Pay, steps, and how today’s raises drive your future High-3
Your GS pay has three moving parts: your grade, your step, and a locality adjustment. Step increases and promotions raise that pay across your career. Your FERS pension is built on your High-3, the average of your three highest-paid years. So the raises you earn now shape the pension you collect later.
11 min read · By RetireCiv Editorial · Updated June 18, 2026
Your career is your biggest early asset
Early in a federal career, your biggest financial asset is not your savings. It is your human capital: the earning power of all the work years ahead of you. Your Thrift Savings Plan (TSP) balance is small now. The pay you will earn over decades is large.
That earning power funds every later decision. 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. Those years usually fall near the end of a career. So the grade and step you climb to set the pension you collect for life.
This lesson shows how General Schedule (GS) pay grows. It also shows 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.
Investing in your career is, in a real sense, investing in your retirement.
Why is my career my biggest financial asset early on?
Because your future earnings dwarf what you have saved so far. Early in a career, your TSP balance is small, but the pay you will earn over the decades ahead is large. That earning power, called human capital, funds every later financial decision. Decisions that grow it, including promotions, skills, and step increases, do the heaviest lifting for your long-term plan.
How does pay growth affect my FERS pension?
Your FERS pension is built on your High-3, the average of your three highest-paid years. Those years are usually near the end of your career. So every raise that lifts your later pay also lifts the pension built on it. Growing your GS pay through steps and promotions is, for a federal employee, a direct way to grow the pension.
How GS pay works: grades, steps, and locality
GS pay has three parts. Your grade is your job’s level, from GS-1 up to GS-15. Your step is how far you have 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. 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 rate is set each year, so it is not a fixed number. Employees in foreign areas do not receive it.
Add it up and you get your basic pay: the base rate plus locality. That basic-pay figure is the one your retirement is built on, which the later slides return to.
The three parts of GS pay
| Part of GS pay | What it reflects |
|---|---|
| Grade | Your job’s level (GS-1 to GS-15) |
| Step | Your longevity in that grade (1 to 10) |
| Locality | A geographic adjustment, set each year |
How does the GS pay scale work?
The General Schedule has 15 grades, GS-1 through GS-15, and 10 steps within each grade. Your grade reflects your job’s level; your step reflects your time and performance in that grade. Each step is worth about 3% of salary. A locality adjustment, based on where you work, is added on top to give your total basic pay.
What is the difference between a GS grade and a step?
A grade is the level of your job, from GS-1 to GS-15, and it changes when you are promoted. A step is your position within a grade, from 1 to 10, and it rises with time and acceptable performance. Moving up a grade is usually a larger raise than moving up a step. You can hold any step within your current grade.
What is locality pay?
Locality pay is a geographic percentage added to your base GS rate. It reflects local labor costs and differs from one area to another. The rate is set each year, so it is not a fixed figure, and employees in foreign areas do not receive it. Locality pay is part of your basic pay, so it counts toward your pension.
The three engines of GS pay growth
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. 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 do not 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.
What makes GS pay go up over time?
Three things. Step increases raise pay on a schedule for time and performance in your grade. Promotions move you to a higher grade, usually the largest single jump. And an annual adjustment lifts the whole base table most Januaries, by an amount that changes each year. All three raise your basic pay, the figure your pension is built on.
Do annual raises increase my pension too?
Yes, because they raise your basic pay, and your High-3 is an average of basic pay. Any raise that lifts your highest-paid years, whether a step increase, a promotion, or the annual adjustment, lifts the High-3 and the pension built on it. You control your grade and step through performance and promotions; the annual adjustment is set for everyone.
How often do step increases come?
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. 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. 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.
How often do GS step increases happen?
On a set schedule that slows as you climb. 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. So early steps arrive yearly, while later ones take longer. In total it takes about 18 years to go from step 1 to step 10 within a single grade.
Are GS step increases automatic?
Almost, but not unconditionally. A step increase requires an acceptable level of performance and that you have not received an equivalent pay increase during the waiting period. Meet those conditions and complete the waiting period, and the step increase is granted on schedule. A below-acceptable rating can delay it until performance recovers.
How long does it take to reach step 10?
About 18 years within one grade, if you stay in that grade the whole time. The waits add up: three years to clear steps 1 to 3, six years for steps 4 to 6, and nine years for steps 7 to 9. In practice, most employees change grades through promotions long before reaching step 10.
Promotions: the bigger jumps
A promotion moves you to a higher grade, and that usually raises pay more than a single step. Your pay is set by the two-step rule. 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. 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 are not on a clock. They depend on openings, your qualifications, and competition. That is 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.
How does a promotion change my pay?
A promotion moves you to a higher grade and resets your pay onto that grade’s higher range. The two-step rule sets it: your rate is first raised by two within-grade steps. Then it is matched to the lowest step in the new grade that equals or exceeds that figure. The result is usually a larger raise than a single step increase.
Do promotions or step increases matter more for my pension?
Both raise your basic pay, but promotions tend to move the needle more. A promotion resets you onto a higher pay range, while a step adds about 3%. Over a career, climbing grades is what lifts most people to their highest High-3. Reaching a higher grade earlier means more years at higher pay and a larger pension.
What pay counts toward your High-3?
Only your basic pay counts toward your High-3. Basic pay is your base rate plus locality pay. Overtime, bonuses, awards, and most premium pay do not count. Neither do allowances.
This changes how you read your own pay. The big number that includes overtime is not the figure your pension uses. Your basic pay, the amount retirement deductions come out of, is what builds the High-3.
Locality pay is part of basic pay, so it does count. That is why where you work, not just your grade and step, affects your pension.
How the three years are chosen, and exactly what counts, are covered in understanding your High-3. The takeaway here is simple: grow your basic pay, and you grow your High-3.
- Counts: your base rate plus locality pay, together your basic pay.
- Does not count: overtime, bonuses, and cash awards.
- Does not count: allowances and most premium pay.
What pay counts toward the FERS High-3?
Only basic pay, which is your base GS rate plus locality pay. Overtime, bonuses, cash awards, allowances, and most premium pay are excluded. Basic pay is the amount your retirement deductions come from, and it is what the High-3 averages. The full rules on what counts, and how the three years are picked, are in the mid-career High-3 lesson.
Does locality pay count toward my pension?
Yes. Locality pay is part of your basic pay, so it counts toward your High-3 and your pension. This is why the area you work in matters, not just your grade and step. Two employees at the same grade and step in different localities can have different basic pay, and therefore different pensions.
How today’s raises drive your future High-3
Your High-3 is the average of your three highest-paid years, almost always your last three. So the grade and step you reach by then set the number. 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.
Take 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. A larger raise in those years would lift the average, and the pension built on it. See our assumptions.
You cannot control the annual adjustment or locality rates. You can influence your grade and step through performance and promotions. That is the part of your High-3 that is in your hands.
Your grade and step are the part of your High-3 that is in your hands.
How do raises affect my High-3?
Your High-3 averages your three highest-paid years, which are almost always your last three. Any raise that lifts those years, a step increase, a promotion, or the annual adjustment, raises the average and the pension built on it. Raises early in your career help indirectly, by putting you on a higher rung sooner, so your final years start from a higher base.
Why does reaching a higher grade earlier matter?
Because it compounds. A higher grade reached earlier means more years spent at higher pay, and your final High-3 years begin from a higher point. Promotions and steps build on each other over a career. The earlier you climb, the higher the trajectory that carries you into your highest-paid, pension-setting years.
Putting GS pay and your High-3 together
GS pay grows through three engines: step increases, promotions, and the annual adjustment. Steps come on a set schedule that slows as you climb. Promotions are the larger jumps, and they are the surest path to a higher High-3.
Only basic pay, your base rate plus locality, counts toward the High-3. Overtime and bonuses do not. So 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. That 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.
What is the simplest way to think about GS pay and my pension?
Grow your basic pay, and you grow your pension. GS pay rises through step increases, promotions, and the annual adjustment. Because your High-3 averages your highest-paid years, usually your last three, the raises you earn over a career set the pension you collect. Climbing grades earlier compounds into a higher High-3 and a larger annuity.
What should I focus on early in my career?
Focus on growing your human capital: performance, skills, and moving into higher-graded roles. Those drive promotions and step increases, which raise your basic pay and your future High-3. Also capture your full TSP match along the way. Then check how it all fits together with our free readiness score, and revisit your plan as your pay grows.