Senior officials at the National Science Foundation plan to cut the salaries of several hundred employees starting in January.

NSF leaders made the announcement to staff after learning that the agency, in violation of federal law, has been overpaying some of its scientists, engineers and program directors for the last six years.

Approximately 315 NSF employees on levels 4 and 5 of the Administratively Determined (AD) pay scale will see cuts to their salaries take effect on or after Jan. 14, NSF Director Sethuraman Panchanathan and Chief Operating Officer Karen Marrongelle said Thursday in an email to agency employees, obtained by Federal News Network.

“We recognize pay is a personal issue and can have a significant impact on people’s day-to-day lives,” Panchanathan and Marrongelle said in the email. “We value all of our staff’s contributions and their dedication to our agency and mission, and dedicated a significant amount of time and resources to try and get the best possible outcome in this difficult situation.”

The pay discrepancy first came up in January. NSF leaders initially planned to cap the 2023 pay raise for these employees, as Federal News Network’s first reported.

Days later, agency leaders made the subsequent decision to enact the full pay raise after NSF received pushback from the agency’s union, the American Federation of Government Employees (AFGE). As a result, the Office of Personnel Management (OPM) reviewed the salaries of AD-4 and AD-5 NSF employees.

Unlike for employees on the General Schedule (GS) pay scale, NSF has the authority to determine pay raises for those on the AD pay scale — but only up to a certain point.

Federal statute prohibits agencies from letting employees’ pay exceed the wages of those paid at level IV of the Executive Schedule. Taking into account locality pay, NSF must technically cap employees on the AD pay scale at the same rate as those on level III of the Executive Schedule.

AD-4 and AD-5 employees at NSF currently make between $160,889 and $206,541 annually. But according to federal statute, the employees should be making no more than $195,000 in salary, since that’s the maximum wage for level III of the Executive Schedule for 2023.

On the advice of former NSF General Counsel, NSF said it believed the agency had the flexibility to increase the pay caps outside of these regulations.

“This determination was not validated with outside entities, such as OPM,” NSF said in a fact sheet sent to employees about the pay cap, obtained by Federal News Network. “It did not become apparent until the federal pay increase that was passed in the fiscal 2023 appropriation bill in December 2022, that there was a discrepancy.”

Late last week, the Department of Justice (DOJ) informed NSF that the agency did not have the unique authority to implement the full 2023 pay increase in instances where employees’ salaries would surpass the governmentwide pay cap, Panchanathan and Marrongelle said.

NSF has been overpaying some employees in the AD-4 and AD-5 pay bands since 2017, according to federal regulations.

Although NSF first learned about the possibility of pay cuts in February, leaders said they waited to inform employees to first confer with OPM and DOJ and ensure that there was no alternate route.

“We did not want to release partial or incomplete information, which would have been a disservice to employees,” NSF said. “It is not something anyone takes lightly, and the team had to take the time to make sure there wasn’t a different interpretation that would allow for a different outcome.”

After confirming with DOJ, “we were advised to address this issue of overpayment as soon as possible,” NSF said.

The agency now plans to reduce the affected employees’ salaries to fit within that externally set pay cap starting on or after Jan. 14.

Based on current pay rates, affected employees would see a salary cut of about $10,000 annually, but since the change won’t take place until 2024, it’s not yet determined exactly how much the employees’ pay will be cut. The planned federal pay raise and OPM’s pay tables for 2024 are not yet finalized.

If feds do receive a 5.2% average raise as expected, pay for these employees would be cut by about $2,500 per year.

Jesús Soriano, president of AFGE Local 3403, which represents NSF employees, said the timing of the announcement makes the news particularly difficult for agency staff.

“On the eve of a potential shutdown, Panchanathan and Marrongelle found it appropriate to announce an unprecedented pay cut for hundreds of hardworking NSF scientists and engineers,” Soriano told Federal News Network. “The steep pay cut for federal workers [also came] just after OPM announced a significant increase in insurance premiums. It begs the question, how can these executives keep their jobs after showing such disregard for the federal worker?”

Panchanathan and Marrongelle said they recognize the announcement comes at a challenging time and that it causes hardships for impacted NSF employees and their families.

“We thought it was imperative to send this information as soon as possible so that the impacted employees have time to get more personalized information and plan accordingly,” the leaders said. “We deeply regret this outcome and are committed to evaluating any and all tools we have available for all employees.”

Soriano said NSF management did not inform the union until just one hour before making the agency-wide announcement about the upcoming changes.

“The union asked three times, orally and in writing, whether NSF would abide or not by President Biden’s plan to increase federal workers’ pay by 5.2%. They did not respond,” Soriano said. “Instead, they called a hurried session with NSF program officers to inform them of their nefarious plans.”

Additionally, Soriano said he’s concerned about the long-term impacts of cutting pay. He pointed to the growing number of retirement-eligible NSF employees as an already major risk.

“NSF management continues to showcase utter incompetence,” Soriano said. “Instead of attracting much-needed talent, NSF insists on unfriendly working conditions that lead to attrition.”

Not every AD-4 and AD-5 employee will be impacted. Those who are far enough below the pay cap will still receive the full 5.2% average pay raise, if enacted.

And importantly, pay for employees in levels AD-1 through AD-3 will not be affected by the upcoming pay decrease.

Additionally, NSF employees will not be required to repay any past overpayments, NSF said.

NSF also clarified that the pay cuts will not impact employees’ “high-three,” a formula that uses a federal employee’s highest three years of salary to help determine their retirement annuities.

“For most people, their last three years of working before they retire end up being their ‘high-three,’ but it doesn’t have to be if they worked in a different position and/or had earned more money during a different period,” NSF said.

OPM’s website states that employees’ “high-three” can indeed come from an earlier period in their career, if employees’ basic pay was higher during that period.

The challenge of a pay cap isn’t unique to NSF. Many governmentwide senior federal employees face what’s commonly called “pay compression,” once they reach the upper-most levels of the General Schedule (GS) and the Senior Executive Service (SES) pay systems.

Pay compression is a phenomenon that affects some senior-level feds, depending on where they work and their spot on the career ladder. According to federal statute, salaries for GS career employees cannot exceed the pay rates for political appointees and others at level IV on the Executive Schedule. Even though Congress or the president raise federal employee salaries each year, a pay cap has remained in place for those on the Executive Schedule — and therefore also remains for federal managers situated in the upper levels of the General Schedule.

For years, federal organizations have pressed for a legislative fix to pay compression. Many advocates for senior executives say pay compression disincentivizes career senior leaders from taking on or keeping managerial positions in government.

“Pay compression skews the risk-reward trade-off for employees advancing in their federal careers,” Senior Executive Association President Marcus Hill said in a letter to OPM in July. “At a certain point, the risks of advancing in management continue to grow, but the rewards do not keep pace.”

The Biden administration hinted in the fiscal 2023 budget request that it would propose a way to address pay compression, but so far there has not been any movement on this promise.

Going forward, for NSF, the agency plans to evaluate other options to try to support staff who will be taking on the upcoming pay cuts.

“We are taking the appropriate steps to ensure we are in compliance and are working with those affected,” an NSF spokesperson told Federal News Network. “NSF leadership values all employees and we know this is a very difficult issue and there will be significant impacts to staff and their families. We will continue to evaluate all tools we have available for all employees.”

Panchanathan and Marrongelle encouraged managers and supervisors to consider additional flexibilities that can help support recruitment strategies and long-term staffing plans.

“We understand that the competition for talent is at an all-time high nationwide and we are extremely sensitive to the challenges in both attracting and retaining employees of the highest caliber at NSF,” the agency leaders said. “The value of employment with NSF extends well beyond salary to offer a total compensation package that is highly desirable and rewarding careers.”

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