Human Capital
DOD's Civilian Personnel Strategic Management and the Proposed National Security Personnel System Gao ID: GAO-03-493T May 12, 2003People are at the heart of an organization's ability to perform its mission. Yet, a key challenge for the Department of Defense (DOD), as for many federal agencies, is to strategically manage its human capital. With about 700,000 civilian employees on its payroll, DOD is the second largest federal employer of civilians in the nation. Although downsized 38 percent between fiscal years 1989 and 2002, this workforce has taken on greater roles as a result of DOD's restructuring and transformation. 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 other human capital areas. The NSPS would enable DOD to develop and implement a consistent DOD-wide civilian personnel system. Given the massive size of DOD, the proposal has important precedent-setting implications for federal human capital management and OPM. This testimony provides GAO's preliminary observations on aspects of DOD's proposal to make changes to its civilian personnel system and discusses the implications of such changes for government-wide human capital reform. Past reports have contained GAO's views on what remains to be done to bring about lasting solutions for DOD to strategically manage its human capital. DOD has not always concurred with our recommendations.
DOD's lack of attention to force shaping during its downsizing in the early 1990s has resulted in a workforce that is not balanced by age or experience and that puts at risk the orderly transfer of institutional knowledge. Human capital challenges are severe in certain areas. For example, DOD has downsized its acquisition workforce by almost half. More than 50 percent of the workforce will be eligible to retire by 2005. In addition, DOD faces major succession planning challenges at various levels within the department. Also, since 1987, the industrial workforce, such as depot maintenance, has been reduced by about 56 percent, with many of the remaining employees nearing retirement, calling into question the longer-term viability of the workforce. DOD is one of the agencies that has begun to address human capital challenges through strategic human capital planning. For example, in April 2002, DOD published a department wide strategic plan for civilians. Although a positive step toward fostering a more strategic approach toward human capital management, the plan is not fully aligned with the overall mission of the department or results oriented. In addition, it was not integrated with the military and contractor personnel planning. We strongly support the concept of modernizing federal human capital policies within DOD and the federal government at large. Providing reasonable flexibility to management in this critical area is appropriate provided adequate safeguards are in place to prevent abuse. We believe that Congress should consider both government-wide and selected agency, including DOD, changes to address the pressing human capital issues confronting the federal government. In this regard, many of the basic principles underlying DOD's civilian human capital proposals have merit and deserve serious consideration. At the same time, many are not unique to DOD and deserve broader consideration. Agency-specific human capital reforms should be enacted to the extent that the problems being addressed and the solutions offered are specific to a particular agency (e.g., military personnel reforms for DOD). Several of the proposed DOD reforms meet this test. At the same time, we believe that Congress should consider incorporating additional safeguards in connection with several of DOD's proposed reforms. In our view, it would be preferable to employ a government-wide approach to address certain flexibilities that have broad-based application and serious potential implications for the civil service system, in general, and the Office of Personnel Management (OPM), in particular. We believe that several of the reforms that DOD is proposing fall into this category (e.g., broad-banding, pay for performance, re-employment and pension offset waivers). In these situations, it may be prudent and preferable for the Congress to provide such authorities on a government-wide basis and in a manner that assures that appropriate performance management systems and safeguards are in place before the new authorities are implemented by the respective agency. However, in all cases whether from a government-wide authority or agency specific legislation, in our view, such additional authorities should be implemented (or operationalized) only when an agency has the institutional infrastructure in place to make effective use of the new authorities. Based on our experience, while the DOD leadership has the intent and the ability to implement the needed infrastructure, it is not consistently in place within the vast majority of DOD at the present time.
GAO-03-493T, Human Capital: DOD's Civilian Personnel Strategic Management and the Proposed National Security Personnel System
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United States General Accounting Office:
GAO:
Testimony:
Before the Subcommittee on Oversight of Government Management, the
Federal Workforce and the District of Columbia, Senate Committee on
Governmental Affairs:
For Release on Delivery:
Expected at 12:30 p.m. EDT:
Monday, May 12, 2003:
Human Capital:
DOD's Civilian Personnel Strategic Management and the Proposed National
Security Personnel System:
Statement of David M. Walker,
Comptroller General of the United States:
GAO-03-493T:
www.gao.gov/cgi-bin/getrpt?GAO-03-493T.
To view the full testimony, including the scope:
and methodology, click on the link above.
For more information, contact:
Derek B.Stewart at (202) 512-5140 or Stewartd@gao.gov.
Highlights of GAO-03-493T, a testimony before the Subcommittee on
Oversight of Government Management, the Federal Workforce and the
District of Columbia, Senate Committee on Governmental Affairs:
Why GAO did This Study:
People are at the heart of an organization's ability to perform its
mission. Yet, a key challenge for the Department of Defense (DOD), as
for many federal agencies, is to strategically manage its human
capital. With about 700,000 civilian employees on its payroll, DOD is
the second largest federal employer of civilians in the nation.
Although downsized 38 percent between fiscal years 1989 and 2002, this
workforce has taken on greater roles as a result of DOD's restructuring
and transformation.
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 other
human capital areas. The NSPS would enable DOD to develop and implement
a consistent DOD-wide civilian personnel system. Given the massive size
of DOD, the proposal has important precedent-setting implications for
federal human capital management and OPM.
This testimony provides GAO's preliminary observations on aspects of
DOD's proposal to make changes to its civilian personnel system and
discusses the implications of such changes for governmentwide human
capital reform. Past reports have contained GAO's views on what remains
to be done to bring about lasting solutions for DOD to strategically
manage its human capital. DOD has not always concurred with our
recommendations.
What GAO Found:
DOD's lack of attention to force shaping during its downsizing in the
early 1990s has resulted in a workforce that is not balanced by age or
experience and that puts at risk the orderly transfer of institutional
knowledge. Human capital challenges are severe in certain areas. For
example, DOD has downsized its acquisition workforce by almost half.
More than 50 percent of the workforce will be eligible to retire by
2005. In addition, DOD faces major succession planning challenges at
various levels within the department. Also, since 1987, the industrial
workforce, such as depot maintenance, has been reduced by about 56
percent, with many of the remaining employees nearing retirement,
calling into question the longer-term viability of the workforce. DOD
is one of the agencies that has begun to address human capital
challenges through strategic human capital planning. For example, in
April 2002, DOD published a department wide strategic plan for
civilians. Although a positive step toward fostering a more strategic
approach toward human capital management, the plan is not fully aligned
with the overall mission of the department or results oriented. In
addition, it was not integrated with the military and contractor
personnel planning.
We strongly support the concept of modernizing federal human capital
policies within DOD and the federal government at large. Providing
reasonable flexibility to management in this critical area is
appropriate provided adequate safeguards are in place to prevent abuse.
We believe that Congress should consider both governmentwide and
selected agency, including DOD, changes to address the pressing human
capital issues confronting the federal government. In this regard, many
of the basic principles underlying DOD's civilian human capital
proposals have merit and deserve serious consideration. At the same
time, many are not unique to DOD and deserve broader consideration.
Agency-specific human capital reforms should be enacted to the extent
that the problems being addressed and the solutions offered are
specific to a particular agency (e.g., military personnel reforms for
DOD). Several of the proposed DOD reforms meet this test. At the same
time, we believe that Congress should consider incorporating additional
safeguards in connection with several of DOD's proposed reforms. In our
view, it would be preferable to employ a government-wide approach to
address certain flexibilities that have broad-based application and
serious potential implications for the civil service system, in
general, and the Office of Personnel Management (OPM), in particular.
We believe that several of the reforms that DOD is proposing fall into
this category (e.g., broad-banding, pay for performance, re-employment
and pension offset waivers). In these situations, it may be prudent and
preferable for the Congress to provide such authorities on a
governmentwide basis and in a manner that assures that appropriate
performance management systems and safeguards are in place before the
new authorities are implemented by the respective agency.
However, in all cases whether from a governmentwide authority or agency
specific legislation, in our view, such additional authorities should
be implemented (or operationalized) only when an agency has the
institutional infrastructure in place to make effective use of the new
authorities. Based on our experience, while the DOD leadership has the
intent and the ability to implement the needed infrastructure, it is
not consistently in place within the vast majority of DOD at the
present time.
www.gao.gov/cgi-bin/getrpt?GAO-03-493T.
To view the full testimony, including the scope and methodology,
click on the link above. For more information, contact
Derek B.Stewart at (202) 512-5140 or Stewartd@gao.gov.
[End of section]
Chairman Voinovich, Senator Durbin, and Members of the Subcommittee,
It is a pleasure to appear before the Subcommittee to discuss the
status and future of Department of Defense's (DOD) civilian workforce-
-an integral part of DOD's "total force". DOD uses the term total force
to refer to the different categories of workers that it uses to
accomplish its mission. The total force includes military personnel,
both active and reserve, federal civilian personnel, and private-sector
contract personnel. Collectively, these people are at the heart of the
department's ability to perform its mission.
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 strengthened financial management,
support infrastructure reforms to include base closures, information
technology modernization, logistics reengineering, and more strategic
human capital management. Clearly, Secretary Rumsfeld and top DOD
leadership is committed to transforming the very way that DOD conducts
business. 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. Importantly, DOD also is covered by 9 of the 25 areas on our
January 2003 high-risk list, including the area of strategic human
capital management.
DOD's proposed National Security Personnel systems (NSPS) 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. The 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.[Footnote 1]
We strongly support the concept of modernizing federal human capital
policies both within DOD and for the federal government at-large.
Providing reasonable flexibility to management in this critical area is
appropriate. At the same time, incorporating adequate safeguards in
order to maximize the chance for success and prevent abuse is
essential. 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 rapidly changing and
knowledge-based environment. In this regard, many of the basic
principles underlying DOD's civilian human capital proposals have merit
and deserve serious consideration. At the same time, many are not
unique to DOD and deserve broader consideration.
We believe that Congress should consider both governmentwide and
selected agency, including DOD, changes to address the pressing human
capital issues confronting the federal government. Agency-specific
human capital reforms should be enacted to the extent that the problems
being addressed and the solutions offered are specific to a particular
agency (e.g., military personnel reforms for DOD). In addition,
targeted reforms should be considered in situations where additional
testing or piloting is needed for fundamental governmentwide reform.
Several of the proposed DOD reforms meet this test. At the same time,
we believe that Congress should consider incorporating additional
safeguards in connection with several of DOD's proposed reforms.
In our view, it would be preferable to employ a government-wide
approach to address certain flexibilities that have broad-based
application and serious potential implications for the civil service
system, in general, and the Office of Personnel Management (OPM), in
particular. We believe that several of the reforms that DOD is
proposing fall into this category (e.g., broad-banding, pay for
performance, re-employment and pension offset waivers). In these
situations, it may be prudent and preferable for the Congress to
provide such authorities on a governmentwide basis and in a manner that
assures that appropriate performance management systems and safeguards
are in place before the new authorities are implemented by the
respective agency. This approach is not intended to delay action on
DOD's or any other individual agency's efforts, but rather to
accelerate needed human capital reform throughout the federal
government in a manner that assures reasonable consistency on key
principles within the overall civilian workforce. This approach also
would provide agencies with reasonable flexibility while incorporating
key safeguards to help maximize the chances of success and minimize the
chances of abuse and failure. Finally, this approach also would help to
maintain a level playing field among federal agencies in competing for
talent.
However, in all cases whether from a governmentwide authority or agency
specific legislation, in our view, such additional authorities should
be implemented (or operationalized) only when an agency has 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, the
existence of a modern, effective, and credible performance management
system that includes adequate safeguards, including reasonable
transparency and appropriate accountability mechanisms, to ensure the
fair, effective, and non-discriminatory implementation of the system.
Thus, for example, 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. Based
on our experience, while the DOD leadership has the intent and the
ability to implement the needed infrastructure, it is not in place
within a vast majority of DOD at the present time. In that regard, last
week the House Government Reform Committee marked-up H.R. 1836, which
incorporates the DOD civilian personnel reforms. I was pleased to see
that a number of safeguards, including several along the lines we have
been suggesting, were included in the mark-up. I'm also pleased to see
that the Committee added an amendment that removed language allowing
DOD authority to waive the anti-nepotism requirements. As Congress
continues to consider DOD's proposed reforms, I believe it is very
important that such safeguards and protections be included in future
legislation. I will now discuss each of these three elements of an
institutional infrastructure in more detail.
Strategic Human Capital Planning and Management at DOD:
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. Career civilians possess
"institutional memory," which is particularly important in DOD because
of the frequent rotation of military personnel and the short tenure of
the average political appointee. 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.
Without a strategic view, DOD's approach to civilian downsizing in the
early 1990s relied primarily on voluntary turnover and retirements and
varying freezes on hiring authority. DOD also used existing authority
for early retirements to encourage voluntary separations at activities
facing major reductions in force. The fiscal year 1993 National Defense
Authorization Act authorized a number of transition assistance programs
for civilian employees, including financial separation incentives, or
"buyouts," to induce the voluntary separation of civilian employees and
reduce authorized positions. DOD has credited the use of separation
incentives, early retirement authority, and various job placement
opportunities as ways to avoid nearly 200,000 involuntary demotions and
separations.
While the tools available to DOD to manage its civilian downsizing
helped mitigate the adverse effects of force reductions, DOD's approach
to the reductions was not oriented toward shaping the makeup of the
workforce. During our work on the early phases of the DOD downsizing,
some DOD officials voiced concerns about what was perceived to be a
lack of attention to identifying and maintaining a balanced basic level
of skills needed to maintain in-house capabilities as part of the
defense industrial base. Historically, DOD has not focused on human
capital planning for civilians to the extent that it has for its
military force. In 2000, the Defense Science Board reported that senior
civilian and military leaders have devoted "far less" attention to
civilian personnel challenges than the challenges of maintaining an
effective military force.
The consequences of the lack of attention to force shaping can be seen
in the current age distribution of the civilian workforce in comparison
to the distribution at the start of the drawdown. Today's workforce is
older and more experienced; and not surprisingly, 58 percent of the
workforce will be eligible for early or regular retirement in the next
3 years.
The net effect is a workforce that is not balanced by age or experience
and that puts at risk the orderly transfer of institutional knowledge.
The continuing increase in the number of retirement-age employees, as
well as the loss of experienced personnel which can result from ongoing
emphasis on public-private sector competition involving commercial
activities under OMB Circular A-76, could make it difficult for DOD to
infuse its workforce with new and creative ideas and develop the
skilled civilian workers, managers, and leaders it will need to meet
future mission requirements. With senior management attention,
strategic leadership and results-oriented performance management,
however, DOD can rebuild its civilian workforce to meet future
requirements for specific skills and experience. The work of the
congressionally mandated Commercial Activities Panel, which I chaired,
noted the importance of government human capital practices in sourcing
decisions. In fact, one of the ten principles adopted by the Panel to
guide future sourcing decisions, stipulates that sourcing and related
policies should be consistent with human capital practices designed to
attract, motivate, retain, and reward a high-performing
workforce.[Footnote 2]
This principle underscores the importance of considering human capital
concerns in connection with the sourcing process. While it does not
mean that agencies should refrain from outsourcing due to its impact on
the affected employees, it does mean that the federal government's
sourcing policies and practices should consider the potential impact on
the government's ability to attract, motivate, retain, and reward a
high-performing workforce both now and in the future. Regardless of the
result of specific sourcing decisions, it is important for the
workforce to know and believe that they will be viewed and treated as
valuable assets.
The Acquisition and Logistics Workforces:
These human capital challenges are even more severe in certain areas,
such as acquisition and logistics. The acquisition area is a part of
the workforce that the United States has relied upon to maintain the
technological superiority that plays an essential role in the national
security strategy. According to DOD's Acquisition 2005 task force
report, the rate of reduction in the civilian acquisition workforce has
substantially exceeded that of the rest of the DOD workforce. In the
past decade, DOD has downsized its acquisition workforce by almost
half. More than 50 percent of the remaining acquisition workforce will
be eligible to retire by 2005; and in some occupations, DOD projects
that half of the current employees will have retired by 2006.
The task force report made a series of recommendations to DOD in
October 2000. In April 2002, we reported on DOD's plans to implement
these recommendations. We noted that DOD has made progress in laying a
foundation for reshaping its acquisition workforce. Taking a strategic
approach to human capital can be challenging itself. First, it requires
a shift in how the human resources function is perceived, from strictly
a support function to one integral to an agency's mission. Second,
agencies may also find that they need some of the basic tools and
information to develop strategic plans, such as accurate and complete
information on workforce characteristics. Consequently, DOD views
implementation of the recommendations as long-term efforts with
specific outcomes taking years to achieve.
As a result of downsizing initiatives, the increased use of the private
sector for logistics support activities, and other factors, the
civilian workforce in DOD's industrial activities--maintenance depots,
arsenals, and ammunition manufacturing plants--was reduced by about 56
percent between 1987 and 2002. The result is that many in this
workforce--which comprises about twelve percent of DOD's total civilian
workforce--are currently eligible to retire and about 43 percent will
be eligible to retire by 2009. In recent years, we have specifically
identified deficiencies in DOD's planning for depot maintenance
operations. In October 2001, we reported that DOD had no overall plan
that tied investments in depot maintenance facilities and equipment
with future workloads and, in turn, with human capital needs.[Footnote
3] We recommended, among other things, that DOD develop a depot
strategic plan that would delineate future workloads to be accomplished
in each of the services' maintenance depots. We recently reported that
while DOD has initiated some action toward developing a depot strategic
plan, the department still has no depot strategic plan. We also
reported that while DOD has initiated some action toward developing a
depot strategic plan, the department still has no depot strategic plan
and the future of these activities is uncertain.[Footnote 4]
Without the benefit of a departmentwide strategic depot plan, the
services' efforts to develop comprehensive depot strategic plans vary.
For example, the Army, Air Force and Marine Corps have developed depot
plans, but the Army plan has been suspended, the Air Force plan does
not address one depot nor identify specific new work, and the Marine
Corps plan has not been approved and has no approval schedule. While
the Navy has not developed a strategic depot plan, two of the Navy
components--the shipyard and aviation communities--have begun
strategic planning efforts.
In addition, we reported that the services have also not developed and
implemented strategic workforce plans that will position the civilian
industrial workforce to meet future requirements. Except for the Air
Force, the services industrial activities' workforce plans are mostly
short-term rather than strategic. The plans are also lacking in other
areas that OPM guidance and high-performing organizations identify as
key to successful workforce planning. Specifically, they (1) usually do
not assess the competencies needed for current and future workforces;
(2) do not develop comprehensive retention plans that identify
employees critical to accomplishment of organizational goals, develop
an infrastructure to assist workers in becoming long-term assets of the
organization, or provide meaningful incentives to retain valued
employees; and (3) sometimes do not develop performance measure for
evaluating workforce plans to identify corrective actions needed to
improve planning efforts.
In our April 2003 report we made recommendations to strengthen
strategic workforce planning for DOD industrial activities. DOD
concurred with most of our recommendations and highlighted the
importance the department places in human capital management. In non-
concurring with two of our recommendations, DOD officials said that
DOD's new NSPS will provide all the flexibilities and authorities
needed to maintain and enhance human resources competencies,
capabilities, and performance across the department. We believe it is
premature to assume that all its provisions will be approved and that
the new system will address our concerns.
DOD's Development of Strategic Human Capital Plans:
Over the past few years, DOD has recognized the need for strategic
human capital management. Most recently the Quadrennial Defense Review
Report (2001) called upon DOD to modernize and transform its civilian
force so that it is as equally agile, flexible, and innovative as a
transformed U.S. military force. In April 2002, DOD published a
department wide strategic plan, the Civilian Human Resources Strategic
Plan, to set forth its vision to "design, develop, and implement human
resource policies, strategies, systems, and tools to ensure a mission-
ready civilian workforce that is motivated to excel." As we reported in
March 2003, top-level leaders in the Air Force, the Marine Corps, the
Defense Contract Management Agency, and the Defense Finance and
Accounting Service have initiated planning efforts and are working in
partnership with their civilian human capital professionals to develop
and implement civilian strategic plans; such leadership, however, was
increasing in the Army and not as evident in the Navy.[Footnote 5]
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 6]. 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.
The human capital strategic plans we reviewed in our March report, for
the most part, lacked key elements found in fully developed plans. Most
of the civilian human capital goals, objectives, and initiatives were
not explicitly aligned with the overarching missions of the
organizations. Consequently, DOD and defense components cannot be sure
that strategic goals are properly focused on mission achievement. Also,
none of the plans contained results-oriented performance measures to
assess the impact 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' missions. Finally, the plans did not
contain data on the skills and competencies needed to successfully
accomplish future missions; therefore, DOD and the components risk not
being able to put the right people, in the right place, and at the
right time, which can result in diminished accomplishment of the
overall defense mission.
Moreover, the civilian plans we reviewed did not address how the
civilian workforce will be integrated with their military counterparts
or with sourcing initiatives. DOD's three human capital strategic
plans--two military and one civilian--were prepared separately and were
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. The components' civilian plans acknowledge a need to
integrate planning for civilian and military personnel--taking into
consideration contractors--but have not yet done so. Without an
integrated strategy, DOD may not effectively and efficiently allocate
its scarce resources for optimal readiness.
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 assign a high priority to and set a target date
for developing an integrated departmentwide plan for both military and
civilian workforces that takes into account contractor roles and
sourcing initiatives. DOD did not concur with this recommendation and
stated that it presently has both a military and civilian plan; the use
of contractors is just another tool to accomplish the mission, not a
separate workforce, with separate needs, to manage. Finally, we wish to
note that the Under Secretary of Defense for Personnel and Readiness
made a point that DOD is in the early stages of its strategic planning
efforts.[Footnote 7] 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 8]
Figure 1: Key Practices for Effective Use of Human Capital
Flexibilities:
[See PDF for image]
Source: GAO
[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 has used and is using these practices as
it develops and implements its new civilian personnel system.
Adequate Safeguards, Reasonable Transparency, and Appropriate
Accountability:
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. As I mentioned at the outset, should Congress decide to
provide DOD additional authorities, a set of adequate safeguards,
including reasonable transparency and appropriate accountability
mechanisms to ensure the fair and merit-based implementation and
application of the new authorities is important to maximize the chances
of success and minimize the chances of abuse. Similarly, Congress
should consider ensuring that safeguards are in place for any
additional governmentwide human capital authorities that are provided
to agencies.
The following provides some safeguards Congress should consider in
regards to the proposed NSPS. First, I offer some suggestions for
safeguards for the overall design for the NSPS. Second, I suggest some
safeguards for specific elements of the NSPS. In that regard, last week
the House Government Reform Committee marked-up H.R. 1836, which
incorporates the DOD civilian personnel reforms. I was pleased to see
that a number of safeguards, including several along the lines
suggested below, were included in the mark-up. I'm also pleased to see
that the Committee added an amendment that removed language allowing
DOD authority to waive the anti-nepotism requirements. As Congress
continues to consider DOD's proposed reforms, I believe it is very
important that such safeguards and protections be included in future
legislation.
Safeguards for the DOD's Overall Human Capital Program:
Authority To Act Independently From The Director Of The Office Of
Personnel Management:
The DOD proposal would allow the Secretary of Defense to jointly
prescribe regulations with the Director of 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 9] between the Secretary of
Homeland Security and the Director of OPM for the development of the
DHS human resources management system. However, unlike the legislation
creating Department of Homeland Security (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. Congress may want to consider
eliminating this provision to make the NSPS consistent with the
Homeland Security Act of 2002. If Congress decides to move forward with
the provision, it should consider the following safeguards:
Potential Safeguards:
Provide statutory criteria to define what is "essential to the national
security", or stipulate that such criteria should be developed in
consultation with the Director, Office of Management and Budget.
Require that the criteria consider Federal Labor Relation Authority
(FLRA) administrative case law decisions. FLRA has ruled on several
cases involving the application of 5 U.S.C. 7112 where the FLRA
determines the appropriate units for labor organization representation.
Require that the Director of OMB or the President certify the
determination by the Secretary of Defense that an action is "essential
to the national security", rather than giving the sole authority to the
Secretary. This would provide for an institutionally independent "tie-
breaker" approach to such issues.
Strategic Human Capital Planning:
Under the DOD proposal, key governmentwide provisions of the Homeland
Security Act concerning strategic human capital management and
planning, such as the creation of a Chief Human Capital Officer (CHCO)
Act can be waived. Congress should consider requiring that key
governmentwide provisions of the Homeland Security Act concerning
strategic human capital management and planning be nonwaiveable by DOD.
This would include such provisions as:
Appointment of a DOD Chief Human Capital Officer.
Requirement that DOD's human capital planning be included in Government
Performance and Results Act performance plans and programs performance
reports.
Adherence to strategic human capital management standards set by OPM.
(The Homeland Security Act requires OPM to design a set of systems to
assess the management of human capital by federal agencies, including
appropriate metrics.):
Employee Involvement:
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. Such provisions include allowing
employees to comment on, and review the proposed human capital system
and provides for a mediation procedure if agreement cannot be reached.
The provisions are generally consistent with those required of DHS. In
addition, the legislation provides that the Secretary may at his or her
sole and exclusive discretion engage in national level bargaining.
Potential Safeguards:
Explicitly state the intent of Congress on the importance of allowing
DOD employees to participate in a meaningful way in the creation of any
human resources management system affecting them. This was done for DHS
in the Homeland Security Act.
Require DOD to submit disagreements with the union over the design of
the human resources system after 30 days to an independent body for
some level of assistance in resolution rather than provide that the
Secretary may implement and inform Congress. As the bill is now
written, 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.
Provide guidance as to appropriate issues to be resolved at the
national and local levels.
Employee Appeals Procedures:
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. Similar to the
requirement for the Secretary of DHS, the Secretary of Defense would
likewise 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.
Potential safeguards:
Require that DOD establish an independent appeals authority if it
decides not to use MSPB.
Require that the qualifications, experience, and terms of appointment
of the members be specified in the statute or established jointly in
consultation with MSPB.
Expressly state that decisions of any DOD appeals board would be
subject to judicial review.
Evaluation and Reporting:
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. An 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.
Potential safeguards:
Require DOD to fully track and periodically report on its
implementation and results of its new human capital program. Such
reporting could be on a specified timetable with sunset provisions.
Require 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. Provide
that such reports be done jointly, in consultation with, or subject to
review and approval of OPM.
Safeguards for Specific DOD Human Capital Policies and Practices:
Performance Management and Pay Reform:
DOD has said that the cornerstone of the NSPS will be a broad banded
performance management and pay for performance systems. Performance-
based pay flexibility for broad-based employee groups should be
grounded in performance management systems that are capable of
supporting pay and related decisions. DOD's personnel 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 approaches
to the entire department will require significant effort and likely
need to be implemented in phases over several years.
Potential safeguards:
* Establish statutory standards that an agency must have in place
before it can implement broad banding or a more performance-based pay
program:
* 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).
* Require DOD to have OPM 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 DOD could implement a
new system. OPM should be required to act on any individual
certifications within prescribed time frames (e.g., 30-60 days).
SES Pay and Performance:
The proposed NSPS, similar to the Homeland Security Act, 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.
Potential Safeguards:
Require 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, before DOD could increase the annual
compensation limit for senior executives.
As part of that certification, require that DOD show how its SES
performance management approaches are consistent with leading
organizations', particularly in regards to establishing a clear, direct
connection between SES performance ratings and rewards and the degree
to which the organization achieved its goals.
SES Non-Career Appointments:
The DOD proposal would allow the Secretary to waive the provisions of
Title 5 that limits non-career SES appointments to 25 percent of an
agency's total SES. We believe that Congress should consider
eliminating the proposed waiver authority or otherwise place
alternative numerical or percent of SES workforce caps on DOD's
authority to make non-career SES appointments.
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 and (3) define benefits for overseas employees. 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.
Potential Safeguards:
Place numerical or workforce percentage caps on the use of these
provisions.
Require these provisions only be used to fill critically needed skills
that are identified as such in DOD's strategic human capital plan.
Place limits on the terms of individuals appointed under certain of the
authorities noted above (e.g., the experts and consultants). Allow for
limited re-appointment.
Periodically report on the use of such authorities.
Personal Services Contracts:
The legislation gives DOD greater flexibility to enter into personal
services contracts for experts and consultants for national security
missions, including for service outside of the United States. Such
contracts may waive the Ethics in Government Act of 1978, chapter 73 of
Title 5 US Code (which includes conduct and the Hatch Act), and section
27 of the Office of Federal Procurement Policy Act (which includes
limitations of subsequent employment for contracting officials). We
believe that Congress should consider eliminating the waiver authority
for some or all of the waiver provisions.
Reduction in Force:
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
and does not directly provide for length of service to be considered.
Specifically, employees would 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 would reduce the order in
which veterans' preference is currently provided.
Potential safeguards:
See the safeguards related to modern, effective and credible
performance management systems above.
Specify in statute--rather than leaving it to DOD to determine--the
criteria for the release of competing employees in a reduction in
force. These may include: type of employment, (e.g., permanent,
temporary), performance, veterans' preference, and length of service.
Rightsizing and Organizational Alignment:
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.
Potential Safeguards:
Require additional financial accountability by requiring DOD to consult
with OPM on the planned number of reemployed annuitants.
Place numerical or FTE percentage limitations on the use of these
provisions.
Require these provisions only be used to fill critically needed skills
that are identified as such in DOD's strategic human capital plan.
Place limits on the terms of individuals appointed under this
authority. Allow for limited re-appointment.
Periodically report on the use of such authorities.
Summary Observations:
We at GAO strongly support transforming DOD and the federal government
at large. In fact, we are in the vanguard of the federal government's
transformation and we plan to stay there. We applaud Secretary Rumsfeld
and DOD's leadership's efforts to transform how DOD does business.
Many of the basic principles underlying DOD's civilian human capital
proposal have merit and deserve serious consideration. The proposal is,
however, unprecedented in its size, scope, and significance. As a
result, it should be considered carefully--and not just from a DOD
perspective. DOD's proposal has significant precedent-setting
implications for the human capital area in government in general, and
for OPM, in particular. DOD's request raises several critical questions
both for DOD as well as governmentwide policies and approaches. 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?
Agency-specific human capital reforms should be enacted to the extent
that the problems being addressed and the solutions offered are
specific to a particular agency (e.g., military personnel reforms for
DOD). A government-wide approach should be used to address certain
flexibilities that have broad-based application and serious potential
implications for the civil service system, in general, and the OPM, in
particular. However, in all cases whether from a governmentwide
authority or agency specific legislation, in our view, such additional
authorities should be implemented (or operationalized) only when an
agency has the institutional infrastructure in place to make effective
use of the new authorities.
As you know, we have strongly supported the concept of modernizing
federal human capital policies, including providing reasonable
flexibility to management in this critical area. However, adequate
safeguards must be in place to prevent abuse. Significant progress has
been--and is being--made in addressing the federal government's
pressing human capital challenges. But experience has shown that 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 ultimately successful.
Chairman Voinovich, Mr. Durbin, and Members of the Subcommittee, this
concludes my prepared statement. I would be pleased to respond to any
questions that you may have.
Contacts and Acknowledgments:
For questions about this statement, please contact Derek B. Stewart,
Director, Defense Capabilities and Management on (202) 512-5140 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. Major contributors to
this testimony included Julia Denman, William Doherty, Brenda S.
Farrell, Christine Fossett, and Edward H. Stephenson.
(350326):
FOOTNOTES
[1] DOD officials have said that the Department's current thinking is
that NSPS will be based on practices were outlined in an April 2, 2003,
Federal Register 68 Fed. Reg. 16,119-16,142 (2003) 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.
[2] The Panel, mandated by section 832 of the Defense Authorization Act
for fiscal year 2001, required the Comptroller General to convene a
panel of experts to study the process used by the federal government to
make sourcing decisions. After a yearlong study, the Panel published
its report on April 30, 2002. See Commercial Activities Panel,
Improving the Sourcing Decisions of the Government: Final Report,
(Washington, D.C.: April 30, 2002). The report can be found on GAO's
web site at www.gao.gov under the Commercial Activities Panel heading.
[3] U.S. General Accounting Office, Defense Logistics: Actions Needed
to Overcome Capability Gaps in the Public Deport System, GAO-02-105
(Washington, D.C.: Oct. 12, 2001).
[4] U.S. General Accounting Office, DOD Civilian Personnel: Improved
Strategic Planning Needed to Help Ensure Viability of DOD's Civilian
Industrial Workforce, GAO-03-472 (Washington, D.C.: Apr. 30, 2003).
[5] 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).
[6] 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).
[7] U.S. General Accounting Office, 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).
[8] 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).
[9] Pub. L. No. 107-296, Nov. 25, 2002.
