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TRANSFORMING THE IT AND ACQUISITION

WORKFORCES

HEARING

BEFORE THE

SUBCOMMITTEE ON TECHNOLOGY AND

PROCUREMENT POLICY

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

OCTOBER 4, 2001

Serial No. 107–94

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

BOB BARR, Georgia

DAN MILLER, Florida

DOUG OSE, California

RON LEWIS, Kentucky

JO ANN DAVIS, Virginia

TODD RUSSELL PLATTS, Pennsylvania

DAVE WELDON, Florida

CHRIS CANNON, Utah

ADAM H. PUTNAM, Florida

C.L. ‘‘BUTCH’’ OTTER, Idaho

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, JR., Tennessee

——— ———

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

JANICE D. SCHAKOWSKY, Illinois

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

——— ———

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

JAMES C. WILSON, Chief Counsel

ROBERT A. BRIGGS, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON TECHNOLOGY AND PROCUREMENT POLICY

THOMAS M. DAVIS, Virginia, Chairman

JO ANN DAVIS, Virginia

STEPHEN HORN, California

DOUG OSE, California

EDWARD L. SCHROCK, Virginia

JIM TURNER, Texas

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

MELISSA WOJCIAK, Staff Director

VICTORIA PROCTOR, Professional Staff Member

JAMES DECHENE, Clerk

MARK STEPHENSON, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on October 4, 2001 ............................................................................ 1

Statement of:

Amler, Arthur, director, employee compensation, IBM ................................. 71

Baderschneider, Jean, vice president, global procurement, ExxonMobil

Global Services Co. ....................................................................................... 82

McClure, David, Ph.D., Director, IT Management Issues, U.S. General

Accounting Office; Mark Forman, Associate Director for IT and EGovernment, U.S. Office of Management and Budget; and Donald

Winstead, Acting Director, Workforce Compensation and Performance,

U.S. Office of Personnel Management ......................................................... 11

Toregas, Costis, president, Public Technology Inc. ........................................ 109

Upson, Don, Virginia Secretary of Technology .............................................. 61

Letters, statements, etc., submitted for the record by:

Amler, Arthur, director, employee compensation, IBM, prepared statement of ........................................................................................................... 73

Baderschneider, Jean, vice president, global procurement, ExxonMobil

Global Services Co., prepared statement of ................................................ 84

Davis, Hon. Thomas M., a Representative in Congress from the State

of Virginia, prepared statement of .............................................................. 4

Forman, Mark, Associate Director for IT and E-Government, U.S. Office

of Management and Budget, prepared statement of .................................. 39

McClure, David, Ph.D., Director, IT Management Issues, U.S. General

Accounting Office, prepared statement of ................................................... 13

Toregas, Costis, president, Public Technology Inc., prepared statement

of ..................................................................................................................... 111

Turner, Hon. Jim, a Representative in Congress from the State of Texas,

prepared statement of ................................................................................... 8

Upson, Don, Virginia Secretary of Technology, prepared statement of ....... 64

Winstead, Donald, Acting Director, Workforce Compensation and Performance, U.S. Office of Personnel Management, prepared statement

of ..................................................................................................................... 45

(1)

TRANSFORMING THE IT AND ACQUISITION

WORKFORCES

THURSDAY, OCTOBER 4, 2001

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON TECHNOLOGY AND PROCUREMENT

POLICY, COMMITTEE ON GOVERNMENT REFORM, Washington, DC.

The subcommittee met, pursuant to notice, at 2 p.m., in room

2154, Rayburn House Office Building, Hon. Thomas M. Davis

(chairman of the subcommittee) presiding.

Present: Representatives Davis of Virginia, Horn, and Turner.

Staff present: Melissa Wojciak, staff director; Amy Heerink, chief

counsel; George Rogers, counsel; Victoria Proctor, professional staff

member; James DeChene, clerk; Mark Stephenson, minority professional staff member; and Jean Gosa, minority assistant clerk.

Mr. TOM DAVIS OF VIRGINIA. Good afternoon. I want to welcome

everyone to today’s legislative hearing on the use of a marketbased, pay-for-performance compensation and benefit system for

the IT and acquisition work force. As we investigated in the July

31 hearing of this subcommittee, the Federal Government faces significant employee shortages that will only get worse with up to half

of our IT and acquisition work force becoming eligible to retire in

the next 5 years. Today’s hearing will further consider these

human capital management issues, and we’ll examine our legislative proposal to respond to this crisis by making government more

competitive in the war for talent.

At a recent summit on America’s work force, Labor Secretary

Elaine Chao noted America needs a wake-up call about its work

force. There will be huge economic consequences if we don’t address

demographic changes in the work force and technological changes

in the workplace. We need America’s workers, employers and

unions to start working now on challenges that lie just beyond the

horizon.

The retirement of so many technology and acquisition workers

will be happening, unfortunately, at the same time we are having

trouble attracting people to work for the government. In addition

to the retirements we face, there will be a need for 16,000 new IT

employees in the government. Concurrently, the private sector reports that while overall demand is down, there will be 425,000 IT

jobs that will go unfilled this year. This will result in a labor force

that will have its choice of more than two positions per qualified

applicant, a seller’s market at a time when the government must

be buying.

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In order to compete for talented workers in this market the government must be able to offer attractive compensation and benefit

packages to highly skilled IT and acquisition professionals. Considering both the acquisition and IT work forces are important because they are interwoven on a number of levels. Both groups face

large-scale retirements just beyond the horizon. Both work forces

affect the everyday operation of the entire government because

these professionals exist in every agency, and both perform jobs

that are mission-critical to facilitating the achievement of agencies’ statutory and regulatory duties.

In addition, acquisition and IT work force issues are related because every agency spends billions of dollars on the acquisition of

IT services and equipment. As many of you know, the amount

spent by government on services and on IT has been growing substantially. Last year alone over $87 billion was spent on services

acquisitions, and of these, more than $13 billion was spent on IT.

On the equipment side the total IT budget for fiscal year 2001 is

$42 billion. Moreover, IT budgets are expected to grow steadily as

everyone from Federal agencies to the White House to the Congress

brings legacy systems up to date to maintain modern networks.

As stewards of the public interest, government is obligated to

provide citizens with the most efficient service possible at the best

value for taxpayer dollars. Advances in technology provide an unprecedented opportunity for improving government service. However, we can only take advantage of this opportunity if we have a

skilled work force that can acquire, manage and implement information technology, products and services.

Unfortunately, the current human resources management system

for the vast majority of Federal employees in the general schedule

system is dominated by a one-size-fits-all philosophy. It is built

upon 19th century principles of centralized policy development, selection from rigidly numbered lists of candidates and uniform pay

scales that cannot respond to the different roles, missions and

needs for the nearly 100 independent agencies.

Although major changes have been initiated by agencies to address problems in human resources management, this work has

been constrained by compensation and reward systems that are out

of date and noncompetitive when viewed in light of the national

marketplace for IT skills.

The National Academy of Public Administration has studied

these issues in depth with the assistance of over 30 agencies and

many private sector companies. At the July 31 hearing the Academy reported its benchmarking research on public and private sector compensation practices. Today, we’ll hear their evaluation of

these alternative compensation practices, their recommendations

for reform and the views of the witnesses on these recommendations.

The legislative proposal that we will consider calls for ending the

one-size-fits-all approach for the recruitment, compensation and retention of technology and acquisition employees classified as GS 5

to 15. While good efforts have already been undertaken by some

agencies and OPM to address hard-to-obtain specialties and to give

some flexibility in human capital management, this legislation

aims at broad changes to offer the employment options that will atVerDate 11-MAY-2000 10:00 Nov 21, 2002 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 C:\DOCS\81521.TXT HGOVREF1 PsN: HGOVREF1
3

tract the greatest number of highly qualified employees into government service.

This legislative proposal is consistent with the performance-improving goals of the reforms enacted in the 1990’s, including the

Clinger-Cohen Act. It seeks to improve performance by implementing commercial best practices for employee compensation and benefits. First, it creates a market-based pay-for-performance system

with pay bands for IT and acquisition workers. In the private sector, pay for performance is almost universal. Like the private sector, government should reward those employees who bring greater

value to an organization in order to reinforce a culture of achievement. Next, it enables more flexible recruiting practices by using

excepted service, noncareer appointments that can be hired far

more quickly than under the traditional employment schedules.

Third, the legislation builds on the strength of work/life benefits already available to government employees by encouraging the development of creatively applied benefits and continuously improved

training opportunities. And in an environment when the government may not be able to match the highest rates of pay of the marketplace, it can offer an attractive package of good compensation

coupled with benefits sought after by many potential IT and acquisition employees.

This hearing begins the process by making the government more

competitive in the labor marketplace. Without effective tools to attract, manage and retain IT and acquisition employees, the Federal

Government is in jeopardy. Every agency, and millions of Americans, rely on these professionals to accomplish their missions. The

looming crisis in this work force makes it imperative that the U.S.

Government attract the best qualified candidates and train them

for high standards, for failure to do so will impede the ability of

agencies to accomplish their statutory and regulatory duties. In assessing whether the proposed changes will be successful by giving

agencies the tools they need to make government an employer of

choice, we should keep in mind what Kay Coles James, the Director of OPM said about the human capital management crisis. She

said, ‘‘We need creative solutions to address this challenge.’’

[The prepared statement of Hon. Thomas M. Davis of Virginia

follows:]

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Mr. TOM DAVIS OF VIRGINIA. Now I yield to my ranking member,

Mr. Turner, for any comments he has.

Mr. TURNER. Thank you Mr. Chairman. It is good to join you at

this hearing to once again focus on the challenges that our government faces in attracting and retaining a skilled work force for information technology and acquisition. We all know that at least

until recently the demand for high-skilled IT workers was growing

at a very rapid pace. The study performed by the Information Technology Association of America found that U.S. companies will seek

to fill 900,000 new IT positions, and that 425,000 of those positions,

half of them, will go unfilled because of lack of applicants.

The shortage has been made worse at the Federal level due to

the pay gap that we know exists between the public and the private sector. Two years ago the Commerce Department found that

the starting salaries for computer science graduates at the Federal

level averaged $10,000 to $15,000 less annually than those paid by

the private sector. In January of this year, the Office of Personnel

Management established higher pay rates for IT workers resulting

in increases ranging from 7 to 33 percent. I look forward to hearing

today from OPM on whether this change has had any effect.

It may also be that the recent downturn in our economy has resulted in a positive impact on the government’s ability to recruit

high-tech workers. We also need to examine the important nonpay

benefits such as training, career advancement opportunities, family

friendly benefits, flexible work schedules and meaningful recognition for individual performance as a way of attracting and retaining individuals with the needed skills.

The National Academy of Public Administration recently completed a report on the Federal IT work force, which highlights the

shortages we are experiencing. This report points to the Federal recruitment system, inadequate motivational tools and too little investment in continuous learning as problems that need to be addressed. In general, the Academy has recommended that the Federal Government move to a market-based human resource management system for IT professionals, a system which would establish

a market-based, pay-for-performance compensation system, speed

the Federal recruitment and hiring process, promote the generally

good benefits available to Federal workers and increase training

opportunities.

The acquisition work force faces many of the same problems as

the Federal work force as a whole, an aging work force with looming major retirements and little entry-level hiring over the past

decade. I’m very pleased that the chairman has drafted legislation

to address these issues. I look forward to working with you, Mr.

Chairman, I appreciate your leadership on this very critical matter,

and I look forward to hearing from all of our witnesses today.

Mr. TOM DAVIS OF VIRGINIA. Mr. Turner, thank you very much.

[The prepared statement of Hon. Jim Turner follows:]

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Mr. TOM DAVIS OF VIRGINIA. I now yield to our Member from

California, Mr. Horn.

Mr. HORN. I thank the chairman, and I’m delighted that you

have this particular hearing. All of us know that very talented people are in the executive branch, also in the legislative branch, in

the judiciary, and that we should be out right now when there’s

breaks or anything else, where some of us ought to be in business

schools, in public administration schools, liberal arts programs and

engineering and science, and we need to go to these various campuses and tell them of the great opportunities that are within the

Government of the United States. And we certainly need to work

for merit pay and recognition of that talent coming in to replace

the talent coming out.

And I think this is the most important actual policy issue in this

last decade, and the human infrastructure, without question, is

what we have to worry about, and we should.

Thank you, Mr. Chairman.

Mr. TOM DAVIS OF VIRGINIA. Mr. Horn, thank you.

We’re going to hear testimony today from Mr. David McClure,

the Director of IT Management Issues at GAO; Mr. Mark Forman,

the Associate Director of Information Technology and E-Government at the Office of Management and Budget, our E-government

czar; and Mr. Donald Winstead, the Acting Associate Director for

Workforce Compensation and Performance of the Office of Personnel Management.

On our second panel we will hear from Don Upson, Virginia secretary of technology; Mr. Arthur Amler, the director of employee

compensation at IBM, also representing the ITAA; Ms. Jean

Baderschneider, the vice president for procurement at ExxonMobil

Global Services Co.; and finally from Mr. Costis Toregas, the president of Public Technology, Inc., and also representing the National

Academy of Public Administration.

As you know, it is the policy of this committee that all witnesses

be sworn. If you would join with me and raise your right hands and

rise.

[Witnesses sworn.]

Mr. TOM DAVIS OF VIRGINIA. Mr. McClure, we’ll start with you

and then Mr. Forman and Mr. Winstead. If you could try to keep

your comments to 5 minutes. We have a light out front. When it’s

orange, it’s 4 minutes, and it gives you 1 minute to sum up. When

it’s red, just try to sum up as quickly as possible. If you finish earlier, all the better, because your total testimony is in the record,

and we have read that, and we will have comments based on that

and questions based on that.

We are expecting floor votes in probably an hour or so that we

should have time to get this panel through before we have to break

for votes. Thank you.

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STATEMENTS OF DAVID McCLURE, Ph.D., DIRECTOR, IT MANAGEMENT ISSUES, U.S. GENERAL ACCOUNTING OFFICE;

MARK FORMAN, ASSOCIATE DIRECTOR FOR IT AND E-GOVERNMENT, U.S. OFFICE OF MANAGEMENT AND BUDGET; AND

DONALD WINSTEAD, ACTING DIRECTOR, WORKFORCE COMPENSATION AND PERFORMANCE, U.S. OFFICE OF PERSONNEL MANAGEMENT

Mr. MCCLURE. Good afternoon, Mr. Chairman, members of the

subcommittee. It’s a pleasure to be here this afternoon to discuss

the management challenges related to attracting and retaining a

high-quality Federal work force. We believe that the existing IT

work force skills and strategies must be revamped to move the government more fully into the information and knowledge-based age

and provide a customercentric, electronically based service and

transaction focus to the government.

As you know, Mr. Chairman, at GAO we have designated human

capital as a high-risk area because of the long-standing lack of effective leadership and management. And with ongoing performance

and accountability challenges, this area really takes on a great

prominence.

In my oral statement this afternoon, I want to cover just three

points with you. First, the general status of agency actions in this

area. The contribution made by the recent NAPA IT compensation

study that you mentioned in your opening remarks, and I think important—challenges are important to discuss that lie ahead that

will challenge us in all of these reforms.

First of all, many Federal agencies are indeed initiating strategies and plans to attract and retain and motivate a skilled IT work

force. We have pointed out in several products examples of success

stories and innovative practices. Yet we remain concerned because

agencies’ progress in meeting IT human capital needs is sluggish,

it’s uneven, and it often lacks comprehensive and analytical-based

strategies for addressing both short-term and long-term needs.

Our work to date indicates that there is more attention needed

in general basic areas like requirements, what the agency needs in

its IT skill base, developing inventories of its existing skills so that

it can do a gap analysis with its future needs, developing strategies

and implementation plans and evaluating progress, or, if you will,

the return on human capital investment. These basic proactive activities are the cornerstone of effective work force management and

are used by high-performance organizations both in the public and

private sector. They simply cannot be ignored.

In line with our suggestions, we are very pleased that in the

President’s fiscal year 2002 management agenda, strategic human

capital initiative is very prominently featured. OMB is asking

agencies to take full advantage of existing authorities they have at

their disposal to better acquire and develop a high-quality work

force. We’re also encouraged that OMB is requiring agencies to undertake work force restructuring plans designed to help correct

skill imbalances. OMB is also asking agencies to establish core

competency that can be helpful in making tradeoffs between internal capacity and skills enhancement versus contracted assistance

from the private sector.

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Judging from the trends alone, it’s expected—we are expected to

have a long-term shortage of IT professionals, and it’s likely to lead

to agencies supplementing their existing work forces with external

expertise, but as we know, agencies still have to have enough of the

right people and the right positions with the right skills, knowledge

and experience to manage these often large and complex IT procurement and service areas.

Let me turn to the work completed by NAPA. I must tell you

that we find a lot of merits in NAPA’s identification of inherent inadequacies that it’s found with the Federal Government’s human

resources management system. We have not finished analyzing all

of the recommendations, but we do echo their call for an increased

emphasis on performance and competencies. As we note in my

statement on pages 11 and 12, many of NAPA’s recommendations

are very consistent with suggestions we have made to the Congress

and are in sync with our own human capital strategies that we

have put in place at GAO. For example, we’ve implemented pay for

performance. We’ve developed a competency-based employee evaluation system, and we’ve imposed, put in place, senior-level or

SES-equivalent positions in technical and scientific areas. Many of

these tools and flexibilities are available to agencies now, and we

encourage them to take advantage of them.

Last, let me turn to the challenges that lie ahead. The road really to improving human capital management in the Federal Government for IT and acquisition management faces many significant

hurdles. Let me focus on two crucial ones. The first is the need for

sustained leadership commitment. The second is necessary changes

in addressing organizational culture.

Sustained commitment from the executive and legislative branch

leaders, from agency executives, from key players like OPM and

OMB, and certainly the Congress are very important. NAPA recognizes this in its listing of recommendations for implementation and

has an excellent list of suggestions on how these implementation

strategies can move forward successfully. OPM’s key responsibilities in this area are key, and we are very encouraged by the

progress that OPM has made in taking special steps, including salary rates for IT professionals, creating new job classifications and

establishing a generic work force model.

The second crucial challenge is implementing change and change

management in light of prevailing culture, and in order for any of

these reform recommendations to work that we’re talking about at

the hearing today, a culture of hierarchical management approaches really needs to yield to partnerial approaches. Process-oriented ways of business have to really focus on yielding to resultsoriented ones, and organizational silos have to be integrated. And

as we have seen, these efforts are doable, and we think they are

possible in the Federal environments. So we’re looking forward to

moving these initiatives forward and working with you, the subcommittee, and with the executive branch in doing so.

Thank you.

Mr. TOM DAVIS OF VIRGINIA. Thank you very much.

[The prepared statement of Mr. McClure follows:]

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Mr. TOM DAVIS OF VIRGINIA. Mr. Forman.

Mr. FORMAN. Good afternoon. Thank you, Mr. Chairman and

members of the subcommittee. I appreciate the opportunity to testify today on the important issue of Federal information technology

and acquisition work forces.

Before I get to the substance of my testimony, I need to make

sure the subcommittee understands that I do not serve in a confirmed position within the Office of Management and Budget, and

as a general policy OMB does not usually send officials in nonconfirmed political positions to testify before the Congress. However,

in this case, because OMB does not yet have a Deputy Director for

Management, the OMB Director decided it was in the best interest

of the administration to have me appear on his behalf as a witness

for this hearing.

In June, I was appointed the Associate Director for E-Government and Information Technology. My position was created to improve agency use of information technology and E-government

practices. Critical elements for success in that effort will be assuring that the Federal Government has an effective IT work force.

It’s important to keep in mind, though, that the Federal Government is not in the IT industry. Modern IT offers us opportunities

to improve policymaking, service delivery and enforcement of laws

and regulations, our lines of business. As such, it’s important to

view the Federal IT work force within the context of the Federal

Government being the world’s largest customer of the IT industry.

The President’s management agenda contains five key elements:

improving financial system performance, competitive sourcing,

strategic management of human capital, performance-based budgeting and expanding e-government. As such, management of

human capital generally, and of the IT work force specifically, must

be addressed as part of this broader management reform framework.

So let me briefly describe the three elements of the agenda that

are particularly germane to today’s discussion of the Federal IT

and acquisition work forces, the strategic management of human

capital, e-government and competitive sourcing. First, the strategic

management of human capital.

As part of OMB’s efforts to develop the President’s fiscal year

2003 budget, we’ve asked agencies for their plans on how they are

going to strategically realign their work force to better accomplish

the Federal Government’s work. These are not plans for counting

the numbers of individuals, but rather for rethinking the way the

agencies operate and the skills and expertise that they need to perform effectively and efficiently in the future. The plans were due

into OMB as part of the fiscal year 2003 budget submissions in

September. OMB resource management offices have been discussing these plans with the agencies in the context of the 2003 budget

preparation, and I should note that we are asking specifically about

IT work force plans as part of that review. The results of the reviews will be evident in the President’s fiscal year 2003 budget that

will be proposed this coming January to help provide flexibility in

the work force.

The administration will shortly propose the Freedom to Manage

Act, which will give Federal managers the ability to better manage

37

their organizations. Don Winstead, from the Office of Personnel

Management will be discussing these proposals in his statement.

The second facet of the President’s management reform agenda

is the e-government initiative, which I lead. We define e-government as the use of digital technologies to transform operations in

a manner that drives significant improvements in efficiency, effectiveness and service delivery quality. To accomplish this vision, we

need to simplify business processes to take advantage of technology, and the result will be processes that will be faster, cheaper

and more efficient.

We also have to replace legacy islands of automation by unifying

IT and operations across the silos. Such business transformation

has become almost routine in industry as well as at State, local

and foreign governments. Catching up will require new and different skills in our IT professionals. At the top of my list is the

ability to communicate with the line program professionals. Other

important skills include knowledge of enterprise applications such

as supply chain management, customer relationship management

and knowledge management. And like all information-intensive industry, we’ve got a shortage of architects, especially those that define the ways we can best leverage the emerging information platforms.

Finally, I believe we need more capability in preparing business

cases and in managing the projects and the way to deliver on those

business cases.

We have a specific committee of the CIO Council, the Workforce

Committee, to advise us on IT work force issues and develop the

best practices. Both the Federal contractor, Federal and contractor

employees, have taken advantage of the training that committee

prepared under the curriculum of the CIO University. And I should

note that it is that committee, the CIO Council Workforce Committee, that proposed and executed the contract with NAPA to perform

the study of the Federal IT work force.

Third, competitive sourcing. Numerous IT tasks are commercial

in nature. Federal work force studies indicate that almost 80 percent of the IT jobs are currently performed by Federal contractors.

Through our competitive sourcing initiative, we intend to identify

and select the sources, public or private, that are best able to perform the mission and help the government execute most effectively.

Let me now turn to the NAPA study. Mr. Winstead will be addressing the report in more detail, but let me provide some background. The report was developed at the request and with the

funding of the Federal CIO Council, which I now direct. When the

study was initially solicited, many Federal agencies were having

great difficulty recruiting and retaining IT professionals. Federal

salaries were not competitive, and the dot-com boom was in full

swing.

Since then OPM increased starting salaries for IT professionals

through special pay rates. In addition, the dot-com boom has

waned, and commensurate with that, the demand for IT professionals has lessened. CIO Magazine indicates that only 15 percent

of their organizations are having difficulty filling IT positions this

year as opposed to 74 percent a year ago. That said, Computer

World reported this week that the decline of dot-coms doesn’t sigVerDate 11-MAY-2000 10:00 Nov 21, 2002 Jkt 000000 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 C:\DOCS\81521.TXT HGOVREF1 PsN: HGOVREF1
38

nal the end of highly competitive compensation, say consultants for

CIO. Therefore, I believe it’s very timely for the administration to

address the problems and for legislation such as the chairman has

proposed. And the NAPA group report highlights and gives us some

serious consideration of key recommendations.

I’d be happy to answer any questions. Thank you.

Mr. TOM DAVIS OF VIRGINIA. Thank you.

[The prepared statement of Mr. Forman follows:]

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Mr. TOM DAVIS OF VIRGINIA. Mr. Winstead.

Mr. WINSTEAD. Mr. Chairman and members of the subcommittee,

I appreciate the opportunity to be with you today to comment on

the findings of the National Academy of Public Administration in

its recent report on the Federal information technology work force.

I will keep my remarks brief, but I have a longer statement that

I would like to submit for the record.

We at OPM commend NAPA and its study panel for their work

in producing this report. The report is part of a cooperative effort

by NAPA, OPM and relevant interagency councils to improve the

government’s ability to attract and keep top-quality information

technology workers. As a part of this joint endeavor, OPM promptly

took important administrative steps to help agencies meet this

challenge.

First, we initiated a study in cooperation with the Chief Information Officers Council and the Human Resources Management

Council aimed at establishing appropriate special salary rates for

IT positions under existing OPM authority.

Second, we worked extensively with the CIO Council and the

human resources management community to update the way IT

work is classified under the general schedule. These efforts resulted in new special salary rates which took effect in January of

this year. In addition, we issued a new classification standard in

May.

Meanwhile, NAPA launched its IT pay study. Early in its work,

NAPA visited OPM’s Strategic Compensation Policy Center to

gather the results of the center’s extensive research into job evaluation and pay practices in the private sector and other parts of the

public sector. OPM’s research is the basis for ideas that we intend

to pursue to modernize Federal compensation practices in general.

NAPA’s findings are very consistent with the conclusions we are

forming about Federal compensation. We agree that the Federal

compensation system is out of balance with too much emphasis on

internal equity and too little sensitivity to the market. In addition,

the contributions IT workers make to organizational goals and objectives need to be given more weight in the way those employees

are paid and rewarded. Of course, these observations have resonance for the entire work force, not just IT and acquisition employees.

We appreciate NAPA’s acknowledgment that other forms of rewards are at least as important as direct and indirect compensation for recruiting and especially for retaining IT workers. Continual skills development and the quality of the work environment, including work/life balance, are extremely important factors. The research clearly shows that retaining high-performing employees is

at least as much a function of how they are treated as how they

are paid.

Technical currency and continuous learning are critical to the development of the entire Federal work force of the 21st century, and

especially for the IT work force. OPM has recently launched governmentwide implementation of individual learning accounts,

which will be a powerful tool benefiting both agencies and individuals in the development of their IT skills.

44

Although we agree with NAPA’s findings, we also believe these

findings are valid for many other occupations in the Federal Government. It is important to consider whether the systemic flaws

that have been identified should be addressed in a piecemeal fashion or more comprehensively.

The administration is developing legislative proposals designed

to give agencies more flexibility in the way they compensate and

reward all employees. These include a proposal designed to make

it easier for Federal agencies to use recruitment, relocations and

retention bonuses to recruit and retain highly qualified employees;

a proposal to allow agencies to pay the cost of academic degrees

and employees’ licenses, certificates and professional credentials

under broader conditions than currently; and a proposal to make

it easier for agencies to use the personnel management demonstration project authority in Title 5 U.S. Code. This initiative would

create a mechanism for making innovations that have been tested

successfully in one agency available for other agencies to use, and

it would authorize permanent alternative personnel systems to facilitate even more experimentation with new ways to pay and reward employees.

Finally, we are working with Federal agencies to make recruitment and hiring more efficient and effective. For example, we are

conducting pilot projects to replace rigid qualification requirements

with a competency-based approach to hiring.

In closing, we appreciate the work and findings of NAPA and its

study panel. We’re working hard to address the problems the

NAPA report highlights by modernizing the government’s hiring,

compensation and reward systems. We look forward to further collaboration with NAPA and others in identifying ways to make the

Federal Government an employer of choice not only for IT and acquisition workers, but also for outstanding employees in all occupations. I would be happy to respond to any questions you have.

Mr. TOM DAVIS OF VIRGINIA. Thank you very much.

[The prepared statement of Mr. Winstead follows:]

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50

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Mr. TOM DAVIS OF VIRGINIA. I think I’ll start the questioning

here. Let me start.

Mr. McClure, in your statement you characterized Federal agencies’ efforts to address the IT human capital challenges as generally sluggish and challenging. Do you think that the recent slowdown in the technology sector is going to help us at the Federal

level? This is a good time, is it not, to start going after some of

these people that are out looking for work and trying to bring them

in? It gives us a unique, maybe a one-time opportunity. And then,

what are the weaknesses of relying on this approach? And then I

will let everybody answer that because I think this goes across the

horizon for the fact that workers who were out of reach just a year

ago; all of a sudden some of them are just looking around for something quickly.

Mr. MCCLURE. Certainly. Two points. I think certainly the downturn in the IT market gives us a unique opportunity to recruit talent in the government. We’ve seen our own applications at GAO,

both for our internal IT operations and for our analysts that we use

to analyze the Federal Government, pick up. And I think it’s a

positive sign. It is something that we have to recognize is perhaps

a momentary blip, and we have to keep our eyes focused on the

long-term expected shortage in this area, which no one to date has

gone back on the projections or forecasts for the expected shortages

in the area. I think it gives the Federal agencies a unique opportunity to ramp up recruitment as well and to capitalize on the moment in time.

One thing that we have to learn in the Federal Government is

when we bring in folks under these kinds of time periods, unlike

the past where folks are coming in for career long-term careers,

these IT specialists might be looking for short, 3 to 5-year stints

for experience, skills, broader opportunities, and we have to be able

to capitalize on them and use them in that capacity in a different

way than we have from our mental model of the past.

In general, I think what we found that we’d like to see some improvements in the agencies that we’ve evaluated is a lack of recognition of what the skill gaps are. They don’t have a good understanding of what the existing inventory is of skills in place versus

what they expect to move toward. In many instances, a lot of the

Federal agencies are moving toward more heavily contracted-out

services in this area, which require a unique set of contract management, oversight, negotiation and relationship-building skills.

And that’s the area where I think, again, we’d like to see the agency doing analytical types of work to determine what is the priority

skills that they’re looking for.

Mr. TOM DAVIS OF VIRGINIA. Would you like to address that, Mr.

Winstead or Mr. Forman?

Mr. WINSTEAD. Sure. I agree that this does perhaps provide a

one-time, perhaps short-term opportunity for the Federal Government to be more proactive in recruiting IT employees. And in order

to facilitate that, I think we would want to encourage agencies to

make the best use of the flexibilities that are already in existence

for Federal agencies to recruit and retain employees. And we

can’t—I agree that we can’t focus just on this short-term opportunity, that we also have to keep our eye on the long term, and in

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the long run we are going to need more flexibility and more adaptive systems than we have now to compensate employees in this

field as well as in other fields.

Mr. TOM DAVIS OF VIRGINIA. OK. Do you want to add anything

to that?

Mr. FORMAN. Yeah. I have to keep in mind that if the studies are

correct, 80 percent of the Federal IT work force resides in the government IT industry largely in this area. And absent very good definition on our skill gaps and workload, I’m not sure that we should

get into competition as a government with some very fine—you

know, generally the world’s best systems integrators that serve us

as well.

I think that there’s been a fundamental shift over the last 2 or

3 years, from the silo-based client server architectures to where

most of industry has based in network-based computing, and we

haven’t made that shift yet as an organization. There are some

major business architecture issues we have in the Federal Government, and we’re working through those. So while we have a great

opportunity right now, I think it’s very spotty, and there is a large

difficulty to have a big policy.

I think a lot of this will be worked through via the work force

plans that the resource management officers are working with in

the agencies now.

Mr. TOM DAVIS OF VIRGINIA. OK. Let me go to you again, Dr.

McClure. You stated that the NAPA concludes that a market-based

system is needed to develop a quality IT work force. What are the

advantages and what are the disadvantages of employing that approach?

Mr. MCCLURE. Well, I think really the advantage lies in going

beyond what I think NAPA correctly characterized as an internal

equity focus in the Federal Government; that is, evaluating on our

folks within the confines of their existing organization and instead

looking at compensation and benefits that are being offered in external environments as a basis for comparison. In addition to that,

I think rolling in this contribution equity, which we have been

doing in GAO ourselves, looking at performance as applies to the

outcomes or the organization, these are all tangible factors that

have to come into play into a market-based approach.

So I think, on balance, this is a movement in the right direction,

certainly in the IT area where we are in an environment of intense

competition and one in which we need to, again, figure out the skill

base that we want to bring into the government in this area, same

comment that Mr. Forman just made, and make sure that we’re

compensating and rewarding people in similar fashions that we see

in a competitive environment in the commercial sector.

We’re never going to see in totality equal par in public and private sector compensation programs, so the other, I think, important

element to keep in mind are these work/life benefits and social benefits that are provided to Federal Government employees that go

beyond just typical compensation programs, and the balancing between those two oftentimes gives an advantage to some workers.

Mr. TOM DAVIS OF VIRGINIA. Let me go to you, Mr. Forman. In

your testimony, you mention the Freedom to Manage Act that the

administration will soon be proposing. One of its components is exVerDate 11-MAY-2000 10:00 Nov 21, 2002 Jkt 000000 PO 00000 Frm 00059 Fmt 6633 Sfmt 6633 C:\DOCS\81521.TXT HGOVREF1 PsN: HGOVREF1
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panding the use of demonstration projects to implement alternative

personnel systems. Demonstration projects have worked well with

technology workers at NIST and scientists at the Navy’s China

Lake project. What are your views about expanding the demonstration project authority to allow for an agencywide project that includes maybe pay banding and pay for performance?

Mr. FORMAN. I’ll defer to Mr. Winstead on that.

Mr. TOM DAVIS OF VIRGINIA. All right.

Mr. WINSTEAD. I’d be happy to address that. We believe the demonstration project authority has been very useful to the government

over the last 20 years since it was first put into place. We’ve had

a lot of experience with demonstration projects that have experimented with pay-for-performance ideas and performance-oriented

pay systems. Right now there are some restrictions in the law on

the number of demonstration projects that can be in place at any

one time and the number of employees that can be covered by any

one such project. There are also some provisions in the law that

impede the quick implementation of a new demonstration project.

So as part of the President’s freedom to management initiative, we

expect that legislation to include some provisions that would eliminate those restrictions and also streamline the process of approving

new demonstration projects, especially when agencies wish to test

concepts or innovations that have already been well tested in earlier demonstration projects.

We also believe that it would be desirable to give agencies the

authority to establish permanent alternative personnel systems

that make use of some of those well-tested innovations that have

been in place now in some cases for 20 years.

Mr. TOM DAVIS OF VIRGINIA. Let me go back to Mr. Forman. How

does OMB expect the Federal agencies to demonstrate the linkage

between better work force management practices and services

being provided to citizens, businesses and governments and its own

employees?

Mr. FORMAN. We’ve asked agencies to give us their plans that

will show the strategic realignment for their work force and to link

that back directly to performance of missions. The agencies submitted those early in September as part of the budget submissions,

and we’re now in the process of reviewing those plans for that

alignment.

Mr. TOM DAVIS OF VIRGINIA. OK. NAPA indicates that none of

its recommendations are radical, that almost 80 percent are already being done somewhere in government. Given this, what does

OMB see as reasonable implementation timeframes for some of

these reforms being instituted on a governmentwide basis?

Mr. FORMAN. Well, I think, as Mr. Winstead discussed in his testimony, NAPA’s examining those—OPM is examining the NAPA

findings. There are a number of specific legislative proposals, some

of which I think are part of your legislation. But shortly those will

be made, I believe, more public as part of the freedom to manage

legislation. In addition, as we review the NAPA recommendations,

as part of the bigger governmentwide reforms, we’re looking not

just at what we’re doing with the IT work force per se, but what

we’re doing with the business architecture, if you will, of the Federal Government.

57

A lot of those decisions are going to require some fairly major

changes in the way the government does business. At the heart, I

believe, is the notion that we do have a siloed organization structure. The e-government initiatives will force us to work across

those silos, and those will bring different management structures

to play.

So it’s a little premature to push forward in the broad-based recommendation until we work through these specifics in our budget

deliberations with the agencies.

Mr. TOM DAVIS OF VIRGINIA. My only concern is that, you know,

sometimes just some of these pilot programs we put forward do get

a lot of opposition just getting those set up, and it just makes the

implementation of where we’re finally going that much further off,

at a time when I think we need some radical reform in terms of

the way that we’re dealing with IT professionals and recruiting and

retaining them. I mean, that’s the concern, and I understand the

problem of moving too quickly and maybe doing it wrong.

Mr. FORMAN. I understand.

Mr. TOM DAVIS OF VIRGINIA. You understand the concern?

Mr. FORMAN. And I think it’s a valid concern, yes.

Mr. TOM DAVIS OF VIRGINIA. I mean, we are working here with

government organizations that ought to be applauding this because

it offers opportunities for increased incentives and increased pay

for Federal employees. But they are concerned about giving it to

one group and not to another, and you understand the drill.

So we have homework to do at the legislative end, too, and we

want to work with you to get this implemented because, frankly,

people, I think, are going to be more driven to government service

after, you know, what’s happened in the last few weeks. They’re

going to want to help, and we just need to make sure that if we

can get them to look at the government, that we have a package

that not only attracts them but can retain them and keep them

here and give them some satisfaction in their work.

Work satisfaction is a critical area, not just, you know, pay and

compensation, and one of the difficulties in government is we become so regulation-driven, instead of outcome-driven. You just

don’t always see the product of your work.

So we just have to work through these things, and I applaud

what everybody said in their testimony in terms of getting there.

We just want to keep nudging you and encouraging you to move

ahead and try to give you tools you need at the government level

to move forward.

Mr. WINSTEAD. Mr. Chairman, if I could add that the new Director of OPM has been in her job now for only a little less than 3

months, but she has been very active in pursuing ideas for compensation modernization since her arrival. She was quoted as saying that Federal compensation systems need attention badly, and

they need attention now. And she is determined to work with the

other administration officials to develop proposals that we can

agree on and move forward with as quickly as possible.

Mr. TOM DAVIS OF VIRGINIA. Right. As you know, Ms. James and

I go back many years. She was my school board appointee in Fairfax County years ago, and we look forward to continuing to work

with her and you.

58

I’ve got a couple of questions for you while you’re on it, though.

Could you elaborate on the pilot projects that are currently under

way at OPM for replacing what we called the old rigid qualifications requirements for hiring into the Federal Government with a

competency-based approach?

Mr. WINSTEAD. Sure. Right now we are conducting pilot studies.

Mr. TOM DAVIS OF VIRGINIA. Let me say before you answer that

we’ve had the same problem in procurement when we come out

sometimes with this long list of qualifications, and, you know, it’s

not education anymore. It’s training. It’s what can you do, not what

degrees you have.

I mean, technology is changing so quickly. Sometimes you can’t

always tell from a sheet of paper what somebody can do. And so

we’re having this problem across government as you talk about the

old stovepipe, the siloed approach. It’s much more multidimensional and complicated today. Private sector seems to get it. They

have to. They’re driven by the bottom line. It’s just harder in government to get there.

Go ahead. I didn’t mean to interrupt you, but it’s a frustration,

I think, that we are all trying to get at.

Mr. WINSTEAD. You’re quite right, and we certainly have shared

that frustration at OPM. One of the problems with the current

rigid qualification process is that they tend to focus on some very

narrow indicators such as years of experience or the number of

credit hours of education, as you pointed out, or degrees. But a

competency-based approach looks more at the full range of quality

and of general and technical education experience.

For example, right now in the IT field, if you were to try to hire

an individual at the grade 12 level using the current or the older

qualifications requirements, you would have to look to see if the applicant had served for 1 year at the grade 11 level or equivalent,

performing that same kind of work, and the qualifications, in fact,

are based on time served performing the work that’s available.

The difference in a competency-based approach here is that assessment tools, such as structured interviews, personal interviews,

or Web-based interviews or Web-based tests can be used to measure an applicant’s possession of a certain kind of competencies that

are required for a particular job in mind. And, for example, in the

case of IT jobs, the kinds of competencies that might be required

at the grade 12 level might include some general competencies like

oral communication and problem-solving as well as some more

technical competencies like network management or software testing and evaluation. And the competency-based approach is designed to try to measure the individual applicant’s ability to possess those kinds of competencies rather than just trying to find out

how long has the individual been working.

Mr. TOM DAVIS OF VIRGINIA. Right. It’s a much more subjective

standard, though, which, you know, doesn’t always make policymakers comfortable, but it’s something you have got to do in the

private sector.

Mr. WINSTEAD. Although in some cases, however, we do administer tests. We have Web-based tests that would be more objective

in nature. Some of these competencies, of course, don’t lend themselves to that kind of testing.

59

Mr. TOM DAVIS OF VIRGINIA. But even once you get them in, the

fundamental issue after that is constantly training and retraining

people, because things change very, very quickly. Systems, you

know, it just changes very quickly. And traditionally, when budgets

get tight, what’s the first thing that gets cut. Training.

It has to have a higher priority. And training is important to

keep government’s competency high, but also for employee job satisfaction. You find a lot of correlation between people getting

trained and updated on the latest and people who are stuck kind

of in a rut and just seeing jobs going out the door and privatized

because government won’t invest a few dollars in retaining some

very qualified and knowledgeable people to take them to the next

level.

I have long argued that if you’re looking at the point of view

from a Federal employee and Federal employee groups, if you want

to stop the hemorrhaging and outsources, you have got to do more

in house, and not just on pay, but on training and these other

issues. And sometimes the same groups that are fighting

outsourcing are also fighting some of the reforms you need to make

within the Civil Service System. And it all goes together because

at the end of the day, government’s responsibility is to get the job

done and get the best value for the lowest cost, and that involves

a lot of different variables.

But training is a key component for that. We shouldn’t be driven

by a desire to outsource or a desire to keep in house, but by getting

it done at the lowest, at the best value for the lowest cost. And it’s

complicated sometimes how you arrive at that. It’s controversial

sometimes how you arrive at that. But that’s our fiduciary duty to

the taxpayers over the long term.

It just seems to me that the training side in particular, we have

an opportunity next year that wasn’t available to us just a year

ago, and the key is getting them in here and keeping them here,

and that means this is an opportunity to change the way we’re

doing things, and we have an opportunity with the people that are

going out the door to bring in some quality people and keep them

here if we have our rules and our regulations and our policies set

in the right way. If we don’t, as you said, it could be a temporary

blip, and they’re in and then they’re back across the street again

in 6 months or a year when the economy picks up, and we’re back

to where we were, and that doesn’t do us any good.

So that’s kind of what I see. I don’t know if anybody wants to

react to that.

Mr. FORMAN. Mr. Chairman, if I could a little bit on that, what

we are finding out in e-government work is that you are right on

target with it—almost prophetic.

Mr. TOM DAVIS OF VIRGINIA. Take as much time as you need.

Mr. FORMAN. The notion of bringing to government the knowledge, management, best practices that you see in many commercial

firms really comes down to what I would call the communities of

practice. In most leading companies, some of whom will be on this

next panel, you see knowledge management tools that bring together training, online training techniques with the people whose

jobs really are changing day in and day out, and the communities

of practice allow for that training to occur.

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Now, what we found out in e-government work that we have

been doing, perhaps because of all the overlap in the business architecture, these communities of practice have been forming, some

officially, different coordinating committees and some—because

people go to different training sessions and they do meet people

who do like work. What we’re trying to formalize with e-government initiatives is developing that aspect of human capital. So

leveraging the Web, e-training concepts, sharing the knowledge, it

is incredibly important, especially if people are going to move out

of the work force, as we have seen, over the next few years just

based on who is eligible to retire.

And the other thing that goes along with that is this—is how

kids are coming out of college, graduate school now. They are used

to operating in these communities of practice. And we have to bring

that into the Federal Government, especially in IT.

Mr. TOM DAVIS OF VIRGINIA. Let me just throw this out to all of

you. One thing that occurred to me is we would be happy to host,

our office along with Mr. Wolf and Moran and Senator Warner,

something out in the Tysons area at this point where we could

come out—and government where you need these folks—host kind

of a job fair in terms of openings and things we might have and

allow you, the different agencies, to set up and talk about some of

your plans. And if you would be willing to do that, we would be

happy to explore that with you.

For some of our people who are out of work, looking for work,

and been laid off, this may give them some hope and an opportunity to look at government; whereas, otherwise, if you don’t bring

it to them, maybe they think it is too burdensome or too regulatory.

But this could be a win-win. If you would be willing to do that, we

will be happy to work with you with on it.

Mr. WINSTEAD. I would be happy to take that recommendation

back to the director.

Mr. FORMAN. And I would be happy to support that and any commercial efforts where people coming into government or potentially

considering serving with a government contractor that don’t quite

yet understand how we are going through a revolution, I’d be willing to support that as well.

Mr. TOM DAVIS OF VIRGINIA. Well, I think people just don’t want

a job now, they are also looking for a career path. And right now,

one of the problems is you get a job to tide you over for a short

term, but what is the career path; where are you going? And I

mean it is not like the old days, where somebody maybe comes in

and works for 30 years and retires; but you want to give them at

least the time where they can not only get a pay check, but get

training where they continue to develop themselves professionally.

I think that is some of the things we are looking at.

And we have other legislation. As you know, we have other

issues that we have discussed. Anything else that somebody wants

to add?

Mr. WINSTEAD. Let me just mention in the area of training, and

something that we’re excited about at OPM, and that’s the implementation of individual learning accounts, which I mentioned in

my testimony. An individual learning account, or an ILA, is a specified amount of resources. It’s usually a combination of dollars or

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hours or, in some cases, it might be certain kinds of access to the

Internet or to government computers they employ and then can use

to guide their own learning. And we think this is an important way

of helping, particularly IT employees.

Mr. TOM DAVIS OF VIRGINIA. It’s almost a benefit package.

Mr. WINSTEAD. That is correct. Gives them more control over

their own learning experiences and working in concert with their

supervisors, we think it is an idea that has a great deal of value.

And just recently, on September 19th as a matter of fact, the director held a satellite broadcast in which she announced the implementation of this program on a governmentwide basis.

Mr. TOM DAVIS OF VIRGINIA. Any help we can give in getting the

word out; or if you need any legislative assistance, we would be

happy to help. I think those are the things—doing things differently that we need as we move forward. Let me say to all of you,

thank you very much for appearing with us here today. As I said

before, your total testimony, not just what you spoke here, will be

entered into the record and we look forward to continuing to work

with you.

I’m going to declare about a 2-minute recess while we move our

next panel up and give you an opportunity to move. And I think

votes are still a ways off, so we will be able to get right on to the

next panel.

[Recess.]

Mr. TOM DAVIS OF VIRGINIA. Thank you for bearing with me. We

are debating on the floor, and I was trying to find out how long before a vote. And they have the Boehlert-Kind amendment to the

farm bill is up, and it is a gutting amendment, so there is no rule

on who can speak. So everybody wants to speak if you’re from a

farm State. And if you’re not, you want to stay as far away from

it.

But let me swear our next group. And if you would rise with me.

[Witnesses sworn.]

Mr. TOM DAVIS OF VIRGINIA. We are going to start with the gentleman who I have known for many years, who used to work for

this committee and then went with PRC, a company I was affiliated with. In fact, our offices at one point were next door to each

other. And now he has gone on to fame and fortune as the Secretary of Technology in Governor Gilmore’s administration, Don

Upson. And we will move right down the row. Don, thanks for coming up here today.

STATEMENT OF DON UPSON, VIRGINIA SECRETARY OF

TECHNOLOGY

Mr. UPSON. Thank you, Mr. Chairman, for the opportunity. I

hope the testimony that I provide is of some value to the committee. What I thought I would do is—I know you asked the statements be put in the record and keep our comments to 5 minutes.

So I would like to, if I could make some observations about what

we went through and what we are going through as a State, because we’re all in the same boat, trying to build a work force to

manage one of the largest capital expenses that government at all

levels has, and that is our Information Technology. And I looked

at the NAPA report and didn’t fully appreciate that the Federal

62

compensation system is rooted really in the 1940’s. Ours in Virginia was rooted basically in the 1960’s. And neither system as

such really reflected the Information Age, which hit us in the last

20 years.

When I was named by Governor Gilmore as Secretary of Technology 31⁄2 years ago, we formed a Council on Technology Services

that brought the senior managers in technology together from

every major department and agency in higher education and local

government. And what we found was that we really had a bit of

a mess. We weren’t able to recruit people for ‘‘help desk’’ positions

because the pay system was too low, so we contracted out the most

simple positions at rates of $80,000, $90,000 and $100,000.

On the other end of the spectrum, project managers, it was believed, from major systems acquisitions had to be government employees. Those positions went unfilled. We are hemorrhaging millions of dollars in wasted and mismanaged funds, and the projects

weren’t succeeding. They were behind budget or over budget and

behind school. And we worked together as a government, at least

in the technology component, on a broader initiative to reform compensation. And we did a lot of the things that you are talking about

now. Or we tried to.

We put in sign-in bonuses of up to $10,000 and gave employees who referred qualified people bonuses of up to $1,500. We streamlined 1,650 classes of—classification of employees down to 300, 11

of which are Information Technology. We are putting in place the

telecomputing program. We have retention bonuses for up to

$10,000; project incentive bonuses for up to $10,000; increased

leave opportunities.

But the problem that we found is that when it came time to implement those things, unless the money was appropriated, it really

wasn’t used. We have general fund and nongeneral fund agencies.

The minute we were able to grant $10,000 bonuses to keep people

retained, our entire Department of Motor Vehicles granted them to

their entire IT staff, because they are not dependent on appropriated funds, which left the haves and have-nots in government,

a situation that we are actually trying to deal with now.

But in terms of managing complex and large projects, one of the

things we did—and it echoes to what Mark Forman spoke about

earlier—we actually have brought in some of the most qualified

people from the private sector to manage our most complicated

projects, because we simply can’t afford to pay the people the kinds

of money they can make when you manage a project of $10, $30,

$50 or even $100 million. And private-public sector cooperation and

partnership, I think, is important. It is something I know the Federal Government has struggled with for a long time and I think

you’re making great progress on.

Another area I would like to talk about a little bit is the area

of training. We are trying to put in place programs that allow our

employees to keep up with the kind of information, education, and

training they need to meet the changing demands of technology.

Security—information security obviously is really important today,

but has become increasingly important. It is projected the Deputy

National Security Adviser or former Deputy National Security Adviser for Infrastructure, Richard Clark, projected a shortage of

63

43,000 information security professionals at the Federal level. And

we are very pleased in Virginia that two of the seven universities

designated to train information security professionals are—two of

those universities are in Virginia: George Mason and James Madison University. Both have master’s programs to put those kinds of

individuals forward. And the Federal Government is doing a good

job of providing the students and it is the kinds of incentives they

need to pursue careers in government.

On the other hand, when you talk about the shortages of employees that we have and that we are facing, it is a trend now that we

went through in the dot-com phase, and everybody was going to be

rich and happy and retired at 30. And that did go bust. And the

other kind of security, job security is cool again. And government

does offer, we are finding, the opportunity for people to come in at

early, and even mid-points, and even senior points, in their career

and have rewarding careers in technology and technology management if the system is structured in a way that gives them the flexibility to pursue a career, not in a stratified manner, but gives them

project management, development opportunities, a host of opportunities to pursue.

Government service, we believe, at least what we are seeing in

our State in terms of technology positions, we are getting more applications, higher-quality applicants to fill the positions that we

have available, and that is because people now have a sense that

the security government offers is important.

Two points that you mentioned at the Federal level that I have

some familiarity with. I am glad to hear that you asked the question about China Lake, because China Lake is the longest-running

pilot project in history. It has been going for 20 years. And I am

glad to hear, Mr. Chairman, that it is your intention to take some

of the creativity there and move it across the spectrum of technology.

I grew up in China Lake. It is in the middle of nowhere, I can

say that. It’s hot, and in the middle of the Mojave Desert. But it

shows that you can attract the most qualified people when you put

in place the compensation and benefits program that makes it attractive for them to be there.

And finally to get a handle on the whole IT management, the

whole IT work force and the management of that work force and

who is getting the incentives and where the skills are lacking or

not, I would like to end by saying that the best way for that to

occur is for the Congress to adopt your legislation to create a Federal CIO, so there is a single point of contact. And I am delighted

that Mark Forman is the e-government czar. I’ve worked with him

for a number of years. He is a terrific person. But I think it is still

important that you pursue that office of Federal CIO, not only for

the IT management work force, but for those of us in States who

have so many issues that intersect with the Federal Government.

So I would like to throw a plug in for that as well. And with that,

I conclude my remarks.

[The prepared statement of Mr. Upson follows:]

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Mr. TOM DAVIS OF VIRGINIA. Mr. Amler.

STATEMENT OF ARTHUR AMLER, DIRECTOR, EMPLOYEE

COMPENSATION, IBM

Mr. AMLER. Good afternoon, Chairman Davis, and members of

the subcommittee. I am Art Amler, Director of Employee Compensation for IBM. I am here today on behalf of the Information

Technology Association of America, which provides global public

policy and national leadership for the IT industry. Thank you again

for inviting me here to talk about the potential to transform the

Federal Government in a way that would attract, motivate, and retain modern Information Technology workers.

First off, let me say that IBM concurs with the NAPA study.

Many of its recommendations are mirrored in our own story and

experience. In the next few minutes, I would like to talk about that

this afternoon. Let me say IBM’s ability to stay in the forefront of

our industry has two fundamental roots: our technology and our

people. Attracting and keeping the best technology workers has

many angles, as I’m sure you appreciate.

And let us talk about scope on that. One of those angles is the

breadth of the skills required. Government is the largest IT customer. However, its core competency is delivering constituent services, generally not creating IT technologies. Government participates in the market for IT skills like many other IT customers. And

generally the focus here is to maximize the skills of people who

apply IT solutions so agencies can achieve their missions. IT professionals tell us the compensation is not the only factor in where

they choose to work; but make no mistake, get the compensation

wrong and you won’t get your foot in the door. Compensation has

become a given in the market for these skills.

Now, can the Federal Government deal effectively with its impending brain drain? Can the Federal Government be an attractive

place for the 21st century IT worker? Absolutely. Our experience

tells us that it takes understanding the expectations and needs of

the workers, knowing the marketplace, and a willingness to implement.

For IBM, the question of instituting the market-based pay system was not ‘‘can we’’ but ‘‘how will we’’ the biggest single factor

that allowed IBM to transform its compensation programs was the

top-down commitment and drive from senior management.

The IBM journey took several steps to get it to its current compensation platform. Quickly, I will tell you about those.

First, we focused on classification, moving to broadbanding, just

have 10 job bands and job families. One result was that we reduced

bureaucracy. Let me give you an example of that. We had 3,000 job

descriptions. After we did the classification, we went down to about

1,000.

Second, we focused on a common pay increase date. It gives managers an effective and efficient way to look across at all of their employees at the same time to ensure pay decisions are consistent in

approach and standards. Using our e-business solutions, we added

an online tool and process. This meant that each manager, at their

desk top, received a salary budget; individual employee information

such as salary and performance information and history; and, most

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critically, how each employee’s salary compares to the marketplace.

This added objectivity, credibility, and focus in the process.

Third, we instituted pay differentiation to help managers refocus

on their best employees first. This became our byword, one that our

chairman often liked to talk about; in order for us to be successful,

we had to pay our best like the best in the market.

This journey began in 1996–1997, and these three phases were

completed in 1999. In the United States today, we plan 150,000

employee increases in a 3-week period in March, communicate the

decisions to each employee by April, and increases become effective

on May 1.

Another component in retaining IT skills is what we call the dual

ladder. It allows our people with technical skills to achieve the

highest levels in the pay structure, without being forced into management where they may not perform as well and further drain key

technical talent.

Change is never easy. The same applies when restructuring the

pay system to put a premium on performance. You don’t need to

pay the most, offer large wealth accumulation schemes, or even the

highest benefits.

A clear case can be made why someone should choose a career

with the Federal Government as long as some of the very basic realities are addressed from the start. As I said up front, pay is only

one element in a competitive package. Just as the private sector is

quickly learning, the extent to which worklife options can be improved will make the government a more attractive employer.

Worklife flexibility is one of the biggest issues for the modern work

force and can make all the difference regarding employer choice.

With the IT worker, continuing education and skill development

can’t be overplayed. Organizations that ignore development because of costs will most likely face the much higher cost of replacement.

Any transition to a market-based pay for performance compensation and human resource management plan needs to be well understood. You need to establish the imperative for the transition. And

actually this should be obvious, given the reality of competing in

a wide field for a limited supply of technology workers. Also, managers need to be on board, committed, and clear as they begin implementation.

We believe implementation will reap numerous rewards in the

skills and quality of workers you’ll get to pursue your mission.

Compensation is just one element to attracting, motivating, and retaining the skilled work force, but getting it right is critical to having a solid foundation. Combine that with the nature of the work,

the work environment, a commitment to continuous learning and

flexibility, and the government will have an extremely strong package.

Mr. Chairman, thank you very much for having me here today,

and please enter my written statement into the record.

[The prepared statement of Mr. Amler follows:]

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STATEMENT OF JEAN BADERSCHNEIDER, VICE PRESIDENT,

GLOBAL PROCUREMENT, EXXONMOBIL GLOBAL SERVICES CO.

Ms. BADERSCHNEIDER. Mr. Chairman, looks like we’re shifting

gears here. I am Jean Baderschneider, vice president for procurement for ExxonMobil Corp. The scope of my responsibility covers

all third-party spend for ExxonMobil worldwide. In addition, to

sourcing and day-to-day procurement services, I also have responsibility for all warehouse operations and accounts payables.

Basically what we did is we integrated the entire Purchase-toPay process in one global organization. We have got 4,000 procurement employees located in 190 countries, which adds a special dimension. We are located everywhere we do business.

I know the committee members are aware of the dramatic

changes in recent years in both the function and business expectations of the procurement process. I have in my office a little cartoon. And the first frame of the cartoon has the door in a dingy

basement with a light bulb that says ‘‘Purchasing.’’ And the second

frame of the cartoon, the door is open and it says, ‘‘Procurement’s

moved upstairs.’’ And I think that’s the case over the last 10 years.

It is front and center on both efficiency and effectiveness in corporations.

Recognizing this, we created a global procurement organization

with a goal to fully optimize the entire acquisition supply chain

through strategic sourcing practices and gain operating efficiencies—cost reductions—through full integration of the Purchaseto-Pay process. Let me just add here, we staffed it with high potential line, business, and financial managers. In my 16 direct reports,

virtually no one was just experienced in procurement. Everyone

came from other functions. And clearly, implications for recruiting,

career development, and salaries as a result of it.

Our mission was to provide break-through cost reductions and

value generation opportunities that to date have totaled in the billions, with a ‘‘b.’’ In the last decade, there has been a general movement away

from traditional bidding—I think you are aware of that—to a commercial focus on lowering total system costs. This has involved developing and implementing a new business process called ‘‘strategic

sourcing,’’ which is really a systematic, quantitative, rigorous

framework through which we analyze the drivers of TSC. And TSC

extends well beyond just price margin considerations to vendor

supply chain as well as ExxonMobil’s internal business and operating processes.

Consequently, many of the recommendations we get involved in

go well beyond just price issues. They get into things like maintenance and installation protocols, inventory management planning.

All it takes is for you to sit down once and look through one of the

initiatives to know that you need people with very different skill

sets than in the past.

With regard to services, we use strategic sourcing to create a new

approach called ‘‘value-based costing,’’ where we have moved away

from time and materials to evaluating services by the unit of value

delivered rather than the traditional focus on unit of time. To take

scaffolding, for instance, which is a very easy and concrete example, we moved to dollars per foot rather than time and materials.

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With those changes, we ripped tremendous costs out of our operating locations.

Last November, GAO contacted us about coming and talking to

us with regards to what we do. We spent a day with them outlining

the various approaches to sourcing that we have. In addition to

sourcing-related savings and value, procurements knee deep in

stewarding, major efficiency improvements, and day-to-day transactional processing as well, a key component of radically—and I

use that word decidedly—lowering costs is implementing systems

to digitize most of the procurement processes.

Now with all these changes, we had to look to new competencies.

And yes, we do use competency components to our recruiting and

skills to match the new roles and responsibilities. On the one hand,

we needed to maintain fundamental skills like negotiating skills,

commercial acumen, contracting capabilities, relationship management, etc. On the other hand, we needed to aggressively recruit, internally as well as externally, professionals with strong financial,

analytical, conceptual, quantitative, general management skills,

significant line experience and the capability to fully utilize technology.

And making the change is a major transformation, and it is extremely difficult to do that. Consequently, procurement has become

a key entry point in the corporation for MBAs as well as experienced business line officials such as engineers, which means salaries are driven in the upward direction substantially.

Once you get these folks in place, training is key. We found that

we didn’t have the training available in terms of content or rigor

that we needed. So consequently, we created our own training programs. And, of course, as you’ve already heard here, the key here

is to stay the course and having the discipline to actually execute

and run most of your employees through training.

It is often key that salaries for professional procurement professionals meet external competition and match salary levels in the

business lines to ensure easy career development exchanges between procurement and the business units. In addition, salaries

need to change according to an overall pay-for-performance program built on the basic tenet that employees progress in career and

salary based on performance. And given the scope and scale of the

responsibility we now have in procurement, our positions extend to

the very senior executive levels in the corporation as well.

In conclusion, procurement is a key business function, with key

performance expectations built into the corporate financial plan,

and I am held accountable for those. We steward a number of processes that can create competitive advantage, but the key is having

a skilled work force with the kind of backgrounds that I just outlined, aggressive training, and the ability to fully exploit all new

technology and existing processes. Thank you.

Mr. TOM DAVIS OF VIRGINIA. Thank you very much.

[The prepared statement of Ms. Baderschneider follows:]

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Mr. TOM DAVIS OF VIRGINIA. Mr. Toregas.

STATEMENT OF COSTIS TOREGAS, PRESIDENT, PUBLIC

TECHNOLOGY INC.

Mr. TOREGAS. Mr. Chairman, thank you very much. Congressman Turner, Congressman Horn, members of the committee. The

National Academy of Public Administration appreciates very much

the opportunity to be here to discuss the recently issued report that

transformed hardened Information Technology. Many of the witnesses at this table and at the table before have referred to it. I

thought I would show you a copy of it to make sure—and I would

hope it is entered into the record along with my written testimony.

It is a research outcome that took about a year to conduct.

And I wanted to take just a minute to describe NAPA for you.

A lot of people spoke about NAPA. National Academy of Public Administration is an independent nonprofit organization chartered by

you, the Congress, to assist Federal, State, and local governments

in improving effectiveness, efficiency, and accountability. It has

worked for more than 30 years to meet the challenge of cultivating

this excellence in public management. We have a membership of

more than 500 Fellows, including former and current Members of

Congress, including a member of this very committee here; Cabinet-level appointees; senior Federal, State and local executives; private sector executives; nonprofit leaders and scholars.

The hallmark of our Academy work is total independence of its

research, its analysis, and our recommendations. We received the

mandate from the Council of Chief Information Officers and also

the Administrative Office of the U.S. Courts to look at alternative

compensation systems, and I was privileged to be the chair of the

Academy panel of Fellows that provided oversight and direction for

this effort. We had eight distinguished individuals. You on this

council here have met Martin Faga, the president of Mitre Corp.,

who appeared before this committee on July 31st to share the research done on the study. So I will not cover the research results,

because Martin Faga has done an excellent job of summarizing

those on July 31st.

What I do want to do is I want to very quickly highlight the outcomes. And I am very happy to have heard from the previous witnesses expressed support for those recommendations.

The first one, the most important perhaps, is that we recommend

that in order to address a market-based problem, we have to deal

with a market-based solution. Think of it. We spend as a Nation

$45 billion on Information Technology. And it is about time we

maximize the performance of that $45 billion investment by having

qualified, competent, and strong IT professionals to do that management. The pay increases have to be linked to competency and

results, not time on the job.

The pay system would have four levels: entry, developmental,

full performance, and expert. And it would have a dual track where

technology managers would exist side by side with general managers. The new system would balance three dimensions of equity—

and you heard a prior speaker say this—internal equity, which

means how does my job compare with other jobs within the agency.

But there are two other kinds of equity: external equity, how does

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my job compare to jobs in private industry, to jobs in academia?

That’s external equity. And then, most importantly, contribution

equity. Not how does my job do it, but how am I doing on the job?

It’s that internal contribution equity that is so vital to bring to the

floor along with internal and external equity arguments.

The Federal Government can make maximum use of our worklife

programs, excellent programs that offer Federal agencies a true

competitive edge.

Continuous learning, we have already heard about it, I won’t belabor the point—very important—mentoring, coaching and so on.

Management ownership, buy-in participation is important. Anytime you talk about pay-for-performance, you have to make tough

decisions, and that requires strongly trained managers. We have to

give our managers the necessary tools to support them in their decisionmaking.

We also looked at the costs, and looking into the future, we think

over a 10-year horizon, the return on investment is solid.

Most of these recommendations, Mr. Chairman, and the related

components that we have described are already in place somewhere

in the Federal Government. Let me say, in a different way, all that

the NAPA study is doing is saying that it’s time to assemble best

practices for the Federal Government. It’s time to assemble experiences from demonstration programs and then to implement them

aggressively, and hopefully with good results, quickly.

These recommendations are unique in that they focus on a particular occupation group and they give all agencies management

tools that are now restricted to only a few agencies.

The recommendations also offer the Federal Government the opportunity to attract and retain a well qualified Information Technology work force that can produce maximum benefit for the dollars invested.

Mr. Chairman, I wanted to also respond to your idea about

maybe hosting something in Fairfax and talking about the excitement and opportunities for Federal employment. What you have introduced into the dialog is a very creative, different idea. Instead

of attacking issues at governmental agency levels, perhaps we also

ought to think geographically and to think about IT professionals

in a certain geography, whether it is Fairfax County or any other

counties in the States, and think about how can we help the private sector, Federal Government, State government, local government. And I should say that many of the recommendations in this

report reflect excellent States’—like Secretary Upson’s State of Virginia—and many fine local government experiences. We were able

to aggregate these.

I think the time has come for some creative movement forward.

I was very happy to hear both from OPM, OMB, and GAO that

they are giving an endorsement in support of the recommendations.

So it is now up to us, to all of us, to engage in a dialog and find

some constructive way to move the recommendations to action.

Mr. Chairman, this completes my testimony and I am available

to answer any questions you may have.

[The prepared statement of Mr. Toregas follows:]

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Mr. TOM DAVIS OF VIRGINIA. I thank all of you very much. And

let me go back and start with Don Upson and I am going to move

down. I have a few questions for everybody. Don, those $10,000 bonuses, how was that received by other people who were already employed by the State? Were they looking for

$10,000 to re-up or anything, and what kind of implementation

problems do you have on that?

Mr. UPSON. The obvious ones; that everybody’s job was as important as Information Technology and shouldn’t they get that right,

too. So, in fact, it was expanded across other categories. The truth

is, the only people who could really use those bonuses were the

nongeneral fund agencies. And so as good as it sounds—and the

point I would like to leave you with is that unless the funds are

appropriated and there is some meat put on that, it doesn’t work

as well as we had expected it to. And the Department of Motor Vehicles, they stuck to it, they defended it. And as a result, I can tell

you that they have got the best technology—and not necessarily as

a result—but they are the best compensated. They have the best

package and the best incentives; and, as a result, they have got the

best technology managers in our government.

Mr. TOM DAVIS OF VIRGINIA. And it runs pretty efficiently compared to most places.

You talked about the NAPA reforms being by themselves incapable of addressing the long-term IT dilemma for the Federal Government. Can you elaborate on that? In the written remarks, the

NAPA reforms by themselves don’t address the long-term IT dilemma.

Mr. UPSON. The long-term IT dilemma—and I go back to it—and

I am not sure where in the remarks I said that, but one of the

points I wanted to make as I listened to all this stuff and the reports and all the objective criteria for putting out—putting together

a compensation package, I think back to when we were at PRC;

Cora Carmody was the CIO, and she reported to the chairman and

she had a mission that was central—not only central to the mission, but the IT managers knew it was central and they knew that

the President thought it was central. And I go back to the point

that the leadership and the management—again that’s in the bill

that you have proposed to create a CIO—has an effect on the quality of the work force because it has an effect on how they feel about

the jobs they do.

In Virginia, the fact that there is a Secretary of Technology—

soon there will be another one—that has an impact on how people

feel about their jobs. But the private sector, the technology professionals, have a sense of mission and they know that the people at

the top think it is important.

Mr. TOM DAVIS OF VIRGINIA. In Virginia, you took about 1,650

old job classifications and moved them into 300 categories. And I

assume the private companies, you did the same kind of thing. You

just had to look and reclassify everything in line with the new reality. How did that work?

Mr. UPSON. For us? It works much better. It gives more flexibility to the managers. At least in terms of technology it works much

better. We brought ours down to 11. It gives more flexibility to the

managers. When you add that with our new philosophy and stratVerDate 11-MAY-2000 10:00 Nov 21, 2002 Jkt 000000 PO 00000 Frm 00120 Fmt 6633 Sfmt 6633 C:\DOCS\81521.TXT HGOVREF1 PsN: HGOVREF1
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egy of incorporating private sector employees, where we can’t hire

and we are not able to attract the right kinds of people but they

work side by side, the strategies work very well in some key areas

like the Department of Health and Department of Social Services

that, frankly, get tens of million dollars every year from the Federal Government to administer these systems.

So giving both the managers and the employees greater flexibility was our goal, and we found that it has worked very well, very

fast.

Mr. TOM DAVIS OF VIRGINIA. You know, outsourcing, at least up

here, is controversial. And in Virginia you did more of it. But you

could take things in-house. I mean, you have worked both in government and outside of government for a contractor. What are your

general thoughts on that?

Mr. UPSON. My general thoughts are that it is so refreshing—

State government—because of that lack of fear of outsourcing; the

fact that we can have a Department of Tax Modernization system

in Virginia, where we have 60 private sector employees working

side by side public sector employees. But ours is a little bit of a hybrid of both. We are bringing them in. They are training. And they

are modernizing the system. They get to recoup a share of the profits over a 6-year period. And then they go away and the jobs go

back to public employee jobs.

Mr. TOM DAVIS OF VIRGINIA. And that’s almost like a share-insavings contract?

Mr. UPSON. That’s exactly right.

Mr. TOM DAVIS OF VIRGINIA. Which we are trying to allow more

of at the Federal level and encourage it.

Mr. UPSON. And it is good. I think the model that we’ve got a

little bit, it’s the best of both worlds. You get the private sector to

come in, but you’re not really a threat to the employees. They’re

going to train them and give them the best stuff.

Mr. TOREGAS. Mr. Chairman, could I piggyback on that for just

a second? In our study in NAPA, we looked at outsourcing and we

came up with a number that has surprised a few people on

outsourcing. We found that in 2001, this current year, when all

was said and done, about 70 cents on the Federal IT dollar will

have been spent with private contractors. That’s a very high number.

The question that arose on the panel dialog about this high number is, does the Federal Government have the IT management

skills to oversee the expenditure of the 70 cents on the dollar? So

it was an unusual number. I would have guessed, if somebody had

asked me, I would have guessed a lower number. And it is 70 percent.

Mr. TOM DAVIS OF VIRGINIA. And I think we can agree. I mean,

government has within its employ some of the most capable people

around; but if you aren’t constantly retraining them, you almost

force yourself into a situation—I mean, we have really gotten lax

on some of the training needs. And some of it gets down to times

when budgets were cut and the first thing that gets taken off is

training. Training has to take priority if you want to have an effective management and IT force.

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Let me move to Mr. Amler, just going down the line. The NAPA

study reports that while no governmentwide data is available on

training budgets, that the Department of Treasury in 1998 spent

only 1.5 percent of its IT payroll on the development of IT staff.

NAPA contrasts this finding with the 4.39 percent of payroll, almost three times as much, spent by their leading-edge IT companies on training.

Goes back to the point I was just making. Can you comment how

much is spent by IBM, by companies within ITAA, on training and

development of IT staff?

Mr. AMLER. Yes, Mr. Chairman. That number 4.39, although

that is a level of precision, that may be give or take. You are somewhere right. From our perspective, 4 to 5 percent. If you look at

IBM in terms of its employees, many types of employees, also nontechnical, we may run a little higher because of the fact that we

do invest as much in technical training. But 5 percent, 4 percent,

in that range, is about what we are seeing and what I believe is

out there. So we believe that it is very, very important to have that

level of commitment.

I was just on the phone with some of our people in the training

area and we have, just to go to your remarks about cost cutting,

we have a commitment where even though we are doing a lot of

belt-tightening here at IBM, you have to understand we are really

focusing still on training our people, even in this environment. So

that tells you about the commitment we are trying to make even

in an economy that has uncertainties.

We think it is, by the way, also a key motivator, as you mentioned. There is nothing like having availability of training programs to upgrade yourself, and also degree programs that you can

avail yourselves, which can be reimbursed by the business to enhance your skills, to move ahead for your career, to get a degree.

It is attractive for young professionals, bachelors who want to go

for a master’s. From my standpoint, it has been a key retention

tool for us.

Mr. TOM DAVIS OF VIRGINIA. And one of the saddest things is,

within government I have known some of the smartest, most dedicated, loyal, hardworking people you find; but you don’t give them

the training and it goes out the door. And it is our loss, and we

have to wake up. And what you are saying is that the private sector is spending roughly three times as much on training.

Ms. BADERSCHNEIDER. Mr. Chairman, just on that particular

question. I do believe training budgets are only one element that

you need to look at. I’ve got $400 million operating expenditure. I

only spend $2 million direct costs on training. And—but, in fact, we

run almost everybody through massive training programs. And we

do train the trainers and we integrate the training process into everyone’s job. So the people who actually do the training are folks

that are doing the jobs. It is a pretty rigorous training program as

well. In addition, then, we supplement it with rotations and exchanges and other things. I think the point is, you get the training

budget but you don’t necessarily get the whole thing you are looking for.

Mr. TOM DAVIS OF VIRGINIA. Again, Mr. Amler, one of the NAPA

findings is that individuals are turned off about government service

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getting bogged down in process rather than focusing on the completion of projects. What are your views on the importance of rewards

for good performance, such as when an employee accomplishes a

project goal, maybe under budget, ahead of time or whatever, and

what kind of reward system does IBM implement?

Mr. AMLER. I think it is one of the key motivators for a person

who is looking to excel for the business, excel for themselves, that

they know that if they produce for the business, that they don’t

have to wait for a year or 2 years, 3 years, to be promoted or to

get an increase that looks like a promotion increase.

By going to the broadbanding approach, what we are able to do

is get to our top people who have been driving performance for our

business and give them much more significant increases than either the OK performer or the performer who wasn’t performing as

well. And that was a tremendous motivator, that we recognized a

difference to that person who was stretching, trying to make the

organization more successful, and we didn’t necessarily have to

promote that person, although we do promote people in a 10-band

system. But that they could see very timely increases that were

significant increases, that only they saw years gone by if you were

promoted.

So that is the kind of reward system that people now expect if

they really stretch themselves.

Mr. TOM DAVIS OF VIRGINIA. Let me ask this, too. And Don, we

had these same kind of problems at PRC. Sometimes the people,

if you are not in management but you are technically very competent, a lot of times in government, the tendency is you reward

people as they go up the management ladder. But some of the best

technically competent people who are just wizards in the back room

or with a computer, they are not managers and you don’t want

them to be managers. We found the guys who could make the sale

couldn’t manage it.

How do you handle that in terms of compensation? That is a

huge problem for government, because we reward—not everything,

but a lot of our reward system is based on managing people.

Mr. AMLER. I think it is well called out in the NAPA study as

one of the critical problems. I think the way we break it down in

IBM is there are two ways to exhibit leadership in IBM. One is

technical leadership and one is business leadership, and reward

people for both. And they can achieve to the highest band in both.

They can stay as an engineer all the way to the highest bands,

right through into the executive bands, and need not go into management.

What is the problem here is that some of your best people, you’re

trying to keep them happy, and perhaps the best way to get them

more pay is put them into a management job so they can get more

pay, and you’re going to drain your key technical people. And that

person who goes into the management job may not be the right

person for management. So what you have done is you hurt yourself with good technical drain—draining your good technical people,

and you may not have made a very good manager in the process.

So that is why we go with the dual ladder approach. And we

have been successful in keeping people happy, motivated, and with

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a sense of opportunity no matter how they feel about the business,

whether they want to stay in technology or go into management.

Mr. TOM DAVIS OF VIRGINIA. Just one last question. It took IBM

3 years to fully implement the changes that you outline in your

statement. What is a reasonable timeframe do you think for Federal departments to implement some of these NAPA reforms?

Mr. AMLER. I think it can be accomplished if there is the sense

of urgency and commitment from the top team here in a similar

time period. We are dealing at IBM in the United States alone with

150,000 employees—in just the United States—300,000 worldwide.

And think about it. We went to a broadband system as a first step

in the first year, and we are able to accomplish that. That required

the real big assistance of your management team to help map people into that kind of classification system.

Mr. TOM DAVIS OF VIRGINIA. But to do that you really need the

vision of this as what we are going to implement, not the pilot program and the following up. It is just a huge difference in time in

terms of getting this up and running.

Mr. AMLER. Right. We didn’t think it could be done as quickly,

but we had a big commitment from top management to make it

happen and it has worked out quite well in terms of the transition.

If it takes government 4 years or maybe 3 years, you know, the

point is to start. And the idea is to look at it in phases.

And the other recommendation I’d give you is that it’s not necessary to have every agency participate in year one, but they transition to that perhaps year 2 or year 3 and so you’re done in a 3-

year period.

Mr. TOM DAVIS OF VIRGINIA. Ms. Baderschneider, you talked

about total system costs, strategic sourcing, you know, value-based

costing. How can these impact the Federal Government? And what

I want to ask is, how exploitable are these concepts of total costs

of strategic sourcing, value based costing to the government?

Ms. BADERSCHNEIDER. I think anytime you have a supply chain

on anything, they are importable. You can bring them in and you

can make them work. And I looked real quickly at a document that

the GAO left with us in November about the $90 billion spent on

services, and I looked across at equipment, maintenance, construction, all the different areas that are large chunks of the spend. You

can take TSC and do commodity assessment; that will get you very

different answers than just a price equation in all those areas. The

key, though, is whether or not you get the skills and you’ve got the

breadth of coverage, because you’ve got to be able to cover your entire supply chain. Do you coordinate across a wide enough breadth,

which are often not just lowest price, but a process or planning related as well. So I think they are importable.

I made a note to go back and call the GAO folks and say, you

had a whole day with us, did you do anything with it? I would like

to find out whether they were able to do anything. And I talked

to Dee Lee a couple of times, and her frustration in trying to import some of these same kinds of processes. They are doable, but

you’ve got a skills issue.

Mr. TOM DAVIS OF VIRGINIA. Remember this. In the private sector, you get rewarded for a fast, quick decision behind closed doors.

In government, the process—everything is open. It’s process-oriVerDate 11-MAY-2000 10:00 Nov 21, 2002 Jkt 000000 PO 00000 Frm 00124 Fmt 6633 Sfmt 6633 C:\DOCS\81521.TXT HGOVREF1 PsN: HGOVREF1
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ented. Takes a long time. I mean, we spend a lot of time on process

and procedure in government because we want it open and want

to keep people in government from stealing money. And we do a

pretty good job of that. But they can’t do much of anything else either. And that’s one of the problems, is that there is a tradeoff here

in finding the right balance.

Now if you know what you want to do, can you move quickly?

You can. But there is always a tentativeness.

Ms. BADERSCHNEIDER. The only thing, though, is what TSC does,

it gives you transparency on the cost drivers. I sit oftentimes in a

political mess with chemicals, production, refining, development,

and they all don’t want to relate. But once you’ve got transparency

on this is what it’s going to take and this is what it’s costing you,

that can drive a lot. So I do still think that TSC offers a great way

to put a window on your cost drivers.

Mr. TOM DAVIS OF VIRGINIA. You also mentioned that procurements become a key entry point in the corporation for new MBAs.

As the Federal Government sees more and more of its experienced

acquisition professionals retiring, are the skill sets that are inherent in an MBA something that the government will both need to

seek out and to immediately train for its efforts to replace the retiring work force?

Ms. BADERSCHNEIDER. Yes, I do. But it’s not an MBA. That is

more a symbol of analytical, conceptual competencies that you can’t

go out and develop, and then a framework that you can develop.

So I think the ability to do financial planning and assessment, having the analytical skills that allow you to use technology and relate

technology to your business processes, all of those things, I think

the answer is yes.

I tell you, the other groups—undergraduate physics, math—we

have had great luck—I know you are grimacing back there. We

have had great luck with people with quantity backgrounds because it teaches them a mindset to conceptualize problems in a different way, in addition to influencing skills, team building, project

management.

Mr. TOM DAVIS OF VIRGINIA. I would like to tell a story about it.

Today a graduate with a degree in science asks: Why does it work?

A graduate with a degree in engineering asks: How does it work?

A graduate with a degree in accounting asks: How much does it

cost? And a graduate with a degree in liberal arts asks: Do you

want fries with that?

When you talk about the total skill on that, I have one other

question. Based on your corporate experience, do you think there

are core IT skill areas in government, just as in your own organization, that are not candidates for private sector outsourcing?

Ms. BADERSCHNEIDER. Two or 3 years ago, I would have said yes.

I don’t think that’s the case today. I think there are companies that

can do almost anything: software, hardware, telecom, networking;

you name it, it can be done.

I think the bigger issue is whether outsourcing works or not and

how you structure it, because most outsourcing fails unless you

have the right kind of interfaces, unless you maintain some kind

of core capabilities to manage it. Most outsourcing is abdication.

It’s ‘‘get it out of here,’’ and it hasn’t been reengineered. You don’t

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have KPIs or key performance indicators to make sure your costs

don’t go through the roof.

I think all that stuff can be outsourced, but it is how you do it.

And I haven’t seen too many examples of good outsourcing.

Mr. TOM DAVIS OF VIRGINIA. Mr. Toregas, let me ask you a few

questions. During the research phase of the study, NAPA had the

participation of more than 30 agencies. What participation was

there by Federal agencies in the evaluation and report stages?

Mr. TOREGAS. We had developed a leadership council to support

the deliberations of the panel and the staff work. And there were

several agencies that constantly kept contributing after the research stage, all the way up to helping us evaluate the alternatives.

In addition, we had representatives from the private sector and

ultimately from IBM, was one of the key providers of expertise

from private industry. So what we tried to do, once we finished the

research stage and went into the developmental alternatives in creation of a key choice, was to continue that dialog, but not at the

entire developmental level but through a leadership council that we

organized.

Mr. TOM DAVIS OF VIRGINIA. Now, OPM has said that its ongoing

efforts to increase pay flexibility, such as increasing demonstration

project authority, doing pilot projects for a compentency-based hiring and so on, hold a lot of potential for making the Federal Government more attractive to prospective employees. Given the number of reform efforts that are underway already by OPM, you still

recommend implementing and legislating for market-based pay-forperformance and pay banding approaches of NAPA?

Mr. TOREGAS. Yes. The two statements are not contradictory at

all. I think what OPM is finding is good success. And what we’re

saying is let’s go. Instead of demonstrating or piloting, the time has

come to actually step to the plate and implement it. So we are mutually supportive of one another.

Mr. TOM DAVIS OF VIRGINIA. What can Congress do to help promote this?

Mr. TOREGAS. I think you hold the power of persuasion. You create laws, you create direction to the administration in various key

areas, and you give the platform for action. The difficulty for this

particular area is there is no one single stakeholder.

As you can well appreciate, Mr. Chairman, there are many stakeholders in this complicated area. And it is very difficult to conceptualize where you can sit at a table and dialog and discuss. And

I think this very hearing is a good example where you have had

industry, State, local governments, private sector representatives

and you have had Federal agencies all beginning to dialog about

the elements of the NAPA report that should move forward toward

implementation.

So I think perhaps as you move forward, you conceptualize the

bills that can give Congress the authority and the administration

some direction in which way to go. I think it is an excellent first

step. And NAPA, I should say the National Academy, stands ready

to help you in that effort.

Mr. TOM DAVIS OF VIRGINIA. Anything else anyone wants to add?

Let me just say before we close, I want to take a moment to thank

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everyone for attending the subcommittee’s important legislative

hearing today. I want to thank our witnesses, Congressman Turner

and Representative Horn, and I want to thank my staff for organizing this. I think it has been very productive.

I am going to enter into the record at this point the briefing

memo distributed to subcommittee members.

The record is open for 2 weeks if anything occurs to you that

maybe you didn’t put in and you want to get into the record. And

thank you very much. These proceedings are closed.

[Whereupon, at 4 p.m., the subcommittee was adjourned.]

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