Summary: Executive pay compression is one of the most important issues facing the Government today. Although executives and other top managers comprise only a small segment of the Federal workforce, this group is one of the most vital factors for ensuring the successful performance of Government programs. Because it is imperative that the Federal Government attract and retain highly talented, capable, and dedicated individuals for its top positions, the Government must have a pay system which can be competitive in the market for top-quality executives and can reward its executives for higher levels of responsibility and performance. Pay compression for Federal executives has steadily worsened, so that individuals at different levels of responsibility make the same salary. Thus, rather than accept added responsibility with no increase in pay, many Federal executives have chosen to retire than continue to work at frozen pay levels. Generous cost-of-living adjustments to retirement annuities have increased the incentive to retire. For fiscal year 1981, the situation continues to look bleak. The President intends to freeze executive pay in October, and a proposal in Congress would prohibit the October 1980 pay adjustment for Federal executives and limit bonus payments to 25 percent of the Senior Executive Service (SES) positions. A major factor in the executive pay problem is the informal link between congressional and Executive Level II salaries. This link has adversely affected top executives' pay when Congress has held down its own pay. A major limitation on SES compensation could be interpreted as a breach of faith by many executives who have elected to join SES. Congress was urged to allow SES bonus and rank provisions to take effect in fiscal year 1981. The returns received from executive pay raises would far outweigh the costs, and the potential returns received from the improved performance could be overwhelming.
