Pay compression: One expert says a current bill would help, but deeper changes are still needed

In recent weeks, Rep. Eleanor Holmes Norton—along with Rep. Gerry Connolly, D-Va., and Maryland Democrats Glenn Ivey, Jamie Raskin and David Trone—introduced the Pay Compression Relief Act bill, which aims to alleviate the effects of pay compression on federal employees without actually rescinding the pay caps themselves. The bill would permit those who have hit their pay caps to get a raise—including next year’s likely hefty boosts in pay and locality pay, as well as subsequent bumps in future years. 

The General Schedule’s current year pay scale, not counting locality pay, ranges from $21,000 to just over $152,700. Each GS employee’s compensation is pegged at one of the system’s 15 levels and incremental steps in between. With added locality pay, in certain cities and suburbs upper-level feds can earn significantly higher salaries—up to $183,500. All feds within this scale have long tolerated unreliable pay increases that often lag inflation. 

But higher-level feds are increasingly encountering a new and less anticipated downside to federal employment: hitting their pay ceiling—in effect, succeeding at career advancement is rewarded with salary stasis due to congressionally mandated pay caps. Once stuck at this upper limit on income, a top-end fed’s expenses can begin to outpace federal pay—and their skillset can begin to feel worth tantalizingly more to the private sector.

“Trapped in a General Schedule created in 1949,” as Jason Briefel of the Senior Executives Association summarized the situation for the Federal Salary Council in October 2022, “the federal government is not in a position to compete with industry.” 

This week, Government Executive explores the pay compression problem—and the proposed legislative remedy—with James L. Perry, professor emeritus of public administration at the University of Indiana. 

Q&A with James L. Perry 

GovExec: You have said that pay compression, a problem for feds at the top end of the pay scale, can be seen more clearly in the context of a wider picture of “pay dispersion”—an inclusive graph showing the range of pay from low to high across the federal workforce. How does seeing that range of fed pay help us to better comprehend pay compression and ways to fix it?  

Perry: Imagine a simple line graph plotting a range of federal salaries—moving from left to right,  from low to high salary. Looking at the slope of that salary line helps us understand the issue. Historically, we have had relatively high pay at the low end of that salary line, in the public sector. Very few low-level fed jobs start at under $30,000 these days. In these lower-end jobs, the pay often is high compared with private-sector counterparts. Yet, over on the high end of the graph, the top GS salary is now just a little below $200,000—and that’s very low compared with the private sector. The graph helps you see how much more the situation disadvantages recruitment and retention for top government jobs. The relatively low pay for very skilled, very experienced workers is a serious problem—as is the resulting pay compression and stalled salaries weighing on feds at the very top end of our graph. The federal government’s ability to recruit and retain, at the higher end, needs to improve.  

GovExec: You—and some other pay experts—argue that federal hiring and retention might be improved at the high end if it was allowed to go much higher, right? And also that some low-end jobs should maybe see their pay reduced? 

Perry: Yes. Some salary comparisons with the private sector buttress the criticism that some low-end jobs are paid too much. Having said that, the federal body that studies this—the Federal Salary Council—doesn’t emphasize this part of the picture. But then the FSC is made up of five union representatives and three presidential appointees. With that composition, it may not be surprising that they are happy where the bottom of the scale is now. It’s not in the labor unions’ interest to seek to lower low-end pay, or to pursue higher pay for higher levels of the GS pay scale or the executive levels. Overall, the unions are most concerned with people at the lower end of the pay scale.

GovExec: So, you’re saying the FSC—partly due to its composition—supports a status quo GS pay chart where some lower-end fed jobs remain overpaid compared with the private sector? And at the same time, the top end is generally underpaid, correct? 

Perry: Yes. I think that’s true about the relatively high pay at the lower end. But there’s also distortion in pay comparability at the higher end: Some analyses find feds near the top are paid 50%, 60%—or an even bigger percentage—less than comparable employees in the private sector. This distortion—underpayment—at the higher end of the pay scale, and the morale and recruiting problems it causes, rarely gets its due in the federal pay debate. 

GovExec: You’re emphasizing that there are pay problems at both ends of the federal pay scale—but that they especially damage government’s abilities to recruit and retain at the higher end. Question: Are there a lot of government analyses and papers on this problem? 

Perry: Not nearly enough. Over the past several years—at least five years, I would say—our government’s capacity, at the Office of Management and Budget and the Office of Personnel Management, to properly study and analyze scenarios involving pay comparability and pay compression have been very limited. I know this from my research, and because I have inquired at OMB—asking for reports on the same issues we’re talking about here. My questions include what if Congress somehow passed a bill and the government suddenly could pay our top executives, say, twice as much as we do now? Instead of closing in on $200,000, what about a top of $300,000 or even $400,000? How much would that boost the cost of labor? But what might be the benefits and savings—on recruiting new employees, for instance? How many feds would be affected? We don’t really know the answers, because we just don’t have the capacity to run such scenarios, not accurately. To me, this is very troubling.  

GovExec: Is there a way for Congress to get beyond the doom loop you’re describing? For instance, one where government and outside research orgs run more detailed scenarios and studies, so lawmakers get enough compelling data and are motivated to tackle pay compression? 

Perry: I’m not sure how. For now, it seems to be unlikely the needed studies will get done. And yet unless we can get better and more detailed numbers, clearer numbers, ones that can guide us to improve things, we might remain stuck. We clearly want studies that would help us to say, “Hey, look, retention would go up x amount if the federal government boosted the top pay for the top 5,000 G.S. and executives by, say, $100,000” or whatever the hypothesized number is. I think these kinds of studies might also show, “Boosting top pay by $100,000, in retaining more of the best talent, would net save government x amount.” The point is, without good, solid study and scenarios, we can’t really get much detail on some of the real problems and solutions on federal compensation. 

GovExec: But how might deeper studies into a tweaked pay scale, raising top end salaries, actually help? 

Perry: Because if we could run more detailed scenarios, those might tell us how and at which agencies a better-paid high end would help retain more good and talented people. implementing better retention plans at certain agencies might also bring better staffing and better results—better government and government services. Again, we just don’t know. It could be that if Congress ordered a boost in high-end salaries by way of savings made from low-end salary cuts, it won’t end up in a net gain. In fact, if government were to cut salaries at the low end of the scale and put all of the savings into increasing funding for top salaries, by some estimates that might barely cover 20% or 30% of any impactful new, higher pay scale for people at the top. Besides, cuts at the bottom might have their own morale and productivity costs.   We just haven’t adequately studied these scenarios. 

GovExec: Are there additional likely ways for the federal government to fund higher top-end salaries other than salary cuts at the bottom of the scale, to compete with the private sector for the best employees? 

Perry: Sure. Historically, we have seen other ways. For example, instead of cutting salaries at the lower end of the pay scale, Congress could try reducing the actual number of higher-level federal slots to fund higher pay at that level. If Congress said, “OK, we're going to reduce the number of senior executives—from, say, 7,000 to 6,000—without reducing funding for that level of government,” that could yield significant funds to boost top employee pay, right? Proposals like this date back to the Reagan administration initiatives and its Grace Commission. 

GovExec: How would you rate the possible good done by the proposed Pay Compression Relief Act? 

Perry: Well, it could be useful, for a while anyway. But that approach alone wouldn’t solve the problem, certainly not long-term. As I understand it, the bill as it is now would boost pay only for those at the top end of the General Schedule. That’s unfortunate. Any pay reform legislation would be better if it applied to the wider workforce, including those in the Senior Executive Service. The net effect of giving only those at the top of GS the locality and inflation boost might—might—be to make things worse. How? It could benefit people at some jobs and locations and not others, creating discord. And discord among people who work together may diminish morale and their collective effort. On the other hand, the reform bill could be a net positive for government. It could stop some federal employees fed up after hitting pay caps from jumping ship. So, it’s a mixed bag.  Based on what I know right now, though, I would say on balance the bill would be is better than nothing—as a short-term solution. 

GovExec: How would you rate the reform bill’s chance of passing?

Perry: Right now, I’m not sure the Norton bill will get anywhere. I think the only hope for its passage is if Congress agrees on a much bigger deal, a bigger compromise. If they succeed at this bigger deal—one covering the budget, deficit and debt limits, longer term, and the like—then this or a similar proposal for pay reform could be part of it. Getting to a deal is going to be very difficult.  I speculate that to get pay reform into a deal backers would likely go with: “We will make pay compression reform budget-neutral. We will increase executive compensation and detach all that from congressional salaries. But at the same time, we will compromise by reducing the number of these positions so we're not spending any more in the aggregate.” Something like that. It is at least a possible way forward.