This piece originally appeared at State Capacitance.
In popular imagination, the government spends its money by employing bureaucrats to harass an already much-harassed citizenry. Whatever the case may be, it is certainly true that salaries are a large expense for the federal government. So how does Congress decide exactly how much money will be spent on government salaries?
Or to be more precise: an agency needs Congress’ approval to hire workers. How many different ways can it receive this permission from Congress?
There are four fundamental methods.
- Lump sum – an agency is given a total amount of money for salaries, with no further restrictions.
- Statutory definition – Congress creates a position and sets its compensation directly, in statute.
- Pay-grade allotment – Congress prescribes a standardized pay scale, which is not (necessarily) intended to strictly correspond with job responsibilities. Congress gives an agency the right to hire a certain number of people at certain pay-grades, but the agency writes job descriptions without anyone else being allowed to object.
- Position classification – Congress sets a standardized pay scale that is intended to correspond to job duties: if two workers do the same sort of work, they ought to have the same salary, regardless of what agency they work for. Accordingly, a single central personnel agency is tasked with reviewing all government job descriptions and classifying these positions, thereby setting their salary.
Each approach has a different tradeoff with respect to 1) legislative control of spending, 2) executive flexibility in administration, and 3) fairness toward government employees.
All four approaches were used at some point in US history, but position classification has been by far the most important approach ever since the Classification Act of 1923. The four methods are discussed in turn below.
Lump sum
The simplest way of controlling salaries is for Congress to appropriate a lump-sum of money for that purpose. For example, Congress might say that an agency gets $50 million to spend on salaries.
From there, the agency has total flexibility with respect to salaries – the only restriction is that it cannot spend a penny more than $50 million. For example: The agency can write any job description it wants and offer any salary that it chooses. It could offer two applicants precisely the same job, and then pay them entirely different salaries. The agency might increase or decrease salaries for any reason at all, and at any time. It implies total executive discretion.
This might sound fantastical, but it was how the US actually appropriated money for salaries up through about the 1830s. And the approach didn’t die out until much later – some agencies received lump-sum salary appropriations up to 1923.
By the time of the Classification Act 1923 (see below), this lump-sum approach was considered outdated. However, it had a minor renaissance in the 1990s – reformers aligned with the New Public Managment thought that its flexibility might foster entrepreneurial government. A National Academy of Public Administration report in the 1990s recommended experimenting with lump-sum salary appropriations; so far as I know, this suggestion was never followed.
Tradeoffs: This approach gives Congress total control over salaries. If Congress says an agency gets $50 million for salaries, then $50 million is exactly what will be spent. In turn, this gives the executive total control in using these funds – and therefore, the maximal possibility for misuse. It offers employees no protection against bias, as the agency can pay two identical employees entirely different salaries. (Of course, this doesn’t mean the agency will, only that it might.)
