The Senate yesterday approved an amendment to an appropriations bill that would revise the federal pay system by linking most government salaries to comparable jobs in local markets.

But, in a major concession to the administration, the amendment, sponsored by Sens. John Glenn (D-Ohio) and William V. Roth Jr. (R-Del.), also allows the president to maintain his authority to set an annual pay adjustment at the level he wishes, an issue that will divide the Senate and House when conferees negotiate a final bill, according to congressional aides.

The Senate staff has estimated that the price tag for the new pay system would be $5 billion over five years, beginning Oct. 1, 1992.

The measure, which is supported by the administration, "is a step toward correcting the outrageous disparity between private and public-sector wages," Glenn said in a statement yesterday.

By unanimous voice vote, the Senate agreed to attach an amendment to the Treasury, Postal Service and general government appropriations bill expected to be passed by today that is similar to the pay bill approved by the Senate Governmental Affairs Committee in July.

The administration has said it can live with the provisions in the amendment and has agreed to hold off on its push for merit pay in favor of a one-year study on the issue by a 13-member labor-management committee appointed by the Office of Personnel Management, according to OPM officials.

Under the measure, locality adjustments in pay would be made in those areas of the country where private-sector wages as well as state and local government pay are above the national average. Any locality pay would be on top of an annual adjustment equal to the "Employment Cost Index," which measures the change in private industry wages, excluding sales.

The administration has said it is willing to spend about $3.6 billion over five years to fix what is widely viewed as an outdated pay structure that has become a major obstacle to recruiting and retaining qualified federal employees in white-collar jobs. Only half of the $3.6 billion would be new money.

In the past decade, federal salaries have fallen about 30 percent behind private-sector wages.

"We are encouraged by the market-sensitive approach and flexibilities contained in the Glenn-Roth amendment," OPM Director Constance Newman said in a statement yesterday.

A House version of pay reform would take away the president's option to disregard the recommendations of his pay advisers, an option that has been exercised by presidents each year since 1978 and which federal employee unions blame for widening the public-private gap that exists today.

The House version also goes further in setting a timetable to close the public-private gap. It would pay workers at least 10 percent of the gap each year until it is closed. The Senate version says it wants the gap to be closed within 10 years.

The amendment was passed along with another pay amendment, this one by Sen. Dennis DeConcini (D-Ariz.). His proposal calls for substantial salary increases for 60,000 federal law enforcement employees at a cost of $250 million a year.

Under the legislation, entry-level employees up to Grade 10 would receive an immediate $2,000 to $5,000 pay increase. The pay of employees living in 13 high-cost areas, which includes the Washington region, would be linked to the cost-of-living and to comparable private sector as well as state and local salaries. It would also provide a $20,000 housing bonus for employees transferred to expensive cities.