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Washington, D.C. -- The U.S. Office of Personnel Management today issued final regulations on performance-based pay for the Senior Executive Service and senior professionals, the last in a series of rule-making efforts that will move top government managers into a true pay-for-performance system. The regulations appear in the Federal Register and are effective December 6, 2004.
In a memorandum issued to Federal agencies this week (attached), OPM Director Kay Coles James advised agency and department heads that the new regulations permit agencies with certified performance appraisal systems to pay their highest-performing SES members in 2004 up to $158,100 (the rate for level II of the Executive Schedule). Without certification, which is granted by OPM and the Office of Management and Budget to agencies with executive appraisal systems that make "meaningful distinctions in relative performance," SES pay is capped at the rate for Executive Level III, currently $145,600.
"Since 2001, our message has been clear across the Federal team - performance matters," said James, "and our Federal government's top leaders will be rewarded for achieving measurable results for the American taxpayer. Basing the pay of Federal employees on performance and results has been a priority of President Bush, and this represents a major step in accomplishing that objective. The American people deserve no less in return for their tax dollars."
The new SES pay-for-performance system was proposed by President George W. Bush in the fiscal 2004 budget. It was adopted by Congress in the 2004 National Defense Authorization Act. "The link between pay and performance is an important component of the President's Management Agenda to make government more results-oriented," said James.
In July 2004, OPM issued regulations that established rigorous criteria for senior executive and professional performance-appraisal systems, as the foundation for a credible and effective pay-for-performance strategy. This component of the SES pay-for-performance model was a prerequisite to the issuance of today's compensation regulations.
The new rules also raise the aggregate annual limit on pay and bonuses for members of the SES and senior professionals. The new aggregate limit is capped at the salary earned by the Vice President, $203,000 in 2004.
Among other things, the new rules also allow the heads of agencies to provide senior executives with more than one pay increase in a 12-month period:
· in recognition of an exceptionally meritorious accomplishment;
· when the executive is reassigned to a position of greater responsibility;
· in order to recruit an individual with superior leadership or other
competencies from a position in another agency; or,
· to keep a senior executive critical to the agency's mission from leaving the agency.
MEMORANDUM FOR HEADS OF EXECUTIVE DEPARTMENTS AND AGENCIES
FROM: Kay Coles James
SUBJECT: Final Regulations on Performance-Based SES Pay System
I am pleased to inform you that the Office of Personnel Management (OPM) has issued final regulations addressing new, higher basic pay for members of the Senior Executive Service (SES). The final regulations are effective on December 6, 2004. These new regulations also address the higher aggregate limitation on pay for SES members and employees in senior-level (SL) and scientific or professional (ST) positions (copy attached). They complement OPM's regulations at 5 CFR chapter 430, subpart D, issued on July 29, 2004, which established the criteria for certifying SES and SL/ST performance appraisal systems in order to obtain access to these higher limits. Taken together, these two sets of regulations comprise the new SES pay-for-performance system.
With these new regulations, agencies that have certified performance appraisal systems for senior executives are permitted to pay their highest-performing SES members above the rate for level III of the Executive Schedule ($145,600 in 2004)—up to the rate for level II of the Executive Schedule ($158,100 in 2004). Agencies that have certified performance appraisal systems for senior executives and/or SL/ST employees must also apply a higher aggregate limitation on pay—up to the Vice President's salary ($203,000 in 2004). Information on obtaining certification of performance appraisal systems for senior executives and SL/ST employees is available at http://www.opm.gov/oca/compmemo/2004/2004-13.asp.
Setting and Adjusting SES Rates of Basic Pay
The new SES performance-based pay system requires agencies to make decisions on setting and adjusting rates of basic pay for SES members based on individual performance and/or contribution to the agency's performance as determined under a rigorous performance management system. In assessing a senior executive's performance and/or contribution to the agency's performance, the agency may consider such things as unique skills, qualifications, or competencies that the individual possesses, and their significance to the agency's performance, as well as the senior executive's current responsibilities. Rates of basic pay higher than the rate for level III of the Executive Schedule must be approved by the head of the agency or designee and generally are reserved for those senior executives who have demonstrated the highest levels of individual performance and/or made the greatest contributions to the agency's performance, or, in the case of newly-appointed senior executives, those who possess superior leadership or other competencies.
Each agency must establish a plan for setting and adjusting the rates of basic pay for SES members. Agency plans must ensure that individual pay rates or pay adjustments reflect meaningful distinctions within a single performance rating level (e.g., the higher the employee's relative performance within the rating level, the higher the pay adjustment) and/or between performance rating levels (e.g., the higher the rating level, the higher the pay adjustment). Agencies must provide for transparency in the processes for making pay decisions, while assuring confidentiality.
Generally, an authorized agency official may adjust (increase or reduce) the rate of basic pay of a senior executive not more than once in any 12-month period. However, OPM's regulations allow an agency to approve an increase more than once during a 12-month period where the head of an agency or designee determines that an additional increase is warranted (1) for an exceptionally meritorious accomplishment, (2) for a senior executive who is reassigned to a position with substantially greater scope and responsibility or to recruit a senior executive with superior leadership or other competencies from a position in another agency, (3) for a senior executive who is critical to the mission of the agency and who would be likely to leave the agency in the absence of a pay increase, or (4) to align a senior executive with the agency's senior executive appraisal and pay adjustment cycle.
On January 20, 2004, I delegated responsibility to agency heads to approve limited exceptions to the 12-month rule. (See CPM 2004-04 at http://www.opm.gov/oca/compmemo/2004/2004-04.asp.) Because the final SES regulations provide the head of an agency or designee the authority to make specific exceptions to the 12-month rule, I am withdrawing the general delegation of authority as of the effective date of the final regulations.
Reduction in Pay
An agency may reduce a career senior executive's SES rate of basic pay by not more than
10 percent for performance or disciplinary reasons. However, an agency may not reduce a senior executive's rate of basic pay below the rate that was in effect on November 24, 2003 (including any applicable locality payment), for 12 months following the effective date of the new SES pay system (not earlier than January 12, 2005).
Increases in the Minimum or Maximum Rates of the SESRateRange
The minimum rate of basic pay for the SES rate range will increase consistent with any increase in the minimum rate of basic pay for senior-level positions under 5 U.S.C. 5376. The applicable maximum rate of basic pay for the SES rate range will increase with any increase in the rate for levels II or III of the Executive Schedule under 5 U.S.C. 5318. An agency may provide an increase in the rate of basic pay for a senior executive who meets or exceeds his or her performance expectations at the same time the minimum or maximum rate of the SES rate range is increased by an amount that does not exceed the amount necessary to allow the senior executive to maintain his or her relative position in the SES rate range, with some exceptions. A pay increase made to allow a senior executive to maintain his or her relative position in the rate range is not considered a pay adjustment for the purpose of applying the 12-month rule. This provision does not provide senior executives with an entitlement to an annual pay adjustment—only consideration for such an adjustment.
When the maximum rate of the SES rate range is increased, an agency may grant an additional pay increase to a senior executive whose rate of basic pay is at the applicable maximum rate. Such an adjustment may be made after an agency has already granted pay increases to its senior executives following the SES performance appraisal period and is not considered a pay adjustment for the purpose of applying the 12-month rule. In addition, if there is an additional increase in the rates for the Executive Schedule in a calendar year, and if that increase becomes effective on the first day of the first pay period beginning on or after January 1 (i.e., the date prescribed in 5 U.S.C. 5318), an agency may review any previous determination to adjust the pay of a senior executive to determine whether, and to what extent, an additional pay increase may be warranted based on the same criteria used for the previous determination. If an additional pay increase is warranted, that increase must be made effective as of the effective date of the previous pay increase and is not considered a pay adjustment for the purpose of applying the 12-month rule.
No reduction in pay upon transfer to another agency or suspension of certification
A senior executive whose rate of basic pay is higher than the rate for level III of the Executive Schedule may not suffer a reduction in pay as a result of transferring to an agency where the maximum rate of basic pay for the applicable SES rate range is equal to the rate for level III of the Executive Schedule or as the result of a decision to suspend certification of the applicable performance appraisal system. The senior executive will continue to receive his or her current SES rate and is not eligible for a pay adjustment until the senior executive is assigned to a position that would allow the employee to receive a pay adjustment or the employing agency's applicable performance appraisal system is certified under 5 CFR part 430, subpart D.
Processing SES Pay Actions
Additional instructions for processing SES pay actions will be issued by OPM's Personnel Systems Group through updates of the Guide to Processing Personnel Actions. If you have any questions, please contact Mary Carter at firstname.lastname@example.org.
To assist you, we have attached additional guidance on setting and adjusting rates of basic pay for members of the SES. For further information, agency Chief Human Capital Officers and Human Resources Directors may contact their assigned OPM Human Capital Officers. Employees should contact their agency human resources offices for information.
We look forward to working with you to ensure successful implementation of the performance-based SES pay system for the Federal Government's elite leadership corps.
cc: Chief Human Capital Officers
Human Resources Directors
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