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made if a determination is made by the Internal Revenue Service, with right of appeal to the Pay Board in the event of an adverse determination, that in the case of a tandem relationship (as defined in § 201.3) the following conditions have been met

(1) The employment contract or pay practice to which a tandem relationship is claimed was reached or in existence prior to August 16, 1971;

(2) (i) The prior employment contract of the unit to which a tandem relationship is claimed expired no more than ninety (90) days before the expiration of the prior employment contract of the tandem-claiming unit; or

(ii) In the case of a pay practice, the effective date of the increase with respect to which a tandem relationship is claimed was, consistent with past pay practice, no more than ninety (90) days prior to the scheduled effective date of the increase for the tandem-claiming unit.

(3) The tandem relationship has been clearly established as a past pay practice for 5 years or in the immediately preceding two employment contracts; and

(4) It can be shown that retroactivity was either an established pay practice or had been agreed to prior to November 14, 1971.

(g) Low wage employees; one-time benefits. (1) Payments of wage and salary increases may be made if the employer determines, subject to compliance checks by the Internal Revenue Service that

(i) An employee in an appropriate employee unit would have become eligible for a wage and salary increase but for the freeze, and that the employee's straight time hourly rate of pay prior to the freeze was $2 per hour or less.

(ii) An employee in an appropriate employee unit would have become eligible to receive a new or increased benefit under a fringe benefit plan but for the freeze, and the employee cannot otherwise (because of death, retirement, etc.) become eligible for the benefit after the freeze.

(2) The provisions of subparagraph (1) of this paragraph may be illustrated by the following examples:

Example (1). A, an employee-member of an appropriate employee unit in a company, died on September 16, 1971. Pursuant to a collective bargaining agreement reached before the freeze, A's employer was to have increased his contribution to the group life

insurance plan applicable to such unit on September 1, 1971. Under the plan death benefits were scheduled to be increased up to $2,000 per employee based on age and length of employee service to the company. The life insurer is willing to pay the increased benefit to A's estate if the employer will retroactively pay the unit's increased contribution to the group life insurance plan. A retroactive payment may be made by the employer of the scheduled increase in group life insurance premiums for the appropriate employee unit in such a case to remedy the severe inequity to an employee such as A who, because of his death during the freeze, could not become eligible for the increased benefit after the freeze ended.

Example (2). B, an employee-member of an appropriate employee unit in a company, retired on October 31, 1971. Pursuant to a collective bargaining agreement reached before the freeze, B's employer was to have increased the lump-sum payment on or after October 1, 1971, available to employees of the unit for vacation accrued but not taken prior to retirement. A retroactive increase in the lump-sum payment of accrued vacation may be made to B who, because of his retirement during the freeze, could not become eligible for the increase benefit after the freeze.

(h) Other criteria for retroactivity. Payments of wage and salary increases may be made upon Pay Board approval if it is demonstrated to the Board that the proposed retroactive payments satisfy such further criteria as the Board may hereafter establish to remedy severe inequities.

[37 F.R. 1242, Jan. 27, 1972]

§ 201.14 Wage and salary increases effective after November 13, 1971.

Existing contracts and pay practices previously set forth will be allowed to operate according to their terms except that specific contracts or pay practices are subject to review, when challenged by a party at interest or by five or more members of the Pay Board, to determine whether any increase is unreasonably inconsistent with the criteria established by this Board. In reviewing existing contracts and pay practices, the Pay Board will consider ongoing collective bargaining and pay practices and the equitable position of the employees involved, including the impact of recent changes in the cost of living upon the employee's compensation.

§ 201.15 Wage increases provided for prior to August 15, 1971, for which funds have been raised or provided. (a) In general. Subject to the provisions of this section, any wage and salary increases (including any insurance or

other fringe benefits offered in connection with employment) which have been or would be withheld under the authority granted by the Act are lawfully due and payable, if a determination is made as provided in paragraph (b) of this section that such increases were provided for by law, contract, agreement or established practice prior to August 15, 1971, and that prices have been advanced, productivity increased, taxes have been raised, appropriations have been made or funds have otherwise been raised or provided for in order to cover such increases.

(b) Determinations—(1) By Category I employers. Any person who desires to make payments of wage and salary increases described in paragraph (a) of this section may do so provided (i) he is an employer whose pay adjustments qualify as Category I pay adjustments (as defined in § 101.21 of this title), (ii) he believes the requirements of paragraph (a) of this section have been met, and (iii) he files a prenotification in the manner prescribed by the Pay Board of his intent to make such payment detailing the factual basis for qualification under paragraph (a) of this section. The payment of such an increase may begin 14 days after the prenotification is filed with the Board, or (if appropriate) 14 days after any additional proof requested by the Board has been furnished to the Board unless a challenge is made by a party at interest or five or more members of the Board. In computing the 14-day period prescribed by this section, the rules provided for in § 205.5 of this chapter will apply.

(2) By Category II and III employers. Any person who desires to make a payment of wage and salary increases described in paragraph (a) of this section may do so provided (i) he is an employer whose pay adjustments qualify as either Category II or III pay adjustments (as defined in §§ 101.23 and 101.25 of this title), (ii) he believes the requirements of such paragraph (a) have been met because such wage and salary increases meet the requirements of paragraphs (c) (1), (2), and (3) of this section, and (iii) he certifies by letter to the appropriate district director of internal revenue that he has met the requirements of paragraphs (c) (1), (2), and (3) of this section. The payments of such an increase may begin 20 days before certification is made to the Revenue Service.

(3) By the Internal Revenue Service.

A party at interest claiming authority to make or receive payment of a wage or salary increase pursuant to paragraph (a) of this section, after giving notice to the other parties at interest, may apply to the Internal Revenue Service for a determination that the requirements of paragraph (a) of this section have been met. The application to the Internal Revenue Service shall detail the manner in which one or more of each of the requirements of paragraph (c) (1), (2), and (3) of this section have been met, or that the requirements of paragraph (a) of this section have otherwise been met. When the Service makes a determination that such requirements have or have not been met the Service will provide for notice upon request to parties at interest of the determination. Payment of an increase determined to be permissible under paragraph (a) of this section shall begin within 20 days of such determination by the Service unless an appeal is taken by the Pay Board. The Service may transmit to the Pay Board for determination any application based upon a claim that the requirements of paragraph (a) of this section have been met without meeting the requirements of paragraph (c) (1), (2), and (3) of this section.

(4) By the Board. If the Pay Board determines with respect to (i) a challenge of an increase under subparagraph (1) of this paragraph, or (ii) an appeal from a final determination by the Internal Revenue Service with respect to an increase under subparagraph (3) of this paragraph, or (iii) a transmittal by the Internal Revenue Service with respect to an increase under subparagraph (3) of this paragraph, that such payment qualifies under paragraph (a) of this section, the increase shall be payable immediately after the Board's final decision.

(c) Special rules. For the purposes of this section the factual requirements of paragraph (a) of this section are deemed satisfied with respect to whether:

(1) A wage or salary increase was provided for by law, contract, agreement, or established practice prior to August 15, 1971, if—

(i) The amount of the wage or salary increase was determined and definite prior to August 15, 1971; and

(ii) A contract was executed, entered into, or became effective prior to August 15, 1971; or

(iii) A pay practice was announced, reduced to writing, placed in effect, or

otherwise clearly established prior to August 15, 1971; or

(iv) A law, ordinance, or resolution, or a rule, regulation, or decision of a governmental agency having the effect of law, became effective or was finally enacted by signature of the chief executive of the governmental unit prior to August 15, 1971, or by failure of the chief executive to veto prior to August 15, 1971, or by completion of all action required for final enactment under the constitution and laws applicable to the governmental unit.

(2) Prices have been advanced, productivity increased, taxes have been raised, appropriations have been made or funds have otherwise been raised or provided for, if—

(i) New taxes were enacted or levied or existing taxes were increased prior to August 15, 1971, which provide revenue for the fiscal year in which the wage and salary increase is to take effect; or (ii) Appropriations have been passed or a budget of a governmental unit has been adopted prior to August 15, 1971, for the fiscal year in which the wage and salary increase is to take effect, and the appropriations or budget contain funds from which the increase would be payable; or

(iii) Prices have been advanced prior to August 15, 1971; or

(iv) An employer and the employee members of the unit, or their collective bargaining agent, have taken action prior to August 15, 1971, to modify work practices either relating to the introduction of new or changed equipment methods or processes, or otherwise, which is designed to and does result in an increase in the productivity of the appropriate employee unit; or

(v) An employer has taken action prior to August 15, 1971, which has otherwise raised or provided funds to provide for the wage and salary increase.

(3) The prices advanced, productivity increased, taxes raised, appropriations made or funds otherwise raised or provided for are in order to cover a wage and salary increase, if—

(i) The advancement of prices prior to August 15, 1971, was in direct anticipation of the wage and salary increase, and no additional advance in prices is or has been required on or after August 15, 1971, in order to raise funds to cover the wage and salary increase for the balance of the fiscal year in which it takes effect; or

(ii) Action modifying work practices to increase productivity taken by an employer and the employee members of the unit, or their collective bargaining agent, was taken to provide for a wage and salary increase and the resulting increase in productivity is adequate to cover the wage and salary increase; or

(iii) The taxes were raised or levied to fund a budget containing proposed expenditures for the wage and salary increase, and the taxes raised or levied, the existing taxes and other resources of the taxing body are sufficient to cover the increases and all of the other projected expenditures of the taxing body for the fiscal year in which the increase takes effect; or

(iv) The amount of the appropriation or governmental budget item from which the wage and salary increase is payable is sufficient to cover the increase and all other projected expenditures to be made from the appropriation or budget item without any contemplated additional, supplemental, or deficiency appropriation or budget amendment during the fiscal year in which the increase takes effect, and without any contemplated transfer of funds appropriated for or intended for another purpose; or

(v) Action taken by an employer to otherwise raise or provide funds was taken in direct anticipation of a wage and salary increase, and funds of sufficient amount to cover the cost of the wage and salary increase were raised or provided on or before August 15, 1971, or would be raised or provided thereafter without further action by the employer after August 15, 1971.

[37 FR. 1243, Jan. 27, 1972] § 201.16

Unaffected wages and salaries. Until further action of the Pay Board, those classes of wages and salaries which were held by the Cost of Living Council not to be subject to control by the freeze shall not be affected by this part. However, this section shall not exempt any contracts subject to Executive Order No. 11588 (3 CFR, 1971 Comp., 36 F.R. 6339, March 29, 1971), relating to the stabilization of wages and prices in the construction industry, as amended by Executive Order No. 11627 (3 CFR, 1971 Comp., 36 F.R. 20139, October 16, 1971), further providing for the stabilization of the economy, from the general wage and salary standards in this part. [37 F.R. 1244, Jan. 27, 1972]

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It shall be a violation of Pay Board Regulations, subject to the sanctions, fines, penalties and other relief provided in the Act, for any person to pay or to receive any portion of a wage and salary increase not authorized by such regulations or Pay Board decision. It shall also be a violation of such regulations, subject to the sanctions, fines, penalties and other relief provided in the Act, for any person to induce, solicit, encourage, force, or require or attempt to induce, solicit, encourage, force or require, any other person to pay or to receive any portion of a wage and salary increase not authorized by such regulations or decisions: Provided, however, That it shall not be a violation to bargain for, request, contract for or agree to (as contrasted with paying or receiving), a wage and salary increase in excess of the maximum permissible annual aggregate wage and salary increase.

[36 F.R. 25429, Dec. 31, 1971]

Subpart D-Executive and Variable Compensation

AUTHORITY: The provisions of this Subpart D issued under Economic Stabilization Act of 1970, as amended, Public Law 91-379, 84 Stat. 799; Public Law 91-558, 84 Stat. 1468; Public Law 92-8, 85 Stat. 13; Public Law 92-15, 85 Stat. 38; Public Law 92-210, 85 Stat. 743; Executive Order 11640 (37 F.R. 1213, Jan. 27, 1972), Cost of Living Council Order No. 3 (36 F.R. 20202, Oct. 16, 1971), as amended.

SOURCE: The provisions of this Subpart D appear at 37 F.R. 3357, Feb. 15, 1972, unless otherwise noted.

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(a) Purpose. The purpose of this subpart is to provide rules and standards to stabilize items of executive and variable compensation whether or not payable to an executive.

(b) Conflict with other provisions. To the extent that any provision of this chapter is inconsisent with the provisions of this subpart, the provisions of this subpart shall control. Thus, for example, in the area of executive and variable compensation only those existing contracts meeting the requirements of § 201.72(f) and pay practices previously set forth meeting the requirements of § 201.72(g) shall be allowed to operate under § 201.14.

(c) Exception. The provisions of this subpart shall not affect the provisions of a collective bargaining agreement.

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(b) "Executive compensation" includes, but is not limited to, the following items: Base salary, job perquisites, and incentive compensation;

(c) "Base salary" means cash remuneration paid to an employee by an employer on account of the performance of services;

(d) "Job perquisites" means any item furnished to or on behalf of an employee by an employer on account of the performance of services including, but not limited to, such items as reimbursement or payment by an employer of country club membership fees, dues, or other similar items, reimbursement or payment by an employer of uninsured medical expenses which are not excluded from gross income under section 104 of the Code, the personal use of an automobile furnished by an employer, payment by an employer for, or in kind furnishing of housing, and other such similar items;

(e) "Incentive compensation” includes, but is not limited to, the following items: Incentive bonuses (whether payable in cash or other property), stock options, so-called phantom stock awards (including both dividend and share units), employer contributions to stock purchase plans, and employer contributions to profit-sharing plans which fail to meet the requirements of section 401 of the Code;

(f) "Existing contract" means a contract with respect to employment all the elements of which have been reduced to a writing which has been signed by the employee and the employer on or before November 13, 1971; and

(g) "Pay practice previously set forth" means a wage or salary, incentive compensation, or sales, commission, or production incentive plan or practice which on or before November 13, 1971, meets all of the following requirements:

(1) The plan or practice had been communicated to the affected employees;

(2) The aggregate amount of the payment or award cannot be increased or

withheld in its entirety by the exercise of any discretion;

(3) The aggregate amount of the payment or award is determined by a definite method or clear formula; and

(4) The definite method or clear formula is applied only to a wage or salary amount on a percentage or other similar basis without preference to profits, earnings, or any factor or item other than the actual wage or salary amount.

(h) "Plan or practice unit" means the employees covered by an incentive compensation or sales, commission, or production incentive plan or practice, and

(i) "Plan or practice year" means the 12-month period with respect to which an incentive compensation or sales, commission, or production incentive plan or practice operates.

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(a) In general. Executive base salaries paid to and job perquisites awarded to the employees in an appropriate employee unit during any wage year shall be subject to the general wage and salary standard established in § 201.10.

(b) Deferred payments—(1) Items deferred from an earlier year. An item of base salary paid to the employees in an appropriate employee unit during any wage year which was earned by any such employees during an earlier wage year shall not be considered as an item of base salary for such employees for the wage year during which such item is paid.

(2) Items deferred to a later year. An item of base salary paid to the employees in an appropriate employee unit during any wage year shall include all such items which were earned by all such employees during such wage year.

(3) Definition. For purposes of this paragraph an item is considered as being "earned" during the wage year in which services are performed giving rise to the obligation to pay for the performance of such services whether or not such obligation is contingent upon the performance of future services or any other condition or restriction (including, but not limited to, an agreement not to compete).

(c) Valuation of items constituting job perquisites. The amount of any job perquisite shall be determined as follows:

(1) The employer's current expenditure where such expenditure constitutes the only cost of the item, otherwise;

(2) The reasonable cost of providing the item to be determined from all the facts and circumstances involved.

§ 201.74 Incentive compensation plans (other than stock options).

(a) In general-(1) Established plans. Subject to the provisions of this section an employer having an established written plan with respect to items of incentive compensation (but not including any plan or part thereof with respect to stock options) in effect before November 14, 1971, which plan does not qualify under § 201.72 (f) or (g), may continue to administer such a plan providing the following conditions are met: (i) A payment or award has actually been granted under the plan during any one of the last 3 plan years ending before November 14, 1971; (ii) the aggregate maximum amount of incentive compensation payable under the plan is determined according to a definite method or clear formula; (iii) administration of the plan is clearly in accordance with all conditions and limitations expressed therein; and (iv) administration of the plan is in the customary manner without any deviation from such manner for purposes of circumventing the intent of the wage and salary stabilization program.

(2) New or revised plans. An employer having an incentive compensation plan (but not including any plan or part thereof with respect to stock options) described in § 201.78 (b) or (c) (with respect to new or revised plans) and approved by the Pay Board pursuant to § 201.78 or described in § 201.79 (a) or (b) (with respect to new organizations) and reported to the Pay Board pursuant to 201.79 shall administer such a plan subject to the provisions of paragraphs (b) and (c) of this section.

(b) Computation of allowable amount (1) Established plans. The allowable amount of any item of incentive compensation granted to the employees in a plan unit during any wage year under a plan described in paragraph (a) (1) of this section or a plan described in paragraph (a) (2) of this section to which subparagraph (2) of this paragraph does not apply shall not exceed an amount determined as follows: The base year amount plus such base year amount multiplied by the permissible wage and salary standard established in § 201.10.

(2) New or revised plans. The allowable amount of any item of incentive

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