Human Capital: Observations on Final Regulations for DOD's National Security Personnel System
Published: 2005-11-17T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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 labor-management or due process reforms.

section_title: Letter
paragraphs: 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. 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. 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.
subsections: section_title: Observations on DOD’s Final Human Capital Regulations
paragraphs: 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.
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. 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.
subsections: section_title: Pay and Performance Management
paragraphs: 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. 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  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-the- board 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.
subsections: section_title: Aligning Individual Performance to Organizational Goals
paragraphs: 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, 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  addressed as DOD’s efforts in implementing a new personnel system move  forward.
section_title: Using Competencies to Provide a Fuller Assessment of Performance
paragraphs: 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.
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. 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.  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.
section_title: Making Meaningful Distinctions in Employee Performance
paragraphs: High-performing organizations make meaningful distinctions between  acceptable and outstanding performance of individuals and appropriately  reward those who perform at the highest level. 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.
section_title: Providing Adequate Safeguards to Ensure Fairness and Guard Against Abuse
paragraphs: 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, 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  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.
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. 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.
section_title: Workforce Shaping
paragraphs: 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  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.
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, (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.
section_title: Adverse Actions and Appeals
paragraphs: 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.
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  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. 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 DOD- imposed 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. As stated by DOD in the supplementary  information to the final regulations, the “totally unwarranted in light of all  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.
section_title: Labor-Management Relations
paragraphs: 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.
Our previous work on individual agencies’ human capital systems has not  directly addressed the scope of specific issues that should or should not  be subject to collective bargaining and negotiations. At a forum we co- hosted exploring the concept of a governmentwide framework for human  capital reform, which I will discuss later, participants generally agreed that  the ability to organize, bargain collectively, and participate in labor  organizations is an important principle to be retained in any framework for  reform.
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.
section_title: DOD Faces Many Challenges to Successful Implementation
paragraphs: 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. 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.
subsections: 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 DOD’s size,  geographically and culturally diverse audiences, and the different  command structures across DOD organizations. While we have reported  that developing a comprehensive communications strategy is a key  practice of a change management initiative, we reported in July 2005 that  DOD lacks such a strategy. 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.
section_title: Providing Adequate Resources for Implementing the New System
paragraphs: 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.   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.
section_title: Ensuring Sustained and Committed Leadership
paragraphs: 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.
section_title: Involving Employees and Other Stakeholders in Implementing the System
paragraphs: 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  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.
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.
section_title: Evaluating DOD’s New Human Resources Management System
paragraphs: 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  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. 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.
section_title: Framework for Governmentwide Human Capital Reform
paragraphs: 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  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. 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. 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.
section_title: Next Steps for Human Capital Reform
paragraphs: 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  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.
section_title: Concluding Observations
paragraphs: 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  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.
section_title: Contact 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 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.
section_title: Highlights
paragraphs: The Department of Defense’s  (DOD) new personnel systemthe  National Security Personnel  System (NSPS)will have far- reaching 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.
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.
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.
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.
subsections: section_title: What GAO Recommends
paragraphs: 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. 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.
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.
section_title: Highlights
paragraphs: 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.
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 labor- management 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.
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.
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. 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.
section_title: Highlights
paragraphs: 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.
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.
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.
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. 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.
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.
section_title: Highlights
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.
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.
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.
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. 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.
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.
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.
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.
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. 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.
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. 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.
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.
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.
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.
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.
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