[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



                         [H.A.S.C. No. 111-38]

        DEPARTMENT OF DEFENSE NATIONAL SECURITY PERSONNEL SYSTEM

                               __________

                                HEARING

                               BEFORE THE

                         READINESS SUBCOMMITTEE

                                 OF THE

                      COMMITTEE ON ARMED SERVICES

                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD

                             APRIL 1, 2009



                                     

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                         READINESS SUBCOMMITTEE

                   SOLOMON P. ORTIZ, Texas, Chairman
GENE TAYLOR, Mississippi             J. RANDY FORBES, Virginia
NEIL ABERCROMBIE, Hawaii             ROB BISHOP, Utah
SILVESTRE REYES, Texas               MIKE ROGERS, Alabama
JIM MARSHALL, Georgia                TRENT FRANKS, Arizona
MADELEINE Z. BORDALLO, Guam          BILL SHUSTER, Pennsylvania
HANK JOHNSON, Georgia                K. MICHAEL CONAWAY, Texas
CAROL SHEA-PORTER, New Hampshire     DOUG LAMBORN, Colorado
JOE COURTNEY, Connecticut            ROB WITTMAN, Virginia
DAVID LOEBSACK, Iowa                 MARY FALLIN, Oklahoma
GABRIELLE GIFFORDS, Arizona          JOHN C. FLEMING, Louisiana
GLENN NYE, Virginia                  FRANK A. LoBIONDO, New Jersey
LARRY KISSELL, North Carolina        MICHAEL TURNER, Ohio
MARTIN HEINRICH, New Mexico
FRANK M. KRATOVIL, Jr., Maryland
BOBBY BRIGHT, Alabama
                Cathy Garman, Professional Staff Member
                 John Chapla, Professional Staff Member
                     Megan Putnam, Staff Assistant














                            C O N T E N T S

                              ----------                              

                     CHRONOLOGICAL LIST OF HEARINGS
                                  2009

                                                                   Page

Hearing:

Wednesday, April 1, 2009, Department of Defense National Security 
  Personnel System...............................................     1

Appendix:

Wednesday, April 1, 2009.........................................    33
                              ----------                              

                        WEDNESDAY, APRIL 1, 2009
        DEPARTMENT OF DEFENSE NATIONAL SECURITY PERSONNEL SYSTEM
              STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

Forbes, Hon. J. Randy, a Representative from Virginia, Ranking 
  Member, Readiness Subcommittee.................................     3
Ortiz, Hon. Solomon P., a Representative from Texas, Chairman, 
  Readiness Subcommittee.........................................     1

                               WITNESSES

Bunn, Bradley, Program Executive Officer, National Security 
  Personnel System, Department of Defense........................     4
Crum, John L., Ph.D., Director, Office of Policy and Evaluation, 
  U.S. Merit Systems Protection Board............................     9
Farrell, Brenda S., Director, Defense Capabilities and 
  Management, Government Accountability Office...................     7
Perkinson, Darryl, National President, Federal Managers 
  Association....................................................    11

                                APPENDIX

Prepared Statements:

    American Federation of Government Employees, AFL-CIO.........   117
    Brown, Richard N., National President of the National 
      Federation of Federal Employees............................   105
    Bunn, Bradley................................................    43
    Crum, John L.................................................    77
    Farrell, Brenda S............................................    57
    Forbes, Hon. J. Randy........................................    41
    Laborers' International Union of North America...............   124
    Ortiz, Hon. Solomon P........................................    37
    Perkinson, Darryl............................................    92

Documents Submitted for the Record:

    [There were no Documents submitted for the record.]

Witness Responses to Questions Asked During the Hearing:

    Mr. Ortiz....................................................   129

Questions Submitted by Members Post Hearing:

    Mr. Forbes...................................................   143
    Mr. Ortiz....................................................   133
 
       DEPARTMENT OF DEFENSE NATIONAL SECURITY PERSONNEL SYSTEM

                              ----------                              

                  House of Representatives,
                       Committee on Armed Services,
                                    Readiness Subcommittee,
                          Washington, DC, Wednesday, April 1, 2009.
    The subcommittee met, pursuant to call, at 2:45 p.m., in 
room 2118, Rayburn House Office Building, Hon. Solomon P. Ortiz 
(chairman of the subcommittee) presiding.

 OPENING STATEMENT OF HON. SOLOMON P. ORTIZ, A REPRESENTATIVE 
          FROM TEXAS, CHAIRMAN, READINESS SUBCOMMITTEE

    Mr. Ortiz. This hearing will come to order. We want to 
welcome you to today's Readiness Subcommittee hearing on the 
Department of Defense's (DOD) National Security Personnel 
System (NSPS). I want to thank our witnesses for making the 
time to appear before us today. Welcome. We are very happy to 
have you with us.
    Two years ago the subcommittee held its first oversight 
hearing on the Department's new personnel system, NSPS. It was 
clear from that hearing and formal studies, it has gotten mixed 
reviews. The intent of NSPS was to help DOD respond to its 21st 
century resources needs. Two years ago I asked the question: 
Was it the right fix? That question is still valid today.
    I am pleased that the Department has now undertaken a 
comprehensive review of NSPS. This review response is to a 
letter that Chairman Skelton and I wrote asking that Secretary 
Gates discontinue converting employees to the new system until 
the administration and Congress can properly address the future 
of NSPS.
    Since the Department has only begun its review, I 
understand that our DOD witnesses will not be able to give us 
very many details. However, I do hope that DOD will share with 
us the guiding principle that would be followed in undertaking 
this view. And all our witnesses should be able to provide the 
subcommittee with information on the challenges and concerns 
that must be addressed in any review of NSPS. This includes 
such issues as hiring, fairness of the performance rationing 
ratings, payment of salary increases versus bonuses, employee 
acceptance and managers' accountability.
    We also should take a critical look at the General Schedule 
(GS) system and incentives provided under that system. During 
the campaign, President Obama indicated that he would consider 
either a repeal of NSPS or its complete overhaul. This 
subcommittee will be actively involved in any proposals related 
to NSPS.
    We also will look carefully at the civilian personnel 
management system in general since DOD's employees are 26 
percent of the Federal workforce. Indeed, staff has been 
conducting a several month long analysis of such system.
    Today's hearing will help lay the groundwork for any action 
that needs to be taken following the results of the NSPS review 
and the President's direction.
    Let me go back for a minute to the time of the enactment of 
NSPS in the year 2003. At that time Congress was told that a 
new system was necessary to provide the Department with greater 
flexibility in hiring employees. This would respond to the 
number one complaint of Federal managers: that is, the need to 
fix the complex and lengthy hiring process.
    In fact, the Merit Systems Protection Board, which is 
represented by one of our witnesses today, has stated that the 
Defense Department could be the model for reforming the 
government's hiring process. However, DOD has made no effort to 
tackle what I consider to be one of the biggest challenges 
faced by the Department: attracting qualified new people to 
work for the military services and the defense agencies.
    Since passage of NSPS, the Department has focused its 
efforts on its own unique pay-for-performance system. But 
should each agency be allowed to grade its own personnel 
system, which appeared to be the trend of the last 
administration? I wonder if that is good for the employees and 
the government as a whole.
    Even within the Department there are now three separate 
personnel systems--NSPS, GS and wage grade--and I am asking 
should this continue? Of course, many employees that I have 
heard from, the answer is clear: Stop NSPS and return to the GS 
system.
    Giving incentives for good performance and improving hiring 
were key reasons for the creation of NSPS. However, Congress 
already has provided numerous flexible authorities to all 
government agencies to reward performance in the GS system. 
These were never used.
    Today we will hear from a variety of witnesses. No hearing 
on NSPS is complete without a hearing from DOD. None of the 
political appointees from the Bush administration who pushed 
for NSPS are still around. So today we will hear from the 
individuals tasked with the challenge of making it work. They 
are always the most knowledgeable about NSPS.
    We have mandated that the Government Accountability Office 
(GAO) conduct a thorough review of NSPS to ensure that adequate 
safeguards are in place to ensure fairness. We will hear about 
the most recent report and GAO, which has its own unique pay-
for-performance system, has found numerous problems with the 
DOD system.
    I already have mentioned the Merit Systems Protection 
Board, an agency that we rarely hear from. The Board has done 
numerous studies on the government's hiring system. They 
recognize that hiring is critical to any discussion on civilian 
personnel management. And they have put forth numerous 
recommendations on reforming the Federal hiring process.
    Finally, the Federal Managers Association represents the 
users of NSPS. As managers, they have some very strong views on 
NSPS and what it will take to get it fixed or what we should do 
if NSPS is eliminated and we return to the GS system. I look 
forward to your testimony.
    [The prepared statement of Mr. Ortiz can be found in the 
Appendix on page 37.]
    Mr. Ortiz. But before starting, I ask unanimous consent to 
include the statements for the record for the National 
Federation of Federal Employees, the International Federation 
of Professional Technical Engineers and the American Federation 
of Government Employees.
    [The information referred to can be found in the Appendix 
beginning on page 105; a statement from the International 
Federation of Professional Technical Engineers was not 
available at the time of printing.]
    Mr. Ortiz. And I would like to turn to my good friend from 
Virginia, Mr. Forbes, for any statement that he would like to 
make. Mr. Forbes.

   STATEMENT OF HON. J. RANDY FORBES, A REPRESENTATIVE FROM 
        VIRGINIA, RANKING MEMBER, READINESS SUBCOMMITTEE

    Mr. Forbes. Thank you, Mr. Chairman. As you know, this 
hearing is important because it provides us an opportunity to 
gather relevant information and perspectives about the future 
of the National Security Personnel System. I can think of few 
programs this subcommittee has dealt with that were more 
controversial, more revolutionary, or more challenging to 
implement than NSPS. So I agree with the President's directive 
to the Department of Defense to conduct a comprehensive review 
of NSPS.
    The Congress, primarily on initiatives originating in this 
subcommittee, made significant changes to NSPS in the 2008 
Defense Authorization Act, and I believe we will again be faced 
with more decisions regarding NSPS once the recommendations and 
findings of the Department's review are done and acted upon by 
the President. Until we know and have had a chance to analyze 
what the President proposes, I would caution the subcommittee 
from taking action to significantly change NSPS.
    Paying employees for the quality of their work is an 
underlying principle of most businesses and it should be an 
underlying principle in government. This is one of the 
underlying principles of NSPS, and I agree with this principle. 
The belief that people should be paid based on what they 
contribute is why so many are rightfully upset that American 
International Group (AIG) executives took on millions of 
dollars while their company was driven into the ground. The 
soundness of this principle is why the President has challenged 
our nation to provide extra pay to outstanding teachers while 
insisting that we stop making excuses for the bad ones.
    However, based on the reports of GAO and others, the 
implementation of a pay-for-performance system has been 
problematic. As we get to the questioning of our witnesses 
today, I would like to further explore with them what needs to 
be changed in NSPS to improve the pay-for-performance system 
and establish the credibility of it in the perception of NSPS 
managers and employees.
    I am also interested in what alternatives the Department 
has to implementing the principle that we should reward those 
who are outstanding and ensure the few bad apples are removed 
from the important work that is nothing less than protecting 
our national security.
    So, Mr. Chairman, I join you in welcoming our witnesses and 
I look forward to their testimony. And I yield back the balance 
of my time.
    Mr. Ortiz. Thank you.
    [The prepared statement of Mr. Forbes can be found in the 
Appendix on page 41.]
    Mr. Ortiz. Today we are very fortunate to have a panel of 
distinguished witnesses who will discuss the Department of 
Defense National Security Personnel System. Mr. Brad Bunn is 
the Program Executive Officer, National Security Personnel 
System, Department of Defense; Ms. Brenda Farrell, Director of 
Defense Capabilities and Management, Government Accountability 
Office; Mr. John L. Crum, Ph.D., Director, Office of Policy and 
Evaluation, United States Merit Systems Protection Board; and 
Mr. Darryl Perkinson, National President, Federal Managers 
Association.
    Without objection, all the written testimony will be 
included in the record. And thank you again for giving us this 
information that we so much would like to hear about today.
    Mr. Bunn, you are welcome. And we look forward to your 
opening statements.

STATEMENT OF BRADLEY BUNN, PROGRAM EXECUTIVE OFFICER, NATIONAL 
        SECURITY PERSONNEL SYSTEM, DEPARTMENT OF DEFENSE

    Mr. Bunn. Mr. Chairman, Congressman Forbes, distinguished 
members of the subcommittee, thank you for the opportunity to 
speak with you today about the National Security Personnel 
System at the Department of Defense. NSPS implementation 
remains a critical area of focus for the Department. As of 
today, we have over 200,000 employees operating under the 
system.
    Today I would like to update you on our implementation, the 
challenges we have encountered and what is being considered in 
the upcoming comprehensive review of the program. We are in our 
third year of implementation and, like any major change 
initiative, we have had our share of both challenges and 
successes. As we consider how to best move forward with NSPS, I 
can assure you that the Department is committed to operating 
fair, transparent and effective personnel systems for our 
civilian workforce.
    In November of 2003, Congress authorized DOD to develop a 
more flexible civilian personnel management system to improve 
our ability to execute our national security mission. In 
November 2005, after a comprehensive design process, the 
Department and the Office of Personnel Management (OPM) jointly 
published final NSPS regulations. In April of 2006, we began 
our phased implementation of the system.
    Today the total number of NSPS employees is approximately 
205,000. Because the system may only be extended to our white 
collar workforce, and based on our policy to convert only non-
bargaining unit employees, this represents most of the 
population that would come under the system.
    Before organizations converted, there was a comprehensive 
and extensive initiative to train senior leaders, managers, 
supervisors and employees on the core elements of NSPS on soft 
skills with a focus on performance management. This training 
represents one of the most extensive civilian-focused 
initiatives ever undertaken by the Department.
    We recently announced that we are delaying further 
conversions of organizations into NSPS pending the outcome of 
the upcoming review. During this review, organizations and 
employees already covered by NSPS will continue to hire, 
assign, promote, reward, and carry out other personnel actions 
necessary to accomplish their missions.
    Before I address the review, let me briefly describe where 
we are with implementation and some of the key issues we are 
facing. The original statute was enacted in November of 2003, 
and provided the Secretary of Defense and the Director of OPM 
the authority to establish a flexible and contemporary civilian 
personnel system to recognize the unique role that our 
civilians play in supporting national defense, while adhering 
to the fundamental tenets of the civil service system; namely, 
the merit principles.
    The Department and OPM jointly published those regulations 
in November of 2005. In the National Defense Authorization Act 
(NDAA) for fiscal year 2008, Congress made significant changes 
to the underlying NSPS statute, including repealing most of the 
labor relations adverse actions and appeals and a reduction in 
force provision. The core features of NSPS that we actually 
implemented were left essentially intact, including the pay 
banding and classification structure, compensation 
flexibilities, and the performance management system.
    The Duncan Hunter NDAA for fiscal year 2009 further 
clarified language regarding the staffing and employment 
provisions of NSPS. And over the last year the Department and 
OPM revised the NSPS regulations to conform to these statutory 
requirements.
    This past January, the Department completed its third cycle 
under the NSPS pay-for-performance system. Resulting in 
performance evaluations----
    Mr. Ortiz. I think your mike is gone. Try the other mike to 
see if it works.
    Mr. Bunn. Last fall over 1,600 NSPS pay pool panels 
convened to review and finalize performance appraisals and 
allocate performance-based salary increases and bonuses. Under 
NSPS, employees are evaluated on a five-level rating system 
with one being unacceptable and five representing role model 
performance.
    For the fiscal year 2008 performance cycle, the average 
performance rating was 3.46. The average performance-based 
salary increase was 3.67 percent with an average cash bonus of 
1.94 percent. All NSPS employees rated above unacceptable 
received an additional general base salary increase of 1.74 
percent and an average locality increase of 1 percent.
    The average total salary increase for NSPS employees in 
January of 2009 was 6.41 percent. To ensure fairness in the 
system, a number of safeguards were built into the process, 
including uniform performance evaluation criteria, multiple-
level reviews of recommended ratings, shared distributions and 
payout determinations, prohibition on the practice of forced 
distribution of ratings across the five levels and the 
employees' right to challenge their performance rating through 
a formal reconsideration process.
    NSPS represents a significant change, particularly in the 
area of pay and performance management. Recognizing that this 
kind of cultural shift takes time, we have been paying close 
attention to the perceptions and attitudes of our workforce to 
assess our implementation and the design with an eye towards 
improving the system.
    Some common themes, both positive and negative, have 
emerged. What we know is that NSPS organizations are making 
meaningful distinctions in performance and associated rewards. 
We are also seeing improvement in communication between 
employees and supervisors and better alignment between 
performance plans and organizational mission and goals.
    NSPS employees are generally positive about certain aspects 
of the performance management system, including the linkage 
between their performance plans and the organization's mission, 
the linkage between pay and bonuses and their performance. NSPS 
employees overall are generally more satisfied with their pay 
and the management of the organizations than their non-NSPS 
counterparts, and they are no more likely than non-NSPS 
employees to leave DOD for another job. These are results from 
our status of forces civilian survey that we have been taking 
over the past several years.
    However, other indicators are less positive. Employees and 
supervisors are struggling with the more stringent performance 
measures used in the evaluation process and employees are 
questioning whether the ratings are fair. Employees and 
supervisors, particularly those who are new in the system, 
often struggle to define measurable results-oriented job 
objectives and have difficulty in writing narrative 
assessments.
    We have also heard concerns from employees and supervisors 
about the increased administrative requirements associated with 
the performance management system and the transparency of the 
pay pool process, including whether forced distribution is 
occurring despite our prohibition on the practice.
    Both the Government Accountability Office and OPM in their 
formal assessments of NSPS highlighted many of these issues and 
pointed out that these kinds of reactions and perceptions are 
typical of broad change in management initiatives like NSPS. 
They noted that when there is a major change to a personnel 
system, employee attitudes and perceptions decline initially 
before employees fully understand and accept the new system. 
They also recognize that it generally takes three to five years 
for a new personnel system to gain acceptance.
    However, the Department has been taking steps to address 
many of these concerns, including expanding our pay pool 
training; offerings to include employees and supervisors; 
enhancing our online training tools and automated performance 
management systems; revising our policies to require 
organizations share aggregate pay pool results with the 
workforce; requiring defense components to conduct a thorough 
analysis of pay pool results to identify and examine and remove 
barriers to similar rating and payout potential for demographic 
and other groups in the workforce, apart from differences based 
on individual performance or material job differences; and 
developing guidance for organizations designed to ensure that 
forced distribution of ratings is not occurring in the rating 
and payout process.
    On March 16 the Department and OPM announced a review of 
NSPS to assess whether the program is fair, transparent and 
effective. In addition, the Department decided to delay any 
further conversions of organizations to NSPS pending the 
outcome of this review. I can assure you that Deputy Secretary 
Lynn recognizes that there are a variety of viewpoints 
regarding NSPS, and is committed to a thorough examination that 
includes outreach to Congress, other Federal agencies, 
personnel management experts, labor organizations, employees 
and other key stakeholders.
    You asked that we discuss what is being considered in the 
program review. We expect that it will include a review of the 
underlying design principles of NSPS, the current policies and 
regulations and the extent to which the system is achieving its 
goals. We expect the review to also focus on key issues of 
fairness and transparency, not only in the design but also in 
the implementation. It is likely that the review will include 
visits to organizations operating under NSPS to speak directly 
to employees, supervisors and senior leaders who are operating 
under the system to gain their perspective.
    In addition to examining the various reports and 
assessments already conducted, the team will also obtain views 
on NSPS from labor unions, managers and professional 
associations, employee groups, Members of Congress and their 
staff, and recognized experts in personnel management. The goal 
is to obtain an objective, thorough assessment of the program 
resulting in recommendations to the Deputy Secretary and the 
Director of OPM on a way forward for NSPS.
    Mr. Chairman, we look forward to continuing to work with 
this committee on the way forward for NSPS. And thank you for 
your ongoing support for our DOD civilian workforce. I look 
forward to your questions.
    Mr. Ortiz. Thank you so much.
    [The prepared statement of Mr. Bunn can be found in the 
Appendix on page 43.]
    Mr. Ortiz. Ms. Farrell.

STATEMENT OF BRENDA S. FARRELL, DIRECTOR, DEFENSE CAPABILITIES 
        AND MANAGEMENT, GOVERNMENT ACCOUNTABILITY OFFICE

    Ms. Farrell. Thank you, Mr. Chairman. Chairman Ortiz and 
members of the subcommittee thank you for the opportunity to be 
here today to discuss GAO's most recent report on the 
implementation of DOD's new human capital system for managing 
civilian personnel, the National Security Personnel System.
    It is important to note that strategic human capital 
management remains on GAO's high-risk list that was updated in 
January 2009. The area remains high risk because of the 
continuing need for a governmentwide framework to advance human 
capital reform to ensure the Federal Government civilian 
workforce can respond to the challenges of the 21st century.
    NSPS represents a huge undertaking for DOD, given its 
massive size and geographically and diverse workforce. 
Importantly, NSPS could have far-reaching implications not just 
for DOD but for civil service reform across the Federal 
Government. While GAO supports human capital reform in the 
Federal Government, how such reform is done, when it is done 
and the basis upon which it is done can make all the difference 
in whether such efforts are successful.
    Specifically, we have noted that Federal agencies must 
ensure that performance management systems contain appropriate 
internal safeguards. We have developed an initial list of 
safeguards based on our extensive body of work reviewing 
performance management practices by leading public sector 
organizations.
    In 2008 Congress directed GAO to evaluate, among other 
things, annually for three years, the extent to which DOD 
implemented internal safeguards as specified in NSPS law. Today 
I am here to discuss the finding and recommendations in the 
first of these reports. Specifically, my statement focuses on 
two areas: one, the extent to which DOD has implemented 
safeguards to ensure the fairness, effectiveness and 
credibility of the new system; two, how the DOD civilian 
workforce perceive NSPS and what actions DOD has taken to 
address these perceptions.
    First, while DOD has taken steps to implement internal 
safeguards to ensure the new system is fair, effective and 
credible, we found the implementation of three of the 
safeguards could be improved. For example, DOD does not require 
a third party to analyze rating results for anomalies prior to 
finalizing the ratings. And thus it does not have a process to 
determine whether the ratings are nondiscriminatory before they 
are finalized. Without a predecisional analysis, employees may 
lack confidence in the fairness and credibility of NSPS.
    To address this finding, GAO recommended that DOD require a 
predecisional demographic and other analysis. However, DOD did 
not concur, stating that a postdecisional analysis is more 
useful. GAO continues to believe that our recommendation has 
merit.
    Second, although DOD employees under NSPS responded 
positively regarding some aspects of performance management, 
DOD does not have an action plan to address generally negative 
perceptions of employees under NSPS. According to DOD's surveys 
of civilian employees, generally employees under NSPS are 
positive about some aspects of performance management, such as 
receiving feedback and linking pay to performance.
    However, employees who had the most experience under the 
new system showed a negative movement in their perceptions. For 
example, the percent of NSPS employees who believe NSPS will 
have a positive effect on DOD's personnel practices declined 
from an estimated 40 percent in 2006 to 23 percent in 2007.
    Our ongoing work is reviewing DOD's latest survey results. 
Some negative perceptions also emerged during discussion groups 
that GAO held. For example, employees and supervisors were 
concerned about the excessive amount of time required to 
navigate the process. While it is reasonable for DOD to allow 
employees some time to accept NSPS, not addressing persistent 
and negative employee perceptions could jeopardize employee 
acceptance and successful implementation of NSPS.
    As a result, GAO recommended that DOD develop and implement 
an action plan to address employees' concerns. DOD partially 
concurred with GAO's recommendation, but has yet to develop an 
action plan.
    In summary, we recognize that DOD faces many challenges in 
implementing the new system. NSPS is a new program and 
organizational change requires time to gain employees' 
acceptance and, most importantly, trust.
    Moving forward as DOD and OPM embark on a study of NSPS, 
DOD has a unique opportunity to consider our previous 
recommendations as well as all of the safeguards key to 
ensuring that performance systems in the government are fair, 
credible, and effective.
    Mr. Chairman, that concludes my opening remarks. I will be 
happy to take questions when you are ready.
    Mr. Ortiz. Thank you.
    [The prepared statement of Ms. Farrell can be found in the 
Appendix on page 57.]
    Mr. Ortiz. Dr. Crum.

 STATEMENT OF JOHN L. CRUM, PH.D., DIRECTOR, OFFICE OF POLICY 
      AND EVALUATION, U.S. MERIT SYSTEMS PROTECTION BOARD

    Dr. Crum. Good afternoon, Chairman Ortiz, Ranking Member 
Forbes, and members of the subcommittee. Thank you for the 
opportunity to testify today regarding the challenges related 
to recruiting and hiring candidates for Federal civilian jobs.
    U.S. Merit Systems Protection Board (MSPB) conducts 
independent studies of Federal civil service systems to 
determine the workforce is managed under the merits principles 
and free from personnel practices. In doing so we have 
identified a set of key challenges the government faces in 
terms of recruiting and selecting the next generation of 
Federal employees.
    The research MSPB has conducted on Federal hiring and the 
recommendations we have offered to the President and Congress 
are particularly relevant to discussions regarding the National 
Security Personnel System. In fact, DOD has cited many of the 
same challenges we have seen in other agencies as reasons for 
needing to establish new hiring flexibilities.
    Our studies have shown that there are several key barriers 
that have often prevented qualified applicants from seeking 
employment with the Federal Government. These include the 
length of the process, the complexity of the process, the use 
of ineffective candidate assessment tools, the absence of an 
effective marketing strategy, the lack of human resources and 
supervisory expertise and training in these areas, and the 
fragmented hiring approach used by many different Federal 
agencies.
    I will briefly discuss these issues in turn. First, with 
respect to the length of the hiring process, MSPB research has 
shown that it is not uncommon for successful candidates to wait 
five months or more to receive job offers. Of course the longer 
the process takes, the more likely attrition is likely to 
occur.
    The second barrier to effective recruiting and selecting a 
high-quality workforce is the complexity of the process. 
Decentralization in the hiring process has added to the 
complexity because there is no standard application for Federal 
employment.
    A third issue of concern regarding the Federal Government's 
ability to hire a high-quality workforce is how Federal 
employers assess the relevant qualifications of job applicants. 
The assessment tools many agencies use are simply not effective 
predictors of assessing a job.
    Fourth, the Federal Government often fails to market itself 
effectively. Vacancy announcements are often poorly written, 
difficult to understand, and filled with jargon and unnecessary 
information. Consequently, many announcements can actually 
discourage potential applicants from applying for Federal jobs.
    The fifth area of concern is the current expertise of 
Federal human resources staffs and selecting officials. 
Previous Federal downsizing efforts resulted in the loss of 
human resource institutional knowledge that has not yet been 
fully restored. Hiring officials often do not have the 
knowledge they need to effectively carry out their role in the 
hiring process. This lack of expertise can create redundancies 
and bottlenecks.
    Finally, the Federal Government has moved toward a 
decentralized hiring process and the proliferation of human 
resource flexibilities and appointing authorities. The benefit 
of this approach is that agencies may tell their hiring 
authorities to better seek their mission needs. However, it 
also results in fewer economies of scale across the government, 
increased competition among agencies, and increased confusion 
among applicants as to why agencies use different hiring 
procedures. All these factors can affect merit principles and 
the ability of individual agencies to hire high-quality 
applicants.
    The MSPB offers several recommendations to guide, reform, 
and improve the Federal hiring process. We believe these 
recommendations would be relevant toward the improvements NSPS 
is also seeking in its hiring process.
    First, agencies should manage hiring as a critical business 
process, not an administrative function that is relegated 
solely to the human resources staff.
    Second, agencies should evaluate their own internal hiring 
practices to identify barriers to high-quality, timely, and 
cost-effective hiring decisions. The MSPB is in the process of 
performing its own hiring makeover to identify redundant and 
unnecessary steps and to improve our communications with 
applicants throughout the process. Many agencies would probably 
be surprised to see that many of the barriers they face were 
self-imposed.
    Third, we recommend that agencies, with the assistance of 
OPM, employ rigorous assessment strategies that emphasize 
selection quality, not just the cost. In addition, we recommend 
that agencies implement sound marketing practices and better 
recruitment strategies, improve their vacancy announcements and 
communicate more effectively with applicants. These reforms 
should encourage applicants to await a final decision rather 
than to abandon the Federal job search in favor of employment 
elsewhere.
    Also we recommend that agencies prepare the human resources 
staffs and selecting officials to carry out the full range of 
services necessary to implement an efficient recruitment and 
hiring system. When DOD began implementing NSPS, the Department 
put significant resources on training human resources (HR) 
staffs, managers and employees on the new pay-for-performance 
processes. If agencies devoted similar resources to ensuring 
their HR staffs and managers are prepared to carry out their 
hiring duties, this would greatly reduce bottlenecks in the 
process.
    Agencies should take the majority of these steps without 
having to change existing rules and regulations. Implementing 
these recommendations should help agencies ensure that they are 
hiring qualified employees in a timely manner, from all 
segments of society, after fair and open competition, while 
treating applicants fairly and equitably as described by the 
Merit Systems' principles.
    Again thank you, Mr. Chairman, for the opportunity to 
appear this afternoon and I would be happy to respond to 
questions from you or other members of the subcommittee.
    Mr. Ortiz. Thank you.
    [The prepared statement of Dr. Crum can be found in the 
Appendix on page 77.]
    Mr. Ortiz. Mr. Perkinson.

  STATEMENT OF DARRYL PERKINSON, NATIONAL PRESIDENT, FEDERAL 
                      MANAGERS ASSOCIATION

    Mr. Perkinson. Chairman Ortiz, Ranking Member Forbes, and 
members of the subcommittee, my name is Darryl Perkinson, and I 
am here today representing the over 200,000 managers and 
supervisors in the government in my role as the National 
President of the Federal Managers Association (FMA). Currently 
I serve as the nuclear training manager at the Norfolk Naval 
Shipyard. I recently completed 29 years of service with the 
Navy, and the last 23 in management. Please keep in mind that I 
am here on my own time and my own volition representing the 
views of FMA and do not speak on behalf of the Department of 
Defense.
    Throughout my career I have spent time in three separate 
pay systems: wage grade, General Schedule (GS) and now the 
National Security Personnel System. Over the past 18 months I 
have been involved with NSPS as a rating official and an 
employee being rated. Nearly all of FMA's DOD members are now 
operating under NSPS.
    As stakeholders are the ultimate success or failure of this 
system, we appreciate the opportunity to appear before you 
today. The face of America's workforce is changing. A model 
once attracted for employing the most talented members of the 
workforce, the civil service now seems unreflective of the 
expectations of today's job seekers. The current General 
Schedule pay system and performance review methods are 
antiquated. FMA managers believe a switch to pay-for-
performance is necessary to compete with the private sector and 
also to encourage and reward high performance. The time for 
rewarding employees simply for longevity has passed, and many 
managers want to be rewarded for the job they do.
    We are realizing, however, that NSPS is not delivering on 
its promises. The implementation of NSPS has caused a 
fundamental shift in culture at DOD, a shift for which our 
members were not adequately prepared. Going into the system, 
the biggest concern among our members was how the funds in the 
pay pools would be distributed.
    In 2007 Congress determined that all NSPS employees rated 
above unsuccessful must receive no less than 60 percent of the 
General Schedule raise appropriated by Congress. It is 
absolutely critical that an employee rated a three or above 
receive no less than the General Schedule pay raise. Issues of 
fairness and low morale will certainly surface if valued 
performers were to receive pay raises lower than their GS 
counterparts. Avoiding this situation is necessary to promote 
confidence in the system.
    We are also finding there is a lack of concrete business 
rules that allow for a transparent and fair deployment for pay-
for-performance. We have heard several reports of the pay pool 
panels being out of touch with objectives and job functions of 
the employees they are rating. If the panel is the ultimate 
authority on the final evaluation and is able to adjust the 
supervisor's rating, employees should have access to their 
evaluation before the panel engages in that review.
    We have heard reports of great pressure from the panels to 
lower ratings, especially in the cases of poorly written self-
assessments, despite claims from DOD leadership that this 
should not occur. The pay pool panels heavily rely on one's 
written assessment, even though these evaluations are not 
required.
    The panels are also too focused on the impact they have on 
the share value. The sole purpose of the pay pool panel should 
be to ensure fairness, transparency and consistency exists in 
the system. This is an issue I personally experienced. During 
the last cycle I rated seven employees and the sub-pool panel 
took particular issue with the rating of one of them, mostly 
because they did not feel his self-assessment was up to snuff 
despite my repeated claims that he was my ``go to'' person. In 
the end the panel won out, and I do not feel that this employee 
was properly rewarded.
    DOD currently employs workers enrolled in three different 
pay systems. This is simply unacceptable. The problem is 
exasperated when raises among equally performing employees 
differ. It is the recommendation of FMA that DOD establish 
cohesion within the Department in order to foster a sense of 
equality among the workforce.
    Many members of FMA are calling for us to return to the 
General Schedule system. However, this is not as easy as one 
might think. First and foremost, we must ensure employees' pay 
is protected. Employees who excel under NSPS and who were 
appropriately rewarded by increases in salary beyond the GS 
schedule scale should not be penalized by losing current pay or 
eligibility for future pay raises. Given that the average pay 
raises under NSPS have far exceeded the GS raises, many 
employees are now a GS level or two above where they were when 
they entered NSPS, sometimes without added responsibility.
    We must ask ourselves what the options are for these 
employees, and I lay out some suggestions in my written 
testimony. I also discuss several performance awards that are 
available to GS employees that we feel have been underutilized. 
We are encouraged the Department heeded calls to halt further 
implementation of NSPS until an independent review of the 
system could take place. While the details of this process are 
unknown, we strongly suggest employee groups, both managerial 
and unions, be invited to participate. The unique experience of 
these employees allows them to convey what is working, what is 
not, and what is actually going on at the ground level.
    Any pay system, whether it be NSPS, General Schedule, or 
something entirely different must adhere to certain principles. 
As Congress debates where to go with the pay system at DOD, I 
include many suggestions for improvements in my written 
statement, including adherence to merit principles, adequate 
funding for performance awards and engagement between employees 
and managers. It is imperative that any system stand by the 
principles of objectivity and transparency. We must take a 
cautious and deliberate path as we move forward.
    Thank you for this opportunity to appear before you today. 
And I am happy to answer any questions you may have.
    Mr. Ortiz. Thank you so much.
    [The prepared statement of Mr. Perkinson can be found in 
the Appendix on page 92.]
    Mr. Ortiz. You have given us very, very important testimony 
today. And I know that the members will have a lot of questions 
to ask.
    One of the questions that I have, you know, for employees 
converted from GS to NSPS, did the Department develop a system 
to make that decision? If NSPS is repealed, how would DOD 
reconvert back to the GS system? And what are the Department's 
other options? In other words, converting to a hybrid of NSPS 
and the GS or any other option? What potential challenges do 
you foresee? How long will the process take?
    And, briefly, if you all can give us some feedback. And I 
don't want to take too much time because we have a lot of good 
members here who would like to ask questions as well.
    Mr. Bunn. Thank you, Mr. Chairman. One of the issues that 
will likely be taken up by a review panel and the little bit of 
details that I can share with you on that is that it is likely 
going to be an external review to ensure that there is 
independence, so that it is an objective review. But we haven't 
determined all the details of who is going to be doing it, how 
long it will take. But certainly one of the things that will be 
under their purview is to look at the various options for 
moving forward. And at this point all the options are 
essentially on the table, to include making changes to the 
existing system all the way to the more extreme option of 
reverting back to the GS.
    I can't say that we have done a lot of work to analyze the 
impact of that kind of an option. I can tell you that the 
fundamental principle that we will likely follow is to ensure 
that we do no harm to the employees if they do revert back to 
the General Schedule, similar to our approach to converting 
people to NSPS, ensuring that no pay was lost.
    So those are the kind of things that we would be looking 
at. We would certainly be interested in hearing from the 
Federal Managers Association, other groups on their ideas, if 
that is an option that is taken by the Department and OPM.
    Mr. Ortiz. Do you feel that there might be room for 
modifications?
    Mr. Bunn. Well NSPS, Mr. Chairman, was developed to provide 
flexibility. And part of that includes evolving over time. So 
there has always been an expectation that as we implement the 
system and evaluate that implementation and the design of the 
system, that there would be changes over time. So the current 
structure of the program, including the regulations and the 
policies, they are built to change over time and they can 
certainly do that.
     So most of the changes that we could foresee, we would be 
able to make those changes under the current regulatory 
statutory structure, including changes to the performance 
management system, the rules around pay-for-performance. On the 
implementation side, we are always looking for ways to improve 
how we implement the system, how we train our workforce, how we 
communicate to the workforce to ensure that there is fairness 
and transparency in the program.
    Mr. Ortiz. Anybody who would like to add anything to the 
question?
    Mr. Perkinson. Mr. Chairman, I think the key point for us 
is we have taken 205,000 people and put them in a system that 
there is no doubt that we have seen it work in several areas. 
It works in several areas and it hasn't worked in others. And 
we have shared--we will share and we have shared the 
complications that we have seen with the system as it presently 
works and some of the disparities that do occur in our 
different agencies and organizations.
    I feel that with the fairness to the people that have gone 
in the system--and we don't want to lose the fact that we did 
reward people in this particular system for pay-for-
performance--and we think from our standpoint that was the 
right direction to go. We don't want to lose that ground, but 
we also want to protect them, whatever options come out after 
we do our review.
    Mr. Ortiz. Ms. Farrell.
    Ms. Farrell. Mr. Chairman, we would probably advise what we 
advised when NSPS was first introduced as a concept: Move 
cautiously. We would recommend giving the study that my 
colleague from DOD has mentioned with DOD and OPM time to look 
at the aspects.
    NSPS, as you know, is very broad. It covers performance 
management, classification, compensation. There are so many 
moving parts. And first be sure what it is you want to fix 
before you move forward to fix it. There are no specific rules 
that we are aware regarding how to convert back, if that were 
the option determined to take. But there are demonstration 
projects that have been conducted, say, at the U.S. Army 
laboratory where they did write rules in their regulations 
about converting back. It basically, though, was directed at 
pay.
    And as you have already heard from other panel members, 
there are roles and responsibilities and things are changing. 
But there are some other rules in these demonstration projects 
that might be looked at as a point.
    Mr. Ortiz. I just have one--would you like to add 
something? Thank you. I just have one more question and then I 
will yield to my good friend from Virginia.
    Why has the experience with pay-for-performance in defense 
laboratories demonstrated your program has been so much more 
positive than DOD and NSPS experience? And I ask GAO and DOD. 
Maybe they can add something to that.
    Mr. Perkinson. From the FMA perspective, we had some folks 
that--one of our chapters in China Lake, they were run under 
the demo projects. And I think one of the things that Ms. 
Farrell brought up was they moved cautiously as they 
implemented the demo projects, whereas when we implemented 
across agency lines in the different departments, we had a 
tendency for things to--the different ways that business rules 
could apply didn't leave a consistent base for the projects to 
go out. So we had individual pockets created at the different 
agencies or the facilities.
    So with the demo projects, they were concentrated on what 
they did and they moved cautiously. So I think that was the 
success of those.
    Mr. Bunn. If I could add something, Mr. Chairman. We did 
use some of the lessons that we learned from defense 
laboratories and other personnel demonstration projects as we 
have designed NSPS. One of the things I want to point out is 
that as we implemented those, the early years of those 
implementations did experience some of the negative perceptions 
and attitudes that we are seeing in NSPS. The important 
difference between NSPS and those demos is that the nature of 
the workforce and those laboratories were different. It was a 
professional workforce. It was homogeneous for the most part. 
And the flexibilities were very much designed for that kind of 
organization.
    NSPS organizations and the way we designed NSPS, it is not 
the same kind of implementation. We have rules that are more 
standard across NSPS and weren't as tailored to those 
workforces. So there was a--you know, in some ways there were 
important parallels. We are experiencing the same kinds of 
things in the early years that they have experienced. And OPM 
and, I believe, GAO has pointed to those as well. But there are 
also important differences. And we have attempted to learn the 
lessons from the demonstration projects and we have continued 
to do that.
    Mr. Ortiz. I would just add that performance management is 
something that we have talked about. NSPS touches compensation 
and hiring and performance management. But true performance 
management touches everything throughout the organization. The 
goals cascade through the organization and touches how you 
hire, how you motivate, how you reward. And NSPS is very broad, 
much broader, I agree, than what we have seen at the 
demonstration projects. And it takes time. It takes five to 
seven years, when we have looked at results-oriented 
organizations that do use such type of management.
    Mr. Ortiz. Anybody else? If not, I yield to my good friend 
from Virginia, Mr. Forbes.
    Mr. Forbes. Thank you, Mr. Chairman. Again I want to thank 
our witnesses for your expertise and for sharing it with us 
today.
    I am going to have a number of questions with some degree 
of specificity I would like to submit to you in writing, where 
you can think about them and just give us answers so we can get 
information. While we have got this brain trust here, I want to 
do a more macro question. I think all of us would agree anytime 
we have a personnel system, it is never going to start off 
perfect.
    The second thing, it is never going to be implemented 
perfect. And I remember the days in law school; I used to envy 
the law school professors because all they had to do was stir 
the pot and ask questions, but never answered anything. When 
you get to be a judge or lawmaker, ultimately we have got to 
pull that hot stuff from stirring all around, and we have to 
answer the questions.
    One of the questions we are going to have to answer is 
this: Do we continue to tweak the NSPS system? Or at what point 
do we ditch it and say we are going to go back to the GS 
system, or do we ever get there?
    And what I would like to ask you is just your individual 
perspectives. Do we continue working and trying to tweak this 
and make it better? Or do we ditch it and go back to the GS 
system? Because both of them have pitfalls. It is not a clear-
cut question on either one of those.
    And from your individual perspectives, seeing all you have 
seen, know all the questions we can stir up, know that we can 
say well, this is a problem here, this is a problem there, what 
do you think? Continue to tweak it, modify it, or ditch it and 
go back to GS?
    And if each of you would give us your perspectives on that, 
I would appreciate it.
    Mr. Bunn. Well, I think that is one of the issues that this 
review team is going to look at and wrestle with. My experience 
is that these kinds of systems are only successful when we have 
full commitment on the part of leadership, the line management 
in organizations, all the way up to the senior leadership. And 
in the Department of Defense that is both a civilian leadership 
as well as the military leadership.
    This review, this time-out that we are taking, gives the 
new leadership in the Department of Defense under the new 
administration an opportunity to grapple with those fundamental 
questions and the underlying design principles of NSPS. And, 
really, I think what is going to happen is they are going to 
struggle with figuring out what things are implementation 
issues and what things are fundamental design or systemic kinds 
of issues. And, frankly, where we are in implementation now, we 
are just now far enough along in our implementation to start 
seeing and discern those things. But ultimately, trying to get 
back to your question, it could go either way.
    Mr. Forbes. Brad, let me just--you have immunity here. 
There is no liability. We are just trying to get our arms 
around it. We really respect all of your opinions.
    From what you know now--and I realize there are a million 
different things, and I know what they are going to try to do--
what are each of your opinions? Is it worth tweaking and making 
it work? Can we get there? Is that the way to go? Or do we need 
to ditch it?
    Mr. Bunn. I think the--you said immunity, right?
    Mr. Forbes. You have got immunity.
    Mr. Bunn. I think there have been examples and 
demonstrations of successful systems like NSPS that we can 
point to and say they made it work over there. I think we can 
look at that and see--at least see a potential future where 
there is an NSPS and that have overcome and tackled these major 
problems.
    We have addressed the issues that, Mr. Chairman, you 
mention in your opening statement and, Congressman Forbes, you 
mentioned. And that given time, we can overcome those. But the 
other side of that is that there are fundamental issues that, 
Mr. Chairman, you raised, one of them being multiple systems 
across the Federal Government, agency unique kind of systems. 
And I think this will probably open a debate about whether that 
is the right approach for the Federal Government.
    So I think it is a healthy debate that we need to have. And 
I think that we need to have this review so that the new 
administration can embrace the program if we are going to move 
forward with it, and then at the very least get clarity so that 
our workforce knows what it is going to be operating under.
    Mr. Forbes. I don't have a lot of time. Ms. Farrell, Mr. 
Bunn is still teaching law school on me. What do you think? If 
we go back to GS, are we going to have to make major changes in 
GS? Where do we go? What do you think; keep it, tweak it, go 
back to GS? Do we have to make major changes?
    Ms. Farrell. My agency would say--and I agree with my 
agency--tweak it. We strongly believe in performance management 
and the benefits that can be derived. It is not that you can't 
get results from the GS system, but performance management has 
given DOD the opportunity to reenergize and refocus their 
efforts and look at how they hire and how they develop and how 
they pay with the flexibilities. Give them more time to work 
through this.
    Mr. Forbes. Thank you. Dr. Crum.
    Dr. Crum. Yes. I am going to say something slightly 
different, which is that the issues that are faced by DOD are 
also faced by other Federal agencies so that, in fact, if we 
wait for DOD to reservice a proving ground, we would be waiting 
some time and fail to capitalize I think on an opportunity to 
improve the civil service at the present time; where now we can 
capitalize on the economy to bring in people, which maybe we 
otherwise could not if in fact we had the right systems in 
place.
    We will ultimately still be facing the same sort of 
retirement tsunami, for instance, in a few years that was 
talked about by GAO and others. Even though that may be delayed 
because of the economy, it will come up. We need to solve the 
same problems from other agencies, not just DOD.
    Mr. Forbes. Mr. Perkinson.
    Mr. Perkinson. Congressman, I have a constituency that 
probably whatever answer I give you will be the wrong one.
    Mr. Forbes. So would we.
    Mr. Perkinson. I am going to speak from my experience, 
being a supervisor and head of an organization that already 
has--we have the three systems. I have to manage those three 
systems. I have wage-grade people assigned to me, I have 
General Schedule and I have NSPS employees. My personal feeling 
is that if at the end of the review we are going to come up and 
say we will go back to GS, we ought to go back to GS now, 
because that only gives me two systems to have to work with. I 
truly do think, though, we need to look across the board 
agency-wide at all the different aspects that are going on.
    In the Internal Revenue Service, for instance, with the FMA 
organization, they have the pay-for-performance system. Social 
Security is looking at it. So we need to come back with basic 
principles that we are looking at, that all the agencies can 
adhere to, that we have one pay-for-performance system and some 
principles laid out there that we all can use as a standard. I 
think that is the direction we need to go so we don't have 
multitudes of pay-for-performance systems that we are trying to 
operate under.
    But if I had my gut feel in what would serve me better at 
Norfolk Naval Shipyard today, I would say go back to GS.
    Mr. Forbes. Thank you. And thank, all of you, for your 
answers. And Mr. Chairman, thank you for your patience.
    Mr. Ortiz. Thank you. Ms. Shea-Porter.
    Ms. Shea-Porter. Thank you, Mr. Chairman. Well, your last 
comment certainly got my attention. And I wanted to ask you to 
please elaborate the reason for that, Mr. Perkinson. Why would 
you go back?
    Mr. Perkinson. Well, right now, one of the difficulties in 
being a good, competent manager is the different types of rules 
we are under. Under the wage-grade system, of course, I have 
got to deal with different rules and responsibilities, and plus 
they are getting a structured raise that is dictated by the 
wage survey system. And the General Schedule, the bargaining 
unit employees that I have, they are coming under the 
congressionally approved pay raise. And then I have the NSPS 
folks that we are giving raises to. We are rewarding 
performance.
    So it is a management nightmare to kind of have to explain 
why you are not--why certain aspects or certain people are not 
getting the same consideration that another group is getting.
    For instance, the new question at my activity is, from our 
General Schedule bargaining unit, when are we going to get paid 
for our performance like the NSPS folks? When the survey came 
out and the results of the payout, they got 3.9 percent. Okay. 
So the average payout for the NSPS folks was 6.4. Legitimate 
question. But it is a tough one to manage through when you have 
got those different types of attitudes and people that you have 
to motivate to get your job done on a daily basis.
    Ms. Shea-Porter. But if they had the choice--I thought I 
heard you say that you would go back to the GS.
    Mr. Perkinson. I said as a manager I would go back to the 
General Schedule because it would make it easier for me. There 
are--and I included in my written testimony--there are 
different flexibilities with the General Schedule system where 
we can pay for performance. Quality step increase, those type 
of activities, there are some tools in the General Schedule 
system where we can reward performance.
    Ms. Shea-Porter. I have to say I have a family member who 
has lived and been happy under the GS system for a long time.
    Mr. Bunn, I have been hearing some complaints--and not from 
my family member. I have plenty of complaints but not about 
this. I have been hearing complaints from Federal employees 
that under the system they don't feel comfortable talking to a 
manager about something they don't like, or a suggestion, 
because they fear that they do not any longer have the 
protective structure around them and that later they will be 
punished for being so frank. And so they tend to find somebody 
who has the courage or the good standing with their boss, so 
that they won't have to worry.
    What are you doing to make sure that doesn't happen? I am 
sure that happens. But what are you doing to acknowledge it and 
to work on that? I mean, that is why we have got the system to 
begin with, the original GS, so that it would be fair and 
equitable and people could understand. I know there are 
problems. But at least we understood if you were here a certain 
amount of time, you performed at a certain level, you could 
expect that the job would not go to the relative who just 
showed up two days ago.
    Mr. Bunn. Well, one of the things we did early on in the 
system was a fairly extensive training effort with our 
supervisors and managers. They are really the people who have 
to make this work because that is where we are putting this 
discretion. We are putting discretion in the hands of 
supervisors and managers who now have more influence over the 
pay outcomes of their workforce. So that was a conscious choice 
the Department made. That is one of the underlying principles 
of pay-for-performance. Part of it is the design of the 
performance management system and ensuring that you have a 
structured evaluation system that measures performance against 
objective criteria.
    So when we designed the performance management system we 
established benchmark criteria against which individual 
performance is measured, and then ultimately rewarded under the 
pay-for-performance system. Training our supervisors and 
employees in understanding how that works and setting results-
oriented goals and objectives aligned with the mission, those 
are all parts of our implementation training and continues to 
be part of NSPS training going forward.
    Ms. Shea-Porter. That sounds wonderful. But how do you 
extract the part--in every person--which is, I like this one 
better, or I didn't like the work that one did because I 
thought we should have used----
    Mr. Bunn. The issue of favoritism.
    Ms. Shea-Porter. Or for whatever. There are people who 
don't even recognize it in themselves, and you could train them 
forever and they could agree with you about the objectives but 
not recognize that they are not using those objectives, that 
their outlook is colored by starting off with a certain 
perception.
    So how do you account for that? And how do you try to pull 
that out of the recipe?
    Mr. Bunn. I think what you have to look at, then, is what 
safeguards do we have in the system. And in fact that is what 
my colleague from GAO has done most of her work on in looking 
at NSPS, and GAO has actually found that we do have safeguards 
in the system. Part of that is multiple layers of review in the 
performance management process, so that first-line supervisor 
is not the final say in the performance evaluation process; 
that a higher level of review looks at the rating, and at that 
point that could catch some of those kinds of behaviors if 
there is a bias, if there is favoritism going on.
    And then the pay pool process, which is the panel process 
that we instituted as part of NSPS, and the performance 
evaluation where you have a panel of senior leaders from within 
the organization reviewing the outcomes of the rating process 
to ensure that the criteria is applied appropriately, 
consistently, and fairly across the organization. So those are 
the most significant safeguards that we have.
    Ms. Shea-Porter. But of course it is the massiveness of the 
job, and I know how hard Federal employees work. They really 
can't sit down and find out all the nuts and bolts in a 
particular work station, in a particular issue. It is just not 
possible. But if that were working, Ms. Farrell, could you 
please tell me why the satisfaction rate is dropping? It would 
seem to me--did you say about 26 percent now?
    Ms. Farrell. Twenty-three.
    Ms. Shea-Porter. It would seem to me that over, you know, a 
couple of years, as people became a little more accustomed to 
it, that the rate would stay the same or maybe even rise a 
little bit instead of plummeting.
    Ms. Farrell. It did plummet, and typically with a 
transformation of this major end scope, you will see a plummet. 
There hasn't been enough time to pass to see if that is going 
to be a consistent trend. We will be looking at this year's and 
next year's results as well to see, but typically it will 
plummet, it will level off, and hopefully it will go back up.
    But if I may go back to your first question regarding the 
safeguards, as Mr. Bunn said, we did look at the internal 
safeguards, and training is one. Training and retraining. And 
we cannot emphasize enough that the training has to be 
continuous. It is not just up front when you launch the system, 
but you have to keep doing it with the supplementals. And we 
did give kudos to DOD regarding training that was needed by all 
employees up front and then specialized training on different 
aspects of the system, et cetera.
    But the predecisional analysis that I referred to that DOD 
disagrees with, that is an opportunity for a third party that 
is outside of the chain of command to be--to conduct an 
analysis to look for anomalies that may need further 
investigation in terms of a particular individual or certain 
groups, inconsistencies that warrant investigations; not to 
necessarily change the rating to make it look ideal for a 
certain type of distribution, but to see if something needs to 
be investigated, to make sure that the employee is receiving a 
rating that is a comparison of what they did with their 
objective and the other performance indicators, and then take 
steps and change it if a mistake was made. But that is 
something that DOD does not require, and it could help, help, 
ensure what you are talking about.
    Ms. Shea-Porter. I remember a couple of years ago when we 
had the hearing and the report on that side of the table was 
pretty sunny, that people were happy, that their money was 
better, that they thought it was fair, that they were getting 
recognized. So it is interesting to me to see this happen again 
and see that what my initial suspicions were seem to be 
possibly coming true under this system. So thank you all. I 
appreciate it.
    I yield back.
    Mr. Ortiz. Mr. Rogers.
    Mr. Rogers. Thank you, Mr. Chairman.
    Ms. Farrell, I wanted to talk a little bit to follow up on 
a question. Tell me about these ratings. The employees 
participated in a rating program where they rated their 
satisfaction level. Is that what you were saying had plummeted?
    Ms. Farrell. She was referring to some remarks in my 
opening statement about employees' overall dissatisfaction. 
Those who had been under the system the longest when we look at 
DOD's employee survey results, there was dissatisfaction 
expressed from 2006 to 2007, and it plummeted from about 43 to 
about 27 percent.
    Mr. Rogers. Just among those in NSPS?
    Ms. Farrell. Yes, those who were in NSPS for the longest. 
As you know, NSPS has been phased in. Again, that is why we 
believe an action plan is needed to address such concerns, to 
find out what is behind that statement that they are 
dissatisfied that NSPS will have a positive impact on the 
personnel practices, and to dig deeper and address those 
concerns.
    Mr. Rogers. Was there a similar review or sampling of the 
wage grade in the GS employees to see if they were satisfied 
with their pay system?
    Ms. Farrell. There are statistics that surveyed the GS, and 
there are statistics that show those who are under--for certain 
questions, those who are under NSPS have a more favorable view 
than when they were under the GS system. So there are positive 
indicators as well.
    Mr. Rogers. But I am trying to compare apples to apples. 
Currently a snapshot of the employees in the three systems, 
does one stand out as being much less desirable than the other 
two?
    Ms. Farrell. It is mixed. When we looked at what data is 
available, it is a mixed report card right now.
    Mr. Rogers. Okay. Staying with you, you talked about 
finding a way to reassure employees that it is fair and 
equitable. What kind of ways do you think that you are going to 
be able to do that?
    Ms. Farrell. One of the safeguards that Congress mandated 
for DOD to include in the NSPS system is to involve the 
employees in design and implementation. Now, we are past 
design, but we are well into implementation. Again, one way to 
involve the employees--and I am not saying that DOD does not. 
They hold town hall meetings. They have focus groups. They 
conduct this status of survey for civilians that is projectable 
to the entire population on a regular basis, asking questions 
about NSPS; but it is take that survey result and document what 
the employees' concerns are, and take action, hold somebody 
accountable with coming up with something to respond to the 
employees, and that would be pulling the employees into the 
implementation part at this point.
    Mr. Rogers. As a part of your review, did you all look at 
in the NSPS system employees that had gotten significant 
bonuses and kind of review where the complaints were that they 
were inequitable?
    Ms. Farrell. No, we did not look at individual cases, and 
the survey results I don't believe break down the type of 
information that you are trying to get to. It would come up in 
our focus group discussions, but nothing that would be 
projectable.
    Mr. Rogers. Well, Mr. Perkinson talked about his situation 
with his employees and how he found it to be unfair from a 
manager's standpoint. And it would be good if you could take 
the pay raise situations where there has been expressed concern 
that it was unfair the way it worked out and look at them and 
see if there is some way we could remedy that.
    But, Mr. Perkinson, do you know of any way we could do 
that?
    Mr. Perkinson. There is a mechanism in NSPS that allows--it 
is called reconsideration, and it is a process that can work by 
the employee. But it comes back to a point that was made 
earlier about, you know, the employee has got to have the 
desire and the knowledge to want to go make that 
reconsideration. And I think in some cases what happens is the 
employee is frustrated and says, ``I will just accept what I 
get,'' rather than make the effort to ask for reconsideration. 
I do know of a personal experience where somebody did ask for 
reconsideration, and it was accepted, and the process worked. 
So there is a tool in NSPS that does allow for the employee to 
make a challenge to a rating if they think it is inappropriate.
    Mr. Rogers. My depot employees are very apprehensive about 
this NSPS and its equitable nature, which leads me to want to 
know how do employees feel about the wage grade and the General 
Schedule? I would love to see some apples-to-apples employees 
survey among those three groups, because if we follow what Mr. 
Perkinson indicated would make his life simpler and got rid of 
NSPS, I would like to know that the people who are in wage 
grade and GS and say, that is a good thing, and not say, you 
made it worse. So I would just like to see that survey.
    Thank you, Mr. Chairman.
    Mr. Ortiz. Ms. Bordallo.
    Ms. Bordallo. Thank you, Mr. Chairman.
    I have a question for Mr. Bunn. In fact, I have a series of 
questions. First, the issue of implementing this system is of 
great importance to our civilian workforce, and the halt in 
further implementation of this system allows us time to get the 
process right and make sure it is fair and equitable for all 
civilian employees in DOD.
    Now, on Guam--I represent the U.S. territory of Guam. The 
commanders in the Air Force and the Navy are moving toward 
implementing a joint region concept that was dictated by a 2005 
Base Closure and Realignment (BRAC) decision. I have heard from 
several constituents on Guam about concerns they have regarding 
how civilian personnel will be treated for purposes of 
promotion and eligibility for other civilian jobs within their 
specific service.
    Now, similarly, NSPS allows--the rules allow each 
individual military organization or service to determine how 
much funding is available for raises and bonuses, which leads 
to inconsistency among all DOD organizations.
    What action can be taken to require more consistency in the 
budgeting of NSPS among the various organizations to ensure 
more fairness in payouts?
    The second part of that question: What impact does joint 
basing or joint region implementation have on civilian 
employees who are part of the NSPS system?
    And, third, has DOD factored in the complexities of joint 
base implementation into how the NSPS system would be 
implemented on Guam and at other installations facing similar 
joint basing requirements?
    Mr. Bunn. I will start with the joint basing issues first. 
We are in the process of planning for implementing the joint 
basing decisions, and in some of those cases, it does involve 
bringing organizations from different services together under a 
single umbrella and under a single service, which also means, 
whether it is NSPS or wage grade or GS, there are some 
different ways that the services handle personnel management, 
and that includes funding for pay pools, funding for 
performance awards on the wage grade and GS side as well. So 
some of the consistency issues don't just apply to the NSPS pay 
pool funding; they kind of apply across the board.
    But one of the things that the review will--and I know I 
sound like a broken record, Mr. Chairman, but one of the things 
that the review will take up is the issue of managing a 
workforce under multiple systems, and what impact and what 
challenges that presents, and what we could possibly do to 
mitigate those challenges, and also fundamentally whether that 
is something that we can live with.
    Specifically for the joint basing, we do know that there 
are some--which is another word for ``reorganization'' 
essentially is what is going on--there will be some moves of 
employees off of some service rolls onto the joint base rolls, 
and generally once they move onto the rolls of the new 
organization, they will be treated--say, a Navy civilian moves 
onto the Army rolls, they will be treated as an Army civilian, 
and that includes whatever personnel policies apply to those--
to the Army population. So that is generally how we are 
approaching it.
    Now, there are some issues with respect to bargaining unit 
employees who move from an organization into an NSPS 
organization, and I know that issue has come up on whether that 
is going to cause them to be moved into NSPS, and whether that 
might have--have an implication with respect to our delay in 
further conversions. The bottom line on that is that if they 
are bargaining unit employees, and they are moving to a new 
organization, again, regardless of the NSPS/GS issue, there 
needs to be a determination that is made by the Federal labor 
relations authority with respect to their bargaining unit 
status and whether they still are a member of a bargaining 
unit. And until that process happens, which generally takes 
several months, we wouldn't change the system that they are 
under. So if they are under GS, they wouldn't change to NSPS 
until the bargaining unit issue is clarified.
    Ms. Bordallo. I see.
    I would like to get Mr. Perkinson's suggestions on this.
    Mr. Perkinson. With the joint basing issue, it sounds to me 
like if we were consolidating, we were bringing people so there 
is a consistency, that is a proper way to look at it. In 
particular you can look at our organization and make the rules 
the same so that there is the transparency and equitability on 
how the payments are. That seems like it would be the right way 
to go for the employees and for the managers as well who have 
to work in that system.
    Ms. Bordallo. Thank you.
    And I have one more quick question, Mr. Chairman, if I 
could.
    Mr. Ortiz. Go ahead.
    Ms. Bordallo. All right. Guam is in the midst of a major 
military realignment, and the key component of this realignment 
is the transfer of 8,000 marines and 9,000 dependents from 
Okinawa, Japan, to Guam, as well as an increase in all the 
other services: the Air Force, the Navy, and Army. And in the 
end we expect a large increase in civilian DOD personnel.
    It is important that any civilian hiring system on Guam be 
flexible enough to provide incentives for workers to remain on 
Guam. So we are doing our part as a Congress to pass 
comprehensive pay locality legislation for the nonforeign Cost 
of Living Adjustment (COLA) areas, but we need to be mindful of 
keeping options open for certain types of compensation and 
recruiting and retention incentives when implementing an NSPS 
on Guam.
    So to that extent I understand that NSPS tends to put a 
significant amount of employee compensation at risk by moving 
payroll dollars into performance-based pay pools. How has DOD 
ensured that employee compensation is not artificially affected 
by budget constraints and ensure that NSPS-covered employees--
that they have their at-risk compensation sufficiently 
protected from budget fluctuations?
    Mr. Bunn, I guess you would be able to answer that.
    Mr. Bunn. Yes, ma'am.
    One of the provisions in the statute, the underlying 
statute, for NSPS is to ensure that as employees move into 
NSPS, that they are not disadvantaged from the standpoint of 
overall compensation. So our policies, the rules that we put in 
place for how we fund NSPS pay pools and how we fund civilian 
compensation under NSPS, essentially protect those funds. And, 
in fact, we require our components to certify every year that 
the funds that are allocated for purposes of NSPS compensation 
pay for performance are no less than what would have been 
allocated had those employees at that population not converted 
to NSPS.
    So we protect that money, and we ensure that the money is 
available, and that it is allocated. It is now--under NSPS, it 
is now expended under the pay-for-performance process and under 
those rules, and that is how the compensation is distributed, 
but the money is there.
    Ms. Bordallo. Thank you, Mr. Bunn.
    Thank you, Mr. Chairman, for giving me some extra time.
    Mr. Ortiz. Mr. Bishop.
    Mr. Bishop. Allow me, I think, about four questions that 
are more general, and to whomever wishes to respond, it is fair 
game.
    The first one just deals across the board. Is there still a 
consensus by the four of you that incentive bonuses have some 
kind of role? Should they be maintained in some form or 
another, not necessarily the one you have now, but are 
incentive bonuses a legitimate factor that should be maintained 
in the compensation system?
    Mr. Perkinson. Yes, sir. I think it is a factor that needs 
to be kept on the table and utilized as a tool. Incentive 
bonuses and paying people for doing above and beyond their 
normal expected duties is something that we need to do.
    Mr. Bishop. Is there any disagreement with that, then?
    One of the things I thought that was a purpose of NSPS was 
to try to reduce the number of pay grades, scales, so that they 
were more in line with the regular Federal workforce. Is that 
still a plus? Is it still a goal? Should there be more steps in 
pay grades? Should it be reduced? Should DOD be significantly 
different vis-a-vis the rest of the Federal workforce?
    Ms. Farrell. I believe you are referring to broadbanding.
    Mr. Bishop. Yes.
    Ms. Farrell. And that is a management flexibility that does 
aid with hiring. When you are bringing someone into the Federal 
Government, because you have banding, there is a broader range 
of compensation that you can offer them rather than having them 
come in, which is traditionally they come in, and it is step 
one, period, that is it. So actually broadbanding can help to 
make DOD more competitive to bring people in and reward them 
that way.
    Mr. Bishop. Is that still a plus that should be a goal 
regardless of what you do with this system?
    Mr. Perkinson. I think that broadbanding would be a tool 
that we need to utilize in the workforce, though we have got to 
be careful on how we utilize it, and that we utilize it fairly, 
you know, because it is sort of like--we don't want to run amok 
like baseball salaries do for getting the best player. You 
know, we want to have some kind of reasonable----
    Mr. Bishop. Careful. I like the Yankees, so----
    Mr. Perkinson. I understand.
    Mr. Bishop. Okay. But that still is a concept that it is 
fair game.
    Mr. Perkinson. Yes.
    Mr. Bishop. I know in depots, and I have one obviously as 
well, there is an aging civilian workforce. There is going to 
come a time when there is going to be a serious drop in the 
resources and manpower that we have.
    Does NSPS system, in your view, either help or hinder in 
that particular challenge of attracting new people that are 
going to be coming into the system? Once again, it is open for 
people who want to take it.
    Dr. Crum. I think it gives management more options and to 
what they pay new people when they come in, thereby creating 
greater flexibility, greater ability to hire someone. That 
would be the main thing in terms of sort of attraction and 
retention of those people. So I do think it gives that sort of 
flexibility.
    Mr. Perkinson. I agree with that assessment to a point. And 
what I want to bring up as a caution is that some of the 
feedback we are getting from some of our agencies is that some 
of our brightest younger employees are avoiding NSPS because of 
the press it has been getting, okay, because they are looking 
to stay in the General Schedule system versus go to an NSPS 
system, because right now if you look at the scope of the NSPS 
system, they are mostly managerial, non-bargaining unit-type 
employees, and they are saying, why should I go to that system? 
So I think if we clear up the image that is out there, and in 
some cases a false image, I think it is a good tool to use to 
bring our younger people on board.
    Mr. Bishop. I guess what I am hearing from all of you is 
some of the goals we still have are valid. The devil is 
obviously in the details of how can we structure it in some 
particular way.
    Let me ask one last, hopefully a little bit more specific 
question, once again of anyone who is here. Since 2003, when we 
started this program, there have been some significant changes 
with regard to the appeals rights of employees in dismissal and 
disciplinary matters. Are you satisfied that that is a more 
appropriate--the modifications have been more appropriate in 
making it satisfactory to employees in the way they have 
changed over the years? Are we in a better--you know what I am 
trying to ask. Are we in a better position now than we started 
in 2003 with regard to dismissals and discipline appeals? Maybe 
that wasn't the right question to ask. I am sorry. Go ahead.
    Mr. Bunn. Well, the original statutory language did provide 
flexibility to rewrite how we do employee disciplinary appeals, 
if that is what you are referring to, sir. And we wrote 
regulations to essentially streamline the appeals process and 
how employees who are subject to adverse action, how they 
interact with the Merit Systems Protection Board. But in the 
fiscal year 2008 National Defense Authorization Act, that 
portion of the statute was repealed. So we haven't actually 
implemented any changes to how we do employee disciplinary 
appeals. We are operating under government-wide rules with 
respect to those kinds of appeals, if that is what you were 
referring to, sir.
    Mr. Bishop. Okay. You gave me a better answer than what I 
should have phrased as my question in the first place. Thank 
you.
    I realize my time is up. Thank you, Mr. Chairman.
    Mr. Ortiz. Thank you.
    Mr. Kissell.
    Mr. Kissell. Thank you, Mr. Chairman.
    Thank you, panel, for being here.
    Maybe a couple of overview questions.
    Was there a model--and, Mr. Bunn, you maybe can answer 
this. Was there a model when we set this up? Did somebody have 
this system in place where it worked, and we said, hey, we want 
to do that; or did we go to the drawing board and kind of put 
it together from there?
    Mr. Bunn. Back in 2004 and 2005, we conducted a fairly 
extensive design process, but where we started was looking 
within our own experience in the Department of Defense starting 
with our demonstration projects that were in place at our 
Science and Technology (S&T) laboratories, as well as one of 
the early demonstration projects for alternative personnel 
systems out at China Lake. And the way we designed the system 
was we took pieces of those--we didn't take any one single 
system in whole and implement that as NSPS. We took portions of 
those, essentially following very similar design principles 
with respect to performance and pay and the importance of 
rewarding excellent performance and contributions, and we 
structured the system based loosely on our experience of the 
demonstration project. So our pay bands are based loosely on 
what we did in our demonstration process.
    The pay-for-performance system is very similar to the pay-
for-performance systems in our lab demos, but, again, there are 
some minor differences, but it is essentially modeled after 
what we did with those organizations.
    Mr. Kissell. Has the model that you started out with stayed 
basically the same, or has it been added to, added to, added to 
as we have gone?
    Mr. Bunn. In terms of the performance management and 
classification in pay and the pay-for-performance system, the 
core of it has been the same since the implementation. We did 
make changes to our--the governing regulations to conform to 
changes that Congress made in the NDAA for 2008, namely the 
changes in repealing the labor relations provisions, adverse 
actions, those kinds of things, but also changes to the pay 
system that require us to provide at least 60 percent of the 
General Schedule-based pay increase. That is now part of the 
system. But fundamentally the design of the pay-for-performance 
system has been the same throughout.
    Mr. Kissell. Ms. Farrell, either you or Mr. Bunn, I can't 
remember, mentioned 205,000 employees. Are all of these on 
NSPS, or is the total number of civilian employees that we 
have?
    Mr. Bunn. Sir, I mentioned that we have about 205,000 in 
right now. There are another 2- or 3,000 that are eligible to 
come under the system, meaning they are currently white-collar, 
GS, non-bargaining unit employees that we could, and those are 
the conversions that we actually delayed in order to do this 
review. Once those--if they come in, that will complete our 
implementation, and that represents the former GS non-
bargaining workforce in the Department.
    Ms. Farrell. May I answer that? The initial plan was to 
bring all DOD employees under, and that is roughly around 
700,000. So the roughly 205-, 207- where DOD will end up is 
significantly less, and that is due to collective bargaining 
and agreements with the union, populations that at this time 
have been excluded. So it is significantly less than the 
700,000 original plan.
    Mr. Kissell. It would seem to me that consistency across 
the board when you are talking about the broad range where the 
services are performed and the broad number of people that have 
to make these judgments, it would seem that consistency would 
be one of the most formidable tasks that this system would 
face. Have you found in your reviews that in one area of the 
country it might be performance showing certain things, and 
another area showing certain things, and if you compare it, 
then maybe it was the perception rather than a difference in 
actual performance?
    Mr. Bunn. One of the things that we are looking at now and 
that this review will eventually look at is how much 
variability there is within the system depending on what 
organization you are a part of. Overall the rules are fairly 
standard.
    The way that we conduct performance management, the 
performance management system itself is standard across the 
board, but we do give flexibility to organizations to operate 
differently within that common framework, and there can be and 
there have been differences in the outcomes based on 
organization, the organization you are a part of.
    I am not familiar with differences based on geography, but 
some of it is driven by organizational differences in how they 
have actually implemented the system, how they have funded pay 
pools and those sorts of things. And I think what we are going 
to be looking at is how much inconsistency is tolerable.
    Mr. Kissell. And that is what I am thinking. Manager A 
might give out certain bonuses, and manager B might say, I am a 
little harder, I don't want to give money out as quick.
    And my last question, and please forgive my ignorance here, 
but I have heard it said in both ways: Are we talking about pay 
in terms of salary, or are we talking about pay in bonuses on 
top of set salary scales?
    Mr. Bunn. We are talking about both. The NSPS pay-for-
performance system, the performance evaluation drives both a 
performance-based salary increase as well as a bonus on top of 
that. So generally the pay for performance--the payouts are a 
combination of a salary increase and a bonus, and that is on 
top of the general increases that we also provide based on the 
annual increase that Congress appropriates for the civilian 
workforce.
    Mr. Kissell. I came from a background in 27 years in 
production management. I know the advantages of incentives, but 
those advantages have to be clear-cut, easily defined, where 
everybody can see what everybody else is doing and what 
everybody else is getting. I am anxiously awaiting your report, 
because it seems like there is a lot of gray zones of 
decisionmaking by individuals that become very hard to do and 
be consistent. So thank you for your testimony.
    Mr. Chairman, I yield back my time.
    Mr. Ortiz. Thank you.
    Dr. Crum, I have a question for you. The Federal Government 
must compete with the private sector for talented candidates or 
employees. Why does the Federal Government hiring process take 
longer than hiring processes found in the private sector, and 
what can the government do to attract qualified candidates at 
all levels, those fresh out of the university or college, those 
leaving the military and seeking a new career, those midlevel-
career private-sector individuals who might want a chance to 
work for the Federal Government? It seems to me that the 
Federal Government takes a long time. Maybe you or anybody else 
that would like to answer.
    Dr. Crum. I would be happy to try.
    The process takes longer for a variety of reasons. 
Partially we are held to different standards. We have a 
standard of transparency. We have a standard of inclusion, a 
standard of making sure that everyone gets due process, if you 
will, so that we can--for instance, if we are trying to make a 
decision on hiring someone, we are going to consider everyone 
who might apply for that job. Compared to the private sector, 
they might, in fact, identify someone early on in the process 
that they want and cut off the process. We have to, in fact, 
not do that, but consider everyone and apply the standards 
equally.
    So the process itself may take longer than if we compared 
it directly to the private sector; however, it also takes 
longer for inappropriate reasons. We overlay many times other 
steps in the process that are unnecessary. We do not do our 
selection process necessarily very efficiently. There are many 
things that we could do to, in fact, improve the speed at which 
we process applications.
    So part of it is systemic, but part of it also is self-
imposed many times just by the agencies in terms of their own 
structures, their own ways of doing business which have evolved 
over time and have not really been looked at in ways to try to 
say, what would be the best way to do this; rather, it is the 
way we have learned how to do it. So part of it is sort of 
reinventing or looking again at those processes to see what we 
can do better.
    To the second part of your question, what can we do to 
attract people, we do have a lot of, I think, valuable aspects 
of Federal employment that we find are very attractive to 
people. Part of that is making a difference. People want to 
contribute to society. We can advertise that. We can advertise 
also our benefits, which exceed those of the private sector in 
many cases. Also the job security that we have. In many cases 
we find that when people understand what we have to offer, they 
would like to come to us.
    The problem is in reaching those people. That is another 
thing we do not necessarily do a very good job of is reaching 
out to people, showing them what we have to offer and how they 
can both make a difference and get something out of it. So I 
think that in many ways our processes are not attuned to really 
efficient both recruiting or selection.
    Mr. Ortiz. Anybody else? If not, I just have one more 
question, and I will yield to my good friend from Virginia.
    The performance management system for NSPS consists of five 
grading categories of which the lowest rating is a 1 for 
unacceptable performance, and the highest rating is a 5 for 
role model performance. The majority of the employees in 2008 
and 2009 were rated a 3 or valued performer. The GAO reported 
in 2008 that during discussion groups with civilian employees 
under NSPS, a prevailing theme was that it was impossible to 
receive a rating higher or lower than a 3.
    Is the Department aware of employees' concerns about the 
distinction in performance being made, or that there is a 
perception among employees that everyone gets a 3, or a valued 
performer, no matter how well or poorly they perform? If so, 
what should be done to address these concerns? And we have 
heard a lot of these among some of the employees, and maybe you 
all can address that if you are hearing the same thing I am 
hearing.
    Mr. Bunn. Mr. Chairman, from the Department's perspective 
we have heard those concerns, and that is one of the reasons we 
have been open about publishing results of the performance-
rating process in the aggregate.
    And the statistics that you mentioned, you are correct that 
the majority of employees were rated at the level 3. Last year 
in January of 2008, the number was about 57 percent at the 3 
level, and about 36 or 37 percent at the 4 level, and roughly 5 
percent at the 5 level. This year statistics were about the 
same, about 55 percent at the 3 level, 38 percent at the 4 
level, and about 5 percent or a little less than 5 percent at 
the 5 level.
    And I think that distribution does demonstrate that it is 
certainly possible to get above a 3 when we have over 40 
percent of the workforce receiving 4s or 5s. Part of it is an 
understanding or getting a better understanding of the 
performance criteria. The system was designed to be a rigorous 
evaluation system, and the way that we designed the level 3 and 
the ratings above was to be--essentially set a high bar of 
performance. The level 3--and the reason we called it ``valued 
performer'' was to make it clear that that is a good 
performance rating, and that most of our employees will operate 
at that level, and that the higher levels are reserved for 
exceptional performance.
    We have heard the concern that 3 is all you can get, so why 
try to, you know, write anything any higher? But the statistics 
don't bear that out, given that we have got just a little less 
than half the workforce getting higher ratings.
    Mr. Ortiz. Do we know--when you look at the percentages 
that you just mentioned, 50-some-odd, 45, and 5 percent now, 
are these the employees who have been there--who gets the 
highest rating, those who have been there for a long time, or 
those that have been recently hired, 2 or 3 years? How do we 
get to those numbers?
    Mr. Bunn. I don't know those statistics off the top of my 
head, and we can certainly work with you to provide that. But 
some of the things that we look at when we analyze those 
results, we look at it across pay band levels. We look at it 
across various demographic categories, and there are some 
differences in what we see.
    [The information referred to can be found in the Appendix 
on page 129.]
    Mr. Bunn. In some cases we are seeing that the folks that 
are in the higher pay bands, who also tend to be more senior 
employees, are getting higher ratings, and we are also seeing 
that supervisors tend to get higher ratings than 
nonsupervisors. And that is another area that we are looking 
hard at as we--and that this review will look at is the 
perception of the fairness of the system, and are we ensuring 
that there is consistent application of the criteria across.
    Mr. Ortiz. Anybody else?
    Ms. Farrell.
    Ms. Farrell. I believe what you are raising gets to the 
heart of the three safeguards that we reported on that DOD 
could take steps for improvement, and one being transparency of 
ratings at the command level so that employees could know where 
they fit, not just the aggregate, and DOD has taken steps to 
make sure that that happens. Another being the perception that 
no matter what I do, I am going to be rated a 3, a valued 
employee. And DOD partially concurred with our recommendation 
to clarify the guidance that employees are rated against how 
well they did for their objective, not against each other, and 
that is a partial concurrent. We are waiting to see that 
guidance clarifying it.
    There is also the third safeguard regarding predecisional 
analysis and the importance to look for anomalies and look for 
inconsistencies, because if a problem is identified that 
perhaps is blatant discrimination, then it can be corrected 
before that rating is finalized. DOD took issue with that, and 
they rely upon their postdecisional analysis, of which we are 
looking forward to looking at during this second review of NSPS 
and if that in some way addresses it. But we still stand behind 
a predecisional analysis needs to take place to just 
investigate if there is an anomaly and take action before that 
rating is finalized.
    Mr. Ortiz. Anybody else?
    If not, I yield to my good friend Mr. Forbes.
    Mr. Forbes. Thank you, Mr. Chairman. Our witnesses have 
been very patient, and I have a long list, as I mentioned 
earlier, of some written questions I would like to submit with 
your permission. Rather than hold them here any longer, I will 
do that in writing.
    But I want to just thank you all for your willingness to 
come out here and give us the benefit of your knowledge and 
your expertise, and thanks for your patience with us.
    Mr. Chairman, I yield back.
    Mr. Ortiz. Mr. Bishop, do you have a question? No?
    I just have one more, and we have been here for some time, 
and I will tell you what. We have four good witnesses with 
maybe different ideas, but I think that by collectively 
bringing those ideas, we can make it better.
    A complaint of the GS system is that it rewarded tenure, 
but not performance; however, the Federal Employees Pay 
Comparability Act provided numerous pay flexibilities for GS 
employees, and I have several questions about the act.
    Were managers fully trained and knowledgeable about what 
flexibilities were available to them in the GS system? And many 
of the flexibilities provided under the act are similar to what 
is offered under NSPS, and why weren't these flexibilities 
enough?
    And I have a bunch of questions, but maybe we can have some 
short answers. Why did the DOD believe it had to create its own 
unique personnel system, and what additional changes, if any, 
should be made to the GS system? And if you can answer some of 
them; if not, maybe you can respond for the record.
    Mr. Bunn. I would be happy to respond for the record. In 
general, though, the basis for pursuing NSPS, the Department 
felt that given the changing nature of the national security 
environment, it was important to recognize the unique role that 
civilians play in supporting national security, and that to 
move to a culture of results and performance as well as the 
flexibility that pay banding and those kinds of things have to 
offer so that we can be competitive in the market to attract 
and retain talent, we needed to break from the GS and break 
from the previous title five systems.
    Mr. Ortiz. Ms. Farrell.
    Ms. Farrell. I would just say that GAO has reported, even 
after NSPS was introduced, that there are a number of human 
capital flexibilities available to agencies, and you are 
exactly right in terms that managers weren't aware of them and 
how to use them. And I would--NSPS again was a way to 
reenergize and refocus, and we would hope that some of these 
flexibilities now within NSPS aren't lost in the shuffle, as we 
saw with the GS system.
    Mr. Ortiz. We do value the tremendous work that our 
civilian employees perform, especially in a time of crisis. We 
are involved in two wars and hot spots all over the world, and 
I think morale is a big factor. We want to have, as some of you 
have stated, transparency and to be fair to them. And I know 
you all want that, and I know you care for the employees. And 
we have different approaches, but I hope that we could make it 
better.
    We will have some questions by Members who couldn't be with 
us today because tomorrow is the big day, tomorrow we vote for 
the budget; so everybody is having little meetings all over the 
place.
    But I really appreciate your testimony today. It was 
outstanding, and I want to thank you.
    This hearing stands adjourned, and thank you so much for 
joining today. Thank you.
    [Whereupon, at 4:30 p.m., the subcommittee was adjourned.]

?

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




                            A P P E N D I X

                             April 1, 2009

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


              PREPARED STATEMENTS SUBMITTED FOR THE RECORD

                             April 1, 2009

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



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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


              WITNESS RESPONSES TO QUESTIONS ASKED DURING

                              THE HEARING

                             April 1, 2009

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

      
              RESPONSE TO QUESTIONS SUBMITTED BY MR. ORTIZ

    Mr. Bunn. We have that information.
    For the current rating period, 4.7% of the NSPS employees received 
the highest rating, level 5.
    The following table shows a breakdown of the Level 5 ratings by 
years of service.
 
----------------------------------------------------------------------------------------------------------------
      Years of Service             0-3            >3-10            >10-20             >20-30            >30
----------------------------------------------------------------------------------------------------------------
Level 5 Rating               14.2%           29.5%           20.9%              26.8%              8.6%
----------------------------------------------------------------------------------------------------------------


    The following table shows a breakdown of all five rating levels by 
years of service.
 
----------------------------------------------------------------------------------------------------------------
      Years of Service             0-3            >3-10            >10-20             >20-30            >30
----------------------------------------------------------------------------------------------------------------
Level 1                      0.1%            0.3%            0.3%               0.3%               0.3%
                            ------------------------------------------------------------------------------------
Level 2                      0.9%            1.0%            1.4%               1.3%               1.5%
                            ------------------------------------------------------------------------------------
Level 3                      60.0%           52.3%           54.7%              55.2%              56.2%
                            ------------------------------------------------------------------------------------
Level 4                      34.8%           41.1%           38.9%              38.8%              37.3%
                            ------------------------------------------------------------------------------------
Level 5                      4.2%            5.4%            4.6%               4.4%               4.7%
----------------------------------------------------------------------------------------------------------------


    This table shows the distribution of ratings by years of service.
 
----------------------------------------------------------------------------------------------------------------
      Years of Service           Level 1         Level 2          Level 3            Level 4          Level 5
----------------------------------------------------------------------------------------------------------------
0-3                          0.1%            0.9%            60.0%              34.8%              4.2%
                            ------------------------------------------------------------------------------------
>3-10                        0.3%            1.0%            52.3%              41.1%              5.4%
                            ------------------------------------------------------------------------------------
>10-20                       0.3%            1.4%            54.7%              38.9%              4.6%
                            ------------------------------------------------------------------------------------
>20-30                       0.3%            1.3%            55.2%              38.8%              4.4%
                            ------------------------------------------------------------------------------------
>30                          0.3%            1.5%            56.2%              37.3%              4.7%
----------------------------------------------------------------------------------------------------------------


    [See page 31.]
?

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


              QUESTIONS SUBMITTED BY MEMBERS POST HEARING

                             April 1, 2009

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

      
                    QUESTIONS SUBMITTED BY MR. ORTIZ

    Mr. Ortiz. The number one complaint of managers in the federal 
government is the hiring process. NSPS was designed not only to 
transform DOD's performance management system for employees, but to 
also provide the department with greater flexibility in hiring 
employees. How has the department used the hiring authorities under 
NSPS and what, if any, impact has it had on the department's 
operations? What are the major challenges that the Department has 
encountered?
    Mr. Bunn. The Department does not collect statistics to be able to 
respond definitively to your questions about the use of the staffing 
flexibilities, but we do know that some, such as the competitive 
examining authority, the authority to temporarily promote non-
competitively up to 180 days, and the authorities associated with non-
permanent appointments, are being used. Others have not been fully 
utilized, as the Department has placed greater emphasis up to now on 
the rigorous performance management process under the National Security 
Personnel System (NSPS). Notwithstanding, we do know that the broad 
NSPS pay band architecture provides greater flexibility to offer more 
competitive salaries based on national and local market conditions. 
Anecdotally, in discussions with senior leaders in NSPS organizations, 
we learned that NSPS has given them the ability to be more competitive 
in setting and adjusting salaries based on labor market forces, 
performance, and changes in duties. For example, the NSPS regulations 
instruct that management can set starting pay based on the availability 
of candidates and labor market rates; specialized skills, knowledge, 
and/or education possessed by the candidate in relation to the 
requirements of the position; critical mission or business 
requirements; salaries of other employees in the organization 
performing similar work; and the current salary of the candidate. In 
contrast, pay setting under the General Schedule (GS) system is 
generally more rigid and restrictive. For example, under the GS system, 
starting salaries are generally restricted to the first step of the 
grade of the position the candidate is recruited for, which may not be 
in line with actual market conditions.
    What empirical data we have comes from the 2008 Status of Forces 
Survey of Department of Defense (DoD) civilian employees. Participants 
were asked to respond to the following:

      My work unit is able to recruit people with the right 
skills.
    Agree:    47 percent NSPS employees    44 percent non-NSPS

      How likely is it you will leave at the next available 
opportunity to take another job in the Federal government outside DoD?
    Likely:    34 percent NSPS employees    36 percent non-NSPS

      Pay raises depend on how well employees perform their 
job.
    Agree:    42 percent NSPS employee    25 percent non-NSPS

      Considering everything, how satisfied are you with your 
pay?
    Satisfied:    65 percent NSPS    62 percent non-NSPS

    Through the on-going evaluation processes we have in place, we will 
gather information about NSPS hiring authorities to evaluate the extent 
of their use and whether they are having the intended impact on the 
Department's operations. Our greatest challenge is in training and 
educating the NSPS workforce concerning the NSPS flexibilities--what we 
can do, how we can do it, and why/when we should do it.
    Mr. Ortiz. The average salary increase was about 5.9 percent in 
2008 and the total average salary plus bonus payout was about 7.6 
percent. What concerns, if any, does the department have about the 
sustainability of compensation under NSPS?
    Mr. Bunn. Congress has provided in the National Security Personnel 
System (NSPS) statute that, to the maximum extent practicable, the 
aggregate amount allocated for compensation of Department of Defense 
civilian employees under NSPS will not be less than if employees had 
not been converted to NSPS. NSPS redirects compensation dollars from 
forms of General Schedule (GS) system compensation that no longer exist 
under NSPS (i.e., within-grade increases, quality step increases, and 
promotions to higher grades) as well as a percentage of the annual 
general salary increase to the NSPS-unique forms of performance-based 
and market-sensitive pay. In general, NSPS annual pay increases consist 
of:

    -  Performance-based payouts in the form of base salary increases, 
bonuses, or a combination of both;

    -  A NSPS general salary increase for employees receiving a rating 
of record of 2 or higher; and

    -  An increase to local market supplements equal to the increases 
to GS locality pay rates as described above.

    Because the NSPS compensation architecture is so different from 
that of the GS system, making direct comparisons between average pay 
increases is misleading, as it is not an ``apples to apples'' 
comparison. However, the Department continues to monitor the overall 
cost of compensation under NSPS and ensure annual certification in 
support of section 9902(e)(4) of title 5, United States Code. Further, 
now that the Department has several years of operating under NSPS, a 
more comprehensive review of NSPS funding is planned to ensure that 
percentages used to determine performance payout funding reflect valid 
and accurate assumptions.
    Mr. Ortiz. The GAO, in its 2008 report, highlighted a number of 
negative perceptions that employees had with NSPS. Interestingly, the 
negative feelings towards NSPS increased, rather than decreased, the 
longer an employee was in the system. According to GAO, without a plan 
to address employees' negative perceptions of NSPS, DOD could miss 
opportunities to make changes that could lead to greater employee 
acceptance and, ultimately, successful implementation of NSPS's 
performance management system. Why, for a system that has been in place 
for over three years, have you not developed and implemented an action 
plan to guide your efforts to address the results of employee surveys? 
What is the Department doing to improve employee acceptance of NSPS?
    Mr. Bunn. Employee attitudes and perceptions regarding the National 
Security Personnel System (NSPS) are best described as ``mixed.'' The 
Office of Personnel Management (OPM) recently reported that NSPS 
employees are generally positive about certain important aspects of 
NSPS, including how their work and performance objectives relate to the 
mission; that they are held accountable for results; and that pay 
increases and rewards are based on performance. We have seen a decline 
in attitudes in certain areas (as cited by Government Accountability 
Office (GAO) in its 2008 report), including whether employees believe 
their rating is a fair reflection of their performance; satisfaction 
with management; and their perception that NSPS will have a positive 
effect on personnel practices in the Department of Defense (DoD). More 
recent survey data indicate that attitudes among employees with the 
most experience in NSPS are becoming more positive, an encouraging and 
not unexpected sign.
    Both GAO and OPM noted in their 2008 reports that a decline in 
workforce attitudes is typical of major change initiatives, and it 
generally takes three to five years for employees to fully understand 
and accept new personnel systems. More recently, GAO testified that it 
can take 5-7 years for acceptance of a new personnel system. We 
continue to learn from employee and management feedback in many forms, 
share lessons, and make operational improvements in NSPS, which should 
contribute to greater acceptance of the system.
    Since the initial Spiral 1.1 implementation, the Department has 
been actively involved in supporting and advising Components in 
developing comprehensive programs to assist NSPS employees in adapting 
to the new system. Components are responsible for implementing robust 
communications and training programs to address employee skepticism and 
concerns that the majority of employees face when faced with a major 
personnel system change. We encourage Components to continually assess 
employee attitudes and leverage information and data obtained through 
NSPS reviews and studies to ensure communications and training programs 
are properly aligned to meet employee needs. In turn, the Program 
Executive Office (PEO) NSPS continues to support these efforts thru 
sponsorship of broad-based programs, products, and initiatives. 
Examples include:

    The NSPS Website--the primary source for NSPS information. The 
website is routinely updated to reflect most recent events and 
activities. The site also includes a recurring feature ``And the Answer 
Is'' that poses a question and answer of particular interest.

    NSPS Fact Sheets--Short, concise 1-2 page memos that address key 
topics of interest or areas where additional focus or grounding is 
needed. The most recent fact sheet addressed the issue of forced 
distribution. All NSPS fact sheets are available on the NSPS website 
for downloading.

    NSPS Communications Plans--Specific communications plans are 
provided to the Department's leadership for their use in informing the 
workforce about key events and activities. The plans are developed to 
coincide with significant NSPS events such as the publication of the 
final regulations and the upcoming comprehensive review of NSPS. Plans 
include talking points and frequently asked questions to ensure 
employees are kept informed.

    NSPS Leadership Workshops--Designed for NSPS pay pool managers and 
panel members, workshops are held at least annually to provide the 
opportunity to share lessons learned, learn and reflect upon the 
organizational challenges and success stories that are a part of NSPS 
implementation.

    NSPS Human Resources Practitioner Sensing Sessions--Eleven sessions 
with DoD Component activities were held in January and February 2009 to 
obtain feedback on existing learning products and support, identify 
knowledge gaps or needs for additional products or support, and explore 
options for the next generation product line. These sessions confirmed 
the need for timely, up-to-date information and additional materials 
geared toward application. As a result of these sessions, the PEO is 
revising and updating learning products with an emphasis on use of the 
web for making information easy to access.

    Notwithstanding these efforts, we know from experience with the 
Department's demonstration projects and from what GAO and OPM have 
observed about other alternative personnel systems that it will take 
several years for employees to accept NSPS, and the need for focused 
and deliberate programs to build the trust and confidence level of NSPS 
employees will continue.
    Mr. Ortiz. One of the safeguards in the National Defense 
Authorization Act for 2008 required DOD's performance management system 
to ensure that meaningful distinctions were made in employee 
performance and, therefore, compensation. In GAO's September 2008 
report, it found that there was informal guidance that most employees 
should be rated as a ``3,'' and as a result GAO recommended that the 
department clarify its guidance to ensure meaningful distinctions are 
made and that employees will be less likely to perceive that everyone 
would receive a ``3'' no matter what their performance was. What steps 
has the department taken to clarify its guidance about ratings and 
making distinctions in employee performance?
    Mr. Bunn. The Department is aware that a perception of forced 
distribution in the rating process exists. However, the National 
Security Personnel System (NSPS) regulations specifically state that 
forced distribution is strictly prohibited. The NSPS performance 
management system is designed to make distinctions among employees 
based on a rigorous evaluation of individual performance against 
standard criteria. These criteria, by design, challenge employees, set 
a higher bar for higher performance ratings, and reserve the highest 
rating levels for those who deliver exceptional results.
    An analysis of the January 2009 rating distribution across the 
entire Department demonstrates success in making meaningful 
distinctions in performance and in linking individual pay to 
performance. While approximately 55 percent of NSPS employees received 
a level 3 performance rating in January 2009, 43 percent of NSPS 
employees received either a level 4 or level 5 performance rating. This 
is consistent with rating distributions for January 2007 and 2008. The 
range of rating distributions illustrates that meaningful distinctions 
in performance are being made. Additional distinctions are made through 
the assignment of shares within each rating level.
    Based on concerns and perceptions expressed by employees, rating 
officials, and other stakeholders, we felt it was important that all 
those who participate in the performance management process fully 
understand the concept of forced distribution, why it is prohibited 
under NSPS, and how to avoid it. For this reason, guidance was 
distributed to the Department of Defense Components and is available on 
the NSPS website to remind rating officials, higher level reviewers, 
pay pool panel members, pay pool managers, and performance review 
authorities that employee performance under NSPS is measured against 
rigorous and strict application of standard performance indicators and 
that forced distribution in the rating process is prohibited.
    Mr. Ortiz. Military supervisors have complained about the amount of 
time they must spend with their NSPS employees and the civilian NSPS 
employees complain that their military supervisors do not understand 
the system and do not spend the appropriate amount of time to do the 
ratings, which negatively impacts on their performance ratings. Are 
these valid concerns? Should NSPS continue, what can be done to address 
these complaints?
    Mr. Bunn. We recognize that the design of the National Security 
Personnel (NSPS) and the safeguards built into the system result in 
increased time demands, especially during the start-up years. However, 
the Department of Defense's (DoD) experience with personnel 
demonstration projects indicates that the amount of time required for 
the same tasks levels off and even decreases as the organization gains 
experience with the performance management and pay pool processes. 
Additionally, as experience and efficiency increase, organizations tend 
to parlay the process of reviewing individual performance into an 
examination and driver of overall organizational performance, thus 
increasing the return on their investment of time.
    We also acknowledge that additional challenges are presented when 
military supervisors are faced with frequent rotational assignments. 
However, military supervisors have the same performance management 
responsibilities for their civilian employees as do civilian 
supervisors. The regulations clearly identify supervisory 
responsibilities and both civilian and military supervisors must meet 
their responsibilities for managing employee performance under NSPS. 
The NSPS regulations specify that supervisors and managers will be held 
accountable for effectively managing the performance of employees under 
their supervision and that the performance assessments of supervisors 
should reflect the quality of their efforts in managing the performance 
of the NSPS employees under their supervision. The Department is 
committed to training managers and supervisors, including military 
members, on how to establish and communicate performance expectations, 
assess employee performance, and appropriately translate that 
assessment into pay adjustments. Mandatory NSPS training is required of 
both civilian and military supervisors and managers prior to their 
performing the necessary NSPS performance management functions.
    We anticipate that the issue of increased administrative demands 
resulting from this more robust performance management process will be 
a topic of consideration during the DoD comprehensive review of NSPS.
    Mr. Ortiz. What infrastructure does DOD have in place to provide a 
comprehensive picture of costs, expenses, and other financial 
information related to NSPS activities?
    Mr. Bunn. The Department put in place the infrastructure to capture 
the National Security Personnel System (NSPS) implementation costs. In 
2005, the Program Executive Office, NSPS established a DoD-wide 
Financial Integrated Product Team (IPT) to establish requirements for 
the Components to track and report quarterly on implementation costs. 
Five key areas were identified: (1) Design and Implementation; (2) 
Training Development, Support, and Execution; (3) Human Resource (HR) 
Automated Systems; (4) Program Evaluation; and (5) Program Office 
Operations. The key areas were defined, and Components began submitting 
costs in fiscal year 2005.
    The Financial IPT reconvened in July 2007 to recommend revisions 
based on a Government Accountability Office report issued that same 
month. The Department continues to collect implementation costs based 
on these revisions. The Department does not have an infrastructure set 
up to collect financial information related to other NSPS costs and 
does not track, other than salary and benefits, other HR system 
(General Schedule, Federal Wage System, Personnel Demonstration 
Projects at Defense Laboratories) costs.
    Mr. Ortiz. In response to a letter from Chairman Skelton and 
Readiness Subcommittee Chairman Ortiz urging the Department to 
discontinue converting employees to NSPS until the Administration and 
Congress can properly address the future of the Department's personnel 
system, Secretary Gates stated that DOD has begun a comprehensive 
review of NSPS and stopped the conversion of GS employees to NSPS. 
However, new hires and positions that are being reclassified still will 
be brought under NSPS. The intent of the congressional letter was to 
halt all movement into NSPS until such time as the Administration and 
Congress could conduct a review. Continuing to place new hires and 
reclassified positions into NSPS appears to subvert the intent of 
Congress. As the Department continues to augment its workforce, more 
individuals will be hired into NSPS, potentially making it a tremendous 
challenge to transition these employees (and ones in reclassified 
positions) to a GS system or whatever new system will replace NSPS. Why 
is the Department continuing to use NSPS for new hires and reclassified 
positions even when congressional intent and earlier statements by the 
President have strongly indicated that no further action should take 
place with regard to NSPS until a review has been undertaken? Why 
shouldn't Congress view the actions being taken by DOD with regard to 
new hires and reclassified positions as being a presumption by DOD that 
it has already decided to continue NSPS (with or without the results of 
the review)? If the results of the review point to a return to the GS 
schedule or some other system, how will DOD handle the transition for 
the potentially thousands of new hires it may be bringing on in the 
coming months?
    Mr. Bunn. In his March 16, 2009 letter to Chairman Skelton and 
Chairman Ortiz, Deputy Secretary Lynn stated that the Department is 
committed to operating fair, transparent, and effective personnel 
systems. This commitment has not changed.
    In response to their request for the Department to delay 
conversions to the National Security Personnel System (NSPS), the 
Deputy Secretary advised Chairmen Skelton and Ortiz that further 
conversions of organizations will be delayed pending the outcome of a 
comprehensive review of NSPS. He noted that this delay of conversions 
affects roughly 2,000 employees in organizations scheduled to convert 
to NSPS this spring. However, during the review, those organizations 
currently under NSPS will continue to operate under NSPS policies and 
processes. This means processing of normal personnel actions will 
continue for individual employees moving into existing, reclassified 
and new NSPS positions in organizations and functional units now under 
NSPS.
    Although existing NSPS organizations continue to follow NSPS 
policies, the Department of Defense (DoD) has not made any decision 
regarding the future of NSPS. The review will determine the future of 
NSPS. It would be premature and disruptive for the Department to stop 
using NSPS policies in NSPS organizations before the review is 
completed.
    Filling jobs and reclassification of positions are essential tools 
in helping ensure an organization is successful in meeting mission 
requirements. If NSPS jobs cannot be filled or properly classified 
while the review is pending, this may impact the organization's--and 
the Department's ability to meet mission requirements.
    As noted, DoD is committed to operating fair, transparent, and 
effective personnel systems. DoD and Office of Personnel Management 
leadership intend to fully assess NSPS before making any decisions 
regarding its future. The review will include a comprehensive and 
thorough examination of all NSPS policies, regulations, and practices, 
and will result in findings and recommendations aimed at assisting the 
leadership under the new administration to determine the future of the 
program. Finally, it is also important to emphasize that the Department 
is not bringing in any bargaining unit employees to NSPS.
    The Department is reviewing options, including existing conversion 
out procedures, should the review result in NSPS employees being moved 
to a different pay system, such as the General Schedule. A transition 
process has not yet been determined while the review of NSPS is 
pending. However, the Department's goal of any process, should one 
become necessary, is to ensure that no harm comes to our employees as a 
result of being removed from NSPS.
    Mr. Ortiz. GAO noted that NSPS was implemented too quickly. What 
steps could have been taken to roll out NSPS in a more orderly and fair 
fashion?
    Ms. Farrell. It was a pleasure to appear before your subcommittee 
on April 1, 2009, to discuss the Department of Defense's (DOD) 
implementation of its new human capital system for managing civilian 
personnel--the National Security Personnel System (NSPS).\1\
---------------------------------------------------------------------------
    \1\ GAO, Human Capital: Improved Implementation of Safeguards and 
an Action Plan to Address Employee Concerns Could Increase Employee 
Acceptance of the National Security Personnel System, GAO-09-464T 
(Washington, D.C.: April 1, 2009).
---------------------------------------------------------------------------
    As we have previously reported, we support the need to expand broad 
banding approaches and pay-for-performance-based systems in the federal 
government.\2\ However, moving too quickly or prematurely to implement 
such programs, whether at DOD or elsewhere, can significantly raise the 
risk of doing it incorrectly. Hasty implementation could also set back 
the legitimate need to move to a more performance- and results-based 
system for the federal government as a whole. Thus, while it is 
imperative that we take steps to better link employee pay to 
performance across the federal government, how it is done, when it is 
done, and the basis on which it is done can make all the difference in 
whether or not such efforts are successful. In our view, one key need 
is to modernize performance management systems in executive agencies so 
that they are capable of adequately supporting more performance-based 
pay and other personnel decisions.
---------------------------------------------------------------------------
    \2\ GAO, Defense Transformation: DOD's Proposed Civilian Personnel 
System and Governmentwide Human Capital Reform, GAO-03-741T 
(Washington, D.C.: May 1, 2003).
---------------------------------------------------------------------------
    While our previous work does not prescribe a process and time 
frames for rolling out systems such as NSPS, we have stressed that 
agencies should have an institutional infrastructure in place that 
would include, at a minimum, (1) a human capital planning process that 
integrates the agency's human capital policies, strategies, and 
programs with its program goals and mission and desired outcomes; (2) 
the capabilities to effectively develop and implement a new human 
capital system; and (3) the existence of a modern, effective, and 
credible performance management system that includes adequate 
safeguards, including reasonable transparency and appropriate 
accountability mechanisms, to ensure the fair, effective, and 
nondiscriminatory implementation of a new system. Prior to NSPS 
implementation, we cautioned that, while the DOD leadership had the 
intent and the ability to implement the needed infrastructure, it did 
not have the necessary infrastructure in place across the department.
    Further, our work has continued to stress the importance of 
incorporating internal safeguards into the design and implementation of 
large-scale pay-for-performance programs. In 2008, we evaluated DOD's 
efforts to implement nine safeguards and accountability mechanisms.\3\ 
We found that, while DOD had taken some steps to implement internal 
safeguards to ensure that NSPS is fair, effective, and credible, the 
implementation of some safeguards could be improved. First, DOD does 
not require a third party to analyze rating results for anomalies prior 
to finalizing employee ratings, and therefore it is unable to ensure 
that ratings are fair and nondiscriminatory before they are finalized. 
Second, the process has lacked transparency until recently because DOD 
did not require commands to publish final rating distributions, though 
doing so was recognized as a best practice by NSPS program officials at 
all four components. In 2008, the department revised its NSPS 
regulations and guidance to require commands to publish the final 
overall rating results. Third, NSPS guidance may discourage rating 
officials from making meaningful distinctions in employee ratings 
because it indicated that the majority of employees should be rated at 
the ``3'' level, on a scale of 1 to 5, resulting in a hesitancy to 
award ratings in other categories. We continue to believe that improved 
implementation of these safeguards will help bolster employee 
confidence in the system and ensure that the system is fair, effective, 
and credible.
---------------------------------------------------------------------------
    \3\ GAO, Human Capital: DOD Needs to Improve Implementation of and 
Address Employee Concerns about Its National Security Personnel System, 
GAO-08-773 (Washington, D.C.: Sept. 10, 2008).
---------------------------------------------------------------------------
    Mr. Ortiz. If NSPS continues, what steps should now be taken to 
move forward?
    Ms. Farrell. We have previously reported that converting to NSPS 
was a significant transition for the department.\4\ We have further 
reported that it will take time for employees to accept the system, 
based on the studies conducted by the Office of Personnel Management 
(OPM) on the federal government demonstration projects for performance 
management. First, and foremost, DOD needs to assess and address 
employee engagement in the system. DOD has collected survey data and 
conducted focus groups of employees under NSPS, but it is missing a key 
piece--an action plan. Our 2008 report recommended that DOD develop and 
implement a specific action plan to address employee perceptions of 
NSPS ascertained from feedback avenues such as, but not limited to, 
DOD's survey and DOD's and GAO's employee focus groups. At a minimum, 
this plan should include actions to mitigate employee concerns about 
the potential influence that employees' and supervisors' writing skills 
have on the panels' assessment of employee ratings and the lack of 
transparency and understanding of the pay pool panel process. Such a 
plan would demonstrate to employees that the department is listening to 
their concerns and making plans to address, as appropriate, the 
concerns that are identified. In short, DOD needs to tell the employees 
that they are going to take action on their concerns. In addition, the 
recently announced study by DOD and OPM is an opportunity to assess the 
status of the system. While the review intends to include a thorough 
examination of all NSPS policies, regulations, and practices, we would 
like to see DOD leverage this opportunity to assess for itself how the 
department is implementing internal safeguards. Specifically, we are 
interested in an update of how the safeguards have been incorporated 
into their policies and how the safeguards are working.
---------------------------------------------------------------------------
    \4\ GAO-08-773.
---------------------------------------------------------------------------
    Mr. Ortiz. The Deputy Secretary of Defense, in cooperation with the 
Office of Personnel Management recently announced that the department 
would halt conversions of DOD civilian employees to NSPS, pending the 
outcome of a review by DOD and OPM. The proposed review will assess 
whether or not NSPS is meeting its objectives of being a fair, 
transparent, and effective personnel system. Finalizing the details of 
such a review's overall framework, scope, timeline, and leadership will 
take time.
    As DOD and OPM leadership hold discussions to determine the overall 
framework, scope, and timeline of the review, what guidance or 
suggestions would you give to DOD and OPM to include in the methodology 
of this study?
    Ms. Farrell. As we have previously reported, the extent to which 
DOD incorporates internal safeguards into the design and implementation 
of NSPS and how it addresses employee perceptions of NSPS are key to 
the success of the system.\5\ Moving forward, as DOD and OPM embark on 
a study of NSPS and review how NSPS operates and its underlying 
policies, DOD has a unique opportunity to consider our previous 
recommendations, as well as all of the other internal safeguards key to 
ensuring that performance management systems in the government are 
fair, effective, and credible. In addition to a review of internal 
safeguards, this study provides DOD the opportunity to look at employee 
engagement in the process and develop an action plan to address 
employee concerns about NSPS. As we approached our work, we used a 
methodology that systematically took into account employee input from 
all levels. We used a combination of survey analysis, interviews, and 
employee discussion groups to obtain information on employee 
perceptions. In general, the combination of employee surveys with 
interviews or discussion groups is helpful because it yields useful 
information at the population level, as well as the individual employee 
experience level.
---------------------------------------------------------------------------
    \5\ GAO-08-773.
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    Mr. Ortiz. One concern expressed by employees who have converted 
from GS to NSPS is that there is no real career progression. Under the 
GS system, an employee steadily moves up through the various grades and 
can actually monitor actual career progression. There appears to be no 
such similar movement in NSPS; an employee, while receiving pay 
increases and bonuses, may remain in the same pay band for his/her 
entire career.
    If this is a valid concern, how can it be addressed, if NSPS 
continues?
    Ms. Farrell. First, DOD needs to collect more information on what 
the issues are surrounding this employee perception on career 
progression, including the underlying causes and the extent of this 
concern, so that the department can determine if it is indeed a valid 
concern. For example, is there an issue with lack of career progression 
or are employees perceiving that there is an issue as a result of lack 
of communication or education on the new system? In our 2008 report, we 
recommended that the department develop and implement a specific action 
plan to address employee perceptions of NSPS ascertained from feedback 
avenues such as, but not limited to, DOD's survey and DOD's and GAO's 
employee focus groups. We believe that this is another example of how 
the department could use such an action plan to guide its approach for 
addressing employee concerns. Specifically, the plan may incorporate 
various communication and education strategies to help employees 
understand how the shift from pay grades to pay bands still affords 
them opportunities for professional development, as well as movement 
through the pay band. While we acknowledge that change takes time to 
gain employee acceptance and that the implementation of NSPS is a 
large-scale organizational transformation, employee concerns, such as 
these, must be heard and addressed accordingly in order to ensure 
greater employee acceptance and, ultimately, successful implementation 
of the NSPS performance management system.
    Mr. Ortiz. Has MSPB evaluated DoD's National Security Personnel 
System?
    Dr. Crum. No. However, as part of Merit Systems Protection Board's 
(MSPB) 2005 Government-wide Merit Principles Survey, we did collect 
baseline data from employees in DoD's major components regarding their 
satisfaction with workforce management issues in the Department. This 
took place just as employees were beginning to be converted into NSPS. 
The data was collected to create a baseline for future comparisons that 
we plan to conduct once the system has been in place a sufficient 
amount of time to measure its true impact on agency results.
    Mr. Ortiz. What should be MSPB's role in overseeing and evaluating 
new personnel flexibilities granted to agencies, such as those under 
NSPS?
    Dr. Crum. The MSPB's role is critical in examining these new 
personnel systems. To carry out its statutory responsibility to protect 
the public interest through a merit-based civil service, the MSPB 
conducts government-wide research and studies. These studies gather the 
views and experiences of Federal employees, managers, and other 
stakeholders, such as agency officials, academicians, and union 
officials, to accurately gauge the ``health'' of the civil service and 
other Federal merit systems.
    The MSPB is also responsible for reviewing the effects of OPM's 
policies, rules, and regulations on the merit principles. We provide an 
independent, bipartisan evaluation of merit systems and human resources 
management issues on a much broader scale. We also provide OPM with 
constructive commentary regarding the effects of its policies and 
activities on the civil service. Generally, MSPB Board members are 
appointed to fixed 7-year staggered terms and their tenure is not 
renewable. Thus the MSPB is uniquely positioned to conduct independent 
assessments of merit systems and render independent views about issues 
that affect the whole civil service.
    While the MSPB rarely performs studies evaluating the performance 
of a single agency, MSPB can play a valuable role in conducting 
independent, bipartisan reviews of the merit systems. The MSPB's 
government-wide research and studies offer a means to compare the 
performance of different personnel systems, track the progress of these 
individual systems, identify needed improvements, and share best 
practices government-wide. With regard to the specific flexibilities 
given to DoD, the MSPB has gathered baseline information that will help 
interpret the effects of the system on the efficiency and effectiveness 
of NSPS's operations over time.
    Mr. Ortiz. Agencies are increasingly turning to newly established 
appointing authorities and flexibilities to speed the hiring process. 
Do these new procedures result in faster hiring decisions?
    Dr. Crum. There are a number of flexibilities available to agencies 
that have streamlined hiring processes, such as Direct Hire and the 
Federal Career Intern Program. These processes can differ from 
competitive service hiring in one or more of the following respects:

      Recruitment--how agencies may publicize positions and 
accept applications;

      Eligibility--who the agency may consider for appointment;

      Assessment--how agencies evaluate applicant 
qualifications;

      Consideration and selection--how agencies must sort or 
rank applicants, and how agencies may select among applicants;

      Applicability of public policy requirements such as 
veteran's preference and career transition assistance programs for 
displaced Federal employees; and

      How the probationary or trial period is implemented.

    We have found through our research that using these flexibilities 
does not guarantee that the hiring process will be faster. For 
instance, our study of Federal entry-level new hires found that 39 
percent of the excepted service new hires (including Federal Career 
Interns) and 34 percent of competitive service new hires reported being 
offered a job within 2 months or less after applying; this is not a 
large difference. Furthermore, 27 percent of excepted service new hires 
indicated that it took over 6 months to be hired, while 17 percent of 
competitive new hires reported the same.
    Our research has found that excepted service hiring processes often 
mirror those of competitive service hiring. In fact, some excepted 
service hiring could be viewed as more thorough and competitive because 
they use recruitment, application, and assessment processes that reach 
a wider segment of society and do a better job of predicting success on 
the job. Often, these organizations do not use these flexibilities 
solely to make the process faster, but also to make use of provisions 
associated with these flexibilities such as the longer training and 
probationary periods offered by some of these authorities.
    Mr. Ortiz. Agencies do a poor job of communicating with applicants. 
Applicants may apply for a job and never hear from the agency again. 
What can agencies do to improve their timely feedback to all applicants 
of their status in the process?
    Dr. Crum. The MSPB has long recognized that communication with 
applicants has been a problem in the Federal hiring system. Our studies 
on Federal hiring practices have continuously shown that lack of 
communication has been an issue raised by applicants. New hires 
indicate that they often do not receive timely feedback (or any 
feedback) and that the service provided by the human resources (HR) 
office is often below their expectations.
    We have noted that agencies need to treat applicants like customers 
and build relationships with them. This relationship is important not 
only to influence that one applicant's impression of the Government, 
but also because that one applicant will then have positive things to 
say about the experience to others. We have found that word-of-mouth is 
a key way many Federal new hires have learned of an employment 
opportunity with the Government. In addition, negative impressions of 
the Federal hiring process can generate negative word-of-mouth among 
potential applicants that could dissuade high-quality candidates from 
applying.
    There are several actions agencies can take to improve their 
communication with applicants. To start, the agency should have an 
understandable hiring process that is clearly explained in the job 
announcement. The instructions should include a timetable letting 
applicants know what steps are in the process, who takes these steps, 
and how long each step is likely to take. This will help to manage 
applicants' expectations. As I mentioned in my testimony, the job 
announcement is an area that needs improvement. Currently, 
announcements are often unclear and contain jargon that non-Federal 
employees just do not understand. Also, the agency should have a point 
of contact listed in the job announcement for applicants who have 
questions. Often, they do not, and applicants therefore do not know how 
to get their questions answered.
    Agencies should, at a minimum, notify applicants that their 
applications were received. This type of notification should be a 
standard part of most automated application systems. However, 
communication should not stop there. Because the Federal hiring process 
is typically longer than that of the private sector--especially for 
jobs requiring security clearances--agencies should communicate both 
electronically and personally with applicants throughout the process. 
Applicants should be periodically notified of the status of their 
application, when they should expect the next step to occur, or to even 
explain why the process may be taking longer than expected. If 
applicants are kept well-informed, they will be more likely to stay 
with the process than if their application falls into a presumed 
``black hole.''
    Finally, agencies need to look at their hiring process to ensure 
that it is as timely as possible and does not contain unnecessary steps 
and bottlenecks. Because of their missions, some agencies may be able 
to keep applicants engaged in the process for a long period of time. 
However, a large segment of applicants, especially those with highly 
sought after skills, will not wait months for a job offer, regardless 
of communication efforts. Ultimately, having an efficient, effective 
process is important. As a result of evaluating the hiring process, 
many agencies may be surprised to see that many of the obstacles to 
timely hiring are self-imposed. Fortunately, this means they have the 
power to improve the process and minimize these delays.
    Mr. Ortiz. What role should the Office of Personnel Management play 
in the hiring process? Should it reclaim its original role as the main 
hiring authority for the federal government?
    Dr. Crum. In 1996, the Office of Personnel Management (OPM) 
delegated most competitive examining authorities to agencies. As a 
result, each agency is permitted to establish delegated examining units 
to carry out its hiring process. Prior to delegated examining, agencies 
had many complaints about the hiring process, including that it was too 
long, it did not address their individual mission needs, and they were 
not getting the best applicants.
    This decentralized management approach has both advantages and 
disadvantages. On the one hand, agency delegated examining units will 
generally be more knowledgeable of the agency's mission and the skill 
requirements necessary to carry out that mission than a third party 
hiring organization would be. This knowledge gives them a better 
understanding of how to attract members of the targeted applicant pool 
and makes it easier to tailor recruitment and hiring strategies to 
better meet the agency's mission.
    On the other hand, decentralization often results in the Government 
losing the ability to achieve economies of scale in terms of hiring 
tools and systematic approaches. Competition can increase among 
agencies and provide advantages to those with more resources and 
leadership support. Agencies often use different application and hiring 
procedures, and this creates confusion and burden among applicants who 
simply want a government job. All of these factors can affect the merit 
principles and the ability of individual agencies to hire high-quality 
applicants.
    Hiring reform is needed in the Federal Government, but going back 
to a centralized system is not the most likely answer. OPM is no longer 
resourced to implement a centralized hiring system again, and agencies' 
needs are too diverse to recommend employing a single hiring authority. 
OPM's role should be to provide leadership to agencies regarding how to 
hire within the parameters set by the merit system principles and in 
identifying areas where agencies need to come together to achieve 
economies of scale.
    OPM has already made progress in this regard. It works regularly 
with the Chief Human Capital Officers Council to identify human capital 
problems and pilot potential solutions. It has worked with agencies to 
improve USAJOBS and the way agencies market their jobs on the Web site. 
It established first the 45-day hiring model and most recently the End-
to-End hiring process to streamline hiring and cut out unnecessary 
steps.
    There are still, however, areas that need work. The Government 
currently does not have a standard application or application process. 
This can create excessive burden for an applicant who wishes to apply 
for multiple positions. Additionally, many agencies do not have the 
means to develop and use the best tools to assess applicant 
qualifications. We have recommended that OPM receive appropriated 
funding for centralized development and validation of assessment tools, 
particularly for government-wide and ``at-risk'' occupations. We have 
also recommended that OPM lead the hiring reform process by working 
with agencies to develop a government-wide framework for Federal hiring 
reform that provides agencies the flexibility necessary to address 
mission needs while also preserving selection quality and employee and 
applicant protections.
    Mr. Ortiz. Federal managers complain that the pay pool panel, which 
can overturn ratings recommended by managers, usurps the role of 
managers. If the majority of employees are going to be rated a ``3'' in 
the end, many managers wonder why they should spend the time in doing 
performance assessments.
    If the majority of employees are rated a ``3'', and managers 
eventually give up trying to fairly assess their employees since the 
pay pool panel will overturn their recommendations, how does this 
ultimately differ from the complaints of the simple pass/fail 
performance rating systems under the GS system?
    Mr. Perkinson. Thank you for the opportunity to address this 
important question, Mr. Chairman. The reality in the field is that the 
ratings have resulted in a bell curve distribution with most employees 
receiving ``3'' ratings. The underlying cause of this is the role of 
the pay pool panel. In my oral testimony, I sought to provide a brief 
synopsis of how the pay pool panels were stepping out of their intended 
role by readjusting supervisors' ratings. This is directly tied to the 
resulting share value. The ratings distributed play a significant role 
in the share value, which concerns many of our members. The final 
payout results in large part on how a facility maximizes its share 
value. Our members take issue when those rated 3s at one location 
receive a significantly different payout than the 3s in another 
location. The ultimate difference between the GS and NSPS systems is 
that GS employees, in most cases, receive automatic pay increases, and 
in a properly run NSPS location, individuals have the ability to be 
rewarded for higher performance as the NSPS system personalizes the 
employee's evaluation through its process.
    Under the system, most employees will likely receive 3s, due to 
both human nature and the pay pool influence. However, exceptional 
employees are rewarded better under NSPS than under the GS. Conversely, 
under-performing employees are not rewarded under NSPS, but still 
receive a pay raise under GS, negating any incentive to perform better. 
The biggest difference is that NSPS forces managers to make meaningful 
distinctions in performance.
    Mr. Ortiz. Pay for performance is highly touted within the private 
sector. Yet, with human nature, it can be ripe for abuse. For example, 
there could be instances where a poor performer, because he or she 
happens to get along well with managers, is promoted. A high-performing 
individual who happens to have had a disagreement with management could 
be stymied in promotion or performance pay opportunities. And there are 
many other variations on these examples. The GS schedule, based on 
performance and tenure, is aimed at ensuring fair treatment and pay for 
federal employees.
    What internal safeguards should be implemented to ensure reasonable 
transparency and appropriate accountability in connection with the 
results of the performance management process?
    Mr. Perkinson. If NSPS is going to continue to serve as the 
Pentagon's personnel system, a couple of safeguards come to mind to 
improve transparency and accountability. The first is the ability of 
the rating official to share his/her rating with the employee prior to 
going to the pay pool panel for review. Presently, we encourage the 
supervisor and employee to openly set objectives and execute an interim 
review, followed by a written assessment. Despite this constant contact 
between the employee and manager, the rating official still cannot tell 
the employee his/her result. If the rating gets changed at the pay pool 
level there should be some form of communication to explain the 
changes--aka, transparency. If a rating or payout gets lowered, there 
should be safeguards in the system to explain what happened to cause 
the change.
    The second safeguard we suggest is that the pay pool panel limit 
its role to ensuring the rating official has stayed within the 
framework of the process and conducted the review as written. The 
Panels are too focused on the impact they have on the share value. The 
sole purpose of the Pay Pool Panel should be to ensure fairness, 
transparency and consistency exist in the system by overseeing 
managers, not changing ratings.
    An additional safeguard to address the employee who faces issues of 
disagreement or personality clashes is utilization of the 
reconsideration or appeal process. This option is under-utilized, 
despite what some claim. When I hear complaints about ratings and pay 
raises from FMA members, I always ask if they requested 
reconsideration. Most say no. These cases are isolated and it is 
extremely difficult to put rules in place to address all potential 
problems. We believe this will become easier over time, as more cases 
are heard.
    No system is going to operate perfectly one hundred percent of the 
time, in the public or private sector. It is our job as managers and 
your job as legislators to ensure the system is as fair and transparent 
as possible.
    Mr. Ortiz. In a 2008 testimony before the Senate Homeland Security 
and Government Affairs Committee, FMA raised concerns about the ``so-
called bell curve distribution of ratings.'' Specifically, managers and 
supervisors reported extreme pressure from higher-ups to maintain a 
specified distribution of funds or performance ratings within each pay 
pool. Managers were also told that there would not be enough money in 
the pool if all employees were rated 4s or 5s. Higher ratings mean less 
money per share in the pool, while lower ratings mean bigger shares for 
the performing employees. There is severe danger of ratings being 
deflated or inflated to accommodate a small section of the population.
    What can be done to ensure that meaningful distinctions in employee 
performance are being made?
    Mr. Perkinson. This issue directly deals with the topic of share 
value and the ability of each facility to devise business rules that 
impact that value. There is a distinct lack of concrete business rules, 
and even when rules are in place, they tend to differ among facilities. 
Part of the problem with share value centers on whether there has been 
any suggested or implied rules that could impact the ratings. If there 
is an abundance of high ratings the share value is deflated; a greater 
number of lower ratings inflate the share value. The result could be 
that a ``3'' in one location receives a higher payout than the same 
rated employee at another location. When examined across an agency like 
DOD, this simply does not make sense and provides the foundation for 
forced distribution and quotas.
    We need to make adjusts to NSPS so there will be a quick review of 
the results by the pay pool panel to ensure share values are 
consistent. One way of accomplishing this is to release a standard set 
of business rules that apply DOD-wide. We should also ensure that 
senior officials do not impact ratings by implying their desires or 
results during the assessment period.
    Mr. Ortiz. The performance management system for NSPS consists of 
five rating categories, of which the lowest rating is a ``1'' 
(unacceptable performance) and the highest rating is a ``5'' (role 
model performance). The majority of employees in 2008 and 2009 were 
rated a ``3,'' or valued performer. The GAO reported in 2008 that 
during its discussion groups with civilian employees under NSPS, a 
prevalent theme was that it was impossible to receive a rating higher 
or lower than a ``3.''
    What should be done to address these employee concerns?
    Mr. Perkinson. Leadership must come from the top if issues such as 
these are to be prevented. We are hearing reports of managers 
experiencing what you describe, which DOD NSPS officials contend should 
not be occurring. More needs to be done on the part of national 
leadership to ensure this does not happen and enforce penalties when it 
does.
    The baseline evaluation of a valued performer requires that the 
individual meets the criteria established for their job consistently 
throughout the year. For a rating to be above 3, additional 
expectations must be met to elevate the person to those levels. Again, 
part of the issue is that the system appears to be applied in a variety 
of ways that could be considered very subjective and inconsistent. Some 
facilities validated increases based on the written self-assessment, 
which led to complaints that the process was judged on writing ability. 
In the view of the employee, there is no clear cut way to know whether 
you are attaining higher levels of performance outside of the 
conversations with the rating official.
    Increasing transparency by informing the employee of their initial 
rating and providing explanations of adjustments made by the pay pool 
panel could alleviate many concerns. Again it comes back to the 
establishment and consistent application of core elements throughout 
the process in all activities.
                                 ______
                                 
                   QUESTIONS SUBMITTED BY MR. FORBES
    Mr. Forbes.  Why does the pay pool have the authority to change an 
employee's rating given by the employee's supervisor who is the one 
with the first-hand knowledge of the employee's performance?
    Mr. Bunn. The National Security Personnel System (NSPS) pay pool 
panels ensure that all supervisors within a pay pool are applying 
rating criteria in the same manner for each employee across the pay 
pool. Without the authority to change a recommended rating given by the 
employee's supervisor, the pay pool panel would be unable to mitigate 
differences in application of the criteria. This would result in 
``high'' and ``low'' raters and ultimately inequity in payouts.
    The NSPS pay pool process is an integral and integrated part of the 
performance management cycle and ensures that performance decisions are 
made in a careful, deliberative environment that uses a consistent 
approach to decisions regarding performance ratings and shares that 
drive employee performance payouts. Pay pool panels are comprised of 
senior leaders and management officials, normally in positions of line 
authority, who possess knowledge of the organization's mission and the 
employees included in the pay pool membership.
    The performance rating process begins with the employee's 
opportunity to provide a self-assessment. The rating official then 
provides a recommended rating that is reviewed by a higher level 
reviewer. The recommended rating includes the rating official's 
recommendation as to ratings, share assignments, and distribution of 
performance payout. The recommended ratings are reviewed by higher 
level reviewers and by the pay pool panel to ensure consistency and 
fairness across the pay pool. Larger pay pools may also have 
recommended ratings reviewed by sub-pay pool panels. Ratings are 
reviewed by higher level reviewers and pay pool panels against 
performance indicators and benchmark standards. The performance 
indicators and benchmark standards are published in the Department of 
Defense (DoD) implementing issuance, DoD Manual 1400.25, Subchapter 
1940, and are included in performance management training given to 
employees and supervisors. In instances where the panel does not agree 
with the rating official's recommendation, the rating official is given 
an opportunity to present additional information to the panel that the 
rating official believes clarifies or justifies his or her 
recommendation(s). The pay pool manager is given final authority to 
approve ratings of records as a means of reinforcing equity across and 
within pay pools and as a necessary safeguard when applying standard 
benchmark criteria for all employees. All decisions of the pay pool 
manager are accomplished in accordance with merit system principles. 
Ultimately, the employee's rating is based on his or her performance 
against standard benchmark criteria.
    Mr. Forbes.  The Pay Pool managers most often know nothing about 
the employee's actual performance. Since Pay Pools are funded based on 
a percentage of the total base salaries of employees in the pay pool, 
doesn't that put some employees at a disadvantage?
    Mr. Bunn. The National Security Personnel System (NSPS) has many 
safeguards built into the system specifically designed to ensure 
fairness and equity as well as to mitigate any consequences, which may 
arise as a result of unfamiliarity of the pay pool panel or manager 
with the work of an individual employee. Among the safeguards is the 
opportunity for the employee to provide a written self-assessment and 
the mandatory requirement for the rating official to provide a written 
assessment explaining how an employee met a particular job objective. 
In addition, the rating official provides a recommended rating of 
record based on application of standard performance measurement 
criteria. To ensure that the measurement tools are interpreted 
consistently across the organization and in a manner free from 
favoritism, cronyism, or other inappropriate consideration, multiple-
level reviews of recommended ratings, share assignments, and payout 
distribution determinations are embedded in the performance management 
process. These include review by a higher level official and the pay 
pool panel. In instances where the pay pool panel finds that the rating 
official's recommendation does not reflect the same interpretation of 
the performance measurement criteria as applied by other rating 
officials and that the common interpretation would result in a 
different rating, share assignment, or payout distribution, the rating 
official is given an opportunity to present additional information to 
the panel that the rating official believes clarifies or justifies his 
or her recommendation(s). In this way, the pay pool panel is able to 
ascertain whether an adjustment proposed to ensure consistent 
application of performance criteria throughout the pay pool is 
justified or if the adjustment is based on a misunderstanding of the 
record. This process is designed to ensure equity in application of 
performance criteria across a pay pool as well as to incorporate the 
knowledge of rating officials who often have the closest view of the 
employee's performance.
    Pay pool managers add to the process an umbrella view of the 
organization and familiarity of the organization's mission and/or the 
functional specialty of the employees. This knowledge, paired with the 
interaction with the rating official, enables the pay pool manager and 
pay pool panel, who are typically senior line managers in the 
organization, to effectively accomplish their role of managing the pay 
pool, resolving discrepancies, ensuring consistency and equity within 
the pay pool, and approving the employee's rating of record, share 
assignment, and payout distribution based on recommendations from the 
rating official.
    Mr. Forbes.  How fair is a Request for Reconsideration Process of a 
Performance Rating that does not allow an employee to challenge a 
performance payout, number of performance shares assigned, value of 
performance shares, or distribution of payout between increase to base 
salary and bonus?
    Mr. Bunn. The National Security Personnel System (NSPS) was 
designed to ensure fairness and equity in evaluating and rewarding 
performance. Appropriately, in the event that an employee requests a 
reconsideration of their overall rating of record or of an individual 
job objective rating, only performance-related criteria are considered 
in making decisions on reconsideration requests. From its inception, 
NSPS was designed to emphasize both performance pay as well as 
compensating employees based on market factors. Factors considered in 
the determination of assignment of shares and payout distributions 
include a combination of factors other than performance, such as labor 
market conditions and compensation/pay progression management. Pay 
decisions based on these factors are not usually subject to review. 
However, any reconsideration request that results in a change to an 
individual job objective rating or the rating of record may result in a 
change in share assignment. For example, if an employee's overall 
rating of record is raised to the next level, the corresponding (and 
higher) share range must be used resulting in a higher performance 
payout for the employee. The pay pool manager will recalculate the 
employee's performance payout amount and distribution, and salary 
adjustments will be based on the share range appropriate for the 
adjusted rating of record. The payouts of other employees in the pay 
pool are not affected or recalculated.
    Mr. Forbes.  How many employees under NSPS actually took part in 
writing their Job Objectives?
    Mr. Bunn. The Department does not have statistics to verify the 
number of employees who participated in the development of their job 
objectives. However, the National Security Personnel System (NSPS) is 
designed to ensure that performance expectations (job objectives) 
support and align with the organization's mission and goals, and has 
implemented safeguards to ensure against the imposition of impossible 
performance expectations. Such safeguards include requiring supervisors 
to involve employees, where feasible, in the development of their job 
objectives to ensure a clear understanding of performance expectations, 
subjecting job objectives to higher level review to ensure consistency 
and fairness within and across the organization, and communicating job 
objectives to employees in writing prior to holding them accountable 
for performance of the objectives. Participation of employees in 
development of job objectives is not mandatory as it is recognized that 
in cases where a large number of employees perform the same type of 
work, the use of standard job objectives may diminish the involvement 
of employees in the development of job objectives and situations such 
as newness of an employee to a position may not enable meaningful 
participation by the employee.
    To facilitate the development of job objectives by both employees 
and supervisors, NSPS provides classroom instruction, web-based 
training, and a 2-hour workshop to assist employees in preparing well-
written job objectives and assessments. Our learning materials feature 
exercises and activities to gain insight into how to develop effective 
job objectives that align with the organization's goals. Employees gain 
practice writing objectives and understanding the importance of 
tracking and monitoring their performance throughout the performance 
cycle. The performance management system's emphasis on communication 
also encourages an employee's active involvement and input throughout 
all phases of the performance management cycle. Through writing their 
job objectives, monitoring their performance, and providing their self-
assessment, employees are encouraged to share their insights and 
perspectives about what they do and how it supports the mission.
    Mr. Forbes.  Why are the ratings of the employees; specifically 
names, not made public if the idea of NSPS is to motivate all employees 
to be model employees?
    Mr. Bunn. The Privacy Act governs the dissemination of certain 
employee personal information. Government-wide regulations at title 5, 
Code of Federal Regulations (CFR) implement the Privacy Act as it 
relates to employees' performance information in the Official Personnel 
Folders. Performance ratings are not made available to the public, 
which would include an employee's coworkers in accordance with 5 CFR 
293.311(a)(6).
    The National Security Personnel System (NSPS) employees are given 
information that allows them to understand how they are rated. 
Performance criteria are made public and are shared with employees. The 
standards by which employees' job performance is assessed (the 
performance indicators and the benchmark standards) are published in 
Department of Defense (DoD) Manual 1400.25, Subchapter 1940 (DoD 
1400.25M, SC 1940). The performance indicators are established at level 
3 and level 5 performance by pay schedule and pay band. In addition, 
the benchmark standards for evaluating the contributing factors that 
relate to how the job is performed are also listed in DoD 1400.25M, 
SC1940. Employees are trained on how to use the performance indicators 
and benchmark standards in completing their self-assessments.
    While individual employee ratings are not and cannot be provided to 
other employees, aggregate pay pool results are required to be 
communicated to employees. This enables employees to compare their 
results with the overall results within their workforce. At a minimum, 
employees are informed of the average rating, ratings distribution, 
share value (or average share value), and average payout expressed as a 
percentage of base salary at the completion of the performance payout 
process.
    Providing information and training concerning the use of the 
performance indicators and benchmark standards, and the overall pay 
pool results should provide any needed additional motivation employees 
need to perform at their highest level.
    Mr. Forbes.  Why are NSPS employees not given the full amount of 
the Cost of Living Allowance (COLA) or Government-wide Pay Increase 
(GPI)?
    Mr. Bunn. While it is commonly believed that the General Schedule 
(GS) GPI is a COLA, the GS GPI actually reflects the cost of labor 
rather than a cost of living adjustment. The Federal Employees Pay 
Comparability Act of 1990 provided two types of annual salary 
adjustments: an across-the-board increase to the entire GS based on the 
Employment Cost Index (ECI); and, a locality pay increase to the entire 
GS, in a particular locality area, based on the salaries of non-Federal 
employees working in that area. The ECI portion is based on an annual 
comparison of ECI changes as measured by the Bureau of Labor Statistics 
(BLS). However the BLS comparison measures the ``cost of labor or 
wages'' as opposed to the ``cost of living.'' Ultimately, the purpose 
of the GS increase is to ensure competitiveness with the private 
sector, versus offsetting increases in the cost of living.
    The National Security Personnel System (NSPS) regulations require 
the maximum rate of the pay band to be raised by 100 percent of the 
NSPS general salary increase. There is no requirement to raise the 
minimum of the band. However, the regulations also provide that if the 
adjustment of the minimum rate of the pay band causes the base salary 
of an employee with a rating of record above unacceptable to fall below 
the minimum rate, the employee's salary will be set at the pay band 
minimum rate. Consistent with title 5, United States Code (U.S.C.), 
Section 9902(e)(7), the regulations require that NSPS employees who 
have a current rating above unacceptable will receive a base salary 
increase of no less than 60 percent of the general salary increase and 
a local market supplement increase equal to GS locality-based payments 
under title 5, U.S.C., Sections 5304 and 5304a. Section 9902(e)(7) of 
title 5 and the regulations also require that the remaining portion of 
the GS salary increase will be included in pay pool funding for the 
purpose of increasing rates of pay based on employee performance and 
contributions during the rating cycle. Under the current regulations, 
employees with a final rating of Valued Performer (Level 3) or higher 
for the current appraisal period are also eligible to receive a 
performance-based payout for that cycle.
    NSPS is a pay-for-performance system, and progression through the 
pay band is based on duties, responsibilities, and performance; 
whereas, progression through the grades under the GS is based primarily 
on longevity. Notwithstanding, there are links between compensation 
under NSPS and the GS. By law, the overall amount allocated for 
compensation of civilian employees in NSPS can be no less than if the 
employees had remained covered by the GS, and that amount is available 
only for such compensation.
    Mr. Forbes.  The purpose of a COLA and/or GPI is to keep up with 
inflation, not a reward for superior performance. If NSPS is truly a 
``Pay for Performance'' system, why did DOD and Navy implement a top 
pay range in the pay band which cannot be exceeded? Once you reach that 
top range, no matter how good of an employee or how hard you work, you 
only get 60% every year.
    Mr. Bunn. As explained in the answer to the previous question, the 
annual government-wide General Schedule (GS) Government-wide Pay 
Increase (GPI) represents a cost of labor calculation, not a cost of 
living adjustment. The maximum of all the National Security Personnel 
System (NSPS) pay ranges are increased by 100 percent of the General 
Schedule Base Salary Increase (GSI) to ensure employees are eligible to 
receive the full NSPS general salary increase based on performance. 
While employees must receive at least 60 percent of the GSI as an 
across-the-board pay increase if they have above unacceptable 
performance, the balance must be paid out as a base salary increase 
based on employee performance. This enables the Department of Defense 
to pay the most competitive salaries to its highest performing 
employees.
    While pay-for-performance is an integral part of NSPS, it is not 
the only factor in the compensation system. NSPS is also a system that 
is sensitive to market factors in determining an appropriate pay level 
for positions. The GS establishes somewhat narrow pay ranges (grade 
levels) according to the type and complexity of the work being 
performed. NSPS has several pay schedules and pay bands within these 
schedules. Some of the pay bands are pretty broad. Not every type of 
job in certain pay schedules should have salary progression to the top 
of the band. Control points allow for managers to set pay in accordance 
with the value of the work performed. Employees will continue to 
receive appropriate compensation based on their individual performance, 
if not in base salary increases then in performance bonuses or a 
combination of both.
    Mr. Forbes.  The purpose of NSPS was to allow employees that 
exceeded work expectations to have greater earning potential, but now 
the government has put caps within each pay band. Why does the DOD not 
show the breakdown of the payouts by race, sex, age, disability, and 
then by grade level? Isn't NSPS supposed to be a transparent system?
    Mr. Bunn. Control points may be established within a pay band to 
manage compensation by considering and balancing a variety of factors, 
in addition to performance, in the determination of rates of pay and 
salary progression through a pay band. Factors include mission 
requirements, labor market conditions, and benchmarks against duties, 
responsibilities, competencies, qualifications, and performance. 
Control points represent one tool that can be used to manage employees' 
progression through the bands and help ensure that only the highest 
performers move to the upper range of a pay band. Control points also 
allow management to account for variances in position responsibilities 
within a pay band. This allows the Department to set pay more 
consistently with the labor market and to be more effective in 
attracting and retaining top performers.
    Control points also provide management with the latitude needed to 
positively impact a variety of pay decisions, such as starting rates, 
rate ranges, and the mix of performance payouts between bonus and 
salary increase. Control points manage pay progression to reflect 
duties and responsibilities, labor markets, and/or performance. The 
Department of Defense (DoD) requires that control points be applied 
consistently to similar positions in the same pay band and career group 
within a pay pool. Unlike the General Schedule (GS) employee who 
reaches the step 10 of his or her GS grade, a National Security 
Personnel System (NSPS) employee who reaches a control point is 
guaranteed a share of the pay pool and any amount in excess of the 
control point (or the top of the pay band, if applicable) is paid as a 
bonus provided the employee has a level 3 or higher rating of record.
    Overall performance payout results are published on the NSPS 
website after completion of the pay pool process. However, the data 
available at the DoD level do not provide the granularity to make 
meaningful distinctions or provide the capability to draw conclusions 
from these high level data. DoD Components are required to conduct an 
annual analysis of the NSPS performance rating and payout results for 
their subordinate activities to identify, examine, and remove barriers 
to similar rating and payout potential for demographic and other groups 
in the workforce, apart from differences based on individual 
performance or material job difference.
    In addition, to promote transparency of the pay pool process, DoD 
Components are required to share with NSPS employees at the completion 
of the performance payout process the average rating, ratings 
distribution, share value (or average share value), and average payout 
expressed as a percentage of base salary.
    Mr. Forbes.  Why didn't DOD concur with the GAO recommendation 
regarding the third party reviews of pre-decisional pay pool 
recommendations?
    Mr. Bunn. The National Security Personnel System (NSPS) pay pool 
process provides essential safeguards to ensure that the system adheres 
to merit principles, and that ratings and management of the system are 
fair, equitable, and based on employee performance. Individual ratings 
recommended by a supervisor are reviewed by a higher level official and 
by at least one panel of management officials from across the 
organization to ensure consistency and fairness across the pay pool. 
Rating officials, reviewers, and panel members apply standard, NSPS-
wide performance indicators and benchmarks when they consider 
employees' performance assessments. Employees are encouraged to provide 
written self-assessments about their performance accomplishments, which 
help ensure panels have a complete picture; and an employee who 
disagrees with his or her rating has several avenues of redress.
    While we have no objection to demographic and other analyses for 
pay pools, we do not believe integrating such analyses as part of the 
pre-decisional pay pool deliberation process is warranted; and, in 
fact, they may have detrimental effects on the credibility of the 
system.
    We agree that such analyses can be used to ensure that the process 
is fair and equitable, and to identify and address possible barriers 
that may affect some groups, but believe it should be done after the 
process is complete. Such analysis must not be used to manipulate 
results to achieve some type of parity among various groups. Post-
decisional analysis of results is useful to identify barriers and 
corrective actions. If the information gleaned from demographic 
analysis demonstrates that the results were not fair or equitable, for 
whatever reason, this information could legitimately be employed to 
examine the process used to achieve those results, with a view to 
identifying barriers to equal employment opportunity, if any, and 
eliminating them in order to achieve a more fair and equitable outcome. 
And, if an analysis of pay pool results uncovers illegal 
discrimination, management always has the ability and obligation to 
take corrective action.
    Heads of the Department of Defense Components are accountable for 
the manner in which officials in their organizations carry out policy, 
procedures, and guidance. The Department requires in its NSPS 
implementing issuances that Component Heads carry out an annual 
analysis of the NSPS performance rating and payout results for 
subordinate elements; and issue guidance to lower echelons and 
otherwise act to identify, examine, and remove barriers to similar 
rating and payout potential for demographic and other groups in the 
workforce, apart from differences based on individual performance or 
material job differences.
    Mr. Forbes.  COLA's and Housing Allowances could be lumped into a 
pay pool and the top performers could get the higher raises. It would 
eliminate the automatic time-in-grade raises, just like for civil 
service. Why hasn't the DOD done a DOD-wide survey of all employees 
under NSPS to see what the people in the system think of it? They would 
probably find that the majority of the employees are not in favor and 
that it has only put more of a burden on those in supervisory 
positions.
    Mr. Bunn. By statute, the National Security Personnel System (NSPS) 
cannot modify Cost of Living Allowances and housing allowances, or lump 
them into a pay pool for any purpose.
    The Department surveys its civilian population in general on 
employment matters every year by means of the Status of Forces Survey 
of the Department of Defense (DoD) Civilian Employees (SOFS-C). The 
SOFS-C is administered not only to our NSPS population but also to the 
rest of the civilian workforce. Views from the NSPS workforce are 
mixed. The first year after converting, employees' surveyed opinions on 
some aspects of NSPS are lower than their baseline opinions from their 
previous system; for example, whether they understand what it takes to 
be rated at the different levels and whether the performance management 
system improves organizational performance. At the same time, the NSPS 
workforce reports a more positive view that management deals with poor 
performers and that pay raises depend on how well employees perform 
their jobs. NSPS supervisors have become more positive that they can 
influence employees' pay. While employees' opinions that their ratings 
fairly reflected their performance compared to their pre-NSPS 
baselines, the majority still hold a positive view; and after a second 
rating cycle, the first spiral group opinions rose somewhat from the 
first year. Supervisors are somewhat ambivalent: in the 2008 survey, 
many were neutral about whether pay-for-performance at their 
organization was a fair reflection of their employees' performance, but 
of the rest, there were many more positive views than negative.
    The decline and the ambivalence are common with most new systems, 
as the Office of Personnel Management has observed and the Government 
Accountability Office has acknowledged. NSPS is a fundamental change 
from their previous experience with those systems and with the 
predictable General Schedule step progression pay system and guaranteed 
annual increases regardless of performance. We are mindful that half of 
the NSPS workforce converted from pass-fail performance systems, and 
most of the rest came from multi-level rating systems where most people 
got the top rating. We therefore augment surveys with field visits and 
interviews with employee, supervisor, and management groups to find out 
what is working adequately and what is of concern and may require 
further action. Many do express concern about the time the NSPS 
performance system takes, especially for supervisors with large non-
supervisory workloads of their own. We have improved automated tools to 
reduce their administrative burden, and they are no longer building 
performance plans from scratch but may copy and paste an applicable 
objective from the performance plan of one rating period to another.
    We expect this issue, along with many others, to be included in the 
scope of the comprehensive program review.
    Mr. Forbes.  What evidence exists that can show NSPS has had a 
marked improvement in development of the employee/supervisor 
relationship through the coaching/feedback that is supposed to be such 
a big part of NSPS? This should be a question if a survey is conducted; 
Do you believe your communication with your supervisor has improved 
under NSPS?
    Mr. Bunn. The Department surveys the workforce to monitor 
relationships between employees and their supervisors, among other 
matters; but we do not expect quick, marked improvements. The National 
Security Personnel System (NSPS) is still in an early stage: the great 
majority of the workforce has either one or two years under the system. 
NSPS is fundamentally different from the prior systems. Change from 
familiar, predictable systems to performance-based pay progression in a 
less hierarchical pay band structure is daunting. The fact that NSPS 
uses a senior management pay pool panel process to ensure there is a 
level playing field across the organization in ratings and payouts 
alters the traditional rating relationship between an employee and his/
her immediate supervisor. The Office of Personnel Management advises 
that it takes 3-5 years for people's attitudes to recover from early 
declines and meet or exceed the baseline level. Representatives from 
the Government Accountability Office have testified it takes 5-7 years 
for such changes.
    Our surveys indicate that the employee/supervisor relationship has 
held up during the first two years after NSPS implementation. 
Employees' trust and confidence in their supervisors have held level, 
as has their feeling that their supervisors do a good job. Looking at a 
basic supervisory responsibility--communicating what it takes to be 
rated at different levels--we found that employees' agreement that they 
understood this had declined somewhat from their pre-NSPS baseline, but 
the majority, 57 percent, of Spiral 1 were positive. Interestingly, the 
relationship between an employee and his/her supervisor--forged by many 
things apart from formalities of the personnel system--seems to go 
hand-in-hand with employees' opinion of whether their appraisal is 
fair. Of the 67 percent of Spiral 1 employees who agreed in the 2008 
survey that they had trust and confidence in their supervisors, 71 
percent agreed that their performance appraisal was a fair reflection 
of their performance, compared with 25 percent agreement for the 16 
percent of employees who did not have trust and confidence in their 
supervisors.
    Asked if discussions with their supervisor or team leader were 
worthwhile, NSPS employees gave similar positive views in the 2008 
survey to those not in NSPS--despite a slight decrease from pre-NSPS 
baselines. Further, somewhat more NSPS employees than non-NSPS ones 
report they receive occasional or regular performance feedback; and 
those in NSPS for one or two years had similarly positive views about 
the usefulness of the counseling as those not in NSPS.
    Mr. Forbes.  Does a pay pool have the authority to change the 
stated goals for a particular rating at the end of the year so fewer 
people exceed the Level 3 rating?
    Mr. Bunn. No. Performance expectations must be communicated in 
writing to an employee before the employee is held accountable for 
those objectives (title 5, Code of Federal Regulations, section 
9901.406(b)), and employee performance is measured against standard 
criteria that are published. Job objectives for the National Security 
Personnel System employees may not be changed after the end of a rating 
cycle to limit the number of employees with ratings above level three. 
While supervisors may change employees' job objectives during a rating 
cycle to reflect changes in duties, mission, and/or priorities, they 
cannot hold the employee accountable for the revised performance 
expectation/job objective until it has been communicated to the 
employee in writing. This requirement safeguards against an employee 
being held accountable retroactively for any job objective for any 
reason.
    Mr. Forbes.  Where are the Merit System Principles in NSPS?
    Mr. Bunn. The National Security Personnel System (NSPS) statute at 
title 5, United States Code, section 9902(b)(3) addresses the merit 
system principles and prohibited personnel practices. In addition, the 
statute provides at Sec. 9902(b)(7)(A) that the performance management 
system must incorporate adherence to merit system principles. The 
enabling regulations at title 5, Code of Federal Regulations (CFR), 
section 9901.101(b) state that the merit system principles are among 
the guiding principles for establishing the requirements for the 
implementation of the NSPS human resources system. The regulations also 
state at 5 CFR Sec. 9901.342(b) and (f)(2) that oversight of pay pools 
must be established in such as way as to ensure employees are treated 
fairly and consistently and in accordance with merit system principles. 
At 5 CFR Sec. 9901.412(g), the regulations state that ``[c]onsistent 
with the merit system principles and this part, the Pay Pool Manager is 
the approving authority for Pay Pool Panel recommendations concerning 
ratings of record, share assignments and payout distributions.'' The 
merit system principles, while not explicitly listed, are embedded in 
all aspects in the NSPS human resources system. The supplementary 
information for the regulations published on September 26, 2008 (73 
Federal Register (FR) 56344) makes numerous references to the merit 
system principles. For example, the adherence to merit system 
principles support the fairness of the pay pool process (73 FR 56350), 
that the system is evaluated to determine whether it complies with 
merit system principles (73 FR 56359), and that the classification 
system supports the merit system principles (73 FR 56359).
    The merit system principles are an integral part of NSPS training 
and communication. In virtually all NSPS briefings and training 
sessions, participants are advised that NSPS does not change or alter 
merit system principles. In all performance management training, the 
participants are reminded that performance evaluation must conform to 
the merit system principles, and participants are given a handout that 
lists the merit system principles.
    Mr. Forbes.  How much has NSPS cost the taxpayers since its 
implementation?
    Mr. Bunn. To date, the National Security Personnel System (NSPS) 
implementation costs across the Department are approximately $230 
million. This includes expenditures for the following:

Design and Implementation (efforts including those conducted by 
Component and local activities related to the planning, tailoring, and 
adapting of NSPS Implementing Issuances)

      Regulation, implementing issuances, conforming policy, 
and technical reference material development
      Continuing collaboration with unions
      Working group activities for implementation planning, 
scheduling, and monitoring
      Communications materials
      Lessons learned meetings, conferences, and reports

Training Development, Support, and Execution
      Courseware design and development; and component and 
local adaptations
      Course materials production
      Course delivery
Human Resource (HR) Automated Systems
      Requirements definition of NSPS-driven modifications to 
Component HR systems
      Design, development, coding, and testing of modifications
      Local system modifications

Program Evaluation (development of metrics, data collection, survey 
tools, analysis, and reporting to assess the effectiveness of NSPS 
regulations and implementation)
      Survey design and administration
      Data analysis and reporting

Program Office Operations (efforts conducted by Program Executive 
Office (PEO), Component program offices, and locally established NSPS 
activities)
      Rent and supplies, equipment, networks, and 
telecommunications (applies to PEO NSPS only)
      Personnel appointed to coordinate NSPS implementation at 
local level

    Detailed employees will be included in Component reporting under 
this category.

    Mr. Forbes.  What specifically is there in NSPS that was not 
available under the GS system as far as bonuses, raises, performance 
awards, etc.?
    Mr. Bunn. The National Security Personnel System (NSPS) is designed 
to promote a performance culture in which performance and contributions 
are more fully recognized and rewarded based on performance, 
innovation, and results. NSPS makes distinctions among employees based 
on a rigorous evaluation of individual performance against standard 
criteria to ensure that the highest rating levels, and associated 
performance payouts, are reserved for those who deliver exceptional 
results. This performance management system differs from the General 
Schedule (GS) process of longevity-based pay increases that are linked 
primarily to the passage of time. NSPS better links individual pay to 
performance using performance rather than time-on-the-job to determine 
pay increases. It also provides employees with greater opportunities 
for career growth and mobility within the Department.
    The NSPS pay and classification system provides a flexible pay-
banding construct that helps attract skilled and talented workers, and 
retain and appropriately reward current employees. This pay-banding 
structure replaced the artificial limitations created by the GS pay and 
classification systems. Using broad pay bands, the Department is able 
to move employees more freely across a range of work opportunities 
without being bound by narrowly described work definitions. Unlike the 
GS system, NSPS employees may receive reassignment base salary 
increases of up to 5 percent. When NSPS employees are promoted to a 
higher-level pay band, the flexibility exists to set pay at a level 
that provides at least a 6 percent pay increase and a more significant 
base salary increase of up to 12 percent or more if management 
determines that a greater increase is appropriate. For example, a 10 
percent increase may be justified when an employee is promoted from an 
entry or developmental band to a full performance band and the greater 
increase is necessary to pay the employee a rate that is competitive in 
the labor market, given the employee's responsibilities, competencies, 
and anticipated performance. Under the GS system, management must 
follow standard pay setting procedures, which provide no flexibility or 
discretion when setting pay.
    There is considerably more room for pay progression within an NSPS 
band than within a GS grade. NSPS employees may move more easily within 
their assigned band, or other comparable bands. Additionally, unlike 
the GS employee who reaches step 10 of his or her GS grade, an employee 
with a level 3 or higher rating of record is guaranteed a share of the 
pay pool, and any amount of the performance-based payout in excess of a 
control point within the band or the top of the pay band is paid out as 
a bonus.
    The NSPS pay structure is more responsive to market conditions than 
the GS. The Department is able to adjust rate ranges and local market 
supplements based on variations relating to specific occupations, 
rather than using a one-size-fits-all approach. Labor market conditions 
also are considered when making pay-setting decisions.
    Mr. Forbes.  Based on the GAO testimony, one safeguard GAO believes 
needs to be implemented to increase employee confidence in the pay for 
performance system is for DOD to have a third party analyze the pay-
pool recommendations for ``anomalies'' before any final decision is 
made to determine whether an employee's rating accurately reflects the 
employee's performance and whether any non-merit based factors 
contributed to the ``anomaly.''
    1. Explain how you see this third party analysis working.
    Ms. Farrell. Given that each agency has its own set of unique 
challenges and its own approach for handling those challenges, we 
believe that the department is in the best position to determine how to 
appropriately design and implement a predecisional analysis for NSPS. 
That said, we believe that the third-party analysis should be conducted 
by an independent reviewing office, such as a human capital office, 
that is able to conduct the analysis outside of the chain of command. 
Taking the analysis outside of the chain of command helps to ensure 
that the process remains as independent as possible. Seeing that DOD 
currently has over 200,000 civilian employees under NSPS, the 
department could consider phasing in the third-party analysis by 
starting with a representative sample of employees. A phased 
implementation approach recognizes that different components of 
agencies will often have different levels of readiness and different 
capabilities to implement new authorities. Moreover, a phased approach 
allows for learning so that appropriate adjustments and midcourse 
corrections can be made before new policies and procedures are fully 
implemented organizationwide.
    Mr. Forbes. 2. In your view, who would the third party be, a DOD 
entity or a non-DOD entity?
    Ms. Farrell. As noted in our response to question 1, we would 
expect the third party to be a DOD entity that is removed from the 
chain of command--that is, the human capital office or an office of 
opportunity and inclusiveness.
    Mr. Forbes. 3. What criteria does GAO see as constituting an 
anomaly?
    Ms. Farrell. Generally, an anomaly would be characterized as a set 
of ratings for which there is a statistically significant difference in 
comparison to the larger group. For example, if the data indicated that 
there was a statistically significant difference between the ratings of 
a particular subset of the larger workforce compared to the larger 
group at that same level, this could constitute an anomaly. The 
presence of an anomaly is not alone proof that there is a problem. 
Rather, identifying an anomaly in the data prior to finalizing the 
rating decisions would enable management to investigate the situation 
and determine whether the results are justified and merit-based.
    Mr. Forbes. 4. In investigating ``blatant discrimination'' or 
``egregious decisions'' would the employee be contacted and 
interviewed?
    Ms. Farrell. The predecisional reviews are to help achieve 
consistency in the performance management process and provide 
reasonable assurance that the performance decisions are merit-based and 
fair. Due to the nature of the investigation, the employee would not be 
contacted during an investigation. However, information provided by 
employees, such as the self-assessment, can be considered during the 
review process, as could information provided by responsible managers 
regarding underlying reasons for any anomalies.
    Mr. Forbes. 5. Would a single third party be evaluating all 1,600 
pay pools across DOD to get a DOD wide view of anomalies, or would 
1,600 third-party reviews be conducted at each pay pool without regard 
for a comprehensive DOD look?
    Ms. Farrell. As noted in our response to question 1, each agency 
has its own set of unique challenges and its own approach for handling 
those challenges. As a result, we feel that the department is in the 
best position to determine how to appropriately design and implement a 
predecisional analysis for NSPS. One approach, as noted in our response 
to question 1, would be for DOD to phase in the third party analysis by 
starting with a representative sample of employees. Such an approach 
recognizes that different levels of readiness and different 
capabilities exist among agency components and allows for learning so 
that appropriate adjustments and midcourse corrections can be made 
before full implementation.
    Mr. Forbes. 6. What effect would the third-party analyses have on 
the timeliness of the pay-pool process?
    Ms. Farrell. It would likely add time to the existing process. 
However, we believe that it is important that DOD take steps to ensure 
that its employees' ratings are perceived as fair reflections of their 
performance. Taking additional time to complete a predecisional 
analysis is one safeguard that DOD can implement to raise employee 
confidence in the fairness and credibility of the system.
    Mr. Forbes. 7. Would the pay pool decisions on all the other 
employees in the pay pool be held up until the ``anomaly'' was 
resolved?
    Ms. Farrell. Given that the predecisional review is intended to 
take place prior to the ratings being finalized but before they are 
certified and released to employees, all other ratings would not be 
released until the predecisional review was completed and appropriate 
responses (which could include inaction) were determined for any 
anomalies identified.
    Mr. Forbes. 8. How would GAO see the anomaly being corrected--a 
directive to the rater to change the rating, or some disciplinary 
action against the rater, or some other form of corrective action?
    Ms. Farrell. Where managers provide information that explains the 
merit-based factors and reasons for the anomalies, the managers would 
not change the ratings. On the other hand, managers could determine 
that some vital information was not considered that would provide a 
basis for changing the rating. In all cases, it is the unit manager, 
not the third party conducting the predecisional review, that would 
determine whether a change would be warranted. Further, the review is 
not intended to change the results to portray an ``ideal'' 
distribution, or to alter the outcome of the performance management 
process. The purpose of the predecisional review is to identify if 
anomalies exist and, if found, inform managers of the need for further 
review to provide reasonable assurance that the basis for each rating 
is fair, credible, and merit-based.
    Mr. Forbes. 9. Does GAO see any appeal rights for the manager or 
employee involved in the ``anomaly''?
    Ms. Farrell. Although the third-party reviewer identifies the 
anomalies, it is the responsible manager that examines the basis 
underlying the ratings and is held accountable for ensuring the ratings 
are merit based. While it is unlikely, should a manager be disciplined, 
he or she might have appeal rights, depending on the nature of the 
discipline imposed.
    Any employee has a right to appeal his or her final rating. 
However, these appeal rights do not apply to the predecisional review 
process since it is intended to take place prior to the ratings being 
finalized but before they are certified and released to employees.
    Mr. Forbes. Would you comment on the GAO recommendation about 
having a third party pre-decisional review of pay-pool ratings?
    Mr. Perkinson. Thank you for the opportunity to address your 
questions, Congressman Forbes. The addition of this process could 
alleviate some transparency concerns raised about NSPS, but it could 
just as likely further cloud the system. We must ask ourselves what 
happens if the decision of the third party is different from that of 
the pay pool panel. Is this third party the final say? If so, how 
involved is it in the process? We have said that one of the problems 
with the pay pool panel is that it is out of touch with the actual job 
functions of the employees it is reviewing. The third party should be 
held to the same standards.
    Mr. Forbes. Do support the recommendation? Why or Why not?
    Mr. Perkinson. If the pay pool panels were to act in a manner 
consistent with the authorities laid out in their directive--primarily 
concerning itself with ensuring the system is applied fairly and 
transparently--a third party review would be unnecessary. However, if 
the panels continue to overstep their bounds, adjusting the ratings 
employees receive from their rating officials, then I believe a third-
party review is justified.
    Mr. Forbes. In your testimony you indicated that, as a manager, if 
you had a choice, you would prefer going back to the General Schedule 
System. The answer seemed to be couched in the context of the 
difficulties managers have in dealing with three personnel systems: 
NSPS, GS and Wage Grade. Is your desire to go back to the GS system a 
statement that the GS system is superior to the NSPS system, or is your 
preference for the GS system an expression that as a manager you prefer 
to work with fewer personnel systems?
    Mr. Perkinson. That was a very difficult question for me to answer. 
I remind you that in your question you asked what I would do today. In 
reality there are things I like about NSPS and things I like about GS.
    The NSPS process allows you to improve performance and pinpoint 
areas of improvement for your personnel in specific areas. It also 
allows us to award performance in a way that is unavailable under the 
GS system. Under the General Schedule, there are also tools to deal 
with extraordinary performance and poor performance. The QSI (Quality 
Step Increase) is a valuable tool to reward performance, but budgets 
limit the extent we can distribute them. An unsatisfactory evaluation 
prevents a GS employee from getting an automatic step increase in pay. 
However, these options are rarely utilized.
    My particular answer to you was in response to the difficulties 
with managing three separate systems in one department. As personnel 
work side-by-side, it is difficult to explain why the NSPS folks 
averaged one pay increase, the GS received something different and the 
Wage Grade averaged another amount. Along with that, each system is 
governed by a different set of rules regarding workplace practices, 
such as overtime, and this is complicated for a manager and confusing 
for employees. They want to know why they are treated differently than 
their peers.
    Congress and the Administration should work with managerial and 
employee groups to establish one system that can uphold the principles 
of objectivity, fairness and transparency.

                                  
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