Federal pay compression didn’t get worse in 2021, but it didn’t get much better either

We’re a little more than a week into the new year, and already we’re looking for bright spots in 2021.

The news of a 1% across-the-board pay raise for most federal employees this year didn’t inspire a lot of cheering, but I didn’t field too many complaints either.

As my colleague Mike Causey has said before, a 1% raise isn’t much, but it’s something.

But at least in 2021, a 1% pay raise with no additional locality adjustments wasn’t enough to accelerate the pay compression at the upper ends of the General Schedule. It’s a phenomenon that some long-time GS-15s, depending on where they work and their spot on the federal career ladder, have experienced for several years.

According to federal statute, salaries for career federal employees on the General Schedule can’t exceed the pay rates for political appointees and others at level IV on the Executive Schedule.

As either Congress or the president raises federal employee salaries each year but keeps an arbitrary pay cap in place, it means a growing number of long-time career feds bump up against a pay ceiling that’s either fixed in one place or raised slowly when Congress remembers to adjust it.

So what’s the good news?

Congress did raise the pay ceiling for 2021, meaning GS-15s in this situation will receive a maximum of $172,500 this year, an amount that roughly accounts for the 1% pay bump the vast majority of federal employees got this year.

The pay cap was $170,800 last year and $166,500 in 2019.

For now, this highly-nuanced detail of the federal pay and personnel system impacts long-serving and top-ranked GS-15s, whose salaries are technically growing with annual federal pay raises but can’t realize their “full” raises due to a cap on their pay.

Pay compression in 2021 will affect federal employees in a total of 25 separate locality pay areas.

The good news? That’s the same as last year, meaning the pay compression we’ve seen over the last few years took 2021 off.

The arbitrary pay cap has been known to hit GS-15s, but there’s one exception where salary compression even has an impact on a few GS-14s.

Feds at GS-14, step 10 who work in San Francisco and Oakland hit the pay ceiling last year. And yes, they remain at the pay cap in 2021.

We missed it in last year’s pay compression review, until an observant reader called me a few weeks after the 2020 article posted to point it out. (Thanks again!)

Pay compression is at its worst in the San Francisco/Oakland locality pay area, where feds at seven different steps on the General Schedule are hitting the ceiling today.

Other localities are slightly better, but not by much.

In the Washington, D.C., metro area, GS-15s from step 7 through 10 have hit the pay ceiling.

In New York and Newark, New Jersey, career GS-15s from step 6 and up have hit the pay cap.

Employees at step 10 within the Raleigh, North Carolina; and Buffalo, New York, locality regions joined the pay cap club for the first time last year.

Other regions, however, appear quite close to reaching the pay ceiling in the near future, especially if Congress doesn’t raise the pay caps next year.

A GS-15, step 10 in Columbus, Ohio, for example, will earn $172,346 in 2021, just $154 shy of the $172,500 pay cap.

Career GS-15s in Huntsville, Alabama, were just $398 away from entering the pay cap club this year.

Top feds in Phoenix, Arizona, were even closer. GS-15, step 10s in the region will earn just $10 less than the 2021 pay cap this year.

It’s a strange phenomenon. I’ve had readers email and call me to air their frustrations, or at least question why the pay ceiling exists and what ask what could be done to address it. There’s not much to say, other than point to Congress. Only Congress can make changes to federal statute.

The bad news? While pay compression didn’t grow worse this year, it didn’t improve, either, and there’s not necessarily a path in sight to address it.

The arbitrary pay caps limit an employee’s take home pay during a given year, but they may cost future annuitants thousands of dollars a year during retirement.

We previously described those impacts with a few examples here. The hypothetical isn’t pretty.

Beyond the implications salary compression has on pay and future retirement plans, it also begs another question: Why take the promotion if means you’re technically not getting the full salary that you’re owed?

I imagine that a sense of mission, purpose and responsibility has something to do with the answer to that question. But others might not know the challenge exists at all.

When it comes to pay compression in 2021, no, it didn’t get any worse. But it didn’t get much better either.

Nearly Useless Factoid

By Alazar Moges

The first ever pizza delivery was ordered by the Queen of Italy, Margherita Savoy, in 1889.

Source: Food and Wine

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Sep 17, 2021 Close Change YTD*
L Income 23.2077 -0.0415 4.43%
L 2025 12.0240 -0.0418 8.33%
L 2030 42.5522 -0.1952 10.54%
L 2035 12.7953 -0.0643 11.50%
L 2040 48.4773 -0.2641 12.46%
L 2045 13.2947 -0.0772 13.28%
L 2050 29.1552 -0.1795 14.12%
L 2055 14.3671 -0.1053 17.18%
L 2060 14.3671 -0.1053 17.18%
L 2065 14.3671 -0.1054 17.18%
G Fund 16.6644 0.0006 0.88%
F Fund 21.0666 -0.0298 -0.55%
C Fund 66.6676 -0.6128 21.56%
S Fund 85.0861 -0.0794 16.31%
I Fund 39.4469 -0.3006 11.70%
Closing price updated at approx 6pm ET each business day. More at tsp.gov
* YTD data is updated on the last day of the month.