Federal agencies have been told to continue limiting performance awards and certain other incentive payments to their employees and have been warned to brace for further spending limits under a potential next round of budgetary sequestration.

A memo issued Friday by the Office of Management and Budget and Office of Personnel Management states that through the remainder of the government’s fiscal year, ending next Sept. 30, agencies must limit award spending for the large majority of employees “to no more than one percent of total aggregate salaries.”

“Given the current fiscal environment and the budget constraints agencies will operate under in [fiscal year] 2014, it is critical that agencies’ use of performance awards be managed in a manner that is cost-effective and leads to increased employee performance and organizational results,” it says.

The memo follows previous limits on various types of incentive and award spending.

The 1 percent of salary cap on spending applies to individual monetary awards, including rating-based performance awards and individual “special act” awards. Spending on certain other awards and incentives, such as group awards, referral bonuses and suggestion awards, separately remains frozen at 2010 levels.

Also remaining capped at 2010 levels are recruitment, retention and relocation incentive payments; as of the most recent report, covering 2009, agencies paid such incentives to more than 43,000 employees, worth nearly $350 million. The same limit applies to “quality step increases,” which are advancements up a pay ladder for good performance that raise an employee’s salary about 3 percent.

Time-off awards are excluded but should be used “judiciously as they do represent a cost to the agency.”

Separately, agencies may not grant individual performance awards to career Senior Executive Service and other career employees at similar high levels worth more than 5 percent of the combined salaries for those positions. The relatively small number of employees under those pay systems have a stronger pay-for-performance aspect to their compensation than rank-and-file employees.

A ban imposed in 2010 on discretionary awards, bonuses, and similar payments for political appointees remains in effect.

In addition, if another round of sequestration hits in January as scheduled under current law — one possible outcome of budget talks now underway in Congress would be to avoid that — each agency “shall further reduce awards spending pools for SES and non-SES by an amount proportional to the Governmentwide reduction made,” the memo says.

Agencies should discuss their agency award programs in agency labor-management forums and “should honor all collective bargaining obligations and agreements prior to implementation,” it adds.

Although the administration memo focuses on budgetary restrictions, awards policies for federal employees have been a subject of controversy this year. The House last week approved a bill to reduce by about 13 percent, to $345 million, the available award money at the Veterans Affairs Department, which has come under criticism for paying awards amid problems including a backlog of disability claims.