Pay and Perquisites for Government Executives

On first consideration it seems a trivial question to ask what government pays its executives and how it does it. The simple answer is that they are paid according to their value on the labor market. The caveat to this interpretation is equally simple. Deviations from the market pattern would be expected only if somebody could exploit his or her political power to contrive a better deal. This chapter shows that both the market and the political power interpretations are far from the reality of how the rewards are set for political and administrative executives in government. It also shows that in the real world it is hard to separate the two types of government executives, even if it may seem odd that the settling of the salaries of master and servant are as closely related as is often the case in government.

The discussion only covers central government executives. There are very few analyses of pay awarded to executives in subnational government. One hypothesis might be that salaries of local and regional government executives are set according to principles that are in each country related to the principles governing executive pay in central government. But the fact is that there are no analyses that can confirm or refute this hypothesis and also that data that could be used for this purpose are not easily available.

The market interpretation relies on the assumption that to attract able persons to a government career, be it in administration or politics, the government has to pay a price that is competitive with what the private sector pays its executives, allowing for differences in tenure and pension rights. The political power interpretation relies on a similar premise. It presumes executive pay in government to be set by the incumbents who have both the motive and the opportunity to serve themselves. Much speaks for either interpretation. According to the former it is hard to imagine a long-term insulation of the public sector from the general labor market, including the market for managerial and leadership talent. It is equally hard to abstract from the fact that in the end it is a political decision how and how much the holders of governmental office should be rewarded for their services and that with this power they do not have to respond to the constraints of the market.

Both extremes overlook important aspects of political and administrative life. First, in modern government elaborate civil service regulations are in place. They establish internal labor markets for the public sector, and even for particular sub-sectors of government (Wise, 1996). As a result, any competitive exchange with the private labor market, and especially the corporate part, is limited and probably operates only at the margins where young people have to choose their lifetime careers and senior executives ponder the prospect for entering into a second career in a sector hitherto foreign to them. Second, modern government is very often democratic government. The precise form may vary, but classical political theorists puzzled with the issue of how to provide the holders of political and administrative office with proper rewards and incentives. Tocqueville expected democratic competition (and behind it popular envy) to place strict constraints on politicians when they had to determine their own salaries. The implication was a strong trend towards an egalitarian pay system that compressed the governmental pay scale and guaranteed that people in high [Page 73]public office didn't distance themselves too far from the people they ruled (Tocqueville, 1835/1963: 130–4). The Tocquevillian hypothesis thus clearly contradicts the rent-seeking behavior inherent in the political power interpretation, but to Tocqueville the risk was that only people of mediocre talent or people so well-off that they did not have to concern themselves with their actual pay would be attracted to public service.

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