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Strategic Compensation Policy Center
EVOLUTION OF FEDERAL WHITE-COLLAR PAY
INTRODUCTION
The Federal pay system has a history of both stability and
change. While its core structure has been stable for many years, changes
have made it more manageable and better able to deal with particular
problems. A significant trend has been the evolution from strict
legislative management of the system toward today's environment in which the
Executive branch plays a greater role in setting pay rates and managing
day-to-day pay issues.
The fundamental structure of Federal white-collar pay – a position
classification system that sorts work into relative levels (or grades) connected
to ranges of pay – has been in effect for more than 75 years. Over that
time, numerous changes to Federal pay have improved the environment for
rewarding employees. During the past 50 years, the introduction of
incentive awards, special salary rates, locality pay, and special payments for
recruitment and retention has given Federal organizations tools to support the
accomplishment of strategic goals.
As the Federal community continues to look for ways to improve the
Federal pay system, its history illustrates how improvement has been one of its
regular features.
HOW THE INFORMATION IS ORGANIZED
We divide the history of Federal white-collar pay into major
periods. Within each period, we explore five recurring themes and
use icons to identify these themes. So keep an eye open for the
following:
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Theme |
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Context – conditions in the nation and the world of work that affect pay. |
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Events – laws or other milestones that change Federal pay. |
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Core – the system of pay structures, methods, and principles
that are shared by most Federal agencies. |
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Tools – the various policy and program options used to craft
and fine tune the core system to take account of factors like labor markets,
job difficulty, performance, and working conditions. |
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Actors – the individuals (e.g., the President) and entities
(e.g., the Congress, agencies) who play a role in designing and administering
Federal pay. |
Begin your journey through the history of Federal white-collar pay....
1789 - 1900
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Context
- A new nation.
- Small government.
- In 1789, three departments or agencies: State, Treasury, and War.
- In 1836, five agencies and 336 employees.
- Work and pay distinctions are few, but increase over time.
- As the Government expands, salary administration becomes
increasingly complex.
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Events
- 1789 – The First Congress sets the maximum rate of pay at $500 per year.
- 1818 – Congress sets rates of pay for Federal employees which remain unchanged until 1853.
- 1838 – Congress creates a rudimentary pay structure.
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Core
- A pay structure emerges. Congress controls pay costs by one of two methods:
- Specifying number and types of jobs and pay rates in an agency, or
- Giving an agency a lump sum for salaries.
- This leads to extremely different pay rates for similar jobs in
different departments and, as a result, employee complaints. To stem
these complaints, in 1854, Congress establishes four pay levels – the
first Federal pay structure – but does not establish or require an
accompanying job evaluation system to analyze tasks and duties as a
basis for setting pay.
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Tools
- Congress recognizes more types of work.
- In 1818, one basic title – Clerk – covers most departmental
Federal employees.
- In 1853, Congress creates a "subclerical" job category covering
jobs such as laborer, messenger and watchman.
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Actors
- Congress determines salary expenditures, job types, and, in
many cases, pay levels. However, some agencies receive lump sums for
salaries which they may distribute among employees as they see fit.
- Agencies receive a form of classification authority when
Congress establishes four pay levels for Clerks and requires agencies to
assign each Clerk to one of these four levels. But Congress does
not require agencies to assign Clerks to these levels based on
the relative worth of their duties.
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1900 - 1923
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Context
- By the turn of the century, the Nation has grown and the needs of
Government have expanded the number of Federal positions to over 150,000.
- The Industrial Revolution has given birth to the concept of scientific
management. Proponents have shown that organizations can:
- Break complex jobs into component parts.
- Compare different jobs against a common measure of effort.
- Pay employees according to the work they do.
- Pay equal amounts for equal work.
- The Industrial Revolution also introduces the discipline of
compensation management when the first textbook on managing pay is
published at the turn of the century.
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Events
- No significant legislation affects pay.
- Both Congress and the Executive branch study ways to improve
governmental management, including pay.
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Core
- The Pendleton Act, in establishing a merit-based employment system,
created the need for a uniform system for determining job requirements
and assessing job candidates.
- The Federal Government seeks comparable uniformity in the areas of
classifying jobs, setting salaries, and rating employee efficiency.
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Tools
- The framework for job evaluation emerges when a joint congressional
committee outlines a method to classify positions and link pay to a
position's actual duties and responsibilities.
- The concepts of performance evaluation and linking pay to
performance emerge. The Bureau of Efficiency attempts to establish a
uniform efficiency rating system. Under this system, agencies would rate
an employee's efficiency and raise or lower an employee's pay based on
this rating. The Bureau finds, however, that greater uniformity in job
classification and pay rates is needed before such a system can function
effectively.
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Actors
- Congress continues to control pay rates and costs.
- The Executive branch assumes greater responsibility for pay.
Although Congress retains its primary role, an Executive branch
organization – the Bureau of Efficiency – is given responsibility for
designing a system of efficiency ratings for agencies to apply.
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1923 - 1949
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Context
- Scientific management is applied to all areas of human resources
management, including pay.
- Concepts and practices about pay and systems for determining pay
become increasingly sophisticated. However, the concepts about work and
the work itself remain process-oriented and routinized.
- In 1949 the most populous grade is GS-3, and over half of General
Schedule employees occupy positions at or below GS-4.
- The New Deal and World War II lead to a rapid expansion in the size
and complexity of the Federal Government. This expansion creates the
need for uniform, centrally-designed systems that are administered
through decentralized decision-making.
- The end of this period is the high-water mark for a single
Government pay system. (In 1950, the General Schedule covers nearly 96%
of the non-postal, white-collar Federal workforce.)
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Events
- Classification Act of 1923 – divides work into five services and
covers only headquarters positions.
- Classification Act of 1949 – establishes the General Schedule
nationwide.
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Core
- The General Schedule becomes the core of the pay system and
is defined in terms of:
- Method – evaluating a position's duties and responsibilities
through application of governmentwide classification standards becomes
the basis for setting the pay of Federal employees.
- Structure – a system of pay grades with associated fixed pay rates.
- The 1923 Classification Act divides work into five services:
- Professional and Scientific
- Subprofessional
- Clerical, Administrative, and Fiscal
- Custodial
- Clerical-Mechanical (covering only jobs in the Bureau of Engraving)
- The Classification Act of 1949 subsequently consolidates the
first three of these "services" into the General Schedule.
- Principle – the 1923 Classification Act introduces the
principle of "equal compensation for equal work irrespective of sex,"
which is a significant shift from past practice in both the public and
private sector.
- The 1923 Classification Act covers only headquarters
positions. The subsequent 1949 Classification Act extends the
classification system nation-wide.
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Tools
- Classification standards.
- As the Federal workforce expands to fight World War II, the Civil
Service Commission begins developing classification standards for
agencies to use in the field to evaluate duties and responsibilities.
- The Classification Act of 1949 makes this approach – uniform
classification standards applied by individual agencies – standard
practice.
- Employee performance evaluation.
- The Classification Act of 1923 results in establishment of a
"graphic rating scale" where supervisors mark along a scale for each
"service rendered" to rate an employee's efficiency. An employee's pay
may increase, decrease, or remain unchanged based on the rating.
- In 1935, the Civil Service Commission replaces the graphic rating
scale with the Uniform Efficiency Rating System that prescribes
government-wide rating levels and three rating categories: Quality of
Performance, Productiveness, and Qualifications.
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Actors
- Congress is responsible for maintaining pay rates. Pay rates
are set in law, and legislative action is required to change them.
- Agencies (re)gain classification authority.
- The 1923 Classification Act shifts classification authority from
the agencies to a new organization, the Personnel Classification
Board.
- The Classification Act of 1949 reverses the shift by delegating
classification authority to agencies.
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1950 - 1978
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Context
- The world of work and pay becomes more complex. Although the
position remains central to pay, the Federal Government acknowledges the
importance of individual ability and performance, and the need to
respond and adjust to labor market changes.
- In 1970, a task force convenes to explore changes to the job
evaluation system.
- The task force recommends adopting a factor ranking approach, with
different systems for different types of work.
- The factor ranking approach is adopted, but the recommendation for
multiple systems is rejected in favor of a single system.
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Events
- Performance Rating Act of 1950 – requires agencies to establish
appraisal systems with Civil Service Commission approval.
- Classification Act of 1954 – establishes special pay rates to
address the difficulty in attracting and retaining quality employees.
- Incentive Awards Act of 1954 – establishes governmentwide authority
for agencies to grant cash and honorary awards to recognize various
employee contributions.
- Federal Salary Reform Act of 1962 – establishes employee's
"acceptable level of competence" as a performance threshold for
within-grade pay increases.
- Federal Pay Comparability Act of 1970 – authorizes President to
adjust General Schedule pay rates.
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Core
- The General Schedule structure is simplified:
- All grades have 10 steps.
- Each grade has a 30 percent pay range.
- Differentials between grades are more uniform.
- Pay advancement within a grade becomes more uniform. The system of
pay increases or decreases based on efficiency ratings is replaced by a
system that makes time in grade the primary determinant of within-grade
advancement, based on "learning curve" theory where an employee's value
rises with experience.
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Tools
- Several new pay tools are introduced, including:
- Special Pay Rates – a means for adapting to changing labor
market conditions in particular occupations to address severe
difficulty in attracting and retaining employees.
- Superior qualifications appointments – agencies can hire a new
employee above the first pay step based on job experience, academic
background, and competitive need (this authority is initially restricted to
positions at or above GS-13).
- Incentive Awards – honorary recognition and cash payments
for superior accomplishment, suggestions, inventions, special acts or
services, or other personal efforts. (Such recognition or payment is
expected to be rare, used only in cases of extraordinary achievement.)
- The Quality Step Increase – allows accelerated advancement
in a General Schedule pay range to recognize high individual
performance.
- The Factor Evaluation System (FES) – provides a uniform set
of factors for evaluating and classifying all General Schedule jobs.
The factors apply to all types of work, ranging from clerical to
managerial, and include knowledge, complexity, and personal contacts.
The FES is designed to ease understanding and application and support
decentralizing classification.
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Actors
- Congress continues to control pay costs through the
appropriations process.
- The Executive branch receives greater responsibility for the
General Schedule structure.
- The Federal Pay Comparability Act establishes procedures for the
President to adjust the General Schedule pay rates, subject to a
legislative veto.
- The Civil Service Commission (now the Office of Personnel
Management) is delegated the authority to establish special salary rates
upon request by agencies.
- Agencies are given authority to:
- Establish their own performance appraisal systems, following legal
and Civil Service Commission standards.
- Use the new pay tools (except for special salary rates),
increasing managers' ability to recognize individual differences in
ability and performance.
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1978
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Context
- The world of work continues to become more complex and dynamic, and
the Federal Government faces stiff and rising performance expectations.
- The President introduces and Congress passes the Civil Service
Reform Act of 1978 (CSRA) to improve the management of the Federal
Government.
- Increasingly, pay is viewed as a management tool, not simply an
administrative function.
- CSRA uses pay as a means to emphasize individual performance and
accountability, particularly through their links to pay and rewards.
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Events
- The Civil Service Reform Act of 1978.
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Core
- The General Schedule (GS) structure is subdivided, although it
remains governmentwide in scope. CSRA creates the:
- Senior Executive Service, a separate employment and pay system
covering employees formerly in GS grades 16, 17, and 18;
- Merit Pay System, which treats managerial (non-bargaining unit)
employees in GS grades 13, 14, and 15 separately for purposes of
advancement within a GS grade;
- Potential for pay systems to evolve, by creating authority for
demonstration projects to test HR system improvements for
government-wide application;
- Merit System Principles, a framework for a Federal Government
where agencies might not share a common pay system, but continue to
share "core" values such as individual accountability for performance
and providing "equal pay for work of equal value."
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Tools
- The Merit Pay System gives agencies a tool to link pay and
performance, but proves premature and suffers from problems in funding,
acceptance, performance measurement, and administration.
- The Senior Executive Service creates a separate pay and performance
management structure for executives. The SES pay system reinforces the
importance of performance and results by replacing time-based pay
advancement with the opportunity to earn substantial cash awards.
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Actors
- The Executive branch attains greater responsibility for
designing – not just administering – pay systems. Agencies, with
assistance and approval from the Office of Personnel Management, can
propose and test new HR techniques such as broadbanding.
- Managers are given more opportunity to relate pay to
performance for employees covered by the Merit Pay System.
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1978 - 2000
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Context
- The changes in the world of work, characterized by rapid changes in
technology, communication, and the nature of work, trigger a rethinking
of the ways that Federal agencies pay employees.
- A series of studies and evolving private sector practices challenge
the relevance and value of a governmentwide, job-centered pay system.
- The nature of pay changes as well. Incentives, bonuses, and similar
payments join salary as basic elements of the pay package. In both the
Federal and private sectors, nonmonetary and monetary recognition are no
longer reserved for "once in a lifetime" accomplishments.
- Administrative decentralization, which began in 1923, surges during
the 1990s as agencies seek ways to streamline operations, improve
performance, and compete for workers in a tight job market.
- By 2000, the "government of clerks" that existed in 1949 is no more.
The most populous grade is GS-12, and fewer than one-tenth of General
Schedule employees occupy positions at or below GS-4.
- The General Schedule is less inclusive; it covers only 85% of the
non-postal white-collar workforce.
- Congress signals its willingness to allow different compensation
structures to fix specific problems by:
- Authorizing agencies such as the Internal Revenue
Service, Federal Aviation Administration, and those dealing with
banking and finance to establish their own job evaluation and pay
structures.
- Creating special pay systems for selected occupations or
workforces.
- Making permanent some of the initial demonstration projects.
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Events
- The Performance Management and Recognition System replaces the Merit
Pay System in 1984.
- The Federal Employees Pay Comparability Act of 1990 (FEPCA):
- Makes Federal pay more market-sensitive by basing nationwide
General Schedule adjustments on changes in the cost of labor,
and
- Moves away from a "one size fits all" approach to pay
by
- establishing locality-based comparability payments and
- introducing many new pay tools.
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Core
- The process for maintaining and adjusting the pay system gets more
refined and features
- General Schedule adjustments based on nationwide changes in the
cost of labor
- Locality-based comparability payments
- The authority to establish special occupational pay systems (to
date, this authority has not been used)
- Although the General Schedule job evaluation and pay system
continues to cover over one million Federal employees, several excepted
personnel systems use alternative approaches to classification and pay.
- Increasingly, the core structure is defined by shared principles –
reflected in the Merit System Principles – not by uniform pay rules and
outcomes.
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Tools
- The Performance Management and Recognition System (PMRS) – replaces
the Merit Pay System for managers in GS grades 13, 14, and 15.
PMRS attempts to resolve Merit Pay System problems, but creates others
and sunsets in 1993. In the following years, other tools are created to
serve a similar purpose, and the "lessons learned" from the Merit Pay
System and PMRS are reflected in demonstration projects and agency award
programs.
- Minimum SES performance awards – the same law that establishes PMRS
sets the minimum performance award for Senior Executives at 5 percent of
base pay.
- FEPCA introduces many new tools:
- Recruitment, retention, and relocation payments – agencies can make
payments needed to compete for talent in the labor market.
- Expanded special rate authority – special rates may exceed regular
General Schedule rates by as much as 60 percent.
- Critical pay authority – an agency head may ask the Office of
Management and Budget to set pay up to Level I of the Executive
Schedule ($157,000 as of January 2000) for a position requiring
extraordinary expertise.
- Travel expenses – agencies may pay travel expenses for
pre-employment interviews and moving expenses for new appointees.
- Superior qualifications appointments – authority expands to
cover positions below GS-11.
- Advance payments for new hires – agencies may advance a new hire
up to two paychecks to help the employee meet living and other
expenses.
- Waiver of dual compensation restrictions – agencies may request
OPM to waive dual compensation restrictions in rare instances when
they must hire military or civilian retirees to deal with special
staffing needs (dual compensation restrictions were later removed for
military retirees).
- Time off award – agencies may offer time off awards to recognize
specific accomplishments or behaviors.
- Decentralized performance management – agencies have substantial
freedom to define, measure, recognize, and align individual and
organizational performance.
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Actors
- Congress continues to hold "the power of the purse" by
appropriating funds for Federal payroll expenditures.
- The Executive branch has primary responsibility for
administering many pay systems. For the General Schedule, the
President's Pay Agent:
- Establishes locality pay areas
- Recommends locality adjustments
- Can establish special occupational pay schedules
- Agencies have increasing discretion to use the pay tools
available under the General Schedule system. In some cases, Congress has
given individual agencies responsibility for designing pay systems,
believing that this independence is essential to mission accomplishment.
- Employees play an increasing role in pay. Agencies that have
responsibility for designing pay systems involve employees and their
representatives. Also, individual employees have greater ability to
influence their own pay through their:
- Marketability
- Development
- Performance
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WHAT'S NEXT ?
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- Despite increasing flexibility over the past 50 years, expectations
for compensation systems continue to rise. It is no longer sufficient
for pay systems to be technically sound and administered well.
- Agencies, driven by the need to achieve strategic goals and
results, expect pay to align employee efforts with mission
accomplishment. For agencies to create this alignment, many believe
that additional changes in the Federal compensation core, tools, and
actors are needed.
- Employees expect fair pay and fair treatment. Increasingly, as
flexibilities are added, employees and their representatives expect to
be given a voice in how pay is designed and administered.
- OPM, recognizing the need to deal with the implications of today's
technological, cultural, and demographic changes, has initiated a
comprehensive review of Federal compensation systems.
- OPM's Workforce Compensation and Performance Service, through its
Strategic Compensation Policy Center, is working with stakeholders to
fashion a modernized, performance-oriented approach to compensation that
will support responsive, high-performance organizations, and adapt to a
variety of missions, structures, labor markets, and work technologies.
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Strategic Compensation
Strategic Compensation Overview
Compensation Administration
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