United States Government Accountability Office

GAO Testimony 

Before the Committee on Homeland 

Security and Governmental Affairs, 

U.S. Senate

HUMAN CAPITAL 

Observations on Final 

Regulations for DOD’s 

National Security Personnel 

System 

Statement of David M. Walker 

Comptroller General of the United States 

For Release on Delivery

Expected at 10:00 a.m. EST 

Thursday, November 17, 2005 

 

GAO-06-227T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

November 17, 2005

HUMAN CAPITAL

Observations on Final Regulations for 

DOD's National Security Personnel 

System 

Highlights of GAO-06-227T, a testimony to 

the Committee on Homeland Security and 

Governmental Affairs, U.S. Senate 

People are critical to any agency 

transformation because they define

an agency’s culture, develop its 

knowledge base, promote 

innovation, and are its most

important asset. Thus, strategic 

human capital management at the

Department of Defense (DOD) can 

help it marshal, manage, and 

maintain the people and skills 

needed to meet its critical mission. 

In November 2003, Congress

provided DOD with significant

flexibility to design a modern 

human resources management

system. On November 1, 2005, 

DOD and the Office of Personnel

Management (OPM) jointly

released the final regulations on

DOD’s new human resources 

management system, known as the

National Security Personnel

System (NSPS). 

Several months ago, with the 

release of the proposed

regulations, GAO observed that 

some parts of the human resources

management system raised

questions for DOD, OPM, and 

Congress to consider in the areas 

of pay and performance 

management, adverse actions and 

appeals, and labor management 

relations. GAO also identified 

multiple implementation challenges

for DOD once the final regulations

for the new system were issued. 

This testimony provides GAO’s 

overall observations on selected 

provisions of the final regulations.

GAO believes that DOD’s final NSPS regulations contain many of the basic 

principles that are consistent with proven approaches to strategic human 

capital management. For instance, the final regulations provide for (1) a 

flexible, contemporary, market-based and performance-oriented 

compensation system—such as pay bands and pay for performance; 

(2) giving greater priority to employee performance in its retention decisions 

in connection with workforce rightsizing and reductions-in-force; and 

(3) involvement of employee representatives throughout the implementation

process, such as having opportunities to participate in developing the 

implementing issuances. However, future actions will determine whether 

such labor relations efforts will be meaningful and credible. 

Despite these positive aspects of the regulations, GAO has several areas of 

concern. First, DOD has considerable work ahead to define the important 

details for implementing its system—such as how employee performance 

expectations will be aligned with the department’s overall mission and goals 

and other measures of performance, and how DOD would promote 

consistency and provide general oversight of the performance management 

system to ensure it is administered in a fair, credible, transparent manner. 

These and other critically important details must be defined in conjunction 

with applicable stakeholders. Second, the regulations merely allow, rather 

than require, the use of core competencies that can help to provide 

consistency and clearly communicate to employees what is expected of 

them. Third, although the regulations do provide for continuing 

collaboration with employee representatives, they do not identify a process 

for the continuing involvement of individual employees in the 

implementation of NSPS. 

Going forward, GAO believes that (1) DOD would benefit from developing a 

comprehensive communications strategy, (2) DOD must ensure that it has 

the necessary institutional infrastructure in place to make effective use of its 

new authorities, (3) a chief management officer or similar position is 

essential to effectively provide sustained and committed leadership to the 

department’s overall business transformation effort, including NSPS, and (4) 

DOD should develop procedures and methods to initiate implementation 

efforts relating to NSPS. 

While GAO strongly supports human capital reform in the federal 

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

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

DOD’s regulations are especially critical and need to be implemented 

properly because of their potential implications for related governmentwide 

reform. In this regard, in our view, classification, compensation, critical

hiring, and workforce restructuring reforms should be pursued on a 

governmentwide basis before and separate from any broad-based labormanagement or due process reforms. 

www.gao.gov/cgi-bin/getrpt?GAO-06-227T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Derek B. 

Stewart at (202) 512-5559 or 

stewartd@gao.gov. 
Madame Chairman Collins, Senator Lieberman, and Members of the 

Committee: 

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

on the Department of Defense’s (DOD) final National Security Personnel 

System (NSPS) regulations, which the Secretary of Defense and the 

Director of the Office of Personnel Management (OPM) published earlier 

this month.1 NSPS will not only affect the roughly 700,000 DOD civilian 

employees, but it could have far-reaching implications for civil service 

reform across the federal government. 

As I have previously testified, we support moving forward with 

appropriate human capital reform, but how it is done, when it is done, and 

the basis on which it is done can make all the difference in whether such 

efforts are successful. Human capital reforms to date recognize that the 

“one-size-fits-all” approach is not appropriate to all agencies’ demands, 

challenges, and missions. However, we have reported that a reasonable 

degree of consistency across the government is desirable and that broader

reforms should be guided by a common framework consisting of 

principles, criteria, and processes.2

 The final NSPS regulations, if 

implemented properly, could go a long way in the area of helping to shape 

such a framework and serve, along with GAO’s, the Department of 

Homeland Security’s, and other reform efforts, as a potential model for 

governmentwide reform in the area of human capital management. 

My statement today makes three overall points. First, DOD has 

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

system, and understanding these details is critical to the overall success of

the system. We find that the final regulations contain many of the basic 

principles that are consistent with proven approaches to strategic human 

Summary 

 1

 Department of Defense Human Resources Management and Labor Relations System, 70 

Fed. Reg. 66116 (Nov. 1, 2005). 

2

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

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

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

1, 2004) 

Page 1 GAO-06-227T 
capital management, including several approaches used by GAO.3

 DOD has 

plans to issue a number of issuances that will contain detailed policies and 

procedures for the new system. These issuances will be of critical 

importance and their content will include important details that can serve 

to either enhance or reduce the likelihood of a successful implementation. 

These critically important details must be defined in conjunction with 

applicable key stakeholders and certain steps should be taken before any 

new authorities are implemented. 

Specifically, DOD and other federal agencies must ensure they have the 

institutional infrastructure in place to make effective use of their new 

authorities. This institutional infrastructure includes, at a minimum, a 

human capital planning process that integrates the agency’s human capital 

policies, strategies, and programs with its program goals, mission, and 

desired outcomes; the capabilities to effectively develop and implement a 

new human capital system; and importantly, the existence of a modern, 

effective, and credible performance management system that includes 

adequate safeguards to ensure a fair, effective, non-discriminatory, and 

credible implementation of the new system. 

Second, DOD has stated that it is committed to continuing to involve 

employees, including employee representatives, throughout the 

implementation process, another critical ingredient for success. For 

instance, under the final regulations, employee representatives are to have

opportunities to participate in developing the implementing issuances, as 

outlined under the “continuing collaboration” provisions. However, future 

actions will determine whether such employee and labor relations efforts 

will be meaningful and credible. In this regard, despite extensive efforts by 

many, DOD’s attempts to date to involve labor unions have not been 

without controversy. Ten federal labor unions have filed suit alleging that

DOD failed to abide by the statutory requirements to include employee 

representatives in the development of the labor relations system, and that

the new adverse actions process and labor relations system are unlawful.4

 3

 GAO, Human Capital: Preliminary Observations on Proposed Regulations for DOD’s 

National Security Personnel Systems, GAO-05-559T (Washington, D.C.: Apr. 14, 2005);

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

National Security Personnel System Regulations, GAO-05-517T (Washington, D.C.: Apr.

12, 2005); GAO, Preliminary Observations on Proposed DOD National Security Personnel 

System Regulations, GAO-05-432T (Washington, D.C.: Mar. 15, 2005). 

4

 See American Federation of Government Employees, AFL-CIO et al v. Rumsfeld et al, 

No. 1:05cv02183 (D.D.C. filed Nov. 7, 2005). 

Page 2 GAO-06-227T 
We believe that sustained and committed leadership can provide the 

continuing, focused attention needed to successfully complete this 

multiyear conversion to the new human resources management system, 

and an ongoing two-way communication strategy can help ensure the 

quality of that involvement. 

Third, and finally, recent actions, as evidenced by these DOD final 

regulations, may have significant, precedent-setting implications for the 

rest of the government. They represent both progress and opportunities, 

but also raise legitimate concerns. We are fast approaching the point 

where “standard governmentwide” human capital policies and processes 

are neither standard nor governmentwide. Human capital reform should 

avoid further fragmentation within the civil service, ensure reasonable 

consistency within the overall civilian workforce, and help maintain a 

reasonably level playing field among federal agencies when competing for 

talent. Further, human capital reform should maintain key merit principles 

and appropriate safeguards against discrimination and other prohibited 

personnel practices. While we strongly support human capital reform in 

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

which it is done can make all the difference in whether such efforts are 

successful. In our view, classification, compensation, critical hiring, and 

workforce restructuring reforms should be pursued on a governmentwide 

basis before and separate from any broad-based labor- management or due 

process reforms. 

This morning I would like to (1) provide some observations on selected 

provisions, (2) discuss the multiple challenges that DOD faces as it moves 

toward implementation of its new human resources management system, 

and then (3) suggest a governmentwide framework that can serve as a 

starting point to advance human capital reform. Lastly, I will suggest next 

steps for human capital reform. 

DOD’s final NSPS regulations establish a new human resources 

management system within the department that is intended to ensure its 

ability to attract, retain, and reward a workforce that is able to meet its 

critical mission. Further, the human resources management system is to 

provide DOD with greater flexibility in the way employees are to be paid,

developed, evaluated, afforded due process, and represented by employee

representatives while reflecting the principles of merit and fairness 

embodied in the statutory merit systems principles. 

Observations on 

DOD’s Final Human 

Capital Regulations 

Page 3 GAO-06-227T 
As with any major change management initiative, the final regulations 

have raised a number of concerns among employees, employee 

representatives, and other stakeholders because they do not contain many

of the important details of how the system will be implemented. We have 

reported that individuals inevitably worry during any change management 

initiative because of uncertainty over new policies and procedures.5

 A key 

practice to help address this worry is to involve employees and their 

representatives to obtain their ideas and gain their ownership for the 

initiative throughout the development process and related implementation

effort. 

We continue to believe that many of the basic principles underlying DOD’s 

final regulations are generally consistent with proven approaches to 

strategic human capital management. Today, I will provide our 

observations on the following elements of DOD’s human resources 

management system as outlined in the final regulations—pay and 

performance management, staffing and employment, workforce shaping,

adverse actions and appeals, and labor management relations. 

Pay and Performance 

Management 

Earlier this year, we testified that DOD’s proposed NSPS regulations 

reflected a growing understanding that the federal government needs to 

fundamentally rethink its current approach to pay and better link pay to 

individual and organizational performance.6

 To this end, DOD’s final 

regulations take another valuable step toward a modern performance 

management system that provides for elements of a more market-based 

and performance-oriented pay system. For instance, the final regulations

provide for the creation of pay bands for most of DOD’s civilian workforce 

that would replace the 15-grade General Schedule (GS) system now in 

place for most civil service employees. Specifically, DOD, after 

coordination with OPM, may define occupational career groups and levels

of work within each career group that are tailored to the department’s 

missions and components. The final regulations also give DOD 

considerable discretion, after coordination with OPM, to set and annually

adjust the minimum and maximum rates of pay for each of those career 

 5

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

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

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

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

6 GAO-05-559T, GAO-05-517T, and GAO-05-432T. 

Page 4 GAO-06-227T 
groups or bands, based on national and local labor market factors and 

other conditions such as availability of funds. In addition, the regulations 

provide that DOD may, after coordination with OPM, set and annually 

adjust local market supplements for different career groups or for 

different bands within the same career group. We strongly support the 

need to expand pay reform in the federal government and believe that 

implementing more market-based and performance-oriented pay systems 

is both doable and desirable. The federal government’s current pay system 

is heavily weighted toward rewarding length of service rather than 

individual performance and contributions, including requiring across-theboard annual pay increases, even to poor performers. It also compensates 

employees living in various localities without adequately considering the 

local labor market rates applicable to the diverse types of occupations in

the area. 

Regarding performance management issues, we identified several issues in 

earlier testimonies that DOD will need to continue to address as it moves 

forward with the implementation of the system. These include aligning 

individual performance to organizational goals, using competencies to 

provide a fuller assessment of employee performance, making meaningful 

distinctions in employee performance, and continuing to incorporate 

adequate safeguards to ensure fairness and guard against abuse. 

Consistent with leading practices, the DOD final regulations stipulate that 

the performance management system will, among other things, align 

individual performance expectations with the department’s overall 

mission and strategic goals, organizational program and policy objectives,

annual performance plans, and other measures of performance. DOD’s 

performance management system can be a vital tool for aligning the 

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

how team, unit, and individual performance can contribute to overall 

organizational results. To this end, an explicit alignment of daily activities 

with broader results is one of the defining features of effective 

performance management systems in high-performing organizations. In 

our previous testimony on DOD proposed NSPS regulations,7

 we testified 

that the regulations did not detail how DOD was to achieve such an 

alignment. The final regulations were not modified to provide such details.

These details do matter and are critical issues that will need to be 

Aligning Individual 

Performance to Organizational 

Goals 

 7 GAO-05-517T. 

Page 5 GAO-06-227T 
addressed as DOD’s efforts in implementing a new personnel system move 

forward.8

In the final regulations, performance expectations may take several 

different forms. These include, among others, goals or objectives that set 

general or specific performance targets at the individual, team, or 

organizational level; a particular work assignment, including 

characteristics such as quality, quantity, accuracy, or timeliness; core 

competencies that an employee is expected to demonstrate on the job; or

the contributions that an employee is expected to make. In a previous 

testimony, we reported that DOD needed to define, in more detail than 

was provided in the proposed regulations, how performance expectations 

will be set. In addition, public comments to the proposed regulations 

expressed concerns about the variety of forms that performance 

expectations could take. In response to public comments to its proposed 

regulations and feedback obtained during the meet and confer process 

with employee representatives, DOD modified the proposed regulations, 

so that the final regulations state that the basic performance expectations 

should be provided to employees in writing. 

Using Competencies to Provide 

a Fuller Assessment of

Performance 

As DOD develops its implementing issuances, the experiences of leading 

organizations suggest that DOD should reconsider its position of merely 

allowing, rather than requiring, the use of core competencies as a central 

feature of its performance management system.9

 Based on our review of 

others’ efforts and our own experience at GAO, core competencies can 

help reinforce employee behaviors and actions that support the 

department’s mission, goals, and values and can provide a consistent 

message to employees about how they are expected to achieve results.10

By including competencies such as change management, achieving results,

teamwork and collaboration, cultural sensitivity, and information sharing,

DOD could create a shared responsibility for organizational success and 

help ensure accountability for the transformation process. 

High-performing organizations make meaningful distinctions between 

acceptable and outstanding performance of individuals and appropriately 

Making Meaningful Distinctions 

in Employee Performance 

 8 GAO-05-517T. 

9

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

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

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

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

Page 6 GAO-06-227T 
reward those who perform at the highest level.11 These organizations seek 

to create pay, incentive, and reward systems that clearly link employee 

knowledge, skills, and contributions to organizational results. As in the 

proposed regulations, DOD’s final regulations stated that DOD supervisors 

and managers are to be held accountable for making meaningful 

distinctions among employees based on performance and contribution, 

fostering and rewarding excellent performance, and addressing poor 

performance. 

Consistent with the proposed regulations, the final regulations provide for 

a multilevel rating system for evaluating employee performance. However, 

the final regulations do not specify exactly how many rating levels will be

used. We urge DOD to consider using at least four summary rating levels 

to allow for greater performance-rating and pay differentiation. This 

approach is in the spirit of the new governmentwide performance-based 

pay system for the Senior Executive Service (SES), which requires at least 

four rating levels to provide a clear and direct link between SES 

performance and pay as well as to make meaningful distinctions based on 

relative performance. Cascading this approach to other levels of 

employees can help DOD recognize and reward employee contributions 

and achieve the highest levels of individual performance.12

As DOD develops its implementing issuances, it needs to continue building 

safeguards into its performance management system to ensure fairness 

and guard against abuse. A concern that employees often express about 

any pay for performance system is supervisors’ ability and willingness to 

assess performance fairly. Using safeguards, such as having an

independent body to conduct reasonableness reviews of performance 

management decisions, can help allay these concerns and build a fair, 

credible, and transparent system. In our previous testimonies,13 we noted 

that although DOD’s proposed regulations provided for some safeguards, 

additional safeguards should be developed. However, the final regulations 

do not offer details on how DOD would, among other things, (1) promote 

consistency and provide general oversight of the performance 

management system to ensure it is administered in a fair, credible, and

Providing Adequate Safeguards 

to Ensure Fairness and Guard 

Against Abuse 

 11 GAO-03-488. 

12 GAO, Human Capital: Observations on Final DHS Human Capital Regulation, 

GAO-05-391T (Washington, D.C.: Mar. 2, 2005). 

13 GAO-05-559T, GAO-05-517T, and GAO-05-432T. 

Page 7 GAO-06-227T 
transparent manner; and (2) incorporate predecisional internal safeguards 

to achieve consistency and equity, and ensure nondiscrimination and 

nonpoliticization of the performance management process. As DOD moves 

forward, it will need to commit itself to define, in more detail than is 

currently provided, how it plans to review such matters as the 

establishment and implementation of the performance appraisal system—

and, subsequently, performance rating decisions, pay determinations, and 

promotion actions—before these actions are finalized, to ensure they are 

merit based. 

The authorizing legislation allows DOD to implement additional hiring 

flexibilities that would allow it to (1) determine that there is a severe 

shortage of candidates or a critical hiring need and (2) use direct-hire 

procedures for these positions. Under current law, OPM, rather than the 

agency, determines whether there is a severe shortage of candidates or a 

critical hiring need. Direct-hire authority allows an agency to appoint 

candidates to positions without adherence to certain competitive 

examining requirements (such as veterans’ preference or numerically 

rating candidates based on experience, training, and education) when 

there is a severe shortage of qualified candidates or a critical hiring need.

In our previous testimonies, we noted that while we strongly endorse 

providing agencies with additional tools and flexibilities to attract and 

retain needed talent, additional analysis may be needed to ensure that any

new hiring authorities are consistent with a focus on merit principles, the 

protection of employee rights, and results. Hiring flexibilities alone will 

not enable federal agencies to acquire the personnel necessary to 

accomplish their missions. Agencies must first conduct gap analyses of the 

critical skills and competencies needed in their workforces now and in the 

future, or they may not be able to effectively design strategies to hire, 

develop, and retain the best possible workforces. 

Staffing and Employment 

Workforce Shaping Similar to the proposed regulations, the final NSPS regulations allow DOD 

to reduce, realign, and reorganize the department’s workforce through 

revised reduction-in-force (RIF) procedures. For example, employees 

would be placed on a retention list in the following order: tenure group 

(i.e., a career employee, including an employee serving an initial 

probationary period and an employee serving on a term appointment), 

veterans’ preference eligibility (disabled veterans will be given additional 

priority), level of performance, and length of service. In a change from the 

proposed regulations, employees serving in an initial probationary period

Page 8 GAO-06-227T 
have a lower retention standing than career employees (i.e., permanent 

will be listed first, followed by employees serving an initial probationary 

period, and then followed by employees on temporary appointments). In 

another change, the final regulations reflect the use of more than one 

year’s performance ratings in placing employees on the retention list. 

Under current regulations, length of service is considered ahead of level of 

performance. I have previously testified, prior to the enactment of NSPS, 

in support of revised RIF procedures that would require much greater 

consideration of an employee’s performance.14

DOD’s approach to reducing, realigning, and reorganizing should be 

oriented toward strategically shaping the makeup of its workforce if it is to

ensure the orderly transfer of institutional knowledge and achieve mission 

results. DOD’s final regulations include some changes that would allow 

DOD to rightsize the workforce more carefully through greater precision 

in defining competitive areas, and by reducing the disruption associated 

with RIF orders as their affect ripples through an organization. Under the 

current regulations, the minimum RIF competitive area is broadly defined

as an organization under separate administration in a local commuting 

area. Under the final NSPS regulations, DOD would be able to establish a 

minimum RIF competitive area on a more targeted basis, using one or 

more of the following factors: geographical location, line of business, 

product line, organizational unit, and funding line. The final regulations 

also provide DOD with the flexibility to develop additional competitive 

groupings on the basis of career group, occupational series or specialty, 

and pay band. Under the current GS system, DOD can establish 

competitive groups based only on employees (1) in the excepted and 

competitive service, (2) under different excepted service appointment 

authorities, (3) with different work schedules,15 (4) in the same pay 

schedule, or (5) in trainee status. The new reforms could help DOD 

approach rightsizing more carefully; however, as I have stated, agencies 

first need to identify the critical skills and competencies needed in their 

workforce if they are to effectively implement their new human capital 

flexibilities. 

 14GAO, Defense Transformation: DOD’s Proposed Civilian Personnel System and 

Governmentwide Human Capital Reform, GAO-03-741T (Washington, D.C.: May 1, 2003);

and GAO, Human Capital: Building on DOD’s Reform Effort to Foster Governmentwide 

Improvements, GAO-03-851T (Washington, D.C.: June 4, 2003). 

15 For example, employees who work full time, part time, seasonally, or intermittently. 

Page 9 GAO-06-227T 
Similar to DOD’s proposed regulations, the final regulations are intended 

to streamline the employee adverse action process. While the final 

regulations contain some features meant to ensure that employees receive 

due process, such as advance written notice of a proposed adverse action,

they do not require DOD managers to provide employees with 

performance improvement periods, as is required under existing law for 

other federal employees. It is too early to tell what affect, if any, these final

regulations will have on DOD’s operations and employees or on other 

entities involved in the adverse action process, such as the Merit Systems 

Protection Board (MSPB). Close monitoring of any unintended 

consequences, such as on the MSPB and its ability to manage adverse 

action cases from DOD and other federal agencies, is warranted.16

Adverse Actions and 

Appeals 

Similar to the proposed regulations, DOD’s final regulations also modify 

the current federal system by providing the Secretary of Defense with the 

sole, exclusive, and unreviewable authority to identify specific offenses for 

which removal is mandatory. In our previous testimonies, we noted that 

DOD’s proposed regulations only indicated that its employees would be 

made aware of the mandatory removal offenses. We also noted that the

process for determining and communicating which types of offenses 

require mandatory removal should be explicit and transparent, and involve 

relevant congressional stakeholders, employees, and employee 

representatives. Moreover, we suggested that DOD exercise caution when 

identifying specific removable offenses and the associated punishment, 

and noted that careful drafting of each removable offense is critical to 

ensure that the provision does not have unintended consequences. In a 

change from the proposed regulations, DOD’s final regulations explicitly 

provide for publishing a list of the mandatory removal offenses in the 

Federal Register. 

Similar to its proposed regulations, DOD’s final regulations generally 

preserve the employee’s basic right to appeal mandatory removal offenses

and other adverse action decisions to an independent body—the MSPB—

but retain the provision to permit an internal DOD review of the initial 

decisions issued by MSPB adjudicating officials. Under this internal 

review, DOD can modify or reverse an initial decision or remand the 

matter back to the adjudicating official for further consideration. Unlike 

 16 Ten federal labor unions have filed suit alleging that, among other things, DOD’s adverse 

actions and appeals process is unlawful. See American Federation of Government 

Employees, AFL-CIO et al v. Rumsfeld et al, No. 1:05cv02183 (D.D.C. filed Nov. 7, 2005). 

Page 10 GAO-06-227T 
other criteria for review of initial decisions, DOD can modify or reverse an 

initial MSPB adjudicating official’s decision where the department 

determines that the decision has a direct and substantial adverse effect on 

the department’s national security mission.17 In our previous testimonies 

on the proposed regulations, we expressed some concern about the 

department’s internal review process and pointed out that the proposed 

regulations do not offer additional details on the department’s internal 

review process, such as how the review will be conducted and who will 

conduct it. We noted that an internal agency review process this important 

should be addressed in the regulations rather than in an implementing 

directive to ensure adequate transparency and employee confidence in the 

process. However, the final regulations were not modified to include such 

details. 

Similar to DOD’s proposed regulations, the final regulations shorten the 

notification period before an adverse action can become effective, provide 

an accelerated MSPB adjudication process, and continue to give the MSPB 

administrative judges (AJs) and arbitrators less latitude to modify DODimposed penalties than under current practice. Under the current system, 

MSPB reviews penalties during the course of a disciplinary action against 

an employee to ensure that the agency considered relevant prescribed 

factors and exercised management discretion within tolerable limits of 

reasonableness. MSPB may mitigate or modify a penalty if the agency did 

not consider prescribed factors. In a change from the proposed 

regulations, which precluded the MSPB from modifying a penalty imposed 

on an employee by DOD for an adverse action unless such a penalty was 

so disproportionate to the basis of the action as to be “wholly without 

justification,” under the final regulations the MSPB AJs and arbitrators will 

be able to mitigate a penalty only if it is “totally unwarranted in light of the 

pertinent circumstances” while the full MSPB Board may mitigate 

penalties in accordance with the standard prescribed in the NSPS 

authorizing legislation.18 As stated by DOD in the supplementary 

information to the final regulations, the “totally unwarranted in light of all

 17 Any final DOD decision under this review process may be further appealed to the full 

MSPB. Further, the Secretary of Defense or an employee adversely affected by a final order 

of decision of the full MSPB may seek judicial review. 

18 The full MSPB Board may order such corrective actions, including the mitigation of

penalties, as the board considers appropriate where the Board determines a decision was: 

arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law;

obtained without procedures required by law, rule, or regulation having been followed; or 

unsupported by substantial evidence. 5 U.S.C. § 9902(h)(5).

Page 11 GAO-06-227T 
pertinent circumstances” standard is similar to that recognized by the 

federal courts and is intended to limit mitigation of penalties by providing 

deference to an agency’s penalty determination. 

The final regulations continue to encourage the use of alternative dispute 

resolution (ADR) and provide that this approach be subject to collective 

bargaining to the extent permitted by the final labor relations regulations. 

To resolve disputes in a more efficient, timely, and less adversarial 

manner, federal agencies have been expanding their human capital 

programs to include ADR approaches, including the use of ombudsmen as 

an informal alternative to addressing conflicts. As we have reported, ADR 

helps lessen the time and the cost burdens associated with the federal 

redress system and has the advantage of employing techniques that focus

on understanding the disputants’ underlying interests rather than 

techniques that focus on the validity of their positions. For these and other 

reasons, we believe that it is important to continue to promote ADR 

throughout the process. 

Labor-Management 

Relations

The final regulations recognize the right of employees to organize and 

bargain collectively. Similar to the proposed regulations, the final 

regulations would reduce the scope of collecting bargaining by removing

the requirement for DOD management to bargain on matters considered to 

be management rights—such as the policies and procedures for deploying 

personnel, assigning work, and introducing new technologies. However, in 

a departure from the proposed regulations, the final regulations provide 

that the Secretary of Defense may authorize bargaining on these 

management rights if the Secretary in his or her sole, exclusive, and 

unreviewable discretion determines that bargaining would be necessary to

advance the department’s mission or promote organizational 

effectiveness.19

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

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

be subject to collective bargaining and negotiations. At a forum we cohosted exploring the concept of a governmentwide framework for human 

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

 19 Ten federal labor unions have filed suit alleging that, among other things, DOD’s labor 

relations system is unlawful. See American Federation of Government Employees, AFLCIO et al v. Rumsfeld et al, No. 1:05cv02183 (D.D.C. filed Nov. 7, 2005). 

Page 12 GAO-06-227T 
the ability to organize, bargain collectively, and participate in labor 

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

reform. 

DOD’s final regulations create its own internal labor relations board—the 

National Security Labor Relations Board—to deal with most 

departmentwide labor relations policies and disputes rather than submit 

them to the Federal Labor Relations Authority. DOD’s proposed 

regulations did not provide for any employee representative input into the 

appointment of board members. However, DOD’s final regulations require 

that for the appointment of two of the three board members, the Secretary 

of Defense must consider candidates submitted by employee 

representatives. However, the Secretary retains the authority to both 

appoint and remove any member. 

With the issuance of the final regulations, DOD faces multiple challenges 

to the successful implementation of its new human resources management 

system. We highlighted multiple implementation challenges at prior 

hearings and in our July 2005 report on DOD’s efforts to design the new 

system.20 For information about these challenges identified in our prior 

work, as well as related human capital issues that could potentially affect

the implementation of NSPS, see the “Highlights” pages from previous 

GAO products on DOD civilian personnel issues in appendix I.

We continue to believe that addressing these challenges is critical to the

success of DOD’s new human resources management system. These 

challenges include establishing an overall communications strategy,

ensuring sustained and committed leadership, providing adequate 

resources for the implementation of the new system, involving employees

in implementing the system, and evaluating the new system after it has 

been implemented. 

DOD Faces Many 

Challenges to 

Successful 

Implementation 

Establishing an Overall 

Communications Strategy 

Another significant challenge for DOD is to ensure an effective and 

ongoing two-way communications strategy, given DOD’s size, 

geographically and culturally diverse audiences, and the different 

command structures across DOD organizations. While we have reported 

 20 GAO, Human Capital: DOD’s National Security Personnel System Faces 

Implementation Challenges, GAO-05-730 (Washington, D.C.: July 14, 2005).

Page 13 GAO-06-227T 
that developing a comprehensive communications strategy is a key 

practice of a change management initiative,21 we reported in July 2005 that

DOD lacks such a strategy.22 We recommended that the Secretary of 

Defense take steps to ensure that its communications strategy effectively 

addresses employee concerns and their information needs, and facilitates 

two-way communication between employees, employee representatives,

and management. In prior testimonies, we also suggested that this 

communications strategy must involve a number of key players, including

the Secretary of Defense.

Providing Adequate 

Resources for 

Implementing the New 

System 

DOD also is challenged to provide adequate resources to implement its 

new personnel system, especially in times of increased fiscal constraints. 

OPM reports that the increased costs of implementing alternative 

personnel systems should be acknowledged and budgeted for up front. 23

Based on the data provided by selected OPM personnel demonstration 

projects, we found that direct costs associated with salaries and training 

were among the major cost drivers of implementing pay for performance 

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

are one-time in nature and should not be built into the base of DOD’s 

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

should be built into the base of DOD’s budget for future years. DOD 

estimates that the overall cost associated with implementing the new 

human resources management system—including developing and 

delivering training, modifying automated personnel information systems, 

and starting up and sustaining the National Security Labor Relations 

Board—will be approximately $158 million through fiscal year 2008. Since 

experience has shown that additional resources are necessary to ensure 

sufficient planning, implementation, training, and evaluation for human 

capital reform, funding for NSPS will warrant close scrutiny by Congress 

as DOD’s implements the new system. 

We plan to evaluate the costs associated with the design and 

implementation of NSPS and look forward to sharing our findings with 

Congress upon completion of our review. 

 21 GAO-03-669. 

22 GAO-05-730. 

23 OPM, Demonstration Projects and Alternative Personnel Systems: HR Flexibilities and

Lessons Learned (Washington, D.C.: September 2001). 

Page 14 GAO-06-227T 
One challenge DOD faces is the need to elevate, integrate, and 

institutionalize leadership responsibility for large-scale organizational 

change initiatives, such as its new human resources management system, 

to ensure success. A chief management officer or similar position could 

effectively provide the sustained and committed leadership essential to 

successfully completing these multiyear business transformation 

initiatives. Especially for an endeavor as critical as DOD’s new human 

resources management system, such a position could serve to

• elevate attention to overcome an organization’s natural resistance to 

change, marshal the resources needed to implement change, and build and 

maintain organizationwide commitment to new ways of doing business; 

• integrate this new system with various management responsibilities so 

that they are no longer “stove-piped” and fit into other organizational 

transformation efforts in a comprehensive, ongoing, and integrated 

manner; and

• institutionalize accountability for the system to sustain the implementation 

of this critical human capital initiative.24

DOD faces a significant challenge in involving its employees, employee 

representatives, and other stakeholders in implementing NSPS. Similar to 

the proposed regulations, DOD’s final regulations, while providing for 

continuing collaboration with employee representatives, do not identify a 

process for the continuing involvement of employees in implementation of 

NSPS. According to DOD, almost two-thirds of its 700,000 civilian 

employees are represented by 41 different labor unions, including over 

1,500 separate bargaining units. Consistent with DOD’s proposed 

regulations, its final NSPS regulations about the collaboration process, 

among other things, would permit the Secretary of Defense to determine 

(1) the number of employee representatives allowed to engage in the

collaboration process, and (2) the extent to which employee 

representatives are given an opportunity to discuss their views with and 

submit written comments to DOD officials. In addition, DOD’s final 

regulations indicate that nothing in the continuing collaboration process 

Ensuring Sustained and 

Committed Leadership 

Involving Employees and 

Other Stakeholders in 

Implementing the System 

 24 On September 9, 2002, we convened a roundtable of government leaders and 

management experts to discuss the chief operating officer concept. For more information, 

see GAO, Highlights of a GAO Roundtable: The Chief Operating Officer Concept: A

Potential Strategy to Address Federal Governance Challenges, GAO-03-192SP

(Washington, D.C.: Oct. 4, 2002), and The Chief Operating Officer Concept and Its 

Potential Use as a Strategy to Improve Management at the Department of Homeland

Security, GAO-04-876R (Washington, D.C.: June 28, 2004). 

Page 15 GAO-06-227T 
will affect the right of the Secretary of Defense to determine the content of 

implementing guidance and to make this guidance effective at any time. 

DOD’s final regulations will give designated employee representatives an 

opportunity to be briefed and to comment on the design and results of the 

new system’s implementation.25

The active involvement of all stakeholders will be critical to the success of

NSPS. Substantive and ongoing involvement by employees and their 

representatives both directly and indirectly is crucial to the success of new 

initiatives, including implementing a modified classification and pay for 

performance system. This involvement must be early, active, meaningful, 

and continuing if employees are to gain a sense of understanding and 

ownership of the changes that are being made. The 30-day public comment 

period on the proposed regulations ended March 16, 2005. During this time 

period, according to DOD, it received more than 58,000 comments. The 

public comment period was followed by a period during which DOD and 

OPM officials met and conferred with employee representatives to resolve

differences on any portions of the proposed regulations where agreement 

had not been reached. Earlier this year, during testimony, we stated that 

the meet and confer process had to be meaningful and was critically 

important because there were many details of the proposed regulations 

that had not been defined. According to DOD, a significant issue raised in 

the public comments and during the meet and confer process concerned

the lack of specificity in the proposed regulations. However, as we noted 

earlier in this statement, DOD still has considerable work to define the 

details for implementing its system. These details do matter, and how they 

are defined can have a direct bearing on whether or not the ultimate new 

human resources management system is both reasoned and reasonable.

Evaluating the effect of NSPS will be an ongoing challenge for DOD. This 

element is especially important because DOD’s final regulations would 

give managers more authority and responsibility for managing the new 

human resources management system than they have under the existing 

system. High-performing organizations continually review and revise their 

human capital management systems based on data-driven lessons learned 

Evaluating DOD’s New 

Human Resources 

Management System 

 25 Ten federal labor unions have filed suit alleging that, among other things, DOD failed to

abide by the statutory requirements to include employee representatives in the 

development of DOD’s new labor relations system authorized as part of NSPS. See 

American Federation of Government Employees, AFL-CIO et al v. Rumsfeld et al, No.

1:05cv02183 (D.D.C. filed Nov. 7, 2005). 

Page 16 GAO-06-227T 
and changing needs in the work environment. Collecting and analyzing 

data on the costs, benefits, and effects of NSPS will be the fundamental 

building block for measuring the effectiveness of NSPS in support of the 

mission and goals of the department. 

DOD’s final regulations indicate that DOD will evaluate the regulations and 

their implementation. In our July 2005 report on DOD’s efforts to design 

NSPS, we recommended that DOD develop procedures for evaluating

NSPS that contain results-oriented performance measures and reporting 

requirements.26 We also recommended that these evaluation procedures 

could be broadly modeled on the evaluation requirements of the OPM 

demonstration projects. Under the demonstration project authority, 

agencies must evaluate and periodically report on results, implementation 

of the demonstration project, cost and benefits, effects on veterans and 

other equal employment opportunity groups, adherence to merit system 

principles, and the extent to which the lessons from the project can be 

applied governmentwide. A set of balanced measures addressing a range 

of results and customer, employee, and external partner issues may also 

prove beneficial. An evaluation such as this would: facilitate congressional 

oversight; allow for any midcourse corrections; assist DOD in 

benchmarking its progress with other efforts; and provide for 

documenting best practices and sharing lessons learned with employees, 

stakeholders, other federal agencies, and the public. In commenting on our 

recommendation, the department stated that it has begun developing an 

evaluation plan and will ensure that the plan contains results-oriented 

performance measures and reporting mechanisms. If the department 

follows through with this effort, we believe that it will be responsive to our 

recommendation. 

The federal government is quickly approaching the point where “standard 

governmentwide” human capital policies and processes are neither 

standard nor governmentwide, raising the issue of whether a 

governmentwide framework for human capital reform should be 

established. The human capital environment in the federal government is 

changing, illustrated by the fact that DOD’s new human capital authority 

joins that given to several other federal departments and agencies—such 

as the Department of Homeland Security (DHS), GAO, the National 

Aeronautics and Space Administration, and the Federal Aviation 

Framework for 

Governmentwide 

Human Capital 

Reform 

 26 GAO-05-730. 

Page 17 GAO-06-227T 
Administration—to help them strategically manage their human resources 

management system to achieve results. 

To help advance the discussion concerning how governmentwide human 

capital reform should proceed, we and the National Commission on the 

Public Service Implementation Initiative co-hosted a forum on whether 

there should be a governmentwide framework for human capital reform 

and, if so, what this framework should include.27 While there was 

widespread recognition among the forum participants that a one-size-fitsall approach to human capital management is not appropriate for the 

challenges and demands faced by government, there was equally broad 

agreement that there should be a governmentwide framework to guide 

human capital reform. Further, a governmentwide framework should 

balance the need for consistency across the federal government with the 

desire for flexibility so that individual agencies can tailor human capital 

systems to best meet their needs. Striking this balance would not be easy 

to achieve, but is important for maintaining a governmentwide system that 

is responsive enough to adapt to agencies’ diverse missions, cultures, and 

workforces.

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

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

serve as a starting point for further discussion in developing a

governmentwide framework in advancing human capital reform, as shown 

in figure 1. We believe that these principles, criteria, and processes 

provide an effective framework for Congress and other decision makers to 

use as they consider governmentwide civil service reform proposals. 

 27 GAO-05-69SP. 

Page 18 GAO-06-227T 
Figure 1: Principles, Criteria, and Processes for a Governmentwide Human Capital 

Reform Framework 

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

of their inherent, enduring qualities: 

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

objectives with individual rights and responsibilities 

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

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

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

human capital authorities: 

• Demonstrated business case or readiness for use of targeted authorities 

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

planning and management 

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

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

includes adequate safeguards to ensure equity and prevent discrimination 

Processes that agencies should follow as they implement new human capital 

authorities: 

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

Management 

• Establishing appeals processes in consultation with the Merit Systems Protection 

Board 

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

human capital systems 

• Phasing in implementation of new human capital systems 

• Committing to transparency, reporting, and evaluation 

• Establishing a communications strategy 

• Ensuring adequate training 

Source: GAO.

Moving forward with human capital reform, in the short term, Congress 

should consider selected and targeted actions to continue accelerating the 

momentum to make strategic human capital management the centerpiece

of the government’s overall transformation effort. One option may be to 

provide agencies one-time, targeted investments that are not built into 

agencies’ bases for future year budget requests. For example, Congress 

established the Human Capital Performance Fund to reward agencies’

highest performing and most valuable employees. However, the 

Administration’s draft proposed “Working for America Act” proposes to 

repeal the Human Capital Performance Fund. According to OPM, the 

provision was never implemented, due to lack of sufficient funding. We 

believe that a central fund has merit and can help agencies build the 

infrastructure needed to implement a more market-based and 

Next Steps for Human 

Capital Reform 

Page 19 GAO-06-227T 
performance-oriented pay system. To be eligible, agencies would submit 

plans for approval by OPM that incorporate features such as a link 

between pay for performance and the agency’s strategic plan, employee 

involvement, ongoing performance feedback, and effective safeguards to

ensure fair management of the system. In the first year of implementation,

up to 10 percent of the amount appropriated for the fund would be 

available to train employees who are involved in making meaningful 

distinctions in performance. These features are similar to those cited in 

the draft proposal as the basis for OPM’s certification for agencies to 

implement their new pay and performance management systems. 

In addition, as agencies develop their pay for performance systems, they 

will need to consider the appropriate mix between pay awarded as base 

pay increases versus one-time cash bonuses, while still maintaining fiscally

sustainable compensation systems that reward performance. A key 

question to consider is how the government can make an increasing 

percentage of federal compensation dependent on achieving individual 

and organizational results by, for example, providing more compensation 

as one-time cash bonuses rather than as permanent salary increases. 

However, agencies’ use of cash bonuses or other monetary incentives has 

an effect on employees’ retirement calculations since they are not included 

in calculating retirement benefits. Congress should consider potential 

legislative changes to allow cash bonuses that would otherwise be 

included as base pay increases to be calculated toward retirement and 

thrift savings benefits by specifically factoring bonuses into the 

employee’s base pay for purposes of making contributions to the thrift 

savings plan and calculating the employee’s “high-three” for retirement 

benefits. 

Consistent with our observations earlier this year, DOD’s final NSPS 

regulations take another valuable step toward a modern performance 

management system that provides for a more market-based and 

performance-oriented pay system. DOD’s final NSPS regulations are 

intended to align individual performance and pay with the department’s 

critical mission requirements; provide meaningful distinctions in 

performance; and give greater priority to employee performance in 

connection with workforce rightsizing and reductions-in-force. However, 

how it is done, when it is done, and the basis on which it is done will be 

critical to the overall success of the new system. That is why it is 

important to recognize that it is critically important that DOD define the 

details for implementing its system and that DOD does it in conjunction 

with applicable key stakeholders. It is equally important for DOD to ensure 

Concluding 

Observations 

Page 20 GAO-06-227T 
that is has the necessary infrastructure in place to implement the system. 

DOD’s regulations are especially critical and need to be implemented 

properly because of their potential implications for related 

governmentwide reform. However, compensation, pay, compensation, 

critical hiring, and workforce restructuring reforms should be the first step 

in any governmentwide reforms. 

For further information, please contact Derek B. Stewart, Director, 

Defense Capabilities and Management, at (202) 512-5559 or 

stewartd@gao.gov. For further information on governmentwide human 

capital issues, please contact J. Christopher Mihm, Managing Director, 

Strategic Issues, at (202) 512-6806 or mihmj@gao.gov. Contact points for 

our Offices of Congressional Relations and Public Affairs may be found on

the last page of this report. Individuals making key contributions to this 

statement include Sandra F. Bell, Renee S. Brown, William J. Doherty, 

George M. Duncan, Barbara L. Joyce, Julia C. Matta, Susan W. Tieh, and

John S. Townes. 

Page 21 GAO-06-227T 

Contact and 

Acknowledgments 

(350776) 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-730.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Derek B. 

Stewart at (202) 512-5559 or 

stewartd@gao.gov. 

Highlights of GAO-05-730, a report to 

Congressional Committees 

July 2005

HUMAN CAPITAL

DOD's National Security Personnel 

System Faces Implementation Challenges 

DOD’s current process to design its new personnel management system 

consists of four stages: (1) development of design options, (2) assessment of

design options, (3) issuance of proposed regulations, and (4) a statutory 

public comment period, a meet and confer period with employee 

representatives, and a congressional notification period. DOD’s initial 

design process was unrealistic and inappropriate. However, after a strategic 

reassessment, DOD adjusted its approach to reflect a more cautious and 

deliberative process that involved more stakeholders. 

DOD’s NSPS design process generally reflects four of six selected key 

practices for successful organizational transformations. First, DOD and 

OPM have developed a process to design the new personnel system that is 

supported by top leadership in both organizations. Second, from the outset, 

a set of guiding principles and key performance parameters have guided the 

NSPS design process. Third, DOD has a dedicated team in place to design 

and implement NSPS and manage the transformation process. Fourth, DOD 

has established a timeline, albeit ambitious, and implementation goals. The 

design process, however, is lacking in two other practices. First, DOD 

developed and implemented a written communication strategy document, 

but the strategy is not comprehensive. It does not identify all key internal 

stakeholders and their concerns, and does not tailor key messages to 

specific stakeholder groups. Failure to adequately consider a wide variety of 

people and cultural issues can lead to unsuccessful transformations. 

Second, while the process has involved employees through town hall 

meetings and other mechanisms, it has not included employee 

representatives on the working groups that drafted the design options. It 

should be noted that 10 federal labor unions have filed suit alleging that DOD

failed to abide by the statutory requirements to include employee 

representatives in the development of DOD’s new labor relations system 

authorized as part of NSPS. A successful transformation must provide for 

meaningful involvement by employees and their representatives to gain their 

input into and understanding of the changes that will occur. 

DOD will face multiple implementation challenges. For example, in addition 

to the challenges of continuing to involve employees and other stakeholders 

and providing adequate resources to implement the system, DOD faces the 

challenges of ensuring an effective, ongoing two-way communication 

strategy and evaluating the new system. In recent testimony, GAO stated 

that DOD’s communication strategy must include the active and visible 

involvement of a number of key players, including the Secretary of Defense, 

for successful implementation of the system. Moreover, DOD must ensure 

sustained and committed leadership after the system is fully implemented 

and the NSPS Senior Executive and the Program Executive Office transition 

out of existence. To provide sustained leadership attention to a range of 

business transformation initiatives, like NSPS, GAO recently recommended 

the creation of a chief management official at DOD. 

The Department of Defense’s 

(DOD) new personnel systemthe 

National Security Personnel 

System (NSPS)will have farreaching implications not just for 

DOD, but for civil service reform 

across the federal government. 

The National Defense 

Authorization Act for Fiscal Year 

2004 gave DOD significant 

authorities to redesign the rules, 

regulations, and processes that 

govern the way that more than 

700,000 defense civilian employees 

are hired, compensated, promoted, 

and disciplined. In addition, NSPS 

could serve as a model for 

governmentwide transformation in 

human capital management. 

However, if not properly designed 

and effectively implemented, it 

could severely impede progress 

toward a more performance- and 

results-based system for the federal 

government as a whole. 

This report (1) describes DOD’s 

process to design its new personnel 

management system, (2) analyzes 

the extent to which DOD’s process 

reflects key practices for 

successful transformations, and (3) 

identifies the most significant 

challenges DOD faces in 

implementing NSPS. 

What GAO Recommends

GAO is making recommendations 

to improve the comprehensiveness 

of the NSPS communication 

strategy and to evaluate the impact 

of NSPS. DOD did not concur with 

one recommendation and partially 

concurred with two others. 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-559T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact 

Derek B. Stewart at (202) 512-5559 or 

stewartd@gao.gov. 

Highlights of GAO-05-559T, a testimony 

before the Committee on Armed Services, 

U.S. Senate 

April 14, 2005

HUMAN CAPITAL

Preliminary Observations on Proposed 

Regulations for DOD’s National Security 

Personnel System 

Many of the principles underlying the proposed NSPS regulations are 

generally consistent with proven approaches to strategic human capital 

management. For instance, the proposed regulations provide for 

(1) elements of a flexible and contemporary human resources management 

system—such as pay bands and pay for performance; (2) DOD to rightsize its 

workforce when implementing reduction-in-force orders by giving greater 

priority to employee performance in its retention decisions; and 

(3) continuing collaboration with employee representatives. The 30-day 

public comment period on the proposed regulations ended March 16, 2005. 

DOD and OPM have notified the Congress that they are preparing to begin 

the meet and confer process with employee representatives who provided 

comments on the proposed regulations. The meet and confer process is 

critically important because there are many details of the proposed 

regulations that have not been defined, especially in the areas of pay and 

performance management, adverse actions and appeals, and labormanagement relations. (It should be noted that 10 federal labor unions have 

filed suit alleging that DOD failed to abide by the statutory requirements to 

include employee representatives in the development of DOD’s new labor 

relations system authorized as part of NSPS.) 

GAO has several areas of concern: the proposed regulations do not 

(1) define the details of the implementation of the system, including such 

issues as adequate safeguards to help ensure fairness and guard against 

abuse; (2) require, as GAO believes they should, the use of core 

competencies to communicate to employees what is expected of them on 

the job; and (3) identify a process for the continuing involvement of 

employees in the planning, development, and implementation of NSPS. 

Also, GAO believes that DOD (1) would benefit if it develops a 

comprehensive communications strategy that provides for ongoing, 

meaningful two-way communication that creates shared expectations among 

employees, employee representatives, and stakeholders and (2) should 

complete a plan for implementing NSPS to include an information 

technology plan and a training plan. Until such a plan is completed, the 

full extent of the resources needed to implement NSPS may not be 

well understood. 

The Department of Defense’s 

(DOD) new human resources 

management system—the National 

Security Personnel System 

(NSPS)—will have far-reaching 

implications for civil service reform 

across the federal government. 

The 2004 National Defense 

Authorization Act gave DOD 

significant flexibilities for 

managing more than 

700,000 defense civilian employees. 

Given DOD’s massive size, NSPS 

represents a huge undertaking for 

DOD. DOD’s initial process to 

design NSPS was problematic; 

however, DOD adjusted its 

approach to a more deliberative 

process that involved more 

stakeholders. NSPS could, if 

designed and implemented 

properly, serve as a model for 

governmentwide transformation in 

human capital management. 

However, if not properly designed 

and implemented, it could severely 

impede progress toward a more 

performance- and results-based 

system for the federal government 

as a whole. 

On February 14, 2005, DOD and 

the Office of Personnel 

Management (OPM) released for 

public comment the proposed 

NSPS regulations. This testimony 

provides GAO’s preliminary 

observations on selected 

provisions of the proposed 

regulations. 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-517T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Derek B. 

Stewart at (202) 512-5559 or 

stewartd@gao.gov. 

Highlights of GAO-05-517T, a testimony to 

the Subcommittee on the Federal 

Workforce and Agency Organization, 

Committee on Government Reform, 

House of Representatives 

April 12, 2005

HUMAN CAPITAL

Preliminary Observations on Proposed 

Department of Defense National Security 

Personnel System Regulations 

Many of the principles underlying the proposed NSPS regulations are 

generally consistent with proven approaches to strategic human capital 

management. For instance, the proposed regulations provide for 

(1) elements of a flexible and contemporary human resources management 

system—such as pay bands and pay for performance; (2) DOD to rightsize its 

workforce when implementing reduction-in-force orders by giving greater 

priority to employee performance in its retention decisions; and 

(3) continuing collaboration with employee representatives. The 30-day 

public comment period on the proposed regulations ended March 16, 2005. 

DOD and OPM have notified the Congress that they are preparing to begin 

the meet and confer process with employee representatives who provided 

comments on the proposed regulations. The meet and confer process is 

critically important because there are many details of the proposed 

regulations that have not been defined. (It should be noted that 10 federal 

labor unions have filed suit alleging that DOD failed to abide by the statutory 

requirements to include employee representatives in the development of 

DOD’s new labor relations system authorized as part of NSPS.) 

GAO has three primary areas of concern: the proposed regulations do not 

(1) define the details of the implementation of the system, including such 

issues as adequate safeguards to help ensure fairness and guard against 

abuse; (2) require, as GAO believes they should, the use of core 

competencies to communicate to employees what is expected of them on 

the job; and (3) identify a process for the continuing involvement of 

employees in the planning, development, and implementation of NSPS. 

Going forward, GAO believes that (1) the development of the position of 

Deputy Secretary of Defense for Management, who would act as DOD’s 

Chief Management Officer, is essential to elevate, integrate, and 

institutionalize responsibility for the success of DOD’s overall business 

transformation efforts, including its new human resources management 

system; (2) DOD would benefit if it develops a comprehensive 

communications strategy that provides for ongoing, meaningful two-way 

communication that creates shared expectations among employees, 

employee representatives, and stakeholders; and (3) DOD must ensure that 

it has the institutional infrastructure in place, including a modern 

performance management system and an independent, efficient, effective, 

and credible external appeals process, to make effective use of its new 

authorities before they are operationalized. 

GAO strongly supports the concept of modernizing federal human capital 

policies, including providing reasonable flexibility. The federal government 

needs a framework to guide human capital reform. Such a framework would 

consist of a set of values, principles, processes, and safeguards that would 

provide consistency across the federal government but be adaptable to 

agencies’ diverse missions, cultures, and workforces. 

The Department of Defense’s 

(DOD) new human resources 

management system—the National 

Security Personnel System 

(NSPS)—will have far-reaching 

implications for civil service reform 

across the federal government. 

The 2004 National Defense 

Authorization Act gave DOD 

significant flexibilities for 

managing more than 700,000 

defense civilian employees. Given 

DOD’s massive size, NSPS 

represents a huge undertaking for 

DOD. DOD’s initial process to 

design NSPS was problematic; 

however, DOD adjusted its 

approach to a more deliberative 

process that involved more 

stakeholders. NSPS could, if 

designed and implemented 

properly, serve as a model for 

governmentwide transformation in 

human capital management. 

However, if not properly designed 

and implemented, it could severely 

impede progress toward a more 

performance- and results-based 

system for the federal government 

as a whole. 

On February 14, 2005, DOD and the 

Office of Personnel Management 

(OPM) released for public 

comment the proposed NSPS 

regulations. This testimony 

(1) provides GAO’s preliminary 

observations on selected 

provisions of the proposed 

regulations, (2) discusses the 

challenges DOD faces in 

implementing the new system, and 

(3) suggests a governmentwide 

framework to advance human 

capital reform. 

What GAO Recommends
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-432T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Derek B. 

Stewart at (202) 512-5559 or 

stewartd@gao.gov. 

Highlights of GAO-05-432T, a testimony to 

the Subcommittee on Oversight of 

Government Management, the Federal 

Workforce, and the District of Columbia, 

Committee on Homeland Security and 

Governmental Affairs, U.S. Senate 

March 15, 2005

HUMAN CAPITAL

Preliminary Observations on Proposed 

DOD National Security Personnel System 

Regulations 

Given DOD’s massive size and its geographically and culturally diverse 

workforce, NSPS represents a huge undertaking for DOD. DOD’s initial 

process to design NSPS was problematic; however, after a strategic 

reassessment, DOD adjusted its approach to reflect a more cautious, 

deliberate process that involved more stakeholders, including OPM. 

Many of the principles underlying the proposed NSPS regulations are 

generally consistent with proven approaches to strategic human capital 

management. For instance, the proposed regulations provide for 

(1) elements of a flexible and contemporary human resources management 

system—such as pay bands and pay for performance; (2) DOD to rightsize its 

workforce when implementing reduction-in-force orders by giving greater 

priority to employee performance in its retention decisions; and 

(3) continuing collaboration with employee representatives. (It should be 

noted that 10 federal labor unions have filed suit alleging that DOD failed to 

abide by the statutory requirements to include employee representatives in 

the development of DOD’s new labor relations system authorized as part of 

NSPS.) 

GAO has three primary areas of concern: the proposed regulations do not 

(1) define the details of the implementation of the system, including such 

issues as adequate safeguards to help ensure fairness and guard against 

abuse; (2) require, as GAO believes they should, the use of core 

competencies to communicate to employees what is expected of them on 

the job; and (3) identify a process for the continuing involvement of 

employees in the planning, development, and implementation of NSPS. 

Going forward, GAO believes that (1) the development of the position of 

Deputy Secretary of Defense for Management, who would act as DOD’s 

Chief Management Officer, is essential to elevate, integrate, and 

institutionalize responsibility for the success of DOD’s overall business 

transformation efforts, including its new human resources management 

system; (2) DOD would benefit if it develops a comprehensive 

communications strategy that provides for ongoing, meaningful two-way 

communication that creates shared expectations among employees, 

employee representatives, and stakeholders; and (3) DOD must ensure that 

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

authorities before they are operationalized. 

GAO strongly supports the concept of modernizing federal human capital 

policies, including providing reasonable flexibility. There is general 

recognition that the federal government needs a framework to guide human 

capital reform. Such a framework would consist of a set of values, 

principles, processes, and safeguards that would provide consistency across 

the federal government but be adaptable to agencies’ diverse missions, 

cultures, and workforces. 

The Department of Defense’s 

(DOD) new human resources 

management systemthe National 

Security Personnel System 

(NSPS)will have far-reaching 

implications for the management of 

the department and for civil service 

reform across the federal 

government. The National Defense 

Authorization Act for Fiscal Year 

2004 gave DOD significant 

authorities to redesign the rules, 

regulations, and processes that 

govern the way that more than 

700,000 defense civilian employees 

are hired, compensated, promoted, 

and disciplined. In addition, NSPS 

could serve as a model for 

governmentwide transformation in 

human capital management. 

However, if not properly designed 

and effectively implemented, it 

could severely impede progress 

toward a more performance- and 

results-based system for the federal 

government as a whole. 

On February 14, 2005, the Secretary 

of Defense and Acting Director of 

the Office of Personnel 

Management (OPM) released for 

public comment the proposed 

NSPS regulations. This testimony 

(1) provides GAO’s preliminary 

observations on selected 

provisions of the proposed 

regulations, (2) discusses the 

challenges DOD faces in 

implementing the new system, and 

(3) suggests a governmentwide 

framework to advance human 

capital reform. 
www.gao.gov/cgi-bin/getrpt?-GAO-04-753.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Derek Stewart 

at (202) 512-5559 or stewartd@gao.gov. 

Highlights of GAO-04-753, a report to the 

Ranking Minority Member, Subcommittee 

on Readiness, Committee on Armed 

Services, House of Representatives 

June 2004

DOD CIVILIAN PERSONNEL 

Comprehensive Strategic Workforce 

Plans Needed 

OSD, the service headquarters, and DLA have recently taken steps to 

develop and implement civilian strategic workforce plans to address future 

civilian workforce needs, but these plans generally lack some key elements 

essential to successful workforce planning. As a result, OSD, the military 

services’ headquarters, and DLA—herein referred to as DOD and the 

components—do not have comprehensive strategic workforce plans to guide 

their human capital efforts. None of the plans included analyses of the gaps 

between critical skills and competencies (a set of behaviors that are critical 

to work accomplishment) currently needed by the workforce and those that 

will be needed in the future. Without including gap analyses, DOD and the 

components may not be able to effectively design strategies to hire, develop, 

and retain the best possible workforce. Furthermore, none of the plans 

contained results-oriented performance measures that could provide the 

data necessary to assess the outcomes of civilian human capital initiatives. 

The major challenge that DOD and most of the components face in their 

efforts to develop and implement strategic workforce plans is their need for 

information on current competencies and those that will likely be needed in 

the future. This problem results from DOD’s and the components’ not 

having developed tools to collect and/or store, and manage data on 

workforce competencies. Without this information, it not clear whether they 

are designing and funding workforce strategies that will effectively shape 

their civilian workforces with the appropriate competencies needed to 

accomplish future DOD missions. Senior department and component 

officials all acknowledged this shortfall and told us that they are taking steps 

to address this challenge. Though these are steps in the right direction, the 

lack of information on current competencies and future needs is a 

continuing problem that several organizations, including GAO, have 

previously identified. 

Strategic Workforce Planning Process 

Involvement

of management

and employees

Workforce

gap

analysis

Workforce strategies

to fill the gaps

Evaluation

of and 

revisions to

strategies

Source: GAO.

Set

strategic

direction

Build capability to support workforce strategies 

During its downsizing in the early 

1990s, the Department of Defense 

(DOD) did not focus on 

strategically reshaping its civilian 

workforce. GAO was asked to 

address DOD’s efforts to 

strategically plan for its future 

civilian workforce at the Office of 

the Secretary of Defense (OSD), 

the military services’ headquarters, 

and the Defense Logistics Agency 

(DLA). Specifically, GAO 

determined: (1) the extent to which 

civilian strategic workforce plans 

have been developed and 

implemented to address future 

civilian workforce requirements, 

and (2) the major challenges 

affecting the development and 

implementation of these plans. 

GAO recommends that DOD and 

the components include certain key

elements in their civilian strategic 

workforce plans to guide their 

human capital efforts. DOD 

concurred with one of our 

recommendations, and partially 

concurred with two others because 

it believes that the department has 

undertaken analyses of critical 

skills gaps and are using strategies 

and personnel flexibilities to fill 

identified skills gaps. We cannot 

verify DOD’s statement because 

DOD was unable to provide the gap 

analyses. In addition, we found 

that the strategies being used by 

the department have not been 

derived from analyses of gaps 

between the current and future 

critical skills and competencies 

needed by the workforce. 
GAO strongly supports the need for government transformation and the 

concept of modernizing federal human capital policies both within DOD 

and for the federal government at large. The federal personnel system is 

clearly broken in critical respects—designed for a time and workforce of 

an earlier era and not able to meet the needs and challenges of today’s 

rapidly changing and knowledge-based environment. The human capital 

authorities being considered for DOD have far-reaching implications for 

the way DOD is managed as well as significant precedent-setting 

implications for the rest of the federal government. GAO is pleased that 

as the Congress has reviewed DOD’s legislative proposal it has added a 

number of important safeguards, including many along the lines GAO has 

been suggesting, that will help DOD maximize its chances of success in 

addressing its human capital challenges and minimize the risk of failure. 

More generally, GAO believes that agency-specific human capital reforms 

should be enacted to the extent that the problems being addressed and 

the solutions offered are specific to a particular agency (e.g., military 

personnel reforms for DOD). Several of the proposed DOD reforms meet 

this test. In GAO’s view, the relevant sections of the House’s version of 

the National Defense Authorization Act for Fiscal Year 2004 and the 

proposal that is being considered as part of this hearing contain a 

number of important improvements over the initial DOD legislative 

proposal. 

Moving forward, GAO believes it would be preferable to employ a 

governmentwide approach to address human capital issues and the need 

for certain flexibilities that have broad-based application and serious 

potential implications for the civil service system, in general, and the 

Office of Personnel Management, in particular. GAO believes that 

several of the reforms that DOD is proposing fall into this category (e.g., 

broad banding, pay for performance, re-employment and pension offset 

waivers). In these situations, GAO believes it would be both prudent and 

preferable for the Congress to provide such authorities governmentwide 

and ensure that appropriate performance management systems and 

safeguards are in place before the new authorities are implemented by 

the respective agency. Importantly, employing this approach is not 

intended to delay action on DOD’s or any other individual agency’s 

efforts, but rather to accelerate needed human capital reform throughout 

the federal government in a manner that ensures reasonable consistency 

on key principles within the overall civilian workforce. This approach 

also would help to maintain a level playing field among federal agencies 

in competing for talent and would help avoid further fragmentation 

within the civil service. 

People are at the heart of an 

organization’s ability to perform its 

mission. Yet a key challenge for 

the Department of Defense (DOD), 

as for many federal agencies, is to 

strategically manage its human 

capital. DOD’s proposed National 

Security Personnel System would 

provide for wide-ranging changes 

in DOD’s civilian personnel pay and 

performance management and 

other human capital areas. Given 

the massive size of DOD, the 

proposal has important precedentsetting implications for federal 

human capital management. 

This testimony provides GAO’s 

observations on DOD human 

capital reform proposals and the 

need for governmentwide reform. 

www.gao.gov/cgi-bin/getrpt?GAO-03-851T.

To view the full testimony, click on the link 

above. For more information, contact Derek 

Stewart at (202) 512-5559 or 

stewartd@gao.gov. 

Highlights of GAO-03-851T, 

testimony before the Committee on 

Governmental Affairs, United States 

Senate 

June 4, 2003

HUMAN CAPITAL

Building on DOD’s Reform Effort to 

Foster Governmentwide Improvements 
Many of the basic principles underlying DOD’s civilian human capital proposal 

have merit and deserve serious consideration. The federal personnel system is 

clearly broken in critical respects—designed for a time and workforce of an 

earlier era and not able to meet the needs and challenges of our current rapidly 

changing and knowledge-based environment. DOD’s proposal recognizes that, 

as GAO has stated and the experiences of leading public sector organizations 

here and abroad have found, strategic human capital management must be the 

centerpiece of any serious government transformation effort. 

More generally, from a conceptual standpoint, GAO strongly supports the need 

to expand broad banding and pay for performance-based systems in the federal 

government. However, moving too quickly or prematurely at DOD or elsewhere, 

can significantly raise the risk of doing it wrong. This could also serve to 

severely set back the legitimate need to move to a more performance- and 

results-based system for the federal government as a whole. Thus, while it is 

imperative that we take steps to better link employee pay and other personnel 

decisions to performance across the federal government, how it is done, when it 

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

or not we are successful. One key need is to modernize performance 

management systems in executive agencies so that they are capable of 

supporting more performance-based pay and other personnel decisions. 

Unfortunately, based on GAO’s past work, most existing federal performance 

appraisal systems, including a vast majority of DOD’s systems, are not currently 

designed to support a meaningful performance-based pay system. 

The critical questions to consider are: should DOD and/or other agencies be 

granted broad-based exemptions from existing law, and if so, on what basis? Do 

DOD and other agencies have the institutional infrastructure in place to make 

effective use of any new authorities? This institutional infrastructure includes, 

at a minimum, a human capital planning process that integrates the agency’s 

human capital policies, strategies, and programs with its program goals and 

mission, and desired outcomes; the capabilities to effectively develop and 

implement a new human capital system; and, importantly, a set of adequate 

safeguards, including reasonable transparency and appropriate accountability 

mechanisms to ensure the fair, effective, and credible implementation of a new 

system. 

In GAO’s view, as an alternative to DOD’s proposed approach, Congress should 

consider providing governmentwide broad banding and pay for performance 

authorities that DOD and other federal agencies can use provided they can 

demonstrate that they have a performance management system in place that 

meets certain statutory standards, that can be certified to by a qualified and 

independent party, such as OPM, within prescribed timeframes. Congress 

should also consider establishing a governmentwide fund whereby agencies, 

based on a sound business case, could apply for funding to modernize their 

performance management systems and ensure that those systems have adequate 

safeguards to prevent abuse. This approach would serve as a positive step to 

promote high-performing organizations throughout the federal government 

while avoiding further human capital policy fragmentation. 

 

DEFENSE TRANSFORMATION 

DOD’s Proposed Civilian Personnel 

System and Governmentwide Human 

Capital Reform 

www.gao.gov/cgi-bin/getrpt?GAO-03-741T.

To view the full testimony, click on the link 

above. For more information, contact Derek 

Stewart at (202) 512-5559 or 

stewartd@gao.gov. 

Highlights of GAO-03-741T, testimony 

before the Committee on Armed Services, 

House of Representatives 

May 1, 2003

DOD is in the midst of a major 

transformation effort including a 

number of initiatives to transform 

its forces and improve its business 

operations. DOD’s legislative 

initiative would provide for major 

changes in civilian and military 

human capital management, make 

major adjustments in the DOD 

acquisition process, affect DOD’s 

organization structure, and change 

DOD’s reporting requirements to 

Congress, among other things. 

DOD’s proposed National Security 

Personnel System (NSPS) would 

provide for wide-ranging changes 

in DOD’s civilian personnel pay and 

performance management, 

collective bargaining, rightsizing, 

and a variety of other human 

capital areas. The NSPS would 

enable DOD to develop and 

implement a consistent DOD-wide 

civilian personnel system. 

This testimony provides GAO’s 

preliminary observations on 

aspects of DOD’s legislative 

proposal to make changes to its 

civilian personnel system and 

discusses the implications of such 

changes for governmentwide 

human capital reform. This 

testimony summarizes many of the 

issues discussed in detail before 

the Subcommittee on Civil Service 

and Agency Organization, 

Committee on Government 

Reform, House of Representatives 

on April 29, 2003. 
Many of the basic principles underlying DOD’s civilian human capital proposals 

have merit and deserve serious consideration. The federal personnel system is 

clearly broken in critical respects—designed for a time and workforce of an 

earlier era and not able to meet the needs and challenges of our current rapidly 

changing and knowledge-based environment. DOD’s proposal recognizes that, 

as GAO has stated and the experiences of leading public sector organizations 

here and abroad have found strategic human capital management must be the 

centerpiece of any serious government transformation effort. 

More generally, from a conceptual standpoint, GAO strongly supports the need 

to expand broad banding and pay for performance-based systems in the federal 

government. However, moving too quickly or prematurely at DOD or elsewhere, 

can significantly raise the risk of doing it wrong. This could also serve to 

severely set back the legitimate need to move to a more performance and 

results- based system for the federal government as a whole. Thus, while it is 

imperative that we take steps to better link employee pay and other personnel 

decisions to performance across the federal government, how it is done, when it 

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

or not we are successful. In our view, one key need is to modernize 

performance management systems in executive agencies so that they are 

capable of supporting more performance-based pay and other personnel 

decisions. Unfortunately, based on GAO’s past work, most existing federal 

performance appraisal systems, including a vast majority of DOD’s systems, are 

not currently designed to support a meaningful performance-based pay system. 

The critical questions to consider are: should DOD and/or other agencies be 

granted broad-based exemptions from existing law, and if so, on what basis; and 

whether they have the institutional infrastructure in place to make effective use 

of the new authorities. This institutional infrastructure includes, at a minimum, 

a human capital planning process that integrates the agency’s human capital 

policies, strategies, and programs with its program goals and mission, and 

desired outcomes; the capabilities to effectively develop and implement a new 

human capital system; and, importantly, a set of adequate safeguards, including 

reasonable transparency and appropriate accountability mechanisms to ensure 

the fair, effective, and credible implementation of a new system. 

In our view, Congress should consider providing governmentwide broad banding 

and pay for performance authorities that DOD and other federal agencies can 

use provided they can demonstrate that they have a performance management 

system in place that meets certain statutory standards, which can be certified to 

by a qualified and independent party, such as OPM, within prescribed 

timeframes. Congress should also consider establishing a governmentwide fund 

whereby agencies, based on a sound business case, could apply for funding to 

modernize their performance management systems and ensure that those 

systems have adequate safeguards to prevent abuse. This approach would serve 

as a positive step to promote high-performing organizations throughout the 

federal government while avoiding fragmentation within the executive branch in 

the critical human capital area. 

 

DEFENSE TRANSFORMATION 

Preliminary Observations on DOD’s 

Proposed Civilian Personnel Reforms 

www.gao.gov/cgi-bin/getrpt?GAO-03-717T.

To view the full report, including the scope 

and methodology, click on the link above. 

For more information, contact Derek Stewart 

at (202) 512-5559 or stewartd@gao.gov. 

Highlights of GAO-03-717T, testimony 

before the Subcommittee on Civil Service 

and Agency Organization, Committee on 

Government Reform, House of 

Representatives 

April 29, 2003

DOD is in the midst of a major 

transformation effort including a 

number of initiatives to transform 

its forces and improve its business 

operations. DOD’s legislative 

initiative would provide for major 

changes in the civilian and military 

human capital management, make 

major adjustments in the DOD 

acquisition process, affect DOD’s 

organization structure, and change 

DOD’s reporting requirements to 

Congress, among other things. 

DOD’s proposed National Security 

Personnel System (NSPS) would 

provide for wide-ranging changes 

in DOD’s civilian personnel pay and 

performance management, 

collective bargaining, rightsizing, 

and a variety of other human 

capital areas. The NSPS would 

enable DOD to develop and 

implement a consistent DOD-wide 

civilian personnel system. 

This testimony provides GAO’s 

preliminary observations on 

aspects of DOD’s legislative 

proposal to make changes to its 

civilian personnel system and 

poses critical questions that need 

to be considered. 
 

DOD’s lack of attention to force shaping during its downsizing in the early 1990s 

has resulted in a workforce that is not balanced by age or experience and that 

puts at risk the orderly transfer of institutional knowledge. Human capital 

challenges are severe in certain areas. For example, DOD has downsized its 

acquisition workforce by almost half. More than 50 percent of the workforce 

will be eligible to retire by 2005. In addition, DOD faces major succession 

planning challenges at various levels within the department. Also, since 1987, 

the industrial workforce, such as depot maintenance, has been reduced by about 

56 percent, with many of the remaining employees nearing retirement, calling 

into question the longer-term viability of the workforce. DOD is one of the 

agencies that has begun to address human capital challenges through strategic 

human capital planning. For example, in April 2002, DOD published a 

department wide strategic plan for civilians. Although a positive step toward 

fostering a more strategic approach toward human capital management, the plan 

is not fully aligned with the overall mission of the department or results 

oriented. In addition, it was not integrated with the military and contractor 

personnel planning. 

We strongly support the concept of modernizing federal human capital policies 

within DOD and the federal government at large. Providing reasonable 

flexibility to management in this critical area is appropriate provided adequate 

safeguards are in place to prevent abuse. We believe that Congress should 

consider both governmentwide and selected agency, including DOD, changes to 

address the pressing human capital issues confronting the federal government. 

In this regard, many of the basic principles underlying DOD’s civilian human 

capital proposals have merit and deserve serious consideration. At the same 

time, many are not unique to DOD and deserve broader consideration. 

Agency-specific human capital reforms should be enacted to the extent that the 

problems being addressed and the solutions offered are specific to a particular 

agency (e.g., military personnel reforms for DOD). Several of the proposed DOD 

reforms meet this test. At the same time, we believe that Congress should 

consider incorporating additional safeguards in connection with several of 

DOD’s proposed reforms. In our view, it would be preferable to employ a 

government-wide approach to address certain flexibilities that have broad-based 

application and serious potential implications for the civil service system, in 

general, and the Office of Personnel Management (OPM), in particular. We 

believe that several of the reforms that DOD is proposing fall into this category 

(e.g., broad-banding, pay for performance, re-employment and pension offset 

waivers). In these situations, it may be prudent and preferable for the Congress 

to provide such authorities on a governmentwide basis and in a manner that 

assures that appropriate performance management systems and safeguards are 

in place before the new authorities are implemented by the respective agency. 

However, in all cases whether from a governmentwide authority or agency 

specific legislation, in our view, such additional authorities should be 

implemented (or operationalized) only when an agency has the institutional 

infrastructure in place to make effective use of the new authorities. Based on 

our experience, while the DOD leadership has the intent and the ability to 

implement the needed infrastructure, it is not consistently in place within the 

vast majority of DOD at the present time. 

 

HUMAN CAPITAL 

DOD’S CIVILIAN PERSONNEL 

STRATEGIC MANAGEMENT AND THE 

PROPOSED NATIONAL SECURITY 

PERSONNEL SYSTEM 

www.gao.gov/cgi-bin/getrpt?GAO-03-493T.

To view the full testimony, including the scope 

and methodology, click on the link above. 

For more information, contact 

Derek B.Stewart at (202) 512-5140 or 

Stewartd@gao.gov. 

Highlights of GAO-03-493T, a testimony 

before the Subcommittee on Oversight of 

Government Management, the Federal 

Workforce and the District of Columbia, 

Senate Committee on Governmental 

Affairs 

May 2003 

People are at the heart of an 

organization’s ability to perform its 

mission. Yet, a key challenge for 

the Department of Defense (DOD), 

as for many federal agencies, is to 

strategically manage its human 

capital. With about 700,000 civilian 

employees on its payroll, DOD is 

the second largest federal employer

of civilians in the nation. Although 

downsized 38 percent between 

fiscal years 1989 and 2002, this 

workforce has taken on greater 

roles as a result of DOD’s 

restructuring and transformation. 

DOD’s proposed National Security 

Personnel System (NSPS) would 

provide for wide-ranging changes 

in DOD’s civilian personnel pay and 

performance management, 

collective bargaining, rightsizing, 

and other human capital areas. The 

NSPS would enable DOD to 

develop and implement a 

consistent DOD-wide civilian 

personnel system. Given the 

massive size of DOD, the proposal 

has important precedent-setting 

implications for federal human 

capital management and OPM. 

This testimony provides GAO’s 

preliminary observations on 

aspects of DOD’s proposal to make 

changes to its civilian personnel 

system and discusses the 

implications of such changes for 

governmentwide human capital 

reform. Past reports have 

contained GAO’s views on what 

remains to be done to bring about 

lasting solutions for DOD to 

strategically manage its human 

capital. DOD has not always 

concurred with our 

recommendations. 
Generally, civilian personnel issues appear to be an emerging priority among 

top leaders in DOD and the defense components. Although DOD began 

downsizing its civilian workforce more than a decade ago, it did not take 

action to strategically address challenges affecting the civilian workforce 

until it issued its civilian human capital strategic plan in April 2002. 

Top-level leaders in the Air Force, the Marine Corps, the Defense Contract 

Management Agency, and the Defense Finance Accounting Service have 

initiated planning efforts and are working in partnership with their civilian 

human capital professionals to develop and implement civilian strategic 

plans; such leadership, however, was increasing in the Army and not as 

evident in the Navy. Also, DOD has not provided guidance on how to 

integrate the components’ plans with the department-level plan. High-level 

leadership is critical to directing reforms and obtaining resources for 

successful implementation. 

The human capital strategic plans GAO reviewed for the most part lacked 

key elements found in fully developed plans. Most of the civilian human 

capital goals, objectives, and initiatives were not explicitly aligned with the 

overarching missions of the organizations. Consequently, DOD and the 

components cannot be sure that strategic goals are properly focused on 

mission achievement. Also, none of the plans contained results-oriented 

performance measures to assess the impact of their civilian human capital 

initiatives (i.e., programs, policies, and processes). Thus, DOD and the 

components cannot gauge the extent to which their human capital initiatives 

contribute to achieving their organizations’ mission. Finally, the plans did 

not contain data on the skills and competencies needed to successfully 

accomplish future missions; therefore, DOD and the components risk not 

being able to put the right people, in the right place, and at the right time, 

which can result in diminished accomplishment of the overall defense 

mission. 

Moreover, the civilian strategic plans did not address how the civilian 

workforce will be integrated with their military counterparts or sourcing 

initiatives. DOD’s three human capital strategic plans-- two military and one 

civilian--were prepared separately and were not integrated to form a 

seamless and comprehensive strategy and did not address how DOD plans to 

link its human capital initiatives with its sourcing plans, such as efforts to 

outsource non-core responsibilities. The components’ civilian plans 

acknowledge a need to integrate planning for civilian and military 

personnel—taking into consideration contractors—but have not yet done so. 

Without an integrated strategy, DOD may not effectively and efficiently 

allocate its scarce resources for optimal readiness. 

The Department of Defense’s 

(DOD) civilian employees play key 

roles in such areas as defense 

policy, intelligence, finance, 

acquisitions, and weapon systems 

maintenance. Although downsized 

38 percent between fiscal years 

1989 and 2002, this workforce has 

taken on greater roles as a result of 

DOD’s restructuring and 

transformation. Responding to 

congressional concerns about the 

quality and quantity of, and the 

strategic planning for the civilian 

workforce, GAO determined the 

following for DOD, the military 

services, and selected defense 

agencies: (1) the extent of top-level 

leadership involvement in civilian 

strategic planning; (2) whether 

elements in civilian strategic plans 

are aligned to the overall mission, 

focused on results, and based on 

current and future civilian 

workforce data; and (3) whether 

civilian and military personnel 

strategic plans or sourcing 

initiatives were integrated. 

GAO recommends DOD improve 

the departmentwide plan to be 

mission aligned and resultsoriented; provide guidance to align 

component- and department-level 

human capital strategic plans; 

develop data on future civilian 

workforce needs; and set milestones for integrating military and 

civilian workforce plans, taking 

contractors into consideration. 

DOD comments were too late to 

include in this report but are 

included in GAO-03-690R. 

www.gao.gov/cgi-bin/getrpt?GAO-03-475.

To view the full report, including the scope 

and methodology, click on the link above. 

For more information, contact Derek B. 

Stewart at (202) 512-5559 or 

stewartd@gao.gov. 

Highlights of GAO-03-475, a report to the 

Ranking Minority Member, Subcommittee 

on Readiness, House Committee on 

Armed Services 

March 2003 

DOD PERSONNEL

DOD Actions Needed to Strengthen 

Civilian Human Capital Strategic Planning 

and Integration with Military Personnel 

and Sourcing Decisions 
DOD has not implemented our October 2001 recommendation to develop 

and implement a DOD depot strategic plan that would delineate workloads 

to be accomplished in each of the services’ depots. The DOD depot system 

has been a key part of the department’s plan to support military systems in 

the past, but the increased use of the private sector to perform this work has 

decreased the role of these activities. While title 10 of the U.S. code requires 

DOD to retain core capability and also requires that at least 50 percent of 

depot maintenance funds be spent for public-sector performance, questions 

remain about the future role of DOD depots. Absent a DOD depot strategic 

plan, the services have in varying degrees, laid out a framework for strategic 

depot planning, but this planning is not comprehensive. Questions also 

remain about the future of arsenals and ammunition plants. GAO reviewed 

workforce planning efforts for 22 maintenance depots, 3 arsenals, and 

2 ammunition plants, which employed about 72,000 civilian workers in fiscal 

year 2002. 

The services have not developed and implemented strategic workforce plans 

to position the civilian workforce in DOD industrial activities to meet future 

requirements. While workforce planning is done for each of the industrial 

activities, generally it is short-term rather than strategic. Further, workforce 

planning is lacking in other areas that OPM guidance and high-performing 

organizations identify as key to successful workforce planning. Service 

workforce planning efforts (1) usually do not assess the competencies; 

(2) do not develop comprehensive retention plans; and (3) sometimes do not 

develop performance measures and evaluate workforce plans. 

Several challenges adversely affect DOD’s workforce planning for the 

viability of its civilian depot workforce. First, given the aging depot 

workforce and the retirement eligibility of over 40 percent of the workforce 

over the next 5 to 7 years, the services may have difficulty maintaining the 

depots’ viability. Second, the services are having difficulty implementing 

multiskilling—an industry and government best practice for improving the 

flexibility and productivity of the workforce—even though this technique 

could help depot planners do more with fewer employees. Finally, increased 

training funding and innovation in the training program will be essential for 

revitalizing the aging depot workforce. 

Staffing Levels, Age, and Retirement Eligibility of Civilian Personnel in Industrial Facilities 

Service 

FY 2002 civilian 

staffing levels Average age

Percent eligible 

to retire by 2007

Percent eligible 

to retire by 2009 

Navy 35,563 46 28 39 

Army 14,234 49 41 52 

Marine Corps 1,323 48 45 60 

Air Force 21,152 47 35 44 

Total 72,272 47 33 43 

Source: DOD (data), GAO (presentation). 

Between 1987 and 2002, the 

Department of Defense (DOD) 

downsized the civilian workforce in

27 key industrial facilities by about 

56 percent. Many of the remaining 

72,000 workers are nearing 

retirement. In recent years GAO 

has identified shortcomings in 

DOD’s strategic planning and was 

asked to determine (1) whether 

DOD has implemented our prior 

recommendation to develop and 

implement a depot maintenance 

strategic plan, (2) the extent to 

which the services have developed 

and implemented comprehensive 

strategic workforce plans, and 

(3) what challenges adversely 

affect DOD’s workforce planning. 

GAO recommends that the DOD 

complete revisions to core policy, 

promulgate a schedule for 

completing core computations, and 

complete depot strategic planning; 

develop a plan for arsenals and 

ammunition plants; develop 

strategic workforce plans; and 

coordinate the implementation 

of initiatives to address various 

workforce challenges. DOD 

concurred with 7 of our 9 

recommendations; nonconcurring 

with two because it believes the 

proposed National Security 

Personnel System, which was 

submitted to Congress as a part of 

the DOD transformation legislation, 

will take care of these problems. 

We believe it is premature to 

assume this system will (1) be 

approved by Congress as proposed 

and (2) resolve these issues. 

www.gao.gov/cgi-bin/getrpt?GAO-03-472.

To view the full report, including the scope 

and methodology, click on the link above. 

For more information, contact Derek Stewart 

at (202) 512-5559 or stewartd@gao.gov. 

Highlights of GAO-03-472, a report to 

the Subcommittee on Readiness, 

Committee on Armed Services, House of 

Representatives 

April 2003

DOD CIVILIAN PERSONNEL 

Improved Strategic Planning Needed to 

Help Ensure Viability of DOD’s Civilian 

Industrial Workforce 
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