COMPARISON OF FEDERAL AND PRIVATE SECTOR PAY AND BENEFITS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90-00530R000400730002-1
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 27
• Document Creation Date: December 22, 2016
• Document Release Date: August 27, 2012
• Sequence Number: 2
• Publication Date: September 4, 1985
• Content Type: REPORT

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3Y THE U.S. GE\ERAL ACCOUVI\G OFFICE
Report To. The Chairman, Subcommittee On
Civil Service, Post Office, And General Services
Committee On Governmental Affairs
United States Senate
Comparison Of Federal And Private Sector
Pay And Benefits
This report provides comparative informa-
tion on pay, retirement benefits, health and
life insurance, annual and sick leave, and
holidays in the federal and private sectors.
Compensation programs in the two sectors
consist of many elements that must be
considered overall if meaningful conclu-
sions on the comparability of compensa-
tion levels are to be made. Information
GAO analyzed showed that some elements
of the federal compensation program are
superior but, overall, federal pay and ben-
efits lag the private sector.
GAO/GGD-85-72
SEPTEMBER 4, 1985
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mmmitALcsakaANmnm
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B-218917
UNITED STATES GENERAL ACCOUNTING OFFICE
WASHINGTON. D.C. 20SIS
The Honorable Ted Stevens
Chairman, Subcommittee on Civil Service,
Post Office, and General Services
Committee on Governmental Affairs
United States Senate
Dear Mr. Chairman:
In response to your May 14, 1984, request, this report
provides information on the differences between private sector
and federal white-collar employees' compensation packages.
As arranged with your office, copies of this report are
being sent to the Office of Management and Budget, the Office of
Personnel Management, and other interested parties.
Sincerely yours,
cb0:1:)FA.A.eftlasi"..a.v..
William J. Anderson
Director
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EXECUTIVE SUMMARY
Congress has been concerned that some groups
question federal pay and benefits as being too
generous while other groups contend that federal
pay and benefits have not kept pace with those in
the private sector.
GAO was requested by the Chairman of the Senate
Committee on Governmental Affairs' Subcommittee
on Civil Service, Post Office, and General
Services to provide currently available
information on private sector and federal
white-collar employees' compensation packages.
This report provides comparative information on
pay, retirement benefits, health insurance, life
insurance, annual leave, sick leave, and
holidays.
BACKGROUND
Federal employees' pay is governed by the
comparability principle--a statutory concept
designed to assure employees and the nation's
other taxpayers that federal salaries are
equitable and comparable with pay for similar
levels of work in the private sector. Unlike pay
there is no statutory requirement to periodically
compare and adjust employee benefits. Benefits
are established and adjusted by legislative
action on an ad hoc basis. (-See pp. 1 to 2.)
By law, unless the President proposes alternative
pay rates, federal white-collar employees'
salaries are to be set at a level that makes
their pay comparable with private sector salaries
for similar levels of work as determined each
year by the President's Pay Agent (the Directors
of the Office of Management and Budget and the
Office of Personnel Management and the Secretary
of Labor).
Several studies have been conducted in recent
years on individual components of the federal
employee compensation package. Only one study,
however, completed in 1984 by the Hay/Huggins
Company for the House Committee on Post Office
and Civil Service, provides current information
on federal white-collar employees' overall
compensation as compared to private sector
employees. GAO did not validate data in the
studies it analyzed.
RESULTS IN
BRIEF
The Hay/Huggins study concluded that as of March
1, 1984, federal employees' total compensation
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_ -
EXECUTIVE SUMMARY
package lagged behind the private sector by 7.2
percent. Federal retirement and annual leave
benefits were found to be more valuable than
private sector programs while other federal
benefits and white-collar employees' pay lagged
behind the private sector. Since the federal pay
increase for fiscal year 1985 was limited to less
than the average increase in the private sector,
Hay estimated that the overall difference between
federal and private sector compensation had
increased from 7.2 to 9 percent or more. (See
p. 6.)
Compensation programs in the two sectors consist
of several elements that must be considered
overall if meaningful conclusions on the
comparability of pay and benefits are to be
made. For example, on the basis of information
GAO gathered, if federal pay alone were made
comparable to the private sector, overall federal
compensation would be superior to the typical
private sector program. On the other hand, if
federal compensation elements that are more
generous such as retirement were reduced, the
current lag in overall federal compensation
compared to the private sector would be
increased. (See p. 18.)
GAO's ANALYSIS
Pay
Frequent Presidential use of alternative pay
rates has dropped pay significantly behind that
of the private sector. Since 1978, the President
has consistently set pay using alternative pay
rates which produced an increase less than that
proposed by the Pay Agent. (See p. 9.)
The cumulative effect of the use of alternative
pay rates during 1978 to 1984 was the primary
factor in the Pay Agent's determination that an
18.28 percent increase was necessary for pay
comparability for fiscal year 1985. The
President, however, reduced the pay increase to
3.5 percent and that was delayed from October 1
1984, until January 6, 1985.
A comparison of increases in federal white-collar
pay with the Employment Cost Index, which
includes all private sector white-collar workers'
wages and salaries, shows that federal pay has
increased more slowly than private sector pay.
October 1977 was the last time that federal
employee pay was set at the level that the Pay
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EXECUTIVE SUMMAM
Agent's analysis showed would produce
comparability. While the Employment Cost Index
has a cumulative increase of 65.5 percent from
the third quarter of 1977 through the last
quarter of 1984, federal white-collar pay
experienced a 44.5 percent cumulative increase.
(See p. 8.)
Retirement The civil service retirement system is the sole
Benefits source of retirement income available from
federal civilian employment for employees hired
before January 1984. Retirement programs
available to private sector employees, however,
typically consist of three parts--social
security, a pension plan, and a capital
accumulation plan (thrift, profit sharing, stock
ownership plans, etc.). (See p. 12.)
The Office of P'ersonnel Management has determined
that the civil service retirement system costs
the government 27.9 percent of pay; a 1984 study
by its contractor, Towers, P'errin, Forster and
Crosby, found that the cost of private sector
retirement programs averaged 18 percent of pay.
The Hay/Huggins study found that the civil
service retirement system is worth 24.7 percent
of pay compared to 18.3 percent for the average
private sector retirement program. The greater
federal retirement cost occurs primarily because
benefits are adjusted annually for increases in
the Consumer Price Index and unreduced benefits
are available to some employees at age 55. These
features are not typically found in private
sector pension plans.
Health Studies done by GAO, William M. Mercer, Inc., and
Insurance the Hay/Huggins Company indicate that private
sector employers pay a greater share (usually
all) of employee health insurance premiums than
does the government. The studies showed that the
typical private sector health insurance plan also
reimburses more of employees' medical expenses,
and calendar year deductibles are less than in
federal government plans. (See p. 14.)
Life Private sector life insurance programs provide
Insurance more basic insurance coverage than does the
government's Federal Employees Group Life
Insurance Program. Studies by the Conference
Board, the Bureau of Labor Statistics and
Hay/Huggins reported that typical private sector
plans provide basic insurance coverage at 2 times
Page iii GAO/GGD-85-72 Pay and Benefits
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EXECUTIVE SUMMARY
Holidays,
Annual, and
Sick Leave
pay; the government provides similar coverage but
only to employees age 35 and under. Also, basic
insurance coverage is typically provided at no
cost to private sector employees, whereas federal
employees pay two-thirds of the cost of their
coverage.
The Hay/Huggins study indicated that federal
employees receive one less holiday than private
sector employees, but this disadvantage is offset
by more generous federal annual leave benefits.
The private sector includes sick leave benefits
as one element of disability income protection
along with short- and long-term disability
insurance programs. Hay indicated that federal
sick leave lags the average private sector
disability income plan by 0.7 percent of pay.
(See p. 16.)
MATTERS FOR In considering future changes and adjustments to
CONGRESSIONAL elements of the federal compensation program,
CONSIDERATION Congress may wish to make such decisions from the
perspective of their effect on overall
compensation levels. If such an approach is
deemed appropriate, a mechanism for periodically
measuring and assessing benefit program
comparability will be necessary to complement the
pay comparability process already required by law.
AGENCY COMMENTS GAO did not obtain agency comments on this report.
Page iv GAO/GGD-85-72 Pay and Benefits
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Contents
Page
EXECUTIVE SUMMARY
CHAPTER
II
III
IV
V
APPENDIX
INTRODUCTION 1
Pay comparability process 1
Objectives, scope, and methodology 2
COMPENSATION COMPARABILITY OF FEDERAL
AND PRIVATE SECTOR WHITE-COLLAR
EMPLOYEES 6
Current information on comparison
of compensation elements 6
FEDERAL PAY INCREASES LAG
PRIVATE SECTOR INCREASES 8
Annual pay adjustments have
been less than Pay Agent's
comparability determinations 9
Hay/Huggins' pay comparison techniques 11
Pay Agent's determinations in line
with ECI 11
FEDERAL EMPLOYEES' BENEFITS PACKAGE
AHEAD OF PRIVATE SECTOR 12
Retirement 12
Health insurance 14
Life insurance 15
Annual leave, sick leave, and holidays 16
CONCLUSIONS AND MATTERS FOR
CONGRESSIONAL CONSIDERATION 18
Matters for congressional
consideration 18
Letter dated May 14, 1984, from the
Chairman, Subcommittee on Civil
Service, Post Office, and General
Services, Committee on Governmental
Affairs, U.S. Senate
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ABBREVIATIONS
BLS Bureau of Labor Statistics
CPI 'COnsumer Price Index
ECI Employment Cost Index
GAO General Accounting Office
OPM Office of Personnel Management
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CHAPTER I
INTRODUCTION
In his request for this study, the Chairman of the Senate
Committee on Governmental Affairs' Subcommittee on Civil
Service, Post Office, and General Services expressed concern
that
"During the past several years, various groups
have criticized federal compensation practices as
being too generous to federal employees and too
costly for the government. Conversely, other
groups have contended that the federal
compensation package has eroded to the extent
that federal employee pay and benefits are less
than comparable to the private sector."
The Federal Pay Comparability Act of 1970 established
policies and procedures for determining annual pay adjustments
for white-collar employees under statutory pay systems.1 Under
the act, unless the President and the Congress specifically
decide otherwise, federal employees' pay is to be governed by
the comparability principle--a concept designed to assure
employees and the Nation's other taxpayers that federal salaries
are equitable and comparable with pay for similar levels of work
in the private sector. Compensation other than pay includes
benefits such as retirement, health insurance, life insurance,
annual leave, sick leave and holidays. There is neither a
statutory policy to guide employee benefit determinations nor a
systematic process for evaluating the extent of comparability
.between federal benefits and private sector bene-its and
adjusting federal benefit provisions. Benefits are established
and adjusted by legislative action on an ad hoc basis.
PAY COMPARABILITY PROCESS
The concept of pay comparability for federal employees was
adopted in 1962 with enactment of the Federal Salary Reform Act
which declared that white-collar pay rates would be based on
private sector rates for similar levels of work. The Federal
Pay Comparability Act, enacted in 1970, transferred primary
responsibility for adjusting pay rates for white-collar
employees from the Congress to the executive branch--thus making
it an administrative rather than a legislative task. A basic
objective of the act was to establish a process that would
provide annual comparability adjustments for employees under the
statutory pay systems based on an annual survey comparing
1These pay systems include General Schedule (white-collar)
employees, Foreign Service employees, and certain employees of
the Department of Medicine and Surgery, Veterans'
Administration.
1
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federal pay rates with rates of pay in the private sector far
similar levels of work. The Senior Executive Service positions
and other executive positions are not covered by the
comparability process. Three principal groups were established
by the act to carry out the comparability process--the
President's Pay Agent, the Federal Employee's Pay Council, and
the Advisory Committee on Federal Pay.
President's Pay Agent
The Director, Office of Personnel Management (OPM), the
Director, Office of Management and Budget, and the Secretary of
Labor jointly serve as the President's Pay Agent for making
federal white-collar pay comparability determinations. The
Department of Labor's Bureau of Labor Statistics (BLS) conducts
an annual survey of professional, administrative, technical, and
clerical pay rates in private industry which is used by the Pay
Agent to make comparisons with the rates of pay for federal
white-collar employees for the same levels of work. The Pay
Agent specifies the geographic scope of the Bureau's salary
survey, the industries to be studied, the minimum establishment
size to be included, and the survey occupations.
Federal Employees Pay Council
The Federal Employees Pay Council consists of five members
who are not employees of the federal government. The Pay
Council is comprised of representatives of federal employee
organizations which represent substantial numbers of employees
under the statutory pay systems. No more than three members of
the Pay Council can be from a single employee organization,
council, federation, alliance, association, or affiliation of
employee organizations. The Pay Council is to meet periodically
with the Pay Agent and give its views and recommendations on the
pay process and annual comparability adjustments.
Advisory Committee on Federal Pay
The Advisory Committee on Federal Pay is composed of three
members who are not employees of the federal government. The
three members are appointed by the President, and one member is
designated to serve as chairman. Each member serves for a term
of 6 years. The Advisory Committee's purpose is to provide the
President with independent third-party advice on the pay
proposals, considering the recommendations of the President's
Pay Agent and the Federal Employees Pay Council.
OBJECTIVES, SCOPE, AND METHODOLOGY
We undertook our review at the request of the Chairman of
the Senate Committee on Governmental Affair's Subcommittee on
Civil Service, Post Office and General Services. The Chairman
requested that we provide comparative information on private
sector and federal white-collar employee compensation packages.
2
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(See app. I.) In developing this information, we were asked to
use existing data from our previous and ongoing work on federal
compensation matters, as well as other currently available data.
Therefore, we did not independently collect new information.
The Subcommittee's office asked us to provide comparative
information on the following compensation elements:
--pay;
--retirement (includes long-term disability benefits);
--life insurance;
--health insurance;
--annual leave;
--sick leave (includes short-term disability benefits); and
--holidays.
We identified approximately 60 studies subsequent to 1980
that included information on federal and/or private sector
employees pay and/or the benefits discussed above. The scope of
our work did not include secondary benefits such as employee
discounts, free parking, personal use of employer-owned
automobiles, etc. that many workers are also eligible to
receive. The scope of the studies ranged from large to small
companies. We did not verify the data in studies by others. We
used data contained in appropriate studies as the source of
comparative information on private sector compensation
programs. These sources were as follows:
--The President's Pay Agent's annual reports for 1977
through 1984, Comparability of the Federal Statutory Pay
Systems With Private Enterprise Pay Rates. These reports
(1) compare the rates of pay of the statutory pay systems
with the rates of pay for the same levels-of work in
private enterprise on the basis of annual surveys
conducted by the Bureau of Labor Statistics; (2) make
determinations of the adjustments in rates of pay
necessary to maintain comparability with private sector
pay; and (3) include the views and recommendations of the
Federal Employees Pay Council and employee organizations
not represented on the Council.
--Department of Labor's Bureau of Labor Statistics annual
reports for 1977 through 1984, National Survey of
Professional, Administrative, Technical, and Clerical
Pay. These reports summarize the results of the Bureau's
annual survey of selected professional, administrative,
technical, and clerical occupations in private industry.
The nationwide salary information is representative of
establishments in a broad spectrum of industries
throughout the United States, except Alaska and Hawaii.
--Department of Labor's Bureau of Labor Statistics August
1984 report, Employee Benefits in Medium and Large Firms,
1983. This report provides results of the 1983 Bureau of
3
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Labor Statistics survey of the incidence and provisi-ons
of employee benefits in medium and large private firms.
The survey provides data for 10.2 million full-time
white-collar workers in establishments employing as few
as 50, 100, or 250 full time employees, depending on the
industry surveyed. It includes information on holidays,
vacations, personal and sick leave, sickness and accident
coverage, long-term disability, health and life
insurance, and pension plans.
--Hay/Huggins Company, Study of Total Compensation in the
Federal, State, and Private Sectors/ (N.p.: Hay/Huggins
Dec. 4, 1984). A number of studies have been completed
that compared individual components of the federal
employee compensation package, but only the Hay/Huggins
study provides current information on federal white-
collar employees overall compensation as compared to
private sector employees. This study was conducted for
the House Committee on Post Office and Civil Service.
The report compares federal pay and benefits with those
paid by the companies in Hay's private sector data base.
Hay's data base includes information on pay rates in
1,249 medium (100 to 1,000 employees) and large (over
1,000 employees) companies and benefits data on 854
companies (size not specified). The Hay/Huggins Company
is a management consulting firm specializing in private
sector pay and benefits programs.
--U.S. General Accounting Office, Financial and Other
Problems Facing the Federal Employees Health Insurance
Program, (GAO/HRD-83-21, Feb. 28, 1983). This report
compares the Federal Employees Health Benefits Program
with private sector health insurance plans. It covers
employee/employer contributions toward premium costs as
well as the categories and levels of insurance protection
provided to employees in both sectors.
--William M. Mercer, Incorporated, Review of Federal
Employees Health Benefits Program, (New York: William
M. Mercer, Incorporated, July, 1982). This study, done
for the House Committee on Post Office and Civil Service,
compares the major federal health plans to those
sponsored by five large private sector employers.
Specifically, it compares (1) reimbursement percentages
to employees, (2) continuation of coverage benefits for
employees leaving active service, and (3) employee
contributions to the cost of medical benefits. William
M. Mercer, Incorporated, a management consulting firm,
studies the compensation programs of private and public
employers.
--The Conference Board, Profile of Employee Benefits: 1981
Edition (New York: The Conference Board, 1981). This
4
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report describes employee benefit practices as reported
by 2,651 large companies in 7 broad types of business,
and a sample of 432 small manufacturers. Information is
presented about benefits for three employee groups:
nonoffice employees, office and clerical employees, and
managerial employees. The Conference Board is an
independent, not-for-profit research institution which
conducts scientific studies of management and economics.
--U.S. General Accounting Office, Features of Non-federal
Retirement Programs (GAO/OCG-84-2, June 26, 1984). This
report depicts the prevailing features of non-federal
retirement programs as shown by selected studies and data
bases. The primary source of information for the report
was the Department of Labor's Bureau of Labor Statistics
(BLS) report entitled Employee Benefits in Medium and
Large Firms, 1982. A total of 976 pension plans were
included in the BLS survey. Various other private sector
studies were also used by GAO to confirm and supplement
the BLS data.
--U.S. General Accounting Office, Benefit Levels of
Nonfederal Retirement Programs (GAO/GGD-85-30, Feb. 26,
1985). This report supplements GAO's previous
report--Features of Nonfederal Retirement Programs
(GAO/GGD-84-2, June 26, 1984)--by estimating the levels
of benefits at retirement that selected nonfederal
programs provide to employees at various ages, years of
service and salary levels.
--Office of Personnel Management's July 1981 paper, Total
Compensation Comparability--Background-Method,
Preliminary Results. This paper describes a pilot test
of a benefits evaluation method for use in broadening the
pay comparability system to include consideration of
benefits as well as pay rates. Data collected during
1979 and 1980 was used in the pilot test.
Our work was performed during August 1984 through March
1985. As requested by the Chairman's office, we did not obtain
agency comments on this report.
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CHAPTER 2
COMPENSATION COMPARABILITY OF FEDERAL
AND PRIVATE SECTOR WHITE-COLLAR EMPLOYEES
By law, the President is to compare salary levels for
federal white-collar employees with private sector salaries for
similar levels of work and either: (a) set federal pay equal to
comparable private sector pay or (b) under certain specific
conditions, set alternative pay rates. However, benefits are
established and adjusted by legislative action on an ad hoc
basis. Thus, the government does not systematically compare
information on federal employees' overall compensation with that
of their private sector counterparts.
CURRENT INFORMATION ON COMPARISON
OF COMPENSATION ELEMENTS
The Hay/Huggins Company concluded that, as of March 1984,
federal white-collar employees' retirement and annual leave
benefits were superior to the benefits in the typical private
sector program while federal pay and other benefits lagged
behind, as shown below:
Element of compensation
Extent to which federal
compensation is ahead (+) or
behind (-) the private sector
(as a percentage of payroll)
Pay -10.3
Retirement + 6.4
Death benefits (life insurance) - .3
Disability (sick leave included) - .7
Health benefits - 2.2
Executive perquisites - 1.2
Annual leave + .8
Overall& - 7.2
allay stated that because some benefits vary by salary, this
(overall) percentage is not simply the sum of salary and
benefits.
Hay estimated that the overall difference between federal and
private sector compensation had increased from 7.2 to 9 percent
or more because the federal fiscal year 1985 pay raise of 3.5
percent was less than the average increase in the private
sector.
6
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The fiscal year 1986 budget resolution passed by Congress
included a one-year freeze on the pay of civilian employees. If
the President's annual pay adjustment recommendation includes a
pay freeze, it could result in the federal compensation package
lagging further behind the private sector.
7
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CHARTER 3
FEDERAL PAY INCREASES LAG
PRIVATE SECTOR INCREASES
Determining comparability of federal pay with the private
sector is very difficult and the results of the comparisons can
vary depending on the methodology used. Using the job matching
procedure prescribed by law, the Pay Agent determined that
federal pay lagged the private sector by 18.28 percent in March,
1984. The Hay/Huggins Company used a point-factor evaluation
method and found that federal pay was 10.3 percent behind the
private sector at that time. (Hay's techniques are described
more fully on p. 11 of this report.) Thus, different observers
can make valid comparisons but reach different conclusions about
comparability of federal pay.
Each year after 1977, actual pay adjustments granted to
federal employees have been less than the President's Ray
Agent's analysis showed was necessary to achieve comparability
with the private sector. The cumulative effect of less than
comparable increases during 1978 to 1984 was the primary factor
in the Pay Agent's determination that an 18.28 percent pay
increase was necessary to achieve comparability in fiscal year
1985. The President adjusted the pay increase to 3.5
percent--and that was delayed from October 1, 1984, until
January 6, 1985.
A comparison of increases in federal white-collar pay
with the Employment Cost Index (Ed), which includes all private
sector white-collar worker's wages and salaries, shows that
federal pay has increased more slowly than private sector pay.
October 1977 was the last time federal employee pay was set at
the level 'that the Ray Agent's analysis showed would produce
comparability. While the ECI has increased 65.5 percent from
the third quarter of 1977 through the last quarter of 1984,
federal white-collar pay experienced a 44.5 percent increase, as
shown by Figure 3.1.
8
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0.70
0.60
tX ? ?
61, 050
CC
0.40
4
0.30
UJ
020
4
2
0.10
00
0e1-77
FIGURE 3.1
GS PAY INCREASES COMPARED
TO EMPLOYMENT COST INDEX
Oct-711
Oct-79
0e1-60
o GS PAY
ON-111
? ECI
Oct-62
Jan-44
Jan-43
ANNUAL PAY ADJUSTMENTS HAVE
BEEN LESS THAN PAY AGENT'S
COMPARABILITY DETERMINATIONS
Frequent Presidential use of alternative pay rates has
dropped pay significantly behind that of the private sector.
Moreover, in 1983 and 1984, the President deferred the pay
adjustments for 3 months (from October to the following
January).
After considering the Pay Agent's comparability
determinations and the views of the Advisory Committee on
Federal Pay, the President can grant comparability adjustments
with no action required by the Congress. Pay adjustments are to
take effect in October of the applicable year. The law provides
that, if warranted because of national emergency or economic
conditions affecting the general welfare, the President can
submit alternative rates of pay to the Congress. Although the
law provides that the alternative pay rates may be defeated by a
majority vote of either house, such "legislative vetoes" have
been held unconstitutional.2 Thus, to override the President's
alternative pay rates, the Congress would have to enact
legislation providing a different set of pay rates.
2Immigration and Naturalization Service v. Chadha, 462 U.S. 919
(1983). We note that the President's authority to submit
alternative pay rates has been challenged in litigation. AFGE
v. Reagan, No. 83-1914 (D.D.C. filed Jul 1, 1983).
9
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Fiscal year 1985 marked the seventh straight year that a
President has proposed, and the Congress did not disapprove,
alternative pay rates instead of granting the comparability
adjustments indicated by the Pay Agent's analysis. For fiscal
year 1985,. the Pay Agent determined that an average 18.28
percent pay increase would be needed to close the gap that
increasingly widened over the 7 years because of the use of
alternative rates of pay. The tabulation following shows the
cumulative effect that alternative rates of pay have had on
federal white-collar pay rates:
Difference:
President's
Pay
Pay Agent's
pay
Agent's deter-
Prior
determination
adjustment
Current
mination
years' gap
less pay gap
put into
year
Yeara (average)
(cumulative)
from prior yearsb
effect
gapc
1977(Oct) 7.05
None
None
7.05
None
1978(Oct) 8.40
None
None
5.50
2.90
1979(Oct) 10.41
2.90
7.51
7.00
.51
1980(Oct) 13.46
3.41
10.05
9.10
.95
1981(Oct) 15.10
4.36
10.74
4.80
5.94
1982(Oct) 18.47
10.30
8.17
4.00
4.17
1984(Jan) 21.51
14.47
7.04
4.00
3.04
1985(Jan) 18.28d
17.51
.77
3.50
aEffective date of pay adjustment.
bRepresents comparability adjustments that would have been necessary had there
been no pay gap from prior years.
9Represents the current year's pay comparability gap-nad there been no gap
carried forward from previous years.
dThe Pay Agent made several changes to the comparability process in 1984,
including the use of median instead of mean federal and private sector
salaries for comparison purposes. OPM estimated the changes decreased the
comparability amount for fiscal year 1985 from approximately 23.25 percent to
18.28 percent. More than half the change was due to the addition of a new
administrative classification, Systems Analyst, to the BLS survey.
Beginning with the 1986 survey, the Pay Agent approved
additional modifications to the pay comparability process. More
private sector establishments with as few as 50 workers will be
surveyed. The current survey largely excludes establishments of
250 and fewer employees. The 1987 survey will be expanded to
10
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include industries not currently surveyed, establishments with
as few as 20 workers, and state and local governments.3
HAY/HUGGINS PAY
COMPARISON TECHNIQUES
The Hay/Huggins Company total compensation study concluded
that federal pay lagged 10.3 percent behind the private sector
as of March 1, 1984. The Hay report explained that the
difference between its findings and the Pay Agent's was caused
by the Hay methodology being markedly different from that
employed in the BLS survey. Hay used the same pay comparison
techniques it uses for its private sector work. First, Hay used
its point-factor evaluation method to determine job
comparability while BLS uses actual job matching. Hay stated
that the point-factor evaluation method measures factors common
to all jobs, rather than factors which depend upon the specific
nature of a position--such as the duties performed. Second, Hay
used the amount employers pay, on the average, for jobs with
comparable evaluation points while the Pay Agent used the median
pay of incumbents in jobs with the same duties. Hay therefore
concluded there was no reason to expect its study to produce the
same results as the BLS survey or to assume that the BLS survey
results were wrong.
PAY AGENT'S DETERMINATIONS
IN LINE WITH ECI
Each year the Pay Agent calculates the adjustments needed
to achieve federal white-collar salary comparability with the
private sector. Since 1977, the annual federal pay increases
implied by the Pay Agent's calculations have corresponded
'closely with the changes in private sector white-collar workers'
salaries as measured by the ECI. The ECI, which has a broader
coverage than the BLS survey--43.7 million white-collar workers
versus 10.3 million--provides a quarterly measure of the change
in private sector wages and salaries. OMB has designated the
ECI as a principal federal economic indicator. Less than a
percentage point difference existed between the Pay Agent's
findings and the change in the ECI for private sector white-
collar workers' salaries over the 7-year period ending March
1984--the ECI had a cumulative increase of 65.65 percent while
the Pay Agent's findings showed a 65.70 cumulative increase.
3State and local government information cannot be used in the
pay comparability process until enabling legislation is passed
since the statute refers to "private enterprise pay rates."
11
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CHAPTER 4
FEDERAL EMPLOYEES' BENEFITS PACKAGE AHEAD
OF PRIVATE SECTOR
Various studies have shown that federal employees are ahead
of private sector employees in retirement benefits but behind in
health and life insurance benefits. The Hay/Huggins study found
that, overall, federal benefits, as a percentage of federal pay,
were 2.8 percent more valuable than benefits provided private
sector employees as of March 1, 1984.
The primary benefits provided federal employees are
retirement, health insurance, life insurance, annual leave, sick
leave, and holiday pay. The government does not provide
executive perquisites--such as employer-provided cars, deferred
compensation and stock arrangements, etc.--to its employees that
are commonly available to certain groups of private sector
employees. Hay/Huggins valued executive perquisites for private
sector employees at 1.2 percent of pay.
RETIREMENT
The civil service retirement system is, for federal
civilian employees hired before January 1984, the sole source of
retirement income from federal employment.4 Retirement.
programs available to private sector employees, however,
typically consist of three parts--social security, a pension
plan, and a capital accumulation plan. Capital accumulation
plans include thrift plans, profit sharing platrs, stock
ownership plans, etc. Some employers sponsor more than one type
of capital accumulation plan.
OPM has determined that the civil service retirement system
costs the government 27.9 percent of pay. A 1984 study done for
OPM by the management consulting firm of Towers, Perrin,
Forster, and Crosby5 found that the cost of private sector
retirement programs averaged 18 percent of pay.
'Federal employees hired after December 1983 are covered by
social security. By law (Public Law 98-168, dated November 29,
1983), a.. new retirement plan to supplement social security
benefits for these employees must be in place no later than
January 1, 1986. This new retirement plan had not been
designed as of July 1985.
5Review of Non-federal Retirement Practices and Costs (Wash.,
D.C.: Towers, Perrin, Forster, and Crosby, Aug. 1984).
12
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The Hay/Huggins study also found the cost of the civil
service retirement system to be more than the cost of the
average private sector program. Hay/Huggins estimated the civil
service retirement system cost to be 24.7 percent of pay--Hay
explained that the difference between the OPM figure is
attributable ?6 different actuarial assumptions--compared to
18.3 percent for the average private sector retirement program.
The studies discussed above, and others,6 show that
certain features of the civil service retirement system cause it
to be more expensive than retirement plans in the private
sector. The most important reason for the cost differences is
that civil service retirement benefits are adjusted for
increases in the cost of living, whereas fully indexed
adjustments are generally not available in private sector
pension plans. Another reason is that long-term federal
employees (those with 30 or more years of service) can retire
without a benefit reduction at age 55. In most private sector
pension plans, benefits are reduced when employees retire before
age 62.
Cost-of-living
adjustments to pensions
Civil service retirement benefits are adjusted annually for
the full increase in the Consumer Price Index (CPI). Similarly,
the social security portion of private sector retirement
programs is fully indexed. However, private sector pension plan
adjustments for inflation are usually granted on an ad hoc
basis. A study7 conducted for the Department of Labor showed
that during 1973 to 1979, private sector pension plans increased
benefits on the average by 38 percent of the CPI. In plans with
10,000 or more participants, the average increase during the
period was 57 percent of the CPI.
Retirement at age 55
Although federal employees can retire at age 55 with 30
years of service, most retire after age 60. Over the last 10
years the average retirement age has been 61 with 29 years of
service. Private sector pension plans do not, as a rule, permit
employees to retire with unreduced benefits before age 62. Our
6Designing a Retirement System for Federal Workers Covered by
Social Security (Congressional Research Service, Dec. 1984);
President's Private Sector Survey of Cost Control, Report on
Personnel Management (Spring - Fall 1983); and Analysis of
Grace Commission Proposals to Change the Civil Service
Retirement System (GAO/GGD-85-31, Feb. 13, 1985).
7Inflation and Pension Benefits (Department of Economics and
Business, North Carolina State University, Aug. 1983).
13
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report on features of nonfederal retirement programs8 showed
that most private sector pension plans permit employees to
retire at age 55, but--as shown in our benefits report9--they
usually required benefit reductions generally averaging between
2 and 4 pei.Cent for each year the retiree is under age 62. Some
private sector plans, however, allow employees who work 39 years
or more to retire with full benefits at any age. A study 10
conducted by BLS of retirement plans covering about 16 million
private sector employees showed that 16 percent were in plans
that allowed retirement at any age if the employees had 30 years
of service.
HEALTH INSURANCE
The Federal Employees Health Benefits Program was enacted
in 1959 with the intent that it provide benefits for federal
employees comparable to those provided by large private sector
businesses. However, studies done by GAO and others, as
discussed below, showed that private sector employers
contributed a greater share (usually all) of the health
insurance premiums than did the federal government. The
Hay/Huggins study found that federal health insurance benefits
were 2.2 percent of pay behind private sector benefits.
A 1982 federal employee health program study done by the
management consulting firm of William M. Mercer,
Incorporated,11 found the government's premium contribution to
be less than that contributed by private employers. For the six
major federal health insurance plans, which cover approximately
80 percent of all employees, Mercer found government
contributions represented 57 percent of the total premium. In
contrast, Mercer said that private sector employers generally
paid all or a major portion of the total premium for employees.
The Mercer study indicated that, on the average, the
government's largest health insurance plans reimbursed
approximately 73 percent of federal employees' medical
expenses. According to Mercer, the average private sector plan
reimbursed 82 percent of medical expenses. Mercer also found
that private sector employees' medical coverage was subject to
8Features of Nonfederal Retirement Programs (GAO/OCG-84-2, June
26, 1984).
9Benefit Levels of Nonfederal Retirement Programs
(GAO/GGD-85-30, Feb. 26, 1985).
"Employee Benefits in Medium and Large Firms, 1983 (Bureau of
Labor Statistics Bulletin 2213, Aug. 1984).
"Review of Federal Employees Health Benefits Program (N.p.;
William M. Mercer, Incorporated, July, 1982).
14
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a calendar year deductible of $100 or less. In contrast, all of
the federal government plans other than the Health Maintenance
Organization Plans had deductibles in excess of $100.
In 1983, we issued a report on the Federal Employees Health
Benefits Program12 which also showed that private sector
employers pay a greater share of employee health insurance
premiums than does the government. Our study showed that the
government contributed an average of 64 percent of health
insurance premiums for employees' benefits and an average of 58
percent of the premiums for dependent coverage. Comparatively,
at least 90 percent of the private sector employers studied
contributed more than the government for employee health
benefits; 68 percent paid the entire premium cost. For
dependent coverage, at least 78 percent contributed more than
the government; 40 percent paid the entire premium cost.
The Hay/Huggins study compared the plan then elected by
most federal employees--the high option service benefit plan
administered by Blue Cross/Blue Shield--with private sector
plans. It found that the government pays approximately 60
percent of the premium for both employees and dependents under
this plan. In the private sector, Hay said two-thirds of the
employers pay for employee coverage in full and 39 percent pay
for dependent coverage in full. Hay also found that, except for
significant dental coverage, the Blue Cross/Blue Shield plan
covers the same type of hospital, medical and prescription drug
expenses as does the typical private sector plan. However, it
noted that the Blue Cross/Blue Shield employee deductible was
$200 versus $100 for the typical private sector plan.
On June 21, 1983, OPM submitted a legislative proposal to
Congress to restructure the Federal Employees Health Benefits
Program through the use of a voucher system to strengthen
financial control over the program and enhance competition among
participating health plans. Under the voucher system, OPM
proposed that if an enrollee elects a less comprehensive plan
with a premium cost below the available government contribution,
the enrollee would be entitled to receive the difference not to
exceed 40 percent of the government contribution. This proposal
was the result of an OPM initiative and not supported by a
comparison with practices in private sector health benefits
programs.
LIFE INSURANCE
The Federal Employees Group Life Insurance Program provides
federal employees the opportunity to obtain group life
insurance. However, private sector employers' life insurance
12Financial and Other Problems Facing the Federal Employees
Health Insurance Program (GAO/H1W-83-21, Feb. 28, 1983).
15
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programs provide more insurance coverage at less cost to
employees than the federal program.
The Hay/Huggins study indicated the value of the federal
life insurance program is 0.3 percent of pay less than private
sector plans. It found that basic group life insurance coverage
of twice annual salary is most commonly provided in the private
sector. Research d99e by the Conference Board13 and the Bureau
of Labor Statistics" also found coverage to be commonly
provided at twice annual salary. Under the FEGLI program,
employees receive basic coverage in amounts that vary by age.
Employees under age 36 are eligible for basic insurance coverage
in an amount equal to their annual basic pay rounded to the next
higher thousand dollars plus $2,000, multiplied by 2. Beginning
at age 36, the coverage amount decreases each year until it
reaches 1.0 times annual basic pay plus $2,000. at age 45 and
thereafter.
The Hay/Huggins study indicated that private sector basic
group life insurance plans are typically provided at no cost to
the employee. Similar conclusions were reached in the other
studies mentioned above. Under the federal program, employees
pay two-thirds of the cost of the basic insurance coverage (the
federal government pays one-third).
ANNUAL LEAVE, SICK LEAVE,
AND HOLIDAYS
Our review identified no studies that individually compared
federal and private sector holidays, annual leave and sick leave
benefits. However, the Hay/Huggins study analyzed these
benefits on a collective basis. Hay concluded that federal
employees' holiday and vacation benefits are 0.8 percent of pay
more valuable- than similar benefits provided to private sector
employees. The private sector includes sick leave benefits as
one of the elements of disability income protection.
Hay/Huggins indicated that the government lags the average
private sector disability income plan by 0.7 percent of pay.
The Hay/Huggins study noted that the federal government
grants its employees nine paid holidays each yearlp versus an
average of 10.2 in the private sector. Studies made by the
13Profile of Employee Benefits: 1981 Edition (New York: The
Conference Board, 1981).
14Empoyee Benefits in Medium and Large Firms, 1983 (Bureau of
Labor Statistics Bulletin 2213, Aug. 1984).
15The birthday of Martin Luther King, Jr., becomes a national
holiday the third Monday of every January beginning in 1986.
16
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Conference Board16 and the Bureau of Labor Statistics17 also
indicate that private sector employers provide an average of 10
holidays a year. The Hay/Huggins study found, however, that the
private sector holiday advantage is offset by more generous
annual leave benefits for short service federal employees.
The BLS study reported that the average number of days of
paid vacation provided private sector employees each year was:
8.7 days at one year of service, 10.3 days at 3 years of
service, 18.2 days at 15 years of service, and 20.5 days at 20
years of service. Federal employees, on the other hand, accrue
annual leave as follows: 13 days a year for the first 3 years
of service, 20 days between 3 and 15 years' service, and 26 days
after 15 years' service.
However, federal employees' annual leave covers both
vacations and personal time off. The BLS and Conference Board
studies each indicated that private sector employees receive up
to 5 days of personal leave a year in addition to vacation
benefits--a factor which could eliminate the federal annual
leave advantages noted above.
The Hay/Huggins study, BLS study, and Conference Board
report all indicated that private sector employers provide some
combination of sick leave, accident and sickness insurance, and
short-term disability plans to cover employee absences caused by
illness or injuries. Chronic disability cases are covered by
long-term disability plans in the private sector. Federal
employees must rely on sick leave alone for short-term illnesses
and the disability provisions of the civil service retirement
system for long-term disability benefits.
16Profile of Employee Benefits: 1981 Edition, cited earlier.
17Employee Benefits in Medium and Large Firms, 1983 (Bureau of
Labor Statistics Bulletin 2213, Aug. 1984).
17
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CHAPTER 5
CONCLUSIONS AND MATTERS FOR
CONGRESSIONAL CONSIDERATION
Federal and private sector compensation programs consist of
many elements that must be considered overall if meaningful
conclusions on the comparability of pay and benefits in the two
sectors are to be made. The studies we reviewed suggest that
federal employees' overall compensation lags behind the private
sector.
Our work indicates that consideration of any individual
compensation element in isolation can be meaningless insofar as
judgments on overall compensation levels are concerned. For
example, the evidence presented in this report suggests that
federal pay rates lag considerably behind pay rates for
comparable jobs in the private sector. However, if a pay raise
were granted in the full amount determined by the Pay Agent to
be necessary to achieve pay comparability, the overall federal
compensation program would be superior to the typical private
sector program. Reduction in retirement benefits, the one
element of compensation in which the federal government is
clearly ahead of the private sector, would drop the overall
federal compensation level further behind the private seator,
unless there were offsetting improvements in other elements.
MATTERS FOR
CONGRESSIONAL CONSIDERATION
In considering future changes and adjustments to elements
of the federal compensation program, the Congress may wish to
make such decisions from the perspective of their effect on
overall cotpensation levels. If such an approach is deemed
appropriate, a mechanism for periodically measuring and
assessing benefit program comparability will be necessary to
complement the pay comparability process already required by
law.
18
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ooj
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