FatCratz

Prize Money for Bureaucrats

John Steele Gordon has a brilliant op-ed in the Wall Street Journal today (subscription required and worth every penny), that powerfully captures the essence of what FatCratz is all about. The piece is brilliant because it both nails the problem of government bureaucracy and offers a real-world solution.

First, the problem:

Bureaucrats, alas, are... highly disincentivized to increase efficiency and to innovate. In business a penny saved is a penny earned, the savings flowing directly to the all-important bottom line. But in a bureaucracy, a penny saved is a penny likely to be cut from next year's budget. And prestige in a bureaucracy comes not from profit but from the size of one's budget. So even accidental savings are likely to be suppressed with make-work.

And then the solution, admittedly outside the box, but not entirely unworkable:

Let's say the federal widget inspection office in Seattle comes up with a way to save a million dollars a year by changing the method it uses to inspect widgets. Why not give personnel in that office the first year's savings, distributing it according to a set formula akin to that of the Royal Navy's? A million dollars in "prize money" would certainly be an incentive to motivate even the most slothful government office to find new ways to do things.

This solution is doubly brilliant because it is introduced by a reference to Patrick O'Brian novels, which are near and dear to the FatCratz heart for their evocative portrayal of the dictum, "Power corrupts, and absolute power corrupts absolutely."

This solution could also be employed in the private sector, which in large companies often becomes stratified enough to resemble a government bureaucracy. By distributing the rewards of increased efficiency widely to the members of a large team instead of rewarding a handful of credit-hungry managers, it provides incentives to the entire team.

Any one have any examples of this model being used in business or government?

Average Pay for Federal Employee: $75,419

But at least they're worth it, right?

What industry can match that pay?

And job security.

And annual cost of living pay increases.

And days off.

And health insurance benefits.

And lack of accountability.

A word of warning to those hundreds of thousands of employees about to join the two million plus federal employees: there are grave tradeoffs for this security and benefits. You will never be as efficient, as productive, or as innovative as you might have been when you start working for the federal government (military excluded). Pass on the security. Join the private sector.

How Do Your Reward Performance Without Compensation?

Various government entities have been exploring pay-for-performance systems that would seek to augment incentives for government employee performance. The jury is still out on whether these would create better incentives than the current system... which tends to boost compensation based on time served. However, unions and some in congress want to nip these efforts in the bud before they get established. You have to give them chutzpah points for the following locution:

A well-designed performance management system can recognize and reward high performance without a linkage to compensation.

Rewards without compensation. Hmm... Are they thinking of handing out gold stars?

Spending Other People's Money

Perhaps the worst quality video on YouTube--it looks like it was run through a kaleidoscope--this clip of Milton Friedman goes a long way toward explaining why government is so careless when it spends your money. Broadly speaking, there are four ways to spend money, and government bureaucrats are ultimately spending other people's money on other people. [Endure the ugliness, it's worth it, and the audio is fine.]

Why are Some of the Highest Paid Federal Employees the Least Motivated?, Part II

Because they don't work directly for the federal government, that's why. Because of tight labor regulations for hiring and firing and compensating government employees--and the difficulty of keeping top talent for the long term--many government agencies are making greater use of consultants.

Well, these consulting relationships open up a whole other host of problems, as illustrated by the case of Randy Kimlin, a former chemical company executive who played a large role in the day to day operations of the Occupational Safety and Health Administration (OSHA) under the Bush administration and is currently under investigation for "violations and irregularities" in his compensation:

The improperly paid sum represents a total of $572,946 billed for Kimlin's labor over a period of 27 months ending in mid-2008 and an additional $108,434 in compensation for his commuting costs from South Carolina, the report said.

$20K a month is good money, but it's not clear that in this case the extra money created incentives that were to the good of the taxpayer. Seems that Kimlin might be one of those rare birds... a Fat Cat who is also a FatCrat.

Why are Some of the Highest Paid Federal Employees the Least Motivated?

Incentive, incentive, incentive. Or lack of.

When you get near the top of the federal pay scale, there's no room to grow. Ever. This creates some perverse incentives.

One reader suggests that one such colleague has instituted his own "stop work policy," because there are no incentives to work harder. "Even with a 40-hour week, the culprit contributes less than most."

He bolsters his case with the following article, wryly titled "Down and out at GS-15." For those of you happily plying away in the private sector,  that's the high end of the "general schedule" that sets most career federal employees pay. The article describes how pay is capped at by law at $153,200 per year, which is level four of the Senior Executive Schedule (SES), which sets pay for a smaller, more elite group.

Sure, it can be hard to muster sympathy for these people. Especially when one of their hardships is not sharing in the guaranteed cost of living bump that comes around every January 1 for all their colleagues--a bump worth anywhere from 2.9 to 4.45% this year [try to land that guarantee when negotiating for your next private sector job]. 

The article identifies another problem. This system discourages:

...some of the government's best people, in GS-15, from moving into the SES, where the pay range is $117,787 to $177,000. "People are thinking -- why move into the SES with its more demanding schedule and mobility requirements when there is little difference in pay?

Why work harder, when you don't have to? And when the extra work doesn't bring any greater reward? It is an often cited problem that such people leave the federal government for greener pastures in the private sector. Less noted is the overall drain on productivity created by the lack of incentive for those who stay behind.

FatCratz isn't populist, and we don't oppose people making what their worth--even when they're working for the government. Problems arise when pay and merit, or productivity, are mismatched, and this is exactly what happens all the time in the rigid salary system imposed by the federal bureaucracy.