The GS classification system is a mechanism for organizing federal white- collar work, notably for the purpose of determining pay, based on a position’s duties, responsibilities, and difficulty, among other things. The GS system—which is administered by OPM—influences other human capital practices such as training, since training opportunities link position competencies with the employee’s performance. In 2013, the GS system covered about 80 percent of the civilian white-collar workforce, or about 1.6 million employees. Several public policy groups and some OPM reports have questioned the ability of the GS system to meet agencies’ needs for flexible talent management tools that enable them to align employees with mission requirements. In our ongoing work, among other things, we are assessing (1) the attributes of a modern, effective classification system and the extent to which the current GS system balances those attributes, and (2) OPM’s administration and oversight of the GS system. Our preliminary findings from this work are as follows: While there is no one right way to design a classification system, based on our analysis of subject matter specialists’ comments, related literature, and interviews with OPM officials, there are eight key attributes that are important for a modern, effective classification system. Collectively these attributes provide a useful framework for considering refinements or reforms to the current system. These key attributes are described in table 1. While each attribute is individually important, there are inherent tensions between some attributes, and the challenge is finding the optimal balance among them. The weight that policymakers and stakeholders assign to each attribute could have large implications for pay, the ability to recruit and retain mission critical employees, and other aspects of personnel management. This is one reason why— despite past proposals—changes to the current system have been few, as it is difficult to find the optimal mix of attributes that is acceptable to all stakeholders. In comparing the GS system to these key attributes, during our ongoing work we found a number of examples of how the current system’s design reflects some of these key attributes but falls short of achieving them in implementation. As one example, the GS system includes 15 statutorily- defined grade levels intended to distinguish the degrees of difficulty within an occupation. Standard grade levels can simplify the system and provide internal equity. Agency officials assign a grade level to a position after analyzing the duties and responsibilities according to the factor evaluation system.occupation and grade level across different agencies, providing simplicity and internal equity to the system, and may help employees move across agencies. This allows for easy comparisons of employees in the same However, having 15 grades requires officials to make meaningful distinctions between things like the extent of the skills necessary for the work at each level, which may be more difficult to determine in some occupations than others. For example, officials must be able to determine how the work of a GS-12 accountant is different from a GS-13 accountant. Making clear distinctions between these occupations may be nuanced, as the basis for them hinges on, for example, how agency officials determine the degree of complexity of the work. As a result, having 15 grade levels may make the system seem less transparent, as distinguishing between the levels may not be precisely measured by the Otherwise agencies risk having elements of the factor evaluation criteria. two employees performing substantially equal work but receiving unequal pay, which decreases the degree to which the system can ensure internal equity. We believe that, going forward, these eight attributes of a more modern, effective classification system can help provide criteria for policymakers and other stakeholders to use in determining whether refinements to the current GS system or wholesale reforms are needed. Not all occupations comprise all 15 grade levels. The occupational category determines the grade levels covered by an occupational series. because it determined that the reviews were ineffective at overseeing agency compliance with the occupational standards. Specifically, officials said the reviews were time consuming and agencies did not agree with how OPM selected the position descriptions to review. OPM officials said agencies frequently contested the results of the reviews leading to another time- and resource-intensive review process for both OPM and the agencies. OPM officials said they rely on agencies’ internal oversight programs to ensure proper application of the classification policies. However, OPM officials told us they do not review agency oversight efforts, nor do they know which agencies, if any, have robust internal oversight mechanisms. OPM officials told us that in 2014 they had 6 full-time classification policy specialists tasked with maintaining the classification standards, compared to 16 that they had in 2001, and many more in the 1980s. OPM officials said that lower staffing levels limit the agency’s ability to perform oversight. Based on our ongoing work, we believe that OPM, like all agencies, will have to make difficult tradeoffs between competing demands in this era of limited resources. A key federal human capital management challenge is how best to balance the size and composition of the federal workforce so that it is able to deliver the high quality services that taxpayers demand, within the budgetary realities of what the nation can afford. Recognizing that the federal government’s pay system does not align well with modern compensation principles (where pay decisions are based on the skills, knowledge, and performance of employees as well as the local labor market), Congress has provided various agencies with exemptions from the current system to give them more flexibility in setting pay. Thus, a long-standing federal human capital management question is how to update the entire federal compensation system to be more market based and performance oriented. This type of system is a critical component of a larger effort to improve organizational performance. As we reported in January 2014, between 2004 and 2012 spending on total government-wide compensation for each full-time equivalent (FTE)position grew by an average of 1.2 percent per year, from $106,097 in 2004 to $116,828 in 2012 (see figure 1). Much of this growth was driven by increased personnel benefits costs, which rose at a rate of 1.9 percent per year. Other factors included locality pay adjustments, as well as a change in the composition of the federal workforce (with a larger share of employees working in professional or administrative positions, requiring advanced skills and degrees). In terms of employee pay per FTE, spending rose at an average annual rate of 1 percent per year (a 7.9 percent increase overall). As we reported earlier this year, while spending on compensation increased from 2004 to 2012, it remained relatively constant as a proportion of the federal discretionary budget at about 14 percent from 2004 to 2010, with slight increases in 2011 and 2012. The composition of the federal workforce has changed over the past 30 years, with the need for clerical and blue collar roles diminishing and professional, administrative, and technical roles increasing. As a result, today’s federal jobs require more advanced skills at higher grade levels than in years past. 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. As we reported in 2012, the policy of Congress is for federal workers’ pay under the GS system to be in line with comparable nonfederal workers’ pay. Annual pay adjustments for GS employees 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 covered employee. Most GS employees also receive a locality payment that varies based on their location. 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 between 15 and 20 percent in recent years. 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. To date, no such reexamination has taken place. However, other organizations have compared federal and non-federal pay. The findings of the six studies published between 2009 and 2012 that we reviewed came to different conclusions on which sector had the higher pay and the size of the pay disparities because they used different approaches, methods, and data. With that in mind, when looking within and across these or other studies, it is important to understand the studies’ methodologies because they affect how the studies can be interpreted. The across-the-board and locality pay increases discussed above are given to all covered employees nearly every year and are not linked to performance. employees that are linked to performance ratings as determined by agencies’ performance appraisal systems include 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. Pay increases and monetary awards available to GS Based on our past work, we believe that implementing a more market- based and more performance-oriented pay system is both doable and desirable. However, experience has shown it certainly is not easy. For one thing, agencies must have effective performance management systems that link individual expectations to organizational results.