Testimony

Before the Subcommittee on Oversight of Government

Management, Restructuring, and the District of

Columbia, Committee on Governmental Affairs, U.S.

Senate

United States General Accounting Office

GAO

For Release on Delivery

Expected at 2:30 p.m., EST

Tuesday July 17, 2001 HUMAN CAPITAL

Taking Steps to Meet

Current and Emerging

Human Capital Challenges

Statement of David M. Walker

Comptroller General of the United States

GAO-01-965T
Page 1 GAO-01-965T 

Human Capital: Taking Steps To Meet Current And Emerging

Human Capital Challenges

Mr. Chairman and Members of the Subcommittee:

I appreciate this opportunity to discuss with you and the members of the

subcommittee our approaches to managing our most important asset—our

people, or human capital. Human capital issues have been a top priority at

GAO during my tenure as Comptroller General. We have undertaken a

wide array of initiatives in this area and are investing considerable time,

energy, and financial resources to make them work. Our reason for doing

so lies in a fundamental decision we have made as the new century begins,

to focus not just on living for today, but on positioning GAO for the future

and investing more in our people. Our goal is to enhance the value of our

human capital and thereby enhance the value of GAO to the Congress, the

country, and the American people.

Simply stated, the aim of these efforts is to enhance our performance and

assure our accountability by attracting, retaining, and motivating a topquality workforce. The more skilled and capable our workforce, the more

capable our organization will be to perform its mission. Our mission is to

support the Congress in meeting its constitutional responsibilities and to

help improve the performance and accountability of the federal

government for the benefit of the American people. Today, GAO conducts

a wide range of financial and performance audits, program evaluations,

management reviews, investigations, and legal services spanning a broad

range of government programs and functions. GAO’s work covers

everything from the challenges of an aging population and the demands of

the information age to emerging national security threats and the

complexities of globalization. We are committed to federal management

reform—to helping government agencies become organizations that are

more results oriented and accountable to the public. We are also

committed to leading by example in all major management areas.

No management issue facing federal agencies could be more critical to

their ability to serve the American people than their approach to

attracting, retaining, and motivating their employees. High-performing

organizations in the private and public sectors have long understood the

relationship between effective “people management” and organizational

success. However, the federal government, which has often acted as if

federal employees were costs to be cut rather than assets to be valued, has

only recently received its wake-up call. As our January 2001 Performance

and Accountability Series reports made clear, serious federal human
Page 2 GAO-01-965T 

capital shortfalls are now eroding the ability of many federal agencies—

and threatening the ability of others—to economically, efficiently, and

effectively perform their missions.1 The problem lies not with federal

employees themselves, but with the lack of effective leadership and

management, along with the lack of a strategic approach to marshaling,

managing, and maintaining the human capital needed for government to

discharge its responsibilities and deliver on its promises. To highlight the

urgency of this governmentwide challenge, in January 2001 we added

strategic human capital management to our list of federal programs and

operations identified as high risk.2

Ever since we added strategic human capital management to that list, we

have been asked what would need to happen for it to be removed. Clearly,

we will need to see measurable and sustainable improvements in the

economy, efficiency, and effectiveness with which the government as a

whole and the individual agencies manage their workforces to achieve

their missions and goals. I believe that hearings such as this one

demonstrate that the momentum for these improvements is building, but

the process will undoubtedly take time.

At GAO, we believe a three-stage approach is appropriate to addressing

the federal government’s human capital challenges. First, agencies must

take all administrative steps available to them under current laws and

regulations to manage their people for results. Much of what agencies

need to accomplish by way of focussing on human capital management is

already available to them. They will, however, need the sustained

commitment from top management and the support from both the Office

of Management and Budget (OMB) and the Office of Personnel

Management (OPM) to do so. Second, the Administration and the

Congress should pursue selected legislative opportunities to put new tools

and flexibilities in place that will help agencies attract, motivate, and

retain employees—both overall and, especially, in connection with critical

occupations. Third, all interested parties should work together to

determine the nature and extent of more comprehensive human capital (or

 1 Performance and Accountability Series—Major Management Challenges and Program

Risks: A Governmentwide Perspective (GAO-01-241, Jan. 2001). In addition, see the

accompanying 21 reports, numbered GAO-01-242 through GAO-01-262) on specific

agencies.

2 High-Risk Series: An Update (GAO-01-263, Jan. 2001). In addition, see Human Capital:

Meeting the Governmentwide High-Risk Challenge (GAO-01-357T, Feb. 1, 2001).
Page 3 GAO-01-965T 

civil service) reforms that should be enacted over time. These reforms

should include placing greater emphasis on skills, knowledge, and

performance in connection with federal employment and compensation

decisions, rather than the passage of time and rate of inflation, as is often

the case today.

Today, I will discuss some of the administrative steps GAO has taken

under its existing authorities to better manage its people. We have

identified and made use of a variety of tools and flexibilities, some of

which were made available to us through the GAO Personnel Act of 1980

and our 2000 legislation, but most of which are available across a broad

spectrum of federal agencies. I will also discuss our specific mission needs

and human capital challenges and how these helped us identify and make

a sound business case for additional flexibilities. We feel it is critical to

remain alert to further opportunities to improve the federal government’s

competitiveness in the market for talent, and as a result, I will raise for

discussion some additional flexibilities that would require legislation for

the Congress to consider.

We believe that every agency should begin assessing its own human

capital situation and pursue adoption of prevailing best practices. To this

end, we developed our human capital self-assessment checklist for agency

leaders, and have studied the private sector for selected human capital

principles and practices that may have applicability in the federal

government.3

 Since maximizing performance and assuring accountability

are at the heart of our mission at GAO, we believe it is our responsibility to

lead by example, especially in the human capital area. By managing GAO’s

workforce strategically, by focusing on results, and by taking

opportunities such as the one you are providing today to tell our story, we

hope to demonstrate to other federal agencies that if they put their minds

to it, they can improve their performance by improving the way they treat

and manage their people. However, don’t get me wrong. We aren’t perfect

at GAO and we never will be. In addition, this is a work-in-progress for us

as it is for others. Finally, I would add that GAO’s approaches are not the

only way for agencies to proceed, but they can help others to see their way

forward to addressing their individual human capital issues.

 3

 See Human Capital: A Self-Assessment Checklist for Agency Leaders (GAO/OCG-00-14G,

September 2000) and Human Capital: Key Principles From Nine Private Sector

Organizations (GAO/GGD-00-28, January 2000).
Page 4 GAO-01-965T 

Addressing the government’s human capital challenges is a responsibility

shared by many parties, including the President, department and agency

leaders, OMB, OPM, the Congress, and even the press (see attachment I).

Agency leaders must commit their organizations to valuing and investing

in their employees and focussing their employees’ efforts on achieving

stated agency missions and goals. The essential ingredients for progress in

this area are leadership, vision, commitment, persistence, communication,

and accountability.

Our ongoing experiences managing human capital at GAO have yielded a

number of guiding principles or “lessons learned” that will frame my

remarks this afternoon:

• Strategic planning, core values, and organizational alignment. An

agency that wishes to design policies and programs to maximize the value

of its human capital must have clear expectations for itself, strong core

values, and an accurate understanding of its evolving circumstances.

Sound strategic planning and proper organizational alignment provide the

essential context for making sensible, fact-based choices about designing,

implementing, and evaluating human capital approaches.

• Tailoring human capital approaches. Agencies’ varied missions, core

values, and circumstances require custom-tailored approaches to

managing people. Agencies must remain constantly alert to emerging

mission demands and human capital challenges, and make full use of the

management tools and flexibilities available to meet them. If an agency

determines that its available tools, flexibilities, and resources do not allow

it to pursue needed human capital initiatives, then it must support any

proposal for new flexibilities with a sound business case.

• Employee involvement. Regardless of the approach an agency takes to

“people management,” the involvement of employees both directly and

through their employee organizations will be crucial to success. Agency

leaders need to clearly and consistently tell their people at all levels their

agency’s mission, core values, goals and objectives, and strategies.

Moreover, leaders need to empower employees and work constructively

with employee organizations. As in many cases, in the human capital

arena, how you do something is as important as what you do.

The human capital management tools and flexibilities available to other

agencies will differ from ours, and these agencies may need to develop

approaches to fit their own situations. However, the need to recognize

employees as vital assets for organizational success, and to develop

approaches for managing human capital that best support mission

accomplishment, should be a consistent focus across the federal

government. In this regard and at the subcommittee’s request, I will also
Page 5 GAO-01-965T 

briefly discuss recent human capital management experiences at two

other federal entities: the Department of Defense and the Internal Revenue

Service.

Before moving on to my three main points, I would like to provide some

background on the changing nature of GAO’s workforce, its current

human capital challenges, and some of the specific tools and flexibilities

that we have used in addressing this area.

Today’s GAO is far different from the organization that opened its doors in

1921. For the first 3 decades of GAO’s existence, its workforce consisted

primarily of accounting clerks, whose job was to audit agency vouchers

for the legality, propriety, and accuracy of expenditures. In the 1950s,

when GAO’s statutory role shifted to comprehensive auditing of

government agencies, the agency began to hire accountants. Later, GAO’s

role expanded further, to include program reviews, policy analysis,

investigations, and legal adjudications. As a result, today GAO is a

multidisciplinary professional services organization, whose staff reflects

the diversity of knowledge and competencies needed to deliver a wide

array of products and services to support the Congress. Our mission

staff—at least 54 percent of whom are Masters or Ph.D. graduates—hold

degrees in a variety of academic disciplines, such as accounting, law,

engineering, public and business administration, economics, and the social

and physical sciences. I am extremely proud of the talent, dedication, and

service to our nation that GAO employees—both mission staff and mission

support staff alike—exhibit every day. They make GAO the world-class

accountability institution that it is, and I think it is fair to say that while

they account for about 80 percent of our costs, they constitute 100 percent

of our real assets.

It must be said, however, that the 1990s were a difficult period for

ensuring that GAO’s workforce would remain appropriately sized, shaped,

and skilled to meet its mission demands. Severe downsizing of the

workforce (see figure 1), including a suspension of most hiring from 1992

through 1997, and constrained investments in such areas as training,

performance incentives and rewards, and enabling technology, left GAO

with a range of human capital challenges that we have begun to address.

Background: Changes

In GAO’s Mission And

Workforce Led To The

GAO Personnel Act Of

1980
Page 6 GAO-01-965T 

Figure 1: GAO Staff Levels

For example, we face significant structural issues: Our workforce is

relatively sparse at the entry levels and relatively large at certain higher

levels (see figure 2).

Figure 2: GAO’s Human Capital Profile

1

FY 2001 data are as of June 30, 2001.

2

Eight of 108 mission SES/Senior Level staff in FY 2001 are Senior Level. In October 2000, GAO

was granted authority to appoint scientific, technical or professional staff to senior level positions with

the same benefits and attributes as members of SES.

4,136

5,182

3,155

0

1000

2000

3000

4000

5000

6000

1966 1981 2001

Number of Full-time equivalent staff

Fiscal year

Band III

Band II

Band I

Other4

Mission

 Support5

Number

of staff

2.4%

3.1%

FY 1989

8.0%

5,204

34.1%

25.6%

3.5%2

4.5%

FY 2001 Est. 1

13.7%

3,118

43.1%

21.2%

Mission

(FY 1989 - 74.4%)

(FY 1997 - 77.9%)

(FY 2001 - 78.8%)

26.8% 14.0%3

3.1%

4.0%

FY 1997

11.9%

3,273

45.2%

22.1%

13.7%
Page 7 GAO-01-965T 

3

With the additional new hires expected onboard by the end of FY 2001, the number of Band I’s as a

percentage of all staff is expected to increase to about 17 percent.

4

Attorneys and criminal investigators

5 FY 1989 includes 20 SES, or .38 percent of all staff; FY 1997 includes 15 SES, or .46 percent of all

staff; and FY 2001 includes 12 SES, or .38 percent of all staff.

Note: Total SES and Senior Level staff in mission and mission support represent 2.8 percent, 3.6

percent, and 3.8 percent of all employees in FY 1989, FY 1997, and FY 2001, respectively.

We face certain skills imbalances that include a pressing need for—among

other things—accountants, information technology professionals,

statisticians, economists, and health care analysts. Further, we face a

range of succession planning challenges. Specifically, by fiscal year 2004,

55 percent of our senior executives, 48 percent of our management-level

analysts, and 34 percent of our analyst and related staff will be eligible for

retirement. Moreover, at a time when a significant percentage of our

workforce is nearing retirement age, marketplace, demographic,

economic, and technological changes indicate that competition for skilled

employees will be greater in the future, making the challenge of attracting

and retaining talent even more complex.

These human capital challenges will not be solved overnight. But

fortunately, from a structural standpoint, GAO has an advantage that other

agencies might envy. Unlike executive branch agencies, where turnover of

chief executives and other top managers is commonplace, GAO’s chief

executive officer—the Comptroller General—is appointed for a 15-year

term. This lengthy tenure ensures that governmentwide and internal

management challenges such as those involving human capital can receive

the sustained and consistent attention from the top that they demand. A

good example of how this has worked at GAO is my immediate

predecessor, Comptroller General Charles A. Bowsher, who helped lead

the federal government’s growing emphasis on financial management

issues, and whose attention to improving financial management both at

GAO and governmentwide was unwavering throughout his 15-year tenure.

At GAO, we have certain human capital tools and flexibilities available to

us that are broader than those available to most other federal agencies.

The main difference has been that we have been able to operate our

personnel system with a degree of independence that most agencies in the

executive branch do not have. For example, we are excepted from certain

provisions of Title 5, which governs the competitive service, and we are

not subject to oversight by OPM. The roots of these differences are 2

decades old. Until 1980, our personnel system was indistinguishable from

The GAO Personnel Act of

1980
Page 8 GAO-01-965T 

those of executive branch agencies—that is, GAO was subject to the same

laws, regulations, and policies as they were. But with the growth of GAO’s

role in congressional oversight of federal agencies and programs, concerns

grew about the potential for conflict of interest. Could GAO conduct

independent and objective reviews of executive branch agencies such as

OPM when these agencies had the authority to review GAO’s internal

personnel activities? As a result of these concerns, GAO worked with the

Congress to pass the GAO Personnel Act of 1980, the principal goal of

which was to avoid potential conflicts by making GAO’s personnel system

more independent of the executive branch.

Along with this independence, the act gave GAO greater flexibility in

hiring and managing its workforce. Among other things, it granted the

Comptroller General authority to

• appoint, promote, and assign employees without regard to Title 5

requirements in these areas;

• set employees’ pay without regard to the federal government’s General

Schedule (GS) classification standards and requirements; and,

• establish a merit pay system for appropriate officers and employees.

Clearly, by excepting our agency from many competitive service

requirements, the GAO Personnel Act of 1980 allowed us to pursue some

significant innovations in managing our people. However, I must

emphasize that in important ways, our human capital policies and

programs are very much in the mainstream of the larger federal

community since, despite the GAO Personnel Act of 1980, we continue to

support certain important national goals. For example, we are

philosophically committed and legally subject to federal merit principles.

Our employees continue to be protected from prohibited personnel

practices; while they do not have access to the more widely applied

federal employee administrative redress system, our 1980 legislation

created an independent entity, the Personnel Appeals Board, to hear our

employees’ complaints. Also, we apply veterans’ preference consistent

with the manner in which it is applied in the executive branch for

appointments and all appropriate reductions-in-force. Our pay system

must be consistent with the statutory principle of equal pay for

substantially equal work; we make pay distinctions on the basis of an

individual’s responsibilities and performance. We are covered by Title VII

of the Civil Rights Act, which forbids employment discrimination. We

emphasize opportunity and inclusiveness, and have zero tolerance for

discrimination of any kind. We take disciplinary action when it “will

promote the efficiency of the service”—which for us includes such things
Page 9 GAO-01-965T 

as GAO’s ability to do its work and accomplish its mission. Further, while

we currently do not have any bargaining units at GAO, our employees are

free to join employee organizations, including unions. In addition, we

engage in a range of ongoing communication and coordination efforts to

empower our employees while tapping their ideas.

The most prominent change in human capital management that GAO

implemented as a result of the GAO Personnel Act of 1980 was a

broadbanded pay-for-performance system. I will discuss this below at

some length. However, it should be remembered that our authority to

introduce broadbanding was only a subset of a body of new authorities

that allowed GAO to develop important initiatives in other areas as well.

For example:

• Recruiting and hiring. The independent appointment and examination

authority in the 1980 act allowed us to establish more flexible recruiting

and hiring processes. Although many of the recruiting and hiring programs

we initiated during the 1980s had to be abandoned during the near-freeze

in GAO hiring from 1992 to 1997, today we make significant use of the

recruiting and hiring flexibilities that the 1980 legislation provided. For

example, our student intern program includes a feature that we—unlike

most federal agencies—were able to adapt from federal student

cooperative education programs: noncompetitive conversion to permanent

status. This provision allows us to offer permanent positions to GAO

interns with at least 10 weeks of successful work experience, without the

requirement for a job announcement and competition. We are making

extensive use of this flexibility as an important element of our aggressive

recruiting efforts.

• Compensation. Besides allowing us to introduce the broadbanded pay-forperformance system discussed below, our 1980 legislation helped us take

additional steps to improve our ability to compete for the multidisciplinary

skills we would need to address our increasingly complex and

congressionally driven responsibilities. In addition to adopting OPM’s

governmentwide special pay rates established to address certain

significant recruitment and retention problems, we developed GAOspecific special pay rates to recruit and retain employees in critical

occupations, such as accountants, auditors, and economists. Further, we

established policies to permit paying certain job applicants salaries above

the minimum rate of the grade or band level at which they were hired. As

other agencies may do, we also now offer recruitment bonuses and

retention allowances to help attract or keep employees with specialized

skills.

Innovations Under the

GAO Personnel Act of 1980
Page 10 GAO-01-965T 

• Promotions. Using the authority contained in our 1980 legislation, in 1983

we instituted an annual merit promotion system for our analysts (known

at the time as evaluators) and related occupations. This promotion system

is still in place. Each year, GAO’s senior management determines the

number of promotion opportunities available. Within each home unit, a

panel of at least three managers assesses interested staff for promotion

opportunities. For each applicant, the panel reviews 3 years of

performance appraisals and employee’s contributions, and an employee

statement of qualifications. Candidates within each home unit are ranked

against one another for positions at the next level, based on their

knowledge, skills, and abilities. Those designated as “best qualified” are

automatically considered for opportunities within the unit. The head of the

unit is the selecting official. Employees who are interested in generalist

positions outside their home units can apply for them. GAO’s mission

support staff are not included in the annual promotion system. Instead, we

currently operate a conventional competitive promotion process for

mission support positions.

In 1989, GAO converted its analyst and analyst-related staff, as well as its

attorneys, to a broadbanded pay-for-performance (PFP) system. This

system was implemented following years of study that involved task forces

of managers and staff at all levels. The system remains in place today.

While it has undergone few changes since its initial implementation, we

are currently engaging in a comprehensive review and reassessment of our

broadbanded PFP system to identify opportunities for improvement.

The primary goal of PFP is to enable GAO to base employee compensation

primarily on knowledge and performance of individual employees.

Broadbanding provides certain managers additional flexibility to assign

and use employees in a manner that is more suitable to multitasking and

full utilization of available staff. Given our unique role in serving the

Congress, GAO needed a system with more flexibility—similar to what

exists in private sector knowledge-based professional services

organizations.

Under GAO’s broadbanded system, analyst and analyst related staff in

Grades 7 through 15 in the General Schedule (GS) system, were placed in

3 bands. Staff were converted into bands, as shown in table 1.

Broadbanding and Pay-forPerformance
Page 11 GAO-01-965T 

Table 1: GAO’s Broadbanded Pay-for-Performance System

General Schedule GAO Broadbanding

GS-7, GS-9, GS-11 Band ID (Developmental level)

GS-12 Band IF (Full performance)

GS-13, GS-14 Band II

GS-15 Band III

Note: Senior Executive Service (SES) members were not included in this system.

The pay ranges for each band closely approximate the GS-equivalents. For

example, Band II ranges from about GS-13, step 1 to GS-14, step 10.

When staff were converted from the GS system to broadbanding, there

needed to be a means to move them through the salary ranges in their

bands. Under the GS system, movement through the salary range for each

GS grade is largely based on the passage of time. For example, assuming

satisfactory performance, staff are given within-grade step increases

(WGIs) after a 1, 2, or 3 year waiting period, depending on how long they

have been in grade. The within-grade increase is a fixed amount—3.3

percent of the step 1 salary for the employee’s GS level—and is virtually

automatic.

In contrast, GAO wanted a system in which pay increases depend upon the

performance and contributions of the individual, rather than the passage

of time. Therefore, we chose to adopt a PFP system concurrent with the

implementation of the broadbanded classification system. Under PFP,

staff members are evaluated each year by a panel of managers from their

units who are familiar with the work of the individuals being assessed and

the unit as a whole. The panels consider each employee’s performance

appraisal, prepared by the supervisor, and an employee-prepared

“contributions statement,” in which the employee describes his/her

contributions during the year. Finally, the panel discusses the relative

performance and contributions of each employee being assessed. Based

on the paperwork review and the panel discussion, the panel places each

individual into a pay category, ranging from acceptable to commendable,

meritorious, and exceptional. It is important to note that this is a relative

system under which staff are assessed against each other, rather than

against standards.

Under our PFP system, a staff member’s pay category determines the

percentage of his/her salary increase. The lowest salary for the employee’s

band level (“band base salary”) is used to calculate the actual amount of
Page 12 GAO-01-965T 

the raise. As required by current law, our employees receive cost of living

and locality pay adjustments. Employees in the “acceptable” category

receive no incremental raise, while employees in the commendable,

meritorious, and exceptional categories receive percentage raises linked

to their category, band level, and where they stand in the salary range for

their pay bands.

One of the concerns we have encountered with the PFP system is that

employees who are at the top of the pay scale for their pay band—that is,

those who have reached their salary cap—are not eligible for PFP

increases that would put their pay above the cap. This can lead to

situations that are not in keeping with the spirit of the PFP system. For

example, it is common in GAO for employees who are in the commendable

or meritorious categories to receive PFP salary increases while their coworkers in the same or higher categories receive no PFP salary increase,

simply because they are already at the salary cap for their band level. At

GAO, where many mission staff have been in their band for a long time,

many are no longer eligible for PFP salary increases, and therefore cannot

be expected to respond to the incentives for which the program was

designed. Currently, about 42 percent of our Band III, 12 percent of our

Band II, and 26 percent of our Band I analyst and analyst-related staff are

at their salary cap.

One solution we are considering to surmount the salary cap problem for

employees in the PFP system is to create a more robust performance

bonus program. Our PFP system was designed to include performance

bonuses, but with the budgetary constraints GAO experienced in the

1990s, performance bonuses for banded staff were discontinued.

Advantages and disadvantages. While currently undergoing review and

refinement, our broadbanding and PFP systems certainly have had more

pros than cons. The salary cap problems notwithstanding, our best

performing staff are clearly being rewarded more than before for their

performance and contributions. We are able to vary rewards annually

rather than granting an “automatic” step increase based on the passage of

time. In addition, managers have much greater flexibility to make staffing

decisions based on both institutional needs and individual desires.

However, in order for broadbanding and PFP to meet current and

emerging needs, an organization like ours needs to use its PFP scheme in

some combination with a modern, transparent, competency-based

performance appraisal system to determine employee pay, promotion, and

reward decisions. Further, our broadbanding and PFP system need to be

used in conjunction with other mechanisms to let us clearly differentiate
Page 13 GAO-01-965T 

among employees’ varying skills, roles, and levels of responsibility within

the bands. Finally, although broadbanding allows for greater flexibility in

making staffing assignments, managers should have access to additional

tools such as the results of the automated employee knowledge and skills

inventory that we recently performed, and should also follow a modern

and transparent organizational staffing model.

There are, however, some negatives associated with a PFP system. The

annual process is labor intensive and produces stress, both on the

managers making the pay decisions and the staff who await them. Staff

naturally do not always agree with panel decisions— creating some

tensions as well. The panel evaluation process takes a full day or two, and

is viewed by some managers as too-time consuming and burdensome.

Further, the PFP system has been somewhat more expensive than the

General Schedule system. Nonetheless, we believe it is cost beneficial.

In early calendar year 2000, GAO issued its first strategic plan for the 21st

century. This document is the blueprint for how GAO will support the

Congress in addressing an increasing range of complex issues and

challenges. It describes our mission, and acknowledges our core values. It

recognizes a range of global and domestic trends that are affecting society

on every level, and is built on a comprehensive and focused structure of

long-term goals and objectives to support the Congress in its legislative,

oversight, and investigative roles. We worked closely with legislative and

committee leadership, individual members, congressional staff, a range of

outside parties, and our own employees in developing our strategic plan.

Thus, it not only incorporates congressional views of what constitute

important and emerging issues, but establishes a framework for

addressing the Congress’ constitutional responsibilities in the context of

current and emerging challenges in the coming years. (See attachment II.)

Three words sum up the ways in which we serve the Congress and the

American people: oversight, insight, and foresight.

• Oversight: reexamining existing federal roles, missions, programs, and

processes.

• Insight: providing sound policy analysis and crosscutting perspectives and

identifying best practices.

• Foresight: identifying future policy and operational challenges before they

reach crisis proportions.

Strategic Planning,

Core Values, And

Organizational

Alignment Set The

Direction For

Managing GAO’s

Human Capital
Page 14 GAO-01-965T 

Our strategic plan also describes our role and mission in the federal

government; the core values of accountability, integrity, and reliability that

guide our work; the trends, conditions, and external factors underlying the

plan; and our goals, objectives, and strategies for serving the Congress. We

intend to update the strategic plan every 2 years for each Congress, and

have an update of the original plan under way. In addition, we will develop

annual performance plans—our fiscal year 2001 plan was our first—as

well as annual Accountability Reports to the Congress, which we began

with fiscal year 1999. We have combined our annual performance plans

and accountability reports into a single document to provide our clients

and other readers a more consolidated and user-friendly format.

From a human capital standpoint, our strategic plan and core values are

our touchstones for designing, implementing, and evaluating our

approaches to managing our people. These two vital elements will also be

the foundation for our revised institutional and individual performance

measurement systems.

We believe that any agency that wishes to design policies and programs to

maximize the value of its human capital must have clear expectations for

itself, strong core values, and an accurate understanding of its evolving

circumstances. The rigorous self-assessment, outreach to our clients, and

broader scan of our external and internal environments that have gone

into our strategic planning process provide these kinds of insights.

Because we have identified the kind of organization we want to be and

where we want to go, we can make informed judgments about our human

capital needs and reasoned decisions regarding the choice of human

capital strategies.

We are moving toward a balanced scorecard approach to evaluating our

performance as an organization. We take into account (1) feedback from

our clients, (2) the views of our employees at all levels of the organization,

and (3) our results. For the latter, we depend on a variety of key

performance indicators. Some of these are quantitative, such as the direct

financial benefits produced as a result of our work in such areas reducing

unnecessary spending or enhancing asset revenues. Most of our others are

qualitative, such as the numerous improvements in government operations

and services resulting from our recommendations, including better

oversight of nursing homes, more stringent safety standards for high-speed

passenger rail service, and enhanced computer security in connection with

defense information systems. We also track intermediate indicators, such

as the number of times we have testified before the Congress or the

percentage of GAO recommendations that agencies have implemented,
Page 15 GAO-01-965T 

that while not directly indicative of results, nevertheless help us monitor

our productivity and ensure accountability for our day-to-day

performance.

Not long ago, we developed a tool to help federal agencies integrate their

human capital management with their strategic and programmatic

planning.4

 Our human capital self-assessment framework, published in

draft form in September 1999 and finalized in September 2000, allows

agency leaders to perform a quick assessment of their agencies’ human

capital approaches to see if they conform with widely accepted human

capital management practices and align with their agencies’ “shared

vision”—that is, their mission, vision for the future, core values, goals and

objectives, and strategies. The framework lays out five areas for

assessment: strategic planning, organizational alignment, leadership,

talent, and performance culture. We have used this assessment framework

during the past 2 years to scan our own human capital efforts and ensure

their linkage to our strategic plan.

In the fall of 2000, we realigned our mission related functions to better

support the Congress and prepare ourselves, with current and expected

resource levels, to meet the future challenges outlined in our strategic

plan. We reorganized both our headquarters and field mission operations.

These changes included eliminating a layer of managerial hierarchy,

reducing the number of organizational units (from 35 to 13 at headquarters

and from 16 to 11 in the field), increasing internal and external

coordination activities between GAO units and the Congress and other

accountability organizations, clarifying the roles and responsibilities of

management, increasing the number of employees who perform rather

than manage or review work, and enhancing the critical mass and

flexibility of our field resources. (See attachment III.)

As an additional element of our realignment, we are currently reorganizing

GAO’s mission support functions. As part of this effort, and to more

effectively integrate our human capital management with our strategic and

program planning, we are reorganizing our human capital office to

position resources where they can best support our mission. To help

ensure the success of this effort, this year we established and filled the

 4

Human Capital: A Self-Assessment Checklist for Agency Leaders (GAO/OCG-00-14G,

September 2000).

Organizational

Realignment at GAO
Page 16 GAO-01-965T 

position of Human Capital Officer as a part of our senior management

team.

Further, this year we absorbed the functions of our previous civil rights

office into our new Office of Opportunity and Inclusiveness. The new

office, whose managing director reports directly to me, will play an

important role in achieving our strategic goal of being a model employer.

The office will take a proactive, rather than reactive, approach to fostering

a GAO environment that ensures that applicants for employment and all

members of its diverse workforce are treated fairly, their differences are

respected, and that reinforces our policy of having zero tolerance for

discrimination of any type.

As with strategic planning, organizational alignment is crucial if an agency

is to maximize its performance and assure its accountability. The choices

that go into aligning an organization to support its strategic and

programmatic goals have enormous implications for further decisions

about human capital management, such as what kinds of leaders the

agency should have and how it will best ensure leadership continuity, how

skill needs will be identified and filled, and what strategies the agency will

use to steer the organizational culture to maximize its results. As our

ongoing experiences have demonstrated, sound strategic planning and

proper organizational alignment provide the essential context for making

sensible, fact-based choices about designing, implementing, and evaluating

human capital approaches.

Our choices about human capital management have all been made to

support our strategic plan, core values, and recent organizational

realignment. These efforts also reflect the fact that we have made strategic

human capital management a top-priority management issue at GAO, one

that we know will require our sustained attention and commitment over an

extended period of time.

Other agencies have different missions to pursue and alternative sets of

management tools and flexibilities available to them. However, we believe

that the vast majority of actions that federal agencies need to take in order

to maximize the value of their human capital can be taken as

administrative actions under current law. There is no single approach to

strategic human capital management that would work in every federal

entity. Clearly, agencies must custom-tailor their human capital efforts to

focus on their specific strategic and programmatic goals and core values.

But most of the steps that we have taken to strengthen human capital at

GAO Tailors Its

Human Capital

Approaches To Its

Mission And

Emerging

Circumstances
Page 17 GAO-01-965T 

GAO since I became Comptroller General in November 1998 can be taken

by agencies across the federal government. The following is a description

of some of the initiatives and targeted investments we have made, all of

which link back to our strategic plan, core values, and organizational

realignment.

First, it should be noted that as we assessed GAO’s human capital

challenges at the start of the new century, we recognized that some of the

steps needed to meet these challenges would require additional statutory

authorities. I will discuss the new tools and flexibilities that the Congress

provided GAO in calendar year 2000. The point worth making now is that

our strategic, results-oriented, fact-based approach to human capital

management is what allowed us to make a sound business case for these

new tools and flexibilities. I believe there is a lesson here for other

agencies. Namely, in the absence of comprehensive legislative human

capital reform, agencies must first do everything they can administratively

to address their human capital issues, and seek new legislative flexibilities

only when necessary and based on a sound business case.

• Human Capital Profile/Needs Assessment. Sound data are critical to

making fact-based human capital management decisions. Working with

GAO’s senior managers, our Human Capital Officer reviewed the data that

in aggregate constitute our human capital profile, covering such indicators

as the distribution of employees by band level, the ratio of managers to

employees, projected retirement and attrition rates, and the diversity of

our workforce. This information, coupled with our knowledge of the kinds

and numbers of resources needed to achieve our strategic and program

goals, has helped us assess our human capital needs and create revitalized

strategies for filling them—particularly in the area of recruiting and hiring.

Our senior leaders regularly review management analyses of these data to

track trends and guide GAO’s human capital decisionmaking.

• Employee Survey. It is important to the health of any high-performing

organization that its senior leaders hear the concerns and suggestions of

employees at all levels. Later this calendar year, we intend to conduct a

new, confidential and automated employee feedback survey. This will be a

follow-up to our initial 1999 survey where 87 percent of our employees

participated and 80 percent of respondents provided at lease one narrative

response. The survey highlighted our strengths and those areas in which

we need to improve. We have used the survey results as a tool in our

human capital improvement efforts and we will continue to do so.

• Skills/Knowledge Inventory. An important tool for determining how well

our human capital can be expected to meet our mission requirements is

our knowledge and skills inventory. In the summer of 2000, we
Page 18 GAO-01-965T 

administered an automated knowledge and skills survey that was

completed by all GAO managers and staff. Developed jointly by a GAO

team and an outside contractor, the inventory provided an automated

database medium for determining where we are long or short on the

knowledge, skills, and experience needed to accomplish our strategic and

program plans. Additionally, the knowledge and skills inventory is one of

several management tools that will help us to effectively implement the

“early out” programs that we will be using to better align our workforce

with our organizational needs and improve our engagement staffing

model.

• Employee Preference Survey. We believe that, to the extent possible, our

employees should be given the opportunity to work in the areas that

interest and energize them most. Last fall, we instituted an automated and

confidential employee preference survey. About 11 percent of our mission

staff expressed interest in changing assignments within GAO. Our Chief

Operating and Chief Mission Support Officers, in partnership with our

other senior managers, are using this information to help make

redeployment decisions. As GAO’s program challenges and human capital

needs change, this initiative provides the agency with a flexible tool for

identifying employee preferences and better aligning our human capital

with ongoing and emerging organizational needs. We anticipate

administering additional preference surveys to refresh our database every

2 years.

• Executive Development/Succession Planning. After a hiatus in the 1990s,

we have reinstated our Executive Candidate Development Program,

through which candidates selected through a rigorous competitive process

are prepared for assignments at the SES level. During their time in the

program, candidates pursue varied developmental assignments and

graduate-level academic training at institutions such as the John F.

Kennedy School of Government at Harvard University. We also make a

point of giving our executive candidates exposure to the workings of

GAO’s executive team, since many of these candidates may someday join

it.

Because candidates are drawn primarily from GAO’s own Band III

(Assistant Director) ranks, it is important for us to ensure continuity as

they leave to take their new assignments. This is where our recent

employee preference survey gives us an additional tool; the survey results

can help us fill the gaps in knowledge and experience that may be created

as our mid-level managers move into senior executive positions.

• Recruiting and College Relations. After a 6-year hiatus, GAO began hiring

entry-level professional staff again in 1998. This year, we will bring on
Page 19 GAO-01-965T 

board more than 300 new hires (224 entry-level analysts and 135 interns)

that will join GAO at our headquarters and in our field offices. Recruiting

the best talent from the broad array of disciplines we need to meet our

mission is one of our highest priorities. Although the job market for these

professionals has made recruiting and hiring highly competitive, we feel

we have a competitive advantage in some important areas. Foremost is our

mission. Simply stated, we offer the opportunity to make a difference. In

fact, when we surveyed our new hires to ask why they joined GAO, the top

three reasons given were (1) the opportunity to make a difference, (2) the

nature of GAO’s work, and (3) GAO’s people. We are taking every

opportunity to market the GAO brand name on campuses across the

country. Further, to increase our competitiveness on campus, we recently

began recruiting and making job offers during the fall semester to new

employees who will actually come on board the following spring and

summer—an action that allows us to better compete with the private

sector for students who are anticipating spring graduations. Moreover, we

are building and maintaining an active and extensive campus presence of

both senior-level GAO executives and recent graduates. We have a new

recruiting video and accompanying recruiting materials. With the

importance of a diverse and inclusive workplace in mind, we have made

special efforts—myself included—to visit and build ongoing relationships

with historically black and Hispanic colleges and universities, and other

universities with large minority populations. Additionally, we are awaiting

OPM’s revisions of its regulations regarding the repayment of student

loans in order to develop our own student loan repayment program, for

which we hope to receive sufficient funding to allow us to better compete

with the private sector for highly qualified recruits.

Additionally, we are fortunate to have the participation of our Educators

Advisory Panel (EAP), whose members include some 20 leading deans and

professors from key public and private academic institutions and

representatives of related professional organizations. EAP gives us advice

on making GAO a model for the federal government, including strategies,

best practices, operations, and emerging human capital issues and trends

related to recruitment, hiring, development, and retention of a diverse,

talented, dedicated, and results-oriented workforce. In particular, EAP

members can be valuable resources in our recruiting efforts, working with

our campus coordinators to increase the effectiveness of our presence on

campuses.

Further, the student intern program we began in the 1980s has resumed in

full swing. The student intern program allows our hiring officials a chance

to closely observe these students to see how they perform in the GAO
Page 20 GAO-01-965T 

environment. Our managers work hard to encourage the most promising

interns to apply for entry-level positions upon completion of their

academic careers, and today many of our recent interns are returning to

GAO as permanent hires. As I mentioned earlier, our independent

appointment and examination authority has allowed us to offer permanent

positions to successful interns with at least 10 weeks of work experience,

without the requirement of a job announcement and competition. We have

found that the intern program contributes to our recruiting efforts in

another way as well. Those interns returning to campus after an

interesting and challenging GAO assignment make excellent “goodwill

ambassadors” for the agency, and their on-campus relationships often lead

to additional interns and other recruits for GAO.

• Professional Development and Mentoring Programs for Entry-Level

Staff. GAO’s new employees constitute a crucial human capital

investment. Recognizing this, we developed a comprehensive professional

development program for newly hired Band ID staff. The program includes

a combination of formal and on-the-job training, individual development

plans, rotational assignments, periodic consultations with senior GAO

managers, and periodic formal assessments and clearly defined and

consistently applied criteria for Band IF certification and program

completion. We also make every effort to provide rich and challenging

experiences to our newly hired staff, who typically join new or ongoing

engagements and become active team members as soon as they come

onboard.

We have instituted a mentoring program for our newly hired staff. GAO’s

senior managers are directly involved in and responsible for the mentoring

program for staff in their units. Further, mentoring training is offered to

managers to help make the program work. In addition to a mentor, a “peer

buddy” is arranged for each newly hired Band I to help make the transition

to GAO easier and more rewarding.

• Employee-Friendly Workplace. To further enhance our productivity and

our competitiveness as an employer, we have taken many steps to help our

employees balance their personal and professional lives. One example is

our extensive alternative work-scheduling program, or flexitime.

Employees may complete their biweekly work requirement in less than 10

working days, vary their times of arrival and departure, and vary the

number of hours worked each day. All GAO employees, including

members of the SES, may participate in the program. Further, some 112

career GAO employees spanning a wide range of grades and occupations

participate in our part-time employment program. Moreover, in 1993 we
Page 21 GAO-01-965T 

implemented a permanent flexiplace program (now commonly called

telecommuting or telework), under which our employees may arrange to

work at approved locations away from the regular office. Flexiplace may

be used to help attract and retain employees in critical occupations such

as those in the information technology area. However, I must emphasize

that, as advantageous as telecommuting may be under some

circumstances, it is not appropriate for every employee or every job. As we

do, agencies need to consider whether telecommuting is in the best

interests of both the employee and the agency.

About 995 GAO employees who take public transportation or authorized

vanpools to work, both at headquarters and our field offices, currently

have access to a pre-tax benefit plan to help cover the costs. Along with

other agencies, we are authorized to pay direct benefits through vouchers

to encourage employees’ use of public transportation. However, funding

constraints have forced us to choose among the benefits we can provide,

and thus far we have had to forego this one. We have included a request in

our fiscal year 2002 budget request for the funds to enable us to offer the

direct public transportation benefits.

A cost-free benefit we offer our employees is business-casual dress, which

we phased in over a year-long period and has been a great success.

Another low-cost benefit we provide our mission staff is business cards,

which prominently feature GAO’s core values of accountability, integrity,

and reliability and include a professional title chosen by each staff

member—from among a list of approved titles—to convey his or her

unique role or area of expertise in GAO.

We are particularly proud of two of the facilities we offer our headquarters

employees. “Tiny Findings,” GAO’s on-site childcare center, was one of the

first such facilities in the federal government when it opened in 1990. A

year earlier, the GAO Wellness and Fitness Center was opened after we

renovated space and purchased the original equipment for the facility.

Currently, some 807 employees are members of the GAO Wellness and

Fitness Center. These and other efforts to create an employee-friendly

workplace were recognized in 1998, when we received the OPM Director’s

Award for Outstanding Work and Family Programs.

• Competency-Based Performance Appraisal System. Early in my tenure, it

was apparent that GAO’s performance appraisal system—first

implemented in the mid-1980s—no longer met our organizational needs.

We needed a performance appraisal system that would create a clearer

linkage between employee performance and GAO’s strategic plan and core
Page 22 GAO-01-965T 

values. Further, it would need to meet three objectives: (1) give staff

candid and constructive feedback designed to help them maximize their

potential and contributions to the agency, (2) provide management with

the information needed to recognize and reward top performers, and (3)

provide the information and documentation needed to deal with poor

performers. Working with an outside contractor, we are developing a new

competency-based performance appraisal system, which will be

implemented for GAO analysts beginning October 1, 2001. It includes from

9 to 12 competencies that our employees have validated as the keys to

meaningful performance at GAO. The important thing to note is that when

we surveyed GAO employees in the course of development, they

overwhelmingly validated these competencies as important. In short, this

is their system. (See figure 3.)

Figure 3: GAO’s Competency-Based Model

Achieving Results

Maintaining Client and Customer Focus

Developing People

Thinking Critically

Improving Professional Competence

Collaborating with Others

Presenting Information Orally

Presenting Information in Writing

Facilitating and Implementing Change

Representing GAO

Investing Resources

Leading Others
Page 23 GAO-01-965T 

The new competency-based performance appraisal system should help us

across a range of human capital considerations. It is keyed to results and

creates a clear linkage between employee performance and GAO’s

strategic and programmatic goals. It will help us achieve important

cultural changes, such as a needed shift from a hierarchical, processoriented, “siloed” and internally focussed culture toward a flatter, more

partnerial, results-oriented, matrix management-oriented, integrated and

externally focussed culture. It will promote open and constructive

dialogue between employees and supervisors, and discussions that

encourage and reward multidimensional team building. It will help us

achieve a better balance between people and products. Further, it will

promote honest and constructive feedback to individuals and managers on

performance expectations and results.

To support this new competency-based performance appraisal approach,

we intend to reexamine our incentives system, through which we hope to

provide meaningful, performance-based rewards to both individuals and

teams who make important contributions to GAO’s mission.

• Training Programs. Our competency-based performance

appraisal/management system will also be closely linked to our training

and professional development efforts. We recently reinvigorated our

agencywide training efforts through our Center for Performance and

Learning (P&L). P&L is instituting, among other things, an extensive

curriculum update. P&L’s goal is to move to a needs-based, demand-driven

learning system that blends both e-learning and facilitated classroom

training and that is informed by data from the performance management

process and employees’ individual development plans. In the next 6 to 12

months, P&L will focus on three priority areas: (1) implementing our new

competency-based performance management system for analysts and

analyst-related staff, (2) supporting 6 of the 12 competencies that

represent the most significant changes in GAO’s historical culture (e.g.,

developing people, collaborating with others, facilitating and

implementing change, leading others, improving professional competence,

and investing resources) and, (3) enhancing selected client and external

relations efforts.

Another recent step we have taken is to make training for new hires more

effective. We have developed a streamlined training program on GAO

work processes and resources for newly hired staff, reducing nearly 2

weeks of classroom training to a 4-day interactive case study with other

new staff, preceded by 12 hours of online training.
Page 24 GAO-01-965T 

• Retention and Reward Programs. As I mentioned earlier, we offer

recruitment bonuses and retention allowances, similar to those offered by

executive branch agencies, to attract and retain employees with

specialized skills. We also make every effort to recognize in both tangible

and intangible ways employees who make special contributions to the

organization. These awards range from individual and team cash spot

awards, time off, and training opportunities, to yearly unitwide awards, to

agencywide recognition of sustained contributions to GAO—Meritorious

Service Awards and Distinguished Service Awards—presented at an

annual agencywide Honor Awards ceremony in Washington, D.C.

• Employee Suggestion Program. An important tool for us to tap into the

ideas and ingenuity of our staff has been our employee suggestion

program. Since the inception of the employee suggestion program in

October 1999, we have received approximately 1,300 suggestions. A

number of these suggestions have been adopted and many are still under

consideration. Using GAO’s Intranet, employees can e-mail their

suggestions to my office, after which they are reviewed and analyzed by

the appropriate program staff. We encourage employees to focus on ways

to improve the quality of GAO’s products and services and on ways to

improve the economy, efficiency, and effectiveness of our job and

administrative processes. Employees whose suggestions are adopted

receive some tangible reward for their time and effort, but the biggest

payoff in a program such as this is not the award, but rather the

satisfaction of seeing an idea put to use in a way that improves GAO.

What makes all the initiatives I have just discussed important is that we

are getting results. The performance of our organization, as reflected in

our first two Accountability Reports to the Congress, is the best indicator

of our effectiveness in maximizing the value of our people. We have found

that many of the management tools and flexibilities we needed to pursue

these modern human capital management approaches are already

available to us, and we are committed to using them, subject to the overall

limit in our financial resources. But clearly, we have also found that we

have to stay alert—to think strategically and proactively—in order to

identify additional authorities that may be needed to prepare our

organization for the challenges of the new century. For example, as I

discussed earlier, our organization faces significant human capital

challenges in such areas as its size, shape, skills imbalances, and

succession planning challenges. The past decade’s dramatic downsizing

(approximately 40 percent from 1992 through 1997) and the accompanying

inability to hire the new talent we needed combined with the

demographics of an increasingly retirement-eligible workforce threaten

GAO’s New Human Capital

Authorities Will Help It

Address Current and

Emerging Challenges
Page 25 GAO-01-965T 

our ability to perform our mission in the years ahead. We found that our

preexisting personnel authorities would not let us address these

challenges effectively. Therefore, using the comprehensive workforce data

we gathered and analyzed to make a coherent business case, we worked

with the Congress last year to obtain several narrowly tailored flexibilities

to help us reshape our workforce and establish senior-level technical

positions in certain critical areas.

The legislation, passed in October 2000, gave us additional tools to realign

GAO’s workforce in light of overall budgetary constraints and mission

needs; to correct skills imbalances; and to reduce high-grade, managerial,

or supervisory positions without reducing the overall number of GAO

employees. To address any or all of these three situations, we now have

authority to offer voluntary early retirement (VER) to up to 10 percent of

our employees each fiscal year until December 31, 2003. We also have the

authority to offer voluntary separation incentive (VSI) payments to up to 5

percent of our employees during each fiscal year until December 31, 2003.

Further, in the case of a reduction-in-force (RIF), we have the authority to

place a much greater emphasis in our decisionmaking on our employees’

knowledge, skills, and performance, while retaining veterans’ preference

and length of service as factors to consider in connection with applicable

RIFs.

Since the legislation was enacted, we have established agency regulations

for implementing the VER program. We are in the process of analyzing

workforce data in preparation for offering voluntary early retirements

later this summer and into fiscal year 2002. The development of

regulations to cover VSIs and RIFs is still in progress. We have no plans to

offer VSIs, nor do we intend to pursue any involuntary layoffs during this

or the next fiscal year.

Another provision of the legislation was the authority to establish Senior

Level positions to meet critical scientific, technical, or professional needs

and to extend to those positions the rights and benefits of SES employees.

This authority will help us address positions in such highly competitive

areas as economics and information technology.

We believe that three of the authorities provided in our 2000 legislation

may have broader applicability for other agencies and are worth

congressional consideration at this time. The first two—voluntary early

retirement and voluntary separation incentives—could give agencies

additional flexibilities with which to realign their workforces; correct

skills imbalances; and reduce high-grade, managerial, or supervisory
Page 26 GAO-01-965T 

positions without reducing their overall number of employees. The third

authority—to establish Senior Level positions—could help agencies

become more competitive in the job market, particularly in critical

scientific, technical, or professional areas.

The Administration and the Congress should consider other legislative

actions that would help federal employers address their human capital

challenges. As demographics change, as the marketplace continues to

evolve, we will continue to think strategically and proactively to identify

areas in which new innovations would make good business sense. In this

regard, we believe it is worth exploring selective legislative proposals to

enhance the federal government’s ability to attract, retain, and motivate

skilled employees, particularly in connection with critical occupations, on

a governmentwide basis. The following represent areas in which

opportunities exist to better equip federal employers to meet their human

capital needs:

• Critical occupations. Although agencies generally have more hiring and

pay flexibilities today than in the past, further innovations might be

explored to help federal agencies recruit, retain, and reward employees in

such critical fields as information technology, where there is severe

competition for talent with other sectors.

• Recruiting funds. In order to help attract and retain employees,

consideration should be given to authorizing agencies to use appropriated

funds for selective recruiting, recognition, and team building activities.

• Professional development. To encourage federal employees in their

professional development efforts, consideration should be given to

authorizing agencies to use appropriated funds to pay for selected

professional certifications, licensing, and professional association costs.

• Pay compression relief. Executive compensation is a serious challenge for

federal agencies, which to an increasing extent must compete with other

governmental organizations, and with not-for-profit and private sector

organizations, to attract and retain executive talent. In this regard, the

existing cap on SES pay has increased pay compression between the

maximum and lower SES pay levels, resulting in an increasing number of

federal executives at different levels of responsibility receiving identical

salaries. Further, pay compression can create situations in which the

difference between executive and nonexecutive pay is so small that the

financial incentive for managers to apply for positions of greater

responsibility may disappear. Congress needs to address this increasing

pay compression problem. It could do so, perhaps, by delinking federal

Further legislative reforms

should be explored
Page 27 GAO-01-965T 

executive compensation from congressional pay, or by raising the cap on

executive performance bonuses.

• Cafeteria benefits. Federal employees could be provided with flexible

benefits like many private sector workers under Section 125 of the Internal

Revenue Service Code. This would give federal employees the ability to

pay for such things as childcare or eldercare with pre-tax rather than aftertax dollars.

• Frequent flyer miles. Employees who travel on government business

should be allowed to keep their “frequent flyer” miles—a small benefit but

one that private sector employers commonly provide their people as part

of a mosaic of competitive employee benefits. Let’s face it, flying is not fun

anymore. Allowing federal workers to keep these miles, as employees

elsewhere can, is a small price to pay. In addition, federal agencies could

still use gainsharing programs to reward employees and save the

government travel costs.

• Phased retirement. It may be prudent to address some of the succession

planning issues associated with the rise in retirement eligibilities by

pursuing phased retirement approaches, whereby federal employees with

needed skills could change from full-time to part-time employment and

receive a portion of their federal pension while still earning pension

credits.

• Fellowships. Congress should explore greater flexibilities to allow federal

agencies to enhance their skills mix by leveraging the expertise of private

and not-for-profit sector employees through innovative fellowship

programs, particularly in critical occupations. Through such fellowships,

private and not-for-profit professionals could gain federal experience

without fully disassociating themselves from their positions, while federal

agencies could gain from the knowledge and expertise that these

professionals would bring during their participation in the program.

Obviously, appropriate steps would have to be taken to address any

potential conflicts.

Successful human capital approaches require the involvement of

employees at all levels of the organization. Agency leaders need to

communicate clearly and consistently to their people at all levels their

agency’s mission, core values, goals and objectives, and strategies. They

need to empower employees and work in a constructive manner with

employee organizations. Moreover, leaders need to provide plentiful

opportunities for employees throughout the organization to give feedback

and make their suggestions. In the human capital arena, how you do

something is as important as what you do.

Employee

Involvement Is

Critical To Successful

Human Capital

Management
Page 28 GAO-01-965T 

I hold “CG chats” over our closed-circuit television network for both our

headquarters and field staff, at least quarterly and as events dictate, to

address particularly current and emerging issues affecting our employees,

such as our organizational realignment or voluntary early-out program. In

addition, members of our Executive Committee and I give numerous

presentations, hold employee forums, and visit field offices to exchange

views on a regular basis. Many of my CG chats have featured Q&As from

members of our Employee Advisory Council, with the opportunity for staff

around GAO to e-mail their questions for on-air answers. In addition, each

week our Office of Public Affairs produces our comprehensive newsletter,

Management News, which is made available online to all our employees.

We have made sure to follow an approach to “change management” that is

transparent and highly participatory. Recently, we have taken additional,

far-reaching steps to formalize the involvement of our employees and have

used technology to make it easier for them to participate in the process.

One of our key steps has been the creation of our Employee Advisory

Council (EAC). Comprising employees who represent a cross-section of

the agency, the EAC meets quarterly with me and members of our senior

executive team. The EAC’s participation is an important source of frontend input, and feedback on, our human capital and other management

initiatives. Specifically, EAC members convey the views and concerns of

the groups they represent, while remaining sensitive to the collective best

interests of all GAO employees; propose solutions to concerns raised by

employees; provide input to and comment on GAO policies, procedures,

plans, and practices; and communicate agency issues and concerns to

employees.

Creating transparency is a key element of our employee involvement

efforts. We typically get extensive front-end input, issue straw proposals,

and make extensive use of surveys and focus groups to obtain feedback.

For example, before we finalize any major human capital proposal or

other significant agency policy, we notify all of our employees via e-mail

that a new GAO order or policy is out for comment. We post these

materials on our Intranet in a format that allows our employees to

comment online. After due consideration of the comments, many of which

may lead to changes in the original proposal, we inform the staff of the

results of the process. Recent materials that have been provided for

comment in this fashion include our strategic plan; our congressional

protocols; the procedures for our Professional Development Program;

proposals for new titles for mission positions; and all of our GAO orders,

including those on the reasonable use of computers and other equipment,
Page 29 GAO-01-965T 

our employee parking program, adverse actions, Voluntary Early

Retirement offers, and Senior Level positions.

We have noted in the past that there is no single recipe for successful

human capital management.5

 At GAO, we are making significant progress

by using the management tools and flexibilities available to us and

tailoring our human capital approaches to support our mission and other

evolving needs. However, the tools and flexibilities available to other

agencies will differ from ours, and so will the specific human capital

approaches these agencies may develop to fit their own situations. The

important point to remember is that the principles of modern strategic

human capital management, drawn from high-performing organizations in

the public, not-for-profit, and private sectors alike, are widely known and

widely applicable. Every agency needs to recognize that its people are vital

assets for organizational success and, to develop approaches for managing

human capital that best support the agency’s mission, vision, core values,

goals and objectives, and business strategies.

While I have focused so far on GAO’s experience, I would like to remark

briefly on those of two other federal entities, the Department of Defense

(DOD) and the Internal Revenue Service (IRS).

The human capital issues facing the Department of Defense are not

fundamentally different from those facing other federal agencies today. In

the wake of extensive downsizing over the last decade, DOD is

experiencing significant workforce imbalances in terms of shape, skills,

and retirement eligibility, with the likelihood of a significant loss of

experienced personnel to retirement over the next few years and a

resulting decline in the ability to accomplish agency missions. Yet, until

recently, there has been very little action taken to address these problems,

especially on the civilian (or non-uniformed) side of DOD.

The last few decades have seen a dramatic decrease in the size of the DOD

workforce. However, while it has come down considerably in size, it is still

by far the largest employer in the government. Because it is the largest

employer of federal employees in the competitive civil service, how DOD

 5 Human Capital: A Self-Assessment Checklist for Agency Leaders (GAO/OCG-00-14G,

September 2000).

Use Of Management

Tools And Flexibilities

At DOD And IRS

Department of Defense
Page 30 GAO-01-965T 

approaches human capital management sends important signals about

trends and expectations for federal employment across government.

Last year, the Defense Science Board task force6

 identified several key

issues now evident across the total defense force. Within the civilian

workforce, it cited an insufficient number of properly trained candidates

in the pipeline, an aging workforce with little turnover, and limited

professional development opportunities.

DOD’s Human Capital Challenges. Many of the human capital problems

that DOD is dealing with today are the result of its approach to downsizing

in the early 1990s. While DOD had tools available to manage its civilian

downsizing and mitigate the adverse effects of force reductions, its

approach to civilian force reductions was not really oriented toward

shaping the makeup of the workforce for the future. In contrast, DOD did

a much better job managing active-duty military force reductions because

it followed a policy of trying to achieve and maintain a degree of balance

between its accessions and losses in order to shape its forces with regard

to rank, specialties, and years of service.7

The consequences of the lack of attention to force shaping can be seen in

the current age distribution of the DOD civilian workforce in comparison

to the distribution at the start of the drawdown. Specifically:

• As of September 1999, only 6.4 percent of DOD’s civilian workforce was

under the age of 31, compared to about 17 percent in 1989.

• Since 1989, there has been a 69 percent drop in the number of civilians

with less than 5 years of service, but only a 4 percent drop in the number

of civilians with 11–30 years of service.

The net effect is a workforce that is not balanced by cohort group or

experience and that puts at risk the orderly transfer of institutional

knowledge. Although we cannot say what the ideal balance of employees

should be, the continuing increase in the number of retirement-age

employees could make it difficult for DOD to infuse its workforce with

 6 Final Report of the Defense Science Board Task Force on Human Resources Strategy

(Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics,

February 28, 2000).

7 Human Capital: Strategic Approach Should Guide DOD Civilian Workforce

Management (GAO/T-GGD/NSIAD-00-120, March 9, 2000).
Page 31 GAO-01-965T 

new and creative ideas and develop the skilled civilian workers, managers,

and leaders it will need to meet future mission requirements. These

problems are even more severe in certain areas such as acquisition and

depot maintenance, where the proportional reduction in the size of the

workforce has been 47 percent and 59 percent, respectively, compared to

a 37 percent decrease in the DOD total civilian workforce. In addition, in

both of these areas, more than half of the current workforce will be

eligible to retire within the next 5 years.

Perhaps one of the more serious cases is the example that Senator

Voinovich cited in his recent Report to the President.8

 That case involved

Wright-Patterson Air Force Base in Dayton, Ohio, headquarters of the Air

Force Material Command, which employs over 10,000 civilian federal

workers. It is an excellent example of the age and skills imbalance

currently affecting the defense workforce. Demographically, 60 percent of

Wright-Patterson’s civilian employees will be eligible for either early or

regular retirement by 2005. Over and above the problem of continuity and

succession, the Wright-Patterson example also demonstrates a growing

imbalance in DOD’s engineering workforce as the need for new skills

emerges in areas such as space operations, lasers, optics, advanced

materials, and directed energy fields.

The extended period of downsizing in these and other segments of its

workforce has put DOD on the verge of a retirement-driven talent drain.

DOD is facing potential shortages of experienced personnel in a variety of

areas, including active duty flight-rated personnel and other skill areas in

addition to the acquisitions and depot maintenance areas already

mentioned. Retired military personnel are one potential source of

experienced personnel. For example, in late 1999, the Air Force’s Air

Education and Training Command announced plans to fill 30 flight-rated

staff positions with civilian employees. This initiative was aimed at freeing

up active duty pilots to return to flying positions. Since, as we have

pointed out in the past, a civilian employee costs less than a comparablygraded military person,9

 finding a viable source of experienced civilians to

 8 Report to the President: The Crisis in Human Capital, report prepared by Senator

George V. Voinovich, Chairman, Subcommittee on Oversight of Government Management,

Restructuring, and the District of Columbia, Committee on Governmental Affairs, United

States Senate, December 2000.

9 DOD Force Mix Issues: Greater Reliance on Civilians in Support Roles Could Provide

Significant Benefits (GAO/NSIAD-95-5, October 19, 1994).
Page 32 GAO-01-965T 

replace active duty personnel in support roles could also yield significant

budgetary savings for DOD.

Military retirees have considerable knowledge, skills, abilities, and

experience that they can bring to some of these highly specialized defense

jobs. They could be a great source of employees that would offset the

expected loss of personnel to retirement while minimizing the loss of

personnel in whom a substantial investment has been made and who still

have valuable contributions to make. However, until recently, many

military retirees who took federal civilian jobs incurred significant

economic penalties. A recent change in law, however, may improve the

Department’s ability to fill specialized positions with highly skilled,

experienced military retirees. The National Defense Authorization Act for

Fiscal Year 2000 repealed the dual-compensation limit that required retired

military officers and some enlisted retirees to forego 50 percent of their

military retired pay in excess of about $10,450 if they went to work for the

federal government. A pay cap also placed a limitation on the combined

military retiree pay and civilian employee salary an individual could

receive. The recent repeal of these limitations should make civilian jobs in

DOD more appealing to retired military personnel, allowing the

Department to continue to benefit from the experience and knowledge of

retirees after they leave active duty.

A byproduct of the downsizing of the DOD workforce has been a shift in

composition away from clerical and blue-collar occupations with an

increasing percentage of professional, technical, and administrative

occupations. One of the implications of this trend is the need for

additional programs for training and development. In 1997, in response to

recommendations from the Commission on Roles and Missions of the

Armed Forces, DOD created its Defense Leadership and Management

Program (DLAMP). This is a succession-planning program aimed at

preparing civilian employees for key leadership positions throughout the

Department. Since its inception, nearly 1,500 DOD civilians have

participated in the program, and the first graduates completed the

program in late fall 2000.

The Search for Personnel Management Flexibilities. As we have

previously reported, not all barriers to more effective strategic human

capital management in the federal government stem from law or
Page 33 GAO-01-965T 

regulation.10 Some arise out of long-standing perceptions about the

limitations placed on agency officials’ managerial prerogatives or basic

philosophies about how people should be managed. Over the last couple

of decades, DOD has considered a number of approaches to gaining

additional flexibility with which to manage its civilian workforce. This has

ranged from considering proposing its own personnel system

(independent from government-wide personnel rules) to the development

of various personnel demonstration projects involving particular units or

segments of the workforce.

Defense, like other federal agencies, is authorized by the 1978 Civil Service

Reform Act (5 U.S.C. 4703) to conduct personnel demonstration projects

with the approval of OPM. Over the years, Defense organizations have

sought and received permission to engage in a variety of projects aimed at

demonstrating the potential to improve the management of civil service

employees. Most of these demonstration projects have experimented with

changing various civil service policies or procedures, such as

broadbanding grade levels and implementing various pay-for-performance

or contributions-based compensation systems. For example, a recent

demonstration project approved by OPM is intended to enhance the

quality, professionalism, and management of the Department’s civilian

acquisition workforce.11 This demonstration project is designed to provide

an encouraging environment that promotes the growth of all employees

and improves the local acquisition managers’ ability and authority to

manage the workforce effectively. It involves streamlined hiring processes,

broadbanding, simplified job classification, a contribution-based

compensation and appraisal system, revised reduction-in-force

procedures, expanded training opportunities, and sabbaticals.

The Need For Strategic Workforce Planning. Seeking additional

flexibilities and developing demonstration projects, however, is likely to

do little to solve DOD’s long-term human capital problems unless it first

engages in a concerted strategic workforce planning effort. As the Defense

Science Board task force reported in February 2000:

 10 Transforming the Civil Service: Building the Workforce of the Future—Results of a

GAO-Sponsored Symposium (GAO/GGD-96-35, December 20, 1995).

11 For details on this demonstration project, see Federal Register, Vol.64, No. 5, pp.1426-

1432.
Page 34 GAO-01-965T 

• “Today there is no overarching framework within which the future DOD

workforce is being planned aside from the planning conducted within the

military services and ad hoc forums in the Office of the Secretary of

Defense. An overarching strategic vision is needed that identifies the kind

of capabilities, and the changes in human resources planning and

programs that will be required. (p. viii)” 12

This brings us to the crucial foundation that DOD needs to put in place if it

is to solve its long-term human capital challenges—strategic workforce

planning. The Department needs to:

• determine its current and future workforce needs,

• assess how its current and anticipated future workforce compares to these

needs, and

develop effective strategies to fill the gaps.

Some work has recently begun in this area. The RAND Corporation

recently issued the results of a study conducted for DOD.13 This report was

aimed at understanding the effect of Joint Vision 201014 on the defense

workforce. The researchers focused on three key questions to facilitate

workforce planning for the year 2010:

• What changes in military missions, organizations, and technology are

anticipated by 2010?

• To what extent will changes in military missions, organizations, and

technology affect defense work context and activities?

How will changes in work affect the desired characteristics of workers?

Efforts such as this need to be continued and expanded beyond the first

decade of the new century if DOD is to develop the workforce it will need

to fulfill our strategic national defense requirements.

 12 Final Report of the Defense Science Board Task Force on Human Resources Strategy

(Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics,

February 28, 2000).

13 Levy, D.G., Thie, H.J., Robbert, A.A., Naftel, S., Cannon, C., Ehrenberg, R., and Gershwin,

M. Characterizing the Future Defense Workforce (RAND, MR-1304-OSD, 2001).

14 A document published in 1996 by Chairman of the Joint Chiefs, General Shalikashvili,

outlining his vision for joint warfighting in the early 21st century.
Page 35 GAO-01-965T 

IRS is revamping its human capital policies to help achieve its

congressionally mandated transformation to an agency that better

balances service to the taxpayers with enforcement of the tax laws. The

massive modernization required by the IRS Restructuring and Reform Act

(the Reform Act) is virtually unprecedented for IRS and will require many

years to implement.

Strategic planning. Before using the full range of personnel flexibilities

available to it under current law and as made available by the Reform Act,

IRS first needed to develop an agencywide strategic plan that established a

framework for meeting its revised responsibilities. High-performing

organizations develop strategic plans that shape the human capital policies

and practices needed to align all employees toward achieving

organizational goals and objectives. Such a plan was particularly

important for IRS because, given the breadth of changes the Congress

expected it to make, the agency needed to thoroughly reconsider its

strategic direction. Further, at the same time that IRS was developing a

strategic plan pursuant to the Reform Act, it was also reorganizing into

four customer-focused operating divisions and aligning the division’s

efforts with its new strategic plan. Not surprisingly, developing a new

strategic approach and reorganizing in concert with it were timeconsuming tasks.

As part of its annual strategic planning and budgeting process, IRS revised

its strategic plans at the agencywide, division, and field office levels in

October 2000. We found the plan to be well developed at the IRS-wide

level, reflecting the balance the Congress sought between taxpayer service

and tax compliance. However, the plans, developed by divisions and field

offices needed to be more specific, measurable and outcome oriented to

provide a road map for each employee’s daily activities. IRS is improving

its strategic planning process and is currently deploying operational

balanced measures to the field office level.

Concurrent with developing its strategic plan, IRS began changing its

employee evaluation systems to better reflect the agency’s strategic goals

and objectives. Such change was needed because, as we reported in

October 1999, front-line employee evaluations were more heavily focused

on revenue production and efficiency than on customer service. IRS first

revised the evaluation system for managers because these changes could

be made without negotiating with the National Treasury Employees Union

(NTEU), which represents front-line employees. Effective February 2000,

the new evaluation system for managers includes critical job elements that

reflect IRS’ strategic goals of balancing its customer service and

Internal Revenue Service
Page 36 GAO-01-965T 

compliance responsibilities while promoting employee satisfaction.

Managers are also required to develop specific commitments about the

actions they will take to contribute to IRS’ goals and objectives. IRS is

currently revising the evaluation system for the remainder of the

workforce so that their critical job elements also reflect IRS’ strategic

goals. IRS is discussing these proposed changes with NTEU and hopes to

have this system in place by fiscal year 2002. We are currently assessing

how effective these new employee evaluation systems are in cascading

strategic goals and objectives down to managers and front-line employees.

Tailoring human capital approaches. IRS has used personnel flexibilities

authorized by the Reform Act and flexibilities within existing personnel

systems to better tailor its human capital policies and practices to its

needs. For example, the Reform Act authorized IRS to establish up to 40

critical pay positions to attract senior managers with special knowledge

and skills that IRS would otherwise have been unable to attract. As of

early July 2001, IRS had about 24 positions filled under its new critical pay

authority. IRS also created a broadbanded personnel classification and pay

system to increase its flexibility in rewarding and utilizing managers. In

March 2001, IRS collapsed over 1,500 GS-14s and GS-15s into a single pay

band.

In addition to the personnel flexibilities provided under the Reform Act,

IRS used its existing personnel authority to foster employee behavior that

supports its new strategic goals. For example, IRS has provided training to

its employees on the new definition of customer service and how

customer service should be integrated into their daily activities. In

addition, IRS has put into place personnel practices that the Congress

tailored to IRS’ circumstances when it passed the Restructuring Act. These

include, for instance, a prohibition on using tax enforcement statistics in

employee evaluations and termination procedures for employees engaging

in specific types of misconduct.

Employee involvement. To get employee buy-in, IRS has continued to

involve NTEU in developing and implementing organizational changes. For

example, IRS and NTEU have partnered through efforts such as formally

structured partnering councils, business process improvement teams, and

cross unit committees. NTEU has also been involved since the beginning

in IRS’ reorganization. For example, over 500 front-line employees worked

on reorganization teams. NTEU’s President said that because the union

has been involved in the reorganization since the beginning, NTEU has

been willing to expedite union negotiations on certain mission critical
Page 37 GAO-01-965T 

items. For example, NTEU has expedited the development of new career

paths and position descriptions for IRS employees.

IRS has also involved NTEU and employees in developing the new frontline employee evaluation system. However, IRS has been less successful in

obtaining employee buy-in to these changes. IRS has had difficulty in

obtaining NTEU agreement to the implementation of the employees’ new

critical job elements.

An agency’s people are its most valuable organizational asset in managing

for results. After years of inattentiveness to human capital as a critical

management issue, and now that strategic human capital management has

earned GAO’s governmentwide high-risk designation, the federal

government must take steps to meaningfully address its many human

capital challenges. In this regard, the federal government must take a more

strategic approach to human capital management. This area must be

linked to each entity’s strategic plan, core values, and organizational

realignment.

Fundamental human capital legislative reform will eventually become a

reality. However, agencies must first take the steps available to them

under current laws and regulations to better manage their people. Second,

agencies and The Congress alike should explore several legislative

opportunities to help attract, motivate, and retain employees, both overall

and especially in connection with critical occupations. Finally, all

interested parties should work together to determine the nature and

extent of more comprehensive human capital (or civil service) reforms

that should be enacted over time. These reforms should include placing

greater emphasis on skills, knowledge, and performance in connection

with federal employment and compensation decisions.

I believe that if the government is to maximize its performance and assure

accountability, then a fundamental shift is needed in the performance

management paradigm. Decisions regarding hiring, compensation,

promotion, and disciplinary actions must be driven more by employee

skills, knowledge, and performance, and less by the passage of time and

the rate of inflation, as they are today. The message we will send by

moving away from tenure-based decisionmaking and toward decisions

based on skills, knowledge, and performance, is simple: results count.

Federal employees and managers alike will get the message, but so will

prospective federal employees and members of the general public. They

will understand that the federal government is holding its people to the

Summary
Page 38 GAO-01-965T 

highest standards of accountability, and that understanding will make the

federal government a more prestigious, respected, and attractive

employer.

For further information regarding this testimony, please contact Victor S.

Rezendes, Managing Director, Strategic Issues, on (202) 512-6806 or at

rezendesv@gao.gov. For information specific to the DOD-related portion

of this testimony, please contact Henry L. Hinton, Jr., Managing Director,

Defense Capabilities and Management, on (202) 512-4300 or at

hintonh@gao.gov. For further information specific to the IRS-related

portion of this testimony, please contact Michael Brostek, Director, Tax

Administration and Justice, on (202) 512-9110 or at brostekm@gao.gov.

Individuals making key contributions to this testimony included Stephen

Altman, William Beusse, Ralph Block, Margaret Braley, Benjamin

Crawford, Charlie Daniel, Gilbert Fitzhugh, John Pendleton, Joseph

Santiago, and Jonda Van Pelt.

Contact and

Acknowledgments

(450043)
Page 39 GAO-01-965T 

Attachment I: Addressing the Human Capital

Challenge: Shared Responsibilities

• President

• Lead

• Promote

• Recognize

• OMB

• Lead

• Coordinate

• Link

• OPM

• Lead

• Advise/Assist

• Review

• Departments/

Agencies

• Lead

• Design

• Implement

• Congress

• Confirm

• Oversee

• Legislate

• GAO

• Review

• Recommend

• Share

• Private Sector

• Partner

• Recognize

• Support

• Foundations

• Partner

• Research

• Integrate

• Academia

• Partner

• Revise

• Promote

• Media

• Learn

• Investigate

• Report
Page 40 GAO-01-965T 

Attachment II
Page 41 GAO-01-965T 

Attachment III

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