Federal agencies need effective human capital systems to support enhanced performance, ensure accountability, and help achieve their missions. Through our past work, we have identified five key components of human capital systems. Strategic workforce planning: The steps an agency takes to (1) align its human capital program with its current and emerging mission and programmatic goals and (2) develop long-term strategies for acquiring, developing, and retaining staff to achieve programmatic goals. Training: Developing a strategic approach to establish training priorities and leveraging investment in training to achieve agency results; identifying specific training initiatives that improve individual and agency performance; ensuring effective and efficient delivery of training opportunities in an environment that supports learning and change; and demonstrating how training efforts contribute to improved performance and results. Recruitment and hiring: Developing and implementing strategies to advertise positions and attract top candidates; assessing applicants’ relative competencies or knowledge, skills, and abilities against job- related criteria to identify the most qualified candidates; using a variety of candidate assessment tools, such as interviews, to make a selection; and coordinating the process of bringing a new hire on board. Performance management: Planning work and setting individual performance expectations, monitoring performance throughout the year through ongoing feedback, developing individuals’ capacities to perform, and rating and rewarding individual performance. Diversity management: A process intended to create and maintain a positive work environment where the similarities and differences of individuals are valued, so that all can reach their potential and maximize their contributions to an organization’s strategic goals and objectives. An agency’s human resources organization, the agency’s leaders, and staff have roles to play in implementing these components. For example, the human resources organization, with the participation of agency management, would develop performance management policies and procedures, but the agency’s leaders implement those policies and procedures. Additionally the agency’s leaders identify a requirement to recruit and the skill set needed to fill a vacancy, but the human resource organization performs the mechanics of posting the vacancy and ensuring that agency procedures are followed in reviewing applications and making the selection. The agency’s staff may be involved in vetting new system proposals or participating in process improvement teams. In FAA, the Office of Human Resource Management has the primary responsibility for developing and implementing the agency’s human capital system. However, senior officials in each of FAA’s four major entities, called lines of business, oversee the implementation of human capital procedures within their respective organizations. In September 1993, the National Performance Review concluded that federal budget, procurement, and personnel rules prevented FAA from reacting quickly to the needs of the air traffic control system. In response to a congressional mandate resulting from this review, the Secretary of Transportation prepared a report in 1995 that concluded that the most effective reform would be to exempt FAA from most federal personnel rules and procedures contained in title 5 of the United States Code. On November 15, 1995, Congress exempted FAA from a number of title 5 rules and procedures (see table 1) and directed the FAA Administrator to develop and implement a new personnel management system. The law also required that FAA’s new personnel management system address the unique demands of the agency’s workforce and, at a minimum, provide greater flexibility in the compensation, hiring, training, and location of personnel. Subsequent legislation added the requirement for FAA to negotiate with its labor unions any changes made to its personnel management system. On April 1, 1996, FAA introduced its new personnel management system and, over the next several years, initiated a number of efforts to address the following reform objectives: FAA acquires, develops, and deploys required expertise (people) where and when needed. Human resource systems support employees’ achievement of goals. FAA has effective leadership and management. FAA is perceived as a desirable place to work. Human resource management systems are efficient and adaptable. In 2003, we reported that FAA had implemented many of its reform initiatives, but changes to its compensation system, workforce planning initiatives, and implementation of a new performance management system remained incomplete. FAA had (1) developed a new broadbanded, performance-based pay structure aimed at providing a wider range of pay and greater managerial flexibility to recruit, retain, and motivate employees and (2) implemented the pay structure in varying forms for about 75 percent of its workforce. FAA had planned to cover the remainder of the workforce under the new compensation plan as it negotiated new labor agreements with unions representing those workforces. As of July 2009, 88 percent of FAA’s workforce was under one or more components of performance-based compensation. However, FAA and the National Air Traffic Controllers Association (NATCA)—-the union representing FAA’s air traffic controllers—agreed to a new contract in September 2009 that removed nearly 16,000 employees from performance- based compensation, thereby reducing the percentage of the workforce under performance-based compensation to about 55 percent. As part of its reform efforts, FAA also developed a new performance management system consisting of a narrative evaluation of employees’ performance against performance standards combined with feedback and coaching. FAA began developing its new performance management system in 1999 and first implemented it within segments of the agency in 2001. At the time of our 2003 report, about 20 percent of FAA’s workforce was under the new performance management system. As of July 2009, FAA had expanded the performance management system’s coverage to more than 95 percent of its workforce. Under FAA’s new contract with NATCA, air traffic controllers continue to be covered by the new performance management system. While the contract requires that controllers’ performance be evaluated against written standards, and that the supervisor and controller discuss the evaluation, the contract does not provide for interim or midpoint performance feedback during the performance appraisal cycle. FAA also sought, received, and implemented flexibilities in hiring, relocating, and training employees. However, at the time of our 2003 report, FAA had not completed efforts to incorporate these flexibilities into strategic workforce plans. Workforce planning should include developing strategies for integrating hiring, recruiting, training, and other human capital activities in a manner that meets the agency’s long-term objectives to ensure that appropriately skilled employees are available when and where they are needed to meet an agency’s mission. We reported that FAA had established agencywide corporate policies and guidance for developing workforce plans for executives, managers, and supervisors and for specific occupations, but these initiatives were at varying degrees of implementation. As we discuss later in this report, FAA has developed workforce plans for its major organizational segments and for specific workforces. In 2003, we also noted that FAA lacked baseline data against which to measure the impact of its initiatives, and that FAA had not adequately linked initiative goals to the agency’s mission goals. While FAA’s human resource officials maintained that the new compensation system addressed recruitment and retention objectives, FAA could not support this assertion with data because the agency did not establish any baseline data from which to measure improvements. Consequently, we were unable to evaluate the effectiveness of FAA’s reform efforts. We recommended that FAA develop empirical data and establish performance measures, develop linkages between human capital reform initiatives and program goals, establish time frames for data collection and analysis, and hold managers accountable for the results of human capital management efforts. FAA has implemented these recommendations. In the coming years, FAA risks losing significant amounts of institutional knowledge as its employees retire. The dramatic shifts that are occurring in the nation’s population are reflected in FAA’s workforce, where more than three-fourths of its employees are age 40 or older. By fiscal year 2013, FAA projects that 38 percent of its employees who perform work that is critical to FAA’s mission will be eligible to retire (see table 2). For example, in the next 5 years, 42 percent of air traffic controllers, who ensure the safe and smooth movement of air traffic in the air and on the ground at airports; 31 percent of airway transportation system specialists, who install and maintain air traffic control systems; and 48 percent of aviation safety inspectors, who perform critical safety oversight of the aviation industry and air operators, are projected to be eligible to retire. However, the current economic downturn could affect FAA’s retention and recruitment. FAA’s losses from retirement and other causes, for all occupations, declined by 27 percent during the first 4 months of fiscal year 2009, compared with the corresponding months of the prior fiscal year. Additionally, a July 2009 vacancy announcement for controllers attracted nearly 9,000 applications and a recruitment fair for people with disabilities was successful. In addition to replacing institutional knowledge, FAA will need to obtain expertise to support the transition of the national airspace system to NextGen. NextGen envisions a fundamental change in air traffic management by moving to a structure that is adaptable to growth in operations as well as shifts in demand, and that is network-centric, meaning everyone using the system has easy access to the same information at the same time. NextGen will entail a number of transitions—from ground-based to satellite-based navigation and surveillance; from voice communications to digital data exchange; from a fragmented weather forecast delivery system to a system that uses a single, authoritative source; and from limited operations in poor visibility conditions to more operations that can proceed in adverse weather. While FAA plays a central role in these transitions, the Departments of Defense, Commerce, and Homeland Security; the National Aeronautics and Space Administration; and the White House Office of Science and Technology Policy also participate. In previous work, we questioned whether FAA had the required systems integration expertise, given the complexity of this effort. FAA responded by engaging the National Academy of Public Administration (NAPA) to identify (1) the skills needed to accomplish the transition to NextGen and (2) strategies for acquiring the necessary workforce competencies. NAPA assembled a panel of experts (NAPA Panel) to perform the study and reported on the panel’s findings in September 2008. The NAPA Panel found that acquisitions will be an important element in NextGen.