Issue Briefs

Following is recent Pentagon guidance on new restrictions on various types of employee award and incentive payments.

The Office of Management and Budget (OMB) memoranda state, until further notice, discretionary monetary awards should not be issued during sequestration unless agency counsel determines the awards are legally required. Legally required awards include awards such as those compelled as a result of third party decisions (e.g. from the Merit Systems Protection Board, Equal Employment Opportunity Commission, Federal Labor Relations Authority); prescribed as mandatory payouts in the Federal Register; or stipulated as part of a collective bargaining agreement. Questions regarding the legal requirement to pay awards should be forwarded to the Component Office of General Counsel for review prior to payment.

Applicability

For purposes of equity and fairness in their application, restrictions on discretionary monetary awards prescribed by OMB will apply to all performance awards programs in the Department of Defense (DoD) with limited exceptions. These restrictions include but are not limited to the following:

* Organizations whose employees are covered by provisions of title 5 U.S. Code (U.S.C.) and title 5 of the Code of Federal Regulations (CFR), regardless of the source of their funding;

* Organizations whose employees are covered by provisions in sections 1601-1614 of title 10 U.S.C.;

* Civilian faculty members at certain DoD schools, under the authorities in section 1595 of title 10 U.S.C.;

* Foreign national employees of DoD who are eligible for monetary awards, as long as restrictions do not conflict with host nation employment law or practice;

* Employees supporting DoD nonappropriated fund (NAF) pay systems;

* Employees covered by the Physicians and Dentists Pay Plan, a hybrid of the title 38 pay system, are covered for purposes of performance awards by section 4505(a) of title 5U.S.C. and sections 451.104(a) (3) and 451.101(e) of title 5 CFR, and for special act awards under section 4503 of title 5 U.S.C., and section 451.104 (a)(2) of title 5 CFR and are also subject to the limitations prescribed by OMB; and* Awards that would otherwise be granted through the Defense Acquisition Workforce Development Fund.

The restriction does not apply to quality step increases (QSis) (and similar base-pay increase awards granted under the Defense Civilian Intelligence Personnel System or other alternative personnel systems in the Department), travel savings incentives, foreign language awards, recruitment, relocation and retention incentives (3Rs), student loan repayments,suggestion and invention incentives, or time-off awards. However, spending for these types of awards should occur only OI). a highly limited basis and in circumstances where necessary and critical to maintaining the mission. Spending for QSis and 3Rs should not exceed the level of spending on such incentives for fiscal year (FY) 2010.

Awards approved prior to February 27, 2013, by the appropriate agency official, as designated by the Component, are excluded from the restrictions outlined in this guidance.

Nonappropriated Fund (NAF) Pay System

The OMB restrictions on discretionary monetary awards apply to the use of appropriated funds, including the use of those funds to support NAF positions. Under those restrictions, appropriated funds shall not, under any circumstance, be used to fund any portion of a discretionary monetary award for a NAF employee, unless legally required. Therefore, employees in NAF positions which are funded, in whole or in part, with appropriated funds are prohibited by the OMB restrictions from receiving discretionary monetary awards NAF performance awards that are solely funded with nonappropriated funds are not covered by the restrictions on discretionary monetary awards prescribed by OMB. Components are responsible for confirming that appropriated funds are not co-mingled with nonappropriated funds to fund NAF performance awards. In recognition of the need for increased scrutiny of awards spending across the Department, the following apply to performance awards paid entirely with nonappropriatedfunds:* Lump-sum cash bonuses and awards for individual NF-6 senior level executives are restricted to the same limits applicable to appropriated fund Senior Executive Service employees.

* Awards and bonuses for NAF employees in positions other than NF-6 are restricted to the limitations consistent with those imposed for FY 2011 and FY 20 12. These limitations, stated in the Deputy Assistant Secretary of Defense, July 6, 2011, memorandum, "Supplemental Guidance on Award Limitations for Department of Defense Civilian Employees in Fiscal Years 2011 and 2012," are as follows: o Individual lump-sum cash bonuses and awards (including special act awards) are limited to 1 percent of aggregate salaries of those employees.

o Other awards, such as group cash awards, cash awards recognizing achievements such as individual and group suggestion and invention, and cost saving referrals of job candidates are not covered by the 1 percent limitation, but are frozen at FY 2010 levels.

o Cash bonuses paid out to NAF employees as a result of achieving a set financial or profit goal are not considered discretionary monetary awards covered by these restrictions. However, Components are responsible for prudently monitoring profit sharing formulas, metrics, and financial goals.

Regardless of the source of funding, performance-based pay increases for employees paid under DoD NAF pay bands are not considered discretionary monetary awards. However, Components are responsible for carefully monitoring performance-based pay increases and capping spending at FY 2010 levels.

Alternative Pay Systems Alternative pay systems, such as the Science and Technology Reinvention Laboratories(STRL) and the Acquisition Demonstration Project, rely on broad pay bands, which typically incorporate multiple General Schedule (GS) grades. Monetary rewards for performance are funded differently than those for employees covered by the GS and Federal Wage System(FWS). In order to ensure consistent application of OMB and Department guidance, Components must request approval from the Deputy Assistant Secretary of Defense for Civilian Personnel Policy prior to permitting payment of discretionary cash awards. The request for approval must include the detailed legal analysis from Component counsel supporting the rationale that payments of the awards are considered "legally required. "The following apply to performance-based awards/compensation for alternative pay systems:* When funding levels for performance-based compensation and/or awards are specifically identified in Federal Register notices, the Federal Register amounts are controlling.

* Where the Federal Register allows flexibility in setting funding levels for performance based compensation, funding allocated to continuing pay increases will be limited to the lesser of FY 2010 levels or historical averages. Funds normally allocated to performance awards or bonuses will not be realigned to continuing pay increases. Performance-based compensation will not exceed FY 2010 levels.

* Typically, pay pools for broad-banded systems have funds for performance recognition performance-based continuing pay increases, performance awards and special acts, inventions, etc., formerly covered by Chapter 45 of title 5 U.S.C. (or equivalent authority). Unless legally required, for example, a specific requirement in the Federal Register notice or collective bargaining agreement, lump sum cash awards will not be paid.

* When a performance-based continuing pay increase cannot be fully applied due to pay band limitations, the excess amount is generally paid as a lump sum from the funding available for continuing pay increases. Unless legally required, for example, a specific requirement in the Federal Register notice or collective bargaining agreement, payments of this nature will not occur.

Use of Non-Monetary Awards

A well-managed recognition program provides managers non-monetary options to recognize performance and contributions to the mission. Managers are strongly encouraged to make full use of the many honorary awards available throughout the Department to recognize and reward hard work. Recognition in any form should be done publicly to maximize awareness that good performance and solid contributions will be recognized.

As stated in the OMB guidance, time-off awards are permitted. However, time-off awards should only be used on a highly limited basis and in circumstances where they are necessary and critical to maintaining the agency’s mission. Managers should refrain from increasing time-off awards to compensate for the restrictions on cash awards. When granting time-off awards, management should remember that time-off awards:* Cannot exceed 80 hours in one leave year or 40 hours for a single contribution (adjusted applicably for part-time employees).

* Should be scheduled and used within 1 year after the effective date of the award.

* Cannot be converted to a cash payment under any circumstances.

* May not be transferred to gaining Agencies or between DoD Components.

Labor Relations

All collective bargaining obligations must be met prior to implementing the provisions of either OMB or this supplemental guidance. Collective bargaining agreements or past practices may provide for a structure and minimum award amounts or percentages based on the ratings received by employees. Management must reach agreement with the union prior to implementing a change to an agreement or past practice. Management cannot unilaterally change the agreement or practice based on the prescribed limitations.