Questions for the Record Regarding the Department of Defense's National Security Personnel System
Gao ID: GAO-05-770R May 31, 2005GAO appeared before the Senate Committee on Armed Services on April 14, 2005, to discuss the Department of Defense's (DOD) implementation of the National Security Personnel System (NSPS). This letter responds to questions for the record.
GAO commented on "flashpoints" raised by the American Federation of Government Employees regarding collective bargaining rights, an internal board to hear labor-management disputes, the standard for mitigation by the Merit System Protection Board, employee performance measures, pay for DOD civilian workforce, and reductions in force. Further, GAO answered questions regarding civilian pay, safeguarding against abuse, employee training, the employee appeals process, and a performance-based pay system.
GAO-05-770R, Questions for the Record Regarding the Department of Defense's National Security Personnel System
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May 31, 2005:
The Honorable John Warner:
Chairman:
The Honorable Carl Levin:
Ranking Member:
Committee on Armed Services:
United States Senate:
Subject: Questions for the Record Regarding the Department of Defense's
National Security Personnel System:
It was a pleasure to appear before the Committee on April 14, 2005, to
discuss the Department of Defense's (DOD) implementation of the
National Security Personnel System (NSPS).[Footnote 1] This letter
responds to your request for my views on the following questions for
the record.
Questions from Senator Inhofe:
American Federation of Government Employees:
Please comment on each of the "flashpoints" that the AFGE has raised
through Mr. Gage's written statement:
Q. "DOD has proposed radically reducing the scope of collective
bargaining in the proposed regulations. . . . The proposed regulations
do not follow the law with respect to its instructions to maintain
collective bargaining rights for affected DOD employees."
Our previous work on individual agencies' human capital systems has not
directly addressed the scope of specific issues that should or should
not be subject to collective bargaining and negotiations.
Q. "The board that hears labor-management disputes arising from NSPS
must be independent of DOD management. . . . In the proposed NSPS
regulations, DOD would establish an internal board made up entirely of
individuals appointed by the Secretary."
In our previous testimonies on the proposed and final Department of
Homeland Security (DHS) regulations, we stressed the importance of the
actual and perceived independence and impartiality of such
boards.[Footnote 2] Members of these types of boards should be, and
appear to be, free from interference in the legitimate performance of
their duties and should adjudicate cases in an impartial manner, free
from initial bias and conflicts of interest.
Consistent with fostering board independence and impartiality, DOD's
proposed NSPS regulations provide for staggered-term appointments for
members of the proposed National Security Labor Relations Board and
place some limited conditions on the removal of a member. For example,
members of the Board would be appointed for terms of 3 years, except
that the appointments of the initial Board members will be for terms of
1, 2, and 3 years. The Secretary of Defense may extend the term of any
member beyond 3 years when necessary to provide for an orderly
transition and/or appoint the member for up to two additional 1-year
terms. DOD could further enhance the independence and impartiality of
the Board through the appointment and removal process of Board members.
This could include such areas as (1) a nomination panel that reflects
input from appropriate parties and a reasonable degree of balance among
differing views and interests in the composition of the Board to ensure
credibility and (2) appropriate notification to interested parties in
the event that a Board member is removed.
The proposed regulations allow the Secretary of Defense to appoint and
remove individual Board members; however, this raises the question of
the independence of the Board. If the proposed regulations were
modified to allow the Secretary of Defense to appoint but not remove
members, then this may help the credibility and independence of the
Board.
Q. "The standard for mitigation by the Merit System Protection Board
(MSPB) of discipline and penalties imposed on employees under NSPS in
the proposed regulations is virtually impossible to meet and
effectively removes the possibility of mitigation."
The U.S. Merit Systems Protection Board will not know the actual impact
until a number of cases are adjudicated.
Q. ". . . under the proposed regulations, not only is there no
requirement for management to present written standards against which
performance will be measured, but employees are also denied the right.
. .to use negotiated grievance and arbitration system. . . ."
On the basis of our previous work, we believe that performance
standards should be written. We also advocate the use of competencies-
-the skills, knowledge, and abilities staff need to accomplish the
work. We have found that competencies can help reinforce employee
behaviors and actions that support the department's mission, goals, and
values, and can provide a consistent message to employees about how
they are expected to achieve results. These core competencies must be
in writing to assure that managers, supervisors, and employees see and
understand the criteria that will be used to manage and assess employee
performance.
Regarding grievance and arbitration systems, during testimony in April
2005, we reaffirmed our position that that there should be both
informal and formal appeal mechanisms within and outside of the
organization if individuals feel that there has been abuse or a
violation of the policies, procedures, and protected rights of the
individual. Internal mechanisms could include independent Human Capital
Office and Office of Opportunity and Inclusiveness reviews that provide
reasonable assurances that there would be consistency and
nondiscrimination.[Footnote 3] Furthermore, it is of critical
importance that the external appeal process be independent, efficient,
effective, and credible. As DOD's human resources management system
efforts move forward, DOD will need to define, in more detail than is
currently provided, how it plans to review such matters as the
establishment and implementation of the performance appraisal system--
and, subsequently, performance rating decisions, pay determinations,
and promotion actions--before these actions are finalized to ensure
they are merit based.
Q. "Strong and unambiguous safeguards must be in place to prevent a
general lowering of pay for DOD civilian workforce. The proposed
regulations permit a general reduction in salaries for all DOD
personnel compared to rates they would have been paid under statutory
systems."
Under the proposed regulations, DOD could not reduce employees' basic
rates of pay when converting to pay bands. However, employees'
compensation may increase at a rate higher or lower than under the
current compensation system because under NSPS compensation is designed
to be (1) market sensitive, with consideration of local market
conditions to set pay rates, and (2) performance based.
Q. "Procedures for deciding who will be affected by a reduction in
force must be based on more than a worker's most recent performance
appraisal. The proposed NSPS regulation would allow an employee with 1
year of service and an outstanding rating to have superior retention
rights to an employee with 30 years of outstanding appraisals and 1
year of having been rated merely "above average."
Under DOD's proposed regulations, greater emphasis will be given to job
performance in the reduction-in-force process by placing performance
ahead of length of service. Under the proposed regulations, employees
will be placed on a competitive group's retention list in the following
order of precedence: (1) tenure group, (2) veterans' preference, (3)
individual performance rating, and (4) length of service. DOD may also
establish a minimum reduction-in-force competitive area on the basis of
one or more of the following factors: geographic location(s), line(s)
of business, product line(s), organizational unit(s), and funding
line(s). The proposed regulations provide DOD with the flexibility to
define competitive groups on the basis of career group, pay schedule,
occupational series or specialty, pay band, and/or trainee status.
Questions from Senator Lieberman:
Civilian Pay:
Q. John Gage in his testimony expressed concern that the NSPS will
create downward pressure on DOD civilian pay. Are there mechanisms that
you could suggest to assure that pay levels are adequate for employee
recruitment and retention and to truly reward good performance?
We have observed that a competitive compensation system can help
organizations attract and retain a quality workforce.[Footnote 4] To
begin to develop such a system, organizations assess the skills and
knowledge they need; compare compensation against other public,
private, or nonprofit entities competing for the same talent in a given
locality; and classify positions along levels of responsibility. While
one size does not fit all, organizations generally structure their
competitive compensation systems to separate base salary--which all
employees receive--from other special incentives, such as merit
increases, performance awards, or bonuses, which are provided based on
performance and contributions to organizational results.
We have reported that direct costs associated with salaries were one of
the major cost drivers of implementing pay for performance systems,
based on the data provided us by selected Office of Personnel
Management demonstration projects.[Footnote 5] We found that some of
the demonstration projects intended to manage costs by providing a mix
of one-time awards and permanent pay increases. Rewarding an employee's
performance with an award instead of an equivalent increase to base pay
can help contain salary costs in the long run because the agency only
has to pay the amount of the award one time, rather than annually.
This practice is consistent with modern compensation systems, which
typically include a mix of base pay increases plus other compensation
incentives, such as one-time performance awards or bonuses. In
developing pay for performance systems, agencies must consider what
percentage of performance-based pay should be awarded as base pay
increases versus one-time cash increases while still maintaining
fiscally sustainable compensation systems that reward performance. In
addition, to the costs associated with base pay increases, modern
compensation systems typically consider an employee's salary in
relation to a competitive range when determining the amount of
performance pay that should be provided as a base pay adjustment versus
a cash bonus amount. This base versus bonus concept differs from the
largely longevity driven base pay adjustments provided to employees
under the General Schedule. This new direction concerns employees,
especially those who are close to retirement, who see these regular
base pay increases as the foundation of future retirement benefits.
Safeguards Against Abuse:
Q. In your testimony you expressed concern that the proposed
regulations do not contain adequate safeguards to help ensure fairness
and guard against abuse. Could you elaborate on what kinds of
safeguards you believe should be considered in this context?
As we noted in our statement, although DOD's proposed regulations
provide for some safeguards to ensure fairness and guard against abuse,
additional safeguards should be developed. We have developed an initial
list of possible safeguards to help ensure that pay-for-performance
systems in the government are fair, effective, and credible.[Footnote
6] The safeguards include, among other things, the following.
* 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 that there are reasonable transparency and appropriate
accountability mechanisms in connection with the results of the
performance management process. This includes reporting periodically on
internal assessments and employee survey results relating to the
performance management system and publishing overall results of
performance management and individual pay decisions while protecting
individual confidentiality.
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.
Q. Do you know of agencies where such mechanisms have proven effective
to guard against unfairness and abuse in a pay-for-performance system?
The list of safeguards mentioned above are 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. However, we previously reported that DHS created a Homeland
Security Compensation Committee that is to provide oversight and
transparency to the compensation process. The committee--consisting of
14 members, including 4 officials of labor organizations--is to develop
recommendations and options for the Secretary's consideration on
compensation and performance management matters, including the annual
allocation of funds between market and performance pay adjustments. We
also reported that high performing organizations seek to create pay,
incentive, and reward systems based on valid, reliable, and transparent
performance management systems with adequate safeguards and link
employee knowledge, skills, and contributions to organizational
results.[Footnote 7] To that end, we found that the demonstration
projects took a variety of approaches to designing and implementing
their pay for performance systems to meet the unique needs of their
cultures and organizational structures. For example, the Department of
Commerce uses a second-level review process as a safeguard. In this
review process, the pay pool manager is to review recommended scores
from subordinate supervisors and select a payout for each employee. The
pay pool manager is to present the decisions to the next higher
official for review if the pay pool manager is also a supervisor. In
addition, the department had a grievance procedure that allowed
employees to request reconsideration of performance decisions,
excluding awards, by the pay pool manager through the department's
Administrative Grievance Procedure or appropriate negotiated grievance
procedures.
Questions from Senator Akaka:
Employee Training:
Q. An issue raised repeatedly in discussions over the personnel changes
at DOD and DHS is the need for adequate training for all employees on
the new personnel system. Have you looked into this issue, and if so,
what recommendations do you have regarding the amount, type, or
regularity of personnel training that is needed to launch and sustain a
new personnel system?
As we noted in our report, Human Capital: A Guide for Assessing
Strategic Training and Development Efforts in the Federal
Government,[Footnote 8] training and developing new and current staff
to fill new roles and work in different ways will be a crucial part of
the federal government's endeavors to meet its transformation
challenges. DOD and DHS are significant components of this
transformation.
In April 2004, GAO and the National Commission on the Public Service
Implementation Initiative hosted a forum on whether there should be a
governmentwide framework for human capital reform and, if so, what this
framework should include. As part of the criteria that agencies should
have in place as they plan for and manage their new human capital
authorities, participants generally agreed that adequate resources for
planning, implementation, training, and evaluation were needed.
Additionally, they noted that agencies should ensure adequate training
as they implement new human capital authorities.
Selected Office of Personnel Management personnel demonstration
projects trained employees on the performance management system prior
to implementation to make employees aware of the new approach, as well
as periodically after implementation to refresh employee familiarity
with the system. The training was designed to help employees understand
their applicable competencies and performance standards; develop
performance plans; write self-appraisals; become familiar with how
performance is evaluated and how pay increases and awards decisions are
made; and know the roles and responsibilities of managers, supervisors,
and employees in the appraisal and payout processes. According to the
DHS regulations, its performance management system is designed to
incorporate adequate training and retraining for supervisors, managers,
and employees in the implementation and operation of the system.
GAO currently is reviewing training and development issues at DHS. Our
work includes a review of DHS's training efforts on its new personnel
system, maxHR. Our report is scheduled to be released this fall.
Employee Performance:
Q. Both the DHS and DOD personnel systems permit managers to convey
performance expectations to employees orally. I think this can put
employees at a disadvantage, especially as their pay will be more
closely tied to their performance. How can employees be held
accountable for performance expectations provided orally?
To help enhance credibility and fairness and avoid any problems, some
sort of written documentation of performance expectations is
appropriate, in addition to orally communicating performance
expectations. However, the means can vary.
Guard Against Abuse:
Q. You testified as to the lack of details in the NSPS proposed
regulations, including the absence of adequate safeguards to ensure
fairness and guard against abuse in measuring performance and paying
employees. What sort of oversight do you believe is needed to promote
consistency of the performance management system and do you believe
external review of pay and performance decisions is necessary?
In April 2003, when commenting on DOD civilian personnel reforms, we
testified that Congress should consider establishing statutory
standards that an agency must have in place before it can implement a
more performance-based pay program, and we developed an initial list of
possible safeguards to help ensure that pay-for-performance systems in
the government are fair, effective, and credible.[Footnote 9] One of
the safeguards we identified is to assure that certain predecisional
internal safeguards exist to help achieve the consistency, equity,
nondiscrimination, and nonpoliticization of the performance management
process. For example, 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.
Q. What kind of external review would you propose?
We reported that 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 and the effective implementation of a
compensation committee similar to the Homeland Security Compensation
Committee are important to assuring that predecisional internal
safeguards exist to help achieve consistency and equity and assure
nondiscrimination and nonpoliticization of the performance management
process.[Footnote 10]
In our report on implementing pay for performance at selected personnel
demonstration projects, we mentioned that some of the demonstration
projects implemented as safeguards a second-level review and grievance
process, as these examples illustrate.
Second-level review process:
Second-level supervisors are to review all assessments. In addition, an
overall assessment of "highly successful" is to be sent to the
appropriate department's Performance Review Board for the assignment of
an official rating of "1" or "2". The supervisor and reviewer are to
assign a "4" or "5" rating based on a problem-solving team's findings
and a personnel advisor's input.
Pay pool managers review recommended scores from supervisors and select
a payout for each employee. The pay pool manager is to present the
decisions to the next higher official for review if the pay pool
manager is also a supervisor.
Grievance process:
Employees may request reconsideration of their ratings in writing to
the third-level supervisor and indicate why a higher rating is
warranted and what rating is desired. The third-level supervisor can
either grant the request or request that a recommending official
outside of the immediate organization or chain of authority be
appointed. The employee is to receive a final decision in writing
within 21 calendar days.
Employees may grieve their ratings and actions affecting the general
pay increase or performance pay increases. An employee covered by a
negotiated grievance procedure is to use that procedure to grieve his
or her score. An employee not under a negotiated grievance procedure is
to submit the grievance first to the rating official, who will submit a
recommendation to the pay pool panel. The pay pool panel may accept the
rating official's recommendation or reach an independent decision. The
pay pool panel's decision is final unless the employee requests
reconsideration by the next higher official to the pay pool manager.
The official would then render the final decision on the grievance.
Employee Appeals Process:
Q. The proposed regulations provide for an accelerated MSPB
adjudication process for employee appeals. I have long been concerned
about the impact a shortened processing time for one agency may have on
employees at other agencies with cases pending before the MSPB. Do you
believe the NSPS regulations will have an adverse effect on employee
appeals both at DOD and at other federal agencies?
The U.S. Merit Systems Protection Board will not know the actual impact
until a number of cases are adjudicated.
Question from Senator Nelson:
Performance-Based Pay System:
Q. What do you recommend to minimize or mitigate risks?
The key to a successful organizational transformation is to implement
strategies to help individuals maximize their full potential in the new
organization, while simultaneously managing the risk of reduced
productivity and effectiveness that often occurs as a result of the
changes. While there is no one right way to manage a successful merger,
acquisition, or transformation, the experiences of both successful and
unsuccessful efforts suggest that there are practices that are key to
their success. These key practices include the following.
Ensure top leadership drives the transformation. Leadership must set
the direction, pace, and tone and provide a clear, consistent rationale
that brings everyone together behind a single mission.
Focus on a key set of principles and priorities at the outset of the
transformation. A clear set of principles and priorities serves as a
framework to help the organization create a new culture and drive
employee behaviors.
Set implementation goals and a timeline to build momentum and show
progress from day one. Goals and a timeline are essential because the
transformation could take years to complete.
Dedicate an implementation team to manage the transformation process. A
strong and stable team is important to ensure that the transformation
receives the needed attention to be sustained and successful.
Establish a communication strategy to create shared expectations and
report related progress. The strategy must reach out to employees,
customers, and stakeholders and engage them in a two-way
exchange.[Footnote 11]
For additional information on our work on human capital issues at DOD,
please contact me on 512-5559 or stewartd@gao.gov, or Eileen Larence,
Director, Strategic Issues, on governmentwide human capital issues at
512-6510 or larencee@gao.gov.
Derek B. Stewart:
Director, Defense Capabilities and Management:
(350713):
FOOTNOTES
[1] GAO, Human Capital: Preliminary Observations on Proposed
Regulations for DOD's National Security Personnel System, GAO-05-559T
(Washington, D.C.: Apr. 14, 2005).
[2] GAO, Human Capital: Preliminary Observations on Proposed DHS Human
Capital Regulations, GAO-04-479T (Washington, D.C.: Feb. 25, 2004) and
Human Capital: Preliminary Observations on Final Department of Homeland
Security Human Capital Regulations, GAO-05-320T (Washington, D.C.: Feb.
10, 2005).
[3] GAO, Human Capital: Preliminary Observations on Proposed Department
of Defense National Security Personnel System Regulations, GAO-05-517T
(Washington, D.C.: Apr. 12, 2005).
[4] GAO, Additional Posthearing Questions Related to Proposed
Department of Homeland Security (DHS) Human Capital Regulations, GAO-
04-617R (Washington, D.C.: Apr. 30, 2004).
[5] GAO, Human Capital: Implementing Pay for Performance at Selected
Personnel Demonstration Projects, GAO-04-83 (Washington, D.C.: Jan. 23,
2004).
[6] GAO, Defense Transformation: Preliminary Observations on DOD's
Proposed Civilian Personnel Reforms, GAO-03-717T (Washington, D.C.:
Apr. 29, 2003).
[7] GAO-04-83.
[8] GAO, Human Capital: A Guide for Assessing Strategic Training and
Development Efforts in the Federal Government, GAO-04-546G (Washington,
D.C.: March 2004).
[9] GAO-03-717T.
[10] GAO-04-320T.
[11] GAO, Results-Oriented Cultures: Implementation Steps to Assist
Mergers and Organizational Transformations, GAO-03-669 (Washington,
D.C.: July 2, 2003).
