a

GAO

United States Government Accountability Office

Testimony

Before the Subcommittee on Oversight of Government 

Management, the Federal Workforce, and the District of 

Columbia, Committee on Homeland Security and 

Governmental Affairs, U.S. Senate

For Release on Delivery

Expected at 10:30 a.m. EDT

April 21, 2005

HUMAN CAPITAL

Agencies Need Leadership 

and the Supporting 

Infrastructure to Take 

Advantage of New 

Flexibilities

Statement of Eileen Larence, Director

Strategic Issues

GAO-05-616T
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-616T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Eileen Larence 

at (202) 512-6806 or larencee@gao.gov. 

Highlights of GAO-05-616T a testimony 

before the Subcommittee on Oversight of 

Government Management, the Federal 

Workforce, and the District of Columbia, 

Committee on Homeland Security and 

Governmental Affairs, U.S. Senate 

April 21, 2005

HUMAN CAPITAL

Agencies Need Leadership and the 

Supporting Infrastructure to Take 

Advantage of New Flexibilities 

To take full advantage of the flexibilities provided, agencies need leaders 

committed to taking a more strategic approach to managing their people in 

order to improve mission results, and must have the necessary infrastructure 

in place to make effective use of the flexibilities. This infrastructure includes 

a human capital planning process that integrates human capital policies, 

strategies, and programs with its program goals, mission, and desired 

outcomes; the capabilities to effectively develop and implement a new 

human capital system; and importantly, the existence of a modern, effective, 

and credible performance management system that includes adequate 

safeguards to help ensure consistency. GAO’s work shows that, to date, 

agencies are using the flexibilities to varying degrees but continue to face 

barriers. In the future, agencies should have to demonstrate they have the 

required infrastructure and safeguards in place before using any new human 

capital authorities. 

• Accountable Leadership: Effective performance management systems 

first align leadership’s performance expectations, appraisal systems, and 

compensation programs with organizational goals and results, then 

cascade this approach through all levels in the organization. 

Accordingly, agencies now have authority to increase senior executive 

pay levels, but only if they have an effective performance management 

system—one that links individual and organizational results and makes 

meaningful distinctions in performance. Recent data show, however, 

that agencies face a challenge in meeting the criteria for qualifying for 

the new executive pay flexibilities. GAO also continues to see 

opportunities for Chief Human Capital Officers and their Council to help 

agencies better implement various flexibilities and share best practices, 

while providing strategic leadership for reform. 

• Strategic human capital planning: Identifying current and future 

workforce gaps and ways to use flexibilities to fill them would help 

agencies remain competitive and achieve their missions. Some agencies 

do not have all the components of a strategic human capital planning 

process in place to help them resolve workforce challenges. GAO 

identified five key principles that could help guide and inform agencies’ 

efforts to build this process. 

• Capabilities to use new tools: Agencies have not used some of the 

flexibilities designed to help them recruit and hire top talent as much as 

possible because of a lack of policy and guidance, among other things. 

OPM has since reported taking a number of initiatives to better educate 

agencies on the tools and encourage their use. 

Agencies need to continue implementing new tools, evaluating their impact, 

and making adjustments. Congress’ interest in monitoring agency progress 

is a critical ingredient to the success of these reforms. 

Strategic human capital is the 

centerpiece of agencies’ efforts to 

transform into high-performing 

organizations poised to meet the 

challenges of the 21st Century. 

Congress, recognizing that the 

federal human capital management 

systems designed in the past are 

outmoded, has provided agencies 

with exemptions from the old rules 

and new flexibilities to more 

strategically manage their 

workforce. Congress has already 

granted statutory exemptions and 

new authorities affecting more than 

1.2 million civilian federal 

employees. The momentum is 

building to continue to reform the 

policies, processes, and systems 

that govern federal human capital 

management. Congress is 

interested in taking stock of how 

agencies have implemented the 

new flexibilities they have been 

granted, especially as it considers 

the future steps to be taken to 

achieve human capital reform. 

At the request of the subcommittee, 

this statement provides an update 

of GAO’s work on the progress 

agencies have made in 

implementing these flexibilities to 

better accomplish their missions 

and achieve their goals. In 

addition, it provides information on 

GAO’s experiences with human 

capital reform and also highlights a 

set of consistent principles, 

criteria, and processes that can 

help to guide future reforms, 

whether they are new flexibilities 

granted to individual agencies or 

applied governmentwide. 
Page 1 GAO-05-616T 

Chairman Voinovich and Members of the Subcommittee:

I am pleased to be here today to discuss our work on agencies’ use of 

recently enacted human capital flexibilities to help address workforce 

challenges. In broad terms, human capital flexibilities represent the 

policies and practices that an agency has the authority to implement in 

managing its workforce to accomplish its mission and achieve its goals. 

The tailored use of such flexibilities for acquiring, developing, and retaining 

talent is an important cornerstone of GAO’s model of strategic human 

capital management. The subcommittee’s interest in taking stock of where 

agencies are in using the flexibilities provided to them is critical and timely.

As we have consistently testified, and as the subcommittee has consistently 

recognized, an agency’s human capital is its most important catalyst for 

transforming to meet the new challenges of the 21st century. We have also 

recognized that the federal human capital systems designed in the past are 

outmoded and, in some cases, barriers to an agency’s transformation. 

Consequently, over the past few years, Congress has granted certain 

agencies exemptions from these old rules, as well as new flexibilities to 

recruit, hire, develop, manage, retain, and compensate the people with the 

knowledge, skills, and abilities that agencies need to accomplish their 

critical missions and compete with the private sector for top talent. This is 

especially important as the nation faces long-term fiscal challenges, and 

therefore, agencies are likely to have resource constraints in the future.

We have also learned, however, that to benefit from these reforms, agencies 

should have the appropriate institutional infrastructure and safeguards in 

place to make effective use of these new authorities. Agencies need 

leaders who are committed to taking a more strategic approach to 

managing their human capital assets. These leaders provide the 

organizational vision important in times of change, use the flexibilities 

available to them in a targeted and responsible manner, and ensure that 

human capital strategies are well-planned, thoroughly implemented, and 

sustained over time. Agencies also need a supporting infrastructure that 

includes a human capital planning process that integrates human capital 

policies, strategies, and programs with its program goals, mission, and 

desired outcomes; the capabilities to effectively develop and implement a 

new human capital system; and, importantly, the existence of a modern, 

effective, and credible performance management system that includes 

adequate safeguards to help ensure consistency. 
Page 2 GAO-05-616T 

There continues to be widespread interest in reforming the policies, 

processes, and systems that govern federal human capital management. In 

ongoing work for Senator Susan Collins, we are cataloguing the wide array 

of statutory exemptions and new authorities that Congress has already 

granted to a select group of agencies, affecting more than 1.2 million 

civilian employees. Moving forward, Congress may continue to grant 

flexibilities to individual agencies or on a governmentwide basis. It will be 

important to ensure that agencies first have a business case for using the 

flexibilities, as well as the necessary infrastructure and safeguards in place 

to use them effectively and in a non abusive manner. In addition, there is 

general recognition that the government needs a framework to guide 

further reforms. GAO, working with its external partners, has proposed a 

common framework built around a fundamental set of principles, criteria, 

and processes. This could help to enhance the government’s performance, 

ensure agency accountability, and provide for a relatively level playing field 

across agencies as they implement new authorities.

Today, I would like to highlight some of our recent work on the progress 

that agencies have made in implementing the flexibilities granted them, and 

that reinforces the actions Congress and agencies are taking or need to 

take to (1) provide the strategic leadership, (2) establish the necessary 

infrastructure for reforms, (3) better use the new flexibilities provided, and 

(4) position the government for future reform.

Accountable 

Leadership Can Serve 

As a Model for 

Effective Human 

Capital Management 

throughout the 

Agencies

High-performing organizations understand that they must have senior 

leaders who are held accountable for results, drive continuous 

improvement, and take a strategic approach to targeting available human 

capital tools and flexibilities that will help them achieve their 

organizational goals. Leaders who model effective performance 

management can help to institutionalize it throughout their agencies. As 

you know, we have advocated, and you have reinforced, that the federal 

government needs to fundamentally rethink its approach to performance 

management, better linking individual, unit, and organizational 

performance and rewarding individuals according to their relative 

performance and contributions. Effective performance management 

systems first align leadership’s performance expectations, appraisals, and 

pay with organizational goals and results achieved, then cascade this 

approach through all levels in the organization. In October 2000, the Office 

of Personnel Management (OPM) revised its Senior Executive Service 

(SES) regulations to require agencies to implement performance 

management systems that meet these criteria.
Page 3 GAO-05-616T 

More recently, Congress provided that agencies that have successfully 

implemented effective performance management systems for their senior 

executives can increase the compensation of their higher-performing 

senior executives beginning in January 2004. To qualify for this flexibility, 

OPM must certify, and the Office of Management and Budget (OMB) must 

concur, that the agency’s performance management system meets specified 

certification criteria, including demonstrating that its performance 

management system aligns individual performance expectations with the 

mission and goals of the organization and its appraisal system as designed 

and applied makes meaningful distinctions in performance. To receive full 

2-year certification, an agency must provide documentation that its senior 

executive performance management system meets all nine of the criteria. 

Otherwise, agencies can meet four of nine criteria and demonstrate that 

their system in design meets the remaining certification criteria to receive 

one-year provisional certification and use the higher pay rates. Agencies 

with one-year provisional certification must reapply annually, but agencies 

with full certification must reapply every 2 years. In addition, SES 

members are no longer to receive annual across-the-board or locality pay 

adjustments but to receive pay and bonus increases based on contribution, 

skills, competencies, and other factors. The system also replaces the six 

SES pay levels with a single, open-range pay band.

Currently, two agencies have received full certification—the General 

Services Administration and the Pension Benefit Guaranty Corporation (for 

its senior-level /scientific or professional positions). The Departments of 

Agriculture, Commerce (for its senior-level/scientific or professional 

positions), Education, Health and Human Services (HHS), Homeland 

Security (DHS), and Labor, as well as the National Aeronautics and Space 

Administration (NASA), and the Office of Government Ethics have 

received provisional certification for calendar year 2005. 

Some Agencies May Face a 

Challenge in Meeting 

Criteria for Qualifying for 

the New Executive Pay 

Flexibilities

The criteria that OPM has developed to assess agencies’ performance 

management systems are consistent with our research wherein we 

identified a set of key practices for effective performance management:1

• aligning individual performance expectations with organizational goals, 

1

GAO, Results-Oriented Cultures: Creating a Clear Linkage between Individual 

Performance and Organizational Success, GAO-03-488 (Washington, D.C.: Mar. 14, 2003).
Page 4 GAO-05-616T 

• connecting performance expectations to crosscutting goals,

• providing and routinely using performance information to track 

organizational priorities,

• requiring follow-up actions to address organizational priorities,

• using competencies to provide a fuller assessment of performance,

• linking pay to individual and organizational performance,

• making meaningful distinctions in performance,

• involving employees and stakeholders to gain ownership of 

performance management systems, and

• maintaining continuity during transitions.

In anticipation that senior executive performance management and pay 

systems were to be modernized, Chairman Voinovich, at your and former 

House Government Reform Civil Service Subcommittee Chairwoman Jo 

Ann Davis’ request, we used these practices as a guide to review how well 

selected agencies were creating linkages between senior executive 

performance and their organizations’ success.2

 You recognized that 

information on these agencies’ experiences and knowledge could provide 

valuable insights to other agencies as they seek to use senior executive 

performance management as a tool to drive internal change and achieve 

external results. Last year, we reported that the agencies were 

implementing some of these practices, such as aligning individual and 

organizational goals. However, we also noted that their systems were 

inconsistent with other practices, such as making meaningful distinctions 

in performance. This is also the case governmentwide. For example, OPM 

data show that about 75 percent of executives received the highest 

performance ratings possible for fiscal year 2003 (the most current data 

available). 

OPM will need to carefully monitor the implementation of the agencies’ 

performance management systems, especially those that have provisional 

2

GAO, Human Capital: Senior Executive Performance Management Can Be Significantly 

Strengthened to Achieve Results, GAO-04-614 (Washington, D.C.: May 26, 2004).
Page 5 GAO-05-616T 

certification, to ensure that agencies are driving organizational 

performance by making meaningful distinctions in executive performance 

ratings and appropriately paying their senior executives at the higher level. 

A number of executive agencies will be challenged in the short term to 

provide the necessary performance data on their senior executives in order 

to receive full certification or maintain their certification. Agencies must 

provide 2 years of performance rating and bonus data showing that 

meaningful distinctions in SES performance were made to qualify. The 

recent data on SES ratings suggest that some agencies’ data will not 

comply. In addition, several agencies’ provisional certifications for 

calendar year 2004 expired and have not yet been renewed. The Acting 

Director of OPM noted in a March 2005 memorandum to agency heads that 

the SES performance results for fiscal year 2003 do not reflect the 

requirements of the new SES performance-based pay system and that OPM 

is analyzing the results of the 2004 rating cycle to determine the degree to 

which agencies have met the requirements. Depending on the outcome, 

some agencies may lose their certification, and others may not qualify for 

this new flexibility. The key, of course, is not just determining whether 

distinctions are made in ratings, but whether those distinctions are 

meaningful. That is, the distinctions should reflect real differences in 

individual executives’ contributions to results. 

The Chief Human Capital 

Officers Have the Potential 

to More Strategically 

Implement Flexibilities and 

Leverage Best Practices 

among Agencies

The success agencies have in implementing new human capital flexibilities 

will depend in large measure on their agency leadership, the existence of 

high quality Chief Human Capital Officers (CHCOs), and a strategic and 

effective CHCO Council. The Homeland Security Act of 2002 established 

the roles and responsibilities for the CHCO position and the Council.3

 We 

have reported that similar interagency councils, such as those of the Chief 

Financial Officers’ (CFO) and Chief Information Officers’, have emerged as 

important leadership strategies in both developing policies that are 

sensitive to implementation concerns and gaining consensus and 

consistent follow-through within the executive branch.4

 The CHCO 

Council can fulfill an equally important role.

3

Pub. L. No. 107-297, § § 1301-3 (Nov. 25, 2002).

4

GAO, Government Management: Observations on OMB’s Management Leadership 

Efforts, GAO/T-GGD/AIMD-99-65 (Washington, D.C.: Feb. 4, 1999).
Page 6 GAO-05-616T 

As stated in its charter, the Council’s purposes include (1) advising OPM, 

OMB, and agency leaders on human capital strategies and policies, as well 

as on the assessment of human capital management in federal agencies; (2) 

informing and coordinating the activities of its member agencies on such 

matters as the modernization of human resources systems; and (3) 

providing leadership in identifying and addressing the needs of the 

government’s human capital community.

To help fulfill this role, the Council has created subcommittees to address 

and recommend changes for key areas identified by the Council’s 

leadership as critical to the success of strategic human capital 

management, including the hiring process and performance management, 

as well as leadership development and succession planning. To date, the 

Council has continued to define its agenda and priorities and to establish 

itself. For example, the former OPM Director reported that the Council’s 

CHCO Academy was already proving to be a productive forum for 

discussing human resources issues among small groups of CHCOs. The 

Council established the Academy as a forum for Council members to 

discuss federal human resource issues, learn from one another in an 

informal setting, and share best practices in the strategic management of 

human capital. The Academy has considered topics such as (1) current 

workforce flexibilities and associated regulations, (2) human resources 

competitive sourcing, and (3) compensation reform. The subcommittees 

are also making some progress. For example, the leadership and 

succession planning subcommittee has made recommendations in a 

briefing to the full Council to set up a rotation program for senior 

executives among different agencies, among other things.

It is critical for the CHCO Council to leverage its progress to achieve 

significant accomplishments and facilitate lasting change. As just one 

illustration of the importance of their leadership and coordination roles, 

OPM agreed with our May 2003 recommendation to work with and through 

the Council to (1) more thoroughly research, compile, and analyze 

information on the effective and innovative use of human capital 

flexibilities and (2) more fully serve as a clearinghouse in sharing and 

distributing information about when, where, and how the broad range of 

flexibilities are being used, and should be used, to help agencies meet their 

human capital management needs.5

 Our ongoing work assessing select 

5

GAO, Human Capital: OPM Can Better Assist Agencies in Using Personnel Flexibilities, 

GAO-03-428 (Washington, D.C.: May 9, 2003)
Page 7 GAO-05-616T 

agencies’ succession planning, as well as their use of recruitment and 

retention tools, suggests that agencies continue to need an avenue for 

sharing ideas and best practices and the Council could provide that venue.

We also observed that more strategically, the Council could focus on 

several other key crosscutting areas, such as

• developing the capabilities required for the successful implementation 

of human capital reform,

• promoting strategic human capital planning, and 

• transforming the human capital office and its processes to more fully 

contribute to key agency decisions.

For example, selected agencies are seeking to shift the focus of their 

human capital offices from primarily compliance activities to consulting 

activities. They are including human capital leaders in key agency strategic 

planning and decision making. In addition, their human capital leaders 

took actions to transform the agencies’ human capital organizations by 

establishing clear strategic visions, restructuring their organizations, and 

improving the use of technology to free organizational resources. As a 

result, the agencies engaged the human capital organization as a strategic 

partner in achieving desired outcomes relating to the agencies’ mission.

To continue this shift to a more strategic role, human capital offices are 

also understanding that they need to think broadly about how specific 

services are delivered. Human capital offices have traditionally used 

alternative service delivery (ASD)—the use of other than internal staff to 

provide a service or to deliver a product—as a way to reduce costs for 

transaction-based services, such as payroll administration. Going forward, 

human capital offices are seeking to use this approach for more strategic 

functions, such as workforce planning. We continue to see a role for OPM 

to provide comprehensive information about how agencies can use ASD for 

their human capital activities and that the CHCO Council could be an 

excellent vehicle to assist in this area.
Page 8 GAO-05-616T 

Strategic Human Capital 

Planning Can Help Agencies 

Take Advantage of Human 

Capital Flexibilities but 

Remains a Continuing 

Challenge

An essential element in the institutional infrastructure that agencies need 

for their human capital management is a human capital planning process 

that ensures that an agency will capitalize on its workforce’s strengths and 

target the use of its flexibilities. Strategic human capital planning 

addresses two critical needs: (1) aligning an organization’s human capital 

program with its current and emerging mission and programmatic goals 

and (2) developing long-term strategies for using available flexibilities to 

acquire, develop, and retain staff to achieve those goals. 

While there has been increased attention to such planning, strategic human 

capital management has remained on GAO’s high-risk list because federal 

human capital strategies are still not appropriately constituted to meet 

current and emerging challenges or drive the transformations necessary for 

agencies to meet these challenges. We have continued to report 

opportunities for various agencies to improve the state of their human 

capital planning. For example, we reported in March that the Space Shuttle 

Program within NASA has made limited progress toward developing a 

detailed long-term strategy for transitioning its space shuttle workforce 

once the shuttle is retired.6

 Last year, we similarly reported that a major 

challenge the Department of Defense (DOD) and most of its components 

face in their efforts to develop and implement strategic workforce plans is 

their need for information on current competencies and those that will 

likely be needed in the future.7

While agencies’ approaches to workforce planning will vary, GAO identified 

five key principles that this planning should consistently address:

• Involve top management, employees, and other stakeholders in 

developing, communicating, and implementing the strategic workforce 

plan.

• Determine the critical skills and competencies that will be needed to 

achieve current and future programmatic results.

6

GAO, Space Shuttle: Actions Needed to Better Position NASA to Sustain Its Workforce 

through Retirement, GAO-05-230 (Washington, D.C.: March 9, 2005). 

7

GAO, DOD Civilian Personnel: Comprehensive Strategic Workforce Plans Needed, GAO04-753 (Washington, D.C.: June 30, 2004).
Page 9 GAO-05-616T 

• Develop strategies that are tailored to address gaps in the number, 

deployment, and alignment of human capital approaches for enabling 

and sustaining the contributions of all critical skills and competencies.

• Build the capability needed to address administrative, educational, and 

other requirements important to support workforce planning strategies.

• Monitor and evaluate the agency's progress toward its human capital 

goals and the contribution that human capital results have made toward 

achieving programmatic results.

Figure 1 illustrates a model strategic human capital planning process that 

can help to inform agencies’ efforts to define their workforces of the future.

Figure 1: Strategic Workforce Planning Process

Involvement

of management

and employees

Workforce gap

analysis

Workforce strategies

to fill the gaps

Evaluation of 

and revisions

to strategies

Source: GAO.

Set strategic

direction

Build capability to support workforce strategies 
Page 10 GAO-05-616T 

Strategic Approach to 

Succession Planning and 

Training Is Also Critical

A key piece of an agency’s strategic human capital plan should also 

acknowledge the demographic trends that the agency faces with its 

workforce, especially pending retirements, and include succession 

strategies and training and development programs to ensure that it will 

have the knowledge, skills, and abilities it needs to meet its mission. 

Leading agencies go beyond a succession planning approach that focuses 

on simply replacing individuals and engage in broad, integrated succession 

planning and management efforts that focus on strengthening both current 

and future organizational capacity. Senator Voinovich, at your and former 

Chairwoman Davis’ request, we reviewed how agencies in four countries 

are adopting a more strategic approach to managing the succession of their 

senior executives and other public sector employees with critical skills.8

 

Subsequently, you asked us to follow up with a review of how selected 

federal agencies are implementing succession planning and management 

efforts, as well as the practices we observed in other countries. We plan to 

report to you on the results of our research in the coming weeks.

Once agencies have used their succession planning to identify workforce 

gaps, one strategy they can use to fill these gaps is to implement welldesigned training and development programs. Training and developing 

new and current staff to fill new roles and work in different ways will 

transform how agencies do business and engage employees in further 

innovation and improvements. In addition, we have reported that 

educating managers and employees goes a long way in ensuring the 

effective use of flexibilities, and completion of a training plan can 

acknowledge the costs of implementation and provide that they be 

budgeted up front. In this context, we published a guide in March 2004 for 

assessing training and development efforts in the federal government.9

 As 

part of the guide, we identified the four broad, interrelated components of 

the training and development process: (1) planning/front-end analysis, 

(2) design/development, (3) implementation, and (4) evaluation. Agencies 

can use this guide to assess and revise their own programs.

It will be critical for DHS and DOD, as they continue to design and 

implement a totally new human capital system in their agencies, to take 

8

GAO, Human Capital: Insights for U.S. Agencies from Other Countries’ Succession 

Planning and Management Initiatives, GAO-03-914 (Washington, D.C.: Sept. 15, 2003).

9

GAO, Human Capital: A Guide for Assessing Strategic Training and Development 

Efforts in the Federal Government, GAO-04-546G (Washington, D.C.: March 2004).
Page 11 GAO-05-616T 

such a strategic approach to their training and development programs. 

This will help to ensure that (1) managers and employers are prepared to 

succeed in implementing the changes, (2) the agencies efficiently use their 

limited training and development funds, and (3) the agencies achieve their 

intended results. 

Evaluation Provides 

Agencies with Feedback on 

How Well Their Strategies 

Are Working

We previously noted that a critical component of an agency’s strategic 

human capital approach is establishing goals prior to the application of 

new flexibilities so that agencies can then collect baseline data and 

establish performance measures to support the evaluation of these 

initiatives.10 Developing meaningful outcome-oriented performance goals 

and collecting performance data to measure the achievement of these goals 

presents a major challenge for many federal agencies. It will be especially 

important for DHS and DOD to carefully plan up front for the evaluation of 

their new human capital systems, especially since they could have 

significant implications for the rest of the federal government. We have 

identified the following elements as facilitating this process:

• establishing clear goals and objectives for the initiative or flexibility 

being implemented,

• designing concrete management improvement steps,

• setting key milestones to track the implementation status, and

• collecting cost and performance data to gauge overall progress.11

In addition to facilitating success, effective evaluations would facilitate 

congressional oversight; allow for any midcourse corrections; assist 

agencies in benchmarking progress with other efforts; and provide for 

documenting best practices and sharing lessons learned with employees, 

stakeholders, other federal agencies, and the public. 

10GAO, Human Capital Management: FAA’s Reform Effort Needs a More Strategic 

Approach, GAO-03-156 (Washington, D.C.: Feb. 3, 2003).

11GAO, Management Reform: Elements of Successful Improvement Initiatives, GAO/TGGD-00-26 (Washington, D.C.: Oct. 15, 1999).
Page 12 GAO-05-616T 

Agencies Are Taking 

Advantage of New 

Flexibilities to Varying 

Degrees but Face Some 

Barriers

As we introduced in testimony to you last year, from our previous 

interviews with human resources directors from across the federal 

government and our previous human capital work, we have reported on six 

key practices that agencies should implement to use human capital 

flexibilities effectively. Figure 2 identifies these key practices.

Figure 2: Key Practices for Effective Use of Human Capital Flexibilities

The overall effort to improve the federal hiring process is a notable 

example highlighting the importance of effectively using flexibilities. 

Agencies complained that they were losing good talent because the hiring 

process was too long and cumbersome. Congress, OPM, and agencies have 

all undertaken efforts to help improve the process. However, in a survey 

● Obtain agency leadership commitment 

● Determine agency workforce needs using fact-based analysis

● Develop strategies that employ appropriate flexibilities to meet workforce needs

● Make appropriate funding available

● Engage the human capital office 

● Engage agency managers and supervisors

● Involve employees and unions

● Use input to establish clear, documented, and transparent policies and procedures

 

● Train human capital staff 

● Educate agency managers and supervisors on existence and use of flexibilities

● Inform employees of procedures and rights

● Ascertain the source of existing requirements 

● Reevaluate administrative approval processes for greater efficiency

● Replicate proven successes of others

● Delegate authority to use flexibilities to appropriate levels within the agency

● Hold managers and supervisors directly accountable 

● Apply policies and procedures consistently

● Ensure involvement of senior human capital managers in key decision-making processes 

● Encourage greater acceptance of prudent risk taking and organizational change

● Recognize differences in individual job performance and competencies

Plan strategically and make 

targeted investments 

Ensure stakeholder input in 

developing policies and 

procedures 

Educate managers and employees 

on the availability and use of 

flexibilities

Streamline and improve 

administrative processes

Build transparency and accountability 

into the system

Change the organizational 

culture

Source: GAO.
Page 13 GAO-05-616T 

we conducted last year, CHCO Council members reported that their 

agencies were making limited use of new hiring flexibilities that Congress 

had provided agencies: category rating and direct-hire authority. Category 

rating is an alternative rating and selection procedure that can provide 

agency managers with a larger pool of qualified job candidates from which 

to select rather than have to use numerical ranking and the rule of three,12

while also protecting veterans' preference. Direct-hire authority allows 

agencies to appoint candidates directly to positions where OPM determines 

there is a severe shortage of candidates or a critical hiring need, rather than 

numerically rating and ranking applicants. Agencies cited a number of 

barriers to using these flexibilities, including a lack of policy and guidance 

on these tools.

Consistent with our findings and recommended actions, OPM has since 

reported a wide range of efforts it has undertaken, including some in 

partnership with key external stakeholders, to assist agencies in using the 

new hiring authorities, including a number of important initiatives that 

took place after we surveyed CHCO Council members. For example, OPM 

has hosted training symposia on both tools. OPM has taken these actions 

with the goal of helping to ensure that agencies are aware of the hiring 

flexibilities available to them as well as assisting agencies in taking full 

advantage of these available flexibilities.

I also wanted to highlight ongoing work that addresses several other 

human capital flexibilities that Congress has provided. First, Congress has 

authorized agencies to repay, at their discretion, their employees’ student 

loans as a means to recruit and retain a talented workforce. We have work 

under way to review agencies’ use of the program. In addition, the 

Homeland Security Act of 2002 provides governmentwide authority for 

offering voluntary separation incentive payments, commonly referred to as 

buyouts, and voluntary early retirement, or early outs, for the purpose of 

workforce reshaping. We also have work under way to identify the extent 

to which agencies are implementing these tools. We plan to report on the 

results of our research later this year.

GAO’s Experiences with 

Human Capital Reform 

GAO exists to support Congress in meeting its constitutional 

responsibilities and to help improve the performance and ensure the 

125 U.S.C. § 3318(a)
Page 14 GAO-05-616T 

accountability of the federal government for the benefit of the American 

people. We deeply appreciate the support and assistance we have received 

from this subcommittee and others in Congress in providing us with the 

tools and authorities we need to support Congress. We believe that it is 

vitally important to GAO’s future that the agency continue modernizing and 

updating our human capital policies and system in light of the changing 

environment and anticipated challenges ahead. We believe that the GAO 

Human Capital Reform Act is well reasoned with adequate safeguards for 

GAO employees. As you know, GAO has had certain human capital tools 

and flexibilities for over two decades. GAO’s more recent Human Capital 

Reform Act of 2004 (Human Capital II) combines diverse initiatives that, 

collectively, should further GAO’s ability to enhance the agency’s our 

performance and attract, retain, motivate, and reward a high-performing 

workforce now and in the future.13 

Specifically, Human Capital II allows for a number of additional human 

capital tools and flexibilities, including

• making permanent GAO’s three-year authority to offer voluntary early 

retirement and voluntary separation incentive payments;

• allowing the Comptroller General to adjust the rates of basic pay of GAO 

employees on a separate basis from the annual adjustments authorized 

for employees of the executive branch;

• providing authority to reimburse employees for certain relocation 

expenses and to award certain employees with additional annual leave 

benefits; and

• authorizing an executive exchange program with private sector 

organizations to further the institutional interest of GAO or Congress, 

including for the purpose of providing training. 

Consistent with GAO’s long-standing practice, the new human capital 

flexibilities are being implemented in continuing consultation with GAO’s 

employees and executives. GAO’s regulations for offering voluntary early 

retirement were issued on November 15, 2004. The Comptroller General 

may authorize early retirements for applicants on the basis of the 

13For more information, see Pub. L. No. (108-271), July 7, 2004, and GAO, GAO: Additional 

Human Capital Flexibilities Are Needed, GAO-03-1024T (Washington, D.C.: July 16, 2003).
Page 15 GAO-05-616T 

institutional needs of GAO, subject to certain statutory limits. GAO 

believes that its careful use of these flexibilities will continue to be an 

important tool in incrementally improving the agency’s overall human 

capital profile, freeing resources for other uses, and enabling GAO to 

reduce a skill gap or address other succession concerns.

GAO has also begun to implement the flexibility on adjusting the rates of 

basic pay for GAO employees. GAO is implementing a compensation 

system that places greater emphasis on job performance while, at a 

minimum, protecting the purchasing power of employees who are 

performing acceptably and ensuring that they are paid within competitive 

compensation ranges. With the help of an international human capital 

consulting firm, GAO developed new market-based compensation pay 

ranges for analysts, attorneys, and specialists that are already in the first 

phase of implementation. With the new market-based pay system, 

employee compensation will now consider current salary and allocate 

individual performance-based compensation amounts between a merit 

increase (i.e., salary increase) and a performance bonus (i.e., cash). GAO is 

in the early stages of conducting a similar study of market-based pay for the 

remainder of GAO’s workforce who began the transition to performancebased compensation in 2004 with the introduction of pay banding and a 

new competency-based performance appraisal system.

Draft regulations implementing the Executive Exchange Program were 

provided to employees for comment on January 31, 2005. The comment 

period closed on March 4, 2005 and review and analysis of the comments is 

in process. We anticipate issuing final regulations on or before June 1, 

2005, and are concurrently working on the operational implementation of 

the program.

A Consistent Set of 

Principles, Criteria, 

and Processes Can 

Help Guide Future 

Reforms

In the future, agencies most likely will continue to request some of the 

flexibilities and reforms granted to agencies such as GAO, DOD, and DHS, 

as they strive to become higher-performing and results-based 

organizations. In response, Congress may continue to grant individual 

reforms or design a set of more comprehensive governmentwide reforms 

or a combination of these approaches. To qualify for these reforms, 

agencies should be able to demonstrate that they have the necessary 

infrastructure in place before they are authorized to implement significant 

human capital flexibilities and authorities. In anticipation of future 

reforms, and to help advance the discussion concerning how human capital 

reform should proceed, GAO and the National Commission on the Public 
Page 16 GAO-05-616T 

Service Implementation Initiative hosted a forum on whether there should 

be a governmentwide framework for human capital reform and, if so, what 

this framework should include.14 While there were divergent views among 

the forum participants, there was general agreement on a set of principles, 

criteria, and processes that would serve as a starting point for further 

discussion in developing a governmentwide framework, as shown in 

Figure 3. 

14 GAO and the National Commission on the Public Service Implementation Initiative, 

Highlights of a Forum: Human Capital: Principles, Criteria, and Processes for 

Governmentwide Federal Human Capital Reform, GAO-05-69SP (Washington, D.C.: Dec. 1, 

2004).
Page 17 GAO-05-616T 

Figure 3: Principles, Criteria, and Processes

Conclusions Strategic human capital management is the centerpiece of the federal 

government’s overall management transformation effort. A number of 

stakeholders have a key role in this process. Congress has provided 

agencies, including DOD and DHS, with broad human capital authorities to 

help them with their transformations. Agencies are taking advantage of 

these provided flexibilities but continue to face some barriers. OPM and 

the CHCO Council can continue to assist agencies in navigating these 

flexibilities, as well as take a more coordinated and strategic view of 

federal human capital management policies, processes, and systems. 

Agencies will need to continue implementing these tools, evaluating the 

Principles that the government should retain in a framework for reform because 

of their inherent, enduring qualities:

• Merit principles that balance organizational mission, goals, and performance 

objectives with individual rights and responsibilities

• Ability to organize, bargain collectively, and participate through labor organizations

• Certain prohibited personnel practices 

• Guaranteed due process that is fair, fast, and final

Criteria that agencies should have in place as they plan for and manage their 

new human capital authorities:

• Demonstrated business case or readiness for use of targeted authorities

• An integrated approach to results-oriented strategic planning and human capital 

planning and management

• Adequate resources for planning, implementation, training, and evaluation

• A modern, effective, credible, and integrated performance management system that 

includes adequate safeguards to help ensure equity and prevent discrimination

• Prescribing regulations in consultation or jointly with the Office of Personnel 

Management (OPM)

• Establishing appeals processes in consultation with the Merit Systems Protection 

Board (MSPB)

• Involving employees and stakeholders in the design and implementation of new 

human capital systems

• Phasing in implementation of new human capital systems

• Committing to transparency, reporting, and evaluation

• Establishing a communications strategy

• Assuring adequate training

Processes that agencies should follow as they implement new human capital 

authorities:

Source: GAO.
Page 18 GAO-05-616T 

results achieved, and adjusting implementation, especially if they are to use 

their resources most wisely in a fiscally constrained environment. The 

Subcommittee’s and Congress’ interest in monitoring agencies’ progress 

with these new human capital tools and willingness to adjust and support 

them are a critical ingredient to success. Furthermore, agencies requesting 

additional flexibilities should be able to first demonstrate a need and then 

that they have the infrastructure and capabilities to use these flexibilities 

effectively. Finally, in granting these, or more comprehensive 

governmentwide reforms, we have offered Congress a framework, a set of 

consistent principles, criteria, and processes to consider as it designs the 

federal human capital system for the 21st century.

Chairman Voinovich and Members of the subcommittee, this concludes my 

prepared statement. I would be pleased to answer any questions you may 

have.

(450408)
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