Office of Personnel Management: Key Lessons Learned to Date for Strengthening Capacity to Lead and Implement Human Capital Reforms
Published: 2007-01-19T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: As the agency responsible for the federal government's human capital initiatives, the Office of Personnel Management (OPM) must have the capacity to successfully guide human capital transformations necessary to meet the governance challenges of the 21st century. Given this key role, GAO was asked to assess OPM's capacity to lead further reforms. In June 2006, GAO testified on several management challenges that OPM faces. This report--the second in a series--supplements that testimony and, using the new senior executive performance-based pay system as a model for understanding OPM's capacity to lead and implement reform, identifies lessons learned that can inform future reforms. GAO analyzed relevant laws and documents, and obtained views from the Chief Human Capital Officers (CHCO) Council and human resource directors, the Office of Management and Budget (OMB) staff, and OPM officials.
section_title: What GAO Found
paragraphs: The congressionally authorized senior executive performance-based pay system, implemented in 2004, provides an opportunity to learn from experiences gained and apply those lessons to the design and implementation of future human capital reforms. Under the performance-based system, before an agency can receive the new pay flexibilities, OPM, with concurrence from OMB, must certify that the agency's appraisal system meets certain criteria. OPM is likely to play a similar leadership and oversight role for future reforms.

section_title: Letter
paragraphs: Strategic human capital management is the centerpiece of federal  agencies’ efforts to transform to meet the governance challenges of the  21st century. Congress has provided agencies with exemptions from the  old rules and with new hiring flexibilities to more strategically manage  their workforces to help meet current and emerging demands, and the  Department of Defense (DOD) and the Department of Homeland Security  (DHS) are implementing legislated human capital reforms affecting  performance-based pay systems, among other things. Strategic human  capital management has become more important as changes in workforce  demographics pose additional challenges. Baby boomers are likely to  begin retiring in large numbers in the near future, while at the same time  the labor force is growing at a much slower rate. Thus, those leaving jobs  will outnumber those seeking jobs, further challenging the federal  government to ensure that it recruits, hires, trains, develops, and motivates  the talent it needs to achieve meaningful results and to be competitive  with the private sector.
Senior executives need to lead the way in transforming their agencies to  become more results oriented, collaborative in nature, and customer  focused. Also, we have reported that the shift to market-based and more  performance-oriented pay must be part of a broader strategy of change  management and performance improvement initiatives and cannot be  simply overlaid on existing ineffective performance management systems.  In 2003, Congress authorized a new performance-based pay system for  members of the Senior Executive Service (SES). The Office of Personnel  Management (OPM) has a key leadership role in leading and implementing  this new system as well as other human capital initiatives and reforms.  Thus, the lessons learned from implementing the new senior executive  performance appraisal system (the foundation of the SES pay reforms)  and other governmentwide human capital initiatives provide valuable  insight into OPM’s capacity to lead and implement human capital reforms.
As the federal government’s human capital leader, OPM must have the  capacity to effectively assist agencies and to successfully lead and  implement these important human capital management transformations.  To enhance its capacity to do so, OPM is working to transform its own  organization from less of a rulemaker, enforcer, and independent agent to  more of a consultant, toolmaker, and strategic partner. As reform  initiatives move forward, it is increasingly important for OPM to complete  this transformation and clearly demonstrate its capacity to lead and  implement such reforms.
Given the importance of OPM’s key role, you asked us to assess the extent  to which OPM has the capacity to lead and implement governmentwide  human capital reform. In June 2006, we testified before the Subcommittee  that while OPM has made progress towards transforming itself to be a  more effective leader of human capital reform, it could build upon this  progress by addressing a number of management challenges. This report  supplements the information we provided in our June 2006 testimony, and  as agreed with your offices is the second in a series of reports, and  specifically identifies lessons that can be learned from OPM’s efforts to  lead and implement the senior executive performance-based pay system  and other human capital initiatives that can be applied to ongoing and  future human capital reform efforts. OPM officials agreed that its role in  certifying senior executive performance appraisal systems is illustrative of  the challenges OPM faces related to future human capital legislative  reforms. As you have requested, we will continue to follow up on these  and other issues related to OPM’s capacity to lead and implement human  capital reforms including issues raised in our June 2006 testimony on  OPM’s (1) leadership; (2) talent and resources; (3) customer focus,  communication, and collaboration; and (4) performance culture and  accountability.
For this report, we reviewed and analyzed key documents related to the  senior executive performance-based pay system, including the legislation  that authorized the pay flexibilities and the OPM and Office of  Management and Budget (OMB) regulations developed to administer these  systems. We also reviewed and analyzed other documents related to  OPM’s process for certifying agency performance appraisal systems and  conducted interviews with OPM’s five associate directors and other OPM  staff, as well as staff from OMB involved in the appraisal system  certification process. To obtain agency views on their experiences with  the certification process, we interviewed 22 of the 23 members of the  Chief Human Capital Officers (CHCO) Council and their corresponding  agency human resource (HR) directors and obtained written responses  from the 1 agency we did not interview. We also drew from our June 2006  testimony that included data from the Civilian Personnel Data File (CPDF)  and our analysis of the 2004 Federal Human Capital Survey (FHCS), 2005  OPM focus groups, and 2006 OPM action plans to address problems  identified. We also reviewed OPM’s March 2006 strategic and operational  plan, associated workforce planning documents, and documentation on  other OPM human capital initiatives, such as the Performance Appraisal  Assessment Tool (PAAT) and agency beta sites for performance  management below the senior level. Appendix I contains a detailed  discussion of our scope and methodology. We conducted our work from  October 2005 to September 2006, in accordance with generally accepted  government auditing standards.
subsections: section_title: Background
paragraphs: OPM’s mission and responsibilities are found in Title 5 of the U.S. Code,  which provides for the effective implementation of civil service laws,  rules, and regulations. OPM also evaluates the effectiveness of personnel  policies, agency compliance with laws, rules, regulations and office  directives, and agency personnel management evaluation systems. Overall,  OPM manages the federal government’s human capital and is charged with  helping agencies shape their human capital management systems and  holding them accountable for effective human capital management  practices. OPM does this in such a way to help ensure that: (1) the federal  government acquires, develops, manages, and retains employees with the  knowledge, skills, and abilities needed to deliver services that the  American public want and deserve; and (2) agencies consistently uphold  governmentwide values, such as merit system principles, veteran’s  preference, and workforce diversity. OPM is also responsible for  administering retirement, health benefits, and other insurance services to  government employees, annuitants, and beneficiaries.
In January 2001, we added strategic human capital management to our list  of federal programs and operations identified as high risk. In a July 2001  report, we evaluated OPM’s goals and measures for assessing the state of  human capital at federal departments and agencies and found weaknesses  in OPM’s measures of workforce skills and employee accountability and  made recommendations to help address these issues, among other things.  OPM has since taken action on our recommendations. In a January 2003  report, we examined OPM’s progress towards its own transformation, as  OPM shifts its role from less of a rule maker and enforcer to more of a  consultant and strategic partner in leading and supporting agencies’  human capital initiatives. We concluded that OPM should exert greater  leadership to prepare the way for human capital reform.
In June 2006, we testified before the Subcommittee that OPM has made  commendable efforts towards transforming itself to being a more effective  leader of governmentwide human capital reform. We noted however, that  it could build upon that progress by addressing challenges that remain in  four key areas:  (1) leadership; (2) talent and resources; (3) customer  focus, communication, and collaboration; and (4) performance culture and  accountability. First, in the area of leadership, we reported that  information from OPM employees based on our analysis of the 2004 FHCS  suggests that information from their top leadership does not cascade  effectively throughout the organization and that many employees do not  feel their senior leaders generate a high level of motivation and  commitment in the workforce. These views on leadership were more  strongly expressed by employees in OPM’s Human Capital Leadership and  Merit System Accountability (HCLMSA) division—one of OPM’s key  divisions and a unit responsible for partnering with agencies and vital to  successful human capital reform efforts. In May 2006, OPM developed a  series of action plans to address issues raised in the 2004 FHCS, including  a number of planned actions to improve overall and cross-divisional  communication and employee views of senior management.
Second, we reported that in the area of talent and resources, OPM has  made progress in assessing current workforce needs and developing  leadership succession plans; however, if OPM is to lead governmentwide  human capital reform it can do more to identify the skills and  competencies of the new OPM, determine any skill and competency gaps,  and develop specific steps to fill such gaps. Third, we reported that the  views of agency CHCOs and HR directors as well as OPM employees show  that OPM can improve its customer service and communication with  agencies and that guidance to agencies is not always clear and timely.  Executive branch agency officials also pointed to OPM’s Human Capital  Officer (HCO) structure as a frequent barrier to efficient customer  response and felt there are greater opportunities for OPM to dialogue and  collaborate with CHCOs and HR directors. Fourth, with respect to  performance culture and accountability, we reported that OPM has made  progress in creating a “line of sight” or alignment and accountability  across its leaders’ expectations and organizational goals in its strategic  and operational plan; however, success in achieving governmentwide  reform objectives will rest, in part, on OPM’s ability to align performance  and consistently support mission accomplishment for all employees of the  organization.
As Congress and other stakeholders have recognized the importance of  strategic human capital management, several legislative changes have  occurred. In November 2002, Congress passed the Homeland Security Act  of 2002, which created DHS and provided the department with significant  flexibility to design, in consultation with OPM, a modern human capital  management system affecting approximately 180,000 personnel.  Specifically, the legislation granted DHS certain exemptions from the laws  governing federal civilian personnel management in Title 5 of the U.S.  Code—providing DHS with certain human capital flexibilities to establish  a contemporary human capital system that will enable it to attract, retain,  and reward a workforce able to meet its critical mission.
To address governmentwide human capital management challenges, Title  XIII of the Homeland Security Act, also cited as the Chief Human Capital  Officers Act of 2002, established CHCO positions in 23 agencies to advise  and assist the heads of agencies and other executive branch agency  officials in their strategic human capital management efforts. The act also  created the CHCO Council to advise and coordinate the activities of  members’ agencies on such matters as the modernization of human  resources systems, improved quality of human resources information, and  legislation affecting human resources operations and organizations. The  act also included significant provisions related to direct hire authority, the  use of categorical ranking in the hiring of applicants instead of the “rule of  three,” expansion of voluntary early retirement and “buy-out” authority, a  requirement to discuss human capital approaches in Government  Performance and Results Act reports and plans, and a provision raising the  total annual compensation limit for senior executives and other senior  professionals in agencies with performance appraisal systems that have  been certified by OPM and OMB as making meaningful distinctions in  relative performance.
In November 2003, the National Defense Authorization Act for Fiscal Year  2004 provided DOD—the largest federal employer—with authority, in  conjunction with OPM, to establish a flexible and contemporary human  resources system, including a new (1) pay and performance management  system, (2) appeals process, and (3) labor relations system—which  together comprise the National Security Personnel System (NSPS). Like  the Homeland Security Act, this legislation granted DOD certain  exemptions from Title 5 of the U.S. Code and provided significant  flexibility for designing NSPS, allowing for a new framework of rules,  regulations, and processes to govern how defense civilian employees are  hired, compensated, promoted, and disciplined. The NSPS would cover  approximately 700,000 employees.
Also, in the National Defense Authorization Act for Fiscal Year 2004,  Congress authorized a new performance-based pay system for members of  the SES. Under the new system, which took effect in January 2004, senior  executives no longer receive annual across-the-board or locality pay  adjustments. Executive branch agencies must now base pay adjustments  for senior executives on individual performance and contributions to  agency performance through an evaluation of their unique skills,  qualifications, or competencies, as well as the individual’s current  responsibilities. The new pay system raises the cap on base pay and total  compensation. For 2006, the caps are $152,000 for base pay (Level III of  the Executive Schedule) with a senior executive’s total compensation not  to exceed $183,500 (Level I of the Executive Schedule). If an agency’s  senior executive performance appraisal system is certified by OPM and  OMB concurs, the caps are increased to $165,200 for base pay (Level II of  the Executive Schedule) and $212,100 for total compensation (the total  annual compensation payable to the Vice President).
In addition to SES employees, many agencies use senior employees with  scientific, technical, and professional expertise, commonly known as  senior-level (SL) and scientific or professional (ST) positions. SL/ST  positions have a lower maximum rate of basic pay than SES employees,  and unlike the SES, their individual rate of pay does not necessarily have  to be based on individual or agency performance. However, an agency may  apply to OPM and OMB for certification of its SL/ST performance  appraisal system, and if the system is certified as making meaningful  distinctions in relative performance, an agency may raise the total annual  compensation maximum for SL/ST employees to the salary of the Vice  President. However, certification does not affect the maximum rate of  basic pay of SL/ST employees.
To qualify for these pay flexibilities, OPM must certify and OMB must  concur that an agency’s senior executive performance appraisal system  meets certification criteria jointly developed by OPM and OMB. Two levels  of performance appraisal system certification are available to agencies:  full and provisional. To receive full certification, which lasts for 2 calendar  years, the design of agency systems must meet nine certification criteria  and agencies must provide documentation of prior performance ratings to  demonstrate compliance with the criteria. Agencies can receive  provisional certification, which lasts for 1 calendar year, if they have  designed but not yet fully implemented a senior executive performance  appraisal system, or do not have a history of performance ratings that  meets the certification criteria. In September 2006, we testified before the  Subcommittee that the certification criteria are generally consistent with  our body of work identifying key practices for effective performance  management systems. In addition, we testified that these senior executive  and senior-level employee performance-based pay systems serve as an  important step for agencies in creating alignment or “line of sight”  between executives’ performance and organizational results. A detailed  description of the certification criteria and process is provided in  appendix II.
section_title: Key Lessons Learned from the Senior Executive Performance-based Pay System and Other Human Capital Initiatives
paragraphs: The congressionally authorized senior executive performance-based pay  system, implemented in 2004, as well as OPM’s implementation of other  governmentwide human capital initiatives, provides an opportunity to  learn from experiences gained and apply those lessons to the  implementation of future human capital reforms. As OPM is likely to play a  similar leadership and oversight role in future reforms, the following  lessons learned may also assist OPM as it moves forward in the design and  implementation of other human capital reforms and initiatives.
subsections: section_title: Ensure Internal OPM Capacity to Lead and Implement Reform
paragraphs: To successfully transform or implement a large-scale change initiative  such as governmentwide human capital reform, an organization must  fundamentally reexamine its processes, organizational structures, and  management approaches—including its workforce capacity. 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, and retaining staff to achieve programmatic  goals. As mentioned previously, in 2003, we reported that OPM was  undergoing its own transformation—from less of a rulemaker to more of a  consultant in leading and supporting executive agencies’ human capital  management systems. As the organization transforms and OPM works to  balance rules and tools and change its organizational culture, it is critical  that OPM examine its internal capacity to ensure its workforce has the  competencies to meet the multiple demands of the future and successfully  implement human capital reforms. In particular, we have reported that a  one-size-fits-all approach to human capital management is not appropriate  for the challenges and demands government faces and that there should be  a governmentwide framework to guide human capital reform. Thus, it is  particularly important that OPM’s workforce have the knowledge, skills,  and abilities to understand how to balance the need for consistency across  the federal government with the desire for flexibility, so that they can  assist individual agencies in tailoring their human capital systems to best  meet their needs. Striking this balance will not be easy to achieve, but is  necessary to maintain a governmentwide system that is responsive enough  to adapt to agencies’ diverse missions, cultures, and workforces.
Executive branch agency experiences with implementing the senior  executive performance-based pay systems and other human capital efforts  point to a lack of knowledge and experience among OPM staff. Several  executive branch agency officials commented that OPM conveyed a “we’ll  know it when we see it” method of communicating expectations, and was  thus unable to effectively communicate to agencies their expectations  regarding the senior executive performance appraisal system certification  process. In addition, executive branch agency officials told us they believe  the DOD and DHS human capital reform efforts severely taxed OPM  technical resources, specifically pay and compensation employees. One  CHCO surmised that OPM’s capacity is dependent upon a few key  employees skilled in these areas, particularly innovative pay and  compensation approaches. An OPM senior executive confirmed this,  telling us that turnover and retirement were problematic for pay and  compensation experts at OPM. Also, a majority of agency CHCOs, HR  directors, and their staffs expressed concern about whether OPM  generally has the technical expertise needed to provide timely and  accurate human capital guidance and advice both now and in the future.  We previously reported that problems arose for many agencies when  technical questions had to be communicated via OPM HCOs to the policy  experts at OPM. This issue may have been magnified for some agencies  by the frequent turnover or reassignments among HCOs. The HCO position  was established in 2003 at OPM as part of its transformation efforts to help  improve customer service to agencies. An executive branch agency  official told us that her agency was assigned four different HCOs in the last  18 months. According to OPM’s most recent strategic human capital plan,  OPM recognizes that HCO staff will need to develop greater familiarity  with areas beyond each individual’s technical expertise and plans for its  staff to gain “cross-functional knowledge” through means such as staff  participation on cross-functional work groups that address various  initiatives, training opportunities, and other developmental assignments  that lend themselves to professional growth and development.
Further, our analysis of OPM’s agency results from the 2004 FHCS and  2005 follow-up focus group data suggest that OPM employees may not be  receiving sufficient training to enhance their skills and competencies. OPM  employees were not as close to the employees in the rest of government in  agreeing with the statement “I receive the training I need to perform my  job.” Fifty-three percent of OPM employees agreed with this statement as  compared with 60 percent of employees from the rest of government.  Focus group participants selected this item as one of the most important  issues for OPM to address—expressing the view that OPM’s culture does  not support training, employees do not have time to attend training  classes, and managers are not given sufficient and timely training budgets.  An OPM executive supported these views, stating that it can be a struggle  to convince managers that people should attend training. A former senior  OPM official told us that he did not have an overall budget, including  training, for his department while at OPM.
OPM has begun to align its workforce skills and competencies to meet  additional requirements stemming from future reforms and other  environmental changes. For example, OPM conducted agencywide skills  and competencies assessments in 2001 and 2003, and has conducted skills  assessments for certain targeted occupations—information technology,  human resource management, and selected mission-critical positions.  Validating skills and competencies is important because the workforce  skills and competencies needed to be a strategic partner, toolmaker, or  consultant may be different from those needed in the past to be a  rulemaker or enforcer of regulations. Importantly, OPM has also updated  several of its key strategic management documents. First, in March 2006,  OPM issued its Strategic and Operational Plan, 2006-2010—the starting  point and basic underpinning for transformation. The plan’s strength is in  its definition of clear, tangible goals and deliverables. However, the plan  does not include a description of the relationship between the long-term  goals and annual goals.
Second, in August 2006, OPM updated its Corporate Leadership  Succession Management Plan to include all of its supervisory,  management, and executive positions with succession planning profiles  that contain a list of specific and general technical competency  requirements for each position. This is important because the problem of a  lack of knowledge and experience at OPM may be compounded by the  potential loss of institutional knowledge. In June 2006, we testified that  without careful planning, employee attrition, including senior executives,  could pose the threat of an eventual loss in institutional knowledge,  expertise, and leadership continuity at OPM. OPM’s succession planning  data show that as of July 2006, nearly half of its 376 supervisors, managers,  and executives were eligible for either early or regular retirement. Based  on historical trend data, OPM projects an overall loss (including  retirements) of roughly 65 to 75 supervisory, managerial, and executive  positions per year. Even more recently, at the end of September 2006,  OPM issued its Plan for the Strategic Management of OPM’s Human  Capital for fiscal years 2006-2007. According to OPM’s strategic human  capital plan, voluntary attrition among employees overall at OPM has  averaged approximately 11 percent over a 3-year period and voluntary  retirements comprised approximately 25 percent of separations from 2003  to 2006.
OPM has developed strategies to help support its succession planning  objectives, such as providing resources to improve and develop the  competence of internal candidate pools to develop deep “bench strength.”  In addition, OPM plans to target recruitment efforts around the critical and  core competencies it has identified for each position and to use  recruitment incentives and flexibilities to attract the most desirable  candidates. These succession planning efforts are important because  leading organizations engage in broad, integrated succession planning  efforts that focus on strengthening both current and future organizational  capacity.
OPM’s ability to lead and oversee human capital management policy  changes that result from potential human capital reform could be affected  by its internal capacity and ability to maintain the right skills and  competencies of its workforce, as well as an effective leadership team.  The steps taken by OPM demonstrate progress in achieving its  transformation and it must continue on this path by closely monitoring its  actions to align its workforce to meet current and emerging demands. A  new agencywide skills assessment would enable OPM to better align its  workforce with needed resources to meet such demands. Building and  maintaining expertise in areas that will be critical to future reforms, such  as classification and pay and compensation policy, and ensuring that OPM  employees receive opportunities for training and development that will  help them in assisting agencies with the implementation of reforms, are  critical for future reform success. These workforce and training goals and  objectives also should be included in the means and strategies developed  in OPM’s strategic planning process. Moving forward, OPM can continue  to monitor implementation of long-term strategies to better prepare its  workforce for change and continue to build its workforce capacity to meet  the demands of the future.
section_title: Ensure That Executive Branch Agencies’ Infrastructures Support Reform
paragraphs: We have reported that the federal government should follow a phased  approach towards human capital reforms that meets a “show me” test.  That is, each agency should be authorized to implement a reform only  after it has shown it has met certain conditions, including having the  institutional infrastructure in place necessary for success. This  infrastructure includes, at a minimum, a modern, effective, credible, and  validated performance management system that provides a clear linkage  between institutional, unit, and individual performance-oriented  outcomes, as well as providing for adequate internal and external  safeguards to ensure fairness, and prevent abuse, and is  nondiscriminatory. The absolutely critical role that a solid infrastructure  plays has been amply demonstrated by our own and other organizations’  experiences in shifting to market-based and more performance-oriented  pay. These experiences have shown that market-based and performance- oriented pay reforms cannot be simply overlaid on existing ineffective  performance management systems, but must be part of a broader strategy  of change management and performance improvement initiatives. As the  leader of the federal government’s human capital strategies, OPM plays a  key role in fostering and guiding improvements in all areas of strategic  human capital management across 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.
As we testified in September 2006, overall, the regulations that OPM and  OMB developed to administer a performance-based pay system for  executives serve as an important step for agencies in creating an  alignment or “line of sight” between executives’ performance and  organizational results. However, OPM’s approach to certifying agencies’  senior executive performance appraisal systems could more fully promote  the building of the institutional infrastructures needed to effectively  implement the senior executive performance and pay reforms.
Under OPM and OMB regulations, agencies that are authorized to  implement the new pay flexibilities will receive either a provisional or full  certification. Provisionally certified agencies receive the same pay  flexibilities as those with fully certified systems, even though agencies  with provisional certification do not meet all nine of the certification  criteria. In essence, the provisional category of certification constitutes a  phased approach to implementing performance-based pay systems by  allowing agencies to work toward meeting the OPM and OMB full  certification requirements as they are implementing the new authorities.  Of the 33 performance appraisal systems that have been certified in 2006,  only the Department of Labor’s system for its senior executives received  full certification. The remaining 32 systems received provisional  certification, the majority of which were provisionally certified for the  third straight year. (See app. III for the list of agencies that have received  certification of their performance appraisal systems since 2004.)
An agency that is provisionally certified must reapply annually rather than  the every 2 years that is required of agencies with full certification. This  annual reapplication process for agencies with provisional certification is  important in order to help ensure continued progress in fully meeting  congressional intent in authorizing the new performance-based pay  system. Moreover, continuing scrutiny from OPM and OMB is important  because there is no required time frame under which a provisionally  certified agency must demonstrate it meets all the OPM and OMB criteria  and thereby receive full certification. In that regard, OPM’s January 2006  guidance required agencies with provisional certification to submit  information to OPM and OMB showing improvements the agency has  made in response to comments from those agencies. This requirement was  underscored in OPM’s October 31, 2006, guidance for calendar year 2007,  that asked agencies to highlight in their certification request any  description or evidence of improvements made as a result of comments  from OPM or OMB in response to the agency’s 2006 certification  submission.
As noted, OMB and OPM’s efforts represent an important step in fostering  “lines of sight” within the agencies. Nonetheless, OPM has opportunities to  further strengthen its efforts. More specifically, additional front-end and  ongoing OPM involvement appears to be needed to assist agencies in  achieving and maintaining full certification. Executive branch agency  officials said OPM’s role in the certification process focuses more on  enforcing rules regarding applications for certification, rather than guiding  an agency to build the necessary infrastructure for a performance-based  pay system. In addition, these executive branch agency officials said OPM  has helped them improve their pay systems, but they also said OPM should  provide more active assistance during the design and implementation of  the system rather than waiting to evaluate the end results. Further, an  agency CHCO said OPM is not prepared to interact with agencies to  progressively develop and sustain their senior executive performance- based pay systems over time once they get through the certification  process.
Since the certification process started in 2004, OPM has raised the bar for  certification by placing a greater emphasis on measurable business  outcomes. Raising the bar in the spirit of continuous improvement is  appropriate, but agencies can not achieve the higher standards unless they  are continually building the foundations essential to support augmented  requirements and new improvements. The only two agencies that were  fully certified in 2004, the General Services Administration (GSA) and the  Pension Benefit Guarantee Corporation, were unable to retain full  certification when they reapplied in 2006. An official from one of these  agencies said they applied for full certification in 2006, but received  provisional certification because OPM had raised the bar for meeting full  certification. The agency official stated that upon receiving full  certification in 2004, OPM stopped communicating with the agency about  new developments in the certification process. In addition, this official  said they were “left in the dark” about how OPM’s certification standards  were potentially changing, and how the process for certification was  evolving. It was not until 4 months after they submitted their application to  recertify their system that OPM raised concerns regarding “weak”  executive performance measures, though this agency believed that it had  achieved the requirement according to OPM’s guidance. The agency opted  to accept provisional certification rather than redo its senior executive  performance plans and wait for full certification.
In general, OPM has recognized that agencies need more assistance and  guidance developing an infrastructure to support performance  management systems for executive branch employees below the senior  executive level. OPM developed the Performance Appraisal Assessment  Tool (PAAT) and has promoted performance management beta sites to  address this need. The PAAT provides agencies with an assessment tool  that focuses on the design and implementation of performance  management systems, the training and development of supervisors, and  the agency’s accountability for the system. The PAAT helps agencies  identify weaknesses in their performance management systems and  provides agencies an opportunity to develop a comprehensive strategy for  revising its performance management practices to better support a results- focused performance culture. The beta sites give agencies an opportunity  to test their nonexecutive performance management systems on a small  scale before expanding them agencywide.
Agencies and OPM use the PAAT to evaluate the progress of the beta sites.  This approach of evaluating and testing allows agencies to build internal  capacity, gain experience, and demonstrate that they are prepared to link  pay to performance for all employees. However, as one executive branch  agency official noted, the PAAT is used more by OPM to ensure  accountability than to build agency infrastructure. Similar to concerns  expressed about the senior executive system certification process, an  agency HR director said OPM does not provide “up-front” implementation  plans to agencies that outline the required agency investment and  infrastructure needed to successfully meet new human capital  requirements.
Going forward, OPM can help agencies build this infrastructure by  designing its human capital reform efforts to promote and support  continuous agency improvement. OPM will need to expand the focus of its  efforts to help identify the obstacles that are impeding agencies from  achieving desirable human capital outcomes, and then take appropriate  measures to address them and set mutually agreed-upon goals for  improvement. These actions will help ensure that agencies continue to  make substantive progress toward modernized, credible performance  management systems, and that provisional certifications do not become  the norm. OPM can also take steps to define what it will take in terms of  fact-based and data-driven analyses for agencies to demonstrate that they  are ready to receive this certification, and then help agencies develop the  infrastructure necessary to produce these results.
section_title: Collaborate with CHCO Council
paragraphs: Our prior work has found that high-performing organizations strategically  use partnerships and that federal agencies, such as OPM, must effectively  manage and influence relationships with organizations outside of their  direct control. High-performing organizations strengthen accountability  for achieving crosscutting goals by placing greater emphasis on  collaboration, interaction, and teamwork across organizational  boundaries, to achieve results that often transcend specific boundaries.  Communicating with stakeholders is especially crucial in the public  sector, where policy making and program management demand  transparency and a full range of stakeholders and interested parties are  concerned not only with what results are to be achieved, but also which  processes are used to achieve those results. Our prior work has identified  a number of opportunities where OPM could improve its collaboration  with stakeholders. In 2003, we reported that the lack of coordination  between OPM and GSA, the lead agencies for the governmentwide  telework initiative, created confusion for federal agencies in implementing  their individual telework programs. More recently, our review of  oversight of Equal Employment Opportunity (EEO) requirements and  guidance found little evidence of OPM coordination with the Equal  Employment Opportunity Commission (EEOC). Insufficient understanding  of OPM and EEOC’s mutual roles, authority, and responsibilities resulted  in a lost opportunity to realize consistency, efficiency, and public value in  federal EEO and workplace diversity human capital management  practice. We have also reported that using interagency councils has  emerged as an important leadership strategy in both developing policies  and gaining consensus and consistent follow-through within the executive  branch. With respect to human capital reforms, we have reported that the  CHCO Council should be a key vehicle for this needed collaboration and is  vital to addressing crosscutting federal government strategic human  capital challenges.
Executive branch agency officials said the senior executive performance  appraisal certification process was a missed opportunity for OPM to better  collaborate with the CHCO Council. One agency CHCO said OPM  traditionally uses council meetings to present information to the CHCOs,  but does not encourage discussions or seek the council’s input. Another  agency CHCO said the council has rarely been used to debate new human  capital policies. This one-way communication does not provide a forum  for agency CHCOs to contribute ideas or discuss their experiences. Some  CHCOs and HR directors pointed to OPM’s successful collaborative efforts  through the CHCO Council, such as its assistance to agencies in the  aftermath of Hurricane Katrina; however, they also told us that OPM  misses opportunities to partner more effectively with agencies. An agency  CHCO said that more robust policy discussion on the council would  promote community building and collaboration among agencies and OPM.
According to OPM officials, OPM provided the CHCO Council with  opportunities to discuss the certification process. However, some CHCOs  wanted more involvement in crafting the fundamental design and  applicable issues of the certification process, rather than commenting on  draft regulations after the fact. While the new interim final regulations  were being developed and issued in 2004, OPM provided two presentations  to the full CHCO Council on the new requirements for senior executive  performance appraisal systems along with periodic updates. The CHCO  Council minutes show that one presentation focused on the design of the  new performance appraisal system and the second on the process for  obtaining certification. Agency CHCOs were able to ask questions about  the proposal and make suggestions. For example, one CHCO suggested  that OPM reconsider the timing of the recertification process since it  coincided with agencies’ annual performance appraisal cycle, and this has  proven to be a key issue for the certification process. Further, CHCOs  were given a very short time frame of 24 hours to review and comment on  the proposed certification criteria. Executive branch agency officials  overwhelmingly reinforced a need for OPM to do more to collaborate and  facilitate information sharing with the council and HR directors. More  collaboration with the CHCO Council during the design phase of human  capital initiatives would enable OPM to incorporate agency suggestions  and build a governmentwide consensus for reform.
OPM staff involved with the certification process told us that in 2004, OPM  sought input on the certification criteria from OMB and members of the  CHCO Council. There were also opportunities for agency comments when  the draft regulations were released and through the CHCO Council. In  addition, the CHCO Council Subcommittee of Performance Management  reviewed the process as well. However, most comments focused on pay  flexibilities and not the certification process.
OPM has taken some steps to improve the effectiveness of the council by  expanding the membership to include deputy CHCO positions. Some  deputy CHCOs are also the agencies’ HR directors, but others perform  different deputy roles. Including deputy CHCOs will bring additional HR  expertise and provide more leadership continuity to the council. An  agency CHCO said OPM is taking other steps to improve collaboration  with agencies, such as promoting more CHCO Academy meetings on the  certification process and reinstituting executive resource forums, which  help keep agency executive resources staff current on OPM’s certification  policies. A recent executive resource forum gave agency executive  resource staff an opportunity to discuss common concerns about the  certification process.
Moving forward, collaboration will be critical as human capital reforms  begin to take hold across government. If OPM is to lead reform  successfully, it will need to strategically use the partnerships it has  available to it, such as the CHCO Council and other key stakeholders.  OPM can continue to build upon its expansion of the CHCO Council and  promotion of CHCO Academies and executive resource forums. These are  important steps toward building a collegial environment for debating and  collaborating on future human capital reforms.
section_title: Develop Clear and Timely Guidance
paragraphs: Our work on high-performing organizations and successful  transformations has shown that communication with customers should be  a top priority and is central to forming the partnerships needed to develop  and implement transformation strategies. This communication is most  effective when done early, clearly, and often. Providing agencies with clear  and timely guidance is one way of effectively communicating with OPM’s  customers. In the past, we have reported concerns with OPM’s  communications pertaining to their leadership in implementing  governmentwide human capital initiatives and have recommended ways in  which OPM could improve its guidance to federal agencies. For example,  in 2003 we reported that an initial lack of clarity in telework guidance for  federal agencies from OPM led to misleading data being reported on  agencies’ telework programs. As a result, we recognized the need for OPM  to provide agencies with consistent, inclusive, and unambiguous support  and guidance.
The initial lack of clear and timely guidance has hindered agency  implementation of senior executive performance appraisal systems. When  the certification process began in 2004, OPM provided agencies with  limited guidance for implementing the new regulations. Officials at a  majority of the CHCO Council agencies told us they did not have enough  guidance to properly prepare for meeting the certification criteria. With  the release of the regulations in 2004, OPM’s initial guidance consisted of a  list of documents required for provisional and full certification and a  sample cover letter to accompany each application. The lack of more  specific guidance created confusion as agencies attempted to understand  the broadly defined regulatory criteria and adjust to the requirements for  certification. Agencies did not fully understand what the regulations  required in order to receive certification, thus resulting in an inefficient  process and increasing the workload of agency human resource staffs  unnecessarily.
According to executive branch agency officials, when contacting OPM for  clarification or assistance with requirements, they received conflicting  answers and advice. Executive branch agency HR directors said that they  sometimes received mixed messages on the certification process from  OPM, and it appeared that answers would change depending on the  individual an agency was working with at OPM. One agency CHCO said  that rather than providing agencies with guidance, OPM tends to wait to  receive the agency submission and then determine if it meets  requirements. While OPM directs agencies to its Web site and online  resources, an agency CHCO said they found this information useful, but  this did not fulfill all of their information needs. OPM officials we spoke  with about this agreed that they need to provide clear and consistent  guidance to agencies and said they are working to improve this. They said  the certification of agency performance appraisal systems has been an  iterative, learning process, and OPM is positioning itself to provide more  guidance to agencies. For example, OPM has continued to update its  annual certification guidance to provide agencies with more assistance  when developing their senior executive appraisal systems for certification.  The guidance for calendar year 2006 includes explicit examples from  executive performance plans that comply with the certification criteria.
The continued late issuance of certification guidance in the years since the  2004 regulations were released has plagued the process by delaying the  certification of agency systems. Since certification of appraisal systems  runs on the calendar year, an agency’s provisional certification expires on  December 31st unless they submit an application and receive certification  for the next calendar year. To avoid a gap in certification between  calendar years, applications for appraisal system certification need to be  approved before January 1st. However, OPM did not issue guidance for  calendar year 2006 until January 5, 2006, causing agencies to lose time in  developing their 2006 applications for review and certification. This delay  was compounded when OPM clarified its guidance in a January 30, 2006,  memorandum telling agencies that senior executive performance appraisal  systems would not be certified for calendar year 2006 if the performance  plans did not hold executives accountable for achieving measurable  business outcomes. Some agencies had to revise their submissions, where  necessary, to meet OPM’s additional requirements, causing further delays.
Untimely guidance has been a recurring problem with OPM’s  implementation of the certification process, beginning when OPM initially  developed the regulations for certifying appraisal systems. In late  November 2003, Congress passed legislation to create the new senior  executive performance-based pay system to take effect in January 2004;  however, it took 8 months for OPM to publish the certification criteria  included in the interim regulations when jointly released with OMB in July  2004. As a result, agencies that were certified in 2004 were unable to  operate under the higher executive pay caps until late in the calendar year.  In December 2004, OPM issued guidance for calendar year 2005. The  guidance was issued before the start of the calendar year, but only by a  few weeks. On November 1, 2006, OPM posted a memorandum to heads of  departments and agencies from the Director of OPM, notifying them of  guidance for agencies seeking certification for calendar year 2007.
These delays and late revisions exacerbate the time crunch agencies face  when applying for certification. According to executive branch agency  officials, after agencies’ performance cycles end on September 30, they  essentially have 90 days until the end of the calendar year when their  current certification expires if they are provisionally certified or in their  final year of full certification. Within this time frame, agencies must  conduct senior executive performance assessments and reviews, develop  performance plans for the next performance year, and compile agency and  senior executive performance data for the certification application. The  late release of certification guidance adds a level of uncertainty to the  process that can delay an agency’s submission of its application until after  the start of the calendar year. Some agencies delay preparing their  certification applications because they do not know when OPM will  release its annual guidance or if there will be any changes in requirements  from the previous year. This creates a gap in certification after an agency’s  current certification expires. Until the agency’s senior executive  performance appraisal system is recertified, it must operate under the  lower “uncertified” executive pay cap of $152,000 in 2006 ($13,200 less  than for certified systems), while the cap on total compensation is  $183,500 ($28,600 less than for certified systems).
OPM has acknowledged that the pay limitations in this certification gap  can negatively impact an agency’s ability to recruit, reassign, and retain  qualified senior executives. Executive branch agency officials expressed  similar concerns about how the certification gap limits their ability to  attract and hire new executives. They also said the certification gap  creates an uneven playing field between agencies with certified systems  and agencies that are still awaiting recertification. In July 2006, OPM  issued regulations to alleviate one of the concerns with the certification  gap. The regulations now allow agencies to increase the pay rates of senior  executives once the agency is certified, even if it happens after the start of  the calendar year. These regulations resolve a symptom of the certification  gap, but do not address the underlying causes of the time crunch agencies  face when applying for certification. Also, according to OPM officials, the  administration has submitted a legislative proposal to Congress to  eliminate the calendar year basis for certification. However, such  legislation has not been introduced.
Moving forward, OPM could alleviate confusion, delays, and inefficiencies  by providing agencies with clear and timely guidance for implementing  human capital reforms. OPM needs to clearly communicate its  expectations and provide agencies with adequate time to adjust to any  changes in requirements. When designing new human capital initiatives,  OPM could work with agencies to identify what guidance agencies will  need and develop a timeline for when OPM will release such guidance. A  different time frame for certifying performance appraisal systems could  also help alleviate the time crunch agencies face when applying for  certification.
section_title: Share Best Practices
paragraphs: We have reported that leading practices and benchmarking are important  to supporting agency transformation efforts, and often include case  illustrations of leading practices in our reports. In May 2003, we  recommended that OPM work to more thoroughly research, compile, and  analyze information on the effective and innovative use of human capital  flexibilities and more fully serve as a clearinghouse in sharing and  distributing information. OPM began working with a contractor in the  summer of 2005 to review hiring flexibilities and authorities to better  determine which ones are used and not used, who is using them, and when  and how they are being used; however, it is still unclear if OPM has  created a “clearinghouse” of information to help agencies meet their  human capital needs. In 2004, we stated that agencies need to provide  OPM with timely and comprehensive information about their experiences  in using various approaches and flexibilities to improve their hiring  processes, and that OPM could serve as a facilitator in the collection and  exchange of information about agencies’ effective practices and successful  approaches.
Executive branch agency officials told us that OPM could have better  facilitated the sharing of best practices for developing and implementing  senior executive appraisal systems. According to OPM, in the last 3 years,  it has reviewed and certified about 100 applications for appraisal system  certification. OPM could use this archive of information to identify some  best practices for developing certified systems, but OPM has not fully  shared this information with agencies. Director Springer said OPM has met  with officials from the only agency currently with full certification, the  Department of Labor (DOL), to study what they have done right. However,  Director Springer did not know if other agencies had taken the initiative to  contact DOL to learn from their success. A senior OPM official said OPM  did not provide agencies with examples of “best practices” for certification  applications because OPM did not want agencies to think there was only  one “right way” to get certified. We have reported that a “one size fits all”  approach to human capital management is not appropriate, but we also  recognized the value of documenting a range of best practices which  agencies can tailor to their specific needs. One agency HR director said  agencies were anxious to learn about what was going on at other agencies  and did not understand why OPM was reluctant to share information.  Without sufficient guidance from OPM, agencies relied on each other  where possible to develop an understanding of the certification  requirements. One CHCO also took the initiative to use CHCO Academy  meetings to engender information sharing among agencies about the  application process. However, agencies were unable to resolve  uncertainties and disagreements about the regulatory requirements  without clearer guidance from OPM. Executive branch agency officials  said best practices for certification could help them improve the design of  their performance appraisal systems. For example, executive branch  agency officials said best practices for developing senior executive  performance measures would help them make their performance plans  more results based, as required for certification. Recently, OPM has taken  steps to share information among agencies. In September 2006, OPM  provided agencies’ executive resource directors with samples of agency  senior executive performance plans, though OPM did not specify why  these samples were selected and if they should serve as best practices for  other agencies.
Moving forward, OPM should facilitate the sharing of best practices for  human capital reforms among federal agencies. Director Springer has said  she wants the CHCO Council to develop a best practices initiative to  collect and share information on the certification process. The CHCO  Council could be used to facilitate best practices for other human capital  initiatives as well. Providing a forum for agencies to learn from each  others’ experiences will allow agencies to share effective strategies and  avoid common pitfalls.
section_title: Solicit and Incorporate Feedback
paragraphs: We have reported that communication during a transformation is not  about just “pushing the message out.” Given the uncertainties that  performance-based pay systems may generate for agencies and employees  accustomed to receiving more standardized pay increases, two-way  communication is especially important in an environment of human  capital reform. Creating opportunities for employees and customers to  communicate concerns and experiences surrounding a transformation  allows them to feel that their experiences are important and  acknowledged. Once this employee and customer feedback is received, it  is important to use this solicited feedback to make any appropriate  changes to the implementation of the transformation. For example, OPM  uses its FHCS as an important method of gathering its own employee  feedback and has used this information to take actions to improve its  organization. In addition, OPM recognizes that it is important to notify and  involve the employees affected by personnel demonstration projects,  which are similar to the senior executive performance-based pay system,  though OPM does not require those implementing such demonstration  projects to obtain feedback. However, according to its Demonstration  Projects Evaluation Handbook, OPM suggests that a survey is one method  that could be used to obtain employees’ views on the impact of the  demonstration project to help develop lessons learned that could be  shared with the affected agency, as well as governmentwide. We have also  reported that high-performing organizations understand they need to  continuously review and revise their performance management systems  through monitoring their systems, informally and formally, including  listening to employees’ and stakeholders’ views.
OPM does not actively solicit and act on feedback from agencies on the  implementation of the certification process. Executive branch agency HR  directors said there was not a formal mechanism, such as a survey  instrument, for agencies to provide feedback to OPM on its guidance and  assistance to agencies. An OPM executive within the HCLMSA division  confirmed that OPM does not have a formal feedback mechanism;  however, this executive said OPM converses with agencies regularly so  they did not feel the need to obtain information in this way. Informal  feedback from agencies is primarily communicated through the HCOs.  OPM holds regular meetings of the HCOs to discuss agency concerns.  However, executive branch agency officials said OPM does not always act  to address these concerns. OPM also gathers agency feedback through the  CHCO Council and executive resource forums. OPM’s current feedback  mechanisms are important and valuable, but they could be supplemented,  though not replaced, with more formal outreach. Formal feedback  mechanisms can ensure that OPM gathers a full range of views by giving  everyone an opportunity to comment. Formal feedback also provides a  mechanism for collecting the views of clients and employees in one place,  allowing OPM to track and report progress over time.
Also, OPM does not gather feedback from senior executives who are  directly affected by the new performance appraisal systems and does not  require agencies to survey senior executives, even though agencies are  approaching the fourth year of implementation. Director Springer said  OPM has not surveyed members of the SES about their attitudes towards  the new system. In September 2006, she said it would be premature to  conduct a survey before the system takes hold, but she did not say when  the timing might be appropriate. Also, the 2006 FHCS, OPM’s most recent  survey that gathers employees’ perceptions of federal human capital  practices in their agencies, did not include any questions specifically  designed to gather feedback on changes to senior executive performance  systems. However, Director Springer said OPM plans to analyze a recent  survey of SES members conducted by the Senior Executive Association to  obtain the experience and views of SES members on the new executive  systems.
Going forward, OPM should recognize the usefulness of agencies’ and  senior executive employees’ views on the certification process and  identify a systematic approach to obtain feedback on this and future  human capital reforms. Feedback mechanisms, such as survey or focus  groups, could help OPM identify what its customers think OPM is doing  well, and where OPM needs to improve. Once obtained, feedback  information should be considered in developing new agency guidance and  OPM should take steps to address any specific agency concerns, as  appropriate.
section_title: Track Progress to Ensure Accountability
paragraphs: High-performing organizations understand they need to continuously  review and revise their performance management systems to achieve  results and accelerate change. These organizations continually review and  revise their human capital management systems based on data-driven  lessons learned and changing needs in the environment. We have reported  that agencies seeking human capital reform should consider doing  evaluations that are broadly modeled on the evaluation requirements of  the OPM demonstration projects. Under the demonstration project  authority, agencies must evaluate and periodically report on results,  implementation of the demonstration project, cost and benefits, impacts  on veterans and other equal employment opportunity groups, adherence to  merit system principles, and the extent to which the lessons from the  project can be applied governmentwide. Such an evaluation could ensure  accountability, facilitate congressional oversight, allow for any midcourse  corrections, and assist the agency in benchmarking its progress with other  efforts.
Also, monitoring the implementation of new pay systems is important  because unintended consequences may arise. Organizations have found  they should be open to refining their systems. For example, we have  reported that in order to spread the pay increases among as many  employees as possible, the Federal Deposit Insurance Corporation (FDIC)  found that managers tended not to award merit pay increases to top- performing employees when they were to be promoted in the career  ladder and as a result, these high-performing employees were not getting  the merit pay increases they deserved. FDIC recognized that this  unintended consequence needed to be corrected in future iterations of the  pay system and managers needed help in learning how to make the  necessary distinctions in employees’ contributions.
As we noted in our September 2006 testimony, OPM needs to carefully  monitor the implementation of agencies’ senior executive performance  management systems, especially those that have provisional certification.  This is because, as also noted earlier in this report, agencies with  provisional certification have only met four of nine required criteria for  certification and can still receive the pay flexibilities of the new system. In  other words, agencies can receive the benefits of the new pay-for- performance system without meeting all of its requirements and having  safeguards in place. We testified in October 2005 that in our view such  provisional certifications should not be an option under any broad-based  classification and compensation reform proposal.
Although OPM does not have an evaluation strategy, it is taking steps to  monitor how agencies are making meaningful distinctions in senior  executive performance. Such distinctions are required by statute and are  one of the nine criteria for certifying agencies’ senior executive  performance appraisal systems (as shown in app. II). Once agencies have  provisional or full certification, OPM monitors this criterion by measuring  the distributions of agencies’ performance ratings and pay. This  information helps OPM determine if agencies are making meaningful  distinctions among the performance of their senior executives. Such  distinctions as part of an effective performance management system are  important because they allow the organization’s leadership to  appropriately reward those who perform at the highest level.
In its Report on Senior Executive Pay for Performance for Fiscal Year  2005, OPM stated that the data indicate that federal agencies are taking  seriously the requirement to develop rigorous appraisal systems and to  make meaningful distinctions in performance ratings and pay. All  reporting agencies have moved away from pass/fail appraisal systems and  now have at least one performance level above “fully successful.” In fiscal  year 2005, 43 percent of career SES governmentwide were rated at the  highest performance level, compared to 75 percent in 2003 prior to the  implementation of the SES pay-for-performance system. Further, OPM  reported for fiscal year 2005 that the percentage of SES rated at the  highest performance level declined 16 percent from the prior year. OPM  also reported that the largest increases in salary went to SES rated at the  highest performance level. Although SES pay and performance award  amounts vary by agency based on factors such as compensation strategy,  funding, and agency performance levels, OPM believes these general  trends suggest a further refinement may be occurring in the process of  distinguishing outstanding performers.
Developing an evaluation strategy that works within OPM’s existing  required systems—such as the Human Capital Assessment and  Accountability Framework (HCAAF)—is one approach that OPM can  take to track agencies’ progress in implementing their senior executive  performance systems as well as hold them accountable for meeting OPM’s  certification criteria. For example, DOD officials suggested that OPM  could work with agencies to develop metrics under the HCAAF to  determine whether agency performance management systems were  making meaningful distinctions based on relative performance or other  such important criteria. These metrics could be reported in current  systems, such as the President’s Management Agenda (PMA).
Because OPM carries out its role in a decentralized environment where the  results of its efforts largely take place at federal agencies outside its direct  control, it is particularly important that OPM develop a strategy to track  agencies’ progress in meeting its human capital reform goals. OPM could  require evaluations that are broadly modeled on the evaluation  requirements of the OPM demonstration projects. It can work within its  currently required systems to make reporting requirements less onerous  and part of agencies’ routines. As we testified in September 2006, in the  future, OPM should maintain a focus on continuous improvement of  agency systems by monitoring the certification process, determining  whether any obstacles are impeding agencies from receiving full  certification, and taking appropriate measures to address them.
section_title: Conclusions
paragraphs: Significant reforms are already underway to modernize the federal  government’s human capital management systems to better position  agencies to meet the challenges of the 21st century. OPM is taking steps to  better prepare itself and agencies for governmentwide human capital  reform through the implementation of the senior executive performance  appraisal system certification process, other performance management  initiatives, such as its PAAT and beta sites, and other governmentwide  human capital initiatives. These reform efforts present an opportunity for  OPM to evaluate and learn from its approach to implementing these  initiatives—lessons that can be applied to ongoing and future human  capital reforms. OPM’s workforce and succession planning efforts are also  vital to ensuring it has the internal capacity to lead and implement  reforms. This includes building and maintaining the needed skills and  competencies for OPM’s evolving role in assisting agencies. While OPM  has taken steps through its planning efforts to assess its workforce needs,  it can better prepare its workforce by reexamining its competencies in  light of its updated strategic management framework in order to meet  future demands.
Agencies have raised concerns with OPM’s workforce capacity in general,  and more specific concerns with OPM’s implementation of the senior  executive performance appraisal system. These include the lack of clear  and timely guidance, the need for more sharing of best practices, and the  year-end time crunch agencies face gathering the required information for  OPM to certify their systems. Further, OPM does not obtain formal  feedback from agencies on the implementation of the executive systems to  assist OPM in better understanding agency concerns and the difficulties  they face with implementation. Although OPM recognizes the value of  obtaining employees’ views on reform efforts, as it encouraged with past  demonstration projects, it has not encouraged obtaining such feedback for  the executive performance system. In addition, having an evaluation  strategy to monitor agencies’ overall results of the senior executive  performance system could help ensure accountability and provide  transparency for Congress, other agencies, and stakeholders.
section_title: Recommendations for Executive Action
paragraphs: To better align OPM’s workforce skills and competencies for future human  capital reform efforts, we recommend that the Director of OPM:    Reexamine OPM’s agencywide skills and competency assessment in light  of its updated strategic management documents.
To assist executive branch agencies in meeting the requirements for the  certification of their senior executive performance appraisal systems, we  recommend that the Director of OPM:    Develop and publish a timeline for the issuance of certification guidance.
This timeline should be developed with the input of the CHCO Council and  provide agencies with adequate time to adjust to any changes in guidance.
Evaluate alternatives that could remedy the year-end time compression  that agencies face when trying to meet OPM application requirements and  avoid a gap in certification.
Work with the CHCO Council to develop a formal mechanism for sharing  leading practices for implementing human capital initiatives, such as the  senior executive performance appraisal certification and other  performance management reform initiatives. This forum should include an  adequate range of examples and best practices so as not to promote one- size-fits-all solutions.
Develop a formal feedback mechanism to obtain agencies’ views on OPM’s  implementation of the certification process. OPM should utilize this  feedback to identify common agency concerns and develop action plans to  address these concerns.
Work with executive branch agencies to develop a systematic approach  for obtaining employee attitudes towards human capital reforms.
Develop a strategy to allow OPM, other executive agencies, and Congress  to monitor the progress of implementation of the senior executive  performance-based pay system.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Director of OPM for review and  comment. We received a written response from the Director, which is  reprinted in appendix IV. The Director stated that OPM has made progress  toward achieving its operational and strategic goals, but neither agreed  nor disagreed with our recommendations.
Director Springer provided a number of informative comments describing  progress OPM has made towards achieving its planned goals, and  initiatives undertaken to assist federal agencies with meeting their hiring  demands of the future. Director Springer said OPM has made progress  towards achieving its operational and strategic goals since she became  Director of OPM. The Director provided information that while beyond the  scope of the report, nonetheless is helpful in understanding the context in  which OPM is operating. Specifically, she commented that OPM associates  have worked together and with agencies to achieve the objectives that are  tied to OPM’s Strategic and Operational Plan, 2006-2010, and since  March 2006, OPM has achieved its plan’s objectives, on time or ahead of  schedule. Also, OPM provided a number of technical comments and,  where appropriate, we have made changes to the report language to  reflect these comments.
We are sending copies of this report to the Director of OPM, the Director  of OMB, and other interested parties. Copies will be made available to  others upon request. This report is also available at no charge on GAO’s  Web site at http://www.gao.gov.
If you or your staffs have any questions concerning this report, please  contact me at (202) 512-6806. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made major contributions to this report are  listed in appendix V.
section_title: Appendix I: Scope and Methodology
paragraphs: To identify lessons learned to inform the Office of Personnel  Management’s (OPM) capacity to lead and implement human capital  reform, we reviewed OPM’s implementation of the senior executive  performance appraisal system certification process. We reviewed and  analyzed key documents including the legislation that authorized the new  senior executive performance-based pay system and the regulations for  the appraisal system certification process that were jointly issued by OPM  and the Office of Management and Budget (OMB). We also reviewed and  analyzed the subsequent guidance issued by OPM to agencies to prepare  their certification applications, policy memos from OPM to agencies, and  other documentation related to the certification process. To gain an  agency perspective of the certification process and to a limited degree on  other performance management initiatives, such as the Performance  Appraisal Assessment Tool (PAAT) and the performance management  beta sites, we interviewed 22 of the 23 members of the Chief Human  Capital Officers Council and/or their corresponding agency HR directors.  The one agency that was not available for an interview provided us with  written responses to our questions. In addition, we conducted interviews  with OPM’s five associate directors and other senior-level staff, such as the  Chief Financial Officer and Chief Human Capital Officer, to obtain their  views of OPM’s management practices. We were briefed by the OPM  Director and other OPM officials on the OPM Strategic and Operational  Plan, 2006-2010 and aspects of OPM’s human capital strategies and  initiatives. We also interviewed staff from OMB related to their role in the  performance appraisal system certification process.
To evaluate OPM’s workforce capacity, we interviewed OPM’s former and  current Chief Human Capital Officers and analyzed the OPM Strategic and  Operational Plan, 2006-2010. To understand how OPM’s workforce is  aligned to support the implementation of potential reforms, we analyzed a  number of internal OPM documents such as its August 2006 Corporate  Leadership Succession Management Plan and A Plan for the Strategic  Management of OPM’s Human Capital fiscal years 2004-2007. As the Plan  for the Strategic Management of OPM’s Human Capital fiscal years 2006- 2007 was issued at the conclusion of our review, we were not able to  analyze this document.
To evaluate OPM’s efforts to build agency infrastructure, we reviewed  documents related to OPM’s PAAT and the performance management beta  site initiatives. We selected these initiatives because of similarities to the  certification process and their likelihood to yield tangible lessons related  to OPM’s capacity to lead future reforms.
To evaluate OPM’s feedback mechanisms, we reviewed survey questions  included in the 2004 and 2006 Federal Human Capital Survey (FHCS). The  2006 survey was launched in June 2006 and results are not yet available.
To assess OPM’s measures for tracking progress, we analyzed operational  goals in the OPM Strategic and Operational Plan, 2006-2010. We also  reviewed OPM’s measures of senior executive performance ratings and  pay in its Report on Senior Executive Service Pay for Performance for  Fiscal Year 2005.
We leveraged our work that resulted in our June 2006 testimony on OPM’s  internal capacity. We used the 2004 FHCS, the latest available survey data,  and summaries of OPM’s 2005 focus groups to assess employee views of  OPM’s organizational capacity. We reviewed OPM’s analysis of its 2004  FHCS results and conducted our own analyses of survey results using 2002  and 2004 FHCS data sets provided to us by OPM. On the basis of our  examination of the data and discussions with OPM officials concerning  survey design, administration, and processing, we determined that the data  were sufficiently reliable for the purpose of our review. We analyzed  summaries of OPM employee focus groups that OPM conducted in fall  2005 to understand factors contributing to employees’ responses on the  2004 FHCS. We used the participant comments from these focus groups to  illustrate employee perspectives. We also analyzed the May 2006 action  plans developed by OPM to address issues identified in the focus groups.
Other documents reviewed included our previous work related to OPM,  high-performing organizations, organizational transformation, and human  capital management reforms. We also reviewed GAO’s previous  recommendations on a range of issues related to OPM’s human capital  leadership role and internal management challenges.
We conducted our work from October 2005 to September 2006 in  accordance with generally accepted government auditing standards.
section_title: Appendix II: Description of the Senior Executive Performance-based Pay System Certification Process
paragraphs: The new senior executive pay system raises the cap on base pay and total  compensation. For 2006, the caps are $152,000 for base pay (Level III of  the Executive Schedule) with a senior executive’s total compensation not  to exceed $183,500 (Level I of the Executive Schedule). If an agency’s  senior executive performance appraisal system is certified by the Office of  Personnel Management (OPM) and the Office of Management and Budget  (OMB) concurs, the caps are increased to $165,200 for base pay (Level II  of the Executive Schedule) and $212,100 for total compensation (the total  annual compensation payable to the Vice President).
To qualify for senior executive pay flexibilities, agencies’ performance  appraisal systems are evaluated against nine certification criteria. As  shown in table 2, the certification criteria jointly developed by OPM and  OMB are broad principles that position agencies to use their pay systems  strategically to support the development of a stronger performance culture  and the attainment of the agency’s mission, goals, and objectives.
There are two levels of performance appraisal system certification  available to agencies: full and provisional. To receive full certification, the  design of the systems must meet the nine certification criteria and  agencies must provide documentation of prior performance ratings to  demonstrate compliance with the criteria. Full certification lasts for 2  calendar years. Agencies can receive provisional certification if they have  designed but not yet fully implemented a senior executive performance  appraisal system, or do not have a history of performance ratings that  meets the certification criteria. Provisional certification lasts for 1  calendar year.
OPM’s role in the certification process begins when an agency submits a  certification application to OPM. If fully certified, the certification is good  for the remainder of the calendar year in which the agency applied, as well  as all of the following calendar year. If provisionally certified, an agency’s  certification is only good for the calendar year in which it applied. For  example, if an agency is provisionally certified in October 2005, its  certification would expire in December 2005.
To ensure the agency’s submission is complete, the agency’s OPM  contact—the Human Capital Officer (HCO)—first verifies that the  application contains the required materials and documents. If complete,  the HCO sends copies to the two OPM divisions responsible for reviewing  the application, the Human Capital Leadership and Merit System  Accountability (HCLMSA) division and the Strategic Human Resources  Policy (SHRP) division, and an additional copy to OMB. The agency’s  submission is reviewed independently by representatives within HCLMSA  and SHRP to bring different perspectives to the review.
The submissions are evaluated against the nine certification criteria, but  each review team has its own method for analyzing the application. After  an initial review, the reviewers from HCLMSA and SHRP hold an informal  meeting to discuss the submission. After a more thorough review, the  reviewers meet again in a formal panel along with the agency’s HCO and  decide whether they have enough information to reach a certification  decision about the agency. If the panel concludes there is not enough  information to reach a decision, the HCO will request that the agency  provide any missing or additional supporting information. If the panel  decides there is sufficient information to reach a decision, it will either  certify or reject the application.
When an application is rejected, the HCO works with the agency to help  modify its performance appraisal system so that it meets the criteria. If the  application is approved by OPM, the HCO contacts OMB for concurrence.  OMB uses the same nine criteria to evaluate agency applications, but  primarily focuses on measures of agency performance. If OMB  concurrence is not achieved, the HCO works with the agency to address  OMB’s concerns until resolution is reached. Once OMB concurs, the  Director of OPM certifies the agency’s performance appraisal system and  the agency is formally notified with a letter. The HCO also provides  additional comments to the agency on their system and identifies any  improvement needs. For example, these comments may direct the agency  to focus more on making meaningful distinctions in performance. Figure 1  provides an overview of the certification process.
section_title: Appendix III: Agency Certification Status for Calendar Years 2004, 2005, and 2006 as of October 2006
paragraphs: Appendix III:  Agency Certification Status for  Calendar Years 2004, 2005, and 2006 as of  October 2006 (SES or SL/ST)
1-year  provisional (P)
Department of Health And Human Services   Department of Housing and Urban Development (HUD)
F (2006/2007)
F (2004/2005)
National Aeronautics and Space Administration (NASA)
P  (SES or SL/ST)
1-year  provisional (P)
F (2004/2005)
Agency did not submit an appraisal system application, submitted an application but was not  approved, or withdrew an application for OPM’s review.
section_title: Appendix IV: Comments from the Office of Personnel Management
section_title: Appendix V: GAO Contact and Staff Acknowledgments
paragraphs: Brenda S. Farrell, (202) 512-6806 or farrellb@gao.gov.
subsections: section_title: Acknowledgments
paragraphs: In addition to the contact named above, Trina Lewis, Assistant Director;  Thomas Beall; Carole J. Cimitile; William Colvin; Elizabeth Curda; S. Mike  Davis; William Doherty; Charlene Johnson; Jeffrey McDermott; Michael  Volpe; Katherine H. Walker; and Gregory H. Wilmoth made major  contributions to this report.