[Federal Register Volume 76, Number 247 (Friday, December 23, 2011)]
[Proposed Rules]
[Pages 80268-80278]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-32939]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 76, No. 247 / Friday, December 23, 2011 / 
Proposed Rules

[[Page 80268]]



OFFICE OF PERSONNEL MANAGEMENT

5 CFR Part 534

RIN 3206-AL88


Pay for Senior-Level and Scientific or Professional Positions

AGENCY: U.S. Office of Personnel Management.

ACTION: Proposed rule.

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SUMMARY: The U.S. Office of Personnel Management (OPM) proposes to 
amend rules for setting and adjusting pay of senior-level (SL) and 
scientific or professional (ST) employees. The Senior Professional 
Performance Act of 2008 changes pay for these employees by providing 
for rates of basic pay up to the rate payable for level III of the 
Executive Schedule (EX-III), or, if the employee is under a certified 
performance appraisal system, the rate payable for level II of the 
Executive Schedule (EX-II). Consistent with this statutory emphasis on 
performance-based pay, these regulations will provide for agencies to 
set and adjust pay for SL and ST employees based on individual 
performance, contribution to the agency's performance, or both, as 
determined under a rigorous performance appraisal system.

DATES: OPM must receive comments on or before February 21, 2012.

ADDRESSES: You may submit comments, identified by ``RIN 3206-AL88,'' by 
any of the following methods:
    Federal eRulemaking Portal: http://www.regulations.gov. Follow the 
instructions for submitting comments.
    E- mail: sespolicy@opm.gov. Include ``RIN 3206-AL88'' in the 
subject line of the message.
    Fax: (202) 606-2548.
    Mail, Hand Deliver/Courier comments: Mr. Stephen Shih, Deputy 
Associate Director for Executive Resources and Employee Development, 
Room 7412, 1900 E Street NW., Washington, DC 20415-9700.

FOR FURTHER INFORMATION CONTACT: William Collins by telephone at (202) 
606-1642, by FAX at (202) 606-2548, or by email at 
william.collins@opm.gov.

SUPPLEMENTARY INFORMATION: The U.S. Office of Personnel Management 
(OPM) is issuing proposed regulations to revise the rules that govern 
pay setting for senior-level (SL) and scientific or professional (ST) 
employees. The proposed regulations conform to amendments made by 
section 2 of the Senior Professional Performance Act of 2008 (Pub. L. 
110-372, October 8, 2008), hereafter referred to as the ``Act.'' 
Section 2 of the Act amends provisions in 5 U.S.C. chapter 53 relating 
to the SL/ST pay system and locality rates. These amendments became 
effective on the first day of the first pay period beginning on or 
after April 6, 2009--i.e., April 12, 2009.
    The changes made by the Act and these proposed regulations are 
designed to bring the pay system for SL and ST employees more in line 
with the pay system for the Senior Executive Service (SES). The Act 
raises the maximum rate of basic pay in the SL/ST pay range from the 
rate for level IV of the Executive Schedule (EX) to the rate for EX-III 
($165,300 in 2010). The minimum rate of basic pay in the new SL/ST pay 
system continues to be 120 percent of the minimum rate of basic pay 
payable for GS-15 ($119,554 in 2010).
    The amended 5 U.S.C. 5376 allows an agency to establish a higher 
maximum rate of basic pay in the SL/ST rate range, equal to the rate 
for EX-II ($179,700 in 2010), if the agency obtains the certification 
under 5 U.S.C. 5307(d) of its performance appraisal system for 
employees in SL or ST positions. A certified SL/ST appraisal system 
makes meaningful distinctions based on relative performance. In 
addition, agencies that obtain such certification must apply to their 
SL and ST employees a higher aggregate limitation on pay under 5 U.S.C. 
5307(d) that is equivalent to the total annual compensation payable to 
the Vice President ($230,700 in 2010). (The legislation authorizing the 
higher aggregate limitation was enacted in 2002.) The regulations 
prescribing the substantive and procedural requirements that an agency 
must meet to receive such certification for these purposes are in 5 CFR 
part 430, subpart D.
    The Senior Professional Performance Act of 2008 and the later Non-
Foreign Area Retirement Equity Assurance (AREA) Act (as contained in 
the National Defense Authorization Act for Fiscal Year 2010 (Pub. L. 
111-84, October 28, 2009)) both amended 5 U.S.C. 5304 concerning 
locality-based comparability payments for SL and ST employees. The 
Senior Professional Performance Act of 2008 removed all SL and ST 
positions from the list of positions for which locality-based 
comparability payments may be extended. However, the Non-Foreign AREA 
Act subsequently authorized extending locality pay to only those SL and 
ST employees whose official worksite was in one of the nonforeign areas 
listed in 5 CFR 591.205 on one specific date, January 2, 2010. 
Therefore, those SL and ST employees whose official worksites were in 
nonforeign areas on January 2, 2010, are entitled to receive the 
locality pay rate for that area, subject to the applicable locality 
rate cap established by 5 U.S.C. 5304(g)--i.e., EX-II if the employee 
is covered by an appraisal system certified under 5 U.S.C. 5307(d), or 
EX-III if not so covered--and other provisions of the Non-Foreign AREA 
Act. Employees who are assigned to vacant SL or ST positions in the 
nonforeign areas on or after January 3, 2010, are not eligible for 
locality payments. Employees in SL or ST positions in the continental 
United States are also not authorized to receive locality pay on or 
after April 12, 2009 (the effective date of section 2 of the Senior 
Professional Performance Act of 2008). We issued conforming changes to 
the locality pay regulations at 5 CFR part 531, subpart F, to reflect 
the most recent amendments to 5 U.S.C. 5304(h) on June 7, 2011. (See 76 
FR 32859.)

Conversion to the New SL/ST Pay System

    Consistent with section 2(d) of the Act, agencies converted SL and 
ST employees to the new SL/ST pay system on April 12, 2009. OPM issued 
guidance to agencies addressing this conversion in Compensation Policy 
Memorandum 2009-06 on April 2, 2009. An SL or ST employee's converted 
rate of basic pay was the employee's former rate of basic pay, plus any 
applicable locality pay, in effect on April 11, 2009. For example,

[[Page 80269]]

on April 11, 2009, an SL employee who was at the maximum of the SL/ST 
rate range and had an official worksite in a locality pay area received 
a rate of basic pay of $153,200 (i.e., EX-IV) and a locality payment of 
$9,700 for a total rate of $162,900. (The difference between the rate 
for EX-III and EX-IV was $9,700; EX-III was the cap on locality rates 
for SL and ST employees on April 11, 2009.) The SL employee's converted 
rate of basic pay was set at $162,900 on April 12, 2009. The newly 
converted SL or ST rate became the SL or ST employee's rate of basic 
pay for all pay computation purposes, and the existing pay plan codes 
``SL'' for senior-level employees and ``ST'' for scientific or 
professional employees were retained.
    Since conversion was mandated by section 2(d) of the Act, 
individual conversion actions were effected without regard to 
conflicting provisions of 5 CFR part 534, subpart E. For example, the 
new EX-III pay maximum established under section 2(b) of the Act 
overrode the conflicting EX-IV pay maximum in 5 CFR 534.502(b). The 
statutory requirement for conversion on April 12, 2009, overrode the 
12-month limit on pay adjustments in 5 CFR 534.503(c). However, 
regulatory provisions not in conflict with the new statute continued in 
force. For example, since the 12-month limit in 5 CFR 534.503(c) did 
not contain an exception for pay adjustments due to conversion under 
section 2(d) of the Act, most conversion pay adjustments initiated a 
new 12-month waiting period for affected SL and ST employees.
    Certain SL and ST employees had an official worksite on April 11, 
2009, that was outside the 48 contiguous States and the District of 
Columbia: i.e., their worksites were overseas or in Alaska, Hawaii, 
Guam and the Commonwealth of the Northern Mariana Islands, Puerto Rico, 
the U.S. Virgin Islands, or another U.S. territory or possession where 
locality pay was not authorized. These employees converted to the new 
SL/ST pay system at their rate of basic pay (exclusive of any locality 
rate of pay) on April 12, 2009. Since their rate of basic pay did not 
change, the conversion did not initiate a new 12-month limit for those 
employees.

Rules for the New Pay System

    Congress first provided for certification of performance appraisal 
systems under section 1322 of Public Law 107-296, the Homeland Security 
Act of 2002 (November 25, 2002), and applied it to both SES and SL/ST 
performance appraisal systems. Upon certification, an agency could 
apply a higher aggregate pay cap, i.e., the Vice President's salary 
rather than level I of the Executive Schedule, to an SES, SL or ST 
employee covered by the certified appraisal system. Subsequently, under 
section 1125 of Public Law 108-136 (November 24, 2003), Congress 
established the open range SES pay system with maximum pay caps of EX-
III or EX-II, depending on whether a performance appraisal system is 
certified, and provided that a senior executive's pay shall be based on 
individual performance, contribution to the agency's performance, or 
both.
    To implement the congressional design, OPM and OMB jointly 
published interim regulations at 5 CFR part 430, subpart D, and part 
1330, subpart D, to govern certification of agency appraisal systems as 
making meaningful distinctions based on relative performance. (See 69 
FR 45548.) Certification was based on nine criteria identified in 5 CFR 
430.404(a)(1) through (9), notably including performance 
differentiation and pay differentiation, such that senior employees 
(i.e., SES, SL or ST) who demonstrate the highest levels of individual 
performance and/or contribution to the agency's performance receive the 
highest annual summary ratings or ratings of record, as applicable, as 
well as the largest corresponding pay adjustments, cash awards, and 
levels of pay. The same criteria were to be applied in certifying SES 
appraisal systems and SL/ST appraisal systems.
    Under the Senior Professional Performance Act of 2008, Congress now 
also makes higher rates of basic pay available to SL and ST employees 
based upon the certification of performance appraisal systems. Congress 
does so without stating directly, as the SES statute does, that pay for 
SL and ST employees is to be based on individual performance, 
contribution to the agency's performance, or both (compare 5 U.S.C. 
5376(b) with 5 U.S.C. 5382). The legislative history stated the 
principal purpose of the underlying bill is to bring the pay system for 
SL and ST personnel into line with that for SES members by eliminating 
locality pay and authorizing an agency to use a level III or level II 
pay ceiling, depending upon whether the agency appraisal system is 
certified. S. Rep. No. 110-328, 110th Cong., 2nd Sess. (April 22, 
2008). Given the context of certification, as implemented by OPM and 
OMB, and the SES pay rules, OPM concludes that SL and ST pay should 
also be based upon individual performance, contributions to the 
agency's performance, or both. We propose to regulate accordingly.
    The pay system established at 5 U.S.C. 5376 by the Federal 
Employees Pay Comparability Act of 1990 (FEPCA), Public Law 101-509 
(November 5, 1990) did not impose a 12-month restriction on pay 
adjustments for SL and ST employees, even though 5 U.S.C. 5383 imposed 
a 12-month restriction on SES pay adjustments that could not be waived. 
OPM initially planned to let each agency decide whether to impose a 
similar limit on pay adjustments for SL and ST employees; however, all 
but one of the agencies we consulted recommended establishing a 12-
month limit by regulation. Accordingly, OPM imposed a 12-month 
restriction on the SL/ST pay system consistent with the SES pay rules. 
Then, in establishing the open range SES pay system that became 
effective for most senior executives on January 11, 2004, Congress 
continued the 12-month restriction for senior executives but authorized 
OPM to provide for exceptions by regulation.
    OPM is now proposing to remove the current regulatory 12-month 
restriction on pay adjustments for SL and ST employees because Congress 
has revised the SL/ST pay system and again has not imposed such a 
restriction. On April 12, 2009, more than 60 percent of SL and ST 
employees converted to the new SL/ST system with a basic pay rate equal 
to EX-III because their rates of basic pay plus locality pay as of 
April 11, 2009, were equal to the EX-III maximum permitted under the 
former pay system. In place of the 12-month rule, we propose new rules 
that require the following: (1) Determining SL and ST pay adjustments 
based on individual performance, contributions to the agency's 
performance, or both; (2) for agencies with ten or more senior 
professionals, centralized review of proposed pay adjustments; and (3) 
approval of the highest level SL and ST pay adjustments and of off-
cycle pay adjustments under proposed 5 CFR 534.510 by the agency head 
or the designee who oversees the performance-based pay system.
    Under section 5376(b)(2), an agency head is still required to 
adjust rates of basic pay for SL and ST positions as the agency head 
considers appropriate at the same time statutory pay adjustments are 
provided for the General Schedule, which is not required for SES 
positions. Currently, OPM does not restrict the amount of this 
adjustment but provides that an annual adjustment that exceeds the 
higher of the adjustments proposed for the General Schedule (GS) or EX 
pay systems is a pay adjustment for purposes of the 12-month 
restriction.

[[Page 80270]]

OPM now proposes to eliminate the 12-month restriction.
    The date specified in law for the annual adjustment, i.e., the 
beginning of the first applicable pay period commencing on or after the 
first day of the month in which an adjustment takes effect under 5 
U.S.C. 5303 in the rates of basic pay under the General Schedule, 
usually coincides with adjustments in Executive Schedule pay rates and 
is regularly used by most agencies to provide performance-based pay 
increases for appraisal periods ending on or about September 30 of the 
preceding year. OPM therefore proposes in 5 CFR 534.505(b) that each 
agency must include in its written procedures a requirement to adjust 
each SL or ST employee's pay under proposed 5 CFR 534.507(b), which 
would prescribe rules for performance-based pay increases, on the date 
specified by 5 U.S.C. 5376(b)(2).

Definition of Terms

    Our proposed definition of ``agency'' in 5 CFR 534.503 reflects 
that under 5 U.S.C. 5108 OPM determines the maximum number of SL 
positions that may be established in an Executive agency, and under 5 
U.S.C. 3104 OPM determines the maximum number of ST positions in any 
agency, except for the Library of Congress, which also may establish 
eight ST positions under 5 U.S.C. 3104. The definitions ``SL employee'' 
and ``ST employee'' do not include incumbents of SL-equivalent or ST-
equivalent positions established or compensated under other statutory 
authority. We consider this necessary because OPM lacks authority to 
regulate the pay system for such employees who are not compensated 
under 5 U.S.C. 5376.
    OPM is proposing to define the term ``authorized agency official'' 
in 5 CFR 534.503 as meaning the agency head or an individual authorized 
to act for the agency head in the matter concerned. These officials are 
to be defined in written procedures established by an agency under 5 
CFR 534.505. We are also proposing restrictions on who may be delegated 
authority to take certain pay actions under 5 CFR 534.505(c) and 5 CFR 
534.506(c).
    We propose to define ``certified'' as having the certification that 
OPM, with OMB concurrence, provides to a performance appraisal system 
that makes meaningful distinctions based upon performance. This means 
that when OPM suspends a performance appraisal system certification, 
that system is ``not certified'' (also defined in 5 CFR 534.503) for as 
long as the suspension continues. Under proposed regulations at 5 CFR 
534.507(d), any rating of record or performance rating must cover a 
period of performance lasting at least 90 days during which the 
applicable performance appraisal system is certified in order to 
support an increase to a rate of basic pay above level III but equal to 
or below level II of the Executive Schedule. A suspension could 
therefore affect an agency's ability to grant such pay increases on a 
timely basis.
    We propose to define the term ``movement'' to include any 
assignment from one SL or ST position to another SL or ST position, 
whether within or between the competitive and excepted services or 
within or between agencies, provided that the applicable requirements 
for the specific assignment are met. Within this broader category, the 
term ``transfer'' is more narrowly defined to mean any movement that is 
a change of a senior professional employee from an SL or ST position in 
one agency to an SL or ST position in another agency without a break in 
service of at least 1 full workday. We define ``transfer'' separately 
to clarify circumstances under which 5 CFR 534.509(a) requires 
preserving a rate of basic pay above EX-III but less than or equal to 
EX-II. If the movement is between agencies without a break in service 
of at least 1 full workday, it does not matter whether the senior 
professional position to which the individual transfers is SL or ST or 
whether it is in the competitive service or excepted service.
    We propose to define the term ``performance management system'' to 
include, in addition to an agency's performance appraisal system for SL 
and ST employees, other disciplines and activities by which the agency 
implements performance management. As described in 5 CFR 430.102, 
performance management is the systematic process by which an agency 
involves its employees, as individuals and members of a group, in 
improving organizational effectiveness in the accomplishment of agency 
mission and goals. This includes processes required to address the 
criteria for certification of a performance appraisal system defined in 
5 CFR 430.404(a)(1) through (9). It also includes development of an 
agency's Strategic Human Capital Plan and may include other processes 
used by an agency to define and address its performance requirements. 
Performance appraisal does not occur in isolation but within the 
broader context of performance management activities by which an agency 
identifies, prioritizes, defines, measures and values work to be done 
and results to be achieved. Our proposed regulations are based on the 
assumption that an agency developing pay policies and criteria and 
determining pay adjustments does so within that broader context.

Setting Pay Upon Appointment to a New SL or ST Position

    The proposed regulations in 5 CFR 534.506 treat pay setting 
separately from pay increases and include, in addition to pay setting 
for an individual upon initial appointment to an SL or ST position, pay 
setting for a current SL or ST employee upon transfer to a new agency 
and pay setting upon reappointment or reinstatement of a former SL or 
ST employee to an SL or ST position in any agency. Consistent with the 
SES pay rules, we provide that an agency must consider the nature and 
quality of the individual's experience, qualifications and 
accomplishments as they relate to requirements of the senior 
professional position and its impact on the agency's performance, with 
pay rates above EX-III but equal to or below EX-II being reserved to 
those individuals who possess superior competencies necessary to 
address key program and mission requirements, as determined by the 
agency.
    In general, pay may be set at any rate within the applicable rate 
range under 5 CFR 534.504(a). There is one exception, in that 5 U.S.C. 
5376(b)(4) precludes an employee from suffering a reduction in pay by 
reason of transfer from an agency with an applicable appraisal system 
that is certified to an agency in which the applicable appraisal system 
is not certified. This is reflected in 5 CFR 534.506(b) and 5 CFR 
534.509(a), which would require preservation of an employee's rate of 
basic pay above EX-III but less than or equal to EX-II in this 
circumstance. We are also proposing to require that an individual who 
leaves an agency and is reappointed to the same or a successor position 
in that agency within 30 days may not receive a higher rate of basic 
pay, unless the agency head or the designee responsible for the 
functions identified in 5 CFR 430.404(a)(6) determines it is warranted.

Annual Increases in Basic Pay

    We are proposing a heading for 5 CFR 534.507 that refers to 
increases in a rate of basic pay rather than pay adjustments. 
References to pay adjustments could be read as including reductions in 
pay. Pay reductions for SL and ST positions are taken under 5 CFR part 
752, subpart D. Rules in proposed 5 CFR part 534, subpart E, therefore 
generally relate to setting and increasing a rate of basic pay, and 5 
CFR 534.508

[[Page 80271]]

refers the reader to 5 CFR part 752, subpart D, for reductions in pay 
or grade for such cause as will increase the efficiency of the service, 
or to 5 CFR part 432, for performance-based reductions in grade.
    OPM proposes to provide that pay increases under 5 CFR 534.507(b) 
must be based upon individual performance, contributions to agency 
performance, or both, as determined by the agency under a rigorous 
performance management system. As under SES pay rules, rates above EX-
III but equal to or below EX-II would be reserved for those senior 
professionals who demonstrate the highest-level performance and make 
the greatest contributions to agency performance.
    Generally, it is our view that an SL or ST employee rated fully 
successful and properly positioned within the pay range should at least 
receive an increase that helps preserve the economic value of his or 
her salary. This kind of increase is often provided through annual 
adjustments to statutory pay systems. Accordingly, we are proposing 
under 5 CFR 534.507(h) that in any year in which General Schedule pay 
rates are increased under 5 U.S.C. 5303, an agency head who decides on 
a ``zero'' annual pay adjustment for a senior professional rated fully 
successful or above must communicate the reasons for that decision to 
the senior professional in writing; however, for a senior professional 
paid within the top 10% of the applicable pay range this communication 
would be required only if Executive Schedule pay rates are also 
increased under 5 U.S.C. 5318 and the senior professional is rated 
outstanding. We propose that this written communication requirement may 
not be construed to require a pay increase for any senior professional. 
OPM is not proposing an appeal right or opportunity because we 
understand the statute to give the agency head authority to provide the 
annual adjustment he or she considers appropriate. We also propose that 
a senior professional employee rated below fully successful may not 
receive a pay increase except an increase required to maintain the 
minimum rate of basic pay. Note that 5 CFR 451.104(a)(3) already 
precludes a rating-based performance award for an employee whose most 
recent rating of record is below fully successful.
    Although the higher maximum pay cap applies only to SL or ST 
employees covered by a certified performance appraisal system, changes 
made by the Act increase every agency head's authority and discretion 
over SL/ST pay whether or not an applicable performance appraisal 
system is certified. Formerly, senior professionals given different 
rates of basic pay by an agency head could end up with the same total 
salary, i.e., a rate equivalent to EX-III, due to locality pay being 
added up to the (EX-III) cap on basic pay plus locality pay. In effect, 
more locality pay was automatically added to the salaries of senior 
professionals with lower rates of basic pay, including senior 
professionals who demonstrated relatively lower levels of performance. 
Locality pay could have a proportionally greater impact on total salary 
of some senior professionals with lower rates of pay and lesser 
performance than it did for other senior professionals with higher 
rates of basic pay and greater performance. Even if an agency head 
could directly relate performance to basic pay, the relationship of 
performance to total pay was ambiguous and could only be managed 
indirectly. Under the new pay system, each agency head has authority 
over the entire SL/ST pay range and can assign each senior professional 
the rate of basic pay that reflects the agency head's valuation of that 
senior professional's service to the agency.
    OPM considers the Act to call for each agency head to use this 
discretion to set and adjust rates based upon performance; therefore, 
the regulations propose the same basic rules for making and documenting 
pay determinations whether or not the applicable performance appraisal 
system is certified. OPM proposes to provide an exemption at 5 CFR 
534.511 from certain provisions of the proposed regulation for any 
agency that makes pay adjustments for SL or ST employees or positions 
that are not subject to performance appraisal. The exemption applies 
only with respect to those employees or positions and only to the 
extent specific proposed regulatory provisions would require the pay-
setting policy or individual pay adjustments to be based upon 
performance appraisal determinations. Otherwise, the regulation would 
apply. For example, the agency would be required to establish written 
procedures to govern setting and increasing pay for such employees 
based upon such criteria as the agency does apply, consistent with 
applicable statute.
    Under the proposed regulations, OPM would require each agency to 
adjust pay, for SL and ST employees once each year based on 
performance, contributions to the agency's performance, or both at the 
time 5 U.S.C. 5376(b)(2) requires each agency head to adjust pay for SL 
and ST positions in the agency. We propose that an agency must document 
the basis for each pay increase under 5 CFR 534.507(b) by means of a 
current rating of record, or, in the absence of a rating of record that 
reflects current performance, a performance rating that covers a period 
of at least 90 days.
    OPM is proposing to provide that a pay increase must be based upon 
an agency's determination about the value of an individual's 
characteristic and continuing service to the agency. The purpose of 
this provision at 5 CFR 534.507(b)(3) is to draw attention to an 
agency's responsibility to determine the most appropriate reward for an 
SL or ST employee's specific contributions, rather than making a pay 
increase the default option. Under 5 U.S.C. chapter 45 and 5 CFR part 
451, agencies may grant an SL or ST employee an award based on a rating 
of record, a special act or service award, and other incentives. We 
propose that pay increases be reserved for such contributions as the 
agency considers characteristic of the employee's service on a 
continuing basis. While stating this as a general rule, we would expect 
each agency to interpret and apply it in light of patterns of work that 
apply for each SL or ST position. For example, the relative infrequency 
of extraordinary advances in a given field of work should not keep an 
agency from using increases in a rate of basic pay to recognize 
characteristic and continuous efforts, as reflected in ongoing 
individual performance and contributions, by which those advances are 
achieved and for which the agency depends upon a senior professional. 
Rather, the intent of this provision is to preclude escalation of pay 
rates by use of pay increases where other relevant statutory 
authorities provide more appropriate forms of reward.

Written Procedures

    OPM proposes in 5 CFR 534.505 to require that each agency develop 
written procedures for setting or increasing SL and ST pay, including 
criteria and administrative and management controls that ensure pay 
actions conform to the statute and the requirements proposed in this 
subpart. Under proposed 5 CFR 534.505(b), each agency's written 
procedures would require rates of basic pay for SL and ST positions to 
be adjusted under 5 CFR 534.507 on the date statutory adjustments are 
made to the General Schedule. Under proposed 5 CFR 534.505(a)(5), 
agency controls must include a central review process for ratings 
assigned under 5 CFR 430.208 and pay increases proposed under 5 CFR 
534.507(b). Under 5 CFR 430.403(d), some agencies already provide for 
an agency Performance

[[Page 80272]]

Review Board (PRB) to review proposed ratings and pay increases for 
their SL and ST employees. This practice, if documented in the agency's 
written SL and ST pay procedures, would meet the requirement.
    In 5 CFR 534.505(a)(3), we propose that an agency identify in its 
written plan any criteria used to establish pay ranges applicable to 
different SL or ST positions (e.g., tiers) consistent with determining 
pay based upon individual performance or contributions to agency 
performance. An agency could, for example, use information from its 
performance management system processes to develop criteria that 
distinguish pay ranges for SL or ST positions based upon the kinds or 
levels of contributions to agency performance for which those positions 
are accountable and place individual SL or ST positions in their 
respective pay ranges accordingly.
    OPM also proposes that an agency head may delegate authority for SL 
and ST pay actions, except that only the agency head or the designee 
who performs the functions identified in 5 CFR 430.404(a)(6) may 
approve the following pay actions: (1) A pay increase resulting in a 
rate of basic pay within the top 10 percent of the applicable pay 
range; (2) a pay increase resulting in a rate of basic pay 10 percent 
or more above the SL or ST employee's salary at the beginning of the 
fiscal year, or, if more recent, upon initial appointment within the 
agency; (3) a pay increase upon reappointment of a SL or ST employee 
who is reappointed within 30 days to the same position or a successor 
position in the agency; or (4) an off-cycle pay increase as provided in 
5 CFR 534.510. We believe top level responsibility for these pay 
increases is critical to achieve and maintain a reasonable distribution 
of rates of basic pay within the pay range. OPM is therefore proposing 
that authority to approve these pay actions may not be further 
delegated.
    OPM is proposing that the head of an agency may delegate to an 
Inspector General (IG) authority for all pay actions for senior 
professionals within the Office of Inspector General (OIG). Under the 
Inspector General Reform Act of 2008, Public Law 110-409, October 14, 
2008, an OIG is identified as a separate agency and the IG as the head 
of that agency for purposes of SES statutes, including pay setting 
under 5 U.S.C. 5382 and 5383; however, the same was not done for senior 
professionals. As a result, OPM has no statutory basis to treat an IG 
as the head of an agency for purposes of pay setting under 5 U.S.C. 
5376, or to require an agency head to delegate authority for senior 
professional pay actions to an IG. OPM nevertheless considers such 
delegation as supporting the independence of the OIG by avoiding any 
appearance that pay actions for senior professionals could be used to 
influence OIG activities. OPM therefore is proposing to clarify in 5 
CFR 534.505(e) that an agency head may delegate authority to an IG for 
all pay actions for senior professionals in the OIG, including those 
for which OPM proposes under 5 CFR 534.505(c) to restrict delegation to 
the designee who performs the functions identified in 5 CFR 
430.404(a)(6). Such delegation is supported by the fact that 5 CFR 
430.404(b) provides that the IG must perform those functions for all 
senior employees in an OIG. OPM further proposes that if an agency head 
delegates this authority to the IG, the agency need not count OIG 
senior professionals when determining whether the agency must perform 
the centralized review proposed under 5 CFR 534.505(a)(5).

Pay Increases After Certification of a Performance Appraisal System

    The Act makes changes to the process for certifying performance 
appraisal systems that have significant implications for both current 
SES pay regulations and the proposed SL/ST pay regulations. Formerly, 
certification of a performance appraisal system was for a calendar 
year. In effect, the statute supported viewing a certification obtained 
after the beginning of a calendar year as implicitly covering 
operations under the performance appraisal system during the entire 
calendar year, including time elapsed prior to certification. Some 
agencies have relied upon this to grant pay increases above the EX-III 
level after certification of a performance appraisal system based upon 
ratings that became final before the system was certified. Under the 
Act, however, certification is for a period not to exceed 24 months 
beginning on the date of certification, unless extended by the Director 
of the Office of Personnel Management for up to 6 additional months. 
OPM considers this change to mean that certification is prospective and 
does not cover performance appraisal system operations prior to 
certification.
    OPM is therefore proposing in 5 CFR 534.507(d)(1) that a rating of 
record or performance rating used to support a pay increase for an SL 
or ST employee above EX-III must cover at least 90 days of performance 
beginning after the date of certification. However, we are also 
proposing under 5 CFR 534.507(e) to provide that OPM may waive this 
restriction upon the initial certification of a performance appraisal 
system and permit an agency to use an appraisal covering time prior to 
certification, if OPM determines that the agency has been operating 
under the same performance appraisal system in a manner supporting 
certification for at least 90 days before certification was granted. 
Notification of this waiver must be in writing. This waiver would not 
be available upon reinstatement of a certification that has been 
suspended under 5 CFR 430.405(h) or upon the subsequent certification 
of a performance appraisal period for which a previous certification 
has expired.

Removal of the SES ``Certification Gap'' Provision

    OPM issued a final rule at 71 FR 38753, July 10, 2006, to provide 
agencies with the authority to increase the rates of basic pay of 
certain members of the SES whose pay was set before the agency's SES 
performance appraisal system was certified for the calendar year. The 
regulation at 5 CFR 534.404(e)(2) permits an agency for which a 
``certification gap'' occurs between expiration of a performance 
appraisal system certification at the end of a calendar year and 
certification of that system for the next calendar year to revisit 
certain pay actions that occur during the certification gap period and 
provide an additional increase for an affected executive, if warranted, 
after the system is certified. These pay adjustments may not be made 
effective before the new certification date. The final rule also 
provided at 5 CFR 534.404(c)(3)(v) that this kind of increase is not 
considered a pay adjustment for purposes of the 12-month rule 
applicable to SES pay adjustments.
    We conclude that the change from calendar year certification to 
prospective certification removes any basis for OPM to authorize an 
agency to revisit and adjust pay to rates above EX-III but less than or 
equal to EX-II for a pay action that precedes certification. When 
certification was on a calendar year basis, time prior to certification 
but within the calendar year could eventually be viewed as being 
covered by a certification occurring later in the calendar year. That 
is no longer the case. Accordingly, we propose to remove and reserve 5 
CFR 534.404(e)(2) and 5 CFR 534.404(c)(3)(v) of the SES pay regulations 
in 5 CFR part 534, subpart D. We propose this approach, as opposed to 
deletion and revision or re-designation of affected paragraphs, for the 
administrative convenience of users,

[[Page 80273]]

so that paragraph references that previously designated or referred to 
certain types of pay actions may continue to be used after publication 
of final regulations to designate or refer to those same types of pay 
actions in agency documentation.

Preservation of an Established Rate of Basic Pay

    We specifically define limits on pay setting upon transfer in 
proposed 5 CFR 534.509(a). These limits implement the statutory 
restriction against an individual losing pay when moving from an agency 
with an applicable certified appraisal system to one without an 
applicable certified appraisal system. We also specify that an agency 
may retain an employee's rate of pay above EX-III that has been 
properly established during service under a certified system in the 
event that certification expires or is suspended or upon the SL or ST 
employee's movement to an SL or ST position that is not under a 
certified system. We consider this an appropriate extension of the 
principle that Congress does not intend for an employee with a pay rate 
above EX-III in a certified system to lose pay upon transfer due to the 
new agency's failure to obtain certification for its system. However, 
the employee is not eligible for a pay increase until assigned to a 
position under a certified system or until the employee's rate of basic 
pay is less than the rate for EX-III.

Off-cycle Pay Increases

    OPM is proposing that an agency head or the designee who performs 
the functions described in 5 CFR 430.404(a)(6) may grant an off-cycle 
pay increase under proposed 5 CFR 534.510, if warranted. Consistent 
with the SES pay rules, these regulations would provide that in 
determining whether an off-cycle pay increase is warranted, the 
granting official can take into account factors such as the following: 
(1) An SL or ST employee's exceptionally meritorious accomplishments; 
(2) the need to offer a pay increase for the employee's assumption of a 
position that has a greater impact on agency performance; or (3) the 
need to retain an individual who is critical to the agency's 
performance, and who otherwise would be likely to leave the agency. We 
are proposing that an agency must include documentation from other 
performance management system activities, as needed, and its written 
procedures to show how such factors were considered in determining the 
off-cycle pay increase.

Reductions in Pay

    An SL or ST employee's rate of basic pay may be reduced subject to 
adverse action rules in 5 CFR part 752, subpart D; however, an SL or ST 
employee may be reduced in grade or removed from the Federal service 
under either 5 CFR part 752, subpart D, or 5 CFR part 432. In 5 CFR 
534.508, we are proposing to clarify how pay is to be adjusted when SL 
or ST employees are reduced in grade under these applicable procedures 
or move from a position covered by the SL/ST pay system to a lower-
level GS position for other reasons. (Pay setting upon movement to a 
lower-level position in a different pay system (i.e., not under the 
General Schedule) is governed by the pay-setting rules of that pay 
system and is not addressed in these proposed regulations.)
    SL and ST employees occupy white-collar positions established by 
reference to GS classification standards (5 CFR 319.203). SL and ST 
positions were formerly classified in GS-16, 17, and 18 of the GS 
system. Removal of grade distinctions among SL/ST positions should not 
obscure the fact that they are white-collar positions placed at a 
single level above GS-15 by reference to GS classification standards 
and principles. Though covered by a unique pay system, SL employees 
remain members of the competitive or excepted service, and ST employees 
remain members of the competitive service. Their conditions of 
employment are largely determined by this membership. Removal from 
coverage under the SL/ST pay system does not require removal from the 
Federal service. Reduction in grade may enable an agency to retain an 
accomplished employee in a position better suited to his or her 
abilities. This is an alternative for the agency and not an entitlement 
for an SL or ST employee.
    We are also proposing in 5 CFR 534.508(d) to allow for an agency 
and employee to voluntarily agree to a placement that will involve a 
current or future pay reduction for the employee. We would provide that 
if an SL or ST employee willingly accepts this pay consequence to 
facilitate a desired assignment and the agency documents the voluntary 
nature of the reduction, it will not be subject to 5 CFR part 752, 
subpart D.

Regulatory Flexibility Act

    I certify that these regulations will not have a significant 
economic impact on a substantial number of small entities, because they 
will apply only to Federal agencies and employees.

E.O. 12866, Regulatory Review

    This rule has been reviewed by the Office of Management and Budget 
in accordance with E.O. 12866.

List of Subjects in 5 CFR Part 534

    Government employees, Hospitals, Students, and Wages.

U.S. Office of Personnel Management.
John Berry,
Director.

    For the reasons stated in the preamble, the U.S. Office of 
Personnel Management proposes to amend 5 CFR part 534 as follows:

PART 534--PAY UNDER OTHER SYSTEMS

    1. Revise the authority citation for part 534 to read as follows:

    Authority:  5 U.S.C. 1104, 3161(d), 5307, 5351, 5352, 5353, 
5376, 5382, 5383, 5384, 5385, 5541, 5550a, sec. 1125 of the National 
Defense Authorization Act for FY 2004, Pub. L. 108-136, 117 Stat. 
1638 (5 U.S.C. 5304, 5382, 5383, 7302; 18 U.S.C. 207); and sec. 2 of 
Pub. L. 110-372, 122 Stat. 4043 (5 U.S.C. 5304, 5307, 5376).


Sec.  534.404  [Amended]

    2. Amend Sec.  534.404 to remove and reserve paragraphs (c)(3)(v) 
and (e)(2).
    3. Revise subpart E to read as follows:

Subpart E--Pay for Senior-Level and Scientific or Professional 
Positions
Sec.
534.501 Purpose.
534.502 Coverage.
534.503 Definitions.
534.504 Pay range.
534.505 Written procedures.
534.506 Setting a rate of basic pay upon appointment.
534.507 Annual increases in basic pay.
534.508 Reductions in a rate of basic pay.
534.509 Preservation of an established rate of basic pay.
534.510 Off-cycle pay increases.
534.511 Exemption from performance appraisal requirements.

Subpart E--Pay for Senior-Level and Scientific or Professional 
Positions


Sec.  534.501  Purpose.

    This subpart provides rules for setting and adjusting rates of 
basic pay for senior-level (SL) and scientific or professional (ST) 
employees under 5 U.S.C. 5376. Section 5376, as amended by section 2 of 
the Senior Professional Performance Act of 2008 (Pub. L. 110-372, 
October 8, 2008), promotes performance-based pay by enabling an agency 
that attains certification of a performance appraisal system covering 
senior professionals to fix rates of basic pay for those employees up 
to the rate

[[Page 80274]]

payable for level II of the Executive Schedule. Under 5 U.S.C. 5307(d) 
and subpart D of part 430 of this chapter, the Office of Personnel 
Management (OPM), with Office of Management and Budget (OMB) 
concurrence, grants certification only to a performance appraisal 
system that, in its design and application, makes meaningful 
distinctions based upon relative performance. This subpart implements 
the purpose of the law by providing for pay determinations for SL and 
ST employees to be based on individual performance, contributions to 
the agency's performance, or both, as determined through administration 
of the agency's performance management system(s) for SL and ST 
employees.


Sec.  534.502  Coverage.

    (a) This subpart implements 5 U.S.C. 5376 and applies to--
    (1) Senior-level (SL) positions classified above GS-15 pursuant to 
5 U.S.C. 5108; and
    (2) Scientific or professional (ST) positions established under 5 
U.S.C. 3104.
    (b) This subpart does not apply to--
    (1) Senior Executive Service positions established under 5 U.S.C. 
3132, unless the incumbent of the position declined to convert to the 
SES and, under Sec.  317.303 of this chapter, remained at grade GS-16, 
17, or 18 (now the SL pay system) or under the ST pay system;
    (2) Positions in the Federal Bureau of Investigation and Drug 
Enforcement Administration Senior Executive Service, Defense 
Intelligence Executive Service, or Senior Cryptologic Executive 
Service; or
    (3) Positions for which pay is fixed by administrative action and 
is limited to level IV of the Executive Schedule under 5 U.S.C. 5373.


Sec.  534.503  Definitions.

    In this subpart--
    Agency means--
    (1) An Executive agency as defined in 5 U.S.C. 105;
    (2) The Library of Congress; and
    (3) Any other entity that is not part of an Executive agency, for 
which OPM has approved establishment of one or more scientific or 
professional positions under 5 U.S.C. 3104.
    Authorized agency official means the head of an agency or an 
official who is authorized to act for the head of the agency in the 
matter concerned.
    Certified means having the certification that OPM, with OMB 
concurrence, grants under 5 U.S.C. 5307(d) and part 430, subpart D of 
this chapter only to a performance appraisal system that makes, in its 
design and application, meaningful distinctions based on relative 
performance. In this subpart, the term ``certified'' refers to a 
performance appraisal system that has this certification, including a 
performance appraisal system for which certification has been 
reinstated after suspension under Sec.  430.405(h) of this chapter.
    Movement means a change of an SL or ST employee from one SL or ST 
position to a different SL or ST position without a break in service 
under procedures that meet applicable requirements for staffing 
positions in the competitive service and excepted service. As used in 
this subpart, the term ``movement'' applies only to an appointment, not 
a detail, and is used without reference to the pay consequences of an 
action. Unless otherwise specified, the term refers to position changes 
both within and between agencies.
    Not certified means lacking the certification that OPM, with OMB 
concurrence, grants under 5 U.S.C. 5307(d) and part 430, subpart D of 
this chapter only to a performance appraisal system that makes, in its 
design and application, meaningful distinctions based on relative 
performance. In this subpart, the term ``not certified'' refers to a 
performance appraisal system that does not have this certification, or 
for which a previously granted certification has expired or is 
suspended under Sec.  430.405(h) of this chapter.
    Off-cycle pay increase means any increase in a senior 
professional's rate of basic pay that becomes effective on a date other 
than the date specified in Sec.  534.507(a)(1).
    OMB means the Office of Management and Budget.
    OPM means the Office of Personnel Management.
    Performance management system means the framework of policies and 
practices that an agency uses to implement performance management, as 
described in Sec.  430.102 of this chapter. As used in this subpart, 
the term includes, but is not limited to, those disciplines and 
activities by which an agency addresses the criteria identified in 
Sec.  430.404(a)(1) through (9) of this chapter as necessary for 
certification of an agency's performance appraisal system.
    Performance rating means the written, or otherwise recorded, 
appraisal of performance compared to the SL or ST employee's 
performance standard(s) for each critical and non-critical element on 
which there has been an opportunity to perform for a minimum of 90 
days. A performance rating may include the assignment of a summary 
level within a pattern as specified in Sec.  430.208(d) of this 
chapter.
    Rate of basic pay means the rate of pay fixed by law or 
administrative action for an SL or ST employee under the provisions of 
5 U.S.C. 5376 and this subpart before any deductions and exclusive of 
additional pay of any other kind.
    Rating of record means the performance rating prepared at the end 
of an appraisal period for performance of agency-assigned duties over 
the entire period and the assignment of a summary level within a 
pattern as specified in Sec.  430.208(d) of this chapter that has been 
reviewed and approved in accordance with Sec.  534.505(a).
    Scientific or professional (ST) employee means an individual 
appointed to a position described in Sec.  319.103 and authorized by 
OPM under Sec.  319.202 of this chapter or otherwise established under 
5 U.S.C. 3104.
    Senior-level (SL) employee means an individual appointed to a 
position described in Sec.  319.102 and authorized by OPM under Sec.  
319.202 of this chapter.
    Senior professional means an SL or ST employee.
    Transfer means any movement, as defined in this section, that is a 
change of a senior professional from an SL or ST position in one agency 
to an SL or ST position in another agency without a break in service of 
at least 1 full workday.


Sec.  534.504  Pay range.

    (a) A rate of basic pay under this subpart must be--
    (1) Not less than 120 percent of the minimum rate of basic pay 
payable for GS-15 of the General Schedule, and
    (2) Not greater than--
    (i) The rate of basic pay payable for level III of the Executive 
Schedule (EX-III), or
    (ii) In the case of an SL or ST employee who is covered by a 
certified performance appraisal system or whose established rate of 
basic pay is preserved under Sec.  534.509, the rate of basic pay 
payable for level II of the Executive Schedule (EX-II).
    (b) An agency may not set or adjust the rate of basic pay for an SL 
or ST employee higher than the maximum in--
    (1) Paragraph (a)(2)(i) of this section (i.e., EX-III) when the SL 
or ST employee is covered by a performance appraisal system that is not 
certified or when the SL or ST employee is not subject to a performance 
appraisal system, except as provided in Sec.  534.509; or
    (2) Paragraph (a)(2)(ii) of this section (i.e., EX-II) when the SL 
or ST employee

[[Page 80275]]

is covered by a certified performance appraisal system.


Sec.  534.505  Written procedures.

    (a) Each agency with positions subject to this subpart must 
establish written procedures for setting the rate of basic pay and 
increasing the rate of basic pay of incumbents of the positions in 
accordance with law and this subpart. Agencies must provide for 
transparency in the processes for making pay decisions, while assuring 
confidentiality. The agency's plan for setting and increasing rates of 
basic pay must reflect meaningful distinctions among SL and ST 
employees based on individual performance, contribution to agency 
performance, or both, and must include--
    (1) The criteria that will be used to set and increase a senior 
professional's rate of basic pay to ensure that individual pay rates or 
pay increases, as well as their overall distribution within the senior 
professional pay range, reflect meaningful distinctions within a single 
performance level (e.g., the higher the employee's relative performance 
within a rating level, the higher the pay increase), between 
performance rating levels (e.g., the higher the rating level, the 
higher the pay increase), or both;
    (2) The criteria that will be used to set and increase a senior 
professional's rate of basic pay at a rate that exceeds the rate for 
level III of the Executive Schedule if the applicable agency 
performance appraisal system has been certified under part 430, subpart 
D of this chapter;
    (3) Any system, methods, or criteria the agency uses to establish 
pay ranges applicable to various SL or ST positions within the pay 
range that applies under Sec.  534.504(a), consistent with the 
requirement that pay be determined based upon individual performance, 
contributions to the agency's performance, or both;
    (4) The designation of the authorized agency official(s) who will 
have the authority to set and adjust rates of basic pay for SL and ST 
employees, subject to the requirements of paragraph (c) of this 
section; and
    (5) The administrative and management controls that will be applied 
to assure compliance with applicable statutes, OPM regulations, the 
agency's written procedures established under this section, the 
applicable maximum rate of basic pay in Sec.  534.504(a), and, where 
applicable, the certification requirements set forth in part 430, 
subpart D of this chapter. In an agency that employs ten or more senior 
professionals, these controls must include centralized review of 
ratings assigned under Sec.  430.208 of this chapter and pay actions 
proposed under Sec.  534.507 by a panel of individuals designated by 
the agency head to advise on whether--
    (i) Ratings of record and performance ratings used to increase 
basic pay are consistent with performance differentiation as described 
in Sec.  430.404(a)(8) of this chapter; and
    (ii) Proposed rates of basic pay are consistent with pay 
differentiation as described in Sec.  430.404(a)(9) of this chapter.
    (b) Each agency's written procedure must provide that effective at 
the beginning of the first applicable pay period commencing on or after 
the first day of the month in which an adjustment takes effect under 5 
U.S.C. 5303 in the rates of basic pay under the General Schedule, the 
head of an agency will adjust a senior professional's rate of basic pay 
under the provisions of Sec.  534.507.
    (c) The following actions must be approved by the agency head or by 
the designee who performs the functions described in Sec.  
430.404(a)(6) of this chapter and this approval authority may not be 
further delegated:
    (1) Any pay-setting action under Sec.  534.506 or any pay increase 
under Sec.  534.507 that results in a rate of basic pay that is within 
the highest 10 percent of the applicable rate range under Sec.  
534.504. A rate of basic pay equal to or above the amount derived using 
the following rules is considered to be within the highest 10 percent 
of the applicable pay range (in 2010, $173,685 or above if the 
applicable system is certified, or $160,725 or above if the applicable 
system is not certified or performance appraisal does not apply):
    (i) Subtract the minimum rate of basic pay from the maximum rate of 
basic pay for the applicable rate range under Sec.  534.504 (in 2010, 
$179,700-$119,554 = $60,146 if the applicable system is certified, or 
$165,300-$119,554 = $45,746 if the applicable system is not certified 
or performance appraisal does not apply);
    (ii) Multiply the amount derived in paragraph (b)(1)(i) of this 
section by .10 (in 2010, $60,146 x .10 = $6,015 if the applicable 
system is certified, or $45,746 x .10 = $4,575 if the applicable system 
is not certified or performance appraisal does not apply); and
    (iii) Subtract the amount derived in paragraph (b)(1)(ii) of this 
section from the maximum rate of basic pay applicable under Sec.  
534.504 (in 2010, $179,700-$6,015 = $173,685 if the applicable system 
is certified, or $165,300-$4,575 = $160,725 if the applicable system is 
not certified or performance appraisal does not apply);
    (2) Any pay increase under Sec.  534.507 that results in a rate of 
basic pay more than 10 percent above the SL or ST employee's rate of 
basic pay as in effect on the last day of the preceding fiscal year or, 
if the individual was first appointed as an SL or ST employee in the 
agency after the last day of the preceding fiscal year, more than 10 
percent above the rate of basic pay set at the time of that 
appointment. A rate of basic pay more than 10 percent above the 
applicable rate of basic pay is considered to be any rate of basic pay 
that exceeds the amount derived by multiplying the applicable rate of 
basic pay by a factor of 1.1;
    (3) Any pay-setting action under Sec.  534.506(c)(2) that results 
in a higher rate of basic pay than the senior professional had upon 
leaving the agency; and
    (4) Any off-cycle pay increase under Sec.  534.510.
    (d) An agency must keep its written procedures up to date, make 
them available to OPM upon request and to affected SL and ST employees, 
and periodically provide training or supplemental guidance to assist SL 
and ST employees in understanding their application.
    (e)(1) The head of an agency may delegate to an Inspector General 
the authority to set and adjust pay for senior professionals in the 
Office of the Inspector General, including authority for pay actions 
described in paragraph (c) of this section.
    (2) An agency head who delegates to an Inspector General the 
authority to set and adjust pay for all senior professionals in the 
Office of the Inspector General, including all pay actions described in 
paragraph (c) of this section, may exclude those senior professionals 
from the count of agency senior professionals for the purpose of 
determining whether centralized review under paragraph (a)(5) of this 
section is required.
    (3) An Inspector General to whom an agency head delegates authority 
to set and adjust pay for 10 or more senior professionals in the Office 
of the Inspector General must provide the centralized review required 
by paragraph (a)(5) of this section and may use Federal employees from 
outside the agency for that purpose, including individuals from the 
Inspector General community.


Sec.  534.506  Setting a rate of basic pay upon appointment.

    (a) An authorized agency official may set the rate of basic pay of 
an individual

[[Page 80276]]

who is not currently an SL or ST appointee of the agency at any rate 
within the applicable rate range under Sec.  534.504(a) upon 
appointment to an SL or ST position in the agency, subject to the 
requirements of this section. In setting a new senior professional's 
rate of basic pay, an agency must consider the nature and quality of 
the individual's experience, accomplishments, and any unique skills, 
qualifications, or competencies the individual possesses as they relate 
to requirements of the senior professional position and its impact on 
the agency's performance. Rates of basic pay above the rate for level 
III of the Executive Schedule but less than or equal to the rate for 
level II of the Executive Schedule generally are reserved for those 
newly appointed senior professionals who possess superior leadership, 
scientific, professional or other competencies necessary to address key 
program and mission requirements, as determined by the agency as part 
of its strategic human capital plan.
    (b) Consistent with the agency's written procedures and paragraph 
(a) of this section, an authorized agency official may set the rate of 
basic pay for an SL or ST employee upon transfer from another agency at 
any rate of basic pay within the pay range that applies to the SL or ST 
position under Sec.  534.504(a), except as provided in Sec.  
534.509(a).
    (c)(1) Consistent with the agency's written procedures and 
paragraph (a) of this section, except as provided in paragraph (c)(2) 
of this section, an authorized agency official may set pay upon 
reappointment of a former SL or ST employee at any rate of basic pay 
within the pay range that applies to the SL or ST position under Sec.  
534.504(a).
    (2) If a former agency SL or ST employee is reappointed within 30 
days to the same position or a successor position in the same agency, 
the agency may not give the individual a higher rate of basic pay upon 
reappointment unless the agency head or the designee who performs the 
functions described in Sec.  430.404(a)(6) of this chapter determines 
that a higher rate of basic pay is warranted.


Sec.  534.507  Annual increases in basic pay.

    (a)(1) Effective at the beginning of the first applicable pay 
period commencing on or after the first day of the month in which an 
adjustment takes effect under 5 U.S.C. 5303 in the rates of basic pay 
under the General Schedule, the head of an agency must adjust a senior 
professional's rate of basic pay under paragraph (b) of this section by 
an amount he or she considers appropriate, subject to the applicable 
maximum rate under Sec.  534.504(a), the agency's written procedures 
under Sec.  534.505, and the provisions of this section. For this 
purpose, a determination by an authorized agency official to make a 
zero adjustment in pay after reviewing a senior professional's current 
rating of record or performance rating is considered to be a pay 
adjustment.
    (2) A pay adjustment under paragraph (a)(1) of this section does 
not restrict the authority of an agency head to increase pay at other 
times as authorized under Sec.  534.510, if warranted.
    (b)(1) An agency may provide a pay increase to a senior 
professional only upon a determination by the authorized agency 
official that the senior professional's performance and/or 
contributions to agency performance so warrant.
    (2) Increases resulting in a rate of basic pay above level III of 
the Executive Schedule but less than or equal to the rate for level II 
of the Executive Schedule are reserved for those senior professionals 
who demonstrate the highest levels of individual performance, make the 
greatest contributions to the agency's performance, or both, as 
determined by the agency through the administration of its performance 
management system.
    (3) A pay increase must reflect the agency's judgment concerning 
the value of the employee's characteristic and continuing service to 
the agency in the SL or ST position. A single noteworthy contribution 
that is not characteristic of the employee's continuing performance 
requirements, individual performance or contributions to the agency's 
performance should be recognized by an appropriate award under part 
451, subpart A of this chapter, or other appropriate authority, rather 
than by a permanent increase in the rate of basic pay.
    (c) An agency must document the basis for each pay increase granted 
under paragraph (b) by means of--
    (1) A current rating of record; or
    (2) A performance rating that covers a period of at least 90 days 
and is assigned in accordance with subpart B of part 430 of this 
chapter and the centralized review required by Sec.  534.505(a)(5), but 
only if a rating of record is not available or does not reflect current 
performance.
    (d) Any increase under this section that results in a rate of basic 
pay above the rate for level III of the Executive Schedule may not be 
made effective unless--
    (1) The rating of record or performance rating used to justify the 
increase covers a period of at least 90 days of performance during 
which the applicable performance appraisal system has continuously been 
certified under 5 U.S.C. 5307(d) and part 430, subpart D of this 
chapter;
    (2) The rating of record or performance rating used to justify the 
increase becomes final while the applicable performance appraisal 
system is certified;
    (3) The rating and pay increase are reviewed and approved in 
accordance with Sec.  534.505(a);
    (4) The pay increase is approved in accordance with Sec.  
534.505(c), as applicable, and the agency's written procedures; and
    (5) The pay increase becomes effective while the applicable 
performance appraisal system is certified.
    (e) Upon the initial certification under 5 U.S.C. 5307(d) and part 
430, subpart D of this chapter by OPM, with OMB concurrence, of an 
agency performance appraisal system covering SL or ST employees, OPM 
may waive the requirement of paragraph (d)(1) of this section. The 
requirement may be waived only if OPM determines that the agency has, 
for a period of no less than 90 days prior to certification, 
consistently applied the same performance appraisal system to covered 
SL or ST employees in a manner consistent with certification. If OPM 
waives this requirement, OPM will notify the agency in writing.
    (f) Except as required by paragraph (g) of this section, a pay 
increase under this section may not be provided to an employee--
    (1) Who has a current rating of record below Level 3 (Fully 
Successful or equivalent), as described in Sec.  430.208 of this 
chapter; or
    (2) Who, after receiving a rating of record at Level 3 or above, 
receives a more recent performance rating that rates performance in a 
critical element at a level below fully successful, as described in 
Sec.  430.206(b)(8)(i) of this chapter.
    (g) An SL or ST employee whose rate of basic pay would otherwise 
fall below the minimum rate of the SL and ST pay range under Sec.  
534.504(a)(1) must be provided a pay adjustment sufficient to maintain 
the minimum rate of basic pay.
    (h)(1) If the rates of basic pay under the General Schedule are 
increased under 5 U.S.C. 5303 on the date specified in paragraph (a)(1) 
of this section and the agency head decides upon a zero adjustment for 
an SL or ST employee who has a current rating of record or applicable 
performance rating at level 3 or above, as described in Sec.  430.208 
of this chapter, the agency

[[Page 80277]]

must communicate the reasons for that decision to the employee in 
writing.
    (2) Paragraph (h)(1) of this section shall not apply to a senior 
professional with a rate of basic pay described in Sec.  534.505(c)(1) 
unless--
    (i) the rates of basic pay for the Executive Schedule are also 
increased on the date specified in paragraph (a)(1) of this section, 
and
    (ii) the senior professional has a current rating of record or 
applicable performance rating at level 4 in an appraisal program that 
uses summary level pattern G, or at level 5 in an appraisal program 
that uses summary level pattern H, as described in Sec.  430.208 of 
this chapter.
    (3) Paragraphs (h)(1) and (h)(2) of this section may not be 
construed to require a pay increase for any senior professional 
employee.


Sec.  534.508  Reductions in a rate of basic pay.

    (a) Any reduction in a rate of basic pay for an SL or ST employee 
is subject to part 752, subpart D of this chapter except as otherwise 
provided in this section.
    (b) If an employee is removed from an SL or ST position and placed 
in a General Schedule position under procedures in part 752, subpart D 
of this chapter or part 432 of this chapter providing for reduction in 
grade, or otherwise moves voluntarily or involuntarily to a General 
Schedule position, the employee is entitled to the minimum rate of 
basic pay, as defined in Sec.  531.203 of this chapter, for the General 
Schedule grade unless the agency sets the employee's pay at a higher 
rate under--
    (1) The maximum payable rate rule in Sec.  531.221 of this chapter, 
if applicable;
    (2) The superior qualifications and special needs pay-setting 
authority in Sec.  531.212 of this chapter, if applicable; or
    (3) The pay retention rules in part 536, subpart C of this chapter, 
if applicable.
    (c) An agency may reduce an SL or ST employee's rate of basic pay, 
subject to part 752, subpart D of this chapter, upon movement to a 
different SL or ST position within the agency. If an SL or ST employee 
elects to accept a reduction in pay to facilitate a reassignment and 
the agency documents the voluntary nature of the action, the resulting 
pay reduction is not subject to part 752, subpart D of this chapter.
    (d) If an SL or ST employee elects to accept a temporary increase 
in a rate of basic pay upon movement to another SL or ST position with 
the understanding that the employee will be returned to his or her 
former rate of basic pay when the agency terminates the assignment and 
the agency documents the voluntary nature of the action, the resulting 
reduction to the former rate of basic pay (or to a higher rate of basic 
pay determined under this subpart that is within the pay range 
applicable to the SL or ST position under Sec.  534.504(a)) is not 
subject to part 752, subpart D of this chapter.
    (e) A reduction in the rate of basic pay of an SL or ST employee 
under Sec.  534.506(b) upon transfer is considered voluntary upon the 
employee's acceptance of the appointment and is not subject to part 
752, subpart D of this chapter, except that an SL or ST employee's rate 
of basic pay may not be reduced upon transfer under circumstances 
described in Sec.  534.509(a). A reduction in the rate of basic pay of 
an SL or ST employee upon a transfer of function under part 351, 
subpart C of this chapter from another agency is subject to part 752, 
subpart D of this chapter, unless otherwise provided by statute.


Sec.  534.509  Preservation of an established rate of basic pay.

    (a) An SL or ST employee whose rate of basic pay is higher than the 
rate for level III of the Executive Schedule may not suffer a reduction 
in pay as a result of transfer to an SL or ST position in another 
agency where the maximum rate of basic pay for the applicable SL or ST 
rate range is equal to the rate for level III of the Executive 
Schedule.
    (b) An SL or ST employee whose rate of basic pay is higher than the 
rate for level III of the Executive Schedule may not suffer a reduction 
in pay because his or her agency's applicable performance appraisal 
system certification expires or is suspended under Sec.  430.405(h) of 
this chapter. See Sec.  530.203(g) and (h) of this chapter for 
treatment of the aggregate pay limit when certification status changes 
during the calendar year.
    (c) An agency may continue an SL or ST employee's rate of basic pay 
above the rate for level III of the Executive Schedule upon that 
employee's movement within the agency to an SL or ST position that is 
not under a certified performance appraisal system. Pay may be reduced 
upon the movement only as provided in Sec.  534.508.
    (d) If an agency grants a temporary pay increase under conditions 
described in Sec.  534.508(d) to an SL or ST employee subject to a 
certified performance appraisal system who, prior to the temporary pay 
increase, has a rate of basic pay above the rate for level III of the 
Executive Schedule, the agency may return the employee to an SL or ST 
position that is not subject to a certified performance appraisal 
system when the temporary assignment ends and set the SL or ST 
employee's rate of basic pay at the rate in effect immediately before 
the temporary pay increase.
    (e) When a rate of basic pay that is higher than level III of the 
Executive Schedule is preserved under a provision of this section, the 
SL or ST employee will continue to receive his or her current rate of 
basic pay and is not eligible for a pay increase until he or she is 
assigned to an SL or ST position covered by a certified performance 
appraisal system or his or her rate of basic pay is less than the rate 
for level III of the Executive Schedule.
    (f) An agency that is otherwise subject to the limitation in Sec.  
534.504(a)(2)(i) with respect to an SL or ST position occupied by an SL 
or ST employee whose rate of basic pay is authorized to be preserved 
under paragraph (a), (b), (c), or (d) of this section may set that 
employee's rate of basic pay above EX-III only at the level required to 
preserve the applicable rate.
    (g) Preservation of a rate of basic pay under this section does not 
preclude a subsequent reduction in pay as provided in Sec.  534.508.


Sec.  534.510  Off-cycle pay increases.

    (a) An authorized agency official may provide an off-cycle pay 
increase to a senior professional if, and only if, the agency head or 
the designee who performs the functions identified in Sec.  
430.404(a)(6) of this chapter determines an off cycle pay increase is 
warranted and approves the amount of the increase subject to the 
requirements of this section and the agency's written procedures 
established under Sec.  534.505. The authority to approve an off-cycle 
pay increase under this section may not be further delegated.
    (b) Except as provided in paragraph (d) of this section, an off-
cycle pay increase must be supported by factors that distinguish the 
level of the senior professional's performance and/or contributions to 
agency performance from that of his or her peers, as applicable, and 
from that sufficiently rewarded through the annual pay adjustment. In 
assessing the warrant for an off-cycle pay increase, the approving 
official may consider such factors as--
    (1) A senior professional's exceptionally meritorious 
accomplishments that contribute significantly to the agency's 
performance;
    (2) The need to offer a pay increase to reassign a senior 
professional to a

[[Page 80278]]

position that has a substantially greater impact on agency performance; 
and
    (3) The need to retain a senior professional whose contributions 
are critical to the agency and who is likely to leave the agency in the 
absence of a pay increase.
    (c) Each off-cycle pay increase that is based upon such factors as 
are described in paragraphs (b)(1) through (3) of this section must be 
documented in accordance with Sec.  534.507(b) through (e), except that 
the agency must also provide information to explain how each applicable 
factor was considered in determining the pay increase. This information 
may be derived from the agency's written pay procedures established 
under Sec.  534.505, agency performance management system activities, 
or other sources the agency deems useful for this purpose.
    (d) If the maximum rate of basic pay applicable to an agency's 
senior professionals increases during the one year period following the 
annual pay adjustment under Sec.  534.507(a)(1) for reasons other than 
a change in the certification status of an applicable performance 
appraisal system, the agency head or the designee who performs the 
functions identified in Sec.  430.404(a)(6) of this chapter may 
consider whether, and to what extent, an additional pay increase may be 
warranted for a senior professional based on the same criteria used in 
determining his or her annual pay increase. However, if the increase in 
maximum rate of basic pay is due to a change in the certification 
status of an applicable performance appraisal system, the requirements 
of paragraphs (a), (b), and (c) of this section apply.
    (e) An off-cycle pay increase granted under this section will be 
effective prospectively, not retroactively.


Sec.  534.511  Exemption from performance appraisal requirements.

    (a) An agency responsible for setting and adjusting rates of basic 
pay for SL or ST employees or positions excluded from performance 
appraisal by or under statute is, with respect to those employees or 
positions, exempt from any provision of this subpart to the extent that 
it makes a pay determination contingent upon performance appraisal, 
including--
    (1) Section 534.505(a)(1), (2) and (3) to the extent these 
paragraphs require that an agency's plan for setting and increasing 
rates of basic pay reflect meaningful distinctions among SL and ST 
employees based upon individual performance and include criteria that 
ensure individuals with the highest levels of individual performance, 
or the greatest contributions to agency performance, or both receive 
the highest pay increases. The agency must still provide written 
procedures for setting and adjusting rates of pay for covered SL and ST 
employees that specify criteria that will be applied consistent with 
applicable law. The remaining provisions of Sec.  534.505 apply, except 
for references in Sec.  534.505(a)(5) to compliance with certification 
requirements, centralized review of ratings and pay actions, 
performance differentiation as described in Sec.  430.404(a)(8) of this 
chapter, and pay differentiation as described in Sec.  430.404(a)(9) of 
this chapter;
    (2) Section 534.507(b), (c), (d), (e), and (f). The agency must 
still document in writing the basis for each pay increase under Sec.  
534.507 in accordance with criteria specified in the agency's written 
procedures under Sec.  534.505(a); and
    (3) Section 534.510(b) and (c). The agency must still document in 
writing the basis for each off-cycle pay increase under Sec.  534.510 
in accordance with criteria specified in the agency's written 
procedures under Sec.  534.505(a).
    (b) Except as specified in paragraph (a) of this section, an agency 
responsible for setting and adjusting rates of basic pay for SL or ST 
employees excluded from performance appraisal by or under statute is 
subject to the requirements of this subpart with respect to those 
employees.
    (c) The maximum rate of basic pay for an SL or ST employee or 
position not subject to performance appraisal is the maximum rate 
described in Sec.  534.504(a)(2)(i). An agency head who uses the 
exemption in paragraph (a) of this section to set the rate of basic pay 
for SL or ST employees who are not subject to performance appraisal may 
not certify that those employees are covered by a performance appraisal 
system meeting the certification criteria established in part 430, 
subpart D of this chapter for purposes of authorizing rates of basic 
pay above the rate for level III of the Executive Schedule.
    (d) Notwithstanding paragraph (c) of this section, an agency 
responsible for setting and adjusting rates of basic pay for SL or ST 
employees or positions excluded from performance appraisal by or under 
statute is subject to Sec.  534.509(a) when setting a rate of basic pay 
for an SL or ST employee upon transfer to such a position. The agency 
may also apply Sec.  534.509(c) upon movement of an SL or ST employee 
whose rate of basic pay was initially set under Sec.  534.509(a) or 
Sec.  534.509(c) to another SL or ST position that is excluded from 
performance appraisal. Pay may be reduced upon the movement only as 
provided in Sec.  534.508. In either case, the employee will not be 
eligible for a pay increase until he or she is appointed to an SL or ST 
position that is subject to a certified performance appraisal system or 
until his or her rate of basic pay is less than the rate for level III 
of the Executive Schedule.

[FR Doc. 2011-32939 Filed 12-22-11; 8:45 am]
BILLING CODE 6325-39-P