SEC’s primary mission is to protect investors and maintain the integrity of the securities markets. To meet its goals, SEC requires public companies to disclose meaningful financial and other information to the public. SEC is also responsible for conducting investigations of potential securities law violations and overseeing self-regulatory organizations such as securities exchanges, as well as broker-dealers, mutual funds, investment advisors, and public utility holding companies. SEC’s mission has become increasingly important as retail investors have become more directly involved in the securities markets—through on-line trading, for example— and as the markets themselves have begun to change, because of the increased use of alternative trading systems and the potential privatization of securities exchanges. According to SEC officials, such changes and innovations have resulted in an increasingly heavy and complex workload for SEC staff. To carry out its mission, as of December 31, 2000, SEC had 3,235 staff working in 4 divisions and 18 offices in Washington, D.C. and in 11 regional and district offices. Of these, approximately 39 percent were attorneys, 17 percent were accountants or financial analysts, and 6 percent were compliance examiners or investigators. High turnover among attorneys, accountants, and compliance examiners is a concern because these employees carry out tasks that are essential to accomplishing SEC’s mission. Attorneys at SEC perform a variety of duties in most of the divisions and offices, ranging from litigation to rule writing, and deal with securities laws as well as international and administrative issues. For example, attorneys in SEC’s regulatory divisions provide guidance to self-regulatory organizations and the mutual fund industry, while attorneys in SEC’s enforcement and oversight divisions identify and prosecute violations of securities laws. Accountants at SEC work primarily in the Division of Corporation Finance, the Division of Enforcement, and the Office of the Chief Accountant, reviewing and commenting on financial statements, providing guidance on accounting standards and practices, and participating in investigations. Compliance examiners at SEC work in the Office of Compliance Inspections and Examinations as well as in regional and district offices, reviewing the financial records and activities of entities such as broker-dealers and mutual fund operators to determine compliance with securities laws and other requirements. SEC officials believe that the high turnover rate is due largely to salary restrictions that have resulted in increasing pay disparity between SEC and other federal financial regulators and the private sector. Currently, SEC employees are paid according to the civil service pay scale used at most other government agencies, known as general schedule (GS) pay scales. SEC officials said that while SEC cannot hope to approach private sector salaries, the disparity in pay between SEC and other federal financial regulators that are exempted from federal pay restrictions is significant. SEC studies indicate that certain staff positions at SEC pay significantly less than similar positions at other federal financial regulators. SEC officials said that this disparity will become increasingly problematic as the Gramm-Leach-Bliley Act of 1999 (GLBA) brings SEC staff together with staff from other financial regulators in the coordinated regulatory activities GBLA mandates. SEC therefore believes that pay parity with other financial regulators is critically needed to respond to its current staffing crisis and has sought legislation that would allow it to narrow the pay gap between it and other federal financial regulators. In March 2001, the U.S. Senate approved S. 143, the Competitive Market Supervision Act of 2001, and in June 2001, the U.S. House of Representatives approved H.R. 1088, the Investor and Capital Markets Fee Relief Act. Along with reducing the fees SEC collects, these bills would exempt SEC from federal pay restrictions and provide it with the authority necessary to bring salaries in line with those of other federal financial regulators. As of September 10, 2001, no further action had been taken on this legislation. In July 2000, SEC employees voted to join the National Treasury Employees Union (NTEU). NTEU officials said that the primary grievances were unpaid overtime, low pay, and lack of flexible work arrangements. Although NTEU currently cannot negotiate pay with SEC, it can negotiate virtually all other human capital policies, including benefits, work arrangements, awards, and promotions. As of September 10, 2001, SEC and NTEU were negotiating their collective bargaining agreement. According to SEC officials, until this agreement is negotiated and agreed to by both parties, SEC management cannot implement any new human capital programs without NTEU’s agreement and approval. Once the collective bargaining agreement is approved, SEC will have to negotiate any subsequent additions or changes. By an overwhelming majority, the current and former SEC attorneys, accountants, and examiners we surveyed cited compensation as their primary reason for leaving SEC. Respondents also identified other issues, such as opportunities for advancement, the amount of uncompensated overtime, and the quality of administrative support services, that had or would affect their decision to leave. Certain groups and offices were also more dissatisfied with some aspects of SEC than others. Although the survey revealed a number of areas that had a negative impact on staff morale, a high percentage of staff indicated that they were satisfied with their overall job, the extent to which they were treated with respect, and their ability to balance their work and personal lives. Current and former staff indicated that compensation was the most important reason to leave or consider leaving SEC, followed by opportunities for advancement, the amount of uncompensated overtime, and the quality of administrative support, that are discussed later in this report. Some 70 percent of current staff and 78 percent of former staff indicated that their level of compensation was a somewhat or very important reason to leave SEC. Current staff were also more dissatisfied with compensation than with any other aspect of their job. As shown in figure 1, some 64 percent of current and 56 percent of former staff were dissatisfied with total pay, and an even higher percentage of current staff were dissatisfied with their pay relative to pay at other federal financial regulators and in the private sector. Survey results further revealed that dissatisfaction with compensation varied among attorneys, accountants, and examiners. Specifically, among current employees, compensation levels appeared to influence attorneys more negatively than it did accountants and examiners. As shown in figure 2, some 70 percent of current attorneys said that they were dissatisfied with their total pay, compared with 53 percent of accountants and 57 percent of examiners. Similarly, some 79 percent of attorneys said that compensation was an important reason to leave SEC, compared with 56 percent of accountants and 59 percent of examiners. Comments by current and former staff show both the dissatisfaction with compensation and the influence compensation levels have on decisions to stay at or leave SEC. One current staff member wrote, “I love my job here. The only reason I am going to have to leave one day is because I can only forbear on my law school student loans for so long. Once I have to begin repayment, I will need more money. If salaries are increased at SEC, I would probably stay.” A former staff member wrote, “The SEC simply does not pay enough to allow a professional with a family to make ends meet in New York. I had no choice but to leave the SEC.” Another former staff member wrote, “The SEC needs to pay its attorneys no less than the highest paid government attorneys.” According to the former acting SEC chairperson, the agency’s comparatively low compensation levels have made it difficult to recruit and retain attorneys and accountants. She said that first-year associates at top law firms can make twice the salary of staff attorneys in comparable positions at SEC and that accountants with the experience SEC requires are highly prized in the private sector and thus difficult to recruit. She added that pay disparity is particularly troubling because GLBA requires SEC staff to work closely with staff at other federal financial regulators who are paid significantly more. Current and former staff also cited several nonpay factors as reasons to leave or consider leaving SEC. As shown in figure 3, these factors include opportunities for advancement, uncompensated overtime, quality of administrative support services, quality of communication, and quality of supervision. Additional factors are included in appendixes II and III. Current and former staff cited opportunities for advancement within SEC as the second most important reason for leaving SEC. As shown in figure 3, some 43 percent of current staff and 57 percent of former staff indicated that opportunities for advancement were somewhat or very important reasons for leaving SEC. In addition, a high percentage of staff also cited opportunities for advancement as an area with which they were dissatisfied, that had a negative effect on their morale, and in which improvement would increase satisfaction to a great extent. Almost 31 percent of permanent positions at SEC are at the GS-14 level; only 12 percent are GS-15 positions. Therefore, once a staff member has been promoted to a GS-14, opportunities for advancement to the GS-15 level are limited, which restricts pay. This situation makes it difficult for staff to separate opportunities for advancement from pay, as illustrated by the following survey comments. A current staff member wrote, “Many of the raises and promotions are given automatically within the first few years of employment and after that, longer term employees have few if any opportunities.” A former staff member wrote, “A flatter management structure with more non-supervisory GS-15 slots would help a lot.” SEC officials acknowledge that the need for greater opportunities for advancement is an issue. For example, officials in the Division of Enforcement said that they would like to promote more attorneys who do investigations to the GS-15 level but they cannot because GS-15 positions are reserved primarily for trial and supervisory attorneys. Similarly, officials in the Office of General Counsel commented that they have an insufficient number of nonsupervisory GS-15 positions for attorneys and that they did not expect to receive any more in the near future. SEC officials also view this problem as a compensation issue that they could better address if they had more flexibility in setting pay scales—that is, if they could provide higher compensation without having to promote staff.