a

GAO

United States Government Accountability Office

Testimony

Before the Subcommittee on the Federal Workforce and 

Agency Organization, Committee on Government Reform, 

House of Representatives

For Release on Delivery

Expected at 10:00 a.m. EST

Wednesday, March 2, 2005

HUMAN CAPITAL

Observations on Final DHS 

Human Capital Regulations

Statement of David M. Walker

Comptroller General of the United States

GAO-05-391T
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-391T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Eileen Larence 

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

Highlights of GAO-05-391T, a report to 

Subcommittee on the Federal Workforce 

and Agency Organization, Committee on 

Government Reform, House of 

Representatives 

March 2, 2005

HUMAN CAPITAL

Observations on Final DHS Human 

Capital Regulations 

GAO believes that DHS’s regulations contain many of the basic principles 

that are consistent with proven approaches to strategic human capital 

management. Positively, the final regulations provide for (1) a flexible, 

contemporary, performance-oriented, and market-based compensation 

system, including occupational clusters and pay bands; (2) continued 

involvement of employees and union officials throughout the 

implementation process, such as by participating in the development of the 

implementing directives and holding membership on the Homeland Security 

Compensation Committee; and (3) evaluations of the implementation of 

DHS’s system. 

On the other hand, GAO has three areas of concern that deserve attention 

from DHS senior leadership. First, DHS has considerable work ahead to 

define the details of the implementation of its system and getting those 

details right will be critical to the success of the overall system. Second, the 

performance management system merely allows, rather than requires, the 

use of core competencies that can help to provide reasonable consistency 

and clearly communicate to employees what is expected of them. Third, the 

pass/fail ratings or three summary rating levels for certain employee groups 

do not provide the meaningful differentiation in performance needed for 

transparency to employees and for making the most informed pay decisions.

Going forward, GAO believes that especially for this multiyear 

transformation, the Chief Operating Officer/Chief Management Officer 

concept could help to elevate, integrate, and institutionalize responsibility 

for the success of DHS’s new human capital system and related 

implementation and transformation efforts. Second, a key implementation 

step for DHS is to assure an effective and on-going two-way communication 

effort that creates shared expectations among managers, employees, 

customers, and stakeholders. Last, DHS must ensure that it has the 

institutional infrastructure in place to make effective use of its new 

authorities. At a minimum, this infrastructure includes a human capital 

planning process that integrates human capital policies, strategies, and 

programs with its program goals, mission, and desired outcomes; the 

capabilities to effectively develop and implement a new human capital 

system; and importantly, the existence of a modern, effective, and credible 

performance management system that includes adequate safeguards to help 

assure consistency and prevent abuse. 

While GAO strongly supports federal human capital reform, how it is done, 

when it is done, and the basis on which it is done can be the difference 

between success and failure. Thus, the DHS regulations are especially 

critical because of their potential implications for related governmentwide 

reform. 

People are critical to any agency 

transformation, such as the one 

envisioned for the Department of 

Homeland Security (DHS). They 

define an agency’s culture, develop 

its knowledge base, and are its 

most important asset. Thus, 

strategic human capital 

management at DHS can help it 

marshal, manage, and maintain the 

people and skills needed to meet its

critical mission. Congress 

provided DHS with significant 

flexibility to design a modern 

human capital management system.

DHS and the Office of Personnel 

Management (OPM) have now 

jointly released the final 

regulations on DHS’s new human 

capital system. 

Last year, with the release of the 

proposed regulations, GAO 

observed that many of the basic 

principles underlying the 

regulations were consistent with 

proven approaches to strategic 

human capital management and 

deserved serious consideration. 

However, some parts of the human 

capital system raised questions for 

DHS, OPM, and Congress to 

consider in the areas of pay and 

performance management, adverse 

actions and appeals, and labor 

management relations. GAO also 

identified multiple implementation 

challenges for DHS once the final 

regulations for the new system 

were issued. 

This testimony provides overall 

observations on DHS’s intended 

human capital system and selected 

provisions of the final regulations. 
Page 1 GAO-05-391T 

Chairman Porter and Members of the Subcommittee: 

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

on the Department of Homeland Security’s (DHS) final regulations on its 

new human capital system, which were published last month jointly by the 

Secretary of DHS and the Director of the Office of Personnel Management 

(OPM). As you know, I recently testified on these regulations before the 

Senate’s Committee on Homeland Security and Governmental Affairs, 

Subcommittee on Oversight of Government Management, the Federal 

Workforce, and the District of Columbia.1

 Since then, GAO issued its report 

on 21st century challenges, which is intended to help the Congress address 

a range of 21st century trends and challenges, including our current 

unsustainable fiscal path, by providing a series of illustrative questions that 

could help support a fundamental and broad-based reexamination 

initiative.2

 Among the questions relevant to this hearing is one that asks: 

“How should the federal government update its compensation systems to 

be more market-based and performance-oriented?”

As the title of this hearing suggests—“The Countdown to Completion: 

Implementing the New Department of Homeland Security Personnel 

System”—DHS, and in many cases the federal government, must transform 

how it classifies, develops, motivates, and compensates its employees to 

achieve maximum results within available resources. People are critical to 

any agency’s transformation, such as the one envisioned for DHS. They 

define an agency’s culture, develop its knowledge, and are its most 

important asset. Thus, strategic human capital management at DHS can 

help it marshal, manage, and maintain the people and skills needed to meet 

its critical mission.

As we recently reported in our High-Risk Series, significant changes in how 

the federal workforce is managed, such as DHS’s new human capital 

system, are underway.3

 Consequently, there is general recognition that the 

government needs a framework to guide this human capital reform, one 

1

See Highlights page attached to this statement and GAO, Human Capital: Preliminary 

Observations on Final Department of Homeland Security Human Capital Regulations, 

GAO-05-320T (Washington, D.C.: Feb. 10, 2005).

2

GAO, 21st Century Challenges: Reexamining the Base of the Federal Government, GAO05-325SP (Washington, D.C.: February 2005).

3

GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: January 2005).
Page 2 GAO-05-391T 

that Congress and the administration can implement to enhance 

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

These final regulations, which according to DHS will affect about 110,000 

federal employees, are especially critical because of their implications for 

governmentwide reforms.

Today, I will discuss some of the major features of the DHS regulations. In 

doing so, I will touch on several key themes. Specifically, I will highlight 

three positive features, three areas of concern, and three comments going 

forward that are suggested in my statement today. Let me start by 

summarizing three positive features of the proposed DHS human capital 

system. First, we believe that, consistent with the observations we made a 

year ago, the proposed regulations provide for a flexible, contemporary, 

performance-oriented, and market-based compensation system.4

 Under the 

regulations, DHS is to establish occupational clusters and pay bands and 

may, after coordination with OPM, set and adjust pay ranges taking into 

account mission requirements, labor market conditions, availability of 

funds, and other relevant factors. Second, DHS appears to be committed to 

continue to involve employees and union officials throughout the 

implementation process, including participating in the development of the 

implementing directives, holding membership on the Homeland Security 

Compensation Committee, and helping in the design and review of the 

evaluations of the new system. Third, high-performing organizations 

continually review and revise their human capital systems. To this end, the 

final regulations state that DHS is to establish procedures for evaluating the 

implementation of its system.

On the other hand, I have three areas of concern that I believe need to be 

addressed to maximize DHS’s chance of success. First, DHS has 

considerable work ahead to define the details of the implementation of its 

system and understanding these details is important in assessing the 

overall system. Second, the performance management system merely 

allows, rather than requires, the use of core competencies that can help to 

provide reasonable consistency and clearly communicate to employees 

what is expected of them. Employees validating these competencies would 

4

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

Regulations, GAO-04-479T (Washington, D.C.: Feb. 25, 2004); Posthearing Questions

Related to Proposed Department of Homeland Security (DHS) Human Capital

Regulations, GAO-04-570R (Washington, D.C.: Mar. 22, 2004); and Additional Posthearing

Questions Related to Proposed Department of Homeland Security (DHS) Human Capital

Regulations, GAO-04-617R (Washington, D.C.: Apr. 30, 2004).
Page 3 GAO-05-391T 

help to gain their acceptance and credibility and minimize adverse actions. 

This has certainly been our experience with our own internal efforts at 

GAO. Third, pass/fail ratings for employees in the “Entry/Developmental” 

band or three summary rating levels for other employee groups do not 

provide the meaningful differentiation in performance needed for 

transparency to employees and for making the most informed pay 

decisions.

Going forward, we believe that especially for this multiyear transformation, 

the Chief Operating Officer/Chief Management Officer concept could help 

to elevate, integrate, and institutionalize responsibility for the success of 

DHS’s new human capital system. Second, a key implementation step for 

DHS is to assure an effective and on-going two-way communication effort 

that creates shared expectations among managers, employees, customers, 

and stakeholders. Last, we are very concerned that DHS must ensure that it 

has the institutional infrastructure in place to make effective use of its new 

authorities. At a minimum, this infrastructure includes a human capital 

planning process that integrates human capital policies, strategies, and 

programs with its program goals, mission, and desired outcomes; the 

capabilities to effectively develop and implement a new human capital 

system; and importantly, the existence of a modern, effective, and credible 

performance management system that includes adequate safeguards to 

help assure consistency and prevent abuse. 

This morning I would like to provide some observations on the final DHS 

regulations, discuss the multiple challenges that DHS confronts as it moves 

towards implementation of its new human capital system, and then suggest 

a governmentwide framework that can serve as a starting point to advance 

human capital reform.

Observations on Final 

DHS Human Capital 

Regulations

The final regulations establish a new human capital system for DHS that is 

intended to assure its ability to attract, retain, and reward a workforce that 

is able to meet its critical mission. Further, the human capital system is to 

provide for greater flexibility and accountability in the way employees are 

to be paid, developed, evaluated, afforded due process, and represented by 

labor organizations while reflecting the principles of merit and fairness 

embodied in the statutory merit systems principles. 
Page 4 GAO-05-391T 

Predictable with any change management initiative, the DHS regulations 

have raised some concerns among employee groups, unions, and other 

stakeholders because they do not have all the details of how the system will 

be implemented and impact them. We have reported that individuals 

inevitably worry during any change management initiative because of 

uncertainty over new policies and procedures.5

 A key practice to address 

this worry is to involve employees and their representatives to obtain their 

ideas and gain their ownership for the initiative. Thus, a significant 

improvement from the proposed regulations is that now employee 

representatives are to be provided with an opportunity to remain involved. 

Specifically, they can discuss their views with DHS officials and/or submit 

written comments as implementing directives are developed, as outlined 

under the “continuing collaboration” provisions. This collaboration is 

consistent with DHS’s statutory authority to establish a new human capital 

system, which requires such continuing collaboration. Under the 

regulations, nothing in the continuing collaboration process is to affect the 

right of the Secretary to determine the content of implementing directives 

and to make them effective at any time. 

In addition, the final regulations state that DHS is to establish procedures 

for evaluating the implementation of its human capital system. Highperforming organizations continually review and revise their human capital 

management systems based on data-driven lessons learned and changing 

needs in the environment. Collecting and analyzing data is the fundamental 

building block for measuring the effectiveness of these systems in support 

of the mission and goals of the agency. 

We continue to believe that many of the basic principles underlying the 

DHS regulations are generally consistent with proven approaches to 

strategic human capital management. Today, I will provide our 

observations on the following elements of DHS’s human capital system as 

outlined in the final regulations—pay and performance management, 

adverse actions and appeals, and labor-management relations. 

5

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

Organizational Transformations, GAO-03-669 (Washington, D.C.: July 2, 2003) and 

Highlights of a GAO Forum: Lessons Learned for a Department of Homeland Security 

and Other Federal Agencies, GAO-03-293SP (Washington, D.C.: Nov. 14, 2002).
Page 5 GAO-05-391T 

Pay and Performance 

Management 

Last year, we testified that the DHS proposal reflects a growing 

understanding that the federal government needs to fundamentally rethink 

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

organizational performance.6

 To this end, the DHS proposal takes another 

valuable step towards modern performance management. Among the key 

provisions is a performance-oriented and market-based pay system. 

We have observed that a competitive compensation system can help 

organizations attract and retain a quality workforce.7

 To begin to develop 

such a system, organizations assess the skills and knowledge they need; 

compare compensation against other public, private, or nonprofit entities 

competing for the same talent in a given locality; and classify positions 

along levels of responsibility. While one size does not fit all, organizations 

generally structure their competitive compensation systems to separate 

base salary—which all employees receive—from other special incentives, 

such as merit increases, performance awards, or bonuses, which are 

provided based on performance and contributions to organizational 

results. 

According to the final regulations, DHS is to establish occupational clusters 

and pay bands that replace the current General Schedule (GS) system now 

in place for much of the civil service. DHS may, after coordination with 

OPM, establish occupational clusters based on factors such as mission or 

function, nature of work, qualifications or competencies, career or pay 

progression patterns, relevant labor-market features, and other 

characteristics of those occupations or positions. DHS is to document in 

implementing directives the criteria and rationale for grouping occupations 

or positions into clusters as well as the definitions for each band’s range of 

difficulty and responsibility, qualifications, competencies, or other 

characteristics of the work. 

As we testified last year, pay banding and movement to broader 

occupational clusters can both facilitate DHS’s movement to a pay for 

performance system and help DHS to better define occupations, which can 

improve the hiring process. We have reported that the current GS system as 

defined in the Classification Act of 1949 is a key barrier to comprehensive 

human capital reform and the creation of broader occupational job clusters 

6

GAO-04-479T.

7

GAO-04-617R.
Page 6 GAO-05-391T 

and pay bands would aid other agencies as they seek to modernize their 

personnel systems.8Today’s jobs in knowledge-based organizations require 

a much broader array of tasks that may cross over the narrow and rigid 

boundaries of job classifications of the GS system. 

Under the final regulations, DHS is to convert employees from the GS 

system to the new system without a reduction in their current pay. 

According to DHS, when employees are converted from the GS system to a 

pay band, their base pay is to be adjusted to include a percentage of their 

next within-grade increase, based on the time spent in their current step 

and the waiting period for the next step. DHS stated that most employees 

would receive a slight increase in salary upon conversion to a pay band. 

This approach is consistent with how several of OPM’s personnel 

demonstration projects converted employees from the GS system. 

The final DHS regulations include other elements of a modern 

compensation system. For example, the regulations provide that DHS may, 

after coordination with OPM, set and adjust the pay ranges for each pay 

band taking into account mission requirements, labor market conditions, 

availability of funds, pay adjustments received by other federal employees, 

and any other relevant factors. In addition, DHS may, after coordination 

with OPM, establish locality rate supplements for different occupational 

clusters or for different bands within the same cluster in the same locality 

pay area. According to DHS, these locality rates would be based on the cost 

of labor rather than cost of living factors. The regulations state that DHS 

would use recruitment or retention bonuses if it experiences such 

problems due to living costs in a particular geographic area. 

8

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

GAO-03-450 (Washington, D.C.: May 30, 2003).
Page 7 GAO-05-391T 

Especially when developing a new performance management system, highperforming organizations have found that actively involving employees and 

key stakeholders, such as unions or other employee associations, helps 

gain ownership of the system and improves employees’ confidence and 

belief in the fairness of the system.9

 DHS recognized that the system must 

be designed and implemented in a transparent and credible manner that 

involves employees and employee representatives. A new and positive 

addition to the final regulations is a Homeland Security Compensation 

Committee that is to provide oversight and transparency to the 

compensation process. The committee—consisting of 14 members, 

including four officials of labor organizations—is to develop 

recommendations and options for the Secretary’s consideration on 

compensation and performance management matters, including the annual 

allocation of funds between market and performance pay adjustments. 

While the DHS regulations contain many elements of a performance-based 

and market-oriented pay system, there are several issues that we identified 

last year that DHS will need to continue to address as it moves forward 

with the implementation of the system. These issues include linking 

organizational goals to individual performance, using competencies to 

provide a fuller assessment of performance, making meaningful 

distinctions in employee performance, and continuing to incorporate 

adequate safeguards to ensure fairness and guard against abuse. 

Linking Organizational Goals to 

Individual Performance

Consistent with leading practice, the DHS performance management 

system is to align individual performance expectations with the mission, 

strategic goals, organizational program and policy objectives, annual 

performance plans, and other measures of performance. DHS’s 

performance management system can be a vital tool for aligning the 

organization with desired results and creating a “line of sight” showing how 

team, unit, and individual performance can contribute to overall 

organizational results.10 However, as we testified last year, agencies 

struggle to create this line of sight.

9

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

Performance and Organizational Success, GAO-03-488 (Washington, D.C.: Mar. 14, 2003).

10GAO-03-488.
Page 8 GAO-05-391T 

Using Competencies to Provide a 

Fuller Assessment of 

Performance

DHS appropriately recognizes that given its vast diversity of work, 

managers and employees need flexibility in crafting specific performance 

expectations for their employees. These expectations may take the form of 

competencies an employee is expected to demonstrate on the job, among 

other things. However, as DHS develops its implementing directives, the 

experiences of leading organizations suggest that DHS should reconsider 

its position to merely allow, rather than require, the use of core 

competencies that employees must demonstrate as a central feature of its 

performance management system. Based on our review of others’ efforts 

and our own experience at GAO, core competencies can help reinforce 

employee behaviors and actions that support the department’s mission, 

goals, and values and can provide a consistent message to employees about 

how they are expected to achieve results.11 For example, an OPM personnel 

demonstration project—the Civilian Acquisition Workforce Personnel 

Demonstration Project—covers various organizational units within the 

Department of Defense and applies core competencies for all employees, 

such as teamwork/cooperation, customer relations, leadership/supervision, 

and communication. 

Similarly, as we testified last year, DHS could use competencies—such as 

achieving results, change management, cultural sensitivity, teamwork and 

collaboration, and information sharing—to reinforce employee behaviors 

and actions that support its mission, goals, and values and to set 

expectations for individuals’ roles in DHS’s transformation. By including 

such competencies throughout its performance management system, DHS 

could create a shared responsibility for organizational success and help 

assure accountability for change.

Making Meaningful Distinctions 

in Employee Performance 

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

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

organizational results. These organizations make meaningful distinctions 

between acceptable and outstanding performance of individuals and 

appropriately reward those who perform at the highest level.12 The final 

regulations state that DHS supervisors and managers are to be held 

accountable for making meaningful distinctions among employees based 

on performance, fostering and rewarding excellent performance, and 

11GAO, Human Capital: Implementing Pay for Performance at Selected Personnel 

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

12GAO-03-488.
Page 9 GAO-05-391T 

addressing poor performance. While DHS states that as a general matter, 

pass/fail ratings are incompatible with pay for performance, it is to permit 

use of pass/fail ratings for employees in the “Entry/Developmental” band or 

in other pay bands under extraordinary circumstances as determined by 

the Secretary. 

DHS is to require the use of a least three summary rating levels for other 

employee groups. We urge DHS to consider using at least four summary 

rating levels to allow for greater performance rating and pay 

differentiation. This approach is in the spirit of the new governmentwide 

performance-based pay system for the Senior Executive Service (SES), 

which requires at least four levels to provide a clear and direct link 

between SES performance and pay as well as to make meaningful

distinctions based on relative performance.13 Cascading this approach to 

other levels of employees can help DHS recognize and reward employee 

contributions and achieve the highest levels of individual performance. 

Providing Adequate Safeguards 

to Ensure Fairness and Guard 

Against Abuse 

As DHS develops its implementing directives, it also needs to continue to 

build safeguards into its performance management system. A concern that 

employees often express about any pay for performance system is 

supervisors’ ability to assess performance fairly. Using safeguards, such as 

having an independent body to conduct reasonableness reviews of 

performance management decisions, can help to allay these concerns and 

build a fair, credible, and transparent system. 

It should be noted that the final regulations no longer provide for a 

Performance Review Board (PRB) to review ratings in order to promote 

consistency, provide general oversight of the performance management 

system, and ensure it is administered in a fair, credible, and transparent 

manner. According to the final regulations, participating labor 

organizations expressed concern that the PRBs could delay pay decisions 

and give the appearance of unwarranted interference in the performance 

rating process. However, in the final regulations, DHS states that it 

continues to believe that an oversight mechanism is important to the 

credibility of the department’s pay for performance system and that the 

Compensation Committee, in place of PRBs, is to conduct an annual review 

13For more information, see GAO, Human Capital: Senior Executive Performance 

Management Can Be Significantly Strengthened to Achieve Results, GAO-04-614

(Washington, D.C.: May 26, 2004).
Page 10 GAO-05-391T 

of performance payout summary data. While much remains to be 

determined about how the Compensation Committee is to operate, we 

believe that the effective implementation of such a committee is important 

to assuring that predecisional internal safeguards exist to help achieve 

consistency and equity, and assure non-discrimination and nonpoliticization of the performance management process. 

We have also reported that agencies need to assure reasonable 

transparency and provide appropriate accountability mechanisms in 

connection with the results of the performance management process.14 For 

DHS, this can include publishing internally the overall results of 

performance management and individual pay decisions while protecting 

individual confidentiality and reporting periodically on internal 

assessments and employee survey results relating to the performance 

management system. Publishing this information can provide employees 

with the information they need to better understand the performance 

management system and to generally compare their individual 

performance with their peers. We found that several of OPM’s personnel 

demonstration projects publish information for employees on internal Web 

sites that include the overall results of performance appraisal and pay 

decisions, such as the average performance rating, the average pay 

increase, and the average award for the organization and for each 

individual unit. 

Adverse Actions and 

Appeals 

DHS’s final regulations are intended to simplify and streamline the 

employee adverse action process to provide greater flexibility for the 

department and to minimize delays, while also ensuring due process 

protections. It is too early to tell what impact, if any, these regulations 

would have on DHS’s operations and employees or other entities, such as 

the Merit Systems Protection Board (MSPB). Close monitoring of any 

unintended consequences, such as on MSPB and its ability to manage cases 

from DHS and other federal agencies, is warranted. 

In terms of adverse actions, the regulations modify the current federal 

system in that the DHS Secretary will have the authority to identify specific 

offenses for which removal is mandatory. In our previous testimony on the 

proposed regulations, we expressed some caution about this new authority 

14GAO-04-83.
Page 11 GAO-05-391T 

and pointed out that the process for determining and communicating which 

types of offenses require mandatory removal should be explicit and 

transparent. We noted that such a process should include an employee 

notice and comment period before implementation and collaboration with 

relevant congressional stakeholders and employee representatives. The 

final DHS regulations explicitly provide for publishing a list of the 

mandatory removal offenses in the Federal Register and in DHS’s 

implementing directives and making these offenses known to employees 

annually. 

In last year’s testimony, we also suggested that DHS exercise caution when 

identifying specific removable offenses and the specific punishment. When 

developing and implementing the regulations, DHS might learn from the 

experience of the Internal Revenue Service’s (IRS) implementation of its

mandatory removal provisions.15 We reported that IRS officials believed 

this provision had a negative impact on employee morale and effectiveness 

and had a “chilling effect” on IRS frontline enforcement employees who 

were afraid to take certain appropriate enforcement actions.16 Careful 

drafting of each removable offense is critical to ensure that the provision 

does not have unintended consequences. 

Under the DHS regulations, employees alleged to have committed these 

mandatory removal offenses are to have the right to a review by a newly 

created panel. DHS regulations provide for judicial review of the panel’s 

decisions. Members of this three-person panel are to be appointed by the 

Secretary for three-year terms. In last year’s testimony, we noted that the 

independence of the panel that is to hear appeals of mandatory removal 

actions deserved further consideration. The final regulations address the 

issue of independence by prescribing additional qualification requirements 

which emphasize integrity and impartiality and requiring the Secretary to 

consider any lists of candidates submitted by union representatives for 

panel positions other than the chair. Employee perception concerning the 

independence of this panel is critical to the mandatory removal process. 

15Section 1203 of the IRS Restructuring and Reform Act of 1998 outlines conditions for the 

firing of IRS employees for any of ten acts of misconduct.

16GAO, Tax Administration: IRS and TIGTA Should Evaluate Their Processing of 

Employee Misconduct Under Section 1203, GAO-03-394 (Washington, D.C.: Feb. 14, 2003).
Page 12 GAO-05-391T 

Regarding the appeal of adverse actions other than mandatory removals, 

the DHS regulations generally preserve the employee’s basic right to appeal 

decisions to an independent body—MSPB—but with procedures different 

from those applicable to other federal employees.17 However, in a change 

from the proposed regulations in taking actions against employees for 

performance or conduct issues, DHS is to meet a higher standard of 

evidence—a “preponderance of evidence” instead of “substantial 

evidence.” For performance issues, while this higher standard of evidence 

means that DHS would face a greater burden of proof than most agencies 

to pursue these actions, DHS managers are not required to provide 

employees performance improvement periods, as is the case for other 

federal employees. For conduct issues, DHS would face the same burden of 

proof as most agencies. 

The regulations shorten the notification period before an adverse action 

can become effective and provide an accelerated MSPB adjudication 

process. In addition, MSPB may no longer modify a penalty for a conductbased adverse action that is imposed on an employee by DHS unless such 

penalty was “wholly without justification.” The DHS regulations also 

stipulate that MSPB can no longer require that parties enter into settlement 

discussions, although either party may propose doing so. DHS expressed 

concerns that settlement should be a completely voluntary decision made 

by parties on their own. However, settling cases has been an important tool 

in the past at MSPB, and promotion of settlement at this stage should be 

encouraged. 

The final regulations continue to support a commitment to the use of 

Alternative Dispute Resolution (ADR), which we previously noted was a 

positive development. To resolve disputes in a more efficient, timely, and 

less adversarial manner, federal agencies have been expanding their human 

capital programs to include ADR approaches, including the use of

17Employees under collective bargaining agreements can choose to grieve and arbitrate 

adverse actions other than mandatory removals through negotiated grievance procedures or 

take these actions to MSPB.
Page 13 GAO-05-391T 

ombudsmen as an informal alternative to addressing conflicts.18 ADR is a 

tool for supervisors and employees alike to facilitate communication and 

resolve conflicts. As we have reported, ADR helps lessen the time and the 

cost burdens associated with the federal redress system and has the 

advantage of employing techniques that focus on understanding the 

disputants’ underlying interests over techniques that focus on the validity 

of their positions.19 For these and other reasons, we believe that it is 

important to continue to promote ADR throughout the process. 

Labor-Management 

Relations 

Under the DHS regulations, the scope and method of labor union 

involvement in human capital issues are to change. DHS management is no 

longer required to engage in collective bargaining and negotiations on as 

many human capital policies and processes as in the past. For example, 

certain actions that DHS has determined are critical to the mission and 

operations of the department, such as deploying staff and introducing new 

technologies, are now considered management rights and are not subject 

to collective bargaining and negotiation. DHS, however, is to confer with 

employees and unions in developing the procedures it will use to take these 

actions. Other human capital policies and processes that DHS 

characterizes as “non-operational,” such as selecting, promoting, and 

disciplining employees, are also not subject to collective bargaining, but 

DHS must negotiate the procedures it will use to take these actions. Finally, 

certain other policies and processes, such as how DHS will reimburse 

employees for any “significant and substantial” adverse impacts resulting 

from an action, such as a rapid change in deployment, must be negotiated. 

In addition, DHS is to establish its own internal labor relations board—the 

Homeland Security Labor Relations Board—to deal with most agencywide 

labor relations policies and disputes rather than submit them to the Federal 

Labor Relations Authority. DHS stated that the unique nature of its 

mission—homeland protection—demands that management have the 

flexibility to make quick resource decisions without having to negotiate 

them, and that its own internal board would better understand its mission 

and, therefore, be better able to address disputes. Labor organizations are 

18GAO, Human Capital: The Role of Ombudsmen in Dispute Resolution, GAO-01-466

(Washington, D.C.: Apr. 13, 2001).

19GAO, Alternative Dispute Resolution: Employers’ Experiences With ADR in the 

Workplace, GAO/GGD-97-157 (Washington D.C.: Aug. 12, 1997).
Page 14 GAO-05-391T 

to nominate names of individuals to serve on the Board and the regulations 

established some general qualifications for the board members. However, 

the Secretary is to retain the authority to both appoint and remove any 

member. Similar to the mandatory removal panel, employee perception 

concerning the independence of this board is critical to the resolution of 

the issues raised over labor relations policies and disputes. These changes 

have not been without controversy, and four federal employee unions have 

filed suit alleging that DHS has exceeded its authority under the statute 

establishing the DHS human capital system.20 The suit discusses bargaining 

and negotiability practices, adverse action procedures, and the roles of the 

Federal Labor Relations Authority and MSPB under the DHS regulations.

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

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

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

exploring the concept of a governmentwide framework for human capital 

reform, which I will discuss later, participants generally agreed that the 

ability to organize, bargain collectively, and participate in labor 

organizations is an important principle to be retained in any framework for 

reform. It was also suggested at the forum that unions must be both willing 

and able to actively collaborate and coordinate with management if unions 

are to be effective representatives of their members and real participants in 

any human capital reform. 

DHS Confronts Many 

Challenges to 

Successful 

Implementation 

With the issuance of the final regulations, DHS faces multiple challenges to 

the successful implementation of its new human capital system. We 

identified multiple implementation challenges at last year’s hearing. 

Subsequently, we reported that DHS’s actions to date in designing its 

human capital system and its stated plans for future work on its system are 

helping to position the department for successful implementation.21

Nevertheless, DHS was in the early stages of developing the infrastructure 

needed for implementing its new system. For more information on these 

challenges, as well as on related human capital topics, see the “Highlights” 

pages attached to this statement. 

20National Treasury Employees Union v. Ridge, No. 1:05cv201 (D.D.C. filed Jan. 27, 2005).

21GAO, Human Capital: DHS Faces Challenges in Implementing Its New Personnel 

System, GAO-04-790 (Washington, D.C.: June 18, 2004).
Page 15 GAO-05-391T 

We believe that these challenges are still critical to the success of the new 

human capital system. In many cases, DHS has acknowledged these 

challenges and made a commitment to address them in regulations. Today I 

would like to focus on two additional implementation challenges— 

ensuring sustained and committed leadership and establishing an overall 

consultation and communication strategy—and then reiterate challenges 

we previously identified, including providing adequate resources for 

implementing the new system and involving employees and other 

stakeholders in implementing the system. 

Ensuring Sustained and 

Committed Leadership 

As DHS and other agencies across the federal government embark on largescale organizational change initiatives, such as the new human capital 

system DHS is implementing, there is a compelling need to elevate, 

integrate, and institutionalize responsibility for such key functional 

management initiatives to help ensure their success.22 A Chief Operating 

Officer/Chief Management Officer (COO/CMO) or similar position can 

effectively provide the continuing, focused attention essential to 

successfully completing these multiyear transformations. 

Especially for such an endeavor as critical as DHS’s new human capital 

system, such a position would serve to 

• elevate attention that is essential to overcome an organization’s natural 

resistance to change, marshal the resources needed to implement 

change, and build and maintain the organizationwide commitment to 

new ways of doing business; 

• integrate this new system with various management responsibilities so 

they are no longer “stovepiped” and fit it into other organizational 

transformation efforts in a comprehensive, ongoing, and integrated 

manner; and 

• institutionalize accountability for the system so that the implementation 

of this critical human capital initiative can be sustained. 

22GAO, The Chief Operating Officer Concept and Its Potential Use as a Strategy to Improve 

Management at the Department of Homeland Security, GAO-04-876R (Washington, D.C.: 

June 28, 2004) and 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).
Page 16 GAO-05-391T 

We have work underway at the request of Congress to assess DHS’s 

management integration efforts, including the role of existing senior 

leadership positions as compared to a COO/CMO position, and expect to 

issue a report on this work in the coming weeks. 

Establishing an Overall 

Communication Strategy 

Another significant challenge for DHS is to assure an effective and ongoing 

two-way consultation and communication strategy that creates shared 

expectations about, and reports related progress on, the implementation of 

the new system. We have reported this is a key practice of a change 

management initiative.23 DHS’s final regulations recognize that all parties 

will need to make a significant investment in communication in order to 

achieve successful implementation of its new human capital system. 

According to DHS, its communication strategy will include global e-mails, 

satellite broadcasts, Web pages, and an internal DHS weekly newsletter. 

DHS stated that its leaders will be provided tool kits and other aids to 

facilitate discussions and interactions between management and 

employees on program changes. 

Given the attention over the regulations, a critical implementation step is 

for DHS to assure a communication strategy. Communication is not about 

just “pushing the message out.” Rather, it should facilitate a two-way 

honest exchange with, and allow for feedback from, employees, customers, 

and key stakeholders. This communication is central to forming the 

effective internal and external partnerships that are vital to the success of 

any organization. Creating opportunities for employees to communicate 

concerns and experiences about any change management initiative allows 

employees to feel that their experiences are acknowledged and important 

to management during the implementation of any change management 

initiative. Once this feedback is received, it is important to consider and 

use this solicited employee feedback to make any appropriate changes to 

its implementation. In addition, closing the loop by providing information 

on why key recommendations were not adopted is also important. 

23GAO-03-669.
Page 17 GAO-05-391T 

Providing Adequate 

Resources for Implementing 

the New System

OPM reports that the increased costs of implementing alternative 

personnel systems should be acknowledged and budgeted for up front.24

DHS estimates the overall costs associated with implementing the new 

DHS system—including the development and implementation of a new pay 

and performance system, the conversion of current employees to that 

system, and the creation of its new labor relations board—will be 

approximately $130 million through fiscal year 2007 (i.e., over a 4-year 

period) and less than $100 million will be spent in any 12-month period. 

We found that based on the data provided by selected OPM personnel 

demonstration projects, direct costs associated with salaries and training 

were among the major cost drivers of implementing their pay for 

performance systems. Certain costs, such as those for initial training on the 

new system, are one-time in nature and should not be built into the base of 

DHS’s budget. Other costs, such as employees’ salaries, are recurring and 

thus would be built into the base of DHS’s budget for future years. 

We found that approaches the demonstration projects used to manage 

salary costs were to consider fiscal conditions and the labor market and to 

provide a mix of one-time awards and permanent pay increases. For 

example, rewarding an employee’s performance with an award instead of 

an equivalent increase to base pay can reduce salary costs in the long run 

because the agency only has to pay the amount of the award one time, 

rather than annually. However, one approach that the demonstration 

projects used to manage costs that is not included in the final regulations is 

the use of “control points.” We found that the demonstration projects used 

such a mechanism—sometimes called speed bumps—to manage 

progression through the bands to help ensure that employees’ performance 

coincides with their salaries and prevent all employees from eventually 

migrating to the top of the band and thus increase costs. 

According to the DHS regulations, its performance management system is 

designed to incorporate adequate training and retraining for supervisors, 

managers, and employees in the implementation and operation of the 

system. Each of OPM’s personnel demonstration projects trained 

employees on the performance management system prior to 

implementation to make employees aware of the new approach, as well as 

24U.S. Office of Personnel Management, Demonstration Projects and Alternative Personnel 

Systems: HR Flexibilities and Lessons Learned (Washington, D.C.: September 2001).
Page 18 GAO-05-391T 

periodically after implementation to refresh employee familiarity with the 

system. The training was designed to help employees understand their 

applicable competencies and performance standards; develop performance 

plans; write self-appraisals; become familiar with how performance is 

evaluated and how pay increases and awards decisions are made; and 

know the roles and responsibilities of managers, supervisors, and 

employees in the appraisal and payout processes. 

Involving Employees and 

Other Stakeholders in 

Implementing the System 

We reported in September 2003 that DHS’s and OPM’s effort to design a 

new human capital system was collaborative and facilitated participation 

of employees from all levels of the department.25We recommended that the 

Secretary of DHS build on the progress that had been made and ensure that 

the communication strategy used to support the human capital system 

maximize opportunities for employee and key stakeholder involvement 

through the completion of design and implementation of the new system, 

with special emphasis on seeking the feedback and buy-in of frontline 

employees. In implementing this system, DHS should continue to recognize 

the importance of employee and key stakeholder involvement. Leading 

organizations involve employee unions, as well as involve employees 

directly, and consider their input in formulating proposals and before 

finalizing any related decisions.26

To this end, DHS’s revised regulations have attempted to recognize the 

importance of employee involvement in implementing the new personnel 

system. As we discussed earlier, the final DHS regulations provide for 

continuing collaboration in further development of the implementing 

directives and participation on the Compensation Committee. The 

regulations also provide that DHS is to involve employees in evaluations of 

the human capital system. Specifically, DHS is to provide designated 

employee representatives with the opportunity to be briefed and a 

specified timeframe to provide comments on the design and results of 

program evaluation. Further, employee representatives are to be involved 

at the identification of the scope, objectives, and methodology to be used in 

25GAO, Human Capital: DHS Personnel System Design Effort Provides for Collaboration 

and Employee Participation, GAO-03-1099 (Washington, D.C.: Sept. 30, 2003).

26GAO, Human Capital: Practices that Empowered and Involved Employees, GAO-01-1070

(Washington, D.C.: Sept. 14, 2001).
Page 19 GAO-05-391T 

the program evaluation and in the review of draft findings and 

recommendations. 

Framework for 

Governmentwide 

Human Capital Reform 

DHS has recently joined some other federal departments and agencies, 

such as the Department of Defense, GAO, National Aeronautics and Space 

Administration, and the Federal Aviation Administration, in receiving 

authorities intended to help them manage their human capital strategically 

to achieve results. To help advance the discussion concerning how 

governmentwide human capital reform should proceed, GAO and the 

National Commission on the Public Service Implementation Initiative 

hosted a forum in April 2004 on whether there should be a governmentwide 

framework for human capital reform and, if so, what this framework 

should include.27 While there was widespread recognition among the forum 

participants that a one-size-fits-all approach to human capital management 

is not appropriate for the challenges and demands government faces, there 

was equally broad agreement that there should be a governmentwide 

framework to guide human capital reform. Further, a governmentwide 

framework should balance the need for consistency across the federal 

government with the desire for flexibility so that individual agencies can 

tailor human capital systems to best meet their needs. Striking this balance 

is not easy to achieve, but is necessary to maintain a governmentwide 

system that is responsive enough to adapt to agencies’ diverse missions, 

cultures, and workforces. 

While there were divergent views among the forum participants, there was 

general agreement on a set of principles, criteria, and processes that would 

serve as a starting point for further discussion in developing a 

governmentwide framework in advancing human capital reform, as shown 

in figure 1. 

27GAO and the National Commission on the Public Service Implementation Initiative, 

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

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

2004).
Page 20 GAO-05-391T 

Figure 1: Principles, Criteria, and Processes 

Source: GAO. 

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

their inherent, enduring qualities:

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

with individual rights and responsibilities

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

• Certain prohibited personnel practices

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

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

human capital authorities:

• Demonstrated business case or readiness for use of targeted authorities

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

and management

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

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

includes adequate safeguards to ensure equity and prevent discrimination

Processes that agencies should follow as they implement new human capital 

authorities:

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

Management

• Establishing appeals processes in consultation with the Merit Systems Protection 

Board

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

human capital systems

• Phasing in implementation of new human capital systems

• Committing to transparency, reporting, and evaluation

• Establishing a communications strategy

• Assuring adequate training
Page 21 GAO-05-391T 

As the momentum accelerates for human capital reform, GAO is continuing 

to work with others to address issues of mutual interest and concern. For 

example, to follow up on the April forum, the National Academy of Public 

Administration and the National Commission on the Public Service 

Implementation Initiative convened a group of human capital stakeholders 

to continue the discussion of a governmentwide framework.28

Summary Observations The final regulations that DHS has issued represent a positive step towards 

a more strategic human capital management approach for both DHS and 

the overall government, a step we have called for in our recent High-Risk 

Series. Consistent with our observations last year, DHS’s regulations make 

progress towards a modern classification and compensation system. DHS’s 

overall efforts in designing and implementing its human capital system can 

be particularly instructive for future human capital reform. Nevertheless, 

regarding the implementation of the DHS system, how it is done, when it is 

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

whether it will be successful. That is why it is important to recognize that 

DHS still has to fill in many of the details on how it will implement these 

reforms. These details do matter and they need to be disclosed and 

analyzed in order to fully assess DHS’s proposed reforms. We have made a 

number of suggestions for improvements the agency should consider in 

this process. It is equally important for the agency to ensure it has the 

necessary infrastructure in place to implement the system, not only an 

effective performance management system, but also the capabilities to 

effectively use the new human capital authorities and a strategic human 

capital planning process. This infrastructure should be in place before any 

new flexibilities are operationalized.

DHS appears to be committed to continue to involve employees, including 

unions, throughout the implementation process, another critical ingredient 

for success. Specifically, under DHS’s final regulations, employee 

representatives or union officials are to have opportunities to participate in 

developing the implementing directives, as outlined under the “continuing 

collaboration” provisions; hold four membership seats on the Homeland 

Security Compensation Committee; and help in evaluations of the human 

capital system. A continued commitment to a meaningful and ongoing two28See The National Commission on the Public Service Implementation Initiative and The 

National Academy of Public Administration, A Governmentwide Framework for Federal 

Personnel Reform: A Proposal (Washington, D.C.: November 2004).
Page 22 GAO-05-391T 

way consultation and communication strategy that allows for ongoing 

feedback from employees, customers, and key stakeholders is central to 

forming the effective internal and external partnerships that are vital to the 

success of DHS’s human capital system. It is critically important that these 

consultation and communication processes be meaningful in order to be 

both credible and effective. Finally, to help ensure the quality of that 

involvement, sustained leadership in a position such as a COO/CMO could 

help to elevate, integrate, and institutionalize responsibility for the success 

of DHS’s human capital system and other key business transformation 

initiatives. 

Mr. Chairman and Members of the Subcommittee, this concludes my 

prepared statement. I would be pleased to respond to any questions that 

you may have. 

Contacts and 

Acknowledgements

For further information, please contact Eileen Larence, Acting Director, 

Strategic Issues, at (202) 512-6806 or larencee@gao.gov. Major contributors 

to this testimony include Michelle Bracy, K. Scott Derrick, Karin Fangman, 

Janice Latimer, Jeffrey McDermott, Naved Qureshi, Lisa Shames, and 

Michael Volpe. 
Page 23 GAO-05-391T 

Appendix I

“Highlights” from Selected GAO Human 

Capital Reports ApendxiI

What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-320T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Eileen Larence 

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

Highlights of GAO-05-320T, a testimony

before the Subcommittee on Oversight of 

Government Management, the Federal 

Workforce, and the District of Columbia, 

Committee on Homeland Security and 

Governmental Affairs, U.S. Senate 

February 10, 2005

HUMAN CAPITAL

Preliminary Observations on Final 

Department of Homeland Security 

Human Capital Regulations 

GAO believes that the regulations contain many of the basic principles that 

are consistent with proven approaches to strategic human capital 

management. For example, many elements for a modern compensation 

system—such as occupational clusters, pay bands, and pay ranges that take 

into account factors such as labor market conditions—are to be 

incorporated into DHS’s new system. However, these final regulations are 

intended to provide an outline and not a detailed, comprehensive 

presentation of how the new system will be implemented. Thus, DHS has 

considerable work ahead to define the details of the implementation of its 

system and understanding these details is important in assessing the overall 

system.

The implementation challenges we identified last year are still critical to the 

success of the new system. Also, DHS appears to be committed to continue 

to involve employees, including unions, throughout the implementation 

process. Specifically, according to the regulations, employee representatives 

or union officials are to have opportunities to participate in developing the 

implementing directives, hold four membership seats on the Homeland 

Security Compensation Committee, and help in the design and review the 

results of evaluations of the new system. Further, GAO believes that to help 

ensure the quality of that involvement, DHS will need to 

• Ensure sustained and committed leadership. A Chief Operating 

Officer/Chief Management Officer or similar position at DHS would 

serve to elevate, integrate, and institutionalize responsibility for this 

critical endeavor and help ensure its success by providing the 

continuing, focused attention needed to successfully complete the 

multiyear conversion to the new human capital system. 

• Establish an overall communication strategy. According to DHS, its 

planned communication strategy for its new human capital system will 

include global e-mails, satellite broadcasts, Web pages, and an internal 

DHS weekly newsletter. A key implementation step for DHS is to assure 

an effective and on-going two-way communication effort that creates 

shared expectations among managers, employees, customers, and 

stakeholders. 

While GAO strongly supports human capital reform in the federal 

government, how it is done, when it is done, and the basis on which it is 

done can make all the difference in whether such efforts are successful. 

GAO’s implementation of its own human capital authorities, such as pay 

bands and pay for performance, could help inform other organizations as 

they design systems to address their human capital needs. The final 

regulations for DHS’s new system are especially critical because of the 

potential implications for related governmentwide reforms. 

At the center of any agency 

transformation, such as the one 

envisioned for the Department of 

Homeland Security (DHS), are the 

people who will make it happen. 

Thus, strategic human capital 

management at DHS can help it 

marshal, manage, and maintain the 

people and skills needed to meet its

critical mission. Congress provided 

DHS with significant flexibility to 

design a modern human capital 

management system. DHS and the 

Office of Personnel Management 

(OPM) have now jointly released 

the final regulations on DHS’s new 

human capital system. 

Last year, with the release of the 

proposed regulations, GAO 

observed that many of the basic 

principles underlying the 

regulations were consistent with 

proven approaches to strategic 

human capital management and 

deserved serious consideration. 

However, some parts of the human 

capital system raised questions for 

DHS, OPM, and Congress to 

consider in the areas of pay and 

performance management, adverse 

actions and appeals, and labor 

management relations. GAO also 

identified multiple implementation 

challenges for DHS once the final 

regulations for the new system 

were issued. 

This testimony provides 

preliminary observations on 

selected provisions of the final 

regulations. 
Appendix I

“Highlights” from Selected GAO Human 

Capital Reports

Page 24 GAO-05-391T 

The proposed human capital system is designed to be aligned with the 

department’s mission requirements and is intended to protect the civil 

service rights of DHS employees. Many of the basic principles underlying 

the DHS regulations are consistent with proven approaches to strategic 

human capital management, including several approaches pioneered by 

GAO, and deserve serious consideration. However, some parts of the system 

raise questions that DHS, OPM, and Congress should consider. 

Pay and performance management: The proposal takes another valuable 

step towards results-oriented pay reform and modern performance 

management. For effective performance management, DHS should use 

validated core competencies as a key part of evaluating individual 

contributions to departmental results and transformation efforts. 

Adverse actions and appeals: The proposal would retain an avenue for 

employees to appeal adverse actions to an independent third party. 

However, the process to identify mandatory removal offenses must be 

collaborative and transparent. DHS needs to be cautious about defining 

specific actions requiring employee removal and learn from the Internal 

Revenue Service’s implementation of its mandatory removal provisions. 

Labor relations: The regulations recognize employees’ right to organize 

and bargain collectively, but reduce areas subject to bargaining. 

Continuing to involve employees in a meaningful manner is critical to the 

successful operations of the department. 

Once DHS issues final regulations for the human capital system, it will be 

faced with multiple implementation challenges: 

DHS plans to implement the system using a phased approach, however, 

nearly half of DHS civilian employees are not covered by these 

regulations, including more than 50,000 Transportation Security 

Administration screeners. To help build a unified culture, DHS should 

consider moving all of its employees under a single performance 

management system framework. 

DHS noted that it estimates that about $110 million will be needed to 

implement the new system in its first year. While adequate resources for 

program implementation are critical to program success, DHS is 

requesting a substantial amount of funding that warrants close scrutiny 

by Congress. 

The proposed regulations call for comprehensive, ongoing evaluations. 

Continued evaluation and adjustments will help to ensure an effective 

and credible human capital system. 

DHS has begun to develop a strategic workforce plan. Such a plan can 

be used as a tool for identifying core competencies for staff for 

attracting, developing, evaluating, and rewarding contributions to 

mission accomplishment. 

The analysis of DHS’s effort to develop a strategic human capital 

management system can be instructive as other agencies request and 

implement new strategic human capital management authorities. 

The creation of the Department of 

Homeland Security (DHS) almost 

one year ago represents an historic 

moment for the federal government 

to fundamentally transform how 

the nation will protect itself from 

terrorism. DHS is continuing to 

transform and integrate a disparate 

group of agencies with multiple 

missions, values, and cultures into 

a strong and effective cabinet 

department. Together with this 

unique opportunity, however, also 

comes significant risk to the nation 

that could occur if this 

transformation is not implemented 

successfully. In fact, GAO 

designated this implementation and 

transformation as high risk in 

January 2003. 

Congress provided DHS with 

significant flexibility to design a 

modern human capital 

management system. GAO 

reported in September 2003 that 

the design effort to develop the 

system was collaborative and 

consistent with positive elements 

of transformation. Last Friday, the 

Secretary of DHS and the Director 

of the Office of Personnel 

Management (OPM) released for 

public comment draft regulations 

for DHS’s new human capital 

system. This testimony provides 

preliminary observations on 

selected major provisions of the 

proposed system. The 

subcommittees are also releasing 

Human Capital: Implementing 

Pay for Performance at Selected 

Personnel Demonstration Projects

(GAO-04-83) at today’s hearing. 

www.gao.gov/cgi-bin/getrpt?GAO-04-479T.

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-04-479T, testimony 

before subcommittees of the Senate 

Committee on Governmental Affairs and 

the House Committee on Government 

Reform 

February 25, 2004 

HUMAN CAPITAL

Preliminary Observations on Proposed 

DHS Human Capital Regulations 
Appendix I

“Highlights” from Selected GAO Human 

Capital Reports

Page 25 GAO-05-391T 

www.gao.gov/cgi-bin/getrpt?GAO-04-790.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact J. Christopher 

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

Highlights of GAO-04-790, a report to 

congressional requesters 

June 2004

HUMAN CAPITAL

DHS Faces Challenges in Implementing 

Its New Personnel System 

To date, DHS’s actions in designing its human capital management system 

and its stated plans for future work on the system are helping to position the 

department for successful implementation. Nonetheless, the department is 

in the early stages of developing the infrastructure needed for implementing 

its new human capital management system. 

DHS has begun strategic human capital planning efforts at the 

headquarters level since the release of the department’s overall strategic 

plan and the publication of proposed regulations for its new human 

capital management system. Strategic human capital planning efforts 

can enable DHS to remain aware of and be prepared for current and 

future needs as an organization. However, this will be more difficult 

because DHS has not yet been systematic or consistent in gathering 

relevant data on the successes or shortcomings of legacy component 

human capital approaches or current and future workforce challenges. 

Efforts are now under way to collect detailed human capital information 

and design a centralized information system so that such data can be 

gathered and reported at the departmentwide level. 

DHS and Office of Personnel Management leaders have consistently 

underscored their personal commitment to the design process. 

Continued leadership is necessary to marshal the capabilities required 

for the successful implementation of the department’s new human 

capital management system. Sustained and committed leadership is 

required on multiple levels: securing appropriate resources for the 

design, implementation, and evaluation of the human capital 

management system; communicating with employees and their 

representatives about the new system and providing opportunities for 

feedback; training employees on the details of the new system; and 

continuing opportunities for employees and their representatives to 

participate in the design and implementation of the system. 

In its proposed regulations, DHS outlines its intention to implement key 

safeguards. For example, the DHS performance management system 

must comply with the merit system principles and avoid prohibited 

personnel practices; provide a means for employee involvement in the 

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

and transparent. The department also plans to align individual 

performance management with organizational goals and provide for 

reasonableness reviews of performance management decisions through 

its Performance Review Boards. 

DHS was provided with significant 

flexibility to design a modern 

human capital management system.

Its proposed system has both 

precedent-setting implications for 

the executive branch and farreaching implications on how the 

department is managed. GAO 

reported in September 2003 that 

the effort to design the system was 

collaborative and consistent with 

positive elements of 

transformation. In February, 

March, and April 2004 we provided 

preliminary observations on the 

proposed human capital 

regulations. 

Congressional requesters asked 

GAO to describe the infrastructure 

necessary for strategic human 

capital management and to assess 

the degree to which DHS has that 

infrastructure in place, which 

includes an analysis of the progress 

DHS has made in implementing the 

recommendations from our 

September 2003 report. 

DHS generally agreed with the 

findings of our report and provided 

more current information that we 

incorporated. However, DHS was 

concerned about our use of results 

from a governmentwide survey 

gathered prior to the formation of 

the department. We use this data 

because it is the most current 

information available on the 

perceptions of employees currently 

in DHS and helps to illustrate the 

challenges facing DHS. 
Appendix I

“Highlights” from Selected GAO Human 

Capital Reports

Page 26 GAO-05-391T 

Public sector organizations both in the United States and abroad have 

implemented a selected, generally consistent set of key practices for 

effective performance management that collectively create a clear linkage—

“line of sight”—between individual performance and organizational success. 

These key 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, 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. 

RESULTS-ORIENTED CULTURES

Creating a Clear Linkage between 

Individual Performance and 

Organizational Success 

www.gao.gov/cgi-bin/getrpt?GAO-03-488.

To view the full report, including the scope 

and methodology, click on the link above. 

For more information, contact J. Christopher 

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

Highlights of GAO-03-488, a report to 

congressional requesters 

March 2003

The federal government is in a 

period of profound transition and 

faces an array of challenges and 

opportunities to enhance 

performance, ensure 

accountability, and position the 

nation for the future. Highperforming organizations have 

found that to successfully 

transform themselves, they must 

often fundamentally change their 

cultures so that they are more 

results-oriented, customer-focused, 

and collaborative in nature. To 

foster such cultures, these 

organizations recognize that an 

effective performance management 

system can be a strategic tool to 

drive internal change and achieve 

desired results. 

Based on previously issued reports 

on public sector organizations’ 

approaches to reinforce individual 

accountability for results, GAO 

identified key practices that federal 

agencies can consider as they 

develop modern, effective, and 

credible performance management 

systems. 
Appendix I

“Highlights” from Selected GAO Human 

Capital Reports

Page 27 GAO-05-391T 

What Participants Said

United States Government Accountability Office

Why GAO Convened This 

Forum

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-69SP 

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact J. Christopher 

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

Highlights of GAO-05-69SP

December 2004

HIGHLIGHTS OF A FORUM 

Human Capital: Principles, Criteria, and 

Processes for Governmentwide Federal 

Human Capital Reform 

Forum participants discussed (1) Should there be a governmentwide 

framework for human capital reform? and (2) If yes, what should a 

governmentwide framework include? 

There was widespread recognition that a “one size fits all” approach to 

human capital management is not appropriate for the challenges and 

demands government faces. However, there was equally broad agreement 

that there should be a governmentwide framework to guide human capital 

reform built on a set of beliefs that entail fundamental principles and 

boundaries that include criteria and processes that establish the checks and 

limitations when agencies seek and implement their authorities. While there 

were divergent views among the participants, there was general agreement 

that the following served as a starting point for further discussion in 

developing a governmentwide framework to advance needed human capital 

reform. 

Principles 

Merit principles that balance organizational mission, goals, and 

performance objectives with individual rights and responsibilities 

Ability to organize, bargain collectively, and participate through labor 

organizations 

Certain prohibited personnel practices 

Guaranteed due process that is fair, fast, and final 

Criteria 

Demonstrated business case or readiness for use of targeted authorities 

An integrated approach to results-oriented strategic planning and human 

capital planning and management 

Adequate resources for planning, implementation, training, and 

evaluation 

A modern, effective, credible, and integrated performance management 

system that includes adequate safeguards to ensure equity and prevent 

discrimination 

Processes 

Prescribing regulations in consultation or jointly with the Office of 

Personnel Management

Establishing appeals processes in consultation with the Merit Systems 

Protection Board

Involving employees and stakeholders in the design and implementation 

of new human capital systems

Phasing in implementation of new human capital systems

Committing to transparency, reporting, and evaluation

Establishing a communications strategy

Assuring adequate training

There is widespread agreement 

that the federal government faces a 

range of challenges in the 21st

century that it must confront to 

enhance performance, ensure 

accountability, and position the 

nation for the future. Federal 

agencies will need the most 

effective human capital systems to 

address these challenges and 

succeed in their transformation 

efforts during a period of likely 

sustained budget constraints. 

More progress in addressing human 

capital challenges was made in the 

last 3 years than in the last 20, and 

significant changes in how the 

federal workforce is managed are 

underway. 

On April 14, 2004, GAO and the 

National Commission on the Public 

Service Implementation Initiative 

hosted a forum with selected 

executive branch officials, key 

stakeholders, and other experts to 

help advance the discussion 

concerning how governmentwide 

human capital reform should 

proceed. 

(450391)
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