Source: http://thefederalregister.com/2008/09/26/E8-22483.html
Timestamp: 2019-07-20 01:10:47
Document Index: 627374156

Matched Legal Cases: ['art 9901', 'art 1', '§ 9901', '§ 9901', '§ 9901', '§ 9901', '§ 9901', '§ 9901', '§ 9901', '§ 9901', '§ 9901', '§ 9901', '§ 9901', '§ 9901', '§ 9901', '§ 9901', '§ 9901', '§ 9901', '§ 9901', '§ 9901', '§ 9901', '§ 9901', '§ 9901', '§ 9901', '§ 9901', '§ 9901', '§ 9901', '§ 9901']

5 CFR Part 9901
RIN 3206-AL62
AGENCY: Department of Defense; Office of Personnel Management.
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.
ThisSUPPLEMENTARY INFORMATIONsection 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 pay-banding 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 whileallowing 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 pay-banding 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 one-size-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.
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 morecompetitive 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.
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-for-performance 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 labor-management 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 performance-based 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 jointly-prescribed 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-for-performance 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 featurespreviously 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 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.
Several changes have been made in the area of pay administration. Pay-setting 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 management-directed 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 pay-setting 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 pay-setting 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 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.
“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.
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.
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 nowprovides 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.
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.
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, higher-level 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.
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.
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 theFederal Registeron 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 thisSupplementary Information.
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, withnumerous 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 non-bargaining 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.
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-for-performance 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.
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 specificguiding 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 multiple-level 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 pre-established 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.
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.
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 NSPSemployees (§ 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)).
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 athttp://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 self-assessments, 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 self-assessments 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-for-performance 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 reassignmentand 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.
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.
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.
While a number of commenters supported the idea of a performance-based pay system, some commenters were less supportive of the consideration of non-performance-related 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 t