FEDERAL WORKERS

Results of Studies on 

Federal Pay Varied 

Due to Differing 

Methodologies

Report to Congressional Requesters

June 2012

GAO-12-564

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-564, a report to 

congressional requesters

June 2012 

FEDERAL WORKERS

Results of Studies on Federal Pay Varied Due to 

Differing Methodologies

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.

View GAO-12-564. For more information, 

contact Robert Goldenkoff at (202) 512-6806

or goldenkoffr@gao.gov.
Page i GAO-12-564 Federal Workers

Letter 1 

Background 5

GS Pay Adjustments Can Be Determined through FEPCA Process 

or Set Directly by Congress 9

Pay Increases and Awards for GS Employees Vary in their Links to 

Individual Performance 14

Findings of Selected Pay and Total Compensation Comparison 

Studies Varied Due to Different Approaches, Methods, and Data 22

Concluding Observations 31

Agency and Third-Party Comments 32

Appendix I Objectives, Scope, and Methodology 34

Appendix II Implementation of Locality Pay 41

Appendix III Information on the Selected Studies’ Data Sources and Methodologies 

for Analyzing Pay and Total Compensation 47

Appendix IV Comments from the Project On Government Oversight 59

Appendix V GAO Contact and Staff Acknowledgments 60

Tables

Table 1: Eligibility Requirements for Ratings-Based Pay Increases 

and Awards for GS Employees 15

Table 2: Selected Studies’ Findings on Pay 23

Table 3: Approaches Used by Selected Studies in Analyzing Pay 24

Table 4: Comparisons among the Selected Studies’ Methodologies 26

Table 5: Selected Studies’ Findings on Total Compensation (Pay 

and Benefits) 28

Table 6: Selected Studies’ Data and Methodologies Used in 

Analyzing Pay 47

Contents
Page ii GAO-12-564 Federal Workers

Table 7: Selected Studies’ Data and Methodologies Used in 

Analyzing Total Compensation (Pay and Benefits) 54

Table 8: Data Sources Used in Analyzing Compensation 57

Figures

Figure 1: Annual Pay for a GS-11, Step 1 Employee in Selected Pay 

Localities, 2012 8

Figure 2: Congress and the President Established Across-the-Board 

and Locality Pay Adjustments, 2007 to 2012 13

Figure 3: Average Ratings-Based Award Amounts in Fiscal Year 

2011, by Rating, 5-level Rating System 17

Figure 4: Ratings-Based Pay Increases and Awards for GS 

Employees for Fiscal Year 2011 19

Figure 5: Annual Pay for a GS-11 Employee in San Francisco and 

Rest of U.S. Pay Localities and Reported Nonfederal 

Equivalents, 1994 to 2011 42

Figure 6: Surveys and Models for Calculating Locality Increases 

Have Changed Several Times from 1990 to 2011 44

 

Abbreviations

BEA Bureau of Economic Analysis

BLS Bureau of Labor Statistics

CBO Congressional Budget Office

CPDF Central Personnel Data File

CPS Current Population Survey

ECI Employment Cost Index

EHRI-SDM Enterprise Human Resources Integration-Statistical Data

Mart

FEPCA Federal Employees Pay Comparability Act of 1990

GL GS pay plan that covers law enforcement officers who

receive special base rates at grades 3-10 under section

403 of FEPCA

GM GS pay plan that covers employees covered by the 

Performance Management and Recognition System 

termination provisions
Page iii GAO-12-564 Federal Workers

GP GS pay plan that covers GS physicians and dentists paid 

market pay

GR GS pay plan that covers physicians and dentists covered

 by the Performance Management and Recognition 

System termination provisions paid market pay 

GS General Schedule

NCS National Compensation Survey

NIPA national income and product accounts

OCSP Occupational Compensation Survey Program

OES Occupational Employment Statistics

OMB Office of Management and Budget 

OPM Office of Personnel Management

PATCO Professional, Administrative, Technical, Clerical, and

Other White-Collar

POGO Project On Government Oversight

PPA President’s Pay Agent

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Page 1 GAO-12-564 Federal Workers

United States Government Accountability Office

Washington, DC 20548

June 22, 2012

The Honorable Darrell Issa

Chairman

Committee on Oversight and Government Reform

House of Representatives

The Honorable Dennis Ross

Chairman

Subcommittee on Federal Workforce, U.S. Postal Service and Labor 

Policy

Committee on Oversight and Government Reform

House of Representatives

Skilled federal workers are integral to the successful operation of every 

government function. They are law enforcement officers, engineers, 

program managers, scientists, clerks, and all the other workers who carry 

out the federal government’s business. In 2011, there were approximately 

2.2 million federal civilian workers comprising about 1.6 percent of the 

U.S. workforce, and civilian personnel costs were about $220 billion, 

comprising about 6 percent of the total federal budget.1 A careful 

consideration of federal workers’ pay is an essential part of fiscal and 

operational stewardship and is necessary to support the recruitment and 

retention of a competent, successful workforce. It is the policy of 

Congress that pay for federal workers in the General Schedule (GS), the 

pay system covering the majority of federal workers,2

The composition of the federal workforce has changed over the past 30 

years, with the need for clerical and blue collar roles diminishing and 

be in line with pay 

for comparable nonfederal workers. 

 

1

Numbers of federal civilian employees and personnel costs are based on the Office of 

Personnel Management’s (OPM) Central Personnel Data File (CPDF). The CPDF data we 

analyzed include most executive branch civilian employees, and do not include the U.S. 

Postal Service, judicial branch employees, intelligence agencies, nor most legislative 

branch employees. Personnel costs include both pay and benefits for full-time, part-time, 

and temporary workers. OPM has transitioned from the CPDF to the Enterprise Human 

Resources Integration-Statistical Data Mart (EHRI-SDM) as of fiscal year 2010, but CPDF 

still exists as a quarterly extract from the EHRI-SDM. We used these quarterly extracts for 

our analysis.

2

Excluding the U.S. Postal Service.

 
 

Page 2 GAO-12-564 Federal Workers

professional, administrative, and technical roles increasing. As a result, 

today’s federal jobs require more advanced skills at higher grade levels 

than federal jobs 30 years ago. Additionally, federal jobs, on average, 

require more advanced skills and degrees than private sector jobs. This is 

because a higher proportion of federal jobs than nonfederal are in skilled 

occupations such as science, engineering, and program management, 

while a lower proportion of federal jobs than nonfederal are in 

occupations such as manufacturing, construction, and service work. The 

result is that the federal workforce is on average more highly educated 

than the private sector workforce.

Given the changes in the federal workforce over the last 30 years, there 

has been growing interest in reexamining the federal pay system—how 

pay is determined and how comparisons with other sectors are made. 

Specifically, we have reported on the importance of considering the skills, 

knowledge, and performance of employees as well as the local labor 

market in making pay decisions.3

The Subcommittee on Federal Workforce, U.S. Postal Service and Labor 

Policy held a hearing in March 2011 on the issue of comparability in pay 

and benefits between the federal and nonfederal workforces.

The President’s Pay Agent, the entity 

responsible for recommending federal locality pay adjustments to the 

President, has recommended that the underlying model and methodology 

for estimating pay gaps be reexamined to ensure that private sector and 

federal sector pay comparisons are as accurate as possible.

4 The 

research presented at the hearing showed varying findings on the gap in 

pay between federal and private sector workers as estimated by outside 

organizations as well as the gap between federal and nonfederal workers 

as estimated by the President’s Pay Agent. The outside organizations’ 

studies also varied in their findings on the gap in total compensation (pay 

plus benefits).5

 

3

GAO, Human Capital: Symposium on Designing and Managing Market-Based and More 

Performance-Oriented Pay Systems, 

The hearing raised questions about how the 

GAO-05-832SP (Washington, D.C.: July 27, 2005). 

4

Are Federal Workers Underpaid: Hearing Before the House Subcommittee On Federal 

Workforce, U.S. Postal Service and Labor Policy of the Committee on Oversight and 

Government Reform, 112th Cong. (2011).

5

The President’s Pay Agent Report addresses only pay. It does not analyze benefits. 5 

U.S.C. § 5304(d)(1).
 

Page 3 GAO-12-564 Federal Workers

methodologies used by the various authors differed and how these 

differences affected their overall findings.

Accordingly, at your request, this report examines (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 sector pay and total 

compensation and the factors that may account for the different findings.

To examine how GS annual across-the-board and locality pay 

adjustments are determined, we reviewed legislation, OPM regulations, 

executive orders, Presidents’ alternative pay plans, President’s Pay Agent 

Reports, Federal Salary Council recommendations, OPM and Bureau of 

Labor Statistics (BLS) documents and reports, and reports by the 

Congressional Budget Office (CBO) and Congressional Research 

Service.6 We also examined how the methodology for determining locality 

pay has changed since the start of locality pay to the present. We 

interviewed selected members of the Federal Salary Council and its 

working group; the Council is to be made up of six representatives of 

federal employee groups and three experts in labor relations, and makes 

annual recommendations to the President’s Pay Agent.7

To determine the extent to which pay increases and awards recognize 

individual performance, we analyzed legislation and OPM regulations on 

pay increases and awards available to employees in the GS pay system 

and identified those pay increases and awards that are determined in part 

by an individual’s performance rating as measured by the agency’s 

performance appraisal system. We analyzed data for employees in the 

GS pay plan in the aggregate on the number, percentage, and dollar 

amount of selected pay increases and awards; the amount of these 

We interviewed 

BLS officials, OPM officials who are knowledgeable about federal pay 

policy and serve as staff to the President’s Pay Agent, and people with 

expertise in compensation issues including former federal officials 

experienced with pay and benefits issues.

 

6

The CBO reports referred to here do not include the January 2012 study we review in 

detail later in this report. 

7

Federal Salary Council members are selected by the President.
 

Page 4 GAO-12-564 Federal Workers

increases and awards as a portion of GS payroll (total adjusted basic pay 

for all employees in the GS pay plan); and the distribution of these 

increases and awards by rating pattern and rating levels from OPM’s 

Central Personnel Data File (CPDF) for fiscal year 2011. To help 

determine the reliability and accuracy of the CPDF data elements used, 

we checked the data for reasonableness and the presence of any obvious 

or potential errors in accuracy and completeness; reviewed past GAO 

analyses of the reliability of CPDF data; and interviewed OPM officials 

knowledgeable about the data. We believe the CPDF is sufficiently 

reliable for the purpose of this report. To describe how OPM provides 

oversight of pay increases and awards, we collected and analyzed OPM 

guidance to agencies including regulations, memoranda, reports, fact 

sheets, and frequently asked questions. We also interviewed OPM 

officials responsible for federal pay policies to discuss the implementation 

of the guidance and monitoring of agencies’ use of increases and awards 

through reports and other means; and interviewed OPM officials 

responsible for conducting human capital management evaluations at 

agencies on pay increases and awards and the overall GS pay system, 

among other things.

To review selected studies that compare federal and private sector pay 

and total compensation and describe factors that help account for the 

different study findings, we conducted a detailed literature review of 

academic journals, agency and organization publications, and other 

sources and applied three criteria to the results, selecting five studies 

that: (1) were published/issued since 2005; (2) include original analysis; 

and (3) have the explicit and primary purpose of comparing federal and 

private sector pay and total compensation.8

 

8

We decided to include the President’s Pay Agent Report as one of our selected studies 

given that it plays a major role in the overall discussion of federal pay comparability. The 

Pay Agent compares nonfederal (private sector, state government, and local government) 

and federal pay on an annual basis for locality pay setting. See app. I for additional details 

on the selected studies.

After our literature review was 

completed, CBO issued a study comparing federal and private sector 

compensation. We included this study in our review because it met our 

criteria. That brought the total number of selected studies up to six. We 

did not examine the reliability or the appropriateness of the approaches, 

methods, and data used by the studies, and we did not exclude any study 

on the basis of methodological quality. We reviewed the studies, 

summarized each study’s methodologies and key findings, and confirmed 
 

Page 5 GAO-12-564 Federal Workers

the accuracy of our summaries with the authors. We compared and 

contrasted the differences between the approaches, methodologies, and 

data sources of the selected studies. We interviewed the selected study 

authors to obtain their views on the various methodologies and data 

sources available, why they chose the ones they used, and their 

conclusions based on their work. We interviewed a number of individuals 

chosen for their expertise in compensation issues to obtain their views on 

the data sources for analyzing compensation and to provide a general 

context for the issues involved in comparing federal and private or 

nonfederal pay and total compensation. The findings regarding the 

selected studies are not based on input from these individuals. We 

interviewed officials from the Bureau of Economic Analysis (BEA), BLS, 

and the U.S. Census Bureau to discuss how these agencies’ data are 

used to measure federal and private or nonfederal pay, compensation, or 

benefits, and limitations of their data or surveys. We also interviewed 

officials from OPM involved in federal pay policies. (See app. I for a more 

detailed discussion of our objectives, scope, and methodology.)

We conducted this performance audit from July 2011 to June 2012 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

The GS pay system covered 69 percent of federal civilian workers in 

2011, with compensation costing about $147 billion (about 67 percent of 

total federal civilian compensation of about $220 billion).9

 

9

Other pay systems include the Federal Wage System (also known as the Prevailing Rate 

System), which covers about 9 percent of federal workers in mostly blue collar positions; 

the Senior Executive Service pay system for senior level managers; and other systems 

that are specific to agencies, such as the federal financial regulatory agencies’ pay 

systems. The costs and percentages presented here are based on OPM’s CPDF. Total 

compensation includes both pay and benefits.

The GS 

workforce is divided into 15 pay grades, with 10 rates of pay (referred to 

as steps) within each grade. Agencies use a uniform set of classification 

standards to determine grade levels for their positions organized within 

five occupational categories—Professional, Administrative, Technical, 

Background 
 

Page 6 GAO-12-564 Federal Workers

Clerical, and Other White-Collar (PATCO). The GS system of 

classification was established by the Classification Act of 1949 in 

response to calls for a modernized system to ensure equity in pay 

setting.10 Until the late 1960s, general pay adjustments for federal 

employees were made through acts of Congress.

11 The Federal Pay 

Comparability Act of 1970 permanently authorized the President to adjust 

GS12 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.13

The Federal Employees Pay Comparability Act of 1990 (FEPCA) created 

annual locality-based pay adjustments for GS employees to reduce 

reported gaps between federal and nonfederal pay in metropolitan 

areas.14 In addition, FEPCA maintained an annual across-the-board pay 

adjustment that is the same for each employee to keep the GS base pay 

schedule in line with salary growth in the general labor market, similar to 

what had already existed under the 1970 act.15

 

10Pub. L. No. 429, 63 Stat. 954 (Oct. 28, 1949).

11In 1967, Congress authorized the President to make adjustments in federal salary rates 

for 1968 and 1969. Section 212 of the Federal Salary Act of 1967, Pub. L. No. 90-206, title 

II, 81 Stat. 624, 634 (Dec. 16, 1967).

12This authority also applied to other pay systems, including the Foreign Service pay 

system.

13GAO, Recruitment and Retention: Inadequate Federal Pay Cited as Primary Problem by 

Agency Officials, GAO/GGD-90-117 (Washington, D.C.: Sept. 11, 1990).

14Pub. L. No. 101-509, title V, § 529, 104 Stat. 1389, 1427-1469 (Nov. 5, 1990). GS 

employees permanently stationed in foreign countries do not receive locality pay. GS 

employees in Alaska, Hawaii, and U.S. territories and possessions began receiving 

locality pay in 2010. Locality pay may be extended to certain categories of non-GS 

employees by the President’s Pay Agent.

15Other statutory pay systems such as the Foreign Service pay system provide the same 

across-the-board increase to employees as the GS pay system.
 

Page 7 GAO-12-564 Federal Workers

Before FEPCA, federal employees doing the same job at the same level 

anywhere in the country were paid the same amount.16 However, there 

was a growing concern that it was difficult to recruit and retain skilled 

federal employees in areas with higher nonfederal wages. We concluded 

that locality-based pay adjustments were necessary.17 FEPCA 

established locality pay, and the President’s Pay Agent designated pay 

localities based on Office of Management and Budget (OMB) 

Metropolitan Statistical Areas.18 FEPCA’s goal was to reduce the gap 

between federal and nonfederal pay in each locality, as measured by BLS 

data and reported by the President’s Pay Agent, to 5 percent over the 

course of 9 years. This goal was not met, but locality pay increases have 

been provided every year since locality pay was implemented in 1994, 

except during the pay freeze in 2011 and 2012.19

Figure 1 illustrates the extent to which locality pay has been implemented 

for a representative employee. The annual pay (base plus locality) in 

2012 for an employee at GS-11 (approximately the midpoint grade level), 

step 1 is shown for selected pay localities. Examples of positions that a 

GS-11 employee might hold are Administrative Officer, Scientist, 

According to OPM, 

locality pay is now a broadly accepted practice in federal pay 

administration. See app. II for more information on the implementation of 

locality pay.

 

16An exception was employees receiving higher special rates to address specific 

recruitment and retention problems. 

17GAO/GGD-90-117. 

18The Federal Salary Council has from time to time recommended criteria for selecting 

additional pay areas when BLS had funding for more surveys and also recommended 

criteria for including additional areas in existing locality pay areas. The Pay Agent makes 

the final decisions on pay areas. The current criteria to include a multi-county metropolitan 

area in an adjacent locality pay area are based on the number of GS employees and the 

level of commuting between the two areas. There were 28 pay localities (27 metropolitan 

areas plus the Rest of U.S.) in 1994 when the first locality payments were made. There 

have been several additions and subtractions since then. Under FEPCA, the 

establishment or modification of any pay locality boundary is to be achieved through 

regulations promulgated in accordance with notice and comment requirements. 5 U.S.C. § 

5304(f)(2).

19There were no across-the-board or locality pay rate increases provided for 2011 and 

2012. See section 147 of the Continuing Appropriations Act, 2011, Pub. L. No. 111-242, 

124 Stat. 2607 (Sept. 30, 2010) as added by section 1(a)(2) of the Continuing 

Appropriations and Surface Transportation Extensions Act, 2011, Pub. L. No. 111-322, 

124 Stat. 3518 (Dec. 22, 2010). Federal employees continued to receive within-grade step 

increases as appropriate. 
 

Page 8 GAO-12-564 Federal Workers

Paralegal Specialist, Accountant, Engineer, Medical Records 

Administrator, Nurse Specialist, and Information Technology Specialist. 

There were 34 pay localities in the United States in 2012, composed of 

the states of Alaska and Hawaii, 31 metropolitan areas, and a residual 

locality called “Rest of U.S.” that includes all other areas in the United 

States and its territories and possessions. Rest of U.S. was the lowestpaying locality in 2012, with a GS-11, step 1 earning $57,408, and San 

Francisco was the highest, with a GS-11, step 1 earning $67,963. We 

selected additional localities with various pay rates and population sizes 

and from various regions to create figure 1.

Figure 1: Annual Pay for a GS-11, Step 1 Employee in Selected Pay Localities, 2012
 

Page 9 GAO-12-564 Federal Workers

Across-the-board adjustments are designed to keep the GS base pay 

schedule in line with salary growth in the general labor market. FEPCA 

specifies that unless the President provides for alternative pay 

adjustments, across-the-board pay adjustments are to be determined 

using a simple formula: Pay rates are to be increased by the 12-month 

percentage increase in the wage and salary component of the 

Employment Cost Index (ECI) for private sector workers, minus one-half 

of one percentage point. For example, the ECI reference period for the 

January 2013 increase is the 12-month period ending September 2011. 

The ECI shows that during that period, pay for private sector workers rose 

by 1.7 percent.20

As specified in FEPCA, the President may decide to either provide 

across-the-board pay adjustments based on this calculation, or provide 

alternative pay adjustments based on national emergency or serious 

economic conditions affecting the general welfare.

Therefore, the across-the-board increase for 2013 would 

be 1.2 percent. The ECI, an index compiled by the BLS and published 

quarterly, measures percentage changes in wages and salaries for 

private sector employees.

21 Additionally, 

Congress may legislate an increase that is different from the formula 

result or the President’s alternative plan; this is not part of the process 

specified by FEPCA. The FEPCA formula increase has gone into effect in 

12 of the 19 years since 1994; the largest increase was 3.8 percent.22

 

20The ECI for September 2011 included a sample of about 12,600 private sector 

establishments. 

An 

21In evaluating economic conditions, the President is to consider a range of economic 

measures, including (but not limited to) Gross National Product, the unemployment rate, 

the budget deficit, and the Consumer Price Index.

22We started our analysis with 1994, the first year in which the FEPCA formula, 

unmodified, was used.

GS Pay Adjustments 

Can Be Determined 

through FEPCA 

Process or Set 

Directly by Congress

Across-the-Board 

Adjustments Are Usually 

Based on Private Sector 

Salary Growth
 

Page 10 GAO-12-564 Federal Workers

amount lower than the formula amount went into effect in the other 7 

years due to President’s alternative pay plans and laws passed by 

Congress.23 The smallest increase was 0 percent, during the freeze on 

annual pay adjustments in 2011 and 2012.24

Locality adjustments are designed to reduce the gap between federal and 

nonfederal pay in each locality to no more than 5 percent based on 

surveys to be conducted by BLS. FEPCA specifies that locality pay 

adjustments are to be recommended by a Pay Agent designated by the 

President, which is to consider the views of employee organizations:

• The President’s Pay Agent recommends annual comparability 

payment amounts, establishes and modifies pay localities as it 

considers appropriate, and submits an annual report to the President 

on these items. The Secretary of Labor and the Directors of OMB and 

OPM serve as the Pay Agent. In making its recommendations, the 

President’s Pay Agent considers the views and recommendations of a 

Federal Salary Council and other employee organizations.

• The Federal Salary Council makes annual recommendations to the 

President’s Pay Agent on locality pay adjustments, including the 

establishment or modification of pay localities, the coverage of salary 

surveys used to set locality pay, the process for making pay 

comparisons, and the level of comparability payments that should be 

made. The Council is to be comprised of three experts in labor 

relations and pay policy and six representatives of employee 

organizations representing large numbers of GS employees.25

 

23In 1994, 2010, 2011, and 2012, the lower amount was the result of a law passed by 

Congress. In 1996 and 1998 the lower amount was due to the President’s alternative pay 

plan. In 1995, a law passed by Congress provided for the same lower amount as provided 

for in the President’s alternative pay plan.

24See section 147 of the Continuing Appropriations Act, 2011, Pub. L. No. 111-242, 124 

Stat. 2607 (Sept. 30, 2010) as added by section 1(a)(2) of the Continuing Appropriations 

and Surface Transportation Extensions Act, 2011, Pub. L. No. 111-322, 124 Stat. 3518 

(Dec. 22, 2010).

255 U.S.C. § 5304(e). In 2011, the employee organizations represented on the Federal 

Salary Council were the American Federation of Government Employees, the National 

Treasury Employees Union, the National Federation of Federal Employees, and the 

Fraternal Order of Police.

Locality Adjustments Are 

Usually Set by Congress
 

Page 11 GAO-12-564 Federal Workers

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. The sidebar provides details on this 

process. The target locality pay is the amount that reduces these 

differences to 5 percent.

The surveys and models used for making these pay comparisons have 

changed somewhat between the passage of FEPCA in 1990 and the 

2011 President’s Pay Agent Report (which recommends pay adjustments 

for 2013 and is the most current report available). Some changes were 

initiated by BLS, and some changes were made in response to concerns 

expressed by the Federal Salary Council or President’s Pay Agent. For 

example, BLS changed the survey used to measure nonfederal pay in 

1996; the Federal Salary Council and President’s Pay Agent expressed 

concerns, and BLS worked together with OPM and OMB to improve the 

suitability of the new survey for recommending locality payments. 

Improvements were phased in from 2002 to 2011. Changes are 

summarized in app. II.

As specified in FEPCA and similar to the process for across-the-board 

adjustments, the President may decide to either provide locality pay 

adjustments based on the Pay Agent’s recommendation, or provide for 

alternative pay adjustments based on national emergency or serious 

economic conditions affecting the general welfare. Additionally, Congress 

may legislate an average percent increase that is different from the Pay 

Agent’s recommendation or the President’s alternative plan; this is not 

part of the process specified by FEPCA.

For 1994, the first year that locality payments were made, FEPCA 

specified that the locality increase should be not less than one fifth of the 

amount needed to reduce the pay disparity to 5 percent.26

 

26FEPCA specified that locality pay be phased in over 9 years. In 1994, the gap between 

federal and nonfederal pay in each locality would be reduced by two-tenths of the amount 

needed to reduce the pay disparity to 5 percent; in 1995, by three-tenths of the amount 

needed; etc.

This amount, 

providing a 3.95 percent average locality pay rate for the average GS 

employee as recommended by the Pay Agent, went into effect. In 

subsequent years through 2012, the effective increase has usually been 
 

Page 12 GAO-12-564 Federal Workers

far less than the one recommended by the Pay Agent, either due to a 

President’s alternative pay adjustment or to a law passed by Congress.27

Nonetheless, some locality pay increase has been provided every year 

since locality pay was implemented in 1994 (except during the pay freeze 

in 2011 and 2012), and reported disparities between federal and 

nonfederal pay by locality have been reduced. The President’s Pay Agent 

reported that pay disparities were lower in 2011 than in 1994 in 16 of the 

21 pay localities that existed in both of those years. Federal Salary 

Council members and OPM officials we spoke with said that FEPCA was 

successful in its goal of improving federal pay setting for large 

metropolitan areas by more closely aligning pay to local labor markets.

Figure 2 summarizes pay adjustments during the past 6 years, illustrating 

the differences between the President’s Pay Agent recommendations and 

the final effective amounts. These differences were driven primarily by 

locality pay, since the across-the-board adjustments required under the 

FEPCA formula were smaller and were provided in some years, while the 

recommended locality adjustments were larger and were not provided. 

For example, for 2007, the President’s Pay Agent recommended a 1.7 

percent across-the-board increase to comply with the formula in FEPCA, 

and a 7 percent average locality increase based on BLS salary survey 

data. The President provided for the 1.7 percent across-the-board 

increase but limited the average locality increase to the alternative 

amount of 0.5 percent.

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.28

 

27The recommended amount was provided in the first year and 25 percent of the 

recommended amount was provided in the second year. Less than 15 percent of the 

recommended amount has been provided each year after that.

The Pay 

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. The approximately 20 

percent overall average increase recommended by the Pay Agent for 

28See section 147 of the Continuing Appropriations Act, 2011, Pub. L. No. 111-242, 124 

Stat. 2607 (Sept. 30, 2010) as added by section 1(a)(2) of the Continuing Appropriations 

and Surface Transportation Extensions Act, 2011, Pub. L. No. 111-322, 124 Stat. 3518 

(Dec. 22, 2010).
 

Page 13 GAO-12-564 Federal Workers

2012 would have lowered the pay disparity to FEPCA’s target of 5 

percent.

Figure 2: Congress and the President Established Across-the-Board and Locality Pay Adjustments, 2007 to 2012

a

Average locality increase: The average percentage by which a GS employee’s salary would increase 

from the previous year due to locality pay. Employees in localities with below-average pay gaps 

would receive lower locality adjustments, and those in localities with above-average pay gaps would 

receive higher adjustments.

b

In some years, Congress specified an overall percentage increase, allowing the President to decide 

how much would be for locality and how much for across-the-board.
 

Page 14 GAO-12-564 Federal Workers

The pay increases and awards available to GS employees are designed 

to recognize individual performance to varying degrees. Across-the-board 

and locality pay increases, which are given to all covered employees 

nearly every year, are not linked to performance at all. Awards such as 

suggestion/invention awards and superior accomplishment awards are 

designed to recognize performance without being linked specifically to 

performance ratings.29

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.

30

Ratings-based cash awards are lump sum cash payments that are 

designed to recognize performance.

31

• Quality step increases are faster-than-normal step increases that 

are designed to recognize excellence in performance.32

Table 1 describes these pay increases’ and awards’ eligibility 

requirements, which include a certain level of performance, frequency 

limits, and agency-specified criteria.33

 

29Agencies are authorized to make these type of awards pursuant to 5 U.S.C. § 4503.

OPM regulations provide that agencies may grant awards to employees or groups of 

employees in the form of cash, honorary or informal recognition, or time off. 5 C.F.R. § 

451.104(a). The President is also authorized to make awards based on a suggestion, 

invention, or superior accomplishment or an exceptionally meritorious special act pursuant 

to 5 U.S.C. § 4504.

As outlined in OPM regulations, 

agencies’ performance appraisal systems can have varying ranges of 

summary performance rating levels—ranging from a pass/fail system with 

30Agencies are required to provide within-grade increases to eligible employees under 5 

U.S.C. § 5335. An agency decision to deny a within-grade increase is ultimately 

appealable by the employee to the Merit Systems Protection Board. 

31Agencies are permitted to provide ratings-based cash awards to eligible employees 

under 5 U.S.C. § 4505a.

32Agencies are permitted to provide quality step increases to eligible employees under 5 

U.S.C. § 5336.

33Factors that are to affect GS employee eligibility for these pay increases and awards are 

specified in legislation and regulations and clarified in OPM guidance. 

Pay Increases and 

Awards for GS 

Employees Vary in 

their Links to 

Individual 

Performance 
 

Page 15 GAO-12-564 Federal Workers

two summary rating levels to a system with five summary rating levels.34

Table 1: Eligibility Requirements for Ratings-Based Pay Increases and Awards for GS Employees

All the systems used by the agencies include level 3, “fully successful,” 

which is the pass level for a pass/fail system.

Increase or award Performance rating required a Frequency limit or waiting period Agency-specified criteria

Within-grade increase At least “fully successful” (level 3). One to 3 years’ waiting period 

(with longer waiting periods at 

higher step rates).

A quality step increase does not 

reset the waiting period but can 

move an employee to a step rate 

with a longer waiting period.

Not applicable. Agencies 

are required to provide 

within-grade increases to 

all eligible employees. 

Ratings-based cash 

award 

“Fully successful” (level 3) or higher

(larger awards for higher ratings). 

Frequency limit, 1 per year.b Yes, performance-related 

and other criteria, such as 

consideration of other 

recognition recently 

received. 

 

Quality step increase The highest possible rating in the 

agency’s system.

Waiting period, 1 year since the 

last quality step increase. c Yes, performance-related 

and other criteria.c

Source: GAO analysis of legislation, regulations, and OPM guidance.

 

a

GS employees may be eligible to receive within-grade and quality step increases as well as ratingsbased cash awards in the same year depending on their agencies’ criteria and the applicable waiting 

periods for within-grade increases.

b

Per OPM guidance, ratings-based cash awards recognize an employee’s performance over an entire 

rating period. Generally, performance rating periods should be 12 months. 5 C.F.R. § 430.206(a)(2).

c

Employees not covered by 5-level systems (where “outstanding” is the highest level) must 

demonstrate sustained performance of high quality significantly above the “fully successful” level as 

determined under performance-related criteria established by the agency. 5 CFR 531.504(b).

In practice, based on our analysis of CPDF data from fiscal year 2011, 

the degree to which individual performance drove receipt of these pay 

increases and awards for employees in the GS pay plan varied. Of the 

three pay increases and awards we analyzed, within-grade increases 

 

34According to OPM regulations and guidance the five levels are defined as: level 1–

unacceptable, level 2–level between fully successful and unacceptable, level 3–fully 

successful or equivalent, level 4–level between outstanding and fully successful, and level 

5–outstanding or equivalent. 5 C.F.R. § 430.208. OPM defines level 3 as “fully successful 

or equivalent” and level 5 as “outstanding or equivalent,” allowing agencies to use different 

names for the same numerical performance ratings. For simplicity, we will use the terms 

“fully successful” and “outstanding” when referring to levels 3 and 5 for the remainder of 

this analysis. 
 

Page 16 GAO-12-564 Federal Workers

were the least strongly linked to performance. 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. As noted in table 1, agencies are required to provide withingrade increases to employees whose performance is at least “fully 

successful” and who have finished their waiting period. Over 99 percent 

of employees in the GS pay plan35

Ratings-based cash awards were more strongly linked than withingrade increases to performance. All GS pay plan employees may receive 

ratings-based cash awards every year (unlike within-grade increases), so 

frequency limits are not a primary determinant of who receives them. In 

fiscal year 2011, the degree of linkage of awards with performance 

ratings varied by the type of appraisal system used by the agency.

received performance ratings at or 

above “fully successful” in fiscal year 2011. Thirty-nine percent received 

within-grade increases, comprising nearly all the employees who 

completed their waiting period.

In fiscal year 2011, 81 percent of employees in the GS pay plan were 

covered by 5-level rating systems and other systems that allowed for 

distinctions between “fully successful” and higher levels of performance.36

 

35These data and other data throughout this section are based on our analysis of OPM’s 

CPDF for employees in the GS pay plan for fiscal year 2011. For the analysis of 

employees’ ratings throughout this section, we excluded employees who were coded in 

CPDF as “not rated.” The not rated code applies to an employee who has not yet received 

a rating of record under the agency performance appraisal system (e.g., someone newly 

hired). We also excluded employees whose ratings were missing due to data errors. 

Ratings-based cash awards for these employees were given at higher 

36In addition to 5-level systems (which cover 63 percent of GS employees), the following

systems allow for distinctions between “fully successful” and higher levels of performance: 

systems with rating levels 1, 3, and 5 (covering 7 percent of GS employees); systems with 

levels 1, 3, and 4 (covering less than 1 percent of GS employees); systems with levels 1, 

3, 4, and 5 (covering 5 percent of GS employees); systems with levels 1, 2, 3, and 5 

(covering 6 percent of GS employees); and systems with levels 1, 2, 3, and 4 (covering 

less than 1 percent of GS employees). For data regarding rating level systems, we 

excluded employees who were coded as not being covered by a performance appraisal 

system and generally do not have their performance appraised. We also excluded 

employees whose rating patterns were missing from the data due to data errors. 
 

Page 17 GAO-12-564 Federal Workers

rates to employees with better performance. For example, for the 5-level 

system, which covered 63 percent of GS employees, awards were given 

to 65 percent of employees with “outstanding” ratings, 58 percent of 

employees with ratings “between outstanding and fully successful,” and 

24 percent of employees with “fully successful” ratings. Along with the 

performance rating received, agency criteria were used to determine who 

received awards. As noted in table 1, an agency should identify any other 

criteria to be considered when making award recommendations and 

decisions, including any other awards or personnel actions that should be 

taken into consideration such as time off, a quality step increase, or a 

recent promotion.

In accordance with OPM regulations, employees with higher ratings are to 

receive larger ratings-based awards, and award patterns reflected this 

distinction in 2011, as shown in figure 3. Employees who received 

“outstanding” ratings within the 5-level system received the largest 

awards.

Figure 3: Average Ratings-Based Award Amounts in Fiscal Year 2011, by Rating, 5-

level Rating System
 

Page 18 GAO-12-564 Federal Workers

In fiscal year 2011, about 19 percent of employees in the GS pay plan 

were covered by a pass/fail rating system or another system that did not 

allow for distinctions in performance above the “fully successful” level. 

Over 99 percent of employees in these systems received a “fully

successful” rating in fiscal year 2011, while only 31 percent received a 

ratings-based award, meaning that most decisions not to provide awards 

were made based on other criteria than ratings. Performance ratings and

agency criteria, including performance-related criteria, were used to 

determine who received awards.

Quality step increases were also more strongly linked to performance 

than within-grade increases. As shown in table 1, GS employees must 

perform at their agency’s highest possible level to be eligible to receive a 

quality step increase. About 49 percent of employees received the 

highest possible rating their agency’s system allowed in fiscal year 

2011.37

Figure 4 illustrates the percentage of employees receiving each type of 

increase and award, the average amounts of the increases and awards in 

dollars and as a percent of the recipient’s pay, and the cost to the 

government of ratings-based pay increases and awards for GS 

employees for fiscal year 2011.

Of those employees, about 7 percent received a quality step 

increase. Unlike within-grade increases, the waiting period for quality step 

increases is 1 year for all employees, eliminating the waiting period as a 

primary determinant for receiving quality step increases; rather, decisions 

were made based on performance rating and agency criteria, including 

performance-related criteria.

 

37The highest possible rating could have been “outstanding,” “fully successful,” or the level 

in between depending on the agency’s appraisal system.
 

Page 19 GAO-12-564 Federal Workers

Figure 4: Ratings-Based Pay Increases and Awards for GS Employees for Fiscal Year 2011

a

Not all GS employees are eligible to receive a within-grade increase every year due to waiting 

periods dependent on the employee’s step, as discussed in table 1.

b

Average amounts of increases or awards as percentages of base pay and in dollars are for 

employees receiving awards or increases only; zero values are not included in the averages. Average

percentage increases, average dollars spent, and total dollars spent on within-grade increases and 

quality step increases are annualized figures, i.e. full-year amounts are counted for increases that 

were given part of the way into the year. For within-grade increases and quality step increases, the 

percentage increase declines as the steps increase (except for grades 1 and 2). Average amount of 

increase or award in dollars and total dollars spent for increase or award are based on those records 

with complete award value data.

c

GS system total payroll is defined as aggregate adjusted basic pay for employees in the GS pay 

plan. This does not include benefits.

d

Ratings-based cash awards up to 10 percent of an employee’s annual rate of pay are permitted.

Agency heads may authorize an award exceeding 10 percent (but not in excess of 20 percent) if 

exceptional performance justifies such an award. 5 U.S.C. § 4505a. Awards in excess of $10,000 are 

to be submitted to OPM for approval. 5 U.S.C. § 4502(b).

OPM’s role with respect to awards and increases includes

• providing policy direction to agencies, including regulations,

• reporting on agencies’ use of awards and increases, and

• evaluating agencies’ linkage of awards and increases with results.

Agencies, in turn, must ensure they have met statutory and regulatory 

requirements and may develop agency-specific criteria for providing 

quality step increases and cash awards. According to OPM officials, 

awards regulations are highly decentralized because the statutes provide 

OPM Provides Oversight 

on Awards and Increases
 

Page 20 GAO-12-564 Federal Workers

agency heads, not OPM, with the authority to grant awards.38

Policy direction. To help agencies understand how to administer pay 

increases and awards, OPM issues regulations and supporting 

memoranda and posts fact sheets, frequently asked questions, and other 

resource documents on its website. Topics have included approaches to 

calculating ratings-based cash awards, tax issues for awards, how the 

timing of quality step increases affects within-grade increases, and recent 

limitations on awards given budgetary constraints. According to OPM 

officials, OPM responds to agency questions about guidance as needed.

Likewise, 

agency heads may grant quality step increases within the limits of 

available appropriations and regulatory requirements.

Reporting. OPM provides agencies with an annual Federal Award 

Statistics report on cash awards, time-off awards, quality step increases, 

and other awards received by GS and other employees.39

Evaluation. OPM evaluates selected agencies’ human capital 

management systems as part of its broader strategy for maintaining 

human capital accountability. As part of these evaluations, OPM 

determines whether an agency’s human capital system provides and

clearly communicates linkages between employee performance 

expectations, performance recognition through increases and awards, 

and the agency’s mission. OPM also reviews a sample of case files to 

According to 

OPM officials, OPM uses the report to show trends and compare usage of 

awards between agencies and across the government. OPM also uses 

the report data to help inform its decisions about awards policy and 

monitor agency compliance with the policy, such as limitations on awards 

usage. 

 

385 U.S.C. § 4503 and § 4505a. While these authorities provide agencies with the 

authority to make awards, OPM approval is required for awards which exceed thresholds 

specified in statute or regulation. 

39OPM develops this report using information from CPDF and EHRI-SDM. The report is 

distributed to agency awards administrators and performance management program 

managers and to others upon request.
 

Page 21 GAO-12-564 Federal Workers

check that the awards granted meet the requirements of the law and 

regulations,40

OPM officials said that they have identified the following issues in regard 

to pay increases and awards:

and assists agencies in leading their own evaluations.

• Some agencies tried to circumvent limitations on award amounts by 

issuing several incremental awards within a short time period.

• Some agencies granted quality step increases to compensate for low 

award budgets.

• Some agencies’ human capital management systems did not link 

individual performance expectations and recognition through pay 

increases and awards to the accomplishment of specific missionrelated goals or milestones.

When OPM determines that an agency violated the law or regulations, 

such as circumventing award limitations by issuing several incremental 

awards within short periods of time, it requires the agency to take 

corrective action and respond to OPM with evidence of how it addressed 

or plans to address the violation within 60 days. For example, according 

to an OPM official, corrective action may result in the agency recovering 

the award from the recipient and correcting the documentation for the 

award.

When OPM observes an issue with an agency’s award implementation 

that does not violate regulations, OPM may recommend to the agency 

improvements that could be made. For example, when OPM determines 

that an agency has granted quality step increases to compensate for a 

low award budget, it recommends that the agency review its policies for 

granting pay increases and awards to ensure the policies comply with the 

intent of the laws and regulations. According to an OPM official, OPM 

requires an agency to respond to the recommendations made, but the 

agency is not required to take action on addressing the issue.

 

40Specifically, OPM officials determine, among other things, whether the justification for 

the award is adequately based on accomplishments, whether awards link to the specific 

accomplishments that support the agency’s mission, and whether proper authorities have 

approved the award.
 

Page 22 GAO-12-564 Federal Workers

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.41

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). For 

example, CBO found that federal workers with graduate and professional 

degrees were paid less in comparison to the private sector, while workers 

without college degrees were paid more.

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. All but one of the studies estimated the difference in pay after 

controlling for some personal and job-related attributes that can affect pay 

levels such as education and locality. This remaining difference is 

sometimes called the unexplained difference because it persists after 

controlling for attributes that can affect pay.

Importantly, all of the study authors acknowledged that the data they used 

in their analyses had limitations which could affect their findings. Any 

comparison of the studies needs to take these data limitations into 

account. For example, studies that used the Census Bureau’s Current 

 

41All of the selected studies except for the President’s Pay Agent Report compared federal 

to private sector pay or compensation. The President’s Pay Agent compared federal to 

nonfederal pay (not benefits) and defined federal workers as those in GS and equivalent 

pay plans and nonfederal workers as private sector, state government, and local 

government workers. The six studies defined federal workers differently for the purposes 

of their analyses. See app. III for additional details on the studies’ methodologies. 

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
 

Page 23 GAO-12-564 Federal Workers

Population Survey (CPS) were unable to directly control for years of work 

experience given this measure is not available in the CPS; some of the 

authors said that work experience is an attribute that affects how much a 

person is paid. Also, it was acknowledged that many federal jobs may not 

have equivalents in the private sector. 

Table 2: Selected Studies’ Findings on Pay

Study authors and 

affiliations Study title, date Study authors’ findings on pay

Andrew Biggs and Jason 

Richwine—American 

Enterprise Institute for Public 

Policy Research 

Comparing Federal and Private 

Sector Compensation

June 2011

• On average, federal workers’ pay was higher than private 

sector workers’ pay by an unexplained 14%.

• Federal workers with a high school education received pay 

22% higher than comparable private sector workers, while 

those with graduate degrees received 3.9% more on average.

Congressional Budget 

Office 

Comparing the Compensation of 

Federal and Private-Sector 

Employees

January 2012

• On average, federal workers’ pay was higher than private 

sector workers’ pay by an unexplained 2%.

• Federal workers with a high school education earned pay 

about 21% higher than similar private sector workers on 

average. Federal workers with professional degrees (e.g., 

lawyers) or with doctorates earned pay about 23% lower than 

similar private sector workers. 

Chris Edwards—The Cato 

Institute 

Federal Pay Continues Rapid 

Ascent

August 2009

• On average, federal workers’ pay was higher than private 

sector workers’ pay by an absolute amount of 58%. Study did 

not estimate how much of this difference was explained by 

personal or job-related attributes (e.g., education, 

experience).

• The difference was 25 percentage points higher than it was 8 

years before.

The President’s Pay Agent Report on Locality-Based 

Comparability Payments for the 

General Schedule, Annual Report 

of the President’s Pay Agent 2010

March 2011

• On average, federal workers’ pay was lower than nonfederal

(private, state, and local) workers’ pay by an unexplained 

24%.

• The difference varied by locality pay area.

The Project On 

Government Oversight

(POGO) 

Bad Business: Billions of Taxpayer 

Dollars Wasted on Hiring 

Contractors

September 2011

• On average, federal workers’ pay was higher than private 

sector workers’ pay by an unexplained 20% across the 

occupations studied.

• The direction of the differences varied across the occupations 

studied. For example, pay for federal Claims Assistants and 

Examiners was 24% lower than pay for similar private sector 

workers, while pay for federal Correctional Officers was 117% 

higher than pay for similar private sector workers. 

a

James Sherk—The 

Heritage Foundation 

Inflated Federal Pay: How 

Americans Are Overtaxed to 

Overpay the Civil Service

July 2010

• On average, federal workers’ pay was higher than private 

sector workers’ pay by an unexplained 22%.

• This difference varied by occupation. For example, for 

lawyers and economists the unexplained difference was less 

than 10%, while for security guards and stock clerks it was 

close to 50%.
 

Page 24 GAO-12-564 Federal Workers

Source: GAO analysis of selected studies.

Notes: See app. III for a complete description of the studies’ details including attributes controlled for 

and statistical methods used. The six studies defined federal workers differently for the purpose of 

their analyses. The President’s Pay Agent defined federal workers as those in GS and equivalent pay 

plans, POGO included federal workers in the GS and wage grade pay plans covering 35 selected 

occupations, and the remaining four studies included civilian employees except for U.S. Postal 

Service workers.

a

POGO presented the unexplained portion in total compensation (pay and benefits), not pay alone.

However, the authors based the compensation difference on a pay difference, multiplied by similar 

factors for federal and private sector workers. Thus, according to the authors, the unexplained 

difference in pay would be similar to the unexplained difference in total compensation.

The studies used three basic approaches to analyze differences in pay, 

as shown in table 3. Each author chose the approach they thought would 

best describe differences in pay. The Pay Agent is mandated by law to 

compare the rates of pay under the GS system with the rates of pay 

generally paid to nonfederal workers for the same levels of work within 

each pay locality, as determined on the basis of appropriate BLS 

surveys.42

Table 3: Approaches Used by Selected Studies in Analyzing Pay

Type of 

approach Description

Studies that used the 

approach

Human capital Compares pay for individuals taking into account personal attributes (e.g., 

education, job experience) and other attributes (e.g., occupation, locality, firm 

size).a Demographic personal attributes such as race and gender are taken into 

account.

• Biggs/Richwine

b

• CBO

• Sherk 

Job-to-job Aligns and compares pay for similar jobs of various types based on job-related 

attributes such as occupation and level of work (e.g., entry-level, mid-level, 

senior level or finer distinctions by level). Does not take into account the 

personal attributes of the workers currently filling the jobs.a

• President’s Pay Agent

 

• POGO

Trend analysis Illustrates broad trends in pay over time without controlling for attributes of the 

workers or jobs. 

• Edwards

Source: GAO analysis of selected studies.

a

More information on attributes that can affect pay is provided in app. III.

b

Authors using the human capital approach explained that it was important to account for the 

differences between the sectors in racial composition, gender, and other demographic characteristics 

so that the unexplained difference is isolated from these factors.

The studies’ differing conclusions on the overall pay disparity between 

federal and private or nonfederal workers were affected by their basic 

approaches—human capital, job-to-job, and trend analysis. Across these 

 

425 U.S.C. § 5304(d)(1). 

Selected Studies Used Three 

Basic Approaches to Analyzing 

Pay, with Varying 

Methodologies
 

Page 25 GAO-12-564 Federal Workers

approaches, data sources and types of attributes controlled for differed. 

Within each approach, conclusions differed due to studies’ specific 

methodologies—specific attributes controlled for and statistical methods 

used.

• Basic approaches: Across the three basic approaches, the 

differences in the data sources and types of attributes controlled for 

(personal or job-related) contributed to the differing conclusions.43

• Data sources: The type of approach the study authors chose 

influenced the data sources they used. Studies using the human 

capital approach used data from the CPS44 to determine the pay 

for federal and private sector workers. Studies using the job-to-job 

approach used data from BLS’s National Compensation Survey

(NCS)45 to determine pay for nonfederal (Pay Agent) and private 

sector (POGO) workers and data from OPM to determine pay for 

federal workers. For the trend analysis approach, Edwards used 

data from BEA’s national income and product accounts (NIPA)46

•

tables to determine pay for federal and private sector workers.

Types of attributes

 

43For a more detailed discussion about the data sources and methodologies used by the 

study authors, see app. III. 

: Most of the studies estimated the unexplained 

difference in pay, accounting for the fact that employees earn 

different amounts based on education, locality, and other personal 

and job-related attributes. However, studies using different basic 

approaches controlled for different types of attributes. Studies 

using the human capital approach controlled for attributes related 

to both the individual worker and the job the person occupied. 

Studies using the job-to-job approach controlled for only jobrelated attributes. The trend analysis approach did not control for 

attributes.

44The CPS collects data in two different ways. The monthly CPS is a monthly survey of 

households that are asked questions regarding pay and labor market status. The Annual 

Social and Economic Supplement is conducted once a year (February–April). 

Biggs/Richwine and CBO used the Annual Social and Economic Supplement, while Sherk 

used the monthly CPS. 

45The NCS is a survey of employee salaries, wages, and benefits at local, regional, and 

national levels. The NCS does not include federal workers. 

46The NIPA data tables estimate total wages and total compensation (including noncash 

compensation such as the employer’s contribution for health insurance) by industry across 

federal and private sectors. 
 

Page 26 GAO-12-564 Federal Workers

• Specific methodologies: Within the human capital and job-to-job 

approaches, the studies controlled for different specific attributes and 

used different statistical methods, as shown in table 4. These 

differences led to differing conclusions.

Table 4: Comparisons among the Selected Studies’ Methodologies

Similarities Key differences How the differences affected conclusions

Human capital approach

• Controlled for both personal and jobrelated attributes including education, 

occupation, and locality.

• Used a statistical method to determine 

the extent to which differences in pay 

are explained by different attributes.

• Biggs/Richwine and CBO 

controlled for firm size, while 

Sherk did not.

• Biggs/Richwine used a 

regression and CBO and 

Sherk used a decomposition.

• CBO’s decomposition took into 

account the wider distribution 

of pay among private sector 

workers. 

• The inclusion of firm size largely explains the 

differences between the findings of 

Biggs/Richwine and Sherk. According to 

Biggs/Richwine, if they had not controlled for 

firm size, they would have found almost the 

same pay disparity as Sherk.

• According to CBO, its results largely differed 

from Biggs/Richwine because of the specific 

statistical method used which took into account 

the wider distribution of pay. Had CBO used 

the same method as Biggs/Richwine, its 

results for the overall pay difference would 

have been similar. 

Job-to-job approach

• Controlled only for job-related 

attributes such as occupation.

• Conclusions are only generalizable to 

the population analyzed.

• The Pay Agent matched pay 

rates for over 200 occupations, 

while POGO used 35 selected 

occupations that had been 

outsourced.

• The Pay Agent matched pay 

rates on a locality pay area 

basis and POGO matched pay 

rates at a national level.

• The Pay Agent controlled for 

level of work.

• The different sets of occupations analyzed and 

the fact that the Pay Agent controlled for level 

of work and matched pay rates by locality may 

have contributed to the different conclusions.

Source: GAO analysis of selected studies.

The study authors and people with expertise in compensation issues that 

we interviewed differed in their views on which type of approach is most 

informative in comparing pay of workers across sectors. According to 

study authors who used the human capital approach, this approach is the 

standard method in the field of economics to compare workers’ pay 

across sectors. The overall unexplained difference between federal and 

private sector pay is a way to measure the extent to which the federal 

government may be paying more or less for the services it receives from 

its workers relative to what those workers could earn in the private sector. 

Study Authors Differed on 

Which Approach Is Most 

Informative 
 

Page 27 GAO-12-564 Federal Workers

These findings could help inform policy decisions regarding the pay of 

federal workers. However, study authors (including those who used the 

human capital model) and people with expertise in compensation issues 

did not suggest that the human capital approach be used for setting an 

individual’s rate of pay. They explained that some of the personal 

attributes that are associated with analyzing differences in pay using a 

human capital approach are demographic in nature (e.g., race, gender) 

and not work-related. OPM officials added that they are not aware of any 

employers that use the human capital approach to set pay for their

employees. 

The President’s Pay Agent and POGO used the job to job approach in 

their analyses of pay differences, not the human capital approach.

According to OPM officials who serve as staff to the President’s Pay 

Agent, employees with the same human capital characteristics can 

choose to work in markedly different jobs with large variations in pay.

POGO and some people with expertise in compensation issues said that 

the fundamental concept of setting pay based on the job, without taking 

account of the personal characteristics of individuals in similar jobs, is the 

most appropriate approach. They said it is not appropriate to pay 

individuals differently according to personal attributes, such as education 

or job experience, if they hold the same job. However, others said that 

matching individuals by occupation and level of work involved some 

subjective judgment and lacks transparency, which makes it difficult for 

other interested parties to understand the analysis.

The President’s Pay Agent has stated that it has serious concerns about 

a process that requires a single percentage adjustment in the pay of all 

white-collar civilian federal employees in each locality pay area without 

regard to the differing labor markets for major occupational groups, and it 

believes that reforms of the GS system should be considered. 

Specifically, the Pay Agent stated that the underlying model and 

methodology for estimating pay gaps should be reexamined to ensure 

that private sector and federal sector pay comparisons are as accurate as 

possible.
 

Page 28 GAO-12-564 Federal Workers

Five studies found a wide range of disparities in benefits as part of total 

compensation (pay and benefits) between the federal and private sector 

workforces, as shown in table 5. (The President’s Pay Agent Report did 

not include an analysis of benefits as part of total compensation.)47 Most 

studies presented the disparity in terms of total compensation, not just the 

benefits portion, because the levels of some benefits—for example, most 

retirement benefits—are a function of pay rates, years of service, and 

type of plan. The five studies included benefit comparisons in an effort to 

capture the cost of benefits to the federal government.48

As with their analyses of pay, the study authors acknowledged that 

limitations in data affected their analyses of total compensation and could 

affect their findings, as discussed below table 5. These limitations need to 

be taken into account when comparing the studies. Additionally, the 

studies do not all analyze the same group of federal workers; for 

example, POGO analyzed workers in 35 selected occupations.

Table 5: Selected Studies’ Findings on Total Compensation (Pay and Benefits)

Study author Study authors’ findings 

Biggs/ Richwine The average federal worker’s total compensation package was 61% 

higher than that of a comparable private sector worker.

CBO The average federal worker’s total compensation package was 16% 

higher than that of a comparable private sector worker. 

Edwards The average federal worker’s total compensation package was 100% 

higher than that of an average private sector worker. Study did not 

control for attributes in its analysis. 

POGO On average, the federal worker’s total compensation package was 

20% higher than that of a private sector worker across the occupations 

studied. 

Sherk The average federal worker’s total compensation package was 30-40% 

higher than that of a comparable private sector worker.

Source: GAO analysis of selected studies.

 

47The President’s Pay Agent Report addresses only pay. It does not analyze benefits. 5 

U.S.C. § 5304(d)(1). 

48In its study, POGO also compared the total annual compensation for federal employees 

with federal contractor billing rates in order to determine whether the current costs of 

federal service contracting serves the public interest. Any comparison of government and 

contractor employee costs is outside the scope of our work. 

Selected Studies Used 

Different Methods to 

Include Benefits in 

Estimates of Total 

Compensation 
 

Page 29 GAO-12-564 Federal Workers

The wide range of estimates between the studies is due to the different 

data sources, types of benefits analyzed, and specific methodologies 

used.

Data sources. Study authors agreed that available data were less 

adequate for comparing federal to private sector benefits than pay. 

Benefits data at the individual level are not available from a single source 

so the studies used multiple sources. This makes it challenging to 

compare across the sectors. For example, some data sources, such as 

the CPS, ask workers questions about their pay, but do not ask about the 

cost of their benefits because workers generally do not know the 

monetary value of their benefits. As a result, study authors used data 

sources such as the NCS that ask employers questions about the cost of 

their workers’ benefits. Additionally, different studies drew from different 

data sources, contributing to the range of different results.

• Biggs/Richwine used BLS’s NCS data, specifically the Employer 

Costs for Employee Compensation portion for private sector worker 

data. For federal workers, they used the OPM/OMB civilian position 

full fringe benefit cost factor—a percent factor describing the cost of 

benefits relative to salaries.49

• POGO used NCS data on private sector workers. For federal workers, 

it used the OPM/OMB civilian position full fringe benefit cost factor as 

Biggs/Richwine did. 

To capture benefits the OPM/OMB 

source did not cover, Biggs/Richwine used OPM’s Federal Civilian 

Work Force Statistics: Work Years and Personnel Costs Report to 

determine paid leave, and the Annual Social and Economic 

Supplement of the CPS to estimate job security.

• CBO used more detailed data from the NCS and OPM for private 

sector and federal workers, respectively. These data were not 

publically available.

• Edwards and Sherk both used BEA’s NIPA data. According to BEA, 

this data source includes annual intra-governmental payments to 

amortize the accumulated unfunded liability of the Civil Service 

Retirement and Disability trust fund. This reduces the data’s accuracy 

 

49OMB, through Circular A-76, requires agencies to use standard cost factors to estimate 

certain costs of government performance including the cost of benefits for civilian 

personnel. Based on actuarial analysis by OPM, this cost factor expresses the value of 

certain federal benefits as a percentage of salaries and is used to compare the 

compensation of federal workers relative to that of private sector workers who might 

perform the same duties. 
 

Page 30 GAO-12-564 Federal Workers

for measuring compensation for current workers, according to the 

study authors that used the data.50

Benefits analyzed. The studies included different types of benefits in 

their analyses, contributing to the range of different results. In addition, 

the study authors made assumptions in determining the value of benefits.

Sherk used OPM data to correct 

for this issue of federal retiree benefits.

• All of the studies included health insurance, retirement benefits, and 

the employer portion of mandatory government benefits such as 

Social Security.

• Biggs/Richwine, CBO, and POGO (for private sector workers only) 

included paid leave, while Sherk did not.

• Biggs/Richwine included job security, asserting that federal workers 

are less likely to experience periods of unemployment than private 

sector workers and so can expect a higher income for a given salary 

over the course of a year.

• All of the studies relied on estimates of future benefits, which requires 

assumptions to be made about the present value of the benefit, which 

may introduce uncertainty in the estimates. According to BEA, 

estimates of the present value of future benefits are inherently 

dependent on assumptions about the discount rate, participant 

separation rates, retirement ages, mortality, and even future pay 

increases and future inflation.51

Specific methodologies. It was not possible to estimate the cost of 

benefits directly while controlling for differences between the federal and 

private workforces, so most authors used various indirect methodologies. 

As a result, the amount of money that 

has to be set aside today to pay for tomorrow’s benefits could be 

different.

 

50BEA officials agree this amortization payment for the unfunded liability should not be 

counted as a benefit that accrues to current workers. In 2013, BEA is planning revisions to 

its time series of compensation estimates that will correct this problem. 

51More appropriate estimates of federal retirement costs may be available in the future. 

According to agency officials, BEA, which estimates the cost to the government of 

retirement benefits in order to derive compensation estimates for the NIPA tables, is 

moving to an accrual approach for both private and government compensation that will 

more accurately account for benefit promises to future retirees. As part of a 

comprehensive revision to the NIPA tables in 2013, this change will lead to revisions to 

BEA’s time series of compensation estimates. 
 

Page 31 GAO-12-564 Federal Workers

The indirectness increased uncertainty, and the wide range of 

methodologies led to different results.

• CBO developed a model to estimate the relationship between federal 

workers’ pay and the cost of the benefits they received, and an 

analogous model for private sector workers. CBO imputed employee 

benefits using those models, then compared benefits for federal and 

private sector workers controlling for personal and job-related 

attributes, just as they did for pay, to estimate the portion of the 

difference in total compensation unexplained by attributes. CBO was 

the only study to use a model that allowed for varying benefits-to-pay 

ratios for different pay levels.

• Sherk calculated the difference in average total compensation for 

federal and private sector workers. He used his estimates of the 

unexplained difference in pay from the human capital model and 

applied this to the difference in average total compensation. He 

assumed the unexplained difference in total compensation was the 

same as the unexplained difference in pay.

• Biggs/Richwine used different benefits-to-pay ratios for federal 

workers and private sector workers. They applied these ratios to the 

unexplained differences in pay from their human capital model to 

obtain the unexplained difference in total compensation. 

Biggs/Richwine assumed the unexplained difference in total 

compensation was the same as the unexplained difference in pay.

• POGO used different benefits-to-pay ratios for federal workers and 

private sector workers. It applied these ratios to differences in pay for 

the selected occupations in each sector to obtain the percent 

difference in total compensation for these occupations.

• Edwards calculated the difference in average total compensation for 

federal and private sector workers. He did not control for attributes 

between the workers.

The findings of the selected studies comparing federal and private sector 

pay and total compensation varied because they used different 

approaches, methods, and data. When looking within and across the 

studies, it is important to understand these differences because they 

impact how the studies can be interpreted. On the one hand, the human 

capital approach compares pay for individuals taking into account 

personal attributes such as education and job experience. Study authors 

who used this approach said that analyzing federal and private sector 

workers’ pay was a way to measure the extent to which the federal 

government may be overpaying or underpaying its employees compared 

to what they could earn in the private sector. On the other hand, the jobConcluding 

Observations 
 

Page 32 GAO-12-564 Federal Workers

to-job approach compares pay for similar jobs on such job-related 

attributes as occupation and level of work rather than personal attributes. 

The President’s Pay Agent, which used this approach, examined how pay 

for GS and nonfederal jobs compared for the same occupations and 

levels of work within the same locality pay areas with the goal of reducing 

existing pay disparities. 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.

As stated earlier, we have reported on the importance of considering the 

skills, knowledge, and performance of federal employees as well as the 

local labor market in making pay decisions.52 The President’s Pay Agent 

has recommended that the underlying model and methodology for 

estimating the pay gaps be reexamined to ensure that private sector and 

federal sector pay comparisons are as accurate as possible. As a step in 

this direction, the administration recommended in its September 2011 

deficit reduction proposal that Congress establish a Commission on 

Federal Public Service Reform composed of members of Congress, 

representatives from the President’s Labor-Management Council, 

members of the private sector, and academic experts to identify 

fundamental reforms for the federal government’s human capital systems 

including compensation reform. As of June 2012, such a commission has 

not been established.

We provided a draft of this report to the Secretary of Commerce (for 

Census), the Commissioner of BLS, and the Directors of BEA and OPM 

for their review and comment. The Census Bureau had a technical 

comment on the draft report, which we incorporated into the final report. 

BEA and BLS had no comments on the draft report. OPM provided 

technical comments on the draft report, which we incorporated as 

appropriate.

We provided applicable sections of the draft report to the authors of the 

selected compensation comparison studies for their review and comment. 

Biggs/Richwine and CBO provided technical comments, which we 

 

52GAO-05-832SP. 

Agency and ThirdParty Comments
 

Page 33 GAO-12-564 Federal Workers

incorporated as appropriate. Edwards and Sherk did not have any 

comments on the draft section. POGO provided written comments (see 

app. IV). In its letter, POGO stated it concurred with our draft finding that 

many factors hinder public and private sector pay comparisons, such as a 

lack of detailed data. POGO also suggested that we analyze OPM 

federal-nonfederal salary comparisons as part of our final report. We 

believe this information is already addressed in other sections of the 

report, which POGO did not receive for comment. In these sections, we 

discuss in detail how annual pay adjustments are determined including 

the President’s Pay Agent process, which uses the comparisons referred 

to by POGO.

As we agreed with your office, unless you publicly announce the contents 

of this report earlier, we plan no further distribution of it until 30 days from 

the date of this letter. At that time, we will send copies of this report to the 

appropriate congressional committees; the Secretary of Commerce; the 

Commissioner of BLS; the Directors of BEA, Census, and OPM; and 

other interested parties. In addition, the report will be available at no 

charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact 

me at (202) 512-6806 or goldenkoffr@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. GAO staff who made key contributions to this 

report are listed in app. V.

Robert Goldenkoff

Director

Strategic Issues
Appendix I: Objectives, Scope, and 

Methodology

Page 34 GAO-12-564 Federal Workers

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.

To examine how the GS annual across-the-board and locality pay 

adjustments are determined, we reviewed legislation, OPM regulations, 

executive orders, Presidents’ alternative pay plans, President’s Pay Agent 

Reports, Federal Salary Council recommendations, OPM and Bureau of 

Labor Statistics (BLS) documents and reports, and reports by the 

Congressional Budget Office (CBO) and Congressional Research 

Service.1 We also examined how the methodology for determining locality 

pay has changed since the start of locality pay to the present. We 

interviewed selected members of the Federal Salary Council and its 

working group; the Council is to be made up of six representatives of 

federal employee groups and three experts in labor relations, and makes 

annual recommendations to the President’s Pay Agent.2

To determine the extent to which pay increases and awards recognize 

individual performance, we analyzed legislation and OPM regulations on 

pay increases and awards available to employees in the GS pay system 

and identified those pay increases and awards that are determined in part 

by an individual’s performance rating as measured by the agency’s 

performance appraisal system. These pay increases and awards are:

within-grade increases, quality step increases, and ratings-based cash 

awards. We recognize that there are other types of pay increases and 

We interviewed 

BLS officials, OPM officials who are knowledgeable about federal pay 

policy and serve as staff to the President’s Pay Agent, and people with 

expertise in compensation issues including former federal officials 

experienced with pay and benefits issues. To provide background 

information illustrating a range of pay areas, we selected localities 

including the lowest paid locality, highest paid locality, and other localities

to include a range of pay rates, population sizes, and geographic regions.

 

1

The CBO reports referred to here do not include the January 2012 study we review in 

detail later in this report. 

2

Federal Salary Council members are selected by the President.

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology

Page 35 GAO-12-564 Federal Workers

awards that reflect an individual’s contributions, such as 

suggestion/invention and superior accomplishment awards, and pay 

increases that do not reflect an individual’s performance at all including 

across-the-board and locality pay adjustments. We identified eligibility 

requirements outlined in the legislation and regulations and clarified in 

OPM guidance that can affect a GS employee’s eligibility for the increase 

or award, such as a waiting period given the individual’s position in the 

pay grade, frequency of receiving an increase or award, and agencyspecific criteria.

To provide statistics on how the pay increases and awards were 

distributed among GS employees, we analyzed data from OPM’s Central 

Personnel Data File (CPDF) for fiscal year 2011.3

We analyzed CPDF data for employees in the GS pay plan in the 

aggregate on the number, percentage and dollar amount of quality step 

increases, within-grade increases, and ratings-based cash awards; the 

The data we examined 

included only federal employees in the GS pay plan. The GS 

classification and pay system includes several pay plan codes: GS 

(covered by pay system established under 5 U.S.C. chapter 53, 

subchapter III); GM (covers employees covered by the Performance 

Management and Recognition System termination provisions of Pub. L. 

No. 103-89); GL (covers law enforcement officers who receive special 

base rates at grades 3-10 under section 403 of FEPCA); GP (covers GS 

physicians and dentists paid market pay under 38 U.S.C. § 7431(c)); and 

GR (covers physicians and dentists covered by the Performance 

Management and Recognition System termination provisions who are 

paid market pay under 38 U.S.C. § 7431(c)). In addition to the GS pay 

plan, the GM and GL pay plans are used in federal-nonfederal pay 

comparisons to set locality pay. For the purposes of this analysis, we 

excluded the GM and GL pay plans because the GS pay plan covers the 

majority of the individuals in the GS, GM, and GL pay plans. We also 

excluded the GP and GR pay plans since individuals in these pay plans 

are no longer limited to GS rates of pay and they receive market pay 

under a different pay system.

 

3

The CPDF is a database that contains individual records for most federal employees and 

is the primary governmentwide source for information on federal employees. OPM has 

transitioned from the CPDF to the Enterprise Human Resources Integration-Statistical 

Data Mart (EHRI-SDM) as of fiscal year 2010, but CPDF still exists as a quarterly extract 

from the EHRI-SDM. We used these quarterly extracts for our analysis.
Appendix I: Objectives, Scope, and 

Methodology

Page 36 GAO-12-564 Federal Workers

amount of these increases and awards as a portion of the GS payroll 

(total adjusted basic pay for all employees in the GS pay plan); and the 

distribution of these increases and awards by rating pattern and rating 

levels. For the award/increase amounts as percentages of recipients’ pay, 

we excluded employees whose adjusted basic pay amount was missing. 

For the calculations based on ratings, we excluded employees who were

coded in CPDF as “not rated”. The not rated code applies to an employee 

who has not yet received a rating of record under the agency 

performance appraisal system (e.g., someone newly hired). We also 

excluded employees whose ratings were missing due to data errors. For 

calculations based on rating levels or patterns (e.g., 5-level system), we 

excluded employees who were coded as not being covered by a 

performance appraisal system and generally do not have their 

performance appraised. We also excluded employees whose rating 

patterns were missing from the data due to data errors.

To help determine the reliability and accuracy of the CPDF data elements 

used, we checked the data for reasonableness and the presence of any 

obvious or potential errors in accuracy and completeness. For example, 

we excluded employees who were coded as receiving an increase or 

award in error (e.g., individuals who received a level 1 or 2 rating and a 

within-grade increase or ratings-based cash award) from our data. We 

also reviewed past GAO analyses of the reliability of CPDF data4

 

4

For example, GAO, Women’s Pay: Gender Pay Gap in the Federal Workforce Narrows 

as Differences in Occupation, Education, and Experience Diminish, 

and 

interviewed OPM officials knowledgeable about the data to discuss the 

data’s accuracy and steps OPM takes to ensure they are reliable. For 

example, in its checks of the data, OPM excludes data where the dollar 

value is zero for ratings-based cash awards and within-grade and quality 

step increases. Also, for within-grade and quality step increases, OPM 

checks to make sure values for current and prior adjusted basic pay exist 

and the difference is greater than zero. On the basis of these procedures, 

GAO-09-279

(Washington, D.C.: Mar. 17, 2009).
Appendix I: Objectives, Scope, and 

Methodology

Page 37 GAO-12-564 Federal Workers

we believe the data we used from the CPDF are sufficiently reliable for 

the purpose of this report.5

To describe how OPM provides oversight of pay increases and awards, 

we collected and analyzed OPM guidance to agencies on administering 

relevant pay increases and awards including regulations, memoranda, 

reports, fact sheets, and frequently asked questions. We interviewed 

OPM officials responsible for federal pay policies to discuss the 

implementation of the guidance and monitoring of agencies’ use of 

increases and awards through reports and other means, and we 

interviewed OPM officials responsible for conducting human capital 

management evaluations at agencies on pay increases and awards to 

determine how they evaluate agencies’ linkage of pay increases and 

awards with organizational results and monitor the overall GS system, 

among other things.

To review selected studies that compare federal and private sector pay 

and total compensation and describe factors that help account for the 

different study findings, we reviewed the studies, summarized each 

study’s methodologies and key findings, and confirmed the accuracy of 

our summaries with the authors. We compared and contrasted the 

differences between the approaches, methodologies, and data sources of 

the selected studies. We interviewed the selected study authors to obtain 

their views on the various methodologies and data sources available, why 

they chose the ones they used, and their conclusions based on their 

work. From July through December 2011, we conducted a detailed 

literature review of academic journals, agency and organization 

publications, and grey literature to identify the selected studies.6

 

5

We previously reported that governmentwide data from the CPDF were 96 percent or 

more accurate. See GAO, OPM’s Central Personnel Data File: Data Appear Sufficiently 

Reliable to Meet Most Customer Needs, 

We 

applied three criteria for study selection to the results—(1) studies that 

were published/issued since 2005; (2) studies that include original 

analysis; and (3) studies that have the explicit and primary purpose of 

GAO/GGD-98-199 (Washington, D.C.: Sept. 30, 

1998). Also, in a document dated February 28, 2008, an OPM official confirmed that OPM 

continues to follow the CPDF data quality standards and procedures contained in our 

1998 report. 

6

Grey literature comprises documents produced by government, academia, business and 

industry in print and electronic formats that are protected by intellectual property rights, but 

not controlled by commercial publishers.
Appendix I: Objectives, Scope, and 

Methodology

Page 38 GAO-12-564 Federal Workers

comparing federal and private sector pay and total compensation. Using 

these criteria, we identified at that time the following five studies as our 

proposed set to review (with the option to add other studies that may be 

issued during the course of our engagement and meet our criteria), see 

below: 

• Comparing Federal and Private Sector Compensation, Andrew Biggs 

and Jason Richwine, American Enterprise Institute for Public Policy 

Research, June 2011. (Co-author Richwine is from The Heritage 

Foundation.) 

• Federal Pay Continues Rapid Ascent, Chris Edwards, The Cato 

Institute, August 2009.

• Report on Locality-Based Comparability Payments for the General 

Schedule, Annual Report of the President’s Pay Agent 2010, The 

President’s Pay Agent, March 2011.

• Bad Business: Billions of Taxpayer Dollars Wasted on Hiring 

Contractors, The Project On Government Oversight, September 2011.

• Inflated Federal Pay: How Americans Are Overtaxed to Overpay the 

Civil Service, James Sherk, The Heritage Foundation, July 2010.

All of the selected studies except for the President’s Pay Agent compared 

federal to private sector pay and total compensation. The President’s Pay 

Agent compared federal to nonfederal pay (not benefits) and defined

nonfederal as private sector, state government, and local government. 

We decided to include the President’s Pay Agent Report as one of our 

selected studies given that it plays a major role in the overall discussion 

of federal pay comparability. The President’s Pay Agent encompasses 

the Secretary of Labor and Directors of OPM and the Office of 

Management and Budget (OMB). To inform our understanding of the Pay 

Agent’s report and process, we interviewed OPM officials who are staff to 

the Pay Agent, members of the Federal Salary Council and its working 

group including officials from the National Treasury Employees Union and 

the American Federation of Government Employees, and officials at BLS, 

which provides the nonfederal data used for the Pay Agent’s analysis.

Through our literature review, we also identified articles and papers that 

compare compensation in other sectors (state and local government to 

private sector, or industry to industry). Additionally, we identified 

discussions of the selected studies’ findings and methodologies and of 

the issues of federal and private sector pay and total compensation 

comparison in general to further inform our review of the studies. We 

interviewed a number of individuals chosen for their expertise in 

compensation issues to obtain their views on the data sources for 
Appendix I: Objectives, Scope, and 

Methodology

Page 39 GAO-12-564 Federal Workers

analyzing compensation and to provide a general context for the issues 

involved in comparing federal and private or nonfederal pay and total 

compensation. The findings regarding the selected studies are not based 

on input from these individuals. Representing a wide range of 

perspectives and experiences related to compensation issues, we 

identified these individuals through our literature review, background 

research on the topic, and recommendations from the study authors and 

other individuals knowledgeable about compensation issues. The 

selected individuals, some of whom were selected authors of the 

discussions noted above, included a university professor who has done 

research on compensation issues across sectors, a private sector 

compensation consultant, a staff member who researches compensation 

at an organization with a policy focus, and former senior federal officials 

who are experienced in federal pay and benefits issues. We interviewed 

officials from the Bureau of Economic Analysis (BEA), BLS, and Census 

Bureau to discuss how these agencies’ data are used to measure federal 

and private or nonfederal pay, compensation, or benefits, and limitations 

of their data or surveys. We also interviewed officials from OPM involved 

in federal pay policies. We asked everyone we interviewed about their 

views on the strengths and limitations of the data sources used in the 

studies.

We also asked everyone we interviewed, as applicable, to identify any 

additional studies that address our criteria for study selection. They did 

not identify any additional studies that met our criteria, but provided 

additional information, such as background articles. However, in January 

2012, after our literature review was concluded, CBO issued a report:

• Comparing the Compensation of Federal and Private-Sector 

Employees, Congressional Budget Office, January 2012.

We included this study in our review because it met our criteria. This 

brought the total number of studies up to six. We interviewed the authors 

of the CBO study to obtain their views on the various methodologies and 

data sources available, why they chose the ones they used, their 

conclusions based on their work, and our understanding of their work. 

We did not examine the reliability or the appropriateness of the 

approaches, methods, and data used by the six selected studies in our 

scope, and we did not exclude any study on the basis of methodological 

quality.
Appendix I: Objectives, Scope, and 

Methodology

Page 40 GAO-12-564 Federal Workers

We conducted this performance audit from July 2011 to June 2012 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.
Appendix II: Implementation of Locality Pay

Page 41 GAO-12-564 Federal Workers

Even though the full locality payments recommended by the President’s 

Pay Agent have not been provided after locality pay was implemented in 

1994, some locality increase has been provided each year since that time 

except during the pay freeze in 2011 and 2012. The President’s Pay 

Agent reported that pay disparities were lower in 2011 than in 1994 in 16 

of the 21 pay localities that existed in both of those years.

Figure 5 shows the relative pay rates for a GS-11 employee 

(approximately the midpoint grade level) in San Francisco and in the Rest 

of U.S. (the residual locality for areas not included in one of the other pay 

localities) and nonfederal equivalents based on the President’s Pay Agent 

Reports. In 1994, the pay disparity between federal and nonfederal 

workers in San Francisco at the GS-11 level was 30 percent, which 

decreased to 26 percent by 2011 (the most recent year for which disparity 

data is available). In 1994, the pay disparity between federal and 

nonfederal workers in the Rest of U.S. locality at the GS-11 level was 19 

percent, which increased to 22 percent by 2011.1

 

1

These percentages are the remaining pay gaps after taking locality pay into account.

Relative pay rates for GS-11, the midpoint level, differ somewhat from relative pay rates 

for the average worker across grade levels. For example, while the disparity for GS-11 

workers in the Rest of U.S. locality went up by 3 percent between 1994 and 2011, it went 

down by 2 percent for the average worker in the Rest of U.S. locality over that same time.

Appendix II: Implementation of Locality Pay

Locality Payments from 

1994 to 2011
Appendix II: Implementation of Locality Pay

Page 42 GAO-12-564 Federal Workers

Figure 5: Annual Pay for a GS-11 Employee in San Francisco and Rest of U.S. Pay Localities and Reported Nonfederal 

Equivalents, 1994 to 2011

Note: There were 34 pay localities in the United States in 2011, composed of Alaska, Hawaii, 31 

metropolitan areas, and the Rest of U.S. locality. San Francisco had the highest pay rate and Rest of 

U.S. had the lowest pay rate of these 34 areas. GS-11 salaries and nonfederal equivalents are based 

on the President’s Pay Agent Reports.
Appendix II: Implementation of Locality Pay

Page 43 GAO-12-564 Federal Workers

There have been several changes to the surveys and models used for 

locality pay setting between the passage of the Federal Employees Pay 

Comparability Act (FEPCA) in 1990 and the Pay Agent process and 

report for 2011, the most current report available. Changes are illustrated 

in figure 6 and additional information is below.

Changes to Surveys and 

Models for Calculating 

Locality Pay
Appendix II: Implementation of Locality Pay

Page 44 GAO-12-564 Federal Workers

Figure 6: Surveys and Models for Calculating Locality Increases Have Changed Several Times from 1990 to 2011

a

See below for more information on the difference between the OCSP’s fixed job list and the NCS’s

probability sampling approach.
Appendix II: Implementation of Locality Pay

Page 45 GAO-12-564 Federal Workers

From 1991 to 1996, BLS conducted the Occupational Compensation 

Survey Program (OCSP) to collect data on pay of nonfederal workers.2

In 1996, BLS stopped conducting the OCSP and started conducting the 

National Compensation Survey (NCS), which uses probability sampling of 

jobs. BLS randomly selected positions at surveyed nonfederal 

establishments and determined which Standard Occupational 

Classification System job, PATCO category, and GS grade corresponded 

to the selected jobs. The Employment Cost Index (ECI) and a benefits 

survey were also merged into NCS. These changes were made to reduce 

costs and respondent burden and expand occupational coverage.

OCSP used a fixed list of 3 to 8 positions in each of the five PATCO 

categories (Professional, Administrative, Technical, Clerical, and Other 

White-Collar) to represent the range of different white collar jobs. In 1996, 

there were 26 different positions - for example, Scientist (a professional 

position) and Key Entry Operator (a clerical position). Each position had 

one or more levels - for example, Scientist I to Scientist VIII; Key Entry 

Operator I and Key Entry Operator II. BLS referred to a particular position 

at a particular level (e.g., Scientist I) as a “job.” BLS asked surveyed 

establishments to identify positions they had that corresponded to one of 

the representative jobs. BLS and OPM worked together to write, test, and 

maintain survey job descriptions tied to a single GS grade level.

The President’s Pay Agent began reviewing the NCS in 1996, with input 

from the Federal Salary Council. During the time of their review, they 

used OCSP data, aged to a common reference date based on the ECI, to 

calculate pay disparities and recommend locality pay. In 1998, they

determined that the NCS was not suitable for use without improvements, 

and a working group with representatives of OPM, BLS, and OMB was 

formed to recommend improvements. The working group made 

recommendations in 1999 that led to five improvements in the NCS data. 

The improvements were implemented starting in 2002, at which point the 

Pay Agent began to phase in use of NCS data. The recommendations are 

outlined in figure 6 above.

 

2

The OCSP and the National Compensation Survey (NCS), described later in this 

appendix, were designed to provide compensation data for use in implementing locality 

pay; at the same time, the surveys met a variety of other government needs as well as 

private sector needs.

Major Change in Survey Data: 

Change from Fixed Job List to 

Probability Sampling
Appendix II: Implementation of Locality Pay

Page 46 GAO-12-564 Federal Workers

In 2008, the Federal Salary Council asked BLS to explore the use of 

additional sources of pay data so the Council could better evaluate the 

need for establishing additional locality pay areas, especially in areas 

where the NCS could not provide estimates of nonfederal pay. BLS 

developed a model to combine data from the Occupational Employment 

Statistics (OES) survey, another BLS survey, with NCS data in order to 

increase locality coverage. In 2010, due to budget cuts, BLS announced a 

reduction in the size of the NCS sample, and said that the model results 

from the combined surveys could still be used to calculate pay gaps. 

According to BLS officials, only the size of the NCS sample has changed, 

not the substance of what is collected, and the reduction should not affect 

the ability to determine levels of work.

The Federal Salary Council wrote in its 2011 memo to the President’s 

Pay Agent that it had concerns about the reduction. For 2011, the final 

year when the larger NCS data set was available, the Federal Salary 

Council reviewed modeled results both with and without the reduction, 

and found concerning discrepancies (about a 5 point average difference 

in computed pay gaps). In its memo, the Council recommended that the 

Pay Agent use only NCS data for setting pay until the new model is better 

understood, and that the full NCS survey be reinstated. The Council wrote 

that it plans to continue working with OPM and BLS to study the 

NCS/OES model.

The President’s Pay Agent wrote in its 2011 report dated March 2012 that 

it does not consider more funding for NCS to be feasible before exploring 

other options. The Pay Agent supported the Council’s plan to continue its 

review of the new model and to focus on the impact of dropping roughly 

half of the NCS sample on the volatility of the model. The Pay Agent also 

noted that the administration recommended Congress establish a 

Commission on Federal Public Service Reform composed of members of 

Congress, representatives from the President’s Labor-Management 

Council, members of the private sector, and academic experts to identify 

fundamental reforms for the federal government’s human capital systems 

including compensation reform. As of June 2012, such a commission has 

not been established.

Integrating Occupational 

Employment Statistics Survey 

and Reducing Sample Size of 

NCS 
Appendix III: Information on the Selected 

Studies’ Data Sources and Methodologies for 

Analyzing Pay and Total Compensation

Page 47 GAO-12-564 Federal Workers

The six selected studies used different data sources and methodologies 

to analyze differences in pay between the federal and private sector or 

nonfederal workforces, as shown in table 6. They also varied slightly in 

how they defined the federal workforce and restricted their analysis of 

workers.

Table 6: Selected Studies’ Data and Methodologies Used in Analyzing Pay

Study authors and 

affiliations Data source used

Description of 

workforce Attributes controlled for Methodology used

Andrew Biggs and 

Jason Richwine—

American 

Enterprise Institute 

for Public Policy 

Research 

• Annual Social and 

Economic 

Supplement of the 

Current 

Population Survey 

(CPS) (2006-

2010) for federal 

and private sector 

workers.a

• Federal workers 

defined as civilian, 

non-postal workers.

• Restricted the 

analysis to full-time, 

full-year workers 

earning more than 

$9,000.

• Hours worked per week

• Experience (age minus years 

of education minus 6) 

• Experience-squared to 

account for non-linear effects

• Years of education

• Firm size (6 categories)

• Occupation (10 categories)

• Immigration status

• Locality (state of residence)

• Race

• Gender

• Marital status

• Year dummies to account for 

inflation

Also included interaction terms, 

such as ‘experience × education’ 

and ‘marital status × gender’.

• Analyzed differences 

in annual pay (while 

controlling for hours 

worked). 

• Used a statistical 

method (log linear 

regression) to 

determine the extent 

to which differences 

in pay are explained 

by other attributes in 

addition to hours 

worked. 

Congressional 

Budget Office 

• Annual Social and 

Economic 

Supplement of the 

CPS (2006-2011) 

for federal and 

private sector 

workers. 

• Federal workers 

defined as civilian, 

non-postal workers.

• Restricted the 

analysis to full-time, 

full-year workers.

• Occupation (24 categories)

• Education

• Experience (age minus years 

of education minus 6) 

• Age 

• Firm size

• Locality (5 geographic 

regions and urban or rural 

location)

• Sex 

• Race

• Ethnicity

• Marital status

• Immigration status

• Citizenship

• Analyzed differences 

in hourly pay.

• Used a statistical 

method 

(decomposition) to 

determine the extent 

to which differences 

in pay are explained 

by different 

attributes.

• Decomposition took 

into account the 

wider distribution of 

pay among private 

sector workers.

Appendix III: Information on the Selected 

Studies’ Data Sources and Methodologies for 

Analyzing Pay and Total Compensation

Pay Analysis
Appendix III: Information on the Selected 

Studies’ Data Sources and Methodologies for 

Analyzing Pay and Total Compensation

Page 48 GAO-12-564 Federal Workers

Study authors and 

affiliations Data source used

Description of 

workforce Attributes controlled for Methodology used

Chris Edwards—

The Cato Institute 

• BEA’s national 

income and 

product accounts 

(NIPA) data 

(2000-2008) for 

federal and 

private sector 

workers. 

• Federal workers 

defined as civilian, 

non-postal workers.

None • Calculated average 

percentage change 

of compensation 

across the federal 

and private sectors. 

The President’s 

Pay Agent 

• OPM data (2010) 

for federal 

workers. 

• NCS data (2010) 

for nonfederal 

(private, state and 

local government) 

workers. 

• Federal workers 

defined as GS and 

equivalent pay plan 

workers covering 

over 200 

occupations.

• Equivalent pay plans 

include GM and 

GL.b

• Occupation (over 200 

categories)

• Level of work

• Locality (34 locality areas)

• Matched pay rates in 

the federal 

government to pay 

rates in the 

nonfederal sector in 

over 200 federal 

occupations, 15 

levels of work, and 

34 locality areas.

• Results of study 

apply to GS pay plan 

employees.

The Project On 

Government 

Oversight (POGO)

• OPM data (2009) 

for federal 

workers. 

• NCS data (2009) 

for private sector 

workers. 

• Federal workers 

defined as GS pay 

plan and wage 

grade pay plan (one 

of the blue-collar 

pay plans under the 

Federal Wage 

System) workers 

covering 35 selected 

occupations. 

• Occupation (35 occupational 

categories)

• Matched pay rates in 

the federal 

government with pay 

rates in the private 

sector at the national 

level by 35 

occupation groups, 

covering 500 service 

activities (such as 

Budget Analyst or 

Security Guard) that 

had been 

outsourced.

• Results of study 

apply to the 35 

selected 

occupations.
Appendix III: Information on the Selected 

Studies’ Data Sources and Methodologies for 

Analyzing Pay and Total Compensation

Page 49 GAO-12-564 Federal Workers

Study authors and 

affiliations Data source used

Description of 

workforce Attributes controlled for Methodology used

James Sherk—

The Heritage 

Foundation 

• Monthly CPS 

(2006-2009) for 

federal and 

private sector 

workers. 

• Federal workers 

defined as civilian, 

non-postal workers.

• Included only federal 

workers who work in 

public administration 

based on Census 

definitions.

• Restricted the 

analysis to full-time 

workers between 

ages 25 and 65.

c

• Excluded those 

earning less than $5 

or more than $60

per hour.

• Age

• Education

• Marital status

• Race

• Gender

• Citizenship and nativity

• Locality (State)

• Year of survey

• Size of metropolitan area

• Occupation (three 

specifications: no 

occupational controls, 22 

broad occupational controls, 

65 detailed occupations that 

exist in both the federal 

government and private 

sector.) 

• Analyzed differences 

in hourly pay.

• Used a statistical 

method 

(decomposition) to 

determine the extent 

to which differences 

in pay are explained 

by different 

attributes.

Source: GAO analysis of selected studies.

a

The CPS collects data in two different ways. The monthly CPS is a monthly survey of households 

that are asked questions regarding pay and labor market status. The Annual Social and Economic 

Supplement is conducted once a year (February–April). This survey is sometimes called the March 

CPS. Biggs/Richwine and CBO used the Annual Social and Economic Supplement, while Sherk used 

the monthly CPS. Dates indicate when the surveys were conducted. The surveys ask about annual 

earnings over the prior calendar year.

b

See app. I for more information on the other pay plans (GM and GL) that OPM considers to be 

equivalent to the GS pay plan in its comparisons between federal and nonfederal pay.

c

Census definitions of public administration are provided in the North American Industry Classification 

System code 92. Most federal workers are included, but postal workers and some other federal 

employees are excludedfor example, some employees of federal schools, hospitals, transportation 

facilities, utilities, and the Government Printing Office.

Studies could control for many attributes—personal or job-related—to 

help explain the differences between federal and private sector pay, as 

shown in the previous table. The types of attributes the selected study 

authors controlled for depended on the type of approach used to analyze 

pay—human capital or job-to-job. For example, the human capital 

approach controls for personal attributes (e.g., education, job experience) 

and job-related attributes (e.g., occupation, firm size). The job-to-job 

approach involves controlling for job-related attributes (e.g., occupation, 

level of work) without considering the personal attributes of the workers. 

The trend analysis approach does not control for any attributes. 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.

Controlling for Attributes in 

Analyzing Pay 
Appendix III: Information on the Selected 

Studies’ Data Sources and Methodologies for 

Analyzing Pay and Total Compensation

Page 50 GAO-12-564 Federal Workers

• Occupation:1

• Level of Work: Controlling for level of work (or grade level) allows a 

study to account for different pay rates for different levels of job

complexity and responsibility (e.g., entry-level, mid-level, senior level 

or finer distinctions by level). Level of work encompasses types of 

duties performed, the scope and effect of the work, the level of 

difficulty and responsibility, and the level of supervision received. It 

can be difficult to measure level of work since levels are defined 

differently in different workplace settings. Of the studies we examined, 

only the President’s Pay Agent Report controls for level of work. For 

federal employment in the GS pay system, there are 15 grade levels. 

To compare these with levels in nonfederal workplaces, BLS 

economists ranked nonfederal positions based on four factors: 

knowledge, job controls and complexity, contacts (nature and 

Controlling for occupation allows a study to account for 

different pay rates for different types of jobs. The distribution of 

occupations in the federal government is different from the private or 

nonfederal sector, which may be a factor that explains differences in 

pay. For example, according to the CBO study, 33 percent of the 

federal workforce compared with 18 percent of the private sector 

workforce was in a professional occupation. 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. 

POGO limited its comparison to 35 selected occupations, while the

Pay Agent used over 200 occupations. According to one of the people 

with expertise that we interviewed, one challenge with this approach is 

the difficulty of finding nonfederal equivalents for certain positions, 

such as the Federal Bureau of Investigation agents, that only exist in 

the government. Another person with expertise said matching 

occupations across sectors is a subjective process. In contrast, study 

authors using the human capital approach used fewer and much 

broader occupational groups. For example, Biggs/Richwine used 10 

categories, while Sherk and CBO used 22 and 24, respectively. In 

addition to his analysis of the overall pay disparity, Sherk analyzed 

pay data with and without occupation controls, and reported that less 

was explained when occupation was not included in the analysis.

 

1

Occupation is defined by BLS as a set of activities that employees are paid to perform. 

Employees that perform essentially the same tasks (such as lawyers or engineers) are in 

the same occupation, whether or not they work in the same industry. A number of jobs can 

be classified into an occupation. For example, a lawyer could practice family law or 

international treaty law. These different jobs would be classified under the occupation 

“lawyer.” 
Appendix III: Information on the Selected 

Studies’ Data Sources and Methodologies for 

Analyzing Pay and Total Compensation

Page 51 GAO-12-564 Federal Workers

purpose), and physical environment.2

• Firm size: Controlling for firm size allows a study to account for the 

effect of the number of workers in a firm. Some of the study authors 

asserted that large firms tend to offer higher salaries and greater 

benefits than smaller firms, but they differed on the decision to control 

for this attribute. CBO and Biggs/Richwine felt that federal workers 

should be compared to private sector workers at similarly sized 

institutions (e.g., firms with at least 1,000 workers) and included a 

measure of firm size in their analyses. The reasons the authors cited 

included large firms requiring more occupational specialization or 

higher levels of skill than smaller firms. Sherk said he chose not to 

control for firm size because he views it as a proxy for individual ability 

in the private sector—the larger firms pay a premium to hire more 

capable individuals and the associated pay reflects that. He said this 

is not the case in the federal government; the federal government 

does not selectively hire employees from large corporations but 

competes for hiring with all sizes of firms in the private sector. Sherk 

felt that including firm size could bias results if more productive 

workers tend to work in larger firms in the private, but not the federal 

sector. A person with expertise we interviewed agreed that a larger 

firm would pay more and have better benefits and noted that large 

firms are in head-to-head hiring competition with the federal 

government. In 2008, the President’s Pay Agent decided to include 

data from all establishments in its locality pay recommendations to 

increase the amount of data available for jobs. Since locality pay 

began in 1994, the Pay Agent had used only data from large 

One person with expertise 

observed that the human capital approach does not recognize that 

there are many different levels within an occupation such as 

accountant or lawyer.

 

2

BLS defines the fours factors and provides guidance to economists on how to apply the 

factors in leveling the jobs. For knowledge, BLS describes this factor separately for the 

broad categories of occupations, such as professional accounting, information technology, 

and business administration. “Knowledge” is defined as the level of knowledge expected 

for the occupation at progressively higher levels of work. For the other three factors, BLS 

provides descriptions that apply to all occupations. “Job controls and complexity” covers 

the amount and type of directions received, the complexity of the work, and the nature of 

the work within a job. “Contacts” covers the nature and purpose of contacts within a job 

but outside the supervisory chain; for example, contacts are routine and structured or 

nonroutine and unstructured, to convey simple information or to influence, control, or 

debate, with other employees of the same agency, other agencies, members of Congress, 

or others. “Physical environment” covers the nature of risk, and the amount of physical 

demands within the job. 
Appendix III: Information on the Selected 

Studies’ Data Sources and Methodologies for 

Analyzing Pay and Total Compensation

Page 52 GAO-12-564 Federal Workers

establishments in its calculations.3

• Locality: Controlling for locality differences allows a study to account 

for the pay rates in the local labor market. Differences in locality are 

central to a locality pay system and may be important in a nationwide 

comparison if federal workers tend to work in areas in which private 

sector or nonfederal pay is also high, such as certain urban areas. 

The Pay Agent analysis measures disparities for each of the 34 

localities separately and within each locality matches federal workers 

to nonfederal worker equivalents.

According to a person with 

expertise that we interviewed, the larger sample of data helps improve 

the quality of the job matching.

4

• Education: Controlling for education allows a study to account for the 

effect of formal schooling that the workers have received. Increased 

education can increase productivity and result in higher pay by 

employers. The human capital approach can control for this attribute. 

Sherk and CBO controlled for education by grouping levels of 

education into degrees obtained as defined by the CPS such as high 

school, bachelor’s degree, and other degrees as well as high school 

dropout and some college, no degree.

In cases where BLS did not survey 

a specific job at a specific level of work, it used a regression model to 

determine the salary that would be expected based on the worker’s 

occupation, level of work, and locality. In contrast, the studies using 

the human capital approach explored national differences, and did not 

attempt to determine differences by locality areas. In their analysis, 

Biggs/Richwine and Sherk controlled for differences in locality by state 

while CBO used five geographic regions (Northeast, South, Midwest, 

West, and Washington, D.C. metropolitan area) and urban or rural 

location.

5

 

3

A firm may consist of one or more establishments. 

In contrast, Biggs and 

Richwine controlled for education by converting degree obtained into 

a variable representing years of education. The POGO study did not 

control for education because according to the authors, education 

level does not reflect the individual’s contribution to or output of the 

4

See app. II for more information on the implementation of locality pay since 1994. 

5

For analysis, CBO used 11 levels of educational attainment based on CPS education 

data. When reporting, CBO grouped these into five categories: high school diploma or 

less, some college, bachelor’s degree, master’s degree, and professional degree or 

doctorate. Sherk used 7 levels for analysis: high school dropout; high school graduate; 

some college, no degree; associate’s degree; bachelor’s degree; master’s degree; and 

professional degree or doctorate. 
Appendix III: Information on the Selected 

Studies’ Data Sources and Methodologies for 

Analyzing Pay and Total Compensation

Page 53 GAO-12-564 Federal Workers

organization. An individual with a master’s degree and a PhD may be 

paid the same pay rate in the market if they are producing the same 

output.

• Job experience: Controlling for job experience allows a study to 

account for the length of time an individual has spent working. 

Experience both at a specific job and in general can affect pay, 

presumably because it can affect productivity, which can be 

accounted for in the human capital approach. Biggs/Richwine, CBO, 

and Sherk considered job experience a relevant attribute. However, 

the CPS does not include a direct measure of job experience. As a 

result, the studies use proxies to measure experience. For example, 

Biggs/Richwine and CBO used a common approach for measuring 

experience, “age minus years of education minus 6,” while Sherk 

included age in his model.6 According to a university professor we 

interviewed who has done research on compensation issues across 

sectors, there is no data set that measures how long a private sector 

worker has been out of the workforce or how long a worker has been 

working for a given employer. Age can be used as a proxy, but age 

does not reflect time out of the workforce for child-rearing or other 

reasons.

The selected studies varied in the data sources used, benefits included, 

and methodologies chosen in analyzing benefits as a part of total 

compensation, as shown in table 7. The President’s Pay Agent is 

mandated to analyze pay, not benefits, so its study is not included in the 

following table.

 

6

Although measures of length of service are available for federal workers from OPM data, 

in the application of the human capital model, a common data source must be used for 

both sectors. This is because of the possibility of differences in how the different variables, 

such as education or pay, are measured across data sources.

Total Compensation 

Analysis
Appendix III: Information on the Selected 

Studies’ Data Sources and Methodologies for 

Analyzing Pay and Total Compensation

Page 54 GAO-12-564 Federal Workers

Table 7: Selected Studies’ Data and Methodologies Used in Analyzing Total Compensation (Pay and Benefits)

Study author Data sources used Benefits included Methodology used

Biggs/ 

Richwine

Federal:

• OPM/OMB cost factor on the 

cost of benefits relative to 

salaries—civilian position full 

fringe benefit cost factor, as 

used in update to OMB 

circular A-76.

• OPM data on levels of paid 

leave from Federal Civilian 

Work Force Statistics: Work 

Years and Personnel Costs

Report, fiscal year 2005.

• Annual Social and Economic 

Supplement of the CPS to 

estimate job security.

Private: 

• BLS’s NCS, Employer Costs 

for Employee Compensation 

for firms with greater than 

100 employees.

• Health insurance

• Life insurance

• Disability Insurance

• Retirement benefits—defined 

benefit and defined contribution 

plans

• Employer portion of mandatory 

government benefits such as 

Social Security and Medicare

• Paid leave

• Supplemental pay (e.g., overtime, 

shift differentials, nonproduction 

bonuses)

• Benefit of greater job security 

(only federal)

• Workers’ compensation

• Unemployment programs

• Bonuses/awards (only federal)

• Used estimates of benefits in the 

private sector from BLS data and 

estimates of benefits in the federal 

sector from OMB and OPM data.

• Added additional compensation 

elements such as job security.

• Assumed that the unexplained 

portion of the benefits as shown in 

the data was the same as the 

unexplained portion found in pay, 

estimated from a human capital 

model. This difference in benefits 

used took into account firm size, but 

not individual characteristics.

CBO Federal:

• Unpublished data from OPM 

were used to obtain the 

relationship between pay and 

benefits.

• Obtained information on 

attributes and pay of workers 

from the CPS.

Private: 

• Unpublished data from BLS’s 

NCS was used to obtain 

relationship between pay and 

benefits

• Obtained information on 

attributes and pay of workers 

from the CPS.

• Health insurance

• Retirement benefits—defined 

benefit and defined contribution 

plans

• Employer portion of mandatory 

government benefits such as 

Social Security and Medicare

• Paid leave

• Workers’ compensation

• Unemployment programs

• Obtained estimates of the 

relationship between pay and 

benefits for the private and federal 

sectors.

• Using this relationship, for each 

individual in the CPS, used the rate 

of annual pay to obtain a predicted 

value of benefits. Then, applied a 

human capital model to estimate the 

portion of the difference in total 

compensation unexplained by 

attributes.

Edwards Federal and Private: 

• BEA’s NIPA data:

6.2D (Compensation of 

Employees by Industry),

6.3D (Wage and Salary 

Accruals by Industry),

6.5D (Full-Time Equivalent 

Employees by Industry). 

• Health insurance

• Life insurance

• Retirement benefits—defined 

benefit and defined contribution 

plans 

• Employer portion of mandatory 

government benefits such as 

Social Security and Medicare

• Paid leave

• Calculated the difference in average 

total compensation between federal 

and private sector workers.

• Did not determine the percentage 

explained by attributes. 
Appendix III: Information on the Selected 

Studies’ Data Sources and Methodologies for 

Analyzing Pay and Total Compensation

Page 55 GAO-12-564 Federal Workers

Study author Data sources used Benefits included Methodology used

POGO Federal:

• OPM/OMB cost factor for the 

cost of benefits relative to 

salaries—civilian position full 

fringe benefit cost factor, as 

used in update to OMB 

circular A-76.

Private: 

• BLS’s NCS cost factor for 

cost of benefits relative to 

salary.

• Health insurance

• Life insurance

• Retirement benefits—defined 

benefit and defined contribution 

plans

• Employer portion of mandatory 

government benefits such as 

Social Security and Medicare

• Supplemental pay (only private)

• Paid leave (only private)

• Workers’ compensation

• Unemployment programs

• Bonuses/awards (only federal)

• Used the cost factor for benefits for 

federal (36.25%) and private (33.5%) 

sectors.

• Applied these cost factors to pay 

estimates for the 35 occupations in 

each sector and determined the 

difference in total compensation.

Sherk Federal:

• BEA’s NIPA data:

6.2D (Compensation of 

Employees by Industry),

6.3D (Wage and Salary 

Accruals by Industry),

6.5D (Full-Time Equivalent 

Employees by Industry). 

• OPM data on federal retirees 

who are receiving benefits 

under the Civil Service 

Retirement System.

Private: 

• Annual Social and Economic 

Supplement of the CPS.

• BEA’s NIPA data:

6.2D (Compensation of 

Employees by Industry),

6.3D (Wage and Salary 

Accruals by Industry),

6.5D (Full-Time Equivalent 

Employees by Industry). 

• Health insurance

• Life insurance

• Retirement benefits—defined 

benefit and defined contribution 

plans

• Employer portion of mandatory 

government benefits such as 

Social Security and Medicare

• Used the difference in average total 

compensation for federal and private

sectors obtained from BEA data.

• Used the CPS data to determine 

observable differences in pay 

between private sector and federal 

workers. 

• Assumed that the unexplained 

compensation premium in the BEA 

data was the same as the 

unexplained portion found in pay

estimated from a human capital 

model.

• Used OPM data to adjust for the fact 

that federal retirees who are 

receiving benefits under the Civil 

Service Retirement System are 

included in BEA’s NIPA data for 

current federal workers.

Source: GAO analysis of selected studies.

The study authors had a variety of data sources to choose from in 

analyzing pay and total compensation. They chose the data sources for 

their studies based on their overall approach and data needs. The study 

authors and people with expertise in compensation issues that we 

interviewed identified strengths and limitations of two common data 

Data Sources Used in 

Compensation Analysis
Appendix III: Information on the Selected 

Studies’ Data Sources and Methodologies for 

Analyzing Pay and Total Compensation

Page 56 GAO-12-564 Federal Workers

sources the studies used in analyzing pay or total compensation—the 

CPS and NCS. Agency officials who oversee these data sources also 

weighed in on the use of the data in analyzing compensation.

• Current Population Survey. The CPS—and in particular, the 

monthly CPS—has a large sample size relative to other data sources 

enabling analyses that would not have been possible in data sets with 

a smaller sample size. According to Sherk, he used the monthly CPS 

because he needed at least 30 valid observations of occupations in 

both the public and private sectors for his analysis comparing detailed 

occupations. The Annual Social and Economic Supplement of the 

CPS has questions that are more indepth than the monthly CPS and it 

contains measures of job tenure, educational degree, and firm size. 

Individuals interviewed for the monthly or Annual Social and 

Economic Supplement of the CPS are self-reporting in their 

responses, which can result in reporting errors. As an example of an 

error that could occur, individuals who work for a contractor employed 

by the federal government could identify themselves as federal 

employees, which would be incorrect. Census officials said that there 

are CPS interviewer manuals to assist interviewers in helping 

respondents with their answers.

• National Compensation Survey. BLS conducts the NCS by 

interviewing employers, which allows for cost data on pay and 

benefits to be directly collected from employers as opposed to 

individuals self-reporting the information. While the survey covers all 

sectors, it does not collect data on federal workers, which—according 

to the study authors who used the NCS—results in the need to piece 

together different sources of benefits information in order to get 

comparable data. The NCS also provides detailed pay information by 

occupational work level that is based on the duties and responsibilities 

of a job, which is a key source of information for the President’s Pay 

Agent when determining locality pay adjustment amounts. Recently, 

the sample size for the NCS was reduced, and BLS has developed a 

model to determine locality pay using a combination of the NCS and 

the Occupational Employment Statistics (OES) survey. The OES is a 

larger survey with broader coverage of locality areas than the NCS, 

but it does not contain information on levels of work. (See app. II for 

additional information on locality pay and the use of these surveys.)

The following table provides additional details on the data sources 

relevant for analyzing compensation across sectors including a 

description of the data source and supporting methodology.
Appendix III: Information on the Selected 

Studies’ Data Sources and Methodologies for 

Analyzing Pay and Total Compensation

Page 57 GAO-12-564 Federal Workers

Table 8: Data Sources Used in Analyzing Compensation 

Data source, affiliated 

agency Description Sample and methodology

Civilian Position Full 

Fringe Benefit Cost 

Factor

OPM and OMB

OMB through Circular A-76 requires agencies to use 

standard cost factors to estimate certain costs of 

government performance including the cost of benefits 

for civilian personnel. This cost factor identifies the cost 

of benefits relative to salaries for federal workers.

Covers the cost of benefits for federal civilian 

employees in four categories:

• insurance and health benefit;

• standard civilian retirement benefit;

• Medicare benefit; and

• miscellaneous fringe benefits including workmen’s 

compensation, bonuses, awards that are based on 

annual performance ratings, and unemployment 

programs.

Does not include the value of paid leave, supplemental 

pay, and several small categories of benefits.

• Cost factor based on OPM’s actuarial 

analyses.

• Updated most recently in an OMB memo 

from 2008.

Current Population 

Survey 

Department of 

Commerce, Census 

Bureau

Department of Labor, 

BLS 

Provides labor statistics for the U.S. population.

• The monthly CPS is a household survey with 

information on the employment and unemployment 

experience of the nation’s population, classified by 

age, sex, race, education, geographic area, and a 

variety of other characteristics.

• The Annual Social and Economic Supplement of 

the CPS adds questions to the monthly CPS 

covering household and family characteristics, 

marital status, geographic mobility, foreign-born 

population, income from the previous calendar 

year, poverty, work status/occupation, health 

insurance coverage, noncash benefits, and 

education.

• The monthly CPS covers about 54,000 

households. The sample is selected to 

represent the civilian population cutting 

across all sectors.

• The Annual Social and Economic 

Supplement includes additional households. 

The sample includes estimates for the nation 

as a whole and for individual states and 

other geographic areas. This supplement is 

conducted annually (February-April). 

Federal Civilian Work 

Force Statistics: Work 

Years and Personnel 

Costs Report

OPM

Provides a wide range of federal workforce data on work 

years expended, payroll costs, fringe benefit expenses, 

types of leave used and its value, and other 

compensation items.

Most recent published report is from fiscal year 2005.

• All executive branch agencies with over 100 

employees including the U.S. Postal 

Service. 

Job Openings and 

Labor Turnover Survey

Department of Labor, 

BLS 

Provides data on job openings, hires, quits, layoffs and 

discharges, and other separations. These data serve as 

demand-side indicators of labor shortages at the 

national level. There is no demographic information on 

employees.

Covers all U.S. nonagricultural industries in the public 

and private sectors. 

• Data are from a sample of approximately 

16,000 U.S. businesses covering all 

nonagricultural industries in the public and 

private sectors.

• Separation data are disaggregated into three 

types: voluntary (quits), involuntary (layoffs 

and discharges), and other (includes death 

and retirement).

• BLS does not determine whether a 

separation is due to seasonal work.
Appendix III: Information on the Selected 

Studies’ Data Sources and Methodologies for 

Analyzing Pay and Total Compensation

Page 58 GAO-12-564 Federal Workers

Data source, affiliated 

agency Description Sample and methodology

National Compensation 

Survey 

Department of Labor, 

BLS 

Covers local, regional, and national occupational 

earnings. Covers state and local governments and 

private industry.

Components of NCS include:

• Employment Cost Index: average quarterly 

changes in wage, benefit, and compensation rates 

for a fixed market basket of labor services.

• Employer Costs for Employee Compensation: 

quarterly employer cost levels, including average 

hourly employer cost.

• Employee Benefits Survey: incidence and 

provisions of employee benefits.

• Conducted by interviews with employers 

covering 11,400 establishments and 50,500 

sampled occupations.

• Federal employees are not included.

• The North American Industry Classification 

System is used to stratify establishments by 

industry and the Standard Occupational 

Classification system is used to classify 

occupations.

National Income and 

Product Accounts 

Department of 

Commerce, BEA

Estimates total wages and total compensation including 

noncash compensation such as the employer’s 

contribution for health insurance by industry across all 

sectors.

Total compensation includes employer contributions to: 

social insurance—such as Social Security and 

Medicare; health insurance; pension and profit sharing 

plans. The value of paid leave is included in the total 

compensation calculations as wages and salaries.

• Data largely originate from public sources, 

such as government surveys (e.g., the 

Quarterly Census of Employment and 

Wages) and administrative data (e.g., the 

Social Security Administration and OPM).

• Data for general government compensation 

exclude federal workers in government 

enterprises such as postal workers. 

Occupational 

Employment Statistics 

(OES) Survey

Department of Labor, 

BLS 

Covers occupational employment and wage rates of 

wage and salary workers in private industry, and state, 

local, and federal government employees on an hourly 

and annual basis, including mean and median earnings 

for all areas — national, state, Metropolitan Statistical 

Areas, and the nonmetropolitan balance of state areas.

• 200,000 business establishments /6 months 

by substate area and industry, over 3 years, 

for 1.2 million total business establishments. 

Substate areas are Metropolitan Statistical 

Areas and one or more balance-of-state 

areas which cover the remaining nonMetropolitan Statistical Area portions of the 

state.

• The North American Industry Classification 

System is used to stratify establishments by 

industry and the Standard Occupational 

Classification system is used to classify 

occupations.

Office of Personnel 

Management Federal 

Employee Data

OPM

Provides selected data elements on federal civilian 

employees from the Central Personnel Data File and 

Enterprise Human Resources Integration-Statistical 

Data Mart. FedScope is the public access source for 

this data.

Data includes age, gender, length of service, grade, 

occupation, salary, type of appointment, agency, 

location, and Metropolitan Statistical Area.

• Data covers most agencies in the executive 

branch. Exceptions from coverage include 

the uniformed military, intelligence agencies, 

the White House, Tennessee Valley 

Authority, the Board of Governors of the 

Federal Reserve, and the U.S. Postal 

Service. 

• Coverage of the legislative branch is limited 

to the Government Printing Office, the U.S. 

Tax Court, and selected commissions.

Source: GAO analysis of data sources for compensation.
Appendix IV: Comments from the Project On 

Government Oversight

Page 59 GAO-12-564 Federal Workers

Appendix IV: Comments from the Project On 

Government Oversight
Appendix V: GAO Contact and Staff 

Acknowledgments

Page 60 GAO-12-564 Federal Workers

Robert Goldenkoff, (202) 512-6806, goldenkoffr@gao.gov

In addition to the contact named above, Trina Lewis (Assistant Director), 

Laurel Beedon, Benjamin Bolitzer, Sara Daleski, Karin Fangman, Robert 

Gebhart, Janice Latimer, Rebecca Shea, and Meredith Trauner made key 

contributions to this report.

Appendix V: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 

(450923)
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