In a reversal of the SEC’s longstanding approach to recruiting and retaining an elite corps of professionals, the Commission announced today, over the union’s objection, that it will impose the lowest 2019 pay package in the federal sector, based on currently available data. This is despite Congress fully funding the SEC’s annual budget request this year.

SEC management has notified the union that it intends to impose a total pay increase of 2.4% for 2019. Only 1% of this increase will be applied to raise the SEC’s pay caps at the top of grades—roughly one third less than the 1.4% cap increase General Schedule (GS) employees will be receiving. The union believes that management’s pay proposal is part of a longer-term plan to decrease SEC compensation by providing significantly smaller annual adjustments than other federal agencies to position the Commission behind other government employers. The union has notified the agency this week that it will appeal the matter to the Federal Service Impasses Panel. While that dispute is pursued by the union, management’s increase will be imposed on April 14. A lump-sum payment will accompany this increase to compensate employees for the fact that it was not provided on January 6, 2019.

Management’s pay proposal represents the second-lowest percentage salary increase in the history of the agency. Furthermore, it will mark the first time that the agency will be providing a substantially lower increase to SEC employees than GS employees will receive. In addition, it will place the SEC at the bottom of the other federal financial regulators in terms of overall compensation adjustments.

The SEC’s union president, Greg Gilman, said today, “even though private sector securities professionals earn far more than their SEC counterparts, labor and management have for decades had a shared interest in a pay system that, accompanied by the draw of public service, enticed the best and the brightest to SEC careers.” Gilman, a senior attorney in the SEC’s Enforcement Division, went on to say that those days appear to be over, noting that “the SEC’s new message to its employees appears to be that you make more money than we think you are worth.” Gilman also warned that an effective salary cut and the shift in human capital policy that it reflects will result in top lawyers, accountants and industry experts leaving the Commission.

There is no justification for this massive departure from prior pay norms at the SEC, either in terms of the overall U.S. economic outlook or the agency’s current budget situation. Management asserts that its budget is too small to allow for an adequate pay increase. Management, however, did not make a serious effort to obtain a budget sufficient to provide such an increase—something that other federal financial regulators were able to accomplish.

It is also noteworthy that management regards its current budget as sufficient to permit a $10 million reserve to keep the agency open for a couple of days if another misguided government shutdown occurs, as well as the hiring of approximately 100 new employees. $10 million could fund an additional 1% salary increase at the agency. Management is effectively asking its workforce to pay for the new hires, as well as other management priorities, in the form of lower compensation. If management is unable to fund sufficient compensation for its current employees, it should not be hiring new employees.

It is difficult to view management’s pay proposal as being driven by anything other than the current administration’s anti-government, anti-regulatory ideology. On this point, it is worth noting that providing the same 1.4% cap increase that GS employees will receive would not add a penny of expense to this year’s budget, meaning that management’s decision to reduce the salaries of the roughly 50% of employees who are at the cap in real (i.e., inflation-adjusted) dollars reflects a conscious choice as opposed to a financial necessity. 

Without providing adequate compensation, the SEC cannot hope to continue to attract and keep highly qualified people to perform its complex and important work. For that reason, the union believes that management’s historically low pay proposal will cause direct harm to the agency by impeding its ability to accomplish its goals. Simply put, if the agency wants to continue to maintain talent, engagement and quality, all of which are necessary to meet its mission requirements, it needs to recognize the efforts of its elite workforce in a meaningful way. 

The fact that management’s deeply flawed compensation decision is coming on the heels of the longest shutdown in U.S. history—the only shutdown that has ever led to an extended furlough of SEC employees during which they received no pay—makes it even more disappointing. SEC professionals have been demoralized by the cavalier manner in which our government trivialized their incredibly important service to our nation—but nevertheless they have been working hard to make up for the time lost since returning to work. SEC professionals have just experienced a profoundly negative blow and in many cases are questioning their continued commitment to public service. Coupling the historic government shutdown with such a significant human capital misstep on compensation will only magnify the agency’s substantial morale problem.

At town halls and in other communications, SEC management often espouses deep respect for the staff of the agency and their hard work and professionalism. Most recently management recognized and applauded the extra effort by the staff in the wake of the government shutdown. However, when it comes to meaningful recognition, management appears to have decided that the staff is overpaid and has taken steps to erode their compensation and retirement benefits by imposing upon them one of the lowest salary adjustments in the federal government.

While it is true that some senior managers come to the SEC for a few years and then return to the private sector to make large salaries, this should not be the central model for public service at the United States’ premier financial regulator. Senior managers are stewards of a public trust—and should be taking action to ensure the long-term viability of our agency as an institution and its ability to meet our incredibly important mission. Management’s current compensation proposal undermines that mission rather than advancing it, and for no good reason.