[Federal Register: September 30, 1999 (Volume 64, Number 189)]
[Notices]
[Page 52810-52812]

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OFFICE OF PERSONNEL MANAGEMENT

Personnel Demonstration Project; Alternative Personnel Management
System for the U.S. Department of Commerce

AGENCY: Office of Personnel Management.

ACTION: Notice of modification to Department of Commerce Personnel
Management Demonstration Project.

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SUMMARY: Title VI of the Civil Service Reform Act, now codified in 5
U.S.C. 4703, authorizes the Office of Personnel Management (OPM) to
conduct demonstration projects that experiment with new and different
human resources management concepts to determine whether changes in
policies and procedures result in improved Federal human resources
management. OPM approved a demonstration project covering several
operating units of the U.S. Department of Commerce (DoC). 5 CFR 470.315
requires that modifications to approved demonstration project plans be
approved by OPM.
    This notice announces the following changes to the project plan:
(1) Elimination of the assignment of numerical ranks from the
performance payout process, (2) expansion of performance-based
reduction-in-force (RIF) credit to include employees whose scores are
in the top 30 percent of scores in a pay pool, (3) authorization to
include clarifying guidance on bonuses in the Demonstration Project
Operating Procedures, and (4) addition of a requirement for close-out
ratings for demonstration project employees who are promoted or
competitively reassigned with a pay adjustment within the last 120 days
of the rating cycle.
    All other existing provisions of the project plan will continue.
Employees will be notified of these changes through distribution of
copies of this notice within the participating organizations.
Additional briefings and training for supervisors and employees will
highlight the changes made by this notice.

DATES: This notice modifying the DoC Demonstration Project is effective
September 30, 1999.

FOR FURTHER INFORMATION CONTACT: Department of Commerce: Darlene F.
Haywood, U.S. Department of Commerce, 14th and Constitution Avenue,
NW., Room 5118, Washington, DC 20230, (202) 482-3620.
    OPM: Gary Hacker, U.S. Office of Personnel Management, 1900 E
Street, NW., Room 7460, Washington, DC 20415, (202) 606-4212.

SUPPLEMENTARY INFORMATION:

1. Background

    OPM approved the Department of Commerce (DoC) Demonstration Project
and published the final plan in the Federal Register on Wednesday,
December 24, 1997, Volume 62, Number 247, Part II. The project was
implemented on March 29, 1998, and it is expected to last for 5 years.
The key features of the project involve increased delegation of
authority and accountability to line managers, simplified
classification and broad banding, pay for performance, hiring and pay-
setting flexibilities, and modified RIF procedures.

2. Overview

    The Departmental Personnel Management Board (DPMB) recently
approved four changes to the DoC Demonstration Project. These involve:
(1) Eliminating the assignment of numerical ranks as a factor in
determining annual pay increases, (2) expansion of RIF credit to
include employees whose scores are in the top 30 percent of scores in a
pay pool, (3) including clarifying guidance on bonuses in the
Demonstration Project Operating Procedures, and (4) adding a
requirement for close-out ratings for employees who are promoted or
reassigned with a pay adjustment during the last 120 days of the rating
cycle. The changes are responsive to concerns raised by employees,
supervisors, unions, and one employee organization. In addition to the
policy changes, the notice clarifies the pay-setting policy for new
hires into supervisory positions.

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

I. Executive Summary

    The Department of Commerce (DoC) Demonstration Project utilizes
many features similar to those implemented by the National Institute of
Standards and Technology (NIST) Demonstration Project in 1988. The DoC
project supports several of the key objectives of the National
Performance Review: to simplify the classification system for greater
flexibility in classifying work and paying employees; to establish a
performance management and rewards system for improving individual and
organizational performance; and to improve recruiting and examining to
attract highly qualified candidates and hire them more quickly. The DoC
project will test whether the interventions of the NIST project, which
is now a permanent system, can be successful in other DoC environments.
The participating organizations include the Technology Administration,
the Bureau of Economic Analysis, the Institute for Telecommunication
Sciences, and three units of the National Oceanic and Atmospheric
Administration: Office of Oceanic and Atmospheric Research, National
Marine Fisheries Service, and the National Environmental Satellite,
Data, and Information Service.

II. Basis for Project Plan Modifications

A. Elimination of the Assignment of Numerical Ranks from the
Performance Payout Process

    Current policy requires that rating officials rate their employees
and submit their recommended ratings and rankings to the pay pool
manager. Pay pool managers make final determinations on scores
recommended by subordinate rating officials and rank employees within
the pay pool. All employees having the same score receive the same
rank. Using rankings as a guide, pay pool managers make performance pay
decisions for all employees in the pay pool. Within a

[[Page 52811]]

pool, an employee may not receive a higher relative pay increase than a
higher-ranking employee or a lower relative increase than a lower-
ranking employee.
    Rankings are a major concern for many employees who believe that
assigning numerical rankings to employees fosters divisive competition
in the work environment and undermines efforts to promote teamwork. For
these reasons, the Departmental Personnel Management Board (DPMB)
approved a policy change that eliminates the assignment of numerical
ranks as a factor associated with payout decisions. Instead, payout
decisions will be tied to the employee's relative score within a pay
pool and the pay increase ranges in the performance pay tables.

B. Close-Out Ratings

    Under current policy, employees who are promoted or reassigned with
a pay adjustment within the last 120 days of the rating cycle are
considered unratable. Because they are unratable and receive no
performance score, these employees are also ineligible for performance-
based RIF credit. Since these employees are typically among the
highest-performing employees, denying them the opportunity to earn
additional RIF credit is inconsistent with the treatment of other
employees under the project.
    To ensure equitable treatment of all high-performing employees, the
DPMB approved a modification to the project plan to require that
supervisors prepare close-out ratings of employees who are promoted or
reassigned with a pay adjustment within the last 120 days of the rating
cycle. The rating (approved by the responsible pay pool manager) will
serve as the rating of record for the current appraisal cycle, and the
resulting score will be considered in determining eligibility for RIF
credit.

C. Expansion of RIF Credit

    Prior to conversion to the demonstration project, employees
expressed concern that many high-performing employees would not receive
any additional RIF credit under the demonstration project. In response
to these concerns, the DPMB expanded the percentage of employees
eligible for RIF credit from the top 10 percent to the top 20 percent
of scores in a pay pool. This change was effected prior to
implementation of the project.
    The results of the first performance appraisal cycle indicate that
current policy on awarding additional performance-based RIF credit
under the project still does not provide a fair and equitable basis for
recognizing the value of performance contributions made by many high-
performing employees. As a result, some employees whose performance is
above average may receive no benefit of performance-based RIF credit.
Also, loss of a mechanism for recognizing these employees' valuable
contributions through earned RIF credit has created a morale issue.
    To address this situation, the DPMB authorized modification of
demonstration project policy to further expand RIF credit to encompass
all employees whose scores are within the top 30 percent of scores in a
pay pool. These employees would earn a total of 10 years of credit for
the rating cycle and could accumulate a maximum of 30 years.

D. Clarification of Bonus Criteria

    Demonstration project policy requires that bonuses be linked to the
annual performance appraisal and that they be awarded at the end of the
performance year in conjunction with decisions on pay increases.
However, after the first appraisal period, there was no consistency
across organizational lines in how bonuses were awarded, and absent any
definitive guidance, inconsistency in awarding bonuses will likely be a
continuing concern for employees. To ensure greater consistency in the
awarding of bonuses, the DPMB authorized the inclusion of guidance on
awarding bonuses in the Demonstration Project Operating Procedures.

III. Changes to Project Plan

    The following directs readers to the substantive changes and a
technical clarification in the project plan. The following page numbers
refer to the pages in the final plan, published in the Federal Register
on December 24, 1997.
    A. Page 67451: Revise the first sentence in Paragraph C.3, ``Link
Between Performance and Retention,'' as follows:
    ``An employee with an overall performance score in the top 30
percent of scores within a pay pool (See Performance Evaluation and
Rewards below.) will be credited with 10 additional years of service
for retention credit.''
    B. Page 67454: Eliminate references to numerical rankings by
modifying the following paragraphs in Section E, ``Performance
Evaluation and Rewards:''
    1. Modify the first section of Paragraph E.1, ``Introduction,'' as
follows:
    ``The most important feature of the performance evaluation system
is that it is based on the application of a weighted 100-point scoring
system in support of pay for performance. As in the current system,
each employee has an individual performance plan composed of several
performance elements. Through application of benchmark performance
standards and a 100-point scoring system, pay pool managers grant
performance pay increases according to employees' relative scores
within a pay pool. High-scoring employees within a pay pool receive
relatively high pay increases and lower-scoring employees receive
relatively lower pay increases.''
    2. Eliminate Paragraph E.9, ``Performance Ranking,'' renumber
Paragraph E.10, ``Performance Pay Decisions,'' as Paragraph E.9;
renumber Paragraph E.11, ``Performance Bonuses'' as E.10, and E.12,
``Actions Based on Unsatisfactory Performance,'' as E.11. Modify
Paragraph E.9, ``Performance Pay Decisions,'' as follows:
    9. Performance Pay Decisions
    ``For all employees in a peer group, rating officials submit
recommendations on ratings, scores, performance pay increases, and
bonuses to pay pool managers. A pay pool manager is a line manager who
manages his or her organization's pay increase and bonus funds. The pay
pool manager makes final decisions on ratings and scores and determines
the final order of scores for all peer groups in a pay pool.
    The Performance Pay Table divides each band into three segments or
intervals. Each pay interval is linked to a range of potential
percentage pay increases beginning at zero and progressing to a maximum
performance pay increase (e.g., 0-10 percent). The maximum pay increase
an employee may receive, therefore, depends on the interval into which
the employee's salary falls. Based on the final order of scores, the
pay pool manager makes a performance pay decision for each employee.
The payout to an employee is a percentage of basic salary that is all
or a portion of the maximum potential pay increase. This amount is
known as the ``relative payout'' or the ``proportion-of-the-range.''
Within a pay pool, an employee may not receive a higher relative payout
than a higher-scoring employee or a lower relative payout than a lower-
scoring employee.''
    C. Page 67454: Add the following to Paragraph E.7, ``Performance
Ratings.''
    ``If an employee is permanently promoted or competitively
reassigned (with a pay adjustment) from one demonstration project
position to another during the last 120 days of the rating cycle, the
supervisor of the position from which the employee was promoted or
competitively reassigned

[[Page 52812]]

will prepare a ``close-out'' rating within 30 days of the promotion or
pay adjustment. This rating (when approved by the responsible pay pool
manager over the old position) will serve as the rating of record for
the current appraisal cycle, and the resulting score will be used in
determining the employee's eligibility for reduction-in-force credit.''
    D. Page 67454: Add the following to paragraph E.10, ``Performance
Bonuses.''
    ``Guidance on awarding bonuses is contained in the Demonstration
Project Operating Procedures, which are available to all rating
officials and to all employees covered by the project.''

E. Technical Clarification

    Page 67452: In paragraph D.4, ``Supervisory Performance Pay,''
middle column: Modify the first full paragraph as follows:
    ``Incumbents of supervisory positions will be converted to the
project at their basic pay rates (including special rates or locality
pay) at the time of conversion. After the date of conversion, new hires
into supervisory positions will have their pay set at any salary within
the pay range of the applicable pay band, but not higher than the
maximum rate of the pay band.''

[FR Doc. 99-25606 Filed 9-28-99; 2:52 pm]
BILLING CODE 6325-01-P