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). 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, 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. Until the late 1960s, general pay adjustments for federal employees were made through acts of Congress. The Federal Pay Comparability Act of 1970 permanently authorized the President to adjust GS pay rates annually, and established a system for recommending adjustments with the goal of increasing federal pay to be comparable with the private sector; however, we previously found that the gap between average federal and private sector salaries for similar jobs continued after implementation of the act because the recommended adjustments were not always made. 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. 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. Before FEPCA, federal employees doing the same job at the same level anywhere in the country were paid the same amount. 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. FEPCA established locality pay, and the President’s Pay Agent designated pay localities based on Office of Management and Budget (OMB) Metropolitan Statistical Areas. 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. 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. 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, 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 lowest- paying 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. 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 Therefore, the across-the-board increase for 2013 would by 1.7 percent.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. 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. 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 An 12 of the 19 years since 1994; the largest increase was 3.8 percent. In 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. 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. The smallest increase was 0 percent, during the freeze on annual pay adjustments in 2011 and 2012. 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. 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. 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 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. 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.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 The Pay 2012 would have lowered the pay disparity to FEPCA’s target of 5 percent. 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. 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. Ratings-based cash awards are lump sum cash payments that are designed to recognize performance. Quality step increases are faster-than-normal step increases that are designed to recognize excellence in performance. Agencies are permitted to provide quality step increases to eligible employees under 5 U.S.C. § 5336. Factors that are to affect GS employee eligibility for these pay increases and awards are specified in legislation and regulations and clarified in OPM guidance. two summary rating levels to a system with five summary rating levels.All the systems used by the agencies include level 3, “fully successful,” which is the pass level for a pass/fail system. 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 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 within- grade 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 plan 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. Ratings-based cash awards were more strongly linked than within- grade 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. 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.Ratings-based cash awards for these employees were given at higher 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. 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. 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. 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. 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 agency heads, not OPM, with the authority to grant awards.agency heads may grant quality step increases within the limits of available appropriations and regulatory requirements. 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. 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.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. 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 check that the awards granted meet the requirements of the law and and assists agencies in leading their own evaluations. regulations,OPM officials said that they have identified the following issues in regard to pay increases and awards: 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 mission- related 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. The different study designs used by the authors of six studies resulted in varying conclusions on how federal pay differed from private sector or nonfederal pay. As shown in table 2, conclusions varied on which sector had the higher pay (which does not include benefits) and the size of pay disparities. 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. 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. 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 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. 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. 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 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. 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 CPS 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) 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)tables to determine pay for federal and private sector workers. Types of attributes 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 job- related attributes. The trend analysis approach did not control for attributes. : Most of the studies estimated the unexplained 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. 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. 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. 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.) 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. 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. 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. 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. 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. 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 for measuring compensation for current workers, according to the study authors that used the data. Sherk used OPM data to correct for this issue of federal retiree benefits. 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. 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. As a result, the amount of money that has to be set aside today to pay for tomorrow’s benefits could be different. 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. 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 job- 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. 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 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. 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. 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. 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. 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 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 agency- specific criteria. To provide statistics on how the pay increases and awards were distributed among GS employees, we analyzed data from OPM’s Central The data we examined Personnel Data File (CPDF) for fiscal year 2011.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. 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 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 data 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, we believe the data we used from the CPDF are 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 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.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 We 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 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. 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. 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. 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. From 1991 to 1996, BLS conducted the Occupational Compensation Survey Program (OCSP) to collect data on pay of nonfederal workers. 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. 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. 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. 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. 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. 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 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. 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 purpose), and physical environment.observed that the human capital approach does not recognize that there are many different levels within an occupation such as accountant or lawyer. 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 establishments in its calculations.expertise that we interviewed, the larger sample of data helps improve the quality of the job matching. See app. II for more information on the implementation of locality pay since 1994. 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. 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. 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 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. 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.

Summary: 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. 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.