The current salary level for judges "is insufficient to attract the finest members" of the legal profession to accept appointments to the bench, Kennedy said during a hearing before the Senate Judiciary Committee.
Kennedy picked up on an issue that Chief Justice John Roberts recently called a "constitutional crisis."
Federal district court judges are paid $165,200 annually; appeals court judges make $175,100; associate justices of the Supreme Court earn $203,000; the chief justice gets $212,100.
Those figures are far less than what lawyers at private firms earn. District judges are paid about half that of deans and senior law professors at top schools.
Kennedy said that "$160,000 sounds like a lot of money to the average American, and it is. But it is insufficient to attract the finest members of the practicing bar to the bench."
Nineteen federal judges left the bench since the end of 2004, many of them to take higher-paying jobs. Meanwhile, first-year lawyers at leading firms in large cities are earning almost as much as district judges.
Former Federal Reserve Chairman Paul Volcker recently called for a significant pay raise for judges, pointing out that they would be earning $261,000 a year if their salaries had risen at the same pace as U.S. workers generally since 1969.
Legislation languished in Congress in 2006 that would have provided a 16 percent increase in federal judges' salaries.