[Federal Register Volume 63, Number 120 (Tuesday, June 23, 1998)]
[Rules and Regulations]
[Pages 34119-34121]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-16667]



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 Rules and Regulations
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  Federal Register / Vol. 63, No. 120 / Tuesday, June 23, 1998 / Rules 
and Regulations  

[[Page 34119]]


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OFFICE OF PERSONNEL MANAGEMENT

5 CFR Part 575

RIN 3206-AI31


Retention Allowances

AGENCY: Office of Personnel Management.

ACTION: Interim rule with request for comments.

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SUMMARY: The Office of Personnel Management (OPM) is issuing interim 
regulations to provide agencies with discretionary authority to pay 
retention allowances of up to 10 percent of an employee's rate of basic 
pay (or up to 25 percent with OPM approval) to a group or category of 
employees in certain limited circumstances. This change is being made 
to address the desire of some agencies to waive the case-by-case 
determination requirement contained in current regulations in order to 
expedite the authorization of retention allowances for certain 
information technology employees. This change will have the effect of 
providing agencies with greater flexibility in responding to a possible 
increased need for retention incentives for computer programmers who 
must make the computer system changes needed to meet the year 2000 
conversion requirements.

DATES: June 23, 1998. Comments must be received on or before August 24, 
1998.

ADDRESSES: Comments may be sent or delivered to Donald J. Winstead, 
Assistant Director for Compensation Administration, Workforce 
Compensation and Performance Service, Office of Personnel Management, 
Room 7H31, 1900 E Street NW., Washington, DC 20415; FAX: (202) 606-
0824; or email to [email protected].

FOR FURTHER INFORMATION CONTACT: Paul Shields, (202) 606-2858; FAX: 
(202) 606-0824; or email to [email protected].

SUPPLEMENTARY INFORMATION: The regulatory change set forth below is 
necessary to provide agencies with discretionary authority to pay 
retention allowances of up to 10 percent of an employee's rate of basic 
pay (up to 25 percent with Office of Personnel Management approval) to 
a group or category of employees (excluding members of the Senior 
Executive Service (SES), employees in senior-level or scientific or 
professional (SL/ST) positions, Executive Schedule officials, and 
Presidential appointees).
    The current retention allowance authority in 5 U.S.C. 5754 and 5 
CFR part 575, subpart C, provides agencies with discretionary authority 
to pay a retention allowance of up to 25 percent of basic pay to an 
employee based on a determination that (1) the unusually high or unique 
qualifications of the employee or a special need of the agency for the 
employee's services makes it essential to retain the employee, and (2) 
the employee would be likely to leave Federal service without the 
allowance. It is the intent of the current retention allowance 
regulations that the determination that an employee is likely to leave 
the Federal service must be made on a case-by-case basis.
    Recently, some agencies have expressed a desire to waive the case-
by-case determination requirement in order to expedite the 
authorization of retention allowances for certain information 
technology employees. Specifically, agencies have indicated an 
increased need for recruitment and retention incentives for computer 
programmers and other employees who must make the required computer 
system changes to meet the year 2000 conversion requirements. Agencies 
believe it is essential to retain employees with programming and other 
information technology skills to meet the year 2000 conversion goals 
because some of the system changes are critical to agency missions. 
Some of these employees also have unique knowledge and skills in 
special programming languages or antiquated computer systems that are 
often necessary for making year 2000 modifications. Agencies believe 
employees with such programming skills are likely to leave Federal 
service for Government contractor or other private sector jobs with 
similar programming needs.
    Currently, the compensation tool that is primarily used for 
resolving recruitment and retention problems for categories or groups 
of employees is the special salary rate authority under 5 U.S.C. 5305 
and 5 CFR part 530, subpart B. However, special salary rates may not 
always be the most appropriate option for resolving temporary or 
immediate staffing needs such as the year 2000 conversion projects. For 
example, special rate schedules can be expensive and difficult to 
terminate when no longer needed because they are basic pay for all 
purposes. Higher rates of basic pay increase the cost of retirement, 
life insurance, premium pay, and certain other entitlements and have a 
continuing effect on the employee's future pay entitlements (for 
example, upon promotion).
    Also, under current law, if a special rate schedule is terminated, 
each employee's special pay rate must be set at an equivalent rate in 
the basic General Schedule rate range for the employee's grade, or, if 
the rate exceeds the maximum rate for that grade, the employee becomes 
entitled to pay retention under 5 U.S.C. 5363. In both cases, the 
employee's pay rate would be increased by locality pay, providing an 
unnecessary windfall pay increase. Establishing special rate schedules 
with such long-term pay implications for temporary staffing needs can 
be very costly to agencies.
    These interim regulations amend 5 CFR 575.305 by adding a new 
paragraph (d) to provide agencies with authority to authorize retention 
allowances of up to 10 percent of an employee's rate of basic pay for a 
group or category employees in certain limited circumstances. This 
authority does not apply to employees in senior-level and scientific or 
professional (SL/ST) positions, members of the Senior Executive 
Service, Executive Schedule officials, Presidential appointees, or 
those in similar positions with respect to which the authority to 
approve retention allowances has been delegated to agency heads by OPM 
under section 575.302(c). For employees in these categories, retention 
allowances must continue to be approved on a case-by-case basis.
    Retention allowances authorized for a category of employees must be 
based on a written determination that the

[[Page 34120]]

employees have unusually high or unique qualifications or the agency 
has a special need for the employees' services that makes it essential 
to retain the employees in that category and that it is reasonable to 
presume that there is a high risk that a significant number of 
employees in the targeted category are likely to leave Federal service 
in the absence of the allowance. The determination that there is a high 
risk that a significant number of employees in the targeted category 
are likely to leave may be based on evidence of extreme labor market 
conditions, high demand in the private sector for the employees' 
knowledge and skills, significant disparities between Federal and 
private sector salaries, or other similar conditions. All other 
criteria and requirements for payment under 5 CFR part 575, subpart C, 
must be met before an agency may pay a retention allowance to an 
individual employee in the targeted category.
    The new paragraph (d) also authorizes OPM to approve retention 
allowances in excess of 10 percent, but not to exceed 25 percent, of an 
employee's rate of basic pay for a category of employees upon the 
request of the head of an agency. (The regulations continue to provide 
agencies with authority to pay retention allowances of up to 25 percent 
of basic pay to employees on a case-by-case basis without OPM 
approval.) Such group retention allowance requests must include a 
description of the category and number of employees to be covered by 
the proposed retention allowance, a written determination that the 
group or category of employees meets the criteria for payment of an 
allowance to a group or category of employees, the proposed percentage 
retention allowance payment and a justification for that percentage, 
the expected duration of retention allowance payments, and any other 
information pertinent to the case at hand. OPM may require that 
requests be coordinated with other agencies having employees in the 
same category. This will ensure a level playing field among agencies 
with similar staffing needs and help avoid the escalation of payroll 
costs driven primarily by interagency competition for employees.
    Agencies should be as specific as possible when identifying and 
defining the targeted category of employees for which a retention 
allowance is authorized. The employee category should be narrowly 
defined by a combination of factors such as occupational series, grade 
level, duties performed and unique qualifications required, 
organization or team designation, geographic location, the specific 
project the group is working on or service the group is providing, and 
the level of performance required. (Note that, while an employee's 
performance level may be one of the supporting factors that is 
considered in deciding whether to pay a retention allowance and in 
setting the allowance rate, it should not be the primary determining 
factor.)
    The interim regulations will provide the retention allowance 
authority as an alternative to the special salary rate authority for 
resolving recruitment and retention problems related to the year 2000 
conversion project and other agency staffing needs on a categorical 
basis. Retention allowances are more flexible and cost effective than 
special rates. For example, in the case of allowances approved for 
individual employees or groups of employees, agencies may vary the size 
of retention allowance payments based on such factors as the severity 
of the turnover problem and labor market conditions in a geographic 
area, the criticality of the particular project, the percentage of time 
the employee(s) must devote to a project, and special qualifications of 
the individual employee or group of employees.
    Also, retention allowances are more suited for temporary staffing 
needs because agencies can reduce or terminate retention allowances at 
any time at no cost. Agencies may reduce or terminate an allowance if a 
lesser amount or none at all would be sufficient to retain an employee 
(or group of employees in the case of group-based allowances), if labor 
market conditions make it more likely to recruit candidates with needed 
qualifications, if the need for the services of the employee(s) has 
been reduced, or if budgetary considerations make it difficult to 
continue paying the allowance. Because retention allowances are not 
basic pay, reduction or termination of an allowance is not an adverse 
action under chapter 75 of title 5, United States Code.
    Agencies should be aware that providing additional compensation is 
not the only, nor always the best, way to resolve recruitment and 
retention problems. Agencies should carefully analyze their staffing 
needs and employee work situations and explore non-pay human resources 
management alternatives, as well. For example, agencies should, as 
appropriate, investigate alternative recruitment strategies, use of 
temporary or term appointments, employment of experts and consultants, 
and appointments with varying work schedules, such as part-time, 
intermittent, and seasonal schedules. Agencies may redesign jobs so 
that a pool of candidates may more easily qualify for a position or to 
make a job more appealing to candidates by adding desirable duties or 
eliminating undesirable duties.
    Other flexibilities include establishing alternative work schedules 
(i.e., flexible or compressed work schedules) and job sharing and 
telecommuting programs for employees. As appropriate, agencies may also 
pay or share the cost of employee training and higher education. 
Finally, agencies should ensure that the employee's work environment is 
safe and conducive to enhanced performance and retention. For example, 
modern equipment and a comfortable work space may be more of a 
retention incentive than additional compensation. Agencies should weigh 
the advantages and disadvantages of each of these and the many other 
human resources management flexibilities to ensure that the most 
responsive and cost effective staffing strategy is implemented.

Waiver of Notice of Proposed Rule Making and Delay in Effective 
Date

    Pursuant to 5 U.S.C. 553(b)(3)(B), I find that good cause exists 
for waiving the general notice of proposed rulemaking. Also, pursuant 
to 5 U.S.C. 553(d)(3), I find that good cause exists to make this rule 
effective in less than 30 days. This regulation is needed to provide 
agencies with an alternative compensation tool to meet their staffing 
needs in time to successfully meet year 2000 computer system conversion 
requirements.

E.O. 12866, Regulatory Review

    This rule has been reviewed by the Office of Management and Budget 
in accordance with E.O. 12866.

Regulatory Flexibility Act

    I certify that this regulation will not have a significant economic 
impact on a substantial number of small entities because it will apply 
only to Federal agencies and employees.

List of Subjects in 5 CFR Part 575

    Government employees, Wages.

Office of Personnel Management.
Janice R. Lachance,
Director.

    Accordingly, OPM is amending part 575 of title 5 of the Code of 
Federal Regulations as follows:

[[Page 34121]]

PART 575--RECRUITMENT AND RELOCATION BONUSES; RETENTION ALLOWANCES; 
SUPERVISORY DIFFERENTIALS

    1. The authority citation for part 575 continues to read as 
follows:

    Authority: 5 U.S.C. 1104(a)(2), 5753, 5754, and 5755; secs. 302 
and 404 of the Federal Employees Pay Comparability Act of 1990 (Pub. 
L. 101-509), 104 Stat. 1462 and 1466, respectively; E.O. 12748, 3 
CFR, 1992 Comp., p. 316.

Subpart C--Retention Allowances

    2. Section 575.305 is amended by adding paragraph (d) to read as 
follows:


Sec. 575.305  Agency retention allowance plans; higher level review and 
approval; and criteria for payment.

* * * * *
    (d) Approval of retention allowances for groups or categories of 
employees. (1) An agency may authorize a retention allowance of up to 
10 percent of an employee's rate of basic pay for a group or category 
of employees (excluding individuals covered by Sec. 575.302(a) (2), 
(3), (5), or (6) or those in similar positions with respect to which 
the authority to approve retention allowances has been delegated to 
agency heads by OPM under Sec. 575.302(c)) based on a written 
determination that the category of employees has unusually high or 
unique qualifications, or the agency has a special need for the 
employees' services that makes it essential to retain the employees in 
that category, and that it is reasonable to presume that there is a 
high risk that a significant number of employees in the targeted 
category are likely to leave Federal service in the absence of the 
allowance. The determination that there is a high risk that a 
significant number of employees in the targeted category are likely to 
leave may be based on evidence of extreme labor market conditions, high 
demand in the private sector for the knowledge and skills possessed by 
the employees, significant disparities between Federal and private 
sector salaries, or other similar conditions.
    (2) Upon the request of the head of an agency, OPM may approve a 
retention allowance in excess of 10 percent, but not in excess of 25 
percent, of an employee's rate of basic pay for a group or category of 
employees that meets the criteria specified in paragraph (d)(1) of this 
section. OPM may require that such requests be coordinated with other 
agencies having similarly situated employees in the same category. 
Group retention allowance requests must include--
    (i) A description of the group or category and number of employees 
to be covered by the proposed retention allowance;
    (ii) A written determination that the group or category of 
employees meets the criteria specified in paragraph (d)(1) of this 
section;
    (iii) The proposed percentage retention allowance payment and a 
justification for that percentage;
    (iv) The expected duration of retention allowance payments; and
    (v) Any other information pertinent to the case at hand.
    (3) All other criteria and requirements for payment under this 
subpart must be met before a retention allowance may be paid to any 
individual employee under this paragraph (d).

[FR Doc. 98-16667 Filed 6-22-98; 8:45 am]
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