Pay Compression, Pay Caps Impacting Federal Employees Frozen at $183,500

4.6% Average 2023 Federal Pay Raise With GS Locality Pay

With an executive order being issued on the 2023 federal employee pay raise for General Schedule employees, the average federal raise for 2023 will be 4.6%. The raise has also created more pay compression among federal employees at the higher levels of government employment.

With locality pay, some federal employees will receive a bigger raise than the 4.6% average pay raise. Here are the five GS locality pay areas for 2023 that will receive the largest pay raise:

At the other end of the pay scale, here are the locality pay areas that will receive the lowest General Schedule pay raise in 2023:

You can see a listing of the total 2023 federal pay raise for each of the GS locality pay areas in this article: 2023 GS Locality Pay Tables Published: Here are Localities with Highest and Lowest Pay Increases.

Pay Compression, Pay Freeze, and the Annual Federal Pay Raise: 4% 2023 Pay Raise With Pay Cap

There is another side to the story of a federal pay raise that will not make some federal employees happy. The continuing pay cap on some federal employees is taking a big bite out of the pay raise for a larger number of federal employees each year leading to more instances of pay compression at positions with higher salaries.

The federal pay cap will continue to prevent some federal managers from receiving their full raise. For General Schedule (GS) employees, the federal pay cap for basic and locality pay combined is set at the Executive Schedule Level IV pay rate. In 2022, this pay cap was set at $176,300. In 2023, this pay cap is set at $183,500. The result is “pay compression,” with the salaries of a growing number of senior managers subject to the cap, as well as managers with different levels of seniority and responsibility all making roughly the same salary.

Pay Cap in Seattle: GS 15, Steps 8-10 Capped

The result is that there will be employees that do not receive the average pay raise. For example, in Seattle, which had a pay raise of 5.15% in 2023, federal employees in the Senior Executive Service (SES) will not get a 5.15% raise.

GS 15 employees at steps 8-10 are subject to a pay cap of $183,500. This amounts to a pay raise of about 4% for these employees rather than the 5.15% others in the Seattle locality pay area will receive.

Pay Cap in DC: GS 15, Steps 7-10 and Steps 4-10 in San Francisco

And it is not just in Seattle where this situation occurs. In Washington, DC, the 2023 pay raise is 4.86%. For GS 15 managers in steps 7-10, their pay is subject to a maximum of $183,500.

Federal employees in the San Jose-San Francisco locality pay area will receive a pay raise of 5.13% in January. But, due to the pay cap, GS 15 employees in steps 4-10 are subject to the maximum of $183,500. Moreover, GS 14 employees are also capped at Step 10.

In 2023, this limited pay raises for managers in 31 locality pay areas.

Pay Freeze Since 2014

There has been a pay freeze since 2014. The Consolidated Appropriations Act continues this same policy through 2023. The Office of Personnel Management issued a memorandum on December 29, 2022 entitled “Continued Pay Freeze for Certain Senior Political Officials” which states that “the Consolidated Appropriations Act, 2023, contains a provision that continues the freeze on the payable pay rates for the Vice President and certain senior political appointees through the end of the last day of the last pay period that begins in calendar year 2023.”

In July 2022, DC Delegate Eleanor Holmes Norton announced she would be introducing a bill in the House to reduce pay compression. As of this date, the bill has not been introduced.

Section 747 of the Consolidated Appropriations Act, 2023, continues the pay freeze during calendar year 2023. This pay freeze covers the following senior political appointees:

1. An employee serving in an Executive Schedule (EX) position, or in a position for which
   the rate of pay is fixed by statute at an EX rate, and who holds a position under a political appointment;
2. A chief of mission or ambassador at large;
3. A non-career appointee in the Senior Executive Service (SES) paid at or above the official rate for EX-IV ($183,500 in 2023);
4. A limited term appointee or limited emergency appointee in the SES serving under a political appointment and paid at or above the official rate for EX-IV; and
5. Any other type of employee paid at or above the official rate for EX-IV who serves under a political appointment.

Frequently Asked Questions (FAQ’s) Regarding Federal Pay Compression