of no more than four and one quarter times his entrance salary, whereas his counterpart in private industry can look forward to an increase of six or seven times his beginning salary. Moreover, the Federal employee's top salary, if he stays to reach it, will be less than half that of his private enterprise counterpart.

Even state and local governments have passed the Federal Government. The head of a Federal Cabinet Department receives less than the head of a New York State Department-less than the average salary paid to the superintendents of schools in cities over 500,000 population. The highest paid Federal employees under the Classification Act would obtain higher salaries if they were working in the state career service in Georgia, Ohio, New York, Pennsylvania, Illinois, Michigan or California, for example--or for the cities of St. Louis, Denver, Detroit, San Francisco, Los Angeles and Philadelphia.

The difficulty has been the lack of both an accepted objective standard for determining Federal Salary levels and a consistent procedure for review and adjustment. The result has been a steady attrition of valued employees, an inability to attract many top quality college graduates and, in the long run, a waste of Federal funds--discouraging the initiative, efficiency and dedication that accompany recognition and stature, and requiring enormous expenditures each year to recruit and train new replacements for employees who leave the service for reasons of inadequate pay. We can no longer defer the necessary corrective measures or continue the existing lack of standards; and recent studies and measurement techniques now make possible the kind of wholly new approach that common sense requires.

A FEDERAL PAY ,REFORM PROGRAM

I am transmitting to the Congress with this message legislation designed to reform the major statutory salary systems of the Federal Government, benefiting all of the 1,640,000 employees throughout the world who are paid under the various Federal statutory pay plans--the Classification Act, the Postal Field Service Compensation Act, the Foreign Service Act, and the Medicine and Surgery Salary System of the Veterans Administration. Although flat increases for lower-paid workers are included as a matter of equity, the essence of this bill's objectives is Federal pay reform, not simply a Federal pay raise. Where pay raises result from the establishment of objective 'pay standards, they are primarily a reflection of the extent to which Federal salaries have lagged behind the national economy.

This proposal has two principal features: (1) It establishes a sound, objective and continuous standard for determining proper salary levels by following the concept of comparability -- reasonable comparability with prevailing private enterprise salaries for the same levels of work insofar as this is possible, as determined from painstaking statistical surveys and careful job comparisons; and

(2) It establishes realistic and appropriate salary relationships both within and among the several statutory salary systems and each of their grade levels, by following the principle of equal pay for equal work, with distinctions in pay consistent with distinctions in responsibility and performance.

COMPARABILITY

Adoption of the principle of comparability will assure equity for the Federal employee with his equals throughout the national economy--enable the Government to compete fairly with private firms for qualified personnel--and provide at last a logical and factual standard for setting Federal salaries. Reflected in this single standard are such legitimate private enterprise pay considerations as cost of living, standard of living and productivity, to the same extent that those factors are resolved into the "going rate" over bargaining tables and other salary determining .processes in private enterprise throughout the country.

The principle has a history of wide acceptance. Within the Federal Government, it has been used for 100 years: first applied to Navy Yard workers, it is now applied to all Federal workers in trades and crafts, to employees of the Tennessee Valley Authority, and to work under Government contracts covered by the Walsh-Healy and Davis-Bacon Acts. Many state and local governments, as well as some other national governments (such as Canada and the United Kingdom) already rely on this principle.

It should be noted in this regard that, in marked contrast to the unfavorable situation of salaried employees, the Federal pay practices affecting over 660,000 workers in the skilled trades and crafts have functioned without serious conflict or confusion. Based on prevailing rates, and set on recommendation of wage boards, their pay has been continuously maintained at levels that are fair from the viewpoint of the Government, the taxpayer and the employee.

I have found no more sensible standard for determining Government salaries. The Advisory Panel on Federal Salary Systems, chaired by Mr. Clarence Randall, in its recent report ¹ to me called it "not only equitable but valid and eminently desirable." The application of this principle permits the Government to meet its difficult personnel needs without paying more than is necessary or less than is equitable. It was not feasible in earlier years; but now the recently introduced annual survey of professional, administrative, technical and clerical salaries conducted by the Bureau of Labor Statistics provides the objective comparative salary data needed for setting Federal pay scales. Occupational rates paid by private employers at a given work level of difficulty, responsibility and required qualifications can be combined into a single national average private enterprise rate for work equivalent to a Classification Act grade. These Classification Act rates in turn can be used to establish rates for the corresponding grades in the specialized salary systems of the Postal Field Service, the Foreign Service and the Veterans Administration.

¹ The report, in the form of a letter dated February 2 and released by the White House on February 14, is printed in House "Hearings Before the Committee on Post Office and Civil Service, 87th Congress, 2d sess., May 3-June 28, 1962," page 51 (Government Printing Office, 1962).

INTERNAL ALIGNMENT

The internal alignment principle rests on two basic concepts: equal pay for equal work, and distinctions in pay consistent with distinctions in work and performance. Although these concepts are stated in the present Classification Act and are implicit in the Postal Field Service Compensation Act, the regressive and flat percentage pay adjustments of the past seventeen years have gradually blotted out much of the meaning in the current pay differentials of all our salary systems.

The pay schedules I am recommending will regularize and generally enlarge the differences in salaries between successive grade levels, recognizing more appropriately the differences in responsibility involved, and providing a more uniform (not less than 10%) progression of salary levels between the entry rates of successive grades. This will furnish a greater incentive for employees striving to prepare themselves for higher responsibilities. At the same time, these new schedules will make more meaningful the within-grade promotions for competent performance of duties, and will provide better incentives for those who spend most of their careers within a single grade, by providing wider salary ranges (30% except for the top two grades) within each grade, more adequate and more numerous within-grade salary steps, and more flexible use of salary steps to recognize exceptional achievement.

Other provisions aimed at improving flexibility will (i) facilitate the adjustment of salaries to meet critical needs by competing more equally with private industry in areas or in occupations in which a shortage exists; (2) permit the assignment of positions to the upper grades of the Classification Act on the basis of duties and responsibilities, instead of arbitrarily limiting the number of such positions; and (3) create new upper grades to bring within the salary provisions of the Classification Act all those with top administrative responsibilities who are not Cabinet or sub-Cabinet officers or heads of separate agencies.

The new salary ranges would provide a 30% range between the entry rate and the highest rate in the grade for most salaried employees under the Classification Act and a 40% range for the lower levels of the Postal Field Service. This is comparable to the private industry ranges, which vary between 30% and 50% for each position. The pay ranges in the lower levels of the Postal Field Service are somewhat broader than those in the Classification Act, in recognition of the pattern of long service in such positions in the Postal Field Service and the need for incentives for sustained performance during the entire period of service.

ANNUAL REVIEW

To maintain the comparability principle, and to assure that other features are improved with experience, the bill provides that the President shall submit an annual report to Congress on the relationship of Federal salaries to those reported by the BLS for private enterprise, recommending whatever adjustments in salary schedules, structure, and policy he finds advisable. Where adjustments are indicated, they would be accomplished by revision of the Classification Act pay scales and by linkage of the other statutory systems to the Classification Act. A systematic annual review of this kind is essential to prevent Federal salary schedules from relapsing to their present conditions.

THE UPPER GRADES

Reform of the existing pay schedules necessarily involves immediate adjustment of salaries at almost all grade levels. But both our experience in the attrition of higher salaried men and women and all objective surveys have disclosed that the gap between private industry salaries and Government salaries is the widest at the upper levels. For example: the most recent Bureau of Labor Statistics survey shows that GS-14 and GS-15 employees receive 20 percent less than those employees in private industry in comparable positions. A 1960 survey of twenty-one large companies by the Civil Service Commission showed even more startling disparities at higher levels. Employees in these companies performing functions comparable to those of a GS-18 received twice as high a salary as their Federal Government employed counterpart.

Yet these are the very levels in the career service in which our need for quality is most acute--in which keen judgment, experience, and competence are at a premium. It is here that we face our most difficult personnel problems. It is at these grades that we. employ our top scientists, doctors, engineers, experts, and managers. Surely if so many state and city governments, as earlier cited, are willing to compete with private industry for this talent, the Federal Government, with its urgent missions to perform, can face up to this problem as well. As a practical matter, the full principle of comparability cannot be applied to the higher salary levels of government; but I consider adequate adjustment in our top executive and professional positions to be the most vital single element of correction in this entire proposal.

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.

TIMING AND COST

It is important for the Federal Government to adhere to its own precepts with respect to pay adjustments in the economy as a whole. Because of the salary lag that has developed over the past 17 years, full correction of the accrued inequities in one year would be unwise, involving the substantial cost of more than $1 billion. This cost would come at a time when heavy budgetary demands have been placed upon us to meet great national security needs, and when the Government is urging private labor and management to exercise self-restraint to avoid the creation of inflationary pressures. Therefore, to reduce the impact in any one year on the affected $10 billion Federal payroll, where each 1 percent increase costs $100 million, the plan that I recommend provides that the full 10 percent be distributed over three annual stages, beginning prospectively on January 1, 1963. The increase scheduled to take effect next year is clearly well within the national average productivity increase (in the private sector) which has taken place since the last Federal pay increase in July of 1960.

The substantial costs necessarily involved in achieving this pay reform make it especially important that these improvements in our pay systems take absolute priority over general percentage or dollar increases of the kind we have seen in the past--increases which make little if any contribution to efficiency or economy in Government.

CONCLUSION

As I stated in my Budget Message, the first requirement for efficiency and economy in Government is highly competent personnel. I believe that enactment of this plan for sound salary administration is fundamental to the maintenance of a standard of excellence in the Federal service. It is my belief that this measure, if enacted, will constitute the most important revision and reform in Federal personnel legislation in more than a decade. It is the most important proposal to improve the Federal service which has been presented by this administration; and I believe it is essential if we are to achieve and maintain proficiency in the Federal Government. If our civil servants are to fulfill with skill and devotion their obligations to the nation, the nation must fulfill its obligations to the career service.

JOHN F. KENNEDY