DHS’s Max-HR Personnel System: Regulations on Classification, Pay, and Performance Management Compared With Current Law, and Implementation Plans

DHS’s Max-HR Personnel System: Regulations on Classification, Pay, and Performance Management Compared With Current Law, and Implementation Plans

Order Code RL32261
DHS’s Max-HR Personnel System: Regulations
on Classification, Pay, and Performance
Management Compared With Current Law, and
Implementation Plans
Updated May 4, 2007
Barbara L. Schwemle
Analyst in American National Government
Government and Finance Division

DHS’s Max-HR Personnel System: Regulations on
Classification, Pay, and Performance Management
Compared With Current Law, and Implementation Plans
Summary
The most recent legislative development on the implementation of a new
personnel system at the Department of Homeland Security (DHS) is that H.R. 1684,
DHS Authorization Act for FY2008, as ordered to be reported by the House
Committee on Homeland Security on March 28,2007, would repeal the authority for
that system. The bill is expected to be considered by the House in early May 2007.
The DHS Secretary and the Director of the Office of Personnel Management
were authorized to prescribe joint regulations for a new human resources
management system for DHS employees with the enactment of P.L. 107-296, the
Homeland Security Act of 2002. The final regulations for that system, called Max-
HR, were published in the Federal Register on February 1, 2005. This report
compares the final regulations with current law under Title 5 of the United States
Code and relevant regulations under Title 5 of the Code of Federal Regulations.
Specifically, Subparts A (General Provisions), B (Classification), C (Pay and Pay
Administration), and D (Performance Management) of the final regulations are
examined.
With regard to classification, pay, and performance management, the regulations
prescribe the following. The classification system will organize the department’s
jobs into clusters by major occupational groups. Within each occupational cluster,
open pay bands with no steps will be established. Each pay band typically will have
four levels — entry/developmental, full performance, senior expert, and supervisory.
Employees will progress through a pay band based on performance or enhanced skill
level. The pay system will provide an annual pay adjustment, supplemented by a
locality pay rate or a special pay rate in appropriate circumstances, to employees who
meet or exceed performance expectations. In addition, employees in a Full
Performance 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. The
performance management system ties employee performance appraisal to the DHS
mission and to specific performance standards based on job assignments. Quotas or
forced distributions will not be imposed on the performance ratings. A Homeland
Security Compensation Committee, chaired by the DHS Undersecretary for
Management, will provide options and/or recommendations to the Secretary on
various strategic compensation matters, including the annual adjustment of rate
ranges and locality and special pay rate supplements for the department’s employees.
The committee will have 14 members, four of whom will represent labor
organizations granted national consultation rights. The regulations provide broad
policy parameters. DHS will issue implementing directives to provide the details of
these policies. The directive on performance management was published on March
23, 2006. Directives on other aspects of the new system are in development. Max-
HR is expected to be implemented in phases beginning in early 2007, with the first
performance-based pay adjustments being granted in January 2008.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
FY2008 Budget and Personnel Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Legislation Pending in the 110th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Subpart A — General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Subpart B — Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Classification Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Classification Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Transitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Subpart C — Pay and Pay Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Overview of Pay System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Setting and Adjusting Rate Ranges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Locality and Special Rate Supplements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Performance-Based Pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Pay Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Special Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Transitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Subpart D — Performance Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
List of Tables
Table 1. Views of DHS and OPM Representatives on Selected Policies
in the Final Regulations on Max-HR as Expressed at Senate
and House Subcommittee Hearings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Table 2. Office of Human Capital (OHC) Appropriations, FY2005-FY2008 . . 10
Table 3. Department of Homeland Security Human Resources
Management System: Final Regulations Compared With
Current Law/Selected Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

DHS’s Max-HR Personnel System:
Regulations on Classification, Pay, and
Performance Management Compared With
Current Law, and Implementation Plans
Introduction
President George W. Bush signed the Homeland Security Act of 2002 on
November 25, 2002, and it became P.L. 107-296. Title VIII, Subtitle E, Section 841
of 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 of
Homeland Security may, in regulations prescribed jointly with the Director of the
Office of Personnel Management (OPM), establish, and from time to time adjust, a
human resources management (HRM) system for some or all of the organizational
units of the Department of Homeland Security. The law states specific requirements
for the HRM system.1
On February 20, 2004, DHS and OPM jointly published a proposed rule to
implement a new HRM system for DHS in the Federal Register.2 The final rule for
that system, called Max-HR, was published in the Federal Register on February 1,
2005.3 The design process that culminated in the proposed rule for the new system
was discussed in the rule’s background section.4 Briefly, a design team, composed
of DHS program managers, union and employee representatives, DHS and OPM
human resource specialists, and private sector experts, conducted research and
meetings in the field to compile options for the new system. A senior review
committee, composed of DHS and OPM top management officials, major union
leaders, and several experts from academia, developed the options for consideration
by the DHS Secretary and the Director of OPM and their senior staff.
1 See CRS Report RL31500, Homeland Security: Human Resources Management, by
Barbara L. Schwemle.
2 U.S. Department of Homeland Security and U.S. Office of Personnel Management,
“Department of Homeland Security Human Resources Management System,” Federal
Register, vol. 69, no. 34, February 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,” Federal
Register, vol. 70, no. 20, February 1, 2005, pp. 5271-5347.
4 “Designing Options for a New HR System,” in February 20, 2004, proposed rule, op. cit.,
pp. 8031-8035.

CRS-2
Broad policy parameters are provided in the final regulations. The details of
these policies will be included in implementing directives to be issued by DHS. On
March 23, 2006, the directive on performance management was published.
Directives on other aspects of the new system are in development. The final
regulations include the following information on classification, pay, and performance
management.
! Classification. The department’s jobs will be organized into clusters
by major occupational groups. The current 15 grades and ten steps
of 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, full
performance, senior expert, and supervisory — for each pay band.
Salaries within the pay bands will be set based on mission
requirements, labor market conditions, availability of funds, pay
adjustments received by other federal employees, and any other
relevant factors. Employees will progress through a pay band based
on performance or enhanced skill level.
! Pay Adjustments. For each occupational cluster, there will be an
annual pay adjustment, and locality pay rate and special pay rate
supplements as appropriate, based on mission requirements, labor
market conditions, availability of funds, pay adjustments received by
other federal employees, and any other relevant factors. An
employee must meet or exceed performance expectations to receive
these pay adjustments. In addition, employees with a high level of
performance that supports the accomplishment of the department’s
mission may receive a performance-based pay increase; higher
increases would go to outstanding performers. The pay-outs for pay
adjustments and awards will depend on DHS’s funding. The
formula that will be used to determine the size of performance-based
pay adjustments has not yet been defined. Employees will not lose
pay as they transition to the new system. The DHS Undersecretary
for Management will chair a Homeland Security Compensation
Committee which will provide options and/or recommendations to
the Secretary on various strategic compensation matters, including
the annual adjustment of rate ranges and locality and special pay rate
supplements for the department’s employees. Of the committee’s 14
members, four will represent labor organizations granted national
consultation rights.
! Performance Management. Appraisal of employee performance will
be tied to the DHS mission and to specific performance standards
based on job assignments. Generally, three or four rating levels will
be established. The system will not have quotas or forced
distributions of performance ratings. Managers and supervisors will
be trained to appraise employee performance. The directive on
performance management published on March 23, 2006, identifies
these core competencies: (1) achieving results, (2) technical
proficiency, (3) customer service (except for positions in the 1811

CRS-3
and 1896 series), (4) teamwork/cooperation, (5) communications,
and (6) representing the agency. Managers and supervisors have
additional core competencies on assigning, monitoring, and
evaluating work, and leadership. The directive provides for four
rating levels — “Achieved Excellence,” “Exceeded Expectations,”
“Achieved Expectations,” and “Unacceptable.”5
The Senate Subcommittee on Oversight of Government Management, the
Federal Workforce, and the District of Columbia of the Committee on Homeland
Security and Governmental Affairs, and the House Subcommittee on the Federal
Workforce and Agency Organization of the Committee on Government Reform
conducted hearings on the final regulations shortly after they were published. The
testimony of Ronald James, then-Chief Human Capital Officer at DHS, and Ronald
Sanders, then Associate Director for Strategic Human Resources Policy at OPM, and
their written responses to questions for the hearing record provide additional
information about the policies embodied in the final regulations. Table 1 below
presents the views of Mr. James and Mr. Sanders as stated for the February 10, 2005,
Senate subcommittee hearing and the March 2, 2005, House subcommittee hearing
on issues related to classification, pay, and performance management.
Table 1. Views of DHS and OPM Representatives on Selected
Policies in the Final Regulations on Max-HR as Expressed at
Senate and House Subcommittee Hearings
Issue
Views
Senate Subcommittee on Oversight of Government Management, the Federal
Workforce, and the District of Columbia of the Committee on Homeland Security and
Governmental Affairs Hearing
job classification
“DHS will establish definitions for a small number
of broad pay bands (typically 4-5), within
occupational clusters. Grading criteria will be
developed for these broad pay bands that will
specify the type and range of difficulty and
responsibility, qualifications, competencies, or
other characteristics of the work encompassed by
the band ... allow[ing] us to describe a range of
work ...” (James and Sanders, same written
response)
performance evaluations
“OPM (or OPM and DHS) will treat performance
evaluations for DHS employees under 5 U.S.C.
chapter 97 as personnel actions for purposes of
enforcing the ban against prohibited personnel
practices under 5 U.S.C. §2302.” (Sanders, written
response)
5 U.S. Department of Homeland Security, Management Directives System, Performance
Management, MD Number 3181, March 23, 2006. Provided to CRS by electronic mail, by
Human Resources staff at DHS, March 27, 2006.

CRS-4
Issue
Views
pass/fail system for rating
“my personal professional judgment is ... that we do
performance
not want to use pass/fail anywhere beyond the entry
level, the training level, and the school level.”
(James, oral response)
annual pay adjustments
“DHS will have the following type of annual pay
adjustment features: market-based pay which will
be based on a market survey approach; Locality
Rate Supplements which will be based on the cost
of labor at different localities or geographic areas;
and performance based pay increases which will be
based on individual performance. The DHS
compensation plan will also offer a special rate
supplement which will provide a higher pay level
for subcategories of employees within an
occupational cluster if warranted by current or
anticipated recruitment or retention needs.” (James,
written response)
locality pay
“DHS will have greater flexibility in setting
[locality rate supplements] based on labor market
conditions and other factors .... DHS may provide
for different locality rate supplement percentages
for different occupational categories and different
band levels.” (James, written response)
Homeland Security
“The HSCC will be an advisory body to the
Compensation Committee
Secretary for making annual recommendations
(HSCC)
regarding strategic pay decisions such as budget
allocation for market and locality adjustments and
aggregate review of performance ratings and
performance payouts. The HSCC will also
recommend process improvements or policy
changes to improve program effectiveness. The
Secretary or designee will make final decisions.
We appreciate the suggestion to publish internally
the overall results of performance management
decisions and will consider doing so ...” (James,
written response)

CRS-5
Issue
Views
performance appraisal of
“[E]ach manager’s goals will be based on his or her
managers
manager’s goals, thus creating a ‘line of sight’
cascade that starts with the Secretary and his direct
reports and is repeated through the chain, creating
subsets of goals that all point to the Department’s
mission objectives. With this cascade comes
responsibility and accountability for managers to
not only set appropriate goals, but to actually
nurture their employees to achieve success.
Because employees’ goals will be tied directly to
their manager’s goals, the manager’s success is tied
to how well employees perform. And finally,
managers will also be assessed on their
management skills ... including their ability to
justify and stand behind pay decisions. Employee
climate surveys and use of 360 degree performance
appraisal systems are being seriously considered ...
to ensure that employees have a voice in providing
feedback on how well their leaders are leading ...”
(James, written response)
House Subcommittee on the Federal Workforce and Agency Organization of the
Committee on Government Reform Hearing
communication of core
“We are not considering amending the regulations
competencies
to provide that core competencies be communicated
in writing. During the meet-and-confer process, the
participating labor organizations agreed that
performance expectations (including core
competencies) need not be in writing ....
performance expectations, including those that may
affect an employee’s retention in the job, must be
communicated to the employee prior to holding the
employee accountable for them.” (James, written
response)
performance management
“We will emphasize a greater role for Departmental
system
leaders in ensuring mission and individual goal
alignment and holding individual employees
accountable for results and ensuring that
compensation decisions are driven by performance
.... employees along with their supervisor will work
together to align their individual goals with the
larger goals of the Department. By setting specific
milestones and creating a direct line of sight
between individual jobs and mission-achievement
there will be a clear picture of what is expected
during the performance cycle.” (James, written
response)

CRS-6
Issue
Views
mathematical formula for
“There are four variables ... performance rating, pay
performance payouts
pool and the dollars in the pay pool, and the ratings
distribution ... let us focus on those people who
‘meet expectations,’ ‘exceed expectations,’ and
who are ‘outstanding’ .... Each of those
[performance] ratings has a point value. That point
value is established at a higher headquarters
through oversight of the Compensation Committee.
The funding in that pay pool is also established at a
higher headquarters with oversight from the
Compensation Committee. You simply take the
rating, multiply it times the point value, and divide
the points into the dollars, and you get your share of
the pool.... The regulations absolutely positively bar
and prohibit forced distributions of ratings. You
can’t bust the budget because the pool is finite. You
simply divide the available dollars in the pool
amongst the employees based on their rating. And
the amount in the pool, the amount of the
Department’s payroll that will go to performance
pay is set by the Secretary on the advice and input
of the Compensation Committee, four members of
which are from the Department’s two major unions
... they will determine how much of the
Department’s annual appropriations increase in
payroll goes to performance, the national market
adjustments and local market adjustments.
Secretary reserves the right to make final
decisions.... They will decide how that is divided up
by location and occupation and how much goes into
the performance pay pool....” and later, “There is
enough in the performance pay pool to make sure
that fully successful employees get shares that are
worth something, those who exceed expectations
get shares that are worth more, and those that are
outstanding get even more.”
(Sanders, oral responses)
an employee who receives an
“If the employee is at the minimum level of pay, he
“unacceptable” performance
or she is unacceptable and everybody else in the
rating
pay range goes up because they get across-the-
board increases, the regulations require
management to take action in 90 days .... Either the
employee’s performance improves and they move
back up into the range with everyone else, or the
Department either demotes or removes the
employee.” (Sanders, oral response)

CRS-7
Issue
Views
employee understanding of the
“will be measured through periodic employee
pay system
attitude surveys .... Fair administration and
meaningful performance adjustments will be
gauged both by these surveys and by periodic
quantitative analyses of pay adjustments data
(ratings given by managers and amounts of
increases throughout the department) ... as well as
review of payout information by the DHS
Compensation Committee.” (James, written
response)
prohibition on forced
“DHS will conduct ongoing evaluations .... DHS
distributions or quotas
will deploy an automated performance management
system ... will include a reporting feature that will
provide the capability to produce standard reports
that will identify trends and detect patterns in
distribution that indicate forced distribution
curves.” (James, written response)
Sources: 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, Unlocking the Potential Within Homeland Security: The New Human Resources System,
hearing, 109th Cong., 1st sess., Feb. 10, 2005 (Washington: GPO, 2005), pp. 17, 313, 318, 320, 321,
326, and 327. U.S. Congress, House Committee on Government Reform, Subcommittee on the
Federal Workforce and Agency Organization, The Countdown to Completion: Implementing the New
Department of Homeland Security Personnel System, hearing, 109th Cong., 1st sess., Mar. 2, 2005
(Washington: GPO, 2005), pp. 102, 108, 109, 219, 220, 224, 225, and 227. The views expressed
in the table are those of Ronald James, then-Chief Human Capital Officer at DHS, and Ronald
Sanders, then-Associate Director for Strategic Human Resources Policy at OPM.
Implementation
According to a DHS and OPM Fact Sheet on the final regulations, the new
HRM system will cover about 110,000 of the department’s 180,000 employees.6
Transportation Security Administration (TSA) employees, Inspector General
employees, and employees appointed under the Robert T. Stafford Disaster Relief
and Emergency Assistance Act will not be covered by the system. The Secret
Service is excluded from the labor-management relations provisions and its
Uniformed Division employees are not covered by the classification and pay
provisions. Blue-collar employees under the wage grade system are excluded from
the classification and pay provisions during the initial implementation of the system.
Members of the Senior Executive Service (SES) are covered by the government-wide
pay-for-performance system.
At the time that the final regulations were published in February 2005, a phased
implementation of Max-HR according to the following timetable was envisioned:
6 U.S. Department of Homeland Security, DHS and OPM Final Human Resource
Regulations Fact Sheet, January 26, 2005. (Available on the Internet at
[http://www.dhs.gov], visited March 24, 2006.)

CRS-8
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 labor
relations and adverse actions and appeals provisions
become effective.
Summer 2005
Managers, supervisors, and employees receive performance
management training.
Fall 2005
The performance management process begins.
Early 2006
DHS Headquarters, Information Analysis and Infrastructure
Protection, Science and Technology, Emergency
Preparedness and Response, and Federal Law Enforcement
Training Center are converted to the new pay system. The
first rate range adjustment and performance pay-out is
scheduled for January 2007.
Early 2007
U.S. Secret Service and U.S. Coast Guard (USCG) are
converted to the new pay system. The first rate range
adjustment and performance pay-out is scheduled for
January 2008. (The USCG performance pay-out is
scheduled for Summer 2008.)
Early 2008
U.S. Customs and Border Protection, U.S. Immigration and
Customs Enforcement, and U.S. Citizenship and
Immigration Services are converted to the new pay system.
The first rate range adjustment and performance pay-out is
scheduled for January 2009.
This timetable has since been revised. In early September 2005, DHS
announced in the department’s newsletter that the employees who were initially
scheduled to move into Max-HR in early 2006 would instead do so in early 2007, at
the same time that the U.S. Secret Service and USCG employees are scheduled to
join the new system. The first rate range adjustment and performance pay-out for
these employees would be granted in January 2008. The remainder of the
implementation schedule was expected to remain the same. Commenting on the
revised schedule, Colleen M. Kelley, president of the National Treasury Employees
Union, stated that “leaving the rest of the calendar on the back end unchanged”
means that “DHS will be moving a larger number of employees into the pay system
at the same time, losing the advantages of a phased approach.” She called for “a delay
of the entire rollout.”7 The DHS Secretary is required by P.L. 109-295 to report to
7 Louis C. LaBrecque, “DHS to Delay Implementation of MaxHR Pay System; Labor Battle
Continues,” Government Employee Relations Report, vol. 43, September 13, 2005.

CRS-9
the House and Senate Committees on Appropriations in January 2007 on an updated
plan for Max-HR (see the “Funding” section below.)
In his report to DHS employees on the agency’s results agenda, the Secretary of
Homeland Security, Michael Chertoff, stated that training and communications will
be ongoing as Max-HR becomes operational. During FY2006, among other
initiatives, the effectiveness of the department’s training was to be evaluated, gaps
in employee competencies were to be further defined and addressed, and
opportunities for employees to develop their leadership capabilities were to be
enhanced.8
On December 9, 2006, the Senate, by voice vote, confirmed Paul A. Schneider
to be the new Undersecretary for Management at DHS. (The previous
undersecretary, Janet Hale, who had been with DHS since its founding, left the
department in late May 2006.) During the Senate Committee on Homeland Security
and Governmental Affairs hearing on his confirmation, he reportedly assured Senator
Susan Collins that DHS officials would create “an effective method of evaluating
employees’ job performance and would work with unions on structuring the pay
aspects as well as grievance procedures” of Max-HR.9
Funding.10 The President’s FY2007 budget requested an appropriation of
$71.449 million to fund Max-HR, $41.749 million more than the amount provided
in FY2006. The full time equivalent (FTE) employees attached to the account were
27, an increase of 15 FTEs over FY2006. Almost 94% of the requested money was
for salaries and benefits ($3.153 million) and advisory and assistance services
($63.984 million). Accounting for the increased funding were (1) implementation
costs of the new pay system for employees who were originally scheduled to be
converted in FY2006 ($15 million), (2) implementation and operational costs for a
market- and performance-based compensation system in FY2007 ($22 million), and
(3) funding the Homeland Security Labor Relations Board (HSLRB) ($4.749
million).11 P.L. 109-295, the Department of Homeland Security Appropriations Act
for FY2007, provides funding of $25 million for Max-HR (some $46.449 million
below the President’s request).
8 U.S. Department of Homeland Security, Securing the Success of DHS Results, 2005, p. 14,
available at [http://www.dhs.gov], visited March 24, 2006.
9 Stephen Barr, “Personnel Policy Challenges Await the New DHS Management Chief,” The
Washington Post, December 14, 2006, p. D4.
10 For an analysis of the FY2007 appropriations for Max-HR, see the “Personnel Issues”
section of CRS Report RL33428, Homeland Security Department: FY 2007 Appropriations,
coordinated by Jennifer E. Lake and Blas Nunez-Neto. For the FY2006 appropriations, see
the “Personnel Issues” section of CRS Report RL32863, Homeland Security Department:
FY2006 Appropriations, coordinated by Jennifer E. Lake and Blas Nunez-Neto.
11 U.S. Department of Homeland Security, FY2007 Congressional Justification,
Departmental Management and Operations, Under Secretary for Management, Office of
Human Capital and Office of Human Capital — MaxHR, pp. USM-43 - USM-50.

CRS-10
FY2008 Budget and Personnel Issues
The Office of Human Capital (OHC) at DHS reports to the Under Secretary for
Management, and its appropriation is included in that of the Under Secretary. The
OHC appropriation has two parts. The first part, formerly labeled “HR Operations”
and now labeled “OHC,” includes funding for the office which is responsible for the
overall management and administration of human capital in DHS. As such, the
office establishes policy and procedures and provides oversight, guidance, and
leadership for the department’s human resources functions. The second part, formerly
labeled “MaxHR” and now labeled “OHC — Operational Initiatives and HR
Management System,” includes funding for the OHC organization, which “is
responsible for creating, implementing, and operating DHS’ new human resources
system, ensuring that organizational goals and individual work performance are
linked, and that employees are compensated based on their contributions to agency
performance.” The OHC organization also “is responsible for ensuring that DHS
recruits, hires, trains, and retains the very best workforce, provides the highest quality
leadership development, and creates a performance culture in the workforce to ensure
DHS succeeds in its mission.”12 Table 2 below shows the funding and staff for the
OHC from FY2005 through the budget request for FY2008.
Table 2. Office of Human Capital (OHC) Appropriations,
FY2005-FY2008
(in millions)
FY2008
Request
FY2005
FY2006
FY2007
FY2008
Account
Compared
Enacted
Enacted
Enacted
Request
to FY2007
Enacted
“OHC”
$7
$9
$9
$10
$1
(formerly “HR
Operations”)
“OHC —
$36
$30
$25*
$15
-$10
Operational
Initiatives and
HR Management
System”
(formerly
“MaxHR”)
Total
$43
$39
$34
$25
-$9
Staffing (full
49
62
53
60
7
time equivalent,
(12 for
FTE, positions)
“MaxHR”)
Note: This amount does not reflect the transfer of $5 million from “MaxHR” to the Transportation
Security Administration as provided by Section 21101 of P.L. 110-5, the Revised Continuing
Appropriations Resolution for FY2007, enacted on Feb. 15, 2007, (121 Stat. 8). The numbers in the
table are rounded.
12 FY2008 DHS Justifications, Departmental Management and Operations, Undersecretary
for Management, p. USM-2.

CRS-11
Sources: P.L. 108-334, Oct. 18, 2004, 118 Stat. 1298; P.L. 109-90, Oct. 18, 2005, 119 Stat.
2064; P.L. 109-295, Oct. 4, 2006, 120 Stat. 1355, at 1356, and FY2008 DHS Justifications,
Departmental Management and Operations, Undersecretary for Management, Office of Human
Capital, and Office of Human Capital — Max-HR, pp. USM-39 - USM-44.
As directed by the conference report13 accompanying P.L. 109-295, the
Department of Homeland Security Appropriations Act for FY2007, the Under
Secretary for Management submitted an expenditure plan for the DHS Human
Resources Management System (HRMS) (formerly “MaxHR”) for FY2007 to the
House and Senate Committees on Appropriations on February 1, 2007. The report’s
cover letter states that in FY2007 the HRMS “will be broadened ... to encompass
additional aspects of FY2007 Human Capital Operational Plan (HCOP), including
an increased focus on employee recruiting and advanced homeland security related
education.”14 Among other data, the report states that the contractor Northrop
Grumman Information Technology (NGIT) received a contract worth almost $3
million dollars to provide services through January 31, 2007, related to program
management; pay, performance, and classification; and training, communications,
and organizational change management at DHS. According to the report, NGIT is
being awarded another contract, worth more than $16 million, to provide services to
the department through September 30, 2007, in the same areas identified above and
labor relations.15
The transfer of the Office of Federal Law Enforcement Training Accreditation
(FLETA) from the Federal Law Enforcement Training Center to the OHC accounts
for the increase of $1 million and seven full-time equivalent employees over the
FY2007 appropriation for the “OHC” account. Almost 93% of the money requested
for FY2008 under this account is for salaries and benefits ($8 million) and advisory
and assistance services ($2 million) that includes services acquired by contract from
non-federal sources.16 The appropriation will fund continued implementation of the
Human Capital Operational Plan for FY2007 to FY2009, development of an
employee talent bank for use throughout the department, creation of standards to
assess and evaluate learning and development programs, and participation of all new
DHS employees in a department-wide orientation program.17 Some 76% of the
money requested for FY2008 under the “OHC — Operational Initiatives and HR
Management System” account is for advisory and assistance services ($11 million).
13 U.S. Congress, Conference Committees, 2006, Making Appropriations for the Department
of Homeland Security For the Fiscal Year Ending September 30, 2007, and For Other
Purposes, conference report to accompany H.R. 5441, 109th Cong., 2nd sess., H.Rept. 109-
699 (Washington, DC: GPO, 2006), p. 119.
14 Letter to Representative David E. Price, Chairman, House Subcommittee on Homeland
Security of the House Committee on Appropriations from Paul A. Schneider, Under
Secretary for Management, U.S. Department of Homeland Security, February 1, 2007.
15 Report to Congress, Spend Plan for MaxHR, Office of Human Capital, Department of
Homeland Security, January 4, 2007, p. 7. Accompanied the letter cited in footnote 5.
16 FY2008 DHS Justifications, Departmental Management and Operations, Undersecretary
for Management, Office of Human Capital, pp. USM-39 - USM-41.
17 FY2008 DHS Justifications, Under Secretary for Management, Strategic Context, p.
USM-3.

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No funding is requested for salaries and benefits.18 The appropriation will fund
continued training of the DHS workforce in pay for performance and a new pay
system pilot project that will cover employees in the department who work in the
intelligence area. The pilot will be implemented jointly with the Director of National
Intelligence who is developing a pilot pay system for employees of the intelligence
agencies. It also will fund investment in recruitment and retention programs along
with learning and development initiatives to address gaps in skills and competencies,
and deployment of career paths and rotations to facilitate the mobility of DHS
employees through various leadership positions in the department.19
There are new incumbents for both the Under Secretary and Chief Human
Capital Officer positions at DHS. Paul Schneider assumed the former position on
February 1, 2007, and Marta Brito Perez the latter position on September 18, 2006.
During his confirmation hearing on December 6, 2006, Mr. Schneider told the
members of the Senate Committee on Homeland Security and Governmental Affairs
that he would make sure that DHS officials create an effective method of evaluating
employees’ job performance.
In January 2007, the Culture Task Force of the Homeland Security Advisory
Council issued a report to the DHS Secretary. Among its recommendations were that
DHS staff be referred to as “employees” or “members” of DHS and not as “human
capital,” and that “members of the headquarters” be required to visit and listen “to
employees and engage and support groups outside the headquarters” and respond
within 30 days on actions taken to address their concerns.20 The task force believes
that “there can be no hierarchically imposed ‘single culture’ within the Department,”
but that “an overarching and blended culture can be developed that is based on
threads of common values, goals, and focus of mission among DHS headquarters and
its component organizations.” With regard to developing and sustaining such a
culture, the task force advised that “there are organizations in the Private Sector that
will deploy and embed within DHS qualified, objective, emotionally and
organizationally detached personnel to help develop the leadership’s vision and
strategic goals of creating a Homeland Security (rather than DHS) Mission Culture
and then monitor, objectively test, and support progress in achieving, continually
improving and sustaining an operationally focused, innovation and people rewarding
18 FY2008 DHS Justifications, Departmental Management and Operations, Undersecretary
for Management, Office of Human Capital — Max-HR, pp. USM-42 - USM-44.
19 FY2008 DHS Justifications, Under Secretary for Management, Strategic Context, p.
USM-4. On January 23, 2007, 27 employees in General Schedule grades 14 and 15 and
representing various components of DHS began a year-long fellowship program designed
to prepare them for future leadership positions in the department. The program is intended
to establish a common culture at DHS and encourage cooperation among the different
agencies that comprise the department.
20 Homeland Security Advisory Council, Report of the Culture Task Force, January 2007,
pp. 2-3. Section 871 of P.L. 107-296 (116 Stat. 2243) authorized the council which provides
advice and recommendations to the DHS Secretary on homeland security matters. In June
2006, Secretary Chertoff directed the council to establish the task force “to provide
observations and recommendations for achieving and maintaining an empowering, energetic,
dedicated, mission-focused culture within the Department ... .”

CRS-13
culture.”21 The task force recommended that such contract employees work under
the direction of a senior (preferably career) DHS employee and with staff from the
department’s component agencies.
Legislation Pending in the 110th Congress
Representative Bennie Thompson introduced H.R. 1684, the Department of
Homeland Security Authorization Act for FY2008, on March 26, 2007. It was
referred to the House Committee on Homeland Security where it was marked up and
ordered to be reported, on a 26-0 vote, on March 28, 2007. During the markup, an
amendment to repeal the authority for the new human resources management system
at DHS that was offered by Representative Sheila Jackson-Lee was agreed to on a 17-
13 vote. H.R. 1684 is expected to be considered by the House in early May 2007.
This report compares the final regulations for Subparts A (General Provisions),
B (Classification), C (Pay and Pay Administration), and D (Performance
Management) of the Department of Homeland Security’s HRM system with current
law under Title 5 United States Code and relevant regulations under Title 5 Code of
Federal Regulations. For an analysis of the regulations for Subpart E on Labor-
Management Relations and the court case which resulted from those rules, see CRS
Report RL32255, Homeland Security: Final Regulations for the Department of
Homeland Security Human Resources Management System (Subpart E) Compared
With Current Law, by Jon O. Shimabukuro; and CRS Report RL33052, Homeland
Security and Labor-Management Relations: NTEU v. Chertoff, by Thomas J. Nicola
and Jon O. Shimabukuro. P.L. 107-296, the Homeland Security Act of 2002,
amended Title 5 provisions that are applicable to most federal employees, and it is
these provisions (rather than those which have been provided in separate statutes to
employees at the Internal Revenue Service, Federal Aviation Administration,
Transportation Security Administration, Department of Defense, and the National
Aeronautics and Space Administration) that are compared with the proposed DHS
regulations.
21 Ibid., pp. 5-6.

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Table 3. Department of Homeland Security Human Resources Management System: Final Regulations Compared
With Current Law/Selected Regulations
Current Law/Selected Regulations
Final DHS Regulations
Title 5 United States Code and
Title 5 Code of Federal Regulations
Subpart A — General Provisions
5 U.S.C. §9701. Establishment of human resources management
§9701.101. Purpose. To establish a system that is mission-centered,
system. (a) Notwithstanding any other provision of this part, the
performance-focused, flexible, contemporary, and excellent; that
Secretary of Homeland Security may, in regulations prescribed jointly
generates respect and trust through employee involvement; that is based
with the Director of the Office of Personnel Management, establish, and
on the principles of merit and fairness embodied in the statutory merit
from time to time adjust, a human resources management system for
system principles; and that complies with all other applicable laws.
some or all of the organizational units of the Department of Homeland
Security.
Authority derives from 5 U.S.C. §9701(a).
§9701.102. Eligibility and coverage. All DHS civilian employees are
eligible for coverage under one or more subparts of 5 CFR Part 9701
except those covered by a provision of law outside the chapters of Title
5 United States Code identified in §9701.104 which can be waived. For
example Transportation Security Administration (TSA) employees,
employees appointed under the Robert T. Stafford Disaster Relief and
Emergency Assistance Act, Secret Service Uniformed Division
members, Coast Guard Academy faculty members, and Coast Guard
military members are not eligible for coverage under any classification
or pay system established under Subpart B or C. Each subpart provides
specific information regarding coverage.

CRS-15
Current Law/Selected Regulations
Final DHS Regulations
Title 5 United States Code and
Title 5 Code of Federal Regulations
Subpart A becomes applicable to all eligible employees 30 days after
the date of publication in the Federal Register.
With respect to Subparts B, C, and D, the Secretary or designee may, at
his or her sole and exclusive discretion and after coordination with
OPM, apply one or more of these subparts to a specific category or
categories of eligible civilian employees at any time. With respect to
any given category of civilian employees, the Secretary or designee may
apply some of these subparts, but not others, and such coverage
determinations may be made effective on different dates (e.g., in order
to phase in coverage under a new classification, pay, and performance
management system).
DHS will notify affected employees and labor organizations in advance
of the application of one or more subparts to them.
Until the Secretary or designee makes such a determination to apply the
provisions of one or more subparts to a particular category or categories
of eligible DHS employees, those employees will continue to be
covered by the applicable federal laws and regulations that would apply
to them in the absence of 5 CFR Part 9701. All personnel actions
affecting DHS employees must be based on the federal laws and
regulations applicable to them on the effective date of the action.
5 U.S.C. Chapter 53, Subchapter VIII — Pay for the Senior Executive
Any new DHS classification, pay, or performance management system
Service.
covering Senior Executive Service (SES) members must be consistent

CRS-16
Current Law/Selected Regulations
Final DHS Regulations
Title 5 United States Code and
Title 5 Code of Federal Regulations
with the policies and procedures established by the government-wide
SES pay-for-performance system authorized by 5 U.S.C. Chapter 53,
Subchapter VIII, and applicable implementing regulations issued by
OPM. If the Secretary determines that SES members employed by
DHS should be covered by classification, pay, or performance
management provisions that differ substantially from the government-
wide SES pay-for-performance system, the Secretary and the Director
must issue joint regulations consistent with all of the requirements of 5
U.S.C. §9701.
At his or her sole and exclusive discretion, the Secretary or designee
may, after coordination with OPM, rescind the application of one or
more subparts to a particular category of employees and prescribe
implementing directives for converting that category of employees to
coverage under applicable Title 5 provisions. DHS will notify affected
employees and labor organizations in advance of such a decision.
The Secretary or other authorized DHS official may exercise an
independent legal authority to establish a parallel system that follows
some or all of the requirements in 5 CFR Part 9701 for a category of
employees who are not eligible for coverage under 5 U.S.C. §9701.
Authority derives from 5 U.S.C. §9701(a).
§9701.103. Definitions. Various terms are defined, including:
“Authorized agency official” means the Secretary or an official who is
authorized to act for the Secretary in the matter concerned.

CRS-17
Current Law/Selected Regulations
Final DHS Regulations
Title 5 United States Code and
Title 5 Code of Federal Regulations
“Coordination” means the process by which DHS, after appropriate
staff-level consultation, officially provides OPM with notice of a
proposed action and intended effective date. If OPM concurs, or does
not respond to that notice within 30 calendar days, DHS may proceed
with the proposed action. However, if OPM indicates the matter has
government-wide implications or consequences, DHS will not proceed
until the matter is resolved. The coordination process is intended to
give due deference to the flexibilities afforded DHS by the Homeland
Security Act and the regulations in 5 CFR Part 9701, without
compromising OPM’s institutional responsibility to provide
government-wide oversight in HRM programs and practices.
“Implementing directives” means directives issued at the departmental
level by the Secretary or designee to carry out any policy or procedure
established in accordance with 5 CFR Part 9701. These directives may
apply department-wide or to any part of the department as determined
by the Secretary at his or her sole and exclusive discretion.
5 U.S.C. §2105. Employee.
“Employee” means an employee within the meaning of that term in 5
(a) “Employee” means an officer and an individual who is appointed in
U.S.C. §2105. “Secretary” means the Secretary of Homeland Security
the civil service by one of the following acting in an official capacity —
or, as authorized, the Deputy Secretary of Homeland Security.
the President; a Member or Members of Congress, or the Congress; a
“Secretary or designee” means the Secretary or a DHS official
member of a uniformed service; an individual who is an employee
authorized to act for the Secretary in the matter concerned who serves as
under this section; the head of a government controlled corporation; or
the Undersecretary for Management or as DHS’ Chief Human Capital

CRS-18
Current Law/Selected Regulations
Final DHS Regulations
Title 5 United States Code and
Title 5 Code of Federal Regulations
an adjutant general designated by the Secretary concerned under 32
Officer.
U.S.C. §709(c). It also means an officer and an individual engaged in
the performance of a federal function under authority of law or an
executive act; and subject to the supervision of an individual named
above while engaged in the performance of the duties of the position.
5 U.S.C. §9701. Establishment of human resources management
§9701.104. Scope of authority. Subject to the requirements and
system.
limitations in 5 U.S.C. §9701, these Title 5 chapters and related
(b)(c) The HRM system must be flexible and contemporary. It cannot
regulations may be waived or modified: Chapter 43 (performance
waive, modify, or otherwise affect:
appraisal systems); Chapter 51 (General Schedule (GS) job
classification); Chapter 53 (pay for GS employees, pay and job grading
— the public employment principles of merit and fitness at 5
for Federal Wage System employees, and pay for certain other
U.S.C. §2301, including the principles of hiring based on merit,
employees); Chapter 71 (labor relations); Chapter 75 ( adverse actions
fair treatment without regard to political affiliation or other non-
and certain other actions); and Chapter 77 (appeal of adverse actions
merit considerations, equal pay for equal work, and protection of
and certain other actions).
employees against reprisal for whistleblowing;
— any provision of 5 U.S.C. §2302 relating to prohibited
personnel practices;
— any provision of law referred to in 5 U.S.C. §2302(b)(1)(8)(9);
or any provision of law implementing any provision of law
referred to in 5 U.S.C. §2302(b)(1)(8)(9) by providing for equal

CRS-19
Current Law/Selected Regulations
Final DHS Regulations
Title 5 United States Code and
Title 5 Code of Federal Regulations
employment opportunity through affirmative action; or providing
any right or remedy available to any employee or applicant for
employment in the civil service;
— Subparts A (General Provisions), B (Employment and
Retention), E (Attendance and Leave), G (Insurance and
Annuities), and H (Access to Criminal History Record
Information) of Part III of Title 5 United States Code; and Chapters
41 (Training), 45 (Incentive Awards), 47 (Personnel Research
Programs and Demonstration Projects), 55 (Pay Administration),
57 (Travel, Transportation, and Subsistence), 59 (Allowances), 72
(Antidiscrimination, Right to Petition Congress), 73 (Suitability,
Security, and Conduct), and 79 (Services to Employees) of Title 5;
or
— any rule or regulation prescribed under any provision of law
referred to in any of the statements in bullets immediately above.
5 U.S.C. §9701. Establishment of human resources management
§9701.105. Continuing collaboration. Relates to the participation of
system.
employee representatives in developing implementing directives.
(h) Effective five years after the conclusion of the transition period
defined under §1501 of P.L. 107-296, all authority to issue regulations
under the section (including regulations which would modify,

CRS-20
Current Law/Selected Regulations
Final DHS Regulations
Title 5 United States Code and
Title 5 Code of Federal Regulations
supersede, or terminate any regulations previously issued under the
section) must cease to be available. The transition period is the 12-
month period that began on the act’s effective date. The act’s effective
date was 60 days after the act’s enactment date of November 25, 2002.
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 extent authorized by 5 U.S.C. §9701
to conform to 5 CFR Part 9701. This part must be interpreted in a way
that recognizes the critical mission of DHS. Each provision must be
construed to promote the swift, flexible, effective day-to-day
accomplishment of the mission, as defined by the DHS Secretary or
designee. The interpretation of the regulations by DHS and OPM must
be accorded great deference.
5 U.S.C. Chapter 43 (Performance Appraisal; Chapter 51
For the purpose of applying other provisions of law or Government-
(Classification); Chapter 53 (Pay Rates and Systems); Chapter 71
wide regulations that reference provisions under 5 U.S.C. Chapters 43,
(Labor-Management Relations); Chapter 75 (Adverse Actions); and
51, 53, 71, 75, and 77, the referenced provisions are not waived but are
Chapter 77 (Appeals).
modified consistent with the corresponding regulations in 5 CFR Part
9701, except as otherwise provided in this part or in DHS implementing
directives. Applications of this rule include, but are not limited to, the
following:
If another provision of law or Government-wide regulations requires
coverage under one of the chapters modified or waived under 5 CFR

CRS-21
Current Law/Selected Regulations
Final DHS Regulations
Title 5 United States Code and
Title 5 Code of Federal Regulations
5 U.S.C. §§4521-4523. Award to Law Enforcement Officers for
Part 9701 (i.e., 5 U.S.C. Chapters 43, 51, 53, 71, 75, and 77), DHS
Foreign Language Capabilities; 5 U.S.C. §5545b (Pay for firefighters);
employees are deemed to be covered by the applicable chapter
5 U.S.C. §5545(d) (hardship or hazard pay differentials); 5 U.S.C.
notwithstanding coverage under a system established under this part.
§§5753-5754 (Recruitment and relocation bonuses and Retention
Selected examples of provisions that continue to apply to any DHS
allowances); 5 U.S.C. §5948 (Physicians comparability allowances);
employees (notwithstanding coverage under Subparts B through G)
P.L. 101-509, Sec. 407, 5 U.S.C. §5305 note (Relocation payments for
include, but are not limited to: foreign language awards for law
law enforcement officers);
enforcement officers; pay for firefighters; differentials for duty
involving physical hardship or hazard; recruitment, relocation, and
retention payments; physicians’ comparability allowances; and the
higher cap on relocation bonuses for law enforcement officers.
Application of the back pay law with regard to attorney fees and labor
relations will be consistent with §9701.706(h) and §9701.517,
respectively.
5 CFR Part 300, Subpart F (Time-in-Grade Restrictions); 5 U.S.C.
When a specified category of employees is covered by a classification
§5755 (Supervisory differentials); P.L. 101-509, Sec. 404 and 404, 5
and pay system established under Subparts B and C, the following
U.S.C. 5303 note (Special rates and Special pay adjustments for law
provisions do not apply: time-in-grade restrictions that apply to
enforcement officers).
competitive service GS positions; supervisory differentials; and law
enforcement officer special rates and geographic adjustments.
42 U.S.C. §2000e (Equal Employment Opportunity); 29 U.S.C. §621
Nothing in this part waives, modifies or otherwise affects the
(Age discrimination in employment); 29 U.S.C. §791 (Employment of
employment discrimination laws that the Equal Employment
individuals with disabilities); 29 U.S.C. §206(d) (Prohibition of sex
Opportunity Commission (EEOC) enforces under 42 U.S.C. §2000e et
discrimination); 29 CFR Part 1614 — Federal Sector Equal
seq., 29 U.S.C. §621 et seq., 29 U.S.C. §791 et seq., and 29 U.S.C.

CRS-22
Current Law/Selected Regulations
Final DHS Regulations
Title 5 United States Code and
Title 5 Code of Federal Regulations
Employment Opportunity (Subparts A-F, including Agency Program to
§206(d). Employees and applicants for employment in DHS will
Promote Equal Employment Opportunity, Appeals and Civil Actions,
continue to be covered by EEOC’s federal sector regulations found at
Remedies and Enforcement).
29 CFR Part 1614.
Authority derives from 5 U.S.C. §9701(a).
§9701.107. Program evaluation. DHS will establish procedures for
evaluating the regulations and their implementation. Designated
employee representatives will be provided with an opportunity to be
briefed and a specified timeframe to provide comments on the design
and results of program evaluations. Employee representatives will be
involved with the identification of the scope, objectives, and
methodology to be used in program evaluation and review of draft
findings and recommendations. Involvement in the evaluation process
does not waive the rights of any party under applicable law or
regulations.
Subpart B — Classification
General
DHS authority for Subpart B derives from 5 U.S.C. §9701(a)-(c).
§9701.201. Purpose. Subpart B contains regulations establishing a

CRS-23
Current Law/Selected Regulations
Final DHS Regulations
Title 5 United States Code and
Title 5 Code of Federal Regulations
5 U.S.C. Chapter 51 — Classification
classification structure and rules for covered DHS employees and
5 U.S.C. §5101. Purpose. To provide a plan for classification of
positions to replace the 5 U.S.C. Chapter 51 classification structure and
positions whereby in determining the rate of basic pay which an
rules and the 5 U.S.C. Chapter 53, Subchapter IV job grading system, in
employee will receive, the principle of equal pay for substantially equal
accordance with the merit principle of equal pay for work of equal
work will be followed, and variations in rates of basic pay paid to
value. Any classification system must be established in conjunction
different employees will be in proportion to substantial differences in
with the pay system described in Subpart C.
the difficulty, responsibility, and qualification requirements of the work
performed and to the contributions of employees to efficiency and
economy in the service. Individual positions will, in accordance with
their duties, responsibilities, and qualification requirements, be so
grouped and identified by classes and grades, and the various classes
will be so described in published standards, that the resulting position-
classification system can be used in all phases of personnel
administration.
5 U.S.C. Chapter 53, Subchapter IV — Prevailing Rate Systems
5 U.S.C. §5341. Policy. It is the policy of Congress that rates of pay of
prevailing rate employees be fixed and adjusted from time to time as
nearly as is consistent with the public interest in accordance with
prevailing rates and be based on principles that there will be equal pay
for substantially equal work for all prevailing rate employees who are
working under similar conditions of employment in all agencies within
the same local wage area; there will be relative differences in pay within

CRS-24
Current Law/Selected Regulations
Final DHS Regulations
Title 5 United States Code and
Title 5 Code of Federal Regulations
a local wage area when there are substantial or recognizable differences
in duties, responsibilities, and qualification requirements among
positions; the level of rates of pay will be maintained in line with
prevailing levels for comparable work within a local wage area; and the
level of rates of pay will be maintained so as to attract and retain
qualified prevailing rate employees.
Authority derives from 5 U.S.C. §9701(a).
§9701.202. Coverage. Subpart B applies to eligible DHS employees
and positions listed below, subject to a determination by the Secretary
or designee under §9701.102(b).
5 U.S.C. Chapter 53, Subchapter III — General Schedule Pay Rates
Eligible for coverage are: employees and positions that would
5 U.S.C. Chapter 53, Subchapter IV — Prevailing Rate Systems
otherwise be covered by the GS classification system; employees and
5 U.S.C. §5376. Pay for certain senior-level positions
positions that would otherwise be covered by a prevailing rate system;
5 U.S.C. Chapter 53, Subchapter VIII — Pay for the Senior Executive
employees in senior-level (SL) and scientific or professional (ST)
Service
positions who would otherwise be covered by 5 U.S.C. §5376; and SES
members who would otherwise be covered by 5 U.S.C. Chapter 53,
Subchapter VIII, subject to §9701.102(d).
5 U.S.C. Chapter 51 — Classification (includes classification and
§9701.203. Waivers. When a specified category of employees is
grading of positions)
covered by a classification system established under Subpart B, 5
5 U.S.C. §5346. Job grading system
U.S.C. Chapter 51 and 5 U.S.C. §5346, and related regulations, are
5 U.S.C. §5108. Classification of positions above GS-15
waived with respect to that category of employees, except as provided

CRS-25
Current Law/Selected Regulations
Final DHS Regulations
Title 5 United States Code and
Title 5 Code of Federal Regulations
immediately 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 of classification decisions). 5 U.S.C. §5108 is not
waived.
5 U.S.C. §5102. Definitions; application (unless otherwise noted)
§9701.204. Definitions.
“Grade” includes all classes of positions which, although different with
“Band” means a work level or pay range within an occupational cluster.
respect to kind or subject-matter of work, are sufficiently equivalent as
to level of difficulty and responsibility; and level of qualification
requirements of the work; to warrant their inclusion within one range of
rates of basic pay in the General Schedule.
“Basic pay” means the total amount of pay received during any one
“Basic pay” means an employee’s rate of pay before any deductions and
calendar year at the rate fixed by law or administrative action for the
exclusive of additional pay of any kind, except as expressly provided by
position ... including night and environmental differentials for
law or regulation. It includes locality and special rate supplements for
prevailing rate employees, but before any deductions and exclusive of
the specific purposes prescribed in §§9701.332(c) and 9701.333.
additional pay of any other kind. [5 CFR §530.202]
“Classification” means the analysis and identification of a position and
“Classification” also referred to as job evaluation, means the process of
placing it in a class under the position-classification plan established by
analyzing and assigning a job or position to an occupational series,
OPM under 5 U.S.C. Chapter 51. [5 CFR §511.101(c)]
cluster, and band for pay and other related purposes.

CRS-26
Current Law/Selected Regulations
Final DHS Regulations
Title 5 United States Code and
Title 5 Code of Federal Regulations
“Competencies’ means the measurable or observable knowledge, skills,
abilities, behaviors, and other characteristics required by a position.
“Class” or “class of positions” includes all positions which are
“Occupational cluster” means a grouping of one or more associated or
sufficiently similar, as to kind or subject-matter of work; level of
related occupations or positions. An occupational cluster may include
difficulty and responsibility; and the qualification requirements of the
one or more occupational series.
work; to warrant similar treatment in personnel and pay administration.
“Occupational series” means the number OPM or DHS assigns to a
group or family of similar positions for identification purposes.
“Position” means the work, consisting of the duties and responsibilities,
“Position” or “Job” means the duties, responsibilities, and related
assigned by competent authority for performance by an employee. [5
competency requirements that are assigned to an employee whom the
CFR §511.101(e)]
Secretary or designee approves for coverage under §9701.202(a).
Classification of positions is not subject to collective bargaining.
§9701.205. Bar on collective bargaining. As provided in the
definition of “conditions of employment” in §9701.504, any
classification system established under Subpart B is not subject to
collective bargaining. This bar on collective bargaining applies to all
aspects of the classification system, including but not limited to
coverage determinations, the design of the classification structure, and
classification methods, criteria, and administrative procedures and
arrangements.

CRS-27
Current Law/Selected Regulations
Final DHS Regulations
Title 5 United States Code and
Title 5 Code of Federal Regulations
Classification Structure
5 U.S.C. §5106. Basis for classifying positions
§9701.211. Occupational clusters. For purposes of classifying
Each position is placed in its appropriate class on the basis of the duties
positions, DHS may, after coordination with OPM, establish
and responsibilities of the position and the qualifications required by
occupational clusters based on factors such as mission or function;
those duties and responsibilities. Each class is placed in its appropriate
nature of work; qualifications or competencies; career or pay
grade on the basis of the level of difficulty, responsibility, and
progression patterns; relevant labor-market features; and other
qualification requirements of the work of the class.
characteristics of those occupations or positions. DHS must document
in implementing directives the criteria and rationale for grouping
occupations or positions into occupational clusters.
5 U.S.C. §5104. Basis for grading positions
§9701.212. Bands. For purposes of identifying relative levels of work
Provides for 15 General Schedule pay grades. The statute defines each
and corresponding pay ranges, DHS may, after coordination with OPM,
of the pay grades in terms of their difficulty and responsibility.
establish one or more bands within each occupational cluster. Each
occupational cluster may include, but is not limited to, the following
bands: Entry/Developmental — work that involves gaining the
competencies needed to perform successfully in a Full Performance
band through appropriate formal training and/or on-the-job experience.
Full Performance — work that involves the successful completion of
any required entry-level training and/or developmental activities
necessary to independently perform the full range of non-supervisory
duties of a position in an occupational cluster.
Senior Expert — work that involves an extraordinary level of

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specialized knowledge or expertise upon which DHS relies for the
accomplishment of critical mission goals and objectives; reserved for a
limited number of non-supervisory employees.
Supervisory — work that may involve hiring or selecting employees,
assigning work, managing performance, recognizing and rewarding
employees, and other associated duties.
5 U.S.C. §5106. Basis for classifying positions
DHS must document in implementing directives the definitions for each
Each position is placed in its appropriate class on the basis of the duties
band which specify the type and range of difficulty and responsibility,
and responsibilities of the position and the qualifications required by
qualifications, competencies, or other characteristics of the work
those duties and responsibilities. Each class is placed in its appropriate
encompassed by the band.
grade on the basis of the level of difficulty, responsibility, and
qualification requirements of the work of the class.
5 U.S.C. §5105. Standards for classification of positions
DHS must, after coordination with OPM, establish qualification
OPM , after consulting the agencies, prepares standards for placing
standards and requirements for each occupational cluster, occupational
positions in their proper classes and grades. OPM may make such
series, and/or band. DHS may use the qualification standards
inquiries or investigations of the duties, responsibilities, and
established by OPM or, after coordination with OPM, may establish
qualification requirements of positions as it considers necessary for this
different qualification standards. Any DHS authority to establish
purpose. In the standards, OPM defines the various classes of positions
qualification standards or requirements under 5 U.S.C. Chapters 31 and
in terms of duties, responsibilities, and qualification requirements;
33 and OPM implementing regulations is not waived or modified.
establishes the official class titles; and sets forth the grades in which the
classes have been placed by OPM. OPM must revise, supplement, or

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abolish existing standards, or prepare new standards so that positions
will be covered by current published standards. The official class titles
are used for personnel, budget, and fiscal purposes.
5 U.S.C. §5107. Classification of positions
Except as otherwise provided in Chapter 51, each agency places each
position under its jurisdiction in its appropriate class and grade in
conformance with OPM standards. When facts warrant, an agency may
change a position from one class or grade to another.
Classification Process
5 U.S.C. §5104. Basis for grading positions
§9701.221. Classification requirements. DHS must develop a
Provides for 15 General Schedule pay grades. The statute defines each
methodology for describing and documenting the duties, qualifications,
of the pay grades in terms of their difficulty and responsibility.
and other requirements of categories of jobs, and DHS must make such
5 U.S.C. §5108. Classification of positions above GS-15
descriptions and documentation available to affected employees.
Authorizes OPM to establish, and from time to time revise, the
maximum number of positions classified at any one time above GS-15,
and establish standards and procedures for classifying positions above
GS-15 for any executive agency.
5 U.S.C. 5113. Classification records
OPM may prescribe the form in which each agency must record the
duties and responsibilities of positions and the places where these
records must be maintained; examine these or other pertinent records of
the agency; and interview agency employees who have knowledge of
the duties and responsibilities of positions and information as to the
reasons for placing a position in a class or grade.

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5 U.S.C. §5106. Basis for classifying positions
An authorized agency official must assign occupational series to jobs
Each position is placed in its appropriate class on the basis of the duties
consistent with definitions established by OPM or by DHS, after
and responsibilities of the position and the qualifications required by
coordination with OPM; and apply the criteria and definitions required
those duties and responsibilities. Each class is placed in its appropriate
by §9701.211 and §9701.212 to assign jobs to an appropriate
grade on the basis of the level of difficulty, responsibility, and
occupational cluster and band.
qualification requirements of the work of the class.
5 U.S.C. §5105. Standards for classification of positions
DHS must establish procedures for classifying jobs and may make such
OPM , after consulting the agencies, prepares standards for placing
inquiries or investigations of the duties, responsibilities, and
positions in their proper classes and grades. OPM may make such
qualification requirements of jobs as it considers necessary for the
inquiries or investigations of the duties, responsibilities, and
purposes of this section.
qualification requirements of positions as it considers necessary for this
Classification decisions become effective on the date designated by the
purpose. In the standards, OPM defines the various classes of positions
authorized agency official who makes the decision.
in terms of duties, responsibilities, and qualification requirements;
establishes the official class titles; and sets forth the grades in which the
classes have been placed by OPM. OPM must revise, supplement, or
abolish existing standards, or prepare new standards so that positions
will be covered by current published standards. The official class titles
are used for personnel, budget, and fiscal purposes.
5 U.S.C. §5111. Revocation and restoration of authority to classify
DHS must establish a plan to periodically review the accuracy of
positions
classification decisions.
When OPM finds that an agency is not placing positions in classes and
grades in conformance with or consistently with published standards, it
may revoke or suspend the authority granted to the agency under 5
U.S.C. §5107 and require that prior OPM approval be secured before an
action placing a position in a class and grade become effective. Agency
authority may be restored upon corrective action.

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5 U.S.C. §5110. Review of classification of positions
§9701.222. Reconsideration of classification decisions. An
OPM, from time to time, reviews such number of positions in each
individual employee may request that DHS or OPM reconsider the pay
agency as will enable it to determine whether the agency is placing
system, occupational cluster, occupational series, or band assigned to
positions in classes and grades in conformance with or consistently with
his or her current official position of record at any time.
published standards. OPM takes corrective action when it finds that a
DHS will, after coordination with OPM, establish implementing
position is not placed in its proper class and grade in conformance with
directives for reviewing requests for reconsideration, including
published standards.
nonreviewable issues, rights of representation, and the effective date of
5 U.S.C. §5112. General authority of OPM
any corrective actions. OPM will, after consulting with DHS, establish
OPM may place a position in the appropriate class and grade, determine
separate policies and procedures for reviewing reconsideration requests.
whether a position is in the appropriate class and grade, and change a
An employee may request that OPM review a DHS determination. If an
position from one class and grade to another when the facts as to the
employee does not request an OPM reconsideration decision, DHS’s
duties, responsibilities, and qualification requirements of a position
classification determination is final and not subject to further review or
warrant. An employee may request that OPM exercise its authority in
appeal.
this regard.
OPM’s final determination on a request is not subject to further review
or appeal.
Transitional Provisions
Authority derives from 5 U.S.C. §9701(a).
§9701.231. Conversion of positions and employees to the DHS
classification system. Affected positions and employees may convert
from the GS system, a prevailing rate system, the SL/ST system, or the
SES system, as provided in §9701.202. The terms “convert,”
“converted,” “converting,” and “conversion” refer to positions and
employees that become covered by the classification system as a result
of a coverage determination made under §9701.102(b) and exclude
employees who are reassigned or transferred from a noncovered
position to a position already covered by the DHS system.
DHS will issue implementing directives prescribing policies and

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procedures for converting the GS or prevailing rate grade of a position
to a band and for converting SL/ST and SES positions to a band upon
initial implementation of the DHS classification system. Such
procedures must include provisions for converting an employee who is
retaining a grade under 5 U.S.C. Chapter 53, Subchapter VI,
immediately prior to conversion. As provided in §9701.373, DHS must
convert employees without a reduction in their rate of pay (including
basic pay and any applicable locality payment, special rate, or other
similar supplemental pay).
Authority derives from 5 U.S.C. §9701(a).
§9701.232. Special transition rules for Federal Air Marshal
P.L. 107-71 (115 Stat. 597) established the Transportation Security
Service. Notwithstanding any other provision in Subpart B, if DHS
Administration.
transfers Federal Air Marshal Service (FAMS) positions from the TSA
to another organization within DHS, DHS may cover those positions
under a classification system that is parallel to the classification system
that was applicable to the FAMS within TSA. DHS may, after
coordination with OPM, modify that system. DHS will issue
implementing directives on converting FAMS employees to any new
classification system that may subsequently be established under
Subpart B, consistent with the conversion 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).
§9701.301. Purpose. Subpart C contains regulations establishing pay
5 U.S.C. Chapter 53 — Pay Rates and Systems
structures and pay administration rules for covered DHS employees to
5 U.S.C. §5301. Policy
replace the pay structures and pay administration rules established under
It is the policy of Congress that federal pay fixing for employees under
5 U.S.C. Chapter 53, as authorized by 5 U.S.C. §9701. These

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the General Schedule be based on the principles that there be equal pay
regulations are designed to provide DHS with the flexibility to allocate
for substantially equal work within each local pay area; within each
available funds strategically in support of DHS mission priorities and
local pay area, pay distinctions be maintained in keeping with work and
objectives. Various features that link pay to employees’ performance
performance distinctions; federal pay rates be comparable with non-
ratings are designed to promote a high-performance culture within DHS.
federal pay rates for the same levels of work within the same local pay
Any pay system prescribed under Subpart C must be established in
area; and any existing pay disparities between federal and non-federal
conjunction with the classification system described in Subpart B.
employees should be completely eliminated.
The pay system established under Subpart C, working in conjunction
with the performance management system established under Subpart D,
is designed to incorporate these features: adherence to merit principles
set forth in 5 U.S.C. §2301; a fair, credible, and transparent employee
performance appraisal system; a link between elements of the pay
system established in Subpart C, the employee performance appraisal
system, and the department’s strategic plan; employee involvement in
the design and implementation of the system (as specified in
§9701.105); adequate training and retraining for supervisors, managers,
and employees in the implementation and operation of the pay system;
periodic performance feedback and dialogue among supervisors,
managers, and employees throughout the appraisal period, and setting
timetables for review; effective safeguards so that the management of
the system is fair and equitable and based on employee performance;
and a means for ensuring that adequate resources are allocated for the
design, implementation, and administration of the performance
management system that supports the pay system.
Authority derives from 5 U.S.C. §9701(a)-(c).
§9701.302. Coverage. Subpart C applies to eligible DHS employees in
the categories listed below, subject to a determination by the Secretary
or designee under §9701.102(b).

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5 U.S.C. Chapter 53, Subchapter III — General Schedule Pay Rates
Eligible for coverage are: employees who would otherwise be covered
5 U.S.C. Chapter 53, Subchapter IV — Prevailing Rate Systems
by the GS pay system; employees who would otherwise be covered by a
5 U.S.C. §5376. Pay for certain senior-level positions
prevailing rate system; employees in senior-level (SL) and scientific or
5 U.S.C. Chapter 53, Subchapter VIII — Pay for the Senior Executive
professional (ST) positions who would otherwise be covered by 5
Service
U.S.C. §5376; and SES members who would 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).
§9701.303. Waivers. When a specified category of employees is
covered by the pay system established under Subpart C, the provisions
of 5 U.S.C. Chapter 53, and related regulations, are waived with respect
to that category of employees, except as provided in §9701.106, and
below.
Provisions of 5 U.S.C. Chapter 53 that are not waived are: Sections
5 U.S.C. §5307. Limitation on certain payments
5307; 5311 through 5318; and 5377.
5 U.S.C. §§5311-5318. Executive Schedule Pay Rates
5 U.S.C. §5377. Pay authority for critical positions
5 U.S.C. §5371. Health care positions
The following provisions of 5 U.S.C. Chapter 53 also are not waived:
Section 5371, insofar as it authorizes OPM to apply the provisions of 38
U.S.C. Chapter 74 to DHS employees in health care positions covered
by section 5371 in lieu of any DHS pay system established under
Subpart C or Title 5 Chapters 51, 53, and 61, and Subchapter V of
Chapter 55. The reference to “chapter 51” in section 5371 is deemed to
include a classification system established under Subpart B.
5 U.S.C. §5373. Limitation on pay fixed by administrative action
Section 5373 is modified to raise the limit on rates of basic pay,
Generally, the limitation is Executive Schedule level IV.
including any applicable locality payment or supplement, for DHS
employees who are not covered by Subpart C and whose pay is set by

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administrative action (e.g., Coast Guard Academy faculty) to the rate
for level III of the Executive Schedule.
5 U.S.C. §5379. Student loan repayments
Section 5379 is modified to allow DHS, after coordination with OPM,
to establish and administer a student loan repayment program for DHS
employees, except that DHS may not make loan payments for any
noncareer appointees to the SES or for any employee occupying a
position that is excepted from the competitive service because of its
confidential, policy-determining, policy-making, or policy-advocating
character. Notwithstanding §9701.302(a), any DHS employee
otherwise covered by section 5379 is eligible for coverage under the
provisions established under this paragraph, subject to a determination
by the Secretary or designee under §9701.102(b).
5 U.S.C. Chapter 53, Subchapter IV — Prevailing Rate Systems
In approving the coverage of employees who would otherwise be
5 U.S.C. §5343. Prevailing rate determinations; wage schedules;
covered by a prevailing rate system, DHS may limit the waiver so that
night differentials
affected employees remain entitled to environmental or other
(c)(4) environmental or other differentials for blue-collar workers
differentials established under 5 U.S.C. §5343(c)(4) and night shift
(f) night shift differentials for blue-collar workers
differentials established under 5 U.S.C. §5343(f) if such employees are
grouped in separate occupational clusters (established under Subpart B)
that are limited to employees who would otherwise be covered by a
prevailing rate system.
5 U.S.C. §5376. Pay for certain senior-level positions
Employees in SL/ST positions and SES members who are covered by a
5 U.S.C. §5382. Establishment and adjustment of rates of pay for the
basic pay system established under Subpart C are considered to be paid
Senior Executive Service
under 5 U.S.C. §§5376 and 5382, respectively, for the purpose of
5 U.S.C. §5307. Limitation on certain payments
applying 5 U.S.C. §5307(d).
(d) For an employee who is paid under 5 U.S.C. 5376 or 5383 (setting

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individual senior executive pay) or 28 U.S.C. 332(f) (judicial circuit
executives), 603 or 604 (Administrative Office of U.S. Courts) and who
holds a position in or under an agency which, for purposes of the
calendar year involved, has been certified as having a performance
appraisal system which (as designed and applied) makes meaningful
distinctions based on relative performance, the limitation would be the
Vice President’s annual salary.
5 U.S.C. §5102. Definitions; application (unless otherwise noted)
§9701.304. Definitions. “48 contiguous States” means the States of
the United States, excluding Alaska and Hawaii, but including the
District of Columbia.
“Grade” includes all classes of positions which, although different with
“Band” means a work level or pay range within an occupational cluster.
respect to kind or subject-matter of work, are sufficiently equivalent as
“Band rate range” means the range of rates of basic pay (excluding any
to level of difficulty and responsibility; and level of qualification
locality or special rate supplements) applicable to employees in a
requirements of the work to warrant their inclusion within one range of
particular band, as described in §9701.321. Each band rate range is
rates of basic pay in the General Schedule.
defined by a minimum and maximum rate.
“Basic pay” means the total amount of pay received during any one
“Basic pay” means an employee’s rate of pay before any deductions and
calendar year at the rate fixed by law or administrative action for the
exclusive of additional pay of any kind, except as expressly provided by
position held by an employee, including night and environmental
law or regulation. For the specific purposes prescribed in
differentials for prevailing rate employees, but before any deductions
§§9701.332(c) and 9701.333, respectively, basic pay includes locality
and exclusive of additional pay of any other kind. [5 CFR §530.202]
and special rate supplements.
“Competencies” means the measurable or observable knowledge, skills,
abilities, behaviors, and other characteristics required by a position.
“Demotion” means a change of an employee, while continuously
“Demotion” means a reduction to a lower band within the same
employed, from one General Schedule (GS) grade to a lower GS grade,
occupational cluster or a reduction to a lower band in a different

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with or without reduction in pay; or a higher rate paid under authority
occupational cluster under implementing directives issued by DHS
other than 5 U.S.C. Chapter 53, Subchapter III, to a lower rate within a
pursuant to §9701.355.
GS grade. [5 CFR §531.202]
“Comparability payment” means a payment payable under 5 U.S.C.
“Locality rate supplement” means a geographic-based addition to basic
§5304 (locality-based comparability payments).
pay, as described in §9701.332.
“Modal rating” means the rating of record that occurs most frequently in
a particular pay pool.
“Occupational cluster” means a grouping of one or more associated or
related occupations or positions. An occupational cluster may include
one or more occupational series.
“Promotion” means a change of an employee, while continuously
“Promotion” means an increase to a higher band within the same
employed, from one General Schedule (GS) grade to a higher GS grade;
occupational cluster or an increase to a higher band in a different
or a lower rate paid under authority other than 5 U.S.C. Chapter 53,
occupational cluster under implementing directives issued by DHS
Subchapter III, to a higher rate within a GS grade. [5 CFR §531.202]
pursuant to §9701.355.
“Rating of record” means the performance rating prepared at the end of
“Rating of record” means a performance appraisal prepared at the end of
an appraisal period for performance of agency-assigned duties over the
an appraisal period covering an employee’ performance of assigned
entire period and the assignment of a summary level within a pattern. [5
duties against performance expectations (as defined in §9701.404) over
CFR §430.203]
the applicable period; or to support a pay determination, including one
granted in accordance with Subpart C, a within-grade increase granted
under 5 CFR §531.404, or a pay determination granted under other
applicable rules.
Senior-level positions are positions that are classified above GS-15
“SL/ST” refers to an employee serving in a senior-level position paid
pursuant to 5 U.S.C. §5108; and scientific or professional positions
under 5 U.S.C. §5376. The term “SL” identifies a senior-level

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established under 5 U.S.C. §3104. [5 U.S.C. §5376]
employee covered by 5 U.S.C. §§3324 and 5108. The term “ST”
identifies an employee who is appointed under the special authority in 5
U.S.C. §3325 to a scientific or professional position under 5 U.S.C.
§3104.
“Senior Executive Service position” means any position in an agency
“SES” means the Senior Executive Service established under 5 U.S.C.
that is classified above GS-15 pursuant to 5 U.S.C. §5108 or in level IV
Chapter 31, Subchapter II.
or V of the Executive Schedule, or an equivalent position, that is not
required to be filled by an appointment by the President by and with the
advice and consent of the Senate. Duties and responsibilities of
employees in such positions are listed. [5 U.S.C. §3132(a)(2)]
Special pay authority — higher minimum rates of basic pay for one or
“Special rate supplement” means an addition to basic pay for a
more grades or levels, occupational groups, series, classes, or
particular category of employees to address staffing problems, as
subdivisions thereof. Locality-based comparability payments shall be
described in §9701.333. A special rate supplement is paid in place of
available to employees receiving special rates to such extent as the
any lesser locality rate supplement that would otherwise apply.
President (or designated agency) considers appropriate subject to pay
limitations. [5 U.S.C. §5305(a)(g)]
“Unacceptable performance” means performance of an employee that
“Unacceptable performance” means the failure to meet one or more
fails to meet established performance standards in one or more critical
performance expectations, as described in §9701.406.
elements of the employee’s position. [5 U.S.C. §4301(3)]
Pay cannot be collectively bargained under Title 5
§9701.305. Bar on collective bargaining. As provided in the
definition of “conditions of employment” in §9701.504, any pay
program established under authority of Subpart C is not subject to
collective bargaining. This bar on collective bargaining applies to all
aspects of the pay program, including but not limited to coverage
decisions, the design of pay structures, the setting and adjustment of pay

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levels, pay administration rules and policies, and administrative
procedures and arrangements.
Overview of Pay System
5 U.S.C. Chapter 53, Subchapter I — Pay Comparability System
§9701.311. Major features. Through the issuance of implementing
5 U.S.C. §5303. Annual adjustments to pay schedules
directives, DHS will establish a pay system that governs the setting and
5 U.S.C. §5304. Locality-based comparability payments
adjusting of covered employees’ rates of pay. The system will include a
5 U.S.C. §5305. Special pay authority
structure of rate ranges linked to various bands for each occupational
cluster, in alignment with the classification structure described in
5 U.S.C. Chapter 53, Subchapter II. Executive Schedule Pay Rates
Subpart B; policies regarding the setting and adjusting of basic pay rate
5 U.S.C. Chapter 53, Subchapter IV. Prevailing Rate Systems (pay
ranges based on mission requirements, labor market conditions, and
setting for blue-collar workers)
other factors, as described in §§9701.321 through 9701.322;
5 U.S.C. Chapter 53, Subchapter VIII. Pay for the Senior Executive
policies regarding the setting and adjusting of supplements to basic pay
Service
based on local labor market conditions and other factors, as described in
§§9701.331 through 9701.334; policies regarding employees’ eligibility
for pay increases based on adjustments in rate ranges and supplements,
as described in §§9701.323 through §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, including movement between
occupational clusters, as described in §§9701.351 through 9701.356;
policies regarding special payments that are not basic pay, as described
in §§9701.361 through 9701.363; and linkages to employees’
performance ratings of records, as described in Subpart D.
5 U.S.C. §5307. Limitation on certain payments
§9701.312. Maximum rates. DHS may not pay any employee an
No allowance, differential, bonus, award, or other similar cash payment
annual rate of basic pay in excess of the rate for level III of the

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may be paid to an employee in a calendar year if, or to the extent that,
Executive Schedule, except that DHS may establish the maximum
when added to the total basic pay paid or payable to such employee
annual rate of basic pay for members of the SES at the rate for level II
would cause the total to exceed the annual rate of basic pay for
of the Executive Schedule if DHS obtains the certification specified in 5
Executive Schedule level I.
U.S.C. §5307(d).
For an employee who is paid under 5 U.S.C. 5376 or 5383 or 28 U.S.C.
332(f) (judicial circuit executives), 603 or 604 (Administrative Offices
of U.S. Courts) and who holds a position in or under an agency which,
for purposes of the calendar year involved, has been certified as having
a performance appraisal system which (as designed and applied) makes
meaningful distinctions based on relative performance, the limitation
would be the Vice President’s annual salary.
Authority derives from 5 U.S.C. §9701(a).
§9701.313. Homeland Security Compensation Committee (HSCC).
DHS will establish a HSCC to provide options and/or recommendations
for consideration by the Secretary or designee on strategic
compensation matters such as departmental compensation policies and
principles, the annual allocation of funds between market and
performance pay adjustments, and the annual adjustment of rate ranges
and locality and special rate supplements. The committee will consider
factors such as turnover, recruitment, and local labor market conditions
in providing options and recommendations for consideration by the
Secretary. The Secretary’s or designee’s determination with regard to
these options and/or recommendations is final and not subject to further
review.
The DHS Undersecretary for Management will chair the committee.
The committee has 14 members, including 4 officials of labor
organizations granted national consultation rights (NCR). An OPM
official will serve as an ex officio member of the committee. DHS will

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provide technical staff to support the committee.
DHS will establish procedures governing the committee’s membership
and operation.
An individual will be selected by the Chair to facilitate committee
meetings. The facilitator will be selected from a list of nominees
developed jointly by representatives of the department and NCR labor
organizations, the latter acting as a single party, according to procedures
and time limits established by implementing directives. Nominees must
be known for their integrity, impartiality, and expertise in facilitation
and compensation. If the department and the labor organizations are
unable to reach agreement on a joint list of nominees, they will enlist
the assistance of the Federal Mediation and Conciliation Service
(FMCS). If the parties are still unable to reach agreement, each party
will prepare a list of up to three nominees and provide those separate
lists to FMCS who may add up to three additional nominees. From that
combined list of nominees, the department and the labor organizations,
the latter acting as a single party, will alternately strike names from the
list until five names remain, and those five nominees will be submitted
to the Chair for consideration. The Chair may request that the parties
develop an additional list of nominees. If the NCR labor organizations
representatives, acting as a single party, do not participate in developing
the list of nominees in accordance with this section, the Chair will select
the facilitator.
After considering the views of all committee members, the Chair
prepares and provides options and/or recommendations to the Secretary
or designee. Members may present their views on the final
recommendations in writing as part of the final recommendation
package. The Secretary or designee will make the final decision and

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notify the committee. This process is not subject to the requirements
established by §§9701.512, 9701.517(a)(5), 9701.518, or 9701.519.
The Secretary retains the right to make determinations regarding the
annual allocation of funds between market and performance pay
adjustments, the annual adjustment of rate ranges and locality and
special rate supplements, or any other matter recommended by the
committee, and to make such determinations effective at any time.
Authority derives from 5 U.S.C. §9701(a).
§9701.314. DHS responsibilities. DHS responsibilities in
implementing Subpart C include providing OPM with information
regarding the implementation of the program authorized under Subpart
C at OPM’s request;
participating in any interagency pay coordination council or group
established by OPM to ensure that DHS pay policies and plans are
coordinated with other agencies; and fulfilling all other responsibilities
prescribed in Subpart C.
Setting and Adjusting Rate Ranges
5 U.S.C. §5104. Basis for grading positions
§9701.321. Structure of bands. After coordination with OPM, DHS
Provides for 15 General Schedule pay grades. The statute defines each
may establish ranges of basic pay for bands, with minimum and
of the pay grades in terms of their difficulty and responsibility.
maximum rates set and adjusted as provided in §9701.322. Rates must
be expressed as annual rates.
For each band within an occupational cluster, DHS will establish a
common rate range that applies in all locations.
5 U.S.C. §5106. Basis for classifying positions
§9701.322. Setting and adjusting rate ranges. Within its sole and
Each position is placed in its appropriate class on the basis of the duties
exclusive discretion, DHS may, after coordination with OPM, set and
and responsibilities of the position and the qualifications required by
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those duties and responsibilities. Each class is placed in its appropriate
In determining the rate ranges, DHS and OPM may consider mission
grade on the basis of the level of difficulty, responsibility, and
requirements, labor market conditions, availability of funds, pay
qualification requirements of the work of the class.
adjustments received by employees of other federal agencies, and any
other relevant factors.
5 U.S.C. §5105. Standards for classification of positions
After coordination with OPM, DHS may determine the effective date of
OPM, after consulting the agencies, prepares standards for placing
newly set or adjusted band rate ranges. Unless DHS determines that a
positions in their proper classes and grades. OPM may make such
different effective date is needed for operational reasons, these
inquiries or investigations of the duties, responsibilities, and
adjustments will become effective on or about the date of the annual GS
qualification requirements of positions as it considers necessary for this
pay adjustment.
purpose. In the standards, OPM defines the various classes of positions
DHS may establish different rate ranges and provide different rate range
in terms of duties, responsibilities, and qualification requirements;
adjustments for different bands.
establishes the official class titles; and sets forth the grades in which the
DHS may adjust the minimum and maximum rates of a band by
classes have been placed by OPM. OPM must revise, supplement, or
different percentages.
abolish existing standards, or prepare new standards so that positions
will be covered by current published standards. The official class titles
are used for personnel, budget, and fiscal purposes.
5 U.S.C. §5107. Classification of positions
Except as otherwise provided in Chapter 51, each agency places each
position under its jurisdiction in its appropriate class and grade in
conformance with OPM standards. When facts warrant, an agency may
change a position from one class or grade to another.
5 U.S.C. §5335. Periodic step-increases
§9701.323. Eligibility for pay increase associated with a rate range
5 U.S.C. §5336. Additional step-increases
adjustment. When a band rate range is adjusted under §9701.322,
Authorizes within-grade pay adjustments for work at an acceptable level
employees covered by that band are eligible for an individual pay
of competence (§5335) or for high quality performance above that
increase. An employee who meets or exceeds performance expectations
ordinarily found in the position (§5336).
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5 U.S.C. §5303. Annual adjustments to pay schedules
the most recently completed appraisal period) must receive an increase
Authorizes annual pay adjustments. Effective as of the first day of the
in basic pay equal to the percentage value of any increase in the
first applicable pay period beginning on or after January 1 of each
minimum rate of the employee’s band resulting from a rate range
calendar year, the rates of basic pay for each statutory pay system are
adjustment under §9701.322. The pay increase takes effect at the same
increased by the percentage equal to the Employment Cost Index for
time as the corresponding rate range adjustment, except as provided in
wages and salaries, private industry workers, minus 0.5%, i.e., the
§§9701.324 and 9701.325. For an employee receiving a retained rate,
September 2003 ECI is used for the January 2005 pay adjustment.
the amount of the increase is determined under §9701.356.
If an employee does not have a rating of record for the most recently
completed appraisal period, he or she must be treated in the same
manner as an employee who meets or exceeds performance expectations
and is entitled to receive an increase based on the rate range adjustment.
An employee who has an unacceptable rating of record may not receive
a pay increase as a result of a rate range adjustment, except as provided
by §§9701.324 and 9701.325. Because the employee’s pay remains
unchanged, failure to receive a pay increase is not considered an adverse
action under Subpart F.
5 CFR §430.208 Rating performance. (i) A rating or record may be
§9701.324. Treatment of employees whose rate of basic pay does
changed within 60 days of issuance based upon an informal request by
not fall below the minimum rate of their band. An employee who
the employee; as a result of a grievance, complaint, or other formal
does not receive a pay increase under §9701.323 because of an
proceeding permitted by law or regulation that results in a final
unacceptable rating of record and whose rate of basic pay does not fall
determination by appropriate authority that the rating of record must be
below the minimum rate of his or her band as a result of that rating will
changed or as part of a bona fide settlement of a formal proceeding; or
receive such an increase if he or she demonstrates performance that
where the agency determines that a rating of record was incorrectly
meets or exceeds performance expectations, as reflected by a new rating
recorded or calculated.
of record issued under §9701.409(b). Such an increase will be made
5 CFR §531.409 Acceptable level of competence determinations (the
effective on the first day of the first pay period beginning on or after the
section generally and specifically:)
date the new rating of record is issued.
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has been delayed for reasons including an employee’s unacceptable
performance, if, following the delay, the employee’s performance is
determined to be at an acceptable level of competence, the within-grade
increase will be granted retroactively to the beginning of the pay period
following completion of the applicable waiting period.
See 5 CFR §430.208 and 5 CFR §531.409 above.
§9701.325. Treatment of employees whose rate of basic pay falls
below the minimum rate of their band. For an employee who does
not receive a pay increase under §9701.323 because of an unacceptable
rating of record and whose rate of basic pay falls below the minimum
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 pay
prospectively by making the increase effective on the first day of the
first pay period beginning on or after the date the new rating of record is
issued if the employee demonstrates performance that meets or exceeds
performance expectations within 90 days after the date of the rate range
adjustment; or
initiate action within 90 days after the date of the rate range adjustment
to demote or remove the employee in accordance with the adverse
actions procedures established in Subpart F.
If DHS fails to initiate a removal or demotion action within 90 days
after the date of the rate range adjustment, the employee becomes
entitled to the minimum rate of his or her band rate range on the first
day of the first pay period beginning on or after the 90th day following
the date of the rate range adjustment.
Locality and Special Rate Supplements

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5 U.S.C. §5304. Locality-based comparability payments
§9701.331. General. The basic pay ranges established under
5 U.S.C. §5305. Special pay authority
§§9701.321 through 9701.323 may be supplemented in appropriate
circumstances by locality or special rate supplements, as described in
§§9701.332 through 9701.335. These supplements are expressed as a
percentage of basic pay and are set and adjusted as described in
§9701.334. As authorized by §9701.356, DHS implementing directives
will determine the extent to which §§9701.331 through 9701.337 apply
to employees receiving a retained rate.
5 U.S.C. §5304. Locality-based comparability payments
§9701.332. Locality rate supplements. For each band rate range,
Comparability payments are payable within each locality determined to
DHS may, after coordination with OPM, establish locality rate
have a pay disparity greater than 5%.
supplements that apply in specified locality pay areas. Locality rate
supplements apply to employees whose official duty station is located in
the given area. DHS may provide different locality rate supplements for
different occupational clusters or for different bands within the same
occupational cluster in the same locality pay area.
Locality pay areas are listed at 5 CFR §531.603.
For the purpose of establishing and modifying locality pay areas, 5
U.S.C. §5304 is not waived. A DHS decision to use the locality pay
area boundaries established under 5 U.S.C. §5304 does not require
separate DHS regulations. DHS may, after coordination with OPM and
in accordance with the public notice and comment provisions of 5
U.S.C. §553, publish departmental regulations in the Federal Register
5 U.S.C. §553. Rule making
that establish and adjust different locality pay areas within the 48
contiguous States or establish and adjust new locality pay areas outside
the 48 contiguous States. These regulations are subject to the
continuing collaboration process described in §9701.105. As provided
by 5 U.S.C. §5304(f)(2)(B), judicial review of any DHS regulation

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regarding the establishment or adjustment of locality pay areas is
limited to whether or not the regulation was promulgated in accordance
with 5 U.S.C. §553.
Locality payments are part of basic pay for purposes of retirement, life
Locality rate supplements are considered basic pay for retirement; life
insurance, premium pay, and for such other purposes as may be
insurance; premium pay; severance pay; application of the maximum
expressly provided for by law or as OPM regulations may prescribe.
rate limitation set forth in §9701.312; determining the rate of basic pay
upon conversion to the DHS pay system established under Subpart C,
consistent with §9701.373(b); other payments and adjustments
authorized under Subpart C as specified by DHS implementing
directives; other payments and adjustments under other statutory or
regulatory authority that are basic pay for the purpose of locality-based
comparability payments; and any provisions for which DHS locality
rate supplements must be treated as basic pay by law.
5 U.S.C. §5305. Special pay authority
§9701.333. Special rate supplements. DHS will, after coordination
Whenever the President finds that the government’s recruitment or
with OPM, establish special rate supplements that provide higher pay
retention efforts with respect to one or more occupations in one or more
levels for subcategories of employees within an occupational cluster if
areas or locations are, or are likely to become significantly handicapped
DHS determines that such supplements are warranted by current or
due to specific circumstances, he may establish for the areas or locations
anticipated recruitment and/or retention needs. DHS will issue
involved higher minimum rates of basic pay for one or more grades or
necessary implementing directives. Any special rate supplement must
levels, occupational groups, series, classes, or subdivisions thereof, and
be treated as basic pay for the same purposes as locality rate
may make corresponding increases in all step rates of the pay range for
supplements, as described in §9701.332(c), and for the purpose of
each such grade or level. Circumstances justifying special rates are
computing cost-of-living allowances and post differentials in nonforeign
rates of pay offered by non-federal employees being significantly higher
areas under 5 U.S.C. §5941.
than those payable by the government within the area, location,
occupational group, or classes of positions under the pay system
involved; the remoteness of the area or location; the undesirability of

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the working conditions or the nature of the work involved (including
exposure to toxic substances or other occupational hazards); or any
other circumstances which the President (or an agency) considers
appropriate.
5 U.S.C. §5304. Locality-based comparability payments
§9701.334. Setting and adjusting locality and special rate
Authorizes the President to direct the Pay Agent to prepare a report
supplements. Within its sole and exclusive discretion, DHS may, after
comparing General Schedule pay rates with non-federal pay rates, as
coordination with OPM, set and adjust locality and special rate
determined by surveys conducted by the Bureau of Labor Statistics.
supplements. In determining the amounts of the supplements, DHS and
Based on the data from the surveys, the Pay Agent identifies each
OPM may consider mission requirements, labor market conditions,
locality in which a pay disparity exists, specifies the size of the pay
availability of funds, pay adjustments received by employees of other
disparity, and makes recommendations to the President for appropriate
federal agencies, and any other relevant factors.
comparability payments. Comparability payments are paid in the same
DHS may, after coordination with OPM, determine the effective date of
manner and at the same time as basic pay is payable.
newly set or adjusted locality and special rate supplements. Established
5 U.S.C. §5304a. Authority to fix an alternative level of
supplements will be reviewed for possible adjustment on an annual
comparability payments
basis in conjunction with rate range adjustments under §9701.322.
Authorizes the President to fix an alternative level of locality-based
comparability payments if, because of national emergency or serious
economic conditions affecting the general welfare, he considers the
level that would otherwise be payable to be inappropriate. At least one
month before those comparability payments would be payable he must
prepare and transmit to Congress a report describing the alternative
level of payments he intends to provide, including the reasons why that
alternative level is necessary.
5 U.S.C. §5305. Special pay authority
A minimum rate may not exceed the maximum pay rate prescribed by
statute for the grade or level by more than 30% and no rate may be
established in excess of basic pay for Executive Schedule level V.

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Generally, Title 5 rewards high performing employees through awards.
§9701.335. Eligibility for pay increase associated with a supplement
5 U.S.C. §4505a. Performance-based cash awards
adjustment. When a locality or special rate supplement is adjusted
An employee whose most recent performance rating was fully
under §9701.334, an employee to whom the supplement applies is
successful or higher may be paid a cash award equal to an amount
entitled to the pay increase resulting from that adjustment if he or she
determined appropriate by the agency head, but not more than 10% of
meets or exceeds performance expectations (i.e., has a rating of record
the employee’s annual pay rate (not more than 20% for exceptional
above the unacceptable performance level for the most recently
performance.
completed appraisal period). This includes an increase resulting from
5 U.S.C. §4503. Agency awards
the initial establishment and setting of a special rate supplement. The
Authorizes an agency head to pay a cash award to an employee who
pay increase takes effect at the same time as the applicable supplement
contributes to the efficiency, economy, or other improvement of
is set or adjusted, except as provided in §§9701.336 and 9701.337.
government operations or achieves a significant reduction in paperwork;
If an employee does not have a rating of record for the most recently
or performs a special act or service in the public interest in connection
completed appraisal period, he or she must be treated in the same
with or related to official employment.
manner as an employee who meets or exceeds performance expectations
5 U.S.C. §4504. Presidential awards
and is entitled to any pay increase associated with a supplement
Authorizes the President to pay a cash award to an employee who
adjustment.
contributes to the efficiency, economy, or other improvement of
An employee who has an unacceptable rating of record may not receive
government operations or achieves a significant reduction in paperwork;
a pay increase as a result of an increase in an applicable locality or
or performs an exceptionally meritorious special act or service in the
special rate supplement, except as provided by §§9701.336 and
public interest in connection with or related to official employment.
9701.337. Because the employee’s pay remains unchanged, failure to
receive a pay increase is not considered an adverse action under Subpart
F.
5 CFR §430.208 Rating performance. (i) A rating or record may be
§9701.336. Treatment of employees whose pay does not fall below
changed within 60 days of issuance based upon an informal request by
the minimum adjusted rate of their band. An employee who does
the employee; as a result of a grievance, complaint, or other formal
not receive a pay increase under §9701.335 because of an unacceptable
proceeding permitted by law or regulation that results in a final
rating of record and whose rate of basic pay (including a locality or
determination by appropriate authority that the rating of record must be
special rate supplement) does not fall below the minimum adjusted rate
changed or as part of a bona fide settlement of a formal proceeding; or
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where the agency determines that a rating of record was incorrectly
if he or she demonstrates performance that meets or exceeds
recorded or calculated.
performance expectations, as reflected by a new rating of record issued
5 CFR §531.409 Acceptable level of competence determinations (the
under §9701.409(b). Such an increase will be made effective on the
section generally and specifically:)
first day of the first pay period beginning on or after the date the new
(c)(2)(i) When the determination of an acceptable level of competence
rating of record is issued.
has been delayed for reasons including an employee’s unacceptable
performance, if, following the delay, the employee’s performance is
determined to be at an acceptable level of competence, the within-grade
increase will be granted retroactively to the beginning of the pay period
following completion of the applicable waiting period.
See 5 CFR §430.208 and 5 CFR §531.409 (c) above.
§9701.337. Treatment of employees whose rate of pay falls below
the minimum adjusted rate of their band. For an employee who does
not receive a pay increase under §9701.335 because of an unacceptable
rating of record and whose rate of basic pay (including a locality or
special rate supplement) falls below the minimum adjusted 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 pay prospectively
by making the increase effective on the first day of the first pay period
beginning on or after the date the new rating of record is issued if the
employee demonstrates performance that meets or exceeds performance
expectations within 90 days after the date of the locality or special rate
supplement adjustment; or
initiate action within 90 days after the date of the locality or special rate
supplement adjustment to demote or remove the employee in
accordance with the adverse action procedures established in Subpart F.
If DHS fails to initiate a removal or demotion action within 90 days
after the date of a locality or special rate supplement adjustment, the

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employee becomes entitled to the minimum adjusted rate of his or her
band rate range on the first day of the first pay period beginning on or
after the 90th day following the date of the locality or special rate
supplement adjustment.
Performance-Based Pay
5 U.S.C. §5335. Periodic step-increases
§9701.341. General. Sections 9701.342 through 9701.346 describe
5 U.S.C. §5336. Additional step-increases
various types of performance-based pay adjustments that are part of the
pay system established under Subpart C. Generally, these within-band
5 U.S.C. §4505a. Performance-based cash awards
pay increases are directly linked to an employee’s rating of record (as
5 U.S.C. §4503. Agency awards
assigned under the performance management system described in
5 U.S.C. §4504. Presidential awards
Subpart D). These provisions are designed to provide DHS with the
flexibility to allocate available funds based on performance as a means
of fostering a high-performance culture that supports mission
accomplishment. While performance measures primarily focus on an
employee’s contributions (as an individual or as part of a team) in
accomplishing work assignments and achieving mission results,
performance also may be reflected in the acquisition and demonstration
of required competencies.
5 U.S.C. §4505a. Performance-based cash awards
§9701.342. Performance pay increases. Overview. The DHS pay
An employee whose most recent performance rating was “fully
system provides employees in a Full Performance or higher band with
successful” or higher may be paid a cash award.
increases in basic pay based on individual performance ratings of record
as assigned under a performance management system established under
5 U.S.C. §5335. Periodic step-increases
Subpart D. The DHS pay system uses pay pool controls to allocate pay
5 U.S.C. §5336. Additional step-increases
increases based on performance points that are directly linked to the
Authorizes within-grade pay adjustments for work at an acceptable level
employee’s rating of record, as described in this section. Performance

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of competence (§5335) or for high quality performance above that
pay increases are a function of the amount of money in the performance
ordinarily found in the position (§5336).
pay pool, the relative point value placed on ratings, and the distribution
of ratings within that performance pay pool.
The rating of record used as the basis for a performance pay increase is
the one assigned for the most recently completed appraisal period
(subject to the requirements of Subpart D), except that if the supervisor
or other rating official determines that an employee’s current
performance is inconsistent with that rating, the supervisor or other
rating official may prepare a more current rating of record, consistent
with §9701.409(b). If an employee does not have a rating of record,
DHS will use the modal rating received by other employees covered by
the same pay pool during the most recent rating cycle to determine the
employee’s performance pay increase.
Performance pay pools. DHS will establish pay pools for performance
pay increases. Each pay pool covers a defined group of DHS
employees, as determined by the agency. An authorized agency
official(s) may determine the distribution of funds among pay pools and
may adjust those amounts based on overall levels of organizational
performance or contribution to DHS’ mission. In allocating the monies
to be budgeted for performance pay increases, the Secretary or designee
must take into account the average value of within-grade and quality
step increases under the General Schedule, as well as amounts that
otherwise would have been spent on promotions among positions placed
in the same band.
Performance point values. DHS will establish point values that
correspond to the performance rating levels established under Subpart
D, so that a point value is attached to each rating level. For example, in
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where 4 points are assigned to the highest (outstanding) rating and 0
points to an unacceptable rating. Performance point values will
determine performance pay increases. DHS will establish a point value
pattern for each pay pool. Different pay pools may have different point
value patterns. DHS must assign zero performance points to an
unacceptable rating of record.
Performance payout. DHS will determine the value of a performance
point, expressed as a percentage of an employee’s rate of basic pay
(exclusive of locality or special rate supplements under §§9701.332 and
9701.333) or as a fixed dollar amount. To determine an individual
employee’s performance payout, DHS will multiply the point value
determined above by the number of performance points assigned to the
rating. To the extent that the adjustment does not cause the employee’s
rate of basic pay to exceed the maximum rate of the employee’s band
rate range, DHS will pay the performance payout as an adjustment in
the employee’s annual rate of basic pay. Any excess amount may be
granted as a lump-sum payment, which may not be considered basic pay
for any purpose. DHS may, after coordination with OPM, determine
the effective date of adjustments in basic pay.
For an employee receiving a retained rate under §9701.356, DHS will
issue implementing directives to provide for granting a lump-sum
performance payout that may not exceed the amount that may be
received by an employee in the same pay pool with the same rating of
record whose rate of pay is at the maximum rate of the same band.
Proration of performance payouts. DHS will issue implementing
directives regarding the proration of performance payouts for employees
who, during the period between performance pay adjustments, are hired
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where proration is considered appropriate.
Adjustments for employees returning after performing honorable
service in the uniformed services. DHS will issue implementing
directives regarding how it sets the rate of basic pay prospectively for an
employee who leaves a DHS position to perform service in the
uniformed services (as defined in 38 U.S.C. §4303 and 5 CFR
§353.102) and returns through the exercise of a reemployment right
provided by law, Executive order, or regulation 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 range
adjustments under §9701.323(a), as well as developmental pay
adjustments under §9701.345 (determined by DHS in accordance with
its implementing directives), and performance pay adjustments based on
the employee’s last DHS rating of record. For employees who have no
such rating of record, DHS will use the modal rating received by other
employees covered by the same pay pool during the most recent rating
cycle. An employee returning from qualifying service in the uniformed
services will receive the full amount of the performance pay increase
associated with his or her rating of record.
Adjustments for employees returning to duty after being in workers’
compensation status. DHS will issue implementing directives regarding
how it sets the rate of basic pay prospectively for an employee who
returns to duty after a period of receiving injury compensation under 5
U.S.C. Chapter 81, Subchapter I (in a leave-without-pay status or as a
separated employee). DHS will credit the employee with intervening
rate range adjustments under §9701.323(a), as well as developmental
pay adjustments under §9701.345 (as determined by DHS in accordance
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based on the employee’s last DHS rating of record. For employees who
have no such rating of record, DHS will use the modal rating received
by other employees covered by the same pay pool during the most
recent rating cycle. An employee returning to duty after receiving
injury compensation will receive the full amount of the performance pay
increase associated with his or her rating of record.
5 U.S.C. §4303. Actions based on unacceptable performance
§9701.343. Within-band reductions. Subject to the adverse action
Authorizes an agency to reduce in grade or remove an employee for
procedures set forth in Subpart F, DHS may reduce an employee’s rate
unacceptable performance.
of basic pay within a band for unacceptable performance or conduct. A
reduction under this section may not be more than 10% or cause an
employee’s rate of basic pay to fall below the minimum rate of the
employee’s band rate range. Such a reduction may be made effective at
any time.
5 U.S.C. §5377. Pay authority for critical positions
§9701.344. Special within-band increases. DHS may issue
Authorizes OMB, in consultation with OPM, to, upon the request of an
implementing directives regarding special within-band basic pay
agency head, grant authority to fix the basic pay rate for one or more
increases for employees within a Full Performance or higher band
positions in the agency in accordance with critical pay. OMB may not
established under §9701.212 who possess exceptional skills in critical
authorize the exercise of critical pay authority for more than 800
areas or who make exceptional contributions to mission
positions at any time, of which not more than 30 may at any time be
accomplishment or in other circumstances determined by DHS.
positions which would otherwise be paid on the Executive Schedule.
Increases under this section are in addition to any performance pay
increases made under §9701.342 and may be made effective at any
time. Special within-band increases may not be based on length of
service.
5 U.S.C. §5335. Periodic step-increases
§9701.345. Developmental pay adjustments. DHS will issue
5 U.S.C. §5336. Additional step-increases
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Authorizes within-grade pay adjustments for work at an acceptable level
Entry/Developmental band. These directives may require employees to
of competence (§5335) or for high quality performance above that
meet certain standardized assessment or certification points as part of a
ordinarily found in the position (§5336).
formal training/developmental program. In administering
Entry/Developmental band pay progression plans, DHS may link pay
progression to the demonstration of required knowledge, skills, and
abilities (KSAs)/competencies. DHS may set standard timeframes for
progression through an Entry/Developmental band while allowing an
employee to progress at a slower or faster rate based on his or her
performance, demonstration of required competencies, and/or other
factors.
5 U.S.C. §3393. Career appointments (SES)
§9701.346. Pay progression for new supervisors. DHS will issue
OPM administers the Federal Candidate Development Program to train
implementing directives requiring an employee newly appointed to or
career employees for SES positions. Upon certification by a
selected for a supervisory position to meet certain assessment or
performance review board that an employee has met the five executive
certification points as part of a formal training/developmental program.
core qualifications for the SES, he or she may be selected for an SES
In administering performance pay increases for these employees under
position throughout the government.
§9701.342, DHS may take into account the employee’s success in
completing a formal training/developmental program, as well as his or
her performance.
Pay Administration
5 U.S.C. §5333. Minimum rate for new appointments
§9701.351. Setting an employee’s starting pay. DHS will, after
New appointments are made at the minimum rate of the appropriate
coordination with OPM, issue implementing directives regarding the
grade. Appointments at above the minimum rate may be made for such
starting rate of pay for an employee, including an individual who is
considerations as the existing pay or unusually high or unique
newly appointed or reappointed to the federal service; an employee
qualifications of the candidate, or a special need of the government for
transferring to DHS from another Federal agency; and a DHS employee
the individual’s services.
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Subpart C.
5 CFR §531.203 General provisions. Discusses use of the highest
§9701.352. Use of highest previous rate. DHS will issue
previous rate, especially at (c)-(e). “Highest previous rate” means the
implementing directives regarding the discretionary use of an
highest actual rate of basic pay previously received by an individual
individual’s highest previous rate of basic pay received as a federal
while employed in a position in a branch of the federal government
employee or as an employee of a Coast Guard nonappropriated fund
(executive, legislative, or judicial); a government corporation; the
instrumentality (NAFI) in setting pay upon reemployment, transfer,
United States Postal Service or the Postal Rate Commission; or the
reassignment, promotion, demotion, placement in a different
government of the District of Columbia; without regard to whether the
occupational cluster, or change in type of appointment. For this
position was subject to the General Schedule (GS); or the actual rate of
purpose, basic pay may include a locality-based payment or supplement
basic pay for the highest grade and step previously held by an individual
under circumstances approved by DHS. If an employee in a Coast
while employed in a position subject to the GS. [5 CFR 531.202]
Guard NAFI position is converted to an appropriated fund position
under the pay system established under Subpart C, DHS must use the
existing NAFI rate to set pay upon conversion.
5 U.S.C. §5334. Rate on change of position or type of appointment;
§9701.353. Setting pay upon promotion. Except as otherwise
regulations
provided in this section, upon an employee’s promotion, DHS must
(b) Generally, an employee who is promoted or transferred to a position
provide an increase in the employee’s rate of basic pay equal to at least
in a higher grade is entitled to basic pay at the lowest rate of the higher
8%. The rate of basic pay after promotion may not be less than the
grade which exceeds his existing rate of basic pay by not less than two
minimum rate of the higher band.
step-increases of the grade from which he is promoted or transferred.
DHS will issue implementing directives providing for an increase other
Regulations are at 5 CFR §531.203 and 5 CFR §531.204.
than the amount specified above in the case of an employee promoted
from an Entry/Developmental band to a Full Performance band
(consistent with the pay progression plan established for the
Entry/Developmental band); an employee who was demoted and is then
repromoted back to the higher band; or employees in other
circumstances specified by DHS implementing directives.
An employee receiving a retained rate (i.e., a rate above the maximum

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of the band) before promotion is entitled to a rate of basic pay after
promotion that is at least 8% higher than the maximum rate of the
employee’s current band (except in circumstances specified by DHS
implementing directives). The rate of basic pay after promotion may
not be less than the minimum rate of the employee’s new band rate
range or the employee’s existing retained rate of basic pay. If the
maximum rate of the employee’s new band rate range is less than the
employee’s existing rate of basic pay, the employee will continue to be
entitled to the existing rate as a retained rate.
DHS may determine the circumstances under which and the extent to
which any locality or special rate supplements are treated as basic pay in
applying the promotion increase rules in this section.
5 U.S.C. §5334. Rate on change of position or type of appointment;
§9701.354. Setting pay upon demotion. DHS will issue
regulations
implementing directives regarding how to set an employee’s pay when
(a) The rate of basic pay to which an employee is entitled is governed
he or she is demoted. The directives must distinguish between
by OPM regulations in conformity with Subchapter III of Chapter 53
demotions under adverse action procedures (as defined in Subpart F)
and Chapter 51 when he is ... demoted to a position in a lower grade ....
and other demotions (e.g., due to expiration of a temporary promotion
The regulations are at [5 CFR §531.203(c)(d)].
or canceling of a promotion during a new supervisor’s probationary
period). A reduction in basic pay upon demotion under adverse action
procedures may not exceed 10% unless a larger reduction is needed to
place the employee at the maximum rate of the lower band.
See 5 U.S.C. §5334(a)(b) above.
§9701.355. Setting pay upon movement to a different occupational
cluster. DHS will issue implementing directives regarding how to set
an employee’s pay when he or she moves voluntarily or involuntarily to
a position in a different occupational cluster, including rules for
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the purpose of setting pay upon promotion or demotion under
§§9701.353 and 9701.354, respectively.
5 U.S.C. Chapter 53, Subchapter VI — Grade and Pay Retention
§9701.356. Pay retention. Subject to the requirements of this section,
5 U.S.C. §5362. Grade retention following a change of positions or
DHS will, after coordination with OPM, issue implementing directives
reclassification
regarding the application of pay retention. Pay retention prevents a
Generally, an employee whose position changes to one in a lower grade
reduction in basic pay that would otherwise occur by preserving the
is entitled to retain the higher grade for two years. Certain requirements
former rate of basic pay within the employee’s new band or by
stated in the law must be met for grade retention to occur.
establishing a retained rate that exceeds the maximum rate of the new
5 U.S.C. §5363. Pay retention
band.
Generally, entitles an employee to basic pay at a rate equal to the
Pay retention must be based on the employee’s rate of basic pay in
employee’s allowable former rate of basic pay, plus 50% of the amount
effect immediately before the action that would otherwise reduce the
of each increase in the maximum rate of basic pay payable for the grade
employee’s rate. A retained rate must be compared to the range of rates
of the employee’s position immediately after such reduction in pay if
of basic pay applicable to the employee’s position.
such allowable former rate exceeds such maximum rate for the grade.
In applying §9701.323 (regarding pay increases provided at the time of
Certain requirements for pay retention are stated in the law.
a rate range adjustment under §9701.322), any increase in the rate of
basic pay for an employee receiving a retained rate is equal to one-half
of the percentage value of any increase in the minimum rate of the
employee’s band.
5 U.S.C. §5333. Minimum rate for new appointments
§9701.357. Miscellaneous. Except in the case of an employee who
New appointments are made at the minimum rate of the appropriate
does not receive a pay increase under §§9701.323 or 9701.335 because
grade. Appointments at above the minimum rate may be made for such
of an unacceptable rating of record, an employee’s rate of basic pay may
considerations as the existing pay or unusually high or unique
not be less than the minimum rate of the employee’s band (or the
qualifications of the candidate, or a special need of the government for
adjusted minimum rate of that band).
the individual’s services.
Except as provided in §9701.356, an employee’s rate of basic pay may
not exceed the maximum rate of the employees’ band rate range.

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5 U.S.C. §5504. Biweekly pay periods; computation of pay
DHS must follow the rules for establishing pay periods and computing
5 U.S.C. §5505. Monthly pay periods; computation of pay
rates of pay in 5 U.S.C. §§5504 and 5505, as applicable. For employees
covered by 5 U.S.C. §5504, annual rates of pay must be converted to
hourly rates of pay in computing payments received by covered
employees.
DHS will issue implementing directives regarding the movement of
employees to or from a band with a rate range that is increased by a
special rate supplement.
5 CFR Part 351 — Reduction In Force
For the purpose of applying the reduction-in-force provisions of 5 CFR
Part 351, DHS must establish representative rates for all band rate
ranges.
If a DHS employee moves from the pay system established under
Subpart C to a GS position within DHS having a higher level of duties
and responsibilities, DHS may issue implementing directives that
provide for a special increase prior to the employee’s movement in
recognition that the employee will not be eligible for a promotion
increase under the GS system.
Special Payments
5 U.S.C. Chapter 45, Subchapter III — Award to Law Enforcement
§9701.361. Special skills payments. DHS will issue implementing
Officers for Foreign Language Capabilities
directives regarding additional payments for specializations for which
Authorizes cash awards of up to 5% of basic pay to eligible law
the incumbent is trained and ready to perform at all times. DHS may
enforcement officers who possess and make substantial use of one or
determine the amount of the payments and the conditions for eligibility,
more foreign languages in the performance of official duties. An award
including any performance or service agreement requirements.
is in addition to basic pay.
Payments may be made at the same time as basic pay or in periodic
5 U.S.C. Chapter 53, Subchapter IX — Special Occupational Pay
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Systems
purpose and may be terminated or reduced at any time without
5 U.S.C. §5392. Establishment of special occupational pay systems
triggering pay retention or adverse action procedures.
Authorizes the President’s pay agent to establish one or more special
occupational pay systems for any positions within occupations or
groups of occupations that the pay agent, determines for reasons of good
administration should not be classified under 5 U.S.C. Chapter 51 or be
subject to Chapter 53, Subchapter III. Certain requirements for
establishing special occupational pay systems are stated in the law.
5 U.S.C. §5545. Night, standby, irregular, and hazardous duty
§9701.362. Special assignment payments. DHS will issue
differential
implementing directives regarding additional payments for employees
(d) Authorizes a differential for duty involving unusual physical
serving on special assignments in positions placing significantly greater
hardship or hazard.
demands on the employee than other assignments within the employee’s
5 U.S.C. Chapter 59, Subchapter III — Overseas Differentials and
band. DHS may determine the amount of the payments and the
Allowances and Subchapter IV — Miscellaneous Allowances
conditions for eligibility, including any performance or service
Authorizes a danger pay allowance and an allowance based on duty at
agreement requirements. Payments may be made at the same time as
remote worksites.
basic pay or in periodic lump-sum payments. Special assignment
payments are not basic pay for any purpose and may be terminated or
reduced at any time without triggering pay retention provisions or
adverse action procedures.
5 U.S.C. §5753. Recruitment and relocation bonuses
§9701.363. Special staffing payments. DHS will issue implementing
5 U.S.C. §5754. Retention bonuses
directives regarding additional payments for employees serving in
Authorize recruitment, relocation, and retention bonuses to eligible
positions for which DHS is experiencing or anticipates significant
employees in positions likely to be difficult to fill or likely that essential
recruitment and/or retention problems. DHS may determine the amount
employees would leave in the absence of such bonuses. An employee
of the payments and the conditions for eligibility, including any
receiving a bonus must enter into a service agreement with the agency.
performance or service agreement requirements. Payments may be
Bonuses generally cannot exceed 25% of annual basic pay, but for a
made at the same time as basic pay or in periodic lump-sum payments.

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critical agency need, may be up to 50% of annual basic pay. A bonus
Special staffing payments are not basic pay for any purpose and may be
may be paid as a lump sum and is not part of basic pay. Additionally,
terminated or reduced at any time without triggering pay retention or
retention bonuses of up to 10% of annual basic pay may be paid to a
adverse action procedures.
group of employees if there is a high risk that a significant portion of
the group would likely leave in the absence of such bonuses. For a
critical agency need, such bonuses may be up to 50% of annual basic
pay. [P.L. 108-411, Oct. 30, 2004, 118 Stat. 2305-2309]
Transitional Provisions
Authority derives from 5 U.S.C. §9701(a).
§9701.371. General. An affected employee may convert from the GS
system, a prevailing rate system, the SL/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,”
“converted,”“converting,” and “conversion” refer to employees who
become covered by the pay system without a change in position (as a
result of a coverage determination made under §9701.102(b) and
exclude employees who are reassigned or transferred from a noncovered
position to a position already covered by the DHS system. DHS will
issue implementing directives prescribing the policies and procedures
necessary to implement 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 rate ranges for the DHS pay system
established under Subpart C. The initial ranges will link to the ranges
that apply to converted employees in their previously applicable pay
system (taking into account any applicable special rates and locality
payments or supplements).

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5 U.S.C. §5541(3) defines “law enforcement officer” (LEO) as an
For employees who are law enforcement officers as defined in 5 U.S.C.
employee who is an LEO within the meaning of 5 U.S.C. §§8331(20) or
§5541(3) and who were covered by the GS system immediately before
8401(17), which define the term for purposes of federal retirement. The
conversion, the initial ranges must provide rates of basic pay that equal
law states other positions which meet the definition.
or exceed the rates of basic pay these officers received under the GS
system (taking into account any applicable special rates and locality
payments or supplements).
Authority derives from 5 U.S.C. §9701(a).
§9701.373. Conversion of employees to the DHS pay system. When
a pay system is established under Subpart C and applied to a category of
employees, DHS must convert employees to the system without a
reduction in their rate of pay (including basic pay and any applicable
locality payment, special rate, locality rate supplement under
§9701.332, or special rate supplement under §9701.333).
When an employee receiving a special rate under 5 U.S.C. §5305 before
conversion is converted to an equal rate of pay under the DHS pay
system that consists of a basic rate and a locality or special rate
supplement, the conversion will not be considered as resulting in a
reduction in basic pay for the purpose of an adverse action under
Subpart F.
If another personnel action (e.g., promotion, geographic movement)
takes effect on the same day as the effective date of an employee’s
conversion to the new pay system, DHS must process the other action
under the rules pertaining to the employee’s former system before
processing the conversion action.
An employee on a temporary promotion at the time of conversion must
be returned to his or her official position of record prior to processing
the conversion. If the employee is temporarily promoted immediately
after the conversion, pay must be set under the rules for promotion

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increases under the DHS system.
The Secretary has discretion to make one-time pay adjustments for GS
and prevailing rate employees when they are converted to the DHS pay
system. DHS will issue implementing directives governing any such
pay adjustment, including rules governing employee eligibility, pay
computations, and the timing of any such pay adjustment.
The Secretary has discretion to convert entry/developmental employees
in noncompetitive career ladder paths to the pay progression plan
established for the Entry/Developmental band to which the employee is
assigned under the DHS pay system. DHS will issue implementing
directives governing any such conversion, including rules governing
employee eligibility, pay computations, and the timing of any such
conversion. DHS must convert employees without a reduction in their
rate of pay.
Authority derives from 5 U.S.C. §9701(a).
§9701.374. Special transition rules for Federal Air Marshal
P.L. 107-71 (115 Stat. 597) established the Transportation Security
Service. Notwithstanding any other provision in Subpart C, if DHS
Administration.
transfers Federal Air Marshal Service (FAMS) positions from TSA to
another organization within DHS, DHS may cover those positions under
a pay system that is parallel to the pay system that was applicable to the
FAMS within TSA. DHS may, after coordination with OPM, modify
that system. DHS will issue implementing directives on converting
FAMS employees to any new pay system that may subsequently be
established under Subpart C, consistent with the conversion rules in
§9701.373.
Subpart D — Performance Management

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DHS Authority for Subpart D derives from 5 U.S.C. §9701 (a)-(c).
§9701.401. Purpose. Provides for the establishment in DHS of at least
5 U.S.C. §4302. Establishment of performance appraisal systems
one performance management system.
Each agency must develop one or more performance appraisal systems
The performance management system(s), working in conjunction with
which provide for periodic appraisals of job performance, encourage
the pay system established under Subpart C, is designed to promote and
employee participation in establishing performance standards, and use
sustain a high-performance culture by: adhering to merit principles;
the results of performance appraisals to train, reward, reassign, promote,
having a fair, credible, and transparent employee performance appraisal
reduce in grade, retain, and remove employees. Under OPM
system; linking the pay and performance appraisal systems with the
regulations, each system must establish performance standards which
DHS strategic plan; involving employees in the design and
will, to the maximum extent feasible, permit the accurate evaluation of
implementation of the system; providing adequate training and
job performance on the basis of objective criteria (which may include
retraining for supervisors, managers, and employees in implementing
courtesy demonstrated to the public) related to the job in question for
and operating the system; providing for periodic performance feedback
each employee or position; communicate those standards and critical
and dialogue among supervisors, managers, and employees throughout
elements to employees at the beginning of each appraisal period;
the appraisal period, with specific timetables for review; having
evaluate each employee during the appraisal period on the standards;
effective safeguards so that the management of the system is fair and
recognize and reward employees whose performance warrants such;
equitable and based on employee performance; and providing a means
assist employees in improving unacceptable performance; and reassign,
for ensuring that adequate resources are allocated for the design,
reduce in grade, or remove employees who continue to have
implementation, and administration of the system.
unacceptable performance, but only after an opportunity to demonstrate
acceptable performance. The agency head may administer and maintain
a performance appraisal system electronically.
5 U.S.C. Chapter 43, Subchapter II covers Performance Appraisal in the
Senior Executive Service
Authority derives from 5 U.S.C. §9701(a).
§9701.402. Coverage. Subpart D applies to eligible DHS employees
in the categories listed below, subject to a determination by the
Secretary or designee under §9701.102(b). Those eligible for coverage
include employees who would otherwise be covered by 5 U.S.C.
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5 CFR §430.202 Coverage. (d) Agency requests for exclusions of
OPM under 5 CFR §430.202(d) prior to the date of coverage under
positions in the excepted service.
Subpart D, as determined under §9701.102(b).
Employees who are not expected to be employed longer than a
minimum period (as defined in §9701.404) during a single 12-month
period are excluded from coverage under Subpart D.
Authority derives from 5 U.S.C. §9701(a)-(c).
§9701.403. Waivers. When a specified category of employees is
5 U.S.C. Chapter 43 — Performance Appraisal
covered by the performance management system(s) established under
5 CFR Part 430 — Performance Management
Subpart D, 5 U.S.C. Chapter 43 is waived with respect to that category
of employees.
5 CFR §430.203. Definitions. (unless otherwise noted)
§9701.404. Definitions. “Appraisal” means the review and evaluation
“Appraisal” means the process under which performance is reviewed
of an employee’s performance.
and evaluated.
“Appraisal period” means the established period of time for which
“Appraisal period” means the period of time established under a
performance will be reviewed and a rating of record will be prepared.
performance management system for reviewing employee performance.
“Critical element,” “Non-critical element,” and “Additional
“Competencies” means the measurable or observable knowledge, skills,
performance element” express the objectives, goals, program plans,
abilities, behaviors, and other characteristics required by a position.
work plans, and the like that express performance expectations.
“Contribution” means a work product, service, output, or result
provided or produced by an employee that supports the departmental or
organizational mission, goals, or objectives.
Minimum period. An appraisal program shall establish a minimum
“Minimum period” means the period of time established by DHS during
period of performance that must be completed before a performance
which an employee must perform before receiving a rating of record.

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rating may be prepared. [5 CFR§430.207(a)]
“Performance” means accomplishment of work assignments or
“Performance” means accomplishment of work assignments or
responsibilities.
responsibilities.
“Performance standard” means the management-approved expression of
“Performance expectations” means that which an employee is required
the performance threshold(s), requirement(s), or expectation(s) that
to do, as described in §9701.406, and may include observable or
must be met to be appraised at a particular level of performance. A
verifiable descriptions of quality, quantity, timeliness, and cost
performance standard may include, but is not limited to, quality,
effectiveness.
quantity, timeliness, and manner of performance.
“Appraisal” means the process under which performance is reviewed
“Performance management” means applying the integrated processes of
and evaluated.
setting and communicating performance expectations, monitoring
performance and providing feedback, developing performance and
addressing poor performance, and rating and rewarding performance in
support of the organization’s goals and objectives.
“Performance appraisal system” means a framework of policies and
“Performance management system” means the policies and
parameters established by an agency for the administration of
requirements established under Subpart D, as supplemented by DHS
performance appraisal programs under 5 U.S.C. Chapter 43, Subchapter
implementing directives, for setting and communicating employee
I and 5 CFR Part 430, Subpart B.
performance expectations, monitoring performance and providing
feedback, developing performance and addressing poor performance,
and rating and rewarding performance.
“Rating of record” means the performance rating prepared at the end of
“Rating of record” means a performance appraisal prepared at the end of
an appraisal period for performance of agency-assigned duties over the
an appraisal period covering an employee’s performance of assigned
entire period and the assignment of a summary level within a pattern.
duties over the applicable period; or to support a pay determination,
including one granted in accordance with Subpart C of this part, a
within-grade increase granted under 5 CFR §531.404, or a pay

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determination granted under other applicable rules.
“Unacceptable performance” means performance by an employee which
“Unacceptable performance” means the failure to meet one or more
fails to meet established performance standards in one or more critical
performance expectations.
elements of the employee’s position. [5 U.S.C. §4301(3)]
5 CFR Part 430 — Performance Management contains the regulations
§9701.405. Performance management system requirements. DHS
to implement 5 U.S.C. Chapter 43 — Performance Appraisal, including
will issue implementing directives that establish one or more
regulations on agency performance appraisal systems and programs, and
performance management systems for DHS employees, subject to the
planning, monitoring, and rating performance.
requirements set forth in Subpart D.
5 U.S.C. Chapter 23 — Merit System Principles
Each DHS performance management system must: specify the
Covers Merit system principles and Prohibited personnel practices.
employees covered; provide for the periodic appraisal of the
performance of each employee, generally once a year, based on
performance expectations; specify the minimum period during which an
employee must perform before receiving a rating of record; hold
supervisors and managers accountable for effectively managing
employee performance; include procedures for setting and
communicating performance expectations, monitoring performance and
providing feedback, and developing, rating, and rewarding performance;
and specify the criteria and procedures to address the performance of
employees who are detailed or transferred and for employees in other
special circumstances.
Supervisors and managers are responsible for: clearly communicating
performance expectations and holding employees responsible for
accomplishing them; making meaningful distinctions among employees
based on performance; fostering and rewarding excellent performance;

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and addressing poor performance.
5 U.S.C. §4302. Establishment of performance appraisal systems
§9701.406. Setting and communicating performance expectations.
(a) Each agency must develop one or more performance appraisal
Performance expectations must align with and support the DHS mission
systems which (a)(2) encourage employee participation in establishing
and its strategic goals, organizational program and policy objectives,
performance standards.
annual performance plans, and other measures of performance. Such
(b) Each performance appraisal system must provide for (1) establishing
expectations include those general performance expectations that apply
performance standards which will, to the maximum extent feasible,
to all employees, such as standard operating procedures, handbooks, or
permit the accurate evaluation of job performance on the basis of
other operating instructions and requirements associated with the
objective criteria (which may include courtesy demonstrated to the
employee’s job, unit, or function.
public) related to the job in question for each employee or position; (2)
Supervisors and managers must communicate performance
communicating the performance standards and the critical elements of
expectations, including those that may affect an employee’s retention in
the employee’s position to the employee at the beginning of each
the job. Performance expectations need not be in writing, but must be
appraisal period.
communicated to the employee prior to holding the employee
5 CFR §430.102 Performance management.
accountable for them. Employees are always accountable for
(a) Performance management is the systematic process by which an
demonstrating appropriate standards of conduct, behavior, and
agency involves its employees, as individuals and members of a group,
professionalism, such as civility and respect for others.
in improving organizational effectiveness in the accomplishment of
Performance expectations may take the form of — goals or objectives
agency mission and goals.
that set general or specific performance targets at the individual, team,
(b) Performance management integrates the processes an agency uses to
and/or organizational level; organizational, occupational, or other work
(1) Communicate and clarify organizational goals to employees; (2)
requirements, such as standard operating procedures, operating
Identify individual and, where applicable, team accountability for
instructions, administrative manuals, internal rules and directives,
accomplishing organizational goals.
and/or other instructions that are generally applicable and available to
5 CFR §430.206 Planning Performance.
the employee; a particular work assignment, including expectations
(b) Performance plan. (1) Agencies shall encourage employee
regarding the quality, quantity, accuracy, timeliness, and/or other
participation in establishing performance plans. (2) Performance plans
expected characteristics of the completed assignment; competencies an
shall be provided to employees at the beginning of each appraisal period
employee is expected to demonstrate on the job, and/or the
(normally within 30 days). (3) An appraisal program shall require that
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each employee be covered by an appropriate written, or otherwise
long as it is reasonable to assume that the employee will understand the
recorded, performance plan based on work assignments and
performance that is expected.
responsibilities. (4) Each performance plan shall include all elements
Supervisors must involve employees, insofar as practicable, in the
which are used in deriving and assigning a summary level, including at
development of their performance expectations. However, final
least one critical element and any non-critical element(s) .... (8)
decisions regarding performance expectations are within the sole and
Elements and standards shall be established as follows — For a critical
exclusive discretion of management.
element — At least two levels for appraisal shall be used with one level
being “Fully Successful” or its equivalent and another level being
“Unacceptable;” and a performance standard shall be established at the
“Fully Successful” level and may be established at other levels. For
non-critical elements, when established — At least two levels for
appraisal 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.
§9701.407. Monitoring performance and providing feedback. In
(a) An appraisal program shall establish a minimum period of
applying the requirements of the performance management system and
performance that must be completed before a performance rating may
its implementing directives and policies, supervisors must monitor the
be prepared.
performance of their employees and the organization; and provide
(b) An appraisal program shall include methods for appraising each
timely periodic feedback to employees on their actual performance with
critical and non-critical element during the appraisal period .... Ongoing
respect to their performance expectations, including one or more interim
appraisal methods shall include, but not be limited to, conducting one or
performance reviews during each appraisal period.
more progress reviews during each appraisal period.
(c) Appraisal programs should provide assistance whenever
performance is determined to be below “Fully Successful” or equivalent
but above “Unacceptable.”
(d) An appraisal program shall provide for assisting employees in
improving unacceptable performance at any time during the appraisal

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period that performance is determined to be unacceptable in one or
more critical elements; and taking action based on unacceptable
performance.
5 CFR §430.102 Performance management.
§9701.408. Developing performance and addressing poor
(b) Performance management integrates the process an agency uses to
performance. Subject to budgetary and other organizational
(3) Identify and address developmental needs for individuals and where
constraints, a supervisor must provide employees with the proper tools
applicable teams.
and technology to do their job and develop employees to enhance their
5 U.S.C. §4302. Establishment of performance appraisal systems
ability to perform.
(b) Each performance appraisal system must provide for (5) assisting
During the appraisal period, if a supervisor determines that an
employees in improving unacceptable performance; and (6) reassigning,
employee’s performance is unacceptable, the supervisor must consider
reducing in grade, or removing employees who continue to have
the range of options available to address the performance deficiency,
unacceptable performance, but only after an opportunity to demonstrate
such as remedial training, an improvement period, a reassignment, an
acceptable performance.
oral warning, a letter of counseling, a written reprimand, and/or an
5 U.S.C. §4303. Actions based on unacceptable performance
adverse action; and take appropriate action to address the deficiency,
Authorizes an agency to reduce in grade or remove an employee for
taking into account the circumstances, including the nature and gravity
unacceptable performance.
of the unacceptable performance and its consequences.
As specified in Subpart G, employees may appeal adverse actions based
on unacceptable performance.
5 CFR §430.206 Planning Performance.
§9701.409. Rating performance. Except as provided below, each
(b) Performance plan. (8) Elements and standards shall be established
DHS performance management system must establish a single summary
as follows — For a critical element — At least two levels for appraisal
rating level of unacceptable performance, a summary rating level of
shall be used with one level being “Fully Successful” or its equivalent
fully successful performance (or equivalent), and at least one summary
and another level being “Unacceptable;” and a performance standard
rating level above fully successful performance. For employees in an
shall be established at the “Fully Successful” level and may be
Entry/Developmental band, the DHS performance management
established at other levels. For non-critical elements, when established system(s) may establish two summary rating levels, i.e., an
— At least two levels for appraisal shall be used, and a performance
unacceptable rating level and a rating level of fully successful (or

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standard(s) shall be established at whatever level(s) is appropriate.
equivalent).
5 CFR §430.208. Rating performance.
At his or her sole and exclusive discretion, the Secretary, or designee
(a) As soon as practicable after the end of the appraisal period, a written,
may under extraordinary circumstances establish a performance
or otherwise recorded, rating of record shall be given to each employee.
management system with two summary rating levels, i.e., an
(b) (1) A level 1 summary (“Unacceptable”) shall be assigned if and
unacceptable level and a higher rating level, for employees not in an
only if performance on one or more critical elements is appraised as
Entry/Developmental band.
“Unacceptable.”
A supervisor or other rating official must prepare and issue a rating of
(c) The method for deriving and assigning a summary level may not
record after the completion of the appraisal period. An additional rating
limit or require the use of particular summary levels (i.e., establish a
of record may be issued to reflect a substantial change in the employee’s
forced distribution of summary levels). However, methods used to
performance when appropriate. A rating of record will be used as a
make distinctions among employees or groups of employees such as
basis for determining an increase in basic pay under §9701.342; a
comparing, categorizing, and ranking employees or groups on the basis
locality or special rate supplement increase under §9701.336; a
of their performance may be used for purposes other than assigning a
performance pay increase determination under §9701.342(a); a within-
summary level including, but not limited to, award determinations and
grade increase determination under 5 CFR §531.404, prior to
promotion decisions.
conversion to the pay system established under Subpart C; a pay
(d) An appraisal program may use one of eight patterns of summary
determination under any other applicable pay rules; awards under any
rating levels. Level 1 is “Unacceptable,” Level 3 is “Fully Successful,”
legal authority; including 5 U.S.C. Chapter 45, 5 CFR Part 451, and a
and Level 5 is “Outstanding.” Additional requirements are listed in the
departmental or organizational awards program; eligibility for
regulations.
promotion; or such other action that DHS considers appropriate, as
5 U.S.C. §4302. Establishment of performance appraisal systems
specified in the implementing directives.
(a) Each agency must develop one or more performance appraisal
A rating of record must assess an employee’s performance with respect
systems which (3) use the results of performance appraisals to ... reward
to his or her performance expectations and/or relative contributions and
... employees.
is considered final when issued to the employee with all appropriate
(b) Each performance appraisal system must provide for (4) recognizing
reviews and signatures.
and rewarding employees whose performance warrants such.
DHS may not impose a forced distribution or quota on any rating
5 U.S.C. Chapter 45 — Incentive Awards
level(s).
5 U.S.C. §4505a. Performance-based cash awards
A rating of record issued under Subpart D is an official rating of record
An employee whose most recent performance rating was “fully
for the purpose of any provision of Title 5 CFR, for which an official

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successful” or higher may be paid a cash award.
rating of record is required.
DHS may not lower the rating of record of an employee on an approved
absence from work, including the absence of a disabled veteran to seek
medical treatment, as provided in Executive Order 5396.
A rating of record may be grieved by a non-bargaining unit employee
(or a bargaining unit employee when no negotiated procedure exists)
through an administrative grievance procedure established by DHS. A
bargaining unit employee may grieve a rating of record through a
negotiated grievance procedure, as provided in Subpart E. An arbitrator
hearing a grievance is subject to the standards of review set forth in
§9701.521(g)(2). Except as otherwise provided by law, an arbitrator
may not conduct an independent evaluation of the employee’s
performance or otherwise substitute his or her judgment for that of the
supervisor.
A supervisor or other rating official may prepare an additional
performance appraisal for the purposes specified in the applicable
performance management system (e.g., transfers and details) at any time
after the completion of the minimum period. Such an appraisal is not a
rating of record.
DHS implementing directives will establish policies and procedures for
crediting performance in a reduction in force, including policies for
assigning additional retention credit based on performance. Such
policies must comply with 5 U.S.C. Chapter 35 and 5 CFR §351.504.
5 U.S.C. Chapter 35 — Retention Preference, Restoration, and
Reemployment
5 CFR §351.504 Credit for performance.

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5 U.S.C. §4304. Responsibilities of the Office of Personnel
§9701.410. DHS responsibilities. In carrying out its performance
Management
management system(s), DHS must transfer ratings between subordinate
OPM must review each performance appraisal system developed by any
organizations and to other federal departments or agencies; evaluate its
agency and determine whether the performance appraisal systems meets
performance management system(s) for effectiveness and compliance
the requirements of 5 U.S.C. Chapter 43, Subchapter I. OPM may
with Subpart D, DHS implementing directives and policies, and the
direct that corrective action be taken if an agency performance system
provisions of 5 U.S.C. Chapter 23 that set forth the merit system
does not meet the requirements of Subchapter I.
principles and prohibited personnel practices; provide OPM with a copy
The Comptroller General from time to time must review on a selected
of the implementing directives, policies, and procedures that implement
basis performance appraisal systems to determine the extent to which
Subpart D; and comply with 29 CFR §1614.102(a)(5), which requires
any such system meets the requirements of Subchapter I and must
agencies to review, evaluate, and control managerial and supervisory
periodically report its findings to OPM and the Congress.
performance to ensure enforcement of the policy of equal opportunity.
Source: U.S. Department of Homeland Security and U.S. Office of Personnel Management, “Department of Homeland Security Human Resources Management
System,” Federal Register, vol. 70, no. 20, February 1, 2005, pp. 5271-5347.