Controlling labor costs is one area of private-sector best practices that doesn't translate well into federal management. The priorities are different.
Total quality initiatives in the early 1990s, Vice President Gore's National Partnership for Reinventing Government, and President G.W. Bush's President's Management Agenda each attempted to incorporate private-sector management best practices into federal operations. Now President Obama and Congress see a bloated federal bureaucracy requiring restructuring. Another round of reform initiatives will be no more successful in the critical area of labor cost control than past efforts until government leaders recognize that federal managers operate in a fundamentally different decision-making environment than their private-sector counterparts.
Comparing Corporate and Federal Decision-Making Environments
In the private sector, long-term competitiveness in the global economy means exceeding customer expectations while continually lowering unit costs. The Bureau of Labor Statistics' definition of productivity as output/input works because quality is now an inherent part of global sustainability. This definition can be integrated into strategic plans that emphasize short-term profit as part of flexible market-focused vision statements.
The best companies reinforce innovation and well-reasoned risk-taking through performance-based appraisal systems that are transparent, rigorously administered, reward high performers, and discourage complacency. They regularly review internal structures and operations to minimize overhead costs. The impact of their decisions on society and the larger economy is secondary to profit.
Federal managers are evaluated based upon their ability to accomplish their assigned mission within authorized budgets and labor controls in a highly regulated environment subject to annual agency budget review, internal inspector general or other investigation, and congressional oversight under the Government Performance and Results Act (GPRA). Innovations that may result in unfunded expansions of mission or could fail to meet congressional or headquarters mandates are discouraged. If authorized budgets are not expended by the end of the fiscal year they may be proportionally reduced in the next budget cycle.
Output/input is inadequate as a definition of successful program execution since inter-agency or inter-governmental coordination of "outcomes" is prerequisite to success; for example, national security involves the successful integration of the program "outputs" of the Departments of Defense, State, Homeland Security, CIA, state and local law enforcement, and others. Managers are reluctant to evaluate subordinate supervisors and staff as less than fully successful or even successful given the headaches to follow.
Federal agencies have few incentives to rigorously document workload, define optimal organizational structures, and ensure the accuracy of individual position descriptions. These steps can create an audit trail that could be used to challenge existing authorizations. The dearth of current workload metrics and the intellectual nature of much of the work means that documenting funding or staff requirements is a subjective process where approval is often based on emerging headquarters program priorities and rarely directly predicated upon the efficiency of operations. The impact of federal programs on society and the larger economy are the primary reasons for their existence.
Federal Management Behaviors
Federal managers understand that Congress and the president are unlikely to reach agreement on eliminating legally mandated programs so that resource reductions will be integrated into operations through across-the-board cuts. They learn through repeated budget crises that only those with some existing "fat" will be able to sustain successful program performance levels during times of significant resource reductions. This means pressing throughout the budget cycle for as many people, labor dollars, and other budget augments as possible.
Federal Labor Cost Escalation
In 1978, the General Accountability Office (GAO) released a report entitled, Quality of Government-wide Classification and Position Management Practices, which found numerous deficiencies in agency staff and management practices including poorly structured positions, lack of leadership from the Offices of Personnel Management (then Civil Service Commission) and Management and Budget, untrained human resources staff, and management behaviors emphasizing protecting existing resources.
The last comprehensive review of position classification accuracy was done by the Office of Personnel Management (OPM) in 1983 and found "that 14.3 percent of the GS workforce was over graded and 1.5 percent was under graded. … The Washington, D.C., classification error rate was over 30 percent." There have been no subsequent comprehensive reviews even though 5 USC 5110(a) requires "The Office of Personnel Management, from time to time, shall review such number of positions in each agency as will enable the Office to determine whether the agency is placing positions in classes and grades in conformance with or consistently with published standards." In 1988 OPM discontinued the requirement for agency random samples of position description accuracy.
The GS average grade was 8.26 in 1982, 9.06 in 1992, 9.75 in 2002, and 10.32 in 2012. Since 1990 the average grade has been affected by advances in computer technology, which reduced the need for lower graded clerical support.
The percentage of positions at the GS-13 to GS-15 level (either supervisory or non-supervisory) as a proportion of the total GS workforce rose from 16.5 percent to 26.55 percent between 1990 and 2006, and to 28.45 percent by 2012. The classification of non-supervisory high-grade positions is based upon work that cannot be accomplished by applying accepted practice, involves developing policy, or similar activities beyond the routine.
In 1996, OPM noted that "performance-based pay strategies are only as good as the performance appraisal systems upon which they depend." In 2012 the Congressional Budget Office found "Overall, total compensation for federal employees was about 16 percent higher, on average, than total compensation for measurably similar workers in the private sector."
It remains rare for position management (PM) to be a primary focus area in federal management performance appraisals.
The Reality of Federal Labor Cost Management
Federal managers request the highest grades and largest number of people possible in anticipation of the next round of fair share downsizing cuts. They are largely insensitive to the impact of labor costs on accomplishing mission since there is no bottom-line. Few agencies typically maintain workload metrics, effective PM programs, or adequately trained position classification staffs. These tasks are usually left to budget analysts to control labor costs even though they may not be trained in workload measurement, position management, or position classification, and are often under pressure to submit justifications that support management requests.
The rise in average grade since 1982 for GS positions represents an increase in labor costs of a minimum of more than $13 billion per year. The increase in the percentage of GS-13/15 alone represents at least $2.5 billion in additional annual labor costs. If position classification accuracy were reviewed, fragmenting of grade controlling work reduced, and layering of supervisory positions eliminated this number would go up two- to four-fold or more.
Thirty years of giving managers increased flexibility to control local position structures and write position descriptions while reducing oversight has contributed to increases in average labor costs beyond the cost of living. Few federal managers have performance-based incentives. They risk mission failure or, at a minimum, not recruiting and retaining the best and the brightest if they do not constantly pressure for higher grades and more people. Their behavior is rational even if perceived as dysfunctional within the context of profit-based private-sector management models.
Where Do We Go From Here?
Effective large-scale change initiatives in both the public and private sectors require leadership, methodical and consistent implementation, and incentives for doing the job right. In the case of federal PM and classification programs, this means:
- Leadership. OPM and OMB issue policy documents that notify agencies of PM basics. They announce that agency programs will be critically reviewed as part of GPRA and budget submissions. Labor budgets should be lowered if unexplainable ratios of overhead to direct labor or higher graded positions are identified inconsistent with mission and defined workload. Performance evaluation for Senior Executive Service and equivalent positions throughout the government must place renewed emphasis on labor-cost containment as a critical rating factor, and emphasize evaluating subordinate managers using statistical measures aligned to current and emerging mission requirements. Interagency initiatives to ensure consistency of classification of like positions in metropolitan areas are encouraged. GAO oversight is essential.
- Implementation. Agency human resources databases should be reviewed at least annually using trained classifiers and labor budgeters to identify problems of layering and fragmentation, as well as problems of misalignment of grade structures with mission and workload. Agency teams with OPM and OMB representation at the headquarters level should be established to document specific goals and agency effectiveness in correcting PM and classification problems and ensuring they are outlined in the next budget/GPRA submissions. OMB should consider the cost-effectiveness of studying private-sector best practices to identify workload metrics of potential application in federal environments.
- Incentives. Performance appraisals at all management levels must encourage initiatives to effectively manage labor costs throughout the budget cycle and incorporate relevant metrics that can be used to evaluate managers for future promotional opportunities.
Like their private-sector counterparts, federal managers play the hand they are dealt following the rules of the game they are playing. To expect more or less creates the problems evident today in federal labor cost escalation.