Retention Allowances

OFFICE OF PERSONNEL MANAGEMENT

5 CFR Part 575

RIN 3206-AI31

Retention Allowances

AGENCY: Office of Personnel Management.

ACTION: Final rule.

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SUMMARY: The Office of Personnel Management (OPM) is issuing final

regulations to provide agencies with greater flexibility to pay

retention allowances of up to 10 percent of an employee's rate of basic

pay (or up to 25 percent with OPM approval) to a group or category of

employees in certain limited circumstances. This flexibility will help

agencies retain the specialized skills they need to meet their work

requirements. The final regulations revise the interim regulations to

provide further guidance on defining the covered group or category of

employees, to clarify the intended use of a retention allowance, and to

add references to a group or category of employees in provisions

dealing with the reduction or termination of retention allowances.

EFFECTIVE DATE: January 21, 2000.

FOR FURTHER INFORMATION CONTACT: Paul Shields, (202) 606-2858; FAX

(202) 606-0824; EMAIL: [email protected].

SUPPLEMENTARY INFORMATION: On June 23, 1998, the Office of Personnel

Management (OPM) published interim regulations to provide agencies with

discretionary authority to pay retention allowances of up to 10 percent

of an employee's rate of basic pay (up to 25 percent with OPM approval)

to a group or category of employees in certain limited circumstances

(63 FR 34119). Interested parties were invited to comment for a 60-day

period. OPM received comments from three agencies. All three agencies

expressed support for the additional flexibility provided by the

interim regulations. Specific comments are discussed below along with a

description of changes made in the final regulations.

Administering the Discretionary Authority

One agency expressed concern regarding the administration of the

discretionary authority. The agency expressed concern that it may be

difficult to justify the exclusion of individuals from an identified

group or to identify a group that includes only individuals whom the

agency is anxious to retain. The agency believes the decision to

approve a group retention allowance might be highly judgmental. Another

agency asked whether employees newly hired into a group receiving a

retention allowance could be (or should be) excluded from receiving the

allowance.

We believe the type of discretion currently used to make a judgment

for paying a retention allowance on a case-by-case basis to individual

employees is essentially the same used in making a determination for a

category of employees. Similar to the case-by-case determinations,

agencies must authorize retention allowances based on written

determination that employees have unusually high or unique

qualifications or that the agency has a special need for the employees'

services that makes it essential to retain the employees in that

category. What is different is that the regulations do not require

agencies to determine whether each individual in the targeted group is

likely to leave Federal service. Instead, agencies must determine

whether there is a high risk that a significant number of employees in

the targeted category are likely to leave Federal service in the

absence of an allowance. Section 575.305(d)(1) requires agencies to

have evidence of labor market conditions or other factors to fully

support this determination.

It is essential, therefore, that agencies clearly define the

characteristics and coverage criteria of the identified category of

employees. These criteria may include the minimum length of service a

newly hired employee must fulfill with the agency before being covered

by an identified group. If an appropriate group cannot be clearly

defined by specific factors, or if labor market or other conditions do

not indicate that there is a high risk that a significant number of

employees in the group is likely to leave, then consideration should be

given to granting retention allowances to selected employees in the

identified group on a case-by-case basis as justified by the

circumstances of the individual case. To provide further guidance to

agencies on defining the covered group, we have added language to 5 CFR

575.305(d)(1) that identifies the types of factors that may be used to

define the group.

Several agencies have informally requested clarification on whether

a retention allowance may be offered when recruiting an employee from

another agency when it knows the employee has a private sector job

offer and is likely to leave Federal Service. Retention allowances are

not intended to be used as a recruitment tool, especially when

recruiting an employee from another agency. Section 575.305(b)(2) of

the regulations further provides that a retention allowance may only be

offered to an employee in or under an agency and based on the agency's

determination that the employee's departure would affect the agency's

ability to carry out an activity or perform a function that is deemed

essential to the agency's mission. Therefore, in order for an agency to

make its case, the employee would have to have been hired and

performing a critical function for a period of time immediately prior

to the payment of a retention allowance. To clarify this intent, we

have added a new paragraph (d) to Sec. 575.304 to read,``An agency may

not offer a retention allowance to an individual (or authorize the

payment of such an allowance) prior to the individual's employment with

the agency.''

Amount of Retention Allowance

One agency believes the interim regulations effectively allow an

agency to provide a 10 percent pay raise to a significant number of

employees. The agency supports the requirement for OPM approval of

group/category retention allowances of more than 10 percent, thus

guarding against the potential for creating an uneven playing field

without reasonable notice to similarly-situated agencies. Another

agency expressed concern that limiting the amount of the retention

allowance

[[Page 71634]]

an agency can pay to a group of employees dilutes the effectiveness of

extending the flexibility. The agency believes there would be no

advantage to invoking this new provision unless 10 percent has already

been determined to be a sufficient incentive for the situation. The

agency also expressed concern that if it does seek OPM approval of a

higher percentage, the agency must coordinate with other agencies, thus

removing from the agency's control the discretionary flexibility which

is part of the recruitment incentive.

We have not adopted any change in the amount of the retention

allowance payable without OPM approval. We do not believe it would be

desirable to allow individual Federal agencies to authorize retention

allowances greater than 10 percent for an entire group of employees

without coordination with other agencies with similar recruitment and

retention needs. It would not be productive to have bidding wars

between agencies, thereby depleting some agencies of the skilled

workers they need. If an agency wishes to authorize an allowance of

more than 10 percent, the current retention allowance authority in 5

U.S.C. 5754 and 5 CFR part 575, subpart C, continues to provide

agencies with discretionary authority to pay a retention allowance of

up to 25 percent of basic pay to individual employees on a case-by-case

basis based on their unique qualifications or a special need of the

agency if the employee would be likely to leave Federal service without

the allowance.

Other Comments

One agency suggested that editorial changes should be made in the

existing regulations in Secs. 575.301 and 575.305 to add references to

a group or category of employees in each place where a single employee

is referenced. In addition, the agency suggested that the final

regulations discuss the subsequent adjustment or discontinuation of

retention allowances that have been approved on a group or category

basis. The agency recommended that the regulations explicitly authorize

agencies to adjust or discontinue such allowances either on a group/

category basis or on a case-by-case basis.

OPM did not adopt the suggestion to add a reference to ``a group or

category of employees'' in each place where an individual employee is

referenced. In the interim regulation, we deliberately placed the

authority and criteria for paying retention allowances on a group or

category basis in a separate paragraph (d) at the end of Sec. 575.305.

We continue to believe this is the simpler and better approach.

OPM agrees with the comment that the final regulations should

discuss the subsequent adjustment or discontinuation of retention

allowances for a group or category of employees, as applicable. We have

added the term ``group or category of employees'' in Sec. 575.307(b),

which discusses the reduction or termination of retention allowances.

E.O. 12866, Regulatory Review

This rule has been reviewed by the Office of Management and Budget

in accordance with E.O. 12866.

Regulatory Flexibility Act

I certify that these regulations will not have a significant

economic impact on a substantial number of small entities because they

will apply only to Federal agencies and employees.

List of Subjects in 5 CFR Part 575

Government employees, Wages.

U.S. Office of Personnel Management.

Janice R. Lachance,

Director.

Accordingly, the interim rule amending part 575 of title 5 of the

Code of Federal Regulations, which was published at 63 FR 34119 on June

23, 1998, is adopted as final with the following changes:

PART 575--RECRUITMENT AND RELOCATION BONUSES; RETENTION ALLOWANCES;

SUPERVISORY DIFFERENTIALS

1. The authority citation for part 575 continues to read as

follows:

Authority: 5 U.S.C. 1104(a)(2), 5733, 5754, and 5755; secs. 302

and 404 of the Federal Employees Pay Comparability Act of 1990 (Pub.

L. 101-509), 104 Stat. 1462 and 1466, respectively; E.O. 12748, 3

CFR, 1992 Comp., p. 316.

Subpart C--Retention Allowances

2. Section 575.304 is amended by adding a new paragraph (d) to read

as follows:

Sec. 575.304 Conditions for payment.

* * * * *

(d) An agency may not offer a retention allowance to an individual

(or authorize the payment of such an allowance) prior to the

individual's employment with the agency.

3. In Sec. 575.30, paragraph (d) is revised to read as follows:

Sec. 575.305 Agency retention allowance plans; higher level review and

approval; and criteria for payment.

* * * * *

(d) Approval of retention allowances for groups or categories of

employees. (1)(i) An agency may authorize a retention allowance of up

to 10 percent of an employee's rate of basic pay for a group or

category of employees (excluding individuals covered by Sec. 575.302(a)

(2), (3), (5), or (6) or those in similar positions with respect to

which the authority to approve retention allowances has been delegated

to agency heads by OPM under Sec. 575.302(c)) based on a written

determination that the category of employees has unusually high or

unique qualifications, or that the agency has a special need for the

employees' services that makes it essential to retain the employees in

that category, and that it is reasonable to presume that there is a

high risk that a significant number of employees in the targeted

category are likely to leave Federal service in the absence of the

allowance.

(ii) The determination that there is a high risk that a significant

number of employees in the targeted category are likely to leave may be

based on evidence of extreme labor market conditions, high demand in

the private sector for the knowledge and skills possessed by the

employees, significant disparities between Federal and private sector

salaries, or other similar conditions.

(iii) The targeted category should be narrowly defined using

factors that relate to the conditions described in paragraph (d)(1)(i)

of this section. Factors that may be appropriate include the following:

occupational series, grade level, distinctive job duties, unique

qualifications, assignment to a special project, minimum agency service

requirements, organization or team designation, geographic location,

and performance level.

(While performance level may be a factor used in defining the

targeted category, performance level by itself is not sufficient to

justify a retention allowance. Performance level may function as a

supporting factor in authorizing an allowance or setting the allowance

rate only to the extent it directly relates to the conditions in

paragraph (d)(1)(i).)

(2) Upon the request of the head of an agency, OPM may approve a

retention allowance in excess of 10 percent, but not more than 25

percent, of an employee's rate of basic pay for a group of category or

employees which meets the conditions specified in paragraph (d)(1) of

this section. OPM may require that such requests be coordinated with

other agencies having similarly situated employees in the same

category. Group

[[Page 71635]]

retention allowance requests must include--

(i) A description of the group or category and number of employees

to be covered by the proposed retention allowance;

(ii) A written determination that the group or category or

employees meets the conditions specified in paragraph (d)(1) of this

section;

(iii) The proposed percentage retention allowance payment and a

justification for that percentage;

(iv) The expected duration of retention allowance payments; and

(v) Any other information pertinent to the case at hand.

(3) All other conditions and requirements for payment under this

subpart must be met before a retention allowance may be paid to any

individual employee under paragraphs (d)(1) or (d)(2) of this section.

4. In Sec. 575.307, paragraphs (b)(1), (b)(2), and (b)(3) are

revised to read as follows:

Sec. 575.307 Reduction or termination of retention allowance.

* * * * *

(b) * * *

(1) A lesser amount (or none at all) would be sufficient to retain

the employee (or group or category of employees);

(2) Labor-market factors make it more likely (or reasonably likely)

to recruit a candidate with qualifications similar to those possessed

by the employee (or group or category of employees);

(3) The agency's need for the services of the employee (or group or

category of employees) has been reduced to a level that makes it

unnecessary to continue payment at the level originally approved (or at

all); or

* * * * *

[FR Doc. 99-33178 Filed 12-21-99; 8:45 am]

BILLING CODE 6325-01-M