[Senate Hearing 109-415]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-415
 
                  IMPLEMENTATION BY THE DEPARTMENT OF
                    DEFENSE OF THE NATIONAL SECURITY
                           PERSONNEL  SYSTEM

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

                                HEARING

                               before the

                      COMMITTEE ON ARMED SERVICES
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 14, 2005

                               __________

         Printed for the use of the Committee on Armed Services


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                      COMMITTEE ON ARMED SERVICES

                    JOHN WARNER, Virginia, Chairman

JOHN McCAIN, Arizona                 CARL LEVIN, Michigan
JAMES M. INHOFE, Oklahoma            EDWARD M. KENNEDY, Massachusetts
PAT ROBERTS, Kansas                  ROBERT C. BYRD, West Virginia
JEFF SESSIONS, Alabama               JOSEPH I. LIEBERMAN, Connecticut
SUSAN M. COLLINS, Maine              JACK REED, Rhode Island
JOHN ENSIGN, Nevada                  DANIEL K. AKAKA, Hawaii
JAMES M. TALENT, Missouri            BILL NELSON, Florida
SAXBY CHAMBLISS, Georgia             E. BENJAMIN NELSON, Nebraska
LINDSEY O. GRAHAM, South Carolina    MARK DAYTON, Minnesota
ELIZABETH DOLE, North Carolina       EVAN BAYH, Indiana
JOHN CORNYN, Texas                   HILLARY RODHAM CLINTON, New York
JOHN THUNE, South Dakota

                    Judith A. Ansley, Staff Director

             Richard D. DeBobes, Democratic Staff Director

                                  (ii)

  
?



                            C O N T E N T S

                               __________

                    CHRONOLOGICAL LIST OF WITNESSES

 Implementation by the Department of Defense of the National Security 
                            Personnel System

                             april 14, 2005

                                                                   Page

England, Hon. Gordon R., Secretary of the Navy...................    10
Blair, Dan G., Acting Director, Office of Personnel Management...    18
Stewart, Derek B., Director, Military and Department of Defense 
  Civilian Personnel Issues, Government Accountability Office....    44
Gage, John, National President, American Federation of Government 
  Employees......................................................    56
Sistare, Hannah S., Director, Human Resources Management 
  Consortium; Executive Director, National Commission on the 
  Public Service Implementation Initiative, National Academy of 
  Public Administration..........................................    69

                                 (iii)


 IMPLEMENTATION BY THE DEPARTMENT OF DEFENSE OF THE NATIONAL SECURITY 
                            PERSONNEL SYSTEM

                              ----------                              


                        THURSDAY, APRIL 14, 2005

                                       U.S. Senate,
                               Committee on Armed Services,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:37 a.m., room 
325, the Caucus Room, Russell Senate Office Building, Senator 
John Warner (chairman) presiding.
    Committee members present: Senators Warner, McCain, Inhofe, 
Collins, Talent, Levin, Kennedy, Lieberman, Reed, Akaka, Bill 
Nelson, and Clinton.
    Committee staff member present: Judith A. Ansley, staff 
director.
    Majority staff members present: David M. Morriss, counsel; 
and Diana G. Tabler, professional staff member.
    Minority staff members present: Richard D. DeBobes, 
Democratic staff director; Creighton Greene, professional staff 
member; Peter K. Levine, minority counsel; and Arun A. 
Seraphin, professional staff member.
    Staff assistants present: Benjamin L. Rubin and Pendred K. 
Wilson.
    Committee members' assistants present: John A. Bonsell, 
assistant to Senator Inhofe; Arch Galloway II, assistant to 
Senator Sessions; Mackenzie M. Eaglen, assistant to Senator 
Collins; Lindsey R. Neas, assistant to Senator Talent; Mieke Y. 
Eoyang, assistant to Senator Kennedy; Frederick M. Downey, 
assistant to Senator Lieberman; Darcie Tokioka, assistant to 
Senator Akaka; William K. Sutey, assistant to Senator Bill 
Nelson; Eric Pierce, assistant to Senator Ben Nelson; and 
Andrew Shapiro, assistant to Senator Clinton.

       OPENING STATEMENT OF SENATOR JOHN WARNER, CHAIRMAN

    Chairman Warner. Good morning, everyone. We welcome 
everyone for a very important subject. A number of my 
colleagues have urged that this hearing be held, and indeed 
that Secretary England urged that this be handled, so we're 
delighted to do it.
    I must say if I may by reference I have been privileged to 
be a part of the Federal workforce for many years in many jobs 
over my lifetime. I have always felt I have a special interest 
and responsibility to the Federal workers and therefore I'm 
delighted to be here this morning with my colleagues.
    We meet to receive the testimony on the implementation of 
the National Security Personnel System (NSPS), a system which 
impacts nearly 700,000 men and women of the Department of 
Defense (DOD) civilian workforce, throughout the world.
    We welcome our first panel, the Honorable Gordon England, 
currently Secretary of the United States Navy, and Daniel G. 
Blair, the acting Director of the Office of Personnel 
Management (OPM). We will also hear from the second panel, and 
I will introduce them as they approach.
    Congress enacted the NSPS as part of the National Defense 
Authorization Act in 2004. This was a challenge. But in my 
view, a very necessary piece of legislation giving DOD broad 
new authorities and flexibilities to manage the civilian 
workforce, at a time when the Defense Department is undergoing 
some of the most dramatic changes in its entire history, given 
the extraordinary challenges facing our United States security 
system.
    The Department has now begun to take the first important 
step to implement the new system. I wish to acknowledge the 
hard work of Senators Collins and Lieberman, who as chairman 
and ranking member of the Committee on Homeland Security and 
Government Affairs have played a key role in the adoption of 
this legislation.
    Also, it's appropriate at this time to acknowledge the many 
contributions of the civilian workforce of the DOD, the men and 
women who have served tirelessly over years with our military 
personnel in the defense of our Nation.
    As I have said, I was privileged to have at one time, when 
I was Secretary of the Navy, just in the Navy Department alone, 
over 600,000 civilian employees. At that time, of course, the 
overall Department was much, much larger.
    Our civilian employees are scientists and engineers, 
medical personnel, technicians, teachers, and some of the 
finest senior executives in the Nation. They are also the 
welders and the electricians who daily risk their lives to 
maintain some of the most powerful technology and sophisticated 
weapons systems in the world.
    The Nation owes all of those employees a great debt of 
gratitude, and we desperately need their services and their 
successors in the years to come. It comes as no surprise that 
the committee's concern about the transformation of the DOD's 
civilian personnel system which is now underway. The DOD sought 
flexibility and that flexibility has been granted. It's now our 
responsibility to work with the Department and OPM and with the 
representatives of the civilian workforce to make sure we get 
it right, and it works right.
    [The prepared statement of Senator Warner follows:]

               Prepared Statement by Senator John Warner

    Good morning and welcome to this historic room of the United States 
Senate.
    The committee meets today to receive testimony on the 
implementation of the National Security Personnel System--a system 
which impacts nearly 700,000 men and women of the Department of Defense 
civilian work force.
    We welcome our first panel, the Honorable Gordon R. England, 
Secretary of the Navy, and the Honorable Daniel G. Blair, Acting 
Director of the Office of Personnel Management.
    The committee will also hear from a second panel of experts. I will 
introduce the witnesses on the second panel later in this hearing.
    Congress enacted the National Security Personnel System as part of 
the National Defense Authorization Act for 2004. This was a challenge 
but--in my view--necessary legislation which gave the Department of 
Defense broad new authorities and flexibilities to manage the civilian 
workforce again, this was a challenge to meet the Nation's rapidly 
changing national security demands. The Department has now begun to 
take the important first step to implement this new personnel system. 
    I wish to acknowledge the hard work of Senators Collins and 
Lieberman who, as chairman and ranking member of the Committee on 
Homeland Security and Government Affairs, have played a key role in 
passing the legislation covering the civilian personnel changes in the 
Department of Defense. 
    It is also appropriate at this time to also acknowledge the many 
contributions of the civilian workforce of the Department of Defense--
men and women who have served tirelessly over the years with our 
military personnel in the defense of this great nation. As Secretary of 
the Navy in the 1970s, I had the privilege of serving with a civilian 
workforce in the Department of the Navy of over 600,000. It gave me 
great confidence to know that our sailors and marines worked side by 
side with their fine civilian counterparts as a team.
    Our civilian employees are scientists and engineers, medical 
personnel and technicians, teachers and some of the finest senior 
executives in the Nation. They are also the welders and electricians 
who daily risk their lives to maintain some of the most powerful, 
technologically sophisticated weapon systems in the world, and 
firefighters and security personnel who also risk their lives for our 
safety. The Nation owes those who have dedicated a career to civilian 
service in the Department of Defense a great debt of gratitude, and as 
our military leaders have testified before this committee, we simply 
cannot get the job done without this fine civilian work force.
    It should come as no surprise that this committee is concerned 
about the transformation of the DOD civilian personnel system which is 
now underway. The Department of Defense sought flexibility, and that 
flexibility has been granted. It is now our responsibility to work with 
the Department of Defense, with OPM, and with representatives of the 
civilian workforce to see that we get it right.
    DOD must keep faith with its work force, by rewarding their 
achievements and protecting their basic rights. The regulation jointly 
issued by the Department of Defense and the Office of Personnel 
Management on February 14, 2005 raises these issues:

         How will pay be determined for each of the pay bands 
        which replace the civil service general schedule?
         How will performance be evaluated?
         What issues are still on the table for collective 
        bargaining with local and national unions?
         How can labor be assured of independent review and 
        resolution of disputes?

    During the course of this hearing, we will explore issues related 
to pay, evaluation and recognition of performance, employee rights in 
the appeal of adverse actions and the new labor relations system which 
the Department intends to put in place. 
    The decision made, almost 2 years ago, to move forward with the 
National Security Personnel System,  was supported by final vote 
strongly in favor of reform.
    As the ``meet and confer'' period which was required by law 
commences on April 18, 2005, the Department has an opportunity to work 
with all parties on whether or how to proceed on matters needing 
clarification.  The committee expects to see progress when a final rule 
is presented to Congress for review in accordance with the law.

    Chairman Warner. Senator Levin.

                STATEMENT OF SENATOR CARL LEVIN

    Senator Levin. Mr. Chairman, first let me thank you for 
calling this hearing. The proposed NSPS will have a direct 
impact, as you pointed out, on hundreds of thousands of 
employees at the Department of Defense.
    It will define how they are hired, how they are promoted, 
how much they are paid, how they are disciplined, and what 
rights they will have or not have to challenge any of the 
decisions.
    I recognize the tremendous amount of work that went into 
this proposal. I also would like to thank Secretary England in 
particular for the positive contribution that he has made in 
both the tone and substance of the discussion.
    Mr. Chairman, the first test of any new personnel system is 
how it's received by the employees who must live under it. The 
proposed NSPS is less likely to be successful if it doesn't 
have the broad support of the DOD employees who must live with 
it.
    The NSPS is unlikely to gain such acceptance unless the 
Department's employees have confidence that the proposed system 
will treat them fairly and will respect the important 
contribution that they make to the DOD and to the security of 
our Nation.
    The new system must do more than provide flexibility to 
Department of Defense managers. It must also provide standards, 
establish expectations, and incorporate mechanisms to ensure 
transparency and accountability for decisions that these 
managers will make.
    In this regard, I am deeply troubled by a number of aspects 
of the draft regulation, which appear to send a message to the 
Department employees that the leadership of the Department of 
Defense is not interested in ensuring that they are treated 
with the fairness or equity that they deserve.
    Last month I sent a memorandum to Secretary England 
outlining my concerns about four items: the exemption of all 
DOD issuances, so-called, from the collective bargaining 
requirement; the standard of review for adverse personnel 
actions; the ratification of national level bargaining 
agreements; and the composition of the National Security Labor 
Relations Board. I don't have time to go into all of these 
issues now. I'll explore a few more of them during my 
questions.
    But I would like to just focus on one specific area as an 
example of what my concerns are. That area is the standard of 
review and appeals of adverse personnel actions against DOD 
employees. The relevant section of the draft regulation says 
that a proposed penalty against the Department of Defense 
employee may not be reduced on appeal unless ``the penalty is 
so disproportionate to the basis for the action it has to be 
wholly without justification.''
    In those cases where the penalty is reduced, listen to 
this, the draft regulation says that ``maximum justifiable 
penalty must be applied.'' That's unfair. It's harsh. It's 
extreme on its face. Instead of words like a fair penalty or an 
appropriate penalty will be substituted on appeal where the 
penalty is reduced, you have maximum penalty that can be 
justified. Why not the minimum penalty that can be justified?
    Equally important is what the draft regulation does not 
say. It does not require either DOD officials or reviewing 
authorities to take into account any of the many factors that 
might justify a reduced penalty, such as employees' past 
record, whether the offense is intentional or advertent, the 
extent to which the employee was on notice or warned about the 
conduct in question, and the consistency of the penalty with 
those imposed on other employees for the same or similar 
offenses. Instead, the regulation says that in every case, the 
Merit System's Protection Board (MSPB) must apply the ``maximum 
justifiable penalty.''
    The message that that provision sends is that the 
Department is concerned only about discipline, and not 
interested in fairness. Even convicted criminals are not always 
subjected to the maximum permissible penalty. I don't believe 
that that standard of review is consistent with the standard of 
review which we set out in the NSPS legislation 2 years ago 
when we enacted it. I also believe that the Department is going 
to have difficulty convincing its employees that this new 
system will treat them fairly as long as it continues to insist 
that the appropriate penalty in adverse action cases is always 
the severest penalty that is not so disproportionate to the 
basis for the action as to be wholly without justification.
    I believe, Mr. Chairman, that our witnesses here today are 
seeking to establish a fair and effective new personnel system 
for the Department of Defense. I believe that they are open to 
rethinking issues like the ones that we are going to raise here 
today. It's critically important that they be open. That way, I 
assume that the goals of our legislation can be achieved. Thank 
you, Mr. Chairman.
    Chairman Warner. Thank you, Senator Levin. Other colleagues 
wish to make an opening statement?
    Senator Kennedy.
    Senator Kennedy. If I could, Mr. Chairman, and you're 
typically gracious to permit those of us who are very 
interested in making a comment. I want to thank you very much, 
and Senator Levin, for having this hearing. This is a matter 
that we have talked about and you had agreed to have this 
hearing so that we would have a chance to go into some of the 
issues which are involved, so I'm very, very grateful.
    I just want to underline a couple of points here, Mr. 
Chairman. As has been pointed out, the Civil Service Personnel 
System was first put in place over 40 years ago by President 
Kennedy, and later amended under President Carter in 1978.
    The changes being made today are the most sweeping changes 
in the personnel system ever. I support the modernization but 
it can and must be done without gutting vital workers' rights 
and protections.
    This system is going to have a very dramatic effect and 
impact on some 6,400 Defense civilian employees in my State of 
Massachusetts. The eradication of the collective bargaining 
rights will affect all of those workers, the new untested 
subjective pay processes, and weakened due process rights will 
affect will nearly 3,000 Massachusetts workers in the first 
round of implementation. These include employees at the Air 
Force base at Hanscom, the electronic systems center and the 
Air Force research labs, Boston Navy Yard, the Air Force police 
at Westover, the Army Defense Reserve Forces, and the Otis Air 
National Guard.
    I believe that the workers deserve better. They deserve to 
be able to maintain bargaining rights over their schedules, 
safety, and health in deployments outside of the regular work 
locations. They deserve a just appeals process when they have 
been treated unfairly and they deserve to have their salary and 
pay increases depend on fair, transparent criteria, not 
subjective judgment.
    Mr. Chairman, just finally, I have reviewed in preparation 
the statements that were made by Secretary Rumsfeld before the 
Committee and I'll have a chance to quote those briefly during 
the questioning period. But as many of us remember, the Civil 
Service programs were put in to avoid political patronage, and 
to create a system that was going to be based on merit and 
performance, which for all the reasons that we don't have to go 
into today was a very desirable objective and one which in any 
kind of modernization is certainly one that I hope we can help 
continue.
    We may have to modernize the system, but the idea of having 
a transparent merit system is one that I would think that we 
could all agree on. I don't think that's 19th century, what 
might have been. That ought to be a 21st century way of 
proceeding. Because it wasn't in the 19th century way, but it 
was a system of patronage and we got away from that. That was 
the great need that was essential, so that there was going to 
be pay based on merit. I think these pay bands that are 
outlined in this, move us in a direction that's much more 
subject to the subjective.
    Second, on the issue of collective bargaining, most modern 
managers welcome the opportunity to get input from their 
workers. That's basically the collective bargaining system, so 
that they know what is happening out there and they have a good 
way of exchanging ideas.
    That enhances productivity and also health and safety and 
other issues which you raised. So it seems to me that all of us 
want to see the modernization and adaptability, those are good 
words, but we also don't want to throw the baby out with the 
bath water on some tried and true principles which I think have 
served the country well in terms of the future. I thank the 
chair.
    [The prepared statement of Senator Kennedy follows:]

            Prepared Statement by Senator Edward M. Kennedy

    While I strongly support modernization, I am deeply concerned by 
the Department's proposal to change the rules governing the civilian 
defense workforce. The proposal--which was developed without meaningful 
input by affected workers or their representatives--seems a calculated 
attempt to deny our invaluable defense employees their basic rights. 
Rather than bringing us into the 21st century, the National Security 
Personnel System (NSPS) would set workers' rights back to the 19th 
century, and that is unacceptable.
    First, the NSPS would unlawfully undermine workers' collective 
bargaining rights. Under current law, the Department is required to 
negotiate with employee representatives over important workplace 
issues, including overtime policy and other scheduling issues, safety 
and health programs, and deployment away from regular work locations. A 
neutral third party steps in to adjudicate when there are disputes 
between labor and management. Under NSPS, however, the Department could 
prohibit bargaining on any subject, and could wipe out existing 
collective bargaining agreement provisions on any subject, merely by 
issuing a regulation, directive or policy on those subjects. In 
addition, labor disputes would be adjudicated by a new board within the 
Department--clearly not an impartial third party. This is not 
collective bargaining by any stretch of the imagination--it is an 
unlawful and unfair stripping of employees' collective bargaining 
rights.
    Second, NSPS would effectively eliminate an individual employee's 
right to a fair appeals process. Under current law, an employee who 
suffers an adverse employment action can pursue an appeal through the 
Merit Systems Protection Board (MSPB), an independent agency 
established to protect workers in the civil service against potential 
abuses by agency management. Under NSPS, employees lose their right to 
a fair appeals process, because the Department of Defense has given 
itself the authority to remand, modify, affirm, or reverse decisions by 
judges at the MSPB. MSPB would have extremely limited authority to 
review or change any decisions imposed by the Department. This system 
is clearly unfair to employees, allowing the fox to guard the 
proverbial henhouse of employee rights.
    Finally, under current law civilian employees benefit from a clear, 
transparent, objective pay system--the same general schedule that 
applies to all Federal employees. While NSPS does not spell out the 
details of the new pay system the Department would impose, what we do 
know suggests that civilian defense employees will be vulnerable to 
their supervisors' whims, rather than congressional action, to 
determine whether and how much of a pay raise they will receive. NSPS 
replaces the objective statutory pay system with subjective 
performance-based pay systems without clear, established performance 
criteria. The new pay system will ultimately lead to lower salaries and 
slower salary growth for the vast majority of hard-working Defense 
employees.
    The changes will hurt 700,000 workers nationwide, including 6,400 
in Massachusetts. These patriotic Americans are protecting us around 
the world, and we owe it to them to protect their rights. They take 
pride in their work, they love their country, and they've served it 
with distinction, often for decades. They build command and control 
systems at Hanscom Air Force Base. They design ships at the Boston Navy 
Yard, and they protect our military installations at bases across 
Massachusetts.
    These men and women deserve better. They deserve the right to 
bargain over important issues such as the safety and health of their 
workplaces, and when they're required to work overtime hours. They 
deserve a fair appeals process when they've been wronged. They deserve 
pay increases that depend on fair criteria, not the bias of their 
managers. I hope the outcome of to day's hearing will convince the 
Department to go back to the drawing board and submit a lawful plan for 
reform that protects workers' basic rights.

    Chairman Warner. Thank you, Senator. Any of my other 
colleagues?
    Senator Nelson.
    Senator Bill Nelson. Mr. Chairman, I was thinking about--
the Secretary of the Navy is here--and the NSPS with the 
necessity for having a carrier in Japan. I'll just defer that 
discussion.
    Chairman Warner. That will give him a few moments to 
reflect what answer he is going to provide.
    Senator Akaka.
    Senator Akaka. Mr. Chairman, thank you for calling today's 
hearing on the NSPS as proposed by the DOD and OPM. I want to 
take the time to share some of the information that I have 
received from folks in Hawaii, as well as in other places.
    Of course, I join you, Mr. Chairman, in welcoming Secretary 
England back to the committee along with Director Blair and our 
other distinguished witnesses, who will share with us their 
views on NSPS.
    As the ranking member of this committee's Readiness and 
Management Support Subcommittee, as well as the Senate's 
Federal Service Subcommittee, I have heard from many Department 
of Defense employees across the Nation who do not support the 
implementation of these regulations as drafted.
    Mr. Chairman, I cannot recall a single issue in my 28 years 
in Congress that has generated more anxiety among Federal 
workers in Hawaii than NSPS. Now, this is especially true of 
the more than 16,000 civilian DOD employees, many of whom work 
at Pearl Harbor Naval shipyard.
    I believe that government's most important asset is the 
Federal workforce, whose dedication, commitment, and courage 
are demonstrated every day. Any reorganization such as NSPS 
will fail if the concerns of employees go unanswered. Congress 
was told the DOD needed a new personnel system that was 
``flexible and contemporary,'' to meet it's national security 
mission. However, NSPS should not reduce current rights and 
protections of the Civil Service in its aspirations for 
flexibility.
    I used a recent public comment period to lay out my 
concerns in a 16-page letter and focus on the areas of pay, 
performance and staffing, labor relations, veterans' 
preference, and adverse actions and appeals. Although I feel 
that all of these areas pose serious challenges to maintaining 
a fair and impartial Civil Service, I believe the limitations 
and the scope of collective bargaining are particularly 
egregious.
    In testimony before the Government Affairs Committee 2 
years ago, Secretary Rumsfeld testified that the labor 
management provisions in chapter 71 of title 5 which governs 
the Federal workforce would not be repealed.
    However, the NSPS proposal effectively eliminates 
collective bargaining by restricting bargaining over 
approximately 75 percent of current bargaining issues. The 
regulations permit DOD to issue a regulation directive or 
policy that trumps provisions of existing collective bargaining 
agreements.
    The proposed regulations would eliminate negotiation of 
overtime policy, shift location, safety and health programs, 
flex-time compressed work schedules, and deployments. If such 
restrictions are implemented, it is no wonder that DOD 
employees are voicing concern. By restricting the ability of 
employees to bring their concerns to the table and essentially 
eliminating collective bargaining, the changes proposed in NSPS 
will undermine the agency mission, lower employee morale, and 
make the Department an employer of last resort.
    Let me be clear that the concerns being relayed to me are 
not just on rank and file employees. I am also hearing from 
Federal managers, the men and women who must execute NSPS and 
be accountable for its success. Just yesterday I was asked by a 
manager how he was to implement the new plan on July 1 without 
any information or guidance from DOD. He said he was told by a 
superior that, and I quote him, ``implementation is a 
journey.'' Then he was referred to the NSPS Web site.
    Mr. Chairman, NSPS appears to be, after hearing all of 
these folks, a trip without a destination or without a compass 
and without a map. I urge that implementation of NSPS be done 
in a manner that respects the rights and protection of the DOD 
workforce, provides adequate transparency, resources, and 
training, maintains fair and credible appeals systems, sustains 
an environment in which labor and management coexist, and 
provides all workers, both managers and employees alike, 
opportunities to provide meaningful input on agency policies. 
Thank you very much, Mr. Chairman. I look forward to the 
hearing.
    [The prepared statement of Senator Akaka follows:]

             Prepared Statement by Senator Daniel K. Akaka

    Mr. Chairman, thank you for calling today's hearing on the National 
Security Personnel System (NSPS) as proposed by the Department of 
Defense (DOD) and the Office of Personnel Management (OPM).
    I join you in welcoming Secretary England back to our committee, 
along with Director Blair and our other distinguished witnesses who 
will share with us their views on NSPS.
    As the ranking member of this committee's Readiness and Management 
Support Subcommittee, as well as the Senate's Federal civil service 
subcommittee, I have heard from many Department of Defense employees 
across the Nation who do not support implementation of these new 
regulations, as drafted. Mr. Chairman, I cannot recall a single issue 
in my 28 years in Congress that has generated more anxiety among 
Federal workers in Hawaii than the NSPS. This is especially true of the 
more than 16,000 civilian DOD employees, many of whom work at the Pearl 
Harbor Naval Shipyard.
    I believe the government's most important asset is the Federal 
workforce, whose dedication, commitment, and courage are demonstrated 
every day. Any reorganization, such as NSPS, will fail if the concerns 
of employees go unanswered. Congress was told that DOD needed a new 
personnel system that was, ``flexible and contemporary'' to meet its 
national security mission. However, NSPS should not reduce current 
rights and protections of the civil service in its aspirations for 
flexibility.
    I used the recent public comment period to layout my concerns in a 
16-page letter and focused in the areas of pay, performance, and 
staffing; labor relations; veterans preference; and adverse actions and 
appeals. Although I feel that all these areas pose serious challenges 
to maintaining a fair and impartial civil service, I believe the 
limitations on the scope of collective bargaining are particularly 
egregious.
    In testimony before the Governmental Affairs Committee 2 years ago, 
Secretary Rumsfeld testified that the labor-management provisions in 
chapter 71 of title 5, which governs the Federal workforce, would not 
be repealed.
    However, the NSPS proposal effectively eliminates collective 
bargaining by restricting bargaining over approximately 75 percent of 
current bargaining issues. The regulations permit DOD to issue a 
regulation, directive, or policy that trumps provisions of existing 
collective bargaining agreements.
    The proposed regulations would eliminate negotiation on overtime 
policy, shift rotation, safety and health programs, flex time and 
compressed work schedules, and deployments. If such restrictions are 
implemented, it is no wonder that DOD employees are voicing concern. By 
restricting the ability of employees to bring their concerns to the 
table and essentially eliminating collective bargaining, the changes 
proposed in NSPS will undermine agency mission, lower employee morale, 
and make the Department an employer of last resort.
    Let me be clear that the concerns being relayed to me are not just 
from rank and file employees. I am also hearing from Federal managers--
the men and women who must execute NSPS and be accountable for its 
success.
    Just yesterday I was asked by a manager how he was to implement the 
new plan on July 1 without any information or guidance from DOD. He 
said he was told by a superior that ``implementation is a journey,'' 
and then he was referred to the NSPS Web site.
    Mr. Chairman, NSPS appears to be a trip without a destination 
without a compass--and without a map. I urge that implementation of 
NSPS be done in a manner that respects the rights and protections of 
the DOD workforce, provides adequate resources and training, maintains 
fair and credible appeals systems, sustains an environment in which 
labor and management coexist, and provide all workers both managers and 
employees alike--opportunities to provide meaningful input on agency 
policies.
    Thank you Mr. Chairman. I look forward to our hearing today.

    Chairman Warner. Thank you, Senator Akaka. We note the 
presence of the chairman of the committee that was working on 
the issue before and made a significant contribution to this 
legislation. Would you like to say a few words, Madam Chairman?
    Senator Collins.
    Senator Collins. Thank you, Mr. Chairman. I do have an 
opening statement, but in the interest of time, I'll submit it 
for the record. I would note, as the Senator has indicated, 
that the Homeland Security and Governmental Affairs Committee 
has a great deal of jurisdiction in this area over the rules 
for the civilian workforce at DOD, and that Senator Levin and I 
worked very hard to craft an alternative to the plan that the 
Department first presented 2 years ago.
    I have followed the implementation very closely, along with 
Senator Voinovich, who chairs the appropriate subcommittee and 
who has held hearings on this matter. A month ago, I wrote to 
our two witnesses to express some specific concerns about the 
proposed regulations. I have not yet received a reply to that 
letter. I understand one is being worked upon, but I hope to 
bring up some of those issues today. Thank you, Mr. Chairman, 
and thank you for holding this hearing.
    [The prepared statement of Senator Collins follows:]

              Prepared Statement by Senator Susan Collins

    Senator Warner, thank you for holding this hearing as part of our 
joint efforts to ensure the Department of Defense creates a new 
personnel system in collaboration with its workforce that supports the 
Department's national security mission while, at the same time, treats 
workers fairly and protects their fundamental rights. As Chairman of 
the Homeland Security and Governmental Affairs Committee and a member 
of the Armed Services Committee, I take the responsibility of Federal 
workforce policy very seriously.
    Two years ago, the Department of Defense delivered to Congress a 
far-reaching proposal to restructure the Department's civilian 
personnel system. Unfortunately, the proposal lacked important 
safeguards to protect good employees. To strike a better balance, I 
worked hard with several of my colleagues, in particular Senator Levin, 
to craft an alternative that would give the Department the authority 
that it needed to create a more responsive system, while providing 
appropriate employee protections.
    Secretary England, I want to thank you for your continued 
involvement in the progression of NSPS, and acknowledge your efforts to 
make key modifications in the initial development stages in response to 
my previous concerns. I hope that you will set a tone of inclusiveness 
for the upcoming meet and confer process. Similar to the personnel 
system it is designed to produce, the meet and confer period must treat 
the employees and their elected representatives as full participants in 
the process.
    Many have been frustrated by the lack of detail during the 
development of the proposal. The recent publication of the proposed 
regulations has provided Congress as well as the DOD civilian workforce 
an outline of the new personnel system.
    After reviewing the proposed regulations, I believe there is room 
for improvement. For example, additional details must be provided to 
avoid confusion within the pay-for-performance system. The move to a 
new compensation system represents both a fundamental and cultural 
shift for the Department's civilian workforce. Defining the details 
within the final regulations will help ensure fairness and allow 
employees to understand how their individual performance is linked to 
the Department's overall mission and ensure consistency across 
occupational groups.
    In addition, the ``wholly without justification'' standard of 
review proposed for appeals of adverse actions must be modified to 
conform to the evidentiary standard required by the statute.
    During debate on the authorizing measure, the Department repeatedly 
claimed that it had no desire to waive the collective bargaining rights 
of its employees. Thus, I fully expect that the final labor relations 
system developed by the Department, OPM, and the employee unions will 
abide by existing labor-management principles, such as the duty to 
bargain in good faith.
    As the meet and confer period begins, I remain confident that both 
sides can craft a system that demonstrates its support for employees 
who perform the essential services that the Department depends on every 
day. While there are real differences of opinion at this time over many 
of the proposed changes, meeting in good-faith and carefully balancing 
the needs of the Department and its workforce can only improve the 
final regulations. For the new system to succeed, employees' voices 
must be heard and their specific suggestions and concerns, whether 
provided in written comments or raised during the meet and confer 
process, must be addressed.
    Striking the appropriate balance among the numerous options 
available, though not easy, will be imperative to ensuring the 
Department has the dedicated civilian workforce it needs to ensure its 
long-term success and to support our men and women in uniform.

    Chairman Warner. Thank you. Gentlemen, we will proceed 
formally as each member does have extensive very well prepared 
statements, which will be placed in the record in their 
entirety. So you may proceed as you wish on your abbreviated 
remarks as you would like to make.

   STATEMENT OF HON. GORDON R. ENGLAND, SECRETARY OF THE NAVY

    Secretary England. Mr. Chairman and members of the 
committee, thanks very much. Thanks for the opportunity to be 
here today with my partner from OPM, Dan Blair, to discuss the 
proposed design of NSPS, and I emphasize it's still a proposed 
design.
    The timing of this hearing is very opportune as a 30-day 
public comment period to the proposed broad enabling 
regulations just ended. The meet and confer period with our 
unions will begin next week. We respect our unions and we look 
forward to that upcoming dialogue. Thus the detailed design 
phase of NSPS is just now starting, so your questions, 
comments, and suggestions will be most helpful as we go forward 
into the detail design phase.
    Let me first assure this committee that the DOD is 
absolutely committed to implementing NSPS in a fair, credible, 
and transparent manner. Broad participation is the cornerstone 
of our development process. To date there have been more than 
100 focus groups, more than 50 townhall meetings, and an open 
Web site to gain input.
    Literally tens of thousands of suggestions and comments 
have been received from employees, local and national union 
representatives, supervisors, managers, human resource 
practitioners, and the public at large. Additionally, the DOD 
and OPM have conducted 10 meetings with officials of the unions 
that represent DOD employees.
    Other stakeholder groups such as the National Academy of 
Public Administration, the Coalition for Effective Change, the 
Partnership for Public Service, Veterans' Service 
Organizations, the Federal Manager's Association, and other 
nonunion employee advocacy groups have all been solicited.
    DOD and OPM have also met with the Government 
Accountability Office (GAO), the Office of Management and 
Budget (OMB), and the Department of Homeland Security (DHS) to 
receive their input and to keep them apprised of the NSPS 
progress.
    NSPS is all about people, DOD's most valuable resource. The 
NSPS team is dedicated to make NSPS a win for the employees and 
a win for national security. Recognizing the importance of 
people, Mr. Chairman, I do want to introduce to you today Mary 
Lacey, who is here. She is one of our most important NSPS 
leaders, she serves as the program executive officer.
    Mrs. Lacey has over 30 years experience with DOD. She 
started as an intern, recently ran some of the demonstration 
projects that were a forerunner to the NSPS system, so she is 
knowledgeable and experienced about designing and implementing 
NSPS and she fully understands the absolute necessity for 
adequate training before implementation.
    Now, although NSPS will not begin until after the meet and 
confer, after the 30-day congressional notification period, and 
after publishing the final regulations in the Federal Register, 
I can tell you with certainty that current Civil Service 
protections of merit and fairness will not change in the new 
NSPS.
    NSPS will not remove whistle blowing protections. It will 
not eliminate or alter access of DOD employees to the equal 
opportunity complaint process. It will not remove prohibitions 
on the nepotism or political favoritism. It will not in any way 
diminish veterans' preference. It will not end collective 
bargaining. It will not result in a loss of Civil Service jobs 
or opportunities. We hope just the opposite. It will not give 
DOD unilateral authority to change the Civil Service system, 
that is leave, benefits, training, travel, allowances. The list 
goes on. All those are unaffected by NSPS.
    What NSPS will do is to put in place a modern flexible 
human resources management system, appeals system, and labor 
system to replace a cumbersome framework of rules and processes 
designed for a different time. So, Mr. Chairman, let me first 
thank you, and thank the entire Congress for this very 
important legislation that enabled the development of NSPS, 
enables what we are doing today for DOD and the opportunity to 
have these discussions with you today. Again, I thank you for 
scheduling this hearing at this very opportune time. Thank you, 
Mr. Chairman.
    [The prepared statement of Secretary England follows:]

              Prepared Statement by Hon. Gordon R. England

    Mr. Chairman and members of the committee. Thank you for the 
opportunity to appear before you to discuss the proposed design of the 
National Security Personnel System (NSPS). Dan Blair, Acting Director 
of the Office of Personnel Management (OPM), our partner in developing 
NSPS, joins me today. We are pleased to appear before you to discuss 
the recently published proposed regulations for NSPS. We wish to 
formally thank the entire Congress for granting the Department of 
Defense (DOD) the authority to establish, in partnership with OPM, a 
new civilian human resources management system to support our critical 
national security mission. DOD and OPM take this task seriously and 
recognize the responsibility to balance our vital national security 
mission with protecting the interests of our most valuable resource, 
our people.
    In November 2003, Congress granted the DOD the authority to 
establish a new human resources management system, appeals system, and 
labor relations system to replace a framework of rules and processes 
designed for a different time. The world has changed, jobs have 
changed, missions have changed--and our Human Resource (HR) systems 
need to change as well to support a new and unpredictable national 
security environment. Our civilians are being asked to assume new and 
different responsibilities, to be more innovative, agile and 
accountable than ever before. It is critical that DOD sustains its 
entire civilian workforce with modern processes and practices, 
particularly a human resources management system that supports and 
protects our employees' critical role in DOD's total force 
effectiveness.
    NSPS gives DOD that opportunity--an opportunity to establish a more 
flexible civilian personnel management system and to make the 
Department a more competitive and progressive employer at a time when 
the country's national security demands a highly responsive civilian 
workforce. The NSPS is a transformation lever to enhance the 
Department's ability to execute its national security mission. It's a 
key pillar in the Department's transformation--a new way to manage its 
civilian workforce. NSPS is essential to the Department's efforts to 
create an environment in which the total force functions and operates 
as one cohesive unit.
    NSPS has unprecedented potential to greatly enhance the way DOD 
manages its civilian workforce, but it is also critical that we take 
care of our most valuable asset--our people. The proposed NSPS design 
follows a set of guiding principles that act as a compass to direct our 
efforts throughout all phases of NSPS development. ``Mission First'' 
and support of our national security goals and strategic objectives 
have been and remain paramount, but while also respecting the 
individual and protecting workers' rights guaranteed by law, including 
the laws pertaining to veterans in the civil service. The new system 
emphasizes performance, and it values talent, leadership and commitment 
to public service. Accountability at all levels--our employees, 
supervisors and senior leadership--will be critical and all will be 
held accountable for their respective roles in a performance-based 
system. In keeping faith with our employees and the public we serve, 
NSPS is based on the principles of merit and fairness embodied in the 
statutory merit system principles, and it will comply with all other 
applicable provisions of the law.

                       THE COLLABORATIVE PROCESS

    In addition to the opportunities that NSPS offers, it presents 
great challenges. Shortly after enactment of the NSPS statute, we 
contacted union leaders to solicit their input. In January and February 
2004, joint meetings were held to exchange ideas and interests on a new 
labor relations system for DOD. During this time, many stakeholders, 
including members of this Committee, voiced concerns about our plans 
and process.
    In response, the Department engaged in a broad, comprehensive 
review of our design and implementation strategy. In April 2004, senior 
DOD leadership approved a new collaborative process that the Department 
has since been using to design and implement NSPS. This process was 
designed by senior leaders and experts representing various elements 
within DOD, OPM, and the Office of Management and Budget. Using a bold, 
innovative approach, the senior leaders adopted the Defense Acquisition 
Management model as a way to establish the requirements for the design 
and implementation of NSPS. These senior leaders recommended Guiding 
Principles and Key Performance Parameters (KPPs), which defined the 
minimum requirements for NSPS. They also recommended establishing a 
Senior Executive and Program Executive Office (PEO), modeled after the 
Department's acquisition process. Shortly thereafter, an NSPS PEO was 
chartered as the central DOD program office to conduct the design, 
planning and development, deployment, assessment, and full 
implementation of NSPS. Mrs. Mary Lacey was appointed as the NSPS 
Program Executive Officer to provide direction to and oversight of the 
PEO office, a joint program office staffed with representatives from 
across the Department, including component program managers who are 
dual-hatted under their parent component. At OPM, the Director 
designated George Nesterczuk, the Senior Advisor to the Director on 
Defense issues, to lead OPM activities in the joint development of the 
NSPS.
    An integrated executive management team composed of senior DOD and 
OPM leaders provides overall policy and strategic guidance to the PEO 
and advises the NSPS Senior Executive. The PEO meets and consults with 
this team, the Overarching Integrated Product Team (OIPT), 8 to 10 
times a month. Charles Abell, Principal Deputy Under Secretary of 
Defense for Personnel and Readiness, co-chairs this OIPT along with Mr. 
Nesterczuk of OPM. The Senior Executive meets with the PEO and OIPT at 
least twice a month to direct the process and to measure progress to 
plan.
    Following the April 2004 decision to revise our design and 
implementation process, a series of additional meetings with the union 
leaders was initiated. Beginning in the spring of 2004 and continuing 
over the course of several months, the PEO sponsored a series of 
meetings with union leadership to discuss design elements of NSPS. 
Officials from DOD and OPM met throughout the summer and fall with 
union officials representing DOD civilians who are bargaining unit 
employees. These sessions provided the opportunity to discuss the 
design elements, options, and proposals under consideration for NSPS 
and solicit union feedback. A number of these meetings were facilitated 
by the Federal Mediation and Conciliation Service to ensure open and 
meaningful communication.
    Since April 2004, DOD and OPM have conducted l0 meetings with 
officials of the unions that represent DOD employees, including the 
nine largest unions that currently have national consultation rights. 
These union officials represent over 1,500 separate bargaining units 
covering about 445,000 employees. These meetings involved as many as 80 
union representatives from the national and local level at any one 
time, and addressed a variety of topics, including:

          (1) the reasons change is needed and the Department's 
        interests;
          (2) the results of Department-wide focus group sessions held 
        with a broad cross-section of DOD employees;
          (3) the proposed NSPS implementation schedule;
          (4) employee communications; and
          (5) proposed design options in the areas of labor relations 
        and collective bargaining, adverse actions and appeals, and pay 
        and performance management.

    In keeping with DOD's commitment to provide employees and managers 
an opportunity to participate in the development of NSPS, the PEO 
sponsored a number of focus group sessions and town hall meetings at 
various sites across DOD. Focus group sessions began in mid-July 2004, 
and continued for approximately 3 weeks. A total of 106 focus groups 
were held throughout DOD, including at several overseas locations. 
There were over 1,000 participants, including employees, local union 
representatives, supervisors, managers, and human resources 
practitioners. Focus group participants were asked what they thought 
worked well in the current human resources systems and what they 
thought should be changed. Over 10,000 comments, ideas and suggestions 
were received during the focus groups session. These inputs were 
summarized and provided to NSPS working groups for use in developing 
options for the labor relations, appeals, adverse actions, and human 
resources design elements of NSPS.
    In addition, town hall meetings were held in DOD facilities around 
the world during the summer and fall of 2004. These meetings provided 
an opportunity to communicate with the workforce, provide the status of 
the design and development of NSPS, respond to questions, and listen to 
their thoughts and ideas. I conducted the first town hall meeting at 
the Pentagon on July 7, 2004.
    In July 2004, the PEO established working groups to begin the NSPS 
design process. Over 120 employees representing the military 
departments and other DOD activities and OPM began the process of 
identifying and developing options and alternatives for consideration 
in the design of NSPS. The working group members included 
representatives from the DOD human resources community, DOD military 
and civilian line managers, representatives from OPM, the legal 
community, and subject matter experts in equal employment opportunity, 
information technology, and financial management.
    The working groups were functionally aligned to cover the six 
program areas:

          (1) compensation (classification and pay banding);
          (2) performance management;
          (3) hiring, assignment, pay setting, and workforce shaping;
          (4) employee engagement;
          (5) adverse actions and appeals; and
          (6) labor relations.

    Each group was co-chaired by an OPM and DOD subject matter expert. 
Working groups were provided with available information and input from 
the focus groups and town hall sessions, union consultation meetings, 
data review and analysis from alternative personnel systems and 
laboratory and acquisition demonstration projects, the NSPS statute, 
the Guiding Principles and Key Performance Parameters. Additionally, 
subject matter experts briefed the working groups on a variety of 
topics, such as pay-for-performance systems, alternative personnel 
systems, pay pool management, and market sensitive compensation 
systems.
    I personally addressed these individuals as they were about to 
embark on this process to ensure they understood the critical 
responsibility they were undertaking and the impact their work would 
have on the ability of the Department to more effectively accomplish 
its mission. Briefings and updates on progress and on the multitude of 
options developed were regularly received. You can be assured that 
these dedicated individuals took this task seriously and left no stone 
unturned as they reviewed and analyzed the multitude of ideas, options, 
and lessons learned that were all considered in this process.
    In addition to reaching out to DOD employees and labor 
organizations, DOD and OPM met with other groups interested in the 
design of a new HR system for DOD. DOD and OPM invited selected 
stakeholders to participate in briefings held at OPM in August and 
September 2004. Stakeholder groups included the National Academy of 
Public Administration (NAPA), Coalition for Effective Change, 
Partnership for Public Service, veterans' service organizations, 
Federal Managers Association, and other non-union employee advocacy 
groups.
    Before and after these stakeholder briefings, DOD and OPM responded 
to dozens of requests for special briefings. DOD and OPM also met with 
the Government Accountability Office, Office of Management and Budget, 
and Department of Homeland Security to keep them up to date on the 
team's activities.
    DOD and OPM have worked hard to obtain the input of our employees 
and their representatives, managers and supervisors, and other 
stakeholders. A human resources system is being developed that has 
taken their concerns into consideration and that will create a work 
environment for our people to foster excellence and innovation and to 
reward our people accordingly. NSPS will provide our leaders and 
supervisors with flexibilities to better manage our people, while at 
the same time it will expand opportunities for our employees. It will 
mandate greater communication between managers and employees so that 
each and every employee will know what is expected and how their work 
supports the organization's mission.

                        THE PROPOSED REGULATIONS

    The Secretary of Defense and the Director of OPM jointly issued the 
proposed regulations that were published in the Federal Register on 
February 14, 2005. This initiated a 30-day public comment period and 
provided another opportunity for input on the design of the system. The 
public comment period closed on March 16, 2005 and we are currently 
reviewing the thousands of comments we received from individual 
employees, interested citizens, professional organizations, employee 
unions, Members of Congress, and advocacy groups. Many of the comments 
are thoughtful, genuine, and raise legitimate points for evaluation. We 
will give full consideration to these public comments as we move 
forward in finalizing the NSPS regulations.
    The Federal Register notice also served as the formal written 
proposal of the system for review and comment by our employee unions, 
as required by the NSPS statute. We encouraged them to participate in 
the public comment period as well. Comments were received from 12 
national labor organizations representing DOD employees, including the 
United DOD Workers Coalition, which represents most of the DOD labor 
organizations. DOD and OPM have analyzed these recommendations, have 
given them serious consideration and we are about to begin discussions 
with the unions regarding their recommendations.
    In recognition of the union's special status as our employee 
representatives, the NSPS statute provides for a ``meet and confer'' 
process with them for a minimum of 30 days. As required by the statute, 
we formally notified Congress on March 28, 2005 that we will begin the 
meet and confer process with employee representatives on April 18, 
2005. We look forward to continuing our dialogue with our unions and, 
with the help of the Federal Mediation and Conciliation Service (FMCS), 
find common ground. Upon completion of the meet and confer process, the 
results and outcomes will be reported to Congress.
    NSPS will not be implemented until after the meet and confer 
process, after the 30-day Congressional notification of the 
Department's intent to implement these systems, and after publishing 
the final regulations in the Federal Register.
    Before describing the proposed design, here is what will not 
change:

         It does not remove whistle-blowing protections--
        employees will have the same protections they have today.
         It does not eliminate or alter access of DOD employees 
        to the equal opportunity complaint process--again, nothing in 
        NSPS will change the current protections employees have today.
         It does not remove prohibitions on nepotism or 
        political favoritism--both will remain prohibited personnel 
        practices and will not change under NSPS.
         It does not eliminate veterans' preference--veterans 
        will retain their special status under NSPS.
         It does not end collective bargaining--while there 
        will be changes, collective bargaining will not end. Bargaining 
        unit employees continue to have the right to organize and 
        bargain collectively.
         It does not give us a ``blank check'' to change the 
        civil service system unilaterally--there are many areas that 
        are unaffected by NSPS--leave, benefits, training, travel 
        allowances--the list goes on.
         It will not result in a loss of jobs or opportunities 
        for civil service employees--to the contrary, NSPS will create 
        incentives for managers to turn to civilians first, not last, 
        when many vital tasks must be done. This will ease the burden 
        on our valuable men and women in uniform to do only those tasks 
        that are uniquely military.

    What NSPS will do is put a modern, flexible personnel system in 
place that is also credible, transparent, and fair to our employees. 
DOD will be able to hire the right people in a more timely manner, and 
to pay and reward our employees properly, adequately recognizing their 
contribution to the mission. Managers will be held accountable for 
making the right decisions and for managing their employees--all of 
their employees. Specifically, NSPS will provide for:

         A simplified pay banding structure, allowing 
        flexibility in assigning work and a move toward market 
        sensitive pay.
         A performance management system that requires 
        supervisors to set clear expectations (linked to DOD's 
        strategic plan) and employees to be accountable.
         Pay increases based on performance, rather than 
        longevity.
         Streamlined and more responsive hiring processes.
         More efficient, faster procedures for addressing 
        disciplinary and performance problems, while protecting 
        employee due process rights.
         A labor relations system that recognizes our national 
        security mission and the need to act swiftly to execute that 
        mission, while preserving collective bargaining rights of 
        employees as provided for in the NSPS statute.

    The proposals for performance management are designed to foster 
high levels of performance and to ensure that excellent performance is 
recognized, rewarded, and reinforced. NSPS is designed to make 
meaningful distinctions in levels of performance and to hold employees 
at all levels accountable. Employees will be under the performance 
management system for an adequate evaluation period before making any 
performance-based adjustments to their pay. No employee will have their 
pay reduced when they are converted into NSPS.
    One of the most important changes the proposed system offers is a 
stronger correlation between performance and pay plus greater 
consideration of local market conditions in setting pay rates. Our 
proposal would eliminate the General Schedule pay system in favor of a 
new performance-based, market-sensitive pay system that includes three 
major features. First, NSPS emphasizes performance over tenure. Open 
pay ranges eliminate the ``step increases'' in the current system, 
which are tied to longevity. Second, pay will be adjusted by occupation 
or career group in each market, rather than a one-size-fits-all 
approach currently in practice. Third, performance pay pools will be 
established to ensure that employees will receive increases based on 
their performance.
    Our proposed appeals system focuses on simplifying a complex, 
legalistic and often sluggish process that often disrupts operations. 
At the same time, the proposed system will ensure that employees 
receive fair treatment and that they are afforded the full protections 
of due process.
    The proposed regulations were developed in consultation with staff 
of the Merit Systems Protection Board (MSPB), with extensive 
discussions over appellate options and alternatives. MSPB officials 
were particularly constructive and many of their suggestions are 
reflected in our proposed appellate procedures, including the retention 
of MSPB administrative judges (AJs) as the initial adjudicators of 
employee appeals of adverse actions. Although the NSPS law allowed DOD 
to establish an internal appeals process, we concluded that the 
potential advantages of creating a new infrastructure--greater 
efficiency of decisionmaking and deference to agency mission and 
operations, among them--could be achieved if MSPB administrative judges 
were retained but with procedural modifications. The modifications we 
propose will streamline the process without sacrificing employee 
protections.
    Among those changes is a proposal to allow the Department to review 
initial decisions of the Administrative Judges to ensure that MSPB 
interprets NSPS and these regulations in a way that recognizes the 
critical mission of the Department and to ensure that MSPB gives proper 
deference to such interpretation. After review, the Department may 
affirm the decision, remand the case to the AJ for further 
adjudication, modify or reverse the decision, but only based on 
stringent criteria. In all adverse action cases, final Department 
decisions may be appealed to the MSPB, which retains limited review 
authority established in the NSPS statute. Ultimately, an employee or 
the Secretary may seek judicial review if still not satisfied with the 
appeal decision.
    To balance some of the proposed changes, the Department will 
establish a single burden of proof standard. Currently, the evidentiary 
standards for performance and conduct actions differ, with performance-
based actions requiring a lower standard of proof. That will no longer 
be the case--the Department's adverse action decision will be subject 
to a single standard--the preponderance of the evidence--for all 
adverse actions, whether based on conduct or performance. To address 
concerns that the current system fails to adequately consider DOD's 
critical national security mission, the proposed regulations also make 
it more difficult for administrative judges to substitute their 
judgment in mitigating penalties; however, the Department will ensure 
that managers consider a variety of important factors in each situation 
before determining an appropriate penalty.
    The development process has been cognizant of the need to provide 
protections guaranteed by law to our employees. We were also mindful of 
a basic tenet of the civil service--preserving merit system 
principles--treating employees fairly and equitably and protecting them 
from arbitrary actions, coercion for partisan political purposes and 
personal favoritism, and protecting them against reprisal. The proposed 
appeals system will continue to provide our employees with these all-
important protections.
    The proposed labor relations construct balances our operational 
needs while providing for collective bargaining and consultation with 
employee representatives. In the face of a committed and unpredictable 
enemy, DOD needs to have authority to move quickly to prepare for and 
confront threats to national security. As such, the Department will not 
bargain over the exercise of rights impacting operations and mission 
accomplishment. NSPS will provide for consultation with employee 
representatives both before and after implementation when circumstances 
permit. Bargaining obligations will be retained concerning the exercise 
of the remaining management rights, such as certain personnel 
procedures. Although we are proposing to limit situations in which 
bargaining takes place, there will continue to be meaningful local 
bargaining over important matters. Because the new labor relations 
system is a critical, enabling component of NSPS, DOD plans to make the 
new labor relations provisions effective across the entire Department 
after the issuance of final regulations, and after notification to 
Congress as required by law.
    The Department also proposes to create a National Security Labor 
Relations Board (NSLRB) to hear and resolve labor disputes. The NSLRB 
would be composed of at least three members appointed to fixed terms. 
In evaluating the merits of a separate NSLRB that would largely replace 
the Federal Labor Relations Authority, with its Government-wide 
responsibilities, DOD and OPM put a high premium on the opportunity to 
establish an independent body whose members would have a deep 
understanding of and appreciation for the unique challenges the 
Department faces in carrying out its national security mission. The 
NSLRB will issue binding decisions on unfair labor practice (ULP) 
cases, to include scope of bargaining, duty to bargain in good faith, 
and information requests; certain arbitration exceptions; negotiation 
impasses; and questions regarding national consultation rights. FLRA 
will continue to determine appropriate bargaining units and supervise 
and conduct union elections as well as review NSLRB decisions using 
appellate standards. FLRA decisions will be reviewable by various 
Federal Circuit Courts of Appeals as occurs today.

                   IMPLEMENTATION--A PHASED APPROACH

    Transformation is a process. The spiral concept will implement NSPS 
in successive waves--initially deploying the new personnel system to a 
number of well-chosen organizations for effective management of 
implementation, and to troubleshoot, evaluate, and report on the 
results in a timely manner. As with any new system, especially one with 
the size and complexity of NSPS, refinements will likely be necessary 
as the rest of the workforce is incorporated.
    Although DOD will implement the labor relations system DOD-wide, 
the human resources system will be phased in, starting perhaps as early 
as July 2005. In the first spiral, up to 300,000 General Schedule (GS 
and GM), Acquisition Demonstration Project, and certain alternative 
personnel system employees will be brought into the system through 
incremental deployments over 18 months, with the first increment 
covering 60,000 employees. After an assessment cycle and the 
certification of the performance management system required by the NSPS 
statute are completed, the second spiral will be deployed. Spiral two, 
consisting of Federal Wage System employees, overseas employees, and 
all other eligible employees, will be phased in over a 3-year period, 
with full implementation achieved by 2007/2008.
    Training is one of the most critical elements for a smooth and 
successful transition to NSPS. The Department is fully committed to a 
comprehensive training program for our managers, supervisors and 
employees. All employees will be trained to understand the system, how 
it works, and how it will affect them. The Department has a robust 
training infrastructure already in place to train and educate its 
personnel and we will leverage that infrastructure as we implement NSPS 
specific training. We have a dual training strategy to provide 
functional training on all elements of the NSPS system, as well as 
behavioral training, with the focus on the skills, attitudes and 
behaviors necessary to successfully adapt to NSPS. Some of the 
component behavior-based training has already begun. Other courses are 
in development and will be available to train all affected employees in 
advance of NSPS implementation.

                                SUMMARY

    NSPS involves significant changes. While change is always 
difficult, it is necessary for the Department to carry out its mission 
and to create a 21st century system that is flexible and contemporary, 
will help attract skilled, talented and motivated people, and will also 
help us to retain and improve the skills of the existing workforce. 
NSPS will make it possible to hire critical skills more quickly so that 
DOD is better equipped to meet challenges such as those in the days 
immediately following September 11. NSPS will facilitate our ability to 
quickly deploy new technology to ensure that our military and civilians 
have the best equipment without delay. NSPS will eliminate limitations 
on managers that often result in the use of military and contract 
personnel to do jobs that could have and should have been performed by 
civilians, freeing up uniformed personnel to focus on matters unique to 
the military.
    NSPS will provide our civilian employees with greater opportunities 
for career growth within the Department. Limitations imposed by 
classification standards will no longer preclude employees from 
expanding their scope of work so they will be able to broaden their 
career paths. NSPS will promote a performance-based culture and 
employees will be rewarded for individual performance and contribution 
to mission as well as teamwork. Managers will be able to offer 
competitive salaries to new and existing personnel so that we can 
attract and retain the best and brightest in our workforce.
    DOD has over 20 years of successful experience with testing similar 
personnel flexibilities, namely in our personnel demonstration 
projects, at our laboratories and with our acquisition workforce--it is 
now time to expand those flexibilities to the rest of the Department. 
NSPS will modernize a 50-year old, outdated civil service system, and 
allow us to attract, recruit, retain, compensate, reward, and manage 
our employees, with a focus on performance, flexibility, and 
accountability.
    NSPS proposals have been developed with extensive input from our 
employees and their representatives. We look forward to reviewing and 
analyzing the comments on the proposed regulations and to the meet and 
confer process with our employee labor representatives. DOD is 
committed to the collaborative approach taken in the development of 
NSPS and will continue to encourage a dialogue as we proceed through 
the writing and development of the implementing issuances.
    Thank you for the opportunity to address this important committee 
and to briefly describe the proposed National Security Personnel 
System.

    Chairman Warner. Thank you very much, Mr. Secretary.
    Mr. Blair.

STATEMENT OF DAN G. BLAIR, ACTING DIRECTOR, OFFICE OF PERSONNEL 
                           MANAGEMENT

    Mr. Blair. Mr. Chairman and members of the committee, good 
morning. I appreciate the opportunity to be here this morning 
to highlight OPM's role in the development of the NSPS. I'm 
pleased to appear with Secretary England.
    I'd like to recognize two members of the OPM team who are 
here today who have been critical players in the development of 
the proposed regulations. George Nesterchuck, senior advisor on 
the DOD, and Ron Sanders, associate director for strategic 
human resources policies.
    I have a lengthy statement for the record detailing the 
process that led to the proposed regulations, and I'm happy to 
summarize. With the passage of the National Defense 
Authorization Act of 2004, Congress set in motion----
    Chairman Warner. I'm going to ask you to pull that mic and 
just raise your voice a bit. The acoustics in this room leave a 
little bit to be desired.
    Mr. Blair. How is that, sir?
    Chairman Warner. The people in the back are quite anxious 
to hear you.
    Mr. Blair. Thank you for that. With the passage of the 
National Defense Authorization Act of 2004, Congress set in 
motion a process to establish a new human resources system that 
would fit into the DOD's vital mission, while ensuring the 
preservation of the core principles of due process, merit, and 
fairness that make the American Civil Service unique.
    The legislation forged a partnership between DOD and OPM 
which we believe has enabled us to produce a system that's 
flexible, modern, and responsive. OPM was assigned an important 
role in the development of NSPS, one which we took very 
seriously. We believe we have brought together wide expertise 
that was a critical addition to DOD mission-specific 
experience. We are very proud of the collaboration we have 
achieved.
    Through this process we have sought to identify the 
critical balance between a modern flexible system and the core 
values of the Civil Service. I submit the proposed regulations 
strike that balance. We are very pleased with the cooperation 
from and the collaboration with the DOD, particularly Secretary 
England's office.
    Since April 2004, the Department has made great strides in 
ensuring a transparent and constructive process for developing 
NSPS in collaboration with employee representatives and other 
key stakeholders.
    We have been working on this for over a year and we are in 
the process of reviewing the 60,000 comments received. We will 
officially begin the meet and confer process with the DOD 
unions on April 18 and have already had two premeetings to work 
out details, such as the meeting schedule.
    We are looking forward to several weeks of productive 
meetings. Our partnership will continue as the regulations are 
finalized and implementation begins. DOD has developed a 
careful and systematic implementation plan supported by 
extensive training. We believe it's an excellent strategy.
    As the transformation to a new system occurs, we will 
continue to focus on core values of the Civil Service, 
maintaining merit service principles, barring prohibited 
personnel practices, and continuing collaboration with employee 
unions. We will make certain that veterans' preference is never 
diminished.
    Mr. Chairman, I'd like to highlight some key features of 
the proposed regulations. The proposed new pay system supported 
by a reworked classification system is designed to 
fundamentally change the way DOD employees are paid, and place 
far more emphasis on performance and the labor market in 
setting or adjusting rates of pay.
    Staffing and reduction-in-force flexibilities are another 
critical component. New flexibilities in the proposed 
regulations will provide options to expedite hiring and improve 
workforce shaping, while preserving merit and veterans' 
preference.
    Mr. Chairman, the proposed changes in the DOD will benefit 
the hard working men and women of the Department. The 
classification system and pay structure have been simplified to 
enhance career growth and provide higher earnings potential for 
qualified, talented, and motivated employees.
    The performance system will better serve the security of 
our Nation because it better links individual performance and 
the Department's mission, goals, and objectives. I see the NSPS 
as an important step in modernizing the Civil Service. We 
realize the process is ongoing and we look forward to working 
with this committee as we move the proposed regulation to final 
and to implementation. I'd be happy to answer any of your 
questions.
    [The prepared statement of Mr. Blair follows:]

                   Prepared Statement by Dan G. Blair

                              INTRODUCTION

    Mr. Chairman, it is my pleasure to appear before you today to 
discuss the proposed regulations implementing the National Security 
Personnel System (NSPS) at the Department of Defense (DOD) and the 
process of collaboration and cooperation that has brought us to this 
point. The regulations as proposed, will establish a new human 
resources (HR) management system that we believe is flexible, modern, 
and responsive thus fulfilling the vision of the President and 
Congress. The proposed regulations are the result of an intense 
collaborative process that has taken over a year, and we are still only 
halfway. There is much to do before the NSPS proposal can be finalized, 
beginning with the ongoing review of the extensive comments we have 
received. Beyond that will be the official meet and confer process with 
DOD unions. It has been a privilege for me and the team at OPM to work 
with the dedicated men and women of DOD, its employees and senior 
leadership in the development of this system. This monumental task has 
been challenging and rewarding. We owe you our appreciation and respect 
for your efforts to make it possible and I appreciate your continued 
interest and support as we work through the development and 
implementation process.
    Mr. Chairman, with passage of the National Defense Authorization 
Act of 2004 (Public Law 108-136), you and other Members of Congress 
granted the Secretary of Defense and the Director of OPM broad 
authority to establish a new human resources management system 
befitting the Department's vital mission while ensuring the 
preservation of the core principles of due process, merit, and fairness 
that make the American civil service unique. Striking the measured and 
delicate balance, between modernization on one hand and protecting core 
values on the other, is the essence of the transformation process that 
you established in the statute. We believe the regulations jointly 
proposed by DOD and OPM strike that balance in all of the key 
components of the system: performance-based pay, staffing flexibility, 
employee accountability with due process, and labor-management 
relations. In each case we sought to strike a careful balance between 
operational imperatives and employee interests, without compromising 
either mission or merit.
    Mr. Chairman, in your invitation to this hearing you asked we 
address the process employed to gather employee input, the proposed 
regulations that have resulted from this process, and how OPM will 
continue to work with DOD to ensure employees have meaningful input in 
the remaining design and implementation process. I will address the 
important points regarding the process first and then address some key 
highlights of the proposed regulations.
    Before that discussion, let me say that we are well aware of the 
intense interest in the proposed regulations. We very much appreciate 
the comments we have received from employees, employee representatives, 
and the advice we have received from Members of Congress. We would like 
to acknowledge the continuing interest from Senator Collins, the 
special concerns raised by Senator Levin, and the indepth commentary 
from Senator Akaka. We are reviewing their recommendations very 
carefully and they will be most helpful during this meet and confer 
process. While we believe that we have developed a balanced proposal 
that is faithful to the fundamental principles of the civil service, we 
do not view our proposals as necessarily the last word and look forward 
to addressing each of the issues raised by these Members.

            COLLABORATION: OUTREACH AND EMPLOYEE INVOLVEMENT

    The NSPS development process has been a broad based collaboration 
involving a multitude of DOD employees, managers, supervisors, labor 
union partners and key stakeholders. Over the course of the last year, 
DOD held over 50 Town Hall meetings in locations throughout the world. 
Over 100 Focus Groups were convened separately with employees 
(including bargaining unit representatives), managers, and HR 
professionals and practitioners. Briefings were initiated with a host 
of public interest groups, employee advocacy groups, and other 
stakeholders including veterans' service organizations. All along the 
way, OPM and DOD have worked as partners to fulfill the spirit and 
letter of the law as well as the trust Congress and the President have 
placed in us.
    This extensive development process, which continues, is not a 
laboratory of mere compromise, but rather the critical place where 
perspectives are weighed and considered to ensure the best possible 
system is developed for NSPS. Through this process, we sought to 
identify the critical balance between a modern flexible system and the 
core values of the civil service.
    OPM is no stranger to this unique process or the challenges of 
building trust, respect, and cooperation with managers, employees and 
their representatives. Our recent experience with the Department of 
Homeland Security (DHS), though different in many respects, has 
provided lessons and tools to improve our efforts with NSPS. The NSPS 
working groups were well served by the extensive research that had been 
compiled by similar teams who worked on the DHS personnel system some 
months earlier.
    In following the legislative direction, we also have the benefit of 
DOD's extensive experience with alternative pay and personnel systems 
going back nearly 25 years. The employee evaluations and comments 
amassed through studies of these demonstration projects were part of 
the information base provided to our working groups. OPM has done an 
extensive analysis of the DOD demonstration projects and generated a 
comprehensive report. Copies of all of these compilations and reports 
were provided to DOD unions as an aid in our discussions and 
deliberations.
    We also launched a special effort to engage the Department's 43 
unions in meaningful discussions over key components of the NSPS. 
Beginning in April of last year until early December, we held 10 
meetings with the unions. In an attempt to address each other's 
priorities, OPM and DOD set the agenda for some of the meetings, while 
the unions set the agenda for others. We developed presentations of 
possible NSPS design options in order to better focus discussion in 
specific issue areas. The meeting format was plenary in nature, with 25 
to 30 unions from their coalition participating in most of the 
sessions. We even held separate meetings with the smaller number of 
non-coalition unions. From this series of meetings, we received what we 
consider useful input, particularly as the unions shared experiences of 
past practices that had worked or failed in DOD and other government 
agencies.
    Permit me to emphasize that this process is far from over. The 
formal ``meet and confer'' process established in the NSPS statute is 
scheduled to begin April 18. Two pre-meetings have already been held 
with the unions to work out details such as the meeting schedule and to 
accommodate other concerns raised by the unions such as the assurance 
of adequate access to documents. We are looking forward to several 
weeks of productive meetings and are very interested in receiving their 
views on the proposed regulations through this formal process. Later in 
my testimony, I will address several areas where I believe it is 
critically important to engage in an honest, meaningful and productive 
dialogue as we move forward to ensure the ultimate success of NSPS.
    You also asked us to address the role of OPM throughout 
implementation of the NSPS, and the process that will be in place to 
coordinate and resolve policy differences between DOD and OPM.
    This is an important issue, and I appreciate your raising it. In 
the interests of transparency, we believe a continuing process of 
coordination needs to be in place and we defined this process in the 
proposed regulations. Congress mandated a specific approach to ensuring 
a balanced process for developing NSPS. That process calls for the 
heads of DOD and OPM to jointly prescribe the system, after a period of 
collaboration with employee representatives and notification to 
Congress. As a key partner, we are very pleased with the cooperation 
from and collaboration with the Department of Defense. Since April 
2004, the Department has made great strides in ensuring a transparent 
and constructive process for developing NSPS with employee input and 
collaboration with employee representatives. DOD and OPM together have 
championed an open, collaborative, and constructive process and 
environment for raising, discussing and resolving critical issues.
    However, the effort does not end with jointly prescribing NSPS. OPM 
and DOD have agreed that OPM must have a role of close and continuing 
coordination--the regulations refer to this as ``pre-decisional 
coordination''--as policies for implementing NSPS are developed. This 
process of coordination recognizes the Secretary's authority to direct 
the operations of DOD as well as the Director's institutional 
responsibility to oversee the Federal civil service system. Based on 
our experience thus far, the combination of OPM's Government-wide 
expertise and DOD's mission specific experience, the joint efforts have 
been very fruitful. Our agencies have reinforced each other's 
capabilities during NSPS development in a very positive and 
constructive manner. I have every expectation that our respective views 
during implementation will be equally complementary and constructive.

                        CONTINUED COLLABORATION

    OPM is committed to work with DOD to ensure the continued 
involvement of employees in the development and implementation process. 
Together we addressed this specific issue in our proposed regulations 
and suggested a process that will ensure employee representatives are 
provided the opportunity to discuss their views with DOD officials. The 
proposal specifically identifies conceptual design and implementation 
issues as subject to discussion. Unions will be provided access to 
important information to make their participation productive, including 
review of draft recommendations or alternatives.
    The proposed collaboration process draws on our experience over the 
past several months. While we value the participation of all DOD unions 
in the NSPS development process, it is at times impractical to convene 
a full plenary session of all 43 unions to discuss or review a 
particular initiative or proposal. So we propose to provide the 
Secretary the flexibility to convene smaller working groups of unions 
or to deal with review of written materials or solicit written comments 
for consideration, as appropriate. Some matters may involve development 
of concepts; others may consist of review of issuances before they are 
published. The best approach is to permit the Secretary to tailor the 
interaction and communications with DOD unions to the circumstances at 
hand.
    We also propose to have the Secretary develop procedures to allow 
continuing collaboration with organizations that represent the 
interests of substantial numbers of nonbargaining unit employees. We 
believe this process will allow the Department to maintain a broad 
outreach to its stakeholder community during the continuing evolution 
of the NSPS.

                  PAY, PERFORMANCE, AND ACCOUNTABILITY

     Mr. Chairman, I would now like to address key highlights of the 
proposed regulations. As I mentioned earlier, these important 
components of the proposal are still being reviewed and discussed 
through the formal comments we have received and also through the 
upcoming ``meet and confer'' process.
    The new pay system, proposed in the regulations, was designed to 
fundamentally change the way DOD employees are paid, to place far more 
emphasis on performance and the labor market in setting and adjusting 
rates of pay. Instead of an outmoded ``one size fits all'' pay system 
based on tenure, we have proposed a system that bases all individual 
pay adjustments on performance. No longer will employees who are rated 
as unacceptable performers receive annual across-the-board pay 
adjustments, as they do today. No longer will annual pay adjustments 
apply to all occupations and levels of responsibility, regardless of 
market or mission value. Instead, adjustments will be strategically 
based on national and local labor market trends, recruiting and 
retention patterns, and other key employment factors. No longer will 
employees who merely meet time-in-grade requirements receive virtually 
automatic pay increases, as they do today. Instead, individual pay 
raises will be determined by an employee's annual performance rating.
    Unlike where our current system falls short, this proposed system 
is entirely consistent with the merit system principles that are so 
fundamental to our civil service. One of those principles states that 
Federal employees should be compensated ``. . . with appropriate 
consideration of both national and local rates paid by employers . . . 
and appropriate incentives and recognition . . . for excellence in 
performance.'' See 5 U.S.C. 2301(b)(3). The current system falls short 
because it has minimal ability to encourage and reward achievement and 
results. Over 75 percent of the increase in pay under the current 
system bears no relationship to individual achievement or competence. 
However, some have argued that by placing so much emphasis on 
performance, we risk ``politicizing'' DOD and its employees. Such 
``politicization'' would constitute a prohibited personnel practice, 
something expressly forbidden by Congress in giving DOD and OPM 
authority to jointly prescribe the NSPS. Moreover, it would tear at the 
very fabric of our civil service system.
    The merit system principles provide that Federal employees should 
be ``. . . protected against arbitrary action, personal favoritism, or 
coercion for partisan political purposes.'' See 5 U.S.C. 2301(b)(8)(A). 
They are. Section 2302(b)(3) of title 5, United States Code, makes it a 
prohibited personnel practice to ``coerce the political activity of any 
person . . . or take any action against any employee'' for such 
activity. Those laws remain unchanged, intact and binding on DOD. The 
law forbids coercion for partisan political purposes in taking any 
personnel action with respect to covered positions, and it most 
certainly applies to making individual pay determinations. The proposed 
NSPS regulations did not dilute these prohibitions in any way. A close 
examination of the proposed regulations reveals that they include 
considerable protection against such practices--and no less than every 
other Federal employee enjoys today.
    For example, if a DOD employee believes that decisions regarding 
his or her pay have been influenced by political considerations, he or 
she has a right to raise such allegations with the Office of Special 
Counsel (OSC), to have OSC investigate and where appropriate, 
prosecute, and to be absolutely protected from reprisal and retaliation 
in so doing. These rights have not been diminished in any way 
whatsoever. Moreover, supervisors have no discretion with regard to the 
actual amount of performance pay an employee receives. That amount is 
driven strictly by mathematical formula. Of the four variables in the 
formula--the employee's annual performance rating; the ``value'' of 
that rating, expressed as a number of points or shares; the amount of 
money in the performance pay pool; and the distribution of ratings--
only the annual rating is determined by an employee's immediate 
supervisor, and it is subject to review and approval by the employee's 
second-level manager. Once that rating is approved, an employee can 
still challenge it before it is final through an administrative process 
if he or she does not think it is fair.
    Finally, the other factors governing performance pay are also 
shielded from any sort of manipulation. As far as the distribution of 
ratings is concerned, the Department has unequivocally stated it will 
not use any sort of quota or forced distribution.
    Ultimately there is no better guarantor of compliance to laws and 
standards than transparency and access to information. The rules and 
procedures governing the translation of employee ratings into pay 
adjustments will be available to all DOD employees, and will be part of 
the training everyone will receive. Unless employees readily understand 
how their pay adjustments are arrived at they will harbor suspicions 
and generate skepticism which would adversely impact the acceptance of 
pay for performance.
    Of course, DOD managers will receive intensive training in the new 
system, a further safeguard against abuse. Many of them too will be 
covered by it, with their pay determined by, among other performance 
criteria, how effectively they administer this system. The same is true 
of their executives, now covered by the new Senior Executive Service 
pay-for-performance system--indeed, OPM regulations governing that 
system establish clear chain-of-command accountability in this regard. 
With these considerable protections in place, we believe ample 
safeguards will exist to prevent the pay of individual DOD employees 
from becoming ``politicized'' in a performance-based environment. To 
the contrary, we believe the American people expect that performance 
should influence the pay of public sector employees. That is exactly 
what the NSPS pay system is intended to do.
    The institution of a modern performance culture is no easy task, 
but neither is it a partisan issue. Performance based accountability is 
widely recognized as the most effective way to manage employees whether 
in the private or public sector, in a large or small organization, 
whether by a Republican or Democrat administration. The proposed NSPS 
pay system incorporates the essential elements of good government: 
accountability, due process, transparency, and fairness. The dedicated 
and hard working employees of the Department of Defense will flourish 
in a system that finally sets clear expectations, and rewards employees 
accordingly, for accomplishing results. The best and brightest demand a 
performance culture that rewards excellence. DOD must have a modern pay 
system to be a competitive employer in the 21st century.

                         STAFFING FLEXIBILITIES

    To fulfill its mission requirements, the Department needs a 
workforce suited to the complex tasks of a dynamic national security 
environment. The key to aligning and shaping a workforce lies in 
greater flexibility to attract, recruit, shape and retain high quality 
employees. The proposed regulations provide DOD with a set of flexible 
hiring tools to respond to continuing changes in mission and 
priorities. New flexibilities will provide options to target 
recruitment, expedite hiring, and adjust for the nature and duration of 
the work while preserving merit and veterans' preference.
    Under NSPS, employees will be either career, serving without time 
limit in competitive or excepted service positions, or they will be 
time-limited, serving for a specific period (term) or for an 
unspecified but limited duration (temporary). The Secretary, in 
coordination with the Director of OPM, will have the authority to 
prescribe the duration of time-limited appointments, advertising 
requirements, examining procedures, and appropriate uses of time-
limited employees.
    To expedite recruitment and hiring, DOD will continue to use 
direct-hire authority for severe shortage or critical hiring needs 
subject to the same criteria OPM currently uses to make these 
determinations. In addition, the Director and the Secretary may jointly 
establish new appointing authorities subject to public notice and 
comment.
    The proposed rules provide recruitment flexibilities allowing DOD 
to target recruitment efforts consistent with merit system principles 
and complying fully with veterans' preference requirements. The 
Department will provide public notice in filling positions and will 
accept applications from all qualified applicants; however, DOD may 
initially consider, at a minimum, only applicants in the local 
commuting area. If the minimum area of consideration does not provide 
sufficient qualified candidates, then DOD may expand consideration more 
broadly or nationally.
    The proposed regulations would permit DOD to more effectively shape 
competitive areas during reductions in force (RIF) to better fit the 
circumstances driving the reduction and to minimize disruption to 
employees and their organizations. The competitive area may be based on 
one or more factors such as geographical location, lines of business, 
product lines, organizational units, and/or funding lines. Retention 
lists will be based on the traditional four retention factors of 
tenure, veterans' preference, performance and seniority. Veterans' 
preference remains untouched under NSPS RIF actions, but performance 
and seniority are reversed in priority. Within tenure and veterans' 
status groupings, retention lists place high performers at the top and 
low performers at the bottom. Within performance categories, employees 
are grouped by seniority with longer years of service at the top of the 
category and lesser seniority at the bottom. The performance based 
retention inherent in this proposal is entirely consistent with the 
greater emphasis on performance throughout the NSPS, including the pay 
system.
    Accountability and Due Process
    The Department of Defense is unique among Cabinet departments in 
both its size and organizational complexity. It also carries the 
awesome responsibility of protecting our national security--a vital 
mission that requires a high level of workplace accountability. 
Congress recognized this fact when it gave DOD and OPM the authority to 
waive those chapters of title 5, United States Code, which deal with 
adverse actions and appeals. However, in so doing, Congress also 
assured DOD employees that they would continue to be afforded the 
protections of due process. We believe the proposed NSPS regulations 
strike this balance. They assure far greater individual accountability, 
but without compromising the protections Congress guaranteed.
    In this regard, DOD employees will still be guaranteed notice of a 
proposed adverse action. While the proposed regulations provide for a 
shorter, 15-day minimum notice period (compared to a 30-day notice 
under current law), this fundamental element of due process is 
preserved. Employees also have a right to be heard before a proposed 
adverse action is taken against them. This too is a fundamental element 
of due process, and the regulations also provide an employee a minimum 
of 10 days to respond to the charges specified in that notice--compared 
to 7 days today. In addition, the proposed regulations continue to 
guarantee an employee the right to appeal an adverse action to the 
Merit Systems Protection Board (MSPB). The proposed regulations also 
provide bargaining unit employees the option of contesting an adverse 
action through a negotiated grievance procedure all the way to a 
neutral private arbitrator, if their union invokes arbitration.
    In adjudicating employee appeals, regardless of forum, the proposed 
NSPS regulations place a heavy burden on the agency to prove its case 
against an employee. Indeed, we propose to establish a higher burden of 
proof: a ``preponderance of the evidence'' standard for all adverse 
actions, whether based on misconduct or performance. While this is the 
standard that applies to conduct-based adverse actions under current 
law, it is greater than the ``substantial evidence'' standard presently 
required to sustain a performance-based action. Incidentally, in 
addition to being a consistent element of DOD's new performance 
culture, this is an excellent example of where the collaborative 
process with employees and stakeholders made a substantial impact on 
the proposed regulations.
    Finally, the proposed regulations authorize MSPB (as well as 
arbitrators) to mitigate penalties in adverse action cases, but only 
under limited circumstances. Thus, the proposed regulations provide 
that when the agency proves its case against an employee by a 
preponderance of the evidence, MSPB (or a private arbitrator) may 
reduce the penalty involved only when it is ``so disproportionate to 
the basis for the action that it is wholly without justification.'' 
Although it is admittedly tougher than the standards MSPB and private 
arbitrators apply to penalties in conduct cases today, it provides 
those adjudicators considerably more authority than they presently have 
in performance cases. Currently, the law (chapter 43 of title 5) 
literally precludes them from mitigating a penalty in a performance-
based action taken under that chapter. Moreover, MSPB's current 
mitigation standards basically allow it (and private arbitrators) to 
second-guess the reasonableness of the agency's penalty in a misconduct 
case, without giving any special deference or consideration to an 
agency's unique mission.
    The President, Congress, and the American public all hold the 
Department accountable for accomplishing its national security mission. 
MSPB is not accountable for that mission, nor are private arbitrators. 
Given the extraordinary powers entrusted to the Department and its 
employees, and the potential consequences of poor performance or 
misconduct to that mission, DOD should be entitled to the benefit of 
any doubt in determining the most appropriate penalty for misconduct or 
poor performance on the job. There is a presumption that DOD officials 
will exercise that judgment in good faith. If they do not, however, 
providing MSPB (and private arbitrators) with limited authority to 
mitigate is a significant check on the Department's imposition of 
penalties. That is the intention of the new mitigation standard, which 
is balanced by the higher standard of proof that must first be met.

                 CRITICAL MISSIONS AND LABOR RELATIONS

    As I stated before, the Department is a large and complex 
organization, with widely dispersed components and commands, and varied 
mission elements mixing both military and civilian workforces. With 
lives literally at stake, the Department's commanders cannot afford 
mission failure. The chain of command depends on an ethos of 
accountability, and this goes to the heart of some of the most 
important provisions of the proposed regulations: labor relations. 
Accountability must be matched by authority, and here, the current law 
governing relations between labor and management is out of balance. Its 
cumbersome requirements can impede the Department's ability to act, and 
that cannot be allowed to happen. The proposed regulations ensure that 
the Department can meet its mission, but in a way that still takes 
union and employee interests into account.
    Critics of these proposed changes will argue that current law 
already allows the agency to do whatever it needs to do in an 
emergency. However, that statement, while true, explains why the 
current law is inadequate when it comes to national security matters. 
The Department needs the ability to move quickly on matters before they 
become an emergency. Current law simply does not allow DOD to take 
action quickly to prevent an emergency, to prepare or practice for 
dealing with an emergency, or to implement new technology to deter a 
potential threat. Rather, before taking any of those actions, the 
current law requires agencies to first negotiate with unions over the 
implementation, impact, procedures and arrangements. By the time an 
``emergency'' has arisen, it is literally too late. OPM recognizes that 
this simply cannot continue.
    Permit me to elaborate on one other related issue. The proposed 
National Security Labor Relations Board (NSLRB), will be an independent 
Board appointed by the Secretary to resolve collective bargaining 
disputes in the Department. The NSLRB is expressly designed to ensure 
that those who adjudicate labor disputes in the Department have 
expertise in its mission. Its members are every bit as independent as 
any of the many other Boards or Panels in the Department, or any 
agency's Administrative Law Judges (ALJs). Just as an agency's ALJs 
operate outside the chain of command, so too will NSLRB's members. Just 
as ALJ decisions are binding on the agency that employs them, so too 
will NSLRB's decisions be binding. However, the proposed regulations 
make it clear that the NSLRB's decisions will be subject to at least 
two levels of outside review through appeal by either party to the 
Federal Labor Relations Authority and the Federal courts of appeals. 
While I believe this approach is well balanced, we are open to 
exploring options to enhance this proposed process and this will very 
likely be an area of consideration in the ``meet and confer'' process.

                               CONCLUSION

    If DOD is to be held accountable for national security, it must 
have the authority and flexibility essential to that mission. That is 
why Congress gave the Department and OPM the authority to waive and 
modify the laws governing staffing, classification, pay, performance 
management, labor relations, adverse actions, and appeals. In 
developing the proposed regulations, we believe that we have succeeded 
in striking a better balance--between union and employee interests on 
one hand and the Department's mission imperatives on the other. At the 
same time, all along the way, we made sure the core principles of the 
civil service were preserved.
    Mr. Chairman, as the development and implementation process moves 
forward I ask for your continued support as we work to refine NSPS to 
ensure DOD has the flexible, modern, and responsive personnel system 
that the President and Congress expect. Thank you for the opportunity 
to appear before this committee. I would be pleased to respond to any 
questions you and members of the committee may have.

    Chairman Warner. Thank you. We will proceed now to a 6-
minute round. The concept of Civil Service is well-embedded in 
our system of government. It goes back many years. Yet from 
time to time, there comes a juncture when a department or 
departments, as the case may be, because of the extraordinary 
mission that they are performing, and particularly as it 
relates to national security, I think that's the central 
mission of both the DOD and the DHS, that you must deviate from 
the practices, the balances between management and the employee 
that are elsewhere in the Federal Government.
    I think that we should lay out for this record what were 
the elements of the expanding responsibilities of DOD in this 
most extraordinary chapter of our history, particularly as we 
face terrorism, that justify departing from some of the old 
systems, and now perhaps I think it merits some changing of the 
balance and the equities between the management and the 
employee.
    Secretary England. Senator, I believe that was the debate 
in Congress before the bill was passed.
    Chairman Warner. That is correct. I think we should revisit 
it here in this hearing. I'll address the same question to Mr. 
Blair because he looks over the entire Federal system.
    Secretary England. Senator, it is based on exactly what you 
said. It is about the mission of the DOD and the ability of the 
DOD to effectively carry out its mission.
    That means that we have to be quicker, more agile, and more 
flexible because frankly that's the kind of threat we face 
today. We no longer have the long timelines. We have to be very 
responsive. We have to be able to recruit and retrain and 
retain the very best people in the workforce of the Federal 
Government. It's absolutely essential that we have the highest 
quality people we can, and that we are able to hire them 
quickly because when we cannot hire them quickly like in our 
current system, we lose them to other enterprises.
    So we have to have better hiring practice. We have to be 
able to retain. We have to have the flexibility for people to 
be assigned jobs that need to be done more quickly. So today we 
have very narrow ranges, and if we want to assign people a 
different job sometimes in the same office it's many times very 
difficult.
    So this is all about flexibility. It's also about pay for 
performance, which is a very mission-oriented approach. We want 
to pay people for the job they do and not strictly for their 
longevity. So mission first means that pay is for performance, 
we will have specific objectives to be accomplished, and they 
will flow literally from the President to the Secretary of 
Defense. In the case of the Department of the Navy, they will 
flow through me and every worker down in the deck plate, in 
Navy parlance, will know their objectives are tied to the 
objectives of this country.
    So we will be able to flow objectives down, measure against 
those objectives and pay accordingly. So this is all a mission 
focused system. But let me point out, we maintain all the 
protections, all the fairness that's in the current Civil 
Service system. We are not doing away with any of those, as I 
said in my opening statement. So this is a more modern, 
flexible system for DOD to accomplish its mission.
    Chairman Warner. Thank you, and same basic question to you, 
Mr. Blair.
    Mr. Blair. As you remember, Mr. Chairman, when NSPS was 
first considered, it was followed along on the heels of 
congressional action that enabled the DHS Secretary and the OPM 
Director to develop a new personnel system for the DHS.
    This is part of a larger modernization process for the 
entire Civil Service. Beginning in the late 1990s, we've heard 
reports from a number of stakeholders on the crisis that was 
pending in the Civil Service. Apart from impending retirements 
that were taking place because of an aging workforce, we also 
saw that our systems were not able to adapt to a changing 
workplace and changing environment.
    Our General Schedule system, which was up to date in 1949, 
was no longer responsive to the needs of the 21st century 
workforce. Most of the pay systems that we had for employees, 
while contemporary at the time that they were developed, were 
performance insensitive, and most were based on longevity and 
position rather than on performance, hence the need for changes 
in the Civil Service.
    You saw that with the war on terror, and DOD's unique 
mission, that we needed to go forward and modernize in the way 
that they managed their workforce. That laid the foundation for 
the NSPS.
    Chairman Warner. Let's look at one specific, I'll address 
first to the Secretary and then let you respond. For nearly 
three decades the Merit System's Protection Board (MSPB) has 
served as an important protection for civilian employees 
against unfair, arbitrary treatment, in case of actions that 
adversely affect that employee.
    The proposed regulation is a change in that role which 
appears to allow the DOD to override the MSPB administrative 
decisions. What are the criteria from which you justify the 
Department in overruling an MSPB decision, Mr. Secretary?
    Secretary England. I don't believe we overrule the MSPB's 
decisions. I believe when it goes to the MSPB, that is the last 
board. My understanding, I stand to be corrected here, but I 
believe the next recourse frankly is to the courts after that.
    The MSPB, however, is different under the NSPS. The statute 
actually provides new standards for review for the MSPB and 
thus specifically any area concerning the mission of DOD. We 
did decide to keep the administrative judges in the system 
which was not required by statute.
    So I believe, Senator, we are following the statute in this 
regard, and we are changing the standard for the MSPB, but that 
is in accordance with the statute and we have I believe 
mitigated that some by still having the administrative judges 
in place.
    Chairman Warner. All right.
     Mr. Blair.
    Mr. Blair. Mr. Chairman, the MSPB was consulted and a 
partner during this process in developing these proposed 
regulations. What we have done is to attempt to customize these 
procedures to the DOD. As Secretary England pointed out, MSPB 
administrative judges will be the initial hearing examiners to 
review the DOD's actions. The Department does have the ability 
to review an administrative judge's decision to reverse under 
specific circumstances. But this was done with an eye towards 
mission and an eye towards customizing these procedures to 
recognize the Department's important mission in maintaining the 
national security.
    Chairman Warner. I thank you. That same question will be 
put to the next panel to get their views.
    Senator Levin.
    Senator Levin. Thank you, Mr. Chairman. When we adopted the 
NSPS statute, we said that the right of collective bargaining 
would continue. However, we said in implementing and in 
adjusting the new system that the Department would be allowed 
to follow a certain specific approach with notice, with comment 
on the proposed rule or regulation, but also with an employee 
collaboration process. It was one or the other. This was very 
carefully worked out.
    I believe Senator Collins deserves the lion's share of the 
credit because her work on this was tremendous. It took a lot 
of effort to come to a conclusion as we did, which was a 
carefully crafted result in the NSPS.
    Collective bargaining is protected. But in implementing the 
new system and in adjusting it, we could go through 
publication, comment, and an employee collaboration process.
    Now, you come up with this regulation which just says 
management may not be involved in the collective bargaining and 
you list a whole bunch of things where you just can't be 
involved in collective bargaining. But you don't go through the 
process which we set forth, where we asked that of the NSPS. 
You bypassed that. So my direct question to you is, was that 
your intent, number one.
    For instance, do you believe that overtime policy, shift 
rotation policy----
    Secretary England. Sir, I can't hear the question.
    Senator Levin. Let me give it to you one at a time. Was 
that your intention?
    Secretary England. Senator, I'm not sure I understand your 
whole statement to answer it directly. I can tell you this. 
What we have tried to do is strike a balance in our collective 
bargaining. We still have a long list of collective bargaining, 
but we have also tried to strike a balance between 
accomplishing our mission and collective bargaining. So as 
something that is very mission specific involving the entire 
Department in terms of prompt response, we cannot put ourselves 
in the position of bargaining 1,500 times or so with every 
local union.
    Senator Levin. We took care of that when we passed the law. 
You don't have to collectively bargain 1,500 times. You put in 
place a process as an alternative to that. We talked about 
notice and comment, publication, notice, comment and then an 
employee collaboration process. That's in the law.
    Secretary England. That continues, Senator.
    Senator Levin. Let me ask you specifically, do you believe 
that you would continue to need to collectively bargain on 
overtime policy if this regulation goes into effect?
    Secretary England. I don't believe I can answer that 
question today because I don't believe that question has been 
answered yet, Senator. We are going into the meet and confer 
period now and we will decide during this process exactly what 
the particulars will be.
    I can tell you the policy will be to not negotiate on those 
issues that are department-wide and affect the mission, 
accomplishing the mission of the Department. So where we have a 
specific mission need and we cannot accomplish that if we have 
a detailed bargaining that we would not do that. So I believe 
the policy is in place in broad regulations. The specifics is 
what will be worked out during this meet and confer period.
    Senator Levin. I'm going to list five areas and if you can 
tell me if this proposed regulation becomes effective, whether 
or not there is a requirement that you collectively bargain in 
these five areas. Overtime policy?
    Secretary England. Senator, I don't know if I can answer. 
Overtime policy--there is a Federal law regarding overtime and 
overtime policy. In terms of people getting paid. I don't know 
how I can answer such a broad question. Obviously people 
continue to get paid for overtime. People still schedule 
overtime, so I don't know what aspect of how to address that. 
I'm sorry, Senator. I don't----
    Senator Levin. Shift rotation policy. Will there be a 
requirement that you continue to collectively bargain on shift 
rotation policy, if this draft regulation becomes permanent?
    Secretary England. Again, Senator, I believe that's 
something we will discuss during the meet and confer period. 
That's something that will be discussed. It's a specific 
question in terms of does that fit the mission need. That may 
very well vary depending on the circumstance, frankly. I don't 
believe there is an answer to each of these specific questions 
until we actually have an opportunity to develop the specific 
guidance and detail that will be in NSPS. We have not gotten to 
that point, Senator.
    Senator Levin. The draft says that management is prohibited 
from bargaining over ``the procedures that it will observe in 
exercising management rights to hire, assign, and compensate 
employees.'' Now, those matters were previously negotiable. 
They are subject to the law which we passed relative to 
employee collaboration. We have to know whether you're 
attempting to change that requirement or eliminate collective 
bargaining with this regulation that you've drafted.
    Secretary England. Senator, we are not eliminating 
collective bargaining. We are trying to streamline the system 
so we can do our mission and be able to do the broad across the 
Department tasks that we need to accomplish.
    So we are not eliminating collective bargaining. By the 
way, also in that regulation, it says we will continue to have 
employee collaboration, so that does not go away. The fact is 
we have tried very hard to have dialogue with our employees, so 
that does not go away. That will continue throughout, and I 
hope as a continued basis, forever in that regard.
    Senator Levin. Thank you, my time is up. Thank you, Mr. 
Chairman.
    Chairman Warner. Senator Collins.
    Senator Collins. Thank you, Mr. Chairman. Secretary 
England, I'm going to follow up on the questions just posed to 
you by Senator Levin and the chairman.
    In my letter, I raised exactly the same concern that the 
Ranking Member has just brought up. As I read the regulations, 
they grant the Secretary of Defense sole, exclusive, and 
unreviewable discretion to promulgate issuances without 
employee involvement related to overtime pay and several other 
important issues. That does seem to me to be inconsistent with 
the intent and the letter of the law.
    I want to go on to talk about two other issues. One is 
following up on the chairman's question about the role of the 
MSPB. The preamble to the proposed regulations states that the 
intent is to explicitly restrict the authority of the MSPB to 
modify penalties when there is an adverse action to situations 
where there is simply no justification for the penalty.
    The regulations impose an extraordinarily high standard 
that the board cannot act unless the penalty is so 
disproportionate to the basis for the action as to be ``wholly 
without justification.'' That's not what the law says and is 
not the standard that is set out very clearly in the underlying 
law for the standard of review for the MSPB.
    In fact, the underlying law says that the board may order 
corrective action if it determines that the decision was 
arbitrary, capricious, an abuse of discretion, and otherwise 
not in accordance with law obtained without procedures required 
by law, having been followed, or unsupported by substantial 
evidence. That is a far different standard than ``wholly 
without justification.''
    How can the Department proceed to limit the role of the 
MSPB in a way that does not conform with the standard in the 
underlying law?
    Secretary England. Senator, we will obviously do it in 
accordance with the underlying law. If we have this wrong, then 
obviously we will go back and look at this. So we are looking 
at your letter, we owe you an answer. It is a valid input and I 
appreciate the input.
    We will go work this, Senator, and we will get back with 
you on this. Again, we are still in the process of developing 
the system so it's a valid input. It's a good input. We accept 
it and we will get back with you on this issue. But we really 
appreciate the input, it's valid input and I appreciate it.
    Senator Collins. I do hope that will be remedied. The 
second issue I want to raise is the National Security Labor 
Relations Board. Under the proposed regulations, the Secretary 
of Defense would have the exclusive authority to appoint the 
members of this board to hear disputes arising in labor 
management relations, so this is an important entity.
    The Secretary would have one member selected from the list 
that is developed in consultation with the Director of OPM. The 
other members would just simply be appointed by the Secretary. 
Now, I want to contrast that with the approach taken by the DHS 
in its proposed rules.
    The DHS would have a similar labor relations board to 
resolve disputes, but the regulations for the DHS personnel 
system require the Secretary of Homeland Security to consider 
candidates submitted by employee representatives, the labor 
organizations for two of the three board positions.
    I think that makes sense. If you're going to have a board 
hear labor/management disputes, in order for it to have 
credibility, it needs to have representatives that understand 
the views of employees. It shouldn't just be stacked with 
management appointees. That's really a bad approach, because it 
heightens this feeling that it's management versus labor, which 
we are trying to get away from.
    I think DHS took the right approach by asking in its 
regulations for involvement by the employee organizations. I 
would urge you to reconsider this as well and to follow the 
motto that DHS has put forth.
    Secretary England. We will, Senator. That's again valid 
input, one that we have already considered. So we will go--we 
will definitely take that advice seriously. It's not a 
management board, however, just let me correct the one thing. 
It is an independent board. It is independent and they have 
independence once they are on the board. However, who you name 
in the process to get there is a valid issue. So again, I 
accept your input, Senator. It's a good suggestion and we will 
certainly discuss that as we work towards our final 
regulations.
    Senator Collins. Thank you. I recognize that it is an 
independent board--but it's not going to be perceived as being 
an independent board if the Secretary is making all of the 
appointments with no input from the employees of DOD. I know 
from your considerable experience working with unions and 
employee representatives in the past, and you've had a lot of 
success, that you should be sensitive to the appearance here as 
well. I hope this will be changed in the final regulations and 
I thank the chairman.
    Secretary England. Senator, thanks for the constructive 
comments. They are appreciated. Thank you.
    Senator Collins. Thank you.
    Chairman Warner. I thank you, Senator Collins, your 
contribution and your continuing participation are very 
important to this legislation.
    Senator Kennedy.
    Senator Kennedy. Thank you very much, Mr. Chairman. I join 
in urging you, Mr. Secretary, to pay close attention to what 
Senator Collins and Senator Levin have brought out because they 
are very much so much involved in the drafting.
    The Secretary claimed that he wanted the national level 
bargaining and speedier labor management dispute resolution. 
But I think the regulations that you put out restricts the 
collective bargaining well beyond the scope of what he claimed 
the intent was.
    Now, in the legislation itself, on nonwaiverable 
provisions, it has chapter 71, nonwaiverable provisions. 
Chapter 71 of title 5 is collective bargaining and specifically 
in the law says that it cannot be waived. That is written in 
the law.
    On the previous page, it outlines ``to ensure that 
employees may organize bargaining collectively is provided for 
in this chapter and participate through labor organizations of 
their choosing in decisions which affect them subject of the 
provisions of this chapter, and any exclusion from coverage or 
limitation on negotiability established pursuant to law.''
    There is a whole body of case law in those provisions. Now, 
if you read what is outlined in the law and then look at your 
regulations, we find that under the management rights, you will 
find in section 9901.910, we find in section (b) that 
management is prohibited from bargaining over the exercise of 
any authority under this paragraph A in this section, 
procedures that it will observe and exercise the authority set 
forth in the paragraphs. That technically as we read it 
prohibits DOD managers from bargaining over the procedures, 
included in that is overtime, also working out overseas 
assignment and the rest.
    I direct your attention as well to 9901.910(e)(2)(i), which 
says that ``appropriate arrangements for employees adversely 
affected by the exercise of any authority under this section,'' 
and then it lists the various things that are not included such 
as overtime, routine work, routine assignments and specific 
duties, work on a regular overtime basis. It talks about the 
various kinds of areas that are currently protected in 
collective bargaining.
    I just say that our counsel is looking at your regulations 
and also looking at the law, come to two entirely different 
conclusions. He is going to be challenged.
    We hope in the spirit which you outlined earlier to the 
chairman and others that you be able--this is a far reach from 
what the Secretary had indicated to us as being the question, 
to being able to negotiate with a number of different unions 
and be able to make administrative decisions.
    I would hope that--I don't know whether these have been 
brought to your attention by other legal authority or not, 
whether they are under review or not, but we would be glad to 
at least give you our view about exactly what the law says and 
how these regulations are inconsistent. That would be helpful 
whether Mr. Blair wants to make a comment on those particular 
provisions.
    Mr. Blair. Thank you, Senator. We thought we were acting 
within the scope of our authority and continue to believe we 
are doing so. However, it is the subject of a lawsuit. A number 
of unions have filed suit against Secretary Rumsfeld and OPM 
over this very matter. I think these matters will be resolved 
in the courts as this lawsuit progresses.
    Senator Kennedy. If it says specifically that chapter 71 
that deals with collective bargaining can't be waived, how do 
you go ahead and waive it in your regulations and get by with 
it? What is your quick answer to that?
    Mr. Blair. I would say that we have not waived all the 
regulations, that we were modifying them. I'm being told by my 
lawyers I need to----
    Senator Kennedy. It doesn't say just some. It says the 
nonwaiverable provisions, it says chapter 71. It doesn't say 
some of chapter 71. The provisions, as we understood, were 
national collective bargaining and also that dealt with third 
party review, who is going to adjudicate the differences for 
the areas that most of us thought were the exceptions. But as I 
hear you respond to my question, saying we are going to take 
what in parts of chapter 71 we like and what parts we don't 
like.
    Secretary England. Senator, you offered to give us your 
input so that we can get back to you. It would be better if we 
did that. We would appreciate it if you just provide us your 
input, and then let us respond to you later rather than here 
today, we would appreciate that, sir.
    Chairman Warner. I think, Mr. Blair, you need more time to 
respond to the questioning. I want to give both of you such 
time as you require now. Then of course, the option to put 
something in the record.
    Mr. Blair. I was responding.
    Chairman Warner. I beg your pardon?
    Mr. Blair. I appreciate Senator Kennedy's strong advocacy 
on this behalf. At this point, the Justice Department and 
others are directing us to say as little as possible on this in 
case this debate is carried over to the courts. I respect the 
Senator's opinion on this, and I think this will be something 
that we work through the process.
    Senator Kennedy. Just regulations on the 9901.910 
specifically prohibits where you've proposed management from 
negotiating over the procedures to exercise rights to assign 
work, determine the personnel by which agency operations are 
conducted. So agency officials could move employees 
arbitrarily, or force a prolonged assignment anywhere in the 
world without regard to any hardship.
    Of course, employees--see, my read on this is a very simple 
one. That is, if you make a management policy, you're going to 
be able to override anything that exists in there, because it 
is a management policy. Management policy's going to override 
overtime. It's going to override all of these. Because you're 
going to say, oh, it's a management policy question.
    That's the only way you can explain it. It's almost exactly 
what it says at least in the regulations. That is a far reach 
from what the language is in, in this--in the legislation. But 
I thank you. My time is up. But I will look forward to the 
opportunity to have further exchange on that. Thank you, Mr. 
Chairman.
    Chairman Warner. Have you had an opportunity to reply to 
the Senator's questions?
    Mr. Blair. Yes, sir. We have.
    Chairman Warner. Senator Talent.
    Senator Talent. Thank you, Mr. Chairman. One brief one. 
This is an issue, of course, in any properly run management 
system, but what have you thought about in terms of in order to 
ensure that the individual managers, the supervisors who do 
employee reviews and performance reviews, are acting fair and 
impartial manner. One of the objections that is raised in that 
kind of a system is that, well, they will take out vendettas, 
they will do personal things. I'm sure you anticipated that and 
you have something in mind. Maybe you can share with us what 
safeguards you have in place?
    Mr. Blair. The performance reviews will be subject to at 
least two levels of review by the reviewing employee's 
supervisor, and also by the payroll manager who will be 
administering the pay increases.
    But at the same time, prohibited personnel practices--which 
means cronyism and politics--cannot come into play. The Office 
of Special Counsel ensures that oversight and enforcement of 
personnel protections are all in play in all of this.
    The bottom line is that we have attempted to craft a fair, 
credible, and transparent pay for performance system that will 
still be flexible to the needs of the DOD. I think it's 
important that employees understand that they have recourse 
when they feel that there is a decision regarding the 
performance that they don't agree with. We think that we have 
provided that. Again, this will be part of the meet and confer 
process. We think we have developed a fair and credible system.
    Secretary England. Senator, your question really gets to 
the heart of the whole pay for performance system, frankly, 
because you have to make sure that it's fair and equitable and 
not biased for any reason whatsoever.
    So as Mr. Blair said, we will have two levels of review, 
and by the way, the managers and supervisors are on the same 
standard, that is, part of their measure of performance is to 
make sure that they have a fair and equitable system that they 
are exercising. So that will be part of their measurement 
criteria.
    So there are two levels of review and we will during meet 
and confer be discussing that there are other avenues that we 
should have open to employees in terms of being able to be 
assured that they are getting fair and honest review.
    But this is at the heart of the matter. All of our 
employees obviously have to be comfortable that this is a fair 
and equitable system. So we are very sensitive to this, and we 
will be working this for the coming weeks to get to the 
detailed regulations. Input in this area is appreciated because 
this is the heart of the system. We are working very hard to 
make sure we have a very credible system that our employees 
believe in.
    Senator Talent. I would congratulate you on the intention. 
This is the key, to have both the positive and negative in 
place. They know what they are graded on and what they are not 
supposed to be graded on. Both are very important so that when 
something happens, they know, well, because I had this standard 
that I knew I was supposed to meet and I either got there, in 
which case it's great, or I did not, in which case I understand 
why I'm not getting what I'm supposed to get.
    Then by the way, if I suspect cronyism or something, I have 
an appeal. The other thing that's crucial for both you all and 
the employees is that these review levels need to be quick. 
What you don't want in a good personnel policy are disputes or 
concerns hanging around for months and months and months making 
people angry. You need to move through it pretty quickly, with 
enough time for everybody to have their point of view but then 
get it done, and get it out of the way.
    Secretary England. Absolutely. Senator, by the way, 
criteria are discussed with the employee in advance, literally 
written down and it has to be a measurable criteria. So there 
has to be a measure and a metric that the employee and the 
supervisor agree on in terms of performance. So this is not 
abstract.
    The value of the system is that we will cascade down 
throughout the organization objectives so there will be written 
objectives with schedules, with criteria. It has to be 
measurable.
    One of the strengths of this system is we now manage the 
entire enterprise with an objective, measurable system. So 
there will be a standard for every employee, different in terms 
of what is to be accomplished but there is a standard in terms 
of knowing what that is. This doesn't just happen at the end of 
the year. The objective is to set this early, to review this 
during the year, so there are not surprised at the end of the 
year. You have to have the training.
    Senator Talent. Also, they have to see the commitment from 
the top. It doesn't mean that you and the Secretary and the 
others have to be doing a lot. But they have to see that this 
is a priority for you and you have to see that reflected in the 
training dollars for the managers and the rewards given to the 
managers who do this well. This has to be a key thing. Because 
if they suspect a commitment isn't there at the top, it won't 
work. I used to practice labor and personnel law which is why 
I'm feeling so free to tell you how to do this.
    Secretary England. Thank you, sir.
    Mr. Blair. A couple of points, Senator, on that, is that 
managers and supervisors will actually be held accountable for 
how well they perform their jobs and their pay will be 
reflected in that.
    Second, you touched upon training. Training is going to be 
a key component in making this system successful. The DOD has a 
robust training program planned, based on the man-hours of 
training. Supervisors will get 18 hours of training, HR 
specialists will receive a minimum of 40 hours of training, 
employees will receive a minimum number of hours of training as 
well. I think that this shows a commitment on the part of the 
DOD to making sure that employees understand and recognize the 
working aspects of this new system in order to better 
understand it and not fear it.
    Secretary England. We will, Senator--we have 1 million 
training hours planned for 1.1. So when we go into 1.1 we will 
accomplish 1 million hours of training.
    Senator Talent. Thank you.
    Chairman Warner. Thank you very much, Senator.
    Senator Akaka.
    Senator Akaka. Thank you very much, Mr. Chairman. I'm 
always delighted to see my good friend, Secretary England.
    Secretary England. Thank you, Senator.
    Senator Akaka. I want to thank you and Director Blair, for 
your testimony and I know the hard work you are all doing on 
NSPS.
    My questions are to try to bring clarity to these many 
questions that have come to me. I am interested, Secretary 
England, in the costs associated with NSPS related to training, 
creating new labor/management and appeals boards. Also paying 
employees for their performance.
    As you may know, DHS is requesting additional funding to 
help pay for the implementation of MAX HR , it's a new 
personnel system. Will the new pay system be budget neutral or 
do you anticipate increasing overall funding for civilian 
salaries in light of the performance element?
    Secretary England. Senator, it will be neutral, I believe 
that's required by statute. It will be neutral in terms of the 
pay itself, so we can distribute the money differently but the 
net is the same. Money obviously is appropriated by Congress 
and what's appropriated for increases in salaries, obviously 
that is the increment we will deal with. So it will be neutral.
    We do have some costs. For example, we have $38 million for 
our program office and for specific things that need to be 
accomplished. We also have within our own budgets training, 
because you know, all of our training is in our own in-house 
budgets.
    I will comment here that training is a core competency of 
the DOD. One thing we do very well is to train our people and 
we will use our existing infrastructure for training to train 
our people in NSPS. But I can tell you, we are very sensitive 
to this whole area of training. I know you mentioned that in 
your opening statement. We are very sensitive.
    We know that we don't send our people to the front lines 
without training. We also don't put people behind the lines 
without training, so that's a very sensitive area to us. We 
will not be proceeding unless all of our people are trained. 
This is not scheduled training. This is to make sure we are 
ready first before we proceed with the next step. So I can 
assure you our people will be well trained before we enter into 
this system.
    Senator Akaka. At this point, will you know how much money 
will be dedicated for training, to training for performance 
management systems?
    Secretary England. I do not know if I can break it out that 
way because it shows up throughout our budget. We have asked 
each of our command elements to just include that in their 
budgets. So it shows up in a lot of different places in our 
budget, in our process. Like I had said, I believe the only 
identifiable line item is the $38 million that's for our 
program office across the board and I believe putting the 
training together. But the actual training is part of our own 
in-house budgets.
    Senator Akaka. Secretary England, as I noted in my opening 
remarks, Secretary Rumsfeld testified in 2003 that NSPS would 
not end collective bargaining, yet the proposed regulations 
override collective bargaining agreements through Department 
directives and severely restricting matters subject to 
collective bargaining. In response to Senator Levin, you said 
that DOD would have collaboration. Would you please explain how 
you believe collective bargaining is retained?
    Secretary England. We still retain collective bargaining 
for items other than what I call broad mission items within the 
Department. So there is still a whole range of bargaining 
issues. We are not doing away with collective bargaining, but 
we are trying to balance the mission of DOD with our collective 
bargaining, so that's what we have put forward as the 
fundamental policy.
    I believe as we go forward in this meet and confer, we will 
get down to the specifics of how that's implemented. I would 
comment, also, if I could, Senator, that I know a lot of our 
employees and everybody wants to know all the detail of the 
program, but we don't have the detail of this program yet, and 
will not have this detail end until the end of the meet and 
confer process.
    You indicated there is some stress in the workplace. I 
understand that. There is stress everywhere until--personal 
stress, because it is a lot of change. But it will be stressful 
now because we don't know all the detail, and everybody would 
like to know the detail today. But we are still in the process 
of developing that detail within the broad proposed 
regulations. So again, a lot of the questions that are being 
asked, even some at this hearing, we don't have the answers for 
because we are not in that part of our development program yet.
    Mr. Blair. If I could supplement Secretary England's 
statement, post implementation bargaining is retained in broad 
categories, as well as bargaining over certain procedures like 
personnel procedure, as an attempt to strike the right balance 
given the legislative framework in which these new regulations 
were developed.
    Senator Akaka. Thank you very much. Mr. Chairman, my time 
has expired.
    Secretary England. Thank you, Senator.
    Chairman Warner. Senator Clinton.
    Senator Clinton. Thank you, Mr. Chairman, and thank you, 
gentlemen. Of course, part of the dilemma and confusion that we 
are confronting here is that the devil is in the details. There 
are many unanswered questions and it's very difficult for us to 
reach conclusions as to whether or not the proposed regulation 
complies with the law as intended and written.
    I think the cautionary statements and questions by 
particularly Chairman Warner and Ranking Member Levin and 
Senator Collins since they were intimately involved in this 
process are a big yellow caution light, because it seems clear 
that there is some more questioning and answers to be obtained.
    You just said that the new pay system will be budget 
neutral. Now, that raises a question for me because most of the 
demonstration projects that I'm familiar with, when it comes to 
pay for performance, have added additional money for salaries. 
So in effect, with a budget neutral system and an attempt to 
move toward pay for performance, there will definitely be 
increasing pay disparities.
    So it's understandable that many of the key questions that 
employees are wondering about are not answered yet in this 
draft regulation. We don't have specific career groups and pay 
bands established. We don't have maximum and minimum pay 
levels. We don't have procedures for assigning pay to 
individual employees, rules for overtime, compensatory time, or 
other premium pay.
    It is a very troubling change when there is so little 
guidance being given, and when there are these serious 
questions being raised about whether the regulation complies 
with the underlying law.
    I think that what Congress attempted to do, as I understand 
the NSPS, was to give more authority within parameters to DOD. 
What we are concerned about is that those parameters which we 
thought were established in the law may not be determining what 
this proposal really is. That is why I think you're getting a 
lot of these inquiries.
    I'm particularly concerned because all of these issues 
about pay which goes to the heart of employees' concerns--are 
being left to ``implementing issuances'' to be provided at some 
unspecified time in the future. I don't see how you can expect 
the DOD civilian employee workforce to have confidence in this 
new system when there is so much that is left unanswered. It's 
a great big trust-me theory.
    I don't think that's in the best interests of either the 
management of DOD, the employees of DOD, or more importantly, 
the national security mission at DOD. We do not need to be 
breeding insecurity and confusion amongst the civilian employee 
workforce. So I would hope that both Secretary England and Mr. 
Blair, you would take these questions very seriously because 
there is a great deal of concern on this panel.
    I want to ask a more general question because I am by no 
means an expert in all of the personnel questions. I'll leave 
that to my friend, Senator Akaka, and others. But Mr. Blair, in 
your testimony, you state that current law in labor relations 
is inadequate when it comes to national security matters 
because ``DOD needs the ability to move quickly on matters 
before they become an emergency and current law simply doesn't 
allow you to do so.'' I think that we understand the need for 
quick and flexible action. I think that the real underlying 
reason behind the law was to give you more flexibility for 
being able to move quickly if necessary.
    But I think that a rational response to these problems 
might be to give you the authority, which is I thought what we 
were doing in the law, so that when national security is at 
stake, you can move but then you bargain over the impact of the 
implementation after the fact. However, that is not what your 
draft regulation does.
    Instead, it exempts those issues, procedures, and 
arrangements from collective bargaining all together regardless 
of whether the situation is urgent or whether there is a 
national security need to proceed with action and without any 
bargaining, even after the fact.
    So let me ask, if the reason for altering collective 
bargaining requirements is DOD's need to act quickly on urgent 
national security matters without bargaining first, why didn't 
you tailor your regulation to this narrow specific need instead 
of carving out these large categorical exemptions to collective 
bargaining requirements?
    Mr. Blair. I think the intent was, Senator Clinton, to make 
sure the Department could move quickly. In doing so, we thought 
that we developed a good framework in carving out these 
exceptions.
    Keep in mind, however, that these exceptions are in a 
proposed form, and will be going through a meet and confer 
process in the statutory period. Congress specified that when 
we did these proposed regulations we must allow 30-days notice 
and comment, and a minimum 30-day meet and confer period. Then 
with a 30-day statutory period for congressional review.
    We are about to embark on the second stage. Comments such 
as yours will help us further frame the debate and further 
raise discussions as we move into this period. These 
regulations are not final. They are subject to change and 
comments like yours will help us as we further refine and draft 
these.
    Senator Clinton. I'm very glad to hear that and I know that 
other members of this committee are as well. Let me just 
perhaps put this into a broader context and I'll just speak on 
my own behalf, but I am increasingly concerned about the 
erosion of checks and balances in our Government.
    I think that the genius of our founders as they created 
these checks and balances and we have done very well as a 
Nation for more than 200 years, so that if people got too 
powerful there was an independent judiciary, there was 
collective bargaining, there were ways of reining in unchecked 
power.
    I just offer a cautionary note that I understand the 
urgency. I understand the great sense of mission at DOD, but 
human nature has not changed. As Lord Acton said: ``Power tends 
to corrupt and absolute power corrupts absolutely.'' You're not 
just making changes for the short term, but ones that will last 
for some time.
    I think one of the real benefits of our system is there are 
all these different voices and sometimes it's annoying and 
sometimes it slows you down and sometimes you wish you didn't 
have to deal with people who are saying, wait a minute, I'm a 
welder at this military facility that's not safe any more. We 
need to do something about it.
    I would hope that not only on the specifics, but on the 
larger issue just be sure that we are not throwing the baby out 
with the bathwater here. That we are not changing a system that 
has served this country very, very well. Yes, if you're a 
manager you always want free action. If you're an employee, you 
always want some kind of bargaining power. So creating that 
balance is what we should be doing and just based on a review 
of these regulations I'm afraid we are tilting the balance too 
far in that direction.
    Secretary England. Senator, first of all, what you just 
said, I will tell you I have already agreed with. I just had 
this conversation with Senator Levin a few moments ago. If you 
want something very clean and easy, dictatorships, that's their 
characteristic. Democracies are obviously messy and lots of 
voices and that's what is very important in our system and God 
bless America, it's what makes America, and so I recognize 
that.
    I will tell you we are trying to strike a balance here. We 
have gotten 10,000 inputs from our employees. We have been with 
every organization, every service organization, veterans' 
organization. We have solicited everyone we know to provide 
input into the system.
    Our objective is to make this fair, transparent, and as 
broad based as we can, to make sure we end up with an equitable 
system. It has to be equitable. This is our most critical 
resource in the DOD, I can assure you. Our whole objective is 
to make sure that this is more beneficial for our employees.
    We are determined to make this a win for our employees and 
a win for national security. I'm convinced we can do that. We 
are all in this discussion to get there, but we are not at the 
end of this yet. We are about a third of the way through in 
terms of the detail of the system.
    So I understand without the detail, that's where the devil 
is in the detail, we are working our way through this. There is 
opportunity for more dialogue or--a lot of opportunity. We are 
just entering that real dialogue period in terms of legislated 
dialogue with our unions, but there is opportunity again to 
interface with Congress on this subject.
    So we do want a system that works appropriately. That 
given, we are going to change the system that we have today 
because it is not responsive to what we need to do. So we need 
to make sure that we do change those things that give us the 
flexibilities that we need, but we do not in any way eliminate 
anything of the protections and fairness that's in the current 
system.
    So I can just give you my personal commitment, we will 
continue to work this. This is the way we've been working it 
for the last year. We will continue that way, and we will make 
it work out for all the employees. That is in the interest of 
DOD to make sure this works out well for our employees.
    Chairman Warner. Thank you very much, Senator. Thank you, 
witnesses. The chair, together with the ranking member, to try 
and complete this round of questions, so that we have--in a 
timely manner we can now entertain the very important remarks 
of our second panel. So at this time, I turn to my two 
colleagues on the left. I believe, Senator Reed, you might have 
a minute or two.
    Senator Reed. Thank you, Mr. Chairman, thank you, 
gentlemen. This morning's hearing has raised a host of issues. 
I'm most particularly concerned about the application of these 
rules to the national defense laboratories, to DOD labs, 
specifically and obviously the Naval Undersea Warfare Center in 
Newport. As I understand the legislation, new rules would not 
be applied to the laboratories until October 1, 2008, yet I 
also understand there is a discussion of applying across DOD 
totally these rules in 2005. Can you clarify that, Secretary 
England?
    Secretary England. Yes. Senator Reed, the human resources 
part does not apply to the laboratories until 2008. Labor 
relations does apply across the board because you have to have 
a consistent labor relations process. But all the pay and all 
the things that are human resources part does not apply until 
October 2008. Then it applies, I believe, as long as we have a 
system better than a demonstration system so it's a decision to 
make that point. But that's the earliest point it does apply. 
So you're right, sir.
    Senator Reed. Thank you, Mr. Secretary. That's the legal 
issue and policy issue you have alluded to in your answer which 
is the system that they are using now. I can only speak from 
the knowledge of Newport, in which they are already using pay 
for performance incentives. They are looking at pay bands 
versus the GS system, where you have increased flexibility. So 
all of that has been worked out through what I think you assume 
will happen DOD-wide, the collaboration, discussion with both 
management and employees. I guess initially, my goal would be 
if it's not broken, don't fix it as you go forward. What is 
your inclination?
    Secretary England. These demonstration projects have been 
very useful to us, Senator. We've had years of experience, and 
that's the foundation, that's really what led up to the NSPS. 
So that whole experience base is very valuable as we go 
forward. You're right. Everything that we are bringing forward, 
that was our learning process. As indicated later, Mrs. Lacey 
who is now running this program office ran a number of those 
demonstrations, so that's been very helpful to us.
    Senator Reed. Have you conducted a formal assessment, Mr. 
Secretary, of those demonstration programs so that you can 
evaluate them and not only use them as a benchmark for what you 
are doing prospectively, but also within the Navy lab 
community? At the present moment, have you done that formal 
evaluation?
    Secretary England. We have. We had a formal evaluation of 
all the programs and a lot of informal evaluation. Mind you, 
that all happened frankly before I became involved with the 
system. But my understanding at that time was that we had--we 
went back through all those demonstration projects, had a lot 
of lessons learned out of all those projects as a foundation 
and an understanding of where we are today.
    Senator Reed. Could you share that information with us, Mr. 
Secretary? I think it would be very useful, since that's really 
the laboratory for this largest personnel----
    Secretary England. You're absolutely right, no, we can 
share that data.
    Mr. Blair. Senator, I just want to say that DOD's 
evaluating, OPM has evaluated, I believe GAO has evaluated, and 
Congress has evaluated it several times. They've been the basis 
for many of the proposed changes, not just with NSPS, but also 
with DHS.
    Senator Reed. Thank you, Mr. Blair. Let me raise another 
issue in response to Senator Kennedy's questions about what he 
would argue are clear departures from the black letter of the 
law, you indicated that the Justice Department has advised you 
that you're appropriately leading down the right path. Do you 
have a written legal opinion from the Department of Justice 
(DOJ)?
    Mr. Blair. I'm sorry. I didn't mean to imply that we were 
going down the right path, but what I wanted to communicate to 
you was that, since this is the subject of a lawsuit, we are 
not at liberty to discuss the merits of the case or the 
specifics of the case. We believe we are going down the right 
path, however.
    Senator Reed. It seems from listening to Senator Kennedy's 
discussion that this is not one of these things where it's 
nuanced. It's pretty clear.
    But I just make a general comment and I think it resonates 
with what Senator Clinton said also. We are seeing legal 
opinions coming out of the DOJ that seem to be deficient in 
real good legal analysis. This is particularly the case, I 
think, in the discussion--the issue of detainees. Secretary 
England, one of his other hats, if you're familiar with that. 
So deficient, in fact, that they have had to be repudiated. I 
would just say it would be nice if we could avoid lawsuits and 
it might be impossible. It might be avoided by just a more 
faithful reading of the legislation. Thank you.
    Chairman Warner. Senator Lieberman.
    Senator Lieberman. Mr. Chairman, I'm going to be very brief 
because I know you want to move on to the second panel. In 
fact, I'm going to make a statement, not ask a question unless 
the witnesses are moved to respond. That will be fine with me.
    Because the one point I did want to focus on was along the 
lines that Senator Clinton asked, which is the extent to which 
you've issued on the proposed pay and performance regulations 
essentially a skeletal outline, maybe a little more than that, 
but as you acknowledge, more details to follow.
    The concern about this is that we have a process. The 
process is aimed at encouraging maximum disclosure and feedback 
in a timely way. So to the extent that regulations are 
published in the Federal Register, for instance, and they are 
available not only to Members of Congress and employee groups, 
but to the general public if they want to comment one way or 
the other.
    To the extent that the details are added later on which are 
quite important, that people may be deprived of that 
opportunity. So I just pick up on what you said and I really 
urge you to try the best you can to go out of your way as you 
develop more of the details of this process to make sure that 
both we in Congress are informed and have the opportunity to 
respond, and certainly that the employees themselves before 
there is a finality as the details are added have an 
opportunity to respond. So there is a sense of involvement and 
ultimately shared interest, mutuality, as we go forward. If you 
want to respond to that, that's great. If not, I will feel that 
I have spoken my peace.
    Secretary England. Senator, I do not disagree with you. My 
comment is this is a collaborative effort. I believe we have 
reached out to everyone we can possibly reach out to. We are 
open, accepting inputs. Our objective is to put the best system 
together we can for the DOD and for the Nation and for the 
employees.
    So I don't disagree. That's what we are trying to do. There 
is always going to be disagreement, but again, welcome to 
America. That's our system, but at the end of the day, I 
believe we will end up with a system that's fair and equitable 
and meets the mission of the DOD.
    Senator Lieberman. Thank you. Thanks, Mr. Chairman.
    Chairman Warner. Thank you very much. Senator Levin, you 
had one or two matters. We'll let the Senator just have the 
questions. Ordinarily, we would have time permitted to ask, and 
we ask you to provide your responses to the record in a timely 
way.
    Senator Levin. Mr. Chairman, I do appreciate that. 
Secretary England, the new personnel regulations that have been 
issued by the DHS expressly allow for procedures to file 
grievances with independent arbitrators if the employee 
disagrees with the performance rating. The draft NSPS 
regulation does not contain a similar right for the DOD 
employees. Was that intentional, they do not have the same 
right provided for your DOD employees as DHS does?
    Secretary England. No. That's something we will still 
discuss in the meet and confer. Senator, it's vitally important 
that the employees be comfortable in their evaluations and we 
understand if there is an issue, there has to be some mechanism 
for review, in addition to supervisory review so that's an area 
that's still open for discussion, sir.
    Senator Levin. Mr. Secretary, when we enacted the 
legislation, we understood that the Department wanted to give 
some greater weight to performance instead of just looking at 
seniority in its procedures.
    As I read your draft regulations, however, it appears as 
though you want to give absolute priority to performance over 
seniority in every case, and then base your assessment of 
performance exclusively on the employee's most recent rating.
    If that meaning is correct, I would hope that you would 
reconsider that because it seems to me that an employee, for 
instance, who has received a single outstanding rating in the 
most recent year should not necessarily be preferred over 
somebody whose ratings have been terrific over the prior years, 
but at a somewhat lesser rating in that most recent year.
    Secretary England. We agree.
    Senator Levin. Finally, for Mr. Blair, the statute provided 
that when it came to establishing and adjusting the new system, 
it would be through regulations prescribed jointly--key word 
there jointly--by the Secretary of Defense and the Director of 
Office of Personnel Management.
    A year ago, when the DOD sought to exclude OPM from the 
development of a new system, Senator Collins and I and others 
insisted that the law be followed, that the Department comply 
with the statutory requirement that OPM be involved.
    I understand you were a full partner in the drafting of 
these regulations and that's how it should be. However, there 
are certain provisions in the draft regulation which provide 
that critical elements of the new system, such as the basic 
parameters for hiring, promoting, assigning employees, setting 
and adjusting pay, evaluating performance, and appeal of 
performance ratings, will be established in future implementing 
issuances, which would be put out solely by the Secretary of 
Defense.
    In a few cases, the draft regulation provides for 
significant decisions about the new system, such as the 
establishment of mandatory removal offenses, to be made at the 
``sole, exclusive, and unreviewable discretion of the Secretary 
of Defense.'' That's not what our law provided for.
    I'm wondering whether or not you are going to take a look 
at this, and if you agree that our law provided that as a 
matter of fact, regulations be prescribed jointly, both in the 
establishment and the adjustment of the system, that you will 
make that OPM position clear.
    Mr. Blair. With your help, Senator, we have had an 
outstanding partnership between DOD and OPM, especially since 
Secretary Rumsfeld took part in the process. We anticipate that 
continuing.
    Senator Levin. Does that mean that you will insist that the 
legislative language that's in the law be complied with?
    Mr. Blair. We will look at that legislative language. 
However, I anticipate OPM's role will continue to be as it was. 
We will be involved intricately with the Department throughout 
every step in implementing this. As far as internal regulations 
go, I think we will take a look at that, to see to what extent 
OPM should be involved, but we certainly appreciate your 
interest in OPM's prerogatives in this.
    Senator Levin. I want to just add my thanks to both of you. 
You are both open to suggestions, and that's the way it must 
be. We have a long way to go and I was happy to hear from you, 
Mr. Secretary, that you think we are just perhaps a third of 
the way down that road. It's a long road. It's an important 
road for all of us and your participation in it is essential. I 
want to thank you for your openness.
    Secretary England. Thank you. By the way, Senator, just a 
comment, even when we start this 1.1, that continues. We don't 
actually pay anyone under this spiral system until January 
2007. So there is a period here where we will continue to learn 
and adjust as we go through the system, to make sure we have it 
right before any employees' salary is actually on the line. So 
there is--we have time. We are not going to rush. We are going 
to make sure we do it right.
    Chairman Warner. That's very reassuring, Mr. Secretary. You 
made a good presentation and response to our questions by both 
of you. As I said, we'll assume that further questions will be 
provided for the record. As long as this is viewed as an 
ongoing process, with all voices and perspectives carefully 
considered, I hope that you can assure us that that's going to 
be the case, both of you.
    Secretary England. I can assure you that's the case, 
Senator, that's what we will continue.
    Chairman Warner. Drawing on my own experience with the 
Department, I was privileged to be there over 5 years and I had 
a magnificent working relationship with my civilian side and my 
military side.
    For those of us who had that wonderful opportunity to serve 
in that great Department, we know it's a team between that 
uniformed individual and that civilian. They're often side by 
side, and it has to remain that teamwork. So it's unlike any 
other Department, our agency, in the Federal Government. So you 
have a special challenge. I thank both of you. I recognize that 
both of you have to depart but I would hope the representatives 
of your offices can remain to hear the important testimony of 
our next panel.
    Secretary England. Yes. I'm going to stay myself, sir.
    Chairman Warner. I think that's a great courtesy.
    Mr. Blair. Thank you very much, Senator.
    Chairman Warner. Thank you very much, Mr. Blair. So we will 
now have a second panel: Derek Stewart, Director of Military 
and DOD Civilian Personnel Issues, GAO; John Gage, National 
President, American Federation of Government Employees; and 
Hannah Sistare, Director, Human Resources Management 
Consortium, Executive Director, National Commission on the 
Public Service Implementation Initiative, the National Academy 
of Public Administration. We welcome you, and is there an order 
of presentation that you would prefer?
    Mr. Stewart. Yes, sir. We were talking with your staff, I 
think it was agreed that GAO----
    Chairman Warner. I simply want to say to my old friend, Mr. 
Gage, I have worked with him many years. He came into the 
office to see me. I said, now, look here, what can you do to 
just focus on those main things that you feel that require the 
attention of the Senate at this time. I judge from your opening 
statement, you have done exactly that. I thank you, Mr. Gage.
    All right, Mr. Stewart, lead off. Your statements in their 
entirety, the written statements will be included as part of 
the record and if you will give us your presentation at this 
time.

     STATEMENT OF DEREK B. STEWART, DIRECTOR, MILITARY AND 
  DEPARTMENT OF DEFENSE CIVILIAN PERSONNEL ISSUES, GOVERNMENT 
                     ACCOUNTABILITY OFFICE

    Mr. Stewart. Thank you, Mr. Chairman. I am pleased to be 
here today and this is a very important topic that affects not 
only the 700,000 Defense civilian employees at the DOD, but it 
has critical implications for the rest of the Government, 
future government-wide reform. So it is important that the 
proposed NSPS regulations be properly defined and effectively 
implemented. So we are pleased to be here to participate in 
this hearing.
    I am going to truncate my statement somewhat because a 
number of issues I had planned to touch on have been discussed.
    Chairman Warner. I thank you for that. I wonder if you 
could make it 5 minutes apiece. Be assured that the Senators 
and the staff of the committee are going to review these 
statements in their entirety.
    Mr. Stewart. Yes, sir. I can probably be less than 5 
minutes.
    Chairman Warner. No. I want to you take the full 5 minutes.
    Mr. Stewart. Yes, sir. Regarding labor relations, our 
preliminary work shows that the proposed regulations would 
reduce the number of bargaining areas, including those 
procedures affecting how employees are deployed, assigned work, 
and use of technology. But the regulations clearly say that.
    In addition, the National Security Labor Relations Board 
that was discussed earlier would largely replace the Federal 
Labor Relations Authority.
    Senator Collins brought up the fact that the Secretary of 
Defense has authority to appoint the members of that board. 
Another point that I would like to make is not only does the 
Secretary of Defense have the authority to appoint the members 
of that board, he also has the authority to remove the members 
of the board. That's a different model from that of several 
other agencies.
    On adverse actions and employee appeals, the proposed 
regulations shorten the adverse action process by removing the 
requirement to allow the employees an opportunity to improve 
their performance. So there is no longer a requirement, if 
these proposed regulations become final, that would afford 
employees an improvement opportunity as currently exists.
    Also, while the regulations generally preserve the 
employees' right to appeal adverse actions to the MSPB, the 
regulations also would permit DOD to modify or reverse the 
initial MSPB made decisions based on internal DOD review.
    The regulations do not spell out what this internal review 
process is, who will conduct the process, or how it will be 
conducted. These are very important details. An internal agency 
review process of this importance should be spelled out in the 
regulations.
    DOD proposed regulations also would permit DOD to identify 
specific offenses for which removal is mandatory. The 
regulations state that employees will be made aware of the 
mandatory removal offenses. We believe that the process for 
determining and communicating these offenses should be explicit 
and transparent and involve a number of stakeholders, including 
Congress and employee representatives.
    Lastly, Mr. Chairman, on pay and performance management, 
there are a number of issues there: how DOD will align 
individual performance with organizational goals, how 
performance expectations will be communicated to employees, and 
the criteria DOD will use to promote employees from one band to 
another. There are a plethora of issues that really need to be 
worked out in detail.
    The one thing that I heard from DOD on the first panel 
that's a little different to what the GAO has been advocating 
is that there should be predecisional, internal safeguards so 
that the agency is prospectively looking at what is happening 
with performance ratings, and what is happening with 
promotions. It should not be a retrospective look where the 
employees complain and then there are all of these processes to 
take care of employees' complaints.
    At the GAO, we have predecisional, internal safeguards 
where the Office of Opportunity and Inclusiveness is looking at 
Equal Employment Opportunity (EEO) issues, discrimination 
issues, and promotion and pay issues before the employee 
receives his or her rating. So these predecisional safeguards--
and I didn't hear the DOD official mention those--are a concern 
for us. Mr. Chairman, this completes my prepared remarks and 
I'd be happy to entertain any questions you may have.
    Chairman Warner. Thank you. I think it would be important 
for the record if you just give us a short description of your 
career and association with the Federal workforce.
    Mr. Stewart. I have been an employee of the GAO since 1974, 
so I guess that's about 31 years now. I received my degree from 
Morgan State University, I also attended the National Defense 
University for a year and received a Master's degree there in 
National Military Strategy.
    I have had a host of positions within the GAO looking at a 
number of issues to include a 3-year assignment in what we call 
operations, where I actually had to deal with EEO complaints 
and helping to develop personnel policies.
    Unfortunately, I was actually part of the major reduction 
in force in the GAO from 1995 to 1997 where we had reduced the 
number of employees by 3,000 people, that was probably the most 
difficult thing that I have done in my life. So I have a little 
bit of experience with personnel issues and as an agency, we're 
very concerned about DOD's new personnel system because it has 
government-wide impact. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Stewart follows:]

                 Prepared Statement by Derek B. Stewart

    Chairman Warner and members of the committee: I appreciate the 
opportunity to be here today to provide our preliminary observations on 
the Department of Defense's (DOD) proposed National Security Personnel 
System (NSPS) regulations, which the Secretary of Defense and the 
acting Director of the Office of Personnel Management (OPM) jointly 
released for public comment on February 14, 2005.\1\ The National 
Defense Authorization Act for Fiscal Year 2004 \2\ gave DOD significant 
authorities to redesign the rules, regulations, and processes that 
govern the way that defense civilian employees are hired, compensated, 
promoted, and disciplined. The proposed regulations, which according to 
DOD will ultimately affect more than 700,000 defense civilian 
employees, are especially critical because of their implications for 
governmentwide reform.
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    \1\ National Security Personnel System, 70 Fed. Reg. 7552 (Feb. 14, 
2005).
    \2\ Pub. L. No. 108-136 Sec. 1101 (Nov. 24, 2003).
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    NSPS represents a huge undertaking for DOD, given its massive size 
and geographically and culturally diverse workforce. In addition, DOD's 
new human resources management system will have far-reaching 
implications for the management of the department and for civil service 
reform across the Federal Government. NSPS could, if designed and 
implemented properly, serve as a model for governmentwide 
transformation in human capital management. However, if not properly 
designed and implemented, NSPS could impede progress toward a more 
performance- and results-based system for the Federal Government as a 
whole.
    We raised several issues regarding DOD's civilian workforce in a 
recently released report on the fiscal challenges the Federal 
Government faces in the 21st century, including whether DOD is pursuing 
the design and implementation of NSPS in a manner that maximizes the 
chance of success.\3\ In recent testimony on DOD's business 
transformation efforts, we indicated that DOD is challenged in its 
efforts to effect fundamental business management reform, such as NSPS, 
and indicated that our ongoing work continues to raise questions about 
DOD's chances of success.\4\ There is general recognition that the 
government needs a framework to guide the kind of large-scale human 
capital reform occurring at DOD and the Department of Homeland Security 
(DHS), a framework that Congress and the administration can implement 
to enhance performance, ensure accountability, and position the Nation 
for the future. Implementing large-scale change management initiatives 
is a complex endeavor, and failure to address a wide variety of 
personnel and cultural issues, in particular, has been at the heart of 
unsuccessful organizational transformations. Strategic human capital 
management, which we continue to designate as a high-risk area 
governmentwide,\5\ can help agencies marshal, manage, and maintain the 
workforce they need to accomplish their missions.
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    \3\ GAO, 21st Century Challenges: Reexamining the Base of the 
Federal Government, GAO-05-325SP (Washington, DC: February 2005).
    \4\ GAO, Department of Defense: Further Actions Are Needed to 
Effectively Address Business Management Problems and Overcome Key 
Business Transformation Challenges, GAO-05-140T (Washington, DC: Nov. 
18, 2004).
    \5\ GAO, High-Risk Series: An Update, GAO-05-207 (Washington, DC: 
January 2005).
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                                SUMMARY

    Let me begin by summarizing three positive features and several 
areas of concern. The first positive feature is that the proposed 
regulations provide for many elements of a flexible and contemporary 
human resources management system--such as pay bands and pay for 
performance. The second positive feature is that the proposed 
regulations will allow DOD to rightsize its workforce when implementing 
reduction-in-force (RIF) orders. For example, DOD will be able to give 
greater priority to employee performance in RIF decisions and take more 
factors into consideration when defining the areas in which employees 
will compete for retention. The third positive feature is that DOD has 
pledged to engage in a continuing collaboration with employee 
representatives. On March 16, 2005, the 30-day public comment period on 
the proposed regulations ended. On March 28, 2005, DOD and OPM notified 
Congress that they are about to begin the meet and confer process with 
employee representatives who provided comments on the proposed 
regulations. (It should be noted that 10 Federal labor unions have 
filed suit alleging that DOD failed to abide by the statutory 
requirements to include employee representatives in the development of 
DOD's new labor relations system authorized as part of NSPS.)
    However, in addition to the litigation referenced above, our 
initial work indicates several areas of concern. First, DOD has 
considerable work ahead to define the details of the implementation of 
its system, including such issues as adequate safeguards to help ensure 
fairness and guard against abuse. Second, in setting performance 
expectations, the proposed regulations would allow the use of core 
competencies to communicate to employees what is expected of them on 
the job, but the proposed regulations do not require the use of these 
core competencies. Requiring such use can help provide consistency and 
clarity in performance management. Third, the proposed regulations do 
not identify a process for the continuing involvement of employees in 
the planning, development, and implementation of NSPS.
    GAO believes that DOD would benefit if it develops a comprehensive 
communications strategy that provides for ongoing, meaningful two-way 
communication that creates shared expectations among employees, 
employee representatives, managers, customers, and stakeholders. In 
addition, DOD should complete an implementation plan for NSPS, 
including an information technology plan and a training plan. Until DOD 
completes such a plan, the full extent of the resources needed to 
implement NSPS may not be well understood.
    DOD's proposed regulations are intended to provide a broad outline 
of its new human resources management system. While they are not, nor 
were they intended to be, a detailed presentation of how the new system 
will be implemented, the details of the proposed regulations do matter. 
Although we continue to review the DOD's extensive regulations, today I 
will provide some preliminary observations on selected provisions of 
the proposed regulations.

  PRELIMINARY OBSERVATIONS ON PROPOSED REGULATIONS FOR DOD'S NATIONAL 
                       SECURITY PERSONNEL SYSTEM

    DOD and OPM's proposed NSPS regulations would establish a new human 
resources management system within DOD that governs basic pay, 
staffing, classification, performance management, labor relations, 
adverse actions, and employee appeals. We believe that many of the 
basic principles underlying the proposed DOD regulations are generally 
consistent with proven approaches to strategic human capital 
management. Today, I will provide our preliminary observations on 
selected elements of the proposed regulations in the areas of pay and 
performance management, staffing and employment, workforce shaping, 
adverse actions and appeals, and labor-management relations.
Pay and Performance Management
    In January 2004, we released a report on pay for performance for 
selected OPM personnel demonstration projects that shows the variety of 
approaches taken in these projects to design and implement pay-for-
performance systems.\6\ Many of these personnel demonstration projects 
were conducted within DOD. The experiences of these demonstration 
projects provide insights into how some organizations in the Federal 
Government are implementing pay for performance, and thus can guide DOD 
as it develops and implements its own approach. These demonstration 
projects illustrate that understanding how to link pay to performance 
is very much a work in progress in the Federal Government and that 
additional work is needed to ensure that performance management systems 
are tools to help agencies manage on a day-to-day basis and achieve 
external results.
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    \6\ GAO, Human Capital: Implementing Pay for Performance at 
Selected Personnel Demonstration Projects, GAO-04-83 (Washington, DC: 
Jan. 23, 2004).
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    When DOD first proposed its new civilian personnel reform, we 
strongly supported the need to expand pay for performance in the 
Federal Government.\7\ Establishing a clear link between individual pay 
and performance is essential for maximizing performance and ensuring 
the accountability of the Federal Government to the American people. As 
we have stated before, how pay for performance is done, when it is 
done, and the basis on which it is done can make all the difference in 
whether such efforts are successful.\8\ DOD's proposed regulations 
reflect a growing understanding that the Federal Government needs to 
fundamentally rethink its current approach to pay and better link pay 
to individual and organizational performance. To this end, the DOD 
proposal takes another valuable step toward a modern performance 
management system as well as a market-based, results-oriented 
compensation system. My comments on specific provisions of pay and 
performance management follow.
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    \7\ GAO, Defense Transformation: Preliminary Observations on DOD's 
Proposed Civilian Personnel Reforms, GAO-03-717T (Washington, DC: Apr. 
29, 2003).
    \8\ GAO, Human Capital: Preliminary Observations on Proposed DHS 
Human Capital Regulations, GAO-04-479T (Washington, DC: Feb. 25, 2004).
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Aligning Individual Performance to Organizational Goals
    Under the proposed regulations, the DOD performance management 
system would, among other things, align individual performance 
expectations with the department's overall mission and strategic goals, 
organizational program and policy objectives, annual performance plans, 
and other measures of performance. However, the proposed regulations do 
not detail how to achieve such an alignment, which is a vital issue 
that will need to be addressed as DOD's efforts in designing and 
implementing a new personnel system move forward. Our work on public 
sector performance management efforts in the United States and abroad 
has underscored the importance of aligning daily operations and 
activities with organizational results.\9\ We have found that 
organizations often struggle with clearly understanding how what they 
do on a day-to-day basis contributes to overall organizational results, 
while high-performing organizations demonstrate their understanding of 
how the products and services they deliver contribute to results by 
aligning the performance expectations of top leadership with the 
organization's goals and then cascading those expectations to lower 
levels.
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    \9\ GAO-04-479T.
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    A performance management system is critical to successful 
organizational transformation. As an organization undergoing 
transformation, DOD can use its proposed performance management system 
as a vital tool for aligning the organization with desired results and 
creating a ``line of sight'' to show how team, unit, and individual 
performance can contribute to overall organizational results. To help 
Federal agencies transform their culture to be more results oriented, 
customer focused, and collaborative in nature, we have reported on how 
a performance management system that defines responsibility and ensures 
accountability for change can be key to a successful merger and 
transformation.\10\
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    \10\GAO, Results-Oriented Cultures: Implementation Steps to Assist 
Mergers and Organizational Transformations, GAO-03-669 (Washington, DC: 
July 2, 2003).
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Establishing Pay Bands
    Under the proposed regulations, DOD would create pay bands for most 
of its civilian workforce that would replace the 15-grade General 
Schedule (GS) system now in place for most civil service employees. 
Specifically, DOD (in coordination with OPM) would establish broad 
occupational career groups by grouping occupations and positions that 
are similar in type of work, mission, developmental or career paths, 
and competencies. Within career groups, DOD would establish pay bands. 
The proposed regulations do not provide details on the number of career 
groups or the number of pay bands per career group. The regulations 
also do not provide details on the criteria that DOD will use to 
promote individuals from one band to another. These important issues 
will need to be addressed as DOD moves forward. Pay banding and 
movement to broader occupational career groups can both facilitate 
DOD's movement to a pay-for-performance system and help DOD better 
define career groups, which in turn can improve the hiring process. In 
our prior work, we have reported that the current GS system, as defined 
in the Classification Act of 1949,\11\ is a key barrier to 
comprehensive human capital reform and that the creation of broader 
occupational job clusters and pay bands would aid other agencies as 
they seek to modernize their personnel systems.\12\ The standards and 
process of the current classification system are key problems in 
Federal hiring efforts because they are outdated and thus not 
applicable to today's occupations and work.
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    \11\ 5 U.S.C. Sec. Sec. 5101-5115.
    \12\ GAO, Human Capital: Opportunities to Improve Executive 
Agencies' Hiring Processes, GAO-03-450 (Washington, DC: May 30, 2003).
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    Under the proposed regulations, DOD could not reduce employees' 
basic rates of pay when converting to pay bands. In addition, the 
proposed regulations would allow DOD to establish a ``control point'' 
within a band that limits increases in the rate of basic pay and may 
require certain criteria to be met for increases above the control 
point.\13\ The use of control points to manage employees' progression 
through the bands can help to ensure that their performance coincides 
with their salaries and that only the highest performers move into the 
upper half of the pay band, thereby controlling salary costs. The OPM 
personnel demonstration projects at China Lake and the Naval Sea 
Systems Command Warfare Center's Dahlgren Division have incorporated 
checkpoints or ``speed bumps'' in their pay bands. For example, when an 
employee's salary at China Lake reaches the midpoint of the pay band, 
the employee must receive a performance rating that is equivalent to 
exceeding expectations before he or she can receive additional salary 
increases.
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    \13\ Because movement through the pay band is based on performance, 
employees could progress through the pay band more quickly than they 
could receive similar increases under the GS system. One method of 
preventing employees from eventually migrating to the top of the pay 
band, and thus increasing salary costs, is to establish control points 
within each band.
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Setting and Communicating Employee Performance Expectations
    Under the proposed regulations, DOD's performance management system 
would promote individual accountability by setting performance 
expectations and communicating them to employees, holding employees 
responsible for accomplishing them, and making supervisors and managers 
responsible for effectively managing the performance of employees under 
their supervision. While supervisors are supposed to involve employees, 
insofar as practicable, in setting performance expectations, the final 
decisions regarding performance expectations are within the sole and 
exclusive discretion of management.
    Under the proposed regulations, performance expectations may take 
several different forms. These include, among others, goals or 
objectives that set general or specific performance targets at the 
individual, team, or organizational level; a particular work 
assignment, including characteristics such as quality, quantity, 
accuracy, or timeliness; core competencies that an employee is expected 
to demonstrate on the job; or the contributions that an employee is 
expected to make. As DOD's human resources management system design 
efforts move forward, DOD will need to define, in more detail than is 
currently provided, how performance expectations will be set, including 
the degree to which DOD components, managers, and supervisors will have 
flexibility in setting those expectations.
    The range of expectations that DOD would consider in setting 
individual employee performance expectations are generally consistent 
with those used by high-performing organizations. DOD appropriately 
recognizes that given the vast diversity of work done in the 
department, managers and employees need flexibility in crafting 
specific expectations. However, the experiences of high-performing 
organizations suggest that DOD should require the use of core 
competencies as a central feature of its performance management 
effort.\14\ Based on our review of other agency efforts and our own 
experience at GAO, we have found that core competencies can help 
reinforce employee behaviors and actions that support the department's 
mission, goals, and values, and can provide a consistent message to 
employees about how they are expected to achieve results. By including 
such competencies as change management, cultural sensitivity, teamwork 
and collaboration, and information sharing, DOD would create a shared 
responsibility for organizational success and help ensure 
accountability for the transformation process.
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    \14\ GAO, Results-Oriented Cultures: Creating a Clear Linkage 
between Individual Performance and Organizational Success, GAO-03-488 
(Washington, DC: Mar. 14, 2003).
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Making Meaningful Distinctions in Employee Performance
    High-performing organizations seek to create pay, incentive, and 
reward systems that clearly link employee knowledge, skills, and 
contributions to organizational results. These organizations make 
meaningful distinctions between acceptable and outstanding performance 
of individuals and appropriately reward those who perform at the 
highest level. DOD's proposed regulations state that supervisors and 
managers would be held accountable for making meaningful distinctions 
among employees based on performance and contribution, fostering and 
rewarding excellent performance, and addressing poor performance.
    Under the proposed regulations, DOD is expected to have at least 
three rating levels for evaluating employee performance. We urge DOD to 
consider using at least four summary rating levels to allow for greater 
performance-rating and pay differentiation. This approach is in the 
spirit of the new governmentwide performance-based pay system for the 
Senior Executive Service (SES), which requires at least four rating 
levels to provide a clear and direct link between SES performance and 
pay as well as to make meaningful distinctions based on relative 
performance. Cascading this approach to other levels of employees can 
help DOD recognize and reward employee contributions and achieve the 
highest levels of individual performance.\15\
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    \15\ GAO, Human Capital: Observations on Final DHS Human Capital 
Regulations, GAO-05-391T (Washington, DC: Mar. 2, 2005).
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Providing Adequate Safeguards to Ensure Fairness and Guard Against 
        Abuse
    Although DOD's proposed regulations provide for some safeguards to 
ensure fairness and guard against abuse, additional safeguards should 
be developed. For example, as required by the authorizing legislation, 
the proposed regulations indicate that DOD's performance management 
system must comply with merit system principles and avoid prohibited 
personnel practices; provide a means for employee involvement in the 
design and implementation of the system; and, overall, be fair, 
credible, and transparent. However, the proposed regulations do not 
offer details on how DOD would: (1) promote consistency and provide 
general oversight of the performance management system to help ensure 
it is administered in a fair, credible, and transparent manner; and (2) 
incorporate predecisional internal safeguards that are implemented to 
help achieve consistency and equity, and ensure nondiscrimination and 
nonpoliticization of the performance management process. Last month, 
during testimony, we stated that additional flexibility should have 
adequate safeguards, including a reasonable degree of transparency with 
regard to the results of key decisions, whether it be pay, promotions, 
or other types of actions, while protecting personal privacy. We also 
suggested that there should be both informal and formal appeal 
mechanisms within and outside of the organization if individuals feel 
that there has been abuse or a violation of the policies, procedures, 
or protected rights of the individual. Internal mechanisms could 
include independent human capital office and office of opportunity and 
inclusiveness reviews that provide reasonable assurances that there 
would be consistency and nondiscrimination. Furthermore, it is of 
critical importance that the external appeal process be independent, 
efficient, effective, and credible.
    In April 2003, when commenting on DOD civilian personnel reforms, 
we testified that Congress should consider establishing statutory 
standards that an agency must have in place before it can implement a 
more performance-based pay program, and we developed an initial list of 
possible safeguards to help ensure that pay-for-performance systems in 
the government are fair, effective, and credible.\16\ For example, we 
have noted that agencies need to ensure reasonable transparency and 
provide appropriate accountability mechanisms in connection with the 
results of the performance management process.\17\ This can be done by 
publishing the overall results of performance management and individual 
pay decisions while protecting individual confidentiality and by 
reporting periodically on internal assessments and employee survey 
results relating to the performance management system. DOD needs to 
commit itself to publishing the results of performance management 
decisions. By publishing the results in a manner that protects 
individual confidentiality, DOD could provide employees with the 
information they need to better understand their performance and the 
performance management system. Several of the demonstration projects 
have been publishing information about performance appraisal and pay 
decisions, such as the average performance rating, the average pay 
increase, and the average award for the organization and for each 
individual unit, on internal Web sites for use by employees. As DOD's 
human resources management system design efforts move forward, DOD will 
need to define, in more detail than is currently provided, how it plans 
to review such matters as the establishment and implementation of the 
performance appraisal system--and, subsequently, performance rating 
decisions, pay determinations, and promotion actions--before these 
actions are finalized, to ensure they are merit based.
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    \16\ GAO-03-717T.
    \17\ GAO-04-479T.
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Staffing and Employment
    The authorizing legislation allows DOD to implement additional 
hiring flexibilities that would allow it to: (1) determine that there 
is a severe shortage of candidates or a critical hiring need; and (2) 
use direct-hire procedures for these positions. Under current law, OPM, 
rather than the agency, determines whether there is a severe shortage 
of candidates or a critical hiring need. DOD's authorizing legislation 
permits that DOD merely document the basis for the severe shortage or 
critical hiring need and then notify OPM of these direct-hire 
determinations. Direct-hire authority allows an agency to appoint 
people to positions without adherence to certain competitive 
examination requirements (such as applying veterans' preference or 
numerically rating and ranking candidates based on their experience, 
training, and education) when there is a severe shortage of qualified 
candidates or a critical hiring need. In the section containing DOD's 
proposed hiring flexibilities, the proposed regulations state that the 
department will adhere to veterans' preference principles as well as 
comply with merit principles and the title 5 provision dealing with 
prohibited personnel practices.
    While we strongly endorse providing agencies with additional tools 
and flexibilities to attract and retain needed talent, additional 
analysis may be needed to ensure that any new hiring authorities are 
consistent with a focus on the protection of employee rights, on merit 
principles--and on results. Hiring flexibilities alone will not enable 
Federal agencies to bring on board the personnel that are needed to 
accomplish their missions. Agencies must first conduct gap analyses of 
the critical skills and competencies needed in their workforces now and 
in the future, or they may not be able to effectively design strategies 
to hire, develop, and retain the best possible workforces.
Workforce Shaping
    The proposed regulations would allow DOD to reduce, realign, and 
reorganize the department's workforce through revised RIF procedures. 
For example, employees would be placed on a retention list in the 
following order: tenure group (i.e., permanent or temporary 
appointment), veterans' preference eligibility (disabled veterans will 
be given additional priority), level of performance, and length of 
service; under current regulations, length of service is considered 
ahead of performance. We have previously testified, prior to the 
enactment of NSPS, in support of revised RIF procedures that would 
require much greater consideration of an employee's performance.\18\ 
Although we support greater consideration of an employee's performance 
in RIF procedures, agencies must have modern, effective, and credible 
performance management systems in place to properly implement such 
authorities.
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    \18\ GAO-03-717T; GAO, Defense Transformation: DOD's Proposed 
Civilian Personnel System and Government-wide Human Capital Reform, 
GAO-03-741T (Washington, DC: May 1, 2003); and Human Capital: Building 
on DOD's Reform Effort to Foster Governmentwide Improvements, GAO-03-
851T (Washington, DC: June 4, 2003).
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    An agency's approach to workforce shaping should be oriented toward 
strategically reducing, realigning, and reorganizing the makeup of its 
workforce to ensure the orderly transfer of institutional knowledge and 
achieve mission results. DOD's proposed regulations include some 
changes that would allow the department to rightsize the workforce more 
carefully through greater precision in defining competitive areas, and 
by reducing the disruption associated with RIF orders as their impact 
ripples through an organization. For example, under the current 
regulations, the minimum RIF competitive area is broadly defined as an 
organization under separate administration in a local commuting area. 
Under the proposed regulations, DOD would be able to establish a 
minimum RIF competitive area on a more targeted basis, using one or 
more of the following factors: geographical location, line of business, 
product line, organizational unit, and funding line. The proposed 
regulations also provide DOD with the flexibility to develop additional 
competitive groupings on the basis of career group, occupational series 
or specialty, and pay band. At present, DOD can use competitive groups 
based on employees: (1) in the excepted and competitive service, (2) 
under different excepted service appointment authorities, (3) with 
different work schedules,\19\ (4) pay schedule, or (5) trainee status. 
These reforms could help DOD approach rightsizing more carefully; 
however, as I have stated, agencies first need to identify the critical 
skills and competencies needed in their workforce if they are to 
effectively implement their new human capital flexibilities.
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    \19\ For example, employees who work full time, part time, 
seasonally, or intermittently.
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Adverse Actions and Appeals
    As with DHS's final regulations,\20\ DOD's proposed regulations are 
intended to streamline the rules and procedures for taking adverse 
actions, while ensuring that employees receive due process and fair 
treatment. The proposed regulations establish a single process for both 
performance-based and conduct-based actions, and shorten the adverse 
action process by removing the requirement for a performance 
improvement plan. In addition, the proposed regulations streamline the 
appeals process at the Merit Systems Protection Board (MSPB) by 
shortening the time for filing and processing appeals.
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    \20\ Department of Homeland Security Human Resources Management 
System, 70 Fed. Reg. 5272 (Feb. 1, 2005).
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    Similar to DHS, DOD's proposed regulations also adopt a higher 
standard of proof for adverse actions in DOD, requiring the department 
to meet a ``preponderance of the evidence'' standard in place of the 
current ``substantial evidence'' standard. For performance issues, 
while this higher standard of evidence means that DOD would face a 
greater burden of proof than most agencies to pursue these actions, DOD 
managers are not required to provide employees with performance 
improvement periods, as is the case for other Federal employees. For 
conduct issues, DOD would face the same burden of proof as most 
agencies.
    DOD's proposed regulations generally preserve the employee's basic 
right to appeal decisions to an independent body--the MSPB. However, in 
contrast to DHS's final regulations, DOD's proposed regulations permit 
an internal DOD review of the initial decisions issued by MSPB 
adjudicating officials. Under this internal review, DOD can modify or 
reverse an initial decision or remand the matter back to the 
adjudicating official for further consideration. Unlike other criteria 
for review of initial decisions, DOD can modify or reverse an initial 
MSPB adjudicating official's decision where the department determines 
that the decision has a direct and substantial adverse impact on the 
department's national security mission.\21\ According to DOD, the 
department needs the authority to review initial MSPB decisions and 
correct such decisions as appropriate, to ensure that the MSPB 
interprets NSPS and the proposed regulations in a way that recognizes 
the critical mission of the department and to ensure that MSPB gives 
proper deference to such interpretation. However, the proposed 
regulations do not offer additional details on the department's 
internal review process, such as how the review will be conducted and 
who will conduct them. An internal agency review process this important 
should be addressed in the regulations rather than in an implementing 
directive to ensure adequate transparency and employee confidence in 
the process.
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    \21\ Any final DOD decision under this review process may be 
further appealed to the full MSPB. Further, the Secretary of Defense or 
an employee adversely affected by a final order or decision of the full 
MSPB may seek judicial review.
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    Similar to DHS's final regulations, DOD's proposed regulations 
would shorten the notification period before an adverse action can 
become effective and provide an accelerated MSPB adjudication process. 
In addition, MSPB would no longer be able to modify a penalty for an 
adverse action that is imposed on an employee by DOD unless such 
penalty is so disproportionate to the basis of the action as to be 
``wholly without justification.'' In other words, MSPB has less 
latitude to modify agency-imposed penalties than under current 
practice. The DOD proposed regulations also stipulate that MSPB could 
no longer require that parties enter into settlement discussions, 
although either party may propose doing so. DOD, like DHS, expressed 
concerns that settlement should be a completely voluntary decision made 
by parties on their own initiative. However, settling cases has been an 
important tool in the past at MSPB, and promotion of settlement at this 
stage should be encouraged.
    Similar to DHS's final regulations, DOD's proposed regulations 
would permit the Secretary of Defense to identify specific offenses for 
which removal is mandatory. Employees alleged to have committed these 
offenses may receive a written notice only after the Secretary of 
Defense's review and approval. These employees will have the same right 
to a review by an MSPB adjudicating official as is provided to other 
employees against whom appealable adverse actions are taken. DOD's 
proposed regulations only indicate that its employees will be made 
aware of the mandatory removal offenses. In contrast, the final DHS 
regulations explicitly provide for publishing a list of the mandatory 
removal offenses in the Federal Register. We believe that the process 
for determining and communicating which types of offenses require 
mandatory removal should be explicit and transparent and involve 
relevant congressional stakeholders, employees, and employee 
representatives. Moreover, we suggest that DOD exercise caution when 
identifying specific removable offenses and the specific punishment. 
When developing these proposed regulations, DOD should learn from the 
experience of the Internal Revenue Service's (IRS) implementation of 
its mandatory removal provisions.\22\ (IRS employees feared that they 
would be falsely accused by taxpayers and investigated, and had little 
confidence that they would not be disciplined for making an honest 
mistake.) We reported that IRS officials believed this provision had a 
negative impact on employee morale and effectiveness and had a 
``chilling'' effect on IRS frontline enforcement employees, who were 
afraid to take certain appropriate enforcement actions.\23\ Careful 
drafting of each removable offense is critical to ensure that the 
provision does not have unintended consequences.
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    \22\ Section 1203 of the IRS Restructuring and Reform Act of 1998 
outlines conditions for firing of IRS employees for any of 10 actions 
of misconduct.
    \23\ GAO, Tax Administration: IRS and TIGTA Should Evaluate Their 
Processes of Employee Misconduct Under Section 1203, GAO-03-394 
(Washington, DC: Feb. 14, 2003).
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    DOD's proposed regulations also would encourage the use of 
alternative dispute resolution and provide that this approach be 
subject to collective bargaining to the extent permitted by the 
proposed labor relations regulations. To resolve disputes in a more 
efficient, timely, and less adversarial manner, Federal agencies have 
been expanding their human capital programs to include alternative 
dispute resolution approaches. These approaches include mediation, 
dispute resolution boards, and ombudsmen. Ombudsmen typically are used 
to provide an informal alternative to addressing conflicts. We 
previously reported on common approaches used in ombudsmen offices, 
including (1) broad responsibility and authority to address almost any 
workplace issue, (2) their ability to bring systemic issues to 
management's attention, and (3) the manner in which they work with 
other agency offices in providing assistance to employees.\24\
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    \24\ GAO-01-479T.
    Labor-Management Relations
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    The DOD proposed regulations recognize the right of employees to 
organize and bargain collectively.\25\ However, similar to DHS's final 
regulations, the proposed regulations would reduce the scope of 
bargaining by (1) removing the requirement to bargain on matters 
traditionally referred to as ``impact and implementation'' (which 
include the processes used to deploy personnel, assign work, and use 
technology) and (2) narrowing the scope of issues subject to collective 
bargaining. A National Security Labor Relations Board would be created 
that would largely replace the Federal Labor Relations Authority. The 
proposed board would have at least three members selected by the 
Secretary of Defense, with one member selected from a list developed in 
consultation with the Director of OPM. The proposed board would be 
similar to the internal Homeland Security Labor Relations Board 
established by the DHS final regulations, except that the Secretary of 
Defense would not be required to consult with the employee 
representatives in selecting its members. The proposed board would be 
responsible for resolving matters related to negotiation disputes, to 
include the scope of bargaining and the obligation to bargain in good 
faith, resolving impasses, and questions regarding national 
consultation rights.
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    \25\ Under current law, the rights of employees to bargain may be 
suspended for reasons of national security. See title 5 U.S.C. 
Sec. Sec. 7103(b) and 7112(b)(6).
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    Under the proposed regulations, the Secretary of Defense is 
authorized to appoint and remove individuals who serve on the board. 
Similar to DHS's final regulations establishing the Homeland Security 
Labor Relations Board, DOD's proposed regulations provide for board 
member qualification requirements, which emphasize integrity and 
impartiality. DOD's proposed regulations, however, do not provide an 
avenue for any employee representative input into the appointment of 
board members. DHS regulations do so by requiring that for the 
appointment of two board members, the Secretary of Homeland Security 
must consider candidates submitted by labor organizations. Employee 
perception concerning the independence of this board is critical to the 
resolution of issues raised over labor relations policies and disputes.
    Our previous work on individual agencies' human capital systems has 
not directly addressed the scope of specific issues that should or 
should not be subject to collective bargaining and negotiations. At a 
forum we co-hosted in April 2004 exploring the concept of a 
governmentwide framework for human capital reform, participants 
generally agreed that the ability to organize, bargain collectively, 
and participate in labor organizations is an important principle to be 
retained in any framework for reform. It also was suggested at the 
forum that unions must be both willing and able to actively collaborate 
and coordinate with management if unions are to be effective 
representatives of their members and real participants in any human 
capital reform.

              DOD FACES MULTIPLE IMPLEMENTATION CHALLENGES

    Once DOD issues its final regulations for its human resources 
management system, the department will face multiple implementation 
challenges that include establishing an overall communications 
strategy, providing adequate resources for the implementation of the 
new system, involving employees in designing the system, and evaluating 
DOD's new human resources management system after it has been 
implemented. For information on related human capital issues that could 
potentially affect the implementation of NSPS, see the ``Highlights'' 
pages from previous GAO products on DOD civilian personnel issues in 
appendix I.
Establishing an Overall Communications Strategy
    A significant challenge for DOD is to ensure an effective and 
ongoing two-way communications strategy, given its size, geographically 
and culturally diverse audiences, and different command structures 
across DOD organizations. We have reported that a communications 
strategy that creates shared expectations about, and reports related 
progress on, the implementation of the new system is a key practice of 
a change management initiative.\26\ This communications strategy must 
involve a number of key players, including the Secretary of Defense, 
and a variety of communication means and mediums. DOD acknowledges that 
a comprehensive outreach and communications strategy is essential for 
designing and implementing its new human resources management system, 
but the proposed regulations do not identify a process for the 
continuing involvement of employees in the planning, development, and 
implementation of NSPS.
---------------------------------------------------------------------------
    \26\ GAO-03-669.
---------------------------------------------------------------------------
    Because the NSPS design process and proposed regulations have 
received considerable attention,\27\ we believe one of the most 
relevant implementation steps is for DOD to enhance two-way 
communication between employees, employee representatives, and 
management. Communication is not only about ``pushing the message 
out,'' but also using two-way communication to build effective internal 
and external partnerships that are vital to the success of any 
organization. By providing employees with opportunities to communicate 
concerns and experiences about any change management initiative, 
management allows employees to feel that their input is acknowledged 
and important. As it makes plans for implementing NSPS, DOD should 
facilitate a two-way honest exchange with, and allow for feedback from, 
employees and other stakeholders. Once it receives this feedback, 
management needs to consider and use this solicited employee feedback 
to make any appropriate changes to its implementation. In addition, 
management needs to close the loop by providing employees with 
information on why key recommendations were not adopted.
---------------------------------------------------------------------------
    \27\ DOD's efforts to date to involve labor unions have not been 
without controversy. Ten Federal labor unions have filed suit alleging 
that DOD failed to abide by the statutory requirements to include 
employee representatives in the development of DOD's new labor 
relations system authorized as part of NSPS. See American Federation of 
Government Employees, AFL-CIO et al v. Rumsfeld et al, No. 1:05cv00367 
(D.D.C. filed Feb. 23, 2005).
---------------------------------------------------------------------------
Providing Adequate Resources for Implementing the New System
    Experience has shown that additional resources are necessary to 
ensure sufficient planning, implementation, training, and evaluation 
for human capital reform. According to DOD, the implementation of NSPS 
will result in costs for, among other things, developing and delivering 
training, modifying automated human resources information systems, and 
starting up and sustaining the National Security Labor Relations Board. 
We have found that, based on the data provided by selected OPM 
personnel demonstration projects, the major cost drivers in 
implementing pay-for-performance systems are the direct costs 
associated with salaries and training.
    DOD estimates that the overall cost associated with implementing 
NSPS will be approximately $158 million through fiscal year 2008. 
According to DOD, it has not completed an implementation plan for NSPS, 
including an information technology plan and a training plan; thus, the 
full extent of the resources needed to implement NSPS may not be well 
understood at this time. According to OPM, the increased costs of 
implementing alternative personnel systems should be acknowledged and 
budgeted up front.\28\ Certain costs, such as those for initial 
training on the new system, are onetime in nature and should not be 
built into the base of DOD's budget. Other costs, such as employees' 
salaries, are recurring and thus would be built into the base of DOD's 
budget for future years. Therefore, funding for NSPS will warrant close 
scrutiny by Congress as DOD's implementation plan evolves.
---------------------------------------------------------------------------
    \28\ OPM, Demonstration Projects and Alternative Personnel Systems: 
HR Flexibilities and Lessons Learned (Washington, DC: September 2001).
---------------------------------------------------------------------------
Involving Employees and Other Stakeholders in Implementing the System
    The proposed regulations do not identify a process for the 
continuing involvement of employees in the planning, development, and 
implementation of NSPS. However, DOD's proposed regulations do provide 
for continuing collaboration with employee representatives. According 
to DOD, almost two-thirds of its 700,000 civilian employees are 
represented by 41 different labor unions, including over 1,500 separate 
bargaining units. In contrast, according to OPM, just under one-third 
of DHS's 110,000 Federal employees are represented by 16 different 
labor unions, including 75 separate bargaining units. Similar to DHS's 
final regulations, DOD's proposed regulations about the collaboration 
process, among other things, would permit the Secretary of Defense to 
determine (1) the number of employee representatives allowed to engage 
in the collaboration process, and (2) the extent to which employee 
representatives are given an opportunity to discuss their views with 
and submit written comments to DOD officials. In addition, DOD's 
proposed regulations indicate that nothing in the continuing 
collaboration process will affect the right of the Secretary of Defense 
to determine the content of implementing guidance and to make this 
guidance effective at any time. DOD's proposed regulations also will 
give designated employee representatives an opportunity to be briefed 
and to comment on the design and results of the new system's 
implementation. DHS's final regulations, however, provide for more 
extensive involvement of employee representatives. For example, DHS's 
final regulations provide for the involvement of employee 
representatives in identifying the scope, objectives, and methodology 
to be used in evaluating the new DHS system.
    The active involvement of employees and employee representatives 
will be critical to the success of NSPS. We have reported that the 
involvement of employees and employee representatives both directly and 
indirectly is crucial to the success of new initiatives, including 
implementing a pay-for-performance system. High-performing 
organizations have found that actively involving employees and 
stakeholders, such as unions or other employee associations, when 
developing results-oriented performance management systems helps 
improve employees' confidence and belief in the fairness of the system 
and increases their understanding and ownership of organizational goals 
and objectives. This involvement must be early, active, and continuing 
if employees are to gain a sense of understanding and ownership of the 
changes that are being made. The 30-day public comment period on the 
proposed regulations ended March 16, 2005. DOD and OPM notified 
Congress that they are preparing to begin the meet and confer process 
with employee representatives who provided comments on the proposed 
regulations. Last month, during testimony, we stated that DOD is at the 
beginning of a long road, and the meet and confer process has to be 
meaningful and is critically important because there are many details 
of the proposed regulations that have not been defined. These details 
do matter, and how they are defined can have a direct bearing on 
whether or not the ultimate new human resources management system is 
both reasoned and reasonable.
Evaluating DOD's New Human Resources Management System
    Evaluating the impact of NSPS will be an ongoing challenge for DOD. 
This is especially important because DOD's proposed regulations would 
give managers more authority and responsibility for managing the new 
human resources management system. High-performing organizations 
continually review and revise their human capital management systems 
based on data-driven lessons learned and changing needs in the work 
environment. Collecting and analyzing data will be the fundamental 
building block for measuring the effectiveness of these approaches in 
support of the mission and goals of the department.
    DOD's proposed regulations indicate that DOD will establish 
procedures for evaluating the regulations and their implementation. We 
believe that DOD should consider conducting evaluations that are 
broadly modeled on the evaluation requirements of the OPM demonstration 
projects. Under the demonstration project authority, agencies must 
evaluate and periodically report on results, implementation of the 
demonstration project, cost and benefits, impacts on veterans and other 
equal employment opportunity groups, adherence to merit system 
principles, and the extent to which the lessons from the project can be 
applied governmentwide. A set of balanced measures addressing a range 
of results, and customer, employee, and external partner issues may 
also prove beneficial. An evaluation such as this would facilitate 
congressional oversight; allow for any midcourse corrections; assist 
DOD in benchmarking its progress with other efforts; and provide for 
documenting best practices and sharing lessons learned with employees, 
stakeholders, other Federal agencies, and the public.
    We have work underway to assess DOD's efforts to design its new 
human resources management system, including further details on some of 
the significant challenges, and we expect to issue a report on the 
results of our work sometime this summer.

                        CONCLUDING OBSERVATIONS

    As we testified previously on the DOD and DHS civilian personnel 
reforms, an agency should have to demonstrate that it has a modern, 
effective, credible, and, as appropriate, validated performance 
management system in place with adequate safeguards, including 
reasonable transparency and appropriate accountability mechanisms, to 
ensure fairness and prevent politicization of the system and abuse of 
employees before any related flexibilities are operationalized. DOD's 
proposed NSPS regulations take a valuable step toward a modern 
performance management system as well as a more market-based, results-
oriented compensation system. DOD's proposed performance management 
system is intended to align individual performance and pay with the 
department's critical mission requirements; hold employees responsible 
for accomplishing performance expectations; and provide meaningful 
distinctions in performance. However, the experiences of high-
performing organizations suggest that DOD should require core 
competencies in its performance management system. The core 
competencies can serve to reinforce employee behaviors and actions that 
support the DOD mission, goals, and values and to set expectations for 
individuals' roles in DOD's transformation, creating a shared 
responsibility for organizational success and ensuring accountability 
for change.
    DOD's overall effort to design and implement a strategic human 
resources management system--along with the similar effort of DHS--can 
be particularly instructive for future human capital management, 
reorganization, and transformation efforts in other Federal agencies.
    Mr. Chairman and members of the committee, this concludes my 
prepared statement. I would be pleased to respond to any questions that 
you may have at this time.

                      CONTACTS AND ACKNOWLEDGMENTS

    For further information, please contact Derek B. Stewart, Director, 
Defense Capabilities and Management, at (202) 512-5559 or 
[email protected]. For further information on governmentwide human 
capital issues, please contact Eileen R. Larence, Director, Strategic 
Issues, at (202) 512-6512 or [email protected]. Major contributors to 
this testimony include Sandra F. Bell, Renee S. Brown, K. Scott 
Derrick, William J. Doherty, Clifton G. Douglas, Jr., Barbara L. Joyce, 
Julia C. Matta, Mark A. Pross, William J. Rigazio, John S. Townes, and 
Susan K. Woodward.

    Chairman Warner. I thank you very much for your appearance 
today and for your representation of your constituency, as we 
say in Congress. Mr. Gage, a little bit about your 
distinguished career in Federal service?
    Mr. Gage. I was a Social Security worker and disability 
examiner, in fact, I came into the government as a disability 
examiner. I got involved in the union as the editor of a 
newspaper and became local president for 22 years of American 
Federation of Government Employees' (AFGE) largest local, and 
did a lot of contracts, especially on the performance 
management side in VA and Social Security. Even one with Mrs. 
Lacey in the Navy, so--and I was elected national president of 
AFGE just about 2 years ago.
    Chairman Warner. Thank you. We are happy to receive your 
comments at this time.

STATEMENT OF JOHN GAGE, NATIONAL PRESIDENT, AMERICAN FEDERATION 
                    OF GOVERNMENT EMPLOYEES

    Mr. Gage. Mr. Chairman, thank you very much for having me 
here. I'm representing AFGE and also the United DOD Workers 
Coalition, which represents 36 unions covering 600,000 workers 
in the Department. Again, I'm very happy to be able to share 
our views on the NSPS.
    We have numerous concerns with the draft regulations which 
are cited in both my written statement as well as the comments 
submitted by the coalition. But, the following concerns are 
those that we see as most serious needing correction.
    First, DOD has proposed radically reducing the scope of 
collective bargaining. The proposal effectively eliminates 
collective bargaining by greatly expanding the management 
rights clause as compared to current law, thereby rendering 
what was previously negotiable issues to be off the table. Such 
issues include procedures and arrangements for overtime, shift 
rotation, flexible and compressed work schedules, safety and 
health programs, and deployment away from regular worksite.
    In addition, DOD will be able to unilaterally override 
provisions of collective bargaining simply by sending out 
issuances. The scope of bargaining must be restored so that 
meaningful employee participation can continue to exist in DOD. 
The proposed regulations do not follow the authorizing legal 
mandates to safeguard collective bargaining rights to DOD 
employees.
    When the legislation authorizing NSPS was under 
consideration, Secretary Rumsfeld assured Congress that his 
only intent with regard to collective bargaining was to 
establish national level bargaining over most issues. We can 
live with that. We can make that work. But we can't live with 
the NSPS draft because it reduces the scope of bargaining to 
virtually nothing, far beyond any real or imagined national 
security concerns.
    Second, the board that hears labor management disputes 
arising from NSPS must be independent of DOD management. In the 
proposed regulations, DOD would establish an internal board 
made up entirely of individuals appointed by the Secretary. 
This board would be paid by and beholden to DOD management. It 
would have no attendance or credibility with the workforce.
    Secretary Rumsfeld again promised Congress prior to the 
enactment of the law authorizing NSPS that any board 
established to hear labor management disputes would be 
independent. First, there is no good reason for DOD to have an 
internal labor board which duplicates the functions and costs 
of the Federal Labor Relations Authority. But if it must exist, 
then as a safeguard, it must be entirely separate and distinct 
from DOD management.
    Third, and one that particularly rankles me, is the 
standard for mitigation in discipline and adverse action cases 
under NSPS in the proposed regulation is virtually impossible 
to meet, and effectively removes the possibility of litigation.
    DOD must change the standard from wholly without 
justification to the court-imposed standard established years 
ago of unreasonable. Employees must have meaningful due 
process, and we have to restore a reasonable standard for 
mitigation to safeguard against arbitrary and capricious 
actions. DOD must really just stop the game of playing with 
these long-established legally recognized standards.
    Further in contrast to current law, the proposed NSPS adds 
additional bureaucratic delay by declaring that adverse action 
and arbitrations will no longer be final and binding. Instead, 
they will have to be reviewed by the MSPB, thereby reducing the 
authority of arbitrators. This is entirely unsupportable and 
contrary to congressional intent. It again weakens an important 
safeguard for employees.
    Fourth, under the NSPS, employee performance appraisals 
will be a crucial determinant to salary, salary adjustment and 
job security. Yet under the proposed regulations, there is no 
requirement for management to present written standards against 
which performance will be measured.
    In addition, employees are denied the right available to 
all current Federal employees, including those under the new 
Homeland Security personnel system, to use a negotiated 
grievance and arbitration system to present evidence to an 
impartial body as a critical safeguard for fairness and 
transparency.
    Fifth, the proposed pay regulations open the door for a 
general reduction in salaries for DOD as a whole compared to 
rates they would have been paid under current statutory 
systems. An ability to reduce entry level salaries in addition 
to an ability to refuse annual adjustments of salaries for 
those who perform satisfactorily as permitted in the draft 
regulations will by definition conspire to reduce DOD salaries.
    Strong and unambiguous safeguards must be in place to 
prevent lowering of pay for the DOD civilian workforce. There 
must be constraints on the ability of DOD to lower salaries or 
withhold salary adjustments across the board. These safeguards 
must be established not only to protect the living standards of 
the civilian DOD workforce relative to the rest of the Federal 
workforce, but also to guarantee the ongoing economic vitality 
of communities with DOD installations.
    Finally, procedures for deciding who will be affected by 
reduction in force must be based on more than a worker's most 
recent performance appraisal. Incredibly, the proposed NSPS 
regulation will allow an employee with 1 year of service and an 
outstanding rate to have superior retention rights to an 
employee with 10 years of outstanding appraisals and 1 year of 
having being rated merely above average. Such rules are 
patently unfair and must not be allowed to stand.
    In conclusion, Mr. Chairman, it cannot be emphasized 
strongly enough that the approach DOD has taken thus far 
exhibited by the above examples has been profoundly 
demoralizing for its civilian workforce. These dedicated and 
patriotic Americans are extremely unsettled by the harsh 
prospects set forth in the proposed regulations, because they 
are not fooled by words like modern, flexible, and market-
based.
    Instead, they see fundamental rights stripped away and a 
pay system leading to lower overall DOD pay. We strongly urge 
the Committee to take action either legislatively or through 
oversight to require DOD to correct the many problems with the 
draft regulations and provide the safeguards I've mentioned. 
Unless substantial changes are made to the regulations, the 
NSPS will become a recruitment and retention problem rather 
than a solution that will deflect the agency from its important 
mission for years. Thank you, Mr. Chairman. I'd be happy to 
answer any questions.
    [The prepared statement of Mr. Gage follows:]

                    Prepared Statement by John Gage

    Mr. Chairman and members of the committee: My name is John Gage, 
and I am the National President of the American Federation of 
Government Employees, AFL-CIO (AFGE). On behalf of the more than 
200,000 civilian employees of the Department of Defense (DOD) 
represented by AFGE, I thank you for the opportunity to testify today. 
I am also pleased to appear on behalf of the 700,000 employees 
represented by the 36 unions of the United DOD Workers Coalition.
    AFGE has numerous serious concerns with the draft regulations that 
DOD published on February 14 to create the National Security Personnel 
System (NSPS). The comments that AFGE submitted during the public 
comment period that ended in March, through our participation in the 
United DOD Workers Coalition, are attached to this statement for your 
review. They contain our detailed critique of the Department's 
proposals with regard to collective bargaining, employee appeals of 
adverse actions, and the establishment of a pay for performance system 
to replace existing statutory pay systems.
    Today I will focus my statement on some of the most urgent 
practical issues related to the proposed DOD regulations that demand 
immediate attention. Although our union strongly opposes the 
replacement of objective, statutory pay systems with inherently 
subjective and nominally performance-based pay systems, the revocation 
of employee appeal rights, and the evisceration of collective 
bargaining; my purpose here is to spell out what we and others who have 
closely followed DOD's efforts on NSPS believe needs to be done to 
avoid a disaster that will have enormous financial and national 
security ramifications.
    It is important to recall the stated objectives of the NSPS as well 
as the language of the law that established the Defense Secretary's 
authority to create it. On June 4, 2003, Defense Secretary Donald 
Rumsfeld testified before the Senate Governmental Affairs Committee 
regarding the NSPS. In that testimony, he claimed that NSPS was 
necessary ``so our country will be better prepared to deal with the 
emerging 21st century threats'' and promised Congress that ``here is 
what the National Security Personal System will not do, contrary to 
what you may have read: . . . It will not end collective bargaining. To 
the contrary, the right of Defense employees to bargain collectively 
would be continued. What it would do is to bring collective bargaining 
to the national level, so that the Department could negotiate with 
national unions instead of dealing with more than 1,300 different union 
locals--a process that is grossly inefficient.'' (Emphasis in 
original).
    But Secretary Rumsfeld's promises have not been kept. Nothing in 
the proposed NSPS regulations is perceptibly connected to ``21st 
century threats.'' His Department has issued draft regulations that do 
effectively end collective bargaining by prohibiting bargaining on 
almost all previously negotiable issues, and granting the agency the 
authority to unilaterally void any and all provisions of collective 
bargaining agreements via the issuance of internal regulations and 
issuances. That is only one aspect of the NSPS that is wholly 
insupportable to DOD's workforce. Furthermore, regarding his claimed 
urgency national level bargaining: National level bargaining became 
effective upon the passage of the act in 2003. In spite of this fact, 
the Secretary has not yet invoked national level bargaining even once.
    At this stage, the goal of NSPS should be the development of a 
system that both adheres to the law and can be successfully 
implemented. In spite of the fact that DOD's proposed regulations are 
so extreme and so punitive, we remain hopeful that DOD will reconsider 
its approach in the context of a realization that the nuts and bolts of 
implementation require more sober calculations than those exhibited in 
the draft regulations.
    It cannot be emphasized strongly enough that the approach DOD has 
taken thus far has been profoundly demoralizing for its civilian 
workforce. This dedicated and patriotic workforce is extremely 
unsettled by both the inaccurate information conveyed by the Secretary, 
and by the harsh prospects set forth in the proposed NSPS regulations. 
This state of affairs is neither desirable nor inevitable. But 
alleviating it is in DOD's hands.
    It is not too late for DOD to decide to work with its unionized 
employees, rather than against us, so that the implementation of a new 
system and its procedures is smooth, and conducive to high morale and 
continued focus on the Department's national security mission.

                       SIX ``FLASHPOINT'' ISSUES

    To that end, I have highlighted six ``flashpoint'' issues that 
constitute only the most egregious examples of areas where the draft 
regulations for NSPS have deviated from both the law and the stated 
objectives of Secretary Rumsfeld when he testified in 2003 that NSPS 
would be merely a source of freedom from the ``bureaucratic processes 
of the industrial age'' to meet the ``security challenges of the 21st 
century.''

          1. DOD has proposed radically reducing the scope of 
        collective bargaining in the proposed regulations. The scope of 
        bargaining must be restored so that the very institution of 
        collective bargaining can continue to exist in DOD. In fact, 
        the proposed NSPS effectively eliminates collective bargaining 
        by greatly expanding the management rights clause as compared 
        to current law, thereby rendering most previously negotiable 
        issues to be ``off the table.'' When the legislation 
        authorizing NSPS was under consideration by Congress, Defense 
        Secretary Rumsfeld assured Congress that his only intent with 
        regard to collective bargaining was to establish national-level 
        bargaining over most issues. The proposed regulations do not 
        follow the law with respect to its instructions to maintain 
        collective bargaining rights for affected DOD employees. In 
        addition, DOD must not be permitted to unilaterally override 
        provisions of collective bargaining agreements by issuing 
        either component-wide or Department-wide ``issuances.'' This 
        makes a mockery of collective bargaining and the resulting 
        agreements.
          2. The board that hears labor-management disputes arising 
        from NSPS must be independent of DOD management. In the 
        proposed NSPS regulations, DOD would establish an internal 
        board made up entirely of individuals appointed by the 
        Secretary. Such a board would have no independence or 
        credibility, and would therefore fail to meet the standards set 
        forth by the Comptroller General for transparency, fairness, 
        and credibility. In addition, Secretary Rumsfeld promised 
        Congress prior to the enactment of the law authorizing the 
        establishment of NSPS that any board established to hear 
        disputes arising from NSPS would be independent. Although there 
        is no rationale for DOD to have an internal labor board which 
        duplicates the functions and costs of the Federal Labor 
        Relations Authority; if it must exist, it is absolutely 
        critical that it be entirely separate and distinct from DOD 
        management.
          3. The standard for mitigation by the Merit Systems 
        Protection Board (MSPB) of discipline and penalties imposed on 
        employees under NSPS in the proposed regulations is virtually 
        impossible to meet and effectively removes the possibility of 
        mitigation. DOD must change the standard from ``wholly 
        unjustified'' to ``unreasonable,'' the court imposed standard 
        established over 25 years ago, in order for employees to have a 
        meaningful right to have adverse actions mitigated by the MSPB. 
        Further and in contrast to current law, the proposed NSPS adds 
        additional bureaucratic delay by declaring that adverse action 
        arbitrations will no longer be final and binding. Instead, they 
        will have to be reviewed by the MSPB, thereby reducing the rule 
        and power of arbitrators, which is entirely insupportable and 
        contrary to congressional intent. Since DOD wins close to 90 
        percent of its current MSPB cases, there is simply no 
        justification for eliminating a fair adjudicative process for 
        employee appeals.
          4. Performance appraisals will be the crucial determinant of 
        salary, salary adjustment, and job security under NSPS. Yet 
        under the proposed regulations, not only is there no 
        requirement for management to present written standards against 
        which performance will be measured, but employees are also 
        denied the right, available to all current Federal employees, 
        including those under the new Homeland Security Personnel 
        System, to use a negotiated grievance and arbitration system to 
        present evidence to an impartial body that their performance 
        appraisals are inaccurate. These inequities must be rectified 
        in order for NSPS to meet the principle affirmed by Congress, 
        the Comptroller General, and several experts that the 
        performance management systems that underlie ``performance-
        based'' personnel systems be ``transparent,'' ``accountable,'' 
        and perceived as fair and credible by employees.
          5. Strong and unambiguous safeguards must be in place to 
        prevent a general lowering of pay for the DOD civilian 
        workforce. The proposed regulations permit a general reduction 
        in salaries for all DOD personnel compared to rates they would 
        have been paid under statutory systems. An ability to reduce 
        entry level salaries, in addition to an ability to refuse 
        annual adjustment of salaries for those who perform 
        satisfactorily, as permitted in the draft regulations, will by 
        definition conspire to reduce DOD salaries generally. 
        Consequently, there must be constraints on the ability of DOD 
        to lower salaries or withhold salary adjustments generally. 
        These safeguards must be established not only to protect the 
        living standards of the civilian DOD workforce relative to the 
        rest of the Federal workforce, but also to guarantee the 
        ongoing economic vitality of communities with DOD 
        installations.
          6. Procedures for deciding who will be affected by a 
        Reduction in Force (RIF) must be based on more than a worker's 
        most recent performance appraisal. The proposed NSPS regulation 
        would allow an employee with 1 year of service and an 
        outstanding rating to have superior retention rights to an 
        employee with 30 years of outstanding appraisals and 1 year of 
        having been rated merely ``above average.'' Such RIF rules are 
        patently unfair and must not be allowed to stand.

            SALARY DETERMINATION AND PERFORMANCE MANAGEMENT

Pay and Classification
    DOD's proposed regulations indicate its desire for radical change 
to pay and classification systems, and, as the law requires, creation 
of a pay-for-performance system ``to better link individual pay to 
performance, and provide an equitable method for appraising and 
compensating employees.'' No objective data or reliable information 
exists to show that such a system will enhance the efficiency of DOD 
operations or promote national security and defense. As with the 
proposed system at the Department of Homeland Security, most of the key 
components of the system have yet to be determined.
    One thing, however, is clear. The design, creation and 
administration of the concept DOD has proposed will be complex and 
costly. A new level of bureaucracy would have to be created, and given 
DOD's ideology and proclivities, it is highly likely that this costly 
new bureaucracy would be outsourced to provide some lucky private 
consultants with large and lucrative contracts. This private consultant 
would then make the myriad, and yet-to-be identified, pay-related 
decisions that the new system would require. Although the contractors 
who anticipate obtaining this new ``make-work'' project are undoubtedly 
salivating over the prospect, our country would be better served if the 
resources associated with implementing and administering these 
regulations were dedicated more directly to protecting national 
security and defense.
    The unions told DOD during our meetings last year that until these 
and other important details of the new system have been determined and 
piloted, the undefined changes cannot be evaluated in any meaningful 
way. Unfortunately, we are now forced to exercise our statutory 
collaboration rights on vague outlines, with no fair opportunity to 
consult on the ``real'' features of the new classifications, pay and 
performance system. This circumvents the congressional intent for union 
involvement in the development of any new systems, as expressed in 
Public Law 108-13.
    Accordingly, we have recommended to DOD that the pay, performance, 
and classification concepts be withdrawn in their entirety and 
published for comment and recommendations only when: 1) the Agencies 
are willing to disclose the entire system to DOD employees, affected 
unions, Congress, and the American public; and 2) the Agencies devise a 
more reasonable approach to testing any radical new designs before they 
are implemented on any widespread basis. It is simply wrong to ask us 
to accept systems that establish so few rules and leave so much to the 
discretion of current and future officials. As the representatives of 
DOD employees, it is our responsibility to protect them from vague 
systems, built on discretionary authority that is subject to abuse.
    Regardless of the ultimate configuration of the pay proposal, we 
believe that any proposed system must contain the transparency and 
objectivity of the General Schedule. Critical decisions on pay rates 
for each band, annual adjustments to these bands and locality pay 
supplements and adjustments must be made in public forums like the U.S. 
Congress or the Federal Salary Council, where employees and their 
representatives can witness the process and have the opportunity to 
influence its outcome through collective bargaining. We are concerned 
that these decisions would now be made behind closed doors by a group 
of DOD managers (sometimes in coordination with OPM) and their 
consultants. Not only will employees be unable to participate in or 
influence the process, there is not even any guarantee that these 
decisions will be driven primarily by credible data, or that any data 
used in the decisionmaking process will be available for public review 
and accountability, as the data from the Bureau of Labor Statistics is 
today.
    If the system DOD/OPM has proposed is implemented, employees will 
have no basis on which to predict their salaries from year to year. 
They will have no way of knowing how much of an annual increase they 
will receive, or whether they will receive any annual increase at all, 
despite having met or exceeded all performance expectations identified 
by DOD. The ``pay-for-performance'' element of the proposal will pit 
employees against one another for allegedly performance-based 
increases.\2\ Making DOD employees compete among themselves for pay 
increases will undermine the spirit of cooperation and teamwork needed 
to keep our country safe at home and abroad.
---------------------------------------------------------------------------
    \2\ This element of the proposal does not really qualify as a ``pay 
for performance'' system. Employees performing at an outstanding level 
could not, under the proposal, ever be certain that they would actually 
receive pay commensurate with their level of performance.
---------------------------------------------------------------------------
    It is also unclear from the current state of the deficit that funds 
will be made available for performance-based increases to become a 
plausible reality, one of many facts that has DOD employees concerned 
and skeptical about this proposal. As a practical matter, the Coalition 
has voiced its concern that DOD's ambitious goal to link pay for 
occupational clusters to market conditions fails to address the reality 
that pay for DOD employees is tied to Congressional funding, not market 
conditions. Indeed the Federal Employees Pay Comparability Act (FEPCA), 
the law that added a market-based locality component to the market-
based General Schedule has never been fully funded, for budgetary 
reasons. That is, the size of the salary adjustments paid under FEPCA 
to GS employees has, except for once in 1994, reflected budget politics 
rather than the market data collected by the Bureau of Labor Statistics 
(BLS) to support the system.
    Since the draft NSPS regulations were published, they have received 
important practical criticism from several sources, including 
Comptroller General David Walker who has testified twice regarding the 
DOD's readiness to implement any part of its proposed NSPS. We cite his 
testimony at length because it makes the case so forcefully that DOD 
has failed to prepare for implementation by failing to fully elaborate 
its design, collaborate with unions representing affected employees, or 
train its managers and bargaining unit employees; all of which are 
well-known prerequisites for any measure of success. In his testimony, 
he cites the Government Accountability Office's (GAO) previous reports 
and testimony regarding the management of ``human capital'' in Federal 
agencies, including GAO.
    On March 15, 2005, Mr. Walker described his views on the strengths 
and weaknesses in DOD's attempt at ``strategic human capital 
management'' as embodied in the agency's proposed NSPS, using as 
reference the advice he gave to the House Committee on Government 
Reform's Subcommittee on Civil Service and Agency Organization on April 
23, 2003 as it considered the NSPS legislation as well as a March 2003 
GAO publication that listed nine attributes GAO thought needed to be 
present in order to create ``clear linkage between individual 
performance and organizational success.''
    In April 2003, when the legislation granting the Defense Secretary 
the authority to establish NSPS was still under consideration, Mr. 
Walker testified that ``the bottom line is that in order to receive any 
performance-based pay flexibility for broad based employee groups, 
agencies should have to demonstrate that they have modern, effective, 
credible, and as appropriate, validated performance management systems 
in place with adequate safeguards, including reasonable transparency 
and appropriate accountability mechanisms, to ensure fairness and 
prevent politicalization and abuse.'' Later he elaborated on this set 
of prerequisites as follows, calling them ``statutory safeguards'':

         ``Assure that the agency's performance management 
        systems (1) link to the agency's strategic plan, related goals, 
        and desired outcomes, and (2) result in meaningful distinctions 
        in individual employee performance. This should include 
        consideration of critical competencies and achievement of 
        concrete results.
         Involve employees, their representatives, and other 
        stakeholders in the design of the system, including having 
        employees directly involved in validating any related 
        competencies, as appropriate.
         Assure that certain predecisional internal safeguards 
        exist to help achieve the consistency, equity, 
        nondiscrimination, and nonpoliticization of the performance 
        management process (e.g., independent reasonableness reviews by 
        Human Capital Offices and/or Offices of Opportunity and 
        Inclusiveness or their equivalent in connection with the 
        establishment and implementation of a performance appraisal 
        system, as well as reviews of performance rating decisions, pay 
        determinations, and promotion actions before they are finalized 
        to ensure that they are merit-based; internal grievance 
        processes to address employee complaints; and pay panels whose 
        membership is predominately made up of career officials who 
        would consider the results of the performance appraisal process 
        and other information in connection with final pay decisions).
         Assure reasonable transparency and appropriate 
        accountability mechanisms in connection with the results of the 
        performance management process (e.g., publish overall results 
        of performance management and pay decisions while protecting 
        individual confidentiality and report periodically on internal 
        assessments and employee survey results). (Emphasis added)

    The Comptroller General's March 2005 testimony listed six areas 
where the proposed NSPS regulations either fell short of the GAO's 
principles, or where too little detail or information was provided to 
make an evaluation. The six were as follows:

          (1) ``DOD has considerable work ahead to define the details 
        of the implementation of its system, including such issues as 
        adequate safeguards to help ensure fairness and guard against 
        abuse.'' (emphasis added)
          (2) Although the proposed NSPS regulations would ``allow the 
        use of core competencies to communicate to employees what is 
        expected of them on the job'' (emphasis added), it does not 
        require this. It should be noted that the 2003 GAO statement 
        does not suggest requiring the use of core competencies, only 
        allowing them. Now GAO says that requiring the use of core 
        competencies helps create ``consistency and clarity in 
        performance management.''
          (3) The NSPS proposed regulations contain no ``process for 
        continuing involvement of employees in the planning, 
        development, and implementation of NSPS.''
          (4) DOD needs a Chief Management Officer to oversee human 
        resources management in order to ``institutionalize 
        responsibility for the success of DOD's overall business 
        transformation efforts'' because they believe that this void is 
        partially responsible for the failure of previous DOD reform 
        efforts.
          (5) An effective communications strategy that ``creates 
        shared expectations among employees, employee representatives, 
        managers, customers, and stakeholders'' would be beneficial. 
        DOD has no such communications strategy in place.
          (6) Finally, GAO's testimony asserts that DOD does not have 
        an ``institutional infrastructure in place to make effective 
        use of its new authorities,'' by which it means that DOD needs 
        a ``human capital planning process that integrates DOD's human 
        capital policies, strategies, and programs with its program 
        goals and mission, and desired outcomes; the capabilities to 
        effectively develop and implement a new human capital system; 
        and importantly, a set of adequate safeguards, including 
        reasonable transparency and appropriate accountability 
        mechanisms, to help ensure the fair, effective, and credible 
        implementation and application of a new system.''

    These six shortcomings are essentially identical in content to the 
four ``statutory safeguards'' the Comptroller General said in 2003 had 
to be present for a system to be successful in furthering an agency's 
mission and preventing politicization and abuse. As such, it is fair to 
say that GAO appears to agree with us that DOD has failed thus far to 
design a system that is either workable or that adheres to the 
principles GAO has identified for performance-based systems that 
protect the merit system.
    The Partnership for Public Service, an organization dedicated to 
the restoration of the good name of Federal employment, has also 
weighed in on the issue of what makes for a successful performance-
based management and pay system for public employees. The Partnership 
echoes many of the arguments advanced by the GAO, but warns that pay 
for performance systems are not ends in themselves, but rather ``one 
means toward the end of creating a high performance culture'' linked to 
the goal of ``boosting government effectiveness.'' This is significant 
because although the stated rationale for the establishment of the NSPS 
was supposed to be an enhanced ability to meet emerging ``21st century 
security challenges'' DOD has thus far refused an approach that makes 
use of explicit, objective, written performance standards tied to 
agency mission.
    The Partnership cautions that differences between the private and 
public sectors must be at the forefront when designing pay for 
performance systems because of the unique attributes and challenges 
that Federal agencies face. In particular, the Partnership identifies 
``three unique challenges: 1) performance metrics can be harder to 
develop and measure for organizations with a public mission, as 
compared to companies focused simply on maximizing profits, 2) workers 
may be less motivated by cash rewards and more by the ability to make a 
difference, which can lessen the impact of monetary incentives, and 3) 
the greater power and flexibility given to managers can complicate 
civil service protections against inappropriate political 
interference.''
    Nowhere in the proposed NSPS regulations is there any evidence that 
DOD has acknowledged the unique challenges posed by the fact that it is 
a Federal agency with a public mission. No concession has been made to 
the special importance of accountability for the distribution of public 
funds, or the impact of draconian treatment on the accomplishment of a 
national security mission.
    The Partnership's work on the subject of pay for performance 
systems in the Federal Government also stresses the importance of 
``extensive training of supervisors so they have the skills needed to 
make accurate assessments of individual performance.'' The 
implementation or ``spiral'' schedule DOD has set neglects entirely the 
importance of such training. This factor as much as any other that will 
decide whether the NSPS pay for performance turns into a costly scandal 
resulting in vast quantities of litigation and confusion.
    The Partnership's final caution is that unless Congress provides 
adequate additional resources to allow ``meaningful'' financial rewards 
to high performers that distinguish them not only from ``low 
performers'' but also from what they would have received under a 
statutory system, pay for performance will not be successful as a 
motivator of higher performance. Of course, such additional resources 
should not be granted to DOD management unless and until a fair, 
transparent, and accountable ``performance appraisal'' process is in 
place so that taxpayers can know that their precious tax dollars are 
not being distributed on the basis of politics or other non-merit 
factors.

                            LABOR RELATIONS

    Notwithstanding the substantive arguments in our attached comments, 
our Union Coalition believes that the procedures for generating changes 
in the Labor Management Relations system have, thus far, been contrary 
to the statutory scheme proscribed in the National Defense 
Authorization Act for Fiscal Year 2004, Section 9902(m), Labor 
Management Relations in the Department of Defense.
    This portion of the law describes a very specific manner of 
statutory collaboration with time lines, which has not been followed. 
The law requires that employee representatives participate in, not 
simply be notified of, the development of the system. We ask that the 
subcommittee investigate DOD's failure to enforce or observe this 
aspect of the law.
    Public Law 108-136 protects the right of employees to organize, 
bargain collectively, and to participate through labor organizations of 
their own choosing in decisions that affect them. Specifically, the 
coalition has reiterated that Congress intended to have the NSPS 
preserve the protections of title 5, chapter 71, which DOD's proposals 
attempt to eliminate. DOD's position, made manifest in its proposed 
regulations, is that chapter 71 rights interfere with the operation of 
the new human resources management system it envisions and hopes to 
implement. Despite this congressional mandate to preserve the 
protections of chapter 71, DOD's proposed regulations will:

          1. Eliminate bargaining over procedures and appropriate 
        arrangements for employees adversely affected by the exercise 
        of core operational management rights.
          2. Eliminate bargaining over otherwise negotiable matters 
        that do not significantly affect a substantial portion of the 
        bargaining unit.
          3. Eliminate a union's right to participate in formal 
        discussions between bargaining unit employees and managers.
          4. Drastically restrict the situations during which an 
        employee may request the presence of a union representative 
        during an investigatory examination.
          5. Eliminate mid-term impasse resolution procedures, which 
        would allow agencies to unilaterally implement changes to 
        conditions of employment.
          6. Set and change conditions of employment and void 
        collectively bargained provisions through the issuance of non-
        negotiable departmental or component regulations.
          7. Assign authority for resolving many labor-management 
        disputes to an internal Labor Relations Board, composed 
        exclusively of members appointed by the Secretary.
          8. Grant broad new authority to establish an entirely new pay 
        system, and to determine each employee's base pay and locality 
        pay, and each employee's annual increase in pay, without 
        requiring any bargaining with the exclusive representative.

    Our unions have expressed strong objections to DOD's total 
abandonment of chapter 71, along with the law associated with the 
statute's interpretation. We ask that the subcommittee join us in 
reaffirming to DOD that Congress intended to have chapter 71 rights 
upheld so that DOD cannot hide behind its false contention that 
Congress' intent was unclear. Chapter 71 should be the ``floor'' of any 
labor relations system DOD designs. However, the design of DOD's plan 
is to minimize the influence of collective bargaining so as to 
undermine the statutory right of employees to organize and bargain 
collectively. We know that when Congress enacted provisions to protect 
collective bargaining rights, it did not intend that those rights be 
eviscerated in the manner that DOD's proposed regulations envision. 
Indeed, any regulation reflecting any of the issues listed above will 
be entirely unacceptable to us, and we strongly believe, unfounded in 
either the legislation or the law.

                 RESTRICTIONS ON COLLECTIVE BARGAINING

    The NSPS-imposed shift from statutory pay systems such as the 
General Schedule and the Federal Wage System to an as yet undefined pay 
for performance system will have profound consequences for the DOD 
workforce, but the degree of its impact will vary from worker to worker 
and depend upon numerous factors such as funding, training, and whether 
accountability safeguards and procedures are attempted or prohibited. 
In contrast, the proposed restrictions on collective bargaining 
contained in DOD's proposed NSPS regulations would by definition harm 
everyone in a bargaining unit equally because the proposals are 
uniformly negative.
    For this reason, it is useful to consider the effects of taking 
five particular issues ``off the table'' that have been successfully 
negotiated by Federal agencies including DOD:overtime policy, shift 
rotation for employees, safety and health programs, flexitime and 
alternative work schedules, and deployment away from regular work 
locations.
    Currently, title 5 U.S. Code, chapter 71 allows negotiation of 
collective bargaining agreements, and negotiation of procedures and 
appropriate arrangements for adversely affected employees in the 
exercise of a management right. These allow management and the union to 
bargain provisions that address the effects of management actions in 
specific areas. Such bargaining can be either in negotiation of term 
agreements or negotiations during the life of such agreements in 
response to management-initiated changes. However, under the draft 
regulations for NSPS, unions and management will no longer be permitted 
to bargain over ``procedures and appropriate arrangements,'' including 
over simple, daily, non-security related assignments of work.
    The following are five examples of current DOD labor-management 
contract provisions which would no longer be negotiable under NSPS.
1. Overtime Policy
          In general, AFGE locals negotiate overtime policies using two 
        basic premises. First, the union's interest is in having 
        management assign overtime work to employees who are qualified 
        to perform the work and who normally perform the work. Second, 
        the union seeks a fair and consistent means of assigning or 
        ordering overtime, so it is not used as an arbitrary reward or 
        punishment. Prior to being able to negotiate the fair rotation 
        of overtime, it is significant to note that employees filed 
        hundreds of grievances over denial of overtime. Since 
        procedures have been negotiated, clear, transparent, and known; 
        these grievances have literally disappeared.
          In negotiations, AFGE locals have requested that overtime 
        should be first offered, then ordered. By treating overtime 
        first as an opportunity, workers, based on their personal 
        circumstances, get an opportunity to perform extra work for 
        overtime pay (paid at time and a half) or compensatory time 
        (paid hour per hour).
          Commonly, contract language requires overtime to be offered 
        to employees within specific work units, job descriptions or 
        occupational fields to ensure employees performing the work are 
        qualified. Additional contract language allows for the 
        assignment or ordering of overtime if a sufficient number of 
        employees do not volunteer to perform the necessary work. 
        Normally, employee seniority is applied in determining which 
        volunteers will receive the overtime (most senior) and reverse 
        seniority (least senior) in ordering overtime in the absence of 
        volunteers.
          This basic contract language over the procedures to be used 
        in assigning overtime provides predictability for both 
        employees and management in dealing with workload surges that 
        force the use of overtime in organizations. Organizations that 
        frequently rely on overtime will usually adopt an overtime 
        scheduling roster.
          Under current law, the agency has the right to ``assign 
        work'' which would include overtime assignments. However, the 
        statute requires bargaining over procedures and appropriate 
        arrangements for employees affected by the exercise of a 
        management right if requested by the union. In this way, 
        Federal employee representatives are permitted to bargain over 
        important issues dealing with overtime.
          However, under the proposed NSPS regulations, both overtime 
        policies in current contracts, as well as the unions' right to 
        negotiate similar provisions in the future are undermined. 
        Specifically, management could issue a department or even a 
        component level policy or issuance that would negate current 
        contract language dealing with overtime procedures and preclude 
        further negotiations.
          In addition, the new NSPS management rights section prohibits 
        DOD managers from bargaining over the procedures they will use 
        when exercising their management rights, which would include 
        assigning overtime.
2. Shift Rotation for Employees
          In industrial DOD settings, shift work is common. Usually 
        there are three shifts: day, evening, and graveyard. Although 
        an evening or graveyard shift may appear unattractive to some, 
        others may prefer such shifts due to increased rates of pay, or 
        because they help the worker handle child or elder care 
        responsibilities with a spouse who works a day shift. Shift 
        work assignment is a frequent subject for bargaining, with the 
        union's primary focus on providing predictability and stability 
        in workers' family and personal lives and on equitable sharing 
        of any shift differentials (increased pay) or burdens of work 
        performed outside the normal day shift. Contract language often 
        calls for volunteers first, then the use of seniority when 
        making decisions about shift work, or provides for the 
        equitable rotation of shifts.
          Under current law, management is permitted to negotiate over 
        the numbers, types and grades of employees or positions 
        assigned to a tour of duty and is required to bargain over the 
        procedures it uses to exercise its right to assign work, 
        including assignments to shift rotations.
          However, under the proposed NSPS regulation, both shift work 
        policies in current contracts as well as the unions' right to 
        negotiate similar provisions in the future are undermined. 
        Specifically, management could issue a department or even 
        component level policy or issuance that would negate current 
        contract language dealing with shift work and preclude further 
        negotiations.
          In addition, the new NSPS management rights section includes 
        assignment of work, and determining the employees or positions 
        assigned to a work project or tour of duty, making this no 
        longer a permissive subject of bargaining, but a prohibited 
        matter. The proposed regulation goes on to specifically 
        prohibit management from negotiating over the procedures used 
        to exercise such rights, including assignments to shift 
        rotations.
3. Safety and Health Programs
          Worker safety and health has always been of paramount 
        importance to unions. Many AFGE locals representing DOD's blue 
        collar industrial workforce have negotiated, over many years, 
        comprehensive safety programs and often are involved in 
        negotiated workplace safety committees with the employer.
          For example, today's state-of-the-art welding operations in 
        DOD's industrial operations exist as the result of years of 
        negotiation over workplace safety practices, personal 
        protective equipment, training, technologies and practices, 
        ventilation and moving to safer, newer welding practices. These 
        practices have not only protected employees, but have saved 
        countless DOD dollars in the elimination of on-the-job-
        injuries, lost time due to accidents, improved work processes 
        and prevented financial losses as the result of destroyed or 
        damaged material and equipment.
          Currently, safety and health matters are covered by a section 
        of the law which allows, at the election of the agency, 
        bargaining over issues dealing with technology, methods, and 
        means of performing work. In addition, negotiations are 
        required over appropriate arrangements for employees adversely 
        affected by the exercise of management's rights.
          The proposed NSPS regulations threaten both safety and health 
        policies in current contracts, as well as the unions' right to 
        negotiate similar provisions in the future. Specifically, 
        management could issue a department or even component level 
        policy or issuance that would negate current contract language 
        dealing with safety and health policies and preclude further 
        negotiations.
          In addition, the new NSPS management rights section includes 
        technology, methods, and means of performing work, making this 
        no longer a permissive subject of bargaining, but a prohibited 
        matter. The proposal limits severely the types of provisions 
        that could be negotiated as ``appropriate arrangements.''
4. Flexitime and Compressed Work Schedules
          Under chapter 61 of title 5, U.S. Code, Federal employees may 
        work under flexitime and compressed schedules. Examples of 
        flexitime are 7 a.m. to 4 p.m. or 9:30 a.m. to 6:30 p.m., 
        rather than the traditional 8 a.m. to 5 p.m. shift. Examples of 
        compressed work schedules are Monday through Thursday for 10 
        hours per day with Friday off, or Tuesday through Friday for 10 
        hours per day with Monday off, rather than 8 hours per day 
        Monday through Friday. Today's DOD installations often operate 
        daily on a 10 to 12 hour business day meeting customer demands 
        longer and faster than ever before in the department's history.
          Legislation authorizing flexitime and compressed work 
        schedules was enacted to assist employees in handling job, 
        family and community responsibilities. In addition, Congress 
        recognized that such schedules would go a long way toward 
        improving commuting times in crowded metropolitan areas.
          Ensuring sufficient choices for employees and protecting the 
        capability to perform the vital work of the department have 
        always been the two guiding principles used in bargaining these 
        arrangements. Currently, work schedule options include core 
        hours, permitted changes by employees, and protections for 
        management in ensuring completion of the agency mission.
          Flexitime and compressed work schedules are negotiated under 
        provisions of title 5, chapters 61 and 71, which provide that 
        for employees in a unit represented by a union, establishment 
        and termination of such work schedules, ``shall be subject to 
        the provisions of the terms of . . . a collective bargaining 
        agreement between the agency and the exclusive 
        representative.''
          In contrast, the proposed NSPS regulations threaten flexitime 
        and compressed work schedules in current contracts as well as 
        the unions' right to negotiate similar provisions in the 
        future. Specifically management could issue a department or 
        even a component level policy or issuance that would negate 
        current contract language dealing with flexitime and compressed 
        work schedules, and preclude further negotiations.
          In addition, the new NSPS management rights section 
        specifically prohibits management from negotiating over the 
        procedures used to exercise its rights and limits severely the 
        types of provisions that could be negotiated as ``appropriate 
        arrangements.'' Both of these factors could further limit or 
        eliminate bargaining over alternative schedules.
5. Deployment Away From Regular Work Location
          Today, DOD reshapes its workforce and makes assignments to 
        locations different from an employee's normal workplace using 
        reorganizations, transfers of function, details, and in the use 
        of designated positions requiring travel or deployment. In most 
        instances, the union and management deal with these instances 
        on a case-by-case basis. This allows bargaining for the 
        specific circumstance and avoids imposing a one-size-fits-all 
        agreement.
          Collective bargaining agreement protections include such 
        things as the use of volunteers, then seniority, (as described 
        in other sections of this paper) coupled with requirements that 
        the work be performed by qualified employees. (Of course, 
        management has the right to set qualifications as it sees fit.) 
        In some cases, there are also provisions calling for advance 
        notice whenever possible.
          Under current law, management has the right to ``assign work 
        . . . and to determine the personnel by which agency operations 
        shall be conducted.'' However management and unions can 
        negotiate the procedures management uses in exercising their 
        authority and appropriate arrangements for employees adversely 
        affected by such authority.
          The proposed NSPS regulations specifically prohibit 
        management from negotiating over the procedures used to 
        exercise its rights to assign work and determine the personnel 
        by which agency operations are conducted. In addition, the 
        draft regulation limits severely the types of provisions that 
        could be negotiated as ``appropriate arrangements.'' This will 
        have the effect of erasing the current rules that the parties 
        have negotiated to preserve the rights of a employees to choose 
        where they work and live, and preclude further negotiations.
          Under NSPS, agency officials could move employees arbitrarily 
        or force a prolonged assignment anywhere in the world without 
        regard to any hardship this could cause employees or their 
        families. They could deploy an employee whose family 
        obligations make absence an extreme hardship even if a 
        similarly qualified employee volunteered for the assignment.
          In some cases, employees will be forced to make choices 
        between family and job. Management will be able to exercise its 
        right to assign employees and leave any collective bargaining 
        out of the process, including the limited procedural and 
        appropriate arrangement requirements now in current law.

    The consequences of eliminating bargaining for dealing with 
overtime policies, shift rotation, safety and health programs, 
flexitime and compressed work schedules, deployment away from regular 
work locations, and other important workplace issues will likely 
include worker burnout, increased danger to workers in unsafe 
situations, and strong feelings of unfairness within work units if 
assignments and work schedules are not offered or ordered in a fair and 
consistent manner. Ultimately, the inability of the employees' 
representatives to resolve these matters through collective bargaining 
will create recruitment and retention problems for the Department, as 
employees find more stable positions in other Federal agencies, or with 
state and local governments. Importantly, depriving DOD's operational 
managers and unions of the right to negotiate mutually agreeable 
arrangements over these issues is in no way connected to the 
Secretary's stated goal of meeting ``the security challenges of the 
21st century.''

                            EMPLOYEE APPEALS

    Public Law 108-13 reflects Congress's clear determination that DOD 
employees be afforded due process and be treated fairly in appeals they 
bring with respect to their employment. When it mandated that employees 
be treated fairly and afforded the protections of due process, and 
authorized only limited changes to current appellate processes, 
Congress could not have envisioned the drastic reductions in employee 
rights that DOD's proposed regulations set forth.
    No evidence has ever been produced to suggest, let alone 
demonstrate, that current employee due process protections or the 
decisions of an arbitrator or the MSPB have ever jeopardized national 
security and defense in any way. While we believe in an expeditious 
process for employee appeals, we will never be able to support biasing 
the process in favor of management or otherwise reducing the likelihood 
of fair and accurate decisions. DOD has provided absolutely no research 
that shows that the drastic changes proposed to chapters 75 and 77 of 
title 5 would further the agency mission.

                               CONCLUSION

    We urge the committee to take action, either legislatively or 
through oversight, to require DOD to address at least the six 
``flashpoint'' issues described above. Performance appraisals must be 
based upon written standards and be subject to negotiated grievance and 
arbitration procedures. Strong and unambiguous safeguards must be 
established to prevent either a general reduction or stagnation in DOD 
salaries. The scope of collective bargaining must be fully restored, 
and DOD must not be permitted the ability to unilaterally void 
provisions of signed collective bargaining agreements. Any DOD-specific 
labor-management board must be independent from DOD management. 
Standards for MSPB mitigation need to be realistic. Finally, RIF 
procedures must be based upon factors beyond a worker's most recent 
performance appraisal. A failure on the part of DOD to address these 
basic issues related to fairness, transparency, and accountability will 
guarantee that NSPS becomes a source of corruption, scandal, and 
mismanagement and will deflect the agency from its important national 
security mission for years.

    Chairman Warner. Thank you, Mr. Gage. Ms. Sistare, would 
you be kind enough to describe your distinguished career 
briefly.
    Ms. Sistare. Thank you very much. Thank you for giving me 
the opportunity to testify today. I'm the Director of the Human 
Resources Management Consortium at the National Academy of 
Public Administration (NAPA), which is a nonprofit, 
independent, nonpartisan organization chartered by Congress. 
I've also been Executive Director of the National Commission on 
the Public Service, which was chaired by former Federal Reserve 
Board Chairman Paul Volcker.
    That Commission continues on at the Academy today with an 
implementation initiative. I actually spent most of my career 
as a staff member in the United States Senate, where I worked 
for three Senators, most recently as staff director and counsel 
for Chairman Fred Thompson on the Senate Governmental Affairs 
Committee.
    Chairman Warner. Thank you very much, and thank you 
particularly for your service to the Senate. You are welcome to 
return.
    Ms. Sistare. Thank you very much.
    Chairman Warner. If we don't get this thing straightened 
out, I might draft you.

   STATEMENT OF HANNAH S. SISTARE, DIRECTOR, HUMAN RESOURCES 
MANAGEMENT CONSORTIUM; EXECUTIVE DIRECTOR, NATIONAL COMMISSION 
   ON THE PUBLIC SERVICE IMPLEMENTATION INITIATIVE, NATIONAL 
                ACADEMY OF PUBLIC ADMINISTRATION

    Ms. Sistare. My testimony today addresses three parts of 
the proposed regulations: performance management, appeals, and 
labor. I'll raise suggestions for future action. Although I 
quote several Academy studies, I'm speaking on my own and not 
on behalf of the Academy as an institution.
    On performance management, both the Volcker Commission and 
panels of the Academy have concluded that pay for performance 
within the performance management system can enhance employee 
engagement and morale, organizational improvement, and program 
results.
    It can also help dispel some of the negative stereotypes 
that Federal workers have to bear which undermine public 
confidence in government. DOD is actually at an advantage 
compared to other Federal departments in this respect. Research 
shows that the workers at DOD have a much stronger sense of 
mission and how their work relates to that mission than do 
employees in other departments.
    Among the experts there is certainly a broad consensus on 
the elements that make a pay for performance system work. A 
year and a half ago the Academy and the Volcker Commission co-
hosted a forum where we brought together stakeholders, public 
administrators, and government leaders. The participants agreed 
on four key factors that need to be recognized up front. It 
takes time. It's complicated, it requires culture change. It 
also requires adequate funding.
    The participants also identified elements that they saw as 
critical to making this kind of system work. They include 
processes that are timely and linked to distinctions in pay, 
committed and highly involved leadership, ongoing feedback from 
everyone involved, a system that effectively deals with poor 
performers, training and evaluation of managers and 
supervisors, and accountability for how they run the system. 
Appropriate and effective employee training and 
organizationally integrated performance management system are 
what the GAO calls a ``clear line of sight'' between what the 
employee does and what the organization's mission is.
    They also noted some safeguards: transparency, 
accountability, internal checks and balances, peer review, and 
ongoing communication. Managers in particular are key to the 
success of this kind of system.
    I met this week with attendees of the Federal Manager's 
Association (FMA) week in Washington. Most of the participants 
were from the DOD and were from all around the country.
    They, really to a person, were interested, willing, and 
ready to learn. They didn't feel they were there yet. They 
wanted to know a lot. But they were ready to take the system 
on.
    On appeals, we addressed the Federal appeals system at 
another Academy/Commission forum and our speakers were from 
labor, from the administration, and others. We had a broad 
range of people participating in the discussion.
    When asked the question of what set of principles should 
underlie any Federal employee system, the group very quickly 
came to a consensus and they identified four key principles: 
Fair, including the perception of being fair; fast and final 
action with due process; protection of merit system principles; 
and consideration to protecting the agency's mission.
    As we have heard, OPM, DOD, and the employees' unions 
disagree strongly about whether this new system is in fact 
fair. So we have a problem certainly with perceptions. I 
suggest several possible remedial steps that the parties could 
take to collaborate right now in putting clear definition to 
some of the significant aspects of the proposed system.
    One is they could define the standards that the National 
Security Labor Relations Board (NSLRB) will apply when they are 
weighing the need to protect the Department's mission. Another 
is to develop standards for the merit selection of the 
individuals serving on the NSLRB and also to identify as my 
colleague mentioned the mandatory removal offenses in 
collaboration with the stakeholders in the system. I think that 
kind of collaboration at this time could ease a lot of employee 
concerns. Labor relations are certainly the key problem in this 
area, area of greatest challenge. The Volcker Commission 
recognized this.
    The Volcker Commission met during the period when the 
Department of Homeland Security legislation was being 
developed. So they felt that labor relations would definitely 
pose a challenge to Civil Service reform and they noted several 
existing models at the local, State, and Federal level where 
government leaders and employee unions really reached out to 
work constructively to accomplish their mutual goals.
    The common characteristic of these models is that they were 
mutual efforts that went the extra mile to enhance 
communication and consensus. In the end, it's important that 
there be a mutual commitment to the goals of the NSPS when the 
regulations become effective. It's important that everyone work 
together to try to make them work.
    I think these goals include a highly-engaged, well-
qualified workforce, working in concert with DOD leadership to 
achieve the Department's important public mission.
    In conclusion, one point I'll mention is the Volcker 
Commission was very strong on the importance of congressional 
oversight, and this hearing is just what they believed would be 
necessary. I'm sure they would strongly support this 
committee's continued and close involvement as the system is 
rolled out and implemented. Thank you.
    [The prepared statement of Ms. Sistare follows:]

                Prepared Statement by Hannah S. Sistare

    Mr. Chairman, members of the committee, I appreciate the 
opportunity to testify on the design and implementation of the National 
Security Personnel System at the Department of Defense.
    I am the Director of the Human Resources Management Consortium at 
the National Academy of Public Administration, an independent non-
partisan, non-profit organization chartered by Congress to provide 
``trusted advice'' on governance and public management. The views I 
present today are my own and do not necessarily represent those of the 
Academy as an institution. I am also the Executive Director of the 
National Commission on the Public Service Implementation Initiative at 
the Academy. The National Commission, chaired by former Federal Reserve 
Board Chairman Paul A. Volcker, made its recommendations for the reform 
and renewal of the public service in January 2003.
    We stand at the threshold of an exciting and challenging time in 
the transformation of the human resource management systems of the 
Federal Government--and nowhere is this more true than with respect to 
the effort underway to modernize the civilian personnel systems of the 
Department of Defense.
    My testimony will address the proposed performance management, 
appeals and labor relations systems for the Department, and raise some 
possible approaches for the future.

              PERFORMANCE MANAGEMENT/PERFORMANCE BASED PAY

    The National Commission on the Public Service and panels of experts 
at the National Academy of Public Administration have recommended that 
the Federal Government adopt performance management systems.\1\
---------------------------------------------------------------------------
    \1\ Urgent Business for America: Revitalizing the Federal 
Government for the 21st Century, Report of the National Commission on 
the Public Service, January 2003.
    Recommending Performance-Based Federal Pay, a report by the Human 
Resources Management Panel at the National Academy of Public 
Administration, May 2004.
---------------------------------------------------------------------------
    The Academy panels and the Volcker Commission have concluded that 
pay for performance within a performance management system can enhance 
employee engagement and morale, organizational improvement, and program 
results. Pay for performance can have the added benefit of dispelling 
some of the negative stereotypes that plague Federal workers and 
undermine public confidence in government.
    In one respect, DOD is at an advantage compared with other Federal 
agencies. Research has shown that DOD civilian employees have a much 
stronger sense both of mission and of how their work contributes to 
that mission than do employees in other departments.\2\ This not only 
boosts employee morale, but fosters a culture in which employees 
already connect their work with organizational goals. This will be of 
help to DOD as it implements its new performance management system.
---------------------------------------------------------------------------
    \2\ Paul C. Light, The Troubled State of the Federal Public 
Service, Washington: Brookings Institution, June 27, 2002.
---------------------------------------------------------------------------
    Some important groundwork has been laid for the implementation of 
performance based pay. The Government Performance and Results Act 
helped agencies to clearly define their missions and goals and think 
about what was required to achieve those missions.
    The Government Accountability Office (GAO) certainly has led by 
example in this area and DOD and other executive branch agencies can 
learn a great deal by their experience and the lessons GAO continues to 
draw from it. GAO began to lay the groundwork for its performance 
management system more than 15 years ago when it adopted pay banding. 
More recently, legislation enacted by Congress has empowered GAO to 
take additional steps to put a performance based pay system into place.
    Among experts, there is a broad consensus about the elements 
necessary to make performance management systems work. In September 
2003, Academy President C. Morgan Kinghorn and Paul Volcker convened a 
forum titled ``Performance-Based Pay in the Federal Government: How do 
we get there?'' The forum brought together stakeholders, public 
administrators and government leaders, including OMB Deputy Director 
for Management Clay Johnson, Deputy OPM Director Dan Blair, and GAO 
Principal Deputy Gene Dodaro for the purpose of discussing and 
articulating the elements of a successful system.
    The participants agreed on several factors that had to be 
recognized as central to the adoption of performance based pay in the 
Federal Government:

         It takes time.
         It is complicated.
         It will require a culture change.
         It requires adequate funding to be fully effective.

    The elements the presenters and participants identified as critical 
to an agency's successful implementation of a performance based pay 
system were:

         appraisal processes that are timely, transparent, and 
        linked to meaningful distinctions in pay
         committed and highly involved leadership
         ongoing feedback from those who are involved and 
        affected
         a system for effectively dealing with poor performers
         training and evaluation of managers and supervisors 
        that holds them accountable for how well they manage for 
        performance
         appropriate and effective employee training
         an organizationally integrated performance management 
        system which aligns organizational goals with individual 
        performance
         reasonable safeguards including:

                 transparency
                 accountability
                 internal checks and balances
                 peer review
                 ongoing communication and consultation among 
                all system stakeholders

    I have provided the forum summary report: Performance Based Pay in 
the Federal Government--How do we get there? for the committee's 
information and for the hearing record. It also can be found on the 
Academy's Web site.\3\
---------------------------------------------------------------------------
    \3\ The Academy's website is www.napawash.org. The report 
Performance Based Pay in the Federal Government: How do we get there?, 
additional information about the National Commission on the Public 
Service and the Commission Implementation Initiative at the Academy can 
be found under ``Special Initiatives.''
---------------------------------------------------------------------------
    There is broad and clear recognition that all stakeholders in a 
performance based pay and performance management system must be well 
trained, and repeatedly trained, for the new systems to be successful.
    Managers especially will be key to the success of the new systems, 
an issue that an Academy panel addressed in a series of five 
comprehensive reports on The 21st Century Federal Manager published 
between 2002 and 2004.\4\ These reports examine the new and growing 
challenges that Federal managers face in the 21st century. They also 
identify and address the new competencies that managers must have to 
provide the leadership and direction critical to fulfilling 
government's fast changing needs, and they spell out the price of poor 
leadership.
---------------------------------------------------------------------------
    \4\ The 21st Century Federal Manager, Volumes 1-5, Human Resources 
Management Panel, National Academy of Public Administration, 2002-2004.
---------------------------------------------------------------------------
    The Office of Personnel Management is currently considering the new 
competencies that 21st century leaders need to be successful, and this 
will be an important step in the transformation of human resources 
management at DOD and government-wide.

                                APPEALS

    A key to the success of an appeals system is that it not only be 
fair, but that those affected by it perceive it to be fair. We 
addressed these issues at a forum on the Federal appeals system 
convened by the Academy and the Commission Implementation Initiative in 
September 2003. The speakers at this forum were Chuck Hobbie, Deputy 
General Counsel of the American Federation of Government Employees; Ron 
Sanders, OPM Associate Director; and Joe Swerdzewski, former General 
Counsel of the Federal Labor Relations Authority. The forum 
participants were a diverse group of Federal officials, congressional 
staff, academics and other interested private sector stakeholders. As 
moderator, I posed several questions to the group at the end of the 
discussion. One was: ``What set of principles should underlie any 
Federal employee appeals system?'' The expressed consensus of the group 
was that there are four key principles:

         fair, including the perception of being fair
         fast and final action with due process
         protection of merit system principles--to preserve the 
        core right so employees and of the general public interest
         consideration of protecting the agency's mission \5\
---------------------------------------------------------------------------
    \5\ Conversations on the Public Service: Forum on the Federal 
Appeals System, National Academy of Public Administration, National 
Commission on the Public Service Implementation Initiative, February 
2004.

    Those who designed the proposed NSPS appeals system intend it to be 
fast and final, and believe it preserves due process and merit system 
principles. It clearly takes protection of the agency's mission into 
account. Employee representatives, on the other hand, have raised 
strong concerns about whether due process is appropriately preserved 
and to what degree the mission of the Department will be given 
deference versus the rights of the employees. They do not perceive the 
proposed system as being fair.
    One positive remedial step could be for the DOD, in collaboration 
with its stakeholders, to clearly define the standards the National 
Security Labor Relations Board (NSLRB) will apply when weighing the 
need to fulfill the department's mission. Another would be for DOD to 
develop standards for the merit selection of the individuals serving on 
the NSLRB. The merit selection system under which Administrative Law 
Judges are certified might serve as a model. Likewise, consulting with 
employee representatives in determining how the mission needs of the 
Department are to be taken into consideration by the NSLRB and the 
identifying of Mandatory Removal Offenses could ease employee concerns 
at this critical time, without undermining the needs of the Department.

                            LABOR RELATIONS

    Labor relations have been the area of greatest challenge in the DOD 
transformation. The legislation authorizing the NSPS anticipated this 
dynamic and required ongoing consultation between those designing the 
new personnel system and labor representatives.
    The committee is hearing from the DOD, OPM, and union leadership on 
the details of how this consultation process was carried out preceding 
the issuance of the proposed regulations. The bottom line is that DOD 
and OPM believe they met the requirements Congress set out, and the 
employee unions believe otherwise.
    As Senators Susan Collins and Carl Levin and other Members wrote to 
Secretary England a year ago, ``the involvement of the civilian 
workforce in the design of the new system is critical to its ultimate 
acceptance and successful implementation.'' \6\ If DOD leadership is at 
conflict with its own employees, implementation of the NSPS is at risk, 
they recognized.
---------------------------------------------------------------------------
    \6\ Tim Kauffman, ``DOD Personnel Plan Under Fire from Lawmakers, 
Unions,'' Federal Times, March 8, 2004.
---------------------------------------------------------------------------
    The ``meet and confer'' period required by the law is now underway. 
This is an opportunity for all involved to consider how this next 
period of interaction can be conducted so that all parties feel they 
have made a committed effort, and that a committed effort has been made 
in turn. Changing perceptions may well require going beyond the 
specific requirements of the law.
    The Volcker Commission made recommendations in this area that could 
be of value for the future. The Commission wrote its report during the 
creation of the Department of Homeland Security. Commission members 
were concerned about the disagreement that accompanied the creation of 
the Department and cautioned:

          [This controversy] makes clear that labor-management 
        relations will pose a challenge to reform. . . . What is clear 
        is that a new level of labor-management discourse is necessary 
        if we are to achieve any serious reform in the civil service 
        system. . . . The commission believes that it is entirely 
        possible to modernize the public service without jeopardizing 
        the traditional and essential rights of public servants. . . . 
        Engaged and mutually respectful labor relations should be a 
        high Federal priority.

    In calling for a ``new level of discourse'' the Volcker Commission 
suggested that Congress, executive branch leaders and employee 
representatives consider several existing models for public sector 
labor management cooperation. These included collaboration by former 
Governor, now Senator, George Voinovich and the Ohio American 
Federation of State, County, and Municipal Employees. Former 
Indianapolis Mayor Steven Goldsmith is noted for his successful 
collaboration with city union leaders and has written about the lessons 
he took away from that experience and similar situations. Former 
President Clinton established labor-management councils in Federal 
departments and IRS Commissioner Charles Rossotti used the 1998 IRS 
reform legislation to forge a constructive labor-management 
relationship at the IRS. Observers of labor-management practices at the 
U.S. Postal Service believe that both relations and productivity at the 
department have been enhanced by the management's inclusive approach to 
working with its unionized employees.
    The common characteristic of these examples is that they were 
mutual efforts that went the extra mile to enhance communication and 
consensus. They may provide some models that will enhance the 
Department's ability to successfully implement the NSPS.
    In the end, it is important that there be a common commitment to 
the goals of the NSPS: a highly-engaged, well-qualified workforce, 
working in concert with DOD leadership to achieve the Department's 
important public mission.

                             LOOKING AHEAD

    Employee representatives have expressed concern that many 
additional details of the new system are undefined. The question is how 
to balance DOD's desire to retain flexibility in implementing the new 
system so that improvements can be made as it becomes operational, with 
the employees' interest in participating in system elements that will 
have a significant impact on their employment. One answer is for the 
DOD and OPM to continue to collaborate with stakeholders in the design 
of the pay for performance and other NSPS elements. As noted earlier, 
there is a consensus that ongoing, regularized communication and 
feedback among all stakeholders is critical to the successful operation 
of a performance-based pay system.
    The adoption of a government-wide framework for personnel reform 
would help to address this issue for all Federal agencies, and for all 
stakeholders.
    Paul Volcker and Comptroller General David Walker co-hosted a forum 
a year ago to explore this concept.\7\ The consensus of the 
participants--a broad group representing employees at all levels, 
policymakers, academics and nonprofit organizations--was that such a 
framework should be established. As discussed at the forum, the 
framework should include values, principles, and processes that must 
underlie all Federal personnel systems. For example, the framework 
could specify the processes that Congress believed should be part of 
all Federal performance management systems. The Academy is continuing 
to work on this concept, including a project to validate a model 
framework developed by a working group.
---------------------------------------------------------------------------
    \7\ Human Capital: Principles, Criteria and Processes for 
Government-wide Federal Human Capital Reform, U.S. Government 
Accountability Office and the National Commission on the Public Service 
Implementation Initiative, November 2004, GAO-05-69SP.
---------------------------------------------------------------------------
    Finally, one point repeatedly stressed by the members of the 
Volcker Commission was the critical importance of congressional 
oversight. This hearing is just what they believed would be necessary 
and I am sure they would strongly encourage the committee to continue 
to play an ongoing and close oversight role.

                               CONCLUSION

    Implementation of these new systems necessarily goes hand in hand 
with a maturing of the view of the Federal workforce and the 
relationship among front-line workers, managers, executives and 
political leadership. As one Academy study puts it:

          Paternalistic cultures are giving way to values that reflect 
        greater equality and adult relationships in the workplace. 
        These changes require employees to take more responsibility for 
        their own competence, performance, and development. Meanwhile, 
        executives and managers at all levels must take responsibility 
        for providing challenging work opportunities and creating a 
        culture for learning, teamwork, and accountability for 
        results.\8\
---------------------------------------------------------------------------
    \8\ Summary of Human Resources Management Research by the National 
Academy of Public Administration, Center for Human Resources 
Management, for the National Commission on the Public Service, July 
2002.

    This change is challenging but is full of opportunity. It is widely 
recognized as being necessary for the Federal Government to meet its 
---------------------------------------------------------------------------
21st century responsibilities.

    Chairman Warner. Thank you very much. I can assure you that 
this committee will do just that. Let me go back to my simple 
analogy, it's a team between uniform and civilian forces in the 
DOD, and we have equal responsibility here to fulfill. I see my 
colleague--I intend to stay for a while, if you would like to 
ask your questions and I'll follow with mine.
    Senator Akaka. Thank you, Mr. Chairman. I want to thank our 
witnesses for your testimony, your comments on the NSPS. 
Because I know he's genuinely concerned, I'm so pleased that 
Secretary England has remained to hear the views of the second 
panel.
    Mr. Gage, as author of legislation strengthening the 
protections of Federal whistleblowers, I believe it is 
essential that all Federal employees feel comfortable coming 
forward to disclose government waste, fraud, and abuse. DOD and 
OPM have stated repeatedly and again today that the DOD 
civilian workforce will continue to have whistleblower 
protection under NSPS. However, I have heard from employees who 
question whether they will retain full whistleblower rights. 
Mr. Gage, do you believe whistleblowers are adequately 
protected under NSPS?
    Mr. Gage. No, Senator, I don't. I want to thank you for 
your involvement over the years in this important issue. But 
when you weaken the grievance procedure, when you weaken 
employee appeals, one of the big problems with whistleblowing 
is the reprisal that comes after you blow the whistle. When you 
weaken employee avenues of appeal, especially a strong 
grievance procedure and arbitration, I think that hurts 
whistleblower protection.
    Senator Akaka. Ms. Sistare, I was privileged to testify 
before the Volcker Commission in 2002, and I appreciate all the 
Commission has done on the issue of human capital reform.
    You noted in your written testimony that the Volcker 
Commission's recommendations to improve labor/management 
relations in particular, the need for employee involvement in 
the development of any new personnel system like NSPS, based on 
the Commission's recommendations and your work at NAPA, do you 
believe the process laid out by DOD adequately involves 
employees and unions?
    Ms. Sistare. As I noted in my oral testimony and in my 
written testimony, I think that further steps could be taken. I 
think it's not just a matter of whether the letter of the law 
was followed, but that people feel that the spirit of the law 
is followed. Also, employees need to feel that Department 
management and the people putting the system together have 
taken the extra step. I think that will make a big difference 
how they feel when they actually go into implementing the new 
system.
    Senator Akaka. Mr. Stewart, the GAO has reported that DOD 
does not have comprehensive strategic workforce plans to guide 
its human capital efforts, and noted that without such plans, 
DOD will be unable to design effective strategies to hire, 
develop, and retain a strong workforce. Given the absence of a 
comprehensive workforce plan, how well do you believe NSPS will 
address DOD's workforce needs?
    Mr. Stewart. Thank you for the question, Senator Akaka. 
You're absolutely right. We issued a report less than a year 
ago that was less than complimentary of the Department's 
strategic workforce planning. I guess the most egregious or 
troubling situation that we found was that in looking at the 
DOD components that employed at least 85 percent of all of the 
civilian workforce, not one component had developed core 
competencies.
    We asked the question, have you identified current and 
future competencies, and the answer was no across the board. I 
might correct myself with the exception of the Marine Corps. 
The Marine Corps had developed competencies.
    This is a critical issue because this is the way that we 
communicate to employees what is expected of them in terms of 
their performance. DOD, in the proposed regulations, actually 
allows for performance expectations but does not specify the 
form which that will take. We are encouraging the DOD to 
consider core competencies, because competencies are a set 
behavior that includes knowledge, skills, and abilities that 
are critical in getting the work done.
    With the competencies brings uniformity and it's clear and 
understandable what is expected. So without the competencies, 
we have questions about how effective the NSPS will be in terms 
of aligning performance, employee performance with the overall 
mission and how that's communicated and how effective that's 
going to be.
    Senator Akaka. Thank you very much for your responses. Mr. 
Chairman, I have questions that I'll submit for the record.
    Chairman Warner. Senator, I'd like to advise our witnesses 
and those in attendance that yesterday you and I as members of 
the Committee on Homeland Security and Government Affairs 
adopted a markup bill which goes to the floor.
    Part of that bill contains your contribution in the area of 
whistleblowers. On the assumption that hopefully that will 
become eventually a legislative package, should not we ask our 
witnesses to take cognizance of what that additional thinking 
of protections toward this was currently and hopefully to be 
passed by the Senate and then go on to the House until it 
becomes legislation. But it seems to me that's a process that 
should be following. Would you agree with me on that?
    Senator Akaka. Yes. Mr. Chairman, we have been very 
concerned about the workforce and would like to be able to work 
together in reaching agreements, even compromises in some of 
the concerns that we have on both sides.
    I know there is an effort to try to set up a strategic kind 
of planning by DOD and for NSPS, but we want it to be done in 
such a way that there is an agreement and compromise, so that 
the workforce can be at its optimum in working for our country. 
Mr. Chairman, this is a whole new thing and I hope it can 
continue, these efforts.
    Chairman Warner. Thank you very much, Senator. I originally 
intended to ask a question of each of you about the procedures 
that have been followed quite apart from the merits or the 
demerits of the legislation and so forth. But I understand that 
that's a matter now in the Federal courts, so we will not ask 
you about procedures but this committee will follow that case 
with great interest.
    First to you, Mr. Stewart, in your prepared testimony, you 
state that the DOD's proposed regulations indicate that, and I 
quote ``nothing in the continuing collaborative process with 
employees will affect the right of the Secretary of Defense to 
determine the content of implementing guidance and to make this 
guidance effective at any time.''
    Do you believe that the Department has gone too far?
    Mr. Stewart. It certainly is a different model from some of 
the other agencies. I really don't have a good answer for that, 
Mr. Chairman.
    Chairman Warner. You can take that for the record.
    Mr. Stewart. The concern, Mr. Chairman, is that the 
Secretary, the regulations would give the Secretary that 
authority. But the question is how would that be used. So since 
that hasn't played out yet, it's pretty difficult to answer the 
question is that too much, has that gone too far. I think it 
depends, I think it depends on how that authority would be 
used.
    Chairman Warner. The second part of the question was, we 
would like to have the recommendations that you might have on 
the involvement of employees in the content of implementing----
    Mr. Stewart. The involvement of employees in implementing?
    Chairman Warner. The issuances?
    Mr. Stewart. Yes.
    Chairman Warner. Thank you. Now, for Mr. Gage, your 
concerns that the composition of the NSLRB as proposed are 
understandable. The Secretary of Defense would appoint all 
members without any requirement or input from employees. Do you 
have a recommendation on how the proposed board should be 
modified, constituted to ensure its independence and also to 
ensure that in addition to understanding DOD's mission, it also 
understands DOD employees?
    Mr. Gage. I think the union should be able to recommend--
strongly recommend a member, a membership on the board. I think 
that the fairer that the appointments of this board are, the 
more credibility employees will have in the fairness of the 
decisions of the board. If it's just a kangaroo court, we are 
going to know it very quickly. I think starting out by having a 
fair board with a composition that is made by DOD management, 
as well as employee representatives, I think that is the best 
way to assure that. Also, of course, to put a term on it.
    Chairman Warner. I can't imagine there is any legal 
impediment to your making a recommendation. You can certainly 
forward them to the Secretary, could you not?
    Mr. Gage. Did you have his address for me, Senator, that I 
could talk to him?
    Chairman Warner. I think that knowing the Secretary of 
Defense, Mr. Rumsfeld, and indeed knowing the distinguished 
Secretary of the Navy, these are men of reasonable mind and I'm 
certain that if you were to forward recommendations, they would 
review them.
    Mr. Gage. Senator, this is an institutional thing, though. 
It's not just asking him to appoint someone in his mind that is 
fair, it's someone who has to be perceived as fair and having 
our weight behind him, too, to make the institution of this 
board fair.
    So I understand what you are saying about reasonable 
people, this is going to be around a long time and I think it's 
just so important that the initial constitution of this board 
and that it be constituted in the future with meaningful 
employee participation.
    Chairman Warner. Thank you very much. Ms. Sistare, if I 
might ask of you, in your testimony, you indicate that former 
Indianapolis Mayor Steven Goldsmith has written from lessons he 
took away from collaboration with union leaders. Are there any 
examples from that experience that you can share with the 
committee and from which the Department and unions would 
benefit?
    Ms. Sistare. Yes. I would be glad to. Then Mayor Goldsmith 
has written about the process that he used to right a very bad 
labor/management relation system that existed when he took 
office. He did two particularly important things at the 
beginning.
    One, he worked with the employees to identify the problem. 
They had a common problem, which was that the city was nearly 
broke, was losing a tax base, and was losing population. Then 
working together they identified a common mission, which was to 
make the city economically viable, to keep people from leaving, 
to have clean streets, and give people the services they 
needed.
    He got to know the city workers by literally working with 
them at their jobs. Through this process, he found out what 
they were thinking about. But not just grievances. What he 
found out was what it took to make their job work, what kind of 
equipment worked better, what kind of supplies worked better. 
This gave him a real firsthand knowledge of what was going on 
and he built on that.
    He said it was not easy. It took over 2 years to really get 
it right but at the end of that time, they had instituted 
performance management. Then over time, the city budget had a 
surplus. They were able to give raises. They didn't fire any of 
the unionized employees. It seems to be a very positive example 
of what was done in at least one place.
    Chairman Warner. Had you contemplated making 
recommendations of nominees for the NSLRB?
    Ms. Sistare. What I suggested in my written testimony was 
that a merit system be established to pick them, and that the 
procedures that they follow be set out clearly.
    The Department would like these participants, members of 
the board, to weigh the Department's needs. I think it should 
spell out how the Department's need is and isn't really 
affected and where an employee's well-being really is, and 
maybe there should be one standard. So people know in advance. 
I think I would be reticent to suggest that any of these people 
actually represent someone, that they represent either 
management or labor. I'd rather see that they be independent.
    Chairman Warner. Mr. Stewart.
    Mr. Stewart. Mr. Chairman, as I noted in my oral comment, 
it's not just that the Secretary can appoint the board members, 
it's that he can also remove them. If that were not true, 
perhaps it would be okay if he could appoint the members.
    But there is a question of independence when an individual 
can be removed by the same person who appoints them. At the 
GAO, we have a personnel appeals board, and the Comptroller 
General has the authority to appoint the five members to that 
board. But he does not have the authority to remove any one 
member from that board. That is, that's an internal board 
process. But he does not have that authority. So that would be 
the caveat that I would offer for consideration.
    Chairman Warner. Thank you. We will follow the manner in 
which this board is constituted very carefully. I don't know 
that it will require further legislation. But we will indeed 
take to heart the observations that each of you made about the 
importance of it. We will submit additional questions to you, 
in hopes that you can respond in a timely way. Thank you for 
your contribution. We have had an excellent hearing today. 
Thank you very much.
    The hearing is adjourned.
    [Questions for the record with answers supplied follow:]

             Questions Submitted by Senator James M. Inhofe

        IMPLEMENTATION OF THE NATIONAL SECURITY PERSONNEL SYSTEM

    1. Senator Inhofe. Secretary England, I'd like for you to share 
what you discussed with me yesterday, regarding your implementation 
plan or philosophy regarding the National Security Personnel System 
(NSPS).
    Secretary England. Senator Inhofe, I assured you that I would keep 
a close watch on what was occurring during the meet and confer process. 
I committed to you that I will ensure we take whatever time is 
necessary to analyze and address issues raised by the unions on behalf 
of our employees during this process.

    2. Senator Inhofe. Mr. Blair, I would like to hear from you on any 
significant implementation changes and what challenges there may be 
with implementation of this new system.
    Mr. Blair. We are working hard to ensure that the current timetable 
moves the Department of Defense (DOD) forward at a pace that will 
enable the Department to make appropriate adjustments in the event of 
any unforeseen difficulties. I view the most significant implementation 
challenge as maintaining effective lines of communication with the DOD 
workforce. Effective and continuous communication across the Department 
will help ensure that employees are aware, knowledgeable, and current 
on the significant changes taking place with the NSPS.
    We want to ensure DOD is well positioned to begin implementation. 
Evidence of this can be found in its plans to implement in phases or 
``spirals.''

    3. Senator Inhofe. Secretary England, how much different is the 
system being implemented at the DOD from the one implemented at the 
Department of Homeland Security (DHS)? From that implementation, what 
do you see as the areas of concern for DOD?
    Secretary England. The Department benefited greatly from the 
efforts of DHS when developing the proposed NSPS regulations. The DHS 
regulations were analyzed by staff-level working groups, as well as 
senior leadership, and where it made sense and was consistent with and 
supported DOD's national security mission, operations, and statutory 
authorities, we adopted many of the concepts and approaches, and even 
much of the specific language set forth in the DHS regulations. At the 
same time, where there were differences, such as in terms of scope, 
mission, organizational culture, and human capital challenges, as well 
as the statutes that authorize the respective HR systems--DOD and 
Office of Personnel Management (OPM) have broken new ground, and these 
proposed regulations are intended to stand on their own in that regard. 
Accordingly, this proposed regulation should not be viewed (or judged) 
in comparison to DHS, but rather as an independent effort, informed by 
the DHS experience, yet focused on DOD's mission and requirements.
    The primary statutory differences are:

         NSPS law authorizes changes to staffing and reduction 
        in force policies; DHS has no such authority.
         NSPS law provides for waiver of premium pay provisions 
        of title 5; DHS does not authorize such a waiver.
         NSPS law sets requirements for NSPS, to include a pay 
        for performance evaluation system, then links coverage of 
        adverse actions and appeals flexibilities to only those 
        organizations under NSPS. DHS does not have this limitation.
         NSPS law entitles employees to adverse action appeal 
        rights to the full Merit System Protection Board (MSPB), under 
        a limited standard of review; DHS does not have this 
        requirement. 
         NSPS labor relations provision does not authorize a 
        waiver of 5 U.S.C. chapter 71; rather it allows the 
        establishment of a new LR system notwithstanding chapter 71. 
        DHS may waive chapter 71.
         NSPS labor relations authority expires on November 24, 
        2009, unless this authority is extended in law. DHS does not 
        have an equivalent sunset provision.

              AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES

    4. Senator Inhofe. Mr. Stewart, Mr. Gage, and Ms. Sistare, please 
comment on each of the ``flashpoints'' that the AFGE has raised through 
Mr. Gage's written statement:

          ``DOD has proposed radically reducing the scope of collective 
        bargaining in the proposed regulations. . . . The proposed 
        regulations do not follow the law with respect to its 
        instructions to maintain collective bargaining rights for 
        affected DOD employees.''

    Mr. Stewart. Our previous work on individual agencies' human 
capital systems has not directly addressed the scope of specific issues 
that should or should not be subject to collective bargaining and 
negotiations.
    Mr. Gage. Public Law 108-136 protects the right of employees to 
organize, bargain collectively, and to participate through a labor 
organization of their own choosing in decisions that affect them. When 
the National Defense Authorization Act (NDAA) was enacted in November 
2003, the DOD was authorized to modify the personnel system, but was 
prohibited by Congress from instituting any new procedures that could 
eliminate fundamental labor rights. In hearings that preceded the 
passage of the NDAA, DOD officials repeatedly stated that they were not 
trying to eliminate collective bargaining rights. In fact, Defense 
Secretary Rumsfeld assured Congress that the proposed regulations would 
adhere to the law with respect to its instruction to maintain 
collective bargaining rights for affected DOD employees, and that his 
only intent with regard to collective bargaining was to establish 
national-level bargaining. A majority of House and Senate members voted 
for this bill based upon the false assurance that these fundamental 
labor rights would be protected. Unfortunately, the NSPS does not 
adhere to the law with regard to its instruction to maintain collective 
bargaining rights for affected DOD employees, and goes clearly beyond 
what Congress intended.
    Ms. Sistare. The first relates to the scope of collective 
bargaining in the proposed regulations and includes Mr. Gage's 
assertion that the proposed regulations do not follow the law with 
respect to its instructions to maintain collective bargaining rights 
for affected DOD employees. Regrettably, the matter of the proposed 
regulations compliance with the law--unless the regulations are altered 
to the AFGE's satisfaction in the final regulations will be decided 
through the judicial process. This is regrettable, as are other 
instances where design of the new system will be determined in the 
courts, rather than through the policymaking process. By its nature, 
the policymaking process produces consensus and buy in, both of which I 
believe are very important to the successful implementation of this new 
personnel system.

    5. Senator Inhofe.

          ``The board that hears labor-management disputes arising from 
        NSPS must be independent of DOD management. . . . In the 
        proposed NSPS regulations, DOD would establish an internal 
        board made up entirely of individuals appointed by the 
        Secretary.''

    Mr. Stewart. In our previous testimonies on the proposed and final 
DHS regulations, we stressed the importance of the actual and perceived 
independence and impartiality of such boards.\1\ Members of these types 
of boards should be, and appear to be, free from interference in the 
legitimate performance of their duties and should adjudicate cases in 
an impartial manner, free from initial bias and conflicts of interest.
---------------------------------------------------------------------------
    \1\ GAO, Human Capital: Preliminary Observations on Proposed DHS 
Human Capital Regulations, GAO-04-479T (Washington, DC: Feb. 25, 2004) 
and Human Capital: Preliminary Observations on Final Department of 
Homeland Security Human Capital Regulations, GAO-05-320T (Washington, 
DC: Feb. 10, 2005).
---------------------------------------------------------------------------
    Consistent with fostering board independence and impartiality, 
DOD's proposed NSPS regulations provide for staggered-term appointments 
for members of the proposed National Security Labor Relations Board 
(NSLRB) and place some limited conditions on the removal of a member. 
For example, members of the board would be appointed for terms of 3 
years, except that the appointments of the initial board members will 
be for terms of 1, 2, and 3 years. The Secretary of Defense may extend 
the term of any member beyond 3 years when necessary to provide for an 
orderly transition and/or appoint the member for up to two additional 
1-year terms. DOD could further enhance the independence and 
impartiality of the board through the appointment and removal process 
of Board members. This could include such areas as: (1) a nomination 
panel that reflects input from appropriate parties and a reasonable 
degree of balance among differing views and interests in the 
composition of the board to ensure credibility, and (2) appropriate 
notification to interested parties in the event that a board member is 
removed.
    The proposed regulations allow the Secretary of Defense to appoint 
and remove individual board members; however, this raises the question 
of the independence of the board. If the proposed regulations were 
modified to allow the Secretary of Defense to appoint but not remove 
members, then this may help the credibility and independence of the 
board.
    Mr. Gage. In the proposed NSPS regulations, DOD would establish an 
internal board made up entirely of individuals appointed by the 
Secretary. Such a board would have no independence from management and 
would therefore lead to unfair favoritism when hearing employee 
appeals. Although DOD promises that the NSLRB would operate with 
independence and autonomy within the Department, a body appointed 
entirely by the employer is not a neutral third party, for either labor 
relations or employee appeals. In order to create a more impartial 
NSLRB we recommend creating a body that is entirely separate and 
distinct from DOD management. We recommend that the three-member board 
consist of one union member, one management official, and one member 
jointly selected by two appointees of the union and the employer. 
Although creating the NSLRB is unnecessary because it duplicates the 
function of the already existing Federal Labor Relations Board, if the 
NSLRB is designed in this manner it will create a more balanced and 
less employer centered forum to resolve grievances.
    Ms. Sistare. The second relates to the fact that the proposed 
regulations establish ``an internal board made up entirely of 
individuals appointed by the Secretary'' and thus, in the view of the 
AFGE, not appropriately independent of DOD management. I agree that the 
creation of an internal board can lead to the view that its decisions 
will not be fair. As I noted in my written and oral testimony--the 
perception of fairness matters very much in any appeals system. I urged 
that criteria be established in advance, perhaps as part of the final 
regulations, providing for the merit selection of the members of the 
internal review board.

    6. Senator Inhofe.

          ``The standard for mitigation by the MSPB of discipline and 
        penalties imposed on employees under NSPS in the proposed 
        regulations is virtually impossible to meet and effectively 
        removes the possibility of mitigation.''

    Mr. Stewart. The U.S. Merit Systems Protection Board will not know 
the actual impact until a number of cases are adjudicated.
    Mr. Gage. Under the new appeals system, MSPB will not be able to 
mitigate a performance-based adverse action unless the action taken by 
the manager against an employee is deemed ``wholly unjustified.'' This 
standard is far too high, and undermines the standard that the judicial 
system established over 25 years ago, stating that employees must only 
show that the actions are ``unreasonable.'' The new standard 
essentially takes away the employee's right to have any meaningful 
opportunity to have adverse actions mitigated by the MSPB. There is 
simply no justification for eliminating an adjudicative process for 
employee appeals that has fairly resolved employee-employer disputes 
for so many years. The Department's decision to eliminate this process 
is a blatant attack on the employee's right to fair representation.
    Ms. Sistare. The third relates to Mr. Gage's comment that ``the 
standard for mitigation by the Merit System Protection Board of 
discipline and penalties imposed on employees under MSPB in the 
proposed regulations is virtually impossible to meet and effectively 
removes the possibility of mitigation.'' The standard is definitely 
high, though, in my view not ``impossible'' to met. My own concern 
focuses on the first levels of the appeals process, which I believe are 
more critical to the reality and belief that employees will be treated 
fairly. For example, I believe the selection of the review board 
members should be based on merit and that the standards they will 
apply--such as the specific offenses for which an employee may be 
automatically terminated and the means by which the Department's 
mission will be taken into consideration--should be spelled out 
clearly, in advance of implementation of the system.

    7. Senator Inhofe.

          . . . ``under the proposed regulations, not only is there no 
        requirement for management to present written standards against 
        which performance will be measured, but employees are also 
        denied the right . . , to use negotiated grievance and 
        arbitration system. . .''

    Mr. Stewart. On the basis of our previous work, we believe that 
performance standards should be written. We also advocate the use of 
competencies--the skills, knowledge, and abilities staff heed to 
accomplish the work. We have found that competencies can help reinforce 
employee behaviors and actions that support the Department's mission, 
goals, and values, and can provide a consistent message to employees 
about how they are expected to achieve results. These core competencies 
must be in writing to assure that managers, supervisors, and employees 
see and understand the criteria that will be used to manage and assess 
employee performance.
    Regarding grievance and arbitration systems, during testimony in 
April 2005, we reaffirmed our position that there should be both 
informal and formal appeal mechanisms within and outside of the 
organization if individuals feel that there has been abuse or a 
violation of the policies, procedures, and protected rights of the 
individual. Internal mechanisms could include independent Human Capital 
Office and Office of Opportunity and Inclusiveness reviews that provide 
reasonable assurances that there would be consistency and 
nondiscrimination.\2\ Furthermore, it is of critical importance that 
the external appeal process be independent, efficient, effective, and 
credible. As DOD's human resources management system efforts move 
forward, DOD will need to define, in more detail than is currently 
provided, how it plans to review such matters as the establishment and 
implementation of the performance appraisal system--and, subsequently, 
performance rating decisions, pay determinations, and promotion 
actions--before these actions are finalized to ensure they are merit 
based.
---------------------------------------------------------------------------
    \2\ GAO, Human Capital: Preliminary Observations on Proposed 
Department of Defense National Security Personnel System Regulations, 
GAO-05-517T (Washington, DC: Apr. 12, 2005).
---------------------------------------------------------------------------
    Mr. Gage. Under NSPS, performance appraisals will be the crucial 
determinant of salary, salary adjustment, and job security for Federal 
employees. If management officials are not required to base salary 
increases and adjustments on some transparent and concrete standard, 
there will be no means to determine if these increases and adjustments, 
or lack thereof, are fair or credible. Under the proposed NSPS, adverse 
action arbitrations will no longer be final and binding either. 
Reducing the role of arbitrators is not only contrary to congressional 
intent, but takes away the employee's option to use negotiated 
grievance and arbitration systems to present evidence that their 
performance appraisals are inaccurate. Supervisors can use their own 
arbitrary and subjective standards to monetarily award or punish 
Federal employees and these employees, in turn, have no means to 
contest these inequities because they ultimately have no recourse to 
the law. If DOD insists on compensating and awarding employees on an 
individualized basis, the agency must verify that renumeration is based 
on an objective and non-discriminatory criteria.
    Ms. Sistare. The fourth relates to the concern that under the 
proposed regulations there is no requirement for management to present 
written standards against which performance will be measured and that 
these matters are not subject to negotiation. I believe that the 
standards set out by the GAO for an effective performance based pay 
system--which are mirrored in the work of the National Commission on 
the Public Service (Volcker Commission) and study panels of the 
National Academy of Public Administration--should be the guiding light 
for the design and implementation of the system at DOD. These include a 
clear understanding by all involved, following education, training, and 
communication, of how the goals of the agency relate to the measures of 
employee performance and how those measures will be applied. 

    8. Senator Inhofe.

          ``Strong and unambiguous safeguards must be in place to 
        prevent a general lowering of pay for DOD civilian workforce. 
        The proposed regulations permit a general reduction in salaries 
        for all DOD personnel compared to rates they would have been 
        paid under statutory systems.''

    Mr. Stewart. Under the proposed regulations, DOD could not reduce 
employees' basic rates of pay when converting to pay bands. However, 
employees' compensation may increase at a rate higher or lower than 
under the current compensation system because under NSPS compensation 
is designed to be: (1) market sensitive, with consideration of local 
market conditions to set pay rates; and (2) performance based.
    Mr. Gage. Under the NSPS regulations, each agency head has the 
ability to reduce entry level salaries, and an ability to refuse annual 
adjustment of salaries for those who perform satisfactorily. Unlike the 
NSPS system, the GS system and the pay adjustment process described in 
FEPCA were established upon the principles of market adjustments. Base 
salaries reflect job duties, and salary changes reflect changes in the 
ECI and other market data from 1 year to the next. Under the NSPS 
system, however, employees are paid according to the whim of their 
superiors. Without a uniform system to promote workers fairly, 
employees are often left feeling cheated and some of them will have 
objective evidence of having been cheated. Safeguards must therefore be 
established not only to protect the living standards of the civilian 
DOD workforce relative to the rest of the Federal workforce and the 
labor market, but also to guarantee the ongoing economic vitality of 
communities within DOD installations.
    Ms. Sistare. The fifth relates to the concern that the performance 
based pay system under NSPS will result in a general lowering of pay 
for DOD civilian employees. As articulated by the National Commission 
on the Public Service, the purpose of performance based pay should be 
to reward and encourage performance, not to save money. It may in fact 
cost more to implement a performance based pay system--certainly there 
are start up costs for training and other development and 
implementation activities which will involve additional costs. Adequate 
funding to allow the agency to make meaningful distinctions in pay is 
very important.

    9. Senator Inhofe.

          ``Procedures for deciding who will be affected by a reduction 
        in force must be based on more than a worker's most recent 
        performance appraisal. The proposed NSPS regulation would allow 
        an employee with 1 year of service and an outstanding rating to 
        have superior retention rights to an employee with 30 years of 
        outstanding appraisals and 1 year of having been rated merely 
        ``above average.''

    Mr. Stewart. Under DOD's proposed regulations, greater emphasis 
will be given to job performance in the reduction-in-force process by 
placing performance ahead of length of service. Under the proposed 
regulations, employees will be placed on a competitive group's 
retention list in the following order of precedence: (1) tenure group, 
(2) veterans' preference, (3) individual performance rating, and (4) 
length of service. DOD may also establish a minimum reduction-in-force 
competitive area on the basis of one or more of the following factors: 
geographic location(s), line(s) of business, product line(s), 
organizational unit(s), and funding line(s). The proposed regulations 
provide DOD with the flexibility to define competitive groups on the 
basis of career group, pay schedule, occupational series or specialty, 
pay band, and/or trainee status.
    Mr. Gage. We are strongly opposed to such a stringent and blithe 
methodology for determining retention status in the context of 
Reductions in Force (RIF), as it undermines the longstanding veterans' 
preference rule, as well as seniority. The method that is currently 
used to determine RIFs is fair and reasonable because it takes into 
account the many factors that should be considered when evaluating an 
employee's contribution to the Department and the Department's mission. 
Under the new proposals, veterans and other employees that have proven 
their commitment and loyalty to the government through longevity and/or 
service will be discounted based on one unaccountable performance 
appraisal. This methodology is indefensible and dangerous, as it 
essentially opens the door to arbitrarily eliminating employees based 
on personal preferences rather than eliminating employees based on the 
record.
    Ms. Sistare. The sixth relates to the issue of whether RIF 
decisions should be based on an employee's current performance rating, 
as opposed to their ratings over a period of time. I believe that 
retention, like pay, should be based on performance rather than 
longevity. My own view is that it would make sense to consider an 
employee's level of performance over time, rather than base it on one 
specific year, no matter how recent.
                                 ______
                                 
            Questions Submitted by Senator Edward M. Kennedy

                    COLLECTIVE BARGAINING PROCEDURES

    10. Senator Kennedy. Secretary England, please explain what steps 
you will take to ensure that the final regulation is revised to meet 
the requirements of the statute regarding collective bargaining.
    Secretary England. While some may disagree with the proposed 
regulations, the proposed regulations are consistent with the 
requirements of the statute regarding collective bargaining. The 
proposed regulations attempt to strike a balance between employee 
interests and DOD's need to accomplish its mission effectively and 
expeditiously. For example, while the proposed regulations eliminate 
bargaining on procedures regarding operational management rights, it 
does not eliminate all bargaining on procedures. The regulations 
continue to provide for bargaining on procedures for personnel 
management rights. The proposed regulations also continue to provide 
for bargaining on impact and appropriate arrangements for all 
management rights. Finally, the proposed regulations provide for 
consultation on procedures regarding the operational management rights, 
which lie at the very core of how DOD carries out its mission.

    11. Senator Kennedy. Secretary England, please explain your plans 
to ensure that the NSPS does not severely restrict the scope of issues 
that can be bargained.
    Secretary England. The proposed regulations are consistent with the 
requirements of the statute regarding collective bargaining. The 
proposed regulations attempt to strike a balance between employee 
interests and DOD's need to accomplish its mission effectively and 
expeditiously. While the scope of bargaining is restricted compared to 
what occurs today, the proposed regulations continue to provide many 
opportunities for the unions to have a voice in workplace issues.

                       LABOR-MANAGEMENT DISPUTES

    12. Senator Kennedy. Secretary England, how can employees and their 
representatives expect a fair review when management has absorbed all 
of the power and board members serve at the whim of the Secretary?
    Secretary England. While the Secretary will establish the NSLRB, 
safeguards are established in the proposed regulations to ensure that 
the NSLRB operates with independence. The members are appointed to 
fixed terms of 3 years, and can be extended for two additional 1-year 
appointments. Members will be independent, distinguished citizens known 
for their integrity, impartiality, and expertise in labor relations 
and/or the DOD mission, and/or relevant national security matters. The 
members are subject to the same stringent criteria for removing members 
of the Federal Labor Relations Authority (FLRA) and Merit Systems 
Protection Board, i.e. inefficiency, neglect of duty, or malfeasance. 
Finally, all decisions of the NSLRB are reviewable by the FLRA and the 
Federal circuit courts of appeals. All of these safeguards ensure that 
a fair review of labor disputes will be made by the NSLRB without undue 
influence by the Secretary or DOD management.

    13. Senator Kennedy. Secretary England, how do you justify this 
policy that is so clearly biased against workers?
    Secretary England. This policy is not biased against workers. The 
DOD civilian workforce plays a critical role in the successful 
accomplishment of the Department's national security mission. In 
authorizing the creation of the NSPS, Congress recognized that 
maintaining the status quo with respect to labor-management relations 
would not provide DOD with a workforce that is sufficiently agile and 
flexible to execute the current and future national security mission. 
The regulations continue to ensure the right of employees to organize, 
bargain collectively, and participate through labor organizations of 
their own choosing in decisions which affect them. In proposing these 
changes, the Department is attempting to strike a balance between 
employee interests and DOD's need to accomplish its mission effectively 
and expeditiously.

             NATICK SOLDIER CENTER'S DEMONSTRATION PROPOSAL

    14. Senator Kennedy. Secretary England, please explain what steps 
you will take to ensure that the demonstration proposal is approved.
    Secretary England. The Office of the Secretary of Defense Personnel 
and Readiness (OSD/P&R) is working with the Army to determine if Natick 
is or is not covered by the NSPS. If Natick could be moved under NSPS 
human resource (HR) provisions before 2008, we will advise you.

    15. Senator Kennedy. Secretary England, do you intend to include 
Natick in the NSPS human resources system before October 1, 2008, even 
though under the statute, its parent organization is specifically 
excluded?
    Secretary England. The OSD/P&R is working with the Army to 
determine if Natick is or is not covered by the NSPS. If Natick could 
be moved under NSPS HR provisions before 2008, we will advise you.
                                 ______
                                 
           Questions Submitted by Senator Joseph I. Lieberman

                  CURTAILMENT OF COLLECTIVE BARGAINING

    16. Senator Lieberman. Secretary England and Mr. Blair, it is my 
understanding that the proposed regulations would allow managers with 
Department-wide authority, or with authority for any constituent 
component of the Department, to prohibit collective bargaining on any 
subject simply by issuing a policy or other kind of directive dealing 
with the subject. I have heard concerns expressed that this authority 
could even be used to invalidate provisions of collective bargaining 
agreements that the managers do not want to comply with. Is my 
understanding correct? If it is so, and if one party to the negotiation 
can unilaterally take any or all subjects off the table, I do not see 
how collective bargaining can achieve its intended purpose of enabling 
the amicable and productive resolution of disagreements.
    Secretary England. Your understanding is not correct. Only the 
Secretary of Defense, the Deputy Secretary of Defense, the Principal 
Staff Assistants (e.g. Under Secretaries), and the Secretaries of the 
Military Departments will issue NSPS implementing issuances that 
override provisions of collective bargaining agreements. This ensures 
that the Department is able to implement a uniform and consistent 
personnel system and emphasizes that only the highest level officials 
in the Department would have the authority to impact collective 
bargaining agreement provisions that conflict with NSPS implementing 
issuances. DOD and Military Department-level issuances that may impact 
collective bargaining agreements must be based on mission and business 
related reasons. Unions at the national level are provided an 
opportunity through continuing collaboration to be involved in NSPS 
implementing issuances that will supersede a conflicting collective 
bargaining agreement provision(s). We believe this is consistent with 
the underlying NSPS statute.
    Mr. Blair. The proposed regulations do not give managers unfettered 
authority to issue a policy for the purpose of prohibiting bargaining 
or invalidating provisions of a collective bargaining agreement that 
they do not like. There are two distinct types of issuances and each is 
treated differently with regard to union involvement in the proposed 
regulations. The first is what is referred to as an implementing 
issuance which would specifically carry out the provisions of the joint 
DOD/OPM NSPS regulations. As proposed, these issuances would supercede 
conflicting provisions of collective bargaining agreements to ensure 
consistent application of NSPS rules throughout the Department. 
However, the unions will have an opportunity to review and comment on 
implementing issuances before they are promulgated, as provided for in 
continuing collaboration procedures proposed in the regulations at 
9901.106(a)(3)(i).
    The second type of issuance as proposed in the draft regulation is 
a DOD issuance. These are issuances that do not carry out the 
provisions of NSPS regulations. DOD issuances do not immediately 
override conflicting provisions of existing collective bargaining 
agreements. However, upon expiration of a collective bargaining 
agreement, the conflicting provision would have to be brought into 
conformance with DOD or component issuances. Our interest in these 
provisions is to provide for consistent, standard application of DOD 
and component policies, instructions, and procedures. This manner of 
dealing with conflicting provisions is in fact the same approach that 
exists today with regard to governmentwide regulations.
    In this respect, bargaining would occur over a wide variety of 
issues related to any policy prescribed in an issuance to the extent 
otherwise negotiable and not in conflict with the issuance. For 
example, the Department might promulgate an issuance regarding certain 
information required on all vacancy announcements. Issues related to 
this policy that may be subject to bargaining might include the length 
of time an announcement was open, how the announcement was communicated 
to the workforce, posting a notice of available positions on bulletin 
boards, advance notice of the announcement to the union, provisions for 
sending announcements to employees activated for duty in the Reserves, 
provisions for notifying employees away from the worksite on training, 
etc.
    As you can see, the proposed regulations strike a balance between 
the need for consistent policies and collective bargaining. In striking 
this balance, they do not give management unfettered authority to 
override provisions of collective bargaining agreements.

    17. Senator Lieberman. Secretary England and Mr. Blair, similarly, 
if one side has the power to invalidate any or all provisions of an 
agreement at will, I don't understand how collective bargaining 
agreements can serve their intended purpose of establishing a reliable 
framework for governing relationships between employees and managers. 
Is my understanding correct?
    Secretary England. Your understanding is not correct. An issuance 
will not be for the sole purpose of overriding a collective bargaining 
agreement. While DOD and military department-level issuances may impact 
collective bargaining agreements, there will be mission and business 
related reasons for these issuances. Finally, there are many issues 
that occur locally that are not governed or specifically covered by a 
DOD-level or military department-level issuance. These matters continue 
to be covered by collective bargaining agreements.
    Mr. Blair. As stated above, the proposed regulations do not give 
management unfettered authority to override collective bargaining 
agreements. In addition, should management attempt to exceed its 
authority in this regard, the proposed regulations provide the unions 
with the ability to seek enforcement of these regulatory requirements 
with the National Security Labor Relations Board, with review by the 
Federal Labor Relations Authority, and ultimately the courts. Finally, 
there are many issues that occur locally that are not governed or 
specifically covered by a DOD- or component-level issuance. They would 
continue to be covered by collective bargaining agreements.

       LACK OF SPECIFIC ELEMENTS IN PERFORMANCE-MANAGEMENT SYSTEM

    18. Senator Lieberman. Secretary England and Mr. Blair, my 
impression of the proposed pay and performance regulations is that they 
are skeletal outlines of a program, but leave the specific policies and 
procedures for subsequent development. For example, the statute 
requires that any regulations must incorporate specific elements to 
ensure fairness and guard against politicization and other abuse in 
performance management. These must include, among other things, in the 
words of the statute--``a fair, credible, and transparent employee 
performance appraisal system,'' ``a means for ensuring employee 
involvement in the design and implementation of the system,'' and 
``effective safeguards to ensure that the management of the system is 
fair and equitable and based on employee performance.'' The proposed 
rules do restate these requirements and say that they must be met. But 
I did not see specific policies or procedures that would actually show 
how these requirements will be accomplished. Doesn't the governing law 
require that these and other statutory elements be described in enough 
detail in published proposed regulations, issued jointly by DOD and 
OPM, that employees, Congress, and the public can evaluate these 
proposed elements of the system and engage with DOD and OPM about any 
concerns?
    Secretary England. The Department's implementing issuances will 
provide much more detail on the pay and performance systems. As 
provided in the proposed regulations, employee representatives will 
participate in the development of these implementing issuances through 
the continuing collaboration process. Under continuing collaboration, 
unions will have the opportunity to review proposals, submit comments, 
and at the discretion of the Secretary, to meet and discuss their 
views.
    Mr. Blair. I agree that some aspects of these regulations are 
relatively general in nature, providing broad policy parameters but 
leaving much of the details to implementing directives. We believe that 
this structure, patterned after the chapters in title 5 that they 
replace, is appropriate. By providing for detailed implementing 
directives, the regulations provide the Department with the flexibility 
mandated by Congress, and they do so without compromising the 
Department's commitment to substantive employee representative 
involvement in the development of those directives.

                                TRAINING

    19. Senator Lieberman. Secretary England and Mr. Blair, in his 
testimony, Mr. Stewart of GAO recommends that DOD should complete a 
plan for implementing NSPS that includes training for both supervisors 
and employees. What planning have you done in developing a training 
program to support the NSPS?
    Secretary England. DOD recognizes that training for all our 
employees on the behavioral and functional aspects of NSPS is key to 
the success of NSPS. The NSPS training plan is a comprehensive, well-
planned learning strategy to prepare the DOD workforce for transition 
to NSPS. The plan is grounded in the belief that participants need to 
be informed and educated about NSPS and trust and value it as a system 
that fosters accountability, respects the individual, and protects his 
and her rights under the law. The plan incorporates a blended learning 
approach featuring Web-based and classroom instruction supplemented by 
a variety of learning products, informational materials, and workshops 
to effectively reach intended audiences with engaging, accurate, and 
timely content. All employees will be provided training that covers the 
basics of the NSPS human resources management system including 
information on career groups, the pay band structure, as well as 
appeals procedures. A course on the performance management system will 
train employees on how a performance-based system operates and help 
them understand their roles and responsibilities. We estimate the 
employee training will take approximately a day and a half or 12 hours. 
Supervisors and managers will receive additional training so they can 
fairly manage, appraise, and rate employees. This training is expected 
to take a minimum of 18 hours and will include both web-based and 
classroom training.
    Mr. Blair. OPM defers to DOD on this question.

    20. Senator Lieberman. Secretary England and Mr. Blair, how much 
will the Department need to spend in order to train supervisors to 
evaluate employees properly?
    Secretary England. The Department's Program Executive Office (PEO) 
allocated $2 million in fiscal year 2005 and plans to allocate another 
$3 million in fiscal year 2006 to fund development of core NSPS 
training modules and deliver ``train-the-trainer'' sessions.
    The Office of the Secretary of Defense (OSD), the military 
departments, and the defense agencies will fund the delivery of 
training to their personnel. Funds for fiscal years 2005 and 2006 do 
not currently have visibility as a discrete line item in their budgets. 
However, the military departments and defense agencies recognize the 
high priority of NSPS training, and are committed to funding delivery 
of that training within existing resources.
    Mr. Blair. OPM defers to DOD on this question.

                               PAY LEVELS

    21. Senator Lieberman. Secretary England and Mr. Blair, in moving 
away from pay levels defined in statute, what assurances can you give 
that limited appropriations or other budget pressures will not result 
in pay levels too low to truly pay for performance?
    Secretary England. The Department views this as a basic covenant 
issue with its employees. The need to protect pay pool money must be 
balanced against the need for fiscal flexibility. The Department is 
taking concrete steps to ensure achievement of the NSPS key performance 
parameter to have a credible and trusted system. The Department is 
taking action to protect pay pool funding through its internal 
issuances. For example, the Department will mandate the minimum 
composition and expenditure of pay pool funds. In addition, the 
Department will require certification of the allocation and expenditure 
of those pay pool funds by an appropriate senior official. Finally, the 
Department will determine the appropriate mechanism(s) to ensure 
compliance.
    Mr. Blair. Every agency must live within the appropriations 
Congress provides and, when appropriations are less than desired, must 
make choices among spending priorities. Nonetheless, we believe there 
is a strong incentive for DOD to pay its employees at competitive 
levels to avoid staffing problems. Furthermore, the NSPS legislation 
included a provision requiring DOD, to the maximum extent practicable, 
to allocate an aggregate amount for NSPS employee compensation in 
fiscal years 2004 through 2008 that is not less than the estimated 
aggregate amount that would have been allocated for such employees 
under existing pay systems. Beyond fiscal year 2008, DOD must provide a 
formula for determining the aggregate amount of NSPS employee 
compensation that ensures that ``in the aggregate, employees are not 
disadvantaged'' as a result of conversion to NSPS. (See 5 U.S.C. 
9902(e) (4) and (5). The proposed NSPS regulations restate these 
statutory requirements in Sec. 9901.313.)

                              CIVILIAN PAY

    22. Senator Lieberman. Mr. Stewart and Ms. Sistare, John Gage in 
his testimony expressed concern that the NSPS will create downward 
pressure on DOD civilian pay. Are there mechanisms that you could 
suggest to assure that pay levels are adequate for employee recruitment 
and retention and to truly reward good performance?
    Mr. Stewart. We have observed that a competitive compensation 
system can help organizations attract and retain a quality 
workforce.\3\ To begin to develop such a system, organizations assess 
the skills and knowledge they need; compare compensation against other 
public, private, or nonprofit entities competing for the same talent in 
a given locality; and classify positions along levels of 
responsibility. While one size does not fit all, organizations 
generally structure their competitive compensation systems to separate 
base salary--which all employees receive--from other special 
incentives, such as merit increases, performance awards, or bonuses, 
which are provided based on performance and contributions to 
organizational results.
---------------------------------------------------------------------------
    \3\ GAO, Additional Posthearing Questions Related to Proposed 
Department of Homeland Security (DHS) Human Capital Regulations, GAO-
04-617R (Washington, DC: Apr. 30, 2004).
---------------------------------------------------------------------------
    We have reported that direct costs associated with salaries were 
one of the major cost drivers of implementing pay for performance 
systems, based on the data provided us by selected OPM demonstration 
projects.\4\ We found that some of the demonstration projects intended 
to manage costs by providing a mix of one-time awards and permanent pay 
increases. Rewarding an employee's performance with an award instead of 
an equivalent increase to base pay can help contain salary costs in the 
long run because the agency only has to pay the amount of the award one 
time, rather than annually.
---------------------------------------------------------------------------
    \4\ GAO, Human Capital: Implementing Pay for Performance at 
Selected Personnel Demonstration Projects, GAO-04-83 (Washington, DC: 
Jan. 23, 2004).
---------------------------------------------------------------------------
    This practice is consistent with modern compensation systems, which 
typically include a mix of base pay increases plus other compensation 
incentives, such as one-time performance awards or bonuses. In 
developing pay for performance systems, agencies must consider what 
percentage of performance-based pay should be awarded as base pay 
increases versus one-time cash increases while still maintaining 
fiscally sustainable compensation systems that reward performance. In 
addition, to the costs associated with base pay increases, modern 
compensation systems typically consider an employee's salary in 
relation to a competitive range when determining the amount of 
performance pay that should be provided as a base pay adjustment versus 
a cash bonus amount. This base versus bonus concept differs from the 
largely longevity driven base pay adjustments provided to employees 
under the General Schedule. This new direction concerns employees, 
especially those who are close to retirement, who see these regular 
base pay increases as the foundation of future retirement benefits.
    Ms. Sistare. As recommended by the National Commission on the 
Public Service (Volcker Commission), the purpose of performance based 
pay should be to reward and encourage performance, not to save money. 
This view is consistent with the recommendations of panels of the 
National Academy of Public Administration and of the GAO. It is broadly 
recognized that it may well cost more to implement a performance based 
pay system--certainly there are start up costs for training and other 
development and implementation activities which will involve additional 
costs. Congress, through setting the annual overall budget for DOD 
civilian pay, will be able to assure that pay levels necessary to 
assure recruitment and retention and to truly distinguish between 
levels of performance are maintained.

                         COLLECTIVE BARGAINING

    23. Senator Lieberman. Mr. Gage, you have discussed ways in which 
the proposed NSPS rules would curtail collective bargaining. Could you 
explain the difference between how you negotiate over these issues 
under current law, compared with what you believe would occur under 
NSPS?
    Mr. Gage. NSPS would curtail collective bargaining because it would 
dramatically reduce the union's ability to bargain over matters that 
greatly affect Federal employees. NSPS essentially eviscerates the 
union's right to bargain but greatly expands the management right to 
make personnel changes without garnering the consent of the employees 
themselves. This provision takes previously negotiable issues ``off the 
table,'' and permits DOD to unilaterally override provisions of 
collective bargaining agreements. The new regulations also eliminates a 
union's right to participate in formal discussions between bargaining 
unit employees and managers.

    24. Senator Lieberman. Mr. Gage, although the proposed rules would 
curtail collective bargaining, the rules provide for consultation 
between unions and the Department. What will be the impact of a shift 
from bargaining to consultation?
    Mr. Gage. As the law currently exists, management is required to 
come to the table to discuss certain mandatory subjects that are deemed 
to significantly affect the employee and his or her willingness to 
contribute in a positive way to the workforce and the Department's 
mission. This legal mandate is very important because without it, 
management could refuse to bargain on these issues at all if it were 
not required. Under the Department's proposal, DOD is required only to 
engage in perfunctory ``consultation'' with unions over personnel 
changes and can unilaterally decide which personnel changes are 
significant enough to be subject to collective bargaining. The clear 
intention of Congress was to protect employees' rights, and both labor 
and management's responsibility to bargain in good faith as described 
in chapter 71 of title 5. This newly created right to unilaterally 
supersede collective bargaining agreements is not consistent with 
Congress' intention that employers and employees bargain in good faith. 
Quite to the contrary, this new regulation eliminates the employees' 
ability to voice their concerns about their working conditions 
altogether.

                     URGENT NATIONAL SECURITY NEEDS

    25. Senator Lieberman. Mr. Gage, the Defense Department argues that 
the provisions in the proposed NSPS regulations are necessary to enable 
the Department to respond to urgent national security needs and to 
fulfill its mission. How would you respond to that argument?
    Mr. Gage. NSPS was allegedly created to enable the Department to 
respond to urgent national security needs and to fulfill its mission; 
however, nothing in the proposed NSPS regulations is perceptibly 
connected to ``21st century threats.'' If the government seeks to 
address any national security threat it must do so with the support and 
cooperation of hardworking Federal employees. Yet, NSPS does not 
encourage cooperation, loyalty, or industriousness among employees, but 
rather fosters a cut-throat and divisive atmosphere where employees are 
more concerned about their own self-interest than the mission of the 
agency they serve. Employees who actually work under ``pay for 
performance'' systems generally feel cynical about their chances to 
excel in the workforce because their advancement is dependent upon 
their supervisor's arbitrary set of expectations and preferences. Yet, 
when employees have confidence in their employer and the stability of 
their incomes, they are willing to work hard and pull together for the 
sake of accomplishing a common mission. Clearly, NSPS takes this 
cooperative spirit out of the Federal workforce and therefore 
compromises, instead of bolsters, the Department's ability to respond 
to urgent national security needs.

                        SAFEGUARDS AGAINST ABUSE

    26. Senator Lieberman. Mr. Stewart, in your testimony you expressed 
concern that the proposed regulations do not contain adequate 
safeguards to help ensure fairness and guard against abuse. Could you 
elaborate on what kinds of safeguards you believe should be considered 
in this context?
    Mr. Stewart. As we noted in our statement, although DOD's proposed 
regulations provide for some safeguards to ensure fairness and guard 
against abuse, additional safeguards should be developed. We have 
developed an initial list of possible safeguards to help ensure that 
pay-for-performance systems in the government are fair, effective, and 
credible.\5\ The safeguards include, among other things, the following.
---------------------------------------------------------------------------
    \5\ GAO, Defense Transformation: Preliminary Observations on DOD's 
Proposed Civilian Personnel Reforms, GAO-03-717T (Washington, DC: Apr. 
29, 2003).

         Assure that certain predecisional internal safeguards 
        exist to help achieve the consistency, equity, 
        nondiscrimination, and nonpoliticization of the performance 
        management process (e.g., independent reasonableness reviews by 
        Human Capital Offices and/or Offices of Opportunity and 
        Inclusiveness or their equivalent in connection with the 
        establishment and implementation of a performance appraisal 
        system, as well as reviews of performance rating decisions, pay 
        determinations, and promotion actions before they are finalized 
        to ensure that they are merit-based; internal grievance 
        processes to address employee complaints; and pay panels whose 
        membership is predominately made up of career officials who 
        would consider the results of the performance appraisal process 
        and other information in connection with final pay decisions).
         Assure that there are reasonable transparency and 
        appropriate accountability mechanisms in connection with the 
        results of the performance management process. This includes 
        reporting periodically on internal assessments and employee 
        survey results relating to the performance management system 
        and publishing overall results of performance management and 
        individual pay decisions while protecting individual 
        confidentiality.
         Assure that the agency's performance management 
        systems (1) link to the agency's strategic plan, related goals, 
        and desired outcomes and (2) result in meaningful distinctions 
        in individual employee performance. This should include 
        consideration of critical competencies and achievement of 
        concrete results.
         Involve employees, their representatives, and other 
        stakeholders in the design of the system, including having 
        employees directly involved in validating any related 
        competencies, as appropriate.

    27. Senator Lieberman. Mr. Stewart, do you know of agencies where 
such mechanisms have proven effective to guard against unfairness and 
abuse in a pay-for-performance system?
    Mr. Stewart. The list of safeguards mentioned above are based on 
our extensive body of work looking at the performance management 
practices used by leading public sector organizations both in the 
United States and in other countries. However, we previously reported 
that DHS created a Homeland Security Compensation Committee that is to 
provide oversight and transparency to the compensation process. The 
committee--consisting of 14 members, including 4 officials of labor 
organizations--is to develop recommendations and options for the 
Secretary's consideration on compensation and performance management 
matters, including the annual allocation of funds between market and 
performance pay adjustments. We also reported that high performing 
organizations seek to create pay, incentive, and reward systems based 
on valid, reliable, and transparent performance, management systems 
with adequate safeguards and link employee knowledge, skills, and 
contributions to organizational results.\6\ To that end, we found that 
the demonstration projects took a variety of approaches to designing 
and implementing their pay for performance systems to meet the unique 
needs of their cultures and organizational structures. For example, the 
Department of Commerce uses a second-level review process as a 
safeguard. In this review process, the pay pool manager is to review 
recommended scores from subordinate supervisors and select a payout for 
each employee. The pay pool manager is to present the decisions to the 
next higher official for review if the pay pool manager is also a 
supervisor. In addition, the department had a grievance procedure that 
allowed employees to request reconsideration of performance decisions, 
excluding awards, by the pay pool manager through the department's 
Administrative Grievance Procedure or appropriate negotiated grievance 
procedures.
---------------------------------------------------------------------------
    \6\ GAO-04-83.
---------------------------------------------------------------------------
                                 ______
                                 
                Questions Submitted by Senator Jack Reed

                  LAB EXEMPTION FROM NSPS AUTHORITIES

    28. Senator Reed. Secretary England, Sec. 9902 of the authorizing 
legislation for the NSPS specifically exempts a number of defense 
laboratories from the NSPS until at least October 1, 2008. However, at 
the hearing, you stated that the labor relations portion of NSPS could 
be implemented on these same laboratories. It is my understanding that 
you are proceeding with this action. Please identify the statutory 
authority that enables the Department to implement any of the pieces of 
NSPS on the organizations exempted by section 9902.
    Secretary England. The NSPS statute in 9902(m) provides for the 
establishment of a labor relations system for the DOD to address the 
unique role that the DOD civilian workforce plays in supporting the 
Department's national security mission. The statute states that the 
labor relations system developed or adjusted under this subsection 
shall be binding on all bargaining units within DOD, all employee 
representatives of such units, and DOD and its subcomponents.

    COMPARISON OF AUTHORITIES OF LAB DEMONSTRATION PROGRAMS AND NSPS

    29. Senator Reed. Secretary England, you stated that the NSPS grew 
in some form from the work done in existing and ongoing laboratory 
demonstration programs. The NSPS legislation exempts a number of 
defense laboratories from inclusion into NSPS until at least October 1, 
2008, and then only includes them if the Secretary of Defense 
determines that the flexibilities for laboratories are greater in NSPS 
than under the demonstration programs. Until that determination is 
made, is it your intention to allow the laboratories to continue to 
modify their individual demonstration programs so that they can develop 
the best workforce to accomplish their unique mission?
    Secretary England. We will continue to monitor and learn from 
existing laboratory personnel demonstration projects. The NSPS strategy 
to preserve HR flexibilities via implementing issuances vice 
regulations provides the opportunity to learn from the demonstration 
projects and rapidly improve NSPS based on their experiences. We fully 
expect that once the laboratories named in subsection 9902(c)(2) are 
eligible for coverage under NSPS, the system will provide even greater 
flexibilities than the current personnel demonstration project 
authority, including the ability to modify the system faster to meet 
mission requirements.
    In the meantime, laboratories will operate their existing 
demonstration projects. Additionally, the Department is developing a 
plan for the effective utilization of personnel management authorities 
in the defense laboratories, in accordance with section 1107 of the 
NDAA for Fiscal Year 2005 (Public Law 108-375), October 28, 2004. The 
Department will be able to determine the feasibility and 
appropriateness of any modifications to individual demonstration 
projects following the completion of the section 1107 plan.

    30. Senator Reed. Secretary England, have you done any comparative 
analysis of the personnel authorities of NSPS and the personnel 
authorities possible under full implementation of the demonstration 
program authorities, including their continual modification and 
improvement by local laboratory directors, so as to be able to make a 
determination as to whether NSPS is in fact more supportive of the lab 
missions?
    Secretary England. A comparative analysis and assessment cannot be 
performed at this time, because final NSPS regulations have not yet 
been issued. The Department is now proceeding to draft and issue the 
final regulations in accordance with requirements of the NSPS statute. 
NSPS is a comprehensive HR system that will be supportive of the many 
different DOD missions. In general, the range of NSPS authorities 
exceeds those applicable to DOD laboratories under their current 
demonstration project authority. NSPS can make changes in the same 
areas that are open to DOD laboratories, as well as in the areas of the 
labor-management relations system and appeals process.
    The Department will conduct a substantive comparison of NSPS and 
laboratory demonstration project authorities in accordance with section 
1107 of the NDAA for Fiscal Year 2005, concerning effective utilization 
of personnel management authorities in DOD laboratories.
                                 ______
                                 
             Questions Submitted by Senator Daniel K. Akaka

                      NSPS TRAINING AND EDUCATION

    31. Senator Akaka. Secretary England, I have been contacted by 
several Federal managers who state that they are not receiving, and 
believe that they will not receive, sufficient information and training 
on the implementation of the NSPS. Would you explain what the DOD is 
doing and will do, in addition to posting information on the NSPS 
website, to train and educate managers on the system that is coming 
July 1, 2005?
    Secretary England. The NSPS training plan is a comprehensive, well-
planned learning strategy to prepare the DOD workforce for the 
transition to pay for performance. The plan is grounded in the belief 
that participants need to be informed and educated about NSPS and trust 
and value it as a system that fosters accountability, respects the 
individual, and protects his and her rights under the law. The plan 
incorporates a blended learning approach featuring Web-based and 
classroom instruction supplemented by a variety of learning products, 
informational materials, and workshops to effectively reach intended 
audiences with engaging, accurate, and timely content. Employees will 
receive training through three primary vehicles:

          Print Materials--directed to various targeted audiences to 
        raise awareness and educate them on key NSPS elements and 
        performance management concepts.
          Web-based Training--Two hour-long courses, ``Fundamentals of 
        NSPS'' and ``NSPS 101'' providing introductory, on-line 
        training delivered in a consistent manner in a self-paced, on-
        demand format. The ``NSPS 101'' course serves as a prerequisite 
        for the classroom sessions.
          Classroom Sessions--the primary vehicle to communicate 
        critical information, classroom sessions are under development 
        for employees, managers, and supervisors, and human resources 
        practitioners, and labor relations practitioners. The sessions 
        will provide key operational information on all NSPS systems 
        elements. Classroom training will be conducted using a train-
        the-trainer strategy, with trainers who participate in a train-
        the-trainer program leading all classroom training. Trainers 
        will be provided with fully scripted instructor guides and 
        include basic instructional content supplemented by video 
        vignettes and interactive exercises. Classroom training is 
        scheduled to occur approximately 4 to 6 weeks prior to NSPS 
        implementation.

                         THE VOLCKER COMMISSION

    32. Senator Akaka. Secretary England, the Volcker Commission gave 
several examples as models for labor-management reform, including the 
use of labor-management councils. The Commission noted that in these 
examples, both labor and management went the extra mile to work with 
each other which led to enhancement in communication and consensus. Did 
DOD consider the recommendations of the Volcker Commission in working 
with labor unions?
    Secretary England. Yes.

                NATIONAL SECURITY LABOR RELATIONS BOARD

    33. Senator Akaka. Secretary England, the law creating NSPS clearly 
states that the labor relations system developed shall provide for 
independent third-party review of decisions. However, the draft 
regulations create a new labor board, the NSLRB, within the Department 
with three members appointed by the Secretary who are not subject to 
any external review. Please explain how the NSLRB is an independent 
third-party review panel.
    Secretary England. While the Secretary will establish the NSLRB, 
safeguards are established in the proposed regulations to ensure that 
the NSLRB operates with independence. The members are appointed to 
fixed terms of 3 years, and can be extended for two additional 1-year 
appointments. Members will be independent, distinguished citizens known 
for their integrity, impartiality and expertise in labor relations and/
or the DOD mission, and/or relevant national security matters. The 
members are subject to the same stringent criteria for removing members 
of the Federal Labor Relations Authority (FLRA) and Merit Systems 
Protection Board, i.e. inefficiency, neglect of duty, or malfeasance. 
Finally, all decisions of the NSLRB are reviewable by the FLRA and the 
Federal circuit courts of appeals. All of these safeguards ensure that 
a fair review of labor disputes will be made by the NSLRB without undue 
influence by the Secretary or DOD management.

                          PAY-FOR-PERFORMANCE

    34. Senator Akaka. Secretary England, Iris Bohnet and Susan Eaton 
of the Kennedy School of Government at Harvard University recently 
published a paper titled ``Does Performance Pay Perform?'' The paper 
states that pay-for-performance requires the existence of certain key 
conditions to be an effective system for high motivation and outcomes. 
These conditions include assumptions about the output desired, the 
people providing the output, and the organizational context of the 
workers. However, the report found that these conditions are often not 
met in the public sector, in part because of the complexity of the 
typical government product, the nature of public goods, the increasing 
role of teamwork and cross-agency collaboration, and the social 
comparisons and internal dynamics of employees, whether public or 
private. What is your response to these findings in regards to NSPS?
    Secretary England. In keeping with the statutory mandate of 5 USC 
9902 to better link individual pay to performance, DOD is creating pay, 
incentive, and reward systems that clearly link employee achievements, 
contributions, knowledge, skills, and contributions to organizational 
results. At the same time, the Department recognizes that valid, 
reliable, and transparent performance management systems with adequate 
safeguards for employees are the precondition to such an approach. As 
it designs and implements NSPS the Department is taking the following 
steps:

         Training managers to provide candid and constructive 
        feedback to help employees maximize their contribution and 
        potential
         Emphasizing the need for ongoing and meaningful 
        dialogue between managers and employees
         Implementing a new competency-based performance 
        management system that is intended to create a clear linkage 
        between employee performance and our strategic plan and core 
        values
         Increasing employee understanding and ownership of the 
        organizational goals and objectives
         Adopting automation tools that facilitate ``best 
        practices'' in the pay for performance environment
         Reinforcing the use of team and organizational rewards
         Preserving non-cash rewards as tools to recognize 
        performance.

                   SAFETY AND HEALTH OF DOD EMPLOYEES

    35. Senator Akaka. Secretary England, I am concerned that NSPS may 
have an adverse impact on the safety and health of DOD employees. Under 
the proposed regulations, unions are limited in their ability to 
bargain over procedures and technology that can have an adverse impact 
on the safety and health of DOD workers. In addition, a pay-for-
performance system could lead to a situation that rewards production 
and timing over the quality of work or the ability of individuals to 
carry out their duties with the utmost care and safety. What assurances 
can you provide that the safety and health of DOD workers will not be 
compromised by the implementation of NSPS?
    Secretary England. The Department takes the health and safety of 
its employees very seriously. While collective bargaining agreements 
may provide for provisions regarding safety, these agreements cannot 
conflict with the statutory safeguards regarding safety that already 
exist for all of our employees. The Department regularly takes steps to 
ensure the health and safety of its employees even for employees not 
covered by collective bargaining agreements. These safeguards will not 
go away due to NSPS. Also, the proposed regulations attempt to strike a 
balance between employee interests and DOD's need to accomplish its 
mission effectively and expeditiously. For example, while the proposed 
regulations eliminate bargaining on procedures regarding operational 
management rights (which cover safety and health matters), the proposed 
regulations also continue to provide for bargaining on impact and 
appropriate arrangements for all management rights (such as safety and 
health issues). Finally, the proposed regulations provide for 
consultation on procedures regarding the operational management rights, 
which lie at the very core of how DOD carries out its mission. The 
regulations continue to provide the unions a voice on safety issues 
through bargaining or consultation.
    A pay for performance system is not inconsistent with and, in fact, 
can support the Department's concern for safety issues. Although 
factors such as timing and levels of production are frequently key 
elements of performance objectives, these objectives must also take 
into account the need for adherence to safety guidelines and the 
willingness to identify concerns about work practices that raise safety 
issues. The Department's training for supervisors will include sessions 
on how to write performance objectives that address health and safety.

                  RESTRUCTURING DOD'S PERSONNEL SYSTEM

    36. Senator Akaka. Secretary England, one of the Department's 
concerns when asking for authority to restructure DOD's personnel 
system in August 2003, was the lengthy and complicated process required 
for hiring people to fill critical skill areas, especially in areas 
needed in support of the global war on terrorism. Other than the 
ability of the Secretary to quickly hire individuals identified as 
``qualified experts,'' what are some of the authorities that DOD will 
use under NSPS in order to streamline the hiring process?
    Secretary England. The proposed regulations give DOD the ability to 
establish direct hiring authorities that can be used in situations 
where there are critical needs or severe shortages. DOD will also be 
able to create new authorities as necessary by publishing (jointly with 
OPM) a notice for in the Federal Register. If a critical mission need 
arises, DOD can implement new hiring authorities without a preceding 
comment period. In these cases, a comment period would follow the 
implementation of the authority and the authority could be modified 
subsequently based on comments received. The proposed regulations also 
give DOD the ability to streamline the process for examining 
applicants. Any process developed by DOD must be consistent with merit 
system principles and veterans' preference.

                               SPIRAL ONE

    37. Senator Akaka. Secretary England, under the spiral 
implementation plan for NSPS, Spiral One will begin around July 2005 
covering some 60,000 employees. The second spiral will begin after the 
Department has assessed Spiral One and after the Secretary of Defense 
certifies DOD's performance management system. What is the process the 
Department will follow for assessing Spiral One?
    Secretary England. The Department's workforce composition is very 
complex, and NSPS is intricate. We have adopted a spiral approach to 
phase in NSPS employment, compensation, performance, and other 
provisions besides labor relations. Spiral One will be white-collar 
jobs, and will phase in units in three increments. The first, Spiral 
1.1, will be robust in size and mix. The Department will conduct the 
performance management system assessment based on Spiral 1.1 units, 
upon completion of their first performance rating and payout cycle. 
This assessment will enable the Secretary of Defense to determine if 
the performance management system meets the statutory criteria so that 
we can apply NSPS beyond the cap of 300,000 employees.
    The Department has a second, separate assessment objective for 
Spiral One: to determine if NSPS is operating within the Department's 
key performance parameters, and if there are good practices to share or 
systemic weaknesses that require correction. For this purpose, the 
Program Executive Officer is developing a comprehensive, long-term 
evaluation plan. It will include periodic activities like attitude 
surveys and statistical analysis of human resource transactions under 
NSPS; scheduled special studies of key practices and effects of NSPS; 
and participant observation focus groups. We shall use existing sources 
whenever possible, like the Defense Civilian Personnel Data System and 
DOD Status of Forces Civilian opinion survey, and incorporate or 
extract NSPS-related data. Once Spiral One is completed, we shall 
prepare an interim NSPS assessment report that draws on the findings of 
the preceding evaluation activities.

    38. Senator Akaka. Secretary England, what criteria will the 
Secretary use to certify DOD's performance management system?
    Secretary England. The Department is developing the criteria. We 
plan to use feature and outcome oriented criteria, calling on our 
experience with demonstration project performance management systems 
and recent OPM guidelines for certifying pay for performance systems. 
For example, we can determine if the system features a process for 
feedback and review timetables, and a means for assuring adequate 
system resources, by looking at system design and policies. Once the 
system is up and running, we can use outcome-oriented criteria, for 
example, assessing adequate training in terms of positive participant 
feedback, or effective safeguards in terms of comparative rating and 
payout patterns and results of reconsideration processes.

        PERSONNEL SYSTEM AT THE DEPARTMENT OF HOMELAND SECURITY

    39. Senator Akaka. Mr. Blair, in response to a question I posed at 
an Oversight of Government Management Subcommittee (Homeland Security 
and Governmental Affairs Committee) hearing last month, the DOD 
submitted several examples of cases where it believes MSPB 
administrative judges did not take the Department's mission into 
account in deciding cases. One example involved the Department's 
proposed removal of an employee with 28 years of experience who took a 
$5 piece of surplus tubing. The MSPB reduced the penalty to a 90-day 
suspension. Is it the administration's intent to fire employees, with 
otherwise outstanding service, for minor offenses under both the NSPS 
at DOD or the new personnel system at the DHS?
    Mr. Blair. No, the administration does not intend to remove 
employees for minor offenses. Every case is of course unique and what 
seems like a minor offense may, under certain circumstances have a 
major impact on the mission of the agency. For example, sleeping at 
one's desk may be a minor offense for a file clerk, but is a major 
offense when committed by a security guard. The final DHS regulations 
and the proposed NSPS regulations recognize the critical nature of 
those agencies' missions and simply require that, prior to mitigating a 
penalty, MSPB give due deference to the assessment made by the agency 
of the impact the misconduct had on that mission.

                     ESTABLISHMENT OF CAREER GROUPS

    40. Senator Akaka. Mr. Blair, under the proposed NSPS regulations, 
DOD may establish career groups based on various factors such as 
mission, nature of work, qualifications or competencies, and other 
characteristics. The Department states that it will document in the 
implementing issuances the criteria and rationale for grouping 
occupations or positions into career groups. When will this criteria be 
available for the Department's employee representatives?
    Mr. Blair. As specified in the proposed NSPS regulations, the 
career groups and the criteria for the groups will be provided in 
implementing regulations. Proposed Sec. 9901.106(a)(3)(i) states that 
``Within timeframes specified by the Secretary, employee 
representatives will be provided with an opportunity to submit written 
comments to, and to discuss their views with, DOD officials on any 
proposed final draft implementing issuances.''

    41. Senator Akaka. Mr. Blair, will they be provided the opportunity 
to make comment or will the criteria be adopted without comment?
    Mr. Blair. As stated in proposed Sec. 9901.106(a)(3)(i) ``Within 
time frames specified by the Secretary, employee representatives will 
be provided with an opportunity to submit written comments to, and to 
discuss their views with, DOD officials on any proposed final draft 
implementing issuances.''

                           WORKING CONDITIONS

    42. Senator Akaka. Mr. Gage, you testified that the NSPS will 
eliminate the ability of unions to negotiate over critical working 
conditions. Will you please explain the differences between current law 
and NSPS regarding bargaining over working conditions and the impact of 
these changes will have on DOD workers?
    Mr. Gage. The provisions in NSPS severely restrict the unions' 
ability to bargain over working conditions, and thereby restrict the 
unions' ability to ensure a healthy and encouraging working environment 
for the employees they represent. The proposed restriction on 
collective bargaining contained in DOD's proposed NSPS regulations 
takes several very important issues that significantly effect working 
conditions ``off the table,'' including: overtime, shift rotation, 
flexi-time, alternative work schedules, and deployment away from 
regular work locations. Although these issues greatly impact the 
quality of work life for the employee, the proposed NSPS regulations 
undermines the unions' right to negotiate over these provisions.

                        HIGHER STANDARD PROPOSED

    43. Senator Akaka. Mr. Gage, I am deeply concerned about the higher 
standard proposed by DOD under NSPS for the MSPB to meet in order to 
mitigate penalties imposed by the Department. In your opinion, what 
impact will this change have on the ability of employees to have their 
cases fairly and justly adjudicated?
    Mr. Gage. The standard for mitigation by the MSPB of discipline and 
penalties imposed on employees under NSPS in the proposed regulations 
is virtually impossible to meet and effectively removes the possibility 
of mitigation. In a court of law, the standard of review to determine 
if the penalty a Department imposes is to assess if the action was 
``unreasonable.'' Under the new proposal the bar would be raised and 
employees would have to prove that the adverse action is ``wholly 
unjustified.'' This new standard will completely eviscerate the 
employee's ability to have his or her cases fairly and justly 
adjudicated. The new standard shifts a disproportionate amount of the 
burden for proving any wrongdoing onto the employee while management 
officials or any other person in a supervisory position will be given 
an additional opportunity to treat workers unfairly without any fear of 
reprisal. Determining if an adverse action is ``unreasonable'' is an 
equitable standard of review, backed by 25 years of precedence upon 
which decisionmakers can base their conclusions. The ``wholly 
unjustified'' standard proposed by Secretary Rumsfeld is vaguely 
defined and opens the door to arbitrary and capricious decisionmaking. 
This type of adjudication defeats the purpose for which the MSPB was 
originally established: to provide a fair and unbiased forum where 
employees can appeal to have the merit system principles upheld.

                          NSPS APPEALS PROCESS

    44. Senator Akaka. Ms. Sistare, you made several suggestions in 
your written testimony as to how the DOD can improve the perception of 
fairness in the NSPS appeals process. What specific suggestions do you 
have regarding the proposed standard for the mitigation of penalties by 
the MSPB and the ability of DOD to overturn a decision by a MSPB 
administrative judge?
    Ms. Sistare. It is my view that the first level of adjudication and 
appeal is most critical to employees. It is difficult for an employee 
to ``take on'' his or her employing agency, and employees should not 
have to look to higher levels of appeal for fair resolution of their 
cases. I believe it is appropriate to continue MSPB in its role as a 
forum for appeals. If the written standards for MSPB's review are clear 
and comprehensive, and take DOD's mission into consideration, the need 
for reconsideration by DOD could be avoided.

                           EMPLOYEE TRAINING

    45. Senator Akaka. Ms. Sistare and Mr. Stewart, an issue raised 
repeatedly in discussions over the personnel changes at DOD and DHS is 
the need for adequate training for all employees on the new personnel 
system. Have you looked into this issue, and if so, what 
recommendations do you have regarding the amount, type, or regularity 
of personnel training that is needed to launch and sustain a new 
personnel system?
    Ms. Sistare. The recommendations of the National Commission on the 
Public Service (Volcker Commission), panel reports by the National 
Academy of Public Administration, and certainly the experience and 
recommendations of the GAO have all emphasized the importance of early, 
sustained, and ongoing training to the successful implementation of 
performance based pay. In fact, the successful development and 
implementation of any personnel change requires understanding, buy-in, 
and ongoing communication--all of which require training. Some of this 
training--that which is primarily introductory and informational or 
describes processes--can be written or on-line. Those who have studied 
and implemented such systems believe, however, that the ability to 
interact and communicate that is required to implement a performance 
based pay system must be taught in a direct and interactive setting. I 
believe that to be fully successful, it will require the additional 
steps of role playing and coaching.
    Mr. Stewart. As we noted in our report, Human Capital: A Guide for 
Assessing Strategic Training and Development Efforts in the Federal 
Government,\7\ training and developing new and current staff to fill 
new roles and work in different ways will be a crucial part of the 
Federal Government's endeavors to meet its transformation challenges. 
DOD and DHS are significant components of this transformation.
---------------------------------------------------------------------------
    \7\ GAO, Human Capital: A Guide for Assessing Strategic Training 
and Development Efforts in the Federal Government, GAO-04-546G 
(Washington, DC: March 2004).
---------------------------------------------------------------------------
    In April 2004, GAO and the National Commission on the Public 
Service Implementation Initiative hosted a forum on whether there 
should be a governmentwide framework for human capital reform and, if 
so, what this framework should include. As part of the criteria that 
agencies should have in place as they plan for and manage their new 
human capital authorities, participants generally agreed that adequate 
resources for planning, implementation, training, and evaluation were 
needed. Additionally, they noted that agencies should ensure adequate 
training as they implement new human capital authorities.
    Selected OPM personnel demonstration projects trained employees on 
the performance management system prior to implementation to make 
employees aware of the new approach, as well as periodically after 
implementation to refresh employee familiarity with the system. The 
training was designed to help employees understand their applicable 
competencies and performance standards; develop performance plans; 
write self-appraisals; become familiar with how performance is 
evaluated and how pay increases and awards decisions are made; and know 
the roles and responsibilities of managers, supervisors, and employees 
in the appraisal and payout processes. According to the DHS 
regulations, its performance management system is designed to 
incorporate adequate training and retraining for supervisors, managers, 
and employees in the implementation and operation of the system.
    GAO currently is reviewing training and development issues at DHS. 
Our work includes a review of DHS's training efforts on its new 
personnel system, MAXHR. Our report is scheduled to be released this 
fall.

                          EMPLOYEE PERFORMANCE

    46. Senator Akaka. Ms. Sistare and Mr. Stewart, both the DHS and 
DOD personnel systems permit managers to convey performance 
expectations to employees orally. I think this can put employees at a 
disadvantage, especially as their pay will be more closely tied to 
their performance. How can employees be held accountable for 
performance expectations provided orally?
    Ms. Sistare. I believe it is necessary to distinguish clearly 
between performance standards and tasks. Performance standards, as the 
term is used by GAO and others for the implementation of a performance 
based pay system, need to be clearly aligned with the work expectations 
of the employee and the agency's mission. This level of performance 
standard should, in my view, be clearly communicated and written. 
Individual tasks assigned pursuant to performance standards can be 
oral, and it would in many cases be overly cumbersome to require that 
they be written. In between these two standards, I would recommend 
written as well as oral communication, when it is not unreasonably 
burdensome, as clarity, communication, and the opportunity for 
interaction are regarded as key to successful administration of 
performance based pay.
    Mr. Stewart. To help enhance credibility and fairness and avoid any 
problems, some sort of written documentation of performance 
expectations is appropriate, in addition to orally communicating 
performance expectations. However, the means can vary.

                          GUARD AGAINST ABUSE

    47. Senator Akaka. Mr. Stewart, you testified as to the lack of 
details in the NSPS proposed regulations, including the absence of 
adequate safeguards to ensure fairness and guard against abuse in 
measuring performance and paying employees. What sort of oversight do 
you believe is needed to promote consistency of the performance 
management system and do you believe external review of pay and 
performance decisions is necessary?
    Mr. Stewart. In April 2003, when commenting on DOD civilian 
personnel reforms, we testified that Congress should consider 
establishing statutory standards that an agency must have in place 
before it can implement a more performance-based pay program, and we 
developed an initial list of possible safeguards to help ensure that 
pay-for-performance systems in the government are fair, effective, and 
credible.\8\ One of the safeguards we identified is to assure that 
certain pre-decisional internal safeguards exist to help achieve the 
consistency, equity, nondiscrimination, and nonpoliticization of the 
performance management process. For example, independent reasonableness 
reviews by Human Capital Offices and/or Offices of Opportunity and 
Inclusiveness or their equivalent in connection with the establishment 
and implementation of a performance appraisal system, as well as 
reviews of performance rating decisions, pay determinations, and 
promotion actions before they are finalized to ensure that they are 
merit-based; internal grievance processes to address employee 
complaints; and pay panels whose membership is predominately made up of 
career officials who would consider the results of the performance 
appraisal process and other information in connection with final pay 
decisions.
---------------------------------------------------------------------------
    \8\ GAO-03-717T.

    48. Senator Akaka. Mr. Stewart, what kind of external review would 
you propose?
    Mr. Stewart. We reported that independent reasonableness reviews by 
Human Capital Offices and/or Offices of Opportunity and Inclusiveness 
or their equivalent in connection with the establishment and 
implementation of a performance appraisal system and the effective 
implementation of a compensation committee similar to the Homeland 
Security Compensation Committee are important to assuring that 
predecisional internal safeguards exist to help achieve consistency and 
equity and assure nondiscrimination and nonpoliticization of the 
performance management process.\9\
---------------------------------------------------------------------------
    \9\ GAO-04-320T.
---------------------------------------------------------------------------
    In our report on implementing pay for performance at selected 
personnel demonstration projects, we mentioned that some of the 
demonstration projects implemented as safeguards a second-level review 
and grievance process, as these examples illustrate.
    Second-level review process:

         Second-level supervisors are to review all 
        assessments. In addition, an overall assessment of ``highly 
        successful'' is to be sent to the appropriate department's 
        Performance Review Board for the assignment of an official 
        rating of ``1'' or ``2.'' The supervisor and reviewer are to 
        assign a ``4'' or ``5'' rating based on a problem-solving 
        team's findings and a personnel advisor's input.
         Pay pool managers review recommended scores from 
        supervisors and select a payout for each employee. The pay pool 
        manager is to present the decisions to the next higher official 
        for review if the pay pool manager is also a supervisor.

    Grievance process:

         Employees may request reconsideration of their ratings 
        in writing to the third-level supervisor and indicate why a 
        higher rating is warranted and what rating is desired. The 
        third-level supervisor can either grant the request or request 
        that a recommending official outside of the immediate 
        organization or chain of authority be appointed. The employee 
        is to receive a final decision in writing within 21 calendar 
        days.
         Employees may grieve their ratings and actions 
        affecting the general pay increase or performance pay 
        increases. An employee covered by a negotiated grievance 
        procedure is to use that procedure to grieve his or her score. 
        An employee not under a negotiated grievance procedure is to 
        submit the grievance first to the rating official, who will 
        submit a recommendation to the pay pool panel. The pay pool 
        panel may accept the rating official's recommendation or reach 
        an independent decision. The pay pool panel's decision is final 
        unless the employee requests reconsideration by the next higher 
        official to the pay pool manager. The official would then 
        render the final decision on the grievance.

                        EMPLOYEE APPEALS PROCESS

    49. Senator Akaka. Mr. Stewart, the proposed regulations provide 
for an accelerated MSPB adjudication process for employee appeals. I 
have long been concerned about the impact a shortened processing time 
for one agency may have on employees at other agencies with cases 
pending before the MSPB. Do you believe the NSPS regulations will have 
an adverse effect on employee appeals both at DOD and at other Federal 
agencies?
    Mr. Stewart. The U.S. Merit Systems Protection Board will not know 
the actual impact until a number of cases are adjudicated.
                                 ______
                                 
               QUESTIONS SUBMITTED BY SENATOR BILL NELSON
                      PERFORMANCE BASED PAY SYSTEM

    50. Senator Bill Nelson. Secretary England and Mr. Blair, while the 
GAO has been successful in implementing a pay for performance system, 
the National Association of Public Administration's studies and the 
GAO's own experiences illustrate several factors that need to be 
addressed when adopting performance based pay in the Federal 
Government. I am concerned that the lack of detail in the current 
process fails to address these factors, and as a result will have a 
significant impact on DOD's implementation plans and the ultimate 
success of the NSPS. I would appreciate your assessment of DOD's 
concept and plans for a performance based pay system, specifically with 
regard to risk. Do you envision high, medium, or low risk for 
successful implementation--and impact on mission accomplishment--in 
terms of: Timeline for implementation? Complexity? Cultural change 
required? Adequacy of funding levels? How do you intend to minimize or 
mitigate risks?
    Secretary England. NSPS represents a very significant change in the 
DOD. However, the risk of potential negative impact on mission 
accomplishment is minimal, and is far out-weighed by the advantages 
that a modern human resources system and pay for performance culture 
will bring to the Department. The Department and the components have 
established a risk management process to identify, address, and manage 
NSPS risks. After risks are identified, mitigation strategies are 
proposed and evaluated. Each risk may have very different mitigation 
options, and might include such things as: training, schedule changes, 
increased funding, or policy changes. The risks associated with the 
implementation timeline, implementation complexity, cultural change, 
and adequacy of funding levels are address below.
Timeline For Implementation
    The greatest risks associated with the NSPS implementation and 
deployment timeline are associated with system and organizational 
readiness. Therefore, the Department has determined that the NSPS 
implementation and deployment schedule is event-driven. This means that 
NSPS will only be deployed when it is ready--meaning all stakeholders 
have been adequately trained, the IT systems and policies and 
procedures have been developed and tested, and organizations are ready 
to make the cultural change to NSPS.
Complexity
    NSPS is a large and complex program, and therefore will take a 
great deal of time and effort to deploy. However, managing large 
projects is something that the Department of Defense does very well 
every day. To address the implementation complexities of NSPS, along 
with the NSPS Program Executive Officer (PEO), each component has 
established a dedicated program manager and full-time staff to help 
manage NSPS deployment. In addition, components have identified 
implementation leads at several different levels within their 
component, from the major command/claimant level down to the 
installation and activity level. The PEO is also developing a Web-based 
readiness tool that will help organizations and their chain of command 
understand implementation tasks and monitor their readiness to 
implement NSPS.
Cultural Change
    NSPS brings with it a very significant cultural change, and as with 
any change there exists the risk that a population will reject it. In 
order to lessen this risk and better prepare the workforce for the 
cultural change that comes with NSPS, each component has rolled out 
change management training. In addition, the PEO and components have 
kept the workforce informed about NSPS by communicating current and 
pertinent information as soon as it is available, including a very 
robust Web site. The PEO and components have also prepared information 
packages for local commanders and encouraged them to share information, 
such as what NSPS will and will not change, with their workforces.
Adequacy of Funding Levels
    One of the key requirements of the NSPS performance management 
system is to be able to provide meaningful financial rewards to good 
performers. Without the proper funding, this requirement cannot be 
realized. The NSPS statute requires that ``to the maximum extent 
practicable, for fiscal years 2004 through 2008, the overall amount 
allocated for compensation of the DOD civilian employees who are 
included in the NSPS may not be less than the amount that would have 
been allocated for compensation of such employees for such fiscal years 
if they had not been converted to the NSPS.'' In order to 
operationalize this requirement, an issuance will be developed to 
provide fiscal guidance to the components. In addition to the financial 
policy, funding requirements will also be reinforced through training.
    Mr. Blair. Highly experienced and knowledgeable OPM subject-matter 
experts have worked, and will continue to work, very closely with DOD 
experts to develop the framework for the NSPS performance-based 
compensation system. OPM has similar and recent experience with the DHS 
and a long history of monitoring and evaluating demonstration projects 
that employ similar pay systems. These experiences give me great 
confidence in the jointly-developed NSPS framework.
    One of the strongest features of NSPS is that a number of its 
details will be developed within the context of a continuing 
collaboration process with employee representatives. This, together 
with DOD's decision to phase in the implementation of its pay-for-
performance system through a series of ``spirals,'' makes the overall 
risk associated with implementation extremely low. Our experience and 
research allow us to go forward with confidence that NSPS will enjoy 
successful implementation. DOD also will mitigate any risk by investing 
resources toward training of the workforce in all aspects of the new 
system.

    51. Senator Akaka. Mr. Stewart, Mr. Gage, and Ms. Sistare, what do 
you recommend to minimize or mitigate risks?
    Mr. Stewart. The key to a successful organizational transformation 
is to implement strategies to help individuals maximize their full 
potential in the new organization, while simultaneously managing the 
risk of reduced productivity and effectiveness that often occurs as a 
result of the changes. While there is no one right way to manage a 
successful merger, acquisition, or transformation, the experiences of 
both successful and unsuccessful efforts suggest that there are 
practices that are key to their success. These key practices include 
the following:

          1. Ensure top leadership drives the transformation. 
        Leadership must set the direction, pace, and tone and provide a 
        clear, consistent rationale that brings everyone together 
        behind a single mission.
          2. Focus on a key set of principles and priorities at the 
        outset of the transformation. A clear set of principles and 
        priorities serves as a framework to help the organization 
        create a new culture and drive employee behaviors.
          3. Set implementation goals and a timeline to build momentum 
        and show progress from day one. Goals and a timeline are 
        essential because the transformation could take years to 
        complete.
          4. Dedicate an implementation team to manage the 
        transformation process. A strong and stable team is important 
        to ensure that the transformation receives the needed attention 
        to be sustained and successful.
          5. Establish a communication strategy to create shared 
        expectations and report related progress. The strategy must 
        reach out to employees, customers, and stakeholders and engage 
        them in a two-way exchange.\10\
---------------------------------------------------------------------------
    \10\ GAO, Results-Oriented Cultures: Implementation Steps to Assist 
Mergers and Organizational Transformations, GAO-03-669 (Washington, DC: 
July 2, 2003).

    Mr. Gage. The design and creation of NSPS has been a covert 
maneuver from its very inception. DOD has released regulations but has 
failed to concretely define them. We are deeply concerned that the 
``pay for performance'' system may be twisted into a forced 
distribution system where employees receive awards and pay adjustments 
not based on their merit but based on a system of outright bias. We are 
strongly opposed to this system not only because of the enormous 
discretion it places in the hands of current and future officials but 
because of the monumental risks associated with its implementation. In 
order to minimize or mitigate these risks we strongly recommend that 
employees and/or their representatives have a strong influence in the 
implementation of this process. In order for the new pay system to be 
as transparent and objective as the General Schedule system, we 
recommend that decisions regarding pay be made in collective 
bargaining, where employees and their representatives can be equal 
partners in the process and have the opportunity to influence its 
outcome.
    Ms. Sistare. The National Academy of Public Administration and the 
National Commission on the Public Service (Volcker Commission) hosted a 
forum on successful implementation of performance based pay in the fall 
of 2003. There was wide agreement among participants that while 
implementing performance based pay is difficult, the results in terms 
of mission performance and employee satisfaction are fully worth it. 
The imperatives for successful implementation, as articulated in the 
report on this forum, are as follows:

         A credible appraisal methodology
         A transparent system
         A timely set of processes
         Consultation with those affected
         Peer review
         Ongoing communications, including feedback from all 
        involved
         Training of managers and supervisors, who themselves 
        are evaluated on how they manage performance
         Training of employees to participate in the system

    To this list, Paul Volcker added the importance of careful and 
ongoing oversight by the responsible leadership in the executive branch 
and by Congress.
    Participants also identified several factors for which implementers 
must be prepared:

         Adequate time: adoption of pay for performance will 
        take time
         Verifiable performance systems: individual performance 
        must be linked to organization goals and sound performance 
        management systems, including agreement and buy-in among all 
        those who are part of the system
         Culture change
         Adequate funding
         Careful assessments: pay for performance is 
        complicated because it is difficult to make meaningful 
        distinctions in evaluating performance once one gets below the 
        top performers in an organization.

                        WHISTLEBLOWER PROTECTION

    52. Senator Akaka. Secretary England and Mr. Blair, it is the 
employees of agencies--the folks on the ground--who have the most 
thorough knowledge of how our government operates on a day-to-day 
basis. It is these government workers, when they see failures or 
shortcomings who step up to the plate as a whistleblower. 
Whistleblowers are key to good government. They point out waste, fraud, 
abuse, and weaknesses in the operations of our agencies. In recent 
years there have been several examples of rank-and-file government 
employees who have pointed out problems with government systems that 
subsequently were improved. If government workers fear for their jobs, 
and don't trust the personnel systems to protect them, we lose our most 
effective watchdogs. What assurances can you give employees that they 
will be protected should they feel compelled to come forward with 
information?
    Secretary England. It is a common misconception that whistleblower 
protection is changed or impacted by NSPS. Current law and policy 
ensures management cannot take or threaten to take an action because 
someone is a whistleblower. We do not want this to change and it has 
not and cannot be changed by NSPS.
    Mr. Blair. DOD employees will continue to enjoy the same 
protections from whistleblower reprisal as they do today. The proposed 
NSPS regulations maintain the current protections for whistleblowers 
under the law as NSPS legislation charged OPM and DOD to do. The 
proposed regulations do not change the avenues of redress available to 
employees who believe they have been subjected to reprisal for 
whistleblowing. Employees will know that they are protected in the same 
manner as today should they feel compelled to come forward with 
information under the NSPS.

    53. Senator Akaka. Secretary England and Mr. Blair, what are the 
various mechanisms the new system will use to guarantee a Federal 
worker who speaks his or her mind won't be subjected to retribution by 
their supervisors?
    Secretary England. The Department cannot and does not wish to 
change rules regarding prohibited personnel practices. Rules remain 
unchanged regarding prohibited personnel practices and are reviewable 
by outside independent agencies such as the Office of Special Counsel 
and the Merit Systems Protection Board.
    Mr. Blair. As noted above, employees will be able to file 
complaints of whistleblower reprisal to the Office of Special Counsel 
which can investigate such complaints and file on behalf of the 
employee before the Merit Systems Protection Board. If the Special 
Counsel declines to pursue a complaint, an employee is entitled to file 
an appeal directly with the MSPB. In addition, employees will be 
entitled to raise whistleblower reprisal as an affirmative defense in 
any adverse action appeal to the MSPB. These are the same mechanisms 
that are in place today so employees will see no change in this regard.
                                 ______
                                 
         Questions Submitted by Senator Hillary Rodham Clinton

                      DEFENDING COMPUTER NETWORKS
 
   54. Senator Clinton. Secretary England, Rome Lab in New York has a 
unique mission to help defend the computer networks that support many 
of our warfighting efforts. This mission requires them to compete with 
private industry for a limited pool of highly compensated cybersecurity 
specialists. I understand that Rome, as part of the overall Air Force 
Research Lab, is operating under a congressionally authorized special 
personnel system that has enabled them to recruit, hire, and retain 
these types of people, as well as electrical engineers and other 
scientists. These systems are controlled at the local level and as such 
are very responsive to the specialized needs of each lab--for example, 
hiring computer specialists to come to Rome. How will these ongoing 
special personnel demonstration programs be handled in the NSPS?
    Secretary England. As noted at question 30, above, NSPS is a 
comprehensive HR system that will be supportive of the many different 
DOD missions. In general, the range of NSPS authorities exceeds those 
applicable to DOD laboratories under their current demonstration 
project authority. NSPS can make changes in the same areas as are open 
to DOD laboratories, and also in the areas of the labor-management 
relations system and appeals process.
    The Department will conduct a substantive comparison of NSPS and 
laboratory demonstration project authorities in accordance with section 
1107 of the NDAA for Fiscal Year 2005, concerning effective utilization 
of personnel management authorities in DOD laboratories.

                           PERSONNEL PROGRAMS

    55. Senator Clinton. Secretary England, the National Defense 
Authorization Act for Fiscal Year 2004 excluded these programs from 
inclusion in NSPS so places like Rome could continue to provide the 
best support to our warfighters. Congress was unwilling to disrupt an 
ongoing successful program at such a critical juncture. How do you plan 
to enable places like Rome to continue and expand their unique 
personnel programs so they can best perform their missions?
    Secretary England. We will continue to monitor and learn from our 
existing laboratory personnel demonstration projects, including the 
Rome Research Site. The NSPS strategy to preserve HR flexibilities via 
implementing issuances vice regulations provides the opportunity to 
learn from the demos and rapidly improve NSPS based on their 
experiences. We fully expect that once the Air Force Research 
Laboratory (which includes Rome Research Site) is eligible for coverage 
under NSPS, the system will provide even greater flexibilities than the 
current personnel demonstration project authority, including the 
ability to modify the system faster to meet mission requirements. In 
the meantime, the Laboratory will operate under its demonstration 
project authority, with the ability to modify its system if necessary. 
The Department is developing a plan for the effective utilization of 
flexible personnel management authorities in the Defense Laboratories, 
in accordance with section 1107 of the National Defense Authorization 
Act for Fiscal Year 2005.

    [Whereupon, at 12:05 p.m., the committee adjourned.]

                                 
