a

GAO

United States Government Accountability Office

Testimony

Before the Committee on Armed Services, U.S. Senate

For Release on Delivery

Expected at 9:30 a.m., EDT

Thursday, April 14, 2005

HUMAN CAPITAL

Preliminary Observations 

on Proposed Regulations 

for DOD’s National 

Security Personnel System

Statement of Derek B. Stewart, Director

Defense Capabilities and Management

GAO-05-559T
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-559T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact 

Derek B. Stewart at (202) 512-5559 or 

stewartd@gao.gov. 

Highlights of GAO-05-559T, a testimony 

before the Committee on Armed Services, 

U.S. Senate 

April 14, 2005

HUMAN CAPITAL

Preliminary Observations on Proposed 

Regulations for DOD’s National Security 

Personnel System 

Many of the principles underlying the proposed NSPS regulations are 

generally consistent with proven approaches to strategic human capital 

management. For instance, the proposed regulations provide for 

(1) elements of a flexible and contemporary human resources management 

system—such as pay bands and pay for performance; (2) DOD to rightsize its 

workforce when implementing reduction-in-force orders by giving greater 

priority to employee performance in its retention decisions; and 

(3) continuing collaboration with employee representatives. The 30-day 

public comment period on the proposed regulations ended March 16, 2005. 

DOD and OPM have notified the Congress that they are preparing to begin 

the meet and confer process with employee representatives who provided 

comments on the proposed regulations. The meet and confer process is 

critically important because there are many details of the proposed 

regulations that have not been defined, especially in the areas of pay and 

performance management, adverse actions and appeals, and labormanagement relations. (It should be noted that 10 federal labor unions have 

filed suit alleging that DOD failed to abide by the statutory requirements to 

include employee representatives in the development of DOD’s new labor 

relations system authorized as part of NSPS.) 

GAO has several areas of concern: the proposed regulations do not 

(1) define the details of the implementation of the system, including such 

issues as adequate safeguards to help ensure fairness and guard against 

abuse; (2) require, as GAO believes they should, the use of core 

competencies to communicate to employees what is expected of them on 

the job; and (3) identify a process for the continuing involvement of 

employees in the planning, development, and implementation of NSPS. 

Also, GAO believes that DOD (1) would benefit if it develops a 

comprehensive communications strategy that provides for ongoing, 

meaningful two-way communication that creates shared expectations among 

employees, employee representatives, and stakeholders and (2) should 

complete a plan for implementing NSPS to include an information 

technology plan and a training plan. Until such a plan is completed, the 

full extent of the resources needed to implement NSPS may not be 

well understood. 

The Department of Defense’s 

(DOD) new human resources 

management system—the National 

Security Personnel System 

(NSPS)—will have far-reaching 

implications for civil service reform 

across the federal government. 

The 2004 National Defense 

Authorization Act gave DOD 

significant flexibilities for 

managing more than 

700,000 defense civilian employees. 

Given DOD’s massive size, NSPS 

represents a huge undertaking for 

DOD. DOD’s initial process to 

design NSPS was problematic; 

however, DOD adjusted its 

approach to a more deliberative 

process that involved more 

stakeholders. NSPS could, if 

designed and implemented 

properly, serve as a model for 

governmentwide transformation in 

human capital management. 

However, if not properly designed 

and implemented, it could severely 

impede progress toward a more 

performance- and results-based 

system for the federal government 

as a whole. 

On February 14, 2005, DOD and 

the Office of Personnel 

Management (OPM) released for 

public comment the proposed 

NSPS regulations. This testimony 

provides GAO’s preliminary 

observations on selected 

provisions of the proposed 

regulations. 
Page 1 GAO-05-559T 

Chairman Warner and Members of the Committee:

I appreciate the opportunity to be here today to provide our preliminary 

observations on the Department of Defense’s (DOD) proposed National 

Security Personnel System (NSPS) regulations, which the Secretary of 

Defense and the Acting Director of the Office of Personnel Management 

(OPM) jointly released for public comment on February 14, 2005.1

 The 

National Defense Authorization Act for Fiscal Year 20042

 gave DOD 

significant authorities to redesign the rules, regulations, and processes that 

govern the way that defense civilian employees are hired, compensated, 

promoted, and disciplined. The proposed regulations, which according to 

DOD will ultimately affect more than 700,000 defense civilian employees, 

are especially critical because of their implications for governmentwide 

reform.

NSPS represents a huge undertaking for DOD, given its massive size and 

geographically and culturally diverse workforce. In addition, DOD’s new 

human resources management system will have far-reaching implications 

for the management of the department and for civil service reform across 

the federal government. NSPS could, if designed and implemented 

properly, serve as a model for governmentwide transformation in human 

capital management. However, if not properly designed and implemented, 

NSPS could impede progress toward a more performance- and resultsbased system for the federal government as a whole.

We raised several issues regarding DOD’s civilian workforce in a recently 

released report on the fiscal challenges the federal government faces in the 

21st century, including whether DOD is pursuing the design and 

implementation of NSPS in a manner that maximizes the chance of 

success.3

 In recent testimony on DOD’s business transformation efforts, we 

indicated that DOD is challenged in its efforts to effect fundamental 

business management reform, such as NSPS, and indicated that our 

ongoing work continues to raise questions about DOD’s chances of

1

 National Security Personnel System, 70 Fed. Reg. 7552 (Feb. 14, 2005).

2

 Pub. L. No. 108-136 § 1101 (Nov. 24, 2003).

3

 GAO, 21st Century Challenges: Reexamining the Base of the Federal Government, 

GAO-05-325SP (Washington, D.C.: February 2005).
Page 2 GAO-05-559T 

success.4 There is general recognition that the government needs a 

framework to guide the kind of large-scale human capital reform occurring 

at DOD and the Department of Homeland Security (DHS), a framework 

that Congress and the administration can implement to enhance 

performance, ensure accountability, and position the nation for the future. 

Implementing large-scale change management initiatives is a complex 

endeavor, and failure to address a wide variety of personnel and cultural 

issues, in particular, has been at the heart of unsuccessful organizational 

transformations. Strategic human capital management, which we continue 

to designate as a high-risk area governmentwide,5

 can help agencies 

marshal, manage, and maintain the workforce they need to accomplish 

their missions.

Summary Let me begin by summarizing three positive features and several areas of 

concern. The first positive feature is that the proposed regulations provide 

for many elements of a flexible and contemporary human resources 

management system—such as pay bands and pay for performance. The 

second positive feature is that the proposed regulations will allow DOD to 

rightsize its workforce when implementing reduction-in-force (RIF) 

orders. For example, DOD will be able to give greater priority to 

employee performance in RIF decisions and take more factors into 

consideration when defining the areas in which employees will compete 

for retention. The third positive feature is that DOD has pledged to 

engage in a continuing collaboration with employee representatives. 

On March 16, 2005, the 30-day public comment period on the proposed 

regulations ended. On March 28, 2005, DOD and OPM notified the Congress 

that they are about to begin the meet and confer process with employee 

representatives who provided comments on the proposed regulations. 

(It should be noted that 10 federal labor unions have filed suit alleging that 

DOD failed to abide by the statutory requirements to include employee 

representatives in the development of DOD’s new labor relations system 

authorized as part of NSPS.)

4

 GAO, Department of Defense: Further Actions Are Needed to Effectively Address 

Business Management Problems and Overcome Key Business Transformation Challenges, 

GAO-05-140T (Washington, D.C.: Nov. 18, 2004).

5

 GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: January 2005).
Page 3 GAO-05-559T 

However, in addition to the litigation referenced above, our initial work 

indicates several areas of concern. First, DOD has considerable work 

ahead to define the details of the implementation of its system, including 

such issues as adequate safeguards to help ensure fairness and guard 

against abuse. Second, in setting performance expectations, the proposed 

regulations would allow the use of core competencies to communicate to 

employees what is expected of them on the job, but the proposed 

regulations do not require the use of these core competencies. Requiring 

such use can help provide consistency and clarity in performance 

management. Third, the proposed regulations do not identify a process for 

the continuing involvement of employees in the planning, development, 

and implementation of NSPS.

GAO believes that DOD would benefit if it develops a comprehensive 

communications strategy that provides for ongoing, meaningful two-way 

communication that creates shared expectations among employees, 

employee representatives, managers, customers, and stakeholders. In 

addition, DOD should complete an implementation plan for NSPS, 

including an information technology plan and a training plan. Until DOD 

completes such a plan, the full extent of the resources needed to 

implement NSPS may not be well understood.

DOD’s proposed regulations are intended to provide a broad outline of its 

new human resources management system. While they are not, nor were 

they intended to be, a detailed presentation of how the new system will be 

implemented, the details of the proposed regulations do matter. Although 

we continue to review the DOD’s extensive regulations, today I will provide 

some preliminary observations on selected provisions of the proposed 

regulations.

Preliminary 

Observations on 

Proposed Regulations 

for DOD’s National 

Security Personnel 

System

DOD and OPM’s proposed NSPS regulations would establish a new human 

resources management system within DOD that governs basic pay, staffing, 

classification, performance management, labor relations, adverse actions, 

and employee appeals. We believe that many of the basic principles 

underlying the proposed DOD regulations are generally consistent with 

proven approaches to strategic human capital management. Today, I will 

provide our preliminary observations on selected elements of the proposed 

regulations in the areas of pay and performance management, staffing 

and employment, workforce shaping, adverse actions and appeals, and 

labor-management relations.
Page 4 GAO-05-559T 

Pay and Performance 

Management

In January 2004, we released a report on pay for performance for 

selected OPM personnel demonstration projects that shows the variety 

of approaches taken in these projects to design and implement 

pay-for-performance systems.6

 Many of these personnel demonstration 

projects were conducted within DOD. The experiences of these 

demonstration projects provide insights into how some organizations in 

the federal government are implementing pay for performance, and thus 

can guide DOD as it develops and implements its own approach. These 

demonstration projects illustrate that understanding how to link pay to 

performance is very much a work in progress in the federal government 

and that additional work is needed to ensure that performance 

management systems are tools to help agencies manage on a day-to-day 

basis and achieve external results.

When DOD first proposed its new civilian personnel reform, we strongly 

supported the need to expand pay for performance in the federal 

government.7

 Establishing a clear link between individual pay and 

performance is essential for maximizing performance and ensuring the 

accountability of the federal government to the American people. As we 

have stated before, how pay for performance is done, when it is done, and 

the basis on which it is done can make all the difference in whether such 

efforts are successful.8

 DOD’s proposed regulations reflect a growing 

understanding that the federal government needs to fundamentally 

rethink its current approach to pay and better link pay to individual and 

organizational performance. To this end, the DOD proposal takes another 

valuable step toward a modern performance management system as well 

as a market-based, results-oriented compensation system. My comments 

on specific provisions of pay and performance management follow.

6

 GAO, Human Capital: Implementing Pay for Performance at Selected Personnel 

Demonstration Projects, GAO-04-83 (Washington, D.C.: Jan. 23, 2004).

7

 GAO, Defense Transformation: Preliminary Observations on DOD’s Proposed Civilian 

Personnel Reforms, GAO-03-717T (Washington, D.C.: Apr. 29, 2003).

8

 GAO, Human Capital: Preliminary Observations on Proposed DHS Human Capital 

Regulations, GAO-04-479T (Washington, D.C.: Feb. 25, 2004).
Page 5 GAO-05-559T 

Aligning Individual Performance 

to Organizational Goals

Under the proposed regulations, the DOD performance management 

system would, among other things, align individual performance 

expectations with the department’s overall mission and strategic goals, 

organizational program and policy objectives, annual performance plans, 

and other measures of performance. However, the proposed regulations do 

not detail how to achieve such an alignment, which is a vital issue that will 

need to be addressed as DOD’s efforts in designing and implementing a new 

personnel system move forward. Our work on public sector performance 

management efforts in the United States and abroad has underscored the 

importance of aligning daily operations and activities with organizational 

results.9

 We have found that organizations often struggle with clearly 

understanding how what they do on a day-to-day basis contributes to 

overall organizational results, while high-performing organizations 

demonstrate their understanding of how the products and services they 

deliver contribute to results by aligning the performance expectations of 

top leadership with the organization’s goals and then cascading those 

expectations to lower levels.

A performance management system is critical to successful organizational 

transformation. As an organization undergoing transformation, DOD can 

use its proposed performance management system as a vital tool for 

aligning the organization with desired results and creating a “line of sight” 

to show how team, unit, and individual performance can contribute to 

overall organizational results. To help federal agencies transform their 

culture to be more results oriented, customer focused, and collaborative in 

nature, we have reported on how a performance management system that 

defines responsibility and ensures accountability for change can be key to a 

successful merger and transformation.10

Establishing Pay Bands Under the proposed regulations, DOD would create pay bands for most of 

its civilian workforce that would replace the 15-grade General Schedule 

(GS) system now in place for most civil service employees. Specifically, 

DOD (in coordination with OPM) would establish broad occupational 

career groups by grouping occupations and positions that are similar in 

type of work, mission, developmental or career paths, and competencies. 

Within career groups, DOD would establish pay bands. The proposed 

9 GAO-04-479T.

10 GAO, Results-Oriented Cultures: Implementation Steps to Assist Mergers and 

Organizational Transformations, GAO-03-669 (Washington, D.C.: July 2, 2003).
Page 6 GAO-05-559T 

regulations do not provide details on the number of career groups or the 

number of pay bands per career group. The regulations also do not provide 

details on the criteria that DOD will use to promote individuals from one 

band to another. These important issues will need to be addressed as DOD 

moves forward. Pay banding and movement to broader occupational career 

groups can both facilitate DOD’s movement to a pay-for-performance 

system and help DOD better define career groups, which in turn can 

improve the hiring process. In our prior work, we have reported that the 

current GS system, as defined in the Classification Act of 1949,11 is a key 

barrier to comprehensive human capital reform and that the creation of 

broader occupational job clusters and pay bands would aid other agencies 

as they seek to modernize their personnel systems.12 The standards and 

process of the current classification system are key problems in federal 

hiring efforts because they are outdated and thus not applicable to today’s 

occupations and work.

Under the proposed regulations, DOD could not reduce employees’ basic 

rates of pay when converting to pay bands. In addition, the proposed 

regulations would allow DOD to establish a “control point” within a band 

that limits increases in the rate of basic pay and may require certain criteria 

to be met for increases above the control point.13 The use of control points 

to manage employees’ progression through the bands can help to ensure 

that their performance coincides with their salaries and that only the 

highest performers move into the upper half of the pay band, thereby 

controlling salary costs. The OPM personnel demonstration projects at 

China Lake and the Naval Sea Systems Command Warfare Center’s 

Dahlgren Division have incorporated checkpoints or “speed bumps” in 

their pay bands. For example, when an employee’s salary at China Lake 

reaches the midpoint of the pay band, the employee must receive a 

performance rating that is equivalent to exceeding expectations before he 

or she can receive additional salary increases.

11 5 U.S.C. §§ 5101-5115.

12 GAO, Human Capital: Opportunities to Improve Executive Agencies’ Hiring Processes, 

GAO-03-450 (Washington, D.C.: May 30, 2003).

13 Because movement through the pay band is based on performance, employees could 

progress through the pay band more quickly than they could receive similar increases under 

the GS system. One method of preventing employees from eventually migrating to the top of 

the pay band, and thus increasing salary costs, is to establish control points within each 

band.
Page 7 GAO-05-559T 

Setting and Communicating 

Employee Performance 

Expectations

Under the proposed regulations, DOD’s performance management system 

would promote individual accountability by setting performance 

expectations and communicating them to employees, holding employees 

responsible for accomplishing them, and making supervisors and managers 

responsible for effectively managing the performance of employees under 

their supervision. While supervisors are supposed to involve employees, 

insofar as practicable, in setting performance expectations, the final 

decisions regarding performance expectations are within the sole and 

exclusive discretion of management.

Under the proposed regulations, performance expectations may take 

several different forms. These include, among others, goals or objectives 

that set general or specific performance targets at the individual, team, or 

organizational level; a particular work assignment, including 

characteristics such as quality, quantity, accuracy, or timeliness; core 

competencies that an employee is expected to demonstrate on the job; or 

the contributions that an employee is expected to make. As DOD’s human 

resources management system design efforts move forward, DOD will need 

to define, in more detail than is currently provided, how performance 

expectations will be set, including the degree to which DOD components, 

managers, and supervisors will have flexibility in setting those 

expectations.

The range of expectations that DOD would consider in setting individual 

employee performance expectations are generally consistent with those 

used by high-performing organizations. DOD appropriately recognizes that 

given the vast diversity of work done in the department, managers and 

employees need flexibility in crafting specific expectations. However, the 

experiences of high-performing organizations suggest that DOD should 

require the use of core competencies as a central feature of its performance 

management effort.14 Based on our review of other agency efforts and our 

own experience at GAO, we have found that core competencies can help 

reinforce employee behaviors and actions that support the department’s 

mission, goals, and values, and can provide a consistent message to 

employees about how they are expected to achieve results. By including 

such competencies as change management, cultural sensitivity, teamwork 

and collaboration, and information sharing, DOD would create a shared 

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

Performance and Organizational Success, GAO-03-488 (Washington, D.C.: Mar. 14, 2003).
Page 8 GAO-05-559T 

responsibility for organizational success and help ensure accountability for 

the transformation process.

Making Meaningful Distinctions 

in Employee Performance

High-performing organizations seek to create pay, incentive, and reward 

systems that clearly link employee knowledge, skills, and contributions to 

organizational results. These organizations make meaningful distinctions 

between acceptable and outstanding performance of individuals and 

appropriately reward those who perform at the highest level. DOD’s 

proposed regulations state that supervisors and managers would be held 

accountable for making meaningful distinctions among employees based 

on performance and contribution, fostering and rewarding excellent 

performance, and addressing poor performance.

Under the proposed regulations, DOD is expected to have at least three 

rating levels for evaluating employee performance. We urge DOD to 

consider using at least four summary rating levels to allow for greater 

performance-rating and pay differentiation. This approach is in the spirit of 

the new governmentwide performance-based pay system for the Senior 

Executive Service (SES), which requires at least four rating levels to 

provide a clear and direct link between SES performance and pay as well as 

to make meaningful distinctions based on relative performance. Cascading 

this approach to other levels of employees can help DOD recognize and 

reward employee contributions and achieve the highest levels of individual 

performance.15

Providing Adequate Safeguards 

to Ensure Fairness and Guard 

Against Abuse

Although DOD’s proposed regulations provide for some safeguards to 

ensure fairness and guard against abuse, additional safeguards should be 

developed. For example, as required by the authorizing legislation, the 

proposed regulations indicate that DOD’s performance management 

system must comply with merit system principles and avoid prohibited 

personnel practices; provide a means for employee involvement in the 

design and implementation of the system; and, overall, be fair, credible, and 

transparent. However, the proposed regulations do not offer details on how 

DOD would (1) promote consistency and provide general oversight of the 

performance management system to help ensure it is administered in a 

fair, credible, and transparent manner, and (2) incorporate predecisional 

internal safeguards that are implemented to help achieve consistency 

and equity, and ensure nondiscrimination and nonpoliticization of the 

15 GAO, Human Capital: Observations on Final DHS Human Capital Regulations, 

GAO-05-391T (Washington, D.C.: Mar. 2, 2005).
Page 9 GAO-05-559T 

performance management process. Last month, during testimony, we 

stated that additional flexibility should have adequate safeguards, including 

a reasonable degree of transparency with regard to the results of key 

decisions, whether it be pay, promotions, or other types of actions, while 

protecting personal privacy. We also suggested that there should be both 

informal and formal appeal mechanisms within and outside of the 

organization if individuals feel that there has been abuse or a violation of 

the policies, procedures, or protected rights of the individual. Internal 

mechanisms could include independent human capital office and office of 

opportunity and inclusiveness reviews that provide reasonable assurances 

that there would be consistency and nondiscrimination. Furthermore, it is 

of critical importance that the external appeal process be independent, 

efficient, effective, and credible.

In April 2003, when commenting on DOD civilian personnel reforms, we 

testified that Congress should consider establishing statutory standards 

that an agency must have in place before it can implement a more 

performance-based pay program, and we developed an initial list of 

possible safeguards to help ensure that pay-for-performance systems in the 

government are fair, effective, and credible.16 For example, we have noted 

that agencies need to ensure reasonable transparency and provide 

appropriate accountability mechanisms in connection with the results of 

the performance management process.17 This can be done by publishing 

the overall results of performance management and individual pay 

decisions while protecting individual confidentiality and by reporting 

periodically on internal assessments and employee survey results relating 

to the performance management system. DOD needs to commit itself to 

publishing the results of performance management decisions. By 

publishing the results in a manner that protects individual confidentiality, 

DOD could provide employees with the information they need to better 

understand their performance and the performance management system. 

Several of the demonstration projects have been publishing information 

about performance appraisal and pay decisions, such as the average 

performance rating, the average pay increase, and the average award for 

the organization and for each individual unit, on internal Web sites for use 

by employees. As DOD’s human resources management system design 

efforts move forward, DOD will need to define, in more detail than is 

16 GAO-03-717T.

17 GAO-04-479T.
Page 10 GAO-05-559T 

currently provided, how it plans to review such matters as the 

establishment and implementation of the performance appraisal 

systemand, subsequently, performance rating decisions, pay 

determinations, and promotion actionsbefore these actions are finalized, 

to ensure they are merit based.

Staffing and Employment The authorizing legislation allows DOD to implement additional hiring 

flexibilities that would allow it to (1) determine that there is a severe 

shortage of candidates or a critical hiring need and (2) use direct-hire 

procedures for these positions. Under current law, OPM, rather than the 

agency, determines whether there is a severe shortage of candidates or a 

critical hiring need. DOD’s authorizing legislation permits that DOD merely 

document the basis for the severe shortage or critical hiring need and then 

notify OPM of these direct-hire determinations. Direct-hire authority allows 

an agency to appoint people to positions without adherence to certain 

competitive examination requirements (such as applying veterans’ 

preference or numerically rating and ranking candidates based on their 

experience, training, and education) when there is a severe shortage of 

qualified candidates or a critical hiring need. In the section containing 

DOD’s proposed hiring flexibilities, the proposed regulations state that the 

department will adhere to veterans’ preference principles as well as comply 

with merit principles and the Title 5 provision dealing with prohibited 

personnel practices.

While we strongly endorse providing agencies with additional tools and 

flexibilities to attract and retain needed talent, additional analysis may be 

needed to ensure that any new hiring authorities are consistent with a 

focus on the protection of employee rights, on merit principles—and on 

results. Hiring flexibilities alone will not enable federal agencies to bring on 

board the personnel that are needed to accomplish their missions. 

Agencies must first conduct gap analyses of the critical skills and 

competencies needed in their workforces now and in the future, or they 

may not be able to effectively design strategies to hire, develop, and retain 

the best possible workforces.

Workforce Shaping The proposed regulations would allow DOD to reduce, realign, and 

reorganize the department’s workforce through revised RIF procedures. 

For example, employees would be placed on a retention list in the 

following order: tenure group (i.e., permanent or temporary appointment), 

veterans’ preference eligibility (disabled veterans will be given additional 
Page 11 GAO-05-559T 

priority), level of performance, and length of service; under current 

regulations, length of service is considered ahead of performance. We have 

previously testified, prior to the enactment of NSPS, in support of revised 

RIF procedures that would require much greater consideration of an 

employee’s performance.18 Although we support greater consideration of 

an employee’s performance in RIF procedures, agencies must have 

modern, effective, and credible performance management systems in place 

to properly implement such authorities.

An agency’s approach to workforce shaping should be oriented toward 

strategically reducing, realigning, and reorganizing the makeup of its 

workforce to ensure the orderly transfer of institutional knowledge and 

achieve mission results. DOD’s proposed regulations include some changes 

that would allow the department to rightsize the workforce more carefully 

through greater precision in defining competitive areas, and by reducing 

the disruption associated with RIF orders as their impact ripples through 

an organization. For example, under the current regulations, the minimum 

RIF competitive area is broadly defined as an organization under separate 

administration in a local commuting area. Under the proposed regulations, 

DOD would be able to establish a minimum RIF competitive area on a more 

targeted basis, using one or more of the following factors: geographical 

location, line of business, product line, organizational unit, and funding 

line. The proposed regulations also provide DOD with the flexibility to 

develop additional competitive groupings on the basis of career group, 

occupational series or specialty, and pay band. At present, DOD can use 

competitive groups based on employees (1) in the excepted and 

competitive service, (2) under different excepted service appointment 

authorities, (3) with different work schedules,19 (4) pay schedule, or 

(5) trainee status. These reforms could help DOD approach rightsizing 

more carefully; however, as I have stated, agencies first need to identify the 

critical skills and competencies needed in their workforce if they are to 

effectively implement their new human capital flexibilities.

18 GAO-03-717T; GAO, Defense Transformation: DOD’s Proposed Civilian Personnel 

System and Governmentwide Human Capital Reform, GAO-03-741T (Washington, D.C.: 

May 1, 2003); and Human Capital: Building on DOD’s Reform Effort to Foster 

Governmentwide Improvements, GAO-03-851T (Washington, D.C.: June 4, 2003).

19 For example, employees who work full time, part time, seasonally, or intermittently.
Page 12 GAO-05-559T 

Adverse Actions and 

Appeals

As with DHS’s final regulations,20 DOD’s proposed regulations are 

intended to streamline the rules and procedures for taking adverse actions, 

while ensuring that employees receive due process and fair treatment. 

The proposed regulations establish a single process for both performancebased and conduct-based actions, and shorten the adverse action process 

by removing the requirement for a performance improvement plan. In 

addition, the proposed regulations streamline the appeals process at the 

Merit Systems Protection Board (MSPB) by shortening the time for filing 

and processing appeals.

Similar to DHS, DOD’s proposed regulations also adopt a higher standard 

of proof for adverse actions in DOD, requiring the department to meet a 

“preponderance of the evidence” standard in place of the current 

“substantial evidence” standard. For performance issues, while this higher 

standard of evidence means that DOD would face a greater burden of proof 

than most agencies to pursue these actions, DOD managers are not 

required to provide employees with performance improvement periods, as 

is the case for other federal employees. For conduct issues, DOD would 

face the same burden of proof as most agencies.

DOD’s proposed regulations generally preserve the employee’s basic right 

to appeal decisions to an independent body—the MSPB. However, in 

contrast to DHS’s final regulations, DOD’s proposed regulations permit an 

internal DOD review of the initial decisions issued by MSPB adjudicating 

officials. Under this internal review, DOD can modify or reverse an initial 

decision or remand the matter back to the adjudicating official for further 

consideration. Unlike other criteria for review of initial decisions, DOD can 

modify or reverse an initial MSPB adjudicating official’s decision where the 

department determines that the decision has a direct and substantial 

adverse impact on the department’s national security mission.21 According 

to DOD, the department needs the authority to review initial MSPB 

decisions and correct such decisions as appropriate, to ensure that the 

MSPB interprets NSPS and the proposed regulations in a way that 

recognizes the critical mission of the department and to ensure that MSPB 

20 Department of Homeland Security Human Resources Management System, 70 Fed. Reg. 

5272 (Feb. 1, 2005).

21 Any final DOD decision under this review process may be further appealed to the full 

MSPB. Further, the Secretary of Defense or an employee adversely affected by a final order 

or decision of the full MSPB may seek judicial review.
Page 13 GAO-05-559T 

gives proper deference to such interpretation. However, the proposed 

regulations do not offer additional details on the department’s internal 

review process, such as how the review will be conducted and who will 

conduct them. An internal agency review process this important should be 

addressed in the regulations rather than in an implementing directive to 

ensure adequate transparency and employee confidence in the process.

Similar to DHS’s final regulations, DOD’s proposed regulations would 

shorten the notification period before an adverse action can become 

effective and provide an accelerated MSPB adjudication process. In 

addition, MSPB would no longer be able to modify a penalty for an adverse 

action that is imposed on an employee by DOD unless such penalty is so 

disproportionate to the basis of the action as to be “wholly without 

justification.” In other words, MSPB has less latitude to modify agencyimposed penalties than under current practice. The DOD proposed 

regulations also stipulate that MSPB could no longer require that parties 

enter into settlement discussions, although either party may propose doing 

so. DOD, like DHS, expressed concerns that settlement should be a 

completely voluntary decision made by parties on their own initiative. 

However, settling cases has been an important tool in the past at MSPB, 

and promotion of settlement at this stage should be encouraged.

Similar to DHS’s final regulations, DOD’s proposed regulations would 

permit the Secretary of Defense to identify specific offenses for which 

removal is mandatory. Employees alleged to have committed these 

offenses may receive a written notice only after the Secretary of Defense’s 

review and approval. These employees will have the same right to a review 

by an MSPB adjudicating official as is provided to other employees against 

whom appealable adverse actions are taken. DOD’s proposed regulations 

only indicate that its employees will be made aware of the mandatory 

removal offenses. In contrast, the final DHS regulations explicitly provide 

for publishing a list of the mandatory removal offenses in the Federal 

Register. We believe that the process for determining and communicating 

which types of offenses require mandatory removal should be explicit and 

transparent and involve relevant congressional stakeholders, employees, 

and employee representatives. Moreover, we suggest that DOD exercise 

caution when identifying specific removable offenses and the specific 

punishment. When developing these proposed regulations, DOD should 

learn from the experience of the Internal Revenue Service’s (IRS) 
Page 14 GAO-05-559T 

implementation of its mandatory removal provisions.22 (IRS employees 

feared that they would be falsely accused by taxpayers and investigated, 

and had little confidence that they would not be disciplined for making an 

honest mistake.) We reported that IRS officials believed this provision had 

a negative impact on employee morale and effectiveness and had a 

“chilling” effect on IRS frontline enforcement employees, who were afraid 

to take certain appropriate enforcement actions.23 Careful drafting of each 

removable offense is critical to ensure that the provision does not have 

unintended consequences.

DOD’s proposed regulations also would encourage the use of alternative 

dispute resolution and provide that this approach be subject to collective 

bargaining to the extent permitted by the proposed labor relations 

regulations. To resolve disputes in a more efficient, timely, and less 

adversarial manner, federal agencies have been expanding their human 

capital programs to include alternative dispute resolution approaches. 

These approaches include mediation, dispute resolution boards, and 

ombudsmen. Ombudsmen typically are used to provide an informal 

alternative to addressing conflicts. We previously reported on common 

approaches used in ombudsmen offices, including (1) broad responsibility 

and authority to address almost any workplace issue, (2) their ability to 

bring systemic issues to management’s attention, and (3) the manner in 

which they work with other agency offices in providing assistance to 

employees.24

Labor-Management 

Relations

The DOD proposed regulations recognize the right of employees to 

organize and bargain collectively.25 However, similar to DHS’s final 

regulations, the proposed regulations would reduce the scope of bargaining 

by (1) removing the requirement to bargain on matters traditionally 

referred to as “impact and implementation” (which include the processes 

used to deploy personnel, assign work, and use technology) and 

22 Section 1203 of the IRS Restructuring and Reform Act of 1998 outlines conditions for 

firing of IRS employees for any of 10 actions of misconduct.

23 GAO, Tax Administration: IRS and TIGTA Should Evaluate Their Processes of 

Employee Misconduct Under Section 1203, GAO-03-394 (Washington, D.C.: Feb. 14, 2003).

24 GAO-01-479T.

25 Under current law, the rights of employees to bargain may be suspended for reasons of 

national security. See Title 5 U.S.C. §§ 7103(b) and 7112(b)(6).
Page 15 GAO-05-559T 

(2) narrowing the scope of issues subject to collective bargaining. A 

National Security Labor Relations Board would be created that would 

largely replace the Federal Labor Relations Authority. The proposed board 

would have at least three members selected by the Secretary of Defense, 

with one member selected from a list developed in consultation with the 

Director of OPM. The proposed board would be similar to the internal 

Homeland Security Labor Relations Board established by the DHS final 

regulations, except that the Secretary of Defense would not be required to 

consult with the employee representatives in selecting its members. The 

proposed board would be responsible for resolving matters related to 

negotiation disputes, to include the scope of bargaining and the obligation 

to bargain in good faith, resolving impasses, and questions regarding 

national consultation rights.

Under the proposed regulations, the Secretary of Defense is authorized to 

appoint and remove individuals who serve on the board. Similar to DHS’s 

final regulations establishing the Homeland Security Labor Relations 

Board, DOD’s proposed regulations provide for board member qualification 

requirements, which emphasize integrity and impartiality. DOD’s proposed 

regulations, however, do not provide an avenue for any employee 

representative input into the appointment of board members. DHS 

regulations do so by requiring that for the appointment of two board 

members, the Secretary of Homeland Security must consider candidates 

submitted by labor organizations. Employee perception concerning the 

independence of this board is critical to the resolution of issues raised over 

labor relations policies and disputes.

Our previous work on individual agencies’ human capital systems has not 

directly addressed the scope of specific issues that should or should not be 

subject to collective bargaining and negotiations. At a forum we co-hosted 

in April 2004 exploring the concept of a governmentwide framework for 

human capital reform, participants generally agreed that the ability to 

organize, bargain collectively, and participate in labor organizations is an 

important principle to be retained in any framework for reform. It also was 

suggested at the forum that unions must be both willing and able to actively 

collaborate and coordinate with management if unions are to be effective 

representatives of their members and real participants in any human 

capital reform.
Page 16 GAO-05-559T 

DOD Faces Multiple 

Implementation 

Challenges

Once DOD issues its final regulations for its human resources management 

system, the department will face multiple implementation challenges that 

include establishing an overall communications strategy, providing 

adequate resources for the implementation of the new system, involving 

employees in designing the system, and evaluating DOD’s new human 

resources management system after it has been implemented. For 

information on related human capital issues that could potentially affect 

the implementation of NSPS, see the “Highlights” pages from previous GAO 

products on DOD civilian personnel issues in appendix I.

Establishing an Overall 

Communications Strategy

A significant challenge for DOD is to ensure an effective and ongoing twoway communications strategy, given its size, geographically and culturally 

diverse audiences, and different command structures across DOD 

organizations. We have reported that a communications strategy that 

creates shared expectations about, and reports related progress on, the 

implementation of the new system is a key practice of a change 

management initiative.26 This communications strategy must involve a 

number of key players, including the Secretary of Defense, and a variety 

of communication means and mediums. DOD acknowledges that a 

comprehensive outreach and communications strategy is essential for 

designing and implementing its new human resources management system, 

but the proposed regulations do not identify a process for the continuing 

involvement of employees in the planning, development, and 

implementation of NSPS.

Because the NSPS design process and proposed regulations have received 

considerable attention,27 we believe one of the most relevant 

implementation steps is for DOD to enhance two-way communication 

between employees, employee representatives, and management. 

Communication is not only about “pushing the message out,” but also using 

two-way communication to build effective internal and external 

partnerships that are vital to the success of any organization. By providing 

26 GAO-03-669.

27 DOD’s efforts to date to involve labor unions have not been without controversy. 

Ten federal labor unions have filed suit alleging that DOD failed to abide by the statutory 

requirements to include employee representatives in the development of DOD’s new labor 

relations system authorized as part of NSPS. See American Federation of Government 

Employees, AFL-CIO et al v. Rumsfeld et al, No. 1:05cv00367 (D.D.C. filed Feb. 23, 2005).
Page 17 GAO-05-559T 

employees with opportunities to communicate concerns and experiences 

about any change management initiative, management allows employees to 

feel that their input is acknowledged and important. As it makes plans for 

implementing NSPS, DOD should facilitate a two-way honest exchange 

with, and allow for feedback from, employees and other stakeholders. 

Once it receives this feedback, management needs to consider and use 

this solicited employee feedback to make any appropriate changes to its 

implementation. In addition, management needs to close the loop by 

providing employees with information on why key recommendations were 

not adopted.

Providing Adequate 

Resources for Implementing 

the New System

Experience has shown that additional resources are necessary to ensure 

sufficient planning, implementation, training, and evaluation for human 

capital reform. According to DOD, the implementation of NSPS will result 

in costs for, among other things, developing and delivering training, 

modifying automated human resources information systems, and 

starting up and sustaining the National Security Labor Relations Board. 

We have found that, based on the data provided by selected OPM 

personnel demonstration projects, the major cost drivers in implementing 

pay-for-performance systems are the direct costs associated with salaries 

and training.

DOD estimates that the overall cost associated with implementing NSPS 

will be approximately $158 million through fiscal year 2008. According to 

DOD, it has not completed an implementation plan for NSPS, including an 

information technology plan and a training plan; thus, the full extent of the 

resources needed to implement NSPS may not be well understood at this 

time. According to OPM, the increased costs of implementing alternative 

personnel systems should be acknowledged and budgeted up front.28

Certain costs, such as those for initial training on the new system, are onetime in nature and should not be built into the base of DOD’s budget. Other 

costs, such as employees’ salaries, are recurring and thus would be built 

into the base of DOD’s budget for future years. Therefore, funding for NSPS 

will warrant close scrutiny by Congress as DOD’s implementation plan 

evolves.

28 OPM, Demonstration Projects and Alternative Personnel Systems: HR Flexibilities and 

Lessons Learned (Washington, D.C.: September 2001).
Page 18 GAO-05-559T 

Involving Employees and 

Other Stakeholders in 

Implementing the System

The proposed regulations do not identify a process for the continuing 

involvement of employees in the planning, development, and 

implementation of NSPS. However, DOD’s proposed regulations do provide 

for continuing collaboration with employee representatives. According to 

DOD, almost two-thirds of its 700,000 civilian employees are represented 

by 41 different labor unions, including over 1,500 separate bargaining 

units. In contrast, according to OPM, just under one-third of DHS’s 

110,000 federal employees are represented by 16 different labor unions, 

including 75 separate bargaining units. Similar to DHS’s final regulations, 

DOD’s proposed regulations about the collaboration process, among other 

things, would permit the Secretary of Defense to determine (1) the number 

of employee representatives allowed to engage in the collaboration 

process, and (2) the extent to which employee representatives are given an 

opportunity to discuss their views with and submit written comments to 

DOD officials. In addition, DOD’s proposed regulations indicate that 

nothing in the continuing collaboration process will affect the right of the 

Secretary of Defense to determine the content of implementing guidance 

and to make this guidance effective at any time. DOD’s proposed 

regulations also will give designated employee representatives an 

opportunity to be briefed and to comment on the design and results of the 

new system’s implementation. DHS’s final regulations, however, provide for 

more extensive involvement of employee representatives. For example, 

DHS’s final regulations provide for the involvement of employee 

representatives in identifying the scope, objectives, and methodology to be 

used in evaluating the new DHS system.

The active involvement of employees and employee representatives will 

be critical to the success of NSPS. We have reported that the involvement 

of employees and employee representatives both directly and indirectly 

is crucial to the success of new initiatives, including implementing a 

pay-for-performance system. High-performing organizations have found 

that actively involving employees and stakeholders, such as unions or other 

employee associations, when developing results-oriented performance 

management systems helps improve employees’ confidence and belief in 

the fairness of the system and increases their understanding and ownership 

of organizational goals and objectives. This involvement must be early, 

active, and continuing if employees are to gain a sense of understanding 

and ownership of the changes that are being made. The 30-day public 

comment period on the proposed regulations ended March 16, 2005. 

DOD and OPM notified the Congress that they are preparing to begin the 

meet and confer process with employee representatives who provided 

comments on the proposed regulations. Last month, during testimony, we 
Page 19 GAO-05-559T 

stated that DOD is at the beginning of a long road, and the meet and confer 

process has to be meaningful and is critically important because there are 

many details of the proposed regulations that have not been defined. These 

details do matter, and how they are defined can have a direct bearing on 

whether or not the ultimate new human resources management system is 

both reasoned and reasonable.

Evaluating DOD’s New 

Human Resources 

Management System

Evaluating the impact of NSPS will be an ongoing challenge for DOD. This 

is especially important because DOD’s proposed regulations would give 

managers more authority and responsibility for managing the new human 

resources management system. High-performing organizations continually 

review and revise their human capital management systems based on 

data-driven lessons learned and changing needs in the work environment. 

Collecting and analyzing data will be the fundamental building block for 

measuring the effectiveness of these approaches in support of the mission 

and goals of the department.

DOD’s proposed regulations indicate that DOD will establish procedures 

for evaluating the regulations and their implementation. We believe that 

DOD should consider conducting evaluations that are broadly modeled on 

the evaluation requirements of the OPM demonstration projects. Under the 

demonstration project authority, agencies must evaluate and periodically 

report on results, implementation of the demonstration project, cost and 

benefits, impacts on veterans and other equal employment opportunity 

groups, adherence to merit system principles, and the extent to which the 

lessons from the project can be applied governmentwide. A set of balanced 

measures addressing a range of results, and customer, employee, and 

external partner issues may also prove beneficial. An evaluation such as 

this would facilitate congressional oversight; allow for any midcourse 

corrections; assist DOD in benchmarking its progress with other efforts; 

and provide for documenting best practices and sharing lessons learned 

with employees, stakeholders, other federal agencies, and the public.

We have work under way to assess DOD’s efforts to design its new human 

resources management system, including further details on some of the 

significant challenges, and we expect to issue a report on the results of our 

work sometime this summer.
Page 20 GAO-05-559T 

Concluding 

Observations

As we testified previously on the DOD and DHS civilian personnel reforms, 

an agency should have to demonstrate that it has a modern, effective, 

credible, and, as appropriate, validated performance management system 

in place with adequate safeguards, including reasonable transparency and 

appropriate accountability mechanisms, to ensure fairness and prevent 

politicization of the system and abuse of employees before any related 

flexibilities are operationalized. DOD’s proposed NSPS regulations take a 

valuable step toward a modern performance management system as well as 

a more market-based, results-oriented compensation system. DOD’s 

proposed performance management system is intended to align individual 

performance and pay with the department’s critical mission requirements; 

hold employees responsible for accomplishing performance expectations; 

and provide meaningful distinctions in performance. However, the 

experiences of high-performing organizations suggest that DOD should 

require core competencies in its performance management system. The 

core competencies can serve to reinforce employee behaviors and actions 

that support the DOD mission, goals, and values and to set expectations for 

individuals’ roles in DOD’s transformation, creating a shared responsibility 

for organizational success and ensuring accountability for change.

DOD’s overall effort to design and implement a strategic human resources 

management systemalong with the similar effort of DHScan be 

particularly instructive for future human capital management, 

reorganization, and transformation efforts in other federal agencies.

Mr. Chairman and Members of the Committee, this concludes my prepared 

statement. I would be pleased to respond to any questions that you may 

have at this time.

Contacts and 

Acknowledgments

For further information, please contact Derek B. Stewart, Director, Defense 

Capabilities and Management, at (202) 512-5559 or stewartd@gao.gov. For 

further information on governmentwide human capital issues, please 

contact Eileen R. Larence, Director, Strategic Issues, at (202) 512-6512 

or larencee@gao.gov. Major contributors to this testimony include 

Sandra F. Bell, Renee S. Brown, K. Scott Derrick, William J. Doherty, 

Clifton G. Douglas, Jr., Barbara L. Joyce, Julia C. Matta, Mark A. Pross, 

William J. Rigazio, John S. Townes, and Susan K. Woodward.
Page 21 GAO-05-559T 

Appendix I

“Highlights” from Selected GAO Human Apendxies

Capital Reports ApendxiI

www.gao.gov/cgi-bin/getrpt?-GAO-04-753.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Derek Stewart 

at (202) 512-5559 or stewartd@gao.gov. 

Highlights of GAO-04-753, a report to the 

Ranking Minority Member, Subcommittee 

on Readiness, Committee on Armed 

Services, House of Representatives 

June 2004

DOD CIVILIAN PERSONNEL 

Comprehensive Strategic Workforce 

Plans Needed 

OSD, the service headquarters, and DLA have recently taken steps to 

develop and implement civilian strategic workforce plans to address future 

civilian workforce needs, but these plans generally lack some key elements 

essential to successful workforce planning. As a result, OSD, the military 

services’ headquarters, and DLA—herein referred to as DOD and the 

components—do not have comprehensive strategic workforce plans to guide 

their human capital efforts. None of the plans included analyses of the gaps 

between critical skills and competencies (a set of behaviors that are critical 

to work accomplishment) currently needed by the workforce and those that 

will be needed in the future. Without including gap analyses, DOD and the 

components may not be able to effectively design strategies to hire, develop, 

and retain the best possible workforce. Furthermore, none of the plans 

contained results-oriented performance measures that could provide the 

data necessary to assess the outcomes of civilian human capital initiatives. 

The major challenge that DOD and most of the 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. This problem results from DOD’s and the components’ not 

having developed tools to collect and/or store, and manage data on 

workforce competencies. Without this information, it not clear whether they 

are designing and funding workforce strategies that will effectively shape 

their civilian workforces with the appropriate competencies needed to 

accomplish future DOD missions. Senior department and component 

officials all acknowledged this shortfall and told us that they are taking steps 

to address this challenge. Though these are steps in the right direction, the 

lack of information on current competencies and future needs is a 

continuing problem that several organizations, including GAO, have 

previously identified. 

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 

During its downsizing in the early 

1990s, the Department of Defense 

(DOD) did not focus on 

strategically reshaping its civilian 

workforce. GAO was asked to 

address DOD’s efforts to 

strategically plan for its future 

civilian workforce at the Office of 

the Secretary of Defense (OSD), 

the military services’ headquarters, 

and the Defense Logistics Agency 

(DLA). Specifically, GAO 

determined: (1) the extent to which 

civilian strategic workforce plans 

have been developed and 

implemented to address future 

civilian workforce requirements, 

and (2) the major challenges 

affecting the development and 

implementation of these plans. 

GAO recommends that DOD and 

the components include certain key

elements in their civilian strategic 

workforce plans to guide their 

human capital efforts. DOD 

concurred with one of our 

recommendations, and partially 

concurred with two others because 

it believes that the department has 

undertaken analyses of critical 

skills gaps and are using strategies 

and personnel flexibilities to fill 

identified skills gaps. We cannot 

verify DOD’s statement because 

DOD was unable to provide the gap 

analyses. In addition, we found 

that the strategies being used by 

the department have not been 

derived from analyses of gaps 

between the current and future 

critical skills and competencies 

needed by the workforce. 
Appendix I

“Highlights” from Selected GAO Human 

Capital Reports

Page 22 GAO-05-559T 

GAO strongly supports the need for government transformation and the 

concept of modernizing federal human capital policies both within DOD 

and for the federal government at large. The federal personnel system is 

clearly broken in critical respects—designed for a time and workforce of 

an earlier era and not able to meet the needs and challenges of today’s 

rapidly changing and knowledge-based environment. The human capital 

authorities being considered for DOD have far-reaching implications for 

the way DOD is managed as well as significant precedent-setting 

implications for the rest of the federal government. GAO is pleased that 

as the Congress has reviewed DOD’s legislative proposal it has added a 

number of important safeguards, including many along the lines GAO has 

been suggesting, that will help DOD maximize its chances of success in 

addressing its human capital challenges and minimize the risk of failure. 

More generally, GAO believes that agency-specific human capital reforms 

should be enacted to the extent that the problems being addressed and 

the solutions offered are specific to a particular agency (e.g., military 

personnel reforms for DOD). Several of the proposed DOD reforms meet 

this test. In GAO’s view, the relevant sections of the House’s version of 

the National Defense Authorization Act for Fiscal Year 2004 and the 

proposal that is being considered as part of this hearing contain a 

number of important improvements over the initial DOD legislative 

proposal.

Moving forward, GAO believes it would be preferable to employ a 

governmentwide approach to address human capital issues and the need 

for certain flexibilities that have broad-based application and serious 

potential implications for the civil service system, in general, and the 

Office of Personnel Management, in particular. GAO believes that 

several of the reforms that DOD is proposing fall into this category (e.g., 

broad banding, pay for performance, re-employment and pension offset 

waivers). In these situations, GAO believes it would be both prudent and 

preferable for the Congress to provide such authorities governmentwide 

and ensure that appropriate performance management systems and 

safeguards are in place before the new authorities are implemented by 

the respective agency. Importantly, employing this approach is not 

intended to delay action on DOD’s or any other individual agency’s 

efforts, but rather to accelerate needed human capital reform throughout 

the federal government in a manner that ensures reasonable consistency 

on key principles within the overall civilian workforce. This approach 

also would help to maintain a level playing field among federal agencies 

in competing for talent and would help avoid further fragmentation 

within the civil service. 

People are at the heart of an 

organization’s ability to perform its 

mission. Yet a key challenge for

the Department of Defense (DOD), 

as for many federal agencies, is to 

strategically manage its human 

capital. DOD’s proposed National 

Security Personnel System would 

provide for wide-ranging changes 

in DOD’s civilian personnel pay and 

performance management and 

other human capital areas. Given 

the massive size of DOD, the 

proposal has important precedentsetting implications for federal 

human capital management. 

This testimony provides GAO’s 

observations on DOD human 

capital reform proposals and the 

need for governmentwide reform. 

www.gao.gov/cgi-bin/getrpt?GAO-03-851T.

To view the full testimony, click on the link 

above. For more information, contact Derek 

Stewart at (202) 512-5559 or 

stewartd@gao.gov. 

Highlights of GAO-03-851T,

testimony before the Committee on 

Governmental Affairs, United States 

Senate

June 4, 2003

HUMAN CAPITAL

Building on DOD’s Reform Effort to 

Foster Governmentwide Improvements 
Appendix I

“Highlights” from Selected GAO Human 

Capital Reports

Page 23 GAO-05-559T 

DOD’s lack of attention to force shaping during its downsizing in the early 1990s 

has resulted in a workforce that is not balanced by age or experience and that 

puts at risk the orderly transfer of institutional knowledge. Human capital 

challenges are severe in certain areas. For example, DOD has downsized its 

acquisition workforce by almost half. More than 50 percent of the workforce 

will be eligible to retire by 2005. In addition, DOD faces major succession 

planning challenges at various levels within the department. Also, since 1987, 

the industrial workforce, such as depot maintenance, has been reduced by about 

56 percent, with many of the remaining employees nearing retirement, calling 

into question the longer-term viability of the workforce. DOD is one of the 

agencies that has begun to address human capital challenges through strategic 

human capital planning. For example, in April 2002, DOD published a 

department wide strategic plan for civilians. Although a positive step toward 

fostering a more strategic approach toward human capital management, the plan 

is not fully aligned with the overall mission of the department or results 

oriented. In addition, it was not integrated with the military and contractor 

personnel planning. 

We strongly support the concept of modernizing federal human capital policies 

within DOD and the federal government at large. Providing reasonable 

flexibility to management in this critical area is appropriate provided adequate 

safeguards are in place to prevent abuse. We believe that Congress should 

consider both governmentwide and selected agency, including DOD, changes to 

address the pressing human capital issues confronting the federal government. 

In this regard, many of the basic principles underlying DOD’s civilian human 

capital proposals have merit and deserve serious consideration. At the same 

time, many are not unique to DOD and deserve broader consideration. 

Agency-specific human capital reforms should be enacted to the extent that the 

problems being addressed and the solutions offered are specific to a particular 

agency (e.g., military personnel reforms for DOD). Several of the proposed DOD 

reforms meet this test. At the same time, we believe that Congress should 

consider incorporating additional safeguards in connection with several of 

DOD’s proposed reforms. In our view, it would be preferable to employ a 

government-wide approach to address certain flexibilities that have broad-based 

application and serious potential implications for the civil service system, in 

general, and the Office of Personnel Management (OPM), in particular. We 

believe that several of the reforms that DOD is proposing fall into this category 

(e.g., broad-banding, pay for performance, re-employment and pension offset 

waivers). In these situations, it may be prudent and preferable for the Congress 

to provide such authorities on a governmentwide basis and in a manner that 

assures that appropriate performance management systems and safeguards are 

in place before the new authorities are implemented by the respective agency. 

However, in all cases whether from a governmentwide authority or agency 

specific legislation, in our view, such additional authorities should be 

implemented (or operationalized) only when an agency has the institutional 

infrastructure in place to make effective use of the new authorities. Based on 

our experience, while the DOD leadership has the intent and the ability to 

implement the needed infrastructure, it is not consistently in place within the 

vast majority of DOD at the present time. 

HUMAN CAPITAL 

DOD’S CIVILIAN PERSONNEL 

STRATEGIC MANAGEMENT AND THE 

PROPOSED NATIONAL SECURITY 

PERSONNEL SYSTEM

www.gao.gov/cgi-bin/getrpt?GAO-03-493T.

To view the full testimony, including the scope 

and methodology, click on the link above. 

For more information, contact 

Derek B.Stewart at (202) 512-5140 or 

Stewartd@gao.gov.

Highlights of GAO-03-493T, a testimony

before the Subcommittee on Oversight of 

Government Management, the Federal 

Workforce and the District of Columbia, 

Senate Committee on Governmental 

Affairs

May 2003 

People are at the heart of an 

organization’s ability to perform its 

mission. Yet, a key challenge for 

the Department of Defense (DOD), 

as for many federal agencies, is to 

strategically manage its human 

capital. With about 700,000 civilian 

employees on its payroll, DOD is 

the second largest federal employer

of civilians in the nation. Although 

downsized 38 percent between 

fiscal years 1989 and 2002, this 

workforce has taken on greater 

roles as a result of DOD’s 

restructuring and transformation. 

DOD’s proposed National Security 

Personnel System (NSPS) would 

provide for wide-ranging changes 

in DOD’s civilian personnel pay and 

performance management, 

collective bargaining, rightsizing, 

and other human capital areas. The 

NSPS would enable DOD to 

develop and implement a 

consistent DOD-wide civilian 

personnel system. Given the 

massive size of DOD, the proposal 

has important precedent-setting 

implications for federal human 

capital management and OPM. 

This testimony provides GAO’s 

preliminary observations on 

aspects of DOD’s proposal to make 

changes to its civilian personnel 

system and discusses the 

implications of such changes for 

governmentwide human capital 

reform. Past reports have 

contained GAO’s views on what 

remains to be done to bring about 

lasting solutions for DOD to 

strategically manage its human 

capital. DOD has not always 

concurred with our 

recommendations. 
Appendix I

“Highlights” from Selected GAO Human 

Capital Reports

Page 24 GAO-05-559T 

Many of the basic principles underlying DOD’s civilian human capital proposal 

have merit and deserve serious consideration. The federal personnel system is 

clearly broken in critical respects—designed for a time and workforce of an 

earlier era and not able to meet the needs and challenges of our current rapidly 

changing and knowledge-based environment. DOD’s proposal recognizes that, 

as GAO has stated and the experiences of leading public sector organizations 

here and abroad have found, strategic human capital management must be the 

centerpiece of any serious government transformation effort. 

More generally, from a conceptual standpoint, GAO strongly supports the need 

to expand broad banding and pay for performance-based systems in the federal 

government. However, moving too quickly or prematurely at DOD or elsewhere, 

can significantly raise the risk of doing it wrong. This could also serve to 

severely set back the legitimate need to move to a more performance- and 

results-based system for the federal government as a whole. Thus, while it is 

imperative that we take steps to better link employee pay and other personnel 

decisions to performance across the federal government, how it is done, when it 

is done, and the basis on which it is done, can make all the difference in whether 

or not we are successful. One key need is to modernize performance 

management systems in executive agencies so that they are capable of 

supporting more performance-based pay and other personnel decisions. 

Unfortunately, based on GAO’s past work, most existing federal performance 

appraisal systems, including a vast majority of DOD’s systems, are not currently 

designed to support a meaningful performance-based pay system. 

The critical questions to consider are: should DOD and/or other agencies be 

granted broad-based exemptions from existing law, and if so, on what basis? Do 

DOD and other agencies have the institutional infrastructure in place to make 

effective use of any new authorities? This institutional infrastructure includes, 

at a minimum, a human capital planning process that integrates the agency’s 

human capital policies, strategies, and programs with its program goals and 

mission, and desired outcomes; the capabilities to effectively develop and 

implement a new human capital system; and, importantly, a set of adequate 

safeguards, including reasonable transparency and appropriate accountability 

mechanisms to ensure the fair, effective, and credible implementation of a new 

system.

In GAO’s view, as an alternative to DOD’s proposed approach, Congress should 

consider providing governmentwide broad banding and pay for performance 

authorities that DOD and other federal agencies can use provided they can 

demonstrate that they have a performance management system in place that 

meets certain statutory standards, that can be certified to by a qualified and 

independent party, such as OPM, within prescribed timeframes. Congress 

should also consider establishing a governmentwide fund whereby agencies, 

based on a sound business case, could apply for funding to modernize their 

performance management systems and ensure that those systems have adequate 

safeguards to prevent abuse. This approach would serve as a positive step to 

promote high-performing organizations throughout the federal government 

while avoiding further human capital policy fragmentation. 

DEFENSE TRANSFORMATION 

DOD’s Proposed Civilian Personnel 

System and Governmentwide Human 

Capital Reform 

www.gao.gov/cgi-bin/getrpt?GAO-03-741T.

To view the full testimony, click on the link 

above. For more information, contact Derek 

Stewart at (202) 512-5559 or 

stewartd@gao.gov. 

Highlights of GAO-03-741T, testimony

before the Committee on Armed Services, 

House of Representatives 

May 1, 2003

DOD is in the midst of a major 

transformation effort including a 

number of initiatives to transform 

its forces and improve its business 

operations. DOD’s legislative 

initiative would provide for major 

changes in civilian and military 

human capital management, make 

major adjustments in the DOD 

acquisition process, affect DOD’s 

organization structure, and change 

DOD’s reporting requirements to 

Congress, among other things. 

DOD’s proposed National Security 

Personnel System (NSPS) would 

provide for wide-ranging changes 

in DOD’s civilian personnel pay and 

performance management, 

collective bargaining, rightsizing, 

and a variety of other human 

capital areas. The NSPS would 

enable DOD to develop and 

implement a consistent DOD-wide 

civilian personnel system. 

This testimony provides GAO’s 

preliminary observations on 

aspects of DOD’s legislative 

proposal to make changes to its 

civilian personnel system and 

discusses the implications of such 

changes for governmentwide 

human capital reform. This 

testimony summarizes many of the 

issues discussed in detail before 

the Subcommittee on Civil Service 

and Agency Organization, 

Committee on Government 

Reform, House of Representatives 

on April 29, 2003. 
Appendix I

“Highlights” from Selected GAO Human 

Capital Reports

Page 25 GAO-05-559T 

DOD has not implemented our October 2001 recommendation to develop 

and implement a DOD depot strategic plan that would delineate workloads 

to be accomplished in each of the services’ depots. The DOD depot system 

has been a key part of the department’s plan to support military systems in 

the past, but the increased use of the private sector to perform this work has 

decreased the role of these activities. While title 10 of the U.S. code requires 

DOD to retain core capability and also requires that at least 50 percent of 

depot maintenance funds be spent for public-sector performance, questions 

remain about the future role of DOD depots. Absent a DOD depot strategic 

plan, the services have in varying degrees, laid out a framework for strategic 

depot planning, but this planning is not comprehensive. Questions also 

remain about the future of arsenals and ammunition plants. GAO reviewed 

workforce planning efforts for 22 maintenance depots, 3 arsenals, and 

2 ammunition plants, which employed about 72,000 civilian workers in fiscal 

year 2002. 

The services have not developed and implemented strategic workforce plans 

to position the civilian workforce in DOD industrial activities to meet future 

requirements. While workforce planning is done for each of the industrial 

activities, generally it is short-term rather than strategic. Further, workforce 

planning is lacking in other areas that OPM guidance and high-performing 

organizations identify as key to successful workforce planning. Service

workforce planning efforts (1) usually do not assess the competencies; 

(2) do not develop comprehensive retention plans; and (3) sometimes do not 

develop performance measures and evaluate workforce plans. 

Several challenges adversely affect DOD’s workforce planning for the 

viability of its civilian depot workforce. First, given the aging depot 

workforce and the retirement eligibility of over 40 percent of the workforce 

over the next 5 to 7 years, the services may have difficulty maintaining the 

depots’ viability. Second, the services are having difficulty implementing 

multiskilling—an industry and government best practice for improving the 

flexibility and productivity of the workforce—even though this technique 

could help depot planners do more with fewer employees. Finally, increased 

training funding and innovation in the training program will be essential for 

revitalizing the aging depot workforce. 

Staffing Levels, Age, and Retirement Eligibility of Civilian Personnel in Industrial Facilities 

Service

FY 2002 civilian 

staffing levels Average age

Percent eligible 

to retire by 2007

Percent eligible 

to retire by 2009 

Navy 35,563 46 28 39 

Army 14,234 49 41 52 

Marine Corps 1,323 48 45 60 

Air Force 21,152 47 35 44 

Total 72,272 47 33 43 

Source: DOD (data), GAO (presentation). 

Between 1987 and 2002, the 

Department of Defense (DOD) 

downsized the civilian workforce in

27 key industrial facilities by about 

56 percent. Many of the remaining 

72,000 workers are nearing 

retirement. In recent years GAO 

has identified shortcomings in 

DOD’s strategic planning and was 

asked to determine (1) whether 

DOD has implemented our prior 

recommendation to develop and 

implement a depot maintenance 

strategic plan, (2) the extent to 

which the services have developed 

and implemented comprehensive 

strategic workforce plans, and 

(3) what challenges adversely 

affect DOD’s workforce planning. 

GAO recommends that the DOD 

complete revisions to core policy, 

promulgate a schedule for 

completing core computations, and 

complete depot strategic planning; 

develop a plan for arsenals and 

ammunition plants; develop 

strategic workforce plans; and 

coordinate the implementation 

of initiatives to address various 

workforce challenges. DOD 

concurred with 7 of our 9 

recommendations; nonconcurring 

with two because it believes the 

proposed National Security 

Personnel System, which was 

submitted to Congress as a part of 

the DOD transformation legislation, 

will take care of these problems. 

We believe it is premature to 

assume this system will (1) be 

approved by Congress as proposed 

and (2) resolve these issues. 

www.gao.gov/cgi-bin/getrpt?GAO-03-472.

To view the full report, including the scope 

and methodology, click on the link above. 

For more information, contact Derek Stewart 

at (202) 512-5559 or stewartd@gao.gov. 

Highlights of GAO-03-472, a report to 

the Subcommittee on Readiness, 

Committee on Armed Services, House of 

Representatives 

April 2003

DOD CIVILIAN PERSONNEL 

Improved Strategic Planning Needed to 

Help Ensure Viability of DOD’s Civilian 

Industrial Workforce 
Appendix I

“Highlights” from Selected GAO Human 

Capital Reports

Page 26 GAO-05-559T 

Many of the basic principles underlying DOD’s civilian human capital proposals

have merit and deserve serious consideration. The federal personnel system is 

clearly broken in critical respects—designed for a time and workforce of an 

earlier era and not able to meet the needs and challenges of our current rapidly 

changing and knowledge-based environment. DOD’s proposal recognizes that, 

as GAO has stated and the experiences of leading public sector organizations 

here and abroad have found strategic human capital management must be the 

centerpiece of any serious government transformation effort. 

More generally, from a conceptual standpoint, GAO strongly supports the need 

to expand broad banding and pay for performance-based systems in the federal 

government. However, moving too quickly or prematurely at DOD or elsewhere, 

can significantly raise the risk of doing it wrong. This could also serve to 

severely set back the legitimate need to move to a more performance and 

results- based system for the federal government as a whole. Thus, while it is 

imperative that we take steps to better link employee pay and other personnel 

decisions to performance across the federal government, how it is done, when it 

is done, and the basis on which it is done, can make all the difference in whether 

or not we are successful. In our view, one key need is to modernize 

performance management systems in executive agencies so that they are 

capable of supporting more performance-based pay and other personnel 

decisions. Unfortunately, based on GAO’s past work, most existing federal 

performance appraisal systems, including a vast majority of DOD’s systems, are 

not currently designed to support a meaningful performance-based pay system. 

The critical questions to consider are: should DOD and/or other agencies be 

granted broad-based exemptions from existing law, and if so, on what basis; and 

whether they have the institutional infrastructure in place to make effective use 

of the new authorities. This institutional infrastructure includes, at a minimum, 

a human capital planning process that integrates the agency’s human capital 

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

desired outcomes; the capabilities to effectively develop and implement a new 

human capital system; and, importantly, a set of adequate safeguards, including 

reasonable transparency and appropriate accountability mechanisms to ensure 

the fair, effective, and credible implementation of a new system. 

In our view, Congress should consider providing governmentwide broad banding 

and pay for performance authorities that DOD and other federal agencies can 

use provided they can demonstrate that they have a performance management 

system in place that meets certain statutory standards, which can be certified to 

by a qualified and independent party, such as OPM, within prescribed 

timeframes. Congress should also consider establishing a governmentwide fund 

whereby agencies, based on a sound business case, could apply for funding to 

modernize their performance management systems and ensure that those 

systems have adequate safeguards to prevent abuse. This approach would serve 

as a positive step to promote high-performing organizations throughout the 

federal government while avoiding fragmentation within the executive branch in 

the critical human capital area. 

DEFENSE TRANSFORMATION 

Preliminary Observations on DOD’s 

Proposed Civilian Personnel Reforms 

www.gao.gov/cgi-bin/getrpt?GAO-03-717T.

To view the full report, including the scope 

and methodology, click on the link above. 

For more information, contact Derek Stewart 

at (202) 512-5559 or stewartd@gao.gov. 

Highlights of GAO-03-717T, testimony 

before the Subcommittee on Civil Service 

and Agency Organization, Committee on 

Government Reform, House of 

Representatives 

April 29, 2003

DOD is in the midst of a major 

transformation effort including a 

number of initiatives to transform 

its forces and improve its business 

operations. DOD’s legislative 

initiative would provide for major 

changes in the civilian and military 

human capital management, make 

major adjustments in the DOD 

acquisition process, affect DOD’s 

organization structure, and change 

DOD’s reporting requirements to 

Congress, among other things. 

DOD’s proposed National Security 

Personnel System (NSPS) would 

provide for wide-ranging changes 

in DOD’s civilian personnel pay and 

performance management, 

collective bargaining, rightsizing, 

and a variety of other human 

capital areas. The NSPS would 

enable DOD to develop and 

implement a consistent DOD-wide 

civilian personnel system. 

This testimony provides GAO’s 

preliminary observations on 

aspects of DOD’s legislative 

proposal to make changes to its 

civilian personnel system and 

poses critical questions that need 

to be considered. 
Appendix I

“Highlights” from Selected GAO Human 

Capital Reports

Page 27 GAO-05-559T 

Generally, civilian personnel issues appear to be an emerging priority among 

top leaders in DOD and the defense components. Although DOD began 

downsizing its civilian workforce more than a decade ago, it did not take 

action to strategically address challenges affecting the civilian workforce 

until it issued its civilian human capital strategic plan in April 2002. 

Top-level leaders in the Air Force, the Marine Corps, the Defense Contract 

Management Agency, and the Defense Finance Accounting Service have 

initiated planning efforts and are working in partnership with their civilian 

human capital professionals to develop and implement civilian strategic 

plans; such leadership, however, was increasing in the Army and not as 

evident in the Navy. Also, DOD has not provided guidance on how to 

integrate the components’ plans with the department-level plan. High-level 

leadership is critical to directing reforms and obtaining resources for 

successful implementation. 

The human capital strategic plans GAO reviewed for the most part lacked 

key elements found in fully developed plans. Most of the civilian human 

capital goals, objectives, and initiatives were not explicitly aligned with the 

overarching missions of the organizations. Consequently, DOD and the 

components cannot be sure that strategic goals are properly focused on 

mission achievement. Also, none of the plans contained results-oriented 

performance measures to assess the impact of their civilian human capital 

initiatives (i.e., programs, policies, and processes). Thus, DOD and the 

components cannot gauge the extent to which their human capital initiatives 

contribute to achieving their organizations’ mission. Finally, the plans did 

not contain data on the skills and competencies needed to successfully 

accomplish future missions; therefore, DOD and the components risk not 

being able to put the right people, in the right place, and at the right time, 

which can result in diminished accomplishment of the overall defense 

mission.

Moreover, the civilian strategic plans did not address how the civilian 

workforce will be integrated with their military counterparts or sourcing 

initiatives. DOD’s three human capital strategic plans-- two military and one 

civilian--were prepared separately and were not integrated to form a 

seamless and comprehensive strategy and did not address how DOD plans to 

link its human capital initiatives with its sourcing plans, such as efforts to 

outsource non-core responsibilities. The components’ civilian plans 

acknowledge a need to integrate planning for civilian and military 

personnel—taking into consideration contractors—but have not yet done so. 

Without an integrated strategy, DOD may not effectively and efficiently 

allocate its scarce resources for optimal readiness. 

The Department of Defense’s 

(DOD) civilian employees play key 

roles in such areas as defense 

policy, intelligence, finance, 

acquisitions, and weapon systems 

maintenance. Although downsized 

38 percent between fiscal years 

1989 and 2002, this workforce has 

taken on greater roles as a result of 

DOD’s restructuring and 

transformation. Responding to 

congressional concerns about the 

quality and quantity of, and the 

strategic planning for the civilian 

workforce, GAO determined the 

following for DOD, the military 

services, and selected defense 

agencies: (1) the extent of top-level 

leadership involvement in civilian 

strategic planning; (2) whether 

elements in civilian strategic plans 

are aligned to the overall mission, 

focused on results, and based on 

current and future civilian 

workforce data; and (3) whether 

civilian and military personnel 

strategic plans or sourcing 

initiatives were integrated. 

GAO recommends DOD improve 

the departmentwide plan to be 

mission aligned and resultsoriented; provide guidance to align 

component- and department-level 

human capital strategic plans; 

develop data on future civilian 

workforce needs; and set milestones for integrating military and 

civilian workforce plans, taking 

contractors into consideration. 

DOD comments were too late to 

include in this report but are 

included in GAO-03-690R.

www.gao.gov/cgi-bin/getrpt?GAO-03-475.

To view the full report, including the scope 

and methodology, click on the link above. 

For more information, contact Derek B. 

Stewart at (202) 512-5559 or 

stewartd@gao.gov. 

Highlights of GAO-03-475, a report to the 

Ranking Minority Member, Subcommittee 

on Readiness, House Committee on 

Armed Services 

March 2003 

DOD PERSONNEL

DOD Actions Needed to Strengthen 

Civilian Human Capital Strategic Planning 

and Integration with Military Personnel 

and Sourcing Decisions 

(350694)
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