By Stephen Barr
Monday, March 3, 2008; D01

Pay raises are usually happy events, but there were some quiet moans across Washington when new government salary scales were published in January.

For the first time, Washington area federal employees at the top of the government-wide salary scale, the General Schedule, had hit the "pay cap."

But the number affected was not known until late last month when the Congressional Research Service pulled together data for a report: 6,080 GS employees in the Washington area were at the cap.

That may not seem like a lot, but only 824 employees across the nation were capped before the 2008 raise. What had been an issue for GS employees in San Francisco, Houston and other cities is now an issue in Washington.

Don't expect any public protests, just private grumbling. That is because the cap is set at $149,000 this year, and longtime federal employees know they can't expect much sympathy when they earn that much.

Still, there are consequences when employees hit the cap. Over time, their salaries become substantially lower than what they would have been, and their pensions, which are partially based on salary, will be lower.

For example, because of the cap, San Francisco federal employees at the top of the GS scale -- the first to hit the pay ceiling in 2003 -- have forgone nearly $49,000 in salary since then, the report said.

In addition, these employees' annual Civil Service Retirement System pension will be $7,068 less than it would have been without the cap.

When employees have their pay capped, they "may be more likely to retire as soon as they reach retirement eligibility -- possibly exacerbating the 'retirement tsunami' or 'brain drain' that has been viewed as a concern for the federal workforce," the report said.

Almost all companies and organizations, of course, limit salaries, based on employee roles and responsibilities. But the origins of the government's pay curbs are rooted in law, and some have not been updated to reflect how work and compensation practices have evolved in recent decades.

At least four laws come together to create the pay cap.

The 1949 Classification Act created the General Schedule, which has 15 grades, reflecting the difficulty of the work, and 10 steps within each grade. Employees advance through the GS system based on longevity and job performance. The top of the scale is GS-15, step 10.

The 1990 Federal Employees Pay Comparability Act called for annual GS raises -- a base-pay raise and a supplemental raise that is tied to where employees work and the cost of labor in that area.

A 1964 law established the Executive Schedule, which has five pay grades and covers Cabinet secretaries and more than 400 other Cabinet-level officials.

And the 1989 Ethics Reform Act, which authorizes annual pay raises for Executive Schedule officials, the vice president and members of Congress.

Because pay raises are politically sensitive for members of Congress, the laws use formulas that provide Congress and the Cabinet with a lower annual raise than that provided to federal employees. This year, for example, Washington area employees received a 4.49 percent raise, while members of Congress and Executive Schedule officials received a 2.5 percent raise.

By law, the pay of GS employees cannot exceed that of assistant secretaries, general counsels, heads of smaller agencies and members of certain boards and commissions. For 2008, their pay is set at $149,000.

Because the General Schedule salary scales rise at a higher percentage each year than the Executive Schedule does, an increasing number of federal employees will hit the cap, a phenomenon called pay compression.

This year, GS-15 employees in 12 pay areas are affected by the salary cap, according to the Congressional Research Service report, which was written by Curtis W. Copeland.

Employees in other pay areas, including Atlanta, Cincinnati and Cleveland, will hit the cap by 2010 or 2011, the report estimates.

To further complicate matters, other pay systems also have problems with pay compression. For example, the Senior Executives Association, a federal employee group, testified at a House hearing last year that some federal executives are earning less than the workers they supervise.

The 1989 Ethics Reform Act included a provision to provide for a quadrennial review of federal salaries by a citizen's commission, which would make recommendations to the president. But the commission was never formed.

Rep. William M. "Mac" Thornberry (R-Tex.) introduced a bill last month to establish a "civil service reform commission" that would review federal pay and benefits, the recruitment and retention of employees, and the role of contractors. The bill would require Congress to cast an up-or-down vote on the commission's recommendations, similar to the process for closing and consolidating military bases.

Because this is a presidential campaign year, Capitol Hill aides said it is unlikely that Congress will take up the Thornberry bill or any proposal to overhaul federal pay this year.

Stephen Barr's e-mail address isbarrs@washpost.com.