National Security Personnel System

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 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 while

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 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.

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

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-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 features

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. 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

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

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, 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.

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

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 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.

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-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.

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

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 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.

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

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 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 reassignment

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 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 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 grade-based 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

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 market-sensitive 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 performance-based 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 market-sensitive 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

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 higher-level 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

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, high-performing 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.

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

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 non-NSPS 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 non-NSPS 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

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 long-understood 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.

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

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 performance-based 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

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.

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

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 performance-

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 “pay-for-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

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 within-grade 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 non-medical 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

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

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