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Rules and Regulations Federal Register

70355

Vol. 69, No. 233

Monday, December 6, 2004

OFFICE OF PERSONNEL 

MANAGEMENT 

5 CFR Parts 317, 352, 359, 451, 530, 

531, 534, and 575 

RIN 3206–AK34 

Senior Executive Service Pay and 

Performance Awards; Aggregate 

Limitation on Pay

AGENCY: Office of Personnel 

Management.

ACTION: Final rule.

SUMMARY: The Office of Personnel 

Management (OPM) is issuing final 

regulations to establish a performancebased pay system for the Senior 

Executive Service (SES) and a higher 

aggregate limitation on pay for SES 

members and employees in senior-level 

and scientific or professional positions. 

These regulations prescribe the criteria 

for the administration of rates of basic 

pay and performance awards under the 

SES performance-based pay system and 

the rules for applying the aggregate 

limitation on pay.

DATES: The regulations are effective on 

December 6, 2004.

FOR FURTHER INFORMATION CONTACT: Jo 

Ann Perrini by telephone at (202) 606–

2858; by FAX at (202) 606–0824; or by 

e-mail at pay-performancepolicy@opm.gov.

SUPPLEMENTARY INFORMATION: The Office 

of Personnel Management (OPM) is 

issuing final regulations to establish a 

performance-based pay system for the 

Senior Executive Service (SES) and a 

higher aggregate limitation on pay for 

SES members and employees in seniorlevel (SL) and scientific or professional 

(ST) positions. In these regulations, we 

interchangeably use the terms ‘‘SES 

members’’ and ‘‘senior executives’’ to 

mean members of the Senior Executive 

Service. In addition, we refer to SL/ST 

employees as ‘‘senior professionals.’’ 

The new SES pay system assures a 

clear and direct linkage between 

performance and pay, a cornerstone of 

the President’s Management Agenda. 

For those agencies with senior executive 

performance appraisal systems certified 

under 5 CFR part 430, subpart D, the 

new SES pay band provides a broad 

range of rates (a minimum rate of 

$104,927 and a maximum rate of 

$158,100 in 2004) within which 

agencies may set pay based on the 

senior executive’s individual 

performance, contribution to the 

agency’s performance, or both, as 

determined under a rigorous 

performance management system. In 

addition, agencies with applicable 

certified performance appraisal systems 

may apply a higher aggregate limitation 

on pay up to the Vice President’s salary 

($203,000 in 2004) for their senior 

executives and senior professionals. 

On January 13, 2004, OPM issued 

interim regulations to establish the new 

SES performance-based pay system (69 

FR 2048). The interim regulations are 

available at http://frwebgate1.access.

gpo.gov/cgi-bin/waisgate.cgi?

WAISdocID=764393445783+15+0+0&

WAISaction=retrieve. In those interim 

regulations, OPM established the 

structure of the SES rate range, rules for 

conversion to the new pay system, and 

the criteria for providing pay 

adjustments to SES members on or after 

the first pay period beginning on or after 

January 1, 2004 (January 11, 2004). The 

60-day comment period ended on 

March 15, 2004. We received comments 

from two agencies, one individual, and 

an executive association. 

On July 29, 2004, OPM issued 

proposed regulations to prescribe rules 

for establishing and adjusting SES rates 

of basic pay, paying performance 

awards to senior executives, and 

applying the aggregate limitation on pay 

if an agency receives certification of an 

applicable performance appraisal 

system under 5 U.S.C. 5307(d) (69 FR 

45536). The proposed regulations are 

available at http://frwebgate2.

access.gpo.gov/cgi-bin/

waisgate.cgi?WAISdocID=

764180215293+2+0+0&

WAISaction=retrieve. The 30-day 

comment period ended on August 30, 

2004. We received comments from a 

Member of Congress, six Federal 

agencies, two individuals, and an 

executive association. 

In this final rule document, OPM will 

address the comments received on both 

the interim regulations on conversion to 

the SES pay system and the proposed 

regulations on the administration of SES 

pay and performance awards. We 

received no comments on the proposed 

changes in the regulations on the 

aggregate limitation on pay (5 CFR part 

531, subpart B). 

Minimum SES Rate of Basic Pay 

Under § 534.406(a) of the interim 

regulations (and § 534.403(a) of the 

proposed regulations), OPM established 

the minimum rate of basic pay in the 

SES rate range at an amount equal to the 

minimum rate of basic pay under 5 

U.S.C. 5376 for senior-level positions 

(excluding locality-based comparability 

payments under 5 U.S.C. 5304). One 

commenter recommended that OPM 

establish a higher minimum rate of basic 

pay in the SES rate range, since the 

current minimum rate ($104,927) is less 

than the rate for GS–15, step 3 

(including locality pay), in the 

Washington, DC, area. The commenter 

is concerned that the current minimum 

SES rate of basic pay does not take into 

account that SES members are no longer 

entitled to locality pay. In addition, the 

commenter suggested that setting the 

minimum rate at this low rate does not 

give an agency the latitude it needs to 

set pay upon appointment to the SES at 

a level that is commensurate with the 

duties and responsibilities of an SES 

position. Under 5 U.S.C. 5382, the 

minimum rate of basic pay for the SES 

rate range may not be less than the 

minimum rate of basic pay (excluding 

locality pay) payable under 5 U.S.C. 

5376. In establishing the new SES openrange pay band, OPM determined that it 

would be most beneficial to agencies 

and employees to ensure the widest rate 

range possible under the new 

performance-based pay system. 

Agencies may choose to consider the 

applicable locality payment when 

setting the rate of basic pay of a senior 

executive upon initial appointment to 

the SES. 

Prohibition on Reducing an SES 

Member’s Rate of Basic Pay for 1 Year 

Consistent with section 1125(c)(2) of 

the National Defense Authorization Act 

for Fiscal year 2004 (Public Law 108–

136, November 24, 2003), 

§ 534.406(b)(2) of the interim 

70356 Federal Register / Vol. 69, No. 233 / Monday, December 6, 2004 / Rules and Regulations 

regulations (and § 534.406(b) of the 

proposed regulations) prohibits agencies 

from reducing a senior executive’s rate 

of basic pay, including any applicable 

locality payment, below the rate that 

was in effect on November 24, 2003, for 

12 months following the effective date 

of the new SES pay system (January 11, 

2004). A commenter believes OPM’s 

regulations establish a more restrictive 

limitation on reductions in SES rates of 

pay than does the controlling statute. 

The commenter believes section 

1125(c)(2) prohibited only reductions in 

the discrete SES pay levels (ES–1, ES–

2, etc.) and applicable locality 

payments, but did not prohibit 

reductions in pay based on performance 

or conduct. We disagree. Section 

1125(c)(2) specifically prohibits any 

reduction in pay resulting from the 

amendments made by section 1125(a), 

which establishes the minimum and 

maximum rates of the SES rate range 

and requires each senior executive to be 

paid at one of the rates within that rate 

range. Section 1125(c)(2) provides that 

the rates of pay for senior executives 

under the new performance-based SES 

pay system, which became effective on 

January 11, 2004, may not be reduced 

for 1 year after that date.

Conversion to New SES Pay System 

Section 534.406(b)(3) of the interim 

regulations (and § 534.406(c) of the 

proposed regulations) states that only 

certain SES members in positions that 

have geographic mobility requirements 

and who are assigned outside the 

contiguous 48 States and the District of 

Columbia to a position overseas or in 

Alaska, Hawaii, Guam and the 

Commonwealth of the Northern Mariana 

Islands, Puerto Rico, the U.S. Virgin 

Islands, or other U.S. territories and 

possessions as of the first day of the first 

pay period beginning on or after January 

1, 2004, will be converted to a new rate 

of basic pay that equals their current 

rate of basic pay, plus the amount of 

locality pay authorized for the 

applicable locality pay area upon 

reassignment to a position in the 48 

contiguous States or the District of 

Columbia. Any pay increase resulting 

from conversion to the new SES pay 

system for these SES members is not 

considered a pay adjustment under 

§ 534.404(c) for the purpose of limiting 

an agency’s flexibility to adjust pay 

more than once during a 12-month 

period. 

Two commenters requested that OPM 

revise § 534.406(b)(3) to remove the 

limitation that only certain SES 

members subject to a geographic 

mobility requirement may receive this 

entitlement to a pay increase upon 

reassignment to the 48 contiguous States 

or the District of Columbia. The 

commenters believe the limitation 

unfairly penalizes employees who 

accepted an assignment outside the 48 

contiguous States without a geographic 

mobility requirement, since all SES 

members, by definition, must be mobile 

and accept reassignment upon 

management request. We agree and have 

revised § 534.406(b)(3) (now 

§ 534.406(c)), accordingly. Since this 

rule applies to any reassignment to the 

48 contiguous States effective on the 

first day of the first pay period 

beginning on or after January 1, 2004 

(January 11, 2004), agencies may need to 

correct the rate of basic pay for those 

SES members who were reassigned to 

the 48 contiguous States after January 

11, 2004, and before the effective date 

of these final SES pay regulations. 

We also have revised § 534.406(c) to 

clarify that the conversion rule applies 

only for the senior executive’s initial 

reassignment to the 48 contiguous 

States, not for each subsequent 

reassignment to the 48 States, and we 

have deleted an unnecessary reference 

to § 534.403(a)(2). 

Adjusting SES Rates of Pay 

Several commenters recommended 

that OPM revise the regulations to 

ensure that those senior executives 

performing at the fully successful or 

higher level receive a periodic increase 

in pay to account for their good 

performance and to protect their salaries 

against inflation. The commenters noted 

that the removal of locality pay for 

senior executives eliminated any ability 

to account for market forces or 

comparability as part of the pay-setting 

process for senior executives. The 

commenters fully support the notion 

that the highest performers should 

receive the highest salaries, but believe 

the new SES pay system must include 

consideration of economic realities to 

allow employees who are successfully 

meeting their performance expectations 

to maintain their relative position in the 

rate range. 

To address these concerns, we have 

added a new § 534.404(b)(4) to allow an 

agency to increase the rate of basic pay 

of a senior executive who meets or 

exceeds his or her performance 

expectations on the effective date of an 

increase in the minimum or maximum 

rate of basic pay of the SES rate range 

by an amount that does not exceed the 

amount necessary to maintain the senior 

executive’s relative position in the SES 

rate range, with the following two 

exceptions. First, a pay increase may not 

be provided to a senior executive whose 

rate of basic pay is at or below the rate 

for level III of the Executive Schedule if 

such an increase would cause the senior 

executive’s rate of basic pay to exceed 

the rate for level III of the Executive 

Schedule unless the senior executive 

has received an annual summary rating 

of outstanding for the most recently 

completed appraisal period and the 

agency head or designee approves the 

increase. Second, a pay increase may 

not be provided to a senior executive 

whose rate of basic pay is above the rate 

for level III of the Executive Schedule 

unless the senior executive has received 

an annual summary rating of 

outstanding for the most recently 

completed appraisal period and the 

agency head or designee approves the 

increase. However, in the case of a 

senior executive whose rate of basic pay 

is above the rate for level III of the 

Executive Schedule and who has been 

rated below outstanding, but above fully 

successful, for the most recently 

completed appraisal period, the agency 

head or designee may approve such a 

pay increase in limited circumstances, 

such as for an exceptionally meritorious 

accomplishment. A pay increase made 

to allow a senior executive to maintain 

his or her relative position in the rate 

range is not an entitlement and is not 

considered a pay adjustment for the 

purpose of applying the 12-month rule 

in § 534.404(c). 

A commenter recommended that 

OPM allow agencies to delegate 

throughout the organization (e.g., to 

bureau heads) the authority to approve 

rates of basic pay higher than the rate 

for level III of the Executive Schedule 

and to make exceptions to the 12-month 

rule. We disagree. We believe it is 

necessary to ensure that the agency 

official who is held responsible for the 

assessment of an agency’s performance 

and oversight of an agency’s senior 

executive appraisal process, as 

prescribed in 5 CFR 430.404(a)(5) and 

(6), should also be held responsible for 

ensuring that pay determinations reflect 

and recognize both individual and 

organizational performance. 

Additional Increases in Rates for the 

Executive Schedule

In the Preamble to the proposed 

regulations, OPM solicited the views of 

commenters on a proposal to allow an 

additional pay increase during a 12-

month period to address situations 

where the rates of pay for levels II and 

III of the Executive Schedule are 

increased after an agency has already 

granted pay increases to its senior 

executives following the SES 

performance appraisal period. Agencies 

would be permitted, at their discretion, 

to grant an additional pay increase to a 

Federal Register / Vol. 69, No. 233 / Monday, December 6, 2004 / Rules and Regulations 70357

senior executive whose rate of basic pay 

is equivalent to the maximum rate for 

the applicable SES rate range (i.e., level 

II or level III of the Executive Schedule) 

when the applicable maximum rate is 

increased, and the pay increase would 

not be considered a pay adjustment for 

the purpose of applying the 12-month 

rule. Seven commenters fully supported 

this proposal. One commenter objected 

to this proposal because it did not 

promote pay differentiation based on 

performance. We disagree with this 

objection since the proposed additional 

pay increase is directly associated with 

the initial pay increase, which was 

based on performance. We have added 

a new § 534.404(f)(2) to allow an agency 

to provide an additional pay increase to 

a senior executive whose rate of basic 

pay is equal to the rate for level II or III 

when the applicable maximum rate is 

increased and becomes effective after an 

agency has already granted a pay 

increase to the senior executive. 

Federal agencies recommended that 

OPM clarify and simplify the rules for 

increasing a senior executive’s rate of 

basic pay as a result of increases in the 

rates of pay for the Executive Schedule. 

If an agency believes an additional pay 

increase is warranted for a senior 

executive as a result of an increase in 

the rates of pay for the Executive 

Schedule under § 534.404(f)(1) (when 

there is an additional increase in the 

rates for the Executive Schedule in a 

calendar year and that increase becomes 

effective on the same date as prescribed 

in 5 U.S.C. 5318) and § 534.404(f)(2) 

(when there is an increase in the rates 

of pay for the Executive Schedule after 

an agency has already granted pay 

increases to its senior executives 

following the performance appraisal 

period), the agency may grant such a 

pay increase without regard to whether 

the employee had received a pay 

adjustment during the previous 12-

month period. We have revised 

§ 534.404(c)(3) to state that any 

determination to provide an additional 

pay increase under § 534.404(f) is not 

considered a pay adjustment for the 

purpose of applying the 12-month rule 

in § 534.404(c). 

Setting Pay Upon Initial Appointment 

to the SES 

One commenter recommended that 

agencies be required to provide senior 

executives with a pay increase upon 

initial appointment to the SES. The 

commenter believes that entry into the 

SES is a distinct honor and should 

guarantee a pay raise for those joining 

this elite group of civil servants. We 

believe OPM’s regulations provide 

agencies with broad discretionary 

authority to set pay upon initial 

appointment to the SES. Under 

§ 534.404(a), an agency may set the rate 

of basic pay of a newly appointed SES 

member at any rate within the SES rate 

range, subject to the limitation on 

setting pay above the rate for level III of 

the Executive Schedule. The agency 

must determine the appropriate rate of 

pay based on the nature and quality of 

the individual’s experience, 

qualifications, and accomplishments as 

they relate to the requirements of the 

SES position, as well as the individual’s 

current responsibilities. 

Setting Pay Upon a Break in Service 

Under § 534.404(i)(1) of the proposed 

regulations, if a former SES member has 

had a break in service of 30 days or less, 

the employing agency must set his or 

her rate of basic pay upon 

reappointment to the SES at a rate at 

least equal to the employee’s former SES 

rate of basic pay. Two commenters 

opposed this requirement because it 

unduly limits an agency’s discretion to 

set pay based on the scope and level of 

responsibility of the new position. We 

agree. We have revised § 534.404(i)(1)to 

state that if there has been a break in 

SES service of 30 days or less, the senior 

executive’s rate of basic pay may be set 

at any rate within the SES rate range 

(without regard to whether the 

employee received a pay adjustment 

during the previous 12-month period), 

but not higher than the employee’s 

former SES rate of basic pay. Where 

there has been a break in service of 30 

days or less, the agency head or 

designee who performs the functions 

described in 5 CFR 430.404(a)(5) and (6) 

(including the Inspector General, where 

applicable) may approve a higher rate 

than the senior executive’s former rate 

of basic pay, if warranted. 

Under § 534.404(i)(2) of the proposed 

regulations, we address the 

reinstatement of an individual who was 

serving under a Presidential 

appointment requiring Senate 

confirmation. In the final regulations, 

we are clarifying this paragraph to state 

that if the individual elected to remain 

subject to the SES pay provisions while 

serving under a Presidential 

appointment, his or her SES rate may be 

adjusted upon reinstatement to the SES, 

whether in the agency where the 

individual held the Presidential 

appointment or in another agency, if at 

least 12 months have elapsed since the 

employee’s last SES pay adjustment. If 

fewer than 12 months have elapsed 

since the employee’s last SES pay 

adjustment, an authorized agency 

official may approve an additional pay 

increase under § 534.404(c)(4) if the 

additional pay increase is warranted. 

Any pay adjustment must be made in 

accordance with paragraphs (b), (d), and 

(e) of § 534.404 and the agency’s plan 

for adjusting SES rates of pay 

established under paragraph (g) of that 

section. 

Setting Pay Upon Reassignment or 

Transfer 

Under § 534.404(c)(4)(ii) of the 

proposed regulations, an authorized 

agency official may approve an 

additional increase in pay during a 12-

month period if the agency head or 

designee determines that the increase is 

needed because the senior executive is 

being reassigned to a position with 

substantially greater scope and 

responsibility. A commenter 

recommended that OPM broaden this 

exception to include situations where 

an additional pay increase is needed to 

recruit a senior executive from a 

position in another agency. We agree 

and have revised § 534.404(c)(4)(ii) to 

permit an agency to provide an 

additional pay increase during a 12-

month period if the agency head or 

designee determines that a pay increase 

is needed to recruit a senior executive 

with superior leadership or other 

competencies from a position in another 

agency. 

Section 534.404(c)(4)(iii) permits an 

agency to provide an additional pay 

adjustment during a 12-month period to 

a senior executive who is critical to the 

mission of the agency and is likely to 

leave the agency in the absence of a pay 

increase. A commenter recommended 

that OPM require an agency to 

document the justification for an 

additional pay increase. We agree and 

have revised § 534.404(c)(5) to require 

an agency to provide written 

documentation approving any exception 

to the 12-month rule under 

§ 534.404(c)(4). 

Agency Plan for Setting and Adjusting 

SES Rates 

Federal agencies requested additional 

guidance on the criteria they should 

establish to ensure that decisions on 

setting and adjusting SES rates of basic 

pay are based on individual 

performance and/or contributions to the 

agency’s performance. To address these 

concerns, we have revised 

§ 534.404(g)(1) to require agency plans 

to specify the criteria that will be used 

to set and adjust a senior executive’s 

rate of basic pay to ensure that 

individual pay rates or pay adjustments, 

as well as their overall distribution 

within the SES rate range, reflect 

meaningful distinctions within a single 

performance rating level (e.g., the higher 

70358 Federal Register / Vol. 69, No. 233 / Monday, December 6, 2004 / Rules and Regulations 

the employee’s relative performance 

within a rating level, the higher the pay 

adjustment) and/or between 

performance rating levels (e.g., the 

higher the rating level, the higher the 

pay adjustment). In addition, we suggest 

that agencies may wish to consider the 

senior executive’s broad scope of 

authority and level of responsibility and 

his or her personal accountability for 

the success (or failure) of an agency’s 

programs.

A commenter requested that OPM’s 

regulations require agencies to provide 

for transparency in the processes for 

making pay decisions and disclose 

information about the operation of the 

SES performance management system. 

We have revised § 534.404(g) to require 

transparency in the processes for 

making pay decisions, while assuring 

confidentiality. The commenter also 

recommended that OPM require 

agencies to provide summary 

information concerning performance 

ratings and annual salary adjustments 

for senior executives, the percentage of 

senior executives who received bonuses, 

and the range of bonus awards granted. 

We do not believe this additional 

reporting requirement is needed, since 

under 5 CFR 430.405(g), agencies with 

certified performance appraisal systems 

are required to provide this information 

annually to OPM. 

Section 5382 of title 5, United States 

Code, requires that an SES member will 

be paid at one of the rates within the 

SES rate range, based on individual 

performance, contribution to the 

agency’s performance, or both, as 

determined under a rigorous 

performance management system. 

Federal agencies requested guidance on 

the difference between individual 

performance and contribution to agency 

performance, since individual 

performance directly leads to 

contributing to an agency’s 

performance. We believe the intent of 

the legislation is that a senior 

executive’s pay rate may be determined 

based on an accomplishment that he or 

she attained through individual 

performance and/or an accomplishment 

attained through the management of his 

or her staff which contributes to the 

agency’s performance. 

Reductions in Pay 

A commenter opposed the proposed 

rule in § 534.404(j), which would allow 

an agency to reduce a career SES 

member’s rate of basic pay by up to 10 

percent based on performance or 

conduct. The commenter stated that one 

of the purposes of the SES is to help 

maintain consistency of the civil service 

during political change and that the 

authority to reduce a senior executive’s 

rate of basic pay by up to 10 percent 

may be misused to affect or influence a 

desired politically motivated decision. 

The commenter is concerned that the 

authority to reduce pay by 10 percent 

may violate the merit systems principle 

that employees be protected against 

arbitrary action or coercion for partisan 

political purpose under 5 U.S.C. 

2301(b)(8)(A)). The commenter noted 

that while the reduction procedure has 

elements of due process within an 

agency, no appeal outside the agency, 

such as to the Merit Systems Protection 

Board (MSPB), is allowed. The 

commenter recommended that OPM 

reduce the maximum reduction in pay 

to 5 percent, comparable to the former 

regulatory limitation on reductions in 

pay of one SES pay level, which worked 

successfully prior to implementation of 

the new SES pay system. 

The commenter believes that if a 

senior executive deserves a pay 

reduction of 10 percent, he or she can 

be removed from the SES, with the 

limited protections provided by law. 

The commenter recommends that if 

OPM truly believes a 10 percent 

reduction in pay is necessary to manage 

the SES, OPM should make any 

reduction in pay greater than 5 percent 

fully appealable to MSPB or delay an 

agency’s authority to reduce pay for SES 

members for 1 year following issuance 

of OPM’s final rule, consistent with 

Congress’ prohibition against reducing 

the pay of an SES member for the first 

year after the effective date of the new 

SES pay system. The commenter 

believes that before senior executives 

experience the threat or possibility of a 

10 percent pay reduction, they should 

be under new performance plans and 

the new performance management 

system for a full year. 

The new SES pay system provides 

greater opportunities for higher rates of 

basic pay and larger pay adjustments, 

and with these opportunities come 

greater risks. We believe it is necessary 

to provide agencies with the authority to 

reduce basic pay up to 10 percent. 

Therefore, we made no changes in the 

regulations. 

A commenter recommended that we 

add a statement to § 534.404(j)(2) that a 

reduction in pay is not an appealable 

action under 5 U.S.C. 7543 (removal and 

suspensions for more than 14 days for 

misconduct, negligence of duty, 

malfeasance, or failure to accept a 

directed reassignment). We agree and 

have added the statement to 

§ 534.404(j)(2). 

Pay Increase To Prevent Falling Below 

Minimum SES Rate 

Under § 534.406(a) of the interim 

regulations (and § 534.403(a) of the 

proposed regulations), an SES member 

may not receive a rate of basic pay that 

is less than the minimum rate of the SES 

rate range. To preclude the possibility 

that an SES member’s pay might fall 

below the minimum rate of the SES rate 

range, we have revised the regulations at 

§ 534.404(c)(3) to provide that an 

increase in pay necessary to ensure that 

an SES member’s rate of basic pay 

remains within the SES rate range is not 

considered a pay adjustment for the 

purpose of applying the 12-month rule 

in § 534.404(c). 

Involuntary Removal From the SES 

Federal agencies requested guidance 

on how to set pay for a career SES 

member who is receiving a rate of basic 

pay equivalent to the rate for level III of 

the Executive Schedule ($145,600 in 

2004) and who is involuntarily removed 

from the SES based on a less than fully 

successfully performance rating. Under 

5 U.S.C. 3594 and 5 CFR part 359, 

subpart G, a career SES employee who 

is involuntarily placed in a position 

outside of the SES at the GS–15 or 

equivalent level as the result of removal 

for less than fully successful 

performance is entitled to receive basic 

pay at the highest of—(1) the rate of 

basic pay in effect for the position in 

which he or she is being placed, (2) the 

rate of basic pay currently in effect for 

the position the appointee held in the 

civil service immediately before being 

appointed to the SES, or (3) the rate of 

basic pay in effect for the appointee 

immediately before removal from the 

SES. An employee who is placed in a 

General Schedule (GS) position under 

the provisions of 5 U.S.C. 3594 and 5 

CFR part 359, subpart G, is not subject 

to the GS basic pay limitation of level 

V of the Executive Schedule, as 

provided in 5 U.S.C. 5303(f). Upon 

appointment to a GS position, the 

employee is entitled to receive a locality 

payment at the rate applicable in the 

locality pay area in which the 

employee’s GS position is located, 

subject to 5 U.S.C. 5304(g)(1), which 

limits GS basic pay plus locality pay to 

the rate for level IV of the Executive 

Schedule. 

In the case of an employee whose SES 

rate of pay was equal to the rate for level 

III of the Executive Schedule, his or her 

current SES rate of basic pay of 

$145,600 is the highest applicable rate, 

and he or she is entitled to that saved 

rate. Since the employee’s rate of basic 

pay exceeds the limitation on GS basic 

Federal Register / Vol. 69, No. 233 / Monday, December 6, 2004 / Rules and Regulations 70359

pay plus locality pay (level IV of the 

Executive Schedule), he or she may not 

receive a locality payment. Under 5 

U.S.C. 3594, the employee also is 

entitled to 50 percent of any increase in 

the maximum rate of basic pay for the 

GS grade to which he or she is placed 

until the saved rate is equal to or lower 

than the maximum rate of pay for that 

grade, at which time the employee’s pay 

is set at that maximum rate. 

If the saved pay provisions under 5 

U.S.C. 3594 are not applicable, the 

agency may exercise the use of pay 

retention as provided in 5 U.S.C. 5363 

and 5 CFR part 536 in situations where 

an SES member moves to a GS position 

and the movement is caused or 

influenced by a management action. 

Additional Payments

In the Preamble to the proposed 

regulations, OPM advised agencies to 

review any determination to provide 

additional payments (e.g., retention 

allowances) to senior executives based 

on the senior executive’s rate of basic 

pay, since a senior executive’s rate of 

basic pay now includes locality 

payments. We remind agencies that 

under 5 U.S.C. 5754 and OPM’s 

regulations at 5 CFR 575.306(a), 

retention allowances are expressed as a 

percentage of basic pay. If an 

employee’s rate of basic pay is increased 

(e.g., as a result of including a locality 

payment in the senior executive’s rate of 

basic pay upon conversion to the new 

SES pay system), the dollar amount of 

his or her retention allowance will 

automatically increase unless the 

agency takes action to reduce the 

retention allowance percentage in order 

to retain the previous dollar value. An 

agency must process an SF–50 (810 

action) each time the percentage of a 

retention allowance changes. 

Executive Level Positions in Temporary 

Organizations 

Under 5 U.S.C. 3161(d), the rate of 

basic pay for executive positions 

appointed to temporary organizations 

may not exceed the maximum rate of 

basic pay established for the SES, 

including any locality-based 

comparability payment provided under 

5 U.S.C. 5304. Under 5 U.S.C. 5382, the 

maximum rate of basic pay for SES 

members is the rate for level III of the 

Executive Schedule, unless the 

employee is covered by a certified 

performance appraisal system as 

provided in 5 U.S.C. 5307(d), in which 

case the maximum rate of basic pay is 

the rate for level II of the Executive 

Schedule. Since senior executives in 

temporary organizations are not covered 

by the SES performance appraisal 

certification provision in 5 U.S.C. 

5307(d), these executives do not have 

access to a rate higher than the rate for 

level III of the Executive Schedule. 

Therefore, we have revised §§ 534.303 

and 534.304 to state that the maximum 

rate of basic pay for executives and 

certain senior staff in temporary 

organizations is the rate for level III of 

the Executive Schedule. Executives in 

temporary organizations are not entitled 

to locality pay, since SES members are 

no longer eligible for locality-based 

comparability payments as a result of 

the amendments made to 5 U.S.C. 

5304(h). 

Miscellaneous 

We have added definitions of relative 

performance and performance 

expectations in § 534.402, consistent 

with the definitions in § 430.402; we 

have indicated throughout the 

regulations in part 534, as appropriate, 

the authority of an agency’s Inspector 

General for setting and adjusting rates of 

pay for senior executives in the Office 

of the Inspector General; and we have 

removed subpart C of 5 CFR part 359 

(Removal from the Senior Executive 

Service), since section 1321 of the 

Homeland Security Act repealed SES 

recertification requirements and subpart 

C is no longer needed. 

Pay Adjustments for SES Members 

Without Supervisors 

A commenter recommended that 

OPM develop a new pay system to allow 

a higher maximum rate of basic pay for 

senior executives who do not have a 

superior within their agencies who can 

evaluate their performance (e.g., senior 

executives in small agencies where 

political appointments have not 

occurred) and for Inspectors General. 

This recommendation is beyond the 

scope of these regulations. Legislation 

would be needed to provide a higher 

maximum rate of basic pay to these 

employees. 

Regulatory Flexibility Act 

I certify that these regulations will not 

have a significant economic impact on 

a substantial number of small entities 

because they will apply to only Federal 

agencies and employees. 

E.O. 12866, Regulatory Review 

This rule has been reviewed by the 

Office of Management and Budget in 

accordance with E.O. 12866.

List of Subjects in 5 CFR Parts 317, 352, 

359, 451, 530, 531, 534, and 575 

Administrative practice and 

procedure, Decorations, medals, awards, 

Government employees, Law 

enforcement officers, Reporting and 

recordkeeping requirements, Hospitals, 

Students, and Wages.

Office of Personnel Management. 

Kay Coles James, 

Director.

■ The interim rule published January 13, 

2004, at 69 FR 2048 is adopted as final 

with the changes set forth below, and 

OPM further amends 5 CFR chapter I as 

follows:

PART 359—REMOVAL FROM THE 

SENIOR EXECUTIVE SERVICE; 

GUARANTEED PLACEMENT IN OTHER 

PERSONNEL SYSTEMS

■ 1. The authority citation for part 359 

continues to read as follows:

Authority: 5 U.S.C. 1302 and 3596, unless 

otherwise noted.

Subpart C—[Removed and Reserved]

■ 2. Subpart C (§§ 359.301—359.304) is 

removed and reserved.

PART 451—EMPLOYEE AWARDS

Subpart A—Agency Awards

■ 3. The authority citation for part 451 

continues to read as follows:

Authority: 5 U.S.C. 4302, 4501–4509; E.O. 

11438, 12828.

■ 4. In § 451.101 paragraph (d), remove 

the reference ‘‘534.403’’ and add the 

reference ‘‘534.405’’ in its place, and add 

a new paragraph (e) to read as follows:

§ 451.101 Authority and coverage.

* * * * *

(e) An agency may grant performancebased cash awards (i.e., on the basis of 

a rating of record) under the authority 

of 5 U.S.C. 4505a and the provisions of 

this part to eligible non-GS employees 

who are covered by 5 U.S.C. chapter 45 

and this part, and who are not otherwise 

covered by an explicit statutory 

authority for the payment of such 

awards, including 5 U.S.C. 5384 (SES 

performance awards).

■ 5. In § 451.104(a)(3), remove the 

reference ‘‘534.403’’ and add the 

reference ‘‘534.405’’ in its place.

PART 530—PAY RATES AND 

SYSTEMS (GENERAL)

■ 6. The authority citation is revised to 

read as follows:

Authority: 5 U.S.C. 5305 and 5307; E.O. 

12748, 56 FR 4521, 3 CFR, 1991 Comp., p. 

316.

Subpart B also issued under secs. 302(c) 

and 404(c) of the Federal Employees Pay 

Comparability Act of 1990, Public Law 101–

509, 104 Stat. 1462 and 1466, respectively. 

70360 Federal Register / Vol. 69, No. 233 / Monday, December 6, 2004 / Rules and Regulations 

Subpart C also issued under sec. 4 of the 

Performance Management and Recognition 

System Termination Act of 1993, Public Law 

103–89, 107 Stat. 981; and sec. 1322 of the 

Chief Human Capital Officers Act of 2002, 

Public Law 107–296, 116 Stat. 2297 (5 U.S.C. 

5307).

■ 7. Revise subpart B to read as follows:

Subpart B—Aggregate Limitation on 

Pay

Sec. 

530.201 Purpose. 

530.202 Definitions. 

530.203 Administration of aggregate 

limitation on pay. 

530.204 Payment of excess amounts. 

530.205 Records.

Subpart B—Aggregate Limitation on 

Pay

§ 530.201 Purpose. 

This subpart establishes regulations 

for limiting an employee’s aggregate 

annual compensation. An employee’s 

aggregate compensation received in any 

given calendar year may not exceed the 

rate of pay for level I of the Executive 

Schedule or the rate payable to the Vice 

President at the end of the calendar 

year, whichever is applicable to the 

employee based on the certification 

status under 5 CFR part 430, subpart D, 

of the performance appraisal system 

covering that employee. These 

regulations must be applied in 

conjunction with 5 U.S.C. 5307.

§ 530.202 Definitions. 

In this subpart: 

Agency means an executive agency as 

defined at 5 U.S.C. 105. 

Aggregate compensation means the 

total of—

(1) Basic pay received as an employee 

of the executive branch or as an 

employee outside the executive branch 

to whom the General Schedule applies; 

(2) Locality payments under 5 U.S.C. 

5304; continued rate adjustments under 

5 CFR part 531, subpart G; or special 

pay adjustments for law enforcement 

officers under section 404 of the Federal 

Employees Pay Comparability Act of 

1990 (Public Law 101–509); 

(3) Premium pay under 5 U.S.C. 

chapter 53, subchapter IV; 

(4) Premium pay under 5 U.S.C. 

chapter 55, subchapter V; 

(5) Incentive awards and 

performance-based cash awards under 5 

U.S.C. chapters 45 and 53; 

(6) Recruitment and relocation 

bonuses under 5 U.S.C. 5753; 

(7) Retention allowances under 5 

U.S.C. 5754 and extended assignment 

incentives under 5 U.S.C. 5757; 

(8) Supervisory differentials under 5 

U.S.C. 5755; 

(9) Post differentials under 5 U.S.C. 

5925; 

(10) Danger pay allowances under 5 

U.S.C. 5928; 

(11) Post differentials based on 

environmental conditions for employees 

stationed in nonforeign areas under 5 

U.S.C. 5941(a)(2); 

(12) Physicians’ comparability 

allowances under 5 U.S.C. 5948; 

(13) Continuation of pay under 5 

U.S.C. 8118; 

(14) Lump-sum payments in excess of 

the aggregate limitation on pay as 

required by § 530.204; and 

(15) Other similar payments 

authorized under title 5, United States 

Code, excluding—

(i) Overtime pay under the Fair Labor 

Standards Act of 1938, as amended, and 

5 CFR part 551; 

(ii) Severance pay under 5 U.S.C. 

5595;

(iii) Lump-sum payments for 

accumulated and accrued annual leave 

upon separation under 5 U.S.C. 5551 or 

5552; 

(iv) Back pay awarded to an employee 

under 5 U.S.C. 5596 because of an 

unjustified personnel action; 

(v) Student loan repayments under 5 

U.S.C. 5379; and 

(vi) Nonforeign area cost-of-living 

allowances under 5 U.S.C. 5941(a)(1). 

Aggregate limitation means the 

limitation on aggregate compensation 

received in any given calendar year as 

established by 5 U.S.C. 5307. For an 

executive branch employee (including 

employees in Senior Executive Service 

positions paid under 5 U.S.C. 5383 and 

employees in senior-level or scientific 

or professional positions paid under 5 

U.S.C. 5376), a General Schedule 

employee in the legislative branch, or 

General Schedule employee in the 

judicial branch (excluding those paid 

under 28 U.S.C. 332(f), 603, and 604), 

the limitation on aggregate 

compensation is equal to the rate for 

level I of the Executive Schedule in 

effect at the end of the applicable 

calendar year. For an employee in a 

Senior Executive Service position paid 

under 5 U.S.C. 5383 and an employee in 

a senior-level or scientific or 

professional position paid under 5 

U.S.C. 5376 covered by an applicable 

performance appraisal system that has 

been certified under 5 CFR part 430, 

subpart D, the limitation on aggregate 

compensation is equal to the total 

annual compensation payable to the 

Vice President under 3 U.S.C. 104 at the 

end of a calendar year. 

Basic pay means the total amount of 

pay received at a rate fixed by law or 

administrative action for the position 

held by an employee, before any 

deductions. Basic pay includes night 

and environmental differentials for 

prevailing rate employees under 5 

U.S.C. 5343(f) and 5 CFR 532.511. Basic 

pay excludes additional pay of any 

other kind, including locality payments 

under 5 U.S.C. 5304. 

Discretionary payment means a 

payment an agency has discretion to 

make or not to make to an employee. A 

retention allowance under 5 U.S.C. 5754 

and an extended assignment incentive 

under 5 U.S.C. 5757 are discretionary 

payments. However, other payments 

that are preauthorized to be made to an 

employee at a regular fixed rate each 

pay period are not discretionary 

payments. 

Employee has the meaning given that 

term in 5 U.S.C. 2105. 

Estimated aggregate compensation

means the agency’s projection of the 

aggregate compensation an employee 

actually would receive during a 

calendar year but for application of the 

aggregate limitation to future payments. 

This projection must be based upon 

known factors. Estimated aggregate 

compensation includes—

(1) The total amount of basic pay the 

employee will receive during the 

calendar year; 

(2) Any lump-sum payment of excess 

amounts from a previous calendar year, 

as described in § 530.204; 

(3) The total amount of 

nondiscretionary payments the 

employee would be entitled to receive 

during the calendar year; and 

(4) The total amount of discretionary 

payments the employee would be 

authorized to receive during the 

calendar year.

§ 530.203 Administration of aggregate 

limitation on pay. 

(a) Except as provided in paragraph 

(b) of this section, no executive branch 

employee or General Schedule 

employee in the legislative branch (or 

General Schedule employee in the 

judicial branch, excluding those paid 

under 28 U.S.C. 332(f), 603, and 604), 

may receive any allowance, differential, 

bonus, award, or other similar cash 

payment under title 5, United States 

Code, in any calendar year which, in 

combination with the employee’s basic 

pay (whether received under title 5, 

United States Code, or otherwise), 

would cause the employee’s aggregate 

compensation to exceed the rate for 

level I of the Executive Schedule on the 

last day of that calendar year (i.e., the 

aggregate limitation). 

(b)(1) Subject to paragraph (b)(2) of 

this section, an employee in a Senior 

Executive Service position paid under 5 

U.S.C. 5383 and an employee in a 

Federal Register / Vol. 69, No. 233 / Monday, December 6, 2004 / Rules and Regulations 70361

senior-level or scientific or professional 

position paid under 5 U.S.C. 5376 may 

not receive any allowance, differential, 

bonus, award, or other similar cash 

payment under title 5, United States 

Code, in any calendar year which, in 

combination with the employee’s basic 

pay, would cause the employee’s 

aggregate compensation to exceed the 

rate of pay for level I of the Executive 

Schedule. 

(2) An employee covered by a 

performance appraisal system that has 

been certified under 5 CFR part 430, 

subpart D, may not receive any 

allowance, differential, bonus, award, or 

other similar cash payment under title 

5, United States Code, in any calendar 

year which, in combination with the 

employee’s basic pay, would cause the 

employee’s aggregate compensation to 

exceed the total annual compensation 

payable to the Vice President under 3 

U.S.C. 104 on the last day of that 

calendar year (i.e., the aggregate 

limitation). 

(3) An agency must make corrective 

actions as provided in paragraphs (g) 

and (h) of this section if the agency 

underestimated or overestimated an 

employee’s aggregate compensation in a 

calendar year as a result of receiving or 

losing certification of its applicable 

performance appraisal system under 5 

CFR part 430, subpart D.

(c) The aggregate limitations 

described in paragraphs (a) and (b) of 

this section apply to the aggregate 

compensation an employee actually 

received during the calendar year 

without regard to when the 

compensation was earned. 

(d) When an agency authorizes a 

discretionary payment for an employee, 

the agency must defer any portion of 

such payment that, when added to the 

estimated aggregate compensation the 

employee is projected to receive, would 

cause the employee’s aggregate 

compensation during the calendar year 

to exceed the applicable aggregate 

limitation. Any portion of a 

discretionary payment deferred under 

this paragraph must be available for 

payment as provided in § 530.204. 

Special rules apply to the authorization 

and payment of a retention allowance, 

which may not be deferred. (See 5 CFR 

575.306(b) and 575.307(a).) A retention 

allowance must be reduced or 

terminated before deferring any other 

type of discretionary payment, as long 

as the other discretionary payment is 

required to be paid within the current 

calendar year under a mandatory 

personnel policy or has been officially 

approved by an authorized agency 

official for payment within the current 

calendar year. When a discretionary 

payment is authorized but not required 

to be paid in the current calendar year, 

an agency official’s decision to set the 

payment date in the next calendar year 

is not considered a deferral under this 

paragraph. 

(e) An agency may not defer or 

discontinue nondiscretionary payments 

for any period of time to make a 

discretionary payment that would 

otherwise cause an employee’s pay to 

exceed the applicable aggregate 

limitation. An agency may not defer or 

discontinue basic pay under any 

circumstance. 

(f) If, after an agency defers 

discretionary payments as required by 

paragraph (d) of this section, the 

estimated aggregate compensation to 

which an employee is entitled exceeds 

the applicable aggregate limitation, the 

agency must defer all nondiscretionary 

payments (other than basic pay) as 

necessary to avoid payments in excess 

of that limitation. An agency must defer 

all nondiscretionary payments at the 

time when otherwise continuing to pay 

such payments would cause an 

employee’s estimated aggregate 

compensation for that calendar year to 

exceed the applicable aggregate 

limitation. An agency must pay any 

portion of a nondiscretionary payment 

deferred under this paragraph at a later 

date, as provided in § 530.204. 

(g)(1) If an agency determines that it 

underestimated an employee’s aggregate 

compensation at an earlier date in the 

calendar year, or the aggregate 

limitation applicable to the employee is 

reduced during the calendar year, the 

sum of the employee’s remaining 

payments of basic pay may exceed the 

difference between the aggregate 

compensation the employee has actually 

received to date in that calendar year 

and the applicable aggregate limitation. 

In such cases, the employee will become 

indebted to the Federal Government for 

any amount paid in excess of the 

applicable aggregate limitation. The 

head of the agency may waive the debt 

under 5 U.S.C. 5584, if warranted. 

(2) To the extent that any excess 

amount is attributable to amounts that 

should have been deferred and would 

have been payable at the beginning of 

the next calendar year, an agency must 

extinguish the excess amount on 

January 1 of the next calendar year. As 

part of the correction of the error, the 

agency must deem the excess amount to 

have been paid on January 1 of the next 

calendar year (when the debt was 

extinguished) as if it were a deferred 

excess payment, as described in 

§ 530.204, and must consider this 

deemed deferred excess payment to be 

part of the employee’s aggregate 

compensation for the new calendar year. 

(3) To the extent that any excess 

amount is attributable to retention 

allowances that the agency 

inadvertently did not reduce or 

terminate under 5 CFR 575.307(a), the 

employee will become indebted to the 

Federal Government for any amount 

attributable to retention allowance 

payments that were paid in excess of the 

applicable aggregate limitation. The 

head of the agency may waive the debt 

under 5 U.S.C. 5584, if warranted. 

(h) If an agency determines that it 

overestimated an employee’s aggregate 

compensation at an earlier date in the 

calendar year, which caused the agency 

to defer payments unnecessarily under 

this section, or the aggregate limitation 

applicable to the employee is increased 

during the calendar year, the agency 

may make appropriate corrective 

payments to the employee during the 

calendar year, notwithstanding 

§ 530.204.

§ 530.204 Payment of excess amounts. 

(a) An agency must pay the amounts 

that were deferred because they were in 

excess of the aggregate limitation (as 

described in § 530.203) as a lump-sum 

payment at the beginning of the 

following calendar year, except as 

otherwise provided in this section. This 

payment is part of the employee’s 

aggregate compensation for the new 

calendar year. 

(b) If a lump-sum payment under 

paragraph (a) of this section causes an 

employee’s estimated aggregate 

compensation to exceed the aggregate 

limitation in the current calendar year, 

an agency must consider only the 

employee’s basic pay that is expected to 

be paid in the current year in 

determining the extent to which the 

lump-sum payment may be paid. An 

agency must defer all other payments, as 

provided in § 530.203, in order to pay as 

much of the lump-sum excess amount 

as possible. Any payments deferred 

under this paragraph, including any 

portion of the lump-sum excess amount 

that was not payable, are payable at the 

beginning of the next calendar year, as 

provided in paragraph (a) of this 

section. 

(c) If an employee transfers to another 

agency, the gaining agency is 

responsible for making any lump-sum 

payment required by paragraph (a) of 

this section. The previous employing 

agency must provide the gaining agency 

with documentation regarding the 

employee’s excess amount, as provided 

in § 530.205. The previous employing 

agency must provide a fund transfer 

equal to the total cost of the lump-sum 

70362 Federal Register / Vol. 69, No. 233 / Monday, December 6, 2004 / Rules and Regulations 

payment to the gaining agency through 

the Department of the Treasury’s IntraGovernmental Payment and Collection 

System. If an employee leaves Federal 

service, the employing agency is 

responsible for making the lump-sum 

payment to the employee as provided in 

paragraph (d) of this section. 

(d) An agency must pay any excess 

amount regardless of the calendar year 

limitation under the following 

conditions: 

(1) If an employee dies, the employing 

agency must pay the entire excess 

amount as part of the settlement of 

accounts, in accordance with 5 U.S.C. 

5582. 

(2) If an employee separates from 

Federal service, the employing agency 

must pay the entire excess amount 

following a 30-day break in service. If 

the individual is reemployed in the 

Federal service within the same 

calendar year as the separation, any 

previous payment of an excess amount 

must be considered part of that year’s 

aggregate compensation for the purpose 

of applying the aggregate limitation for 

the remainder of the calendar year.

§ 530.205 Records. 

An agency must maintain appropriate 

records to administer this subpart and 

must transfer such records to any 

agency to which an employee may 

transfer. An agency must make such 

records available to any agency that may 

employ the employee later during the 

same calendar year. An agency’s records 

must document the source of any 

deferred excess amount remaining to the 

employee’s credit at the time of 

separation from the agency. In the case 

of an employee who separates from 

Federal service for at least 30 days, the 

agency records also must document any 

payment of a deferred excess amount 

made by the agency after separation.

PART 534—PAY UNDER OTHER 

SYSTEMS

■ 8–9. The authority citation for part 534 

is revised to read as follows:

Authority: 5 U.S.C. 1104, 3161(d), 5307, 

5351, 5352, 5353, 5376, 5382, 5383, 5384, 

5385, 5541, 5550a, and sec. 1125 of the 

National Defense Authorization Act for FY 

2004, Public Law 108–136, 117 Stat. 1638 (5 

U.S.C. 5304, 5382, 5383, 7302; 18 U.S.C. 

207).

Subpart C—Basic Pay for Employees 

of Temporary Organizations

■ 10. Section 534.303 is revised to read 

as follows:

§ 534.303 Basic pay for executive level 

positions. 

Rates of basic pay for executive level 

positions of temporary organizations 

may not exceed the rate for level III of 

the Executive Schedule.

■ 11. Section 534.304(c) is revised to 

read as follows:

§ 534.304 Basic pay for staff positions.

* * * * *

(c) Notwithstanding the limitations in 

paragraphs (a) and (b) of this section, 

the rate of basic pay and localityadjusted rate of basic pay for a senior 

staff position of a temporary 

organization may, in a case determined 

by the head of a temporary organization 

to be exceptional, exceed the maximum 

rates established under those 

paragraphs. However, the higher 

payable rates may not exceed the rate 

for level III of the Executive Schedule.

Subpart D—Pay and Performance 

Awards Under the Senior Executive 

Service

■ 12. Section 534.401 is revised to read 

as follows:

§ 534.401 Purpose. 

This subpart contains the rules for 

setting and adjusting rates of basic pay 

and granting performance awards for 

members of the Senior Executive 

Service (SES), as provided by 5 U.S.C. 

5382, 5383, and 5384. An agency must 

set and adjust the rate of basic pay for 

an SES member on the basis of the 

employee’s performance and/or 

contribution to the agency’s 

performance, as determined by the 

agency through the administration of its 

performance management system(s) for 

senior executives. These regulations 

must be read in combination with 

applicable statutes and with the 

regulations for the approval of an SES 

performance management system under 

5 CFR part 430, subpart C, and 

certification of an SES performance 

appraisal system under 5 CFR part 430, 

subpart D.

■ 13. Section 534.402 is revised to read 

as follows:

§ 534.402 Definitions. 

In this subpart—

Agency means an executive agency or 

military department, as defined by 5 

U.S.C. 105 and 102. 

Authorized agency official means the 

head of an agency or an official who is 

authorized to act for the head of the 

agency in the matter concerned. The 

agency’s Inspector General is the 

authorized agency official for senior 

executive positions in the Office of the 

Inspector General, consistent with the 

requirements in section 3(a) of the 

Inspector General Act of 1978. 

Outstanding performance means 

performance that substantially exceeds 

the normally high performance expected 

of any senior executive, as evidenced by 

exceptional accomplishments or 

contributions to the agency’s 

performance. 

Performance expectations means the 

critical and other performance elements 

and performance requirements that 

constitute the senior executive 

performance plans (as defined in 

§ 430.303). 

PRB means Performance Review 

Board, as described in § 430.310. 

Rate of basic pay means the rate of 

pay fixed by law or administrative 

action for the senior executive, within 

the established SES rate range or, in the 

case of a senior executive entitled to pay 

retention, the employee’s retained rate 

of pay, excluding any applicable 

locality-based comparability payments 

under 5 U.S.C. 5304, but before any 

deductions and exclusive of additional 

pay of any other kind. 

Relative performance means the 

performance of a senior executive with 

respect to the performance of other 

senior executives, including their 

contribution to agency performance, 

where appropriate, as determined by the 

application of a certified performance 

appraisal system under 5 CFR part 430, 

subpart D. 

Senior executive means a member of 

the Senior Executive Service (SES) paid 

under 5 U.S.C. 5383. 

SES rate means a rate of basic pay 

within the SES rate range assigned to a 

member of the SES under § 534.403(a). 

SES rate range means the range of 

rates of basic pay established for the 

SES under 5 U.S.C. 5382 and 

§ 534.403(a).

§§ 534.403 and 534.405 [Redesignated as 

§§ 534.405 and 534.408]

■ 14. Redesignate §§ 534.403 and 

534.405 as §§ 534.405 and 534.408, 

respectively.

■ 15. Add new § 534.403 to read as 

follows:

§ 534.403 SES rate range. 

(a) SES rate range. (1) On the first day 

of the first applicable pay period 

beginning on or after January 1, 2004, 

the minimum rate of basic pay of the 

SES rate range is set at an amount equal 

to the minimum rate of basic pay under 

5 U.S.C. 5376 for senior-level positions 

(excluding any locality-based 

comparability payment under 5 U.S.C. 

5304). The minimum rate of basic pay 

for the SES rate range will increase 

Federal Register / Vol. 69, No. 233 / Monday, December 6, 2004 / Rules and Regulations 70363

consistent with any increase in the 

minimum rate of basic pay for seniorlevel positions under 5 U.S.C. 5376. An 

SES member may not receive less than 

the minimum rate of the SES rate range. 

Except as provided in paragraph (a)(2) 

of this section, the maximum rate of 

basic pay of the SES rate range is set at 

the rate for level III of the Executive 

Schedule. An SES member’s rate of 

basic pay must be set at one of the rates 

within the SES rate range based on the 

senior executive’s performance and/or 

contribution to the agency’s 

performance. 

(2) The maximum rate of basic pay of 

the SES rate range is set at the rate for 

level II of the Executive Schedule for 

senior executives in an agency who are 

covered by a performance appraisal 

system that makes meaningful 

distinctions based on relative 

performance, as certified by the Office 

of Personnel Management (OPM), with 

concurrence by the Office of 

Management and Budget (OMB), under 

5 U.S.C. 5307(d) and 5 CFR part 430, 

subpart D. A senior executive’s rate of 

basic pay may not exceed the maximum 

rate of the applicable SES rate range, 

except as provided in § 534.404(h)(2). 

The applicable maximum rate of basic 

pay for the SES rate range will increase 

with any increase in the rate for levels 

II or III of the Executive Schedule under 

5 U.S.C. 5318. 

(3) Rates of basic pay higher than the 

rate for level III of the Executive 

Schedule but less than or equal to the 

rate for level II of the Executive 

Schedule generally are reserved for 

those senior executives who have 

demonstrated the highest levels of 

individual performance and/or made 

the greatest contributions to the 

agency’s performance, as determined by 

the agency through the administration 

of its performance appraisal system for 

senior executives, or, in the case of 

newly-appointed senior executives, 

those who possess superior leadership 

or other competencies, consistent with 

the agency’s strategic human capital 

plan. 

(b) Suspension of certification of 

performance appraisal system. A senior 

executive whose rate of basic pay is 

higher than the rate for level III of the 

Executive Schedule may not suffer a 

reduction in pay because his or her 

agency’s applicable performance 

appraisal system certification is 

suspended under 5 CFR 430.405(h). The 

senior executive will continue to receive 

his or her current SES rate and is not 

eligible for a pay adjustment until the 

senior executive is assigned to a 

position that would allow the employee 

to receive a pay adjustment or until 

certification of the employing agency’s 

applicable performance appraisal 

system is reinstated under 5 CFR part 

430, subpart D. The SES rate of pay is 

not considered a retained rate of pay for 

the purpose of applying 5 U.S.C. 3594 

and 5 CFR part 359, subpart G, or 5 

U.S.C. 5363 and 5 CFR 536.104.

■ 16. Section 534.404 is revised to read 

as follows:

§ 534.404 Setting and adjusting pay for 

senior executives. 

(a) Setting pay upon initial 

appointment to the SES. An authorized 

agency official may set the rate of basic 

pay of an individual at any rate within 

the SES rate range upon initial 

appointment to the SES, subject to the 

limitation on the maximum rate of basic 

pay in § 534.403(a). Rates of basic pay 

above the rate for level III of the 

Executive Schedule but less than or 

equal to the rate for level II of the 

Executive Schedule generally are 

reserved for those newly appointed 

senior executives who possess superior 

leadership or other competencies, as 

determined by the agency as part of its 

strategic human capital plan. In setting 

a new senior executive’s rate of basic 

pay, an agency must consider the nature 

and quality of the individual’s 

experience, qualifications, and 

accomplishments as they relate to the 

requirements of the SES position, as 

well as the individual’s current 

responsibilities. 

(b) Adjusting the pay of SES members.

(1) An authorized agency official may 

adjust (increase or reduce) the rate of 

basic pay of a senior executive 

consistent with the agency’s plan for 

setting and adjusting SES rates of basic 

pay under paragraph (g) of this section. 

(2) A senior executive who receives 

an annual summary rating of 

outstanding performance must be 

considered for an annual pay increase, 

subject to the limitation on the 

maximum rate of basic pay in 

§ 534.403(a). 

(3) An agency may provide a pay 

increase to allow a senior executive to 

advance his or her relative position 

within the SES rate range only upon a 

determination by the authorized agency 

official that the senior executive’s 

individual performance and/or 

contributions to agency performance so 

warrant. In assessing a senior 

executive’s performance and/or 

contribution to the agency’s 

performance, the authorized agency 

official may consider such things as 

unique skills, qualifications, or 

competencies that the individual 

possesses, and their significance to the 

agency’s performance, as well as the 

senior executive’s current 

responsibilities. Senior executives who 

demonstrate the highest levels of 

individual performance and/or make the 

greatest contributions to the agency’s 

performance, as determined by the 

agency through the administration of its 

performance appraisal system, or, in the 

case of newly-appointed senior 

executives, those who possess superior 

leadership or other competencies, as 

determined by the agency as part of its 

strategic human capital plan, must 

receive the highest rates of basic pay or 

pay adjustments. 

(4)(i) On the effective date of an 

increase in the minimum or maximum 

rate of basic pay of the SES rate range 

under § 534.403(a)(1) or (2), an 

authorized agency official may increase 

the rate of basic pay of a senior 

executive who meets or exceeds his or 

her performance expectations by an 

amount that does not exceed the amount 

necessary to maintain the senior 

executive’s relative position in the SES 

rate range, except as provided in 

paragraph (b)(4)(ii) and (b)(4)(iii) of this 

section. A pay increase made under this 

paragraph is not considered a pay 

adjustment for the purpose of applying 

§ 534.404(c). 

(ii) A pay increase under paragraph 

(b)(4)(i) of this section may not be 

provided to a senior executive whose 

rate of basic pay is at or below the rate 

for level III of the Executive Schedule if 

such an increase would cause the senior 

executive’s rate of basic pay to exceed 

the rate for level III of the Executive 

Schedule unless the senior executive 

has received an annual summary rating 

of outstanding for the most recently 

completed appraisal period and the 

agency head or designee who performs 

the functions described in 5 CFR 

430.404(a)(5) or (6) (including the 

Inspector General, where applicable) 

has approved the increase in pay. 

(iii) A pay increase under paragraph 

(b)(4)(i) of this section may not be 

provided to a senior executive whose 

rate of basic pay is above the rate for 

level III of the Executive Schedule 

unless the senior executive has received 

an annual summary rating of 

outstanding for the most recently 

completed appraisal period and the 

agency head or designee who performs 

the functions described in 5 CFR 

430.404(a)(5) or (6) (including the 

Inspector General, where applicable) 

has approved the increase in pay. 

However, in the case of a senior 

executive whose rate of basic pay is 

above the rate for level III of the 

Executive Schedule and who has been 

rated below outstanding, but above fully 

successful, for the most recently 

70364 Federal Register / Vol. 69, No. 233 / Monday, December 6, 2004 / Rules and Regulations 

completed appraisal period, the agency 

head or designee who performs the 

functions described in 5 CFR 

430.404(a)(5) or (6) (including the 

Inspector General, where applicable) 

may approve such a pay increase in 

limited circumstances, such as for an 

exceptionally meritorious 

accomplishment. 

(5) A senior executive who receives a 

summary rating of less than fully 

successful may not receive an increase 

in pay for the current appraisal period. 

(6) An authorized agency official may 

reduce the rate of basic pay of a senior 

executive for performance and/or 

disciplinary reasons, consistent with the 

restrictions on reducing the rate of basic 

pay of a career senior executive in 

paragraph (j) of this section and in 

§ 534.406(b). 

(c) 12-month rule. (1) An authorized 

agency official may adjust (i.e., increase 

or reduce) the rate of basic pay of a 

senior executive not more than once 

during any 12-month period. However, 

an agency may make a determination to 

provide an additional pay increase 

under certain conditions as prescribed 

in paragraph (c)(3) and (4) of this 

section without regard to whether the 

senior executive has received a pay 

adjustment during the previous 12-

month period. 

(2) The following pay actions are 

considered pay adjustments for the 

purpose of applying this paragraph: 

(i) The setting of an individual’s rate 

of basic pay upon initial appointment or 

reappointment to the SES under 

paragraphs (a) and (i)(1) of this section 

and upon reinstatement to the SES 

under paragraph (i)(2)(ii) of this section; 

and 

(ii) Any adjustment (increase or 

reduction) in an SES rate of basic pay 

granted to a senior executive, except as 

provided in paragraph (c)(3) of this 

section.

(3) The following pay actions are not 

considered pay adjustments for the 

purpose of applying this paragraph: 

(i) The conversion of senior 

executives to the new SES pay system 

under § 534.406 and the conversion of 

other employees to equivalent senior 

executive positions; 

(ii) A determination by an authorized 

agency official to make a zero 

adjustment in pay after reviewing a 

senior executive’s annual summary 

rating; 

(iii) A zero adjustment in pay made 

during the 12-month period preceding 

the first day of the first applicable pay 

period beginning on or after January 1, 

2004, caused by the former limitation on 

basic pay plus locality-based 

comparability payments under 5 U.S.C. 

5304(g)(2) for a senior executive who 

was granted an increase in his or her 

rate of basic pay that did not result in 

an actual increase in pay; 

(iv) A determination to provide an 

additional pay increase under paragraph 

(f) of this section when there is an 

increase in Executive Schedule rates of 

pay; 

(v) A determination to provide a pay 

increase under paragraph (b)(4) of this 

section to allow a senior executive to 

maintain his or her relative position in 

the SES rate range; and 

(vi) An increase in pay equivalent to 

the minimum amount necessary to 

ensure that a senior executive’s rate of 

basic pay does not fall below the 

minimum rate of the SES rate range. 

(4) An authorized agency official may 

approve increases in a senior 

executive’s rate of basic pay more than 

once during a 12-month period if the 

agency head or designee who performs 

the functions described in 5 CFR 

430.404(a)(5) or (6) (including the 

Inspector General, where applicable) 

determines that—

(i) The senior executive’s 

exceptionally meritorious 

accomplishment significantly 

contributes to the agency’s performance; 

(ii) A pay increase is necessary to 

reassign a senior executive to a position 

with substantially greater scope and 

responsibility or to recruit a senior 

executive with superior leadership or 

other competencies from a position in 

another agency; 

(iii) The retention of the senior 

executive is critical to the mission of the 

agency and the senior executive would 

be likely to leave the agency in the 

absence of a pay increase; or 

(iv) Such action conforms to an 

otherwise applicable executive 

appraisal and pay adjustment cycle (e.g., 

in the case of a senior executive who 

was appointed to an SES position 

within the past 12 months or a senior 

executive who was transferred to an SES 

position from an agency with a different 

senior executive appraisal and pay 

adjustment cycle within the past 12 

months). 

(5) An authorized agency official must 

provide written documentation 

approving an exception under 

paragraph (c)(4) of this section. Any pay 

adjustment made as a result of a 

determination under paragraph (c)(4) of 

this section is considered a pay 

adjustment for the purpose of applying 

§ 534.404(c) and begins a new 12-month 

period. 

(d) Adjustments in pay prior to 

certification of applicable performance 

appraisal system. An authorized agency 

official may adjust a senior executive’s 

rate of basic pay converted under 

§ 534.406 on the first day of the first 

applicable pay period beginning on or 

after January 1, 2004, or on any date 

thereafter prior to obtaining certification 

under 5 CFR part 430, subpart D, but 

only up to the rate for level III of the 

Executive Schedule. The authorized 

agency official may provide an increase 

in pay if warranted under the conditions 

prescribed in paragraph (b) of this 

section and the senior executive is 

otherwise eligible for such an increase 

(i.e., he or she did not receive a pay 

adjustment under § 534.404(c) during 

the previous 12-month period). An 

adjustment in pay made under this 

paragraph is considered a pay 

adjustment for the purpose of applying 

§ 534.404(c). 

(e) Adjustments in pay after 

certification of applicable performance 

appraisal system. In the case of an 

agency that obtains certification of a 

performance appraisal system for senior 

executives under 5 CFR part 430, 

subpart D, an authorized agency official 

may increase a covered senior 

executive’s rate of basic pay up to the 

rate for level II of the Executive 

Schedule, consistent with the limitation 

on increasing pay above the rate for 

level III of the Executive Schedule in 

§ 534.403(a)(2). The authorized agency 

official may provide an increase in pay 

if warranted under the conditions 

prescribed in paragraph (b) of this 

section and the senior executive is 

otherwise eligible for such an increase 

(i.e., he or she did not receive a pay 

adjustment under § 534.404(c) during 

the previous 12-month period). An 

adjustment in pay made under this 

paragraph is considered a pay 

adjustment for the purpose of applying 

§ 534.404(c). 

(f) Effect of increase in Executive 

Schedule rates of pay. (1) If there is an 

additional increase in the rates for the 

Executive Schedule in a calendar year, 

and if that increase becomes effective on 

the first day of the first pay period 

beginning on or after January 1 (i.e., the 

date prescribed in 5 U.S.C. 5318), an 

agency may review any previous 

determination to adjust the pay of a 

senior executive that was made effective 

on or after the effective date of the first 

increase in the rates for the Executive 

Schedule to determine whether, and to 

what extent, an additional pay increase 

may be warranted for senior executives 

based on the same criteria used for the 

previous determination. If the agency 

determines that an additional pay 

increase is warranted, that increase 

must be made effective as of the 

effective date of the previous pay 

increase and is not considered a pay 

Federal Register / Vol. 69, No. 233 / Monday, December 6, 2004 / Rules and Regulations 70365

adjustment for the purpose of applying 

§ 534.404(c). 

(2) If there is an increase in the rates 

of pay for the Executive Schedule under 

5 U.S.C. 5318 after an agency has 

already granted pay increases to its 

senior executives following the 

applicable performance appraisal 

period, an agency may review any 

previous determination to increase the 

pay of a senior executive whose rate of 

basic pay is equivalent to the rate for 

level II (if covered under a performance 

appraisal system that is certified) or 

level III (if covered under a performance 

appraisal system that is not certified) 

when the applicable maximum rate is 

increased to determine whether, and to 

what extent, an additional pay increase 

may be warranted for the senior 

executive based on the same criteria 

used for the previous determination. 

The determination to provide an 

additional pay increase must be 

approved and made effective as of the 

effective date of increases in the 

Executive Schedule under 5 U.S.C. 5318 

(i.e., the first day of the first pay period 

beginning on or after January 1). An 

additional pay increase under this 

paragraph is not considered a pay 

adjustment for the purpose of applying 

§ 534.404(c). 

(g) Agency plan for setting and 

adjusting SES rate of basic pay. Each 

agency must establish a plan for setting 

and adjusting the rates of basic pay for 

SES members. Agencies must provide 

for transparency in the processes for 

making pay decisions, while assuring 

confidentiality. In developing its plan 

for setting and adjusting SES rates, an 

agency may consider the senior 

executive’s broad scope of authority and 

level of responsibility and his or her 

personal accountability for the success 

(or failure) of an agency’s programs. The 

agency’s plan must require that any 

decisions to adjust pay must reflect 

meaningful distinctions among senior 

executives based on individual 

performance and/or contribution to 

agency performance and must include—

(1) The criteria that will be used to set 

and adjust a senior executive’s rate of 

basic pay to ensure that individual pay 

rates or pay adjustments, as well as their 

overall distribution within the SES rate 

range, reflect meaningful distinctions 

within a single performance rating level 

(e.g., the higher the employee’s relative 

performance within a rating level, the 

higher the pay adjustment) and/or 

between performance rating levels (e.g., 

the higher the rating level, the higher 

the pay adjustment); 

(2) The criteria that will be used to set 

and adjust a senior executive’s rate of 

basic pay at a rate that exceeds the rate 

for level III of the Executive Schedule if 

the applicable agency performance 

appraisal system has been certified 

under 5 CFR part 430, subpart D; 

(3) The designation of the authorized 

agency official who has authority to set 

and adjust SES rates of pay for 

individual senior executives, subject to 

the requirement that the agency head or 

designee who performs the functions 

described in 5 CFR 430.404(a)(5) and (6) 

(including the Inspector General, where 

applicable) must approve any 

determination to set a senior executive’s 

rate of basic pay higher than the rate for 

level III of the Executive Schedule and 

must approve any determination to 

increase a senior executive’s rate of 

basic pay more than once in any 12-

month period; and 

(4) The administrative and 

management controls that will be 

applied to ensure compliance with 

applicable statutes, OPM’s regulations, 

the agency’s plan, and, where 

applicable, the certification 

requirements set forth in 5 CFR 430, 

subpart D, and the limitation on the 

maximum rate of basic pay in 

§ 534.403(a). 

(h) Setting pay upon transfer. (1) An 

authorized agency official may set the 

pay of a senior executive transferring 

from another agency at any rate within 

the SES rate range, subject to the 

limitation on the maximum rate of basic 

pay in § 534.403(a) and the restrictions 

on reducing the pay of career senior 

executives in paragraph (h)(2) of this 

section (upon transfer to an agency 

whose applicable performance appraisal 

system is not certified) and in 

§ 534.406(b) (for 12 months following 

the effective date of the new SES pay 

system). If pay is set at the same SES 

rate the senior executive received in his 

or her former agency, the action is not 

considered a pay adjustment for the 

purpose of applying § 534.404(c). 

(2) A senior executive whose rate of 

basic pay is higher than the rate for level 

III of the Executive Schedule may not 

suffer a reduction in pay as a result of 

transferring to an agency where the 

maximum rate of basic pay for the 

applicable SES rate range is equal to the 

rate for level III of the Executive 

Schedule. The senior executive will 

continue to receive his or her current 

SES rate and is not eligible for a pay 

adjustment until the senior executive is 

assigned to a position that would allow 

the employee to receive a pay 

adjustment or the employing agency’s 

applicable performance appraisal 

system is certified under 5 CFR part 

430, subpart D. The SES rate of pay is 

not considered a retained rate of pay for 

the purpose of applying 5 U.S.C. 3594 

and 5 CFR part 359, subpart G, or 5 

U.S.C. 5363 and 5 CFR 536.104. 

(i) Setting pay following a break in 

SES service. (1) General. Upon 

reappointment to the SES, an authorized 

agency official may set the rate of basic 

pay of a former senior executive at any 

rate within the SES rate range, subject 

to the limitations in § 534.403(a), if 

there has been a break in SES service of 

more than 30 days. If there has been a 

break in SES service of 30 days or less, 

the senior executive’s rate of basic pay 

may be set at any rate within the SES 

rate range (without regard to whether 

the employee received a pay adjustment 

during the previous 12-month period), 

but not higher than the senior 

executive’s former SES rate of basic pay. 

Where there has been a break in service 

of 30 days or less, the agency head or 

designee who performs the functions 

described in 5 CFR 430.404(a)(5) and (6) 

(including the Inspector General, where 

applicable) may approve a higher rate 

than the senior executive’s former rate 

of basic pay, if warranted. Setting a rate 

of basic pay upon reappointment to the 

SES is considered a pay adjustment 

under § 534.404(c). 

(2) Reinstatement from a Presidential 

appointment requiring Senate 

confirmation. The following provisions 

apply to a former career senior 

executive who is reinstated under 5 CFR 

317.703: 

(i) If the individual elected to remain 

subject to the SES pay provisions while 

serving under a Presidential 

appointment, his or her SES rate may be 

adjusted upon reinstatement to the SES, 

whether in the agency where the 

individual held the Presidential 

appointment or in another agency, if at 

least 12 months have elapsed since the 

employee’s last SES pay adjustment. If 

fewer than 12 months have elapsed 

since the employee’s last SES pay 

adjustment, an authorized agency 

official may approve an additional pay 

increase under § 534.404(c)(4) if the 

additional pay increase is warranted. 

Any pay adjustment must be made in 

accordance with paragraphs (b), (d), and 

(e) of this section and the agency’s plan 

for adjusting SES rates of pay in 

paragraph (g) of this section. 

(ii) If the individual did not elect to 

remain subject to the SES pay 

provisions while serving under a 

Presidential appointment, his or her 

SES rate may be set upon reinstatement 

to the SES at any rate within the SES 

rate range, subject to the limitations in 

§ 534.403(a). 

(iii) Setting a rate of basic pay upon 

reinstatement to the SES under 

paragraphs (i)(2)(i) and (ii) of this 

70366 Federal Register / Vol. 69, No. 233 / Monday, December 6, 2004 / Rules and Regulations 

section is considered a pay adjustment 

for the purpose of applying § 534.404(c).

(j) Restrictions on reducing the pay of 

career senior executives.

(1) An authorized agency official may 

reduce a career senior executive’s SES 

rate of basic pay by not more than 10 

percent for performance or disciplinary 

reasons, subject to the restriction on 

reducing the pay of career senior 

executives in § 534.406(b) or setting pay 

below the minimum rate of the SES rate 

range in § 534.403(a). 

(2) The SES rate of basic pay of a 

career senior executive may be reduced 

without the employee’s consent by the 

senior executive’s agency or upon 

transfer of function to another agency 

only—

(i) If the senior executive has received 

a less than fully successful annual 

summary rating under 5 CFR part 430, 

subpart C, or has otherwise failed to 

meet the performance requirements for 

a critical element as defined in 5 CFR 

430.303; or 

(ii) As a disciplinary or adverse action 

resulting from conduct-related activity, 

including, but not limited to, 

misconduct, neglect of duty, or 

malfeasance. 

(3) Prior to reducing a career senior 

executive’s rate of basic pay, the agency 

must provide the senior executive with 

the following: 

(i) Written notice of such reduction at 

least 15 days in advance of its effective 

date; 

(ii) A reasonable period of time, but 

not less than 7 days, for the senior 

executive to respond to such notice 

orally and/or in writing and to furnish 

affidavits and other documentary 

evidence in support of that response; 

(iii) An opportunity to be represented 

in the matter by an attorney or other 

representative; 

(iv) A written decision and specific 

reasons for the pay reduction at the 

earliest practicable date after the senior 

executive’s response, if any; and 

(v) An opportunity to request, within 

7 days after the date of that decision, 

reconsideration by the head of the 

agency, whose determination with 

respect to that request will be final and 

not subject to further review. 

(4) Reductions in pay under 

paragraph (j) of this section are not 

appealable under 5 U.S.C. 7543.

■ 17. In newly redesignated § 534.405, 

revise paragraphs (a)(2)(i), (b), (c), and (f) 

to read as follows:

§ 534.405 Performance Awards. 

(a) * * * 

(2) * * * 

(i) A former SES career appointee who 

elected to retain award eligibility under 

5 CFR part 317, subpart H. If the rate of 

basic pay of the individual is higher 

than the maximum rate of basic pay for 

the applicable SES rate range, the 

maximum rate of that SES rate range is 

used for crediting the agency award 

pool under paragraph (b) of this section 

and the amount the individual may 

receive under paragraph (c) of this 

section.

* * * * *

(b)(1) The total amount of 

performance awards paid during a fiscal 

year by an agency may not exceed the 

greater of—

(i) Ten percent of the aggregate career 

SES rates of basic pay for the agency as 

of the end of the fiscal year prior to the 

fiscal year in which the award payments 

are made; or 

(ii) Twenty percent of the average 

annual rates of basic pay for career SES 

appointees of the agency as of the end 

of the fiscal year prior to the fiscal year 

in which the award payments are made. 

(2) In determining the aggregate career 

SES rates of basic pay and the average 

annual rate of basic pay as of the end 

of FY 2003 for the purpose of applying 

paragraph (b) of this section, agencies 

must use the annual rate of basic pay, 

plus any applicable locality-based 

comparability payment under 5 U.S.C. 

5304 or special geographic pay 

adjustment established for law 

enforcement officers under section 

404(a) of the Federal Employees Pay 

Comparability Act of 1990 (Pub. L. 101–

509), which the SES appointees were 

receiving at the end of FY 2003. 

(c) The amount of a performance 

award paid to an individual career 

appointee may not be less than 5 

percent nor more than 20 percent of the 

appointee’s SES rate of basic pay as of 

the end of the performance appraisal 

period.

* * * * *

(f) Performance awards must be paid 

in a lump sum except in those instances 

when it is not possible to pay the full 

amount because of the applicable 

aggregate limitation on pay during a 

calendar year under 5 CFR part 530, 

subpart B. In that case, any amount in 

excess of the applicable aggregate 

limitation must be paid at the beginning 

of the following calendar year in 

accordance with 5 CFR part 530, subpart 

B. The full performance award, 

however, is charged against the agency 

bonus pool under § 534.405(b) for the 

fiscal year in which the initial payment 

was made.

■ 18. Section 534.406 is revised to read 

as follows:

§ 534.406 Conversion to the SES pay 

system. 

(a) On the first day of the first 

applicable pay period beginning on or 

after January 1, 2004, agencies must 

convert an existing SES rate of basic pay 

for a senior executive to an SES rate of 

basic pay that is equal to the employee’s 

rate of basic pay, plus any applicable 

locality-based comparability payment 

under 5 U.S.C. 5304 which the senior 

executive was receiving immediately 

before that date, except as provided in 

paragraph (b) of this section. The newly 

converted rate is the senior executive’s 

SES rate of basic pay. An agency’s 

establishment of an SES rate of basic 

pay for a senior executive under this 

paragraph is not considered a pay 

adjustment for the purpose of applying 

§ 534.404(c). 

(b) An SES member’s rate of basic 

pay, plus any applicable locality-based 

comparability payment under 5 U.S.C. 

5304 to which the employee was 

entitled on November 24, 2003, may not 

be reduced for 1 year after the first day 

of the first applicable pay period 

beginning on or after January 1, 2004. If 

an SES member’s rate of basic pay, plus 

any applicable locality-based 

comparability payment under 5 U.S.C. 

5304 to which the employee was 

entitled on November 23, 2003, is 

higher than the rate in effect 

immediately prior to the first day of the 

first applicable pay period beginning on 

or after January 1, 2004, the agency must 

use the higher rate for the purpose of 

converting SES members to the SES pay 

system. 

(c) An SES member who is assigned 

to a position outside the 48 contiguous 

States and the District of Columbia to a 

position overseas or in Alaska, Hawaii, 

Guam or the Commonwealth of the 

Northern Mariana Islands, Puerto Rico, 

the U.S. Virgin Islands, or other U.S. 

territories and possessions as of the first 

day of the first applicable pay period 

beginning on or after January 1, 2004, 

will be converted to a new rate of basic 

pay that equals the senior executive’s 

current rate of basic pay, plus the 

amount of locality pay authorized under 

5 U.S.C. 5304 for the applicable locality 

pay area upon the employee’s initial 

reassignment to a position in the 48 

contiguous States or the District of 

Columbia. The adjustment will be 

prospective, not retroactive, and it will 

not be considered a pay adjustment for 

the purpose of applying § 534.404(c). If 

the senior executive’s rate of basic pay 

did not exceed the rate for level III of 

the Executive Schedule while assigned 

to a position outside the 48 contiguous 

States or the District of Columbia, upon 

initial reassignment to a locality pay 

Federal Register / Vol. 69, No. 233 / Monday, December 6, 2004 / Rules and Regulations 70367

area the senior executive’s converted 

rate of basic pay may not exceed the rate 

for level III of the Executive Schedule. 

The newly converted rate is the senior 

executive’s SES rate of basic pay. 

(d) On the first day of the first 

applicable pay period beginning on or 

after January 1, 2004, a law enforcement 

officer (LEO), as defined in 5 CFR 

531.301, who is a member of the SES 

will have his or her rate of basic pay, 

plus any applicable special geographic 

pay adjustment established for LEOs 

under section 404(a) of the Federal 

Employees Pay Comparability Act of 

1990 (Pub. L. 101–509) to which he or 

she was entitled immediately before that 

date, converted to a new SES rate of 

basic pay. The newly converted rate is 

the senior executive’s SES rate of basic 

pay, and any pay adjustments approved 

on or after January 11, 2004, must be 

computed based on the senior 

executive’s converted rate of basic pay. 

Conversion to a new SES rate of basic 

pay is not considered a pay adjustment 

for the purpose of applying § 534.404(c).

■ 19. Section 534.407 is added to read as 

follows:

§ 534.407 Pay computation and aggregate 

compensation. 

(a) Except as provided in paragraph 

(b) of this section, pay for members of 

the SES must be computed in 

accordance with 5 U.S.C. 5504(b). 

(b) To determine the hourly rate of 

pay for members of the SES, divide the 

annual SES rate of basic pay by 2,087 

and round to the nearest cent, counting 

one-half cent and over as a whole cent. 

To derive the biweekly rate, multiply 

the hourly rate by 80. 

(c) Senior executives are subject to the 

applicable aggregate limitation on pay 

in 5 CFR part 530, subpart B.

■ 20. In newly redesignated § 534.408, in 

the last sentence of paragraph (b) remove 

the word ‘‘subject’’ and add in its place 

the word ‘‘subpart.’’

PART 575—RECRUITMENT AND 

RELOCATION BONUSES; RETENTION 

ALLOWANCES; SUPERVISORY 

DIFFERENTIALS

■ 21. The authority citation for part 575 

continues to read as follows:

Authority: 5 U.S.C. 1104(a)(2), 5753, 5754, 

5755 and 5757; Pub. L. 107–273, 116 Stat. 

1780; secs. 302 and 404 of the Federal 

Employees Pay Comparability Act of 1990 

(FEPCA) (Pub. L. 101–509), 104 Stat. 1462 

and 1466, respectively; E.O. 12748, 3 CFR, 

1992 Comp. p. 316.

Subpart C—Retention Allowances

■ 22. In § 575.306, paragraph (b) is 

revised to read as follows:

§ 575.306 Payment of retention allowance.

* * * * *

(b) The head of an agency may not 

authorize a retention allowance for an 

employee if or to the extent that such an 

allowance, when added to the 

employee’s estimated aggregate 

compensation, as defined in 5 CFR 

530.202, would cause the aggregate 

compensation actually received by the 

employee during the calendar year to 

exceed the applicable aggregate 

limitation on pay under 5 CFR part 530, 

subpart B, at the end of the calendar 

year.

* * * * *

■ 23. In § 575.307, paragraph (a) is 

revised to read as follows:

§ 575.307 Reduction or termination of 

retention allowance. 

(a) The agency must reduce or 

terminate the authorized amount of a 

retention allowance to the extent 

necessary to ensure that the employee’s 

estimated aggregate compensation, as 

defined in 5 CFR 530.202, does not 

exceed the applicable aggregate 

limitation on pay under 5 CFR part 530, 

subpart B, at the end of the calendar 

year.

* * * * *

[FR Doc. 04–26728 Filed 12–1–04; 5:03 pm] 

BILLING CODE 6325–39–P

DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation 

7 CFR Part 1464 

RIN 0560–AH13 

Tobacco Loan Program—Removal of 

Requirement That Producers of Burley 

and Flue Cured Tobacco Designate 

Sales Locations

AGENCY: Commodity Credit Corporation, 

USDA.

ACTION: Final rule.

SUMMARY: This rule amends the 

regulations governing the tobacco price 

support program to remove the 

requirement that flue-cured tobacco 

farmers designate the auction 

warehouses where they will sell their 

tobacco and that burley tobacco farmers 

designate all locations where they will 

sell their tobacco. Currently price 

support is available only at designated 

auction warehouses on eligible tobacco.

DATES: Effective Date: December 3, 2004.

FOR FURTHER INFORMATION CONTACT: Ann 

Wortham, (202) 720–2715 or 

ann_wortham@wdc.usda.gov. Tobacco 

Division (TD), Farm Service Agency, 

United States Department of Agriculture 

(USDA), STOP 0514, Room 5750–S, 

1400 Independence Avenue, SW., 

Washington, DC 20250–0514.

SUPPLEMENTARY INFORMATION: 

Background 

The Farm Service Agency (FSA) 

published in the Federal Register, on 

June 22, 2004, (69 FR 34615) a proposed 

rule to rescind the price support 

eligibility provision that requires fluecured and burley tobacco farmers to 

designate the locations where they will 

sell their tobacco. The proposed rule 

requested public comments, and the 

comment period ended on July 22, 2004. 

To the extent practicable, some 

comments that were received after that 

date were also considered. 

Summary of Comments 

FSA received 368 comments on the 

proposed rule. Two respondents asked 

that no change be made in the current 

designation requirement. This request 

was considered, however, weighing the 

requests to maintain the existing 

program against the prevalence of 

comments requesting elimination of the 

program, as was proposed, weigh 

heavily in favor of changing the current 

requirements. 

Eighteen respondents asked that the 

designation program be eliminated 

entirely. Although FSA proposed 

rescinding the designation program in 

June when the Agency requested input 

from the public, the majority of the 

comments on the proposed rule did not 

favor total elimination of the program. 

In deference to the majority of the 

comments on the proposed rule, FSA 

will not entirely eliminate the 

designation program. Thus, the final 

rule still contains a limited designation 

requirement. 

Three hundred and forty three 

comments suggested adjustments to the 

timing of the designation requirements. 

Of these, 101 respondents asked only 

that the waiting period for redesignation be reduced to five days or 

less, 13 respondents asked that the 

designation program proceed as it is 

currently outlined, 209 respondents 

asked that both designation and 

subsequent re-designation requirements 

be made more simple. Two hundred and 

twenty two of these same commentors 

requested that designations be made 

immediately effective, and that 

designations be suspended and not 

necessary after the first week of tobacco 

sales. These comments and suggestions 

are addressed below. 

Twenty-five comments expressed 

concerns about the burley tobacco 

designation program. These respondents