Issue Briefs

There have been several changes to the pay structure of the SES. The Civil Service Reform Act created an incentive-based pay system for the SES that rewarded good performance with higher pay and monetary awards. In 2004, however, the pay system for senior executives was changed dramatically. There were two driving factors behind this change. The first was pay compression, and the second was the President’s Management Agenda, which was instituted by the George W. Bush Administration.

The original SES pay system had six levels of basic pay, ES-1 through ES-6. The lowest rate was tied to the rate of the top level of the General Schedule (GS) scale, and the highest rate of pay was tied to the Executive Schedule (EX) scale. In other words, SES basic pay would fall between "120 percent of the minimum rate of basic pay for GS-15” and it could not exceed EX Level IV. Senior executives also received locality pay when appropriate. The combination of basic pay and locality pay, however, could not exceed the level of EX-III. Increases in pay would be determined by the President concurrent with annual adjustments to the GS pay scale. In addition, up to 50% of senior executives could be eligible for annual cash performance bonuses. The bonuses would be linked with the individuals’ annual performance reviews, and they could be worth up to 20% of an employee’s basic pay. Under the original pay system, however, salary compression became an increasing problem.

Because the floor of the SES pay scale continued to climb gradually as GS-15 pay levels increased, SES pay increased over time. However, the top of the pay scale did not increase at the same rate as at the bottom of the scale. The result of increases in the minimum pay and the statutorily imposed caps was pay compression within the ranks of the SES. The differences between what SES members made at each pay level continually decreased, and in many cases, the top several pay levels actually received the same salary. Some possible results of pay compression may have included difficulties recruiting and retaining talented senior executives.

President George W. Bush introduced the President’s Management Agenda in 2001 (PMA). The PMA revisited the managerial capabilities of the federal workforce, including the SES, with the aim of making government performance more results oriented. One concern for the PMA was that SES members were consistently rated at the highest level on their performance appraisals. On more than one occasion, the OPM Director reminded agency officials that these appraisals should be based on measurable results. The first major changes to the pay system occurred in 2002, when the Homeland Security Act increased the cap on total compensation for senior executives in agencies that have OPM-certified appraisal systems to the Vice President’s salary (currently $230,700 in 2011). For agencies without a certified system, the cap on pay remained EX-I (currently $199,700 in 2011). In his FY2004 budget request, President Bush proposed further changes to the pay structure. He proposed providing more financial incentives for senior executives by increasing the pay ceiling and eliminating the six-level pay structure, and encouraging agencies to determine pay for senior executives based upon their individual performance. In accordance with the President’s budget request message on SES pay, Congress passed provisions in the FY2004 National Defense Authorization Act that modified the SES pay system. These changes included (1) eliminating locality pay from the SES; (2) replacing the six pay levels with a single pay range; (3) increasing the cap on basic pay from EX-IV to EX-III; and (4) adding a higher cap on basic pay, EX-II, for agencies that have OPM-certified performance appraisals. A central element of the pay-for-performance system encourages agencies to have an OPMcertified performance appraisal system. Under a certified appraisal system, the cap on basic pay is currently $179,700. Otherwise, the cap is $165,300. The purpose of this was to create stronger performance incentives. Many critics viewed the previous performance appraisal system for the SES as flawed, since most members of the SES received the highest possible rating. The new system encourages agencies to have meaningful distinctions among their performance ratings.

The elimination of locality pay for senior executives was intended to foster greater performance incentives. Senior executives no longer receive an automatic increase in their basic pay based upon their geographic location; rather, they are encouraged to augment their pay through good performance. To provide these fiscal incentives, several types of pay increases and awards are available to senior executives. Automatic pay increases do not occur, but pay adjustments can occur on an annual basis to reward good performance or to maintain an individual’s relative position within the SES pay range.61 Career executives with good performance ratings may be eligible for performance awards (one-time bonuses) that can range from 5% to 20% of their basic pay. All SES members, regardless of type of appointment, may be eligible for incentive awards for a suggestion, invention, or special act of service that improves the functioning of the federal government.

Additionally, a small group of career senior executives is awarded a Presidential Rank Award each year. Presidential Rank Awards have two categories: Distinguished Rank, which awards recipients 35% of their annual basic pay, and Meritorious Rank, which awards recipients 20% of their annual basic pay. Up to 1% of senior executives can be Distinguished Rank recipients in a given year, and up to 5% can be Meritorious Rank recipients per year.


Options for Reform

While many of the goals of the original vision for the SES have been achieved, critics maintain that unintended consequences have occurred in its development and that the SES can be further improved. Advocates for SES reform argue that changes could improve the efficiency and the management of government programs and the government workforce.

For example, a report by the Partnership for Public Service and Booz Allen Hamilton published in August 2009 examined the current condition of the SES, stating,

Our primary finding is that the Senior Executive Service as envisioned by reformers has fallen short of its promise. The original vision of the SES was never realized. More importantly, we find that the original vision itself is inadequate for today’s needs and does not provide the blueprint to build the kind of senior government leadership required for the future…. Building a consistently high-caliber, government-wide executive organization is impeded by decentralized talent development and recruitment processes, passive recruiting, an exceedingly cumbersome and lengthy hiring system, inadequate leadership training programs and a pay structure than can allow subordinates to earn more than top-level executives.

The Senior Executive Service’s professional association, the Senior Executive Association (SEA), has also suggested a need for reforms to the SES. Carol Bonosaro, president of the SEA, has been a strong advocate for reforms. In testimony she gave before the House Committee on Homeland Security’s Subcommittee on Management, Investigation and Oversight in March 2009, she proposed several reforms for the Department of Homeland Security and government-wide. She suggested a number of changes that would help to do the following: Restore career leadership, create a more fair and transparent pay and performance management system, and provide for training and continuing development of the SES.

Making such reforms to the SES system across the government will help all agencies, including DHS, recruit and retain the best Senior Executives and ensure that they have the necessary tools to effectively carry out the missions of their agencies. This section discusses some areas that advocates for changes to the SES have identified as needing reform, including pay compression, recruiting and retaining of senior executives, career development and training opportunities, mobility, diversity, and the role of OPM.

Pay Compression

As discussed above, Congress enacted a series of reforms to the SES’s pay structure in 2004.

Among other changes, the 2004 reforms to SES pay eliminated locality pay in an attempt to provide stronger performance incentives to SES members. However, the changes created a system in which GS-14s and GS-15s, historically considered to be prime candidates for SES positions, may have little or no monetary incentive to move to the SES. As discussed above, the current basic pay for members of the SES starts at 120% of the GS-15 step 1 pay (currently $119,554). However, individuals at a GS-15 step 1 in the Washington, D.C. area currently earn $123,758, including locality pay. Individuals who are at a GS-14 step 6 or higher also earn more than the minimum basic pay for SES members (a GS-14 step 6 base plus locality pay for Washington, D.C. is $122,744). This could mean that senior executives in agencies may have employees serving under them who earn more money than the executives.

Carol Bonosaro, president of the Senior Executives Association, raised the point in testimony before the U.S. House Committee on Homeland Security’s Subcommittee on Management, Investigations, and Oversight in 2009 that most senior workers in the federal government are not primarily motivated by pay, and therefore some might argue that this pay overlap should not matter. However, as she states, along with the possibility of lower pay and lower retirement benefits, SES positions also have "added responsibilities, added risk, and less time with families.” Another possible disincentive for individuals to join the SES is that the SES performance bonuses do not count toward senior executives’ retirement annuities. If performance awards could count toward an executive’s "high-three,” she argued, the SES would become a more attractive career goal for federal workers. Another problem that senior executives have identified with the current pay system is a perceived disconnect between performance ratings and pay adjustments. According to a 2006 Senior Executives Association survey, many senior executives believed that changes in pay were based primarily on administrative decisions and budgetary constraints, not on their actual performance.

In that same survey, 233 executives reported increased responsibilities since the new pay system was instituted in 2004, but 82% of those 233 executives received no salary increase to match their increased workload. Critics have also suggested that SES pay is low compared to equivalent jobs in the private sector.

The opportunity cost for members of the SES can be high if they have an opportunity to work in a senior management position in the private sector. Luring highly qualified candidates to serve in the public sector when they could be making a much higher salary in the private sector can be challenging, according to this view. In addition, the fact that the SES does not receive locality pay may also be a hindrance when it comes to attracting people to SES positions. This may be especially true for individuals who do not live in Washington, D.C. already, since according to OPM’s website, 75% of SES jobs are located in the Washington D.C. area, while most GS jobs are located outside of Washington, D.C.