[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
    THE COUNTDOWN TO COMPLETION: IMPLEMENTING THE NEW DEPARTMENT OF 
                   HOMELAND SECURITY PERSONNEL SYSTEM

=======================================================================

                                HEARING

                               before the

                 SUBCOMMITTEE ON THE FEDERAL WORKFORCE
                        AND AGENCY ORGANIZATION

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 2, 2005

                               __________

                           Serial No. 109-58

                               __________

       Printed for the use of the Committee on Government Reform


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                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut       HENRY A. WAXMAN, California
DAN BURTON, Indiana                  TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota             CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana              ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio           DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania    DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee       DIANE E. WATSON, California
CANDICE S. MILLER, Michigan          STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio              CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California          LINDA T. SANCHEZ, California
GINNY BROWN-WAITE, Florida           C.A. DUTCH RUPPERSBERGER, Maryland
JON C. PORTER, Nevada                BRIAN HIGGINS, New York
KENNY MARCHANT, Texas                ELEANOR HOLMES NORTON, District of 
LYNN A. WESTMORELAND, Georgia            Columbia
PATRICK T. McHENRY, North Carolina               ------
CHARLES W. DENT, Pennsylvania        BERNARD SANDERS, Vermont 
VIRGINIA FOXX, North Carolina            (Independent)
------ ------

                    Melissa Wojciak, Staff Director
       David Marin, Deputy Staff Director/Communications Director
                      Rob Borden, Parliamentarian
                       Teresa Austin, Chief Clerk
          Phil Barnett, Minority Chief of Staff/Chief Counsel

     Subcommittee on the Federal Workforce and Agency Organization

                    JON C. PORTER, Nevada, Chairman
JOHN L. MICA, Florida                DANNY K. DAVIS, Illinois
TOM DAVIS, Virginia                  MAJOR R. OWENS, New York
DARRELL E. ISSA, California          ELEANOR HOLMES NORTON, District of 
KENNY MARCHANT, Texas                    Columbia
PATRICK T. McHENRY, North Carolina   ELIJAH E. CUMMINGS, Maryland
------ ------                        CHRIS VAN HOLLEN, Maryland

                               Ex Officio
                      HENRY A. WAXMAN, California

                     Ron Martinson, Staff Director
                Chris Barkley, Professional Staff Member
                            Reid Voss, Clerk
          Mark Stephenson, Minority Professional Staff Member





















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 2, 2005....................................     1
Statement of:
    Kelley, Colleen M., national president, National Treasury 
      Employees Union; T.J. Bonner, president, Border Patrol 
      Council, American Federation of Government Employees; and 
      Darryl Perkinson, national vice president, Federal Managers 
      Association................................................   116
        Bonner, T.J..............................................   133
        Kelley, Colleen M........................................   116
        Perkinson, Darryl........................................   156
    McPhie, Neil A.G., chairman, Merit Systems Protection Board; 
      Ronald Sanders, Associate Director for Strategic Human 
      Resources Policy, U.S. Office of Personnel Management; and 
      Ronald James, Chief Human Capital Officer, Department of 
      Homeland Security..........................................    63
        James, Ronald............................................    91
        McPhie, Neil A.G.........................................    63
        Sanders, Ronald..........................................    74
    Walker, David M., Comptroller General, U.S. Government 
      Accountability Office......................................    20
Letters, statements, etc., submitted for the record by:
    Bonner, T.J., president, Border Patrol Council, American 
      Federation of Government Employees, prepared statement of..   135
    Cummings, Hon. Elijah E., a Representative in Congress from 
      the State of Maryland, prepared statement of...............     9
    Davis, Hon. Danny K., a Representative in Congress from the 
      State of Illinois:
        Washington Post articles.................................   104
        Prepared statement of....................................    15
    James, Ronald, Chief Human Capital Officer, Department of 
      Homeland Security, prepared statement of...................    94
    Kelley, Colleen M., national president, National Treasury 
      Employees Union, prepared statement of.....................   119
    McPhie, Neil A.G., chairman, Merit Systems Protection Board, 
      prepared statement of......................................    67
    Perkinson, Darryl, national vice president, Federal Managers 
      Association, prepared statement of.........................   158
    Porter, Hon. Jon C., a Representative in Congress from the 
      State of Nevada, prepared statement of.....................     4
    Sanders, Ronald, Associate Director for Strategic Human 
      Resources Policy, U.S. Office of Personnel Management, 
      prepared statement of......................................    77
    Walker, David M., Comptroller General, U.S. Government 
      Accountability Office, prepared statement of...............    22





















    THE COUNTDOWN TO COMPLETION: IMPLEMENTING THE NEW DEPARTMENT OF 
                   HOMELAND SECURITY PERSONNEL SYSTEM

                              ----------                              


                        WEDNESDAY, MARCH 2, 2005

                  House of Representatives,
      Subcommittee on Federal Workforce and Agency 
                                      Organization,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2247, Rayburn House Office Building, Hon. Jon C. Porter 
(chairman of the subcommittee) presiding.
    Present: Representatives Porter, Davis, Issa, McHenry, 
Mica, Cummings, Norton, and Van Hollen.
    Staff present: Ron Martinson, staff director; B. Chad 
Bungard, deputy staff director and chief counsel; Chris Barkley 
and Shannon Meade, professional staff members; Patrick 
Jennings, senior counsel and OPM detailee; Reid Voss, 
legislative assistant/clerk; Mark Stephenson and Tania Shand, 
minority professional staff members; and Teresa Coufal, 
minority assistant clerk.
    Mr. Porter. A quorum being present, the Subcommittee on the 
Federal Workforce and Agency Organization will come to order.
    This is the first hearing of the Government Reform 
Subcommittee on the Federal Workforce and Agency Organization 
in the 109th Congress, and my first hearing as chairman of this 
subcommittee. I am very excited about my new position and the 
opportunity to examine ways the Federal Government can improve 
the way it hires, pays, recruits, trains, and rewards its 
employees, while at the same time improving individual agency 
performance. Representing over 14,000 Federal workers and 
retirees myself in Nevada, I know all too well the sacrifices 
made by the Federal family, who work diligently--sometimes 
putting their lives in danger--in the name of public service. 
Admittedly, I have a lot to learn about this subject matter, 
and I look forward to hearing from the various stakeholders, 
agencies, and experts to figure out ways to make the Federal 
Government better.
    Today's hearing is of the utmost importance. February 1, 
2005 marked a new day for our Federal employees--the Department 
of Homeland Security and the Office of Personnel Management 
issued final regulations for the new personnel management 
system at the Department of Homeland Security. It was the first 
major change to our Civil Service process in 50 years. This is 
something I don't take lightly. It took over 2 years to design 
this new system, but there are still a lot of details to be 
worked out, and I can assure everyone here that this 
subcommittee will closely monitor the progress and 
implementation of this new system over the next several years.
    The Department must have top talent in order to meet its 
critical mission, and it cannot rely on the old system of 
rewarding longevity rather than motivating and rewarding 
performance. Change can be difficult, however, and I know that 
this is a nerve-wracking experience for the Department's work 
force. My predecessor, Congresswoman Jo Ann Davis, and Chairman 
Tom Davis have worked on ensuring a smooth transition--Chairman 
Davis couldn't join us today--and they have worked hard to make 
sure this new system is one that is fair and credible. I am 
quite encouraged to see the final regulations now require that 
the development of any internal directives implementing the 
personnel systems authorities provided by these regulations 
involve employees and employee representatives. I am also 
encouraged to see that the final regulations require that the 
Department issue implementing directives requiring new 
supervisors to meet certain assessment or certification points 
as a part of a formal training program. This will go a long way 
in ensuring the equitable application of this new pay-for-
performance system and conducting performance reviews. These 
are much welcomed changes from the proposed regulations, and, 
as I have read the background testimony that has been prepared 
for today, I think that you would all agree.
    Since the passage of the Homeland Security Act of 2002, 
which authorized the creation of a new flexible personnel 
system for Homeland Security Department employees, there has 
been a continued trend to modernize personnel systems 
governmentwide; not only in Government, but also in the private 
sector, as we prepare for this global economy that is based 
upon terrorism and impacts on our communities. In January 2003, 
the Bipartisan National Commission on the Public Service, 
chaired by Paul Volcker, called for the abolishment of the 
General Schedule and recommended it be replaced with a more 
flexible personnel management system. That same year, Congress 
granted the Department of Defense flexibility to create a new 
personnel system and also authorize senior executive service to 
meet to a pay-for-performance personnel system governmentwide. 
Now, more than 50 percent of the Federal work force will soon 
be under this new, modern, flexible personnel system, outside 
of the General Schedule.
    In a forum hosted by the Government Accountability Office 
and the National Commission on Public Service last April, there 
was broad agreement among participants that a governmentwide 
framework should be established to guide human capital reform, 
balancing the need for consistency across the Federal work 
force, and the need for a flexible system tailored to 
particular needs of the agencies.
    Moving the rest of the Federal workfoce outside the General 
Schedule into a new performance-based compensation framework is 
an issue for another day, which we will be discussing. With 
that said, however, this subcommittee is well aware that all 
eyes are on the success or failure of the new DHS personnel 
management system. It is very important that we get it right 
the first time, and we will spend the requisite amount of time 
overseeing the system's implementation to ensure its successes.
    I would like to, of course, express my many thanks to our 
witnesses who have agreed to join us today. We brought together 
what I believe is a broad and knowledgeable array of voices as 
we begin our exploration of this new system, and look forward 
to hearing all of your perspectives. I want you to know that as 
I begin this hearing, I begin it with an open mind. I am a new 
member of this committee and a new member as the chairman of 
this committee, and look forward to your insights and your 
perspective. As I mentioned, I have been in a public office, as 
has many of my colleagues on this committee, for over 20 years, 
and I plan on using that experience as I listen and make my own 
independent decisions based upon the input that is going to be 
provided. Of course, this session the subcommittee is going to 
look at a number of other issues, but realize that this will 
remain and continue to be a priority as we move forward.
    [The prepared statement of Hon. Jon C. Porter follows:]
    
  

    
    Mr. Porter. I now would like to make sure that our majority 
ranking member, Mr. Davis, is recognized. I know he is not here 
today, but possibly Mr. Cummings would like to add something in 
opening statement.
    Mr. Cummings. Thank you very much, Mr. Chairman, and thank 
you for calling this important hearing on the newly issued 
personnel regulations for the Department of Homeland Security.
    Following the tragic events of September 11th, the 
Department of Homeland Security was created, which brought 
together 22 agencies for the purpose of protecting our country. 
The Homeland Security Act gave the Secretary of DHS and the 
Director of the Office of Personnel Management the authority to 
construct a new personnel system for the DHS. In 2002, Congress 
agreed it was a top priority to make modern human resources 
management system at the DHS capable of supporting its mission. 
However, many of my colleagues and I had some serious 
reservations that the authority granted to the DHS would 
needlessly undermine our Nation's longstanding commitments to 
employee protections, management accountability, and collective 
bargaining rights. Unfortunately, these newly issued 
regulations validate that my fears were well founded.
    To begin, the administration has consistently justified its 
proposed sweeping changes in the DHS human resources management 
system as necessary to ensure national security. While national 
security must remain our top priority, I can think of no 
instances in which collective bargaining rights or employee 
protections in the Civil Service were a specific obstacle to 
protecting our Nation. These regulations substantially restrict 
what issues are covered by collective bargaining. As described 
in the new regulations, the DHS is no longer mandated to 
bargain over the number, types, grades, or occupational 
clusters and bands of employees or positions assigned to any 
organizational subdivision work project or tour of duty.
    I believe that it is important that we maintain the 
integrity of our top priority by ensuring that the efforts we 
take in the name of national security genuinely impact the 
security of our Nation. As such, I look forward to the 
testimony of T.J. Bonner, of the American Federation of 
Government Employees, that describes numerous instances where 
collective bargaining has protected employees in the Civil 
Service and strengthened our homeland security.
    It is troubling that the DHS and OPM rejected the proposal 
by unions for a post-implementation bargaining policy in the 
new DHS personnel system, which could have provided a balanced 
approach that respected the needs of all interested parties and 
provided the DHS with needed flexibilities to respond to 
national security emergencies.
    More troubling is the replacement of the General Schedule 
with a performance-based pay system. Such a system could 
provide a means for politicization and/or cronyism within DHS 
without the necessary safeguards and clear standards to measure 
employee performance. These regulations also fail to establish 
an independent entity to resolve labor-management disputes.
    Under the new regulations, DHS employees must take their 
grievances to an internal board appointed by the DHS Secretary 
called the Homeland Security Labor Relations Board, replacing 
the independent Federal Labor Relations Authority as arbiter of 
disputes, with the Homeland Security Labor Relations Board 
being completely comprised of appointments by the top authority 
representing management at the DHS. This poses a major obstacle 
to ensuring impartiality in the resolution of labor-management 
disputes. This is analogous to having the empires of the World 
Series being chosen by an owner of a team involved in the game. 
Even if one would make the argument that such a selection 
process is reasonable, it certainly does not give the 
perception of fairness to the American people and to those 
playing the game.
    Mr. Chairman, the Human Resources Management System at DHS 
is no game. The regulations and laws which govern that system 
directly impact the quality of life of some of our Government's 
most important civil servants and, as a result, impact the 
DHS's ability to fulfill its vital mission. I do not believe 
that these regulations support an efficient and inclusive 
relationship between employers and employees at the DHS, 
specifically the type of relationship needed to keep morale 
high, support retention, and attract skilled and capable 
prospective employees to serve at the DHS. We best honor our 
public servants by having a human capital system that embraces 
time-honored and time-tested traditions of collective 
bargaining, due process, and employee protections instead of 
undermining them.
    With that, Mr. Chairman, I yield back and look forward to 
hearing from our witnesses.
    [The prepared statement of Hon. Elijah E. Cummings 
follows:]


  

    Mr. Porter. Thank you.
    I would like to now recognize our ranking minority member, 
Mr. Davis.
    Mr. Davis. Thank you very much, Mr. Chairman. Let me 
apologize for being a trifle late, but I had all of the 
television owners in my hometown in my office, as well as the 
radio.
    Mr. Porter. I think we understand.
    Mr. Davis. It is pretty difficult to put them out. We need 
them.
    Well, let me thank you very much, Mr. Chairman, for calling 
this hearing, and I would like to welcome you and all the new 
Members who have come to the very first hearing of the Federal 
Workforce and Agency Organization Subcommittee.
    Last February this subcommittee held a joint hearing with 
our Senate counterparts on, at the time, the proposed 
Department of Homeland Security's DHS personnel regulations. At 
that hearing I stated that we had embarked on a sad and 
troubling era in the history of the Civil Service and asked if 
agencies were being granted exemptions from Title V to fix 
inefficient regulations or to simply change what is 
inconvenient for management. The answer is now painfully clear. 
It is as if DHS put management in a room and said, come up with 
your dream personnel system; you don't have to worry about 
fairness or credibility, just tell us what you would want to 
make your life easier and more convenient. They did and DHS put 
their recommendations in these regulations, right down to 
Section 9701-406, that states that employee performance 
expectations do not have to be put in writing. These are the 
same expectations that will determine whether or not an 
employee gets a pay raise, and not one word of these 
expectations have to be put in writing.
    The one thing that DHS allowed employees is that the 
expectations have to be communicated to them before they can be 
held accountable to them. Employees should be grateful for that 
concession. If putting employee expectations in writing is too 
onerous for DHS managers, then asking them to negotiate with 
unions is practically out of the question. DHS is prohibited 
from bargaining over the number types and grades of employees 
and the technology methods and means of performing work. Even 
individual components of DHS are prohibited from bargaining 
over these subjects, even at their own discretion. DHS even 
rejected a proposal by the unions to bargain over personnel 
changes after they have been implemented and shown to have had 
an adverse impact on affected employees.
    Now, I am sure that we are going to hear today that all of 
this is being done in the name of national security. But let me 
caution witnesses from the outset that their answers to 
questions on these matters need to be more substantive than 
that. It is simply not enough to say that national security 
prevents you from putting employee performance expectations in 
writing, or that it is in the national interest or the best 
interest of national security for the Secretary of DHS to have 
sole authority to appoint members to DHS's Internal Mandatory 
Removal Panel or Homeland Security Labor Relations Board. These 
regulations are not fair, they are not credible, and they are 
not transparent. As a matter of fact, most of the regulations 
have been defined as implementing directives, and are not even 
outlined in the regulations.
    Members on both sides of the aisle should be outraged. 
These regulations go beyond the need for DHS to have personnel 
flexibility. These regulations reflect DHS's and this 
administration's desire to have unfettered and unchecked 
authority over the Civil Service period. As one article I read 
on DHS and DOD personnel regulations noted, we are going back 
to the past; back 120 years, when Andrew Jackson was President 
and there were only about 20,000 Federal employees and the work 
required few skills; back to when the entire work force faced 
possible replacement after each election and the newly 
installed politicians doled out jobs to reward campaign 
workers, donors, and party operatives. Wasn't it earlier this 
year that it came to light that DOD gave political non-career 
employees higher pay raises than career employees? These were 
across-the-board pay raises for political appointees that were 
not based on merit or individual performance. What is ironic 
about DOD's actions is that these political appointees did not 
have any more skill, any more knowledge, or any more 
performance than that performed by career employees.
    And so, Mr. Chairman, I look forward to these hearings and 
thank all of the witnesses for appearing and, again, thank you 
for calling it. I yield back.
    [The prepared statement of Hon. Danny K. Davis follows:]



  
    
    Mr. Porter. Thank you, Mr. Davis.
    I ask at this time for unanimous consent that all Members 
have 5 legislative days----
    Ms. Norton. Mr. Chairman.
    Mr. Porter. Yes.
    Ms. Norton. I ask to make an opening statement.
    Mr. Porter. Absolutely. I would like to go through a few 
procedural matters, then certainly we will have the balance of 
the committee with their openings. Thank you.
    At this time, again, I would like to ask unanimous consent 
that the Members have 5 legislative days to submit written 
statements and questions for the hearing record; that any 
answers to written questions provided by the witnesses also be 
included in the record.
    Without objection, so ordered.
    I also ask unanimous consent that all exhibits, documents, 
and other materials referred to by the Members and the 
witnesses may be included in the hearing record, and that all 
Members be permitted to revise and extend their remarks.
    Without objection, so ordered.
    I also ask unanimous consent that all future meetings be 
held in Las Vegas. Hearing none----
    Mr. Issa. Half in California.
    Mr. Porter. Half in California.
    Know that, again, we have these formal procedural matters, 
but as a community we would welcome the committee at any time 
in Las Vegas.
    Also, it is the practice of this committee to administer 
the oath to all witnesses, which we will do shortly, but I 
would like to continue with opening statements.
    I believe Member Issa, do you have anything you would like 
to add?
    Mr. Issa. In the interest of hearing our speakers, I will 
submit for the record.
    Mr. Porter. Thank you.
    Congresswoman Holmes Norton.
    Ms. Norton. Thank you very much, Mr. Chairman. I want to 
thank you for making this your first hearing. I have been on 
this committee for all of my 14 years in Congress, and you have 
chosen a subject of special importance because what we do here 
is essentially going to be what we do or what the committee 
will hope to do for the entire merit system, and, therefore, it 
is a very important subject, given what that system has meant 
for more than a century to Federal employees and to the 
efficiency and integrity of the Federal system.
    Mr. Chairman, I think the older system is more in need of 
reform, and I say that from my own experience as chair of the 
Equal Employment Opportunity Commission. It was a dysfunctional 
agency when I came, buried in backlog. I am credited with 
modernizing the system, getting rid of the backlog in part by 
using such efficiencies as reducing litigation, depending on 
settlements before they were widely used in the Federal 
Government at all. So I approach every system as old as this as 
if it needed reform, rather than not needing reform. And I 
certainly think that after September 11th, with the rise of 
terrorism and with the special mission of the Homeland Security 
Commission, a very close look at Civil Service reform was 
closely called for.
    We began by believing, I think, exercising a presumption in 
favor of a merit system, rather than seeing the beginning of 
the end of the merit system and the stripping of collective 
bargaining protections. Improvements have been made, and I 
congratulate the unions involved and the agency for as much 
collaboration as they did. Now we face lawsuits and delays, 
some demoralization in the agency. Remember how many agencies 
we are putting together for the first time. And if I may say 
so, about the last agency we need to see any demoralization in 
is the agency that protects the homeland, an agency that 
involves 180,000 employees.
    We have here involved most of the Federal work force, when 
you get the DOD, where we have also begun this process, and 
Homeland Security. Very careful attention is therefore merited.
    We are eliminating important protections at the same time 
that we are establishing a new pay system, the pay banding 
system, at the total discretion of management. With pay 
involved, the time could not be worse for eliminating 
protections. Pay is perhaps what makes a merit system with 
impartiality most essential.
    The point of any regulation we do, it seems to me, should 
be efficiency. Yet I look at the MSPB changes in particular, 
where it takes 3 months to resolve a complaint. The MSPB is the 
outside agency that looks at what the agency has done. The 
hallmark of due process is that you do not investigate 
yourself, but somebody with fresh eyes, not imbedded in 
protection of one or the other of the parties gets to look at 
the matter. Very, very serious when you eliminate some of that. 
And for what? Is 3 months too long? Find me a system that 
resolves these matters in less time.
    Indeed, the indications are that there isn't a problem at 
all here, since 80 percent of the time the agency prevails. 
What is it that we are after? I need to know what is it that we 
were after that we were not achieving by outside review, 
particularly given the predominance of evidence standard and 
even a lower standard in performance cases, substantial 
evidence.
    Mr. Chairman, the more I learn about how other countries 
run their governments, the more I appreciate what the merit 
system has meant in eliminating those kinds of matters--bribes, 
favoritism--in our own system. Our system stands up among the 
systems of the world in this regard. Impartiality has been its 
hallmark. The Homeland Security regulations do not yet meet 
that burden. This matter needs more work; it needs greater 
consultation with those who will be bound by the system. I 
think it needs more work at the drawing board.
    Thank you very much, Mr. Chairman.
    Mr. Porter. And thank you for your testimony.
    I believe that is the end of our opening statements.
    At this time, what I would like to do is ask if everyone 
would stand on all the panels so I can administer the oath, 
please.
    [Witnesses sworn.]
    Mr. Porter. Let the record reflect the witnesses have 
answered in an affirmative manner, and we will now start with 
our first panel.
    On our first panel today we will hear from David Walker, 
the U.S. Comptroller General from the Government Accountability 
Office.
    Mr. Walker, as always, it is a pleasure to have you here, 
and you are recognized for 5 minutes.

    STATEMENT OF DAVID M. WALKER, COMPTROLLER GENERAL, U.S. 
                GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Walker. Thank you, Mr. Chairman. Congratulations on 
your appointment, and thank you for the opportunity to appear 
before this inaugural meeting under your chairmanship.
    Mr. Davis, always good to see you, and other members of the 
subcommittee.
    Mr. Chairman, I respectfully request that my entire 
statement be included into the record so that I can move to 
summarize it now.
    Mr. Porter. Absolutely.
    Mr. Walker. Thank you, Mr. Chairman.
    Two comments at the outset. First, as you know, GAO put the 
lack of an effective human capital strategy by the Federal 
Government on our high risk list on January 2001. Much progress 
has been made since then, but quite a bit remains to be done. I 
do agree that this is a very important subject matter, because 
whatever happens at DHS obviously has broader implications for 
reform elsewhere in the Federal Government.
    Second, I would note that GAO has been leading by example 
in this area. We have had broad banding since 1989; we have had 
pay-for-performance since 1989. And with the assistance of this 
subcommittee, this committee and the Congress at large, we now 
have additional flexibilities, as a result of legislation that 
was enacted last year, to move to a more market-based and 
performance-oriented classification and compensation system 
that will enable us to reward people based upon skills, 
knowledge, and performance, while maintaining important 
principles and incorporating adequate safeguards to maximize 
consistency and avoid abuse of employees, which is very 
important, because, after all, our people are our most valuable 
asset, no matter what agency you are dealing with.
    In GAO's longstanding professional approach to try to take 
a fair and balanced view, I would like to say, Mr. Chairman, 
three positive things, three areas of concerns, and three 
points about the way forward with regard to the matter before 
this committee.
    On the positive side, the Department of Homeland Security 
is proposing to move to a more flexible, contemporary 
performance-oriented and market-based compensation system that 
will include consideration of occupational clusters and pay 
bands that will endeavor to try to better reflect labor market 
conditions in various labor markets, and that will end up 
having a variety of features that are more reflective of the 
knowledge-based work force that now is represented by the 
Federal Government. Second, it is pledging to continue to 
involve employees and union officials throughout the 
implementation process. They have had more collaboration than 
some others in the past in this regard, although it is 
important that it be meaningful collaboration, not just pro 
forma collaboration; and obviously that is a facts and 
circumstances determination. Third, they are pledging to 
evaluate the implementation of the new system, and it is my 
understanding they are also proposing to engage in a phased 
implementation process. I think that is critically important 
given the significance and size and the scope of the Department 
of Homeland Security.
    As far as three areas of concern, there are a lot of 
details that are yet to be defined, and details matter. And 
depending upon how these details are defined could have a 
direct effect on the likelihood that it will be successful and 
with regard to areas such as fairness and consistency. Second, 
DHS is proposing to consider adopting core competencies, but 
has not committed to do so, and as has been mentioned, is not 
necessarily committing to put all expectations in writing. My 
personal view is that one should strongly consider core 
competencies as a way to move forward in this area. Those 
should be in writing, and I think that they can very much prove 
to help set expectations at the same point in time. Third, 
there is no guarantee that the proposed approaches that DHS is 
going to follow will result in meaningful differentiation in 
performance. While in general they do not propose to have a 
pass-fail approach other than for possible certain entry-level 
positions, they are talking about possibly a three summary 
rating level categorization beyond the pass-fail, and I have 
serious concerns as to whether or not you can achieve 
meaningful differentiation in performance based upon just a 
three level of rating system.
    As far as the three issues for going forward, first, I 
think that DHS could benefit for consideration of having a 
chief operating officer or chief management officer to elevate, 
integrate, and institutionalize responsibility not just for the 
success of this effort, but also for the overall business 
transformation effort and integrating the 22 different 
departments and agencies that have come together to make DHS, 
because achieving that is something that is going to take many 
years, is going to take the sustained attention of a top 
executive with a proven track record of success. Second, it is 
absolutely critically important that there be effective on-
going, two-way consultation and communication in order to make 
this reform a reality. And last, but certainly not least, it is 
absolutely critical that there be an adequate infrastructure in 
place to make effective use of these authorities before they 
are implemented. There needs to be, among other things, an 
effective human capital planning process--modern, effective, 
credible, and hopefully validated performance appraisal 
systems--with adequate safeguards in order to maximize 
consistency and to prevent abuse before the new authorities are 
implemented. Failure to do that is a high risk strategy.
    So in summary, Mr. Chairman, there are some positive areas, 
there are some areas of concern, and there a few comments about 
the way forward. But as I would reinforce where I started, we 
have been on this business longer than just about anybody in 
the Federal Government, so I can speak from real live 
experience, rather than theory, with regard to a lot of these 
issues.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Walker follows:]


  
    
    Mr. Porter. Thank you very much, Mr. Walker.
    We now move into the question and answer period, and I have 
a few questions I would like to begin with, and some comments. 
First of all, I very much appreciate your testimony. I 
appreciate that in the Federal Government we like to kill 
trees, because I see there is a lot of backup paper here, and 
that is OK; I know that is how it works. But some of your 
comments I think can certainly scare some employees. And I 
appreciate the fact that as a new Member I am looking at all 
sides equally. Flexibility scares employees, because right, 
wrong, or indifferent, they are accustomed to a process that 
they have followed for, in some cases, 50 years, in some cases 
less. There is concern about the collaboration, having read 
some of the backup testimony, that there was, other than 
hearings, true collaboration. Add to that the fact that 
flexibility is a real concern. I share that not only do you 
pledge, we do also, to evaluate these different phases as they 
unfold.
    But noW on to some specific questions.
    As the chief operating officer, you mentioned you are 
calling for DHS to establish a COO. Can you explain that a 
little bit, how you think we should do that and go about 
implementing that position?
    Mr. Walker. I think there are selected departments and 
agencies that could benefit for having a level two official. 
You can call it deputy secretary for management, you can call 
it a principal undersecretary for management or operations who 
in effect would be responsible for the planning and the 
integration of the overall business transformation process. 
That includes things like financial management, human capital 
strategy, information technology, knowledge management, change 
management.
    As Ms. Holmes Norton has mentioned, the fact of the matter 
is this is a merger of 22 different departments and agencies 
with different systems, with different personnel practices, 
with different policies, and it is a massive effort to be able 
to effectuate this integration with minimal disruption and 
while protecting our homeland security. The fact of the matter 
is that it is going to require sustained attention over several 
years in order to achieve this, and I think consideration 
should be given to establishing such a position that would be a 
person with a proven track record of success, with a 
performance contract, with a term appointment hopefully of 
around 7 years, who would be able to help make sure that there 
is consistent attention over a sustained period of time in 
order to try to help maximizing success and to ultimately 
institutionalize these issues, which otherwise may not occur.
    Mr. Porter. Additional question. In hearing your testimony 
again, talking how this would improve or help prevent future 
terrorist attacks. And I know from my colleagues, they 
mentioned the concern that this is going to make a difference. 
Would you be very specific how you think this is going to make 
this country a safer place to live?
    Mr. Walker. Well, this is not a panacea, but I can tell you 
that do not underestimate the degree of difficulty in achieving 
all the different business transformation elements of the 
Department of Homeland Security; it is the largest merger since 
the establishment of the Department of Defense in 1947 and, 
quite frankly, they have huge challenges on their own. I think 
the fact of the matter is, as you know, Mr. Chairman, we just 
added to our high risk list, information sharing, and the 
merger and integration of the Department of Homeland Security 
remains on our high risk list. So the fact of the matter is if 
you have somebody focused on this full-time, over a sustained 
period of time, you are going to make a lot more progress in 
trying to help facilitate effective information sharing; you 
are going to make a lot more progress in helping to assure that 
you are implementing these new flexibilities in a fair and 
responsible manner, and within a reasonable timeframe. That is 
obviously going to help homeland security because, as was 
mentioned, if this isn't done right, it can have a significant 
adverse effect on morale, it can have a significant adverse 
effect on a variety of other operational matters.
    Mr. Porter. Thank you, Mr. Walker. I have additional 
questions, but I will wait until later.
    Any questions, Mr. Davis?
    Mr. Davis. Thank you very much, Mr. Chairman.
    Mr. Walker, it is always good to see you, and I appreciate 
your testimony. On the next panel, Ron Sanders of OPM will 
testify that the DHS regulations provide for a balanced human 
resources system that will hold managers accountable and 
provide for due process. He also states in his testimony that 
there is no danger whatsoever that the pay of individual DHS 
employees will be politicized. Given what has been outlined in 
the regulations, do you concur with Mr. Sanders' assessment of 
the system?
    Mr. Porter. I have little doubt that is what their intent 
is, but I think there are a lot of details that need to be 
outlined in order to provide reasonable assurance that in fact 
that will be the case. We have, for example, in our agency, a 
number of checks and balances that exist outside of the normal 
line management structure to provide reasonable assurance that 
the standards are applied consistently, fairly, and in a non-
discriminatory fashion. Furthermore, we have transparency over 
the results, reasonable transparency over the results of the 
effort; and obviously transparency can be a good thing in order 
to try to provide some checks and balances. In addition to 
that, we have both internal grievance processes and external 
appeal processes to an independent party. I think having 
elements like that are important in order to maximize the 
chance that in fact that intent will be a reality.
    So I am confident as to their intent, but without knowing 
all the details it is tough to say that you can say that with 
certainty.
    Mr. Davis. I have some concerns about the composition of 
the Mandatory Removal Panel and the labor relations board. I 
grew up on the farm, and it seems to me like the Constitution 
suggests that the fox will determine when to let the chickens 
out. Do you think that with the appointment simply being that 
of the secretary, that this board is likely to have a balanced 
approach to making decisions about employees who would come 
before it?
    Mr. Walker. I think if it is made by the secretary, one has 
to think about what is the process that is followed in coming 
up with candidates from whom the secretary would select. And 
let me give you an example, first-hand experience. We at GAO 
have something called a Personnel Appeals Board. It is a group 
of individuals who are appointed by me to be able to hear 
appeals of our employees and to make an independent judgment as 
to whether or not we have acted fairly and consistently with 
our policies and procedures and applicable laws. But when I 
make appointments to that body, the Personnel Appeals Board, I 
seek advice and counsel from our Employee Advisory Council, I 
seek advice and counsel from a variety of parties; they present 
candidates that are acceptable to the broad range of interests 
and I will select from that list of candidates.
    So part of the issue is if the secretary is going to make 
the appointments, you need to be concerned with what is the 
process that takes place to submit candidates to the secretary 
from whom he will select to try to provide reasonable assurance 
that they are not only qualified, but they are credible with 
regard to all the different stakeholders.
    Mr. Davis. The individuals that you select, where do they 
come from? Are you given any kind of list or can you just go 
out in the open environment?
    Mr. Walker. We have a notice that we go out with. We seek 
nominations; people can nominate themselves. We have a review 
panel within the agency that will end up reviewing potential 
candidates. We seek input from our employees; we seek input 
from others within the agency. We also actively seek to achieve 
balance. People that have past experience representing 
employees, as well as people that have past experience 
representing agencies. The whole thing has to be balanced and 
it has to be credible, because if it is not balanced and 
credible, it is not going to be used and it is not going to be 
effective. I am pleased to say that the system that we now had 
in place for 20 plus years has worked very well, and I am also 
pleased to say they don't have a lot of work to do, and I want 
to keep it that way, if I can.
    Mr. Davis. Thank you very much, Mr. Chairman. I have 
another question, but I will wait and come back.
    Mr. Porter. Thank you, Mr. Davis.
    Mr. Issa.
    Mr. Issa. Thank you, Mr. Chairman.
    Mr. Walker, my concern goes a little bit more to sort of 
the drift toward performance-related pay. Later on we are going 
to hear from T.J. Bonner, and we have already had a number of 
instances where although Mr. Bonner is not restricted from 
speaking about what he feels to be policies inconsistent with 
the best interest of national security, there has been an 
effort to say that his local officials aren't allowed to make 
those statements. My own office has been discouraged or people 
have been discouraged from coming to my office unless it is a 
formal hearing, from the Border Patrol.
    If you add to it the ability to affect somebody's pay based 
on whether they bucked policy, don't you create a potential 
that you simply are going to have higher pay for those who go 
along with this administration or the next administration's 
trick-down feeling of what they would like to have said or done 
versus those who may legitimately be defending the best 
interest of the job that their agency is required to do? How do 
you prevent policy trickling all the way down to pay when in 
fact agencies very often, particularly within Homeland 
Security, differ, and differ in the most strident ways, about 
the best way to achieve homeland security, border integrity, 
etc.?
    Mr. Walker. Well, a number of ways. No. 1, we have 
competencies that are clearly defined in writing that were 
developed in conjunction with all of our employees for each 
applicable occupation, and which have been validated by 
employees through a formal process to maximize acceptance and 
credibility, and to minimize litigation. So they are evaluated 
based upon these written competencies, which they are actively 
involved in developing. We also have safeguards in place so 
that if somebody believes that they have been unfairly treated, 
there are mechanisms within our agency that they can go to, 
either informally or formally, and they also have the Personnel 
Appeals Board, which is an independent outside body that they 
can go to in lieu of the Federal courts, although on certain 
circumstances they continue to have the right to go to the 
Federal courts.
    So, again, that is why I am saying having a competency-
based system that grounds these types of decisions, having 
adequate safeguards, having appropriate transparency and, as 
far as the safeguards, both internal as well as external appeal 
rights I think can go a long way to minimize that possibility 
of abuse.
    Mr. Issa. One followup question, but on a different area. 
When you talked about a chief operating officer and a 7-year 
term as a hypothetical, I come from corporate America, where 
our term is only however the last quarter went very often, and 
rightfully so, although I notice that Carly Figurino will 
probably be running the World Bank in return for having been 
fired from her last job, so just getting fired is not always 
the end of a career. But I guess my question is no matter how 
good the past performance of a proposed chief operating 
officer, by definition there is no equivalent to this job; 
there is nothing where you say, boy, this person did this in 
Connecticut, with its couple million papers and GDP about equal 
to San Diego, but we are going to run them over and we are 
going to provide them this opportunity to head this huge 
agency. What safeguards would you have on, particularly the 
first term of that person, if you give them a 7-year term and 
they don't perform?
    Mr. Walker. Well, for one thing, I think there should be 
statutory criteria that would have to be met in order for 
somebody to be appointed. Second, I also believe that this 
level position should be a PAS, president appointee, Senate 
confirmation. Third, I believe that it should have a 
performance contract. I believe that somebody should have a 
performance contract, and that could be grounds for removal if 
they are not in compliance with their performance contract. It 
also should have an effect on how much they get paid, as to 
what type of results they are generating within certain 
limitations.
    One last thing, if I may, on your prior comment about 
compensation. We clearly have to reform our compensation system 
in the Federal Government. And let me give you two reasons why. 
No. 1, the current methodology for determining market-based 
competition by locality is fundamentally flawed. No. 2, at the 
present point in time, for executive branch agencies that are 
subject to the General Schedule, 85 percent plus of annual pay 
adjustments have nothing to do with skills, knowledge, and 
performance; 85 percent plus. And, in addition, under current 
law, individuals, although they are not big in number, 
individuals who are unacceptable performers are guaranteed 
across-the-board pay adjustments, even if they are unacceptable 
performers. That just doesn't make sense, I would respectfully 
suggest.
    Mr. Issa. Thank you, Chairman.
    Mr. Porter. Thank you.
    Mr. Cummings.
    Mr. Cummings. Thank you very much.
    Mr. Walker, I was listening to what you just said, and, you 
know, pay is a big deal. In the Congress we have this book. I 
haven't looked at it, but apparently it tells everybody's 
salary by position, and if you see the alleged director in one 
office making $85,000 and the one in your office is making 
$80,000, you ought to have a conference to figure out why there 
is a difference. So people are concerned about their pay; it 
touches every aspect of their lives, and it goes to morale, as 
you well know. And this whole thing of requiring performance 
expectations be in writing, that is a concern of yours, is that 
right?
    Mr. Walker. Oh, it is, absolutely. There are different ways 
you can do it, but I clearly think you have to have things in 
writing, and I think competencies are a way to do that, to 
accomplish a number of objectives.
    Mr. Cummings. So elaborate on what you just said on the 
competencies.
    Mr. Walker. Take, for example, GAO. One of the things that 
we do is we have different kinds of occupations. One of the 
type of occupations we have are auditors, investigators, 
analysts, evaluators. And one of the things that we did is we 
worked with those individuals to come up with a set of 
competencies, things like thinking critically, achieving 
results, effective communications; and we defined them in very 
specific terms. They then validated that, yes, these are the 
type of competencies you have to have in order to be successful 
in that particular occupation. We then came up with different 
rating levels, in other words, when would you be rated meets 
expectations, role model, exceeds expectations, below 
expectations, based upon these different standards. So that is 
a basis by which you can set expectations and you can also be 
able to implement a performance appraisal system that has some 
credibility and that can meaningfully differentiate in 
performance. It is not perfect. There is no system that is ever 
perfect, but it is light years ahead of where we were.
    Mr. Cummings. You said that 80-some percent was not based 
on competency. Do you know what that 80 percent is based on?
    Mr. Walker. Yes, sir. Yes, sir. What that is related to is 
when the Congress each year passes the across-the-board pay 
adjustment, which, as you know, is more than inflation, it is 
intended to include a number of factors--for example, last year 
it was 3\1/2\ percent. Under current law, it is my 
understanding that every single individual is entitled to that 
3\1/2\ percent below the SES level, irrespective of their 
performance. Furthermore, as you know, under the GS schedule, 
you get a step increase due to the passage of time. So if you 
combine that 3\1/2\ percent, which was the case last year, 
along with the step increase, which is merely due to passage of 
time, that is, my understanding, roughly about 85 percent of 
comp. And then when you consider that the merit step increases 
are based upon performance appraisal systems that, frankly, in 
many cases are long outdated and don't meaningfully 
differentiate in performance, a vast majority of people, or a 
significant percentage of people get those as well. So we have 
a system that is really not related very much at all to skills, 
knowledge, and performance, and in a knowledge-based work 
force, there is a fundamental disconnect.
    Mr. Cummings. And having run a law office for about 20 
years where, if you don't perform, you don't get paid, I also 
understand you have to have a balance there. While you don't 
want people to just be sitting and getting a check, where is no 
real incentive because it is not connected with merit, you also 
want to make sure, particularly in a subjective system, that 
there is fairness. And one of the things that--and this will be 
my last question. Where does cultural sensitivity come in? Do 
you think that should be a part of the criteria when you are 
looking at expectations? The reason why I raise that is that 
when you look at the private companies that are doing well and 
are good places to work for and have the most diversity, there 
is a trend taking place, as I am sure you may be well aware, 
where cultural sensitivity becomes very significant. They want 
to know how many minorities this manager hired, what outreach 
he did, how many women did he or she bring in, or whatever. And 
that becomes a part of their performance evaluation. Do you 
think that is important here?
    Mr. Walker. Well, I think you do need to make sure, as we 
try to in our performance appraisal system, to try to achieve a 
diverse work force that is inclusive, that maximizes 
opportunities for all, and that does not have any tolerance for 
discrimination at all. And I know that is something that we end 
up incorporating into our evaluation. At the same point in 
time, one has to make sure that you are hiring people that have 
the skills and knowledge, and who can end up performing at the 
level that you expect. You can't compromise that, but we should 
have an active and ongoing outreach effort to achieve an 
inclusive work force, a diverse work force, and to have zero 
tolerance for discrimination.
    Mr. Cummings. Thank you very much.
    Mr. Porter. Thank you.
    Ms. Holmes, do you have a question, please?
    Ms. Norton. Yes. Thank you very much, Mr. Chairman.
    Mr. Walker, I appreciate the work you have done in this 
area, but this is not chicken feed we are fooling with here. We 
have involved agencies that had nothing in common until 
September 11th and, frankly, they don't have a lot in common 
now; many of them still have missions that are largely or very 
substantially devoted to things that have nothing to do with 
homeland security. So we are trying to meld people who we never 
would have thought of putting together except for September 
11th.
    You bragged on what you did before you went to a more 
flexible approach. Do I understand--I heard you talk about it 
before--that the kind of personnel infrastructure to assure 
fairness and collaboration that you had in place before you 
went to a new system is not in place when, on March 3rd, 
Department of Homeland Security is supposed to move to this new 
system?
    Mr. Walker. It is not clear to me that they are going to 
have the same kind of safeguards that we have in our system. 
And I will say, as well, Ms. Holmes Norton, that we have 
strengthened our safeguards in the last several years as 
Congress has given us additional flexibility, because that is 
critically important.
    Ms. Norton. So you would recommend, I take it, that DHS do 
the same based on your own experience.
    Mr. Walker. I think they could be informed by our 
experience and adjust it as they deem appropriate, but certain 
aspects I think have broad-based application elsewhere in 
Government.
    Ms. Norton. One of the things you emphasized in your 
testimony and in the way you dealt with your own employees was 
what you called meaningful collaboration, two-way consultation. 
Do you believe that sufficient ``meaningful collaboration'' and 
``two way consultation'' has occurred in this instance 
involving this agency with 180,000 employees?
    Mr. Walker. I haven't made an independent judgment on that. 
I will tell you this: it is very clear to me that there were a 
number of efforts taken to get input from a variety of parties 
and, frankly, a lot more than some other departments and 
agencies have done.
    Ms. Norton. Well, what other departments and agencies are 
trying to put together a brand new system? Mr. Walker, if we 
can't get some independent view from you on this because you 
haven't made a judgment, which is what this whole thing is 
about, I don't know who we are going to get it from. That is 
what the GAO is for. I am asking you whether, in your view at 
this point, there has been sufficient collaboration, two-way 
consultation, or whether you would recommend more of that.
    Mr. Walker. Based upon my understanding, there was 
significant interaction that occurred in coming up with these 
proposed regulations; however, there are differences of opinion 
between the parties as to whether or not it was meaningful 
enough. And part of it is how do you define what is meaningful 
enough. They clearly have done a better job than the Defense 
Department has been doing, and the Defense Department is now 
trying to be informed by some of the things that DHS did. I 
wish I could be more definitive than that.
    Ms. Norton. All I can say, Mr. Walker, is that I bet if I 
asked your employees, they would have something more definitive 
to say. We never expect people to have the same view, but, 
again, if we can't get an outside opinion on that, I don't know 
how to judge what the unions are saying against what management 
is saying.
    Let me ask you this. The Department of Homeland Security 
has the authority to replace the MSPB appeal system altogether 
with an internal review process, and it has chosen not to do 
that, with few changes. Would you recommend that they continue 
to place themselves under MSPB, as they have now chosen to do?
    Mr. Walker. I think unless there is a clear and compelling 
reason to change, then I would question why you would. My 
understanding is, as you said, that they are not proposing to 
change that, although with some modifications.
    Ms. Norton. And you think that is wise at this time?
    Mr. Walker. I think you have to have a qualified and 
independent external body to be able to hear certain types of 
employee appeals, and MSPB is obviously one option.
    Ms. Norton. If you have emphasized as well the necessity to 
have a full personnel approach and evaluation approach in 
place, let me ask you this. If these expectations of employees 
are not in writing, if the core competencies that you have 
testified are not in writing and no one knows what they would 
be, and there was some kind of adverse action or somebody 
protested her pay, would you tell me how that would be handled 
under the present situation, without those things in writing?
    Mr. Walker. I would respectfully suggest you ought to ask 
the Department of Homeland Security officials on that. I think 
it would make it very difficult and it would probably end up 
being interviewing people as to who said what to whom when, and 
what, if any, evidential matter is there that might exist 
through emails or notes or other type of correspondence in 
order to be able to corroborate one side or the other.
    Ms. Norton. Finally, let me ask you this. Eighty percent of 
the people get a satisfactory; you are talking about a 
mandatory system, unlike any system in the world. The Civil 
Service system was created precisely because of the difficulty, 
when people are basically competent, of drawing nice 
distinctions. I mean, based on what you say, the implication is 
that large numbers of Federal employees are incompetent and, 
therefore, you shouldn't expect across-the-board notions of 
competence. Beyond that, I would like to ask if the problem is 
one that anybody could see is unacceptable, and that is that 
even if, as you say, you have unacceptable performance you are 
guaranteed a raise, then why in the world haven't we gone at 
that first, rather than go at the whole system, as if the 
average Federal employee should feel that perhaps she is not 
competent because so many of you in fact get raises?
    I wonder if you can find a better way to state what the 
problem of this system is, rather than implying that large or 
much larger numbers of people are incompetent because they are 
rated satisfactory and get their automatic raise at the same 
time that we here in the Congress give everybody else because 
they are not performing so poorly that we think that they 
should receive no raise. And, of course, if they are performing 
so poorly, I don't know of a Member that would keep that person 
working. So I want to know what it is in the present 
regulations of the Civil Service that says you don't care how 
bad you are, you qualify for your raise, while you haven't come 
forward to say this is what we ought to do about that and why 
we haven't done something about that earlier.
    Mr. Walker. Let me make it clear. I have run three Federal 
agencies, three in the executive branch, one in the legislative 
branch. I have run worldwide operations of one of the world's 
leading consulting firms. My experience has been, at least with 
the agencies that I have dealt with, civil servants are as good 
or better than the private sector. So let me make that very 
clear.
    Ms. Norton. Well, it is real important to say that every 
once in a while, Mr. Walker.
    Mr. Walker. No, no, I think it is very important. I have 
said it many, many, many times.
    Ms. Norton. Not a word was said of that kind in your 
testimony, sir.
    Mr. Walker. Well, I just said it.
    Ms. Norton. Until I, on cross examination, drew that out of 
you.
    Mr. Walker. Well, I would respectfully suggest that if you 
end up asking 100 people who is a champion for human capital in 
the Federal Government, you will get my name probably 90 plus 
times.
    So understand they are as good or better than the private 
sector. My comment was not whether or not they had a meets 
expectation rating. My comment is where you have a few people, 
and not a lot--for example, at GAO there is less than two dozen 
people out of over 2,000 that would be in the category that I 
am talking about.
    Ms. Norton. How do they get their raises, then?
    Mr. Walker. The way that they----
    Ms. Norton. What is there in the regulations that 
guarantees--that is what you said, guaranteed them their 
raises?
    Mr. Walker. Federal law guarantee does not provide an 
exception. For individuals who are not performing an acceptable 
level or who want to--performance improvement plan or whatever, 
does not provide an exception for them getting the across-the-
board adjustment. And I have testified on more than one 
occasion that Congress ought to re-look at that. I do not 
believe that you should guarantee people a raise if they are 
not performing at an acceptable level.
    Ms. Norton. So you are telling me that if somebody 
repeatedly performs at an unacceptable level, his raises keep 
coming in?
    Mr. Walker. My understanding is unless and until they are 
removed, that is the case, if they are ever removed.
    Ms. Norton. Have you ever made any recommendations as to 
how we ought to handle that?
    Mr. Walker. Yes, I have.
    Ms. Norton. How should we handle that?
    Mr. Walker. I think you ought to change the law such that 
if somebody is not performing at an acceptable level, they do 
not receive the across-the-board adjustment. There are not that 
many people in that category, but especially when we are in a 
circumstance in which we are increasingly constrained budgets, 
I think it is something that needs to be considered.
    Ms. Norton. Well, it certainly is, but I would suggest to 
you that when speaking about reforms of an entire system as 
large as the 180,000 Homeland Security system, you speak about 
that group, not give it as a justification for everything that 
has been done with respect to these changes.
    Thank you very much, Mr. Chairman.
    Mr. Walker. And if I can, Mr. Chairman, come back.
    I agree with you on several things, Ms. Norton, and that is 
these 22 agencies that were combined to make the Department of 
Homeland Security, before September 11, 2001, before they were 
combined, many of them weren't in the homeland security 
business. OK? A lot of them are in it now, but to very 
differing degrees. You have very different kinds of career 
streams, very different kinds of cultures, very different types 
of systems, even different kinds of uniforms. OK? As little 
things as that. So it is a massive undertaking. That is why I 
come back to say we need to approach this in a considered 
manner, with the right type of attention, on an installment 
basis, and it is really important they get it right, because it 
is not only important to the Department of Homeland Security, 
it has implications beyond the Department of Homeland Security 
as well.
    Mr. Porter. Thank you, Mr. Walker. I know that you are 
trying to depart in about 5 or 10 minutes. I am going to hold 
my questions.
    Actually, Ms. Holmes Norton, you asked some questions for 
me, and I appreciate it.
    I would like to turn it over to Mr. Davis for one 
additional question.
    Mr. Davis. Thank you very much, Mr. Chairman. I only have 
one additional question.
    Mr. Walker, you described how you select individuals for 
the Mandatory Removal Panels from the list, but I understand 
the Secretary of DHS can actually ignore anybody that is 
submitted or lists that the unions might provide for those 
recommendations, and he or she really has sole discretion to 
make those selections. The other question, though, is you have 
just gone through modernization of your agency, of the GAO. If 
you were making recommendations to Homeland Security, what 
would you say to them that they really need to do?
    Mr. Walker. Well, I think there is quite a bit in my 
testimony, and I can tell you that we have shared a lot of our 
knowledge and experience with the Department of Homeland 
Security, as we are doing with the Department of Defense, about 
what we have done and how we have gone about it; what has 
worked and what hasn't worked, for their consideration as they 
deem appropriate. I would be happy to provide for the record, 
if you want, Mr. Davis, if I can think of additional things 
that I haven't already put in my testimony or something, to 
provide that for the record.
    Mr. Davis. OK.
    Mr. Porter. Thank you.
    Mr. Davis. Thank you very much, Mr. Chairman.
    Mr. Porter. Thank you.
    And we thank you, Mr. Walker, for being here and for your 
testimony.
    Mr. Van Hollen. Mr. Chairman, if I could ask Mr. Walker 
just a few questions.
    Mr. Porter. Certainly.
    Mr. Van Hollen. I know your time is short, but just to 
followup on the pay-for-performance issue, because we have had 
a lot of testimony in this subcommittee and the full committee, 
and even joint committees with the Senate, on this, and I think 
everyone agrees that the concept of paying people based on 
performance or merit or contribution, the result we want for 
taxpayers, is important. The devil is in the details. And I do 
recall testimony you gave before a joint Senate-House committee 
last year where you sort of graded different agencies and 
departments within the U.S. Government as to how prepared they 
were at laying the groundwork for that. And I know you and the 
GAO worked very hard over many years to try to build 
predictability, reliability into the system, and I am very 
concerned that rushing into this is going to create havoc, it 
is going to undermine the confidence in the system. There is a 
story in the Metro section today about pay-for-performance at 
NASA, I believe, where people feel that employees are being 
rewarded based on going along to get along, as opposed to 
merit, and that is always the trouble when you go to these 
systems, where there are not clear indicators.
    Are you confident that the Department of Homeland Security 
has in place today the kind of system that would inspire 
confidence, predictability, clear standards for performance 
that would make sure that we avoid what I think we probably all 
want to avoid, is people being rewarded based either on 
political loyalty or because they're the boss's favorite, or 
something other than merit.
    Mr. Walker. Well, they have stated their intention to have 
it in place. They don't have it in place today. Several 
comments that I would make that I think are relevant to this. 
First, you need to move on an installment basis, and they have 
intimated that is what they intend to do. You have 170,000-plus 
individuals, very different occupations, a number of different 
locations. You need to move on an installment basis. Second, 
you need to have that modern effective and credible, and 
hopefully validated, preferably validated, performance 
appraisal system based on competencies or other written factors 
in place, and I would recommend tested for 1 year, before you 
go to broader-based pay-for-performance. And I do, however, 
believe that, as Ms. Holmes Norton and I exchanged earlier, 
that individuals, even before you go to the broader-based pay-
for-performance, I do not believe that individuals--and there 
are not many, let me make that clear, there are not many--who 
are not performing at an acceptable level should be guaranteed 
any pay increase, whether they are under the GS system or under 
a more flexible market-based and performance-oriented 
compensation system.
    Mr. Van Hollen. Thank you. I hope that the Department of 
Homeland Security will take your advice and hopefully what will 
be the advice of this committee in that regard, because, again, 
if you undermine confidence in the system at the beginning, it 
is very difficult to gain that confidence down the road; and I 
think it very dangerous to move too quickly in this particular 
area. Talk about expanding this whole notion beyond, to the 
rest of the Government, before we have even begun a small 
installment program at the Department of Homeland Security 
worries me a lot, and the whole Defense Department, given the 
management problems at the Defense Department that you at GAO 
have chronicled, I am really concerned about it there as well.
    So, Mr. Chairman, I just hope that we will make sure that 
this is not done in a way that will, in the end, undermine 
confidence and destroy the merit system that has been in place, 
albeit with some certain faults, which you have identified.
    Mr. Porter. Thank you, Mr. Van Hollen. I appreciate your 
questions and input.
    I have a couple of questions I wish you could respond to 
later. One, I am very, very concerned about the collaborative 
process and some additional insights on that. Also, I am a 
large supporter of keeping things simple, and it seems to me 
this pay system is very complicated. And as I mentioned 
earlier, the term flexibility has a tendency to frighten 
people. If you would, again--you don't have to do it right now, 
Mr. Walker, because I know your time is limited, but if you 
would give some of your insights on this not very simple pay 
system and how we can help share that with some of the 
employees.
    Having said that, let me conclude by saying that I concur, 
we cannot rush into a major change. I am anxious to hear from 
DHS this morning to get their perspective. My understanding is 
that they are going to be considering extending this through 
2009. But I share those concerns and definitely appreciate your 
input and your comments this morning, Mr. Walker.
    Mr. Walker. Thank you, Mr. Chairman. Happy to answer any 
questions that you or other Members may have for the record. 
Thank you so much.
    Mr. Porter. Thank you.
    I would like to bring up the next panel, the second panel 
of witnesses. If they would come to the table, please.
    Good morning, gentlemen. Do you all agree that our meeting 
should be in Las Vegas? Is that OK? Just checking.
    First to open with a statement from the Honorable Mr. Neil 
McPhie, the chairman of the Merit Systems Protection Board. 
Following the Honorable Mr. McPhie, we will have Mr. Ronald 
Sanders, the Associate Director of Strategic Human Resources 
Policy at the U.S. Office of Personnel Management; and, 
finally, we will hear from Mr. Ronald James, Chief Human 
Capital Officer to the Department of Homeland Security.
    I thank you all for joining us today.
    Mr. McPhie.

    STATEMENTS OF NEIL A.G. MCPHIE, CHAIRMAN, MERIT SYSTEMS 
   PROTECTION BOARD; RONALD SANDERS, ASSOCIATE DIRECTOR FOR 
  STRATEGIC HUMAN RESOURCES POLICY, U.S. OFFICE OF PERSONNEL 
  MANAGEMENT; AND RONALD JAMES, CHIEF HUMAN CAPITAL OFFICER, 
                DEPARTMENT OF HOMELAND SECURITY

                 STATEMENT OF NEIL A.G. MCPHIE

    Mr. McPhie. Thank you, Mr. Chairman. Mr. Chairman, members, 
I am Neil McPhie. I am the chairman of the U.S. Merit Systems 
Protection Board. As you know, the Board is an independent 
quasi-judicial agency established to protect Federal merit 
systems against partisan, political, and other prohibited 
personnel practices. We carry out our statutory mission through 
the adjudication of employee appeals of personnel actions and 
by conducting objective studies of the Federal merit systems.
    I appreciate the opportunity to appear before you this 
morning to discuss the potential impact of the new Department 
of Homeland Security appeal system on the Board. I respectfully 
submit my written statement and request that it be included in 
the hearing record.
    I will use this time simply to summarize some of my 
comments.
    Mr. Porter. Thank you.
    Mr. McPhie. As mandated by statute, the Board participated 
in the consultative process with DHS and OPM for developing 
these regulations. The Board took its consultant role very 
seriously; it is a small agency. However, members of my staff 
attended numerous meetings with DHS and OPM representatives 
throughout this process. We provided comments and written 
responses to draft regulations. After numerous hours of 
consulting with DHS, the results were that DHS decided to keep 
MSPB as the adjudicator of the employee appeals, with modified 
and expedited process.
    I want to tell you this, in my judgment, was a major 
accomplishment for the Board. Beginning this process, there was 
palpable fear in the agency that the Board was going to be 
deprived of some 40 percent of its cases. While we are pleased 
that DHS has decided to retain the services of the Board for 
the adjudication of employee appeals, the new regulations will 
significantly impact the Board's procedures and operations.
    Let me first begin by what has not changed. The DHS appeal 
system provides an employee who is subjected to an adverse 
action, such as removal or suspension, the right to a de novo 
review before an outside body, the Merit Systems Protection 
Board. An appeal is filed with a Board administrative judge, 
and upon either party's request the administrative judge's 
decision is reviewable to the full Board. The burden of proof 
remains on the employing agency, and the standard of proof is 
preponderance of the evidence. After a final Board decision has 
been made, if dissatisfied, the employee has the right to seek 
judicial review.
    As someone who values the Board role in the Federal Civil 
Service system, I am pleased that DHS has included these basic 
features in its appeal scheme.
    Now to the changes. At Board headquarters, the most 
significant effect of the new appeal system is that the 
shortened timeframes may require the Board to create two 
administrative tracks for processing the appeals. We call them 
petitions for review. Traditionally, the Board has adjudicated 
cases on a first-in, first-out basis at headquarters. The Board 
will not be able to treat DHS cases in this way, given the 
deadlines that DHS has imposed for Board decision. It is 
possible that the Board will have to create a separate track 
for DHS cases and place priority on these cases over other 
equally important cases. This arrangement may likely mean that 
parties to non-DHS cases will have to wait longer than they 
otherwise would have for a Board decision.
    At the Board's regional offices, the DHS system would also 
change many aspects of the processing of cases by 
administrative judges. The point is both the agency and the 
employee will feel the immediate impact of this compressed time 
table. They will have less time for discovery, less time to 
pursue settlement discussions, and less time to prepare for a 
hearing that they would under the Board's rules governing non-
DHS cases.
    Another major change in practice before Board judges is the 
introduction of summary judgment. Summary judgment is a well 
known and well utilized device in courts of law; however, that 
system has not been used in the Board's procedure before now. 
Therefore, it seems to me the average employee who suddenly 
discovers that he or she no longer has that right to a hearing 
before a judge will be, in all likelihood, surprised, confused, 
and in some instances even angry. A similar right, the right to 
a hearing, is a staple of Civil Service systems in many States. 
This is no longer the case with DHS employees.
    My red light is on, but with your permission, there are a 
couple of more points I would like to make.
    The overall thrust of the other changes are described in my 
written statement, and that is to reduce the discretion of 
Board administrative judges to manage cases according to their 
individual circumstances, a discretion that historically has 
been exercised and, in the main, exercised wisely. For example, 
the DHS system imposes detailed rules on case suspensions and 
the conduct of settlement conferences, matters that ordinarily 
have been left to the administrative judge's discretion to 
manage a case.
    Perhaps the biggest limit on discretion of administrative 
judges, a limit that also applies to the Board, concerns the 
mitigation of penalties. The designers of the new system 
apparently believe that administrative judges and the full 
Board have too much freedom to set whatever penalty they deem 
appropriate. As explained in detail in my written statement, 
the Board has not chosen penalties willy-nilly , but instead 
has historically given deference to the judgment of agency 
managers and the mission of the agency. In any event, under the 
new system, the Board may not mitigate a penalty unless it is 
to disproportionate to the offense as to be wholly without 
justification. Naturally, this new standard will be the subject 
of interpretation by the Board and ultimately by the court, so 
I can't tell you, at this point in time, what a Board's 
decision will be until a live case comes before it.
    I want to also point out I was intrigued by the focus on 
mitigation and asked for and received statistics. I wanted to 
know how many cases, on average, have been mitigated by the 
Board over time, and I looked at some 3 years worth of numbers, 
2002, 2003, and 2004; and what I find is at the field level, 
between 2 to 3 percent of cases involve mitigation. Some of 
those cases, when appealed, that decision is reversed by the 
full Board, so the number of cases in which mitigation is 
issued is even smaller.
    It should also be noted that the portion of the DHS rules 
concerning mandatory removal of fences may not work as well as 
intended. First, in some cases, this portion of the rules could 
work against the stated goal of streamlining the appeals 
process. As DHS envisions it, if a mandatory removal action is 
taken but not sustained, DHS may take a second action based on 
the same conduct. The second action would then be appealable. 
DHS rules do not allow for hybrid action based on a mandatory 
removal charge or lesser included charge. If there was such a 
hybrid action, the possibility of two Board appeals, and 
perhaps inconsistent decisions, arising out of the same conduct 
would be eliminated.
    The second problem spot, and I think it is a significant 
problem spot, concerns judicial review in mandatory removal 
matters. According to the DHS rules, if the Board does not 
render a decision within 30 days, or 45 days if the deadline is 
extended, the Board will be considered to have denied review. 
In that situation, again, according to the rules, the DHS 
decision will become the final Board decision and, therefore, 
appealable to the circuit court. There is no right to judicial 
review without a final Board decision. That is in 5 U.S.C. 
Section 7703. The statute says it quite clearly. What remains 
to be seen is whether the Board's reviewing court will take 
jurisdiction in a mandatory removal matter where the Board has 
not actually rendered a decision. Here too the answer will have 
to await the word of a court in a live case, but I will be 
surprised if the court does in fact find jurisdiction in such a 
case.
    The changes I have discussed, and I have discussed in more 
detail in my written response, will impact all aspects of the 
Board's processes. It is likely that the Board will have to 
increase its career staff so as to meet the expedited 
timeframes in the DHS appeal system, and still provide fair and 
timely adjudication for cases involving other agencies. 
Whatever the cost, we are confident that we will provide the 
same high quality of services for which have become known, even 
in the compressed timeframes mandated by the new appeals 
system.
    We look forward to working with DHS to ensure the success 
of its new personnel system. Thank you very much for the 
opportunity.
    [The prepared statement of Mr. McPhie follows:]



  
    
    Mr. Porter. Thank you, Mr. McPhie.
    Next, Mr. Sanders.

                  STATEMENT OF RONALD SANDERS

    Mr. Sanders. Thank you, Mr. Chairman. I am Ron Sanders, 
Associate Director for Strategic Human Resources Policy at the 
Office of Personnel Management. It is my privilege to appear 
before you today to discuss the final regulations implementing 
a new human resource management system in the Department of 
Homeland Security, a system that we truly believe to as 
flexible, contemporary, and excellent as the President and the 
Congress envisioned. It is the result of an intensely 
collaborative process that has taken almost 2 years, and I want 
to express our appreciation to your subcommittee for its 
leadership in this historic effort. Without that leadership, we 
wouldn't be here today, and we look forward to your personal 
involvement in the future.
    Mr. Chairman, with the Homeland Security Act of 2002, you 
and other Members of Congress gave the Secretary of DHS and the 
Director of OPM extraordinary authority, and with it a grand 
trust, to establish a 21st century human resource management 
system that fully supports the Department's vital mission 
without compromising the core principles of merit and fairness 
that ground the Federal Civil Service. Striking the right 
balance between transformation and tradition, between 
operational imperatives and employee interests is an essential 
part of that trust, and we believe we have lived up to that in 
these final regulations.
    I would like to address that balance this morning with a 
particular focus on performance-based pay, employee 
accountability, and labor management relations. First, pay-for-
performance.
    The new pay system established by the regulations is 
designed to fundamentally change the way DHS employees are 
paid, to place far more emphasis on performance and market in 
setting and adjusting rates of pay. But would it inevitably 
lead to politicization, as some have alleged? Absolutely not. 
All Federal employees are ``protected against arbitrary action, 
personal favoritism, or coercion for partisan political 
purposes.'' That statutory protection is still in place and 
binding on DHS, and it most certainly applies to decisions 
regarding an employee's pay.
    If a DHS employee believes that such decisions have been 
influenced by political considerations or favoritism, he or she 
has the right to raise such allegations with the Office of 
Special Counsel, have the OSE investigate and, where 
appropriate, prosecute them, and to be absolutely protected 
from reprisal and retaliation in so doing. These rights have 
not been diminished in any way whatsoever.
    The new system also provides for additional protections 
that guard against any sort of political favoritism in 
individual pay decisions. Under the new system, supervisors 
have no discretion with regard to the actual amount of 
performance pay an employee receives. That amount is driven 
strictly by mathematical formula, an approach recommended by 
DHS unions during the meet and confer process. With but one 
exception, the factors in that formula cannot be affected by an 
employee's supervisor. Rather, they are set at higher 
headquarters, with union input and oversight through a new 
compensation committee, another product of the meet and confer 
process, that gives them far more say in such matters than they 
have today.
    The exception is the employee's annual performance rating. 
That is the only element of the system within the direct 
control of the employee's supervisor. And the regulations that 
allow an employee to challenge it if he or she doesn't think it 
is fair, all the way to a neutral arbitrator if their union 
permits, another product of the meet and confer process.
    Mr. Chairman, with these statutory and regulatory 
protections providing the necessary balance, as well as 
intensive training and a phased implementation schedule to make 
sure DHS gets it right, we are confident that the new pay-for-
performance system will reward excellence without compromising 
merit.
    Let us take a similar look at accountability and due 
process. DHS has a special responsibility to American citizens 
in that regard. Many of its employees have the authority to 
search, seize, enforce, arrest, even use deadly force in the 
performance of their duties; and their application of these 
powers must be beyond question. By its very nature, the DHS 
mission requires a high level of workplace accountability. We 
believe the regulations assure this accountability, but without 
it compromising any of the due process protections Congress 
guaranteed. In this regard, DHS employees are still guaranteed 
notice of proposed adverse action and a right to reply before 
any final decision is made in the matter. In addition, the 
final regulations continue to guarantee an employee the right 
to appeal an adverse action to MSPB or to arbitration, except 
those involving mandatory removal offenses; and I am sure we 
will talk about those.
    Further, in adjudicating these employee appeals, regardless 
of forum, the final regulations place a heavy burden on the 
agency to prove its case against an employee. Indeed, in 
another major change resulting from the meet and confer 
process, the regulations actually establish a higher overall 
burden of proof, a preponderance of the evidence standard, for 
all adverse actions, whether based on conduct or performance. 
While this standard currently applies to conduct-based adverse 
actions, it is greater than the substantial evidence standard 
presently required for performance-based removals.
    Finally, the regulations authorize MSPB, as well as 
arbitrators, to mitigate penalties in adverse action cases. The 
proposed regulations precluded such mitigation, as does current 
law in performance-based adverse actions. Let me repeat. Under 
current law, no mitigation under performance-based removals. 
However, the final regulations allow mitigation when the agency 
proves its case against an employee by a preponderance of the 
evidence. The standard in the regulation is admittedly tougher 
than those MSPB and private arbitrators apply today, with far 
more authority in performance cases, where, again, mitigation 
is not allowed. However, given the extraordinary powers 
entrusted to the Department and its employees, and the 
potential consequences of poor performance and misconduct to 
its mission, DHS should be entitled to the benefit of the doubt 
in determining the most appropriate penalty. That is what the 
new mitigation standard is intended to do, and it is balanced 
by the higher standard of proof.
    Finally, a quick look at labor relations. Accountability 
must be matched by authority, and here current law governing 
relations between labor and management is out of balance. Its 
requirements potentially impede the Department's ability to 
act, and that cannot be allowed. Now, you will hear that 
current law already allows the agency to do whatever it needs 
to do in an emergency. That is true. However, that same law 
does not allow DHS to prepare or practice for an emergency, to 
take action to prevent an emergency, to reassign or deploy 
personnel or new technology to deter a threat, not without 
first negotiating with unions over implementation, impact, 
procedures and arrangements. On balance the regulations ensure 
that the Department can meet its critical mission, but in a way 
that still takes union and employee interests into account.
    Mr. Chairman, if DHS is to be held accountable for homeland 
security, it must have the authority and flexibility essential 
to that mission. That is why Congress gave the Department and 
OPM the ability to create this new system. That is why we have 
made the changes that we did. However, in so doing, we believe 
that we have succeeded in striking an appropriate balance 
between union and employee interests on the one hand and the 
Department's mission imperatives on the other.
    That concludes my statement. I would be happy to answer 
questions at the appropriate time.
    [The prepared statement of Mr. Sanders follows:]


  
    
    Mr. Porter. Thank you, Mr. Sanders. Appreciate it.
    Mr. James.

                   STATEMENT OF RONALD JAMES

    Mr. James. Mr. Chairman, members of the committee, I am Ron 
James, the Chief Human Capital Officer for the Department of 
Homeland Security. It is a privilege to appear before this 
subcommittee to discuss the final regulations implementing the 
new DHS Human Resources Management System. I am proud to report 
these regulations are the successful culmination of months of 
difficult work by many players to accomplish the charge that 
Congress set before us. They contain significant changes that 
are necessary for the Department to carry out its mission. They 
also unlock the full potential of our DHS civilian employees.
    The collaborative processes used were designed to ensure 
that a broad variety of viewpoints were considered and the best 
options were adopted. For example, when the proposed 
regulations were published, we made a conscious decision to 
utilize an electronic comment process, facilitating the 
involvement of DHS employees, their representatives, and the 
general public. Over 3,800 responses were received, 
demonstrating the success of this tactic and the very important 
engagement of our employees.
    Another component of our collaboration stemmed from 
congressional direction that we engage in a ``meet and confer 
process'' with employer representatives. We complied with both 
the letter and the spirit of that direction, meeting before the 
formal meet and confer sessions to help us better understand 
each other's positions and extending the overall meet and 
confer time period in an effort to resolve ongoing issues. The 
collaborative process has been a meaningful one, and we have 
made a number of significant changes to our final regulations 
as a result.
    For example, we have created a compensation committee that 
includes representatives from our two largest labor unions to 
address strategic compensation matters such as the allocation, 
as one example, of funds between market and performance pay 
adjustments. We provided our employees and unions a meaningful 
role in the design of further details in the pay-for-
performance system in a process of ``continuing collaboration'' 
in the development of implementing directives. We have modified 
our schedule for implementing the pay-for-performance system in 
response to strong union concerns, as well as others, that the 
proposed schedule did not allow adequate time to train 
managers, to evaluate system effectiveness, and we agree that 
mandatory removal offenses [MROs] will be published in the 
Federal Register and made known annually to all employees.
    Throughout the entire collaboration process, we followed a 
set of guiding principles adopted from the onset of our design 
process. First and foremost, DHS must ensure that its HR 
management system is mission-centered, performance-focused, and 
based on the longstanding principles of merit and fairness 
embodied in the statutory merit system principles. While we 
believe that our final regulations achieve that balance, there 
remains several areas where we have fundamental disagreements 
with union leadership on aspects of the new HR system. We 
believe that these issues, such as using performance rather 
than longevity as the basis for pay increases and providing for 
increased flexibilities to respond to mission-driven 
operational needs, or balancing our collective bargaining, go 
to the very core of congressional intent in granting these 
flexibilities.
    The final regulations emanating from the collaborative 
process point to the way to a new paradigm for human capital 
management not just for DHS, but for the entire Federal 
service. This paradigm includes a strong correlation between 
performance and pay, and greater consideration of local market 
conditions. It adopts streamlined procedures for ensuring 
conformance with the principles of equal pay for work of equal 
value; includes simplified and streamlined adverse action and 
appeals procedures, while ensuring fairness and due process; 
and reaches a balance between core Civil Service principles and 
mission essential flexibilities.
    Significant changes in the compensation plan include: 
replacing the General Schedule with open payroll ranges; 
eliminating the steps in the current system that are largely 
tied to longevity; creating performance pay pools where all 
employees meeting performance expectations will receive 
performance-based increases; basing compensation on local 
market conditions for different job types, rather than 
providing all job types in a market with the same geographic 
pay adjustment; absent such a market-based system, we cannot 
assure DHS's ability to compete for top talent. And we are 
making and going to make meaningful distinctions in performance 
and holding employees accountable at all levels. Current 
systems which provide a general across-the-board increase and 
rarely denied within-grade increases do little to encourage or 
reward excellence in the work force.
    Some of our significant changes regarding adverse actions 
and appeals include: streamlining the adverse action appeals 
procedures by shortening minimum notice and reply periods. By 
working with MSPB to modify their procedures to gain 
efficiencies, without impairing the fair treatment and due 
process protection; simplifying a process that is confusing to 
both employees and supervisors by eliminating the requirement 
for managers to differentiate between an individual's inability 
or unwillingness to perform in order to address performance 
issues; creating a category of offenses that have a direct and 
substantial impact on the ability of the Department to protect 
homeland security. These offenses would be so egregious that 
supervisors have no choice but to recommend removal.
    Our regulations contain major changes regarding labor-
management relations, such as requiring that we confer, not 
negotiate, with labor unions over the procedures followed to 
take management actions, such as assigning work or deploying 
personnel. Also, bargaining over the adverse impact of 
management actions on employees is only required when the 
impact is significant and substantial, and the action has 
exceeded 60 days. Neither the confer process nor the obligation 
to bargain impact can delay our taking action. Providing for 
mid-term bargaining over personnel issues, personnel policies, 
practices, and matters affecting working conditions only when 
the changes are foreseeable, substantial, and significant in 
terms of impact and duration. The substantial and significant 
test is consistent with current FLRA and private sector case 
law. And in response to additional union comments and concerns 
of others, we provided for binding resolution of mid-term 
impasse by the Homeland Security Labor Relations Board.
    Establishing a separate labor relations board focused on 
the DHS mission to ensure independence and impartiality valued 
by both us and the unions, the Board will not report to the 
secretary. Its three external members will be appointed for a 
fixed term and will be subject to removal only for 
inefficiency, neglect of duty, or malfeasance.
    We pledged at the beginning of this process to preserve 
fundamental merit principles, to prevent prohibited personnel 
practices, and to honor and to promote veterans' preferences. 
We have honored those commitments. These are core values of 
public service that will not be abandoned. We also set out to 
fulfill the requirements of the Homeland Security Act to create 
a 21st century system for human capital management. We believe 
that the system we have developed accomplishes these 
objectives. We are proud of what we have created and of the men 
and women who have made it possible, especially those at DHS.
    That concludes my remarks, Mr. Chairman, and I would 
welcome any questions.
    [The prepared statement of Mr. James follows:]



  
    
    Mr. Porter. Thank you, Mr. James. I appreciate it. I have a 
couple questions.
    Mr. McPhie, having had a chance to look at your written 
statement and then, of course, hearing your verbal statement, 
it appears to me that you have made it quite clear that you are 
not very much in favor of this change.
    Mr. McPhie. Oh, no, not at all, sir.
    Mr. Porter. If I can finish. I appreciate your role is very 
important in the process, but my understanding is, from some of 
the discussions that you had with staff prior, that you were 
concerned about losing some caseload compared to what you have 
today; and in your testimony it sounds like you are expecting a 
major burden upon your organization. I know that you gave some 
specifics, training of judges, needing additional resources, 
and I can appreciate that, but can you tell me what you see is 
good about the change? Do you see anything good that could come 
of this if it is done properly?
    Mr. McPhie. Oh, absolutely. Our role is a little bit 
different from everybody else here. Everybody here at this 
table is a stakeholder in any case, in any outcome of any case. 
We are not. Our role simply is when the system that is 
created--and we take the system that is created as it is 
created. When that system breaks down in some individual 
dispute, then we step in and sort of decide who wins, who 
loses, so on and so forth. So we come at this completely 
differently.
    When I talk about the system--and I have had many a 
conversation with my good friend now, Dr. Sanders, and he knows 
where I stand on issues. We have had some very tough 
conversations and very friendly conversations, but in the end 
very helpful conversations. I assume that the best way I can 
serve the Federal employees and the best way I can serve the 
President, who appointed me, was to do the best darn job I 
possibly could when it came to establishing an appeals system. 
I have practiced law before these kinds of systems for many a 
year. Some of the conversation that was brand new to them had 
been there, I had seen that. I have represented employers. I 
have a unique capacity to understand what makes agency people 
tick; why they get upset with review bodies like the Board. I 
can tell you I have been privy to many discussions regarding 
mitigation. They hate it. Why? Because it is a limit on their 
power to do what they think is right. So there is a natural 
tension here.
    The Board is not in a popularity business. We felt that the 
best way they can use us in a consultative role was really to 
say to our colleagues, the designers, have you thought of this 
or have you thought of that, and so on and so forth. I believe, 
contrary to what I have read in many statements, that the 
process provides due process to people. I think what people are 
reacting to are some of the particulars about the process. But 
the fundamentals of due process is in this: notice and 
opportunity to defend yourself in a meaningful fashion. Due 
process doesn't necessarily require defending before an 
external body, but this process says let us continue the 
external body, which is the Board. I think that is a good 
thing.
    So when I talk about some of the timeframes and so forth, I 
am facing reality. Reality is I look at current caseloads and 
current performance, and the Board turns around cases pretty 
quickly, all things considered. And then you have a whole body 
of cases that come in the door--and remember, we are going to 
have DOD cases too, at some point, I hope--and we are required 
to stop what you are doing and shift all your resources to this 
case that takes precedence. Well, you know, if you are in a 
non-DOD or a non-DHS, I am sorry, agency, they would argue that 
is unacceptable. So we are sort of between a rock and a hard 
place. But we have given our commitment to DHS. I think they 
struggled with a lot of different concepts and so forth. I 
think they started off with the desire not to have the Board, 
and I think they have come a long way in, in fact, giving the 
Board some power over their cases, and I think that is 
extremely important.
    Mr. Porter. Thank you, Mr. McPhie. I appreciate your 
comments. My point was that some of the discussions had with 
staff was contrary to what your presentation was this morning. 
We can continue this some other time, but I appreciate your 
response to that.
    Mr. Davis.
    Mr. Davis. Thank you.
    Chairman McPhie, are you saying that your Board does not 
have the resources to meet the expedited timeframes of DHS 
relative to appeal?
    Mr. McPhie. No, we can meet the expedited timeframes. The 
question is once we meet those expedited timeframes, how does 
it impact everything else. I heard Ms. Norton speak in terms of 
backlogs at the EEOC and what she had to do, so I assume she 
would appreciate the whole notion and displeasure and distaste 
of having to explain to people why they can't get a decision.
    Mr. Davis. Well, when you say impact, are you speaking of 
positively impacting or negatively impacting?
    Mr. McPhie. There is a potential for negative impact. I 
mean, we won't know for sure until--this stuff is a work in 
progress. We are looking at the numbers, the cases, where they 
are, the dynamics of personnel, that type of thing, and what we 
have to do at the various offices to make sure this thing 
works. Frankly, our preference--and I have been told this by 
staff over and over and over--in terms of regional offices, 
where the first-time action is, where the case is filed, where 
the hearing occurs, where there is a lot of interaction with 
the public, we don't want to create two tracks of cases.
    Mr. Davis. Thank you.
    Mr. Sanders. Mr. Davis, let me just interject too. One of 
the projections that we built into the regulations in response 
to the concerns that Mr. McPhie shared with us during the 
consultation process was a provision that says if the Board 
fails to meet the time limits imposed, that will not prejudice 
any party to a case. So there is not an automatic default. If 
they don't meet the 90 days for an AJ decision, which is in 
fact the current time targets anyway, or 90 days after that for 
a full Board decision, a total of 180 days, if they fail to 
meet that, that doesn't mean that one side or the other 
automatically loses. The regulations say that doesn't prejudice 
either party, they simply go about their business and render 
their decision.
    Mr. Davis. Very good.
    Mr. Sanders, let me just ask you. In your testimony you 
talked about a mathematical formula for performance payouts. 
Could you amplify that a little bit? How would that work?
    Mr. Sanders. There are four variables, and at the risk of 
giving you all migraines: performance rating, pay pool and the 
dollars in the pay pool, and the ratings distribution. We have 
already talked a little bit about the rating. You will see a 
multi-level rating system, except for trainees, no pass-fail, 
and the pay-for-performance system in the Department of 
Homeland Security. So fully successfully, most likely fully 
successful exceeds an outstanding. Let us say three levels. If 
you are unacceptable, you don't participate in performance pay. 
And as Ron James said, nor do you get across-the-board 
increases.
    So let us focus on those people who meet expectations, 
exceed expectations, and who are outstanding. Managers rate 
those employees just as they do today. Each of those ratings 
has a point value. That point value is established at a higher 
headquarters through oversight of the Compensation Committee. 
The funding in that pay pool is also established at a higher 
headquarters with oversight from the Compensation Committee. 
You simply take the rating, multiply it times the point value, 
and divide the points into the dollars, and you get your share 
of the pool.
    And let me anticipate a question. The regulations 
absolutely positively bar and prohibit forced distributions of 
ratings. You can't bust the budget because the pool is finite. 
You simply divide the available dollars in the pool amongst the 
employees based on their rating. And the amount in the pool, 
the amount of the Department's payroll that will go to 
performance pay is set by the secretary on the advice and input 
of the Compensation Committee, four members of which are from 
the Department's two major unions, far more influence in those 
matters than unions currently enjoy today, where they sit on 
something called a Federal Salary Council and get to talk a 
little bit about locality pay. Under the Compensation Committee 
they will determine how much of the Department's annual 
appropriations increase in payroll goes to performance, the 
national market adjustments and local market adjustments. 
Secretary reserves the right to make final decisions; after 
all, he is accountable for the budget. They will decide how 
that is divided up by location and occupation, and how much 
goes into the performance pay pool set up under the system.
    Again, unions have involvement. It is not collective 
bargaining, which is what they preferred, but they have 
substantial involvement in that process to provide the 
oversight and credibility to make sure it works.
    Mr. Davis. Let me ask you what happens to an individual who 
is rated unacceptable?
    Mr. Sanders. A individual who is rated unacceptable 
somewhere in the salary range simply doesn't get a pay 
increase, either performance pay or across-the-board. If the 
employee is at the bottom of the range--and this is one of the 
details the unions asked us to address. You have undoubtedly 
heard a lot of folks complain about the lack of detail in the 
regulations. I am here to tell you we added substantial detail 
during the meet and confer process. This is one of those 
details. If the employee is at the minimum level of pay, he or 
she is unacceptable and everybody else in the pay range goes up 
because they get across-the-board increases, the regulations 
require management to take action in 90 days. They don't just 
let the employee sit there. Either the employee's performance 
improves and they move back up into the range with everyone 
else, or the Department either demotes or removes the employee.
    The unions actually asked us for that provision because it 
requires management to take on the burden of proving the 
unacceptable rating and proving the adverse action by a 
preponderance of evidence against the employee. But if they are 
in the middle of the salary range, if they are unacceptable, 
they do not get performance pay or an across-the-board 
increase.
    Mr. Davis. So they get counseling, they get help to improve 
their rating, or they know----
    Mr. Sanders. Exactly, Mr. Davis. That is what that 90-day 
period is for. It is not an immediate action; 90 days to 
improve, and hopefully, if they do, they move up in salary 
along with everybody else who is fully successful. But if they 
don't, then action is taken.
    Mr. Davis. Thank you very much, Mr. Chairman, and I ask 
unanimous consent to have inserted into the record these two 
articles here from the Washington Post.
    Mr. Porter. Thank you. With no objection.
    [The information referred to follows:]




  
    
    Mr. Porter. I have received numerous questions from law 
enforcement officers. There is a concern about how they will be 
evaluated under this, whether it be from Border Protection, but 
certainly all law enforcement has been very consistent. Could 
one of you gentlemen address some of those concerns 
specifically, please?
    Mr. Sanders. How about if I start, Ron, and you leap in?
    The key here is what you measure. David Walker talked about 
competencies. You can measure competencies, you can measure 
behaviors, you can also measure results. Everyone agrees that 
measuring results amongst a team of law enforcement officers is 
problematic. So if you take care as to what you measure, and if 
teamwork is the most important criterion for performance, you 
simply structure your performance management system to ensure 
that is the competency or the behavior that you reward. And we 
all know that some people contribute more to a team than 
others. There are observable, objective behaviors that manifest 
somebody who is an excellent team member and somebody who 
isn't; and as long as the Department takes great care--and I 
can tell you, Mr. Porter, the Department is very concerned 
about the notion of creating destructive competition amongst 
employees not just in law enforcement groups, but in any 
workgroup, where they have to operate as a team. And if you 
take great care as to what you measure, then you can reinforce 
positive behaviors that actually help the team perform at a 
higher level rather than negative ones.
    One of the reasons the Department has gone to a far more 
measured implementation schedule, with employees having a 
minimum of 1 year under the new performance appraisal system 
before their pay is affected, and in the law enforcement arms 
of the Department 3 years before their pay is affected, is to 
make sure that they deal with that very concern you have 
expressed and that we have heard from numerous employees and 
their managers.
    Mr. Porter. Thank you.
    Ms. Holmes Norton.
    Ms. Norton. Thank you very much, Mr. Chairman.
    I must say all your testimony has done, Mr. Sanders, is 
illustrate just how difficult it is to come up with an 
objective system for pay-for-performance. Again, I speak from 
some experience, where, in an agency that wasn't doing well, we 
had great differences among employees. I am trying to put 
myself in the place of a manager who finds herself with truly 
outstanding employees at a certain level, less outstanding at 
another level, no real incompetent employees. You really drive 
me back to my other profession. I still am a tenured law 
professor at Georgetown, and we mark on the curve. When you get 
to law school, you don't expect anybody to fail, but, 
particularly if it is a good law school, there is a real 
necessity to drive yourself as between the As, the A-minuses 
and the B-pluses. Now, no money is attached to that. And when 
you tell me there is a number that you divide into the number 
of employees, I see either what we are trying to get away from, 
which is kind of driving toward some medium point, perhaps even 
mediocrity, or rewarding my truly outstanding employees and 
leaving everybody else in the lurch. Tell me how to get out of 
that.
    Mr. Sanders. There is enough in the performance pay pool to 
make sure that fully successful employees get shares that are 
worth something, those who exceed expectations get shares that 
are worth more, and those that are outstanding get even more. 
Let me drive you to another of your professions--and you have 
alluded to this--your experience in transforming EEOC. In that 
experience, it is a sort of microcosm of what is going on at 
DHS. There are some who are going to take on the tough work of 
transformation, they are going to do everything they can, they 
are going to work long hours and take risks to see improvement 
in the system, and there are others that don't. Some are along 
for the ride, they still contribute; others actively opposing. 
I am sure you would have loved to have a tool like this to take 
those people who took on the risks, worked hard, made the 
transformation work, where under the General Schedule the best 
you could do was pat them on the head and said, well, if you 
are due a step increase this year, you get it, but your 
colleagues who may not have worked as hard may also get one, 
and, by the way, everybody else is getting----
    Ms. Norton. You contemplate a kind of curve division of 
some kind, and yet we heard in the prior testimony from GAO 
that you had no performance infrastructure in place, that no 
core competence is spelled out, employee expectation spelled 
out. I am really wondering if managers aren't in some kind of 
jeopardy or in as much jeopardy as employees in this so-called 
scientific system that you have just elaborated.
    Mr. Sanders. With all due respect to General Walker, the 
regulations are superimposed upon departments and agencies that 
have exited for some time. For example, Customs and Border 
Protection, created out of the Customs Service and part of 
Immigration, has a long history of excellent human capital 
practices, of identifying competencies and evaluating employees 
based on them. They are not in the regulation. General Walker 
is correct, the regulations do not require competencies, but 
they list competencies as among those things that employees 
should be evaluated on.
    Ms. Norton. And what else, if not competencies, are you 
going to be evaluated on?
    Mr. Sanders. Depending on the job, it could be results, it 
could be behaviors, it could be knowledge and skills.
    Ms. Norton. And it is left up to the manager? Who is going 
to decide this?
    Mr. Sanders. No, ma'am. That is what the overarching system 
provides. The Department and its components will be setting 
those particular performance elements. It is not going to be up 
to a manager to say, well, I think I am going to judge you on X 
today and Y tomorrow.
    Ms. Norton. So we are just at the very beginning of this 
process, because then these various departments--which are all 
supposed to be in the same thing, but in any case I understand 
the differences--are not going to have to get together and, I 
take it, department by department decide their own 
competencies, performance standards, etc.?
    Mr. James. No. If I could just weigh in. Let me make clear 
that----
    Mr. Porter. Excuse me. Mr. James, would you just state your 
name for the record?
    Mr. James. Yes, sir. Yes.
    Mr. Porter. Thank you.
    Mr. James. It is Ron James, of DHS.
    The regs in fact have been published, but the regs do not 
take effect until the secretary signs them. We anticipate that 
labor relations, adverse actions, and appeals will probably go 
into effect sometime in the fall.
    Ms. Norton. What is March 3rd?
    Mr. Sanders. That is simply the minimum time----
    Mr. Porter. Mr. Sanders, if I could ask the panel, when you 
comment, if you would state your name, it would help when they 
do the minutes. Thank you.
    Ms. Norton. And March 3rd is? I am sorry, I am trying to 
reconcile that with what was just said. March 3rd what happens?
    Mr. Sanders. That is simply the minimum period of time, 30 
days after they are published, they can go in effect. But the 
regulations provide in the very first subchapter that because 
of that phase-in that we have talked about, the secretary then 
signals at the appropriate time, when the infrastructure is in 
place, it is now time to implement the labor relations and 
adverse subchapters, or later it is now time to implement the 
performance management subchapters.
    Ms. Norton. OK, I am going to disregard--particularly based 
on what you just said, I am going to disregard March 3rd and 
assume that no rational being would put these into effect 
before things like core competencies for each of these 
agencies, does an agency, if so, were developed, before 
employee expectations were fully down in writing and 
understood. Is that correct?
    Mr. James. It is Ron James again, and that is exactly where 
I was going. I was going to share with you that right now we 
are doing employee focus groups. We are doing those in 10 
places around the country. We are getting employer management 
input on our job clusters, that is, what is similar, what is 
alike, what kind of job make sense. We are doing that with both 
employees or union employees and non-union employees. At least 
from our two major unions we have solicited union employees to 
be involved in those focus groups. We have solicited 
specifically law enforcement focus groups to be involved, 
because we understand that we need to understand the dynamics 
of that particular group.
    And let me just add again that we are looking at this very 
carefully and very slowly; not only feedback from the focus 
groups, but feedback from the union. We anticipate that our 
first pilot group to put our performance management in place 
probably in January of next year. That will be put in place for 
all of our employees, but the only employees who will be 
affected pay-wise in January 2007 will be a group of 8,000 
employees out of roughly about 90,000 employees who will be 
impacted, because TSA, which has 45,000 employees, and the 
Military Coast Guard, which has about roughly 40,000 employees, 
will not be impacted and will not be part of the pay-for-
performance system.
    Our second wave, which will take place the following year, 
will be roughly 18,000 people. And our last wave, which will be 
almost 65,000 to 70,000 people, mostly law enforcement, they 
will not be impacted based on the new performance management 
system or will be impacted in terms of pay until January 2009.
    We have taken General Walker's comments to heart; we have 
taken the unions' comments to heart. We understand that we need 
to do this, evaluate it, get feedback, and we may need to make 
changes; and that is part of the reason that we wanted the 
flexibility of not putting details into the actual regulations, 
because we may in fact understand we will need to make 
adjustments. We should let the data and the feedback of the 
employees drive us where we are going.
    Ms. Norton. Absolutely so. Just so it gets put at some 
point down in writing.
    Mr. James. That is where we are heading.
    Ms. Norton. You are going to have a slue of various kinds 
of actions of just the kind the whole reform is designed to get 
rid of unless these things are written down so that employees 
can understand. I mean, that is minimally what, of course, we 
would require, and that is something, it seems to me, the 
committee ought to follow very, very closely.
    I have to ask a question about so-called mixed cases. When 
I was at the EEOC, what really confounded us most was these 
mixed cases, Mr. McPhie, where you have a combination of an 
adverse action of some kind and a discrimination action. Now, I 
understand that some of these cases will be handled within this 
so-called internal appeals system that is being set up. Will 
this special panel have members of the EEOC and the MSPB 
sitting on the panel, the internal panel?
    Mr. Sanders. Yes, ma'am. One of the things we did, although 
the law--I am sorry, Ron Sanders from OPM. One of the things 
the law allowed DHS and OPM to do was modify the mixed case 
procedures. We chose not to do that. We did not want to do 
anything in the regulations that diminished an employee's right 
to file a complaint of discrimination. So they can still file a 
mixed case before the Board, and you know that process probably 
better than we do. With the Mandatory Removal Panel, the same 
process identically; the only exception is that instead of MSPB 
members it is Mandatory Removal Panel members. When the special 
panel convenes, it is EEOC and the Mandatory Removal Panel 
getting together to adjudicate the case.
    Ms. Norton. So it is a mixture of the--then the MSPB isn't 
really involved in that internal system.
    Mr. Sanders. For the cases that the Board does not hear. 
For the cases it does hear, it sits with EEOC. For the cases it 
does not hear, but are heard by the Mandatory Removal Panel, it 
is the panel that sits with the EEOC.
    Ms. Norton. Well, Mr. McPhie, what was your recommendation 
on that matter, the exclusion of an MSPB member from the mixed 
case notion, where it could be either discrimination or it 
could be an adverse action?
    Mr. McPhie. The special panel hasn't been used for some 
time, for one reason or another, so there is no recent board 
history about how effective the special panel is. However, the 
special panel ought to have the adjudicators where the dispute 
arises on it.
    Ms. Norton. Can you speak more into that mic, please?
    Mr. McPhie. It seems to me I don't really understand the 
distinction in the composition of the panel between mandatory 
removal offenses and all other kinds of offenses. I heard Ron 
say that we don't hear those cases, but we do in some respect. 
We don't hear them initially, but there could be a review of a 
mandatory removal case before the Board, and then the Board can 
issue its decision. To the extent that decision conflicts with 
what EEOC's view of the outcome should be, then it seems to me 
the two agencies that really have the dispute are EEOC and the 
Board, as to whether or not discrimination occurred or didn't 
occur.
    So I go back. I have to follow----
    Ms. Norton. And there is an appeal after that.
    Mr. McPhie. Yes, ma'am.
    Ms. Norton. Well, why is there any time saved?
    Mr. McPhie. You know, I have to bow to the expertise of my 
colleagues here. For better or for worse, the Congress intended 
the statute to work in the way in which it has worked, OPM and 
DHS are the designers, period.
    Ms. Norton. But if there was an MSPB member and the EEOC 
member, or somebody with expertise in both sitting on this 
internal review panel when it hears these mandatory matters, 
might not that decision be more inclined to be seen as final 
than having one panel--and God help this internal review 
person, I can tell you. If he is going to understand this mixed 
system, he better start going to college right now all over 
again. But wouldn't it help to bring finality if both agencies 
were somehow represented in this rather small group of cases 
for mandatory removal?
    Mr. McPhie. Well, I hate to speculate. Cases are funny 
animals. The things you expect to happen don't happen. The 
things you don't expect, those are the things that happen. I 
think there is a potential for some improvement in timeliness, 
but until we really see this thing in action, I don't know that 
we know for a fact whether or not the special panel is going to 
be effective or not effective. I don't want to go too far 
afield in guessing and speculating about matters that may or 
may not occur, and I hope you understand that. At some point I 
am going to have to put on my adjudicative hat and decide 
somebody's case, and I can't bring any preconceived notions or 
some baggage----
    Mr. Porter. Ms. Norton, we have gone beyond our time, and 
there certainly----
    Ms. Norton. Yes. Thank you, Mr. Chairman. You have been 
generous.
    Mr. Porter. We will have another round also, if you would 
like, and you are welcome to use some of my time if necessary, 
but if we could wait for a moment.
    Mr. Van Hollen.
    Mr. Van Hollen. Thank you, Mr. Chairman.
    Thank you, gentlemen, for your testimony. I just have one 
comment and a couple quick questions, I hope. The first is on 
the pay-for-performance. You heard the testimony of Mr. Walker 
and you have heard some of the comments from the committee. The 
issue is making sure when you put a system like this in place 
it has the trust of the employees, the confidence of the 
employees, it is reliable, it is predictable. People have been 
working out with these different assessments in the private 
sector for a long time, and in many cases successfully, in some 
cases not successfully. But the key--and the Government 
Accountability Office itself implemented a similar pay-for-
performance system. But if you don't do it right, as I said, 
you are going to undermine the confidence of employees, and it 
is very difficult to retrieve that once it is lost. So I think 
I would just urge you to tread very carefully and consult with 
this committee and others as you move forward on that.
    With respect to the grievance procedure, first I want to 
say that I am pleased that you decided to adopt the 
preponderance of the evidence standard. There had been some 
talk earlier on of having a different standard the traditional 
standard. I am a little concerned and really question why you 
would interfere with the Board's ability in some of its current 
powers in the area of mitigation. And I think, Mr. James, you 
would agree that part of the reason for having a Merit Systems 
Protection Board review is because it is an independent body 
outside of the agency. Is that right?
    Mr. James. Yes.
    Mr. Van Hollen. OK.
    Mr. James. Ron James. Yes, sir, that is right.
    Mr. Van Hollen. OK. And so right now the standard is that 
they would support whatever action is taken by the Department, 
so long as it is ``within the range of reasonableness.'' That 
is the standard currently in use. So my question to you is why 
would you be opposed to having an independent agency mitigate 
the damages if they found that the action taken against the 
employee was not within the range of reasonableness? Why isn't 
that a good standard for an independent body to hold? Why do 
you want to throw that out in favor of some new standard that 
has no precedent associated with it and really is not clear?
    Mr. James. Sir, this is Ron James again, and let me try to 
do this without practicing law and be a good client. I have 
been reliably advised, and I have actually read some of the 
cases, but I have been reliably advised by our counsel that 
they read the MSPB cases as requiring deference to managers. 
Our overriding concern has, and continues to be, deference to 
mission. And we would respectfully submit that the current case 
law and the current standard that MSPB has in place doesn't get 
us to that second critical goal, that is, deference to mission.
    We happen to believe that we are just a little bit 
different than other Government agencies; that when employees 
don't show up to a duty or post, that is not the same at 
Homeland Security as it should be at some other agency; and 
that is a rationale. There are people that disagree with that, 
but that is how we got there. We do agree that it still needs 
to be an outside agency. We also have a very strong belief that 
in order to accomplish our mission, we need to have that 
mission essential fundamental principle grounded in the 
mitigation principle, and we don't believe it was there.
    Mr. Van Hollen. Well, let me just say I think part of 
looking at the reasonableness standard, the Board, as an 
independent board, can take into account what I think we all 
agree is the special mission of the Department of Homeland 
Security and make a determination within the context, within 
the range of reasonableness. That can be a pretty big range, 
given the fact that they give deference to the agency.
    Anyway, I don't want to belabor the point, but I do think 
that concocting a whole new standard when you have a standard 
that is very broad here to begin with, I think is a mistake.
    Let me just ask you----
    Mr. Sanders. Mr. Van Hollen----
    Mr. Van Hollen. Let me ask you quickly, before my time runs 
out, and I would be happy to hear the response.
    With respect to an issue regarding the ability of employees 
within the Department of Homeland Security to be part of a 
bargaining unit, as I understand right now, there are about 
1,900 employees who are currently within the combined Bureau of 
Customs and the Border Protection [CBP], who are currently 
designated as bargaining unit employees eligible for union 
representation, and that under the proposals you have made 
there has been a re-designation of those employees, and they 
would no longer be covered within the bargaining unit. I would 
appreciate--first of all, I don't know if you are aware of that 
issue and, second, if you are, if you could please comment.
    Mr. James. It is Ron James again, sir, and I am aware of 
that issue. I was aware that was before the FLRA. My 
understanding is, and I will correct this if it is wrong, as of 
2 days ago, that we were in intense discussions with unions 
about how many of the 30,000 employees, if any, should be 
excluded from bargaining unit positions; and my understanding 
is we were down to under 2,000. That was my latest information. 
But my understanding also is that the discussions have not been 
completed and that it is a matter that will ultimately be 
resolved by the FLRA if the parties can't reach a consensus. 
And if I could supplement my comments to make sure that my 
status report is in fact up to date and accurate, I would 
appreciate that.
    Mr. Van Hollen. Mr. Chairman, in fact, I would appreciate 
it if you would supplement your comments in writing.
    Let me, in closing, just on that last point. Is it your 
intention that employees who are currently being covered by the 
bargaining unit continue to be allowed to be covered by the 
bargaining unit?
    Mr. James. I am not sure how to answer that question. It is 
Ron James again. If we move somebody from a position that 
doesn't require a security clearance, and they are currently 
covered and they are going to get a security clearance, it 
would be our anticipation that--or if we were to promote them 
where they were actually a working supervisor or supervisor, 
they would in fact move outside the bargaining unit. I am not 
quite sure how to answer.
    Mr. Van Hollen. OK. Well, within the current 
classifications that exist.
    We can pursue this later, Mr. Chairman.
    Also, I would also appreciate your response in writing.
    Mr. James. It is Ron James again, sir, and I would be happy 
to followup and provide the Chair and you with information on 
the status and exactly what we are intending to do.
    Mr. Van Hollen. Thank you.
    Mr. Porter. Thank you, Mr. Van Hollen, very much.
    I have an additional question regarding the pass-fail 
system. I know we have touched upon it a little bit this 
morning, but the final regs say that the entry level employees 
and others in extraordinary situations will be placed under a 
pass-fail system. How is it possible that such a system can be 
compatible with a performance-oriented? Could you help us with 
that?
    Mr. James. It is Ron James again, and we are not absolutely 
committed to doing that, but we felt, and I concur, that we 
need the flexibility. And let me give you a couple examples. 
For example, if we want you to get certified, that is, to carry 
a gun, you either pass that or you fail that; you either go up, 
out, or you go back. If you are in school for 9, 9 months, and 
there are certain technical competencies with regard to IT, 
that is either pass-fail; you either match the technology or 
you don't. We simply wanted the flexibility to build in at more 
of the classroom setting or the marksman certification setting 
or at the IT setting where it is really a question of yes, I 
understand I have mastered this particular field. We would not 
see that as something we would use at other levels; we see it 
as being used on a very limited basis. In many instances some 
of our employees are in school for 6, 8, 9 months, and don't 
have a supervisor, and they are basically going to school and 
passing courses or failing courses.
    Mr. Porter. Thank you.
    We do have a time limitation. Are there any additional 
questions?
    Mr. Davis. Just one, Mr. Chairman.
    Mr. Porter. Yes, Mr. Davis.
    Mr. Davis. Mr. James, I understand that training on the new 
system is going to begin this summer. If that is the case, who 
will be trained and who will do the training?
    Mr. James. It is Ron James from DHS, and let me begin with 
a thesis that we are really talking about paradigm change in 
terms of how our managers react and how our managers get 
evaluated, and how, if our managers fail, our system will 
hopefully provide consequences. We have started training 
already. We have $10 million this year in our budget; we would 
hope to have $10 million for next year, because we can't do 
this change management without training our labor relations 
specialists, our HR folks, our first-line supervisors, our 
managers, the managers' managers. And we also plan to work with 
Mr. McPhie, Chairman McPhie. We would anticipate--and I don't 
know if we could call it training, but some cross-training with 
MSPB. We also hope to have some briefing sessions with our 
union brothers and sisters so that we are both dealing with the 
same data base. And we would hope that would cascade down. We 
also are going to need to train our employees, because we would 
expect our performance management system not to be a one time a 
year system, but to be an inter-reactive system, that the 
employee and the manager would collaborate, establish goals, 
mutually agreed upon that a line with the unit's mission and 
with the departmental's missions.
    So we are going to have some training all across the board. 
And that is again the reason why we decided to phase this in 
over a 3-year period. The training is absolutely, unequivocally 
the predicate to making this work.
    Mr. Davis. Thank you very much, Mr. Chairman.
    Mr. Porter. Thank you.
    Mr. James, Mr. Sanders, Mr. McPhie, we appreciate your 
being here today. Thank you very much for your testimony. Look 
forward to working with you.
    We are going to have to vacate the room at approximately 1, 
so I guess that is good and bad, depending on whether the 
witnesses want to have a lot of questions.
    So now I would like to invite our third panel of witnesses 
to please come forward. We will hear from Ms. Colleen Kelley, 
national president of National Treasury Employees Union; next 
hear from Mr. T.J. Bonner, president of the Border Patrol 
Council of the American Federation of Government Employees; and 
finally we will hear from Mr. Darryl Perkinson, national vice 
presidente of the Federal Managers Association.
    Thank you all. You each will have 5 minutes. I will wait 
for you to get situated just a moment.
    I would first like to recognize Ms. Kelley. Welcome. Thank 
you for being here.

 STATEMENTS OF COLLEEN M. KELLEY, NATIONAL PRESIDENT, NATIONAL 
TREASURY EMPLOYEES UNION; T.J. BONNER, PRESIDENT, BORDER PATROL 
   COUNCIL, AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES; AND 
  DARRYL PERKINSON, NATIONAL VICE PRESIDENT, FEDERAL MANAGERS 
                          ASSOCIATION

                 STATEMENT OF COLLEEN M. KELLEY

    Ms. Kelley. Thank you very much, Chairman Porter. It is an 
honor to be at your first hearing, and we appreciate it being 
on this important subject.
    Ranking Member Davis, it is always a pleasure to be here, 
and I know the importance that this committee puts on issues 
around Federal employees and those who we represent.
    I appreciate the opportunity to testify before the 
subcommittee on the final human resource management regulations 
for DHS on behalf of the 15,000 DHS employees represented by 
NTEU. The Homeland Security Act requires that any new human 
resource management system ``ensure that employees may 
organize, bargain collectively, and participate through labor 
organizations of their own choosing in decisions which affect 
them.''
    NTEU believes that the final regulations do not meet the 
statutory requirement in the following ways. First, under the 
final regulations, the responsibility for deciding collective 
bargaining disputes will lie with this three-member DHS labor 
relations board appointed, as we heard, by the secretary with 
no Senate confirmation of the board members. A true system of 
collective bargaining demands independent third-party 
determination of disputes, and the final regulations do not 
provide for that. Second, under the final regulations, not only 
will management rights associated with operational matters, 
such as the deployment of personnel, assignment of work, and 
use of technology, be non-negotiable, but even the impact and 
the implementation of most management actions will be non-
negotiable. Third, the final regulations further reduce DHS's 
obligation to collectively bargain over the already narrowed 
scope of negotiable matters by making Department-wide 
regulations non-negotiable.
    A real-life example of the adverse impact of the 
negotiability limitations on both employees and the agency will 
be in an area determining work shifts even when they will last 
for more than 60 days. The current system provides employees 
with a transparent and explainable system. After management 
determines the qualifications needed for employees to staff 
shifts and assignments, negotiated processes provide 
opportunities for employees to select shifts that take into 
consideration important quality of life issues of individual 
employees, such as child care, elder care, the ability to work 
nights or rotating shifts. There will be no such negotiated 
process under the regulations as issued. The impact of these 
changes will be a huge detriment to Homeland Security's 
recruitment and retention efforts of employees.
    One of the core statutory underpinnings of the Homeland 
Security Act was Congress's determination that DHS employees be 
afforded due process in appeals they bring before the 
Department. We have heard a lot about that already today. But 
the HSA clearly states that DHS Secretary and OPM Director may 
modify the current appeals processes only in order to further 
the fair, efficient, and expeditious resolution of matters 
involving the employees of the Department. Instead, what these 
final regulations do is to undermine the statutory provision by 
eliminating, as we have heard, the MSPB's current authority to 
modify unreasonable agency imposed penalties, and authorizing 
this new standard only when wholly unjustified. And this is a 
new standard that will be virtually impossible for DHS 
employees to meet.
    The final regulations as they relate to changes in the 
current pay performance and classification systems of DHS 
employees remain woefully short on details. In spite of the 
information that was provided today, there is still very little 
out there for employees or the unions to work with on this 
matter. Currently, performance evaluations have very little 
credibility among the work force, but it appears that these 
subjective measures will become the determinant of individual 
pay increases under the new system. This again will lead to 
more recruitment and retention problems in homeland security, 
not less. This kind of a system will be particularly 
problematic for the tens of thousands of DHS employees, such as 
CBP officers who perform law enforcement duties where teamwork 
is so critical to successfully achieving the agency's goal.
    To get more information from DHS front-line personnel about 
the new regulations, NTEU conducted an online survey. To date, 
over 300 responses have been received, and some of the findings 
of the survey are highlighted on this chart to my right. The 
survey shows a number of startling things that I would hope the 
Department would be paying attention to: 65 percent of 
employees did not believe that U.S. borders are more secure 
today than before September 11th; 65 percent of employees would 
not recommend a job at the Customs Bureau or Protection to 
friends or to family; 80 percent of employees report their 
morale has dropped in the last year; 88 percent of employees do 
not support the proposed pay system; and 88 percent of 
employees named better management as the top measure needed to 
improve homeland security.
    These results are very troubling and clearly point out the 
need for further review of these regulations. Additionally, 
NTEU urges Congress not to extend them throughout the Federal 
Government, as proposed in the President's 2006 budget. The 
Homeland Security Act provided for these changes based on 
national security considerations. Those considerations do not 
apply to the rest of the Federal Government. I appreciate and 
agree with comments made by several members of this committee 
in opposition to expanding them Government-wide in that this 
would be premature and irresponsible at this point. I look 
forward to continuing to work with this committee to help the 
Department of Homeland Security to meet its critical mission 
and to help the employees who want to successfully deliver on 
that mission. And I look forward to any questions you would 
have. Thank you.
    [The prepared statement of Ms. Kelley follows:]


  
    
    Mr. Porter. Thank you, Ms. Kelley. Appreciate it.
    Mr. Bonner.

                    STATEMENT OF T.J. BONNER

    Mr. Bonner. Thank you, Chairman Porter, Ranking Member 
Davis, for the opportunity to come before this subcommittee and 
talk about something that is very important. I have been a 
Border Patrol agent for the past 27 years and am very proud to 
have served with thousands of dedicated and patriotic Board 
Patrol agents and other Federal employees who do a tremendous 
job of protecting our Nation. Recently we were folded into the 
Department of Homeland Security, and I am proud to be a member 
of that Department because it has one of the most important 
charges of any Federal agency in this Government, protecting 
the homeland.
    A lot of the debate has seemed to lose the focus in talking 
about union rights, employee rights. But they created this 
Department to protect this country. And who protects this 
country? It is not systems; it is not technology; it is good 
people. And to the extent that this system drives away those 
good people, it has failed, and that is my biggest fear. The 
system that is being proposed now affects people negatively, 
affects the ability of our Government to attract the best and 
the brightest, and to hang on to those people.
    I am very concerned because now I see people that I have 
worked with for years, as soon as they are eligible for 
retirement, they are putting their papers in. I see younger 
agents putting applications in for other departments outside of 
the Federal Government, State and local law enforcement 
departments, because they don't like the changes that are 
coming down the road, not because they feel that some union 
right is being taken away from them, but their basic sense of 
fairness is offended. When they see their pay at the mercy of 
their boss, and when they see their job at the mercy of their 
job, and when they see the playing field just turned upside 
down, they become very concerned.
    They harken back to an incident that happened right after 
September 11th, when the standard company line was that we had 
enough Border Patrol agents on the northern border. Well, in 
fact, we had 283 to patrol 4,000 miles of border. Two very 
courageous Border Patrol agents spoke out and said we need help 
up here. As a result of that disclosure, as a direct result of 
that disclosure, the Congress authorized within the USA Patriot 
Act, a tripling of not just the Border Patrol, but of 
Immigration and Customs resources along the northern border. As 
thanks for that patriotic action, these employees were proposed 
termination by their bosses for speaking out and bucking the 
company line.
    Under this new proposed personnel system, it would be quite 
simple for their pay to just go stagnant. They have made a 
guarantee to these employees that their pay won't be reduced as 
long as their performance remains acceptable. Well, had they 
made that promise to me when I came into the Federal Government 
27 years ago, I could still be making less than $10,000 a year, 
and they would have honored that promise. That is not enough to 
hang on to the best and the brightest. We have to treat these 
people fairly. These new personnel regulations are not fair.
    I would urge you to reexamine these, make sure that 
fairness is incorporated into them. The sand is running out of 
this hourglass. Once these changes take effect, people are 
going to be heading for the exit doors in record numbers, and 
they won't come back. You can change the system back and make 
it fair and try and hire new people, but the only way you can 
replace that officer with 15 or 20 years of experience is to 
hire someone new under a better system and then wait 15 or 20 
years, and we simply don't even have 15 or 20 second; the 
threat of terrorism is too real. This is a matter of national 
security. We need the best and the brightest, and we have to 
ensure that this personnel system attracts them and hangs on to 
them, and as it is currently structured, it simply doesn't do 
that.
    Thank you for your time.
    [The prepared statement of Mr. Bonner follows:]



  
    
    Mr. Porter. Thank you very much.
    Mr. Perkinson.

                 STATEMENT OF DARRYL PERKINSON

    Mr. Perkinson. Chairman Porter, Congressman Davis, 
distinguished members of the subcommittee, as the National Vice 
President of the Federal Managers Association, let me begin by 
thanking you for allowing me this opportunity to express FMA's 
views regarding the final personnel regulations of DHS. I look 
forward to more opportunities in the future to engage in this 
dialog about the best way of governing the most efficient and 
effective work force to protect American soil.
    Managers and supervisors are in a unique position under the 
final regulations. Not only will they be held responsible for 
implementation of the new personnel system, they will also be 
subjected to its requirements. As such, managers and 
supervisors are a pivotal part to ensuring the success of the 
new system. We at FMA recognize that the change will not happen 
overnight. We remain cautiously optimistic that the new 
personnel system may help bring together the mission and goals 
of the Department with the on-the-ground functions of the 
Homeland Security work force.
    Two of the most important components to implementing a 
successful new personnel system are training and funding. 
Managers and employees need to see leadership from the 
secretary on down that supports a collaborative training 
program and budget proposals that make room to do so. We also 
need the consistent oversight and the appropriation of proper 
funding levels from Congress to ensure that both employees and 
managers receive sufficient training in order to do their jobs 
most effectively.
    As any Federal employee can tell you, the first item to get 
cut when budgets are squeezed is training. Mr. Chairman, it is 
crucial that this not happen in the implementation of these 
regulations. Training of managers and employees on their 
rights, responsibilities, and expectations through a 
collaborative and transparent process will help to allay 
concerns and create an environment focused on the mission at 
hand.
    Managers have also been given additional authorities under 
the final regulations in the areas of performance review and 
pay-for-performance. We must keep in mind that managers will 
also be reviewed on their performance, and hopefully 
compensated accordingly. As a consequence, if there is not a 
proper training system in place, and budgets that allow for 
adequate funding, the system is doomed to failure from the 
start. Toward this end, we at FMA support including a separate 
line item on training in agency budgets to allow Congress to 
better identify the allocation of training funds each year, 
especially as similar personnel systems are considered for 
other agencies and departments.
    Our message is this: As managers and supervisors, we cannot 
do this alone. Collaboration between manager and employee must 
be encouraged in order to debunk myths and create the 
performance and results-oriented culture that is so desired by 
these final regulations.
    Managers have also been given greater authorities in the 
performance review process that more directly links employees' 
pay to their performance. We believe that transparency leads to 
transportability, as inter-department job transfers could be 
complicated by a lack of a consistent and uniform methodology 
for performance reviews. FMA supports an open and fair labor 
relations process that protects the rights of the employees and 
creates a work environment that allows employees and managers 
to do their jobs without fear of retaliation or abuse.
    The new system has relegated authority for determining 
collective bargaining to the secretary. Recognition of 
management organizations such as FMA is a fundamental part of 
maintaining that collaborative and inclusive work environment. 
Title V of C.F.R. 251-252 allows FMA, as an example, to come to 
the table with DHS leadership and discuss issues that affect 
managers and supervisors. While this process is not binding 
arbitration, the ability for managers and supervisors to have a 
voice in policy development within the Department is crucial to 
its long-term vitality.
    There is also a commitment on the part of OPM, DHS, and DOD 
to hold close the merit system principles, and we cannot stress 
adherence to these timely standards enough. However, we also 
believe that there needs to be additional guiding principles 
that allow and link all organizations of the Federal Government 
within the framework of a unique and single Civil Service. OPM 
should take the current systems being implemented at DHS and 
create a set of public principles that can guide future 
agencies in their efforts to develop new systems, systems that 
parallel one another to allow for cross-agency mobility in 
evaluation, instead of disjointed ones that become runaway 
trains.
    We at FMA are cautiously optimistic that the new personnel 
system at DHS will be as dynamic, flexible, and responsive to 
modern threats as it needs to be. While we remain concerned 
with some areas at the dawn of the system's rollout, the 
willingness of OPM and DHS to reach out to employee 
organizations is a positive indicator of collaboration and 
transparency. We look forward to continuing to work closely 
with the Department and official agencies.
    Thank you again, Mr. Chairman, for this opportunity to 
share FMA's views on these significant Civil Service reforms.
    [The prepared statement of Mr. Perkinson follows:]



  
    
    Mr. Porter. Thank you very much for your testimony.
    First, a comment. Having represented an area for over 20 
years with substantial public employees and more intense in the 
community where we live--we have National Park Service, Bureau 
of Reclamation [BLM], Fish and Game; we can go on and on--I 
have spent many, many years, and some of them are my very close 
friends. But let me give you a little additional perspective; 
not necessarily different, but additional from some of your 
comments today.
    This is what I have heard for years: Many Federal employees 
aren't really sure of their expectations. They are not really 
sure about the current reward system, other than they know that 
they have 10 years left to retire or they have 8 years left to 
retire. Many of these employees are not really sure what their 
role is, and it changes so frequently sometimes they have 
trouble tracking exactly what is expected.
    Again, I am not here to disagree with your comments, I am 
adding additional perspective.
    To many of them it isn't about pay and benefits, because 
they are very pleased with what they are receiving, and 
certainly would like to have increases and would love to work 
for that. But I have found from my experience not only with 
Federal employees, but the private sector, that the pay and 
benefits aren't everything. They really want to know that they 
belong. And they really want to know what is expected and they 
really want to accomplish those goals, because they feel good 
about doing something exciting, that is positive, and they have 
a direct reflection, especially those in law enforcement. They 
get really frustrated sitting out there for hours and hours and 
hours, protecting our Nation. They get very frustrated.
    And I am sure we can probably agree or disagree; you may 
hear this, you may not. But there are a lot of those folks out 
there that are looking for something other than an automatic 
increase; they are looking for something, and this may or may 
not be the answer. But I just want to add that from the 
perspective of knowing many, many Federal employees that are 
personal friends of mine that want to have some pay performance 
measures available to them, because when they excel, they want 
to know that they have excelled.
    So that puts a lot of pressure on you, Mr. Perkinson. 
Management is so critical, and we have to make sure that your 
management is funded properly and you have the proper training, 
because especially management, you are to blame, whatever 
happens. You seldom will get credit, but you will always be 
blamed. But your comments are very well taken. Actually, all 
three of you. I appreciate what you are saying.
    But I really wanted to add that part for the record for 
those folks out there that really want to have some measure of 
their success other than an automatic increase. There are so 
many Federal employees that are counting the days to retire 
because they are not sure what their worth is. And to all those 
I applaud them for what they are doing also.
    And I am not asking questions. Another comment.
    I can put Federal employees up against any corporate 
employee any time, any place. We have some of the finest 
Federal employees. Corporate America can be a bigger 
bureaucracy than the Federal Government, and there are 
corporate employees out there that are struggling to find 
exactly what their mission is. But know that my principles as 
chairman is to make sure that we provide efficient, solid, 
strong service to the taxpayers.
    But what I hear from constituents, and I think probably the 
panel and other members could agree, when it comes to Federal 
employees, the bulk of what we do as Members of Congress is try 
to open the door for a constituent, to try to get to the right 
person within the Federal system. They are frustrated because 
they may have gone to the Social Security Administration 
because they didn't get their check or it was lost, or it is a 
member of the military that didn't receive his pay or lost his 
benefits, or it is a senior citizen that hasn't received their 
Social Security check, or it is a single mom that is frustrated 
because she is not getting the services. So I am looking at 
this from both sides, and I want to make sure that we have the 
best, the brightest, the best trained, best compensated, most 
efficient work force. And when I call an agency, I want to make 
sure I can help this constituent, because people are frustrated 
with the Federal Government at times because they can't get 
help, or their paperwork is sitting on a desk someplace.
    So I am hoping as we evolve this process and have continued 
discussions, that you will keep those in mind as my principles 
as chairman, that your points are well taken. And I have 
numerous questions that I am going to submit to you for some 
other time because of our time constraints, but know that I 
appreciate your comments. Thank you.
    So that is the end of my questions.
    Mr. Davis.
    Mr. Davis. Thank you very much, Mr. Chairman.
    Let me just say that I appreciate the testimony of each one 
of the witnesses. Each one of you expressed some level of a 
lack of confidence in the new proposed system. If you were able 
to give two concrete suggestions or recommendations to the 
secretary as to what should be changed in the proposal that 
would make you feel that the system was going to be more fair 
and would increase your level of comfortability relative to it 
netting what people are hoping to get out of it.
    Why don't I start with you, Ms. Kelley?
    Ms. Kelley. In the pay area, Mr. Davis, in particular?
    Mr. Davis. Yes.
    Ms. Kelley. I think, first and foremost, employees do want 
to know what is expected of them. That is true under today's 
system, and it will be under any future system. There is no 
belief that they will know what it is the goals are, when they 
accomplish it, and if they do accomplish them, they will be 
appropriately rewarded or recognized for that. So having clear 
expectations that--surely this issue about them not being in 
writing. I mean, why anyone would want to even set up that 
dynamic I just don't understand. It is not good for the 
managers or for the front-line employees who are the recipients 
of the evaluation. So I would say that clear goals in writing 
and, using your words, a system that is fair, credible, and 
transparent. Employees need to be able to see that they were 
given these four goals--it has to be clearly defined also for 
them how to meet those goals and how to excel. And managers 
should be able to explain that to employees so they know what 
they are striving for. And then at the end of that there has to 
be a fair expectation that they will be appropriately 
recognized and rewarded.
    One of the biggest potential failures for this system is 
the lack of funding. There will be no additional funding 
provided to the Department to implement this new pay system, 
and that means one of two things: either the dollars come from 
some employees to others, or there will be very little 
recognition or reward at the end of the year when employees do 
strive for and accomplish what it is they want.
    Just as a side note, many have said to me, well, Federal 
employees don't want pay-for-performance, they like this 
current system. Well, if this current system was working the 
way it was supposed to, we wouldn't have to be talking about a 
new system. The failure is not with the system, it is with the 
implementation of it. And the failure of a new system will be 
with the implementation.
    I have to tell you I was very surprised to hear Ron Sanders 
testify earlier that, in today's system, when an employee takes 
risks and excels at their job, all a manager can do is pat them 
on the head. I would say shame on that manager if that is all 
they think they can do, and shame on that agency who hasn't 
supported the manager to let them know what else they can do. 
They have the opportunity to provide quality step increases; 
they have discretional awards in a managers' awards pool they 
can distribute. They have a lot of ways to recognize employees 
above a pat on the head. So that is a perfect example to me 
that this is not--the current system isn't broken, it's the 
implementation of the system that is broken. And that will be 
exacerbated with the new system if not clearly defined, and 
that is what employees are afraid of. And based on today's 
experiences, that is why they don't trust what will happen 
tomorrow.
    Mr. Davis. Mr. Bonner.
    Mr. Bonner. Thank you. T.J. Bonner.
    Mr. Chairman, just building on what you said, most of the 
complaints that I get are from employees who say, they won't 
let me do my job; I know what my job is, but they won't give me 
the resources or support to let me do my job. And their other 
big complaint is they don't treat me fairly. And that gets to 
the ranking member's question.
    The recommendations I would have is in the arena of 
discipline, give the flexibility for mitigation back to the 
neutral adjudicators; eliminate mandatory removal offenses. In 
the arena of collective bargaining, expand it back out to what 
it is now. They are robbing employees of the ability to have 
fair systems for such things as where they are assigned. I had 
a young Border Patrol agent in San Diego call me last week, 
told me they gave me 72 hours to pack up my things and my 
family and move to Artesia, NM, to be a law instructor for 4 
months, and I really don't want to go. And I have had these 
discussions with managers. Why would you want to force that 
person to go who is going to have an attitude about that, and 
that is going to rub off on all of those young impressionable 
trainees there?
    Fairness is key in all of these areas. And with regard to 
pay, I think that you need to have a floor for the pay that is 
pegged to something that Congress controls, rather than having 
it at the whim of the agency. I have a number of our agents 
transfer to the Air Marshal Service. For the first 2 years of 
that agency they said you guys are doing a great job, but we 
don't have the budget for raises this year, so you are not 
getting one. And that is simply not fair, because the cost of 
living keeps going up for all of us, and nobody gets a little 
piece of paper that says please exempt this person from the 
higher cost of gas or the higher cost of housing out there 
because we don't have it in our budget. Everybody has to absorb 
that in their own personal finances, and it is simply not fair 
to those employees. If we want to keep the best and the 
brightest, we have to treat them fairly.
    Mr. Davis. Mr. Perkinson.
    Mr. Perkinson. Darryl Perkinson. In this issue, I think 
there definitely needs, for management and employees, to be a 
performance blueprint. We have to have a blueprint of what the 
expectations are for the employees and also give a guideline to 
the managers on what they are being assessed on during a year. 
The training piece that we talked about in our testimony is key 
to that. We need to have a clear understanding of those 
guidelines that are going to face an employee and face a 
manager in how that person is going to be rated. It has to be 
transparent; it has to be clear; it has to be concise.
    Additionally, another concern for me, and one thing that I 
clearly want to recommend, is we have to have the budgetary 
allowance to execute. I have heard all the talk about we are 
not going to have a forced distribution or a quota system, but 
in times when budgets are tight, I think a lot of times we get 
driven to that. So there has to be an assurance, as we 
implement this system, that budget doesn't become key, because 
it will and it will create forced distribution, and it will 
affect the quota system. And for a manager's perspective, the 
understanding is management is not the enemy; we are going to 
be included in this process too, and be judged on it just as 
well as the employees that are going to be affected.
    Mr. Davis. Thank you very much, Mr. Chairman.
    Mr. Porter. Thank you. Thank you very much.
    Congresswoman.
    Ms. Norton. Thank you, Mr. Chairman.
    First, I would like to say to all of you, you have 
certainly made some headway, and I want to congratulate you for 
having sat down and gotten as much movement as you have. I know 
it was tough, and I know you expected more and, frankly, I 
think you have seen by the questions on both sides here, we 
expect more as well, if only because we expect at least the 
best practices in the private sector will be followed. There is 
a lot of precedent for how to move folks wholly from one system 
to another, and we don't have a lot of it in the Federal 
Government, and I can tell you from having served on the board 
of three Fortune 500 companies that nobody in the private 
sector who has a bottom line and who expects to meet it and 
make it grow would think of making a wholesale change with 
their employees, union or not union, without the kind of 
consultation that would guarantee that they would not be kicked 
back by reaction from their employees when they are in place.
    I don't want to use the analogy of consent of the governed, 
the way we do things in a democracy, but there is something to 
be said about that, because people are willing to obey laws 
they don't agree with when they have had just the kind of give 
and take that says, well, I had my chance, but I lost. It is 
very important, it seems to me, that we be able to show that 
has occurred here.
    I don't take it at all as an idle threat about retirement 
and early retirement. This is something that on this committee 
and in the Senate we have even had joint hearings on. We are so 
concerned that the Federal Government's record of getting and 
keeping the best and the brightest is in great jeopardy not 
just because of what we do, but because, frankly, the private 
sector has become so attractive, so sexy compared to Government 
employment, and we are so far behind in trying to keep up with 
them. So the last thing we want to do is to make that any 
worse, because it has been awfully bad for the last several 
years.
    I have some particular questions of Mr. Perkinson, but I 
would like to ask Mr. Bonner--and Ms. Kelley, I would like to 
have her respond to this as well. You said, when you came to 
the Federal Service, that your pay would have been reduced, 
they could have kept you where you were then. I wonder if you 
would spell out how you think this system would work. Do you 
really expect that most employees will not in fact get annual 
increases? What number do you expect not to get increases? How 
do you think this will play out in practice?
    Ms. Kelley. So much of the system has been undesigned that 
we really can only speculate. For example, when there was 
discussion this morning about this formula, the math formula, 
one of the things that isn't clear to us is if you are an 
employee who is rated acceptable, exceeds, or outstanding, what 
is the value of the points attached to each of those. If it is 
1 point for acceptable and 10 points for outstanding, then that 
means that probably an awful lot of employees will be rated 
acceptable and receive a very small amount of compensation 
added on each year. If the points are closer together, then it 
could mean that the ratings would be distributed differently.
    We just have no sense right now of what they intend to do. 
They could also decide that of the dollars--you heard DHS and 
OPM say they would decide how much money would be used for the 
performance system. So they could decide that 50 percent of it 
will be used for locality pay in areas that they have 
identified as perhaps difficult to hire, and that 50 percent 
will be used for performance. Or they could decide that 90 
percent will be for performance. We just don't know much about 
it.
    During the meet and confer process, we were hoping to 
develop an awful lot of these details jointly. We were hoping 
to work through them. And they made very clear during that 
process they did not want to do the compensation building, the 
building of the system during meet and confer; and that is one 
of the reasons the details are so sketchy in the regulations. 
Now, they talk about the compensation committee and the ongoing 
work that they are going to do with us, and we have just 
started, we just had one meeting, and they have committed to 
meet with us regularly now, because, of course, they have hired 
a contractor to build this compensation system. So we have----
    Ms. Norton. Is the contractor meeting with you too?
    Ms. Kelley. We have never met with him yet. We have a 
commitment from 2 weeks ago that we will be briefed by the 
contractor and have an opportunity to start sharing our views 
with him, but to date we have not.
    But they also talk about the compensation system and how 
there will be four seats for the two largest unions. Just to 
make clear, there are 14 seats on this compensation committee, 
and during meet and confer, what we had argued for was to have 
half of those seats be union representatives so that there 
really could be a true discussion and hopefully a meeting of 
the minds so that we could roll these details out together. But 
as you see in the final regs, there will be 4 of the 14 seats 
will be union representatives. And I have no doubt that we will 
get to say what it is we want to say; I think time will tell 
whether or not those four seats result in our opinions and our 
suggestions being adopted, much like they were or were not 
during the meet and confer to date.
    Ms. Norton. And since the final decision would be with the 
secretary anyway, wouldn't it?
    Ms. Kelley. In the end, of course.
    Ms. Norton. What in the world is to be lost, since there 
are so many different agencies with so many different missions 
and so many different backgrounds, in having a fair number of 
both sides, since you can nullify what they say? This is the 
kind of thing I mean when I say you invite people to believe 
they haven't been given a fair shake and, therefore, they don't 
think there is anything they should in fact carry out as 
promised.
    I have already said that I think that there is a dangerous 
confluence here when you are--if they go to put pay reform, 
this pay banding across the board in place while eliminating 
traditional projections at the same time, this is a perfect 
storm. And I got some comfort from the prior panel about 
implementation with the employee expectations and the 
competencies in place first, and I have to believe that is 
going to happen, since it seems to me one would have to be a 
mad man to rush forward without that.
    I was particularly interested in Mr. Perkinson's testimony, 
frankly, because in a real sense, Mr. Perkinson, you are on the 
hot seat here. You talk about training, but you all are really 
on the hot seat.
    Mr. Perkinson. Yes, ma'am.
    Ms. Norton. The unions will continue to do what they have 
always done, to represent the rank and file employee, but it 
seems to me that the committee has to take very seriously your 
admonitions here. First of all, you are understanding you are 
getting, in some cases, entirely new responsibilities. You 
always, of course, evaluated people and you know what adverse 
actions are, and you know you win 80 percent of them anyway. 
But in your testimony you say, for example, collaboration 
between managers and employees must be encouraged in order to 
debunk myths and create a performance and results oriented 
culture. You talk about the change in the Federal Labor 
Relations Authority--and here I am quoting you now--``as an 
independent negotiating body to what is now proposed and 
independent labor relations board made up of members appointed 
by the secretary.'' ``This immediately,'' you say, ``calls into 
question the integrity, objectivity, and accountability of such 
an important body.'' It seems to me you have to listen to the 
on-the-line managers who are saying, hey, the secretary isn't 
on the hot seat, it is your line manager who may, according to 
what we have heard today, decide better to leave the Federal 
service, where, by the way, these employees are in high demand, 
we having trained them and invested in them. They won't have 
any trouble, particularly in this region, getting employment 
with contractors and others.
    You call, Mr. Perkinson, in your testimony, for--you talk 
about, ``continuing collaboration'' and that not being made 
more specific. You ask for that to be spelled out rather than a 
blanket statement that the Department intends to do so. And you 
actually say that DHS should set up regular meetings--this 
sounds like it comes from the unions. This comes from a manager 
who has worked with employees. Says set up regular meetings, 
monthly or bimonthly, depending on the status of 
implementation, in order to ensure this important dialog takes 
place. You talk about adverse actions, concerned that the new 
system and internal processes that might again call into 
question--these are very important words--the integrity and 
accountability of the appeals process.
    Here we are hearing from managers, Mr. Chairman, who people 
are taking appeals from, saying this to us. You know, some of 
this testimony in the law would be considered against interest, 
which is to say coming from a party who might not benefit from 
what he is saying. But it seems to me this committee has to 
benefit from what you are saying.
    And I would like you, particularly given the number of 
caveats to the present system, you describe in your testimony 
to indicate what it is you think now needs to be done so that 
some of these problems will not fall on the back of the 
managers whom you represent if the system goes into place 
forthwith.
    Mr. Perkinson. Yes, ma'am. Darryl Perkinson. I will try to 
respond for the time constraint.
    Ms. Norton, one of the key fundamental issues of 
implementing any cultural change that we are trying to 
implement with this new personnel system is that we have to 
have communication and collaboration between those that have to 
apply the system and those that are going to be affected by the 
system. That is why, in our testimony, we do encourage the 
regular meetings, the oversight to make sure as we implement 
this thing--and we heard in previous panels' testimony that we 
wanted to make sure when we did this, we did it right, that it 
goes out the right way; it is not helter-skelter, it doesn't 
come out in a form that builds mistrust.
    My personal experience in Government has been, over the 
last decade and a half, that we did make great strides in labor 
management relationships, and I do have a concern that if we go 
helter-skelter into a new system, that it could build mistrust 
and it could take us back to a day that we don't want to go 
back to, where we don't communicate, where we don't do things 
daily. When I supervise my people, I supervise a great number 
of people that do a great job for this great country. And in 
the Department of Homeland Security we have a fundamental issue 
that we are protecting the borders of our country, and that 
mission has to be carried out for the American people. And we 
have a great deal of civil servants that every day do that, and 
we owe it to them that if we are going to convert a pay system, 
we need to do it in a fair, transparent manner, where 
discussion and changes are made as necessary.
    Ms. Norton. Mr. Chairman, I appreciate your indulgence, and 
I want to just say that I think in a real sense the testimony 
of this witness is extremely enlightening to me. Obviously, the 
unions have to do what they have to do. I find their testimony 
compelling. But in a real sense I am not sure I would like to 
be a manager in the Federal Government, who is told, OK, there 
you go, let us see what you can do.
    And it is interesting that you testified, Mr. Perkinson, 
that you are going to be evaluated on how you carry out this 
system. Good luck, brother.
    Mr. Perkinson. Thank you.
    Mr. Porter. Thank you.
    Due to time constraints, I have numerous questions that we 
are going to be sending you regarding the Labor Relations 
Board, collective bargaining questions, the adverse action and 
appeals process, and some specific pay questions.
    Also, again, Mr. Perkinson, you are certainly pivotal to 
the future as it is being laid--not that you weren't in the 
past, but even higher expectations, so I will have some 
questions for you.
    I think there has been some very thoughtful comments made 
by all the panelists, and I certainly believe by the committee 
today, asking as to your insights. You can depend upon having 
additional questions as we move along.
    As I mentioned earlier, I know that employees and 
management prefer to have rules and guidelines, whatever that 
is, whether they haven't been implemented, as I think said very 
well by Ms. Kelley, is something that we have to look at. And 
my principles, I have said a couple of times, whether you are a 
maintenance worker or in management, or a CPA or a chemist or a 
scientist, we need to make sure everyone is treated fairly, 
that they have opportunities, and that they treat every 
taxpayer, every customer fairly.
    Again, I know that we cannot rush to change. It is a 
massive undertaking, and I know that, as the Congresswoman 
mentioned, this is a massive undertaking whether it be in the 
private sector or the Government, this is a major change, so 
know that we will be anxious to hear your insights as it 
evolves.
    At this time, I would like to adjourn the meeting. Thank 
you all for being here.
    [Whereupon, at 1:05 p.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record 
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