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This paper--which was prepared at the request of the Senate Committee on Governmental Affairs, Subcommittee on Oversight of Government Management, Restructuring, and the District of Columbia--continues the Congressional Budget Office's (CBO's) series of assessments of how the federal government's compensation practices compare with practices in the private sector. The current report, which incorporates data on nonfederal salaries from a commercial source, reviews federal pay setting and examines differences between federal and private salaries. In keeping with CBO's mandate to provide impartial analysis, the report makes no recommendations. R. Mark Musell of CBO's Microeconomic and Financial Studies Division wrote the report under the supervision of Arlene Holen, Roger Hitchner, and Marvin Phaup. Paul Cullinan, Deborah Clay-Mendez, William Gainer, and Deborah Lucas, all of CBO, provided helpful comments. The author also notes with appreciation the assistance of Allen Hearne, Office of Personnel Management; former CBO research assistant Kirk Kerr; Rosslyn Kleeman, George Washington University; and Bill Wiatrowski, Bureau of Labor Statistics. Leah Mazade edited the report, and Christine Bogusz proofread it. Kathryn Winstead prepared the report for publication, Lenny Skutnik produced the printed copies, and Annette Kalicki prepared the electronic versions for CBO's Web site. Dan L. Crippen
Summary and IntroductionThe Federal Employees Pay Comparability Act of 1990 (FEPCA) calls for the
pay of most federal white-collar employees to rise gradually to the estimated
level of nonfederal pay in their local area (see Box
1). Under the law, the Bureau of Labor Statistics (BLS) surveys
nonfederal organizations to determine the salaries they pay, and the Office
of Personnel Management (OPM) uses that information to compare federal
and nonfederal salaries and calculate pay raises for federal workers. The
federal pay system and those pay comparisons have provoked much controversy.
This analysis by the Congressional Budget Office (CBO) presents the results
of the pay comparisons that it conducted, which show that federal salaries
for selected professional and administrative jobs--but not for technical
and clerical employment--lag well behind salaries offered by private firms.
Those findings reinforce concerns about the federal pay system raised by
OPM and others--specifically, that the system allows no variation in pay
raises by occupation.
Concerns About the Federal Pay System
The Pay System's Narrow Focus. Controversy surrounds the federal system's exclusive focus on the comparability of pay, given that federal employees are also entitled to nonpay forms of compensation, such as paid vacations, retirement, and health insurance. In earlier work on the personnel system, CBO found that the value of federal benefits often exceeds the value of private firms' benefits by as much as 7 percent of pay, offsetting some of the federal disadvantage in salaries.(1) Other analysts also note that the current pay system fails to consider benefits that federal employees may have, such as job security, that are not associated with compensation. Problems with Pay Comparisons. Federal/nonfederal comparisons,
even as estimates of differences in pay alone, have raised many concerns.
Among other things, some observers question the government's practice of
comparing federal salaries with salaries for nonfederal jobs that match
only descriptions of federal employment--and that may not reflect the actual
work performed by federal employees. The continuing use of nonfederal salary
data from the mid-1990s has also drawn fire; the government is revising
its pay surveys, but the process is lengthy and at times has been controversial
(see Box 2). In response, the Congress gave OPM the authority to follow the example of private-sector firms and use commercially available salary data.(2)
Flexibility. Some observers have criticized the process by which the results of federal pay comparisons, even if accurate, are used to set salaries. In a recent report, OPM argued for more flexibility in the federal pay system, including the ability to vary pay raises by occupation.(3) Under current practices, all employees in an area get the same percentage raise, which is based on estimates of what pay comparisons reveal to be the average difference between federal and nonfederal salaries. But data from OPM and others show that federal/nonfederal pay differences vary widely by occupation, and those differences are consistent across geographic areas. In that case, granting the same percentage raise to all employees in an area would mean that some employees might be overpaid, relative to nonfederal workers, and others underpaid. Critics have also argued that the government should more closely follow private firms' practices and give its managers more flexibility to consider employees' performance and other factors when determining pay raises. The Comparisons in CBO's Analysis
Nevertheless, most of the available commercial data, as OPM has observed, have considerable limitations. In general, the personnel office has concluded that the data do not meet high enough statistical standards for use in the current system. Pay data from commercial sources are not drawn from a random sample, which is the current BLS approach and helps ensure that the results are representative of the larger population from which the sample comes. Instead, commercial data are drawn largely from the clients of private-sector pay consultants. A further limitation is that the number of firms, jobs, and localities sampled in commercial surveys is significantly smaller than the number sampled by BLS. The smaller samples provide less precision in pay comparisons. However, private firms using such data may find them adequate because in contrast to the federal system, private pay setting often gives less weight to the data and more weight to factors such as employee performance and trends in job markets. The data limitations notwithstanding, the results that CBO observed
for the jobs and areas it reviewed support the concerns about pay comparisons
noted by OPM and others. That is, the federal/nonfederal pay differences
varied widely by occupation. Data on most of the selected professional
and administrative jobs that CBO reviewed tended to show that federal salaries
lagged significantly behind those offered by private firms. However, for
the technical and clerical jobs that CBO studied, the data showed either
small differences in pay or federal salaries above the levels offered by
private firms.
Pay Comparisons Based on Commercial SurveysIn its analysis, CBO compared the salaries of federal General Schedule employees with the pay of nonfederal employees in similar jobs. The General Schedule is the government's largest pay plan, covering 1.2 million workers in a variety of white-collar occupations, such as secretary, engineer, personnel administrator, attorney, and biologist. From the list of occupations that BLS surveyed, CBO selected specific jobs with a large number of federal employees, conducting 253 separate comparisons involving 18 jobs and 17 localities.(4) Recent OPM comparisons cover over 100 jobs and 32 localities. (The jobs CBO reviewed are shown in Table 1; Box 3 lists the localities.)
The federal salary for each job and geographic area came from the Office of Personnel Management. In total, about 50,000 federal employees work in the jobs and areas covered by CBO's analysis. The Hay Group, a personnel management consultant, provided the private-sector salaries; data were drawn from about 500 establishments, mostly in transportation, chemical, metal, and other goods-producing industries. Most of the firms were clients of the Hay Group. Little information from state and local governments was included in the consultant's data. How Jobs Were Compared
The Hay Group's evaluations of federal work were conducted in five agencies in the Washington, D.C., area: the Office of Personnel Management, the Internal Revenue Service, the Department of Defense, the Securities and Exchange Commission, and the Department of Justice (see Table 1). The consultant assessed the work of three or four federal employees in each of the 18 jobs, interviewing incumbents about their responsibilities; the knowledge required to perform their job; the types of interactions, both inside and outside the agency, that their job entailed; and the impact of their work on the agency's decisionmaking. It scored the jobs on the basis of their content so that they could be ranked. For example, an attorney doing work that required mastering specialized information acquired through considerable experience and training would rank higher than an attorney doing work that required only basic knowledge of the law. After completing its evaluations of federal jobs, the Hay Group provided CBO with the average private salary in each locality for jobs whose work ranked similarly to that performed by federal employees in each of the occupations being studied. If Hay's database had fewer than five private salaries for a job in an area, it reported no average. CBO then used a method consistent with the government's approach to calculate--for each job and area--the amount by which federal salaries would have to rise (a positive difference) or fall (a negative difference) to match private-sector pay. All of the differences calculated were for 2000. Results
The results of CBO's analysis are on a par with those reported by OPM.
For example, OPM reported that in 2000, salaries for federal professionals
lagged behind private pay by an average of 32 percent. The comparable figure
for jobs in clerical occupations was only about 7 percent.
ConclusionPay comparisons are complex undertakings, and the federal approach raises many difficult issues. In the same way, the comparisons that CBO presents here have their limitations--in particular, because they cover only selected jobs and localities. The results of both comparison processes, however, reinforce a long-standing concern about the federal pay system: it allows no variation in pay raises by occupation, with the potential result that employees in professional and administrative occupations may receive smaller pay raises than those needed to match private salaries for similar jobs, and employees in technical and clerical occupations may receive pay raises that are higher than those needed to match salaries in the private sector. Thus, even if the current system was fully implemented as envisioned in FEPCA, it would fail in its aim to provide federal pay that was comparable to pay for nonfederal jobs. Granting the same percentage raise to all workers in an area will result in above-market salaries for some occupational groups and below-market salaries for others. Moreover, the jobs that show the greatest pay disadvantage for federal workers make up an increasing share of the federal workforce. From 1985 through 2000, for example, federal employment in professional and administrative occupations rose from 41 percent to 56 percent of total federal civilian employment.(5) The consequences for the federal government of low pay for its employees
may vary across jobs and agencies. In some cases, generous employee benefits,
job security, and other conditions of federal employment may compensate
for relatively lower salaries. In other cases, federal managers may be
able to manipulate the pay grades of some jobs to obtain higher salaries
for workers.(6) Some evidence
also suggests that relatively low federal salaries may result in an adjustment
in the employees attracted to federal service, with the federal government
on occasion having to accept employees with less experience and training
than private firms would.(7)
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