[Federal Register Volume 64, Number 245 (Wednesday, December 22, 1999)]
[Rules and Regulations]
[Pages 71633-71635]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-33178]



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 Rules and Regulations
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  Federal Register / Vol. 64, No. 245 / Wednesday, December 22, 1999 / 
Rules and Regulations  

[[Page 71633]]


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OFFICE OF PERSONNEL MANAGEMENT

5 CFR Part 575

RIN 3206-AI31


Retention Allowances

AGENCY: Office of Personnel Management.

ACTION: Final rule.

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SUMMARY: The Office of Personnel Management (OPM) is issuing final 
regulations to provide agencies with greater flexibility 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 flexibility will help 
agencies retain the specialized skills they need to meet their work 
requirements. The final regulations revise the interim regulations to 
provide further guidance on defining the covered group or category of 
employees, to clarify the intended use of a retention allowance, and to 
add references to a group or category of employees in provisions 
dealing with the reduction or termination of retention allowances.

EFFECTIVE DATE: January 21, 2000.

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

SUPPLEMENTARY INFORMATION: On June 23, 1998, the Office of Personnel 
Management (OPM) published 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 (up to 25 percent with OPM approval) 
to a group or category of employees in certain limited circumstances 
(63 FR 34119). Interested parties were invited to comment for a 60-day 
period. OPM received comments from three agencies. All three agencies 
expressed support for the additional flexibility provided by the 
interim regulations. Specific comments are discussed below along with a 
description of changes made in the final regulations.

Administering the Discretionary Authority

    One agency expressed concern regarding the administration of the 
discretionary authority. The agency expressed concern that it may be 
difficult to justify the exclusion of individuals from an identified 
group or to identify a group that includes only individuals whom the 
agency is anxious to retain. The agency believes the decision to 
approve a group retention allowance might be highly judgmental. Another 
agency asked whether employees newly hired into a group receiving a 
retention allowance could be (or should be) excluded from receiving the 
allowance.
    We believe the type of discretion currently used to make a judgment 
for paying a retention allowance on a case-by-case basis to individual 
employees is essentially the same used in making a determination for a 
category of employees. Similar to the case-by-case determinations, 
agencies must authorize retention allowances based on written 
determination that employees have unusually high or unique 
qualifications or that the agency has a special need for the employees' 
services that makes it essential to retain the employees in that 
category. What is different is that the regulations do not require 
agencies to determine whether each individual in the targeted group is 
likely to leave Federal service. Instead, agencies must determine 
whether 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 an allowance. Section 575.305(d)(1) requires agencies to 
have evidence of labor market conditions or other factors to fully 
support this determination.
    It is essential, therefore, that agencies clearly define the 
characteristics and coverage criteria of the identified category of 
employees. These criteria may include the minimum length of service a 
newly hired employee must fulfill with the agency before being covered 
by an identified group. If an appropriate group cannot be clearly 
defined by specific factors, or if labor market or other conditions do 
not indicate that there is a high risk that a significant number of 
employees in the group is likely to leave, then consideration should be 
given to granting retention allowances to selected employees in the 
identified group on a case-by-case basis as justified by the 
circumstances of the individual case. To provide further guidance to 
agencies on defining the covered group, we have added language to 5 CFR 
575.305(d)(1) that identifies the types of factors that may be used to 
define the group.
    Several agencies have informally requested clarification on whether 
a retention allowance may be offered when recruiting an employee from 
another agency when it knows the employee has a private sector job 
offer and is likely to leave Federal Service. Retention allowances are 
not intended to be used as a recruitment tool, especially when 
recruiting an employee from another agency. Section 575.305(b)(2) of 
the regulations further provides that a retention allowance may only be 
offered to an employee in or under an agency and based on the agency's 
determination that the employee's departure would affect the agency's 
ability to carry out an activity or perform a function that is deemed 
essential to the agency's mission. Therefore, in order for an agency to 
make its case, the employee would have to have been hired and 
performing a critical function for a period of time immediately prior 
to the payment of a retention allowance. To clarify this intent, we 
have added a new paragraph (d) to Sec. 575.304 to read,``An agency may 
not offer a retention allowance to an individual (or authorize the 
payment of such an allowance) prior to the individual's employment with 
the agency.''

Amount of Retention Allowance

    One agency believes the interim regulations effectively allow an 
agency to provide a 10 percent pay raise to a significant number of 
employees. The agency supports the requirement for OPM approval of 
group/category retention allowances of more than 10 percent, thus 
guarding against the potential for creating an uneven playing field 
without reasonable notice to similarly-situated agencies. Another 
agency expressed concern that limiting the amount of the retention 
allowance

[[Page 71634]]

an agency can pay to a group of employees dilutes the effectiveness of 
extending the flexibility. The agency believes there would be no 
advantage to invoking this new provision unless 10 percent has already 
been determined to be a sufficient incentive for the situation. The 
agency also expressed concern that if it does seek OPM approval of a 
higher percentage, the agency must coordinate with other agencies, thus 
removing from the agency's control the discretionary flexibility which 
is part of the recruitment incentive.
    We have not adopted any change in the amount of the retention 
allowance payable without OPM approval. We do not believe it would be 
desirable to allow individual Federal agencies to authorize retention 
allowances greater than 10 percent for an entire group of employees 
without coordination with other agencies with similar recruitment and 
retention needs. It would not be productive to have bidding wars 
between agencies, thereby depleting some agencies of the skilled 
workers they need. If an agency wishes to authorize an allowance of 
more than 10 percent, the current retention allowance authority in 5 
U.S.C. 5754 and 5 CFR part 575, subpart C, continues to provide 
agencies with discretionary authority to pay a retention allowance of 
up to 25 percent of basic pay to individual employees on a case-by-case 
basis based on their unique qualifications or a special need of the 
agency if the employee would be likely to leave Federal service without 
the allowance.

Other Comments

    One agency suggested that editorial changes should be made in the 
existing regulations in Secs. 575.301 and 575.305 to add references to 
a group or category of employees in each place where a single employee 
is referenced. In addition, the agency suggested that the final 
regulations discuss the subsequent adjustment or discontinuation of 
retention allowances that have been approved on a group or category 
basis. The agency recommended that the regulations explicitly authorize 
agencies to adjust or discontinue such allowances either on a group/
category basis or on a case-by-case basis.
    OPM did not adopt the suggestion to add a reference to ``a group or 
category of employees'' in each place where an individual employee is 
referenced. In the interim regulation, we deliberately placed the 
authority and criteria for paying retention allowances on a group or 
category basis in a separate paragraph (d) at the end of Sec. 575.305. 
We continue to believe this is the simpler and better approach.
    OPM agrees with the comment that the final regulations should 
discuss the subsequent adjustment or discontinuation of retention 
allowances for a group or category of employees, as applicable. We have 
added the term ``group or category of employees'' in Sec. 575.307(b), 
which discusses the reduction or termination of retention allowances.

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 these regulations will not have a significant 
economic impact on a substantial number of small entities because they 
will apply only to Federal agencies and employees.

List of Subjects in 5 CFR Part 575

    Government employees, Wages.

U.S. Office of Personnel Management.
Janice R. Lachance,
Director.
    Accordingly, the interim rule amending part 575 of title 5 of the 
Code of Federal Regulations, which was published at 63 FR 34119 on June 
23, 1998, is adopted as final with the following changes:

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), 5733, 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 575.304 is amended by adding a new paragraph (d) to read 
as follows:


Sec. 575.304  Conditions for payment.

* * * * *
    (d) An agency may not offer a retention allowance to an individual 
(or authorize the payment of such an allowance) prior to the 
individual's employment with the agency.
    3. In Sec. 575.30, paragraph (d) is revised 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)(i) 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 that 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.
    (ii) 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.
    (iii) The targeted category should be narrowly defined using 
factors that relate to the conditions described in paragraph (d)(1)(i) 
of this section. Factors that may be appropriate include the following: 
occupational series, grade level, distinctive job duties, unique 
qualifications, assignment to a special project, minimum agency service 
requirements, organization or team designation, geographic location, 
and performance level.
    (While performance level may be a factor used in defining the 
targeted category, performance level by itself is not sufficient to 
justify a retention allowance. Performance level may function as a 
supporting factor in authorizing an allowance or setting the allowance 
rate only to the extent it directly relates to the conditions in 
paragraph (d)(1)(i).)
    (2) Upon the request of the head of an agency, OPM may approve a 
retention allowance in excess of 10 percent, but not more than 25 
percent, of an employee's rate of basic pay for a group of category or 
employees which meets the conditions 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

[[Page 71635]]

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 or 
employees meets the conditions 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 conditions and requirements for payment under this 
subpart must be met before a retention allowance may be paid to any 
individual employee under paragraphs (d)(1) or (d)(2) of this section.
    4. In Sec. 575.307, paragraphs (b)(1), (b)(2), and (b)(3) are 
revised to read as follows:


Sec. 575.307  Reduction or termination of retention allowance.

* * * * *
    (b) * * *
    (1) A lesser amount (or none at all) would be sufficient to retain 
the employee (or group or category of employees);
    (2) Labor-market factors make it more likely (or reasonably likely) 
to recruit a candidate with qualifications similar to those possessed 
by the employee (or group or category of employees);
    (3) The agency's need for the services of the employee (or group or 
category of employees) has been reduced to a level that makes it 
unnecessary to continue payment at the level originally approved (or at 
all); or
* * * * *
[FR Doc. 99-33178 Filed 12-21-99; 8:45 am]
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