The retention allowance authority was established by section 208 of the Federal Employees Pay Comparability Act of 1990 (FEPCA). The act required OPM to issue governmentwide regulations on retention allowances, which it did on March 28, 1991. The act and OPM’s implementing regulations require agencies to document that (1) each allowance paid is based on a determination that unusually high or unique qualifications of the employee or a special need of the agency for the employee’s services makes it essential to retain the employee and (2) in the absence of such an allowance, the employee would be likely to leave federal employment. The agency must also document the extent to which the employee’s departure would affect the agency’s ability to carry out an activity or perform a function deemed essential to the agency’s mission. The regulations also require agencies to prepare retention allowance plans. The plans must include (1) criteria that must be met or considered in authorizing allowances, including criteria for determining the size of an allowance; (2) a designation of officials with authority to review and approve payment of retention allowances; (3) procedures for paying allowances; and (4) documentation and recordkeeping requirements sufficient to allow reconstruction of the actions taken to award the allowance. Agencies are permitted to pay employees allowances of up to an additional 25 percent of their basic pay. An agency may continue to pay a retention allowance as long as the conditions giving rise to the original determination to pay the allowance still exist, but it must conduct a formal review at least annually to determine whether the retention allowance is still warranted and document this review by means of an authorized official’s written certification. To identify which agencies gave the largest number of retention allowances and the highest amounts awarded, as well as to determine the total value of retention allowances and the number of SES employees awarded allowances, we reviewed OPM retention allowance reports for fiscal years 1991 through 1994, which were derived from OPM’s Central Personnel Data File (CPDF). We selected the five agencies that the data showed had the most allowances from fiscal years 1991 through 1994—DOD, Ex-Im Bank, SEC, DOE, and USDA. To assess whether agencies were preparing retention allowance plans in accordance with OPM regulations, we obtained and reviewed agencies’ retention allowance plans and compared the provisions and other information in these documents with requirements in OPM retention allowance regulations. In addition, we interviewed agency officials about their plans. To perform a limited review of agencies’ retention allowance awards, we interviewed agency officials about their award procedures and reviewed individual retention allowance justification documents for 43 selected awards at the five agencies. We did not evaluate the appropriateness of individual allowance amounts or the proportion of agencies’ employees who received allowances. The 43 awards, although randomly selected from groups of retention allowances that were stratified based on grade levels, are not projectable because we were unable to review sufficient numbers of awards at each agency due to time constraints. To determine the extent of OPM’s oversight efforts, we interviewed OPM program and oversight officials and reviewed documentation they provided, including reports statistically analyzing retention allowances by agency. We also informed OPM’s program and oversight officials of our preliminary compliance concerns at Ex-Im Bank. Subsequently, OPM officials decided to conduct an in-depth review of Ex-Im Bank’s use of retention allowances and recruitment bonus programs. We provided a draft of this report for comment to the heads of DOD, DOE, Ex-Im Bank, OPM, SEC, and USDA. Their comments are summarized on pages 12 through 14. Written comments from DOD, Ex-Im Bank, and SEC are reproduced in appendixes I through III, respectively. Our review was conducted in the agencies’ Washington, D.C., headquarters offices from November 1994 to September 1995 in accordance with generally accepted government auditing standards. As of September 30, 1994, 354 employees (excluding HHS employees), or about 0.01 percent of the approximately 2.9 million federal civilian employees, were receiving retention allowances. Of these allowances, 334 (94 percent) had been awarded by the five agencies we reviewed. The number and amount of retention allowances awarded at the five agencies in fiscal years 1991 through 1994 are presented in table 1. As shown in the table, the annualized value of retention allowances for these agencies increased from approximately $21,000 in fiscal year 1991 to about $2.8 million in fiscal year 1994. The average allowance at the five agencies during fiscal years 1991 through 1994 was $7,789 per employee. In fiscal year 1994, the highest allowance of $28,925 was awarded by DOD, and the average amounts awarded per agency varied from $4,989 at Ex-Im Bank to $14,928 at DOE. In addition, five retention allowances were awarded to SES employees in four of the five agencies during fiscal years 1991 through 1994. Table 2 presents the average and highest amounts for retention allowances awarded by each of the five agencies in fiscal years 1991 through 1994. Among the five agencies, Ex-Im Bank awarded allowances to the largest proportion of its employees. Ex-Im Bank awarded allowances to 21.7 percent of its 462 employees during fiscal year 1994, while none of the other agencies awarded allowances to more than 0.3 percent of their employees. Table 3 presents the percentage of employees receiving allowances at each of the five agencies during fiscal year 1994. Ex-Im Bank did not appear to comply with the statutory requirement that it determine that the employee was likely to leave if the employee did not receive an allowance, which could result in unnecessarily spending funds for allowances. None of the seven Ex-Im Bank allowances we reviewed contained information that indicated the employee was considering leaving the agency. Bank officials stated that approximately 90 percent of the 100 allowances awarded were initiated based on management’s recognition of the employees’ special talents and their attractiveness to other employers, rather than on more definitive information, such as whether the employees were considering other job offers. Ex-Im Bank officials said that high level performance is a major criterion for selecting award recipients; that is, allowance recipients are generally selected from those employees who have outstanding performance ratings because this group includes those most necessary to the Bank’s successful accomplishment of its mission. Officials said that they time the awards of new retention allowances and the recertification of existing allowances to coincide with the results of their performance appraisal process. Ex-Im Bank officials noted, however, that there is no direct linkage between a performance rating and a retention allowance. In justifying the use of performance ratings in awarding retention allowances, Ex-Im Bank officials said that high performing employees have been found to be particularly attractive to the private sector and, therefore, more likely to have opportunities to leave the agency. In 1992, prior to initiating its retention allowance program, Ex-Im Bank requested special pay rate authorities from OPM to pay certain of its employees more money. Ex-Im Bank officials said that OPM denied their request and encouraged them to consider other remedies to their staffing problems, including retention allowances. OPM officials told us that they had discussed various pay and nonpay flexibilities, including retention allowances, with Ex-Im Bank officials. OPM officials also provided us with copies of the governmentwide guidance that they had provided to Ex-Im Bank. They noted that, while they encourage agencies to use available pay flexibilities, agencies need to follow established regulations—for example, determining whether the employee was likely to leave without the retention allowance and documenting the extent to which the employee’s departure would affect the agency’s ability to carry out its mission. OPM officials said that the fact that an employee had a high performance rating is not sufficient to meet these requirements. We discussed with OPM officials our concern that, in the seven cases we reviewed, Ex-Im Bank did not appear to determine that the employee was likely to leave if the employee did not receive an allowance. After these discussions and in furtherance of its oversight responsibility, OPM initiated an in-depth review of Ex-Im Bank’s use of pay flexibilities, including retention allowances and recruitment bonuses. Because of OPM’s oversight role and its decision to review a larger number of Ex-Im Bank cases to pursue the compliance issue on a systemic basis, we decided to forgo further work on the issue. While the five agencies’ retention allowance plans included most provisions required by OPM regulations, including designating officials with authority to review and approve allowances and providing criteria for selecting allowance recipients, DOD, Ex-Im Bank, and SEC did not include their rationales for determining the amount of the retention allowances in any of their plans. Without the documented rationale, it is impossible for an approving official to readily assess the appropriateness of the proposed award amount and to ensure that the agency is not awarding higher amounts than are necessary to retain the employee. A DOD wage administration specialist told us that a specific DOD-wide rationale was not included in its plan because DOD wanted to give the individual approving officials flexibility in awarding allowances, including the authority to determine the amounts of retention allowances. The official said, however, that a planned revision of the plan will indicate that appointing officials should apply criteria for determining retention allowance amounts consistent with OPM’s regulations. SEC said that, as a small agency, it is able to handle the retention allowance process on a case-by-case basis and thus had not seen a need to formalize criteria for determining the size of an allowance. Both the Vice President for Management Services and a personnel specialist at Ex-Im Bank said that the omission of a rationale in their retention allowance plan was an oversight. Both individuals said that the agency wants the plan to comply with all of OPM’s regulations and that the plan would be revised accordingly. OPM regulations do not require written recertification when an employee receives an increase in basic pay.