SEC is composed of a five-member Commission that oversees SEC operations and provides final approval over staff interpretation of federal securities laws, proposals for new or amended rules to govern securities markets, and enforcement activities. The Commission, which is headed by the SEC chairman, oversees 5 divisions and 23 offices, including 11 regional offices. Figure 1 further depicts SEC’s organizational structure. SEC’s divisions are organized by functional responsibility. For example, SEC’s responsibilities for reviewing corporate disclosures are housed within the Division of Corporation Finance. Table 1 summarizes the roles and responsibilities of the six divisions that primarily implement SEC’s mission. These divisions are supported by other offices, such as the Office of Financial Management and the Office of Human Resources (OHR). In particular, OHR provides overall responsibility for the strategic management of SEC’s personnel management and assesses compliance with federal regulations for areas such as recruitment, retention, leadership and staff development, and performance management. OHR reports to SEC’s Office of the Chief Operating Officer (COO), which in turn reports to the Commission. To carry out its mission, SEC employs staff with a range of skills and backgrounds, such as attorneys, accountants, and economists. As of September 30, 2012, SEC employed 3,829 staff. Of these staff, approximately 43 percent were attorneys, 26 percent were accountants or financial analysts, and 4 percent were examiners. The remaining 27 percent were other professional, technical, administrative, and clerical staff. To help SEC attract and retain qualified employees, Congress enacted the Investor and Capital Markets Fee Relief Act (Pay Parity Act) in 2002 that allowed SEC to implement a new compensation system with unique pay scales comparable to those of other federal financial regulators.Employees Union (hereafter, the SEC employees’ union). SEC’s performance management system, also known as the Evidence- Based Performance Management System, includes individual development plans for all employees, a performance appraisal rating system, a feedback process, and a process for supervisors to deal with poor performance. The current performance appraisal system has criteria by which all SEC employees are rated in relation to work objectives and competency-based performance standards, such as critical thinking and teamwork. Staff are rated on the objectives and standards on a scale of 1-5. SEC calculates an overall rating for each employee by averaging their ratings for the objectives and standards. As designed, employees’ ratings eventually would be used to calculate the employee’s pay-for- performance. SEC developed this system in 2010 and continues to negotiate aspects of the design and implementation of its current performance management system with the SEC employees’ union. For example, to date SEC has not instituted the pay-for-performance aspect of the system for nonsupervisory, bargaining unit staff because of ongoing negotiations. OPM advocates the use of HCAAF, which is a set of tools and strategies available to federal agencies that assist officials in achieving results in personnel management programs. HCAAF guides the assessment of agency efforts, while allowing enough flexibility for agencies to tailor these efforts to their missions, plans, and budgets. The framework uses five standards for success, lists key questions to consider, and suggests performance indicators for measuring progress and results. The five standards for success are as follows: Strategic alignment. Agency strategies for human capital management are aligned with mission, goals, and organizational objectives and are integrated into its strategic plan and performance budget. Leadership and knowledge management. Agency leaders and managers effectively manage people, ensure continuity of leadership, sustain a learning environment that drives continuous improvement in performance, and provide a means to share critical knowledge across the organization. Results-oriented performance culture. The agency has a diverse, results-oriented, high-performing workforce and a performance management system that effectively differentiates between high and low levels of performance and links individual/team/unit performance to organizational goals and desired results. Talent management. The agency has closed gaps or deficiencies in skills, knowledge, and competencies for mission-critical occupations, and made meaningful progress toward closing such gaps or deficiencies in all occupations used in the agency. Accountability. A data-driven, results-oriented planning and accountability system guides the agency’s decisions on human capital management. OPM has been providing some updates to the HCAAF model to federal agencies; however, OPM officials with whom we spoke stated that agencies would continue operating under the current HCAAF model until the end of fiscal year 2013 because the updated version has not been fully implemented. They noted that the updates to HCAAF reinforce existing content and streamline the systems to make HCAAF more practical to use. The updated version of HCAAF, called the Human Capital Framework, reduces the number of systems from five to four (strategic alignment, talent management, performance culture, and evaluation). Based on our analysis of the views of many SEC employees, our previously issued reports on SEC, and recent studies from SEC and third parties, we have determined that the agency’s organizational culture is not constructive and could hinder its ability to effectively fulfill its mission. Organizations with more constructive cultures generally perform better and are more effective. Within constructive cultures, employees also exhibit a stronger commitment to mission focus, accountability, coordination, and adaptability. In describing the agency’s culture, many current and four former SEC employees talked about low levels of employee morale, employees’ distrust of management, and the compartmentalized, hierarchical, and risk-averse nature of the organization. These views are consistent with our past work as well as the work of others. SEC’s culture reflects low employee morale. More than half of nonsupervisory staff and about 43 percent of supervisory staff disagreed that employee morale is generally high most of the time. About a quarter of senior officers had the same view (see table 2). We also found that 44.7 percent of nonsupervisory staff and 30 percent of supervisors did not agree that management has taken steps to improve employee morale. According to a number of staff who provided written survey comments, morale is low for various reasons, ranging from lack of effective leadership and communication to dissatisfaction with the performance management system and opportunities for promotion. Furthermore, many staff who participated in our one-on-one interviews commented that the implementation of the five-point performance rating scale resulted in arbitrary ratings and that they perceived favoritism in promotions. Many other staff commented that staff morale was low. These sentiments were similar to our past findings. For example, we reported in 2001 that SEC had not created an organizational culture that ensured ongoing attention to personnel management issues and that SEC staff did not think the agency sufficiently valued and motivated staff. Our findings in this report are also consistent with the Partnership for Public Service’s analysis of OPM’s 2012 Employee Viewpoint Survey. The analysis found that SEC’s overall index score—which measures staff’s general satisfaction and commitment—declined from 73.1 in 2007 to 56 in 2012.with other midsize agencies, SEC ranked 19 of 22 in overall satisfaction and commitment. The decrease in morale among staff may negatively affect their productivity and commitment to the agency’s mission. SEC’s culture reflects an atmosphere of distrust. When asked whether there is an atmosphere of trust at SEC, many staff disagreed. As shown in table 3, 40 percent of nonsupervisory staff and about 30 percent of supervisory staff thought there was a lack of trust. About 17 percent of senior officers voiced this viewpoint. Survey respondents offered explanations for the lack of trust. From their written comments on SEC’s organizational culture, lack of trust was among the more frequently mentioned topics. For example, one survey respondent indicated that the atmosphere of distrust was due to a lack of direct communication with and knowledge sharing from managers. Based on comments from several respondents, the adverse working relationship between the union and management may have contributed to the level of distrust between staff and upper management by constantly assuming the worst in senior managers’ initiatives and other actions. The lack of trust may undermine the working relationships between management and staff. SEC’s culture is compartmentalized. Many current and three former staff described SEC’s culture as “siloed”—that is, work is compartmentalized in each division and little communication, collaboration, or movement occurs between the divisions. Despite recent SEC efforts to improve intra-agency communication that we discuss later in this report, issues remain. According to our survey, at least one-third of nonsupervisory staff and supervisors said that in the past 12 months, they had not contacted staff in other divisions (except for Enforcement) in the home office for work-related issues, such as coordinating activities or asking for expert advice. Further, about 21 percent of nonsupervisory staff said that communication between other divisions on work-related matters is not encouraged. Others have identified similar issues. For example, a 2009 SEC IG report found that the Division of Enforcement did not always seek assistance from other offices and divisions as needed during its investigation of the Madoff Ponzi scheme; consequently Enforcement staff had difficulty understanding key aspects of Madoff’s fraud. Similarly, a 2011 SEC IG report found that the level of communication between OCIE and Enforcement after a referral—that is, noteworthy information from an OCIE examination passed on to Enforcement for further investigation or action—was not always consistent in the regional offices, which can hinder SEC’s ability to achieve its mission. In addition, the 2011 Boston Consulting Group’s report also noted that SEC’s culture impaired communication and collaboration between divisions. Each division’s internal structure was tailored to division- specific needs, and SEC historically placed limited emphasis on using formalized mechanisms for cross-divisional collaboration.according to three former SEC officials, managers generally have not encouraged staff to move between divisions and work in different areas. The former officials told us that managers did not encourage staff to move around because they were afraid to lose a staff slot in their division.