Human Capital: Preliminary Observations on Proposed DOD National Security Personnel System Regulations
Published: 2005-03-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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.

section_title: Letter
paragraphs: I appreciate the opportunity to be here today to provide our preliminary  observations on the Department of Defense’s (DOD) proposed National  Security Personnel System (NSPS) regulations, which the Secretary of  Defense and the Acting Director of the Office of Personnel Management  (OPM) jointly released for public comment last month.  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 defense civilian employees are hired, compensated, promoted,  and disciplined.  The proposed regulations, which according to DOD will  ultimately affect more than 700,000 defense civilian employees, are  especially critical because of their implications for governmentwide  reform.  These implications have long been a concern to this  Subcommittee.
NSPS represents a huge undertaking for DOD, given its massive size and  geographically and culturally diverse workforce.  In addition, DOD’s new  human resources management system will have far-reaching implications  for the management of the department and for civil service reform across  the federal government.  NSPS could serve as a model for governmentwide  transformation in human capital management.  However, if not properly  designed and effectively implemented, NSPS could impede progress  toward a more performance- and results-based system for the federal  government as a whole.
We raised several issues regarding DOD’s civilian workforce in a recently  released report on the fiscal challenges the federal government faces in the  21st century, including whether DOD is pursuing the design and  implementation of NSPS in a manner that maximizes the chance of  success.  In recent testimony on DOD’s business transformation efforts,  we indicated that DOD is challenged in its efforts to effect fundamental  business management reform, such as NSPS, and indicated that our  ongoing work continues to raise questions about DOD’s chances of  success.  There is general recognition that the government needs a  framework to guide the kind of large-scale human capital reform occurring  at DOD and the Department of Homeland Security (DHS), a framework  that Congress and the administration can implement to enhance  performance, ensure accountability, and position the nation for the future.   Implementing large-scale change management initiatives is a complex  endeavor, and failure to address a wide variety of personnel and cultural  issues, in particular, has been at the heart of unsuccessful organizational  transformations.  Strategic human capital management, which we continue  to designate as a high-risk area governmentwide, can help agencies  marshal, manage, and maintain the workforce they need to accomplish  their missions.
DOD’s proposed regulations are intended to provide a broad outline of its  new human resources management system.  They are not, nor were they  intended to be, a detailed presentation of how the new system will be  implemented.  Although we continue to review these extensive regulations,  today I will (1) provide some preliminary 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.
subsections: section_title: Preliminary Observations on the Proposed DOD National Security Personnel System Regulations
paragraphs: DOD and OPM’s proposed NSPS regulations would establish a new human  resources management system within DOD that governs basic pay, staffing,  classification, performance management, labor relations, adverse actions,  and employee appeals.  We believe that many of the basic principles  underlying the proposed DOD regulations are generally consistent with  proven approaches to strategic human capital management.  Today, I will  provide our preliminary observations on selected elements of the proposed  regulations in the areas of pay and performance management, staffing and  employment, workforce shaping, adverse actions and appeals, and labor- management relations.
subsections: section_title: Pay and Performance Management
paragraphs: In January 2004, we released a report on pay for performance for selected  OPM personnel demonstration projects that shows the variety of  approaches taken in these projects to design and implement pay-for- performance systems.  Many of these personnel demonstration projects  were conducted within DOD.  The experiences of these demonstration  projects provide insights into how some organizations in the federal  government are implementing pay for performance, and thus can guide  DOD as it develops and implements its own approach.  These  demonstration projects illustrate that understanding how to link pay to  performance is very much a work in progress in the federal government  and that additional work is needed to ensure that performance  management systems are tools to help agencies manage on a day-to-day  basis and achieve external results.
When DOD first proposed its new civilian personnel reform, we strongly  supported the need to expand pay for performance in the federal  government.  Establishing a clear link between individual pay and  performance is essential for maximizing performance and ensuring the  accountability of the federal government to the American people.  As I have  stated before, how pay for performance 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 proposed regulations reflect 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.  To this end, the DOD proposal takes another  valuable step toward a modern performance management system as well as  a market-based, results-oriented compensation system. My comments on  specific provisions of pay and performance management follow.
subsections: section_title: Aligning Individual Performance to Organizational Goals
paragraphs: Under the proposed regulations, the DOD performance management  system would, 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.  However, the proposed regulations do  not detail how to achieve such an alignment, which is a vital issue that will  need to be addressed as DOD’s efforts in designing and implementing a new  personnel system move forward.  Our work on public sector performance  management efforts in the United States and abroad has underscored the  importance of aligning daily operations and activities with organizational  results.  We have found that organizations often struggle with clearly  understanding how what they do on a day-to-day basis contributes to  overall organizational results, while high-performing organizations  demonstrate their understanding of how the products and services they  deliver contribute to results by aligning the performance expectations of  top leadership with the organization’s goals and then cascading those  expectations to lower levels.
A performance management system is critical to successful organizational  transformation.  As an organization undergoing transformation, DOD can  use its proposed performance management system as a vital tool for  aligning the organization with desired results and creating a “line of sight”  to show how team, unit, and individual performance can contribute to  overall organizational results.  To help federal agencies transform their  culture to be more results oriented, customer focused, and collaborative in  nature, we have reported on how a performance management system that  defines responsibility and ensures accountability for change can be key to a  successful merger and transformation.
section_title: Establishing Pay Bands
paragraphs: Under the proposed regulations, DOD would create pay bands for most of  its civilian workforce that would replace the 15-grade General Schedule  (GS) system now in place for most civil service employees.  Specifically,  DOD (in coordination with OPM) would establish broad occupational  career groups by grouping occupations and positions that are similar in  type of work, mission, developmental or career paths, and competencies.   Within career groups, DOD would establish pay bands.  The proposed  regulations do not provide details on the number of career groups or the  number of pay bands per career group.  The regulations also do not provide  details on the criteria that DOD will use to promote individuals from one  band to another.  These important issues will need to be addressed as DOD  moves forward.  Pay banding and movement to broader occupational  career groups can both facilitate DOD’s movement to a pay-for- performance system and help DOD better define career groups, which in  turn can improve the hiring process.  In our prior work, we have reported  that the current GS system, as defined in the Classification Act of 1949, is  a key barrier to comprehensive human capital reform and that the creation  of broader occupational job clusters and pay bands would aid other  agencies as they seek to modernize their personnel systems.  The  standards and process of the current classification system are key  problems in federal hiring efforts because they are outdated and thus not  applicable to today’s occupations and work.
Under the proposed regulations, DOD could not reduce employees’ basic  rate of pay when converting to pay bands.  In addition, the proposed  regulations would allow DOD to establish a “control point” within a band  that limits increases in the rate of basic pay and may require certain criteria  to be met for increases above the control point.  The use of control points  to manage employees’ progression through the bands can help to ensure  that their performance coincides with their salaries and that only the  highest performers move into the upper half of the pay band, thereby  controlling salary costs.  The OPM personnel demonstration projects at  China Lake and the Naval Sea Systems Command Warfare Center’s  Dahlgren Division have incorporated checkpoints or “speed bumps” in  their pay bands.  For example, when an employee’s salary at China Lake  reaches the midpoint of the pay band, the employee must receive a  performance rating that is equivalent to exceeding expectations before he  or she can receive additional salary increases.
section_title: Setting and Communicating Employee Performance Expectations
paragraphs: Under the proposed regulations, DOD’s performance management system  would promote individual accountability by setting performance  expectations and communicating them to employees, holding employees  responsible for accomplishing them, and making supervisors and managers  responsible for effectively managing the performance of employees under  their supervision.  While supervisors are supposed to involve employees,  insofar as practicable, in setting performance expectations, the final  decisions regarding performance expectations are within the sole and  exclusive discretion of management.
Under the proposed 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.  As DOD’s human  resources management system design efforts move forward, DOD will need  to define, in more detail than is currently provided, how performance  expectations will be set, including the degree to which DOD components,  managers, and supervisors will have flexibility in setting those  expectations.
The range of expectations that DOD would consider in setting individual  employee performance expectations are generally consistent with those  used by high-performing organizations.  DOD appropriately recognizes that  given the vast diversity of work done in the department, managers and  employees need flexibility in crafting specific expectations.  However, the  experiences of high-performing organizations suggest that DOD should  require the use of core competencies as a central feature of its performance  management effort.  Based on our review of other agency efforts and our  own experience at GAO, we have found that 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.  By including  such competencies as change management, cultural sensitivity, teamwork  and collaboration, and information sharing, DOD would create a shared  responsibility for organizational success and help ensure accountability for  the transformation process.
section_title: Making Meaningful Distinctions in Employee Performance
paragraphs: High-performing organizations seek to create pay, incentive, and reward  systems that clearly link employee knowledge, skills, and contributions to  organizational results.  These organizations make meaningful distinctions  between acceptable and outstanding performance of individuals and  appropriately reward those who perform at the highest level.  DOD’s  proposed regulations state that supervisors and managers would be held  accountable for making meaningful distinctions among employees based  on performance and contribution, fostering and rewarding excellent  performance, and addressing poor performance.
Under the proposed regulations, DOD is expected to have at least three  rating levels for evaluating employee performance.  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.
section_title: Providing Adequate Safeguards to Ensure Fairness and Guard Against Abuse
paragraphs: Although DOD’s proposed regulations provide for some safeguards to  ensure fairness and guard against abuse, additional safeguards should be  developed.  For example, as required by the authorizing legislation, the  proposed regulations indicate that DOD’s performance management  system must comply with merit system principles and avoid prohibited  personnel practices; provide a means for employee involvement in the  design and implementation of the system; and, overall, be fair, credible, and  transparent.  However, the proposed regulations do not offer details on  how DOD would (1) promote consistency and provide general oversight of  the performance management system to help ensure it is administered in a  fair, credible, and transparent manner, and (2) incorporate predecisional  internal safeguards that are implemented to help achieve consistency and  equity, and ensure nondiscrimination and nonpoliticization of the  performance management process.
In April 2003, when commenting on DOD civilian personnel reforms, we  testified that Congress should consider establishing statutory standards  that an agency must have in place before it can implement a more  performance-based pay program, and we developed an initial list of  possible safeguards to help ensure that pay-for-performance systems in the  government are fair, effective, and credible.  For example, we have noted  that agencies need to ensure reasonable transparency and provide  appropriate accountability mechanisms in connection with the results of  the performance management process.  This can be done by publishing  the overall results of performance management and individual pay  decisions while protecting individual confidentiality and by reporting  periodically on internal assessments and employee survey results relating  to the performance management system.  DOD needs to commit itself to  publishing the results of performance management decisions.  By  publishing the results in a manner that protects individual confidentiality,  DOD could provide employees with the information they need to better  understand their performance and the performance management system.
Several of the demonstration projects have been publishing information  about performance appraisal and pay decisions, such as the average  performance rating, the average pay increase, and the average award for  the organization and for each individual unit, on internal Web sites for use  by employees.  As DOD’s human resources management system design  efforts move forward, DOD will need 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.
section_title: Staffing and Employment
paragraphs: 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.  DOD’s authorizing legislation permits that DOD merely  document the basis for the severe shortage or critical hiring need and then  notify OPM of these direct-hire determinations.  Direct-hire authority  allows an agency to appoint people to positions without adherence to  certain competitive examination requirements (such as applying veterans’  preference or numerically rating and ranking candidates based on their  experience, training, and education) when there is a severe shortage of  qualified candidates or a critical hiring need.  In the section containing  DOD’s proposed hiring flexibilities, the proposed regulations state that the  department will adhere to veterans’ preference principles as well as comply  with merit principles and the Title 5 provision dealing with prohibited  personnel practices.
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 the protection of employee rights, on merit principles—and on  results.  Hiring flexibilities alone will not enable federal agencies to bring  on board the personnel that are needed 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.
section_title: Workforce Shaping
paragraphs: The proposed regulations would allow DOD to reduce, realign, and  reorganize the department’s workforce through revised RIF procedures.   For example, employees would be placed on a retention list in the  following order:  tenure group (i.e., permanent or temporary appointment),  veterans’ preference eligibility (disabled veterans will be given additional  priority), level of performance, and length of service; under current  regulations, length of service is considered ahead 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.  Although we support greater consideration of  an employee’s performance in RIF procedures, agencies must have  modern, effective, and credible performance management systems in place  to properly implement such authorities.
An agency’s approach to reductions 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 proposed  regulations include some changes that would allow the department to  rightsize the workforce more carefully through greater precision in  defining competitive areas, and by reducing the disruption associated with  RIF orders as their impact ripples through an organization.  For example,  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 proposed 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 proposed  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.  At present, DOD can use competitive groups  based on employees (1) in the excepted and competitive service, (2) under  different excepted service appointment authorities, (3) with different work  schedules, (4) pay schedule, or (5) trainee status. These 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.
section_title: Adverse Actions and Appeals
paragraphs: As with DHS’s final regulations, DOD’s proposed regulations are intended  to streamline the rules and procedures for taking adverse actions, while  ensuring that employees receive due process and fair treatment.  The  proposed regulations establish a single process for both performance- based and conduct-based actions, and shorten the adverse action process  by removing the requirement for a performance improvement plan.  In  addition, the proposed regulations streamline the appeals process at the  Merit Systems Protection Board (MSPB) by shortening the time for filing  and processing appeals.
Similar to DHS, DOD’s proposed regulations also adopt a higher standard  of proof for adverse actions in DOD, requiring the department to meet a  “preponderance of the evidence” standard in place of the current  “substantial evidence” standard.  For performance issues, while this higher  standard of evidence means that DOD would face a greater burden of proof  than most agencies to pursue these actions, DOD managers are not  required to provide employees with performance improvement periods, as  is the case for other federal employees. For conduct issues, DOD would  face the same burden of proof as most agencies.
DOD’s proposed regulations generally preserve the employee’s basic right  to appeal decisions to an independent body—the MSPB.  However, in  contrast to DHS’s final regulations, DOD’s proposed regulations 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 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 impact on the department’s national security mission.  According  to DOD, the department needs the authority to review initial MSPB  decisions and correct such decisions as appropriate, to ensure that the  MSPB interprets NSPS and the proposed regulations in a way that  recognizes the critical mission of the department and to ensure that MSPB  gives proper deference to such interpretation.  However, 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 them.  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.
Similar to DHS’s final regulations, DOD’s proposed regulations would  shorten the notification period before an adverse action can become  effective and provide an accelerated MSPB adjudication process.  In  addition, MSPB would no longer be able to modify a penalty for an adverse  action that is imposed on an employee by DOD unless such penalty is so  disproportionate to the basis of the action as to be “wholly without  justification.”  In other words, MSPB has less latitude to modify agency- imposed penalities than under current practice. The DOD proposed  regulations also stipulate that MSPB could no longer require that parties  enter into settlement discussions, although either party may propose doing  so.  DOD, like DHS, expressed concerns that settlement should be a  completely voluntary decision made by parties on their own initiative.   However, settling cases has been an important tool in the past at MSPB,  and promotion of settlement at this stage should be encouraged.
Similar to DHS’s final regulations, DOD’s proposed regulations would  permit the Secretary of Defense to identify specific offenses for which  removal is mandatory.  Employees alleged to have committed these  offenses may receive a written notice only after the Secretary of Defense’s  review and approval. These employeess will have the same right to a  review by an MSPB adjudicating official as is provided to other employees  against whom appealable adverse actions are taken.  DOD’s proposed  regulations only indicate that its employees will be made aware of the  mandatory removal offenses.  In contrast, the final DHS regulations  explicitly provide for publishing a list of the mandatory removal offenses in  the Federal Register.  We believe 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  suggest that DOD exercise caution when identifying specific removable  offenses and the specific punishment.  When developing these proposed  regulations, DOD should learn from the experience of the Internal Revenue  Service’s (IRS) implementation of its mandatory removal provisions.  (IRS  employees feared that they would be falsely accused by taxpayers and  investigated, and had little confidence that they would not be disciplined  for making an honest mistake.)  We reported that IRS officials believed this  provision had a negative impact on employee morale and effectiveness and  had a “chilling” effect on IRS frontline enforcement employees, who were  afraid to take certain appropriate enforcement actions.  Careful drafting  of each removable offense is critical to ensure that the provision does not  have unintended consequences.
DOD’s proposed regulations also would encourage the use of alternative  dispute resolution and provide that this approach be subject to collective  bargaining to the extent permitted by the proposed 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 alternative dispute resolution approaches.   These approaches include mediation, dispute resolution boards, and  ombudsmen.  Ombudsmen typically are used to provide an informal  alternative to addressing conflicts.  We previously reported on common  approaches used in ombudsmen offices, including (1) broad responsibility  and authority to address almost any workplace issue, (2) their ability to  bring systemic issues to management’s attention, and (3) the manner in  which they work with other agency offices in providing assistance to  employees.
section_title: Labor-Management Relations
paragraphs: The DOD proposed regulations recognize the right of employees to  organize and bargain collectively.  However, similar to DHS’s final  regulations, the proposed regulations would reduce the scope of bargaining  by (1) removing the requirement to bargain on matters traditionally  referred to as “impact and implementation” (which include the processes  used to deploy personnel, assign work, and use technology) and   (2) narrowing the scope of issues subject to collective bargaining.  A  National Security Labor Relations Board would be created that would  largely replace the Federal Labor Relations Authority.  The proposed board  would have at least three members selected by the Secretary of Defense,  with one member selected from a list developed in consultation with the  Director of OPM.  The proposed board would be similar to the internal  Homeland Security Labor Relations Board established by the DHS final  regulations, except that the Secretary of Defense would not be required to  consult with the employee representatives in selecting its members.  The  proposed board would be responsible for resolving matters related to  negotiation disputes, to include the scope of bargaining and the obligation  to bargain in good faith, resolving impasses, and questions regarding  national consultation rights.
Under the proposed regulations, the Secretary of Defense is authorized to  appoint and remove individuals who serve on the board.  Similar to DHS’s  final regulations establishing the Homeland Security Labor Relations  Board, DOD’s proposed regulations provide for board member qualification  requirements, which emphasize integrity and impartiality.  DOD’s proposed  regulations, however, do not provide an avenue for any employee  representative input into the appointment of board members.  DHS  regulations do so by requiring that for the appointment of two board  members, the Secretary of Homeland Security must consider candidates  submitted by labor organizations.  Employee perception concerning the  independence of this board is critical to the resolution of issues raised over  labor relations policies and disputes.
Our previous work on individual agencies’ human capital systems has not  directly addressed the scope of specific issues that should or should not be  subject to collective bargaining and negotiations.  At a forum we co-hosted  in April 2004 exploring the concept of a governmentwide framework for  human capital reform, which I will discuss later, participants generally  agreed that the ability to organize, bargain collectively, and participate in  labor organizations is an important principle to be retained in any  framework for reform.  It also was suggested at the forum that unions must  be both willing and able to actively collaborate and coordinate with  management if unions are to be effective representatives of their members  and real participants in any human capital reform.
section_title: DOD Faces Multiple Implementation Challenges
paragraphs: Once DOD issues its final regulations for its human resources management  system, the department will face multiple implementation challenges that  include ensuring sustained and committed leadership, establishing an  overall communications strategy, providing adequate resources for the  implementation of the new system, involving employees in designing the  system, and evaluating DOD’s new human resources management system  after it has been implemented.  For information on 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.
subsections: section_title: Ensuring Sustained and Committed Leadership
paragraphs: As DOD and other agencies across the federal government embark on  large-scale organizational change initiatives, such as DOD’s new human  resources management system, another challenge is to elevate, integrate,  and institutionalize leadership responsibility for these key functional  management initiatives to ensure their success.  A chief management  officer or similar position can effectively provide the continuing, focused  leadership essential to successfully completing these multiyear  transformations.  For an endeavor as critical as DOD’s new human  resources management system, such a leadership position would serve to  elevate attention to overcome an organization’s natural resistance to  change, marshal the resources needed to implement change, and build  and maintain the organizationwide commitment to new ways of doing  business;  integrate various management responsibilities into the new system so  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 so that the implementation  of this critical human capital initiative can be sustained.
In 2004, we testified that while the Secretary of Defense and other key DOD  leaders have demonstrated their commitment to the business  transformation efforts, in our view, the complexity and long-term nature of  these efforts requires the development of an executive position capable of  providing strong and sustained executive leadership—over a number of  years and various administrations.  The day-to-day demands placed on the  Secretary, the Deputy Secretary, and others make it difficult for these  leaders to maintain the oversight, focus, and momentum needed to resolve  the weaknesses in DOD’s overall business operations.  While sound  strategic planning is the foundation upon which to build, sustained and  focused leadership is needed for reform to succeed.  One way to ensure  sustained leadership over DOD’s business transformation efforts would be  to create a full-time executive level position for a chief management official  who would serve as the Deputy Secretary of Defense for Management.   This position would provide the attention essential for addressing key  stewardship responsibilities, such as strategic planning, human capital  management, performance and financial management, acquisition and  contract management, and business systems modernization, while  facilitating the overall business transformation operations within DOD.
section_title: Establishing an Overall Communications Strategy
paragraphs: Another significant challenge for DOD is to ensure an effective and ongoing  two-way communications strategy, given its size, geographically and  culturally diverse audiences, and different command structures across  DOD organizations.  We have reported that a communications strategy that  creates shared expectations about, and reports related progress on, the  implementation of the new system is a key practice of a change management initiative.  DOD acknowledges that a comprehensive  outreach and communications strategy is essential for designing and  implementing its new human resources management system, but the  proposed regulations do not identify a process for the continuing  involvement of employees in the planning, development, and  implementation of NSPS.
Because the NSPS design process and proposed regulations have received  considerable attention, we believe one of the most relevant  implementation steps is for DOD to enhance two-way communication  between employees, employee representatives, and management.   Communication is not only about “pushing the message out,” but also using  two-way communication to build effective internal and external  partnerships that are vital to the success of any organization.  By providing  employees with opportunities to communicate concerns and experiences  about any change management initiative, management allows employees to  feel that their input is acknowledged and important.  As it makes plans for  implementing NSPS, DOD should facilitate a two-way honest exchange  with, and allow for feedback from, employees and other stakeholders.   Once it receives this feedback, management needs to consider and use this  solicited employee feedback to make any appropriate changes to its  implementation.  In addition, management needs to close the loop by  providing employees with information on why key recommendations were  not adopted.
section_title: Providing Adequate Resources for Implementing the New System
paragraphs: Experience has shown that additional resources are necessary to ensure  sufficient planning, implementation, training, and evaluation for human  capital reform.  According to DOD, the implementation of NSPS will result  in costs for, among other things, developing and delivering training,  modifying automated human resources information systems, and starting  up and sustaining the National Security Labor Relations Board.  We have  found that, based on the data provided by selected OPM personnel  demonstration projects, the major cost drivers in implementing pay-for- performance systems are the direct costs associated with salaries and  training.
DOD estimates that the overall cost associated with implementing NSPS  will be approximately $158 million through fiscal year 2008.  According to  DOD, it has not completed an implementation plan for NSPS, including an  information technology plan and a training plan; thus, the full extent of the  resources needed to implement NSPS may not be well understood at this  time.  According to OPM, the increased costs of implementing alternative  personnel systems should be acknowledged and budgeted up front.   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 would be built  into the base of DOD’s budget for future years.  Therefore, funding for  NSPS will warrant close scrutiny by Congress as DOD’s implementation  plan evolves.
section_title: Involving Employees and Other Stakeholders in Implementing the System
paragraphs: The proposed regulations do not identify a process for the continuing  involvement of employees in the planning, development, and  implementation of NSPS.  However, DOD’s proposed regulations do  provide for continuing collaboration with employee representatives.   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.  In contrast, according to OPM, just under one-third of  DHS’s 110,000 federal employees are represented by 16 different labor  unions, including 75 separate bargaining units.  Similar to DHS’s final  regulations, DOD’s proposed 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 proposed  regulations indicate that nothing in the continuing collaboration process  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 proposed regulations also will give designated employee  representatives an opportunity to be briefed and to comment on the design  and results of the new system’s implementation.  DHS’s final regulations,  however, provide for more extensive involvement of employee  representatives.  For example, DHS’s final regulations provide for the  involvement of employee representatives in identifying the scope,  objectives, and methodology to be used in evaluating the new DHS system.
The active involvement of employees and employee representatives will be  critical to the success of NSPS.  We have reported that the involvement of  employees and employee representatives both directly and indirectly is  crucial to the success of new initiatives, including implementing a pay-for- performance system. High-performing organizations have found that  actively involving employees and stakeholders, such as unions or other  employee associations, when developing results-oriented performance  management systems helps improve employees’ confidence and belief in  the fairness of the system and increases their understanding and ownership  of organizational goals and objectives.  This involvement must be early,  active, and continuing if employees are to gain a sense of understanding  and ownership of the changes that are being made.
section_title: Evaluating DOD’s New Human Resources Management System
paragraphs: Evaluating the impact of NSPS will be an ongoing challenge for DOD.  This  is especially important because DOD’s proposed regulations would give  managers more authority and responsibility for managing the new human  resources management system.  High-performing organizations continually  review and revise their human capital management systems based on data- driven lessons learned and changing needs in the work environment.   Collecting and analyzing data will be the fundamental building block for  measuring the effectiveness of these approaches in support of the mission  and goals of the department.
DOD’s proposed regulations indicate that DOD will establish procedures  for evaluating the regulations and their implementation.  We believe that  DOD should consider conducting evaluations that are 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, impacts 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, 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.
We have work under way to assess DOD’s efforts to design its new human  resources management system, including further details on some of the  significant challenges, and we expect to issue a report on the results of our  work sometime this summer.
section_title: Framework for Governmentwide Human Capital Reform
paragraphs: DOD recently joined a few other federal departments and agencies, such as  DHS, the National Aeronautics and Space Administration, and the Federal  Aviation Administration, in receiving authorities intended to help them  strategically manage their human resources management system to achieve  results.  In this changing environment, the federal government is quickly  approaching the point where “standard governmentwide” human capital  policies and processes are neither standard nor governmentwide.
To help advance the discussion concerning how governmentwide human  capital reform should proceed, we and the National Commission on the  Public Service Implementation Initiative hosted a forum in April 2004 on  whether there should be a governmentwide framework for human capital  reform and, if so, what this framework should include.  To start the  discussion, we suggested, in advance of the forum, a framework of  principles, criteria, and processes based on congressional and executive  branch decision making and prior work.
While there was widespread recognition among the forum participants that  a one-size-fits-all approach to human capital management is not  appropriate for the challenges and demands faced by government, there  was equally broad agreement that there should be a governmentwide  framework to guide human capital reform.  Furthermore, 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, but such a balance is  necessary to maintain a governmentwide system that is responsive enough  to adapt to agencies' diverse missions, cultures, and workforces.
While there were divergent views among the forum participants, there was  general agreement on a set of principles, criteria, and processes that would  serve as a starting point for further discussion in developing a  governmentwide framework in advancing human capital reform, as shown  in figure 1.
section_title: Concluding Observations
paragraphs: As we testified previously on the DOD and DHS civilian personnel reforms,  an agency should have to demonstrate that it has a modern, effective,  credible, and, as appropriate, validated performance management system  in place with adequate safeguards, including reasonable transparency and  appropriate accountability mechanisms, to ensure fairness and prevent  politicization of the system and abuse of employees before any related  flexibilities are operationalized.  DOD’s proposed NSPS regulations take a  valuable step toward a modern performance management system as well as  a more market-based, results-oriented compensation system.  DOD’s  proposed performance management system is intended to align individual  performance and pay with the department’s critical mission requirements;  hold employees responsible for accomplishing performance expectations;  and provide meaningful distinctions in performance.  However, the  experiences of high-performing organizations suggest that DOD should  require core competencies in its performance management system.  The  core competencies can serve to reinforce employee behaviors and actions  that support the DOD mission, goals, and values and to set expectations for  individuals’ roles in DOD’s transformation, creating a shared responsibility  for organizational success and ensuring accountability for change.
DOD’s overall effort to design and implement a strategic human resources  management systemalong with the similar effort of DHScan be  particularly instructive for future human capital management,  reorganization, and transformation efforts in other federal agencies.
Mr. Chairman and Members of the Subcommittee, this concludes my  prepared statement.  I would be pleased to respond to any questions that  you may have at this time.
section_title: Contacts and Acknowledgments
paragraphs: 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 Eileen R. Larence, Director, Strategic Issues, at (202) 512-6512 or  larencee@gao.gov.  Major contributors to this testimony include Sandra F.  Bell, Nancy L. Benco, Renee S. Brown, K. Scott Derrick, William J. Doherty,  Clifton G. Douglas, Jr., Barbara L. Joyce, Julia C. Matta, Mark A. Pross,  William J. Rigazio, John S. Townes, and Susan K. Woodward.
section_title: “Highlights” from Selected GAO Human Capital Reports
paragraphs: Highlights of GAO-04-753, a report to the  Ranking Minority Member, Subcommittee  on Readiness, Committee on Armed  Services, House of Representatives   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.
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.
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.
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. 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-03-851T, testimony before the Committee on  Governmental Affairs, United States  Senate 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 precedent- setting implications for federal  human capital management.
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.
This testimony provides GAO’s  observations on DOD human  capital reform proposals and the  need for governmentwide reform.
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. 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.
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. 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.
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.
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.    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.
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.
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.
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.
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.
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.
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.
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. 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.
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.
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.
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.
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.
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  Percent eligible  to retire by 2009  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-03-717T, testimony before the Subcommittee on Civil Service  and Agency Organization, Committee on  Government Reform, House of  Representatives  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.
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.
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.
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.
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.
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. 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.
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.
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.
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.
GAO recommends DOD improve  the departmentwide plan to be  mission aligned and results- oriented; provide guidance to align  component- and department-level  human capital strategic plans;  develop data on future civilian  workforce needs; and set mile- stones 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.
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. 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.
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