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This memorandum is the third in a series of Congressional Budget Office (CBO) reports comparing the federal government's compensation practices with those in the private sector. The analysis compares the pay and benefits that apply to most of the government's 18,700 executives and other top employees with those of executives in private industry and nonprofit organizations.

R. Mark Musell of CBO's Special Studies Division wrote the report under the supervision of Arlene Holen. Barry B. Anderson, David M. Delquadro, Robert A. Dennis, Richard L. Fernandez, Christopher Jehn, David Torregrosa, Paul N. Van de Water, and Thomas G. Woodward, all of CBO, provided helpful comments, as did Sharon S. Gressle of the Congressional Research Service.

Chris Spoor edited the memorandum, and Sherry Snyder proofread it. Judith Cromwell typed the early drafts of the manuscript, Kathryn Quattrone prepared it for publication, and Laurie Brown prepared the electronic versions for CBO's World Wide Web site (www.cbo.gov).
 
 

SUMMARY

EXECUTIVES IN GOVERNMENT

PAY FOR FEDERAL EXECUTIVES

• The Executive Schedule and the Senior Executive Service
• The Connections Between Executive Pay Plans
• Changes in Executive Salaries

BENEFITS FOR FEDERAL EXECUTIVES

• Retirement Benefits
• Health Insurance Benefits

COMPARING PAY AND BENEFITS FOR FEDERAL AND PRIVATE-SECTOR EXECUTIVES

• How CBO Made the Comparisons
• Results of the Comparisons

COMPARING PAY AND BENEFITS FOR FEDERAL EXECUTIVES AND EXECUTIVES IN NONPROFIT ORGANIZATIONS

LIMITATIONS OF THE ANALYSIS

APPENDIXES

A - Method of Analysis
B - Comparing Pay for Federal and State Executives
 

TABLES
S-1.	Comparison of Average Federal and Nonfederal Compensation for Executives
1.	Number of Federal Executives, 1998
2.	Pay Raises for Federal Employees Since 1980 Compared with Changes in the Cost of Living
3.	Pay and Benefits for Federal Executives Compared with Those for Executives of Large Private Firms
4.	Pay and Benefits for Federal Executives Compared with Those for Executives of Medium-Large Private Firms
5.	Pay and Benefits for Federal Executives Compared with Those for Executives of Medium-Size Private Firms
6.	Pay and Benefits for Federal Executives Compared with Those for Executives of Large Nonprofit Organizations
A-1.	Characteristics of the Hypothetical Workforce Used to Estimate the Dollar Value of Benefits
A-2.	Characteristics of Firms in the Hay Group's Databases
A-3.	Number of Executives in Private-Sector Positions Used in CBO's Analysis, by Size of Firm
B-1.	Salaries for Selected Officials of the Federal Government and Large States
BOXES
1.	Pay and Benefits for Members of Congress
2.	Pay and Benefits for the President
3.	Private-Sector Executive Occupations Included in CBO's Comparisons

 

In determining what salaries and benefits to offer their employees, private firms generally consider the practices of other companies. Similarly, the federal government sometimes uses comparisons of federal and private-sector practices as a guide in setting salaries for its workers. However, it has been many years since the government undertook a comparison that covers federal executives.

This report is intended to begin filling that gap. It compares the pay and benefits of federal executives with those of executives in selected occupations in private companies and nonprofit organizations. Such analyses provide a critical part--although only a part--of the information needed to fully evaluate current compensation for federal executives. They may also help in the development of major personnel reforms under way at the Office of Personnel Management.

The comparisons in this report yield two main findings:

• Pay and benefits for federal executives generally fall well below those for executives in the private firms examined (see Summary Table 1). Some exceptions occur, particularly in the comparison that covers medium-size firms, the smallest companies included in this analysis.
  
  
• Federal pay and benefits are equal to or higher than those for all but the top positions at the large nonprofit organizations examined.
  
  

Those comparisons complement ones in earlier Congressional Budget Office (CBO) analyses that examined the pay and benefits of rank-and-file white-collar federal employees.⁽¹⁾
 

Method of Analysis

This report compares the dollar value of the pay and benefits that federal executives earn in a year with the pay and benefits earned by nonfederal executives in different occupations, such as chief executive officer, head of personnel, and controller. In addition to salary, the comparisons cover most major benefits, such as retirement and health insurance (focusing on the portion that employers pay, not the amounts that employees contribute). The comparisons with private firms also include bonuses.

Data about salaries at private companies come from the Hay Group, a consulting firm that researches pay and benefits. The Hay Group also computed the dollar values for private-sector and federal benefits, in consultation with CBO. Data about salaries at nonprofit organizations were provided by Abbott, Langer & Associates, a consulting firm specializing in nonprofits. Salary data for federal executives was computed by CBO on the basis of information from the Office of Personnel Management.
 

Limitations of the Analysis

Readers should be cautious about drawing broad conclusions from this report about the adequacy of federal pay and benefits or the effectiveness of the compensation system for federal executives. Caution is merited for several reasons. First, relative pay is only one factor that determines the effectiveness of a compensation system. Other factors not covered here include the existence and management of award systems and rates of promotion. Second, some people question the importance of relative levels of pay and benefits since the federal government recruits for some top jobs from within its own ranks.

Third, even if relative differences in pay are important, the comparisons in this report have some limitations. The results for private companies reflect the predominance of large firms in the Hay Group's database. Large firms generally offer more generous benefits than smaller ones. (Unfortunately, detailed data on smaller firms were not readily available.) Also, the results for federal executives may not apply to all such executives. The comparisons cover practices for two major groups of federal executives: the Cabinet secretaries, agency heads, and other top employees covered by the Executive Schedule; and the executives and managers who rank just below those top officials and who are members of the Senior Executive Service (SES). The pay and benefits of those groups are typical of most federal executives, but not all. In addition, although CBO examined the private and nonprofit positions most likely to have federal counterparts, those positions may not provide an appropriate basis of comparison for all federal executive positions. Duties and responsibilities may vary between sectors despite similar job titles. Also, many of the nonfederal positions in the comparisons have higher ranks than many positions in the SES. Taken together, those limitations suggest caution in generalizing the results of the comparisons to all federal executives, especially ones in lower-ranking positions.

1. Congressional Budget Office, Comparing Federal Salaries with Those in the Private Sector, CBO Memorandum (July 1997), and Comparing Federal Employee Benefits with Those in the Private Sector, CBO Memorandum (August 1998).

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