Appendix III

SEC Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 1 

Audit of SEC’s Employee 

Recognition Program and 

Recruitment, Relocation, and 

Retention Incentives

August 2, 2011

Report No. 492
OFFICE O F 

I NSPECTOR GENERAL 

UNITED STA TES 

SECURITIES AND EXCHANGE CO MM ISSION 

WA SHINGTON , D . C . 20549 

Employee Recognition Program and 3R Incentives August 2, 2011

Report No. 492

Page ii

Employee Recognition Program and 3R Incentives 

Report No. 492 

Page ii 

August 2, 2011 

To: Cristin Fair, Acting Associate Executive Director, Office of Human 

Resources 

Kenneth A. Johnson, Chief Financial Officer, Office of Financial 

Management (OFM) 

From: H. David Kotz, Inspector General, Office of Inspector General (OI

Subject: Audit of SEC's Employee Recognition Program and Recruitment, 

Relocation, and Retention Incentives, Report No. 492 

MEMORANDUM 

August 2, 2011 

WW 

This memorandum transmits the U.S. Securities and Exchange Commission 

OIG's final report detailing the results on our audit of the SEC's employee 

recognition program and recruitment, relocation and retention incentives. This 

audit was conducted as part of our continuous effort to assess management of 

the Commission's programs and operations and as a part of our annual audit 

plan. 

The final report contains 14 recommendations which if fully implemented should 

enhance the Commission's employee recognition program and administration of 

recruitment, relocation and retention incentives. The respective offices 

concurred with all 14 of the report's recommendations. Your written response to 

the draft report is included in Appendix V. 

Within the next 45 days, please provide the OIG with a written corrective action 

plan that is designed to address the recommendations. The corrective action 

plan should include information such as the responsible official/point of contact, 

timeframes for completing required actions, and milestones identifying how you 

will address the recommendations. 
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page iii

Should you have any questions regarding this report, please do not hesitate to 

contact me. We appreciate the courtesy and cooperation that you and your staff 

extended to our auditors during this audit.

Attachment

cc: James R. Burns, Deputy Chief of Staff, Office of the Chairman

Luis A. Aguilar, Commissioner

Troy A. Paredes, Commissioner

Elisse B. Walter, Commissioner

Kathleen L. Casey, Commissioner

Jeff Heslop, Chief Operating Officer, Office of Chief of Operations

Diana Davis, Business Manager, OHR 

Rebecca Pikofsky, Assistant Director, Employee and Labor

Relations, OHR
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page iv

Audit of SEC’s Employee Recognition 

Program and Recruitment, Relocation, and 

Retention Incentives

Executive Summary

Background. The Securities and Exchange Commission’s (SEC or 

Commission) Employee Recognition Program (ERP) is designed to motivate 

employees and recognize contributions above and beyond normal job 

requirements with monetary and nonmonetary awards and to improve the 

efficiency of operations through an employee suggestion program. Awards may 

be granted for contributions either within or outside an employee’s job 

responsibilities. 

The Office of Human Resources (OHR) has authority for managing the 

Commission’s awards budget and granting final approval of awards. OHR is also 

responsible for training supervisors to use the ERP effectively to achieve 

organizational goals and objectives, providing guidelines for initiating 

appropriately selected performance-related awards, encouraging employees to 

submit suggestions to the suggestion program, and evaluating and processing 

awards and suggestions. Further, OHR is responsible for monitoring and 

evaluating the adequacy of documentation for award recommendations and the 

use of approval authority that is delegated to divisions and offices. 

During the period covered by this Office of Inspector General (OIG) audit, fiscal 

years 2008 through 2010, the Commission permitted monetary recognition in the 

form of special act or service awards, suggestion awards, time-off awards,1 and 

on-the-spot awards. The Commission also utilized recruitment, relocation, and 

retention incentives. Recruitment, relocation, and retention (3R) incentives are 

among the human capital flexibilities intended to help federal agencies address 

human capital challenges and to build and maintain a high-performing workforce 

with essential skills and competencies. 

Objectives. The overall objective of this audit was to assess whether monetary 

awards under the SEC’s ERP and 3R incentives were awarded consistent with 

applicable governing policies and procedures. We also examined whether 

awards and incentives were linked to the Commission’s human capital plan, as 

applicable. 

Results. In this audit, the OIG found that OHR has not fully implemented 

recommendations made as a result of a 2007 Office of Personnel Management 

1 Time-off awards are considered monetary awards because they have monetary value in terms 

of lost production time to the Commission.

 
Employee Recognition Program and 3R Incentives August 2, 2011

Report No. 492

Page v 

(OPM) human resources operations audit pertaining to the SEC’s award 

activities. As a result, we found that similar deficiencies continue to exist. For 

example, we found that there were insufficient resources dedicated to developing 

and overseeing the ERP and there was a lack of documentary support for 

sampled awards. We also identified significant time lags between special act 

dates and award dates due to award budget allocations being made late in the 

fiscal year. 

The audit also found that OHR does not have updated comprehensive policies 

and procedures available to its supervisors and employees regarding SEC 

awards and 3R incentives. Additionally, OHR has not provided supervisors and 

employees with formal training in this area. As a result, the Commission’s use of 

awards and incentives is not as effective as it could be in achieving intended 

goals. 

Further, we found that the SEC’s budgeting processes for awards and incentives 

for SK2

 

employees are flawed and ineffective. The SEC’s overall award budget 

for SK staff and average award per person are nominal. Additionally, SEC 

offices and divisions often are not notified of their award budgets until late in the 

fiscal year, which has resulted in awards being made significantly after the 

rewarded action occurred. Further, during the period covered by our audit, 

supervisors were able to use their award budgets only for special act awards, 

virtually eliminating their ability to reward employees for outstanding performance 

in the course of their normal job duties and contrary to one of the primary 

purposes of the ERP. We also found inconsistencies among offices and 

divisions with respect to their adherence to the terms of the budget allocation 

memoranda issued to divisions and offices, including instances in which offices 

exceeded their award budgets or provided awards in advance of receiving their 

award budgets. We determined that payment of awards at the end of the fiscal 

year presents various accounting issues, including payroll errors. Lastly, we 

found that although Office Heads and Division Directors are ultimately notified of 

their awards budget, they are not notified of funds available for 3R incentives. 

Furthermore, we found that OHR’s supporting documentation for a large number 

of the monetary awards and incentives reviewed for this audit were incomplete. 

We found that documentation was insufficient to show the basis for the awards 

and incentives and that required approvals were properly obtained. We also 

found that an SEC employee was given an award for work that was the subject of 

an OIG investigative report. Although the SEC postponed giving the award 

pending a determination of whether disciplinary action was warranted against the 

employee, the award was eventually granted after an outside consultant 

determined that the employee’s actions did not warrant formal disciplinary action, 

even though the outside consultant did not dispute the serious performance 

issues pertaining to the employee raised in the OIG report. 

 

2

 SK is a staff level pay scale used by the SEC in lieu of the GS pay scale.
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page vi

Additionally, we found that the SEC made a cash award to an SEC Schedule C 

employee in fiscal year 2010 in violation of OPM guidance restricting awards, 

bonuses, and similar payments for political appointees.

The audit also found that although OHR had an Employee Suggestion Program 

in place from 2008 to 2011 that included a monetary incentive component, OHR 

did not make any cash awards under the program. Additionally, the program was 

given little priority and was not effectively managed.

Lastly, we found that the SEC does not currently have in place a human capital 

plan. Accordingly, activities associated with the ERP and 3R incentives are not 

being assessed to determine whether they effectively align with the SEC’s overall 

human capital goals and objectives. 

Summary of Recommendations: Specifically, the OIG recommends that the 

Office of Human Resources:

(1) Implement an internal review process to review a select number or 

percentage of awards annually to ensure that appropriate documentation 

exists for the awards and needed information is readily available to support 

the awards. 

(2) Annually provide information to SEC supervisors on relevant parts of the 

SEC award program, including (1) types of awards available and procedures 

for nominating employees for awards, (2) appropriate types of division-and 

office-level awards for peer recognition, and (3) successful award practices.

(3) Dedicate specific resources to develop and oversee the Employee 

Recognition Program.

(4) Finalize its policies and procedures for the Employee Recognition Program 

within three months and publish them on the SEC’s Insider. The policies 

and procedures should include information on current practices for 

determining bonuses for Senior Officers (SO), policies for determining 

performance-based awards for SK employees, and acceptable methods of 

providing informal nonmonetary awards in addition to traditional 

nonmonetary awards.

(5) Review and update its existing policies and procedures on recruitment, 

relocation, and retention incentives. The update should ensure that the new 

policies and procedures reflect appropriate references to SK and SO 

employees and include expanded authority for retention bonuses. 
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page vii

(6) Provide formal training on its revised policies and procedures and issue 

information notices to supervisors and employees as needed to reflect 

changes in practices and policies. 

(7) In conjunction with the Office of Financial Management (OFM), take the 

following actions:

7a. Develop alternatives for reviewing the SEC award 

budget so that it is competitive with other federal 

agencies’ award budgets.

7b. Develop and implement a mechanism to reward 

employees for superior or meritorious performance within 

their job responsibilities through lump-sum performance 

awards. 

7c. Determine ways to reduce the time required for 

formulation of budget allocations, including, for example, 

moving responsibility for formulating award budget 

allocations to OFM and having the Office of Information 

Technology walk-in development center develop an 

electronic program to pull payroll data directly from the 

Department of the Interior to facilitate more timely 

completion of budget allocations. 

7d. Implement a process to make initial award allocations in 

the first quarter of each fiscal year, thereby giving offices 

the ability to make awards throughout the year. Base 

initial allocations on historical data and then refine the 

allocations, as needed, when the SEC’s annual budget 

has been approved. 

7e. Allocate award funds directly to SEC divisions and 

offices instead of placing the initial award funds in OHR’s 

budget, and hold office and division heads responsible 

for monitoring use of the funds. 

7f. Re-examine budgeted amounts for recruitment, relocation, and 

retention incentives to ensure that sufficient funds are available, and 

make supervisors aware of available funding so that they can 

effectively use incentives to recruit and retain needed talent 

(8) Develop and train human resources specialists on a centralized filing system 

(manual, electronic, or both) for all awards that contains appropriate 

documentation to support the awards, including SF 50 and SEC Form 48 

with narrative justification and appropriate approvals.
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page viii

(9) Implement management controls to ensure that employees who are subject 

to disciplinary action are restricted from receiving awards related to the 

performance that resulted in the disciplinary action. 

(10) Review the August 12, 2010, cash award to a Schedule C employee to 

determine whether it was in violation of the OPM guidance and, if so, seek 

recovery of the improper award.

(11) Consider ways that, as part of the ERP, it may be able to provide awards to 

employees for adopted suggestions submitted to the OIG’s suggestion 

program. 

(12) Revise the service agreement format in SEC Form 2299, Securities and 

Exchange Commission Recruitment Bonus Service Agreement, to 

incorporate specific reasons that the SEC “may” and “must” terminate 

service agreements for recruitment and relocation bonuses. 

(13) Develop and train applicable human resources specialists on the use of a 

centralized filing system for all relocation, recruitment, and retention 

incentives. The centralized filing system should contain all appropriate 

documentation to support the incentives, including the SF 50 and the 

applicable SEC form with the narrative justification for the bonus and the 

appropriate approvals. 

(14) Identify resources and establish a timeline to complete the required human 

capital plan. Ensure that ERP activities are evaluated at least annually to 

ensure that they align with human capital plan objectives and strategies.
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page ix

TABLE OF CONTENTS

Executive Summary...............................................................................................

Table of Contents ..................................................................................................

Background and Objectives ...........................................................................

Background ................................................................................................

Objectives ...................................................................................................

Findings and Recommendations ..................................................................

Finding 1: OHR Did Not Fully Address OPM Recommendations 

Pertaining to SEC Award Practices.............................................................

Recommendation 1 ................................................................

Recommendation 2 ................................................................

Recommendation 3................................................................

Finding 2: OHR’s Policy for Its Award Program Is Outdated and Not 

Readily Accessible .....................................................................................

Recommendation 4 ................................................................

Recommendation 5 ................................................................

Recommendation 6................................................................

Finding 3: OHR’s Budgeting Processes for Awards and Incentives Are 

Ineffective....................................................................................................

Recommendation 7 ................................................................

Finding 4: OHR Did Not Maintain Adequate Documentation to Support SK

Awards Made During Fiscal Years 2008 Through 2010..............................

Recommendation 8 ................................................................

Recommendation 9 ................................................................

Finding 5: A Cash Award Was Inappropriately Made to a Schedule C 

Political Appointee.......................................................................................

Recommendation 10..............................................................

Finding 6: OHR’s Employee Suggestion Program Did Not Provide Cash 

Awards During Fiscal Years 2008 Through 2010 and Was Not Effectively 

Managed .....................................................................................................

Recommendation 11..............................................................

...... iv

...... ix 

....... 1 

....... 1 

....... 3 

....... 4 

.......4 

....... 7 

....... 7 

....... 8 

.......8 

.....11

.....11

.....11

..... 12 

..... 16 

.....17

.....22

.....22

.....22

.....23

.....23

.....26
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page x 

Finding 7: OHR Does Not Maintain Adequate Documentation for 3R 

Incentive Awards, and Related Service Agreements Do Not Meet OPM 

Requirements................................................................................................

....

....

....

....

....

....

....

....

....

....

... 26 

...31

...31

... 32 

... 33 

... 34 

... 35 

... 37 

... 38 

... 42 

... 46 

Recommendation 12............................................................

Recommendation 13............................................................

Finding 8: The SEC’s ERP and 3R Incentives Are Not Linked to an SEC

Human Capital Plan ................................................................

Recommendation 14............................................................

ppendices

Appendix I: Abbreviations/Acronyms. .......................................................

Appendix II: Scope and Methodology........................................................

Appendix III: Criteria..................................................................................

Appendix IV: List of Recommendations ....................................................

Appendix V: Management’s Comments ....................................................

Appendix VI: OIG Response to Management’s Comments.......................

A
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 1 

Background and Objectives

Background 

Employee Recognition Program. The Securities and Exchange Commission’s 

(SEC or Commission) Employee Recognition Program (ERP) is designed to 

motivate employees and recognize contributions above and beyond normal job 

requirements with monetary and nonmonetary awards and to improve the 

efficiency of operations through an employee suggestion program. Awards may 

be granted for contributions either within or outside an employee’s job 

responsibilities. The Commission determines how much of its budget will be 

allocated to the ERP and how the budgeted amounts will be allocated among the 

various divisions and offices. 

The Office of Human Resources (OHR) has authority for managing the SEC’s

awards budget and granting final approval of awards. OHR is also responsible 

for training supervisors to use the ERP effectively to achieve organizational goals 

and objectives, providing guidelines for initiating appropriately selected 

performance-related awards, encouraging employees to submit suggestions to a 

suggestion program, and evaluating and processing awards and suggestions. 

Further, OHR is responsible for monitoring and evaluating the adequacy of 

documentation for award recommendations and the use of approval authority 

that is delegated to divisions and offices. 

During the period covered by this Office of Inspector General (OIG) audit, fiscal 

years 2008 through 2010, the Commission permitted monetary recognition in the 

form of special act or service awards, suggestion awards, time-off awards,3 and 

on-the-spot awards. A special act or service award is a lump sum cash award in 

recognition of an employee’s special act or service, such as exemplary or 

courageous handling of an emergency situation in connection with or related to 

official employment. A time-off award is an excused absence granted to an 

employee without charge to leave or loss of pay, in recognition of the employee’s 

contribution to the quality, efficiency, or economy of government operations. An 

on-the-spot award is a small lump sum cash award similar to a special act or 

service award that is used to quickly recognize one-time and short-term tasks or 

assignments or other job responsibilities performed by an employee in an 

exemplary manner. A suggestion award is a lump sum cash award given to an 

employee in recognition of the adoption of a suggestion designed to accomplish 

a job better, faster, or more economically and that results in tangible or intangible 

benefits to the government. The suggestion may save material or property, 

promote health, increase safety, or improve morale. 

 

3 Time-off awards are considered monetary awards because they have monetary value in terms 

of lost production time to the Commission.
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 2 

For the fiscal year 2008 and 2009 performance periods, all SK employees who 

received an acceptable performance rating received an equivalent merit increase 

(i.e., the same percentage adjustment to salary), in accordance with an 

agreement between the Commission and the National Treasury Employees 

Union (Union). If the merit increase would have caused an employee’s pay to 

exceed the employee’s salary grade maximum, the employee would receive the 

excess amount as a lump sum payment. Outside of the across-the-board merit 

increases, one-time awards linked to an individual’s performance rating 

(performance awards) were not permitted. Therefore, the primary mechanisms 

to distinguish performance and reward SK employees during the period covered 

by our audit were special act or service, time-off, and on-the-spot awards. The 

Commission expects to provide SK employees a merit increase of approximately 

2 percent for fiscal year 2010. Once the details have been worked out, the raises 

will be distributed retroactive to January 2, 2011. SEC Senior Officers (SO) were 

not subject to the Commission’s agreement with the Union and were eligible to 

receive both merit increases and bonuses based on performance during fiscal 

years 2008 and 2009. SOs were not eligible for merit increases or bonuses for 

fiscal year 2010 due to restrictions on bonuses for senior executives. 

In fiscal years 2008, 2009, and 2010, the SEC made 3,427, 3,102, and 2,524 

cash awards, respectively, totaling approximately $4 to $5 million for each of the

three years. Both SK and SO employees received these awards and some 

employees received multiple awards. In many cases, groups of employees 

received awards.

Recruitment, Relocation, and Retention Incentives. Recruitment, relocation, 

and retention (3R) incentives are among the human capital flexibilities intended 

to help federal agencies address human capital challenges and to build and 

maintain a high-performing workforce with essential skills and competencies. 

According to the Office of Personnel Management (OPM), the intent of 3R 

incentives is to provide agencies with discretionary authority to use nonbase 

compensation to help recruit, relocate, and retain employees in difficult staffing 

situations.4

A relocation incentive may only be paid to a current federal employee appointed 

without a break in service who must relocate from one agency to another, or from 

one part of an agency to another, in a different commuting area. A recruitment 

incentive can be given to an employee new to the federal government. In either 

case, it must be determined that the agency would likely encounter difficulty in 

filling the position in the absence of such an incentive. A retention incentive can

be paid to a current employee if the unusually high or unique qualifications of the 

employee or the special needs of the agency make retaining that employee 

essential and it is determined that the employee would likely leave federal 

service without the incentive. In November 2007, OPM issued final regulations 

 

4 GAO-10-226, Continued Improvements Exist for FDA and OPM to Improve Oversight of Recruitment, 

Relocation, and Retention Incentives, January 2010. 
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 3 

that also give agencies authority to pay retention incentives to employees who 

would likely leave for a different federal position before the closure or relocation 

of the employee’s office, activity, or organization in the absence of a retention 

incentive.

5

 

During fiscal years 2008 through 2010, the SEC paid three employees relocation 

bonuses totaling approximately $70,000, paid 41 new employees a total of 

approximately $659,000 in recruitment bonuses, and approved 31 retention 

bonuses that ranged from approximately 2 to 24 percent of the employees’ basic 

pay. 

Objectives 

The overall objective of this audit was to assess whether monetary awards 

awarded under the SEC’s ERP and 3R incentives were consistent with 

applicable governing policies and procedures. We also examined whether 

awards and incentives were linked to the Commission’s human capital plan, as 

applicable. 

 

5 5 CFR § 575.315.
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 4 

Findings and Recommendations 

Finding 1: OHR Did Not Fully Address OPM 

Recommendations Pertaining to SEC Award

Practices 

OHR did not fully address recommendations that OPM made 

in its 2007 review of OHR’s human resources operations 

pertaining to SEC award activities. As a result, we found 

that issues similar to those found by OPM continue to exist. 

In November 2007, OPM conducted a human resources audit of OHR’s 

operations.

6

 OPM examined the Commission’s award activities as part of its 

assessment to determine whether the SEC met OPM’s results-oriented 

performance standard (i.e., the SEC has a diverse, results-oriented, highperforming workforce and a performance management system that differentiates 

between high and low levels of performance and links individual/team/unit 

performance to organizational goals and desired results effectively).

Based on the human resources audit, OPM made a number of 

recommendations7 to OHR in a March 2008 report. During our audit, we found 

that OHR had addressed OPM’s recommendations concerning awards and the 

performance management system, by electing to separate pay from performance 

until a new performance management system could effectively make distinctions 

in performance. We also found, however, that the SEC had not fully addressed 

other OPM recommendations pertaining to award activities. 

OPM found that the SEC had only partially achieved the outcome of creating a 

reward environment that is beyond compensation and benefits which contributes 

to attracting, retaining, and motivating employees. In its comments, OPM stated 

that the SEC did have formal policy on the use of on-the-spot and special-act or 

service awards. OPM also noted that some SEC divisions or offices used 

division- or office-level awards for peer recognition and that some employees 

were recognized for performance through less formal means, such as 

opportunities to work on special projects or better assignments. However, OPM 

found that the use of such rewards and recognition practices was not consistent 

across SEC divisions and offices. OPM also noted that managers said monetary 

 

6 OPM conducts independent evaluations of agencies’ HR programs to ensure they support the mission and 

meet merit system principles and related civil service laws. OPM evaluates the effectiveness of agencies’ 

results oriented performance culture, leadership and knowledge management, and talent management, 

including delegated competitive examining and excepted service hiring, Source: http://www.opm.gov/Open/

About OPM.aspx. 7 OPM’s review resulted in both required and recommended actions on the part of the SEC which are 

referred to generally as “recommendations” for purposes of this report. 
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 5 

recognition available for employees in professional positions fell significantly 

short of bonuses employees would be eligible to receive in the private sector. 

Additionally, OPM stated that employees, supervisors, and managers believed 

money, better work assignments, and peer recognition were the most motivating 

rewards. 

With respect to use of office-level awards, we found in a preliminary inquiry 

completed in March 2010 that a former SEC regional office director used funds 

from the office’s supply budget to purchase nonmonetary honorary and informal 

recognition awards in the form of inscribed glass blocks for staff. These informal 

awards were not issued pursuant to a Commission-sponsored awards program, 

and we found that the SEC’s internal regulation, Personnel Operating Policies 

and Procedures (POPPS), Employee Recognition Program, dated September 9, 

1991, did not give SEC division or office directors or the SEC’s Executive 

Director authority to approve awards outside Commission-sponsored awards 

program. In addition, we determined that the absence of clear criteria for making 

such awards could lead to the appearance of impropriety on the part of the 

manager making the award and a perception of unfairness or favoritism on the 

part of staff not receiving an award.8

 

During its November 2007 review, OPM also found that employees were 

confused about the availability and eligibility of special act and service awards. 

OPM stated that some SEC divisions or offices made extensive use of all types 

of awards but that other units did not. We identified similar trends during this 

audit. For example, we found that some SEC divisions or offices made frequent 

time-off awards, while others did not. During fiscal years 2008 through 2010, for 

example, the Office of Information Technology made a total of 131 time-off 

awards, while the Office of Financial Management (OFM) made only 13.9

 

As a result of its review, OPM directed10 OHR to educate the SEC workforce 

about relevant parts of the award program and recommended that OHR share 

information about successful awards practices across the Commission. In 

response, OHR stated that it would send out information about a new employee 

suggestion program with instructions by June 1, 2008; post the information about 

the employee suggestion program on the SEC’s intranet, the Insider; and send 

an e-mail to SEC employees by August 1, 2008, to encourage them to read 

about the awards program on the Insider. OHR also stated that between 

November 2007 and the end of fiscal year 2008 it would collect and analyze 

information on awards practices at the SEC and, as appropriate, share 

information on best practices across the Commission. 

 

8 SEC Office of Inspector Investigative Memorandum entitled Employee Recognition Program and Grants of 

Employee Awards, PI 09-07 (Mar. 10, 2010). 9 While there is a disparity between the offices in size, this size difference does not solely account for the 

difference in numbers of time-off awards. 10 This was referred to by OPM as a required action.
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 6 

The SEC issued a formal policy for its employee suggestion program in March 

2008, but OHR was unable to provide us with any documentation to show that it 

had sent an e-mail to SEC employees by August 1, 2008, to encourage them to 

read about the awards program on the Insider. Additionally, OHR was unable to 

provide us with documentation to show that it collected and analyzed information 

on award practices or shared information on best practices throughout the SEC. 

OPM also examined whether awards and recognition were “processed according 

to law and OPM and agency regulations and procedures.” OPM found that OHR 

only partially met this standard. OPM found that the SEC had not evaluated its 

awards program to determine compliance with OPM and agency regulations and 

policies. In addition, OPM noted that it identified documentation issues, such as 

missing signatures, reviewer titles, and dates, during its review of a sample of

individual and group special-service or act awards. OPM also found significant 

lags between the actual dates of special acts or services and the award dates. 

We found that similar issues persist. As discussed in more detail in Finding 4,

OHR was not able to timely produce documentation to support various awards. 

We also found significant gaps between special act dates and award dates and 

that multiple awards were made to the same individuals at the end of the fiscal 

year. We believe that these lags and multiple year-end awards to individuals 

occurred in many cases because managers did not receive their award 

allocations until late in the fiscal year due in part to continuing resolutions. 

As a result of its findings related to OHR’s processing of awards, OPM directed 

OHR to conduct an evaluation of its awards program to determine the program’s 

efficiency, effectiveness, and compliance with merit system principles, and OPM 

recommended that OHR streamline the approval process for awards so that 

awards could be issued closer to the time of the act or service being rewarded. 

OHR stated in its response to OPM that it would evaluate the SEC awards 

program in accordance with 5 Code of Federal Regulations (CFR) 451.106(d) 

after the end of each fiscal year.11 OHR also stated that it would seek 

authorization to increase the award approval limits for Office Heads and Division 

Directors from $1,499 to $2,500 to streamline the process for larger awards and 

that it would continue to distribute initial award allocations during the first quarter 

of each fiscal year. 

Although we found that OHR had increased award approval limits for Office 

Heads and Division Directors to $2,500, we also found that significant gaps 

between special-act dates and award dates persist because award allocations 

are being provided in the third quarter of the fiscal year. Additionally, OHR was 

unable to provide documentation to show that annual award reviews were being 

conducted to address the documentation issues OPM cited during its review. 

OHR informed us that it does conduct a review of award data that is submitted to 

 

11 5 CFR 451.106(d) states the following: “Agencies shall evaluate their award program(s).”
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 7 

the Union at the end of each fiscal year and holds informal discussions among 

OHR management to identify trends and potential issues related to the awards 

program. 

OHR provided OPM a response on July 1, 2008, to address the completion of 

select recommendations in OPM’s March 2008 report, but the completed actions 

were not related to the SEC awards program. OHR informed us that turnover 

and reassignments of OHR staff had a negative effect on OHR’s ability to fully 

address OPM’s recommendations. We believe that the absence of a designated 

group in OHR with primary responsibility for the ERP has led to OHR’s inability to 

fully achieve the OPM-specified outcome of creating a reward environment at the 

SEC beyond compensation and benefits that contributes to attracting, retaining, 

and motivating SEC employees. For example, we found that different groups

within OHR are responsible for budget formulation and awards processing. We 

also found that responsibility for oversight of the ERP was handled by OHR’s 

Employee and Labor Relations Branch at one time and was then transferred to 

the Center for Talent Management and Employee Programs because of staff 

retirements and reassignments. 

Without an effective internal review process, education of SEC supervisors and 

managers concerning the ERP, and adequate staff resources dedicated to 

developing and overseeing the ERP, the issues found by OPM and our audit may 

persist, weakening the effectiveness of the ERP and its ability to achieve 

intended outcomes.

Recommendation 1: 

The Office of Human Resources should implement an internal review 

process to review a select number or percentage of awards annually to 

ensure that appropriate documentation exists for the awards and needed 

information is readily available to support the awards. 

Management Comments. OHR concurred with this recommendation. 

See Appendix V for management’s full comments.

OIG Analysis. We are pleased that OHR concurred with this 

recommendation.

Recommendation 2:

The Office of Human Resources should at least annually provide 

information to SEC supervisors on relevant parts of the SEC award 

program, including (1) types of awards available and procedures for 

nominating employees for awards, (2) appropriate types of division- and 

office-level awards for peer recognition, and (3) successful award 

practices. 
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 8 

Management Comments. OHR concurred with this recommendation. 

See Appendix V for management’s full comments.

OIG Analysis. We are pleased that OHR concurred with this 

recommendation. 

Recommendation 3:

The Office of Human Resources should dedicate specific resources to 

develop and oversee the Employee Recognition Program.

Management Comments. OHR concurred with this recommendation. 

See Appendix V for management’s full comments.

OIG Analysis. We are pleased that OHR concurred with this 

recommendation.

Finding 2: OHR’s Policy for Its Award Program Is 

Outdated and Not Readily Accessible 

OHR does not have updated comprehensive policies and 

procedures available to its supervisors and employees 

regarding SEC awards and recruitment, relocation, and 

retention incentives. Additionally, OHR has not provided 

supervisors and employees with formal training in this area. 

ERP

OHR’s policies and procedures for its awards program are located in the POPPS 

Manual, chapter 451.A, “Employee Recognition Program,” but much of this 

guidance is outdated and not available electronically on the SEC intranet. This 

chapter was last updated in February 1993 and contains information that is no 

longer relevant. For example, it refers to guidance applicable to General 

Schedule and Senior Executive Service employees rather than to SK and SO 

employees. The guidance also contains information on quality step increases 

and suggestions awards, which are no longer available award options. Further, 

the guidance does not reflect the SEC’s current practices for determining 

bonuses for SOs. 

In connection with the preliminary inquiry noted earlier, we recommended that 

the SEC develop more detailed guidance for nonmonetary awards.12 The 

preliminary inquiry found that the POPPS Manual did not specifically address 

 

12 SEC Office of Inspector General Investigative Memorandum entitled Employee Recognition Program and 

Grants of Employee Awards, PI 09-07 (Mar. 10, 2010).
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 9 

whether informal nonmonetary awards in addition to traditional ERP 

nonmonetary awards were authorized and did not address what criteria, 

standards, and approvals were pertinent to such awards. The POPPS Manual 

also did not make clear that appropriated funds could not be used to pay for 

employee parking as an award. 

Further, with OHR’s recent implementation of the new performance-based rating 

system, we determined that OHR should issue guidance to supervisors on 

acceptable approaches for calculating performance awards that reflect 

meaningful distinctions based on the level of performance to ensure that 

employees with higher ratings of record receive larger cash awards.

OHR has recently dedicated resources, including hiring a contractor, to draft new 

policies and procedures for the SEC’s ERP. By memorandum dated March 29, 

2011, the Associate Executive Director of OHR notified the SEC Chairman that 

OHR is reviewing the ERP to identify and implement changes that will enable 

managers to effectively reward employees in a timely manner and in accordance 

with regulation. The Associate Executive Director of OHR further stated that the 

changes will be informed by the findings and recommendations of this audit, 

results from the SEC’s compensation study being conducted by Towers, Watson, 

and Co.,13 and collaboration with OFM regarding funding cycles for awards. 

OHR’s target date for having final policies and procedures in place is before the 

end of fiscal year 2011. However, we found that in the recent past, OHR has not 

met target dates for developing new policies and procedures. For example, we 

found that in response to Recommendation No. 1 in our March 2010 investigative 

memorandum,

14 which recommended that OHR revise its internal award policies, 

including the pertinent sections of the POPPS Manual, OHR stated that it would 

bring the entire policy up to date by September 10, 2010. OHR did not meet this 

target date, however, and the policy has not been completed to date. 

We conducted searches of the Insider to identify information available 

electronically to supervisors and employees on the ERP and awards, and we 

found that minimal information existed and that the information available was 

difficult to locate. Our review found that the only information available as of 

March 2011 was a link under OHR Employee Relations to “Special Act and TimeOff Awards.” The link is to SEC Form 48, Award Recommendation and 

Approval, which supervisors can use to nominate their employees for special act, 

suggestion, time-off, or on-the-spot awards. The form also contains an 

attachment consisting of a table with a brief description of the various types of 

awards and refers supervisors to the POPPS Manual for more information. 

 

13 The purpose of the study is to assess the Commission’s current compensation design. Based on the 

study's findings, the SEC will consider recommendations to ensure that the Commission’s compensation 

design is fair and transparent and enables the SEC to recruit and retain the staff necessary for the SEC to 

achieve its mission. Towers Watson was expected to complete its report by the end of June 2011. 14 SEC Office of Inspector General Investigative Memorandum entitled Employee Recognition Program and 

Grants of Employee Awards, PI 09-07 (Mar. 10, 2010).
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 10

However, the POPPS Manual is not available electronically on the Insider. We 

also noted that although SEC Form 48 was last updated in August 2009, it is 

outdated because it refers to a suggestion award that is no longer available at 

the SEC, as discussed in Finding 6.

3R Incentives

SEC policies and procedures related to 3R incentives are set forth in three 

POPPS Manual chapters: 575.A, “Recruitment Bonuses,” dated July 20, 1993, 

chapter 575.B, “Relocation Bonuses,” dated July 20, 1993, and chapter 575.C, 

“Retention Allowances,” dated August 27, 1996. These policies and procedures 

are outdated, however. For example, the POPPS policies pertaining to 

incentives make references to GS and SES employees rather than SK and SO 

employees. In some areas, the policies do not reflect recent regulatory changes 

related to 3R incentives.15 For example, retention bonuses, as of 2007, may be 

approved for employees for whom the SEC has a special need during a period 

before the closure or relocation of the employee’s office, facility, activity, or 

organization, if the employee would likely leave the SEC for a different position in 

the federal service in the absence of a retention incentive. This authority is in 

addition to the authority permitting retention bonuses for employees who are 

likely to leave the SEC for a position outside the federal government. However, 

OHR’s current policy does not mention this expanded authority for retention 

bonuses and its application within the Commission. During the course of this 

audit, OHR acknowledged the need to revise its policies and procedures and 

stated that it had begun drafting changes to existing policies. 

Formal Training

In addition to reviewing internal policies and procedures, we sought information 

from OHR pertaining to formal training provided to supervisors and employees on 

methods for rewarding employees and the various incentives that are available. 

OHR said that to the best of its knowledge, there was no specific training 

provided on awards and incentives during fiscal years 2008 through 2010, but 

believed that these areas were touched on during performance management 

training. 

Unless OHR ensures that its policies and procedures related to awards and 

incentives are up to date and readily available to all employees, and that 

supervisors receive adequate training on those policies and procedures, the 

Commission’s use of awards and incentives is unlikely to be as effective as 

possible in achieving the intended goals of its awards and incentives programs. 

For example, lack of up-to-date information in the POPPS manual might result in 

managers’ unawareness of their ability to offer retention bonuses to some 

 

15 Regulations related to 3R incentives are in CFR Title 5: Administrative Personnel, Part 575—

Recruitment, Relocation, and Retention Incentives; Supervisory Differentials; and Extended Assignment 

Incentives. 
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 11

employees. Additionally, uneven application of policies and procedures that may 

occur because of the lack of up-to-date information could lead to employee 

perceptions of unfairness. 

Recommendation 4:

The Office of Human Resources should finalize its policies and 

procedures for the Employee Recognition Program within three months 

and publish them on the SEC’s Insider. The policies and procedures 

should include information on current practices for determining bonuses 

for Senior Officers, policies for determining performance-based awards for 

SK employees, and acceptable methods of providing informal 

nonmonetary awards in addition to traditional nonmonetary awards.

Management Comments. OHR concurred with this recommendation. 

See Appendix V for management’s full comments. 

OIG Analysis. We are pleased that OHR concurred with this 

recommendation.

Recommendation 5: 

The Office of Human Resources should review and update its existing 

policies and procedures on recruitment, relocation, and retention 

incentives. The update should ensure that the new policies and 

procedures reflect appropriate references to SK and SO employees and 

include expanded authority for retention bonuses.16 

Management Comments. OHR concurred with this recommendation. 

See Appendix V for management’s full comments. 

OIG Analysis. We are pleased that OHR concurred with this 

recommendation.

Recommendation 6: 

The Office of Human Resources should provide formal training on its 

revised policies and procedures and issue information notices to 

supervisors and employees as needed to reflect changes in practices and 

policies. 

 

16 We note that in order to implement this recommendation, OHR will need to determine whether updated 

policies and procedures will include expanded authority for retention bonuses contained in CFR Title 5: 

Administrative Personnel, Part 575- Recruitment, Relocation, and Retention Incentives; Supervisory 

Differentials; and Extended Assignment Incentives, in light of its pay setting authority provided for in Pub. L.

No. 107-123, Investor and Capital Markets Fee Relief Act, January 16, 2002.
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 12

Management Comments. OHR concurred with this recommendation. 

See Appendix V for management’s full comments. 

OIG Analysis. We are pleased that OHR concurred with this 

recommendation.

Finding 3: OHR’s Budgeting Processes for 

Awards and Incentives Are Ineffective 

The budgeting processes and procedures that the SEC 

currently uses for awards and incentives for SK employees 

are flawed and ineffective. 

The SEC’s overall award budget for SK staff and average award per person are 

nominal.17 Additionally, SEC offices and divisions often are not notified of their 

award budgets until late in the fiscal year, which has resulted in awards being 

made significantly after the rewarded action occurred. Further, during the period 

covered by our audit, supervisors were able to use their award budgets only for 

special act awards, virtually eliminating their ability to reward employees for 

outstanding performance in the course of their normal job duties and contrary to 

one of the primary purposes of the ERP. We also found inconsistencies among 

offices and divisions with respect to their adherence to the terms of the budget 

allocation memoranda issued to divisions and offices, including instances in 

which offices exceeded their award budgets or provided awards in advance of 

receiving their award budgets. Further, we determined that payment of awards 

at the end of the fiscal year presents various accounting issues, including payroll 

errors. Lastly, we found that although Office Heads and Division Directors are 

ultimately notified of their awards budget, they are not notified of funds available 

for 3R incentives. 

SK Awards

To examine the activities associated with the SEC’s budget for awards and 

incentives, we obtained information from OHR and OFM related to budget 

formulation, allocations, and expenditures for SK awards for fiscal years 2008 

through 2010. We also obtained information from the Office of the Executive 

Director related to work conducted by the Boston Consulting Group (BCG), which 

conducted a study that, among other things, compared the SEC’s award budget 

to the award budgets of other governmental and nongovernmental entities.18 

 

17 This does not take into consideration the monetary value associated with time-off awards. During FY08-

FY10, the SEC made 3,601 time-off awards totaling 49,181 hours. 18 The Boston Consulting Group, U.S. Securities and Exchange Commission Organizational Study and 

Reform, March 10, 2011.
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 13

The SEC’s overall award budget for SK staff and average award per person are 

nominal. Based on data OHR provided, we found that the average award per 

person for fiscal years 2008, 2009, and 2010 amounted to $925, $930, and $951, 

respectively.19 According to BCG’s March 10, 2011, report to Congress, 

because the percentage of compensation the SEC has allocated to the merit pay 

pool is just 1.5 percent20 and merit pay has not been linked to the SEC’s 

performance management system,21 the SEC struggles to differentiate high 

performers through merit compensation. BCG also acknowledged that the SEC 

can reward performance through one-time monetary awards, but remarked that 

the SEC award budget is minimal, representing approximately 0.5 percent of the 

Commission’s overall compensation budget, or about $2 to $3 million. BCG 

stated that “the median government award budget is just over six percent and 

goes as high as 12 percent.” BCG concluded that the SEC would need to raise 

its award budget to at least 3 percent of total compensation, or $15 to $20 

million, to align the budget with public sector benchmarks.22 

 

We also found that SEC offices and divisions often are not notified of the amount 

of their award budgets until late in the fiscal year. As noted earlier, this late 

notification has resulted in lags between actions rewarded and the awards 

themselves. For fiscal years 2008 through 2010, OHR and the Office of the 

Executive Director (OED) determined offices’ and divisions’ budget allocations for 

SK monetary awards. In general, the process consisted of gathering payroll 

information regarding executive staff23 and the SK staff count for each office and 

division and the aggregate basic pay for SK employees at headquarters and the 

regional offices. This information was then used to derive the aggregate SK pay 

for each division and office as a percentage of the total SK pay for the 

Commission. Using this percentage and the total award pool (minus the amount 

set aside for SK employees who are part of the executive staff), an award 

allocation was calculated for each office and division. The OED then sent 

memoranda to Office Heads and Division Directors notifying them of their award 

allocations and requesting that they nominate employees for awards. For fiscal 

years 2008, 2009, and 2010, the allocations totaled approximately $3.3 million, 

$3.3 million and $3.6 million, respectively. 

 

19 For 2008 and 2009, OHR calculated this amount by dividing total SK award expenditures by the 

aggregate SK staff count on board during these fiscal years. For 2010, OHR calculated the amount by 

dividing the total funds allocated for fiscal year 2010 awards by the aggregate SK staff count on board 

during this fiscal year. 20 Increase to base pay for all employees rated acceptable. 21 The same percentage was provided for all employees rated acceptable with no differentiation based on 

performance. 

22 BCG noted, however, that with regard to funding predictability and funding levels, despite material 

increases in responsibility for the SEC under the Dodd-Frank Wall Street Reform and Consumer Protection 

Act (Dodd-Frank Act), that the SEC’s resources have not grown in proportion and in contrast, other 

regulators have increased resourcing to respond to the crisis or to changing regulatory environments. For 

example, BCG stated that the FDIC doubled its funding to $2.3 billion in 2009. BCG also acknowledged that 

other federal regulators are self-funded and have more funding flexibility. 23 Includes SK pay level staff in the Office of Executive Staff, direct reports to the Chairman, Commissioners’ 

Offices and Office of Legislative and Intergovernmental Affairs.
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 14

The SEC’s award budget allocation process is not completed until after the 

Commission’s annual appropriation has been approved, which may be several 

months into the fiscal year.24 Additionally, the calculation of budget allocations 

and issuance of related memoranda takes several weeks to complete after the 

Commission’s appropriations are approved. In fiscal years 2009 and 2010, the 

OED sent out allocation memoranda to Office Heads and Division Directors on 

August 11, 2009, and July 1, 2010, respectively. In both years, award 

nominations had to be made by early to mid-September, with the actual awards 

anticipated to be processed by the end of the fiscal year. Because the 

allocations were not determined until the fourth quarter of the fiscal year, we 

found instances where there appeared to be significant time lags between the 

actions being rewarded and the actual award. 

Moreover, we found that during the period covered by our audit, supervisors 

were able to utilize their award budgets only for special act awards, virtually 

eliminating their ability to provide monetary awards to employees for superior or 

meritorious performance within their job responsibilities. For the fiscal year 2008 

and fiscal year 2009 performance periods, all SK employees who received a 

performance rating of “acceptable” received the same merit increase (adjustment 

to salary), based on an agreement the Commission entered into with the Union. 

If the merit increase would have caused an employee’s salary to exceed the 

maximum for the grade, the employee received the excess amount as a lump 

sum payment. One-time awards linked to an individual’s performance rating 

(performance awards) were not permitted. Therefore, the only mechanism to 

distinguish performance and reward SK employees during the period covered by 

our audit was through special act or service awards and time-off or on-the-spot 

awards. Consequently, while one of the purposes of the ERP is to reward 

employees for performance throughout the rating period, the SEC does not 

currently have in place a mechanism to do so. 

We also found inconsistencies among offices’ and divisions’ adherence to the 

terms of the award allocation memoranda. Some offices exceeded their total 

award budgets, and others provided awards in advance of receiving their award 

budgets. We found, for example, that by the time OFM received its fiscal year 

2010 allocation memorandum, which specified an award allocation of $43,500, 

OFM had already used $28,100, more than half of the allocated amount, for 

awards. Although OFM sought and received approval from OHR before it made 

the awards, other offices and divisions were not informed that seeking and 

obtaining advance approval was an option available to them. We also found that 

the Office of Administrative Services and the Office of Investor Education and 

Advocacy had each made awards totaling approximately $7,000 in fiscal year 

2010 before they received their allocation memoranda. In addition, according to 

data that OHR provided, several offices exceeded their total award allocations. 

For example, based on information provided by OHR, the OED exceeded its 

 

24 We acknowledge that there have been instances where the SEC has not received its appropriation until 

several months into the fiscal year as a result of multiple continuing resolutions. 
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 15

fiscal year 2008 allocation of $5,014 by $10,986, approximately 319 percent and 

its fiscal year 2009 allocation of $7,200 by $4,400, or approximately 161 percent, 

and the Office of Public Affairs exceeded its fiscal year 2008 allocation of $6,959 

by $10,001, or approximately 244 percent, and its fiscal year 2009 allocation of 

$6,900 by $18,000, or approximately 361 percent.

Further, we determined that payment of awards at the end of the fiscal year 

presented various accounting issues. Based on our review of information 

provided by OFM, we found that the SEC’s entire awards budget is initially held 

in OHR. For fiscal year 2010, OFM transferred award funds from OHR to the 

various SEC offices and divisions after OED had notified them by memorandum 

of the amount they had been allocated for awards. OFM made these transfers to 

(1) allow offices and divisions to see their allocation in their budget reports and 

(2) prevent payroll errors by having the funding already in offices’ and divisions’ 

budgets. During the fiscal year 2010 end-of-year closeout process, however, 

OFM learned that the majority of awards would not be fully processed before the 

end of the fiscal year. As a result, most of the award allocations (less any 

awards already paid out) were transferred back to OHR to be obligated under a 

single miscellaneous obligating document.25 Because of the payment of awards 

at the end of the fiscal year and resulting actions deemed necessary by OFM for 

the-end of-year close-out process, we found that payroll errors related to a lack 

of funding availability in specific budget object codes for some divisions and 

offices occurred despite OFM’s effort to eliminate such errors by initially 

transferring award funds to offices and divisions. As a result, extra time had to 

be spent to resolve the errors and process the awards. A recent OIG report on 

the SEC’s budget execution process found that budgetary controls were changed 

in the SEC’s Momentum accounting system to facilitate obligation of payroll 

charges (including awards) for fiscal year 2009 that were received in the first 

quarter of fiscal year 2010, which could lead to an Anti-Deficiency Act violation.26 

3R Incentives

We found that while there is a specific amount set aside for recruitment bonuses, 

relocation and retention money comes from a different, more general funding 

source within the SEC. For fiscal year 2010, approximately $126,000 was 

budgeted for recruitment bonuses.

We found that unlike awards, office and division heads are not notified of the 

amount of funds available for recruitment, relocation, and retention incentives. 

As a result, managers might not offer retention incentives, for example, because 

they are uncertain about the availability of funds for them. 

 

25 Three offices’ award money remained in their budgets because, according to OFM, transferring their 

allocations back to OHR would have resulted in errors. 

26SEC Office of Inspector General Audit Report entitled Audit of the SEC Budget Execution Cycle, Report 

No. 488 (Mar. 29, 2011).
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 16

The relatively small size of the award budget coupled with the fact that no awards 

are currently available for exceptional performance of job duties beyond the 

across-the-board increase negotiated with the Union and unavailability of awards 

funds information until late in the year (and no information on incentive awards) 

significantly limits the effectiveness of awards and incentives on attracting, 

retaining, and motivating individuals with needed talent. In addition, the payment 

of awards at the end of the fiscal year results in the potential for payroll errors, 

including possible Anti-Deficiency Act violations. 

Recommendation 7:

The Office of Human Resources (OHR), in conjunction with 

the Office of Financial Management (OFM), should take the 

following actions: 27

7a. Develop alternatives for reviewing the SEC award 

budget so that it is competitive with other federal 

agencies’ award budgets.

7b. Develop and implement a mechanism to reward 

employees for superior or meritorious performance within 

their job responsibilities through lump-sum performance 

awards. 

7c. Determine ways to reduce the time required for 

formulation of budget allocations, including, for example, 

moving responsibility for formulating award budget 

allocations to OFM and having the Office of Information 

Technology walk-in development center develop an 

electronic program to pull payroll data directly from the 

Department of the Interior to facilitate more timely 

completion of budget allocations. 

7d. Put in place a process to make initial award allocations in 

the first quarter of each fiscal year, thereby giving offices 

the ability to make awards throughout the year. Base 

initial allocations on historical data and then refine the 

allocations, as needed, when the SEC’s annual budget 

has been approved.28

 

27 In implementing these recommendations for 2011 and 2012, the SEC should adhere to budgetary 

limitations in the Office of Personnel Management’s June 10, 2011, Memorandum for Heads of Executive 

Departments and Agencies, from John Berry, Director, Office of Personnel Management and Jeffrey Zients, 

Deputy Director for Management & Chief Performance Officer, Office of Management and Budget, Subject: 

Guidance on Awards for Fiscal Years 2011 and 2012. In addition, we understand that union negotiations 

may affect the SEC’s ability to fully achieve the intended outcomes of the recommendation.

 

28 We acknowledge that the SEC’s ability to put in place award budget allocations in the first quarter of the 

fiscal year may be impacted by possible future continuing resolutions.
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 17

7e. Allocate award funds directly to SEC divisions and 

offices instead of placing the initial award funds in OHR’s 

budget, and hold office and division heads responsible 

for monitoring use of the funds. 

7f. Re-examine budgeted amounts for recruitment, 

relocation, and retention incentives to ensure that 

sufficient funds are available, and make supervisors 

aware of available funding so that they can effectively 

use incentives to recruit and retain needed talent. 

Management Comments. OHR and OFM concurred with 

this recommendation. See Appendix V for management’s 

full comments.

OIG Analysis. We are pleased that OHR and OFM 

concurred with this recommendation. See Appendix V for 

management’s full comments.

Finding 4: OHR Did Not Maintain Adequate 

Documentation to Support SK Awards Made 

During Fiscal Years 2008 Through 2010 

OHR’s supporting documentation for a large number of the 

monetary awards reviewed for this audit was incomplete. 

We found that documentation was insufficient to show the 

basis for the awards and that required approvals were 

properly obtained. We also found that an award was made 

to an SEC employee who was involved in an examination 

and investigation of Bernard Madoff (Madoff) that failed to 

discover Madoff’s Ponzi scheme. 

Cash Awards

During fiscal years 2008 through 2010, through memoranda issued by OED, 

SEC Office Heads and Division Directors were provided allocations of award 

funds and asked to make nominations for SK monetary special act or service 

awards or on-the-spot awards. The memoranda specified that supervisors were 

required to use SEC Form 48 to document their award nominations and provide 

a narrative justification discussing the tangible or intangible benefits of the act or 

service being rewarded. 
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 18

Awards also required management approval. For fiscal year 2008,

Commissioners, Division Directors, Office Heads, and Regional Directors were 

permitted to approve awards up to $1,500. Awards from $1,500 to $10,000 

needed approval from the Executive Director, and awards above $10,000 

required approval from the Chairman. For fiscal years 2009 and 2010, awards 

up to $2,500 could be approved by Commissioners, Division Directors, Office 

Heads, and Regional Directors; awards from $2,500 to $10,000 needed approval 

from the Executive Director; and awards above $10,000 required approval from 

the Chairman. 

To determine whether OHR was maintaining appropriate documentation for the 

awards it made, we judgmentally selected a sample of 29 of 8,759 available SK 

monetary awards made from fiscal year 2008 through fiscal year 2010. Twentyfive of these awards were individual cash awards and four were group cash 

awards. On January 24, 2011, we asked OHR to provide us with the 

documentation supporting the awards. Specifically, we asked that for each 

award, OHR provide us with an SEC Form 48 showing the type of award, 

appropriate approvals, and a narrative justification to describe the employee’s 

achievements to warrant the award, and an SF 50, Notification of Personnel 

Action, to show the processing of the award. In general, OHR was unable to 

provide complete and timely information to support these awards. As of March 

31, 2011, OHR had provided only SF 50s for the majority of the awards in our 

sample. We determined that a primary reason for OHR’s inability to timely 

provide the requested information was that OHR does not have a centralized 

filing system for these types of documents. During our audit, we found that many 

OHR specialists maintained their own personal files to document the awards they 

process. 

OHR provided complete documentation (SF 50, SEC Form 48, and any related 

justification or approvals) for only eight of the 29 awards for which we requested 

documentation. For 20 of the awards, OHR provided only an SF 50 showing that 

the award was processed. OHR provided no documentation for one of the 

awards. 

Because no SEC Form 48 was provided for 20 of the awards in our sample, all 

20 of those awards lacked documented justifications and documented approvals. 

Two of the 20 awards were large enough—$6,000 and $7,000—that they would 

have required approval from the Executive Director, and two were large 

enough—both were for $15,000—that they would have required approval from 

the Chairman. We also found with respect to one cash award for which an SEC 

Form 48 had been provided, the signature block that should have contained the 

dated signature of the Regional Director (the approving official) had been left 

blank.

We also found errors in the documentation that was provided. For eight awards, 

the documentation indicated that the award was rating-based. The SF 50s for 
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 19

four of these awards were assigned nature of action code 840 (Individual Cash 

Award Rating Based). Under the SEC’s agreement with the Union, however, for 

the fiscal year 2009 performance cycle, employees were permitted to receive 

only an equivalent performance merit increase, and performance-based awards 

were not permitted. Hence, all SF 50s for cash awards should have had a nature 

of action code 849 (Individual Cash Award Non Rating Based). Further, OHR 

could not provide justifications showing the recommending offices’ basis for 

issuing the four awards. Based on discussions with OHR, we believe it is likely 

that the rating-based nature of action code on the four awards resulted from a 

data entry error. However, the SF 50 for one of the four awards showed an 

award amount of $1,472, and the narrative justification stated “per agreement 

dated 10/3/08.” Both the specific amount of the award and the justification 

language suggest that the award may have been part of a settlement agreement 

with the employee rather than a special act award. OHR should research these 

four awards to determine whether they were in fact erroneously coded—that is, 

they were not performance-based—to ensure that none were made in violation of 

the SEC’s agreement with the Union.

The other four awards with documentation indicating that they were rating-based 

were coded as non-rating-based cash awards (special act awards) on the SF 

50s, but the related justifications indicated that the awards related to the 

employees’ normal duties. For example, one special act award stated that the 

examinations led by the employee continued to have an extraordinarily high 

percentage of significant findings ultimately resulting in successful referrals of 

apparent fraudulent activity to the Division of Enforcement or the Financial 

Industry Regulatory Authority. In another case, the award justification stated that 

the employee was a participant in several examinations and investigations that

contributed to the Commission’s goals and mission and had implications inside 

and outside the agency. Although these justifications contained additional details 

regarding the specific examinations and investigations conducted and their 

outcomes, the justifications did not clearly show why the employees’ 

contributions went beyond their normal duties and performance standards. 

Section 4-1 of the POPPS Manual, “Special Act or Service Awards,” states that 

special act or service awards should be used “to recognize non-recurring 

contributions which are beyond the normal duties of employees” (emphasis 

added). 

We also found six instances where multiple awards were made to the same 

employee within days of each other. In some cases, the total amount of the 

multiple awards to a single employee exceeded the $2,500 approval threshold for 

Office Heads and Division Directors. For example, one employee received an 

award on September 12, 2010, for $1,900 and another on September 13, 2010, 

for $785. Another employee received an award on September 12, 2010, for 

$2,100 and another on September 13, 2010, for $2,400. Because the award

documents were submitted separately, however, higher-level approvals were not 

obtained. In the first example, OHR was unable to provide documentation that 
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 20

would enable us to determine whether the awards related to separate acts or 

services. In the second example, the awards related to the same performance 

period, but the justifications cited different work performed to warrant each

award. 

Based on available documentation, we understand that the primary reason why 

multiple awards were made to individuals within days of each other in fiscal years 

2009 and 2010 is that Office Heads and Division Directors did not receive 

notification of award allocations from OHR until late in the fiscal year. Therefore, 

offices provided multiple awards at the end of the fiscal year to cover special acts 

that occurred throughout the fiscal year. We also believe that some of the award 

justifications were performance-based because special act awards were the 

primary tool for recognizing staff who produced high-quality work until the 

agency’s new performance system was fully implemented. As previously noted, 

during fiscal years 2008 and 2009, all employees who received a performance 

rating of “acceptable” received an equivalent percentage merit pay increase. 

Further, we found two awards for which the only documentary support provided

were SF 50s showing award amounts of $6. While these amounts appear to be 

erroneous, OHR was unable to provide any further documentation to support the 

awards. 

Time-Off Awards

We judgmentally selected 10 out of 3,601 time-off awards made from fiscal year 

2008 through fiscal year 2010 for review to determine if there was sufficient 

documentation to support the awards. The awards selected ranged from 8 to 40 

time-off hours. Time-off awards allow supervisors to grant employees time off 

from duty as a means of encouraging and rewarding superior accomplishments 

or other personal efforts. According to the POPPS Manual, Chapter 451.A, 

Employee Recognition Program, Section 5. Time Off Awards, a time-off award is 

appropriate in situations in which an employee makes a unique contribution 

involving a difficult or important assignment; displays special skills or initiative in 

completing an assignment or project before the deadline or in the face of unusual 

obstacles or pressures; uses notable initiative or creativity in making 

improvements in a product, activity, program, or service; or ensures that the 

mission of the organizational unit is accomplished during a difficult period by 

successfully completing additional work or a project assignment while 

maintaining his or her own regular workload. A maximum of 40 hours may be 

granted to a full-time employee for a single contribution. Supervisors nominate 

employees for time-off awards by completing an SEC Form 48 that includes a 

justification describing the employee’s achievement and resulting benefit to the 

SEC. Time-off awards up to a maximum of three workdays can be approved by 

Office Heads and Division Directors. The Executive Director is authorized to 

approve time-off awards in excess of three workdays, up to the maximum 40 

hours for a single contribution. 
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 21

We found that OHR lacked sufficient documentation to support the majority of 

time-off awards in our sample. OHR did not provide any documentation to 

support two of the 10 time-off awards and could only provide SF 50s to support 

six of the time-off awards. In addition, there was no documentation to show why 

the Executive Director had approved two time-off awards that exceeded the 

three-day limit, as required by the POPPS manual. 

Cash Award to Employee Based in Part on 2009 Madoff

Investigation

In August 2009, we completed our investigation of the SEC’s failure to uncover 

Bernard Madoff’s $50 billion Ponzi scheme.29 We found that the examinations 

and investigations of Madoff and/or his firm were generally conducted by 

inexperienced personnel, were not planned adequately, and were too limited in 

scope. We further found that the SEC examiners and investigators failed to 

understand the complexities of Madoff’s trading and the importance of verifying 

his returns with independent third parties. As a result, we recommended in our 

investigative report that the Chairman share with management the portions of the 

investigation that related to performance failures by employees who still worked

at the SEC and that appropriate action, including performance-based action, be 

taken on an employee-by-employee basis. 

We found during our review that one of the key participants in both the 2005 

examination and 2006 investigation of Madoff received a $1,200 cash award in 

April 2010. The narrative justification for the award indicated that it was made, in 

part, to reward the employee’s efforts in 2009 pertaining to a follow-on 

investigation of Madoff. The award nomination was signed by the employee’s 

Branch Chief and Assistant Regional Director on September 14, 2009, just two 

weeks after the August 31, 2009, issuance of the OIG’s final investigative report 

on the Commission’s failure to uncover the Madoff Ponzi scheme. Moreover, 

both the employee being rewarded and the Assistant Regional Director who 

recommended the award were cited in the report for numerous performance 

issues and were subject to potential disciplinary action at the time the award 

recommendation was made.

We did find that SEC postponed payment of the award to the employee until April 

25, 2010, after the SEC’s receipt of a report from Fortney & Scott, LLC,30 which 

concluded that the employee’s actions did not warrant formal disciplinary action. 

However, the Fortney & Scott report did not dispute the serious performance 

issues pertaining to the employee raised in our report, including the fact that the 

 

29 SEC Office of Inspector General Report entitled Investigation of Failure of the SEC to Uncover Bernard 

Madoff’s Ponzi Scheme, Report No. OIG-509 (Aug. 31, 2009). 30 Fortney & Scott, LLC, is a law firm that the SEC hired to serve as an expert to review performance issues 

identified in the OIG’s Madoff report and to advise the Commission concerning any personnel or disciplinary 

responses that might be warranted based on that report. 
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 22

2005 examination of Madoff in which the employee had played a critical role was 

inappropriately focused, conducted without obtaining critical independent data,

closed with unresolved issues remaining, and relied too heavily on the 

representations of Madoff. Further, the Fortney & Scott report recommended 

formal disciplinary action, including removal from service, for the Assistant 

Regional Director who approved the award nomination in question. 

The lack of adequate documentation to support cash and time-off awards and 

approval by division and office heads of awards to employees potentially subject 

to disciplinary action, jeopardizes the integrity of the awards program. 

Recommendation 8:

The Office of Human Resources should develop and train human resources 

specialists on a centralized filing system (manual, electronic, or both) for all 

awards that contains appropriate documentation to support the awards, 

including SF 50 and SEC Form 48 with narrative justification and appropriate 

approvals.

Management Comments. OHR concurred with this recommendation. See 

Appendix V for management’s full comments.

OIG Analysis. We are pleased that OHR concurred with this 

recommendation.

Recommendation 9:

The Office of Human Resources should implement management controls to 

ensure that employees who are subject to disciplinary action are restricted 

from receiving awards related to the performance that resulted in the 

disciplinary action. 

Management Comments. OHR concurred with this recommendation. See 

Appendix V for management’s full comments.

OIG Analysis. We are pleased that OHR concurred with this 

recommendation.

Finding 5: A Cash Award Was Inappropriately 

Made to a Schedule C Political Appointee 

The SEC made a cash award to an SEC Schedule C 

employee in fiscal year 2010 in violation of OPM guidance 
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 23

restricting awards, bonuses, and similar payments for 

political appointees.

In August 2010, OPM issued guidance restricting awards, bonuses, and similar 

payments for political appointees beginning on August 3, 2010, and continuing 

through the end of fiscal year 2011.31 The guidance specifically prohibits

performance and special act awards. For purposes of the guidance, all Schedule 

C employees are political appointees. 

To determine whether any Schedule C employees received monetary awards 

during the aforementioned restricted period, we obtained a current list of 

Schedule C employees from OHR and compared the list with award data 

maintained by OHR. We found that one Schedule C employee received a 

$2,000 cash award effective August 12, 2010. While we sought further 

information from OHR regarding this award during fieldwork, such as the SF 50 

and SEC Form 48 and related justification, OHR initially did not provide the 

requested information. However, OHR recently informed the OIG that it has 

determined the award to be improper and is taking appropriate action to recover 

the funds. 

Recommendation 10: 

The Office of Human Resources should review the August 12, 2010, cash 

award to a Schedule C employee to determine whether it was in violation 

of the Office of Personnel Management guidance and, if so, seek recovery 

of the improper award.

Management Comments. OHR concurred with this recommendation. 

See Appendix V for management’s full comments.

OIG Analysis. We are pleased that OHR concurred with this 

recommendation.

Finding 6: OHR’s Employee Suggestion Program 

Did Not Provide Cash Awards During Fiscal Years

2008 Through 2010 and Was Not Effectively 

Managed

Although OHR had an Employee Suggestion Program in 

place from 2008 to 2011 that included a monetary incentive 

 

31 Memorandum from John Berry, Director, Office of Personnel Management, Guidance on Freeze on 

Discretionary Awards, Bonuses, and Similar Payments for Federal Employees Serving Under Political 

Appointments, CPM 2010-14 (Aug. 3, 2010).
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 24

component, OHR did not make any cash awards under the 

program. Additionally, the program was given little priority 

and was not effectively managed. 

In March 2008, OHR issued a formal directive for its Employee Suggestion 

Program.32 According to the OHR directive, the program was designed to 

motivate employees to submit constructive ideas that contribute to the economy, 

efficiency, or effectiveness of government operations. A suggestion was defined 

as “an idea designed to accomplish a job better, faster, and or/cheaper and 

which results in tangible or intangible benefits to the federal government.” The 

suggestion “may save material or property, promote health, increase safety, and 

improve morale or administrative routine.” Recognition in the form of a cash 

award was to be given to eligible employees whose suggestions were adopted. 

Awards for suggestions that would result in tangible savings or benefits were to 

be based on an estimate of the first-year dollar savings or benefits. The 

Executive Director or the Associate Executive Director for OHR had authority to 

approve awards up to $10,000. 

To submit a suggestion, employees were to complete a suggestion form or 

submit an e-mail or document to OHR with pertinent information about the 

suggestion. OHR, according to its policy, would acknowledge receipt of the 

suggestion within five days by e-mail and forward the suggestion for 

consideration to the office or division that could benefit from the suggestion or 

would be responsible for implementing it. OHR would then notify the employee 

who submitted the suggestion regarding the decision made by the office or 

division that considered it. A sole employee in OHR, who was designated as the 

“Suggestion Officer” but had multiple other duties, was primarily responsible for 

carrying out these activities. According to OHR, the employee who filled this role 

retired from the SEC in 2009, and the role and job duties were not reassigned. 

We gathered available information on the Employee Suggestion Program from 

OHR and met with OHR officials who had knowledge of the program to ascertain 

whether any cash awards had been provided to employees through the program. 

Although SEC employees submitted approximately 150 suggestions from fiscal 

year 2008 through March 2010, OHR did not initiate any payment or monetary 

awards to employees whose suggestions were implemented under the program. 

However, OHR provided e-mail documentation to show one case in which the 

office of the employee who made a suggestion provided the employee a $1,000 

cash award and a time-off award. Additionally, we found in our examination of 

an internal spreadsheet that OHR provided to us, which showed the status and 

tracking of suggestions, that another employee had received a time-off award for 

submitting a suggestion to the Employee Suggestion Program, although the 

source of the award was unclear. 

 

32 U.S. Securities and Exchange Commission Human Capital Directive, Employee Suggestion Program, 

dated March 6, 2008, addressed to All Employees from Jeffrey Risinger, Associate Executive Director, 

Office of Human Resources. 
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 25

In our discussions with OHR, we learned that the Employee Suggestion Program 

was given little attention and that at one time a significant backlog of suggestions 

(approximately 50) was assigned to various employee and labor relations 

specialists in the Office of Employee and Labor Relations to be reviewed and 

closed out. Further, we found that the OHR internal spreadsheet for the program 

contained limited current information on what close-out actions had been taken 

by OHR or the office or division to which the suggestion was referred. For 

example, the spreadsheet only contained information regarding pertinent dates, 

the suggestion topic, the individual who submitted the suggestion, and the office 

or division to which the suggestion was referred, and the status column of the 

spreadsheet in many cases was simply marked “closed.”

Further, we learned that after an OHR employee who had worked on the 

program departed in late 2010, the program had become essentially 

nonoperational. We also found that current OHR management was not aware 

that a mailbox advertised on the SEC Insider for employees to use to submit 

suggestions was still operational as of April 2011. After we made further 

inquiries, OHR accessed the electronic suggestions mailbox and found that it 

contained approximately 33 e-mails that had never been reviewed. A few of the 

e-mails actually pertained to fixing the Employee Suggestion Program because 

employees did not get responses from OHR on their submitted suggestions. 

Following recent meetings with OHR and as requested by the OIG, OHR has 

published a notice on the SEC Insider directing staff to the OIG’s suggestion 

program that was established in accordance with the Dodd-Frank Wall Street 

Reform and Consumer Protection Act (Dodd-Frank Act).33 The notice states that 

to avoid any duplication of efforts, OHR has discontinued its previous SEC 

Employee Suggestion Program and that employees should submit their 

suggestions for improvements in SEC programs and operations directly to the 

OIG. The OIG also arranged for OHR to forward the unread e-mails from its 

suggestions mailbox to the OIG for appropriate review and follow-up. 

The Dodd-Frank Act does not give the OIG authority to provide employees cash 

awards for adopted suggestions, although it does provide for non-monetary 

recognition to employees who make suggestions. 34 Without the availability of 

awards for adopted suggestions, SEC employees may have less incentive to 

submit suggestions that could improve the Commission’s efficiency and 

effectiveness.

 

33 The OIG established the Employee Suggestion Program in September 2010 in accordance with Section 

966 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203 (July 21, 

2010). Through this Program, the OIG receives suggestions from employees for improvements in work 

efficiency, effectiveness, and productivity, as well as allegations by employees of waste, abuse, misconduct, 

or mismanagement within the Commission. 

34 Section 966 of the Dodd-Frank Act authorizes the OIG to provide nonmonetary recognition to employees 

who make suggestions that would or do increase the work efficiency, effectiveness, or productivity of the 

Commission, or reduce waste, abuse, misconduct, or mismanagement within the Commission. 
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 26

Recommendation 11: 

The Office of Human Resources should consider ways that, as part of the 

Employee Recognition Program, it may be able to provide awards to 

employees for adopted suggestions submitted to the OIG’s suggestion 

program. 

Management Comments. OHR concurred with this recommendation. 

See Appendix V for management’s full comments.

OIG Analysis. We are pleased that OHR concurred with this 

recommendation. 

Finding 7: OHR Does Not Maintain Adequate 

Documentation for 3R Incentive Awards, and 

Related Service Agreements Do Not Meet OPM 

Requirements

OHR was unable to provide complete documentation to 

support 3R incentive awards that were selected for review. 

In addition, the language in service agreements for 

recruitment and relocation awards does not meet OPM 

requirements. 

Recruitment

To examine whether the SEC maintains sufficient documentation to support 

recruitment bonuses awarded, we selected a judgmental sample of six

recruitment bonuses from a population of 41 recruitment bonuses paid from fiscal 

year 2008 through fiscal year 2010 and reviewed supporting documentation that 

OHR maintains for the bonuses. The dollar values of the sampled recruitment 

bonuses ranged from $4,000 to $56,825.

All six recruitment bonuses in our sample had deficiencies with respect to service 

agreements. In four cases, OHR was unable to provide documentation showing 

that a service agreement had been completed, as required by the POPPS 

Manual, Chapter 575.A, Recruitment Bonuses. Of the two for which OHR was 

able to provide service agreements, one lacked the required signature of an 

agency representative and the other had been only partly completed--OHR had 

not completed the lower portion, which shows the date the employee entered 

duty and the service completion date.
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 27

We also found that the service agreement format utilized by the SEC does not 

fully comply with 5 CFR § 575.110(d), which states that service agreements 

“must include the conditions under which the agency must terminate the service 

agreement (i.e., if an employee is demoted or separated for cause, receives a 

rating of record of less than ‘Fully Successful’ or equivalent, or otherwise fails to 

fulfill the terms of the service agreement) and the conditions under which the 

employee must repay a recruitment incentive under §575.111.” According to 5 

CFR § 575.110(e), the service agreement must also include “the conditions 

under which the agency may terminate the service agreement before the 

employee completes the agreed-upon service period.” Our review of the service 

agreement format currently used by the SEC—SEC Form 2299, Securities and 

Exchange Commission Recruitment Bonus Service Agreement (revised in May 

2003)—found that it does not fully address these requirements. The agreement 

states only that the employee agrees to remain in the SEC’s employment for a 

period of 12 months, beginning on the date of the employee’s appointment, 

unless separated for reasons beyond the employee’s control and which are 

acceptable to the SEC. The agreement also states that the employee agrees to 

repay the recruitment bonus to the Commission on a pro-rata basis if he or she 

does not remain with the SEC for the specified period. 

We further found that a recruitment incentive was paid before the Chairman 

formally approved it. An SF 50 showed that a recruitment bonus of 25 percent of 

basic annual pay in the amount of $56,825 was effective August 3, 2009, but our 

examination of the associated SEC Form 2298, Securities and Exchange 

Commission Recommendation and Approval of Recruitment Bonus, found that 

the bonus had not been approved by the Chairman until 10 days later. Although 

OFM had provided initial approval on July 28, 2009, and the Executive Director 

had provided initial approval on July 30, 2009, the Chairman did not approve the 

bonus until August 13, 2009. According to the POPPS Manual, the SEC is 

precluded from even making an oral offer to pay a recruitment bonus until after 

formal approval is obtained.35 In addition, OHR was unable to provide us with a 

completed Form 2298 showing the required approvals for a 25 percent 

recruitment bonus of $23,070, although available e-mails indicated that OHR had 

sought approval from the Chairman. 

OHR also did not provide us with written justifications for two of the six 

recruitment bonuses that were a part of our sample. The POPPS Manual 

requires that written justifications be based on one or more of the following 

factors, noting that OPM requires consideration of the first five: 

(1) Special qualifications needed for the position and displayed 

by the candidate;

(2) If the position is unique, the success of recent efforts to 

recruit candidates for similar positions;

 

35 POPPS Manual, ch. 575.A, “Recruitment Bonuses,” para. 6, Procedures.
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 28

(3) Recent turnover in similar positions;

(4) Labor market factors that may affect SEC’s ability to recruit 

high quality internal or external candidates for similar 

positions now or in the future;

(5) Practicality of using the superior qualifications appointment 

alone or in combination with a recruitment bonus;

(6) Impacts on morale;

(7) Relative attractiveness of the duty station including cost of 

living, remoteness, and community amenities;

(8) Urgency to fill the position;

(9) Agency affirmative employment goals; and

 (10) Other special or unique needs for the individual’s service.36 

Further, SEC policy requires that each recruitment bonus paid be based on the 

written justification as well as a written determination that, in the absence of such 

a bonus, the SEC would encounter difficulty in filling the position with a highquality candidate. 

We found that one of the sampled justifications did not appear to fully address all 

the required factors in SEC policy. While the written justification provided 

information about the individual’s accomplishments (where the individual had 

worked, what the individual had accomplished) and stated that the individual was 

currently making substantially more than the SEC could offer, it did not attempt to 

address such factors such as the specific qualifications needed for the position, 

labor market factors, etc. The justification also did not state that the SEC had 

determined that in the absence of such a bonus, it would encounter difficulty in 

filling the position with a high-quality candidate. 

Relocation

To examine whether the SEC maintained sufficient documentation to support 

relocation bonuses awarded, we reviewed documentation maintained by OHR to 

support all three relocation bonuses paid during fiscal years 2008 through 2010. 

The relocation bonuses were for $10,000, $44,625, and $15,000.

According to the POPPS Manual, the office recommending the relocation bonus 

must complete SEC Form 2320, Recommendation and Approval of Relocation 

Bonus, and provide a written justification for the bonus that addresses the 

following: 

(1) Special qualifications needed for the position and displayed by the 

candidate;

(2) If the position is not unique, the success of recent efforts to recruit 

high quality candidates for similar positions, including narrative 

 

36 POPPS Manual, ch. 575.A, “Recruitment Bonuses,” para. 2, Policy.
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 29

examples and/or indicators such as offer acceptance rates, the 

proportion of positions filled, and the length of time required to fill 

similar positions;

(3) Recent turnover in similar positions;

(4) Labor market factors that may affect the SEC’s ability to recruit high 

quality internal or external candidates for similar positions now or in 

the future; 

(5) Positive and negative impacts on the morale of current employees; 

(6) Relative attractiveness of the duty station including cost of living, 

remoteness, and community amenities;

(7) Urgency to fill the position;

(8) Agency affirmative employment goals; and

(9) Other special or unique needs for the individual’s service.37 

SEC policy also requires that relocation bonuses up to 10 percent of annual 

basic pay be approved by the Executive Director and that bonuses of 10 percent 

up to the legal maximum of 25 percent of basic pay be approved by the 

Chairman. Additionally, before a relocation bonus may be paid, the employee 

must sign a written service agreement to complete 12 months of employment at 

the Commission in the new location.

We found that OHR did not provide SEC Form 2320 for two of the three 

relocation bonuses we reviewed, although e-mails for the $15,000 relocation 

bonuses show that approval for the bonus had been obtained from the Executive 

Director. Further, we found that the documentation provided by OHR for one of 

the relocation bonuses did not contain a written justification as required by SEC 

policy or SEC Form 2320 showing that the Chairman had approved the bonus, 

although e-mails provided by OHR indicated that the appropriate paperwork had 

been signed by the Chairman. The relocation bonus was for $44,625, 

approximately 25 percent of the employee’s basic pay.

OHR did not provide us with documentation to show that a service agreement 

had been completed for the $10,000 relocation bonus. OHR provided service 

agreements for the $44,625 and $15,000 relocation bonuses, but the form for the 

$15,000 bonus was not signed by an agency representative and OHR had not 

filled in the lower half of the form with the appointment date and service 

agreement completion date.

Retention

To examine whether the SEC maintains sufficient documentation to support 

retention bonuses awarded, we selected a judgmental sample of seven retention 

bonuses from a population of 31 retention bonuses paid during fiscal years 2008 

through 2010 and reviewed the associated supporting documentation that OHR 

 

37 POPPS Manual, ch. 575.B, “Relocation Bonuses.”
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 30

maintains. The retention bonuses in our sample ranged from 2 to 24 percent of 

the employee’s basic annual salary.

According to the POPPS Manual, the office or division recommending the 

retention bonus must complete SEC Form 2321, Request and Justification for 

Action in New or Continuing Retention Allowance, and provide a written 

justification for the bonus that addresses the following:

(1) The adverse impact that the employee’s departure would have 

on the SEC’s ability to carry out an activity or perform a function 

that is essential to its mission;

(2) The degree of success of recent efforts to recruit candidates 

and retain employees with qualifications similar to those 

possessed by the employee for positions similar to the position 

held by the employee; 

(3) The availability of candidates for employment who, with minimal 

training or disruption of service, could perform the full range of 

duties and responsibilities assigned;

(4) Other factors that may affect the SEC’s ability to replace 

employees who possess specialized or critical knowledge, skills, 

and abilities now or in the near future;

(5) Positive and negative impacts on the morale of current 

employees; and 

(6) Other special or unique needs for the individual’s service.

38

SEC policy requires that retention bonuses up to 10 percent of basic annual 

salary be approved by the Executive Director and that bonuses from 10 percent 

up to the maximum 25 percent of basic annual salary be approved by the 

Chairman. Further, SEC policy requires that OHR ensure that allowances are 

reviewed annually and are either recertified (with or without modification of the 

amount) or terminated. SEC Form 2321 is intended to serve as documentation 

to support both newly-approved allowances and recertifications.

For two of the six retention bonuses in our sample, OHR did not provide us with 

the required SEC Form 2321 with approvals, written justification, SF 50, and 

annual recertifications. For four of the six retention bonuses, OHR provided only 

an SF 50 to show that the retention bonus had been processed. For three of the 

six retention bonuses, OHR did not provide us with documentation to show that 

annual retention bonus recertifications had been completed as required by SEC 

policy, even though in each case the retention allowance had been in place at 

least one year.

We also found that approvals by the Chairman for retention bonuses were not 

always documented and that required approval signatures for bonuses were not 

 

38 POPPS Manual, ch. 575.C, “Retention Allowances.”
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 31

always obtained in a timely manner. Two of the retention bonuses in our sample 

were for more than 10 percent of the employee’s basic annual salary and 

therefore required the Chairman’s approval. One of these retention bonuses was 

for 13.13 percent, and the only documentation for the bonus that OHR provided 

to us was an SF 50 that had been signed by the Associate Executive Director for 

OHR. The other retention bonus was for 24.01 percent. For that bonus, SEC 

Form 2321 was completed approximately 15 days after the effective date of the 

retention incentive. The retention incentive was processed on March 14, 2010, 

according to the SF 50 for the action, but the paperwork and required approvals 

from the Executive Director, OHR, and the Chairman were not obtained until 

March 15, 2010, March 29, 2010, and March 17, 2010, respectively. OHR noted 

on the Form 2321 that it had obtained oral approval (although it is not clear from 

whom) to make the retention incentive effective before the required signatures 

had been obtained. 

We believe that OHR’s lack of a centralized filing system contributed to its 

inability to produce complete documentation for the 3R bonuses in our sample. 

As a result, OHR was unable to show that the incentives paid by the SEC were 

justified and approved, as required by OPM and SEC policy, which increases the 

risk that 3R bonuses may be inappropriately awarded. 

Recommendation 12:

The Office of Human Resources should revise the service agreement 

format in SEC Form 2299, Securities and Exchange Commission 

Recruitment Bonus Service Agreement, to incorporate specific reasons 

that the SEC “may” and “must” terminate service agreements for 

recruitment and relocation bonuses.39

Management Comments. OHR concurred with this recommendation. 

See Appendix V for management’s full comments.

OIG Analysis. We are pleased that OHR concurred with this 

recommendation.

Recommendation 13:

The Office of Human Resources should develop and train applicable 

human resources specialists on the use of a centralized filing system for 

all relocation, recruitment, and retention incentives. The centralized filing 

system should contain all appropriate documentation to support the 

 

39 We note that in implementing this recommendation, OHR will need to determine whether updated policies 

and procedures will include required provisions for service agreements in CFR Title 5: Administrative 

Personnel, Part 575- Recruitment, Relocation, and Retention Incentives; Supervisory Differentials; and 

Extended Assignment Incentives, in light of its pay setting authority provided for in Pub. L. No.107-123, 

Investor and Capital Markets Fee Relief Act, January 16, 2002.
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 32

incentives, including the SF 50 and the applicable SEC form with the 

narrative justification for the bonus and the appropriate approvals. 

Management Comments. OHR concurred with this recommendation. 

See Appendix V for management’s full comments.

OIG Analysis. We are pleased that OHR concurred with this 

recommendation.

Finding 8: The SEC’s ERP and 3R Incentives Are 

Not Linked to an SEC Human Capital Plan 

The SEC does not have a human capital plan. Accordingly, 

activities associated with the ERP and 3R incentives are not 

being assessed to determine whether they effectively align 

with the SEC’s overall human capital goals and objectives. 

According to OPM regulation, agency heads or their designees must maintain a 

current human capital plan and provide OPM an annual Human Capital 

Management Report, based on an approved human capital accountability 

system. Using a format established by agreement between the agency and 

OPM, the human capital plan must cover the following:

• Human capital goals and objectives. These are to consist of a 

comprehensive, integrated set of goals and initiatives with detailed policy 

and program priorities and initiatives, as appropriate.

• Workforce analysis. This analysis is to include a description of the current 

state of the agency’s workforce, a projection of human resources needed 

to achieve the agency’s performance goals and objectives during the term 

of its strategic plan, and identification of potential shortfalls and gaps.

• Performance measures and milestones. These are to include, for each 

human capital goal or objective, one or more “human capital metrics” to 

provide a basis for assessing progress and results.40

During discussions with OHR, we found that the SEC has not yet put in place the 

required formal human capital plan. OHR does, however, produce a Human 

Capital Management Report that it provides to OPM each year. We found that 

the 2010 report contained information on the SEC’s achievement of Commissionspecific initiatives such as supplemental health benefits and requirements related 

to financial reform. The report also discussed achievements with respect to 

 

40 5 CFR § 250.203.
Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 33

government-wide initiatives such as telework, hiring reform, health and wellness, 

and domestic partner benefits. In addition, it discussed accomplishments related 

to OPM’s Leadership and Knowledge Management System and Results-Oriented 

Performance Culture System. The report also noted that OHR has established a 

group within OHR to develop a human capital accountability plan and institute 

internal reviews to assess compliance and effectiveness of human capital 

management performance and monitor the progress of various human capital 

initiatives. The Human Capital Management Report, however, is not a substitute 

for a formal human capital plan. In fact, the Human Capital Management Report 

should report progress against meeting the performance measures and 

milestones contained in the human capital plan. 

According to OHR, it has not put in place a formal human capital plan due to a 

lack of resources; however, OHR has recently put in place a contract to obtain 

the needed resources to develop the plan. Because it lacks the required human 

capital plan, the Commission cannot assess whether the ERP and 3R incentives 

effectively align with its overall human capital goals and objectives

Recommendation 14: 

The Office of Human Resources should identify resources and establish a 

timeline to complete the required human capital plan. It should also 

ensure that ERP activities are evaluated at least annually to ensure that 

they align with human capital plan objectives and strategies.

Management Comments. OHR concurred with this recommendation. 

See Appendix V for management’s full comments. 

OIG Analysis. We are pleased that OHR concurred with this 

recommendation.
Appendix I

Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 34

Abbreviations/Acronyms

3R Recruitment, Relocation, and Retention

BCG Boston Consulting Group

CFR Code of Federal Regulations

Dodd-Frank Act Dodd-Frank Wall Street Reform and 

Consumer Protection Act

ERP Employee Recognition Program

OED Office of Executive Director

OFM Office of Financial Management 

OHR Office of Human Resources

OIG Office of Inspector General 

OPM Office of Personnel Management 

POPPS Personnel Operating Policies and Procedures 

SEC or Commission U.S. Securities and Exchange Commission

SO Senior Officer

Union National Treasury Employees Union 
Appendix II

SEC Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492 

Page 35

Scope and Methodology

We conducted this performance audit in accordance with generally accepted 

government auditing standards. Those standards require that we plan and 

perform the audit to obtain sufficient, appropriate evidence to provide a 

reasonable basis for our findings and conclusions based on our audit objectives. 

We determined that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives. 

Scope. We examined activities associated with the SEC’s ERP and 3R 

incentives during fiscal years 2008 through 2010. Our examination included 

assessing whether comprehensive documentation was available to supervisors 

and employees regarding awards and incentives, whether sufficient 

documentation existed to support cash awards and incentives paid, and whether 

recommendations made by OPM in its 2007 review of OHR’s operations related 

to SEC award activities had been adequately addressed. We conducted our 

fieldwork from January 2011 through May 2011.

Methodology. To accomplish our audit objectives we gained familiarity with 

applicable OPM and Commission policies and procedures related to awards and 

incentives. We gathered documentation regarding OPM’s 2007 review of OHR’s 

operations to examine recommendations made with respect to the SEC’s award 

practices and actions taken to address those recommendations. Additionally, we 

selected judgmental samples of awards and incentives and reviewed supporting 

documentation to determine whether the awards were processed in accordance 

with applicable policies and procedures. We also gained an understanding of the 

SEC‘s process for budgeting for awards and incentives to identify areas for 

improvement. Further, we examined OHR’s Employee Suggestion Program and 

related award activities. We also examined whether OHR had linked its ERP and 

incentive activities to a human capital plan. We conducted interviews and 

obtained related documentation from personnel in OHR and OFM. Additionally, 

we contacted another federal financial regulatory agency to obtain a copy of its 

policies and procedures related to awards and incentives and identify best 

practices. Lastly, we obtained information from OED related to work conducted 

by BCG, which conducted a study that, among other things, compared the SEC’s 

award budget to the award budgets of other governmental and nongovernmental 

entities. 

Management Controls. We reviewed management controls as they pertained 

to the audit objectives, such as gaining an understanding of OHR’s policies and 

procedures for awards and incentives and its controls over processing awards 

and incentives. 
Appendix II

SEC Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492 

Page 36

Use of Computer-Processed Data. We used computer-processed data 

provided by OHR that was obtained from the Department of the Interior’s 

National Business Center (payroll system). We also used Excel spreadsheets 

provided by OHR pertaining to award budget allocations, as well as related data 

provided by OFM from the SEC’s Momentum accounting system. We 

determined that the data retrieved from the systems and the requested 

information appeared to be sufficient, reliable, and adequate to meet our stated 

objectives. We did not perform any tests on the general or application controls 

over these audit systems because such testing was beyond the scope of our 

work. 

Judgmental Sampling. We used judgmental sampling for testing of both 

awards and incentives in an effort to ensure adequate coverage in our sample of 

headquarters and regional offices and to ensure that the awards sampled 

covered our audit timeframe of fiscal year 2008 through fiscal year 2010. Our 

judgmental samples contained

• 29 out of 8,759 SK monetary awards; 

• 10 out of 3,601 time-off awards;

• 8 out of 89 SO bonuses (including five individuals who reported directly to 

the Chairman) paid in fiscal year 2010 for the performance period ending 

September 30, 2009;

• 6 out of 41 recruitment bonuses; and 

• 7 out of 31 retention bonuses.41

We did not project the results of the samples to the entire population as we did 

not utilize statistical sampling techniques. 

Prior Audit Coverage. We reviewed a complaint pertaining to nonmonetary 

awards and reported on our findings and recommendations on March 10, 2010.42 

We found that a former Regional Director used funds from the office’s supply 

budget to purchase nonmonetary awards in the form of inscribed glass blocks for 

staff members. We determined that the absence of clear criteria to serve as the 

basis for making such awards could lead to an appearance of impropriety on the 

part of the manager making the award and a perception of unfairness or 

favoritism on the part of other staff. 

 

41 An initial sample was pulled and based on a lack of available documentation from OHR and initial testing 

results, the OIG decided that further testing was not necessary as it would not likely alter the overall testing 

results. 

42 SEC Office of Inspector General Investigative Memorandum entitled Employee Recognition Program and 

Grants of Employee Awards, PI 09-07 (Mar. 10, 2010).
Appendix III

SEC Employee Recognition Program and 3R Incentives August 2, 2011 

Report No. 492

Page 37

Criteria

Code of Federal Regulations, Title 5: Administrative Personnel, Part 451-

Awards. Provides information regarding agencies’ award authority, 

responsibilities, and restrictions. 

Code of Federal Regulations, Title 5: Administrative Personnel, Part 575-

Recruitment, Relocation and Retention Incentives; Supervisory 

Differentials; and Extended Assignment Incentives. Provides information 

regarding requirements for payment of recruitment, relocation, and retention 

incentives. 

Code of Federal Regulations, Title 5: Administrative Personnel, Part 250-

Personnel Management in Agencies. Provides information on requirements 

for agency human capital plans. 

SECM 6-1, Personnel Operating Policies and Procedures, Chapter 451.A, 

Employee Recognition Program, February 10, 1993. Describes the 

Commission’s policies and procedures for recognizing employees of the 

Commission and certain others for their contributions in the form of suggestions, 

superior performance, and special acts or services. 

SECM 6-1, Personnel Operating Policies and Procedures, Chapter 575.A, 

Recruitment Bonuses (July 20, 1993), Chapter 575.B, Relocation Bonuses 

(July 20, 1993), Chapter 575.C, Retention Allowances (August 27, 1996).

Describes requirements for payment of recruitment, relocation, and retention 

incentives. 

Memorandum from John Berry, Director, Office of Personnel Management, 

Guidance on Freeze on Discretionary Awards, Bonuses, and Similar 

Payments for Federal Employees Serving Under Political Appointments, 

CPM 2010-14 (August 3, 2010). Guidance restricting awards, bonuses, and 

similar payments for political appointees.
Appendix IV

SEC Employee Recognition Program and 3R Incentives August 2, 2011

Report No. 492 

Page 38

List of Recommendations

Recommendation 1: 

The Office of Human Resources should implement an internal review process to 

review a select number or percentage of awards annually to ensure that 

appropriate documentation exists for the awards and needed information is 

readily available to support the awards. 

Recommendation 2:

The Office of Human Resources should at least annually provide information to 

SEC supervisors on relevant parts of the SEC award program, including (1) types 

of awards available and procedures for nominating employees for awards, (2) 

appropriate types of division-and office-level awards for peer recognition, and (3) 

successful award practices.

Recommendation 3:

The Office of Human Resources should dedicate specific resources to develop 

and oversee the Employee Recognition Program.

Recommendation 4:

The Office of Human Resources should finalize its policies and procedures for

the Employee Recognition Program within three months and publish them on the 

SEC’s Insider. The policies and procedures should include information on

current practices for determining bonuses for Senior Officers, policies for 

determining performance-based awards for SK employees, and acceptable 

methods of providing informal nonmonetary awards in addition to traditional 

nonmonetary awards.

Recommendation 5: 

The Office of Human Resources should review and update its existing policies 

and procedures on recruitment, relocation, and retention incentives. The update 

should ensure that the new policies and procedures reflect appropriate 

references to SK and SO employees and include expanded authority for 

retention bonuses. 
Appendix IV

SEC Employee Recognition Program and 3R Incentives August 2, 2011

Report No. 492 

Page 39

Recommendation 6: 

The Office of Human Resources should provide formal training on its revised 

policies and procedures and issue information notices to supervisors and 

employees as needed to reflect changes in practices and policies. 

Recommendation 7:

The Office of Human Resources (OHR), in conjunction with the 

Office of Financial Management (OFM), should take the following 

actions:

7a. Develop alternatives for reviewing the SEC award 

budget so that it is competitive with other federal 

agencies’ award budgets.

7b. Develop and implement a mechanism to reward 

employees for superior or meritorious performance within 

their job responsibilities through lump-sum performance 

awards. 

7c. Determine ways to reduce the time required for 

formulation of budget allocations, including, for example, 

moving responsibility for formulating award budget 

allocations to OFM and having the Office of Information 

Technology walk-in development center develop an 

electronic program to pull payroll data directly from the 

Department of the Interior to facilitate more timely 

completion of budget allocations. 

7d. Put in place a process to make initial award allocations in 

the first quarter of each fiscal year, thereby giving offices 

the ability to make awards throughout the year. Base 

initial allocations on historical data and then refine the 

allocations, as needed, when the SEC’s annual budget 

has been approved. 

7e. Allocate award funds directly to SEC divisions and 

offices instead of placing the initial award funds in OHR’s 

budget, and hold office and division heads responsible 

for monitoring use of the funds. 
Appendix IV

7f. Re-examine budgeted amounts for recruitment, 

relocation, and retention incentives to ensure that 

sufficient funds are available, and make supervisors 

aware of available funding so that they can effectively 

use incentives to recruit and retain needed talent. 

Recommendation 8:

The Office of Human Resources should develop and train human resources 

specialists on a centralized filing system (manual, electronic, or both) for all 

awards that contains appropriate documentation to support the awards, including 

SF 50 and SEC Form 48 with narrative justification and appropriate approvals.

Recommendation 9:

The Office of Human Resources should implement management controls to 

ensure that employees who are subject to disciplinary action are restricted from 

receiving awards related to the performance that resulted in the disciplinary 

action. 

Recommendation 10: 

The Office of Human Resources should review the August 12, 2010, cash award 

to a Schedule C employee to determine whether it was in violation of the Office 

of Personnel Management guidance and, if so, seek recovery of the improper 

award.

Recommendation 11: 

SEC Employee Recognition Program and 3R Incentives August 2, 2011

Report No. 492 

Page 40

The Office of Human Resources should consider ways that, as part of the 

Employee Recognition Program, it may be able to provide awards to employees 

for adopted suggestions submitted to the OIG’s suggestion program. 

Recommendation 12:

The Office of Human Resources should revise the service agreement format in 

SEC Form 2299, Securities and Exchange Commission Recruitment Bonus 

Service Agreement, to incorporate specific reasons that the SEC “may” and 

“must” terminate service agreements for recruitment and relocation bonuses. 
Appendix IV

SEC Employee Recognition Program and 3R Incentives August 2, 2011

Report No. 492 

Page 41

Recommendation 13:

The Office of Human Resources should develop and train applicable human 

resources specialists on the use of a centralized filing system for all relocation, 

recruitment, and retention incentives. The centralized filing system should 

contain all appropriate documentation to support the incentives, including the SF 

50 and the applicable SEC form with the narrative justification for the bonus and 

the appropriate approvals. 

Recommendation 14: 

The Office of Human Resources should identify resources and establish a 

timeline to complete the required human capital plan. It should also ensure that 

ERP activities are evaluated at least annually to ensure that they align with 

human capital plan objectives and strategies.
Appendix V 

SEC Employee Recognition Program and 3R Incentives August 2, 2011

Report No. 492 

Page 42

Management’s Comments

TO: H . David Kotz 

Inspector General 

MEMORANDUM 

July 25, 2011 

FROM, ~Cri,,",C.F.m p~ (!.dtf"r 

Acting Associate Executive Director 

Office of Human Resouroes 

KenncthJobru;on 

CbiefFinaneial otB'Ctt ~~ Office of Financial Managemen 

SUBJECT: OHR Management Response to Draft Report No. 492, Audit of SEC's Employee 

Recognition Program and Recruitment, Relocation, and Retention Incentives 

TIlls memorandwn is in response to the Office of Inspector General's Draft Report No. 492, Audit of 

SEC's Employee Recognition Program and Recruitment. Relocation, and Retention Incentives. Thank you 

for the opportunity to review and respond to this report. We concur with the fourteen ~mmcndations 

presented in the report and have begun taking appropriate steps to implement them. 

Recommendation 1: 

OHR coneW'S. OHR will implement an internal review process to regularly audit a sample of processed 

awards foc compliance and to ensure documentation is readily available. 

Recommendation 2: 

OHR concurs. OHR will develop and distribute annual communications to SEC supervisors on the SEC 

Employee Recognition Program and how they can u se it as a tool to increase perfonnance and motivate 

staff. 

Recommendation 3: 

OHR concurs. OHR Employee and Labor Relations has asswned responsibility for the Employee 

Recognition Program and will assign a staff member to manage the program. 

Recommendation 4: 

OHR concurs. OHR has begun drafting a revision to the current Employee Recognition Program policy. 

W e will fInalize it and ensure appropriate distribution _ including the SEC Insider _ and communication 10 

SEC supervisors. 
RecommeDd _tioD 5: 

OIm OHR concurs concun. . The The current current recruitment, recruitment. relocation relocation and and retention retention incentives incentives policies policies will will be be updated., updated, 

including including refcn:nce reference to to the the expansion expansion of of authority authority for for retention retention bonuses. bonuses. 

R«omme RecommelldatJOD Dcbd oD 6: 6: 

OHR OHR concurs. coocW"S. OHR OHR will will identify identify and and deploy deploy appropriate appropriate communication communication and and training training solut solutions ions to to ensure ensw-e 

that that supervisors rupcrvisors and and employees employees und~ und~ any any changes changes and and appropriate appropriate uses uses for for the these se motivation motivation too toolls. s. 

RccommcDdatioD 7.: 

OHR OHR and and OFM OFM concur. concur. OHR, OHR, in in collaboration collaboration with with ththe e Office Office of of Financial Financial Management, Managemcnt, will will review review 

opportunities opportunities to to bcnehmaric benc.btnarlr.: the the SEC SEC awards awards budget budget with with that that of of other other FIRREA FIRREA agencies. agcnciea. lbis lbis 

benchmarking benchmarking will will include inc.lude the the substantial substantial value value of oftim&-off timo-off awards awards as as appropriate. appropriate. As As yoyou u have have DOted, noted, 

we, we, like: like other other federal Cedcra1ageocies, agencies, face specific specific bbudgetuy udgetary limitati IimitatiollB ons for awards awards in in FY FY 2011 2011 and and 2012 2012 per per 

the the Office: Office of ofPcrsonncl Pcnonnci Management Managcmc:nt memo dated Iune June 10, 10, 2011. 201 I. 

R~mme Recommend.doD cbtioD 7b: 7b: 

OHR and and OFM concur concur. . SECs SEC. negotiated agreement with NTEU l'ITEU currently CUrTe:l!.tiy allows allow. for merit pay pay increases increases 

based on OD performance performance. . The The recent recent implementation implementation of a a five-level performance performance: management management system system and 

cum:nt current compensation study wwill ill contribute contribute to to efforts efforts to move move to to a a pay-for-performance: pay.for-pcrl"ol1T'WlCc mode model l in in the the 

future futwe to reward employees employees babased sed on meaningful meaningful distinctions distinctiollB in in pc:rfonnance:. performance. Any ncar-term ncar-tCJm award 

sosolutions lutioos would be be limited limlted to the parameters parameters in in the the aforementioned aforementioned OPM OPM guidance guidance: memo. memo. 

Rec:ommelldadoa 7c:.: 

OHR OHR and OFM OFM concur. concur. OHR has bas defined a mcthodoloiY methodololY for for determining determining appropriate award award aUocations allocations 

bby y office or division division was was used this fiscal fiscal }'eIU', year, which has reduced reduced the timtime e required required once onc.e the the operating 

budget budget was approved. ORR OHR will will cocollaborate llaborate with OFM to to determine dete:nnine appropriate roles roles and responsibilities 

for future aUocations. allocations. 

Reco RecommeDdation mmend_don 7d: 

OHR and and OFM concur. We recognize ththe value in rewarding employees for their contributions as soon as as 

possible poasiblc follllowing the event. We will establish a process process to allocate awards budgets budgets as soo 900n n as as possible 

after the enactment of the SEC's SEC's regular appropriation, to the extent permitted pennitted by available funds. Durin During g 

a continuing resolution in the the ear early ly months of a a fiscal year, year, it iis s possible that the agency may not be be aable ble 

to to afford affOJ"d to distribute distribute awards budgets. In the event of. or. contin continuing uing resolution, resolution,. OHR and and OFM OFM will 

nonsuit consult with the COO COO, , and Chairman as needed, needed, to to ~ke rf!Ue an an informed informed decision regarding the awards awards 

budget, budget. as a part of of overal overall l budget budget deliberations. delibenl.tions. 

RecOll RccommcodatJon llneod _tioD 7e: 7e: 

OHR OHR and OFM OFM concur concur. . 'Ibis lbis fiscal year, year, OHR OHR and OFM worked together to to allocate award award funding 

directly directly to to the the offices and and divisions divisions and Ilnd distributed distributed memo memos s to intemal internal cust customers omen to to infonn infonn them of or the the 

Appendix V 

SEC Employee Recognition Program and 3R Incentives August 2, 2011

Report No. 492 

Page 43
Appendix V 

SEC Employee Recognition Program and 3R Incentives August 2, 2011

Report No. 492 

Page 44

change in the funding allocation process and emphasize their responsibility for managing within their 

award budget. 

Recommend.tioa 7f: 

OHR and OFM concur. In coUaboration with OFM, OHR will review the execution ofprioryeanJ' 

recruitment, relocation, and retention incentives and develop and communicate strategies to ensure that, 

within the funds available. the appropriate budget levels are used to effectively attract and retain highly 

skilled employees. 

Re£ODlDlead. tioD 8: 

OHR concurs. A centnilized filing system will be established to increase efficiency and suppon future 

documentation reviews. Roles and responsibilities of human resource specialists will be defUled and 

communicated through appropriate meaDS. 

R eeommeodatioD 9: 

OHR. concurs. As part of a process that was established and implemented in May 2011 to suPPort this 

year's award allocation, award nomination forms received through a centralized email box are forwarded 

to Employee and Labor Relations, who detemllnes whether the employee has any related disciplinary 

action pendiDg or taken. This technical review is completed prior to processing of the award. 

Recommead.tioD 10 : 

OHR concurs. The subject cash award was reviewed and found to have hoen CITOneously processed after 

the date on which the President restricted such awards. The employee and ber manager were notified of 

the error and the personnel action was cancelled. Based on the cancellation, debt recovery has been 

initiated by the Department of the Interior (DOl) National Business Center, SEC's payroll services 

provider. 

Recommend . tioB 11: 

OHR. CORCUn. OHR will propose possible approaches to reward employees for their contributions to the 

continuous improvement of the agency and encourage participation in the OIG Employee Suggestion 

Pro""",. 

Recommend. tioo 12: 

OKR concurs. The service agreement will be revised in conjunction with the effort to revise the existing 

recruitment incentive policy. 

Recommcndation13: 

OHR concurs. A centralized filing system will be established to increase efficiency and support future 

documentation reviews. Roles and responsibilities ofhwnan resource specialists will be defined and 

communicated through appropriate meanS. 
Appendix V 

SEC Employee Recognition Program and 3R Incentives August 2, 2011

Report No. 492 

Page 45

Re<:ommeodatioo ]4: 

OHR concurs. The Program Management Office (PMO) within the Office o f the Chief Operating Officer 

(OCOO) has contracted with Booz AUen Hamilton to support the implementation of reconunendations 

from the Boston Consulting Group (BCG) organizational study. As part of the .worlcstreams related to 

human capital, the contractor team will assist OHR in the development of a human capital plan. Further, 

an evaluation schedule will be established to assess Employee Recognition Program results for 

compliance and alignment with human capital objectives and strategies. 
Appendix VI

SEC Employee Recognition Program and 3R Incentives August 2, 2011

Report No. 492 

Page 46

OIG Response to Management’s Comments

OHR concurred with all 14 recommendations addressed to its office and 

indicated that it would take action to implement all of the recommendations. In 

addition, OFM agreed with the one recommendation jointly addressed to its office

and OHR. 

We believe that OHR and OFM’s proposed actions are responsive to our findings 

and are pleased that they have already initiated actions to implement some of the 

report’s recommendations. Once all of the recommendations are fully 

implemented, we believe that the improvements will help strengthen oversight of 

the SEC’s employee recognition program and recruitment, relocation, and 

retention incentives. 
Audit Requests and Ideas

The Office of Inspector General welcomes your input. If you would like to 

request an audit in the future or have an audit idea, please contact us at

U.S. Securities and Exchange Commission

Office of Inspector General

Attn: Assistant Inspector General, Audits (Audit Request/Idea)

100 F Street, N.E.

Washington D.C. 20549-2736

Telephone: 202-551-6061

Fax: 202-772-9265

E-mail: oig@sec.gov

Hotline 

To report fraud, waste, abuse, and mismanagement at the SEC, 

contact the Office of Inspector General at

Phone: 877.442.0854

Web-Based Hotline Complaint Form:

www.reportlineweb.com/sec_oig