Office of Postsecondary Education - U.S. Department of Education

WReier-Aviles on DSKGBLS3C1PROD with RULES266876 Federal Register / Vol. 75, No. 209 / Friday, October 29, 2010 / Rules and Regulationsadjustments, including whether raises(for promotions) would be permittedand whether reductions (for demotions)would be permitted. Some commentersrequested clarification on whether asalary could be paid. One commenterasked whether benefits could be paid atdifferential rates by class of employee oron a sliding scale by salary.Discussion: Based on these comments,the Secretary agrees that somemodifications to the language inproposed § 668.14(b)(22) would behelpful to ensure that incentivepayments are not based ‘‘in any part’’ onsuccess in securing enrollments orfinancial aid. In particular, we agree thatit is appropriate to add language toavoid confusion as to whether some partof an individual’s compensation may bebased on incentive compensation. Forthis reason, we are revising§ 668.14(b)(22)(i) to reinforce the ideathat compensation must not be based inany part, directly or indirectly, onsuccess in securing enrollments or theaward of financial aid.In addition, we support revising theregulations to provide that an employeewho receives multiple compensationadjustments in a calendar year isconsidered to have received adjustmentsbased upon success in securingenrollments or the award of financialaid in violation of the incentivecompensation ban in § 668.14(b)(22) ifthose adjustments create compensationthat is based in any part, directly orindirectly, upon success in securingenrollments or the award of financialaid.Finally, with respect to the requestsfor clarification on allowable salaryadjustments, we note that individualsmay be compensated in any fashion thatis consistent with the prohibitionidentified in section 487(a)(20) of theHEA. Accordingly, while notcommenting on any specificcompensation structure that aninstitution may choose to implement,the Department recognizes, for example,that institutions often maintain ahierarchy of recruitment personnel withdifferent amounts of responsibility. Aslong as an institution complies withsection 487(a)(20) of the HEA, it may beappropriate for an institution to havesalary scales that reflect an addedamount of responsibility. Institutionsalso remain free to promote and demoterecruitment personnel, as long as thesedecisions are consistent with the HEA’sprohibition on the payment of incentivecompensation. Finally, it is appropriateto pay recruitment personnel a fixedsalary.Changes: We have revised§ 668.14(b)(22)(i)(A) (which has beenredesignated as § 668.14(b)(22)(i)) toclarify that a prohibited incentivecompensation includes anycommission, bonus, or other incentivepayment based in any part, directly orindirectly, upon success in securingenrollments or the award of financialaid to any person or entity engaged inany student recruitment or admissionactivity or in making decisionsregarding the award of title IV, HEAprogram funds.In addition, we have redesignatedproposed § 668.14(b)(22)(i)(B) as§ 668.14(b)(22)(i)(A) and added a newparagraph (b)(22)(i)(B) to provide that,for the purposes of this paragraph, anemployee who receives multipleadjustments to compensation in acalendar year and is engaged in anystudent enrollment or admissionactivity or in making decisionsregarding the award of title IV, HEAprogram funds is considered to havereceived such adjustments based uponsuccess in securing enrollments or theaward of financial aid if thoseadjustments create compensation that isbased in any part, directly or indirectly,upon success in securing enrollments orthe award of financial aid.Finally, we have revised§ 668.14(b)(22)(ii) to provide thateligible institutions, organizations thatare contractors to eligible institutions,and other entities may make merit-basedadjustments to employee compensationprovided that such adjustments are notbased in any part, directly or indirectly,upon success in securing enrollments orthe award of financial aid.Comment: Commenters raised anumber of questions related to the twoparttest the Department has offered thatwill demonstrate whether acompensation plan or paymentcomplies with the statute and theimplementing regulations. Manycommenters seemed confused about theapplication of the two-part test andraised a wide range of specific questionsabout employment possibilities andcompensation practices. For example,some commenters asked for clarificationabout the types of items that could beconsidered something of value, such asletters of recommendation to volunteerinterns.Several commenters asked that weinclude the language of the two-part testin the regulatory text.Finally, one commenter asserted thatthe two-part test will not add clarity oncompensation issues but instead willraise questions about the legality ofcertain types of merit-basedcompensation systems that seem to falloutside the scope of compensationVerDate Mar2010 14:10 Oct 28, 2010 Jkt 223001 PO 00000 Frm 00046 Fmt 4701 Sfmt 4700 E:\FR\FM\29OCR2.SGM 29OCR2restriction but that could fail to satisfythe two-part test.Discussion: As discussed earlier inthis preamble, the Department hasdescribed a two-part test for evaluatingwhether a payment constitutes acommission, bonus, or other incentivepayment based in any part, directly orindirectly, upon success in securingenrollments or the award of financialaid to any person or entity engaged inany student recruitment or admissionactivity or in making decisionsregarding the award of title IV, HEAprogram aid in violation of the banreflected in § 668.14(b)(22)(i). TheDepartment first described this test inthe preamble to NPRM. (See 75 FR34818 (June 18, 2010).) The test consistsof the following two questions, theanswers to which will permit aninstitution to know whether thecompensation is considered incentivecompensation:(1) Whether the payment is acommission, bonus, or other incentivepayment, defined as an award of a sumof money or something of value paid toor given to a person or entity forservices rendered; and(2) Whether the commission, bonus,or other incentive payment is providedto any person based in any part, directlyor indirectly, upon success in securingenrollments or the award of financialaid, which are defined as activitiesengaged in for the purpose of theadmission or matriculation of studentsfor any period of time or the award offinancial aid.If the answer to each of thesequestions is yes, the payment would notbe permitted under section 487(a)(20) ofthe HEA or § 668.14(b)(22). TheDepartment merely provided this test asa tool to help institutions evaluatecompensation practices they mayconsider implementing. The test doesnot add any substantive requirementsthat are not otherwise included in§ 668.14(b)(22)(i). For this reason, we donot think it is necessary or appropriateto include the text of the test in theregulations.The Department further notes that, asa general matter, it does not believe thatthe provision of letters ofrecommendation to volunteer internswould constitute a proscribed incentivepayment.Finally, we disagree with thecomment that the two-part test will notserve generally to answer institutions’questions regarding a particularcompensation plan. As previouslystated, we believe that the prohibitionidentified in section 487(a)(20) of theHEA is clear and that institutionsshould not have difficulty maintaining