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FCW : April 30, 2015
STEVE KELMAN is professor of public management at Harvard University’s Kennedy School of Government and former administrator of the Office of Federal Procurement Policy. Commentary | STEVE KELMAN Rep. Tom Rice caused a stir in March when he called for linking salaries of federal employees to the country’s economic growth rate. The South Carolina Republi- can introduced a bill that would immediately institute an 8.7 per- cent salary cut for all feds earning more than $100,000 a year and tie future pay hikes to increases in the median household income in the United States. In arguing for the proposal, Rice said the following about civil ser- vants: “Since their salaries are not tied to economic success...bureau- crats do not have any skin in the game. Simply, they do not feel the consequences of the federal gov- ernment’s grip on the economy.” I think this is a bad idea, but it’s important to explain why because understanding the problems with Rice’s argument teaches us some- thing about the appropriate use of performance measurement in government in general and pay for performance in particular. And although I think Rice’s idea is bad, it is not crazy. Let’s think about growth in median household income as a per- formance measure for government officials (ignoring for a moment whether the metric should be tied to pay, which is a separate issue). Performance measurement gurus always emphasize the importance of using outcomes as metrics rather than inputs or outputs. For example, instead of using the num- ber of officers on the streets or the number of arrests they make, police should use the crime rate as a metric. Change in median house- hold income is another outcome measure, exactly the kind that gurus like. Furthermore, although tying pay to performance is somewhat problematic — and politically controversial enough that I believe establishing robust performance measurement systems should be a higher priority — I regard pay for performance in principle as a promising idea for government. So why do I think Rice is wrong? The contribution almost any individual civil servant makes to the growth in median household income is less than infinitesimal and utterly undetectable. No mat- ter how hard most civil servants try, nothing they do as individuals will have an impact on that metric, which is influenced by so many things. Therefore, achieving good results on this metric is beyond the employee’s control. Consider a private-sector anal- ogy. Yes, it is true that top execu- tives often have their pay tied partly to the company’s profits or stock market performance, even though those metrics are by no means fully under the executive’s control. They are influenced by the overall state of the economy and international tensions, among other things, as any diligent CEO who led a company during the 2008 market crash can tell you. Executives agree to those terms because they are offered the poten- tial of really big bucks in exchange for bearing the risk of being pun- ished for things they can’t control. It is impossible to believe we would ever be willing to reward feds sufficiently if the economy grows fast enough to make them accept the risk of never having their salaries go up if it does not. Rice’s error has serious impli- cations for how we think about performance measurement in government. We should indeed be using outcome measures as met- rics, including economic growth, because we want to remind feds of why they are serving in the first place. And outcome measures also encourage innovation in how to reach goals. But we should be wary of tying rewards or punishments, whether pay or promotion, to such metrics. n What’s wrong with tying feds’ pay to the economy A proposal to link federal employees’ pay to U.S. economic growth overlooks some key elements of pay for performance Rep. Tom Rice’s error has serious implications for how we think about performance measurement in government. 14 April 30, 2015 FCW.COM 0430fcw_014.indd 14 4/6/15 9:27 AM
April 15, 2015
May 15, 2015