Conversion from the National Security
Personnel System to Other Pay Schedules:
Issues for Congress
Wendy R. Ginsberg
Analyst in Government Organization and Management
August 4, 2010
Congressional Research Service
7-5700
www.crs.gov
R41321
CRS Report for Congress
P
repared for Members and Committees of Congress

---

Conversion from the National Security Personnel System to Other Pay Schedules

Summary
Most federal employees (59.1%) are paid on the General Schedule (GS), a pay scale that consists
of 15 pay grades in which an employee’s pay increases are to be based on performance and length
of service. Some Members of Congress, citizens, and public administration scholars have argued
that federal employee pay advancement should be more closely linked to job performance than it
currently is on the GS. With these concerns in mind and with explicit congressional authorization,
the Department of Defense (DOD) began developing the National Security Personnel System
(NSPS) in 2003 as a unique pay scale attempting to more closely link employee pay to job
performance.
NSPS was beset by criticisms since it went into effect in 2006. The system faced legal and
political challenges from unions and employees who claimed it was inconsistently applied and
caused undeserved pay inequities, among other concerns. On October 7, 2009, House and Senate
conferees reported a version of the National Defense Authorization Act for Fiscal Year 2010 that
included language to terminate NSPS. On October 8, 2009, the House agreed to the conference
report. The Senate agreed to the conference report on October 22, 2009. On October 28, 2009, the
President signed the bill into law (P.L. 111-84). DOD must now return employees currently
enrolled in NSPS to the GS or to the pay system that previously applied to them or their position.
If the employee’s position did not exist prior to NSPS or if the previous pay scale was abolished
during NSPS’s lifetime, DOD must determine an appropriate pay scale for the employee. The
return to the GS or other pay system must be completed by January 1, 2012, pursuant to the law.
NSPS was initially intended to cover all DOD employees, but had a total final enrollment of
roughly 227,000 DOD employees or 31.7% of the department’s 717,000-person workforce. DOD
has announced that it anticipates that approximately 75% of employees in NSPS will be placed in
the GS by September 30, 2010. The remaining 25% of employees—most of whom would be
placed in pay scales other than the GS—may take longer to transition out of NSPS.
P.L. 111-84 included language preventing any employee from suffering a loss or decrease in pay
as a result of the elimination of NSPS. Pursuant to statute, some transitioning employees have
been placed on “retained pay,” which allows them to maintain their NSPS rate of pay instead of
transitioning to the GS pay rate assigned to their job’s grade. In such cases, the GS rate of pay
assigned to the employee’s position may not reach the pay level the employee achieved under
NSPS. Retained pay, pursuant to statute, requires that an employee receive half of the annual pay
adjustment given to employees who are at the maximum payable rate for their GS grade (step 10).
Some NSPS employees may argue that the cap on their annual pay increase amounts to a loss in
pay, and, therefore, violates P.L. 111-84.
This report focuses on the transition of employees from NSPS to non-NSPS pay systems. It does
not address the operation of NSPS or other pay schedules. The report discusses how the transition
is scheduled to occur and analyzes congressional options for oversight or legislative action.



Congressional Research Service

---

Conversion from the National Security Personnel System to Other Pay Schedules

Contents
Introduction ................................................................................................................................ 1
Transition Timing........................................................................................................................ 2
Linking NSPS and Different Pay Rates ....................................................................................... 3
Policy Concerns .......................................................................................................................... 5
Options for Congress .................................................................................................................. 6

Figures
Figure A-1. The Number and Location of Employees in the National Security Personnel
System ..................................................................................................................................... 9

Appendixes
Appendix. ................................................................................................................................... 9

Contacts
Author Contact Information ........................................................................................................ 9
Acknowledgments .................................................................................................................... 10

Congressional Research Service

---

Conversion from the National Security Personnel System to Other Pay Schedules

Introduction
Most federal employees (59.1%) are paid on the General Schedule (GS), a pay scale that consists
of 15 pay grades in which an employee’s pay increases are to be based on job performance and
length of service.1 Some Members of Congress, citizens, and public administration scholars have
argued that federal employee pay advancement should be more closely linked to job performance.
With explicit congressional authorization,2 the Department of Defense (DOD) developed the
National Security Personnel System (NSPS) as a unique personnel and pay system attempting to
more closely link employee pay to job performance.
NSPS was beset by criticisms since it went into effect in 2006. The system faced legal and
political challenges from unions and employees who claimed it was inconsistently applied and
caused undeserved pay inequities, among other concerns.3 On October 7, 2009, House and Senate
conferees reported a version of the National Defense Authorization Bill for Fiscal Year 2010 that
included language to terminate NSPS. On October 8, 2009, the House agreed to the conference
report. The Senate agreed to the conference report on October 22, 2009. On October 28, 2009, the
President signed the bill into law (P.L. 111-84). DOD must now return employees currently
enrolled in NSPS to the GS or to the pay system in which they were previously enrolled. The
return to the GS or other pay system must be completed by January 1, 2012, pursuant to the law.
NSPS was initially intended to cover all DOD employees, but had a final total enrollment of
roughly 227,000 DOD employees or 31.7% of the department’s 717,000-person workforce. DOD
anticipates that 75% of employees in NSPS will be placed in the GS by September 30, 2010.4 The
remaining 25% of employees—most of whom would be placed in pay scales other than the GS—
may take longer to transition out of NSPS. Every U.S. state has employees who were or are on
NSPS. According to DOD, Virginia and California had the largest number of NSPS employees
with 38,200 and 22,100, respectively.5 Vermont had the fewest employees with fewer than 20.
Figure A-1, in the Appendix, includes a U.S. map with NSPS employee counts for each state.

1 U.S. Office of Personnel Management, Central Personnel Data File, http://www.fedscope.opm.gov/. The employee
count is from December 2009.The Central Personnel Data File does not include employee counts from several federal
agencies, including the Central Intelligence Agency, the Defense Intelligence Agency, the National Geospatial-
Intelligence Agency, the Postal Rate Commission, and the U.S. Postal Service. The employee count does not include
Senior Executive Service employees, administrative judges, or other federal employees who are not paid on the General
Schedule. Legislative branch coverage is limited to the Government Printing Office, U.S. Tax Court, and selected
commissions. The judicial branch is entirely excluded.
2 The legislation that created NSPS is P.L. 108-136, The National Defense Authorization Act for Fiscal Year 2004.
3 For more information on NSPS and its history and operation, see CRS Report RL34673, Pay-for-Performance:
Lessons from the National Security Personnel System, by Wendy R. Ginsberg.
4 Testimony of John H. James, Jr., U.S. Congress, Senate Committee on Homeland Security and Governmental Affairs,
Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia, The
National Security Personnel System and Performance Management in the Federal Government, 111th Cong., 2nd sess.,
June 9, 2010, http://hsgac.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=92db1eca-3b5e-
4774-b480-b2af3b83573f.
5 Information provided to the author electronically on March 23, 2010. The March 23, 2010, employee count marks
peak NSPS enrollment, demonstrating the highest NSPS employee tallies in each state. CRS selected this employee
count to ensure that the data provides the largest possible number of employees that will be affected by a transition out
of NSPS.
Congressional Research Service
1

---

Conversion from the National Security Personnel System to Other Pay Schedules

P.L. 111-84 included language preventing any employee from suffering a loss or decrease in pay
as a result of the elimination of NSPS. Pursuant to statute (5 U.S.C. § 5363), some transitioning
employees have been placed on “retained pay,” which allows them to maintain their NSPS rate of
pay, but requires that they receive half of the annual pay adjustment distributed to employees at
the step 10 level of their position’s assigned GS pay grade. Some GS employees may argue that
the NSPS employees who were in NSPS and who collect a retained pay rate receive a higher pay
rate for similar work than does an employee who remained in the GS. Some NSPS employees,
however, may argue that the cap on their annual pay increase amounts to a loss in pay.
This report focuses on the transition of employees from NSPS to non-NSPS pay scales. It does
not address the operation of NSPS or other pay schedules. The report discusses how the transition
is scheduled to occur and analyzes congressional options for oversight or legislative action.
Transition Timing
P.L. 111-84 required DOD to begin transitioning NSPS employees to non-NSPS pay scales six
months after enactment of the law, which occurred on October 28, 2009. DOD was given until
January 1, 2012, to convert all employees in NSPS to the pay system in which they were
previously enrolled. If an employee was previously enrolled in a system that no longer exists, if
his or her job and description did not exist prior to enrollment in NSPS, or if a new pay system is
to be created for an employee to enter into, DOD is required by statute to determine the
employee’s pay system and transition him or her into that pay system by the January 1, 2012
deadline.6 Employees not entering the GS are expected to be transitioned to their designated pay
systems between spring 2011 and January 1, 2012.7
According to the DOD NSPS Transition Office, which is the office in charge of implementing the
elimination of NSPS, approximately 75% of the employees in the NSPS system will either return
to or enter the General Schedule. John H. James, Jr., director of the transition office, said, at a
June 9, 2010 Senate hearing, that employees entering the GS would be transitioned by the end of
September 2010.8 Another 21% of employees will be returned to or placed in other systems,
including some pay systems that have not yet been created. In addition, 4% of employees will
have their jobs eliminated as a result of closing military bases pursuant to the 2005 Defense Base
Closure and Realignment Commission (BRAC) findings.
As noted above, some NSPS employees will be moved into personnel systems that have not yet
been established. P.L. 111-84 §1105 authorized DOD to create demonstration pay systems at
certain defense-related laboratories.9 Some of the federal employees at certain laboratories were

6 Pursuant to P.L. 111-84, an employee not returning to the pay system that “last applied” to either the employee in
question or to the position occupied by that employee, is to return to a pay system “that would have applied if the
National Security Personnel System had never been established.” 123 Stat. 2498.
7 Testimony of John H. James, Jr., U.S. Congress, Senate Committee on Homeland Security and Governmental Affairs,
Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia, The
National Security Personnel System and Performance Management in the Federal Government, 111th Cong., 2nd sess.,
June 9, 2010.
8 Ibid.
9 Pursuant to P.L. 111-84, the laboratories included in this pay system demonstration project include the following: the
Aviation and Missile Research Development and Engineering Center; the Army Research Laboratory; the Medical
Research and Materiel Command; the Engineer Research and Development Command; the Communications-
(continued...)
Congressional Research Service
2

---

Conversion from the National Security Personnel System to Other Pay Schedules

in NSPS. By the end of April 2011, DOD must create new personnel systems at these laboratories
and move eligible employees from NSPS into these personnel systems.
According to DOD, 98,440 employees have transitioned from NSPS to the GS as of July 4,
2010.10
Linking NSPS and Different Pay Rates
Most positions in the NSPS system were formerly under GS position classification and grade and
step parameters. An employee who occupies a position that previously had a GS grade and step
assignment is to be moved to the GS and assume the grade assigned to his or her job
classification. The employee’s step within the assigned grade would be selected to ensure that the
employee’s level of pay does not decrease because of his or her return to the GS scale. Pursuant
to P.L. 111-84, an employee’s level of pay may not be reduced as a result of his or her transition
from NSPS. For example, if an employee’s NSPS pay level falls between two GS steps, then the
employee would be assigned to the higher step.
In some cases, employees in NSPS who were or will be transitioned to the GS or a similar pay
scale may have been collecting pay rates higher than the position’s GS grade classification
permits. Pursuant to P.L. 111-84, an employee who meets this criterion will continue to receive
his or her NSPS rate of pay under pay retention statutes once he or she converts to the GS system.
The employee’s pay rate cannot be used as a factor in performance evaluation.
For example, if an employee’s position is evaluated and classified as a GS-13, the highest base
pay level (step 10) for such an employee in 2010 is $93,175.11 If this employee were working in
the Washington, DC, locality pay area, his or her locality-adjusted rate of basic pay (annual pay +
locality pay) would be $115,742 ($93,175 * 1.2422) in 2010.12 A supervisory employee in NSPS
was not capped at this pay rate, and could have been collecting an annual salary of $95,000 if he
or she received positive performance evaluations. Pursuant to statute, this employee would
continue to receive a salary of $95,000 after transitioning from NSPS and being assigned to the
GS.13 NSPS provides standard local market supplements, which are identical to GS locality pay

(...continued)
Electronics Command; the Soldier and Biological Chemical Command; the Naval Sea Systems Command Centers; the
Naval Research Laboratory; the Office of Naval Research; the Air Force Research Laboratory; the Tank and
Automotive Research Development and Engineering Center; the Armament Research Development and Engineering
Center; the Naval Air Warfare Center, Weapons Division; the Naval Air Warfare Center, Aircraft Division; the Space
and Naval Warfare Systems Center, Pacific; the Space and Naval Warfare Systems Center, Atlantic; and the
laboratories within the Army Research Development and Engineering Command.
10 U.S. Department of Defense, “NSPS Transition: NSPS to GS Transition Summary,” http://www.cpms.osd.mil/nsps/
docs/TransitionProgressandStatus.pdf.
11 The $93,175 figure is based only on GS basic pay rate for a GS-13 in 2010 and does not include any supplemental
pay, including locality pay, danger pay, or incentive awards.
12 Locality pay is a pay comparability supplement that divides the United States and its territories into distinct
geographic areas. Locality pay for each of those areas is then set by comparing GS and non-Federal pay in each locality
pay area, based on salary surveys conducted by the Bureau of Labor Statistics (BLS). Locality pay in separate from
annual pay, but both locality pay and annual pay are included when calculating a federal employee’s retirement benefits
(5 U.S.C. § 5361(4)). For more information on locality pay, see CRS Report RL34463, Federal White-Collar Pay:
FY2009 and FY2010 Salary Adjustments, by Barbara L. Schwemle.
13 An employee who transitions from NSPS will be able to keep his or her entire NSPS rate of pay, even if it exceeds
(continued...)
Congressional Research Service
3

---

Conversion from the National Security Personnel System to Other Pay Schedules

rates, so the adjusted basic pay rate of the hypothetical NSPS employee living in Washington,
DC, including the standard local market supplement for 2010, would be estimated at $118,009
(95,000 * 1.2422). Pursuant to statute, this hypothetical employee would continue to receive a
salary of $118,009 after being transitioned to the GS. The continued NSPS pay rate is defined in
statute (5 U.S.C. §5363) as “pay retention.” The employee’s manager would evaluate the
employee’s job duties and responsibilities based on the GS grade assigned to the position—
without regard for the employee’s pay rate. The statute requires agencies to provide employees on
pay retention with half of the annual pay increase given to employees at the maximum payable
rate for the GS grade (step 10) to which his or her position is classified.14 An employee on
retained pay, therefore, would not have his or her annual pay increase calculated as a percentage
of his or her basic pay. His or her pay increase, instead, would be calculated as a percentage of a
pay increase given to an employee who is at step 10 of the GS grade to which his or her position
is assigned.
For example, if Congress enacted legislation to provide a 1.5% across-the-board increase to
federal employees in January 2011, a hypothetical GS-13 employee living in Washington, DC
who receives a retained pay rate of $118,009 would collect an estimated pay increase of 0.736%,
not 0.75%.15 The employee with a retained rate of pay would be estimated to receive an $869 pay
increase ($118,009 * 0.736%) 2011, or $118,878 in basic pay (annual pay + locality pay). A
similar hypothetical GS employee living in Washington, DC, who did not receive retained pay
would be estimated to receive an annual pay increase of $1,738 ($115,742 * 1.5016%) in 2011,
making the employee’s basic pay rate (annual + locality pay) $117,480.16 As demonstrated, the
retained pay employee is estimated to receive half of the pay increase given to the GS-13, step 10
employee ($1,738/2), or $869 as an annual bonus.
The employee would continue to receive a retained rate of pay, until the employee’s GS rate of
pay eclipsed his or her retained NSPS rate of pay.17 The length of time it may take for the GS rate
to be greater than the NSPS rate would depend on a number of variables, including the level of

(...continued)
150% of the highest step of the grade to which his or her position is assigned, which would otherwise be prohibited
pursuant to 5 CFR §§536.304(b)(3); 536.306. An employee is also permitted to maintain a pay rate that is above
Executive Level IV pay, which would be prohibited in the GS, pursuant to 5 U.S.C. §5305(a) and 5 CFR §530.304(a).
An employee’s NSPS pay rate, however, cannot be greater than 5% above Executive Level IV pay, the maximum
under the NSPS pay banding system.
14 5 U.S.C. §5363(2)(B).
15 This calculation assumes that the entire pay increase would be allocated for annual pay and no increase was given for
locality pay. This 0.736% pay increase rate is calculated by dividing the annual pay increase (in dollars) for a GS-13
employee at grade 10 by 2. Pay amounts may be adjusted by OPM to ensure that the GS maintains an equal percentage
pay distance between steps within each grade throughout the GS. While employees at step 1 of their GS grade receive a
1.5% increase, employees who are at other steps have their pay increase adjusted to ensure that the steps remain the
same adjusted pay distance from one another. The annual pay increase for a GS-13 step 10, in this hypothetical case,
would be 1.5016%. Information provided to the author electronically by OPM on July 26, 2010.
16 Pay amounts may not be exact in these cases because OPM adjusts the pay scale using formulas that maintain equal
within-grade amounts throughout the GS. This calculation process has been followed for many years. Information
provided to the author electronically by OPM on July 26, 2010.
17 Pursuant to 5 U.S.C. §5363, retained pay rates do not expire (unlike a retained grade, pursuant to 5 U.S.C. §5362,
which expire after two years). More information on grade retention, which applies to certain employees who are
affected by a reduction in force (RIF) or grade reclassification, is available on OPM’s website, http://www.opm.gov/
oca/pay/HTML/grade_retention.asp.
Congressional Research Service
4

---

Conversion from the National Security Personnel System to Other Pay Schedules

pay increases enacted by Congress in future years as well as the employee’s pay level in relation
to the step 10 pay rate of the GS grade to which his or her position is classified.
Of the 98,440 former NSPS employees who have already been placed on the GS, approximately
72% (71,282) received a salary increase because of the transition.18 The average increase in salary
was $1,056 per year.19 Some 8% (7,737) of those who transitioned to the GS kept a salary
identical to their NSPS pay rate, while 20% (19,421) of those who transitioned are receiving a
retained pay rate.20
NSPS employees placed in a new pay system have opportunities to grieve certain aspects of their
new assignments. A DOD employee may contact his or her human resources office to find out
more information about filing an administrative grievance or to seek alternative dispute
resolution.21 Additionally, more than 913 NSPS employees are in a bargaining unit and may
contact their local union representatives if they wish to pursue a negotiated grievance procedure.22
An employee may also appeal his or her case to the Merit Systems Protection Board (MSPB),
which is an independent, quasi-judicial agency with jurisdiction over appeals claiming a
reduction in pay, pursuant to 5 C.F.R. §§752 and 1201. An employee appealing to MSPB would
have to establish that the transition from NSPS led to a reduction in pay.
An employee moving to the GS who disagrees with his or her position’s classification may
challenge it pursuant to the process outlined in 5 C.F.R. §511.601-606.
Policy Concerns
Employees who were covered by NSPS who are then placed on pay retention when moved to a
different pay schedule may suggest that they are experiencing a loss in pay because they are not
receiving the full annual pay increase that is provided to other federal employees.23 As explained

18 U.S. Department of Defense, “NSPS Transition: NSPS to GS Transition Summary,” http://www.cpms.osd.mil/nsps/
docs/TransitionProgressStatus06172010.pdf.
19 Ibid.
20 Ibid.
21 Alternative dispute resolution is available pursuant to Department of Defense Directive 5145.5, April 22, 1996,
http://www.adr.af.mil/shared/media/document/AFD-070924-110.pdf.
22 No bargaining unit employees were placed in the NSPS system. During NSPS’s lifetime, however, some employees
on the NSPS pay system formed bargaining units. Twenty-seven bargaining units were formed during NSPS’s lifetime,
covering 913 NSPS employees. See Testimony of John H. James, Jr., U.S. Congress, Senate Committee on Homeland
Security and Governmental Affairs, Subcommittee on Oversight of Government Management, the Federal Workforce,
and the District of Columbia, The National Security Personnel System and Performance Management in the Federal
Government, 111th Cong., 2nd sess., June 9, 2010, p. 12.
23 OPM officials reject this claim of a loss in pay. At a recent Senate Hearing, Charles D. Grimes III, deputy associate
director for employee services at OPM, said the following:
“The law that terminated NSPS provides that no employee will suffer any loss or decrease in pay when converted out
of NSPS. That provision protects the rate of basic pay in effect immediately before an employee is converted out of
NSPS.”
According to OPM, therefore, a loss in future pay increases would not qualify as a loss in pay. U.S. Congress, Senate
Committee on Homeland Security and Governmental Affairs, Subcommittee on Oversight of Government
Management, the Federal Workforce, and the District of Columbia, The National Security Personnel System and
Performance Management in the Federal Government, 111th Cong., 2nd sess., June 9, 2010, http://www.cpms.osd.mil/
(continued...)
Congressional Research Service
5

---

Conversion from the National Security Personnel System to Other Pay Schedules

earlier in this report, an employee who is moved to the GS but who receives a retained pay rate
keeps his or her NSPS pay rate—if the NSPS pay rate is above the GS grade classification pay
level. The employee, however, receives half of the annual pay increase given to GS employees at
the step 10 level of the employee’s assigned grade until the pay rate he or she would receive in
the GS eclipses his or her retained NSPS pay rate. Once removed from NSPS, these employees
can no longer receive annual NSPS performance-based pay increases. A retained pay rate,
however, allows the employee to collect higher pay than a similar employee in the GS system.
The employee on retained pay also qualifies for larger pension benefits than could have been
accrued in the GS.24
On the other hand, those who disagree with the employees on retained pay may suggest that these
employees are receiving a higher rate of pay than would otherwise be permitted on the GS. The
employees on retained pay, in fact, may receive pay rates much higher than employees who have
the same GS classification and who perform at levels that are quite similar. An employee who
remained on the GS, and who never entered the NSPS, did not have the opportunity to increase
his or her pay based largely on performance and has no access to a retained pay rate.
Options for Congress
When Congress eliminated NSPS in the National Defense Authorization Act for 2010 (P.L. 111-
84), it required DOD to return all employees to the pay system in which they were previously
enrolled. Congress also required that no employee who was in NSPS experience a loss or
reduction in pay as a result of being removed from NSPS and placed in a different pay scale.
Some employees in NSPS, however, occupy positions that did not exist prior to NSPS’s creation,
and they cannot, therefore, be returned to a pre-existing pay scale. Other employees achieved pay
rates that are not aligned with rates on their non-NSPS pay scale. Still other employees cannot be
returned to a pre-existing pay scale because the pay scale was eliminated while NSPS was active.
DOD has been examining ways to place employees who fit into these categories into appropriate
pay schedules for their positions, including a solution that involves developing a new pay system.
Congress has a variety of options to address these pay and personnel issues, including passing a
law that would require all employees receive the full annual pay increase, modifying the GS to
better coincide with NSPS pay rates, or permitting DOD to determine the most effective course of
action.
Congress required DOD to determine where to place NSPS employees who are or were to convert
out of the NSPS. DOD must place employees in a variety of pay systems while adhering to all
statutory requirements—both requirements in P.L. 111-84 and those that existed prior to the law’s
enactment. DOD has placed certain employees on retained pay. This policy has led to complaints
from some employees who claim that retained pay, in effect, amounts to a loss in pay. Others,

(...continued)
nsps/docs/FINAL%20OPM%20Testimony%20Grimes.pdf.
24 A federal employee’s retirement pay is calculated by first determining the employee’s “highest average annual pay
produced by the employee’s basic pay rates during any three consecutive years of service.” For most federal
employees, the most recent three years of service will produce his or her “high-3” average. Within-grade pay increases,
quality-step increases, and locality pay are included when calculating an employee’s “high-3.” See CRS Report 98-972,
Federal Employees’ Retirement System: Summary of Recent Trends, by Katelin P. Isaacs.
Congressional Research Service
6

---

Conversion from the National Security Personnel System to Other Pay Schedules

however, may claim that retained pay allows certain employees to maintain a higher rate of pay
than an employee who is not eligible for retained pay, even though they perform the same work at
similar performance levels. Congress may determine that DOD’s policies follow the requirements
of both P.L. 111-84 and Title 5 of the U.S. Code, which governs most of the civil service.
Conversely, Congress may decide that allocating half of the GS step 10 annual pay increase to
those on a retained pay rate is contrary to its intention in the language in P.L. 111-84, which states
that employees removed from NSPS should not suffer a loss in pay as a result of the transition to
a non-NSPS pay scale. If Congress determines that the reduced pay increase is contrary to its
intention in P.L. 111-84, it could choose to enact legislation that ensures employees who convert
to the GS or another pay system and who are on retained pay receive the full annual pay increase.
Such legislation, however, would cause the retained pay rates to remain above GS pay rates in
perpetuity. GS employees who performed similar work at similar performance levels may never
receive the same pay as an employee who receives both the retained pay rate and a full annual
pay increase.
A policy option that could offset concerns about loss of pay exists. Employees who are on
retained pay could also receive a performance-based cash award to supplement their pay to
account for any pay they will not receive as a result of the cap on their annual pay adjustment.
Pursuant to 5 U.S.C. §4505a, a federal employee who receives a performance rating of fully
successful or above may receive a one-time cash award in an amount deemed appropriate by the
head of the agency. The cash award can be up to $10,000 without OPM approval, or up to
$25,000 with OPM approval. DOD could use this authority to pay federal employees on retained
pay the other half of the annual pay adjustment. For instance, in the example made earlier of the
annual pay adjustment for GS employees in 2011 of 1.5%, where the retained pay employee
would receive a 0.736% annual pay adjustment, DOD could use the authority in 5 U.S.C. §4505a
to award a one-time, lump sum bonus equal in value to the other half of the 1.5% pay increase
given to GS employees—the additional 0.764% of the employee’s basic pay rate. Pursuant to
statute, the rating-based award could not be given to an employee with performance rating lower
than fully successful. In addition, the award would not be considered part of an employee’s basic
pay and, therefore, would not count toward the employee’s annuity.
This option, however, may be controversial. The one-time cash award was designed to reward
exemplary performance by federal employees. The Code of Federal Regulations lists three
reasons why an employer would give an employee this cash incentive. The award may be
provided on the basis of the following:
• A suggestion, invention, superior accomplishment, productivity gain, or other
personal effort that contributes to the efficiency, economy, or other improvement
of government operations or achieves a significant reduction in paperwork;
• A special act or service in the public interest in connection with or related to
official employment; or
• Performance as reflected in the employee’s most recent rating of record …
provided that the rating of record is at the fully successful level (or equivalent) or
above.25

25 5 C.F.R. § 451.104.
Congressional Research Service
7

---

Conversion from the National Security Personnel System to Other Pay Schedules

If an employee on retained pay does not meet one of these criteria, using the award authority may
be an improper means of providing that employee additional pay.
For employees who do qualify for the cash award, however, DOD could provide the award until
the GS rate of basic pay for the employee’s position eclipsed the retained NSPS pay rate. If DOD
chose to use the performance-based cash award, the agency may need additional appropriation
from Congress to fully fund it. Additionally, employees in the GS who perform similar work at
similar performance levels will not receive the same pay for their work as the employee on the
retained rate of pay.
Congress could also choose to modify the GS to better coincide with the pay rates on NSPS.
Congress could enact legislation that adds steps to the GS, allowing for NSPS pay rates to be
incorporated in the personnel system and also for continued movement up the personnel system’s
pay scale for all GS employees. Such action, however, could complicate GS operations and
policies by requiring new regulations to govern the additional steps. The addition of new GS steps
may also prompt additional costs to fund the new pay levels.
P.L. 111-84 also required DOD to create a new performance management system and hiring
process.26 Congress may choose to use its oversight authority to ensure that all parties that may be
affected by the establishment of such new system and process are afforded an opportunity to offer
suggestions and present concerns prior to implementation.


26 P.L. 111-84 §113.
Congressional Research Service
8

---

Conversion from the National Security Personnel System to Other Pay Schedules

Appendix.
Figure A-1. The Number and Location of Employees in the National Security
Personnel System
By State, Territory, and Foreign Area

Source: U.S. Department of Defense
Notes: Information provided electronical y to the author on March 23, 2010. Employee counts are rounded to
the nearest hundred except for Vermont, which employs fewer than 20 employees. The March 23, 2010,
employee count marks peak NSPS enrollment, demonstrating the highest NSPS employee tallies in each state.
CRS selected this employee count to account for the largest possible number of employees that will be affected
by a transition out of NSPS.


Author Contact Information

Wendy R. Ginsberg

Analyst in Government Organization and
Management
wginsberg@crs.loc.gov, 7-3933


Congressional Research Service
9

---

Conversion from the National Security Personnel System to Other Pay Schedules

Acknowledgments
Pat McClaughry, senior graphics specialist, created the report’s graphic.

Congressional Research Service
10

---