Page 1 GAO-05-771R Human Capital 

United States Government Accountability Office

Washington, DC 20548 

Comptroller General

of the United States

June 14, 2005 

The Honorable Jon C. Porter 

Chairman 

Subcommittee on the Federal Workforce 

 and Agency Organization 

Committee on Government Reform 

House of Representatives 

Subject: Questions for the Record Related to the Department of Defense’s National 

Security Personnel System

On April 12, 2005, I testified before your Subcommittee at a hearing on “NSPS: The 

New Department of Defense Civilian Personnel System—Reaching Readiness.”1 This 

letter responds to your request that I provide answers to questions for the record. 

The questions, along with my responses, follow. 

Regulations versus “Implementing Issuances”

In your testimony, you noted the lack of detail in the proposed regulations. 

The proposed regulations for the NSPS allow DOD to address the specific 

details of the system through “implementing issuances.” 

1. Which specific subjects of the NSPS regulations should be included in the 

final regulations? 

In our recent testimonies on the proposed NSPS regulations, we noted several issues 

that DOD will need to define in more detail than is currently provided. For example, 

the proposed NSPS regulations permit an internal DOD review of initial decisions 

issued by Merit Systems Protection Board (MSPB) adjudicating officials. 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. As we noted in our testimonies, 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. 

 

1

 GAO, Human Capital: Preliminary Observations on Proposed Department of Defense National 

Security Personnel System Regulations, GAO-05-517T (Washington, D.C.: Apr. 12, 2005). 
Page 2 GAO-05-771R Human Capital 

Importantly, the DOD regulations do not provide that appropriate systems (e.g., 

modern performance appraisal systems that are linked to the agencies’ strategic plan 

and desired outcomes) and key safeguards to help assure consistency and prevent 

abuse must be in place before certain flexibilities (e.g., additional pay for 

performance) are finalized. In this regard, although DOD’s proposed regulations 

provide some safeguards to ensure fairness and guard against abuse, additional 

safeguards should be developed and details offered 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 

performance management process. 

2. Which aspects are appropriate for “implementing issuances”? 

Going forward, DOD must ensure that it has the appropriate systems and safeguards 

to make effective use of its new authorities. However, as discussed above, many of 

the details of DOD’s system have not been addressed in the proposed regulations. 

These details do matter. They should be addressed in the final regulations and then 

further defined in implementing issuances. 

Deputy Secretary of Defense for Management

In your testimony you recommend that DOD appoint a Deputy Secretary of 

Defense for Management to guide the transition to the NSPS. In their oral 

testimony, Mr. Abell and Mr. Nesterczuk indicated that it would not be 

helpful to have a divided leadership structure for the transition to the NSPS 

and that an additional layer of leadership would be a hindrance. 

1. What is your response to Mr. Abell’s and Mr. Nesterczuk’s concerns? 

As we noted in our statement, as DOD embarks on large-scale business 

transformation efforts, like NSPS, we believe that the complexity and long-term 

nature of these efforts require the development of an executive position capable of 

providing strong and sustained business transformation and change management 

leadership across the department that can span a number of years and various 

administrations.2

 In recent testimony on business transformation at DOD, we further 

noted that a Chief Management Official (CMO) is essential for providing sustained 

leadership needed to achieve lasting transformation of DOD’s many business 

systems.3

 Given the systemic nature of the business transformation challenges that 

DOD faces, we believe that it is prudent and appropriate for Congress to enact 

legislation to provide for a CMO at DOD. Importantly, our proposed CMO position 

does not represent a new layer; rather, it represents a division of responsibilities of 

 

2

GAO-05-517T. 

3

 GAO, Defense Management: Key Elements Needed to Successfully Transform DOD Business 

Operations, GAO-05-629T (Washington, D.C.: Apr. 28, 2005). 
Page 3 GAO-05-771R Human Capital 

the current Deputy position. Just as the CMO would need to focus full-time on 

business transformation, we believe that the day-to-day management functions are so 

demanding that it is difficult for the related officials to maintain the oversight, focus, 

and momentum needed to implement and sustain needed reforms of DOD’s overall 

business operations. This is particularly evident, given the demands that the Iraq and 

Afghanistan postwar reconstruction activities and the continuing war on terrorism 

have placed on current leaders. Likewise, the breadth and complexity of the 

problems and their overall level within the department preclude the under 

secretaries, such as the DOD Comptroller, from asserting the necessary authority 

over selected players and business areas while continuing to fulfill their other 

responsibilities. 

2. How significant is the risk that the transition to NSPS could fail if DOD 

does not appoint a Deputy Secretary of Defense for Management? 

Failure to have such a position will serve to increase the related risk. However, the 

CMO position will be critical to the success of DOD’s overall business transformation 

effort. Specifically, given DOD’s size and mission, it is one of the largest and most 

complex organizations in the world to manage effectively. While DOD maintains 

military forces with unparalleled capabilities, it continues to confront pervasive, 

decades-old management problems related to its business operations, which include 

outdated organizational structures, systems, and processes that support these forces. 

These management weaknesses cut across all of DOD’s major business areas, such as 

human capital management, including the department’s NSPS initiative; the personnel 

security clearance program; support infrastructure management; business systems 

modernization; financial management; weapon systems acquisition; contract 

management; and selected supply chain management issues. All of these areas are on 

GAO’s high-risk list of major government programs and operations that either need 

urgent attention and transformation to ensure that the U.S. government functions in 

the most economical, efficient, and effective manner possible, or that are at high risk 

because of their greater vulnerability to fraud, waste, abuse, and mismanagement. 

This year, DOD’s overall approach to business transformation was added because of 

our concerns over DOD’s lack of adequate management responsibility and 

accountability, along with the absence of a strategic, departmentwide, and integrated 

business transformation plan. 

As noted in our recent testimony on DOD’s business transformation efforts, over 30 

years ago, the Secretary of Defense asked Congress to establish an additional Deputy 

Secretary of Defense for many of the same reasons we are proposing that a CMO is 

needed.4

 In a letter to Congress, the then Secretary of Defense stated that the most 

efficient management of DOD resources could not be achieved with just the 

Secretary and Deputy Secretary, and that DOD deficiencies were in large measure 

due to insufficient senior management attention to the department’s affairs. 

 

4

GAO-05-629T. 
Page 4 GAO-05-771R Human Capital 

3. What specific authorities should the Secretary grant to the Deputy 

Secretary of Defense for Management so that the new position can 

exercise effective leadership over the business transformation process? 

As noted in recent testimony on business transformation at the department, the CMO 

would have overall responsibility and accountability for DOD’s overall business 

transformation and change management effort, while other DOD officials would still 

be responsible for managing their daily business operations.5

 The position would 

divide and institutionalize the current functions of the Deputy Secretary of Defense 

into a Deputy Secretary who, as the alter ego of the Secretary, would focus on policyrelated issues such as military transformation, and a Deputy Secretary of Defense for 

Management (the CMO), who would be responsible and accountable for the overall 

business transformation effort and would serve full-time as the strategic integrator of 

DOD’s business transformation efforts. For example, the CMO would be responsible 

and accountable for developing and implementing a strategic and integrated plan for 

DOD’s overall business transformation efforts. 

4. How can DOD ensure that the position of Deputy Secretary of Defense for 

Management does not become just another unnecessary layer of 

bureaucracy? 

As discussed above, the CMO would be responsible and accountable for planning, 

integrating, and executing the overall business transformation effort. Therefore, the 

CMO would not assume the responsibilities of the undersecretaries of defense, the 

service secretaries, or other DOD officials for the day-to-day management of business 

activities. Therefore, in our view, creating a CMO would not be adding another 

hierarchical layer to oversee the day-to-day management of the department. 

Importantly, the proposed CMO position would represent a division of the current 

Deputy Secretary’s responsibilities rather than a new layer or level. 

Alignment of Performance and Organizational Goals

1. What specific procedures would you suggest to ensure that individual 

performance expectations align with DOD’s mission and strategic goals? 

As stated in our recent testimony on federal agencies’ use of human capital 

flexibilities, we have advocated that the federal government needs to fundamentally 

rethink its approach to performance management, better linking individual, unit, and 

organizational performance and reward individuals according to their skills, 

knowledge, performance and contributions.6

 Shifting the orientation of individual 

performance expectations and accountability systems from an adherence to process 

and the completion of activities to a greater focus on contributions to results will 

require a cultural transformation in most federal agencies, including DOD. One way 

 

5

GAO-05-629T. 

6

 GAO, Human Capital: Agencies Need Leadership and the Supporting Infrastructure to Take 

Advantage of New Flexibilities, GAO-05-616T (Washington, D.C.: Apr. 21, 2005). 
Page 5 GAO-05-771R Human Capital 

to embed a results-orientation is to align individual employee performance 

expectations with agency goals so that individuals understand the connection 

between their daily activities and their organization’s overall success. Highperforming organizations have recognized that a key element of a fully successful 

performance management system is to create a “line of sight” that shows how 

individual responsibilities can contribute to organizational goals. A first step to this 

end is to align the performance expectations, appraisals, and pay of top leadership 

with organizational goals and results achieved, and then cascade those expectations 

down to lower organizational levels. As we noted in our testimony, we believe that 

DOD should require the use of core competencies to communicate to employees 

what is expected of them on the job. 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. 

2. How could employees participate in this process? 

Based on our review of other agency efforts, we have found that involving employees 

in planning and sharing performance information can help employees understand 

what the organization is trying to accomplish and how it is progressing in that 

direction.7

 Involving employees in the planning process helps to develop agency 

goals and objectives that incorporate insights about operations from a front-line 

perspective, as well as increases employees’ understanding and acceptance of 

organizational goals and objectives. Involving front-line employees in the goal-setting 

process also helps create a clear “line of sight” throughout the organization so that 

everyone understands what the organization is trying to achieve and the goals it seeks 

to reach. 

As discussed above, we have encouraged DOD to establish a documented set of core 

competencies to help provide reasonable consistency and clearly communicate to 

employees what is expected of them. High-performing organizations use validated 

core competencies as a key part of evaluating individual contributions to 

organizational results. If performance expectations are based on core competencies, 

then employees can be involved in the validation of the competencies to ensure that 

they are both appropriate and accepted. 

Employee Involvement

You have expressed concerns that the NSPS does not identify a process for 

continuing involvement of employees in the design and implementation of 

the NSPS. The proposed regulations for the DHS human resources system 

contained provisions for a Performance Review Board (PRB). The final 

regulations for the DHS human resource system provide a place for 

employees to participate in pay decisions through the establishment of a 

 

7

 GAO, Human Capital: Practices That Empowered and Involved Employees, GAO-01-1070

(Washington, D.C.: Sept.14, 2001). 
Page 6 GAO-05-771R Human Capital 

Compensation Committee rather than a PRB. The proposed regulations for 

NSPS do not include specific provisions establishing either a Compensation 

Committee or a Performance Review Board. 

1. Would you recommend the creation of a Compensation Committee or a 

Performance Review Board for NSPS? 

We believe DOD should define, in more detail than is currently provided, how it plans 

to (1) promote consistency and provide general oversight of the performance 

management system to help ensure that 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 performance management process. The creation of a 

Performance Review Board or Compensation Committee could promote consistency 

and provide general oversight of the performance management system. However, the 

key will be to create a board or committee that is independent of line management 

and review such matters as the establishment and implementation of the 

performance appraisal system and later, performance rating decisions, pay 

determinations, and promotion actions before they are finalized to ensure they are 

merit based. 

2. Would such institutions for internal review of decisions improve the 

fairness, credibility, and transparency of the NSPS? 

Yes, these kinds of institutional oversight mechanisms would improve the fairness, 

credibility, and transparency of NSPS. However, DOD also needs to assure 

reasonable transparency and provide appropriate accountability mechanisms in 

connection with the results of the performance management process. This can 

include publishing overall results of performance management and pay decisions 

while protecting individual confidentiality and reporting periodically on internal 

assessments and employee survey results relating to the performance management 

system.

Core Competencies

One concern you have with the new DHS performance management system is 

that it does not require core competencies to be in writing. Similarly, the 

proposed regulations on NSPS do not provide that core competencies be in 

writing.

1. Assuming that you also think the NSPS regulations should require that 

core competencies be issued in writing, do you see the value for not 

having any expectations in writing? 

To help enhance credibility and fairness and avoid problems, some sort of written 

documentation of performance expectations is appropriate. Core competencies and 

their performance standards that are documented in writing help to ensure the 
Page 7 GAO-05-771R Human Capital 

transparency, consistency, and clarity in communicating performance expectations 

to the employee. 

Pay and Performance

The proposed regulations for NSPS provide for the establishment of control 

points within a pay band to limit increases in basic pay. However, in the 

final regulations for DHS, control points were eliminated because DHS and 

OPM believed that control points are at odds with pay-for-performance. In 

your written testimony, you indicate that control points can be useful. 

1. Are control points a necessary part of the NSPS pay-for-performance 

rules? 

As noted in our recent testimonies on DOD’s proposed regulations, 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 range of the pay band, thereby controlling salary costs.8

 

2. If so, how do you respond to OPM’s concern? 

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

are above average performers should progress through the pay band more quickly 

than under the General Schedule. Establishing control points within each band is one 

method of preventing below average employees from eventually migrating to the top 

of the pay band, and thus increasing salary costs. 

Labor-Management Relations

Labor-management disputes will be handled by an internal National Security 

Labor Relations Board (NSLRB) whose three members will be appointed by 

the Secretary of Defense. Some have voiced concerns over the independence 

of the Board, fearing that the members will act from a political position 

rather than from a neutral one.

1. Would the appointment of members of the NSLRB for a fixed term 

improve the independence of the Board? 

The proposed NSPS regulations would establish the NSLRB that would consist of 

members appointed to fixed terms of 3 years. Increasing the initial term for Board 

members beyond 3 years could potentially bolster the actual or perceived 

independence of the Board, but such an action must be weighed against the 

willingness of prospective members to commit to long-term service on the Board and 

the need for Board member accountability. Nevertheless, the proposed NSPS 

 

8

 GAO, Human Capital: Preliminary Observations on Proposed DOD National Security Personnel 

System Regulations, GAO-05-432T (Washington, D.C.: Mar. 15, 2005). 
Page 8 GAO-05-771R Human Capital 

regulations provide for other means to foster independence and impartiality of the 

Board, including staggered term appointments for members and some limited 

conditions for removal of a member. For example, appointments of the initial Board 

members will be for terms of 1, 2, and 3 years. The Secretary of Defense may extend 

the term of any member beyond 3 years when necessary to provide for an orderly 

transition and/or appoint the member for up to two additional 1-year terms. 

2. Other than allowing labor organization participation in the appointment 

of Board members, how could the independence of the Board be 

enhanced? 

The Board can strengthen its independence and impartiality through a commitment 

to transparency, reporting, and periodic evaluation, which can be critical processes in 

ongoing human capital reform efforts.9 Through regular and public reporting on its 

activities and the results of its adjudications, the Board could demonstrate to DOD’s 

employees, labor organizations, and others that it is carrying out its duties in a fair 

and impartial manner. This reporting would likewise aid in promoting and facilitating 

formal oversight and evaluations of the Board’s activities as well as DOD’s overall 

human resources management system. 

DOD could further enhance the independence and impartiality of the Board through 

strengthening the appointment and removal processes of Board members. This could 

include (1) a nomination panel that reflects input from appropriate parties and a 

reasonable degree of balance among differing views and interests in the composition 

of the Board to ensure credibility, (2) stringent standards for removal, and (3) 

appropriate notification to key stakeholders in the event that a Board member is 

removed. 

3. What value does the internal NSLRB bring to DOD? 

In evaluating the merits of creating a separate NSLRB, DOD and OPM noted that they 

put a high premium on the opportunity to establish a NSLRB whose members would 

have a deep understanding of and an appreciation for the unique challenges the 

department faces in carrying out its national security mission. As we noted in our 

testimonies on the proposed NSPS regulations, the NSLRB would largely replace the 

Federal Labor Relations Authority. However, until the NSLRB has been established 

and has functioned as an internal DOD labor relations board, we cannot determine 

what value the proposed Board might bring to DOD. 

4. Will the NSLRB streamline the process or just add another layer of 

unneeded bureaucracy? 

 

9

 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 9 GAO-05-771R Human Capital 

Until the NSLRB has been established and it has developed its processes and 

procedures, we cannot comment on whether the NSLRB would streamline the 

process or not. 

Adverse Actions and Appeals

The appeals process that the proposed regulations would establish is rather 

complex. For example, after an MSPB administrative judge issues an initial 

MSPB decision in an adverse action appeal, DOD may reconsider the 

administrative judge’s decision and modify or reverse the initial MSPB 

decision. § 9901.807(k)(8)(iii)(A). Similarly, “[w]here the Department 

determines that the initial [MSPB] decision has a direct and substantial 

adverse impact on the Department’s national security mission, or is based on 

an erroneous interpretation of law, Governmentwide rule or regulation, or 

[the NSPS regulations], [DOD may] issue a final DOD decision modifying or 

reversing that initial decision.” § 9901.807(k)(8)(iii)(B). Further, DOD may 

decide that the initial decision of an MSPB administrative judge should serve 

as a precedential decision. § 9901.807(k)(8)(iii)(C).

1. Are the provisions of the proposed regulations that allow DOD to review 

initial MSPB decisions consistent with an independent external appeals 

process? 

Although the proposed NSPS regulations describe when DOD may review an initial 

MSPB decision, the regulations do not provide any detail as to how, who, or what 

basis DOD will process these reviews. Until DOD provides further information, we 

are unable to make any observations about the independence of this review process. 

The proposed NSPS regulations do provide employees and OPM with the ability to 

appeal a final DOD decision issued under § 9901.807(k)(8)(iii) to the full MSPB. 

Further, an employee or the Secretary of Defense may seek judicial review of a final 

order or decision of the MSPB. 

2. Do you see any pitfalls with this proposed appeals process? 

Our answer to question 1 above also applies to this question. 

For additional information on our work on human capital issues at DOD, please 

contact me on 512-5500 or Derek B. Stewart, Director, Defense Capabilities and 
Page 10 GAO-05-771R Human Capital 

Management on 512-5559 or stewartd@gao.gov, or Eileen Larence, Director, Strategic 

Issues on governmentwide human capital issues at 512-6510 or larencee@gao.gov. 

David M. Walker 

Comptroller General 

of the United States 

(350717) 
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