FR Doc E8-11364

[Federal Register: May 22, 2008 (Volume 73, Number 100)]
[Proposed Rules]
[Page 29881-29927]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22my08-19]

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Part III

Department of Defense

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Office of Personnel Management

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5 CFR Part 9901

National Security Personnel System; Proposed Rule

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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: Proposed rule.

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SUMMARY: The Department of Defense (DoD) and the Office of Personnel
Management (OPM) are issuing proposed regulations revising 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. The proposed 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: Comments must be received on or before June 23, 2008.

ADDRESSES: You may submit comments identified by docket number NSPS-
OPM-2008-0081 and/or Regulatory Information Number (RIN) 3206-AL62.
Please arrange and identify your comments on the regulatory text by
subpart and section number; if your comments relate to the
supplementary information, please refer to the heading and page number.
There are two methods for submitting comments. Please submit only one
set of comments via one of the methods described.
Preferred Method for Comments: The preferred method for
submitting comments is through the Federal Rulemaking Portal: http://
www.regulations.gov. Follow the instructions for submitting comments.
Alternative Method for Comments: If unable to access the
Federal Rulemaking Portal, comments may be mailed to the following
address: DOD/OPM/NSPS Public Comments, PO Box 14474, Washington, DC
20044.
Instructions: All submissions must include the agency name and
docket number or RIN for this rulemaking. Mailed comments must be in
paper form. No mailed comments in electronic form (CDs, floppy disk, or
other media) will be accepted. The Federal Rulemaking Portal, http://
www.regulations.gov, will contain any public comments as received,
without change, unless the comment contains security-sensitive
material, confidential business information, or other information for
which public disclosure is restricted by statute. If such material is
received, we will provide a reference to that material in the version
of the comment that is placed in the docket. The docket system is an
``anonymous access'' system, which means that DoD and OPM will not know
your identity, e-mail address, or other contact information unless you
provide it in the body of your comment. Unless a comment is submitted
anonymously, the names of all commenters will be public information.
Please ensure your comments are submitted within the specified open
comment period. Comments received after the close of the comment period
will be marked ``late,'' and DoD and OPM are not required to consider
them in formulating a final decision.
Before acting on this proposal, DoD and OPM will consider all
comments we receive on or before the closing date for comments.
Comments filed late will be considered only if it is possible to do so
without incurring expense or delay. Changes to this proposal may be
made in light of the comments we receive.

FOR FURTHER INFORMATION CONTACT: For DoD, Bradley B. Bunn, (703) 696-
5604; for OPM, Charles D. Grimes III, (202) 606-8079.

SUPPLEMENTARY INFORMATION: The Department of Defense (DoD or ``the
Department'') and the Office of Personnel Management (OPM) are
proposing to amend the National Security Personnel System (NSPS or
``the System''), a human resources (HR) management system for DoD under
5 U.S.C. 9902, as enacted by section 1101 of the National Defense
Authorization Act for Fiscal Year 2004 (Pub. L. 108-136, November 24,
2003) and amended by section 1106 of the National Defense Authorization
Act for Fiscal Year 2008 (Pub. L. 110-181, January 28, 2008). The
following information is intended to provide interested parties with
relevant background material about (1) the changes to the regulations,
(2) the process used to make the changes, (3) a description of the
revised NSPS regulations, and (4) an analysis of the costs and benefits
of those proposed regulations.
To the extent that this rule is consistent with the rule published
in Federal Register dated November 1, 2005 (Volume 70, Number 210)
[Rules and Regulations] [Page 66115-66220] (http://
edocket.access.gpo.gov/2005/05-21494.htm), the supplementary
information pertaining to that rule is adopted as part of the
supplementary information to this rule.

The Need for Change

DoD civilian employees are unique in Government: They are an
integral part of an organization that has a military function. DoD
civilian employees complement and support the military around the
world. To support the interests of the United States in today's
national security environment, civilian employees must be an
integrated, flexible, and responsive part of the DoD team. Just as new
threats, new missions, new technology, and new tactics are changing the
work of the military, they are changing the work of DoD's 700,000
civilian employees.
The Department's experience operating under the current NSPS
regulations as well as the 20 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 the 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

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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 systems principles and veterans' preference, and allows
employees to be paid and rewarded based on performance, innovation, and
results.

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.
Public Law 110-181 amended title 5, United States Code, 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 rule be considered a major rule for the
purposes of section 801 of title 5, United States Code, with advance
Congressional notification for OPM/DoD jointly-prescribed NSPS
regulations.
Gives these rules 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).
Based on the changes Public Law 110-181 made to Section 9902 of
title 5, the proposed rule deletes subparts F, G, H, and I (dealing
with workforce shaping, adverse actions, appeals, and labor relations,
respectively) of the current NSPS regulations. Subpart E (dealing with
staffing) is also removed.
Public Law 110-181 also modifies 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 which 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).

Two Years 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 2 years.

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 provided
to enhance transparency of the regulation as well as to provide for a
uniform and consistent rule.
The Table of Changes further addresses this and other changes in
the NSPS regulation in the area of Classification.

Compensation

Compensation Architecture
The proposed 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 additional general salary increases to designated

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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.
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 a 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 been applied during the past 2 years of
NSPS operation. These practices are incorporated now to increase
transparency in the system and because they have been effective in
operation.
The proposed rule 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 their 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 the 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'' (Section 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. To date, this authority has only been
available to employees in developmental or trainee level positions in
professional and analytical occupations. The change provides additional
flexibility to recognize 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 non-NSPS positions.
These rules promote more equitable pay setting upon moves to different
pay systems.
The Table of Changes further addresses these and other changes in
the NSPS regulation in the area of Compensation.

Performance and Pay Pool Management

Higher Level Review
The proposed 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. This review helps ensure that assigned
employee objectives are reviewed for appropriateness and consistency
within and across the organization and/or pay pool. This safeguard at
the beginning of the performance management process helps to ensure
equity at the end of it when performance payouts are paid from a common
pay pool fund.
Calculating Annual Payout
Rating levels and share distribution ranges are also specified in
the revised regulation as well as formulas for share values and
calculation of performance payouts. This revised language enhances
system transparency for all by providing additional specificity to
these elements. 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 meet minimum performance appraisal periods is
specified as well as limitations on this authority. By specifically
providing for extension of individual rating cycles, valued performers
and higher level

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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.
Reconsideration Process
Employee performance reconsideration rights have been expanded to
permit reconsideration of individual performance objective ratings in
addition to the overall rating of record. This change recognizes that
many pay pools use raw performance scores as a guide in determining how
many shares to assign to employees. Since raw performance scores may be
impacted by individual performance objective ratings, the ability to
request review of individual performance objectives enables employees
to seek redress on all performance rating decisions affecting their
pay.
Other Changes
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 failure to meet a minimum
performance period or inability to rate performance while they either
exercise statutory leave entitlements or fulfill other important roles
to the organization.
Finally, the regulations permit coverage under NSPS pay setting and
classification flexibilities for employees who are appointed for less
than 90 days by providing limited coverage of these employees under
Subpart D of Performance Management. 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 fewer.
The Table of Changes addresses these and other changes in the NSPS
regulation.

Process for Developing Proposed Regulations

Working Groups
In January 2008, working groups began meeting to revise the current
regulations. The working groups were functionally aligned to cover the
following human resources program areas: (1) Compensation
(classification and pay banding); (2) performance management; (3)
hiring, assignment, and pay setting; and (4) workforce shaping. The
working groups, staffed by DoD employees and OPM, identified and
developed options and alternatives for consideration in the revised
design of NSPS. These were then reviewed and approved for incorporation
by DoD and OPM senior officials prior to formal coordination and
publication in the Federal Register.

General Provisions--Subpart A

This subpart has been changed to bring NSPS into compliance with
the National Defense Authorization Act for Fiscal Year 2008 and
incorporate planned changes. Key changes to this subpart include
deleting references to subparts that have been removed; revising the
list of defined terms; and adding actions that require OPM approval
prior to implementation.
The following Table of Changes lists, by specific regulatory
section, a brief description of each significant change.

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Citation Description of proposed change
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Sec. 9901.101(a)........... Purpose. Amends paragraph to delete
reference to a new labor-management
system and include a provision enabling
the Secretary to establish implementing
issuances to supplement any matter
covered by the regulation.
Sec. 9901.101(b)(1)........ Amends paragraph to delete reference to a
new labor-management system.
Sec. 9901.101(b)(2)........ Amends paragraph to delete references to
a labor relations system.
Sec. 9901.102(a)........... Eligibility for coverage. Amends
paragraph to remove reference to
subparts E through I.
Sec. 9901.102(b)........... Amends paragraph to (1) clarify the
Secretary's sole and exclusive
discretion to decide to apply coverage
to an eligible category or categories of
employees; (2) delete reference to
subparts E, F, G, and H; (3) incorporate
information previously found at Sec.
9901.105(b) requiring DoD to advise OPM
in advance when it intends to extend
coverage of NSPS to specific categories
of employees.
Sec. 9901.102(d)........... Amends paragraph to reflect the
interrelationship of the classification,
pay, and performance management systems
established under NSPS.
Sec. 9901.102(e)........... Amends paragraph to clarify the
Secretary's sole and exclusive
discretion to decide to rescind coverage
of NSPS for a particular category of
employees or an organization or
functional unit.
Sec. 9901.102(f)(3)........ Amends paragraph to change reference from
Sec. 9901.373 to Sec. 9901.371 to
reflect number change in another
subpart.
Sec. 9901.103.............. Definitions. Deletes definitions for
furlough, initial probationary period,
in-service probationary period, labor
organization, mandatory removal
offenses, and MSPB. Adds definitions for
appraisal period, comparable pay band or
comparable level of work, Component,
higher pay band or higher level of work,
lower pay band or lower level of work,
pay pool, Pay Pool Manager, Pay Pool
Panel, and Performance Review Authority.
Revises definitions for basic pay, day,
implementing issuances, National
Security Personnel System, promotion,
rating of record, reassignment, and
reduction in band to add or delete
information and add clarity.

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Sec. 9901.104.............. Scope of authority. Amends section to
delete paragraphs (a), (f), (g), and (h)
and to redesignate the remaining
paragraphs. Deletes language allowing
the Department to waive portions of
chapter 53 related to pay and job
grading for Federal Wage System
employees. Adds reference to section
5544 (dealing with premium pay for
Federal Wage System employees) as
another premium pay provision that may
not be waived.
Sec. 9901.105.............. OPM coordination and approval. Amends the
title of this section to add information
on actions requiring OPM approval prior
to implementation. Deletes paragraphs
(f) and (g). Also, deletes paragraphs
(h) and (i) and moves material in those
paragraphs to paragraphs (d) and (e),
respectively.
Sec. 9901.105(a)........... Amends paragraph to add requirement to
request OPM approval in advance of
implementation of certain actions.
Sec. 9901.105(b)........... Replaces the former Sec. 9901.105(b)
paragraph and adds items previously
found at Sec. 9901.105(c), (d), and
(e).
Sec. 9901.105(c)........... Revises paragraph to add actions
requiring the Director's approval prior
to implementation.
Sec. 9901.105(d)........... Places material previously found at Sec.
9901.105(h) in this paragraph.
Sec. 9901.105(e)........... Places material previously found at Sec.
9901.105(i) in this paragraph and notes
that some actions require OPM approval.
Sec. 9901.106.............. Relationship to other provisions. Deletes
the material formerly at Sec. 9901.106
and replaces with material formerly
found at Sec. 9901.107. Removes
material related to application of the
back pay law in 5 U.S.C. 5596 previously
found at Sec. 9901.107(b)(2) and (3).
Sec. 9901.106(b)(1)........ Amends paragraph to include material
previously found at Sec. 9901.107(b).
Deletes reference to chapters 31, 33,
35, 71, 75, and 77.
Sec. 9901.106(b)(2)........ Amends paragraph to include material
previously found at Sec.
9901.107(b)(1). Deletes reference to
chapters 31, 33, 35, 71, 75, and 77 and
removes reference to subparts E through
I. Removes reference to physicians'
comparability allowances under 5 U.S.C.
5948 previously found at Sec.
9901.107(b)(1)(iv).
Sec. 9901.106(c)(2)........ Adds paragraph specifying that the
authority in 5 U.S.C. 5948 to provide
physicians' comparability allowances to
GS physicians does not apply to NSPS
physicians.
Sec. 9901.107.............. Program evaluation. Moves material
previously found at Sec. 9901.108 (and
deletes that section) and deletes
requirements related to employee
representatives.
------------------------------------------------------------------------

Classification--Subpart B

Subpart B provides DoD with the authority to replace the current GS
classification and qualifications systems and other current
classification systems with a new method of evaluating and classifying
jobs by grouping them into occupational categories and levels of work
for pay and other related purposes. Under NSPS, DoD (in coordination
with OPM) will have the authority to establish qualifications for
positions and to assign occupations and positions to broad occupational
career groups, pay schedules, and pay bands (or levels).
The NSPS classification system fully supports the merit system
principle that ``equal pay should be provided for work of equal value,
with appropriate consideration of both national and local rates paid by
employers in the private sector, and appropriate incentives and
recognition for excellence in performance.''
The pay banding structure replaces artificial limitations created
by current classification systems. Broad pay bands provide the ability
to move employees more freely across a range of work and provide
opportunities that are not possible when bound by traditional narrowly
described work definitions. While pay banding provides greater
flexibility and agility to the Department, the classification system
continues to ensure employees have access to long-established
protections related to the classification of their positions. Employees
are permitted to request reconsideration of the classification (pay
system, career group, occupational series, official title, pay
schedule, or pay band) of their official positions of record at any
time with DoD and/or OPM, as they can today under the GS system. The
system described in subpart B, together with the revised pay system
described in subpart C, will provide DoD with greater flexibility to
adapt the Department's job and pay structure to meet present and future
mission requirements.
The following Table of Changes lists, by specific regulatory
section, a brief description of each significant change.

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Sec. 9901.221(d)(2)........ Adds paragraph specifying that the
employee must file an initial request
for review of the reduction in pay band
or adjusted salary within 15 days to be
eligible for retroactive corrective
action.
Sec. 9901.221(d)(3)........ Adds paragraph specifying that
retroactive date can be established only
if the appeal reversal is based on
duties and responsibilities performed at
the time of reduction.
Sec. 9901.221(e)........... Redesignates former paragraph (d) as
paragraph (e). Adds information to
specify notification requirements when a
classification action results in a
reduction in an employee's pay band or
adjusted salary.
Sec. 9901.222.............. Review of classification decisions.
Revises title for clarity.
Sec. 9901.222(b)........... Revises and restructures paragraph to
address what may not be appealed.
Sec. 9901.222(c)........... Adds paragraph to address handling of
employee claim that his or her official
position description is inaccurate.
Sec. 9901.222(d)........... Relocates language found in paragraph (c)
of the current regulations in proposed
paragraph (d). Moves language formerly
found in paragraph (d) of the current
regulations to Sec. 9901.224(d).
Sec. 9901.222(e)........... Revises paragraph to provide that a
determination under Sec. 9901.222 will
be based on criteria issued by the
Secretary.
Sec. 9901.223.............. Appeal to DoD for review of
classification decisions. Adds new Sec.
9901.223 outlining DoD classification
appeal process.
Establishes and explains
employee right to representation.
Establishes the DoD
classification appeals process.
States the binding nature of DoD
appeal decisions.
Establishes employee and agency
cancellation provisions.
Sec. 9901.224.............. Appeal to OPM for review of
classification decisions. Adds new Sec.
9901.224 describing OPM's
classification appeal process.
Sec. 9901.231(a)........... Introduction to conversion section.
Amends paragraph to delete reference to
a prevailing rate system. Adds cross
reference to Sec. 9901.371, which
describes how to set an employee's pay
at conversion.
Sec. 9901.231(b)........... Implementing issuances. Adds language
specifying that implementing issuances
will include work level conversion
tables that will be used to convert
employees to an NSPS pay band. Deletes
language regarding employees with grade
retention immediately before conversion.
This subject is now addressed in Sec.
9901.231(d).
Sec. 9901.231(c)........... Temporary promotion prior to conversion.
Adds paragraph to clarify that an
employee on a temporary promotion
immediately prior to conversion of the
temporary position into NSPS must be
returned to his or her permanent
position before processing the
conversion.
Sec. 9901.231(d)........... Grade retention prior to conversion. Adds
paragraph to clarify that employees who
are entitled to grade retention
immediately before conversion will have
their NSPS pay band set using the actual
grade of the employee's current
position--not the retained grade.
------------------------------------------------------------------------

Pay and Pay Administration--Subpart C

This subpart provides DoD with authority to establish an NSPS pay
system in lieu of the GS pay system or other pay systems that would
apply to employees but for coverage under NSPS. The subpart has been
revised to (1) incorporate changes in the National Defense
Authorization Act (NDAA) for Fiscal Year 2008; (2) add more detailed
rules drawn from existing NSPS implementing issuances; (3) make policy
changes in certain areas; and (4) make technical changes and
improvements. Key changes to this subpart include (1) adding a
provision to define what constitutes a ``rate of pay'' for the purposes
of applying 5 U.S.C. 9902(e)(9) (this change is explained in the Table
of Changes); (2) adding regulations regarding pay limitations; (3)
revising rules on NSPS general salary increases (including changes to
comply with the NDAA); (4) revising standard local market supplements
to be generally equivalent to GS locality pay (as required by the
NDAA); (5) adding detailed rules regarding performance payouts from pay
pools and other performance-related payments; (6) adding detailed pay
administration rules; (7) establishing detailed rules regarding premium
pay under NSPS (including identification of specific modifications to
standard title 5 premium pay rules); (8) adding more detailed rules on
conversions into the NSPS pay system; and (9) establishing new rules
regarding conversions out of the NSPS pay system. Modifications to this
subpart reflect the unique pay-banding architecture of NSPS; enhance
management's flexibilities to respond more competitively to labor
markets; facilitate pay setting upon movements between different pay
systems; promote performance-based pay; provide the flexibility to
facilitate the Department's ability to accomplish its diverse missions;
and, in some cases, streamline and simplify pay administration rules.
Throughout this subpart, the terms ``base salary'' and ``adjusted
salary'' are used. The use of the term ``salary'' is consistent with
the terminology that has been used in NSPS since its inception. It is
meant to capture the concept of continuing pay, excluding premium pay,
bonuses, or other forms of variable pay. The term ``base salary''
refers to base or basic pay excluding any local market supplement. The
term ``adjusted salary'' refers to an adjusted rate of basic pay that
includes any applicable local market supplement.
The following Table of Changes lists, by specific regulatory
section, a brief description of each significant change.

----------------------------------------------------------------------------------------------------------------
Citation Description of proposed change
----------------------------------------------------------------------------------------------------------------
Sec. 9901.301.............. Purpose. Modifies to provide reference to waivers listed under Sec. 9901.303.
Sec. 9901.302.............. Prevailing rate employees. Deletes paragraph Sec. 9901.302(b)(2) related to
waiver of the statutory provisions establishing pay systems for prevailing rate
employees, consistent with 5 U.S.C. 9902(b)(4). Also deletes paragraph (c) to
clarify that all employees in the NSPS classification and pay system are
automatically covered by the premium pay provisions in Sec. Sec. 9901.361
through 9901.364, as applicable.
Sec. 9901.303(a)(2)........ Premium pay. Adds a reference to 5 U.S.C. 5544 (dealing with premium pay for
prevailing rate employees) as an additional exception to the authority to waive
the premium pay provisions in 5 U.S.C. chapter 55, subchapter V.
Sec. 9901.303(b)........... Prevailing rate employees. Adds a paragraph referencing 5 U.S.C. 5341-5349
(dealing with prevailing rate employees) to the list of provisions in 5 U.S.C.
chapter 53 that may not be waived.

[[Page 29888]]

Sec. 9901.303(c)........... Student loan repayments. Revises existing paragraph to limit the Secretary's
authority to modify the student loan repayment benefit provisions in 5 U.S.C.
5379. If necessary to address critical hiring needs, the Secretary may modify
the minimum service period and the limitations on the amount of student loan
repayment benefits.
Sec. 9901.304.............. Definitions. Adds definitions for the terms adjusted salary, base salary,
contributing factor, premium pay, retained rate, and sub pay pool. Also, adds
additional cross references to various terms that are defined in subpart A.
Makes minor changes in various definitions to use the terms ``base salary'' and
``adjusted salary'' (which are currently used in NSPS implementing issuances).
(Also, throughout the subpart, the terms ``base salary'' and ``adjusted salary''
are used as appropriate.) Revises definition of modal rating so that the group
of employees used in determining the modal rating is the entire pay pool, not
just a pay band within a pool. Revises definition of performance share value to
specify that a share value is always computed as a percentage. Adds sentence to
definition of standard local market supplement to conform with 5 U.S.C.
9902(e)(8)(A). Revises definition of targeted local market supplement to clarify
that targeted local market supplements apply in place of any lower standard
market supplement that is otherwise applicable. Makes minor changes in other
definitions.
Sec. 9901.305.............. Rate of pay. Deletes former Sec. 9901.305 and adds a new section providing 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)].'' It is appropriate that NSPS regulations issued
under authority of 5 U.S.C. 9902(a) address section 9902(e)(9) since section
9902(b) requires that the system established under section 9902(a) meets certain
conditions, including the condition in section 9902(b)(5). Section 9902(b)(5)
states that collective bargaining is subject to any ``limitation on
negotiability established pursuant to law,'' which would include the limitation
in section 9902(e)(9).
Proposed Sec. 9901.305 defines the term ``rate of pay'' to include (1) various
pay rates applicable to individual employees (i.e., base salary rate, local
market supplement rate, and overtime and other premium pay rates), (2) the pay
rates that constitute the structure of the pay system, including the amount or
level of those rates and the applicability conditions that define the type and
coverage of each rate (including range minimums and maximums, control points,
local market supplements, general limitations on maximum base salary or adjusted
salary rates, and premium pay rates), and (3) the percentage rate of total base
salary payroll representing the portion of a pay pool devoted to performance pay
increases. The term ``rate of pay'' encompasses payments that are paid on a
recurring basis at an established level or amount. Thus, variable one-time
bonuses are not included.
A rate of pay cannot be understood as simply an amount. A rate amount only has
meaning in the context of the required set of conditions that define what the
rate is and when it applies. Any rate amount is inseparably connected to a set
of defining conditions that determine when employees may receive that rate
amount. In other words, one cannot establish or adjust a rate of pay for
employees without taking into account both the amount of the rate and the
required conditions defining applicability of the type and amount of pay in
question. For example, it is impossible to establish a local market supplement
by merely establishing the percentage amount of that supplement. For the local
market supplement to have any meaning, the establishment of the supplement
necessarily requires the establishment of the geographic area in which that
supplement will apply. Similarly, establishing or adjusting the minimum rate of
a band requires that the rate be connected to a particular band that covers a
defined group of employees. Also, establishing a new category of hazardous duty
pay requires establishing the type of hazardous conditions that are linked to a
given percentage rate. Accordingly, Sec. 9901.305 makes clear that, as far as
the rates that comprise the pay structure are concerned, a ``rate of pay'' is
comprised of two inseparable components or elements: (1) The intrinsic
applicability conditions that define what the rate of pay is and to whom it
applies and (2) the amount or level of the rate. Both the amount and the
applicability conditions of a rate of pay may be established or adjusted.
Sec. 9901.311.............. Major Features. Amends to reflect (1) the use of the term ``salary'' instead of
``pay'', (2) changes resulting from implementation of NDAA for Fiscal Year 2008
(Public Law 110-181, January 28, 2008) in the area of local market supplements
and general salary increases, and (3) a DoD policy change to delink general
salary increases from adjustments in the minimum rate of the band.
Sec. 9901.312.............. Maximum rates. Replaces former Sec. 9901.312 with a revised section, which
establishes a maximum limitation or cap on adjusted salary rates for NSPS
employees (excluding doctors and dentists) equal to the rate for level IV of the
Executive Schedule plus 5 percent. In addition, the revised section provides the
Secretary with authority to establish a higher adjusted salary limitation for
defined categories of employees. Use of this authority is subject to
coordination with OPM under Sec. 9901.105.
Sec. 9901.313.............. Aggregate compensation limit. Adds a new section to establish rules governing
aggregate compensation limits. Normally, the limit is equal to the rate for
level I of the Executive Schedule; however, in special circumstances, the
Secretary may establish a cap equal to the Vice President's annual salary for
specified categories of employees (subject to coordination with OPM). A special
limitation tied to the President's salary applies to doctors and dentists,
consistent with the similar pay limit for Department of Veterans Affairs doctors
and dentists under title 38.
Sec. 9901.314.............. Compensation comparability. Revises Sec. 9901.314 (formerly Sec. 9901.313) to
change references to calendar year 2008 to calendar year 2012, consistent with
paragraphs (4)-(5) of new section 9902(e) in title 5, United States Code, as
amended by section 1106 of Pub. L. 110-181.
Sec. 9901.321(c)........... Control points. Adds a new paragraph (c) to address control points, which were
previously addressed solely in Sec. 9901.342(d). This makes clear that control
points (i.e., limitations on pay setting and pay progression within a pay band
that apply to specified groups of similar positions) are part of the structure
of the pay system. The new paragraph includes a listing of the factors that may
be considered in establishing control points: mission requirements, budget,
labor market factors, and benchmarks based on duties, responsibilities,
competencies, qualifications, and performance.
Sec. 9901.322(a)........... Rate ranges. Clarifies that the term ``rate range'' refers to the range minimum
and range maximum.

[[Page 29889]]

Sec. 9901.322(e)........... Adjustment of maximum rates in conjunction with general salary increase. Adds
requirement that the maximum rate of all pay bands must be adjusted by no less
than the percentage amount of the NSPS general salary increase under Sec.
9901.323(a)(1) effective on the date of that increase. This rule ensures that
any eligible employee will receive the full amount of the NSPS general salary
increase under Sec. 9901.323(a)(1). Other general salary increases under Sec.
9901.323 could be less than the increase in the band maximum, in which case the
general salary increase would be limited by the band maximum.
Sec. 9901.323(a)........... General salary increase. Revises Sec. 9901.323 to provide that general salary
increases are no longer linked to increases in the minimum rate of an employee's
rate range. Instead general salary increases for employees in various bands will
be determined separately, subject to the rules in this section. This section
also incorporates in Sec. 9901.323(a)(1) the new statutory requirement in 5
U.S.C. 9902(e)(7), as enacted by section 1106 of Pub. L. 110-181. Under section
9902(e)(7), all eligible employees (i.e., all employees except those with an
unacceptable performance rating) in all NSPS pay bands are entitled to a general
salary increase at the time of a GS general pay increase under 5 U.S.C. 5303,
and that increase may not be less than 60 percent of the GS general pay
increase. Under these proposed regulations, the NSPS general salary increase
would be the same percentage for all eligible employees, except that the
increase for retained rate employees would be fixed at 60 percent of the GS
general pay increase (or lowest permitted amount established by law). As
required by section 9902(e)(7), the portion of the GS general pay increase
amount that is not provided as an NSPS general salary increase must be allocated
to NSPS pay pool funding for the purpose of increasing base salary rates on the
basis of employee performance. For example, if the GS general pay increase is
2.5 percent and the NSPS general salary increase for eligible employees in all
pay bands is 1.5 percent (60 percent of GS general pay increase), the balance of
1.0 percent would be added to the pay pool and used to fund performance-based
base salary increases.
Proposed new Sec. 9901.323(a)(2) makes clear that the Secretary may provide
additional NSPS general salary increases for all eligible employees (except
retained rate employees) in a designated occupational series in a pay band at
other times to address labor market conditions, staffing difficulties, or
mission priorities. This authority is subject to coordination with OPM under
Sec. 9901.105. These additional general salary increases are not system-wide
increases, but instead are applied as needed. The amount and timing of the
increases (if any) may vary by employee category. (Under current regulations,
the Secretary could give varying general salary increases for employees in
various bands by adjusting the band minimum rates by varying amounts, since
adjustments in band minimum rates currently drive general salary increases;
thus, a similar flexibility already exists.)
Sec. 9901.323(b)........... Unacceptable performers. Revises paragraph (b) to provide that an employee who is
denied a general salary increase based on an unacceptable performance rating,
but who receives a rating above unacceptable for a subsequent appraisal period,
is eligible to receive the next general salary increase occurring on or after
the date the employee is given a rating of record above unacceptable. For
example, if an employee is denied a general salary increase under Sec.
9901.323(a)(1) in a given January, and if the next general salary increase
occurs in the next January, then the employee will be eligible for that next
increase if he or she receives a rating of record above unacceptable on or
before the effective date of that next January increase. The employee may not
receive the lost general salary increase on a delayed basis, even if the
employee receives a mid-cycle rating under Sec. 9901.412(b)(2).
Sec. 9901.323(c)........... Special additional increase. Provides the Secretary with discretionary authority
to provide a special additional salary increase for certain employees who are
ineligible for a performance payout, such as an employee without an NSPS rating
of record because he or she has not been in NSPS for the minimum 90-day period.
Eligible employees may receive the system-wide general salary increase under
Sec. 9901.323(a)(1) plus an additional increase equal to the difference
between the GS general pay increase and the NSPS general salary increase.
Retained rate employees are not eligible for this additional increase.
Sec. 9901.323(d)........... Increases limited by band maximum. Provides that a general salary increase under
paragraph (a)(2) or paragraph (c) of Sec. 9901.323 may be applied only to the
extent that it does not cause an employee's base salary rate to exceed the
maximum rate of the employee's band or applicable control point.
Sec. 9901.323(e)........... Increase in conjunction with increase in band minimum. Provides that if the
adjustment of a pay band minimum rate causes the base salary of an employee with
a rating of record above unacceptable to fall below such minimum rate, the
employee's salary will be set at the pay band minimum rate.
Sec. 9901.331(b)........... Computation of local market supplements. Adds a new paragraph describing how
local market supplements are computed and are subject to a rate cap.
Sec. 9901.331(c)........... Official worksite. Adds a new paragraph providing that, in administering NSPS
local market supplements, DoD will use the same concept of official worksite as
used in the GS locality pay program, consistent with the requirements of 5
U.S.C. 9902(e)(8)(A), as enacted by section 1106 of Public Law 110-181.
Sec. 9901.331(d)........... Treatment of local market supplement as basic pay. Redesignates former Sec.
901.332(c) as new Sec. 9901.331(d).
Revises paragraph (d)(9) to clarify that a local market supplement is considered
basic pay at the point of conversion into or out of the NSPS pay system for the
purpose of applying the adverse action provisions in 5 U.S.C. chapter 75,
subchapter II. (See also Sec. Sec. 9901.351(g), 9901.371(d), and
9901.372(f).)
Deletes former paragraph (d)(10) dealing with treatment of local market
supplements as basic pay in determining internal NSPS payments and adjustments,
since the regulations for those NSPS payments and adjustments now clearly
address whether base salary or adjusted salary is used.
Revises paragraph (d)(11) (formerly (d)(12)) to clarify that other statutory
provisions must ``expressly'' address treatment of local market supplements as
basic pay to have an effect. Also, provides that other NSPS regulations may
address the basic pay issue.
Sec. 9901.332(a)........... General. Deletes existing paragraph (a) and replaces it with a new paragraph
explaining the relationship of standard and targeted local market supplements to
5 U.S.C. 9902(e)(8).

[[Page 29890]]

Sec. 9901.332(b)........... Standard local market supplements. Deletes existing paragraph (b) and replaces it
with a separate paragraph regarding standard local market supplements,
incorporating statutory requirements in 5 U.S.C. 9902(e)(8)(A), as enacted by
section 1106 of Public Law 110-181. Under section 9902(e)(8)(A), NSPS must
provide standard local market supplements in the same manner as GS locality pay
under 5 U.S.C. 5304 and 5304a. The proposed regulations give effect to this
provision by requiring that NSPS standard local market supplements (1) be the
same percentage amounts as GS locality payments, (2) be linked to the same
geographic areas established under the GS locality pay program, and (3) be based
on the same ``official worksite'' concept used in administering the GS locality
pay program. In addition, NSPS standard local market supplements will generally
be administered in other respects in a manner that parallels the administration
of GS locality payments (e.g., a higher targeted local market supplement trumps
a standard local market supplement just as a higher GS special rate supplement
trumps a GS locality payment), except when differences are required due to
differences between the NSPS and GS pay systems. For example, under NSPS,
adjusted salary rates (including any local market supplement) are generally
capped at the rate for level IV of the Executive Schedule plus 5 percent to
accommodate the 5-percent extension of certain base salary ranges, while GS
locality-adjusted rates are capped at the rate for level IV of the Executive
Schedule. Also, NSPS local market supplements are paid on top of a retained pay
rate, while GS locality pay is not. (Instead, locality pay is considered in
setting and adjusting a GS retained rate.) In addition, while GS locality pay
applies to all GS employees stationed in locality pay areas, NSPS standard local
market supplements are not applicable to physicians and dentists, since (1) they
are entitled to higher base salary and adjusted salary ranges to achieve
comparability with title 38 physicians and dentists in the Department of
Veterans Affairs and (2) their adjusted salary rates are designed to apply on a
worldwide basis with no variation based on location (consistent with title 38).
Sec. 9901.332(c)........... Targeted local market supplements. Replaces existing paragraph (c) with a new
paragraph regarding targeted local market supplements. Targeted local market
supplements are similar to GS special rate supplements. They are used to address
staffing problems associated with a specific category of employees. They are
payable when higher than any otherwise applicable standard local market
supplement. Language formerly under paragraph (c) moves to Sec. 9901.331(d).
Sec. 9901.333.............. Setting and adjusting local market supplements. Adds a new paragraph (a) to
provide that standard local market supplements are set and adjusted consistent
with the setting and adjusting of GS locality payments, as required by 5 U.S.C.
9902(e)(8)(A). Also, merges former paragraphs (a) and (b) into a new paragraph
(b), which is revised to focus solely on targeted local market supplements.
Sec. 9901.334(b)........... Unacceptable performers. Revises paragraph (b) to provide that an employee who is
denied a local market supplement adjustment based on an unacceptable performance
rating, but who receives a rating above unacceptable for a subsequent appraisal
period, is entitled to the full amount of any applicable local market supplement
effective on the date of the first adjustment in that local market supplement
occurring on or after the effective date of that new rating of record, or, if
earlier, the effective date of an applicable general salary increase as
described in Sec. 9901.323(b).
Sec. 9901.341.............. Performance-based pay system. Modifies paragraph for editorial purposes.
Sec. 9901.342(a)........... Overview of performance payout section. Modifies paragraph (a)(1) to reflect the
current implementation state of the NSPS performance-based pay system.
Modifies paragraph (a)(2) to:
(1) Delete reference to ``a more current rating of record, consistent with the
former Sec. 9901.409(b)'' (while the provision for a mid-cycle rating of
record still exists under Sec. 9901.412(b)(2), specific reference to this type
of rating of record is not required for that rating to serve as the basis for a
performance increase);
(2) Limit circumstances for which an employee who is not eligible for a rating of
record may receive a payout to the circumstances prescribed in this regulation;
and
(3) Change cross reference to paragraphs (f) and (g) to reflect new location in
paragraphs (i) and (j) and to incorporate reference to additional payout
situations in paragraphs (k) and (l).
Deletes paragraph (a)(3) as found in current regulations. This material is
replaced with more specific information on pay pool officials in proposed Sec.
9901.342(c), (d), and (e).
Sec. 9901.342(b)........... Performance pay pools. Modifies paragraph (b)(1) to incorporate language
regarding fair and consistent treatment of employees in the pay pool process,
which is found in current regulations at Sec. 9901.342(a)(3).
Paragraphs (b)(2) and (b)(3) provide uniform and consistent criteria governing
the establishment of performance pay pool structures, including sub pay pools.
Paragraph (b)(4) contains language previously found in paragraph (b)(2).
Paragraph (b)(5) states the requirement for higher-level approval of pay pool
funding floors or ceilings.
Sec. 9901.342(c)........... Pay Pool Panel. Adds a new paragraph describing the roles and responsibilities of
the Pay Pool Panel.
Sec. 9901.342(d)........... Pay Pool Manager. Adds a new paragraph describing the roles and responsibilities
of the Pay Pool Manager.
Sec. 9901.342(e)........... Performance Review Authority. Adds a new paragraph describing the roles and
responsibilities of the Performance Review Authority.
Sec. 9901.342(f)........... Performance shares. Relocates and modifies language found in current regulations
at Sec. 9901.342(c). The modifications include:
A table assigning a uniform range of shares to rating levels 3 through
5;
A uniform list of criteria establishing parameters for determination of
share assignment within a range; and
Requirement that Pay Pool Managers and Panels review recommendations for
share assignment for consistent application of criteria across a pay pool.
Sec. 9901.342(g)........... Performance payout. Relocates and modifies language found in current regulations
at Sec. 9901.342(d). The modifications include:
Addition of the formula for determining the value of a share;
Addition of the formula for determining the dollar value of an
individual employee's payout;
Addition of a uniform list of criteria that are the only factors that
may be considered in determining distribution of a pay pool payout between bonus
and base salary increase;
Clarification of effective date of a performance-based pay pool payout
under this section;
Addition of uniform eligibility criteria to receive a performance-based
payout under Sec. 9901.342; and

[[Page 29891]]

Modifications to language concerning performance payouts for employees
on retained pay, which clarify that the performance payout must be in the form
of a bonus and that the amount of the performance payout is based on the maximum
rate of the pay band to which the employee is assigned.
Sec. 9901.342(h)........... Proration of performance payouts. Relocates and modifies language found in
current regulations at Sec. 9901.342(e). Modifies cross-referenced paragraphs
to reflect redesignations made in this proposed regulation.
Sec. 9901.342(i)........... Adjustments for employees returning after performing honorable service in the
uniformed services. Relocates and modifies language found in current regulations
at Sec. 9901.342(f). Modifies language to indicate that performance payouts
will be based on an employee's ``NSPS'' rating of record instead of the ``DoD''
rating of record. This modification recognizes the potential inequities which
may occur in comparing the NSPS and non-NSPS performance rating systems.
Additionally, clarifies eligibility for performance bonus under specified
circumstances and bar on prorating of pay pool payouts due to leave without pay
or absence to perform uniformed service under 38 U.S.C. 4301 and Sec. 353.102
of this chapter.
Sec. 9901.342(j)........... Adjustments for employees returning to duty after being in workers' compensation
status. Relocates and modifies language found in current regulations at Sec.
9901.342(g). Modifies language to indicate that performance payouts will be
based on an employee's ``NSPS'' rating of record instead of the ``DoD'' rating
of record. This modification recognizes the potential difficulties which may
occur in comparing the NSPS and non-NSPS performance rating systems.
Additionally, clarifies eligibility for performance bonus under specified
circumstances and bar on prorating of pay pool payouts due to leave without pay
due to work-related injury under 5 U.S.C. chapter 81, subchapter I.
Sec. 9901.342(k)........... Adjustments for employees in special circumstances. Adds a new paragraph
providing a method of determining a performance payout for employees, who due to
performance of union-related activities or absence while on paid approved leave,
are unable to meet the minimum period for a performance rating of record.
Sec. 901.342(l)............ Adjustments for employees returning from temporary assignments outside of NSPS or
from long-term training for which no NSPS performance plan was assigned. Adds a
new paragraph providing a method of determining performance pay adjustments for
employees who either did not meet the minimum period of performance due to
temporary assignment outside of NSPS or long-term training or who met the
minimum period and received a rating of record, but were outside of NSPS on the
effective date of the payout.
Sec. 9901.343.............. Pay reduction based on unacceptable performance and/or conduct. Modifies section
to limit the range of a pay reduction based on unacceptable performance and/or
conduct from 1-10 percent of base salary to 5-10 percent of base salary.
Additionally, updates cross-referenced paragraphs to reflect modifications to
subpart C.
Sec. 9901.344.............. Other performance payments. Modifies section by changing title of Extraordinary
Pay Increases (EPI) to Extraordinary Performance Recognition (EPR) and
establishing uniform eligibility criteria and methods of payment for
Extraordinary Performance Recognition (EPR) and Organizational Achievement
Recognition (OAR) payments.
Sec. 9901.345.............. Accelerated Compensation for Developmental Positions. Modifies section by
establishing uniform eligibility criteria for Accelerated Compensation for
Developmental Positions (ACDP), limiting the form of an ACDP payment to that of
a base salary increase, and adding general limits on the amount of ACDP that may
be provided.
Sec. 9901.351.............. General rules governing pay administration. Adds a new section providing general
pay setting rules.
Sec. 9901.351(a)........... Introduction. Provides that base salary rates are used in pay administration,
except when specifically otherwise provided.
Sec. 9901.351(b)........... Geographic recalculation. Provides for a geographic recalculation on pay setting
for movements from one geographic area to another geographic area, consistent
with the geographic conversion principle described in 5 CFR 531.205. This
provision is used in special circumstances when adjusted salary rates are used
in applying certain pay administration rules.
Sec. 9901.351(c)........... Within-grade increase (WGI) adjustment equivalent. Provides for a WGI equivalent
for employees moving into NSPS, consistent with the conversion process in Sec.
9901.371, under specified conditions. Provides for a WGI equivalent for
employees moving into NSPS through a management-directed action, including a
management-directed reassignment, realignment, or placement via the Priority
Placement Program, Reemployment Priority List, or Interagency Career Transition
Assistance Plan. An employee placed in an NSPS position through an employee-
initiated reassignment may receive this same WGI equivalent at the discretion of
the authorized management official.
Sec. 9901.351(d)........... Minimum rate. Relocates language (with minor modifications) found in current
regulations at Sec. 9901.356(a). This provision states that an employee's base
salary may not be less than the minimum rate of the employee's pay band, unless
the employee does not receive a pay increase under Sec. 9901.323 because of an
unacceptable rating.
Sec. 9901.351(e)........... Maximum rate. Relocates language (with minor modifications) found in current
regulations at Sec. 9901.356(b). This provision states that an employee's base
salary may not be more than the maximum rate of the employee's pay band, unless
provided for under the pay retention provisions in Sec. 9901.356.
Sec. 9901.351(f)........... Pay periods and hourly rates. Relocates language (with minor modifications) found
in current regulations at Sec. 9901.356(c). This provision states that the
Secretary will follow the rules for establishing pay periods and computing pay
rates in 5 U.S.C. 5504 and 5505.
Sec. 9901.351(g)........... Rate comparisons upon movement to an NSPS position. Provides for the setting of
an employee's NSPS rate of basic pay when the employee moves to an NSPS position
by a management-directed action, consistent with the conversion rule in Sec.
9901.371(d).
Sec. 9901.351(h)........... Adjustment of teacher annual rates. Provides authority for an adjustment of up to
20 percent when an individual leaves a teaching position under 20 U.S.C. 901 and
moves to NSPS. This adjustment is for the purpose of setting the individual's
NSPS pay based on that adjusted rate. This adjustment will take into account the
shorter work year applicable to a teacher position.
Sec. 9901.352.............. Setting an employee's starting pay. Revises section (formerly Sec. 9901.351)
providing specific rules to be applied in determining an employee's starting pay
for individuals who are newly appointed or reappointed to the Federal service.
Sec. 9901.352(a)........... Considerations in setting starting pay. Identifies factors to be considered in
setting starting pay for a newly appointed or reappointed employee.

[[Page 29892]]

Sec. 9901.352(b)........... Definitions. Defines the terms newly appointed and reappointed and clarifies the
term Federal service. Clarifies that to be considered as reappointed, an
employee must have been separated from Federal service for at least 1 full
workday immediately before employment in an NSPS position.
Sec. 9901.353.............. Setting pay upon reassignment. Revises section (formerly Sec. 9901.352)
providing specific rules to be applied in determining an increase or decrease
under a reassignment action.
Sec. 9901.353(a)........... General rules governing reassignment increases. Makes minor changes in
terminology to use the term ``base salary''. Identifies factors to be used in
making decision to grant a reassignment increase. Provides that an employee who
is reassigned through reduction-in-force procedures will not incur a reduction
in base salary and is not eligible for an increase in base salary, except to
place the base salary at the minimum rate of the new pay band.
Sec. 9901.353(b)........... 5 percent increase upon reassignment. Provides for an employee's base salary to
be increased by up to 5 percent and provides for procedures in setting pay upon
a reassignment. The authorized management official may decrease an employee's
base salary by any amount determined prior to the reassignment and with the
employee's agreement, as long as the employee's base salary does not drop below
the minimum of the assigned pay band. Provides for a higher-level approval of
any increase or decrease upon a reassignment. Clarifies that an employee may
receive only a total of a 5 percent cumulative increase to base salary as a
result of employee-initiated action in any 12-month period, unless an exception
is approved by a higher-level official.
Sec. 9901.353(c)........... Adjusted salary used for an employee-initiated reassignment. Provides for use of
adjusted salary in the pay setting of an employee on a voluntary reassignment.
When an employee is voluntarily reassigned from a position with a targeted local
market supplement or from a non-NSPS position (e.g., GS, Federal Wage System,
Nonappropriated Fund), the authorized management official will set pay
considering the employee's adjusted salary (including any applicable locality
pay, special rate supplement, or other equivalent supplement) and any
physicians' comparability allowance payable for the position held prior to the
reassignment. If the NSPS adjusted salary is increased beyond the amount of the
employee's current adjusted salary plus any physicians' comparability allowance,
the percentage of the increase is counted toward the 12-month limitation. When
an employee covered by a targeted local market supplement is changed to a new
location where a different local market supplement and/or pay schedules apply,
the employee's current adjusted salary must be recalculated in accordance with
the rules at Sec. 9901.351(b).
Sec. 9901.353(d)........... Management-directed reassignment. Provides for the adjusted salary to be used in
the pay setting of an employee on a management-directed reassignment. There are
no limits to the number of times an employee may be reassigned by management,
and the employee is eligible for an increase of up to 5 percent with each
reassignment. Any increase associated with a management-directed reassignment
does not count toward the 12-month limitation.
Sec. 9901.353(e)........... Adjusted salary used for a management-directed reassignment. Provides for use of
the adjusted salary in the pay setting of an employee on a management-directed
reassignment. When an employee is reassigned by management-directed action from
a position with a targeted local market supplement or from a non-NSPS position
(e.g., GS, Federal Wage System, Nonappropriated Fund), the authorized management
official will set pay considering the employee's adjusted salary (including any
applicable locality pay, special rate supplement, or other equivalent
supplement) and any physicians' comparability allowance payable for the position
held prior to the reassignment. If the NSPS adjusted salary is increased beyond
the amount of the employee's current adjusted salary plus any physicians'
comparability allowance, the percentage of the increase is counted toward the 12-
month limitation. When an employee covered by a targeted local market supplement
is changed to a new location where a different local market supplement and/or
pay schedules apply, the employee's current adjusted salary must be recalculated
in accordance with the rules at Sec. 9901.351(b).
Sec. 9901.353(f)........... Mandatory reduction in pay on reassignment. Provides for a mandatory reduction of
at least 5 percent and up to 10 percent to an employee's base salary when an
employee is involuntarily reduced in pay via reassignment based on unacceptable
performance and/or conduct. This reduction may not cause an employee's base
salary to fall below the minimum rate of the employee's assigned pay band. An
employee's base salary may not be reduced more than once in a 12-month period
based on unacceptable performance, conduct, or both.
Sec. 9901.353(g)........... Expiration or termination of temporary reassignment. Provides that any increase
received while on temporary reassignment will be reversed upon return to the
employee's prior position. The employee's pay will then be reconstructed to
credit the employee with increases he/she would have received if not for the
temporary reassignment.
Sec. 9901.353(h)........... Reassigned to an NSPS supervisory position. Provides that any increase received
while on reassignment to a supervisory position will be reversed upon return to
the employee's prior position due to failure to complete a supervisory
probationary period. The employee's pay will then be reconstructed to credit the
employee with increases he/she would have received if not for the reassignment
to the supervisory position.
Sec. 9901.354.............. Promotion. Revises section (formerly Sec. 9901.353) providing specific rules to
be applied in determining an increase under a promotion action.
Sec. 9901.354(a)........... Setting pay upon promotion. Provides for an employee's base salary to be
increased from 6 percent not to exceed 12 percent and provides for procedures in
setting pay upon a promotion. Revises section to provide for a higher-level
approval for any increase above 12 percent. Incorporates the term ``base
salary''.
Sec. 9901.354(b)........... Criteria used for a promotion. Provides specific criteria used in determining an
increase under a promotion action.
Sec. 9901.354(c)(1)........ Temporary promotion made permanent. Provides that an employee's base salary will
remain unchanged when a temporary promotion is made permanent, and that no
additional increase will be provided.
Sec. 9901.354(c)(2)........ Expiration or termination of temporary promotion. Provides that any increase
received while on temporary promotion will be reversed upon return to the
employee's prior position. The employee's pay will then be reconstructed to
credit the employee with increases he/she would have received if not for the
temporary promotion.
Sec. 9901.354(d)(1)........ Promotion from pay retention. Addresses how pay is set for an employee on
retained pay who is repromoted to the pay band from which reduced (or comparable
band).
Sec. 9901.354(d)(2)........ Promotion calculation for pay retention. Addresses how an employee's retained
base salary will be used in calculating the promotion increase.

[[Page 29893]]

Sec. 9901.355.............. Setting pay upon reduction in band. Revises section (formerly Sec. 9901.354)
providing specific rules to be applied in determining an increase or decrease
for setting pay upon reduction in band.
Sec. 9901.355(a)........... General. Provides for an employee's base salary to be increased or decreased, and
provides procedures in setting pay upon a reduction in band.
Sec. 9901.355(b)........... Pay reduction. Provides authority to reduce an employee's base salary at least 5
percent and up to 10 percent on a reduction in band based on unacceptable
performance and/or conduct. This reduction may not cause an employee's base
salary to fall below the minimum rate of the employee's assigned pay band. An
employee's base salary may not be reduced more than once in a 12-month period
based on unacceptable performance, conduct, or both.
Sec. 9901.355(c)........... Pay increase. Provides for an employee's base salary to be increased by up to 5
percent, consistent with the reassignment increase procedures. An employee who
is reduced in band through reduction-in-force procedures or by placement via the
Priority Placement Program or Reemployment Priority List is not eligible for an
increase in base salary, except to place the base salary at the minimum rate of
the new pay band. Provides specific criteria used in determining an increase for
setting pay upon reduction in band.
Sec. 9901.355(d)........... Termination of temporary promotion. Provides that this section does not apply to
a reduction in band in connection with the termination of a temporary promotion;
instead, the rules in Sec. 9901.354(c)(2) apply.
Sec. 9901.355(e)........... Probationary period. Provides that any increase received while on promotion to a
supervisory position will be reversed upon return to the employee's prior
position due to failure to complete a supervisory probationary period. The
employee's pay will then be reconstructed to credit the employee with increases
he/she would have received if not for the promotion to the supervisory position.
Sec. 9901.356.............. Pay retention. Revises section (formerly Sec. 9901.355) providing specific
rules to be applied in determining an employee's entitlement to pay retention
and the factors in terminating pay retention. Incorporates the term ``base
salary''.
Sec. 9901.356(c)........... Period of pay retention. Clarifies that pay retention will be granted for a
period of 104 weeks.
Sec. 9901.356(d)........... Situations triggering eligibility. Identifies specific situations when an
employee under NSPS will be granted pay retention.
Sec. 9901.356(e)........... Optional pay retention. Provides for a higher-level approval of any additional
situations to grant pay retention.
Sec. 9901.356(f)........... Terminating conditions. Identifies specific situations when pay retention will
terminate under NSPS.
Sec. 9901.356(g)........... Pay setting upon termination. Provides that an employee's pay will be set at the
maximum rate of the pay band upon expiration of the 104-week period.
Sec. 9901.356(h)........... Pay adjustments after termination. Provides that an employee is eligible for rate
range adjustments and performance payouts upon termination of pay retention.
Sec. 9901.356(i)........... Situations when pay retention is not applicable. Identifies specific
circumstances when pay retention does not apply.
Sec. 9901.356(j)........... Performance payouts. Provides that an employee on pay retention will receive any
performance payouts in the form of bonuses, consistent with Sec.
9901.342(g)(8).
Sec. 9901.356(k)........... Pay adjustments during pay retention. Provides that employees on pay retention
are eligible for general salary increases under Sec. 9901.323(a)(1) and are
eligible for local market supplement adjustments.
Sec. 9901.356(l)........... Extension of 104-week time limit. Adds a new paragraph that allows for the 104-
week time limit on pay retention under NSPS to be extended by the length of time
that an employee is subject to a contingency operation or emergency.
Sec. 9901.356(m)........... Grandfather provision. Provides that an employee with a preexisting entitlement
to pay retention under 5 CFR part 536 before becoming covered by NSPS, or who
obtains the entitlement to pay retention upon becoming covered by NSPS, is
entitled to a retained rate without regard to the 104-week limit in Sec.
9901.356(c).
Sec. 9901.361(a)........... Introduction. Clarifies paragraphs providing waiver or modification of premium
pay provisions of 5 U.S.C. chapter 55, subchapter V, and adds reference to Sec.
Sec. 9901.363 and 9901.364, which establish new types of premium payments in
addition to those found in 5 U.S.C. chapter 55, subchapter V.
Sec. 9901.361(b)........... Provisions not waived or modified. Deletes existing paragraph (b) and replaces it
with separate sections, new Sec. Sec. 9901.362 through 9901.364. Adds new
paragraph (b) referencing 5 U.S.C. 5544 (dealing with premium pay for prevailing
rate employees) and 5 U.S.C. 5545b (dealing with firefighter pay) to clarify
that those premium pay provisions are not waived or modified.
Sec. 9901.361(c)........... Applicability of Fair Labor Standards Act. Deletes existing paragraph (c) and
replaces it with separate sections, new Sec. Sec. 9901.362 through 9901.364.
Adds new paragraph (c) to clarify that these regulations do not affect the
applicability of FLSA overtime pay provisions.
Sec. 9901.361(d)........... Applying regulations in 5 CFR part 550, subpart M. Clarifies that the reference
to ``locality pay'' in 5 CFR 550.1305(e) must be interpreted to be a reference
to a local market supplement. Clarifies that firefighters compensated under
subpart M are eligible for compensatory time off for travel or for religious
purposes and foreign language proficiency pay.
Sec. 9901.361(e)........... Physicians and dentists. Provides that physicians and dentists (in occupational
series 0602 and 0680, respectively) under NSPS are not eligible for premium pay
except for compensatory time off for religious observances.
Sec. 9901.361(f)........... Senior Executive Service. Provides that members of the Senior Executive Service
(SES) are ineligible for premium pay under NSPS, except for compensatory time
off for religious observances. This is consistent with the treatment of SES
members under the standard title 5 premium pay provisions.
Sec. 9901.362.............. Modification of standard provisions. Adds a new section that identifies the
modifications to the title 5 premium pay provisions and related regulations and
any specific additional requirements.
Sec. 9901.362(a)........... Premium pay limitations. Establishes the rules governing the premium pay
limitations. The premium pay caps are consistent with title 5. In special
circumstances, the Secretary may establish a higher annual premium pay cap equal
to the Vice President's annual salary for specified categories of employees and
situations on a time-limited basis.

[[Page 29894]]

Sec. 9901.362(b)........... Overtime pay. Identifies requirements and modifications pertaining to the
overtime pay (including compensatory time off) provisions in 5 U.S.C. 5542 and
5543 and related regulations. The proposed rule modifies the overtime hourly
rate cap that applies to FLSA-exempt employees and the method for crediting
overtime hours. In addition, time in a travel status does not constitute hours
of work for overtime pay purposes unless actual work is performed; however,
qualifying travel time not treated as hours of work will generate compensatory
time off for travel hours under Sec. 9901.362(j). Finally, any FLSA-exempt
employee may be required to receive compensatory time off in lieu of overtime
pay for an equal amount of overtime work.
Sec. 9901.362(c)........... Night pay. Identifies the modifications to the night pay provisions in 5 U.S.C.
5545(a) and (b) and related regulations. An employee who performs overtime work
at night is entitled to night pay regardless of whether the overtime work is
scheduled before or after the administrative workweek begins. Night pay is not
payable during paid absences, except for certain types listed in paragraph
(c)(2).
Sec. 9901.362(d)........... Sunday pay. Identifies the modifications to the Sunday pay provisions in 5 U.S.C.
5546 and related regulations. Work for which Sunday pay is payable is limited to
applicable hours of work that are actually performed on a Sunday. In other
words, Sunday pay continues to apply to nonovertime hours of work performed by
full-time employees, not to exceed 8 hours for any daily tour of duty (unless
the employee is on a compressed schedule); however, unlike the standard title 5
provision, non-Sunday hours within a daily tour of duty that includes Sunday
hours do not count as Sunday work.
Sec. 9901.362(e)........... Pay for holiday work. Identifies the modifications to the holiday premium pay
provisions in 5 U.S.C. 5546 and related regulations. An employee receives pay
that is twice the employee's adjusted salary hourly rate for each hour worked on
a holiday, including overtime hours. If hours worked on a holiday are overtime
hours, the overtime pay is contained within the double-time holiday pay rate.
Sec. 9901.362(f)........... Standby duty pay. Identifies requirements and modifications for the standby duty
provisions in 5 U.S.C. 5545(c)(1) and related regulations. Limits coverage to
firefighters ineligible for coverage under subpart M of part 550 and to
emergency medical technicians not involved in fire protection activities unless
the Secretary extends coverage to other occupations. Modifies the standby duty
pay formula by using an employee's adjusted salary to compute standby duty pay.
Standby pay attributable to the rate beyond GS-10, step 1, is not creditable for
retirement purposes. Also bars receipt of any other premium pay for an employee
receiving standby duty pay.
Sec. 9901.362(g)........... Administratively uncontrollable overtime pay. Provides that the administratively
uncontrollable overtime pay provision in 5 U.S.C. 5545(c)(2) is waived and is
not applicable to NSPS employees.
Sec. 9901.362(h)........... Law enforcement availability pay. Provides that the law enforcement availability
pay provisions in 5 U.S.C. 5545a and related regulations apply.
Sec. 9901.362(i)........... Pay for duty involving physical hardship or hazard. Identifies requirements and
modifications in connection with the hazardous duty pay provisions in 5 U.S.C.
5545(d) and related regulations. Permits the Secretary to establish new
categories of hazardous duty pay (HDP), subject to OPM approval as required by
Sec. 9901.106(c). In determining eligibility for HDP, the occupational safety
and health standards (OSHA) consistent with the permissible exposure limit (PEL)
are generally used. An employee is eligible to receive HDP when he or she
performs an assigned duty (as listed in Appendix A) and preventive measures have
not reduced the element of hazard below the PEL. However, HDP may not be paid to
employees in occupations or jobs in which unusual physical risk is inherent.
Sec. 9901.362(j)........... Compensatory time off for travel. Identifies the requirements and modifications
in connection with the compensatory time off for travel provisions in 5 U.S.C.
5550b and related regulations. Employees who are required to travel away from
their official worksite when such time is not otherwise compensable are eligible
for compensatory time off. If an employee is required to travel on a nonworkday,
commuting time more than 1 hour beyond the employee's normal commuting time is
creditable travel time. Also provides the procedures for crediting compensatory
time off for travel and the treatment of unused compensatory time off when DoD
employees move between NSPS and non-NSPS positions.
Sec. 9901.362(k)........... Compensatory time off for religious observances. Identifies requirements and
modifications in connection with the compensatory time off for religious
observances provisions in 5 U.S.C. 5550a and related regulations. Prohibits
payment for any unused religious compensatory time off under any circumstances.
Sec. 9901.362(l)........... Air traffic controller differential. Provides that the air traffic controller
differential provisions in 5 U.S.C. 5546a are waived and not applicable to NSPS
employees, except for paragraphs (a)(1) and (d) of that section. Authorizes the
payment of a 5-percent differential to eligible air traffic controllers. In
addition, the Secretary may extend a 10-percent differential to air traffic
controllers who perform on-the-job training under certain circumstances.
Sec. 9901.363(a)........... Coverage under premium pay provisions for health care personnel. Adds a new
section that provides premium payments for eligible DoD ``health care
personnel'' (as defined in this paragraph) covered under NSPS. These payments
include on-call premium pay, night pay, and pay for weekend duty, consistent
with parallel provisions that apply to Department of Veterans Affairs health
care personnel under title 38, United States Code.
Sec. 9901.363(b)........... On-call premium pay. Allows heads of DoD Components to authorize on-call premium
pay for officially scheduled ``on-call'' time when health care personnel are not
otherwise compensated for that on-call time. An employee officially scheduled to
be on-call is paid 15 percent of his or her adjusted salary hourly rate for each
hour of on-call status. The proposed rule provides the pay administration rules
for on-call pay.
Sec. 9901.363(c)........... Night pay for health care personnel. Authorizes night pay for eligible employees
who are scheduled to work between 6 p.m. and 6 a.m. An employee is paid 10
percent of his or her adjusted salary hourly rate for each hour worked between 6
p.m. and 6 a.m. This rate is applied to the entire tour if the employee works 4
or more hours between 6 p.m. and 6 a.m. The proposed rule provides the pay
administration rules for night pay.
Sec. 9901.363(d)........... Pay for weekend duty for health care personnel. Authorizes pay for weekend duty
for eligible employees who are scheduled to work a tour of duty, any part of
which falls in the 2-day period between midnight Friday and midnight Sunday. An
employee will be paid 25 percent of his or her adjusted salary hourly rate for
each hour of work during that period. The proposed rule provides the pay
administration rules for pay for weekend duty.

[[Page 29895]]

Sec. 9901.364.............. Foreign language proficiency pay. Adds a new section to provide that NSPS
employees may be paid foreign language proficiency pay (FLPP) if certified as
proficient in foreign languages identified as necessary for national security
interests and not in receipt of FLPP under 10 U.S.C. 1596 and 10 U.S.C. 1596a.
FLPP is a competency-based premium pay which the Department can pay an employee
to maintain his or her skills in a critical language regardless of job. The
proposed rule specifies the conditions for payment.
Sec. 9901.371.............. Conversion into NSPS pay system. Consolidates all provisions related to
conversion into the NSPS pay system, including provisions found in Sec. Sec.
9901.371 and 9901.373 in the current regulations. Adds additional detailed rules
as noted by paragraph below.
Sec. 9901.371(a)........... Introduction. Provides cross reference to Sec. 9901.231, which contains
information on determining an employee's NSPS pay band upon conversion into
NSPS. Corrects cross reference to reflect changes made by these proposed
regulations.
Sec. 9901.371(b)........... Implementing issuances. Addresses the Secretary's authority to issue implementing
issuances prescribing policies and procedures for conversions into NSPS.
Sec. 9901.371(c)........... Bar on pay reduction. Incorporates material previously found at Sec.
9901.373(a). Clarifies that simultaneous actions must be processed before
applying this rule, consistent with Sec. 9901.371(e).
Sec. 9901.371(d)........... Rate comparison. Incorporates and clarifies material previously found at Sec.
9901.373(b).
Sec. 9901.371(e)........... Simultaneous actions. Incorporates material previously found at Sec.
9901.373(c).
Sec. 9901.371(f)........... Temporary promotion prior to conversion. Incorporates material previously found
at Sec. 9901.373(d), including the requirement to reconstruct pay in the
permanent position of record prior to conversion.
Sec. 9901.371(g)........... Grade retention prior to conversion. Addresses how to treat employees who were on
grade retention prior to conversion.
Sec. 9901.371(h)........... Pay retention prior to conversion. Addresses how to treat employees who were on
pay retention prior to conversion.
Sec. 9901.371(i)........... Conversion adjustments. Provides that the only base salary adjustments that may
be made in conjunction with conversion are those listed in paragraphs (j)
through (m).
Sec. 9901.371(j)........... Within-grade increase (WGI) adjustment. Provides for a prorated within-grade
adjustment for eligible GS employees converting into NSPS to account for the
time since their last equivalent pay increase.
Sec. 9901.371(k)........... Special increase for employees on temporary promotion prior to conversion.
Authorizes management to preserve an employee's rate of basic pay held on a
temporary promotion immediately prior to conversion of that temporary promotion
position into NSPS if the employee is placed back into that temporary position
after its conversion.
Sec. 9901.371(l)........... Special increases equivalent to a GS promotion increase. Adopts provisions to (1)
provide for a one-time base salary increase after conversion for eligible
employees that would permit an increase in base salary equivalent to what they
would have received in their career ladder position had it not been converted
into NSPS, and (2) provide for a base salary increase when an employee has been
selected for a position that converts into NSPS before the employee is actually
placed in the position that would equal the increase the employee would have
received if placed into that position prior to its conversion (e.g., GS-12
employee selected for a GS-13 position that would be a promotion before
conversion but a reassignment after conversion).
Sec. 9901.371(m)........... Adjustment for physicians and dentists. Authorizes special conversion adjustment
for a GS physician or dentist who was regularly receiving physicians'
comparability allowance or premium pay prior to conversion so that his/her base
salary at the time of conversion may be increased by the Component to account
for the loss of the allowance and premium pay under NSPS.
Sec. 9901.372.............. Conversion or movement out of NSPS pay system. Adds a new section that addresses
pay setting when employees convert or move out of the NSPS pay system and are
placed in another Federal pay system (e.g., the General Schedule). Additional
information on these rules is provided by paragraph below. (Existing Sec.
9901.372 in the current regulations is deleted, since it dealt with the
establishment of the initial NSPS pay ranges, which has already occurred.)
Sec. 9901.372(a)........... General. Introduces the new Sec. 9901.372, which now addresses the treatment of
an employee who is converted out of NSPS when the Secretary makes a decision to
rescind the application of one or more subparts of this part to a particular
category of employees or an organization or functional unit or who moves from a
position covered by NSPS to a position in a different pay system. Provides
definitions of ``conversion'' and ``movement'' and related terms.
Sec. 9901.372(b)........... Classification of covered position. Provides for a requirement that prior to
converting an employee and his/her position out of NSPS, the position must be
classified consistent with appropriate classification guidance and/or other
appropriate criteria applicable to the gaining system (usually, the General
Schedule). (Such a classification determination is not needed if an employee is
moving out of the NSPS by some action other than conversion.)
Sec. 9901.372(c)........... Determining pay under the new system. Establishes a requirement that the pay
setting rules of the gaining system be applied when an employee converts or
moves out of NSPS. For the purpose of applying those rules, the employee's final
pay under NSPS is based on the employee's NSPS permanent position as of the day
immediately before the date of conversion or movement out of NSPS. Also,
provides that NSPS rules do not apply to any personnel or pay action taking
effect on the date of conversion or movement.
Sec. 9901.372(d)........... Virtual GS grade and rate. Prescribes rules for establishing a virtual GS grade
and rate of pay to be used for the purpose of applying GS pay administration
rules upon conversion or movement from NSPS.
Sec. 9901.372(e)........... GS within-grade increases. States rule that NSPS service is creditable for GS
within-grade increase purposes, as required by regulations at 5 CFR part 531,
subpart D.
Sec. 9901.372(f)........... Comparison of rates of basic pay. Provides that any reallocation of an employee's
adjusted pay between basic pay and any locality payment, local market
supplement, special rate supplement, or equivalent supplement in conjunction
with conversion or movement out of NSPS does not have adverse action
consequences, since such supplements are considered basic pay under 5 U.S.C.
chapter 75 at the point of conversion or movement.
----------------------------------------------------------------------------------------------------------------

[[Page 29896]]

Performance Management--Subpart D

Subpart D regulates performance management for NSPS employees. The
regulations have been revised to (1) establish in regulation the
performance management system required by 5 U.S.C. 9902, as amended by
the National Defense Authorization Act for Fiscal Year 2008, (2)
provide for uniform and consistent application of the System within the
Department of Defense, and (3) incorporate planned changes. Key changes
to this part include (1) revising or adding definitions for clarity or
to address concepts added to the regulation (such as appraisal period,
minimum period, pay pool manager, pay pool panel, and performance
review authority), (2) adding new sections or paragraphs to existing or
revised sections to ensure uniform and consistent application of the
System (such as minimum period, employees on time-limited appointments,
and appraisal periods), and (3) rewriting some sections and paragraphs
for regulatory format and clarity.
The following Table of Changes lists, by specific regulatory
section, a brief description of each significant change.

------------------------------------------------------------------------
Citation Description of proposed change
------------------------------------------------------------------------
Sec. 9901.401(b)........... Performance Management System. Amends
paragraph (b) to clarify the system is
established in the regulations and its
implementation and operation will adhere
to the statutory requirements listed in
the paragraph.
Sec. 9901.402(a)........... Coverage. Amends paragraph (a) to refer
to all of Sec. 9901.102.
Sec. 9901.402(c)........... Applicability. Amends paragraph (c) to
allow application of this subpart under
provisions specified in Sec. 9901.408
to employees who do not meet the minimum
performance period described in Sec.
9901.407.
Sec. 9901.404.............. Definitions. Revises current definition
for minimum period to conform to new
Sec. 9901.407. Adds cross-reference to
new definitions in Sec. 9901.103 for
appraisal period, Pay Pool Manager, Pay
Pool Panel, and Performance Review
Authority.
Sec. 9901.405(a)........... System requirements. Amends the section
to clarify that these regulations
establish the performance management
system required by 5 U.S.C. 9902 and the
Secretary may further define the System
through implementing issuances.
Sec. 9901.405(b)(1)........ System requirements--coverage. Deletes
requirement for an NSPS performance
management system to ``specify the
employees covered by the system(s)''
since these regulations establish the
system. In accordance with Sec.
9901.102(b)(2), coverage under subpart D
is a mandatory requirement for all
employees covered by any subpart of this
regulation. Subsequent paragraphs under
Sec. 9901.405 are redesignated
accordingly.
Sec. 9901.405(b)(3)........ System requirements--minimum period.
Moves current paragraph (b)(3) on the
minimum period and places it in a
separate section, new Sec. 9901.407,
and redesignates the remaining
paragraphs accordingly.
Sec. 9901.405(b)(5)........ System requirements--rating levels. Adds
a new paragraph specifying the rating
levels that apply to the NSPS
performance management system
established under this subpart.
Sec. 9901.405(c)........... System requirements--supervisory
responsibilities. Rewords paragraph and
its paragraphs for regulatory format and
clarity.
Sec. 9901.406(b)........... Performance expectations--communication.
Restructures for regulatory format and
clarity and redesignates the paragraph
accordingly.
Sec. 9901.406(h)........... Performance expectations--approval. Adds
new paragraph requiring higher-level
review of performance expectations.
Sec. 9901.406(i)........... Performance expectations--plan approval.
Adds new paragraph specifying an NSPS
performance plan is an approved plan
when given to the employee in writing.
Sec. 9901.407.............. Minimum period. Adds a new section
addressing the minimum appraisal period
and eligibility for appraisal.
Subsequent sections are renumbered
accordingly.
Sec. 9901.408.............. Employees on time-limited appointments.
Adds a new section permitting the
evaluation of employees on time-limited
appointments not expected to exceed 90
days. Subsequent sections are renumbered
accordingly.
Sec. 9901.409.............. Monitoring and developing performance.
Redesignates and retitles current Sec.
9901.407 and combines it with developing
performance. Additional revisions are
noted by paragraph below.
Sec. 9901.409(a)........... Monitoring and developing performance--
interim review. Amends paragraph (a) to
require at least one documented interim
performance review while specifying that
periods of performance of less than 180
days do not require a documented interim
review.
Sec. 9901.409(b)........... Monitoring and developing performance--
development. Adds a new paragraph
emphasizing the value of developing
employee performance.
Sec. 9901.410.............. Addressing performance that does not meet
expectations. Redesignates current Sec.
9901.408. Revisions are noted by
paragraph below.
Sec. 9901.410(a)(1)........ Addressing performance that does not meet
expectations--unacceptable performance.
Adds a new paragraph requiring the
identification of specific performance
deficiencies that employees must
improve.
Sec. 9901.410(b)........... Addressing performance that does not meet
expectations--taking action. Revises the
paragraph to specify adverse actions
will be taken under 5 U.S.C. chapter 75
or other applicable procedures, such as
those for National Guard Technicians.
Sec. 9901.411.............. Appraisal periods. Adds a new section
specifying the dates associated with the
annual appraisal period and rating of
record.
Sec. 9901.412.............. Rating and rewarding performance.
Relocates provisions dealing with rating
and rewarding performance from Sec.
9901.409 in the current regulations to a
new Sec. 9901.412. Additional
revisions are noted by paragraph below.
Sec. 9901.412(a)........... Rating and rewarding performance--forced
distribution. Adds a new paragraph
prohibiting the forced distribution of
ratings.
Sec. 9901.412(b)........... Rating and rewarding performance--
additional rating of record.
Restructures the paragraph for
regulatory format and clarity, amends it
to specify that an additional rating of
record to reflect sustained improved
performance may only be used following
an unacceptable rating of record, and
specifies the effective date of such a
rating.
Sec. 9901.412(c)........... Rating and rewarding performance--
assessments. Moves language regarding
when a rating of record is final from
current Sec. 9901.409(c) to proposed
Sec. 9901.412(e).
Sec. 9901.412(d)........... Rating and rewarding performance--impact
of misconduct. Adds a new paragraph
clarifying that misconduct may impact
the rating of record.
Sec. 9901.412(e)........... Rating and rewarding performance--final
rating. Adds new language to specify
that the Pay Pool Manager is the final
approval authority for ratings of record
and incorporates the requirement from
current Sec. 9901.409(c) regarding
when a rating of record is final.

[[Page 29897]]

Sec. 9901.412(f)........... Rating and rewarding performance--
communication. Moves requirement
regarding communication of ratings from
current Sec. 9901.409(d) to proposed
Sec. 9901.412(f) and otherwise is
unchanged.
Sec. 9901.412(g)........... Rating and rewarding performance--
approved absence from work. Moves
requirement regarding approved absence
from work from current Sec.
9901.409(f) to proposed Sec.
9901.412(g) and otherwise is unchanged.
Sec. 9901.412(h)........... Rating and rewarding performance--ratings
of record. Restructures for regulatory
format and clarity and moves the last
sentence from current Sec.
9901.409(b)(1)-(3) into proposed
paragraph (h)(3).
Sec. 9901.412(i)........... Rating and rewarding performance--job
change. Adds a new paragraph addressing
the special situation of employees who
change jobs after the end of the
appraisal cycle and before the payout
date.
Sec. 9901.412(j)........... Rating and rewarding performance--
additional appraisal. Moves current
paragraph (i) to proposed paragraph (j)
and adds a reference to implementing
issuances.
Sec. 9901.413.............. Reconsideration. Relocates provisions
dealing with reconsideration of ratings
of record from Sec. 9901.409 in the
current regulations to a new section
Sec. 9901.413. Additional revisions
are noted by paragraph below.
Sec. 9901.413(a)........... Reconsideration--nonbargaining unit
employees. Revises to specify the roles
and responsibilities of the deciding
officials and to expand topics of
reconsideration to include a job
objective rating.
Sec. 9901.413(b)........... Reconsideration--bargaining unit
employees. Reforms language previously
in paragraph Sec. 9901.409(h) to
comply with 5 U.S.C. chapter 71, expands
topics to include a job objective
rating, and restructures and revises for
regulatory format and clarity.
Sec. 9901.413(c)........... Reconsideration--revised ratings. Adds a
new paragraph addressing revised ratings
that result from reconsideration.
------------------------------------------------------------------------

Next Steps

The National Defense Authorization Act for Fiscal Year 2008
requires that this rule be considered a major rule for the purpose of
section 801 of title 5, United States Code. As such, before it can take
effect, the Department will submit to each House of the Congress and to
the Comptroller General a report containing the rule, a general
statement relating to the rule, and the proposed effective date of the
rule. The rule may not be effective until the date occurring 60 days
after the later of (1) Congressional receipt of the report, or (2) the
date the rule is published in the Federal Register. Congress has the
opportunity to delay implementation of the rule based on the procedures
set forth in 5 U.S.C. 801-808.
DoD intends to continue implementing the new NSPS HR system in
phases or spirals. The Act provides that not more than 100,000
employees may be added to the System in any calendar year. As has been
the case from the beginning, NSPS continues to be an event-driven
system, and no decisions have been made at this time regarding when or
whether additional groups or organizations will be converted to NSPS.
Such decisions will be based on the best interests of the Department.
The Act also requires the Comptroller General to conduct annual
reviews in calendar years 2008, 2009, and 2010. The reviews will
address--
(1) Employee satisfaction with the National Security Personnel
System, and
(2) The extent to which the Department of Defense has effectively
implemented accountability mechanisms and internal safeguards.

DoD will fully support the Comptroller General in any review of the
System.

E.O. 12866, Regulatory Review

DoD and OPM have determined that this action is a significant
regulatory action within the meaning of Executive Order 12866 because
there is significant public interest in the National Security Personnel
System. DoD and OPM have analyzed the expected costs and benefits of
the revised HR system, and that analysis is presented below.
Among the NSPS requirements is to maintain a system that is
competitive, cost effective, and fiscally sound, while also being
flexible, credible, and trusted. NSPS will allow DoD to move towards
market-sensitive pay, to continue pay increases based on performance,
and to have the flexibility to offer competitive salaries. While these
flexibilities will improve DoD's ability to attract and retain a high-
performing workforce, actual payroll costs under this System are
constrained by the amount budgeted for overall DoD payroll
expenditures, as is the case with the present GS pay system.
The continuing implementation of NSPS will result in some
additional program implementation costs. This includes delivering
training specifically for NSPS, conducting outreach to employees and
other parties, and improving automated systems associated with NSPS
performance management.
As has been the practice with implementing NSPS and other
alternative personnel systems, DoD expects to incur an initial payroll
cost related to the conversion of employees to the pay banding system.
This includes a within-grade increase (WGI) ``buyout,'' in which an
employee's basic pay, upon conversion, is adjusted by the amount of the
WGI earned to date. While this increase is paid earlier than scheduled,
it represents a cost that would have been incurred under the current
system at some point. However, under NSPS, WGIs no longer exist. Once
covered employees are under NSPS, such pay increases will be based on
performance. Accordingly, the total cost of the accelerated WGI
``buyout'' is not treated as a ``new'' cost attributed to
implementation of NSPS, since it is a cost that DoD would bear under
the current HR system. The portion of the WGI buyout cost attributable
to NSPS implementation is the marginal difference between paying out
the earned portion of a WGI upon conversion and the cost of paying the
same WGI according to the current schedule. The marginal cost of the
accelerated payment of earned WGIs is difficult to estimate, but is not
a significant factor in the cost benefit analysis for regulatory review
purposes.
DoD estimates the overall costs associated with continuing to
implement NSPS will be approximately $143 million from Fiscal Years
2009 through 2011. These estimates are based upon past experience,
guidance from the Comptroller General, and ensuring that implementation
costs are determined in the same way across the services and Defense
Agencies and captured in official accounting systems.
The primary benefit to the public of NSPS resides in the HR
flexibilities that will enable DoD to attract, build, and retain a
high-performing workforce focused on effective and efficient mission
accomplishment. A performance-based pay system that rewards excellent
performance will result in a more qualified and proficient workforce
and will generate a greater return on investment in terms of
productivity and effectiveness. Taken as a whole, the changes included
in these proposed regulations will improve upon

[[Page 29898]]

the original NSPS regulations and result in a contemporary, merit-based
HR system that focuses on performance, generates respect and trust, and
supports the primary mission of DoD.
This rule has been reviewed by the Office of Management and Budget
in accordance with E.O. 12866.

Regulatory Flexibility Act

DoD and OPM have determined that these regulations would not have a
significant economic impact on a substantial number of small entities
because they would apply only to Federal agencies and employees.

Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35)

This proposed regulatory action will not impose any additional
reporting or recordkeeping requirements under the Paperwork Reduction
Act.

E.O. 12988, Civil Justice Reform

This proposed regulation is consistent with the requirements of
E.O. 12988. The regulation clearly specifies the effects on existing
Federal law or regulation; provides clear legal standards; has no
retroactive effects; specifies procedures for administrative and court
actions; defines key terms; and is drafted clearly.

E.O. 13132, Federalism

DoD and OPM have determined these proposed regulations would not
have Federalism implications because they would apply only to Federal
agencies and employees. The proposed regulations would not have
financial or other effects on States, the relationship between the
Federal Government and the States, or the distribution of power and
responsibilities among the various levels of government.

Unfunded Mandates

These proposed regulations would not result in the expenditure by
State, local, or tribal governments of more than $100 million annually.
Thus, no written assessment of unfunded mandates is required.

List of Subjects in 5 CFR Part 9901

Administrative practice and procedure, Government employees, Labor
management relations, Labor unions, Reporting and recordkeeping
requirements, Wages.

Office of Personnel Management.
Linda M. Springer,
Director, Department of Defense.
Gordon England,
Deputy Secretary of Defense.
Accordingly, under the authority of section 9902 of title 5, United
States Code, the Department of Defense and the Office of Personnel
Management are proposing to revise part 9901 of title 5, Code of
Federal Regulations to read as follows:

PART 9901--DEPARTMENT OF DEFENSE NATIONAL SECURITY PERSONNEL SYSTEM
(NSPS)

Subpart A--General Provisions
Sec.
9901.101 Purpose.
9901.102 Eligibility and coverage.
9901.103 Definitions.
9901.104 Scope of authority.
9901.105 OPM coordination and approval.
9901.106 Relationship to other provisions.
9901.107 Program evaluation.
Subpart B--Classification

General

9901.201 Purpose.
9901.202 Coverage.
9901.203 Waivers.
9901.204 Definitions.

Classification Structure

9901.211 Career groups.
9901.212 Pay schedules and pay bands.

Classification Process

9901.221 Classification requirements.
9901.222 Review of classification decisions.
9901.223 Appeal to DoD for review of classification decisions.
9901.224 Appeal to OPM for review of classification decisions.

Transitional Provisions

9901.231 Conversion of positions and employees to NSPS
classification system.
Subpart C--Pay and Pay Administration

General

9901.301 Purpose.
9901.302 Coverage.
9901.303 Waivers.
9901.304 Definitions.
9901.305 Rate of pay.

Overview of Pay System

9901.311 Major features.
9901.312 Maximum rates of base salary and adjusted salary.
9901.313 Aggregate compensation limitations.
9901.314 National security compensation comparability.

Rate Ranges and General Salary Increases

9901.321 Structure.
9901.322 Setting and adjusting rate ranges.
9901.323 Eligibility for general salary increase.

Local Market Supplements

9901.331 General.
9901.332 Standard and targeted local market supplements.
9901.333 Setting and adjusting local market supplements.
9901.334 Eligibility for pay increase associated with a supplement
adjustment.

Performance-based Pay

9901.341 General.
9901.342 Performance payouts.
9901.343 Pay reduction based on unacceptable performance and/or
conduct.
9901.344 Other performance payments.
9901.345 Accelerated Compensation for Developmental Positions
(ACDP).

Pay Administration

9901.351 General.
9901.352 Setting an employee's starting pay.
9901.353 Setting pay upon reassignment.
9901.354 Setting pay upon promotion.
9901.355 Setting pay upon reduction in band.
9901.356 Pay retention.

Premium Pay

9901.361 General provisions.
9901.362 Modification of standard provisions.
9901.363 Premium pay for health care personnel.
9901.364 Foreign language proficiency pay.

Conversion Provisions

9901.371 Conversion into NSPS pay system.
9901.372 Conversion or movement out of NSPS pay system.
Subpart D--Performance Management
9901.401 Purpose.
9901.402 Coverage.
9901.403 Waivers.
9901.404 Definitions.
9901.405 Performance management system requirements.
9901.406 Setting and communicating performance expectations.
9901.407 Minimum period of performance.
9901.408 Employees on time limited appointments.
9901.409 Monitoring and developing performance.
9901.410 Addressing performance that does not meet expectations.
9901.411 Appraisal period.
9901.412 Rating and rewarding performance.
9901.413 Reconsideration of ratings.

Authority: 5 U.S.C. 9902

Subpart A--General Provisions

Sec. 9901.101 Purpose.

(a) This part contains regulations governing the National Security
Personnel System (NSPS) within the Department of Defense (DoD), as
authorized by 5 U.S.C. 9902. Consistent with 5 U.S.C. 9902, these
regulations waive or modify various statutory provisions that would
otherwise be applicable to affected DoD employees. These regulations
are prescribed jointly by the Secretary of Defense and the Director of
the Office of Personnel Management (OPM). The Secretary may establish
implementing issuances to supplement any matter covered by these
regulations.

[[Page 29899]]

(b)(1) This part is designed to meet a number of essential
requirements for the implementation of a new human resources management
system for DoD. The guiding principles for establishing these
requirements are to put mission first; respect the individual; protect
rights guaranteed by law; support the statutory merit system principles
in 5 U.S.C. 2301; value talent, performance, leadership, and commitment
to public service; be flexible, understandable, credible, responsive,
and executable; ensure accountability at all levels; balance human
resources system interoperability with unique mission requirements; and
be competitive and cost effective.
(2) The key operational characteristics and requirements of NSPS,
which these regulations are designed to facilitate, are as follows:
High-Performing Workforce and Management--employees and supervisors are
compensated and retained based on their performance and contribution to
mission; Agile and Responsive Workforce and Management--workforce can
be easily sized, shaped, and deployed to meet changing mission
requirements; Credible and Trusted--system assures openness, clarity,
accountability, and adherence to the public employment principles of
merit and fitness; Fiscally Sound--aggregate increases in civilian
payroll, at the appropriations level, will conform to OMB fiscal
guidance; Supporting Infrastructure--information technology support,
and training and change management plans are available and funded and
Schedule--NSPS will be operational and demonstrate success prior to
November 2009.

Sec. 9901.102 Eligibility and coverage.

(a) Pursuant to the provisions of 5 U.S.C. 9902, civilian employees
of DoD are eligible for coverage under one or more of subparts B
through D of this part, except to the extent specifically prohibited by
law.
(b) At his or her sole and exclusive discretion, the Secretary may
decide to apply subparts B through D to a specific category or
categories of eligible civilian employees in organizations and
functional units of the Department at any time in accordance with the
provisions of 5 U.S.C. 9902. However, no category of employees may be
covered by subparts B or C of this part unless that category is also
covered by subpart D of this part. DoD will advise OPM in advance
regarding the extension of NSPS coverage to specific categories of DoD
employees under this paragraph.
(c) Until the Secretary makes a determination under paragraph (b)
of this section to apply the provisions of one or more subparts of this
part to a particular category or categories of eligible employees in
organizations and functional units, those employees will continue to be
covered by the applicable Federal laws and regulations that would apply
to them in the absence of this part. All personnel actions affecting
DoD employees will be based on the Federal laws and regulations
applicable to them on the effective date of the action.
(d) Any new NSPS classification, pay, and performance management
system covering Senior Executive Service (SES) members will be
consistent with the policies and procedures established by the
Governmentwide SES pay-for-performance framework authorized by 5 U.S.C.
chapter 53, subchapter VIII, and applicable OPM regulations. If the
Secretary determines that SES members employed by DoD should be covered
by classification, pay, and performance management provisions that
differ substantially from the Governmentwide SES pay-for-performance
framework, the Secretary and the Director will issue joint regulations
consistent with all of the requirements of 5 U.S.C. 9902.
(e) At his or her sole and exclusive discretion, the Secretary may
decide to rescind the application of one or more subparts of this part
to a particular category of employees or an organization or functional
unit, subject to Sec. 9901.372 and any related implementing issuances.
The Secretary will notify affected employees and labor organizations in
advance of a decision to rescind the application of one or more
subparts of this part to them.
(f)(1) Notwithstanding any other provision of this part, but
subject to paragraphs (f)(2) and (3) of this section, the Secretary
may, at his or her sole and exclusive discretion, decide to apply one
or more subparts of this part as of a specified effective date to a
category of employees in organizational and functional units not
currently eligible for coverage because of coverage under a system
established by a provision of law outside the waivable or modifiable
chapters of title 5, U.S. Code.
(2) Paragraph (f)(1) of this section applies only if the provision
of law outside those waivable or modifiable title 5 chapters provides
discretionary authority to cover employees under a given waivable or
modifiable title 5 chapter or to cover them under a separate system
established by the Secretary.
(3) In applying paragraph (f)(1) of this section with respect to
coverage under subparts B and C of this part, the affected employees
will be converted directly to the NSPS pay system from their current
pay system. The conversion of such employees into NSPS will be governed
by the rules in Sec. 9901.371, as established in any implementing
issuances prescribed by the Secretary under Sec. 9901.371(b).

Sec. 9901.103 Definitions.

In this part:
Appraisal period means the period of time for reviewing employee
performance (as described in Sec. 9901.411).
Band means pay band.
Basic pay means an employee's pay before any deductions and
exclusive of additional pay of any kind, except as expressly provided
by applicable law or regulation. For the specific purposes prescribed
in Sec. 9901.331(d) only, basic pay includes any local market
supplement. In subpart C, when basic pay is exclusive of any additional
pay, the term ``base salary'' is used, and when basic pay includes a
local market supplement, the term ``adjusted salary'' is used.
Career group means a grouping of one or more associated or related
occupations. A career group may include one or more pay schedules.
Comparable pay band or comparable level of work means pay bands
with the equivalent level of work, based on the NSPS classification
structure, within and across varying pay schedules and career groups,
regardless of the specific earning potential of the bands. When moving
from a non-NSPS position to NSPS, a comparable level of work means a
grade or level which is determined to be at an equivalent level of work
as the NSPS position to be filled, based on application of the NSPS
classification structure as described in implementing issuances.
Competencies means the measurable or observable knowledge, skills,
abilities, behaviors, and other characteristics that an individual
needs to perform a particular job or job function successfully.
Component means the Office of the Secretary of Defense (OSD), the
Military Departments, Office of the Chairman of the Joint Chiefs of
Staff and the Joint Staff, the Combatant Commands, the Office of the
Inspector General of the Department of Defense, the Defense Agencies,
the DoD Field Activities, and all other organizational entities in the
Department of Defense.
Contribution means a work product, service, output, or result
provided or produced by an employee or group of employees that supports
the Departmental or organizational mission, goals, or objectives.

[[Page 29900]]

Day means a calendar day, unless expressly provided otherwise under
applicable law or regulations.
Department or DoD means the Department of Defense.
Director means the Director of the Office of Personnel Management.
Employee has the meaning given that term in 5 U.S.C. 2105.
General Schedule or GS means the General Schedule classification
and pay system established under Chapter 51 and Subchapter III of
Chapter 53 of Title 5, U.S. Code.
Higher pay band or higher level of work means a pay band designated
to be a higher level of work than an employee's currently assigned
band, based on the NSPS classification structure, either within or
across varying pay schedules and career groups, regardless of the
specific earning potential of the band. When moving from a non-NSPS
position to NSPS, a higher level of work means a grade or level which
is determined to be at a higher level of work than the NSPS position to
be filled, based on application of the NSPS classification structure as
described in implementing issuances.
Implementing issuance(s) means a document or documents issued by
the Secretary, Deputy Secretary, Principal Staff Assistants (as
authorized by the Secretary), or Secretaries and Under Secretaries of
the Military Departments to establish or carry out a policy or
procedure implementing this part. These issuances may apply Department-
wide or to any part of DoD as determined by the Secretary.
Lower pay band or lower level of work means a pay band designated
to be a lower level of work than an employee's currently assigned band,
based on the NSPS classification structure, either within or across
varying pay schedules and career groups, regardless of the specific
earning potential of the band. When moving from a non-NSPS position to
NSPS, a lower level of work means a grade or level which is determined
to be at a lower level of work than the NSPS position to be filled,
based on application of the NSPS classification structure as described
in implementing issuances.
Military Department means the Department of the Army, the
Department of the Navy, or the Department of the Air Force.
National Security Personnel System (NSPS) means the human resources
management system established under 5 U.S.C. 9902(a) and these
regulations.
Occupational series means a group or family of positions performing
similar types of work. Occupational series are assigned a number for
workforce information purposes (e.g., 0110, Economist Series; 1410,
Librarian Series).
OPM means the Office of Personnel Management.
Pay band or band means a work level and associated pay range within
a pay schedule.
Pay pool means the organizational elements/units or other
categories of employees that are combined for the purpose of
determining performance payouts. Each employee is in only one pay pool
at a time. Pay pool also refers to the funds designated for performance
payouts to employees covered by a pay pool.
Pay Pool Manager means the management official designated to manage
the pay pool, resolve discrepancies, ensure consistency, and approve
recommendations concerning employee rating of record, share assignment,
and payout distribution.
Pay Pool Panel means management officials, including the Pay Pool
Manager, of the organizations or functions represented in the pay pool
that assist the Pay Pool Manager in the reconciliation of recommended
ratings of record, share assignments, and payout distribution.
Pay schedule means a set of related pay bands for a specified
category of employees within a career group.
Performance means accomplishment of work assignments or
responsibilities and contribution to achieving organizational goals,
including an employee's behavior and professional demeanor (actions,
attitude, and manner of performance), as demonstrated by his or her
approach to completing work assignments.
Performance Review Authority means a management official who
manages and oversees the operation of one or more pay pools and ensures
procedural and funding consistency among pay pools under its authority.
Principal Staff Assistants means senior officials of the Office of
the Secretary who report directly to the Secretary or Deputy Secretary
of Defense.
Promotion means the movement of an employee from one pay band to a
higher pay band while continuously employed. This includes movement of
an employee currently covered by a non-NSPS Federal personnel system to
a position determined to be at a higher level of work.
Rating of record means a performance appraisal approved by a Pay
Pool Manager--
(1) After completion of an appraisal period covering an employee's
performance of assigned duties against performance expectations over
the applicable period; or
(2) As needed following an unacceptable rating to reflect a
substantial and sustained change in the employee's performance since
the last rating of record.
Reassignment means the movement of an employee, either employee-
initiated or management-directed, to a different position or set of
duties in the same or a comparable pay band while continuously
employed. This includes the movement of an employee currently covered
by a non-NSPS Federal personnel system to an NSPS position determined
to be at a comparable level of work.
Reduction in band means the voluntary or involuntary movement of an
employee from one pay band to a lower pay band on a permanent basis
while continuously employed. This includes movement of an employee
currently covered by a non-NSPS Federal personnel system to a position
determined to be at a lower level of work.
Secretary means the Secretary of Defense, consistent with 10 U.S.C.
113.
SES means the Senior Executive Service established under 5 U.S.C.
Chapter 31, subchapter II.
SL/ST refers to an employee serving in a senior-level position paid
under 5 U.S.C. 5376. The term ``SL'' identifies a senior-level employee
covered by 5 U.S.C. 3324 and 5108. The term ``ST'' identifies an
employee who is appointed under the special authority in 5 U.S.C. 3325
to a scientific or professional position established under 5 U.S.C.
3104.
Unacceptable performance means performance of an employee which
fails to meet one or more performance expectations, as amplified
through work assignments or other instructions, for which the employee
is held individually accountable.

Sec. 9901.104 Scope of authority.

The authority for this part is 5 U.S.C. 9902. The provisions in the
following chapters of title 5, U.S. Code, and any related regulations,
may be waived or modified in exercising the authority in 5 U.S.C. 9902:
(a) Chapter 43, dealing with performance appraisal systems;
(b) Chapter 51, dealing with General Schedule job classification;
(c) Chapter 53, dealing with pay for General Schedule employees,
and pay for certain other employees, except as provided in Sec.
9901.303; and

[[Page 29901]]

(d) Chapter 55, Subchapter V, dealing with premium pay, except
sections 5544 and 5545b.

Sec. 9901.105 OPM coordination and approval.

(a) The Secretary will coordinate with or request approval from OPM
in advance, as applicable, regarding the proposed promulgation of
certain implementing issuances and certain other actions related to the
ongoing operation of the NSPS where such actions could have a
significant impact on other Federal agencies and the Federal civil
service as a whole. Pre-decisional coordination under paragraph (b) of
this section is intended as an internal DoD/OPM matter to recognize the
Secretary's special authority to direct the operations of DoD pursuant
to title 10, U.S. Code, as well as the Director's institutional
responsibility to oversee the Federal civil service system pursuant to
5 U.S.C. Chapter 11. Approval from OPM is required in certain
circumstances, as provided in paragraph (c) of this section.
(b) DoD will coordinate with OPM prior to--
(1) Establishing or substantially revising career groups,
occupational pay schedules, and pay bands under Sec. Sec. 9901.211 and
9901.212(a);
(2) Establishing alternative or additional qualification standards
for a particular occupational series, career group, occupational pay
schedule, and/or pay band under Sec. 9901.212(d) that significantly
differ from Governmentwide standards;
(3) Establishing alternative or additional occupational series for
a particular career group or occupation under Sec. 9901.221(b)(1) that
differ from Governmentwide series and/or standards;
(4) Establishing alternative or additional classification criteria
for a particular career group or occupation under Sec. 9901.221(b)(1)
that differ from Governmentwide classification standards;
(5) Establishing maximum rates of base salary under Sec.
9901.312(a);
(6) Establishing a higher adjusted salary rate cap for a designated
category of positions under Sec. 9901.312(d);
(7) Approving waivers under Sec. 9901.313(a)(3) of the normally
applicable aggregate compensation limit;
(8) Establishing and adjusting pay ranges for occupational pay
schedules and pay bands under Sec. Sec. 9901.321(a) and 9901.322;
(9) Determining general salary increases under Sec.
9901.323(a)(2); and
(10) Establishing and adjusting targeted local market supplements
under Sec. Sec. 9901.332(c) and 9901.333(b).
(c) The Secretary will request approval from the Director prior
to--
(1) Establishing policies regarding the student loan repayment
program under Sec. 9901.303(c) that differ from Governmentwide
policies with respect to repayment amounts and service commitments;
(2) Approving waivers of normally applicable premium pay
limitations, as authorized under Sec. 9901.362(a)(2);
(3) Determining pay bands for which an FLSA-exempt employee is paid
overtime at an hourly rate equal to the employee's adjusted base salary
hourly rate, as authorized under Sec. Sec. 9901.362(b)(6)(i); and
(4) Establishing new hazardous duty pay categories under Sec.
9901.362(i)(3).
(d) When a matter requiring OPM coordination is submitted to the
Secretary for decision, the Director will be provided an opportunity,
as part of the Department's normal coordination process, to review and
comment on the recommendations and officially concur or nonconcur with
all or part of them. The Secretary will take the Director's comments
and concurrence/nonconcurrence into account, advise the Director of his
or her determination, and provide the Director with reasonable advance
notice of the effective date of the matter. Thereafter, the Secretary
and the Director may take such action as they deem appropriate,
consistent with their respective statutory authorities and
responsibilities.
(e) The Secretary and the Director fully expect their staffs to
work closely together on the matters specified in this section, before
such matters are submitted for official OPM coordination or approval
and DoD decision, so as to maximize the opportunity for consensus and
agreement before an issue is so submitted.

Sec. 9901.106 Relationship to other provisions.

(a)(1) The provisions of title 5, U.S. Code, are waived, modified,
or replaced to the extent authorized by 5 U.S.C. 9902 to conform to the
provisions of this part.
(2) This part must be interpreted in a way that recognizes the
critical national security mission of the Department, and each
provision of this part must be construed to promote the swift,
flexible, effective day-to-day accomplishment of this mission, as
defined by the Secretary. The interpretation of the regulations in this
part by DoD and OPM must be accorded great deference.
(b)(1) For the purpose of applying other provisions of law or
Governmentwide regulations that reference provisions Under Chapters 43,
51, 53, and 55 (Subchapter V Only), of Title 5, U.S. Code, the
referenced provisions are not waived but are modified consistent with
the corresponding regulations in this part, except as otherwise
provided in this part (including paragraph (c) of this section) or in
implementing issuances.
(2) If another provision of law or Governmentwide regulations
requires coverage under one of the chapters modified or waived under
this part (i.e., Chapters 43, 51, 53, and 55 (Subchapter V only) of
title 5, U.S. Code), DoD employees are deemed to be covered by the
applicable chapter notwithstanding coverage under a system established
under this part. Selected examples of provisions that continue to apply
to any DoD employees (notwithstanding coverage under subparts B through
D of this part) include, but are not limited to, the following:
(i) Foreign language awards for law enforcement officers under 5
U.S.C. 4521 through 4523;
(ii) Pay for firefighters under 5 U.S.C. 5545b; and
(iii) Recruitment, relocation, and retention payments under 5
U.S.C. 5753 through 5754.
(c)(1) Law enforcement officer special base rates under section 403
of the Federal Employees Pay Comparability Act of 1990 (section 529 of
Public Law 101-509) do not apply to employees who are covered by an
NSPS classification and pay system established under subparts B and C
of this part.
(2) Physicians' comparability allowances under 5 U.S.C. 5948 do not
apply to employees covered by an NSPS classification and pay system
established under subparts B and C of this part.
(d) Nothing in this part waives, modifies or otherwise affects the
employment discrimination laws that the Equal Employment Opportunity
Commission (EEOC) enforces under 42 U.S.C. 2000e et seq., 29 U.S.C. 621
et seq., 29 U.S.C. 791 et seq., and 29 U.S.C. 206(d).

Sec. 9901.107 Program evaluation.

The Secretary will evaluate the regulations in this part and their
implementation.

[[Page 29902]]

Subpart B--Classification

General

Sec. 9901.201 Purpose.

(a) This subpart establishes a classification structure and rules
for covered DoD employees and positions to replace the classification
structure and rules in 5 U.S.C. chapter 51, in accordance with the
merit 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.
(b) Any classification system prescribed under this subpart will be
established in conjunction with the pay system described in subpart C
of this part.

Sec. 9901.202 Coverage.

(a) This subpart applies to eligible DoD employees and positions
listed in paragraph (b) of this section, subject to a determination by
the Secretary under Sec. 9901.102(b) or (f).
(b) The following employees of, or positions in, DoD organizational
and functional units are eligible for coverage under this subpart:
(1) Employees and positions that would otherwise be covered by the
General Schedule classification system established under 5 U.S.C.
chapter 51;
(2) Employees in senior-level (SL) and scientific or professional
(ST) positions who would otherwise be covered by 5 U.S.C. 5376;
(3) Members of the Senior Executive Service (SES) who would
otherwise be covered by 5 U.S.C. chapter 53, subchapter VIII, subject
to Sec. 9901.102(d); and
(4) Such others designated by the Secretary as DoD may be
authorized to include under 5 U.S.C. 9902.

Sec. 9901.203 Waivers.

(a) When a specified category of employees is covered by a
classification system established under this subpart, the provisions of
5 U.S.C. chapter 51 are waived with respect to that category of
employees, except as provided in paragraph (b) of this section,
Sec. Sec. 9901.106, and 9901.222(d) (with respect to OPM's authority
to act on requests for classification decisions under 5 U.S.C. 5112(b)
and review of pay plan under 5 U.S.C. 5103).
(b) Section 5108 of title 5, U.S. Code, dealing with the
classification of positions above GS-15, is not waived for the purpose
of defining and allocating Senior Executive Service (SES) positions
under 5 U.S.C. 3132 and 3133 or applying provisions of law outside the
waivable and modifiable chapters of title 5, U.S. Code--e.g., 5 U.S.C.
4507 and 4507a (regarding Presidential rank awards), 5 U.S.C. 6303(f)
(regarding annual leave accrual for members of the SES and employees in
SL/ST positions), and 5 U.S.C. 6304(f) (regarding annual leave ceilings
for members of the SES and employees in SL/ST positions).

Sec. 9901.204 Definitions.

In this subpart:
Band means pay band.
Basic pay has the meaning given that term in Sec. 9901.103.
Career group has the meaning given that term in Sec. 9901.103.
Classification, also referred to as job evaluation, means the
process of analyzing and assigning a job or position to an occupational
series, official title, career group, pay schedule, and pay band for
pay and other related purposes.
Competencies has the meaning given that term in Sec. 9901.103.
Occupational series has the meaning given that term in Sec.
9901.103.
Official title means the position title prescribed in an NSPS
classification standard or by supplemental Component guidance.
Pay band or band has the meaning given that term in Sec. 9901.103.
Pay schedule has the meaning given that term in Sec. 9901.103.
Position or job means the duties, responsibilities, and related
competency requirements that are assigned to an employee.

Classification Structure

Sec. 9901.211 Career groups.

For the purpose of classifying positions, the Secretary may
establish career groups based on factors such as mission or function;
nature of work; qualifications or competencies; career or pay
progression patterns; relevant labor-market features; and other
characteristics of those occupations or positions. The Secretary will
document in implementing issuances the criteria and rationale for
grouping occupations or positions into career groups.

Sec. 9901.212 Pay schedules and pay bands.

(a) For purposes of identifying relative levels of work and
corresponding pay ranges, the Secretary may establish one or more pay
schedules within each career group.
(b) Each pay schedule may include one or more pay bands.
(c) The Secretary will document in implementing issuances the
definitions for each pay band which specify the type and range of
difficulty and responsibility, qualifications or competencies, or other
characteristics of the work encompassed by the pay band.
(d) The Secretary will--
(1) Use qualification standards established or approved by OPM, or
establish qualification standards for positions covered by NSPS, in
accordance with Sec. 9901.105(b)(2); and
(2) Designate qualification standards and requirements for each
career group, occupational series, pay schedule, and/or pay band.

Classification Process

Sec. 9901.221 Classification requirements.

(a) The Secretary will develop a methodology for describing and
documenting the duties, qualifications, and other requirements of
categories of jobs, and will make such descriptions and documentation
available to affected employees.
(b) The Secretary will--
(1) Assign occupational series to jobs consistent with occupational
series definitions established by OPM under 5 U.S.C. 5105, or by DoD;
and
(2) Apply the criteria and definitions required by Sec. Sec.
9901.211 and 9901.212 to assign jobs to an appropriate career group,
pay schedule, and pay band.
(c) The Secretary will establish procedures for classifying jobs
and may make such inquiries of the duties, responsibilities, and
qualification requirements of jobs as he or she considers necessary for
the purpose of this section.
(d) Except as otherwise provided in this paragraph or required by
law, the effective date of a classification action is the date the
authorized management official certifies the classification decision
(i.e., signs or electronically validates the position description).
(1) A retroactive effective date for a classification action is
permitted only if the classification action resulted in a reduction in
pay band or adjusted salary and if that action is subsequently reversed
on appeal.
(2) In order for a corrective action to be retroactive, the
employee must file an initial request for review of the classification
action with DoD or OPM not later than 15 calendar days after the
effective date of the reduction.
(3) A retroactive date may be established only if the appeal
reversal is based on the duties and responsibilities performed at the
time of reduction. Retroactive action is mandatory under these
circumstances.
(e) A classification action is implemented by a personnel action,
which must be taken within four pay

[[Page 29903]]

periods following the effective date. If a classification action
results in a reduction in an employee's pay band or adjusted salary,
the employee must be advised, in writing, of the action and proposed
effective date at least 7 days before the personnel action is taken.
The written notice will inform the employee of the reason for the
reclassification, of the right to appeal the classification decision,
and that appeals must be filed within the time limitations in Sec.
9901.223 for entitlement to retroactive action.

Sec. 9901.222 Review of classification decisions.

(a) An individual employee may request that DoD or OPM review the
classification (i.e., pay system, career group, occupational series,
official title, pay schedule, or pay band) of his or her official
position of record at any time.
(b) Under this section, an employee may not appeal to either DoD or
OPM the issues designated as nonappealable to the Office in 5 CFR
511.607 or the accuracy of NSPS pay schedule and pay band
classification criteria. The nonappealable issues include--
(1) Classification of a proposed position or one to which the
employee is not officially assigned;
(2) Classification of a position to which an employee is detailed
or temporarily promoted;
(3) Accuracy of the official position description, including the
inclusion or exclusion of a duty (subject to paragraph (c) of this
section);
(4) Classification of a position based on position-to-position
comparisons rather than the NSPS classification criteria; and
(5) Classification of a position for which a DoD or an OPM appeal
decision was previously rendered unless there is a later change in the
governing classification criteria or a material change in the
requirements of the position.
(c) When the accuracy of the official position description is
questioned by the employee, the employee will be directed to raise this
issue with the employee's supervisor. If management and the employee
cannot resolve this issue, the accuracy of the position description
will be determined using the applicable administrative or negotiated
grievance procedure. If, after completing this procedure, the issue is
not resolved, the appeal will be decided on the basis of the actual
duties and responsibilities assigned by management and performed by the
employee.
(d) An employee may request that OPM review a DoD determination
made under paragraph (a) of this section. If an employee does not
request an OPM review, DoD's classification determination is final and
not subject to further review or appeal.
(e) Any determination made under this section will be based on
criteria issued by the Secretary.

Sec. 9901.223 Appeal to DoD for review of classification decisions.

(a) Employee representation. An employee may designate in writing a
representative of his or her choice to assist in the preparation and
presentation of an appeal. A management official may disallow an
employee's representative when--
(1) An individual's activities as a representative would cause a
conflict of interest or position,
(2) An employee cannot be released from his or her official duties
because of the priority needs of the Government, or
(3) An employee's release would give rise to unreasonable costs to
the Government.
(b) DoD classification appeal process. (1)(i) Prior to filing an
appeal, an employee must formally raise the areas of concern to his or
her immediate supervisor, either orally or in writing, identifying the
communication as the first step in the NSPS classification appeal
process.
(ii) The supervisor must respond to the employee concern within 30
calendar days of receiving the query.
(iii) If an employee is not satisfied with the supervisory
response, the employee may initiate a classification appeal.
(2) Employee appeals to DoD must be submitted through the
employee's servicing Human Resources Office.
(3) An employee may file a classification appeal at any time. When
the issue involves a classification action that resulted in a reduction
in band or adjusted salary, to preserve any entitlement to retroactive
pay, the employee must file any appeals no later than 15 calendar days
after the effective date of the personnel action. When an employee
shows that he or she did not receive notice of the applicable time
limit or was prevented from timely filing by circumstances beyond the
employee's control, the deciding official may grant an extension of the
appeal period.
(4) An employee must provide the following documentation when
filing an appeal:
(i) The employee's name, mailing address, and office telephone and
fax numbers;
(ii) The employing Component and the exact location of the
employee's position within the Component (installation name, mailing
address, organization, division, branch, section, unit);
(iii) The name, address, business telephone and fax numbers of the
employee's representative, if any;
(iv) A statement of the employee's requested pay system, official
position title, occupational series, pay schedule, and/or pay band; and
(v) Reasons why the employee believes the position is incorrectly
classified. The employee must refer to classification standards that
support the appeal and state specific points of disagreement with the
current classification. The employee may also include a statement of
facts that he or she thinks may affect the final classification
decision.
(c) Binding decisions. DoD appeal decisions constitute certificates
that are binding on all administrative, certifying, payroll,
disbursing, and accounting offices within DoD.
(d) Cancellation. (1) An employee or representative may cancel an
appeal at any time before DoD issues a decision by providing written
notification to the DoD deciding official.
(2) DoD may cancel an appeal if any of the following occur:
(i) The employee, or his or her representative, does not furnish
requested information within the required time period;
(ii) The employee is no longer officially assigned to, or is
removed from, the position;
(iii) The duties and responsibilities of the position are
significantly changed while the case is pending; or
(iv) The position is abolished.

Sec. 9901.224 Appeal to OPM for review of classification decisions.

(a) An employee's request for OPM review of DoD classification
determination will follow the procedures in 5 CFR part 511, subpart F--
Classification Appeals.
(b) Effective dates of OPM classification appeal decisions will be
consistent with 5 CFR 511.702.
(c) Employee appeals to OPM may be submitted directly to OPM.
(d) OPM's final determination on an appeal made under this section
is not subject to further review or appeal.

Transitional Provisions

Sec. 9901.231 Conversion of positions and employees to NSPS
classification system.

(a) Introduction. This section describes the transitional
provisions that apply when DoD positions and employees initially are
converted to a classification system established under

[[Page 29904]]

this subpart. (See Sec. 9901.371 for conversion rules related to
setting an employee's pay.) Positions and employees in affected
organizational or functional units may convert from the GS system, the
SL/ST system, the SES system, or such other DoD systems as may be
designated by the Secretary, as provided in Sec. 9901.202. For the
purpose of this part, the terms ``convert,'' ``converted,''
``converting,'' and ``conversion'' refer to positions and employees
that become covered by the NSPS classification system as a result of a
coverage determination made under Sec. 9901.102(b) and exclude
employees who move from a noncovered position to a position already
covered by NSPS.
(b) Implementing issuances. The Secretary will issue implementing
issuances prescribing policies and procedures for converting DoD
employees to a pay band upon initial implementation of the NSPS
classification system. Those issuances will establish the work level
conversion tables used to place an employee in a pay band based on the
level of work of the employee's position in the formerly applicable pay
system.
(c) Temporary promotion prior to conversion. An employee on a
temporary promotion at the time of conversion will be returned to his
or her official position of record prior to processing the conversion.
That official position of record (including occupational series and
grade) is used in determining the employee's career group, pay
schedule, and band upon conversion.
(d) Grade retention prior to conversion. For an employee who is
entitled to grade retention immediately before conversion, the grade of
the actual position of record (not the grade being retained) is used in
determining the employee's band upon conversion.

Subpart C--Pay and Pay Administration

General

Sec. 9901.301 Purpose.

(a) This subpart contains regulations establishing pay structures
and pay administration rules for covered DoD employees to replace the
pay structures and pay administration rules established under 5 U.S.C.
Chapter 53 and 5 U.S.C. Chapter 55, subchapter V, as authorized by 5
U.S.C. 9902 (subject to the limitations on waivers in Sec. 9901.303).
Various features that link pay to employees' performance ratings are
designed to promote a high-performance culture within DoD.
(b) Any pay system prescribed under this subpart will be
established in conjunction with the classification system described in
subpart B of this part.
(c) Any pay system prescribed under this subpart will be
established in conjunction with the performance management system
described in subpart D of this part.

Sec. 9901.302 Coverage.

(a) This subpart applies to eligible DoD employees and positions in
the categories listed in paragraph (b) of this section, subject to a
determination by the Secretary under Sec. 9901.102(b) or (f).
(b) The following employees of, or positions in, DoD organizational
and functional units are eligible for coverage under this subpart:
(1) Employees and positions who would otherwise be covered by the
General Schedule pay system established under 5 U.S.C. Chapter 53,
Subchapter III;
(2) Employees in senior-level (SL) and scientific or professional
(ST) positions who would otherwise be covered by 5 U.S.C. 5376;
(3) Members of the Senior Executive Service (SES) who would
otherwise be covered by 5 U.S.C. Chapter 53, Subchapter VIII, subject
to Sec. 9901.102(d); and
(4) Such others designated by the Secretary as DoD may be
authorized to include under 5 U.S.C. 9902.

Sec. 9901.303 Waivers.

(a) When a specified category of employees is covered under this
subpart--
(1) The provisions of 5 U.S.C. Chapter 53 are waived with respect
to that category of employees, except as provided in Sec. 9901.106 and
paragraphs (b) and (c) of this section; and
(2) The provisions of 5 U.S.C. Chapter 55, Subchapter V (except
sections 5544 and 5545b), are waived with respect to that category of
employees to the extent that those employees are covered by alternative
premium pay provisions established by the Secretary under Sec. Sec.
9901.361 through 9901.364 in lieu of the provisions in 5 U.S.C. Chapter
55, Subchapter V.
(b) The following provisions of 5 U.S.C. Chapter 53 are not waived:
(1) Sections 5311 through 5318, dealing with Executive Schedule
positions;
(2) Sections 5341 through 5349, dealing with prevailing rate
systems;
(3) Section 5371, insofar as it authorizes OPM to apply the
provisions of 38 U.S.C. Chapter 74 to DoD employees in health care
positions covered by section 5371 in lieu of any NSPS classification
and pay system established under this part or the following provisions
of title 5, U.S. Code: Chapters 51, 53, and 61, and Subchapter V of
Chapter 55. The reference to ``Chapter 51'' in section 5371(c) is
deemed to include a classification system established under Subpart B
of this part; and
(4) Section 5377, dealing with the critical pay authority.
(c) Section 5379 continues to apply but is modified to allow the
Secretary to modify the minimum service period and the limitations on
the amount of student loan benefits in order to address critical hiring
needs, subject to Sec. 9901.105.

Sec. 9901.304 Definitions.

In this part:
Adjusted salary means an NSPS employee's base salary plus any local
market supplement paid to that employee. For an employee moving into
NSPS from a non-NSPS position, adjusted salary also refers to non-NSPS
base salary plus any applicable locality pay under 5 U.S.C. 5304,
special rate supplement under 5 U.S.C. 5305, or any equivalent
supplement.
Band means pay band.
Base salary means an NSPS employee's pay, as set by the authorized
management official, before deductions and exclusive of additional pay
of any kind (e.g., local market supplement). For an employee moving
into NSPS from a non-NSPS position, base salary also refers to non-NSPS
pay, before deductions and exclusive of additional pay of any kind
(e.g., locality pay or a special rate supplement).
Basic pay has the meaning given that term in Sec. 9901.103.
Bonus means an element of the performance payout that consists of a
one-time lump-sum payment made to employees. It is not part of basic
pay for any purpose.
Career group has the meaning given that term in Sec. 9901.103.
Comparable pay band or comparable level of work has the meaning
given in Sec. 9901.103.
Competencies has the meaning given that term in Sec. 9901.103.
Component has the meaning given that term in Sec. 9901.103.
Contributing factor means attributes of job performance that are
significant to the accomplishment of individual job objectives.
Contribution has the meaning given that term in Sec. 9901.103.
Contribution assessment means the determination made by the Pay
Pool Manager as to the impact, extent, and scope of contribution that
the employee's performance made to the accomplishment of the
organization's mission and goals.

[[Page 29905]]

CONUS or Continental United States means the States of the United
States, excluding Alaska and Hawaii, but including the District of
Columbia.
Day has the meaning given that term in Sec. 9901.103.
Department or DoD has the meaning given in Sec. 9901.103.
Employee has the meaning given that term in Sec. 9901.103.
General Schedule or GS has the meaning given that term in Sec.
9901.103.
Implementing issuance(s) has the meaning given that term in Sec.
9901.103.
Local market supplement means a geographic- and occupation-based
supplement paid in addition to an employee's base salary, including a
standard local market supplement or a targeted local market supplement,
as described in Sec. 9901.332.
Modal rating means, for the purpose of pay administration, the most
frequent rating of record assigned to employees within a particular pay
pool for a particular rating cycle.
National Security Personnel System (NSPS) has the meaning given
that term in Sec. 9901.103.
Occupational series has the meaning given that term in Sec.
9901.103.
Official worksite has the meaning given that term in 5 CFR 531.605.
OPM has the meaning given that term in Sec. 9901.103.
Pay band or band has the meaning given that term in Sec. 9901.103.
Pay pool has the meaning given that term in Sec. 9901.103.
Pay Pool Manager has the meaning given that term in Sec. 9901.103.
Pay Pool Panel has the meaning given that term in Sec. 9901.103.
Pay schedule has the meaning given that term in Sec. 9901.103.
Performance has the meaning given that term in Sec. 9901.103.
Performance payout means the total monetary value of a performance
pay increase and bonus provided under Sec. 9901.342.
Performance Review Authority has the meaning given that term in
Sec. 9901.103.
Performance share means a unit of performance payout awarded to an
employee based on performance. Performance shares may be awarded in
multiples based on the employee's rating of record and specified
factors, as provided in Sec. 9901.342(f).
Performance share value means a calculated value for each
performance share based on pay pool funds available and the
distribution of performance shares across employees within a pay pool,
expressed as a percentage of base salary.
Premium pay means payments for work performed under special
conditions or circumstances, as authorized under 5 U.S.C. Chapter 55,
Subchapter V, or Sec. Sec. 9901.361 through 9901.364 (including
compensatory time off).
Promotion has the meaning given that term in Sec. 9901.103.
Rate range means the range of base salary rates applicable to
employees in a particular pay band, as described in Sec. 9901.321.
Each rate range is defined by a minimum and maximum base salary rate.
Rating of record has the meaning given that term in Sec. 9901.103.
Reassignment has the meaning given that term in Sec. 9901.103.
Reduction in band has the meaning given that term in Sec.
9901.103.
Retained rate means a retained base salary rate (i.e., excluding
any local market supplement) above the applicable pay band maximum rate
as established for an NSPS employee under the pay retention provisions
in Sec. 9901.356. For GS employees, retained rate has the meaning
given that term in 5 CFR part 536.
Secretary has the meaning given that term in Sec. 9901.103.
Standard local market supplement means the local market supplement
that applies to employees in a given pay schedule or band who are
stationed within a specified local market area (the boundaries of which
are defined under Sec. 9901.332(b)), unless a targeted local market
supplement applies. Standard local market supplements are generally
administered for covered employees in the same manner as locality-based
comparability payments under 5 U.S.C. 5304 and 5304a.
Sub pay pool means a subset of a pay pool that is defined for the
purpose of reconciling ratings of record, share assignments, and payout
determinations.
Targeted local market supplement means a local market supplement
established to address recruitment or retention difficulties or for
other appropriate reasons and which applies to a defined category of
employees (based on occupation or other appropriate factors) in lieu of
any lower standard local market supplement that would otherwise apply.
Unacceptable performance has the meaning given that term in Sec.
9901.103.

Sec. 9901.305 Rate of pay.

(a) The term ``rate of pay'' in 5 U.S.C. 9902(e)(9) means--
(1) An individual employee's base salary rate, local market
supplement rate, and overtime and other premium pay rates (including
compensatory time off);
(2) The rates comprising the structure of the pay system that
govern the setting and adjusting of the individual employee rates
identified in paragraph (a)(1) of this section, including the amount of
each rate in the pay structure (expressed as a dollar amount or a
percentage) and the conditions defining applicability of each rate,
illustrative examples include, but are not limited to--
(i) The amount of band rate range minimum and maximum rates and the
applicability conditions defining the category of employees covered by
the band;
(ii) The level at which control points within a band rate range are
set and the applicability conditions defining the category of employees
to which each control point applies;
(iii) The percentage value of local market supplement rates and the
applicability conditions defining coverage (e.g., the geographic area
in which the employee's official worksite must be located);
(iv) The levels constituting maximum rates of base salary and
adjusted salary and the applicability conditions connected to a given
level; and
(v) The value of various types of premium pay rates and the
applicability conditions defining the type of work or other
requirements that must be met to qualify for each type and level of
premium pay; and
(3) The percentage rate of total base salary payroll constituting
the portion of a pay pool applied to provide performance-based
increases in employees' base salary rates.
(b) For the purpose of 5 U.S.C. 9902(e)(9), the establishment or
adjustment of a rate of pay includes the establishment or adjustment of
the amount or level of the rate and of the applicability conditions
defining which employees may receive the type and level of pay in
question. Illustrative examples of actions that establish or adjust a
rate of pay include, but are not limited to, the following:
(1) Establishing the starting base salary rate for a newly hired
employee;
(2) Establishing a retained rate for an employee;
(3) Determining the amount of various adjustments in an employee's
base salary rate such as general increases, performance pay increases,
extraordinary performance recognition increases, organizational or team
achievement recognition increases, pay reductions for unacceptable
performance or conduct, reassignment increases and decreases, promotion
increases, accelerated compensation for

[[Page 29906]]

developmental positions increases, and retained rate adjustments;
(4) Establishing or adjusting the minimum or maximum rate of a band
rate range or control points within that range;
(5) Establishing or adjusting the percentage amount, geographic
area of a given local market supplement, or other coverage requirements
associated with that supplement;
(6) Establishing or adjusting an employee's local market supplement
when the employee's eligibility status changes (e.g., the employee's
official worksite is changed);
(7) Determining the requirements for employees to be covered by a
discretionary action under the premium pay regulations (e.g., higher
premium pay limit under Sec. 9901.362(a)(2), identification of bands
at which overtime rate equals the employee's adjusted salary rate under
Sec. 9901.362(b)(6)(i), or establishment of new hazardous duty pay
category under Sec. 9901.362(i)(3)); and
(8) Determining that an employee is entitled to a premium pay rate
under the established conditions.

Overview of Pay System

Sec. 9901.311 Major features.

Through the issuance of implementing issuances, the Secretary will
further define a pay system that governs the setting and adjusting of
covered employees' rates of base salary and adjusted salary and the
setting of covered employees' rates of premium pay. The NSPS pay system
will include the following features:
(a) A structure of rate ranges linked to various pay bands for each
career group, in alignment with the classification structure described
in subpart B of this part;
(b) Policies regarding the setting and adjusting of band rate
ranges based on mission requirements, labor market conditions, and
other factors, as described in Sec. Sec. 9901.321 and 9901.322;
(c) Policies regarding the setting and adjusting of local market
supplements as described in Sec. Sec. 9901.331 through 9901.333;
(d) Policies regarding employees' eligibility for general salary
increases and adjustments in local market supplements, as described in
Sec. Sec. 9901.323 and 9901.334;
(e) Policies regarding performance-based pay, as described in
Sec. Sec. 9901.341 through 9901.345;
(f) Policies on base salary administration, including movement
between career groups, positions, pay schedules, and pay bands, as
described in Sec. Sec. 9901.351 through 9901.356;
(g) Linkages to employees' ratings of record, as described in
subpart D of this part; and
(h) Policies regarding the setting of and limitations on premium
payments, as described in Sec. Sec. 9901.361 through 9901.364.

Sec. 9901.312 Maximum rates of base salary and adjusted salary.

(a) Subject to Sec. 9901.105, the Secretary may establish a
limitation on the maximum rate of base salary provided under authority
of this subpart.
(b) No employee may receive, under authority of this subpart, an
adjusted salary rate greater than the rate for level IV of the
Executive Schedule plus 5 percent. The payable local market supplement
for an employee must be reduced as necessary to comply with this
limitation.
(c) Paragraphs (a) and (b) of this section do not apply to
physicians and dentists (in occupational series 0602 and 0680,
respectively).
(d) Subject to Sec. 9901.105, the Secretary may establish a higher
adjusted salary rate limitation for a specified category of positions
in lieu of the limitation in paragraph (b) of this section based on
mission requirements, labor market conditions, availability of funds,
and any other relevant factors.

Sec. 9901.313 Aggregate compensation limitations.

(a) General. (1) Except as provided in paragraphs (a)(2) and (a)(3)
of this section, no additional payment (premium pay, allowance,
differential, bonus, award, or other similar cash payment) may be paid
to an employee in a calendar year if, or to the extent that, when added
to the adjusted salary paid to the employee for service performed as an
employee in the Department or in another Federal agency, the payment
would cause the total aggregate compensation to exceed the annual rate
for Executive Level I as in effect on the last day of that calendar
year.
(2) In the case of physicians and dentists (in occupational series
0602 and 0680, respectively) payment to the employee may not cause
aggregate compensation received in a calendar year to exceed the salary
of the President of the United States as in effect on the last day of
that calendar year.
(3) Subject to Sec. 9901.105, the Secretary may provide for a
higher aggregate compensation limitation equal to the annual rate
payable to the Vice President under 3 U.S.C. 104 as in effect on the
last day of the calendar year in the case of specified categories of
employees for whom a waiver has been authorized under Sec.
9901.362(a)(2).
(4) The limitation described in this paragraph (a) applies to the
total amount of aggregate compensation actually received by an employee
during the calendar year without regard to the period of service for
which such compensation is earned.
(b) Types of compensation. For the purpose of this section,
aggregate compensation is the total of--
(1) Adjusted salary received as an employee of the Department;
(2) Premium pay under 5 U.S.C. Chapter 55, Subchapter V, and this
subpart;
(3) Incentive awards and performance-based cash awards under 5
U.S.C. 4501-4523 and this part;
(4) Recruitment and relocation incentives under 5 U.S.C. 5753;
(5) Retention incentives under 5 U.S.C. 5754;
(6) Supervisory differentials under 5 U.S.C. 5755;
(7) Post differentials under 5 U.S.C. 5925;
(8) Danger pay allowances under 5 U.S.C. 5928;
(9) Extended assignment incentives under 5 U.S.C. 5757;
(10) Post differentials based on environmental conditions for
employees stationed outside the continental United States or in Alaska
under 5 U.S.C. 5941(a)(2);
(11) Foreign language proficiency pay under 10 U.S.C. 1596 and
1596a;
(12) Continuation of pay under 5 U.S.C. 8118;
(13) Other similar payments authorized under title 5, United States
Code, excluding--
(i) Back pay due to an unjustified personnel action under 5 U.S.C.
5596 (but only if the back payments were originally payable in a
previous calendar year);
(ii) Overtime pay under the Fair Labor Standards Act of 1938, as
amended (29 U.S.C. 201-219 and 5 CFR Part 551);
(iii) Severance pay under 5 U.S.C. 5595;
(iv) Nonforeign area cost-of-living allowances under 5 U.S.C.
5941(a)(1); and
(v) Lump-sum payments for accumulated and accrued annual leave on
separation under 5 U.S.C. 5551 or 5552; and
(14) Payments received from another agency during the calendar
year, prior to employment with the Department, that are subject to 5
U.S.C. 5307.
(c) Administration of aggregate limitation. (1) At the time a
payment covered by paragraph (b) of this section

[[Page 29907]]

(other than adjusted salary) is authorized for an employee, the
employee may not receive any portion of such payment that, when added
to the estimated aggregate compensation the employee is projected to
receive, would cause the aggregate compensation actually received by
the employee during the calendar year to exceed the limitation
applicable to the employee under this section at the end of the
calendar year.
(2) Payments that are creditable for retirement purposes (e.g., law
enforcement availability pay (LEAP) or standby premium pay) and that
are paid to an employee at a regular fixed rate each pay period may not
be deferred or discontinued for any period of time in order to make
another payment that would otherwise cause an employee's pay to exceed
any limitation described in or established by this section.
(3) Except for physicians and dentists (in occupational series 0602
and 0680, respectively), if the estimated aggregate compensation to
which an employee is entitled exceeds the applicable limitation under
this section for the calendar year, the Department must defer all
authorized payments (other than adjusted salary) at the time when
otherwise continuing such payments would cause the aggregate
compensation actually received by any employee during the calendar year
to exceed the applicable limitation. Any portion of a payment deferred
under this paragraph will become available for payment as provided in
paragraph (d) of this section. For physicians and dentists (in
occupational series 0602 and 0680, respectively), payments that exceed
the limitation under paragraph (a)(2) of this section may not be made
at any time.
(4) If the Department makes an incorrect estimate of aggregate
compensation at an earlier date in the calendar year, the sum of an
employee's remaining payments of adjusted salary (which may not be
deferred) may exceed the difference between the aggregate compensation
the employee has actually received to date in that calendar year and
the applicable limitation under this section. In this case, the
employee will become indebted to the Department for any amount paid in
excess of the aggregate limitation. To the extent that the excess
amount is attributable to amounts that should have been deferred and
would have been payable at the beginning of the next calendar year, the
debt must be nullified on January 1 of the next calendar year. As part
of the correction of the error, the excess amount will be deemed to
have been paid on January 1 of the next calendar year (when the debt
was extinguished) as if it were a deferred excess payment as described
in paragraph (c)(3) of this section and must be considered part of the
employee's aggregate compensation for the new calendar year.
(d) Payment of excess amounts. (1) Except for physicians and
dentists (in occupational series 0602 and 0680, respectively), any
amount that is not paid to an employee because of the annual aggregate
compensation limitation under this section must be paid in a lump-sum
payment at the beginning of the following calendar year. Any amount
paid the following calendar year will be taken into account for
purposes of applying the limitations with respect to such calendar
year. For physicians and dentists (in occupational series 0602 and
0680, respectively), payments that exceed the limitation under
paragraph (a)(2) of this section may not be made at any time.
(2) If a lump-sum payment causes an employee's estimated aggregate
compensation to exceed the applicable limitation under this section,
the Department must consider only the employee's adjusted salary and
payments that are creditable for retirement purposes (e.g., LEAP or
standby pay) in determining the extent to which the lump-sum payment
may be paid and will defer all other payments, in order to pay as much
of the excess amount as possible. Any payments deferred under this
paragraph, including any portion of the excess amount that was not
payable, will become payable at the beginning of the next calendar
year.
(3) If an employee moves to another Federal agency or to another
position within the Department not covered by NSPS, and, at the time of
the move, the employee has received payments in excess of the aggregate
limitation under 5 U.S.C. 5307, the employee's indebtedness for the
excess amount received will be deferred from the effective date of the
transfer until the beginning of the next calendar year. Effective
January 1 of the new calendar year, the debt will be nullified and the
excess amount will be considered in applying that year's aggregate
limitation.
(4) If an employee transfers to another agency and, at the time of
transfer, the employee has excess payments deferred to the next
calendar year, the provisions of 5 U.S.C. 5307 are applicable.
(5) The following conditions permit payment of excess aggregate
compensation without regard to the calendar year limitation:
(i) If an employee dies, the excess amount is payable immediately
as part of the settlement of accounts, in accordance with 5 U.S.C.
5582.
(ii) If an employee separates from Federal service, the entire
excess amount is payable following a 30-day break in service. If the
individual is reemployed in the Department under NSPS in the same
calendar year as separation, any previous payment of an excess amount
will be considered part of that year's aggregate compensation for the
purpose of applying the limitations described in this section for the
remainder of the calendar year.

Sec. 9901.314 National security compensation comparability.

(a) To the maximum extent practicable, for fiscal years 2004
through 2012, the overall amount allocated for compensation of the DoD
civilian employees who are included in the NSPS may not be less than
the amount that would have been allocated for compensation of such
employees for such fiscal years if they had not been converted to the
NSPS, based on, at a minimum--
(1) The number and mix of employees in such organizational or
functional units prior to conversion of such employees to the NSPS; and
(2) Adjustments for normal step increases and rates of promotion
that would have been expected, had such employees remained in their
previous pay schedule.
(b) To the maximum extent practicable, implementing issuances will
provide a formula for calculating the overall amount to be allocated
for fiscal years beyond fiscal year 2012 for compensation of the
civilian employees included in the NSPS. The formula will ensure that,
in the aggregate, employees are not disadvantaged in terms of the
overall amount of compensation available as a result of conversion to
the NSPS, while providing flexibility to accommodate changes in the
function of the organization and other changed circumstances that might
impact compensation levels.
(c) For the purpose of this section, ``compensation'' for civilian
employees means adjusted salary, taking into account any applicable
locality payment under 5 U.S.C. 5304, special rate supplement under 5
U.S.C. 5305, local market supplement under Sec. 9901.332, or
equivalent supplement under other legal authority.

Rate Ranges and General Salary Increases

Sec. 9901.321 Structure.

(a) Subject to Sec. 9901.105, the Secretary will establish ranges
of base salary rates for pay bands, with minimum and maximum rates set
and adjusted as provided in Sec. 9901.322.

[[Page 29908]]

(b) For each pay band within a career group, the Secretary will
establish a common rate range that applies in all locations.
(c) The Secretary may establish and adjust control points within a
pay band to manage compensation (e.g., limitations on pay setting and
pay progression within a pay band that apply to specified positions).
The Secretary may consider only the following factors in developing
control points: Mission requirements, labor market conditions, and
benchmarks against duties, responsibilities, competencies,
qualifications, and performance.

Sec. 9901.322 Setting and adjusting rate ranges.

(a) Subject to Sec. 9901.105, the Secretary may set and adjust the
rate ranges (i.e., range minimums and maximums) established under Sec.
9901.321. In determining the rate ranges, the Secretary may consider
mission requirements, labor market conditions, availability of funds,
pay adjustments received by employees of other Federal agencies, and
any other relevant factors.
(b) The Secretary may determine the effective date of newly set or
adjusted band rate ranges. Established rate ranges will be reviewed for
possible adjustment at least annually.
(c) The Secretary may establish different rate ranges and provide
different rate range adjustments for different pay bands.
(d) The Secretary may adjust the minimum and maximum rates of a pay
band by different percentages.
(e) The maximum rate of each band must be adjusted at the time of a
general salary increase under Sec. 9901.323(a)(1) (excluding a lesser
increase approved for retained rate employees) by no less than the
percentage amount of that increase.

Sec. 9901.323 Eligibility for general salary increase.

(a) Employees with a current rating of record above
``unacceptable'' (Level 1) and employees who do not have a current
rating of record for the most recently completed appraisal period are
eligible to receive an approved general salary increase in their base
salary rate subject to the following requirements:
(1) A general salary increase must be provided to eligible
employees in all NSPS pay bands at the same time that a General
Schedule annual adjustment takes effect under 5 U.S.C. 5303. The amount
of such general salary increase is determined by the Secretary, but may
not be less than 60 percent of the General Schedule annual adjustment
under 5 U.S.C. 5303 (unless a lesser percentage is allowed by law).
Such general salary increase must be the same percentage amount for all
eligible employees under NSPS, except that the increase for employees
receiving a retained rate is limited to the lowest permitted amount
(i.e., 60 percent of the General Schedule annual adjustment under 5
U.S.C. 5303 unless a lesser percentage is allowed by law).
(2) In addition to the general salary increase under paragraph
(a)(1) of this section, and subject to Sec. 9901.105, a general salary
increase may be provided to all eligible employees (excluding employees
receiving a retained rate under Sec. 9901.356) in a designated
occupational series in a pay band at times other than the effective
date of the General Schedule annual adjustment under 5 U.S.C. 5303 if
the Secretary determines that such an increase is necessary considering
only labor market conditions, staffing difficulties, and mission
priorities. Different general salary increases may be provided under
this paragraph (a)(2) to employees in different occupational series or
pay bands.
(b) Employees with a current rating of record of ``unacceptable''
will not receive a general salary increase under this section. If such
an employee receives a rating of record above unacceptable for a
subsequent appraisal period, the employee is eligible for any general
salary increase taking effect on or after the date the employee is
given a rating of record above unacceptable.
(c)(1) The Secretary may provide an additional increase in the base
salary rate equal to the difference between the percent of the General
Schedule annual adjustment under 5 U.S.C. 5303 and the amount of the
NSPS general salary increase under paragraph (a)(1) of this section to
employees ineligible for performance payout under Sec. 9901.342. This
increase is effective at the same time as the NSPS general salary
increase.
(2) The increase under paragraph (c)(1) of this section does not
apply to employees who--
(i) Are ineligible for a performance payout due to an NSPS rating
of record of Level 1 or Level 2;
(ii) Move from a non-NSPS to an NSPS position, or who are newly
hired or reappointed to an NSPS position, on the effective date of the
performance payment; or
(iii) Are receiving a retained rate under Sec. 9901.356.
(d) A general salary increase under paragraph (a)(2) or paragraph
(c) of this section may be applied only to the extent that it does not
cause an employee's base salary rate to exceed the maximum rate of the
employee's band or applicable control point.
(e) If the adjustment of a pay band minimum rate causes the base
salary of an employee with a rating of record above unacceptable (Level
1) to fall below such minimum rate, the employee's salary will be set
at the pay band minimum rate.

Local Market Supplements

Sec. 9901.331 General.

(a) Introduction. The base salary ranges established under
Sec. Sec. 9901.321 through 9901.322 may be supplemented in appropriate
circumstances by local market supplements, as described in this
section. These supplements are set and adjusted as described in Sec.
9901.333. The sum of an employee's base salary plus any applicable
local market supplement constitutes the employee's adjusted salary.
(b) Computation. Local market supplements are computed by
multiplying the applicable supplement percentage rate times the
employee's base salary rate and rounding the result to the nearest
whole dollar. A local market supplement is payable only to the extent
that it does not cause an employee's adjusted salary rate to exceed the
rate limitation described in Sec. 9901.312(b).
(c) Official worksite. When a local market supplement is linked to
a geographic area, the employee's entitlement to the local market
supplement is contingent on the employee's official worksite (as
defined in 5 CFR 531.605) being located in that geographic area.
(d) Treatment as basic pay. Local market supplements are considered
basic pay only for the following purposes:
(1) Retirement deductions, contributions, and benefits under 5
U.S.C. chapter 83 or 84;
(2) Life insurance premiums and benefits under 5 U.S.C. chapter 87;
(3) Premium pay under 5 U.S.C. chapter 55, subchapter V, or similar
payments under other legal authority, including this subpart;
(4) Severance pay under 5 U.S.C. 5595;
(5) Cost-of-living allowances and post differentials under 5 U.S.C.
5941;
(6) Overseas allowances and differentials under 5 U.S.C. Chapter
59, Subchapter III, to the extent authorized by the Department of
State;
(7) Recruitment, relocation, and retention incentives, supervisory
differentials, and extended assignment

[[Page 29909]]

incentives under 5 U.S.C. Chapter 57, Subchapter IV, and 5 CFR part
575;
(8) Lump-sum payments for accumulated and accrued annual leave
under 5 CFR 550, Subpart L;
(9) Determining whether an employee's rate of basic pay is reduced
at the point of conversion or movement into or out of the NSPS pay
system for the purpose of applying 5 U.S.C. Chapter 75, Subchapter II
(dealing with adverse actions), consistent with Sec. Sec. 9901.351(g),
9901.371(d), and 9901.372(f);
(10) Other payments and adjustments under other statutory or
regulatory authority for which locality-based comparability payments
under 5 U.S.C. 5304 are considered part of basic pay; and
(11) Any other provisions for which DoD local market supplements
are expressly treated as basic pay by law or under this part.

Sec. 9901.332 Standard and targeted local market supplements.

(a) General. NSPS employees may receive standard or targeted local
market supplements as described in paragraphs (b) and (c) of this
section. Consistent with 5 U.S.C. 9902(e)(8), the full amount of
standard and targeted local market supplements must be provided to
employees who receive a rating of record above unacceptable (Level 1)
or who do not have a rating of record for the most recently completed
appraisal period. As provided in Sec. 9901.334, an employee with an
unacceptable rating of record may not receive an increase in a standard
or targeted local market supplement. Standard local market supplements
are designed to satisfy the requirements of 5 U.S.C. 9902(e)(8)(A),
while targeted local market supplements are the ``other local market
supplements'' referenced in 5 U.S.C. 9902(e)(8)(B).
(b) Standard local market supplements. Employees are entitled to
standard local market supplements that are generally equivalent to
locality payments under 5 U.S.C. 5304 and 5304a, subject to the
following requirements:
(1) The percentage values of standard local market supplements must
be identical to the percentage values of locality payments established
under 5 U.S.C. 5304 and 5304a, except as provided in Sec. 9901.334
with respect to employees with an unacceptable rating of record;
(2) The geographic areas in which standard local market supplements
apply must be identical to the corresponding geographic areas
established for locality payments under 5 U.S.C. 5304;
(3) An employee's entitlement to a standard local market supplement
is based on whether the employee's official worksite (defined
consistent with the requirements in 5 CFR 531.605) is located in the
given local market area;
(4) The applicable standard local market supplement is paid on top
of a retained rate (consistent with the NSPS modification of the pay
retention rules);
(5) The cap on an adjusted salary rate that includes a standard
local market supplement is the rate for level IV of the Executive
Schedule plus 5 percent (consistent with the NSPS extension of the
highest band base rate ranges by 5 percent), as provided in Sec.
9901.312(b), except as otherwise provided under Sec. 9901.312(d);
(6) A standard local market supplement does not apply if an
employee is entitled to a higher targeted local market supplement; and
(7) Standard local market supplements are not applicable to
physicians and dentists (in occupational series 0602 and 0680,
respectively), since they receive higher base salary and adjusted
salary rates (including any applicable targeted local market
supplements) to achieve comparability with physicians and dentists paid
under 38 U.S.C. chapter 74 and since their adjusted salary rates apply
on a worldwide basis.
(c) Targeted local market supplements. Subject to Sec. 9901.105,
the Secretary may establish targeted local market supplements for
specifically defined categories of employees, subject to the following:
(1) The conditions for coverage under a targeted local market
supplement may be based on occupation, band, organizational unit,
geographic location of official worksite, specializations, special
skills or qualifications, or other appropriate factors;
(2) A targeted local market supplement applies to an employee
eligible for a standard local market supplement only if the targeted
local market supplement is a larger amount; and
(3) Except for physicians and dentists (in occupational series 0602
and 0680, respectively) or as otherwise provided under Sec.
9901.312(d), an employee's adjusted salary that includes an applicable
targeted local market supplement may not exceed the rate cap equal to
the rate for Executive Level IV plus 5 percent, as provided in Sec.
9901.312(b).

Sec. 9901.333 Setting and adjusting local market supplements.

(a) Standard local market supplements are set and adjusted
consistent with the setting and adjusting of corresponding General
Schedule locality payments under 5 U.S.C. 5304 and 5304a.
(b) Subject to Sec. 9901.105, the Secretary may set and adjust
targeted local market supplements. In determining the amounts of the
supplements, the Secretary will consider mission requirements, labor
market conditions, availability of funds, pay adjustments received by
employees of other Federal agencies, allowances and differentials under
5 U.S.C. Chapter 59, and any other relevant factors. The Secretary may
determine the effective date of newly set or adjusted targeted local
market supplements. Established supplements will be reviewed for
possible adjustment at least annually in conjunction with rate range
adjustments under Sec. 9901.322.

Sec. 9901.334 Eligibility for pay increase associated with a
supplement adjustment.

(a) When a local market supplement is adjusted under Sec.
9901.333, employees to whom the supplement applies with current ratings
of record above ``unacceptable'' (Level 1), and employees who do not
have current ratings of record for the most recently completed
appraisal period, are eligible to receive any pay increase resulting
from that adjustment.
(b) An employee with a current rating of record of ``unacceptable''
will not receive a pay increase under this section (i.e., the
employee's local market supplement percentage will not be increased).
Once such an employee has a new rating of record above
``unacceptable,'' the employee is entitled to the full amount of any
applicable local market supplement effective on the date of the first
adjustment in that local market supplement occurring on or after the
effective date of the new rating of record, or, if earlier, the
effective date of an applicable general salary increase as described in
Sec. 9901.323(b).

Performance-Based Pay

Sec. 9901.341 General.

Sections 9901.342 through 9901.345 describe the performance-based
pay that is part of the pay system established under this subpart.
These provisions authorize payments to employees based on individual
performance or contribution, or team or organizational performance, as
a means of fostering a high-performance culture that supports mission
accomplishment.

[[Page 29910]]

Sec. 9901.342 Performance payouts.

(a) Overview. (1) The NSPS pay system will be a performance-based
pay system and will result in a distribution of available performance
pay funds based upon individual performance, individual contribution,
team or organizational performance, or a combination of those elements.
The NSPS pay system will use a pay pool concept to manage, control, and
distribute performance-based pay increases and bonuses. The performance
payout is a function of the amount of money in the performance pay pool
and the number of shares assigned to individual employees.
(2) The rating of record used as the basis for a performance pay
increase is the one assigned for the most recently completed appraisal
period. Unless otherwise provided in this section, if an employee is
not eligible to have a rating of record for the current rating cycle
for reasons other than those identified in paragraphs (i) through (l)
of this section, such employee will not be eligible for a performance
payout under this part.
(b) Performance pay pools. (1) Pay pools and pay pool oversight
will be established and managed in accordance with implementing
issuances published by the Secretary, in such a manner as to ensure
employees are treated fairly and consistently, and in accordance with
merit system principles.
(2) Consistent with paragraph (b)(1) of this section, pay pool
composition will be based on organization structure, classification
structure, function of work, location, and/or organization mission. The
decision on pay pool composition will be reviewed and approved by an
official who is at a higher level than the official who made the
initial decision, as determined by a DoD Component, unless there is no
official at a higher level in the organization.
(3) Where determined appropriate, management may establish one or
more subsets of a pay pool population (i.e., sub pay pools) for the
purpose of reconciling ratings of record, share assignments, and payout
determinations. Sub pay pools share in the common fund of the overall
pay pool and operate within the requirements and guidelines established
for the pay pool to which they belong.
(4) The Secretary may determine a percentage of pay to be included
in pay pools and paid out in accordance with accompanying implementing
issuances as--
(i) A performance-based pay increase;
(ii) A performance-based bonus; or
(iii) A combination of a performance-based pay increase and a
performance-based bonus.
(5) The decision to apply a funding floor or ceiling to a pay pool,
including the amount of such floor or ceiling, will be reviewed and
approved by an official who is at a higher level than the official who
made the initial decision, as determined by a DoD Component, unless
there is no official at a higher level in the organization.
(c) Pay Pool Panel. (1) Consistent with this section, the Pay Pool
Panel--
(i) Reviews rating of record, share assignment, and payout
distribution decisions;
(ii) Makes adjustments, which in the Panel's view would result in
equity and consistency across the pay pool; and
(iii) Elevates any disagreement between the Pay Pool Panel and the
employee's supervisory chain to the Pay Pool Manager or Performance
Review Authority, as applicable, for resolution.
(2) The Pay Pool Panel members may not participate in payout
deliberations or decisions that directly impact their own ratings of
record or pay.
(d) Pay Pool Manager. The Pay Pool Manager--
(1) Provides oversight of the Pay Pool Panel;
(2) Consistent with this section, is the final approving authority
for performance ratings; and
(3) May not participate in payout deliberations or decisions that
directly impact his/her own rating of record or pay.
(e) Performance Review Authority (PRA). Consistent with this
section, the PRA--
(1) Oversees the operation of pay pools established under NSPS;
(2) Ensures procedural and funding consistency among pay pools
under NSPS; and
(3) May not participate in payout deliberations or decisions that
directly impact his/her own rating of record or pay.
(f) Performance shares. (1) Performance shares will be used to
determine performance pay increases and/or bonuses. The range of shares
which may be assigned for each rating level is as follows:

Performance Share Ranges Table
------------------------------------------------------------------------
Share range available for
Rating of record assignment
------------------------------------------------------------------------
Level 5................................... 5 or 6 shares.
Level 4................................... 3 or 4 shares.
Level 3................................... 1 or 2 shares.
Level 2................................... No shares.
Level 1................................... No shares.
------------------------------------------------------------------------

(2) The only factors that may be used in determining share
assignment are complexity of the work, level of responsibility,
compensation (e.g., recent salary increases, current salary in relation
to control points or pay band maximum, current salary in relation to
labor market), overall contribution to the mission of the organization,
organizational success, raw performance scores, and impact of
contributing factors. Pay Pool Managers and/or Pay Pool Panels will
review share assignment recommendations to ensure that factors are
applied consistently across the pay pool and in accordance with the
merit system principles.
(g) Performance payout. (1) A performance share is expressed as a
percentage of an employee's rate of base salary and is a common value
throughout the pay pool. The percent value of a performance share is
calculated by dividing the pay pool fund (expressed in dollars) by the
summation of the products of multiplying each employee's base salary
times the number of shares earned by the employee.

[Share Value(%) = Pay Pool Fund($)/[Sigma](base salary of each pay
pool member x shares assigned each pay pool member)]

(2) An employee's performance payout is calculated by multiplying
the employee's base salary as of the end of the pay pool's appraisal
period times the number of shares earned by the employee times the
share value.

[Employee Performance Payout = Base Salary x Shares x Share Value]

(3) A performance payout may be an increase in base salary, a
bonus, or a combination of the two. An increase in base salary may not
cause the employee's rate of base salary to exceed the maximum rate or
applicable control point of the employee's band rate range. The
decision to pay a bonus, including the amount of such bonus, will be
reviewed and approved by an official who is at a higher level than the
official who made the initial decision, as determined by a DoD
Component, unless there is no official at a higher level in the
organization.
(4) The factors management may consider in determining the amount
to

[[Page 29911]]

be paid out as a bonus versus an increase in the rate of base salary
are limited to the following:
(i) Current base salary in relation to appropriate rate range;
(ii) Current base salary, level of responsibility and complexity of
work performed in comparison with others in similar work assignments;
(iii) Performance-based compensation received during the rating
cycle associated with promotions, reassignments, or awards;
(iv) Salary levels of occupations in comparable labor markets;
(v) Attrition and retention rates of critical shortage skilled
personnel;
(vi) Expectation of continued performance at that level; and
(vii) Overall contribution to the mission of the organization.
(5) When an employee's base salary is not increased based on a
control point, a performance payout will be paid as a bonus in lieu of
the increase to base salary.
(6) The effective date of an increase in base salary made under
this section will be the first day of the first pay period beginning on
or after January 1 of each year.
(7) Unless otherwise specified in this section, employees who are
no longer covered by NSPS on the effective date of the payout or who
moved out of NSPS on a permanent move after the end of their rating
cycle but before the effective date of the payout are not entitled to a
performance-based payout.
(8) For employees receiving a retained rate above the applicable
pay band maximum, the entire performance payout must be in the form of
a bonus payment. Any performance payout in the form of a bonus for a
retained rate employee will be computed based on the maximum rate of
the assigned pay band.
(h) Proration of performance payouts. The Secretary will issue
implementing issuances regarding prorating of performance payouts for
employees who, during the period between performance payouts, are--
(1) Hired, transferred, reassigned, or promoted into NSPS;
(2) In a leave-without-pay status (except as provided in paragraphs
(i) and (j) of this section); or
(3) In other circumstances where prorating is considered
appropriate.
(i) Adjustments for employees returning after performing honorable
service in the uniformed services. The rate of base salary for an
employee who leaves a DoD position to perform service in the uniformed
services (in accordance with 38 U.S.C. 4301 et seq. and 5 CFR 353.102)
and returns through the exercise of a reemployment right provided by
law, Executive order, or regulation under which accrual of service for
seniority-related benefits is protected (e.g., 38 U.S.C. 4316) will be
set prospectively. The Secretary will credit the employee with
increases under Sec. 9901.323 and increases to base salary under this
section based on the employee's NSPS rating of record for the appraisal
period upon which these adjustments are based. An employee who is
eligible for a rating of record for the appraisal period upon which
performance-based base salary increases are granted is also eligible
for a performance-based pay pool bonus if otherwise eligible by share
assignment and payout distribution. If an employee does not have an
NSPS rating of record for the appraisal period serving as a basis for
increases to base salary under this section, adjustments will be made
prospectively based on the average base salary increase (expressed as a
percentage) granted to other employees in the same pay pool, pay
schedule, and pay band who received the same rating as the employee's
last NSPS rating of record or the average base salary increase
(expressed as a percentage) granted to employees who received the modal
rating for the pay pool, whichever is most advantageous to the
employee. In unusual cases where insufficient statistical information
exists to determine the modal rating, the Secretary may establish
alternative procedures for determining a base salary increase under
this section. Proration in the case of employees covered by this
paragraph is prohibited.
(j) Adjustments for employees returning to duty after being in
workers' compensation status. The rate of base salary for an employee
who returns to duty after a period of receiving injury compensation
under 5 U.S.C. Chapter 81, Subchapter I (in a leave-without-pay status
or as a separated employee), will be set prospectively. For the
intervening period, the Secretary will credit the employee with
increases under Sec. 9901.323 and increases to base salary under this
section based on the employee's NSPS rating of record for the appraisal
period upon which these adjustments are based. An employee who is
eligible for a rating of record for the appraisal period upon which
performance-based base salary increases are granted is also eligible
for a performance-based pay pool bonus if otherwise eligible by share
assignment and payout distribution. If an employee does not have an
NSPS rating of record for the appraisal period serving as a basis for
increases to base salary under this section, adjustments will be made
prospectively based on the average base salary increase (expressed as a
percentage) granted to other employees in the same pay pool, pay
schedule, and pay band who received the same rating as the employee's
last NSPS rating of record or the average base salary increase
(expressed as a percentage) granted to employees who received the modal
rating for the pay pool, whichever is most advantageous to the
employee. In unusual cases where insufficient statistical information
exists to determine the modal rating, the Secretary may establish
alternative procedures for determining a base salary increase under
this section. Proration in the case of employees covered by this
paragraph is prohibited.
(k) Adjustments for employees in special circumstances. The
Secretary will adjust the rate of base salary for an employee who
performs activities on ``official time'' (as defined in 5 U.S.C. 7131)
or who is on extended approved paid leave. The Secretary will credit
these employees with increases to base salary under this section based
on the employee's NSPS rating of record for the appraisal period upon
which these adjustments are based. An employee who is eligible for a
rating of record for the appraisal period upon which performance-based
base salary increases are granted is also eligible for a performance-
based pay pool bonus if otherwise eligible by share assignment and
payout distribution. If an employee does not have an NSPS rating of
record for the appraisal period serving as a basis for increases to
base salary under this section, such adjustments will be based on the
average base salary increase (expressed as a percentage) granted to
other employees in the same pay pool, pay schedule, and pay band who
received the same rating as the employee's last NSPS rating of record
or the average base salary increase (expressed as a percentage) granted
to employees who received the modal rating for the pay pool, whichever
is most advantageous to the employee. In unusual cases where
insufficient statistical information exists to determine the modal
rating, the Secretary may establish alternative procedures for
determining a base salary increase under this section.
(l) Adjustments for employees returning from temporary assignments
outside of NSPS or returning to NSPS from long-term training for which
no NSPS performance plan was assigned. The Secretary will set the rate
of base salary prospectively for an employee who returns from a
temporary assignment (including a supervisory

[[Page 29912]]

probationary assignment) outside of NSPS or from long-term training
(e.g., industry assignment) for which no NSPS performance plan was
assigned. The Secretary will credit the employee with increases under
Sec. 9901.323 and increases to base salary under this section based on
the employee's NSPS rating of record for the appraisal period upon
which these adjustments are based. An employee who is eligible for a
rating of record for the appraisal period upon which performance-based
base salary increases are granted is also eligible for a performance-
based pay pool bonus if otherwise eligible by share assignment and
payout distribution. If an employee does not have an NSPS rating of
record for the appraisal period serving as a basis for increases to
base salary under this section, such adjustments will be made
prospectively based on the average base salary increase (expressed as a
percentage) granted to other employees in the same pay pool, pay
schedule, and pay band who received the same rating as the employee's
last NSPS rating of record or the average base salary increase
(expressed as a percentage) granted to employees who received the modal
rating for the pay pool, whichever is most advantageous to the
employee. In unusual cases where insufficient statistical information
exists to determine the modal rating, the Secretary may establish
alternative procedures for determining a base salary increase under
this section.

Sec. 9901.343 Pay reduction based on unacceptable performance and/or
conduct.

An employee's rate of base salary may be reduced based on a
determination of unacceptable performance, conduct, or both after
applying applicable adverse action procedures. Such a reduction will be
at least 5 percent of base salary and may not exceed 10 percent of base
salary unless the employee has been changed to a lower pay band and a
greater reduction is needed to set the employee's pay at the maximum
rate of the pay band. (See also Sec. Sec. 9901.353 and 9901.355.) An
employee's rate of base salary may not be reduced more than once in a
12-month period based on unacceptable performance, conduct, or both.

Sec. 9901.344 Other performance payments.

(a) The decision to grant other performance payouts, including the
amount of such payouts, will be reviewed and approved by an official of
the employee's Component who is at a higher level than the official who
made the initial decision, as determined by the DoD Component, unless
there is no official at a higher level in the organization. In
accordance with implementing issuances, authorized officials may make
other performance payments to--
(1) Reward extraordinary individual performance, as described in
paragraph (b) of this section;
(2) Recognize organizational or team achievement, as described in
paragraph (c) of this section; and
(3) Provide for other special circumstances.
(b)(1) An Extraordinary Performance Recognition (EPR) is an
increase to base salary, a bonus, or a combination of these intended to
reward employees when the payout formula does not adequately compensate
them for their extraordinary performance and results. The EPR payment
is in addition to performance payouts under Sec. 9901.342 and will
usually be made effective at the time of those payouts. The future
performance and contribution level exhibited by the employee will be
expected to continue at an extraordinarily high level.
(2) Only employees who have achieved a Level 5 NSPS rating of
record for the most recently completed appraisal period are eligible
for an EPR.
(3) The amount of an EPR awarded in the form of an increase to base
salary may not cause the employee's base salary to exceed the maximum
rate of the employee's pay band or any applicable control point.
(c)(1) Organizational/Team Achievement Recognition (OAR) payments
may be made in the form of an increase to base salary, a bonus, or a
combination of these in order to recognize the members of a team,
organization or branch whose performance and contributions have
successfully and directly advanced organizational goals. The OAR
payment is made in conjunction with the annual performance payout.
(2) To receive an OAR, an employee must have an NSPS rating of
record of Level 3 or higher for the most recently completed appraisal
period.
(3) The amount of the OAR payment provided in the form of an
increase to base salary may not cause the employee's base salary to
exceed the maximum rate of the employee's pay band or any applicable
control point.

Sec. 9901.345 Accelerated Compensation for Developmental Positions
(ACDP).

(a) Accelerated Compensation for Developmental Positions (ACDP) is
an increase to base salary that may be provided to employees
participating in Component training programs or in other developmental
capacities as determined by Component policy. ACDP recognizes growth
and development in the acquisition of job-related competencies combined
with successful performance of job objectives.
(b) The use of ACDP is limited to employees in the lowest pay band
of a nonsupervisory pay schedule who are in developmental or trainee
level positions.
(c) Components choosing to provide ACDP increases must establish
and document standards by which such employees will be identified and
growth and development criteria by which additional pay increases will
be determined.
(d) The amount of the ACDP increase generally will not exceed 20
percent of an employee's base salary. The decision to grant an ACDP
exceeding 20 percent of an employee's base salary must be made on a
case-by-case basis and approved by an official who is at a higher level
than the official who made the initial decision, as determined by the
DoD Component, unless there is no official at a higher level in the
organization.
(e) The amount of the ACDP increase may not cause the employee's
base salary to exceed the top of the employee's pay band or any
applicable control point.
(f) To qualify for an ACDP, an employee must have a rating of
record of Level 3 (or equivalent non-NSPS rating of record) or higher,
consistent with Sec. 9901.405. An ACDP may be awarded to an employee
who does not have a rating of record if an authorizing official
conducts a performance assessment and determines that the employee is
performing at the equivalent of Level 3 or higher. This performance
assessment does not constitute a rating of record.
(g) An ACDP increase may not be granted unless the employee is in a
pay and duty status in an NSPS-covered position on the effective date
of the increase.
(h) The Secretary may provide adjustments under this section in
lieu of or in addition to adjustments under Sec. 9901.342.

Pay Administration

Sec. 9901.351 General.

(a) Introduction. The pay administration provisions in Sec. Sec.
9901.351 through 9901.356 are applied using base salary rates, except
when specifically otherwise provided.
(b) Geographic recalculation. When an employee covered by a
targeted local market supplement moves to a position

[[Page 29913]]

in a new location where a different local market supplement and/or pay
schedule applies, the employee's adjusted salary before the move will
be recalculated to reflect a local market supplement (standard or
targeted, as appropriate) for the employee's existing position--as if
that position were at the same location as the position to which the
employee is moving, consistent with the geographic conversion principle
described at 5 CFR 531.205. For employees moving from a non-NSPS
position to an NSPS position in a different location covered by a
different salary supplement, the employee's adjusted salary under the
former system will be recalculated as if the former position were
located in the new location, consistent with the geographic conversion
principle described at 5 CFR 531.205.
(c) Within-grade increase (WGI) adjustment equivalent. (1) When an
employee is permanently placed (not by conversion under Sec. 9901.371)
in an NSPS position from a GS position through a management-directed
action, including a management-directed reassignment, realignment,
movement into NSPS, or placement via the Priority Placement Program
(PPP), Reemployment Priority List (RPL), or Interagency Career
Transition Assistance Plan (ICTAP), the employee will receive an
increase to base salary equivalent to the amount he or she would have
received as a WGI adjustment if the employee had converted into NSPS
with his or her organization, as provided in Sec. 9901.371.
(2) An employee who is placed in an NSPS position from a GS
position through an employee-initiated reassignment may, at the
discretion of the authorized management official, receive this same WGI
adjustment equivalent increase described in paragraph (c)(1) of this
section. The decision to grant this increase will be reviewed and
approved by an official who is at a higher level than the official who
made the initial decision, as determined by the DoD Component. At a
minimum, the higher-level approval level may be no lower than one level
above the authorized management official who approved the reassignment
unless there is no official at a higher level in the organization.
(3) An increase provided under paragraphs (c)(1) and (c)(2) of this
section occurs before any other increases provided under NSPS, may not
cause the employee's base salary to exceed the maximum rate of the
assigned pay band, and is in addition to any other discretionary
increase the employee may be eligible to receive.
(d) Minimum rate. Except in the case of an employee who does not
receive a pay increase under Sec. 9901.323 because of an unacceptable
rating of record, an employee's base salary may not be less than the
minimum rate of the employee's pay band.
(e) Maximum rate. Except as provided in Sec. 9901.356, an
employee's base salary may not exceed the maximum rate of the
employee's band rate range.
(f) Pay periods and hourly rates. The Secretary will follow the
rules for establishing pay periods and computing rates of pay in 5
U.S.C. 5504 and 5505, as applicable. For employees covered by 5 U.S.C.
5504, annual rates of base salary will be converted to hourly rates of
base salary in computing payments received by covered employees.
(g) Rate comparisons upon movement to an NSPS position. An employee
who moves to an NSPS position from a non-NSPS position by management-
directed action (excluding conversion under Sec. 9901.371) will
receive a rate of basic pay that is not less than the employee's rate
of basic pay immediately before movement (after making adjustments
consistent with those made under Sec. 9901.371(e) for employees who
convert to NSPS). For this purpose and for the purpose of applying 5
U.S.C. chapter 75, subchapter II (dealing with adverse actions), at the
point of movement into NSPS, an employee's rate of basic pay includes
any applicable locality payment under 5 U.S.C. 5304, special rate
supplement under 5 U.S.C. 5305, local market supplement under Sec.
9901.332, or equivalent payment under other legal authority.
(h) Adjustment of teacher annual rates. When an individual leaves a
teaching position as defined in 20 U.S.C. 901 and moves to a position
becomes covered by NSPS, the individual's existing annual base salary
rate for the teaching position may be adjusted for the purpose of
setting pay under NSPS. The adjustment will take into account the
shorter work year applicable to the teacher position. The adjustment
may not exceed 20 percent of the existing annual base salary rate of
the teaching position.

Sec. 9901.352 Setting an employee's starting pay.

(a) Subject to the requirements of this section, the Secretary may
set the starting base salary rate for individuals who are newly
appointed or reappointed to the Federal service anywhere within the
rate range of the assigned pay band (subject to any applicable control
points). Pay will be set based upon the following considerations:
(1) Labor market considerations (i.e., availability of candidates
and labor market rates);
(2) Specialized skills, knowledge, and/or education possessed by
the employee in relation to the requirements of the position;
(3) Critical mission or business requirement(s);
(4) Salaries of other employees in the organization performing
similar work; and
(5) Current salary of the candidate.
(b) For the purposes of this section, ``newly appointed'' means
those individuals who have not previously been employed in the Federal
service--i.e., this is their first/initial Federal appointment. The
term ``reappointed'' means those individuals who have been previously
employed in the Federal service and have been separated from the
Federal service for at least 1 full workday immediately before
employment in an NSPS position. The term ``Federal service'' includes
civilian service as an employee of any entity of the Federal
Government, including the judicial branch, legislative branch, and
executive branch (including Government corporations, the Postal
Regulatory Commission, the U.S. Postal Service and any nonappropriated
fund (NAF) instrumentality described in 5 U.S.C 2105(c)).

Sec. 9901.353 Setting pay upon reassignment.

(a)(1) A reassignment occurs when an employee moves, voluntarily or
involuntarily, to a different position or set of duties within his/her
pay band or to a position in a comparable pay band, or from a non-NSPS
position to an NSPS position at a comparable level of work, on either a
temporary or permanent basis. In NSPS, employees may be eligible for an
increase or decrease to base salary upon temporary or permanent
reassignment as described in this section.
(2) An employee who is reassigned through reduction-in-force (RIF)
procedures is not eligible for an increase to base salary under this
section (except as necessary to set the employee's rate at the band
minimum). Such an employee's base salary will be protected by applying
pay retention under Sec. 9901.356.
(3) A decision to increase an employee's pay under this section
will be based on one or more of the following factors:
(i) A determination that an employee's responsibilities will
significantly increase;
(ii) Critical mission or business requirements;

[[Page 29914]]

(iii) Need to advance multi-functional competencies;
(iv) Labor market conditions (i.e., availability of candidates and
labor market rates);
(v) Reassignment from non-supervisory to supervisory position;
(vi) Employee's past and anticipated performance and contribution;
(vii) Location of position;
(viii) Specialized skills, knowledge, or education possessed by the
employee in relation to those required by the position; and
(ix) Salaries of other employees in the organization performing
similar work.
(b)(1) Except as otherwise provided in paragraph (c) of this
section, when an employee is voluntarily reassigned within his/her pay
band or to a comparable pay band, an authorized management official may
reduce the employee's base salary in any amount determined prior to the
reassignment with the employee's agreement, as long as the employee's
base salary does not drop below the minimum of the assigned rate range.
In appropriate circumstances, an authorized management official may
make approval of a reassignment contingent on the employee's acceptance
of a reduced rate. Subject to paragraph (b)(2) of this section, an
authorized management official may also increase the employee's current
base salary by up to 5 percent (not to exceed the rate range maximum).
(2) The decision to grant a decrease or increase, including the
amount of such decrease or increase, as applicable under paragraph
(b)(1) of this section, will be reviewed and approved by an official
who is at a higher level than the official who made the initial
decision, as determined by the DoD Component. At a minimum, the higher-
level approval may be no lower than one level above the authorized
management official who approved the reassignment unless there is no
official at the higher level in the organization. There are no limits
to the number of times an employee may be reassigned; however, an
employee may only receive up to a total of a 5 percent cumulative
increase to base salary in any 12-month period as the result of an
employee-initiated action, unless an exception to the 12-month
limitation is approved by an authorized management official. The
increase will be calculated as a percentage of the employee's base
salary at the time the increase takes effect.
(c)(1) Subject to paragraphs (b)(2) and (c)(2) through (c)(4) of
this section, as applicable, when an employee is voluntarily reassigned
from a position with a targeted local market supplement or from a non-
NSPS position (e.g., General Schedule, Federal Wage System,
Nonappropriated Fund), an authorized management official will set pay
considering the employee's adjusted salary (including any applicable
locality pay, special rate supplement, or other equivalent supplement)
and any physicians' comparability allowance payable for the position
held prior to the reassignment.
(2) An authorized management official may--
(i) Set the employee's new adjusted salary equal to the employee's
current adjusted salary plus any physicians' comparability allowance,
if applicable, received prior to the reassignment;
(ii) Decrease the employee's adjusted salary by any amount
determined prior to the reassignment with the employee's agreement, as
long as the employee's base salary does not drop below the minimum of
the assigned rate range; or
(iii) Increase the employee's current adjusted salary plus any
physicians' comparability allowance, if applicable, by up to 5 percent
(subject to the limitation that the resulting base salary may not
exceed the rate range maximum).
(3) If the NSPS adjusted salary is increased beyond the amount of
the employee's current adjusted salary plus any physicians'
comparability allowance, the percentage of the increase is counted
toward the 12-month limitation under paragraph (b) of this section.
(4) When an employee covered by paragraph (c)(1) of this section
moves geographically in conjunction with a voluntary reassignment, the
employee's current adjusted salary must be recalculated in accordance
with the rules at Sec. 9901.351(b) before setting pay under paragraph
(c)(2) of this section.
(d)(1) Except as otherwise provided in paragraphs (e) or (f) of
this section, when an employee is reassigned via management-directed
action within his/her current pay band or to a comparable pay band, an
authorized management official will set pay at an amount no less than
the employee's current base salary and may increase the employee's
current base salary by up to 5 percent. (If the employee's current base
salary exceeds the maximum of the new pay band, no increase is
provided, and the employee's rate will be set at that maximum rate, or
if the employee is eligible, converted to a retained rate as provided
in Sec. 9901.356.)
(2) The decision to grant an increase under paragraph (d)(1) of
this section, including the amount of such increase, is discretionary
and will be reviewed and approved by an official who is at a higher
level than the official who made the initial decision, as determined by
a DoD Component, unless there is no official at a higher level in the
organization. There is no limit to the number of times an employee may
be reassigned by management, and the employee is eligible for an
increase of up to 5 percent with each reassignment. Any increase
associated with a management-directed reassignment does not count
toward the 12-month limitation described in paragraph (b) of this
section.
(e)(1) Subject to paragraph (d)(2), (e)(2), and (f) of this
section, as applicable, when an employee is reassigned via management-
directed action from a position with a targeted local market supplement
or from a non-NSPS position (e.g., General Schedule, Federal Wage
System, Nonappropriated Fund), an authorized management official will
set the employee's new adjusted salary at no less than the employee's
adjusted salary (including any applicable locality pay, special rate
supplement, or equivalent supplement) plus any physicians'
comparability allowance payable for the position held prior to the
reassignment, provided the resulting base salary does not exceed the
maximum rate of the new pay band. Subject to the same maximum
limitation, an authorized management official may also increase the
employee's adjusted salary by up to 5 percent.
(2) When an employee covered by paragraph (e)(1) of this section
moves geographically in conjunction with a management-directed
reassignment, the employee's current adjusted salary must be
recalculated in accordance with the rules in Sec. 9901.351(b) before
setting pay under such paragraph (e)(1).
(3) For the purpose of determining whether an employee experienced
a reduction in pay under 5 U.S.C. Chapter 75 when reassigned from a
non-NSPS position under paragraph (e)(1) of this section, Sec.
9901.351(g) applies.
(f) When an employee is involuntarily reduced in pay via
reassignment to a comparable pay band through adverse action procedures
(as a result of unacceptable performance and/or conduct), the
authorized management official must reduce the employee's base salary
by at least 5 percent, and may reduce it by up to 10 percent. However,
the reduction may not cause an employee's base salary to fall below the
minimum rate of the employee's assigned pay band. An employee's base
salary may not be reduced more than once in a 12-month period based on
unacceptable performance, conduct, or both. (See also Sec. 9901.343.)

[[Page 29915]]

(g) When an employee returns to an NSPS position from a temporary
reassignment to another NSPS position, the employee's current base
salary rate must be reconstructed as if the employee had not been
temporarily reassigned. For this purpose, the employee will be deemed
to have received performance pay increases under Sec. 9901.342 and
other increases in base salary under Sec. Sec. 9901.344 and 9901.345
equal to the percentage value of such increases actually received by
the employee during the temporary reassignment. However, any such
increases must be applied as if the employee were in the position and
band held immediately before the temporary reassignment (i.e., using
the rate range and any applicable control points for that band). The
employee will also be credited with any general salary increases
provided during the temporary reassignment that would have been applied
to the employee if he or she had continued to hold the position held
immediately before that temporary reassignment. A reassignment increase
is not authorized when the employee returns to the position from which
temporarily reassigned. (See Sec. 9902.342(l) for rules governing pay
setting for an employee who returns to an NSPS position after being
temporarily assigned to a non-NSPS position.)
(h) When an employee is reassigned to an NSPS supervisory position
but later returns to the NSPS position held before that reassignment
(or comparable position) because of failure to complete an in-service
(supervisory) probationary period, the employee's base salary rate must
be reconstructed as if the employee had not been reassigned. For this
purpose, the employee will be deemed to have received performance pay
increases under Sec. 9901.342 and other increases in base salary under
Sec. Sec. 9901.344 and 9901.345 equal to the percentage value of such
increases actually received by the employee during the reassignment.
However, any such increases must be applied as if the employee were in
the position and band held immediately before the reassignment (i.e.,
using the rate range and any applicable control points for that band).
The employee will also be credited with any general salary increases
provided during the reassignment that would have been applied to the
employee if he or she had continued to hold the position held
immediately before that reassignment. A reassignment increase upon
return to the previous position (or comparable position) under this
paragraph is not authorized. (See Sec. 9902.342(l) for rules governing
pay setting for an employee who returns to an NSPS position after
failure to complete a supervisory probationary period for a non-NSPS
supervisory position.)

Sec. 9901.354 Setting pay upon promotion.

(a) Except as otherwise provided in this section, upon an
employee's promotion, the employee will receive an increase in his or
her base salary equal to at least 6 percent, but the resulting base
salary rate may not be lower than the minimum rate or higher than the
maximum rate of the new pay band. The decision to grant a promotion
increase exceeding 12 percent must be reviewed and approved by an
official who is at a higher level than the official who made the
initial decision, as determined by the DoD Component, unless a higher
increase is necessary to reach the minimum rate of the new pay band or
there is no official at a higher level in the organization.
(b) The authorized management official may consider only the
following criteria in determining the amount of the promotion increase:
(1) Critical mission or business requirements;
(2) Employee's past and anticipated performance and contribution;
(3) Specialized skills or knowledge possessed by the employee;
(4) Labor market conditions (including availability of candidates
and the labor market rates for similar types of employees at the level
represented by the pay band to which the employee is being promoted);
(5) Base salary rates paid to other employees in similar positions
in the higher pay band; and
(6) Location of position.
(c)(1) If an employee's temporary promotion is made permanent
without a break, the employee's base salary will remain unchanged. No
additional promotion increase may be provided.
(2) When an employee returns from a temporary promotion to another
NSPS position, the employee's current base salary rate must be
reconstructed as if the employee had not been temporarily promoted. For
this purpose, the employee will be deemed to have received performance
pay increases under Sec. 9901.342 and other increases in base salary
under Sec. Sec. 9901.344 and 9901.345 equal to the percentage value of
such increases actually received by the employee during the temporary
promotion. However, any such increases must be applied as if the
employee were in the position and band held immediately before the
temporary promotion (i.e., using the rate range and any applicable
control points for that band). The employee will also be credited with
any general salary increases provided during the temporary promotion
that would have been applied to the employee if he or she had continued
to hold the position held immediately before that temporary promotion.
A reduction-in-band increase upon return to the previous position (or
comparable position) under this paragraph is not authorized. (See Sec.
9902.342(l) for rules governing pay setting for an employee who returns
to an NSPS position after being temporarily assigned to a non-NSPS
position.)
(d)(1) An employee on pay retention who is re-promoted to the pay
band from which reduced (or a comparable band) is not automatically
entitled to have his/her pay set in accordance with the promotion rules
described in paragraphs (a) and (b) of this section. If the employee's
retained rate falls within the rate range of the newly assigned pay
band, the authorized management official may maintain the same base
salary upon re-promotion, or increase the employee's base salary to a
rate above his or her retained rate. However, the employee's new base
salary may not exceed the rate that would be provided using the
promotion rules described in paragraphs (a) and (b) of this section.
The employee's retained rate will be used when calculating any increase
approved by an authorized management official. If the employee's
retained rate falls below the minimum rate of the newly assigned pay
band, the employee's base salary must be set at least at the minimum
rate of the band. If the employee's retained rate is higher than the
maximum rate of the newly assigned pay band, pay retention will
continue (subject to the requirements of Sec. 9901.356).
(2) An employee who is promoted to a pay band higher than the one
from which previously reduced in band will be covered by the promotion
rules described in paragraphs (a) and (b) of this section. The
employee's retained rate will be used when calculating the 6 percent
(or higher) increase.

Sec. 9901.355 Setting pay upon reduction in band.

(a) General. When an employee is reduced in band, either
voluntarily or involuntarily, the setting of the employee's base salary
rate is subject to the rules in this section. As applicable, pay
retention provisions established under Sec. 9901.356 will apply. If
pay retention does not apply, the employee's base salary may be
reduced, subject to the requirements in paragraph (b) of this

[[Page 29916]]

section. The employee may be eligible for an increase to base salary,
subject to the requirements in paragraph (c) of this section.
(b) Pay reduction. An employee's base salary may be reduced upon
reduction in band, subject to the following requirements:
(1) No base salary reduction is made when pay retention is
applicable, except under paragraph (b)(4) of this section.
(2) The reduction in base salary may not cause the rate to fall
below the minimum rate of the employee's new band.
(3) The base salary must be reduced as necessary to ensure that the
new base salary is no greater than the maximum rate of the employee's
new band.
(4) Adverse action procedures in 5 U.S.C. Chapter 75 must be
applied when an employee is involuntarily placed in a position in a
lower pay band for unacceptable performance and/or conduct. In this
circumstance, the authorized management official may reduce the
employee's base salary. If such a reduction is made, it must be at
least 5 percent, but no more than 10 percent, of an employee's base
salary after applying adverse action procedures. However, a reduction
in base salary under this paragraph may not cause an employee's base
salary to fall below the minimum rate of the employee's new pay band,
or be more than 10 percent unless a larger reduction is needed to place
the employee at the maximum rate of the lower band. (See also Sec.
9901.343.)
(5) If an employee held a position with a targeted local market
supplement or a non-NSPS position prior to the reduction in band, the
pay reduction is applied using adjusted salary rates, consistent with
the reassignment rules in Sec. 9901.353(c) (including, as appropriate,
a geographic recalculation prior to applying the decrease, consistent
with the provisions of Sec. 9901.351(b)).
(c) Pay increase. An employee's base salary may be increased by an
authorized management official upon reduction in band, subject to the
following requirements:
(1) An employee who is reduced in band involuntarily--e.g., through
reduction-in-force (RIF) procedures or by placement through the DoD
Priority Placement Program (PPP) or Reemployment Priority List (RPL)--
is not eligible for an increase to base salary (except if necessary to
set the employee's base salary at the minimum rate of the new pay
band).
(2) When an employee voluntarily moves to a lower pay band, the
authorized management official may increase the employee's base salary,
but must set the employee's base salary within the rate range for the
employee's band. An increase in base salary may be up to 5 percent of
the employee's current base salary (not to exceed the maximum of the
rate range). This increase of up to 5 percent is deemed to be a
``reassignment increase'' for the purpose of applying the 12-month
limitation in Sec. 9901.353(b)(2). Also, in applying this increase,
adjusted salary rates will be used when an employee held a position
with a targeted local market supplement or a non-NSPS position prior to
the reduction in band, consistent with the reassignment increase rules
in Sec. 9901.353(c) (including, as appropriate, a geographic
recalculation prior to applying the increase, consistent with the
provisions of Sec. 9901.351(b)). This increase is subject to higher-
level approval. At a minimum, the higher-level approval may be no lower
than one level above the authorized management official who approved
the reduction in band.
(3) A decision to increase an employee's pay under paragraph (c)(2)
of this section will be based on--
(i) Critical mission or business requirements;
(ii) The need to advance multi-functional competencies;
(iii) The labor market conditions (i.e., availability of
candidates, labor market rates for similar types of employees);
(iv) Reassignment from non-supervisory to supervisory position;
(v) Location of position;
(vi) Required specialized skills, knowledge, or education possessed
by the employee;
(vii) Performance-based considerations; and
(viii) The base salary rates paid to other employees in similar
positions in the lower pay band.
(d) Termination of temporary promotion. This section does not apply
to a reduction in band associated with the termination of a temporary
promotion. Instead, the rules in Sec. 9901.354(c)(2) apply.
(e) Failure to complete probationary period. When an employee who
fails to complete an in-service (e.g., supervisory) probationary period
is reduced in band upon return to the position held before the
probationary period (or a comparable position), the employee's current
base salary rate must be reconstructed as if the employee had not been
promoted. For this purpose, the employee will be deemed to have
received performance pay increases under Sec. 9901.342 and other
increases in base salary under Sec. Sec. 9901.344 and 9901.345 equal
to the percentage value of such increases actually received by the
employee during the promotion. However, any such increases must be
applied as if the employee were in the position and band held
immediately before the promotion (i.e., using the rate range and any
applicable control points for that band). The employee will also be
credited with any general salary increases provided during the
promotion that would have been applied to the employee if he or she had
remained in the position held immediately before that promotion. A
reduction-in-band increase upon return to the previous position (or
comparable position) under this paragraph is not authorized. (See Sec.
9902.342(l) for rules governing pay setting for an employee who returns
to an NSPS position after being temporarily assigned to a non-NSPS
position.)

Sec. 9901.356 Pay retention.

(a) Pay retention prevents a reduction in base salary that would
otherwise occur by preserving the former rate of base salary within the
employee's new pay band or by establishing a retained rate that exceeds
the maximum rate of the new pay band. Local market supplements are not
considered part of base salary in applying pay retention.
(b) Pay retention will be based on the employee's rate of base
salary in effect immediately before the action that would otherwise
reduce the employee's rate. A retained rate will be compared to the
range of rates of base salary applicable to the employee's position.
(c) Pay retention will be granted for a period of 104 weeks.
(d) Under NSPS, pay retention will be granted when an employee's
base salary would otherwise be reduced in the following situations:
(1) As the result of reduction in force or reclassification;
(2) When an otherwise eligible employee is placed through the
Priority Placement Program (PPP), including placement resulting from
early registration, even though the employee does not have a specific
reduction in force (RIF) notice;
(3) When an organization undergoes realignment or reduction, and
(i) An employee who would not be affected personally requests a
reduction in band;
(ii) Management determines the employee's reduction in band results
in placement in a more suitable position; and
(iii) That action lessens or avoids the impact of the RIF on other
employees;
(4) When an employee accepts a position in a lower pay band
designated in advance by the component as being

[[Page 29917]]

hard-to-fill using any of the following criteria:
(i) Rates of pay offered by non-Federal employers are significantly
higher than those payable under NSPS for the area, location,
occupational group, or other class of positions involved;
(ii) The remoteness of the area or location involved;
(iii) The undesirability of the working conditions or the nature of
the work involved (including exposure to toxic substances or other
occupational hazards); or
(iv) Any other circumstances the Component considers appropriate,
subject to review and approval by an official who is at a higher level
than the official who made the initial decision;
(5) When an employee is reduced in band on return from an overseas
assignment under the terms of a pre-established agreement including--
(i) An employee released from a period of service specified in his
or her current transportation agreement due to an involuntary,
management-initiated action other than for unacceptable performance
and/or misconduct;
(ii) An employee, who has completed more than one year of service
under a current agreement, released from a transportation agreement for
compelling humanitarian or compassionate reasons; and
(iii) A non-displaced overseas employee under no obligation to
return to the United States who is otherwise eligible for PPP
registration in accordance with DoD Directive 1400.20;
(6) When an employee declines an offer to transfer with his or her
function to a location outside the commuting area, or is identified
with such function but does not receive an offer at the gaining
activity, and is placed in a position in a lower pay band at the losing
activity or any other DoD activity;
(7) When an employee accepts a position in a lower pay band offered
by an activity to accommodate a disabling medical condition similar to
the circumstances described in 5 CFR 831.1203(a)(4);
(8) When an employee occupying a position under a Schedule C
appointment (authorized under 5 CFR 213.3301) is placed, other than for
unacceptable performance and/or misconduct or at the employee's
request, in a position in a lower pay band in the competitive service
or in another Schedule C position, provided that such action is not
solely the result of a change in agency leadership (change in
administration);
(9) When an employee occupying an Army or Air Force dual status
military technician position lost, or is scheduled to lose, eligibility
for dual status technician employment through no fault of his or her
own and accepts placement without a break in service to a non-dual
status technician position in a lower pay band;
(10) When an employee occupying a National Guard dual status
technician position is involuntarily separated, through no fault of his
or her own, and accepts placement, without a break in service, to a
non-dual status technician position in a lower pay band;
(11) When an employee whose job is abolished declines an offer
within the competitive area, but outside the commuting area, and is
placed in a lower pay band position in the commuting area, provided the
employee is not serving under a mobility agreement;
(12) When an employee's base salary is reduced as the result of the
movement of his or her position from a DoD nonappropriated fund (NAF)
instrumentality to coverage by the DoD civil service system without a
break in service of more than three days; or
(13) When an employee's base salary would exceed the maximum of the
rate range because the maximum of the rate range decreased or as a
result of a management-directed reassignment.
(e) An authorized management official may grant pay retention for
circumstances other than those detailed in paragraphs (d)(1) through
(d)(13) of this section. This determination is discretionary, and
appropriate use is subject to higher-level approval. At a minimum, the
higher-level approval may be no lower than one level above the
authorized management official who recommended the determination. These
circumstances may be specified in advance or may be approved on a case-
by-case basis. This authority applies to personnel actions initiated by
management, not at the employee's request, and other than for
unacceptable performance and/or misconduct, and only if those actions
would further the agency's mission in accordance with applicable law
and regulation.
(f) Pay retention will terminate--
(1) At the end of the 104-week period;
(2) When the employee moves to another position with a rate range
that encompasses the employee's retained rate;
(3) When an increase in the maximum rate for the employee's pay
band causes the maximum rate to equal or exceed his/her retained rate,
or the employee's base salary is encompassed within his or her assigned
rate range as a result of a pay reduction based on unacceptable
performance and/or conduct, subject to adverse action procedures;
(4) When the employee is no longer covered by an NSPS position or
has a break in service of 1 workday or more (which includes employees
placed via PPP after separation), unless otherwise covered under
another section of this regulation;
(5) When the employee is reduced in band for unacceptable
performance and/or conduct; or
(6) When the employee is reduced in band at his or her request in
circumstances other than stated in paragraph (d) of this section.
(g) An employee whose pay retention terminates at the end of the
104-week period will have his or her pay set at the maximum rate of the
pay band in which he/she is currently assigned.
(h) Upon termination of pay retention, the employee immediately
becomes eligible for any applicable general salary increase and
performance payout which may include an increase to base salary, unless
otherwise ineligible.
(i) Pay retention does not apply in the following circumstances:
(1) Declination of a position offer under RIF procedures set forth
in 5 CFR part 351;
(2) Break in service of 1 workday or more (which includes employees
placed via PPP after separation), unless otherwise covered under
paragraph (d) of this section;
(3) Movement from a non-DoD position to an NSPS-covered position;
(4) Failure to satisfactorily complete an in-service probationary
period;
(5) Return to an employee's former position at the end of a
temporary promotion or temporary reassignment;
(6) Reassignment or reduction in band for unacceptable performance
and/or conduct; or
(7) Reassignment or reduction in band at the employee's request in
circumstances other than stated in paragraph (d) of this section.
(j) Employees entitled to a retained rate will receive any
performance payouts in the form of bonuses, rather than base salary
adjustments, as provided in Sec. 9901.342(g)(8).
(k) An employee receiving a retained rate will receive any general
salary increase under Sec. 9901.323(a)(1), subject to the conditions
in Sec. 9901.323, and will receive any applicable local market
supplement adjustment, subject to the conditions in Sec. 9901.334.
(l) The 104-week time limit established under paragraphs (c) and
(f)(1) of this section will be extended by a period of time equal to
the length of time an employee is deployed away from his or her regular
duty station in support of a contingency operation as defined in 10
U.S.C. 101, or an

[[Page 29918]]

emergency as determined in accordance with DoD Directive 1400.31, ``DoD
Civilian Work Force Contingency and Emergency Planning and Execution''
(or any successor regulation).
(m) Any DoD employee with a preexisting entitlement to pay
retention under 5 CFR part 536 immediately before becoming covered by
NSPS, or who obtains entitlement to pay retention upon becoming covered
by NSPS, will be entitled to a retained rate under this section without
regard to the 104-week limit (as described in paragraphs (c) and (f)(1)
of this section). Pay retention will terminate under the conditions in
paragraphs (f)(2) through (f)(6) of this section.

Premium Pay

Sec. 9901.361 General provisions.

(a) Introduction. As provided in Sec. 9901.303(a)(2), the
provisions of 5 U.S.C. Chapter 55, Subchapter V, and related
regulations are waived or modified as provided in paragraph (e) of this
section and Sec. Sec. 9901.362 through 9901.364 (except as provided in
paragraph (b) of this section). To the extent that the provisions of 5
U.S.C. Chapter 55, Subchapter V, and related regulations are not waived
or modified, NSPS employees and positions remain subject to those
provisions. Sections 9901.363 and 9901.364 establish new types of
premium payments in addition to those found in 5 U.S.C. Chapter 55,
Subchapter V.
(b) Provisions not waived or modified. The following provisions of
5 U.S.C. chapter 55, subchapter V, are not waived or modified:
(1) 5 U.S.C. 5544 (relating to prevailing rate employees); and
(2) 5 U.S.C. 5545b (relating to firefighter pay).
(c) Applicability of Fair Labor Standards Act. The Fair Labor
Standards Act of 1938 (FLSA), as amended (29 U.S.C. 201 et seq.) and
OPM regulations in 5 CFR part 551 apply to NSPS employees. DoD must
determine whether an employee is exempt or nonexempt under the FLSA
minimum wage and overtime pay provisions in accordance with the FLSA
and OPM regulations. In applying FLSA overtime pay provisions, local
market supplements are treated the same as locality pay under 5 U.S.C.
5304 and are included in computing total remuneration, the hourly
regular rate, and straight time rate under 5 CFR Part 551.
(d) Applying regulations in 5 CFR Part 550, Subpart M. In applying
the regulations in 5 CFR part 550, subpart M (dealing with firefighter
pay) to NSPS employees, the reference to ``locality pay'' in 5 CFR
550.1305(e) must be interpreted to be a reference to a local market
supplement. Consistent with 5 CFR 550.1306(a), a firefighter
compensated under 5 CFR part 550, subpart M, may not receive additional
premium pay except for compensatory time off for travel under Sec.
9901.362(j) or for religious observances under Sec. 9901.362(k) and
foreign language proficiency pay under Sec. 9901.364.
(e) Physicians and dentists. Physicians and dentists (in
occupational series 0602 and 0680, respectively) under NSPS are not
eligible for premium pay except for compensatory time off for religious
observances under Sec. 9901.362(k).
(f) Senior Executive Service. Members of the Senior Executive
Service under NSPS are not eligible for premium pay, except for
compensatory time off for religious observances under Sec.
9901.362(k).

Sec. 9901.362 Modification of standard provisions.

(a) Premium pay limitations. (1) An employee is covered by the
premium pay limitations established under 5 U.S.C. 5547 and related
regulations, except as provided in paragraph (a)(2) of this section.
Notwithstanding the modification of various premium payments under this
section, those payments are still considered to be payments in 5 U.S.C.
Chapter 55, Subchapter V, for the purpose of applying 5 U.S.C. 5547
(including the purpose of determining the covered premium payments
under 5 U.S.C. 5547(a)).
(2) Subject to Sec. 9901.105, the Secretary may waive the
limitations established by 5 U.S.C. 5547 and related regulations and
instead apply an annual limitation equal to the rate payable under 3
U.S.C. 104 in the case of specified categories of employees and
situations on a time-limited basis. Such a waiver may not apply with
respect to additional compensation that is normally creditable as basic
pay for retirement or any other purpose.
(b) Overtime pay. (1) An employee is covered by the overtime pay
(including compensatory time off) provisions in 5 U.S.C. 5542 and 5543
and related regulations, subject to the requirements and modifications
described in paragraphs (b)(2) through (b)(6) of this section.
(2) Consistent with 5 U.S.C. 5542(c), an employee who is subject to
section 7 of the Fair Labor Standards Act of 1938 (FLSA), as amended,
is covered by OPM's FLSA overtime regulations in 5 CFR part 551.
(3) Compensation for irregular or overtime work performed by
National Guard Technicians is governed by 32 U.S.C. 709(h) and policies
issued by the National Guard Bureau.
(4) Firefighters covered by 5 U.S.C. 5545b are subject to special
overtime pay rules as described in that section and in 5 U.S.C. 5542(f)
and in related regulations. (See also Sec. 9901.361(d).)
(5) Compensatory time off earned under 5 U.S.C. 5543 must be used
by the end of the 26th pay period after that in which it was earned.
Compensatory time off not used within 26 pay periods will be paid at
the overtime rate at which it was earned. Employees with unused
compensatory time earned before June 8, 1997 (January 5, 1997, for
Defense Logistics Agency employees), have had a separate ``old
compensatory time'' account established for their use. Old compensatory
time is charged only if the employee has insufficient current
compensatory time (earned on or after June 8, 1997) to cover the
compensatory time off requested. Within each category of compensatory
time, the oldest will be charged first. When a DoD employee separates,
moves to another DoD Component, or transfers to another Federal agency,
any unused compensatory time off balance will be paid at the overtime
rate at which it was earned. Also, when an employee moves to a pay
system that does not provide for compensatory time off (e.g., Senior
Executive Service), any unused compensatory time off balance will be
paid at the overtime rate at which it was earned.
(6) The following modifications to 5 U.S.C. 5542 and 5543 and
related regulations apply:
(i) The overtime hourly rate cap for FLSA-exempt employees based on
the rate of basic pay for the minimum rate for GS-10 does not apply;
instead, an FLSA-exempt employee is entitled to an overtime hourly rate
equal to 1.5 times the employee's adjusted salary hourly rate unless
the employee is in a pay band for which the overtime hourly rate is set
equal to the employee's adjusted salary hourly rate based on a
determination by the Secretary, subject to Sec. 9901.105;
(ii) An FLSA-exempt employee will be compensated for overtime work
(whether regular or irregular or occasional) using a quarter of an hour
as the smallest fraction of an hour, with minutes rounded to the
nearest full fraction of an hour;
(iii) An FLSA-exempt employee may not be credited with overtime
hours of work for travel time unless that travel involves the
performance of actual work while traveling; instead, any such

[[Page 29919]]

noncreditable travel hours may be credited as earned compensatory time
off for travel, subject to the requirements in paragraph (j) of this
section; and
(iv) An FLSA-exempt employee may be required to receive
compensatory time off under 5 U.S.C. 5543 in lieu of overtime pay,
regardless of the type of overtime work or the amount of the employee's
adjusted salary rate.
(c) Night pay. An employee is covered by the night pay provisions
in 5 U.S.C. 5545(a) and (b) and related regulations, except for the
following modifications:
(1) Night pay is payable for irregular or occasional overtime work
in the same manner it is payable for regularly scheduled work; and
(2) Night pay is not payable during paid absences, except for a
period of court leave, military leave, time off awarded under 5 U.S.C.
4502(e), or compensatory time off during religious observances, or when
excused from duty on a holiday.
(d) Sunday pay. An employee is covered by the Sunday pay provisions
in 5 U.S.C. 5546 and related regulations, except for the following
modifications:
(1) Work for which Sunday pay is payable (i.e., Sunday work) is
limited to applicable hours of work that are actually performed on
Sunday (i.e., the definition of ``Sunday work'' in 5 CFR 550.103
applies except that non-Sunday hours are excluded even if those hours
are within a daily tour of duty that includes Sunday hours); and
(2) Consistent with section 624 of the Treasury and General
Government Appropriations Act, 1999 (as found in section 101(h) of
Division A of Public Law 105-277, October 21, 1998), Sunday pay is not
payable unless an employee actually performed work during the time
corresponding to such pay (i.e., no Sunday pay for periods of paid
leave, compensatory time off, credit hours, paid excused absence, or
other paid time off).
(e) Pay for holiday work. An employee is covered by the holiday
premium pay provisions in 5 U.S.C. 5546 and related regulations, except
for the following modifications:
(1) Holiday premium pay is paid at twice an employee's adjusted
salary hourly rate for each hour (including overtime hours) an employee
is ordered or approved to work on a holiday;
(2) For FLSA-exempt employees, the payment for overtime hours
worked on a holiday has two components: Payment required under
paragraph (b) of this section for overtime worked, and an additional
amount under this paragraph (e) such that the total payment for each
hour is twice the employee's adjusted salary hourly rate; and
(3) For FLSA-nonexempt employees, the payment for overtime hours
worked on a holiday has two components: payment required under 5 CFR
551.512 for overtime worked, and an additional amount under this
paragraph (e) such that the total payment for each hour is twice the
employee's adjusted salary hourly rate.
(f) Standby duty pay. (1) An employee is covered by the standby
duty pay provisions in 5 U.S.C. 5545(c)(1) and related regulations,
subject to the requirements and modifications in paragraphs (f)(2)
through (f)(6) of this section.
(2) Except as provided in paragraph (f)(3), eligibility for
regularly scheduled standby duty is limited to firefighters classified
to the 0081 occupation who are not eligible for coverage under 5 U.S.C.
5545b, and to emergency medical technicians not involved in fire
protection activities who are required to perform standby duty.
(3) The Secretary may approve extending standby duty premium pay
coverage to occupations other than those cited in paragraph (f)(2) of
this section. Component proposals to extend coverage will explain why
employees within the specified occupational group must regularly remain
at the duty station longer than ordinary periods of duty, a substantial
part of which involves remaining in a standby status rather than
performing actual work, and must address how the criteria in 5 CFR
550.143 are met.
(4) The standby percentage is always multiplied by an employee's
adjusted salary rate regardless of the amount.
(5) Standby pay attributable to use of an adjusted salary rate
exceeding the applicable GS-10, step 1, rate limitation is not
considered to be paid under 5 U.S.C. 5545(c)(1) and thus is not
creditable basic pay for retirement purposes.
(6) No additional premium pay for hours of overtime work (whether
regularly scheduled or irregular or occasional), including compensatory
time off, is payable to an employee receiving standby duty pay.
(g) Administratively uncontrollable overtime pay. The
administratively uncontrollable overtime pay provision in 5 U.S.C.
5545(c)(2) is waived and will not be applied to NSPS employees.
Compensation for such work will be made under the applicable provisions
of this section.
(h) Law enforcement availability pay. An employee is covered by the
law enforcement availability pay provisions in 5 U.S.C. 5545a and
related regulations, except that the reference to ``premium pay'' in 5
CFR 550.186 will be interpreted to refer to the applicable title 5
premium payments and to the corresponding modified provisions in this
section. In addition, the reference to ``limitation on premium pay'' in
5 CFR 550.185(a)(2) will be construed to refer to the limitations under
5 U.S.C. 5547 and to the corresponding modified provision in paragraph
(a) of this section.
(i) Pay for duty involving physical hardship or hazard. (1) An
employee is covered by the hazardous duty pay provisions in 5 U.S.C.
5545(d) and related regulations, subject to the requirements and
modifications described in paragraphs (i)(2) through (i)(6) of this
section.
(2) In determining eligibility for hazardous duty pay, an
authorized management official will apply occupational safety and
health standards consistent with the permissible exposure limit
promulgated by the Secretary of Labor under the Occupational Safety and
Health Act of 1970 as published in Subtitle B, Chapter XVII, of title
29, United States Code, or, in the absence of a permissible exposure
limit issued by the Secretary of Labor, other applicable standard
promulgated by the Secretary.
(3) Subject to Sec. 9901.105, the Secretary may establish new
categories of hazardous duty pay in addition to those found in Appendix
A to Subpart I of 5 CFR part 550. Components may request a new category
of hazardous duty pay be established and must submit, with their
request, the information required in 5 CFR 550.903(b).
(4) Except as provided in paragraph (i)(5) and (i)(6) of this
section, an employee is paid a hazard pay differential when he or she
is assigned to and performs a duty specified in Appendix A to Subpart I
of 5 CFR part 550 or as provided under paragraph (i)(3) of this
section.
(5) An employee will be eligible to receive hazardous duty pay when
an authorized management official determines--
(i) One or more of the conditions requisite for such payment exist;
and
(ii) Safety precautions, protective or mechanical devices,
protective or safety clothing, protective or safety equipment, or other
preventive measures have not reduced the element of hazard below the
permissible exposure limits promulgated by the Secretary of Labor or
any applicable standard promulgated by the Secretary, consistent with
paragraph (i)(2) of this section.
(6) Hazard pay differentials are not payable to employees in
occupations or jobs in which unusual physical risk is

[[Page 29920]]

an inherent characteristic of the occupation or job, such as police
officer, emergency medical technician, test pilot, ordnance/explosives/
incendiary inspector, and engineering technician performing inspection
functions inside fuel storage tanks, tunnels, or shafts. The
classification of the employee's position (i.e., determination of pay
band level) includes a consideration of the hazardous duty or physical
hardship. For the purposes of this paragraph, the phrase ``includes a
consideration of the hazardous duty'' means that the duty is one
element considered in determining the pay band level of the position--
i.e., the knowledge, complexities, skills and abilities required to
perform that duty are considered in the classification of the position.
Such consideration does not require the hazardous duty or physical
hardship to be pay band controlling.
(j) Compensatory time off for travel. (1) An employee is covered by
the compensatory time off for travel provisions in 5 U.S.C. 5550b and
related regulations, subject to the requirements and modifications
described in paragraphs (j)(2) through (j)(6) of this section.
(2) The term ``official duty station'' as defined in the related
regulations is not applicable; instead, the term ``official worksite''
is used to determine an employee's entitlement to compensatory time off
for travel. The term ``official worksite'' has the meaning given in 5
CFR 531.605.
(3)(i) Time spent commuting between an employee's residence and the
workplace (official or temporary worksite), or between an employee's
residence and a transportation terminal, is not creditable for the
purpose of compensatory time off for travel, except as provided in
paragraph (j)(3)(ii) of this section.
(ii) If an employee is required to travel to a temporary worksite
and if the one-way commuting time exceeds the employee's normal one-way
commuting time by more than 1 hour, the commuting time beyond 1 hour
may be credited.
(4) An employee earns compensatory time off for time spent in a
travel status away from the official worksite when such time is not
otherwise compensable.
(5) Employees must file requests for credit of compensatory time
off for travel within 10 workdays after returning to the official duty
station, or within 10 workdays of returning from temporary duty (TDY)
assignment or approved leave which immediately follows the TDY during
which the compensatory time off for travel was earned, by submitting a
travel itinerary, or any other documentation acceptable to the
employee's supervisor, in support of the request. If not submitted
within 10 workdays, the employee will forfeit his or her claim to the
compensatory time off for travel. Compensatory time off for travel will
be credited in increments of 6 minutes or 15 minutes and will be
tracked and managed separately from other forms of compensatory time
off.
(6)(i) When an employee moves from an NSPS position to a non-NSPS
position within the Department, in which the employee will be eligible
for compensatory time off for travel under 5 CFR part 550, subpart N,
he or she will retain unused compensatory time off for travel. The time
elapsed from the end of the pay period in which the compensatory time
off was earned through the date of conversion will count as elapsed
time in applying the limit for usage in 5 CFR part 550, subpart N.
(ii) When an employee moves from a non-NSPS position to an NSPS
position within the Department, he or she will retain unused
compensatory time off for travel. The time elapsed from the end of the
pay period in which the compensatory time off was earned through the
date of conversion will count as elapsed time in applying the limit for
usage established under 5 CFR 550.1407.
(k) Compensatory time off for religious observances. An employee is
covered by the compensatory time off for religious observances
provisions in 5 U.S.C. 5550a and related regulations, subject to the
following requirements and modifications:
(1) An employee's request for time off should not be granted
without simultaneously scheduling the hours during which the employee
will work to make up the time (unless the employee earned the needed
hours in advance); and
(2) An employee may not receive payment for any unused compensatory
time off for religious observances under any circumstances. This
prohibition against payment applies to surviving beneficiaries in the
event of the individual's death.
(l) Air traffic controller differential. (1) The air traffic
controller differential provisions in 5 U.S.C. 5546a are waived and not
applicable to NSPS employees, except for subsections (a)(1) and (d) of
that section.
(2) An employee is covered by the air traffic controller
differential provisions in subsections (a)(1) and (d) of 5 U.S.C.
5546a(a), subject to the modification described in paragraph (l)(3) of
this section.
(3) The reference to the grade levels of GS-9 and GS-11 in 5 U.S.C.
5546a(a)(1) must be construed to mean a comparable level of work as
determined under the NSPS classification structure.

Sec. 9901.363 Premium pay for health care personnel.

(a) Coverage. (1) This section applies to DoD health care personnel
covered under NSPS who may be eligible for premium pay, as described in
paragraphs (b), (c), and (d) of this section. For the purpose of this
section, health care personnel means employees providing direct patient
care services or services incident to direct patient care services.
Examples include employees in the following occupations: nurse,
biomedical engineer, dietitian, dental hygienist, psychologist, and
medical records technician.
(2) Premium pay under this section is not considered part of basic
pay for any purpose, nor is it used in computing a lump-sum payment for
leave under 5 U.S.C. 5551 or 5552.
(b) On-call premium pay. (1) When health care personnel are not
otherwise compensated for on-call time, heads of DoD Components may
authorize on-call premium pay under this section for officially
scheduled ``on-call'' time which requires these employees to restrict
their activities sufficiently to be available to return to the worksite
promptly when it is necessary.
(2) To be paid on-call premium pay, an employee must be officially
scheduled to be on-call outside their regular duty hours or during
hours on a holiday when the employee is excused from regular duty.
(3) An employee may not be scheduled to be on-call unless it is
essential for the employee to be immediately available to return to the
worksite.
(4) An employee officially scheduled to be on-call will be paid 15
percent of his or her adjusted salary hourly rate for each hour of on-
call status.
(5) An employee may not receive on-call pay during periods of
actual work. When an employee on-call is required to return to work
status, on-call pay will be suspended. When released from the
requirement to perform actual work, the employee will return to the
remaining scheduled on-call status.
(6) An employee may not be charged leave during periods of
regularly scheduled on-call duty; nor may such an employee receive on-
call premium pay when, because of leave or other authorized absence,
the employee is not expected to be able to return to the worksite
immediately.

[[Page 29921]]

(c) Night pay for health care personnel. (1) Health care personnel
working a tour of duty, any part of which falls between 6 p.m. and 6
a.m., with 4 or more hours falling between 6 p.m. and 6 a.m., will be
paid additional pay for each hour of work on such tour. When fewer than
4 hours of work fall between 6 p.m. and 6 a.m., health care personnel
will be paid additional pay for each hour of work performed between 6
p.m. and 6 a.m. Night pay for health care personnel is 10 percent of
the employee's hourly rate of adjusted salary. An employee receiving
night pay under this section may not also receive night pay under Sec.
9901.362(c).
(2) Health care personnel are entitled to pay for night duty for a
period of paid absence only for a period of court leave, military
leave, time off awards under 5 U.S.C. 4502(e), or compensatory time off
for religious observances.
(3) When excused from work because of a holiday or in-lieu-of
holiday, health care personnel are entitled to the night pay that would
have applied had they not been excused from work.
(d) Pay for weekend duty for health care personnel. (1) Health care
personnel who work a tour of duty, any part of which falls in the 2-day
period between midnight Friday and midnight Sunday, will be paid
additional pay for each hour of work during such tour. Health care
personnel who have two separate tours of duty, each of which qualify as
weekend duty, will be paid additional pay for each hour of both tours.
Additional pay for weekend duty is 25 percent of the employee's hourly
rate of adjusted salary. An employee receiving pay for weekend duty may
not also receive pay for Sunday work under Sec. 9901.362(d).
(2) When on court leave, military leave, time off awarded under 5
U.S.C. 4502(e), or compensatory time off for religious observances,
health care personnel are entitled to pay for weekend duty they
otherwise would have received.

Sec. 9901.364 Foreign language proficiency pay.

(a) General provisions. (1) This section applies to employees who
may be paid Foreign Language Proficiency Pay (FLPP) if they are
certified as proficient in a foreign language the Secretary has
determined to be necessary for national security interests, and if they
are not receiving FLPP as provided in 10 U.S.C. 1596 and 10 U.S.C.
1596a.
(2) The Secretary is authorized to publish an annual list of
foreign languages necessary for national security interests and to
establish overall policy for administration of the Defense Language
Program.
(3) Employees may be certified as proficient in a necessary foreign
language using criteria and procedures established by the Secretary and
receive FLPP.
(b) Approval procedures. An authorized management official
delegated the authority for approving payment must document that an
employee meets eligibility criteria before authorizing FLPP. The
documentation includes--
(1) Certification within the last 12 months of the employee's
proficiency in a foreign language the Secretary has determined
necessary for national security interests;
(2) Affirmation that the employee does not currently receive
comparable pay under 10 U.S.C. 1596 or 1596a;
(3) Certification of the employee's foreign language proficiency
level renewed annually; and
(4) Certification based on an annual test that is part of the
Defense Language Proficiency Test System.
(c) Amount and method of payment. The decision to grant FLPP,
including the amount, will be reviewed and approved by an official who
is at a higher level than the official who made the initial decision,
as determined by the DoD Component, unless there is no official at a
higher level in the organization. The amount of FLPP received by the
employee, not to exceed $500 per pay period, will be determined based
on the following considerations:
(1) The employee's measured proficiency level in the necessary
language;
(2) The need for the employee's particular language skills;
(3) The difficulty of recruiting or retaining employees with the
same proficiencies;
(4) The extent to which the employee performs tasks requiring
proficiency;
(5) The number of necessary languages in which the employee is
proficient; and
(6) Other considerations authorized by the Secretary.
(d) Treatment for other purposes. FLPP is not considered part of
basic pay for any purpose and does not count towards retirement,
insurance, or any other benefit related to basic pay. FLPP is not pay
for purposes of a lump-sum payment for leave under 5 U.S.C. 5551 or
5552.
(e) Termination. The authorized management official as determined
by the Component may reduce or terminate FLPP at any time when the
official determines--(1) The need for the employee's language
capability has been reduced or eliminated; or
(2) The employee no longer meets the certification requirements.
(f) Miscellaneous. (1) The minimum qualifying level may not be less
than Interagency Language Roundtable Level 2 proficiency in at least
two skills (listening, reading, speaking, or writing, as required).
(2) FLPP may be paid for proficiency in multiple languages;
however, the total amount may not exceed $500 per pay period.

Conversion Provisions

Sec. 9901.371 Conversion into NSPS pay system.

(a) Introduction. This section describes the pay-setting provisions
that apply when DoD employees are converted into the NSPS pay system
established under this subpart. (See Sec. 9901.231 for conversion
rules related to determining an employee's career group, pay schedule,
and band.) An affected employee may convert from the GS system, the SL/
ST system, or the SES system (or such other systems designated by the
Secretary as DoD may be authorized to include under 5 U.S.C. 9902), as
provided in Sec. 9901.302. For the purpose of this part (except Sec.
9901.372), the terms ``convert,'' ``converted,'' ``converting,'' and
``conversion'' refer to employees who become covered by the NSPS pay
system without a change in position (as a result of a coverage
determination made under Sec. 9901.102(b)) and exclude employees who
move from a noncovered position to a position already covered by the
NSPS pay system.
(b) Implementing issuances. The Secretary will issue implementing
issuances prescribing the policies and procedures necessary to
implement these conversion provisions.
(c) Bar on pay reduction. Subject to paragraph (e) of this section,
employees will be converted into the NSPS pay system without a
reduction in their adjusted salary rate. (As defined in Sec. 9901.304,
the term ``adjusted salary'' means base salary plus any applicable
locality payment under 5 U.S.C. 5304, special rate supplement under 5
U.S.C. 5305, local market supplement under Sec. 9901.332, or
equivalent supplement under other legal authority.)
(d) Rate comparison. For the purpose of determining whether
conversion into NSPS constitutes an adverse action for reduction of pay
under 5 U.S.C. chapter 75, subchapter II (dealing with adverse
actions), an employee's rate of basic pay includes any applicable
locality

[[Page 29922]]

payment under 5 U.S.C. 5304, special rate supplement under 5 U.S.C.
5305, local market supplement under Sec. 9901.332, or equivalent
supplement under other legal authority. The rate of basic pay
immediately before conversion must be adjusted as described in
paragraph (e) of this section before comparing that rate of basic pay
to the initial NSPS rate of basic pay.
(e) Simultaneous actions. If another personnel action (e.g.,
promotion, geographic movement) takes effect on the same day as the
effective date of an employee's conversion to the new pay system, the
other action will be processed under the rules pertaining to the
employee's former system before processing the conversion action.
(f) Temporary promotion prior to conversion. An employee on a
temporary promotion at the time of conversion will be returned to his
or her official position of record prior to processing the conversion
(as provided in Sec. 9901.231(c)), and pay will be set consistent with
the pay-setting rules of the pay system that applies prior to
conversion. For GS employees, pay in the permanent position of record
must be reconstructed to reflect any increase that would have otherwise
occurred if the employee had not been temporarily promoted, as provided
in GS pay-setting regulations. If the employee is temporarily promoted
immediately after the conversion, pay will be set under the rules for
promotion increases under the NSPS pay system. (See also paragraph (k)
of this section.)
(g) Grade retention prior to conversion. An employee on grade
retention immediately before conversion must be converted to a pay band
based on the grade of his or her assigned permanent position of record
(not the retained grade), as provided in Sec. 9901.231(d), but the
employee's base and adjusted salary while in grade retention status
will be used in applying this section (e.g., in setting the initial
NSPS base and adjusted salary and in determining the amount of any
within-grade increase adjustment). After conversion and any within-
grade increase adjustment under paragraph (j) of this section, if the
employee's base salary exceeds the rate range for the assigned pay
band, the employee will be granted pay retention, subject to the
conditions described in Sec. 9901.356.
(h) Pay retention prior to conversion. For an employee on pay
retention under 5 U.S.C. 5363 immediately before conversion, the
employee's pay will be realigned so that the employee's NSPS adjusted
salary (consisting of base salary plus any applicable local market
supplement) equals the employee's retained rate before conversion. If
the employee's base salary (after realignment) exceeds the rate range
for the assigned pay band, the employee will be granted pay retention,
subject to the conditions described in Sec. 9901.356.
(i) Conversion adjustments. The only NSPS base salary adjustments
that may be made in conjunction with an employee's conversion into NSPS
are those identified in paragraphs (j) through (m) of this section.
(j) Within-grade increase (WGI) adjustment. (1) Upon conversion to
NSPS, a General Schedule (GS) employee (regardless of work schedule)
who would otherwise be eligible for a within-grade increase (WGI), and
who is paid below the maximum rate for their grade, will receive a
prorated WGI adjustment to his or her NSPS base salary rate to account
for the time (measured in calendar days) since the employee's last
equivalent pay increase.
(2) The WGI adjustment is calculated based on the number of
calendar days between the effective date of the employee's last
equivalent increase and the date of conversion into NSPS, regardless of
the number of days in a non-pay status (if any). The maximum adjustment
may not exceed a full WGI.
(3) For an employee on a temporary promotion immediately before
conversion, the employee's GS pay entitlements must be determined as
provided in paragraph (f) of this section before calculating the WGI
adjustment.
(4) For an employee entitled to grade retention immediately before
conversion, the WGI adjustment is determined using the employee's
retained grade and step.
(5) The WGI adjustment is not applicable to an employee entitled to
pay retention immediately before conversion.
(6) The WGI adjustment is not applicable to an employee whose
performance has been determined to be below an acceptable level of
competence under 5 CFR part 531, subpart D.
(7) The WGI adjustment is a one-time adjustment that is effective
on the date of conversion. An employee who leaves NSPS and is
subsequently again subject to the conversion process may not receive an
additional WGI adjustment under this provision; however, such an
employee may be eligible for a WGI adjustment equivalent in accordance
with Sec. 9901.351(c).
(k) Special increase for employees on temporary promotion prior to
conversion. (1) General. If an employee had a temporary promotion
immediately before conversion, and if the position to which the
employee was temporarily promoted becomes covered by NSPS, an
authorized management official may temporarily reassign or temporarily
promote the employee back to that position, subject to the same terms
and conditions as the initial temporary promotion (e.g., if the
temporary promotion was not to exceed 5 years and the action is a
temporary reassignment under NSPS, the temporary reassignment may not
exceed 5 years). When the employee is temporarily placed back into the
position immediately after conversion, the pay-setting rules in
paragraphs (k)(2) and (k)(3) of this section apply.
(2) Temporary reassignment. If the post-conversion action would be
a temporary reassignment, the authorized management official may
provide the employee with a temporary base salary increase up to the
same base salary rate the employee was receiving during the temporary
promotion (prior to conversion) in lieu of setting pay under the
reassignment rules under Sec. 9901.353. This is a one-time exception
to the limitations on reassignment increases imposed under Sec.
9901.353. Upon expiration of the temporary reassignment, pay will be
set as specified in Sec. 9901.353(g) or paragraph (k)(4) of this
section, as applicable.
(3) Temporary promotion. (i) If the post-conversion action would be
a temporary promotion, the authorized management official may provide
the employee with a temporary base salary increase up to the same base
salary rate the employee was receiving during the temporary promotion
(prior to conversion) or may set pay according to the promotion rules
under Sec. 9901.354 to provide a greater increase. Upon expiration of
the temporary promotion, pay will be set as specified in Sec.
9901.354(c) or paragraph (k)(4) of this section, as applicable.
(ii) The increase described in paragraph (k)(3)(i) of this section
may also apply to an employee who is on a temporary promotion at the
time that temporary promotion position converts to NSPS, even if the
employee's permanent position of record has not yet converted. In this
case, upon expiration of the temporary promotion, pay will be set under
the rules of the applicable pay system.
(4) Temporary placement becomes permanent. If a temporary
reassignment or promotion to an NSPS position under this paragraph (k)
becomes permanent with no break, the employee's base salary will not
change, but will continue at the rate received at the end of the
temporary reassignment or promotion.

[[Page 29923]]

(l) Special increases equivalent to GS promotion increase. (1)
During the first 12 months following conversion, employees who are not
eligible for the Accelerated Compensation for Developmental Positions
(ACDP) under Sec. 9901.345 are eligible to receive (at the discretion
of an authorized management official) a one-time base salary increase
equivalent to a noncompetitive promotion increase the employee would
have received but for conversion to NSPS. This paragraph may be applied
only when the grade level of the promotion is encompassed within the
same pay band, the employee's performance warrants the pay increase,
and the promotion would have otherwise occurred during that period.
(2) An employee who is selected for a non-NSPS position that
subsequently becomes covered by NSPS before the effective date of the
employee's placement in the position is eligible to receive (at the
discretion of an authorized management official) a one-time base salary
increase equivalent to the increase the employee would have received
had the placement been effected prior to the position becoming covered
by NSPS. This paragraph may be applied only when the employee is not
already in an NSPS-covered position on the effective date of the
placement, and the effective date is within 12 months of the position
becoming covered by NSPS. An employee who receives an increase under
this paragraph is not eligible for the WGI adjustment described in
paragraph (j) of this section.
(m) Adjustment for physicians and dentists. For a GS physician or
dentist who was regularly receiving a physicians' comparability
allowance or premium pay, the Component may increase the base salary
after conversion to NSPS to account for the loss of such allowance or
premium pay (since such payments are not authorized for physicians and
dentists under NSPS). The Component must also consider the additional
pay represented by any applicable targeted local market supplement in
determining the rate at which the base salary should be set under this
paragraph.

Sec. 9901.372 Conversion or movement out of NSPS pay system.

(a) General. (1) This section applies to the conversion or movement
of employees out of the NSPS pay system to a different pay system.
Under this section, when an NSPS employee is converted or moved to a GS
position, a GS virtual grade and rate is established for the NSPS
employee so that the employee may be treated as a GS employee in
applying GS pay-setting rules.
(2) For the purpose of this section (unless otherwise specified)--
(i) The terms ``convert,'' ``converted,'' ``converting,'' and
``conversion'' refer to NSPS employees who become covered by a
different pay system without a change in position (as a result of a
determination made by the Secretary under Sec. 9901.102(e) or as
otherwise provided by law); and
(ii) The terms ``move,'' ``moved,'' ``moving,'' and ``movement''
refer to NSPS employees who become covered by a different pay system
through a change in position, rather than by conversion.
(b) Classification of converted position. Prior to converting an
employee out of NSPS, an authorized management official, as defined by
the Component, will review the duties of the employee's current
permanent position of record and classify the position's duties in
accordance with Office of Personnel Management (OPM) classification
guidance and/or other appropriate criteria to determine the appropriate
title, series, and grade or pay band of the position in the new pay
system. Employees occupying positions classified to DoD-unique
occupational series at the time of conversion out cannot be retained in
those series, but must be assigned to the series that most closely
represents the employee's current duties.
(c) Determining pay under new pay system. When converting or moving
an employee out of NSPS to another pay system, the pay-setting rules of
the gaining system will apply. For the purpose of applying those rules,
the employee's final pay under NSPS is determined based on the
employee's NSPS permanent position of record, band, and pay as of the
day immediately before the date of conversion or movement out of NSPS.
An employee on a temporary reassignment or temporary promotion will be
returned to his or her permanent position of record prior to conversion
or movement. No personnel or pay action that, but for the conversion or
movement out of NSPS, would have occurred under NSPS on the date of
conversion or movement may be considered. Any personnel or pay action
occurring on the date of conversion or movement must be processed under
the rules of the gaining system. In the case of a conversion or
movement to the General Schedule (GS) pay system, the supplemental
rules in paragraph (d) of this section must be followed to determine a
virtual GS grade and rate (as of the date before the employee's
conversion or movement out of NSPS) that will be used in applying GS
pay-setting rules.
(d) Virtual GS grade and rate. (1) Virtual GS grade. (i) Before an
employee converts or moves out of NSPS under this paragraph, a virtual
GS grade will be established for the purpose of applying GS pay-setting
rules (e.g., a promotion increase if the actual GS grade is higher than
the virtual GS grade). This virtual GS grade will be based on a
comparison of the NSPS employee's current adjusted salary to the
highest applicable GS rate range that would apply to the employee's
NSPS permanent position of record considering only those GS grade
levels and associated range ranges that are included in the employee's
assigned NSPS pay band. For the purpose of this section, a highest
applicable GS rate range includes the following rate ranges: the GS
locality rate schedule for the locality pay area in which the
employee's NSPS official worksite is located; the special rate schedule
based on the employee's position of record, official worksite, or other
established conditions; the law enforcement officer special base rate
schedule; or the GS base pay schedule. The grade-band conversion tables
established in DoD's NSPS implementing issuances for the purpose of
converting employees into NSPS must be used in determining which GS
grades are covered by the employee's assigned NSPS pay band.
(ii) If the employee's pay band covers one GS grade, the employee's
virtual grade will be that grade.
(iii) For an employee in a pay band encompassing more than one GS
grade, if the employee's adjusted salary equals or exceeds the step 4
rate of the highest applicable GS rate range for the highest GS grade
encompassed within his or her assigned NSPS pay band, the employee's
virtual grade will be that grade. If the employee's adjusted salary is
lower than the step 4 rate, the adjusted salary is compared with the
step 4 rate of the highest applicable GS rate range for the second
highest GS grade encompassed within the employee's pay band. If the
employee's adjusted salary equals or exceeds the step 4 rate of the
second highest grade, the employee's virtual grade will be that grade.
This process is repeated for each successively lower grade encompassed
within the assigned band until a grade is found at which the employee's
adjusted salary equals or exceeds the step 4 rate of the highest
applicable GS rate range for that grade.
(iv) Notwithstanding paragraph (d)(1)(iii) of this section, if the
employee's adjusted salary exceeds the maximum rate of the highest
applicable

[[Page 29924]]

GS rate range for the assigned GS grade determined under paragraph
(d)(1)(iii) of this section but is a rate within the highest applicable
GS rate range for the next higher applicable grade encompassed by the
employee's pay band, then the employee's virtual GS grade will be that
higher grade (even though the rate is below the applicable step 4 rate
for that higher grade).
(v) Notwithstanding paragraph (d)(1)(iii) of this section, an
employee's virtual GS grade may not be less than the permanently
assigned GS grade the employee held upon conversion into NSPS (for an
employee who was converted as described in Sec. 9901.371), unless,
since that time, the employee has undergone--
(A) a voluntary reduction in band or reduction in base salary;
(B) an involuntary reduction in band or reduction in base salary
based on unacceptable performance and/or conduct; or
(C) a reduction in band based on a reduction in force (RIF) or
classification action.
(vi) If the employee's adjusted salary exceeds the maximum rate of
the highest applicable GS rate range for the highest grade encompassed
by his or her assigned pay band, the employee's virtual grade will be
that highest GS grade.
(vii) If the employee's adjusted salary is less than the step 4
rate of the highest applicable GS rate range for the lowest GS grade
encompassed within his or her assigned NSPS pay band, the employee's
virtual grade will be the lowest GS grade in the band.
(2) Virtual GS rate. (i) Once a virtual GS grade has been
established, a virtual GS rate will be set (before any pay-related
action that would take effect on the date of the employee's conversion
or movement out of NSPS). As of the day before the date of conversion
or movement out of NSPS, the employee's NSPS adjusted salary will be
compared to the highest applicable GS rate range for the established
virtual grade. If the employee's adjusted salary falls between two
steps of the highest applicable GS rate range for the virtual GS grade,
the virtual rate will be set at the higher step rate. If an employee's
adjusted salary is less than the minimum rate of the highest applicable
GS rate range for the virtual GS grade, his or her virtual rate will be
set at the minimum step rate. If the employee's adjusted salary is
greater than the maximum rate of the highest applicable GS rate range
for the virtual GS grade, his or her virtual rate will be set at the
maximum step rate or at a retained rate set using GS pay retention
rules in 5 CFR part 536 (if the employee is eligible for pay retention
under those rules).
(ii) If the virtual step rate derived under paragraph (d)(2)(i) of
this section is an adjusted salary rate, an employee's virtual GS base
salary rate will be derived based on that adjusted salary rate (i.e.,
GS base salary rate for the same step position).
(iii) The virtual GS grade and rates established under this
paragraph (d) will be used in applying GS pay administration rules in
setting pay in the new GS position (e.g., the GS promotion rules, pay
retention rules, and the maximum payable rate rule). (Since the NSPS
system did not continue coverage under the grade retention provision in
5 U.S.C. 5362, grade retention is not applicable to NSPS employees who
convert or move to a GS position.) As required by paragraph (c) of this
section, any pay action effective on the date of conversion or movement
from NSPS to the GS pay system will be processed under GS pay
administration rules.
(e) GS within-grade increases. Service under NSPS is creditable for
within-grade increase purposes upon conversion or movement to a GS
position under this section to the extent provided under 5 CFR part
531, subpart D.
(f) Comparison of rates of basic pay. For the purpose of
determining whether the conversion or movement out of NSPS under this
section is an adverse action for reduction of pay under 5 U.S.C.
Chapter 75, Subchapter II (dealing with adverse actions), an employee's
rate of basic pay includes any applicable locality payment under 5
U.S.C. 5304, special rate supplement under 5 U.S.C. 5305, local market
supplement under Sec. 9901.332, or equivalent supplement under other
legal authority. This comparison is made before any pay-related action
(e.g., geographic movement) under the gaining system that takes effect
on the date of conversion or movement.

Subpart D--Performance Management

Sec. 9901.401 Purpose.

(a) This subpart establishes a performance management system as
authorized by 5 U.S.C. 9902.
(b) The performance management system established under this
subpart is designed to promote and sustain a high-performance culture.
The implementation and operation of the system will provide for the
following elements:
(1) Adherence to merit principles set forth in 5 U.S.C. 2301;
(2) A fair, credible, and transparent employee performance
appraisal system;
(3) A link between the performance management system and DoD's
strategic plan;
(4) A means for ensuring employee involvement in the design and
implementation of the system;
(5) Adequate training and retraining for supervisors, managers, and
employees in the implementation and operation of the performance
management system;
(6) A process for ensuring ongoing performance feedback and
dialogue among supervisors, managers, and employees throughout the
appraisal period, and setting timetables for review;
(7) Effective safeguards to ensure that the management of the
system is fair and equitable and based on employee performance;
(8) A means for ensuring that adequate agency resources are
allocated for the design, implementation, and administration of the
performance management system; and
(9) A pay-for-performance evaluation system to better link
individual pay to performance and provide an equitable method for
appraising and compensating employees.

Sec. 9901.402 Coverage.

(a) This subpart applies to eligible employees and positions in the
categories listed in paragraph (b) of this section, subject to a
determination by the Secretary under Sec. 9901.102.
(b) The following employees and positions in organizational and
functional units are eligible for coverage under this subpart:
(1) Employees and positions that would otherwise be covered by 5
U.S.C. Chapter 43;
(2) Employees and positions excluded from Chapter 43 by OPM under 5
CFR 430.202(d) prior to the date of coverage of this subpart; and
(3) Such others designated by the Secretary as DoD may be
authorized to include under 5 U.S.C. 9902.
(c) Except as provided in Sec. 9901.408, this subpart does not
apply to employees who have been, or are expected to be, employed in an
NSPS position for less than a minimum period (as described in Sec.
9901.407) during a single 12-month period.

Sec. 9901.403 Waivers.

When a specified category or group of employees is covered by the
performance management system established under this subpart, the
provisions of 5 U.S.C. Chapter 43 are

[[Page 29925]]

waived with respect to that category of employees.

Sec. 9901.404 Definitions.

In this subpart--
Appraisal means the review and evaluation of an employee's
performance.
Appraisal period has the meaning given that term in Sec. 9901.103.
Competencies has the meaning given that term in Sec. 9901.103.
Contribution has the meaning given that term in Sec. 9901.103.
Minimum period means the period of time during which an employee
will perform under one or more approved performance plans before
receiving a rating of record.
Pay-for-performance evaluation system means the performance
management system established under this subpart to link individual pay
to performance and provide an equitable method for evaluating
performance and compensating employees.
Pay Pool Manager has the meaning given that term in Sec. 9901.103.
Pay Pool Panel has the meaning given that term in Sec. 9901.103.
Performance has the meaning given that term in Sec. 9901.103.
Performance expectations means the duties, responsibilities, and
competencies required by, or objectives associated with, an employee's
position and the contributions and demonstrated competencies management
expects of an employee, as described in Sec. 9901.406.
Performance management means applying the integrated processes of
setting and communicating performance expectations, monitoring
performance and providing feedback, developing performance and
addressing poor performance, and rating and rewarding performance in
support of the organization's goals and objectives.
Performance management system means the policies and requirements
established under this subpart, as supplemented by implementing
issuances, for setting and communicating employee performance
expectations, monitoring performance and providing feedback, developing
performance and addressing poor performance, and rating and rewarding
performance. It incorporates and operationalizes the elements set forth
in Sec. 9901.401(b).
Performance Review Authority has the meaning given that term in
Sec. 9901.103.
Rating of record has the meaning given that term in Sec. 9901.103.
Unacceptable performance has the meaning given that term in Sec.
9901.103.

Sec. 9901.405 Performance management system requirements.

(a) The Secretary may issue implementing issuances further defining
a performance management system for NSPS employees, subject to the
requirements set forth in this subpart.
(b) The NSPS performance management system--
(1) Provides for the appraisal of the performance of each employee
annually;
(2) Holds supervisors and managers accountable for effectively
managing the performance of employees under their supervision as set
forth in paragraph (c) of this section;
(3) Specifies procedures for setting and communicating performance
expectations, monitoring performance and providing feedback, and
developing, rating, and rewarding performance;
(4) Specifies the criteria and procedures to address the
performance of employees who are detailed or transferred and for
employees in other special circumstances; and
(5) Provides for multiple rating levels as follows:

------------------------------------------------------------------------
Rating of record Rating of record descriptor
------------------------------------------------------------------------
Level 5................................... Role Model.
Level 4................................... Exceeds Expectations.
Level 3................................... Valued Performer.
Level 2................................... Fair.
Level 1................................... Unacceptable.
------------------------------------------------------------------------

(c) In fulfilling the requirements of paragraph (b) of this
section, supervisors and managers will--
(1) Clearly communicate performance expectations and hold employees
responsible for accomplishing them;
(2) Make meaningful distinctions among employees based on
performance and contribution;
(3) Foster and reward excellent performance;
(4) Address poor performance; and
(5) Assure that employees are assigned a rating of record.

Sec. 9901.406 Setting and communicating performance expectations.

(a) Performance expectations will support and align with the DoD
mission and its strategic goals, organizational program and policy
objectives, annual performance plans, and other measures of
performance.
(b) Performance expectations will be communicated to the employee--
(1) In writing, including those that may affect an employee's
retention in the job, and
(2) Prior to holding the employee accountable for them.
(c) Notwithstanding the requirements in paragraphs (d) through (g)
of this section, employees are accountable for demonstrating
professionalism and appropriate standards of conduct and behavior, such
as civility and respect for others.
(d) Performance expectations for supervisors and managers will
include assessment and measurement of how well supervisors and managers
plan, monitor, develop, correct, and assess subordinate employees'
performance.
(e) Performance expectations include--
(1) Goals or objectives that set general or specific performance
targets at the individual, team, and/or organizational level;
(2) Organizational, occupational, or other work requirements, such
as standard operating procedures, operating instructions, manuals,
internal rules and directives, and/or other instructions that are
generally applicable and available to the employee; and
(3) Competencies an employee is expected to demonstrate on the job,
and/or the contributions an employee is expected to make.
(f) Performance expectations may be amplified through particular
work assignments or other instructions (which may specify the quality,
quantity, accuracy, timeliness, or other expected characteristics of
the completed assignment, or some combination of such characteristics).
Such assignments and instructions need not be in writing.
(g) Supervisors will involve employees, insofar as practicable, in
the development of their performance expectations. However, final
decisions regarding performance expectations are within the sole and
exclusive discretion of management.
(h) Performance expectations are subject to higher- or second-level
review to ensure consistency and fairness within and across
organizations.
(i) Performance expectations that comprise a performance plan are
considered to be approved when the supervisor has communicated the
performance plan to the employee in writing.

Sec. 9901.407 Minimum period of performance.

(a) Only employees who have completed the minimum period under one
or more approved performance plans may be issued a rating of record in
accordance with the procedures prescribed by this subpart.
(b) The minimum period of performance is 90 calendar days.

[[Page 29926]]

(1) Periods during which an employee is in a leave status may not
be applied toward the 90-day minimum.
(2) Unless an employee meets criteria specified in Sec.
9901.342(i) through (l), if there is a break in NSPS-covered service
(e.g., due to job change, resignation), the service performed prior to
the break may not be used to satisfy the 90-day minimum period.
(c) Employees who have not completed the minimum period of
performance during the applicable appraisal period will not be rated
and will not be eligible for a performance payout unless otherwise
provided in this part.

Sec. 9901.408 Employees on time limited appointments.

Employees who are appointed for less than 90 days--
(a) Will be given performance expectations that are linked to the
organization's strategic plan, and
(b) May receive an evaluation which--
(1) Consists of a narrative description at the end of the
appointment of employee performance, accomplishments and contributions
during that appointment; and
(2) May serve as documentation and justification for recognition
under 5 U.S.C. chapter 45.

Sec. 9901.409 Monitoring and developing performance.

(a) In applying the requirements of the performance management
system and its implementing issuances and policies, supervisors will--
(1) Monitor the performance of their employees and their
contribution to the organization;
(2) Provide ongoing (i.e., regular and timely) feedback to
employees on their actual performance with respect to their performance
expectations, including one or more interim performance reviews during
each appraisal period; and
(3) Document at least one interim performance review. Documented
interim reviews are not required for periods of performance of less
than 180 days.
(b) Developing performance is integrated with the performance
management process and is a shared responsibility of management and
employees. Developing performance includes--
(1) Coaching and mentoring employees;
(2) Reinforcing strengths and addressing weaknesses; and
(3) Discussing employee development opportunities.

Sec. 9901.410 Addressing performance that does not meet expectations.

(a) If at any time during the appraisal period a supervisor
determines that an employee's performance is not meeting expectations,
the supervisor will--
(1) Identify and communicate to the employee the specific
performance deficiencies that require improvement;
(2) Consider the range of options available to address the
performance deficiency, including remedial training, improvement
periods, reassignment, oral warnings, letters of counseling, written
reprimands, or adverse action (including a reduction in rate of basic
pay or pay band or a removal); and
(3) Take appropriate action to address the deficiency, taking into
account the circumstances, including the nature and gravity of the
unacceptable performance and its consequences.
(b) Adverse actions taken based on unacceptable performance and/or
conduct will be taken in accordance with the provisions in 5 U.S.C.
Chapter 75 or other appropriate procedures if not covered by Chapter
75, such as procedures for National Guard Technicians under 32 U.S.C.
709(f).

Sec. 9901.411 Appraisal period.

(a) Except as provided in paragraphs (a)(1) through (3) of this
section, the appraisal period will be October 1 to September 30.
(1) The appraisal period may begin after October 1 and end after
September 30 for newly converted groups of employees;
(2) The appraisal period may begin after October 1 for employees
who move to an NSPS position from a non-NSPS position after that date;
and
(3) The appraisal period may end between July 1 and September 30
for employees receiving early annual recommended ratings.
(b) If, by the end of the appraisal period, an employee has not met
the minimum period of performance, management may extend the appraisal
period provided such extensions do not--
(1) Delay the payout for the applicable pay pool; or
(2) Extend beyond the rating of record effective date.
(c) The effective date of ratings of record will be January 1,
except for additional ratings of record as described in Sec.
9901.412(b)(2).

Sec. 9901.412 Rating and rewarding performance.

(a) Forced distribution of ratings (setting pre-established limits
for the percentage or number of ratings that may be assigned at any
level) is prohibited.
(b) An appropriate rating official--
(1) Will prepare and issue a rating of record after the completion
of the appraisal period; and
(2) May issue an additional rating of record following an
unacceptable rating of record to reflect a substantial and sustained
change in the employee's performance since the last rating of record.
The new rating would be effective on the first day of the month after
it is final, as described in paragraph (e) of this section.
(c) A rating of record will assess an employee's performance with
respect to his or her performance expectations, as amplified through
work assignments or other instructions, and/or relative contributions.
(d) If an employee engages in work-related misconduct and the
nature or severity of that misconduct has an impact on the execution of
his or her duties, that of the team, and/or that of the organization,
the impact may be reflected in the employee's rating of record.
(e) Consistent with the requirements of merit system principles and
this part, the Pay Pool Manager is the approving authority for Pay Pool
Panel recommendations concerning ratings of record. A rating of record
is considered final when issued to the employee with all appropriate
reviews and signatures.
(f) An appropriate rating official will communicate the rating of
record and number of shares to the employee.
(g) The rating of record of an employee may not be lowered based on
an approved absence from work, including the absence of a disabled
veteran to seek medical treatment as provided in Executive Order 5396.
(h) A rating of record issued under this subpart--
(1) Is an official rating of record for the purpose of any
provision of this title, Code of Federal Regulations, for which an
official rating of record is required;
(2) Will be transferred between subordinate organizations and to
other Federal departments or agencies in accordance with implementing
issuances; and
(3) Will be used as a basis for--
(i) A pay determination under any applicable pay rules;
(ii) Determining reduction-in-force retention standing; and
(iii) Such other action that the Secretary considers appropriate,
as specified in implementing issuances.
(i) Employees who change pay pools after the last day of the
appraisal period and before the effective date of the payout will--
(1) Be evaluated and assigned a rating of record by the rating
official, Pay Pool

[[Page 29927]]

Panel and Pay Pool Manager associated with the pay pool of record on
the last day of the appraisal period; and
(2) Have their payout calculated and paid based on the pay pool
funding and share valuation of the gaining pay pool whose Pay Pool
Manager will also determine the share assignment and payout
distribution between salary increase and bonus.
(j) A supervisor or other rating official may prepare an additional
performance appraisal for the purposes specified in implementing
issuances (e.g., transfers and details) at any time after the
completion of the minimum period. Such an appraisal is not a rating of
record.

Sec. 9901.413 Reconsideration of ratings.

(a) Nonbargaining unit employees. (1) A rating of record or job
objective rating may be challenged by a nonbargaining unit employee
only through a reconsideration process specified in this subpart and
implementing issuances. This process will be the sole and exclusive
agency administrative process for all nonbargaining unit employees to
challenge a rating of record.
(2) Consistent with this part, Pay Pool Managers will decide job
objective rating and rating of record reconsiderations.
(3) If the Pay Pool Manager decision is challenged, consistent with
this part, the Performance Review Authority will make a final decision.
(4) A share assignment determination, payout distribution
determination, or any other payout matter will not be subject to the
reconsideration process or any other agency administrative grievance
system.
(b) Bargaining unit employees. (1) Negotiated grievance procedures
are the exclusive administrative procedures for bargaining unit
employees to challenge a rating of record or job objective rating as
provided for in 5 U.S.C. 7121.
(2) If a negotiated grievance procedure is not available to a
bargaining unit employee or challenging a rating of record or job
objective rating is outside the scope of the employee's negotiated
grievance procedure, a bargaining unit employee may challenge a rating
of record or job objective rating in accordance with this subpart and
implementing issuances.
(c) Recalculation based on adjusted rating of record. In the event
a reconsideration or negotiated grievance decision results in an
adjusted rating of record, the revised rating will be referred to the
Pay Pool Manager for recalculation of the employee's general salary
increase, adjustment to local market supplement, and the payout amount
and distribution.
(1) Any adjustment to salary will be retroactive to the effective
date of the performance payout.
(2) Decisions made through the reconsideration process or a
negotiated grievance procedure will not result in recalculation of the
payout made to other employees in the pay pool.

[FR Doc. E8-11364 Filed 5-21-08; 8:45 am]

BILLING CODE 6325-39-P