[Senate Hearing 109-343]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-343

   ALTERNATIVE PERSONNEL SYSTEMS: ASSESSING PROGRESS IN THE FEDERAL 
                               GOVERNMENT

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

                                HEARING

                               before the

                  OVERSIGHT OF GOVERNMENT MANAGEMENT,
                 THE FEDERAL WORKFORCE AND THE DISTRICT
                        OF COLUMBIA SUBCOMMITTEE

                                 of the

                              COMMITTEE ON
                         HOMELAND SECURITY AND
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 27, 2005

                               __________



       Printed for the use of the Committee on Homeland Security
                        and Governmental Affairs




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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                   SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska                  JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
NORM COLEMAN, Minnesota              DANIEL K. AKAKA, Hawaii
TOM COBURN, Oklahoma                 THOMAS R. CARPER, Delaware
LINCOLN D. CHAFEE, Rhode Island      MARK DAYTON, Minnesota
ROBERT F. BENNETT, Utah              FRANK LAUTENBERG, New Jersey
PETE V. DOMENICI, New Mexico         MARK PRYOR, Arkansas
JOHN W. WARNER, Virginia

           Michael D. Bopp, Staff Director and Chief Counsel
   Joyce A. Rechtschaffen, Minority Staff Director and Chief Counsel
                      Trina D. Tyrer, Chief Clerk


   OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL WORKFORCE AND THE 
                   DISTRICT OF COLUMBIA SUBCOMMITTEE

                   NORM COLEMAN, Minnesota, Chairman
TED STEVENS, Alaska                  CARL LEVIN, Michigan
TOM COBURN, Oklahoma                 DANIEL K. AKAKA, Hawaii
LINCOLN D. CHAFEE, Rhode Island      THOMAS R. CARPER, Delaware
ROBERT F. BENNETT, Utah              MARK DAYTON, Minnesota
PETE V. DOMENICI, New Mexico         FRANK LAUTENBERG, New Jersey
JOHN W. WARNER, Virginia             MARK PRYOR, Arkansas

                   Andrew Richardson, Staff Director
              Richard J. Kessler, Minority Staff Director
            Nanci E. Langley, Minority Deputy Staff Director
                       Tara E. Baird, Chief Clerk




                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Voinovich............................................     1
    Senator Collins (ex officio).................................     2
    Senator Akaka................................................     3
    Senator Carper...............................................    31

                               WITNESSES
                      Tuesday, September 27, 2005

Hon. Dan G. Blair, Deputy Director, U.S. Office of Personnel 
  Management.....................................................     4
Hon. David M. Walker, Comptroller General, U.S. Government 
  Accountability Office..........................................     6
Jeffery K. Nulf, Deputy Assistant Secretary for Administration, 
  U.S. Department of Commerce....................................    20
Arleas Upton Kea, Director, Division of Administration, Federal 
  Deposit Insurance Corporation..................................    22
Dr. Hratch G. Semerjian, Deputy Director, National Institute of 
  Standards and Technology, Technology Administration, U.S. 
  Department of Commerce.........................................    24
C. Morgan Kinghorn, Jr., President, National Academy of Public 
  Administration.................................................    34
Colleen M. Kelley, National President, National Treasury 
  Employees Union................................................    36
John Gage, National President, American Federation of Government 
  Employees, AFL-CIO.............................................    39

                     Alphabetical List of Witnesses

Blair, Hon. Dan G.:
    Testimony....................................................     4
    Prepared statement...........................................    51
Gage, John:
    Testimony....................................................    39
    Prepared statement...........................................   128
Kea, Arleas Upton:
    Testimony....................................................    22
    Prepared statement...........................................    90
Kelley, Colleen M.:
    Testimony....................................................    36
    Prepared statement...........................................   119
Kinghorn, C. Morgan, Jr.:
    Testimony....................................................    34
    Prepared statement...........................................   114
Nulf, Jeffery K.:
    Testimony....................................................    20
    Prepared statement...........................................    82
Semerjian, Dr. Hratch G.:
    Testimony....................................................    24
    Prepared statement with an attachment........................   109
Walker, Hon. David M.:
    Testimony....................................................     6
    Prepared statement...........................................    61

                                APPENDIX

Michael B. Styles, National President, Federal Managers 
  Association, prepared statement................................   146
Charts submitted by Mr. Blair for the record.....................   157
Questions and answers submitted for the record from:
    Mr. Blair....................................................   160
    Mr. Walker with attachments..................................   166
    Mr. Nulf.....................................................   176
    Ms. Kea......................................................   181
    Mr. Kinghorn.................................................   189
    Ms. Kelley...................................................   191
    Mr. Semerjian................................................   193
    Mr. Gage.....................................................   196
    Mr. Styles...................................................   198

 
   ALTERNATIVE PERSONNEL SYSTEMS: ASSESSING PROGRESS IN THE FEDERAL 
                               GOVERNMENT

                              ----------                              


                      TUESDAY, SEPTEMBER 27, 2005

                                       U.S. Senate,
        Oversight of Government Management, the Federal    
           Workforce, and the District of Columbia Subcommittee,   
                            of the Committee on Homeland Security  
                                        and Governmental Affairs,  
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:07 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. George V. 
Voinovich, Chairman of the Subcommittee, presiding.
    Present: Senators Voinovich, Collins (ex officio), Akaka, 
and Carper.

             OPENING STATEMENT OF SENATOR VOINOVICH

    Senator Voinovich. The Subcommittee will please come to 
order.
    Good morning and thank you all for coming. I am 
particularly pleased that the Chairman of our Committee is here 
with us. Thank you for being here, and my good friend, Senator 
Akaka, the Ranking Member of the Subcommittee.
    Today's hearing, Alternative Personnel Systems: Assessing 
Progress in the Federal Government, will assess the progress of 
Federal agencies in utilizing established workforce authorities 
to develop alternative personnel systems.
    I first of all would like to thank Senator Akaka for being 
at today's hearing. Senator Akaka continues to be a strong 
partner in this Subcommittee's efforts to address the Federal 
Government's workforce challenges. Oversight of the Federal 
workforce by this Subcommittee this year has focused on 
recently enacted legislation. The Federal workforce is in a 
great state of change. Almost half of the Federal workforce 
will be transitioned into new personnel systems over the next 
several years, and all agencies now can use significant new 
flexibilities that have been provided to them.
    Further change for the remainder of the Federal workforce 
has been proposed, but that is not the subject of today's 
hearing. Indeed, we must do our due diligence and determine how 
change has been managed. Congress cannot expect the Federal 
Government to successfully implement workforce reforms, however 
sound and meritorious in their own right, if the capacity of 
the Federal Government to implement the reform and accompanying 
change is lacking. Even the best ideas need to be tested and 
validated.
    As many of the reforms are so new that we cannot yet fully 
judge their effectiveness, alternative personnel systems might 
offer us the best window right now into change in the Federal 
workforce. The purpose of this hearing is to assess how 
existing alternative personnel systems, two at the Department 
of Commerce and one at the Federal Deposit Insurance 
Corporation, were developed, implemented, and subsequently 
refined.
    We hope to learn more about what rules were changed. We 
seek to learn how successfully these agencies managed difficult 
transitions. In my mind, this is just as important as any of 
the new workforce management concepts that are being employed.
    For example, what was the role of the key management 
agencies, such as the Office of Personnel Management? And is it 
indicative of its ability to drive and manage workforce 
transformation throughout the Executive Branch? Mr. Blair, you 
are completely familiar with this, and we will have a hearing 
later on about the capacity of OPM to handle this transition, 
particularly in oversight over the new personnel management 
systems. Do Federal managers require specialized and additional 
training before they use pay banding and classification? I 
would also like to learn how Federal employees have been 
involved in these alternative personnel systems.
    From their prepared statements, I know that the American 
Federation of Government Employees has opted out of 
participating in some of the new systems, while the National 
Treasury Employees Union members are participating at the 
Federal Deposit Insurance Corporation. I look forward to 
learning more about their experiences.
    It is important to learn the lessons from the experience of 
these agencies and others. We all want a better system, and 
although individuals may differ as to the details, this is not 
the key question. The key question is: What do we have to do to 
prepare and manage the transition from the old to the new?
    I hope that today we will develop a good sense of how these 
three Federal agencies have fared in this regard.
    Senator Akaka, since we have the Chairman of our Committee 
here, would you permit me to yield to our Chairman before your 
opening statement?
    Senator Akaka. Yes.

             OPENING STATEMENT OF CHAIRMAN COLLINS

    Chairman Collins. Thank you very much, Mr. Chairman.
    First, let me take a moment to thank you and Senator Akaka 
for your continued leadership in ensuring that our Federal 
Government has the ability to recruit, retain, and reward the 
highest quality workforce needed to accomplish its many 
missions. Your December 2000 report to the President, ``The 
Crisis in Human Capital,'' highlighted the critical importance 
of addressing the government's human capital challenges and 
helped our Committee to focus on the need for more flexible 
Federal personnel management systems.
    This hearing provides a valuable opportunity for the 
Committee to evaluate the success of the Federal Government's 
current alternative personnel systems. It is particularly 
timely given the reforms underway at the Departments of Defense 
and Homeland Security, as well as the ongoing debate about 
whether and when to proceed with more comprehensive personnel 
reform.
    I look forward to learning more about the practical and 
cultural challenges associated with the development and 
implementation of the Federal Government's existing alternative 
systems. I think that the Administration would have done well 
to focus more on what was working out there right now before 
moving to transform the personnel systems of large departments.
    I am particularly interested in learning how the agencies 
have worked with their employees to ensure that they have the 
necessary training and a clear understanding of the new systems 
as they were brought forward. I know that GAO did a lot of work 
in this area, and as a result, the employee acceptance of the 
new personnel systems has been quite high at the Government 
Accountability Office.
    Today's dialogue will provide constructive guidance as we 
ensure that our civil service system continues to meet the 
government's current and future workforce needs. So thank you 
so much for your leadership on this. Senator Voinovich, you 
truly are the Senate's leader on human capital issues, and I 
appreciate your having this hearing.
    Senator Voinovich. Thank you, Madam Chairman.
    I would now like to call on the Ranking Member of our 
Subcommittee, Senator Akaka.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Thank you very much, Mr. Chairman, for 
holding this hearing, which I believe will make a huge 
difference because I believe in the future of our government 
and our country. You and I have been good partners. I very much 
appreciate, Mr. Chairman, working with you on such joint 
efforts like the chief human capital officers council and other 
workforce flexibilities.
    As you know, the first and third largest Federal agencies 
have been granted broad flexibility to develop their own 
personnel systems, and the Administration is endorsing similar 
authority for the rest of the government. I also want to thank 
Chairman Collins for her leadership on our full Committee. Our 
Committee has really been focusing, as she mentioned, which for 
me is very important, on existing systems and possible future 
systems. And I want to tell her that I enjoy working with her.
    Chairman Collins. Thank you.
    Senator Akaka. Today's hearing focuses on the effectiveness 
of existing alternative personnel systems. I am interested in 
learning from our witnesses how they designed and implemented 
pay for performance and other changes to their personnel 
systems. I am also interested in hearing from our union 
witnesses regarding any concerns they may have with these 
alternative personnel systems. And I believe today's testimony 
will underscore the importance of meaningful employee input.
    Working with employees and their representatives will 
increase acceptance of the changes, improve employee morale, 
allow for quick identification and response to any problems, 
and improve the employee-manager working relationship in other 
areas as well. My goal is to solidify the acceptance of 
meaningful employee involvement in any personnel reform.
    I am curious to learn how our witness agencies have used 
what GAO and organizations such as NAPA have told us for 
years--that when implementing personnel reform, agencies need 
money to reward performance, training on how to measure 
performance, accountability for those in charge when problems 
arise, oversight to address such problems, and meaningful union 
and employee participation.
    Employees need to be assured that the reforms represent an 
improvement over the current system, that they will not be 
subjected to arbitrary adverse action because of the changes, 
and that any proposed changes will indeed work.
    I thank all of our distinguished witnesses for sharing 
their testimony with us today, and I thank you again, Mr. 
Chairman, for your continued diligence in making the Federal 
Government an employer of choice. Thank you.
    Senator Voinovich. Thank you, Senator Akaka.
    If the witnesses will please stand. As you know, the custom 
of this Subcommittee is swearing our witnesses. Do you swear 
that the testimony you are about to give this Subcommittee is 
the truth, the whole truth, and nothing but the truth, so help 
you, God?
    Mr. Blair. I do.
    Mr. Walker. I do.
    Senator Voinovich. Time is always at a premium in the 
Senate, and we have three panels of distinguished witnesses 
today. I would ask that the witnesses limit their oral 
statements to 5 minutes, and remind everyone that their entire 
written statement will be inserted in the record today.
    On our first panel, we have the Hon. Dan Blair, the Deputy 
Director of the Office of Personnel Management, and the Hon. 
David M. Walker, Comptroller General of the United States. And 
I want to thank you both for coming.
    Comptroller General, I just want to thank you publicly for 
the tremendous support--and I am sure that the Chairman shares 
my appreciation--that you have given this Subcommittee over the 
years. So much of your testimony has been so valuable to us as 
we have crafted legislation to make a difference in our 
personnel systems here in the Federal Government.
    Mr. Blair, will you please proceed?

TESTIMONY OF HON. DAN G. BLAIR,\1\ DEPUTY DIRECTOR, U.S. OFFICE 
                    OF PERSONNEL MANAGEMENT

    Mr. Blair. Thank you. Chairman Voinovich, Chairman Collins, 
and Senator Akaka, thank you for including me in this hearing 
today. On behalf of Director Springer, I want to thank you for 
the opportunity to appear before you here today. She was 
disappointed that the Subcommittee schedules and her schedules 
didn't permit her to be here. She is looking forward to her 
next opportunity to testify.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Blair appears in the Appendix on 
page 51.
---------------------------------------------------------------------------
    I think we have a good story to share with you today.
    Senator Voinovich. As I mentioned, we are looking forward 
to having Director Springer testify before the Subcommittee on 
the capacity of OPM to manage governmentwide transformation.
    Mr. Blair. I think she would jump at that opportunity.
    I have a longer statement, and I would ask that be included 
in the record as well.
    The concept of alternative personnel systems is most 
clearly connected with the demonstration projects that Congress 
authorized the Office of Personnel Management (OPM) to 
establish as part of the Civil Service Reform Act of 1978. That 
authority provided a means for the government to try out 
alternative merit-based approaches to specific personnel 
management tasks and processes before making them generally 
applicable and available.
    Alternatives successfully tested in some demonstration 
projects have already been made available governmentwide. These 
include recruitment and retention incentives and examining 
using category rating. We have leaders in Congress like you and 
the Subcommittee Members to thank for helping achieve this 
goal. That is why we particularly appreciate your interest 
today in the other broad category of alternative systems, those 
that try alternatives to the General Schedule classification 
and pay system, and those alternatives all emphasize 
performance.
    Across government, more than 90,000 employees are covered 
by such systems. They are employed by a variety of agencies, 
serve in a variety of occupations, and perform a variety of 
functions. Our test beds are not narrow. Together they provide 
significant and compelling evidence that these alternative 
approaches work and work well.
    We have been successful at meeting goals to better manage, 
develop, and reward employees through these alternative pay 
systems. Evaluations of these alternative systems, particularly 
the Department of Defense (DOD) labs, have produced evidence of 
success against several benchmarks. Better performers are paid 
more. Employees are more satisfied with their pay. Turnover 
among high performers is significantly reduced. Teamwork and 
morale have not suffered. Communication has improved, and so 
has trust in management.
    These agencies are better equipped to compete for talent. 
They use their pay systems to reinforce the message that 
performance makes a difference and will be rewarded. We 
understand that implementing these pay systems takes dedication 
and strong leadership and, of course, effective performance 
management systems. OPM plays a significant role in providing 
design assistance and support as well as ensuring that 
appropriate oversight and accountability are maintained.
    When one looks across these successful alternative pay 
systems, the original intent of the demonstration project 
authority remains unfulfilled. We believe the record is clear. 
These approaches can and do work, and we have shared with you 
and stakeholders our approach to do so.
    We are convinced some agencies are ready to implement these 
ideas now, and we are leading efforts at other agencies to 
ready themselves for such changes. Using the President's 
management scorecard, we have set goals for agencies to 
demonstrate they are ready to move into systems where pay is 
more directly linked to performance. OPM and the Federal 
Government have already learned and applied lessons through 
these alternative personnel systems. We believe the time has 
come to allow these alternatives to achieve the same 
performance as other successful demonstration projects have 
earned.
    Title 5 should be amended to give all agencies carefully 
controlled access to the classification and pay approaches 
already tested successfully in these alternative pay systems 
and make them a permanent part of their strategic human capital 
management.
    That concludes my oral statement, Mr. Chairman. I am happy 
to answer any questions you may have.
    Senator Voinovich. Thank you, Mr. Blair. Mr. Walker.

TESTIMONY OF HON. DAVID M. WALKER,\1\ COMPTROLLER GENERAL, U.S. 
                GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Walker. Chairman Voinovich, Chairman Collins, and 
Senator Akaka, it is always a pleasure to be back before you.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Walker appears in the Appendix on 
page 61.
---------------------------------------------------------------------------
    I would like to start off, if I can, with a brief comment 
on a strategic framework for addressing this Nation's 
challenges. As you all know, GAO issued on February 16 of this 
year our ``21st Century Challenges'' report, which I believe 
provided a clear and compelling case on the need to 
fundamentally review and re-engineer the base of the Federal 
Government. One of the questions in the ``21st Century 
Challenges'' document is how should the Federal Government 
update its compensation systems to be more market-based and 
more performance-oriented, which is the subject of today's 
hearing. I would like to commend you on addressing this 
important topic, and I hope to have the opportunity to work 
with the Senate Homeland Security and Governmental Affairs 
Committee and other committees to address this and other topics 
that need to be addressed.
    As you know, we are involved in this area from two 
perspectives: One, we are leading by example. We are in the 
vanguard of change. We are practicing what we preach, and we 
have real live examples of what works and what does not work. 
What we have done is one way, it is not the only way; but it is 
scalable, it is transferable, and we are trying to help others 
help themselves see the way forward in this area.
    Second, with regard to the work that we have done dealing 
with government at large, we strongly believe that a more 
market-based and more performance-oriented pay system is called 
for. The current classification and annual compensation 
adjustments that apply to a vast majority of the Executive 
Branch agencies, are based on the Federal workforce in the 
1950s. Much has changed since the 1950s, and we need to update 
and modernize our policies to recognize 21st Century realities.
    At the same point in time, how it is done, when it is done, 
and on what basis it is done makes all the difference in the 
world as to whether or not you are likely to be successful or 
not. There needs to be a very inclusive and participatory 
process, working with employees, their representatives, and 
others in order to try to figure out the best way to move 
forward.
    At the same point in time, I don't want to kid anybody. 
This is a very complex and controversial endeavor. It involves 
fundamental cultural transformation, and there will be segments 
of the population that will not like it, and that is a fact. 
Nonetheless, I believe very strongly that this is the way 
forward, and we need to make sure that we try to do it the 
right way in order to maximize the chance of success and to 
minimize the possibility of not only failure, but abuse of 
employees.
    There are three key themes that I think have to be kept in 
mind. First, a shift to a more market-based and performance-
oriented pay system needs to be part of a more comprehensive 
change management and performance improvement strategy 
throughout the Federal Government. This is a means to an end. 
It is not an end in and of itself. But it is a critically 
important element.
    Second, more market-based and performance-oriented pay 
systems cannot be overlaid on most organizations' existing 
performance management systems. Most of the current performance 
appraisal and management systems in the Federal Government, 
frankly, aren't very good. They don't provide for meaningful 
feedback to employees. They don't provide meaningful 
distinctions between top performers and people who aren't 
performing as well as they should. They don't necessarily have 
adequate checks and balances to assure consistency throughout 
the organization and equity throughout the organization. It is 
not just having the authority to implement a market-based and 
performance oriented pay system, it is making sure that the 
infrastructure is in place before an agency can operationalize 
that authority. That is of critical importance.
    Third, organizations need to build up their basic 
management capacity, and they also have to engage in 
fundamental training, development, and a variety of 
communications initiatives in order to be able to make this 
shift successful.
    We believe that before Executive Branch agencies should be 
able to implement more market-based and performance-oriented 
compensation systems, they should be required to demonstrate to 
OPM that they have met certain critical criteria before they 
move forward. They need an objective third party to be able to 
do that because, otherwise, they could not only be hurting 
themselves and their employees, they could be tainting the 
water for broader-based reforms throughout the Federal 
Government.
    Again, I would be happy to answer any questions with regard 
to work that we have done in the past or with regard to our own 
experience, and thank you for the opportunity to be here.
    Senator Voinovich. Thank you, Mr. Walker.
    Madam Chairman, I am not aware of what your schedule is. If 
it is all right with you, Senator Akaka, I would be more than 
happy to let Chairman Collins start off with the questioning.
    Chairman Collins. Thank you very much, Mr. Chairman. That 
is very generous of you. I do have an Armed Services meeting 
right now, so I am being torn between two priorities.
    Mr. Blair, the Administration has proposed legislation that 
would extend certain personnel flexibilities, some of which are 
associated with the Departments of Defense and Homeland 
Security to agencies throughout the Federal Government. In 
drafting the proposal, did the Administration consider instead 
building upon the authority that OPM already has to work with 
agencies to develop more pilot projects or to expand existing 
ones rather than seeking legislation for a governmentwide 
approach?
    Mr. Blair. Right now, the authority we have for 
demonstration projects is severely limited. It is limited to no 
more than 10 projects, I believe, and no more than 5,000 
employees. we think that the experience that we have had, 
especially with the lab demos, offers us the experience base we 
need to apply it on a more governmentwide basis.
    I was glad to hear Mr. Walker's comments. It is important 
that in expanding this, we make sure that there are safety 
measures in place, and that is one of the things that the 
proposal that we have drafted and is still subject to comment 
and review would do, is allow for OPM certification. But as far 
as the current demo projects, it is very limited in scope, and 
it doesn't offer us the needed flexibility to expand it on a 
governmentwide basis as we would want.
    Chairman Collins. Mr. Walker made a very important point 
when he said you cannot just overlay a new system on an old 
system and think it is going to work. It takes a lot of 
training. I know this is an issue which Senator Voinovich has 
stressed, and that you need to make sure that managers 
understand the system, and that they are trained in it.
    The year 2000 baseline evaluation of the demonstration 
project at the Department of Commerce indicated that the 
employees felt that their supervisors were ``too busy'' to 
provide a greater level of attention to their individual 
performance appraisals. This is a fear that I hear expressed by 
Federal employees all the time--that there is not going to be 
the training and that their supervisors are not going to apply 
it fairly because they will not know exactly how to do it or it 
just will not be done.
    If you are going to try pay to performance, something I do 
strongly support, you have to have an infrastructure that 
ensures that you have trained, committed supervisors performing 
the appraisal.
    What steps is OPM taking to ensure that agencies' managers 
are trained? And I would ask you that question with DHS and DOD 
as well as the pilot programs you have ongoing.
    Mr. Blair. I think you hit an important point. You know, 
what we have heard from the field in our feedback is not just 
that some managers aren't prepared to do this, but the question 
is my manager is a bonehead and what am I supposed to do when 
that manager is in charge of my pay. Very legitimate question.
    One is training. We have to properly train our managers and 
supervisors to begin work that they should have been doing in 
the first place, but because of the lack of incentives in the 
current system, haven't always been doing.
    In our President's Management Agenda right now, in the 
scorecard, we are going to ask that agencies have robust 
performance management systems in place covering 60 percent of 
their workforce. It is a start. We are also asking that 
agencies develop what we call a beta site or a pilot project, 
essentially, whereby agencies would have robust performance 
management in place, having constant and ongoing feedback 
between supervisors and employers, and be ready to link at the 
appropriate time, when given the authorization, pay to 
performance.
    I think that this beta site concept is critical because it 
gives critical mass within an agency or department to begin 
expanding the performance management culture, which we need to 
do.
    Chairman Collins. Mr. Walker, you have emphasized not only 
the need for training, but also employee involvement and 
constant communication. What steps did GAO take to ensure that 
its workforce was prepared for the cultural changes associated 
with its shift to a pay-for-performance system since in my view 
you are a model that other agencies could learn from?
    Mr. Walker. Thank you, Madam Chairman. We are not perfect. 
We never will be. But we try very hard to lead by example and 
to get this right.
    It starts with communication from the very top of the 
agency, in our case, myself. The case for change starts with 
explaining why the status quo is unacceptable, why there is a 
need for change, and then establishing mechanisms to make sure 
that employees and their representatives, to the extent that 
they are unionized, have a key part in helping to see the way 
forward from where we are at to where we need to be. The 
process needs to be very participatory, involving a lot of 
players, and considering information from a variety of parties. 
Ultimately the buck stops at the agency head's desk, and 
obviously, before I make final decisions, we end up having 
informal focus groups and task teams, publish proposed 
regulations, and obtain comments on those proposed regulations 
before final decisions are made.
    I cannot emphasize enough the importance of making the case 
from the top, having consistent communications, and having a 
broad net of involvement by all key stakeholders. In the final 
analysis, there are people that are going to like and not like 
what ultimately gets decided on. But hopefully nobody will be 
able to credibly argue about the process. The process must have 
integrity. Everybody has to be heard. All of their thoughts 
have been considered, and that is really important for 
credibility in order to provide the necessary degree of trust.
    Chairman Collins. Thank you.
    And thank you so much, Mr. Chairman, for accommodating my 
schedule. I really appreciate it.
    Mr. Walker. Mr. Chairman, can I mention one thing before 
Chairman Collins leaves? I know you are on the Armed Services 
Committee. I would like to have an opportunity in the near 
future to brief you on our recent report on military 
compensation. The average military compensation for active-duty 
military is $112,000 a year when the average compensation in 
the United States is $50,000. That system is fundamentally 
broken, just like the civilian pay system, and I would love to 
have a chance to talk to you about it. Thank you.
    Chairman Collins. I would look forward to that. Thank you, 
Mr. Chairman.
    Senator Voinovich. Thank you, Madam Chairman. I just want 
to publicly say how much Senator Akaka and I appreciate the 
support that we are getting from you, too, in our endeavor over 
the last several years. Thanks.
    Chairman Collins. You are doing good work.
    Senator Voinovich. Senator Akaka.
    Senator Akaka. Thank you, Mr. Chairman.
    I want to add to Chairman Collins, my thanks for the 
support she has given the Chairman and me on these critical 
human capital issues. Thank you.
    I want to add my welcome to our panelists, Mr. Blair and 
Mr. Walker. Director Blair, I am interested in knowing where 
agencies get the money to fund new training programs. You have 
mentioned this is one important part of moving into a new 
system. And, on average, what are the costs associated with 
training for demonstration projects? Can you comment on that?
    Mr. Blair. For the most part, agencies have funded the 
costs for training out of their existing budgets. Some agencies 
have independent authority, and I think you will hear more from 
them. They may have had alternative sources to fund these types 
of things. To expand this on a government-wide basis certainly 
is going to require some start-up costs, and there is no doubt 
about that, and let's be up front about that. We will have to 
anticipate what those costs will be.
    At this present time, I don't know what the exact costs of 
the demonstration projects have been, but I would be happy to 
provide that for the record.\1\
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    \1\ The charts submitted by Mr. Blair for the record appear in the 
Appendix on page 157.
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    As far as the overall costs, agencies that have been part 
of these demo projects have funded it out of their current 
appropriations and have been able to do so without costs 
varying significantly from their General Schedule costs.
    Senator Akaka. Mr. Walker.
    Mr. Walker. Senator, in the case of GAO, we made a business 
case to the Congress, not only our oversight committees but 
also the appropriators. We were up front that there was going 
to be a one-time, up-front cost in moving from the old system 
to the new system. There are incremental costs, and I seriously 
question whether or not agencies will be able to fund that one-
time incremental cost out of their baseline budget without 
having adverse implications in other areas. Designing these new 
systems and effectively implementing them includes training and 
development.
    The Administration, at one point in time, had requested a 
governmentwide human capital fund for pay for performance. 
While I don't think that made sense, I do think that a 
governmentwide fund on which agencies might be able to draw 
upon as a basis to design and implement new performance 
appraisal systems and other actions that are necessary to build 
the infrastructure to make performance-based pay work would 
make sense. That is something that I think should be considered 
by the Congress because if agencies don't have the necessary 
infrastructure in place, they will not be successful.
    Senator Akaka. Yes, and I want to repeat that Director 
Blair had mentioned the importance of training in bringing this 
about, and I have said I am interested in how much it will 
cost, and, of course, to be sure that we have that money so 
that we can do it properly.
    Mr. Blair. Senator, if I may, I have in my report, 
according to GAO, start-up costs for designing, installing, and 
maintaining automation and data systems at one of the DOD 
laboratories cost $125,000 at NAVSEA's Dahlgren Division, and 
the acquisition demo was $4.9 million. So let the record be 
clear there are those up-front costs that will have to be 
either funded or absorbed within existing budgets. Smaller 
organizations may be able to do so. For large organizations, it 
is going to be something that we will have to account for.
    Senator Akaka. Mr. Blair, you said that in a pay-for-
performance system, agencies need to have strong management 
systems in place. Do you feel that we do have that in our 
agencies, or is that something that we need to work on as well?
    Mr. Blair. I think we need to work on that, and we are 
doing that. As we speak, we have been urging agencies to move 
away from pass-fail systems because those systems don't make 
meaningful distinctions in levels of performance. We have the 
revised Senior Executive Service (SES) system, which is 
relatively new but will be improving year after year, as it 
continues to operate. And that allows those meaningful 
distinctions in levels of performance to be recognized and tied 
to any pay increases. But most importantly, we are looking at 
what can we do within the current system to ensure that every--
I don't want to use the term ``flexibility,'' but that every 
opportunity is being used to enhance performance short of pay. 
So if pay is taken off the table, what can we do?
    We have asked agencies again to establish a pilot project 
in each of their own organizations which, short of linking it 
to pay, would have a performance management system up and 
running in place. Employees and supervisors would be providing 
meaningful feedback to one another. Expectations would be 
established, communications would be set, and what we would 
want to do is, from that pilot project within an agency, or a 
beta site, as we call it, have that expand to the rest of the 
agency or department in preparation for linking it to the 
reward system.
    In answer to your question, though, we are not there yet, 
but we are preparing agencies.
    Senator Akaka. I have further questions for the next round. 
Thank you.
    Senator Voinovich. Mr. Blair, Mr. Walker has said that it 
would be a joke to overlap a new system on the current system 
of performance evaluation. What puzzles me is that performance 
appraisals are very important to management, and basically what 
Mr. Walker has said--and you can speak for yourself, Mr. 
Walker--is that effective systems are not in place. We have had 
hearings before about the performance systems rating, and that 
all employees are rated about 95 out of 100. I specifically 
might reference the General Services Administration where I 
have spent time with Mr. Perry, who, in spite of the fact GSA 
does not have the authority to implement pay for performance, 
he is instituting a whole new performance system as part of his 
management objectives in the Department.
    Don't you believe that this might be the best way to move 
in preparation for the long-term goals of the proposed Working 
for America initiative that has been talked about?
    Mr. Blair. I think that is the direction we are moving. By 
requiring agencies to re-evaluate what their performance 
appraisal systems are and the performance management systems 
are, we are asking them to prepare themselves for the day that 
we can link it to pay. Are we there yet? Absolutely not. But we 
do have evidence and signs of success. The General Services 
Administration is one of them. The Department of Labor is 
another. And we are moving in that direction.
    Does it mean that you continue to do the same things the 
same old way? No. It means that you have to start focusing 
managerial attention and leadership on developing these systems 
in ways in which you have meaningful employee feedback, 
expectations are set up front, and distinctions are made 
between levels of performance.
    It is a cultural change. What we are trying to say within 
government now is that performance matters. Unfortunately, we 
have that undertow of the current General Schedule system that 
says time rather than performance matters, and we have to fight 
against that undertow. But we are urging and pushing agencies 
in the direction of developing and implementing and getting 
results from better performance management systems.
    Senator Voinovich. OK. And you think you can do that 
without the incentive of being tied to pay reform?
    Mr. Blair. We will do everything that we can, but I will 
tell you that providing that incentive of linking it to pay 
would be the primary driver in something like this. But short 
of that, we will continue within the Executive Branch and those 
agencies affected to make sure that we have better systems in 
place. But until you can actually say that your performance is 
linked to pay, you don't have that hammer there to really put 
strength behind your performance management system.
    Senator Voinovich. One other question, and that is, have 
you identified an existing alternative personnel systems?
    Mr. Blair. Well, we have through the alternative personnel 
systems looked at benchmarks such as employee satisfaction, 
turnover rates, commitment to mission. And for the most part, 
we have seen increases in employee satisfaction, and employees 
don't want to go back to the old systems that they had before 
these alternative systems. But I think that a driver here is 
how are we going to change, not only the culture, and the 
culture is that performance should matter, but also other 
values that are affected by that, such as commitment to 
mission, commitment to work, and job satisfaction. By better 
linking performance with pay, you start helping driving those 
other cultural changes as well.
    We have established well-known benchmarks for our 
demonstration projects, and in the Administration draft 
proposal, known as Working for America, agencies couldn't move, 
and couldn't link their performance management systems to pay 
until they are certified by OPM according to--I believe it is 
nine criteria that the draft legislation proposes. So what we 
are not proposing, is to turn a switch on overnight and 
suddenly overlay a pay system on top of the current performance 
management systems. We know we have a substantial amount of 
work to do. We are starting that work. I think we will be 
seeing progress over the next couple of years. But in no way 
would we say that we are turning a switch on today and that it 
would happen. It is going to take dedication and commitment 
from the Congress and from the Executive Branch to get this 
done, but we think it is very important because it is a value 
that we think that we should inculcate in the Federal 
Government.
    Senator Voinovich. Mr. Walker.
    Mr. Walker. Two things, Mr. Chairman.
    First, if you want a high-performing organization, whether 
you are in the private sector, the government, or the not-for-
profit sector, you must link institutional, unit, and 
individual performance measurement and reward systems on an 
outcome basis. There are some exceptions in the Federal 
Government, but the vast majority of the Federal Government has 
not done that. That is fundamental. That must be done first 
before you go to pay for performance. Frankly, even if you 
don't have pay for performance, as you pointed out, you should 
do it anyway.
    Now, the other difficulty is that there hasn't been a lot 
of incentives or accountability for people to do that in the 
past, in part because of the current classification and pay 
system. For most of the Executive Branch, 85 percent of the 
annual pay adjustments have nothing to do with skills, 
knowledge, and performance. They relate to the across-the-board 
pay adjustments and the passage-of-time step increases. Even 
the QSIs, the quality step increases, which are supposed to be 
performance-related, aren't realistic because you have 
performance appraisal systems where everybody walks on water. 
Therefore, too many people get the increases.
    Therefore, when you have a situation where there is no 
meaningful distinction made between top performers and people 
who aren't performing as well--you have a big problem. Don't 
get me wrong, a vast majority of people in the Federal 
Government are dedicated and capable. They are just as good as 
the private sector, and are doing a really good job day in and 
day out. But when there is no meaningful distinction made 
between top and poor performers, it is a fundamental flaw in 
the system, and it needs to be corrected. But, again, how you 
do it, when you do it, and on what basis you do it matters to 
make sure that you are successful in the transition.
    Mr. Blair. Mr. Chairman, if I could add to that, in our 
demonstration project experience, we have seen that where we 
have had these linkages, we have had a better distribution in 
the performance ratings. I think we can certainly provide that 
for the record,\1\ but I think that it goes to show you that 
when the incentives are there, these government entities are up 
to the challenge and can perform. But where these incentives 
aren't in place, it is harder to accomplish that kind of 
cultural change.
---------------------------------------------------------------------------
    \1\ The chart submitted by Mr. Blair for the record appears in the 
Appendix on page 159.
---------------------------------------------------------------------------
    Senator Voinovich. It will be interesting to hear from the 
folks that are talking about alternative personnel systems to 
just see how much the linkage to the pay was an incentive for 
them to move forward with their system.
    Senator Akaka.
    Senator Akaka. Yes, Mr. Blair, you mentioned about OPM 
certifying agencies. I want to ask Mr. Walker the question. You 
testified that agencies should be authorized to implement 
reform only after they have met certain requirements, including 
an assessment of demonstrated institutional infrastructure and 
an independent certification by OPM.
    In your opinion, does OPM have the capacity to certify 
agencies, and if not, who should certify agencies?
    Mr. Walker. For the Executive Branch, I think OPM is the 
logical choice. It has to be somebody independent from the line 
agency, and obviously there are a lot of very capable and 
dedicated people at OPM that have a lot of human capital and 
human resources expertise.
    I do, however, have a serious concern as to whether OPM has 
adequate capacity, both as to number and as to skills and 
knowledge, to be able to deal with a significant volume of 
certifications that may be required in any given period of 
time. I think that is a real issue. Frankly, I think one of the 
biggest transformation challenges in the Federal Government is 
OPM, and I have told Linda Springer that.
    Mr. Blair. If I can respond to that, Senator Akaka. I know 
that Mr. Walker and Director Springer have had conversations 
about this, and over the last decade, OPM has substantially 
changed from where it was 10, 15 years ago and is continuing to 
change.
    I think the evidence of our capacity and evidence of the 
willingness to build on our current capacity has been seen 
through our leadership role in the President's Management 
Agenda. We are the only outside agency other than the Office of 
Management and Budget that owns an initiative, the Strategic 
Management of Human Capital, and we have been leading that now 
for 5 years and have been pushing agencies forward, constantly 
raising the bar for agencies to improve their management of 
human capital.
    Are we better off today than where we were last year? 
Absolutely. Are we going to be better off tomorrow than where 
we are today? We expect so and we are going to push agencies to 
do so. But, we are subject to the vagaries of the 
appropriations process. Just this past year, there were 
attempts to cut our appropriation from one of our policy shops 
which had been helping to drive that change. That is not 
helpful for us, and we understand that process can go through 
several permutations, and we understood the strains on the 
budget as well. But to cut our policy shop, the very people who 
are doing the work that Mr. Walker just described that we need 
to be doing seems to run counter to where we really want to be.
    And so I think that is one of the challenges to our 
capacity, is making sure that we have the proper funding and 
that we avoid attempts like that to undermine us that we have 
seen in the past.
    Senator Akaka. Thank you, Mr. Blair. I would like to have 
you comment on this. In her testimony, Ms. Kelley at NTEU, 
writes that there is a shortage of information to indicate that 
alternative pay systems have had any significant impact on 
recruitment, on retention, or on performance, and that a 
January 2004 GAO report on demonstration projects found no 
evidence that the systems improved any of those measures. I 
would like to get your response on her comments.
    Mr. Blair. Well, Ms. Kelley is a friend of mine, and we 
were just talking before the hearing began on some other 
issues. And I certainly respect her point of view, but I 
strongly differ with that. We have had 25 years of experience 
at this, and the 25 years of experience shows that these are 
better alternatives to a 50-year-old system that is currently 
in place.
    Can any one of the demonstration projects be held up as an 
example of reform that can be extended out to the rest of the 
system? No. But taken in their totality, I think we have 
important lessons that we have learned, and those lessons are 
that performance does matter and that we can shed the 15-grade, 
10-step General Schedule in favor of a better pay-banding 
system. We can have more market-based pay in something like 
that, as well as rewarding performance. When you give poor 
performers, high performers, outstanding performers, and 
mediocre performers the same pay raise in the same year, what 
message does that send? I don't think it sends the appropriate 
message that we want to send to the American people nor our 
workforce, that your performance is valued and will be 
rewarded.
    Senator Akaka. Mr. Walker, your comments?
    Mr. Walker. Yes, Senator. To the extent that you move to a 
more market-based, skills-, knowledge-, and performance-
oriented compensation system, I think you will find several 
things. The people that have the higher degrees of skills and 
knowledge and performance will like it. The younger people, by 
and large, because of their philosophy, will like it. At the 
same point in time, there are segments of the population who 
are good people, who are performing well day in and day out, 
that may not like it. The reason they may not like it is 
because right now under the Federal system, once you end up 
getting into a grade level--whether it is GS-12, GS-15, 
whatever--you have an entitlement to make the pay cap. It is 
not a matter if you are going to make the pay cap. It is only a 
matter when you are going to make the pay cap if you stay there 
long enough, unless you are promoted.
    Since 85 percent-plus of Executive Branch pay adjustments 
are on autopilot and have nothing to do with skills, knowledge, 
and performance, by definition that can create a system where 
there is a negative correlation to skills, knowledge, and 
performance for people who are the pay cap because they are the 
people that didn't get promoted. You can actually have people 
who are making more money than the people at the next level but 
have poorer performance and less responsibility because of the 
way the system is structured.
    The current system made sense when a significant majority 
of the Federal workforce was clerks, which it was in the 1950s. 
But now we have some of the most skilled, knowledgeable and 
dedicated people in this country working for the Federal 
Government, and we need to move to a system that reflects that 
fact.
    Senator Akaka. Thank you, Mr. Walker.
    Mr. Chairman, I, too, have to go to Armed Services, but I 
am hoping to be back here as soon as I ask my questions there. 
Thank you very much.
    Senator Voinovich. Thank you, Senator Akaka.
    The point that was just made by Senator Akaka, again, I am 
anxious to hear from the folks that have put in alternative 
systems, personnel systems, about the impact that it has had on 
the agency's effectiveness and performance. Mr. Walker, has it 
made a measurable difference at GAO? Is GAO a better 
organization, more effective, working harder and smarter and 
doing more with less?
    Mr. Walker. It clearly has, but I can also say that we have 
made a number of other changes. This is one of many changes 
that we have made.
    I will also say, Mr. Chairman, we didn't take a vote on 
this. When my predecessor, Chuck Bowsher, implemented 
broadbanding in 1989, he didn't take a vote on whether or not 
we were going to go to broadbanding. More recently, we didn't 
take a vote as to whether or not we were going to go to a more 
market-based performance compensation system. We didn't take a 
vote as to whether we were going to go to skills-, knowledge-, 
and performance-based system. And there were differences of 
opinion. There were differences of opinion within our 
workforce, as there will be in others. Some people like it and 
some people don't like it. It depends on where you sit and how 
you think it will affect you. That is human nature. It is 
understandable.
    But there is absolutely no question in my mind it has been 
a major contributor to our doubling our performance in 
virtually every category as compared to 5 years ago.
    Senator Voinovich. Mr. Blair, with the war in Iraq and now 
Hurricanes Katrina and Rita, some of my colleagues are talking 
about paying for the natural disasters out of an across-the-
board reduction in various departments in the Federal 
Government. I have argued that, yes, we should look for 
economies, but there are so many unmet needs in some of these 
agencies that we have got to be careful about what we are 
doing. And the question I have is: Does the Administration 
understand the financial commitment that must be made in order 
to move forward with this human capital reform?
    How knowledgeable is this Administration in terms of the 
kind of financial commitment that is going to have to be made 
in the agencies to move with new systems like MaxHR and the 
Defense Department's National Security Personnel System?
    Mr. Blair. Well, you are always going to have the budget 
considerations, and the budget considerations are going to be 
exacerbated by the disasters that have occurred over the last 
month in terms of Hurricanes Katrina and Rita. That is the 
atmosphere in which we are operating today. Are we going to be 
asked to do more with less resources? I think that is assumed. 
That is something that I think we can expect. I have no 
specific knowledge of anything, but I would just say from 
having two decades of experience here in Washington, you can 
see that happening.
    But you have to also ask the question: If not now, when? We 
are always going to have budget considerations on board like 
this, and if we are going to say that we spend--$105 billion or 
$108 billion a year on Federal payroll, are we spending it in 
the best way possible? I think the answer is no.
    So I think that we need to make a concerted effort to 
improve the way that we award these scarce dollars that we 
have, however, many dollars we have. And I think that we also 
need to say that in awarding that, what is the value that we 
want to place in our culture, in our Federal workplace culture? 
And I think that the value that we want to have is performance. 
Right now, time drives that. Time on the job is the factor for 
within-grades. Basically if you are on the job and have a 
pulse, you get the annual increase. I think that is the wrong 
value that we want to send.
    If we talk about the war for talent, being able to bring in 
the best and the brightest, being able to bring in good and 
high performers into a high-performing organization, having a 
multi-level, multi-step system, which is complicated and 
foreign to those who are not familiar with the Federal 
workforce, isn't the best way of recruiting. We have seen with 
the demonstration projects that we can bring in better talent, 
and the best talent we bring in does, in fact, stay.
    But as far as the costs are concerned, the up-front costs, 
we will have to negotiate that as time goes on. We have to 
admit that those are going to be there, though. I think that to 
ignore that would be to ignore reality. We have to make sure 
that we have the investment in time and energy and resources in 
order to get this done.
    Senator Voinovich. It will be interesting to hear from the 
second panel what resources they needed. For example, have they 
hired consultants to help with implementing the new system?
    Mr. Walker, would you like to comment?
    Mr. Walker. Yes, I can, several quick points.
    First, we did hire outside consultants to help us, and it 
did cost money. It was a one-time cost, and we will be happy to 
provide that for the record. I think it will provide you with a 
sense as to what that one-time investment might be for other 
agencies.
    Second, the across-the-board annual pay adjustment that the 
Deputy Director just referred to is--even unacceptable 
performers are currently entitled to that by law. Let me 
restate: Even unacceptable performers are entitled to it by 
law. I don't know of anything that is performance-oriented 
about that.
    Third, I think the worst thing that Congress could do is 
across-the-board cuts. That is exactly the opposite of 
promoting high-performing organizations. That means that high-
performing organizations would suffer just as much as ones that 
aren't deserving, that haven't done the job of re-engineering 
the base of their operations and transforming for the 21st 
Century. We need to look at the base of government. A vast 
majority of government is based on the 1950s and 1960s, whether 
it is spending or whether it is tax policy. Our current base of 
government is not only unaffordable; it is unsustainable. And 
you know that, Mr. Chairman. You have read our ``21st Century 
Challenges'' document. I just wish all your colleagues would, 
because it is clear and compelling that our children and 
grandchildren are going to pay a huge price if we don't start 
getting our act together soon.
    Thank you, Mr. Chairman.
    Senator Voinovich. When I was governor and mayor, our 
senior management was paid according to performance. 
Implementing that wasn't easy. I will never forget it. At the 
State level, we talked about implementing it, but it was just 
such a gigantic task, we decided to spend our time on quality 
management.
    But I can tell you this, that through quality management, 
when I left the governor's office, we had 17 percent less 
people working for the State of Ohio than we had when I came 
into office, except for the Department of Corrections.
    The point is we had a better workforce. People came to me 
and said through quality management, they participated, they 
were happier, they felt better about the job that they were 
doing. It made a big difference. It seems to me that if a new 
system isn't going to make a difference in terms of, (1) the 
effectiveness of the organizations for the benefit of the 
people of the United States, and, (2) for the betterment of 
employees, then you have to ask yourself, well, why go through 
the exercise?
    So I am anxious to hear from our next witnesses about what 
impact these respective systems have made in their operations. 
Mr. Blair, I would like to say to you that at this stage, I am 
pleased with what is going on in the Department of Defense, 
even though the regulations are not final. Implementation will 
begin in several spirals. We have several of them in Ohio. I 
want you to know I am monitoring them to see what is happening. 
I have become familiar with the people involved in Ohio and 
what they are doing. I think it is important for your OPM to 
understand that a lot of this is in your hands. You are going 
to have to be as candid as you possibly can be with us and with 
the Administration in terms of the commitment of resources they 
are going to need to make this system a successful system.
    Mr. Blair. Well, Senator, we are certainly not shy 
internally about voicing our opinions about what would be 
needed in order to get the job done. And I think that you know 
from our relationship and the organization's relationship with 
you, we have, I believe, a straight-talking relationship in 
which we value what you say and we share with you what our 
thoughts are. And I hope we can continue along those lines.
    We seem to have focused quite a bit on the start-up costs 
of these demonstration projects and what the start-up costs 
would be should a systemwide reform be enacted. Let's remember 
what has been taking place, too, over the last 5 years in the 
Federal Government. You referenced a report that you provided 
to then-incoming President George Bush in 2000. I think that we 
have made substantial progress on the Strategic Management of 
Human Capital in those 5 years, and during those 5 years we 
have devoted significant resources to improving human capital 
management in government. We are not where we should be, and we 
are not where we want to be, but we are on the path of where we 
want to be.
    The efforts that we have put in over the last 5 years at 
your insistence and with your help will also enable us to 
better lay the foundation for this robust performance 
management system which would best be linked with pay.
    Senator Voinovich. I have just one last comment I will 
make, and that is, if we peel back a lot of the problems that 
we have in the hearings on FEMA and so forth--it is the issue 
of having the right people with the right knowledge and skills 
at the right place. And the public has got to understand, as 
well as Members of Congress, that people do make the 
difference. In any good organization you have good finance and 
you have good people; and the better the people that you have, 
the better the organization that you have. That is what we 
should be striving for--the best and the brightest people in 
the Federal Government. We should be able to attract them, and 
we should be able to motivate those individuals. How well we do 
on that is going to have a lot to do with what kind of a 
country we live in in the future.
    Mr. Walker.
    Mr. Walker. I can underline that, Mr. Chairman. There is a 
natural tendency when something as tragic as Katrina happens or 
a similar event for the Congress to want to act and to provide 
support and assistance. Candidly, the Federal Government, as 
you know, tends to be a lag indicator. It tends to get involved 
late, in many cases when others have failed to act or when 
things go wrong. Government tends to do three things: one, 
throw spending at it, the more the better, the assumption is 
you care more if you spend more; two, throw tax preferences at 
it, again, the more the better, it shows that you care more; 
and, three, throw new players at it or new organizations at it.
    You hit the key. The key is not that. You can throw all 
kinds of money, you can throw all kinds of tax preferences, you 
can throw all kinds of players. But if you don't have the right 
people with the right skills, the right knowledge, in the right 
place at the right time, and if we don't have our 
organizational structures functioning given 21st Century 
realities, we are wasting a bunch of time and money, and we are 
never going to be effective. So you are so right, and that 
underlines the importance of this fundamental review and re-
examination of the base of government, including the issue that 
you are holding a hearing on today.
    So thank you, sir.
    Senator Voinovich. Thank you very much. You are right. We 
are at it again, and we haven't even heard from the agencies. 
Of course, I think that they have some responsibilities. In 
fact, several of us have written to Secretary Mike Chertoff and 
to Andy Card, requesting the Administration come back to us and 
tell us what it is that they are doing to respond to all of the 
questions being raised in the Congress. We should give them 
that opportunity. Rather than throw more money at a problem, we 
have to make people understand it is the quality of the people 
that we have that really make the difference.
    Thank you very much.
    Our next witnesses are the Hon. Jeffery K. Nulf, Deputy 
Assistant Secretary for Administration, Department of Commerce; 
Arleas Upton Kea, Director of the Division of Administration, 
the Federal Deposit Insurance Corporation, FDIC; and Dr. Hratch 
Semerjian, the Deputy Director of the National Institute of 
Standards and Technology.
    I want to thank the witnesses for coming. As you know, it 
is customary to swear in witnesses. Before you sit down--if you 
will raise your right hand. Do you swear that the testimony you 
are about to give this Subcommittee is the whole truth, and 
nothing but the truth, so help you, God?
    Mr. Nulf. I do.
    Ms. Kea. I do.
    Dr. Semerjian. I do.
    Senator Voinovich. They all answered yes.
    Mr. Nulf, we will call on you first, and I thank you very 
much for being here today, and we are anxious to hear your 
testimony. Again, as I reminded the other witnesses, please 
keep your statement to 5 minutes, understanding that your full 
testimony will be part of the record, I would appreciate it. 
Thank you.

    TESTIMONY OF HON. JEFFERY K. NULF,\1\ DEPUTY ASSISTANT 
   SECRETARY FOR ADMINISTRATION, U.S. DEPARTMENT OF COMMERCE

    Mr. Nulf. Good morning, Mr. Chairman. Thank you for the 
opportunity to appear before you today on the Department's 
efforts in managing alternative personnel systems. I have the 
honor of serving President Bush and Secretary Gutierrez as the 
Deputy Assistant Secretary for Administration at the Department 
of Commerce. As one of the principal tenets of President Bush's 
Management Agenda, strategically managing Commerce's workforce 
to better achieve our mission-critical objective is a key 
priority for Secretary Gutierrez and the Department.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Nulf appears in the Appendix on 
page 82.
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    Commerce has been managing pay for performance since 1988. 
As Dr. Semerjian will testify, our involvement in alternative 
pay-for-performance systems occurred at the National Institute 
of Standards and Technology following the success of China 
Lake. Based on the successful results achieved with that 
effort, we established the Commerce Demonstration Project in 
1998. Over the last 7 years, it has grown to 4,200 employees in 
five operating units stationed throughout the Nation.
    In October, we anticipate adding 33 employees represented 
by two local bargaining units that have asked to participate. 
We are also working with OPM to include 3,500 additional NOAA 
employees.
    The demo's benefits are perhaps most clearly evident in 
five areas:
    One, performance. Under the demo, managers have greater 
flexibility to recognize the contributions made by high 
performers. Since pay level adjustments and bonuses are 
determined as part of the annual performance appraisal, the 
nexus between performance and salary is very clear to all 
employees at all levels.
    During our most recent program evaluation, 53 percent of 
supervisors in the demo project reported that they were able to 
identify and reward good performers under the new system as 
compared with 26 percent in the GS schedule.
    Two, recruitment. Recognizing the highly competitive job 
market in which we must operate, the demo provides managers 
with a real opportunity to effectively negotiate salaries with 
job candidates. The tool is serving us well, particularly in 
recruiting individuals with specialized skills in mission-
critical occupations. The most recent evaluation of the demo 
indicated that 41 percent of participating supervisors believe 
that they are better equipped to recruit well-qualified 
employees as a result of being able to offer competitive 
salaries. Only 19 percent of GS supervisors felt the same way.
    Three, classification. Under the Commerce demo, the GS 
classification system of hundreds of career series has been 
streamlined into four career paths. This allows managers to 
more quickly advertise to fill vacancies and to consider a 
broader range of skill sets to meet their specific needs.
    Four, employee satisfaction. As employees and managers have 
gained experience with the demo, trust in the system has grown. 
Over half of the demo employees surveyed agreed that increases 
were directly related to an employee's performance compared to 
roughly one-third within the GS schedule.
    Five, employee retention. It is clear that the demo project 
has had a positive effect on retaining good performers. 
Employees are rated on a 100-point scale. Those receiving a 
score of 40 or above are eligible to receive a bonus and/or pay 
increase. By allowing managers to better distinguish and reward 
differences in performance, we have found that turnover is 
lower among high performers, for example, a 1.5-percent 
turnover rate for those employees receiving 90 or above, while 
a 7.7-percent turnover rate for those employees receiving lower 
scores.
    Based on our experience, we believe that the success of 
alternative performance systems depends on several factors:
    Communication. We have learned that first and foremost a 
well-developed approach to educate employees and managers about 
any new system is essential. This helps to create a mutual 
understanding of the objectives of the new system and provide a 
shared perception that change will be implemented together as a 
team.
    Effective management. As with any personnel management 
system, if pay for performance is not managed well, it can be 
problematic. Employees need to feel confident that their rights 
are protected under a new system. Managers must have the skills 
needed to manage employees effectively. This can only be 
accomplished by providing training in performance management 
and performance feedback to all affected individuals.
    At Commerce, we provide quarterly briefings to all new demo 
employees and quarterly training on demo flexibilities to new 
supervisors. This year and last year we conducted training on 
performance feedback both for supervisors and employees at the 
end of the appraisal cycle to better position everyone for 
success.
    Routine and objective evaluation. Not only do annual 
evaluations ensure transparency to interested stakeholders and 
that the merit system principles are followed and the system is 
free of discriminatory reprisal, they also provide the basis on 
which human resource managers may objectively assess the 
success of the demo and determine any need for adjustment.
    At Commerce, such adjustments have included strengthening 
supervisory training in providing performance feedback; 
instituting performance management training and communicating 
performance expectations to employees; establishing a 
centralized data manager to oversee and ensure the quality of 
automated systems and data collection; and adjusting how 
service retention credit is calculated based on performance 
rating.
    Furthermore, we are more closely examining the impact of 
the demo on minority employees by adding focus groups and 
expanding how we analyze the results for annual evaluations.
    We have had very good success with testing pay for 
performance and believe that the experiences that Commerce and 
other Federal agencies have had provide a sound basis on which 
we can continue to move forward.
    Change is never easy. Far-reaching changes to a decades-old 
system that will profoundly affect the work lives of hundreds 
of thousands of Federal employees will inevitably, and 
justifiably, cause concern and merit careful consideration. 
Based on our experience and that of Federal agencies across the 
government, however, we believe the tools are in place that are 
needed to continue the forward momentum initiated by the 
various demonstration projects.
    Thank you for giving me the opportunity to speak, sir, and 
I welcome your questions.
    Senator Voinovich. Thank you very much. Ms. Kea.

    TESTIMONY OF ARLEAS UPTON KEA,\1\ DIRECTOR, DIVISION OF 
     ADMINISTRATION, FEDERAL DEPOSIT INSURANCE CORPORATION

    Ms. Kea. Good morning, Mr. Chairman, and thank you for the 
opportunity to testify on behalf of the Federal Deposit 
Insurance Corporation regarding our experiences administering 
and managing a personnel system at an independent Federal 
corporation.
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    \1\ The prepared statement of Ms. Kea appears in the Appendix on 
page 90.
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    I will briefly highlight how the FDIC's personnel system 
has helped us achieve our mission, the importance of flexible 
personnel policies in today's rapidly changing financial 
industry, and our experience with ``pay banding'' and ``pay for 
performance.''
    The FDIC has served as an integral part of our Nation's 
financial system for over 70 years. Established at the depth of 
the most severe banking crisis in the Nation's history, the 
immediate contribution of the FDIC was the restoration of 
public confidence in banks. Today, the FDIC's mission remains 
unchanged. We maintain our Nation's confidence in our financial 
system in three important ways: We insure the deposits held in 
our Nation's banking system; we examine and supervise banks for 
safety and soundness and compliance with laws and regulations; 
and, we handle the resolution of failed banks when that becomes 
necessary.
    In carrying out its mission, the FDIC does not receive 
appropriated funds. The FDIC is funded by insurance assessments 
on the deposits held by insured institutions and by the 
interest earned on the deposit insurance funds.
    In the late 1980s and early 1990s, the FDIC faced a banking 
crisis unprecedented since the Great Depression. The FDIC 
successfully responded to that challenge as it has to other 
challenges throughout its history.
    Part of the reason for that success was the flexibility the 
FDIC had to adjust the size of its workforce rapidly and 
substantially. In the early 1980s, the FDIC employed 4,000 
people. By the early 1990s, the FDIC employed over 23,000 
people, and today the FDIC employs fewer than 5,000 people. The 
FDIC was able to use its hiring flexibility in managing a mix 
of temporary, term, and permanent appointments to meet changing 
workforce needs and its authority to set compensation and 
benefits to encourage voluntary departures of employees through 
buyouts instead of involuntary, disruptive reductions in force.
    My written statement covers the history and the major 
lessons the FDIC has learned in using its flexibility to 
develop our personnel programs, and I would like to highlight 
five of the lessons that we believe may be of most interest to 
the Subcommittee.
    First, the rapidly changing technology in financial fields 
of the 21st Century demand that government agencies have access 
to flexible hiring authority as a part of their staffing 
options. The FDIC used a temporary appointment authority to 
meet its fluctuating personnel needs during the banking crises 
of the 1980s and the 1990s.
    Over the past year, working with the U.S. Office of 
Personnel Management (OPM), the FDIC has received delegated 
authority to offer competitive term appointments with the 
possibility of conversion to a permanent position without 
further competition. This kind of approach should address our 
need to expand and contract the FDIC's workforce to meet our 
future work challenges.
    The employees hired into this ``Corporate Employee 
Program'' are given introductory training in three critical 
business functions. They are then trained to become 
commissioned in one or more of these functions. If retained by 
the FDIC at the end of their term appointment, these employees 
will have a broad range of skills and perspective that will 
serve to benefit the Corporation. In addition, we are also 
close to finalizing delegated authority from OPM to quickly 
reemploy recent retirees to handle any banking crisis.
    My second point is that managing fluctuating personnel 
needs requires creative solutions. Setting targets and 
conducting RIFs is fast and effective, but such actions do not 
permit an organization to consider other more time-consuming 
and employee-friendly alternatives. For example, when the 
FDIC's failure resolution activity declined, we knew we had 
employees with great ability but little work. And so to address 
this issue, we received authority from OPM to waive certain 
critical job level requirements and create a crossover program 
which allowed employees who were trained to handle bank 
failures to become bank examiner trainees without a significant 
reduction in pay. This was a very successful program.
    In addition, the FDIC's compensation flexibility permitted 
us to offer more generous buyout programs than those offered in 
the Executive Branch. This also ensured that we had large 
numbers of voluntary separations of those in surplus positions. 
As we have used them, buyouts have taken a little bit longer, 
but they have saved money in the long run over RIFs, and they 
were better received by the employees.
    My third point is that compensation programs that recognize 
performance rather than longevity are very beneficial to 
organizations, but they do need to be implemented very 
carefully. The experience at the FDIC is that pay-for-
performance program implementation works best when executives 
lead by example and compensation changes are made first for the 
executives and then managers and supervisors.
    My fourth point is that it is important to listen to 
employee feedback and be willing to adapt and evolve any 
changes in performance-based programs. An organization should 
expect that implementing pay-for-performance systems will need 
to make changes based on practical experience and from the 
feedback from those involved and subjected to the program.
    The FDIC is currently on its fourth iteration of its pay-
for-performance system for managers and executives and has made 
a number of changes based on feedback received from the surveys 
and focus groups tasked with suggesting improvements. We do 
have indications that our managers agree with this change in 
the pay philosophy and culture. They are committed, as we are, 
to improving the system going forward.
    My final and fifth point is that it is extremely important 
that the organization invest the time and effort to train both 
managers and employees on the new pay system, and that it 
create a system that is perceived to be fair by those evaluated 
and compensated under it.
    This concludes my oral statement, and I would be happy to 
answer any questions that you may have.
    Senator Voinovich. Thank you very much. Dr. Semerjian.

TESTIMONY OF HRATCH G. SEMERJIAN,\1\ DEPUTY DIRECTOR, NATIONAL 
       INSTITUTE OF STANDARDS AND TECHNOLOGY, TECHNOLOGY 
          ADMINISTRATION, U.S. DEPARTMENT OF COMMERCE

    Dr. Semerjian. Thank you, Mr. Chairman, and thank you for 
the opportunity to testify today before this Subcommittee 
regarding the Alternative Personnel Management System used at 
the National Institute of Standards and Technology.
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    \1\ The prepared statement of Dr. Semerjian with an attachment 
appears in the Appendix on page 109.
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    Originally founded in 1901 as the National Bureau of 
Standards, NIST is a non-regulatory Federal agency within the 
U.S. Commerce Department's Technology Administration. NIST 
serves industry, academia, and other parts of the government by 
advancing measurement science, standards, and technology to 
enhance economic security and improve the quality of life for 
all Americans. In order to accomplish this mission, NIST has 
primarily relied on one key asset: Its staff of dedicated 
scientists and engineers, technicians, administrative, and 
support staff. Recognizing the need to attract and retain top-
quality staff, NIST's management worked with Congress, starting 
in the mid-1980s, to establish an alternative personnel 
management system.
    NIST's Authorization Act for Fiscal Year 1987 established a 
5-year project to demonstrate an alternative personnel 
management system. The NIST demonstration system became 
permanent as of March 1996 through the National Technology 
Transfer and Advancement Act of 1995.
    The goals of the NIST system were to improve hiring of 
high-quality personnel and retention of high performers in 
order to more effectively accomplish the mission and goals of 
NIST. Evaluations and feedback from managers and employees show 
that these changes have significantly improved NIST's ability 
to recruit and retain high-quality staff. In addition, a basic 
objective of the original project was to design the system to 
serve as a model for simplifying and improving Federal 
personnel systems governmentwide, not just at NIST. The so-
called new and improved system has dramatically changed NIST's 
management of human resources. It also has provided a model of 
reform to other agencies within the Department of Commerce, 
such as the Technology Administration, NOAA, and the Bureau of 
Economic Analysis. And I understand NASA is in the process of 
implementing an APS based on the NIST experience.
    NIST's alternative personnel management system has enabled 
us to do several things much better. Today, NIST competes more 
effectively in the labor market through more efficient and 
faster staffing mechanisms. NIST compensates and retains good 
performers more effectively. NIST has simplified, accelerated, 
and improved the classification process. We use performance 
appraisal results as the basis for granting pay increases and 
performance bonuses. NIST has streamlined the personnel 
Administration process through a reduction of paperwork, 
automation of personnel processes, and delegation. And, line 
management is more directly involved in the recruiting.
    The NIST system covers approximately 2,500 NIST employees 
in four career paths: Scientific and engineering professionals, 
technicians, administrative professionals, and administrative 
support staff. Senior Executive Service employees and ``trades 
and craft''--wage grade--employees are not covered by this 
system.
    Since implementing the alternative personnel management 
system, according to an OPM report, NIST is more competitive 
for talent, has retained more top performers than a comparison 
group, and NIST managers reported significantly more authority 
to make decisions concerning employee pay. Key indicators of 
NIST's ability to attract and retain world-class scientists and 
engineers are the numerous awards and recognition that NIST 
staff have received, since the implementation of the APMS. NIST 
staff have won two Nobel Prizes for Physics, been selected for 
a MacArthur ``Genius'' Award, received the National Medal of 
Science, received UNESCO's 2003 Women in Science Award, 
received 21 Presidential Early Career Awards for Science and 
Engineering, and 16 members of the staff have been inducted 
into the National Academies of Science and Engineering.
    While I would like to say everything has worked perfectly 
since its implementation, the fact is that NIST has had to make 
minor adjustments to the system over time. This was not 
unexpected, and has improved the functionality of the system. 
Over the years, both supervisory and nonsupervisory employees 
have provided ideas for improving the system, through focus 
groups and other forums. NIST responded to this feedback by 
developing a revised performance appraisal and payout system in 
1991, more recent feedback--from the 2000 and 2002 NIST 
Employee Surveys, the NIST Research Advisory Committee's 2002 
Report, and stakeholder focus groups--has led to the latest 
changes which will be implemented during the next performance 
cycle.
    Starting on October 1, NIST will replace the current 100-
point rating scale with six performance ratings and link pay 
increases to these ratings. This will simplify the system, 
strengthen the pay-for-performance link, and increase the 
transparency of the system.
    In its present form, I think the NIST system offers 
improvements in position classification, recruitment, extended 
probationary period for research positions, performance 
appraisal, pay for performance, automation and paperwork 
reductions, and delegations of authority to managers, all of 
which have many advantages over the current GS system.
    In conclusion, the NIST Alternative Personnel Management 
System is meeting its objectives to recruit and retain quality 
staff; to make compensation more competitive; to link pay to 
performance; to simplify position classification; to streamline 
processing; to improve the staffing process and get new hires 
on board faster; and to increase the manager's role and 
accountability in personnel management. The NIST system 
continues to operate as an innovative personnel system which 
has a proven track record of demonstrating new ideas in the 
area of human resources management.
    Mr. Chairman, thank you for inviting me to testify today, 
and I would be happy to answer any questions you may have.
    Senator Voinovich. Thank you very much.
    My first observation is in the FDIC and in NIST, 
particularly in NIST, you are going after the best and 
brightest people in the country. The conclusion must have been 
made some time ago that if you were going to get them, you had 
to mirror the private sector or you were not going to be able 
to be competitive. I would like you to comment. Do you think at 
this stage, because of the new system, that you are in that 
position where you can be competitive?
    Dr. Semerjian. From personal experience, I can assure you 
that we are a lot more competitive than we were 15 or 20 years 
ago. As a supervisor, when I was trying to recruit people, I 
felt that I had a high obstacle to jump over to be able to 
compete with offers from the private sector. I think we are 
doing much better in that regard. Our recruiting is much more 
successful, and our retention of our high-quality people is 
much better. Those two Nobel Prize winners are still at NIST. I 
am not sure that would not have been the case if we were 
operating in the old system.
    Senator Voinovich. In other words, could you comment on how 
pay for performance has helped? The question is: If I am being 
interviewed for a job at NIST, how important is it for me to 
know I am going to work for an organization that is going to 
pay me on the basis of my performance?
    Dr. Semerjian. The people we recruit aren't necessarily 
coming to NIST to get rich, so to speak, but obviously they 
have to have a reasonable living, and they want to make sure 
that they are not going to get stuck on some level, artificial 
level, that they have the opportunity to move up in terms of 
their salary as well as in the organization. And I think that 
the fact that we have this documented experience, where the 
statistics are actually on our website for everybody to see for 
transparency's sake, I think, helps us a great deal in our 
recruitment.
    Senator Voinovich. In other words, they can see how you 
reward people. And, of course, once they are on board, that is 
very important in terms of retaining them.
    Dr. Semerjian. Absolutely.
    Senator Voinovich. A very good friend of mine has a son--
and I will not mention the agency he worked with, but he went 
to work for them for about a year and a half, and left. He just 
said that it was mediocrity. He felt that people were not being 
rewarded for what they were contributing, that it was an 
automatic thing, and he left them.
    Ms. Kea, how about the FDIC? How much of a difference has 
pay for performance made in recruiting and retention at FDIC?
    Ms. Kea. Thank you, Mr. Chairman. There are several areas, 
which we look at. First, I would like to say that there is a 
comparability statute, which does require us at the FDIC to 
remain comparable with the other financial institution 
regulators. That is one factor we look at as we are setting our 
pay and our benefits.
    But in addition to that, we do find----
    Senator Voinovich. Just a minute. It is an independent 
agency, but you are allowed to establish compensation the FDIC 
maintains comparable with other regulatory agencies?
    Ms. Kea. That is correct, sir, and the history behind that 
is, I believe, Congress did not want us to be in danger, each 
of the financial institution regulators, of losing some of our 
best and brightest to the other financial institution 
regulators. And so each year, we do take that into 
consideration, and we share and exchange information.
    In addition to that, we do believe that we do lose 
employees in some instances to the industry which we regulate. 
We also have some difficulty attracting certain professionals 
in the area of research, which is the heart and soul of some of 
our work at the FDIC. We do believe that our flexibilities 
allow us the opportunity to do a better job of recruiting those 
individuals in particular.
    Senator Voinovich. Is pay for performance taken a factor in 
their coming to work with you?
    Ms. Kea. Yes, because it is the pay for performance that 
would allow us to give them increases in their pay.
    Senator Voinovich. And that helps with retention, too.
    Ms. Kea. Yes, sir.
    Senator Voinovich. I have a theory that one of the reasons 
why we had the tremendous scandal in our financial institutions 
is in part due to the Securities and Exchange Commission losing 
a lot of their people to other regulatory agencies because of 
their compensation. And, of course, we found out about it too 
late.
    At the FDIC, how do you determine whether or not the system 
is really working, that people indeed are being paid on the 
basis of their performance and it is not arbitrary? I am sure 
you hear constantly from folks that this is an arbitrary 
system, it is very subjective, not objective, and leads to 
favoritism and so forth. How do you guarantee that is not 
present in the organization?
    Ms. Kea. That is something that we pay a lot of attention 
to. We have tried to create a process that has transparency. We 
have well-defined objectives that are linked to the mission of 
each of the divisions, the offices, the branches, or the entire 
corporate mission. We publicize those. We provide training to 
our employees with regard to how they can achieve those 
objectives.
    We also provide, and invest, much time in training our 
managers on the new system. With regard to the nominations, 
that is a very rigorous process and a number of different 
individuals participate in that process.
    We provide a formal opportunity for our executive levels to 
give us feedback through a survey. We make adjustments based on 
what we hear in that survey. With regard to our bargaining unit 
employees, whether or not we conduct a survey is something that 
we would bargain with our union. We have not done that thus 
far, but we have found other means to get feedback from our 
employees. We have large employee gatherings, where our 
executives are available to hear feedback about our system.
    I should say that we are in our fourth iteration of our 
pay-for-performance system for our executives, and those 
changes have come directly from the feedback that we have 
heard.
    I should also mention----
    Senator Voinovich. All of your employees are in pay for 
performance now, including those represented by unions?
    Ms. Kea. That is correct.
    Senator Voinovich. OK.
    Ms. Kea. I should also mention that every 3 years we 
bargain pay and compensation with our union. This year is a pay 
and compensation bargaining year, and we are in negotiations at 
this point with our union.
    Senator Voinovich. OK, but you negotiate the pay-for-
performance system in place.
    Ms. Kea. In fact, the pay-for-performance system is 
something that is also subject to the negotiation. The system 
that we have in place right now today is one that the union did 
participate in the details of creating through that 
negotiation.
    Senator Voinovich. But it is a pay-for-performance system.
    Ms. Kea. Yes.
    Senator Voinovich. How long have you worked with the 
agency?
    Ms. Kea. I have been at the FDIC since June 1985, so it is 
over 20 years.
    Senator Voinovich. OK. So you have a good indication of the 
history. How do you think that they feel about this new system, 
in terms of their happiness on the job and their productivity, 
self-worth?
    Ms. Kea. I would say that there are mixed reviews from the 
employees. We have some pretty specific information, as I 
indicated earlier, from our executives. Overall, they have 
indicated that they certainly prefer this. They think that it 
is more fair than everyone receiving the same pay for work that 
is at varying levels, of high or low contribution.
    We have also surveyed our non-bargaining unit employees, 
and they have confirmed to us that they certainly prefer a 
system that gives a greater reward for a greater contribution.
    I think that it is probably mixed with regard to the 
greater part of the population, the remaining part of the 
population, and the reason for that would be that it is a very 
large shift in the culture. I think as some comments have 
already been made by OPM and GAO, the culture has been one of 
everybody receiving everything across the board. This is a very 
different culture, one where you receive an award based on how 
great your contribution.
    I feel that this pay-for-performance system provides some 
sense of motivation and encouragement. I have been involved in 
some conversations with some of our employees where they wanted 
to know: Well, how did that employee get that? How can I get 
it? And what sort of plan can I put myself on where I can get 
that?
    Senator Voinovich. So you would agree that for management 
this has been helpful?
    Ms. Kea. Yes.
    Senator Voinovich. With respect to the organization, do you 
see it as a more efficient, vibrant organization that is 
getting the job done, with this system contributing to that? It 
has not been a negative but, rather, a positive type of 
exercise that has helped.
    Ms. Kea. I think that it has helped us to be more efficient 
as an organization in terms of achieving our mission. If you 
recall, when I gave the numbers of how we were a very small 
organization, we became very large in response to a crisis, and 
then we had to shrink back down. I think that there is no 
question we are doing much more work with a smaller number----
    Senator Voinovich. You went from 4,000 to 23,000 employees, 
and then from 23,000 down to 5,000?
    Ms. Kea. Slightly under 5,000 today.
    Senator Voinovich. Amazing.
    Ms. Kea. So we are doing much more with fewer resources, 
and I think one of the ways that we have met that challenge is 
to provide these kinds of incentives to attract individuals and 
for those who are there to motivate them to work harder.
    Senator Voinovich. Thank you. Senator Akaka.
    Senator Akaka. Thank you, Mr. Chairman. Sorry I had to run 
off to another committee, but I am delighted to be back here to 
ask my questions. I want to add my welcome to the panel.
    Mr. Nulf, I understand that there are over 100 employees in 
Hawaii participating in a demonstration project at the 
Department of Commerce. Can you explain how pay for performance 
works for those employees who receive what we call a non-
foreign COLA and whether it differs from the system in place 
for other employees?
    Mr. Nulf. Thank you, sir. In Hawaii, as well as throughout, 
with the demo project in Commerce, my fellow members on the 
panel have been speaking to the fact of expectations being laid 
out and the pay-for-performance aspect that is brought to the 
table by ringing out an entitlement and rewarding your 
performers. At the end of the day, pay for performance does a 
number of things, some with purpose and some maybe as an 
indirect complement to what otherwise is going on. Your 
performers stay. We have 1.5-percent turnover in 90 and above. 
We have performers that are down into the 40s that we have high 
turnover almost double-digit.
    I think those things are reflective of the fact that people 
want to be successful. When you put this type of system in 
place, I think it is well received by employees. I think the 
managers enjoy the flexibilities to it. But, most importantly, 
I think whether it is a team unit, a department, whether it is 
a group stationed in Hawaii, whether it is a group stationed 
here at the Herbert Hoover Building, people and teams and 
agencies want to be successful. I would agree with what Mr. 
Walker said earlier that the Federal workforce, on the whole, 
is an incredibly talented and diverse group of folks that are 
committed to what they are doing, and the opportunity to serve 
is extremely important. But the other aspect of that is people 
do have bills and people do have mortgages, and given the 
opportunity for your performers to have access to a greater 
degree than your lesser performers, I think it creates a win-
win situation, sir.
    Senator Akaka. The employees' non-foreign COLA that we are 
talking about, will they be impacted at all?
    Mr. Nulf. Will they be impacted? In what way, sir?
    Senator Akaka. Well, will the COLA still be an allowance?
    Mr. Nulf. Yes, sir.
    Senator Akaka. And my question is how does this new system 
impact COLA?
    Mr. Nulf. Yes, they receive their COLA for those that are 
in place regardless. And for those that are rated eligible by 
the performance ratings they receive, of course, the additional 
performance pay that is put on the table. But, yes, they are 
certainly eligible for COLAs, sir.
    Senator Akaka. Will the COLA be reduced or increased based 
on performance? Do you have an idea at this point in time?
    Mr. Nulf. I do not, sir. I can certainly respond back to 
this Subcommittee.
    Senator Akaka. Thank you. My next question is to the entire 
panel. Was there an increase in the number of discrimination 
and unfair treatment complaints following the implementation of 
a pay-for-performance system at your respective agencies? If 
so, what type of redress options do employees have if they 
believe their pay is based on matters other than their 
performance?
    Ms. Kea. I will speak first on behalf of the FDIC, and my 
answer is yes, we did see a number of increases in the number 
of complaints. These were either a labor grievance or an EEO 
complaint. Management feels, at the FDIC, that it is very 
important to have an appeals process to the pay-for-performance 
system. We anticipated that because it is such a great cultural 
change that there would be a number of such increases.
    I will say that with regard to the number of cases that 
have come through the system, a number of them have been 
overturned in favor of management. However, we do look at those 
cases and what is said in them, and if there are lessons to be 
learned, or if there is information that we find helpful, we 
certainly look at that information and use that as we try to 
improve our system.
    Senator Akaka. Mr. Nulf.
    Mr. Nulf. Yes, sir. In the early stages, we as well saw 
similar numbers, I would say, as we experienced within the GS. 
That being said, though, we have a focus similar to what has 
been testified today to make sure that the communication 
process and the involvement from affinity groups and monthly 
meetings and quarterly meetings with the CFO ASA, that all the 
various groups and everybody has a stake, if you will, in the 
process. And that has in the long run, certainly over the 
course of the last survey, in the last 5 years those numbers 
have gone down and, in fact, are below what we have otherwise 
with the GS schedule.
    Senator Akaka. Dr. Semerjian.
    Dr. Semerjian. Senator, we have not seen any major increase 
in grievances, but, first of all, I think NIST had a culture of 
technical excellence, so rewarding excellence was not a foreign 
concept. But, also, I think it is very important to make sure 
that we establish the metrics as part of the contract, so to 
speak, the performance agreement that we establish at the 
beginning of the year. We provided quite a bit of training for 
our managers to make sure that they know how to prepare 
appropriate performance agreements with the appropriate 
metrics. Performance appraisal is always a subjective process, 
of course. The question is how can we make it as objective as 
possible, and by establishing the metrics, the expectations at 
the beginning of the year, I think goes a long way to avoid 
those kinds of grievances. But we have not seen, when we 
started this process almost 20 years ago, any major increase.
    Senator Akaka. Thank you for your responses. Mr. Chairman, 
my time has expired.
    Senator Voinovich. Senator Carper, welcome.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. Thanks, Mr. Chairman. I was just meeting 
with one of your constituents from Toledo, CEO of Owen 
Illinois, who used to run a big part of Dupont's fibers 
business. He sends his best. He is interested in asbestos.
    Senator Voinovich. Hopefully we will get that bill.
    Senator Carper. In Delaware, in my old job, as well as 
Governor Voinovich, we used to focus a lot on education, and we 
had a problem in my State, with being able to get enough well-
qualified substitute teachers to show up on a daily basis at 
schools who could come into the classroom and do a good job 
when the regular teacher was not there. One of the ways that we 
finally settled on to address the problem was we tried to get 
retired teachers who still wanted to be in the classroom but 
they just did not want to do it every day, but they were 
willing to work as a substitute teacher. And the pay was not 
great, but what we finally worked out was an arrangement where 
they could come back to work as a substitute teacher, still 
receive their pension benefits, full pay, full pension pay, 
which you were entitled to, and they would also receive the 
daily stipend that was paid in a particular school district as 
a substitute teacher.
    I am told that you mentioned in your testimony before I got 
here, that the FDIC would like to have the authority to bring 
back some of your former employees with skills that might be 
needed when your workload increases, maybe for a merger or 
bankruptcy, or that kind of thing.
    I just shared with you one example of what we have done in 
a little State to enable us to do something like that with some 
success, and I just want to ask if you know of any other 
agencies that have a similar kind of authority, that I think 
you are looking for for the FDIC. Is there a model out there, 
at least at the Federal level, or maybe a non-Federal level, 
that you think could be adopted by the FDIC or other agencies 
in similar circumstances?
    Ms. Kea. Thank you, Senator Carper. That is a very good 
point, and we are very interested in bringing back our 
retirees, obviously, in the event of some catastrophic failures 
that would require more than the number of staff that we have 
available. It would be an excellent resource for being able to 
go out and get individuals who are already trained, have the 
knowledge in their head, and could be of immediate assistance 
to us.
    We have been in serious talks with OPM, and we would like 
to be able to waive the dual compensation to allow them to 
continue to receive their benefits and still be compensated 
during the time that they are working for us. We think that it 
is something that would work quite well, and, obviously, it 
would alleviate any increase in adding employees to the rolls 
of the FDIC.
    I am not aware, just off the top of my head, of what other 
organizations currently have that. That is some information 
that I would be happy to supply back to the Subcommittee, and I 
could do that.
    Senator Carper. I understand, Dr. Semerjian, that you 
mentioned in your testimony that the National Institute of 
Standards and Technology is now, you believe, more competitive 
in hiring and maybe doing a better job of retaining folks, the 
kind of folks that you have been seeking to attract since you 
implemented this--I guess it is called an alternative personnel 
system. And I would just like to ask two questions. First, what 
aspects of that system do you think have contributed most to 
those improvements that have been noted? And, second, did the 
agency experience the kind of problems earlier that you face 
today?
    First of all, what aspect of the system do you think has 
contributed most to the improvements that have been noted?
    Dr. Semerjian. Certainly, our ability to recruit high 
performers has been affected, as well as our ability to recruit 
in a timely fashion, because now we actually have direct hiring 
authority for our professionals. So that makes a huge 
difference when we are competing with other offers, so to 
speak, to be able to make a commitment as opposed to waiting 
months.
    But probably the biggest impact has also been in the 
retention area.
    Senator Carper. How so?
    Dr. Semerjian. As I had mentioned earlier, we have very 
high performers, such as Nobel Prize winners, and you could 
imagine they have a lot of transportability, so to speak, that 
they get a lot of offers just about every week. And to be able 
to retain them at NIST, we had to be fairly creative, and we 
have the tools, the ways of rewarding them through retention 
bonuses and other ways to keep them at NIST as part of our 
atmosphere, culture of technical excellence.
    Senator Carper. OK. Good. Thanks.
    My last question is for Ms. Kea again, and I don't know if 
we will have time for anyone else to comment, but I would at 
least ask you to start. I understand that Colleen Kelley from 
the Treasury Employees will testify later that the pay-for-
performance system at the FDIC has been, in her view, 
demoralizing for at least some of the folks who work there. And 
I would like to ask you to comment on that, but I would also 
like to ask you to speak for a minute about how you--``you'' 
more broadly than ``you'' as an individual, but how you seek to 
make the system fair, treating other people the way we would 
want to be treated?
    I know there are always some bad apples in every agency. We 
have had bad apples in every outfit I have been a part of my 
whole life. So my guess is you probably have some, too. But we 
also strive to get everyone, I guess, up to a certain level. 
Any thoughts you have how you differentiate between employees 
that are doing a good job and those that are doing a great job? 
How do you all differentiate there?
    Ms. Kea. Thank you, Senator. First, I do want to say I have 
a great deal of respect for Ms. Kelley, but I do not agree with 
her opinion or her assessment that our current system has been 
demoralizing for employees. We actually have worked with the 
union in developing this system. I am not sure you were in the 
room when I did state earlier that we at the FDIC do negotiate 
pay and compensation, which includes our performance appraisal 
system with the union. We do that every 3 years.
    Senator Carper. I was not here, no.
    Ms. Kea. This is a third year for us, and we are, in fact, 
in negotiations now currently with the union, and one of the 
items for discussion on the table is our performance evaluation 
system. We are very interested in hearing continuing and 
ongoing feedback from the union.
    With this program that we currently have in place--we 
started it at the executive level from the top going down--we 
surveyed our executives about the program and got pretty 
specific feedback. They indicated that they definitely felt 
that a system which gave them higher pay for higher 
performance, was more fair than one where everybody received 
the same pay but had unequal performance.
    We then implemented a similar pay-for-performance system 
with our non-bargaining unit employees, and we also surveyed 
them. And the feedback that we received was that they also felt 
that it was a more fair system than everybody receiving the 
same increase across the board.
    We have not implemented a formal survey for our bargaining 
unit employees. We would have to bargain, in fact, to do that. 
However, we found other ways to receive feedback. We go to 
staff meetings. We make managers available at the large staff 
meetings, and we try to talk to employees. We had a very 
through training system where we gave briefings and staff 
meetings to our employees about the new system so that they 
could understand what the goals were in order to be eligible 
for an increase in their pay. And we tried to link those to 
either a corporate mission or a mission at the branch level or 
at the division level, thereby giving everybody an opportunity 
to make a contribution and eliminating the thought or the 
philosophy that the nature of some jobs provide greater 
opportunities to make a contribution. We really focused on 
that.
    The review process for determining who would get the award 
was a very thorough one involving several levels. And, in fact, 
before the results were released, the union did get the 
opportunity to review those results just to look at them to see 
if there was some statistical imbalance. So we tried at all 
levels to build in some guarantees, some assurances, and to put 
as much transparency as we possibly could in the process.
    One thing that I also stated earlier is that we are in the 
fourth iteration of our pay-for-performance system for our 
executives, and we have changed it based on the feedback that 
we have received through that process. So we feel that while no 
system is perfect and we have had a number of different systems 
at the FDIC, we are committed to trying to refine the system 
based on the feedback, based on the involvement that we have 
from the individuals who are both managing it and those who are 
being subjected to it.
    Senator Carper. All right. Great.
    Well, Mr. Chairman, you have been generous with the time. I 
thank you and I thank our witnesses for their comments and 
responses to these questions. Thank you.
    Senator Voinovich. I want to thank the witnesses for being 
here. There may be some other questions that we want to submit 
to you in writing. We would appreciate your getting back to us 
as soon as possible. We would like to have you stick around 
some more, but we have three other witnesses and it is 5 
minutes after 12 o'clock. We have got to get on with our work.
    Thank you very much for coming.
    Senator Voinovich. Our next witness is Morgan Kinghorn, who 
is the President of the National Academy of Public 
Administration. Colleen Kelley is the National President of the 
National Treasury Employees Union. John Gage is the National 
President of the American Federation of Government Employees.
    It is good to see all of you again and welcome. Before you 
sit down, if you would raise your right hand and repeat after 
me. Do you swear that the testimony you are about to give this 
Subcommittee is the whole truth, and nothing but the truth, so 
help you, God?
    Mr. Kinghorn. I do.
    Ms. Kelley. I do.
    Mr. Gage. I do.
    Senator Voinovich. Mr. Kinghorn, if you will begin.

 TESTIMONY OF C. MORGAN KINGHORN, JR.,\1\ PRESIDENT, NATIONAL 
                ACADEMY OF PUBLIC ADMINISTRATION

    Mr. Kinghorn. Thank you, Mr. Chairman, Senator Akaka, and 
Members of the Subcommittee, for inviting me to testify on a 
subject that I have certainly had a personal interest during my 
25-year career and my 9-year career in the private sector and 
now in a nonprofit organization, about looking at the 
alternative public personnel systems.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Kinghorn appears in the Appendix 
on page 114.
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    As President of the National Academy of Public 
Administration, I am really pleased to appear before you to 
provide some personal perspectives on the work of the Academy. 
As you know, the Academy is an independent, nonpartisan 
organization chartered by the Congress to give trusted advice. 
The views presented today are my own and are not necessarily 
those of the Academy as an institution.
    What I would like to do is really depart from my written 
testimony and reflect on what I have heard in the last 2 hours 
and really give you some perspectives that are contained in my 
testimony, but also really are based on my experience in both 
the private and public sector on what we really should be 
looking at. I think the fact that there is a consistency in 
what the Subcommittee is hearing really shows the long 
evolution of performance-based systems. They have been around 
for a long time, and they certainly can work.
    The first point I would like to make is I think the reforms 
in this system are absolutely essential. The Academy, about a 
year and a half ago, did ``Conversations on Public Service,'' 
which came out of our work on pay for performance and the 
Volcker Commission. In addition, there was a survey that OPM 
did about 3 years ago that I would like to share, two questions 
and answers that I think go to the point.
    One question that was asked was: ``My performance appraisal 
is a fair reflection of my performance.'' Sixty-five percent of 
the 100,000 responders in the Federal Government said yes. 
There was obviously a lot of work going on in performance 
appraisals. The next question, though, is a little more 
interesting: ``Our organization's awards program provides me 
with an incentive to do my best.'' Seventy percent of the 
responders neither agreed or didn't--disagreed or strongly 
disagreed. That would tell me that we have organizations that 
are certainly involved in some kind of performance evaluations, 
but it is unclear to me how they have been used. They certainly 
haven't been used in terms of awards. So I think the system 
needs to be changed and probably needs to be changed fairly 
radically.
    Second, you have heard a lot about the importance in these 
systems at every level in the organization being involved. That 
is crucial. It also ties into why, in those organizations that 
are successful, it goes from the top of the organization down 
to the employee, and it is nearly always tied to a strategic 
plan and the objective of that organization. Without that, 
there is rarely a connection between employee performance, 
whether it is a manager or a working employee, and the agency's 
core mission.
    You have also heard, which I completely agree with, on the 
transparency of the process and the transparency of the 
outcomes. I think that is crucial. When I came into consulting 
13 years ago, after a 25-year career in the Federal Government, 
I came out of a structure where I started as a GS-9, ended as 
an SES-6, and really was appalled for those 25 years at the 
inability of the system to really appropriately differentiate 
between the best performers and, in particular, the average or 
mediocre performers.
    I came into a private sector organization that had pay for 
performance. However, it was often based on which partner in 
the consulting business liked you or didn't like you. So when I 
became a partner 2 years later, I decided to change that 
process and basically created a peer review process in my 
practice--it was the second largest practice in 
PricewaterhouseCoopers at the time in the public sector--in 
which at the end of those review processes the transparency of 
the decisions to all the employees as well as the outcomes was 
pretty clear. It passed the laugh test, which is an important 
test to pass. Individuals may not have been happy with the 
outcome, but when they looked at who was rewarded, about 18 
percent of the people got cash awards or bonuses or pay 
increases--not a large number--they understood why, because 
there was a process in place, training in place, and everyone 
from the partner down to the employee was involved in that 
process.
    The final thing I would like to share with you is that I 
think one of our focuses needs to be on the future. Government 
is transforming in a variety of ways. What government does, how 
it does it, and who does it is changing radically. A lot of our 
discussion appropriately focuses on the current 2 million plus 
or minus Federal employees. But over the next 20 years, which 
these reforms will impact, we have a different workforce coming 
in from what our research tells us, one that demands different 
kinds of rewards, one that wants more agility in the way they 
work, more flexibility, the ability to move around quickly, the 
ability to move up, and not be hampered by what appears to them 
to be a very complex 25- to 30-year career process called the 
General Service. So they really do expect change, and if they 
don't get it, we won't be able to retain them and we won't be 
able to get them.
    Finally, I think we have to realize that there is a 
constistancy in this change. I ran a relatively small practice 
in Pricewaterhouse that was 600 people with 24 partners, but it 
was part of a 35,000-person organization, all of which had pay 
for performance, which worked reasonably well. But we changed 
it nearly every year. We learned from the process. So I think 
if we attempt to create and wait for a process that is perfect, 
certainly for the individual agencies, all of whom are unique, 
have unique requirements, we are never going to get there. And 
with the changing nature of the workforce, where many programs 
that really the primary people involved are no longer Federal 
employees--they may be contractors, they may be for-profit, 
they may be nonprofit, they may be grantees, people receiving 
money from the Federal Government--the relationship of how we 
reward performers is going to change even further in the next 
10 years.
    So I think clearly it is time to move on. We have learned a 
lot from both the experiments that have been performed, we have 
learned a lot from the private sector, and certainly from State 
and local governments who have been involved in this for a long 
time.
    I will be glad to answer any questions the Subcommittee may 
have of me.
    Senator Voinovich. Thank you very much. Ms. Kelley.

TESTIMONY OF COLLEEN M. KELLEY,\1\ NATIONAL PRESIDENT, NATIONAL 
                    TREASURY EMPLOYEES UNION

    Ms. Kelley. Thank you, Chairman Voinovich, and Ranking 
Member Akaka. I very much appreciate the opportunity to testify 
here today.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Kelley appears in the Appendix on 
page 119.
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    I would like to comment specifically about three 
alternative pay systems that NTEU has been involved with: The 
FDIC system, which has been in effect for several years; the 
Department of Homeland Security system, which is still in the 
pre-implementation stage; and the IRS system that right now 
only applies to managers.
    I must say at the outset that I believe that these 
alternative personnel systems have very little positive impact 
on recruiting, retaining, and maximizing the performance of 
Federal employees.
    NTEU has bargained over compensation at the FDIC since 
1997. While we have serious concerns about the current state of 
the pay system there, we strongly believe that, in the absence 
of a statutorily defined pay system, like the GS system, pay 
should be subject to collective bargaining, as it is in the 
private sector. Especially in a government environment, 
employees and the public need a credible means of ensuring that 
pay is set objectively.
    NTEU is at odds with the FDIC on the current system to 
determine performance pay. While the FDIC itself has stated 
that ``more graduated levels of rewards are better than fewer 
levels,'' it has dropped a multi-level performance evaluation 
system, and the FDIC has moved to a pass-fail performance 
evaluation system. Under this system employees who pass are 
eligible to be nominated by their supervisor for a pay increase 
that they call a Corporate Success Award.
    Now, NTEU insisted that there be some guarantee that front-
line employees would have access to these Corporate Success 
Awards and that they would receive some of this money, so there 
is language that guarantees that at least one-third of 
bargaining unit employees, front-line employees, will receive 
these CSAs. But that one-third minimum might as well be a 
limitation because to date the FDIC has only been willing to 
recognize and reward one-third of the workforce. And the 
standards for who gets these increases are vague, they are 
subjective, and they are not apparent to those who are covered 
by the system.
    The application of this one-third limitation on the 
availability of pay adjustments and its lack of transparency 
have demoralized FDIC employees. Our members report that the 
system is divisive, it discourages teamwork, and it sends the 
message that two-thirds of the workforce are not contributing. 
The previous system at the FDIC, which was based on multi-level 
performance evaluations without limits on the number of 
employees who could receive additional pay, did have 
credibility with employees. The current system does not.
    DHS. While the pay-for-performance system at DHS has not 
yet been implemented, we are very concerned that it will push 
employees who are already demoralized out of the agency when 
the importance of keeping experienced, skilled employees is 
greater than ever. Let me be clear: The employee opposition to 
the proposed DHS system is not about ``fear of change,'' as 
some have tried to portray it. I know firsthand that this group 
of employees, who are entrusted with protecting our country 
from terrorists and other criminals, is not a fearful group. 
What they most object to about the proposed DHS system is that 
it will make it harder, not easier, to accomplish the critical 
mission of the agency.
    There are several reasons for this: One, the system is not 
set by statute or subject to collective bargaining as the 
FDIC's system is, so there is nothing to provide it any 
credibility among employees. Two, the system will have 
employees competing against each other over small amounts of 
money, discouraging teamwork, which is critically important in 
law enforcement. Three, the system is subjective, which will 
lead to at least the appearance of favoritism. Four, the system 
is enormously complex, the administration of which will require 
huge amounts of money that is so much more desperately needed 
in front-line functions, not to mention siphoning off money 
that could go for more pay in a less administratively 
burdensome system. And, five, the draft competencies for the 
new DHS system do not recognize or reward the real work that 
these employees do to keep our country safe.
    The IRS. While employees represented by NTEU are not 
covered by a paybanding performance-based system at the IRS, 
IRS managers are. The Hay Group, a consultant which was hired 
by the IRS, did a senior manager payband evaluation on this 
system for the IRS last year. Here are just some of the 
results: 76 percent of covered managers felt the system had a 
negative or no impact on their motivation to perform their 
best; 63 percent said it had a negative or no impact on the 
overall performance of senior managers; only one in four senior 
managers agree that this paybanding system is a fair system for 
rewarding job performance or that ratings are handled fairly 
under the system; and increased organizational performance was 
not attributed to this paybanding system.
    The results of this IRS system are dismal, yet it is 
pointed to as a model for moving the whole Federal Government 
to a similar system. In fact, there is a dearth of information 
to indicate that alternative pay systems have had any 
significant impact on recruitment, retention, or performance. 
The GAO report I mentioned in my full testimony includes 
virtually no evidence that the systems improved any of those 
measures. In fact, the Civilian Acquisition Personnel 
Demonstration Project that was reviewed in that report had as 
one of its main purposes to ``attract, motivate, and retain a 
high-quality acquisition workforce.'' Yet attrition rates 
increased across the board under the pilot.
    NTEU is not averse to change. We have welcomed, at the FDIC 
and elsewhere, the opportunity to try new things and new ways 
of doing things. Based on my experience, these are the things I 
believe will have the most impact on the quality of applicants 
and the motivation, performance, loyalty, and success of 
Federal workers:
    One is leadership. Rules and systems don't motivate people. 
Leaders do.
    Two, opportunities for employees to have input into 
decisions that affect them and the functioning of their 
agencies. Employees have good ideas that management is 
currently ignoring.
    And, three, a fair compensation system that has credibility 
among employees, promotes teamwork, is not administratively 
burdensome, and is appropriately funded.
    Unfortunately, I do not believe the systems that are 
currently being pursued by the Administration follow these 
standards. I ask that the Members of this Subcommittee closely 
review and analyze what data exists on these current 
alternative personnel systems that exist today. I don't think 
the evidence supports their use as successful models across 
government.
    I thank you for the opportunity to testify and would 
welcome any questions that you have.
    Senator Voinovich. Thank you very much. Mr. Gage.

    TESTIMONY OF JOHN GAGE,\1\ NATIONAL PRESIDENT, AMERICAN 
          FEDERATION OF GOVERNMENT EMPLOYEES, AFL-CIO

    Mr. Gage. Thank you, Mr. Chairman, for inviting me to 
testify today, and also thank you, Senator Akaka, for your 
support of Federal employees, not just on this Subcommittee but 
also the VA and Armed Services committees.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Gage appears in the Appendix on 
page 128.
---------------------------------------------------------------------------
    I would like to focus my remarks today on the experience of 
AFGE Local 1904 at the Army's Fort Monmouth, in New Jersey, 
which has had about 5 years of experience with the Acquisition 
Demonstration Project. I must say the demo at Fort Monmouth 
works relatively well for two primary reasons: Collective 
bargaining and funding.
    Crucial aspects of the system have been established through 
the process of collective bargaining, and the resulting 
collective bargaining agreements are fully enforceable. Labor 
and management have a respectful relationship, and the 
contracts negotiated between Local 1904 and local management 
reflect the good-faith efforts of both parties. In addition, 
the demo portion of the pay system is funded separately and is 
treated as a supplement. Virtually every employee covered 
receives his regular ECI and locality increase each year. The 
demo raises are on top of these regular across-the-board 
increases. Although money formerly used for within-grade and 
quality step increases is used for the demo, at Fort Monmouth 
additional program funds have been provided to allow the 
improvements in overall pay levels.
    My written testimony includes a description of some of the 
terms of the contract between AFGE Local 1904 and Fort Monmouth 
management. As you know, a contract such as this will be 
unenforceable in DOD and DHS once the NSPS and MaxHR go into 
effect. In fact, managers will not even have the authority or 
flexibility to negotiate with the local union or use a contract 
like this to navigate the inevitable conflicts that arise over 
how to implement a pay system that requires subjective 
evaluations.
    This contract, like all collective bargaining agreements, 
reflects a balance between the rights of management and workers 
subject to the constraint of mission accomplish. It reflects 
the joint acknowledgment of various roles and responsibilities 
and their limits.
    Despite the positives I have described, the demo at Fort 
Monmouth is far from perfect. Like all pay schemes that seek to 
individualize pay adjustments, it raises the question of what 
the system is trying to accomplish, whether those aims have 
been met, whether the pay system should get credit for 
improvements and results, and whether the costs associated with 
administering complex, multifaceted pay adjustment processes 
are offset by measurable benefits.
    The most important point is that the crucial protections 
for employees that are included in the Fort Monmouth demo are 
absent from both NSPS and MaxHR. The classification system at 
Fort Monmouth still provides a floor for an employee's salary 
based on the duties and responsibilities of the job, and they 
are entirely objective criteria. Collective bargaining rights 
are intact and fully exercised.
    The fact is that the demo at Fort Monmouth, and its 
success, has far more in common with the General Schedule than 
it does with either MaxHR or NSPS. Time and again the employees 
at Fort Monmouth urged me to tell you that they oppose the NSPS 
in the strongest possible terms and that the real reason that 
their project works as well as it does at Fort Monmouth is the 
strong, fair, and reliable system of checks and balances 
achieved and maintained through collective bargaining.
    Mr. Chairman, I know you brought up Katrina, and this past 
week or so I have received incredible reports of Federal 
workers, who have gone the extra mile. Social Security was down 
there instantly, gave out 30,000 checks to people who would not 
have gotten them through the mail or any other way. We have 
pictures of VA employees standing in knee-deep water doing 
their job. We received more volunteers from Border Patrol and 
Homeland Security to go down there on their own to help out.
    And, Senator, while you are sitting here trying to look at 
how to motivate employees, provide fair compensation, then we 
get hit last week with our retirement going from high three to 
high five, retiree health insurance being hit, paying for 
parking--and this comes to about $7 billion over 5 years. And, 
Senator, it is hard for Federal employees to see anything 
objective about new personnel systems, when they see in the 
wings our benefits, our retirement, and our pay ready to be 
slashed.
    So, Senator, I would like to commend you for having these 
hearings and for looking at Federal employment, but you have to 
realize that a tax on our current system certainly is nothing 
to do and will not help rewarding the best and brightest or 
attracting the new generation of Federal employees or retaining 
the ones that we have.
    Thank you, Senator.
    Senator Voinovich. Thank you very much, Mr. Gage.
    Senator Akaka, if it is all right, I will ask you to start 
asking questions. I have to excuse myself for a minute, but I 
will be back.
    Senator Akaka [presiding]. Thank you very much, Mr. 
Chairman. I want to add my welcome to this panel, and thank you 
for your testimony.
    Ms. Kelley, I am concerned about what you said about the 
personnel system at FDIC. I want you to know that I plan to ask 
further questions of FDIC regarding the issues you raised.
    Ms. Kelley. Thank you.
    Senator Akaka. The FDIC, Ms. Kelley, as we know, is exempt 
from the prohibited personnel practices outlined in Title 5, 
other than the prohibition of retaliation for whistleblowing. 
Do you believe this exemption has an impact on the number of 
prohibited personnel practices at FDIC?
    Ms. Kelley. We have been looking at this from a number of 
angles, Senator, including the pay system, and I don't have any 
data that I could share with you right now. As we come to any 
conclusions or recommendations that we see as next steps, I 
would be glad to provide that to you.
    Senator Akaka. Thank you, also, if you don't have it now, 
maybe you can provide me with recommendations on how to fix or 
what you think is the way of fixing the problem.
    Ms. Kelley. I would be glad to do that.
    Senator Akaka. That is fair.
    Mr. Kinghorn, you raise a very interesting question and a 
very interesting issue in your testimony: The challenges 
associated with a multi-sector workforce. These issues are 
quite timely given the increasing number of contract employees 
working for the Federal Government. I am particularly 
interested in the first challenge you mentioned in your 
testimony regarding accountability. Do you have any suggestions 
as to how to assure accountability for a multi-sector 
workforce?
    Mr. Kinghorn. Senator Akaka, it is an incredibly growing 
issue. For some agencies, perhaps like NASA where there has 
been what we call multi-sector--we don't think the term 
``blended workforce'' works because we don't think it is 
necessarily blended or working in all cases. But in many 
agencies, this is beginning to happen increasingly. So, I think 
it is one of the major frustrations people have.
    I think first of all, many organizations get into 
alternative work without really thinking through it 
strategically. I think the thing that bothers many Fellows of 
the Academy is that agencies and organizations and other people 
simply slip into the use of contractors, either because of 
crisis situations--and there is not really a strategic thought 
given to looking down the road, what could or could not happen 
and then building in some defense mechanisms per se, that if 
you are going to go that route, what do you really need to be 
careful of? And I think we have plenty of evidence in the last 
25 years where that has happened.
    So one of the key questions on how you deal with it is, you 
need to think about it in advance, and perhaps the Subcommittee 
can have some hearings on that subject as to when you go 
outside a Federal workforce or when a State goes outside its 
State public service. And this is beyond outsourcing and 
offshoring. What strategic thought was given to doing that? Was 
it an economic decision to save money? Which it generally has 
been. And have the downsides of that been examined?
    I don't have any particular off-the-cuff sensibility that 
it is wrong to do that, but I think it needs to be given 
thought before it happens.
    The other question of accountability, if you look at the 
grant programs, I came out of the Environmental Protection 
Agency where I worked for nearly 10 years back in the 1980s, 
when the EPA obviously with its several statutes, probably 25 
statutes, was really the fundamental enforcer of many of the 
programs until they were delegated to the States. You fast 
forward now 20 years later, and most of EPA's programs are 
delegated, and they are paid for and managed through grants to 
grantees, whether they be States or other organizations. And I 
think that whole question of grant accountability, how do you 
hold a Federal employee who is issuing those grants--and we 
went through a period of 10 or 15 years where the 
accountability was purposely softened because we wanted block 
grants and other kinds of grants. What mechanisms do we need 
for the next 15 to 20 years to hold the right people 
accountable?
    I was at a large department's senior executive training 
session about 2 weeks ago, mainly a grantee organization, and 
they are struggling with that now. What is their role in the 
21st Century other than just being an oversight of grantees? 
Should they have a role that looks at best practices of how the 
grants are used? Should there be a stronger accountability 
role?
    So it really is a difficult question that not enough 
thought has been given to.
    Senator Akaka. Yes, I agree and I would like to ask Mr. 
Gage and Ms. Kelley if they have any further comments on this. 
Mr. Gage.
    Mr. Gage. Well, I think on the contracting side of it, 
clearly we are looking--what are there, 6 million contractor 
employees of the Federal Government now with no accountability 
that I can see? We have been asking for it in legislation, some 
sort of accountability. I think the mix of Federal employees 
and contractors on the work site is a confusing one, and it is 
something that I don't think really contributes to good 
government.
    So I think when we are looking at pay for performance or 
any type of personnel system, I think accountability, not just 
for Federal employees, but also on the contractors and the work 
that they do or don't do, is something that needs to be 
magnified.
    Ms. Kelley. And I think that will become even clearer if 
you look closely at similar work done by Federal employees and 
that same kind of work being done by contractors. I think, 
unfortunately, we are going to see this in the very near future 
as the IRS moves forward with its plan to put collection tax 
accounts in the hands of private collection agencies, and there 
will be private collection agencies doing the tax collection 
work of the IRS instead of IRS employees. And we are going to 
see, I believe, a lot of accountability questions and conflicts 
here as this moves forward, and I will give you just one key 
example of this.
    There is a law today in effect that prohibits IRS employees 
from being evaluated on dollars collected. That law was put 
into place to protect taxpayers from the fear of aggressive 
collection tactics by Federal employees. So IRS employees 
cannot be evaluated on dollars collected. But within the next 
12 months, private collection agencies are going to be paid by 
being able to keep up to 25 percent of what they collect from 
taxpayers. So they will be paid based on dollars collected, 
which is going to raise a lot of accountability issues when it 
comes to who should do this kind of work--IRS employees who are 
accountable or these private collection agencies who will be 
paid a bounty to do the same work.
    Senator Akaka. Mr. Gage, you mentioned the proposals being 
floated by some to offset the funds government is spending for 
Hurricane Katrina. I share your concern with these proposals, 
and I assure you that those coming under the purview of this 
Subcommittee will be carefully reviewed if introduced in the 
Senate. We are concerned about that, and we will certainly be 
looking at it further.
    Mr. Gage, the Comptroller General said in his written 
testimony that the current pay system is outmoded because it 
rewards length of service over performance and contribution, 
automatically provides across-the-board annual pay increases, 
even to poor performers, and compensates employees living in 
various localities without adequately considering the local 
labor market rates. And my simple question to you is: Do you 
agree?
    Mr. Gage. No, I don't agree. I think there are a lot of 
straw men in that statement by the Comptroller General.
    Some of these, when you look at the statistics on the pay 
for performance, for instance, the one I testified up at 
Monmouth, in 5 years two employees were unsuccessful. Two in 5 
years. So that bugaboo about this system is going to weed out 
the non-performer is, I think, not accurate.
    Obviously, our members don't like non-performers. They work 
next to them. If there is one, I think there is a peer pressure 
there that gets it moving. But I don't think that saying that 
the old system is outmoded because there are--this bugaboo that 
the Federal Government employees just don't work. And even 
under the pay-for-performance systems--and I know there is 
another one in Huntsville, Alabama, and these are all 
scientists. I think in 4 years there was one Federal employee 
that was unsuccessful.
    I would like to comment on some things that Ms. Kelley 
said. First of all, the old system is old, therefore, we have 
to blow it up, and to say that this system will do all these 
things, there is really no information about that.
    The Fort Monmouth people that we talked about in 
preparation for this, they really feel that it was so much ado 
about nothing, that the new system is so complex and is so 
time-consuming and resource-swallowing that it really doesn't 
motivate them. There is just a little bit of money involved, 
and that the amount of work that has to go into it really 
diverts from the mission rather than adds to it.
    If I had my say, I think we could do some tinkering, some 
serious tinkering with the current system, and have one that 
really works, not just for scientists, but we have to talk 
about those rank-and-file Federal employees who are in VA 
hospitals or in Social Security. These are not the high-grade 
types that most of these projects have involved. Here a 
consistency and a dedication is really required and necessary 
to do Social Security claims or VA service, and a lot of that 
simply will not be captured--a lot of that dedication simply 
will not be captured in this pay-for-performance system.
    Senator Akaka. Ms. Kelley, do you agree, too? And finally I 
will ask Mr. Kinghorn.
    Ms. Kelley. I think broad statements about the system being 
old and needing replacement are just that. They are very broad 
statements that don't provide specifics. I would not say the GS 
system is perfect. There are surely things that if there are 
valid problems, we are more than willing to work with the 
Administration and with the agencies to address those. But in 
earlier testimony, just today, for example, Deputy Director 
Blair said that if an employee has a pulse, they receive a 
within-grade increase.
    Now, I would suggest that any manager who is implementing 
the current system that way should not be a manager. So once 
again, the problem is with the implementation of the system, 
not with the system itself. And if agencies cannot 
appropriately implement the GS system that has a lot of 
structure to it, then I think employees are absolutely right to 
doubt any agency's ability to implement a system that doesn't 
have those kinds of structures, that doesn't provide for 
transparent and fair criteria.
    If the within-grade increase needs a framework around it as 
to what employees need to do to achieve that, then tell the 
employees what that is, and they will be glad to strive for 
that and to accomplish it. The things that need fixing are 
within the system, and the bigger problem, as far as I can see, 
across the board is implementation of the system. It is not the 
system itself. It is how agencies and managers implement it. 
That is only going to get worse in a system that is much more 
vague, which is exactly the road that all of these agencies are 
headed down, the ones that have the authority today and where 
the DHS and DOD and this Administration's proposal are going.
    Senator Akaka. Mr. Kinghorn.
    Mr. Kinghorn. I think the objective of a performance 
system--and performance-based pay is one system. Over time my 
goal was, and still is in my own organization, which has one, 
is ultimately not to have anyone that is a poor performer. So 
the fact that in a system after a couple of years there were no 
poor performers could be the fact that grade creep has happened 
again, or it could be simply that the performance system, the 
ones I am familiar with, ultimately drives out the people that 
are poorer performers. But that is not the objective per se. 
The objective is to reward people, and that is the second step.
    Again, in systems that I have been familiar with, both in 
my current job and previously, is that the performance system 
measured performance, and then even people in the organizations 
I worked in that received satisfactory, and sometimes above 
satisfactory, did not receive pay. At the consulting firm, I 
think we had 2.2 percent of pay to reward people. That doesn't 
sound like a lot of money, and it may not have been, but that 
is what we had. So we had a very high standard, and that is why 
people talked about the transparency of getting there was 
critically important, because you were not rewarding 
satisfactory people in that system, and you weren't even 
rewarding above average people.
    So if you didn't have transparency, it would have fallen 
apart, and in that practice, we improved retention. At one 
point we had about a 36-percent attrition rate in consulting, 
in the consulting business. That dropped down to 14 percent. 
Some of that was market, but some of it was the fact that 
people understood the performance system was much fairer.
    So you have to differentiate how you measure performance, I 
think, and its objectives, which can be different for different 
places, and then in that performance structure, with all the 
people you have, how do you use your reward system to provide 
the rewards? And some organizations might want to go down to 
satisfactory. Others want to stay at a higher end because they 
have certain objectives. And, again, as I suggested, you review 
that and the way you use both the system itself and the reward 
mechanisms might change, because your organization may change. 
Very different for NIST than it would be for IRS.
    Senator Akaka. Thank you, panelists. Thank you, Mr. 
Chairman.
    Senator Voinovich [presiding]. Thank you, Senator Akaka.
    I am a little perplexed because we are moving forward with 
MaxHR at DHS and NSPS at the Department of Defense. What I hope 
that we get out of this hearing today is some benchmark 
information that should be followed implementing alternative 
systems in a fair way. I think we heard some good things about 
involving employees, and I would hope that we continue to get 
input from the unions on things that could be done 
administratively or legislatively.
    I am interested in hearing from you and your members in 
those agencies under an alternative personnel system, including 
the Department of Defense's NSPS that are the first to 
transition in--what do you call them again?
    Mr. Gage. Spirals.
    Senator Voinovich. Spirals, thank you. We must get as much 
information on the transition as we possibly can from you. Ms. 
Kelley, do you represent anybody at the DFAS in Columbus?
    Ms. Kelley. No.
    Mr. Gage. We do.
    Senator Voinovich. That is right. You have a strong, active 
union there. I think I have met with the woman who leads that 
local.
    Mr. Gage. That is right. Patty Viers.
    Senator Voinovich. Yes, she is terrific. I would really 
like to have input from people like Ms. Viers and others, so we 
can monitor and make corrections if necessary.
    Also, I was pleased to hear that OPM understands that there 
are many things that need yet to be done in terms of preparing 
for this. For example, having in place a performance evaluation 
system period, whether unionized or not, I think people like to 
know whether they are doing good or whether they need to make 
improvements. I think that helps everyone.
    So I just would like to say to you that we are going 
forward. It seems to me that we also ought to be looking at the 
kinds of employees involved in the various alternative 
personnel systems. Ms. Kelley, you just mentioned that there is 
a stark difference between NIST and other agencies. It is a 
whole different culture when competing for Ph.Ds, and if you 
didn't have a pay-for-performance system in place, you may not 
get them to come to work for you, and for sure they wouldn't 
stay very long.
    I think that there has to be some distinction between types 
of employees and a need to maintain comparability with the 
private sector. What kind of a system do agencies have in place 
in order to attract employees? And then once they are on board, 
how do you get them to stay?
    So I think maybe that is the direction that I would be 
interested in directing your reaction to. Maybe that is the 
direction that we should go and to make sure that this isn't a 
one-size-fits-all because if we do, I don't think we are going 
to be successful for anybody.
    Any reaction?
    Senator Akaka. Mr. Chairman, let me say that I am so 
pleased to hear your comments on MaxHR at DHS and also NSPS at 
DOD. And I want you to know I look forward to working with you 
and your employee organizations on this. Thank you.
    Senator Voinovich. Thank you.
    Would you like to comment on what I just said?
    Mr. Gage. Well, I agree with you. I think to say that we 
are going to have pay for performance, it is going to be based 
on these competencies and thrown out there, when most of the 
experience comes from scientists and that we really haven't 
looked at the broad scope of Federal employment, and as we have 
been saying all along, I think this is a disaster for law 
enforcement. I don't even think you should try it. I think in 
many of our other jobs where there is such a team element, I 
don't think it is going to work there either.
    So I really respect and appreciate your comments that we 
have to try, since we are going down this road, but we 
definitely have to customize it to the different agencies and 
the different jobs.
    Ms. Kelley. In my view, the accountability is what needs to 
be there, though, for the agencies because absent a collective 
bargaining agreement or a statutory definition of what their 
system is, they will be left to their own devices. And if there 
is not the leadership, if there is not the employee 
involvement, if there is not the transparency and the funding, 
it will fail. And the evidence or the facts as we have lived 
them, that I have presented in my testimony, are to highlight 
that, our biggest fear right now is that there are--we know 
that NSPS and MaxHR are moving forward. That is very clear. But 
the models that are being pointed to as a reason to expand 
governmentwide are full of flaws, and they should not be held 
up as a model to expand.
    There will be a lot of things I believe that can be learned 
from the DOD and DHS implementation. They are still in the pre-
implementation stages. This rush to point to other systems in 
place--like the IRS management system. If the IRS managers who 
are under it give the feedback to the consultant hired by the 
IRS that we have in the report, these are the same managers 
that are then going to be responsible for implementing a 
paybanding system someday for the front-line employees? I mean, 
it is doomed to failure if that system is looked to as a model 
for something that should be rolled out in that or any other 
agency.
    For whatever reason, there seems to be a resistance or a 
hesitancy to acknowledge the flaws in these systems and to 
learn from them, and also to look and see what we can learn 
from DOD and DHS. You have such a variety of occupations within 
both of those agencies that cut across the gamut of Federal 
employees if you look at all of the employees in DHS and DOD. 
So you are going to have this wide range of everything from IT 
workers to accountants to lawyers to scientists to engineers, 
so all that experience will be there. And yet there seems to be 
no interest in seeing what can be learned from that and instead 
trying to point to these other APSs as models. And there is not 
one of them that I think employees should trust as the model 
that their system should be based on.
    So that is what I would ask, is for your help to 
acknowledge that there is a lot to learn, not because they can 
be applicable in every agency, but there will be things that 
should be looked to and not to buy into the reports that are 
issued about how great these other models are.
    Ask the employees who are living under them, and that is 
what I did before I submitted my testimony. And I do it every 
time I visit with them, and the feedback is consistent that 
these are not systems that should be in place for them today, 
much less be held up as a model anywhere else.
    Mr. Kinghorn. I think it would be unfortunate for the other 
million employees not covered by some of these new systems 
either to become at a competitive disadvantage in terms of the 
flexibilities of the systems but also just the confusion that 
could arise. So I certainly would support much like what the 
Administration has proposed. And if you look at the DOD and 
Homeland Security, 85 percent of it is probably very similar. 
There are some key differences, certainly, in the appeals 
process and collective bargaining, which I think are 
appropriate for discussion. But I think it would be unfortunate 
to have the rest of the million doing it piecemeal, either 
agency by agency, bureau by bureau. So I think that would be 
important to proceed.
    I think it does need a set of core values to work with what 
are many of the key elements under Title 5, everything from 
diversity in the workforce to inherently governmental work 
defined. And I think there does need to be a criteria in which 
OPM needs to look at these flexible authorities before 
implemented. But I really look toward the future of the civil 
service, and this civil service system does not attract and I 
don't think will hold the kind of workforce that we are going 
to require in the next 20 years. Again, they need more agility. 
They need a different look at what career means. For them, 
career is going to be coming and going. It is going to be rare, 
I think, we can keep someone for 20 years in any organization, 
public or private. And if they see a system that prevents them 
from easy entry and easy exit and coming back perhaps, I think 
it will be difficult to attract the new government.
    People don't like to change. I am no different than anyone 
else, and you have 2 million Federal employees, all of whom are 
dedicated. But I think we need to also look toward the new 
employees that we are going to be bringing in over the next two 
decades.
    Senator Voinovich. That is interesting. As I observe the 
workforce around the country, there are less and less places 
that you can go and have some sense of having a career. I think 
that is a real advantage in the Federal workforce. Individuals 
can come and work until retirement. I think people are looking 
for an opportunity where they can make a contribution, but at 
the same time have some security because there is such 
uncertainty today in the private sector.
    Mr. Kinghorn. I think it is mixed. I think as Mr. Gage has 
indicated--and I think we talked about it before--what might 
make sense for the IRS in its existing service centers, for 
example, or for law enforcement it may be different. But a lot 
of what I think government is going to be doing--and, again, 
this diverse workforce we are working with. What I have seen in 
terms of people I hired and I see people going in from the 
private sector finally, I don't see them interested 
particularly in many cases in a 20- or 25-year career anywhere.
    Some agencies have had to deal with that. If you go to PTO 
or go to SEC, many people go into those organizations at a very 
young age out of school to get experience of how to understand 
the SEC and they leave. I think that concept is increasing.
    I agree with you. I enjoyed a 25-year career. But, I don't 
think I am completely reflective of the new workforce that is 
coming in. But, clearly, there will be people that like the 
security, like the excitement, and do want to stay 30 years. 
But I am not sure the current system also rewards them in the 
appropriate ways, either.
    Senator Voinovich. It is interesting that Mr. Walker always 
talks about how well reform has worked. He is very careful to 
explain how elements are in place before reforms are 
implemented. The real question is are we going to commit the 
resources so that agencies can dot the I's and cross the T's so 
that new systems are successful? That is my real concern about 
all of this that we are undertaking.
    Also, I have to say this to you, Senator Akaka. I think 
that a lot of our colleagues don't get it. I don't think they 
do. I don't think a lot of our colleagues understand how 
important people are in the Federal Government and how 
important they are to the system. We are going to do oversight 
of FEMA, but I am going to be really interested to see what 
happens at the Department of Homeland Security. In creating the 
Department, people from one organizational culture were merged 
with people from another. I would not be surprised if people in 
FEMA left because they didn't like the merger. We had hearings 
and witnesses testified that employees were leaving because of 
changes in the culture of the new organization.
    So all of these things, I think, have to be examinted. We 
ought to consider what do agencies have to do to compete to get 
the people that they need. Then Congress must act. Implementing 
reform so it cascades, rather than doing massively across the 
board may be more effective. Your point is it should be 
available to all the agencies. The fact of the matter is that 
if you don't commit the resources, then it is not going to 
work.
    Mr. Kinghorn. I would concur with that. I think everyone 
today I heard said that. Even in a small organization, in 
consulting, every partner is directly involved. And when we 
went through the evaluation process, we basically shut the 
place down for 5 days with the people involved and went through 
the evaluations. It is an enormous undertaking, and we knew 
what to expect. We were trained at what to expect. We were 
trained in a system that was different. And I think everyone's 
concerns about that issue, I think you need to monitor that and 
keep oversight on it.
    Senator Voinovich. I just went through mine with my chief 
of staff. I am still not finished with it. I think the whole 
process is going to take 4 to 5 hours. I just think it is 
easier said than done. In some areas--maybe, Mr. Gage, you 
point out that because of the nature of some jobs, a different 
personnel system is needed. But we are moving, and the idea is 
moving, and we must do it right.
    Senator Akaka.
    Senator Akaka. Mr. Chairman, I just want to tell you that I 
am concerned, as you are. There are those who feel that this is 
a program of the future. My concern is trying to overlay this 
throughout the whole system at one time. We should consider 
limiting this. Now that we have it at DHS and DOD, we should 
limit it to those two organizations and see how it works before 
expanding it to the total system, and we should correct 
whatever needs to be corrected before it is expanded.
    I would look forward to discussing that possibility. Thank 
you, Mr. Chairman.
    Senator Voinovich. Thank you for being here today.
    [Whereupon, at 1 p.m., the Subcommittee was adjourned.]




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