Human Capital
Building on the Current Momentum to Address High-Risk Issues Gao ID: GAO-03-637T April 8, 2003Federal employees represent the government's knowledge base, drive its capacity to perform, and define its character, and as such, are its greatest asset. The early years of the 21st century are proving to be a period of profound transition for our world, our country, and our government. In response, the federal government needs to engage in a comprehensive review, reassessment, reprioritization, and as appropriate, reengineering of what the government does, how it does business, and in some cases, who does the government's business. Leading public organizations here and abroad have found that strategic human capital management must be the centerpiece of any serious change management initiative and effort to transform the cultures of government agencies. In response to a Congressional request, GAO discussed the status of the federal government's efforts to address high-risk human capital weaknesses, possible short- and longer-term legislative solutions to those weaknesses, and other human capital actions that need to be taken to ensure that federal agencies are successfully transformed to meet current and emerging challenges.
Since GAO designated strategic human capital management as a governmentwide high-risk area in January 2001, Congress, the administration, and agencies have taken a number of steps to address the federal government's human capital shortfalls. In fact, more progress in addressing the government's long-standing human capital challenges was made in the last 2 years than in the last 20, and GAO is confident that more progress will be made in the next 2 years than the last 2 years. Despite the building momentum for comprehensive and systematic reforms, it remains clear that today's federal human capital strategies are not yet appropriately constituted to meet current and emerging challenges or to drive the needed transformation across the federal government. The basic problem is the long-standing lack of a consistent strategic approach to marshaling, managing, and maintaining the human capital needed to maximize government performance and assure its accountability. Committed and sustained leadership and persistent attention on behalf of all interested parties will continue to be essential to building on the progress that has been and is being made. Congress has had and will need to continue to have a central role in improving agencies' human capital approaches. The basic principles underlying the legislative proposals Congress is considering have merit. Collectively, these proposals would make a positive contribution to addressing high-risk human capital issues and advancing the needed cultural transformation across the federal government. At the same time, additional safeguards should be considered by Congress in order to prevent potential abuse. Moreover, certain additional proposals should be considered as part of this legislative package. Looking forward, the time has come to seriously explore more market- and performance-based approaches to federal pay. As part of this exploration, we need to continue to experiment with providing agencies with the flexibility to pilot alternative approaches to setting pay and linking pay to performance. A more performance-based approach to Senior Executive Service pay would be a good place to start. The bottom line, however, is that in order to receive any additional performance-based pay flexibility for broad-based employee groups, agencies should have to demonstrate that they have modern, effective, credible, and validated performance management systems, with adequate safeguards, including reasonable transparency and appropriate accountability mechanisms in place, that are capable of supporting such decisions. Unfortunately, most federal agencies are a long way from meeting this requirement. GAO, on the other hand, has taken numerous steps to meet this requirement and is well positioned to experiment with additional pay for performance flexibility.
GAO-03-637T, Human Capital: Building on the Current Momentum to Address High-Risk Issues
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Testimony :
Before Congressional Subcommittees:
For Release on Delivery
Expected at 9:30 a.m. EDT
Tuesday, April 8, 2003:
Human Capital:
Building on the Current Momentum to Address High-Risk Issues:
Statement of David M. Walker
Comptroller General of the United States:
GAO-03-637T:
GAO Highlights:
Highlights of GAO-03-637T, testimony before congressional
subcommittees
Why GAO Did This Study:
Federal employees represent the government‘s knowledge base, drive its
capacity to perform, and define its character, and as such, are its
greatest asset. The early years of the 21st century are proving to be
a period of profound transition for our world, our country, and our
government. In response, the federal government needs to engage in a
comprehensive review, reassessment, reprioritization, and as
appropriate, reengineering of what the government does, how it does
business, and in some cases, who does the government‘s business.
Leading public organizations here and abroad have found that strategic
human capital management must be the centerpiece of any serious change
management initiative and effort to transform the cultures of
government agencies.
At the request of the subcommittees, GAO discussed the status of the
federal government‘s efforts to address high-risk human capital
weaknesses, possible short- and longer-term legislative solutions to
those weaknesses, and other human capital actions that need to be taken
to ensure that federal agencies are successfully transformed to meet
current and emerging challenges.
What GAO Found:
Since GAO designated strategic human capital management as a
governmentwide high-risk area in January 2001, Congress, the
administration, and agencies have taken a number of steps to address
the federal government‘s human capital shortfalls. In fact, more
progress in addressing the government‘s long-standing human capital
challenges was made in the last 2 years than in the last 20, and GAO is
confident that more progress will be made in the next 2 years than the
last 2 years.
Despite the building momentum for comprehensive and systematic reforms,
it remains clear that today‘s federal human capital strategies are not
yet appropriately constituted to meet current and emerging challenges
or to drive the needed transformation across the federal government.
The basic problem is the long-standing lack of a consistent strategic
approach to marshaling, managing, and maintaining the human capital
needed to maximize government performance and assure its
accountability.
Committed and sustained leadership and persistent attention on behalf
of all interested parties will continue to be essential to building on
the progress that has been and is being made. Congress has had and
will need to continue to have a central role in improving agencies‘
human capital approaches. The basic principles underlying the
legislative proposals Congress is considering have merit.
Collectively, these proposals would make a positive contribution to
addressing high-risk human capital issues and advancing the needed
cultural transformation across the federal government. At the same
time, additional safeguards should be considered by Congress in order
to prevent potential abuse. Moreover, certain additional proposals
should be considered as part of this legislative package.
Looking forward, the time has come to seriously explore more market-
and performance-based approaches to federal pay. As part of this
exploration, we need to continue to experiment with providing agencies
with the flexibility to pilot alternative approaches to setting pay and
linking pay to performance. A more performance-based approach to
Senior Executive Service pay would be a good place to start. The
bottom line, however, is that in order to receive any additional
performance-based pay flexibility for broad-based employee groups,
agencies should have to demonstrate that they have modern, effective,
credible, and validated performance management systems, with adequate
safeguards, including reasonable transparency and appropriate
accountability mechanisms in place, that are capable of supporting such
decisions. Unfortunately, most federal agencies are a long way from
meeting this requirement. GAO, on the other hand, has taken numerous
steps to meet this requirement and is well positioned to experiment
with additional pay for performance flexibility.
www.gao.gov/cgi-bin/getrpt?GAO-03-637T.
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 great pleasure to appear before you today to discuss the
federal government‘s greatest asset--its people. Federal employees
represent the government‘s knowledge base, drive its capacity to
perform, and define its character. The early years of the 21st century
are proving to be a period of profound transition for our world, our
country, and our government. This transition is being driven by a
number of key trends, including global interdependence; diverse,
diffuse, and asymmetrical security threats; changes in the nature of
the economy; rapidly evolving science and technologies; dramatic shifts
in the age and composition of our population; important quality of life
issues; and evolving governance structures and concepts. As the nation
and government policymakers grapple with the challenges presented by
these evolving trends, they do so in a time when increasing fiscal
pressures created by the retirement of the baby boom generation and
rising health care costs threaten to overwhelm the nation‘s fiscal
future.[Footnote 1]
In response to the emerging trends and long-term fiscal challenges the
government faces in the coming years, we have an opportunity--and a
responsibility--to create highly effective, performance-based
organizations that can strengthen the nation‘s ability to meet the
challenges of the 21st century and reach beyond our current level of
achievement. Leading public sector organizations here and abroad have
found that strategic human capital management must be the centerpiece
of any serious government transformation effort. Contrary to the
assertions of some public officials and other parties, federal workers
can be an important part of the solution to our overall transformation
effort. Federal workers are not the problem. They are trapped in and
encumbered by outdated and ineffective policies and procedures that
must be changed. In addition, they need more consistent and enlightened
leadership to show the way forward. They also need help from Congress.
Since we designated strategic human capital management as a
governmentwide high-risk area in January 2001, Congress, the
administration, and agencies have taken a number of steps to address
the federal government‘s human capital shortfalls. In fact, and this is
my major point today, I believe that we have made more progress in
addressing the government‘s long-standing human capital challenges in
the last 2 years than in the last 20, and I am confident that we will
make more progress in the next 2 years than we have made in the last 2
years.
Key Actions Have Been Taken over the Last 2 Years to Address Human
Capital Weaknesses:
When we placed strategic human capital management on our high-risk list
back in January 2001, as a governmentwide high-risk challenge, we noted
that after a decade of government downsizing and curtailed investments
of human capital, it had become increasingly clear that federal human
capital strategies were not appropriately constituted to adequately
meet the current and emerging needs of the government and its
citizens.[Footnote 2] We provided many examples of where human capital
shortfalls were eroding the ability of agencies--and threatening the
ability of other agencies--to effectively, efficiently, and
economically perform their missions. In short, strategic human capital
management was a pervasive challenge across the federal government.
We noted that while legislation and other actions have been put in
place since 1990 to address most major management areas, human capital
was the critical missing link in reforming and modernizing the federal
government‘s management practices. Our high-risk report pointed to
actions that federal leaders and their agencies, the Office of
Personnel Management (OPM), the Office of Management and Budget (OMB),
and Congress needed to take to address high-risk human capital issues.
Since then, a real and growing momentum for change has become evident.
* In August 2001, President Bush placed the strategic management of
human capital at the top of the administration‘s management agenda.
* In October 2001, OMB notified agencies that they would be assessed
against standards for success for each part of the President‘s
Management Agenda (PMA), including the strategic management of human
capital. The first agency assessment was made public in February 2002
as part of the President‘s proposed fiscal year 2003 budget. Subsequent
assessments were later released in June and September 2002 and in
January 2003, reporting on both the status and progress of agency
efforts.
* In December 2001, OPM released a human capital scorecard to assist
agencies in responding to the human capital standards for success in
the PMA.
* In March 2002, we released A Model of Strategic Human Capital
Management, designed to help agency leaders determine how well they
integrate human capital considerations into daily decision making and
planning for the program results they seek to achieve.[Footnote 3]
* In April 2002, the Commercial Activities Panel, which I was honored
to chair, sought to elevate attention to human capital considerations
in making sourcing decisions.
* In October 2002, OMB and OPM approved revised standards for success
in the human capital area of the PMA, reflecting language that was
developed in collaboration with GAO. To assist agencies in responding
to the revised PMA standards, OPM released the Human Capital Assessment
and Accountability Framework.
* In the fall of 2002, OPM began realigning its organizational
structure and appointed four new associate directors with proven human
capital expertise to lead federal efforts as part of a larger OPM
effort to be more customer-focused.
* In November 2002, Congress passed the Homeland Security Act of 2002,
which created the Department of Homeland Security (DHS) and provided
the department with significant flexibilities to design a modern human
capital management system. The effective development and implementation
of these flexibilities will prove essential to the performance and
accountability of DHS, as well as provide a potential model for
Congress to consider for wider application governmentwide.
* The Homeland Security Act of 2002 also included additional
significant provisions relating to governmentwide human capital
management, such as direct hire authority, the ability to use
categorical ranking in the hiring of applicants instead of the ’rule of
three,“ the creation of chief human capital officer (CHCO) positions
and a CHCO Council, an expanded voluntary early retirement and ’buy-
out“ authority, a requirement to discuss human capital approaches in
Government Performance and Results Act plans and reports, and a
provision allowing executives to receive their total performance bonus
in the year in which it is awarded.
* Congress has further underscored the consequences of human capital
weaknesses in federal agencies and pinpointed potential solutions
through its oversight process and a range of hearings.
Strategic Human Capital Management Remains at High Risk:
Despite the building momentum for comprehensive and systematic reforms,
it remains clear that today‘s federal human capital strategies are not
yet appropriately constituted to meet current and emerging challenges
or to drive the needed transformation across the federal government.
The basic problem is the long-standing lack of a consistent strategic
approach to marshaling, managing, and maintaining the human capital
needed to maximize government performance and assure its
accountability. Specifically, as detailed in our January 2003 high-risk
volume on human capital, agencies continue to face challenges in four
overarching areas:[Footnote 4]
* Leadership: Top leadership in agencies must provide the committed and
inspired attention needed to address human capital and related
organization transformation issues.
* Strategic human capital planning: Agencies‘ human capital planning
efforts need to be more fully and demonstrably integrated with mission
and critical program goals.
* Acquiring, developing, and retaining talent: Additional efforts are
needed to improve recruiting, hiring, professional development, and
retention strategies to ensure that agencies have the needed talent.
* Results-oriented organizational cultures: Agencies continue to lack
organizational cultures that promote high performance and
accountability and empower and include employees in setting and
accomplishing programmatic goals.
Building on the Current Momentum Can Create Lasting Change:
Committed and sustained leadership and persistent attention on behalf
of all interested parties will continue to be essential to building on
the progress that has been and is being made, if lasting reforms are to
be successfully implemented. First and foremost, individual federal
agencies need to more consistently adopt a strategic approach to the
use of their people. This requires persistent leadership and a long-
term commitment; aligning human capital approaches with the
accomplishment of agency goals; implementing recruiting, hiring,
training, professional development, performance reward, and retention
approaches that foster mission accomplishment; and instilling a
results-oriented organizational culture. Agencies‘ CHCOs will need to
play a particularly important role in this regard. The careful and
strategic selection of these officials is therefore critical. The CHCO
is not fundamentally an ’HR“ or personnel administration position,
although knowledge in those areas is important. Rather, agency CHCOs
should have the ability, experience, vision, attributes, and
credibility needed to successfully integrate human capital
considerations with program goals and to play a major leadership role
in driving agency transformation efforts. Agencies also must make
effective use of the tools and flexibilities that Congress has
provided. To assist agencies in this regard, and at the request of
Chairman Voinovich, Ranking Minority Member Durbin, and other Members
of Congress, we issued a report last December detailing the practices
that agencies need to employ to effectively use human capital
flexibilities.[Footnote 5] These practices are shown in figure 1.
Figure 1: Key Practices for Effective Use of Human Capital
Flexibilities:
[See PDF for image]
[End of figure]
The central management agencies--OPM and OMB--also have continuing
vital roles to play. As the agency responsible for leading human
capital management governmentwide, OPM plays a central role in helping
agencies tackle the broad range of human capital challenges that are at
the root of transforming what agencies do, how they do it, and with
whom they partner. As detailed in our Performance and Accountability
Series volume on OPM, our work and the work of others continues to show
that agencies need and want greater leadership from OPM in helping them
to address their human capital challenges, especially in identifying
new human capital flexibilities, removing obstacles from the federal
hiring process, and assisting agency workforce planning
efforts.[Footnote 6] Opportunities exist for OPM to be more vigorous in
responding to a number of critical program challenges, such as
applicant examination, staffing, and compensation approaches. In
addition, OPM shares responsibility with agencies for ensuring that
human capital practices are carried out in accordance with merit system
principles and other national goals. Effective and strategic oversight
of agencies‘ systems is even more critical today because an increasing
number of agencies are seeking and obtaining exemptions from
traditional civil service rules at the same time that human capital
staffs responsible for overseeing these activities have dwindled.
In response to these ongoing challenges, OPM has taken a number of
important actions. First, OPM realigned its organizational structure
and workforce to create a new, flexible structure that seeks to ’de-
stovepipe“ the agency; enable it to be more responsive to its primary
customers, federal departments and agencies; and focus on the agency‘s
core mission. In November 2002, OPM‘s Director appointed four new
associate directors with proven human capital expertise to lead the
organization. OPM also has the key role in leading the administration‘s
efforts to address strategic human capital management, a critical part
of the PMA. OPM also published two reports in 2001 to increase
agencies‘ awareness of available human capital flexibilities, and
released a report on federal compensation practices in April 2002. A
major initiative begun in the spring of 2002 is designed to improve the
hiring process. Furthermore, OPM is addressing its oversight challenge
in part by encouraging agencies to develop and maintain internal
accountability systems in line with its HRM Accountability Standards.
OPM recently released the results of its 2002 Federal Human Capital
Survey. This survey is providing a wealth of important information on
the views and attitudes of federal employees. The results demonstrate
the importance of routinely surveying employees across the federal
government through the Federal Human Capital Survey or a similar
survey. Consideration should be given to exploring ways to assure that
these surveys will be conducted on a periodic basis. Finally, OPM is at
the center of the DHS‘s efforts to create a modern personnel system
that serves the needs of the department and could serve as a potential
model for others.
The designation of human capital as the first item on the PMA and the
supporting standards for success have raised the profile of human
capital issues on OMB‘s agenda. As OMB and the agencies learn to
evaluate themselves against the standards and implement policies to
make improvements, OMB will need to ensure that the standards are
consistently and appropriately applied while assessing agencies‘
progress in managing their human capital. Perhaps most important, OMB
support will be needed as agencies identify targeted investment
opportunities to address human capital shortfalls.
Congressional Leadership Continues to Be Critical:
Congress has had and will need to continue to have a central role in
improving agencies‘ human capital approaches. Traditionally, Congress
has been an institutional champion in improving management of executive
agencies across the government. Support and pressure from Congress has
been indispensable to instituting and sustaining management reforms at
specific agencies. Its confirmation, oversight, appropriations, and
legislative responsibilities provide Congress with continuing
opportunities to ensure that agencies recognize their responsibilities
to manage people for results. For example, as Chairman Voinovich has
often stressed, the Senate has the opportunity during the confirmation
process to articulate its commitment to sound federal management by
exploring how prospective nominees plan to make a link between mission
accomplishment and human capital policies.[Footnote 7] As part of the
oversight and appropriations process, Congress can continue to examine
whether agencies are managing their human capital to improve
programmatic effectiveness and to encourage agencies to use the range
of appropriate flexibilities available under current law.
Targeted Human Capital Reforms:
Congress will also play a critical role in determining the nature and
scope of any additional human capital flexibilities that will be made
available to agencies, while assuring that adequate safeguards are
incorporated to prevent abuse. Congress also has the responsibility to
ensure the reasonableness and adequacy of financial resources that are
made available to agencies.
Congress is currently considering several pieces of legislation to help
agencies address their current and emerging human capital challenges. I
believe that the basic principles underlying these legislative
proposals have merit and collectively they would make a positive
contribution to addressing high-risk human capital issues and advancing
the needed cultural transformation across the federal government. I
also believe that certain additional safeguards and provisions should
be considered by Congress. We look forward to working with the
subcommittees as you consider these and related legislative
initiatives. Today, I will provide observations on selected provisions
of the various proposals.
The Senior Executive Service Reform Act of 2003:
The proposed Senior Executive Service Reform Act of 2003 includes a
number of important reforms. For example, the legislation would move to
a single Senior Executive Service (SES) pay range, increase the pay
cap, and link SES pay more closely to performance. I strongly believe
that these are worthwhile reforms that must be considered together, as
they are in this proposed legislation. The legislation seeks to link
pay and performance of senior executives by replacing the current
system of six grades with a single pay band. Agencies would have
flexibility to set basic pay for SES members at any amount within the
range plus locality pay, to a total annual salary that may not exceed
level II of the Executive Schedule. In addition, agencies could employ
a broadbanding approach to SES pay should they so desire. This
important change would provide agencies with needed flexibility to set
SES pay in a way that reflects the reality of the great diversity in
the work that members of the SES do rather than using a set of rigid
SES pay grades. In fact, I have the authority to adopt such an approach
in setting the pay for the SES in the GAO, and we plan to do so.
The legislation would raise the highest basic pay rate for an SES
member from the current maximum of $134,000 (level IV of the Executive
Schedule) to $142,500 (level III of the Executive Schedule). SES basic
pay currently ranges from $116,500 to $134,000, before locality pay is
included. The problems of SES pay compression are real and must be
addressed, with over 60 percent of SES members being at the current
cap.
The SES needs to lead the way in the federal government‘s effort to
better link pay to performance. The legislation would require that
agencies base their SES pay decisions on ’individual performance,
contribution to the agency‘s performance, or both.“ We have reported
that there are significant opportunities to strengthen efforts to hold
senior executives accountable for results.[Footnote 8] In particular,
more progress is needed in explicitly linking senior executive
expectations for performance to results-oriented organizational goals,
fostering the necessary collaboration both within and across
organizational boundaries to achieve results, and demonstrating a
commitment to lead and facilitate change. These expectations for senior
executives will be critical to keep agencies focused on transforming
their cultures to be more results-oriented, less hierarchical, more
integrated, and externally focused and thereby be better positioned to
respond to emerging internal and external challenges, improve their
performance, and assure their accountability.
Agencies should be required to have modern, effective, credible, and
validated performance management systems in place before they are
granted authority to better link pay to performance for broad-based
employee groups. In this regard, Congress should consider providing
specific statutory standards that agencies‘ performance management
systems would be required to meet before OPM could approve any such pay
for performance effort. Our own experience in implementing such reforms
in GAO and the practices of other leading organizations that I will
discuss shortly could serve as a starting point for that consideration.
Finally, the legislation‘s provision to allow agencies to credit
nonfederal work experience for purposes of providing annual leave
recognizes that the federal government must effectively recruit in a
larger labor market. The increasing number of retirement-eligible
federal employees is most concentrated in mid-and senior-level
positions. To attract top talent, both at the entry and at midcareer
levels, it is important to offer applicants an attractive compensation
and benefits package that is not structured entirely on a model that
assumes a 30-year career of federal service. Simply stated, this
provision recognizes the reality of increased mobility in the workforce
and the need to modernize our annual leave provisions to attract and
retain experienced people with critical skills.
The Federal Workforce Flexibility Act of 2003:
The Federal Workforce Flexibility Act of 2003 would expand the
authority to use and increase the amount of recruitment and retention
bonuses. For example, the legislation would allow the payment of a
recruitment bonus of up to 100 percent of an employee‘s annual salary
for critical, hard-to-fill positions, subject to approval by the
agency. The legislation also expands the use of recruitment bonuses to
employees currently employed in another federal agency and retention
bonuses to employees who might leave to go to another federal agency.
Previously, recruitment bonuses could only be paid to employees coming
from outside the federal government and retention bonuses could only be
paid to employees likely to leave federal employment altogether. We
support providing agencies with these types of additional tools and
flexibilities to attract and retain needed staff as long as such
payments are targeted, based on a business need, and are implemented
with adequate safeguards. In that regard, Congress should consider
capping the number or percentage of employees in an agency who would be
eligible for such payments.
As you know, the federal government faces a looming wave of employees
who will be eligible for retirement. Agencies need succession planning
programs to ensure that knowledge is transferred from one generation of
employees to another. An approach that should be explored would be to
allow ’phased retirements.“ There are a number of ways that a phased
retirement program could work; the legislation seeks to provide one
option for employees who would like to work part time as they end their
federal careers by prorating retirement annuities for the period of
service that was performed on a part-time basis, thus removing a
current disincentive to such part-time work.
The Federal Workforce Flexibility Act of 2003 would also expand the
authority to conduct personnel demonstration projects. Such projects,
authorized by OPM under the Civil Service Reform Act of 1978, provide a
means for testing and introducing improvements in governmentwide human
resources management systems. To become a demonstration project, a
federal agency obtains authority from OPM to waive existing federal
human resources management laws and regulations in Title 5 and propose,
develop, test, and evaluate interventions for its own human resources
management system that can help shape the future of federal human
resource management.[Footnote 9]
As a general rule, current law limits the size of a demonstration
project to 5,000 employees and the life of a project to a 5-year time
limit. The legislation would eliminate the cap on the number of
employees who could participate in a demonstration project and allow
the projects to have up to a 10-year life span. This more flexible
approach to demonstration projects is consistent with the approach
Congress took in 1996 in authorizing the Department of Defense civilian
acquisition workforce demonstration project to expand the number of
personnel eligible to participate from the statutory cap of 5,000 to a
maximum of 95,000 and extend the project‘s length from a 5-year time
limit to 13 years.
Demonstration projects‘ testing, evaluation, and reporting
requirements have provided invaluable lessons learned to other federal
organizations. Much of the federal government‘s knowledge and real-
world experience with performance-based pay reform has been obtained
through demonstration projects. In fact, of the 17 demonstration
projects that have been implemented over the past 25 years, 12 have
tested some form of linking compensation to performance. In addition, a
demonstration project done at the Department of Agriculture provided an
important test of using categorical ranking as part of the applicant
selection process and was therefore useful to the Congress in deciding
to expand such authorities governmentwide as part of the Homeland
Security Act of 2002.
The Federal Workforce Flexibility Act of 2003‘s reforms to enhance
agencies‘ training and career development programs are also positive
steps that should help improve human capital management. The
legislation calls for agencies to evaluate their training programs and
plans to ensure that they are linked to strategic and performance goals
and contribute to achieving the agency‘s mission. Such evaluations of
training and development efforts are important in demonstrating how
these efforts help develop employees and improve the agency‘s
performance. As part of a balanced approach, training and development
evaluations should consider organizational results and feedback from
customers and employees. The strategic evaluation requirement in this
legislation should help move agencies away from an orientation on
activities or processes (such as the number of participants, courses
offered, and hours of training provided), and instead use information
on how training and development efforts
(1) contribute to improved performance, (2) strengthen capacity to meet
new and emerging challenges, and (3) reduce the cost of poor
performance.
The legislation focuses agencies on several specific areas of
importance, including developing succession programs and informing
managers about effective strategies to address performance problems,
mentor employees, and improve performance and productivity. We have
noted that linking an executive development program and comprehensive
succession planning to agency goals and objectives can help foster a
committed leadership team. Further, calling for agencies to identify
and share effective human capital strategies can help improve
individual and organizational performance and further efforts to
transform the cultures of government agencies. At Chairman Voinovich‘s
request, this fall we will report on selected agencies‘ efforts to
design effective training and development programs.
Generating Opportunity by Forgiving Educational Debt Service Act of
2003:
Congress previously passed legislation that allows agencies to set up
programs to repay the student loans of federal employees in order to
attract or keep highly qualified individuals. Several agencies,
including GAO, have begun such programs and have found them to be
valuable in attracting and retaining high-quality talent. These
payments are currently included in gross income for federal tax
purposes. However, the Generating Opportunity by Forgiving Educational
Debt Service Act of 2003 (GOFEDS) would make these payments nontaxable.
GOFEDS would therefore make payments by the federal government
generally comparable to loan forgiveness programs in use by some
educational institutions and nonprofit organizations. We believe that
this provision has great merit. It would help to further leverage
existing student loan repayment program dollars and would help agencies
in their efforts to attract and retain top talent. Obviously, Congress
will need to balance the federal human capital benefits of this
provision as a tax expenditure with overall federal tax policy.
Moreover, Congress should consider how GOFEDS could be implemented in
such a way that the tax forgiveness provisions do not obscure the true
costs of agency operations.
The Presidential Appointments Improvement Act of 2003:
The Presidential Appointments Improvement Act of 2003 would, among
other things, require each executive agency to identify the number of
presidentially appointed, Senate-confirmed positions and the layers of
those positions. Related to this provision, last September I convened a
roundtable to discuss the Chief Operating Officer (COO) concept and how
it might apply within selected federal departments and agencies as one
strategy to address certain systemic federal governance and management
challenges.[Footnote 10] There was considerable discussion on whether
the senior management official in an agency should be presidentially
appointed, requiring Senate confirmation, while Senate confirmation
would not be required for those officials who lead specific management
functions (e.g., financial management, information technology, human
capital) and who report to that senior management official. While there
was interest in considering such an arrangement, it was also
acknowledged that it would likely require amending existing
legislation, for example the Chief Financial Officers Act, and,
therefore, would need careful analysis to ensure that any legislative
changes result in augmented attention to management issues and do not
inadvertently lead to a reduction in the authority of key management
officials and/or the prominence afforded a particular management
function.
An additional suggestion made at the roundtable that Congress may wish
to consider would be to allow senior management officials in each
agency to assume full authorities and responsibilities up to or for a
specified period of time once they were formally nominated but before
their confirmation. However, it was widely recognized that such an
approach would be viable only if the senior management position was
restricted to the professional and nonpartisan ’good government“
responsibilities that are fundamental to effectively executing any
administration‘s program agenda and did not entail program policy-
setting authority. Furthermore, should Congress decide to adopt the COO
concept noted above and not make subject certain management officials
to the confirmation process (e.g., the Chief Financial Officer and the
Chief Information Officer), the need for this flexibility would be
greatly reduced.
More generally, the roundtable‘s overall purpose was to discuss the COO
concept and how it might apply within selected federal departments and
agencies. The roundtable discussion neither sought nor achieved a
consensus on the COO concept. However, it does appear that there was
general agreement on a number of important overall themes that can
serve as a basis for subsequent analysis, discussion, and
consideration. These generally agreed-upon themes provide a course for
action.
* Elevate attention on management issues and transformational change.
The nature and scope of the changes needed in many agencies require the
sustained and inspired commitment of the top political and career
leadership. There is no substitute for top leadership involvement,
including that of the President, through for example, the establishment
of a governmentwide management agenda. Top leadership attention is
essential to overcome organizations‘ natural resistance to change,
marshal the resources needed to implement change, and build and
maintain the organizationwide commitment to new ways of doing business.
* Integrate various key management and transformation efforts. By their
very nature, the problems and challenges facing agencies are
crosscutting and thus require coordinated and integrated solutions.
However, the federal government too often places management
responsibilities (for example, information technology, human capital,
or financial management) into various ’stovepipes“ and fails to
implement transformational change management initiatives in a
comprehensive, ongoing, and integrated manner. While officials with
management responsibilities often have successfully worked together,
there needs to be a single point within agencies with the perspective
and responsibility--as well as authority--to ensure the successful
implementation of functional management and, if appropriate,
transformational change efforts. At the same time, it is not practical
to expect that the deputy secretaries, given the competing demands on
their time in helping the secretaries execute the President‘s policy
and program agendas, will be able to consistently undertake this vital
integrating responsibility. Moreover, while many deputy secretaries may
be nominated based in part on their managerial experience, it has not
always been the case and, not surprisingly, the management skills,
expertise, and interests of the deputy secretaries have always varied
and will continue to vary.
* Institutionalize accountability for addressing management issues and
leading transformational change. The management weaknesses in some
agencies are deeply entrenched and long-standing and will take years of
sustained attention and continuity to resolve. In addition, making
fundamental changes in agencies‘ cultures will require a long-term
effort. The experiences of successful major change management
initiatives in large private and public sector organizations suggest
that it can often take at least 5 to 7 years until such initiatives are
fully implemented and the related cultures are transformed in a
sustainable manner. In the federal government, the frequent turnover of
the political leadership has often made it difficult to obtain the
sustained and inspired attention required to make needed changes.
Implementing Market-Based and Results-Oriented Pay Reforms:
Looking forward, Congress should consider making comprehensive
legislative reforms to existing civil service laws, taking into account
the extent to which traditional approaches make sense in the current
and future operating environments. In that regard, there is a growing
understanding that we need to fundamentally rethink our approach to
federal pay and develop an approach that places a greater emphasis on a
person‘s knowledge, skills, position, and performance rather than the
passage of time, the rate of inflation, and geographic location. The
OPM Director‘s White Paper on modernizing federal pay, issued last
April, amply demonstrated that the current federal pay system was
designed for the heavily clerical and low graded workforce of the 1950s
rather than today‘s knowledge-based government. Similarly, the National
Commission on the Public Service, chaired by Paul Volcker, observed
that agencies need greater freedom to connect pay both to the market
and to performance. In short, as the nature of the federal workforce
has changed, so too must our pay system if we are to effectively
compete for top talent and create incentives for both individual and
institutional success.
Under the current federal pay system, the overwhelming majority of each
year‘s increase in federal employee pay is largely unrelated to an
employee‘s knowledge, skills, position, or performance. In fact, over
80 percent of the cost associated with the annual increases in federal
salaries is due to longevity and the annual pay increase. One approach
that has been tested and that I believe deserves wider consideration is
to reserve the annual pay adjustment for only those employees who
receive an acceptable performance rating. This would send a clear
message to the overwhelming majority of federal employees that their
contributions are valued, and those few who are not contributing will
not be rewarded for their lack of effort. More generally, current
federal pay gaps vary by the nature of the person‘s position and yet
the current method for addressing the pay gap assumes that it is the
same throughout government.
We must move beyond this outdated, ’one-size-fits-all“ approach to
paying federal employees and seriously explore more market-and
performance-based approaches to federal pay. As part of this
exploration, we need to continue to experiment with providing agencies
with the flexibility to pilot alternative approaches to setting pay and
linking pay to performance. The greater use of ’broadbanding“ is one of
the options that should be considered as part of a broader discussion
of pay reform. In the short term, Congress should explore the benefits
of (1) providing OPM with additional flexibility that would enable it
to grant governmentwide authority for all agencies (i.e., class
exemptions) to use broadbanding for certain critical occupations and/or
(2) allowing agencies to apply to OPM (i.e., case exemptions) for
broadbanding authority for their specific critical occupations.
However, agencies should be required to demonstrate to OPM‘s
satisfaction that they have modern, effective, credible, and validated
performance management systems before being able to adopt broader pay
for performance systems for non-SES personnel. In this regard, Congress
should consider providing specific statutory standards that agencies
must meet before OPM would be able to grant an exemption from existing
Title 5 requirements.
As with all pay for performance efforts, adequate safeguards, including
reasonable transparency and appropriate accountability mechanisms,
would need to be in place to ensure fairness, prevent politicalization,
and prevent abuse. Such safeguards would include ensuring that an
agency‘s career leadership and managers have significant roles in
performance-related pay decisions and that employees have central roles
in the design and implementation of the system to build their sense of
ownership for the system. In our work looking at leading performance
management efforts here and abroad, we have found that the involvement
of employees is critical to the success of such initiatives.[Footnote
11] Leading organizations consulted a wide range of stakeholders early
in the process, obtained feedback directly from employees, and engaged
employees‘ unions or associations.
The bottom line is that in order to receive any additional performance-
based pay flexibility for broad-based employee groups, agencies should
have to demonstrate that they have the modern, effective, credible, and
validated performance management systems in place that are capable of
supporting such decisions. Unfortunately, most federal agencies are a
long way from meeting this requirement. As I noted earlier, the SES
needs to lead the way in the federal government‘s effort to better link
pay to performance. Given the state of agencies‘ performance management
systems, Congress should consider starting federal results-oriented pay
reform with the SES. Agencies should be granted the authority to
implement additional pay for performance programs only after they have
demonstrated that they have appropriate performance management systems
and adequate safeguards in place. Building such systems and safeguards
will likely require making targeted investments in agencies‘ human
capital programs, as GAO‘s own experience has shown. In that regard,
Congress and the Administration should consider how incentives can be
provided to encourage agencies to modernize their performance
management systems. This could include a potential governmentwide fund
for such purposes, which could be allocated based on specific business
case proposals by individual agencies. This approach could also help to
facilitate implementation of the high-performing organization (HPO)
concept recommended by the Commercial Activities Panel that I chaired.
A report we prepared at the request of Chairman Voinovich and
Chairwoman Davis that was released last month shows specific practices
that leading public sector organizations both here in the United States
and abroad have used in their performance management systems to link
individual performance and organizational success.[Footnote 12] These
practices include the following:
1. Align individual performance expectations with organizational goals.
An explicit alignment helps individuals see the connection between
their daily activities and organizational goals.
2. Connect performance expectations to crosscutting goals. Placing an
emphasis on collaboration, interaction, and teamwork across
organizational boundaries helps strengthen accountability for results.
3. Provide and routinely use performance information to track
organizational priorities. Individuals use performance information to
manage during the year, identify performance gaps, and pinpoint
improvement opportunities.
4. Require follow-up actions to address organizational priorities. By
requiring and tracking follow-up actions on performance gaps,
organizations underscore the importance of holding individuals
accountable for making progress on their priorities.
5. Use competencies to provide a fuller assessment of performance.
Competencies define the skills and supporting behaviors that
individuals need to effectively contribute to organizational results.
6. Link pay to individual and organizational performance. Pay,
incentive, and reward systems that link employee knowledge, skills, and
contributions to organizational results are based on valid, reliable,
and transparent performance management systems with adequate
safeguards.
7. Make meaningful distinctions in performance. Effective performance
management systems strive to provide candid and constructive feedback
and the necessary objective information and documentation to reward top
performers and deal with poor performers.
8. Involve employees and stakeholders to gain ownership of performance
management systems. Early and direct involvement helps increase
employees‘ and stakeholders‘ understanding and ownership of the system
and belief in its fairness.
9. Maintain continuity during transitions. Because cultural
transformations take time, performance management systems reinforce
accountability for change management and other organizational goals.
GAO‘s Commitment to Lead by Example:
We in GAO believe it is our responsibility to lead by example. We seek
to be in the vanguard of the federal government‘s overall
transformation efforts, including in the critically important human
capital area. We are clearly in the lead at the present time, and we
are committed to staying in the lead. We fully recognize that our
people are our most valuable asset, and it is only through their
combined efforts that we can effectively serve our clients and our
country. By managing our workforce strategically and focusing on
achieving positive and measurable results, we are helping to maximize
our own performance and ensure our own accountability. By doing so, we
also hope to demonstrate to other federal agencies that they can make
similar improvements in the way they manage their people.
We have identified and made use of a variety of tools and
flexibilities, some of which were made available to us through the GAO
Personnel Act of 1980 and our calendar year 2000 human capital
legislation, but most of which are available to all federal agencies.
The most prominent change in human capital management that we
implemented as a result of the GAO Personnel Act of 1980 was a
broadbanded pay-for-performance system. The primary goal of this system
is to base employee compensation primarily on the knowledge, skills,
and performance of individual employees. It also provides managers
flexibility to assign employees in a manner that is more suitable to
multi-tasking and the full use of staff. Under our current broadbanded
system, analyst and analyst-related staff in Grades 7 through 15 were
placed in three bands. While our general experience has been positive,
we expect to modify our banded system in the future based on our
experience to date.
In January 2002, we implemented a new competency-based performance
management system that is intended to link employee performance and our
strategic plan and agency core values. It includes 12 competencies that
our employees overwhelmingly validated as the keys to meaningful
performance at GAO. (See fig. 2.) Modernizing performance management
systems in the federal government is essential to the overall
government transformation effort. Importantly, doing so can be
accomplished without any additional legislation.
Figure 2: GAO‘s Competency-Based Model:
[See PDF for image]
[End of figure]
Our October 2000 legislation gave us additional tools to realign our
workforce in light of mission needs and overall budgetary constraints;
correct skills imbalances; and reduce high-grade, managerial, or
supervisory positions without reducing the overall number of GAO
employees. This legislation allowed us to create a technical and
scientific career track at a compensation level consistent to the SES.
It also allowed us to give greater consideration to performance and
employee skills and knowledge in any reduction-in-force actions.
Since the legislation was enacted, we have established agency
regulations and offered voluntary early retirement opportunities. Once
employees registered their interest in participating in the program, we
considered a number of factors, including employee knowledge, skills,
performance, and competencies; the organizational unit or subunit in
which an employee worked; an employee‘s occupational series, grade, or
band level, as appropriate; and the geographic location of the
employee. As authorized by the 2000 legislation, employee performance
was just one of many factors we considered when deciding which
employees would be allowed to receive the incentives. However, let me
assure you, we did not use performance to target certain individuals.
Early retirement was granted to 52 employees in fiscal year 2002 and 24
employees in fiscal year 2003. Our annual performance and
accountability reports have provided additional information on our use
of this authority. As required by the 2000 legislation, we will shortly
be providing Congress a more comprehensive assessment of our use of the
authorities granted to us under the act.
We are also using many recruiting flexibilities that are available to
most agencies, including an extensive campaign to increase our
competitiveness on college campuses and extending offers of employment
during the fall semester to prospective employees who will come on
board the following spring and summer. We are also using our internship
program in a strategic fashion, and we often offer permanent positions
to GAO interns with at least 10 weeks of highly successful work
experience. Moreover, we are building and maintaining a strong presence
of both senior executives and recent graduates on targeted college
campuses. We have also taken steps to streamline and expedite our
hiring process. Even after we hire good people, we need to take steps
to retain them. We have taken a number of steps to empower and invest
in our employees. For example, we have active employee feedback and
suggestion programs. In addition, we implemented a student loan
repayment assistance program for employees who have indicated interest
and are willing to make a 3-year commitment to staying with the agency.
Overall, we have implemented a number of human capital initiatives,
including the following, some of which are relatively recent and some
of which are long-standing:[Footnote 13]
* Prepared a human capital profile and needs assessment to understand
employee demographics and distribution.
* Conducted agencywide, confidential, and web-based employee surveys in
1999 and 2002 to understand the status and progress of the agency and
the areas in which we need to improve.
* Completed a knowledge and skills inventory for all employees.
* Achieved a democratically elected Employee Advisory Council to
facilitate open communication and direct input from line employees to
the Comptroller General and other GAO senior leaders on matters of
mutual interest and concern.
* Conducted an employee preference survey so that employees could be
given the opportunity to work in the areas that interest and energize
them in light of our institutional needs.
* Implemented an Executive Candidate Development Program to prepare
candidates for assignments in the SES.
* Developed and implemented a strategy to place more emphasis on
diversity in campus recruiting.
* Initiated a Professional Development Program for newly hired GAO
analysts to help them transition and progress.
* Began developing a core training curriculum to directly link and
support our validated core competencies.
* Provided an on-site child care center called ’Tiny Findings“ and a
wellness and fitness center.
* Implemented additional employee-friendly benefits such as business
casual dress, flextime, and public transportation subsidies.
* Implemented a program to reimburse GAO employees for the cost
incurred in pursuit of relevant professional certifications.
* Used recruitment bonuses, retention allowances, and student loan
repayment assistance to attract and retain employees with specialized
skills.
* Implemented a new ’state of the art“ performance appraisal system
that is linked to our strategic plan and based on key competencies,
which have been validated by our employees. This new system has been
implemented for analysts. This system is being adapted for our
attorneys, and we have begun modifying the system for our
administrative professional and support staff.
Many of the above initiatives required one-time investments to make
them a reality. We worked with the Congress to present a business case
for funding a number of these initiatives. Fortunately, the Congress
has supported these and other GAO transformation efforts. The result is
a stronger, better positioned, more effective, results-oriented, and
respected GAO. As we engage in these changes, we also know that we are
not perfect and we never will be. This is a work-in-progress for us as
it is for others. In fact, we are constantly evaluating our internal
efforts, seeking to learn from others, and making refinements as we go
along. In that regard and as you know, we expect in the coming weeks to
be formally approaching Congress with recommendations to provide us
with additional statutory authorities to enable us to better manage our
people. The legislation we plan to recommend would, among other things,
facilitate GAO‘s continuing efforts to recruit and retain top talent,
develop a more performance-based compensation system, help realign our
workforce, and facilitate our succession planning and knowledge
transfer efforts. We believe that these authorities will strengthen our
efforts to serve Congress and provide benefits to the American people.
As has been the case in the past, we also expect that our use of these
authorities will provide valuable lessons to Congress and agencies on
how human capital flexibilities can be used in a context that helps an
organization achieve its missions while still ensuring that adequate
safeguards, including reasonable transparency and appropriate
accountability mechanisms, are in place to prevent abuse.
Summary:
When we placed strategic human capital management on our high-risk list
in 2001, we all knew that successfully addressing human capital
challenges would not be quick nor easy. Due to the combined efforts of
Congress, OPM, OMB, the agencies, federal employees, and others, we
have made a great deal of progress over the last 2 years. But more
should be done. Comprehensive human capital legislative reforms will
likely be needed, but agency leaders must not wait for them to happen.
Congress has already provided much of the authority agencies need.
Therefore, the first step toward meeting the government‘s human capital
challenges is for agency leaders to identify and make use of all the
appropriate administrative authorities available to them to manage
their people for results. The use of these authorities often will need
to be undertaken as part of and consistent with proven change
management practices and with adequate safeguards to prevent abuse. The
second step, as the subcommittees have made clear, is to consider
selected legislative reforms to give agencies additional tools and
flexibilities to hire, manage, and retain the human capital they need.
These additional flexibilities also should be accompanied with adequate
safeguards to prevent abuse. The third step is for all interested
parties to work together to identify the kinds of comprehensive
legislative reforms that should be enacted in the human capital area
over time, with comprehensive pay reform being the likely centerpiece
of that effort.
Chairman Voinovich and Chairwoman Davis, this concludes my prepared
statement. I would be pleased to respond to any questions that you or
other Members of the Subcommittees may have.
Contacts and Acknowledgments:
For further information regarding this testimony, please contact
J. Christopher Mihm, Director, Strategic Issues, on (202) 512-6806 or
at mihmj@gao.gov. Individuals making key contributions to this
testimony included William Doherty, Bruce Goddard, Judith Kordahl,
Janice Lichty, Michael O‘Donnell, Susan Ragland, Lisa Shames, Edward H.
Stephenson, Jr., and Michael Volpe.
(450205):
FOOTNOTES
[1] U.S. General Accounting Office, Major Management Challenges and
Program Risks: A Governmentwide Perspective, GAO-03-95 (Washington,
D.C.: January 2003).
[2] U.S. General Accounting Office, High-Risk Series: An Update, GAO-
01-263 (Washington, D.C.: January 2001).
[3] U.S. General Accounting Office, A Model of Strategic Human Capital
Management, GAO-02-373SP (Washington, D.C.: Mar. 15, 2002).
[4] U.S. General Accounting Office, High-Risk Series: Strategic Human
Capital Management, GAO-03-120 (Washington, D.C.: January 2003).
[5] 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).
[6] U.S. General Accounting Office, Major Management Challenges and
Program Risks: Office of Personnel Management, GAO-03-115 (Washington,
D.C.: Jan. 30, 2003).
[7] Toward this end, we developed a set of questions for political
appointees that the Senate may use during the confirmation process. See
U.S. General Accounting Office, Confirmation of Political Appointees:
Eliciting Nominees‘ Views on Leadership and Management Issues, GAO/GGD-
00-174 (Washington, D.C.: Aug. 11, 2000).
[8] U.S. General Accounting Office, Results-Oriented Cultures: Using
Balanced Expectations to Manage Senior Executive Performance, GAO-02-
966 (Washington, D.C.: Sept. 27, 2002).
[9] No waivers of law are permitted in areas of employee leave,
employee benefits, equal employment opportunity, political activity,
merit system principles, or prohibited personnel practices.
[10] 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). The invited participants were generally individuals with current
or recent executive branch leadership responsibilities, significant
executive management experience, or both.
[11] See for example, U.S. General Accounting Office, Results-Oriented
Cultures: Insights for U.S. Agencies from Other Countries‘ Performance
Management Initiatives, GAO-02-862 (Washington, D.C.: Aug. 2, 2002).
[12] U.S. General Accounting Office, Results-Oriented Cultures:
Creating a Clear Linkage between Individual Performance and
Organizational Success, GAO-03-488 (Washington, D.C.: Mar. 14, 2003).
[13] For more information on these efforts, see Human Capital: Taking
Steps to Meet Current and Emerging Human Capital Challenges,
GAO-01-965T (Washington, D.C.: July 17, 2001).
