GAO Report Finds Method to Compare Federal and Private-Sector Pay Ambiguous

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, the House Oversight and Government Reform Committee Chairman Darrell Issa and Federal Workforce Subcommittee Chairman Dennis Ross asked GAO 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

3. how selected studies compare federal and private pay and total compensation and the factors that may account for the different findings.  

The results from the GAO findings were released July 25, 2012, in a report entitled Results of Studies on Federal Pay Varied Due to Differing Methodologies (GAO-12-564). The GAO report fails to make any recommendations, but it provides a comprehensive explanation of the legal and practical reality of the federal pay system and why comparisons to the private sector vary in their conclusions about the pay gap.  

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:

1. issuance since 2005

2. original analysis,

3. 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. Findings from these 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:

1. 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);

2. 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

3. trend analysis approach (1 study)—illustrates broad trends in pay over time without controlling for attributes of the workers or jobs.  

Bottom line: When looking within and across the studies, it is important to understand the studies’ differences in approach, methods, and data because they impact how the studies can be interpreted. The differences among the selected studies are such that comparing their results to help inform pay decisions is potentially problematic. Given the different approaches of the selected studies, their findings should not be taken in isolation as the answer to how federal pay and total compensation compares with other sectors. 

View the full 66-page report here.