[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



 
             TRANSFORMING THE IT AND ACQUISITION WORKFORCES
=======================================================================


                                HEARING

                               before the

           SUBCOMMITTEE ON TECHNOLOGY AND PROCUREMENT POLICY

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 4, 2001

                               __________

                           Serial No. 107-94

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpo.gov/congress/house
                      http://www.house.gov/reform








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                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida         EDOLPHUS TOWNS, New York
JOHN M. McHUGH, New York             PAUL E. KANJORSKI, Pennsylvania
STEPHEN HORN, California             PATSY T. MINK, Hawaii
JOHN L. MICA, Florida                CAROLYN B. MALONEY, New York
THOMAS M. DAVIS, Virginia            ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
BOB BARR, Georgia                    DENNIS J. KUCINICH, Ohio
DAN MILLER, Florida                  ROD R. BLAGOJEVICH, Illinois
DOUG OSE, California                 DANNY K. DAVIS, Illinois
RON LEWIS, Kentucky                  JOHN F. TIERNEY, Massachusetts
JO ANN DAVIS, Virginia               JIM TURNER, Texas
TODD RUSSELL PLATTS, Pennsylvania    THOMAS H. ALLEN, Maine
DAVE WELDON, Florida                 JANICE D. SCHAKOWSKY, Illinois
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
ADAM H. PUTNAM, Florida              DIANE E. WATSON, California
C.L. ``BUTCH'' OTTER, Idaho          ------ ------
EDWARD L. SCHROCK, Virginia                      ------
JOHN J. DUNCAN, Jr., Tennessee       BERNARD SANDERS, Vermont 
------ ------                            (Independent)


                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
                     James C. Wilson, Chief Counsel
                     Robert A. Briggs, Chief Clerk
                 Phil Schiliro, Minority Staff Director

           Subcommittee on Technology and Procurement Policy

                  THOMAS M. DAVIS, Virginia, Chairman
JO ANN DAVIS, Virginia               JIM TURNER, Texas
STEPHEN HORN, California             PAUL E. KANJORSKI, Pennsylvania
DOUG OSE, California                 PATSY T. MINK, Hawaii
EDWARD L. SCHROCK, Virginia

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
                    Melissa Wojciak, Staff Director
              Victoria Proctor, Professional Staff Member
                          James DeChene, Clerk
          Mark Stephenson, Minority Professional Staff Member















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on October 4, 2001..................................     1
Statement of:
    Amler, Arthur, director, employee compensation, IBM..........    71
    Baderschneider, Jean, vice president, global procurement, 
      ExxonMobil Global Services Co..............................    82
    McClure, David, Ph.D., Director, IT Management Issues, U.S. 
      General Accounting Office; Mark Forman, Associate Director 
      for IT and E-Government, U.S. Office of Management and 
      Budget; and Donald Winstead, Acting Director, Workforce 
      Compensation and Performance, U.S. Office of Personnel 
      Management.................................................    11
    Toregas, Costis, president, Public Technology Inc............   109
    Upson, Don, Virginia Secretary of Technology.................    61
Letters, statements, etc., submitted for the record by:
    Amler, Arthur, director, employee compensation, IBM, prepared 
      statement of...............................................    73
    Baderschneider, Jean, vice president, global procurement, 
      ExxonMobil Global Services Co., prepared statement of......    84
    Davis, Hon. Thomas M., a Representative in Congress from the 
      State of Virginia, prepared statement of...................     4
    Forman, Mark, Associate Director for IT and E-Government, 
      U.S. Office of Management and Budget, prepared statement of    39
    McClure, David, Ph.D., Director, IT Management Issues, U.S. 
      General Accounting Office, prepared statement of...........    13
    Toregas, Costis, president, Public Technology Inc., prepared 
      statement of...............................................   111
    Turner, Hon. Jim, a Representative in Congress from the State 
      of Texas, prepared statement of............................     8
    Upson, Don, Virginia Secretary of Technology, prepared 
      statement of...............................................    64
    Winstead, Donald, Acting Director, Workforce Compensation and 
      Performance, U.S. Office of Personnel Management, prepared 
      statement of...............................................    45














             TRANSFORMING THE IT AND ACQUISITION WORKFORCES

                              ----------                              


                       THURSDAY, OCTOBER 4, 2001

                  House of Representatives,
 Subcommittee on Technology and Procurement Policy,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2 p.m., in 
room 2154, Rayburn House Office Building, Hon. Thomas M. Davis 
(chairman of the subcommittee) presiding.
    Present: Representatives Davis of Virginia, Horn, and 
Turner.
    Staff present: Melissa Wojciak, staff director; Amy 
Heerink, chief counsel; George Rogers, counsel; Victoria 
Proctor, professional staff member; James DeChene, clerk; Mark 
Stephenson, minority professional staff member; and Jean Gosa, 
minority assistant clerk.
    Mr. Tom Davis of Virginia. Good afternoon. I want to 
welcome everyone to today's legislative hearing on the use of a 
market-based, pay-for-performance compensation and benefit 
system for the IT and acquisition work force. As we 
investigated in the July 31 hearing of this subcommittee, the 
Federal Government faces significant employee shortages that 
will only get worse with up to half of our IT and acquisition 
work force becoming eligible to retire in the next 5 years. 
Today's hearing will further consider these human capital 
management issues, and we'll examine our legislative proposal 
to respond to this crisis by making government more competitive 
in the war for talent.
    At a recent summit on America's work force, Labor Secretary 
Elaine Chao noted America needs a wake-up call about its work 
force. There will be huge economic consequences if we don't 
address demographic changes in the work force and technological 
changes in the workplace. We need America's workers, employers 
and unions to start working now on challenges that lie just 
beyond the horizon.
    The retirement of so many technology and acquisition 
workers will be happening, unfortunately, at the same time we 
are having trouble attracting people to work for the 
government. In addition to the retirements we face, there will 
be a need for 16,000 new IT employees in the government. 
Concurrently, the private sector reports that while overall 
demand is down, there will be 425,000 IT jobs that will go 
unfilled this year. This will result in a labor force that will 
have its choice of more than two positions per qualified 
applicant, a seller's market at a time when the government must 
be buying.
    In order to compete for talented workers in this market the 
government must be able to offer attractive compensation and 
benefit packages to highly skilled IT and acquisition 
professionals. Considering both the acquisition and IT work 
forces are important because they are interwoven on a number of 
levels. Both groups face large-scale retirements just beyond 
the horizon. Both work forces affect the everyday operation of 
the entire government because these professionals exist in 
every agency, and both perform jobs that are mission-critical 
to facilitating the achievement of agencies' statutory and 
regulatory duties.
    In addition, acquisition and IT work force issues are 
related because every agency spends billions of dollars on the 
acquisition of IT services and equipment. As many of you know, 
the amount spent by government on services and on IT has been 
growing substantially. Last year alone over $87 billion was 
spent on services acquisitions, and of these, more than $13 
billion was spent on IT. On the equipment side the total IT 
budget for fiscal year 2001 is $42 billion. Moreover, IT 
budgets are expected to grow steadily as everyone from Federal 
agencies to the White House to the Congress brings legacy 
systems up to date to maintain modern networks.
    As stewards of the public interest, government is obligated 
to provide citizens with the most efficient service possible at 
the best value for taxpayer dollars. Advances in technology 
provide an unprecedented opportunity for improving government 
service. However, we can only take advantage of this 
opportunity if we have a skilled work force that can acquire, 
manage and implement information technology, products and 
services.
    Unfortunately, the current human resources management 
system for the vast majority of Federal employees in the 
general schedule system is dominated by a one-size-fits-all 
philosophy. It is built upon 19th century principles of 
centralized policy development, selection from rigidly numbered 
lists of candidates and uniform pay scales that cannot respond 
to the different roles, missions and needs for the nearly 100 
independent agencies.
    Although major changes have been initiated by agencies to 
address problems in human resources management, this work has 
been constrained by compensation and reward systems that are 
out of date and noncompetitive when viewed in light of the 
national marketplace for IT skills.
    The National Academy of Public Administration has studied 
these issues in depth with the assistance of over 30 agencies 
and many private sector companies. At the July 31 hearing the 
Academy reported its benchmarking research on public and 
private sector compensation practices. Today, we'll hear their 
evaluation of these alternative compensation practices, their 
recommendations for reform and the views of the witnesses on 
these recommendations.
    The legislative proposal that we will consider calls for 
ending the one-size-fits-all approach for the recruitment, 
compensation and retention of technology and acquisition 
employees classified as GS 5 to 15. While good efforts have 
already been undertaken by some agencies and OPM to address 
hard-to-obtain specialties and to give some flexibility in 
human capital management, this legislation aims at broad 
changes to offer the employment options that will attract the 
greatest number of highly qualified employees into government 
service.
    This legislative proposal is consistent with the 
performance-improving goals of the reforms enacted in the 
1990's, including the Clinger-Cohen Act. It seeks to improve 
performance by implementing commercial best practices for 
employee compensation and benefits. First, it creates a market-
based pay-for-performance system with pay bands for IT and 
acquisition workers. In the private sector, pay for performance 
is almost universal. Like the private sector, government should 
reward those employees who bring greater value to an 
organization in order to reinforce a culture of achievement. 
Next, it enables more flexible recruiting practices by using 
excepted service, noncareer appointments that can be hired far 
more quickly than under the traditional employment schedules. 
Third, the legislation builds on the strength of work/life 
benefits already available to government employees by 
encouraging the development of creatively applied benefits and 
continuously improved training opportunities. And in an 
environment when the government may not be able to match the 
highest rates of pay of the marketplace, it can offer an 
attractive package of good compensation coupled with benefits 
sought after by many potential IT and acquisition employees.
    This hearing begins the process by making the government 
more competitive in the labor marketplace. Without effective 
tools to attract, manage and retain IT and acquisition 
employees, the Federal Government is in jeopardy. Every agency, 
and millions of Americans, rely on these professionals to 
accomplish their missions. The looming crisis in this work 
force makes it imperative that the U.S. Government attract the 
best qualified candidates and train them for high standards, 
for failure to do so will impede the ability of agencies to 
accomplish their statutory and regulatory duties. In assessing 
whether the proposed changes will be successful by giving 
agencies the tools they need to make government an employer of 
choice, we should keep in mind what Kay Coles James, the 
Director of OPM said about the human capital management crisis. 
She said, ``We need creative solutions to address this 
challenge.''
    [The prepared statement of Hon. Thomas M. Davis of Virginia 
follows:]

[GRAPHIC] [TIFF OMITTED] 81521.001

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[GRAPHIC] [TIFF OMITTED] 81521.003

    Mr. Tom Davis of Virginia. Now I yield to my ranking 
member, Mr. Turner, for any comments he has.
    Mr. Turner. Thank you Mr. Chairman. It is good to join you 
at this hearing to once again focus on the challenges that our 
government faces in attracting and retaining a skilled work 
force for information technology and acquisition. We all know 
that at least until recently the demand for high-skilled IT 
workers was growing at a very rapid pace. The study performed 
by the Information Technology Association of America found that 
U.S. companies will seek to fill 900,000 new IT positions, and 
that 425,000 of those positions, half of them, will go unfilled 
because of lack of applicants.
    The shortage has been made worse at the Federal level due 
to the pay gap that we know exists between the public and the 
private sector. Two years ago the Commerce Department found 
that the starting salaries for computer science graduates at 
the Federal level averaged $10,000 to $15,000 less annually 
than those paid by the private sector. In January of this year, 
the Office of Personnel Management established higher pay rates 
for IT workers resulting in increases ranging from 7 to 33 
percent. I look forward to hearing today from OPM on whether 
this change has had any effect.
    It may also be that the recent downturn in our economy has 
resulted in a positive impact on the government's ability to 
recruit high-tech workers. We also need to examine the 
important nonpay benefits such as training, career advancement 
opportunities, family friendly benefits, flexible work 
schedules and meaningful recognition for individual performance 
as a way of attracting and retaining individuals with the 
needed skills.
    The National Academy of Public Administration recently 
completed a report on the Federal IT work force, which 
highlights the shortages we are experiencing. This report 
points to the Federal recruitment system, inadequate 
motivational tools and too little investment in continuous 
learning as problems that need to be addressed. In general, the 
Academy has recommended that the Federal Government move to a 
market-based human resource management system for IT 
professionals, a system which would establish a market-based, 
pay-for-performance compensation system, speed the Federal 
recruitment and hiring process, promote the generally good 
benefits available to Federal workers and increase training 
opportunities.
    The acquisition work force faces many of the same problems 
as the Federal work force as a whole, an aging work force with 
looming major retirements and little entry-level hiring over 
the past decade. I'm very pleased that the chairman has drafted 
legislation to address these issues. I look forward to working 
with you, Mr. Chairman, I appreciate your leadership on this 
very critical matter, and I look forward to hearing from all of 
our witnesses today.
    Mr. Tom Davis of Virginia. Mr. Turner, thank you very much.
    [The prepared statement of Hon. Jim Turner follows:]
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    Mr. Tom Davis of Virginia. I now yield to our Member from 
California, Mr. Horn.
    Mr. Horn. I thank the chairman, and I'm delighted that you 
have this particular hearing. All of us know that very talented 
people are in the executive branch, also in the legislative 
branch, in the judiciary, and that we should be out right now 
when there's breaks or anything else, where some of us ought to 
be in business schools, in public administration schools, 
liberal arts programs and engineering and science, and we need 
to go to these various campuses and tell them of the great 
opportunities that are within the Government of the United 
States. And we certainly need to work for merit pay and 
recognition of that talent coming in to replace the talent 
coming out.
    And I think this is the most important actual policy issue 
in this last decade, and the human infrastructure, without 
question, is what we have to worry about, and we should.
    Thank you, Mr. Chairman.
    Mr. Tom Davis of Virginia. Mr. Horn, thank you.
    We're going to hear testimony today from Mr. David McClure, 
the Director of IT Management Issues at GAO; Mr. Mark Forman, 
the Associate Director of Information Technology and E-
Government at the Office of Management and Budget, our E-
government czar; and Mr. Donald Winstead, the Acting Associate 
Director for Workforce Compensation and Performance of the 
Office of Personnel Management.
    On our second panel we will hear from Don Upson, Virginia 
secretary of technology; Mr. Arthur Amler, the director of 
employee compensation at IBM, also representing the ITAA; Ms. 
Jean Baderschneider, the vice president for procurement at 
ExxonMobil Global Services Co.; and finally from Mr. Costis 
Toregas, the president of Public Technology, Inc., and also 
representing the National Academy of Public Administration.
    As you know, it is the policy of this committee that all 
witnesses be sworn. If you would join with me and raise your 
right hands and rise.
    [Witnesses sworn.]
    Mr. Tom Davis of Virginia. Mr. McClure, we'll start with 
you and then Mr. Forman and Mr. Winstead. If you could try to 
keep your comments to 5 minutes. We have a light out front. 
When it's orange, it's 4 minutes, and it gives you 1 minute to 
sum up. When it's red, just try to sum up as quickly as 
possible. If you finish earlier, all the better, because your 
total testimony is in the record, and we have read that, and we 
will have comments based on that and questions based on that.
    We are expecting floor votes in probably an hour or so that 
we should have time to get this panel through before we have to 
break for votes. Thank you.

  STATEMENTS OF DAVID McCLURE, Ph.D., DIRECTOR, IT MANAGEMENT 
ISSUES, U.S. GENERAL ACCOUNTING OFFICE; MARK FORMAN, ASSOCIATE 
DIRECTOR FOR IT AND E-GOVERNMENT, U.S. OFFICE OF MANAGEMENT AND 
    BUDGET; AND DONALD WINSTEAD, ACTING DIRECTOR, WORKFORCE 
    COMPENSATION AND PERFORMANCE, U.S. OFFICE OF PERSONNEL 
                           MANAGEMENT

    Mr. McClure. Good afternoon, Mr. Chairman, members of the 
subcommittee. It's a pleasure to be here this afternoon to 
discuss the management challenges related to attracting and 
retaining a high-quality Federal work force. We believe that 
the existing IT work force skills and strategies must be 
revamped to move the government more fully into the information 
and knowledge-based age and provide a customercentric, 
electronically based service and transaction focus to the 
government.
    As you know, Mr. Chairman, at GAO we have designated human 
capital as a high-risk area because of the long-standing lack 
of effective leadership and management. And with ongoing 
performance and accountability challenges, this area really 
takes on a great prominence.
    In my oral statement this afternoon, I want to cover just 
three points with you. First, the general status of agency 
actions in this area. The contribution made by the recent NAPA 
IT compensation study that you mentioned in your opening 
remarks, and I think important--challenges are important to 
discuss that lie ahead that will challenge us in all of these 
reforms.
    First of all, many Federal agencies are indeed initiating 
strategies and plans to attract and retain and motivate a 
skilled IT work force. We have pointed out in several products 
examples of success stories and innovative practices. Yet we 
remain concerned because agencies' progress in meeting IT human 
capital needs is sluggish, it's uneven, and it often lacks 
comprehensive and analytical-based strategies for addressing 
both short-term and long-term needs.
    Our work to date indicates that there is more attention 
needed in general basic areas like requirements, what the 
agency needs in its IT skill base, developing inventories of 
its existing skills so that it can do a gap analysis with its 
future needs, developing strategies and implementation plans 
and evaluating progress, or, if you will, the return on human 
capital investment. These basic proactive activities are the 
cornerstone of effective work force management and are used by 
high-performance organizations both in the public and private 
sector. They simply cannot be ignored.
    In line with our suggestions, we are very pleased that in 
the President's fiscal year 2002 management agenda, strategic 
human capital initiative is very prominently featured. OMB is 
asking agencies to take full advantage of existing authorities 
they have at their disposal to better acquire and develop a 
high-quality work force. We're also encouraged that OMB is 
requiring agencies to undertake work force restructuring plans 
designed to help correct skill imbalances. OMB is also asking 
agencies to establish core competency that can be helpful in 
making tradeoffs between internal capacity and skills 
enhancement versus contracted assistance from the private 
sector.
    Judging from the trends alone, it's expected--we are 
expected to have a long-term shortage of IT professionals, and 
it's likely to lead to agencies supplementing their existing 
work forces with external expertise, but as we know, agencies 
still have to have enough of the right people and the right 
positions with the right skills, knowledge and experience to 
manage these often large and complex IT procurement and service 
areas.
    Let me turn to the work completed by NAPA. I must tell you 
that we find a lot of merits in NAPA's identification of 
inherent inadequacies that it's found with the Federal 
Government's human resources management system. We have not 
finished analyzing all of the recommendations, but we do echo 
their call for an increased emphasis on performance and 
competencies. As we note in my statement on pages 11 and 12, 
many of NAPA's recommendations are very consistent with 
suggestions we have made to the Congress and are in sync with 
our own human capital strategies that we have put in place at 
GAO. For example, we've implemented pay for performance. We've 
developed a competency-based employee evaluation system, and 
we've imposed, put in place, senior-level or SES-equivalent 
positions in technical and scientific areas. Many of these 
tools and flexibilities are available to agencies now, and we 
encourage them to take advantage of them.
    Last, let me turn to the challenges that lie ahead. The 
road really to improving human capital management in the 
Federal Government for IT and acquisition management faces many 
significant hurdles. Let me focus on two crucial ones. The 
first is the need for sustained leadership commitment. The 
second is necessary changes in addressing organizational 
culture.
    Sustained commitment from the executive and legislative 
branch leaders, from agency executives, from key players like 
OPM and OMB, and certainly the Congress are very important. 
NAPA recognizes this in its listing of recommendations for 
implementation and has an excellent list of suggestions on how 
these implementation strategies can move forward successfully. 
OPM's key responsibilities in this area are key, and we are 
very encouraged by the progress that OPM has made in taking 
special steps, including salary rates for IT professionals, 
creating new job classifications and establishing a generic 
work force model.
    The second crucial challenge is implementing change and 
change management in light of prevailing culture, and in order 
for any of these reform recommendations to work that we're 
talking about at the hearing today, a culture of hierarchical 
management approaches really needs to yield to partnerial 
approaches. Process-oriented ways of business have to really 
focus on yielding to results-oriented ones, and organizational 
silos have to be integrated. And as we have seen, these efforts 
are doable, and we think they are possible in the Federal 
environments. So we're looking forward to moving these 
initiatives forward and working with you, the subcommittee, and 
with the executive branch in doing so.
    Thank you.
    Mr. Tom Davis of Virginia. Thank you very much.
    [The prepared statement of Mr. McClure follows:]
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    Mr. Tom Davis of Virginia. Mr. Forman.
    Mr. Forman. Good afternoon. Thank you, Mr. Chairman and 
members of the subcommittee. I appreciate the opportunity to 
testify today on the important issue of Federal information 
technology and acquisition work forces.
    Before I get to the substance of my testimony, I need to 
make sure the subcommittee understands that I do not serve in a 
confirmed position within the Office of Management and Budget, 
and as a general policy OMB does not usually send officials in 
nonconfirmed political positions to testify before the 
Congress. However, in this case, because OMB does not yet have 
a Deputy Director for Management, the OMB Director decided it 
was in the best interest of the administration to have me 
appear on his behalf as a witness for this hearing.
    In June, I was appointed the Associate Director for E-
Government and Information Technology. My position was created 
to improve agency use of information technology and E-
government practices. Critical elements for success in that 
effort will be assuring that the Federal Government has an 
effective IT work force.
    It's important to keep in mind, though, that the Federal 
Government is not in the IT industry. Modern IT offers us 
opportunities to improve policymaking, service delivery and 
enforcement of laws and regulations, our lines of business. As 
such, it's important to view the Federal IT work force within 
the context of the Federal Government being the world's largest 
customer of the IT industry.
    The President's management agenda contains five key 
elements: improving financial system performance, competitive 
sourcing, strategic management of human capital, performance-
based budgeting and expanding e-government. As such, management 
of human capital generally, and of the IT work force 
specifically, must be addressed as part of this broader 
management reform framework.
    So let me briefly describe the three elements of the agenda 
that are particularly germane to today's discussion of the 
Federal IT and acquisition work forces, the strategic 
management of human capital, e-government and competitive 
sourcing. First, the strategic management of human capital.
    As part of OMB's efforts to develop the President's fiscal 
year 2003 budget, we've asked agencies for their plans on how 
they are going to strategically realign their work force to 
better accomplish the Federal Government's work. These are not 
plans for counting the numbers of individuals, but rather for 
rethinking the way the agencies operate and the skills and 
expertise that they need to perform effectively and efficiently 
in the future. The plans were due into OMB as part of the 
fiscal year 2003 budget submissions in September. OMB resource 
management offices have been discussing these plans with the 
agencies in the context of the 2003 budget preparation, and I 
should note that we are asking specifically about IT work force 
plans as part of that review. The results of the reviews will 
be evident in the President's fiscal year 2003 budget that will 
be proposed this coming January to help provide flexibility in 
the work force.
    The administration will shortly propose the Freedom to 
Manage Act, which will give Federal managers the ability to 
better manage their organizations. Don Winstead, from the 
Office of Personnel Management will be discussing these 
proposals in his statement.
    The second facet of the President's management reform 
agenda is the e-government initiative, which I lead. We define 
e-government as the use of digital technologies to transform 
operations in a manner that drives significant improvements in 
efficiency, effectiveness and service delivery quality. To 
accomplish this vision, we need to simplify business processes 
to take advantage of technology, and the result will be 
processes that will be faster, cheaper and more efficient.
    We also have to replace legacy islands of automation by 
unifying IT and operations across the silos. Such business 
transformation has become almost routine in industry as well as 
at State, local and foreign governments. Catching up will 
require new and different skills in our IT professionals. At 
the top of my list is the ability to communicate with the line 
program professionals. Other important skills include knowledge 
of enterprise applications such as supply chain management, 
customer relationship management and knowledge management. And 
like all information-intensive industry, we've got a shortage 
of architects, especially those that define the ways we can 
best leverage the emerging information platforms.
    Finally, I believe we need more capability in preparing 
business cases and in managing the projects and the way to 
deliver on those business cases.
    We have a specific committee of the CIO Council, the 
Workforce Committee, to advise us on IT work force issues and 
develop the best practices. Both the Federal contractor, 
Federal and contractor employees, have taken advantage of the 
training that committee prepared under the curriculum of the 
CIO University. And I should note that it is that committee, 
the CIO Council Workforce Committee, that proposed and executed 
the contract with NAPA to perform the study of the Federal IT 
work force.
    Third, competitive sourcing. Numerous IT tasks are 
commercial in nature. Federal work force studies indicate that 
almost 80 percent of the IT jobs are currently performed by 
Federal contractors. Through our competitive sourcing 
initiative, we intend to identify and select the sources, 
public or private, that are best able to perform the mission 
and help the government execute most effectively.
    Let me now turn to the NAPA study. Mr. Winstead will be 
addressing the report in more detail, but let me provide some 
background. The report was developed at the request and with 
the funding of the Federal CIO Council, which I now direct. 
When the study was initially solicited, many Federal agencies 
were having great difficulty recruiting and retaining IT 
professionals. Federal salaries were not competitive, and the 
dot-com boom was in full swing.
    Since then OPM increased starting salaries for IT 
professionals through special pay rates. In addition, the dot-
com boom has waned, and commensurate with that, the demand for 
IT professionals has lessened. CIO Magazine indicates that only 
15 percent of their organizations are having difficulty filling 
IT positions this year as opposed to 74 percent a year ago. 
That said, Computer World reported this week that the decline 
of dot-coms doesn't signal the end of highly competitive 
compensation, say consultants for CIO. Therefore, I believe 
it's very timely for the administration to address the problems 
and for legislation such as the chairman has proposed. And the 
NAPA group report highlights and gives us some serious 
consideration of key recommendations.
    I'd be happy to answer any questions. Thank you.
    Mr. Tom Davis of Virginia. Thank you.
    [The prepared statement of Mr. Forman follows:]
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    Mr. Tom Davis of Virginia. Mr. Winstead.
    Mr. Winstead. Mr. Chairman and members of the subcommittee, 
I appreciate the opportunity to be with you today to comment on 
the findings of the National Academy of Public Administration 
in its recent report on the Federal information technology work 
force. I will keep my remarks brief, but I have a longer 
statement that I would like to submit for the record.
    We at OPM commend NAPA and its study panel for their work 
in producing this report. The report is part of a cooperative 
effort by NAPA, OPM and relevant interagency councils to 
improve the government's ability to attract and keep top-
quality information technology workers. As a part of this joint 
endeavor, OPM promptly took important administrative steps to 
help agencies meet this challenge.
    First, we initiated a study in cooperation with the Chief 
Information Officers Council and the Human Resources Management 
Council aimed at establishing appropriate special salary rates 
for IT positions under existing OPM authority.
    Second, we worked extensively with the CIO Council and the 
human resources management community to update the way IT work 
is classified under the general schedule. These efforts 
resulted in new special salary rates which took effect in 
January of this year. In addition, we issued a new 
classification standard in May.
    Meanwhile, NAPA launched its IT pay study. Early in its 
work, NAPA visited OPM's Strategic Compensation Policy Center 
to gather the results of the center's extensive research into 
job evaluation and pay practices in the private sector and 
other parts of the public sector. OPM's research is the basis 
for ideas that we intend to pursue to modernize Federal 
compensation practices in general.
    NAPA's findings are very consistent with the conclusions we 
are forming about Federal compensation. We agree that the 
Federal compensation system is out of balance with too much 
emphasis on internal equity and too little sensitivity to the 
market. In addition, the contributions IT workers make to 
organizational goals and objectives need to be given more 
weight in the way those employees are paid and rewarded. Of 
course, these observations have resonance for the entire work 
force, not just IT and acquisition employees.
    We appreciate NAPA's acknowledgment that other forms of 
rewards are at least as important as direct and indirect 
compensation for recruiting and especially for retaining IT 
workers. Continual skills development and the quality of the 
work environment, including work/life balance, are extremely 
important factors. The research clearly shows that retaining 
high-performing employees is at least as much a function of how 
they are treated as how they are paid.
    Technical currency and continuous learning are critical to 
the development of the entire Federal work force of the 21st 
century, and especially for the IT work force. OPM has recently 
launched governmentwide implementation of individual learning 
accounts, which will be a powerful tool benefiting both 
agencies and individuals in the development of their IT skills.
    Although we agree with NAPA's findings, we also believe 
these findings are valid for many other occupations in the 
Federal Government. It is important to consider whether the 
systemic flaws that have been identified should be addressed in 
a piecemeal fashion or more comprehensively.
    The administration is developing legislative proposals 
designed to give agencies more flexibility in the way they 
compensate and reward all employees. These include a proposal 
designed to make it easier for Federal agencies to use 
recruitment, relocations and retention bonuses to recruit and 
retain highly qualified employees; a proposal to allow agencies 
to pay the cost of academic degrees and employees' licenses, 
certificates and professional credentials under broader 
conditions than currently; and a proposal to make it easier for 
agencies to use the personnel management demonstration project 
authority in Title 5 U.S. Code. This initiative would create a 
mechanism for making innovations that have been tested 
successfully in one agency available for other agencies to use, 
and it would authorize permanent alternative personnel systems 
to facilitate even more experimentation with new ways to pay 
and reward employees.
    Finally, we are working with Federal agencies to make 
recruitment and hiring more efficient and effective. For 
example, we are conducting pilot projects to replace rigid 
qualification requirements with a competency-based approach to 
hiring.
    In closing, we appreciate the work and findings of NAPA and 
its study panel. We're working hard to address the problems the 
NAPA report highlights by modernizing the government's hiring, 
compensation and reward systems. We look forward to further 
collaboration with NAPA and others in identifying ways to make 
the Federal Government an employer of choice not only for IT 
and acquisition workers, but also for outstanding employees in 
all occupations. I would be happy to respond to any questions 
you have.
    Mr. Tom Davis of Virginia. Thank you very much.
    [The prepared statement of Mr. Winstead follows:]
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    Mr. Tom Davis of Virginia. I think I'll start the 
questioning here. Let me start.
    Mr. McClure, in your statement you characterized Federal 
agencies' efforts to address the IT human capital challenges as 
generally sluggish and challenging. Do you think that the 
recent slowdown in the technology sector is going to help us at 
the Federal level? This is a good time, is it not, to start 
going after some of these people that are out looking for work 
and trying to bring them in? It gives us a unique, maybe a one-
time opportunity. And then, what are the weaknesses of relying 
on this approach? And then I will let everybody answer that 
because I think this goes across the horizon for the fact that 
workers who were out of reach just a year ago; all of a sudden 
some of them are just looking around for something quickly.
    Mr. McClure. Certainly. Two points. I think certainly the 
downturn in the IT market gives us a unique opportunity to 
recruit talent in the government. We've seen our own 
applications at GAO, both for our internal IT operations and 
for our analysts that we use to analyze the Federal Government, 
pick up. And I think it's a positive sign. It is something that 
we have to recognize is perhaps a momentary blip, and we have 
to keep our eyes focused on the long-term expected shortage in 
this area, which no one to date has gone back on the 
projections or forecasts for the expected shortages in the 
area. I think it gives the Federal agencies a unique 
opportunity to ramp up recruitment as well and to capitalize on 
the moment in time.
    One thing that we have to learn in the Federal Government 
is when we bring in folks under these kinds of time periods, 
unlike the past where folks are coming in for career long-term 
careers, these IT specialists might be looking for short, 3 to 
5-year stints for experience, skills, broader opportunities, 
and we have to be able to capitalize on them and use them in 
that capacity in a different way than we have from our mental 
model of the past.
    In general, I think what we found that we'd like to see 
some improvements in the agencies that we've evaluated is a 
lack of recognition of what the skill gaps are. They don't have 
a good understanding of what the existing inventory is of 
skills in place versus what they expect to move toward. In many 
instances, a lot of the Federal agencies are moving toward more 
heavily contracted-out services in this area, which require a 
unique set of contract management, oversight, negotiation and 
relationship-building skills. And that's the area where I 
think, again, we'd like to see the agency doing analytical 
types of work to determine what is the priority skills that 
they're looking for.
    Mr. Tom Davis of Virginia. Would you like to address that, 
Mr. Winstead or Mr. Forman?
    Mr. Winstead. Sure. I agree that this does perhaps provide 
a one-time, perhaps short-term opportunity for the Federal 
Government to be more proactive in recruiting IT employees. And 
in order to facilitate that, I think we would want to encourage 
agencies to make the best use of the flexibilities that are 
already in existence for Federal agencies to recruit and retain 
employees. And we can't--I agree that we can't focus just on 
this short-term opportunity, that we also have to keep our eye 
on the long term, and in the long run we are going to need more 
flexibility and more adaptive systems than we have now to 
compensate employees in this field as well as in other fields.
    Mr. Tom Davis of Virginia. OK. Do you want to add anything 
to that?
    Mr. Forman. Yeah. I have to keep in mind that if the 
studies are correct, 80 percent of the Federal IT work force 
resides in the government IT industry largely in this area. And 
absent very good definition on our skill gaps and workload, I'm 
not sure that we should get into competition as a government 
with some very fine--you know, generally the world's best 
systems integrators that serve us as well.
    I think that there's been a fundamental shift over the last 
2 or 3 years, from the silo-based client server architectures 
to where most of industry has based in network-based computing, 
and we haven't made that shift yet as an organization. There 
are some major business architecture issues we have in the 
Federal Government, and we're working through those. So while 
we have a great opportunity right now, I think it's very 
spotty, and there is a large difficulty to have a big policy.
    I think a lot of this will be worked through via the work 
force plans that the resource management officers are working 
with in the agencies now.
    Mr. Tom Davis of Virginia. OK. Let me go to you again, Dr. 
McClure. You stated that the NAPA concludes that a market-based 
system is needed to develop a quality IT work force. What are 
the advantages and what are the disadvantages of employing that 
approach?
    Mr. McClure. Well, I think really the advantage lies in 
going beyond what I think NAPA correctly characterized as an 
internal equity focus in the Federal Government; that is, 
evaluating on our folks within the confines of their existing 
organization and instead looking at compensation and benefits 
that are being offered in external environments as a basis for 
comparison. In addition to that, I think rolling in this 
contribution equity, which we have been doing in GAO ourselves, 
looking at performance as applies to the outcomes or the 
organization, these are all tangible factors that have to come 
into play into a market-based approach.
    So I think, on balance, this is a movement in the right 
direction, certainly in the IT area where we are in an 
environment of intense competition and one in which we need to, 
again, figure out the skill base that we want to bring into the 
government in this area, same comment that Mr. Forman just 
made, and make sure that we're compensating and rewarding 
people in similar fashions that we see in a competitive 
environment in the commercial sector.
    We're never going to see in totality equal par in public 
and private sector compensation programs, so the other, I 
think, important element to keep in mind are these work/life 
benefits and social benefits that are provided to Federal 
Government employees that go beyond just typical compensation 
programs, and the balancing between those two oftentimes gives 
an advantage to some workers.
    Mr. Tom Davis of Virginia. Let me go to you, Mr. Forman. In 
your testimony, you mention the Freedom to Manage Act that the 
administration will soon be proposing. One of its components is 
expanding the use of demonstration projects to implement 
alternative personnel systems. Demonstration projects have 
worked well with technology workers at NIST and scientists at 
the Navy's China Lake project. What are your views about 
expanding the demonstration project authority to allow for an 
agencywide project that includes maybe pay banding and pay for 
performance?
    Mr. Forman. I'll defer to Mr. Winstead on that.
    Mr. Tom Davis of Virginia. All right.
    Mr. Winstead. I'd be happy to address that. We believe the 
demonstration project authority has been very useful to the 
government over the last 20 years since it was first put into 
place. We've had a lot of experience with demonstration 
projects that have experimented with pay-for-performance ideas 
and performance-oriented pay systems. Right now there are some 
restrictions in the law on the number of demonstration projects 
that can be in place at any one time and the number of 
employees that can be covered by any one such project. There 
are also some provisions in the law that impede the quick 
implementation of a new demonstration project. So as part of 
the President's freedom to management initiative, we expect 
that legislation to include some provisions that would 
eliminate those restrictions and also streamline the process of 
approving new demonstration projects, especially when agencies 
wish to test concepts or innovations that have already been 
well tested in earlier demonstration projects.
    We also believe that it would be desirable to give agencies 
the authority to establish permanent alternative personnel 
systems that make use of some of those well-tested innovations 
that have been in place now in some cases for 20 years.
    Mr. Tom Davis of Virginia. Let me go back to Mr. Forman. 
How does OMB expect the Federal agencies to demonstrate the 
linkage between better work force management practices and 
services being provided to citizens, businesses and governments 
and its own employees?
    Mr. Forman. We've asked agencies to give us their plans 
that will show the strategic realignment for their work force 
and to link that back directly to performance of missions. The 
agencies submitted those early in September as part of the 
budget submissions, and we're now in the process of reviewing 
those plans for that alignment.
    Mr. Tom Davis of Virginia. OK. NAPA indicates that none of 
its recommendations are radical, that almost 80 percent are 
already being done somewhere in government. Given this, what 
does OMB see as reasonable implementation timeframes for some 
of these reforms being instituted on a governmentwide basis?
    Mr. Forman. Well, I think, as Mr. Winstead discussed in his 
testimony, NAPA's examining those--OPM is examining the NAPA 
findings. There are a number of specific legislative proposals, 
some of which I think are part of your legislation. But shortly 
those will be made, I believe, more public as part of the 
freedom to manage legislation. In addition, as we review the 
NAPA recommendations, as part of the bigger governmentwide 
reforms, we're looking not just at what we're doing with the IT 
work force per se, but what we're doing with the business 
architecture, if you will, of the Federal Government.
    A lot of those decisions are going to require some fairly 
major changes in the way the government does business. At the 
heart, I believe, is the notion that we do have a siloed 
organization structure. The e-government initiatives will force 
us to work across those silos, and those will bring different 
management structures to play.
    So it's a little premature to push forward in the broad-
based recommendation until we work through these specifics in 
our budget deliberations with the agencies.
    Mr. Tom Davis of Virginia. My only concern is that, you 
know, sometimes just some of these pilot programs we put 
forward do get a lot of opposition just getting those set up, 
and it just makes the implementation of where we're finally 
going that much further off, at a time when I think we need 
some radical reform in terms of the way that we're dealing with 
IT professionals and recruiting and retaining them. I mean, 
that's the concern, and I understand the problem of moving too 
quickly and maybe doing it wrong.
    Mr. Forman. I understand.
    Mr. Tom Davis of Virginia. You understand the concern?
    Mr. Forman. And I think it's a valid concern, yes.
    Mr. Tom Davis of Virginia. I mean, we are working here with 
government organizations that ought to be applauding this 
because it offers opportunities for increased incentives and 
increased pay for Federal employees. But they are concerned 
about giving it to one group and not to another, and you 
understand the drill.
    So we have homework to do at the legislative end, too, and 
we want to work with you to get this implemented because, 
frankly, people, I think, are going to be more driven to 
government service after, you know, what's happened in the last 
few weeks. They're going to want to help, and we just need to 
make sure that if we can get them to look at the government, 
that we have a package that not only attracts them but can 
retain them and keep them here and give them some satisfaction 
in their work.
    Work satisfaction is a critical area, not just, you know, 
pay and compensation, and one of the difficulties in government 
is we become so regulation-driven, instead of outcome-driven. 
You just don't always see the product of your work.
    So we just have to work through these things, and I applaud 
what everybody said in their testimony in terms of getting 
there. We just want to keep nudging you and encouraging you to 
move ahead and try to give you tools you need at the government 
level to move forward.
    Mr. Winstead. Mr. Chairman, if I could add that the new 
Director of OPM has been in her job now for only a little less 
than 3 months, but she has been very active in pursuing ideas 
for compensation modernization since her arrival. She was 
quoted as saying that Federal compensation systems need 
attention badly, and they need attention now. And she is 
determined to work with the other administration officials to 
develop proposals that we can agree on and move forward with as 
quickly as possible.
    Mr. Tom Davis of Virginia. Right. As you know, Ms. James 
and I go back many years. She was my school board appointee in 
Fairfax County years ago, and we look forward to continuing to 
work with her and you.
    I've got a couple of questions for you while you're on it, 
though. Could you elaborate on the pilot projects that are 
currently under way at OPM for replacing what we called the old 
rigid qualifications requirements for hiring into the Federal 
Government with a competency-based approach?
    Mr. Winstead. Sure. Right now we are conducting pilot 
studies.
    Mr. Tom Davis of Virginia. Let me say before you answer 
that we've had the same problem in procurement when we come out 
sometimes with this long list of qualifications, and, you know, 
it's not education anymore. It's training. It's what can you 
do, not what degrees you have.
    I mean, technology is changing so quickly. Sometimes you 
can't always tell from a sheet of paper what somebody can do. 
And so we're having this problem across government as you talk 
about the old stovepipe, the siloed approach. It's much more 
multidimensional and complicated today. Private sector seems to 
get it. They have to. They're driven by the bottom line. It's 
just harder in government to get there.
    Go ahead. I didn't mean to interrupt you, but it's a 
frustration, I think, that we are all trying to get at.
    Mr. Winstead. You're quite right, and we certainly have 
shared that frustration at OPM. One of the problems with the 
current rigid qualification process is that they tend to focus 
on some very narrow indicators such as years of experience or 
the number of credit hours of education, as you pointed out, or 
degrees. But a competency-based approach looks more at the full 
range of quality and of general and technical education 
experience.
    For example, right now in the IT field, if you were to try 
to hire an individual at the grade 12 level using the current 
or the older qualifications requirements, you would have to 
look to see if the applicant had served for 1 year at the grade 
11 level or equivalent, performing that same kind of work, and 
the qualifications, in fact, are based on time served 
performing the work that's available.
    The difference in a competency-based approach here is that 
assessment tools, such as structured interviews, personal 
interviews, or Web-based interviews or Web-based tests can be 
used to measure an applicant's possession of a certain kind of 
competencies that are required for a particular job in mind. 
And, for example, in the case of IT jobs, the kinds of 
competencies that might be required at the grade 12 level might 
include some general competencies like oral communication and 
problem-solving as well as some more technical competencies 
like network management or software testing and evaluation. And 
the competency-based approach is designed to try to measure the 
individual applicant's ability to possess those kinds of 
competencies rather than just trying to find out how long has 
the individual been working.
    Mr. Tom Davis of Virginia. Right. It's a much more 
subjective standard, though, which, you know, doesn't always 
make policymakers comfortable, but it's something you have got 
to do in the private sector.
    Mr. Winstead. Although in some cases, however, we do 
administer tests. We have Web-based tests that would be more 
objective in nature. Some of these competencies, of course, 
don't lend themselves to that kind of testing.
    Mr. Tom Davis of Virginia. But even once you get them in, 
the fundamental issue after that is constantly training and 
retraining people, because things change very, very quickly. 
Systems, you know, it just changes very quickly. And 
traditionally, when budgets get tight, what's the first thing 
that gets cut. Training.
    It has to have a higher priority. And training is important 
to keep government's competency high, but also for employee job 
satisfaction. You find a lot of correlation between people 
getting trained and updated on the latest and people who are 
stuck kind of in a rut and just seeing jobs going out the door 
and privatized because government won't invest a few dollars in 
retaining some very qualified and knowledgeable people to take 
them to the next level.
    I have long argued that if you're looking at the point of 
view from a Federal employee and Federal employee groups, if 
you want to stop the hemorrhaging and outsources, you have got 
to do more in house, and not just on pay, but on training and 
these other issues. And sometimes the same groups that are 
fighting outsourcing are also fighting some of the reforms you 
need to make within the Civil Service System. And it all goes 
together because at the end of the day, government's 
responsibility is to get the job done and get the best value 
for the lowest cost, and that involves a lot of different 
variables.
    But training is a key component for that. We shouldn't be 
driven by a desire to outsource or a desire to keep in house, 
but by getting it done at the lowest, at the best value for the 
lowest cost. And it's complicated sometimes how you arrive at 
that. It's controversial sometimes how you arrive at that. But 
that's our fiduciary duty to the taxpayers over the long term.
    It just seems to me that the training side in particular, 
we have an opportunity next year that wasn't available to us 
just a year ago, and the key is getting them in here and 
keeping them here, and that means this is an opportunity to 
change the way we're doing things, and we have an opportunity 
with the people that are going out the door to bring in some 
quality people and keep them here if we have our rules and our 
regulations and our policies set in the right way. If we don't, 
as you said, it could be a temporary blip, and they're in and 
then they're back across the street again in 6 months or a year 
when the economy picks up, and we're back to where we were, and 
that doesn't do us any good.
    So that's kind of what I see. I don't know if anybody wants 
to react to that.
    Mr. Forman. Mr. Chairman, if I could a little bit on that, 
what we are finding out in e-government work is that you are 
right on target with it--almost prophetic.
    Mr. Tom Davis of Virginia. Take as much time as you need.
    Mr. Forman. The notion of bringing to government the 
knowledge, management, best practices that you see in many 
commercial firms really comes down to what I would call the 
communities of practice. In most leading companies, some of 
whom will be on this next panel, you see knowledge management 
tools that bring together training, online training techniques 
with the people whose jobs really are changing day in and day 
out, and the communities of practice allow for that training to 
occur.
    Now, what we found out in e-government work that we have 
been doing, perhaps because of all the overlap in the business 
architecture, these communities of practice have been forming, 
some officially, different coordinating committees and some--
because people go to different training sessions and they do 
meet people who do like work. What we're trying to formalize 
with e-government initiatives is developing that aspect of 
human capital. So leveraging the Web, e-training concepts, 
sharing the knowledge, it is incredibly important, especially 
if people are going to move out of the work force, as we have 
seen, over the next few years just based on who is eligible to 
retire.
    And the other thing that goes along with that is this--is 
how kids are coming out of college, graduate school now. They 
are used to operating in these communities of practice. And we 
have to bring that into the Federal Government, especially in 
IT.
    Mr. Tom Davis of Virginia. Let me just throw this out to 
all of you. One thing that occurred to me is we would be happy 
to host, our office along with Mr. Wolf and Moran and Senator 
Warner, something out in the Tysons area at this point where we 
could come out--and government where you need these folks--host 
kind of a job fair in terms of openings and things we might 
have and allow you, the different agencies, to set up and talk 
about some of your plans. And if you would be willing to do 
that, we would be happy to explore that with you.
    For some of our people who are out of work, looking for 
work, and been laid off, this may give them some hope and an 
opportunity to look at government; whereas, otherwise, if you 
don't bring it to them, maybe they think it is too burdensome 
or too regulatory. But this could be a win-win. If you would be 
willing to do that, we will be happy to work with you with on 
it.
    Mr. Winstead. I would be happy to take that recommendation 
back to the director.
    Mr. Forman. And I would be happy to support that and any 
commercial efforts where people coming into government or 
potentially considering serving with a government contractor 
that don't quite yet understand how we are going through a 
revolution, I'd be willing to support that as well.
    Mr. Tom Davis of Virginia. Well, I think people just don't 
want a job now, they are also looking for a career path. And 
right now, one of the problems is you get a job to tide you 
over for a short term, but what is the career path; where are 
you going? And I mean it is not like the old days, where 
somebody maybe comes in and works for 30 years and retires; but 
you want to give them at least the time where they can not only 
get a pay check, but get training where they continue to 
develop themselves professionally. I think that is some of the 
things we are looking at.
    And we have other legislation. As you know, we have other 
issues that we have discussed. Anything else that somebody 
wants to add?
    Mr. Winstead. Let me just mention in the area of training, 
and something that we're excited about at OPM, and that's the 
implementation of individual learning accounts, which I 
mentioned in my testimony. An individual learning account, or 
an ILA, is a specified amount of resources. It's usually a 
combination of dollars or hours or, in some cases, it might be 
certain kinds of access to the Internet or to government 
computers they employ and then can use to guide their own 
learning. And we think this is an important way of helping, 
particularly IT employees.
    Mr. Tom Davis of Virginia. It's almost a benefit package.
    Mr. Winstead. That is correct. Gives them more control over 
their own learning experiences and working in concert with 
their supervisors, we think it is an idea that has a great deal 
of value. And just recently, on September 19th as a matter of 
fact, the director held a satellite broadcast in which she 
announced the implementation of this program on a 
governmentwide basis.
    Mr. Tom Davis of Virginia. Any help we can give in getting 
the word out; or if you need any legislative assistance, we 
would be happy to help. I think those are the things--doing 
things differently that we need as we move forward. Let me say 
to all of you, thank you very much for appearing with us here 
today. As I said before, your total testimony, not just what 
you spoke here, will be entered into the record and we look 
forward to continuing to work with you.
    I'm going to declare about a 2-minute recess while we move 
our next panel up and give you an opportunity to move. And I 
think votes are still a ways off, so we will be able to get 
right on to the next panel.
    [Recess.]
    Mr. Tom Davis of Virginia. Thank you for bearing with me. 
We are debating on the floor, and I was trying to find out how 
long before a vote. And they have the Boehlert-Kind amendment 
to the farm bill is up, and it is a gutting amendment, so there 
is no rule on who can speak. So everybody wants to speak if 
you're from a farm State. And if you're not, you want to stay 
as far away from it.
    But let me swear our next group. And if you would rise with 
me.
    [Witnesses sworn.]
    Mr. Tom Davis of Virginia. We are going to start with the 
gentleman who I have known for many years, who used to work for 
this committee and then went with PRC, a company I was 
affiliated with. In fact, our offices at one point were next 
door to each other. And now he has gone on to fame and fortune 
as the Secretary of Technology in Governor Gilmore's 
administration, Don Upson. And we will move right down the row. 
Don, thanks for coming up here today.

    STATEMENT OF DON UPSON, VIRGINIA SECRETARY OF TECHNOLOGY

    Mr. Upson. Thank you, Mr. Chairman, for the opportunity. I 
hope the testimony that I provide is of some value to the 
committee. What I thought I would do is--I know you asked the 
statements be put in the record and keep our comments to 5 
minutes. So I would like to, if I could make some observations 
about what we went through and what we are going through as a 
State, because we're all in the same boat, trying to build a 
work force to manage one of the largest capital expenses that 
government at all levels has, and that is our Information 
Technology. And I looked at the NAPA report and didn't fully 
appreciate that the Federal compensation system is rooted 
really in the 1940's. Ours in Virginia was rooted basically in 
the 1960's. And neither system as such really reflected the 
Information Age, which hit us in the last 20 years.
    When I was named by Governor Gilmore as Secretary of 
Technology 3\1/2\ years ago, we formed a Council on Technology 
Services that brought the senior managers in technology 
together from every major department and agency in higher 
education and local government. And what we found was that we 
really had a bit of a mess. We weren't able to recruit people 
for ``help desk'' positions because the pay system was too low, 
so we contracted out the most simple positions at rates of 
$80,000, $90,000 and $100,000.
    On the other end of the spectrum, project managers, it was 
believed, from major systems acquisitions had to be government 
employees. Those positions went unfilled. We are hemorrhaging 
millions of dollars in wasted and mismanaged funds, and the 
projects weren't succeeding. They were behind budget or over 
budget and behind school. And we worked together as a 
government, at least in the technology component, on a broader 
initiative to reform compensation. And we did a lot of the 
things that you are talking about now. Or we tried to.
    We put in sign-in bonuses of up to $10,000 and gave 
employees who referred qualified people bonuses of up to 
$1,500. We streamlined 1,650 classes of--classification of 
employees down to 300, 11 of which are Information Technology. 
We are putting in place the telecomputing program. We have 
retention bonuses for up to $10,000; project incentive bonuses 
for up to $10,000; increased leave opportunities.
    But the problem that we found is that when it came time to 
implement those things, unless the money was appropriated, it 
really wasn't used. We have general fund and nongeneral fund 
agencies. The minute we were able to grant $10,000 bonuses to 
keep people retained, our entire Department of Motor Vehicles 
granted them to their entire IT staff, because they are not 
dependent on appropriated funds, which left the haves and have-
nots in government, a situation that we are actually trying to 
deal with now.
    But in terms of managing complex and large projects, one of 
the things we did--and it echoes to what Mark Forman spoke 
about earlier--we actually have brought in some of the most 
qualified people from the private sector to manage our most 
complicated projects, because we simply can't afford to pay the 
people the kinds of money they can make when you manage a 
project of $10, $30, $50 or even $100 million. And private-
public sector cooperation and partnership, I think, is 
important. It is something I know the Federal Government has 
struggled with for a long time and I think you're making great 
progress on.
    Another area I would like to talk about a little bit is the 
area of training. We are trying to put in place programs that 
allow our employees to keep up with the kind of information, 
education, and training they need to meet the changing demands 
of technology. Security--information security obviously is 
really important today, but has become increasingly important. 
It is projected the Deputy National Security Adviser or former 
Deputy National Security Adviser for Infrastructure, Richard 
Clark, projected a shortage of 43,000 information security 
professionals at the Federal level. And we are very pleased in 
Virginia that two of the seven universities designated to train 
information security professionals are--two of those 
universities are in Virginia: George Mason and James Madison 
University. Both have master's programs to put those kinds of 
individuals forward. And the Federal Government is doing a good 
job of providing the students and it is the kinds of incentives 
they need to pursue careers in government.
    On the other hand, when you talk about the shortages of 
employees that we have and that we are facing, it is a trend 
now that we went through in the dot-com phase, and everybody 
was going to be rich and happy and retired at 30. And that did 
go bust. And the other kind of security, job security is cool 
again. And government does offer, we are finding, the 
opportunity for people to come in at early, and even mid-
points, and even senior points, in their career and have 
rewarding careers in technology and technology management if 
the system is structured in a way that gives them the 
flexibility to pursue a career, not in a stratified manner, but 
gives them project management, development opportunities, a 
host of opportunities to pursue.
    Government service, we believe, at least what we are seeing 
in our State in terms of technology positions, we are getting 
more applications, higher-quality applicants to fill the 
positions that we have available, and that is because people 
now have a sense that the security government offers is 
important.
    Two points that you mentioned at the Federal level that I 
have some familiarity with. I am glad to hear that you asked 
the question about China Lake, because China Lake is the 
longest-running pilot project in history. It has been going for 
20 years. And I am glad to hear, Mr. Chairman, that it is your 
intention to take some of the creativity there and move it 
across the spectrum of technology.
    I grew up in China Lake. It is in the middle of nowhere, I 
can say that. It's hot, and in the middle of the Mojave Desert. 
But it shows that you can attract the most qualified people 
when you put in place the compensation and benefits program 
that makes it attractive for them to be there.
    And finally to get a handle on the whole IT management, the 
whole IT work force and the management of that work force and 
who is getting the incentives and where the skills are lacking 
or not, I would like to end by saying that the best way for 
that to occur is for the Congress to adopt your legislation to 
create a Federal CIO, so there is a single point of contact. 
And I am delighted that Mark Forman is the e-government czar. 
I've worked with him for a number of years. He is a terrific 
person. But I think it is still important that you pursue that 
office of Federal CIO, not only for the IT management work 
force, but for those of us in States who have so many issues 
that intersect with the Federal Government. So I would like to 
throw a plug in for that as well. And with that, I conclude my 
remarks.
    [The prepared statement of Mr. Upson follows:]
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    Mr. Tom Davis of Virginia. Mr. Amler.

STATEMENT OF ARTHUR AMLER, DIRECTOR, EMPLOYEE COMPENSATION, IBM

    Mr. Amler. Good afternoon, Chairman Davis, and members of 
the subcommittee. I am Art Amler, Director of Employee 
Compensation for IBM. I am here today on behalf of the 
Information Technology Association of America, which provides 
global public policy and national leadership for the IT 
industry. Thank you again for inviting me here to talk about 
the potential to transform the Federal Government in a way that 
would attract, motivate, and retain modern Information 
Technology workers.
    First off, let me say that IBM concurs with the NAPA study. 
Many of its recommendations are mirrored in our own story and 
experience. In the next few minutes, I would like to talk about 
that this afternoon. Let me say IBM's ability to stay in the 
forefront of our industry has two fundamental roots: our 
technology and our people. Attracting and keeping the best 
technology workers has many angles, as I'm sure you appreciate.
    And let us talk about scope on that. One of those angles is 
the breadth of the skills required. Government is the largest 
IT customer. However, its core competency is delivering 
constituent services, generally not creating IT technologies. 
Government participates in the market for IT skills like many 
other IT customers. And generally the focus here is to maximize 
the skills of people who apply IT solutions so agencies can 
achieve their missions. IT professionals tell us the 
compensation is not the only factor in where they choose to 
work; but make no mistake, get the compensation wrong and you 
won't get your foot in the door. Compensation has become a 
given in the market for these skills.
    Now, can the Federal Government deal effectively with its 
impending brain drain? Can the Federal Government be an 
attractive place for the 21st century IT worker? Absolutely. 
Our experience tells us that it takes understanding the 
expectations and needs of the workers, knowing the marketplace, 
and a willingness to implement.
    For IBM, the question of instituting the market-based pay 
system was not ``can we'' but ``how will we'' the biggest 
single factor that allowed IBM to transform its compensation 
programs was the top-down commitment and drive from senior 
management.
    The IBM journey took several steps to get it to its current 
compensation platform. Quickly, I will tell you about those.
    First, we focused on classification, moving to 
broadbanding, just have 10 job bands and job families. One 
result was that we reduced bureaucracy. Let me give you an 
example of that. We had 3,000 job descriptions. After we did 
the classification, we went down to about 1,000.
    Second, we focused on a common pay increase date. It gives 
managers an effective and efficient way to look across at all 
of their employees at the same time to ensure pay decisions are 
consistent in approach and standards. Using our e-business 
solutions, we added an online tool and process. This meant that 
each manager, at their desk top, received a salary budget; 
individual employee information such as salary and performance 
information and history; and, most critically, how each 
employee's salary compares to the marketplace. This added 
objectivity, credibility, and focus in the process.
    Third, we instituted pay differentiation to help managers 
refocus on their best employees first. This became our byword, 
one that our chairman often liked to talk about; in order for 
us to be successful, we had to pay our best like the best in 
the market.
    This journey began in 1996-1997, and these three phases 
were completed in 1999. In the United States today, we plan 
150,000 employee increases in a 3-week period in March, 
communicate the decisions to each employee by April, and 
increases become effective on May 1.
    Another component in retaining IT skills is what we call 
the dual ladder. It allows our people with technical skills to 
achieve the highest levels in the pay structure, without being 
forced into management where they may not perform as well and 
further drain key technical talent.
    Change is never easy. The same applies when restructuring 
the pay system to put a premium on performance. You don't need 
to pay the most, offer large wealth accumulation schemes, or 
even the highest benefits.
    A clear case can be made why someone should choose a career 
with the Federal Government as long as some of the very basic 
realities are addressed from the start. As I said up front, pay 
is only one element in a competitive package. Just as the 
private sector is quickly learning, the extent to which 
worklife options can be improved will make the government a 
more attractive employer. Worklife flexibility is one of the 
biggest issues for the modern work force and can make all the 
difference regarding employer choice.
    With the IT worker, continuing education and skill 
development can't be overplayed. Organizations that ignore 
development because of costs will most likely face the much 
higher cost of replacement.
    Any transition to a market-based pay for performance 
compensation and human resource management plan needs to be 
well understood. You need to establish the imperative for the 
transition. And actually this should be obvious, given the 
reality of competing in a wide field for a limited supply of 
technology workers. Also, managers need to be on board, 
committed, and clear as they begin implementation.
    We believe implementation will reap numerous rewards in the 
skills and quality of workers you'll get to pursue your 
mission. Compensation is just one element to attracting, 
motivating, and retaining the skilled work force, but getting 
it right is critical to having a solid foundation. Combine that 
with the nature of the work, the work environment, a commitment 
to continuous learning and flexibility, and the government will 
have an extremely strong package.
    Mr. Chairman, thank you very much for having me here today, 
and please enter my written statement into the record.
    [The prepared statement of Mr. Amler follows:]
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   STATEMENT OF JEAN BADERSCHNEIDER, VICE PRESIDENT, GLOBAL 
          PROCUREMENT, EXXONMOBIL GLOBAL SERVICES CO.

    Ms. Baderschneider. Mr. Chairman, looks like we're shifting 
gears here. I am Jean Baderschneider, vice president for 
procurement for ExxonMobil Corp. The scope of my responsibility 
covers all third-party spend for ExxonMobil worldwide. In 
addition, to sourcing and day-to-day procurement services, I 
also have responsibility for all warehouse operations and 
accounts payables.
    Basically what we did is we integrated the entire Purchase-
to-Pay process in one global organization. We have got 4,000 
procurement employees located in 190 countries, which adds a 
special dimension. We are located everywhere we do business.
    I know the committee members are aware of the dramatic 
changes in recent years in both the function and business 
expectations of the procurement process. I have in my office a 
little cartoon. And the first frame of the cartoon has the door 
in a dingy basement with a light bulb that says ``Purchasing.'' 
And the second frame of the cartoon, the door is open and it 
says, ``Procurement's moved upstairs.'' And I think that's the 
case over the last 10 years. It is front and center on both 
efficiency and effectiveness in corporations.
    Recognizing this, we created a global procurement 
organization with a goal to fully optimize the entire 
acquisition supply chain through strategic sourcing practices 
and gain operating efficiencies--cost reductions--through full 
integration of the Purchase-to-Pay process. Let me just add 
here, we staffed it with high potential line, business, and 
financial managers. In my 16 direct reports, virtually no one 
was just experienced in procurement. Everyone came from other 
functions. And clearly, implications for recruiting, career 
development, and salaries as a result of it.
    Our mission was to provide break-through cost reductions 
and value generation opportunities that to date have totaled in 
the billions, with a ``b.''
    In the last decade, there has been a general movement away 
from traditional bidding--I think you are aware of that--to a 
commercial focus on lowering total system costs. This has 
involved developing and implementing a new business process 
called ``strategic sourcing,'' which is really a systematic, 
quantitative, rigorous framework through which we analyze the 
drivers of TSC. And TSC extends well beyond just price margin 
considerations to vendor supply chain as well as ExxonMobil's 
internal business and operating processes.
    Consequently, many of the recommendations we get involved 
in go well beyond just price issues. They get into things like 
maintenance and installation protocols, inventory management 
planning. All it takes is for you to sit down once and look 
through one of the initiatives to know that you need people 
with very different skill sets than in the past.
    With regard to services, we use strategic sourcing to 
create a new approach called ``value-based costing,'' where we 
have moved away from time and materials to evaluating services 
by the unit of value delivered rather than the traditional 
focus on unit of time. To take scaffolding, for instance, which 
is a very easy and concrete example, we moved to dollars per 
foot rather than time and materials. With those changes, we 
ripped tremendous costs out of our operating locations.
    Last November, GAO contacted us about coming and talking to 
us with regards to what we do. We spent a day with them 
outlining the various approaches to sourcing that we have. In 
addition to sourcing-related savings and value, procurements 
knee deep in stewarding, major efficiency improvements, and 
day-to-day transactional processing as well, a key component of 
radically--and I use that word decidedly--lowering costs is 
implementing systems to digitize most of the procurement 
processes.
    Now with all these changes, we had to look to new 
competencies. And yes, we do use competency components to our 
recruiting and skills to match the new roles and 
responsibilities. On the one hand, we needed to maintain 
fundamental skills like negotiating skills, commercial acumen, 
contracting capabilities, relationship management, etc. On the 
other hand, we needed to aggressively recruit, internally as 
well as externally, professionals with strong financial, 
analytical, conceptual, quantitative, general management 
skills, significant line experience and the capability to fully 
utilize technology.
    And making the change is a major transformation, and it is 
extremely difficult to do that. Consequently, procurement has 
become a key entry point in the corporation for MBAs as well as 
experienced business line officials such as engineers, which 
means salaries are driven in the upward direction 
substantially.
    Once you get these folks in place, training is key. We 
found that we didn't have the training available in terms of 
content or rigor that we needed. So consequently, we created 
our own training programs. And, of course, as you've already 
heard here, the key here is to stay the course and having the 
discipline to actually execute and run most of your employees 
through training.
    It is often key that salaries for professional procurement 
professionals meet external competition and match salary levels 
in the business lines to ensure easy career development 
exchanges between procurement and the business units. In 
addition, salaries need to change according to an overall pay-
for-performance program built on the basic tenet that employees 
progress in career and salary based on performance. And given 
the scope and scale of the responsibility we now have in 
procurement, our positions extend to the very senior executive 
levels in the corporation as well.
    In conclusion, procurement is a key business function, with 
key performance expectations built into the corporate financial 
plan, and I am held accountable for those. We steward a number 
of processes that can create competitive advantage, but the key 
is having a skilled work force with the kind of backgrounds 
that I just outlined, aggressive training, and the ability to 
fully exploit all new technology and existing processes. Thank 
you.
    Mr. Tom Davis of Virginia. Thank you very much.
    [The prepared statement of Ms. Baderschneider follows:]
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    Mr. Tom Davis of Virginia. Mr. Toregas.

 STATEMENT OF COSTIS TOREGAS, PRESIDENT, PUBLIC TECHNOLOGY INC.

    Mr. Toregas. Mr. Chairman, thank you very much. Congressman 
Turner, Congressman Horn, members of the committee. The 
National Academy of Public Administration appreciates very much 
the opportunity to be here to discuss the recently issued 
report that transformed hardened Information Technology. Many 
of the witnesses at this table and at the table before have 
referred to it. I thought I would show you a copy of it to make 
sure--and I would hope it is entered into the record along with 
my written testimony. It is a research outcome that took about 
a year to conduct.
    And I wanted to take just a minute to describe NAPA for 
you. A lot of people spoke about NAPA. National Academy of 
Public Administration is an independent nonprofit organization 
chartered by you, the Congress, to assist Federal, State, and 
local governments in improving effectiveness, efficiency, and 
accountability. It has worked for more than 30 years to meet 
the challenge of cultivating this excellence in public 
management. We have a membership of more than 500 Fellows, 
including former and current Members of Congress, including a 
member of this very committee here; Cabinet-level appointees; 
senior Federal, State and local executives; private sector 
executives; nonprofit leaders and scholars.
    The hallmark of our Academy work is total independence of 
its research, its analysis, and our recommendations. We 
received the mandate from the Council of Chief Information 
Officers and also the Administrative Office of the U.S. Courts 
to look at alternative compensation systems, and I was 
privileged to be the chair of the Academy panel of Fellows that 
provided oversight and direction for this effort. We had eight 
distinguished individuals. You on this council here have met 
Martin Faga, the president of Mitre Corp., who appeared before 
this committee on July 31st to share the research done on the 
study. So I will not cover the research results, because Martin 
Faga has done an excellent job of summarizing those on July 
31st.
    What I do want to do is I want to very quickly highlight 
the outcomes. And I am very happy to have heard from the 
previous witnesses expressed support for those recommendations.
    The first one, the most important perhaps, is that we 
recommend that in order to address a market-based problem, we 
have to deal with a market-based solution. Think of it. We 
spend as a Nation $45 billion on Information Technology. And it 
is about time we maximize the performance of that $45 billion 
investment by having qualified, competent, and strong IT 
professionals to do that management. The pay increases have to 
be linked to competency and results, not time on the job.
    The pay system would have four levels: entry, 
developmental, full performance, and expert. And it would have 
a dual track where technology managers would exist side by side 
with general managers. The new system would balance three 
dimensions of equity--and you heard a prior speaker say this--
internal equity, which means how does my job compare with other 
jobs within the agency. But there are two other kinds of 
equity: external equity, how does my job compare to jobs in 
private industry, to jobs in academia? That's external equity. 
And then, most importantly, contribution equity. Not how does 
my job do it, but how am I doing on the job? It's that internal 
contribution equity that is so vital to bring to the floor 
along with internal and external equity arguments.
    The Federal Government can make maximum use of our worklife 
programs, excellent programs that offer Federal agencies a true 
competitive edge.
    Continuous learning, we have already heard about it, I 
won't belabor the point--very important--mentoring, coaching 
and so on.
    Management ownership, buy-in participation is important. 
Anytime you talk about pay-for-performance, you have to make 
tough decisions, and that requires strongly trained managers. 
We have to give our managers the necessary tools to support 
them in their decisionmaking.
    We also looked at the costs, and looking into the future, 
we think over a 10-year horizon, the return on investment is 
solid.
    Most of these recommendations, Mr. Chairman, and the 
related components that we have described are already in place 
somewhere in the Federal Government. Let me say, in a different 
way, all that the NAPA study is doing is saying that it's time 
to assemble best practices for the Federal Government. It's 
time to assemble experiences from demonstration programs and 
then to implement them aggressively, and hopefully with good 
results, quickly.
    These recommendations are unique in that they focus on a 
particular occupation group and they give all agencies 
management tools that are now restricted to only a few 
agencies.
    The recommendations also offer the Federal Government the 
opportunity to attract and retain a well qualified Information 
Technology work force that can produce maximum benefit for the 
dollars invested.
    Mr. Chairman, I wanted to also respond to your idea about 
maybe hosting something in Fairfax and talking about the 
excitement and opportunities for Federal employment. What you 
have introduced into the dialog is a very creative, different 
idea. Instead of attacking issues at governmental agency 
levels, perhaps we also ought to think geographically and to 
think about IT professionals in a certain geography, whether it 
is Fairfax County or any other counties in the States, and 
think about how can we help the private sector, Federal 
Government, State government, local government. And I should 
say that many of the recommendations in this report reflect 
excellent States'--like Secretary Upson's State of Virginia--
and many fine local government experiences. We were able to 
aggregate these.
    I think the time has come for some creative movement 
forward. I was very happy to hear both from OPM, OMB, and GAO 
that they are giving an endorsement in support of the 
recommendations. So it is now up to us, to all of us, to engage 
in a dialog and find some constructive way to move the 
recommendations to action.
    Mr. Chairman, this completes my testimony and I am 
available to answer any questions you may have.
    [The prepared statement of Mr. Toregas follows:]
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    Mr. Tom Davis of Virginia. I thank all of you very much. 
And let me go back and start with Don Upson and I am going to 
move down. I have a few questions for everybody.
    Don, those $10,000 bonuses, how was that received by other 
people who were already employed by the State? Were they 
looking for $10,000 to re-up or anything, and what kind of 
implementation problems do you have on that?
    Mr. Upson. The obvious ones; that everybody's job was as 
important as Information Technology and shouldn't they get that 
right, too. So, in fact, it was expanded across other 
categories. The truth is, the only people who could really use 
those bonuses were the nongeneral fund agencies. And so as good 
as it sounds--and the point I would like to leave you with is 
that unless the funds are appropriated and there is some meat 
put on that, it doesn't work as well as we had expected it to. 
And the Department of Motor Vehicles, they stuck to it, they 
defended it. And as a result, I can tell you that they have got 
the best technology--and not necessarily as a result--but they 
are the best compensated. They have the best package and the 
best incentives; and, as a result, they have got the best 
technology managers in our government.
    Mr. Tom Davis of Virginia. And it runs pretty efficiently 
compared to most places.
    You talked about the NAPA reforms being by themselves 
incapable of addressing the long-term IT dilemma for the 
Federal Government. Can you elaborate on that? In the written 
remarks, the NAPA reforms by themselves don't address the long-
term IT dilemma.
    Mr. Upson. The long-term IT dilemma--and I go back to it--
and I am not sure where in the remarks I said that, but one of 
the points I wanted to make as I listened to all this stuff and 
the reports and all the objective criteria for putting out--
putting together a compensation package, I think back to when 
we were at PRC; Cora Carmody was the CIO, and she reported to 
the chairman and she had a mission that was central--not only 
central to the mission, but the IT managers knew it was central 
and they knew that the President thought it was central. And I 
go back to the point that the leadership and the management--
again that's in the bill that you have proposed to create a 
CIO--has an effect on the quality of the work force because it 
has an effect on how they feel about the jobs they do.
    In Virginia, the fact that there is a Secretary of 
Technology--soon there will be another one--that has an impact 
on how people feel about their jobs. But the private sector, 
the technology professionals, have a sense of mission and they 
know that the people at the top think it is important.
    Mr. Tom Davis of Virginia. In Virginia, you took about 
1,650 old job classifications and moved them into 300 
categories. And I assume the private companies, you did the 
same kind of thing. You just had to look and reclassify 
everything in line with the new reality. How did that work?
    Mr. Upson. For us? It works much better. It gives more 
flexibility to the managers. At least in terms of technology it 
works much better. We brought ours down to 11. It gives more 
flexibility to the managers. When you add that with our new 
philosophy and strategy of incorporating private sector 
employees, where we can't hire and we are not able to attract 
the right kinds of people but they work side by side, the 
strategies work very well in some key areas like the Department 
of Health and Department of Social Services that, frankly, get 
tens of million dollars every year from the Federal Government 
to administer these systems.
    So giving both the managers and the employees greater 
flexibility was our goal, and we found that it has worked very 
well, very fast.
    Mr. Tom Davis of Virginia. You know, outsourcing, at least 
up here, is controversial. And in Virginia you did more of it. 
But you could take things in-house. I mean, you have worked 
both in government and outside of government for a contractor. 
What are your general thoughts on that?
    Mr. Upson. My general thoughts are that it is so 
refreshing--State government--because of that lack of fear of 
outsourcing; the fact that we can have a Department of Tax 
Modernization system in Virginia, where we have 60 private 
sector employees working side by side public sector employees. 
But ours is a little bit of a hybrid of both. We are bringing 
them in. They are training. And they are modernizing the 
system. They get to recoup a share of the profits over a 6-year 
period. And then they go away and the jobs go back to public 
employee jobs.
    Mr. Tom Davis of Virginia. And that's almost like a share-
in-savings contract?
    Mr. Upson. That's exactly right.
    Mr. Tom Davis of Virginia. Which we are trying to allow 
more of at the Federal level and encourage it.
    Mr. Upson. And it is good. I think the model that we've got 
a little bit, it's the best of both worlds. You get the private 
sector to come in, but you're not really a threat to the 
employees. They're going to train them and give them the best 
stuff.
    Mr. Toregas. Mr. Chairman, could I piggyback on that for 
just a second? In our study in NAPA, we looked at outsourcing 
and we came up with a number that has surprised a few people on 
outsourcing. We found that in 2001, this current year, when all 
was said and done, about 70 cents on the Federal IT dollar will 
have been spent with private contractors. That's a very high 
number.
    The question that arose on the panel dialog about this high 
number is, does the Federal Government have the IT management 
skills to oversee the expenditure of the 70 cents on the 
dollar? So it was an unusual number. I would have guessed, if 
somebody had asked me, I would have guessed a lower number. And 
it is 70 percent.
    Mr. Tom Davis of Virginia. And I think we can agree. I 
mean, government has within its employ some of the most capable 
people around; but if you aren't constantly retraining them, 
you almost force yourself into a situation--I mean, we have 
really gotten lax on some of the training needs. And some of it 
gets down to times when budgets were cut and the first thing 
that gets taken off is training. Training has to take priority 
if you want to have an effective management and IT force.
    Let me move to Mr. Amler, just going down the line. The 
NAPA study reports that while no governmentwide data is 
available on training budgets, that the Department of Treasury 
in 1998 spent only 1.5 percent of its IT payroll on the 
development of IT staff. NAPA contrasts this finding with the 
4.39 percent of payroll, almost three times as much, spent by 
their leading-edge IT companies on training.
    Goes back to the point I was just making. Can you comment 
how much is spent by IBM, by companies within ITAA, on training 
and development of IT staff?
    Mr. Amler. Yes, Mr. Chairman. That number 4.39, although 
that is a level of precision, that may be give or take. You are 
somewhere right. From our perspective, 4 to 5 percent. If you 
look at IBM in terms of its employees, many types of employees, 
also nontechnical, we may run a little higher because of the 
fact that we do invest as much in technical training. But 5 
percent, 4 percent, in that range, is about what we are seeing 
and what I believe is out there. So we believe that it is very, 
very important to have that level of commitment.
    I was just on the phone with some of our people in the 
training area and we have, just to go to your remarks about 
cost cutting, we have a commitment where even though we are 
doing a lot of belt-tightening here at IBM, you have to 
understand we are really focusing still on training our people, 
even in this environment. So that tells you about the 
commitment we are trying to make even in an economy that has 
uncertainties.
    We think it is, by the way, also a key motivator, as you 
mentioned. There is nothing like having availability of 
training programs to upgrade yourself, and also degree programs 
that you can avail yourselves, which can be reimbursed by the 
business to enhance your skills, to move ahead for your career, 
to get a degree. It is attractive for young professionals, 
bachelors who want to go for a master's. From my standpoint, it 
has been a key retention tool for us.
    Mr. Tom Davis of Virginia. And one of the saddest things 
is, within government I have known some of the smartest, most 
dedicated, loyal, hardworking people you find; but you don't 
give them the training and it goes out the door. And it is our 
loss, and we have to wake up. And what you are saying is that 
the private sector is spending roughly three times as much on 
training.
    Ms. Baderschneider. Mr. Chairman, just on that particular 
question. I do believe training budgets are only one element 
that you need to look at. I've got $400 million operating 
expenditure. I only spend $2 million direct costs on training. 
And--but, in fact, we run almost everybody through massive 
training programs. And we do train the trainers and we 
integrate the training process into everyone's job. So the 
people who actually do the training are folks that are doing 
the jobs. It is a pretty rigorous training program as well. In 
addition, then, we supplement it with rotations and exchanges 
and other things. I think the point is, you get the training 
budget but you don't necessarily get the whole thing you are 
looking for.
    Mr. Tom Davis of Virginia. Again, Mr. Amler, one of the 
NAPA findings is that individuals are turned off about 
government service getting bogged down in process rather than 
focusing on the completion of projects. What are your views on 
the importance of rewards for good performance, such as when an 
employee accomplishes a project goal, maybe under budget, ahead 
of time or whatever, and what kind of reward system does IBM 
implement?
    Mr. Amler. I think it is one of the key motivators for a 
person who is looking to excel for the business, excel for 
themselves, that they know that if they produce for the 
business, that they don't have to wait for a year or 2 years, 3 
years, to be promoted or to get an increase that looks like a 
promotion increase.
    By going to the broadbanding approach, what we are able to 
do is get to our top people who have been driving performance 
for our business and give them much more significant increases 
than either the OK performer or the performer who wasn't 
performing as well. And that was a tremendous motivator, that 
we recognized a difference to that person who was stretching, 
trying to make the organization more successful, and we didn't 
necessarily have to promote that person, although we do promote 
people in a 10-band system. But that they could see very timely 
increases that were significant increases, that only they saw 
years gone by if you were promoted.
    So that is the kind of reward system that people now expect 
if they really stretch themselves.
    Mr. Tom Davis of Virginia. Let me ask this, too. And Don, 
we had these same kind of problems at PRC. Sometimes the 
people, if you are not in management but you are technically 
very competent, a lot of times in government, the tendency is 
you reward people as they go up the management ladder. But some 
of the best technically competent people who are just wizards 
in the back room or with a computer, they are not managers and 
you don't want them to be managers. We found the guys who could 
make the sale couldn't manage it.
    How do you handle that in terms of compensation? That is a 
huge problem for government, because we reward--not everything, 
but a lot of our reward system is based on managing people.
    Mr. Amler. I think it is well called out in the NAPA study 
as one of the critical problems. I think the way we break it 
down in IBM is there are two ways to exhibit leadership in IBM. 
One is technical leadership and one is business leadership, and 
reward people for both. And they can achieve to the highest 
band in both. They can stay as an engineer all the way to the 
highest bands, right through into the executive bands, and need 
not go into management.
    What is the problem here is that some of your best people, 
you're trying to keep them happy, and perhaps the best way to 
get them more pay is put them into a management job so they can 
get more pay, and you're going to drain your key technical 
people. And that person who goes into the management job may 
not be the right person for management. So what you have done 
is you hurt yourself with good technical drain--draining your 
good technical people, and you may not have made a very good 
manager in the process.
    So that is why we go with the dual ladder approach. And we 
have been successful in keeping people happy, motivated, and 
with a sense of opportunity no matter how they feel about the 
business, whether they want to stay in technology or go into 
management.
    Mr. Tom Davis of Virginia. Just one last question. It took 
IBM 3 years to fully implement the changes that you outline in 
your statement. What is a reasonable timeframe do you think for 
Federal departments to implement some of these NAPA reforms?
    Mr. Amler. I think it can be accomplished if there is the 
sense of urgency and commitment from the top team here in a 
similar time period. We are dealing at IBM in the United States 
alone with 150,000 employees--in just the United States--
300,000 worldwide. And think about it. We went to a broadband 
system as a first step in the first year, and we are able to 
accomplish that. That required the real big assistance of your 
management team to help map people into that kind of 
classification system.
    Mr. Tom Davis of Virginia. But to do that you really need 
the vision of this as what we are going to implement, not the 
pilot program and the following up. It is just a huge 
difference in time in terms of getting this up and running.
    Mr. Amler. Right. We didn't think it could be done as 
quickly, but we had a big commitment from top management to 
make it happen and it has worked out quite well in terms of the 
transition. If it takes government 4 years or maybe 3 years, 
you know, the point is to start. And the idea is to look at it 
in phases.
    And the other recommendation I'd give you is that it's not 
necessary to have every agency participate in year one, but 
they transition to that perhaps year 2 or year 3 and so you're 
done in a 3-year period.
    Mr. Tom Davis of Virginia. Ms. Baderschneider, you talked 
about total system costs, strategic sourcing, you know, value-
based costing. How can these impact the Federal Government? And 
what I want to ask is, how exploitable are these concepts of 
total costs of strategic sourcing, value based costing to the 
government?
    Ms. Baderschneider. I think anytime you have a supply chain 
on anything, they are importable. You can bring them in and you 
can make them work. And I looked real quickly at a document 
that the GAO left with us in November about the $90 billion 
spent on services, and I looked across at equipment, 
maintenance, construction, all the different areas that are 
large chunks of the spend. You can take TSC and do commodity 
assessment; that will get you very different answers than just 
a price equation in all those areas. The key, though, is 
whether or not you get the skills and you've got the breadth of 
coverage, because you've got to be able to cover your entire 
supply chain. Do you coordinate across a wide enough breadth, 
which are often not just lowest price, but a process or 
planning related as well. So I think they are importable.
    I made a note to go back and call the GAO folks and say, 
you had a whole day with us, did you do anything with it? I 
would like to find out whether they were able to do anything. 
And I talked to Dee Lee a couple of times, and her frustration 
in trying to import some of these same kinds of processes. They 
are doable, but you've got a skills issue.
    Mr. Tom Davis of Virginia. Remember this. In the private 
sector, you get rewarded for a fast, quick decision behind 
closed doors. In government, the process--everything is open. 
It's process-oriented. Takes a long time. I mean, we spend a 
lot of time on process and procedure in government because we 
want it open and want to keep people in government from 
stealing money. And we do a pretty good job of that. But they 
can't do much of anything else either. And that's one of the 
problems, is that there is a tradeoff here in finding the right 
balance.
    Now if you know what you want to do, can you move quickly? 
You can. But there is always a tentativeness.
    Ms. Baderschneider. The only thing, though, is what TSC 
does, it gives you transparency on the cost drivers. I sit 
oftentimes in a political mess with chemicals, production, 
refining, development, and they all don't want to relate. But 
once you've got transparency on this is what it's going to take 
and this is what it's costing you, that can drive a lot. So I 
do still think that TSC offers a great way to put a window on 
your cost drivers.
    Mr. Tom Davis of Virginia. You also mentioned that 
procurements become a key entry point in the corporation for 
new MBAs. As the Federal Government sees more and more of its 
experienced acquisition professionals retiring, are the skill 
sets that are inherent in an MBA something that the government 
will both need to seek out and to immediately train for its 
efforts to replace the retiring work force?
    Ms. Baderschneider. Yes, I do. But it's not an MBA. That is 
more a symbol of analytical, conceptual competencies that you 
can't go out and develop, and then a framework that you can 
develop. So I think the ability to do financial planning and 
assessment, having the analytical skills that allow you to use 
technology and relate technology to your business processes, 
all of those things, I think the answer is yes.
    I tell you, the other groups--undergraduate physics, math--
we have had great luck--I know you are grimacing back there. We 
have had great luck with people with quantity backgrounds 
because it teaches them a mindset to conceptualize problems in 
a different way, in addition to influencing skills, team 
building, project management.
    Mr. Tom Davis of Virginia. I would like to tell a story 
about it. Today a graduate with a degree in science asks: Why 
does it work? A graduate with a degree in engineering asks: How 
does it work? A graduate with a degree in accounting asks: How 
much does it cost? And a graduate with a degree in liberal arts 
asks: Do you want fries with that?
    When you talk about the total skill on that, I have one 
other question. Based on your corporate experience, do you 
think there are core IT skill areas in government, just as in 
your own organization, that are not candidates for private 
sector outsourcing?
    Ms. Baderschneider. Two or 3 years ago, I would have said 
yes. I don't think that's the case today. I think there are 
companies that can do almost anything: software, hardware, 
telecom, networking; you name it, it can be done.
    I think the bigger issue is whether outsourcing works or 
not and how you structure it, because most outsourcing fails 
unless you have the right kind of interfaces, unless you 
maintain some kind of core capabilities to manage it. Most 
outsourcing is abdication. It's ``get it out of here,'' and it 
hasn't been reengineered. You don't have KPIs or key 
performance indicators to make sure your costs don't go through 
the roof.
    I think all that stuff can be outsourced, but it is how you 
do it. And I haven't seen too many examples of good 
outsourcing.
    Mr. Tom Davis of Virginia. Mr. Toregas, let me ask you a 
few questions. During the research phase of the study, NAPA had 
the participation of more than 30 agencies. What participation 
was there by Federal agencies in the evaluation and report 
stages?
    Mr. Toregas. We had developed a leadership council to 
support the deliberations of the panel and the staff work. And 
there were several agencies that constantly kept contributing 
after the research stage, all the way up to helping us evaluate 
the alternatives.
    In addition, we had representatives from the private sector 
and ultimately from IBM, was one of the key providers of 
expertise from private industry. So what we tried to do, once 
we finished the research stage and went into the developmental 
alternatives in creation of a key choice, was to continue that 
dialog, but not at the entire developmental level but through a 
leadership council that we organized.
    Mr. Tom Davis of Virginia. Now, OPM has said that its 
ongoing efforts to increase pay flexibility, such as increasing 
demonstration project authority, doing pilot projects for a 
compentency-based hiring and so on, hold a lot of potential for 
making the Federal Government more attractive to prospective 
employees. Given the number of reform efforts that are underway 
already by OPM, you still recommend implementing and 
legislating for market-based pay-for-performance and pay 
banding approaches of NAPA?
    Mr. Toregas. Yes. The two statements are not contradictory 
at all. I think what OPM is finding is good success. And what 
we're saying is let's go. Instead of demonstrating or piloting, 
the time has come to actually step to the plate and implement 
it. So we are mutually supportive of one another.
    Mr. Tom Davis of Virginia. What can Congress do to help 
promote this?
    Mr. Toregas. I think you hold the power of persuasion. You 
create laws, you create direction to the administration in 
various key areas, and you give the platform for action. The 
difficulty for this particular area is there is no one single 
stakeholder.
    As you can well appreciate, Mr. Chairman, there are many 
stakeholders in this complicated area. And it is very difficult 
to conceptualize where you can sit at a table and dialog and 
discuss. And I think this very hearing is a good example where 
you have had industry, State, local governments, private sector 
representatives and you have had Federal agencies all beginning 
to dialog about the elements of the NAPA report that should 
move forward toward implementation.
    So I think perhaps as you move forward, you conceptualize 
the bills that can give Congress the authority and the 
administration some direction in which way to go. I think it is 
an excellent first step. And NAPA, I should say the National 
Academy, stands ready to help you in that effort.
    Mr. Tom Davis of Virginia. Anything else anyone wants to 
add? Let me just say before we close, I want to take a moment 
to thank everyone for attending the subcommittee's important 
legislative hearing today. I want to thank our witnesses, 
Congressman Turner and Representative Horn, and I want to thank 
my staff for organizing this. I think it has been very 
productive.
    I am going to enter into the record at this point the 
briefing memo distributed to subcommittee members.
    The record is open for 2 weeks if anything occurs to you 
that maybe you didn't put in and you want to get into the 
record. And thank you very much. These proceedings are closed.
    [Whereupon, at 4 p.m., the subcommittee was adjourned.]

                         
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