Pay, steps, and how today’s raises drive your future High-3

Early in a federal career, your biggest financial asset isn’t your savings. It’s your human capital: the earning power of all the work years ahead of you. Your Thrift Savings Plan (TSP) balance is small now, while the pay you’ll earn over decades is large.

That earning power funds every later decision, and step increases, promotions, and raises all grow it. For a federal employee, pay growth does double duty, because it also feeds the pension.

Your FERS pension is built on your High-3, the average of your three highest-paid years. Because those years usually fall near the end of a career, the grade and step you reach set the pension you collect for life.

This lesson shows how General Schedule (GS) pay grows, and why the raises you earn early put you on the path to a higher High-3 later. Investing in your career is, in a real sense, investing in your retirement.

GS pay has three parts. Your grade is your job’s level, from GS-1 up to GS-15, and your step is how far you’ve advanced within that grade, from 1 to 10. On top of the base rate sits a locality adjustment for where you work.

The General Schedule has 15 grades and 10 steps in each. A higher grade means a higher-level job, while a higher step means more time, and acceptable performance, in that grade. Each step is worth about 3% of salary.

Locality pay is a geographic percentage added to the base rate. It reflects local labor costs and differs by area (the same grade and step can pay differently in two cities). The rate is set each year, so it isn’t a fixed number, and employees in foreign areas do not receive it.

Add it up, and you get your basic pay: the base rate plus locality. Keep in mind that this basic-pay figure is the one your retirement is built on.

Three forces raise GS pay over a career. Step increases come from time in grade, promotions move you to a higher grade, and an annual adjustment lifts the whole table most Januaries.

Step increases are the steady engine. They arrive on a fixed schedule as long as your performance is acceptable, and each one adds about 3% of salary.

Promotions are the bigger jumps. Moving up a grade can raise pay more than a single step, because you reset onto a higher pay range. They depend on opportunity and competition, not a clock.

The base table is usually adjusted each January by an across-the-board amount tied to private-sector wage growth. The size changes year to year, so we don’t quote a figure. All three engines feed the same basic-pay number behind your pension.

• Step increases: scheduled and performance-based, about 3% of salary each.
• Promotions: a move to a higher grade, a larger jump, driven by opportunity.
• Annual adjustment: an across-the-board January raise that varies each year.

Step increases follow a fixed schedule. The waiting period is one year for steps 1 through 3, two years for steps 4 through 6, and three years for steps 7 through 9. In simple terms, they come faster early, then slow down.

Because the waits lengthen, it normally takes about 18 years to climb from step 1 to step 10 within one grade. Most people change grades well before that through promotions.

A step increase is earned, not automatic. You must have an acceptable level of performance, and you must not have had an equivalent pay increase during the waiting period (a promotion is the usual example). Meet both, and the raise arrives on schedule.

These raises are called within-grade increases, or WGIs. A within-grade increase (WGI) is the step raise you earn for time and performance in your current grade.

A promotion moves you to a higher grade, and that usually raises pay more than a single step. The two-step rule sets your pay. Your old rate is raised by two within-grade steps, then matched to the lowest step in the higher grade that meets or beats it.

Steps reward longevity, while promotions reward taking on a higher-level job. Over a career, the people who reach the highest High-3 usually get there by climbing grades, not just steps.

Promotions aren’t on a clock. They depend on openings, your qualifications, and competition. That’s why building skills and seeking higher-graded roles is the surest way to raise your long-run pay, and the pension built on it.

This is the human-capital idea in action: the effort you put into growing your career compounds. A higher grade reached earlier means more years at higher pay, and a higher final High-3.

Only your basic pay counts toward your High-3: your base rate plus locality pay, but not overtime, bonuses, awards, or allowances. Our lesson on understanding your High-3 covers the full rules, including which premium pay counts and how the three years are chosen.

Your High-3 is the average of your three highest-paid years, almost always your last three. The grade and step you reach by then set the number, so every raise that lifts your final years lifts your pension.

Reaching a higher grade earlier compounds: you spend more years at higher pay, and you arrive at your final stretch on a higher rung. The same is true for steps, and for staying in higher-locality areas.

In an illustrative example, Maria spends her last three years at an example basic pay of $90,000, then $93,000, then $96,000. Her High-3 is the average, about $93,000 (three years summed, then divided by three). A larger raise in those years would lift the average, and the pension built on it. See our assumptions.

You can’t control the annual adjustment or locality rates. You can, however, influence your grade and step through performance and promotions, and that’s the part of your High-3 that is in your hands.

GS pay grows through three engines: step increases, promotions, and the annual adjustment. Steps come on a set schedule that slows as you climb, and promotions are the larger jumps, the surest path to a higher High-3.

Only basic pay, your base rate plus locality, counts toward the High-3, and overtime and bonuses don’t. The figure that matters for your pension is the one retirement deductions come from.

Because the High-3 is built from your final, highest-paid years, the raises you earn now set a trajectory. Reaching a higher grade and step earlier compounds into a larger pension later, which is the human-capital idea applied to federal service.

See how your pay and service shape your plan with our free readiness score. The next lesson covers beneficiary designations on your TSP and FERS. To go deeper on how the High-3 itself is measured, read understanding your High-3.