How to Replace the Revolving Door

April 21, 2014 --

Retirement send-offs are often warm and somewhat scripted events: roast-like remembrances, treats, presents. Not so, we suspect, the send-off last week of James Kidney. A lawyer at the U.S. Securities and Exchange Commission, Mr. Kidney delivered retirement remarks that likely left a lot of guests gazing down at their nervously shuffling heels and wing-tips.

Mr. Kidney blasted the SEC as being too “tentative and fearful” in prosecuting wrong-doing in the wake of the world financial crisis. This timidity, in turn, he fingered as part of what is commonly called the “revolving door.” “The revolving door is a very serious problem. I have had bosses, and bosses of my bosses, whose names we all know, who made little secret that they were here to punch their ticket … it is no surprise that we lose our best and brightest as they see no place to go in the agency and eventually decide they are just going to get their own ticket to a law firm or corporate job punched.”

Thus did Mr. Kidney spawn another round of commentary and concern about individuals entering government service but then leaving after too little time and too little commitment (leaving through the metaphorical revolving door, which turns quickly and which doesn’t take you in very far) to return to private-sector positions that allegedly pay outsized incomes by massaging government connections. We don’t deny that that some enter government service intending little more than punching their ticket. But does avarice explain why most government officials leave for the private sector?

Both of us have spent time in the U.S. government, and we think the answer is a resounding “no.” Rather, time and again we saw something quite different. We would get to know a colleague whose amazing talents were matched only by his or her love of serving our country. Often this person was a career civil servant—Republican, Democrat, Independent, whatever—who aspired to serve regardless of the partisan winds of the day and whose dedication inspired us to work harder. And then one day, s/he would share that s/he was leaving government. When asked why, s/he would sheepishly murmur, “Because I can’t afford to stay.” The economic force driving much of the revolving door is not greed. It is necessity.

Imagine a public-spirited graduate of a top U.S. law school who this spring is offered a potentially career-defining position at the SEC. Her husband stays at home with their two young girls now in grade school. Thrilled at the job offer, the two of them start to consider whether they can swing this position financially. First, they see that home prices in Washington, D.C. today average $452,500—about double the national average, and up 15 percent in the past year alone. They see much higher prices in neighborhoods with high-quality schools—e.g., $910,000 in Chevy Chase.  So, they explore the idea of living in a less-expensive neighborhood and sending their girls to private school. How cool would it be to send the girls to the Sidwell Friends School, where the Obama daughters go? Very cool, perhaps—but at an annual per-child tuition of $34,588 for grades 4 and younger ($35,588 for grades 5 through 12).

And, finally, in sticker shock at the cost of homes and of schools in the Washington area—to say nothing of paying back her six-figure law-school loans, of saving for the girls’ college, and of saving for their retirement—she and her husband peek at what she might earn at the SEC. Most Federal white-collar employees earn an amount set by the General Schedule Classification and Pay System. The General Schedule has 15 pay grades, from GS-1 up to GS-15—beyond which exists something called the Senior Executive Service pay system that sets higher levels for the most-senior and/or most-talented public servants. They see that the highest possible GS-15 pay for 2014 is $130,810, and that the range of possible SES pay for 2014 is $147,200 to $201,700—all levels she might not reach for many years.

Quietly, they do the math. They don’t need a Tuck MBA to realize the grim financial limits to what they can do. Yes, she can accept the SEC offer. But no, it cannot be for a career. There will be only so long she can stay at the SEC until she will need to leave for a law firm or a corporate job. When that day comes will she be punching her ticket, worthy of scorn? Or will she simply be supporting her family in a way no one should judge?

This is not to say that public servants should be paid kings’ ransoms that gild a path to joining the one-percenters. But this is to say that today too many dedicated individuals cannot serve our country because of the high financial sacrifice of doing so. And, with the skewness of private-sector income growth over the past generation (about which we have written here), the magnitude of this sacrifice has only been rising over time.

Here, as in many other things, America could learn from the rest of the world. Many other governments recognize the need to pay sufficiently high salaries to attract and retain the talented public servants their citizens demand and deserve. For years Singapore, widely regarded as a transparent and efficiently-run country, has paid its civil servants very high salaries (still so even after some pay cuts in 2012) by precisely this logic. In 1994, Prime Minister Lee Kuan Yew created a government pay system that explicitly linked public compensation to private-sector pay. Thus in the late 2000s did Prime Minister Lee Hsien Loong earn about $2 million annually—five times what President Obama makes. In 2007, a minister overseeing this program observed, “We don’t want pay to be the reason for people to join us. But we also don’t want pay to be the reason for them not to join us, or to leave after joining us.”

You really want to replace the revolving door? Blow up the current government pay scale and replace it with a more-flexible, more-realistic structure that allows dedicated citizens to serve their country without jeopardizing their families’ financial futures.

Articles © 2014 Matthew Slaughter and Matthew Rees. All rights reserved.
Publication © 2014 Trustees of Dartmouth College. All rights reserved.