Retention Allowances: Usage and Compliance Vary Among Federal Agencies
(Letter Report, 12/11/95, GAO/GGD-96-32).

Pursuant to a congressional request, GAO reviewed federal agencies' use
of retention allowances as salary supplements to retain essential
employees, focusing on: (1) the total and average value of the
allowances from 1991 to 1994; (2) the extent to which Senior Executive
Service employees received retention allowances; (3) whether there were
any compliance issues involved in retention allowance awards; (4) the
agencies' adherence to Office of Personnel Management (OPM) retention
regulations; and (5) the extent to which OPM oversees the use of
retention allowances.

GAO found that: (1) 354 civilian employees received retention allowances
as of September 30, 1994; (2) although the Department of Health and
Human Services did not report its allowance data, 20 of its employees
received allowances during fiscal year (FY) 1994; (3) retention
allowances totalled $2.8 million annually and averaged $7,789 annually
per employee; (4) the Export-Import Bank (Eximbank) awarded allowances
to 21.7 percent of its employees in FY 1994, while the other agencies
awarded allowances to 0.3 percent or fewer of its employees; (5)
Eximbank did not determine whether prospective recipients would have
left their positions if they did not receive retention allowances; (6)
the criteria the Department of Defense, Eximbank, and Securities and
Exchange Commission (SEC) used to determine the amount of employee
allowances could not be determined; (7) OPM regulations do not require
agencies to review or recertify retention allowances affected by pay
increases; and (8) OPM has developed regulations and conducted
longitudinal studies of Federal Employees Pay Comparability Act (FEPCA)
actions at selected agencies.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-96-32
     TITLE:  Retention Allowances: Usage and Compliance Vary Among 
             Federal Agencies
      DATE:  12/11/95
   SUBJECT:  Federal agencies
             Compensation
             Civilian employees
             Salary increases
             Federal personnel legislation
             Personnel management
             Employee incentives
             Personnel recruiting
             Human resources utilization
IDENTIFIER:  Senior Executive Service
             SES
             OPM Central Personnel Data File
             Eximbank Retention Allowance Program
             
**************************************************************************
* This file contains an ASCII representation of the text of a GAO        *
* report.  Delineations within the text indicating chapter titles,       *
* headings, and bullets are preserved.  Major divisions and subdivisions *
* of the text, such as Chapters, Sections, and Appendixes, are           *
* identified by double and single lines.  The numbers on the right end   *
* of these lines indicate the position of each of the subsections in the *
* document outline.  These numbers do NOT correspond with the page       *
* numbers of the printed product.                                        *
*                                                                        *
* No attempt has been made to display graphic images, although figure    *
* captions are reproduced. Tables are included, but may not resemble     *
* those in the printed version.                                          *
*                                                                        *
* A printed copy of this report may be obtained from the GAO Document    *
* Distribution Facility by calling (202) 512-6000, by faxing your        *
* request to (301) 258-4066, or by writing to P.O. Box 6015,             *
* Gaithersburg, MD 20884-6015. We are unable to accept electronic orders *
* for printed documents at this time.                                    *
**************************************************************************


Cover
================================================================ COVER


Report to the Ranking Minority Member, Subcommittee on Post Office
and Civil Service, Committee on Governmental Affairs, U.S.  Senate

December 1995

RETENTION ALLOWANCES - USAGE AND
COMPLIANCE VARY AMONG FEDERAL
AGENCIES

GAO/GGD-96-32

Retention Allowances

(966637)


Abbreviations
=============================================================== ABBREV

  CPDF - Central Personnel Data File
  DOD - Department of Defense
  DOE - Department of Energy
  FEPCA - Federal Employees Pay Comparability Act of 1990
  HHS - Department of Health and Human Services
  OPM - Office of Personnel Management
  SEC - Securities and Exchange Commission
  SES - Senior Executive Service
  USDA - U.S.  Department of Agriculture

Letter
=============================================================== LETTER


B-260236

December 11, 1995

The Honorable David Pryor
Ranking Minority Member
Subcommittee on Post Office
 and Civil Service
Committee on Governmental Affairs
United States Senate

Dear Senator Pryor: 

This report responds to your September 30, 1994, request that we
review federal agencies' use of retention allowances as salary
supplements to retain essential employees.  In that letter and in
subsequent meetings with your office, you asked that we report on (1)
the total and average values of the allowances, as well as the
highest values of individual allowances, at selected federal agencies
for the period 1991 through 1994; (2) the extent to which Senior
Executive Service (SES) employees are receiving retention allowances;
(3) any compliance issues identified during limited review of
agencies' retention allowance awards; (4) whether agencies are
preparing retention allowance plans in accordance with Office of
Personnel Management (OPM) regulations; and (5) the extent to which
OPM is performing oversight of the use of retention allowances. 


   BACKGROUND
------------------------------------------------------------ Letter :1

The retention allowance authority was established by section 208 of
the Federal Employees Pay Comparability Act of 1990 (FEPCA).\1 The
act required OPM to issue governmentwide regulations on retention
allowances, which it did on March 28, 1991.  The act and OPM's
implementing regulations require agencies to document that (1) each
allowance paid is based on a determination that 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) in the absence of such an allowance, the employee would be
likely to leave federal employment.  The agency must also document
the extent to which the employee's departure would affect the
agency's ability to carry out an activity or perform a function
deemed essential to the agency's mission. 

The regulations also require agencies to prepare retention allowance
plans.  The plans must include (1) criteria that must be met or
considered in authorizing allowances, including criteria for
determining the size of an allowance; (2) a designation of officials
with authority to review and approve payment of retention allowances;
(3) procedures for paying allowances; and (4) documentation and
recordkeeping requirements sufficient to allow reconstruction of the
actions taken to award the allowance. 

Agencies are permitted to pay employees allowances of up to an
additional 25 percent of their basic pay.  An agency may continue to
pay a retention allowance as long as the conditions giving rise to
the original determination to pay the allowance still exist, but it
must conduct a formal review at least annually to determine whether
the retention allowance is still warranted and document this review
by means of an authorized official's written certification. 


--------------------
\1 5 U.S.C.  5754. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

As of September 30, 1994, 354 of the 2.9 million civilian executive
branch employees were receiving retention allowances.\2

On an annualized basis, the cost of these allowances was
approximately $2.8 million.  Five agencies--the Departments of
Defense (DOD), Energy (DOE), and Agriculture (USDA); the
Export-Import Bank (Ex-Im Bank); and the Securities and Exchange
Commission (SEC)--awarded 334 (94 percent) of these retention
allowances.\3 As agreed with your office, we focused our review on
these five agencies and found that Ex-Im Bank awarded allowances to
21.7 percent of its employees in fiscal year 1994, while the other
agencies gave allowances to 0.3 percent or fewer of their employees. 
The average allowance at the five agencies during fiscal years 1991
through 1994 was $7,789 per employee,\4 with the highest
allowance--$28,925--awarded to a DOD employee.\5 Five allowances were
awarded to SES employees at these agencies. 

Ex-Im Bank did not appear to comply with the statutory requirement
that it must determine that prospective recipients would be likely to
leave the agency if they did not receive an allowance.  We informed
OPM of our preliminary compliance concerns.  Subsequently, in
furtherance of its oversight responsibility, OPM initiated an
in-depth review of Ex-Im Bank's use of retention allowances and
recruitment bonuses.  Accordingly, we decided to forgo further work
on this compliance issue. 

While the five agencies' retention allowance plans contained most of
the features required by OPM regulations, such as criteria for
selecting and approving retention allowance recipients, three of the
five agencies--DOD, Ex-Im Bank, and SEC--did not include the criteria
to be used for determining the amount of employees' allowances in
their plans. 

OPM's regulations do not require agencies to review and recertify
retention allowances as the result of an increase in the employee's
basic pay.  Most agencies told us that they allowed their employees'
allowances to increase automatically if the basic pay increases
during the allowance period, such as governmentwide pay increases,
were minimal.  However, officials at two of the agencies said that,
for some situations at least, their approving officials may have
permitted allowances to increase automatically even if the employees'
basic pay increases were significant, such as when they were
promoted.\6 An OPM official told us that, although OPM intended in
writing the regulations to give agencies flexibility in administering
retention allowances, OPM nevertheless believed that agencies would
likely review employees' allowances when employees received
significant increases in basic pay. 

OPM has developed regulations and conducted longitudinal studies of
FEPCA's incentive pay programs, including some on-site compliance
reviews of FEPCA actions by selected installations.  These reviews
did not reveal systemic problems in the use of these authorities. 
However, after we discussed our preliminary findings with OPM, it
began an in-depth review of Ex-Im Bank's use of pay flexibilities
provided by FEPCA, including retention allowances. 


--------------------
\2 After completion of our review, OPM said that it had discovered
that the Department of Health and Human Services (HHS) had not
reported allowance data and that HHS had an estimated 20 employees
who had received allowances during fiscal year 1994.  Since OPM did
not know the exact number of HHS employees receiving allowances as of
September 30, 1994, the 354 allowances does not include HHS. 

\3 Our work at DOD included Army, Navy, and Air Force civilian
personnel who received 98 percent of all DOD retention allowances
during fiscal years 1992 through 1994. 

\4 The $7,789 average was computed without including 61 retention
allowances awarded by DOD in fiscal years 1992 through 1994 because
DOD did not provide the award amounts in time for publication of this
report. 

\5 We did not evaluate the appropriateness of individual allowance
amounts or of the proportion of employees at each agency who received
allowances. 

\6 We did not expand our sample to verify whether some officials had
permitted allowances to increase automatically. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :3

To identify which agencies gave the largest number of retention
allowances and the highest amounts awarded, as well as to determine
the total value of retention allowances and the number of SES
employees awarded allowances, we reviewed OPM retention allowance
reports for fiscal years 1991 through 1994,\7 which were derived from
OPM's Central Personnel Data File (CPDF).\8 We selected the five
agencies that the data showed had the most allowances from fiscal
years 1991 through 1994--DOD, Ex-Im Bank, SEC, DOE, and USDA. 

To assess whether agencies were preparing retention allowance plans
in accordance with OPM regulations, we obtained and reviewed
agencies' retention allowance plans and compared the provisions and
other information in these documents with requirements in OPM
retention allowance regulations.  In addition, we interviewed agency
officials about their plans.  To perform a limited review of
agencies' retention allowance awards, we interviewed agency officials
about their award procedures and reviewed individual retention
allowance justification documents for 43 selected awards at the five
agencies.  We did not evaluate the appropriateness of individual
allowance amounts or the proportion of agencies' employees who
received allowances.  The 43 awards, although randomly selected from
groups of retention allowances that were stratified based on grade
levels, are not projectable because we were unable to review
sufficient numbers of awards at each agency due to time
constraints.\9

To determine the extent of OPM's oversight efforts, we interviewed
OPM program and oversight officials and reviewed documentation they
provided, including reports statistically analyzing retention
allowances by agency.  We also informed OPM's program and oversight
officials of our preliminary compliance concerns at Ex-Im Bank. 
Subsequently, OPM officials decided to conduct an in-depth review of
Ex-Im Bank's use of retention allowances and recruitment bonus
programs. 

We provided a draft of this report for comment to the heads of DOD,
DOE, Ex-Im Bank, OPM, SEC, and USDA.  Their comments are summarized
on pages 12 through 14.  Written comments from DOD, Ex-Im Bank, and
SEC are reproduced in appendixes I through III, respectively. 

Our review was conducted in the agencies' Washington, D.C.,
headquarters offices from November 1994 to September 1995 in
accordance with generally accepted government auditing standards. 


--------------------
\7 Office of Workforce Information Central Personnel Data File
Report, prepared quarterly by OPM. 

\8 The CPDF is OPM's automated system that contains personnel
information for most federal civilian employees in the executive
branch, as well as for employees at selected agencies in the
legislative branch.  We did not independently verify the accuracy of
CPDF data for the allowance reports. 

\9 We reviewed 19 allowances at DOD, 7 allowances at Ex-Im Bank, 12
allowances at USDA, 2 allowances at DOE, and 3 allowances at SEC. 


   RETENTION ALLOWANCES WERE
   GENERALLY AWARDED TO A LIMITED
   NUMBER OF EMPLOYEES
------------------------------------------------------------ Letter :4

As of September 30, 1994, 354 employees (excluding HHS employees), or
about 0.01 percent of the approximately 2.9 million federal civilian
employees, were receiving retention allowances.\10 Of these
allowances, 334 (94 percent) had been awarded by the five agencies we
reviewed.  The number and amount of retention allowances awarded at
the five agencies in fiscal years 1991 through 1994 are presented in
table 1.  As shown in the table, the annualized value of retention
allowances for these agencies increased from approximately $21,000 in
fiscal year 1991 to about $2.8 million in fiscal year 1994. 



                                     Table 1
                     
                      Numbers and Amounts of Five Agencies'
                     Retention Allowances, Fiscal Years 1991
                                   Through 1994

                              (Dollars in thousands)


Agency        Number  Amount  Number  Amount  Number    Amount  Number    Amount
------------  ------  ------  ------  ------  ------  --------  ------  --------
DOD                0      $0      76  $351.3     158  $1,077.3     248  $1,993.3
Ex-Im Bank         0       0       0       0       0         0     100     498.9
DOE                1    10.6       3    56.9       4      63.3       6      89.6
USDA               1    10.5       6    40.0       4      31.3      12     124.4
SEC                0       0       0       0       3      16.3       8      68.5
Total              2   $21.1      85  $448.2     169  $1,188.2   374\a  $2,774.7
--------------------------------------------------------------------------------
\a The 374 allowances represent cumulative awards during fiscal year
1994 as compared to the 334 allowances mentioned previously, which
were in effect as of September 30, 1994. 

Source:  Data provided by officials in personnel offices of the
listed agencies. 

The average allowance at the five agencies during fiscal years 1991
through 1994 was $7,789 per employee.\11 In fiscal year 1994, the
highest allowance of $28,925 was awarded by DOD, and the average
amounts awarded per agency varied from $4,989 at Ex-Im Bank to
$14,928 at DOE.  In addition, five retention allowances were awarded
to SES employees in four of the five agencies during fiscal years
1991 through 1994.\12 Table 2 presents the average and highest
amounts for retention allowances awarded by each of the five agencies
in fiscal years 1991 through 1994. 



                                     Table 2
                     
                         Average and Highest Amounts for
                       Retention Allowances Awarded by Five
                     Agencies, Fiscal Years 1991 Through 1994


                  Averag    High  Averag    High  Averag    High  Averag    High
Agency                 e  amount       e  amount       e  amount       e  amount
----------------  ------  ------  ------  ------  ------  ------  ------  ------
DOD                   $0      $0  $5,516  $25,12  $6,950  $21,64  $9,771  $28,92
                                               5               7               5
Ex-Im Bank             0       0       0       0       0       0   4,989  12,836
DOE               10,513  10,513  18,962  28,025  15,814  20,598  14,928  21,092
USDA              10,567  10,567   6,668  11,010   7,834  11,418  10,364  17,097
SEC                    0       0       0       0   5,431   7,708   8,558  10,148
--------------------------------------------------------------------------------
Source:  Data provided by officials in personnel offices of the
listed agencies. 

Among the five agencies, Ex-Im Bank awarded allowances to the largest
proportion of its employees.  Ex-Im Bank awarded allowances to 21.7
percent of its 462 employees during fiscal year 1994, while none of
the other agencies awarded allowances to more than 0.3 percent of
their employees.\13 Table 3 presents the percentage of employees
receiving allowances at each of the five agencies during fiscal year
1994. 



                                Table 3
                
                   Percentage of Employees Receiving
                 Allowances in Fiscal Year 1994 at Five
                                Agencies

                                                      Number
                                                          of
                                         Number of  employee
Agency                                  allowances         s   Percent
--------------------------------------  ----------  --------  --------
DOD                                            248   731,321     0.03%
Ex-Im Bank                                     100       462     21.65
DOE                                              6    19,899      0.03
USDA                                            12   119,558      0.01
SEC                                              8     2,689      0.30
======================================================================
Total                                          374   873,929     0.04%
----------------------------------------------------------------------
Source:  Developed by GAO from OPM and agencies' data. 


--------------------
\10 Office of Workforce Information Central Personnel Data File
Report, dated September 1994.  This OPM report lists allowances
awarded during the previous quarter and ongoing allowances awarded
during prior quarters. 

\11 The $7,789 average was computed without including 61 retention
allowances awarded by DOD in fiscal years 1992 through 1994 because
DOD did not provide the award amounts in time for publication of this
report. 

\12 Ex-Im Bank does not have any SES positions, and its policy does
not permit use of retention allowances for its equivalent Senior
Level positions. 

\13 We did not evaluate the appropriateness of individual allowance
amounts or the proportion of employees at each agency who received
allowances. 


   WHEN AWARDING ALLOWANCES, EX-IM
   BANK DID NOT APPEAR TO
   DETERMINE THAT AN EMPLOYEE WAS
   LIKELY TO LEAVE, ABSENT AN
   ALLOWANCE
------------------------------------------------------------ Letter :5

Ex-Im Bank did not appear to comply with the statutory requirement
that it determine that the employee was likely to leave if the
employee did not receive an allowance, which could result in
unnecessarily spending funds for allowances.  None of the seven Ex-Im
Bank allowances we reviewed contained information that indicated the
employee was considering leaving the agency.  Bank officials stated
that approximately 90 percent of the 100 allowances awarded were
initiated based on management's recognition of the employees' special
talents and their attractiveness to other employers, rather than on
more definitive information, such as whether the employees were
considering other job offers. 

Ex-Im Bank officials said that high level performance is a major
criterion for selecting award recipients; that is, allowance
recipients are generally selected from those employees who have
outstanding performance ratings because this group includes those
most necessary to the Bank's successful accomplishment of its
mission.  Officials said that they time the awards of new retention
allowances and the recertification of existing allowances to coincide
with the results of their performance appraisal process.  Ex-Im Bank
officials noted, however, that there is no direct linkage between a
performance rating and a retention allowance.  In justifying the use
of performance ratings in awarding retention allowances, Ex-Im Bank
officials said that high performing employees have been found to be
particularly attractive to the private sector and, therefore, more
likely to have opportunities to leave the agency. 

In 1992, prior to initiating its retention allowance program, Ex-Im
Bank requested special pay rate authorities from OPM to pay certain
of its employees more money.  Ex-Im Bank officials said that OPM
denied their request and encouraged them to consider other remedies
to their staffing problems, including retention allowances.  OPM
officials told us that they had discussed various pay and nonpay
flexibilities, including retention allowances, with Ex-Im Bank
officials.  OPM officials also provided us with copies of the
governmentwide guidance that they had provided to Ex-Im Bank.  They
noted that, while they encourage agencies to use available pay
flexibilities, agencies need to follow established regulations--for
example, determining whether the employee was likely to leave without
the retention allowance and documenting the extent to which the
employee's departure would affect the agency's ability to carry out
its mission.  OPM officials said that the fact that an employee had a
high performance rating is not sufficient to meet these requirements. 

We discussed with OPM officials our concern that, in the seven cases
we reviewed, Ex-Im Bank did not appear to determine that the employee
was likely to leave if the employee did not receive an allowance. 
After these discussions and in furtherance of its oversight
responsibility, OPM initiated an in-depth review of Ex-Im Bank's use
of pay flexibilities, including retention allowances and recruitment
bonuses.  Because of OPM's oversight role and its decision to review
a larger number of Ex-Im Bank cases to pursue the compliance issue on
a systemic basis, we decided to forgo further work on the issue. 


   THREE AGENCIES' PLANS FAILED TO
   INCLUDE REQUIRED RATIONALE FOR
   ALLOWANCE AMOUNT
------------------------------------------------------------ Letter :6

While the five agencies' retention allowance plans included most
provisions required by OPM regulations, including designating
officials with authority to review and approve allowances and
providing criteria for selecting allowance recipients, DOD, Ex-Im
Bank, and SEC did not include their rationales for determining the
amount of the retention allowances in any of their plans.  Without
the documented rationale, it is impossible for an approving official
to readily assess the appropriateness of the proposed award amount
and to ensure that the agency is not awarding higher amounts than are
necessary to retain the employee. 

A DOD wage administration specialist told us that a specific DOD-wide
rationale was not included in its plan because DOD wanted to give the
individual approving officials flexibility in awarding allowances,
including the authority to determine the amounts of retention
allowances.  The official said, however, that a planned revision of
the plan will indicate that appointing officials should apply
criteria for determining retention allowance amounts consistent with
OPM's regulations.  SEC said that, as a small agency, it is able to
handle the retention allowance process on a case-by-case basis and
thus had not seen a need to formalize criteria for determining the
size of an allowance.  Both the Vice President for Management
Services and a personnel specialist at Ex-Im Bank said that the
omission of a rationale in their retention allowance plan was an
oversight.  Both individuals said that the agency wants the plan to
comply with all of OPM's regulations and that the plan would be
revised accordingly. 


   AGENCIES HAVE VARYING VIEWS
   ABOUT OPM'S REGULATORY
   REQUIREMENTS FOR
   RECERTIFICATION OF RETENTION
   ALLOWANCES
------------------------------------------------------------ Letter :7

OPM regulations do not require written recertification when an
employee receives an increase in basic pay.  However, the agencies we
reviewed generally believed that retention allowances should be
recertified when their employees received significant increases in
basic pay.  For minimal increases, such as government-wide pay
raises, DOD, DOE, Ex-Im Bank, and USDA do not specifically require
recertification, thereby permitting the allowances to continue at the
same percentage rates, recognizing that the allowances increase in
amounts proportionate to the increases in employees' basic pay. 
Ex-Im Bank said that it also allows for automatic recertification for
promotions at lower grade levels.  Conversely, SEC believed all
allowances should be recertified whenever basic pay increases,
regardless of the size of the increase. 

A USDA official told us that, while most approving officials
recertify allowances when employees are promoted, some officials have
interpreted OPM's regulations as allowing the allowances to continue
at the same percentage rate when any basic pay increase occurs,
including those due to promotions.  Similarly, DOD officials said
that they believed most approving officials recertify promoted
employees' allowances, but that they could not be sure that some
officials do not automatically increase allowances in proportion to
promotions or other significant pay increases.  DOE and Ex-Im Bank
officials said that they believed that promotion to a new position
with significantly higher pay results in changes to the conditions
that justified the allowance and that the regulations therefore
require that a new decision be made regarding the retention
allowance. 

An SEC personnel official told us that he believed a recertification
is required for any increase to an employee's allowance.  He added
that it would be unlikely for SEC to increase the value of an
allowance when the basic pay rates increased, because the initial
award established an amount that the employee in effect agreed was
sufficient to retain his/her services.  Thus, it would be more likely
that the allowance would be decreased or terminated when the
employee's basic pay was increased. 

OPM Compensation Administration Division officials said that OPM
regulations do not require that the allowance percentage be changed
when an employee receives an increase in his/her basic pay.  OPM
officials pointed out that the law (5 U.S.C.  5754(b)) requires that
a retention allowance be stated as a percentage of the rate of basic
pay and that this supports the notion that it may be appropriate to
adjust retention allowances automatically based on changes in the
rate of basic pay.  One of the OPM officials told us that OPM
intended to allow agencies flexibility in their approaches to these
increases, including not necessarily requiring recertification, but
that OPM believed that agencies would likely review employees'
allowances when employees received significant increases in basic
pay. 

OPM noted that, as part of their responsibility for administering the
program, agencies are expected to reduce or terminate a retention
allowance whenever they become aware that the original set of
conditions justifying the allowance have changed to the extent that
the approved allowance is no longer warranted.  Further, OPM believes
that agency evaluations of changes in a variety of related
factors--for example, the employee's rate of basic pay, an agency's
continuing need for the services of the employee, the employee's
performance, and staffing and labor market factors--like the original
determinations for granting retention allowances, are matters of
judgment that cannot easily be reduced to a precise formula. 
Moreover, changes in a single factor, such as an increase in the rate
of basic pay, do not necessarily mean that a full review and a new
written certification are necessary.  OPM believes that approving
officials need to weigh all relevant factors and that they are in the
best position to determine whether and when a formal review or
changes are necessary.  In any event, OPM's regulations require
agencies to review each retention allowance annually and to certify
in writing whether the payment is still warranted. 


   OPM'S OVERSIGHT OF THE
   RETENTION ALLOWANCE PROGRAM
------------------------------------------------------------ Letter :8

In carrying out its oversight responsibility, OPM has relied on
agencies to report retention allowance activity to OPM's CPDF.  Most
federal agencies report specific personnel-related information on the
awarding of retention allowances, including the recipient's name, pay
plan, performance rating, basic pay rate, position, and the value of
the allowance.  OPM has used this information to produce quarterly
reports showing active retention allowance data governmentwide.  To
monitor the program, OPM has done statistical analyses of the
agency-provided information, which included determining whether the
allowance exceeded the 25-percent limitation and whether the
allowance--when added to the total compensation received by the
employee during the calendar year--exceeded the rate payable for
level I of the Executive Schedule, the current statutory maximum pay
rate.  OPM officials said that they had not identified any
noncompliance using these analyses. 

Until March 1994, OPM also conducted periodic longitudinal studies of
FEPCA's incentive pay programs, including retention allowances, to
examine both OPM's and agencies' implementation of the act.  The
studies, which began in 1991, resulted in three reports that
addressed such issues as statistical comparisons, by sex and race, of
retention allowances awarded.  OPM officials said that they
terminated these studies in fiscal year 1995 because they were not
finding any significant problems and because of budget concerns. 
However, OPM said that it conducted on-site compliance reviews of
FEPCA actions at randomly selected installations during this same
period. 

As previously noted, we discussed with OPM our concerns about Ex-Im
Bank's retention allowance award process, and OPM subsequently
decided to conduct an in-depth review of Ex-Im Bank's use of
retention allowances. 


   CONCLUSIONS
------------------------------------------------------------ Letter :9

Retention allowances were awarded to a limited number of employees
governmentwide.  With the exception of the Ex-Im Bank, the proportion
of agencies' employees who received allowances was low. 

Ex-Im Bank did not appear to comply with a statutory requirement in
awarding retention allowances, and Ex-Im Bank's, DOD's, and SEC's
retention allowance plans did not satisfy an OPM planning
requirement.  Also, OPM's regulations did not address whether
agencies should review and/or recertify allowances when employees
receive significant pay increases during the year. 

Ex-Im Bank appeared to award allowances without determining that
employees would be likely to leave in the absence of allowances, a
practice which could result in unnecessarily spending allowance
funds.  OPM, as the agency responsible for governmentwide oversight
of retention allowances, is conducting a review of compensation
practices at Ex-Im Bank that should enable it to determine whether
Ex-Im Bank needs to more adequately address this issue.  Accordingly,
we decided to forgo further work on the issue. 

The retention allowance plans for DOD, Ex-Im Bank, and SEC did not
include criteria for determining the amounts of allowances.  Without
a documented agencywide rationale, lower level managers did not have
guidance for establishing the amounts of individual allowances.  In
addition, since the individual award justifications developed by
these managers were not required to include the rationale for the
award amount, and thus frequently did not, agency officials and
others reviewing the awards lacked sufficient information with which
to assess the appropriateness of the amounts awarded.  Thus, the
agencies could not ensure that the amounts awarded were not in excess
of amounts necessary to retain the employee. 

OPM's regulations do not require that allowances be reviewed or
recertified in writing whenever there are significant increases to
employees' basic pay during the year.  As a result, agencies may not
be reviewing or recertifying allowances in conjunction with increases
to employees' basic pay in circumstances where such increases might
affect the conditions justifying the allowances.  In such
circumstances, a review might make a significant difference. 


   RECOMMENDATIONS
----------------------------------------------------------- Letter :10

We recommend that the Chairman of Ex-Im Bank, the Secretary of
Defense, and the Chairman of SEC include the required criteria for
determining the value of retention allowances in their retention
allowance plans. 

We recommend that the Director of OPM take action to ensure that
retention allowance regulations are revised to explicitly address
whether, and if so when, an agency should review or recertify the
amount of an allowance as a result of basic pay rate increases or
other relevant changes in the conditions justifying the allowance. 


   AGENCY COMMENTS AND OUR
   EVALUATION
----------------------------------------------------------- Letter :11

DOD, DOE, Ex-Im Bank, OPM, SEC, and USDA provided comments on a draft
of this report; these comments are summarized below.  DOD, Ex-Im
Bank, and SEC provided written comments, which are included in their
entirety in appendixes I through III, respectively.  We received oral
comments from the Deputy Assistant Secretary for Human Resources,
DOE, on September 25, 1995; the Chief of the Compensation
Administration Division, OPM, on September 26, 1995; and the Director
of Personnel, USDA, on September 26, 1995. 

DOD, DOE, SEC, and USDA concurred with the findings and conclusions
in our report.  In addition, DOD and SEC agreed to implement our
recommendation to them and suggested some technical changes, which we
have incorporated in the report.  OPM offered a proposed revision to
our recommendation that OPM revise its regulations to clearly define
whether, and if so when, reviews or recertifications should be
performed.  OPM also provided technical comments, which we
incorporated where appropriate. 

Ex-Im Bank granted that it may have "cut some procedural corners" but
distinguished this from substance by asserting that its actions were
consistent with legislative intent and regulatory guidelines as
applied to its particular human resources requirements.  Ex-Im Bank
also expressed concern that we believed their rationales for
determining allowance amounts were suspect or in some way
unprincipled because the rationales were insufficiently documented. 
Ex-Im Bank did concur with our recommendation that it incorporate
criteria for determining the amount of an allowance in its plan. 

While we agree that a failure to document retention allowance
decisions--including the reasoning behind those decisions--is a
procedural deficiency, we believe the Bank's apparent failure to
systematically determine that, in the absence of an allowance, an
employee would be likely to leave would, if confirmed, be a
deficiency of substance.  This is the reason we decided to inform OPM
of our concerns regarding this issue.  Further, both the act and OPM
regulations clearly require that each allowance paid should include a
determination that, in the absence of such an allowance, the employee
would be likely to leave.  We note that the Ex-Im Bank's First Vice
President and Vice Chairman, in commenting on a draft of this report,
confirmed that he did not typically base his award decisions on
whether there might be an actual or imminent competing offer of
employment.  However, we neither state nor intend to imply in the
report that Ex-Im Bank's rationales for allowance amounts were
suspect or unprincipled. 

To avoid the misinterpretation that we viewed Ex-Im Bank's apparent
noncompliance as a procedural rather than a substantive deficiency,
we eliminated the wording in our draft report that could imply that
all five agencies generally complied with federal requirements.  We
now make it clear that our review showed that Ex-Im Bank did not
appear to comply with the "likely to leave" requirement, but we
decided to forgo further work when OPM decided to start an in-depth
review of Ex-Im Bank's award decisions.  Our draft wording that the
agencies generally complied with the requirements was not intended to
excuse the Ex-Im Bank's apparent noncompliance with that specific
requirement. 

OPM would prefer that we merely recommend that it consider revising
the regulations.  We continue to believe, however, that, given the
agencies' varying interpretations of OPM's regulations, OPM needs to
explicitly address the issue of whether and when retention allowance
reviews and recertifications, other than the current annual
requirement, should be conducted.  We did modify the draft
recommendation, as OPM suggested, to include other reasons for
reviewing allowances in addition to the basic one of a pay rate
increase. 


--------------------------------------------------------- Letter :11.1

As arranged with your office, we plan no further distribution of this
document until 14 days after the date of issuance unless you publicly
announce its contents earlier.  At that time, we will send copies of
this report to the Chairmen and Ranking Minority Members of the
Senate Committee on Governmental Affairs, the House Committee on
Government Reform and Oversight, and the House Subcommittee on Civil
Service; the Secretaries of Agriculture, Defense, and Energy; the
Chairmen of Ex-Im Bank and SEC; and the Director of OPM; and will
make copies available to other interested parties. 

Major contributors to this report are listed in appendix IV.  If you
have any questions about this report, please call me at (202)
512-7680. 

Sincerely yours,

Timothy P.  Bowling
Associate Director
Federal Management
 and Workforce Issues




(See figure in printed edition.)Appendix I
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
============================================================== Letter 




(See figure in printed edition.)Appendix II
COMMENTS FROM THE EXPORT-IMPORT
BANK
============================================================== Letter 



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


The following is GAO's comment on Ex-Im Bank's letter dated September
27, 1995. 

GAO COMMENT

While we made most of the language changes proposed by Ex-Im Bank, we
did not revise our report sections addressing allowance
determinations.  Our reasons for not revising the sections on
determinations are addressed on page 13. 




(See figure in printed edition.)Appendix III
COMMENTS FROM THE SECURITIES AND
EXCHANGE COMMISSION
============================================================== Letter 



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix IV

GENERAL GOVERNMENT DIVISION,
WASHINGTON, D.C. 

Larry Endy, Assistant Director, Federal Management and
 Workforce Issues
Thomas Davies, Assignment Manager
Jeffrey Dawson, Evaluator-in-Charge

OFFICE OF THE GENERAL COUNSEL,
WASHINGTON, D.C. 

Alan Belkin, Assistant General Counsel
Robert Heitzman, Senior Attorney


*** End of document. ***