The Executive Schedule IV Pay Cap on General Schedule Compensation

The Executive Schedule IV Pay Cap on General Schedule Compensation

Order Code RL34380
The Executive Schedule IV Pay Cap on General
Schedule Compensation
Updated October 23, 2008
Curtis W. Copeland
Specialist in American National Government
Government and Finance Division

The Executive Schedule IV Pay Cap on General
Schedule Compensation
Summary
Annual pay adjustments for about 1.3 million employees under the General
Schedule (GS) and certain other systems are governed by Section 529 of P.L. 101-
509, the Federal Employees Pay Comparability Act of 1990 (FEPCA), which
generally requires that covered employees receive an annual basic pay adjustment and
a locality-based comparability payment. For the GS pay adjustment that took effect
in January 2008, the size of the total pay increase (i.e., the annual adjustment plus
locality pay) varied across the 32 pay areas, but averaged 3.5% nationwide.
In recent years, though, an increasing number of GS employees have not
received all of the base and locality pay increases that were designated for their pay
areas. By law (5 U.S.C. §5304(g)(1)), base GS pay and locality pay combined cannot
exceed Level IV of the Executive Schedule (EX-IV) — which, for 2008, is set at
$149,000. Therefore, GS employees whose total pay was already equivalent to EX-IV
could only receive the same amount of pay increase that was provided to employees
in the Executive Schedule (which, for 2008, was 2.5%). Any employees whose pay
was below EX-IV but, after the increase, would have been above Level IV, could
only receive a portion of the total increase scheduled for other employees in their pay
area.
For the GS pay adjustment that took effect in January 2008, more than 7,100
GS-15 and equivalent employees in 12 pay areas did not receive all of the pay
increase designated for their pay areas — an increase of more than 6,000 “capped”
employees from the year before, primarily because the EX-IV cap affected employees
in the Washington, DC, pay area for the first time. Some GS-15 employees have
been affected by the cap since 2002, and employees in three additional pay areas may
be affected in 2009. By 2012, certain GS-14 employees may also begin to be
affected. As a result of the EX-IV cap, the affected employees’ salaries are
substantially lower than they would have been had the cap not been in effect, and any
pensions that they are due to receive in the future will also be lower.
This report provides information on the effect of the EX-IV pay cap on pay for
GS employees; and discusses the potential implications of the pay cap on salaries,
pensions, and the ability of agencies to recruit and retain staff. The report also
provides some background information on the GS and Executive Schedule pay
systems and the annual pay adjustment processes in those systems. Finally, it notes
the introduction of H.R. 5439, the “Civil Service Reform Commission Act of 2008,”
which would establish a commission to study, among other things, the federal
compensation system; and the enactment of legislation (P.L. 110-323) that changed
the pay cap for employees of the Government Accountability Office to EX-III
($158,500 for 2008).
This report will be updated if policy developments occur or if additional factual
information becomes available on the number of employees affected.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
General Schedule Pay Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Executive Schedule Pay Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
GS-15 Pay Compression Caused by EX-IV Linkage . . . . . . . . . . . . . . . . . . . . . . . 6
Concluding Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Pay System Linkages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Agency-Specific Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Appendix. Major Federal White-Collar Pay Schedules . . . . . . . . . . . . . . . . . . . 16
List of Figures
Figure 1. An Increasing Aggregate Number of Pay Areas and
GS-15 Steps Have Been Affected by the EX-IV Pay Cap . . . . . . . . . . . . . . . 8
Figure 2. GS-14, Step 10 Employees in San Francisco
May Have Their Pay Capped by 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
List of Tables
Table 1. Annual and Locality Pay Adjustments Under FEPCA, 1991 to 2008 . . 4
Table 2. The Aggregate Number of Pay Areas and GS-15 Pay Steps
Affected by the EX-IV Pay Cap Has Grown . . . . . . . . . . . . . . . . . . . . . . . . . 7
Table 3. More than 7,100 GS-15/Equivalent Employees Have Been
Affected by the EX-IV Pay Cap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Table 4. GS-15, Step 10 Pay Rates May Be Capped in Three
Additional Pay Areas in 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Table 5. Effect of the EX-IV Pay Cap on GS-15, Step 10,
Salaries in San Francisco, 2002 Through 2008 . . . . . . . . . . . . . . . . . . . . . . 12

The Executive Schedule IV Pay Cap on
General Schedule Compensation
Introduction
On January 4, 2008, President George W. Bush signed an executive order
implementing the 2008 pay adjustments for most federal employees.1 As a result,
employees within the General Schedule (GS) and related pay systems (covering more
than 1.3 million of the nearly 1.9 million employees in the executive branch as of
September 2007)2 received an average 3.5% pay increase — a 2.5% across-the-board
increase to their base pay under 5 U.S.C. §5303, and an average 1% locality pay
increase under 5 U.S.C. §5304. The size of the locality portion of the pay increase
varied by pay area, based on differences in the size of the federal-nonfederal pay
differential in those areas.3 As a result, the total pay increase provided to GS
employees (i.e., the across-the-board increase plus locality pay) was often either
somewhat more than, or somewhat less than, the 3.5% national average. For
example, GS employees in Indianapolis, IN, received a 2.96% total pay increase in
January 2008, whereas GS employees in San Francisco, CA, received an increase of
4.23%, and employees in Washington, DC, received a 4.49% increase.
However, in recent years, an increasing number of GS employees have not
received all of the base and locality pay increases that were designated for their pay
areas. By law (5 U.S.C. §5304(g)(1)), an employee’s base GS pay and locality pay
combined cannot exceed Level IV of the Executive Schedule (EX-IV) — which, for
2008, is set at $149,000.4 Therefore, employees whose total pay was already
1 The President, “Executive Order 13454 — Adjustments of Certain Rates of Pay,” 73
Federal Register 1481, Jan. 8, 2008. For more on this adjustment, see CRS Report
RL33732, Federal White-Collar Pay: FY2008 Salary Adjustments, by Barbara L. Schwemle.
2 The figures used in this report for the number of federal employees in the executive branch
do not include employees of the U.S. Postal Service, military employees of the Department
of Defense, or employees of the intelligence agencies.
3 See [https://www.opm.gov/oca/08tables/locdef.asp] for a list and definitions of the 32 pay
areas.
4 Also by statute (5 U.S.C. §5303), base GS pay (i.e., without the locality differential)
cannot exceed Level V of the Executive Schedule (for 2008, $139,600). The basic pay cap
for employees in other pay systems may be higher than the GS or GS-equivalent systems.
For example, as discussed later in this report, the cap for employees in the Department of
(continued...)

CRS-2
equivalent to EX-IV could only receive the same amount of increase that was
provided to employees in the Executive Schedule (which, for 2008, was 2.5%). Any
employee whose pay was below EX-IV but, after the increase, would have been
above Level IV, could only receive a portion of the total increase. For the adjustment
that took effect on January 6, 2008, more than 7,100 GS and GS-equivalent
employees in 12 pay areas did not receive all of the pay increase for their pay areas.
Some GS employees have been affected by the cap since 2002. As a result, these
“capped” employees’ salaries are substantially lower than they would have been had
the pay caps not been in effect, and any pensions that they are due to receive in the
future will also be lower (because federal pensions are based, in part, on the average
of the highest three consecutive years of base pay).5
This report provides information on the effect of the EX-IV pay cap on pay for
GS employees and discusses the potential implications of the pay cap on the ability
of agencies to recruit and retain staff. First, the report describes the GS and
Executive Schedule pay systems and the annual pay adjustment process.
General Schedule Pay Adjustments
Created by the Classification Act of 1949, the GS pay system is divided into 15
grades of difficulty and responsibility of work, with 10 steps within each grade that
employees progress across through longevity and at least an acceptable level of
performance. The duties and responsibilities of GS-15 employees are described in
5 U.S.C. 5104 as follows:
Grade GS-15 includes those classes of positions the duties of which are - (A) to
perform, under general administrative direction, with very wide latitude for the
exercise of independent judgment, work of outstanding difficulty and
responsibility along special technical, supervisory, or administrative lines which
has demonstrated leadership and exceptional attainments; (B) to serve as head
of a major organization within a bureau involving work of comparable level; (C)
to plan and direct or to plan and execute specialized programs of marked
difficulty, responsibility, and national significance, along professional, scientific,
technical, administrative, fiscal, or other lines, requiring extended training and
experience which has demonstrated leadership and unusual attainments in
professional, scientific, or technical research, practice, or administration, or in
administrative, fiscal, or other specialized activities; or (D) to perform consulting
or other professional, scientific, technical, administrative, fiscal, or other
specialized work of equal importance, difficulty, and responsibility, and
requiring comparable qualifications.
Annual pay adjustments for employees under the GS and certain other systems
are governed by Section 529 of P.L. 101-509, the Federal Employees Pay
Comparability Act of 1990 (FEPCA), which generally requires that covered
4 (...continued)
Defense’s National Security Personnel System (NSPS) is EX-IV plus 5%.
5 For more information, see CRS Report 98-810, Federal Employees’ Retirement System:
Benefits and Financing, by Patrick Purcell.

CRS-3
employees receive an annual basic pay adjustment and a locality-based comparability
payment. The same amount of basic pay adjustment is provided to nearly all covered
employees and is based on the Bureau of Labor Statistics (BLS) Employment Cost
Index (ECI), which measures changes in private sector wages and salaries. Federal
pay rates are generally required to be increased by an amount that is 0.5% less than
the percentage change in the ECI from one year to the next, but the law stipulates a
15-month lag at the time of each adjustment. For example, the pay increase for
January 2008 was based on the percentage change in the ECI from the quarter ending
on September 30, 2005, to the quarter ending on September 30, 2006. The ECI
change for this period was 3.0%, so the formula required that the basic pay
adjustment (i.e., without the locality differential) for January 2008 would be 2.5%.
However, FEPCA also authorizes the President to issue an alternative pay plan (by
September 1 of the year prior to the scheduled effective date) in the event of a
national emergency or serious economic conditions affecting the general welfare.
The locality portion of the annual adjustment for GS and other employees is
based on a comparison of federal pay rates for particular positions to non-federal
rates of pay (as measured by BLS surveys) within designated local pay areas. In
2008, there are 32 such local pay areas (including one called “Rest of the United
States”). Those pay areas (and how they are referred to later in this report) are:
! Atlanta-Sandy Springs-Gainesville, GA-AL (hereinafter, “Atlanta”)
! Boston-Worcester-Manchester, MA-NH-RI-ME (“Boston”)
! Buffalo-Niagara-Cattaraugus, NY (“Buffalo”)
! Chicago-Naperville-Michigan City, IL-IN-WI (“Chicago”)
! Cincinnati-Middletown-Wilmington, OH-KY-IN (“Cincinnati”)
! Cleveland-Akron-Elyria, OH (“Cleveland”)
! Columbus-Marion-Chillicothe, OH (“Columbus”)
! Dallas-Fort Worth, TX (“Dallas-Fort Worth”)
! Dayton-Springfield-Greenville, OH (“Dayton”)
! Denver-Aurora-Boulder, CO (“Denver”)
! Detroit-Warren-Flint, MI (“Detroit”)
! Hartford-West Hartford-Willimantic, CT-MA (“Hartford”)
! Houston-Baytown-Huntsville, TX (“Houston”)
! Huntsville-Decatur, AL (“Huntsville”)
! Indianapolis-Anderson-Columbus, IN (“Indianapolis”)
! Los Angeles-Long Beach-Riverside, CA (“Los Angeles”)
! Miami-Fort Lauderdale-Pompano Beach, FL (“Miami”)
! Milwaukee-Racine-Waukesha, WI (“Milwaukee”)
! Minneapolis-St. Paul-St. Cloud, MN-WI (“Minneapolis”)
! New York-Newark-Bridgeport, NY-NJ-CT-PA (“New York”)
! Philadelphia-Camden-Vineland, PA-NJ-DE-MD (“Philadelphia”)
! Phoenix-Mesa-Scottsdale, AZ (“Phoenix”)
! Pittsburgh-New Castle, PA (“Pittsburgh”)
! Portland-Vancouver-Beaverton, OR-WA (“Portland”)
! Raleigh-Durham-Cary, NC (“Raleigh”)
! Richmond, VA (“Richmond”)
! Sacramento-Arden-Arcade-Yuba City, CA-NV (“Sacramento”)
! San Diego-Carlsbad-San Marcos, CA (“San Diego”)
! San Jose-San Francisco-Oakland, CA (“San Francisco”)

CRS-4
! Seattle-Tacoma-Olympia, WA (“Seattle”)
! Washington-Baltimore-Northern Virginia, DC-MD-VA-WV-PA
(“Washington DC”)
! Rest of the United States
FEPCA provides that payments are to be made within each locality in which federal
pay rates lag behind non-federal rates by more than 5%. However, as was the case
for the basic adjustment, FEPCA also permits the President to establish an alternative
level of locality-based comparability payments because of a national emergency or
serious economic conditions affecting the general welfare. To do so, the President
must transmit a report to Congress at least one month before the comparability
payments would be payable that describes the alternative level of payments and why
the alternative level is necessary.
This complicated formula for calculating basic and locality payments
notwithstanding, FEPCA has never been implemented without presidential or
congressional intervention. No annual basic pay adjustment was made in 1994, and
the adjustment was reduced in 1995, 1996, and 1998. Reduced amounts of locality
payments were provided in 1995 through 2008. Table 1 below shows the annual and
locality pay adjustments made under FEPCA for the years 1991 through 2008.
Table 1. Annual and Locality Pay Adjustments
Under FEPCA, 1991 to 2008
Locality
Net Increase,
ECI-Based
Locality
Payments
Annual and
Annual
Annual
Payments
Required
Locality Pay
Year
Adjustment
Adjustment
Authorized
by FEPCA
(National
Required by
Authorized
(National
(National
Average,
FEPCA
Average)
Average)
Weighted)
1991
—
4.1%
—
—
4.1%
1992
4.2%
4.2%
—
—
4.2%
1993
3.7%
3.7%
—
—
3.7%
1994
2.2%
0
3.95%
3.95%
3.95%
1995
2.6%
2.0%
6.44%
5.05%
3.08%
1996
2.4%
2.0%
8.58%
5.56%
2.49%
1997
2.3%
2.3%
11.29%
6.37%
3.09%
1998
2.8%
2.3%
14.30%
6.93%
2.84%
1999
3.1%
3.1%
16.95%
7.50%
3.65%
2000
3.8%
3.8%
20.62%
8.62%
4.89%
2001
2.7%
2.7%
23.12%
9.77%
3.76%
2002
3.6%
3.6%
25.92%
10.95%
4.72%
2003
3.1%
3.1%
27.59%
12.12%
4.21%
2004
2.7%
2.7%
25.71%
13.81%
4.24%
2005
2.5%
2.5%
25.51%
15.01%
3.54%
2006
2.1%
2.1%
25.85%
16.22%
3.19%

CRS-5
2007
1.7%
1.7%
24.15%
16.80%
2.24%
2008
2.5%
2.5%
31.02%
17.50%
3.50%
Sources: For the ECI-required annual adjustment, see U.S. Department of Labor, Bureau of Labor Statistics,
Employment Cost Index, Sept. of each year. For the locality payments required by FEPCA, see Report on
Locality-Based Comparability Payments for the General Schedule, Annual Report of the President’s Pay Agent,
Dec. of each year. For the annual and locality pay adjustments authorized, see E.O. 12736, Dec. 12, 1990; E.O.
12786, Dec. 26, 1991; E.O. 12826, Dec. 30, 1992; presidential memorandum of Dec. 1, 1993; E.O. 12944, Dec.
28, 1994; E.O. 12984, Dec. 28, 1995; E.O. 13033, Dec. 27, 1996; E.O. 13071, Dec. 29, 1997; E.O. 13106, Dec.
7, 1998; E.O. 13144, Dec. 21, 1999; E.O. 13182, Dec. 23, 2000; E.O. 13249, Dec. 28, 2001; E.O.s 13282, Dec.
31, 2002, and 13291, Mar. 21, 2003; E.O.s 13322, Dec. 30, 2003, and 13332, Mar. 3, 2004; E.O. 13368, Dec.
30, 2004; E.O. 13393, Dec. 22, 2005; E.O. 13420, Dec. 21, 2006; and E.O. 13454, Jan. 4, 2008.
The process by which GS pay rates are compared to pay rates outside the federal
government within local pay areas was determined by Congress and is administered
by the Office of Personnel Management (OPM) using data collected by BLS. That
process has been examined by top compensation experts in academia and elsewhere
and found to be valid and reliable.6 Such reviews have found consistently that
federal pay lags behind the private sector by as much as 50% in some localities.
Nevertheless, concerns by Congress and the current and previous Presidents about
the validity of the pay comparison process and the budgetary implications of
implementing the results of that process have led to the establishment of alternative
pay plans in virtually each year since FEPCA was enacted.
Because of differences in locality payments provided, the salaries associated
with each GS grade and step vary by locality. For example, in 2008, GS salaries in
Indianapolis, IN, range from a low of $19,349 to a high of $140,764; in San
Francisco, CA, GS salaries range from a low of $22,591 to a high of $149,000.
Executive Schedule Pay Adjustments

The Executive Schedule (EX), established by Section 303 of P.L. 88-426 in
August 1964, consists of five pay levels. Generally, Level I of EX (EX-I) includes
Cabinet secretaries and other Cabinet-level officials; Level II includes deputy
secretaries of departments, secretaries of military departments, and heads of major
agencies; Level III includes under secretaries of departments and heads of middle-
level agencies; Level IV includes assistant secretaries and general counsels of
departments, heads of smaller agencies, and members of certain boards and
commissions; and Level V includes administrators, commissioners, directors, and
members of boards, commissions, or units of agencies. EX-I through EX-V positions
are specified in statute at 5 U.S.C. §§5312-5316. According to OPM’s “FedScope”
database, as of June 2008, the Executive Schedule covered 462 employees in the
6 For example, Charles H. Fay, Chair of the Human Resource Management Department at
Rutgers University School of Management and Labor Relations said that “BLS uses
impeccable methodology in gathering reliable and valid data to price the GS, and applies
sophisticated statistical methods to evaluate survey data and apply it to the GS for the
Federal Salary Council.” Testimony of Charles H. Fay before the House Subcommittee on
the Federal Workforce, Postal Service, and the District of Columbia; and the Senate
Subcommittee on the Oversight of Government Management, the Federal Workforce, and
the District of Columbia, May 22, 2007, p. 13.

CRS-6
highest levels of federal agencies.7 Of these, 279 were in cabinet departments,
including 35 in the Department of Defense, 31 in the Department of State, 24 in the
Department of Justice, and 23 in the Department of Energy. The largest number of
EX employees were at EX-IV (288), followed by EX-III (98), EX-II (37), EX-I (19),
and EX-V (17).
Individuals in EX positions, as well as leaders and Members of Congress, the
Vice President, and federal justices and judges, receive an annual pay adjustment
under the Ethics Reform Act of 1989, P.L. 101-194 (103 Stat. 1716, at 1769, 5
U.S.C. §5318 note). The pay adjustment is based on the percentage change in the
wages and salaries for the private industry workers element of the ECI, minus 0.5%
(December indicator), and is rounded to the nearest multiple of $100. In January
2008, individuals paid on the EX schedule received a 2.5% salary increase, resulting
in the following rates of pay:
! EX-I — $191,300
! EX-II — $172,200
! EX-III — $158,500
! EX-IV — $149,000
! EX-V — $139,600
Studies have shown that employees in the EX pay system have been losing
buying power in recent decades. For example, in June 2006, using the Gross
Domestic Product (GDP) price deflator, the Government Accountability Office
(GAO) reported that EX-I positions were paid 27% less in constant dollars than they
were in 1970.8 EX-II through EX-V positions had also experienced losses in
inflation-adjusted dollars from 1970 to 2006, although not as much (between 7% and
11%). When using the Consumer Price Index (CPI) to adjust for inflation, GAO
found that the buying power losses during this period were even greater, ranging
from 25% to 41% for EX-I through EX-V.
GS-15 Pay Compression Caused by EX-IV Linkage
GS employees at grade 15, step 10, in the San Francisco pay area were the first
to encounter the EX-IV pay cap as part of the 2003 pay adjustment. Since then, as
Table 2 and Figure 1 below indicate, GS-15 employees in more and more pay areas,
and at lower and lower step levels within the grade, have been affected by the EX-IV
pay cap. By 2008, GS-15 employees in 12 pay areas at an aggregate total of 20 steps
were affected.
7 The FedScope database may be accessed at [http://www.fedscope.opm.gov].
8 U.S. Government Accountability Office, Human Capital: Trends in Executive and Judicial
Pay, GAO-06-708 (June 2006).

CRS-7
Table 2. The Aggregate Number of Pay Areas and GS-15 Pay
Steps Affected by the EX-IV Pay Cap Has Grown
Aggregate
Aggregate
Number of
Number of
Affected Pay Areas and Steps
Year
EX-IV Cap
Pay Areas
Pay Steps
(with new areas and steps in bold)
Affected
Affected
2003
$134,000
1
1
San Francisco (10)
2004
$136,900
2
3
Houston (10)
San Francisco (9 and 10)
2005
$140,300
4
6
Houston (9 and 10)
Los Angeles (10)
New York (10)
San Francisco (9 and 10)
2006
$143,000
7
10
Chicago (10)
Detroit (10)
Hartford (10)
Houston (9 and 10)
Los Angeles (10)
New York (10)
San Francisco (8, 9, and 10)
2007
$145,400
9
15
Boston (10)
Chicago (10)
Detroit (10)
Hartford (10)
Houston (9 and 10)
Los Angeles (9 and 10)
New York (9 and 10)
San Diego (10)
San Francisco (7, 8, 9, and 10)
2008
$149,000
12
20
Boston (10)
Chicago (10)
Denver (10)
Detroit (10)
Hartford (9 and 10)
Houston (8, 9, and 10)
Los Angeles (9 and 10)
New York (9 and 10)
Sacramento (10)
San Diego (10)
San Francisco (7, 8, 9, and 10)
Washington DC (10)
Source: CRS, based on information from OPM.

CRS-8
Figure 1. An Increasing Aggregate Number of Pay Areas and GS-15
Steps Have Been Affected by the EX-IV Pay Cap
25
ed
20
ffect
A
s
p
te 15
/S
reas
10
ay A
f P
o
er
5
b
m
u
N
0
2003
2004
2005
2006
2007
2008
Pay Areas
Steps

Source: CRS, based on information from OPM.
According to data provided by OPM (Table 3 below), after the January 2008
pay increase, more than 7,100 GS-15 employees had their pay capped at the EX-IV
rate — up from 824 who were capped before the increase. The jump in the number
of capped employees is largely attributable to the addition of the Washington, DC,
pay area to the list of areas affected by the EX-IV cap.

CRS-9
Table 3. More than 7,100 GS-15/Equivalent Employees Have
Been Affected by the EX-IV Pay Cap
Number of GS-15 Steps
Number of Employees
Pay Area
Affected
Affected
Boston
1( Step 10)
86
Chicago
1 (Step 10)
82
Denver
1 (Step 10)
93
Detroit
1 (Step 10)
5
Hartford
2 ( Steps 9 and 10)
9
Houston
3 (Steps 8, 9, and 10)
235
Los Angeles
2 (Steps 9 and 10)
58
New York
2 (Steps 9 and 10)
164
Sacramento
1 (Step 10)
11
San Diego
1 (Step 10)
35
San Francisco
4 (Steps 7, 8, 9, and 10)
248
Washington, DC
1 (Step 10)
6,080
Total Across All Pay
20 steps
7,106
Areas
Source: CRS, based on information from OPM.
If the EX-IV pay cap remains in place, more and more locality pay areas, and
steps within those pay areas, will likely be affected by the cap in the future. As
Table 4 below shows, if the EX-IV cap increases by 2.8% in January 2009, GS-15,
step 10, employees in three additional pay areas (Philadelphia, Seattle, and
Minneapolis) are likely to have their salaries capped at the EX-IV rate in 2009. By
that point, employees at GS-15, step 10, (and, in several areas, below step 10) in
nearly half of the 32 pay areas would receive the same salary — effectively
eliminating for these employees the locality-based pay diversification that was
contemplated by FEPCA. The trend data indicate that GS-15, step 10, employees in
several other pay areas (e.g., Miami, Dallas, Cincinnati, Atlanta, and Cleveland) may
be capped by 2010 or 2011.

CRS-10
Table 4. GS-15, Step 10 Pay Rates May Be Capped in Three
Additional Pay Areas in 2009
GS-15, Step 10 Pay in
Year
EX-IV Cap
Philadelphia
Seattle
Minneapolis
2008
$149,000
$148,986
$148,502
$148,105
2009
$153,200
$154,945; but
$154,442; but
$154,029; but
capped at
capped at
capped at
$153,200
$153,200
$153,200
2010
$156,900
$160,214; but
$159,693; but
$159,266; but
capped at
capped at
capped at
$156,900
$156,900
$156,900
2011
$160,700
$165,661; but
$165,123; but
$164,681; but
capped at
capped at
capped at
$160,700
$160,700
$160,700
Source: CRS.
Note: Estimates for the EX-IV caps assume a 2.8% increase in 2009, and 2.4% increases in 2010 and
2011. Estimates for the GS-15, step 10, rates in the five pay areas assume a 4.0% increase in 2009,
and 3.4.% increases in 2010 and 2011 (the average for these areas from 2004 through 2008).
Also, because the EX-IV pay cap has affected GS-15 employees at lower and
lower steps over time, eventually, the cap is likely to affect employees at the GS-14
pay grade. As Figure 2 below indicates, based on the average rates of increase in the
EX-IV cap and GS pay rates in San Francisco since 2002, GS-14, step 10, employees
may be affected by the EX-IV pay cap in the year 2012.

CRS-11
Figure 2. GS-14, Step 10 Employees in San Francisco
May Have Their Pay Capped by 2012
170,000
164,600
160,000
149,000
150,000 130,000
) 140,000
130,000
139,713
($ 120,000
ry 110,000
la 100,000
a
108,642
90,000
80,000
l S 70,000
60,000
50,000
nnua 40,000
A 30,000
20,000
10,000
0
2002 2003 2004 2005 2006 2007 2008*2009*2010*2011*2012*2013
EX-IV
GS-14/10 in San Francisco
Source: CRS
Note: Estimates for the EX-IV caps assume a 2.8% increase in 2009, and 2.4% increases in 2010
through 2013. Estimates for the GS-14, step 10, rates for 2009 through 2013 (marked with asterisks)
assume a 4.2% increase each year (the average rates of increase in the San Francisco pay area from
2004 through 2008).
Concluding Observations
Because of the interaction between (1) the current EX-IV statutory limitation on
GS base pay and locality pay, and (2) the current salaries of some 275 EX-IV
employees, more than 7,100 GS employees in 12 pay areas are not receiving pay
increases that they would otherwise be due. Also, the number of pay areas and GS
employees affected by the EX-IV pay cap are expected to grow in the next few years.
Based on recent trends, by 2009, GS-15 employees in nearly half of the 32 federal
pay areas may be affected. For these “capped” employees, the notion of locality-
based differentials will have been diminished, as all of them will be making the same
salary regardless of location. Also, because their salary increases are tied to the lower
rates of increase in the Executive Schedule, these GS-15 employees will be losing
buying power at the same rate as the Executive Schedule. By 2012, certain GS-14
employees in the San Francisco pay area may have their pay capped. Should that
occur, some GS-14 employees may be unwilling to be promoted after seeing that
their pay cannot increase.
Also, some GS-15 employees, seeing that their “high-three” salaries (used to
calculate retirement annuities) cannot increase at the same pace as lower-graded
employees in the same pay area, may be more likely to retire as soon as they reach
retirement eligibility — possibly exacerbating the “retirement tsunami” or “brain

CRS-12
drain” that has been viewed as a concern for the federal workforce.9 For example,
as Table 5 below shows, because of the EX-IV pay cap, GS-15, step 10, employees
in San Francisco have forgone a cumulative total of nearly $49,000 in salary since
2002. If one of those GS-15, step 10, employees is under the Civil Service
Retirement System (CSRS) and retires at the end of 2008, the employee’s high-three
average salary would be $12,565 less than it would have been without the cap. As
a consequence, the employee’s annual pension (assuming exactly 30 years of service)
would be $7,068 less than it would have been without the cap. Over a 20-year period
of retirement (not counting annual increases in pensions), the employee could be
expected to forgo an additional $141,360 in retirement income because of the EX-IV
pay cap during their last years of service.10
Table 5. Effect of the EX-IV Pay Cap on GS-15, Step 10, Salaries
in San Francisco, 2002 Through 2008
Salary without
Salary Forgone
Salary
Salary with the
Year
the EX-IV Pay
because of the
Increase
EX-IV Pay Cap
Cap
EX-IV Pay Cap
2002
5.42%
$127,798
$127,798
$0
2003
4.87%
$134,000
$134,022
$22
2004
5.35%
$136,900
$141,192
$4,292
2005
4.30%
$140,300
$147,263
$6,963
2006
3.95%
$143,000
$153,080
$10,080
2007
3.00%
$145,400
$157,673
$12,273
2008
4.23%
$149,000
$164,342
$15,342
Total
——-
——-
——-
$48,972
Source: CRS analysis based on OPM data.
9 See, for example, testimony of Linda Springer, Director, U.S. Office of Personnel
Management, in U.S. Congress, House Committee on Oversight and Government Reform,
Subcommittee on the Federal Workforce, Postal Service, and the District of Columbia,
“Federal Benefits: Are We Meeting Expectations?” hearings, 110th Cong., 1st sess., Aug. 2,
2007; and Jenny Mandel, “Retirement-eligible acquisition workers to triple in 10 years,”
Government Executive, Aug. 9, 2006, available at [http://www.govexec.com/dailyfed/0806/
080906m1.htm].
10 The employee’s high-three average salary with the cap would be $145,800 ($143,000 plus
$145,400, plus $149,000 divided by three); the employee’s high-three average salary
without the cap would be $158,365 ($153,080 plus $157,673, plus $164,342 divided by
three). Under CSRS, the annual pension for a 30-year employee is 56.25% of the
employee’s high-three average salary. Therefore, the pension for the employee with the cap
would be $82,012; the pension for the employee without the cap would be $89,080 —
$7,068 more, or $141,360 more over a 20-year period of retirement (not counting any
inflation-protection increases in pensions during this period).

CRS-13
Pay System Linkages
The link between EX-IV pay and the top of the GS pay system is only one of
several statutorily based interrelationships within and between federal pay schedules.
The Appendix of this report provides a chart showing the salary and total
compensation limitations between different schedules. For example, as discussed at
length in another CRS report, the salaries of Members of Congress and officials paid
at EX-II generally have been in parity since the Executive Schedule was established
in 1964.11 In agencies where the Senior Executive Service (SES), Senior Level (SL),
and Scientific or Professional (ST) appraisal systems have not been certified by
OPM, SES, SL, and ST base pay cannot exceed EX-III; but where those appraisal
systems have been certified, base pay may be up to EX-II. Total compensation (i.e.,
base salaries plus locality pay plus bonuses) for GS employees cannot exceed EX-I
— the same cap that applies to SES, SL, and ST employees in agencies without
certified appraisal systems. However, in agencies where OPM has certified the
appraisal system, total compensation for SES, SL, and ST employees can be as high
as the Vice President’s salary ($221,100). Also, under the Ethics Reform Act of
1989, the pay adjustment for the Executive Schedule can be no larger than the GS
base pay adjustment, regardless of the amount specified by the relevant ECI data (the
December ECI minus 0.5%).
Because of this interlocking series of pay and compensation linkages, raising the
pay cap on GS pay rates (e.g., from EX-IV to EX-III) to relieve the pay compression
that has occurred at the GS-15 level in recent years could create other problems. For
example, raising the GS total pay cap (i.e., base pay plus locality pay) from EX-IV
to EX-III would allow GS employees to earn up to $158,500 in 2008 — the same cap
that applies to SL, ST, and SES employees in agencies without certified appraisal
systems. As a result, GS employees could earn as much or more than their
supervisors. This type of “pay compression” or “pay inversion” is reportedly already
occurring in some areas, with SES employees earning less than the employees they
supervise.12 On the other hand, SES, SL, and ST employees in agencies with
certified appraisal systems can earn salaries up to EX II ($172,200 in 2008), and
11 CRS Report RS20388, Salary Linkage: Members of Congress and Certain Federal
Executive and Judicial Officials, by Barbara Schwemle. Members of Congress, District
Court judges, and other members of the legislative and executive branches were paid the
same as EX-II until 2007, when Congress acted to deny itself a pay increase (P.L. 110-5,
Feb. 15, 2007). Therefore, in 2007 and 2008, the salaries for Members of Congress and
District Court judges have been somewhat less than EX-II.
12 See, for example, statement for the record of Carol A. Bonosaro, President of the Senior
Executive Association, in U.S. Congress, House Committee on Oversight and Government
Reform, Subcommittee on the Federal Workforce, Postal Service, and the District of
Columbia, Federal Pay, hearings, 110th Cong., 1st sess., July 31, 2007. Ms. Bonosaro said
that GS employees working for one Senior Executive in a high cost-of-living area were
“receiving salaries $20,000 more than he is, and they are also eligible for compensatory time
for travel or work after duty hours or on weekends.”

CRS-14
salaries and bonuses that exceed the salaries of their agency heads (since
presidentially appointed agency heads cannot receive bonuses).13
The Ethics Reform Act of 1989 includes two provisions under which pay rates
for Members of Congress, the Vice President, federal officials paid under the EX,
and certain federal justices and judges can be set. The first of these provisions
provides for a quadrennial review of the salaries of federal officials by a Citizens’
Commission on Public Service and Compensation.14 The commission is to make
recommendations to the President. The law requires the commission and the
President to submit recommendations to Congress providing that the salaries of the
! Speaker of the House of Representatives, the Vice President of the
United States, and the Chief Justice of the United States shall be
equal;
! Majority and Minority Leaders of the House of Representatives and
the Senate, the President pro tempore of the Senate, and Level I of
the Executive Schedule (e.g., Cabinet secretaries) shall be equal; and
! Senators, Members of the House of Representatives, the Resident
Commissioner of Puerto Rico, Delegates to the House, judges of the
U.S. District Courts, judges of the United States Court of
International Trade, and Level II of the Executive Schedule (deputy
secretaries of Cabinet departments, secretaries of military
departments, and heads of major agencies) shall be equal.15
The commission, however, has never been activated. The commission was initially
funded in the 1993 Treasury, Postal Service, and General Government
Appropriations Act, but that appropriation was rescinded in the 1994 act.16
Congress has not systematically examined the EX pay system since the passage
of the Ethics Reform Act of 1989, and some have called for Congress to do so now
to avert even more pay compression problems in the future.17 On February 14, 2008,
13 As noted earlier in this report, SES, SL, and ST employees in agencies with certified
performance appraisal systems can earn total compensation up to the salary of the Vice
President ($221,100 in 2008); Cabinet secretaries heading major executive departments and
agencies are paid at EX-I ($191,300 in 2008).
14 Ethics Reform Act of 1989, P.L. 101-194, §701(a), Nov. 30, 1989; 103 Stat. 1716, at
1763; 2 U.S.C. §351.
15 Ibid., §701(I); 103 Stat. 1716, at 1766; 2 U.S.C. §362.
16 Treasury, Postal Service, and General Government Appropriations Act, 1993, P.L. 102-
393, Oct. 6, 1992; 106 Stat. 1729, at 1743; and Treasury, Postal Service, and General
Government Appropriations Act, 1994, P.L. 103-123, Oct. 28, 1993; 107 Stat. 1226, at 1239.
The appropriation of $250,000 was to remain available until Sept. 30, 1994.
17 U.S. House, Committee on Government Reform, Subcommittee on the Federal Workforce
and Agency Organization, Executive and Judicial Compensation in the Federal Government
(continued...)

CRS-15
Representative Mac Thornberry introduced H.R. 5439, the “Civil Service Reform
Commission Act of 2008.” The bill would establish a commission to study various
aspects of the federal civil service system, including the “Federal compensation
system, including pay and benefit structures.” The commission would be required
to submit a report to the President and each house of Congress within two years of
its first meeting containing a detailed statement of the commission’s conclusions and
recommendations, including proposed legislative language to carry out the
recommendations.
Agency-Specific Solutions
Federal employees at the GS-15 pay level in certain agencies are not constrained
by the EX-IV pay cap. For example, the pay cap for employees in the Department
of Defense’s National Security Personnel System (NSPS) is EX-IV plus 5%.18
Therefore, in 2008, the NSPS cap was $156,450 ($149,000 times 1.05) — nearly
$7,500 higher than the cap in the GS system.
More recently, the Government Accountability Office Act of 2008 (P.L. 110-
323), which was signed by the President on September 22, 2008, changed the cap for
GAO employees (other than members of GAO’s SES and other statutory positions)
from the “highest rate for GS-15” to the “rate for level III of the Executive Level” —
which was $158,500 in 2008. As a result, when this cap is implemented, GAO
employees at the GS-15 level (Band III at GAO) will have the highest pay cap in the
federal government.19 In the wake of the NSPS and GAO legislation, other agencies
may ask Congress for agency-specific EX-IV pay cap relief.
17 (...continued)
(Quadrennial Commission), hearing, Sept. 20, 2006. Transcript available from the
committee. See also U.S. House, Committee on Oversight and Government Reform,
Subcommittee on the Federal Workforce, Postal Service, and the District of Columbia,
Federal Pay Policies and Administration, hearing, July 31, 2007. Written statements from
the hearing available at [http://federalworkforce.oversight.house.gov/story.asp?ID=1442].
18 For more information on NSPS, see CRS Report RL34673, Pay-for-Performance: The
National Security Personnel System, by Wendy Ginsberg; and CRS Report RL31954,
DOD’s National Security Personnel System: Statute, Regulations, and Implementation
Plans, by Barbara L. Schwemle, et al.
19 However, the House report on the GAO legislation indicates that the EX-III maximum rate
“will be used only for hard-to-fill positions.” GAO has said it will be undertaking an
analysis to establish criteria for implementing the new cap.

CRS-16
Appendix. Major Federal White-Collar Pay Schedules
Total
Number of
Base Pay
Locality
Salary
Compensation
Pay Schedule
Employees
Adjustment
Pay
Limitations
Limitations
(June 2008)
Mechanism
Available
(Jan. 2008)
(Jan. 2008)
Executive
462
Employment
No
EX-I: $191,300
Presidentially
Schedule (EX)
Cost Index
EX-II: $172,200
appointed and
(ECI, Dec. data)
EX-III:
Senate confirmed
minus 0.5%, but
$158,500
EX members are
cannot be (1)
EX-IV:
not eligible for
more than the
$149,000
awards and
GS pay
EX-V:
bonuses.
increase, (2)
$139,600
greater than 5%,
or (3) less than
zero.
Senior Level
999
ECI (Sept. data)
Yes. The
Minimum base
Total
(SL) and
minus 0.5%.
Pay Agent
pay is 120% of
compensation in
Scientific or
Annual
may extend
the minimum
agencies with
Professional
adjustment may
locality pay
base pay for
certified
(ST)
be provided at
to SL and
GS-15
performance
the discretion of
ST, and has
($114,468).
appraisal systems
agency heads.
done so
may be up to the
each year
In agencies
Vice President’s
since 1994.
whose
salary ($221,100)
performance
(5 U.S.C.
appraisal
§5307(d)).
systems have
————
been certified
In agencies
by OPM, base
without certified
pay may be up
appraisal
to EX-II
systems, total
($172,200).
compensation
————
may be up to
In agencies
EX-I ($191,300)
whose
(5 U.S.C.
performance
§5307(a)(1)).
appraisal
systems have
not been
certified by
OPM, base pay
may be up to
EX-III
($158,500)

CRS-17
Total
Number of
Base Pay
Locality
Salary
Compensation
Pay Schedule
Employees
Adjustment
Pay
Limitations
Limitations
(June 2008)
Mechanism
Available
(Jan. 2008)
(Jan. 2008)
Senior
7,645
Automatic pay
No
Base pay:
Total
Executive
increases no
$114,468-
compensation in
Service (SES)
longer occur; an
$158,500 or
agencies with
agency may
$172,200
certified
increase a
————
performance
senior
Base pay in
appraisal systems
executive’s pay,
agencies whose
may be up to the
as long as his or
performance
Vice President’s
her performance
appraisal
salary ($221,100)
or contributions
systems have
(5 U.S.C.
warrant an
been certified
§5307(d)).
increase, in
by OPM may be
————
order to
up to EX-II
In agencies
maintain the
($172,200).
without certified
individual’s
————
appraisal
relative position
In agencies
systems, total
within the SES
whose appraisal
compensation
pay rate range.
systems have
may be up to
(5 CFR
not been
EX-I ($191,300)
534.404(b)(3))
certified, base
(5 U.S.C.
pay may be up
§5307(a)(1)).
to EX-III
($158,500).

CRS-18
Total
Number of
Base Pay
Locality
Salary
Compensation
Pay Schedule
Employees
Adjustment
Pay
Limitations
Limitations
(June 2008)
Mechanism
Available
(Jan. 2008)
(Jan. 2008)
General
1,238,940
ECI — Sept.
Yes
Base pay cannot
Total
Schedule (GS)
(GS and
data minus
exceed EX-V
compensation
identical)
0.5%
($139,600)
(salary plus
(5 U.S.C.
bonuses) cannot
1,295,737
§5303(f)).
exceed EX-I
(GS and
————
($191,300)
related)
Base pay and
(5 U.S.C.
locality pay
§5307(a)(1)).
combined
cannot exceed
EX-IV
($149,000)
(5 U.S.C.
§5304(g)(1))
————
Base Pay:
GS-1, step 1
($17,046) to
GS-15, step 10
($124,010)
————
Locality Pay -
Wash. DC pay
area: GS-1,
step 1 ($20,607)
to GS-15, step
10 ($149,000)
Sources: Data on the number of employees in each pay system are from OPM’s FedScope database, accessible at
[http://www.fedscope.opm.gov/employment.asp].