Mr. Chairman, where does the compression start in the general schedule?

Mr. HAMPTON. It starts at the fourth step of grade GS-16. The compression comes about by the fact that in the law there is a limitation. on the amount of compensation that can be given to GS-18. His compensation cannot exceed that of a Level V. The last adjustment because of this ceiling that was made for GS-18 was in January 1971. Then certain GS-17's were also affected at that time. And with each subsequent adjustment that had been made in general schedule salaries since that time, it has brought the compression further down into the system, to whereas now all GS-16's in step 4 and above, all GS-17's, all GS-18's, are making the same salary as a level 5.

Of course this compression distorts the relationship between responsibility and authority of those levels and denies these men, mainly career men in the classified service, an opportunity to be compensated commensurate with their authority, plus the fact that their preparation of the future and their requirement is affected because their salary will be less than that which they had been entitled to had adjustment pay been adjusted on a timely basis.

Senator FONG. Is $36,000 top?

Mr. HAMPTON. That is correct.

Senator FONG. So the top man in an 18 can only get $36,000?
Mr. HAMPTON. Yes, sir.

Senator FONG. Whereas if he were allowed comparability, what would that figure be approximately?

Mr. HAMPTON. I think it is $41,734.

Senator FONG. So we have shortchanged him by $5,734 a year? Mr. HAMPTON. Yes, sir.

Senator FONG. And because we have shortchanged him, we compress the pay of all those in 17 and all of those above, step 4 in 16. Mr. HAMPTON. Yes, sir.

Senator FONG. Is it due to the limitations imposed by Congress that employees cannot receive more than Level V pay of $36,000?

Mr. HAMPTON. This limitation was placed in the law by Congress because we had a situation that developed as a result of the Pay Comparability Act of 1962 where individuals that were subordinate to Level V were making more than their superiors. Congress said that is not appropriate, so this limitation was placed in the law.

Senator FONG. How do you feel about paying these employees more than the pay of Congressmen and Senators?

Mr. HAMPTON. You mean general schedule?

Senator FONG. Yes.

Mr. HAMPTON. Well, I, of course, think in terms of applying the comparability principle, speaking for the executive branch, rather the compensation for executives in the executive branch, I think that principle is a sound one. How this relates to congressional pay depends upon how the Congress views its situation. I think the Congress has been very reluctant to adjust its pay, as Senator McGee said, on a very timely basis, because I think it is viewed as politically painful.

Sitting outside of that environment of course I would say that Congress should not view this as so politically painful, but I do not face the voters, so I do not know what the real concern is.

I do think Congress should look realistically at the question of its pay and do it on a timely basis, particularly when you have an inflationary situation, as we have had in this country for 5 or 6 years, even longer than that.

I think the Congress of the United States is made up of 535 men who form the board of directors for the largest, most prosperous Government in the world, and that it is a fulltime job. As Members of Congress recognize, the maintenance of two homes going back and forth and everything, that I would hope they would not be as reluctant; and as long as we are related to that, we are going to have this kind of delay in making these adjustments and compression problems and other things that are considered. But I think this machinery, and reviewing this every 20 years, in an inflationary period you may have adjustments every 2 years.

In a period of relatively stable pay situations, cost of living situation, maybe the adjustments will not be every 2 years, which does link us together, is more feasible than considering it every 4 years.

But I cannot really respond directly to your question about the linkage between executive pay and congressional pay and who should be paid more.

Senator FONG. It has actually been almost 5 years, is that right?
Mr. HAMPTON. Yes, sir.

Senator FONG. So actually we are only talking about 4 years-it has not been 4 years because of the delay by the President in appointing this commission, it is going to be 5 years before the real adjustments would be made?

Mr. HAMPTON. That is correct.

Senator FONG. Unless this bill is passed, we could then cut it down to about 4 years and 8 months?

Mr. HAMPTON. Something to that effect.

Senator FONG. So it will be 4 years and 8 months, almost 5 years, if this bill is passed and the President sends to Congress his proposal as required by the bill, August 31?

Mr. HAMPTON. Yes, sir.

Senator FONG. Senator Bellmon.

Senator BELLMON. Thank you, Mr. Chairman.

I want to thank Mr. Hampton for his comments. I suppose as a Member of Congress, I should appreciate the willingness to adjust our pay more regularly, but all those votes come in for election next year and I am not sure I can afford this experience again. I remember the mail we got when we raised our pay 4 years ago and I voted for that. Mr. Hampton, my problem with this whole process is this. If any group in the country is really responsible for inflation, it is probably the Congress, because we have consistently over the last many, many years brought about deficits and we have in this way depreciated the value of our currency. As long as we can go ahead and follow this course and contribute to inflationary pressures, knowing that we are not going to feel any pain because our own salaries will be regularly adjusted upward to compensate for the inflation that has occurred as a result of our actions, I am afraid we are going to be less inclined even

more than we are at the present time to follow a more responsible

course.

My point is I am not so sure that what maybe Congress ought to have its salaries more or less permanently fixed so that we will not be tempted to go ahead and spend more than we tax the people. If we could figure out a way to stop inflation or at least to reduce it to a level we can live with, then we would not be needing these adjustments every 2 years.

Mr. HAMPTON. I would agree if your economy is stable and you have this review every 2 years, there would be less of a likelihood that your pay would be increased. The fact that you have this legislation that calls for a review by a commission does not necessarily mean that you will have an adjustment. Because if this commission does recommend adjustments and the President approves those recommendations and so forth to the Congress, the Congress still can vote that down.

Let me say on the other side of this coin about inflation and deficits and so forth, I am not an economist. I think of myself more as a public manager, manager of public institution, one of the best ways to hold down Government costs is to have the type of managers in the Government that administer these programs in the most efficient possible

way.

You are going to have to pay for good management talent. It is not in great supply, in private sector or in the public sector. Good people tend to leave you if you are not compensating them at the proper rate.

So I say that I look at it this way-if you have good managers who are well paid, who are going to run these programs, I think that you go a long way toward holding costs down. I think, yes, there are deficits. There are reasons for those deficits, because we are living in very unusual times.

The relationship between pay and inflation has never really been established by any economist of great renown. I have tried to find out this question of the chicken and the egg, but the Federal pay in general follows trends in industry. Industry increases are made up of a combination of factors, productivity, cost of living, and others. I do not know how you stop the psychology of increase after increase, because we see this in dealing with the issue of blue collar pay and classified pay, the fringe benefits package and so forth, and we see it because we are looking at industry and comparing it with our situation. Hopefully somewhere along the line this psychology can be reversed, but I do not think that treating the executives in the public sector as well as the judicial people who are manning the laws of this country significantly different from the rank and file employees of the public sector is a solution to that.

Economically in terms of cost this is a drop in the bucket. I do not have the figures with me this morning as to the total cost of such a pay increase, but it is very insignificant in terms of overall.

Senator BELLMON. As Chairman of the Civil Service Commission, are you aware that Government is losing managerial talent that we need because of an incompatible salary schedule?

Mr. HAMPTON. I do not think that we are losing significant numbers on that basis. Now the best kind of figures, indications that I have, would be what happened last year when we had a cost of living increase in retirement. We had some 80,000 people leave the Govern

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ment. We had a number of the people in the supergrades that left the Government.

I do not have those figures at my fingertips this morning. I can provide them for the record, those in the upper levels that left, if the committee would like to have those.

Senator BELLMON. I believe it would be valuable. Can you also give any indication-I am sure this would be impossible to do on a wholesale basis as to what those managers who left the Government received when they went into private sector, in the way of salary increases? Do you have those kinds of figures?

Mr. HAMPTON. I would doubt very seriously we would have them. I could only generalize from individual cases that I have heard about. I was going to followup on more of the question that what we are faced with today, because we are having 6.1-percent increase in retirement this June 30, we are losing some of our top executives. I have had some in my own organization that have come to me and have said that I have been working on the static salary base for several years and I do not see much hope because of the newspaper reports and everything like that about the reluctance to consider this, the possible reluctance of the executive branch to do anything about it, and they feel that working on a static salary base, that they have to put in another 21/2 to 3 years just to make the same retirement annuity that they could get 3 years later, so the incentive is to go up.

The people that you lose are the people that have a marketable skill on the outside. You lose some of your better people, the people that you do not want to lose. I have gone through this with two of my own top executives, and I have urged that they stay in Government, because I would hate to lose them.

There is the feeling that this is the subject matter that does not receive proper attention, which has its impact. I will provide you with the figures last year in the supergrades, and within a short period of time, after June 30, we will provide you with the figures for this year.

But I think more in terms of numbers, of course, we have an average grade of these retirees will probably be about grade 10, that will go out on this June 30. We anticipate at least 100,000 people are going to take advantage of the cost-of-living increase. I will try to break that down in such a way as to draw some conclusions from it.

Senator BELLMON. Mr. Chairman, I have no further questions.
Senator FONG. Thank you, Mr. Chairman.

The next witness is the Honorable Arch Patton, Chairman, Commission on Executive, Legislative, and Judicial Salaries, accompanied by David H. McAfee, Executive Director.

Proceed as you desire. We welcome you here this morning.

STATEMENT OF HON. ARCH PATTON, CHAIRMAN, COMMISSION ON EXECUTIVE, LEGISLATIVE, AND JUDICIAL SALARIES, AND DIRECTOR OF MCKINSEY & CO., INC., ACCOMPANIED BY DAVID H. MCAFEE, EXECUTIVE DIRECTOR

Mr. PATTON. I appreciate the opportunity to testify today. As Chairman of this Commission, I have had my first exposure to Washington. I have worked for two decades with industrial companies, and most of my work has been in the compensation area.

I strongly favor this bill. When we began to organize our commission, and saw what had happened in the years since March 1969, we found a problem had developed between the general schedule and the executive schedule. One of which, as you know, is on a 1-year pay increase cycle and the other on a 4-year cycle. What impressed the Commission most was that in March 1969 Level V was at $36,000 while GS-18 at that time was $30,239, a reasonable 20 percent margin, but just 4 years later, because of "comparability" incrementals, GS-18 was at $41,700. Yet, no one in GS-18 could be paid this amount because of the $36,000 "ceiling." It shocked us that not only the Congress, but judges and the executive branch should be treated so differently from the general schedule employees.

Then when we realized that more than half of grade 16, all of grade 17 and 18 were at $36,000, it seemed to us that this was a very difficult motivational position to be in, we have been told that many a subordinate is receiving the same income as not only his boss, but his boss's boss. I have been told of at least one case where this reached down four levels.

Senator FONG. Four levels?

Mr. PATTON. Four levels of executives reporting one to another who are all receiving the same income. This must be a real demotivation. Then when the Commission began to look ahead, to think about the future, we made some assumptions. We assumed that GS-18, say, would increase for the next 4 years at 512 percent for 2 years and 5 percent for 2 years. This raises GS-18 by October of 1977 to $51,200. A 20percent increase in Level V, now $36,000, brings the total to $43,200. At this level, GS-18 is still $8,000 "under water" 4 years later.

We also looked at the mathematics of a 30-percent increase, because this is approximately what phase 2's 5.5-percent increase works out to over a 5-year period. This works out to $46,800.

So if GS-18's "comparability," say, rate advances at the rate that we assumed, and recognizably this is a guess on our part, we are still "under water" by $5,000. Recognition of this inflationary problem impressed us with the need for a 2-year commission. We recognized that if we are to live with phase 2, there will be permanent compression unless the 4-year commission is replaced by a 2-year commission.

Senator FONG. It was the recommendation of the Commission for a 2-year survey and recommendation, is that correct?

Mr. PATTON. Yes, and I think I can speak for all the Commissioners, even though the report had not gone to the President, for we feel very strongly that a 2-year commission would ease the compression problem substantially.

In industry, for example, senior management does not receive pay increases every year in most businesses, as 18 months or even 2 years are more likely between raises. This is particularly important in an inflationary society such as we live in. Över the 5 years, the cost of living alone is up 25 percent. When one pay system is on a 4-year cycle, and another is on a 1-year cycle, inflation raises havoc. Hence a biennial commission would be a big help.

Senator FONG. Of course, you are not privileged to give us your report.