DEPUTY SECRETARY OF DEFENSE t0 10 DEFENSE PENTAGON

WASHINGTON , DC 20301 -1010

10 OCT _,-, .r'J 8: 20 OCT 0 6 2010

The Honorable Carl Levin Chairman Committee on Armed Services United States Senate Washington, DC 20510

Dear Mr. Chairman:

Thank you for your September 9, 2010, letter regarding senior mentors hired by the Department of Defense (DoD) and the financial disclosure report completed by them.

Senior mentors are hired as Highly Qualified Experts (HQEs), and as you indicated, the determination that senior mentors file the confidential, rather than the public, financial report is based on guidance received by the U.S. Office of Goverrunent Ethics (OGE) for HQEs. OGE's guidance regarding the type of disclosure for HQEs is based on the lowest pay in the range of pay for which they are eligible. Based on the Department's HQE policy concerning pay, OGE

. concluded that HQEs, including senior mentors, would file the confidential financial disclosure report. Additionally, you noted that the Department may seek an "equal classification determination," from OGE, which would require senior mentors to file the public instead of the confidential financial disclosure report, and you urged the Department to make such a request.

On September 27, 2010, DoD submitted its formal request to OGE for an equal classification determination for senior mentors. I am pleased to advise you OGE completed its review of our request, and on September 29, 2010, issued a favorable determination. A copy of our request and OGE's decision is enclosed for your information. As noted in the decision, our request to place the disclosure requirement on the same footing as employees in the standard pay system has been granted. Accordingly, all newly hired senior mentors whose basic pay is equal to or exceeds 120% ofGS-IS, Step 1 (currently $119,554), will now be required to file the public financial disclosure report (Standard Form SF 278).

I trust this information is helpful to you and the Committee.

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DEPARTMENT OF DEFENSE OFFICE OF GENERAL COUNSEL

1600 DEFENSE PENTAGON WASHINGTION, DC 20301-1600

Standards or Conduct Office

September 27,2010

The Honorable Robert I. Cusick, Director Mr. Don Fox, General Counsel U.S. Office of Government Ethics 1201 New York Avenue, NW, Suite 500 Washington, DC 20005

Subject: Request for Equal Classification Determination

Dear Messrs. Cusick and Fox :

I am writing to request an "equal classification determination" from the Office of Government Ethics (aGE) for a subset of Highly Qualified Expert (HQE) employees at the Department of Defense (DoD) known as "senior mentors."

In June of 20 10, DoD consulted aGE on the issue of which financial disclosure report HQEs at DoD are required to file. aGE determined that HQEs are to file the confidential report (aGE Form 450) instead of the public SF 278 report. In reaching this conclusion, your office cited an August 20, 2007 OGE memorandum on disclosure requirements for employees in non-standard pay systems. In the 2007 opinion, aGE explained that for employees in non-standard pay systems, financial disclosure reporting is determined by examining the lowest pay in the range of pay, not on the actual pay of an individual employee. At DoD, under the new HQE policy guidance, the lowest pay in the broad range of pay for HQEs is that of a GS-15 step 1, a pay level that does not ordinarily trigger public reporting (because it is below the 120% of GS-151 I threshold). OGE also pointed out in the 2007 opinion that Federal agencies with non-standard pay systems could ask for an "equal classification determination" in cases where they believe an employee in a particular position should be required to file a public report.

The Deputy Secretary has directed my office to seek an equal classification determination for those senior mentors whose rate of basic pay, as that term is defined by the Office of Personnel Management in 5 C.F.R. § 575.302, is equal to or exceeds 120% of GS-151l (currently $119,554). "Senior mentors" are defined in the Secretary of Defense's April I, 20 I 0 policy guidance as "retired flag, general or other military officers or retired senior civilian officials who provide expert experience-based mentoring, teaching, training, advice, and recommendations to senior military officers, staffs and students as they participate in war games, warfighting courses, operational planning, operational exercises, and decision-making exercises." The April I, 2010 guidance provides that the rate of basic pay for HQEs is a range that begins at GS-15, step I, plus locality pay (e.g. for an HQE in the Washington D.C. metro area, the pay range would start at $123,758), and is capped by statute at the Executive Schedule Level II rate (which is currently $179,700).

Differences in salary will be determined according to experience and level of expertise. The upper level is the equivalent base pay authorized for 3- and 4-star flag and general officers on active duty.

We believe that an equal classification determination for senior mentors is warranted for the following reasons:

• First, 000 anticipates that the vast majority of senior mentors hired under the new Secretary of Defense policy will be retired flag and general officers. In fact, we expect that many will be retired Generals/Admirals and Lieutenant GeneralsNice Admirals (0-9s and 0-10s), the highest grades for a military officer. Our view is that a public disclosure filing requirement for senior mentors is commensurate with their level of responsibility, as reflected by the scope and kind of advice they provide. Equally compelling is the seniority of the active duty flag and general officers to whom senior mentors give advice during operational exercises. In fact, implementing guidance issued by the Deputy Secretary of Defense on July 8, 2010, specifically notes that "the category of 'senior military officers, staffs and students' receiving senior mentor services generally contemplates military officers, staffs and students who are at the grade of 0-7 and above, or civilian equivalent." Although senior mentors will not directly make decisions that bind 000, they will be in a unique position to inform and influence war planning at the highest level and may, ultimately, hold some sway, indirect or otherwise, regarding Defense purchasing decisions.

• Second, the public filing requirement is warranted by the senior mentor's actual rate of basic pay, which will generally mirror the rate of pay of their active duty flag and general officer counterparts. Relying on the actual rate of basic pay as the trigger for a public disclosure (by determining if it is equal to or greater than 120% of GS-15/ 1) conforms to established and well-understood regulatory guidance in 5 C.F.R. § 2634.202(c) for standard pay systems. Additionally, focusing on a senior mentor's actual rate of basic pay may very well be more compelling to the public than relying on the lowest pay in the 000 HQE range of pay, a hypothetical salary level which few, if any, senior mentors will ever actually draw.

• Finally, public disclosure provides more transparency to the 000 senior mentor program, and as a result, may give Congress, the media, and the general public greater confidence in the integrity of 000 operations. Because of their backgrounds and the intermittent nature of their mentor work, we expect that some prospective senior mentor candidates currently hold executive leadership and board positions in Defense contractor companies. By making the financial disclosure reports of our senior mentors available to the public upon request, we promote a higher degree of public trust that those serving in positions of great responsibility as senior mentors do not have financial interests that may be affected by the duties they are performing for these outside entities.

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We appreciate the attention you have given this thorny regulatory issue and look forward to your determination. Please do not hesitate to contact me with any follow·up questions or concerns. 1 can be reached on 703·571 ·9451 or at leigh.bradley@osd.mil.

Sincerely,

~-6z~ . Leigh A. Bradley, Director 7

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United States Office of Government Ethics 1201 New York Avenue, NW, Suite 500 Washington, DC 20005-3917

September 29, 2010

Leigh A. Bradley Director, Standards of Conduct Office Office ofGeneral Counsel Department of Defense Washington, DC 20301-1600

Dear Ms. Bradley:

I have reviewed your request for our Office to make a detennination under 5 U.S.C. app. § 101 (f)(3) that the "senior mentors" who are hired as Highly Qualified Expert employees at the Department of Defense (DoD) are in positions that should file public financial disclosure reports (SF 278). Currently, senior mentors are not required to file SF 278 Public Financial Disclosure Reports because they do not occupy positions that are covered under the criteria mandating the filing of such reports. However, section 101(f)(3) allows' an agency to request that the Director of the Office of Government Ethics detennine that a position is of"equal classification" with other positions that are required to file SF 278s. .

According to your letter, most of the senior mentors at DoD are retired flag and general officers who attained the highest grades for military officers during their active duty service. These individuals are now sharing their expert experience and knowledge with current active duty senior military officers and staff. The senior mentors provide teaching, training, advice and recommendations to the military officers and staffwho participate in war games, war fighting courses, operational planning, operational exercises, and decision-making exercises and some may have input into purchasing decisions. While the senior mentors do not make any final decisions, they do inform and influence war planning at the highest levels ofDoD. In addition, the actual rate of basic pay received by the senior mentors will generally parallel the rate ofpay received by their active duty flag and general officer counterparts, who are required to file public financial disclosure reports. While having senior mentors file OGE 450 Confidential Financial Disclosure Reports would provide DoD with an effective means to avoid conflicts of interest involving senior mentors, you note the importance of providing public transparency into the financial interests of senior mentors given their backgrounds and the nature of their work.

BaSed on the information you have provided about these positions, pursuant to section 101(f)(3) of the Ethics in Government Act your request that senior mentor positions be of"equal classification" with positions required to file SF 278s is approved.

Ms. Leigh A. Bradley Page 2

If you have any questions regarding the detennination in this letter, please contact Elaine Newton, Attorney-Advisor, at 202-482-9265.

DonW.Fox General Counsel & Principal Deputy Director

CARL LEVIN . MICH IGAN. CHAIRMAN

JOSEPH I. LlE BEAj..1AN, CONr..ECnCUr JOHN McCAIN, ARllONA JACK REED. RHODE ISLA~D JAMES M. INHOFE, OKLAHOMA DANIEL K. AKAKA, HAWAII J EFF SESSIONS, ALABA....·1A BILL NELSON, FLORIDA SAXBY CHAMBLISS, GEORGIA E. BENJAMIN NELSON, NEBRASKA L1i..iDSEV GRAHAM, SOUTH CAROLINA EVAN BAVH, INDIANA JOHN THUNE, SOUTH DAKOTA JIM WEBB, VIRGINIA ROGEA F. WICKER, M ISSISSIPPI CLAIRE McCASKILL, MISSOuRI GEORGE S. LeMIEUX, FLORIDA CjRnitrd ~t9tr's ~(nat(M ARK UDALL, COLORAOO scan P. BROWN, MASSACHUSEns KAV R. HAGAN, NORTH CAROLINA RICHARD BURR, NOR TH CAROLINA COMMITTEE ON ARMED SERVICES MARK BEG1CH, ALASKA DAVID VInER, LOUISIANA ROLAND W. BURR IS. IL LINOIS SUSAN M . COLLINS, MAINE WASHINGTON, DC 20510-6050 JEFF BINGAMAN, NEW MEXICO EDWARD E. KAUFMAN. DELAWARE CAR.TE P. GOODWIN, WEST VIRGINIA

RICHARD D. DeBOBES, STAFF DIRECTOR JOSEPH W. BOWAB, REPUBLICA N STAFF DIRECTOR

September 9, 2010

The Honorable William 1. Lynn Deputy Secretary of Defense The Pentagon Washington, D.C.

Dear Secretary Lynn:

Earlier this year, Secretary Gates issued a policy letter directing that all senior mentors of the Department of Defense be hired as "highly qualified experts" (HQEs) and comply with all applicable Federal personnel and ethics laws and regulations. A fact sheet attached to the policy letter stated that HQEs who are expected to serve for more than 60 days in a calendar year and whose rate of basic pay is equal to a statutory threshold "are required by regulation to file the SF 278, the public financial disclosure report."

On July 8, 2010, you issued supplemental guidance, in which you stated that "Senior mentors appointed as HQEs will file the confidential financial disclosure report (OGE From 450), instead of the public report (SF 278), based on specific guidance received from the U.S. Office of Govemment Ethics (OGE)." You explained :

"OGE has determined that, with respect to the DoD-unique HQE appointment, it is appropriate to look not at an individual HQE's actual pay, but at the lowest pay in the HQE range of pay when deciding whether the public or the confidential report must be filed."

We disagree with OGE's interpretation of the statute. In our view, the actual rate of pay for a particular senior mentor is a better indicator of his or her individual responsibility and influence within the Department of Defense than a hypothetical "lowest possible" salary level. We note that the legislative branch has interpreted the very same statutory language to require public financial disclosure by congressional staff based on actual rates of pay, not hypothetical salary levels.

Fortunately, the OGE position on which your supplemental guidance is based leaves room for DOD to voluntarily apply a public disclosure requirement to senior mentors. OGE's August 20, 2007, memorandum explains:

"Over the years, OGE has advised agencies with non-standard pay systems to ask for an equal classification determination in cases where they believe an employee in a particular position should be required to file a public report .... Under the equal classification provision, an agency may request that OGE determine that a position is the equivalent of other positions for which filing is required. Once OGE makes such a determination, the incumbent of the position must file an SF 278."

We believe that DOD's senior mentors exercise a level of responsibility and influence equivalent to persons serving in positions currently covered by public financial disclosure requirements. Accordingly, we ask that you review this issue and make an appropriate request of the Office of Govemment Ethics. If this issue is not adequately addressed by the DOD and OGE, we are prepared to propose appropriate legislation to ensure public financial disclosure by senior mentors and other DOD HQEs based on their actual rates of pay, rather than hypothetical salary levels.

Thank you for your attention to this matter.

Sincerely,

~cc.· , John McCain Ranking Republican