principles, and will restructure and revise the systems in varying degrees. The principles will be consonant with those which govern the wage-board system, which is the only other large Federal civilian pay system, covering 660,000 employees with an annual payroll of $3 billion.

The President's reform plan results from a series of studies which began in 1956. The Cordiner report on civilian salaries in the Defense Department and the subsequent O'Connell report on civilian salaries in the executive branch are familiar to this committee. After the O'Connell report was made late in 1957, the Bureau of the Budget and the Civil Service Commission set up a joint project to push forward along the lines opened up by those reports. For the past 4 years the executive branch has applied in an intensive fashion the combined efforts of pay specialists, personnel administrators, statisticians, economists, and top management to the Federal pay problem. This work constitutes the first comprehensive review of Federal pay since 1928. One of its early products was the design and establishment, in 1959, by the Bureau of Labor Statistics of its "National Survey of Professional, Administrative, Technical, and Clerical Pay." The final result is the general reform plan which the President will shortly propose. The President has submitted the plan to a special panel of distinguished citizens under the chairmanship of Mr. Clarence Randall. He has also had the proposal placed before the leaders of the largest Federal employee organizations.

FUNCTIONS AND REQUISITES OF A FEDERAL PAY SYSTEM

The functions of a Federal salary system are to fix salary rates for the services rendered by Federal employees so as to make possible the employment of persons well qualified to conduct the Government's programs and to control expenditures of public funds for personal services with equity to the employee and to the taxpayer.

To carry out these functions, a Federal salary system should satisfy these requisites:

Responsibility to the public

To pay enough to permit competent staffing, so as not to endanger the national security and the needed public service.

To pay no more than is needed for this purpose and for the achievement of equity for the employee.

Equity for the Federal employee—

With other Federal employees.

With his equals throughout the national economy. Executive discretion

To adapt to the individual and to special needs.

To use pay for motivation.

To initiate general adjustments as required.

DEFECTS OF FEDERAL SALARY SYSTEMS

Tested against these requisites Federal salaries are found to satisfy only two: (1) the Government pays no more than is necessary, except for GS-1 and GS-2 rates under the Classification Act, and (2) the executive branch does have the power to recommend pay adjustments. The President is, in fact, enjoined by section 1102 of the Classification Act to take such action. In all other respects, Federal statutory salary systems are deficient.

First, the Federal statutory systems do not allow the Government to pay enough to assure competent staffing. For the past 10 years low Federal salaries have placed the Government at a disadvantage in recruitment, expecially with reference to professional, scientific, and managerial talent. That disadvantage grows each year, and is now so severe as to threaten the Government's capacity to carry on some of its activities. Some of the contracts let by the Government for research and development and other work are, in part, tacit admission of the Government's lack of inhouse capacity for the work.

This reference to professional, scientific, and managerial personnel is not to a small minority of the career service. In 1945, when the modern series of pay adjustments was initiated, there were under the Classification Act four clerks for each higher level professional, managerial, and technical employee. Today the ratio is no longer 4 to 1, but 1 to 1. Today's programs require nearly 400,000 employees at GS-8 and higher grades.

Second, the Federal statutory systems do not provide the Federal employee salary equity with his equals throughout the national economy. The 1960 and 1961 Bureau of Labor Statistics' reports on the annual survey mentioned above

reveals that from GS-4, and its equivalent in other Federal systems, upward Federal pay lags behind national private enterprise averages. Generally speaking, the higher the level the greater the lag.

Third, the Federal statutory systems do not provide equity among Federal employees. Classification Act supervisors still receive, in many cases, lower pay than their blue-collar subordinates. There is a form of inequity within systems. The declaration of policy in the Classification Act, section 101, states, "It is the purpose of this Act to provide a plan for classification of positions and for rates of basic compensation whereby (1) in determining the rate of basic compensation which an officer or employee shall receive, (A) the principle of equal pay for substantially equal work shall be followed, and (B) variations in rates of basic compensation paid to different officers and employees shall be in proportion to substantial differences in the difficulty, responsibility, and qualifications requirements of the work performed and to the contributions of officers and employees to efficiency and economy in the service; ***." Civil Service Commission position classification standards and administration of position classification activities has maintained the principle of equal pay for equal work; but the principle of pay distinctions in keeping with work and performance distinctions has not been followed, with resulting inequity. In the pay adjustments between 1945 and 1951 the Government sought to give direct effect to changing purchasing power of the salary dollar with special concern for the lower grades. Those adjustments severly curtailed pay distinctions and permitted general deterioration of pay structure; and the adjustments since 1951 have not corrected the situation. The executive branch is not permitted the managerial discretion needed in administration of statutory pay systems except in the Foreign Service and in the Department of Medicine and Surgery of the Veterans' Administration. Under the Classification Act and in the Postal Field Service, the statute requires that all inhiring be done at the minimum rate of the grade, regardless of the appointee's qualifications or the salary currently earned by the proposed appointee. Withingrade step increases may be granted only for completion of a specified period of satisfactory performance; the increases cannot be used to reward, and thereby motivate, extra competence and above-average performance.

BASIS FOR REFORM

In all of the aspects indicated, Federal statutory pay systems are deficient. They must be corrected if they are to fulfill their purpose, and this can be achieved by adoption of two principles:

(1) There shall be equal pay for substantially equal work, and pay distinctions in keeping with work and performance distinctions.

This is the principle which should govern internal pay relationships and upon which should be developed appropriate pay structures and rules, whereby equity among Federal employees is achieved. This principle is now stated in the Classification Act and the Foreign Service Act, is implicit in the statutory job evaluation system of the Postal Field Service, and is common to virtually all public and private enterprise pay systems in the United States.

(2) Federal salary rates shall be comparable with private enterprise salary rates for the same level of work.

This is the principle which assures equity for the Federal employee with his equals throughout the national economy; assures the taxpayer that the Government is paying no more than the going rate; and improves the Government's position in recruitment of competent staff. It is an objective yardstick for immediate and subsequent adjustments of Federal salaries.

THE COMPARABILITY PRINCIPLE

The principle of comparability provides a logical and objective standard for judging the adequacy of Federal salary rates at any particular time. The standard for white-collar salary rates is the national average private enterprise_rate for the same level of work. This standard provides the Government and the employee with the "fair wage" that the U.S. economy currently places as the proper value of the services being obtained by the Government.

This standard of the private enterprise "going rate" gives objective and proper weighting to all legitimate pay factors such as dollar purchasing power, standard of living, and productivity. All of those and many other factors are in free play over the bargaining tables in private enterprise and are resolved into the general economy's "going rate." In adopting the private enterprise going rate, the

Government adopts the national economy's resolution of all pertinent pay factors in the thousands of wage and salary decisions in the Nation's labor markets. Thus, the Government's wages and salaries are economically sound, and the Government's wage and salary determinations are not inadvertently too high or too low and do not improperly influence the national economy in either direction. The principle of comparability with private enterprise has wide acceptance in public jurisdictions. The Federal Government first adopted it 100 years ago for Navy Yard workers, and has since applied it to all Federal blue-collar workers on a local prevailing rate basis. The Government has applied the principle to pay for all TVA employees, on a regional basis, and to Government contract work through the Walsh-Healey and Davis-Bacon Acts. The principle is used by several State governments, and by other national governments, including England, Canada, and Japan. This principle is also used by many companies in private enterprise, although often modified to produce rates "better than competitors." It is now feasible to apply the principle. The Bureau of Labor Statistics survey provides annually the requisite data on private enterprise pay, and methodology has been developed for translating the Bureau of Labor Statistics data into Federal comparability pay schedules. This methodology was tested on the data reported in 1960 by the Bureau of Labor Statistics, and again on the data reported in 1961, and it has been found valid.

THE BLS SURVEY

Prior to the latter part of 1960 there were no adequate private enterprise salary data on which to base a national application of the comparability principle. In late 1960 the Bureau of Labor Statistics made its first report on its survey of professional, administrative, technical, and clerical pay in private industry; and it then became possible to develop and test methodologies for applying the principle.

The Bureau of Labor Statistics survey results from steps initiated early in 1958 to follow through on the recommendations of the O'Connell report. The central, basic recommendation in that report was for adoption of the principle that Federal salaries should be comparable with private enterprise salaries for the same levels of work. In this respect, the O'Connell report emphasized the Cordiner report, the 1956 Young Committee report on Federal scientists, and the second Hoover Commission report. It is worth noting here that all of these reports agreed in principle with the 1923 authors of the Classification Act, who had employed Griffenhagen & Associates to perform, among other things, a survey of nonFederal rates as a basis for developing the original Classification Act schedule.

The Bureau of Labor statistics in 1958 agreed to provide their expert assistance in the exploration and planning of a project to report on private enterprise salaries in a manner that would permit application of the comparability principle. The design for a survey was produced and pretested in the field in late 1958 and early 1959. The administration accepted the design and recommended to the Congress a supplemental appropriation of $500,000 for the Bureau of Labor statistics to initiate the survey on a regular basis. The Congress approved, and the Bureau of Labor statistics conducted the first annual survey in fiscal year 1960. first annual report by the Bureau of Labor Statistics was made late in calendar year 1960.

The

The first annual survey revealed some defects, particularly in the definitions of some of the jobs for which data was collected, and corrections were made in time for the second annual survey. The second annual Bureau of Labor Statistics report was made late in calendar year 1961. The results this time were exceptionally clean cut, with the occupational definitions fulfilling their aim.

It is the data from this 1961 report which forms the basis for the salary levels which will be included in the President's proposal. Considering the dependence placed upon this data, it would be well to look closely at the survey from which it results. The full details are set forth in the pamphlet "Design for a Survey of White Collar Pay in Private Industry," which was placed in this committee's records of the 1960 pay hearings; but a summary, including revisions made subsequently, seems valuable here.

The aim of the survey is to provide nationally representative data on private enterprise pay for a sample of jobs which is representative of Federal work levels from GS-1 through GS-15.

The Bureau of Labor Statistics had developed the basic design as an outgrowth of its community wage survey program, which had been gathering pay data in twenty metropolitan areas on officeworker, technical, and blue-collar jobs. The

Bureau of Labor Statistics had planned, for a variety of purposes, an extension of its community wage survey program. For this purpose it had selected 80 metropolitan areas which were representative of all U.S. metropolitan areas and which would accordingly provide nationally representative data, and had outlined an expansion of the occupational sample to cover professional and managerial work. It was necessary only to review this design in order to adjust the occupational sample to one adequately representative of Federal work, and to assure that industry and establishment samples were in keeping with revisions in the occupational sample.

The final design provides both the broad-purpose extension of the community wage survey program and the special use for Federal comparability pay adjustments. The results are published annually in two forms. There is an individual community wage survey report on each of the 80 metropolitan areas surveyed, covering pay for office worker, technical, and blue-collar jobs. These community reports, setting forth local summaries, are used in Federal wage board pay setting. There is in addition the report "National Survey of Professional, Administrative, Technical, and Clerical Pay" which presents national summaries on the pay for professional and administrative jobs and for most of the office worker and technical jobs surveyed. The national report provides the basis for the present nationwide statutory systems proposal.

The report presents national averages, mean, median, and interquartiles, and other summaries of private enterprise pay for 70 jobs. These jobs are common to the Federal service and to private enterprise, the work being virtually identical in both Government and industry and the jobs occurring frequently in both spheres. Each job is defined in terms of its industrial setting, but with every aspect of the definition carefully controlled to be consonant with the Government's GS grade standards. The definitions are joint products of the Bureau of Labor Statistics and the Standards Division of the Civil Service Commission. At the higher levels the jobs include the accounting, auditing, engineering, legal, and scientific professions, as well as office management, personnel administration, and job analysis work. At the lower levels the occupational coverage includes accounting clerk, engineering draftsman, files clerk, stenographers, typists, tabulating and bookkeeping machine operators, and a number of other jobs. These occupational groups constitute nearly 60 percent of the Classification Act population. They provide a comprehensive basis for pricing, in private enterprise, Federal work from GS-1 through GS-15 and equivalent levels in all Federal pay systems.

The private enterprise data are collected from 80 metropolitan areas which are so selected as to be representative of all metropolitan United States. More than 75 percent of all Federal workers are employed in metropolitan areas, and so too are nearly the same percentage of private enterprise workers in the occupations surveyed.

Salary data are collected from establishments with 250 or more employees. Data on clerical and technical jobs are derived from 6,000 such establishments, and professional and managerial data from 1,600 establishments. The establishment sample is selected to be representative both of the metropolitan areas and of the industries surveyed. The survey covers all industries which are major employers of the occupations surveyed, and includes manufacturing, public utilities, wholesale and retail trade, finance, and some service industries. The survey results in valid national averages which the Bureau of Labor Statistics finds to be unusually accurate. The clerical, technical, and some of the professional data are accurate within a standard statistical sampling error of plus or minus half of one percent. The standard statistical sampling error for most of the remainder of the professional and managerial jobs is less than plus or minus 2 percent. The subsequent averaging of these data in deriving grade averages and a comparability payline further reduces the standard error, as discussed below.

TRANSLATION INTO CLASSIFICATION ACT COMPARABILITY

The occupational rates reported by Bureau of Labor Statistics have been, in both 1960 and 1961, reviewed and analyzed by the combined forces of the joint Bureau of the Budget-Civil Service Commission work group, the Civil Service Commission Standards Division, and the Bureau of Labor Statistics. This review determines whether the rates collected and reported are fully identifiable with a specific GS grade, or whether the rates are from industry work levels equivalent to more than one GS grade. The rates under review have been previously determined by Bureau of Labor Statistics to be statistically valid for the job

definitions used. The joint review examines interrelationships among rates reported; industry work organization and practices discovered by the Bureau of Labor Statistics' data collector; the collectors' interpretations and problems; and related matters which could cause a job definition to produce data from work levels other than that intended. At the end of the review the Standards Division certifies the GS grade for each of the jobs surveyed; or, if the definition inadvertently produced mixed results, the Standards Division defines the nature and apparent extent of the mixed effects.

On the basis of this review, several of the reported job rates were rejected in 1960 as not usable because the rates were representative of industry work levels equivalent to more than one GS grade. The job definitions which produced the mixed rates were revised in some cases and others were eliminated in time for the next survey. In 1961 the review resulted in the Standards Division's certification of a GS grade for all of the 70 job rates reported except one which it had not been possible to correct in time. This one exception has been corrected in the current round; and it appears that hence forth all 70 job rates reported by Bureau of Labor Statistics will identify directly with a GS grade.

A few of the rates reported are, in spite of their statistical and grade integrity screened out of use in developing the Federal comparability pay line. These are the rates reported at GS-5, GS-6, and GS-10, and they are not used because they are judged to be inadequately representative of the work at those grades. At GS-6 and GS-10 only one job rate is reported, and the job in each case represents only about 10 percent of the population of the grade. At GS-5 there are five rates collected, but all five are professional and managerial in nature. The five job rates give an excellent picture of what private enterprise pays to college graduates who are employed at the first rung of professional and managerial careers, but the rates do not give a measure of private enterprise rates for clerical and technical work at this level, and 75 percent of the Federal GS-5 population are engaged in clerical and technical jobs.

The remaining 60 rates which are fully useful are nearly 60 percent representative of the Federal work population from GS-1 through GS-15; and these rates constitute a fully adequate basis for fitting a Federal comparability pay line to the private enterprise pay rates.

The first step in fitting a pay line is that of combining the private enterprise job rates into grade averages. At GS-4, for instance, there are rates reported for accounting clerk, engineering draftsman, stenographer, and tabulating machine operator; and the four job rates are combined into an average private enterprise rate for the GS-4 work level.

There are two valid ways of determining these grade averages. One is to derive the simple arithmetic mean, whereby each job rate is accorded equal weight. The other is to weight each job rate by the Federal population employed in the job. It has been found to make little difference which method is used. In 1960 the same pay line fitted both sets of averages. In 1961 there was less than threetenths of 1 percent difference in the paylines which fitted the different sets of averages. Under the circumstances the simpler method has been used; namely, the arithmetic mean.

Since sound alinement of grades within the Federal salary systems is vital, these raw grade averages must be brought into proper relationship. Sound internal alinement, expressed graphically, is represented by a smooth curve, and so the next step is to fit the smooth curve expressive of internal alinement to the private enterprise grade averages. Such a "best fit" curve will pass through some of the averages, above some, and below others, but it will correctly reflect and be very close to all the private enterprise averages. When the curve has been fitted, the rates on this curve become the Classification Act pay line.

The rates on this pay line are then adopted as the fourth step rates of the Classification Act. The fourth step is appropriate because the private enterprise rates are not inhiring entry rates but averages, and the fourth step is the average earned by employees under the Classification Act. The comparability Classification Act schedule is then constructed upon these fourth step (pay line) rates.

LINKAGE WITH OTHER SYSTEMS

Comparability with private enterprise salary rates is achieved for the postal field service, the Foreign Service, and doctors, dentists, and nurses in the Department of Medicine and Surgery by linking appropriate work or rank levels in each of those systems with the equivalent Classification Act work levels or grades.

It is not possible to price in private enterprise the jobs in these three specialized services by the methods used in pricing Classification Act work, since most of