Industrial Relations

Department of Energy
Washington, DC 20585
d

August 15, 2024

MEMORANDUM FOR DISTRIBUTION
FROM:

JOEL GONZALEZ
DIRECTOR
CONTRACTOR HUMAN RESOURCES POLICY DIVISION
(MA-612)

SUBJECT:

Approval Procedures for Fiscal Year (FY) 2025 – Contractor
Compensation Increase Plans

This memorandum provides guidance for analysis of FY 2025 Contractor Compensation
Increase Plan (CIP) proposals. For Contractors that meet the CIP streamline criteria as set
forth in their contracts, a notification must be provided to the Contracting Officer of planned
increases and position to market data by mutually agreed-upon employment categories.
Federal Acquisition Regulation (Subpart 31.205-6) and Department of Energy Acquisition
Regulation (DEAR) (Subpart 970.3102-05-6) cost principles establish as reasonable,
compensation costs that are comparable to those in the labor market which contractors
compete for employees.
Contracting Officer (CO) approval of contractor CIPs for FY 2025 requires adherence to
contract terms and conditions, Department of Energy (DOE) Order 350.1, Chapter IV,
Compensation, and Acquisition Guide Chapter 70.3102-05-6, Contractor Compensation Variable Pay. The following procedures remain in effect until superseded and should be
employed in the analyses of CIP proposals:


COs and contractors must mutually define and document in advance those
employee groups (e.g., exempt, non-exempt) to be included under the CIP.



The FY 2025 contractor operating budget should be included as a factor in the
development of the proposal and in the evaluation and determination of the
amount of CIP approved. The CIP must be affordable within the constraints of
the contractor’s operating budget. COs should consult with the Chief Financial
Officer (CFO) organizations and Program Secretarial Officers (PSO) to
validate that operating budgets beyond FY 2025, can sufficiently bear the costs
of the CIP approved for FY 2025 (including consideration of whether the
contractor will be required to make contributions to their defined benefit
pension plan(s)).



CIP approvals must be justified by appropriate market data, including relevant
markets, balanced comparisons (e.g., base pay to market base pay, and value of
total benefit package to average market value total of benefits), accurate
benchmarking, and reasonable sampling of surveyed positions. COs' shall
consider projected market movement as forecasted by appropriate and
recognized surveys.



For FY 2025 WorldatWork projects a total salary budget increase for the
following employee categories: Nonexempt Hourly Nonunion – 3.8%,
Nonexempt Salaried – 3.8%, Exempt Salaried – 3.8% and
Officers/Executives – 3.8%.



For FY 2025, WorldatWork projects a salary structure adjustment of 2.4%.



For FY 2025, WorldatWork projects a promotion/adjustment fund of 3.1%.



For FY 2025, COs should expect to see compensation increase budgets of
approximately 3.8% for all employee categories based on anticipated market
movement (excluding promotion). In situations where total CIP budgets
exceed 3.8% (excludes promotions, variable pay and salary structure
adjustments), the CO may want to use the services of DOE’s technical support
contractor, Deloitte Consulting LLP, to assist in their analysis. Utilization of
Deloitte Consulting LLP may be coordinated with Alesia Harmon in the
Contractor Human Resources Policy Division at (240) 246-4702 or
Alesia.Harmon@hq.doe.gov.



Merit, promotion, and adjustment funds should be justified, established, and
tracked separately. Adjustment fund should provide for needed internal and
external equity increases and retention pay for particular job classifications or
families.



The DOE Acquisition Guide, Chapter 70.3102-05-6, Contractor Compensation
Variable Pay, provides the criteria for DOE approval of variable pay programs.



The absence of an approved variable pay program under the Acquisition Guide
Chapter 70.3102-05-6, does not preclude COs from approving single-purpose
allocations for variable pay, such as lump-sum performance pay and
recruitment or retention bonuses. Should it be necessary to continue
allocations beyond one fiscal year, the criteria of Acquisition Guide, Chapter
70.3102-05-6, must be adhered to.



Allocations for variable pay requested in conjunction with the CIP must be
incorporated into the overall CIP fund as either a separate item or as a subset of
merit or adjustment funds, as appropriate.



In 2024, the percentage of organizations using variable pay is approximately
83%, indicating having a variable pay program is an industry business
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standard.


The Contractor Salary-Wage Increase Expenditure Report (DOE F 350.1) must
be used to report actual expenditures under the CIP by employee group and
cost category (merit, promotion, adjustments, and variable pay).

The approved CIP and Contractor Salary-Wage Increase Expenditure Report must be
submitted annually to Alesia Harmon at Alesia.Harmon@hq.doe.gov in the Office of
Acquisition Management, Contractor Human Resources Policy Division (MA-612) by
September 15th.
Finally, in an effort to support consistency in the assessment of reasonableness pursuant to
FAR 31.205-6, as well as collaboration with other DOE specialists, including program and
budget officials, the attached guiding principles are provided for the contracting officer’s
consideration in reviewing contractor compensation proposals, including CIP proposals.

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Distribution List:
Procurement Directors/Senior Procurement Managers:
John Motz, SC
Calvin Ma, SC
Aaron Deckard, EMCBC
Robert Swett, Portsmouth/Paducah
Nicole Schuller, RL
Janette Gonzalez, SRO
Karen Shears, OR-EM
Maria Mitchell-Williams, ID-EM
Sara Wilson, EERE
Patrick Simien , HQ
Jeff Fogg, ID-NE
Russell Eury, NETL
Kelly Gele, SPR
Contractor Human Resource (CHR) Specialist Team Leaders:
Paul Allen, NE/ID
Aina Watkins, SC
Joe Da Via, SROO
Peggy Doherty, EMCBC
Patricia Zmuda, RL
Brandon Guedry, SPR
Jean M. Siekerka, GO
Program Policy and Evaluation
Amber Gray, EM
Aina Watkins, SC

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ATTACHMENT
Federal CHR Guiding Principles for Compensation Actions
The following guiding principles (i.e., basic tenets that guide Federal CHR personnel decision
making) should be followed when evaluating contractor compensation related proposals and
providing advice to the Contracting Officer as to whether the contractor proposals are
consistent with the Federal Acquisition Regulations (FAR). These guiding principles do not
address budget considerations or mission needs as those are the responsibility of the program
office.
1. The primary responsibility of the Federal CHR personnel is to oversee and provide
advice to the Contracting Officer (CO) in the assessment of contractor human
resource programs including compensation related proposals in accordance with the
applicable contract and pursuant to the FAR and to rely on appropriate program
officials in assessing the technical programmatic aspects of the action (e.g., the
need for a particular specialized skill to accomplish the mission or assessment of
the relevance of a proposed individual’s experience).
2. Formal Federal direction to the contractor comes from COs or from authorized
Contracting Officer Representatives that have been designated in writing indicating
the limits of their role and authority. However, as functional managers, Federal
CHR personnel are expected to communicate and collaborate informally and
routinely with contractor partners to ensure the most efficient and effective
execution of mission objectives while adhering to Federal and Departmental
requirements (e.g., Acquisition letters, Acquisition Guide, DOE Orders).
3. The primary data point for determining the reasonableness of the contractor’s
compensation-related requests is applicable market data as further described below
and in the FAR:
a. Reasonableness of compensation is based upon comparison with companies of
the same size, same industry, same geographic location, and engages in similar
non-government work under comparable circumstance. (Reference FAR
31.205-6(b) (2)).
b. Factors to consider in requests for variable pay programs include market
survey data, and contractor assurance that the program will be implemented
within cost and budget constraints, and mission objectives.
4. The overarching objectives in conducting reviews of the Contractor’s compensation
system is to assess the internal controls/risks in the contractor’s systems and the
degree of reliance that can be placed on the contractor’s systems. A second
objective is to assess whether the contractors compensation systems will likely
result in allowable and reasonable compensation charged to the contract.
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ATTACHMENT
Additional goals in conducting a Contractor’s Total Compensation System Review
are to: (1) ensure compliance with the applicable contract; (2) increase CHR
Specialist’s comprehensive understanding of the compensation program to facilitate
review of annual and/or ad hoc contractor requested salary actions; (3) identify
areas of strength and areas for improvement; and (4) enhance oversight in the
compensation area.
5. There are many factors to consider in evaluating contractor requests and in
providing recommendations to the CO on allowability and reasonableness pursuant
to the FAR. These factors include but are not limited to, market data, such as
position to market, market movement, and equity. Although DOE managers may,
from a mission needs perspective, consider attrition and offer/acceptance rate in
assessing whether to approve the contractor’s request, the FAR does not include
attrition or offer/acceptance rate as a data point to be used in determining the
reasonableness of contractor employee compensation.
6. Contractors’ compensation policies may target pay levels higher than the 50 th
percentile of market survey data to attract and retain personnel whose positions
have been classified as Critical Skills in accordance with the Contractor’s Critical
Skills policy.
7. Requests for compensation actions are vetted with other specialists (i.e., DOE
program officials, field financial officers, budget analyst, contractor personnel, 3 rd
party consultants, etc.), as appropriate, when there is a need to assess
reasonableness, allowability, affordability, and alignment with mission needs (e.g.,
recruitment/retention needs).
8. Federal CHR recommendations to the contracting officers should be accompanied
by documentation to support the recommendation that the CHR specialist considers
the contractor’s proposed action to be reasonable or unreasonable.
9. Compensation for each employee or job class of employees must be reasonable for
the work performed. The aggregate of each measurable and allowable element must
sum to a reasonable total compensation.

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