The Federal Pay  Comparability Act of 1970 permanently authorized the President to adjust  GS pay rates annually, and established a system for recommending  adjustments with the goal of increasing federal pay to be comparable with  the private sector; however, we previously found that the gap between  average federal and private sector salaries for similar jobs continued after  implementation of the act because the recommended adjustments were  not always made. According to OPM,  locality pay is now a broadly accepted practice in federal pay  administration. To recommend locality pay adjustments, the President’s Pay Agent  compares the annual GS base pay rates of federal workers in each area  to the annual pay rates of nonfederal workers in the same area for the  same levels and types of work. As another example, for 2012, the FEPCA process specified a 1.1  percent across-the-board increase and an average 18.5 percent locality  increase, but annual pay adjustments were frozen instead.Agent had reported that in 2010 (the reference year for setting 2012 pay),  taking both across-the-board and locality pay into account, the average  federal-nonfederal pay gap was 24 percent. Three pay increases and monetary awards available to GS employees  are linked to performance ratings as determined by agencies’  performance appraisal systems:
Within-grade increases are periodic increases in a permanent  employee’s rate of basic pay from one step of a grade to the next  higher step within the grade. Factors that are to affect GS employee eligibility for these pay increases and awards are  specified in legislation and regulations and clarified in OPM guidance. Ratings-based cash  awards were more strongly linked to performance depending on the rating  system the agency used, and quality step increases were also more  strongly linked to performance. Within-grade increases were the least strongly linked to performance of  the three pay increases and awards we analyzed, in accordance with  their design. Findings of Selected Pay and Total Compensation Comparison Studies Varied Due to Different Approaches, Methods, and Data

		Selected Studies Differed in Their Conclusions and Basic Approaches to Analyzing Pay

The different study designs used by the authors of six studies resulted in  varying conclusions on how federal pay differed from private sector or  nonfederal pay. As shown in table 2, conclusions varied on which sector  had the higher pay (which does not include benefits) and the size of pay  disparities. However, the overall pay disparity number does not tell the whole story;  each of the studies that examined whether differences in pay varied  among categories of workers, found such variations (see table 2). The trend analysis approach did not control for  attributes. When looking within and across the  studies, it is important to understand these differences because they  impact how the studies can be interpreted. Simply put, the differences among the selected  studies are such that comparing their results to help inform pay decisions  is potentially problematic. Given the different approaches of the selected  studies, their findings should not be taken in isolation as the answer to  how federal pay and total compensation compares with other sectors. POGO provided written comments (see  app. V.

Appendix I: Objectives, Scope, and Methodology

This report examines (1) how annual pay adjustments for the General  Schedule (GS) system are determined; (2) the extent to which the pay  increases and awards available to GS employees recognize individual  performance, and how the Office of Personnel Management (OPM)  provides oversight of pay increases and awards; and (3) how selected  studies compare federal and private sector pay and total compensation  and the factors that may account for the different findings. These pay increases and awards are:  within-grade increases, quality step increases, and ratings-based cash  awards. We compared and contrasted the  differences between the approaches, methodologies, and data sources of  the selected studies. For example, the human capital  approach controls for personal attributes (e.g., education, job experience)  and job-related attributes (e.g., occupation, firm size). Attributes  such as occupation, level of work, firm size, locality, education, and job  experience were considered relevant by several of the studies’ authors  and people with expertise in compensation issues that we interviewed. A job-to-job approach, as  demonstrated by the study authors who used the approach, involves  matching federal workers to equivalent positions in another sector. They chose the data sources for  their studies based on their overall approach and data needs.
Why GAO Did This Study

A careful consideration of federal pay is an essential part of fiscal stewardship and is necessary to support the recruitment and retention of a competent, successful workforce. Recent studies comparing the compensation of federal workers to workers in other sectors have produced varying findings. To improve understanding of federal pay setting, GAO was asked to examine (1) how annual pay adjustments for the GS system are determined; (2) the extent to which the pay increases and awards available to GS employees recognize individual performance, and how the Office of Personnel Management (OPM) provides oversight of pay increases and awards; and (3) how selected studies compare federal and private pay and total compensation and the factors that may account for the different findings.
GAO reviewed legislation, OPM regulations, executive orders, and federal agency documents; analyzed OPM data; and interviewed agency officials. GAO reviewed six studies that met three criteria: issuance since 2005, original analysis, and focus on federal and private sector compensation. GAO compared and contrasted the differences between their approaches, methodologies, and data sources, and interviewed the studies authors, people with expertise in compensation issues, and agency officials responsible for the data. GAO provided drafts to agencies and study authors for review and comment and made technical changes as appropriate in response to comments received. One study author provided written comments concurring with the findings. GAO is not making any recommendations in this report.

What GAO Found

Annual pay adjustments for the General Schedule (GS), the pay system covering the majority of federal workers, are either determined through the process specified in the Federal Employees Pay Comparability Act of 1990 (FEPCA) or set based on percent increases authorized directly by Congress. GS employees receive an across-the-board increase (ranging from 0 to 3.8 percent since FEPCA was implemented) that has usually been made in accordance with a FEPCA formula linking increases to national private sector salary growth. This increase is the same for each employee. GS employees also receive a locality increase that varies based on their location; there were 34 pay localities in 2012. While FEPCA specifies a process designed to reduce federal-nonfederal pay gaps in each locality, in practice locality increases have usually been far less than the recommended amount, which has been over 15 percent in recent years. For 2012, when there was a freeze on annual pay adjustments, the FEPCA process had recommended a 1.1 percent across-the-board increase and an average 18.5 percent locality increase.
GS employees are eligible to receive three types of pay increases and monetary awards that are linked to individual performance appraisals: within-grade increases, ratings-based cash awards, and quality step increases. Within-grade increases are the least strongly linked to performance, ratings-based cash awards are more strongly linked to performance depending on the rating system the agency uses, and quality step increases are also more strongly linked to performance.
Findings of selected pay and total compensation (pay and benefit) comparison studies varied due to different approaches, methods, and data. Regarding their pay analysis, the studies conclusions varied on which sector had the higher pay and the size of pay disparities. However, the overall pay disparity number does not tell the whole story; each of the studies that examined whether differences in pay varied among categories of workers, such as highly or less educated workers or workers in different occupations, found such variations. Three approaches were used to compare pay:
human capital approach (3 studies)compares pay for individuals with various personal attributes (e.g., education, experience) and other attributes (e.g., occupation, firm size);
job-to-job approach (2 studies)compares pay for similar jobs of various types based on job-related attributes such as occupation, does not take into account the personal attributes of the workers currently filling them; and
trend analysis approach (1 study)illustrates broad trends in pay over time without controlling for attributes of the workers or jobs.
When looking within and across the studies, it is important to understand the studies differences in approach, methods, and data because they impact how the studies can be interpreted. The differences among the selected studies are such that comparing their results to help inform pay decisions is potentially problematic. Given the different approaches of the selected studies, their findings should not be taken in isolation as the answer to how federal pay and total compensation compares with other sectors.