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



                                                       S. Hrg. 109--794
 
    SENIOR EXECUTIVES: LEADING THE WAY IN FEDERAL WORKFORCE REFORMS

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



                                HEARING

                               before the

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

                                 of the

                              COMMITTEE ON
                         HOMELAND SECURITY AND
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 26, 2006

                               __________

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




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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

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

                   Brandon L. Milhorn, Staff Director
             Michael L. Alexander, Minority Staff Director
                  Trina Driessnack Tyrer, Chief Clerk


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

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

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


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Akaka................................................     1
    Senator Voinovich............................................     2

                               WITNESSES
                      Tuesday, September 26, 2006

Hon. Linda M. Springer, Director, Office of Personnel Management.     4
Brenda S. Farrell, Acting Director, Strategic Issues, Government 
  Accountability Office..........................................    16
Carol A. Bonosaro, President, Senior Executives Association......    18

                     Alphabetical List of Witnesses

Bonosaro, Carol A.:
    Testimony....................................................    18
    Prepared statement...........................................    48
Farrell, Brenda S.:
    Testimony....................................................    16
    Prepared statement...........................................    34
Springer, Hon. Linda M.:
    Testimony....................................................     4
    Prepared statement...........................................    29

                                APPENDIX

Questions and answers submitted for the Record from:
    Ms. Springer.................................................    52
    Ms. Farrell..................................................    63
    Ms. Bonosaro.................................................    69
Letter dated November 17, 2006, from Carol A. Bonosaro...........    72


    SENIOR EXECUTIVES: LEADING THE WAY IN FEDERAL WORKFORCE REFORMS

                              ----------                              


                      TUESDAY, SEPTEMBER 26, 2006

                                   U.S. Senate,    
                Oversight of Government Management,        
                       the Federal Workforce, and the      
                     District of Columbia Subcommittee,    
                    of the Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 11:01 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. George V. 
Voinovich, Chairman of the Subcommittee, presiding.
    Present: Senators Voinovich and Akaka.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka [presiding]. On behalf of Senator Voinovich, 
who will be here shortly, I call this hearing of the 
Subcommittee on Oversight of Government Management, the Federal 
Workforce, and the District of Columbia to order. I would like 
to welcome our witnesses who are here to discuss the Senior 
Executive Service (SES) pay-for-performance system.
    Today's hearing offers another opportunity to review the 
challenges associated with moving to a pay-for-performance 
system and to show agencies, such as the Departments of Defense 
and Homeland Security, what works and what does not work.
    This Administration is pushing to replace the current 
personnel system with pay-for-performance. Such an obvious 
pocketbook issue makes it imperative that, should any changes 
occur, they start at the senior levels first. However, senior 
executives and managers must have trust in a new system and 
have confidence that the processes, by which their performance 
is appraised and their compensation is determined, are fair.
    Last week, the Senior Executives Association (SEA) released 
the results of the survey of members and non-members on the SES 
pay-for-performance system, which raise serious concerns. The 
results are disturbing. Despite the Administration's claims 
that the SES system is successful, the survey tells a different 
story.
    Respondents say that their new pay-for-performance system 
lacks transparency, fails to link pay with performance ratings, 
and serves no purpose other than lowering employee morale. I am 
especially troubled that over half--that is, 53 percent--
believe that quotas were used to determine bonuses last year, 
despite explicit Office of Personnel and Management (OPM) 
regulations prohibiting such a practice.
    Director Springer and I have met regarding the issue of 
quotas, and I believe her when she says quotas are 
unacceptable. However, if quotas are not being used, then there 
is a serious perception problem that must be addressed. I look 
forward to hearing what steps OPM is taking to resolve this 
problem.
    So let's be clear. The competitive selection process for 
members of the SES should ensure that the best people are 
leading the Federal Government. So when it comes to evaluating 
the performance of these highly qualified individuals, high 
performance ratings should be expected. Agencies that lower 
ratings artificially to fit bell-shaped curves or institute 
arbitrary quotas are not rewarding performance; rather, they 
are showing how pay-for-performance can be unfair and 
unobjective.
    Director Springer, I want to thank you for your commitment 
to work with agencies to address the problems raised by the SEA 
survey. To me, the survey clearly demonstrates the need for 
more rigorous certification criteria, as well as more training 
and oversight by OPM. Right now, only one agency has full 
certification and 25 have provisional certification. I just 
wonder if we are giving agencies to much flexibility without 
meeting what Comptroller General Walker calls the ``show me'' 
test.
    If senior executives do not have faith in the fairness and 
transparency of their pay system, I do not see how rank-and-
file employees would want to work under such a system.
    I am so glad to see our Chairman back here at this moment, 
and I look forward to hearing from our distinguished witnesses. 
Mr. Chairman, thank you.
    Senator Voinovich [presiding]. Thank you, Senator Akaka. I 
really appreciate you starting this hearing. Ms. Springer, I 
apologize to you for being late this morning. It is the first 
time that this has happened, and it is the last time.

             OPENING STATEMENT OF SENATOR VOINOVICH

    Senator Voinovich. Today's hearing, ``Senior Executives: 
Leading the Way in Federal Workforce Reforms,'' is very 
important. As Congress continues to consider ways to better 
position the government to be an employer of choice in the 21st 
Century, reforms of the government's personnel systems, both 
performance management and pay systems, have been a key focus.
    We know that to effectively implement change throughout an 
agency, the senior management must be committed to change and 
lead by example. Government-wide reform has begun at the top, 
and it must start at the top. When it comes to pay-for-
performance, the elite cadre of government leaders and managers 
are leading the way.
    The Senior Executive Service (SES) was established by the 
Civil Service Reform Act of 1978. It provides a framework for 
developing and managing executives in the Federal Government. 
By definition, career members of the SES are talented 
individuals. They must be able to lead change; they must be 
able to lead people; they must achieve results; they must 
possess business expertise; they must be able to build 
coalitions; and they must maintain open communication. They are 
really important people, and are leaders in the government.
    In response to the continued problem of pay compression, 
Congress authorized departments and agencies to develop and 
implement pay-for-performance for the SES. If OPM, with the 
Office of Management and Budget (OMB) concurrence, certifies an 
agency's performance management system, the SES would be able 
to earn pay at a higher rate. I was disturbed by some of the 
information that Senator Akaka mentioned in his statement.
    I was, and remain, a strong advocate of reform efforts 
underway for the government's senior career civil servants. I 
believe these reforms, if done well, will help the dedicated 
members of SES better serve our Nation. The goal of all Federal 
personnel reforms is the same: To build a better workforce. Why 
is this important? The only way government, the various 
departments and agencies, will succeed in accomplishing its 
missions is to have motivated employees working towards the 
strategic goals of their respective agencies. An effective 
performance management system establishes for employees a clear 
understanding of what is expected and demonstrates how each 
individual contributed to advancing the agency's mission and 
serving the American people.
    Let me provide a concrete example of the service these 
individuals provide to the American people. Each year, the 
President recognizes a small group of career senior executives 
who have demonstrated exceptional long-term accomplishments. 
Michael McMullan, the Deputy Director of Beneficiary Services 
at the Centers for Medicare and Medicaid Services, is a 
recipient of the 2005 Presidential Rank Award for distinguished 
senior professional service. Ms. McMullan developed CMS' 
consumer information strategy, which includes plain-language 
materials, a full-service toll-free telephone line, 1-800-
MEDICARE, and an award-winning Internet site. I can tell you it 
was fantastic, and I saw first hand the available benefits all 
over Ohio. It was amazing to me what they were able to do. She 
is only one example of the excellence to be found in our SES 
corps. We must do all we can to recognize, reward, motivate, 
and retain these talented individuals.
    As you know, we are 3 years into the implementation of 
reforms. I look forward to hearing the testimony of our 
witnesses to assess implementation, understand the current 
status of reforms, and determine whether additional changes are 
needed. We must do all we can to ensure success, and when I say 
``we,'' I do mean ``we''--Congress, the Executive Branch, and 
employee representative organizations.
    You testified here before when we were talking about the 
NSPS and its progress. The impression that I got from the 
different comments I am receiving from various agencies is that 
the preliminary work done for Spiral 1.1 was not done with the 
Senior Executive Service. I am anxious to discuss this further. 
As I have mentioned over and over again, if implementation is 
not done correctly in the beginning, then its chances of being 
successful and becoming a part of the system is not going to 
happen.
    So, again, I apologize for being late, and I am anxious to 
hear your testimony.

  TESTIMONY OF HON. LINDA M. SPRINGER,\1\ DIRECTOR, OFFICE OF 
                      PERSONNEL MANAGEMENT

    Ms. Springer. Thank you, Mr. Chairman and Senator Akaka, 
and I appreciate both of you being able to come here, 
especially arriving from Hawaii, Senator Akaka. So it is a 
particular pleasure to be here today to discuss the progress to 
date on the implementation of this performance-based pay system 
for members of the Senior Executive Service. I do appreciate 
the support and the interest of this Subcommittee and other 
Members for effective performance management, and that is where 
it begins. There is no basis for pay-for-performance unless the 
performance management is present for the start of it.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Springer appears in the Appendix 
on page 00.
---------------------------------------------------------------------------
    With regard to the SES, OPM has two roles to play in 
successful implementation. The first role is to provide 
agencies with the assistance they need to design and implement 
these systems successfully. The second role is to oversee their 
effectiveness and, chiefly, that is done through the 
certification process that is outlined in the statute.
    To guide agencies through the process, OPM published 
detailed regulations with criteria in 2004 for agencies to 
meet, as well as additional guidance since then as it has been 
needed. We review the agency submissions for certification very 
carefully and assign it to either one of two categories: either 
provisional or 1-year certification, or a full certification 
which lasts for 2 years and then would have to be re-upped, 
depending on the extent to which the agency has satisfied us 
that they have met the criteria. There are written standards 
and criteria that need to be met for certification. Additional 
concurrence is given, as you mentioned, Mr. Chairman, by OMB.
    We are completing the third year of the certification 
process, and each year we find that the agencies' data is more 
complete, has more rigor, and is increasingly close to the 
guidance. In the past, the executive performance plans that we 
saw were not focused particularly on achievement, but more so 
on activity, less on results, more on just actions and 
activities, but less so on the actual result of those 
activities. Today, the performance plans are better documented. 
They have more measurable goals--and I want to underscore 
measurable as opposed to quantifiable. Quantifying is one type 
of measurement, but there are other types of measurement. So we 
look for the broader definition of measurement and look for 
that in the goals.
    Good plans have written goals. They have requirements that 
goals for each individual be in writing, that they are in 
writing at the beginning of a performance cycle, that they are 
agreed upon up front, and that those goals have ways to 
determine the progress that is being made and, in fact, that 
meets our definition of measurable. Quantifiable, again, is 
just one type of that.
    Agencies are using multi-level rating systems and making 
meaningful distinctions in applying them. Now, I want to say 
right here on the record very straightforwardly, quotas are 
prohibited. There is nothing in our guidance that allows for 
quotas. If we see them, we take actions. When they are brought 
to our attention, as they have been recently in this study--and 
Senator Akaka sent a letter to me earlier this year, I believe, 
on it, or late last year it was, and we dealt with that 
situation. So if we find quotas, we will deal with it.
    Sometimes there is an appearance of a quota or there is a 
perception of a quota. The terminology may be used. It may be 
that a manager needs coaching to help them to understand that 
they need to deal with a performance issue and not use the Cop-
out saying, ``well, I have a quota to meet and you are not 
going to get it this year.'' That is not really a quota system, 
but it is someone using that as a convenient excuse to manage 
through a situation. And in some cases, there may legitimately 
be misunderstandings of people thinking that we are looking for 
quotas. We are not. So we will work very diligently, and we 
have been whenever we see that, but I want to say very clearly 
today that quotas are not allowed. They are prohibited. They 
are bad.
    But we are seeing increasing linkage between performance 
and making decisions about the distinction between the 
performance and the results and then what that means for 
ratings of executives. And that is important. That is what we 
are after--good distinctions, good goals, and measuring that, 
and really rewarding people to the highest degree who are the 
highest-level performers. It remains a work in progress, but we 
believe that certification is having the desired effect--not 
quotas, but the effect of driving improvement in agency 
performance management. That is what we are after--better 
performance, better management of performance--and that is what 
we are starting to see.
    We are currently preparing guidance for the 2007 
certification cycle and will highlight areas of improvement. 
Whether it is in training or whether it is in communication, we 
will be able to look at the results of the study from the SEA 
and very seriously see if there are things there that need to 
be incorporated in our 2007 guidance.
    One thing that I want to point out is that there is a gap 
in the underlying statute. Right now agency certification 
expires at the end of a calendar year. Most agencies are still 
finishing up their cycle of performance reviews, and they are 
not able to send in their new certification requirements until 
sometime after January. So we have a period of time where, if 
the certification has lapsed or expired, members of the SES who 
have gotten up to that executive level II under a previous 
certification are not able to get the increases, nor are people 
able to be hired to take advantage of that higher executive 
level II in that gap period.
    We sent draft legislation up in June. We would like to work 
with you on trying to get that implemented, and that would help 
us to overcome this gap issue. We obviously want to take 
maximum advantage, or allow agencies to take maximum advantage, 
of that executive level II opportunity in their hiring.
    Another limitation that is in the current statute is the 
inability of the Senior-Level group, SL, and the Senior 
Scientific and Technical personnel, the ST group, to have 
access to executive level II pay. These are the very advanced, 
very seasoned, very experienced technicians and technical 
personnel. They have not chosen a management track, so they do 
not fall under the SES provisions that allow them to have the 
opportunity for higher pay at the executive level II. We think 
that these personnel deserve that opportunity, and we think it 
should be fixed. So we would like to work with you on that as 
well.
    OPM is committed to systems of compensation that reward 
Federal employees for performance, in contrast to systems that 
are driven by longevity. We steadfastly believe the SES system 
is a good system. But we recognize--and in light of the current 
survey that came out, we believe that there are some 
inconsistencies in how it is being applied and implemented. We 
believe it is an execution issue rather than the construct of 
the system itself.
    We are reviewing the study that was released last week by 
the Senior Executives Association. I met with Ms. Bonosaro on 
it the very day that it came out, and we believe it will help 
us to understand some areas that previously we were not aware 
that there may be either misconceptions or misapplications. And 
we are going to work through the Chief Human Capital Officers 
Council, among other areas, to work directly with agencies to 
shore that up.
    I do have one concern that I want to state publicly, and 
that is that I think we have to be careful that we haven't 
devalued the rating of a fully successful performer. Senior 
executives, like anyone else, are hired with the expectation 
that they will do a job and be high-level performers. That is 
the expectation. No one is hired with the idea that they will 
be poor performers or mediocre performers. When you hire 
someone to do a job, you expect they will do it and do it well. 
And that, in my mind, constitutes that they have done their job 
successfully, fully successful.
    Past practice has corrupted the definition of ``fully 
successful'' to mean that if you do your job fully and do it 
well, that equates to an outstanding rating. We believe that 
the higher-level ratings, ``exceeds'' and ``outstanding,'' 
should be reserved for performance that is just that, and that 
the ``fully acceptable'' or ``fully successful'' should be 
viewed very positively and reflects the fact that the 
commitment has been fulfilled between the employer at the 
agency and the employee. And so that is another thing that I 
personally believe needs to be reset as we go into a more fully 
tiered evaluation system.
    In closing, I remain fully convinced that performance-based 
pay is critical to the success of an organization, and the 
government is no exception. It is particularly critical for us, 
as you say, Mr. Chairman, to be an employer of choice in the 
years ahead in an increasingly tight labor market, and I think 
performance-based pay is an important component, managed well, 
executed properly. I am equally confident that the men and 
women of the Senior Executive Association are capable of 
managing and thriving in this system when it is done properly.
    I appreciate the opportunity to testify here today, and I 
will look forward to any questions that you may have.
    Senator Voinovich. Thank you very much.
    As you know, and I have made mention to Senator Akaka's 
statement, the results of the survey the Senior Executives 
Association released early last week. It does not provide a 
positive assessment of implementation thus far. The SEA is 
going to testify in the second panel and will discuss their 
survey in more detail in their testimony.
    I have repeatedly stressed to both the Department of 
Defense and the Department of Homeland Security that a 
fundamental goal of their new personnel system is employee 
acceptance.
    Since it is going to be brought up, what is OPM's response 
to their findings?
    Ms. Springer. Well, the initial response is that we want to 
study it. We are certainly not taking a defensive posture. We 
want to take to heart, very seriously, the issues that have 
been raised there. I would say that these issues are raised to 
a degree and a magnitude that we have not previously heard. We 
have heard instances here and there, as Senator Akaka had 
raised to us, about a quota perception, and we dealt with that 
particular one. We have not heard it to the degree that it 
appears to be coming out in this survey.
    So the first step was to meet with the head of the SEA, 
which I did. The second was to ask some additional questions. 
She has already provided some additional information. I want to 
get down beneath the surface on some of that information. The 
CHCO Council will be meeting in November, and we are going to 
put that on our agenda and review it. And as we prepare the 
2007 guidance, OPM's 2007 guidance, we are going to reinforce 
the execution issues that deal with the concerns that have been 
expressed.
    Senator Voinovich. Are you going to undertake your own 
analysis of this so that you can review those and have them 
reflected in what you are going to be doing next year?
    Ms. Springer. Yes.
    Senator Voinovich. Does OPM's review of agency 
certification submissions include a review of the 
communications strategy and training program?
    Ms. Springer. It does not explicitly, Mr. Chairman. There 
are many facets and many components, and we have been talking 
about, in light of the study and some of the other things, 
perhaps we need to highlight that more than we do today.
    You raised earlier Spiral 1.1 of NSPS, and we had the 
hearing last week on how the Department of Defense is doing 
with their system. And one of the reasons why they have 
achieved success so far is because of the training culture that 
exists at DOD and the way that they have applied it to their 
Spiral 1.1.
    I think that you would find across the landscape of the 
agencies, with the SES, varying degrees of that type of 
training and communication. That, I think, maybe should be a 
focus, a stronger focus in our process.
    Senator Voinovich. We have heard good remarks on Spiral 1.1 
of NSPS. It would seem to me that you might look at why that 
has been successful to maybe incorporate some of that into the 
SES system. It is obvious that is not as good as it should be.
    Three years into implementation, only the Department of 
Labor has full certification of its performance management 
system. Congratulations, to Secretary Elaine Chao.
    Why do you believe more departments and agencies have not 
been able to obtain or maintain full certification? Has anybody 
compared what Secretary Chao has done in her Department to get 
an idea of how her work might be helpful to other departments? 
Have any departments without certification discussed with the 
people from the Department of Labor what they did? Are there 
best practices that others could incorporate that would help 
them get certification?
    Ms. Springer. There are a few questions there, and I want 
to answer all of them.
    The first is that I do not see the fact that only one 
agency has achieved full certification as necessarily a bad 
thing. Certification is not a rubber stamp from OMB or OPM. 
Certification has some very high standards, and so getting 
provisional certification is a first step, but I think that it 
recognizes that we are not going to give agencies full 
certification unless they do have things in place that warrant 
it. And we have not seen that to the degree we would like.
    We have seen it at Labor. We have studied what Labor has 
done, and one of the things I would like to do with the Chief 
Human Capital Officers Council is to have best practices with 
respect to the SES performance system, pay system, be an 
initiative of theirs so that would be the opportunity. There is 
a representative from every agency there to share best 
practices. So that will be one of the things that we do to make 
that happen.
    Senator Voinovich. But do you know whether there has been 
any meetings betwen Labor and other departments? If Labor is 
doing a good job, what is it that they are doing that could be 
replicated in other agencies?
    Ms. Springer. OPM has done that. I do not know if other 
agencies on their own initiative have visited to find out what 
Labor has done. But OPM has done that, and we have set out very 
clear standards and practices to the other agencies, here is 
what makes for a successful system.
    As I said earlier, I think we can go further in what makes 
for successful execution of the system, not just the construct 
of the system. I think we have done a pretty good job on the 
construct. It is just how people were behaving in that system 
where we need to focus now.
    Senator Voinovich. Does your new person who is 
quarterbacking that group of human capital folks have this on 
his agenda?
    Ms. Springer. Yes.
    Senator Voinovich. I would like to know, what is the agenda 
of the Human Capital Officers Council? One of the things that I 
learned, particularly as governor of Ohio, is that if you get 
folks together, it is amazing how much they help each other 
instead of just dealing with problems in a vacuum when people 
get together and talk, this type of synergism develops, and 
they start to get excited. I think it would help a great deal 
if you sat down with Ms. Bonosaro and her group and asked: What 
are your observation or what is going right? I think that is 
the best way to identify changes that are needed.
    Ms. Springer. Yes. I could not agree with you more, and 
that is one of the ways we will get at this.
    Important enhancements were made this year to improve the 
structure of the Chief Human Capital Officers Council (CHCOC), 
which have been implemented for the Council Chair by the 
Executive Director. First, in the spring of 2006, the Council 
was expanded to include Deputy Chief Human Capital Officers. 
The addition of the Deputy CHCOs serves three important 
purposes, including (1) providing the Council's link to the 
Federal human resource directors; (2) developing and sharing 
best practices; and (3) ensuring continuity when there are 
changes in leadership at the Council.
    Second, the subcommittees were realigned and refocused to 
reflect key human capital challenges facing Federal agencies. 
The new alignment created six subcommittees, including: 
Emergency Preparedness; Hiring and Succession Planning; Human 
Resources Line of Business; Human Resources Workforce; Learning 
and Development; and Performance Management. This new structure 
allows the Chief Human Capital Officers, and their deputies, to 
serve as leaders in these critical issue areas.
    Third, OPM linked the goals and objectives from the 
agency's ``2006-2010 Strategic and Operational Plan'' to each 
subcommittee. The linkage will enable OPM to forge strategic 
partnerships with the appropriate subcommittee representatives 
and their staff members. In addition, this collaborative 
approach, provide the subcommittees with the opportunity to 
affect human capital policy and programmatic changes during the 
developmental and implementation stages and will yield positive 
achievable and recognizable outcomes.
    Fourth, to allow for greater ownership, transparency and 
accountability, each subcommittee drafted mission statements 
and goals for FY 2007. The creation of the subcommittee plans 
provides the foundation for the tasks and priorities that the 
Council will address in the next 12 months. As indicated in 
each of the subcommittee plans, the Chief Human Capital 
Officers, the deputies, and their staffs will work closely with 
OPM to achieve their objectives. Developing and fostering this 
partnership will provide the subcommittees with the opportunity 
to assess the current impediments to progress, compile and 
share best practices, and make recommendations on strategic 
human capital management challenges to OPM, the Council and its 
stakeholders.
    Fifth, the Council expanded the attendance of agency 
representation for Training Academy sessions. For example, in 
the past, the Council's Training Academy sessions were open to 
CHCOs only. However, beginning in August 2006, each Council 
member can send a total of three employees from their agencies 
to attend these sessions. Due to this change, over 55 agency 
representatives attended both the August session when the 
Departments of Justice and Labor showcased their efforts to 
conduct competency assessments of mission critical occupations 
and the October session where OPM, OMB, the Department of the 
Treasury, and the National Academy of Public Administration 
highlighted the importance of linking agency human resource 
offices into the competitive sourcing process.
    Sixth, during the full-Council meetings, CHCOs have the 
opportunity to share best practices from their agency. Examples 
of best practice presentations included establishing effective 
CHCO and Deputy CHCO working relations, which was conducted by 
the Department of Energy in July and utilizing USAJOBS to 
improve agency recruitment efforts by NASA in September. 
Sharing best practices by CHCOs facilitates greater dialogue 
and discussion during the full-Council meetings. In addition, 
the agendas include dedicated time for the subcommittee chairs 
to update the Council on their progress.
    Over the past several months, a number of important human 
capital issues have been discussed at the full-Council 
meetings, including an in-depth conversation on the use of 
human resource flexibilities, recruiting top talent for 
management positions through the Presidential Management 
Fellows Program, FY 2006 Senior Executive Service performance 
data, and an update on the final regulations for hiring 
individuals with disabilities. In addition, several best 
practices were presented during the CHCO Council Training 
Academy Sessions including one led by the Departments of Labor 
and Justice on conducting competency assessments for mission 
critical occupations. The subcommittees have also had best 
practice demonstrations and discussions as well. For example, 
the Emergency Preparedness Subcommittee received a briefing by 
the Department of the Navy on their on-line system for tracking 
employees during an emergency. Based on this briefing, several 
CHCO agencies received follow-up sessions from the Navy.
    Moving forward, the executive director will continue to 
work with the Council to capitalize on this open and 
collaborative environment and find innovative ways to discuss 
cutting edge human capital issues affecting the Federal 
Government and showcase best practices that foster learning for 
the Chief Human Capital Officers community. For example, in our 
November 2006 full-Council meeting, we will receive a briefing 
from Christine Griffin, Commissioner of the Equal Employment 
Opportunity Commission, on the hiring of individuals with 
targeted disabilities and discuss the 2007 certification of 
performance appraisal systems for senior executives, among 
other items. Future meeting topics will be discussed by the 
Council and finalized by the Executive Committee in the coming 
months.
    Senator Voinovich. Do you have the resources that you need 
to do this?
    Ms. Springer. Yes.
    Senator Voinovich. Senator Akaka.
    Senator Akaka. Thank you very much, Mr. Chairman.
    Director Springer, I mentioned in my opening statement 
that, according to the SEA survey, 53 percent of respondents 
claim their agencies use quotas. When you discover an agency 
using quotas, what action does OPM take or do to address the 
issue?
    Ms. Springer. Well, first of all, OPM gets in direct 
contact with that agency or that component of the agency, and 
presents to them what we have learned and gives them an 
opportunity to respond to it, in fairness to them. But then we 
will sit down with them, we will review the program as they are 
executing it, and see if there is, in fact, the use of quotas 
or if, in fact, there is a perception because of something that 
they are doing that would lead someone to think that there is a 
quota. And whatever needs to be done there, we will fix.
    Then we have a regular process of going back. It is not 
exactly an audit, but of revisiting in areas that has been a 
challenge.
    Senator Akaka. From your statement, it seems as though 
there is not a clear understanding as to what a quota is.
    In your opinion, what constitutes a quota?
    Ms. Springer. If a system has a goal to have X percent of 
ratings at this level and Y percent at this level and another 
percent at each of those levels, regardless of performance, 
then that is a quota system because the main driver is reaching 
a certain distribution. Our goal is not the distribution. Our 
goal is developing performance and rewarding performance.
    Now, it is conceivable, for example, in an agency that has 
a small component of SES executives that they could all have an 
outstanding year and all be at the highest level, and if that 
is the way it comes out, if the goals that were established at 
the beginning, well-articulated goals, measurable goals are all 
achieved at that highest level, then that is fine. There is 
nothing in our system that prohibits that.
    What I think people have misconstrued is the fact that in a 
group of 6,000 SES executives, 6,000-plus individuals, it is 
hard to imagine that somewhere around 90 percent would all be 
at not just fully successfully doing their job or even at 
exceeds, but at the outstanding level. And that was the result 
that we were getting before this system of really having clear 
goals and making distinctions was in place. We had one agency 
that had 1,000 SES, and in the year 2002 97 percent were all 
rated outstanding. Now, intuitively that just does not make 
sense.
    And so I think that people have interpreted those types of 
comments to mean that we are shooting for a lower percentage. 
But what we are shooting for is not a percentage or a curve or 
a certain distribution, but it is a fair and accurate 
assessment based on performance.
    Senator Akaka. Have you met with the SEA about quotas?
    Ms. Springer. Well, we have started that process. The first 
meeting I had with Ms. Bonosaro was the day that the survey 
came out. I heard it was coming, and I asked her if she would 
be good enough to come over and visit with me, and she did. And 
I am sure we will have many more meetings.
    Senator Akaka. The SEA survey also found that in smaller 
agencies performance pay is restricted because of a shortage of 
funds. How can small agencies implement a successful and fair 
pay-for-performance system without additional funds?
    Ms. Springer. The fund pool, the pay pool, is obviously an 
issue for small agencies. It is an issue for large agencies, 
too, candidly, because no one is without budget pressures. But 
the fact of the matter is that each agency has to take some 
responsibility for this. It is not just an OPM issue. As I 
think one of you said earlier, we all have a part in making 
this successful. So making sure the agencies have the funding 
they need to reward their employees is not just an OPM issue. 
It is an issue for that agency that feels they do not have it. 
It is an issue for everyone who participates in the budget 
process.
    But where we have a particular role at OPM is make sure 
that the system is in place, it is meeting standards, and that 
right from the front end, the executive has clear, written 
goals, good management has what they need to be successful, and 
then at the end of the day, certainly we all need to work 
together to make sure the funding is there so that they can be 
rewarded appropriately.
    Senator Akaka. I understand that OPM, with OMB's 
concurrence, may suspend certification if an agency's pay-for-
performance system is not in compliance with the certification 
criteria. You did mention in your remarks that certification is 
having a desired effect. Has any agency's certification ever 
been suspended?
    Ms. Springer. To my knowledge, I do not think anyone ever--
no, the answer is no.
    Senator Akaka. And can you provide additional details as to 
what an agency would have to do in order to have certification 
suspended?
    Ms. Springer. It is really speculative, to be honest with 
you, Senator. I have not ever come across it, nor would I 
expect that to be the case. Let me get back to you on that, if 
I may, because it is just very far removed from what we have 
experienced or what we expect to experience. So I will get back 
to you with that.
    Senator Akaka. Director Springer, the merit system 
principles call for equal pay for work of equal value. However, 
under the SES pay-for-performance system, senior executives at 
different agencies with the same performance rating do not 
necessarily receive the same performance award.
    In your opinion, how does the SES pay-for-performance 
system comply with the principle of equal pay for equal work?
    Ms. Springer. I think that it does in the sense that the 
starting point is a job definition with certain 
responsibilities and requirements and an individual who takes 
on that role--and so they start at the same point. But then 
from that point, each individual distinguishes themselves in a 
given year by the level of their performance and the particular 
requirements of that job in that agency. So you may have an 
accountant in agency A and an accountant in agency B, or an 
accounting executive, if you will, and they may in a given 
year, even though on paper typically it looks like the same 
position, have certain challenges in that year. And this system 
would allow us to recognize the stellar performance, for 
example, of an individual in a particularly challenging year 
that went above and beyond the basic requirements of their job.
    So I do not think they are at odds. I think it just gives 
us the opportunity to acknowledge years that exceed or are 
outstanding for a given individual and then reward those.
    Senator Akaka. I understand that OPM conducts audits of 
agencies to ensure adherence to the merit system principles. 
Has OPM completed any audits of agencies' SES pay-for-
performance systems?
    Ms. Springer. Yes, I was just checking. It really is each 
year, in effect, by the recertification process, we are 
examining what they have done in the previous year. So, in 
effect, that is like an audit de facto, if you will, because 
each year, with the exception of the agency that has the 2-year 
full certification, we have to go back and review what they 
have done, have they put it into practice and met the 
expectations.
    Senator Akaka. Thank you very much, Mr. Chairman.
    Senator Voinovich. Senator Akaka, I would like to have 
another 3 minutes for each one of us and then wrap it up here 
because there are other witnesses.
    Agencies are allocated funds every year. They also are 
required to fund a cost of living increase for employees, pay 
step increases, and so forth. Now, when we get to the Senior 
Executive Service, is there a pool of money that is available 
for them? And does that reflect the cost of living? How does 
that work?
    Ms. Springer. There are really two major components to the 
compensation award and adjustments that are made for a given 
individual in the SES, as I understand it. You have got a 
percentage increase on their salary, and that is intended under 
our system to recognize performance.
    Senator Voinovich. Well, let me start off with this: We 
pass a cost-of-living adjustment each year, X percent.
    Ms. Springer. Right.
    Senator Voinovich. Is that amount of money reflected in the 
budget of the departments or do they have to funnel these 
raises from existing funds?
    Ms. Springer. Yes.
    Senator Voinovich. And that is the money that you have to 
work with.
    Ms. Springer. That is my understanding. And then, in 
addition, obviously, there is the bonus pool as well.
    Senator Voinovich. Is that an extra sum of money that 
departments are given, a bonus pool?
    Ms. Springer. In developing their budget requests, agencies 
project personnel costs across their entire workforce. 
``Personnel compensation and benefits,'' the budget class or 
category that includes General Schedule salary increases and 
awards, also includes SES pay increases and awards. In 
estimating the amounts needed, agencies rely on historical 
projections. OMB's government-wide budget preparation 
instructions (OMB Circular A-11) include directions on how to 
reflect the effects of pay raises and assumptions about those 
raises. Given the timing of the government's budget and 
appropriations processes, these assumptions are estimates. 
OMB's budget preparation instructions do not ask agencies to 
isolate SES compensation from that of the general workforce. 
OPM is not in a position to instruct agencies on how they 
should allocate funds for executive compensation when they 
develop their operating budgets after receiving their 
appropriations.
    With respect to SES bonuses, more specifically, it must be 
noted that for the SES, a performance award is part of the 
overall delivery mechanism for SES compensation, as legislated 
by the Civil Service Reform Act of 1978. Agencies must adhere 
to the funding limitations regarding the amount of performance 
awards paid in any fiscal year, which are found in 5 U.S.C. 
5384(b)(3). They usually do this by establishing an SES bonus 
pool. The actual allocations used to fund this awards pool are 
covered in the agency's annual operating budget process, as 
salaries and expenses (or equivalent).
    Senator Voinovich. It is my understanding that since the 
implementation of the pay-for-performance system, there is no 
guarantee of a pay adjustment for successfully rated employees. 
One of the purposes of this system is to reward those that 
should be rewarded.
    The enabling statutes of the new systems at the Department 
of Homeland Security and the Department of Defense also do not 
have such a requirement. But the guarantee for at least a 
market adjustment was incorporated in the final regulations of 
both systems. Has OPM opened, or is it revisiting, such a 
regulatory change for the SES?
    Ms. Springer. Yes.
    Senator Voinovich. OK. You can do that by regulation.
    Ms. Springer. Well, I think we need to take a look at how 
it would actually, in practice, happen. So I don't want to say 
what the vehicle is. But we are open to exploring that.
    Senator Voinovich. Well, I would like to conclude with this 
comment. First of all, I know you are working at it, and you 
have a lot of things on your plate. But I have invested an 
enormous amount of time in workforce refroms. One year from now 
I want the problems solved. That means that you get in there 
with a microscope, and sit down with the organization that 
represents the SES. I want this thing to be perfect. If it is 
not--how do you expect us to have a successful rollout of this 
into other areas of the Federal Government?
    It is really disturbing to me, honestly, that this has not 
worked the way it should work. I want it to work.
    Ms. Springer. May I just respond to that?
    Senator Voinovich. Yes.
    Ms. Springer. Nobody wants it to work properly more than I 
do, and I think we have to be very careful that we do not take 
a survey a few hundred people out of over 6,000 in a new system 
where there are some execution issues and let that paint a 
picture that it either is a bad system or that it will not 
work. It can work, and it is working in many places.
    Senator Voinovich. But may I tell you something?
    Ms. Springer. Yes.
    Senator Voinovich. They should not be making the survey. 
You should be making the survey. Employee acceptance of the 
system is very important, but that does not mean that everybody 
is going to be happy. But, overall, people should say: You know 
what? This is neat. This is something that we have wanted for a 
long time.
    Ms. Springer. There is no question about it, and we do 
surveys. We have not done one here yet because, candidly, what 
we find is in surveys we have done of projects, demo projects, 
other projects, it takes several years before the system really 
takes hold and people see the value of it. And even there you 
typically get only to a 70- or 80-percent level of satisfaction 
with it, because there are some people who are not going to 
come around as well as others.
    And so I think it is a little bit premature. I think it is 
helpful information. We take it seriously. As I say, I met the 
very first day that it came out with--to get briefed on it 
personally. There are things we are going to do. But I think we 
have to be very careful, not just on the basis of that one 
survey, to run to the conclusion that this is bad, it is not 
working. A lot of people are very happy; even in the survey it 
picks that up.
    Senator Voinovich. Well, the fact is it is not where it is 
supposed to be. Do you agree?
    Ms. Springer. Agreed.
    Senator Voinovich. OK. Has anybody ever sat down with David 
Walker and his team to talk to them about what they did in 
terms of when they implemented their program?
    Ms. Springer. We are very familiar with GAO's approach. 
When Comptroller General Walker undertook his multiyear efforts 
to transform GAO and its workforce, he invested in an expansive 
approach that developed, validated, and uses mission-focused 
competencies as the key driver. As you know, OPM's work leading 
the President's Management Agenda initiative on the Strategic 
Management of Human Capital has also focused agencies' 
attention on assessing and reducing gaps in the competencies 
their mission-critical occupations require. GAO went on to link 
its competencies to a broadly-drawn ``performance management 
system'' that covers and integrates a host of human resources 
management processes. Among those processes is the appraisal 
process itself where judgments are made about the degree to 
which expectations have been met and goals achieved. Within the 
Executive Branch, agencies subject to the Government 
Performance and Results Act of 1993 have been making progress 
in emphasizing a results focus and improving measurement of 
results. The Bush Administration has been determined to pursue 
that results focus with respect to executive and employee 
performance appraisal, so that has been the cornerstone of our 
effort to improve executive and employee performance management 
systems in the agencies. In many respects, the efforts of GAO 
and the Executive Branch are congruent. Our work differs to 
some degree in our results emphasis, particularly when it comes 
to making judgments about whether agencies' executive appraisal 
systems are making meaningful distinctions based on relative 
performance, as the law requires when OPM certifies those 
systems.
    Senator Voinovich. Senator Akaka.
    Senator Akaka. Thank you very much, Mr. Chairman. I have 
other questions for Director Springer, I would like to submit 
the rest of my questions for Director Springer for the record.
    Senator Voinovich. Without objection.
    Thanks for your testimony, and we want to work with you. I 
know you have a tough job, but I want you to know that I have 
told Clay Johnson that I am going to spend as much time as I 
can working with OPM.
    Ms. Springer. Good.
    Senator Voinovich. I think that you are on the way to 
shaping up OPM. I am proud of the progress that is being made, 
and we want to do everything we can to help you. I think it is 
really important, and I am going to get a letter off to my 
friend, Rob Portman, that in this area, they should be really 
looking at the budgets to make sure that you have got the 
resources that you need to go forward and do this right.
    Ms. Springer. Very good. We are always glad to get more 
money.
    Senator Voinovich. Thank you.
    Senator Akaka. Thank you, Director Springer.
    Senator Voinovich. Our next panel of witnesses, we have 
Brenda Farrell, Acting Director Strategic Issues, at the GAO; 
and Carol Bonosaro, President of the Senior Executives 
Association.
    We thank both of you for being here today, and I appreciate 
the fact that both of you had an opportunity to hear the 
testimony of Ms. Springer, and I would welcome any comments 
that you have in regard to what she had to say here today. We 
are trying to get the best information we can before this 
Subcommittee.
    Ms. Farrell, will you proceed?

 TESTIMONY OF BRENDA S. FARRELL,\1\ ACTING DIRECTOR, STRATEGIC 
            ISSUES, GOVERNMENT ACCOUNTABILITY OFFICE

    Ms. Farrell. Thank you, Mr. Chairman.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Farrell appears in the Appendix 
on page 00.
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    Senator Voinovich, Senator Akaka, thank you for the 
opportunity to be here today to discuss the Federal 
Government's implementation of performance management systems 
for the approximately 7,000 members of the Senior Executive 
Service and those in senior positions. Let me briefly summarize 
my written statement that is based on findings from our issued 
reports.
    First, I want to emphasize that implementing pay-for-
performance systems is a huge undertaking for organizations and 
requires constant monitoring and refining in order to implement 
and, very importantly, sustain them successfully. How it is 
done, when it is done, and the basis on which it is done can 
make all the difference in their success.
    My written statement is presented in three parts. The first 
addresses the performance management system's regulatory 
structure. Overall, the regulations that OPM and OMB develop to 
administer a performance-based pay system for executives serves 
as an important step for agencies in creating a clear linkage 
or line of sight between executives' performance and 
organizational results. To qualify for the pay flexibilities, 
OPM must certify, and OMB must concur, that an agency's system 
meets nine criteria. The certification criteria are generally 
consistent with key practices for effective performance 
management that GAO has identified in prior work.
    The second part of my statement addresses agencies' views 
of OPM's certification process. In our ongoing work for this 
Subcommittee and the Senate Committee on Homeland Security and 
Governmental Affairs on OPM's capacity to lead and implement 
human capital reform, we asked agency Chief Human Capital 
Officers and Human Resource Directors to describe their 
experiences with OPM's administration of the revised executive 
performance system. We heard a number of concerns from agencies 
regarding OPM's ability to communicate expectations, guidance, 
and deadlines to agencies in a clear, consistent, timely 
manner.
    For example, one official noted that while OPM tries to 
point agencies in the right direction, it will not give 
agencies discrete requirements. This leads to uncertainty about 
what agencies must and should demonstrate to OPM. Some agency 
officials told us that, in some cases, OPM changed expectations 
and requirements midstream, with little notice or explanations.
    OPM explains that it intentionally allowed some ambiguity 
in the regulations for the new system, in an attempt to provide 
agencies with management flexibilities. However, OPM officials 
agree that agencies need better guidance and are working on 
improvements. The late issuance of guidance has also been 
problematic for agencies. OPM did not issue guidance for 2006 
until January of that year and then clarified this guidance in 
a memorandum later that month.
    The third part of my statement addresses the need for OPM's 
oversight of the implementation of agencies' senior executive 
performance systems. Most agencies have been challenged to 
receive the full certification, meaning that the agency is able 
to provide documentation showing that the agency has designed 
and fully implemented a system meeting all nine criteria. 
According to the latest OPM data, performance systems at 25 
agencies have been certified during calendar year 2006. Of 
these, only the Department of Labor's SES system, as you 
earlier noted, received full certification. The remaining 
systems at 24 agencies received only provisional certification, 
meaning that the agency must provide documentation showing that 
its performance system meets design criteria but insufficient 
documentation exists to show that the system is fully 
implemented.
    These findings are not surprising. As GAO has noted in its 
past work, agencies could find it initially difficult to 
provide the necessary performance data as required for the two 
appraisal periods preceding the certification request. In 
addition, we reported that many agencies have undertaken 
valuable efforts to link their executive management systems to 
their organizational successes, but agencies need to strengthen 
that linkage to use their performance systems more 
strategically to achieve organizational goals.
    Agencies receiving full or provisional certification can 
use the higher pay rates. Going forward, it will be critical 
for OPM to continue to closely monitor the certification 
process to help ensure that provisional certifications do not 
become the norm and agencies reach full certification by not 
only developing but fully implementing systems for their senior 
executives.
    In summary, performance-oriented pay should only be one 
part, a critical part, of a larger organizational effort to 
improve the performance of an agency. High-performing 
organizations understand that they need senior leaders who are 
held accountable for results, drive continuous improvement, and 
lead and facilitate efforts to integrate human capital 
approaches with organizational goals. Although there have been 
some challenges with the new senior executive performance 
system, what will be important is how OPM works with agencies 
to meet the full certification criteria.
    Mr. Chairman, this concludes my statement. I will be happy 
to take questions when you are ready.
    Senator Voinovich. Thank you very much. Ms. Bonosaro, 
welcome.

TESTIMONY OF CAROL A. BONOSARO,\1\ PRESIDENT, SENIOR EXECUTIVES 
                          ASSOCIATION

    Ms. Bonosaro. Chairman Voinovich, Ranking Member Akaka, I 
am delighted to be here today, and the Senior Executives 
Association truly appreciates your interest in this new SES pay 
and performance management system, as well as your invitation 
to testify.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Bonosaro appears in the Appendix 
on page 00.
---------------------------------------------------------------------------
    As you know, many reports and studies have pointed to both 
the importance and the quality of the career Senior Executive 
Service corps, including the 1993 Volcker Commission, which 
observed, ``No organization in this country is more dependent 
on qualified senior leadership than the Federal Government.''
    Given this, it is clearly in the public interest to attract 
and retain the best corps of senior executives possible and to 
compensate them and manage their performance in as fair and 
effective a manner as possible.
    We have had a clear interest in seeing this new system with 
the higher pay caps be successful, and all the association's 
efforts have been directed to ensuring that result.
    Over the past 2 years, we received complaints regarding the 
system's implementation. When those concerns about the new 
system persisted, we decided to conduct a survey to obtain 
information from the executives themselves regarding their 
experience with and views of the system. Through our 
partnership with Avue Technologies, we surveyed 850 
respondents, which is approximately 12 percent of the career 
corps. We consistently urged executives, because this was a 
voluntary survey, that we wanted to hear from both those who 
believed the system was wonderful and those who believed it was 
not wonderful. In other words, we wanted to hear both the good 
and the bad.
    The respondents' characteristics closely mirror that of the 
senior executive corps, and I think that is very important 
because they are, indeed, very representative. And especially 
important is the fact that the salaries of those surveys almost 
perfectly mirror that of the SES corps as a whole. Therefore, I 
think you cannot argue persuasively that the respondents hold 
negative views because somehow or other they have not fared as 
well as others in this new system.
    So the end result, I think, is a survey that sought 
objective information, as well as opinion, and showed 
substantial evidence of problems in the implementation of the 
new system. To put it another way, although the provisions of 
the statute and the regulations--with a few clear exceptions, 
in our view--made sense, something has been ``lost in 
translation'' as the system has been implemented.
    The view of many survey respondents, as you know, is that 
agencies' implementation of the pay system has often resulted 
in a disconnect between ratings and pay adjustments, imposed 
systems of arbitrary quotas, and failed to be transparent.
    While over 96 percent of respondents believe they should be 
held accountable for performance, 86 percent said the system 
had no effect on their performance, and 56 percent said it had 
no effect on their motivation. But 40 percent saw the system as 
having a negative effect on morale.
    The survey results clearly show three major issues that 
must be addressed: Many senior executives believe that de facto 
quotas are being enforced that are affecting their performance 
ratings; senior executives see no clear, consistent correlation 
between ratings and pay adjustments; and senior executives 
doing a good job at the fully successful or higher level often 
receive no salary adjustment.
    Simply put, the SES pay-for-performance system needs 
attention.
    Senator Voinovich. You mean 15 percent of the highest rated 
people got no increase?
    Ms. Bonosaro. Well, in fact, let me give you a little more 
detail on that because that was a number that took into account 
those in rating systems that involved 3, 4, and 5 levels. But 
if you look at those in 4-level systems, 7 percent of those 
with the very highest rating received no raise and no bonus; 5 
percent of those with outstanding ratings in a 5-level system 
received no raise and no bonus.
    Now, Director Springer notes that a fully successful rating 
is a good rating and should be seen that way. But I think the 
problem is that if there is no pay adjustment at least to keep 
pace with the cost of living that one might receive, if all pay 
adjustments are permissible and you are doing a successful job, 
then the system is not making much sense. And so that is why we 
recommend a legislative solution to resolve that problem.
    Senator Voinovich. To make it mandatory?
    Ms. Bonosaro. Yes.
    Senator Voinovich. You are telling me that they did get a 
cost of living?
    Ms. Bonosaro. Correct. All pay adjustments are permissible 
in the system, and they are all to be based upon performance. 
None are required, so we have had--in fact, if you read through 
the comments in the survey, there was one executive who was a 
Presidential Rank Awardee who received nothing for an 
outstanding rating. That sends a very wrong message.
    Senator Voinovich. Is that in your survey?
    Ms. Bonosaro. Yes.
    Senator Voinovich. Specifically individuals that were in 
that category?
    Ms. Bonosaro. Yes.
    Senator Voinovich. OK.
    Ms. Bonosaro. We also believe the SES pay system should be 
reformed to recognize the reality that performance awards 
should become a substantial part of SES compensation. They 
should count towards retirement, and our legislative proposal 
suggests a way to do this.
    We also propose that an agency be required to inform an 
executive of his or her final rating and the reasons for it 
within a reasonable period of time, namely, 60 days. Seventeen 
percent of all respondents reported not having their ratings 
discussed with them at all last year, while 37 percent received 
only a cursory discussion.
    We think our legislative proposals are especially necessary 
because the most disturbing finding is that, with 31 percent of 
the SES currently eligible to retire and 90 percent eligible to 
retire over the next 10 years, 16 percent of the respondents 
indicated they are accelerating their plans to separate due to 
this new system.
    Senator Voinovich. Sixteen percent?
    Ms. Bonosaro. Sixteen percent. Forty-seven percent 
indicated the new system has had a negative effect on interest 
in the SES by GS-14s and GS-15s, and that I think is especially 
unfortunate.
    As Senator Akaka noted, 53 percent of those surveyed agreed 
that agencies rated executives to achieve a forced quota in 
2005. Therefore, we recommend a statutory prohibition against 
the use of quotas or forced distributions. We recognize that 
such a prohibition exists in regulation, but our hope is that 
with a statutory prohibition, perhaps agencies will take this 
more seriously.
    We recommend that those entering the SES from the General 
Schedule be assured of a minimum 5-percent increase in their 
salary. At present, there is no requirement whatsoever, and 
agencies have adopted a variety of practices.
    To resolve the continuous round of certification and 
recertification, we recommend that all certifications no longer 
be on a calendar-year basis but last for 60 months, especially 
since OPM can rescind recertification at any time. OPM should 
provide clear and consistent advice to agencies on how to 
comply with requirements for certification 6 months before the 
recertification application is due or before decertifying an 
agency.
    Apart from the legislation we recommend, we believe that 
OPM and the agencies themselves must take steps to examine 
their practices and the problems identified in this report; 
namely, they must determine what has contributed to these 
results in spite of their best intentions. They need to look at 
the message sent, I think, by the focus each year in OPM's 
annual report on SES ratings, the focus on the number, the 
percentage of drop in the highest ratings given. I think that 
continual focus sends a message which may be unintended.
    This is not an issue of pay. It is an issue of providing an 
SES system that is guided by the public interest. The 
successful mission accomplishment of the Federal Government 
depends on the expertise and skills of current and future 
highly qualified and experienced senior executives.
    I will close with a comment from a survey respondent, and I 
hope that you have an opportunity to read many of the comments 
we provided in the report because they provide a very graphic 
illustration of the survey data. A senior executive from the 
Veterans Administration wrote, ``I have done about as well as 
any executive could have asked for under the performance and 
pay system. My pay raises and bonuses have been among the 
highest in the agency. But I see systemic flaws which are, in 
fact, demoralizing significant portions of our SES cadre and 
will weaken its foundations in the future.''
    Thank you for your time.
    Senator Akaka. Mr. Chairman, I regret I must leave. I want 
to thank the Chairman for holding this important hearing and 
thank the witnesses for your testimony. And, Mr. Chairman, I 
would like to submit my questions for the record.
    Senator Voinovich. Without objection, and we expect the 
witnesses to get back to Senator Akaka.
    Thanks, Senator Akaka, for being here.
    Ms. Bonosaro, were performance appraisals for the SES 
conducted before this new system?
    Ms. Bonosaro. Yes.
    Senator Voinovich. And was that uneven throughout the SES, 
some of it good, some of it bad?
    Ms. Bonosaro. Well, we did a survey, in cooperation with 
OPM in 1999, and at that time we knew that we had some of these 
problems--in other words, some executives were not having 
regular performance appraisals, sit-down conversations, and so 
on.
    I think one of the issues that has been misconstrued is 
when we look back, as Director Springer referred to, there were 
places that had 97 percent of their executives at the highest 
rating, however, that occurred primarily in agencies such as 
the Department of Defense with three-level systems, so the 
highest rating was fully successful. One would, therefore, 
expect you would have 97 percent of all people at that level.
    I think performance evaluation has always been an issue, 
people making time for it, making it meaningful. But I think 
what we do know is that the executives who we talk to do not 
feel as though they need that kind of system to motivate them. 
They are so committed to their work, they work so hard, they 
are so interested in what they are doing and committed to the 
mission that a lot of them do not feel that this has added very 
much, frankly.
    Senator Voinovich. Well, it is a lot of work.
    Ms. Bonosaro. Yes.
    Senator Voinovich. It really is. If anybody has done it, 
you know it is a lot of work. I did it when I was mayor, and it 
was tough to get people to do it, to have them spend the time. 
We do it in my office now.
    It would seem to me, though, that members of the Senior 
Executive Service would welcome the opportunity to sit down and 
talk about what they are doing, what the goals are, how they 
fit in the organization, set goals, and then periodically 
review them. I know from experience that if somebody is doing a 
good job, they would like to be recognized for it.
    Ms. Bonosaro. I think it is clear that they do agree with 
that, that if a system like this is handled in a meaningful 
way, of course, they would support it. If, as Director Springer 
says, goals are developed that make sense, that can be 
measurable without being quantifiable, and that in the end you 
are judged fairly on the basis of how well you did, instead of 
being told that, well, we just cannot go in with that many 
outstandings, so we are going to give you a fully successful. 
That is where the pin goes in the balloon.
    Senator Voinovich. Probably what is driving that is money, 
isn't it?
    Ms. Bonosaro. I think two things are driving it: In part 
perhaps money, but I think there is a perception somewhere 
along the way in the agencies that the way to be recertified is 
to come in with lower--keep lowering the number of executives 
being rated at the highest level.
    Senator Voinovich. Well, basically what it should be is 
that you should call it as it is.
    Ms. Bonosaro. Yes.
    Senator Voinovich. You don't sit down with a bell curve. It 
should be based on reality and not on some type of comparative 
or quota system.
    Ms. Bonosaro. Well, if we, in fact, had a bell curve that 
reflected reality, then you would have to wonder whether our 
selection process for the SES were a problem, because we expect 
these people to be very high performers.
    Senator Voinovich. To be outstanding. Right, I get it.
    Ms. Bonosaro. Yes.
    Senator Voinovich. Are you familiar with the system at the 
Department of Labor?
    Ms. Bonosaro. No.
    Senator Voinovich. I would really be interested to know 
what it is that they are doing to have gained full 
certification.
    Ms. Bonosaro. Yes.
    Senator Voinovich. It would be interesting to find out from 
your folks over there how they feel about it and what things 
were put in place there that are absent from other places.
    Ms. Bonosaro. We can certainly try to do that. I think the 
one caution I would make is that I would strongly suspect that 
if we look at the report, there are agencies that were 
provisionally certified as well. It may be that what got an 
agency certified may not necessarily result in a better record 
on the kind of problems that we have identified, because I 
think that there is a disconnect somewhere along the way. I 
think most of the Chief Human Capital Officers would tell you, 
for example, that they have done everything possible to make 
the system transparent, that they do not understand why these 
executives say they have never seen the report or they do not 
know anything about how other people are rated, or how they 
stack up to others in the agency. But yet that is what we hear.
    So somehow or other, that is why I think that not only OPM 
but the agencies themselves have to sit down and take a hard 
look at where this is getting lost in translation along the 
way.
    Senator Voinovich. Well, you know, I would really 
appreciate some help on that because if somebody gets a 
certification, not provisional but a real certification, it 
indicates to me that they have got a system in place where the 
people that are in the system feel that it is a good system, 
that they have had the training and all the other incidental 
things that are necessary to make it successful.
    Ms. Bonosaro. I think one of the good questions to ask--and 
we have tried to learn this ourselves without very much 
success--is to gain a real understanding of what the 
requirements are in that certification process.
    I do know that they look at a sample of performance 
standards for senior executives to determine that they are, in 
fact, using measurable standards. But beyond that, I am not 
certain that they are asking, well, how are you training others 
in utilizing this system, for example.
    I suspect, from what I hear and from talking with OPM 
staff, that they are requesting data, they are looking at 
standards, but I think the question of how are you putting this 
in place--are you doing training and so on?--may be the missing 
link. But I do not know that for a fact.
    Senator Voinovich. Ms. Farrell, have you had a chance to 
look at what I have just been talking about and what some of 
these agencies are doing? Can you give me an idea, if you have 
one, what are the things in place that are making one system 
more successful than another one? Is there a formula that you 
have that can guarantee that--maybe not guarantee, but at least 
lend itself toward being successful with what we are trying to 
accomplish here?
    Ms. Farrell. I think you are right, Mr. Chairman, best 
practices need to be shared, and the agencies that we have 
spoken with, including DOD, are hungry to learn how to move 
forward not only beyond establishing the framework for a 
performance-based system but how to implement it. I think that 
most of these agencies do have a handle on how to design such a 
system, but they do not know how to move forward with 
implementation.
    There could be lessons learned, obviously, from DOL because 
they have taken that next step. They are the only agency for 
this calendar year that does have a system that is fully 
implemented. That tells me that they are adhering to the nine 
criteria in regulations, which I noted earlier in my statement, 
follows the key practices that high-performing agencies use to 
be effective with performance management.
    I think that the CHCO Council is one venue to share the 
best practices, and we have been meeting with OPM and do know 
that the CHCO Council is planning to do more in that particular 
area of sharing the certification lessons learned.
    Senator Voinovich. I asked Ms. Springer the question of 
does she have the resources to effectively certify agencies. 
That is key. The answer to that was yes. Do you agree with 
that?
    Ms. Farrell. Well, as you know, we have an engagement 
underway that is looking at OPM's capacity to lead reforms such 
as the SES certification process, and they have been in a 
transformation themselves since 2003 of going from the 
rulemaker to the toolmaker. I do not think it is just a 
question of do they have enough people, but do they have the 
people with the right skills to help agencies, not just see if 
an agency is in compliance with certification requirements, but 
help the agency understand how to develop a road map or 
implement that road map into implementation for a performance-
based appraised system.
    Senator Voinovich. When is that report going to be issued?
    Ms. Farrell. That will be due to you late November of this 
year.
    Senator Voinovich. Well, I have been trying to get OMB to 
guarantee that agencies have the resources to do the job that 
they are being asked to do. One of the things that disturbs me 
is that the nondefense discretionary part of the budget is the 
one that is getting squeezed. If you look at some of these 
agencies, you are finding that they are flat-funded and, in 
fact, their budgets have gone down because they are not being 
adjusted for inflation, and they are just being squeezed to 
death. I will be anxious to see what your report has to say in 
that regard.
    Are you familiar at all, Ms. Bonosaro, with what they are 
doing over at OPM with the staff that do the certification?
    Ms. Bonosaro. Well, we developed an awful lot of paper for 
a long time, thinking we were obtaining the plans that were 
coming in for certification, until we learned one day that the 
actual performance management plans that were acceptable were 
ones that had been, in fact, approved even prior to this new 
system, and that where the action was was in the review of 
these standards and looking at a lot of data about pay 
adjustments and ratings and so on, which is why I agree with 
what GAO has found. They are focusing on the structure of a 
system, but not what happens when you actually put that into 
implementation, as best we can tell.
    Senator Voinovich. Is GAO in favor of this, if done 
properly? Or do you think this is a hassle and agencies should 
not get involved in it?
    Ms. Bonosaro. Well, frankly, we thought we had pay for 
performance because, as you know, the SES had a system of 
bonuses and Presidential Rank Awards. But as you also know, we 
had tremendous pay compression before this new system.
    Senator Voinovich. Yes, pay compression.
    Ms. Bonosaro. Tremendous. So this gave us the----
    Senator Voinovich. And we lifted that. We worked very hard.
    Ms. Bonosaro. Yes.
    Senator Voinovich. They were limited, and we have increased 
that cap. Then when they were receiving bonuses they would not 
receive the full amount in a year because they would exceed the 
cap.
    Ms. Bonosaro. Yes, and we dealt with the annual 
compensation limit.
    I think what is unfortunate in the new system, though, is 
that we did lose locality pay for these people, which is 
another issue that we have addressed in our legislative 
recommendations, and that presents a real issue when you think 
about moving a senior executive, which as you know, is part of 
the system. That is the risk you take, to be geographically 
reassigned. Well, right now, God help you if you get moved from 
Kansas City to San Francisco, because there are no locality pay 
adjustments. And that, plus permissive cost-of-living 
adjustments, if you combine this, a lot of this together, the 
net result is you have those talented and smart GS-14s and GS-
15s who should be aspiring to the SES now looking at it saying, 
Why would I want this?
    And so our view is we have got to make this system work. It 
has got to work well. And these are also the people who would 
be implementing a system for the rest of the civil service. So 
they have got to feel that they know that this can work well if 
they are going to make a system like this work well for those 
beneath them.
    Senator Voinovich. Ms. Farrell, as GAO has evaluated other 
personnel reforms, has GAO found the initial response the same 
kind that we have had out of this recent survey? Are you 
familiar with the survey?
    Ms. Farrell. Well, the survey, as you know, was released 
last Monday. I am familiar with it. We have not studied the 
methodology. The study is a piece of information that adds, I 
think, some value. We feel that OPM should not just be relying 
upon numbers. It is important to consider if the agency's 
performance-based system takes into account the client's needs 
as well as the employee's. Surveys are one measure to determine 
if the employees are actively involved in the design of the 
system. To our knowledge, the Federal Human Capital Survey has 
not taken employee feedback into account or how the agencies 
been doing with their administration of the performance-based 
system since 2004. Employee feedback on appraisal systems is 
something that could be rolled into that survey.
    Senator Voinovich. Well, I would be interested to get all 
this information together to give us some kind of a blueprint 
as to what needs to be done here in the next year or so to 
shape this up, and perhaps get together more often with folks 
over there to make sure that it happens.
    The SEA has recommended a statutory change to prohibit 
quotas or forced distribution of ratings under the system. 
However, the regulations already prohibit quotas and forced 
distribution.
    How do you feel, Ms. Bonosaro, that a statutory provision 
would be more effective than the current regulation?
    Ms. Bonosaro. Well, obviously we have not proposed any 
penalties here, but we hope that agencies would be inclined to 
take a statutory prohibition more seriously.
    There was one case of what we thought was pretty clear 
evidence of a quota in effect at one agency, where there was a 
set of PowerPoint slides that were being used to brief on the 
new system, one of which was literally a normal distribution 
curve. And we reported that to OPM. We never did learn what 
action they took, but our understanding was later that the 
recommendation was, well, why don't you eliminate the slide, 
but we understand that this is just a--it was referred to as a 
``notional concept.''
    So that to us did not seem to send a very strong signal 
that this is not the way to implement this system.
    Senator Voinovich. Again, getting back to what I asked 
earlier, has your organization looked at what different 
agencies have done for training and preparation to go forward 
with pay-for-performance systems?
    Ms. Bonosaro. No.
    Senator Voinovich. You have not. How about GAO? Will that 
be in this report?
    Ms. Farrell. No, that specifically will not. Our report 
looks at not just the SES certification, but other activities 
that OPM has had underway. The last time we looked at 
performance-based systems for the senior executives was in 
2004, right before this new certification process was launched. 
At that time a number of agencies had efforts underway to fully 
implement performance-based systems, but they weren't quite 
there yet with implementations. Obviously there are best 
practices. We are just not there yet.
    If I can say, Mr. Chairman, we do feel that pay-for-
performance starts at the top with the senior leaders. The 
senior leaders lead by example, and much can be learned from 
the experience, as you acknowledged earlier, of implementing 
such pay reforms for the senior leaders that then will cascade 
down to employees in the rest of the agency. It is part of an 
executive's stewardship responsibility for continuous 
improvement, and a performance-based system is a tool to help 
reach that end.
    Senator Voinovich. Well, as I said, it would be interesting 
to see what things Comptroller General Walker and his team put 
in place to make this a successful system, and what may be 
applicable to other agencies. In other words, here are the ten 
things that you need to do if you want to have a successful 
system. Training is a big thing.
    Ms. Farrell. Right.
    Senator Voinovich. Communication is another one; the kind 
of commitment that is made from top management that this is a 
priority, and will be done right. The system should show 
employees how their job translates into the organization doing 
a better job than what it was doing; the feeling of individuals 
that are in the system that it is a fair system, it is 
transparent, it is not arbitrary, some of the other criteria. I 
would suspect that if we did a real investigation into 
agencies, we would find out that some have done a terrific job 
in that area and others have not done the job.
    That is why I made reference to the Spiral 1.1 at NSPS, 
that I think they have done a terrific job of educating and 
informing people, and up to now they are buying into it. We 
will see how it works out. So, I am anxious to see your report 
and look at some of these other things. I would welcome any 
other thoughts. I know you have made some recommendations for 
statutory changes. I would be more than happy to look at them, 
sit down with Senator Akaka, and see if we can get some kind of 
consensus on them.
    The SES are the leaders in the government, and a potential 
90 percent turnover in 10 years is frightening. I think back in 
2001 when I said by 2005 we were likely to lose--what was it? I 
think 55 percent or even more of the workforce. I do not think 
we have lost them as some anticipated, have we?
    Ms. Bonosaro. No, although I think the numbers are inching 
up a bit because OPM's retirement projections are continually 
changing now, I gather, at least for the SES, based upon the 
experience they are seeing. So it probably is inching up, but 
not only do we want to keep them as long as we can, but the 
critical thing that we are concerned about, indeed, is who will 
follow in their footsteps.
    Senator Voinovich. Yes. You said 15 percent of them are 
thinking about tipping their hat earlier. I mean, the truth of 
the matter is that many of these agencies are being run by 
folks that could leave now, and they are sticking around, 
frankly, I think, because they believe in their country and 
feel good about the work that they are doing and making a 
contribution. We certainly want to make sure that they are 
happy with that and not have a system that encourages them to 
leave.
    Ms. Bonosaro. Well, unfortunately, that is a lot of what 
comes through in the comments, and it is very sad because there 
are people who absolutely love what they are doing and care 
about their country, and in a couple of cases they say, ``I 
have got to get out the door because what I am being subjected 
to''--as I say, how it got translated down the line, ``just 
makes no sense.''
    Senator Voinovich. I want to ask you one last question. I 
have been promoting, as Comptroller General Walker has, the 
creation of a Chief Management Officer in both the Departments 
of Homeland Security and Defense to really be dedicated to 
systemic change. That individual would serve a 7-year term so 
that some of these things that we are attempting to do have 
continuity. And from my experience as a mayor and governor, 
systemic change takes a long time to get done.
    What do you think about that?
    Ms. Bonosaro. Well, actually I do not think about that 
because our board of directors has to think about that. We 
discussed your proposal briefly a little while back, and our 
board has to come back to it because they do take an issue like 
that seriously, and will be happy to weigh in with you.
    Senator Voinovich. OK. In other words, they have not taken 
it up yet?
    Ms. Bonosaro. Correct.
    Senator Voinovich. I would really appreciate it if they 
did. I lobbied Congress for 18 years as mayor, governor, 
Chairman of the National Governors Association, and President 
of the National League of Cities. What discouraged me so often 
was how administrations often ignored the expertise of the 
folks that really run the place. I hope that more of them feel 
like they are not being ignored today than they were in the 
past. They want to see organizations change for the better. It 
seems to me that a lot of stuff just stops until the new 
political team is in place, which can take a year. That is the 
reason I think that having someone in charge of management 
would make a great deal of sense. So I appreciate your looking 
at it.
    Ms. Bonosaro. We will be happy to.
    Senator Voinovich. And I know, Ms. Farrell, that 
Comptroller General Walker feels strongly about it.
    Ms. Farrell. Yes, he does.
    Senator Voinovich. As I say, I would like you to look at it 
because none of these things get done around here until you get 
a little traction, and you do not get traction until people 
that are respected in organizations say this is a sensible 
thing to do.
    I want to thank you very much. This has been a very good 
hearing. I am glad we had it. I keep asking people, How is the 
SES pay-for-performance going? These reforms are so important. 
If we cannot get this thing in the SES, the chances of growing 
and cascading are out. Forget it, you know.
    Ms. Bonosaro. Yes.
    Senator Voinovich. So we want to work with you and make it 
a success.
    Ms. Bonosaro. Wonderful. We appreciate that.
    Senator Voinovich. Thank you. The hearing is adjourned.
    [Whereupon, at 12:33 p.m., the Subcommittee was adjourned.]
                            A P P E N D I X

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