Human Capital: Federal Workforce Challenges in the 21st Century
Published: 2007-03-06T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The federal government is facing new and more complex challenges in the 21st century because of long-term fiscal constraints, changing demographics, evolving governance models, and other factors. Strategic human capital management, which remains on GAO's high-risk list, must be the centerpiece of any serious change management and transformation effort to meet these challenges. However, federal agencies do not consistently have the modern, effective, economical, and efficient human capital programs, policies, and procedures needed to succeed in their transformation efforts. In addition, the Office of Personnel Management (OPM) must have the capacity to successfully guide human capital transformations. This testimony, based on a large body of GAO work over many years, focuses on strategic human capital management challenges that many federal agencies continue to face.
section_title: What GAO Found
paragraphs: Federal agencies continue to face strategic human capital challenges in several areas. Leadership--Top leadership in agencies across the federal government must provide committed and inspired attention needed to address human capital and related organizational transformation issues. However, slightly less than half of respondents to the 2006 Federal Human Capital Survey reported a high level of respect for senior leaders while only 38 percent agreed or strongly agreed that leaders in their organizations generate high levels of motivation and commitment in the workforce. Strategic Human Capital Planning--Strategic human capital planning that is integrated with broader organizational strategic planning is critical to ensuring agencies have the talent they need for future challenges, especially as the federal government faces a retirement wave. Too often, agencies do not have the components of strategic human capital planning needed to address their current and emerging human capital challenges. Acquiring, Developing, and Retaining Talent--Faced with a workforce that is becoming more retirement eligible and finding gaps in talent, agencies need to strengthen their efforts and use of available flexibilities to acquire, develop, motivate, and retain talent. Agencies are not uniformly using available flexibilities to recruit and hire top talent and to address the current and emerging demographic challenges facing the government. (4) Results-Oriented Organizational Culture--Leading organizations create a clear linkage--"line of sight"--between individual performance and organizational success and, thus, transform their cultures to be more results-oriented, customer-focused, and collaborative. However, in many cases, the federal government does not have these linkages and has not transformed how it classifies, compensates, develops, and motivates its employees to achieve maximum results within available resources and existing authorities. Agencies are facing strategic human capital challenges in a period of likely sustained budget constraints. Budget constraints will require agencies to plan their transformations more strategically, prioritize their needs, evaluate results, allocate their resources more carefully, and react to workforce challenges more expeditiously in order to achieve their missions economically, efficiently, and effectively. OPM will continue to play a key role in fostering and guiding strategic human capital management improvements in the executive branch and in helping agencies meet transformation challenges. Although making commendable efforts in transforming itself to more a consultant, toolmaker, and strategic partner in leading and supporting agencies' human capital management systems, OPM has itself faced challenges in its capacity to assist, guide, and certify agencies' readiness to implement reforms.

section_title: Letter
paragraphs: Thank you for the opportunity to be here today to discuss challenges in  the management of today’s federal workforce. Driven by long-term fiscal  constraints, changing demographics, evolving governance models, and  other factors, the federal government is facing new and more complex  challenges in the 21st century and federal agencies must transform their  organizations to meet these challenges. Strategic human capital  management must be the centerpiece of any serious change management  strategy. In 2001, we identified human capital management as a  governmentwide high-risk area because federal agencies lacked a strategic  approach to human capital management that integrated human capital  efforts with their missions and program goals. Although progress has been  made, the area remains on our most recent high-risk list because there is  still the need for a governmentwide framework to advance human capital  reform. This framework is essential to avoid further fragmentation within  the civil service, ensure management flexibility as appropriate, allow a  reasonable degree of consistency, provide adequate safeguards, and  maintain a level playing field among agencies competing for talent.
Federal agencies do not always have the right people in the right jobs at  the right time to meet the challenges they face. Today and in the near term,  the federal government is facing a retirement wave and with it the loss of  leadership and institutional knowledge at all levels. Agencies not only face  a fiercely competitive market for talent but hiring is also affected by  uncompetitive salaries in some critical occupations and lengthy hiring  processes. Federal employees also operate in a culture where there is  often not a clear line of sight between individual effort and organization  results. Of particular concern, federal agencies do not consistently have  the modern, effective, economical, and efficient human capital programs,  policies, and procedures they need to succeed in their transformation  efforts. As the government’s human capital leader, the Office of Personnel  Management (OPM) has a key role in helping executive branch agencies  build the needed infrastructure to support their transformation efforts. At  the request of the Chairman and Ranking Minority Member of the Senate  Committee on Homeland Security and Governmental Affairs and the  Chairman and Ranking Minority Member of the Subcommittee on  Oversight of Government Management, the Federal Workforce, and the  District of Columbia, Senate Committee on Homeland Security and  Governmental Affairs, we are undertaking a body of work examining  OPM’s internal capacity to lead and implement governmentwide human  capital reform.
My remarks today, based on a large body of GAO work over many years,  will focus on the strategic human capital management challenges that  agencies continue to face in four key areas:    Leadership: Top leadership in the agencies must provide the committed  and inspired attention needed to address human capital and related  organization transformation issues. In addition, OPM, as the government’s  human capital leader, must have the internal capacity to lead agencies’  efforts.
Strategic Human Capital Planning: Agencies’ human capital planning  efforts need to be fully integrated with mission and critical program goals.  Too often, agencies do not have the components of strategic human  capital planning needed to address their current and emerging challenges.
Acquiring, Developing, and Retaining Talent: Augmented efforts are  needed to improve recruiting, hiring, professional development, and  retention strategies to ensure that agencies have the needed talent.  Agencies need to ensure that they are using flexibilities available to them  to recruit and hire top talent and to address the current and emerging  demographic challenges facing the government.
Results-Oriented Organizational Cultures: Organizational cultures  need to promote high performance and accountability and empower and  include employees in setting and accomplishing programmatic goals. In  many cases, the federal government has not transformed how it classifies,  compensates, develops, and motivates its employees to achieve maximum  results within available resources and existing authorities. Congress has  recently taken important steps in this direction by providing the  Departments of Defense (DOD) and Homeland Security (DHS) with  authorities intended to help them manage their people more strategically.
Agencies not only face these challenges in moving forward but do so  during a period of likely sustained budget constraints. However, budget  constraints should not be viewed as an insurmountable obstacle to needed  human capital reform. Rather, tighter budgets will require agencies to plan  their transformations more strategically, prioritize their needs, evaluate  results, allocate their resources more carefully, and react to workforce  challenges more expeditiously in order to achieve their missions  economically, efficiently, and effectively. Although human capital reforms  often require an investment of budgetary resources, many of these costs  are one-time in nature that can pay future dividends through more efficient  agency operations. In the current fiscal environment, Congress will need  to scrutinize agencies’ transformation plans, capabilities, and measurable  results to make informed funding decisions.
subsections: section_title: Sustained Leadership Is Essential to Successful Transformations
paragraphs: Leadership in agencies across the federal government is essential to  providing the accountable, committed, consistent, and sustained attention  needed to address human capital and related organization transformation  issues. Leaders must not only embrace reform, they must integrate the  human capital function into their agencies’ core planning and business  activities. Senior executive leadership is especially key today as the  federal government faces significant reform challenges. OPM’s 2006  Federal Human Capital Survey (FHCS) results showed that the  government needs to establish a more effective leadership corps. For  example, slightly less than half of employees responding to the survey  reported a high level of respect for their senior leaders or are satisfied  with the information they receive from management on what is going on in  the organization. Similarly, only 38 percent of respondents agreed or  strongly agreed with the statement that leaders in their organization  generate high levels of motivation and commitment in the workforce. This  represents little change from the 2004 survey when 37 percent of  respondents had positive responses to this question. However, a majority  of respondents, 58 percent, agreed or strongly agreed that managers  communicate the goals and priorities of the organization. This level of  response is essentially the same as the 2004 survey when 59 percent of  respondents provided a positive response to this item.
OPM plays a key role in fostering and guiding improvements in all areas of  strategic human capital management in the executive branch. As part of its  key leadership role, OPM can assist—and as appropriate, require—the  building of the infrastructures within agencies needed to successfully  implement and sustain human capital reforms and related initiatives. OPM  can do this in part by encouraging continuous improvement and providing  appropriate assistance to support agencies’ efforts. For example, OPM has  exerted human capital leadership through its Human Capital Scorecard of  the President’s Management Agenda to assist agencies in improving  strategic management of their human capital. Also, OPM has developed  the governmentwide FHCS to assist agencies and OPM in better  understanding specific and governmentwide agency workforce  management conditions and practices in the areas of leadership,  performance culture, and talent. Most recently, OPM began a television  campaign to promote federal employment and has undertaken a greater  focus on succession planning to respond to the forthcoming federal  retirement wave.
However, in leading governmentwide human capital reform, OPM has  itself faced challenges in its capacity to assist, guide, and certify agencies’  readiness to implement reforms. We recently reported that OPM has made  commendable efforts in transforming itself from less a rulemaker,  enforcer, and independent agent to more a consultant, toolmaker and  strategic partner in leading and supporting executive agencies’ human  capital management systems. We also reported on OPM’s leadership of  transformation efforts. Using the new senior executive performance-based  pay system and other recent human capital reform initiatives as a model  for understanding OPM’s capacity to lead and implement future human  capital reforms, we identified seven key lessons learned, which are   (1) ensure internal OPM capacity to lead and implement reform, (2) ensure  that executive branch agencies’ infrastructures support reform,   (3) collaborate with the Chief Human Capital Officer (CHCO) council,   (4) develop clear and timely guidance, (5) share best practices, (6) solicit  and incorporate feedback, and (7) track progress to ensure accountability.  In addition to the lessons learned that can be applied to future human  capital reforms, we recommended, among other things, that OPM   (1) improve its capacity for future reforms by reexamining its own  agencywide skills and (2) address issues specific to senior executive pay  systems, such as sharing best practices and tracking progress towards  goals. OPM has said that it has made progress toward achieving its  operational and strategic goals.
Equally important is OPM’s leadership in federal workforce diversity and  oversight of merit system principles. In our review of how OPM and the  Equal Employment Opportunity Commission (EEOC) carry out their  mutually shared responsibilities for helping to assure a fair, inclusive, and  nondiscriminatory federal workplace, we found limited coordination  between the two agencies in policy and oversight matters. The lack of a  strategic partnership between the two agencies and an insufficient  understanding of their mutual roles, authority, and responsibilities can  result in a lost opportunity to realize consistency, efficiency, and public  value in federal equal employment opportunity and workplace diversity  human capital management practices. We recommended that OPM and  EEOC regularly coordinate in carrying out their responsibilities under the  equal employment opportunity policy framework and seek opportunities  for streamlining like reporting requirements. Both agencies acknowledged  that their collaborative efforts could be strengthened but took exception  to the recommendation to streamline requirements. We continue to believe  in the value of more collaboration. As of August of last year, the two  agencies had begun discussions on ways to increase coordination.
section_title: Strategic Human Capital Planning Is Critical to Agencies’ Transformation
paragraphs: Strategic human capital planning is the centerpiece of federal agencies’  efforts to transform their organizations to meet the governance challenges  of the 21st century. Generally, strategic workforce planning addresses two  critical needs: (1) aligning an organization’s human capital program with  its current and emerging mission and programmatic goals and (2)  developing long-term strategies for acquiring, developing, motivating, and  retaining staff to achieve programmatic goals. The long-term fiscal outlook  and challenges to governance in the 21st century are prompting  fundamental reexaminations of what government does, how it does it, and  who does it. Strategic human capital planning that is integrated with  broader organizational strategic planning is critical to ensuring agencies  have the talent they need for future challenges.
An agency’s strategic human capital plan should address the demographic  trends that the agency faces with its workforce, especially pending  retirements. In 2006, OPM reported that approximately 60 percent of the  government’s 1.6 million white-collar employees and 90 percent of about  6,000 federal executives will be eligible for retirement over the next 10  years. We have found that leading organizations go beyond a succession  planning approach that focuses on simply replacing individuals and engage  in broad, integrated succession planning and management efforts that  focus on strengthening both current and future organizational capacity to  obtain or develop the knowledge, skills, and abilities they need to meet  their missions. For example, about one third of the Nuclear Regulatory  Commission’s (NRC) workforce with mission-critical skills will be eligible  to retire by 2010. At the same time, NRC’s workforce needs to expand  because NRC expects to receive applications for new nuclear power  reactors beginning in October 2007. Although there is room for further  improvement, we found that NRC’s human capital planning framework is  generally aligned with its strategic goals and coherently identifies the  activities needed to achieve a diverse, skilled workforce and an  infrastructure that fully supports the agency’s mission and goals. The  agency’s framework included using its human capital authorities,  developing a critical skills and gaps inventory tool, and using targets and  measures to monitor the composition of its hires and separations. NRC has  been effective in recruiting, developing, and retaining a critically skilled  workforce, though it is unclear if this trend will continue in the next few  years.
We also have reported in recent years on a number of human capital issues  that have hampered the Department of State’s ability to carry out U.S.  foreign policy priorities and objectives, particularly at posts central to the  war on terror. For example, the department initiated a number of efforts  to improve its foreign language capabilities. However, it has not  systematically evaluated the effectiveness of these efforts, and it continues  to experience difficulties filling its language-designated positions with  language proficient staff. We reported that these gaps in language  proficiency can adversely affect the department’s ability to communicate  with foreign audiences and execute critical duties.
Another example of the government’s strategic human capital planning  challenges involves its acquisition workforce. The government  increasingly relies on contractors for roles and missions previously  performed by government employees. Acquisition of products and services  from contractors consumes about a quarter of discretionary spending  governmentwide and is a key function in many federal agencies. We  reported in 2003 that because of a more sophisticated business  environment, most acquisition professionals would need to acquire a new  set of skills focusing on business management. In a forum hosted by the  Comptroller General in July 2006, acquisition experts reported that agency  leaders have not recognized or elevated the importance of the acquisition  profession within their organizations, and a strategic approach has not  been taken across government or within agencies to focus on workforce  challenges, such as creating a positive image essential to successfully  recruit and retain a new generation of talented acquisition professionals.
section_title: Acquiring, Developing, and Retaining Talent Remains a Federal Workforce Challenge
paragraphs: Faced with a workforce that is becoming more retirement-eligible and  finding gaps in talent because of changes in the knowledge, skills, and  competencies in occupations needed to meet their missions, agencies need  to strengthen their efforts and use of available flexibilities to acquire,  develop, motivate, and retain talent.
A chronic complaint about the federal hiring process is its lengthy  procedures, which puts the federal government at a competitive  disadvantage. In recent years, Congress, OPM, and agencies have taken  significant steps to streamline the hiring process. For example, Congress  has provided agencies with flexibilities such as the use of categorical  rating and exemptions from the pay and classification restrictions of the  General Schedule. OPM’s efforts included improvements to the USAJOBS  Web site as well as other measures, such as job fairs and television  commercials, to make the public more aware of the work federal  employees do. OPM has also established a model 45-day hiring program— the time-to-hire period from the date a vacancy announcement closes to  the date a job offer is extended. In addition, OPM has developed a Hiring  Tool Kit on its website to help agencies improve their hiring processes.  Moreover, OPM assists agencies on the use of student employment  program flexibilities, which can expedite the hiring process and lead to  noncompetitive conversion to permanent employment. Our work,  however, has found that agencies’ use of the tools and flexibilities that  Congress has provided has been uneven. OPM has made some progress in  assessing how agencies are using their hiring flexibilities and authorities.  For example, in January of this year, we reported that OPM began working  with a contractor in 2005 to review hiring flexibilities and authorities to  determine which ones are used and not used, who is using them, and when  and how they are being used. As a result of its work with the contractor,  OPM plans to survey eight CHCO Council agencies to evaluate the use and  effectiveness of hiring authorities and flexibilities and use the results to  improve policies in these areas. This is a positive step on OPM’s part as we  continue to believe that more needs to be done to provide information to  help agencies meet these human capital needs.
Developing and maintaining workforces that reflect all segments of society  and our nation’s diversity is a key part of agencies’ recruitment challenge.  For example, the National Aeronautics and Space Administration (NASA)  said it must compete with the private sector for the pool of Hispanics  qualified for aerospace engineering positions, which is often attracted by  more-lucrative employment opportunities in the private sector in more  preferable locations. To address the situation, part of NASA’s strategy in  recruiting Hispanics focuses on increasing educational attainment,  beginning in kindergarten and continuing into college and graduate school,  with the goal of attracting students into the NASA workforce and  aerospace community. NASA centers sponsor, and its employees  participate in, mentoring, tutoring, and other programs to encourage  Hispanic and other students to pursue careers in science, engineering,  technology, and math. NASA also developed a scholarship program  designed to stimulate a continued interest in science, technology,  engineering, and mathematics. Another example is the U.S. Air Force  “Grow Your Own” aircraft maintenance program at three of its Texas  bases. In partnership with vocational-technical schools, the program  includes both on-the-job training and classroom education to provide a  pool of trained candidates, including Hispanics, to replace retiring federal  civilian aircraft maintenance workers.
In addition to hiring, agencies need to have effective training and  development programs to address gaps in the skills and competencies that  they identified in their workforces. We have issued guidance that  introduces a framework, consisting of a set of principles and key questions  that federal agencies can use to ensure that their training and development  investments are targeted strategically and are not wasted on efforts that  are irrelevant, duplicative, or ineffective. Training and developing new  and current staff to fill new and different roles will play a crucial part in  the federal government’s endeavors to meet its transformation challenges.  Of some concern, however, is the 2006 FHCS, which showed about half, or  54 percent, of respondents were very satisfied or satisfied with the training  they receive on their current jobs, little change from the 2004 survey,  which showed 55 percent had positive responses to this question.
section_title: Results-Oriented Organizational Culture Is Key to High-Performing Agencies
paragraphs: High-performing organizations have found that to successfully transform  themselves they must often fundamentally change their cultures so that  they are more results-oriented, customer-focused, and collaborative in  nature. An effective performance management system is critical to  achieving this vital cultural transformation. Effective performance  management systems are not merely used for once- or twice-yearly  individual expectation setting and rating processes, but are tools to help  the organization manage on a day-to-day basis. These systems are used to  achieve results, accelerate change, and facilitate two-way communication  throughout the year so that discussions about individual and  organizational performance are integrated and ongoing. Moreover, leading  public sector organizations both in the United States and abroad create a  clear linkage—line of sight—between individual performance and  organizational success and, thus, transform their cultures to be more  results-oriented, customer-focused, and collaborative in nature.
The government’s senior executives need to lead the way in transforming  their agencies’ cultures. Credible performance management systems that  align individual, team, and unit performance with organizational results  can help manage and direct this process. The performance-based pay  system that Congress established in November 2003 for members of the  senior executive service (SES) seeks to provide a clear and direct linkage  between performance and pay for the government’s senior executives and  is an important step toward governmentwide transformation. Under this  performance based pay system, senior executives no longer receive annual  across-the-board pay increases or locality-pay adjustments. Executive  branch agencies are to now base pay adjustments for senior executives on  individual performance and contributions to agency performance through  an evaluation of their skills, qualifications, or competencies as well their  current responsibilities.
Just as it has for senior executives, the federal government needs to  fundamentally rethink its current approach to paying nonexecutive  employees by better linking their pay to individual and organizational  performance. Today’s jobs in knowledge-based organizations require a  much broader array of tasks that may cross the narrow and rigid  boundaries of job classifications of the General Schedule system. Since  being exempted from the General Schedule system, DOD and DHS have  been moving toward occupational clusters and pay bands that better  define occupations and facilitate movement toward performance  management systems that create a line of sight between performance and  organizational results, make meaningful differences in performance, and  appropriately reward those who perform at the highest levels.
The results of the 2006 FHCS underscore the need for serious attention to  the way federal employees are assessed and compensated. About a third,  or 34 percent, of the respondents strongly agreed or agreed with the  statement that promotions in their work units are based on merit. When  respondents were asked if pay raises in their work units depend on how  well employees perform their jobs, only 22 percent responded positively.  These responses are consistent with past survey results. Further,  somewhat less than a third of the survey respondents had a positive  response to the question about whether their leadership and management  recognized differences in performance in a meaningful way. High- performing organizations have found that actively involving employees  and key stakeholders, such as unions and other employee associations,  helps gain ownership of new performance management systems and  improves employees’ confidence and belief in the fairness of the systems.  In addition, adequate safeguards need to be built into the performance  management system to ensure fairness and to guard against abuse. Using  safeguards, such as having an independent entity conduct reasonableness  reviews of performance management decisions can help allay concerns  and build a fair, credible, and transparent system.
In summary, Mr. Chairman, we need to continue to move forward with  appropriate human capital reforms. But how reform 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. Before implementing significant  human capital reforms, especially reforms that make stronger links  between employee pay and performance, executive branch agencies  should follow a phased approach that meets a “show me” test. That is,  each agency should be authorized to implement reform only after it has  shown that it has met certain conditions, including having the institutional  infrastructure to effectively and fairly implement any new authorities.
Mr. Chairman and Members of the Subcommittee, this completes my  prepared statement. I would be pleased to respond to any questions you or  others may have at this time.
section_title: Contact and Acknowledgments
paragraphs: For further information regarding this statement, please contact   J. Christopher Mihm, Managing Director, Strategic Issues, at (202) 512- 6806, or mihmj@gao.gov. Individuals making key contributions to this  testimony include Anthony P. Lofaro, Assistant Director; Ami J. Ballenger;  Thomas M. Beall; Crystal M. Bernard; William Doherty; Karin K. Fangman;  and Anthony R. Patterson.
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