56344 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

DEPARTMENT OF DEFENSE 

OFFICE OF PERSONNEL 

MANAGEMENT 

5 CFR Part 9901 

RIN 3206–AL62 

National Security Personnel System 

AGENCY: Department of Defense; Office 

of Personnel Management. 

ACTION: Final rule. 

SUMMARY: The Department of Defense 

(DoD) and the Office of Personnel 

Management are issuing final 

regulations governing the operation of 

the National Security Personnel System 

(NSPS), a human resources management 

system for DoD, as originally authorized 

by the National Defense Authorization 

Act for Fiscal Year 2004 and amended 

by the National Defense Authorization 

Act for Fiscal Year 2008. This final 

regulation governs compensation, 

classification and performance 

management under NSPS. NSPS aligns 

DoD’s human resources management 

system with the Department’s critical 

mission requirements and protects the 

civil service rights of its employees. 

DATES: November 25, 2008. 

FOR FURTHER INFORMATION CONTACT: At 

DoD, Bradley B. Bunn, (703) 696–5303; 

for OPM, Charles D. Grimes III, (202) 

418–3163. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

This SUPPLEMENTARY INFORMATION

section is organized as follows: 

I. The Case for Action 

II. The Need for Change 

III. Significant Changes to the Original Law 

IV. Two Years of Operational Experience 

Under NSPS 

A. Classification 

B. Compensation 

C. Pay Administration 

D. Performance and Pay Pool Management 

E. Other Changes 

V. Response to Public Comments 

A. Major Issues 

1. Specificity of the Regulation 

2. Collective Bargaining and Labor 

Relations 

3. Performance and Pay Pool Management 

4. Influence of Performance Versus Market 

Factors on Pay 

5. Control Points 

B. General Issues 

C. Issues by Subpart 

1. Subpart A—General Provisions 

2. Subpart B—Classification 

3. Subpart C—Pay and Pay Administration 

4. Subpart D—Performance Management 

VI. Next Steps 

I. The Case for Action 

The United States needs a future force 

that is defined less by size and more by 

mobility and swiftness, one that is 

easier to deploy and sustain, one that 

relies more heavily on stealth, precision 

weaponry, and information 

technologies. 

With this philosophy established in 

2001, DoD set the direction for the 

transformation of defense strategy and 

defense management—the way DoD 

achieves its mission. To accomplish 

this, DoD transformed the way it leads 

and manages the people who develop, 

acquire, and maintain our Nation’s 

defense capability. Those responsible 

for defense transformation—including 

DoD civilian employees—anticipate the 

future and, where possible, help create 

it. The Department continues to 

implement new capabilities to meet 

tomorrow’s threats as well as those of 

today. 

The National Security Personnel 

System (NSPS) is a key pillar in the 

Department of Defense’s transformation. 

NSPS was established to provide a 

flexible and contemporary civilian 

personnel system that is essential to the 

Department’s efforts to create and 

maintain an environment in which the 

DoD Total Force thinks and operates as 

one cohesive unit. 

DoD civilians are unique in 

Government. They are an integral part of 

an organization that has a military 

function. DoD civilians complement and 

support the military around the world 

in every time zone, every day. Just as 

new threats, new missions, new 

technologies, and new tactics are 

changing the work of the military, they 

are changing the work of our entire 

civilian workforce as well. To continue 

to support the interests of the United 

States in the current national security 

environment—where unpredictability is 

the norm and greater agility the 

imperative—civilians must be an 

integrated, flexible, and responsive part 

of the Total Force team. 

The Federal personnel system in use 

by much of the Department and the 

Federal Government is based on 20th 

century assumptions about the nature of 

public service and cannot adequately 

address public service requirements in 

the 21st century national security 

environment. Although this personnel 

system is based on important core 

principles, the principles are manifested 

in an inflexible, one-size-fits-all system 

of defining work, hiring staff, managing 

people, assessing and rewarding 

performance, and advancing personnel. 

The inherent weaknesses of this system 

make support of DoD’s mission 

complex, costly, and ultimately risky. 

The pay and movement of personnel is 

linked to outdated, narrowly defined 

work definitions with inadequate means 

of making distinctions in pay between 

high and low performers. 

Recognizing this, NSPS is designed to 

provide a more flexible, mission-driven 

system of human resources management 

that retains core principles while 

providing a more cohesive Total Force. 

Additionally, the Department’s 28 years 

of experience with transformational 

personnel demonstration projects, 

covering approximately 30,000 DoD 

employees, has demonstrated that 

fundamental change in personnel 

management results in individual career 

growth and opportunities, workforce 

responsiveness, and innovation. All of 

these things multiply mission 

effectiveness. 

The immense challenges facing DoD 

today support the continuation of this 

civilian workforce transformation. 

Civilian employees are being asked to 

assume new and different 

responsibilities, take more risk, and be 

more innovative, agile, and accountable 

than ever before. It is critical that DoD 

supports the entire civilian workforce 

with modern systems—particularly a 

human resources management system 

that supports and protects their critical 

role in DoD’s Total Force effectiveness. 

The enabling legislation provides the 

Department with the authority to meet 

this transformation challenge. 

More specifically, the law provides 

the Department and OPM authority to 

establish a flexible and contemporary 

civilian human resources management 

system for DoD civilians. The attacks of 

September 11 and the continuing war 

on terrorism make clear that flexibility 

is not a policy preference. It is nothing 

less than an absolute requirement, and 

it must be the foundation of civilian 

human resources management. 

NSPS promotes a performance culture 

in which the performance and 

contributions of the DoD civilian 

workforce are more fully recognized and 

rewarded. The system provides the 

civilian workforce a contemporary paybanding construct which includes 

performance-based pay. This allows for 

the establishment of more competitive 

salaries and the ability to adjust salaries 

based on various factors, to include 

labor market conditions, performance, 

as well as changes in employee duties. 

In other words, NSPS provides a more 

flexible HR management system to 

attract skilled, talented, and motivated 

people, while also retaining and 

improving the skills of the existing 

workforce. The system retains the core 

values of the civil service while 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56345 

allowing employees to be paid and 

rewarded based on performance, 

innovation, and results. It also provides 

employees with greater opportunities 

for career growth and mobility within 

the Department. DoD leadership will 

ensure that supervisors and employees 

understand NSPS and can function 

effectively within it. 

The NSPS pay and classification 

system provides a more flexible support 

structure that helps attract skilled and 

talented workers, retain and 

appropriately reward current 

employees, and create opportunities for 

civilians to participate more fully in the 

total integrated workforce. A paybanding structure replaced the artificial 

limitations created by the previous pay 

and classification systems. With broad 

pay bands, the Department is able to 

move employees more freely across a 

range of work opportunities without 

being bound by narrowly described 

work definitions. The pay structure is 

more responsive to market conditions. 

The Department is able to adjust rate 

ranges and local market supplements 

based on variations relating to specific 

occupations, rather than using a onesize-fits-all approach. Labor market 

conditions also are considered when 

making pay-setting decisions. As 

prescribed in the enabling legislation, 

NSPS better links individual pay to 

performance using performance rather 

than time on the job to determine pay 

increases. 

Despite the professionalism and 

dedication of DoD civilian employees, 

the limitations imposed by the 

Governmentwide Federal personnel 

system often prevent managers from 

using civilian employees effectively. 

This causes the Department to 

sometimes use military personnel or 

contractors when civilian employees are 

the best choice to accomplish the task. 

The Federal personnel system limits 

opportunities for civilians at a time 

when the role of DoD’s civilian 

workforce includes more significant 

participation in Total Force 

effectiveness. NSPS generates more 

opportunities for DoD civilians by 

providing an incentive for managers to 

turn to them first when certain vital 

tasks need doing. This frees uniformed 

men and women to focus on matters 

unique to the military. 

A key to the continued success of 

NSPS is ensuring that the system is 

perceived as being fair, i.e., establishing 

a trust between employees and 

supervisors. The Department’s mission 

cannot be accomplished without the 

civilian workforce. NSPS recognizes 

that employees more readily exercise 

personal responsibility and sustain a 

high level of individual performance 

and teamwork when they perceive that 

the system and their supervisors are fair. 

The Department and the Office of 

Personnel Management have addressed 

fairness in NSPS in several dimensions: 

system design; the right to seek review 

of important categories of management 

decisions; workforce access to 

information about system provisions, 

processes, and decisions criteria; and 

accountability mechanisms. 

NSPS regulations and implementing 

issuances include safeguards against 

arbitrary actions. Examples include 

written performance expectations, 

multi-level reviews of performance 

plans expectations and performance 

rating and payout decisions, and 

mandatory within-grade increase buy-in 

for all employees who are moved to 

NSPS via management-directed actions. 

In addition, NSPS continues employees’ 

and labor organizations’ rights to 

challenge or seek review of key 

decisions. For example, non-bargaining 

unit employees will be able to request 

reconsideration of their job objective 

rating or their rating of record through 

an administrative grievance procedure. 

Bargaining unit employees use a 

negotiated grievance procedure to 

challenge matters related to their rating 

of record. Employees must be notified in 

advance of a proposed adverse action, 

be given time and opportunity for reply, 

and be given a decision notice that 

includes the reasons for the decision in 

accordance with Governmentwide 

adverse action and employee appeal 

rules. Labor organization officials may 

file unfair labor practices claims or 

grievances. Labor organizations may 

seek collective bargaining on NSPS 

implementation under Governmentwide 

labor relations rules. 

The Department and Components 

make information about NSPS rules, 

policies, and practices readily available 

to the workforce in the form of 

published regulations, published 

implementing issuances, local level 

instructions, training, and other sources. 

The last dimension of accountability 

for fair decisions and practices under 

NSPS builds on human capital 

management mechanisms beyond NSPS, 

and on internal NSPS provisions. First, 

there are human resources management 

accountability reviews within the 

Department that identify and address 

issues regarding the observance of merit 

system principles and regulatory and 

policy requirements, including those 

established under NSPS. In addition, 

the Department monitors the outcomes 

of administrative and negotiated 

grievances, performance rating 

reconsiderations, equal employment 

opportunity complaints, and 

whistleblower complaints to correct 

chronic problems and particular 

failings. 

Second, NSPS program evaluation 

findings enable the Secretary and the 

OPM Director to determine whether the 

design of NSPS and the pattern of its 

results meet statutory requirements like 

fairness and equity and the specific 

performance expectations for a credible 

and trusted system. Section 9901.107 of 

this rule identifies the requirement for 

an NSPS program evaluation. A robust 

and long-term NSPS program evaluation 

plan of studies and reviews, 

transactional data analyses opinion 

surveys, and other evaluative methods 

has been fielded. 

Fairness in NSPS is not a specific 

thing, but rather an intrinsic quality 

built into the design of a flexible human 

resources management system—one to 

be accounted for during reviews and 

evaluations of NSPS operations and 

decisions. 

II. The Need for Change 

The Department’s experience 

operating under the current NSPS 

regulations as well as the 28 years of 

experience with transformational 

personnel demonstration projects, 

covering nearly 30,000 DoD employees, 

has shown that fundamental change in 

personnel management has a positive 

impact on individual career growth and 

opportunities, workforce 

responsiveness, and innovation; all 

these things enhance mission 

effectiveness. 

Public Law 108–136 amended title 5, 

United States Code, to provide the 

Department with the authority to meet 

this transformation challenge through 

development and deployment of NSPS. 

Public Law 110–181, while amending 

Public Law 108–136, continues to 

promote a performance culture in which 

the performance and contributions of 

the DoD civilian workforce are linked to 

strategic mission objectives and are 

more fully recognized and rewarded. It 

also retains flexibilities to streamline 

the method for classifying positions and 

to provide a more flexible support 

structure for both pay and classification 

in order to help attract skilled and 

talented workers; retain and 

appropriately reward current 

employees; respond to DoD mission 

requirements; and create opportunities 

for employees to participate more fully 

in the total integrated workforce. The 

System offers the more than 181,000 

currently covered employees a 

contemporary pay banding construct, 

which includes performance-based pay. 

NSPS allows the Department to be more 

mstockstill on PROD1PC66 with RULES2

56346 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

competitive in setting salaries and to 

adjust salaries based on factors such as 

labor market conditions, performance, 

and changes in duties. The updated HR 

management system rules more 

specifically govern how retained 

classification, compensation, and 

performance management flexibilities 

will be implemented. The greater level 

of detail reflects a continued 

commitment to greater transparency 

regarding provisions of Pub. L. 110–181 

and system improvements in light of 

operational experience with NSPS. The 

System retains the core values of the 

civil service, including merit system 

principles and veterans’ preference, and 

allows employees to be paid and 

rewarded based on performance, 

innovation, and results. 

III. Significant Changes to the Original 

Law 

The original NSPS statute was 

enacted on November 24, 2003, and 

provided the Secretary of Defense, in 

regulations jointly prescribed with the 

Director of OPM, the authority to 

establish a flexible and contemporary 

civilian personnel system called the 

National Security Personnel System. 

This new civilian personnel system was 

intended to cover most of the 

approximately 700,000 DoD civilian 

employees, including blue-collar 

employees. 

Among its features, it provided 

authority to establish a pay-forperformance system that recognizes and 

rewards employees based on 

performance and contribution to the 

mission; a new pay-banding system to 

replace the General Schedule (GS); a 

simplified job classification process and 

flexible processes to assign new or 

different work; streamlined hiring 

processes and the ability to offer more 

competitive, market-sensitive 

compensation; improved workforce 

shaping procedures that reduce 

disruption with greater emphasis on 

performance as a factor in retention; 

expedited disciplinary and employee 

appeals processes for faster resolution of 

workplace issues, while preserving due 

process rights of employees; and a labormanagement relations system that 

recognized DoD’s critical national 

security mission and the need to act 

swiftly to execute that mission, while 

preserving collective bargaining rights 

of employees. The changes to labor 

relations included the ability to 

negotiate at the national level instead of 

negotiating with more than 1,500 local 

bargaining units, and the ability to 

establish a new independent third party 

to resolve labor relations disputes in 

DoD. 

The National Defense Authorization 

Act of 2008 (Pub. L. 110–181, January 

28, 2008) amended 5 U.S.C. 9902, 

retaining authority for performancebased pay and classification and 

compensation flexibilities, but 

substantially modifying other NSPS 

authorities. The law, among other 

things— 

• Brings NSPS under 

Governmentwide labor-management 

relations rules. 

• Excludes Federal Wage System 

(blue collar) employees from coverage 

under NSPS. 

• Requires DoD to collectively 

bargain procedures and appropriate 

arrangements for bringing DoD 

bargaining unit employees under NSPS 

prior to conversion of these employees. 

• Brings NSPS under 

Governmentwide rules for disciplinary 

actions and employee appeals of 

adverse actions. 

• Brings NSPS under 

Governmentwide rules for workforce 

shaping (reduction in force, furlough, 

and transfer of function). 

• Requires that this regulation be 

considered a major rule for the purposes 

of section 801 of title 5, United States 

Code, with advance Congressional 

reporting for OPM/DoD jointlyprescribed NSPS regulations. 

• Gives these regulations the status of 

Governmentwide rules for the purpose 

of collective bargaining under chapter 

71 when these rules are uniformly 

applicable to all organizational or 

functional units included in NSPS. 

• Mandates that all employees with a 

performance rating above 

‘‘unacceptable’’ or who do not have 

current performance ratings receive no 

less than sixty percent of the annual 

Governmentwide General Schedule pay 

increase (with the balance allocated to 

pay pool funding for the purpose of 

increasing rates of pay on the basis of 

employee performance). 

• Limits NSPS conversions to no 

more than 100,000 employees per year 

and eliminates the requirement for the 

Secretary of Defense to determine if the 

performance management system meets 

key parameters before increasing NSPS 

coverage to more than 300,000 

employees. 

Based on the changes Public Law 

110–181 made to section 9902 of title 5, 

the revised rule deletes subparts E, F, G, 

H, and I (dealing with staffing, 

workforce shaping, adverse actions, 

appeals, and labor relations, 

respectively) of the current NSPS 

regulations. 

Public Law 110–181 also amended 

section 9902 by modifying the authority 

to conduct national-level bargaining and 

retains the rights of employees to 

organize, bargain collectively and 

participate through labor organizations 

of their own choosing in decisions that 

affect them, subject to any exclusion 

from coverage or limitation on 

negotiability established pursuant to 

law. It extends and expands exclusions 

from NSPS coverage for certain DoD 

laboratories through October 1, 2011. 

Some of these laboratories operate 

under demonstration project authorities 

which provide their own pay-forperformance systems. 

In establishing the revised System, 

only certain provisions of title 5, United 

States Code, may be waived or modified 

by DoD and OPM: 

• Chapter 43 (dealing with 

performance management); 

• Chapter 51 (dealing with General 

Schedule job classification); 

• Chapter 53 (dealing with pay for 

General Schedule employees and pay 

for certain other employees), except for 

certain sections for which waiver or 

modification is barred by law; and 

• Subchapter V of chapter 55 (dealing 

with premium pay), except sections 

5544 (dealing with prevailing rate 

employees) and 5545b (dealing with 

firefighter pay). 

Finally, Public Law 110–181 has a 

significant effect on the content of the 

current regulations governing NSPS. 

Previous legislation authorizing NSPS 

permitted the promulgation of 

regulations outlining a framework for 

NSPS. Implementing issuances 

provided the detail lacking in the 

regulatory framework. Taken together, 

the regulations and the implementing 

issuances formed the structure of NSPS. 

However, Public Law 110–181 

eliminated the previous legislation’s 

exclusive statutory collaboration 

process for employee representatives to 

participate in design and 

implementation of NSPS. Public Law 

110–181 mandated the Governmentwide 

labor relations system in title 5, chapter 

71, for NSPS and conferred the status of 

Governmentwide rule on regulations 

governing NSPS. Given these new 

provisions, much of the structure of 

NSPS must be established in regulation, 

rather than through the collective 

bargaining process, for purposes of 

uniformity and consistency of the 

operation of NSPS, much like the 

Governmentwide regulations that 

establish the structure of the General 

Schedule. 

IV. Two Years of Operational 

Experience Under NSPS 

In order to provide consistency and 

uniformity of application throughout 

the Department, certain NSPS features 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56347 

previously described in DoD 

implementing issuances have been 

incorporated into this regulation. DoD 

now has more than 2 years of 

experience with these features and has 

determined that they effectively support 

key performance parameters of NSPS. In 

addition, the regulation includes 

modifications made to NSPS as a result 

of operational lessons learned over the 

last two years. 

A. Classification 

Effective Date of Classification of 

Position 

The regulation now provides specific 

details for entitlement to retroactive 

effective date of a classification 

decision. While the prior regulation 

provided for both a classification 

reconsideration process and a 

retroactive effective date, more detail 

has been added to provide for a uniform 

and consistent application. 

B. Compensation 

The regulation modifies rules 

governing the current compensation 

structure by removing the link between 

increases in the minimum rate of the 

rate range and across-the-board 

increases. This change enables more 

flexibility in responding to labor market 

changes that may impact the lower end 

of a pay range for an occupation, but not 

the middle or upper ranges. Also, 

discretionary authority is now provided 

to give targeted general salary increases 

to designated occupational series within 

a pay band. This flexibility enables 

management to adjust pay to recognize 

market forces when the pay band itself 

is market competitive but, due to 

rapidly changing markets, the current 

salaries paid to employees in certain 

occupations are not. 

C. Pay Administration 

Several changes have been made in 

the area of pay administration. Paysetting flexibilities have been expanded 

to permit discretionary within-grade 

increase buy-ins when employees from 

outside of NSPS move to an NSPS 

position. Safeguards have been 

incorporated for employees who are 

moved to NSPS via managementdirected actions. In these cases, the 

regulation now specifies a required 

within-grade increase buy-in. A 

significant level of detail has been 

added to describe how pay is 

administered upon promotion, 

reassignment, reduction in band and 

appointment to the Federal service. 

Most of this detail reflects the paysetting rules that have proven effective 

during the past 2 years in the operation 

of NSPS. 

The regulation retains management’s 

flexibility to set pay within a given 

range, but provides safeguards by 

placing limitations on the factors 

management may use in exercising its 

discretion as well as establishing pay 

increase limits that cannot be exceeded 

without higher-level review. There have 

also been some modifications to paysetting practices based on DoD’s 

experience with the System. Most 

significantly, pay-setting rules for 

employees moving into NSPS from 

other systems or moving from NSPS 

positions covered by targeted local 

market supplements have been revised. 

Pay for these employees was previously 

set using ‘‘base salary.’’ Pay will now be 

set using ‘‘adjusted salary’’ (includes 

base salary plus any applicable locality 

pay, special rate supplement, or other 

equivalent supplement) and any 

physicians’ comparability allowance 

payable for the position held prior to the 

reassignment. In these cases, when the 

new position is in a different location, 

a geographic pay conversion will be 

processed. These rules allow 

management to set pay more 

competitively and equitably compensate 

employees by permitting pay to be set 

in a manner that prevents a loss in 

adjusted salary in certain circumstances. 

Further changes in NSPS pay-setting 

rules include the discretion to adjust the 

rate of pay of a teacher moving into 

NSPS up to 20 percent to take into 

account the shorter work year 

incorporated in the annual rate of a 

teacher paid under 20 U.S.C. 901. 

Pay Retention 

Pay retention rules have been 

modified to provide a ‘‘grandfather’’ 

clause for employees who are covered 

by General Schedule grade and pay 

retention rules at the time they are 

converted into NSPS. These employees 

will not be subject to the 104-week limit 

on pay retention. They will be entitled 

to pay retention indefinitely, subject to 

specifically identified pay retention 

termination events. Much detail has 

been added in the area of pay retention 

to identify circumstances for which pay 

retention is mandatory, eligibility 

requirements for optional pay retention, 

and events leading to termination of pay 

retention. These rules reflect current 

practices under NSPS. 

Accelerated Compensation for 

Developmental Positions (ACDP) 

‘‘Treatment of Developmental 

Positions’’ (§ 9901.345) has been 

modified to specify criteria for 

Accelerated Compensation for 

Developmental Positions (ACDP) 

increases, identify the range of pay 

increases that are permitted under this 

discretionary authority, and to expand 

the discretionary use of ACDP to 

employees in developmental or trainee 

level positions assigned to the lowest 

pay band of a nonsupervisory pay 

schedule and trainee level positions or 

positions assigned to the Student Career 

Experience Program. To date, this 

authority has been available only to 

employees in developmental or trainee 

level positions in professional and 

analytical occupations. The change 

provides additional flexibility in 

recognition of pay progression patterns 

in other occupations. 

Premium Pay 

A critical feature of NSPS 

compensation is the ability to modify 

premium pay in response to current and 

future needs. This flexibility facilitates 

the Department’s ability to accomplish 

its diverse mission. The revised 

regulation incorporates rules governing 

NSPS premium pay. Premium pay 

includes pay such as overtime pay, 

compensatory time off, holiday, Sunday, 

and standby pay. Among the premium 

pay features unique to NSPS are on-call 

premium pay for health care personnel 

in specified circumstances, pay for 

weekend duty for health care personnel, 

and foreign language proficiency pay. 

For the most part, the regulations reflect 

current premium pay policies under 

NSPS, which include certain 

modifications to the standard title 5 

premium pay laws and regulations to 

address unique DoD mission 

requirements and differences in the 

NSPS classification and pay structure. 

Conversion/Movement Out of NSPS 

Regulations have been added to 

provide a process for converting 

employees out of NSPS when their 

position is removed from coverage 

under the System and to provide a 

‘‘virtual GS grade’’ to employees who 

leave their NSPS position to accept 

employment in a General Schedule 

position. These rules promote more 

equitable pay setting upon moves to the 

General Schedule pay system. 

D. Performance and Pay Pool 

Management 

Higher Level Review 

The revised regulation more 

specifically outlines safeguards to 

ensure the NSPS performance and pay 

pool management system is fair and 

equitable based on employee 

performance. For example, under 

subpart D, the revised regulation now 

mstockstill on PROD1PC66 with RULES2

56348 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

provides for a higher level review of 

performance expectations and 

recommendations for ratings of record, 

share assignment, and payout 

distribution. This review helps ensure 

that assigned employee objectives are 

reviewed for appropriateness and 

consistency within and across the 

organization and/or pay pool as well as 

employee ratings, share assignments, 

and payout distribution. These 

safeguards help ensure equity in 

performance payouts. 

Calculating Annual Payout 

Rating levels, share assignment 

ranges, and rounding rules for 

conversion of raw performance scores 

are also specified in the revised 

regulation, as well as formulas for share 

values and calculation of performance 

payouts. The language also clarifies the 

intended application of a common share 

value (expressed as a percent of pay) 

throughout an entire pay pool, to 

include all sub pay pools. This further 

preserves equity across a pay pool. 

Flexibility in Extending Performance 

Appraisal Periods 

The authority to extend individual 

performance appraisal periods to enable 

employees to complete minimum 

periods is specified as well as 

limitations on this authority. By 

specifically providing for extension of 

individual rating cycles, valued 

performers and higher-performing 

employees moving to NSPS positions 

can more quickly benefit from the NSPS 

performance-based pay features. 

Pay Pools 

The pay pool concept has also been 

further defined in this regulation by 

providing parameters for pay pool 

composition and specifying the roles of 

pay pool officials within the pay pool 

process. 

Much thought was given to achieving 

the ‘‘right’’ balance between safeguards 

and management flexibility. For 

example, although pay pool share 

ranges have been specified for each 

rating level, management still has the 

flexibility to determine assignment of 

shares within that range. System 

safeguards were added to ensure 

fairness, equity, and a performance 

focus by expressly stating and limiting 

the factors which may be used in the 

determination of share assignment. 

Similarly, management still retains the 

flexibility and authority to determine 

the distribution of a performance payout 

between base salary increase and bonus 

or a combination thereof. However, to 

ensure safeguards within the system, the 

factors management may use in 

exercising this authority have also been 

expressly defined and limited to ensure 

fairness, equity, and a performance 

focus. While pay pool funding is still 

determined by management, higherlevel reviews have been required to 

provide internal controls. Additional 

safeguards added include a uniform 

approach to handling performance 

payouts for employees who leave a pay 

pool after the end of the performance 

period, but before the date of the 

payout. Finally, to promote 

transparency of the pay pool process, a 

requirement has been added for 

organizations to share with employees 

the average rating, ratings distribution, 

share value (or average share value), and 

average payout (expressed as a 

percentage of base salary) at the 

completion of the performance payout 

process. 

Reconsideration Process 

Employee performance 

reconsideration opportunities have been 

expanded to permit reconsideration of 

individual performance objective ratings 

in addition to the overall rating of 

record. This change recognizes that 

many pay pools use raw performance 

scores as a guide in determining how 

many shares to assign to employees. 

Since raw performance scores may be 

impacted by individual performance 

objective ratings, the ability to request 

review of individual performance 

objectives enables employees to seek 

redress on all performance rating 

decisions affecting their pay. 

E. Other Changes 

Other changes reflected in this 

regulation include language providing 

salary increases for employees who did 

not meet the minimum period of 

performance due to an approved paid 

leave status or performance of labor 

activities on ‘‘official time.’’ These pay 

adjustments will be based on the modal 

rating of a pay pool. Likewise, 

provisions have been made to adjust the 

pay of employees returning from 

temporary assignments outside of NSPS 

or returning from long-term training for 

which no NSPS performance plan was 

assigned. These changes ensure that 

employee pay is not harmed by the 

inability to meet a minimum 

performance period or inability to rate 

performance while employees either 

exercise statutory leave entitlements or 

fulfill other roles important to the 

organization. 

Finally, the regulations in subpart D 

(dealing with performance management) 

permit limited coverage under NSPS 

pay-setting and classification 

flexibilities for employees who are 

appointed for less than 90 days. 

Providing access to NSPS pay-setting 

flexibilities for these positions enhances 

DoD’s competitive position in the labor 

market when hiring temporary 

employees for 90 days or less. 

V. Response to Public Comments 

A. Major Issues 

The proposed rule was published in 

the Federal Register on May 22, 2008. 

The public comment period concluded 

June 23, 2008. In response to the 

proposed rule, the Department received 

526 comment submissions during the 

30-day public comment period. In 

reviewing the comment submissions, we 

discerned several recurring themes that 

spanned multiple sections of the 

proposed regulation. Major issues 

identified included: (1) Specificity of 

the regulation; (2) collective bargaining 

and labor relations; (3) performance and 

pay pool management; (4) the influence 

of performance versus market factors on 

pay; and (5) control points. Because 

these issues are critical to 

understanding the objectives of NSPS, 

as well as its implementation, we have 

given them particular attention in the 

following sections of this 

SUPPLEMENTARY INFORMATION. 

1. Specificity of the Regulation 

A significant issue raised in the 

public comments concerned the level of 

specificity in the proposed regulation. 

Some commenters, pointing to a lack of 

detail regarding specific issues, such as 

performance management, sought more 

specificity in the proposed regulation 

itself as opposed to the Department 

providing future direction in 

implementing issuances, which are not 

open to public comment. However, 

many of the commenters who weighed 

in on this issue argued that the 

proposed regulation is too specific. 

Commenters suggested that the 

increased level of detail was written 

into the proposed regulation not to 

improve the clarity of the regulation, but 

to preclude negotiation with labor 

organizations. Labor organization 

representatives argued that because 

DoD, under the National Defense 

Authorization Act for Fiscal Year 2008 

(NDAA 2008), no longer has authority to 

establish a labor relations system under 

its control, the Department is attempting 

to write regulations as narrowly as 

possible to avoid the collective 

bargaining process. 

Interestingly, during the public 

comment period for the 2005 regulation, 

a large number of commenters 

recommended that the regulation 

include far greater specificity, with 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56349 

numerous commenters stating that they 

were unable to provide substantive 

comments without more information. 

Some additional specificity was written 

into the final 2005 regulation in 

response to these comments, but it 

retained its original goal of establishing 

a general policy framework to be 

supplemented by detailed implementing 

issuances. 

This regulation of necessity includes 

more specificity than the 2005 

regulation in order to preserve 

uniformity and consistency of 

application of NSPS in the changed 

statutory environment created by Public 

Law 110–181. The uniform and 

consistent application of NSPS is 

important to ensure equitable treatment 

of all employees, whether bargaining 

unit or non-bargaining unit; for ease of 

movement of employees across 

components and organizations; and to 

achieve efficiencies in support systems 

such as automated performance 

management tools and training. Public 

Law 110–181 restored the 

Governmentwide labor relations 

coverage of title 5, chapter 71, to NSPS 

employees and conferred the status of 

Governmentwide rule upon this NSPS 

regulation. It also removed the statutory 

collaboration process which ensured 

uniformity and consistency and was the 

exclusive process for employee 

representative involvement in the 

design and implementation of NSPS. 

Given those provisions, OPM and DoD 

concluded the 2005 regulatory 

framework and detailed implementing 

issuance construct created unwarranted 

risk to the goal of uniform and 

consistent application of NSPS to both 

bargaining unit and non-bargaining unit 

employees. With much of the 

operational core of NSPS in its 

implementing issuances subject to 

collective bargaining, we concluded the 

likely outcome of bargaining over the 

various components of NSPS would be 

multiple versions of NSPS for 

bargaining unit employees (there are 

more than 1,500 local bargaining units 

in DoD) and one NSPS for nonbargaining unit employees. Therefore, 

OPM and DoD chose to incorporate 

sufficient detail in this regulation, under 

the legislative grant of Governmentwide 

regulation status, to preserve the 

uniformity and consistency of a single 

NSPS. The regulation provides a 

standardized, yet flexible, DoD NSPS 

environment that promotes the growth 

of all employees and improves 

management’s ability to manage the 

workforce. Labor organizations still 

retain collective bargaining rights 

regarding NSPS under title 5, chapter 

71. In fact, labor organizations may seek 

to collectively bargain implementation 

of NSPS prior to implementation for 

bargaining unit employees to the same 

extent bargaining occurs on 

implementation of other 

Governmentwide regulations across the 

Federal Government. 

2. Collective Bargaining and Labor 

Relations 

In addition to their concerns on how 

the specificity of the regulations affects 

the collective bargaining rights, labor 

organizations made numerous 

comments in each subpart that various 

matters should be subject to collective 

bargaining under 5 U.S.C. chapter 71. In 

some cases these matters are not subject 

to collective bargaining today for 

bargaining unit employees outside 

NSPS as such matters are covered by 

law. In other cases, these matters are 

limited in collective bargaining because 

they are covered by Governmentwide 

regulations encompassing these 

employees. There were also various 

suggestions to include language 

throughout the regulations that 

collective bargaining rights exist on 

certain specified matters, even where 

the scope of collective bargaining rights 

is actually more limited than what is 

suggested by the labor organizations. 

DoD is committed to fulfilling its 

obligation to bargain in good faith 

consistent with Governmentwide labor 

relations rules under 5 U.S.C. chapter 71 

and the requirements of 5 U.S.C. 9902 

and section 1106(b) of Public Law 110– 

181. However, it is appropriate that the 

Department seek uniformity and 

consistency in its NSPS employment 

practices through issuance of 

regulations. We do not believe it is 

necessary to repeat throughout the 

regulations a statement regarding any 

statutory collective bargaining rights 

and have not adopted the suggestion. 

This does not occur today in other 

Governmentwide regulations or agency 

policies. However, we have added a 

clarifying general statement in subpart 

A regarding collective bargaining 

obligations prior to converting 

bargaining unit employees to NSPS. 

3. Performance and Pay Pool 

Management 

Background 

The Department designed NSPS to be 

a robust performance management 

system in recognition of the increased 

importance of performance in making 

pay and retention decisions. NSPS uses 

a multi-level appraisal system that 

makes distinctions in levels of employee 

performance and links employee 

achievements, contributions, 

knowledge, and skills to organization 

results. NSPS also allows the 

Department to better recognize and 

support team contributions and 

accomplishments. The System ensures 

that performance expectations are 

clearly communicated to employees and 

are linked to the organization’s strategic 

goals and objectives. This provides the 

ability to recognize valid distinctions in 

performance and reward employees 

based on those distinctions, which will 

foster a high-performance culture within 

the Department. 

NSPS modifies the way DoD 

employees are paid. NSPS bases 

individual pay increases on 

performance instead of primarily on 

tenure and time-in-grade, i.e., the 

emphasis is on quality of results 

achieved as opposed to length of 

experience. In addition, this system is 

far more market-sensitive. Both of these 

goals are met through the changes in the 

classification, pay, and performance 

management systems. 

We believe the Department’s pay-forperformance system is essential to 

DoD’s ability to attract skilled and 

talented workers; retain and 

appropriately reward current 

employees; respond to DoD mission 

requirements; and create opportunities 

for employees to participate more fully 

in the total integrated workforce. 

Performance and pay pool 

management inspired a large number of 

comments during the public comment 

period. In fact, many commenters raised 

issues that related to both subparts C 

and D, since pay administration and 

performance management are so closely 

aligned. In reviewing the comments that 

addressed aspects of performance 

management under the proposed 

regulation, we identified seven 

recurring issues. These issues are 

addressed in the following paragraphs. 

Fairness 

Many commenters expressed 

concerns about fairness in operation of 

the NSPS performance management 

system. Whether they characterized 

their concern as ‘‘favoritism,’’ 

‘‘cronyism,’’ ‘‘nepotism,’’ or the 

euphemism ‘‘good ol’ boy’’ system, 

commenters expressed concerns that 

NSPS could or would present 

opportunities for unfairness within the 

performance appraisal and overall 

performance management system. These 

commenters feared supervisors and Pay 

Pool Managers would assign ratings 

based on personal preferences and 

relationships unrelated to performance. 

From the beginning, NSPS was 

designed to be consistent with specific 

mstockstill on PROD1PC66 with RULES2

56350 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

guiding principles. Among the 

principles emphasized in the 

performance management process are 

fairness, credibility, and transparency, 

as well as adherence to merit system 

principles. The regulation establishes 

many safeguards—or checks and 

balances—specifically designed to guard 

against favoritism, cronyism, and unfair 

practices. 

First and foremost, the performance 

management system design features 

uniform performance criteria across 

NSPS (see SC 1940 of NSPS 

implementing issuances). By using 

uniform criteria, NSPS ensures 

employees performing similar categories 

of work are evaluated using the same 

tools of measurement. To ensure that 

the measurement tools are interpreted 

consistently across the organization and 

in a manner free from favoritism, 

cronyism, or other inappropriate 

consideration, NSPS provides multiplelevel reviews of recommended ratings, 

share assignments, and payout 

distribution determinations. Not only 

does the supervisor/rating official offer 

a recommended rating of record based 

on an overall assessment of the 

employee’s accomplishments 

(§ 9901.412(b)), but these recommended 

ratings receive a higher-level review—a 

requirement identified and added to the 

revised regulation in § 9901.412(c) and 

made effective via implementing 

issuances. Following the higher-level 

review, a panel of senior leaders (i.e., 

the Pay Pool Panel) reviews and 

reconciles ratings within a pay pool 

(§ 9901.412(f)). In reconciling ratings, 

share assignments and payout 

distribution recommendations, the 

panel compares the employee’s 

accomplishments (via supervisory 

assessments and optional employee self 

assessments) to job objectives and 

standard rating criteria to ensure that 

the same understanding of performance 

criteria has been applied to employees 

across a pay pool. The Pay Pool Panel 

considerations do not include a preestablished distribution of ratings as a 

factor in determining the rating of 

record. This is because NSPS 

regulations also prohibit forced 

distribution of ratings (§ 9901.412(a)). 

As opposed to a forced alignment of 

employee ratings against a particular 

distribution pattern, employee 

performance reflects a measurement of 

‘‘what’’ an employee accomplished (and 

‘‘how’’) against standardized 

performance measurements. The 

employee also has a voice in how his or 

her work is viewed via the opportunity 

to write a self-assessment of what was 

accomplished by the employee and in 

what manner objectives were achieved 

during the performance cycle. Such 

assessments become part of the record 

that is forwarded to the higher-level 

reviewer and Pay Pool Panel. Checks 

and balances such as those described 

above form the safeguards for fairness 

and equity built into the regulation and 

the performance management system. 

As with the multi-level review for 

employee ratings of record, NSPS also 

provides for reviewing performance 

plans at multiple levels. First, 

supervisors are responsible for making 

sure that performance objectives 

accurately reflect an employee’s work 

and for engaging employees in that 

determination (§ 9901.406). Employees 

participate in the development of 

performance expectations via 

conversations and written 

communication with their supervisors 

(§ 9901.406(g)). Second, there is a 

review of performance expectations at a 

higher level to ensure that assigned 

employee objectives are consistent and 

equitable with similar positions within 

and across the organization 

(§ 9901.406(h)). 

In addition to the checks and balances 

outlined in the preceding paragraphs, 

NSPS contains four other important 

features intended to contribute to the 

sustainment of a fair, credible, and 

transparent system. First, supervisors 

and managers will be held accountable 

in a specific job objective for effectively 

managing the performance of employees 

under their supervision and will be 

assessed and measured on their 

performance against this objective 

(§ 9901.406(d)). There is a connection 

between administration of the 

performance management system and 

supervisory performance ratings and, 

consequently, a supervisor’s pay. 

Second, DoD is committed to extensive 

training, both initial and ongoing, for 

supervisors, managers, and employees 

so that they understand the 

requirements of the performance 

management system. For supervisors 

and managers, in particular, training is 

focused on how to establish and 

communicate performance expectations, 

how to assess employee performance, 

and how to appropriately translate that 

assessment into pay adjustments. Third, 

there are various review and evaluation 

processes designed to monitor the 

implementation of NSPS and identify 

inconsistent, unfair treatment of 

employees so that these situations, if 

they occur, can be remedied in a timely 

manner. As a final check and balance, 

employees may also request 

reconsideration of ratings of record as 

well as ratings for individual job 

objectives under § 9901.413. 

To ensure that employees are treated 

fairly, there are rules to guard against 

arbitrary actions, enable employees to 

challenge or seek review of key 

decisions, and for setting up 

accountability mechanisms. All of these 

safeguards and checks and balances are 

monitored during regular and recurring 

reviews and evaluations of NSPS at 

multiple levels within the Department. 

Uniformity and Consistency 

Some commenters questioned 

whether performance would be 

measured uniformly and consistently 

among pay bands, occupational areas, 

and Components. While there is 

opportunity for some aspects of 

implementation of NSPS performance 

management to be handled flexibly to 

accommodate different circumstances, 

NSPS is designed to ensure uniformity 

and consistency in the most important 

core features of performance 

management. For example, the 

regulation mandates a uniform summary 

rating level pattern (§ 9901.405(b)(5)) 

and share assignment range for each 

rating level (§ 9901.342(f)), and it 

provides common formulas for 

determining the share factor value and 

payout within each pay pool 

(§ 9901.342(g)). 

The NSPS implementing issuances 

and NSPS performance tools further 

institutionalize uniformity and 

consistency via the establishment of 

standardized NSPS performance 

measures applied across NSPS. For 

example, NSPS uses standardized 

performance criteria, which evaluate 

‘‘what’’ was accomplished (also known 

as performance indicators), as well as 

standardized contributing factors and 

benchmark descriptors, which serve to 

measure ‘‘how’’ an objective was 

accomplished (SC 1940). The use of 

standardized criteria and rules helps to 

ensure consistency across NSPS. 

Transparency 

Several commenters expressed 

concern that ratings and performance 

payout determinations are made 

‘‘behind closed doors,’’ and commenters 

questioned whether the NSPS system 

meets its stated goal of transparency. 

While it is true that Pay Pool Panels 

deliberate in private, this is necessary to 

protect the privacy of employees as 

individuals as well as to provide an 

atmosphere for robust performance 

management discussion. Nevertheless, 

there are a number of requirements in 

the system that helps preserve 

transparency outside of the pay pool 

deliberation. The regulation adds 

language to specify requirements for 

sharing of pay pool information to NSPS 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56351 

employees (§ 9901.342(g)(10)). In 

addition, through implementing 

issuances (SC 1940), NSPS requires 

notice to employees of additional pay 

pool related information. This 

information may include the 

membership and composition of the pay 

pool to which the employee belongs; 

projected pay pool funding amounts; 

rules for making share assignment and 

payout distribution determinations; 

percentage of pay pool funding to be 

applied to bonuses versus increases to 

base salary; criteria for Organizational 

Achievement Recognition (OAR) 

awards; identity of Pay Pool Manager, 

Pay Pool Panel members, and 

Performance Review Authority; and 

performance indicators and contributing 

factors. The regulation also specifies 

that performance expectations (e.g., job 

objectives) must be communicated to 

employees in writing (§ 9901.406(b)). 

Performance measurement criteria are 

available to all employees through Web 

sites (e.g., http://www.cpms.osd.mil/ 

nsps) and agency implementing 

issuances. The regulation adds greater 

detail to performance and pay pool 

management (such as specifying number 

of rating levels (§ 9901.405(b)(5)), 

rounding rules for raw performance 

scores (§ 9901.405(b)(6)), share ranges 

(§ 9901.342(f)), factors that may be 

considered in making a share 

assignment or payout distribution 

determination (§ 9901.342(g)), share 

value and payout formulas 

(§ 9901.342(g)), minimum criteria for 

eligibility for a performance payout 

(§ 9901.342), as well as identification of 

and procedures for performance payouts 

for specially situated employees not 

previously covered in the regulation 

(§ 9901.342(i)–(l)). 

Premium on Good Appraisal Writing 

Skills 

A few commenters expressed concern 

that the NSPS system rewards those 

who can write well, not necessarily 

those who perform best. Commenters 

believe that employees who have 

difficulty communicating their 

accomplishments in a self-assessment 

will be at a disadvantage in comparison 

to good writers, even if their 

performance level actually exceeds that 

of the good writers. Another commenter 

expressed concern that employees are 

required to write their own appraisals. 

The written employee self-assessment is 

optional and is just one of many 

components of the NSPS performance 

management system. Another 

component of the performance 

management system is that each rating 

official also prepares a written 

assessment of employee performance. 

One of the system safeguards that helps 

ensure employees are not adversely 

affected by the ‘‘written word’’ is the 

requirement that Pay Pool Panels afford 

a rating official the opportunity to 

provide further justification before the 

panel changes a recommended rating of 

record (§ 9901.412(f)). This requirement 

provides an opportunity for further 

explanation as well as that presented in 

writing. Additionally, to assist both 

employees and rating officials in the 

development of written assessments, 

DoD has developed and made available 

both classroom and Web-based writing 

classes (see ‘‘iSuccess’’ training at 

http://www.cpms.osd.mil/nsps/ 

training.html). Also, DoD has made 

available guidance in the form of 

writing tips and ‘‘lessons learned’’ by 

other organizations that have 

implemented NSPS to help employees 

and rating officials write effective selfassessments, performance plans, and 

performance assessments. 

Finally, mock pay pool exercises offer 

both employees and rating officials the 

opportunity to practice their writing 

skills. A mock pay pool exercise is a 

way for organizations to understand the 

pay pool process. During the exercise, 

employees may submit written selfassessments and rating officials may 

submit supervisory assessments for 

consideration by the pay pool panel. 

Pay pool panels can communicate back 

to both rating officials and employees 

the value of those assessments to the 

appraisal process and make suggestions 

on how to write such assessments more 

effectively. Also through mock pay 

pools, organizations identify ways to 

improve their process to achieve greater 

consistency and ensure fairness in 

ratings and payouts. Past experience has 

shown that these exercises improve not 

only participants’ familiarity with the 

process, their understanding of the 

various aspects of the pay-forperformance system, and the quality of 

their decisions, but also their writing 

skills in the context of the performance 

management system. 

Differences Between Grade-Based 

Systems and NSPS in Rewarding 

Performance 

Commenters noted that the proposed 

regulation allows organizations with 

wage grade workers and NSPS 

employees to reward performance 

differently, which could result in 

inequities. We assert differences do not 

necessarily result in inequities. Without 

doubt, there are differences between the 

design of the NSPS personnel and 

performance award system and the 

Federal Wage System (FWS) personnel 

and performance management systems. 

These differences with the FWS existed 

even when NSPS positions were still 

covered by the General Schedule (GS). 

They are a result of overall differences 

in the compensation systems. For 

example, GS grades have 10 steps, with 

waiting periods from one to three years 

between steps. Each step represents 

approximately a 3 percent increase in 

base pay awarded primarily based on 

seniority. The FWS has only five steps, 

but much shorter waiting periods (six 

months to two years) and larger 

increases (approximately 4 percent 

increase in base pay). Like the GS, the 

FWS also awards steps primarily based 

on seniority. The basis for pay 

progression under both GS and FWS 

systems is primarily a combination of 

seniority-based pay progression in the 

form of step increases, promotions, and 

cost of labor (e.g., locality pay). 

Performance pay, when awarded, is 

typically paid out via bonuses. In 

contrast, the design of the NSPS 

compensation and classification 

architecture has no step increases and 

fewer promotions. The express purpose 

of this design decision is to redirect pay, 

formerly paid out based, in part, on 

seniority, toward rewarding and 

encouraging performance (i.e., 

performance-based pay). Therefore, 

under NSPS, pay progression primarily 

occurs via performance-based increases. 

In the absence of step increases and 

promotions to grades that no longer 

exist, NSPS applies civilian pay 

increase dollars that would have been 

expended on those pay progression 

methods to performance-based increases 

and Accelerated Compensation for 

Developmental Positions (ACDP). In 

redirecting the seniority-based and 

promotion-based pay increases under 

the General Schedule to performance 

pay, it is appropriate that performance 

awards under NSPS be greater than 

performance awards under systems that 

do not redirect step increases and 

promotions associated with more 

defined levels of work to performance. 

The differences between NSPS and 

grade-structured systems are simply 

differences rather than inequities. 

Therefore, we made no attempt to align 

NSPS performance rewards to those of 

other personnel systems. In so doing, we 

reiterate the belief that Congress and the 

American people expect their public 

employees to be paid according to how 

well they perform, rather than how long 

they have been on the job. 

Another commenter expressed an 

equity concern that NSPS employees 

may be disadvantaged over General 

Schedule employees where there is 

internal competition for reassignment 

mstockstill on PROD1PC66 with RULES2

56352 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

and promotion to other positions. In 

particular, the commenter expressed a 

belief that the NSPS performance 

appraisal system creates an impression 

that an employee with a ‘‘3’’ as his or 

her last rating of record is inferior to a 

GS employee with all Level 9’s. Despite 

inconsistencies in rating scales across 

the government (to include pass/fail, 

NSPS, and 3 and 4 level rating systems, 

etc.), the employee’s record of 

accomplishment along with appropriate 

employment references and a copy of 

the aggregate NSPS rating distribution 

(available via NSPS web site) should 

serve to inform prospective employers 

of the value of a NSPS Level 3 rating of 

record. 

Communication of Performance 

Expectations 

Commenters also noted that the 

proposed regulation does not place 

enough accountability on supervisors to 

communicate performance expectations. 

One commenter noted that the proposed 

regulation does not explicitly require 

the supervisor to notify the employee of 

performance expectations. Yet 

§ 9901.406 of the proposed regulation 

very explicitly states the requirement to 

communicate performance expectations 

to employees prior to holding the 

employee accountable for them 

(‘‘Performance expectations will be 

communicated to the employee in 

writing, prior to holding the employee 

accountable for them.’’). That section 

further states: ‘‘Performance 

expectations that comprise a 

performance plan are considered to be 

approved when the supervisor has 

communicated the performance plan to 

the employee in writing.’’ In addition to 

the employee requirements stated in 

§ 9901.406(c), § 9901.406(d) states that 

performance expectations of supervisors 

and managers additionally will include 

assessment and measurement of how 

well supervisors and managers plan, 

monitor, develop, correct, and assess 

subordinate employees’ performance. 

Inasmuch as the ‘‘planning’’ phase of 

performance management is considered 

to incorporate development and 

implementation of subordinate 

employees’ performance plans and 

those plans, per the regulation, are only 

considered approved once 

communicated to the employee in 

writing, the regulation does in fact hold 

supervisors and managers accountable 

for communicating performance 

expectations. 

Perceived Administrative Burden 

Some commenters objected to the 

amount of time and resources needed to 

administer NSPS, particularly the 

performance management component. 

Commenters cited the amount of 

paperwork required under NSPS and 

the limitations of the NSPS Performance 

Appraisal Application (PAA) tool. We 

agree that the design of NSPS and the 

safeguards built into the system result in 

increased time demands, especially 

during the start-up years. However, 

DoD’s experience with Personnel 

Demonstration Projects indicates that 

the amount of time required for the 

same tasks levels off and even decreases 

as the organization gains experience 

with the pay pool process. Additionally, 

as experience and efficiency increase, 

organizations tend to parlay the process 

of reviewing individual performance 

into an examination and driver of 

overall organizational performance, thus 

increasing the return on their 

investment of time. Consequently, we 

have not altered the requirements, 

believing that the end result is fairness 

and consistency—key objectives of 

NSPS—and the ability to further 

individual as well as organizational 

performance. Another commenter 

indicated that there are an insufficient 

number of characters available in the 

PAA to adequately provide self 

assessment information. We 

continuously evaluate the PAA tool to 

improve it to better meet user needs. We 

have addressed many of the initial 

limitations of the system and are 

currently reviewing changes to other 

features such as the limitation on the 

number of characters that users can 

enter into various fields. 

4. Performance Versus the Influence of 

Market Factors on Pay 

While a number of commenters 

supported the idea of a performancebased pay system, some commenters 

were less supportive of the 

consideration of non-performancerelated factors when setting pay. These 

commenters objected to the weight 

given to factors other than performance. 

For example, one commenter stated: 

‘‘The factors used in determining if 

[employees] get a raise or a bonus are 

* * * complicated and * * * have 

nothing to do with performance. 

Employees have no control over many 

of these factors, which include attrition 

rates, shortages of skills, and labor 

market. Obviously, this really isn’t a 

true pay-for-performance system.’’ In 

response to this comment—and the 

many commenters who expressed 

similar concerns about the use of factors 

other than ‘‘performance’’ in setting 

pay—we acknowledge that it is a 

misperception that compensation under 

NSPS is based solely on performance. 

From its inception, NSPS was designed 

to emphasize both performance pay and 

compensating employees based on 

market factors. In the Supplementary 

Information for the 2005 regulation we 

said the following about the new 

system: ‘‘The pay structure will be 

much more responsive to market 

conditions’’ and ‘‘Labor market 

conditions will also be considered when 

making pay-setting decisions. As 

prescribed in the enabling legislation, 

the new compensation system will 

better link individual pay to 

performance * * * ’’. We also said: ‘‘As 

the Department moves away from the 

General Schedule system, it will become 

more competitive in setting salaries and 

it will be able to adjust salaries based on 

various factors, including labor market 

conditions, performance, and changes in 

duties.’’ 

The NSPS compensation system, first 

described in the 2005 NSPS regulation, 

is designed to fundamentally change the 

way employees in the Department are 

paid. First, it allows DoD, after 

coordination with OPM, to define 

occupational career groups and levels of 

work within each career group that are 

tailored to the Department’s missions 

and components. Second, it gives DoD 

considerable discretion, after 

coordination with OPM, to set and 

adjust the minimum and maximum 

rates of pay for each of the pay 

schedules and pay bands within those 

career groups based on national and 

local labor market factors and other 

conditions. Instead of ‘‘one size fits all’’ 

pay rates and adjustments, NSPS allows 

DoD to customize those adjustments and 

optimize valuable but limited resources. 

This kind of flexibility, which is lacking 

under the GS and FWS pay systems, 

enables DoD to allocate payroll dollars 

to the occupations and locations where 

they are most needed to carry out the 

Department’s mission. At the same time, 

NSPS is a system that balances linking 

individual pay to performance and 

aligning positions both internally based 

on position classification and externally 

based on labor market. 

The NSPS classification, 

compensation, and performance 

management structures are designed to 

act in tandem to achieve two significant 

objectives: Reward performance and pay 

employees consistent with current 

national and local market conditions. As 

a result, beyond providing a system for 

rewarding performance, NSPS is 

structured to be far more responsive to 

applicable labor markets than gradebased systems and provides the 

flexibility needed to quickly adjust to a 

constantly changing labor market. Some 

of the mechanisms by which NSPS 

responds to applicable markets are 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56353 

decisions involving setting the pay of 

employees initially hired into NSPS 

positions, payout distributions between 

base salary and bonus, establishment of 

control points, establishment of targeted 

local market supplements, targeted 

general salary increases, and the 

adjustment of pay band minimums and 

maximums. By utilizing contemporary 

pay practices to establish a marketsensitive system, DoD is better able to 

establish itself as an attractive employer 

in a competitive environment. 

Under NSPS, DoD has created a 

system that allows the flexibility 

necessary to consider both market 

factors and performance in making 

compensation decisions. As a result, 

DoD is in a better position to attract, 

retain, and reward a workforce that is 

able to meet the high expectations set 

for it by the Department’s senior leaders 

for the purpose of accomplishing the 

Department’s mission—the defense of 

our nation. 

5. Control Points 

A number of commenters expressed 

concerns about control points. Many 

perceived them as inappropriately 

limiting employees’ potential for salary 

growth in a pay-banded system where 

pay is expected to be based on 

performance. They felt the full pay band 

salary range should be accessible to 

every employee in a band and advanced 

the argument that control points 

effectively cap a top performer at the 

control point, subverting the goal of a 

pay-for-performance system. Others 

opined that by establishing control 

points, the merit system principle of 

equal pay for equal work has been 

thwarted. The concept of control points 

is not inconsistent with the goals of a 

pay-for-performance system which, 

from the initial design phase of NSPS, 

envisioned a greater link between pay 

decisions and an individual’s 

performance. 

While a statutory requirement exists 

for NSPS to better link individual pay 

to performance, the NSPS performancebased features are not intended to result 

in ‘‘performance’’ trumping all other 

factors that may be considered in setting 

pay and pay progression. Unlike the GS 

and FWS pay systems, which 

compensate employees primarily on a 

seniority basis, NSPS requires that many 

factors be considered in setting pay. For 

example, the statutory requirements for 

NSPS specify that the system shall ‘‘not 

waive, modify, or otherwise affect the 

public employment principles of merit 

and fitness’’ set forth in 5 U.S.C. 2301, 

‘‘* * * including the principles of 

* * * equal pay for equal work.’’ 

Inasmuch as the merit system principle 

of ‘‘equal pay for equal work’’ further 

requires that equal pay should be 

provided for work of equal value, ‘‘with 

appropriate consideration of both 

national and local rates paid by 

employers in the private sector and 

appropriate incentives and recognition 

* * * provided for excellence in 

performance [italics added] * * *’’, 

managing pay using either or both 

market and/or performance-based 

control points makes sound business 

management sense and is consistent 

with statutory requirements. 

Another key requirement of NSPS is 

that it be ‘‘flexible and contemporary.’’ 

While compensation structures prior to 

the 1980’s were primarily aligned to 

highly structured classification systems, 

the need to compete for talented 

employees who possess the knowledge, 

skills, abilities and/or competencies 

associated with 21st century 

technologies and industries essential to 

the DoD national security mission 

requires a shift in emphasis to a marketsensitive compensation strategy in order 

to respond to quickly changing labor 

markets. Therefore, NSPS regulations 

governing control points allow 

management to consider and balance a 

variety of factors, in addition to 

performance, in determining rates of 

pay and salary progression through a 

pay band. 

Control points represent one tool that 

can be used to manage employees’ 

progression through the bands and can 

help ensure that only the highest 

performers move to the upper range of 

a pay band. Control points also allow 

management to account for variances in 

position responsibilities within a pay 

band. This allows the Department to set 

pay more consistently with the labor 

market and to be more effective in 

attracting and retaining top performers. 

In fact, several of the DoD 

demonstration projects have 

successfully used control points in their 

pay-for-performance systems. 

Sometimes, higher parts of a pay band 

are reserved for the highest of 

performers; at other times, parts of the 

pay band are reserved for work or skill 

combinations not easily acquired for 

which the labor market pays a higher 

rate of pay and which management has 

identified as being important to 

organizational performance. Therefore, 

for pay progression to occur beyond an 

established control point, the employee 

must meet certain criteria, such as 

specific work assignments, acquisition 

of particular competencies, and/or a 

rating of record at a particular level. 

With one exception, the restriction on 

receiving pay increases once a control 

point is reached is no different from the 

restriction on increases in basic pay a 

General Schedule employee experiences 

once he or she reaches the maximum 

step of his or her grade. The one 

exception to this analogy is that the 

General Schedule employee must be 

promoted in order to pass the step 10 or 

maximum rate of the pay range for the 

grade. In contrast, an NSPS employee 

may move past a control point subject 

to meeting the criteria associated with 

passing that control point. 

Control points also provide 

management with the latitude needed to 

positively impact a variety of pay 

decisions, such as starting rates, rate 

ranges, and the size and mix of 

performance payouts. Control points 

manage pay progression to reflect duties 

and responsibilities, labor markets, and/ 

or performance. DoD requires that 

control points be applied consistently to 

similar positions in the same pay band 

and career group within a pay pool. 

A commenter noted that ‘‘pay bands 

with control points are the GS scale by 

another name.’’ Some control points 

may indeed be similar to the GS grade 

structure. This may merely reflect a 

common labor market between the 

positions assigned those control points 

and the General Schedule system. As 

stated earlier, however, there is 

considerably more room for pay 

progression within a band than within 

a GS grade. NSPS employees may move 

more easily from control point to 

control point within their assigned 

band, or other comparable bands. 

Additionally, unlike the General 

Schedule employee who reaches the 

step 10 of his or her GS grade, an 

employee with a Level 3 or higher rating 

of record is guaranteed a share of the 

pay pool and any amount in excess of 

the control point (or the top of the pay 

band, if applicable) is paid out as a 

bonus. 

Another individual noted that control 

points can be a factor in determining 

whether a performance payout is 

awarded as a bonus or a base salary 

increase, which could have the effect of 

reducing retirement benefits, since 

bonuses are not counted toward 

retirement in retirement calculations. As 

under the General Schedule, 

performance bonuses under NSPS do 

not count toward retirement. However, 

they are a means of recognizing and 

paying for performance when an 

employee is not eligible for further 

increases in pay. 

One labor organization representative 

suggested that control points may delay 

advancement for employees in one band 

compared to employees in another band 

even though both employees perform at 

the same level. This is true. Under 

mstockstill on PROD1PC66 with RULES2

56354 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

NSPS, employees performing similar 

levels of work may be compensated 

quite differently based on type of work, 

competencies required, or level of 

performance. This was also true under 

the General Schedule. For example, GS– 

13 pilots at one time received a special 

rate of pay that was approximately 30 

percent higher than the rate GS–13 

employees in other occupations 

received. This difference in rates 

reflected differences in staffing 

difficulties and labor markets between 

different occupations. 

Another labor organization 

representative noted that we state that 

the Secretary will determine control 

points when previously this function 

was delegated to Components. They 

believe this is an attempt to limit their 

ability to bargain and take away a 

flexibility previously delegated by DoD 

to its own managers. We note that the 

Secretary is ultimately responsible for 

decisions involving NSPS, and authority 

is provided to the Secretary throughout 

the regulation to make these decisions. 

However, the day-to-day operation of 

many features may be delegated to the 

Components, including determining 

control points. These delegations will be 

provided in implementing issuances. 

Concerns about collective bargaining 

rights have been addressed under 

‘‘Collective Bargaining and Labor 

Relations’’ located under ‘‘Major 

Issues’’. 

Other commenters suggested that if 

control points must exist, language 

should be inserted in the rules to the 

effect that control points will increase at 

the same time that rate ranges are 

adjusted and by an equivalent 

percentage. However, the basis for 

decisions driving the establishment of 

control points may not always mirror 

adjustments in rate ranges. No change 

has been made to the regulation in 

response to these comments. 

Nevertheless, it should be noted that 

whether or not control points are 

adjusted consistent with rate ranges, 

control points do not bar increases to 

base salary due to across-the-board 

NSPS general salary increases under 

§ 9901.323(a)(1). 

Another commenter suggested that, 

because control points are a somewhat 

foreign concept to most employees and 

will likely be viewed as incompatible 

with the pay band concept, additional 

information about the reasons for and 

need for control points might be helpful, 

either in the Supplementary Information 

for this regulation or the implementing 

issuances. Consequently, we have taken 

care to elaborate on responses 

addressing comments concerning 

control points and will continue to 

examine other means of providing a 

greater understanding concerning the 

use of control points. 

Finally, another commenter noted 

that ‘‘budget’’ should be added to the 

list of factors to consider when 

establishing a control point and noted 

that adding this factor is consistent with 

information provided in the Table of 

Changes for § 9901.321(c) for the 

proposed regulation, which listed 

budget as a factor. In fact, we have 

determined that a budget or cost factors 

should absolutely not influence the 

setting of control points. We have not 

adopted this suggestion. 

B. General Issues 

We received some comments which 

were not aimed directly at the substance 

of the proposed regulation but which we 

felt should be addressed. 

One commenter noted that in the 

SUPPLEMENTARY INFORMATION of the 

proposed regulations (73 FR 29898) we 

certify, in accordance with the 

Paperwork Reduction Act of 1995, that 

this proposed regulatory action will not 

impose any additional reporting or 

recordkeeping requirements under the 

Act. The commenter asserted that this is 

an improper statement since it means 

that the new NSPS pay pool decisions 

and with it the monies that the pay pool 

will be ‘‘playing with’’ and dividing 

among employees will have no records 

concerning how the decisions were 

made. The commenter stated that this is 

especially worthy of recordkeeping if 

the Pay Pool Panel makes pay and 

award decisions that are different from 

those of the rating official and higherlevel reviewer. The commenter said that 

these records seem extremely necessary 

since the pay pool is distributing 

taxpayers’ money and because they 

ensure the application of equal 

treatment of pay for job performance. 

Actually, the Paperwork Reduction Act 

applies to the burden placed on the 

public by Government agencies in 

gathering information related to the 

agencies’ missions. It does not pertain to 

the generation of records within the 

agency. Rating officials and Pay Pool 

Panels will, in fact, generate records 

associated with the rating and pay pool 

processes. 

Another commenter requested that we 

allow noncompetitive temporary 

promotions for 180 days instead of 120 

days. This comment relates to NSPS 

staffing provisions which we did not 

address in the proposed regulation. The 

original NSPS statute, Public Law 108– 

136, permitted the Department and 

OPM to modify certain OPM staffing 

regulations, including the 120-day limit 

on temporary promotions, but the 

currently governing statute does not. 

One commenter expressed concern 

that the proposed regulation does not 

include references to applicable 5 CFR 

regulations, thus requiring users to 

review and study both the Federal 

Register rules and the 5 CFR regulations 

to determine which apply to a particular 

situation. This individual stated that it 

would be better if the NSPS regulations 

had the applicable sections from 5 CFR 

included so that there is a single 

reference source. In response, we note 

that the NSPS regulations published in 

the Federal Register are ultimately 

incorporated into 5 CFR and the 

section(s) referenced in the Federal 

Register become the 5 CFR reference(s) 

(e.g., § 9901.101 in the Federal Register 

becomes 5 CFR 9901.101). To the extent 

that the comment was intended to 

recommend inclusion of 5 CFR language 

in lieu of a cross reference when one has 

been provided, we note that references 

allow for application of revisions to 

those sections without change to this 

regulation in the event the language in 

the referenced section is modified. 

Therefore, cross references to 5 CFR 

sections covering the General Schedule 

continue to be incorporated in the final 

rule. 

A labor organization representative 

articulated apprehension with the fact 

that an employee’s performance payout 

can be provided as a salary increase, a 

bonus, or a combination of the two, 

potentially resulting in each person’s 

pay being different and, thereby, greatly 

multiplying the workload of 

administrative staffs and the Defense 

Finance and Accounting Service. The 

representative stated that previously 

there were standard pay increments, but 

now each employee’s pay is different, 

requiring more time to process actions, 

raising the possibility of more errors, 

and requiring increased staff to correct 

the errors, all of which conflicts with 

DoD’s recent staff consolidations and 

downsizing initiatives to reduce 

overhead costs. It is true that employees 

will no longer be paid at fixed step rates 

but, rather, may have their pay set at 

numerous points within their pay band 

rate range as a result of many different 

decisions based on various factors. To 

the extent possible, pay actions will be 

programmed to occur through an 

automated process. For example, 

general salary increases and most 

performance payouts will occur through 

an automated process. Many other pay 

decisions, however, will require manual 

intervention because it is not possible to 

program the many potential pay-setting 

variations. With the flexibility of pay 

banding come the challenge and the 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56355 

responsibility for setting pay correctly 

and minimizing errors. However, both 

sufficient training for all personnel 

involved in NSPS pay setting and the 

establishment of adequate review 

processes prior to finalizing pay actions 

will create the expertise associated with 

pay-setting decisions as well as mitigate 

error rates. 

Several comments were received 

related to various issues involving 

reassignments and promotions. Several 

commenters observed that, since many 

movements that were formerly 

promotions under the GS system are 

now processed as reassignments in the 

NSPS pay banding environment, the 

financial enticement for taking on a new 

assignment is not as great as in the past. 

Another commenter stated that in 

addition to the higher salary received 

upon promotion, the promotion itself is 

a prestigious event, insinuating that the 

lack of promotion opportunities in a 

pay-banded system is detrimental to 

employee self-esteem. One commenter 

declared that being reassigned instead of 

promoted is ‘‘unfair’’ and ‘‘cheats’’ those 

who qualify for higher-level positions. 

This commenter further believes that 

this practice discourages employees 

from accepting an NSPS position and 

will force young, energetic employees to 

leave DoD for agencies operating under 

the old system. Others commented that 

reassignments and promotions can 

occur noncompetitively without other 

employees even being made aware of 

vacant positions. Some of these 

commenters asserted that employees 

would be placed in high-level positions 

without required knowledge, skills, and 

abilities simply because they are 

someone’s close friend. Another 

employee asked that we change the 

proposed rules to permit a fair process 

for notifying employees of promotion 

opportunities because a model 

employee might not have a chance to 

compete because they do not belong to 

an association, do not participate in 

community work, or fish with the boss. 

Still another commenter alleged that the 

system will effectively eliminate certain 

groups of employees from obtaining 

promotions based on the supervisor’s 

personal feelings toward those people. 

By law, and by design, NSPS does not 

waive, modify, or otherwise affect the 

public employment principles of merit 

and fitness set forth in section 2301 of 

title 5 (merit system principles) or any 

provision of section 2302 of title 5, 

relating to prohibited personnel 

practices. At the same time, NSPS is 

designed to be a modern, contemporary, 

flexible, and agile human resources 

management system to help DoD meet 

the national security challenges of the 

21st century. The NSPS classification 

system recognizes ranges of difficulty in 

various organizational and work 

situations, allowing for natural 

progression from entry/developmental 

to journey and expert levels of work, 

and provides broad-banded pay that 

offers employees greater advancement 

opportunities. NSPS pay bands combine 

a range of work into one discrete pay 

band level—each individual or single 

pay band level normally encompasses 

work formerly performed at one or more 

GS grade levels. This structure permits 

employees to move more easily, i.e., be 

reassigned, between different positions 

or assignments within their assigned 

pay band or to positions in comparable 

pay bands. It also results in fewer 

‘‘promotions’’ than under the GS 

system. 

NSPS is a performance-based pay 

system; the primary method of pay 

progression with a pay band is the 

performance payout. Under NSPS, 

employees have the opportunity, based 

on performance, to move more rapidly 

through a salary range than they may 

have had under a previous system. In 

many cases, they may have additional 

earning potential. Additionally, NSPS 

provides other pay incentives. For 

example, employees in pay band 1 of 

the nonsupervisory pay schedules may 

receive an Accelerated Compensation 

for Developmental Positions payment as 

described in § 9901.345. In addition to 

regular performance payouts, highperforming employees may receive 

additional performance increases that 

reward extraordinary individual 

performance, organizational or team 

achievement, or for other special 

circumstances. Employees are also 

eligible to receive chapter 45 incentive 

awards. Unlike the GS system, NSPS 

employees may also receive 

reassignment base salary increases of up 

to 5 percent in accordance with the 

rules at § 9901.353. When employees are 

promoted to a higher-level pay band, 

they are entitled to a more significant 

base salary increase of at least 6 percent 

and may receive an increase of up to 12 

percent, or more, in accordance with the 

rules at § 9901.354. While many studies 

have indicated that employees are 

motivated by more than money to 

accept challenging work, we think the 

potential to progress financially in a 

pay-banded system, without being 

constrained by a ‘‘one-size fits all’’ 

design, will be accepted and welcomed 

by high-performing employees. We 

acknowledge, however, that this may 

take some time. 

With respect to the comments 

regarding competitive versus 

noncompetitive movement, as with the 

GS system, many NSPS positions to 

which employees are reassigned are 

advertised; however, some are not. As 

under the GS system, some 

reassignments are done competitively if 

the position the employee will be 

reassigned to ultimately leads to a 

position in a higher full performance 

pay band (i.e., a higher-level of work 

under the NSPS classification 

architecture). Whether a position is 

advertised or not, employees who are 

reassigned to another position must be 

qualified for the position, unless they 

are reassigned as a result of reduction in 

force procedures and qualification 

requirements are waived. 

C. Issues by Subpart 

1. Subpart A—General Provisions 

Subpart A defines the roles and 

general characteristics of the National 

Security Personnel System (NSPS). This 

subpart describes who is eligible for 

coverage under NSPS, identifies the 

authorities and responsibilities of OPM 

and DoD for administering and 

implementing the system, and defines 

key terms used through the regulation. 

Section 9901.101—Purpose 

Section 9901.101 explains the overall 

purpose of the regulation in 5 CFR part 

9901, which is to implement a human 

resources management system as 

authorized by section 9902 of the 

National Defense Authorization Act for 

Fiscal Year 2008 (NDAA 2008). Section 

9901.101 states various guiding 

principles and key operational 

characteristics and requirements. It also 

describes who is eligible for coverage 

under NSPS, identifies the authorities 

and responsibilities of OPM and DoD for 

administering and implementing the 

system, and defines key terms used 

throughout the regulation. 

Labor organization representatives 

stated that the process of issuing a 

regulation prior to any bargaining does 

not meet the intent of Congress. The law 

requires DoD to honor collective 

bargaining obligations prior to any 

decision to implement NSPS for 

bargaining unit employees. The law also 

requires the Department honor national 

consultation rights under 5 U.S.C. 

chapter 71 for any proposed rule before 

it becomes final. Collective bargaining 

does not occur prior to national 

consultation and only occurs after the 

proposed rule becomes final and if a 

decision is made to implement for 

bargaining unit employees. DoD and 

OPM have met the requirements of law 

and the intent of Congress in issuing 

these regulations. 

mstockstill on PROD1PC66 with RULES2

56356 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

Labor organization representatives 

expressed concern that the requirement 

in § 9901.101(a) to establish 

implementing issuances to supplement 

any matter in the regulation excludes 

input from the Office of Personnel 

Management (OPM) and prevents 

collective bargaining. They also stated 

that the Department has published these 

proposed changes without employee 

involvement or collective bargaining, 

contrary to the requirement at 

9901.101(b) that the system be more 

‘‘credible and trusted.’’ We received 

many comments regarding issues 

surrounding collective bargaining; we 

have addressed them more in depth 

under the ‘‘Major Issues’’ section. DoD 

is committed to fulfilling its obligation 

to bargain in good faith on this 

regulation consistent with 

Governmentwide labor relations rules 

under 5 U.S.C. chapter 71 and the 

requirements of 5 U.S.C. 9902 as 

amended by NDAA 2008 and section 

1106(b) of NDAA 2008. The scope of 

collective bargaining for this regulation, 

however, was determined by the statute. 

Labor organization representatives 

expressed concern that the new 

regulation incorporates content from 

implementing issuances developed 

under the 2005 regulations. These 

commenters felt that incorporation of 

material from existing issuances into the 

revised regulation somehow conflicted 

with Public Law 110–181 (NDAA 2008). 

Some commenters indicated they 

believed the implementing issuances 

themselves were no longer valid due to 

the passage of that law. While portions 

of the implementing issuances became 

invalid due to the passage of Public Law 

110–181, the implementing issuances 

were left largely intact and valid. To the 

extent the implementing issuances are 

inconsistent with the requirements of 

Public Law 110–181, we have not 

incorporated that material into the 

revised regulation. Revised 

implementing issuances were published 

on June 10, 2008 to implement policy 

changes and technical corrections, as 

well as make revisions based on 

requirements of Public Law 110–181. 

The authority for these issuances 

extends from the 2005 regulations, 

currently still effective where consistent 

with Public Law 110–181 (see section 

1106(b)(3) of Public Law 110–181). 

Since certain modifications in these 

issuances impact equity with respect to 

the treatment of the Department’s 

employees, we considered the release of 

the revised issuances crucial. We 

anticipate that these issuances will need 

additional revisions once this regulation 

is finalized and published. 

Section 9901.102—Eligibility and 

Coverage 

Section 9901.102 sets forth general 

rules regarding employee eligibility and 

coverage under the various subparts of 

part 9901. Categories of eligible 

employees become covered only when 

the Secretary affirmatively approves 

coverage. Under this section, the 

Secretary has the explicit discretion to 

extend or rescind coverage to the 

Department’s civilian employees. 

Commenters objected to § 9901.102(a), 

stating that there is no statutory 

authority in Public Law 110–181 that 

allows DoD to apply NSPS to employees 

covered by anything other than the 

waivable or modifiable chapters of title 

5, United States Code. We do not agree. 

The language at § 9901.102(a)—stating 

that employees are eligible for coverage 

‘‘except to the extent specifically 

prohibited by law’’—does not permit the 

Department to convert to NSPS any 

employees who cannot legally be 

covered by NSPS. Section 9901.102(f) 

describes the special circumstances 

under which it would be possible for 

the Secretary to extend NSPS coverage 

to employees who are not in systems 

established under the waivable or 

modifiable title 5 chapters. The 

Secretary may extend coverage to 

eligible employees under subparts B 

through D to the extent those provisions 

are not in conflict with other statutory 

requirements. We made no change to 

the proposed regulations based on these 

comments. 

Several commenters expressed 

concern that the newly proposed NSPS 

regulation did not adequately define 

eligible employee groups for coverage 

under NSPS. Commenters described 

§§ 9901.102(a) and 9901.102(f) as 

inappropriately allowing NSPS to be 

applied to employees not specifically 

covered by title 5, including Domestic 

Dependent Elementary and Secondary 

Schools (DDESS) personnel. Another 

commenter stated that personnel not 

explicitly covered under title 5 had 

protective rights entitling them to 

collectively bargain their pay outside 

the scope of any NSPS statute. We have 

not modified the proposed regulation 

because it does not permit the Secretary 

to convert to NSPS any employee who 

cannot be legally covered by NSPS. 

Although title 10 DDESS educators are 

authorized to negotiate rates of pay, 

including any rates of pay linked to 

performance, to the same extent that 

they could before the enactment of 

NDAA 2004 as noted in 5 U.S.C. 

9902(e)(9) (2008), that does not preclude 

the Secretary from taking action to 

convert them to coverage under NSPS if 

that is determined to be appropriate. 

Commenters requested we amend 

§ 9901.102(b) to conform to 5 U.S.C. 

chapter 71 requirements to provide 

advance notice to labor organizations 

regarding the extension of NSPS 

coverage to specific categories of 

employees. Although the proposed 

regulation was silent on this matter, the 

Department is committed to meeting its 

statutory obligations under 5 U.S.C. 

chapter 71 regarding advanced notice 

and opportunity to bargain the 

implementation of any decision to 

extend NSPS coverage to bargaining 

unit employees. The absence of a 

specific reference to chapter 71 language 

does not relieve the Department of its 

chapter 71 obligations. For clarification, 

we have added the following to 

§ 9901.102(b): ‘‘The Secretary will notify 

affected employees and labor 

organizations in accordance with the 

requirements of 5 U.S.C. chapter 71 

regarding a decision to extend NSPS 

coverage to any bargaining unit 

employees.’’ Any such notices would be 

provided at the appropriate level of 

recognition where the collective 

bargaining relationship exists. 

Another commenter remarked that 

§ 9901.102(b) was confusing and that we 

should rewrite the section to indicate 

that any category covered under this 

paragraph must be covered by all the 

subparts listed to be eligible. Similarly, 

another commenter stated that we 

should amend this section by deleting 

‘‘one or more subparts’’ from 

§ 9901.102(c) and substituting ‘‘subparts 

B–D’’; changing the last sentence of 

§ 9901.102(e) to state ‘‘The Secretary 

will notify affected employees and labor 

organizations in advance of a decision 

to rescind the application to them of 

subparts B-D’’; and deleting from the 

first sentence of § 9901.102(f)(1) the 

words ‘‘one or more subparts’’ and 

substituting ‘‘subparts B–D.’’ The 

commenter reasoned that the current 

proposed language allows employees to 

be covered by (1) subparts B, C, and D; 

(2) subparts B and D; (3) subparts C and 

D; or, (4) subpart D. The commenter 

asserted that, because no apparent 

reason exists for this variety of options 

and the provisions of all of these 

subparts are related, employees should 

be covered by all of them or none of 

them. The law requires coverage by a 

performance management system that 

links pay and performance (subpart D); 

however, the Secretary has statutory 

discretion to apply the other subparts (B 

and C) to employees once these 

employees are covered by the NSPS 

performance management system. We 

do not agree and have not changed the 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56357 

proposed regulation in response to this 

comment. 

Another commenter noted that 

§ 9901.102(e) does not clearly state that 

the Department is under no obligation to 

notify a labor organization if the 

organization is not affected by an NSPS 

rescission. This section requires 

notification to labor organizations when 

an NSPS rescission affects bargaining 

unit employees. While we agree with 

this comment, no change to the 

proposed regulation is necessary. 

Commenters stated that we should 

strike § 9901.102(f), pertaining to the 

Secretary’s authority to make coverage 

decisions, because the NSPS statute 

does not grant such authority to the 

Secretary. This section does not permit 

the Secretary to convert to NSPS any 

employees who cannot legally be 

covered by NSPS. The language at 

§ 9901.102(f) is consistent with law and 

remains unchanged. 

Finally, under § 9901.102(b) we have 

added a requirement imposed by NDAA 

2008 to the end of the first sentence of 

this paragraph specifying that no more 

than 100,000 employees per year may be 

moved into NSPS. Also, in 

§ 9901.102(f)(3), we have added a 

reference to § 9901.231 and clarified the 

language found in the proposed 

regulations. 

Section 9901.103—Definitions 

Section 9901.103 provides definitions 

of terms used in more than one subpart. 

Commenters differed with respect to 

the degree of specificity in the 

definitions. Some commenters stated 

that some of the new or revised 

definitions are too broad and fail to 

provide enough detail for important 

terms. Others considered the definitions 

misleading because they are too 

detailed. One commenter recommended 

reinserting removed definitions, even 

though the terms and subparts to which 

these definitions applied have been 

removed from this regulation. We have 

not made changes in response to these 

comments. 

A commenter requested that the 

definition for appraisal in § 9901.404 be 

moved to this section and redefined to 

say, ‘‘Appraisal means a written 

assessment of an employee’s 

accomplishment of job objectives and 

contributions.’’ We have not inserted 

the definition for appraisal in this 

section because the term is not used 

outside of subpart D. We have also not 

changed the definition of this term in 

§ 9901.404 in response to this comment. 

Commenters expressed concern over 

the lack of consideration for earning 

potential in the definition of 

comparable pay band or comparable 

level of work as it applies to 

classification. The definition is 

consistent with the NSPS classification 

structure. Comparable pay bands mean 

a comparable level of work without 

regard to the earning potential of the 

bands because labor markets may drive 

different salary ranges for different pay 

schedules due to differences in types of 

work vs. level of work. We have not 

revised this definition in response to 

these comments. 

Similarly, one commenter objected to 

the terms higher level of work and lower 

level of work as they relate to movement 

to an NSPS position from a non-NSPS 

(e.g., GS) position. The commenter 

stated that it was inappropriate to apply 

the broad classification criteria 

associated with a pay banding system 

with more narrowly defined non-NSPS 

classification criteria. The commenter 

pointed out that each NSPS position 

does have a specific level of difficulty, 

complexity of duties, and 

independence; therefore, it is more 

appropriate (albeit impractical) to 

consider these factors in light of the GS 

classification standards in order to 

determine whether they constitute a 

higher or lower level of work. For 

example, since a GS–9 position is not 

comparable in terms of job complexity 

or qualifications needed, movement to a 

YA–2 position that was formerly 

classified to a GS–13 should be 

considered a higher level of work, and 

promotion rules should apply. This 

view is completely contrary to the 

flexibility we have designed into NSPS 

and would have the effect of continuing 

to bind us to the GS or other more 

restrictive systems. Therefore, we have 

not revised our definition of these 

terms. However, for clarity, we modified 

the last sentence of the definition of 

these terms, as well as the last sentence 

of the definition of comparable level of 

work, to say, ‘‘When moving from a nonNSPS position to NSPS, the band of the 

NSPS position is determined to be at a 

[higher, lower, comparable] level of 

work than the grade or level of the nonNSPS position based on application of 

the NSPS classification structure as 

described in implementing issuances.’’ 

One commenter suggested that the 

word ‘‘behaviors’’ be deleted from the 

definition of competencies because this 

term relates to skills, not behaviors. 

Another commenter also asked us to 

revise this term stating that 

‘‘competency’’ means capability, not 

behavior. According to OPM’s Delegated 

Examining Operations Handbook, a 

competency is a ‘‘measurable pattern of 

knowledge, skill, abilities, behaviors, 

and other characteristics that an 

individual needs to perform work roles 

or occupational functions successfully.’’ 

The definition in § 9901.103 is an 

adaptation of OPM’s definition; 

therefore, we have not revised this 

definition in response to the comment. 

Another commenter stated that the 

term contribution is vague and 

unnecessary because it is duplicative of 

the concept of ‘‘accomplishment of 

assigned work.’’ The commenter also 

said that the phrase ‘‘or group of 

employees,’’ which appears within the 

definition, is improper because 

performance evaluation properly 

concerns only an individual’s 

performance, not a group’s performance. 

An employee’s contribution may go well 

beyond accomplishing assigned work. 

The employee may add value to the 

finished product by performing a task 

exceptionally well or by moving beyond 

assigned work to produce more than is 

required or expected. Similarly, we 

consider it appropriate to take into 

account an employee’s role in team 

contributions when assessing an 

employee’s overall contribution to the 

organization. As a result, we have not 

removed the term or revised the 

definition. 

Another commenter asked that we 

add information to the definition of Pay 

Pool Manager (PPM) to indicate that the 

payout distribution includes salary 

increases and bonuses, thereby 

establishing the agency’s approval 

authority for each type of payment. We 

agree and have revised this definition 

accordingly. 

Commenters expressed concern over 

the broad definition of the term 

performance. These commenters stated 

that performance means ‘‘effort to 

accomplish assigned work,’’ and they 

objected to the references to 

‘‘demeanor’’ and ‘‘attitude’’ in the 

definition of performance, saying that 

these requirements are inappropriate 

absent a genuine nexus between 

demeanor and accomplishment of an 

assignment. These commenters also 

stated that any ‘‘behavior’’ or lack of 

‘‘civility’’ or ‘‘respect for others’’ that 

has no nexus with accomplishment of 

work assignment, but is so egregious as 

to be intolerable in any employee, is a 

conduct issue, not a performance issue. 

We note that the attributes causing 

concern are observable behaviors that 

affect the accomplishment of 

assignments, responsibilities, and 

organizational goals. We believe 

performance assessments would not be 

complete without considering 

employees’ behaviors in carrying out 

work assignments. For example, because 

customer service is a paramount 

organizational objective, the manner in 

which employees treat customers is an 

mstockstill on PROD1PC66 with RULES2

56358 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

important aspect of overall performance. 

Employee behaviors can be objectively 

observed and evaluated against 

established performance expectations. 

Under NSPS, supervisors may consider 

how underlying misconduct negatively 

impacts the execution of an employee’s 

duties, those of the team, and/or those 

of the organization to the same extent 

such matters may be considered under 

other performance management 

systems. We have not revised the 

definition for performance in response 

to these comments. 

Commenters also objected to the 

definition of unacceptable performance 

as being over broad and stating that we 

should define it as meaning ‘‘failure to 

meet a performance expectation that 

may affect job retention’’—a longunderstood meaning of this term. These 

commenters recommended that, when 

defining the work assignment, managers 

should state the extent to which work 

should be done by a particular method 

or means, satisfy a particular qualitative 

or quantitative standard, or be done 

with a particular demeanor. We have 

not revised the definition of 

unacceptable performance in response 

to these comments. 

Another commenter requested that 

the definition of Performance Review 

Authority (PRA) be changed to refer to 

‘‘official(s)’’ to better indicate that a PRA 

can be more than one person. We agree 

and have modified the definition of PRA 

to clarify that this entity may be more 

than one person. 

A commenter suggested the 

elimination of the mandatory use of 

contributing factors in determining 

performance ratings. In addition, the use 

of contributing factors was explained in 

response to a concern regarding whether 

the NSPS system is meeting its stated 

goal of transparency. These specific 

issues are discussed in the applicable 

sections of this regulation. Because this 

term is found in more than one subpart 

of the regulation, we moved the 

definition for contributing factor from 

§ 9901.304 to § 9901.103 and provided a 

link to that section. 

Other commenters recommended that 

the role of the Pay Pool Manager in the 

pay pool panel process be clarified. We 

did so by amending the definition of 

Pay Pool Panel to clarify the active 

membership of the Pay Pool Manager on 

that panel. 

A commenter suggested that the 

definition of rating of record in the 

proposed regulation did not clearly 

define the term. We clarified the 

definition of rating of record as meaning 

the final numerical rating and narrative 

justification associated with a 

performance appraisal. In addition, we 

revised item (2) under the definition of 

this term to reflect that we are referring 

to an unacceptable rating ‘‘of record.’’ 

Section 9901.105—OPM Coordination 

and Approval 

Section 9901.105 identifies those 

actions requiring DoD to coordinate 

with or request approval from OPM 

prior to promulgating certain 

implementing issuances and certain 

other actions related to the ongoing 

operation of NSPS, where such actions 

could have a significant impact on other 

Federal agencies and the Federal civil 

service as a whole. 

As described in this section, 

‘‘coordination’’ entails (1) providing 

OPM with an opportunity to review and 

comment on DoD proposals and to 

officially concur or nonconcur with all 

or part of the proposals, (2) taking 

OPM’s views into account, and (3) 

advising OPM of the final DoD decision, 

including reasonable advance notice of 

the decision’s effective date. 

Many commenters requested we 

broaden § 9901.105(c) to require OPM 

approval for any action outlined in 

§§ 9901.105(a) through (e). By design, 

and in keeping with the statutory 

objective of establishing a ‘‘flexible’’ 

system, these regulations give DoD 

considerable authority within the 

regulatory framework. At the same time, 

OPM continues to have a role in 

overseeing the civil service system and 

in advising the President on civil 

service matters, including matters 

covered by these regulations. We believe 

the coordination and approval roles as 

defined in this section allow OPM full 

latitude to fulfill its responsibilities. To 

require OPM approval for every action 

would undermine the intent to create a 

flexible system, especially when the 

action is in response to a time-sensitive 

national security matter. As a result, we 

have not revised the language in this 

section in response to these comments. 

Finally, a modification to 

§ 9901.105(b)(9) changes ‘‘general salary 

increases’’ to ‘‘targeted general salary 

increases’’ in accordance with revised 

terminology at § 9901.323(a)(2). This 

change was made in response to a 

comment discussed under that section. 

Section 9901.106—Relationship to 

Other Provisions 

Section 9901.106 describes the 

relationship of the NSPS regulation to 

other laws and regulations. 

Several commenters expressed 

concern over the use of the term ‘‘great 

deference’’ in § 9901.106(a)(2), with 

respect to the DoD and OPM 

interpretation of this regulation. 

Commenters suggested that this term 

has legal implications and that the 

degree of deference owed to an agency 

is determined by a court applying 

judicial precedents, not an agency’s own 

declaration of the degree of deference 

that the agency believes it is owed. 

Commenters also stated that the 

provisions of this regulation will also be 

interpreted in light of their consistency 

with 5 U.S.C. chapter 71. The degree of 

deference courts afford an agency’s 

interpretation of a statute it administers 

is well-settled by judicial precedent. 

Accordingly, we have removed the 

sentence addressing deference from the 

proposed regulation. 

Section 9901.107—Program Evaluation 

Section 9901.107 prescribes the 

Secretary’s responsibility for evaluating 

the design and implementation of NSPS. 

Many commenters questioned the 

deletion of the employee representative 

reference. They expressed concern that 

not explicitly including employees or 

employee representatives in the 

evaluation process excludes those on 

the ground level from that process. 

Some commenters expressed concern 

that, at the least, this omission was 

symbolic of a decrease in the 

importance of employee representatives 

in the evaluation process. One 

commenter suggested reinsertion of the 

reference to employee representatives as 

an explicit recognition of the 

importance of employee representatives 

to the evaluation process. The removal 

of the reference to employee 

representatives does not diminish their 

importance to program evaluation; 

rather, it clarifies that their participation 

is not a requirement for evaluation of 

NSPS. 

Commenters also declared that Public 

Law 110–181 requires reviews by the 

Comptroller General under section 

1106(c). We note that the requirements 

of § 9901.107 are not based on any 

statutory requirements. This section 

places a self-evaluation requirement on 

DoD and does not address third-party 

evaluations of NSPS, such as 

evaluations by the Comptroller General. 

Any obligations that may exist with 

regard to labor organizations will be 

honored consistent with 5 U.S.C. 

chapter 71, 5 U.S.C. 9902, and section 

1106(b) of Public Law 110–181. We 

believe it is a matter of good 

management that any agency 

implementing a new human resources 

management system has a responsibility 

for evaluating that system so that any 

problems can be corrected and 

improvements made. We have made no 

change to the proposed regulation based 

on these comments. 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56359 

One commenter suggested that the 

evaluation process that has occurred 

thus far in the life cycle of NSPS has 

been less than ideal and that evaluation 

teams do not have the power or the 

authority to follow up meaningfully on 

any specific evaluation. To address 

concern that NSPS regulations can and 

will be ignored with respect to the 

implementation of specific features, 

commenters asked that this section 

clearly give the NSPS Program 

Executive Office the responsibility and 

authority to investigate, analyze, and 

appropriately report on implementation 

of NSPS and to follow up, as necessary, 

to address issues and ensure compliance 

with the regulation. Another commenter 

noted the importance of evaluation of 

compliance and that evaluation of 

program outcomes cannot be a basis for 

deciding whether or not to change the 

regulation unless a proper 

determination is made as to whether the 

outcomes are the result of following or 

not following the requirements of the 

regulation. The commenter suggested 

that we add the following language to 

this section, ‘‘Evaluation will seek to 

determine compliance with and the 

consistency and fairness of the 

implementation of the regulations, as 

well as the effectiveness and employee 

views of classification, compensation, 

and performance management 

practices.’’ The Department’s 

established Human Capital 

Accountability System includes 

compliance-oriented reviews at field 

activities to ensure that personnel 

actions, decisions, and practices adhere 

to merit system principles and pertinent 

regulations, and holds DoD managers 

and human resource practitioners 

accountable for their human capital 

decisions and actions. These reviews 

include decisions and actions under 

NSPS as well as other personnel 

systems covering the non-NSPS 

workforce. Sharing NSPS-related 

information gleaned during 

accountability system reviews with the 

Program Executive Office makes a 

separate accountability program or 

authority unnecessary. Therefore, we 

have made no change to the proposed 

regulation in response to comments 

recommending incorporation of 

compliance reviews. 

2. Subpart B—Classification 

General Comments 

Subpart B covers classification under 

the NSPS system. This section waives 

the current General Schedule 

classification system for those eligible 

for NSPS and outlines the new system 

for classification. The new classification 

system supports merit system principles 

and removes constraints of the narrowly 

defined grades under the General 

Schedule classification system. 

Some commenters argued that the 

methodology and procedures for 

classifying and establishing jobs under 

the current regulation are ambiguous. 

Another commenter stated that NSPS 

lacks clear guidelines and that, in 

contrast, the GS system had built-in 

parameters for establishing pay grades 

using job factors. Some of these 

commenters suggested that NSPS adhere 

to the broad parameters established for 

the General Schedule classification 

criteria under 5 U.S.C. 5106. These 

broad parameters applicable to the 

General Schedule included the 

requirement that duties and 

responsibilities of the position, level of 

difficulty, responsibility and 

qualification requirements serve as the 

basis for determining the appropriate 

class and grade of a position. We agree 

that the regulation would be the 

appropriate place to provide a similar 

level of criteria for NSPS classification 

determinations. A new paragraph 

§ 9901.201(b) has been added to address 

the basis for determining appropriate 

classification under NSPS. The new 

language reads as follows: ‘‘The basis for 

determining the appropriate 

classification under NSPS is the primary 

duties and responsibilities of the 

position, level of difficulty, 

occupational qualifications, competency 

requirements, mission of the 

organization, and relationship of the 

position to other positions or 

organizational levels.’’ 

Similar to General Schedule 

classification and qualification 

standards, the specific criteria within 

the broad parameters for NSPS position 

classification and qualification 

standards and functional guides are 

described in an issuance system not 

incorporated in the Code of Federal 

Regulations. While some commenters 

understood that the classification 

criteria would be further defined and 

clarified in implementing issuances, 

they objected to this approach because 

issuances are not subject to public 

comment. These commenters suggested 

that the NSPS classification program is 

less transparent and credible as a result. 

The same commenters tended to uphold 

the General Schedule classification 

system as a more transparent and 

credible system. Nevertheless, the NSPS 

classification system is modeled in 

transparency after the General Schedule. 

Neither the GS nor the NSPS 

classification system publishes 

classification criteria through the 

Federal Register process. As a result, 

agencies can respond more quickly to 

evolving mission, technologies, and 

work methods applicable to Federal 

service occupations. The Federal 

Register process, including the public 

comment period, slows the ability of the 

agency to establish and implement 

classification standards in a timely 

manner. For this reason, both DoD and 

OPM opt to use other methods to engage 

stakeholders and solicit the input of the 

agency and professional and employee 

organizations. Once classification 

criteria are established, both the NSPS 

and GS systems provide transparency by 

making criteria available to the DoD 

population and the public sector at large 

via the Internet and the agency issuance 

system. Those classification standards 

established for NSPS can be found on 

the NSPS Web site at http:// 

www.cpms.osd.mil/nsps as well as at 

numerous other agency Web sites as 

well as through DoD civilian personnel 

offices. 

Many commenters expressed the 

desire to include OPM in every phase of 

organization-wide classification 

changes. Their suggestions about OPM’s 

role varied considerably, however, from 

wanting OPM to approve or disapprove 

any classification action taken by the 

Secretary to wanting OPM to approve all 

establishments of and alterations to 

classification standards. The regulation, 

which defines OPM’s institutional role 

in the process in §§ 9901.105(b)(3) and 

(4), does provide for OPM coordination 

on NSPS classification standards. This 

coordination role enables OPM to meet 

its institutional role in the Federal 

Government at large. Requiring OPM 

approval, however, would unnecessarily 

restrict the ability of the Secretary to 

respond to unique national security 

requirements. Therefore, no change has 

been made to the proposed regulation in 

response to these comments. 

Some commenters requested that the 

assignment of positions to career 

groups, pay schedules, and pay bands 

be open to the collective bargaining 

process as well as the classification 

appeals process. Collective bargaining 

under NSPS is governed by 5 U.S.C. 

chapter 71, 5 U.S.C. 9902, and section 

1106(b) of NDAA 2008. DoD is 

committed to fulfilling any obligation to 

bargain in good faith on negotiable 

conditions of employment related to 

these regulations, consistent with those 

laws. We note that policies, practices, 

and matters involving assignment of 

positions to career groups, pay 

schedules and pay bands generally 

relate to classification of positions. To 

the extent that proposals related to 

career groups, pay schedules and pay 

bands involve negotiable conditions of 

mstockstill on PROD1PC66 with RULES2

56360 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

employment, the Department will 

satisfy its collective bargaining 

obligations. 

Comments on Specific Sections of 

Subpart B 

Section 9901.201—Purpose 

Section 9901.201 explains the 

purpose of subpart B, which establishes 

a classification structure and rules for 

covered DoD positions and employees. 

One commenter suggested that a 

machinist on the east coast should be 

paid the same as a machinist on the east 

[sic] coast and that we should remove 

all local market supplements (LMS) and 

simply pay people for the work they do. 

While machinists are excluded by this 

regulation, the commenter appears to 

perceive that the LMS is in conflict with 

the stated requirement to comply with 

merit principles in this section. 

Specifically, this section requires that 

the NSPS classification structure and 

rules in title 5, U.S. Code, are ‘‘in 

accordance with the merit principle that 

equal pay should be provided for work 

of equal value, with appropriate 

consideration of both national and local 

rates paid by employers in the private 

sector, and appropriate incentives and 

recognition should be provided for 

excellence in performance.’’ First, we 

note that standard local market 

supplements under § 9901.323 are 

administered in the same manner and 

amount as locality pay for General 

Schedule employees under 5 U.S.C. 

5304. Whether the same or different, 

however, local market supplements are 

in harmony rather than in conflict with 

the merit principle of ‘‘equal pay for 

equal work’’ in that they implement that 

part of the merit principle that states 

that pay will be set in accordance with 

‘‘* * * appropriate consideration of 

national and local rates paid by 

employers in the private sector, * * *’’. 

Therefore, no changes have been made 

to the proposed regulation in response 

to this comment. 

Section 9901.203—Waivers 

Section 9901.203 of the regulations 

specifies the provisions of title 5, U.S. 

Code, that are waived for employees 

covered by the NSPS classification 

system established under subpart B. As 

specified in § 9901.203(a), the waivers 

apply when a category of DoD 

employees is covered by a classification 

system established under this subpart, 

except with respect to OPM’s authority 

under 5 U.S.C. 5112(b) and 5346(c) to 

act on requests for review of 

classification decisions, under 

§ 9901.106 and § 9901.222(d). 

Some commenters objected to the 

waiver of chapter 51 classification 

provisions and the substitution of 

language that the commenters argued is 

vague and does not contain clear 

standards. DoD is committed to 

implementing an easily understood and 

applied NSPS classification system 

across DoD. The waiver of chapter 51 

was necessary to create a performancebased pay system, and provide the 

framework for an agile and responsive 

workforce. We do not believe that the 

waiver of chapter 51 provisions inhibits 

understanding or clarity of the NSPS 

classification process. In fact, to the 

contrary, the waiver of chapter 51 

permits simplification of the more 

complex classification determination 

process designed under the General 

Schedule. While the regulation itself 

does not prescribe the specific criteria to 

be used in classifying NSPS positions, 

specificity is achieved in this system 

through issuances of position 

classification standards and functional 

guides. As stated earlier under subpart 

B general comments, we have added a 

new paragraph to § 9901.201 to address 

these criteria under NSPS. Section 

9901.201(b) provides the basis for 

classification under NSPS. The basis for 

classification under NSPS takes into 

account information about the duties 

and responsibilities of the position, the 

level of difficulty, occupational 

qualifications, competency 

requirements, mission of the 

organization, and relationship to other 

positions or organizational levels. 

Section 9901.204—Definitions 

This subpart defines the key 

components and terms used in the 

NSPS classification system. 

One commenter requested that a 

definition for ‘‘effective date’’ be added 

to this section. Because the meaning of 

the term ‘‘effective date’’ can vary 

depending on the context in which it is 

being used and can refer to different 

timing requirements when used in 

different parts of the regulations, we 

have not modified the term under this 

section. Instead, the regulation has been 

modified under § 9901.221 to add 

clarity where the term ‘‘effective date’’ 

is used and remove confusion 

concerning which types of actions 

pertain to this term under that section. 

Section 9901.211—Career Groups 

Section 9901.211 gives DoD the 

authority to establish career groups. 

Many comments raised in response to 

this section are similar to those raised 

in other sections (e.g., desire to bargain 

collectively over classification criteria) 

and are therefore addressed under the 

General Comments section. 

Section 9901.212—Pay Schedules and 

Pay Bands 

Section 9901.212 provides DoD with 

the authority to establish pay schedules 

within each career group, as well as pay 

bands within each pay schedule. One 

commenter noted that the pay bands, as 

defined in this section, are simple to 

understand. Another commenter 

expressed concern that the discretion to 

establish more than one pay schedule 

for ‘‘similar’’ career groups was contrary 

to the merit system principle of ‘‘equal 

pay for equal work.’’ Career groups, as 

a rule, are not similar; rather they 

represent different types and categories 

of work or functions. We can only 

assume that the commenter’s concern is 

that the ability to define different pay 

schedules for similar levels of work in 

different career groups may be 

inconsistent with merit principles. 

NSPS recognizes that different 

occupations may be subject to different 

labor markets resulting in different pay 

levels for the same level of work. 

Contrary to the commenter’s concern, 

establishment of different pay schedules 

reflecting appropriate labor markets is 

very much consistent with the merit 

system principle of ‘‘equal pay for equal 

work.’’ That principle specifically states 

that ‘‘equal pay should be provided for 

work of equal value, with appropriate 

consideration of both national and local 

rates paid by employers in the private 

sector, and appropriate incentives and 

recognition should be provided for 

excellence in performance.’’ Therefore 

the merit system principle of ‘‘equal 

pay’’ requires consideration of pay 

based upon: (1) Alignment and grouping 

of similar positions inside the 

organization; (2) the rates paid by the 

private sector; and (3) performance. 

Another commenter suggested that 

the Secretary be required to receive 

OPM approval/concurrence when 

establishing NSPS qualification 

standards, rather than simply 

coordinating with OPM. The purpose of 

the coordination role with OPM is to 

enable OPM to meet its institutional role 

in the Federal Government-at-large and 

advise agencies of potential issues. 

Requiring OPM approval, however, 

would unnecessarily restrict the ability 

of the Secretary to timely respond to 

unique national security requirements. 

Consequently, no change has been made 

to the rule in response to these 

comments. 

Additional comments raised in 

response to this section (e.g., 

recommendation to provide collective 

bargaining over matters covered by this 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56361 

section) are similar to those raised for 

other sections of subpart B and are 

therefore addressed under the General 

Comments section dealing with subpart 

B. 

Section 9901.221—Classification 

Requirements 

Section 9901.221 requires that DoD 

establish a method for describing jobs 

and documenting those descriptions. 

DoD will establish, through issuances, 

criteria and procedures for assigning 

each job to an occupational series, 

career group, pay schedule, and band, 

and will classify each job accordingly. 

Some commenters requested further 

specificity about the roles in the 

classification process. In particular, 

some commenters requested that the 

person responsible for advising the 

employee of a personnel action be 

explicitly mentioned. The proposed 

regulation is intentionally broad in this 

regard. The regulation recognizes that 

DoD agencies and components may 

choose different parties to be 

responsible for notification 

requirements within their organizations. 

Consequently, more specific 

information will be made available 

through Component-level implementing 

issuances and guidance. No change has 

been made to this part of the proposed 

regulation in response to these 

comments in order to preserve 

discretion for DoD Components to 

assign work in a manner that can be 

tailored to their organization’s 

structures, mission, and management 

philosophies. 

One commenter said that managers 

might wait too long past the effective 

date to file a personnel action, thus 

disqualifying an employee from 

receiving retroactive pay. Another 

commenter said that the seven-day 

notification period before a personnel 

action is too short. These comments 

reflect a misunderstanding of the 

effective date upon which the employee 

filing time begins. For purposes of 

preserving retroactive benefits, the 

employee filing time for a classification 

appeal does not begin until the effective 

date of the personnel action 

implementing the reclassification of an 

employee’s position. Consequently, a 

manager cannot ‘‘manipulate’’ the 

timing of the effective dates of 

classification and personnel actions to 

prevent an employee from meeting a 

classification appeal filing timeline. 

Example: A classification action 

reducing a position’s pay band is signed 

on May 3rd. The personnel action 

(typically Standard Form 50) must be 

signed within 4 pay periods (typically 8 

weeks) of May 3rd. For this example, 

the Notification of Personnel Action (SF 

50) effecting the personnel action is 

effective on June 10th. The employee 

must be notified no later than June 3rd 

(‘‘at least 7 days before’’ the SF–50 is 

effective). If the employee files a 

classification appeal within 15 calendar 

days of the SF–50’s date (no later than 

June 25), the employee preserves 

entitlement to retroactive action if the 

classification decision is overturned on 

appeal. If the employee files a 

classification appeal after 15 days of the 

effective date on the SF–50, the 

employee is not eligible for retroactive 

benefits. Because many of the comments 

reflected confusion over whether the 

employee’s 15-day filing period to 

preserve retroactive benefits begins on 

the effective date of the classification 

action or the date of the personnel 

action, the proposed regulation has been 

modified to clarify that the 15-day filing 

period begins on the effective date of the 

personnel action. 

Additionally, § 9901.221(d) and (e) 

have been reversed in order to help 

facilitate an understanding of employee 

filing timelines to preserve retroactive 

benefits upon appeal. The filing time 

period, which is the same as that 

allotted under GS and FWS, has proven 

sufficient under normal circumstances 

for an employee to register a 

classification issue. Therefore, no 

change was made to the proposed 

regulation regarding the filing timeline. 

Another commenter stated that 

classification decisions that reduce an 

employee’s pay should never be 

retroactive. We concur. There are no 

provisions under NSPS allowing a 

retroactive reduction in an employee’s 

pay band or adjusted salary. The 

regulation states that a retroactive 

effective date for a classification action 

and the implementing personnel action 

is permitted only if the action resulted 

in a reduction in pay band or adjusted 

salary and if that action is subsequently 

reversed on appeal. 

Several commenters suggested that 

the effective date of a classification 

action that increases or invalidates a 

reduction of an employee’s pay and that 

follows an employee’s formal raising of 

appeal of the matter to DoD or OPM 

should be retroactive to the later of (1) 

the date on which the employee first 

performed the work that is the subject 

of the action or (2) 30 calendar days 

before the date on which the employee 

first formally raised or appealed the 

matter. This recommendation, however, 

would prevent management from 

pursuing options that would result in 

more efficient position management in 

cases where an employee had not 

previously been downgraded. For 

position management purposes, 

management must retain discretion to 

remove higher-level work, once 

identified, and assign that work to 

employees already classified at the 

higher level. 

Section 9901.222—Review of 

Classification Decisions 

Section 9901.222 of the proposed 

regulations provides employees the 

right to request that DoD or OPM 

reconsider the classification of their 

official position of record, including the 

pay system, career group, occupational 

series, pay schedule, or pay band. 

Commenters suggested that § 9901.222 

be amended to include a procedure for 

appealing classification standards. One 

association argued that optometrists 

should be in the Medical Career Group 

and in pay band 3, suggesting that the 

classification standard and description 

of duties and requirements are based on 

40-year-old information that does not 

reflect the changes to the profession 

since then. The association argued that 

the lack of an appeal right denies 

optometrists and others their inherent 

right to a day in court regardless of the 

merits of their case. All NSPS 

employees, including optometrists, have 

the right to appeal the career group and 

pay band to which they have been 

assigned. As under the General 

Schedule, classification criteria are not 

subject to appeal. We have modified the 

proposed regulation to further clarify 

this point in response to such 

comments. 

Commenters asked for greater 

specificity in the language appearing in 

this section. One commenter noted that, 

while § 9901.222(b) says an employee 

may not appeal classification of a 

position to which an employee has been 

detailed or temporarily promoted, it 

does not specifically mention 

temporarily reassigned positions. We 

have amended the proposed regulation 

to include temporarily reassigned 

positions in § 9901.222(b). A commenter 

also noted that some temporary 

promotions and positions can extend for 

longer periods of time than considered 

in the regulation. The commenter 

suggested amending the proposed 

regulation to allow for appeal for 

employees assigned to temporary 

positions extending longer than two 

years. To ensure that NSPS employees 

have similar rights to employees 

covered by OPM and DoD appeal 

regulations, we have amended the 

proposed regulation to allow 

classification appeals in situations 

where employees have been temporarily 

promoted for two years or more. 

mstockstill on PROD1PC66 with RULES2

56362 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

Another commenter noted that the 

last sentence of the paragraph 

describing who receives an appeal in 

§ 9901.222(c) is unclear. As indicated in 

§ 9901.222(a), an employee may appeal 

to either DoD or OPM, who will receive 

the appeal in accordance with 

§ 9901.223 or § 9901.224, respectively. 

Commenters expressed concern that 

the pay bands of positions that have 

been established in NSPS during the 

conversion process are not currently 

open to appeal, even though the pay 

band classification of individual 

positions is open to such consideration. 

Commenters claimed that this difference 

means that employees whose positions 

and job descriptions were placed in 

lower pay bands cannot seek 

reconsideration. However, employees 

converted into NSPS were placed in pay 

bands that correlated with the GS grade 

of the position to which they were 

assigned prior to conversion. 

Consequently, there is no reduction in 

pay band upon conversion. Employees 

who believe they were converted to the 

wrong pay band may appeal their 

classification at any time. Because 

employees were converted to NSPS 

without a loss of pay and based on their 

GS classification at the time of 

conversion and not that of a lower 

grade, there is no basis for retroactive 

benefits. We have elected not to change 

the proposed regulation in response to 

these comments. 

Finally, commenters suggested 

deleting § 9901.222(c) in its entirety, 

citing the potential for conflict between 

the NSPS regulation and local 

bargaining agreements in accordance 

with NDAA 2008. Some commenters 

saw the new process outlined in this 

section as superfluous because it and 

the local bargaining process are similar 

and have overlapping steps. 

Commenters also suggested that the 

accuracy of position descriptions was 

not a classification issue. One 

commenter cited Veterans 

Administration and AFGE Local 2880, 

16 FLRA 50 (1984) as a reference. Many 

commenters deem the process as open 

to arbitration, suggesting that attempting 

resolution through the NSPS process is 

restrictive and inefficient. In response to 

these comments, § 9901.222(c) was 

modified to reflect that the employee 

may raise the issue of accuracy of a 

position description informally with the 

employee’s supervisor or file a 

grievance using the applicable 

administrative or negotiated grievance 

procedure. 

Section 9901.223—DoD Classification 

Appeals 

Several commenters suggested that 

the reasons listed in §§ 9901.223(a)(2) 

and 9901.223(a)(3) for disallowing an 

employee representative (because the 

employee’s duties are deemed priority 

work of the Government, or the 

employee’s release would give rise to 

unreasonable costs) did not sufficiently 

protect the employee. The commenters 

expressed concern that the guidelines 

were insufficient justification to bar an 

employee representative from 

participating in the appeals process. 

These commenters believed employees 

should have the representative of their 

own choosing without regard to cost, 

availability, or impact on mission. The 

criteria by which management can 

disallow participation of a particular 

employee representative under this 

section are standard across the 

Government and necessary to the 

conduct of mission. No change was 

made to the proposed regulation in 

response to these comments. 

Many commenters found confusing 

and complicating the requirement in 

§ 9901.223(b)(1) that employees 

formally raise concerns about their 

classification to the immediate 

supervisor prior to filing an appeal. 

They expressed concern that the 

supervisory review might overlap with 

the employee’s 15-day filing timeline 

and cause the employee to lose 

eligibility for retroactive benefits. Some 

commenters also expressed concern 

about what process would be followed 

in the event a supervisor did not 

respond to such an issue raised by an 

employee. In response to these 

comments, we modified § 9901.223 of 

the proposed regulation to remove the 

requirement that a classification 

concern must first be raised with an 

employee’s immediate supervisor. 

Commenters requested an alignment 

of the timeline given to the employee to 

preserve retroactive benefits with that 

given to the manager for response to a 

classification issue presented by an 

employee under § 9901.223(b)(1). As we 

have modified § 9901.223(b)(1), the 30- 

calendar-day response time for 

supervisors is no longer required, unless 

the employee chooses to use this step in 

the process. However, we note that, 

while the filing timeline to preserve 

retroactive benefits is 15 days from the 

effective date of the personnel action 

implementing the classification 

decision, the employee’s timeline is at 

least 21 days from the notification of a 

personnel action. Pursuant to 

§ 9901.221(d), employees must be 

notified in writing of the effective date 

of a personnel action implementing the 

classification decision resulting in a 

reduction in pay band or adjusted 

salary. This notice must be provided at 

least seven days before the personnel 

action is taken and provide the 

employee with information on their 

right to appeal the classification 

decision and the time limits for so 

doing. Consequently, each employee 

will have seven or more days of 

awareness of a pending personnel action 

and the consequent appeal rights before 

the 15-day filing period to preserve 

retroactive benefits begins. Another 

commenter stated that § 9901.223(b) 

puts the supervisor in the role of human 

resources officer and that the supervisor 

may not have the qualifications for this 

role. We have not made any changes to 

the proposed regulation in response to 

this comment. Supervisors and 

managers are assisted in this role by 

their human resources office. The 

human resources office is responsible 

for providing advice and expertise to 

supervisors and managers throughout 

the classification appeals process. 

Additionally, we are confident that 

supervisors are well-qualified to 

respond to classification appeals due to 

their familiarity with the jobs and the 

simplified classification structure and 

criteria established under NSPS. 

Commenters suggested that the timeline 

in § 9901.223(b)(3) to challenge a 

classification decision be changed from 

15 days after a classification action takes 

effect to 15 days after an employee has 

been notified of a personnel action. This 

change would allow the employee to 

avoid situations where a personnel 

action is taken on a classification matter 

with an effective date up to four pay 

periods prior to notice of the personnel 

action. The commenter expressed 

concern that such a situation would 

always put the employee outside the 15- 

day period to file an appeal after the 

effective date of a reclassification. 

Further, the commenter stated that the 

employee would have to request an 

extension under § 9901.223(b)(3) or lose 

the opportunity to appeal. We have 

concluded that the wording of the 

proposed regulation was unclear as to 

whether the ‘‘effective date’’ starting the 

15-day filing time period was that of the 

position classification action or the 

personnel action implementing that 

action. Therefore, §§ 9901.221(e)(2) and 

9901.223(b)(2) were revised to clarify 

that the 15-day filing timeline for 

employee classification appeals begins 

with the effective date of the ‘‘personnel 

action.’’ We did not modify the 

proposed regulation to reflect the 

recommendation to begin the 15-day 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56363 

period on the date of notification of the 

personnel action because this change 

would shorten the time period for 

employee appeal. Nevertheless, we have 

also modified the proposed regulation to 

provide the deciding official the 

authority to grant an extension of the 

filing timeline when an employee shows 

that he or she did not receive notice of 

the personnel action. 

Several commenters objected to the 

requirement that an employee provide 

such personal information as name, 

mailing address, office telephone and 

fax numbers, name of the employee’s 

Component and exact location of the 

employee’s position within the 

Component upon submission of a 

classification appeal. These commenters 

preferred that the agency be held 

accountable for providing that 

information. Such information is 

standard to filing an employee 

classification appeal in the Federal 

Government. For example, OPM 

requires the same information in the 

filing of classification appeals under 5 

CFR part 511. The data provided 

ensures that adequate information is 

available to act on the employee’s 

request and thereby protects the 

employee’s interests. Consequently, no 

action was taken in response to these 

comments. Another commenter 

suggested that two additional pieces of 

information be required of the employee 

in submitting a classification appeal. 

These additional documents included 

the current position description and the 

latest evaluation statement for the 

position, if available. Another 

commenter requested that the rule 

specify that the organization will 

provide these materials to the employee, 

due to their importance to the future of 

the appeal. No change was made based 

on these comments. Such documents 

are typically provided by the servicing 

human resources office. 

Commenters also recommended that 

the proposed regulation be modified to 

disallow cancellation under the events 

outlined in § 9901.223(d)(2) when there 

may be an entitlement to retroactive 

benefits. We have modified the 

proposed regulation to accept this 

recommendation. 

Some commenters interpreted 

§ 9901.223(d) as restricting the 

employee’s right to resolve classification 

grievances. They suggested adding these 

cancellation provisions to the collective 

bargaining process, thus not interfering 

with the employee’s right to appeal by 

any avenue. No change was made to the 

proposed regulation in response to these 

comments. As previously stated, DoD is 

committed to fulfilling its obligation to 

bargain in good faith on negotiable 

conditions of employment related to 

these regulations consistent with 5 

U.S.C. chapter 71 and the requirements 

of 5 U.S.C. 9902 and section 1106(b) of 

NDAA 2008. 

Section 9901.224—Appeal to OPM for 

Review of Classification Decisions 

This section outlines the right to and 

process for appealing classification 

decisions to OPM. 

One commenter expressed concern 

that this section would limit the appeal 

of adverse actions, excluding them from 

the MSPB. The section specifically 

addresses the employee’s right to appeal 

a classification decision and does not 

concern or impact appeals of adverse 

actions to the MSPB. It should be 

emphasized that § 9901.224(d), which 

states that ‘‘OPM’s final determination 

on an appeal made under this section is 

not subject to further review or appeal’’ 

mirrors the language in title 5 CFR 

555.612, which states that ‘‘[a]n 

appellate decision made by the Office is 

final unless reconsidered by the Office. 

There is no further right of appeal.’’ The 

MSPB has no jurisdiction to review 

classification decisions made by an 

agency. This regulation neither limits 

appeals of adverse actions to the MSPB, 

nor does it confer jurisdiction on the 

MSPB to adjudicate disputes regarding 

classification decisions. We have not 

made any changes to the proposed 

regulation in response to this comment. 

Section 9901.231—Conversion of 

Positions and Employees to the NSPS 

Classification System 

Section 9901.231 of the regulations 

addresses the conversion of positions to 

the classification system established 

under this subpart. 

Commenters requested clarification 

regarding § 9901.231(b). In particular, 

commenters wondered whether the 

work level conversion tables used to 

place an employee in a pay band would 

be based on an employee’s actual level 

of work or the work as described in the 

employee’s position description, 

arguing that the work level conversion 

tables only consider positions that are 

properly classified under the OPM 

classification structure. No change has 

been made to the proposed regulation in 

response to this comment. Conversion 

tables are not published in this 

regulation. However, we note that 

classification of an employee’s position 

upon conversion to NSPS is based on 

the employee’s official position of 

record, and that it is assumed the 

employee’s position is properly 

classified under the OPM or applicable 

classification structure. Some 

commenters expressed confusion 

regarding the issue of temporary 

promotions as they relate to conversion, 

questioning whether or not the 

temporary position would be terminated 

prior to conversion and whether or not 

the employee would return to the 

temporary position after conversion 

(with pay adjustment). As explained in 

§ 9901.231(c), an employee on a 

temporary promotion at the time of 

conversion into NSPS will be returned 

to his or her official position of record 

prior to processing the conversion. After 

the employee is converted to NSPS, a 

determination will be made as to 

whether there is still need for the 

temporary position. If so, that position 

will be properly classified according to 

NSPS classification criteria. Because 

NSPS bands are broader than General 

Schedule grades, it is possible that the 

position may be classified into the band 

to which the employee is assigned. 

Section 9901.371(k) of this regulation 

provides authority for the organization 

to set pay immediately after conversion 

if the employee is temporarily assigned 

back to the position to which he or she 

was temporarily promoted before 

converting to NSPS. That section 

permits temporary placement and pay 

subject to the same terms and 

conditions as the initial temporary 

promotion. 

One commenter requested that 

§ 9901.231(d) be changed to protect 

grade retention for converting 

employees. No change was made to the 

proposed regulation in response to this 

comment. NSPS does not provide for 

General Schedule or other pay plan 

grade retention upon conversion. If a 

converting employee’s base salary 

exceeds that of the assigned NSPS pay 

band, the employee will receive pay 

retention. If an employee has a 

preexisting entitlement to pay retention 

under 5 CFR part 536 immediately 

before becoming covered by NSPS, 

consistent with § 9901.356(m), he or she 

will be entitled to a retained rate of pay 

without regard to the 104-week pay 

retention limit. 

3. Subpart C—Pay and Pay 

Administration 

Overview of Comments 

Subpart C contains regulations 

establishing pay structures and pay 

administration rules for covered DoD 

employees to replace the pay structures 

and pay administration rules 

established under 5 U.S.C. chapter 53 

and 5 U.S.C. chapter 55, subchapter V, 

as authorized by 5 U.S.C. 9902 (subject 

to the limitations on waivers in 

§ 9901.303). Additionally, this subpart 

sets forth the rules for performancemstockstill on PROD1PC66 with RULES2

56364 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

based pay, premium pay, and pay upon 

conversion into NSPS, as well as 

procedures for movement or conversion 

out of NSPS. By far, the largest number 

of individuals and labor organizations 

submitting comments focused on 

changes to this subpart of the proposed 

rule. Of the total comment submissions, 

approximately 80 percent touched on at 

least one aspect of pay and pay 

administration. General issues raised by 

commenters included concerns that the 

rule would permit favoritism and bias 

when determining performance payouts, 

mistrust of the pay pool administration 

process (especially as regards the 

highest-level reviewers), dissatisfaction 

with the use of control points within 

bands, concerns about the impact of 

bonuses on retirement, concerns about 

perceived infringements on collective 

bargaining rights, and perceptions of 

unfairness in terms of salary increases 

as compared to the GS system. Of those 

commenters dissatisfied with NSPS, 

many drew direct comparisons between 

the GS and NSPS systems, indicating a 

preference for the GS system. These 

commenters looked for consistency and 

comparability between the two systems 

in all areas, not just those prescribed by 

the NDAA. Commenters stated the 

concern that they would lose pay 

comparability with DoD employees 

remaining under the General Schedule 

and with employees in other Federal 

agencies. Also, many commenters 

argued that employees should receive 

100 percent of the pay increases they 

would have received under the General 

Schedule in the form of across-the-board 

increases (not the minimum NSPS 

across-the-board increase of 60 percent 

of the Governmentwide GS pay increase 

with the balance being applied to 

performance-based payouts). Some 

commenters stated that the Department 

should disband NSPS altogether and 

return to the General Schedule 

classification and pay system. 

We have addressed the questions 

concerning fairness of performance 

payouts and administration of the pay 

pool in ‘‘Performance and Pay Pool 

Management’’ under ‘‘Major Issues.’’ 

Similarly, comments concerning control 

points have also been addressed under 

‘‘Control Points’’ and concerns about 

collective bargaining rights have been 

addressed in ‘‘Collective Bargaining and 

Labor Relations’’ located under ‘‘Major 

Issues.’’ The remaining concerns have 

been addressed under the various 

sections of this subpart. As a general 

statement in response to preferences 

expressed for the General Schedule, we 

believe that NSPS improves on the 

General Schedule by providing the 

opportunity to appropriately reward top 

performers and/or compensate them in 

relation to their labor market value and 

performance. 

The proposed regulation provides that 

the overall amount allocated for 

compensation of the DoD civilian 

employees included in NSPS may not 

be less than the amount that would have 

been allocated for compensation if they 

had not been converted to NSPS. 

Because NSPS takes the same amount of 

money paid out under the General 

Schedule and redistributes based on 

different factors (e.g., performance vs. 

seniority), it is possible that some 

employees may not do as well as they 

did under the General Schedule. At the 

same time, many other employees will 

do better under NSPS than they would 

have under the General Schedule. 

Overall, the payouts for NSPS 

employees under NSPS during the past 

2 years of implementation have proven 

to compare favorably to the General 

Schedule. The changes made in the 

proposed regulation improve NSPS by 

clarifying aspects of system 

implementation while ensuring that 

important safeguards are in place to 

protect employee rights and uphold 

merit system principles. 

The revised system is consistent both 

with the requirements of the National 

Defense Authorization Act (NDAA) 

2008 and with the statutory requirement 

that the Department establish a ‘‘payfor-performance’’ system that better 

links individual pay to performance. 

(See 5 U.S.C. 9902(b)(7)(I).) 

Furthermore, we believe Congress and 

the American public expect their public 

employees to be paid according to how 

well they perform, rather than how long 

they have been on the job. They also 

expect the Department to maximize its 

efforts to recruit and retain the most 

talented and motivated workforce to 

accomplish its critical national defense 

mission. 

Comments related to specific sections 

of subpart C are described in the 

following sections. 

General 

Section 9901.302—Coverage 

Section 9901.302 lists eligible DoD 

employees and positions, subject to a 

determination by the Secretary under 

§ 9901.102(b). 

A few commenters suggested 

extending coverage to Federal Wage 

System (FWS) prevailing rate 

employees, and several commenters 

questioned the authority of the 

Secretary to designate additional groups 

to be covered under NSPS. We have not 

revised this section in response to these 

comments. NDAA 2008 specifically 

excluded FWS employees from NSPS 

and, except for those employees 

excluded by law, the Secretary has the 

discretion to extend coverage to eligible 

employees and categories of positions. 

Section 9901.304—Definitions 

This section provides definitions of 

terms used throughout the subpart. 

Commenters objected to the 

definitions of contribution, contribution 

assessment, performance share, sub pay 

pool, and unacceptable performance. 

They felt the definitions are vague, 

improper, inaccurate, unnecessary and, 

in the case of the last term, 

contradictory to long understood 

interpretations of unacceptable 

performance. We have not revised these 

definitions in response to the comments 

because they accurately reflect the 

meaning of the terms as used in the 

regulation. 

One labor organization representative 

recommended that definitions of local 

market and labor market conditions be 

included in this section. Inasmuch as 

these terms have generally accepted 

meanings and there is nothing 

particularly unique in the use of these 

terms in this regulation, definitions 

have not been added for these terms. We 

note, however, that generally labor 

market means the market in which 

workers compete for jobs and employers 

compete for workers, as defined by (1) 

the geographic parameter of a job 

search; (2) education and/or technical 

background sought; (3) experience 

required by the job; (4) licensing or 

certification requirements; (5) 

occupational membership; (6) level of 

work to be performed; and (7) industry 

in which employers compete for the 

same skills. The term labor market 

conditions generally means the 

availability and cost of labor in a given 

market and the factors/forces impacting 

the availability and cost of labor. 

Another commenter recommended 

that either the YA–2 pay band 

maximum rate of pay be amended to 

match that of pay band YC–2, which 

establishes consistency between the 

maximum rates for YA and YC, or that 

the definition of comparable pay band 

or comparable level of work exclude 

those bands where there are differences 

in the maximum base salary rates. We 

have not made any change based on this 

comment. Structural adjustments to pay 

bands are made to reflect the overall 

market value of the level and type of 

work encompassed by that band. Levels 

of work can be comparable whether or 

not the pay range (minimum and/or 

maximum rates) remains the same. 

Additional discussion regarding the 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56365 

terms comparable pay band and 

comparable level of work may be found 

at § 9901.103 in response to comments 

about these terms. 

Finally, because the term is found in 

more than one subpart, we moved the 

definition of contributing factor from 

this section to § 9901.103 and provided 

a link to that section. 

Section 9901.305—Rate of Pay 

Section 9901.305 defines the term rate 

of pay and provides an explanation of 

what it means to establish and adjust a 

rate of pay in the context of 5 U.S.C. 

9902(e)(9). Under that section of law, 

‘‘any rate of pay established or adjusted 

in accordance with [5 U.S.C. 9902] shall 

be non-negotiable, but shall be subject 

to procedures and appropriate 

arrangements of [5 U.S.C. 7106(b)(2)– 

(3)].’’ 

Representatives from several labor 

organizations commented that the 

proposed rule appears far too specific, 

in effect broadening the definition of 

rate of pay to narrow the scope of 

bargaining. The labor organization 

representatives contend that, while 

NDAA 2008 restored collective 

bargaining rights to DoD employees, this 

broader definition of ‘‘rate of pay’’ 

contradicts the intent of Congress. The 

proposed regulation language does not 

and cannot take away collective 

bargaining rights regarding ‘‘procedures 

and appropriate arrangements’’ and DoD 

is committed to fulfilling its obligation 

to bargain in good faith on these NSPS 

regulations consistent with 

Governmentwide labor relations rules 

under 5 U.S.C. chapter 71 and the 

requirements of 5 U.S.C. 9902 and 

section 1106(b) of NDAA 2008. The 

term ‘‘rate of pay’’ is undefined in 

statute. Although it is used frequently in 

connection with various aspects of title 

5, it does not mean the same thing in 

every place it appears. We believe it is 

important to clarify this term and the 

NSPS statute provides authority to do 

so. Thus, DoD and OPM proposed a 

definition to ensure uniformity and 

consistency for NSPS implementation. 

Some labor organizations suggested 

that all references to ‘‘and the 

conditions defining applicability of each 

rate’’ in § 9901.305(a)(2) be deleted from 

the definition of ‘‘rate of pay’’ 

suggesting that DoD was trying to evade 

its legal obligations by broadening the 

definition and narrowing the scope of 

collective bargaining. Establishing or 

adjusting a rate of pay for employees 

must take into account both the amount 

of the rate and the required eligibility 

criteria. Insofar as the term ‘‘conditions 

of applicability’’ may be misinterpreted, 

we have removed multiple references to 

‘‘conditions of applicability’’ from this 

section. Paragraph (b) of § 9901.305 has 

been revised to instead refer to 

‘‘eligibility requirements’’. Upon 

request, bargaining of procedures and 

appropriate arrangements concerning 

‘‘rate of pay’’ is required. The definition 

of ‘‘rate of pay’’ will not preclude 

employee representatives from 

negotiating over such matters as 

procedures for determining order of 

overtime assignments. Order of overtime 

assignments involves management’s 

right to assign work in accordance with 

5 U.S.C. 7106(a) and does not concern 

decisions regarding ‘‘rate of pay.’’ Rate 

of pay decisions are made separately 

from overtime assignment decisions. 

Bargaining over seniority, or other 

procedures to distribute overtime fairly, 

is not changed or impacted by this 

definition of ‘‘rate of pay.’’ 

Several commenters suggested that 

the definition of ‘‘rate of pay’’ include 

within-grade adjustments, some of 

which are discretionary, as provided for 

in § 9901.351(c). Under §§ 9901.351(c) 

and 9901.371(j), the regulations provide 

for both mandatory and discretionary 

salary adjustments for employees 

moving from GS. These adjustments are 

based on the amount of time an 

employee has served in the GS withingrade increase waiting period. The 

absence of an explicit reference to these 

pay adjustments does not exempt them 

from the definition of ‘‘rate of pay’’ 

under § 9901.305(a). Nevertheless, for 

clarity purposes, ‘‘within-grade increase 

adjustments’’ has been added to the 

examples of rates of pay in 

§ 9901.305(b)(3). 

Overview of Pay System 

Section 9901.311—Major Features 

This section of the subpart describes 

the key structural features of the NSPS 

pay system. 

One labor organization representative 

questioned § 9901.311(b) which 

prescribes that the NSPS pay system 

will include policies regarding the 

setting and adjusting of band rate ranges 

based on mission requirements, labor 

market conditions, and other factors, as 

described in §§ 9901.321 and 9901.322. 

They indicated that these sections, in 

fact, merely state that DoD will do these 

things but do not contain any useful 

information and do not contain the 

details that would allow them to 

comment effectively. They recommend 

that we delete §§ 9901.321 and 

9901.322. We disagree with this 

comment. As evidenced by the large 

number of substantive comments we 

received on these sections, these 

sections address key features of the 

NSPS compensation structure as well as 

criteria pertaining to these features. 

Section 9901.312—Maximum Rate of 

Base Salary and Adjusted Salary 

This section establishes authority and 

criteria for limitations on maximum 

rates of pay for base and adjusted 

salaries under NSPS. 

One commenter suggested that if the 

Secretary establishes maximum rates of 

base salary, the statutory comment and 

review process should begin, followed 

by collective bargaining. We have not 

revised this section in response to this 

comment. A statutory comment and 

review process is not required for 

maximum rates of base salary. Such a 

comment period is not required by law 

and would unnecessarily delay DoD’s 

ability to respond to labor market forces. 

The proposed regulation does require, 

however, that the Secretary coordinate 

with OPM prior to the establishment of 

maximum rates of basic pay. DoD is 

committed to fulfilling its obligation to 

bargain in good faith on this regulation 

consistent with Governmentwide labor 

relations rules under 5 U.S.C. chapter 71 

and the requirements of 5 U.S.C. 9902, 

as provided for in NDAA 2008. 

One commenter suggested that the 

NSPS proposed regulation needs a 

provision that allows the maximum of 

the rate range for physicians and 

dentists to keep pace with the maximum 

rates paid to the same occupations in 

the Veterans Health Administration 

under title 38, U.S. Code, without large 

automatic pay increases. Physicians and 

dentists are not subject to the maximum 

adjusted salary rate caps described in 

this section in recognition of salary 

ranges unique to the physician/dentist 

labor market, to include rates paid by 

the Veterans Health Administration 

under title 38. In the absence of an 

adjusted salary cap for physicians/ 

dentists, adjusted salary in the proposed 

regulation is limited only in relation to 

the aggregate pay cap, which cannot 

exceed the salary of the President of the 

United States. Consequently, there is 

sufficient authority in the proposed 

regulation to continue to establish 

salaries for physicians and dentists 

consistent with title 38 as well as other 

labor markets without modification to 

the regulation. 

Another commenter asked if the 

Secretary’s authority to establish higher 

adjusted salary rates for physicians and 

dentists applies to researchers or nonmedical PhD research scientists. The 

increased maximum adjusted salary 

maximums are in recognition of a 

specific labor market and include those 

types of health care positions covered 

by the Veterans Health Administration 

mstockstill on PROD1PC66 with RULES2

56366 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

under title 38, which does not include 

researchers or other non-medical 

scientists. 

Section 9901.313—Aggregate 

Compensation Limitations 

This section sets forth authority and 

criteria for aggregate compensation 

limits. 

One commenter suggested removing 

from the list of compensation types at 

§ 9901.313(b) the following payments: 

Severance pay under 5 U.S.C. 5595, 

nonforeign area cost-of-living 

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

and lump-sum payments for 

accumulated and accrued annual leave 

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

5552. The commenter argued that these 

payments are not compensation for 

work performed and therefore should 

not be included when calculating 

aggregate compensation limits. The 

commenter is correct because these 

specific payments are not subject to the 

aggregate limitation on pay. However, 

no change in the proposed regulation is 

needed because these payments are 

listed as exclusions in § 9901.313(b)(13). 

Section 9901.314—National Security 

Compensation Comparability 

Labor organization representatives 

commented that the proposed regulation 

does not include any mention of 5 

U.S.C. 9902(e)(3), which requires rates 

of compensation for civilian employees 

to be adjusted the same as rates for 

members of the uniformed services. 

Commenters had objected to this 

omission in the 2005 regulation and 

objected again to the omission of this 

provision in the current proposed 

regulation. However, because 

comparability with military pay is 

already addressed under 5 U.S.C. 

9902(e)(3) and requires no further 

elaboration to implement, there is no 

need to address it again in this 

regulation. 

One commenter objected that 

§ 9901.314 fails to mention both the 

requirement that aggregate 

compensation be no less than what 

would have been available had 

employees not been converted to NSPS 

through fiscal year 2012 and the 

requirement that a formula to be 

developed in years after 2012 for 

calculating the overall amount to be 

allocated for compensation of civilian 

employees included in NSPS. However, 

§ 9901.314(a) and (b) specify these 

requirements in almost the exact 

language as that used in NSPS statute. 

Therefore, no change was made to the 

proposed regulation in response to this 

comment. 

Rate Ranges and General Salary 

Increases 

Section 9901.321—Structure 

This section describes the Secretary’s 

authority to establish ranges of base 

salary rates for pay bands. 

Numerous comments were received 

on the control point feature of NSPS. 

Consequently, a comprehensive 

response to those comments including 

background information and the 

philosophy underlying the 

establishment and use of control points 

has been provided under the ‘‘Major 

Issues’’ section of this Supplementary 

Information. 

Section 9901.322—Setting and 

Adjusting Rate Ranges 

This section provides the Secretary 

with the authority to set and adjust the 

rate ranges established under 

§ 9901.321; establish the effective date 

of new or adjusted rate ranges; establish 

different rate ranges and range 

adjustments for different pay bands; and 

adjust the minimum and maximum 

rates of a pay band by different 

percentages. 

A commenter proposed that we delete 

‘‘mission requirements’’ from the list of 

factors the Secretary may consider in 

setting and adjusting rate ranges under 

§ 9901.322(a). The commenter stated 

that this is a vague, undefined concept 

that is not relevant to the value of work, 

and pay should be determined 

according to the value of work. We have 

not revised this section in response to 

this comment. While we have not 

defined the term ‘‘mission 

requirements,’’ it is a frequently used 

term relating to those factors necessary 

to accomplish the Department’s national 

security mission. We consider this to be 

among many relevant and important 

factors the Department may consider in 

determining appropriate rate ranges. It 

is essential that DoD devote its limited 

financial resources to attracting, 

recruiting, and retaining employees who 

possess the knowledge, skills, abilities 

and/or competencies relevant to its 

missions. Where market forces drive up 

the cost of labor in one or many 

occupations, DoD must have the ability 

to apply its limited resources to the 

skills most critical to its mission. For 

example, there may be a requirement for 

specific information technology, 

program management, or acquisition 

management skills. If those skills are in 

short supply in the labor market and 

critical to accomplishment of mission, 

DoD needs to have the ability to direct 

its resources to acquiring employees 

with those skills rather than losing those 

employees to competitors or adjusting 

the pay of skills which they have 

already competitively priced. It is 

important to note, however, that the 

NSPS regulation does not give any one 

factor greater weight than any other; 

given the circumstances of a particular 

year, any factor may have a greater or 

lesser effect on decisions regarding 

adjustments in rate ranges. We believe 

the American public expects DoD to use 

its resources in the most cost effective 

manner possible. 

One labor organization endorsed this 

section of the proposed regulation, 

citing its origins in NDAA 2008 and the 

requirement that no less than 60 percent 

of the general pay increase (GPI) go to 

all employees rated above unacceptable. 

Another commenter stated that the 

maximum rate of each pay band should 

be adjusted by the sum of the amount 

of the increase applied to the NSPS GPI 

plus the amount of the GPI applied to 

the pay pool because, if the pay ranges 

do not progress by the full amount of 

the GPI, management will lose the 

ability to compete with the GS market 

which is still a very significant 

competitor with the NSPS labor force. 

This commenter additionally asserted 

that continuing to increase the 

maximum of the pay range helps to 

reinforce to employees that the main 

purpose of NSPS is to put emphasis on 

performance rather than cutting civilian 

pay. We agree and have revised the 

language at § 9901.322(e) to add a 

requirement for the maximum rate of all 

pay bands to be adjusted by no less than 

the percentage amount of the General 

Schedule annual adjustment under 5 

U.S.C. 5303. A similar comment was 

received which stated that we should 

require control point maximums to be 

adjusted at the same rate as the GPI; 

otherwise an employee could be denied 

a full GPI increase. We note that 

whether or not a control point is 

adjusted to reflect the amount of a NSPS 

across-the-board increase, both the 

NSPS statute [5 U.S.C. 9902(c)(7)] and 

the proposed regulation [5 CFR 

9901.323(a)(1)] require that each 

employee eligible for such increase 

must receive it regardless of pay band 

control points. Therefore, no adjustment 

has been made to the proposed 

regulation in response to this comment. 

Other labor organization 

representatives expressed concern that 

the ability of DoD to raise the maximum 

rate of a pay band by an amount 

different from the minimum rate could 

allow the Department to benefit a few 

favorite employees at the top of their 

band at the expense of other employees 

in the band. These commenters also 

believe this section of the proposed 

regulation offers too much opportunity 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56367 

for manipulation and inequity. We do 

not agree. The ability to adjust pay band 

minimums and maximums is an 

important flexibility that enables the 

agency to respond to changing labor 

markets. These flexibilities include the 

ability to raise the minimum rate of a 

pay band while not changing the 

maximum rate, as well as lowering or 

raising the maximum of a pay range 

without adjusting the lower range for 

the purpose of responding to labor 

market forces. When adjusting range 

rates under this authority, the ranges are 

adjusted worldwide throughout all of 

NSPS. With an NSPS population 

currently exceeding 180,000 employees, 

the sheer volume of employees assigned 

to any given pay band at any given time 

negates the ability of targeting range 

adjustments to a ‘‘few favorite 

employees’’. Additionally, any 

adjustments to rate ranges must be 

coordinated with the OPM. 

Another commenter questioned how 

often the Secretary can make rate range 

and other adjustments to pay. The 

proposed regulation generally does not 

specify when or how often the Secretary 

can authorize rate range and other 

adjustments, although it does require 

the Secretary to review established rate 

ranges for possible adjustment at least 

annually and adjust the maximum of 

each pay band at the time of a general 

salary increase under § 9901.323(a)(1). 

With the exception of the requirement 

to provide employees with ratings above 

unacceptable an increase of 60 percent 

of the GPI at the same time that a 

General Schedule annual adjustment 

takes effect under 5 U.S.C. 5303, and a 

requirement to adjust standard local 

market supplements in the same manner 

and to the same extent as corresponding 

locality payments under 5 U.S.C. 5304 

and 5304a, the Secretary will make 

decisions regarding rate range and other 

adjustments to pay based on many 

variables, including mission 

requirements, labor market conditions, 

costs, pay adjustments received by other 

employees of other Federal agencies, 

and any other relevant factors. 

One commenter recommended that 

the proposed regulation include a 

provision that allows the maximum of 

the rate range (including any 

occupational supplements) for 

physicians and dentists to keep pace 

with the maximum rates paid to the 

same occupations in the Veterans 

Health Administration under title 38, 

without large automatic pay increases. 

The commenter argued that the 

maximum of a range needs to be 

allowed to go higher without triggering 

a pay increase. The proposed regulation 

does not link adjustments in rate ranges 

to mandatory increases in base salary. 

Therefore, an adjustment in the 

maximum rate of a pay range can be 

made without triggering a mandatory 

increase in an employee’s base salary. 

Consequently, no change has been made 

to the proposed regulation in response 

to this comment. 

Section 9901.323—Eligibility for 

General Salary Increase 

This section describes the Secretary’s 

authority and limitations on authority to 

grant both general salary increases and 

targeted general salary increases, as well 

as describing some requirements and 

criteria concerning these increases. 

This section generated a large number 

of comments. Many commenters argued 

that employees should receive 100 

percent of the pay increases they would 

have received under the General 

Schedule (not the minimum increase of 

60 percent of the GS GPI plus 

performance-based payouts). Of the 

commenters who focused on this issue, 

most expressed the view that the 

Governmentwide GS GPI was actually a 

cost-of-living adjustment (COLA), to 

which all Government employees were 

entitled. In fact, this view is incorrect; 

the GS GPI reflects the cost of labor. The 

Federal Employees Pay Comparability 

Act of 1990 provided two types of 

annual salary adjustments: an acrossthe-board increase to the entire General 

Schedule based on the Employment 

Cost Index (ECI), and a locality pay 

increase to the entire General Schedule, 

in a particular locality area, based on 

the salaries of non-Federal employees 

working in that area. The ECI portion is 

based on an annual comparison of ECI 

changes as measured by the Bureau of 

Labor Statistics (BLS). However, the 

BLS comparison measures the ‘‘cost of 

labor or wages’’ as opposed to the ‘‘cost 

of living.’’ Ultimately, the purpose of 

the GS increase is to ensure 

competitiveness with the private sector, 

versus offsetting increases in the cost of 

living. While discretion exists for 

employees to receive only a portion of 

the GPI as an across-the-board pay 

increase, the balance of the GPI also 

continues to be paid out as a base salary 

increase. The difference is that it is paid 

out based on performance as opposed to 

an automatic ‘‘across-the-board’’ 

increase. This enables DoD to pay the 

most competitive salaries to its highest 

performing employees. 

Some commenters suggested that even 

employees who have reached a control 

point should receive the general 

increase, under the supposition that 

employees at the control point arrived 

there by being top performers. As 

indicated previously, under the 

proposed regulation and 5 U.S.C. 

9902(c)(7), such employees do not lose 

entitlement to the NSPS general salary 

increase authorized under the proposed 

§ 9901.323(a)(1). Limitations on 

exceeding control points under 

increases authorized under this section 

are limited to ‘‘additional general salary 

increases’’ under § 9901.323(a)(2) 

related to staffing difficulties and 

§ 9901.323(c) pertaining to that part of 

the GPI paid out through the pay pool 

process. 

One commenter suggested that 

employees who experience an 

unintended and unforeseen loss in pay 

as a result of an NSPS pay setting rule, 

or lack of a rule, when they move to an 

NSPS position from a non-NSPS 

position outside of the conversion 

process be eligible for a one-time 

retroactive adjustment to compensate 

for the loss if that loss or inequity is 

subsequently rectified by establishing or 

changing a rule to address the situation. 

Such an adjustment could be a 

mechanism for the Secretary to rapidly 

and immediately address or mitigate 

inequitable situations resulting from the 

operation of the NSPS regulation when 

a rule, or lack of a rule, has significant 

adverse impact on an employee. We 

have not revised this section in response 

to this comment. It is not feasible to pay 

employees for changes in pay-setting 

rules that were not in effect on the 

effective date of personnel actions 

affecting their pay. Standard practice 

throughout the Government is to base 

all personnel actions affecting Federal 

employees on the Federal laws and 

regulations applicable to them on the 

effective date of the action. It is also not 

reasonable to presume that every change 

in regulation would have been preferred 

earlier if only that authority were 

permitted earlier. 

Another commenter pointed out that 

non-NSPS candidates applying in 

response to vacancy announcements 

should be notified that they will receive 

only 60 percent of the general increase 

and no performance pay if they accept 

a reporting date to an NSPS position just 

prior to January. However, 

§ 9901.323(c)(1) of the regulation 

provides authority to the Secretary to 

make such employees whole by 

providing them an additional increase 

equal to the difference between the 

General Schedule GPI and the amount 

of the GPI applied as an NSPS acrossthe-board GPI. Therefore, such 

notification is not necessary. 

A labor organization representative 

erroneously stated that a determination 

to increase the minimum of the rate 

range would govern what the annual 

increase for acceptable employees will 

mstockstill on PROD1PC66 with RULES2

56368 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

be and that employees in one pay band 

could get one percentage increase while 

other employees in other bands could 

get different percentages because of 

labor market conditions or because one 

occupational series is considered to be 

more important than another at a 

particular point in time. Under the 

proposed regulation, the link between 

adjustments in the minimum of a pay 

band and an employee’s entitlement to 

have his or her base salary adjusted has 

been severed. Instead, annual general 

salary increases are provided in 

accordance with the requirements of 

this section. Nonetheless, it is true that 

pay band minimums and maximums 

can be adjusted differently from pay 

schedule to pay schedule based upon 

labor market considerations. Such 

adjustments to band ranges in relation 

to the labor market are appropriate. 

Another labor organization 

representative stated that they interpret 

our Supplementary Information in the 

proposed regulation concerning 

§ 9901.323(a)—which states, ‘‘As 

required by section 9902(e)(7), the 

portion of the GS GPI amount that is not 

provided as an NSPS general salary 

increase must be allocated to NSPS pay 

pool funding for the purpose of 

increasing base salary rates on the basis 

of employee performance’’—to mean 

that DoD has to increase payroll funding 

each year by the amount of the GPI and 

that it can’t give any part of it out as 

cash bonuses or use this money for 

other than employee compensation 

purposes. It is correct that the balance 

of the amount of the GPI which is not 

paid out as a general salary increase 

must be allocated to pay pool funding 

for the purpose of increasing rates of 

pay on the basis of employee 

performance. While this does not 

guarantee that each employee will 

receive the remaining percentage as an 

increase to base salary, it does mean, in 

the aggregate, the amount must be paid 

out as an increase to base salary. This 

portion of the pay pool funding may not 

be paid out as a bonus. 

Another commenter suggested that 

§ 9901.323(a)(2) be revised to allow the 

additional general salary increase to 

target specialties within an occupation, 

such as Electronics Engineer versus 

Mechanical Engineer, as well as specific 

locations. The commenter stated that 

the ability to target specific 

occupational specialties and locations 

would make it more likely that relief 

would be authorized, since it would not 

impact as many employees. Another 

commenter recommended the general 

increase under § 9901.323(a)(2) should 

not only permit targeting to 

specializations within an occupation, 

but also to segments of a pay band. We 

agree in part. The proposed regulation 

has been modified in response to these 

comments to enable targeting of 

specializations within an occupation. 

However, the proposed regulation was 

not modified to permit targeting by 

geographic location or parts of a pay 

band. The appropriate tool to recognize 

salary and market differences based on 

geographic location is through the use of 

the targeted local market supplement 

authority described in § 9901.332(c). We 

agree that there is a need to amend the 

proposed regulation to provide NSPS 

with the ability to design targeted local 

market supplements that will more 

effectively compensate employees 

where the higher market value has been 

recognized through the establishment of 

pay increases such as the OPM series of 

special salary rates, and we have 

amended our regulations at 

§ 9901.331(b) to address this concern. 

A labor organization representative 

protested that § 9901.323(a)(2) gives the 

DoD flexibility to provide some 

occupations within a pay band a larger 

increase than workers in other 

occupations in the same pay band based 

on factors other than individual 

performance. Some commenters 

objected to the perceived lack of 

objective criteria by which the Secretary 

would apply his or her authority to 

provide additional NSPS general salary 

increases under this section to 

employees in a designated occupational 

series in a pay band at times other than 

the effective date of the GS annual 

adjustment. They expressed concern 

that a general salary increase provided 

under this paragraph could be subject to 

abuse, discrimination, or inequity. 

There was also some confusion as to 

whether this was meant to be a different 

type of targeted local market 

supplement. It is not intended to 

function as a targeted local market 

supplement; rather, it is a one-time 

increase to base salary without 

geographic distinction. This provision 

provides an important tool to attract and 

retain employees performing critical 

national security missions. Contrary to 

concern about the perceived lack of 

objective criteria, the proposed 

regulation does identify four specific 

factors upon which these additional 

targeted salary increases will be based 

(labor market conditions, staffing 

difficulties, cost, and mission priorities). 

These criteria are much like the criteria 

governing the authority to provide 

special salary rates under the General 

Schedule. In fact, this authority and the 

targeted local market supplement are 

meant to be similar to the special pay 

rate flexibility available for General 

Schedule employees under 5 CFR 

530.301. The NSPS ‘‘additional general 

salary increase’’ functions as a ‘‘catch 

up’’ increase in base salary. The 

‘‘targeted local market supplement’’, 

similar to a GS special rate, is paid out 

as a supplement to base salary. Both 

exist to address labor market and 

staffing difficulties. Consequently, to 

facilitate understanding of the 

‘‘additional general salary increase’’ 

authority, we have renamed this 

authority ‘‘targeted general salary 

increase’’ to align the authority with the 

terminology used for other NSPS pay 

tools used to address staffing 

difficulties. 

A few commenters recommended that 

even employees who received a rating of 

unacceptable should receive at least 60 

percent of the annual increase. 

Providing this increase to individuals 

who receive a rating of unacceptable is 

counter to one of the fundamental goals 

of NSPS, recognizing and appropriately 

compensating employees based on 

performance. This fundamental goal 

was recognized by the Congress in the 

NDAA 2008. Therefore, no change was 

made in response to this comment. 

Local Market Supplements 

Section 9901.331—General 

This section of the proposed 

regulation describes the process by 

which base salary ranges may be 

supplemented in appropriate 

circumstances by local market 

supplements. 

One commenter representing a labor 

organization suggested that, because 

employees with performance/ 

complexity levels that put them at the 

top of the pay band will receive a partial 

or no increase when local market 

supplements are applied, the system 

does not adhere to principles of pay for 

performance. However, the only limits 

on paying a local market supplement in 

the proposed regulation is that 

associated with unacceptable 

performance under § 9901.332(d) and 

the maximum pay cap for adjusted 

salary under § 9901.312(b) and 

§ 9901.332(b)(5) which limits adjusted 

salary to level IV of the Executive 

Schedule plus 5 percent (a maximum 

adjusted pay cap which is 5 percent 

higher than the General Schedule). We 

believe the American taxpayer favors a 

maximum pay cap that aligns NSPS 

salaries subordinate to Executive Level 

salaries in the Federal Government. 

Therefore, no change was made to the 

proposed regulation in response to this 

comment. 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56369 

Another commenter suggested that 

§ 9901.331(c) be clarified to clearly 

define the term ‘‘official worksite’’ for 

local market supplement entitlement. 

The commenter stated that with the 

Government’s emphasis on 

telecommuting, clear and distinct 

information should be provided to 

define ‘‘official worksite.’’ We have not 

changed the proposed regulation in 

response to this comment. The 

regulation references the General 

Schedule regulations at 5 CFR 531.605, 

which define how the official worksite 

is determined for an employee who is 

covered by a telework agreement. 

Section 9901.332—Standard and 

Targeted Local Market Supplements 

This section of the proposed 

regulation describes the Secretary’s 

authority and limitations on authority as 

well as employee entitlements and 

coverage conditions concerning 

standard and targeted local market 

supplements. 

Labor organization representatives 

commented that the discretion provided 

to the Secretary to set local market 

supplements is too broad and that the 

Secretary should gain approval from, 

rather than merely coordinating with, 

OPM prior to setting local market 

supplements. We note that under NDAA 

2008, the Secretary is required to set 

and adjust standard local market 

supplements consistent with the setting 

and adjusting of corresponding General 

Schedule locality payments under 5 

U.S.C. 5304 and 5304a. We view the 

Secretary’s ability to establish targeted 

local market supplements as critical to 

appropriately compensating employees 

and believe appropriate parameters, 

including coordination with OPM, 

provide the necessary safeguards to 

address concerns. We have, however, 

provided clarity to the information 

concerning targeted local supplements 

by specifying that they are meant to 

address significant recruitment and 

retention problems. 

Other commenters from labor 

organizations suggested that the local 

market supplement should not be 

dependent on employee performance; 

rather, poor performance should be 

reflected in base pay. Denying 

unacceptable performers adjustments in 

both their base salary and any 

applicable local market supplement 

clearly conveys the Department’s desire 

for emphasis on performance. It is 

consistent with a fundamental principle 

of NSPS, that is, we want to 

acknowledge and reward employees for 

their performance. At the same time, we 

want to assure the American taxpayer 

that the Department is not continuing to 

pay salary increases to poor performers. 

This goal was recognized by the 

Congress in the NDAA 2008. 

One commenter asked how NSPS 

addresses the situation involving an 

employee who moves to an NSPS 

position located in a geographic area 

where pay is not computed using 

adjusted rates (i.e., a rate that includes 

locality pay). If a salary-setting situation 

does not meet the criteria for adjustment 

based on adjusted rates of salary, the 

salary is set by comparison of base rates 

of salary. Where salary is set using 

comparisons of adjusted rates, locality 

pay is considered part of the adjusted 

rate of a General Schedule employee in 

the same manner as targeted local 

market supplement is considered part of 

the adjusted salary rate for NSPS 

employees. 

Section 9901.333—Setting and 

Adjusting Local Market Supplements 

This section addresses the setting and 

adjusting of standard and targeted local 

market supplements. 

Commenters from labor organizations 

suggested that basing the size of local 

market supplements on available funds 

might demotivate current employees 

and lead to difficulty in attracting highquality new employees to DoD. 

Standard local market supplements are 

determined in the same manner and 

amount as provided to General 

Schedule employees under 5 U.S.C. 

5304 and therefore are not considered in 

terms of availability of funds. However, 

in determining the Department’s 

response to staffing shortages or 

difficulties, it is only prudent to 

consider cost in determining whether or 

not to approve a targeted local market 

supplement, and for what amount. It is 

possible that alternatives are available 

that will be less costly or that the cost 

would jeopardize other mission 

priorities. Cost is an appropriate factor 

for consideration in the use of optional 

pay tools. 

A commenter expressed concern that 

the targeted local market supplement as 

discussed in § 9901.333(b) will be 

subject to abuse and discrimination and 

will not be transparent or credible to 

employees. Section 9901.332 of the 

proposed regulation has been modified 

to reflect that the purpose of a targeted 

local market supplement is to address 

significant recruitment or retention 

problems. Given the parameter in which 

it is to be used, the requirement for 

coordination with OPM, and the 

requirement for an annual review of 

each targeted local market supplement, 

it is difficult to envision how this 

authority might be used in a 

discriminatory manner. We believe the 

regulation provides objective criteria, 

transparency and credibility to such 

determinations. 

Another commenter suggested that a 

subparagraph be added to this section to 

clarify that, if the standard local market 

supplement exceeds the targeted local 

market supplement, the standard local 

market supplement should take effect 

corresponding to the same date of GS 

locality payments. The commenter 

stated that, if a targeted local market 

supplement is larger than the GS 

locality, at DoD’s discretion employees 

can receive the higher supplement 

because there are no distinct words to 

protect people if the targeted local 

market supplement falls below the GS 

locality payment. We have not revised 

this section in response to this 

comment. In accordance with 

§ 9901.332(c) of this regulation, a 

targeted local market supplement 

applies to an employee eligible for a 

standard local market supplement only 

if the targeted local market supplement 

is a larger amount. While the targeted 

local market supplement does not apply 

to everyone in a pay band, once a 

category of employees has been 

identified to receive it, all employees in 

that category receive the payment 

provided they have a rating of record 

above unacceptable. The effective dates 

of targeted local market supplements are 

not tied to the effective dates for 

adjustments in the standard local 

market supplement in that targeted local 

market supplements can be approved 

throughout the year. Tying the effective 

date of a targeted local market 

supplement to that of the standard local 

market supplement could result in 

costly manpower delays in addressing 

significant recruiting or retention 

problems. 

Section 9901.334—Eligibility for Pay 

Increase Associated With a Supplement 

Adjustment 

This section provides that an 

employee must have a rating of record 

above ‘‘unacceptable’’ to receive a pay 

increase associated with a local market 

supplement adjustment. 

One commenter posed several 

questions related to paragraph (b) of this 

section, which states that once an 

employee has a new rating of record 

above unacceptable, the employee is 

entitled to the full amount of any 

applicable local market supplement 

effective on the date of the first 

adjustment in that local market 

supplement occurring on or after the 

effective date of the new rating of record 

above unacceptable. The commenter 

wondered whether the effective date of 

the new rating of record was the day the 

mstockstill on PROD1PC66 with RULES2

56370 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

supervisor signed it, after it had been 

approved by the Pay Pool Panel, or 

when it was entered into DCPDS. Also, 

the commenter asked if an employee has 

a new rating of record signed by the 

supervisor but not yet entered into 

DCPDS, could that rating of record be 

missed when a change in the local 

market supplement takes place 

(particularly if the change takes place at 

any other time of the year other than the 

first pay period in January)? The 

commenter went on to suggest that 

§ 9901.334(b) be made clearer by stating 

that the employee is entitled to the local 

market supplement occurring on or after 

the effective date, as specified in 

§ 9901.412(b)(2) of subpart D, of the new 

rating of record above unacceptable. We 

agree that the effective date of a rating 

of record should be clarified. 

Consequently, we have revised this 

paragraph to link to information in 

subpart D which discusses the effective 

date of ratings of record (§ 9901.411(d)). 

Commenters from labor organizations 

suggested that, while denying 

underperforming employees their 

within-grade increase is appropriate, it 

is inappropriate to deny them the local 

market supplement as well, since the 

LMS should be awarded regardless of 

performance. Denying unacceptable 

performers adjustments in both their 

base salary and any applicable local 

market supplement clearly conveys the 

Department’s desire for emphasis on 

performance. It is consistent with a 

fundamental principle of NSPS; that is, 

we want to acknowledge and reward 

employees for their performance. At the 

same time, we want to assure the 

American taxpayer that the Department 

does not continue to increase the salary 

of poor performers. 

Performance-Based Pay 

Section 9901.341—General 

This section briefly describes the 

performance-based pay component of 

the pay system established under 

subpart C. 

Labor organization representatives 

commented that performance-based 

payouts of raises or bonuses should not 

be given to teams or organizations as 

opposed to individuals, because this 

practice does not truly reward 

individual performance. Under the 

NSPS concept, organizational and team 

performance can be considered in 

assessing an individual’s 

accomplishments. We expect that the 

importance of teamwork and 

cooperation will continue to be 

reinforced in the expression of 

performance standards and performance 

objectives. Through communication, 

ongoing feedback, performance rating 

and performance rewards, the 

importance of teamwork and 

cooperation should be understood by 

employees. In addition, the regulations 

clearly describe in the definitions of job 

objective and unacceptable performance 

that the measurement of an employee’s 

performance in determining his or her 

rating is based on the expectations set 

for the individual employee during the 

appraisal period. When organizational 

or team performance is considered in an 

employee’s performance expectation, 

the assessment is based on the efforts, 

cooperation, and contributions of that 

individual employee to the success of 

the team and organizational goals. No 

change has been made to the proposed 

regulation based on these comments. 

Commenters suggested that two 

employees could be doing the same 

exact work of the same exact quality, 

but because they are assigned to two 

different pay pools, their compensation 

will differ because it is now being 

dictated by the performance of the 

group. It is true that a pay pool that has 

a higher percentage of high-performing 

employees may have a different share 

value than a pay pool with a lower 

number of high-performing employees 

because the payouts are based on shares 

of a common fund. However, most pay 

pools are of sufficient size that the 

rating distribution normalizes to the 

standard population. Where this does 

not occur, we find we are similar to the 

General Schedule where employees are 

sometimes awarded differently for 

similar levels of performance. 

Section 9901.342—Performance Payouts 

Section 9901.342 describes the 

management and structure of 

performance pay pools and provides for 

the allocation and distribution of 

performance pay funds. 

Labor organization representatives 

commented that, by employing Pay Pool 

Panels and Pay Pool Managers, the 

proposed regulation attempts to 

override any current locally bargained 

award panels consisting of union 

representatives along with managers. 

However, we note that performancebased pay and pay pools did not exist 

for most employees prior to NSPS. 

Where such pay pools or collective 

bargaining provisions related to 5 U.S.C. 

chapter 45 (dealing with incentive 

awards) existed prior to conversion to 

NSPS, DoD will continue to honor its 

collective bargaining obligations under 

5 U.S.C. chapter 71. Under chapter 71, 

these regulations cannot override 

current collective bargaining 

agreements. No change was made to the 

proposed regulation based on these 

comments. 

Several commenters suggested that 

Pay Pool Managers, Pay Pool Panels, 

and Performance Review Authorities are 

additional layers between an employee’s 

supervisor and the actual payout the 

employee receives. These extra layers of 

management, according to the 

commenters, are removed from the 

employees they rate, and they will 

likely have no direct knowledge of the 

employee’s performance during the 

year. 

Pay pool panels serve as calibration 

committees and are comprised of 

management officials who are usually in 

positions of line authority or in senior 

staff positions. As such they are familiar 

with the organization’s mission and 

goals. First-hand knowledge of each 

employee is not necessary. The pay pool 

process and the higher-level reviews 

provide the necessary checks and 

balances to ensure that performance 

decisions are made in a careful, 

deliberative environment that ensures a 

common understanding of performance, 

share assignment, and payout 

distribution criteria that is applied 

across the pay pool. The Pay Pool Panel 

members ensure consistency by 

reviewing self and supervisory 

assessments (both prepared by 

personnel knowledgeable of employee’s 

work) and comparing accomplishments 

to the employee’s stated job objectives 

and performance criteria. If there are 

any questions regarding the 

recommended rating for an employee or 

the panel is likely to change the rating 

official’s recommended rating, the 

supervisor or rating official will be 

requested to present further information 

or justification to the pay pool. 

Additionally, employees who feel their 

final job objective ratings or rating of 

record does not properly reflect their 

work may seek reconsideration 

consistent with § 9901.413 of the 

regulation. No change has been made to 

the proposed regulation based on these 

comments. 

Labor organization representatives 

also expressed disapproval of the idea of 

sub pay pools, suggesting that the 

existence of large pay pools that require 

sub pay pools sets up a bureaucratic 

structure that separates the employee 

from the performance payout, obscures 

the connection between pay and 

performance, and increases the chances 

for erroneous and discriminatory pay 

decisions. In a further argument against 

sub pay pools, representatives of labor 

organizations suggested that 

§ 9901.342(b)(3) be deleted because the 

sole purpose of sub pay pools is 

‘‘reconciling ratings of record’’ and 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56371 

consequent payouts, and the concept of 

‘‘reconciling ratings’’ is improper, in the 

view of the commenters. We disagree. 

Reconciling ratings of record is an 

important safeguard for employees who 

are members of a pay pool. 

Reconciliation of ratings ensures that 

employees’ pay is not harmed by the 

effect of ‘‘high’’ and ‘‘low’’ raters. Sub 

pay pools are established to create 

panels that can more effectively manage 

the reconciliation of ratings in larger 

pay pools. The duties and 

responsibilities of the sub pay pool are 

the same as that of the pay pool but for 

a smaller section of the pay pool. In 

addition, the sub pay pool operates 

within the requirements and guidelines 

established for the pay pool to which 

they belong. The overall Pay Pool Panel 

then reconciles the recommendations of 

the sub pay pool panels. Generally, the 

same size pay pool that justifies a sub 

pay pool panel (around 150 pay pool 

members) is also of a size that is less apt 

to result in a skewed rating distribution 

in comparison to the overall 

Department. This is because rating 

distributions tend to ‘‘normalize’’ to a 

distribution reflective of the overall 

organization given sufficient size 

populations. No change has been made 

to the proposed regulation based on this 

comment. 

Another commenter requested 

clarification regarding what level of 

management, referred to in 

§ 9901.342(b)(3), decides when to 

establish sub pay pools. Due to the size 

of DoD and the subsequent variable in 

organizations within DoD, these matters 

will be specified further when 

implemented by the DoD organizations. 

One commenter suggested that 

minimum levels of funding for each pay 

pool must be established. The proposed 

regulation clearly indicates that the 

Secretary determines a percentage of 

pay to be included in pay pools and 

paid out in accordance with 

accompanying implementing issuances. 

The implementing issuances give 

Components the discretion to set 

funding for pay pools as long as they 

meet the minimums identified by the 

Secretary. Such funding floors are 

established outside of the regulation and 

are often dependent on Congressional 

determinations concerning general pay 

increases under 5 U.S.C. 5303. No 

change has been made to the proposed 

regulation based on this comment. 

One commenter questioned whether it 

is expected that all of the money 

assigned to a pay pool will be paid out, 

or whether managers might be able to 

divert some funds to other uses or save 

them for use the following year. We 

agree that proper funding of pay pools 

is fundamental to the success of NSPS. 

Section 9902(e)(6) of Public Law 110– 

181 clearly states that the amounts 

allocated for compensation of DoD 

civilian employees for NSPS shall be 

available for this purpose only. In order 

to comply with this statutory 

requirement, DoD funding floors for pay 

pools must be met in the aggregate at the 

Component level. Senior-level 

Component officials must certify that 

they have met this funding floor and 

have expended the resources within 

their organization. No change has been 

made to the proposed regulation based 

on this comment. 

Commenting on § 9901.342(f), one 

commenter suggested that contributing 

factors add a level of complexity to the 

overall rating process far beyond their 

value and increase the time to write and 

evaluate both performance assessments. 

The commenter recommended 

eliminating contributing factors as a 

separate step in the rating process, to 

include eliminating the ‘‘plus or minus’’ 

concept and instead require 

consideration of these factors when 

evaluating an employee’s performance. 

The specifics of how contributing 

factors will be applied in the NSPS 

evaluation of performance are not 

addressed in this regulation. Therefore, 

no change can be made to this proposed 

regulation in response to this comment. 

However, contributing factors will play 

an important role in defining an 

employee’s performance by reflecting 

the manner of performance that is 

important for the accomplishment of the 

job objective. The specifics of this role 

will be outlined in implementing 

issuances. This paragraph has been 

modified, however, to eliminate any 

confusion regarding the consideration of 

contributing factors in determining 

share assignments. 

A few commenters recommended a 

revision to § 9901.342(f) to assign shares 

as follows: Level 5—2 shares; Level 4— 

1.5 shares; Level 3—1 share; Level 2— 

0 shares; Level 1—0 shares. Per the 

commenter, the rationale for this 

suggested change is that performance 

payouts should be based on objective, 

mathematical calculation based on 

performance rating. The commenter 

expressed belief that the number of 

shares for each performance level 

should be fixed. Further, the variation 

should be proportionate to the true 

variation reflected in the definitions of 

the levels. In the commenters’ view, it 

is appropriate that a Level 5 performer 

receive twice the number of shares as a 

Level 3 performer, not up to six times 

as many. Similarly, another commenter 

proposed to award partial shares for 

employees with a Level 3 rating of 

record. 

The Department recognizes that a 

valid, reliable, and transparent 

performance management system with 

adequate safeguards for employees is 

essential. However, it must also avoid a 

rigid, one-size-fits-all approach by 

providing the flexibility to address a 

variety of circumstances. By allowing a 

range of decision points regarding the 

number of shares, managers can more 

appropriately address the variety and 

complexity of factors that relate to 

employee compensation. The 

regulations provide the parameters and 

criteria for the performance-share 

calculation methodology in sufficient 

specificity so that managers, employees, 

and employee representatives can better 

understand how performance pay 

increases will be determined and paid. 

These criteria permit consideration of 

such factors as the employee salary in 

relation to control points and pay band 

maximums, recent salary increases, raw 

performance scores, and the employee’s 

overall contribution to the mission of 

the organization. This enables 

organizations to recognize performance 

and reflect such market trends as 

accelerating salaries for employees at 

lower ends of pay ranges and 

decelerating salaries at higher ends of 

market ranges. No change has been 

made to the proposed regulation based 

on these comments. 

Several labor organizations and other 

commenters expressed concern about 

grouping supervisors and upper-level 

managers in the same pay pools as the 

non-management employees they 

supervise. These commenters expressed 

concern that, by combining supervisory 

and nonsupervisory personnel, there 

would be a temptation to lower 

nonsupervisory ratings in order to 

produce higher payouts for supervisors. 

These regulations and the implementing 

issuances currently provide safeguards 

to support the neutrality and 

impartiality of pay pool proceedings. 

The responsibilities of a Pay Pool 

Manager include the review of 

supervisors’ recommended ratings of 

record for consistency and equity across 

organizational units and to guard 

against potential discrimination or 

politicization before finalizing ratings. 

No change has been made to the 

proposed regulation based on these 

comments. 

One commenter indicated that factors 

that management may consider in 

determining the amount to be paid out 

as a bonus versus an increase in the rate 

of base salary do not include the option 

to establish a default split based on the 

composition of pay pool funds allocated 

mstockstill on PROD1PC66 with RULES2

56372 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

for payout as a bonus versus a base 

salary increase. Section 9901.342(g)(4) 

has been changed to add to the factors 

that management may consider in 

determining a pay pool payout 

distribution, a default split for the pay 

pool. This is in keeping with the 

practice of many NSPS pay pools to 

consider the percentage of pay pool 

funds applied to salary increases versus 

bonuses when determining how to 

distribute the payout between bonus 

and base salary increase for each 

employee. 

One commenter suggested that 

§ 9901.342(g)(5) be revised to include 

that an employee who has reached the 

maximum rate of the band will receive 

his or her performance payout as a 

bonus in lieu of an increase to base 

salary. This section has been revised to 

include this provision. 

Another commenter requested 

clarification as to the flexibility of 

granting a performance pay increase that 

exceeds an established control point. 

The determination to grant such an 

increase is allowable but is dependent 

on the criteria upon which the control 

point for that pay band is based. These 

criteria may include performance factors 

or market values. For example, if the 

criteria for establishing a control point 

are based on performance factors, 

conceivably an employee could exceed 

the identified criteria and be provided a 

pay increase in excess of the established 

control point based on the employee’s 

performance. No change has been made 

to the proposed regulation based on this 

comment. 

A commenter requested clarification 

regarding whether an employee would 

be eligible for a performance payout if 

they move out of NSPS on a permanent 

move after the end of their rating cycle 

but move back into an NSPS position 

before the effective date of the payout. 

Employees who move out of NSPS after 

the end of the rating period are not 

eligible for the NSPS payout for that 

performance cycle whether or not they 

return to NSPS prior to the effective 

date of the payout. Such employees 

would become entitled to the pay 

progression mechanisms of the gaining 

personnel system. For example, if an 

employee moves to the General 

Schedule, their time in NSPS following 

their last equivalent increase would 

count toward the next General Schedule 

increase. If none was due the employee 

during the period of time under the 

General Schedule, the option to provide 

a WGI buy-in adjustment under 

§ 9901.351 may be applied upon their 

return to NSPS. Provided the service 

performed under NSPS and the General 

Schedule was creditable for WGI 

purposes, the service covered by the 

NSPS performance period would 

become creditable toward the WGI 

adjustment upon return to NSPS. 

Also, a commenter requested 

clarification regarding an employee’s 

entitlement to a performance payout in 

a situation when the employee leaves 

one pay pool after the end of his or her 

rating cycle and moves to another pay 

pool before the effective date of the 

payout. We agree and have added 

clarifying language under 

§ 9901.342(g)(9). In response to several 

comments requesting increased 

transparency in the NSPS performance 

management system, § 9901.342(g)(10) 

is added requiring NSPS organizations 

to share average rating, ratings 

distribution, share value (or average 

share value), and average payout with 

NSPS employees. Organizations must 

ensure that the sharing of this 

information does not compromise the 

identities of NSPS employees in 

violation of the Privacy Act. 

Another commenter suggested that an 

NSPS employee who earns a bonus for 

the performance year but retires before 

the end of the calendar year should still 

be able to receive a bonus payment. The 

regulation clearly states that an 

employee who is no longer covered by 

NSPS on the effective date of the payout 

is not entitled to a performance-based 

payout, which includes a bonus. Such 

employees may be considered for an 

incentive award action under 5 U.S.C. 

chapter 45 if performance during the 

applicable period merits recognition. 

Many commenters (both individual 

commenters and labor organization 

representatives) expressed concern that, 

since bonus payouts are not considered 

when calculating retirement benefits, 

retirement benefits will be lower under 

NSPS than they would be under the GS 

system. As stated previously, since 

existing grade-based systems such as the 

General Schedule (GS) and the Federal 

Wage System (FWS) do not calculate 

pay received as bonuses toward defined 

benefit retirement plans, retirement 

benefits cannot be lower under NSPS 

than they would be under the GS 

system. NSPS, in the aggregate, does not 

substitute bonus payments for base 

salary increases. Performance-based 

bonuses are funded in addition to 

payment of dollars that were previously 

spent on base pay increases under the 

General Schedule and continue to be 

spent on base salary increases under 

NSPS. Additionally, like NSPS, existing 

GS and FWS systems do not permit pay 

increases beyond the limits of 

established ceilings (maximum rate of 

grade levels). However, within NSPS, 

those at the top of their control point or 

pay band must still receive a payout, 

based on performance shares, in the 

form of a bonus, which is a clear 

advantage for NSPS employees. No 

change has been made to the proposed 

regulation based on these comments. 

One commenter requested that the 

proposed regulation specify that 

prorating of performance payouts is not 

mandatory. The proposed regulation 

gives the Secretary the authority to issue 

implementing issuances regarding 

prorating payouts for employees. The 

implementing issuances give the 

Components discretion to determine 

whether prorating is required during the 

performance cycle. We believe that the 

Components can best make the 

determination of whether or not 

prorating is warranted, such as when an 

employee is on extended unpaid leave. 

No change has been made to the 

proposed regulation based on this 

comment. 

Additional commenters expressed 

concern that an employee returning 

from uniformed service who does not 

have an NSPS rating of record may not 

be eligible for a bonus or pay increase 

if the employee is at the top of the 

control point or pay band. These 

commenters suggested that the 

provisions of § 9901.342(i) be changed 

to provide that employees returning 

after performing uniformed military 

service are eligible for performancebased pay pool bonuses if otherwise 

eligible by share assignment and payout 

distribution. Adjustments for employees 

returning from uniformed service are 

determined in accordance with 

§ 9901.342(i). The purpose of this 

provision is to meet the intent of the 

Uniformed Services Employment and 

Reemployment Rights Act (USERRA) to 

preserve the earning power of 

uniformed service members by ensuring 

that their salaries continue to progress at 

the same level they would have if they 

had not served on military duty covered 

by that law. This preservation of earning 

power is accomplished by granting 

applicable raises in the pay schedule. 

The provision does not seek to award 

pay for work not performed—that is, the 

intent is to adjust an employee’s pay 

rate similar to how it would have been 

adjusted had the employee not left, not 

to entitle the employee to pay for 

periods he or she was absent (other than 

that associated with a paid leave status). 

Similarly, pay in the form of bonuses for 

periods of time during which the 

employee did not perform work would 

not be paid if the employee is not 

entitled to an NSPS rating of record, 

since this would constitute money not 

earned. No change has been made to the 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56373 

proposed regulation based on these 

comments. 

One commenter suggested that 

§ 9901.342(i) and (j) clarify when 

performance payouts are ‘‘effective’’ 

and/or ‘‘paid.’’ These sections have been 

revised to add clarification to the 

effective dates in each of these 

circumstances. 

A commenter recommended that 

§ 9901.342(i) through (l) be changed to 

reflect that when an employee, who 

does not have an NSPS rating of record 

for an appraisal period, has his or her 

base salary increase determined on an 

average base salary granted to other 

employees with the same rating or a 

modal rating that the average should be 

based upon all employees in the same 

pay pool as opposed to including only 

those employees in the same pay 

schedule and pay band. The commenter 

noted that inclusion of this broader 

group in the calculations will prevent 

inappropriate and inequitable salary 

determinations. Paragraphs (i) through 

(l) of this section have been revised to 

use the average salary increase of the 

entire pay pool. 

One commenter questioned whether, 

in § 9901.342(k), it was an oversight or 

intentional that employees working on 

‘‘official time’’ (union officials) and 

those on extended paid leave do not 

receive the general pay increase. The 

employees identified in this section are 

in a pay status and are therefore covered 

by the provisions of § 9901.323 and will 

receive the applicable general pay 

increase at the same time as employees 

who do not meet the criteria for 

specially situated employees. No change 

has been made to the proposed 

regulation based on this comment. 

Commenters also expressed concern 

regarding § 9901.342(k) which calls for 

a payout and share distribution based 

on the ‘‘modal rating’’ as using an 

‘‘assumed rating’’ of a sort that is 

outlawed by OPM. The comments 

reflect confusion regarding the use of 

modal ratings under this section. Modal 

ratings as identified in this section are 

used only to determine a performance 

pay increase and not for the purpose of 

assigning a rating of record. Once the 

performance pay increase is determined, 

the modal rating serves no other 

purpose. No change has been made to 

the proposed regulation based on these 

comments. 

Labor organization representatives 

sought clarification in the proposed 

regulation regarding exactly who—the 

Secretary, the Components, or another 

delegate—has the authority to set rules 

to determine performance payouts and 

the distribution of payouts between 

salary increases and bonuses. The Pay 

Pool Manager, as defined in § 9901.103, 

is designated to manage the pay pool to 

include approving recommended share 

assignments and payout distributions. 

However, these determinations must be 

made consistent with the organization’s 

business rules. Such rules may be 

determined at the Component level or 

lower if delegated by the component. No 

change has been made to the proposed 

rule based on these comments. 

One commenter suggested that pay 

increases or bonuses based on 100 

percent union duties would seem to pay 

union officials for not performing any 

work for the agency. Providing salary 

increases to full-time union officials is 

consistent with Governmentwide 

practices regarding full-time union 

officials under 5 U.S.C. chapter 71. 

However, consistent with other 

Governmentwide systems, bonuses are 

not paid under NSPS. No change has 

been made to the proposed regulation 

based on this comment. 

Finally, labor organization 

representatives expressed concern that 

DoD will not be able to adequately fund 

a pay-for-performance system because it 

does not control its budgets. They 

further state that DoD, like other Federal 

agencies, depends on Congress for its 

appropriations, and today’s Congress 

cannot bind future Congresses to 

adequately fund a pay-for-performance 

system. In establishing the NSPS statute, 

Congress provided in section 9902(e)(4) 

of title 5, U.S. Code, that, through FY 

2012, to the maximum extent 

practicable, the aggregate amount 

allocated for compensation of DoD 

civilian employees under NSPS will not 

be less than if employees had not been 

converted to NSPS. Section 9902(e)(5) 

additionally provides that after FY 2012 

the Department will develop a formula 

that ensures that, in the aggregate and to 

the maximum extent possible, 

employees are not disadvantaged in the 

overall amount of pay available as a 

result of conversion to NSPS, while 

providing flexibility to accommodate 

changes in the function of the 

organization, changes in the mix of 

employees performing those functions, 

and other changed circumstances that 

may affect pay levels. We therefore 

believe that NSPS will be properly 

funded and have made no change to the 

proposed regulation based on these 

comments. 

Section 9901.343—Pay Reduction Based 

on Unacceptable Performance and/or 

Conduct 

This section outlines parameters for 

reducing employee pay based on 

unacceptable performance and/or 

conduct. 

Representatives of several labor 

organizations objected to the change in 

the proposed regulation that limits the 

range of a pay reduction under the 

circumstances described in this section 

to 5–10 percent of base salary (rather 

than 1–10 percent), expressing concern 

that the new language limits the ability 

of managers to choose a lesser penalty 

for unacceptable performance/conduct 

when warranted. Pay reductions based 

on unacceptable performance and/or 

conduct are not required in all cases and 

are in fact discretionary. However, to 

the extent that a manager determines 

that unacceptable performance and/or 

conduct warrants a pay reduction, a pay 

reduction of at least 5 percent is 

necessary to achieve and retain a highperforming workforce. No change has 

been made to the proposed regulation 

based on these comments. However, we 

have made minor editorial changes to 

the language in § 9901.343 for enhanced 

clarity and for consistency with 

language in related provisions in 

§§ 9901.353(f) and 9901.355(b)(4). 

Several commenters requested 

clarification concerning the ‘‘applicable 

adverse action procedures’’ that must be 

applied before reducing an employee’s 

pay due to unacceptable performance 

and/or conduct. The language in the 

proposed regulation is meant to 

highlight that adverse action procedures 

must be followed when reducing an 

employee’s pay. For employees under 

NSPS, procedures provided under 5 

U.S.C. chapter 75 apply whether or not 

the regulation specifically cites chapter 

75. No change has been made to the 

proposed regulation based on these 

comments. 

Section 9901.344—Other Performance 

Payments 

This section describes who has 

authority to grant other performance 

payments, reasons for awarding these 

types of payments, employee eligibility 

requirements, and limits on other 

performance payments. 

Labor organization representatives 

commented that this section actually 

addresses bonuses and quality step 

increases and attempts to override 

existing collective bargaining 

agreements, which often include preexisting negotiated award programs. We 

disagree. This paragraph does not 

address quality step increases because 

they do not exist under NSPS. Under 5 

U.S.C. chapter 71, Governmentwide 

regulations cannot override pre-existing 

agreements that conflict with the 

regulations. However, these agreements 

would have to be brought into 

compliance with the regulations when 

the agreements expire or are up for 

mstockstill on PROD1PC66 with RULES2

56374 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

renegotiation. No change has been made 

to the proposed regulation based on 

these comments. 

Commenters also inquired about the 

source of funds for ‘‘Other Performance 

Payments’’ and wondered whether these 

payments might lower the amount of 

funds for the pay pools for performance 

payouts for other employees. 

Additionally, one commenter wanted 

assurance that the Extraordinary Pay 

Recognition (EPR) and Organizational 

Achievement Recognition (OAR) will 

not be used to give preference to certain 

workers over others. These achievement 

recognition awards are funded from a 

source outside of the pay pool. As 

indicated in the proposed regulations, 

EPR and OAR are awarded based on 

performance and restricted to specific 

criteria for each recognition award. In 

the case of the EPR, an employee must 

have a rating of record of at least a Level 

5 in order to be eligible for the award; 

in the case of the OAR, when awarded, 

it applies to all employees in the 

organization who have a rating of record 

of at least a Level 3. However, 

distinctions in OAR awards may vary 

based on the rating of record. These 

criteria alone serve to mitigate against 

favoritism, cronyism, and other actions 

that violate merit system principles. No 

change has been made to the proposed 

regulation based on these comments. 

Finally, one commenter objected to 

language in § 9901.344(b)(1) stating that 

‘‘the future performance and 

contribution level exhibited by the 

employee will be expected to continue 

at an extraordinarily high level.’’ The 

commenter pointed out that no one can 

continuously perform at an 

extraordinary level, for then what had 

been extraordinary would become 

‘‘ordinary’’ performance for that 

employee. The purpose of the EPR is to 

reward exceptionally high-performing 

employees whose performance and 

contributions to the organization are of 

an exceedingly high value based on an 

individualized assessment. There is the 

expectation that this or a higher level of 

performance will continue in future 

years. Although the increase granted by 

the EPR is permanent and does not 

require future revalidation, the 

performance objectives upon which the 

employee will be evaluated in the future 

will reflect the higher level of 

expectation. We did however, modify 

this section to clarify that the 

expectation of higher-level performance 

in the future is associated with an EPR 

paid out as an increase to base salary as 

opposed to a bonus. We believe that the 

EPR is an important flexibility and have 

made no additional change to the 

proposed regulation based on this 

comment. 

Section 9901.345—Accelerated 

Compensation for Developmental 

Positions (ACDP) 

This section describes how ACDP 

payments may be awarded and under 

what circumstances. 

This change to the proposed 

regulation generated several positive 

comments from individuals who 

applauded the expansion of ACDP 

payments. However, some commenters 

representing labor organizations 

suggested amending this provision to 

allow collective bargaining of this issue. 

Concerns about collective bargaining 

rights have been addressed in 

‘‘Collective Bargaining and Labor 

Relations’’ located under ‘‘Major 

Issues.’’ 

Representatives of labor organizations 

also questioned the implication in this 

section that Components have the 

authority to choose whether or not to 

provide ACDP increases. These 

representatives suggested the institution 

of procedures governing the 

advancement of employees in 

developmental positions. The 

Department determined that such 

matters should be governed by 

Component policies, within the 

parameters provided by the proposed 

regulation. No change has been made to 

the proposed regulation based on this 

comment. 

Another labor organization 

representative indicated that the 

proposed regulation is unclear regarding 

whether there is any limit on the 

number of ACDP increases that may be 

given or whether there is a specific 

interval between them. The inquiry also 

seemed to imply that these increases are 

‘‘promotions.’’ Although ACDP 

increases are designed to provide 

accelerated pay progression for entry/ 

developmental positions, these 

increases are not promotions, and this 

terminology should not be used in order 

to avoid conflict and confusion with the 

meaning of that term under NSPS. 

Section 9901.103 provides a definition 

of promotion under NSPS; § 9901.354 

describes how to set pay upon 

promotion. We did not prescribe any 

limit on the number of ACDP increases 

eligible employees may receive, nor the 

interval(s) at which they could occur. 

Such parameters, if any, would be 

linked to the specifics of Component 

training programs or developmental 

activities. Components choosing to 

provide ACDP increases must establish 

and document growth and development 

criteria by which additional pay 

increases will be determined. 

Several commenters inquired whether 

or not the ACDP applied to student 

programs. In response to these 

comments, the proposed regulations 

have been changed to include positions 

assigned to the Student Career 

Experience Program. 

Commenters suggested expanding the 

ACDP concept to engineers/technicians 

and employees in pay band 2 to make 

NSPS more comparable to the grade 

progression available within the GS 

system. This suggestion does not mirror 

the intent of NSPS to achieve pay 

progression beyond the trainee levels 

primarily through performance-based 

pay increases. The cost of providing 

increases similar to GS grade 

progression increases would offset the 

ability to award pay pool base salary 

increases, thus jeopardizing the linking 

of pay and performance as intended by 

the enabling legislation for NSPS. This 

is because pay pools are funded, in part, 

by money that previously was applied 

to GS promotion increases to grades that 

no longer exist under NSPS. No change 

has been made to the proposed 

regulation based on these comments. 

Other commenters asked that the paysetting guidance for employees in 

developmental positions under the GS 

scale (example: GS–12/13 or GS–13/14) 

also apply to those who applied but 

were not selected until after their 

agencies transitioned to NSPS. Again, 

we reiterate that the intent of NSPS is 

not to replicate the GS pay system but 

rather to redirect pay progression to a 

performance-based pay system as 

opposed to a pay progression based on 

position moves. ACDP provides for 

accelerated pay progression for the 

lowest ranges of journey level work in 

recognition of the inability to match 

market-based pay progression trends via 

performance-based payouts alone. For 

this reason, ACDP is limited to Pay 

Band 1 and employees in the Student 

Career Experience Program. No change 

has been made to the proposed 

regulation based on these comments. 

One commenter questioned why 

accelerated awards are given to 

employees with a rating of record of 

Level 3, suggesting that this award 

should be given only to those achieving 

a rating of Level 4 or better. The 

implication by the commenter is that a 

Level 3 rating reflects less than the 

expected performance. In contrast, Level 

3 is seen as recognizing those employees 

who performed their identified 

responsibilities and in doing so 

effectively met all of their performance 

expectations. The regulations clearly 

state that Components choosing to 

provide these increases must develop 

criteria by which the additional pay 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56375 

increases will be determined. If an 

employee meets the identified criteria, 

and has met his or her performance 

expectations, the employee should be 

entitled to be considered for the pay 

increase. No change has been made to 

the proposed regulation based on this 

comment. 

Pay Administration 

Section 9901.351—General 

This section outlines general 

provisions of pay administration 

including geographic recalculation, 

within-grade increase (WGI) adjustment, 

general pay-setting rules, pay periods 

and hourly rates, rate comparisons upon 

movement to an NSPS position, and 

setting of pay based on annual rates 

received by an employee as a teacher. 

Several commenters questioned why 

the within-grade increase (WGI) 

adjustment equivalent applies to GS 

employees moving to NSPS, but does 

not apply to Federal Wage System 

(FWS) employees and other employees 

in step-type programs. In response to 

these comments, the use of this 

authority has been expanded to include 

moves from FWS to NSPS. 

Another commenter noted that it 

appears that an employee may receive 

both a prorated WGI and up to a 5 

percent increase upon reassignment, 

though it is not explicitly stated, and 

recommended this be clarified. We 

agree and have clarified this point in the 

regulations. 

One commenter suggested adding the 

following sentence to the end of 

§ 9901.351(b): ‘‘This adjustment may be 

made prospectively for NSPS covered 

employees whose pay was not set in this 

manner prior to the effective date of this 

regulation.’’ According to the 

commenter, this addition would allow 

Components to make employees 

‘‘whole’’ who lost their targeted LMS 

when they were a ‘‘willing accession’’ to 

NSPS and not converted to NSPS with 

their organization. Another commenter 

suggested that we make a WGI buy-in 

for management directed reassignments 

retroactive to previous legislation to 

ensure all personnel are treated fairly. 

There is no provision that allows for 

regulations to apply retroactively unless 

an administrative error had occurred. 

There was no administrative error made 

in the pay setting for these employees; 

the regulations in effect at that time did 

not allow for this type of adjustment. 

These employees will have the 

opportunity to be fairly compensated for 

the work they perform under the NSPS 

structure of pay-for-performance. 

Another commenter cited 

§ 9901.351(c), saying that normally you 

would not receive any type of pay 

increase on an individual realignment 

action and there does not appear to be 

a way that you could currently process 

something like this. In response to this 

comment, if an employee is realigned by 

management from a GS or FWS position 

into an NSPS position, he or she will be 

eligible for this provision. The 

personnel system will be updated to 

allow for this type of action to be 

processed. 

Section 9901.352—Setting an 

Employee’s Starting Pay 

This section describes the Secretary’s 

authority to set the starting base salary 

for individuals newly appointed or 

reappointed to the Federal service. 

One commenter questioned what an 

employee’s current rate of pay has to do 

with the value of a prospective 

employee. ‘‘Current salary’’ is identified 

under this section as one of many 

factors to be considered in setting an 

employee’s starting pay. Other factors 

include labor market considerations; the 

skills, knowledge, and/or education 

possessed by the candidate; critical 

mission or business requirements; and 

salaries of other employees in the 

organization performing similar work. 

‘‘Current salary’’ is considered a factor 

in setting salary in that it helps the 

manager to establish a salary level high 

enough to attract a candidate, but 

moderate enough to permit salary 

growth over a period of time. A manager 

should look at all of the factors listed 

under this section, when considering 

the setting of starting pay for a new 

employee, including ‘‘current salary.’’ 

Another commenter recommended 

adding additional considerations to 

§ 9901.352(a) such as fiscal constraints 

of the organization, the total 

remuneration being provided to 

employees, and historical recruitment 

and retention data for hard-to-fill 

positions. We don’t feel that it is 

necessary to add these factors, as they 

can be considered under the current 

factors listed such as availability of 

candidates and business requirements of 

their respective organizations. 

Another commenter recommended 

that the rules in this section be used for 

current Federal employees who move to 

NSPS from other pay systems through 

competitive procedures. The rules 

addressed in this section permit setting 

of salaries anywhere within a pay band 

for employees newly hired within the 

Federal Government. The competitive 

selections of current Federal employees 

are most appropriately processed as 

promotions, reassignments, or reduction 

in band actions under the NSPS pay 

setting regulations. This allows these 

selectees to be fairly treated without 

disadvantaging current NSPS 

employees. NSPS strives to function in 

a manner that sustains fair competition 

with other Federal agencies. Changing 

the regulation to allow setting of salaries 

anywhere within the pay band for 

current Federal employees would create 

an unfair competitive advantage for DoD 

when it comes to the employees of other 

Federal agencies. 

In a related comment, a commenter 

pointed out that the break-in-service 

requirement for reappointed individuals 

appears to create a loophole for 

employees in the NSPS pay-setting 

process and is also inconsistent with 

other break-in-service rules under the 

GS system. Specifically, they expressed 

concern that the proposed rule ‘‘on 

break in service for at least 1 full day’’ 

creates a situation where an employee 

who resigns for a one-day period can 

have his or her pay set anywhere within 

a rate range as opposed to being 

subjected to internal pay-setting rules 

for other employees (e.g., the 5 percent 

cap on reassignments). The commenter 

also notes that our proposed rule is 

inconsistent with definitions previously 

released in processing guidance for 

NSPS personnel actions. The 

requirement for a break in service was 

added to the regulation to create 

uniformity and consistency in 

application of pay-setting rules for new 

appointments and reappointments. As a 

condition for permitting use of paysetting rules for reappointments, the 

2005 regulation required an employee to 

have been separated and subsequently 

reemployed. This language resulted in 

inconsistent application of the rule and 

a request that we clarify our language. 

We are aware that different break-inservice rules are used for different 

reasons (e.g., 90 days for superior 

qualification appointments under 5 CFR 

531.212(a)(ii)(2) and (3); break-inservice definitions also affect creditable 

service for benefits and are used to 

determine conversions to new 

appointments). We also note that the 

current definitions in DoD processing 

guidance are based on OPM’s 

definitions of break-in-service for 

specific purposes. Our rule does not 

affect either of these definitions—its 

purpose is solely to determine the 

application of pay-setting rules. 

For clarification, we note that our 

proposed rule states that a break in 

service is one full workday. Generally, 

this will mean an individual will be off 

the rolls for three full days (i.e., if the 

employee resigns on Friday, the break in 

service must include Saturday, Sunday, 

and Monday). Because such a break 

could affect the staffing processes of the 

mstockstill on PROD1PC66 with RULES2

56376 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

position (to include the requirement for 

competitive staffing processes), we 

expect that Components will be careful 

not to use this definition in a manner 

that would circumvent pay-setting rules 

for internal placement actions or merit 

system principles. 

Finally, one commenter suggested 

that NSPS must offer the same salary 

(GS grade and step) to individuals who 

might otherwise go to other branches of 

Government that hire similar skills if it 

wants to get the best of the best. One of 

the primary advantages provided by 

NSPS is that it allows supervisors and 

managers great latitude in offering 

starting salaries across the range of a 

band based on conditions such as the 

labor market, special skills, and mission 

requirements. This market based system 

allows hiring officials to immediately 

react to market conditions and offer 

starting salaries that are not tied to a 

specific GS grade and step. 

Section 9901.353—Setting Pay Upon 

Reassignment 

This section outlines the specific 

rules to be applied in setting salary 

under a reassignment action. 

Labor organization representatives 

suggested amending this section to 

include language that ensures labor 

unions’ ability to collectively bargain 

the issues of setting pay upon 

reassignment. As previously stated, DoD 

is committed to fulfilling its obligations 

to bargain in good faith on negotiable 

conditions of employment related to 

these regulations, consistent with 5 

U.S.C. chapter 71 and the requirements 

in 5 U.S.C. 9902 and section 1106(b) of 

Public Law 110–181. 

Several commenters requested that 

the number of management-directed 

reassignments be limited. Other 

commenters expressed concern that 

salary increases were limited to 5 

percent for reassignments. Some 

commenters felt that this cap was 

unfair, especially considering that 

individuals just entering Government 

service can negotiate up to a 20 percent 

increase in pay. Another commenter, 

while expressing confidence that the 

proposed regulation provides the 

necessary foundation for a 

contemporary and flexible personnel 

system, echoed concern about the 5 

percent cap on reassignments. 

According to the commenter, this policy 

hinders the organization’s ability to 

promote from within and retain top 

performers. To address this problem, the 

commenter recommends splitting pay 

band 2 to improve recruitment and 

retention and increase employee morale, 

as well as alleviate problems that the 

large pay band creates for the Priority 

Placement Program and for establishing 

representative rates for reductions in 

force. Alternatively, the commenter 

proposes eliminating the 5 percent cap 

to allow management the needed 

flexibility to compensate current 

Federal employees for their performance 

and competencies. Another commenter 

suggested that a reassignment to a 

supervisory position should require that 

the maximum reassignment rate be 

given or, that the regulations be changed 

so that movement to the YC pay band 

is considered a promotion even if the 

employee is coming from a comparable 

band. 

This regulation does not define pay 

bands including pay band 2. The 

classification architecture, to include 

pay schedules and pay bands, will be 

described in implementing issuances. 

Therefore, no change has been made to 

the proposed regulation with regard to 

recommendations to split pay band 2. In 

response to comments concerning 

adjusting the 5 percent cap on 

reassignments, we believe that the cap 

on a reassignment action is reasonable 

given the pay flexibilities that are 

available for movements within or 

across comparable pay bands. It is also 

a greater flexibility than provided on a 

reassignment in the GS pay system. In 

addition to performance payouts, 

employees may progress through a pay 

band through reassignments. A 

reassignment occurs when an employee 

moves voluntarily or involuntarily to a 

different position or set of duties within 

a pay band or to a position in a 

comparable pay band. 

There are no limits to the number of 

times an NSPS employee may reassign 

on voluntary moves. However, an 

employee may only receive a total of a 

5 percent cumulative increase to base 

salary in any 12-month period unless an 

authorized management official 

approves an exception. On a 

management-directed reassignment, an 

employee may receive a base salary 

increase of up to 5 percent each time 

that management reassigns the 

employee. An increase associated with 

a management-directed reassignment 

does not count toward the 12-month 

limit associated with voluntary 

reassignments. 

Another flexibility that provides for 

faster pay progression is the Accelerated 

Compensation for Developmental 

Positions (ACDP) provision, which 

applies to employees in developmental 

or trainee level positions in Pay Band 1 

of the professional and analytical pay 

schedules. ACDP allows management to 

increase the base salary of eligible 

employees at rates that are less than, 

match, or exceed career ladder 

promotion rates under the GS pay 

system. The accelerated compensation 

available under ACDP recognizes the 

acquisition of job-related competencies 

that are documented in a formal training 

plan. The amount of the ACDP increase 

generally will not exceed 20 percent of 

an employee’s base salary unless 

management approves a higher amount. 

NSPS also recognizes that GS 

employees in career ladder positions 

below their target level at the time of 

conversion generally will have served 

some time towards the next higher grade 

now encompassed within the NSPS pay 

band to which converted. Therefore, 

during the first 12 months following 

conversion, employees who are not 

eligible for ACDP are eligible to receive 

a one-time band increase equivalent to 

the GS promotion increase they would 

have received had they not been 

converted into NSPS. 

NSPS gives individual pay pools the 

flexibility to determine how employee 

performance ratings translate into base 

salary increases, bonuses, or both. 

Where determined appropriate, 

management has the authority to place 

a category of positions in a separate pay 

pool to provide employees a 

performance payout with a higher value 

on share assignments. In this manner, it 

is possible to offset and reduce part of 

the pay progression requirement for 

interns under ACDP via performance 

pay progression. It is also possible for 

the pay of interns to progress at different 

rates based on performance. 

All of these pay-for-performance 

flexibilities provide employees with an 

opportunity to receive an increase to 

base salary based on their job 

performance as well as providing 

management the ability to progress pay 

consistent with labor markets. 

In addition, representatives from labor 

organizations were concerned that 

supervisors have the ability under this 

section to reassign an employee to a 

higher level of duties and authorize a 5 

percent pay increase with no 

competition for the new position. It is 

true that NSPS is designed to permit 

noncompetitive movement for 

reassignments including those that 

involve increases to base salary. The use 

of broad pay bands and noncompetitive 

movement within the bands enhances 

the flexibility and agility of the 

organization to respond to staffing 

requirements. At the same time, the cap 

on the amount of a reassignment 

increase preserves the intent of the 

merit principles by ensuring that moves 

involving increases similar to those 

associated with promotions (6 percent 

or more increase to base salary) remain 

subject to merit promotion rules. 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56377 

Another commenter noted that 

§ 9901.353(a)(2) appears to prevent an 

increase in base salary of an employee 

reassigned due to a reduction in force 

and suggests that this is not right if the 

position to which the employee was 

reassigned carries more responsibility. 

We have revised the proposed 

regulation to clearly state that an 

employee reassigned through reduction 

in force procedures is not eligible for an 

increase in base salary under these 

provisions, but may be eligible for a 

within-grade increase adjustment under 

§ 9901.351(c)(1). 

One commenter suggested that 

consideration should be given to 

describing reassignment increases under 

this section as ‘‘temporary pay 

adjustments’’ so that they may be used 

for details as well as temporary 

reassignments. We have not changed the 

proposed regulation in response to this 

comment because on a detail the pay 

should remain unchanged. On a detail, 

an employee is still assigned to their 

permanent position. If an increase is 

warranted in this type of movement, 

then management should make it a 

temporary reassignment as opposed to a 

detail. However, we did review the 

issue of a temporary reassignment and 

have made some clarifications to it. We 

had previously stated that if a temporary 

reassignment was later made permanent 

that the employee could not receive any 

additional increase. We have changed 

the proposed regulations so that this 

restriction will no longer apply. 

One commenter objected to the 

wording of § 9901.353(a)(3)(vi), which 

states that one of the factors on which 

a reassignment increase may be based is 

an employee’s ‘‘past and anticipated 

performance and contribution.’’ The 

commenter suggested that it is improper 

to base pay on anticipated performance 

and contributions. We disagree. 

Performance projections based on 

knowledge, skills, education, duties to 

be performed and/or past performance 

is an entirely appropriate consideration 

in setting salaries as well as a widely 

employed business practice. 

Reassignment increase determinations 

are best arrived at when considering all 

of the factors described in this section, 

including any business rules the 

organization has established concerning 

the application of these factors. 

Finally, we have made minor editorial 

changes in § 9901.353(f) for enhanced 

clarity and for consistency with the 

language in related provisions in 

§§ 9901.343 and 9901.355(b)(4). 

Section 9901.354—Setting Pay Upon 

Promotion 

This section outlines the specific 

rules to be applied in setting salary 

under a promotion action. 

Several commenters suggested that 

the range of 6–12 percent for pay 

increases for promotions is insufficient 

to recruit new talent for occupational 

specialties such as engineering. No 

change has been made based on this 

comment. When justified, promotion 

increases above 12 percent can be 

granted with higher-level approval. 

Therefore, the rule retains sufficient 

flexibility to respond to market forces. 

One commenter recommended adding 

an additional factor to be considered 

when determining the amount of a 

promotion increase: The long-term costs 

of the promotion increase and the 

resulting multi-year budget 

implications. We have not added this 

factor, as it can be considered under a 

current factor such as the business 

requirements of their respective 

organizations. 

Other commenters recommended that, 

when an employee is promoted from a 

non-NSPS position, an authorized 

management official should set the 

employee’s new adjusted salary at no 

less than the employee’s adjusted salary 

(including any applicable locality pay, 

special rate supplement, or equivalent 

supplement) plus any physicians’ 

comparability allowance payable for the 

position held prior to the reassignment, 

provided the resulting base salary does 

not exceed the maximum rate of the 

new pay band. In response to these 

comments, we have revised the 

proposed regulation to require 

consideration of such factors prior to 

processing a promotion action. 

Additionally, we have incorporated 

language requiring use of a geographic 

conversion formula for such moves. 

One commenter recommended that 

employees promoted from targeted local 

market supplements to lower targeted 

local market supplements should also 

have their pay set based on comparison 

of ‘‘adjusted salary rates.’’ If adjusted 

salary rates are used, according to the 

commenter, geographic conversion rates 

should also be applied similar to 

application under §§ 9901.353 and 

9901.355. Another commenter 

recommended modification of 

§ 9901.354 to require that pay for 

employees promoted from non-NSPS to 

NSPS positions be set using adjusted 

salary rather than base salary to prevent 

increased compensation costs when 

FWS employees are promoted to NSPS 

positions. In response to these 

comments, we have revised the 

proposed regulation to require 

consideration of adjusted salary prior to 

processing a promotion action, use of 

geographic calculation formula, and the 

apportionment of the adjusted salary 

between base salary and local market 

supplement or targeted local market 

supplement after the pay setting has 

been completed, when applicable. 

Commenting on criteria that may be 

considered in determining the amount 

of a promotion increase, as outlined in 

§ 9901.354(b), one commenter suggested 

that pay should not be based on 

anticipated performance, other 

employees’ pay, or location (which is 

already accounted for in the local 

market supplement). These factors are 

used only to determine the amount 

above 6 percent (if warranted), and 

should be used in combination with all 

the factors to determine any amount of 

a promotion increase above 6 percent. 

Regarding employees on pay retention 

who are re-promoted to the pay band 

from which they had been reduced 

[§ 9901.354(d)(1)], one commenter 

suggested that employees who have a 

minimum satisfactory performance 

rating should automatically be 

reinstated to the pay they otherwise 

would have attained, including any 

performance payouts and/or band 

adjustments. This should not be needed, 

as the employee is already being 

compensated at the higher level of work 

while on pay retention, without having 

to perform at that higher level of work. 

Section 9901.355—Setting Pay Upon 

Reduction in Band 

This section outlines the specific 

rules to be applied in setting salary 

under a reduction in band action. 

Labor organization representatives 

objected to reductions in pay based on 

conduct without more information 

about the criteria, rules, and procedures 

to be used by management in making 

these decisions. These rules are stated 

under the procedures in 5 U.S.C. 

chapter 75. Consequently, they are not 

stated in this regulation. 

One commenter pointed out a 

perceived inconsistency in language 

between § 9901.355(b)(4) and 

§ 9901.353(f). When referring to setting 

pay upon a reduction in band in 

§ 9901.355(b)(4), the paragraph states 

that, when an employee is reduced in 

band involuntarily as a result of adverse 

action, he or she may have his or her 

base salary reduced, and if reduced, the 

reduction must be between 5 percent 

and 10 percent. However, when 

referring to setting pay upon 

reassignment in § 9901.353(f), the 

language states that an employee 

involuntarily reduced in pay via 

mstockstill on PROD1PC66 with RULES2

56378 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

reassignment as a result of adverse 

action must have his or her base salary 

reduced by at least 5 percent, and may 

have it reduced by up to 10 percent. The 

commenter wonders whether the 

difference is intentional. Yes, the 

difference is intentional. In the first 

instance (§ 9901.355(b)(4)), a decision to 

reduce an employee’s salary has not 

been made. Rather, only the decision to 

reduce the employee’s pay band has 

been decided. Since a decrease in salary 

is discretionary upon reduction in pay 

band, the permissive may is used to 

indicate the amount of pay by which 

salary may be reduced. In the second 

instance (§ 9901.353(f)), the language 

indicates a decision has been made to 

reduce the salary of the employee 

(‘‘When an employee is involuntarily 

reduced in pay * * *’’). Under NSPS, 

when a decision has been made to 

reduce the salary of an employee, it 

must be in an amount no less that 5 

percent and no more than 10 percent of 

base salary. Therefore, the proposed 

language in § 9901.355(b)(4) has been 

retained except for some minor editorial 

revisions. 

Finally, regarding factors upon which 

an increase in pay due to reduction in 

band may be based, one commenter 

expressed a preference for the term 

‘‘performance-based considerations’’ in 

§ 9901.355(c)(3) to references to ‘‘past 

and anticipated performance and 

contribution’’ in earlier sections. 

Additionally, the commenter wondered 

why location and the base salary of 

other employees factored into the 

determination of pay upon reduction in 

band. In response to this comment, 

since an employee can get an increase 

similar to a reassignment increase, the 

factors should be the same. These are 

only some of the factors to be 

considered in determining whether an 

increase is warranted on a reduction in 

band, and if warranted, the amount of 

that increase. A manager should look at 

all of the factors in combination, as well 

as any business rules, when determining 

if and when an increase is warranted on 

a reduction in band. 

Section 9901.356—Pay Retention 

This section describes the rules to be 

applied in determining an employee’s 

entitlement to pay retention and the 

factors in terminating pay retention. 

One commenter, noting that local 

market supplements are paid on top of 

a retained rate, while GS locality pay is 

included in retained rates, suggests the 

NSPS proposed rules should be 

consistent with GS system rules. While 

there are many similarities between 

NSPS and other title 5 pay policies, they 

are neither required to be, nor intended 

to be, identical. The NSPS system of 

retaining base salaries supports the 

overall goals of the pay system while 

ensuring retained pay provisions like 

title 5. It should be noted that title 5 

does not provide more protection by 

retaining a locality rate than NSPS, 

because both systems have geographic 

conversion procedures established to 

control movements between locality 

areas and local market supplement areas 

when employees are on retained pay. 

Representatives of one large labor 

organization expressed support for the 

provision included in § 9901.356(m), 

which ‘‘grandfathers’’ in workers to 

keep people on indefinite pay retention 

who were already on pay retention 

when they converted to NSPS. 

Several commenters recommended 

extending pay retention beyond the 104 

weeks cited in the proposed regulation 

for various reasons. Commenters also 

suggested that § 9901.356(f) and (g) be 

amended to reflect that workers should 

remain on pay retention until the pay 

band rate range grows to encompass the 

retained rate. With respect to both of 

these comments, we believe the 104- 

week limitation is a fair balance 

between protecting an employee with 

pay retention to provide time to find 

comparably valued and compensated 

work while not encumbering the agency 

with an indefinite additional cost that 

compensates for work that is no longer 

being performed. Whereas the pay rate 

that may be retained under the General 

Schedule is capped at 150 percent of the 

top salary of the lower grade, NSPS does 

not limit pay retention salaries in this 

manner. Additionally, the broader NSPS 

pay bands accommodate more salaries, 

thereby reducing the number of 

employees required to be covered by 

pay retention. In recognition, however, 

that there may be some unique 

situations where a longer pay retention 

period is warranted, we have provided 

that the Secretary may issue 

implementing issuances describing 

exceptions to the 104-week pay 

retention limit. 

One commenter, responding to 

language in § 9901.356(d) regarding 

situations triggering eligibility for pay 

retention, questions why an 

organizational realignment or reduction 

is cited, since reduction in force is now 

handled through Governmentwide 

rules. Governmentwide reduction in 

force regulations do not address pay 

retention. Rather, those regulations 

describe retention, displacement, and 

separation procedures. 

Another commenter recommended 

that we clarify the language in 

9901.356(f) by adding ‘‘under this 

authority’’ in recognition of the fact that 

pay retention could continue under 

some other non-NSPS authority. We 

agree and have made the change to the 

proposed regulation. 

Other commenters suggested that 

§ 9901.356(j) be amended to ensure that 

employees on retained pay receive 100 

percent of the GS general pay increase 

(GPI) during the two years they are 

entitled to pay retention as opposed to 

60 percent of the GPI. No change has 

been made in response to this 

recommendation. Continuing to grow 

the salary of an employee on pay 

retention is not congruent with 

achieving a salary that fits within the 

assigned pay band. 

Finally, one commenter suggested 

deleting paragraph (3) from 

§ 9901.356(i), related to movement from 

a non-DoD position to an NSPS-covered 

position. According to the commenter, 

this provision impacts the 

organization’s ability to hire quality 

employees from other Federal agencies 

and conflicts with Component 

discretion in § 9901.356(d)(4)(iv) to 

grant pay retention in situations 

considered appropriate. On a similar 

note, another commenter suggested 

considering allowing for extension of 

the pay retention time limit beyond 104 

weeks for employees who are reduced 

in band when accepting an overseas 

position. The tour of duty for an 

overseas position is generally 2–5 years. 

The commenter asserted that employees 

are less inclined to accept overseas 

positions if pay retention will be 

terminated after 2 years. We agree that 

providing pay retention to someone who 

voluntarily applied for a position in 

NSPS that is lower-paying, with less 

responsibility, should be compensated 

appropriately and not retain a higher 

salary. Allowing pay retention in these 

situations would be inconsistent with 

the underlying concept of a pay-forperformance system. 

Premium Pay 

Section 9901.361—General Provisions 

This section explains general areas 

relating to premium pay that have been 

waived or modified from 5 U.S.C. 

chapter 55, subchapter V, as well as 

those areas not waived or modified from 

the U.S. Code. A representative from the 

Federal Physicians Association 

recommends that we delete 

§ 9901.361(e), which prohibits the 

payment of premium pay to physicians 

and dentists and include them in the 

definition of health care professional so 

that they would be eligible to receive 

certain premium pay. We have not 

adopted this suggestion. 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56379 

Generally, NSPS employees may not 

be paid, in the aggregate, more than the 

annual rate of pay for Executive Level 

I in a given calendar year. However, 

NSPS physicians and dentists enjoy a 

higher aggregate compensation cap that 

is equal to the salary of the President of 

the United States. Moreover, NSPS has 

designed broader pay bands for 

physicians and dentists with 

significantly higher salary ranges than 

that provided under the General 

Schedule ($87,742 to $225,000 plus 

targeted local market supplements for 

medical specialties ranging from 4.45 

percent to 45 percent of base salary). 

This enables DoD to competitively set 

pay for new hires and to reward valued 

performers through performance 

payouts. The higher salary structure for 

physicians and dentists is in recognition 

that premium pay will not be available 

and that physicians and dentists work 

significant overtime hours. This practice 

reflects compensation practices in 

competitive labor markets where salary 

structures are set at a higher level. 

Section 9901.362—Modification of 

Standard Provisions 

This section describes provisions 

related to premium pay, overtime pay, 

night pay, Sunday pay, holiday pay, law 

enforcement availability pay, hazardous 

duty pay, compensatory time off for 

travel, compensatory time off for 

religious observance, and the air traffic 

controller differential. A commenter 

suggested that FLSA-exempt employees 

be credited for overtime work in 

increments of 6 minutes or 15 minutes, 

depending on the agency’s payroll 

system. We have not adopted this 

suggestion. Unlike the GS pay system 

which has separate rules to credit 

regularly scheduled overtime work and 

irregular or occasional overtime work, 

NSPS does not make this distinction. 

Rather, to establish a contemporary and 

flexible system of human resources 

management for DoD employees, NSPS 

has simplified the scheduling, crediting, 

and payment of overtime work. Under 

NSPS, an FLSA-exempt employee is 

compensated for overtime work using a 

quarter of an hour as the smallest 

fraction of an hour, with minutes 

rounded to the nearest full fraction of an 

hour. 

A commenter recommended that all 

employees working a flexible work 

schedule (including FLSA-exempt 

employee) should have a choice to earn 

compensatory time off or overtime pay. 

We do not agree. While non-exempt 

NSPS employees may request 

compensatory time off, FLSA-exempt 

employees may be required to accept 

compensatory time off for any overtime 

work, regardless of pay level. We 

believe this provision provides 

management the flexibility and the 

ability to manage its workforce to meet 

critical mission requirements. 

Regarding language in § 9901.362(c) 

related to night pay and when it is and 

is not payable, one commenter pointed 

out that annual and sick leave must be 

paid at the appropriate shift differential. 

A GS employee receives night pay for a 

period of paid leave only when the 

leave totals less than 8 hours in a pay 

period. Therefore, if a GS employee 

takes 8 hours or more of leave in the pay 

period, the employee does not receive a 

night pay differential for those hours of 

paid leave. We have not adopted a 

similar rule. Under NSPS, employees 

having a tour of duty that includes night 

hours are not entitled to a night pay 

differential when on annual or sick 

leave. Except for a period of court leave, 

military leave, time off awarded under 

5 U.S.C. 4502(e), compensatory time off 

during religious observances, or when 

excused from duty on a holiday, night 

pay is not payable during paid absences. 

However, NSPS employees receive night 

pay for each hour of work performed at 

night that is scheduled or ordered or 

approved by management between the 

hours of 6 p.m. and 6 a.m. Unlike the 

GS pay system, NSPS employees receive 

night pay whether the night work is 

scheduled before or after the 

administrative workweek begins. We 

believe that this provision is fair, 

equitable, and understandable to 

employees and that the changes we have 

made in night pay eases the 

administration of this premium pay. 

One commenter asked that the 

administratively uncontrollable 

overtime (AUO) pay provision in 5 

U.S.C. 5545(c)(2) be applied to NSPS 

employees. Pay for AUO work is a 

substitute form of pay for irregular, 

unscheduled overtime work that is paid 

on an annual basis instead of an hourly 

basis. The basis for determining 

positions for which AUO is payable is 

that a position must be one in which the 

hours of duty cannot be controlled 

administratively, which is inherent in 

the nature of the work assigned to the 

position and that the employee is 

generally responsible for recognizing, 

without supervision, circumstances that 

require the employee to remain on duty. 

Typically, a criminal investigator 

received AUO pay until availability pay 

replaced AUO in 1994. Given the 

specific position requirements for AUO 

pay, NSPS waived the administratively 

uncontrollable overtime pay provision 

in 5 U.S.C. 5545(c)(2). We believe our 

rationale continues to be valid and that 

NSPS employees who perform 

substantial amounts of overtime work 

are properly compensated through the 

NSPS overtime pay provisions. 

One commenter pointed out 

inconsistency in claims for 

compensatory time off for travel 

(currently claims must be filed within 

10 days of travel for NSPS, but within 

5 days of travel for non-NSPS 

employees). We have not changed the 

proposed regulation in response to this 

comment because the proposed NSPS 

rule more favorably responds to the 

national security mission performed 

within DoD and the likelihood that 

employees may need additional time to 

file such requests due to the exigency of 

the mission. The goal of NSPS is not to 

be fully consistent with the GS system 

but to improve upon it where possible. 

Allowing employees more time to file 

claims for compensatory time off for 

travel is just one such instance. 

One commenter believes that using 

the term ‘‘related regulations’’ in 

§ 9901.362(i) is confusing for third party 

adjudicators. We disagree inasmuch as 

§ 9901.362(i)(1) explains that NSPS 

employees are covered by 5 U.S.C. 

5545(d) and the related regulations in 5 

CFR part 550, subpart I, subject to the 

requirements and modifications 

delineated in § 9901.362(i)(2) through 

(i)(6). Thus, both the law and related 

regulations must be read together to 

determine an employee’s entitlement to 

hazardous duty pay. 

Another commenter recommended 

that engineering technicians be eligible 

for hazardous duty pay. We have not 

made a change based on this comment 

because the hazardous work involved in 

a position such as an engineering 

technician is considered in the 

classification process as part of 

determining the appropriate grade or 

band level. 

A commenter asked for clarification of 

§ 9901.362(j)(3) because we did not fully 

address the crediting of time spent 

commuting between home and a 

transportation terminal. We agree and 

have added a new paragraph (j)(4) to 

clarify that if an employee is required to 

travel directly between his or her home 

and a transportation terminal, the travel 

time is creditable as time in a travel 

status. Such travel time outside regular 

working hours is creditable as time in a 

travel status. However, normal 

commuting time must be deducted if the 

travel occurs on a day the employee is 

regularly scheduled to work. 

Several commenters noted that the 

prohibition on the payment for unused 

compensatory time off for religious 

observances appears discriminatory 

because it applies only to those whose 

personal religious beliefs require the 

mstockstill on PROD1PC66 with RULES2

56380 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

abstention. We disagree. Section 5550a 

of title 5, United States Code, affords all 

Federal employees the opportunity to 

earn and use compensatory time off for 

religious observances without losing 

pay or using annual leave. However, an 

employee should be allowed to 

accumulate only the number of hours of 

work needed to make up for past or 

future absences for religious 

observances. If self-regulated properly, 

an employee should only have the 

appropriate number of hours needed to 

fulfill religious obligations and not 

require payment in lieu of use. 

A representative of a labor 

organization contended that 

compensatory time is actually 

reimbursement for services provided 

and, as such, should not be defined as 

‘‘premium pay.’’ We have not changed 

the proposed regulation based on this 

comment. Compensatory time earned 

under 5 U.S.C. 5543 is considered to be 

premium pay and is paid out at the 

overtime rate that was earned, when 

applicable. In contrast, compensatory 

time off for religious observances and 

compensatory time off for travel are 

listed separately because they represent 

an accommodation or flexibility 

provided to an employee to respond to 

a personal need. Consequently, they are 

not paid out under NSPS. They are 

additional time and attendance 

flexibilities available to an employee 

and are not considered to be covered 

under the overtime provisions. 

Commenters suggested that provisions 

related to Sunday pay, overtime pay, 

and compensatory time off for travel 

should mirror provisions of the GS 

system. We have chosen not to change 

this section of the regulation because it 

is not our intent to achieve full 

consistency with the GS system; rather, 

our goal is to preserve flexibility within 

NSPS to establish provisions that best 

meet the Department’s national security 

mission. 

Section 9901.363—Premium Pay for 

Healthcare Personnel 

This section addresses treatment of 

premium pay for healthcare personnel 

to include on-call premium pay, night 

pay, and pay for weekend duty. 

Commenters questioned why, if on-call 

premium pay is going to be authorized 

for NSPS employees in covered 

occupations, all employees (including 

those in graded positions) are not 

covered. These commenters viewed the 

difference as disparate treatment 

between NSPS and graded systems. 

NSPS enabling legislation provides 

authority to waive certain title 5 laws 

and regulations for employees covered 

by the NSPS system. This enables DoD 

to, among other things, tailor a 

personnel system to its unique national 

security mission. The law does not 

provide authority to waive laws or 

regulations for employees or positions 

covered by other pay systems. 

Therefore, no authority exists to modify 

the General Schedule under this 

regulation. 

Other commenters recommended that 

on-call premium pay be extended to 

other occupations that have similar oncall requirements. The Department has 

this flexibility and, if needed to address 

its critical mission requirements, it may 

amend the NSPS regulations at a later 

time. 

Section 9901.364—Foreign Language 

Proficiency Pay 

This section outlines the provisions 

for a foreign language proficiency pay 

(FLPP) for those certified in languages 

identified as necessary for national 

security interests. One union official 

requested amplification of the last factor 

listed under ‘‘Other considerations 

authorized by the Secretary.’’ We have 

not amplified this provision, as this 

leaves the Department some flexibility 

to address future mission requirements 

or needs. Increased foreign language 

skills within the Department are 

necessary for building internal 

relationships for coalition/multinational operations, peacekeeping and 

civil/military affairs. Having a cadre of 

skilled language speakers will allow the 

Department to respond quickly to crisis 

requirements. For example, in the 

aftermath of a disaster in a foreign area 

where the Department is distributing 

food and medical supplies, it is 

imperative to have someone readily 

available who can speak the language or 

dialect in order to explain to the 

affected population the food 

distribution process. In this case, an 

employee who is being paid FLPP for 

the required language could provide 

that explanation. The last factor of the 

payment criteria gives an authorized 

management official discretion in 

considering the unique attributes of a 

specific job or assignment in 

determining the level of payment for a 

covered employee. 

Conversion Provisions 

Section 9901.371—Conversion Into 

NSPS Pay System 

This section prescribes policies and 

procedures for converting DoD 

employees into NSPS. One commenter 

noted that information under 

§ 9901.371(j)(7) stating that the WGI 

adjustment is a one-time adjustment 

which may not be provided on any 

subsequent conversions into NSPS is 

inconsistent with current NSPS policy, 

which actually permits an adjustment 

each time an employee converts into 

NSPS, provided he or she meets the 

conditions for such payment. We agree 

and have revised this paragraph 

accordingly. 

Another commenter responded to 

language in § 9901.371(l)(2), which 

describes how ‘‘an employee who is 

selected for a non-NSPS position that 

subsequently becomes covered by NSPS 

before the effective date of the 

employee’s placement in the position is 

eligible to receive (at the discretion of 

an authorized management official) a 

one-time base salary increase equivalent 

to the increase the employee would 

have received had the placement been 

effected prior to the position becoming 

covered by NSPS.’’ In the commenter’s 

view, this employee should receive a 

mandatory increase rather than be 

subject to the discretion of the 

authorized management official. Unlike 

the GS system, NSPS requires 

supervisors and managers to take 

responsibility for, and be held 

accountable for, determining the 

appropriate pay for their employees. 

Those determinations are made based 

on many variables. For example, an 

employee’s pay may reflect factors such 

as critical mission or business 

requirements, the employee’s past and 

anticipated performance and 

contributions, specialized skills or 

knowledge possessed by the employee, 

labor market conditions, base salary 

rates paid to other employees in similar 

positions, and the location of the 

position. Further, NSPS emphasizes 

increases in pay based on performance, 

not so much the up-front pay-setting 

when an employee is placed in a 

position. We do not agree that 

mandating pay under this provision is 

the right thing to do because we want 

supervisors and managers to have the 

flexibility and the tools they need to 

make decisions necessary to perform 

their work and meet the strategic 

missions and objectives of the 

Department. Therefore, we have not 

revised this paragraph. We note that two 

labor organizations agreed with the 

provisions that employees will not 

experience a pay reduction upon 

conversion to NSPS. 

Other commenters expressed 

concerns regarding § 9901.371(m). 

According to these commenters, the 

physicians’ comparability allowance 

(PCA) is not paid consistently across all 

DoD installations, which means that 

those physicians and dentists who are 

not receiving this payment at the time 

of conversion will have a lower base 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56381 

salary than those who do receive this 

payment. They assert that this makes 

the Department less competitive with 

other agencies such as the Department 

of Veterans Affairs, results in continuing 

pay inequities, and doesn’t comport 

with the stated objective of NSPS to set 

and adjust salaries based on factors such 

as labor market conditions. The 

proposed regulation provides flexibility 

for the Component to decide at the point 

of conversion whether to incorporate 

this payment in whole or in part into 

the employee’s NSPS base salary if the 

employee was regularly receiving the 

allowance prior to conversion. In 

making this determination, the 

Component may take several things into 

consideration, e.g., access to a greater 

rate of pay than under the GS system, 

any applicable targeted local market 

supplement, retention of the employee, 

etc. We do not agree that mandating the 

inclusion of this allowance in the 

employee’s NSPS base salary is 

desirable or prudent and have not 

changed this provision. 

One commenter suggested that when 

an employee is transferred or reassigned 

from a non-covered position to a 

position already covered by the NSPS 

system, that employee should be 

provided with a copy of the new 

classification, position or series 

description, occupational group or 

subgroup, pay schedule, and any other 

relevant documentation before entering 

service in the position. DoD Human 

Resources Offices already have 

procedures in place to provide 

transferred and reassigned employees 

with a copy of the Notice of Personnel 

Action (SF–50) which includes the 

career group, band, series, official title, 

FLSA status, and salary. A copy of the 

position description is also available 

and all pay schedules are published and 

available on line. For these reasons we 

believe that including this type of 

information in this regulation would be 

redundant and unnecessary. 

Section 9901.372—Conversion or 

Movement Out of NSPS Pay System 

This section addresses pay setting 

when employees convert to or move out 

of the NSPS pay system and are placed 

in another Federal pay system. 

Commenters objected to the 

provisions of the conversion-out process 

allowing employees who were at or near 

the top step in GS grade, and converted 

to NSPS, to be converted out from NSPS 

at a higher grade than the grade that 

they previously held, even if there have 

been no changes in duties and 

responsibilities. The procedures 

described in this section are similar to 

conversion-out procedures provided in 

many of our demonstration projects. We 

would expect that employees who are 

converted out of NSPS within a few 

years after conversion into NSPS will 

typically be converted out to a virtual 

grade consistent with their grade at the 

time of conversion. However, we do 

acknowledge that because NSPS offers 

the opportunity for greater salary 

advancement for many employees, it is 

possible that their adjusted salary at the 

time of conversion out could result in a 

higher virtual GS grade. This will be 

particularly true for employees who 

have been covered for a long period 

under NSPS. We have not revised these 

procedures in response to these 

comments. 

Another commenter suggested that 

the entire section should be deleted, 

since the receiving agency, not DoD, 

should establish the GS equivalent rate 

for their employees. We do not agree. 

This section was added in direct 

response to requests from DoD 

Components and many DoD employees. 

Initially, we designed NSPS with the 

goal of covering the vast majority of DoD 

employees in a relatively short period of 

time. That has not materialized at this 

time and, instead, there is considerable 

movement within the Department back 

and forth between NSPS and non-NSPS 

positions. A major impact of this 

situation has been that NSPS employees 

are often disadvantaged when they are 

promoted to a GS position because the 

rules of that system apply to the action. 

Because we presently have no 

conversion out procedure, these 

employees must have their pay set in 

accordance with the GS highest 

previous rate rule rather than the twostep promotion rule that applies to GS 

employees who move from one GS 

grade to a higher GS grade. This results 

in the NSPS employee receiving a 

smaller promotion increase. 

Other commenters requested that this 

section include provisions allowing 

civilian employees the option to transfer 

back into the GS system. We have not 

revised this section in response to these 

comments. DoD civilians complement 

and support the military around the 

world and to meet the interests of the 

United States in today’s national 

security environment, DoD needs an 

integrated, flexible, and responsive 

team. To meet today’s challenges, DoD 

needs a workforce whose performance 

and contributions are linked to strategic 

mission objectives and who can be more 

fully recognized and rewarded. DoD 

needs a classification and pay system 

that allows us to attract and retain 

employees. At the same time, DoD 

needs a system that protects the 

fundamental rights of its employees. 

The GS system cannot adequately 

address the 21st century national 

security environment and, although it is 

based on important core principles, 

those principles are operated in an 

inflexible, one-size-fits-all system. This 

inherent weakness makes supporting 

the DoD’s mission complex, costly, and 

ultimately risky. With NSPS, we’ve 

designed a modern, contemporary, and 

flexible system that will generate more 

opportunities for DoD civilians by 

easing the administrative burden 

routinely required by the GS system. 

While DoD employees may move back 

and forth between the NSPS and GS 

systems, as well as other personnel 

systems within the Department, the 

objective is to cover as many positions 

and employees under NSPS as possible 

and to fully allow and encourage DoD 

employees to take advantage of the 

opportunities available under the new 

system. 

One commenter observed that 

§ 9901.372(a) should be revised to say 

that when a GS virtual grade and rate 

are established, they ‘‘will be’’ (rather 

than ‘‘may be’’) used to apply GS paysetting rules. We agree and have revised 

this paragraph accordingly. Another 

commenter suggested that 

§ 9901.372(d)(1) should be revised to 

state that intervening (unused) grades 

for two-grade interval occupations 

should be considered when determining 

the GS virtual grade of an employee 

who is converting or moving from an 

NSPS position to a GS position. For 

example, in the case of the YA–2 pay 

band that covers grades GS–9 through 

GS–13, the commenter believed that 

GS–10 should be considered in setting 

the GS virtual grade even if that grade 

was not actually available to the 

position in the GS pay system because 

the position was in a GS two-grade 

interval occupation that used only 

grades GS–9, GS–11, GS–12, and GS–13. 

As a result of this comment, we 

carefully reviewed this matter and 

determined that intervening grades in 

two-grade interval occupations should 

not be considered in setting a GS virtual 

grade. We identified certain anomalies 

that would result if the intervening 

grade were considered. For example, if 

a GS occupation had special rates at the 

GS–9 and 11 levels, setting the GS 

virtual grade at GS–10 would require 

the GS virtual rate be set within the 

GS–10 rate range, but there would be no 

established special rate for that grade. 

This would produce inappropriate 

results in applying the maximum 

payable rate rule or the promotion rule. 

Furthermore, we determined that the 

established policy of various paymstockstill on PROD1PC66 with RULES2

56382 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

banding demonstration projects 

(including several DoD demonstration 

projects) was to exclude unused 

intervening grades in determining GS 

converted grades when employees leave 

the system. Accordingly, we have 

revised § 9901.372(d)(1)(i) to expressly 

provide that an intervening grade for 

two-grade interval occupations may not 

be considered in setting the GS virtual 

grade. 

Another commenter expressed 

concern that the requirement in 

§ 9901.372(d)(2) that, when an 

employee’s adjusted salary falls between 

two GS steps, his or her virtual rate 

must be set at the next higher step, may 

prove unnecessarily costly, because if 

the employee’s actual rate (based on the 

virtual rate) later also falls between 

steps, pay will have to again be set at 

the next higher step if he or she is 

promoted to a GS position and the 2- 

step rule is applied. The commenter 

suggests that DoD set the virtual rate at 

the employee’s existing actual adjusted 

salary under NSPS so that the 2-step 

rule can be applied directly to that rate. 

This is consistent with OPM’s own rule 

at 5 CFR 531.243(c) relating to the 

promotion of a GM employee to a GS 

position. We have revised this 

paragraph accordingly. 

A commenter asked that we change 

§ 9901.372(d)(2)(iii) or add another 

paragraph to reflect grade retention 

upon movement out of NSPS to be 

consistent with the GS system. They 

stated that if the movement out results 

from a RIF or a realignment, the NSPS 

employee deserves the same pay 

protection as his or her GS counterparts. 

We understand this concern; however, 

upon movement or conversion out of 

NSPS it is the pay administration rules 

of the gaining system which determine 

how pay is set and whether or not an 

employee is entitled to or eligible to 

receive grade and/or pay retention. 

Because NSPS employees are not in a 

‘‘covered pay system,’’ they are not 

eligible for grade retention when they 

move from NSPS to the GS system in 

accordance with 5 CFR 536.102(d). 

When an NSPS employee is placed in a 

GS position as a result of a RIF, he or 

she may be entitled to indefinite pay 

retention. 

Finally, we have made a few minor 

edits to § 9901.372 either to conform to 

publishing requirements for the Federal 

Register or to add clarity to the 

proposed rule. 

4. Subpart D—Performance Management 

General Comments 

Subpart D regulates performance 

management for NSPS employees. 

This subpart inspired a large number 

of comments during the public 

comment period. Since many of the 

comments related to both subparts C 

and D, we addressed them under the 

heading ‘‘Major Issues.’’ However, one 

general comment remains. Many 

commenters expressed concern that the 

linking of pay to performance would 

dampen discourse between supervisor 

and employee. These commenters were 

inclined to believe that employees 

seeking favor with their leadership, as 

well as larger increases, would censor or 

inappropriately alter any dissenting 

opinions they held concerning work 

processes or products, which would 

result in less than desirable outcomes. 

Such behavior, however, may exist 

whether or not performance and pay are 

directly linked. No changes have been 

made based on these comments. 

Comments on Specific Sections of 

Subpart D 

Section 9901.403—Waivers 

Section 9901.403 specifies the waiver 

of 5 U.S.C. chapter 43 with regard to 

that employee or category of employees 

covered by this subpart. 

One commenter expressed concern 

that waiver of chapter 43 will lead to 

greater uncertainty among DoD 

employees about what their supervisor 

and management in general expect, 

which will result in workplace 

disruptions, confusion, lowered 

employee morale, organizational 

inefficiencies, and performance 

deficiencies. We have concluded that 

the waiver of 5 U.S.C. chapter 43 is 

appropriate and necessary to implement 

NSPS performance management. No 

change has been made to the proposed 

regulation based on this comment. 

Section 9901.404—Definitions 

This section contains definitions for 

the performance management process 

under NSPS. 

Commenters suggested a change to the 

definition of unacceptable performance. 

Commenters objected to requiring an 

unacceptable rating for failure to meet a 

single performance expectation. Similar 

to other performance management 

systems in the Federal Government, 

NSPS applies a generally accepted 

practice of identifying unacceptable 

performance as failure to meet one or 

more performance expectations. In 

recognition of the consequences of 

unacceptable performance, the 

regulation stresses the need for clear 

communication of performance 

expectations, monitoring performance, 

and addressing performance that does 

not meet expectations (see 

§§ 9901.406(b), 9901.409, and 

9901.410). No change has been made to 

the proposed regulation based on these 

comments. 

Several commenters also expressed 

concern that requirements related to the 

definition in § 9901.103 of performance 

as it relates to demeanor, conduct, and 

behavior are irrelevant to accomplishing 

performance objectives unless 

management establishes a direct link 

between the required demeanor and 

accomplishment of the assignment. 

Performance assessments would not 

be complete without considering many 

factors, including employees’ behaviors 

in carrying out assigned work. 

Employee behaviors can be objectively 

observed and evaluated against 

established performance expectations. 

Supervisors also may consider how 

underlying misconduct negatively 

impacts the execution of an employee’s 

duties, that of the team, and/or that of 

the organization under NSPS. All 

applications of performance 

management under NSPS continue to 

provide employees with protection 

against prohibited personnel practices, 

whistleblower protections, and appeal 

rights. Any disagreement with the 

assessment of an employee’s 

professionalism, conduct, or respect, to 

the extent it impacts his or her rating, 

is subject to the reconsideration process 

as defined in § 9901.413. No change has 

been made to the proposed regulation 

based on this comment. 

One commenter requested that a 

definition of ‘‘rating official’’ be added 

to § 9901.404. We agreed and revised 

the section to include this definition. In 

addition, we made a small revision to 

the definition of minimum period to 

specify that only performance under an 

approved NSPS performance plan 

qualifies for completion of the 

minimum period. 

Section 9901.405—Performance 

Management System Requirements 

Section 9901.405 specifies that NSPS 

regulations establish the performance 

management system required under 5 

U.S.C. 9902 and that this subpart 

contains mandatory requirements for all 

employees covered by NSPS. It also 

provides that the Secretary has the 

authority to further define the system 

through implementing issuances. 

Several members of labor 

organizations objected to the summary 

rating levels included under § 9901.405 

and suggested that we revise the 

proposed regulation to include specific 

language indicating the impact of 

ratings on job retention. The regulation 

identifies the summary rating levels that 

will be used in NSPS. We explained the 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56383 

rating level descriptors in the 

implementing issuances currently in 

use. The descriptors are not the 

exclusive means of determining a rating 

but rather serve as a guide when 

supervisors determine the ratings for 

each job objective. NSPS, like all 

performance management systems, 

assesses employee performance upon 

which management may base decisions 

for employee retention. This is 

consistent with the merit system 

principles described under 5 U.S.C. 

2301. No change was made to the 

proposed regulation based on these 

comments. 

A commenter expressed concern that 

NSPS is ignoring the value of 

experience in the performance 

management system. Under NSPS, an 

employee is rated based on his or her 

demonstrated performance, which 

generally is directly impacted by his or 

her experience and which is assessed on 

what the employee has accomplished 

and how well he or she has met 

performance expectations. This 

assessment is measured in terms of the 

quality of the employee’s experience, as 

reflected in his or her performance. No 

change was made to the proposed 

regulation based on this comment. 

A few commenters expressed concern 

at the limited scale available for rating 

an employee’s performance. While one 

commenter suggested using a 10-point 

scale instead of the current 5-point 

scale, most commenters found no issue 

with the rating scale. During the past 2 

years, DoD has tested the NSPS 5-level 

rating system and found it to adequately 

enable distinctions in levels of 

performance. There is no indication that 

the scale unfairly restricts a supervisor’s 

ability to rate an employee’s 

performance accurately. No change has 

been made to the proposed regulation 

based on these comments. 

Two commenters suggested that, to 

achieve uniformity in rules used for 

rounding raw performance scores to 

derive adjective ratings of record, the 

rules should be included in the 

regulation. Another commenter asserted 

that organizations rounded down 

performance scores in an attempt to 

lower employee ratings. Standardized 

rounding rules specific to NSPS 

performance ratings were developed to 

support distinctions in performance and 

ensure uniformity of rating practices 

across NSPS. Under NSPS, higher-level 

performance has been determined to be 

performance above an even split 

between two rating levels (i.e., above the 

rounded score of ‘‘x.50’’). To ensure 

uniformity and consistency regarding 

the application of rounding rules and in 

response to the above comment, we 

added § 9901.405(b)(6) to specify these 

rounding rules. 

One commenter indicated that the 

proposed regulation did not permit an 

accurate evaluation of job performance 

based on objective job-related criteria. 

NSPS uses a multi-level system that 

makes distinctions in levels of employee 

performance and links employee 

achievements, contributions, 

knowledge, and skills to organization 

results. The system ensures that 

performance expectations are clearly 

communicated to employees and that 

they are linked to the organization’s 

strategic goals and objectives. This 

provides the ability to evaluate 

employees based on these objective jobrelated criteria, recognize valid 

distinctions in performance, and reward 

employees based on those distinctions. 

No change was made to the proposed 

regulation based on this comment. 

One commenter indicated that if he 

had identified fewer job objectives his 

rating would have been higher and thus 

he would have received a higher share. 

Job objectives can be identified based 

only on the requirements of the position 

and reflect the responsibilities and 

expectations associated with the 

position. Ratings are assigned in 

accordance with the summary rating 

levels provided in the regulation and 

the implementing issuances. However, 

these rating level descriptors are not the 

exclusive means for determining a 

rating, but rather serve as a guide when 

supervisors determine the ratings for 

each job objective. The rating and the 

resultant share assignment are a product 

of an evaluation of an employee’s 

overall performance based on criteria 

defined for each rating level that are 

clearly identified in the regulation and 

implementing issuances. No change has 

been made to the proposed regulation 

based on this comment. 

Finally, a commenter indicated that 

some military supervisors with NSPS 

responsibilities are not of sufficient rank 

to supervise civilians and do not have 

the required knowledge to perform their 

NSPS duties. The commenter suggested 

that NSPS establish a crosswalk to 

identify equivalent military and civilian 

ranks to determine who can supervise 

Federal employees. It is not within the 

scope of this regulation to determine 

which military ranks can supervise 

which NSPS pay bands. However, the 

regulation clearly identifies supervisory 

responsibilities and specifies that 

supervisors and managers will be held 

accountable for effectively managing the 

performance of employees under their 

supervision. Further, DoD is committed 

to training managers and supervisors, 

including military members, on how to 

establish and communicate performance 

expectations, how to assess employee 

performance, and how to appropriately 

translate that assessment into pay 

adjustments. No change has been made 

to the proposed regulation based on this 

comment. 

Section 9901.406—Setting and 

Communicating Performance 

Expectations 

Section 9901.406 provides the 

requirements and guidelines for 

communicating with employees 

regarding their performance through the 

use of ‘‘performance expectations.’’ 

One commenter suggested simplifying 

the definition of performance 

expectations while several other 

commenters indicated a need to 

safeguard against imposition of 

impossible performance expectations. 

We believe the existing definition and 

the requirements identified in this 

section clearly describe the parameters 

for setting performance expectations. In 

addition, the regulation specifies that 

employees will be involved in the 

development of performance 

expectations, which provides an 

opportunity for dialog between the 

supervisor and the employee during the 

development process. Further, 

safeguards are in place to preclude the 

imposition of impossible expectations 

since performance expectations are 

subject to higher or second-level review 

to ensure consistency and fairness 

within and across the organization. 

Additionally, NSPS job-objective 

training for supervisors and managers 

stresses the use of ‘‘SMART’’ objectives. 

‘‘SMART’’ is an acronym for the 

following criteria: Specific—means 

observable action, behavior, or 

achievement is described; Measurable— 

means the method or procedure must 

exist to measure the quality of the 

outcomes; Aligned—means linking (or 

drawing a line of sight from) objectives 

to organizational mission and goals; 

Realistic and Relevant—means the 

objective is achievable and relevant 

means important to the organization; 

and Timed—means there is a point in 

time when the objective (or assignments 

covered by the objective) will start or 

when it will be completed. These 

measures ensure employees will not be 

expected to accomplish ‘‘impossible 

expectations.’’ We have made no change 

to the proposed regulation based on 

these comments. 

One commenter suggested revising 

§ 9901.406(b) to state that a performance 

expectation must be communicated to 

an employee in writing before the 

employee is expected to accomplish a 

related work assignment. Section 

mstockstill on PROD1PC66 with RULES2

56384 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

9901.406(b) already states that an 

employee will receive performance 

expectations in writing before being 

held accountable for them. No change 

has been made to the proposed 

regulation based on this comment. 

Another commenter requested 

clarification regarding § 9901.406(b)(1), 

which refers to performance 

expectations that will be communicated 

to the employee in writing ‘‘including 

those that may affect an employee’s 

retention in the job.’’ The commenter 

indicates that this seems to imply that 

there are expectations that may not 

affect an employee’s job retention. Like 

all performance management systems, 

NSPS assesses an employee’s 

performance based on an evaluation of 

the performance expectations 

communicated to the employee in 

writing and amplified verbally as 

described in § 9901.406(f). This 

assessment of an employee’s 

performance is the basis upon which 

management may make decisions 

regarding employee retention. We agree 

with the commenter that this phrase 

does not clearly portray our intent and 

it has therefore been removed. 

Commenters suggested that 

§ 9901.406(c) be deleted from the 

proposed regulation, as it holds 

employees accountable for subjective 

standards of professionalism and 

conduct but does not hold supervisors 

accountable for the same 

professionalism and conduct standards. 

These comments indicate a lack of 

understanding that the term ‘‘employee’’ 

also pertains to supervisors and 

managers. We believe the 

misunderstanding occurs because a 

paragraph addressing criteria pertaining 

only to supervisors and managers is 

preceded by a paragraph addressing 

criteria for all employees, which 

includes supervisors and managers. To 

avoid the potential for such a 

misunderstanding, we added language 

to § 9901.406(d) to clearly indicate that 

the requirements specific to supervisors 

and managers are in addition to those in 

§ 9901.406(c). 

One commenter suggested adding to 

§ 9901.406(e) a requirement for 

supervisors and managers to meet with 

employees they supervise at the 

beginning of the appraisal period and at 

scheduled times thereafter. The 

regulation clearly states in § 9901.405 

that supervisors and managers are held 

accountable for effectively managing the 

performance of their employees. This 

responsibility includes setting and 

communicating performance 

expectations, monitoring performance 

and providing feedback. We believe the 

regulation defines supervisor and 

manager responsibilities in this area 

without being overly prescriptive in the 

manner and number of times they 

should meet with employees. The 

regulation preserves a certain amount of 

discretion in recognition of the breadth 

of work and variety of work situations 

(including varied levels of 

independence and geographic 

dispersion) prevalent in DoD. No change 

has been made to the proposed 

regulation based on this comment. 

One commenter suggested specifically 

including occupational peer 

involvement in the factors to be 

considered when developing 

performance expectations. Peer 

involvement, however, is normally part 

of a process rather than a factor. Section 

9901.406(e) indicates that performance 

expectations should include 

organizational, occupational, or other 

work requirements as well as 

competencies that an employee is 

expected to demonstrate or 

contributions that he/she is expected to 

make. We believe this description 

allows the flexibility to include 

necessary occupational requirements 

when developing performance 

expectations. No change was made to 

the proposed regulation based on this 

comment. 

Several commenters noted that the 

option for supervisors to amplify 

performance expectations via oral 

instructions under § 9901.406(f) is 

especially problematic as this could 

likely lead to a number of 

misunderstandings and disputes 

between supervisors and employees 

over how the expectation is expressed 

or understood, or whether it is even 

expressed as a performance expectation 

on which an employee may be 

appraised. Others noted that this section 

may conflict with the requirement for 

clear communication in 

§ 9901.405(c)(1). We believe that the 

regulations sufficiently address 

concerns about communication of 

performance expectations. The language 

in § 9901.406(b) clearly requires the 

communication of performance 

expectations to employees in writing 

prior to holding them accountable for 

these expectations. It is neither feasible 

nor functional to require the written 

communication of every assignment and 

instruction used to amplify performance 

expectations. Non-written 

communication can still be considered 

clear and can be accomplished through 

dialog regarding performance 

expectations. The attributes identified 

in § 9901.406(f) relate to the day-to-day 

communication between supervisors 

and employees regarding work 

assignments, including specific goals or 

metrics that are a project-specific 

extension of already established 

performance expectations. No change 

has been made to the proposed 

regulation based on these comments. 

Commenters expressed concern over 

the establishment of performance 

expectations by supervisors. Many 

commenters stated that performance 

expectations should be subject to an 

appeals process by the employee, and 

not simply set by the supervisor 

according to the process in § 9901.406. 

Insofar as practical, employees are to be 

involved and their participation sought 

in the development of performance 

expectations as stated in § 9901.406(g). 

However, similar to performance 

management systems under 5 U.S.C. 

chapter 43, managers need to retain the 

sole and exclusive authority to define 

the work to be performed via 

performance expectations. The 

regulations do require the safeguard that 

all performance expectations receive a 

higher-level review as specified in 

§ 9901.406(h) and thus secondary 

review is already part of the expectation 

setting process. No change has been 

made to the proposed regulation based 

on these comments. 

Other commenters specifically 

requested that the term ‘‘insofar as 

practicable’’ be deleted from 

§ 9901.406(g) as 5 U.S.C. 9902(b)(7)(D) 

requires the Department of Defense to 

‘‘provide a means’’ for ensuring 

employee participation in the 

implementation of the system. While we 

believe the importance of involving 

employees in the setting of performance 

expectations is paramount, we 

acknowledge that there may be cases 

when an employee is not involved to 

the fullest extent (e.g., development of 

standardized objectives for a group of 

employees performing similar work). 

Mandating complete and uniform 

involvement would unnecessarily 

hinder the development and 

administration of uniform expectations, 

where appropriate. No change has been 

made to the proposed regulation based 

on these comments. 

Finally, one commenter suggested 

substituting ‘‘pay pools’’ for 

‘‘organizations’’ in § 9901.406(h). Such a 

change would require higher- or secondlevel reviews to reconcile performance 

expectations across a pay pool rather 

than an organization. This section 

appropriately addresses the higher-level 

review of performance expectations 

from a broader organizational 

perspective. However, to the extent a 

majority of pay pools are structured 

along organizational lines, this review 

often has the effect of reconciling 

expectations across pay pool structures. 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56385 

No change has been made to the 

proposed regulation based on this 

comment. 

Section 9901.407—Minimum Period of 

Performance 

Section 9901.407 addresses the 

minimum performance period and 

eligibility for conducting appraisals 

leading to performance payouts. It 

describes the requirements for the 

minimum period of performance under 

an NSPS performance plan to qualify for 

an NSPS rating of record. 

One commenter suggested that the 

language included in § 9901.407 is 

misleading. The commenter believes 

that the language could be interpreted 

erroneously to mean that an employee 

with NSPS-covered service related to 

§ 9901.342(i) through (l) may be credited 

with service performed prior to breaks 

in service and meet the minimum 

performance period even if the breaks 

were not related to a reason expressed 

in § 9901.342(i) through (l). In response 

to this comment, we have modified the 

language to clarify that only service 

performed prior to a § 9901.342(i) 

through (l) break in service may be 

counted towards a minimum period. 

One commenter recommended 

changing § 9901.407(b)(1) to indicate 

only periods of unpaid leave may not be 

applied toward the 90-day minimum. 

The proposed regulation intended that 

paid leave as well as unpaid leave 

would not be credited toward meeting 

the requirements of the minimum 

performance period. NSPS provides for 

using the modal rating within a pay 

pool to ensure payouts for employees 

who do not meet the minimum period 

due to approved paid leave. While we 

made no change to the proposed 

regulation based on this comment, we 

modified § 9901.342(k) to cover any 

employee who did not meet the 

minimum period of performance as a 

result of approved paid leave. The 

former language in § 9901.432(k) limited 

special payouts to employees on 

‘‘extended leave.’’ The qualifying 

language, ‘‘extended leave’’, was 

removed. We also note that under 

§ 9901.411, performance periods can be 

extended to permit an employee who is 

close to meeting the 90-day minimum to 

meet that requirement. 

Another commenter suggested adding 

that the minimum period of 

performance must be 90 consecutive 

calendar days. The regulation accurately 

provides for allowable breaks (such as 

leave) and provides credit for 

nonconsecutive service toward meeting 

the minimum period. No change has 

been made to the proposed regulation 

based on this comment. 

Section 9901.408—Employees on TimeLimited Appointments 

Section 9901.408 allows evaluation 

and thereby coverage of NSPS 

employees in time-limited 

appointments not expected to exceed 90 

days. It permits supervisors to issue 

performance plans and performance 

expectations to employees on timelimited assignments appointed for less 

than 90 days when these plans and 

expectations are linked to the assigned 

organization’s mission. Supervisors are 

expected to engage these employees in 

a dialog relative to performance 

expectations for the appointment and 

conduct an evaluation of employees at 

the end of their appointment consisting 

of a narrative description of their 

performance, accomplishments, and 

contributions. This narrative may serve 

as documentation and justification for 

recognition under 5 U.S.C. chapter 45, 

consistent with and subject to 

applicable criteria and approval 

procedures. 

One commenter requested 

clarification of the distinction between 

yearly evaluations and time-limited 

appointment evaluations that can occur 

in the same year. The commenter 

questioned how management would 

treat the two in relation to pay for 

performance. Section 9901.408 clearly 

indicates that a supervisor may give an 

evaluation to an employee on a timelimited appointment of less than 90 

days. Any recognition for performance 

would be under 5 U.S.C. chapter 45. 

These employees, for the most part, 

would not be eligible for pay pool 

payouts. Section 9901.407 provides the 

requirement to meet the minimum 

period of performance of 90 days to be 

eligible for a rating of record and 

possible performance payout. 

Conceivably, an individual could gain 

eligibility for an NSPS rating of record 

and pay pool payout by moving to a 

time-limited appointment of longer 

duration. However, there is no conflict 

or overlap between the two processes as 

they involve different eligibility 

requirements. No change has been made 

to the proposed regulation based on this 

comment. 

Section 9901.409—Monitoring and 

Developing Performance 

Section 9901.409 establishes the basic 

responsibility for supervisors to monitor 

employee and organizational 

performance and inform employees of 

their progress in meeting their 

performance expectations. Comments 

on this section were generally favorable, 

with most commending the section’s 

inclusion. 

One commenter suggested adding to 

§ 9901.409(a)(3) a requirement for an 

interim performance review during 

periods of performance of less than 180 

days if it is determined that an 

employee is not meeting performance 

expectations. Section 9901.410 provides 

requirements and criteria for addressing 

performance that does not meet 

expectations. That section clearly 

requires identification and 

communication of specific performance 

deficiencies whenever an employee’s 

performance is not meeting 

expectations. This guidance is 

applicable without regard to the length 

of the appointment. Since a requirement 

for similar communication is already 

provided, no change has been made to 

the proposed regulation based on this 

comment. 

One commenter requested 

clarification as to how the 

developmental process detailed in 

§ 9901.409(b) can be a shared 

responsibility between management and 

employees. While we recognize that 

§ 9901.409 has a management focus as it 

pertains to performance development, 

all identified processes require dialog 

between both the supervisor and the 

employee. Both parties must apply and 

be receptive to constructive 

collaboration. In addition, it is 

incumbent on employees to initiate 

conversation with their supervisors to 

pursue development options when 

needed to improve their performance, as 

well as to independently pursue 

education and training that may help 

them advance. In recognition of these 

employee-initiated actions for 

developing performance, the proposed 

regulation has been modified to reflect 

that performance development options 

are ‘‘not limited to’’ those described in 

this section of the regulation. 

Another commenter requested revised 

language requiring ongoing feedback to 

employees, in addition to the one 

required by the interim review, to be in 

writing. This commenter indicated the 

purpose of requiring all feedback occur 

in writing was to ensure employee 

participation in his/her own 

performance development and avoid 

confusion that may result from only oral 

feedback. Face-to-face and oral 

communications serve to enhance 

supervisor/employee relationships as 

well as minimize misunderstanding as 

the give-and-take in oral communication 

allows for immediate feedback and 

clarification of confusing points. 

Feedback might be as simple as ‘‘good 

job on the briefing.’’ These short 

feedback communications may 

periodically occur in writing, but to 

require all such feedback to be written 

mstockstill on PROD1PC66 with RULES2

56386 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

diminishes the opportunity for the kind 

of face-to-face communication that 

helps clarify communication and 

enhance the supervisor/employee 

relationships. No change has been made 

to the proposed regulation based on this 

comment. 

Section 9901.410—Addressing 

Performance That Does Not Meet 

Expectations 

Section 9901.410 establishes the 

process for addressing poor performance 

under NSPS and the responsibility of 

the supervisor to address such 

situations. 

Comments on this section criticized 

the perceived focus on negative 

alternatives available to a supervisor for 

addressing performance that does not 

meet performance expectations. 

Suggestions include adding a list that 

details the developmental options 

available to the supervisor. The 

proposed regulation provides positive 

alternatives for developing performance 

as identified in § 9901.409. These are 

viable options for managers to consider 

but may not be appropriate in all 

situations. Additionally, among the 

options described in § 9901.410 are such 

positive steps as training, improvement 

periods and reassignments. No change 

has been made to the proposed 

regulation based on this comment. 

Another commenter suggested that 

there is not enough distinction between 

addressing poor performance and taking 

outright adverse action against an 

employee. The commenter noted that 

language should be added stating that 

employees will be provided a 

reasonable opportunity to improve 

performance prior to initiation of an 

adverse action. The commenter 

suggested adding a section regarding 

periods for employee improvement. 

Section 9901.410(a)(2) lists the range of 

options available to a supervisor, among 

which adverse action is but one option 

available. Because this section already 

lists an employee improvement period 

among the options available to a 

supervisor, we feel that NSPS provides 

sufficient options alongside the 

developmental alternatives in 

§ 9901.409 to give the supervisor 

appropriate tools with which to address 

poor performance. No change has been 

made to the proposed regulation based 

on this comment. 

Section 9901.411—Appraisal Period 

Section 9901.411 sets forth the dates 

to be associated with annual appraisal 

periods and ratings of record. 

One commenter requested the 

inclusion in § 9901.411(a)(3) of 

applicable circumstances when an 

employee can receive an early annual 

recommended rating. We agree with this 

recommendation and have added 

§ 9901.412(l) to identify situations when 

an early annual recommendation rating 

of record will be issued. 

In addition, a commenter 

recommended using July 3 rather than 

July 1 as the beginning of the time 

period for early annual recommended 

ratings, since July 3 is the exact 

beginning of the 90-day minimum 

period prior to the end of the appraisal 

period. We agree and have modified 

§ 9901.411(a)(3) to make this change. 

Another commenter expressed 

concern regarding the circumstances for 

extending the appraisal period. In 

particular, the commenter questioned 

whether the extension could be used to 

give favored employees an unfair 

amount of time to improve performance, 

and whether the funds to pay the 

affected employee alter the pay pool 

funds available for the following year. 

The language in § 9901.411 clearly 

outlines the requirements for using an 

extended appraisal period. These 

criteria limit the extension of an 

appraisal period to the purpose of 

allowing an employee to meet the 

minimum period. Further, the 

regulation specifies that an extension of 

the appraisal period cannot delay the 

payout for the applicable pay pool. 

Therefore, current year funding will be 

used for payouts provided to employees 

who complete extended appraisal 

periods and receive ratings of record. No 

change has been made to the proposed 

regulation based on this comment. 

However, to ensure a clear 

understanding of the effective date for 

this type of action, we added 

§ 9901.411(d) to the regulation. 

Section 9901.412—Rating and 

Rewarding Performance 

Section 9901.412 identifies 

responsibilities of the rating official and 

the Pay Pool Panel and specifies the 

requirements associated with 

accomplishing employee ratings of 

record to reward employee performance. 

Many commenters felt that the 

authority granted to the Pay Pool 

Manager and the Pay Pool Panel to 

adjust recommended ratings of record is 

inappropriate and that the authority for 

an employee’s rating of record should 

rest solely with individuals directly 

aware of the employee’s performance. 

Many expressed concern that the 

proposed regulations do not require pay 

pool authorities to have any exposure to 

the employee being rated, which could 

result in changing ratings to ease the 

organizational payout structure without 

providing justification for such changes. 

Another commenter suggested that Pay 

Pool Manager authority may violate the 

system requirement for a fair, credible, 

and transparent employee performance 

system. One commenter specifically 

suggested revising § 9901.412(e) so that 

a Pay Pool Manager must afford the 

rating official and the employee due 

process to review any proposed change 

in rating, and that the Pay Pool Manager 

must base any subsequent change on 

review of written documentation from 

both the official and the employee. 

The Pay Pool Manager is given final 

authority to assign ratings of records to 

employees in NSPS in accordance with 

merit system principles. Per the 

discussion under Major Issues, the 

ability of Pay Pool Panels and Pay Pool 

Managers to adjust recommended 

ratings of record reinforces equity across 

and within pay pools and is a necessary 

safeguard when rewarding performance 

from a shared performance fund (i.e. 

pay pool). Because the nature of NSPS 

jobs necessitates use of narrative 

performance standards, it is possible for 

supervisors to interpret the performance 

criteria differently, to the advantage or 

disadvantage of others in the pay pool. 

Using a multi-member Pay Pool Panel to 

reconcile ratings ensures a common 

understanding of criteria across the pay 

pool and ensures equity and fairness of 

ratings within the pay pool. Any 

employee who disagrees with the Pay 

Pool Manager’s determination may 

request reconsideration of the rating or 

job objective rating in accordance with 

§ 9901.413. If an employee disagrees 

with the reconsideration decision of the 

Pay Pool Manager, the Performance 

Review Authority provides an extra 

level of review and will make the final 

decision on all reconsideration requests 

pertaining to job objective ratings or 

ratings of record. The Performance 

Review Authority only applies 

performance-related criteria, in a 

manner consistent with its application 

throughout the rest of the pay pool, in 

making decisions on reconsideration 

requests. Requiring criteria be applied 

in the same manner across the pay pool 

ensures that employees working at the 

same level are rated equitably. In 

response to comments to ensure the 

level of management in the best position 

to observe an employee’s work is 

‘‘heard’’ before a recommended rating is 

changed, we added a new paragraph at 

§ 9901.412(f) to specify the Pay Pool 

Panel responsibility for affording the 

rating official an opportunity to justify 

a recommended rating of record before 

it is changed by the Pay Pool Panel. 

Some commenters questioned the 

absence of an independent review 

authority to identify and remedy 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56387 

malfeasance by the applying agency. 

The commenter expressed concern that 

a review will go to the same people 

making the initial rating. The 

Performance Review Authority provides 

an additional level of review beyond 

those involved in making the initial 

rating, functions as the ultimate 

administrative review authority, and 

makes the final decisions in the rating 

process. No change has been made to 

the proposed regulation based on this 

comment. 

Some commenters lauded the 

inclusion of § 9901.412(a) as needed 

protection for NSPS employees. Others, 

however, felt that the rating process 

encouraged the forced distribution of 

ratings as employees are advised that 

most will receive a Level 3 rating of 

record. While NSPS designs 

performance criteria to make 

distinctions in performance, the 

regulations and agency practice prohibit 

requiring any specified number of 

ratings at a particular rating level. 

Rather, the distribution of ratings has 

shifted as a result of standards that 

challenge employees and set a higher 

bar for higher-level performance. These 

standards enable more meaningful 

distinctions among performers. The past 

2 years have demonstrated that the 

NSPS criteria successfully distinguish 

and reward multiple levels of 

performance. Identified performance 

indicators, upon which rating 

determinations are based, define and 

provide further amplification of 

performance levels. The change in the 

distribution of ratings as a result of the 

new criteria, however, does not equate 

to the concept of ‘‘forced rating 

distribution’’. Forced rating distribution 

occurs when management requires a 

certain percent of the population to be 

placed in a certain rating level 

regardless of how employee 

performance compares to performance 

criteria. This is not how NSPS 

functions. No change has been made to 

the proposed regulation based on these 

comments. 

While the implication by at least one 

commenter was that a Level 3 rating of 

record reflects average performance, in 

fact, Level 3 performance recognizes 

those employees who performed their 

identified responsibilities in a ‘‘valued’’ 

manner and in doing so effectively met 

all of their performance expectations. 

NSPS reserves higher-level ratings for 

employees who have significantly 

exceeded performance expectations. No 

change has been made to the proposed 

regulation based on these comments. 

Some commenters requested more 

guidance in § 9901.412(d), renumbered 

as § 9901.412(e). The concern was that 

the current guidance led supervisors to 

believe they did not need to connect a 

committed misconduct to the 

employee’s ability to perform up to 

expectations in order to use it to affect 

an employee’s rating of record. Such an 

understanding is inconsistent with the 

Department’s own guidance on the 

matter. Another commenter stated that 

after-the-fact determinations that other 

conduct had an adverse ‘‘impact on the 

execution’’ of an employee’s duties is 

not a proper basis for reducing a rating 

of record below that warranted by the 

extent to which the employee met or 

exceeded the written performance 

expectations, and that if the conduct 

could be classified as misconduct it 

should be handled as a disciplinary 

matter. 

Under NSPS, to consider the impact 

of employee misconduct on 

performance, there must be a nexus 

between the impact of the misconduct 

and the execution of the employee’s 

duties or those of the team or 

organization. While the supervisor will 

not reference the misconduct on the 

employee’s rating of record, the 

supervisor may consider how the 

underlying misconduct negatively 

impacts the employee’s performance, 

that of his or her co-workers, or the 

organization’s productivity. In response 

to these comments, and to provide 

clarity, we revised the regulation at 

§ 9901.412(d), renumbered as 

§ 9901.412(e), to capture essentially 

what occurs today when considering the 

impact of work-related misconduct on 

an employees’ job performance in any 

performance management system. 

One commenter suggested revising 

§ 9901.412(f), renumbered as 

§ 9901.412(h), requiring the rating 

official to communicate the payout 

distribution to the employee along with 

the final rating of record and number of 

shares. The commenter also requested 

adding a sentence to this section 

indicating that this information will not 

be communicated to the employee until 

the final rating of record has been 

approved by the Pay Pool Manager. We 

agree with part of the recommendation 

and revised § 9901.412(f), renumbered 

as § 9901.412 (h), to add payout 

distribution to the information 

communicated to the employee by the 

rating official. However, we believe the 

regulation is clear that a rating is only 

a recommendation until it becomes final 

upon completion of all appropriate 

review and signatures and have made 

no change to the proposed regulation 

based on this comment. 

A commenter indicated confusion 

between language not allowing leave to 

be credited toward meeting the 

minimum period and the requirement 

that the rating of record cannot be 

lowered based on approved absence 

from work. To avoid such confusion, we 

modified § 9901.412(g), renumbered as 

§ 9901.412(i) to clarify that this 

requirement only pertains after the 

minimum period has been met. 

One commenter suggested the 

inclusion of language prohibiting the 

use of roll-over ratings from preceding 

reviews for subsequent review periods. 

Similar to other Governmentwide 

performance management systems, the 

definitions of ‘‘performance’’ and 

‘‘rating of record’’ reflect that a rating of 

record involves evaluation of an 

employee’s performance of assigned 

duties. Roll-over ratings are 

inappropriate as they provide 

employees ratings of record for work not 

performed during the period being 

evaluated. We revised § 9901.412(h), 

renumbered as § 9901.412(j), to add that 

ratings of record prepared for a previous 

appraisal period will not be carried over 

to subsequent appraisal periods without 

an actual evaluation of the employee’s 

performance during the subsequent 

appraisal period. 

A few commenters noted that 

§ 9901.412(h)(3)(iii), renumbered as 

§ 9901.412(j)(3)(iii), gives leeway to the 

Secretary to use ratings of record for 

unspecified purposes in the future. The 

commenters requested that the 

Department either delete these 

authorities or specify these purposes in 

the regulation as opposed to 

implementing issuances. The Secretary 

will identify these purposes as the 

Department develops future programs 

and policies. These purposes will be 

identified in implementing issuances. 

No change was made to the proposed 

regulations based on these comments. 

Finally, a commenter suggested that 

§ 9901.412(j), renumbered as 

§ 9901.412(m), needed clarification to 

show how the ratings discussed in this 

section differed from a close-out rating. 

This section permits a supervisor or 

rating official to prepare an assessment 

for an employee at any time after the 

employee has completed the minimum 

period. An example of such an 

assessment would be the close-out 

assessment developed for informational 

purposes by a supervisor or rating 

official when they leave a position for 

which they had rating responsibility for 

an employee. This assessment is 

provided to the new supervisor as input 

for use in determining the employee’s 

rating of record at the end of the 

appraisal period. We agree with the 

comment and revised this paragraph to 

clarify our intent. 

mstockstill on PROD1PC66 with RULES2

56388 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

One commenter noted that, at present, 

the proposed regulation does not list 

specific guidance for those employees in 

environments where supervisor 

turnover is frequent. The commenter 

expresses concern that an NSPS 

employee would not be given a fair 

rating by an interim supervisor and that 

a new permanent supervisor, once 

appointed, would not have adequate 

information to rate the employee 

correctly. DoD is committed to extensive 

training for managers, supervisors, and 

employees so that they understand the 

requirements of the performance 

management system. Further, DoD is 

committed to training managers and 

supervisors, including military 

members, on how to establish and 

communicate performance expectations, 

how to assess employee performance, 

and how to appropriately translate that 

assessment into pay adjustments. In 

addition, under § 9901.412(j), 

renumbered as § 9901.412(m), we added 

the requirement that supervisors and 

rating officials may prepare a 

performance assessment to provide 

continuity of ratings upon transfer of a 

supervisor or employee, which helps to 

ensure that the new supervisor has a 

clear understanding of employee 

performance and contributions. 

Section 9901.413—Reconsideration of 

Ratings 

Section 9901.413 specifies the roles 

and responsibilities of the officials with 

authority to make reconsideration 

decisions. 

One commenter suggested that a fair 

appeals process be established for 

employees to appeal their payout or lack 

of payout. Another commenter 

indicated a concern that employees 

have no appeal or grievance rights. Also 

a commenter suggested revising 

§ 9901.413(a) to give MSPB jurisdiction 

and stated that MSPB must be given the 

authority to review performance rating 

reconsideration requests and grievances 

by employees who have a good reason 

to believe that their employing 

organizations have violated merit 

system principles. This section clearly 

states the process for an employee to 

challenge his or her rating of record or 

job objective through the NSPS 

reconsideration process. This 

reconsideration process does not 

preclude appropriate challenges in 

statutory forums or exclude appeals 

through other avenues. No changes have 

been made to the proposed regulation 

based on these comments. 

Commenters noted that § 9901.413(b) 

indicates that bargaining unit employees 

may only challenge a rating of record 

under negotiated grievance procedures. 

One commenter noted that this 

condition was a violation of the NDAA 

2008 and that the language should be 

clarified to not exclude appeals filed 

under Equal Employment Opportunity 

Commission, Office of Special Counsel, 

or Federal Labor Relations Authority 

domain. This section of the regulation 

recognizes the requirements of 5 U.S.C. 

7121(a)(1) and does not violate the 

NDAA 2008. The other avenues 

mentioned are still open to employees. 

This provision does not prevent an 

employee from using any statutory 

appeals procedure, if appropriate, and 

does not prevent bargaining unit 

employees from using the agency 

reconsideration process if these matters 

are excluded in the negotiated grievance 

procedure. It simply notes that the 

negotiated grievance procedure is the 

exclusive ‘‘administrative’’ procedure 

available to bargaining unit employees 

where such procedures exist. No change 

has been made to the proposed 

regulation based on these comments. 

Another commenter requested that 

the language be amended to include 

payouts under the jurisdiction of the 

negotiated grievance process. This 

provision does not impact the ability of 

the parties to negotiate on a negotiated 

grievance procedure. Payout decisions 

are not explicitly excluded from, nor are 

they covered by, negotiated grievance 

procedures because of any provision of 

the regulation. To the extent that 

matters related to NSPS payout 

decisions can be covered by a negotiated 

grievance procedure they are, but any 

grievance arbitration decision must be 

consistent with these regulations and 5 

U.S.C. 9902, a requirement of 5 U.S.C. 

7122. No change has been made to the 

proposed regulation based on these 

comments. 

A commenter requested clarification 

in § 9901.413(c) regarding whether a 

payout recalculation is based only on a 

change to the rating of record. Another 

commenter expressed concern that the 

language in § 9901.413(c) does not state 

clearly that the payout will be 

recalculated based on the share range 

for the rating of record assigned upon 

reconsideration. We agree and revised 

this section to add language clarifying 

that, in the event a reconsideration 

results in an adjusted job objective 

rating or rating of record, the Pay Pool 

Manager will recalculate the employee’s 

performance payout amount and 

distribution; and salary adjustments will 

be based on the share range appropriate 

for the adjusted rating of record as 

identified in § 9901.342(f). 

Another commenter noted that this 

paragraph does not provide enough 

information about the authority of the 

Pay Pool Manager. No change has been 

made to the proposed regulation based 

on this comment since the authority and 

responsibilities of the Pay Pool Manager 

do not vary during the reconciliation 

process. 

Finally, one commenter 

recommended adding a paragraph to 

§ 9901.413 suggesting the use of 

alternative dispute resolution 

techniques to resolve disputes regarding 

reconsideration of ratings. We agree and 

revised this section to add language 

clarifying the use of alternative dispute 

resolution is permissible within the 

reconsideration process. 

VI. Next Steps 

The National Defense Authorization 

Act for Fiscal Year 2008 requires that 

this rule be considered a major rule for 

the purpose of section 801 of title 5, 

United States Code. As such, before it 

can take effect, the Department will 

submit to each House of the Congress 

and to the Comptroller General a report 

containing the rule, a general statement 

relating to the rule, and the proposed 

effective date of the rule. The rule may 

not be effective until the date occurring 

60 days after the later of (1) 

Congressional receipt of the report, or 

(2) the date the rule is published in the 

Federal Register. Congress has the 

opportunity to delay implementation of 

the rule based on the procedures set 

forth in 5 U.S.C. 801–808. 

DoD intends to continue 

implementing the new NSPS HR system 

in phases or spirals. The Act provides 

that not more than 100,000 employees 

may be added to the System in any 

calendar year. As has been the case from 

the beginning, NSPS continues to be an 

event-driven system, and no decisions 

have been made at this time regarding 

when or whether additional groups or 

organizations will be converted to NSPS 

during calendar year 2009 and beyond. 

Such decisions will be based on the best 

interests of the Department. 

The Act also requires the Comptroller 

General to conduct annual reviews in 

calendar years 2008, 2009, and 2010. 

The reviews will address— 

(1) Employee satisfaction with the 

National Security Personnel System, 

and 

(2) The extent to which the 

Department of Defense has effectively 

implemented accountability 

mechanisms and internal safeguards. 

DoD will fully support the Comptroller 

General in any review of the System. 

E.O. 12866, Regulatory Review 

DoD and OPM have determined that 

this action is a significant regulatory 

action within the meaning of Executive 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56389 

Order 12866 because there is significant 

public interest in the National Security 

Personnel System. DoD and OPM have 

analyzed the expected costs and benefits 

of the revised HR system, and that 

analysis is presented below. 

Among the NSPS requirements is to 

maintain a system that is competitive, 

cost effective, and fiscally sound, while 

also being flexible, credible, and trusted. 

NSPS will allow DoD to move towards 

market-sensitive pay, to continue pay 

increases based on performance, and to 

have the flexibility to offer competitive 

salaries. While these flexibilities will 

improve DoD’s ability to attract and 

retain a high-performing workforce, 

actual payroll costs under this system 

are constrained by the amount budgeted 

for overall DoD payroll expenditures, as 

is the case with the present GS pay 

system. 

The continuing implementation of 

NSPS will result in some additional 

program implementation costs. This 

includes delivering training specifically 

for NSPS, conducting outreach to 

employees and other parties, and 

improving automated systems 

associated with NSPS performance 

management. 

As has been the practice with 

implementing NSPS and other 

alternative personnel systems, DoD 

expects to incur an initial payroll cost 

related to the conversion of employees 

to the pay banding system. This 

includes a within-grade increase (WGI) 

‘‘buyout,’’ in which an employee’s basic 

pay, upon conversion, is adjusted by the 

amount of the WGI earned to date. 

While this increase is paid earlier than 

scheduled, it represents a cost that 

would have been incurred under the 

current system at some point. However, 

under NSPS, WGIs no longer exist. Once 

covered employees are under NSPS, 

such pay increases will be based on 

performance. Accordingly, the total cost 

of the accelerated WGI ‘‘buyout’’ is not 

treated as a ‘‘new’’ cost attributed to 

implementation of NSPS, since it is a 

cost that DoD would bear under the 

current HR system. The portion of the 

WGI buyout cost attributable to NSPS 

implementation is the marginal 

difference between paying out the 

earned portion of a WGI upon 

conversion and the cost of paying the 

same WGI according to the current 

schedule. The marginal cost of the 

accelerated payment of earned WGIs is 

difficult to estimate, but is not a 

significant factor in the cost benefit 

analysis for regulatory review purposes. 

DoD estimates the overall costs 

associated with continuing to 

implement NSPS to all eligible 

employees will be approximately $143 

million from Fiscal Years 2009 through 

2011. If it is determined that a category 

of eligible employees will not be 

converted to NSPS, these costs will 

decrease significantly. Accordingly, 

these estimates are based upon past 

experience, guidance from the 

Comptroller General, and ensuring that 

implementation costs are determined in 

the same way across the services and 

Defense Agencies and captured in 

official accounting systems. 

The primary benefit to the public of 

NSPS resides in the HR flexibilities that 

will enable DoD to attract, build, and 

retain a high-performing workforce 

focused on effective and efficient 

mission accomplishment. A 

performance-based pay system that 

rewards excellent performance will 

result in a more qualified and proficient 

workforce and will generate a greater 

return on investment in terms of 

productivity and effectiveness. Taken as 

a whole, the changes included in these 

proposed regulations will improve upon 

the original NSPS regulations and result 

in a contemporary, merit-based HR 

system that focuses on performance, 

generates respect and trust, and 

supports the primary mission of DoD. 

This rule has been reviewed by the 

Office of Management and Budget in 

accordance with E.O. 12866. 

Regulatory Flexibility Act 

DoD and OPM have determined that 

these regulations would not have a 

significant economic impact on a 

substantial number of small entities 

because they would apply only to 

Federal agencies and employees. 

Paperwork Reduction Act of 1995 (44 

U.S.C. chapter 35) 

This proposed regulatory action will 

not impose any additional reporting or 

recordkeeping requirements under the 

Paperwork Reduction Act. 

E.O. 12988, Civil Justice Reform 

This proposed regulation is consistent 

with the requirements of E.O. 12988. 

The regulation clearly specifies the 

effects on existing Federal law or 

regulation; provides clear legal 

standards; has no retroactive effects; 

specifies procedures for administrative 

and court actions; defines key terms; 

and is drafted clearly. 

E.O. 13132, Federalism 

DoD and OPM have determined these 

proposed regulations would not have 

Federalism implications because they 

would apply only to Federal agencies 

and employees. The proposed 

regulations would not have financial or 

other effects on States, the relationship 

between the Federal Government and 

the States, or the distribution of power 

and responsibilities among the various 

levels of government. 

Unfunded Mandates 

These proposed regulations would not 

result in the expenditure by State, local, 

or tribal governments of more than $100 

million annually. Thus, no written 

assessment of unfunded mandates is 

required. 

List of Subjects in 5 CFR Part 9901 

Administrative practice and 

procedure, Government employees, 

Labor management relations, Labor 

unions, Reporting and recordkeeping 

requirements, Wages. 

Office of Personnel Management. 

Michael W. Hager, 

Acting Director, Office of Personnel 

Management. 

Department of Defense. 

Gordon England, 

Deputy Secretary of Defense. 

■ Accordingly, under the authority of 

section 9902 of title 5, United States 

Code, the Department of Defense and 

the Office of Personnel Management are 

revising part 9901 of title 5, Code of 

Federal Regulations to read as follows: 

PART 9901—DEPARTMENT OF 

DEFENSE NATIONAL SECURITY 

PERSONNEL SYSTEM (NSPS) 

Subpart A—General Provisions 

Sec. 

9901.101 Purpose. 

9901.102 Eligibility and coverage. 

9901.103 Definitions. 

9901.104 Scope of authority. 

9901.105 OPM coordination and approval. 

9901.106 Relationship to other provisions. 

9901.107 Program evaluation. 

Subpart B—Classification 

General 

9901.201 Purpose. 

9901.202 Coverage. 

9901.203 Waivers. 

9901.204 Definitions. 

Classification Structure 

9901.211 Career groups. 

9901.212 Pay schedules and pay bands. 

Classification Process 

9901.221 Classification requirements. 

9901.222 Review of classification decisions. 

9901.223 Appeal to DoD for review of 

classification decisions. 

9901.224 Appeal to OPM for review of 

classification decisions. 

Transitional Provisions 

9901.231 Conversion of positions and 

employees to NSPS classification system. 

mstockstill on PROD1PC66 with RULES2

56390 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

Subpart C—Pay and Pay Administration 

General 

9901.301 Purpose. 

9901.302 Coverage. 

9901.303 Waivers. 

9901.304 Definitions. 

9901.305 Rate of pay. 

Overview of Pay System 

9901.311 Major features. 

9901.312 Maximum rates of base salary and 

adjusted salary. 

9901.313 Aggregate compensation 

limitations. 

9901.314 National security compensation 

comparability. 

Rate Ranges and General Salary Increases 

9901.321 Structure. 

9901.322 Setting and adjusting rate ranges. 

9901.323 Eligibility for general salary 

increase. 

Local Market Supplements 

9901.331 General. 

9901.332 Standard and targeted local 

market supplements. 

9901.333 Setting and adjusting local market 

supplements. 

9901.334 Eligibility for pay increase 

associated with a supplement 

adjustment. 

Performance-Based Pay 

9901.341 General. 

9901.342 Performance payouts. 

9901.343 Pay reduction based on 

unacceptable performance and/or 

conduct. 

9901.344 Other performance payments. 

9901.345 Accelerated Compensation for 

Developmental Positions (ACDP). 

Pay Administration 

9901.351 General. 

9901.352 Setting an employee’s starting 

pay. 

9901.353 Setting pay upon reassignment. 

9901.354 Setting pay upon promotion. 

9901.355 Setting pay upon reduction in 

band. 

9901.356 Pay retention. 

Premium Pay 

9901.361 General provisions. 

9901.362 Modification of standard 

provisions. 

9901.363 Premium pay for health care 

personnel. 

9901.364 Foreign language proficiency pay. 

Conversion Provisions 

9901.371 Conversion into NSPS pay 

system. 

9901.372 Conversion or movement out of 

NSPS pay system. 

Subpart D—Performance Management 

9901.401 Purpose. 

9901.402 Coverage. 

9901.403 Waivers. 

9901.404 Definitions. 

9901.405 Performance management system 

requirements. 

9901.406 Setting and communicating 

performance expectations. 

9901.407 Minimum period of performance. 

9901.408 Employees on time-limited 

appointments. 

9901.409 Monitoring and developing 

performance. 

9901.410 Addressing performance that does 

not meet expectations. 

9901.411 Appraisal period. 

9901.412 Rating and rewarding 

performance. 

9901.413 Reconsideration of ratings. 

Authority: 5 U.S.C. 9902; sec. 1106(b), Pub. 

L. 110–181, 122 Stat. 3. 

Subpart A—General Provisions 

§ 9901.101 Purpose. 

(a) This part contains regulations 

governing the National Security 

Personnel System (NSPS) within the 

Department of Defense (DoD), as 

authorized by 5 U.S.C. 9902. Consistent 

with 5 U.S.C. 9902, as amended by 

section 1106 of the National Defense 

Authorization Act for Fiscal Year 2008 

(NDAA 2008), these regulations waive 

or modify various statutory provisions 

that would otherwise be applicable to 

affected DoD employees. These 

regulations are prescribed jointly by the 

Secretary of Defense and the Director of 

the Office of Personnel Management 

(OPM). The Secretary may establish 

implementing issuances to supplement 

any matter covered by these regulations. 

(b)(1) This part is designed to meet a 

number of essential requirements for the 

implementation of a new human 

resources management system for DoD. 

The guiding principles for establishing 

these requirements are to put mission 

first; respect the individual; protect 

rights guaranteed by law; support the 

statutory merit system principles in 5 

U.S.C. 2301; value talent, performance, 

leadership, and commitment to public 

service; be flexible, understandable, 

credible, responsive, and executable; 

ensure accountability at all levels; 

balance human resources system 

interoperability with unique mission 

requirements; and be competitive and 

cost effective. 

(2) The key operational characteristics 

and requirements of NSPS, which these 

regulations are designed to facilitate, are 

as follows: High-Performing Workforce 

and Management—employees and 

supervisors are compensated and 

retained based on their performance and 

contribution to mission; Agile and 

Responsive Workforce and 

Management—workforce can be easily 

sized, shaped, and deployed to meet 

changing mission requirements; 

Credible and Trusted—system assures 

openness, clarity, accountability, and 

adherence to the public employment 

principles of merit and fitness; Fiscally 

Sound—aggregate increases in civilian 

payroll, at the appropriations level, will 

conform to OMB fiscal guidance; 

Supporting Infrastructure—information 

technology support, and training and 

change management plans are available 

and funded; and Schedule—NSPS will 

be operational and demonstrate success 

prior to November 2009. 

§ 9901.102 Eligibility and coverage. 

(a) Pursuant to the provisions of 5 

U.S.C. 9902, civilian employees of DoD 

are eligible for coverage under one or 

more of subparts B through D of this 

part, except to the extent specifically 

prohibited by law. 

(b) At his or her sole and exclusive 

discretion, the Secretary may decide to 

apply subparts B through D to a specific 

category or categories of eligible civilian 

employees in organizations and 

functional units of the Department at 

any time in accordance with the 

provisions of 5 U.S.C. 9902, except that 

no more than 100,000 employees per 

year may be moved into NSPS. 

However, no category of employees may 

be covered by subparts B or C of this 

part unless that category is also covered 

by subpart D of this part. DoD will 

advise OPM in advance regarding the 

extension of NSPS coverage to specific 

categories of DoD employees under this 

paragraph. The Secretary will notify 

affected employees and labor 

organizations in accordance with the 

requirements of 5 U.S.C. chapter 71 

regarding a decision to extend NSPS 

coverage to any bargaining unit 

employees. 

(c) Until the Secretary makes a 

determination under paragraph (b) of 

this section to apply the provisions of 

one or more subparts of this part to a 

particular category or categories of 

eligible employees in organizations and 

functional units, those employees will 

continue to be covered by the applicable 

Federal laws and regulations that would 

apply to them in the absence of this 

part. All personnel actions affecting 

DoD employees will be based on the 

Federal laws and regulations applicable 

to them on the effective date of the 

action. 

(d) Any new NSPS classification, pay, 

and performance management system 

covering Senior Executive Service (SES) 

members will be consistent with the 

policies and procedures established by 

the Governmentwide SES pay-forperformance framework authorized by 5 

U.S.C. chapter 53, subchapter VIII, and 

applicable OPM regulations. If the 

Secretary determines that SES members 

employed by DoD should be covered by 

classification, pay, and performance 

management provisions that differ 

substantially from the Governmentwide 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56391 

SES pay-for-performance framework, 

the Secretary and the Director will issue 

joint regulations consistent with all of 

the requirements of 5 U.S.C. 9902. 

(e) At his or her sole and exclusive 

discretion, the Secretary may decide to 

rescind the application of one or more 

subparts of this part to a particular 

category of employees or an 

organization or functional unit, subject 

to § 9901.372 and any related 

implementing issuances. The Secretary 

will notify affected employees and labor 

organizations in advance of a decision 

to rescind the application of one or 

more subparts of this part to them. 

(f)(1) Notwithstanding any other 

provision of this part, but subject to 

paragraphs (f)(2) and (3) of this section, 

the Secretary may, at his or her sole and 

exclusive discretion, decide to apply 

one or more subparts of this part as of 

a specified effective date to a category 

of employees in organizational and 

functional units not currently eligible 

for coverage because of coverage under 

a system established by a provision of 

law outside the waivable or modifiable 

chapters of title 5, U.S. Code. 

(2) Paragraph (f)(1) of this section 

applies only if the provision of law 

outside those waivable or modifiable 

title 5 chapters provides discretionary 

authority to cover employees under a 

given waivable or modifiable title 5 

chapter or to cover them under a 

separate system established by the 

Secretary. 

(3) In applying paragraph (f)(1) of this 

section with respect to coverage under 

subparts B and C of this part, the 

affected employees will be converted 

directly to the NSPS pay system from 

their current pay system. The 

conversion of such employees into 

NSPS will be governed by the rules in 

§§ 9901.231and 9901.371 and applicable 

implementing issuances prescribed by 

the Secretary under §§ 9901.231(b) and 

9901.371(b). 

§ 9901.103 Definitions. 

In this part: 

Appraisal period means the period of 

time for reviewing employee 

performance (as described in 

§ 9901.411). 

Band means pay band. 

Basic pay means an employee’s pay 

before any deductions and exclusive of 

additional pay of any kind, except as 

expressly provided by applicable law or 

regulation. For the specific purposes 

prescribed in § 9901.331(d) only, basic 

pay includes any local market 

supplement. In subpart C, when basic 

pay is exclusive of any additional pay, 

the term ‘‘base salary’’ is used, and 

when basic pay includes a local market 

supplement, the term ‘‘adjusted salary’’ 

is used. 

Career group means a grouping of one 

or more associated or related 

occupations. A career group may 

include one or more pay schedules. 

Comparable pay band or comparable 

level of work means pay bands with the 

equivalent level of work, based on the 

NSPS classification structure, within 

and across varying pay schedules and 

career groups, regardless of the specific 

earning potential of the bands. When 

moving from a non-NSPS position to 

NSPS, the band of the NSPS position is 

determined to be at a comparable level 

of work to the grade or level of the nonNSPS position based on application of 

the NSPS classification structure, as 

described in implementing issuances. 

Competencies means the measurable 

or observable knowledge, skills, 

abilities, behaviors, and other 

characteristics that an individual needs 

to perform a particular job or job 

function successfully. 

Component means the Office of the 

Secretary of Defense (OSD), the Military 

Departments, Office of the Chairman of 

the Joint Chiefs of Staff and the Joint 

Staff, the Combatant Commands, the 

Office of the Inspector General of the 

Department of Defense, the Defense 

Agencies, the DoD Field Activities, and 

all other organizational entities in the 

Department of Defense. 

Contributing factor means attributes 

of job performance that are significant to 

the accomplishment of individual job 

objectives. 

Contribution means a work product, 

service, output, or result provided or 

produced by an employee or group of 

employees that supports the 

Departmental or organizational mission, 

goals, or objectives. 

Day means a calendar day, unless 

expressly provided otherwise under 

applicable law or regulations. 

Department or DoD means the 

Department of Defense. 

Director means the Director of the 

Office of Personnel Management. 

Employee has the meaning given that 

term in 5 U.S.C. 2105. 

General Schedule or GS means the 

General Schedule classification and pay 

system established under chapter 51 

and subchapter III of chapter 53 of title 

5, U.S. Code. 

Higher pay band or higher level of 

work means a pay band designated to be 

a higher level of work than an 

employee’s currently assigned band, 

based on the NSPS classification 

structure, either within or across 

varying pay schedules and career 

groups, regardless of the specific 

earning potential of the band. When 

moving from a non-NSPS position to 

NSPS, the band of the NSPS position is 

determined to be at a higher level of 

work than the grade or level of the nonNSPS position based on application of 

the NSPS classification structure, as 

described in implementing issuances. 

Implementing issuance(s) means a 

document or documents issued by the 

Secretary, Deputy Secretary, Principal 

Staff Assistants (as authorized by the 

Secretary), or Secretaries and Under 

Secretaries of the Military Departments 

to establish or carry out a policy or 

procedure implementing this part. 

These issuances may apply Departmentwide or to any part of DoD as 

determined by the Secretary. 

Job objective means an expression of 

performance expectations in the 

performance plan that is aligned with 

the organization’s goal(s) and 

mission(s). 

Lower pay band or lower level of work 

means a pay band designated to be a 

lower level of work than an employee’s 

currently assigned band, based on the 

NSPS classification structure, either 

within or across varying pay schedules 

and career groups, regardless of the 

specific earning potential of the band. 

When moving from a non-NSPS 

position to NSPS, the band of the NSPS 

position is determined to be at a lower 

level of work than the grade or level of 

the non-NSPS position based on 

application of the NSPS classification 

structure, as described in implementing 

issuances. 

Military Department means the 

Department of the Army, the 

Department of the Navy, or the 

Department of the Air Force. 

National Security Personnel System 

(NSPS) means the human resources 

management system established under 5 

U.S.C. 9902(a) and the regulations in 

this part. 

Occupational series means a group or 

family of positions performing similar 

types of work. Occupational series are 

assigned a number for workforce 

information purposes (e.g., 0110, 

Economist Series; 1410, Librarian 

Series). 

OPM means the Office of Personnel 

Management. 

Pay band or band means a work level 

and associated pay range within a pay 

schedule. 

Pay pool means the organizational 

elements/units or other categories of 

employees that are combined for the 

purpose of determining performance 

payouts. Each employee is in only one 

pay pool at a time. Pay pool also refers 

to the funds designated for performance 

payouts to employees covered by a pay 

pool. 

mstockstill on PROD1PC66 with RULES2

56392 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

Pay Pool Manager means the 

management official designated to 

manage the pay pool, resolve 

discrepancies, ensure consistency and 

equity within the pay pool, and approve 

recommendations concerning employee 

rating of record, share assignment, and 

payout distribution between base salary 

increases and bonuses. 

Pay Pool Panel means management 

officials of the organizations or 

functions represented in the pay pool 

who assist the Pay Pool Manager in the 

reconciliation of recommended ratings 

of record, share assignments, and 

payout distribution. The Pay Pool Panel 

includes the Pay Pool Manager. 

Pay schedule means a set of related 

pay bands for a specified category of 

employees within a career group. 

Performance means accomplishment 

of work assignments or responsibilities 

and contribution to achieving 

organizational goals, including an 

employee’s behavior and professional 

demeanor (actions, attitude, and manner 

of performance), as demonstrated by his 

or her approach to completing work 

assignments. 

Performance Review Authority means 

one or more management officials who 

manage and oversee the operation of 

one or more pay pools and ensure 

procedural and funding consistency 

among pay pools under its authority. 

Principal Staff Assistants means 

senior officials of the Office of the 

Secretary who report directly to the 

Secretary or Deputy Secretary of 

Defense. 

Promotion means the movement of an 

employee from one pay band to a higher 

pay band while continuously employed. 

This includes movement of an employee 

currently covered by a non-NSPS 

Federal personnel system to an NSPS 

position determined to be at a higher 

level of work. 

Rating of record means the final 

numerical rating and associated 

narrative justification assigned to a 

performance appraisal by a Pay Pool 

Manager— 

(1) After completion of an appraisal 

period covering an employee’s 

performance of assigned duties against 

performance expectations over the 

applicable period; or 

(2) As needed following an 

unacceptable rating of record to reflect 

a substantial and sustained change in 

the employee’s performance since the 

last rating of record. 

Reassignment means the movement of 

an employee, either employee-initiated 

or management-directed, to a different 

position or set of duties in the same or 

a comparable pay band while 

continuously employed. This includes 

the movement of an employee currently 

covered by a non-NSPS Federal 

personnel system to an NSPS position 

determined to be at a comparable level 

of work. 

Reduction in band means the 

voluntary or involuntary movement of 

an employee from one pay band to a 

lower pay band on a permanent basis 

while continuously employed. This 

includes movement of an employee 

currently covered by a non-NSPS 

Federal personnel system to an NSPS 

position determined to be at a lower 

level of work. 

Secretary means the Secretary of 

Defense, consistent with 10 U.S.C. 113. 

SES means the Senior Executive 

Service established under 5 U.S.C. 

chapter 31, subchapter II. 

SL/ST refers to an employee serving 

in a senior-level position paid under 5 

U.S.C. 5376. The term ‘‘SL’’ identifies a 

senior-level employee covered by 5 

U.S.C. 3324 and 5108. The term ‘‘ST’’ 

identifies an employee who is 

appointed under the special authority in 

5 U.S.C. 3325 to a scientific or 

professional position established under 

5 U.S.C. 3104. 

Unacceptable performance means 

performance of an employee which fails 

to meet one or more performance 

expectations, as amplified through work 

assignments or other instructions, for 

which the employee is held 

individually accountable. 

§ 9901.104 Scope of authority. 

The authority for this part is 5 U.S.C. 

9902. The provisions in the following 

chapters of title 5, U.S. Code, and any 

related regulations, may be waived or 

modified in exercising the authority in 

5 U.S.C. 9902: 

(a) Chapter 43, dealing with 

performance appraisal systems; 

(b) Chapter 51, dealing with General 

Schedule job classification; 

(c) Chapter 53, dealing with pay for 

General Schedule employees, and pay 

for certain other employees, except as 

provided in § 9901.303; and 

(d) Chapter 55, subchapter V, dealing 

with premium pay, except sections 5544 

and 5545b. 

§ 9901.105 OPM coordination and 

approval. 

(a) The Secretary will coordinate with 

or request approval from OPM in 

advance, as applicable, regarding the 

proposed promulgation of certain 

implementing issuances and certain 

other actions related to the ongoing 

operation of the NSPS where such 

actions could have a significant impact 

on other Federal agencies and the 

Federal civil service as a whole. Predecisional coordination under 

paragraph (b) of this section is intended 

as an internal DoD/OPM matter to 

recognize the Secretary’s special 

authority to direct the operations of DoD 

pursuant to title 10, U.S. Code, as well 

as the Director’s institutional 

responsibility to oversee the Federal 

civil service system pursuant to 5 U.S.C. 

chapter 11. Approval from OPM is 

required in certain circumstances, as 

provided in paragraph (c) of this 

section. 

(b) DoD will coordinate with OPM 

prior to— 

(1) Establishing or substantially 

revising career groups, occupational pay 

schedules, and pay bands under 

§§ 9901.211 and 9901.212(a); 

(2) Establishing alternative or 

additional qualification standards for a 

particular occupational series, career 

group, occupational pay schedule, and/ 

or pay band under § 9901.212(d) that 

significantly differ from 

Governmentwide standards; 

(3) Establishing alternative or 

additional occupational series for a 

particular career group or occupation 

under § 9901.221(b)(1) that differ from 

Governmentwide series and/or 

standards; 

(4) Establishing alternative or 

additional classification criteria for a 

particular career group or occupation 

under § 9901.221(b)(1) that differ from 

Governmentwide classification 

standards; 

(5) Establishing maximum rates of 

base salary under § 9901.312(a); 

(6) Establishing a higher adjusted 

salary rate cap for a designated category 

of positions under § 9901.312(d); 

(7) Approving waivers under 

§ 9901.313(a)(3) of the normally 

applicable aggregate compensation 

limit; 

(8) Establishing and adjusting pay 

ranges for occupational pay schedules 

and pay bands under §§ 9901.321(a) and 

9901.322; 

(9) Determining targeted general 

salary increases under § 9901.323(a)(2); 

and 

(10) Establishing and adjusting 

targeted local market supplements 

under §§ 9901.332(c) and 9901.333(b). 

(c) The Secretary will request 

approval from the Director prior to— 

(1) Establishing policies regarding the 

student loan repayment program under 

§ 9901.303(c) that differ from 

Governmentwide policies with respect 

to repayment amounts and service 

commitments; 

(2) Approving waivers of normally 

applicable premium pay limitations, as 

authorized under § 9901.362(a)(2); 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56393 

(3) Determining pay bands for which 

an FLSA-exempt employee is paid 

overtime at an hourly rate equal to the 

employee’s adjusted base salary hourly 

rate, as authorized under 

§ 9901.362(b)(6)(i); and 

(4) Establishing new hazardous duty 

pay categories under § 9901.362(i)(3). 

(d) When a matter requiring OPM 

coordination is submitted to the 

Secretary for decision, the Director will 

be provided an opportunity, as part of 

the Department’s normal coordination 

process, to review and comment on the 

recommendations and officially concur 

or nonconcur with all or part of them. 

The Secretary will take the Director’s 

comments and concurrence/ 

nonconcurrence into account, advise the 

Director of his or her determination, and 

provide the Director with reasonable 

advance notice of the effective date of 

the matter. Thereafter, the Secretary and 

the Director may take such action as 

they deem appropriate, consistent with 

their respective statutory authorities and 

responsibilities. 

(e) The Secretary and the Director 

fully expect their staffs to work closely 

together on the matters specified in this 

section, before such matters are 

submitted for official OPM coordination 

or approval and DoD decision, so as to 

maximize the opportunity for consensus 

and agreement before an issue is so 

submitted. 

§ 9901.106 Relationship to other 

provisions. 

(a)(1) The provisions of title 5, U.S. 

Code, are waived, modified, or replaced 

to the extent authorized by 5 U.S.C. 

9902 to conform to the provisions of this 

part. 

(2) This part must be interpreted in a 

way that recognizes the critical national 

security mission of the Department, and 

each provision of this part must be 

construed to promote the swift, flexible, 

effective day-to-day accomplishment of 

this mission, as defined by the 

Secretary. 

(b)(1) For the purpose of applying 

other provisions of law or 

Governmentwide regulations that 

reference provisions under chapters 43, 

51, 53, and 55 (subchapter V only), of 

title 5, U.S. Code, the referenced 

provisions are not waived but are 

modified consistent with the 

corresponding regulations in this part, 

except as otherwise provided in this 

part (including paragraph (c) of this 

section) or in implementing issuances. 

(2) If another provision of law or 

Governmentwide regulations require 

coverage under one of the chapters 

modified or waived under this part (i.e., 

chapters 43, 51, 53, and 55 (subchapter 

V only) of title 5, U.S. Code), DoD 

employees are deemed to be covered by 

the applicable chapter notwithstanding 

coverage under a system established 

under this part. Selected examples of 

provisions that continue to apply to any 

DoD employees (notwithstanding 

coverage under subparts B through D of 

this part) include, but are not limited to, 

the following: 

(i) Foreign language awards for law 

enforcement officers under 5 U.S.C. 

4521 through 4523; 

(ii) Pay for firefighters under 5 U.S.C. 

5545b; and 

(iii) Recruitment, relocation, and 

retention payments under 5 U.S.C. 5753 

through 5754. 

(c)(1) Law enforcement officer special 

base rates under section 403 of the 

Federal Employees Pay Comparability 

Act of 1990 (section 529 of Pub. L. 101– 

509) do not apply to employees who are 

covered by an NSPS classification and 

pay system established under subparts B 

and C of this part. 

(2) Physicians’ comparability 

allowances under 5 U.S.C. 5948 do not 

apply to employees covered by an NSPS 

classification and pay system 

established under subparts B and C of 

this part. 

(d) Nothing in this part waives, 

modifies or otherwise affects the 

employment discrimination laws that 

the Equal Employment Opportunity 

Commission (EEOC) enforces under 42 

U.S.C. 2000e et seq., 29 U.S.C. 621 et 

seq., 29 U.S.C. 791 et seq., and 29 U.S.C. 

206(d). 

§ 9901.107 Program evaluation. 

The Secretary will evaluate the 

regulations in this part and their 

implementation. 

Subpart B—Classification 

General 

§ 9901.201 Purpose. 

(a) This subpart establishes a 

classification structure and rules for 

covered DoD employees and positions 

to replace the classification structure 

and rules in 5 U.S.C. chapter 51, in 

accordance with the merit system 

principle that equal pay should be 

provided for work of equal value, with 

appropriate consideration of both 

national and local rates paid by 

employers in the private sector, and 

with appropriate incentives and 

recognition provided for excellence in 

performance. 

(b) The basis for determining the 

appropriate classification under NSPS is 

the primary duties and responsibilities 

of the position, level of difficulty, 

occupational qualifications, competency 

requirements, mission of the 

organization, and relationship of the 

position to other positions or 

organizational levels. 

(c) Any classification system 

prescribed under this subpart will be 

established in conjunction with the pay 

system described in subpart C of this 

part. 

§ 9901.202 Coverage. 

(a) This subpart applies to eligible 

DoD employees and positions listed in 

paragraph (b) of this section, subject to 

a determination by the Secretary under 

§ 9901.102(b) or (f). 

(b) The following employees of, or 

positions in, DoD organizational and 

functional units are eligible for coverage 

under this subpart: 

(1) Employees and positions that 

would otherwise be covered by the 

General Schedule classification system 

established under 5 U.S.C. chapter 51; 

(2) Employees in senior-level (SL) and 

scientific or professional (ST) positions 

who would otherwise be covered by 5 

U.S.C. 5376; 

(3) Members of the Senior Executive 

Service (SES) who would otherwise be 

covered by 5 U.S.C. chapter 53, 

subchapter VIII, subject to 

§ 9901.102(d); and 

(4) Such others designated by the 

Secretary as DoD may be authorized to 

include under 5 U.S.C. 9902. 

§ 9901.203 Waivers. 

(a) When a specified category of 

employees is covered by a classification 

system established under this subpart, 

the provisions of 5 U.S.C. chapter 51 are 

waived with respect to that category of 

employees, except as provided in 

paragraph (b) of this section, 

§§ 9901.106, and 9901.222(d) (with 

respect to OPM’s authority to act on 

requests for classification decisions 

under 5 U.S.C. 5112(b) and review of 

pay plans under 5 U.S.C. 5103). 

(b) Section 5108 of title 5, U.S. Code, 

dealing with the classification of 

positions above GS–15, is not waived 

for the purpose of defining and 

allocating Senior Executive Service 

(SES) positions under 5 U.S.C. 3132 and 

3133 or applying provisions of law 

outside the waivable and modifiable 

chapters of title 5, U.S. Code—e.g., 5 

U.S.C. 4507 and 4507a (regarding 

Presidential rank awards), 5 U.S.C. 

6303(f) (regarding annual leave accrual 

for members of the SES and employees 

in SL/ST positions), and 5 U.S.C. 

6304(f) (regarding annual leave ceilings 

for members of the SES and employees 

in SL/ST positions). 

§ 9901.204 Definitions. 

In this subpart: 

mstockstill on PROD1PC66 with RULES2

56394 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

Band has the meaning given that term 

in § 9901.103. 

Basic pay has the meaning given that 

term in § 9901.103. 

Career group has the meaning given 

that term in § 9901.103. 

Classification, also referred to as job 

evaluation, means the process of 

analyzing and assigning a job or 

position to an occupational series, 

official title, career group, pay schedule, 

and pay band for pay and other related 

purposes. 

Competencies has the meaning given 

that term in § 9901.103. 

Occupational series has the meaning 

given that term in § 9901.103. 

Official title means the position title 

prescribed in an NSPS classification 

standard or by supplemental 

Component guidance. 

Pay band or band has the meaning 

given that term in § 9901.103. 

Pay schedule has the meaning given 

that term in § 9901.103. 

Position or job means the duties, 

responsibilities, and related competency 

requirements that are assigned to an 

employee. 

Classification Structure 

§ 9901.211 Career groups. 

For the purpose of classifying 

positions, the Secretary may establish 

career groups based on factors such as 

mission or function; nature of work; 

qualifications or competencies; career or 

pay progression patterns; relevant labormarket features; and other 

characteristics of those occupations or 

positions. The Secretary will document 

in implementing issuances the criteria 

and rationale for grouping occupations 

or positions into career groups. 

§ 9901.212 Pay schedules and pay bands. 

(a) For purposes of identifying relative 

levels of work and corresponding pay 

ranges, the Secretary may establish one 

or more pay schedules within each 

career group. 

(b) Each pay schedule may include 

one or more pay bands. 

(c) The Secretary will document in 

implementing issuances the definitions 

for each pay band which specify the 

type and range of difficulty and 

responsibility, qualifications or 

competencies, or other characteristics of 

the work encompassed by the pay band. 

(d) The Secretary will— 

(1) Use qualification standards 

established or approved by OPM, or 

establish qualification standards for 

positions covered by NSPS, subject to 

§ 9901.105(b)(2); and 

(2) Designate qualification standards 

and requirements for each career group, 

occupational series, pay schedule, and/ 

or pay band. 

Classification Process 

§ 9901.221 Classification requirements. 

(a) The Secretary will develop a 

methodology for describing and 

documenting the duties, qualifications, 

and other requirements of categories of 

jobs, and will make such descriptions 

and documentation available to affected 

employees. 

(b) The Secretary will— 

(1) Assign occupational series to jobs 

consistent with occupational series 

definitions established by OPM under 5 

U.S.C. 5105, or by DoD; and 

(2) Apply the criteria and definitions 

required by §§ 9901.211 and 9901.212 to 

assign jobs to an appropriate career 

group, pay schedule, and pay band. 

(c) The Secretary will establish 

procedures for classifying jobs and may 

make such inquiries of the duties, 

responsibilities, and qualification 

requirements of jobs as he or she 

considers necessary for the purpose of 

this section. 

(d) A classification action is 

implemented by a personnel action, 

which, for encumbered positions, must 

be taken within a reasonable period of 

time following the effective date of the 

position classification action. For 

classification actions resulting from a 

DoD appeal decision, the personnel 

action must occur within four pay 

periods following the effective date of 

the decision, except when a subsequent 

date is specifically provided in the 

decision. If a classification action results 

in a reduction in an employee’s pay 

band or adjusted salary, the employee 

must be advised, in writing, of the 

action and proposed effective date of the 

personnel action at least 7 days before 

the personnel action is taken. The 

written notice will inform the employee 

of the reason for the reclassification, the 

right to appeal the classification 

decision, and the time limitations in 

§ 9901.223 within which the appeal 

must be filed to preserve applicable 

retroactive benefits. 

(e) Except as otherwise provided in 

this paragraph or required by law, the 

effective date of a classification action is 

the date the authorized management 

official certifies the classification 

decision (i.e., signs or electronically 

validates the position description). 

(1) A retroactive effective date for a 

classification action and the 

implementing personnel action is 

permitted only if the action resulted in 

a reduction in pay band or adjusted 

salary and if that action is subsequently 

reversed on appeal. 

(2) In order for a corrective action to 

be retroactive, the employee must file an 

initial request for review of the 

classification action with DoD or OPM 

not later than 15 calendar days after the 

personnel action effective date for the 

reduction in pay band or adjusted 

salary. 

(3) A retroactive date may be 

established only if the appeal reversal is 

based on the duties and responsibilities 

performed at the time of reduction. 

Retroactive action is mandatory under 

these circumstances. 

§ 9901.222 Review of classification 

decisions. 

(a) An individual employee may 

request that DoD or OPM review the 

classification (i.e., pay system, career 

group, occupational series, official title, 

pay schedule, or pay band) of his or her 

official position of record at any time. 

(b) Under this section, an employee 

may not appeal to either DoD or OPM 

the issues designated as nonappealable 

to the Office of Personnel Management 

in 5 CFR 511.607 or the accuracy of 

NSPS pay schedule and pay band 

classification criteria. Additional 

nonappealable issues covered under 

NSPS include— 

(1) Classification of a proposed 

position or one to which the employee 

is not officially assigned; 

(2) Classification of a position to 

which an employee is detailed, 

temporarily reassigned, or temporarily 

promoted, except for employees serving 

under a time-limited promotion or 

reassignment for 2 years or more; 

(3) Accuracy of the official position 

description, including the inclusion or 

exclusion of a duty (subject to paragraph 

(c) of this section); 

(4) Classification of a position based 

on position-to-position comparisons 

rather than the NSPS classification 

criteria; 

(5) Classification of a position for 

which a DoD or an OPM appeal decision 

was previously rendered unless there is 

a later change in the governing 

classification criteria or a material 

change in the requirements of the 

position; and 

(6) The accuracy of career group, pay 

band, or pay schedule classification 

criteria or standards contained in DoD 

issuances. 

(c) When the accuracy of the official 

position description is questioned by 

the employee, the employee will be 

advised to raise this issue informally 

with the employee’s supervisor or file a 

grievance using the applicable 

administrative or negotiated grievance 

procedure. If the employee elects to first 

raise this issue with the employee’s 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56395 

supervisor and the employee and the 

supervisor cannot resolve this issue, the 

accuracy of the position description 

may be determined using the applicable 

administrative or negotiated grievance 

procedure. If, after completing this 

procedure, the issue is not resolved, the 

classification appeal, if any, will be 

decided on the basis of the actual duties 

and responsibilities assigned by 

management and performed by the 

employee. 

(d) An employee may request that 

OPM review a DoD determination made 

under paragraph (a) of this section. If an 

employee does not request an OPM 

review, DoD’s classification 

determination is final and not subject to 

further review or appeal. 

(e) Any determination made under 

this section will be based on criteria 

issued by the Secretary. 

§ 9901.223 Appeal to DoD for review of 

classification decisions. 

(a) Employee representation. An 

employee may designate in writing a 

representative of his or her choice to 

assist in the preparation and 

presentation of an appeal. A 

management official may disallow an 

employee’s representative when— 

(1) An individual’s activities as a 

representative would cause a conflict of 

interest or position; 

(2) An employee cannot be released 

from his or her official duties because of 

the priority needs of the Government; or 

(3) An employee’s release would give 

rise to unreasonable costs to the 

Government. 

(b) DoD classification appeal process. 

(1) Employee appeals to DoD must be 

submitted through the employee’s 

servicing Human Resources Office. 

(2) An employee may file a 

classification appeal at any time. When 

the issue involves a classification action 

that resulted in a reduction in band or 

adjusted salary, to preserve any 

entitlement to retroactive pay, the 

employee must file any DoD 

classification appeal no later than 15 

calendar days after the effective date of 

the personnel action. When an 

employee shows that he or she did not 

receive notice of the applicable time 

limit, or personnel action, or was 

prevented from timely filing by 

circumstances beyond the employee’s 

control, the deciding official may grant 

an extension of the appeal period. 

(3) An employee must provide the 

following documentation when filing an 

appeal: 

(i) The employee’s name, mailing 

address, and office telephone and fax 

numbers; 

(ii) The employing Component and 

the exact location of the employee’s 

position within the Component 

(installation name, mailing address, 

organization, division, branch, section, 

unit); 

(iii) The name, address, and business 

telephone and fax numbers of the 

employee’s representative, if any; 

(iv) A statement of the employee’s 

requested pay system, official position 

title, occupational series, pay schedule, 

and/or pay band; and 

(v) Reasons why the employee 

believes the position is incorrectly 

classified. 

(4) The employee must refer to 

classification standards that support the 

appeal and state specific points of 

disagreement with the current 

classification. The employee may also 

include a statement of facts that he or 

she thinks may affect the final 

classification decision. 

(c) Binding decisions. DoD appeal 

decisions constitute certificates that are 

binding on all administrative, certifying, 

payroll, disbursing, and accounting 

offices within DoD. 

(d) Cancellation. (1) An employee or 

representative may cancel an appeal at 

any time before DoD issues a decision 

by providing written notification to the 

DoD deciding official. 

(2) DoD may cancel an appeal if any 

of the following occur: 

(i) The employee, or his or her 

representative, does not furnish 

requested information within the 

required time period; 

(ii) The employee is no longer 

officially assigned to, or is removed 

from, the position and there is no 

entitlement to retroactive benefits; 

(iii) The duties and responsibilities of 

the position are significantly changed 

while the case is pending and there is 

no entitlement to retroactive benefits; or 

(iv) The position is abolished and 

there is no entitlement to retroactive 

benefits. 

§ 9901.224 Appeal to OPM for review of 

classification decisions. 

(a) An employee’s request for OPM 

review of DoD classification 

determination will follow the 

procedures in 5 CFR part 511, subpart 

F—Classification Appeals. 

(b) Effective dates of OPM 

classification appeal decisions will be 

consistent with 5 CFR 511.702. 

(c) Employee appeals to OPM may be 

submitted directly to OPM. 

(d) OPM’s final determination on an 

appeal made under this section is not 

subject to further review or appeal. 

Transitional Provisions 

§ 9901.231 Conversion of positions and 

employees to NSPS classification system. 

(a) Introduction. This section 

describes the transitional provisions 

that apply when DoD positions and 

employees initially are converted to a 

classification system established under 

this subpart. (See § 9901.371 for 

conversion rules related to setting an 

employee’s pay.) Positions and 

employees in affected organizational or 

functional units may convert from the 

GS system, the SL/ST system, the SES 

system, or such other DoD systems as 

may be designated by the Secretary, as 

provided in § 9901.202. For the purpose 

of this part, the terms ‘‘convert,’’ 

‘‘converted,’’ ‘‘converting,’’ and 

‘‘conversion’’ refer to positions and 

employees that become covered by the 

NSPS classification system as a result of 

a coverage determination made under 

§ 9901.102(b) and excludes employees 

who move from a noncovered position 

to a position already covered by NSPS. 

(b) Implementing issuances. The 

Secretary will issue implementing 

issuances prescribing policies and 

procedures for converting DoD 

employees to a pay band upon initial 

implementation of the NSPS 

classification system. Those issuances 

will establish the work level conversion 

tables used to place an employee in a 

pay band based on the level of work of 

the employee’s position in the formerly 

applicable pay system. 

(c) Temporary promotion prior to 

conversion. An employee on a 

temporary promotion at the time of 

conversion will be returned to his or her 

official position of record prior to 

processing the conversion. That official 

position of record (including 

occupational series and grade) is used in 

determining the employee’s career 

group, pay schedule, and band upon 

conversion. 

(d) Grade retention prior to 

conversion. For an employee who is 

entitled to grade retention immediately 

before conversion, the grade of the 

actual position of record (not the grade 

being retained) is used in determining 

the employee’s band upon conversion. 

Subpart C—Pay and Pay 

Administration 

General 

§ 9901.301 Purpose. 

(a) This subpart contains regulations 

establishing pay structures and pay 

administration rules for covered DoD 

employees to replace the pay structures 

and pay administration rules 

established under 5 U.S.C. chapter 53 

mstockstill on PROD1PC66 with RULES2

56396 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

and 5 U.S.C. chapter 55, subchapter V, 

as authorized by 5 U.S.C. 9902 (subject 

to the limitations on waivers in 

§ 9901.303). Various features that link 

pay to employees’ performance ratings 

are designed to promote a highperformance culture within DoD. 

(b) Any pay system prescribed under 

this subpart will be established in 

conjunction with the classification 

system described in subpart B of this 

part. 

(c) Any pay system prescribed under 

this subpart will be established in 

conjunction with the performance 

management system described in 

subpart D of this part. 

§ 9901.302 Coverage. 

(a) This subpart applies to eligible 

DoD employees and positions in the 

categories listed in paragraph (b) of this 

section, subject to a determination by 

the Secretary under § 9901.102(b) or (f). 

(b) The following employees of, or 

positions in, DoD organizational and 

functional units are eligible for coverage 

under this subpart: 

(1) Employees and positions who 

would otherwise be covered by the 

General Schedule pay system 

established under 5 U.S.C. chapter 53, 

subchapter III; 

(2) Employees in senior-level (SL) and 

scientific or professional (ST) positions 

who would otherwise be covered by 5 

U.S.C. 5376; 

(3) Members of the Senior Executive 

Service (SES) who would otherwise be 

covered by 5 U.S.C. chapter 53, 

subchapter VIII, subject to 

§ 9901.102(d); and 

(4) Such others designated by the 

Secretary as DoD may be authorized to 

include under 5 U.S.C. 9902. 

§ 9901.303 Waivers. 

(a) When a specified category of 

employees is covered under this 

subpart— 

(1) The provisions of 5 U.S.C. chapter 

53 are waived with respect to that 

category of employees, except as 

provided in § 9901.106 and paragraphs 

(b) and (c) of this section; and 

(2) The provisions of 5 U.S.C. chapter 

55, subchapter V (except sections 5544 

and 5545b), are waived with respect to 

that category of employees to the extent 

that those employees are covered by 

alternative premium pay provisions 

established by the Secretary under 

§§ 9901.361 through 9901.364 in lieu of 

the provisions in 5 U.S.C. chapter 55, 

subchapter V. 

(b) The following provisions of 5 

U.S.C. chapter 53 are not waived: 

(1) Sections 5311 through 5318, 

dealing with Executive Schedule 

positions; 

(2) Sections 5341 through 5349, 

dealing with prevailing rate systems; 

(3) Section 5371, insofar as it 

authorizes OPM to apply the provisions 

of 38 U.S.C. chapter 74 to DoD 

employees in health care positions 

covered by section 5371 in lieu of any 

NSPS classification and pay system 

established under this part or the 

following provisions of title 5, U.S. 

Code: chapters 51, 53, and 61, and 

subchapter V of chapter 55. The 

reference to ‘‘chapter 51’’ in section 

5371(c) is deemed to include a 

classification system established under 

subpart B of this part; and 

(4) Section 5377, dealing with the 

critical pay authority. 

(c) Section 5379 continues to apply 

but is modified to allow the Secretary to 

modify the minimum service period and 

the limitations on the amount of student 

loan benefits in order to address critical 

hiring needs, subject to § 9901.105. 

§ 9901.304 Definitions. 

In this subpart: 

Adjusted salary means an NSPS 

employee’s base salary plus any local 

market supplement paid to that 

employee. For an employee moving into 

NSPS from a non-NSPS position, 

adjusted salary also refers to non-NSPS 

base salary plus any applicable locality 

pay under 5 U.S.C. 5304, special rate 

supplement under 5 U.S.C. 5305, or any 

equivalent supplement. 

Band has the meaning given that term 

in § 9901.103. 

Base salary means an NSPS 

employee’s pay, as set by the authorized 

management official, before deductions 

and exclusive of additional pay of any 

kind (e.g., local market supplement). For 

an employee moving into NSPS from a 

non-NSPS position, base salary also 

refers to non-NSPS pay, before 

deductions and exclusive of additional 

pay of any kind (e.g., locality pay or a 

special rate supplement). 

Basic pay has the meaning given that 

term in § 9901.103. 

Bonus means an element of the 

performance payout that consists of a 

one-time lump-sum payment made to 

employees. It is not part of basic pay for 

any purpose. 

Career group has the meaning given 

that term in § 9901.103. 

Comparable pay band or comparable 

level of work has the meaning given in 

§ 9901.103. 

Competencies has the meaning given 

that term in § 9901.103. 

Component has the meaning given 

that term in § 9901.103. 

Contributing factor has the meaning 

given that term in § 9901.103. 

Contribution has the meaning given 

that term in § 9901.103. 

Contribution assessment means the 

determination made by the Pay Pool 

Manager as to the impact, extent, and 

scope of contribution that the 

employee’s performance made to the 

accomplishment of the organization’s 

mission and goals. 

CONUS or Continental United States 

means the States of the United States, 

excluding Alaska and Hawaii, but 

including the District of Columbia. 

Day has the meaning given that term 

in § 9901.103. 

Department or DoD has the meaning 

given in § 9901.103. 

Employee has the meaning given that 

term in § 9901.103. 

General Schedule or GS has the 

meaning given that term in § 9901.103. 

Implementing issuance(s) has the 

meaning given that term in § 9901.103. 

Local market supplement means a 

geographic- and occupation-based 

supplement paid in addition to an 

employee’s base salary, including a 

standard local market supplement or a 

targeted local market supplement, as 

described in § 9901.332. 

Modal rating means, for the purpose 

of pay administration, the most frequent 

rating of record assigned to employees 

within a particular pay pool for a 

particular rating cycle. 

National Security Personnel System 

(NSPS) has the meaning given that term 

in § 9901.103. 

Occupational series has the meaning 

given that term in § 9901.103. 

OPM has the meaning given that term 

in § 9901.103. 

Official worksite has the meaning 

given that term in 5 CFR 531.605. 

Pay band or band has the meaning 

given that term in § 9901.103. 

Pay pool has the meaning given that 

term in § 9901.103. 

Pay Pool Manager has the meaning 

given that term in § 9901.103. 

Pay Pool Panel has the meaning given 

that term in § 9901.103. 

Pay schedule has the meaning given 

that term in § 9901.103. 

Performance has the meaning given 

that term in § 9901.103. 

Performance payout means the total 

monetary value of a performance pay 

increase and bonus provided under 

§ 9901.342. 

Performance Review Authority has the 

meaning given that term in § 9901.103. 

Performance share means a unit of 

performance payout awarded to an 

employee based on performance. 

Performance shares may be awarded in 

multiples based on the employee’s 

rating of record and specified factors, as 

provided in § 9901.342(f). 

Performance share value means a 

calculated value for each performance 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56397 

share based on pay pool funds available 

and the distribution of performance 

shares across employees within a pay 

pool, expressed as a percentage of base 

salary. 

Premium pay means payments for 

work performed under special 

conditions or circumstances, as 

authorized under 5 U.S.C. chapter 55, 

subchapter V, or §§ 9901.361 through 

9901.364 (including compensatory time 

off). 

Promotion has the meaning given that 

term in § 9901.103. 

Rate range means the range of base 

salary rates applicable to employees in 

a particular pay band, as described in 

§ 9901.321. Each rate range is defined by 

a minimum and maximum base salary 

rate. 

Rating of record has the meaning 

given that term in § 9901.103. 

Reassignment has the meaning given 

that term in § 9901.103. 

Reduction in band has the meaning 

given that term in § 9901.103. 

Retained rate means a retained base 

salary rate (i.e., excluding any local 

market supplement) above the 

applicable pay band maximum rate as 

established for an NSPS employee 

under the pay retention provisions in 

§ 9901.356. For GS employees, retained 

rate has the meaning given that term in 

5 CFR part 536. 

Secretary has the meaning given that 

term in § 9901.103. 

Standard local market supplement 

means the local market supplement that 

applies to employees in a given pay 

schedule or band who are stationed 

within a specified local market area (the 

boundaries of which are defined under 

§ 9901.332(b)), unless a targeted local 

market supplement applies. Standard 

local market supplements are generally 

administered for covered employees in 

the same manner as locality-based 

comparability payments under 5 U.S.C. 

5304 and 5304a. 

Sub pay pool means a subset of a pay 

pool that is defined for the purpose of 

reconciling ratings of record, share 

assignments, and payout 

determinations. 

Targeted local market supplement 

means a local market supplement 

established to address recruitment or 

retention difficulties or for other 

appropriate reasons and which applies 

to a defined category of employees 

(based on occupation or other 

appropriate factors) in lieu of any lower 

standard local market supplement that 

would otherwise apply. 

Unacceptable performance has the 

meaning given that term in § 9901.103. 

§ 9901.305 Rate of pay. 

(a) The term ‘‘rate of pay’’ in 5 U.S.C. 

9902(e)(9) means— 

(1) An individual employee’s base 

salary rate, local market supplement 

rate, and overtime and other premium 

pay rates (including compensatory time 

off); and 

(2) The rates comprising the structure 

of the pay system that govern the setting 

and adjusting of the individual 

employee rates identified in paragraph 

(a)(1) of this section, including, but not 

limited to— 

(i) Band rate range minimum and 

maximum rates; 

(ii) Control points within a band rate 

range; 

(iii) Local market supplement rates; 

(iv) Maximum rates of base salary and 

adjusted salary; 

(v) Premium pay rates; and 

(vi) The percentage rate of total base 

salary payroll constituting the portion of 

a pay pool applied to provide 

performance-based increases in 

employees’ base salary rates. 

(b) For the purpose of 5 U.S.C. 

9902(e)(9), the establishment or 

adjustment of a rate of pay includes the 

establishment or adjustment of the 

amount or level of the rate and of the 

eligibility requirements associated with 

the type and level of pay in question. 

Illustrative examples of actions that 

establish or adjust a rate of pay include, 

but are not limited to, the following: 

(1) Establishing the starting base 

salary rate for a newly hired employee; 

(2) Establishing a retained rate for an 

employee under § 9901.356(e); 

(3) Adjusting an employee’s base 

salary rate through various pay actions, 

including general salary increases, 

targeted general salary increases, 

performance pay increases, 

extraordinary performance recognition 

increases, organizational or team 

achievement recognition increases, pay 

reductions for unacceptable 

performance or conduct, reassignment 

increases and decreases, promotion 

increases, within-grade increase 

adjustments, and accelerated 

compensation for developmental 

positions (ACDP) increases; 

(4) Establishing or adjusting the 

minimum or maximum rate of a band 

rate range or control points within that 

range; 

(5) Establishing or adjusting the 

percentage amount of a targeted local 

market supplement, as well as the 

geographic area and other coverage 

requirements associated with that 

supplement; 

(6) Establishing a higher premium pay 

limit under § 9901.362(a)(2); 

(7) Establishing an overtime rate equal 

to an employee’s adjusted salary rate 

under § 9901.362(b)(6)(i); 

(8) Establishing a new hazardous duty 

premium rate under 9901.362(i)(3); and 

(9) Establishing the percentage rate of 

total base salary payroll constituting the 

portion of a pay pool applied to provide 

performance-based increases in 

employees’ base salary rates. 

Overview of Pay System 

§ 9901.311 Major features. 

Through the issuance of 

implementing issuances, the Secretary 

will further define a pay system that 

governs the setting and adjusting of 

covered employees’ rates of base salary 

and adjusted salary and the setting of 

covered employees’ rates of premium 

pay. The NSPS pay system will include 

the following features: 

(a) A structure of rate ranges linked to 

various pay bands for each career group, 

in alignment with the classification 

structure described in subpart B of this 

part; 

(b) Policies regarding the setting and 

adjusting of band rate ranges based on 

mission requirements, labor market 

conditions, and other factors, as 

described in §§ 9901.321 and 9901.322; 

(c) Policies regarding the setting and 

adjusting of local market supplements 

as described in §§ 9901.331 through 

9901.333; 

(d) Policies regarding employees’ 

eligibility for general salary increases 

and adjustments in local market 

supplements, as described in 

§§ 9901.323 and 9901.334; 

(e) Policies regarding performancebased pay, as described in §§ 9901.341 

through 9901.345; 

(f) Policies on base salary 

administration, including movement 

between career groups, positions, pay 

schedules, and pay bands, as described 

in §§ 9901.351 through 9901.356; 

(g) Linkages to employees’ ratings of 

record, as described in subpart D of this 

part; and 

(h) Policies regarding the setting of 

and limitations on premium payments, 

as described in §§ 9901.361 through 

9901.364. 

§ 9901.312 Maximum rates of base salary 

and adjusted salary. 

(a) Subject to § 9901.105, the 

Secretary may establish a limitation on 

the maximum rate of base salary 

provided under authority of this 

subpart. 

(b) No employee may receive, under 

authority of this subpart, an adjusted 

salary rate greater than the rate for level 

IV of the Executive Schedule plus 5 

percent. The payable local market 

mstockstill on PROD1PC66 with RULES2

56398 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

supplement for an employee must be 

reduced as necessary to comply with 

this limitation. 

(c) Paragraphs (a) and (b) of this 

section do not apply to physicians and 

dentists (in occupational series 0602 

and 0680, respectively). 

(d) Subject to § 9901.105, the 

Secretary may establish a higher 

adjusted salary rate limitation for a 

specified category of positions in lieu of 

the limitation in paragraph (b) of this 

section based on mission requirements, 

labor market conditions, availability of 

funds, and any other relevant factors. 

§ 9901.313 Aggregate compensation 

limitations. 

(a) General. (1) Except as provided in 

paragraphs (a)(2) and (a)(3) of this 

section, no additional payment 

(premium pay, allowance, differential, 

bonus, award, or other similar cash 

payment) may be paid to an employee 

in a calendar year if, or to the extent 

that, when added to the adjusted salary 

paid to the employee for service 

performed as an employee in the 

Department or in another Federal 

agency, the payment would cause the 

total aggregate compensation to exceed 

the annual rate for Executive Level I as 

in effect on the last day of that calendar 

year. 

(2) In the case of physicians and 

dentists (in occupational series 0602 

and 0680, respectively) payment to the 

employee may not cause aggregate 

compensation received in a calendar 

year to exceed the salary of the 

President of the United States as in 

effect on the last day of that calendar 

year. 

(3) Subject to § 9901.105, the 

Secretary may provide for a higher 

aggregate compensation limitation equal 

to the annual rate payable to the Vice 

President under 3 U.S.C. 104 as in effect 

on the last day of the calendar year in 

the case of specified categories of 

employees for whom a waiver has been 

authorized under § 9901.362(a)(2). 

(4) The limitation described in this 

paragraph (a) applies to the total amount 

of aggregate compensation actually 

received by an employee during the 

calendar year without regard to the 

period of service for which such 

compensation is earned. 

(b) Types of compensation. For the 

purpose of this section, aggregate 

compensation is the total of— 

(1) Adjusted salary received as an 

employee of the Department; 

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

chapter 55, subchapter V, and this 

subpart; 

(3) Incentive awards and 

performance-based cash awards under 5 

U.S.C. 4501–4523 and this part; 

(4) Recruitment and relocation 

incentives under 5 U.S.C. 5753; 

(5) Retention incentives under 5 

U.S.C. 5754; 

(6) Supervisory differentials under 5 

U.S.C. 5755; 

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

5925; 

(8) Danger pay allowances under 5 

U.S.C. 5928; 

(9) Extended assignment incentives 

under 5 U.S.C. 5757; 

(10) Post differentials based on 

environmental conditions for employees 

stationed outside the continental United 

States or in Alaska under 5 U.S.C. 

5941(a)(2); 

(11) Foreign language proficiency pay 

under 10 U.S.C. 1596 and 1596a; 

(12) Continuation of pay under 5 

U.S.C. 8118; 

(13) Other similar payments 

authorized under title 5, United States 

Code, excluding— 

(i) Back pay due to an unjustified 

personnel action under 5 U.S.C. 5596 

(but only if the back payments were 

originally payable in a previous 

calendar year); 

(ii) Overtime pay under the Fair Labor 

Standards Act of 1938, as amended (29 

U.S.C. 201–219 and 5 CFR part 551); 

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

5595; 

(iv) Nonforeign area cost-of-living 

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

and 

(v) Lump-sum payments for 

accumulated and accrued annual leave 

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

5552; and 

(14) Payments received from another 

agency during the calendar year, prior to 

employment with the Department, that 

are subject to 5 U.S.C. 5307. 

(c) Administration of aggregate 

limitation. (1) At the time a payment 

covered by paragraph (b) of this section 

(other than adjusted salary) is 

authorized for an employee, the 

employee may not receive any portion 

of such payment that, when added to 

the estimated aggregate compensation 

the employee is projected to receive, 

would cause the aggregate 

compensation actually received by the 

employee during the calendar year to 

exceed the limitation applicable to the 

employee under this section at the end 

of the calendar year. 

(2) Payments that are creditable for 

retirement purposes (e.g., law 

enforcement availability pay (LEAP) or 

standby premium pay) and that are paid 

to an employee at a regular fixed rate 

each pay period may not be deferred or 

discontinued for any period of time in 

order to make another payment that 

would otherwise cause an employee’s 

pay to exceed any limitation described 

in or established by this section. 

(3) Except for physicians and dentists 

(in occupational series 0602 and 0680, 

respectively), if the estimated aggregate 

compensation to which an employee is 

entitled exceeds the applicable 

limitation under this section for the 

calendar year, the Department must 

defer all authorized payments (other 

than adjusted salary) at the time when 

otherwise continuing such payments 

would cause the aggregate 

compensation actually received by any 

employee during the calendar year to 

exceed the applicable limitation. Any 

portion of a payment deferred under 

this paragraph will become available for 

payment as provided in paragraph (d) of 

this section. For physicians and dentists 

(in occupational series 0602 and 0680, 

respectively), payments that exceed the 

limitation under paragraph (a)(2) of this 

section may not be made at any time. 

(4) If the Department makes an 

incorrect estimate of aggregate 

compensation at an earlier date in the 

calendar year, the sum of an employee’s 

remaining payments of adjusted salary 

(which may not be deferred) may exceed 

the difference between the aggregate 

compensation the employee has actually 

received to date in that calendar year 

and the applicable limitation under this 

section. In this case, the employee will 

become indebted to the Department for 

any amount paid in excess of the 

aggregate limitation. To the extent that 

the excess amount is attributable to 

amounts that should have been deferred 

and would have been payable at the 

beginning of the next calendar year, the 

debt must be nullified on January 1 of 

the next calendar year. As part of the 

correction of the error, the excess 

amount will be deemed 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 paragraph (c)(3) of this 

section and must be considered part of 

the employee’s aggregate compensation 

for the new calendar year. 

(d) Payment of excess amounts. (1) 

Except for physicians and dentists (in 

occupational series 0602 and 0680, 

respectively), any amount that is not 

paid to an employee because of the 

annual aggregate compensation 

limitation under this section must be 

paid in a lump-sum payment at the 

beginning of the following calendar 

year. Any amount paid the following 

calendar year will be taken into account 

for purposes of applying the limitations 

with respect to such calendar year. For 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56399 

physicians and dentists (in occupational 

series 0602 and 0680, respectively), 

payments that exceed the limitation 

under paragraph (a)(2) of this section 

may not be made at any time. 

(2) If a lump-sum payment causes an 

employee’s estimated aggregate 

compensation to exceed the applicable 

limitation under this section, the 

Department must consider only the 

employee’s adjusted salary and 

payments that are creditable for 

retirement purposes (e.g., LEAP or 

standby pay) in determining the extent 

to which the lump-sum payment may be 

paid and will defer all other payments, 

in order to pay as much of the excess 

amount as possible. Any payments 

deferred under this paragraph, 

including any portion of the excess 

amount that was not payable, will 

become payable at the beginning of the 

next calendar year. 

(3) If an employee moves to another 

Federal agency or to another position 

within the Department not covered by 

NSPS, and, at the time of the move, the 

employee has received payments in 

excess of the aggregate limitation under 

5 U.S.C. 5307, the employee’s 

indebtedness for the excess amount 

received will be deferred from the 

effective date of the transfer until the 

beginning of the next calendar year. 

Effective January 1 of the new calendar 

year, the debt will be nullified and the 

excess amount will be considered in 

applying that year’s aggregate limitation. 

(4) If an employee transfers to another 

agency and, at the time of transfer, the 

employee has excess payments deferred 

to the next calendar year, the provisions 

of 5 U.S.C. 5307 are applicable. 

(5) The following conditions permit 

payment of excess aggregate 

compensation without regard to the 

calendar year limitation: 

(i) If an employee dies, the excess 

amount is payable immediately as part 

of the settlement of accounts, in 

accordance with 5 U.S.C. 5582. 

(ii) If an employee separates from 

Federal service, the entire excess 

amount is payable following a 30-day 

break in service. If the individual is 

reemployed in the Department under 

NSPS in the same calendar year as 

separation, any previous payment of an 

excess amount will be considered part 

of that year’s aggregate compensation for 

the purpose of applying the limitations 

described in this section for the 

remainder of the calendar year. 

§ 9901.314 National security compensation 

comparability. 

(a) To the maximum extent 

practicable, for fiscal years 2004 through 

2012, the overall amount allocated for 

compensation of the DoD civilian 

employees who are included in the 

NSPS may not be less than the amount 

that would have been allocated for 

compensation of such employees for 

such fiscal years if they had not been 

converted to the NSPS, based on, at a 

minimum— 

(1) The number and mix of employees 

in such organizational or functional 

units prior to conversion of such 

employees to the NSPS; and 

(2) Adjustments for normal step 

increases and rates of promotion that 

would have been expected, had such 

employees remained in their previous 

pay schedule. 

(b) To the maximum extent 

practicable, implementing issuances 

will provide a formula for calculating 

the overall amount to be allocated for 

fiscal years beyond fiscal year 2012 for 

compensation of the civilian employees 

included in the NSPS. The formula will 

ensure that, in the aggregate, employees 

are not disadvantaged in terms of the 

overall amount of compensation 

available as a result of conversion to the 

NSPS, while providing flexibility to 

accommodate changes in the function of 

the organization and other changed 

circumstances that might impact 

compensation levels. 

(c) For the purpose of this section, 

‘‘compensation’’ for civilian employees 

means adjusted salary, taking into 

account any applicable locality payment 

under 5 U.S.C. 5304, special rate 

supplement under 5 U.S.C. 5305, local 

market supplement under § 9901.332, or 

equivalent supplement under other legal 

authority. 

Rate Ranges and General Salary 

Increases 

§ 9901.321 Structure. 

(a) Subject to § 9901.105, the 

Secretary will establish ranges of base 

salary rates for pay bands, with 

minimum and maximum rates set and 

adjusted as provided in § 9901.322. 

(b) For each pay band within a career 

group, the Secretary will establish a 

common rate range that applies in all 

locations. 

(c) The Secretary may establish and 

adjust control points within a pay band 

to manage compensation (e.g., 

limitations on pay setting and pay 

progression within a pay band that 

apply to specified positions). The 

Secretary may consider only the 

following factors in developing control 

points: mission requirements, labor 

market conditions, and benchmarks 

against duties, responsibilities, 

competencies, qualifications, and 

performance. 

§ 9901.322 Setting and adjusting rate 

ranges. 

(a) Subject to § 9901.105, the 

Secretary may set and adjust the rate 

ranges (i.e., range minimums and 

maximums) established under 

§ 9901.321. In determining the rate 

ranges, the Secretary may consider 

mission requirements, labor market 

conditions, availability of funds, pay 

adjustments received by employees of 

other Federal agencies, and any other 

relevant factors. 

(b) The Secretary may determine the 

effective date of newly set or adjusted 

band rate ranges. Established rate ranges 

will be reviewed for possible adjustment 

at least annually. 

(c) The Secretary may establish 

different rate ranges and provide 

different rate range adjustments for 

different pay bands. 

(d) The Secretary may adjust the 

minimum and maximum rates of a pay 

band by different percentages. 

(e) The maximum rate of each band 

must be adjusted at the time of a general 

salary increase under § 9901.323(a)(1) 

by no less than the percentage amount 

of the General Schedule annual 

adjustment under 5 U.S.C. 5303. 

§ 9901.323 Eligibility for general salary 

increase. 

(a) Employees with a current rating of 

record above ‘‘unacceptable’’ (Level 1) 

and employees who do not have a 

current rating of record for the most 

recently completed appraisal period are 

eligible to receive an approved general 

salary increase in their base salary rate 

subject to the following requirements: 

(1) A general salary increase must be 

provided to eligible employees in all 

NSPS pay bands at the same time that 

a General Schedule annual adjustment 

takes effect under 5 U.S.C. 5303. The 

amount of such general salary increase 

is determined by the Secretary but may 

not be less than 60 percent of the 

General Schedule annual adjustment 

under 5 U.S.C. 5303 (unless a lesser 

percentage is allowed by law). Such 

general salary increase must be the same 

percentage amount for all eligible 

employees under NSPS, except that the 

increase for employees receiving a 

retained rate is limited to the lowest 

permitted amount (i.e., 60 percent of the 

General Schedule annual adjustment 

under 5 U.S.C. 5303 unless a lesser 

percentage is allowed by law). 

(2) In addition to the general salary 

increase under paragraph (a)(1) of this 

section, and subject to § 9901.105, a 

targeted general salary increase may be 

provided to all eligible employees 

(excluding employees receiving a 

retained rate under § 9901.356) in a 

mstockstill on PROD1PC66 with RULES2

56400 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

designated occupational series or 

specialty in a pay band if the Secretary 

determines that such an increase is 

necessary considering only labor market 

conditions, staffing difficulties, cost, 

and mission priorities. Different targeted 

general salary increases may be 

provided under this paragraph (a)(2) to 

employees in different occupational 

series, specialties, and/or pay bands. 

(b) Employees with a current rating of 

record of ‘‘unacceptable’’ will not 

receive a general salary increase under 

this section. If such an employee 

receives a rating of record above 

unacceptable for a subsequent appraisal 

period, the employee is eligible for any 

general salary increase taking effect on 

or after the date the employee is given 

a rating of record above unacceptable. 

(c)(1) The Secretary may provide an 

additional increase in the base salary 

rate equal to the difference between the 

percent of the General Schedule annual 

adjustment under 5 U.S.C. 5303 and the 

amount of the NSPS general salary 

increase under paragraph (a)(1) of this 

section to employees ineligible for 

performance payout under § 9901.342. 

This increase is effective at the same 

time as the NSPS general salary 

increase. 

(2) The increase under paragraph 

(c)(1) of this section does not apply to 

employees who— 

(i) Are ineligible for a performance 

payout due to an NSPS rating of record 

of Level 1 or Level 2; 

(ii) Move from a non-NSPS to an 

NSPS position, or who are newly hired 

or reappointed to an NSPS position, on 

the effective date of the performance 

payment; or 

(iii) Are receiving a retained rate 

under § 9901.356. 

(d) A general salary increase under 

paragraph (a)(2) or paragraph (c) of this 

section may be applied only to the 

extent that it does not cause an 

employee’s base salary rate to exceed 

the maximum rate of the employee’s 

band or applicable control point. 

(e) If the adjustment of a pay band 

minimum rate causes the base salary of 

an employee with a rating of record 

above unacceptable (Level 1) to fall 

below such minimum rate, the 

employee’s salary will be set at the pay 

band minimum rate. 

Local Market Supplements 

§ 9901.331 General. 

(a) Introduction. The base salary 

ranges established under §§ 9901.321 

through 9901.322 may be supplemented 

in appropriate circumstances by local 

market supplements, as described in 

this section. These supplements are set 

and adjusted as described in § 9901.333. 

The sum of an employee’s base salary 

plus any applicable local market 

supplement constitutes the employee’s 

adjusted salary. 

(b) Computation. Standard local 

market supplements are computed by 

multiplying the applicable supplement 

percentage rate times the employee’s 

base salary rate and rounding the result 

to the nearest whole dollar. Targeted 

local market supplements are computed 

by multiplying the applicable 

supplement percentage rate times the 

employee’s base salary rate and 

rounding the result to the nearest whole 

dollar, or by inclusion of the applicable 

supplement constant whole dollar 

amount for eligible employees. A local 

market supplement is payable only to 

the extent that it does not cause an 

employee’s adjusted salary rate to 

exceed the rate limitation described in 

§ 9901.312(b). 

(c) Official worksite. When a local 

market supplement is linked to a 

geographic area, the employee’s 

entitlement to the local market 

supplement is contingent on the 

employee’s official worksite (as defined 

in 5 CFR 531.605) being located in that 

geographic area. 

(d) Treatment as basic pay. Local 

market supplements are considered 

basic pay only for the following 

purposes: 

(1) Retirement deductions, 

contributions, and benefits under 5 

U.S.C. chapter 83 or 84; 

(2) Life insurance premiums and 

benefits under 5 U.S.C. chapter 87; 

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

chapter 55, subchapter V, or similar 

payments under other legal authority, 

including this subpart; 

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

5595; 

(5) Cost-of-living allowances and post 

differentials under 5 U.S.C. 5941; 

(6) Overseas allowances and 

differentials under 5 U.S.C. chapter 59, 

subchapter III, to the extent authorized 

by the Department of State; 

(7) Recruitment, relocation, and 

retention incentives, supervisory 

differentials, and extended assignment 

incentives under 5 U.S.C. chapter 57, 

subchapter IV, and 5 CFR part 575; 

(8) Lump-sum payments for 

accumulated and accrued annual leave 

under 5 CFR 550, subpart L; 

(9) Determining whether an 

employee’s rate of basic pay is reduced 

at the point of conversion or movement 

into or out of the NSPS pay system for 

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

75, subchapter II (dealing with adverse 

actions), consistent with §§ 9901.351(g), 

9901.371(d), and 9901.372(f); 

(10) Other payments and adjustments 

under other statutory or regulatory 

authority for which locality-based 

comparability payments under 5 U.S.C. 

5304 are considered part of basic pay; 

and 

(11) Any other provisions for which 

DoD local market supplements are 

expressly treated as basic pay by law or 

under this part. 

§ 9901.332 Standard and targeted local 

market supplements. 

(a) General. NSPS employees may 

receive standard or targeted local market 

supplements as described in paragraphs 

(b) and (c) of this section. Consistent 

with 5 U.S.C. 9902(e)(8), the full amount 

of standard and targeted local market 

supplements must be provided to 

employees who receive a rating of 

record above unacceptable (Level 1) or 

who do not have a rating of record for 

the most recently completed appraisal 

period. As provided in § 9901.334, an 

employee with an unacceptable rating of 

record may not receive an increase in a 

standard or targeted local market 

supplement. Standard local market 

supplements are designed to satisfy the 

requirements of 5 U.S.C. 9902(e)(8)(A), 

while targeted local market supplements 

are the ‘‘other local market 

supplements’’ referenced in 5 U.S.C. 

9902(e)(8)(B). 

(b) Standard local market 

supplements. Employees are entitled to 

standard local market supplements that 

are generally equivalent to locality 

payments under 5 U.S.C. 5304 and 

5304a, subject to the following 

requirements: 

(1) The percentage values of standard 

local market supplements must be 

identical to the percentage values of 

locality payments established under 5 

U.S.C. 5304 and 5304a, except as 

provided in § 9901.334 with respect to 

employees with an unacceptable rating 

of record; 

(2) The geographic areas in which 

standard local market supplements 

apply must be identical to the 

corresponding geographic areas 

established for locality payments under 

5 U.S.C. 5304; 

(3) An employee’s entitlement to a 

standard local market supplement is 

based on whether the employee’s 

official worksite (defined consistent 

with the requirements in 5 CFR 531.605) 

is located in the given local market area; 

(4) The applicable standard local 

market supplement is paid on top of a 

retained rate (consistent with the NSPS 

modification of the pay retention rules); 

(5) The cap on an adjusted salary rate 

that includes a standard local market 

supplement is the rate for level IV of the 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56401 

Executive Schedule plus 5 percent 

(consistent with the NSPS extension of 

the highest band base rate ranges by 5 

percent), as provided in § 9901.312(b), 

except as otherwise provided under 

§ 9901.312(d); 

(6) A standard local market 

supplement does not apply if an 

employee is entitled to a higher targeted 

local market supplement; and 

(7) Standard local market 

supplements are not applicable to 

physicians and dentists (in occupational 

series 0602 and 0680, respectively), 

since they receive higher base salary 

and adjusted salary rates (including any 

applicable targeted local market 

supplements) to achieve comparability 

with physicians and dentists paid under 

38 U.S.C. chapter 74 and since their 

adjusted salary rates apply on a 

worldwide basis. 

(c) Targeted local market 

supplements. Subject to § 9901.105, the 

Secretary may establish targeted local 

market supplements for specifically 

defined categories of employees in order 

to address significant recruitment or 

retention problems. This authority is 

subject to the following: 

(1) The conditions for coverage under 

a targeted local market supplement may 

be based on occupation, band, 

organizational unit, geographic location 

of official worksite, specializations, 

special skills or qualifications, or other 

appropriate factors; 

(2) A targeted local market 

supplement applies to an employee 

eligible for a standard local market 

supplement only if the targeted local 

market supplement is a larger amount; 

and 

(3) Except for physicians and dentists 

(in occupational series 0602 and 0680, 

respectively) or as otherwise provided 

under § 9901.312(d), an employee’s 

adjusted salary that includes an 

applicable targeted local market 

supplement may not exceed the rate cap 

equal to the rate for Executive Level IV 

plus 5 percent, as provided in 

§ 9901.312(b). 

§ 9901.333 Setting and adjusting local 

market supplements. 

(a) Standard local market 

supplements are set and adjusted 

consistent with the setting and adjusting 

of corresponding General Schedule 

locality payments under 5 U.S.C. 5304 

and 5304a. 

(b) Subject to § 9901.105, the 

Secretary may set and adjust targeted 

local market supplements. In 

determining the amounts of the 

supplements, the Secretary will 

consider mission requirements, labor 

market conditions, cost, and pay 

adjustments received by employees of 

other Federal agencies, allowances and 

differentials under 5 U.S.C. chapter 59, 

and any other relevant factors. The 

Secretary may determine the effective 

date of newly set or adjusted targeted 

local market supplements. Established 

supplements will be reviewed for 

possible adjustment at least annually in 

conjunction with rate range adjustments 

under § 9901.322. 

§ 9901.334 Eligibility for pay increase 

associated with a supplement adjustment. 

(a) When a local market supplement 

is adjusted under § 9901.333, employees 

to whom the supplement applies with 

current ratings of record above 

‘‘unacceptable’’ (Level 1), and 

employees who do not have current 

ratings of record for the most recently 

completed appraisal period, are eligible 

to receive any pay increase resulting 

from that adjustment. 

(b) An employee with a current rating 

of record of ‘‘unacceptable’’ will not 

receive a pay increase under this section 

(i.e., the employee’s local market 

supplement percentage will not be 

increased). Once such an employee has 

a new rating of record above 

‘‘unacceptable,’’ the employee is 

entitled to the full amount of any 

applicable local market supplement 

effective on the date of the first 

adjustment in that local market 

supplement occurring on or after the 

effective date of the new rating of record 

as specified in § 9901.411(d), or, if 

earlier, the effective date of an 

applicable general salary increase as 

described in § 9901.323(b). 

Performance-Based Pay 

§ 9901.341 General. 

Sections 9901.342 through 9901.345 

describe the performance-based pay that 

is part of the pay system established 

under this subpart. These provisions 

authorize payments to employees based 

on individual performance or 

contribution, or team or organizational 

performance, as a means of fostering a 

high-performance culture that supports 

mission accomplishment. 

§ 9901.342 Performance payouts. 

(a) Overview. (1) The NSPS pay 

system will be a performance-based pay 

system and will result in a distribution 

of available performance pay funds 

based upon individual performance, 

individual contribution, team or 

organizational performance, or a 

combination of those elements. The 

NSPS pay system will use a pay pool 

concept to manage, control, and 

distribute performance-based pay 

increases and bonuses. The performance 

payout is a function of the amount of 

money in the performance pay pool and 

the number of shares assigned to 

individual employees. 

(2) The rating of record used as the 

basis for a performance payout is the 

one assigned for the most recently 

completed appraisal period. Unless 

otherwise provided in this section, if an 

employee is not eligible to have a rating 

of record for the current rating cycle for 

reasons other than those identified in 

paragraphs (i) through (l) of this section, 

such employee will not be eligible for a 

performance payout under this part. 

(b) Performance pay pools. (1) Pay 

pools and pay pool oversight will be 

established and managed in accordance 

with implementing issuances published 

by the Secretary, in such a manner as to 

ensure employees are treated fairly and 

consistently, and in accordance with 

merit system principles. 

(2) Consistent with paragraph (b)(1) of 

this section, pay pool composition will 

be based on organization structure, 

classification structure, function of 

work, location, and/or organization 

mission. The decision on pay pool 

composition will be reviewed and 

approved by an official who is at a 

higher level than the official who made 

the initial decision, as determined by a 

Component, unless there is no official at 

a higher level in the organization. 

(3) Where determined appropriate, 

management may establish one or more 

subsets of a pay pool population (i.e., 

sub pay pools) for the purpose of 

reconciling ratings of record, share 

assignments, and payout 

determinations. Sub pay pools share in 

the common fund of the overall pay 

pool and operate within the 

requirements and guidelines established 

for the pay pool to which they belong. 

(4) The Secretary may determine a 

percentage of pay to be included in pay 

pools and paid out, in accordance with 

accompanying implementing issuances, 

as— 

(i) A performance-based pay increase; 

(ii) A performance-based bonus; or 

(iii) A combination of a performancebased pay increase and a performancebased bonus. 

(5) The decision to apply a funding 

floor or ceiling to a pay pool, including 

the amount of such floor or ceiling, will 

be reviewed and approved by an official 

who is at a higher level than the official 

who made the initial decision, as 

determined by a Component, unless 

there is no official at a higher level in 

the organization. 

(c) Pay Pool Panel. (1) Consistent with 

this section, the Pay Pool Panel— 

mstockstill on PROD1PC66 with RULES2

56402 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

(i) Reviews rating of record, share 

assignment, and payout distribution 

recommendations; 

(ii) Makes adjustments, which in the 

Panel’s view would result in equity and 

consistency across the pay pool; and 

(iii) Elevates any disagreement 

between the Pay Pool Panel and the 

employee’s supervisory chain to the Pay 

Pool Manager as applicable, for 

resolution. 

(2) The Pay Pool Panel members may 

not participate in payout deliberations 

or decisions that directly impact their 

own ratings of record or pay. 

(d) Pay Pool Manager. The Pay Pool 

Manager— 

(1) Provides oversight of the Pay Pool 

Panel; 

(2) Consistent with this section, is the 

final approving authority for 

performance ratings; and 

(3) May not participate in payout 

deliberations or decisions that directly 

impact his or her own rating of record 

or pay. 

(e) Performance Review Authority 

(PRA). Consistent with this section, the 

PRA— 

(1) Oversees the operation of pay 

pools established under NSPS; 

(2) Ensures procedural and funding 

consistency among pay pools under 

NSPS; and 

(3) May not participate in payout 

deliberations or decisions that directly 

impact his or her own rating of record 

or pay. 

(f) Performance shares. (1) 

Performance shares will be used to 

determine performance pay increases 

and/or bonuses. The range of shares 

which may be assigned for each rating 

level is as follows: 

PERFORMANCE SHARE RANGES TABLE

Rating of record Share range available 

for assignment 

Level 5 ...................... 5 or 6 shares. 

Level 4 ...................... 3 or 4 shares. 

Level 3 ...................... 1 or 2 shares. 

Level 2 ...................... No shares. 

Level 1 ...................... No shares. 

(2) The only factors that may be used 

in determining share assignment are 

complexity of the work, level of 

responsibility, compensation (e.g., 

recent salary increases, current salary in 

relation to control points or pay band 

maximum, current salary in relation to 

labor market), overall contribution to 

the mission of the organization, 

organizational success, and raw 

performance scores. Pay Pool Managers 

and/or Pay Pool Panels will review 

share assignment recommendations to 

ensure that factors are applied 

consistently across the pay pool and in 

accordance with the merit system 

principles. 

(g) Performance payout. (1) A 

performance share is expressed as a 

percentage of an employee’s rate of base 

salary and is a common value 

throughout the pay pool. The percent 

value of a performance share is 

calculated by dividing the pay pool 

fund (expressed in dollars) by the 

summation of the products of 

multiplying each employee’s base salary 

times the number of shares earned by 

the employee. 

[Share Value(%) = Pay Pool Fund($)/ 

S(base salary of each pay pool 

member × shares assigned each pay 

pool member)] 

(2) An employee’s performance 

payout is calculated by multiplying the 

employee’s base salary as of the end of 

the pay pool’s appraisal period times 

the number of shares earned by the 

employee times the share value. 

[Employee Performance Payout = Base 

Salary × Shares × Share Value] 

(3) A performance payout may be an 

increase in base salary, a bonus, or a 

combination of the two. An increase in 

base salary may not cause the 

employee’s rate of base salary to exceed 

the maximum rate or applicable control 

point of the employee’s band rate range. 

The decision to pay a bonus, including 

the amount of such bonus, will be 

reviewed and approved by an official 

who is at a higher level than the official 

who made the initial decision, as 

determined by a Component, unless 

there is no official at a higher level in 

the organization. 

(4) The factors management may 

consider in determining the amount to 

be paid out as a bonus versus an 

increase in the rate of base salary are 

limited to the following: 

(i) Current base salary in relation to 

appropriate rate range; 

(ii) Current base salary, level of 

responsibility and complexity of work 

performed in comparison with others in 

similar work assignments; 

(iii) Performance-based compensation 

received during the rating cycle 

associated with promotions, 

reassignments, or awards; 

(iv) Salary levels of occupations in 

comparable labor markets; 

(v) Attrition and retention rates of 

critical shortage skill personnel; 

(vi) Expectation of continued 

performance at that level; 

(vii) Overall contribution to the 

mission of the organization; and 

(viii) Composition of the pay pool 

fund. 

(5) When an employee’s base salary is 

not increased because the employee’s 

base salary has reached the maximum of 

the pay band or an applicable control 

point, any remaining performance 

payout will be paid as a bonus in lieu 

of the increase to base salary. 

(6) The effective date of an increase in 

base salary made under this section will 

be the first day of the first pay period 

beginning on or after January 1 of each 

year. 

(7) Unless otherwise specified in this 

section, employees who are no longer 

covered by NSPS on the effective date 

of the payout, or who moved out of 

NSPS on a permanent move after the 

end of their rating cycle but before the 

effective date of the payout, are not 

entitled to a performance-based payout. 

(8) For employees receiving a retained 

rate above the applicable pay band 

maximum, the entire performance 

payout must be in the form of a bonus 

payment. Any performance payout in 

the form of a bonus for a retained rate 

employee will be computed based on 

the maximum rate of the assigned pay 

band. 

(9)(i) NSPS employees shall be 

evaluated and assigned a rating of 

record by the appropriate official 

associated with the pay pool of record 

on the last day (normally September 30) 

of the appraisal period when the 

employee— 

(A) Changes jobs within NSPS after 

the last day of the appraisal period and 

before the effective date of the payout; 

(B) Is eligible for a rating of record; 

and 

(C) Moves to a position that falls 

under the authority of a different NSPS 

pay pool. 

(ii) For an employee covered by 

paragraph (g)(9)(i) of this section, the 

payout will be calculated and paid 

based on the pay pool funding and share 

valuation of the gaining pay pool except 

when the employee transfers to an NSPS 

position that does not have a fully 

constituted pay pool in which case the 

payout is based on the share valuation 

of the losing pay pool. In all cases, the 

gaining pay pool will determine the 

share assignment and payout 

distribution between salary increase and 

bonus. 

(10) To the extent permitted by law, 

NSPS organizations will share the 

results of the performance management 

process with NSPS employees. At a 

minimum, these pay pool results will 

include the following: Average rating, 

ratings distribution, share value (or 

average share value), and average 

payout (expressed as a percentage). 

Organizations will ensure that the 

sharing of these or any other pay pool 

results will be presented in a manner 

that does not violate the Privacy Act. 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56403 

(h) Proration of performance payouts. 

The Secretary will issue implementing 

issuances regarding prorating of 

performance payouts for employees 

who, during the appraisal period, are— 

(1) Hired, transferred, reassigned, or 

promoted into NSPS; 

(2) In a leave-without-pay status 

(except as provided in paragraphs (i) 

and (j) of this section); or 

(3) In other circumstances where 

prorating is considered appropriate. 

(i) Adjustments for employees 

returning after performing honorable 

service in the uniformed services—(1) 

General. The rate of base salary for an 

employee who is absent from an NSPS 

position to perform service in the 

uniformed services (in accordance with 

38 U.S.C. 4301 et seq. and 5 CFR 

353.102) and who has the right to be 

reemployed or restored to duty by law, 

Executive order, or regulation under 

which accrual of service for seniorityrelated benefits is protected (e.g., 38 

U.S.C. 4316) will be set in accordance 

with this paragraph (i) and 

supplementary instructions in 

applicable implementing issuances. 

(2) Periods for which employee is 

eligible for a rating of record. When an 

employee is eligible for an NSPS rating 

of record for an appraisal period, the 

employee will be credited with base 

salary rate increases as provided under 

§ 9901.323 and under this section based 

on the employee’s NSPS rating of record 

for that appraisal period. These rate 

adjustments are effective on the normal 

date for each adjustment (in accordance 

with §§ 9901.323 and 9901.342(g)(6)); 

however, if an employee is separated as 

opposed to in a leave status at the time 

of the adjustments, no adjustment will 

be processed until the employee is 

reemployed through the exercise of a 

reemployment right. An employee 

covered by this paragraph (i)(2) is 

eligible for a performance-based pay 

pool bonus if otherwise eligible by share 

assignment and payout distribution. 

(3) Periods for which employee is not 

eligible for a rating of record. If an 

employee does not have an NSPS rating 

of record for the appraisal period 

serving as a basis for increases to base 

salary under this section, rate 

adjustments will be made based on the 

average base salary increase (expressed 

as a percentage) granted to other 

employees in the same pay pool who 

received the same rating as the 

employee’s last NSPS rating of record or 

the average base salary increase 

(expressed as a percentage) granted to 

employees who received the modal 

rating for the pay pool, whichever is 

most advantageous to the employee. The 

employee will also be credited with 

base salary rate increases under 

§ 9901.323 consistent with the 

provisions of that section. These rate 

adjustments are effective on the normal 

date for each adjustment in accordance 

with §§ 9901.323 and 9901.342(g)(6); 

however, if an employee is separated as 

opposed to in a leave status at the time 

of the adjustments, no adjustment will 

be processed until the employee is 

reemployed through the exercise of a 

reemployment right. The employee is 

not eligible for bonus payments for 

periods covered by this paragraph (i)(3), 

except as otherwise required by law. 

(4) Insufficient statistical information. 

In cases where insufficient statistical 

information exists to determine the 

modal rating, the Secretary may 

establish alternative procedures for 

determining a base salary increase 

under this section. 

(5) Proration prohibited. Proration of 

base salary rate adjustments is 

prohibited in the case of employees 

covered by this paragraph (i). 

(j) Adjustments for employees 

returning to duty after being in workers’ 

compensation status—(1) General. The 

rate of base salary for an employee who 

is absent from an NSPS position while 

receiving injury compensation under 5 

U.S.C. chapter 81, subchapter I (in a 

leave-without-pay status or as a 

separated employee), and who has 

rights under 5 U.S.C. 8151 will be set in 

accordance with this paragraph (j) and 

applicable implementing issuances. 

(2) Periods for which employee is 

eligible for a rating of record. When an 

employee is eligible for an NSPS rating 

of record for an appraisal period, the 

employee will be credited with base 

salary rate increases as provided under 

§ 9901.323 and under this section based 

on the employee’s NSPS rating of record 

for that appraisal period. These rate 

adjustments are effective on the normal 

date for each adjustment in accordance 

with §§ 9901.323 and 9901.342(g)(6); 

however, if an employee is separated at 

the time of the adjustments, no 

adjustment will be processed until the 

employee is reemployed. An employee 

covered by this paragraph (j)(2) is also 

eligible for a performance-based pay 

pool bonus if otherwise eligible by share 

assignment and payout distribution. 

(3) Periods for which employee is not 

eligible for a rating of record. If an 

employee does not have an NSPS rating 

of record for the appraisal period 

serving as a basis for increases to base 

salary under this section, rate 

adjustments will be made based on the 

average base salary increase (expressed 

as a percentage) granted to other 

employees in the same pay pool who 

received the same rating as the 

employee’s last NSPS rating of record or 

the average base salary increase 

(expressed as a percentage) granted to 

employees who received the modal 

rating for the pay pool, whichever is 

most advantageous to the employee. The 

employee will also be credited with 

base salary rate increases under 

§ 9901.323 consistent with the 

provisions of that section. These rate 

adjustments are effective on the normal 

date for each adjustment in accordance 

with §§ 9901.323 and 9901.342(g)(6); 

however, if an employee is separated as 

opposed to in a leave status at the time 

of the adjustments, no adjustment will 

be processed until the employee is 

reemployed. The employee is not 

eligible for bonus payments for periods 

covered by this paragraph (j)(3). 

(4) Insufficient statistical information. 

In cases where insufficient statistical 

information exists to determine the 

modal rating, the Secretary may 

establish alternative procedures for 

determining a base salary increase 

under this section. 

(5) Proration prohibited. Proration of 

base salary adjustments is prohibited in 

the case of employees covered by this 

paragraph (j). 

(k) Adjustments for employees in 

special circumstances—(1) General. The 

Secretary will adjust the rate of base 

salary in accordance with the provisions 

in this paragraph for an NSPS employee 

who is in an NSPS covered position on 

the effective date of the payout and who 

is unable to meet the minimum 

performance period during the given 

appraisal period as a result of— 

(i) Performing activities on ‘‘official 

time’’ (as defined in 5 U.S.C. 7131); 

(ii) Serving on a long-term training 

assignment; or, 

(iii) Approved paid leave. 

(2) Base salary increases. If an 

employee does not have an NSPS rating 

of record for the appraisal period 

serving as a basis for increases to base 

salary under this section, such 

adjustments will be based on the 

average base salary increase (expressed 

as a percentage) granted to other 

employees in the same pay pool who 

received the same rating as the 

employee’s last NSPS rating of record or 

the average base salary increase 

(expressed as a percentage) granted to 

employees who received the modal 

rating for the pay pool, whichever is 

most advantageous to the employee. 

(3) Insufficient statistical information. 

In cases where insufficient statistical 

information exists to determine the 

modal rating, the Secretary may 

establish alternative procedures for 

determining a base salary increase 

under this section. 

mstockstill on PROD1PC66 with RULES2

56404 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

(l) Adjustments for employees 

returning from temporary assignments 

outside of NSPS for which no NSPS 

performance plan was assigned—(1) 

General. The Secretary will set the rate 

of base salary prospectively for an 

employee who returns from a temporary 

assignment (including a supervisory 

probationary assignment) outside of 

NSPS for which no NSPS performance 

plan was assigned in accordance with 

this paragraph (l). 

(2) Periods for which employee is 

eligible for a rating of record. When an 

employee is eligible for an NSPS rating 

of record for an appraisal period, the 

employee will be credited with base 

salary increases as provided under 

§ 9901.323 and this section based on the 

employee’s NSPS rating of record for 

that appraisal period. When an 

employee returns to an NSPS position, 

these adjustments will be processed in 

determining the employee’s prospective 

base salary rate. An employee covered 

by this paragraph (l)(2) is also eligible 

for a performance-based pay pool bonus 

if otherwise eligible by share assignment 

and payout distribution. 

(3) Periods for which employee is not 

eligible for a rating of record. If an 

employee does not have an NSPS rating 

of record for the appraisal period 

serving as a basis for increases to base 

salary under this section, the employee 

will be credited with base salary rate 

adjustments based on the average base 

salary increase (expressed as a 

percentage) granted to other employees 

in the same pay pool who received the 

same rating as the employee’s last NSPS 

rating of record or the average base 

salary increase (expressed as a 

percentage) granted to employees who 

received the modal rating for the pay 

pool, whichever is most advantageous to 

the employee. The employee will also 

be credited with base salary rate 

increases under § 9901.323 consistent 

with the provisions of that section. The 

base salary rate adjustments under this 

paragraph (l)(3) will be used solely in 

determining the prospective NSPS base 

salary rate upon return to the NSPS 

position. The employee is not eligible 

for bonus payments for periods covered 

by this paragraph (l)(3). 

(4) Insufficient statistical information. 

In cases where insufficient statistical 

information exists to determine the 

modal rating, the Secretary may 

establish alternative procedures for 

determining a base salary increase 

under this section. 

§ 9901.343 Pay reduction based on 

unacceptable performance and/or conduct. 

An employee’s rate of base salary may 

be reduced based on a determination of 

unacceptable performance, conduct, or 

both after applying applicable adverse 

action procedures. Such a reduction 

will be at least 5 percent of base salary 

and may not exceed 10 percent of base 

salary. However, a reduction in base 

salary may be less than 5 percent to 

prevent the employee’s base salary from 

falling below the minimum rate of the 

employee’s pay band and may be more 

than 10 percent if a larger reduction is 

needed to place the employee at the 

maximum rate of the lower band. (See 

also §§ 9901.353(f) and 9901.355(b)(4).) 

An employee’s rate of base salary may 

not be reduced more than once in a 12- 

month period based on unacceptable 

performance, conduct, or both. 

§ 9901.344 Other performance payments. 

(a) The decision to grant other 

performance payouts, including the 

amount of such payouts, will be 

reviewed and approved by an official of 

the employee’s Component who is at a 

higher level than the official who made 

the initial decision, as determined by 

the Component, unless there is no 

official at a higher level in the 

organization. In accordance with 

implementing issuances, authorized 

officials may make other performance 

payments to— 

(1) Reward extraordinary individual 

performance, as described in paragraph 

(b) of this section; 

(2) Recognize organizational or team 

achievement, as described in paragraph 

(c) of this section; and 

(3) Provide for other special 

circumstances. 

(b)(1) Extraordinary Performance 

Recognition (EPR) is an increase to base 

salary, a bonus, or a combination of 

these intended to reward employees 

when the payout formula does not 

adequately compensate them for their 

extraordinary performance and results. 

The EPR payment is in addition to 

performance payouts under § 9901.342 

and will usually be made effective at the 

time of those payouts. When an EPR 

payout is made in the form of an 

increase to base salary, the future 

performance and contribution level 

exhibited by the employee will be 

expected to continue at an 

extraordinarily high level. 

(2) Only employees who have 

achieved a Level 5 NSPS rating of 

record for the most recently completed 

appraisal period are eligible for an EPR. 

(3) The amount of an EPR awarded in 

the form of an increase to base salary 

may not cause the employee’s base 

salary to exceed the maximum rate of 

the employee’s pay band or any 

applicable control point, unless the 

criteria for exceeding the control point 

are met. 

(c)(1) Organizational/Team 

Achievement Recognition (OAR) 

payments may be made in the form of 

an increase to base salary, a bonus, or 

a combination of these in order to 

recognize the members of a team, 

organization or branch whose 

performance and contributions have 

successfully and directly advanced 

organizational goals. The OAR payment 

is made in conjunction with the annual 

performance payout. 

(2) To receive an OAR, an employee 

must have an NSPS rating of record of 

Level 3 or higher for the most recently 

completed appraisal period. 

(3) The amount of the OAR payment 

provided in the form of an increase to 

base salary may not cause the 

employee’s base salary to exceed the 

maximum rate of the employee’s pay 

band or any applicable control point, 

unless the criteria for exceeding the 

control point are met. 

§ 9901.345 Accelerated Compensation for 

Developmental Positions (ACDP). 

(a) Accelerated Compensation for 

Developmental Positions (ACDP) is an 

increase to base salary that may be 

provided to employees participating in 

Component training programs or in 

other developmental capacities as 

determined by Component policy. 

ACDP recognizes growth and 

development in the acquisition of jobrelated competencies combined with 

successful performance of job 

objectives. 

(b) The use of ACDP is limited to— 

(1) Employees in the lowest pay band 

of a nonsupervisory pay schedule who 

are in developmental or trainee level 

positions; and 

(2) Employees in positions which are 

assigned to a Student Career Experience 

Program and which are in a pay 

schedule established exclusively for 

students. 

(c) Components choosing to provide 

ACDP increases must establish and 

document standards by which such 

employees will be identified and growth 

and development criteria by which 

additional pay increases will be 

determined. 

(d) The amount of the ACDP increase 

generally will not exceed 20 percent of 

an employee’s base salary. The decision 

to grant an ACDP exceeding 20 percent 

of an employee’s base salary must be 

made on a case-by-case basis and 

approved by an official who is at a 

higher level than the official who made 

the initial decision, as determined by 

the Component, unless there is no 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56405 

official at a higher level in the 

organization. 

(e) The amount of the ACDP increase 

may not cause the employee’s base 

salary to exceed the top of the 

employee’s pay band or any applicable 

control point, unless the criteria for 

exceeding the control point are met. 

(f) To qualify for an ACDP, an 

employee must have a rating of record 

of Level 3 (or equivalent non-NSPS 

rating of record) or higher, consistent 

with § 9901.405. An ACDP may be 

awarded to an employee who does not 

have a rating of record if an authorizing 

official conducts a performance 

assessment and determines that the 

employee is performing at the 

equivalent of Level 3 or higher. This 

performance assessment does not 

constitute a rating of record. 

(g) An ACDP increase may not be 

granted unless the employee is in a pay 

and duty status in an NSPS-covered 

position on the effective date of the 

increase. 

(h) The Secretary may provide 

adjustments under this section in lieu of 

or in addition to adjustments under 

§ 9901.342. 

Pay Administration 

§ 9901.351 General. 

(a) Introduction. The pay 

administration provisions in 

§§ 9901.351 through 9901.356 are 

applied using base salary rates, except 

when specifically otherwise provided. 

(b) Geographic recalculation. When 

an employee covered by a targeted local 

market supplement moves to a position 

in a new location where a different local 

market supplement and/or pay schedule 

applies, the employee’s adjusted salary 

before the move will be recalculated to 

reflect a local market supplement 

(standard or targeted, as appropriate) for 

the employee’s existing position—as if 

that position were at the same location 

as the position to which the employee 

is moving, consistent with the 

geographic conversion principle 

described at 5 CFR 531.205. For 

employees moving from a non-NSPS 

position to an NSPS position in a 

different location covered by a different 

salary supplement, the employee’s 

adjusted salary under the former system 

will be recalculated as if the former 

position were located in the new 

location, consistent with the geographic 

conversion principle described at 5 CFR 

531.205 or 5 CFR 536.303(b), as 

applicable. 

(c) Within-grade increase (WGI) 

adjustment equivalent. (1) When an 

employee is permanently placed (not by 

conversion under § 9901.371 or by 

promotion under § 9901.354) in an 

NSPS position from a GS or FWS 

position through a management-directed 

action (except for actions taken for 

misconduct or unacceptable 

performance), including a managementdirected reassignment or realignment, or 

any placement as a result of a reduction 

in force (RIF), or placement via the 

Priority Placement Program (PPP), 

Reemployment Priority List (RPL), or 

Interagency Career Transition 

Assistance Plan (ICTAP), the employee 

will receive an increase to base salary 

equivalent to the amount he or she 

would have received as a WGI 

adjustment if the employee had 

converted into NSPS with his or her 

organization, as provided in § 9901.371. 

(2) An employee who is placed in an 

NSPS position from a GS or FWS 

position through an employee-initiated 

reassignment may, at the discretion of 

the authorized management official, 

receive this same WGI adjustment 

equivalent increase described in 

paragraph (c)(1) of this section. The 

decision to grant this increase will be 

reviewed and approved by an official 

who is at a higher level than the official 

who made the initial decision, as 

determined by the Component. At a 

minimum, the higher-level approval 

level may be no lower than one level 

above the authorized management 

official who approved the reassignment 

unless there is no official at a higher 

level in the organization. 

(3) An increase provided under 

paragraphs (c)(1) and (c)(2) of this 

section occurs before any other 

discretionary reassignment increases 

provided under NSPS, may not cause 

the employee’s base salary to exceed the 

maximum rate of the assigned pay band, 

and is in addition to any other 

discretionary reassignment increase the 

employee may be eligible to receive. 

(d) Minimum rate. Except in the case 

of an employee who does not receive a 

pay increase under § 9901.323 because 

of an unacceptable rating of record, an 

employee’s base salary may not be less 

than the minimum rate of the 

employee’s pay band. 

(e) Maximum rate. Except as provided 

in § 9901.356, an employee’s base salary 

may not exceed the maximum rate of 

the employee’s band rate range. 

(f) Pay periods and hourly rates. The 

establishment of pay periods and the 

computation of rates of pay will 

conform to 5 U.S.C. 5504 and 5505, as 

applicable. For employees covered by 5 

U.S.C. 5504, annual rates of base salary 

will be converted to hourly rates of base 

salary in computing payments received 

by covered employees. 

(g) Rate comparisons upon movement 

to an NSPS position. An employee who 

moves to an NSPS position from a nonNSPS position by management-directed 

action (excluding conversion under 

§ 9901.371) will receive a rate of basic 

pay that is not less than the employee’s 

rate of basic pay immediately before 

movement (after making adjustments 

consistent with those made under 

§ 9901.371(e) for employees who 

convert to NSPS). For this purpose and 

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

chapter 75, subchapter II (dealing with 

adverse actions), at the point of 

movement into NSPS, an employee’s 

rate of basic pay includes any applicable 

locality payment under 5 U.S.C. 5304, 

special rate supplement under 5 U.S.C. 

5305, local market supplement under 

§ 9901.332, or equivalent payment 

under other legal authority. 

(h) Adjustment of annual rates for 

employees leaving certain teaching 

positions. When an individual leaves a 

teaching position as defined in 20 

U.S.C. 901 and moves to a position 

covered by NSPS, the individual’s 

existing annual base salary rate for the 

teaching position may be adjusted for 

the purpose of setting pay under NSPS. 

The adjustment will take into account 

the shorter work year applicable to the 

teacher position. The adjustment may 

not exceed 20 percent of the existing 

annual base salary rate of the teaching 

position. 

§ 9901.352 Setting an employee’s starting 

pay. 

(a) Subject to the requirements of this 

section, the Secretary may set the 

starting base salary rate for individuals 

who are newly appointed or 

reappointed to the Federal service 

anywhere within the rate range of the 

assigned pay band (subject to any 

applicable control points). Pay will be 

set based upon the following 

considerations: 

(1) Labor market considerations (i.e., 

availability of candidates and labor 

market rates); 

(2) Specialized skills, knowledge, 

and/or education possessed by the 

employee in relation to the 

requirements of the position; 

(3) Critical mission or business 

requirement(s); 

(4) Salaries of other employees in the 

organization performing similar work; 

and 

(5) Current salary of the candidate. 

(b) For the purposes of this section, 

‘‘newly appointed’’ means those 

individuals who have not previously 

been employed in the Federal service— 

i.e., this is their first Federal 

appointment. The term ‘‘reappointed’’ 

mstockstill on PROD1PC66 with RULES2

56406 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

means those individuals who have been 

previously employed in the Federal 

service and have been separated from 

the Federal service for at least 1 full 

workday immediately before 

employment in an NSPS position. The 

term ‘‘Federal service’’ includes civilian 

service as an employee of any entity of 

the Federal Government, including the 

judicial branch, legislative branch, and 

executive branch (including 

Government corporations, the Postal 

Regulatory Commission, the U.S. Postal 

Service and any nonappropriated fund 

(NAF) instrumentality described in 5 

U.S.C. 2105(c)). 

§ 9901.353 Setting pay upon 

reassignment. 

(a)(1) A reassignment occurs when an 

employee moves, voluntarily or 

involuntarily, to a different position or 

set of duties within his/her pay band or 

to a position in a comparable pay band, 

or from a non-NSPS position to an NSPS 

position at a comparable level of work, 

on either a temporary or permanent 

basis. In NSPS, employees may be 

eligible for an increase or decrease to 

base salary upon temporary or 

permanent reassignment as described in 

this section. 

(2) An employee who is reassigned 

through reduction-in-force (RIF) 

procedures is not eligible for an increase 

to base salary under this section (except 

as necessary to set the employee’s rate 

at the band minimum), but is eligible for 

an increase under § 9901.351(c)(1). An 

employee’s base salary will be protected 

by applying pay retention under 

§ 9901.356, if applicable. 

(3) A decision to increase an 

employee’s pay under this section will 

be based on one or more of the 

following factors: 

(i) A determination that an 

employee’s responsibilities will 

significantly increase; 

(ii) Critical mission or business 

requirements; 

(iii) Need to advance multi-functional 

competencies; 

(iv) Labor market conditions (i.e., 

availability of candidates and labor 

market rates); 

(v) Reassignment from 

nonsupervisory to supervisory position; 

(vi) Employee’s past and anticipated 

performance and contribution; 

(vii) Location of position; 

(viii) Specialized skills, knowledge, or 

education possessed by the employee in 

relation to those required by the 

position; and 

(ix) Salaries of other employees in the 

organization performing similar work. 

(b)(1) Except as otherwise provided in 

paragraph (c) of this section, when an 

employee is voluntarily reassigned 

within his/her pay band or to a 

comparable pay band, an authorized 

management official may reduce the 

employee’s base salary in any amount 

determined prior to the reassignment 

with the employee’s agreement, as long 

as the employee’s base salary does not 

drop below the minimum of the 

assigned rate range. In appropriate 

circumstances, an authorized 

management official may make approval 

of a reassignment contingent on the 

employee’s acceptance of a reduced 

rate. Subject to paragraph (b)(2) of this 

section, an authorized management 

official may also increase the 

employee’s current base salary by up to 

5 percent (not to exceed the rate range 

maximum). 

(2) The decision to grant a decrease or 

increase, including the amount of such 

decrease or increase, as applicable 

under paragraph (b)(1) of this section, 

will be reviewed and approved by an 

official who is at a higher level than the 

official who made the initial decision, 

as determined by the Component. At a 

minimum, the higher-level approval 

may be no lower than one level above 

the authorized management official who 

approved the reassignment unless there 

is no official at the higher level in the 

organization. There are no limits to the 

number of times an employee may be 

reassigned; however, an employee may 

only receive up to a total of a 5 percent 

cumulative increase to base salary in 

any 12-month period as the result of an 

employee-initiated action, unless an 

exception to the 12-month limitation is 

approved by an authorized management 

official. The increase will be calculated 

as a percentage of the employee’s base 

salary at the time the increase takes 

effect. 

(c)(1) Subject to paragraphs (b)(2) and 

(c)(2) through (c)(5) of this section, as 

applicable, when an employee is 

voluntarily reassigned from a position 

with a targeted local market supplement 

or from a non-NSPS position (e.g., 

General Schedule, Federal Wage 

System, Nonappropriated Fund), an 

authorized management official will set 

pay considering the employee’s adjusted 

salary (including any applicable locality 

pay, special rate supplement, or other 

equivalent supplement) and any 

physicians’ comparability allowance 

payable for the position held prior to the 

reassignment. 

(2) An authorized management 

official may— 

(i) Set the employee’s new adjusted 

salary equal to the employee’s current 

adjusted salary plus any physicians’ 

comparability allowance, if applicable, 

received prior to the reassignment; 

(ii) Decrease the employee’s adjusted 

salary by any amount determined prior 

to the reassignment with the employee’s 

agreement, as long as the employee’s 

base salary does not drop below the 

minimum of the assigned rate range; or 

(iii) Increase the employee’s current 

adjusted salary plus any physicians’ 

comparability allowance, if applicable, 

by up to 5 percent (subject to the 

limitation that the resulting base salary 

may not exceed the rate range 

maximum). 

(3) After setting the employee’s NSPS 

adjusted salary, the adjusted salary will 

be apportioned between the employee’s 

base salary and the appropriate local 

market supplement or targeted local 

market supplement. 

(4) If the NSPS adjusted salary is 

increased beyond the amount of the 

employee’s current adjusted salary plus 

any physicians’ comparability 

allowance, the percentage of the 

increase is counted toward the 12- 

month limitation under paragraph (b) of 

this section. 

(5) When an employee covered by 

paragraph (c)(1) of this section moves 

geographically in conjunction with a 

voluntary reassignment, the employee’s 

current adjusted salary must be 

recalculated in accordance with the 

rules at § 9901.351(b) before setting pay 

under paragraph (c)(2) of this section. 

(d)(1) Except as otherwise provided in 

paragraphs (e) or (f) of this section, 

when an employee is reassigned via 

management-directed action within his/ 

her current pay band or to a comparable 

pay band, an authorized management 

official will set pay at an amount no less 

than the employee’s current base salary 

and may increase the employee’s 

current base salary by up to 5 percent. 

(If the employee’s current base salary 

exceeds the maximum of the new pay 

band, no increase is provided, and the 

employee’s rate will be set at that 

maximum rate, or if the employee is 

eligible, converted to a retained rate as 

provided in § 9901.356.) 

(2) The decision to grant an increase 

under paragraph (d)(1) of this section, 

including the amount of such increase, 

is discretionary and will be reviewed 

and approved by an official who is at a 

higher level than the official who made 

the initial decision, as determined by a 

Component, unless there is no official at 

a higher level in the organization. There 

is no limit to the number of times an 

employee may be reassigned by 

management, and the employee is 

eligible for an increase of up to 5 

percent with each reassignment. Any 

increase associated with a managementdirected reassignment does not count 

toward the 12-month limitation 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56407 

described in paragraph (b) of this 

section. 

(e)(1) Subject to paragraphs (d)(2), 

(e)(2), (e)(3), and (f) of this section, as 

applicable, when an employee is 

reassigned via management-directed 

action from a position with a targeted 

local market supplement or from a nonNSPS position (e.g., General Schedule, 

Federal Wage System, Nonappropriated 

Fund), an authorized management 

official will set the employee’s new 

adjusted salary at no less than the 

employee’s adjusted salary (including 

any applicable locality pay, special rate 

supplement, or equivalent supplement) 

plus any physicians’ comparability 

allowance payable for the position held 

prior to the reassignment, provided the 

resulting base salary does not exceed the 

maximum rate of the new pay band. 

Subject to the same maximum 

limitation, an authorized management 

official may also increase the 

employee’s adjusted salary by up to 5 

percent. 

(2) After setting the employee’s NSPS 

adjusted salary, the adjusted salary will 

be apportioned between the employee’s 

base salary and the appropriate local 

market supplement or targeted local 

market supplement. 

(3) When an employee covered by 

paragraph (e)(1) of this section moves 

geographically in conjunction with a 

management-directed reassignment, the 

employee’s current adjusted salary must 

be recalculated in accordance with the 

rules in § 9901.351(b) before setting pay 

under such paragraph (e)(1). 

(4) For the purpose of determining 

whether an employee experienced a 

reduction in pay under 5 U.S.C. chapter 

75 when reassigned from a non-NSPS 

position under paragraph (e)(1) of this 

section, § 9901.351(g) applies. 

(f) When an employee is involuntarily 

reduced in pay via reassignment to a 

comparable pay band through adverse 

action procedures (as a result of 

unacceptable performance and/or 

conduct), the pay reduction must be at 

least 5 percent, but no more than 10 

percent, of an employee’s base salary. 

However, a reduction may be less than 

5 percent to prevent the employee’s base 

salary from falling below the minimum 

rate of the employee’s pay band and 

may be more than 10 percent if a larger 

reduction is needed to place the 

employee at the maximum rate of the 

lower band. An employee’s base salary 

may not be reduced more than once in 

a 12-month period based on 

unacceptable performance, conduct, or 

both. (See also § 9901.343.) 

(g) When an employee returns to an 

NSPS position from a temporary 

reassignment to another NSPS position, 

the employee’s current base salary rate 

must be reconstructed as if the 

employee had not been temporarily 

reassigned. For this purpose, the 

employee will be deemed to have 

received performance pay increases 

under § 9901.342 and other increases in 

base salary under §§ 9901.344 and 

9901.345 equal to the percentage value 

of such increases actually received by 

the employee during the temporary 

reassignment. However, any such 

increases must be applied as if the 

employee were in the position and band 

held immediately before the temporary 

reassignment (i.e., using the rate range 

and any applicable control points for 

that band). The employee will also be 

credited with any general salary 

increases provided during the 

temporary reassignment that would 

have been applied to the employee if he 

or she had continued to hold the 

position held immediately before that 

temporary reassignment. A 

reassignment increase is not authorized 

when the employee returns to the 

position from which temporarily 

reassigned. (See § 9901.342(l) for rules 

governing pay setting for an employee 

who returns to an NSPS position after 

being temporarily assigned to a nonNSPS position.) 

(h) If an employee’s temporary 

reassignment is made permanent, the 

permanent reassignment is treated as a 

new reassignment for purposes of 

applying this section. 

(i) When an employee is reassigned to 

an NSPS supervisory position but later 

returns to the NSPS position held before 

that reassignment (or comparable 

position) because of failure to complete 

a supervisory probationary period, the 

employee’s base salary rate must be 

reconstructed as if the employee had not 

been reassigned. For this purpose, the 

employee will be deemed to have 

received performance pay increases 

under § 9901.342 and other increases in 

base salary under §§ 9901.344 and 

9901.345 equal to the percentage value 

of such increases actually received by 

the employee during the reassignment. 

However, any such increases must be 

applied as if the employee were in the 

position and band held immediately 

before the reassignment (i.e., using the 

rate range and any applicable control 

points for that band). The employee will 

also be credited with any general salary 

increases provided during the 

reassignment that would have been 

applied to the employee if he or she had 

continued to hold the position held 

immediately before that reassignment. A 

reassignment increase upon return to 

the previous position (or comparable 

position) under this paragraph is not 

authorized. (See § 9901.342(l) for rules 

governing pay setting for an employee 

who returns to an NSPS position after 

failure to complete a supervisory 

probationary period for a non-NSPS 

supervisory position.) 

§ 9901.354 Setting pay upon promotion. 

(a)(1) Except as otherwise provided in 

this section, upon an employee’s 

promotion, the employee will receive an 

increase in his or her base salary equal 

to at least 6 percent, but the resulting 

base salary rate may not be lower than 

the minimum rate or higher than the 

maximum rate of the new pay band. The 

decision to grant a promotion increase 

exceeding 12 percent must be reviewed 

and approved by an official who is at a 

higher level than the official who made 

the initial decision, as determined by 

the Component, unless a higher increase 

is necessary to reach the minimum rate 

of the new pay band or there is no 

official at a higher level in the 

organization. 

(2) When an employee from a nonNSPS position is promoted to an NSPS 

position, the authorized management 

official shall first apply § 9901.353(e)(1) 

through (e)(3) to determine the 

employee’s adjusted salary rate as if 

reassigned without a discretionary 

increase or decrease in pay. After 

apportioning the employee’s adjusted 

salary between base salary and local 

market supplement or targeted local 

market supplement, the authorized 

management official will then increase 

the employee’s salary rate as provided 

in § 9901.354(a)(1). 

(b) The authorized management 

official may consider only the following 

criteria in determining the amount of 

the promotion increase: 

(1) Critical mission or business 

requirements; 

(2) Employee’s past and anticipated 

performance and contribution; 

(3) Specialized skills or knowledge 

possessed by the employee; 

(4) Labor market conditions 

(including availability of candidates and 

the labor market rates for similar types 

of employees at the level represented by 

the pay band to which the employee is 

being promoted); 

(5) Base salary rates paid to other 

employees in similar positions in the 

higher pay band; and 

(6) Location of position. 

(c)(1) If an employee’s temporary 

promotion is made permanent without a 

break, the employee’s base salary will 

remain unchanged. No additional 

promotion increase may be provided. 

(2) When an employee returns from a 

temporary promotion to another NSPS 

position, the employee’s current base 

mstockstill on PROD1PC66 with RULES2

56408 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

salary rate must be reconstructed as if 

the employee had not been temporarily 

promoted. For this purpose, the 

employee will be deemed to have 

received performance pay increases 

under § 9901.342 and other increases in 

base salary under §§ 9901.344 and 

9901.345 equal to the percentage value 

of such increases actually received by 

the employee during the temporary 

promotion. However, any such increases 

must be applied as if the employee were 

in the position and band held 

immediately before the temporary 

promotion (i.e., using the rate range and 

any applicable control points for that 

band). The employee will also be 

credited with any general salary 

increases provided during the 

temporary promotion that would have 

been applied to the employee if he or 

she had continued to hold the position 

held immediately before that temporary 

promotion. A reduction-in-band 

increase upon return to the previous 

position (or comparable position) under 

this paragraph is not authorized. (See 

§ 9901.342(l) for rules governing pay 

setting for an employee who returns to 

an NSPS position after being 

temporarily assigned to a non-NSPS 

position.) 

(d)(1) An employee on pay retention 

who is re-promoted to the pay band 

from which reduced (or a comparable 

band) is not automatically entitled to 

have his/her pay set in accordance with 

the promotion rules described in 

paragraphs (a) and (b) of this section. If 

the employee’s retained rate falls within 

the rate range of the newly assigned pay 

band, the authorized management 

official may maintain the same base 

salary upon re-promotion, or increase 

the employee’s base salary to a rate 

above his or her retained rate. However, 

the employee’s new base salary may not 

exceed the rate that would be provided 

using the promotion rules described in 

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

The employee’s retained rate will be 

used when calculating any increase 

approved by an authorized management 

official. If the employee’s retained rate 

falls below the minimum rate of the 

newly assigned pay band, the 

employee’s base salary must be set at 

least at the minimum rate of the band. 

If the employee’s retained rate is higher 

than the maximum rate of the newly 

assigned pay band, pay retention will 

continue (subject to the requirements of 

§ 9901.356). 

(2) An employee who is promoted to 

a pay band higher than the one from 

which previously reduced in band will 

be covered by the promotion rules 

described in paragraphs (a) and (b) of 

this section. The employee’s retained 

rate will be used when calculating the 

6 percent (or higher) increase. 

§ 9901.355 Setting pay upon reduction in 

band. 

(a) General. When an employee is 

reduced in band, either voluntarily or 

involuntarily, the setting of the 

employee’s base salary rate is subject to 

the rules in this section. As applicable, 

pay retention provisions established 

under § 9901.356 will apply. If pay 

retention does not apply, the employee’s 

base salary may be reduced, subject to 

the requirements in paragraph (b) of this 

section. The employee may be eligible 

for an increase to base salary, subject to 

the requirements in paragraph (c) of this 

section. 

(b) Pay reduction. An employee’s base 

salary may be reduced upon reduction 

in band, subject to the following 

requirements: 

(1) No base salary reduction is made 

when pay retention is applicable, except 

under paragraph (b)(4) of this section. 

(2) The reduction in base salary may 

not cause the rate to fall below the 

minimum rate of the employee’s new 

band. 

(3) The base salary must be reduced 

as necessary to ensure that the new base 

salary is no greater than the maximum 

rate of the employee’s new band. 

(4) Adverse action procedures in 5 

U.S.C. chapter 75 must be applied when 

an employee is involuntarily placed in 

a position in a lower pay band for 

unacceptable performance and/or 

conduct. In this circumstance, the 

authorized management official may 

reduce the employee’s base salary. If 

such a reduction is made, it must be at 

least 5 percent, but no more than 10 

percent, of an employee’s base salary 

after applying adverse action 

procedures. However, a reduction in 

base salary under this paragraph may be 

less than 5 percent to prevent the 

employee’s base salary from falling 

below the minimum rate of the 

employee’s new pay band and may be 

more than 10 percent if a larger 

reduction is needed to place the 

employee at the maximum rate of the 

lower band. (See also § 9901.343.) 

(5) If an employee held a position 

with a targeted local market supplement 

or a non-NSPS position prior to the 

reduction in band, the pay reduction is 

applied using adjusted salary rates, 

consistent with the reassignment rules 

in § 9901.353(c) (including, as 

appropriate, a geographic recalculation 

prior to applying the decrease, 

consistent with the provisions of 

§ 9901.351(b)). 

(c) Pay increase. An employee’s base 

salary may be increased by an 

authorized management official upon 

reduction in band, subject to the 

following requirements: 

(1) An employee who is reduced in 

band involuntarily—e.g., through 

reduction-in-force (RIF) procedures or 

by placement through the DoD Priority 

Placement Program (PPP) or 

Reemployment Priority List (RPL)—is 

not eligible for an increase to base salary 

(except if necessary to set the 

employee’s base salary at the minimum 

rate of the new pay band). 

(2) When an employee voluntarily 

moves to a lower pay band, the 

authorized management official may 

increase the employee’s base salary, but 

must set the employee’s base salary 

within the rate range for the employee’s 

band. An increase in base salary may be 

up to 5 percent of the employee’s 

current base salary (not to exceed the 

maximum of the rate range). This 

increase of up to 5 percent is deemed to 

be a ‘‘reassignment increase’’ for the 

purpose of applying the 12-month 

limitation in § 9901.353(b)(2). Also, in 

applying this increase, adjusted salary 

rates will be used when an employee 

held a position with a targeted local 

market supplement or a non-NSPS 

position prior to the reduction in band, 

consistent with the reassignment 

increase rules in § 9901.353(c) 

(including, as appropriate, a geographic 

recalculation prior to applying the 

increase, consistent with the provisions 

of § 9901.351(b)). This increase is 

subject to higher-level approval. At a 

minimum, the higher-level approval 

may be no lower than one level above 

the authorized management official who 

approved the reduction in band, unless 

there is no higher-level management 

official. 

(3) After setting the employee’s NSPS 

adjusted salary, the adjusted salary will 

be apportioned between the employee’s 

base salary and the appropriate local 

market supplement or targeted local 

market supplement. 

(4) A decision to increase an 

employee’s pay under paragraph (c)(2) 

of this section will be based on— 

(i) Critical mission or business 

requirements; 

(ii) The need to advance multifunctional competencies; 

(iii) The labor market conditions (i.e., 

availability of candidates, labor market 

rates for similar types of employees); 

(iv) Reassignment from 

nonsupervisory to supervisory position; 

(v) Location of position; 

(vi) Required specialized skills, 

knowledge, or education possessed by 

the employee; 

(vii) Performance-based 

considerations; and 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56409 

(viii) The base salary rates paid to 

other employees in similar positions in 

the lower pay band. 

(d) Termination of temporary 

promotion. This section does not apply 

to a reduction in band associated with 

the termination of a temporary 

promotion. Instead, the rules in 

§ 9901.354(c)(2) apply. 

(e) Failure to complete probationary 

period. When an employee who fails to 

complete a supervisory probationary 

period is reduced in band upon return 

to the position held before the 

probationary period (or a comparable 

position), the employee’s current base 

salary rate must be reconstructed as if 

the employee had not been promoted. 

For this purpose, the employee will be 

deemed to have received performance 

pay increases under § 9901.342 and 

other increases in base salary under 

§§ 9901.344 and 9901.345 equal to the 

percentage value of such increases 

actually received by the employee 

during the promotion. However, any 

such increases must be applied as if the 

employee were in the position and band 

held immediately before the promotion 

(i.e., using the rate range and any 

applicable control points for that band). 

The employee will also be credited with 

any general salary increases provided 

during the promotion that would have 

been applied to the employee if he or 

she had remained in the position held 

immediately before that promotion. A 

reduction-in-band increase upon return 

to the previous position (or comparable 

position) under this paragraph is not 

authorized. (See § 9901.342(l) for rules 

governing pay setting for an employee 

who returns to an NSPS position after 

being temporarily assigned to a nonNSPS position.) 

§ 9901.356 Pay retention. 

(a) Pay retention prevents a reduction 

in base salary that would otherwise 

occur by preserving the former rate of 

base salary within the employee’s new 

pay band or by establishing a retained 

rate that exceeds the maximum rate of 

the new pay band. Local market 

supplements are not considered part of 

base salary in applying pay retention. 

(b) Pay retention will be based on the 

employee’s rate of base salary in effect 

immediately before the action that 

would otherwise reduce the employee’s 

rate. A retained rate will be compared 

to the range of rates of base salary 

applicable to the employee’s position. 

(c) Pay retention will be granted for a 

period of 104 weeks. The Secretary may 

issue implementing issuances 

describing exceptions to the 104-week 

retention limit. 

(d) Under NSPS, pay retention will be 

granted when an employee’s base salary 

would otherwise be reduced in the 

following situations: 

(1) As the result of reduction in force 

or reclassification; 

(2) When an otherwise eligible 

employee is placed through the Priority 

Placement Program (PPP), including 

placement resulting from early 

registration, even though the employee 

does not have a specific reduction in 

force (RIF) notice; 

(3) When an organization undergoes 

realignment or reduction, and 

(i) An employee who would not be 

affected personally requests a reduction 

in band; 

(ii) Management determines the 

employee’s reduction in band results in 

placement in a more suitable position; 

and 

(iii) That action lessens or avoids the 

impact of the RIF on other employees; 

(4) When an employee accepts a 

position in a lower pay band designated 

in advance by the component as being 

hard-to-fill using any of the following 

criteria: 

(i) Rates of pay offered by non-Federal 

employers are significantly higher than 

those payable under NSPS for the area, 

location, occupational group, or other 

class of positions involved; 

(ii) The remoteness of the area or 

location involved; 

(iii) The undesirability of the working 

conditions or the nature of the work 

involved (including exposure to toxic 

substances or other occupational 

hazards); or 

(iv) Any other circumstances the 

Component considers appropriate, 

subject to review and approval by an 

official who is at a higher level than the 

official who made the initial decision; 

(5) When an employee is reduced in 

band on return from an overseas 

assignment under the terms of a preestablished agreement including— 

(i) An employee released from a 

period of service specified in his or her 

current transportation agreement due to 

an involuntary, management-initiated 

action other than for unacceptable 

performance and/or misconduct; 

(ii) An employee, who has completed 

more than one year of service under a 

current agreement, released from a 

transportation agreement for compelling 

humanitarian or compassionate reasons; 

and 

(iii) A non-displaced overseas 

employee under no obligation to return 

to the United States who is otherwise 

eligible for PPP registration in 

accordance with DoD Instruction 

1400.20; 

(6) When an employee declines an 

offer to transfer with his or her function 

to a location outside the commuting 

area, or is identified with such function 

but does not receive an offer at the 

gaining activity, and is placed in a 

position in a lower pay band at the 

losing activity or any other DoD activity; 

(7) When an employee accepts a 

position in a lower pay band offered by 

an activity to accommodate a disabling 

medical condition similar to the 

circumstances described in 5 CFR 

831.1203(a)(4); 

(8) When an employee occupying a 

position under a Schedule C 

appointment (authorized under 5 CFR 

213.3301) is placed, other than for 

unacceptable performance and/or 

misconduct or at the employee’s 

request, in a position in a lower pay 

band in the competitive service or in 

another Schedule C position, provided 

that such action is not solely the result 

of a change in agency leadership 

(change in administration); 

(9) When an employee occupying an 

Army or Air Force dual status military 

technician position lost, or is scheduled 

to lose, eligibility for dual status 

technician employment through no fault 

of his or her own and accepts placement 

without a break in service to a non-dual 

status technician position in a lower pay 

band; 

(10) When an employee occupying a 

National Guard dual status technician 

position is involuntarily separated, 

through no fault of his or her own, and 

accepts placement, without a break in 

service, to a non-dual or dual status 

technician position in a lower pay band 

or a competitive service NSPS position 

in a lower pay band; 

(11) When an employee whose job is 

abolished declines an offer within the 

competitive area, but outside the 

commuting area, and is placed in a 

lower pay band position in the 

commuting area, provided the employee 

is not serving under a mobility 

agreement; 

(12) When an employee’s base salary 

is reduced as the result of the movement 

of his or her position from a DoD 

nonappropriated fund (NAF) 

instrumentality to coverage by the DoD 

civil service system without a break in 

service of more than three days; or 

(13) When an employee’s base salary 

would exceed the maximum of the rate 

range because the maximum of the rate 

range decreased or as a result of a 

management-directed reassignment. 

(e) An authorized management official 

may grant pay retention for 

circumstances other than those detailed 

in paragraphs (d)(1) through (d)(13) of 

this section. This determination is 

discretionary, and appropriate use is 

subject to higher-level approval. At a 

mstockstill on PROD1PC66 with RULES2

56410 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

minimum, the higher-level approval 

may be no lower than one level above 

the authorized management official who 

recommended the determination. These 

circumstances may be specified in 

advance or may be approved on a caseby-case basis. This authority applies to 

personnel actions initiated by 

management, not at the employee’s 

request, and other than for unacceptable 

performance and/or misconduct, and 

only if those actions would further the 

agency’s mission in accordance with 

applicable law and regulation. 

(f) Pay retention under this authority 

will terminate— 

(1) At the end of the 104-week period 

(except as otherwise provided under 

paragraphs (c) and (m) of this section); 

(2) When the employee moves to 

another position with a rate range that 

encompasses the employee’s retained 

rate; 

(3) When an increase in the maximum 

rate for the employee’s pay band causes 

the maximum rate to equal or exceed 

his/her retained rate, or the employee’s 

base salary is encompassed within his 

or her assigned rate range as a result of 

a pay reduction based on unacceptable 

performance and/or conduct, subject to 

adverse action procedures; 

(4) When the employee is no longer 

covered by an NSPS position or has a 

break in service of 1 workday or more 

(which includes employees placed via 

PPP after separation), unless otherwise 

covered under another section of this 

regulation; 

(5) When the employee is reduced in 

band for unacceptable performance and/ 

or conduct; or 

(6) When the employee is reduced in 

band at his or her request in 

circumstances other than stated in 

paragraph (d) of this section. 

(g) An employee whose pay retention 

terminates at the end of the 104-week 

period will have his or her pay set at the 

maximum rate of the pay band in which 

he/she is currently assigned. 

(h) Upon termination of pay retention, 

the employee immediately becomes 

eligible for any applicable general salary 

increase and performance payout which 

may include an increase to base salary, 

unless otherwise ineligible. 

(i) Pay retention does not apply in the 

following circumstances: 

(1) Declination of a position offer 

under RIF procedures set forth in 5 CFR 

part 351; 

(2) Break in service of 1 workday or 

more (which includes employees placed 

via PPP after separation), unless 

otherwise covered under paragraph (d) 

of this section; 

(3) Movement from a non-DoD 

position to an NSPS-covered position; 

(4) Failure to satisfactorily complete a 

supervisory probationary period; 

(5) Return to an employee’s former 

position at the end of a temporary 

promotion or temporary reassignment; 

(6) Reassignment or reduction in band 

for unacceptable performance and/or 

conduct; or 

(7) Reassignment or reduction in band 

at the employee’s request in 

circumstances other than stated in 

paragraph (d) of this section. 

(j) Employees entitled to a retained 

rate will receive any performance 

payouts in the form of bonuses, rather 

than base salary adjustments, as 

provided in § 9901.342(g)(8). 

(k) An employee receiving a retained 

rate will receive any general salary 

increase under § 9901.323(a)(1), subject 

to the conditions in § 9901.323, and will 

receive any applicable local market 

supplement adjustment, subject to the 

conditions in § 9901.334. 

(l) The 104-week time limit 

established under paragraphs (c) and 

(f)(1) of this section will be extended by 

a period of time equal to the length of 

time an employee is deployed away 

from his or her regular duty station in 

support of a contingency operation as 

defined in 10 U.S.C. 101, or an 

emergency as determined in accordance 

with DoD Directive 1400.31, ‘‘DoD 

Civilian Work Force Contingency and 

Emergency Planning and Execution’’ (or 

any successor regulation). 

(m) Any employee with a preexisting 

entitlement to pay retention under 5 

CFR part 536 immediately before 

becoming covered by NSPS through a 

management-directed action, or who 

obtains entitlement to pay retention 

upon becoming covered by NSPS 

through a management-directed action, 

will be entitled to a retained rate under 

this section without regard to the 104- 

week limit (as described in paragraphs 

(c) and (f)(1) of this section). Pay 

retention will terminate under the 

conditions in paragraphs (f)(2) through 

(f)(6) of this section. 

Premium Pay 

§ 9901.361 General provisions. 

(a) Introduction. As provided in 

§ 9901.303(a)(2), the provisions of 5 

U.S.C. chapter 55, subchapter V, and 

related regulations are waived or 

modified as provided in paragraph (e) of 

this section and §§ 9901.362 through 

9901.364 (except as provided in 

paragraph (b) of this section). To the 

extent that the provisions of 5 U.S.C. 

chapter 55, subchapter V, and related 

regulations are not waived or modified, 

NSPS employees and positions remain 

subject to those provisions. Sections 

9901.363 and 9901.364 establish new 

types of premium payments in addition 

to those found in 5 U.S.C. chapter 55, 

subchapter V. 

(b) Provisions not waived or modified. 

The following provisions of 5 U.S.C. 

chapter 55, subchapter V, are not 

waived or modified: 

(1) 5 U.S.C. 5544 (relating to 

prevailing rate employees); and 

(2) 5 U.S.C. 5545b (relating to 

firefighter pay). 

(c) Applicability of Fair Labor 

Standards Act. The Fair Labor 

Standards Act of 1938 (FLSA), as 

amended (29 U.S.C. 201 et seq.) and 

OPM regulations in 5 CFR part 551 

apply to NSPS employees. DoD must 

determine whether an employee is 

exempt or nonexempt under the FLSA 

minimum wage and overtime pay 

provisions in accordance with the FLSA 

and OPM regulations. In applying FLSA 

overtime pay provisions, local market 

supplements are treated the same as 

locality pay under 5 U.S.C. 5304 and are 

included in computing total 

remuneration, the hourly regular rate, 

and straight time rate under 5 CFR part 

551. 

(d) Applying regulations in 5 CFR part 

550, subpart M. In applying the 

regulations in 5 CFR part 550, subpart 

M (dealing with firefighter pay) to NSPS 

employees, the reference to ‘‘locality 

pay’’ in 5 CFR 550.1305(e) must be 

interpreted to be a reference to a local 

market supplement. Consistent with 5 

CFR 550.1306(a), a firefighter 

compensated under 5 CFR part 550, 

subpart M, may not receive additional 

premium pay except for compensatory 

time off for travel under § 9901.362(j) or 

for religious observances under 

§ 9901.362(k) and foreign language 

proficiency pay under § 9901.364. 

(e) Physicians and dentists. 

Physicians and dentists (in occupational 

series 0602 and 0680, respectively) 

under NSPS are not eligible for 

premium pay except for compensatory 

time off for religious observances under 

§ 9901.362(k). 

(f) Senior Executive Service. Members 

of the Senior Executive Service under 

NSPS are not eligible for premium pay, 

except for compensatory time off for 

religious observances under 

§ 9901.362(k). 

§ 9901.362 Modification of standard 

provisions. 

(a) Premium pay limitations. (1) An 

employee is covered by the premium 

pay limitations established under 5 

U.S.C. 5547 and related regulations, 

except as provided in paragraph (a)(2) of 

this section. Notwithstanding the 

modification of various premium 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56411 

payments under this section, those 

payments are still considered to be 

payments in 5 U.S.C. chapter 55, 

subchapter V, for the purpose of 

applying 5 U.S.C. 5547 (including the 

purpose of determining the covered 

premium payments under 5 U.S.C. 

5547(a)). 

(2) Subject to § 9901.105, the 

Secretary may waive the limitations 

established by 5 U.S.C. 5547 and related 

regulations and instead apply an annual 

limitation equal to the rate payable 

under 3 U.S.C. 104 in the case of 

specified categories of employees and 

situations on a time-limited basis. Such 

a waiver may not apply with respect to 

additional compensation that is 

normally creditable as basic pay for 

retirement or any other purpose. 

(b) Overtime pay. (1) An employee is 

covered by the overtime pay (including 

compensatory time off) provisions in 5 

U.S.C. 5542 and 5543 and related 

regulations, subject to the requirements 

and modifications described in 

paragraphs (b)(2) through (b)(6) of this 

section. 

(2) Consistent with 5 U.S.C. 5542(c), 

an employee who is subject to section 

7 of the Fair Labor Standards Act of 

1938 (FLSA), as amended, is covered by 

OPM’s FLSA overtime regulations in 5 

CFR part 551. 

(3) Compensation for irregular or 

overtime work performed by National 

Guard Technicians is governed by 32 

U.S.C. 709(h) and policies issued by the 

National Guard Bureau. 

(4) Firefighters covered by 5 U.S.C. 

5545b are subject to special overtime 

pay rules as described in that section 

and in 5 U.S.C. 5542(f) and in related 

regulations. (See also § 9901.361(d).) 

(5) Compensatory time off earned 

under 5 U.S.C. 5543 must be used by the 

end of the 26th pay period after that in 

which it was earned. Compensatory 

time off not used within 26 pay periods 

will be paid at the overtime rate at 

which it was earned. Employees with 

unused compensatory time earned 

before June 8, 1997 (January 5, 1997, for 

Defense Logistics Agency employees), 

have had a separate ‘‘old compensatory 

time’’ account established for their use. 

Old compensatory time is charged only 

if the employee has insufficient current 

compensatory time (earned on or after 

June 8, 1997) to cover the compensatory 

time off requested. Within each category 

of compensatory time, the oldest will be 

charged first. When a DoD employee 

separates, moves to another Component, 

or transfers to another Federal agency, 

any unused compensatory time off 

balance will be paid at the overtime rate 

at which it was earned. Also, when an 

employee moves to a pay system that 

does not provide for compensatory time 

off (e.g., Senior Executive Service), any 

unused compensatory time off balance 

will be paid at the overtime rate at 

which it was earned. 

(6) The following modifications to 5 

U.S.C. 5542 and 5543 and related 

regulations apply: 

(i) The overtime hourly rate cap for 

FLSA-exempt employees based on the 

rate of basic pay for the minimum rate 

for GS–10 does not apply; instead, an 

FLSA-exempt employee is entitled to an 

overtime hourly rate equal to 1.5 times 

the employee’s adjusted salary hourly 

rate unless the employee is in a pay 

band for which the overtime hourly rate 

is set equal to the employee’s adjusted 

salary hourly rate based on a 

determination by the Secretary, subject 

to § 9901.105; 

(ii) An FLSA-exempt employee will 

be compensated for overtime work 

(whether regular or irregular or 

occasional) using a quarter of an hour as 

the smallest fraction of an hour, with 

minutes rounded to the nearest full 

fraction of an hour; 

(iii) An FLSA-exempt employee may 

not be credited with overtime hours of 

work for travel time unless that travel 

involves the performance of actual work 

while traveling; instead, any such 

noncreditable travel hours may be 

credited as earned compensatory time 

off for travel, subject to the requirements 

in paragraph (j) of this section; and 

(iv) An FLSA-exempt employee may 

be required to receive compensatory 

time off under 5 U.S.C. 5543 in lieu of 

overtime pay, regardless of the type of 

overtime work or the amount of the 

employee’s adjusted salary rate. 

(c) Night pay. An employee is covered 

by the night pay provisions in 5 U.S.C. 

5545(a) and (b) and related regulations, 

except for the following modifications: 

(1) Night pay is payable for irregular 

or occasional overtime work in the same 

manner it is payable for regularly 

scheduled work; and 

(2) Night pay is not payable during 

paid absences, except for a period of 

court leave, military leave, time off 

awarded under 5 U.S.C. 4502(e), or 

compensatory time off during religious 

observances, or when excused from 

duty on a holiday. 

(d) Sunday pay. An employee is 

covered by the Sunday pay provisions 

in 5 U.S.C. 5546 and related regulations, 

except for the following modifications: 

(1) Work for which Sunday pay is 

payable (i.e., Sunday work) is limited to 

applicable hours of work that are 

actually performed on Sunday (i.e., the 

definition of ‘‘Sunday work’’ in 5 CFR 

550.103 applies except that non-Sunday 

hours are excluded even if those hours 

are within a daily tour of duty that 

includes Sunday hours); and 

(2) Consistent with section 624 of the 

Treasury and General Government 

Appropriations Act, 1999 (as found in 

section 101(h) of Division A of Public 

Law 105–277, October 21, 1998), 

Sunday pay is not payable unless an 

employee actually performed work 

during the time corresponding to such 

pay (i.e., no Sunday pay for periods of 

paid leave, compensatory time off, 

credit hours, paid excused absence, or 

other paid time off). 

(e) Pay for holiday work. An employee 

is covered by the holiday premium pay 

provisions in 5 U.S.C. 5546 and related 

regulations, except for the following 

modifications: 

(1) Holiday premium pay is paid at 

twice an employee’s adjusted salary 

hourly rate for each hour (including 

overtime hours) an employee is ordered 

or approved to work on a holiday; 

(2) For FLSA-exempt employees, the 

payment for overtime hours worked on 

a holiday has two components: Payment 

required under paragraph (b) of this 

section for overtime worked, and an 

additional amount under this paragraph 

(e) such that the total payment for each 

hour is twice the employee’s adjusted 

salary hourly rate; and 

(3) For FLSA-nonexempt employees, 

the payment for overtime hours worked 

on a holiday has two components: 

Payment required under 5 CFR 551.512 

for overtime worked, and an additional 

amount under this paragraph (e) such 

that the total payment for each hour is 

twice the employee’s adjusted salary 

hourly rate. 

(f) Standby duty pay. (1) An employee 

is covered by the standby duty pay 

provisions in 5 U.S.C. 5545 (c)(1) and 

related regulations, subject to the 

requirements and modifications in 

paragraphs (f)(2) through (f)(6) of this 

section. 

(2) Except as provided in paragraph 

(f)(3), eligibility for regularly scheduled 

standby duty is limited to firefighters 

classified to the 0081 occupation who 

are not eligible for coverage under 5 

U.S.C. 5545b, and to emergency medical 

technicians not involved in fire 

protection activities who are required to 

perform standby duty. 

(3) The Secretary may approve 

extending standby duty premium pay 

coverage to occupations other than 

those cited in paragraph (f)(2) of this 

section. Component proposals to extend 

coverage will explain why employees 

within the specified occupational group 

must regularly remain at the duty 

station longer than ordinary periods of 

duty, a substantial part of which 

involves remaining in a standby status 

mstockstill on PROD1PC66 with RULES2

56412 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

rather than performing actual work, and 

must address how the criteria in 5 CFR 

550.143 are met. 

(4) The standby percentage is always 

multiplied by an employee’s adjusted 

salary rate regardless of the amount. 

(5) Standby pay attributable to use of 

an adjusted salary rate exceeding the 

applicable GS–10, step 1, rate limitation 

is not considered to be paid under 5 

U.S.C. 5545(c)(1) and thus is not 

creditable basic pay for retirement 

purposes. 

(6) No additional premium pay for 

hours of overtime work (whether 

regularly scheduled or irregular or 

occasional), including compensatory 

time off, is payable to an employee 

receiving standby duty pay. 

(g) Administratively uncontrollable 

overtime pay. The administratively 

uncontrollable overtime pay provision 

in 5 U.S.C. 5545(c)(2) is waived and will 

not be applied to NSPS employees. 

Compensation for such work will be 

made under the applicable provisions of 

this section. 

(h) Law enforcement availability pay. 

An employee is covered by the law 

enforcement availability pay provisions 

in 5 U.S.C. 5545a and related 

regulations, except that the reference to 

‘‘premium pay’’ in 5 CFR 550.186 will 

be interpreted to refer to the applicable 

title 5 premium payments and to the 

corresponding modified provisions in 

this section. In addition, the reference to 

‘‘limitation on premium pay’’ in 5 CFR 

550.185(a)(2) will be construed to refer 

to the limitations under 5 U.S.C. 5547 

and to the corresponding modified 

provision in paragraph (a) of this 

section. 

(i) Pay for duty involving physical 

hardship or hazard. (1) An employee is 

covered by the hazardous duty pay 

provisions in 5 U.S.C. 5545(d) and 

related regulations, subject to the 

requirements and modifications 

described in paragraphs (i)(2) through 

(i)(6) of this section. 

(2) In determining eligibility for 

hazardous duty pay, an authorized 

management official will apply 

occupational safety and health 

standards consistent with the 

permissible exposure limit promulgated 

by the Secretary of Labor under the 

Occupational Safety and Health Act of 

1970 as published in Subtitle B, Chapter 

XVII, of title 29, United States Code, or, 

in the absence of a permissible exposure 

limit issued by the Secretary of Labor, 

other applicable standard promulgated 

by the Secretary. 

(3) Subject to § 9901.105, the 

Secretary may establish new categories 

of hazardous duty pay in addition to 

those found in Appendix A to subpart 

I of 5 CFR part 550. Components may 

request a new category of hazardous 

duty pay be established and must 

submit, with their request, the 

information required in 5 CFR 

550.903(b). 

(4) Except as provided in paragraphs 

(i)(5) and (i)(6) of this section, an 

employee is paid a hazard pay 

differential when he or she is assigned 

to and performs a duty specified in 

Appendix A to subpart I of 5 CFR part 

550 or as provided under paragraph 

(i)(3) of this section. 

(5) An employee will be eligible to 

receive hazardous duty pay when an 

authorized management official 

determines— 

(i) One or more of the conditions 

requisite for such payment exist; and 

(ii) Safety precautions, protective or 

mechanical devices, protective or safety 

clothing, protective or safety equipment, 

or other preventive measures have not 

reduced the element of hazard below 

the permissible exposure limits 

promulgated by the Secretary of Labor 

or any applicable standard promulgated 

by the Secretary, consistent with 

paragraph (i)(2) of this section. 

(6) Hazard pay differentials are not 

payable to employees in occupations or 

jobs in which unusual physical risk is 

an inherent characteristic of the 

occupation or job, such as police officer, 

emergency medical technician, test 

pilot, ordnance/explosives/incendiary 

inspector, and engineering technician 

performing inspection functions inside 

fuel storage tanks, tunnels, or shafts. 

The classification of the employee’s 

position (i.e., determination of pay band 

level) includes a consideration of the 

hazardous duty or physical hardship. 

For the purposes of this paragraph, the 

phrase ‘‘includes a consideration of the 

hazardous duty’’ means that the duty is 

one element considered in determining 

the pay band level of the position—i.e., 

the knowledge, complexities, skills and 

abilities required to perform that duty 

are considered in the classification of 

the position. Such consideration does 

not require the hazardous duty or 

physical hardship to be pay band 

controlling. 

(j) Compensatory time off for travel. 

(1) An employee is covered by the 

compensatory time off for travel 

provisions in 5 U.S.C. 5550b and related 

regulations, subject to the requirements 

and modifications described in 

paragraphs (j)(2) through (j)(7) of this 

section. 

(2) The term ‘‘official duty station’’ as 

defined in the related regulations is not 

applicable; instead, the term ‘‘official 

worksite’’ is used to determine an 

employee’s entitlement to compensatory 

time off for travel. The term ‘‘official 

worksite’’ has the meaning given in 5 

CFR 531.605. 

(3)(i) Time spent commuting between 

an employee’s residence and the 

workplace (official or temporary 

worksite) is not creditable for the 

purpose of compensatory time off for 

travel, except as provided in paragraph 

(j)(3)(ii) of this section. 

(ii) If an employee is required to travel 

to a temporary worksite and if the oneway commuting time exceeds the 

employee’s normal one-way commuting 

time by more than 1 hour, the 

commuting time beyond 1 hour may be 

credited. 

(4) If an employee is required to travel 

directly between his or her residence 

and a transportation terminal, the travel 

time is creditable as time in a travel 

status. The travel time outside regular 

working hours directly to or from a 

transportation terminal is creditable as 

time in a travel status. However, if the 

travel occurs on a day that the employee 

is regularly scheduled to work, the time 

the employee would have spent in 

normal home-to-work or work-to-home 

commuting must be deducted. 

(5) An employee earns compensatory 

time off for time spent in a travel status 

away from the official worksite when 

such time is not otherwise compensable. 

(6) Employees must file requests for 

credit of compensatory time off for 

travel within 10 workdays after 

returning to the official duty station, or 

within 10 workdays of returning from 

temporary duty (TDY) assignment or 

approved leave which immediately 

follows the TDY during which the 

compensatory time off for travel was 

earned, by submitting a travel itinerary, 

or any other documentation acceptable 

to the employee’s supervisor, in support 

of the request. If not submitted within 

10 workdays, the employee will forfeit 

his or her claim to the compensatory 

time off for travel. Compensatory time 

off for travel will be credited in 

increments of 6 minutes or 15 minutes 

and will be tracked and managed 

separately from other forms of 

compensatory time off. 

(7)(i) When an employee moves from 

an NSPS position to a non-NSPS 

position within the Department, in 

which the employee will be eligible for 

compensatory time off for travel under 

5 CFR part 550, subpart N, he or she 

will retain unused compensatory time 

off for travel. The time elapsed from the 

end of the pay period in which the 

compensatory time off was earned 

through the date of conversion will 

count as elapsed time in applying the 

limit for usage in 5 CFR part 550, 

subpart N. 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56413 

(ii) When an employee moves from a 

non-NSPS position to an NSPS position 

within the Department, he or she will 

retain unused compensatory time off for 

travel. The time elapsed from the end of 

the pay period in which the 

compensatory time off was earned 

through the date of conversion will 

count as elapsed time in applying the 

limit for usage established under 5 CFR 

550.1407. 

(k) Compensatory time off for 

religious observances. An employee is 

covered by the compensatory time off 

for religious observances provisions in 5 

U.S.C. 5550a and related regulations, 

subject to the following requirements 

and modifications: 

(1) An employee’s request for time off 

should not be granted without 

simultaneously scheduling the hours 

during which the employee will work to 

make up the time (unless the employee 

earned the needed hours in advance); 

and 

(2) An employee may not receive 

payment for any unused compensatory 

time off for religious observances under 

any circumstances. This prohibition 

against payment applies to surviving 

beneficiaries in the event of the 

individual’s death. 

(l) Air traffic controller differential. (1) 

The air traffic controller differential 

provisions in 5 U.S.C. 5546a are waived 

and not applicable to NSPS employees, 

except for subsections (a)(1) and (d) of 

that section. 

(2) An employee is covered by the air 

traffic controller differential provisions 

in subsections (a)(1) and (d) of 5 U.S.C. 

5546a, subject to the modification 

described in paragraph (1)(3) of this 

section. 

(3) The reference to the grade levels 

of GS–9 and GS–11 in 5 U.S.C. 

5546a(a)(1) must be construed to mean 

a comparable level of work as 

determined under the NSPS 

classification structure. 

§ 9901.363 Premium pay for health care 

personnel. 

(a) Coverage. (1) This section applies 

to DoD health care personnel covered 

under NSPS who may be eligible for 

premium pay, as described in 

paragraphs (b), (c), and (d) of this 

section. For the purpose of this section, 

health care personnel means employees 

providing direct patient care services or 

services incident to direct patient care 

services. Examples include employees 

in the following occupations: nurse, 

biomedical engineer, dietitian, dental 

hygienist, psychologist, and medical 

records technician. 

(2) Premium pay under this section is 

not considered part of basic pay for any 

purpose, nor is it used in computing a 

lump-sum payment for leave under 5 

U.S.C. 5551 or 5552. 

(b) On-call premium pay. (1) When 

health care personnel are not otherwise 

compensated for on-call time, heads of 

Components may authorize on-call 

premium pay under this section for 

officially scheduled ‘‘on-call’’ time 

which requires these employees to 

restrict their activities sufficiently to be 

available to return to the worksite 

promptly when it is necessary. 

(2) To be paid on-call premium pay, 

an employee must be officially 

scheduled to be on-call outside his or 

her regular duty hours or during hours 

on a holiday when the employee is 

excused from regular duty. 

(3) An employee may not be 

scheduled to be on-call unless it is 

essential for the employee to be 

immediately available to return to the 

worksite. 

(4) An employee officially scheduled 

to be on-call will be paid 15 percent of 

his or her adjusted salary hourly rate for 

each hour of on-call status. 

(5) An employee may not receive oncall pay during periods of actual work. 

When an employee on-call is required to 

return to work status, on-call pay will be 

suspended. When released from the 

requirement to perform actual work, the 

employee will return to the remaining 

scheduled on-call status. 

(6) An employee may not be charged 

leave during periods of regularly 

scheduled on-call duty; nor may such 

an employee receive on-call premium 

pay when, because of leave or other 

authorized absence, the employee is not 

expected to be able to return to the 

worksite immediately. 

(c) Night pay for health care 

personnel. (1) Health care personnel 

working a tour of duty, any part of 

which falls between 6 p.m. and 6 a.m., 

with 4 or more hours falling between 6 

p.m. and 6 a.m., will be paid additional 

pay for each hour of work on such tour. 

When fewer than 4 hours of work fall 

between 6 p.m. and 6 a.m., health care 

personnel will be paid additional pay 

for each hour of work performed 

between 6 p.m. and 6 a.m. Night pay for 

health care personnel is 10 percent of 

the employee’s hourly rate of adjusted 

salary. An employee receiving night pay 

under this section may not also receive 

night pay under § 9901.362(c). 

(2) Health care personnel are entitled 

to pay for night duty for a period of paid 

absence only for a period of court leave, 

military leave, time off awards under 5 

U.S.C. 4502(e), or compensatory time off 

for religious observances. 

(3) When excused from work because 

of a holiday or in-lieu-of holiday, health 

care personnel are entitled to the night 

pay that would have applied had they 

not been excused from work. 

(d) Pay for weekend duty for health 

care personnel. (1) Health care 

personnel who work a tour of duty, any 

part of which falls in the 2-day period 

between midnight Friday and midnight 

Sunday, will be paid additional pay for 

each hour of work during such tour. 

Health care personnel who have two 

separate tours of duty, each of which 

qualify as weekend duty, will be paid 

additional pay for each hour of both 

tours. Additional pay for weekend duty 

is 25 percent of the employee’s hourly 

rate of adjusted salary. An employee 

receiving pay for weekend duty may not 

also receive pay for Sunday work under 

§ 9901.362(d). 

(2) When on court leave, military 

leave, time off awarded under 5 U.S.C. 

4502(e), or compensatory time off for 

religious observances, health care 

personnel are entitled to pay for 

weekend duty they otherwise would 

have received. 

§ 9901.364 Foreign language proficiency 

pay. 

(a) General provisions. (1) This 

section applies to employees who may 

be paid Foreign Language Proficiency 

Pay (FLPP) if they are certified as 

proficient in a foreign language the 

Secretary has determined to be 

necessary for national security interests, 

and if they are not receiving FLPP as 

provided in 10 U.S.C. 1596 and 10 

U.S.C. 1596a. 

(2) The Secretary is authorized to 

publish an annual list of foreign 

languages necessary for national 

security interests and to establish 

overall policy for administration of the 

Defense Language Program. 

(3) Employees may be certified as 

proficient in a necessary foreign 

language using criteria and procedures 

established by the Secretary and receive 

FLPP. 

(b) Eligibility Criteria. An authorized 

management official delegated the 

authority for approving payment must 

document that an employee meets 

eligibility criteria before authorizing 

FLPP. The documentation includes— 

(1) Certification within the last 12 

months of the employee’s proficiency in 

a foreign language the Secretary has 

determined necessary for national 

security interests; 

(2) Affirmation that the employee 

does not currently receive comparable 

pay under 10 U.S.C. 1596 or 1596a; 

(3) Certification of the employee’s 

foreign language proficiency level 

renewed annually; and 

mstockstill on PROD1PC66 with RULES2

56414 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

(4) Certification based on an annual 

test that is part of the Defense Language 

Proficiency Test System. 

(c) Amount and method of payment. 

The decision to grant FLPP, including 

the amount, will be reviewed and 

approved by an official who is at a 

higher level than the official who made 

the initial decision, as determined by 

the Component, unless there is no 

official at a higher level in the 

organization. The amount of FLPP 

received by the employee, not to exceed 

$500 per pay period, will be determined 

based on the following considerations: 

(1) The employee’s measured 

proficiency level in the necessary 

language; 

(2) The need for the employee’s 

particular language skills; 

(3) The difficulty of recruiting or 

retaining employees with the same 

proficiencies; 

(4) The extent to which the employee 

performs tasks requiring proficiency; 

(5) The number of necessary 

languages in which the employee is 

proficient; and 

(6) Other considerations authorized 

by the Secretary. 

(d) Treatment for other purposes. 

FLPP is not considered part of basic pay 

for any purpose and does not count 

towards retirement, insurance, or any 

other benefit related to basic pay. FLPP 

is not pay for purposes of a lump-sum 

payment for leave under 5 U.S.C. 5551 

or 5552. 

(e) Termination. The authorized 

management official as determined by 

the Component may reduce or terminate 

FLPP at any time when the official 

determines— 

(1) The need for the employee’s 

language capability has been reduced or 

eliminated; or 

(2) The employee no longer meets the 

certification requirements. 

(f) Miscellaneous. (1) The minimum 

qualifying level may not be less than 

Interagency Language Roundtable Level 

2 proficiency in at least two skills 

(listening, reading, speaking, or writing, 

as required). 

(2) FLPP may be paid for proficiency 

in multiple languages; however, the 

total amount may not exceed $500 per 

pay period. 

Conversion Provisions 

§ 9901.371 Conversion into NSPS pay 

system. 

(a) Introduction. This section 

describes the pay-setting provisions that 

apply when DoD employees are 

converted into the NSPS pay system 

established under this subpart. (See 

§ 9901.231 for conversion rules related 

to determining an employee’s career 

group, pay schedule, and band.) An 

affected employee may convert from the 

GS system, the SL/ST system, or the 

SES system (or such other systems 

designated by the Secretary as DoD may 

be authorized to include under 5 U.S.C. 

9902), as provided in § 9901.302. For 

the purpose of this part (except 

§ 9901.372), the terms ‘‘convert,’’ 

‘‘converted,’’ ‘‘converting,’’ and 

‘‘conversion’’ refer to employees who 

become covered by the NSPS pay 

system without a change in position (as 

a result of a coverage determination 

made under § 9901.102(b)) and exclude 

employees who move from a 

noncovered position to a position 

already covered by the NSPS pay 

system. 

(b) Implementing issuances. The 

Secretary will issue implementing 

issuances prescribing the policies and 

procedures necessary to implement 

these conversion provisions. 

(c) Bar on pay reduction. Subject to 

paragraph (e) of this section, employees 

will be converted into the NSPS pay 

system without a reduction in their 

adjusted salary rate. (As defined in 

§ 9901.304, the term ‘‘adjusted salary’’ 

means base salary plus any applicable 

locality payment under 5 U.S.C. 5304, 

special rate supplement under 5 U.S.C. 

5305, local market supplement under 

§ 9901.332, or equivalent supplement 

under other legal authority.) 

(d) Rate comparison. For the purpose 

of determining whether conversion into 

NSPS constitutes an adverse action for 

reduction of pay under 5 U.S.C. chapter 

75, subchapter II (dealing with adverse 

actions), an employee’s rate of basic pay 

includes any applicable locality 

payment under 5 U.S.C. 5304, special 

rate supplement under 5 U.S.C. 5305, 

local market supplement under 

§ 9901.332, or equivalent supplement 

under other legal authority. The rate of 

basic pay immediately before 

conversion must be adjusted as 

described in paragraph (e) of this 

section before comparing that rate of 

basic pay to the initial NSPS rate of 

basic pay. 

(e) Simultaneous actions. If another 

personnel action (e.g., promotion, 

geographic movement) takes effect on 

the same day as the effective date of an 

employee’s conversion to the new pay 

system, the other action will be 

processed under the rules pertaining to 

the employee’s former system before 

processing the conversion action. 

(f) Temporary promotion prior to 

conversion. An employee on a 

temporary promotion at the time of 

conversion will be returned to his or her 

official position of record prior to 

processing the conversion (as provided 

in § 9901.231(c)), and pay will be set 

consistent with the pay-setting rules of 

the pay system that applies prior to 

conversion. For GS employees, pay in 

the permanent position of record must 

be reconstructed to reflect any increase 

that would have otherwise occurred if 

the employee had not been temporarily 

promoted, as provided in GS pay-setting 

regulations. If the employee is 

temporarily promoted immediately after 

the conversion, pay will be set under 

the rules for promotion increases under 

the NSPS pay system. (See also 

paragraph (k) of this section.) 

(g) Grade retention prior to 

conversion. An employee on grade 

retention immediately before conversion 

must be converted to a pay band based 

on the grade of his or her assigned 

permanent position of record (not the 

retained grade), as provided in 

§ 9901.231(d), but the employee’s base 

and adjusted salary while in grade 

retention status will be used in applying 

this section (e.g., in setting the initial 

NSPS base and adjusted salary and in 

determining the amount of any withingrade increase adjustment). After 

conversion and any within-grade 

increase adjustment under paragraph (j) 

of this section, if the employee’s base 

salary exceeds the rate range for the 

assigned pay band, the employee will be 

granted pay retention, subject to the 

conditions described in § 9901.356. 

(h) Pay retention prior to conversion. 

For an employee on pay retention under 

5 U.S.C. 5363 immediately before 

conversion, the employee’s pay will be 

realigned so that the employee’s NSPS 

adjusted salary (consisting of base salary 

plus any applicable local market 

supplement) equals the employee’s 

retained rate before conversion. If the 

employee’s base salary (after 

realignment) exceeds the rate range for 

the assigned pay band, the employee 

will be granted pay retention, subject to 

the conditions described in § 9901.356. 

(i) Conversion adjustments. The only 

NSPS base salary adjustments that may 

be made in conjunction with an 

employee’s conversion into NSPS are 

those identified in paragraphs (j) 

through (m) of this section. 

(j) Within-grade increase (WGI) 

adjustment. (1) Upon conversion to 

NSPS, a General Schedule (GS) 

employee (regardless of work schedule) 

who would otherwise be eligible for a 

within-grade increase (WGI), and who is 

paid below the maximum rate for their 

grade, will receive a prorated WGI 

adjustment to his or her NSPS base 

salary rate to account for the time 

(measured in calendar days) since the 

employee’s last equivalent pay increase. 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56415 

(2) The WGI adjustment is calculated 

based on the number of calendar days 

between the effective date of the 

employee’s last equivalent increase and 

the date of conversion into NSPS, 

regardless of the number of days in a 

non-pay status (if any). The maximum 

adjustment may not exceed a full WGI. 

(3) For an employee on a temporary 

promotion immediately before 

conversion, the employee’s GS pay 

entitlements must be determined as 

provided in paragraph (f) of this section 

before calculating the WGI adjustment. 

(4) For an employee entitled to grade 

retention immediately before 

conversion, the WGI adjustment is 

determined using the employee’s 

retained grade and step. 

(5) The WGI adjustment is not 

applicable to an employee entitled to 

pay retention immediately before 

conversion. 

(6) The WGI adjustment is not 

applicable to an employee whose 

performance has been determined to be 

below an acceptable level of 

competence under 5 CFR part 531, 

subpart D. 

(7) An employee is entitled to a WGI 

adjustment in accordance with 

paragraphs (j)(1) through (6) of this 

section each time he or she occupies a 

position that is converted into NSPS 

under this part. 

(k) Special increase for employees on 

temporary promotion prior to 

conversion—(1) General. If an employee 

had a temporary promotion immediately 

before conversion, and if the position to 

which the employee was temporarily 

promoted becomes covered by NSPS, an 

authorized management official may 

temporarily reassign or temporarily 

promote the employee back to that 

position, subject to the same terms and 

conditions as the initial temporary 

promotion (e.g., if the temporary 

promotion was not to exceed 5 years 

and the action is a temporary 

reassignment under NSPS, the 

temporary reassignment may not exceed 

5 years). When the employee is 

temporarily placed back into the 

position immediately after conversion, 

the pay-setting rules in paragraphs (k)(2) 

and (k)(3) of this section apply. 

(2) Temporary reassignment. If the 

post-conversion action would be a 

temporary reassignment, the authorized 

management official may provide the 

employee with a temporary base salary 

increase up to the same base salary rate 

the employee was receiving during the 

temporary promotion (prior to 

conversion) in lieu of setting pay under 

the reassignment rules under 

§ 9901.353. This is a one-time exception 

to the limitations on reassignment 

increases imposed under § 9901.353. 

Upon expiration of the temporary 

reassignment, pay will be set as 

specified in § 9901.353(g) or paragraph 

(k)(4) of this section, as applicable. 

(3) Temporary promotion. (i) If the 

post-conversion action would be a 

temporary promotion, the authorized 

management official may provide the 

employee with a temporary base salary 

increase up to the same base salary rate 

the employee was receiving during the 

temporary promotion (prior to 

conversion) or may set pay according to 

the promotion rules under § 9901.354 to 

provide a greater increase. Upon 

expiration of the temporary promotion, 

pay will be set as specified in 

§ 9901.354(c) or paragraph (k)(4) of this 

section, as applicable. 

(ii) The increase described in 

paragraph (k)(3)(i) of this section may 

also apply to an employee who is on a 

temporary promotion at the time that 

temporary promotion position converts 

to NSPS, even if the employee’s 

permanent position of record has not yet 

converted. In this case, upon expiration 

of the temporary promotion, pay will be 

set under the rules of the applicable pay 

system. 

(4) Temporary placement becomes 

permanent. If a temporary reassignment 

or promotion to an NSPS position under 

this paragraph (k) becomes permanent 

with no break, the employee’s base 

salary will not change, but will continue 

at the rate received at the end of the 

temporary reassignment or promotion. 

(l) Special increases equivalent to GS 

promotion increase. (1) During the first 

12 months following conversion, 

employees who are not eligible for the 

Accelerated Compensation for 

Developmental Positions (ACDP) under 

§ 9901.345 are eligible to receive (at the 

discretion of an authorized management 

official) a one-time base salary increase 

equivalent to a noncompetitive 

promotion increase the employee would 

have received but for conversion to 

NSPS. This paragraph may be applied 

only when the grade level of the 

promotion is encompassed within the 

same pay band, the employee’s 

performance warrants the pay increase, 

and the promotion would have 

otherwise occurred during that period. 

(2) An employee who is selected for 

a non-NSPS position that subsequently 

becomes covered by NSPS before the 

effective date of the employee’s 

placement in the position is eligible to 

receive (at the discretion of an 

authorized management official) a onetime base salary increase equivalent to 

the increase the employee would have 

received had the placement been 

effected prior to the position becoming 

covered by NSPS. This paragraph may 

be applied only when the employee is 

not already in an NSPS-covered position 

on the effective date of the placement, 

and the effective date is within 12 

months of the position becoming 

covered by NSPS. An employee who 

receives an increase under this 

paragraph is not eligible for the WGI 

adjustment described in paragraph (j) of 

this section. 

(m) Adjustment for physicians and 

dentists. For a GS physician or dentist 

who was regularly receiving a 

physicians’ comparability allowance or 

premium pay, the Component may 

increase the base salary after conversion 

to NSPS to account for the loss of such 

allowance or premium pay (since such 

payments are not authorized for 

physicians and dentists under NSPS). 

The Component must also consider the 

additional pay represented by any 

applicable targeted local market 

supplement in determining the rate at 

which the base salary should be set 

under this paragraph. 

§ 9901.372 Conversion or movement out of 

NSPS pay system. 

(a) General. (1) This section applies to 

the conversion or movement of 

employees out of the NSPS pay system 

to a different pay system. Under this 

section, when an NSPS employee is 

converted or moved to a GS position, a 

GS virtual grade and rate is established 

for the NSPS employee so that the 

employee is treated as a GS employee in 

applying GS pay-setting rules. 

(2) For the purpose of this section 

(unless otherwise specified)— 

(i) The terms ‘‘convert,’’ ‘‘converted,’’ 

‘‘converting,’’ and ‘‘conversion’’ refer to 

NSPS employees who become covered 

by a different pay system without a 

change in position (as a result of a 

determination made by the Secretary 

under § 9901.102(e) or as otherwise 

provided by law); and 

(ii) The terms ‘‘move,’’ ‘‘moved,’’ 

‘‘moving,’’ and ‘‘movement’’ refer to 

NSPS employees who become covered 

by a different pay system through a 

change in position, rather than by 

conversion. 

(b) Classification of converted 

position. Prior to converting an 

employee out of NSPS, an authorized 

management official, as defined by the 

Component, will review the duties of 

the employee’s current permanent 

position of record and classify the 

position’s duties in accordance with 

Office of Personnel Management (OPM) 

classification guidance and/or other 

appropriate criteria to determine the 

appropriate title, series, and grade or 

pay band of the position in the new pay 

mstockstill on PROD1PC66 with RULES2

56416 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

system. Employees occupying positions 

classified to NSPS-unique occupational 

series at the time of conversion out 

cannot be retained in those series, but 

must be assigned to the series that most 

closely represents the employee’s 

current duties (i.e., the duties of the 

former NSPS position). 

(c) Determining pay under new pay 

system. When converting or moving an 

employee out of NSPS to another pay 

system, the pay-setting rules of the 

gaining system will apply. For the 

purpose of applying those rules, the 

employee’s final pay under NSPS is 

determined based on the employee’s 

NSPS permanent position of record 

(including band), official worksite, and 

pay as of the day immediately before the 

date of conversion or movement out of 

NSPS. An employee on a temporary 

reassignment or temporary promotion 

will be returned to his or her permanent 

position of record prior to conversion or 

movement. No personnel or pay action 

that, but for the conversion or 

movement out of NSPS, would have 

occurred under NSPS on the date of 

conversion or movement may be 

considered. Any personnel or pay action 

occurring on the date of conversion or 

movement must be processed under the 

rules of the gaining system. In the case 

of a conversion or movement to the 

General Schedule (GS) pay system, the 

supplemental rules in paragraph (d) of 

this section must be followed to 

determine a virtual GS grade and rate 

(as of the date before the employee’s 

conversion or movement out of NSPS) 

that will be used in apply GS paysetting rules. 

(d) Virtual GS grade and rate—(1) 

Virtual GS grade. (i) Before an employee 

converts or moves out of NSPS under 

this paragraph, a virtual GS grade will 

be established for the purpose of 

applying GS pay-setting rules (e.g., a 

promotion increase if the actual GS 

grade is higher than the virtual GS 

grade). This virtual GS grade will be 

based on a comparison of the NSPS 

employee’s current adjusted salary to 

the highest applicable GS rate range that 

would apply to the employee’s NSPS 

permanent position of record 

considering only those GS grade levels 

and associated rate ranges that are 

included in the employee’s assigned 

NSPS pay band. For the purpose of this 

section, a highest applicable GS rate 

range includes the following rate ranges: 

The GS locality rate schedule for the 

locality pay area in which the 

employee’s NSPS official worksite is 

located; the special rate schedule based 

on the employee’s position of record, 

official worksite, or other established 

conditions; the law enforcement officer 

special base rate schedule; or the GS 

base pay schedule. The grade-band 

conversion tables established in DoD’s 

NSPS implementing issuances for the 

purpose of converting employees into 

NSPS must be used in determining 

which GS grades are covered by the 

employee’s assigned NSPS pay band. 

For two-grade interval occupations, 

conversion may not be made to an 

intervening (even) grade level below 

GS–11. 

(ii) If the employee’s pay band covers 

one GS grade, the employee’s virtual 

grade will be that grade. 

(iii) For an employee in a pay band 

encompassing more than one GS grade, 

if the employee’s adjusted salary equals 

or exceeds the step 4 rate of the highest 

applicable GS rate range for the highest 

GS grade encompassed within his or her 

assigned NSPS pay band, the 

employee’s virtual grade will be that 

grade. If the employee’s adjusted salary 

is lower than the step 4 rate, the 

adjusted salary is compared with the 

step 4 rate of the highest applicable GS 

rate range for the second highest GS 

grade encompassed within the 

employee’s pay band. If the employee’s 

adjusted salary equals or exceeds the 

step 4 rate of the second highest grade, 

the employee’s virtual grade will be that 

grade. This process is repeated for each 

successively lower grade encompassed 

within the assigned band until a grade 

is found at which the employee’s 

adjusted salary equals or exceeds the 

step 4 rate of the highest applicable GS 

rate range for that grade. 

(iv) Notwithstanding paragraph 

(d)(1)(iii) of this section, if the 

employee’s adjusted salary exceeds the 

maximum rate of the highest applicable 

GS rate range for the assigned GS grade 

determined under paragraph (d)(1)(iii) 

of this section but fits in the highest 

applicable GS rate range for the next 

higher grade (i.e., is greater than or 

equal to the rate for step 1 but less than 

the rate for step 4), then the employee’s 

virtual GS grade will be that higher 

grade. 

(v) Notwithstanding paragraph 

(d)(1)(iii) of this section, an employee’s 

virtual GS grade may not be less than 

the permanently assigned GS grade the 

employee held upon conversion into 

NSPS (for an employee who was 

converted as described in § 9901.371), 

unless, since that time, the employee 

has undergone— 

(A) A voluntary reduction in band or 

reduction in base salary; 

(B) An involuntary reduction in band 

or reduction in base salary based on 

unacceptable performance and/or 

conduct; or 

(C) A reduction in band based on a 

reduction in force (RIF) or classification 

action. 

(vi) If the employee’s adjusted salary 

exceeds the maximum rate of the 

highest applicable GS rate range for the 

highest grade encompassed by his or her 

assigned pay band, the employee’s 

virtual grade will be that highest GS 

grade. 

(vii) If the employee’s adjusted salary 

is less than the step 4 rate of the highest 

applicable GS rate range for the lowest 

GS grade encompassed within his or her 

assigned NSPS pay band, the 

employee’s virtual grade will be the 

lowest GS grade in the band. 

(2) Virtual GS rate. (i) Once a virtual 

GS grade has been established, a virtual 

GS rate will be set (before any payrelated action that would take effect on 

the date of the employee’s conversion or 

movement out of NSPS). As of the day 

before the date of conversion or 

movement out of NSPS, the employee’s 

NSPS adjusted salary will be compared 

to the highest applicable GS rate range 

for the established virtual grade. If the 

employee’s adjusted salary rate falls 

within that range, the virtual rate will be 

set equal to that adjusted salary rate. 

(Since this virtual GS rate is used only 

as a basis for setting the employee’s rate 

in a new non-NSPS position, it is not 

necessary to set it at a GS step rate at 

this stage.) If an employee’s adjusted 

salary is less than the minimum rate of 

the highest applicable GS rate range for 

the virtual GS grade, his or her virtual 

rate will be set at the minimum step 

rate. If the employee’s adjusted salary is 

greater than the maximum rate of the 

highest applicable GS rate range for the 

virtual GS grade, his or her virtual rate 

will be set at the maximum step rate or 

at a retained rate set using GS pay 

retention rules in 5 CFR part 536 (if the 

employee is eligible for pay retention 

under those rules). 

(ii) If the virtual rate derived under 

paragraph (d)(2)(i) of this section is an 

adjusted salary rate that includes a 

locality payment or special rate 

supplement, an employee’s virtual GS 

base salary rate will be derived based on 

that adjusted salary rate. 

(iii) The virtual GS grade and rates 

established under this paragraph (d) 

will be used in applying GS pay 

administration rules in setting pay in 

the new GS position (e.g., the GS 

promotion rules, pay retention rules, 

and the maximum payable rate rule). 

(Since the NSPS system did not 

continue coverage under the grade 

retention provision in 5 U.S.C. 5362, 

grade retention is not applicable to 

NSPS employees who convert or move 

to a GS position.) As required by 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56417 

paragraph (c) of this section, any pay 

action effective on the date of 

conversion or movement from NSPS to 

the GS pay system will be processed 

under GS pay administration rules. 

(e) GS within-grade increases. Service 

under NSPS is creditable for withingrade increase purposes upon 

conversion or movement to a GS 

position under this section to the extent 

provided under 5 CFR part 531, subpart 

D. 

(f) Comparison of rates of basic pay. 

For the purpose of determining whether 

the conversion or movement out of 

NSPS under this section is an adverse 

action for reduction of pay under 5 

U.S.C. chapter 75, subchapter II (dealing 

with adverse actions), an employee’s 

rate of basic pay includes any applicable 

locality payment under 5 U.S.C. 5304, 

special rate supplement under 5 U.S.C. 

5305, local market supplement under 

§ 9901.332, or equivalent supplement 

under other legal authority. This 

comparison is made before any payrelated action (e.g., geographic 

movement) under the gaining system 

that takes effect on the date of 

conversion or movement. 

Subpart D—Performance Management 

§ 9901.401 Purpose. 

(a) This subpart establishes a 

performance management system as 

authorized by 5 U.S.C. 9902. 

(b) The performance management 

system established under this subpart is 

designed to promote and sustain a highperformance culture. The 

implementation and operation of the 

system will provide for the following 

elements: 

(1) Adherence to merit principles set 

forth in 5 U.S.C. 2301; 

(2) A fair, credible, and transparent 

employee performance appraisal 

system; 

(3) A link between the performance 

management system and DoD’s strategic 

plan; 

(4) A means for ensuring employee 

involvement in the design and 

implementation of the system; 

(5) Adequate training and retraining 

for supervisors, managers, and 

employees in the implementation and 

operation of the performance 

management system; 

(6) A process for ensuring ongoing 

performance feedback and dialogue 

among supervisors, managers, and 

employees throughout the appraisal 

period, and setting timetables for 

review; 

(7) Effective safeguards to ensure that 

the management of the system is fair 

and equitable and based on employee 

performance; 

(8) A means for ensuring that 

adequate agency resources are allocated 

for the design, implementation, and 

administration of the performance 

management system; and 

(9) A pay-for-performance evaluation 

system to better link individual pay to 

performance and provide an equitable 

method for appraising and 

compensating employees. 

§ 9901.402 Coverage. 

(a) This subpart applies to eligible 

employees and positions in the 

categories listed in paragraph (b) of this 

section, subject to a determination by 

the Secretary under § 9901.102. 

(b) The following employees and 

positions in organizational and 

functional units are eligible for coverage 

under this subpart: 

(1) Employees and positions that 

would otherwise be covered by 5 U.S.C. 

chapter 43; 

(2) Employees and positions excluded 

from chapter 43 by OPM under 5 CFR 

430.202(d) prior to the date of coverage 

of this subpart; and 

(3) Such others designated by the 

Secretary as DoD may be authorized to 

include under 5 U.S.C. 9902. 

(c) Except as provided in § 9901.408, 

this subpart does not apply to 

employees who have been, or are 

expected to be, employed in an NSPS 

position for less than a minimum period 

(as described in § 9901.407) during a 

single 12-month period. 

§ 9901.403 Waivers. 

When a specified category or group of 

employees is covered by the 

performance management system 

established under this subpart, the 

provisions of 5 U.S.C. chapter 43 are 

waived with respect to that category of 

employees. 

§ 9901.404 Definitions. 

In this subpart— 

Appraisal means the review and 

evaluation of an employee’s 

performance. 

Appraisal period has the meaning 

given that term in § 9901.103. 

Competencies has the meaning given 

that term in § 9901.103. 

Contribution has the meaning given 

that term in § 9901.103. 

Contributing Factors has the meaning 

given that term in § 9901.103. 

Job Objectives has the meaning given 

that term in § 9901.103. 

Minimum period means the period of 

time during which an employee will 

perform under one or more approved 

NSPS performance plans before 

receiving a rating of record. 

Pay-for-performance evaluation 

system means the performance 

management system established under 

this subpart to link individual pay to 

performance and provide an equitable 

method for evaluating performance and 

compensating employees. 

Pay Pool Manager has the meaning 

given that term in § 9901.103. 

Pay Pool Panel has the meaning given 

that term in § 9901.103. 

Performance has the meaning given 

that term in § 9901.103. 

Performance expectations means the 

duties, responsibilities, and 

competencies required by, or objectives 

associated with, an employee’s position 

and the contributions and demonstrated 

competencies management expects of an 

employee, as described in § 9901.406. 

Performance management means 

applying the integrated processes of 

setting and communicating performance 

expectations, monitoring performance 

and providing feedback, developing 

performance and addressing poor 

performance, and rating and rewarding 

performance in support of the 

organization’s goals and objectives. 

Performance management system 

means the policies and requirements 

established under this subpart, as 

supplemented by implementing 

issuances, for setting and 

communicating employee performance 

expectations, monitoring performance 

and providing feedback, developing 

performance and addressing poor 

performance, and rating and rewarding 

performance. It incorporates and 

operationalizes the elements set forth in 

§ 9901.401(b). 

Performance Review Authority has the 

meaning given that term in § 9901.103. 

Rating official means a representative 

of management, usually the immediate 

supervisor, who evaluates and assesses 

employee performance and recommends 

a rating of record, share assignment, and 

payout distribution for review by the 

Pay Pool Panel. 

Rating of record has the meaning 

given that term in § 9901.103. 

Unacceptable performance has the 

meaning given that term in § 9901.103. 

§ 9901.405 Performance management 

system requirements. 

(a) The Secretary may issue 

implementing issuances further defining 

a performance management system for 

NSPS employees, subject to the 

requirements set forth in this subpart. 

(b) The NSPS performance 

management system— 

(1) Provides for the appraisal of the 

performance of each employee annually; 

(2) Holds supervisors and managers 

accountable for effectively managing the 

performance of employees under their 

supervision as set forth in paragraph (c) 

of this section; 

mstockstill on PROD1PC66 with RULES2

56418 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

(3) Specifies procedures for setting 

and communicating performance 

expectations, monitoring performance 

and providing feedback, and 

developing, rating, and rewarding 

performance; 

(4) Specifies the criteria and 

procedures to address the performance 

of employees who are detailed or 

transferred and for employees in other 

special circumstances; 

(5) Provides for the following multiple 

rating levels: 

Rating of record Rating of record 

descriptor 

Level 5 ...................... Role Model. 

Level 4 ...................... Exceeds Expectations. 

Level 3 ...................... Valued Performer. 

Level 2 ...................... Fair. 

Level 1 ...................... Unacceptable. 

(6) Specifies rounding rules for 

average adjusted ratings as follows: 

(i) The combination of the job 

objective rating and the contributing 

factor assessment results in an adjusted 

rating for each job objective; 

(ii) The job objective adjusted ratings 

are averaged to obtain the employee’s 

raw score; 

(iii) Any objective rated as ‘‘NR’’ is 

not counted when averaging ratings; 

(iv) When the employee’s raw score 

ends with .51 or higher, the rating is 

rounded to the next higher whole 

number; 

(v) When the employee’s raw score 

ends with .50 or lower, the rating is 

rounded to the next lower whole 

number; and 

(vi) The resulting rounded score is the 

recommended rating of record. 

(c) In fulfilling the requirements of 

paragraph (b) of this section, supervisors 

and managers will— 

(1) Clearly communicate performance 

expectations and hold employees 

responsible for accomplishing them; 

(2) Make meaningful distinctions 

among employees based on performance 

and contribution; 

(3) Foster and reward excellent 

performance; 

(4) Address poor performance; and 

(5) Assure that employees are 

assigned a rating of record. 

§ 9901.406 Setting and communicating 

performance expectations. 

(a) Performance expectations will 

support and align with the mission and 

strategic goals, organizational program 

and policy objectives, annual 

performance plans, and other measures 

of performance. 

(b) Performance expectations will be 

communicated to the employee in 

writing prior to holding the employee 

accountable for them. 

(c) Notwithstanding the requirements 

in paragraphs (d) through (g) of this 

section, employees are accountable for 

demonstrating professionalism and 

appropriate standards of conduct and 

behavior, such as civility and respect for 

others. 

(d) In addition to the requirement in 

paragraph (c) of this section, supervisors 

and managers will be held accountable 

through their performance expectations 

for how well they plan, monitor, 

develop, correct, and assess subordinate 

employees’ performance. 

(e) Performance expectations 

include— 

(1) Goals or objectives that set general 

or specific performance targets at the 

individual, team, and/or organizational 

level; 

(2) Organizational, occupational, or 

other work requirements, such as 

standard operating procedures, 

operating instructions, manuals, 

internal rules and directives, and/or 

other instructions that are generally 

applicable and available to the 

employee; and 

(3) Competencies an employee is 

expected to demonstrate on the job, 

and/or the contributions an employee is 

expected to make. 

(f) Performance expectations may be 

amplified through particular work 

assignments or other instructions 

(which may specify the quality, 

quantity, accuracy, timeliness, or other 

expected characteristics of the 

completed assignment, or some 

combination of such characteristics). 

Such assignments and instructions need 

not be in writing. 

(g) Supervisors will involve 

employees, insofar as practicable, in the 

development of their performance 

expectations. However, final decisions 

regarding performance expectations are 

within the sole and exclusive discretion 

of management. 

(h) Performance expectations are 

subject to higher- or second-level review 

to ensure consistency and fairness 

within and across organizations. 

(i) Performance expectations that 

comprise a performance plan are 

considered to be approved when the 

supervisor has communicated the 

performance plan to the employee in 

writing. 

§ 9901.407 Minimum period of 

performance. 

(a) Only employees who have 

completed the minimum period under 

one or more NSPS approved 

performance plans may be issued a 

rating of record in accordance with the 

procedures prescribed by this subpart. 

(b) The minimum period of 

performance is 90 calendar days. 

(1) Periods during which an employee 

is in a leave status may not be applied 

toward the 90-day minimum. 

(2) If an employee has a break in 

NSPS-covered service (e.g., due to job 

change to a non-NSPS position, 

resignation), the service performed prior 

to the break may not be used to satisfy 

the 90-day minimum period. A break 

caused by a situation described in 

§ 9901.342(i) through (1) is not 

considered a break for this purpose. 

(c) Employees who have not 

completed the minimum period of 

performance during the applicable 

appraisal period will not be rated and 

will not be eligible for a performance 

payout unless otherwise provided in 

§ 9901.342(i) through (1). 

§ 9901.408 Employees on time-limited 

appointments. 

Employees who are appointed for less 

than 90 days— 

(a) Will be given performance 

expectations that are linked to the 

organization’s strategic plan; and 

(b) May receive an evaluation at the 

end of the appointment which— 

(1) Consists of a narrative description 

addressing employee performance, 

accomplishments and contributions 

during that appointment; and 

(2) May serve as documentation and 

justification for recognition under 5 

U.S.C. chapter 45. 

§ 9901.409 Monitoring and developing 

performance. 

(a) In applying the requirements of the 

performance management system and 

its implementing issuances and policies, 

supervisors will— 

(1) Monitor the performance of their 

employees and their contribution to the 

organization; 

(2) Provide ongoing (i.e., regular and 

timely) feedback to employees on their 

actual performance with respect to their 

performance expectations, including 

one or more interim performance 

reviews during each appraisal period; 

and 

(3) Document at least one interim 

performance review. Documented 

interim reviews are not required for 

overall periods of performance of less 

than 180 days. 

(b) Developing performance is 

integrated with the performance 

management process and is a shared 

responsibility of management and 

employees. Developing performance 

includes but is not limited to—(1) 

Coaching and mentoring employees; 

mstockstill on PROD1PC66 with RULES2

Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 56419 

(2) Reinforcing strengths and 

addressing weaknesses; and 

(3) Discussing employee development 

opportunities. 

§ 9901.410 Addressing performance that 

does not meet expectations. 

(a) If at any time during the appraisal 

period a supervisor determines that an 

employee’s performance is not meeting 

expectations, the supervisor will— 

(1) Identify and communicate to the 

employee the specific performance 

deficiencies that require improvement; 

(2) Consider the range of options 

available to address the performance 

deficiency, including remedial training, 

improvement periods, reassignment, 

oral warnings, letters of counseling, 

written reprimands, or adverse action 

(including a reduction in rate of basic 

pay or pay band or a removal); and 

(3) Take appropriate action to address 

the deficiency, taking into account the 

circumstances, including the nature and 

gravity of the unacceptable performance 

and its consequences. 

(b) Adverse actions taken based on 

unacceptable performance and/or 

conduct will be taken in accordance 

with the provisions in 5 U.S.C. chapter 

75 or other appropriate procedures if 

not covered by chapter 75, such as 

procedures for National Guard 

Technicians under 32 U.S.C. 709(f). 

§ 9901.411 Appraisal period. 

(a) Except as provided in paragraphs 

(a)(1) through (3) and (b) of this section, 

the appraisal period will be October 1 

to September 30. 

(1) The appraisal period may begin 

after October 1 and end after September 

30 for newly converted groups of 

employees; 

(2) The appraisal period may begin 

after October 1 for employees who move 

to an NSPS position from a non-NSPS 

position after that date; and 

(3) The appraisal period may end 

between July 3 and September 30 for 

employees receiving early annual 

recommended ratings. 

(b) If, by the end of the appraisal 

period, an employee has not met the 

minimum period of performance, 

management may extend the appraisal 

period provided such extensions do 

not— 

(1) Delay the payout for the applicable 

pay pool; or 

(2) Extend beyond the rating of record 

effective date. 

(c) The effective date of ratings of 

record will be January 1, except for 

additional ratings of record as described 

in § 9901.412(b)(2). 

(d) The effective date of a rating of 

record described in § 9901.412(b)(2) is 

the date the rating is final, as described 

in paragraph (g) of § 9901.412. 

§ 9901.412 Rating and rewarding 

performance. 

(a) Forced distribution of ratings 

(setting pre-established limits for the 

percentage or number of ratings that 

may be assigned at any level) is 

prohibited. 

(b) An appropriate rating official— 

(1) Will prepare and recommend a 

rating of record after the completion of 

the appraisal period; and 

(2) May recommend an additional 

rating of record following an 

unacceptable rating of record to reflect 

a substantial and sustained change in 

the employee’s performance since the 

last rating of record. 

(c) The recommended rating of record 

is subject to higher-level review. 

(d) A rating of record will assess an 

employee’s performance with respect to 

his or her performance expectations, as 

amplified through work assignments or 

other instructions, and/or relative 

contributions. 

(e) If an employee engages in workrelated misconduct and the nature or 

severity of that misconduct has an 

impact on the execution of his or her 

duties, that of the team, and/or that of 

the organization, the impact may be 

considered in the employee’s rating of 

record. 

(f) A Pay Pool Panel will — 

(1) Review recommended ratings of 

record, share assignments, and payout 

distributions, and make adjustments, 

which in the panel’s view would result 

in equity and consistency across the pay 

pool; and 

(2) Afford the rating official the 

opportunity to provide further 

justification of a recommended rating of 

record before a change to that rating 

becomes final. 

(g) Consistent with the requirements 

of merit system principles and this part, 

the Pay Pool Manager is the approving 

authority for Pay Pool Panel 

recommendations concerning ratings of 

record, share assignments, and payout 

distribution. A rating of record is 

considered final when issued to the 

employee with all appropriate reviews 

and signatures. 

(h) An appropriate rating official will 

communicate the final rating of record, 

share assignment, and payout 

distribution to the employee. 

(i) Once the minimum performance 

period is met and an employee is 

eligible for a rating of record, the rating 

of record of an employee may not be 

lowered based on an approved absence 

from work, including the absence of a 

disabled veteran to seek medical 

treatment as provided in Executive 

Order 5396. 

(j) A rating of record issued under this 

subpart— 

(1) Is an official rating of record for 

the purpose of any provision of this title 

for which an official rating of record is 

required; 

(2) Will be transferred between 

subordinate organizations and to other 

Federal departments or agencies in 

accordance with implementing 

issuances; 

(3) Will be used as a basis for— 

(i) A pay determination under any 

applicable pay rules; 

(ii) Determining reduction-in-force 

retention standing; and 

(iii) Such other action that the 

Secretary considers appropriate, as 

specified in implementing issuances; 

(4) Will cover a specified appraisal 

period; and 

(5) Will not be carried over as the 

rating of record for a subsequent 

appraisal period without an actual 

evaluation of the employee’s 

performance during the subsequent 

appraisal period. 

(k) Employees who change pay pools 

after the last day of the appraisal period 

and before the effective date of the 

payout will be evaluated and assigned a 

rating of record by the Pay Pool Manager 

associated with the pay pool of record 

on the last day of the appraisal period 

and the share assignment and payout 

distribution determination will be made 

in accordance with § 9901.342(g). 

(l)(1) An early annual recommended 

rating of record will be issued when— 

(i) The supervisor (or rating official if 

different) ceases to exercise the duties 

relative to monitoring, developing, and 

rating employee performance within 90 

days before the end of the appraisal 

period; or 

(ii) The employee is reassigned, 

promoted, or reduced in band resulting 

in the assignment of a new rating 

official within 90 days before the end of 

the appraisal period. 

(2) An employee who is eligible for a 

recommended rating of record or an 

early annual recommended rating of 

record at the time they move to a 

position outside of NSPS will be 

entitled to a rating of record. Such 

ratings of record must be approved 

through the Pay Pool Panel process. 

(m) At any time prior to the last 90 

days of the appraisal period, a 

supervisor or other rating official may 

prepare a performance assessment (e.g., 

close-out assessment) for the purpose of 

providing input on an employee’s 

performance to a new supervisor. Such 

an assessment is not a rating of record 

(recommended or final). 

mstockstill on PROD1PC66 with RULES2

56420 Federal Register / Vol. 73, No. 188 / Friday, September 26, 2008 / Rules and Regulations 

§ 9901.413 Reconsideration of ratings. 

(a) Nonbargaining unit employees. (1) 

A rating of record or job objective rating 

may be challenged by a nonbargaining 

unit employee only through the 

reconsideration process specified in this 

subpart and implementing issuances. 

This process will be the sole and 

exclusive agency administrative process 

for all nonbargaining unit employees to 

challenge a rating of record. 

(2) Consistent with this part, Pay Pool 

Managers will decide job objective 

rating and rating of record 

reconsiderations. 

(3) If the Pay Pool Manager decision 

is challenged, consistent with this part, 

the Performance Review Authority will 

make a final decision. 

(4) A share assignment determination, 

payout distribution determination, or 

any other payout matter will not be 

subject to the reconsideration process or 

any other agency administrative 

grievance system. 

(b) Bargaining unit employees. (1) 

Negotiated grievance procedures are the 

exclusive administrative procedures for 

bargaining unit employees to challenge 

a rating of record or job objective rating 

as provided for in 5 U.S.C. 7121. 

(2) If a negotiated grievance procedure 

is not available to a bargaining unit 

employee or challenging a rating of 

record or job objective rating is outside 

the scope of the employee’s negotiated 

grievance procedure, a bargaining unit 

employee may challenge a rating of 

record or job objective rating in 

accordance with this subpart and 

implementing issuances. 

(c) Recalculation based on adjusted 

job objective rating or rating of record. 

In the event a reconsideration or 

negotiated grievance decision results in 

an adjusted job objective rating or rating 

of record the revised rating will be 

referred to the Pay Pool Manager for 

recalculation of the employee’s 

performance payout amount and 

distribution. 

(1) Any adjustment to salary will be 

retroactive to the effective date of the 

performance payout. 

(2) Salary adjustments will be based 

on the share range appropriate for the 

adjusted rating of record as identified in 

§ 9901.342(f). 

(3) Share values for the adjusted 

rating of record will reflect the share 

value paid to other members across the 

pay pool for that rating cycle. 

(4) Decisions made through the 

reconsideration process or a negotiated 

grievance procedure will not result in 

recalculation of the payout made to 

other employees in the pay pool. 

(d) Alternative dispute resolution. 

Alternative dispute resolution 

techniques, such as mediation, interestbased problem-solving, or others, may 

be pursued at any time during the 

reconsideration process consistent with 

the Component’s policies and 

procedures. 

[FR Doc. E8–22483 Filed 9–25–08; 8:45 am] 

BILLING CODE 6325–39–P 

mstockstill on PROD1PC66 with RULES2