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

Pay compression and the pay freeze now impact senior federal employees in 31 GS locality pay areas.

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:

Locality Pay AreaPercentage Increase
San Jose5.13
Los Angeles5.1
San Diego5.01
New York4.95

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:

Locality AreaPercentage Increase
Corpus Christi4.35
Palm Bay4.36
Rest of U.S.4.37

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

What is the Senior Executive Service?

The Senior Executive Service (SES) was established to “…ensure that the executive management of the Government of the United States is responsive to the needs, policies, and goals of the Nation and otherwise is of the highest quality.” Members of the SES serve in key positions just below the top Presidential appointees.

What is the Salary for Members of the Senior Executive Service?

The Senior Executive Service (SES) is a performance-based pay system. The SES pay range has a minimum rate of basic pay equal to 120 percent of the rate for GS-15, step 1, and a maximum rate of basic pay equal to the rate for Level III of the Executive Schedule. For 2023, although subject to a pay cap of $183,500, these salaries are:

* Agencies with a Certified SES Performance Appraisal System
$141,022 to $212,100

* Agencies without a Certified SES Performance Appraisal System
$141,022 to $195,000

Where Are the Highest Federal Employee Pay Raises in 2023?

The GS Locality Pay areas with the highest raises in 2023 are:
Seattle: 5.15%
San Jose-San Francisco: 5.13%
Los Angeles: 5.1%
San Diego: 5.01%
New York: 4.95%

What is Pay Compression?

In the federal government, pay compression has occurred due to a restriction or a cap on pay raises above a specified level for senior-level employees. The result is no difference or negligible differences in pay between people who have different skill sets, experience levels or pay grade levels.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47