Transcript
PAUL C. LIGHT: Good morning. It's my pleasure to emcee a PAI event. I'm not presenting anything. Everybody else has done the work and is going to provide the commentary, and I think it will be a very interesting conversation today about a next agenda for the Presidential Appointee Initiative dealing with some issues that we didn't touch on in our reform agenda.
I should start by saying that yesterday, the Senate Governmental Affairs marked up and reported to the Senate, as a whole, the Presidential Appointee Improvement Act— is it appointee or appointments— Appointments Improvement Act? Now, the initials of that are PAI Act. I don't think that they meant it that way, but we're going to take it that way. And Senator Thompson, I believe, and Senator Lieberman are going to push for passage of that important first step to reform. There are other reforms along the way. We have Connie Horner here today, and Frank Carlucci, who are both members of the recently launched National Commission on the Public Service, which is chaired by Paul Volcker. I think the Volcker Commission will take another bite at reform. Some of the issues presented here today will certainly be on the agenda.
This particular event began with a survey of potential appointees that we did last year. We talked to senior executives at Fortune 500 companies, presidents of colleges and universities that were rated by U.S. News and World Report in the top 300. We talked to the heads, a sample of the heads of America's largest nonprofit organizations by revenue. We talked to lobbyists and lawyers at the nation's largest lobbying firms here in Washington and elsewhere, and we even talked to think tank scholars about whether they would take a presidential appointment if offered. And there was overwhelming desire to serve among these presidential appointees, but serious concerns about both the process of getting into office, which we think will improve under the Presidential Appointments Improvement Act. That's a good first step towards improving the process to make it less burdensome for potential appointees. And they also said that they had serious problems with presidential pay, as well as with relocation.
And so we commissioned two papers, one by Gary Burtless, who's a senior fellow here at the Brookings Institution, a terrific scholar of labor economics, to take a look at the dynamics of presidential pay. And we asked Carole Plowfield— and I'm the co-author on this paper, but I did not do the bulk of the work on this, that's why Carole is listed as the first author— to take a look at what we do by way of relocation for presidential appointees. And the bottom line: is we don't do very much at all.
I would start by saying that the founders did not intend presidential service to enrich. Benjamin Franklin, at the Constitutional Convention, one of the first discussions was around his proposal that presidential appointees and other officers of the federal government not be paid at all. The founders never discussed that; they dismissed it. But there was an undertow in the Constitutional Convention about the need for people to serve for the right reasons, meaning for the honor of service, and to make a difference for their country.
At the same time in the Constitutional Convention and later, there emerged a tradition of also not requiring presidential appointees and other officers of government to suffer. We didn't want them to be enriched, but we didn't want them to suffer. And I think that the body of evidence that will be presented today will suggest to you that presidential appointees, and perhaps the people below them, and perhaps people in the other branches— my affection for Robert Katzman on the Circuit Court of Appeals requires me to talk about the judicial branch ever so briefly — that we may be asking our appointees to suffer, and we may be asking others to suffer.
I'm going to ask Gary Burtless to stay by talking about presidential pay, then we'll turn to Carole Plowfield to talk about relocation. We will then ask Frank Carlucci, former Secretary of Defense, and current Chairman of The Carlyle Group, who's had really a wonderfully distinguished career, to speak. I may be wrong about this, but Frank Carlucci is the last career officer, the last careerist who really made it all the way up to the secretary of a department, I believe. Larry Eagleburger, too? Yeah, there's a little bit of a timing effect, and if he were here he'd correct me. I mean, we had Eagleburger here, and now I will be corrected, I'm sure. He loves to correct. (Laughter.)
Frank was also a member of the first Volcker Commission, and has been a deeply committed public servant, and a strong supporter of efforts to improve public service.
We have Charles Kolb, who's the president of the Committee for Economic Development. I've worked with him on campaign finance reform. He achieved a major victory. I believe that CED played a major role in getting campaign finance reform passed, largely by taking a very tough and strong position and becoming a target for some of the opponents, so that bull's-eye on his back continues, and we're hoping to strap on a new bull's-eye that deals with presidential appointee salaries and have him out there as our stalking horse. He's been in government. He served as the general counsel and secretary of the United Way of America between 1992 and 1997. All the good things about the United Way of America are due to him. The Liberty Fund has been actually very responsive. I think the United Way has done a terrific job in the wake of September 11th. We'll give you credit for that, too.
We have Cal Mackenzie at the end, who is the king of presidential appointments. Cal has been working on this for 30 years. Actually, his dissertation at Harvard was on the presidential appointments process, and he's been arguing for reform since 1972, would you say, Cal?
CAL MACKENZIE: Yes.
PAUL LIGHT: And here we are, 30 years later, we're now seeing that perseverance may yet pay off.
So we'll start with presentations on the papers, Frank Carlucci at the podium, and then we'll go to a panel discussion, starting with Charlie and going to Cal, and fielding some questions.
So, Gary Burtless.
GARY BURTLESS: Well, good morning. I'm a labor economist. I'm a specialist in public economics. I don't pretend to be a political scientist who understands the logic and politics of how these salaries are set. My job was to analyze what they look like, and how they're determined.
What is the pay structure for the top federal officeholders? What are the non-wage benefits that these people receive? My report contains findings from a study of this. No one with any interest in this broad topic would be surprised by the findings reported. The pay of top federal officials has declined after controlling for inflation. It has slipped in relationship to the income of a median income American family. It's fallen in relationship to the pay earned by rank and file American workers. And even more worrying is this: it has fallen very substantially in comparison to the pay received by top executives, top doctors, top accountants, scientists, and academics.
Now, I recognize that average voters have real problems seeing top officials earn salaries that are much, much higher than their own. But I also recognize that most people who accept a top federal job are not mainly thinking about money when they decide whether to accept or reject a job. But top federal officeholders are not recruited form the rank and file of the American workforce. People who are asked to serve do have alternatives to serving in these critical positions, and some of the best potential recruits may say, no, Mr. President, I cannot afford to accept.
We have to worry, I think, if too many highly qualified people start to say that, not at the cabinet secretary level. I think anyone looking at cabinet secretaries who have served in recent years would not think that there's been any deterioration in the exemplary quality of people that are recruited into those positions. But what about the positions below them? I'm much more concerned about lower ranks of the executive service of the United States than I am at the very top level.
Some evidence on pay trends can be found in the report around pages 8 or 9. On the bottom of page 9, you'll find the trend in the pay of cabinet level positions measured, if we adjust these pay scales, in constant dollars. Between 1969 and 2001, a cabinet officer's pay rose 170 percent, which sounds like a lot. But, unfortunately, the cost of living in those years increased 390 percent. And this means that cabinet officer's pay fell about 45 percent in those years, measured with dollars that have the same value at the beginning and at the end.
You might think that I picked 1969 because it's a year when federal salaries were particularly high, and it's true they were at a local high. But the picture at the top of page 11 should convince you that that's not really true viewed over a long period of time. In comparison with the wages of rank and file workers in the United States, top federal salaries have been declining for most of the past century, not just since 1969.
In 1909, a cabinet office received a salary that was 24 times as much as that of a line rank and file worker in a manufacturing plant in this country. Last year, a cabinet officer received about 5 times what an average manufacturing production worker receives. In case some of you may not have heard, wages of top managers, lawyers, researchers, nonprofit executives, and academics have been climbing much, much faster than the wages of average manufacturing workers in this country, and that's been true for the past quarter century.
Towards the end of my report, on page 17, I offer some comparisons of the pay received in particular top federal positions and the positions in the nonprofit sector, other government, state and local government positions, and the for-profit sector from which recruits to these top federal positions might be found.
The first position listed, for example, is that of the Assistant Secretary of Treasury for tax policy. I actually know some people who have held that job, so I am a little familiar with it. That job paid $122,400 in the year 2000. Now, for purposes of comparison, a starting lawyer in a New York law firm, hasn't even passed the bar exam yet, has never practiced law in his life, in that same year received as a starting salary, $125,000. And that doesn't include the bonus that was typically paid to these starting new salaries, first year in their job. A partner in one of the New York law firm, same year, received a salary or share in partnership profits of $1.22 million, roughly ten times what we pay to the person who advises the president on the formation of tax policy.
So, this is the situation. The person the president relies on to develop his tax policy and to analyze shortcomings in the tax code earned less in the year 2000 than a brand new associate starting at a law firm, in a Washington or New York firm, and roughly one-tenth as much as a partner, whose main job might be trying to outsmart the government of the United States in paying a corporation's income taxes.
The question is: is the kind of pay package that this country offers for its most senior positions damaging the quality of the people that we can count on to accept positions in that government? As I said before, I don't think this is a problem at the cabinet level. We have people who would be wonderful additions to the best companies, the best hospitals, the best universities, the best nonprofit organizations in the country who serve at cabinet level. But there are many people who hold positions that do not command the attention and the prestige of these top positions, and they're being asked to serve at salaries that I just described that are substantially less than what the best people in academics, in law, in accounting, in science can expect to receive outside of the federal government, even in the nonprofit sector, even in state and local government.
Solving the problem is not brain surgery, really. From the point of view of an economist, it's quite plain that you more or less want to have salaries rise in proportion to the salaries paid to people who have comparable positions in the rest of the economy, if you still want to have a good shot at recruiting the best people. That's not brain surgery.
What is brain surgery, probably, is figuring out the politics of how to make that happen. And as I said at the beginning, I'm not a political scientist, I'm not a politician. I don't really quite understand how it can be that over the last 25 years of this country, in the private sector, the salaries, the pay packages we give to people who have the most responsible positions have grown faster than have those of workers with middle level responsibilities. And on talk radio and at the voting booth, or on the floors of Congress, we hear that it is unconscionable for people in senior positions in the federal government to be paid wages that are rising at the same pace. Are voters really so stupid that they're willing to accept the risk entailed in paying substantially lower compensation? Perhaps they are, and I expect someone could tell me.
CAROLE M. PLOWFIELD: Good morning. Thank you all for coming. And I want to say a couple of thank yous. First of all, co-authoring with Paul Light was a lot of fun, and then I'd also like to thank the rest of the PAI team: Sandy Stencel, Anna Gallagher, Erin Murphy, Michael Hafken, Gina Russo, for helping put this event together. And Judy Labiner and Mary McIntosh of Princeton Survey Research Associates for helping with the survey. They did a great job. Andrew Mohraz, who was the research assistant on it. And there's a couple of people who came today who I really want to thank, Jim Hart from GSA, Doris Hausser and Bryce Baker from OPM; they were all extremely helpful in helping me make sure that everything in the report was accurate. And I appreciate that.
Everything we do at PAI is a team effort, so I could drag on with a lot of thank yous. But, I guess that's what we have the Academy Awards for on Sunday night. So, before I go any further, suffice it to say, I guess if I could vote, I would vote for the PAI staff for the best supporting role. And I guess I would probably have to vote for Paul Light in the starring role that he has played at PAI for the last two years. Okay. I can tell by the look on Paul's face, and the staff at PAI, that if I'm ever reminded that I said that, maybe by you, Paul, at some time, I will say that it was under duress that I said that.
Paul gave some background as far as the origins of this survey. It came from a potential appointee survey that we did last year, and as Paul said, we have this group of great, talented people, just the kind of folks you want serving in government, they think it would be a great honor, they think it would be great for their career, they just didn't seem particularly enthusiastic about coming to Washington. So we're thinking, what's going on here?
The survey that we did with Princeton Survey Research Associates was to help us find out just that. What's going on that they don't want to come here, and what do other Washington area organizations do to get these people to come here? The 85 organizations that we surveyed, as Paul mentioned, represented a group — from the previous survey, this is a group that has historically produced presidential appointees— the Fortune 500 businesses, think tanks, lobbying firms, nonprofits, universities, and state and local governments. A brief telephone survey of the human resources officers at each of these organizations was conducted by Princeton Survey Research in the summer and fall of 2001. And nine simple questions about the organization's relocation policies were asked. And we also asked them what their experiences were recruiting top level executives to the Washington area. And you can find the full questionnaire and the answers in the back of the report. I'll just briefly give you some of the results.
They were actually a bit more hopeful than we thought they would be, based on what the potential appointees has said earlier about their misgivings about coming to Washington. And that's shown in tables three and four on page eight of the report. Thirty-six percent of the respondents said that the top level executives their organizations had recruited over the past year viewed Washington as a much more, or somewhat more, favorable place to live than their current residence. And 69 percent said it had been very, or somewhat, easy to recruit top level executives to the Washington area.
The next part was, well, what exactly do these organizations pay for? Eighty-eight percent pay travel costs to find a new home; 87 percent pay for costs of moving personal property; 71 percent pay for closing costs for the purchase of a new home. Another 71 percent provide assistance finding temporary housing, but, interestingly, that figure drops to 53 percent when asked who will actually pay for the temporary housing that 71 percent of them were just willing to find. About a third of all the organizations provide the following services: loan assistance, assistance buying or selling a home, help finding childcare, job placement for a spouse or partner, and assistance finding schooling for children.
So, the next question in this investigation we were doing was: what do presidential appointees get, and, unfortunately, the answer was not quite as much. Basically, they get transportation costs for themselves and their immediate family, per diem reimbursement for themselves only, and transportation and temporary storage of household goods. And that's shown in tables 5 and 6 on page 10 of the report. One point to note here is that career and non-career employees are eligible for the same benefits. However, the federal government offers different types of relocation benefits, depending on whether you're new to the government, or you're a transferee within the executive branch of the government. And then there are some allowances that an agency must reimburse, they're required to, but there are other benefits where it's discretionary. So, as an appointee, you're coming in, you don't know. Well, are they going to give me this benefit or aren't they? And I'll come back to that point in a moment.
So, now to the comparison. How do all these policies stack up? And this is shown in table 8 on page 12. That shows our survey of the Washington area firms, and additional data we used from a comparison, which was from a Runsheimer survey, which was a national survey, and then the federal policies. And it shows the federal government lagging behind in almost every category of relocation benefits. And one note here about recruitment and relocation bonuses; they're a bit of a different animal from the reimbursement benefits. They can get a bonus, which is up to 25 percent of pay, but the reimbursement is actually for the move, so they're two different things. The agencies currently have discretionary authority to pay these bonuses, but they almost never do. And, generally, we attribute that to a lack of funding. Government-wide, these bonuses are used less than one percent of the time. So we figure, for appointees, it has to be a fraction of that number, which basically means almost never.
So what do we do about this? Some possible policy options that we came up with to make the government more competitive with the private sector were to make new presidential appointees eligible for the same travel reimbursements that are available to transferees. It's not a big step to take. It just simply broadens the existing benefits to a wider group of people. Another thing would be to make all of the discretionary benefits required benefits, to eliminate the uncertainty of not knowing whether you would get the benefit or not. And, again, that would just expand the pool of recipients for these benefits. You could make recruitment and relocation bonuses completely discretionary, to be used as necessary as an incentive for selective candidates, and also backload them. So that would encourage appointees to stay in government a little longer than the average, which is two years right now.
Another helpful move might be to make appointees that are under the executive schedule eligible for locality based payments. Washington has a high cost of living, and currently, appointees aren't eligible for that locality-based pay. You could give presidential nominees easily accessible information on these federal relocation policies early in the process, so they know what they're dealing with. The process is tough enough to navigate as it is, and PAI early on issued a survivor's guide to help people through the process. So that would be another helpful step. And finally, provide the funding necessary to provide job search services for spouses of presidential appointees. That's the benefit that's the hottest thing right now in the private sector. It's the benefit that's being most frequently added to their policies.
I just want to talk for a moment about some of the consequences of the phenomena of more and more appointees coming from inside the beltway. Having some of these policies that I just talked about might not seem like a huge incentive, but we think that not having them can be a big disincentive. And the disincentives to move to Washington increase the likelihood that cabinet members and senior executives in an administration will come from the Washington area, and this trend has been increasing over the years. And you can see that in figure one on page six of the report. And this trend creates a more and more exclusives group of appointees, basically only those who can already afford the cost of living here. And we've been talking here today about the price that appointees pay to serve their country, but the price that we all pay for this trend is that we're not getting different kinds of experience and talent and diversity that might come from outside the beltway. And, in fact, Erin Murphy and I were in the mark-up session yesterday for the legislation that Paul mentioned, and Senator Thompson himself lamented the consequences of this very problem.
I think I'd just like to close with a short story that I think illustrates the importance of what we're discussing here today. John Adams exemplified the kind of citizen service that the founding fathers envisioned and that presidential appointees represent today. In his wonderful biography of Adams, David McCullough recounts Adams traveling to the First Continental Congress in the summer of 1774. It was a difficult journey, as I'm sure you can imagine. Adams worried about his ability to meet the demands of the moment, and about the abilities of those joining him in Philadelphia. He told Abigail that he must prepare for, "a long journey, indeed." But he then included, "But if the length of the journey was all, it would be no burden. Great things are wanted to be done."
Well, here we are more than 200 years later, and great things are still wanted to be done, particularly at this moment in time. And we can only hope that talented Americans will continue to be willing to make the journey into public service, and here to Washington, and that we can help make that journey less of a burden for them.
Thank you.
FRANK C. CARLUCCI: Carol and Gary have done a fine job in making the factual case. Let me now, if I can, try to make the anecdotal case. It was in the fall of 1981, I'd been a government servant for 25 years. I was then serving as Deputy Secretary of Defense. I loved my job. I was the point person for procurement reform, for the budget rebuilding of the armed forces under President Reagan's leadership. I loved working for Cap Weinberger and had a great team in my office, headed by Colin Powell as my military assistant. I was very happy in my work.
One night at home, after going through my work, I took a look at my checkbook and found that I was down to my last $500 and I had no outside investments. I then reflected a bit. I had a son in college on a guaranteed student loan. I had a two-year-old daughter, and a wife who was 15 years younger than I was, and I was 52 years old. I said, I'm not doing justice by my family. I have to do something before I become too old to be valuable in the job market.
So the next day I walked into Cap Weinberger's office and said, Cap, I can't do it anymore. I've got to leave. Cap tried to dissuade me, even offered to lend me the money himself, but I, of course, refused. And I left government. Now, I'm only one person, and somewhat to my surprise the Defense Department survives. So does the U.S. government.
But I suspect that there are many others going through that same calculation, particularly when you begin to have children in college. I didn't go into government for the financial rewards, and most people don't, but when the crunch came, I had to choose between my family and my job, and I chose my family, and I suspect many others are making that same choice.
Now, let me finish the story. I went out of government, and in a couple of years made myself whole, and when President Reagan asked me to come back in as National Security Adviser in the wake of Iran-Contra, I was able financially to do it. I moved from there to the Defense Department. When I left Defense, I was invited to join a number of corporate boards, only two of which, by the way, were in the defense business. And I was reflecting on one board, it was a food company, and I thought to myself, you know, in seven meetings, about three or four hours long each, I will make as much money as I'm netting as Secretary of Defense. Now, there's got to be something wrong with that kind of situation.
And when I went into the private sector, the thing that struck me most was the amount of time and effort spent on people management. As Charlie knows, people management is the private sector. You're always trying to move your best people up, cut your bad people out, eliminate the lower level, keep moving the organization forward, keep changing, keep judging people on their performance. And I've witnessed that first-hand. I serve on five compensation committees, one of which I'm chairman, a fairly large company. So I see the amount of time and effort that goes into compensation.
Notice I use the word "compensation" as opposed to salary. In government you talk about salary. In the private sector, you talk about compensation. I think there's a difference. Compensation is a much broader concept. And let me just spend a minute on private sector compensation and relate it to the government. There are three aspects to private sector compensation. There is base salary. There's incentive compensation, bonuses. And there's long-term incentive compensation in the usual compensation structure of a company.
Base salary is used to make sure you're competitive in the talent pool. Then you're constantly benchmarking base salary against your peers in order to remain competitive. And base salary usually goes up every year in some proportion to the cost of living. There's some merit usually attached to it, as well, but you need to stay competitive.
Government at certain levels— I guess there are more people here more expert than I— does benchmark, but certainly nothing happens when you're finished benchmarking at the executive level. The disparity continues, so there's not much point in benchmarking if the disparity is going to continue.
Then there is incentive compensation, which can be anywhere from, say, 50 percent to 200 percent of the salary. The target, or maximums, can be anywhere in that range. Incentive compensation is usually pegged to goals, corporate goals, broad corporate goals, and individual goals. Corporate goals might be earnings per share, total return to shareholders. Individual goals are usually unit specific, but there may also be intangibles, such as measuring leadership and teamwork. Bonuses tend to be quite large. They are a major portion of compensation in the private sector.
There was a feeble attempt to put a bonus system into the federal government, but to the best of my knowledge, it's not working. It certainly is not having the desired effect of motivating people to move towards specific goals. I don't think it's impossible to set goals in government. A corporate goal might be reduce the number of people who don't have health insurance, or procurement reform in the Pentagon, or transformation in the Pentagon, and then you can develop individual goals under those categories.
Long-term incentive compensation is generally used in the private sector to try and align top management with the interests of the shareholders, and as a retention device. Now, it's very difficult in government to develop some kind of long-term incentive to align your interests with the taxpayers. That ought to come with the nature of their job. But we can certainly do a better job of figuring out ways to retain our key people. To some extent the retirement system does that. The military has reenlistment bonuses. But somebody could devise a system that could be where we could compensate people, the good people, who we want to stay on.
Charlie's outfit, the CED, every year goes out to its trustees, of which I am one, and asks what issues do you think are important issues facing our country. And, of course, after 9-11, most people would say terrorism. But prior to that date, I think, Charlie, I was probably the only one that said quality in government. I think it is a major problem that our country is facing. And if there is any good, and there's very little good that's coming out of 9-11, it is the realization on the part of the public that government counts, and now we have to make that linkage. Okay, if government counts, then we need quality people to have quality government. And if we want quality people, we're going to have to pay for them, just like we do in the private sector.
Thank you very much.
CHARLES E. KOLB: First of all, I want to, by way of advertising, say how proud we are at CED to have Frank Carlucci as a trustee. At our annual meeting in May in New York, we're going to recognize Frank's contributions to public policy in this country by awarding him the CED Excellence in Public Policy Award. This is only the third time we have given this award. The first time we gave it actually to four people. You'll know their names: McCain, Feingold, Shays and Meehan. And last year, we recognized Pete Peterson for his contributions. And so we are honored to recognize Frank, and I think his comments today indicate exactly why that recognition is earned.
I think the American people want a government that works for people. At the same time, I think they also understand— we saw it in the Reagan administration, we saw it also in welfare reform— that people respond to incentives. And not to trivialize the point, but I suspect that presidential appointees, or potential presidential appointees, are no different than people on welfare. They will respond to the right set of incentives, or set of disincentives.
And I want to congratulate the authors this morning of the two reports, because you have done us all a service. You have basically given us the facts of the current system. And I think the challenge now, as Paul said at the outset, is to market this to the public and to convince the public that this is a very important issue. And, as Frank said, we hope to do that at CED to get more of our business executives and university presidents to support this concept as well.
I was trying to think of how you might categorize people who consider going into government service at fairly high levels, and I came up with three possible categories: the squirrel, the aspirant, and the Peace Corps volunteer.
The squirrel is someone who is able to do government service because they have squirreled away a lot of money. And I actually have a friend who is in government, in Connie's former agency, who told me a couple of weeks ago that he left a major position with an association where he was probably making four to five times what he's currently making in government service. He was only able to do that because he squirreled away enough money. And he told me — he's at the, I guess, the assistant secretary level, maybe slightly above that at the undersecretary level. He said he writes a check to himself every month to be able to stay in government service.
Then you have the aspirant, and I think we all recognize there're some people who want to have these jobs and they're willing to take a sacrifice in the compensation because they may be able to cash in, if you will, when they leave government service. Nothing necessarily wrong with that, but I'm not so sure that's the real motivation we want in people who are handling very important responsibilities in government.
A third example is the Peace Corps volunteer, someone purely motivated by service. I think that really is the model we want. I'm just not sure we're going to get those people at that level if we pay them Peace Corps, entry level salaries. And so I think we would understand that you get what you pay for. And I think your report this morning is very helpful as those of us who care about this issue try and make the case to the American public that this is something very important. The typical presidential appointee—I suspect this has been the case really over the last 20 years—
only stays between 18 and 24 months. And I suspect that is directly related to this issue of compensation. And there's a cost associated with that degree of turnover. There's a learning curve for many of these jobs, and I don't know how you quantify that, but, again, I think that's something that we need to take into consideration.
Connie knows from her days at the OMB, if you take a look at some of those positions at the Office of Management and Budget, the associate director for?it used to be human resources, veterans, labor, education. John Cogan held that job in the Reagan administration. I think Belle Sawhill held it for the Clinton administration. That job at one point had responsibility for basically overseeing one-half of the non-defense budget in this country. I forget how many hundreds of billions of dollars that is, but there's more responsibility in that job than just about any other CEO job that I can think of. It is one of the toughest jobs in government for, what, $120,000 a year, maybe, at most now.
So I think we need to give some very serious consideration to this, and hopefully the work that you all have done and continue to do will motivate people in this country to pick up the mantle and push for change. People thought we'd never get campaign finance reform, we have so far, and this is another tough crusade, but it's one that's well worth taking on.
G. CALVIN MACKENZIE: Thank you, Charlie.
Let me pick up a few things that were in these papers and emphasize those. But I think, as a general principle here, it's important to keep our eye on the ball, and the ball here is not how much we pay a particular government employee in a particular year, or how that compares with somebody in the private sector doing a similar kind of job. Those numbers are important because our compensation packages in government, and the other benefits, including relocation benefits, are there to encourage and inspire certain kinds of behavior. That's why any organization has a compensation system, to get its employees to do certain kinds of things, or to get certain kinds of people to be its employees, or to get certain kinds of people who are its employees to continue to be its employees. And so the bottom line here is always what are we getting for the money we're investing here, and what would we get if we invested a different kind of money or different amounts of money?
One of the most important insights in Gary's paper, this wonderful paper that Gary did for us, I think, is the one where he talks about— and let me just read the one line where he said this, on page 22. He says, on balance, however, the non-monetary advantages of serving in a top federal job are no larger today than they were three decades ago when top federal salaries were substantially higher in constant dollars.
Over the years the term has been used to describe this as psychic income, and we have had this wonderful cushion for many years, that we could pay our federal employees, and particularly our presidential appointees, less than market salaries, but they got a psychic income for what they did in government, particularly those people that were in-and-outers, who came in for a while and then went out after a while. These were wonderful, honorable jobs. You got to hobnob with famous people. You testified on Capitol Hill. You had responsibility for bigger organizations and larger budgets than you ever had before, and you had a wonderful set of stories to tell your grandchildren. This was the psychic income.
Well, that cushion has thinned almost to the vanishing point these days. The psychic income is now balanced, in some cases overbalanced, by the duress that accumulates around many of these jobs. And, particularly for presidential appointees, the process of getting into many of these jobs, the lengthening period of time it takes to get into the government, the often brutalizing nature of that process for people going through it, or people perceiving it only from the horror stories that they hear about it, has made the psychic income seem a lot less valuable to people than it used to be. So at the same time that real income is declining compared to compensation outside of government, the psychic income which compensated for that in the past is not the compensation that it used to be.
I want to add a fourth category to Charlie's list, but I don't have a cute name for it. Let me just describe it. You'll think of one, I'm sure, while I'm saying it. These are the people, and they make up the bulk of presidential appointees. These are the people who are sort of middle income earners. They haven't squirreled anything away. They're not working for Peace Corps salaries. They're deans of medical schools or law schools. They're very senior faculty members. They're heads of hospitals. They may head a nonprofit organization. They may be a senior scholar at a think tank somewhere. And the salary they're earning outside the government is pretty close, maybe only slightly above what they would earn inside the government. Take an Executive Level 3 or an Executive Level 4 salary, currently at $130,000 range, somewhere around there, that's a few ten thousand dollars a year less than what the dean of a medical school or law school would make, probably more for a medical school, but it's in the ball park. And if you are one inclined to public service, and attracted by the opportunity to practice your profession for the American people instead of for the rest of your faculty or your shareholders, or whatever, these would be attractive jobs to you, until you begin to confront the other realities.
Now, Carole talked about one, relocation, and how you've got to go through a relocation process if you're out of Washington, and what that's going to cost you to come into this expensive housing market. And I can tell you from where I live in Maine, it looks like a terribly expensive housing market. To discover that, once you do, then you have to go through an elaborate ethics clearance process, which may very well result in you having to alter your stock portfolio perhaps at a time when it's not a good time to be divesting particular stocks. And then you find out there are many things you can't do to earn income while you're in government service that you counted on when you were on the outside. The textbook that you've been writing new editions of over the last several years, you can continue to earn royalties from the old editions, but you can't write new editions and earn royalties from those in the government. You can't do the consulting that you did. You can't earn honoraria for speeches like you used to. You can't be an expert witness and get paid for it in court cases like you used to. And suddenly, those things which produced not an insignificant part of your income are not available to you anymore. So it's not just the dollar for dollar comparison, one salary outside government to one salary inside government. The total cost to you in taking these government jobs turns out to be very substantial at a time when you don't have a lot of money squirreled away, and you're probably in midlife, since that's the age group from which most presidential appointees come. And you do have children thinking about going to college, or in college, as Frank described, and you may have made the downpayment on that boat you've been wanting all your life, or that second home at the shore, or something like that, so your costs are relatively high. Those costs don't go away when you come into government, but much of the income you've been using to pay those costs goes away.
And then I want to say a word about the thing that Carole mentioned about the increasing number of appointees coming from the Washington, D.C. metropolitan area. And if you look at the bar graph that Carole has produced, that Carole and Paul produced in this paper, it really is quite striking how this has changed since 50 or 60 years ago. And what we see happening here is a government we used to call the in-and-outer system becoming increasingly a government that really is an in-and-inner system, that every election brings nothing more than exchange of a lease, people crossing the street. And there's a very simple explanation for that, and it is that it is much harder to find and to recruit and to attract people from outside of Washington who have to go through all of this process than those who are working on a congressional staff, or in a think tank, or for some trade association across the street from the government agency where they would go to work here.
If you believe as a fundamental principle that what you get out of government depends on who you get into government, I think we see that these compensation packages are having a significant effect on who we get into government these days.
PAUL C. LIGHT: Let's open it up for some conversation. I have an update on the status of the Bush appointments, but I'll hold that for a little bit, see what's on your minds in terms of questions for our panel. Charlie needs to leave at 10:20. We need to get Frank out of here by 10:30. So we're going to wrap this up in about 20 minutes or so.
Any questions? Connie? Can we get you on a microphone here?
CONNIE HORNER: I would like to make an observation and then just see if anyone has any reaction to it. Cal talked about the dean of the medical school and other high level but mid-career or late mid-career professionals who, I agree, are exactly the kind of people who are needed, experienced, wise in the ways of the world, substantively accomplished, know their body of work and know the players in it. My observation is that many people of exactly that sort are increasingly worried that entering government will have the effect of terminating their ability to earn money later by destroying their reputations. And I'm wondering if I am exaggerating that concern. And my presidential personnel days are now a decade old, so I'm a little out of touch with what the reality might be now. But I think it may be something to worry about, that it's part the psychic compensation with respect to reputation being diminished, and also part the accompanying literal compensation affiliated with reputation.
FRANK C. CARLUCCI: Can I comment on that? Actually, in the Department of Defense, as you know, Connie, there are post-employment restrictions, so you're handicapped and you really can't go back into the defense industry if you served in DOD, unless you come in as a retiree, which is why a lot of retirees go into DOD. I remember in the first Bush administration, I think they went through 24 candidates to fulfill the undersecretary for acquisitions job. Nobody wanted to touch it. And there is a phenomenon now which says that, in the press, no matter what you do after you leave government, it is somehow exploiting your government relations, your government contacts. I'm getting that in spades these days, as you may have noticed. So I think that is a concern that's beginning to gnaw at people that whatever you do, it is somehow related to your government employment and you are somehow exploiting that employment.
CAROLE M. PLOWFIELD: If I could just read actually the Presidential Appointee Survey that preceded this one, the perception at least was not that. I mentioned a little bit of this in there. Almost 100 percent of the respondents, the potential appointees who come from this group, said they thought they'd make valuable contacts in presidential service. Eight out of ten said they thought it would increase their future leadership possibilities, and six out of ten said they thought it would increase their future earning power, and few of them said they thought they would lose valuable contacts, risk losing promotions, or be unable to return to their careers. And that's their perception of it. That may not be the reality.
CONNIE HORNER: That's very encouraging. I'm going on the basis of increasing familiarity with mid and upper levels of the corporate world. And the thing that really spooks the corporate world when people think of getting off their fast track for a year or two or three and going back in is not so much the loss of the track, but the fear that they may do something that will taint them, or seem to taint them. They won't do something that will taint them; they will be portrayed as having done that. And I'm encouraged by that survey to think my anecdotes may not be representative. But on the margin, at least, I think it's something to worry about.
PAUL C. LIGHT: Do you want me to deflate that encouragement, or would you rather I didn't tell you? Potential appointees, in terms of this survey, really didn't understand, or didn't have a good sense of, how the process works. My impression from the survey was that they know that it's a rough process to get into, but they thought it would be easy to fill out the forms; they thought it wouldn't be too difficult. They thought the process was brutal, politically. I mean, I think they may not know what they're in for. And you talk to?you know, I remember talking to Clay Johnson, who's the Bush administration's personnel recruiter, and he said that, you know, they really don't send you the forms and the packet until you've committed and signed on. They'll send you the White House personal data questionnaire, which has now been slimmed down. It still contains that ridiculous question about whether there's anything about you that would embarrass you, your family, or the President, and how can you answer that question. But they don't give you the packet of forms, and they don't really tell you, they try to get you signed up. They go through candidate after candidate. Of course, you can tell us how many candidates they went through.
CONNIE HORNER: Well, I will tell you that trying to find a really superior aerospace executive to head up NASA is not an easy task.
PAUL C. LIGHT: You don't want to tell us how many candidates you went through, and I don't want to put you on the spot.
CONNIE HORNER: No.
PAUL C. LIGHT: No.
Gerald Mossinghoff, former Patent and Trademarks Commissioner.
GERALD MOSSINGHOFF: Having spent— as a career government employee, having spent at least two decades at what was then called the cap, is there any hope at all to loosen the knot between congressional pay and top civil servant and senior executive pay? It looks hopeless to me. The question is, is it totally hopeless?
PAUL C. LIGHT: We need to get organizations like CED to get behind it. And I don't want to put Charlie on the spot, but we will eventually put Charlie on the spot. You know, we doubled the President's salary last year, and that's the first salary increase for the President since 1969, and there was nary a peep from the public. That's kind of a nice phrase, "nary a peep." And it went through. So the President, George W. Bush, is making 400k. That creates a lot of room for ventilation of the pay compression that's occurred. You'd have to get decoupling of presidential, executive and judicial salaries. And I think the Volcker Commission, of which these two are involved, is going to have to talk about that particular issue. But we have to get a lot of different interest groups involved, including labor. But this cap, this knot that you talk about, has created compression well down into the general schedule. Eighty percent of senior executives in the six steps of the senior executive service are now at the same pay rate.
You have at the IRS employees who are being paid more than the commissioner because of critical pay authority, and this is going to spread and spread and create more and more stories about these peculiarities, and that may create some velocity. Charlie?
CHARLES E. KOLB: The way I was going to get off the spot was to ask a question really meant as a devil's advocate here. In terms of trying to present this to the public, are there not significant implications about the rest of the federal pay scale, going all the way down to the GS-4, 3, whatever the lowest level is. And I think the last time there was a major increase there, Connie, was in the first Bush administration, was there not? But it would seem to me that some people may criticize this as being the nose under the camel's tent, because it seems to me that once you start this discussion, you have to have some ready answer not only for the relationship with congressional salaries, but the potential implications for the rest of the structure.
I don't think that's necessarily a bad thing. But I think it needs to be thought through, because there will be budget implications.
PAUL C. LIGHT: Well, there are already budget implications. The Rand Corporation has done some very valuable research showing the promotional velocity of entry level hires in particular categories like science and engineering. And it's like looking up the side of a skyscraper. You bring in a scientist and engineer at GS-9, General Schedule 9, and that position by comparison with the private sector is at a 30 percent discount. And what managers do is promote the person over the first six months five, six, seven grades— five, six or seven steps, and they cure the pay gap. We're paying for the pay gap one way or the other. The question is whether we ought to do is rationally, or we should just allow managers to continue to game the system.
But the compression problem is pretty clear. We need Gary Burtless here to do the study of the pay gap down at the bottom of the federal government.
Frank, do you have a comment on the politics of this?
FRANK C. CARLUCCI: I think the issue is a no-brainer. It has to happen if we're going to do anything about this problem. And it's just a question of mobilizing the political forces, getting some lobbying together. It's like anything else you want to get through on the Hill. Campaign finance reform is a pretty good example. You have to make it important. We need a broad educational campaign for the American public. And I think now is the opportune moment when, as I said, people understand that government is important to their lives. They hadn't realized that before. In fact, we had politicians, including Presidents I worked for, who ran against government. Now, we've at least got the realization that we need government, we need good government, and so we ought to take advantage of that in a public education campaign.
PAUL C. LIGHT: It's also important to note that Frank Carlucci was in government at the time when Congress passed the Base Realignment and Closure Act, which created a mechanism for doing something very difficult. It resulted in the closing of more than 250 bases around the country, saved a huge amount of money, and it may be that you can only do something like this with pay through that kind of a mechanism where you force Congress on an up or down vote to really ventilate the salary structure.
FRANK C. CARLUCCI: The way that came about, I sat down with the then obscure Congressman named Dick Armey, and we worked out the process. I said, look, this has to happen. We cannot in good conscience continue to maintain a base structure that was designed to fight the Indians while we're depriving our people of the weapons they need to fight today's wars. And he agreed. He had the idea of some kind of a commission. I modified it, and we worked together, and we both lobbied very hard. Tom Foley— he was Speaker at the time. He told me he thought I was nuts. Ronald Reagan, when I told him I was going to do this, just stared at me. But by lobbying hard, we managed to get it done. So you have to pick a couple of key people on the Hill. Bill Frenzel would know how to do this better than I.
PAUL C. LIGHT: If Bill Frenzel were still on the Hill we could get it done. And Dick Armey is, of course, leaving.
Jerry, did you want to follow up?
GERALD MOSSINGHOFF: Oh, just a comment that I teach a course on legislation at George Washington Law School, and I tell my students if they want to see how far you have to push the envelope on congressional procedures, look at civil rights legislation in the '50s and '60s, and look at federal pay raise issues in the '90s and currently. Every legislative trick known to legislators has been tried to break the knot, and none have worked.
PETER ROMERO: My name is Pete Romero. I was a 25-year career Foreign Service officer until about July of last year, when I retired for essentially the same reasons that Secretary Carlucci talked about in terms of family and finances, and kids in college, and that sort of thing. And let me applaud what you all do. In many ways, I feel like I'm the poster boy for what you did. Certainly, I got through a confirmation process as ambassador beforehand, but was stuck for 2 1/2 years as a Clinton nominee to be assistant Secretary of State for the Western Hemisphere at the State Department. In the end President Clinton recess appointed me, and I served for about 10 months through the transition to the Bush administration.
Interestingly enough, just by way of anecdote, when Secretary Powell got to the State Department and was kind of looking around, he didn't see too many gray heads. And he said "Where are all the 50-year olds?" And I think probably the answer to that is an issue that the State Department has been grappling with for a long, long time and one Secretary Carlucci addressed, and that is retention. Certainly, you've got to look at retention. And in the State Department, there's just not a lot of gray hairs anymore.
But my question is, I had a hard time being confirmed. In the end I was recess appointed. My successor, for a different set of reasons, has had problems, Otto Reich. I'm sure you've read about it in the newspaper. Have you all ever done any studies about specific jobs at the sub-Cabinet level that seem to be harder to get people confirmed or through the process than others?
CAL MACKENZIE: Well, to say we've done specific studies of that might be putting too fine a point on it. But there certainly are such jobs, Surgeon General, Assistant Attorney General for Civil Rights, several in the State Department that you've mentioned that seem to be lightning rods. I think any position that finds itself near the point of debate on some critical and social issue these days — this is what we're seeing with judicial appointments all the time. How are we ever going to get a position filled on the Supreme Court? How in the world is that going to happen? That's going to be the nuclear confrontation of the appointment process.
But I think that we've now gone through the longest period in our history of not having a vacancy on the court. If this isn't the longest, it's very close to it. We've averaged a court appointment every two years over our history, and it's been, what, six, six-and-a-half years since we've had one. And if that pent up non-retirement suddenly happens all at once, we foresee a big breakdown. But those positions that find —
(TAPE CHANGE.)
GARY BURTLESS: —where we fight about things in our society are very, very difficult to fill, difficult to recruit to, difficult to get people confirmed when we do.
PAUL C. LIGHT: Other questions? Comments? Connie?
CONNIE HORNER: I think in order to persuade Congress that pay needs to increase, it's necessary to do all the lobbying that Frank talked about, but it's also necessary, I think, to have a conceptual change on the margins in how the public views presidential appointees. Right now, it's hard to make the case for higher pay when the presidential appointee system is viewed as a spoils system, not a meritocracy. So people's common sense suggests, well, it's just more money for patronage appointments, not more money to get better people in a meritocractic system. And so I think that the case needs to be made over and over again very explicitly that, as in the senior ranks of the civil service, what you want is from within the ranks of the broad patronage pool to be able to command those who can survive meritocratically. Otherwise, you're just giving more money to "political hacks." So it's a conceptual problem.
CHARLES E. KOLB: Excellent observation. The elimination of soft money might actually help a little bit in that regard.
PAUL C. LIGHT: We did see an increase in confidence in presidential appointees following September 11th, an increase in the confidence in federal government workers. Our more recent data suggests that that confidence has now fallen back. Confidence in federal government employees, favorability towards federal government employees is now lower than it was in July of 2001. So we went way up and we've come back down to previous levels. Presidential appointees have fallen about 10 percentage points. So, I mean, that's something we have to deal with.
Let's take a last question, then we'll bring this to a close.
TONY QUENTIN (PH): This is really a comment. I'm Tony Quentin. And I'd like to go back to Frank's original analysis of compensation in the private sector and how it might or might not fit with government compensation, and that's the question of bonuses. It seems to me there's a real problem here, both for presidential appointees and for those inside the career service. And there's clearly a linkage in compensation between what you do in the career service and what you do as presidential appointees. And the difficulty is I for a number of years tried to manage a bonus system at the Department of State. I realized that you have the underlying problem of how do you evaluate people in order to give them bonuses. And in the private sector you have a bottom line, or at least one of the ways you can determine bonus is in terms of actual performance with dollar signs attached to it. We've not figured out a way to make that linkage in government.
So you have a system with highly inflated assessments, and I suspect in the political arena you get highly inflated assessments if there were some way to make it, because an administration would want to show that their appointees were doing well. And so bonuses may not be the answer to the problem of compensation, and the other aspects that were mentioned here seem to me a better way to go than to think that we can replicate in government some of the techniques which are so successful outside.
GARY BURTLESS: Can I say something about that, though? I think that the difficulty of making these assessments even in the private sector is challenging, because we now know, I suppose, that many people received very large rewards in the Enron Corporation, even though, by some metrics, they seemed to merit very big compensation from the compensation board of that corporation. And yet they were probably destroying shareholder value with what they were doing. And that certainly must be true of the auditing firm of Enron where there is a bottom line for these accountants. And it turns out that a couple of the accountants placed in danger the equity investments of all their partners by the antics they undertook. And I'm sure they received large rewards up until the very moment that their bad performance came to light. So even in the private sector, in a complex organization, I think it's very, very challenging. Maybe in a law form it's more straightforward. But I think even in most corporations it's a very, very challenging undertaking to come up with a compensation system that really does give people a challenging objective, and then you can grade them on how well they do. I don't think it's an easy task.
FRANK C. CARLUCCI: Okay. Gary, let me argue with you a bit. Because some people abuse a system doesn't mean the system is wrong in the private sector.
GARY BURTLESS: Oh, I agree.
FRANK C. CARLUCCI: For every abuse, you've got an example of people who have been rewarded for creating value all over the place. And that's the essence of the private sector. Your reward is related to the value that you create.
Tony, it's probably particularly hard in the State Department. I could do it fairly easily in the Defense Department. I could take a procurement unit and say you have to bring so many programs to IOC by such and such a date, and I can measure that performance pretty specifically. I could do it in HHS. State, maybe you have to have so many reporting cables, or you have to pass so many inspections. I don't think it's impossible to do. It may not be a panacea; it's probably utopian. I guess it will never happen, but I can dream.
PAUL C. LIGHT: I think that's a nice place to stop. We are dreaming here of improving the system. But I think we're going to get close to a reality this year. And I thank you for being on the panel, all of you, and for your coming. And we'll be posting a transcript of this event some time shortly, and thank you for being here. We're adjourned.
Thank you.
(Applause and end of event.)