Updated February 2, 2005 - Federation of American Scientists › sgp › crs › homesec › RL32261.pdfprovisions. Blue-collar employees under th e wage grade system are excluded

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CRS Report for CongressReceived through the CRS Web

Order Code RL32261

Homeland Security: Final Regulations on Classification, Pay, and Performance

Management Compared with Current Law

Updated February 2, 2005

Barbara L. SchwemleAnalyst in American National Government

Government and Finance Division

http://www.fas.org/sgp/crs/homesec/index.html

Homeland Security: Final Regulations on Classification, Pay, and Performance Management

Compared with Current Law

Summary

The Secretary of the Department of Homeland Security (DHS) and the Directorof the Office of Personnel Management were authorized to prescribe joint regulationsfor a new human resources management system for DHS employees with theenactment of P.L. 107-296, the Homeland Security Act of 2002. The finalregulations were published in the Federal Register on February 1, 2005.

This report compares the final regulations with current law under Title 5 of theUnited States Code and relevant regulations under Title 5 of the Code of FederalRegulations. Specifically, Subparts A (General Provisions), B (Classification), C(Pay and Pay Administration), and D (Performance Management) of the finalregulations are examined. (The regulations also affect labor-management relations(Subpart E) and adverse actions (Subpart F) and appeals (Subpart G), but these areasare outside the purview of this report.)

With regard to classification, pay, and performance management, the regulationsprescribe the following. The classification system will organize the department’sjobs into clusters by major occupational groups. Within each occupational cluster,open pay bands with no steps will be established. Each pay band typically will havefour levels — entry/developmental, full performance, senior expert, and supervisory.Employees will progress through a pay band based on performance or enhanced skilllevel. The pay system will provide an annual pay adjustment, supplemented by alocality pay rate or a special pay rate in appropriate circumstances, to employees whomeet or exceed performance expectations. In addition, employees in a FullPerformance or higher pay band may receive a performance-based pay increase,based primarily on accomplishing work assignments and achieving results.Employees will not lose pay upon their transition to the pay system. Theperformance management system ties employee performance appraisal to the DHSmission and to specific performance standards based on job assignments. Quotas orforced distributions will not be imposed on the performance ratings.

A Homeland Security Compensation Committee, chaired by the DHSUndersecretary for Management, will provide options and/or recommendations to theSecretary on various strategic compensation matters, including the annual adjustmentof rate ranges and locality and special pay rate supplements for the department’semployees. The committee will have 14 members, four of whom will represent labororganizations granted national consultation rights.

Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Subpart A — General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Subpart B — Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Classification Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Classification Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Transitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Subpart C — Pay and Pay Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22Overview of Pay System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28Setting and Adjusting Rate Ranges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32Locality and Special Rate Supplements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36Performance-Based Pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41Pay Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47Special Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52Transitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Subpart D — Performance Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

List of Tables

Table 1. Department of Homeland Security Human Resources Management System: Final Regulations Compared With Current Law/Selected Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

1 See CRS Report RL31500, Homeland Security: Human Resources Management, byBarbara L. Schwemle. (Washington: CRS).2 U.S. Department of Homeland Security and U.S. Office of Personnel Management,“Department of Homeland Security Human Resources Management System,” FederalRegister, vol. 69, no. 34, Feb. 20, 2004, pp. 8029-8071.3 U.S. Department of Homeland Security and U.S. Office of Personnel Management,“Department of Homeland Security Human Resources Management System,” FederalRegister, vol. 70, no. 20, Feb. 1, 2005, pp. 5271-5347.4 “Designing Options for a New HR System,” ibid., pp. 8031-8035.

Homeland Security: Final Regulations onClassification, Pay, and Performance

Management Compared With Current Law

Introduction

President George W. Bush signed the Homeland Security Act of 2002 onNovember 25, 2002, and it became P.L. 107-296. Title VIII, Subtitle E, Section 841of the law amends Title 5 United States Code by adding a new Chapter 97 —Department of Homeland Security (DHS) to Part III, Subpart I. The new §9701(a)provides that, notwithstanding any other provision of Part III, the Secretary ofHomeland Security may, in regulations prescribed jointly with the Director of theOffice of Personnel Management (OPM), establish, and from time to time adjust, ahuman resources management (HRM) system for some or all of the organizationalunits of the Department of Homeland Security. The law states specific requirementsfor the HRM system.1

On February 20, 2004, DHS and OPM jointly published proposed regulationsto implement a new HRM system for DHS in the Federal Register.2 The finalregulations were published in the Federal Register on February 1, 2005.3 The designprocess that culminated in proposed rules for the new system was discussed in thebackground section of the proposed regulations.4 Briefly, a design team, composedof DHS program managers, union and employee representatives, DHS and OPMhuman resource specialists, and private sector experts, conducted research andmeetings in the field to compile options for the new system. A senior reviewcommittee, composed of DHS and OPM top management officials, major unionleaders, and several experts from academia, developed the options for considerationby the DHS Secretary and the Director of OPM and their senior staff.

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5 U.S. Department of Homeland Security, DHS and OPM Final Human ResourceRegulations Fact Sheet, Jan. 26, 2005. (Available on the Internet at [http://www.dhs.gov],visited Jan. 26, 2005).

According to a DHS and OPM Fact Sheet on the final regulations, the newHRM system will cover about 110,000 of the department’s 180,000 employees.5

Transportation Security Administration (TSA) employees, Inspector Generalemployees, and employees appointed under the Robert T. Stafford Disaster Reliefand Emergency Assistance Act will not be covered by the system. The SecretService is excluded from the labor-management relations provisions and itsUniformed Division employees are not covered by the classification and payprovisions. Blue-collar employees under the wage grade system are excluded fromthe classification and pay provisions during the initial implementation of the system.Members of the Senior Executive Service (SES) are covered by the government-widepay-for-performance system. The fact sheet states that the system will beimplemented in phases according to the following timetable:

Time Period Implementation Steps

Early in 2005 Communication outreach begins; Detailed design work,including collaboration with employee representatives;Meetings and focus groups held around the country.

Spring 2005 Training of managers and supervisors begins; The laborrelations and adverse actions and appeals provisionsbecome effective.

Summer 2005 Managers, supervisors, and employees receive performancemanagement training.

Fall 2005 The performance management process begins.

Early 2006 DHS Headquarters, Information Analysis and InfrastructureProtection, Science and Technology, EmergencyPreparedness and Response, and Federal Law EnforcementTraining Center are converted to the new pay system. Thefirst rate range adjustment and performance pay-out isscheduled for January 2007.

Early 2007 U.S. Secret Service and U.S. Coast Guard (USCG) areconverted to the new pay system. The first rate rangeadjustment and performance pay-out is scheduled forJanuary 2008. (The USCG performance pay-out isscheduled for Summer 2008.)

Early 2008 U.S. Customs and Border Protection, U.S. Immigration andCustoms Enforcement, and U.S. Citizenship andImmigration Services are converted to the new pay system.The first rate range adjustment and performance pay-out isscheduled for January 2009.

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Among the features of the final regulations are the following.

! Classification. The department’s jobs will be organized into clustersby major occupational groups. The current 15 grades and ten stepsof the General Schedule pay system will be abolished and replaced,within each occupational cluster, by open pay bands without steps.There typically will be four levels — entry/developmental, fullperformance, senior expert, and supervisory — for each pay band.Salaries within the pay bands will be set based on missionrequirements, labor market conditions, availability of funds, payadjustments received by other federal employees, and any otherrelevant factors. Employees will progress through a pay band basedon performance or enhanced skill level.

! Pay Adjustments. For each occupational cluster, there will be anannual pay adjustment, and locality pay rate and special pay ratesupplements as appropriate, based on mission requirements, labormarket conditions, availability of funds, pay adjustments received byother federal employees, and any other relevant factors. Anemployee must meet or exceed performance expectations to receivethese pay adjustments. In addition, employees with a high level ofperformance that supports the accomplishment of the department’smission may receive a performance-based pay increase; higherincreases would go to outstanding performers. The pay-outs for payadjustments and awards will depend on DHS’s funding. Theformula that will be used to determine the size of performance-basedpay adjustments has not yet been defined. Employees will not losepay as they transition to the new system. The DHS Undersecretaryfor Management will chair a Homeland Security CompensationCommittee which will provide options and/or recommendations tothe Secretary on various strategic compensation matters, includingthe annual adjustment of rate ranges and locality and special pay ratesupplements for the department’s employees. Of the committee’s 14members, four will represent labor organizations granted nationalconsultation rights.

! Performance Management. Appraisal of employee performance willbe tied to the DHS mission and to specific performance standardsbased on job assignments. Generally, three or four rating levels (“Unacceptable,” “Fully Successful,” and at least one level above“Fully Successful”) will be established. The system will not havequotas or forced distributions of performance ratings. Managers andsupervisors will be trained to appraise employee performance.

This report compares the final regulations for Subparts A (General Provisions),B (Classification), C (Pay and Pay Administration), and D (PerformanceManagement) of the Department of Homeland Security’s HRM system with currentlaw under Title 5 United States Code and relevant regulations under Title 5 Code ofFederal Regulations. For an analysis of the regulations for Subpart E on Labor-Management Relations, see CRS Report RL32255, Homeland Security: Proposed

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Regulations for the Department of Homeland Security Human ResourcesManagement System (Subpart E) Compared With Current Law. P.L. 107-296, theHomeland Security Act of 2002, amended Title 5 provisions that are applicable tomost federal employees, and it is these provisions (rather than those which have beenprovided in separate statutes to employees at the Internal Revenue Service, FederalAviation Administration, Transportation Security Administration, Department ofDefense, and the National Aeronautics and Space Administration) that are comparedwith the proposed DHS regulations.

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Table 1. Department of Homeland Security Human Resources Management System: FinalRegulations Compared With Current Law/Selected Regulations

Current Law/Selected RegulationsTitle 5 United States Code and

Title 5 Code of Federal Regulations

Final DHS Regulations

Subpart A — General Provisions

5 U.S.C. §9701. Establishment of human resourcesmanagement system. (a) Notwithstanding any otherprovision of this part, the Secretary of HomelandSecurity may, in regulations prescribed jointly with theDirector of the Office of Personnel Management,establish, and from time to time adjust, a humanresources management system for some or all of theorganizational units of the Department of HomelandSecurity.

§9701.101. Purpose. To establish a system that ismission-centered, performance-focused, flexible,contemporary, and excellent; that generates respect andtrust through employee involvement; that is based on theprinciples of merit and fairness embodied in the statutorymerit system principles; and that complies with all otherapplicable laws.

Authority derives from 5 U.S.C. §9701(a). §9701.102. Eligibility and coverage. All DHS civilianemployees are eligible for coverage under one or moresubparts of 5 CFR Part 9701 except those covered by aprovision of law outside the chapters of Title 5 UnitedStates Code identified in §9701.104 which can bewaived. For example Transportation SecurityAdministration (TSA) employees, employees appointedunder the Robert T. Stafford Disaster Relief andEmergency Assistance Act, Secret Service UniformedDivision members, Coast Guard Academy facultymembers, and Coast Guard military members are noteligible for coverage under any classification or paysystem established under Subpart B or C. Each subpartprovides specific information regarding coverage.Subpart A becomes applicable to all eligible employees30 days after the date of publication in the FederalRegister.With respect to Subparts B, C, and D, the Secretary or

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designee may, at his or her sole and exclusive discretionand after coordination with OPM, apply one or more ofthese subparts to a specific category or categories ofeligible civilian employees at any time. With respect toany given category of civilian employees, the Secretaryor designee may apply some of these subparts, but notothers, and such coverage determinations may be madeeffective on different dates (e.g., in order to phase incoverage under a new classification, pay, andperformance management system).DHS will notify affected employees and labororganizations in advance of the application of one ormore subparts to them.Until the Secretary or designee makes such adetermination to apply the provisions of one or moresubparts to a particular category or categories of eligibleDHS employees, those employees will continue to becovered by the applicable federal laws and regulationsthat would apply to them in the absence of 5 CFR Part9701. All personnel actions affecting DHS employeesmust be based on the federal laws and regulationsapplicable to them on the effective date of the action.

5 U.S.C. Chapter 53, Subchapter VIII — Pay for theSenior Executive Service.

Any new DHS classification, pay, or performancemanagement system covering Senior Executive Service(SES) members must be consistent with the policies andprocedures established by the government-wide SESpay-for-performance system authorized by 5 U.S.C.Chapter 53, Subchapter VIII, and applicableimplementing regulations issued by OPM. If theSecretary determines that SES members employed byDHS should be covered by classification, pay, or

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performance management provisions that differsubstantially from the government-wide SES pay-for-performance system, the Secretary and the Director mustissue joint regulations consistent with all of therequirements of 5 U.S.C. §9701.At his or her sole and exclusive discretion, the Secretaryor designee may, after coordination with OPM, rescindthe application of one or more subparts to a particularcategory of employees and prescribe implementingdirectives for converting that category of employees tocoverage under applicable Title 5 provisions. DHS willnotify affected employees and labor organizations inadvance of such a decision.The Secretary or other authorized DHS official mayexercise an independent legal authority to establish aparallel system that follows some or all of therequirements in 5 CFR Part 9701 for a category ofemployees who are not eligible for coverage under 5U.S.C. §9701.

Authority derives from 5 U.S.C. §9701(a). §9701.103. Definitions. Various terms are defined,including: “Authorized agency official” means theSecretary or an official who is authorized to act for theSecretary in the matter concerned. “Coordination”means the process by which DHS, after appropriate staff-level consultation, officially provides OPM with noticeof a proposed action and intended effective date. If OPMconcurs, or does not respond to that notice within 30calendar days, DHS may proceed with the proposedaction. However, if OPM indicates the matter hasgovernment-wide implications or consequences, DHSwill not proceed until the matter is resolved. The

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coordination process is intended to give due deference tothe flexibilities afforded DHS by the Homeland SecurityAct and the regulations in 5 CFR Part 9701, withoutcompromising OPM’s institutional responsibility toprovide government-wide oversight in HRM programsand practices. “Implementing directives” meansdirectives issued at the departmental level by theSecretary or designee to carry out any policy orprocedure established in accordance with 5 CFR Part9701. These directives may apply department-wide or toany part of the department as determined by theSecretary at his or her sole and exclusive discretion.

5 U.S.C. §2105. Employee.(a) “Employee” means an officer and an individual whois appointed in the civil service by one of the followingacting in an official capacity — the President; a Memberor Members of Congress, or the Congress; a member of auniformed service; an individual who is an employeeunder this section; the head of a government controlledcorporation; or an adjutant general designated by theSecretary concerned under 32 U.S.C. §709(c). It alsomeans an officer and an individual engaged in theperformance of a federal function under authority of lawor an executive act; and subject to the supervision of anindividual named above while engaged in theperformance of the duties of the position.

“Employee” means an employee within the meaning ofthat term in 5 U.S.C. §2105. “Secretary” means theSecretary of Homeland Security or, as authorized, theDeputy Secretary of Homeland Security. “Secretary ordesignee” means the Secretary or a DHS officialauthorized to act for the Secretary in the matterconcerned who serves as the Undersecretary forManagement or as DHS’ Chief Human Capital Officer.

5 U.S.C. §9701. Establishment of human resourcesmanagement system.(b)(c) The HRM system must be flexible andcontemporary. It cannot waive, modify, or otherwise

§9701.104. Scope of authority. Subject to therequirements and limitations in 5 U.S.C. §9701, theseTitle 5 chapters and related regulations may be waived ormodified: Chapter 43 (performance appraisal systems);

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affect:

— the public employment principles of merit andfitness at 5 U.S.C. §2301, including the principlesof hiring based on merit, fair treatment withoutregard to political affiliation or other non-meritconsiderations, equal pay for equal work, andprotection of employees against reprisal forwhistleblowing;

— any provision of 5 U.S.C. §2302 relating toprohibited personnel practices;

— any provision of law referred to in 5 U.S.C.§2302(b)(1)(8)(9); or any provision of lawimplementing any provision of law referred to in 5U.S.C. §2302(b)(1)(8)(9) by providing for equalemployment opportunity through affirmative action;or providing any right or remedy available to anyemployee or applicant for employment in the civilservice;

— Subparts A (General Provisions), B(Employment and Retention), E (Attendance andLeave), G (Insurance and Annuities), and H (Accessto Criminal History Record Information) of Part IIIof Title 5 United States Code; and Chapters 41(Training), 45 (Incentive Awards), 47 (PersonnelResearch Programs and Demonstration Projects), 55(Pay Administration), 57 (Travel, Transportation,and Subsistence), 59 (Allowances), 72(Antidiscrimination, Right to Petition Congress), 73

Chapter 51 (General Schedule (GS) job classification);Chapter 53 (pay for GS employees, pay and job gradingfor Federal Wage System employees, and pay for certainother employees); Chapter 71 (labor relations); Chapter75 ( adverse actions and certain other actions); andChapter 77 (appeal of adverse actions and certain otheractions).

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(Suitability, Security, and Conduct), and 79(Services to Employees) of Title 5; or

— any rule or regulation prescribed under anyprovision of law referred to in any of the statementsin bullets immediately above.

5 U.S.C. §9701. Establishment of human resourcesmanagement system.(h) Effective five years after the conclusion of thetransition period defined under §1501 of P.L. 107-296,all authority to issue regulations under the section(including regulations which would modify, supersede,or terminate any regulations previously issued under thesection) must cease to be available. The transition periodis the 12-month period that began on the act’s effectivedate. The act’s effective date was 60 days after the act’senactment date of November 25, 2002.

§9701.105. Continuing collaboration. Relates to theparticipation of employee representatives in developingimplementing directives.

Authority derives from 5 U.S.C. §9701(a)-(c). §9701.106. Relationship to other provisions. Title 5,United States Code, is waived or modified to the extentauthorized by 5 U.S.C. §9701 to conform to 5 CFR Part9701. This part must be interpreted in a way thatrecognizes the critical mission of DHS. Each provisionmust be construed to promote the swift, flexible,effective day-to-day accomplishment of the mission, asdefined by the DHS Secretary or designee. Theinterpretation of the regulations by DHS and OPM mustbe accorded great deference.

5 U.S.C. Chapter 43 (Performance Appraisal; Chapter 51

For the purpose of applying other provisions of law orGovernment-wide regulations that reference provisionsunder 5 U.S.C. Chapters 43, 51, 53, 71, 75, and 77, the

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(Classification); Chapter 53 (Pay Rates and Systems);Chapter 71 (Labor-Management Relations); Chapter 75(Adverse Actions); and Chapter 77 (Appeals).

5 U.S.C. §§4521-4523. Award to Law EnforcementOfficers for Foreign Language Capabilities; 5 U.S.C.§5545b (Pay for firefighters); 5 U.S.C. §5545(d)(hardship or hazard pay differentials); 5 U.S.C. §§5753-5754 (Recruitment and relocation bonuses and Retentionallowances); 5 U.S.C. §5948 (Physicians comparabilityallowances); P.L. 101-509, Sec. 407, 5 U.S.C. §5305note (Relocation payments for law enforcement officers);

5 CFR Part 300, Subpart F (Time-in-Grade Restrictions);5 U.S.C. §5755 (Supervisory differentials); P.L. 101-509, Sec. 404 and 404, 5 U.S.C. 5303 note (Special ratesand Special pay adjustments for law enforcementofficers).

referenced provisions are not waived but are modifiedconsistent with the corresponding regulations in 5 CFRPart 9701, except as otherwise provided in this part or inDHS implementing directives. Applications of this ruleinclude, but are not limited to, the following:If another provision of law or Government-wideregulations requires coverage under one of the chaptersmodified or waived under 5 CFR Part 9701 (i.e., 5U.S.C. Chapters 43, 51, 53, 71, 75, and 77), DHSemployees are deemed to be covered by the applicablechapter notwithstanding coverage under a systemestablished under this part. Selected examples ofprovisions that continue to apply to any DHS employees(notwithstanding coverage under Subparts B through G)include, but are not limited to: foreign language awardsfor law enforcement officers; pay for firefighters;differentials for duty involving physical hardship orhazard; recruitment, relocation, and retention payments;physicians’ comparability allowances; and the higher capon relocation bonuses for law enforcement officers. Application of the back pay law with regard to attorneyfees and labor relations will be consistent with§9701.706(h) and §9701.517, respectively.When a specified category of employees is covered by aclassification and pay system established under SubpartsB and C, the following provisions do not apply: time-in-grade restrictions that apply to competitive service GSpositions; supervisory differentials; and law enforcementofficer special rates and geographic adjustments.

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42 U.S.C. §2000e (Equal Employment Opportunity); 29U.S.C. §621 (Age discrimination in employment); 29U.S.C. §791 (Employment of individuals withdisabilities); 29 U.S.C. §206(d) (Prohibition of sexdiscrimination); 29 CFR Part 1614 — Federal SectorEqual Employment Opportunity (Subparts A-F,including Agency Program to Promote EqualEmployment Opportunity, Appeals and Civil Actions,Remedies and Enforcement).

Nothing in this part waives, modifies or otherwise affectsthe employment discrimination laws that the EqualEmployment Opportunity Commission (EEOC) enforcesunder 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).Employees and applicants for employment in DHS willcontinue to be covered by EEOC’s federal sectorregulations found at 29 CFR Part 1614.

Authority derives from 5 U.S.C. §9701(a). §9701.107. Program evaluation. DHS will establishprocedures for evaluating the regulations and theirimplementation. Designated employee representativeswill be provided with an opportunity to be briefed and aspecified timeframe to provide comments on the designand results of program evaluations. Employeerepresentatives will be involved with the identification ofthe scope, objectives, and methodology to be used inprogram evaluation and review of draft findings andrecommendations. Involvement in the evaluationprocess does not waive the rights of any party underapplicable law or regulations.

Subpart B — Classification

General

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DHS authority for Subpart B derives from 5 U.S.C.§9701(a)-(c).5 U.S.C. Chapter 51 — Classification5 U.S.C. §5101. Purpose. To provide a plan forclassification of positions whereby in determining therate of basic pay which an employee will receive, theprinciple of equal pay for substantially equal work willbe followed, and variations in rates of basic pay paid todifferent employees will be in proportion to substantialdifferences in the difficulty, responsibility, andqualification requirements of the work performed and tothe contributions of employees to efficiency andeconomy in the service. Individual positions will, inaccordance with their duties, responsibilities, andqualification requirements, be so grouped and identifiedby classes and grades, and the various classes will be sodescribed in published standards, that the resultingposition-classification system can be used in all phasesof personnel administration.5 U.S.C. Chapter 53, Subchapter IV — Prevailing RateSystems5 U.S.C. §5341. Policy. It is the policy of Congress thatrates of pay of prevailing rate employees be fixed andadjusted from time to time as nearly as is consistent withthe public interest in accordance with prevailing ratesand be based on principles that there will be equal payfor substantially equal work for all prevailing rateemployees who are working under similar conditions ofemployment in all agencies within the same local wagearea; there will be relative differences in pay within alocal wage area when there are substantial orrecognizable differences in duties, responsibilities, and

§9701.201. Purpose. Subpart B contains regulationsestablishing a classification structure and rules forcovered DHS employees and positions to replace the 5U.S.C. Chapter 51 classification structure and rules andthe 5 U.S.C. Chapter 53, Subchapter IV job gradingsystem, in accordance with the merit principle of equalpay for work of equal value. Any classification systemmust be established in conjunction with the pay systemdescribed in Subpart C.

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qualification requirements among positions; the level ofrates of pay will be maintained in line with prevailinglevels for comparable work within a local wage area; andthe level of rates of pay will be maintained so as toattract and retain qualified prevailing rate employees.

Authority derives from 5 U.S.C. §9701(a). §9701.202. Coverage. Subpart B applies to eligibleDHS employees and positions listed below, subject to adetermination by the Secretary or designee under§9701.102(b).

5 U.S.C. Chapter 53, Subchapter III — General SchedulePay Rates5 U.S.C. Chapter 53, Subchapter IV — Prevailing RateSystems5 U.S.C. §5376. Pay for certain senior-level positions5 U.S.C. Chapter 53, Subchapter VIII — Pay for theSenior Executive Service

Eligible for coverage are: employees and positions thatwould otherwise be covered by the GS classificationsystem; employees and positions that would otherwise becovered by a prevailing rate system; employees insenior-level (SL) and scientific or professional (ST)positions who would otherwise be covered by 5 U.S.C.§5376; and SES members who would otherwise becovered by 5 U.S.C. Chapter 53, Subchapter VIII,subject to §9701.102(d).

5 U.S.C. Chapter 51 — Classification (includesclassification and grading of positions)5 U.S.C. §5346. Job grading system 5 U.S.C. §5108. Classification of positions above GS-15

§9701.203. Waivers. When a specified category ofemployees is covered by a classification systemestablished under Subpart B, 5 U.S.C. Chapter 51 and 5U.S.C. §5346, and related regulations, are waived withrespect to that category of employees, except as providedimmediately below, in §9701.106, and §9701.222(d)(with respect to OPM’s authority under 5 U.S.C.§§5112(b) and 5346(c) to act on requests for review ofclassification decisions). 5 U.S.C. §5108 is not waived.

5 U.S.C. §5102. Definitions; application (unlessotherwise noted)

§9701.204. Definitions.“Band” means a work level or pay range within an

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“Grade” includes all classes of positions which, althoughdifferent with respect to kind or subject-matter of work,are sufficiently equivalent as to level of difficulty andresponsibility; and level of qualification requirements ofthe work; to warrant their inclusion within one range ofrates of basic pay in the General Schedule.

“Basic pay” means the total amount of pay receivedduring any one calendar year at the rate fixed by law oradministrative action for the position ... including nightand environmental differentials for prevailing rateemployees, but before any deductions and exclusive ofadditional pay of any other kind. [5 CFR §530.202]

“Classification” means the analysis and identification ofa position and placing it in a class under the position-classification plan established by OPM under 5 U.S.C.Chapter 51. [5 CFR §511.101(c)]

occupational cluster.

“Basic pay” means an employee’s rate of pay before anydeductions and exclusive of additional pay of any kind,except as expressly provided by law or regulation. Itincludes locality and special rate supplements for thespecific purposes prescribed in §§9701.332(c) and9701.333.

“Classification” also referred to as job evaluation, meansthe process of analyzing and assigning a job or positionto an occupational series, cluster, and band for pay andother related purposes.

“Competencies’ means the measurable or observableknowledge, skills, abilities, behaviors, and othercharacteristics required by a position.

“Class” or “class of positions” includes all positionswhich are sufficiently similar, as to kind or subject-matter of work; level of difficulty and responsibility; andthe qualification requirements of the work; to warrantsimilar treatment in personnel and pay administration.

“Occupational cluster” means a grouping of one or moreassociated or related occupations or positions. Anoccupational cluster may include one or moreoccupational series.

“Occupational series” means the number OPM or DHSassigns to a group or family of similar positions foridentification purposes.

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“Position” means the work, consisting of the duties andresponsibilities, assigned by competent authority forperformance by an employee. [5 CFR §511.101(e)]

“Position” or “Job” means the duties, responsibilities,and related competency requirements that are assigned toan employee whom the Secretary or designee approvesfor coverage under §9701.202(a).

Classification of positions is not subject to collectivebargaining.

§9701.205. Bar on collective bargaining. As providedin the definition of “conditions of employment” in§9701.504, any classification system established underSubpart B is not subject to collective bargaining. Thisbar on collective bargaining applies to all aspects of theclassification system, including but not limited tocoverage determinations, the design of the classificationstructure, and classification methods, criteria, andadministrative procedures and arrangements.

Classification Structure

5 U.S.C. §5106. Basis for classifying positionsEach position is placed in its appropriate class on thebasis of the duties and responsibilities of the position andthe qualifications required by those duties andresponsibilities. Each class is placed in its appropriategrade on the basis of the level of difficulty,responsibility, and qualification requirements of the workof the class.

§9701.211. Occupational clusters. For purposes ofclassifying positions, DHS may, after coordination withOPM, establish occupational clusters based on factorssuch as mission or function; nature of work;qualifications or competencies; career or pay progressionpatterns; relevant labor-market features; and othercharacteristics of those occupations or positions. DHSmust document in implementing directives the criteriaand rationale for grouping occupations or positions intooccupational clusters.

5 U.S.C. §5104. Basis for grading positionsProvides for 15 General Schedule pay grades. Thestatute defines each of the pay grades in terms of theirdifficulty and responsibility.

§9701.212. Bands. For purposes of identifying relativelevels of work and corresponding pay ranges, DHS may,after coordination with OPM, establish one or morebands within each occupational cluster. Eachoccupational cluster may include, but is not limited to,

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the following bands: Entry/Developmental — work thatinvolves gaining the competencies needed to performsuccessfully in a Full Performance band throughappropriate formal training and/or on-the-job experience.Full Performance — work that involves the successfulcompletion of any required entry-level training and/ordevelopmental activities necessary to independentlyperform the full range of non-supervisory duties of aposition in an occupational cluster.Senior Expert — work that involves an extraordinarylevel of specialized knowledge or expertise upon whichDHS relies for the accomplishment of critical missiongoals and objectives; reserved for a limited number ofnon-supervisory employees.Supervisory — work that may involve hiring or selectingemployees, assigning work, managing performance,recognizing and rewarding employees, and otherassociated duties.


DHS must document in implementing directives thedefinitions for each band which specify the type andrange of difficulty and responsibility, qualifications,competencies, or other characteristics of the workencompassed by the band.

5 U.S.C. §5105. Standards for classification ofpositionsOPM , after consulting the agencies, prepares standardsfor placing positions in their proper classes and grades.

DHS must, after coordination with OPM, establishqualification standards and requirements for eachoccupational cluster, occupational series, and/or band.DHS may use the qualification standards established by

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OPM may make such inquiries or investigations of theduties, responsibilities, and qualification requirements ofpositions as it considers necessary for this purpose. Inthe standards, OPM defines the various classes ofpositions in terms of duties, responsibilities, andqualification requirements; establishes the official classtitles; and sets forth the grades in which the classes havebeen placed by OPM. OPM must revise, supplement, orabolish existing standards, or prepare new standards sothat positions will be covered by current publishedstandards. The official class titles are used for personnel,budget, and fiscal purposes.5 U.S.C. §5107. Classification of positionsExcept as otherwise provided in Chapter 51, each agencyplaces each position under its jurisdiction in itsappropriate class and grade in conformance with OPMstandards. When facts warrant, an agency may change aposition from one class or grade to another.

OPM or, after coordination with OPM, may establishdifferent qualification standards. Any DHS authority toestablish qualification standards or requirements under 5U.S.C. Chapters 31 and 33 and OPM implementingregulations is not waived or modified.

Classification Process

5 U.S.C. §5104. Basis for grading positions Provides for 15 General Schedule pay grades. Thestatute defines each of the pay grades in terms of theirdifficulty and responsibility.5 U.S.C. §5108. Classification of positions above GS-15Authorizes OPM to establish, and from time to timerevise, the maximum number of positions classified atany one time above GS-15, and establish standards andprocedures for classifying positions above GS-15 for anyexecutive agency.5 U.S.C. 5113. Classification records

§9701.221. Classification requirements. DHS mustdevelop a methodology for describing and documentingthe duties, qualifications, and other requirements ofcategories of jobs, and DHS must make such descriptionsand documentation available to affected employees.

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OPM may prescribe the form in which each agency mustrecord the duties and responsibilities of positions and theplaces where these records must be maintained; examinethese or other pertinent records of the agency; andinterview agency employees who have knowledge of theduties and responsibilities of positions and informationas to the reasons for placing a position in a class orgrade.

5 U.S.C. §5106. Basis for classifying positions Each position is placed in its appropriate class on thebasis of the duties and responsibilities of the position andthe qualifications required by those duties andresponsibilities. Each class is placed in its appropriategrade on the basis of the level of difficulty,responsibility, and qualification requirements of the workof the class.

An authorized agency official must assign occupationalseries to jobs consistent with definitions established byOPM or by DHS, after coordination with OPM; andapply the criteria and definitions required by §9701.211and §9701.212 to assign jobs to an appropriateoccupational cluster and band.

5 U.S.C. §5105. Standards for classification ofpositions OPM , after consulting the agencies, prepares standardsfor placing positions in their proper classes and grades. OPM may make such inquiries or investigations of theduties, responsibilities, and qualification requirements ofpositions as it considers necessary for this purpose. Inthe standards, OPM defines the various classes ofpositions in terms of duties, responsibilities, andqualification requirements; establishes the official classtitles; and sets forth the grades in which the classes havebeen placed by OPM. OPM must revise, supplement, orabolish existing standards, or prepare new standards sothat positions will be covered by current publishedstandards. The official class titles are used for personnel,

DHS must establish procedures for classifying jobs andmay make such inquiries or investigations of the duties,responsibilities, and qualification requirements of jobs asit considers necessary for the purposes of this section.Classification decisions become effective on the datedesignated by the authorized agency official who makesthe decision.

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budget, and fiscal purposes.

5 U.S.C. §5111. Revocation and restoration ofauthority to classify positionsWhen OPM finds that an agency is not placing positionsin classes and grades in conformance with or consistentlywith published standards, it may revoke or suspend theauthority granted to the agency under 5 U.S.C. §5107and require that prior OPM approval be secured beforean action placing a position in a class and grade becomeeffective. Agency authority may be restored uponcorrective action.

DHS must establish a plan to periodically review theaccuracy of classification decisions.

5 U.S.C. §5110. Review of classification of positionsOPM, from time to time, reviews such number ofpositions in each agency as will enable it to determinewhether the agency is placing positions in classes andgrades in conformance with or consistently withpublished standards. OPM takes corrective action whenit finds that a position is not placed in its proper class andgrade in conformance with published standards.5 U.S.C. §5112. General authority of OPMOPM may place a position in the appropriate class andgrade, determine whether a position is in the appropriateclass and grade, and change a position from one classand grade to another when the facts as to the duties,responsibilities, and qualification requirements of aposition warrant. An employee may request that OPMexercise its authority in this regard.

§9701.222. Reconsideration of classificationdecisions. An individual employee may request thatDHS or OPM reconsider the pay system, occupationalcluster, occupational series, or band assigned to his orher current official position of record at any time.DHS will, after coordination with OPM, establishimplementing directives for reviewing requests forreconsideration, including nonreviewable issues, rightsof representation, and the effective date of any correctiveactions. OPM will, after consulting with DHS, establishseparate policies and procedures for reviewingreconsideration requests.An employee may request that OPM review a DHSdetermination. If an employee does not request an OPMreconsideration decision, DHS’s classificationdetermination is final and not subject to further review orappeal.OPM’s final determination on a request is not subject tofurther review or appeal.

Transitional Provisions

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Authority derives from 5 U.S.C. §9701(a). §9701.231. Conversion of positions and employees tothe DHS classification system. Affected positions andemployees may convert from the GS system, a prevailingrate system, the SL/ST system, or the SES system, asprovided in §9701.202. The terms “convert,”“converted,” “converting,” and “conversion” refer topositions and employees that become covered by theclassification system as a result of a coveragedetermination made under §9701.102(b) and excludeemployees who are reassigned or transferred from anoncovered position to a position already covered by theDHS system.DHS will issue implementing directives prescribingpolicies and procedures for converting the GS orprevailing rate grade of a position to a band and forconverting SL/ST and SES positions to a band uponinitial implementation of the DHS classification system.Such procedures must include provisions for convertingan employee who is retaining a grade under 5 U.S.C.Chapter 53, Subchapter VI, immediately prior toconversion. As provided in §9701.373, DHS mustconvert employees without a reduction in their rate ofpay (including basic pay and any applicable localitypayment, special rate, or other similar supplemental pay).

Authority derives from 5 U.S.C. §9701(a).P.L. 107-71 (115 Stat. 597) established theTransportation Security Administration.

§9701.232. Special transition rules for Federal AirMarshal Service. Notwithstanding any other provisionin Subpart B, if DHS transfers Federal Air MarshalService (FAMS) positions from the TSA to anotherorganization within DHS, DHS may cover thosepositions under a classification system that is parallel tothe classification system that was applicable to theFAMS within TSA. DHS may, after coordination with

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OPM, modify that system. DHS will issue implementingdirectives on converting FAMS employees to any newclassification system that may subsequently beestablished under Subpart B, consistent with theconversion rules in §9701.231.

Subpart C — Pay and Pay Administration

General

DHS Authority for Subpart C derives from 5 U.S.C.§9701(a)-(c).5 U.S.C. Chapter 53 — Pay Rates and Systems5 U.S.C. §5301. PolicyIt is the policy of Congress that federal pay fixing foremployees under the General Schedule be based on theprinciples that there be equal pay for substantially equalwork within each local pay area; within each local payarea, pay distinctions be maintained in keeping withwork and performance distinctions; federal pay rates becomparable with non-federal pay rates for the samelevels of work within the same local pay area; and anyexisting pay disparities between federal and non-federalemployees should be completely eliminated.

§9701.301. Purpose. Subpart C contains regulationsestablishing pay structures and pay administration rulesfor covered DHS employees to replace the pay structuresand pay administration rules established under 5 U.S.C.Chapter 53, as authorized by 5 U.S.C. §9701. Theseregulations are designed to provide DHS with theflexibility to allocate available funds strategically insupport of DHS mission priorities and objectives. Various features that link pay to employees’ performanceratings are designed to promote a high-performanceculture within DHS.Any pay system prescribed under Subpart C must beestablished in conjunction with the classification systemdescribed in Subpart B.The pay system established under Subpart C, working inconjunction with the performance management systemestablished under Subpart D, is designed to incorporatethese features: adherence to merit principles set forth in5 U.S.C. §2301; a fair, credible, and transparentemployee performance appraisal system; a link betweenelements of the pay system established in Subpart C, theemployee performance appraisal system, and thedepartment’s strategic plan; employee involvement in thedesign and implementation of the system (as specified in

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§9701.105); adequate training and retraining forsupervisors, managers, and employees in theimplementation and operation of the pay system;periodic performance feedback and dialogue amongsupervisors, managers, and employees throughout theappraisal period, and setting timetables for review;effective safeguards so that the management of thesystem is fair and equitable and based on employeeperformance; and a means for ensuring that adequateresources are allocated for the design, implementation,and administration of the performance managementsystem that supports the pay system.

Authority derives from 5 U.S.C. §9701(a)-(c). §9701.302. Coverage. Subpart C applies to eligibleDHS employees in the categories listed below, subject toa determination by the Secretary or designee under§9701.102(b).

5 U.S.C. Chapter 53, Subchapter III — General SchedulePay Rates5 U.S.C. Chapter 53, Subchapter IV — Prevailing RateSystems5 U.S.C. §5376. Pay for certain senior-level positions5 U.S.C. Chapter 53, Subchapter VIII — Pay for theSenior Executive Service

Eligible for coverage are: employees who wouldotherwise be covered by the GS pay system; employeeswho would otherwise be covered by a prevailing ratesystem; employees in senior-level (SL) and scientific orprofessional (ST) positions who would otherwise becovered by 5 U.S.C. §5376; and SES members whowould otherwise be covered by 5 U.S.C. Chapter 53,Subchapter VIII, subject to §9701.102(d).

Authority derives from 5 U.S.C. §9701 (a)-(c).

5 U.S.C. §5307. Limitation on certain payments

§9701.303. Waivers. When a specified category ofemployees is covered by the pay system establishedunder Subpart C, the provisions of 5 U.S.C. Chapter 53,and related regulations, are waived with respect to thatcategory of employees, except as provided in §9701.106,and below.Provisions of 5 U.S.C. Chapter 53 that are not waived

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5 U.S.C. §§5311-5318. Executive Schedule Pay Rates5 U.S.C. §5377. Pay authority for critical positions

are: Sections 5307; 5311 through 5318; and 5377.

5 U.S.C. §5371. Health care positions The following provisions of 5 U.S.C. Chapter 53 also arenot waived: Section 5371, insofar as it authorizes OPMto apply the provisions of 38 U.S.C. Chapter 74 to DHSemployees in health care positions covered by section5371 in lieu of any DHS pay system established underSubpart C or Title 5 Chapters 51, 53, and 61, andSubchapter V of Chapter 55. The reference to “chapter51” in section 5371 is deemed to include a classificationsystem established under Subpart B.

5 U.S.C. §5373. Limitation on pay fixed byadministrative action Generally, the limitation is Executive Schedule level IV.

Section 5373 is modified to raise the limit on rates ofbasic pay, including any applicable locality payment orsupplement, for DHS employees who are not covered bySubpart C and whose pay is set by administrative action(e.g., Coast Guard Academy faculty) to the rate for levelIII of the Executive Schedule.

5 U.S.C. §5379. Student loan repayments Section 5379 is modified to allow DHS, aftercoordination with OPM, to establish and administer astudent loan repayment program for DHS employees,except that DHS may not make loan payments for anynoncareer appointees to the SES or for any employeeoccupying a position that is excepted from thecompetitive service because of its confidential, policy-determining, policy-making, or policy-advocatingcharacter. Notwithstanding §9701.302(a), any DHSemployee otherwise covered by section 5379 is eligiblefor coverage under the provisions established under thisparagraph, subject to a determination by the Secretary ordesignee under §9701.102(b).

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5 U.S.C. Chapter 53, Subchapter IV — Prevailing RateSystems5 U.S.C. §5343. Prevailing rate determinations; wageschedules; night differentials(c)(4) environmental or other differentials for blue-collarworkers(f) night shift differentials for blue-collar workers

In approving the coverage of employees who wouldotherwise be covered by a prevailing rate system, DHSmay limit the waiver so that affected employees remainentitled to environmental or other differentialsestablished under 5 U.S.C. §5343(c)(4) and night shiftdifferentials established under 5 U.S.C. §5343(f) if suchemployees are grouped in separate occupational clusters(established under Subpart B) that are limited toemployees who would otherwise be covered by aprevailing rate system.

5 U.S.C. §5376. Pay for certain senior-level positions5 U.S.C. §5382. Establishment and adjustment of ratesof pay for the Senior Executive Service5 U.S.C. §5307. Limitation on certain payments(d) For an employee who is paid under 5 U.S.C. 5376 or5383 (setting individual senior executive pay) or 28U.S.C. 332(f) (judicial circuit executives), 603 or 604(Administrative Office of U.S. Courts) and who holds aposition in or under an agency which, for purposes of thecalendar year involved, has been certified as having aperformance appraisal system which (as designed andapplied) makes meaningful distinctions based on relativeperformance, the limitation would be the VicePresident’s annual salary.

Employees in SL/ST positions and SES members whoare covered by a basic pay system established underSubpart C are considered to be paid under 5 U.S.C.§§5376 and 5382, respectively, for the purpose ofapplying 5 U.S.C. §5307(d).

5 U.S.C. §5102. Definitions; application (unlessotherwise noted)

§9701.304. Definitions. “48 contiguous States” meansthe States of the United States, excluding Alaska andHawaii, but including the District of Columbia.

“Grade” includes all classes of positions which, althoughdifferent with respect to kind or subject-matter of work,are sufficiently equivalent as to level of difficulty andresponsibility; and level of qualification requirements of

“Band” means a work level or pay range within anoccupational cluster.“Band rate range” means the range of rates of basic pay(excluding any locality or special rate supplements)

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the work to warrant their inclusion within one range ofrates of basic pay in the General Schedule.

applicable to employees in a particular band, asdescribed in §9701.321. Each band rate range is definedby a minimum and maximum rate.

“Basic pay” means the total amount of pay receivedduring any one calendar year at the rate fixed by law oradministrative action for the position held by anemployee, including night and environmentaldifferentials for prevailing rate employees, but beforeany deductions and exclusive of additional pay of anyother kind. [5 CFR §530.202]

“Basic pay” means an employee’s rate of pay before anydeductions and exclusive of additional pay of any kind,except as expressly provided by law or regulation. Forthe specific purposes prescribed in §§9701.332(c) and9701.333, respectively, basic pay includes locality andspecial rate supplements.

“Competencies” means the measurable or observableknowledge, skills, abilities, behaviors, and othercharacteristics required by a position.

“Demotion” means a change of an employee, whilecontinuously employed, from one General Schedule (GS)grade to a lower GS grade, with or without reduction inpay; or a higher rate paid under authority other than 5U.S.C. Chapter 53, Subchapter III, to a lower rate withina GS grade. [5 CFR §531.202]

“Demotion” means a reduction to a lower band withinthe same occupational cluster or a reduction to a lowerband in a different occupational cluster underimplementing directives issued by DHS pursuant to§9701.355.

“Comparability payment” means a payment payableunder 5 U.S.C. §5304 (locality-based comparabilitypayments).

“Locality rate supplement” means a geographic-basedaddition to basic pay, as described in §9701.332.

“Modal rating” means the rating of record that occursmost frequently in a particular pay pool.

“Occupational cluster” means a grouping of one or moreassociated or related occupations or positions. Anoccupational cluster may include one or moreoccupational series.

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“Promotion” means a change of an employee, whilecontinuously employed, from one General Schedule (GS)grade to a higher GS grade; or a lower rate paid underauthority other than 5 U.S.C. Chapter 53, Subchapter III,to a higher rate within a GS grade. [5 CFR §531.202]

“Promotion” means an increase to a higher band withinthe same occupational cluster or an increase to a higherband in a different occupational cluster underimplementing directives issued by DHS pursuant to§9701.355.

“Rating of record” means the performance ratingprepared at the end of an appraisal period forperformance of agency-assigned duties over the entireperiod and the assignment of a summary level within apattern. [5 CFR §430.203]

“Rating of record” means a performance appraisalprepared at the end of an appraisal period covering anemployee’ performance of assigned duties againstperformance expectations (as defined in §9701.404) overthe applicable period; or to support a pay determination,including one granted in accordance with Subpart C, awithin-grade increase granted under 5 CFR §531.404, ora pay determination granted under other applicable rules.

Senior-level positions are positions that are classifiedabove GS-15 pursuant to 5 U.S.C. §5108; and scientificor professional positions established under 5 U.S.C.§3104. [5 U.S.C. §5376]

“SL/ST” refers to an employee serving in a senior-levelposition 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 employeewho is appointed under the special authority in 5 U.S.C.§3325 to a scientific or professional position under 5U.S.C. §3104.

“Senior Executive Service position” means any positionin an agency that is classified above GS-15 pursuant to 5U.S.C. §5108 or in level IV or V of the ExecutiveSchedule, or an equivalent position, that is not requiredto be filled by an appointment by the President by andwith the advice and consent of the Senate. Duties andresponsibilities of employees in such positions are listed.[5 U.S.C. §3132(a)(2)]

“SES” means the Senior Executive Service establishedunder 5 U.S.C. Chapter 31, Subchapter II.

Special pay authority — higher minimum rates of basicpay for one or more grades or levels, occupational

“Special rate supplement” means an addition to basic payfor a particular category of employees to address staffing

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groups, series, classes, or subdivisions thereof. Locality-based comparability payments shall be available toemployees receiving special rates to such extent as thePresident (or designated agency) considers appropriatesubject to pay limitations. [5 U.S.C. §5305(a)(g)]

problems, as described in §9701.333. A special ratesupplement is paid in place of any lesser locality ratesupplement that would otherwise apply.

“Unacceptable performance” means performance of anemployee that fails to meet established performancestandards in one or more critical elements of theemployee’s position. [5 U.S.C. §4301(3)]

“Unacceptable performance” means the failure to meetone or more performance expectations, as described in§9701.406.

Pay cannot be collectively bargained under Title 5 §9701.305. Bar on collective bargaining. As providedin the definition of “conditions of employment” in§9701.504, any pay program established under authorityof Subpart C is not subject to collective bargaining. Thisbar on collective bargaining applies to all aspects of thepay program, including but not limited to coveragedecisions, the design of pay structures, the setting andadjustment of pay levels, pay administration rules andpolicies, and administrative procedures andarrangements.

Overview of Pay System

5 U.S.C. Chapter 53, Subchapter I — Pay ComparabilitySystem5 U.S.C. §5303. Annual adjustments to pay schedules5 U.S.C. §5304. Locality-based comparability payments5 U.S.C. §5305. Special pay authority

5 U.S.C. Chapter 53, Subchapter II. Executive SchedulePay Rates5 U.S.C. Chapter 53, Subchapter IV. Prevailing RateSystems (pay setting for blue-collar workers)

§9701.311. Major features. Through the issuance ofimplementing directives, DHS will establish a paysystem that governs the setting and adjusting of coveredemployees’ rates of pay. The system will include astructure of rate ranges linked to various bands for eachoccupational cluster, in alignment with the classificationstructure described in Subpart B; policies regarding thesetting and adjusting of basic pay rate ranges based onmission requirements, labor market conditions, and otherfactors, as described in §§9701.321 through 9701.322;

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5 U.S.C. Chapter 53, Subchapter VIII. Pay for theSenior Executive Service

policies regarding the setting and adjusting ofsupplements to basic pay based on local labor marketconditions and other factors, as described in §§9701.331through 9701.334; policies regarding employees’eligibility for pay increases based on adjustments in rateranges and supplements, as described in §§9701.323through §9701.325 and 9701.335 through §9701.337;policies regarding performance-based pay adjustments,as described in §§9701.341 through 9701.346;policies on basic pay administration, includingmovement between occupational clusters, as described in§§9701.351 through 9701.356; policies regarding specialpayments that are not basic pay, as described in§§9701.361 through 9701.363; and linkages toemployees’ performance ratings of records, as describedin Subpart D.

5 U.S.C. §5307. Limitation on certain paymentsNo allowance, differential, bonus, award, or other similarcash payment may be paid to an employee in a calendaryear if, or to the extent that, when added to the total basicpay paid or payable to such employee would cause thetotal to exceed the annual rate of basic pay for ExecutiveSchedule level I.For an employee who is paid under 5 U.S.C. 5376 or5383 or 28 U.S.C. 332(f) (judicial circuit executives),603 or 604 (Administrative Offices of U.S. Courts) andwho holds a position in or under an agency which, forpurposes of the calendar year involved, has been certifiedas having a performance appraisal system which (asdesigned and applied) makes meaningful distinctionsbased on relative performance, the limitation would bethe Vice President’s annual salary.

§9701.312. Maximum rates. DHS may not pay anyemployee an annual rate of basic pay in excess of the ratefor level III of the Executive Schedule, except that DHSmay establish the maximum annual rate of basic pay formembers of the SES at the rate for level II of theExecutive Schedule if DHS obtains the certificationspecified in 5 U.S.C. §5307(d).

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Authority derives from 5 U.S.C. §9701(a). §9701.313. Homeland Security CompensationCommittee (HSCC). DHS will establish a HSCC toprovide options and/or recommendations forconsideration by the Secretary or designee on strategiccompensation matters such as departmentalcompensation policies and principles, the annualallocation of funds between market and performance payadjustments, and the annual adjustment of rate rangesand locality and special rate supplements. Thecommittee will consider factors such as turnover,recruitment, and local labor market conditions inproviding options and recommendations forconsideration by the Secretary. The Secretary’s ordesignee’s determination with regard to these optionsand/or recommendations is final and not subject tofurther review.The DHS Undersecretary for Management will chair thecommittee. The committee has 14 members, including 4officials of labor organizations granted nationalconsultation rights (NCR). An OPM official will serveas an ex officio member of the committee. DHS willprovide technical staff to support the committee.DHS will establish procedures governing thecommittee’s membership and operation.An individual will be selected by the Chair to facilitatecommittee meetings. The facilitator will be selectedfrom a list of nominees developed jointly byrepresentatives of the department and NCR labororganizations, the latter acting as a single party,according to procedures and time limits established byimplementing directives. Nominees must be known fortheir integrity, impartiality, and expertise in facilitationand compensation. If the department and the labor

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organizations are unable to reach agreement on a jointlist of nominees, they will enlist the assistance of theFederal Mediation and Conciliation Service (FMCS). Ifthe parties are still unable to reach agreement, each partywill prepare a list of up to three nominees and providethose separate lists to FMCS who may add up to threeadditional nominees. From that combined list ofnominees, the department and the labor organizations,the latter acting as a single party, will alternately strikenames from the list until five names remain, and thosefive nominees will be submitted to the Chair forconsideration. The Chair may request that the partiesdevelop an additional list of nominees. If the NCR labororganizations representatives, acting as a single party, donot participate in developing the list of nominees inaccordance with this section, the Chair will select thefacilitator.After considering the views of all committee members,the Chair prepares and provides options and/orrecommendations to the Secretary or designee. Membersmay present their views on the final recommendations inwriting as part of the final recommendation package. The Secretary or designee will make the final decisionand notify the committee. This process is not subject tothe requirements established by §§9701.512,9701.517(a)(5), 9701.518, or 9701.519.The Secretary retains the right to make determinationsregarding the annual allocation of funds between marketand performance pay adjustments, the annual adjustmentof rate ranges and locality and special rate supplements,or any other matter recommended by the committee, andto make such determinations effective at any time.

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Authority derives from 5 U.S.C. §9701(a). §9701.314. DHS responsibilities. DHS responsibilitiesin implementing Subpart C include providing OPM withinformation regarding the implementation of the programauthorized under Subpart C at OPM’s request;participating in any interagency pay coordination councilor group established by OPM to ensure that DHS paypolicies and plans are coordinated with other agencies;and fulfilling all other responsibilities prescribed inSubpart C.

Setting and Adjusting Rate Ranges

5 U.S.C. §5104. Basis for grading positionsProvides for 15 General Schedule pay grades. Thestatute defines each of the pay grades in terms of theirdifficulty and responsibility.

§9701.321. Structure of bands. After coordinationwith OPM, DHS may establish ranges of basic pay forbands, with minimum and maximum rates set andadjusted as provided in §9701.322. Rates must beexpressed as annual rates.For each band within an occupational cluster, DHS willestablish a common rate range that applies in alllocations.


5 U.S.C. §5105. Standards for classification ofpositionsOPM, after consulting the agencies, prepares standards

§9701.322. Setting and adjusting rate ranges. Withinits sole and exclusive discretion, DHS may, aftercoordination with OPM, set and adjust the rate rangesestablished under §9701.321 on an annual basis. Indetermining the rate ranges, DHS and OPM mayconsider mission requirements, labor market conditions,availability of funds, pay adjustments received byemployees of other federal agencies, and any otherrelevant factors.

After coordination with OPM, DHS may determine theeffective date of newly set or adjusted band rate ranges. Unless DHS determines that a different effective date is

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for placing positions in their proper classes and grades. OPM may make such inquiries or investigations of theduties, responsibilities, and qualification requirements ofpositions as it considers necessary for this purpose. Inthe standards, OPM defines the various classes ofpositions in terms of duties, responsibilities, andqualification requirements; establishes the official classtitles; and sets forth the grades in which the classes havebeen placed by OPM. OPM must revise, supplement, orabolish existing standards, or prepare new standards sothat positions will be covered by current publishedstandards. The official class titles are used for personnel,budget, and fiscal purposes.5 U.S.C. §5107. Classification of positionsExcept as otherwise provided in Chapter 51, each agencyplaces each position under its jurisdiction in itsappropriate class and grade in conformance with OPMstandards. When facts warrant, an agency may change aposition from one class or grade to another.

needed for operational reasons, these adjustments willbecome effective on or about the date of the annual GSpay adjustment.DHS may establish different rate ranges and providedifferent rate range adjustments for different bands.DHS may adjust the minimum and maximum rates of aband by different percentages.

5 U.S.C. §5335. Periodic step-increases5 U.S.C. §5336. Additional step-increasesAuthorizes within-grade pay adjustments for work at anacceptable level of competence (§5335) or for highquality performance above that ordinarily found in theposition (§5336).5 U.S.C. §5303. Annual adjustments to pay schedulesAuthorizes annual pay adjustments. Effective as of thefirst day of the first applicable pay period beginning onor after January 1 of each calendar year, the rates of basicpay for each statutory pay system are increased by thepercentage equal to the Employment Cost Index forwages and salaries, private industry workers, minus

§9701.323. Eligibility for pay increase associatedwith a rate range adjustment. When a band rate rangeis adjusted under §9701.322, employees covered by thatband are eligible for an individual pay increase. Anemployee who meets or exceeds performanceexpectations (i.e., has a rating of record above theunacceptable performance level for the most recentlycompleted appraisal period) must receive an increase inbasic pay equal to the percentage value of any increase inthe minimum rate of the employee’s band resulting froma rate range adjustment under §9701.322. The payincrease takes effect at the same time as thecorresponding rate range adjustment, except as provided

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0.5%, i.e., the September 2003 ECI is used for theJanuary 2005 pay adjustment.

in §§9701.324 and 9701.325. For an employee receivinga retained rate, the amount of the increase is determinedunder §9701.356.If an employee does not have a rating of record for themost recently completed appraisal period, he or she mustbe treated in the same manner as an employee who meetsor exceeds performance expectations and is entitled toreceive an increase based on the rate range adjustment.An employee who has an unacceptable rating of recordmay not receive a pay increase as a result of a rate rangeadjustment, except as provided by §§9701.324 and9701.325. Because the employee’s pay remainsunchanged, failure to receive a pay increase is notconsidered an adverse action under Subpart F.

5 CFR §430.208 Rating performance. (i) A rating orrecord may be changed within 60 days of issuance basedupon an informal request by the employee; as a result ofa grievance, complaint, or other formal proceedingpermitted by law or regulation that results in a finaldetermination by appropriate authority that the rating ofrecord must be changed or as part of a bona fidesettlement of a formal proceeding; or where the agencydetermines that a rating of record was incorrectlyrecorded or calculated.5 CFR §531.409 Acceptable level of competencedeterminations (the section generally and specifically:)(c)(2)(i) When the determination of an acceptable levelof competence has been delayed for reasons including anemployee’s unacceptable performance, if, following thedelay, the employee’s performance is determined to be atan acceptable level of competence, the within-gradeincrease will be granted retroactively to the beginning of

§9701.324. Treatment of employees whose rate ofbasic pay does not fall below the minimum rate oftheir band. An employee who does not receive a payincrease under §9701.323 because of an unacceptablerating of record and whose rate of basic pay does not fallbelow the minimum rate of his or her band as a result ofthat rating will receive such an increase if he or shedemonstrates performance that meets or exceedsperformance expectations, as reflected by a new rating ofrecord issued under §9701.409(b). Such an increase willbe made effective on the first day of the first pay periodbeginning on or after the date the new rating of record isissued.

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the pay period following completion of the applicablewaiting period.

See 5 CFR §430.208 and 5 CFR §531.409 above. §9701.325. Treatment of employees whose rate ofbasic pay falls below the minimum rate of their band.For an employee who does not receive a pay increaseunder §9701.323 because of an unacceptable rating ofrecord and whose rate of basic pay falls below theminimum rate of his or her band as a result of that rating,DHS must issue a new rating of record under§9701.409(b) and adjust the employee’s payprospectively by making the increase effective on thefirst day of the first pay period beginning on or after thedate the new rating of record is issued if the employeedemonstrates performance that meets or exceedsperformance expectations within 90 days after the date ofthe rate range adjustment; orinitiate action within 90 days after the date of the raterange adjustment to demote or remove the employee inaccordance with the adverse actions proceduresestablished in Subpart F.If DHS fails to initiate a removal or demotion actionwithin 90 days after the date of the rate range adjustment,the employee becomes entitled to the minimum rate ofhis or her band rate range on the first day of the first payperiod beginning on or after the 90th day following thedate of the rate range adjustment.

Locality and Special Rate Supplements

5 U.S.C. §5304. Locality-based comparability payments5 U.S.C. §5305. Special pay authority

§9701.331. General. The basic pay ranges establishedunder §§9701.321 through 9701.323 may besupplemented in appropriate circumstances by locality orspecial rate supplements, as described in §§9701.332

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through 9701.335. These supplements are expressed as apercentage of basic pay and are set and adjusted asdescribed in §9701.334. As authorized by §9701.356,DHS implementing directives will determine the extentto which §§9701.331 through 9701.337 apply toemployees receiving a retained rate.

5 U.S.C. §5304. Locality-based comparabilitypaymentsComparability payments are payable within each localitydetermined to have a pay disparity greater than 5%.

§9701.332. Locality rate supplements. For each bandrate range, DHS may, after coordination with OPM,establish locality rate supplements that apply in specifiedlocality pay areas. Locality rate supplements apply toemployees whose official duty station is located in thegiven area. DHS may provide different locality ratesupplements for different occupational clusters or fordifferent bands within the same occupational cluster inthe same locality pay area.

Locality pay areas are listed at 5 CFR §531.603.

5 U.S.C. §553. Rule making

For the purpose of establishing and modifying localitypay areas, 5 U.S.C. §5304 is not waived. A DHSdecision to use the locality pay area boundariesestablished under 5 U.S.C. §5304 does not requireseparate DHS regulations. DHS may, after coordinationwith OPM and in accordance with the public notice andcomment provisions of 5 U.S.C. §553, publishdepartmental regulations in the Federal Register thatestablish and adjust different locality pay areas withinthe 48 contiguous States or establish and adjust newlocality pay areas outside the 48 contiguous States. These regulations are subject to the continuingcollaboration process described in §9701.105. Asprovided by 5 U.S.C. §5304(f)(2)(B), judicial review ofany DHS regulation regarding the establishment oradjustment of locality pay areas is limited to whether or

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not the regulation was promulgated in accordance with 5U.S.C. §553.

Locality payments are part of basic pay for purposes ofretirement, life insurance, premium pay, and for suchother purposes as may be expressly provided for by lawor as OPM regulations may prescribe.

Locality rate supplements are considered basic pay forretirement; life insurance; premium pay; severance pay;application of the maximum rate limitation set forth in§9701.312; determining the rate of basic pay uponconversion to the DHS pay system established underSubpart C, consistent with §9701.373(b); other paymentsand adjustments authorized under Subpart C as specifiedby DHS implementing directives; other payments andadjustments under other statutory or regulatory authoritythat are basic pay for the purpose of locality-basedcomparability payments; and any provisions for whichDHS locality rate supplements must be treated as basicpay by law.

5 U.S.C. §5305. Special pay authorityWhenever the President finds that the government’srecruitment or retention efforts with respect to one ormore occupations in one or more areas or locations are,or are likely to become significantly handicapped due tospecific circumstances, he may establish for the areas orlocations involved higher minimum rates of basic pay forone or more grades or levels, occupational groups, series,classes, or subdivisions thereof, and may makecorresponding increases in all step rates of the pay rangefor each such grade or level. Circumstances justifyingspecial rates are rates of pay offered by non-federalemployees being significantly higher than those payableby the government within the area, location, occupationalgroup, or classes of positions under the pay systeminvolved; the remoteness of the area or location; the

§9701.333. Special rate supplements. DHS will, aftercoordination with OPM, establish special ratesupplements that provide higher pay levels forsubcategories of employees within an occupationalcluster if DHS determines that such supplements arewarranted by current or anticipated recruitment and/orretention needs. DHS will issue necessary implementingdirectives. Any special rate supplement must be treatedas basic pay for the same purposes as locality ratesupplements, as described in §9701.332(c), and for thepurpose of computing cost-of-living allowances and postdifferentials in nonforeign areas under 5 U.S.C. §5941.

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undesirability of the working conditions or the nature ofthe work involved (including exposure to toxicsubstances or other occupational hazards); or any othercircumstances which the President (or an agency)considers appropriate.

5 U.S.C. §5304. Locality-based comparabilitypaymentsAuthorizes the President to direct the Pay Agent toprepare a report comparing General Schedule pay rateswith non-federal pay rates, as determined by surveysconducted by the Bureau of Labor Statistics. Based onthe data from the surveys, the Pay Agent identifies eachlocality in which a pay disparity exists, specifies the sizeof the pay disparity, and makes recommendations to thePresident for appropriate comparability payments.Comparability payments are paid in the same mannerand at the same time as basic pay is payable.5 U.S.C. §5304a. Authority to fix an alternative levelof comparability paymentsAuthorizes the President to fix an alternative level oflocality-based comparability payments if, because ofnational emergency or serious economic conditionsaffecting the general welfare, he considers the level thatwould otherwise be payable to be inappropriate. At leastone month before those comparability payments wouldbe payable he must prepare and transmit to Congress areport describing the alternative level of payments heintends to provide, including the reasons why thatalternative level is necessary.5 U.S.C. §5305. Special pay authorityA minimum rate may not exceed the maximum pay rateprescribed by statute for the grade or level by more than

§9701.334. Setting and adjusting locality and specialrate supplements. Within its sole and exclusivediscretion, DHS may, after coordination with OPM, setand adjust locality and special rate supplements. Indetermining the amounts of the supplements, DHS andOPM may consider mission requirements, labor marketconditions, availability of funds, pay adjustmentsreceived by employees of other federal agencies, and anyother relevant factors.DHS may, after coordination with OPM, determine theeffective date of newly set or adjusted locality andspecial rate supplements. Established supplements willbe reviewed for possible adjustment on an annual basisin conjunction with rate range adjustments under§9701.322.

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30% and no rate may be established in excess of basicpay for Executive Schedule level V.

Generally, Title 5 rewards high performing employeesthrough awards.5 U.S.C. §4505a. Performance-based cash awardsAn employee whose most recent performance rating wasfully successful or higher may be paid a cash awardequal to an amount determined appropriate by the agencyhead, but not more than 10% of the employee’s annualpay rate (not more than 20% for exceptionalperformance.5 U.S.C. §4503. Agency awardsAuthorizes an agency head to pay a cash award to anemployee who contributes to the efficiency, economy, orother improvement of government operations or achievesa significant reduction in paperwork; or performs aspecial act or service in the public interest in connectionwith or related to official employment.5 U.S.C. §4504. Presidential awardsAuthorizes the President to pay a cash award to anemployee who contributes to the efficiency, economy, orother improvement of government operations or achievesa significant reduction in paperwork; or performs anexceptionally meritorious special act or service in thepublic interest in connection with or related to officialemployment.

§9701.335. Eligibility for pay increase associatedwith a supplement adjustment. When a locality orspecial rate supplement is adjusted under §9701.334, anemployee to whom the supplement applies is entitled tothe pay increase resulting from that adjustment if he orshe meets or exceeds performance expectations (i.e., hasa rating of record above the unacceptable performancelevel for the most recently completed appraisal period).This includes an increase resulting from the initialestablishment and setting of a special rate supplement. The pay increase takes effect at the same time as theapplicable supplement is set or adjusted, except asprovided in §§9701.336 and 9701.337.If an employee does not have a rating of record for themost recently completed appraisal period, he or she mustbe treated in the same manner as an employee who meetsor exceeds performance expectations and is entitled toany pay increase associated with a supplementadjustment.An employee who has an unacceptable rating of recordmay not receive a pay increase as a result of an increasein an applicable locality or special rate supplement,except as provided by §§9701.336 and 9701.337. Because the employee’s pay remains unchanged, failureto receive a pay increase is not considered an adverseaction under Subpart F.

5 CFR §430.208 Rating performance. (i) A rating orrecord may be changed within 60 days of issuance basedupon an informal request by the employee; as a result of

§9701.336. Treatment of employees whose pay doesnot fall below the minimum adjusted rate of theirband. An employee who does not receive a pay increase

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a grievance, complaint, or other formal proceedingpermitted by law or regulation that results in a finaldetermination by appropriate authority that the rating ofrecord must be changed or as part of a bona fidesettlement of a formal proceeding; or where the agencydetermines that a rating of record was incorrectlyrecorded or calculated.5 CFR §531.409 Acceptable level of competencedeterminations (the section generally and specifically:)(c)(2)(i) When the determination of an acceptable levelof competence has been delayed for reasons including anemployee’s unacceptable performance, if, following thedelay, the employee’s performance is determined to be atan acceptable level of competence, the within-gradeincrease will be granted retroactively to the beginning ofthe pay period following completion of the applicablewaiting period.

under §9701.335 because of an unacceptable rating ofrecord and whose rate of basic pay (including a localityor special rate supplement) does not fall below theminimum adjusted rate of his or her band as a result ofthat rating will receive such an increase if he or shedemonstrates performance that meets or exceedsperformance expectations, as reflected by a new rating ofrecord issued under §9701.409(b). Such an increase willbe made effective on the first day of the first pay periodbeginning on or after the date the new rating of record isissued.

See 5 CFR §430.208 and 5 CFR §531.409 (c) above. §9701.337. Treatment of employees whose rate of payfalls below the minimum adjusted rate of their band.For an employee who does not receive a pay increaseunder §9701.335 because of an unacceptable rating ofrecord and whose rate of basic pay (including a localityor special rate supplement) falls below the minimumadjusted rate of his or her band as a result of that rating,DHS must issue a new rating of record under§9701.409(b) and adjust the employee’s payprospectively by making the increase effective on thefirst day of the first pay period beginning on or after thedate the new rating of record is issued if the employeedemonstrates performance that meets or exceedsperformance expectations within 90 days after the date ofthe locality or special rate supplement adjustment; or

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initiate action within 90 days after the date of the localityor special rate supplement adjustment to demote orremove the employee in accordance with the adverseaction procedures established in Subpart F.If DHS fails to initiate a removal or demotion actionwithin 90 days after the date of a locality or special ratesupplement adjustment, the employee becomes entitledto the minimum adjusted rate of his or her band raterange on the first day of the first pay period beginning onor after the 90th day following the date of the locality orspecial rate supplement adjustment.

Performance-Based Pay

5 U.S.C. §5335. Periodic step-increases5 U.S.C. §5336. Additional step-increases

5 U.S.C. §4505a. Performance-based cash awards5 U.S.C. §4503. Agency awards5 U.S.C. §4504. Presidential awards

§9701.341. General. Sections 9701.342 through9701.346 describe various types of performance-basedpay adjustments that are part of the pay systemestablished under Subpart C. Generally, these within-band pay increases are directly linked to an employee’srating of record (as assigned under the performancemanagement system described in Subpart D). Theseprovisions are designed to provide DHS with theflexibility to allocate available funds based onperformance as a means of fostering a high-performanceculture that supports mission accomplishment. Whileperformance measures primarily focus on an employee’scontributions (as an individual or as part of a team) inaccomplishing work assignments and achieving missionresults, performance also may be reflected in theacquisition and demonstration of required competencies.

5 U.S.C. §4505a. Performance-based cash awardsAn employee whose most recent performance rating was“fully successful” or higher may be paid a cash award.

§9701.342. Performance pay increases. Overview.The DHS pay system provides employees in a FullPerformance or higher band with increases in basic pay

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5 U.S.C. §5335. Periodic step-increases5 U.S.C. §5336. Additional step-increasesAuthorizes within-grade pay adjustments for work at anacceptable level of competence (§5335) or for highquality performance above that ordinarily found in theposition (§5336).

based on individual performance ratings of record asassigned under a performance management systemestablished under Subpart D. The DHS pay system usespay pool controls to allocate pay increases based onperformance points that are directly linked to theemployee’s rating of record, as described in this section. Performance pay increases are a function of the amountof money in the performance pay pool, the relative pointvalue placed on ratings, and the distribution of ratingswithin that performance pay pool.The rating of record used as the basis for a performancepay increase is the one assigned for the most recentlycompleted appraisal period (subject to the requirementsof Subpart D), except that if the supervisor or otherrating official determines that an employee’s currentperformance is inconsistent with that rating, thesupervisor or other rating official may prepare a morecurrent rating of record, consistent with §9701.409(b). Ifan employee does not have a rating of record, DHS willuse the modal rating received by other employeescovered by the same pay pool during the most recentrating cycle to determine the employee’s performancepay increase.Performance pay pools. DHS will establish pay poolsfor performance pay increases. Each pay pool covers adefined group of DHS employees, as determined by theagency. An authorized agency official(s) may determinethe distribution of funds among pay pools and mayadjust those amounts based on overall levels oforganizational performance or contribution to DHS’mission. In allocating the monies to be budgeted forperformance pay increases, the Secretary or designeemust take into account the average value of within-grade

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and quality step increases under the General Schedule, aswell as amounts that otherwise would have been spent onpromotions among positions placed in the same band.Performance point values. DHS will establish pointvalues that correspond to the performance rating levelsestablished under Subpart D, so that a point value isattached to each rating level. For example, in a four-level rating program, the point value pattern could be 4-2-1-0, where 4 points are assigned to the highest(outstanding) rating and 0 points to an unacceptablerating. Performance point values will determineperformance pay increases. DHS will establish a pointvalue pattern for each pay pool. Different pay pools mayhave different point value patterns. DHS must assignzero performance points to an unacceptable rating ofrecord.Performance payout. DHS will determine the value of aperformance point, expressed as a percentage of anemployee’s rate of basic pay (exclusive of locality orspecial rate supplements under §§9701.332 and9701.333) or as a fixed dollar amount. To determine anindividual employee’s performance payout, DHS willmultiply the point value determined above by the numberof performance points assigned to the rating. To theextent that the adjustment does not cause the employee’srate of basic pay to exceed the maximum rate of theemployee’s band rate range, DHS will pay theperformance payout as an adjustment in the employee’sannual rate of basic pay. Any excess amount may begranted as a lump-sum payment, which may not beconsidered basic pay for any purpose. DHS may, aftercoordination with OPM, determine the effective date ofadjustments in basic pay.

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For an employee receiving a retained rate under§9701.356, DHS will issue implementing directives toprovide for granting a lump-sum performance payoutthat may not exceed the amount that may be received byan employee in the same pay pool with the same ratingof record whose rate of pay is at the maximum rate of thesame band.Proration of performance payouts. DHS will issueimplementing directives regarding the proration ofperformance payouts for employees who, during theperiod between performance pay adjustments, are hiredor promoted; in a leave-without-pay status; or in othercircumstances where proration is considered appropriate.Adjustments for employees returning after performinghonorable service in the uniformed services. DHS willissue implementing directives regarding how it sets therate of basic pay prospectively for an employee wholeaves a DHS position to perform service in theuniformed services (as defined in 38 U.S.C. §4303 and 5CFR §353.102) and returns through the exercise of areemployment right provided by law, Executive order, orregulation under which accrual of service for seniority-related benefits is protected (e.g., 38 U.S.C. §4316). DHS will credit the employee with intervening rate rangeadjustments under §9701.323(a), as well asdevelopmental pay adjustments under §9701.345(determined by DHS in accordance with itsimplementing directives), and performance payadjustments based on the employee’s last DHS rating ofrecord. For employees who have no such rating ofrecord, DHS will use the modal rating received by otheremployees covered by the same pay pool during the mostrecent rating cycle. An employee returning from

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qualifying service in the uniformed services will receivethe full amount of the performance pay increaseassociated with his or her rating of record.Adjustments for employees returning to duty after beingin workers’ compensation status. DHS will issueimplementing directives regarding how it sets the rate ofbasic pay prospectively for an employee who returns toduty after a period of receiving injury compensationunder 5 U.S.C. Chapter 81, Subchapter I (in a leave-without-pay status or as a separated employee). DHSwill credit the employee with intervening rate rangeadjustments under §9701.323(a), as well asdevelopmental pay adjustments under §9701.345 (asdetermined by DHS in accordance with its implementingdirectives), and performance pay adjustments based onthe employee’s last DHS rating of record. Foremployees who have no such rating of record, DHS willuse the modal rating received by other employeescovered by the same pay pool during the most recentrating cycle. An employee returning to duty afterreceiving injury compensation will receive the fullamount of the performance pay increase associated withhis or her rating of record.

5 U.S.C. §4303. Actions based on unacceptableperformanceAuthorizes an agency to reduce in grade or remove anemployee for unacceptable performance.

§9701.343. Within-band reductions. Subject to theadverse action procedures set forth in Subpart F, DHSmay reduce an employee’s rate of basic pay within aband for unacceptable performance or conduct. Areduction under this section may not be more than 10%or cause an employee’s rate of basic pay to fall below theminimum rate of the employee’s band rate range. Such areduction may be made effective at any time.

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5 U.S.C. §5377. Pay authority for critical positionsAuthorizes OMB, in consultation with OPM, to, uponthe request of an agency head, grant authority to fix thebasic pay rate for one or more positions in the agency inaccordance with critical pay. OMB may not authorizethe exercise of critical pay authority for more than 800positions at any time, of which not more than 30 may atany time be positions which would otherwise be paid onthe Executive Schedule.

§9701.344. Special within-band increases. DHS mayissue implementing directives regarding special within-band basic pay increases for employees within a FullPerformance or higher band established under §9701.212who possess exceptional skills in critical areas or whomake exceptional contributions to missionaccomplishment or in other circumstances determined byDHS. Increases under this section are in addition to anyperformance pay increases made under §9701.342 andmay be made effective at any time. Special within-bandincreases may not be based on length of service.

5 U.S.C. §5335. Periodic step-increases5 U.S.C. §5336. Additional step-increasesAuthorizes within-grade pay adjustments for work at anacceptable level of competence (§5335) or for highquality performance above that ordinarily found in theposition (§5336).

§9701.345. Developmental pay adjustments. DHSwill issue implementing directives regarding payadjustments within the Entry/Developmental band. These directives may require employees to meet certainstandardized assessment or certification points as part ofa formal training/developmental program. Inadministering Entry/Developmental band payprogression plans, DHS may link pay progression to thedemonstration of required knowledge, skills, and abilities(KSAs)/competencies. DHS may set standardtimeframes for progression through anEntry/Developmental band while allowing an employeeto progress at a slower or faster rate based on his or herperformance, demonstration of required competencies,and/or other factors.

5 U.S.C. §3393. Career appointments (SES)OPM administers the Federal Candidate DevelopmentProgram to train career employees for SES positions.Upon certification by a performance review board that anemployee has met the five executive core qualifications

§9701.346. Pay progression for new supervisors. DHS will issue implementing directives requiring anemployee newly appointed to or selected for asupervisory position to meet certain assessment orcertification points as part of a formal

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for the SES, he or she may be selected for an SESposition throughout the government.

training/developmental program. In administeringperformance pay increases for these employees under§9701.342, DHS may take into account the employee’ssuccess in completing a formal training/developmentalprogram, as well as his or her performance.

Pay Administration

5 U.S.C. §5333. Minimum rate for new appointmentsNew appointments are made at the minimum rate of theappropriate grade. Appointments at above the minimumrate may be made for such considerations as the existingpay or unusually high or unique qualifications of thecandidate, or a special need of the government for theindividual’s services.

§9701.351. Setting an employee’s starting pay. DHSwill, after coordination with OPM, issue implementingdirectives regarding the starting rate of pay for anemployee, including an individual who is newlyappointed or reappointed to the federal service; anemployee transferring to DHS from another Federalagency; and a DHS employee who moves from anoncovered position to a position already covered bySubpart C.

5 CFR §531.203 General provisions. Discusses use ofthe highest previous rate, especially at (c)-(e). “Highestprevious rate” means the highest actual rate of basic paypreviously received by an individual while employed in aposition in a branch of the federal government(executive, legislative, or judicial); a governmentcorporation; the United States Postal Service or thePostal Rate Commission; or the government of theDistrict of Columbia; without regard to whether theposition was subject to the General Schedule (GS); or theactual rate of basic pay for the highest grade and steppreviously held by an individual while employed in aposition subject to the GS. [5 CFR 531.202]

§9701.352. Use of highest previous rate. DHS willissue implementing directives regarding the discretionaryuse of an individual’s highest previous rate of basic payreceived as a federal employee or as an employee of aCoast Guard nonappropriated fund instrumentality(NAFI) in setting pay upon reemployment, transfer,reassignment, promotion, demotion, placement in adifferent occupational cluster, or change in type ofappointment. For this purpose, basic pay may include alocality-based payment or supplement undercircumstances approved by DHS. If an employee in aCoast Guard NAFI position is converted to anappropriated fund position under the pay systemestablished under Subpart C, DHS must use the existingNAFI rate to set pay upon conversion.

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5 U.S.C. §5334. Rate on change of position or type ofappointment; regulations(b) Generally, an employee who is promoted ortransferred to a position in a higher grade is entitled tobasic pay at the lowest rate of the higher grade whichexceeds his existing rate of basic pay by not less thantwo step-increases of the grade from which he ispromoted or transferred. Regulations are at 5 CFR§531.203 and 5 CFR §531.204.

§9701.353. Setting pay upon promotion. Except asotherwise provided in this section, upon an employee’spromotion, DHS must provide an increase in theemployee’s rate of basic pay equal to at least 8%. Therate of basic pay after promotion may not be less than theminimum rate of the higher band.DHS will issue implementing directives providing for anincrease other than the amount specified above in thecase of an employee promoted from anEntry/Developmental band to a Full Performance band(consistent with the pay progression plan established forthe Entry/Developmental band); an employee who wasdemoted and is then repromoted back to the higher band;or employees in other circumstances specified by DHSimplementing directives.An employee receiving a retained rate (i.e., a rate abovethe maximum of the band) before promotion is entitledto a rate of basic pay after promotion that is at least 8%higher than the maximum rate of the employee’s currentband (except in circumstances specified by DHSimplementing directives). The rate of basic pay afterpromotion may not be less than the minimum rate of theemployee’s new band rate range or the employee’sexisting retained rate of basic pay. If the maximum rateof the employee’s new band rate range is less than theemployee’s existing rate of basic pay, the employee willcontinue to be entitled to the existing rate as a retainedrate.DHS may determine the circumstances under which andthe extent to which any locality or special ratesupplements are treated as basic pay in applying thepromotion increase rules in this section.

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5 U.S.C. §5334. Rate on change of position or type ofappointment; regulations(a) The rate of basic pay to which an employee is entitledis governed by OPM regulations in conformity withSubchapter III of Chapter 53 and Chapter 51 when he is... demoted to a position in a lower grade .... Theregulations are at [5 CFR §531.203(c)(d)].

§9701.354. Setting pay upon demotion. DHS willissue implementing directives regarding how to set anemployee’s pay when he or she is demoted. Thedirectives must distinguish between demotions underadverse action procedures (as defined in Subpart F) andother demotions (e.g., due to expiration of a temporarypromotion or canceling of a promotion during a newsupervisor’s probationary period). A reduction in basicpay upon demotion under adverse action procedures maynot exceed 10% unless a larger reduction is needed toplace the employee at the maximum rate of the lowerband.

See 5 U.S.C. §5334(a)(b) above. §9701.355. Setting pay upon movement to a differentoccupational cluster. DHS will issue implementingdirectives regarding how to set an employee’s pay whenhe or she moves voluntarily or involuntarily to a positionin a different occupational cluster, including rules fordetermining whether such a movement is to a higher orlower band for the purpose of setting pay uponpromotion or demotion under §§9701.353 and 9701.354,respectively.

5 U.S.C. Chapter 53, Subchapter VI — Grade and PayRetention5 U.S.C. §5362. Grade retention following a changeof positions or reclassificationGenerally, an employee whose position changes to one ina lower grade is entitled to retain the higher grade fortwo years. Certain requirements stated in the law mustbe met for grade retention to occur.5 U.S.C. §5363. Pay retentionGenerally, entitles an employee to basic pay at a rate

§9701.356. Pay retention. Subject to the requirementsof this section, DHS will, after coordination with OPM,issue implementing directives regarding the applicationof pay retention. Pay retention prevents a reduction inbasic pay that would otherwise occur by preserving theformer rate of basic pay within the employee’s new bandor by establishing a retained rate that exceeds themaximum rate of the new band.Pay retention must be based on the employee’s rate ofbasic pay in effect immediately before the action that

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equal to the employee’s allowable former rate of basicpay, plus 50% of the amount of each increase in themaximum rate of basic pay payable for the grade of theemployee’s position immediately after such reduction inpay if such allowable former rate exceeds such maximumrate for the grade. Certain requirements for pay retentionare stated in the law.

would otherwise reduce the employee’s rate. A retainedrate must be compared to the range of rates of basic payapplicable to the employee’s position.In applying §9701.323 (regarding pay increases providedat the time of a rate range adjustment under §9701.322),any increase in the rate of basic pay for an employeereceiving a retained rate is equal to one-half of thepercentage value of any increase in the minimum rate ofthe employee’s band.

5 U.S.C. §5333. Minimum rate for new appointmentsNew appointments are made at the minimum rate of theappropriate grade. Appointments at above the minimumrate may be made for such considerations as the existingpay or unusually high or unique qualifications of thecandidate, or a special need of the government for theindividual’s services.

§9701.357. Miscellaneous. Except in the case of anemployee who does not receive a pay increase under§§9701.323 or 9701.335 because of an unacceptablerating of record, an employee’s rate of basic pay may notbe less than the minimum rate of the employee’s band(or the adjusted minimum rate of that band).Except as provided in §9701.356, an employee’s rate ofbasic pay may not exceed the maximum rate of theemployees’ band rate range.

5 U.S.C. §5504. Biweekly pay periods; computation ofpay5 U.S.C. §5505. Monthly pay periods; computation ofpay

DHS must follow the rules for establishing pay periodsand computing rates of pay in 5 U.S.C. §§5504 and5505, as applicable. For employees covered by 5 U.S.C.§5504, annual rates of pay must be converted to hourlyrates of pay in computing payments received by coveredemployees.DHS will issue implementing directives regarding themovement of employees to or from a band with a raterange that is increased by a special rate supplement.

5 CFR Part 351 — Reduction In Force For the purpose of applying the reduction-in-forceprovisions of 5 CFR Part 351, DHS must establishrepresentative rates for all band rate ranges.If a DHS employee moves from the pay system

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established under Subpart C to a GS position withinDHS having a higher level of duties and responsibilities,DHS may issue implementing directives that provide fora special increase prior to the employee’s movement inrecognition that the employee will not be eligible for apromotion increase under the GS system.

Special Payments

5 U.S.C. Chapter 45, Subchapter III — Award to LawEnforcement Officers for Foreign Language CapabilitiesAuthorizes cash awards of up to 5% of basic pay toeligible law enforcement officers who possess and makesubstantial use of one or more foreign languages in theperformance of official duties. An award is in additionto basic pay.5 U.S.C. Chapter 53, Subchapter IX — SpecialOccupational Pay Systems5 U.S.C. §5392. Establishment of specialoccupational pay systemsAuthorizes the President’s pay agent to establish one ormore special occupational pay systems for any positionswithin occupations or groups of occupations that the payagent, determines for reasons of good administrationshould not be classified under 5 U.S.C. Chapter 51 or besubject to Chapter 53, Subchapter III. Certainrequirements for establishing special occupational paysystems are stated in the law.

§9701.361. Special skills payments. DHS will issueimplementing directives regarding additional paymentsfor specializations for which the incumbent is trained andready to perform at all times. DHS may determine theamount of the payments and the conditions foreligibility, including any performance or serviceagreement requirements. Payments may be made at thesame time as basic pay or in periodic lump-sumpayments. Special skills payments are not basic pay forany purpose and may be terminated or reduced at anytime without triggering pay retention or adverse actionprocedures.

5 U.S.C. §5545. Night, standby, irregular, andhazardous duty differential(d) Authorizes a differential for duty involving unusualphysical hardship or hazard.5 U.S.C. Chapter 59, Subchapter III — Overseas

§9701.362. Special assignment payments. DHS willissue implementing directives regarding additionalpayments for employees serving on special assignmentsin positions placing significantly greater demands on theemployee than other assignments within the employee’s

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Differentials and Allowances and Subchapter IV —Miscellaneous AllowancesAuthorizes a danger pay allowance and an allowancebased on duty at remote worksites.

band. DHS may determine the amount of the paymentsand the conditions for eligibility, including anyperformance or service agreement requirements. Payments may be made at the same time as basic pay orin periodic lump-sum payments. Special assignmentpayments are not basic pay for any purpose and may beterminated or reduced at any time without triggering payretention provisions or adverse action procedures.

5 U.S.C. §5753. Recruitment and relocation bonuses5 U.S.C. §5754. Retention bonusesAuthorize recruitment, relocation, and retention bonusesto eligible employees in positions likely to be difficult tofill or likely that essential employees would leave in theabsence of such bonuses. An employee receiving abonus must enter into a service agreement with theagency. Bonuses generally cannot exceed 25% of annualbasic pay, but for a critical agency need, may be up to50% of annual basic pay. A bonus may be paid as alump sum and is not part of basic pay. Additionally,retention bonuses of up to 10% of annual basic pay maybe paid to a group of employees if there is a high riskthat a significant portion of the group would likely leavein the absence of such bonuses. For a critical agencyneed, such bonuses may be up to 50% of annual basicpay. [P.L. 108-411, Oct. 30, 2004, 118 Stat. 2305-2309]

§9701.363. Special staffing payments. DHS will issueimplementing directives regarding additional paymentsfor employees serving in positions for which DHS isexperiencing or anticipates significant recruitment and/orretention problems. DHS may determine the amount ofthe payments and the conditions for eligibility, includingany performance or service agreement requirements. Payments may be made at the same time as basic pay orin periodic lump-sum payments. Special staffingpayments are not basic pay for any purpose and may beterminated or reduced at any time without triggering payretention or adverse action procedures.

Transitional Provisions

Authority derives from 5 U.S.C. §9701(a). §9701.371. General. An affected employee mayconvert from the GS system, a prevailing rate system, theSL/ST system, or the SES system, as provided in§9701.302. For the purpose of this section and§§9701.372 through 9701.374, the terms “convert,”

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“converted,”“converting,” and “conversion” refer toemployees who become covered by the pay systemwithout a change in position (as a result of a coveragedetermination made under §9701.102(b) and excludeemployees who are reassigned or transferred from anoncovered position to a position already covered by theDHS system. DHS will issue implementing directivesprescribing the policies and procedures necessary toimplement these transitional provisions.

Authority derives from 5 U.S.C. §9701(a). §9701.372. Creating initial pay ranges. DHS must,after coordination with OPM, set the initial band rateranges for the DHS pay system established underSubpart C. The initial ranges will link to the ranges thatapply to converted employees in their previouslyapplicable pay system (taking into account anyapplicable special rates and locality payments orsupplements).

5 U.S.C. §5541(3) defines “law enforcement officer”(LEO) as an employee who is an LEO within themeaning of 5 U.S.C. §§8331(20) or 8401(17), whichdefine the term for purposes of federal retirement. Thelaw states other positions which meet the definition.

For employees who are law enforcement officers asdefined in 5 U.S.C. §5541(3) and who were covered bythe GS system immediately before conversion, the initialranges must provide rates of basic pay that equal orexceed the rates of basic pay these officers receivedunder the GS system (taking into account any applicablespecial rates and locality payments or supplements).

Authority derives from 5 U.S.C. §9701(a). §9701.373. Conversion of employees to the DHS paysystem. When a pay system is established under SubpartC and applied to a category of employees, DHS mustconvert employees to the system without a reduction intheir rate of pay (including basic pay and any applicablelocality payment, special rate, locality rate supplementunder §9701.332, or special rate supplement under

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§9701.333).When an employee receiving a special rate under 5U.S.C. §5305 before conversion is converted to an equalrate of pay under the DHS pay system that consists of abasic rate and a locality or special rate supplement, theconversion will not be considered as resulting in areduction in basic pay for the purpose of an adverseaction under Subpart F.If another personnel action (e.g., promotion, geographicmovement) takes effect on the same day as the effectivedate of an employee’s conversion to the new pay system,DHS must process the other action under the rulespertaining to the employee’s former system beforeprocessing the conversion action.An employee on a temporary promotion at the time ofconversion must be returned to his or her official positionof record prior to processing the conversion. If theemployee is temporarily promoted immediately after theconversion, pay must be set under the rules forpromotion increases under the DHS system.The Secretary has discretion to make one-time payadjustments for GS and prevailing rate employees whenthey are converted to the DHS pay system. DHS willissue implementing directives governing any such payadjustment, including rules governing employeeeligibility, pay computations, and the timing of any suchpay adjustment.The Secretary has discretion to convertentry/developmental employees in noncompetitive careerladder paths to the pay progression plan established forthe Entry/Developmental band to which the employee isassigned under the DHS pay system. DHS will issueimplementing directives governing any such conversion,

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including rules governing employee eligibility, paycomputations, and the timing of any such conversion. DHS must convert employees without a reduction intheir rate of pay.

Authority derives from 5 U.S.C. §9701(a).P.L. 107-71 (115 Stat. 597) established theTransportation Security Administration.

§9701.374. Special transition rules for Federal AirMarshal Service. Notwithstanding any other provisionin Subpart C, if DHS transfers Federal Air MarshalService (FAMS) positions from TSA to anotherorganization within DHS, DHS may cover thosepositions under a pay system that is parallel to the paysystem that was applicable to the FAMS within TSA. DHS may, after coordination with OPM, modify thatsystem. DHS will issue implementing directives onconverting FAMS employees to any new pay system thatmay subsequently be established under Subpart C,consistent with the conversion rules in §9701.373.

Subpart D — Performance Management

DHS Authority for Subpart D derives from 5 U.S.C.§9701 (a)-(c).5 U.S.C. §4302. Establishment of performanceappraisal systemsEach agency must develop one or more performanceappraisal systems which provide for periodic appraisalsof job performance, encourage employee participation inestablishing performance standards, and use the resultsof performance appraisals to train, reward, reassign,promote, reduce in grade, retain, and remove employees. Under OPM regulations, each system must establishperformance standards which will, to the maximumextent feasible, permit the accurate evaluation of jobperformance on the basis of objective criteria (which

§9701.401. Purpose. Provides for the establishment inDHS of at least one performance management system.The performance management system(s), working inconjunction with the pay system established underSubpart C, is designed to promote and sustain a high-performance culture by: adhering to merit principles;having a fair, credible, and transparent employeeperformance appraisal system; linking the pay andperformance appraisal systems with the DHS strategicplan; involving employees in the design andimplementation of the system; providing adequatetraining and retraining for supervisors, managers, andemployees in implementing and operating the system;providing for periodic performance feedback and

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may include courtesy demonstrated to the public) relatedto the job in question for each employee or position;communicate those standards and critical elements toemployees at the beginning of each appraisal period;evaluate each employee during the appraisal period onthe standards; recognize and reward employees whoseperformance warrants such; assist employees inimproving unacceptable performance; and reassign,reduce in grade, or remove employees who continue tohave unacceptable performance, but only after anopportunity to demonstrate acceptable performance. Theagency head may administer and maintain a performanceappraisal system electronically.5 U.S.C. Chapter 43, Subchapter II covers PerformanceAppraisal in the Senior Executive Service

dialogue among supervisors, managers, and employeesthroughout the appraisal period, with specific timetablesfor review; having effective safeguards so that themanagement of the system is fair and equitable andbased on employee performance; and providing a meansfor ensuring that adequate resources are allocated for thedesign, implementation, and administration of thesystem.

Authority derives from 5 U.S.C. §9701(a).

5 CFR §430.202 Coverage. (d) Agency requests forexclusions of positions in the excepted service.

§9701.402. Coverage. Subpart D applies to eligibleDHS employees in the categories listed below, subject toa determination by the Secretary or designee under§9701.102(b). Those eligible for coverage includeemployees who would otherwise be covered by 5 U.S.C.Chapter 43, and employees who were excluded fromChapter 43 by OPM under 5 CFR §430.202(d) prior tothe date of coverage under Subpart D, as determinedunder §9701.102(b).Employees who are not expected to be employed longerthan a minimum period (as defined in §9701.404) duringa single 12-month period are excluded from coverageunder Subpart D.

Authority derives from 5 U.S.C. §9701(a)-(c).5 U.S.C. Chapter 43 — Performance Appraisal

§9701.403. Waivers. When a specified category ofemployees is covered by the performance management

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5 CFR Part 430 — Performance Management system(s) established under Subpart D, 5 U.S.C. Chapter43 is waived with respect to that category of employees.

5 CFR §430.203. Definitions. (unless otherwise noted)“Appraisal” means the process under which performanceis reviewed and evaluated.

§9701.404. Definitions. “Appraisal” means the reviewand evaluation of an employee’s performance.

“Appraisal period” means the established period of timefor which performance will be reviewed and a rating ofrecord will be prepared.

“Appraisal period” means the period of time establishedunder a performance management system for reviewingemployee performance.

“Critical element,” “Non-critical element,” and“Additional performance element” express theobjectives, goals, program plans, work plans, and the likethat express performance expectations.

“Competencies” means the measurable or observableknowledge, skills, abilities, behaviors, and othercharacteristics required by a position.

“Contribution” means a work product, service, output, orresult provided or produced by an employee thatsupports the departmental or organizational mission,goals, or objectives.

Minimum period. An appraisal program shall establish aminimum period of performance that must be completedbefore a performance rating may be prepared. [5CFR§430.207(a)]

“Minimum period” means the period of time establishedby DHS during which an employee must perform beforereceiving a rating of record.

“Performance” means accomplishment of workassignments or responsibilities.

“Performance” means accomplishment of workassignments or responsibilities.

“Performance standard” means the management-approved expression of the performance threshold(s),requirement(s), or expectation(s) that must be met to beappraised at a particular level of performance. Aperformance standard may include, but is not limited to,quality, quantity, timeliness, and manner of performance.

“Performance expectations” means that which anemployee is required to do, as described in §9701.406,and may include observable or verifiable descriptions ofquality, quantity, timeliness, and cost effectiveness.

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“Appraisal” means the process under which performanceis reviewed and evaluated.

“Performance management” means applying theintegrated processes of setting and communicatingperformance expectations, monitoring performance andproviding feedback, developing performance andaddressing poor performance, and rating and rewardingperformance in support of the organization’s goals andobjectives.

“Performance appraisal system” means a framework ofpolicies and parameters established by an agency for theadministration of performance appraisal programs under5 U.S.C. Chapter 43, Subchapter I and 5 CFR Part 430,Subpart B.

“Performance management system” means the policiesand requirements established under Subpart D, assupplemented by DHS implementing directives, forsetting and communicating employee performanceexpectations, monitoring performance and providingfeedback, developing performance and addressing poorperformance, and rating and rewarding performance.

“Rating of record” means the performance ratingprepared at the end of an appraisal period forperformance of agency-assigned duties over the entireperiod and the assignment of a summary level within apattern.

“Rating of record” means a performance appraisalprepared at the end of an appraisal period covering anemployee’s performance of assigned duties over theapplicable period; or to support a pay determination,including one granted in accordance with Subpart C ofthis part, a within-grade increase granted under 5 CFR§531.404, or a pay determination granted under otherapplicable rules.

“Unacceptable performance” means performance by anemployee which fails to meet established performancestandards in one or more critical elements of theemployee’s position. [5 U.S.C. §4301(3)]

“Unacceptable performance” means the failure to meetone or more performance expectations.

5 CFR Part 430 — Performance Management containsthe regulations to implement 5 U.S.C. Chapter 43 —Performance Appraisal, including regulations on agency

§9701.405. Performance management systemrequirements. DHS will issue implementing directivesthat establish one or more performance management

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performance appraisal systems and programs, andplanning, monitoring, and rating performance.

systems for DHS employees, subject to the requirementsset forth in Subpart D.

5 U.S.C. Chapter 23 — Merit System PrinciplesCovers Merit system principles and Prohibited personnelpractices.

Each DHS performance management system must:specify the employees covered; provide for the periodicappraisal of the performance of each employee, generallyonce a year, based on performance expectations; specifythe minimum period during which an employee mustperform before receiving a rating of record; holdsupervisors and managers accountable for effectivelymanaging employee performance; include procedures forsetting and communicating performance expectations,monitoring performance and providing feedback, anddeveloping, rating, and rewarding performance; andspecify the criteria and procedures to address theperformance of employees who are detailed ortransferred and for employees in other specialcircumstances.Supervisors and managers are responsible for: clearlycommunicating performance expectations and holdingemployees responsible for accomplishing them; makingmeaningful distinctions among employees based onperformance; fostering and rewarding excellentperformance; and addressing poor performance.

5 U.S.C. §4302. Establishment of performanceappraisal systems(a) Each agency must develop one or more performanceappraisal systems which (a)(2) encourage employeeparticipation in establishing performance standards.(b) Each performance appraisal system must provide for(1) establishing performance standards which will, to themaximum extent feasible, permit the accurate evaluation

§9701.406. Setting and communicating performanceexpectations. Performance expectations must align withand support the DHS mission and its strategic goals,organizational program and policy objectives, annualperformance plans, and other measures of performance.Such expectations include those general performanceexpectations that apply to all employees, such asstandard operating procedures, handbooks, or other

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of job performance on the basis of objective criteria(which may include courtesy demonstrated to the public)related to the job in question for each employee orposition; (2) communicating the performance standardsand the critical elements of the employee’s position tothe employee at the beginning of each appraisal period.5 CFR §430.102 Performance management.(a) Performance management is the systematic processby which an agency involves its employees, asindividuals and members of a group, in improvingorganizational effectiveness in the accomplishment ofagency mission and goals.(b) Performance management integrates the processes anagency uses to (1) Communicate and clarifyorganizational goals to employees; (2) Identifyindividual and, where applicable, team accountability foraccomplishing organizational goals.5 CFR §430.206 Planning Performance.(b) Performance plan. (1) Agencies shall encourageemployee participation in establishing performanceplans. (2) Performance plans shall be provided toemployees at the beginning of each appraisal period(normally within 30 days). (3) An appraisal programshall require that each employee be covered by anappropriate written, or otherwise recorded, performanceplan based on work assignments and responsibilities. (4)Each performance plan shall include all elements whichare used in deriving and assigning a summary level,including at least one critical element and any non-critical element(s) .... (8) Elements and standards shall beestablished as follows — For a critical element — Atleast two levels for appraisal shall be used with one levelbeing “Fully Successful” or its equivalent and another

operating instructions and requirements associated withthe employee’s job, unit, or function.Supervisors and managers must communicateperformance expectations, including those that mayaffect an employee’s retention in the job. Performanceexpectations need not be in writing, but must becommunicated to the employee prior to holding theemployee accountable for them. Employees are alwaysaccountable for demonstrating appropriate standards ofconduct, behavior, and professionalism, such as civilityand respect for others.Performance expectations may take the form of — goalsor objectives that set general or specific performancetargets at the individual, team, and/or organizationallevel; organizational, occupational, or other workrequirements, such as standard operating procedures,operating instructions, administrative manuals, internalrules and directives, and/or other instructions that aregenerally applicable and available to the employee; aparticular work assignment, including expectationsregarding the quality, quantity, accuracy, timeliness,and/or other expected characteristics of the completedassignment; competencies an employee is expected todemonstrate on the job, and/or the contributions anemployee is expected to make; or any other means, aslong as it is reasonable to assume that the employee willunderstand the performance that is expected.Supervisors must involve employees, insofar aspracticable, in the development of their performanceexpectations. However, final decisions regardingperformance expectations are within the sole andexclusive discretion of management.

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level being “Unacceptable;” and a performance standardshall be established at the “Fully Successful” level andmay be established at other levels. For non-criticalelements, when established — At least two levels forappraisal shall be used, and a performance standard(s)shall be established at whatever level(s) is appropriate.Additional requirements are listed in the regulations.

5 CFR §430.207 Monitoring Performance.(a) An appraisal program shall establish a minimumperiod of performance that must be completed before aperformance rating may be prepared.(b) An appraisal program shall include methods forappraising each critical and non-critical element duringthe appraisal period .... Ongoing appraisal methods shallinclude, but not be limited to, conducting one or moreprogress reviews during each appraisal period.(c) Appraisal programs should provide assistancewhenever performance is determined to be below “FullySuccessful” or equivalent but above “Unacceptable.”(d) An appraisal program shall provide for assistingemployees in improving unacceptable performance atany time during the appraisal period that performance isdetermined to be unacceptable in one or more criticalelements; and taking action based on unacceptableperformance.

§9701.407. Monitoring performance and providingfeedback. In applying the requirements of theperformance management system and its implementingdirectives and policies, supervisors must monitor theperformance of their employees and the organization;and provide timely periodic feedback to employees ontheir actual performance with respect to theirperformance expectations, including one or more interimperformance reviews during each appraisal period.

5 CFR §430.102 Performance management.(b) Performance management integrates the process anagency uses to (3) Identify and address developmentalneeds for individuals and where applicable teams.5 U.S.C. §4302. Establishment of performanceappraisal systems

§9701.408. Developing performance and addressingpoor performance. Subject to budgetary and otherorganizational constraints, a supervisor must provideemployees with the proper tools and technology to dotheir job and develop employees to enhance their abilityto perform.

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(b) Each performance appraisal system must provide for(5) assisting employees in improving unacceptableperformance; and (6) reassigning, reducing in grade, orremoving employees who continue to have unacceptableperformance, but only after an opportunity todemonstrate acceptable performance.5 U.S.C. §4303. Actions based on unacceptableperformanceAuthorizes an agency to reduce in grade or remove anemployee for unacceptable performance.

During the appraisal period, if a supervisor determinesthat an employee’s performance is unacceptable, thesupervisor must consider the range of options availableto address the performance deficiency, such as remedialtraining, an improvement period, a reassignment, an oralwarning, a letter of counseling, a written reprimand,and/or an adverse action; and take appropriate action toaddress the deficiency, taking into account thecircumstances, including the nature and gravity of theunacceptable performance and its consequences.As specified in Subpart G, employees may appealadverse actions based on unacceptable performance.

5 CFR §430.206 Planning Performance.(b) Performance plan. (8) Elements and standards shallbe established as follows — For a critical element — Atleast two levels for appraisal shall be used with one levelbeing “Fully Successful” or its equivalent and anotherlevel being “Unacceptable;” and a performance standardshall be established at the “Fully Successful” level andmay be established at other levels. For non-criticalelements, when established — At least two levels forappraisal shall be used, and a performance standard(s)shall be established at whatever level(s) is appropriate.5 CFR §430.208. Rating performance.(a) As soon as practicable after the end of the appraisalperiod, a written, or otherwise recorded, rating of recordshall be given to each employee.(b) (1) A level 1 summary (“Unacceptable”) shall beassigned if and only if performance on one or morecritical elements is appraised as “Unacceptable.”(c) The method for deriving and assigning a summarylevel may not limit or require the use of particular

§9701.409. Rating performance. Except as providedbelow, each DHS performance management system mustestablish a single summary rating level of unacceptableperformance, a summary rating level of fully successfulperformance (or equivalent), and at least one summaryrating level above fully successful performance. Foremployees in an Entry/Developmental band, the DHSperformance management system(s) may establish twosummary rating levels, i.e., an unacceptable rating leveland a rating level of fully successful (or equivalent).At his or her sole and exclusive discretion, the Secretary,or designee may under extraordinary circumstancesestablish a performance management system with twosummary rating levels, i.e., an unacceptable level and ahigher rating level, for employees not in anEntry/Developmental band.A supervisor or other rating official must prepare andissue a rating of record after the completion of theappraisal period. An additional rating of record may beissued to reflect a substantial change in the employee’s

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summary levels (i.e., establish a forced distribution ofsummary levels). However, methods used to makedistinctions among employees or groups of employeessuch as comparing, categorizing, and ranking employeesor groups on the basis of their performance may be usedfor purposes other than assigning a summary levelincluding, but not limited to, award determinations andpromotion decisions.(d) An appraisal program may use one of eight patternsof summary rating levels. Level 1 is “Unacceptable,”Level 3 is “Fully Successful,” and Level 5 is“Outstanding.” Additional requirements are listed in theregulations.5 U.S.C. §4302. Establishment of performanceappraisal systems(a) Each agency must develop one or more performanceappraisal systems which (3) use the results ofperformance appraisals to ... reward ... employees.(b) Each performance appraisal system must provide for(4) recognizing and rewarding employees whoseperformance warrants such.5 U.S.C. Chapter 45 — Incentive Awards5 U.S.C. §4505a. Performance-based cash awardsAn employee whose most recent performance rating was“fully successful” or higher may be paid a cash award.

performance when appropriate. A rating of record willbe used as a basis for determining an increase in basicpay under §9701.342; a locality or special ratesupplement increase under §9701.336; a performancepay increase determination under §9701.342(a); a within-grade increase determination under 5 CFR §531.404,prior to conversion to the pay system established underSubpart C; a pay determination under any otherapplicable pay rules; awards under any legal authority;including 5 U.S.C. Chapter 45, 5 CFR Part 451, and adepartmental or organizational awards program;eligibility for promotion; or such other action that DHSconsiders appropriate, as specified in the implementingdirectives.A rating of record must assess an employee’sperformance with respect to his or her performanceexpectations and/or relative contributions and isconsidered final when issued to the employee with allappropriate reviews and signatures.DHS may not impose a forced distribution or quota onany rating level(s).A rating of record issued under Subpart D is an officialrating of record for the purpose of any provision of Title5 CFR, for which an official rating of record is required.DHS may not lower the rating of record of an employeeon an approved absence from work, including theabsence of a disabled veteran to seek medical treatment,as provided in Executive Order 5396.A rating of record may be grieved by a non-bargainingunit employee (or a bargaining unit employee when nonegotiated procedure exists) through an administrativegrievance procedure established by DHS. A bargainingunit employee may grieve a rating of record through a

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negotiated grievance procedure, as provided in SubpartE. An arbitrator hearing a grievance is subject to thestandards of review set forth in §9701.521(g)(2). Exceptas otherwise provided by law, an arbitrator may notconduct an independent evaluation of the employee’sperformance or otherwise substitute his or her judgmentfor that of the supervisor.A supervisor or other rating official may prepare anadditional performance appraisal for the purposesspecified in the applicable performance managementsystem (e.g., transfers and details) at any time after thecompletion of the minimum period. Such an appraisal isnot a rating of record.

5 U.S.C. Chapter 35 — Retention Preference,Restoration, and Reemployment5 CFR §351.504 Credit for performance.

DHS implementing directives will establish policies andprocedures for crediting performance in a reduction inforce, including policies for assigning additionalretention credit based on performance. Such policiesmust comply with 5 U.S.C. Chapter 35 and 5 CFR§351.504.

5 U.S.C. §4304. Responsibilities of the Office ofPersonnel ManagementOPM must review each performance appraisal systemdeveloped by any agency and determine whether theperformance appraisal systems meets the requirements of5 U.S.C. Chapter 43, Subchapter I. OPM may direct thatcorrective action be taken if an agency performancesystem does not meet the requirements of Subchapter I.The Comptroller General from time to time must reviewon a selected basis performance appraisal systems todetermine the extent to which any such system meets the

§9701.410. DHS responsibilities. In carrying out itsperformance management system(s), DHS must transferratings between subordinate organizations and to otherfederal departments or agencies; evaluate its performancemanagement system(s) for effectiveness and compliancewith Subpart D, DHS implementing directives andpolicies, and the provisions of 5 U.S.C. Chapter 23 thatset forth the merit system principles and prohibitedpersonnel practices; provide OPM with a copy of theimplementing directives, policies, and procedures thatimplement Subpart D; and comply with 29 CFR

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requirements of Subchapter I and must periodicallyreport its findings to OPM and the Congress.

§1614.102(a)(5), which requires agencies to review,evaluate, and control managerial and supervisoryperformance to ensure enforcement of the policy of equalopportunity.

Source: U.S. Department of Homeland Security and U.S. Office of Personnel Management, “Department of Homeland SecurityHuman Resources Management System,” Federal Register, vol. 70, no. 20, February 1, 2005, pp. 5271-5347.

Documents

Updated February 2, 2005 - Federation of American Scientists › sgp › crs › homesec › RL32261.pdfprovisions. Blue-collar employees under th e wage grade system are excluded