OPM manages the federal government’s human capital and is responsible for helping agencies shape their human capital management systems and holding them accountable for effective human capital management practices. Title 5 of the U.S. Code, which provides for the effective management of the civil service, describes OPM’s mission and responsibilities. OPM is also responsible for administering retirement, health benefits, and other insurance services to government employees, annuitants, and beneficiaries. During the past several years, OPM has undergone significant changes. The entire agency was restructured in fiscal year 2003, which included steps such as eliminating redundant operations and organizational layers. As mentioned previously, in early 2005, OPM’s workforce expanded by approximately 40 percent when more than 1,500 security clearance employees transferred from DSS. Several months later, OPM experienced a change in top leadership, with the appointment of a new agency director in May 2005. In addition to making organizational changes, OPM has recast a number of its mission objectives. As we previously reported, OPM is continuing to transform itself from less of a rulemaker, enforcer, and independent agent to more of a consultant, toolmaker, and strategic partner in leading and supporting executive branch agencies’ human capital management systems. OPM has also played a role in the design and implementation of new human capital systems at the Departments of Homeland Security and Defense and has exerted greater human capital leadership through its Human Capital Scorecard of the President’s Management Agenda (PMA). OPM is responsible for helping other federal departments and agencies with strategic human capital management, while serving as a model for managing its own workforce. SHRP and HCLMSA are the two OPM divisions with the most responsibility for working with federal departments and agencies to assist them with making their human capital efforts more effective. SHRP designs, develops, and implements human capital policies and programs. SHRP’s objective is to make sure federal agencies understand human capital policy and correctly apply it. For example, SHRP counsels agencies on how to apply policy to their performance appraisal, employee development, labor-management relations, information technology, and workforce planning programs. HCLMSA serves as the strategic leader of the governmentwide effort to transform human capital management so that agencies are held accountable for managing their workforces effectively, efficiently, and in accordance with merit principles. This division provides advice and assistance in all areas of staffing and human capital management, such as workforce restructuring and assistance in recruiting. While SHRP focuses on developing human capital policy, HCLMSA’s responsibilities deal primarily with the implementation of that policy. The Management Services Division (MSD), headed by the senior executive who also serves as the agency’s Chief Human Capital Officer (CHCO), is responsible for providing human capital management services to the agency. MSD houses the Center for Human Capital Management Services (CHCMS), which is responsible for coordinating much of OPM’s internal strategic human capital planning, including workforce and leadership succession management efforts. This group is also responsible for supporting the agency in recruitment, hiring, and other day-to-day human capital management activities. Figure 2 shows OPM’s organizational structure. One of OPM’s efforts has been to conduct the FHCS biennially to measure employees’ perceptions on whether conditions characterizing successful organizations are present in their agencies. OPM uses the FHCS in the Human Capital Assessment and Accountability Framework (HCAAF) as one source of information for evaluating agency success in creating a better working environment for their employees. OPM analyzes the FHCS results for itself and each agency with the four indices of the HCAAF: Leadership and Knowledge Management, Results-Oriented Performance Culture, Talent Management, and Job Satisfaction. A performance agreement at OPM showed the agency had a goal of being in the top half of agencies surveyed for 2006 and being in the top 5 of government rankings for 2008. The FHCS data are also used to rank agencies and subcomponents on a “Best Places to Work” index score, which measures employee satisfaction. The Partnership for Public Service and the Institute for Study of Public Policy Implementation produce the best places to work rankings. More than 220,000 federal employees responded to the most recent survey in 2006, with a governmentwide response rate of 57 percent. The survey participation rate within OPM was 80 percent. In 2006 testimony, we reported that OPM’s 2004 survey results could be summarized as reflecting employees’ concerns about perceptions of leadership; talent management; customer focus, communication, and collaboration; and performance culture and accountability. We identified these four key areas as critical for human capital development in order for OPM to continue to transform itself into a more effective leader of governmentwide human capital reform. The areas differ slightly from the four HCAAF indices and represent a somewhat different grouping of survey items than the indices. For example, we included three questions that were asked relating to talent management: (1) the skill level in my work unit has improved over the past year; (2) I have sufficient resources to get my job done; and (3) supervisors/team leaders provide employees with constructive suggestions to improve their job performance. For this report, we did not include customer focus, communication, and collaboration because the number of survey items we included in that area decreased to one question from 2004 to 2006, making the data no longer significant. Compared to its 2004 results, OPM’s 2006 FHCS results indicate strong improvement in employee perceptions on key questions relating to leadership, mixed results in performance culture and accountability, and continuing challenges in talent management. Additionally, OPM’s 2006 survey results show that the investigative service transfers from DOD, who joined the agency in 2005, were less positive than the rest of OPM’s 2006 responses and negatively affected OPM’s overall results. As a response to a decrease in positive 2004 FHCS responses within OPM, the agency used survey results and focus groups to develop action plans to address areas of employee concerns. In response to the 2006 survey results, OPM reviewed and updated the first set of action plans by incorporating changes as needed to address areas of concern to OPM employees. Top leadership in agencies across the federal government must provide the committed attention needed to address human capital and related organizational transformation issues. In 2006, OPM experienced a positive increase in employee perceptions of questions relating to leadership compared to 2004 FHCS responses. Four questions out of the top 10 questions having the largest increase in positive responses from 2004 to 2006 were related to leadership. For example, there was an 8 percentage point increase for both “satisfaction with information received from management” and “my organization’s leaders maintain high standards of honesty and integrity,” as displayed in figure 3. The positive response increase for leadership questions from 2004 to 2006 represents a major improvement for the agency and a decreasing gap between OPM and the rest of government. OPM was significantly higher than the rest of government on three of eight leadership questions. For example, on the question “Managers communicate the goals and priorities of the organization,” OPM was 11 percentage points higher than the rest of government and 15 percentage points higher than OPM’s 2004 results, as shown in figure 4. Additionally, on the HCAAF index for Leadership and Knowledge Management, OPM’s ranking improved from 28th in 2004 to 19th in 2006, out of 36 ranked agencies. For questions relating to leadership, however, OPM’s 2006 results continue to show a larger gap between SES and General Schedule (GS)-level employees than the difference found in the rest of government results. We reported previously that OPM’s 2004 FHCS results and the follow-up focus group discussions implied that information did not cascade effectively from the top leadership throughout the organization, and we identified a gap in perception between OPM’s SES and GS-level employees, particularly relating to questions on leadership. In 2006, this gap persists between SES and GS-level employees. For example, in both 2004 and 2006 OPM’s SES responses were substantially more positive than non-SES responses for the statement “I have a high level of respect for my organization’s senior leaders.” While OPM has taken steps to address the lack of overall and cross-divisional communication and issues related to employee views of senior management, this gap between SES and GS-level response remains a challenge. Finally, the significant leadership changes that occurred at OPM since the 2004 FHCS survey may have affected the perspectives of employees regarding leadership questions. A new director began a term at the agency in May 2005 and, according to OPM, about half of the senior leadership started after OPM administered the 2004 survey. Additionally, actions taken beginning in May 2006 in response to the 2004 survey results, such as Web casts and e-mail communications from the Director regarding internal changes, were intended to lead to positive 2006 FHCS responses to leadership questions. Effective performance management systems can drive organizational transformation by encouraging individuals to focus on their roles and responsibilities to help achieve organizational outcomes. We reported in 2006 that OPM’s executive performance management system aligns the performance expectations of OPM’s top leaders with the goals of the organization. In addition, we reported that OPM could build upon its positive results for some of its performance-related questions to address performance culture concerns, one of the three areas examined in the focus groups. Similar to the 2004 results, OPM’s 2006 results relating to performance culture and accountability showed some mixed areas of strength that could be maximized and areas of weakness to be addressed. Of the 12 questions we identified as relating to performance culture and accountability, OPM’s results for three questions in 2006 demonstrated substantial improvement compared to 2004 results and two questions dropped significantly from 2004 to 2006. Figure 5 shows the questions that substantially improved.