Human Capital
Preliminary Observations on Proposed DHS Human Capital Regulations Gao ID: GAO-04-479T February 25, 2004The creation of the Department of Homeland Security (DHS) almost one year ago represents an historic moment for the federal government to fundamentally transform how the nation will protect itself from terrorism. DHS is continuing to transform and integrate a disparate group of agencies with multiple missions, values, and cultures into a strong and effective cabinet department. Together with this unique opportunity, however, also comes significant risk to the nation that could occur if this transformation is not implemented successfully. In fact, GAO designated this implementation and transformation as high risk in January 2003. Congress provided DHS with significant flexibility to design a modern human capital management system. GAO reported in September 2003 that the design effort to develop the system was collaborative and consistent with positive elements of transformation. Last Friday, the Secretary of DHS and the Director of the Office of Personnel Management (OPM) released for public comment draft regulations for DHS's new human capital system. This testimony provides preliminary observations on selected major provisions of the proposed system.
The proposed human capital system is designed to be aligned with the department's mission requirements and is intended to protect the civil service rights of DHS employees. Many of the basic principles underlying the DHS regulations are consistent with proven approaches to strategic human capital management, including several approaches pioneered by GAO, and deserve serious consideration. However, some parts of the system raise questions that DHS, OPM, and Congress should consider. Pay and performance management: The proposal takes another valuable step towards results-oriented pay reform and modern performance management. For effective performance management, DHS should use validated core competencies as a key part of evaluating individual contributions to departmental results and transformation efforts. Adverse actions and appeals: The proposal would retain an avenue for employees to appeal adverse actions to an independent third party. However, the process to identify mandatory removal offenses must be collaborative and transparent. DHS needs to be cautious about defining specific actions requiring employee removal and learn from the Internal Revenue Service's implementation of its mandatory removal provisions. Labor relations: The regulations recognize employees' right to organize and bargain collectively, but reduce areas subject to bargaining. Continuing to involve employees in a meaningful manner is critical to the successful operations of the department. Once DHS issues final regulations for the human capital system, it will be faced with multiple implementation challenges. DHS plans to implement the system using a phased approach, however; nearly half of DHS civilian employees are not covered by these regulations, including more than 50,000 Transportation Security Administration screeners. To help build a unified culture, DHS should consider moving all of its employees under a single performance management system framework. DHS noted that it estimates that about $110 million will be needed to implement the new system in its first year. While adequate resources for program implementation are critical to program success, DHS is requesting a substantial amount of funding that warrants close scrutiny by Congress. The proposed regulations call for comprehensive, ongoing evaluations. Continued evaluation and adjustments will help to ensure an effective and credible human capital system. DHS has begun to develop a strategic workforce plan. Such a plan can be used as a tool for identifying core competencies for staff for attracting, developing, evaluating, and rewarding contributions to mission accomplishment. The analysis of DHS's effort to develop a strategic human capital management system can be instructive as other agencies request and implement new strategic human capital management authorities.
GAO-04-479T, Human Capital: Preliminary Observations on Proposed DHS Human Capital Regulations
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Testimony:
Before Subcommittees of the Senate Committee on Governmental Affairs
and the House Committee on Government Reform:
United States General Accounting Office:
GAO:
For Release on Delivery Expected at 10:00 a.m. EST:
February 25, 2004:
HUMAN CAPITAL:
Preliminary Observations on Proposed DHS Human Capital Regulations:
Statement of David M. Walker,
Comptroller General of the United States:
GAO-04-479T:
GAO Highlights:
Highlights of GAO-04-479T, testimony before subcommittees of the
Senate Committee on Governmental Affairs and the House Committee on
Government Reform
Why GAO Did This Study:
The creation of the Department of Homeland Security (DHS) almost one
year ago represents an historic moment for the federal government to
fundamentally transform how the nation will protect itself from
terrorism. DHS is continuing to transform and integrate a disparate
group of agencies with multiple missions, values, and cultures into a
strong and effective cabinet department. Together with this unique
opportunity, however, also comes significant risk to the nation that
could occur if this transformation is not implemented successfully. In
fact, GAO designated this implementation and transformation as high
risk in January 2003.
Congress provided DHS with significant flexibility to design a modern
human capital management system. GAO reported in September 2003 that
the design effort to develop the system was collaborative and
consistent with positive elements of transformation. Last Friday, the
Secretary of DHS and the Director of the Office of Personnel
Management (OPM) released for public comment draft regulations for
DHS‘s new human capital system. This testimony provides preliminary
observations on selected major provisions of the proposed system. The
subcommittees are also releasing Human Capital: Implementing Pay for
Performance at Selected Personnel Demonstration Projects (GAO-04-83)
at today‘s hearing.
What GAO Found:
The proposed human capital system is designed to be aligned with the
department‘s mission requirements and is intended to protect the civil
service rights of DHS employees. Many of the basic principles
underlying the DHS regulations are consistent with proven approaches
to strategic human capital management, including several approaches
pioneered by GAO, and deserve serious consideration. However, some
parts of the system raise questions that DHS, OPM, and Congress should
consider.
* Pay and performance management: The proposal takes another valuable
step towards results-oriented pay reform and modern performance
management. For effective performance management, DHS should use
validated core competencies as a key part of evaluating individual
contributions to departmental results and transformation efforts.
* Adverse actions and appeals: The proposal would retain an avenue for
employees to appeal adverse actions to an independent third party.
However, the process to identify mandatory removal offenses must be
collaborative and transparent. DHS needs to be cautious about defining
specific actions requiring employee removal and learn from the
Internal Revenue Service‘s implementation of its mandatory removal
provisions.
* Labor relations: The regulations recognize employees‘ right to
organize and bargain collectively, but reduce areas subject to
bargaining. Continuing to involve employees in a meaningful manner is
critical to the successful operations of the department.
Once DHS issues final regulations for the human capital system, it
will be faced with multiple implementation challenges:
* DHS plans to implement the system using a phased approach, however,
nearly half of DHS civilian employees are not covered by these
regulations, including more than 50,000 Transportation Security
Administration screeners. To help build a unified culture, DHS should
consider moving all of its employees under a single performance
management system framework.
* DHS noted that it estimates that about $110 million will be needed
to implement the new system in its first year. While adequate
resources for program implementation are critical to program success,
DHS is requesting a substantial amount of funding that warrants close
scrutiny by Congress.
* The proposed regulations call for comprehensive, ongoing
evaluations. Continued evaluation and adjustments will help to ensure
an effective and credible human capital system.
* DHS has begun to develop a strategic workforce plan. Such a plan can
be used as a tool for identifying core competencies for staff for
attracting, developing, evaluating, and rewarding contributions to
mission accomplishment.
The analysis of DHS‘s effort to develop a strategic human capital
management system can be instructive as other agencies request and
implement new strategic human capital management authorities.
www.gao.gov/cgi-bin/getrpt?GAO-04-479T.
To view the full testimony statement, click on the link above. For
more information, contact J. Christopher Mihm at (202) 512-6806 or
mihmj@gao.gov.
[End of section]
Chairman Voinovich, Chairwoman Davis, and Members of the Subcommittees:
It is a pleasure to appear before you today to provide our preliminary
observations on the Department of Homeland Security's (DHS) proposed
regulations on its new human capital system.[Footnote 1] The creation
of DHS almost one year ago represents an historic moment for the
federal government to fundamentally transform how the nation will
protect itself from terrorism. DHS is continuing to transform and
integrate a disparate group of agencies with multiple missions, values,
and cultures into a strong and effective cabinet department. However,
this unique opportunity also brings significant risk to the nation if
this transformation is not implemented successfully. In fact, we
designated this implementation and transformation as high risk in
January 2003.[Footnote 2]
Last Friday, the Secretary of DHS and the Director of the Office of
Personnel Management (OPM) released for public comment proposed
regulations for DHS's new human capital system. The regulations are
intended to provide the broad outline of the DHS proposed system and
are not, nor were they intended to be, a comprehensive presentation of
the details of how the new system will be implemented. As the system
evolves, critical issues such as how DHS will link individual
performance expectations to DHS's mission and goals, how it will define
performance expectations to promote individual accountability, and how
it will continue to incorporate adequate safeguards to ensure fairness,
will need to be addressed. Such detailed implementation policies and
procedures will need to be developed in a transparent and inclusive
manner as the system evolves. Although we are still reviewing these
extensive regulations issued last week, this morning I will provide
some preliminary observations on selected provisions that in our view
are most in need of close scrutiny as Congress considers the DHS
proposal.
The proposed DHS regulations have both significant precedent-setting
implications for the executive branch and far-reaching implications on
how the department is managed. In my view, many of the basic principles
underlying the proposed DHS regulations are consistent with proven
approaches to strategic human capital management, including several
approaches pioneered by GAO, and deserve serious consideration. In
designing the proposed system, DHS and OPM met with a wide range of
individuals and organizations with expertise in human capital. At the
request of DHS and OPM, we were pleased to share the results of our
work looking at leading human capital practices as well as our own
experiences with performance management at GAO. My statement today is
based on our ongoing review of DHS's design and implementation of its
human capital system, recent work on strategic human capital
management, including performance management, and our own experience.
Preliminary Observations on the Proposed Human Capital Regulations:
DHS's and OPM's proposed regulations would establish a new human
resources management system within DHS that covers pay, classification,
performance management, labor relations, adverse action, and employee
appeals. These changes are designed to ensure that the system aligns
individual performance and pay with the department's critical mission
requirements and to protect the civil service rights of its employees.
However, it is important to note at the outset that the proposed
regulations do not apply to nearly half of all DHS civilian employees,
including nearly 50,000 screeners in the Transportation Security
Administration (TSA). DHS officials have noted that additional
employees can be included through further administrative action, but
that legislation would be needed to include other employees such as the
screeners and the uniformed division of the Secret Service.[Footnote 3]
We have found that having one performance management system framework
facilitates unifying an organizational culture and is a key practice to
a successful merger and transformation. Based on the department's
progress in implementing the system and any appropriate modifications
made based on their experience, DHS should consider moving all of its
employees under the new human capital system.
Pay and Performance Management:
Today, Mr. Chairman and Madam Chairwoman, you are releasing a report
that we prepared at your request that shows the variety of approaches
that OPM's personnel demonstration projects took to design and
implement their pay for performance systems.[Footnote 4] Their
experiences provide insights into how some organizations in the federal
government are implementing pay for performance and thus can guide DHS
as it develops and implements its own approach. These demonstration
projects illustrate that understanding how to link pay to performance
is very much a work in progress in the federal government and that
additional work is needed to ensure that performance management systems
are tools to help them manage on a day-to-day basis and achieve
external results.
As we testified last spring when the Department of Defense (DOD)
proposed its civilian personnel reform, from a conceptual standpoint,
we strongly support the need to expand pay for performance in the
federal government.[Footnote 5] Establishing a better link between
individual pay and performance is essential if we expect to maximize
the performance and ensure the accountability of the federal government
for the benefit of the American people. However, how it is done, when
it is done, and the basis on which it is done can make all the
difference in whether such efforts are successful. The DHS proposal
reflects a growing understanding that the federal government needs to
fundamentally rethink its current approach to pay and better link pay
to individual and organization performance. To this end, the DHS
proposal takes another valuable step towards results-oriented pay
reform and modern performance management. My comments on specific
provisions follow.
Linking Organizational Goals to Individual Performance:
Under the proposed regulations, the DHS performance management system
must, among other things, align individual performance expectations
with the mission, strategic goals, or a range of other objectives of
the department or of the DHS components. The proposed guidelines do not
detail how such an alignment is to be achieved, a vital issue that will
need to be addressed as DHS's efforts move forward. Our work looking at
public sector performance management efforts here in the United States
as well as abroad have underscored the importance of aligning daily
operations and activities with organizational results. We have found
that organizations often struggle with clearly understanding how what
they do on a day-to-day basis contributes to overall organizational
results. High performing organizations, on the other hand, understand
how the products and services they deliver contribute to results by
aligning performance expectations of top leadership with organizational
goals and then cascading those expectations to lower levels.
As an organization undergoing its own merger and transformation, DHS's
revised performance management system can be a vital tool for aligning
the organization with desired results and creating a "line of sight"
showing how team, unit, and individual performance can contribute to
overall organizational results. To help DHS merge its various
originating components into a unified department and transform its
culture to be more results oriented, customer focused, and
collaborative in nature, we reported at your request, Mr. Chairman and
Madam Chairwoman, how a performance management system that defines
responsibility and assures accountability for change can be key to a
successful merger and transformation.[Footnote 6] While aligning
individual performance expectations with DHS's mission and strategic
goals will be key to DHS's effective performance management, it is
important to note that DHS has not yet released its strategic plan
which may hamper creating the formal linkage to the performance
management system and make it difficult to ensure that the proposed
regulations support and facilitate the accomplishment of the
department's strategic goals and objectives.
Establishing Pay Bands:
Under the proposed regulations, DHS would create broad pay bands for
much of the department in place of the fifteen-grade General Schedule
(GS) system now in place for much of the civil service. Specifically,
DHS officials have indicated that they will form ten to fifteen
occupational pay clusters of similar job types, such as a management or
science and technology cluster. Most of these occupational clusters
would have four pay bands ranging from entry level to supervisor.
Within each occupational cluster, promotion to another band (such as
from full performance to senior expert) would require an assessment
and/or competition. Under the proposed regulations, DHS is not to
reduce employees' basic rate of pay when converting to pay bands. In
addition, the proposed regulations would allow DHS to establish a
"control point" within a band, beyond which basic pay increases may be
granted only for meeting criteria established by DHS, such as an
outstanding performance rating.
The use of control points can be a valuable tool because managing
progression through the bands can help to ensure that employees'
performance coincides with their salaries and can help to prevent all
employees from eventually migrating to the top of the band and thus
increasing salary costs. Both demonstration projects at China Lake and
the Naval Sea Systems Command Warfare Center's (NAVSEA) Dahlgren
Division have checkpoints or "speed bumps" in their pay bands designed
to ensure that only the highest performers move into the upper half of
the pay band. For example, when employees' salaries at China Lake reach
the midpoint of the pay band, they must receive a performance rating
equivalent to exceeding expectations, before they can receive
additional salary increases.
Pay banding and movement to broader occupational clusters can both
facilitate DHS's movement to a pay for performance system, and help DHS
to better define occupations, which can improve the hiring process. We
have reported that the current GS system as defined in the
Classification Act of 1949 is a key barrier to comprehensive human
capital reform and the creation of broader occupational job clusters
and pay bands would aid other agencies as they seek to modernize their
personnel systems.[Footnote 7] The standards and process of the current
classification system is a key problem in federal hiring efforts
because they are outdated and not applicable to the occupations and
work of today. Many employees in agencies that are now a part of DHS
responding to OPM's 2002 Federal Human Capital Survey (FHCS) believe
that recruiting is a problem - only 36 percent believe their work unit
is able to recruit people with the right skills.[Footnote 8]
Setting Employee Performance Expectations:
The DHS performance management system is intended to promote individual
accountability by communicating performance expectations and holding
employees responsible for accomplishing them and by holding supervisors
and managers responsible for effectively managing the performance of
employees under their supervision. While supervisors are to involve
employees as far as practicable in developing their performance
expectations and employees seek clarification if they do not understand
them, the final decision on an employee's expectations is the
supervisor's sole and exclusive discretion. Supervisors must monitor
the performance of their employees and provide periodic feedback,
including one or more formal interim performance reviews during the
appraisal period.
The proposed regulations provide a general description of DHS's
performance management system with many important details to be
determined. Under the proposed regulations, performance expectations
may take the form of goals or objectives that set general or specific
performance targets at the individual, team, and/or organizational
level; a particular work assignment, including characteristics such as
quality, accuracy, or timeliness; or competencies an employee is
expected to demonstrate on the job; and/or the contributions an
employee is expected to make, among other things. As DHS's system
design efforts move forward, it will need to define in further detail
than currently provided how performance expectations will be
established, including the degree to which DHS components, managers,
and supervisors will have flexibility in setting those expectations.
Nevertheless, the range of expectations that DHS will consider in
setting individual employee performance expectations are generally
consistent with those we see used by leading organizations. In
addition, DHS appropriately recognizes that given the vast diversity of
work done in the Department, managers and employees need flexibility in
crafting specific expectations. However, the experiences of leading
organizations suggest that DHS should reconsider its position to merely
allow, rather than require the use of core employee competencies as a
central feature of DHS's performance management efforts.[Footnote 9]
Based on our review of others' efforts and our own experience at GAO,
core 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. For example, the Civilian Acquisition Workforce
Personnel Demonstration Project (AcqDemo), which covers various
organizational units of the Air Force, Army, Navy, Marine Corps, and
the Office of the Under Secretary of Defense, applies organizationwide
competencies for all employees such as teamwork/cooperation, customer
relations, leadership/supervision, and communication.
More specifically and consistent with leading practices for successful
mergers and organizational transformation, DHS should use its
performance management system to serve as the basis for setting
expectations for individual roles in its transformation
process.[Footnote 10] To be successful, transformation efforts, such as
the one underway at DHS, must have leaders, managers, and employees who
have the individual competencies to integrate and create synergy among
multiple organizations involved in the transformation effort.
Individual performance and contributions can be evaluated on
competencies such as change management, cultural sensitivity, teamwork
and collaboration, and information sharing. Leaders, managers, and
employees who demonstrate these competencies are rewarded for their
success in contributing to the achievement of the transformation
process. DHS, by including such competencies throughout its revised
performance management system, would create a shared responsibility for
organizational success and help assure accountability for change.
Translating Employee Performance Ratings into Pay Increases and Awards:
A stated purpose of DHS's performance management system is to provide
for meaningful distinctions in performance to support adjustments in
pay, awards, and promotions. All employees who meet organizational
expectations are to receive pay adjustments, generally to be made on an
annual basis. In coordination with OPM, the pay adjustment is to be
based on considerations of mission requirements, labor market
conditions, availability of funds, pay adjustments received by other
federal employees, and other factors. The pay adjustment may vary by
occupational cluster or band. Employees that meet or exceed
expectations are also eligible to receive a performance-based pay
increase, either as an increase to base pay or a one-time award,
depending on the employee's performance rating. Employees with
unacceptable ratings are not to receive the pay adjustment or a
performance-based pay increase. The proposed regulations provide
managers with a range of options for dealing with poor performers, such
as remedial training, reassignment, an improvement period, among other
things.
In coordination with OPM, DHS may additionally set the boundaries of
locality pay areas. Participants in the DHS focus groups expressed
concerns regarding the shortcomings of the current locality pay system,
including its impact on recruitment and retention.[Footnote 11]
While the DHS proposal does not provide additional detail on how it
would consider labor market conditions, its proposed approach is
broadly consistent with the experiences of some of the demonstration
projects that considered the labor market or the fiscal condition of
the organization in determining how much to budget for pay increases.
For example, NAVSEA's Newport Division considers the labor market and
uses regional and industry salary information compiled by the American
Association of Engineering Societies when determining how much to set
aside for pay increases and awards. In addition, the Newport Division
is financed in part through a working capital fund and thus must take
into account fiscal condition when budgeting for pay increases and
awards. Responding to higher salaries in the labor market, the Newport
Division funded pay increases at a higher rate in fiscal year 2001 than
in 2000. Conversely, in fiscal year 2002, the performance pay increase
and award pools were funded at lower levels than in 2001 because of
fiscal constraints.
Under the proposed regulations, DHS would establish performance pay
pools by occupational cluster and by band within each cluster, and may
further divide them by unit and/or location. Performance-based pay
would be based on "performance points" whereby points correspond to a
rating level. In an example used by DHS, for a four-level system, the
point value pattern may be 4-2-1-0, where 4 points are assigned to the
highest rating and 0 points to an unacceptable rating. While each pay
pool has the option to use this point value pattern or another, DHS is
to determine the value of a performance point. The proposed regulations
do not provide more detailed information on how ratings will be used
for pay and promotions.
Under the proposed regulations, DHS may not impose a quota on any
rating level or a mandatory distribution of ratings. DHS would create a
Performance Review Board (PRB) to review ratings in order to promote
consistency and provide general oversight of the performance management
system to ensure it is administered in a fair, credible, and
transparent manner. DHS may, in turn, appoint as many review boards
within the departmental components as it deems necessary to effectively
carry out these intended functions and, when practicable, may include
employees outside the organizational unit, occupation, and/or location
of employees subject to review by the PRB. The proposed regulations do
not offer additional details on other matters such as the selection
process for the members nor their qualifications. Where circumstances
warrant, the PRB may remand individual ratings for additional review
and/or modify a rating.
While much remains to be determined about how the DHS PRB will operate,
we believe that the effective implementation of such a board is
important to assuring that predecisional internal safeguards exist to
help achieve consistency and equity, and assure nondiscrimination and
nonpolitization of the performance management process. The key will be
to create a PRB that is independent of line management and review such
matters as the establishment and implementation of the performance
appraisal system and later, performance rating decisions, pay
determinations, and promotion actions before they are finalized to
ensure they are merit based.
Several of the demonstration projects consider an employee's current
salary when making decisions on permanent pay increases and one-time
awards - a procedure that is worth additional consideration in the
proposed DHS regulations. By considering salary in such decisions, the
projects intend to make a better match between an employee's
compensation and his or her contribution to the organization. Thus, two
employees with comparable contributions could receive different pay
increases and awards depending on their current salaries. For example,
at AcqDemo, supervisors recommend and pay pool managers approve
employees' "contribution scores." Pay pool managers then plot
contribution scores against the employees' current salaries and a
"standard pay line" to determine if employees are "appropriately
compensated," "under-compensated" or "over-compensated," given their
contributions.
As a result of this system, AcqDemo has reported that it has made
progress in matching employees' compensation to their contributions to
the organization. From 1999 to 2002, appropriately compensated
employees increased from about 63 percent to about 72 percent, under-
compensated employees decreased from about 30 percent to about 27
percent and over-compensated employees decreased from nearly 7 percent
to less than 2 percent. A recent evaluation of AcqDemo by Cubic
Applications, Inc. found that employees' perceptions of the link
between pay and contribution increased, from 20 percent reporting that
pay raises depend on their contribution to the organization's mission
in 1998 to 59 percent in 2003.
Providing Adequate Safeguards to Ensure Fairness and Guard Against
Abuse:
According to the proposed regulations, the DHS performance management
system must comply with the merit system principles and avoid
prohibited personnel practices; provide a means for employee
involvement in the design and implementation of the system; and
overall, be fair, credible, and transparent. Last spring, when
commenting on the 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 developed an initial list of possible safeguards
to help ensure that pay for performance systems in the government are
fair, effective, and credible.[Footnote 12]
While much remains to be defined, DHS is proposing taking actions that
are generally consistent with these proposed safeguards. For example,
as I noted previously, DHS plans to align individual performance
management with organizational goals and provide for reasonableness
reviews of performance management decisions through its PRB. Moreover,
employees and their union representatives played a role in shaping the
design of the proposed systems, as we previously reported.[Footnote 13]
DHS should continue to build in safeguards into its revised performance
management system. For example, we noted that agencies need to assure
reasonable transparency and provide appropriate accountability
mechanisms in connection with the results of the performance management
process. This can include publishing overall results of performance
management and individual pay decisions while protecting individual
confidentiality and reporting periodically on internal assessments and
employee survey results relating to the performance management system.
DHS should commit to publishing the results of the performance
management process. Publishing the results in a manner that protects
individual confidentiality can provide employees with the information
they need to better understand the performance management system.
Several of the demonstration projects publish information for employees
on internal Web sites about the results of performance appraisal and
pay decisions, such as the average performance rating, the average pay
increase, and the average award for the organization and for each
individual unit.
Adverse Actions and Appeals:
The DHS proposal is intended to streamline the employee adverse action
process, while maintaining an independent third-party review of most
adverse actions. It is designed to create a single process for both
performance-based and conduct-based actions,[Footnote 14] and shortens
the adverse action process by removing the requirement for a
performance improvement plan and reducing other timeframes. The
proposed regulations also adopt the lower standard of proof for adverse
actions in DHS, requiring the agency to meet a standard of "substantial
evidence" instead of a "preponderance of the evidence." An independent
review is to be retained by allowing employees to appeal to the Merit
Systems Protection Board (MSPB). The appeals process at MSPB is,
however, to be streamlined by shortening the time for filing and
processing appeals. The proposal also encourages the use of Alternative
Dispute Resolution (ADR).
Retention of a qualified and independent third-party to address
employee appeals may be especially important in light of OPM's FHCS
results. Specifically,
* 38 percent of DHS respondents believe that complaints, disputes, or
grievances are resolved fairly - lower than the governmentwide response
of 44 percent;[Footnote 15] and:
* 38 percent of DHS respondents perceive that arbitrary action,
personal favoritism, and coercion for partisan political purposes are
not tolerated - lower than the governmentwide response of 45 percent.
Providing an avenue for an independent appeal can enhance employee
trust of the entire human capital system. The point was echoed during
the DHS focus groups, in which employees and managers believed it was
important to maintain a neutral third-party reviewer in the appeals
process. In a separate survey that we administered (GAO survey),
members of the field team identified the presence of a neutral third-
party in the process as the most critical challenge in terms of the
discipline and appeals system, while others identified options
retaining a third-party reviewer as most likely to address the
department's challenges in discipline and appeals.[Footnote 16]
DHS's commitment to use ADR is a very positive development. To resolve
disputes in a more efficient, timely, and less adversarial manner,
federal agencies have been expanding their human capital programs to
include ADR approaches. These approaches include mediation, dispute
resolution boards and ombudsmen. Ombudsmen are typically used to
provide an informal alternative to addressing conflicts. We reported on
common approaches used in ombudsmen offices, including (1) broad
responsibility and authority to address almost any workplace issue, (2)
their ability to bring systemic issues to management's attention, and
(3) the manner in which they work with other agency offices in
providing assistance to employees.[Footnote 17] The proposed
regulations note that the department will use ADR, including an
ombudsman, where appropriate.
The proposal authorizes the Secretary of DHS to identify specific
offenses for which removal is mandatory. Employees alleged to have
committed these offenses will have the right to a review by an
adjudicating official and a further appeal to a newly created panel.
Members of this three-person panel are to be appointed by the Secretary
for three-year terms and qualifications for these members are
articulated in the proposed regulations. Members of the panel may be
removed by the Secretary "only for inefficiency, neglect of duty, or
malfeasance." Qualifications for the adjudicating officials, who are
designated by the panel, are not specified.
One potential area of caution is the authority given to the Secretary
to identify specific offenses for which removal is mandatory. I believe
that the process for determining and communicating which types of
offenses require mandatory removal should be explicit and transparent
and involve a member of key players. Such a process should include an
employee notice and comment period before implementation, collaboration
with relevant Congressional stakeholders, and collaboration with
employee representatives.
We also would suggest that DHS exercise caution when identifying
specific removable offenses and the specific punishment. When
developing these proposed regulations, DHS should learn from the
experience of the Internal Revenue Service's (IRS) implementation of
its mandatory removal provisions.[Footnote 18] We reported that IRS
officials believed this provision had a negative impact on employee
morale and effectiveness and had a "chilling" effect on IRS frontline
enforcement employees who are afraid to take certain appropriate
enforcement actions.[Footnote 19] Careful drafting of each removable
offense is critical to ensure that the provision does not have
unintended consequences.
Moreover, the independence of the panel that will hear appeals of
mandatory removal actions deserves further consideration. Removal of
the panel members by the Secretary may potentially compromise the real
or perceived independence of the panel's decisions. As an alternative,
the department should consider having members of the panel removed only
by a majority decision of the panel. DHS may also wish to consider
staggering the terms of the members to ensure a degree of continuity on
the board.
Labor Management Relations:
The DHS proposed regulations recognize the right for employees to
organize and bargain collectively.[Footnote 20] However, the proposal
reduces the scope of bargaining by removing the requirement to bargain
on matters traditionally referred to as "impact and implementation,"
which include the processes used to deploy personnel, assign work, and
use new technology, for example, and redefining what are traditionally
referred to as the "conditions of employment." A DHS Labor Relations
Board is proposed that would be responsible for determining appropriate
bargaining units, resolving disagreements on the scope of bargaining
and the obligation to bargain, and resolving impasses, and would be
separate and independent from the Federal Labor Relations Authority
(FLRA). The Labor Relations Board would have three members selected by
the Secretary. No member could be a current DHS employee and one member
would be from FLRA. The FLRA is retained to resolve complaints
concerning certain unfair labor practices and to supervise or conduct
union elections.
Regardless of whether it is as a part of collective bargaining,
involving employees in such important decisions as how they are
deployed and how work is assigned is critical to the successful
operations of the department. During the course of the design process,
DHS has recognized the importance of employee involvement and has been
involving multiple organizational components and its three major
employee unions in designing the new human capital system.[Footnote 21]
This is consistent with our finding that leading organizations involve
unions and incorporate their input into proposals before finalizing
decisions.[Footnote 22] Engaging employee unions in major changes, such
as redesigning work processes, changing work rules, or developing new
job descriptions, can help achieve consensus on the planned changes,
avoid misunderstandings, speed implementation, and more expeditiously
resolve problems that occur. These organizations engaged employee
unions by developing and maintaining an ongoing working relationship
with the unions, documenting formal agreements, building trust over
time, and participating jointly in making decisions.
DHS employees' comments can prove instructive when determining the
balance in labor management relations. In the DHS focus groups,
employees suggested having informal mechanisms in place to resolve
issues before the need to escalate them to the formal process and
holding supervisors accountable for upholding agreements. Supervisors
and employees also expressed a need for increased training in roles and
responsibilities in the labor process and an interest in training in
ADR. Respondents to the GAO survey said the most critical challenge in
terms of labor relations will be to maintain a balance between the
mission of the agency and bargaining rights.
DHS Faces Multiple Implementation Challenges:
Once DHS issues final regulations for the human capital system, the
department will be faced with multiple implementation challenges. While
we plan to provide further details to the Congress on some of these
challenges in the near future, they include the following.
Implementing the system using a phased approach. The DHS proposed
regulations note that the labor relations, adverse actions, and appeals
provisions will be effective 30 days after issuance of the interim
final regulations later this year. DHS plans to implement the job
evaluation, pay, and performance management system in phases to allow
time for final design, training, and careful implementation. We
strongly support a phased approach to implementing major management
reforms. A phased implementation approach recognizes that different
organizations will have different levels of readiness and different
capabilities to implement new authorities. Moreover, a phased approach
allows for learning so that appropriate adjustments and midcourse
corrections can be made before the regulations are fully implemented
organizationwide.
Providing adequate resources for additional planning, implementation,
and evaluation. The administration recognizes the importance of funding
this major reform effort and has requested for fiscal year 2005 over
$10 million for a performance pay fund in the first phase of
implementation (affecting about 8,000 employees) to recognize those who
meet or exceed expectations and about $100 million to fund training and
the development of the performance management and compensation system.
In particular, DHS is appropriately anticipating that its revised
performance management system will have costs related to both
development and implementation - a fact confirmed by the experience of
the demonstration projects. In fact, OPM reports that the increased
costs of implementing alternative personnel systems should be
acknowledged and budgeted for up front.
DHS is recognizing that there are up front costs and that its
components are starting from different places regarding the maturity
and capabilities of their performance management systems. At the same
time, DHS is requesting a substantial amount of funding that warrants
close scrutiny by Congress. In addition, certain costs are one-time in
nature and therefore should not be built into the base of DHS's budget
for future years. Furthermore, presumably most of any performance-based
pay will be funded from what otherwise would be used from automatic
across the board adjustments and step increases under the existing GS
system.
The DHS proposal correctly recognizes that a substantial investment in
training is a key aspect of implementing a performance management
system. The demonstration projects' experiences show that while
training costs are generally higher in the year prior to
implementation, the need for in-depth and varied training continues as
the system is implemented. We have reported that agencies will need to
invest resources, including time and money, to ensure that employees
have the information, skills, and competencies they need to work
effectively in a rapidly changing and complex environment.[Footnote 23]
Evaluating the impact of the system. High-performing organizations
continually review and revise their human capital management systems
based on data-driven lessons learned and changing needs in the
environment. DHS indicates that it is committed to an ongoing
comprehensive evaluation of the effectiveness of the human capital
system, including the establishment of human capital metrics and the
use of employee surveys. Collecting and analyzing data is the
fundamental building block for measuring the effectiveness of these
approaches in support of the mission and goals of the agency.
DHS should consider doing evaluations that are broadly modeled on the
evaluation requirements of the OPM demonstration projects. 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 equal
employment opportunity groups, adherence to merit system principles,
and the extent to which the lessons from the project can be applied
governmentwide. A set of balanced measures addressing a range of
results, customer, employee, and external partner issues may also prove
beneficial. An evaluation such as this would facilitate congressional
oversight; allow for any midcourse corrections; assist DHS in
benchmarking its progress with other efforts; and provide for
documenting best practices and sharing lessons learned with employees,
stakeholders, other federal agencies, and the public.
Building a DHS-wide workforce plan. DHS has recently begun drafting a
departmental workforce plan, using the draft strategic plan as a
starting point. Workforce plans of different levels of sophistication
are used in the five legacy agencies we studied. Despite their efforts,
DHS headquarters has not yet been systematic or consistent in gathering
relevant data on the successes or shortcomings of legacy human capital
approaches or current and future workforce challenges--a deficiency
that will make workforce planning more difficult. The strategic
workforce plan can be used, among other things, as a tool for
identifying core competencies for staff for attracting, developing, and
rewarding contributions to mission accomplishment.[Footnote 24]
Involving employees and other stakeholders in designing the details of
the system. We reported last fall that DHS's and OPM's effort to design
a new human capital system were collaborative and facilitated
participation of employees from all levels of the department.[Footnote
25] We recommended that the Secretary of DHS build on the progress that
has been made and ensure that the communication strategy used to
support the human capital system maximize opportunities for employee
involvement through the completion of the design process, the release
of the system options, and implementation, with special emphasis on
seeking the feedback and buy-in of frontline employees.
Moving forward, employee perspectives can provide insights on areas
that deserve particular attention while implementing the new
performance management system. For example, DHS employees responding to
the OPM FHCS reported that:
* 37 percent indicated that high-performing employees are recognized or
rewarded on a timely basis, which is lower than the governmentwide
average of 41 percent;
* 60 percent believe that their appraisals are fair reflections of
their performance, which is lower than the governmentwide average of 65
percent;
* 23 percent believe that steps are taken to deal with a poor performer
who cannot or will not improve, which is lower than the governmentwide
average of 27 percent; and:
* 28 percent perceive that selections for promotions in their work
units are based on merit, which is lower than the governmentwide
average of 37 percent.
In the GAO survey, members of the field team said that the most
critical challenge in terms of performance management will be to create
a system that is fair. Such data underscore the continuing need to
involve employees in the design and implementation of the new system to
obtain their buy-in to the changes being made. More specifically,
employee involvement in the validation of core competencies is critical
to ensure that the competencies are both appropriate and accepted.
Summary Observations:
As we testified on the DOD civilian personnel reforms, the bottom line
for additional performance-based pay flexibility is that an agency
should have to demonstrate that it has a modern, effective, credible,
and as appropriate, validated performance management system in place
with adequate safeguards, including reasonable transparency and
appropriate accountability mechanisms, to ensure fairness and prevent
politicalization and abuse of employees. To this end, DHS's proposed
regulations take another valuable step towards results-oriented pay
reform and modern performance management. DHS's performance management
system is intended to align individual performance to DHS's success;
hold employees responsible for accomplishing performance expectations;
provide for meaningful distinctions in performance through performance-
and market-based payouts; and be fair, credible, and transparent.
However, the experiences of leading organizations suggest that DHS
should require core, and as appropriate, validated competencies in its
performance management system. The core competencies can serve to
reinforce employee behaviors and actions that support the DHS mission,
goals, and values and to set expectations for individuals' roles in
DHS's transformation, creating a shared responsibility for
organizational success and ensuring accountability for change. DHS
should also continue to build safeguards into its revised human capital
system.
DHS's overall effort to design a strategic human capital management
system can be particularly instructive for future human capital
management and reorganization efforts within specific units of DHS. Its
effort can also prove instructive as other agencies design and
implement new authorities for human capital management.
Mr. Chairman, Madam Chairwoman, and Members of the Subcommittees, this
concludes my prepared statement. I would be pleased to respond to any
questions that you may have.
Contacts and Acknowledgments:
For further information, please contact J. Christopher Mihm, Managing
Director, Strategic Issues, at (202) 512-6806 or mihmj@gao.gov. Major
contributors to this testimony include Edward H. Stephenson, Jr., Lisa
Shames, Ellen V. Rubin, Lou V. B. Smith, Tina Smith, Masha Pasthhov-
Pastein, Marti Tracy, Ron La Due Lake, Karin Fangman, Michael Volpe,
and Tonnye Conner-White.
[End of section]
Appendix I: Methodology:
In presenting our preliminary observations on the Department of
Homeland Security's (DHS) regulations, we reviewed the proposed human
capital regulations issued jointly by DHS and the Office of Personnel
Management (OPM) on February 20, 2004, in the Federal Register.
Additional documents reviewed include relevant laws and regulations,
the 52 DHS human capital system options released in October 2003, and
testimony presented by leaders of DHS employee unions and the Merit
Systems Protection Board (MSPB). Interviews with experts in federal
labor relations and the federal adverse actions and appeals system
provided additional insights. The official transcripts and report
summarizing the proceedings of the Senior Review Advisory Committee
meetings in October 2003 were also examined. A draft of the report
summarizing the proceedings of the Senior Review Advisory Committee
meetings in October 2003 was reviewed by members of the committee to
ensure its reliability. Additionally, we attended the committee's
October 2003 meetings. Relevant GAO reports on human capital management
were used as criteria against which the proposals were evaluated.
To respond to your particular interest in seeking out and incorporating
employee perspectives on the human capital system, we gathered
information on employee perceptions from a variety of sources and
presented these findings throughout the statement. Insights to employee
opinions were gathered from the OPM Federal Human Capital Survey
(FHCS), a GAO-administered survey of the field team used to inform the
human capital system design effort (GAO survey), and a report
summarizing findings from the DHS focus groups held during the summer
of 2003.
OPM Federal Human Capital Survey:
To assess the strengths and weaknesses of selected provisions of DHS's
proposed human capital system, we reviewed the analysis of the DHS
component agencies' responses to relevant questions on OPM's FHCS of
2002 for those legacy components that are now within DHS: the Animal
and Plant Health Inspection Service (APHIS); the U.S. Coast Guard; the
U.S. Customs Service; the Federal Emergency Management Agency; the
Immigration and Naturalization Service; Federal Law Enforcement
Training Center; U.S. Secret Service; Office of Emergency Preparedness
and National Disaster Medical System; and the Federal Protective
Service. This governmentwide survey was conducted from May through
August 2002. It was administered to employees of 24 major agencies
represented on the President's Management Council, which constitute 93
percent of the executive branch civilian workforce. There were 189
subelement/organizational components of the 24 agencies that
participated. The sample was stratified by employee work status:
supervisory, nonsupervisory, and executive. Of the more than 200,000
employees contacted, a little over 100,000 employees responded to the
survey, resulting in a 51 percent response rate. OPM reported that the
margin of error for the percentages of respondents governmentwide was
plus or minus 1 percent at a 95 percent confidence interval. Likewise,
it reported that the margin of error for the percentages of respondents
for individual agencies was somewhat higher but less than plus or minus
5 percent.
The OPM survey was conducted during the same time frame that the
administration proposed legislation to form DHS; thus, the opinions
expressed by the respondents to the survey were before the formation of
DHS. For reporting purposes, OPM compiled the DHS responses by
combining the various subentities cited above. The responses
approximate the views of some, but not all, employees now at DHS. For
example, the Transportation Security Administration (TSA) screeners
were not hired at the time of the survey. Also, APHIS employees were
divided between DHS and the Department of Agriculture (USDA), so the
APHIS respondents included some employees who remained at USDA.
Because OPM did not provide us with a copy of the full survey data set
that included all records or the strata weights for any of the records,
we could not perform our own analyses of the data or calculate the
confidence intervals that would be associated with such analyses. OPM
did, however, provide us with access to a Web site that provided
reports with weighted data analyses for the FHCS 2002. We addressed the
reliability of the survey analyses by (1) reviewing existing
information about the survey data collection and analysis processes and
(2) interviewing OPM agency officials who were knowledgeable about the
data. We determined that the data were sufficiently reliable for the
purposes of this testimony. We reviewed the analyses of the DHS
component agencies presented on the Web site in four areas (pay and
performance management, classification, labor relations, and adverse
actions and appeals) that compared DHS-wide data to governmentwide
data.
GAO Field Team Survey:
We were interested in obtaining the views of the field team
participants who served as a key source of information for DHS's Core
Design Team. The field team consisted of DHS managers and staff.
Members were selected by departmental management or the three major
unions.
From October through December 2003, we surveyed the 31 members of the
team to obtain their insights into the DHS design process and proposed
human capital system options. The survey, administered by e-mail and
fax, contained two parts. The first part addressed their views on how
effectively the field team was utilized throughout the design process.
The second part addressed their views about human capital challenges
and the proposed policy options in four areas: (1) pay and
classification, (2) performance management, (3) labor relations, and
(4) discipline and appeals. Prior to distribution, the questionnaire
was reviewed by DHS and OPM officials and pretested with a field team
member to ensure clarity of the questions and determine whether the
respondent had the knowledge to answer the questions. The questionnaire
was revised based on their input. We received completed questionnaires
from 19 of 31 field team members. We aggressively followed up with
nonrespondents by telephone and e-mail. Because many of the field team
members were either not based in offices, on extensive travel, or
difficult to reach, we extended our survey through December 2003. The
views that we obtained are not representative of all the participants.
DHS Focus Groups:
DHS conducted multiple focus groups and Town Hall meetings from the end
of May through the beginning of July 2003 in 10 cities across the
United States.[Footnote 26] Six focus group sessions were held in each
city to obtain employee input and suggestions for the new human
resource system. In most cities, five of the six sessions were devoted
to hearing employees' views while the remaining sessions heard the
views of supervisors and managers. Each focus group was facilitated by
a contractor. The contractor used a standard focus group facilitation
guide to manage each session. Additionally, the contractor was
responsible for recording the issues identified during each focus group
session and compiling a summative report on the findings from all the
focus groups. We did not attend any focus group sessions and were not
able to review any original notes from the sessions to assess the
accuracy of the summative report.
Participation in the focus groups was not random nor was it necessarily
representative of DHS employees. DHS reports that employee
participation generally reflected the population in that location. For
example, the level of bargaining unit representation at the focus
groups was determined based on OPM data on bargaining unit membership.
Bargaining unit employees were selected by union representatives to
participate in the focus groups, while nonbargaining unit employees and
supervisors were selected by DHS management. Union representatives and
DHS managers were asked to select a diverse group of participants based
on occupation, work location, gender, ethnicity, and age.
This work was done in accordance with generally accepted government
auditing standards from March 2003 through February 2004.
FOOTNOTES
[1] Senate Committee on Governmental Affairs, Subcommittee on Oversight
of Government Management, the Federal Workforce, and the District of
Columbia and House Committee on Government Reform, Subcommittee on
Civil Service and Agency Organization.
[2] U.S. General Accounting Office, Major Management Challenges and
Program Risks: Department of Homeland Security, GAO-03-102 (Washington,
D.C.: January 2003).
[3] The Homeland Security Act of 2002 gave DHS authority to waive or
modify parts of civil service law in Title 5 of the U.S. Code. However,
not all employees of DHS are covered under Title 5. According to DHS
officials, this impacts coverage of TSA, part of the Coast Guard, the
Uniformed Division of the Secret Service, and part of the Emergency
Preparedness and Response Directorate. These same DHS officials
indicated that DHS can administratively extend the new human capital
system to many of these employees. However, they said that legislation
would be required to move TSA screeners and Secret Service uniformed
employees completely into the new system.
[4] U.S. General Accounting Office, Human Capital: Implementing Pay for
Performance at Selected Personnel Demonstration Projects, GAO-04-83
(Washington, D.C.: Jan. 23, 2004).
[5] U.S. General Accounting Office, Defense Transformation: Preliminary
Observations on DOD's Proposed Civilian Personnel Reforms, GAO-03-717T
(Washington, D.C.: Apr. 29, 2003).
[6] U.S. General Accounting Office, Results-Oriented Cultures:
Implementation Steps to Assist Mergers and Organizational
Transformations, GAO-03-669 (Washington, D.C.: July 2, 2003).
[7] U.S. General Accounting Office, Human Capital: Opportunities to
Improve Executive Agencies' Hiring Processes, GAO-03-450 (Washington,
D.C.: May 30, 2003).
[8] The DHS responses reported by the OPM FHCS approximate the views of
some, but not all, employees now at DHS. For example, TSA screeners
were not hired at the time of the survey. Also, though the Animal and
Plant Health Inspection Services (APHIS) employees were divided between
DHS and the U.S. Department of Agriculture (USDA), the APHIS
respondents included those remaining at USDA. Details on the objective,
scope, and methodology for the OPM FHCS are described in more detail in
app I.
[9] U.S. General Accounting Office, Creating a Clear Linkage between
Individual Performance and Organizational Success, GAO-03-488
(Washington, D.C.: Mar. 14, 2003).
[10] GAO-03-669.
[11] Details on the objective, scope, and methodology for the DHS focus
groups are described in more detail in app. I.
[12] GAO-03-717T.
[13] U.S. General Accounting Office, Human Capital: DHS Personnel
System Design Effort Provides for Collaboration and Employee
Participation, GAO-03-1099 (Washington, D.C.: Sept. 30, 2003).
[14] Title 5 has a process for performance-based actions in Chapter 43
and a different process in Chapter 75 which can be used for conduct or
performance-based actions.
[15] In all instances comparing DHS's results to the OPM FHCS
governmentwide average, DHS results are lower by a statistically
significant amount according to OPM data.
[16] Field team participants served as a key source of information
during the design process. The field team consisted of DHS managers and
staff. Details on the objective, scope, and methodology for the GAO-
administered survey of the field team are described in more detail in
app. I.
[17] U.S. General Accounting Office, Human Capital: The Role of
Ombudsmen in Dispute Resolution, GAO-01-466 (Washington, D.C.: Apr. 13,
2001).
[18] Section 1203 of the IRS Restructuring and Reform Act of 1998
outlines conditions for firing of IRS employees for any of ten acts of
misconduct. 26 USC 7804 note.
[19] U.S. General Accounting Office, Tax Administration: IRS and TIGTA
Should Evaluate Their Processing of Employee Misconduct Under Section
1203, GAO-03-394 (Washington, D.C.: Feb. 14, 2003).
[20] Under current law, the rights of employees to bargain may be
suspended for reasons of national security. 5 U.S.C. Sect. 7103(b),
7112(b)(6).
[21] GAO-03-1099.
[22] U.S. General Accounting Office, Human Capital: Practices that
Empowered and Involved Employees, GAO-01-1070 (Washington, D.C.: Sept.
14, 2001).
[23] U.S. General Accounting Office, Human Capital: A Guide for
Assessing Strategic Training and Development Efforts in the Federal
Government, GAO-03-893G (Washington, D.C.: July 2003).
[24] U.S. General Accounting Office, Human Capital: Key Principles for
Effective Strategic Workforce Planning, GAO-04-39 (Washington, D.C.:
Dec. 11, 2003).
[25] GAO-03-1099.
[26] The 10 cities were Atlanta, Georgia; Detroit, Michigan; El Paso,
Texas; Los Angeles, California; Miami, Florida; New York, New York;
Norfolk, Virginia; Seattle, Washington; Washington, D.C.; and
Baltimore, Maryland.
