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

Federal Register / Vol. 75, No. 209 / Friday, October 29, 2010 / Rules and Regulations66877WReier-Aviles on DSKGBLS3C1PROD with RULES2compliance with the new regulatorylanguage. To the extent an institutionhas questions about what it intends todo, the Department has offered the twoparttest as an aid to reaching a properconclusion. To the extent that aninstitution does not wish to use the testto assist it in evaluating its practices, itis not required to do so.Changes: None.Comment: A number of commentersquestioned the use of the term‘‘indirectly’’ in the prohibition onincentive compensation in proposed§ 668.14(b)(22). They expressed concernabout the broad scope of this term andbelieved that interpretive discord willresult from its inclusion in§ 668.14(b)(22). These commentersargued that any compensation involvingan institution of higher education isbased indirectly on success in securingenrollments and asked how far removedan activity must be in order for it not tobe considered indirectly related. Othercommenters specifically requested thatwe define the term ‘‘indirectly.’’Several commenters suggested thatproposed § 668.14(b)(22)(i)(A) shoulduse the term ‘‘solely’’ rather than‘‘directly or indirectly’’ (i.e., ‘‘it will notprovide any commission, bonus, orother incentive payment based solelyupon success’’ rather than ‘‘it will notprovide any commission, bonus, orother incentive payment based directlyor indirectly upon success’’). These andother commenters alleged that thelanguage in proposed§ 668.14(b)(22)(i)(A) is not consistentwith congressional intent. Many of thesecommenters cited to the conferencereport, which states that the use of theterm ‘‘indirectly’’ does not mean thatinstitutions are prohibited from basingsalaries on merit; they may not,however, be based ‘‘solely’’ on thenumber of students recruited, admitted,enrolled, or awarded.Discussion: The Department does notagree with the view that the use of thephrase ‘‘directly or indirectly’’ will leadto interpretation problems or that it isinconsistent with congressional intent.Given the Department’s experience withhow the safe harbor in current§ 668.14(b)(22)(i)(A), which permits upto two salary adjustments per yearprovided that they are not based solelyon the number of students recruited,admitted, enrolled, or awarded financialaid, has been abused, the Departmentdoes not believe that it servescongressional intent to limit theincentive compensation ban in section487(a)(20) of the HEA to those paymentsthat are based solely upon success insecuring enrollments or the award offinancial aid. The Department believesthat, consistent with section 487(a)(20)of the HEA, incentive payments shouldnot be based in any part, directly orindirectly, on success in securingenrollments or the award of financialaid.The safe harbor in current§ 668.14(b)(22)(i)(A) has led toallegations in which institutionsconceded that their compensationstructures included consideration of thenumber of enrolled students, butaverred that they were not solely basedupon such numbers. In some of theseinstances, the substantial weight of theevidence suggested that the other factorspurportedly analyzed were not trulyconsidered, and that, in reality, theinstitution based salaries exclusivelyupon the number of students enrolled.After careful consideration, theDepartment determined that removal ofthe safe harbor was preferable toretaining but revising the safe harbor.For example, we considered suggestionsthat we change the word solely to someother modifier, such as ‘‘primarily’’ or‘‘substantially,’’ but ultimatelydetermined that doing so would notcorrect the problem. With such achange, we believe the evaluation of anyalternative arrangement would merelyshift to whether the compensation was‘‘primarily’’ or ‘‘substantially’’ basedupon enrollments. Such a shift wouldnot reduce the ability of anunscrupulous actor to claim that studentenrollments constituted this lesserfactor within a recruiter’s evaluationand would foster the same sorts ofabuses that have become apparent byinstitutions attempting to assert thattheir compensation practices are notsolely based on enrollments.Changes: None.Comment: A number of commentersraised questions about proposed§ 668.14(b)(22)(ii), which allows eligibleinstitutions, organizations that arecontractors to eligible institutions, andother entities to make merit-basedadjustments to employee compensationprovided that such adjustments are notbased upon success in securingenrollments or the award of financialaid. They expressed concern thatlimiting merit-based adjustments tothose that are not based upon success insecuring enrollments or the award offinancial aid would make it impossiblefor them to award merit increases foremployees whose job it is to enrollstudents. They noted that there are nostandard evaluative factors concerningenrollment that are not directly orindirectly based on securingenrollments.Some commenters requestedclarification about whether an increaseVerDate Mar2010 14:10 Oct 28, 2010 Jkt 223001 PO 00000 Frm 00047 Fmt 4701 Sfmt 4700 E:\FR\FM\29OCR2.SGM 29OCR2could be based on seniority or length ofemployment, including whether aretention bonus could be paid based onthe employee’s retention at theinstitution if it is paid evenly to allemployees.Some commenters argued that theregulations should recognize and permitcompensation based on the performanceof, and success at, the core job functionsof admissions representatives andfinancial aid officials. They questionedhow it would be possible to measureemployee performance withoutevaluating success. They asked that weprovide concrete guidance about howinstitutions can make salaryadjustments without violating theincentive compensation prohibition.Discussion: Section 668.14(b)(22)does not prohibit merit-basedcompensation for financial aid oradmissions staff. An institution may usea variety of standard evaluative factorsas the basis for this type ofcompensation; however, consistent withsection 487(a)(20) of the HEA and§ 668.14(b)(22), an institution may notconsider the employee’s success insecuring student enrollments or theaward of financial aid in providing thistype of compensation. Further, anincrease in compensation that is basedin any part either directly or indirectlyon the number of students recruited orawarded financial aid is prohibited.As previously mentioned, manyinstitutions currently claim to evaluatetheir recruitment personnel on a seriesof qualitative factors, as well as on thenumber of enrolled students, todemonstrate compliance with the safeharbor reflected in current§ 668.14(b)(22)(i)(A), which prohibitscompensation based solely on thenumber of students enrolled. As aresult, it appears that these institutionshave identified other factors that are notdependent upon student enrollmentsthat we believe could by themselves beconsidered for making a merit-basedcompensation decision. In addition,seniority or length of employment is anappropriate basis for making acompensation decision separate andapart from any consideration of thenumbers of students enrolled. Finally,as many commenters from groupsrepresenting admissions personnelnoted, as a general matter, recruitmentpersonnel should be compensated witha fixed salary to ensure that their abilityto focus on what is in a student’s bestinterest is not compromised.Changes: None.Comment: Several commenters raisedissues about the relationship between aninstitution’s goals and payments toemployees. Many asked whether