Another trend we reported is that selected executive-level pay rates have  not kept pace with the growth of wages from 1970 to 2006. To measure the  growth of wages, we used the Bureau of Economic Analysis’s National  Income and Product Accounts wage index for private industries. Specifically, wages grew at nearly double the rate of basic pay for  Executive Schedule level I positions, such as cabinet secretaries, and the  Chief Justice. Total  compensation includes elements such as cash—basic pay, locality pay,  cash awards/bonuses; noncash benefits—annual and sick leave, health  insurance; and deferred benefits—retirement (i.e., pension and health), life  insurance. Organizations, including the federal government, may need to be flexible  in the balance between cash and benefits that comprise the total  compensation offered to employee groups in order to remain competitive  in the market. Executive and judicial pay plans should be    sensitive to hiring and retention trends—actual trends, such as  demographic, workforce, and economic trends and their effects on the  federal government’s ability to hire and retain high-quality persons for  these positions are considered;    reflective of responsibilities, knowledge and skills, tenure, and  contributions—the positions are appropriately compensated to  reflect these differences both within and across executive-level pay  plans;    transparent—Congress, leadership, and the public can easily  understand the value of the compensation and contributions;    market-sensitive—the compensation of the relevant markets (e.g.,  private or nonprofit sectors) is appropriately considered; flexible to economic change—changes in the nation’s economy, such  as extraordinary economic circumstances or severe budgetary  constraints, can be accommodated;   sustainable—over the longer term, given known cost trends and risks  and future fiscal imbalances, executive-level pay plans are financially  sustainable; and   competitive—reasonable total compensation and other elements  necessary to attract and retain leadership can help ensure the optimum  use of taxpayers’ dollars and make the most efficient allocation  between cash and noncash benefits. Conclusions

As I have discussed, leading organizations understand that they must often  change their culture to successfully transform themselves, and that such a  change starts with top leadership. However, any restructuring of executive and judicial pay should  consider basic pay received by executive-level positions as one part of the  total compensation package. Moving forward, a  commission may be an option for reexamining executive and judicial pay  and compensation to ensure that the federal government’s total  compensation is both reasonable and competitive in order for the  government to obtain and retain the top talent it needs to address current  and emerging 21st century challenges in a responsible and sustainable  manner.
Why GAO Did This Study

People are critical to the success of the federal government's overall transformation effort. Yet the government has not transformed, in many cases for decades, how it classifies, compensates, develops, and motivates its employees to achieve maximum results with available resources and existing authorities. This is especially the case with the federal government's top leadership and federal justices and judges. Leading organizations understand that they must often change their culture to successfully transform themselves, and that such a change starts with top leadership. Most importantly, senior leaders who are drivers of continuous improvement are needed to stimulate and support efforts to facilitate change and achieve related transformation efforts for the federal government. At the Chairman's request, we recently reported on executive and judicial pay--Human Capital: Trends in Executive and Judicial Pay (GAO-06-708). This testimony highlights information from that report.

What GAO Found

The pay rates for selected executive-level positions have not kept pace with the growth of wages from 1970 to 2006, as measured by the National Income and Product Accounts wage index for private industries. Wages grew at nearly double the rate of basic pay for Executive Schedule level I positions, such as cabinet secretaries, and the Chief Justice. To remain competitive in the market, organizations, including the federal government, may need to be flexible in the balance between cash and benefits that comprise the total compensation offered to employees. Total compensation includes elements such as cash--basic pay, locality pay, cash awards/bonuses; noncash benefits--annual and sick leave, health insurance; and deferred benefits--retirement (i.e., pension and health), life insurance. Any restructuring of executive and judicial pay should consider basic pay received as one part of the total compensation package. While the types of experiences, responsibilities, required knowledge and skills, type of appointment, and length of service vary both within and across executive-level positions, moving forward, a commission may be an option for reexamining executive and judicial pay and compensation to ensure that the federal government's total compensation is both reasonable and competitive in order for the government to obtain and retain the top talent it needs to address current and emerging 21st century challenges in a responsible and sustainable manner.