a

GAO

United States General Accounting Office

Testimony

Before Congressional Subcommittees

For Release on Delivery

Expected at 9:30 a.m. EDT

Tuesday, April 8, 2003

HUMAN CAPITAL

Building on the Current 

Momentum to Address 

High-Risk Issues

Statement of David M. Walker

Comptroller General of the United States

GAO-03-637T
Since GAO designated strategic human capital management as a 

governmentwide high-risk area in January 2001, Congress, the 

administration, and agencies have taken a number of steps to address the 

federal government’s human capital shortfalls. In fact, more progress in 

addressing the government’s long-standing human capital challenges was 

made in the last 2 years than in the last 20, and GAO is confident that 

more progress will be made in the next 2 years than the last 2 years. 

Despite the building momentum for comprehensive and systematic 

reforms, it remains clear that today’s federal human capital strategies are 

not yet appropriately constituted to meet current and emerging 

challenges or to drive the needed transformation across the federal 

government. The basic problem is the long-standing lack of a consistent 

strategic approach to marshaling, managing, and maintaining the human 

capital needed to maximize government performance and assure its 

accountability. 

Committed and sustained leadership and persistent attention on behalf of all 

interested parties will continue to be essential to building on the progress 

that has been and is being made. Congress has had and will need to 

continue to have a central role in improving agencies’ human capital 

approaches. The basic principles underlying the legislative proposals 

Congress is considering have merit. Collectively, these proposals would 

make a positive contribution to addressing high-risk human capital issues 

and advancing the needed cultural transformation across the federal 

government. At the same time, additional safeguards should be considered 

by Congress in order to prevent potential abuse. Moreover, certain 

additional proposals should be considered as part of this legislative package. 

Looking forward, the time has come to seriously explore more market- and 

performance-based approaches to federal pay. As part of this exploration, 

we need to continue to experiment with providing agencies with the 

flexibility to pilot alternative approaches to setting pay and linking pay to 

performance. A more performance-based approach to Senior Executive 

Service pay would be a good place to start. The bottom line, however, is that 

in order to receive any additional performance-based pay flexibility for 

broad-based employee groups, agencies should have to demonstrate that 

they have modern, effective, credible, and validated performance 

management systems, with adequate safeguards, including reasonable 

transparency and appropriate accountability mechanisms in place, that are 

capable of supporting such decisions. Unfortunately, most federal agencies 

are a long way from meeting this requirement. GAO, on the other hand, has 

taken numerous steps to meet this requirement and is well positioned to 

experiment with additional pay for performance flexibility. 

Federal employees represent the 

government’s knowledge base, 

drive its capacity to perform, and 

define its character, and as such, 

are its greatest asset. The early 

years of the 21st century are 

proving to be a period of profound 

transition for our world, our 

country, and our government. In 

response, the federal government 

needs to engage in a 

comprehensive review, 

reassessment, reprioritization, and 

as appropriate, reengineering of 

what the government does, how it 

does business, and in some cases, 

who does the government’s 

business. Leading public 

organizations here and abroad have 

found that strategic human capital 

management must be the 

centerpiece of any serious change 

management initiative and effort to 

transform the cultures of 

government agencies. 

At the request of the 

subcommittees, GAO discussed the 

status of the federal government’s 

efforts to address high-risk human 

capital weaknesses, possible shortand longer-term legislative 

solutions to those weaknesses, and 

other human capital actions that 

need to be taken to ensure that 

federal agencies are successfully 

transformed to meet current and 

emerging challenges. 

www.gao.gov/cgi-bin/getrpt?GAO-03-637T.

To view the full testimony statement, click on 

the link above. For more information, contact 

J. Christopher Mihm at (202) 512-6806 or 

mihmj@gao.gov. 

Highlights of GAO-03-637T, testimony 

before congressional subcommittees 

April 8, 2003

HUMAN CAPITAL

Building on the Current Momentum to 

Address High-Risk Issues 
Page 1 GAO-03-637T 

Chairman Voinovich, Chairwoman Davis, and Members of the 

Subcommittees:

It is a great pleasure to appear before you today to discuss the federal 

government’s greatest asset—its people. Federal employees represent the 

government’s knowledge base, drive its capacity to perform, and define its 

character. The early years of the 21st century are proving to be a period of 

profound transition for our world, our country, and our government. This 

transition is being driven by a number of key trends, including global 

interdependence; diverse, diffuse, and asymmetrical security threats; 

changes in the nature of the economy; rapidly evolving science and 

technologies; dramatic shifts in the age and composition of our population; 

important quality of life issues; and evolving governance structures and 

concepts. As the nation and government policymakers grapple with the 

challenges presented by these evolving trends, they do so in a time when 

increasing fiscal pressures created by the retirement of the baby boom 

generation and rising health care costs threaten to overwhelm the nation’s 

fiscal future.1

In response to the emerging trends and long-term fiscal challenges the 

government faces in the coming years, we have an opportunity—and a 

responsibility—to create highly effective, performance-based organizations 

that can strengthen the nation’s ability to meet the challenges of the 21st 

century and reach beyond our current level of achievement. Leading public 

sector organizations here and abroad have found that strategic human 

capital management must be the centerpiece of any serious government 

transformation effort. Contrary to the assertions of some public officials 

and other parties, federal workers can be an important part of the solution 

to our overall transformation effort. Federal workers are not the problem. 

They are trapped in and encumbered by outdated and ineffective policies 

and procedures that must be changed. In addition, they need more 

consistent and enlightened leadership to show the way forward. They also 

need help from Congress.

Since we designated strategic human capital management as a 

governmentwide high-risk area in January 2001, Congress, the 

administration, and agencies have taken a number of steps to address the 

federal government’s human capital shortfalls. In fact, and this is my major 

1

U.S. General Accounting Office, Major Management Challenges and Program Risks: A 

Governmentwide Perspective, GAO-03-95 (Washington, D.C.: January 2003).
Page 2 GAO-03-637T 

point today, I believe that we have made more progress in addressing the 

government’s long-standing human capital challenges in the last 2 years 

than in the last 20, and I am confident that we will make more progress in 

the next 2 years than we have made in the last 2 years. 

Key Actions Have Been 

Taken over the Last 2 

Years to Address 

Human Capital 

Weaknesses 

When we placed strategic human capital management on our high-risk list 

back in January 2001, as a governmentwide high-risk challenge, we noted 

that after a decade of government downsizing and curtailed investments of 

human capital, it had become increasingly clear that federal human capital 

strategies were not appropriately constituted to adequately meet the 

current and emerging needs of the government and its citizens.2

 We 

provided many examples of where human capital shortfalls were eroding 

the ability of agencies—and threatening the ability of other agencies—to 

effectively, efficiently, and economically perform their missions. In short, 

strategic human capital management was a pervasive challenge across the 

federal government.

We noted that while legislation and other actions have been put in place 

since 1990 to address most major management areas, human capital was 

the critical missing link in reforming and modernizing the federal 

government’s management practices. Our high-risk report pointed to 

actions that federal leaders and their agencies, the Office of Personnel 

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

Congress needed to take to address high-risk human capital issues. 

Since then, a real and growing momentum for change has become evident.

• In August 2001, President Bush placed the strategic management of 

human capital at the top of the administration’s management agenda.

• In October 2001, OMB notified agencies that they would be assessed 

against standards for success for each part of the President’s 

Management Agenda (PMA), including the strategic management of 

human capital. The first agency assessment was made public in 

February 2002 as part of the President’s proposed fiscal year 2003 

budget. Subsequent assessments were later released in June and 

2

U.S. General Accounting Office, High-Risk Series: An Update, GAO-01-263 (Washington, 

D.C.: January 2001).
Page 3 GAO-03-637T 

September 2002 and in January 2003, reporting on both the status and 

progress of agency efforts.

• In December 2001, OPM released a human capital scorecard to assist 

agencies in responding to the human capital standards for success in the 

PMA.

• In March 2002, we released A Model of Strategic Human Capital 

Management, designed to help agency leaders determine how well they 

integrate human capital considerations into daily decision making and 

planning for the program results they seek to achieve.3

• In April 2002, the Commercial Activities Panel, which I was honored to 

chair, sought to elevate attention to human capital considerations in 

making sourcing decisions.

• In October 2002, OMB and OPM approved revised standards for success 

in the human capital area of the PMA, reflecting language that was 

developed in collaboration with GAO. To assist agencies in responding 

to the revised PMA standards, OPM released the Human Capital 

Assessment and Accountability Framework.

• In the fall of 2002, OPM began realigning its organizational structure and 

appointed four new associate directors with proven human capital 

expertise to lead federal efforts as part of a larger OPM effort to be more 

customer-focused.

• In November 2002, Congress passed the Homeland Security Act of 2002, 

which created the Department of Homeland Security (DHS) and 

provided the department with significant flexibilities to design a modern 

human capital management system. The effective development and 

implementation of these flexibilities will prove essential to the 

performance and accountability of DHS, as well as provide a potential 

model for Congress to consider for wider application governmentwide. 

• The Homeland Security Act of 2002 also included additional significant 

provisions relating to governmentwide human capital management, 

such as direct hire authority, the ability to use categorical ranking in the 

3

U.S. General Accounting Office, A Model of Strategic Human Capital Management, GAO02-373SP (Washington, D.C.: Mar. 15, 2002).
Page 4 GAO-03-637T 

hiring of applicants instead of the “rule of three,” the creation of chief 

human capital officer (CHCO) positions and a CHCO Council, an 

expanded voluntary early retirement and “buy-out” authority, a 

requirement to discuss human capital approaches in Government 

Performance and Results Act plans and reports, and a provision 

allowing executives to receive their total performance bonus in the year 

in which it is awarded. 

• Congress has further underscored the consequences of human capital 

weaknesses in federal agencies and pinpointed potential solutions 

through its oversight process and a range of hearings.

Strategic Human 

Capital Management 

Remains at High Risk 

Despite the building momentum for comprehensive and systematic 

reforms, it remains clear that today’s federal human capital strategies are 

not yet appropriately constituted to meet current and emerging challenges 

or to drive the needed transformation across the federal government. The 

basic problem is the long-standing lack of a consistent strategic approach 

to marshaling, managing, and maintaining the human capital needed to 

maximize government performance and assure its accountability. 

Specifically, as detailed in our January 2003 high-risk volume on human 

capital, agencies continue to face challenges in four overarching areas:4

• Leadership: Top leadership in agencies must provide the committed 

and inspired attention needed to address human capital and related 

organization transformation issues. 

• Strategic human capital planning: Agencies’ human capital planning 

efforts need to be more fully and demonstrably integrated with mission 

and critical program goals. 

• Acquiring, developing, and retaining talent: Additional efforts are 

needed to improve recruiting, hiring, professional development, and 

retention strategies to ensure that agencies have the needed talent.

• Results-oriented organizational cultures: Agencies continue to lack 

organizational cultures that promote high performance and 

4

U.S. General Accounting Office, High-Risk Series: Strategic Human Capital Management, 

GAO-03-120 (Washington, D.C.: January 2003).
Page 5 GAO-03-637T 

accountability and empower and include employees in setting and 

accomplishing programmatic goals.

Building on the Current 

Momentum Can Create 

Lasting Change

Committed and sustained leadership and persistent attention on behalf of 

all interested parties will continue to be essential to building on the 

progress that has been and is being made, if lasting reforms are to be 

successfully implemented. First and foremost, individual federal agencies 

need to more consistently adopt a strategic approach to the use of their 

people. This requires persistent leadership and a long-term commitment; 

aligning human capital approaches with the accomplishment of agency 

goals; implementing recruiting, hiring, training, professional development, 

performance reward, and retention approaches that foster mission 

accomplishment; and instilling a results-oriented organizational culture. 

Agencies’ CHCOs will need to play a particularly important role in this 

regard. The careful and strategic selection of these officials is therefore 

critical. The CHCO is not fundamentally an “HR” or personnel 

administration position, although knowledge in those areas is important. 

Rather, agency CHCOs should have the ability, experience, vision, 

attributes, and credibility needed to successfully integrate human capital 

considerations with program goals and to play a major leadership role in 

driving agency transformation efforts. Agencies also must make effective 

use of the tools and flexibilities that Congress has provided. To assist 

agencies in this regard, and at the request of Chairman Voinovich, Ranking 

Minority Member Durbin, and other Members of Congress, we issued a 

report last December detailing the practices that agencies need to employ 

to effectively use human capital flexibilities.5

 These practices are shown in 

figure 1. 

5

U.S. General Accounting Office, Human Capital: Effective Use of Flexibilities Can Assist 

Agencies in Managing Their Workforces, GAO-03-2 (Washington, D.C.: Dec. 6, 2002).
Page 6 GAO-03-637T 

Figure 1: Key Practices for Effective Use of Human Capital Flexibilities

The central management agencies—OPM and OMB—also have continuing 

vital roles to play. As the agency responsible for leading human capital 

management governmentwide, OPM plays a central role in helping 

agencies tackle the broad range of human capital challenges that are at the 

root of transforming what agencies do, how they do it, and with whom they 

partner. As detailed in our Performance and Accountability Series volume 

on OPM, our work and the work of others continues to show that agencies 

need and want greater leadership from OPM in helping them to address 

their human capital challenges, especially in identifying new human capital 

flexibilities, removing obstacles from the federal hiring process, and 

assisting agency workforce planning efforts. 6 Opportunities exist for OPM 

to be more vigorous in responding to a number of critical program 

challenges, such as applicant examination, staffing, and compensation 

approaches. In addition, OPM shares responsibility with agencies for 

• Obtain agency leadership commitment 

• Determine agency workforce needs using fact-based analysis 

• Develop strategies that employ appropriate flexibilities to meet workforce needs 

• Make appropriate funding available 

• Engage the human capital office 

• Engage agency managers and supervisors 

• Involve employees and unions 

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

• Train human capital staff 

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

• Inform employees of procedures and rights 

• Ascertain the source of existing requirements 

• Reevaluate administrative approval processes for greater efficiency 

• Replicate proven successes of others 

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

• Hold managers and supervisors directly accountable 

• Apply policies and procedures consistently 

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

• Encourage greater acceptance of prudent risk taking and organizational change 

• Recognize differences in individual job performance and competencies 

Source: GAO.

Plan strategically and make 

targeted investments

Ensure stakeholder input in 

developing policies and 

procedures

Educate managers and 

employees on the availability 

and use of flexibilities

Streamline and improve 

administrative processes

Build transparency and 

accountability into the system

Change the organizational 

culture

6

U.S. General Accounting Office, Major Management Challenges and Program Risks: 

Office of Personnel Management, GAO-03-115 (Washington, D.C.: Jan. 30, 2003).
Page 7 GAO-03-637T 

ensuring that human capital practices are carried out in accordance with 

merit system principles and other national goals. Effective and strategic 

oversight of agencies’ systems is even more critical today because an 

increasing number of agencies are seeking and obtaining exemptions from 

traditional civil service rules at the same time that human capital staffs 

responsible for overseeing these activities have dwindled.

In response to these ongoing challenges, OPM has taken a number of 

important actions. First, OPM realigned its organizational structure and 

workforce to create a new, flexible structure that seeks to “de-stovepipe” 

the agency; enable it to be more responsive to its primary customers, 

federal departments and agencies; and focus on the agency’s core mission. 

In November 2002, OPM’s Director appointed four new associate directors 

with proven human capital expertise to lead the organization. OPM also has 

the key role in leading the administration’s efforts to address strategic 

human capital management, a critical part of the PMA. OPM also published 

two reports in 2001 to increase agencies’ awareness of available human 

capital flexibilities, and released a report on federal compensation 

practices in April 2002. A major initiative begun in the spring of 2002 is 

designed to improve the hiring process. Furthermore, OPM is addressing its 

oversight challenge in part by encouraging agencies to develop and 

maintain internal accountability systems in line with its HRM 

Accountability Standards. OPM recently released the results of its 2002 

Federal Human Capital Survey. This survey is providing a wealth of 

important information on the views and attitudes of federal employees. The 

results demonstrate the importance of routinely surveying employees 

across the federal government through the Federal Human Capital Survey 

or a similar survey. Consideration should be given to exploring ways to 

assure that these surveys will be conducted on a periodic basis. Finally, 

OPM is at the center of the DHS’s efforts to create a modern personnel 

system that serves the needs of the department and could serve as a 

potential model for others. 

The designation of human capital as the first item on the PMA and the 

supporting standards for success have raised the profile of human capital 

issues on OMB’s agenda. As OMB and the agencies learn to evaluate 

themselves against the standards and implement policies to make 

improvements, OMB will need to ensure that the standards are consistently 

and appropriately applied while assessing agencies’ progress in managing 

their human capital. Perhaps most important, OMB support will be needed 

as agencies identify targeted investment opportunities to address human 

capital shortfalls. 
Page 8 GAO-03-637T 

Congressional Leadership 

Continues to Be Critical

Congress has had and will need to continue to have a central role in 

improving agencies’ human capital approaches. Traditionally, Congress has 

been an institutional champion in improving management of executive 

agencies across the government. Support and pressure from Congress has 

been indispensable to instituting and sustaining management reforms at 

specific agencies. Its confirmation, oversight, appropriations, and 

legislative responsibilities provide Congress with continuing opportunities 

to ensure that agencies recognize their responsibilities to manage people 

for results. For example, as Chairman Voinovich has often stressed, the 

Senate has the opportunity during the confirmation process to articulate its 

commitment to sound federal management by exploring how prospective 

nominees plan to make a link between mission accomplishment and human 

capital policies.7

 As part of the oversight and appropriations process, 

Congress can continue to examine whether agencies are managing their 

human capital to improve programmatic effectiveness and to encourage 

agencies to use the range of appropriate flexibilities available under 

current law. 

Targeted Human Capital 

Reforms

Congress will also play a critical role in determining the nature and scope 

of any additional human capital flexibilities that will be made available to 

agencies, while assuring that adequate safeguards are incorporated to 

prevent abuse. Congress also has the responsibility to ensure the 

reasonableness and adequacy of financial resources that are made 

available to agencies.

Congress is currently considering several pieces of legislation to help 

agencies address their current and emerging human capital challenges. I 

believe that the basic principles underlying these legislative proposals have 

merit and collectively they would make a positive contribution to 

addressing high-risk human capital issues and advancing the needed 

cultural transformation across the federal government. I also believe that 

certain additional safeguards and provisions should be considered by 

Congress. We look forward to working with the subcommittees as you 

consider these and related legislative initiatives. Today, I will provide 

observations on selected provisions of the various proposals. 

7

Toward this end, we developed a set of questions for political appointees that the Senate 

may use during the confirmation process. See U.S. General Accounting Office, 

Confirmation of Political Appointees: Eliciting Nominees’ Views on Leadership and 

Management Issues, GAO/GGD-00-174 (Washington, D.C.: Aug. 11, 2000).
Page 9 GAO-03-637T 

The Senior Executive Service Reform Act of 2003

The proposed Senior Executive Service Reform Act of 2003 includes a 

number of important reforms. For example, the legislation would move to a 

single Senior Executive Service (SES) pay range, increase the pay cap, and 

link SES pay more closely to performance. I strongly believe that these are 

worthwhile reforms that must be considered together, as they are in this 

proposed legislation. The legislation seeks to link pay and performance of 

senior executives by replacing the current system of six grades with a 

single pay band. Agencies would have flexibility to set basic pay for SES 

members at any amount within the range plus locality pay, to a total annual 

salary that may not exceed level II of the Executive Schedule. In addition, 

agencies could employ a broadbanding approach to SES pay should they so 

desire. This important change would provide agencies with needed 

flexibility to set SES pay in a way that reflects the reality of the great 

diversity in the work that members of the SES do rather than using a set of 

rigid SES pay grades. In fact, I have the authority to adopt such an 

approach in setting the pay for the SES in the GAO, and we plan to do so. 

The legislation would raise the highest basic pay rate for an SES member 

from the current maximum of $134,000 (level IV of the Executive Schedule) 

to $142,500 (level III of the Executive Schedule). SES basic pay currently 

ranges from $116,500 to $134,000, before locality pay is included. The 

problems of SES pay compression are real and must be addressed, with 

over 60 percent of SES members being at the current cap. 

The SES needs to lead the way in the federal government’s effort to better 

link pay to performance. The legislation would require that agencies base 

their SES pay decisions on “individual performance, contribution to the 

agency’s performance, or both.” We have reported that there are significant 

opportunities to strengthen efforts to hold senior executives accountable 

for results.8

 In particular, more progress is needed in explicitly linking 

senior executive expectations for performance to results-oriented 

organizational goals, fostering the necessary collaboration both within and 

across organizational boundaries to achieve results, and demonstrating a 

commitment to lead and facilitate change. These expectations for senior 

executives will be critical to keep agencies focused on transforming their 

cultures to be more results-oriented, less hierarchical, more integrated, and 

8

U.S. General Accounting Office, Results-Oriented Cultures: Using Balanced Expectations 

to Manage Senior Executive Performance, GAO-02-966 (Washington, D.C.: Sept. 27, 2002).
Page 10 GAO-03-637T 

externally focused and thereby be better positioned to respond to emerging 

internal and external challenges, improve their performance, and assure 

their accountability. 

Agencies should be required to have modern, effective, credible, and 

validated performance management systems in place before they are 

granted authority to better link pay to performance for broad-based 

employee groups. In this regard, Congress should consider providing 

specific statutory standards that agencies’ performance management 

systems would be required to meet before OPM could approve any such 

pay for performance effort. Our own experience in implementing such 

reforms in GAO and the practices of other leading organizations that I will 

discuss shortly could serve as a starting point for that consideration. 

Finally, the legislation’s provision to allow agencies to credit nonfederal 

work experience for purposes of providing annual leave recognizes that the 

federal government must effectively recruit in a larger labor market. The 

increasing number of retirement-eligible federal employees is most 

concentrated in mid- and senior- level positions. To attract top talent, both 

at the entry and at midcareer levels, it is important to offer applicants an 

attractive compensation and benefits package that is not structured 

entirely on a model that assumes a 30-year career of federal service. Simply 

stated, this provision recognizes the reality of increased mobility in the 

workforce and the need to modernize our annual leave provisions to attract 

and retain experienced people with critical skills. 

The Federal Workforce Flexibility Act of 2003

The Federal Workforce Flexibility Act of 2003 would expand the authority 

to use and increase the amount of recruitment and retention bonuses. For 

example, the legislation would allow the payment of a recruitment bonus of 

up to 100 percent of an employee’s annual salary for critical, hard-to-fill 

positions, subject to approval by the agency. The legislation also expands 

the use of recruitment bonuses to employees currently employed in 

another federal agency and retention bonuses to employees who might 

leave to go to another federal agency. Previously, recruitment bonuses 

could only be paid to employees coming from outside the federal 

government and retention bonuses could only be paid to employees likely 

to leave federal employment altogether. We support providing agencies 

with these types of additional tools and flexibilities to attract and retain 

needed staff as long as such payments are targeted, based on a business 

need, and are implemented with adequate safeguards. In that regard, 
Page 11 GAO-03-637T 

Congress should consider capping the number or percentage of employees 

in an agency who would be eligible for such payments.

As you know, the federal government faces a looming wave of employees 

who will be eligible for retirement. Agencies need succession planning 

programs to ensure that knowledge is transferred from one generation of 

employees to another. An approach that should be explored would be to 

allow “phased retirements.” There are a number of ways that a phased 

retirement program could work; the legislation seeks to provide one option 

for employees who would like to work part time as they end their federal 

careers by prorating retirement annuities for the period of service that was 

performed on a part-time basis, thus removing a current disincentive to 

such part-time work. 

The Federal Workforce Flexibility Act of 2003 would also expand the 

authority to conduct personnel demonstration projects. Such projects, 

authorized by OPM under the Civil Service Reform Act of 1978, provide a 

means for testing and introducing improvements in governmentwide 

human resources management systems. To become a demonstration 

project, a federal agency obtains authority from OPM to waive existing 

federal human resources management laws and regulations in Title 5 and 

propose, develop, test, and evaluate interventions for its own human 

resources management system that can help shape the future of federal 

human resource management.9

As a general rule, current law limits the size of a demonstration project to 

5,000 employees and the life of a project to a 5-year time limit. The 

legislation would eliminate the cap on the number of employees who could 

participate in a demonstration project and allow the projects to have up to 

a 10-year life span. This more flexible approach to demonstration projects 

is consistent with the approach Congress took in 1996 in authorizing the 

Department of Defense civilian acquisition workforce demonstration 

project to expand the number of personnel eligible to participate from the 

statutory cap of 5,000 to a maximum of 95,000 and extend the project's 

length from a 5-year time limit to 13 years.

9

No waivers of law are permitted in areas of employee leave, employee benefits, equal 

employment opportunity, political activity, merit system principles, or prohibited personnel 

practices.
Page 12 GAO-03-637T 

Demonstration projects’ testing, evaluation, and reporting requirements 

have provided invaluable lessons learned to other federal organizations. 

Much of the federal government’s knowledge and real-world experience 

with performance-based pay reform has been obtained through 

demonstration projects. In fact, of the 17 demonstration projects that have 

been implemented over the past 25 years, 12 have tested some form of 

linking compensation to performance. In addition, a demonstration project 

done at the Department of Agriculture provided an important test of using 

categorical ranking as part of the applicant selection process and was 

therefore useful to the Congress in deciding to expand such authorities 

governmentwide as part of the Homeland Security Act of 2002. 

The Federal Workforce Flexibility Act of 2003’s reforms to enhance 

agencies’ training and career development programs are also positive steps 

that should help improve human capital management. The legislation calls 

for agencies to evaluate their training programs and plans to ensure that 

they are linked to strategic and performance goals and contribute to 

achieving the agency’s mission. Such evaluations of training and 

development efforts are important in demonstrating how these efforts help 

develop employees and improve the agency’s performance. As part of a 

balanced approach, training and development evaluations should consider 

organizational results and feedback from customers and employees. The 

strategic evaluation requirement in this legislation should help move 

agencies away from an orientation on activities or processes (such as the 

number of participants, courses offered, and hours of training provided), 

and instead use information on how training and development efforts 

(1) contribute to improved performance, (2) strengthen capacity to meet 

new and emerging challenges, and (3) reduce the cost of poor performance.

The legislation focuses agencies on several specific areas of importance, 

including developing succession programs and informing managers about 

effective strategies to address performance problems, mentor employees, 

and improve performance and productivity. We have noted that linking an 

executive development program and comprehensive succession planning 

to agency goals and objectives can help foster a committed leadership 

team. Further, calling for agencies to identify and share effective human 

capital strategies can help improve individual and organizational 

performance and further efforts to transform the cultures of government 

agencies. At Chairman Voinovich’s request, this fall we will report on 

selected agencies’ efforts to design effective training and development 

programs. 
Page 13 GAO-03-637T 

Generating Opportunity by Forgiving Educational Debt Service Act 

of 2003 

Congress previously passed legislation that allows agencies to set up 

programs to repay the student loans of federal employees in order to 

attract or keep highly qualified individuals. Several agencies, including 

GAO, have begun such programs and have found them to be valuable in 

attracting and retaining high-quality talent. These payments are currently 

included in gross income for federal tax purposes. However, the Generating 

Opportunity by Forgiving Educational Debt Service Act of 2003 (GOFEDS) 

would make these payments nontaxable. GOFEDS would therefore make 

payments by the federal government generally comparable to loan 

forgiveness programs in use by some educational institutions and nonprofit 

organizations. We believe that this provision has great merit. It would help 

to further leverage existing student loan repayment program dollars and 

would help agencies in their efforts to attract and retain top talent. 

Obviously, Congress will need to balance the federal human capital benefits 

of this provision as a tax expenditure with overall federal tax policy. 

Moreover, Congress should consider how GOFEDS could be implemented 

in such a way that the tax forgiveness provisions do not obscure the true 

costs of agency operations.

The Presidential Appointments Improvement Act of 2003

The Presidential Appointments Improvement Act of 2003 would, among 

other things, require each executive agency to identify the number of 

presidentially appointed, Senate-confirmed positions and the layers of 

those positions. Related to this provision, last September I convened a 

roundtable to discuss the Chief Operating Officer (COO) concept and how 

it might apply within selected federal departments and agencies as one 

strategy to address certain systemic federal governance and management 

challenges.10 There was considerable discussion on whether the senior 

management official in an agency should be presidentially appointed, 

requiring Senate confirmation, while Senate confirmation would not be 

required for those officials who lead specific management functions (e.g., 

financial management, information technology, human capital) and who 

10U.S. General Accounting Office, Highlights of a GAO Roundtable: The Chief Operating 

Officer Concept: A Potential Strategy to Address Federal Governance Challenges, GAO-03-

192SP (Washington, D.C.: Oct. 4, 2002). The invited participants were generally individuals 

with current or recent executive branch leadership responsibilities, significant executive 

management experience, or both.
Page 14 GAO-03-637T 

report to that senior management official. While there was interest in 

considering such an arrangement, it was also acknowledged that it would 

likely require amending existing legislation, for example the Chief 

Financial Officers Act, and, therefore, would need careful analysis to 

ensure that any legislative changes result in augmented attention to 

management issues and do not inadvertently lead to a reduction in the 

authority of key management officials and/or the prominence afforded a 

particular management function. 

An additional suggestion made at the roundtable that Congress may wish to 

consider would be to allow senior management officials in each agency to 

assume full authorities and responsibilities up to or for a specified period 

of time once they were formally nominated but before their confirmation. 

However, it was widely recognized that such an approach would be viable 

only if the senior management position was restricted to the professional 

and nonpartisan “good government” responsibilities that are fundamental 

to effectively executing any administration’s program agenda and did not 

entail program policy-setting authority. Furthermore, should Congress 

decide to adopt the COO concept noted above and not make subject certain 

management officials to the confirmation process (e.g., the Chief Financial 

Officer and the Chief Information Officer), the need for this flexibility 

would be greatly reduced.

More generally, the roundtable’s overall purpose was to discuss the COO 

concept and how it might apply within selected federal departments and 

agencies. The roundtable discussion neither sought nor achieved a 

consensus on the COO concept. However, it does appear that there was 

general agreement on a number of important overall themes that can serve 

as a basis for subsequent analysis, discussion, and consideration. These 

generally agreed-upon themes provide a course for action.

• Elevate attention on management issues and transformational change. 

The nature and scope of the changes needed in many agencies require 

the sustained and inspired commitment of the top political and career 

leadership. There is no substitute for top leadership involvement, 

including that of the President, through for example, the establishment 

of a governmentwide management agenda. Top leadership attention is 

essential to overcome organizations’ natural resistance to change, 

marshal the resources needed to implement change, and build and 

maintain the organizationwide commitment to new ways of doing 

business.
Page 15 GAO-03-637T 

• Integrate various key management and transformation efforts. By their 

very nature, the problems and challenges facing agencies are 

crosscutting and thus require coordinated and integrated solutions. 

However, the federal government too often places management 

responsibilities (for example, information technology, human capital, or 

financial management) into various “stovepipes” and fails to implement 

transformational change management initiatives in a comprehensive, 

ongoing, and integrated manner. While officials with management 

responsibilities often have successfully worked together, there needs to 

be a single point within agencies with the perspective and 

responsibility—as well as authority—to ensure the successful 

implementation of functional management and, if appropriate, 

transformational change efforts. At the same time, it is not practical to 

expect that the deputy secretaries, given the competing demands on 

their time in helping the secretaries execute the President’s policy and 

program agendas, will be able to consistently undertake this vital 

integrating responsibility. Moreover, while many deputy secretaries may 

be nominated based in part on their managerial experience, it has not 

always been the case and, not surprisingly, the management skills, 

expertise, and interests of the deputy secretaries have always varied and 

will continue to vary.

• Institutionalize accountability for addressing management issues and 

leading transformational change. The management weaknesses in some 

agencies are deeply entrenched and long-standing and will take years of 

sustained attention and continuity to resolve. In addition, making 

fundamental changes in agencies’ cultures will require a long-term 

effort. The experiences of successful major change management 

initiatives in large private and public sector organizations suggest that it 

can often take at least 5 to 7 years until such initiatives are fully 

implemented and the related cultures are transformed in a sustainable 

manner. In the federal government, the frequent turnover of the political 

leadership has often made it difficult to obtain the sustained and 

inspired attention required to make needed changes. 

Implementing Market-Based and 

Results-Oriented Pay Reforms

Looking forward, Congress should consider making comprehensive 

legislative reforms to existing civil service laws, taking into account the 

extent to which traditional approaches make sense in the current and 

future operating environments. In that regard, there is a growing 

understanding that we need to fundamentally rethink our approach to 

federal pay and develop an approach that places a greater emphasis on a 

person’s knowledge, skills, position, and performance rather than the 
Page 16 GAO-03-637T 

passage of time, the rate of inflation, and geographic location. The OPM 

Director’s White Paper on modernizing federal pay, issued last April, amply 

demonstrated that the current federal pay system was designed for the 

heavily clerical and low graded workforce of the 1950s rather than today’s 

knowledge-based government. Similarly, the National Commission on the 

Public Service, chaired by Paul Volcker, observed that agencies need 

greater freedom to connect pay both to the market and to performance. In 

short, as the nature of the federal workforce has changed, so too must our 

pay system if we are to effectively compete for top talent and create 

incentives for both individual and institutional success. 

Under the current federal pay system, the overwhelming majority of each 

year’s increase in federal employee pay is largely unrelated to an 

employee’s knowledge, skills, position, or performance. In fact, over 80 

percent of the cost associated with the annual increases in federal salaries 

is due to longevity and the annual pay increase. One approach that has 

been tested and that I believe deserves wider consideration is to reserve 

the annual pay adjustment for only those employees who receive an 

acceptable performance rating. This would send a clear message to the 

overwhelming majority of federal employees that their contributions are 

valued, and those few who are not contributing will not be rewarded for 

their lack of effort. More generally, current federal pay gaps vary by the 

nature of the person’s position and yet the current method for addressing 

the pay gap assumes that it is the same throughout government. 

We must move beyond this outdated, “one-size-fits-all” approach to paying 

federal employees and seriously explore more market- and performancebased approaches to federal pay. As part of this exploration, we need to 

continue to experiment with providing agencies with the flexibility to pilot 

alternative approaches to setting pay and linking pay to performance. The 

greater use of “broadbanding” is one of the options that should be 

considered as part of a broader discussion of pay reform. In the short term, 

Congress should explore the benefits of (1) providing OPM with additional 

flexibility that would enable it to grant governmentwide authority for all 

agencies (i.e., class exemptions) to use broadbanding for certain critical 

occupations and/or (2) allowing agencies to apply to OPM (i.e., case 

exemptions) for broadbanding authority for their specific critical 

occupations. However, agencies should be required to demonstrate to 

OPM’s satisfaction that they have modern, effective, credible, and validated 

performance management systems before being able to adopt broader pay 

for performance systems for non-SES personnel. In this regard, Congress 

should consider providing specific statutory standards that agencies must 
Page 17 GAO-03-637T 

meet before OPM would be able to grant an exemption from existing Title 5 

requirements. 

As with all pay for performance efforts, adequate safeguards, including 

reasonable transparency and appropriate accountability mechanisms, 

would need to be in place to ensure fairness, prevent politicalization, and 

prevent abuse. Such safeguards would include ensuring that an agency’s 

career leadership and managers have significant roles in performancerelated pay decisions and that employees have central roles in the design 

and implementation of the system to build their sense of ownership for the 

system. In our work looking at leading performance management efforts 

here and abroad, we have found that the involvement of employees is 

critical to the success of such initiatives.11 Leading organizations consulted 

a wide range of stakeholders early in the process, obtained feedback 

directly from employees, and engaged employees’ unions or associations. 

The bottom line is that in order to receive any additional performancebased pay flexibility for broad-based employee groups, agencies should 

have to demonstrate that they have the modern, effective, credible, and 

validated performance management systems in place that are capable of 

supporting such decisions. Unfortunately, most federal agencies are a long 

way from meeting this requirement. As I noted earlier, the SES needs to 

lead the way in the federal government’s effort to better link pay to 

performance. Given the state of agencies’ performance management 

systems, Congress should consider starting federal results-oriented pay 

reform with the SES. Agencies should be granted the authority to 

implement additional pay for performance programs only after they have 

demonstrated that they have appropriate performance management 

systems and adequate safeguards in place. Building such systems and 

safeguards will likely require making targeted investments in agencies’ 

human capital programs, as GAO’s own experience has shown. In that 

regard, Congress and the Administration should consider how incentives 

can be provided to encourage agencies to modernize their performance 

management systems. This could include a potential governmentwide fund 

for such purposes, which could be allocated based on specific business 

case proposals by individual agencies. This approach could also help to 

11See for example, U.S. General Accounting Office, Results-Oriented Cultures: Insights for 

U.S. Agencies from Other Countries’ Performance Management Initiatives, GAO-02-862

(Washington, D.C.: Aug. 2, 2002).
Page 18 GAO-03-637T 

facilitate implementation of the high-performing organization (HPO) 

concept recommended by the Commercial Activities Panel that I chaired. 

A report we prepared at the request of Chairman Voinovich and 

Chairwoman Davis that was released last month shows specific practices 

that leading public sector organizations both here in the United States and 

abroad have used in their performance management systems to link 

individual performance and organizational success.12 These practices 

include the following: 

1. Align individual performance expectations with organizational 

goals. An explicit alignment helps individuals see the connection 

between their daily activities and organizational goals. 

2. Connect performance expectations to crosscutting goals. Placing 

an emphasis on collaboration, interaction, and teamwork across 

organizational boundaries helps strengthen accountability for results. 

3. Provide and routinely use performance information to track 

organizational priorities. Individuals use performance information 

to manage during the year, identify performance gaps, and pinpoint 

improvement opportunities.

4. Require follow-up actions to address organizational priorities.

By requiring and tracking follow-up actions on performance gaps, 

organizations underscore the importance of holding individuals 

accountable for making progress on their priorities.

5. Use competencies to provide a fuller assessment of 

performance. Competencies define the skills and supporting 

behaviors that individuals need to effectively contribute to 

organizational results. 

6. Link pay to individual and organizational performance. Pay, 

incentive, and reward systems that link employee knowledge, skills, 

and contributions to organizational results are based on valid, reliable, 

12U.S. General Accounting Office, Results-Oriented Cultures: Creating a Clear Linkage 

between Individual Performance and Organizational Success, GAO-03-488 (Washington, 

D.C.: Mar. 14, 2003).
Page 19 GAO-03-637T 

and transparent performance management systems with adequate 

safeguards. 

7. Make meaningful distinctions in performance. Effective 

performance management systems strive to provide candid and 

constructive feedback and the necessary objective information and 

documentation to reward top performers and deal with poor 

performers.

8. Involve employees and stakeholders to gain ownership of 

performance management systems. Early and direct involvement 

helps increase employees’ and stakeholders’ understanding and 

ownership of the system and belief in its fairness.

9. Maintain continuity during transitions. Because cultural 

transformations take time, performance management systems 

reinforce accountability for change management and other 

organizational goals.

GAO’s Commitment to 

Lead by Example 

We in GAO believe it is our responsibility to lead by example. We seek to be 

in the vanguard of the federal government’s overall transformation efforts, 

including in the critically important human capital area. We are clearly in 

the lead at the present time, and we are committed to staying in the lead. 

We fully recognize that our people are our most valuable asset, and it is 

only through their combined efforts that we can effectively serve our 

clients and our country. By managing our workforce strategically and 

focusing on achieving positive and measurable results, we are helping to 

maximize our own performance and ensure our own accountability. By 

doing so, we also hope to demonstrate to other federal agencies that they 

can make similar improvements in the way they manage their people.

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

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

and our calendar year 2000 human capital legislation, but most of which are 

available to all federal agencies. The most prominent change in human 

capital management that we implemented as a result of the GAO Personnel 

Act of 1980 was a broadbanded pay-for-performance system. The primary 

goal of this system is to base employee compensation primarily on the 

knowledge, skills, and performance of individual employees. It also 

provides managers flexibility to assign employees in a manner that is more 

suitable to multi-tasking and the full use of staff. Under our current 
Page 20 GAO-03-637T 

broadbanded system, analyst and analyst-related staff in Grades 7 through 

15 were placed in three bands. While our general experience has been 

positive, we expect to modify our banded system in the future based on our 

experience to date. 

In January 2002, we implemented a new competency-based performance 

management system that is intended to link employee performance and our 

strategic plan and agency core values. It includes 12 competencies that our 

employees overwhelmingly validated as the keys to meaningful 

performance at GAO. (See fig. 2.) Modernizing performance management 

systems in the federal government is essential to the overall government 

transformation effort. Importantly, doing so can be accomplished without 

any additional legislation. 

Figure 2: GAO’s Competency-Based Model

Our October 2000 legislation gave us additional tools to realign our 

workforce in light of mission needs and overall budgetary constraints; 

correct skills imbalances; and reduce high-grade, managerial, or 

supervisory positions without reducing the overall number of GAO 

employees. This legislation allowed us to create a technical and scientific 

career track at a compensation level consistent to the SES. It also allowed 

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 

Source: GAO.
Page 21 GAO-03-637T 

us to give greater consideration to performance and employee skills and 

knowledge in any reduction-in-force actions. 

Since the legislation was enacted, we have established agency regulations 

and offered voluntary early retirement opportunities. Once employees 

registered their interest in participating in the program, we considered a 

number of factors, including employee knowledge, skills, performance, and 

competencies; the organizational unit or subunit in which an employee 

worked; an employee’s occupational series, grade, or band level, as 

appropriate; and the geographic location of the employee. As authorized by 

the 2000 legislation, employee performance was just one of many factors 

we considered when deciding which employees would be allowed to 

receive the incentives. However, let me assure you, we did not use 

performance to target certain individuals. Early retirement was granted to 

52 employees in fiscal year 2002 and 24 employees in fiscal year 2003. Our 

annual performance and accountability reports have provided additional 

information on our use of this authority. As required by the 2000 legislation, 

we will shortly be providing Congress a more comprehensive assessment 

of our use of the authorities granted to us under the act. 

We are also using many recruiting flexibilities that are available to most 

agencies, including an extensive campaign to increase our competitiveness 

on college campuses and extending offers of employment during the fall 

semester to prospective employees who will come on board the following 

spring and summer. We are also using our internship program in a strategic 

fashion, and we often offer permanent positions to GAO interns with at 

least 10 weeks of highly successful work experience. Moreover, we are 

building and maintaining a strong presence of both senior executives and 

recent graduates on targeted college campuses. We have also taken steps to 

streamline and expedite our hiring process. Even after we hire good 

people, we need to take steps to retain them. We have taken a number of 

steps to empower and invest in our employees. For example, we have 

active employee feedback and suggestion programs. In addition, we 

implemented a student loan repayment assistance program for employees 

who have indicated interest and are willing to make a 3-year commitment 

to staying with the agency.
Page 22 GAO-03-637T 

Overall, we have implemented a number of human capital initiatives, 

including the following, some of which are relatively recent and some of 

which are long-standing:13

• Prepared a human capital profile and needs assessment to understand 

employee demographics and distribution.

• Conducted agencywide, confidential, and web-based employee surveys 

in 1999 and 2002 to understand the status and progress of the agency 

and the areas in which we need to improve.

• Completed a knowledge and skills inventory for all employees.

• Achieved a democratically elected Employee Advisory Council to 

facilitate open communication and direct input from line employees to 

the Comptroller General and other GAO senior leaders on matters of 

mutual interest and concern.

• Conducted an employee preference survey so that employees could be 

given the opportunity to work in the areas that interest and energize 

them in light of our institutional needs.

• Implemented an Executive Candidate Development Program to prepare 

candidates for assignments in the SES.

• Developed and implemented a strategy to place more emphasis on 

diversity in campus recruiting.

• Initiated a Professional Development Program for newly hired GAO 

analysts to help them transition and progress.

• Began developing a core training curriculum to directly link and support 

our validated core competencies.

• Provided an on-site child care center called “Tiny Findings” and a 

wellness and fitness center.

13For more information on these efforts, see Human Capital: Taking Steps to Meet Current 

and Emerging Human Capital Challenges, GAO-01-965T (Washington, D.C.: July 17, 2001).
Page 23 GAO-03-637T 

• Implemented additional employee-friendly benefits such as business 

casual dress, flextime, and public transportation subsidies.

• Implemented a program to reimburse GAO employees for the cost 

incurred in pursuit of relevant professional certifications. 

• Used recruitment bonuses, retention allowances, and student loan 

repayment assistance to attract and retain employees with specialized 

skills.

• Implemented a new “state of the art” performance appraisal system that 

is linked to our strategic plan and based on key competencies, which 

have been validated by our employees. This new system has been 

implemented for analysts. This system is being adapted for our 

attorneys, and we have begun modifying the system for our 

administrative professional and support staff.

Many of the above initiatives required one-time investments to make them 

a reality. We worked with the Congress to present a business case for 

funding a number of these initiatives. Fortunately, the Congress has 

supported these and other GAO transformation efforts. The result is a 

stronger, better positioned, more effective, results-oriented, and respected 

GAO. As we engage in these changes, we also know that we are not perfect 

and we never will be. This is a work-in-progress for us as it is for others. In 

fact, we are constantly evaluating our internal efforts, seeking to learn from 

others, and making refinements as we go along. In that regard and as you 

know, we expect in the coming weeks to be formally approaching Congress 

with recommendations to provide us with additional statutory authorities 

to enable us to better manage our people. The legislation we plan to 

recommend would, among other things, facilitate GAO’s continuing efforts 

to recruit and retain top talent, develop a more performance-based 

compensation system, help realign our workforce, and facilitate our 

succession planning and knowledge transfer efforts. We believe that these 

authorities will strengthen our efforts to serve Congress and provide 

benefits to the American people. As has been the case in the past, we also 

expect that our use of these authorities will provide valuable lessons to 

Congress and agencies on how human capital flexibilities can be used in a 

context that helps an organization achieve its missions while still ensuring 

that adequate safeguards, including reasonable transparency and 

appropriate accountability mechanisms, are in place to prevent abuse. 
Page 24 GAO-03-637T 

Summary When we placed strategic human capital management on our high-risk list 

in 2001, we all knew that successfully addressing human capital challenges 

would not be quick nor easy. Due to the combined efforts of Congress, 

OPM, OMB, the agencies, federal employees, and others, we have made a 

great deal of progress over the last 2 years. But more should be done. 

Comprehensive human capital legislative reforms will likely be needed, but 

agency leaders must not wait for them to happen. Congress has already 

provided much of the authority agencies need. Therefore, the first step 

toward meeting the government’s human capital challenges is for agency 

leaders to identify and make use of all the appropriate administrative 

authorities available to them to manage their people for results. The use of 

these authorities often will need to be undertaken as part of and consistent 

with proven change management practices and with adequate safeguards 

to prevent abuse. The second step, as the subcommittees have made clear, 

is to consider selected legislative reforms to give agencies additional tools 

and flexibilities to hire, manage, and retain the human capital they need. 

These additional flexibilities also should be accompanied with adequate 

safeguards to prevent abuse. The third step is for all interested parties to 

work together to identify the kinds of comprehensive legislative reforms 

that should be enacted in the human capital area over time, with 

comprehensive pay reform being the likely centerpiece of that effort. 

Chairman Voinovich and Chairwoman Davis, this concludes my prepared 

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

Members of the Subcommittees may have. 

Contacts and 

Acknowledgments

For further information regarding this testimony, please contact 

J. Christopher Mihm, Director, Strategic Issues, on (202) 512-6806 or at 

mihmj@gao.gov. Individuals making key contributions to this testimony 

included William Doherty, Bruce Goddard, Judith Kordahl, Janice Lichty, 

Michael O’Donnell, Susan Ragland, Lisa Shames, Edward H. Stephenson, 

Jr., and Michael Volpe.

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