[Federal Register Volume 72, Number 7 (Thursday, January 11, 2007)]
[Rules and Regulations]
[Pages 1267-1270]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-262]
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Rules and Regulations
Federal Register
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Federal Register / Vol. 72, No. 7 / Thursday, January 11, 2007 /
Rules and Regulations
[[Page 1267]]
OFFICE OF PERSONNEL MANAGEMENT
5 CFR Part 451
RIN 3206-AL06
Awards
AGENCY: Office of Personnel Management.
ACTION: Final rule.
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SUMMARY: The Office of Personnel Management is issuing final
regulations to amend the incentive awards regulations. The amended
regulations clarify that if agencies grant rating-based awards, they
must base such awards on a rating of record of ``Fully Successful'' (or
equivalent) or higher. In addition, agencies must ensure that rating-
based awards granted make meaningful distinctions based on levels of
performance.
DATES: The regulations are effective on February 12, 2007.
FOR FURTHER INFORMATION CONTACT: Barbara Colchao by telephone at (202)
606-2720, by fax at (202) 606-2307, or by e-mail at [email protected].
SUPPLEMENTARY INFORMATION: On June 21, 2006, the Office of Personnel
Management (OPM) published proposed regulations amending the incentive
awards regulations in part 451 of title 5, Code of Federal Regulations,
regarding performance-based cash awards (particularly those authorized
under 5 U.S.C. 4505a and 5 CFR 451.101(e) and 451.104(a)(3)). The
proposed regulations clarified that agencies using these incentive
awards authorities to grant employees performance-based cash awards
must base them on a rating of record of ``Fully Successful'' (or
equivalent) or higher and ensure that such awards reflect meaningful
distinctions based on levels of performance.
The changes to the regulations address only rating-based awards,
i.e., those awards given to recognize performance over the course of
the appraisal period and that require only the rating of record as
justification for granting the award. These changes do not affect other
awards agencies may grant, when appropriate, that require independent
documentation, such as those based on special acts, suggestions, and
gainsharing or goalsharing formulas tied to group performance. In
making these changes, OPM intends to retain the flexibilities agencies
currently have to design their awards programs while reiterating there
is no statutory entitlement to recognition.
The proposed regulations provided for a 30-day public comment
period that ended July 21, 2006. During the public comment period OPM
received about 74 comments in 39 submissions and 5 phone calls that
raised multiple questions or concerns. We received written comments
from 31 individuals (representing approximately 19 Federal agencies,
and 1 from the private sector), 3 letters from 2 labor unions (American
Federation of Government Employees and the National Treasury Employees
Union), and 5 agencies (Departments of Agriculture, Commerce, Justice,
and Veterans Affairs, and the Nuclear Regulatory Commission).
Most of the comments can be grouped into ten major themes--support
for the proposal, concerns about the influence of favoritism and bias,
the need to train rating officials, the impact on two-level (pass/fail)
rating systems, funding awards, making meaningful distinctions and
calculating the awards, the use of performance review boards or awards
committees, opposition to changing the regulations, base pay and other
awards, and other miscellaneous observations. The following information
summarizes and responds to these issues.
Support for the Proposed Regulations
We received three comments from individuals in support of the
changes. One comment wholeheartedly supports the proposed regulations.
Another comment supports the proposed changes and agrees with the
emphasis on making meaningful distinctions between levels of
performance. An additional comment suggests that the regulations should
require employees to have a rating higher than ``Fully Successful'' to
be eligible to receive a performance-based cash award.
These regulations are codifying the statutory threshold for
performance-based cash awards established under 5 U.S.C. 4505a, as
regulated under 5 CFR 451.101(e) and 451.104(a)(3). Neither the statute
nor the regulations require granting awards on the basis of any
specific rating level or to all employees who receive such a rating.
Therefore, agencies continue to have the flexibility to design their
awards programs to support their performance culture and can establish
threshold performance levels that are appropriate for them as long as
those levels are not lower than the one set forth in statute. Those
agencies using rating-based awards typically design their programs so
that the awards increase for employees with higher rating levels. Such
a design complies with these regulations. Agencies must ensure that in
applying their rating-based awards program they retain this aspect of
their design. In doing so, they also retain the flexibility to take
into consideration other forms of recognition that have been granted to
the employee, especially if it recognizes aspects of the employee's
performance that are also captured in the rating of record.
Favoritism and Bias
By far the most frequent comment expressed in various fashions was
the concern that awards would be influenced by favoritism or bias. We
received 11 comments (1 union and 10 individuals) regarding a perceived
tendency to show favoritism or bias toward particular groups or
categories of employees. The union comments that the proposed
regulations do not address possible favoritism and bias, such as the
prospect that minorities and women might suffer an adverse impact from
changes in personnel policies. The union recommends that, before
implementing these regulations, OPM order all Federal agencies to
conduct an adverse impact analysis to ensure that there will be no
adverse impact on classes of employees based on race, national origin,
gender, grade or bargaining unit status. A few comments state that men
or supervisors and managers would profit from this policy change more
than others. Several other comments state that supervisors would
[[Page 1268]]
grant awards to their favorite employees.
OPM understands some employees may fear favoritism will influence
the distribution of rating-based awards. However, we believe
establishing and maintaining rating-based awards programs with clear
guidelines that are applied in a fair and transparent manner and
consistently granting awards that make meaningful distinctions based on
differences in levels of performance are effective ways to confront
favoritism, either real or perceived. Agencies need to inform
supervisors and employees on the specifics of their rating-based awards
program and the effective use of recognition and incentives. Since
rating-based awards are not the only type of award agencies have in
their award programs, it is important for all involved to understand
the criteria used to grant different types of awards and how they can
be used most effectively. Understanding the full range of the types of
awards available and the bases for which they might be granted supports
the transparency of any awards program.
Regarding the union's comment on conducting an impact analysis,
these regulations formalize a practice that has been prevalent in
agencies for a long time, i.e., granting performance-based awards so
that larger awards go to employees with higher ratings of record. We
concur agencies should include in their evaluation of their awards
programs the type of analysis recommended by the union comment. We also
strongly encourage agencies to include checks and balances in the
design and implementation of their incentive awards and recognition
programs to further ensure openness and fairness.
Training for Rating Officials
We received eight comments (two unions, one agency, and five
individuals) requesting additional training for managers and
supervisors. Several comments state rating officials need more specific
guidance and oversight in order to implement a fair and unbiased
system. Other comments say the regulations are unclear regarding what
procedure should be followed to ensure ``meaningful distinction.'' One
union comment recommends funding should be made available for
performance management training and that legislation should be in place
to make performance management training mandatory. Two comments concern
the ability of supervisors who lack training in performance management
to evaluate employees with special work assignments that cannot be
compared to the work assignments of their co-workers. Several comments,
including those from the unions, recommend increasing training for
managers and holding them accountable for implementing good management
practices, including the skills to recognize and reward employee
contributions to their agency.
We agree that everyone affected by agency awards programs, both
those who administer them and those who might be eligible to
participate in them, should understand the types of awards available
and their eligibility criteria, i.e., the bases for the different types
of awards. We encourage agencies to provide training to all managers
and supervisors administering awards programs to ensure these programs
are administered fairly. We also encourage agencies, as specified in
existing regulations, to inform employees about the various agency
awards programs so they understand what is required to be eligible for
an award. However, we note again that there is no entitlement to an
award.
Although these regulations do not amend the performance appraisal
regulations, we agree that for rating-based awards programs to be
applied in a way that makes meaningful distinctions based on
differences in levels of performance, supervisors and managers must
have the necessary skills to practice effective performance management.
Agencies are responsible for seeing that their supervisors and managers
receive the appropriate training to ensure they have these skills.
Furthermore, we encourage agencies to hold supervisors responsible,
through their own individual performance plans, for the effective
management and appraisal of their employees.
Two-Level (Pass/Fail) Rating System
We received three comments (one union and two individuals)
concerning the impact of these regulations on employees covered by a
two-level performance appraisal system, commonly referred to as a pass/
fail performance appraisal system. Two comments observe agencies still
using a pass/fail system are unable to make meaningful distinctions
because these systems do not make distinctions above ``Fully
Successful.'' One comment wants to know how these requirements for
rating-based awards would affect an agency using a pass/fail system.
While at one time pass/fail appraisal programs covered nearly half
of all non-Senior Executive Service employees, in recent years the
trend has shifted. Under the President's Management Agenda and its
performance culture initiative, most agencies have returned to using
appraisal systems that provide for differentiating multiple levels of
performance. Also, agencies with pass/fail performance appraisal
programs tend to ``de-link'' awards from ratings and, therefore, did
not and do not use rating-based awards, which use the rating of record
as the sole justification for the award. Instead, they commonly use
other available award authorities to reward specific employee
accomplishments rather than recognizing year-long performance based on
their ratings of record, which do not provide differentiation among
their successful performers. Therefore, even with these regulatory
changes employees who may still be covered by pass/fail performance
appraisal programs could be eligible for awards granted on other bases.
Funding and Budgetary Concerns
Four comments (one union and three individuals) raised concerns
about the effect of lack of funding or other budgetary constraints on
awards programs. The union comment notes that any changes involving the
distribution of performance-based cash awards require extensive
training for managers, supervisors, and employees and would require
adequate funding for such training. The union also states OPM should
mandate that awards budgets for bargaining unit and nonbargaining unit
employees should be kept separate and distinct and developed based on
an equitable formula. Individual comments express concerns about
agency-specific awards funding issues, how award amounts are derived,
and agencies' ability to operate an awards program with little or no
money.
While training and retraining is always an agency concern and
responsibility, as we have stated previously, many agencies have been
using rating-based awards for many years. Where they are used and
employees with higher ratings of record receive larger awards than
those with lower ratings, these programs would not appear to need to be
changed since they already would comply with these regulations.
Agencies retain the flexibility for the design and application of these
awards programs. OPM recognizes that there are various ways to meet
these requirements and does not intend to restrict agency flexibility.
The changes in the award regulations do not directly impact agency
award funding. Agency funding for awards programs has remained fairly
constant, around 1 percent of payroll, for many years. Given the
reality of funding and
[[Page 1269]]
budget constraint concerns, the judicious and effective use of limited
funds is even more important. To support high performance cultures,
agencies must ensure that the application of their rating-based awards
programs makes meaningful distinctions based on differences in
performance levels, thus reinforcing the message that performance
matters. In addition, the appropriate use of the full complement of
employee incentives and recognition can help achieve agencies'
performance culture objectives, even in times of lean resources.
Making Meaningful Distinctions and Calculating Awards
While not as numerous as the comments on favoritism, perhaps the
areas that generated the most confusion were the phrase, ``making
meaningful distinctions based on levels of performance,'' and the
explanation that this could be exemplified by employees with higher
ratings of record receiving larger awards, as a percentage of base pay,
than those with lower ratings. We received a total of 15 comments
regarding these two issues (1 union, 4 agencies, and 10 individuals).
One comment said the terminology regarding meaningful distinctions is
unnecessarily vague and subject to varying interpretation. Several
comments inquire whether agencies have the discretion to make the
distinctions in performance based on the dollar amount of the awards,
rather than their percentage of base salary. Other comments make
specific recommendations such as a suggested mathematical formula for
determining award amounts, or requiring the same dollar amount for the
same performance rating level by grade, or using a mid-point of the
grade as the basis for the award rather than the individual employee's
specific rate of pay. Other comments request additional guidance on
what procedures agencies should put in place to ensure that managers
are making meaningful distinctions in performance from one rating level
to another and how to ensure that the highest awards are granted to the
highest performers. The union comment suggests that lack of uniformity
in awards for employees performing at the same high level will cause
problems and trigger doubts about the credibility and validity of the
system.
Current statute provides a specific authority to pay cash awards on
the basis of an employee's most recent rating of record. Because this
type of award requires no additional justification beyond the rating of
record, these regulations require agencies using this authority to
ensure the amounts of these award payments reflect meaningful
distinctions based on levels of performance. OPM is confident that
agencies using ratings of record as the sole basis for granting cash
awards are doing this already. The regulation codifies this practice to
ensure that all agencies choosing to use this rating-based award
authority do so appropriately. Because OPM views the concept of making
meaningful distinctions as a principle and recognizes that there is
more than one way meet the requirement to make meaningful distinctions,
we believe it is essential to retain Governmentwide flexibility in this
area. Such flexibility is certainly not intended and is not expected to
result in chaos at the agency level. Each agency program must determine
how acting on those distinctions can be translated into agency
procedures that are accurately described and applied fairly.
Furthermore, OPM does not intend to restrict how agencies calculate
rating-based awards, whether as a lump-sum dollar amount or a
percentage of base pay. We believe that expressing the award as a
percentage of base pay is a common and easily understood way to explain
that making meaningful distinctions in performance means employees with
higher performance ratings who get rating-based awards receive larger
awards than those with lower ratings. Our choice to use percentage of
base pay in our explanation does not affect agencies' ability to make
these distinctions by granting employees with higher ratings higher
lump-sum dollar payments.
Performance Review Boards and Awards Committees
We received three comments on this issue (one union and two
individuals). Two comments suggest the establishment of performance
review boards would provide oversight of the process. In addition, the
union recommends the use of award committees to assist in keeping the
awards process open and transparent. The union states performance
review boards and awards committees will counteract some of the
perceived secrecy surrounding the awards process, including why
specific employees receive awards.
While these regulations do not mandate review boards for awards (as
required for the Senior Executive Service), agencies have the
flexibility to establish such boards. OPM encourages agencies to have
mechanisms in place to provide oversight of and to evaluate their
awards programs. However, we do not consider it appropriate to mandate
the establishment of such boards and thus leave that decision to the
discretion of the agency.
Opposition to Changing the Regulations
We received six comments (two unions, one agency, and three
individuals) stating their opposition to the revisions. The agency
comments that the regulation would result in unnecessarily rigid rules
that would hinder making meaningful distinctions. One union comments
that the regulations would undermine the merit principle of equal pay
for equal work. Another union states there is no need for the
regulation. Two comments recognize that while they consider the General
Schedule system to be flawed, it is fair, and they express skepticism
about the presence of fairness in the regulations. One comment opposes
the change because it is seen as legislating awards.
Many of these comments confuse rating-based awards with position
classification and with pay-for-performance systems that would affect
the rate of basic pay. Much of the opposition expressed is more
directly related to pay for performance than to the revisions in the
awards regulations. The practical effect of these regulations does not
restrict agency flexibility in its awards programs. Rather, the
regulations codify a statutory threshold and ensure the appropriate use
of a specific authority.
Base Pay and Other Awards
We also received four comments (three individuals and one agency)
concerning what effect the regulations would have on time-off awards,
within-grade increases, raises, and gainsharing programs.
The regulations affect only rating-based awards. Other agency
incentive and recognition programs are not affected. Furthermore,
agencies can continue to establish and use decision criteria that take
into account other pay decisions made so that the total aggregation of
all forms of compensation and additional recognition do not result in
unintended, disproportionate rewards for the employee. While time-off
awards are not direct additional payments to an employee, they do
represent an expense to the agency and a valued form of recognition to
the employee. As such, it may be appropriate to consider substantial
time-off awards granted to recognize an employee's accomplishments that
are reflected in a rating of record when contemplating the total
``amount'' of
[[Page 1270]]
compensation/recognition the agency is providing.
Miscellaneous Issues
One individual comment objects to the waiver of the 60-day comment
period.
OPM provided a 30-day comment period in lieu of the 60-day comment
period to enable issuance of final regulations when most agencies are
making their awards decisions, which will give practical effect to
these regulations.
A union comment expresses concern that the regulation violates the
merit system principle. In addition, an agency observed that the legal
citation for the merit system principle is incorrect. The union further
questions the appropriateness of limiting the awards to employees with
ratings of record of ``Fully Successful'' or higher since an employee
with a lower rating may have accomplished something exemplary in a
single aspect of the job.
The regulations clearly support the merit system principle that
provides for appropriate incentives and recognition for excellence in
performance. Regarding the limitation to employees rated ``Fully
Successful'' or higher, this restriction applies only to rating-based
awards and is the statutory threshold. Other authorities within 5 CFR
part 451 permit agencies to provide recognition for other performance
when appropriate. The rating-based award is only one way of providing
recognition. Also, OPM acknowledges that the correct citation for the
merit system principle referenced is 5 U.S.C. 2301(b)(3).
One comment questions if the regulations would lead employees rated
at the ``Fully Successful'' level to feel entitled to a cash award.
Others said requiring distinctions would result in the forced
distribution of ratings.
As we have stated, and we believe most employees understand, awards
are not an entitlement. Furthermore, the requirement for making
distinctions in rating-based awards reflects and supports rather than
drives those distinctions already made in the levels of performance.
One comment recommends that OPM require agencies to base cash
awards programs on methodologies that have been shown through research
to result in improved productivity or quality of performance in the
entire organization.
OPM regulations set up broad frameworks within which individual
agencies design and operate their own specific awards programs. To best
support their own performance cultures, agencies have the flexibility
to establish and adapt awards policies and the criteria and conditions
under which awards may be granted, as long as they do not violate
regulation or statute.
One comment asks whether the rate used to compute a rating-based
award includes locality pay.
Yes, a recent change in law removed a previous requirement to
exclude locality pay from rating-based awards when computed as a
percentage of base pay. These regulations do not change the regulations
affecting when locality pay is considered to be basic pay.
Other comments are outside the scope and intent of these
regulations and thus are not addressed here. These comments include
concerns about the National Security Personnel System and the perceived
possible adverse impact of pay for performance in the Federal
Government, including a decrease in teamwork, low morale and
competition among employees, and increased departure from Government
service.
E.O. 12866, Regulatory Review
This rule has been reviewed by the Office of Management and Budget
as a significant regulatory action 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 451
Decorations, Medals, Awards, Government employees.
Office of Personnel Management.
Linda M. Springer,
Director.
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Accordingly, the Office of Personnel Management is amending 5 CFR part
451 as follows:
PART 451--AWARDS
0
1. The authority citation for part 451 continues to read as follows:
Authority: 5 U.S.C. 4302, 4501-4509; E.O. 11438, 33 FR 18085, 3
CFR, 1966-1970 Comp., p. 755; E.O. 12828, 58 FR 2965, 3 CFR, 1993
Comp., p. 569.
Subpart A--Agency Awards
0
2. In Sec. 451.101, paragraph (e) is revised to read as follows:
Sec. 451.101 Authority and coverage.
* * * * *
(e) An agency may grant performance-based cash awards on the basis
of a rating of record at the fully successful level (or equivalent) or
above under the authority of 5 U.S.C. 4505a and the provisions of this
part to eligible non-GS employees who are covered by 5 U.S.C. chapter
45 and this part and who are not otherwise covered by an explicit
statutory authority for the payment of such awards, including 5 U.S.C.
5384 (SES performance awards).
0
3. In Sec. 451.104, paragraph (a)(3) is revised and a new paragraph
(h) is added to read as follows:
Sec. 451.104 Awards.
(a) * * *
(3) Performance as reflected in the employee's most recent rating
of record (as defined in Sec. 430.203 of this chapter), provided that
the rating of record is at the fully successful level (or equivalent)
or above, except that performance awards may be paid to SES members
only under Sec. 534.405 of this chapter and not on the basis of this
subpart.
* * * * *
(h) Programs for granting performance-based cash awards on the
basis of a rating of record at the fully successful level (or
equivalent) or above, as designed and applied, must make meaningful
distinctions based on levels of performance.
[FR Doc. E7-262 Filed 1-10-07; 8:45 am]
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