Bull Bear Report Dec 01 2010

Government Recruiters Will Find Ways Around Pay Freeze to Attract Talent

By kyle stock and julie steinberg

It's about the mission, not the money.

That's what government regulators will be telling job candidates if Congress approves President Obama's proposal to freeze federal wages for two years.

They will likely also be more liberal with promotions, bumping employees into higher positions as an end-run around salary restrictions, said former regulators.

The best and brightest will continue to be attracted to government jobs because serving the county is part of the "overall value proposition," said Jeffrey Zients, deputy director for management at the White House Office of Management and Budget. Government recruiters have some advantage because labor markets for accountants, attorneys and economists are still relatively poor, said Larry Harris, chief economist of the Securities and Exchange Commission from 2002 to 2004.

Nonethless, the pay freeze will be "a difficult constraint," at a critical time, said Harris, currently a finance professor at the University of Southern California. Federal agencies have long struggled to buy top talent from the private sector. The proposed freeze "doesn't help, but it's not much more of a hindrance than they had before," Harris said.

The freeze would hit federal recruiters in the midst of a hiring spree. The Commodity Futures Trading Commission and the SEC plan to add about 1,000 employees in the next few years, as they draft and enforce new rules prescribed by recent reform legislation. At the same time, Uncle Sam is building a new consumer protection bureau from scratch.

Federal pay is set on a series of multi-step scales based on education and experience. The base amounts are inflated in accord with cost of living in separate cities. Government workers in New York, for instance, get a 29% premium over the alloted base pay; those in DC get a 24% boost.

While Obama's proposal would freeze salaries at each step of the scale, it would not preclude employees from jumping to a higher scale and thus earning more money.

"In difficult times as a retention tool, some firms have to do some creative things in order to retain their staff," said Eric Pikus, global head of consumer and commercial banking at Korn/Ferry International, a Los Angeles-based recruiter.

Kathryn Troutman, a career coach and president of The Resume Place Inc. and the Federal Career Training Institute, noted that government benefits are "off the charts" and the salaries are often generous, even though they seldom hit private-sector levels. Top positions at regulators like the SEC, which has its own pay scale, accrue over $200,000 a year and signing and performance-based bonuses are occasionally shelled out. "I do not see this as being a deterrent," Troutman said. "Austerity is going to hit the finance industry sooner or later anyway."

More alluring than pay, however, is that chance to change the way markets function, according to government recruiters and former regulators. Indeed, for securities attorneys and economists, the Dodd-Frank legislation presents a rare opportunity to overhaul the industry.

Donald Langevoort, a law professor at Georgetown University and a former SEC attorney, said the sense of mission at federal regulatory bodies has two dimensions.

"You hope it's about public service, but at the least it's also a very unique time for people to make their mark on the law," he said. "When you consider the egos involved, the ability to put your own personal stamp on the US economy is itself attractive."

Still, turnover at the SEC, which hovered around 9% in 2006, rose with economic conditions in recent months. It jumped from 3.7% in fiscal year 2009 to 5% in 2010.

Spokesmen for the Commodity Futures Trading Commission, the Federal Deposit Insurance Corp., the Office of the Comptroller of Currency and the SEC declined to comment on the pay-freeze proposal.

Write to Kyle Stock and Julie Steinberg

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