Defense Transformation
Preliminary Observations on DOD's Proposed Civilian Personnel Reforms Gao ID: GAO-03-717T April 29, 2003DOD is in the midst of a major transformation effort including a number of initiatives to transform its forces and improve its business operations. DOD's legislative initiative would provide for major changes in the civiliean and military human capital management, make major adjustments in the DOD acquisition process, affect DOD's organization structure, and change DOD's reporting requirements to Congress, among other things. DOD's proposed National Security Personnel System (NSPS) would provide for wide-ranging changes in DOD's civilian personnel pay and performance management, collective bargaining, rightsizing, and a variety of other human capital areas. The NSPS would enable DOD to develop and implement a consistent DOD-wide civilian personnel system. This testimony provides GAO's preliminary observations on aspects of DOD's legislative proposal to make changes to its civilian personnel system and poses critical questions that need to be considered.
Many of the basic principles underlying DOD's civilian human capital proposals have merit and deserve serious consideration. The federal personnel system is clearly broken in critical respects--designed for a time and workforce of an earlier era and not able to meet the needs and challenges of our current rapidly changing and knowledge-based environment. DOD's proposal recognizes that as GAO has stated and the experiences of leading public sector organizations here and abroad have found strategic human capital management must be the centerpiece of any serious government transformation effort. More generally, from a conceptual standpoint, GAO strongly supports the need to expand broad banding and pay for performance-based systems in the federal government. However, moving to quickly or prematurely at DOD or elsewhere, can significantly raise the risk of doing it wrong. This could also serve to severely set back the legitimate need to move to a more performance and results-based system for the federal government as a whole. Thus, while it is imperative that we take steps to better link employee pay and other personnel decisions to performance across the the federal government, how it is done, when it is done, and the basis on which it is done, can make all the difference in whether or not we are successful. In our view, one key need is to modernize performance management systems in executive agencies so that they are capable of supporting more performance-based pay and other personnel decisions. Unfortunately, based on GAO's past work, most existing federal performance appraisal systems, including a vast majority of DOD's systems, are not currently designed to support a meaningful performance-based pay system. The critical questions to consider are: should DOD and/or other agencies be granted broad-based exemptions from existing law, and if so, on what bas; and whether they have the institutional infrastructure in place to make effective use of the new authorities. This institutional infrastructure includes, at a minimum, a human capital planning process that integrates the agency's human capital policies, strategies, and programs with its program goals and mission, and desired outcomes; the capabilities to effectively develop and implement a new human capital system; and, importantly, a set of adequate safeguards, including reasonable transparency and appropriate accountability mechanisms to ensure the fair, effective, and credible implementation of a new system. In our view, Congress should consider providing governmentwide broad banding and pay for performance authorities that DOD and other federal agencies can use provided they can demonstrate that they have a performance management system in place that meets certain statutory standards, which can be certified to by a qualified and independent party, such as OPM, within prescribed timeframes. Congress should also consider establishing a governmentwide fund whereby agencies, based on a sound business case, could apply for funding to modernize their performance management systems and ensure that those systems have adequate safeguards to prevent abuse. This approach would serve as a positive step to promote high-performing organizations throughout the federal government while avoiding fragmentation within the executive branch in the critical human capital area.
GAO-03-717T, Defense Transformation: Preliminary Observations on DOD's Proposed Civilian Personnel Reforms
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Testimony:
Before the Subcommittee on Civil Service and Agency Organization,
Committee on Government Reform, House of Representatives:
United States General Accounting Office:
GAO:
For Release on Delivery Expected at 10:00 a.m. EDT:
Tuesday, April 29, 2003:
Defense Transformation:
Preliminary Observations on DOD's Proposed Civilian Personnel Reforms:
Statement of David M. Walker,
Comptroller General of the United States:
GAO-03-717T:
GAO Highlights:
Highlights of GAO-03-717T, testimony before the Subcommittee on Civil
Service and Agency Organization, Committee on Government Reform, House
of Representatives
Why GAO Did This Study:
DOD is in the midst of a major transformation effort including a number
of initiatives to transform its forces and improve its business
operations. DOD‘s legislative initiative would provide for major
changes in the civilian and military human capital management, make
major adjustments in the DOD acquisition process, affect DOD‘s
organization structure, and change DOD‘s reporting requirements to
Congress, among other things.
DOD‘s proposed National Security Personnel System (NSPS) would provide
for wide-ranging changes in DOD‘s civilian personnel pay and
performance management, collective bargaining, rightsizing, and a
variety of other human capital areas. The NSPS would enable DOD to
develop and implement a consistent DOD-wide civilian personnel system.
This testimony provides GAO‘s preliminary observations on aspects of
DOD‘s legislative proposal to make changes to its civilian personnel
system and poses critical questions that need to be considered.
What GAO Found:
Many of the basic principles underlying DOD‘s civilian human capital
proposals have merit and deserve serious consideration. The federal
personnel system is clearly broken in critical respects”designed for a
time and workforce of an earlier era and not able to meet the needs and
challenges of our current rapidly changing and knowledge-based
environment. DOD‘s proposal recognizes that, as GAO has stated and the
experiences of leading public sector organizations here and abroad have
found strategic human capital management must be the centerpiece of any
serious government transformation effort.
More generally, from a conceptual standpoint, GAO strongly supports the
need to expand broad banding and pay for performance-based systems in
the federal government. However, moving too quickly or prematurely at
DOD or elsewhere, can significantly raise the risk of doing it wrong.
This could also serve to severely set back the legitimate need to move
to a more performance and results- based system for the federal
government as a whole. Thus, while it is imperative that we take steps
to better link employee pay and other personnel decisions to
performance across the federal government, how it is done, when it is
done, and the basis on which it is done, can make all the difference in
whether or not we are successful. In our view, one key need is to
modernize performance management systems in executive agencies so that
they are capable of supporting more performance-based pay and other
personnel decisions. Unfortunately, based on GAO‘s past work, most
existing federal performance appraisal systems, including a vast
majority of DOD‘s systems, are not currently designed to support a
meaningful performance-based pay system.
The critical questions to consider are: should DOD and/or other
agencies be granted broad-based exemptions from existing law, and if
so, on what basis; and whether they have the institutional
infrastructure in place to make effective use of the new authorities.
This institutional infrastructure includes, at a minimum, a human
capital planning process that integrates the agency‘s human capital
policies, strategies, and programs with its program goals and mission,
and desired outcomes; the capabilities to effectively develop and
implement a new human capital system; and, importantly, a set of
adequate safeguards, including reasonable transparency and appropriate
accountability mechanisms to ensure the fair, effective, and credible
implementation of a new system.
In our view, Congress should consider providing governmentwide broad
banding and pay for performance authorities that DOD and other federal
agencies can use provided they can demonstrate that they have a
performance management system in place that meets certain statutory
standards, which can be certified by a qualified and independent party,
such as OPM, within prescribed timeframes. Congress should also
consider establishing a governmentwide fund whereby agencies, based on
a sound business case, could apply for funding to modernize their
performance management systems and ensure that those systems have
adequate safeguards to prevent abuse. This approach would serve as a
positive step to promote high-performing organizations throughout the
federal government while avoiding fragmentation within the executive
branch in the critical human capital area.
www.gao.gov/cgi-bin/getrpt?GAO-03-717T.
To view the full report, including the scope
and methodology, click on the link above.
For more information, contact Derek Stewart at (202) 512-5559 or
stewartd@gao.gov.
[End of section]
Chairwoman Davis, Mr. Davis, and Members of the Subcommittee:
It is a pleasure to appear before you today to provide our preliminary
observations on the Department of Defense's (DOD) proposed National
Security Personnel System (NSPS) included as part of the Defense
Transformation for the 21st Century Act of 2003. As you know, DOD is in
the midst of a major transformation and it has undertaken a number of
related initiatives to transform its forces and fundamentally improve
its business operations. As part of DOD's transformation process, the
Secretary of Defense and senior civilian and military leaders have
committed to adopt a capabilities-based approach to acquisition
planning and to improve the linkage between overall strategy and
individual investments. At the same time, DOD has embarked on a series
of efforts to achieve strategic savings and improve its business
processes, including financial management, support infrastructure
reforms to include base closures, information technology modernization,
logistics reengineering, and strategic human capital management. In
that regard, I am pleased to serve as an observer to the Defense
Business Practice Implementation Board. Notwithstanding these ongoing
efforts, GAO has reported a range of DOD challenges for many years. In
addition, DOD also is covered by several of GAO's governmentwide high-
risk areas, including the area of strategic human capital management.
The proposed Defense Transformation for the 21st Century Act of 2003
represents a substantive legislative proposal that has both significant
precedent-setting implications for the government and far-reaching
implications on the way DOD is managed. Specifically, the critical
questions are whether DOD and/or other agencies should be granted
broad-based exemptions from existing law, and if so, on what basis; and
do agencies have the institutional infrastructure in place to make
effective use of the new authorities they are seeking. DOD's
legislative initiative would, among other things, provide for major
changes in civilian and military human capital management, make
important adjustments to the DOD acquisition process, affect DOD's
organization structure, and change DOD's reporting requirements to
Congress.
As a starting point, and as agreed with the Subcommittee, today I will
provide our preliminary observations on DOD's legislative proposal to
make changes to its civilian personnel system. The proposed NSPS would
provide for wide-ranging changes in DOD's civilian personnel pay and
performance management, collective bargaining, rightsizing, and a
variety of other human capital areas. The NSPS would enable DOD to
develop and implement a consistent, DOD-wide civilian personnel system
bringing together the many disparate systems that exist today. The
proposal, while providing a section-by-section analysis, does not
provide an adequate justification given the significance of the
proposed changes. In addition, it is my understanding that a document
containing a fully developed justification for the proposed changes is
not available. At the same time, it our understanding that DOD's
current thinking is that NSPS will be based on the work done by DOD's
Human Resources Best Practices Task Force. The Task Force reviewed
federal personnel demonstration projects and selected alternative
personnel systems to identify practices that it considered promising
for a DOD civilian human resources strategy. These practices were
outlined in a April 2, 2003, Federal Register notice asking for comment
on DOD's plan to integrate all of its current science and technology
reinvention laboratory demonstration projects under a single human
capital framework consistent with the best practices DOD
identified.[Footnote 1]
Many of the basic principles underlying DOD's civilian human capital
proposals have merit and deserve serious consideration. The federal
personnel system is clearly broken in critical respects--designed for a
time and workforce of an earlier era and not able to meet the needs and
challenges of our current rapidly changing and knowledge-based
environment. DOD's proposal recognizes that, as GAO has stated and the
experiences of leading public sector organizations here and abroad have
found, strategic human capital management must be the centerpiece of
any serious government transformation effort.
Human capital reforms at DOD obviously have important implications for
national security. However, given the massive size of DOD and the
nature and scope of the changes that are being considered, DOD's
proposal also has important precedent-setting implications for federal
human capital management generally and should also be considered in
that context. The critical questions raised are should DOD and/or other
agencies be granted broad-based exemptions from existing law, and if
so, on what basis; and whether they have the institutional
infrastructure in place to make effective use of the new authorities.
This institutional infrastructure includes, at a minimum, a human
capital planning process that integrates the agency's human capital
policies, strategies, and programs with its program goals and mission,
and desired outcomes; the capabilities to effectively develop and
implement a new human capital system; and importantly a set of adequate
safeguards, including reasonable transparency and appropriate
accountability mechanisms, to ensure the fair, effective, and credible
implementation and application of a new system.
Consistent with this view, we have long held that the first step toward
meeting the government's human capital challenges is for agency leaders
to identify and make use of all the appropriate administrative
authorities available to them to manage their people for results,
undertaken as part of and consistent with proven change management
practices. Much of the authority agency leaders need to manage human
capital strategically is already available under current laws and
regulations. This includes the ability to develop modern, effective,
and credible performance management systems that would support more
performance-based pay decisions. The second step is for policymakers to
pursue incremental legislative reforms to give agencies additional
tools and flexibilities to hire, manage, and retain the human capital
they need, particularly in critical occupations. The third step is for
all interested parties to work together to identify, based in part on
the experiences of the incremental reforms and demonstration projects,
the kinds of comprehensive legislative reforms in the human capital
area that should be enacted over time, taking into account the extent
to which existing approaches make sense in the current and future
operating environment. [Footnote 2]
Observations on Selected Provisions of the Proposed NSPS:
With almost 700,000 civilian employees on its payroll, DOD is the
second largest federal employer of civilians in the nation, after the
Postal Service. Defense civilian personnel, among other things, develop
policy, provide intelligence, manage finances, and acquire and maintain
weapon systems. Given the current global war on terrorism, the role of
DOD's civilian workforce is expanding, such as participation in combat
support functions that free military personnel to focus on warfighting
duties for which they are uniquely qualified. Civilian personnel are
also key to maintaining DOD's institutional knowledge because of
frequent rotations of military personnel. However, since the end of the
Cold War, the civilian workforce has undergone substantial change, due
primarily to downsizing, base realignments and closures, competitive
sourcing initiatives, and DOD's changing missions. For example, between
fiscal years 1989 and 2002, DOD reduced its civilian workforce by about
38 percent, with an additional reduction of about 55,000 personnel
proposed through fiscal year 2007. Some DOD officials have expressed
concern about a possible shortfall of critical skills because
downsizing has resulted in a significant imbalance in the shape,
skills, and experience of its civilian workforce while more than 50
percent of the civilian workforce will become eligible to retire in the
next 5 years. As a result, the orderly transfer of DOD's institutional
knowledge is at risk.
These factors, coupled with the Secretary of Defense's significant
transformation initiatives, make it imperative for DOD to strategically
manage its civilian workforce based on a total force perspective which
includes civilian personnel as well as active duty and reserve military
personnel and contractor personnel. This strategic management approach
will enable DOD to accomplish its mission by putting the right people
in the right place at the right time and at a reasonable cost.
NSPS is intended to be a major component of DOD's efforts to more
strategically manage its workforce and respond to current and emerging
challenges. This morning I will highlight several of the key provisions
of NSPS that in our view are most in need of close scrutiny as Congress
considers the DOD proposal.
Providing the Wide-Ranging Authority to Design a New Civilian Personnel
System:
The DOD proposal would allow the Secretary of Defense to jointly
prescribe regulations with the Director of the Office of Personnel
Management (OPM) to establish a flexible and contemporary human
resources management system for DOD--NSPS. The joint issuance of
regulations is similar to that set forth in the Homeland Security Act
of 2002[Footnote 3] between the Secretary of Homeland Security and the
Director of OPM for the development of the Department of Homeland
Security (DHS) human resources management system. However, unlike the
legislation creating DHS, the Defense Transformation for the 21st
Century Act would allow the Secretary of Defense to waive the
requirement for joint issuance of regulations if, in his or her
judgment, it is "essential to the national security"--which is not
defined in the act. While the act specifies a number of key provisions
of Title 5 that shall not be altered or waived, including those
concerning veterans' preference, merit protections, and safeguards
against discrimination and prohibited personnel practices, the act
nonetheless would, in substance, provide the Secretary of Defense with
significant independent authority to develop a separate and largely
autonomous human capital system for DOD.
The DOD proposal also has significant potential implications for
governmentwide human capital policies and procedures and for OPM as the
President's agent and advisor for human capital matters and overseer of
federal human capital management activities.[Footnote 4] In essence,
the act would allow for the development of a personnel system for the
second largest segment of the federal workforce that is not necessarily
within the control or even direct influence of OPM. To strike a better
balance between reasonable management flexibility and the need for a
reasonable degree of consistency and adequate safeguards to prevent
abuse throughout the government, Congress should consider making these
provisions of the Defense Transformation for the 21st Century Act
consistent with the Homeland Security Act of 2002, or at a minimum,
providing some statutory guidance on what would constitute a situation
"essential to the national security" that would warrant the Secretary
of Defense to act independently of the Director of OPM.
Implementing Pay Reform and Performance Management:
DOD states that it needs a human capital management system that
provides new and increased flexibility in the way it assesses and
compensates its employees, and toward that end, we understand that in
implementing NSPS DOD plans to strengthen its performance appraisal
systems and implement pay banding approaches as core components of any
new DOD human capital system. We have a long and successful experience
in using pay banding with our analyst staff as a result of the GAO
Personnel Act of 1980. Certain DOD components have had a number of
years of experience with pay banding through OPM's personnel
demonstration projects, authorized by the Civil Service Reform Act of
1978, to test and introduce beneficial change in governmentwide human
resources management systems. For example, in 1980, the Navy personnel
demonstration project, commonly referred to as the China Lake
demonstration project, implemented a number of reforms including pay
banding and a pay for performance system. More recently, the Civilian
Acquisition Workforce personnel demonstration project (AcqDemo) was
implemented in 1999 and created a pay banding system that covers part
of its civilian acquisition, technology, and logistics
workforce.[Footnote 5] The expected results of AcqDemo's pay banding
system include increased flexibility to assign employees as well as
increased pay potential and satisfaction with advancement for
employees. According to agency officials, an evaluation to OPM on
AcqDemo's progress is scheduled to be available this June. Lastly,
DOD's science and technology reinvention laboratory demonstration
projects all implemented some form of pay banding and pay for
performance. OPM reports that these reinvention laboratory
demonstration projects have been able to offer more competitive
starting salaries. Additionally some labs' turnover experience was
significantly lower among highly-rated employees and higher among
employees with lower ratings.[Footnote 6] DOD's demonstration projects
clearly provide helpful insights and valuable lessons learned in
connection with broad banding and pay for performance efforts. At the
same time these projects and related DOD efforts involve less than 10
percent of DOD's civilian workforce and expanding these concepts to the
entire department will require significant effort and likely need to be
implemented in phases over several years.
As you know, there is growing agreement on the need to better link
individual pay to performance. Establishing such linkages is essential
if we expect to maximize the performance and assure the accountability
of the federal government for the benefit of the American people. As a
result, from a conceptual standpoint, we strongly support the need to
expand broad banding approaches and pay for performance-based systems
in the federal government. However, moving too quickly or prematurely
at DOD or elsewhere can significantly raise the risk of doing it wrong.
This could also serve to severely set back the legitimate need to move
to a more performance and results-based system for the federal
government as a whole. Thus, while it is imperative that we take steps
to better link employee pay to performance across the federal
government, how it is done, when it is done, and the basis on which it
is done can make all the difference in whether or not such efforts are
successful. In our view, one key need is to modernize performance
management systems in executive agencies so that they are capable of
adequately supporting more performance-based pay and other personnel
decisions. Unfortunately, based on GAO's past work, most existing
federal performance appraisal systems, including a vast majority of
DOD's systems, are not designed to support a meaningful performance-
based pay system.
The bottom line is that in order to receive any additional performance-
based pay flexibility for broad based employee groups, agencies should
have to demonstrate that they have modern, effective, credible, and, as
appropriate, validated performance management systems in place with
adequate safeguards, including reasonable transparency and appropriate
accountability mechanisms, to ensure fairness and prevent
politicalization and abuse.
At your request Madam Chairwoman, and that of Senator Voinovich, we
identified key practices leading public sector organizations both here
in the United States and abroad have used in their performance
management systems to link organizational goals to individual
performance and create a "line of sight" between an individual's
activities and organizational results.[Footnote 7] These practices can
help agencies develop and implement performance management systems with
the attributes necessary to effectively support pay for performance.
More specifically, Congress should consider establishing statutory
standards that an agency must have in place before it can implement
broad banding or a more performanced-based pay program. As the request
of Congressman Danny Davis, we developed an initial list of possible
safeguards to help ensure that any additional flexibility Congress may
grant for expanding pay for performance management systems in the
government are fair, effective, and credible. We provided an initial
list to Congressman Davis late last week. This initial list of
safeguards was developed based on our extensive body of work looking at
the performance management practices used by leading public sector
organizations both in the United States and in other countries as well
as our own experiences at GAO in implementing a modern performance
management system for our own staff. We believe that the following
could provide a starting point for developing a set of statutory
safeguards in connection with any additional efforts to expand pay for
performance systems.
* Assure that the agency's performance management systems (1) link to
the agency's strategic plan, related goals, and desired outcomes, and
(2) result in meaningful distinctions in individual employee
performance. This should include consideration of critical competencies
and achievement of concrete results.
* Involve employees, their representatives, and other stakeholders in
the design of the system, including having employees directly involved
in validating any related competencies, as appropriate.
* Assure that certain predecisional internal safeguards exist to help
achieve the consistency, equity, nondiscrimination, and
nonpoliticization of the performance management process (e.g.,
independent reasonableness reviews by Human Capital Offices and/or
Offices of Opportunity and Inclusiveness or their equivalent in
connection with the establishment and implementation of a performance
appraisal system, as well as reviews of performance rating decisions,
pay determinations, and promotion actions before they are finalized to
ensure that they are merit-based; internal grievance processes to
address employee complaints; and pay panels whose membership is
predominately made up of career officials who would consider the
results of the performance appraisal process and other information in
connection with final pay decisions).
* Assure reasonable transparency and appropriate accountability
mechanisms in connection with the results of the performance management
process (e.g., publish overall results of performance management and
pay decisions while protecting individual confidentiality, and report
periodically on internal assessments and employee survey results).
The above items should help serve as a starting point for Congress to
consider in crafting possible statutory safeguards for executive
agencies' performance management systems. OPM would then issue guidance
implementing the legislatively defined safeguards. The effort to
develop such safeguards could be part of a broad-based expanded pay for
performance authority under which whole agencies and/or employee groups
could adopt broad-banding and move to more pay for performance oriented
systems if certain conditions are met. Specifically, the agency would
have to demonstrate, and OPM would have to certify, that a modern,
effective, credible, and, as appropriate, validated performance
management system with adequate safeguards, including reasonable
transparency and appropriate accountability mechanisms, is in place to
support more performance-based pay and related personnel decisions
before the agency could implement a new system. In this regard OPM
should consider adopting class exemption approaches and OPM should be
required to act on any individual certifications within prescribed time
frames (e.g., 30-60 days). This approach would allow for a broader-
based yet more conceptually consistent approach in this critical area.
It would also facilitate a phased-implementation approach throughout
government. The list is not intended to cover all the attributes of a
modern, results-oriented performance management system. Rather, the
items on the list cover possible safeguards for performance management
systems to help ensure those systems are fair, effective, and credible.
Congress should also consider establishing a governmentwide fund
whereby agencies, based on a sound business case, could apply for funds
to modernize their performance management systems and ensure those
systems have adequate safeguards to prevent abuse. This approach would
serve as a positive step to promote high-performing organizations
throughout the federal government while avoiding fragmentation within
the executive branch in the critical human capital area.
Establishing Senior Executive Service Pay and Performance Management:
The Senior Executive Service (SES) needs to lead the way in the federal
government's effort to better link pay to performance. We have reported
that there are significant opportunities to strengthen efforts to hold
senior executives accountable for results.[Footnote 8] In particular,
more progress is needed in explicitly linking senior executive
expectations for performance to results-oriented organizational goals
and desired outcomes, fostering the necessary collaboration both within
and across organizational boundaries to achieve results, and
demonstrating a commitment to lead and facilitate change. These
expectations for senior executives will be critical to keep agencies
focused on transforming their cultures to be more results-oriented,
less hierarchical, more integrated, and externally focused and thereby
be better positioned to respond to emerging internal and external
challenges, improve their performance, and assure their accountability.
Given the state of agencies' performance management systems, Congress
should consider starting federal results-oriented pay reform with the
SES. In that regard and similar to the Homeland Security Act, the
proposed NSPS would increase the current total allowable annual
compensation limit for senior executives up to the Vice President's
total annual compensation. However, the Homeland Security Act provides
that OPM, with the concurrence of the Office of Management and Budget,
certify that agencies have performance appraisal systems that, as
designed and applied, make meaningful distinctions based on relative
performance. NSPS does not include such a certification provision.
Congress should consider requiring OPM to certify that the DOD SES
performance management system makes meaningful distinctions in
performance and employs the other practices used by leading
organizations to develop effective performance management systems that
I mentioned earlier, before DOD could increase the annual compensation
limit for senior executives.[Footnote 9]
Employees and Employee Organizations Involvement in Creating NSPS:
The proposed Defense Transformation for the 21st Century Act includes
provisions intended to ensure collaboration with employee
representatives in the planning, development, and implementation of a
human resources management system. For example, employee
representatives are to be given the opportunity to review and make
recommendations on the proposed NSPS. The Secretary of Defense and the
Director of OPM are to provide employee representatives with a written
description of the proposed system, give these representatives at least
30 calendar days to review and make recommendations on the proposal,
and fully and fairly consider each recommendation. DOD may immediately
implement the parts of the proposed system that did not receive
recommendations or those recommendations they chose to accept from the
employee representatives. While these provisions are designed to help
assure that employees and their authorized representatives play a
meaningful role on the design and implementation of any new human
capital system, DOD does not have a good track record in reaching out
to key stakeholders. In fact, it is my understanding that neither DOD
employees nor their authorized representatives played a meaningful role
in connection with the design of the legislative proposal that is the
subject of this hearing.
For the recommendations from the employee representatives that the
Secretary and the Director do not accept, the Secretary and the
Director are to notify Congress and meet and confer with employee
representatives in an attempt to reach agreement on how to proceed with
these recommendations. If an agreement has not been reached after 30
days, and the Secretary determines that further consultation with
employee representatives will not produce agreement, the Secretary may
implement any or all parts of the proposal, including any modifications
made in response to the recommendations. The Secretary is to notify
Congress of the implementation of any part of the proposal, any changes
made to the proposal as a result of recommendations from the employee
representatives, and the reasons why implementation is appropriate.
Although the procedures called for in the DOD proposal are similar to
those enacted in the Homeland Security Act, the latter states
explicitly the intent of Congress on the importance for employees to be
allowed to participate in a meaningful way in the creation of any human
resources management system affecting them. To underscore the
importance that Congress places on employee involvement in the
development and implementation of NSPS, Congress should consider
including similar language as that found in the Homeland Security Act.
More generally, and aside from the specific statutory provisions on
consultation, the active involvement of employees will be critical to
the success of NSPS. We have reported that the involvement of employees
both directly and indirectly is crucial to the success of new
initiatives, including implementing a pay for performance
system.[Footnote 10] High-performing organizations have found that
actively involving employees and stakeholders, such as unions or other
employee associations when developing results-oriented performance
management systems helps improve employees' confidence and belief in
the fairness of the system and increases their understanding and
ownership of organizational goals and objectives. This involvement must
be early, active, and continuing if employees are to gain a sense of
understanding and ownership for the changes that are being made.
Attracting Key Talent:
The legislation has a number of provisions designed to give DOD
flexibility to help obtain key critical talent. Specifically, it allows
DOD greater flexibility to (1) augment the use of temporary appointment
authorities, (2) hire experts and consultants and pay them special
rates, (3) define benefits for overseas employees, and (4) enter into
personal services contracts for experts and consultants for national
security missions, including for service outside of the United States.
Specifically, the Secretary would have the authority to establish a
program to attract highly qualified experts in needed occupations with
the flexibility to establish the rate of pay, eligibility for
additional payments, and terms of the appointment. These authorities
give DOD considerable flexibility to obtain and compensate individuals
and exempt them from several provisions of current law. While we have
strongly endorsed providing agencies with additional tools and
flexibilities to attract and retain needed talent, the broad exemption
from some existing ethics and other personnel authorities without
prescribed limits on their use raises some concern. Accordingly,
Congress should consider placing numerical or percentage limitations on
the use of these provisions or otherwise specifically outline basic
safeguards to ensure such provisions are used appropriately.
Rightsizing and Organizational Alignment:
The proposed Defense Transformation for the 21st Century Act would
provide the Secretary with a number of broad authorities related to
rightsizing and organizational alignment. These include authorizing the
Secretary to restructure or reduce the workforce by establishing
programs using voluntary early retirement eligibility and separation
payments, or both. In addition, the Secretary would be allowed to
appoint U.S. citizens who are at least 55 years of age to the excepted
service for a period of 2 years, with a possible 2-year extension,
subject only to certain provisions preventing displacement of current
employees. The proposal also provides that annuitants who receive an
annuity from the Civil Service Retirement and Disability Fund and
become employed in a position within the Department of Defense shall
continue to receive their unreduced annuity. This and selected other
NSPS provisions will clearly have incremental budget implications for
which we have not seen any related cost estimate. Furthermore, this and
other selected NSPS provisions would create an unlevel playing field
for experienced talent within the civilian workforce.
Authorities such as voluntary early retirements have proven to be
effective tools in strategically managing the shape of the workforce. I
have exercised the authority that Congress granted me to offer
voluntary early retirements in GAO in both fiscal years 2002 and 2003
as one element of our strategy to shape the GAO workforce. However,
given DOD's past efforts in using existing rightsizing tools, there is
reason to be concerned that DOD may struggle to effectively manage
additional authorities that may be provided. While DOD has used
existing authorities in the past to mitigate the adverse effects of
force reductions, the approach to reductions was not oriented toward
strategically shaping the makeup of the workforce. We have previously
reported that the net effect of lack of attention to workforce shaping
is a civilian workforce that is not balanced by age or experience,
which risks the orderly transfer of institutional knowledge.[Footnote
11] DOD thus may be challenged in using new authorities in a cohesive,
integrated way that supports achieving mission results, absent a
comprehensive and integrated human capital strategy and workforce plan.
In the past, OPM has managed its authority to reemploy an annuitant
with no reduction in annuity on a case-by-case basis. The NSPS
proposal, which broadly grants such treatment, raises basic questions
about the intent and design of the federal benefits or total
compensation of federal employees and obviates the importance of
establishing an effective DOD partnership with OPM in prescribing the
use of this authority. As noted previously, providing such authority
only to DOD would provide DOD a competitive advantage in the market
place that would place other agencies at a disadvantage. It would also
involve incremental costs that have yet to be estimated. Flexible
approaches to shaping the workforce, such as 2-year excepted service
appointments, may be helpful in avoiding long-term commitments for
short-term requirements, addressing transition gaps, and smoothing
outsourcing strategies. At the same time, these authorities represent
tools that are not effective on their own, rather they are elements
that need to be developed into an effective strategy and aligned with
program goals and missions.
The legislation could also allow DOD to revise Reduction-in-Force (RIF)
rules to place greater emphasis on an employee's performance. DOD has
indicated that it will be considering for application DOD-wide,
personnel practices that were identified in the April 2, 2003, Federal
Register notice. This notice describes revised RIF procedures that
change the order in which employees would be retained under a RIF
order. Specifically, employees could be placed on a retention list in
the following order: type of employment (i.e., permanent, temporary),
level of performance, and veterans' preference eligibility (disabled
veterans will be given additional priority), which we note would reduce
the order in which veterans' preference is currently provided. While we
conceptually support revised RIF procedures that involve much greater
consideration of an employee's performance, as I pointed out above,
agencies must have modern, effective and credible performance
management systems in place to properly implement such authorities.
Establishing Employee Appeals Procedures:
The proposed NSPS would allow the Secretary, after consultation with
the Merit Systems Protection Board (MSPB), to prescribe regulations
providing fair treatment in any appeals brought by DOD employees
relating to their employment. The proposal states that the appeals
procedures shall ensure due process protections and expeditious
handling, to the maximum extent possible. In this regard, the proposal
provides that presently applicable appeals procedures should only be
modified insofar as such modifications are designed to further the
fair, efficient, and expeditious resolution of matters involving DOD
employees. This provision is substantially the same as a similar
provision in the Homeland Security Act of 2002 allowing DHS to
prescribe regulations for employee appeals related to their employment.
As required of the Secretary of DHS, the Secretary of Defense would be
required to consult with MSPB prior to issuing regulations. However,
neither the Homeland Security Act nor the proposed legislation
expressly requires that employee appeals be heard and decided by the
MSPB. There is also no express provision for judicial review of
decisions regarding employee appeals decisions.
Given the transparency of the federal system dispute resolution and its
attendant case law, the rights and obligations of the various parties
involved is well developed. It is critical that any due process changes
that are implemented after consultation with MSPB result in dispute
resolution processes that are not only fair and efficient but, as
importantly, minimize any possible perception of unfairness.
Building the Institutional Infrastructure Needed to Support NSPS:
The critical need for an institutional infrastructure to develop and
support change has been a consistent theme raised throughout the
observations I have been providing on some of the specific aspects of
the proposed NSPS. This institutional infrastructure includes, at a
minimum, a human capital planning process that integrates the
department's human capital policies, strategies, and programs with
DOD's mission, goals, and desired outcomes; the capabilities to
effectively develop and implement a new human capital system; and a set
of adequate safeguards, including reasonable transparency and
appropriate accountability mechanisms to ensure the fair and merit-
based implementation and application of a new system. Quite simply, in
the absence of the right institutional infrastructure, granting
additional human capital authorities will provide little advantage and
could actually end up doing damage if the new flexibilities are not
implemented properly. Our work looking at DOD's strategic human capital
planning efforts and our work looking across the federal government at
the use of human capital flexibilities and related
human capital efforts underscores the critical steps that DOD needs to
take to properly develop and effectively implement any new personnel
authorities.
Strategic Human Capital Planning at DOD:
Our work here and abroad has consistently demonstrated that leading
organizations align their human capital approaches, policies,
strategies, and programs with their mission and programmatic goals.
Human capital plans that are aligned with mission and program goals
integrate the achievement of human capital objectives with the agency's
strategic and program goals. Careful and thoughtful human capital
planning efforts are critical to making intelligent competitive
sourcing decisions. The Commercial Activities Panel, which I was
privileged to chair, called for federal sourcing policy to be
"consistent with human capital practices designed to attract, motivate,
retain, and reward a high performing workforce" and highlighted a
number of human capital approaches to help achieve that
objective.[Footnote 12]
In April 2002, DOD published a strategic plan for civilian
personnel.[Footnote 13] However, as we reported in March 2003,[Footnote
14] top-level leadership at the department and the component levels has
not until recently been extensively involved in strategic planning for
civilian personnel; however, civilian personnel issues appear to be a
higher priority for top-level leaders today than in the past. Although
DOD began downsizing its civilian workforce more than a decade ago,
top-level leadership has not, until recently, developed and directed
reforms to improve planning for civilian personnel. With the exception
of the Army and the Air Force, neither the department nor the
components in our March review had developed strategic plans to address
challenges affecting the civilian workforce until 2001 or 2002, which
is indicative of civilian personnel issues being an emerging priority.
In addition, we reported that top-level leaders in the Air Force, the
Marine Corps, the Defense Contract Management Agency, and the Defense
Finance and Accounting Service have been or are working in partnership
with their civilian human capital professionals to develop and
implement civilian strategic plans; such partnership is increasing in
the Army and not as evident in the Navy. Moreover, DOD's issuance of
its departmentwide civilian human capital plan begins to lay a
foundation for strategically addressing civilian human capital issues;
however, DOD has not provided guidance on aligning the component-level
plans with the department-level plan to obtain a coordinated focus to
carry out the Secretary of Defense's transformation initiatives in an
effective manner. High-level leadership attention is critical to
developing and directing reforms because, without the overarching
perspective of such leaders as Chief Operating Officers and the Chief
Human Capital Officers, reforms may not be sufficiently focused on
mission accomplishment, and without their support, reforms may not
receive the resources needed for successful implementation. We have
previously reported that the concept of a Chief Operating Officer (COO)
could offer the leadership to help elevate attention on key management
issues and transformational change, integrate these various efforts,
and institutionalize accountability for addressing management issues
and leading transformational change both within and between
administrations.[Footnote 15] In our view, DOD is a prime candidate to
adopt this COO concept. In addition, if Congress provides DOD with many
of the flexibilities it is seeking under the NSPS, the basis for adding
a COO position at DOD would be even stronger.
Despite the progress that has been made recently, the DOD human capital
strategic plans we reviewed, for the most part, were not fully aligned
with the overall mission of the department or respective components,
results oriented, or based on data about the future civilian workforce.
For example, the goals and objectives contained in strategic plans for
civilian personnel were not explicitly aligned with the overarching
missions of the respective organizations. Consequently, it is difficult
to determine whether DOD's and the components' strategic goals are
properly focused on mission achievement. In addition, none of the plans
contained results-oriented performance measures that could provide
meaningful data critical to measuring the results of their civilian
human capital initiatives (i.e., programs, policies, and processes).
Thus, DOD and the components cannot gauge the extent to which their
human capital initiatives contribute to achieving their organizations'
mission. Also, for the most part, the civilian human capital plans in
our review did not contain detailed information on the skills and
competencies needed to successfully accomplish future missions. Without
information about what is needed in the future workforce, it is unclear
if DOD and its components are designing and funding initiatives that
are efficient and effective in accomplishing the mission, and
ultimately contributing to force readiness.
Lastly, the DOD civilian strategic plans we reviewed did not address
how the civilian workforce will be integrated with their military
counterparts or with sourcing initiatives. At the department level, the
strategic plan for civilian personnel was prepared separately from
corresponding plans for military personnel and not integrated to form a
seamless and comprehensive strategy and did not address how DOD plans
to link its human capital initiatives with its sourcing plans, such as
efforts to outsource non-core responsibilities. For the most part, at
the component level, the plans set goals to integrate planning for the
total workforce, to include civilian, military, and contractor
personnel. The Air Force and the Army, in particular, have begun to
integrate their strategic planning efforts for civilian and military
personnel, also taking contractor responsibilities into consideration.
Without integrated planning, goals for shaping and deploying civilian,
military, and contractor personnel may not be consistent with and
support each other. Consequently, DOD and its components may not have
the workforce with the skills and competencies needed to accomplish
tasks critical to assuring readiness and achieving mission success.
In our March report we recommended, among other things, that DOD
improve future revisions and updates to the departmentwide strategic
human capital plan by more explicitly aligning its elements with DOD's
overarching mission, including performance measures, and focusing on
future workforce needs. DOD only partially concurred with our
recommendation, and, as explanation, stated that the recommendation did
not recognize the involvement in and impact of DOD's Quadrennial
Defense Review on the development of the departmentwide plan. We also
recommended that DOD develop a departmentwide human capital strategic
plan that integrates both military and civilian workforces and takes
into account contractor roles and sourcing initiatives. DOD did not
concur with this recommendation stating that it has both a military and
civilian plan, and the use of contractors is just another tool to
accomplish the mission, not a separate workforce with separate needs to
manage. The intent of our recommendation is not to say that DOD has a
direct responsibility to manage contractor employees, but rather to
recognize that strategic planning for the civilian workforce should be
undertaken in the context of the total force--civilian, military, and
contractors--since the three workforces need to perform their
responsibilities in a seamless manner to accomplish DOD's mission. In
commenting on our recommendations, the Under Secretary of Defense for
Personnel and Readiness stated that DOD is in the early stages of its
strategic planning efforts. We recognize this and believe that our
recommendations represent opportunities that exist to strengthen its
developing planning efforts.
The Capabilities Needed to Effectively Develop and Implement Human
Capital Flexibilities:
Our work has identified a set of key practices that appear to be
central to the effective use of human capital authorities. These
practices, which are shown in figure 1, center on effective planning
and targeted investments, involvement and training, and accountability
and cultural change.[Footnote 16]
Figure 1: Key Practices for Effective Use of Human Capital
Flexibilities:
[See PDF for image]
[End of figure]
Congress should consider the extent to which an agency is capable of
employing these practices before additional human capital flexibilities
are implemented. In the context of NSPS, Congress should consider
whether and to what extent DOD is using those practices.
Adequate Safeguards, Reasonable Transparency, and Appropriate
Accountability:
I have discussed throughout my statement today the importance of moving
to a new human capital system which provides reasonable management
flexibility along with adequate safeguards, reasonable transparency,
and appropriate accountability mechanisms to prevent abuse of
employees. In addition to the suggestions made above, Congress should
consider requiring DOD to fully track and periodically report on its
performance. This requirement would be fully consistent with those
contained in our calendar year 2000 human capital legislation, which
required us to comprehensively assess our use of the authorities
granted to us under the act.[Footnote 17] More generally, Congress
should consider requiring DOD to undertake evaluations that are broadly
modeled on the evaluation requirements of OPM's personnel demonstration
program. Under the demonstration project authority, agencies must
evaluate and periodically report on results, implementation of the
demonstration project, cost and benefits, impacts on veterans and other
EEO groups, adherence to merit principles, and extent to which the
lessons from the project can be applied elsewhere, including
governmentwide. This evaluation and reporting requirement would
facilitate congressional oversight of NSPS, allow for any mid-course
corrections in its implementation, and serve as a tool for documenting
best practices and sharing lessons learned with employees,
stakeholders, other federal agencies, and the public. DOD has stated
that it would continue its evaluation of the science and technology
reinvention laboratory demonstration projects when they are integrated
under a single human capital framework.
Concluding Observations:
In summary, DOD's civilian human capital proposals raise several
critical questions. Should DOD and/or other federal agencies be granted
broad-based exemptions from existing law, and if so, on what basis?
Does DOD have the institutional infrastructure in place to make
effective use of the new authorities? This institutional infrastructure
includes, at a minimum, a human capital planning process that
integrates the agency's human capital policies, strategies, and
programs with its program goals and mission, and desired outcomes; the
capabilities to effectively develop and implement a new human capital
system; and a set of adequate safeguards, including reasonable
transparency and appropriate accountability mechanisms to ensure the
fair, effective, and credible implementation and application of a new
system.
Many of the basic principles underlying DOD's civilian human capital
proposals have merit and deserve the serious consideration they are
receiving here today and will no doubt be received by others in the
coming weeks and months. However, the same critical questions should be
posed to the DOD proposal. Should DOD and/or other federal agencies be
granted broad-based exemptions from existing law, and if so, on what
basis? In addition, Congress and DOD should carefully assess the degree
to which DOD has the institutional infrastructure in place to make
effective use the new authorities it is seeking. Our work has shown
that while progress has been and is being made, additional efforts are
needed by DOD to integrate its human capital planning process with the
department's program goals and mission. The practices that have been
shown to be critical to the effective use of flexibilities provide a
validated roadmap for DOD and Congress to consider. Finally, as I have
pointed out in several key areas, Congress should consider, if the
authorities are granted, establishing additional safeguards to ensure
the fair, merit-based, transparent, and accountable implementation and
application of NSPS.
In our view, Congress should consider providing governmentwide broad
banding and pay for performance authorities that DOD and other federal
agencies can use provided they can demonstrate that they have a
performance management system in place that meets certain statutory
standards, which can be certified to by a qualified and independent
party, such as OPM. Congress should also consider establishing a
governmentwide fund whereby agencies, based on a sound business case,
could apply for funds to modernize their performance management systems
and ensure that those systems have adequate safeguards to prevent
abuse. This would serve as a positive step to promote high-performing
organizations throughout the federal government while avoiding further
fragmentation within the executive branch in the critical human capital
area.
This morning, I have offered some preliminary observations on some
aspects of the proposal. However, these preliminary observations have
not included some serious concerns I have with other sections of the
proposed legislation that go beyond the civilian personnel proposal. My
observations have included suggestions for how Congress can help DOD
effectively address its human capital challenges and ensure that NSPS
is designed and implemented in an effective, efficient, and fair manner
that meets the current and future needs of DOD, its employees, and the
American people. Human capital reforms at DOD obviously have important
implications for national security and precedent-setting implications
for governmentwide human capital management. Given the massive size of
DOD and the magnitude of the nature and scope of the changes that are
being considered, such reform at DOD also has important precedent-
setting implications for federal human capital management generally and
should be considered in that context.
We look forward to continuing to support Congress and work with DOD in
addressing the vital transformation challenges it faces. Madam
Chairwoman and Mr. Davis, this concludes my prepared statement. I would
be pleased to respond to any questions that you may have.
Contacts and Acknowledgments:
For further information on human capital issues at DOD, please contact
Derek Stewart, Director, Defense Capabilities and Management on (202)
512-5559 or at stewartd@gao.gov. For further information on
governmentwide human capital issues, please contact J. Christopher
Mihm, Director, Strategic Issues, on (202) 512-6806 or at
mihmj@gao.gov. Individuals making key contributions to this testimony
included William Doherty, Clifton G. Douglas, Jr., Christine Fossett,
Bruce Goddard, Judith Kordahl, Janice Lichty, Bob Lilly, Lisa Shames,
Ellen Rubin, Edward H. Stephenson, Jr., Tiffany Tanner, Marti Tracy,
and Michael Volpe.
FOOTNOTES
[1] 68 Fed. Reg. 16,119-16,142 (2003).
[2] U.S. General Accounting Office, Human Capital: Building on the
Current Momentum to Address High-Risk Issues, GAO-03-637T (Washington,
D.C.: April 8, 2003).
[3] Pub. L. No. 107-296, Nov. 25, 2002.
[4] We discuss OPM's human capital leadership role in our report: Major
Management Challenges and Program Risks: Office of Personnel
Management, GAO-03-115 (Washington, D.C.: January 2003).
[5] U.S. General Accounting Office, Acquisition Workforce: Status of
Agency Efforts to Address Future Needs, GAO-03-55 (Washington, D.C.:
Dec. 18, 2002).
[6] U.S. Office of Personnel Management, 2002 Summative Evaluation: DOD
S&T Reinvention Laboratory Demonstration Program (Washington, D.C.:
August 2002).
[7] U.S. General Accounting Office, Results-Oriented Cultures: Creating
a Clear Linkage between Individual Performance and Organizational
Success, GAO-03-488 (Washington, D.C.: Mar. 14, 2003).
[8] U.S. General Accounting Office, Results-Oriented Cultures: Using
Balanced Expectations to Manage Senior Executive Performance,
GAO-02-966 (Washington, D.C.: Sept. 27, 2002).
[9] GAO-03-488.
[10] U.S. General Accounting Office, Insights for U.S. Agencies from
Other Countries' Performance Management Initiatives, GAO-02-862
(Washington, D.C.: Aug. 2, 2002) and Human Capital: Practices That
Empowered and Involved Employees, GAO-01-1070 (Washington, D.C.: Sept.
14, 2001).
[11] U.S. General Accounting Office, Strategic Approach Should Guide
DOD Civilian Workforce Management, GAO/T-GGD/NSIAD-00-120 (Washington,
D.C.: Mar. 9, 2000).
[12] Commercial Activities Panel, Improving the Sourcing Decisions of
the Government (Washington, D.C.: April 2002).
[13] Civilian Human Resources Strategic Plan 2002-2008. At this time,
DOD also published two strategic plans for military personnel (one
addressing military personnel priorities and one addressing quality of
life issues for service members and their families). In a December 2002
report (Military Personnel: Oversight Process Needed to Help Maintain
Momentum of DOD's Strategic Human Capital Planning, GAO-03-237), we
addressed aspects of the two plans concerning benefits for active duty
military personnel, noting that the plans were incomplete and that DOD
needed a process to oversee the plans' implementation.
[14] U.S. General Accounting Office, DOD Personnel: DOD Actions Needed
to Strengthen Civilian Human Capital Strategic Planning and Integration
with Military Personnel and Sourcing Decisions, GAO-03-475 (Washington,
D C.: Mar. 28, 2003) and DOD Personnel: DOD Comments on GAO's Report on
DOD's Civilian Human Capital Strategic Planning, GAO-03-690R
(Washington, D.C.: Apr. 18, 2003).
[15] U.S. General Accounting Office, Highlights of a GAO Roundtable:
The Chief Operating Officer Concept: A Potential Strategy To Address
Federal Governance Challenges, GAO-03-192SP (Washington, D.C.: Oct. 4,
2002).
[16] U.S. General Accounting Office, Human Capital: Effective Use of
Flexibilities Can Assist Agencies in Managing Their Workforces,
GAO-03-2 (Washington, D.C.: Dec. 6, 2002).
[17] Our October 2000 legislation gave us tools to realign our
workforce in light of mission needs and overall budgetary constraints;
correct skills imbalances; and reduce high-grade, managerial, or
supervisory positions without reducing the overall number of GAO
employees. This legislation allowed us to create a technical and
scientific career track at a compensation level consistent to the SES.
It also allowed us to give greater consideration to performance and
employee skills and knowledge in any RIF actions.
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