[Federal Register Volume 61, Number 224 (Tuesday, November 19, 1996)]
[Notices]
[Pages 58942-58969]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29563]



[[Page 58941]]

_______________________________________________________________________

Part V





Office of Personnel Management





_______________________________________________________________________



Proposed Personnel Management Demonstration Project; Pay for Applied 
Skills System, Department of Veterans Affairs (VA); Notice

  Federal Register / Vol. 61, No. 224 / Tuesday, November 19, 1996 / 
Notices  

[[Page 58942]]



OFFICE OF PERSONNEL MANAGEMENT


Proposed Personnel Management Demonstration Project; Pay For 
Applied Skills System; Department of Veterans Affairs (VA)

AGENCY: Office of Personnel Management.

ACTION: Notice of Proposed Demonstration Project.

-----------------------------------------------------------------------

SUMMARY: Title VI of the Civil Service Reform Act, 5 U.S.C. 4703, 
authorizes the Office of Personnel Management (OPM) to conduct 
demonstration projects that experiment with new and different personnel 
management concepts to determine whether such changes in personnel 
policy or procedures would result in improved Federal personnel 
management.
    VA is proposing one demonstration project to initially cover two 
Veterans Benefits Regional Offices: New York and Detroit. Additional 
Regional Offices may be added during the duration of the project.

DATES: To be considered, written comments must be submitted on or 
before February 3, 1997; public hearings will be scheduled as follows:
    1. Wednesday, January 8, 1997, 10:00 a.m. in New York, New York,
    2. Wednesday, January 15, 1997, 10:00 a.m. in Detroit, Michigan. At 
the time of the hearings, interested persons or organizations may 
present their written or oral comments on the proposed demonstration 
project. The hearings will be informal. However, anyone wishing to 
testify should contact the person listed under FOR FURTHER INFORMATION 
CONTACT, and state the hearing location, so that OPM can plan the 
hearings and provide sufficient time for all interested persons and 
organizations to be heard. Priority will be given to those on the 
schedule, with others speaking in any remaining available time. Each 
speaker's presentation will be limited to ten minutes. Written comments 
may be submitted to supplement oral testimony during the public comment 
period.

ADDRESSES: Comments may be mailed to Joan Jorgenson, U.S. Office of 
Personnel Management, 1900 E. Street, NW, Room 7460, Washington, DC 
20415; public hearings will be held at the following locations:

1. New York--Department of Veterans Affairs, Veterans Benefits 
Administration (VBA), New York Regional Office, Room 321, 245 W. 
Houston Street, New York, New York,
2. Detroit--Department of Veterans Affairs, VBA, Detroit Regional 
Office, Patrick V. McNamara Federal Building, 477 Michigan Avenue, Room 
1194, Detroit, Michigan.

FOR FURTHER INFORMATION CONTACT: (1) On proposed demonstration project: 
Rita Kowalski or Veronica Wales, Veterans Benefits Administration 
Regional Office, 245 W. Houston Street, New York, New York, 10014, 212-
807-3050; (2) On proposed demonstration project and public hearings: 
Joan Jorgenson, U.S. Office of Personnel Management, 1900 E Street, NW, 
Room 7460, Washington, DC 20415, 202-606-1315.

SUPPLEMENTARY INFORMATION: The proposed project involves replacement of 
the classification and General Schedule pay systems with a compensation 
system which includes pay for applied skills and variable pay. It will 
also emphasize organizational and team performance instead of 
individual performance, and learning.

    Dated: November 12, 1996.

Office of Personnel Management.
James B. King,
Director.

Table of Contents

I. Executive Summary
II. Introduction
    A. Purpose
    B. Problems with the Present System
    C. Changes Required/Expected Benefits
    D. Participating Organizations
    E. Participating Employees
    F. Union Involvement
    G. Project Design
III. Personnel System Changes
    A. The Human Resource Process
    B. Entrance Stage
    C. Maintenance and Support Stage
    D. Exit Stage
IV. Training
V. Conversion
    A. Conversion of Employees into the Demonstration Project
    B. Conversion of Employees out of the Demonstration Project
    C. Skill Block/Grade Conversion Table
VI. Project Duration
VII. Evaluation Plan
    A. Introduction
    B. General Methodology
    C. Three Phase Methodology
VIII. Demonstration Project Costs
    A. Budget Strategy
    B. Step Buy-ins
    C. Cost Controls
IX. Required Waivers to Law and Regulation

I. Executive Summary

    The project was designed by the New York Regional Office (NYRO), 
Veterans Benefits Administration, with the participation of the 
Department of Veterans Affairs (VA), the Office of Personnel Management 
(OPM) and the American Federation of Government Employees (AFGE). The 
purpose of the project is to continue the organizational transformation 
already in progress and fundamentally change the human resource process 
so that the systems in the process focus upon the customers. The 
project focuses on three stages of the Human Resource Process: (a) the 
Entrance Stage that brings employees into the organization and 
introduces them to its mission, vision, values, and culture; (b) the 
Maintenance and Support Stage that includes everything that sustains, 
develops, and focuses employees upon serving veterans and their 
families and meeting its organizational outcome measures; and, (c) the 
Exit Stage that deals with issues affecting employees leaving the 
organization. The project will also test the effectiveness of skills-
based pay on the organization's ability to meet its organizational 
goals and as a means of compensating employees for the skills and 
competencies that the organization needs and that they acquire, 
develop, and use. The demonstration project will be phased in at both 
the New York and Detroit Regional Offices. The NYRO will start with its 
Veterans Benefits and Services Business Line where most of its 
reengineering effort has taken place. The Detroit Regional Office will 
also begin in its Veterans Benefits and Services Business Line. 
Additional business lines will be added as they are reengineered during 
the course of the demonstration project.

II. Introduction

A. Purpose

    The purpose of the project is to improve the delivery of benefits 
and services provided to VA's unique customers--veterans and their 
families; to provide the best value to American taxpayers; and to 
create a human resources system that enables employees to develop and 
apply the skills and competencies needed to better serve their 
customers. This improved service will be provided by self-directed work 
teams whose members are compensated based on the skills and 
competencies they acquire, develop, and use which support the goals and 
mission of the New York and Detroit Veterans Benefits Regional Offices.

B. Problems With the Present System

    The Veterans Benefits Administration (VBA), a part of the 
Department of Veterans Affairs, provides benefits and services to 
veterans and their families. VBA has encouraged its Regional Offices to 
actively transform the way they do business and is now requiring them 
to use core organizational outcome measures to determine if they are

[[Page 58943]]

successful. The Regional Offices in New York and Detroit are involved 
in activities such as Total Quality Management (TQM), reengineering and 
organizational system design that focus on improving service to 
veterans and their families. Both Regional Offices have reengineered 
and streamlined their processes to emphasize the customer and provide 
faster turn-around of veterans claims. The new emphasis on customer 
service and organizational performance are not fully supported by the 
existing human resource systems. The hierarchical nature and physical 
structure of the existing General Schedule compensation and 
classification systems do not provide the flexibility and adaptability 
needed to move the Regional Offices forward in their reengineering 
process. The existing structures do not provide managers with the 
flexibility they need to structure teams so that they can function most 
effectively and they do not encourage employees to acquire a broader 
base of skills and competencies needed by the organization in order to 
provide one-stop shopping to the veteran customer and family and to 
address backlogs in benefit claims processing.

C. Changes Required/Expected Benefits

    The VA Pay for Applied Skills Demonstration Project continues the 
extensive reengineering of work and structural systems already 
accomplished at the NYRO as a National Performance Review (NPR) 
reinvention lab and the organizational outcome measures developed and 
implemented at the NYRO as a Government Performance and Results Act 
(GPRA) pilot site. This project, since it is closely dependent upon the 
organizational outcome measures as defined by GPRA, will align human 
resource systems to business needs; design and test a human resource 
process that will support an organization reengineered around the 
customer; assess a human resource system that supports employee 
accountability, growth and ownership of organizational outcomes; and, 
provide demonstration project participants with the opportunity to test 
systems that meet project principles and operating guidelines, overall 
outcome measures, and mission requirements and customer needs of the 
organizations involved.
    In addition to the expected benefits mentioned above, the following 
key principles are critical to the VA Pay for Applied Skills 
Demonstration Project: (a) It is important for employees to continually 
focus upon the needs of veterans and their families; (b) Organizational 
goals help employees and the entire organization to recognize what is 
important and to know when they are successful; (c) The organizational 
outcome measures will define the types of human resource systems put 
into place, since they are the touchstone for all Regional Office 
systems; (d) The demonstration project will show how the organizational 
outcome measures that are envisioned in GPRA can help define human 
resource systems; (e) When developing mechanisms for monitoring 
organizational outcome measures, it is essential to bring the outcome 
measures to the employee's ``line of sight'' and at a level where each 
employee knows that he or she will be able to affect these outcomes; 
(f) While the Organizational Performance Management System and the 
Compensation System are key components of the demonstration project, 
these systems cannot be put into place alone. They have a dramatic 
effect on other systems within the Regional Office; (g) The Merit 
System Principles will be inherent in every aspect of the reengineered 
human resource process and systems; (h) Any policies and procedures 
developed will be streamlined, customer-focused, and designed so that 
authority is at the lowest possible level; (i) Policies and procedures 
will be developed with the belief that people want to do the right 
thing and that the systems developed will not be designed with the 
exception in mind; (j) The demonstration project will use the 
organizational outcome measures, as defined by GPRA, to help evaluate 
its effectiveness; (k) Policies and procedures developed will maintain 
budget discipline, be cost-effective and keep administrative costs 
down, since the needs of the American taxpayer must also be considered; 
(l) Employees and the union will be involved in developing human 
resource systems, since these systems exist because employees exist; 
(m) Customers and stakeholders may be involved in the project for ideas 
affecting design, operation or assessment; (n) Teams, or organizational 
units, do not compete against each other. Each team, or organizational 
component, competes against accomplishing the organizational outcome 
measures; (o) Employees will be paid based upon the achievement of 
organizational goals and the development and application of the skills 
needed to meet those goals; and (p) The exploration of new ideas, 
creativity, flexibility and continuous improvement is a project norm. 
Ideas and options will be tested with the understanding that if 
something does not work, the organization will have learned from the 
experience and be willing to implement changes based on the experience.

D. Participating Organizations

    The two Veterans Affairs offices initially participating in the 
project are:

VA Regional Office, New York, New York
VA Regional Office, Detroit, Michigan

E. Participating Employees

    The demonstration project in the Department of Veterans Affairs, 
Veterans Benefits Administration, will include all General Schedule 
employees in the Regional Offices in Detroit and New York. Each 
organization will phase in the project to meet its particular needs. 
Each organization will have the option of covering their entire 
organization and of phasing in the project during the initial three 
year period of the five year demonstration project.
    For example, since NYRO is both an NPR reinvention lab and a GPRA 
pilot site, it is farther along in its planning for demonstration 
project implementation. In the NYRO, the demonstration project will 
cover the entire office and will incorporate the total human resource 
system described in this proposal. The project will be phased in, since 
the NYRO plans to continue its reengineering effort to include the 
remaining business lines and support activities. The NYRO will start 
with the Veterans Benefits and Services Business Line where most of the 
reengineering has taken place; however, the NYRO plans to reengineer 
its field and support elements and will incorporate this work into the 
demonstration project. It will also expand coverage to Veterans Homes 
and the Veterans Jobs Lines after the reengineering effort in these 
areas are completed and will include leadership positions covered by 
the General Schedule under the project. Figure 1 lists the series and 
positions currently in the business lines.

                                       Figure 1: Series by Business Lines                                       
----------------------------------------------------------------------------------------------------------------
 Series                         Title                           Benefits      Homes         Jobs       Support  
----------------------------------------------------------------------------------------------------------------
180....  Counseling Psychologist............................  ...........  ...........            4  ...........

[[Page 58944]]

                                                                                                                
201....  Personnel Management Specialist/Officer............  ...........  ...........  ...........            4
203....  Personnel Assistant................................  ...........  ...........  ...........            4
303....  Program Assistant..................................            4            4            4            4
303....  Program Support Clerk..............................           4n            4            4  ...........
305....  File Clerk.........................................  ...........            4  ...........            4
305....  Mail Clerk.........................................  ...........  ...........  ...........            4
318....  Secretary (OA) (Stenography/OA)....................           4n            4            4            4
322....  Clerk-Typist.......................................           4n  ...........  ...........            4
326....  Office Automation Clerk............................  ...........  ...........            4  ...........
334....  Computer Specialist................................  ...........  ...........  ...........            4
340....  Director/Assistant Director........................  ...........  ...........  ...........            4
341....  Administrative Officer.............................  ...........  ...........  ...........            4
342....  Support Services Specialist/Supervisor.............  ...........  ...........  ...........            4
343....  Program Analyst....................................           4n            4  ...........            4
344....  Management Assistant (Analysis)....................  ...........  ...........  ...........            4
350....  Copier/Duplicator Equipment Operator...............  ...........  ...........  ...........            4
392....  Telecommunications Assistant.......................  ...........  ...........  ...........            4
503....  Accounts Receivable Assistant......................  ...........  ...........  ...........            4
503....  Fiscal Accounts Clerk/Supervisor...................  ...........  ...........  ...........            4
510....  Accountant.........................................  ...........  ...........  ...........            4
511....  Auditor............................................  ...........  ...........  ...........            4
525....  Accounting Technician..............................  ...........  ...........  ...........            4
530....  Cashier............................................  ...........  ...........  ...........            4
540....  Voucher Examiner...................................  ...........  ...........  ...........            4
561....  Budget Assistant...................................  ...........  ...........  ...........            4
602....  Medical Officer (GS--Disability. Evaluation).......            4  ...........  ...........  ...........
930....  Hearing Officer....................................           4n  ...........  ...........  ...........
962....  Contact Representative.............................          4nH                                       
963....  Legal Instruments Examiner (Fiduciary Accounts)....           4s  ...........  ...........  ...........
996....  Veterans Claims Examiner (Case Manager)............            4  ...........  ...........  ...........
998....  Claims Clerk (Case Technician).....................            4  ...........  ...........  ...........
1105...  Purchasing Agent...................................  ...........  ...........  ...........            4
1165...  Loan Assistant (Realty)/Specialist.................  ...........            4  ...........  ...........
1170...  Realty Specialist..................................  ...........            4  ...........  ...........
1171...  Appraiser..........................................  ...........            4  ...........  ...........
1715...  Vocational Rehabilitation Specialist...............  ...........  ...........            4  ...........
1801...  Education Compliance Survey Specialist.............           4s  ...........  ...........  ...........
1801...  Education Liaison Representative...................           4s  ...........  ...........  ...........
1801...  Field Section Supervisor...........................           4s  ...........  ...........  ...........
2005...  Supply Clerk.......................................  ...........  ...........  ...........  ...........
----------------------------------------------------------------------------------------------------------------
LEGEND                                                                                                          
4=Found in Business Line.                                                                                       
5=Field Position in VBSD.                                                                                       
H=Medical Center/Outreach Field position in VBSD.                                                               
n=Front office position in VBSD.                                                                            
    The NYRO is part of the Veterans Benefits Administration and has 
four business lines--Veterans Benefits, Veterans Homes, Veterans Jobs, 
and Support. It serves 1.2 million veterans in 31 counties and 
distributes over $52 million in benefits every month. Its operating 
budget is $17 million.
    As of September 30, 1995, the NYRO employed 340 people in 36 
occupational series. Their grades ranged from GS-3 to GS-15 while one 
position was in the Senior Executive Service (SES) (See Figure 1). Of 
these employees, 33.5% were veterans. Disabled veterans accounted for 
10% of the veterans employed; Vietnam veterans accounted for 20.4% of 
the veterans employed.
    In the NYRO, 48.7% of the employees were women, 12.8% were people 
with disabilities and 53.7% were minorities. The minority 
representation was: 36.5% African Americans; 14.6% Hispanics; 2.3% 
Asian Pacific Islanders; and .3% Native Americans. The minority 
representation is significant, since it reflects the veteran population 
in New York City. The following chart depicts the number of employees 
in each series at the VA New York Regional Office as of September 30, 
1995.

               Figure 2: NYRO Series Distribution 9/30/95               
------------------------------------------------------------------------
 Number   Series                           Title                        
------------------------------------------------------------------------
9......      180  COUNSELING PSYCHOLOGIST                               
4......      201  PERSONNEL MANAGEMENT SPEC./OFFICER                    
1......      203  PERSONNEL ASSISTANT                                   
12.....      303  PROGRAM SUPPORT CLERK/ASSISTANT                       
10.....      305  FILE CLERK/MAIL CLERK                                 
             318  SECRETARY (OA) (STENOGRAPHY/OA)                       
             322  CLERK-TYPIST                                          
             326  OFFICE AUTOMATION CLERK                               
7......      334  COMPUTER SPECIALIST                                   
2......      340  DIRECTOR/ASSISTANT DIRECTOR                           
1......      341  ADMINISTRATIVE OFFICER                                
2......      342  SUPPORT SERVICES SPECIALIST/SUPERVISOR                
4......      343  PROGRAM ANALYST                                       

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3......      344  MANAGEMENT ASSISTANT (ANALYSIS)                       
1......      350  COPIER/DUPLICATOR EQUIPMENT OPERATOR                  
1......      392  TELECOMMUNICATIONS ASSISTANT                          
3......      503  ACCOUNTS RECEIVABLE ASSISTANT                         
3......      503  FISCAL ACCOUNTS CLERK/SUPERVISOR                      
2......      510  ACCOUNTANT                                            
1......      511  AUDITOR                                               
1......      525  ACCOUNTING TECHNICIAN                                 
1......      530  CASHIER                                               
1......      540  VOUCHER EXAMINER                                      
1......      561  BUDGET ASSISTANT                                      
2......      602  MED OFFICER (GS-DIS EVAL)                             
6......      930  HEARING OFFICER                                       
9......      962  CONTACT REPRESENTATIVE                                
5......      963  LEGAL INST EXAMINER (FID ACCTS)                       
143....      996  VETERANS CLAIMS EXAMINER                              
58.....      998  CLAIMS CLERK                                          
1......     1105  PURCHASING AGENT                                      
9......     1165  LOAN ASSISTANT/SPECIALIST (REALTY)                    
3......     1170  REALTY SPECIALIST                                     
4......     1171  APPRAISER                                             
3......     1715  VOCATIONAL REHABILITATION SPECIALIST                  
2......     1801  ED COMPLIANCE SURVEY SPECIALIST                       
1......     1801  EDUCATION LIAISON REPRESENTATIVE                      
------------------------------------------------------------------------

    The Detroit Regional Office is also part of the Veterans Benefits 
Administration and has three primary business lines--veterans benefits, 
home loans and job rehabilitations--as well as a support activity. The 
Detroit Regional Office serves over .95 million veterans in the State 
of Michigan and distributes over $38.6 billion in benefits every month. 
The operating budget is $11.8 billion.
    As of September 30, 1995, the Detroit Regional Office employed 269 
people in 35 occupational series. Their grades ranged from GS-3 to GS-
15 with one position in the Senior Executive Service. Of these 269 
employees, 34.8% were veterans. Disabled veterans accounted for 10.6% 
of all employees or 30.5% of all veteran employees; Vietnam veterans 
accounted for 28.2% of all employees and 81.1% of the veterans 
employed.
    In the Detroit Regional Office, 54.7% of employees are women. 
Eleven percent are people with disabilities and 50.3% are minorities. 
The following ethnic distribution existed: African Americans--48.7%; 
Hispanics--.08%; Asian Pacific Islanders--.04%; Native Americans--.04%. 
The minority representation reflects the population in the Detroit 
metropolitan area. The following chart depicts the number of employees 
in each series at the VA Detroit Regional Office as of September 30, 
1995.

    Figure 3: VA Detroit Regional Office Series Distribution 9/30/95    
------------------------------------------------------------------------
 Number   Series                           Title                        
------------------------------------------------------------------------
5......      180  COUNSELING PSYCHOLOGIST.                              
1......      201  PERSONNEL OFFICER.                                    
1......      235  EMPLOYEE DEVELOPMENT SPECIALISTS.                     
1......      301  OFFICE SYSTEMS MANAGER.                               
8......      303  CLERK/PROG SPT CLK/PROG SPT ASSISTANT.                
3......      303  PROG SPT CLK (OA)/PROG SPT ASSIST (OA).               
12.....      305  FILE CLERK/MAIL CLERK.                                
7......      318  SECRETARY (OA).                                       
13.....      326  OFFICE AUTOMATION CLERK/ASSISTANT.                    
2......      334  COMPUTER SPECIALIST.                                  
2......      340  DIRECTOR/ASSISTANT DIRECTOR.                          
3......      343  MANAGEMENT ANALYST.                                   
2......      357  CODING CLERK.                                         
2......      501  FINANCE OFFICER/ASSIST FINANCE OFFICER.               
3......      503  ACCOUNTS RECEIVABLE ASSISTANT.                        
3......      503  FISCAL ACCOUNTS CLERK.                                
2......      510  ACCOUNTANT.                                           
6......      525  ACCOUNTING TECHNICIAN.                                
1......      530  TELLER.                                               
1......      561  BUDGET ASSISTANT (OA).                                
1......      602  MED OFFICER (GS-DIS EVAL).                            
9......      905  GENERAL ATTY (VETERANS).                              
2......      930  HEARING OFFICER.                                      
1......      950  PARALEGAL SPECIALIST.                                 
34.....      962  CONTACT REPRESENTATIVE.                               
5......      963  LEGAL INST EXAMINER (FID ACCTS).                      
2......      986  LEGAL CLERK/ASSISTANT (OA).                           
1......      990  CLAIMS EXAMINER.                                      
74.....      996  VETERANS CLAIMS EXAMINER.                             
16.....      998  CLAIMS CLERK.                                         
19.....     1165  LOAN ASSISTANT/SPECIALIST (REALTY).                   
1......     1170  REALTY OFFICER.                                       
5......     1170  REALTY SPECIALIST.                                    
4......     1171  APPRAISER.                                            
6......     1715  VOCATIONAL REHABILITATION SPECIALIST.                 
2......     1801  ED COMPLIANCE SURVEY SPECIALIST.                      
9......     1801  FIELD EXAMINER.                                       
2......     2005  SUPPLY TECHNICIAN.                                    
------------------------------------------------------------------------

(F) Union Involvement

    The American Federation of Government Employees (AFGE) Local 138 
represents employees at the Detroit Regional Office, while AFGE Local 
1151 represents employees at the New York Regional Office. The Regional 
Offices are continuing to fulfill their obligations to consult and/or 
negotiate with the AFGE Locals in accordance with 5 U.S.C. 4703(f) and 
7117. The participation with the Locals is within the spirit and intent 
of Executive Order 12871.
    AFGE Local 1151 in the New York Regional Office has been involved 
with and has participated in the development of the project since its 
inception. As the Detroit Regional Office has become part of the 
project, Local 138 has also played an active role. The unions are an 
integral part of the demonstration project and will be full partners in 
the project.
    The demonstration project will have a steering committee. In line 
with the Partnership Agreement, the unions will be represented on the 
Policy Board, local steering committees and any standing committees 
involved in the demonstration project.

G. Project Design

    The demonstration project request is the result of a change process 
that the NYRO began 5 years ago. The NYRO is an example of the type of 
transformation process that VBA has encouraged. Furthermore, since it 
has been designated as a NPR reinvention lab and as a GPRA pilot site, 
VBA has used the NYRO to develop and test new ways of doing work and 
providing service to veterans and their families. Five distinct phases 
mark the NYRO's change process: Total Quality Management, the White 
House Study, NPR, GPRA, and the Interim Compensation Committee. Each 
phase is described below.
(a) Total Quality Management (TQM) (1990-92)
    The following excerpt from ``REINVENTION: History and

[[Page 58946]]

Guidebook'' explains what the quality efforts had done for the NYRO by 
1992.
    They had trained over 83% of their workforce in the principles and 
mechanics of quality improvement and had established over 27 quality 
improvement teams to study and enhance their services. A cultural shift 
moved prevailing attitudes from ``It's always done this way.'' to ``Why 
do we do things this way?'' Moreover, supervisors and managers had 
begun to change their leadership behavior from a ``command and control 
style'' to a more facilitating and coaching approach.* * * Employees 
kept up with a 23% increase in workload caused by a rise in the number 
of rules and procedures due to recent Court of Veterans Appeals (COVA) 
decisions and the results of the Omnibus Budget and Reconciliation Act.
    While the NYRO saw improvements, COVA and the Omnibus 
Reconciliation Act had complicated the claims process. It now took 
almost twice the time to process claims. Something more than 
incremental improvement was needed if the NYRO wanted to continue to 
improve service to its customers--veterans and their families.
(b) The White House Study (1992-1993)
    When the White House in conjunction with the Office of Management 
and Budget (OMB) began a special, three-year study to see how well 
quality improvement efforts could improve customer service, the 
Department of Veterans Affairs selected the NYRO as one of the 
participants. For this study, the NYRO decided to reengineer claims 
processing. The NYRO used an Organizational Systems Design (OSD) Model 
for its redesign effort. This model (Figure 4) was a ``framework'' that 
helped organize the NYRO's thinking about how its organization 
functioned. The model helped the NYRO:

--Focus upon desired outcomes, or results;
--Recognize the impact of the external environment upon the 
organization;
--Understand the choices it could make about its mission, guiding 
principles, influence strategies, goals and objectives and 
organizational systems.

BILLING CODE 6325-01-P

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[GRAPHIC] [TIFF OMITTED] TN19NO96.000



BILLING CODE 6325-01-C

[[Page 58948]]

    The design process required the NYRO to align all its 
organizational choices to its outcomes. The NYRO began with its work 
processes.
    After one year of looking at technical and structural systems, it 
fundamentally redesigned the way it did its work with a case manager 
approach to claims processing that used self-directed work teams. It 
took 25% of its workload and established the Prototype Unit in 1993.
(c) National Performance Review (1993 to the present)
    In 1993, Vice President Al Gore began his work with the NPR. The 
Department of Veterans Affairs nominated and the NYRO was designated an 
NPR reinvention lab.
    The NYRO had begun its work by reviewing its technical and 
structural systems. On the basis of its analysis, it redesigned its 
workflow and its structure and decided to use self-directed work teams 
and a case manager approach to claims processing. On March 11, 1994, 
Vice President Al Gore presented the first National Performance Review 
Hammer Award to the New York Regional Office. The NYRO Reinvention Lab 
received the award for its efforts in improving customer service. The 
Hammer Award recognized a measurable improvement in customer service. 
The national standard for customer service required Regional Offices to 
see veterans in 30 minutes; the waiting time had dropped to under 3 
minutes.
(d) Government Performance and Results Act (GPRA)
    The OSD model focused the NYRO upon outcomes and measures. As a 
result when VA began looking for a pilot site, the NYRO was a logical 
choice. The NYRO was committed to the OSD model and wanted its outcome 
measures to tell the organization how well it was serving veterans. 
Becoming a GPRA pilot site enabled the NYRO to focus upon its 
information and measurement systems. As a result, as soon as the NYRO 
had completed reengineering its technical and structural systems, it 
began a one year effort to develop new organizational performance 
measures. The old information and measurement systems had VA Central 
Office, OMB, Congress and the General Accounting Office (GAO) among its 
stakeholders. The new information and measurement system added 
customers (veterans and their families), employees, and taxpayers to 
the list of stakeholders. The new core measures are:
    Speed, a modification of the old Timeliness standard,
    Accuracy, a modification of the old Quality measure,
    Customer-based measures, a new measure supporting the Secretary's 
Putting
    ``Veterans First'' initiative and the National Performance Review,
    Employee development measures, a new measure supporting 
organizational learning, and
    ``Cost-per-claim,'' a unit cost measure that replaced Productivity.
    The NYRO considers all measures in its ``Balanced Scorecard'' 
approach and will use them to drive Regional Office planning. (See 
Appendix A for a detailed description of the measures.) The ``Balanced 
Scorecard'' has become the focal point of assessing how well the NYRO 
is serving veterans and their families. The core measures found in the 
scorecard drive the station's performance. Furthermore, VBA has adopted 
the core measures for nationwide use.
    The core measures help define the business and clearly explain what 
the NYRO feels is important. This new way of doing business emphasized 
for the NYRO why the human resource systems needed to be aligned with 
the organization's new measurement system. The lessons learned in the 
NYRO GPRA Pilot Program showed that the current pay system had no 
relationship to organizational performance. The current compensation 
system was position-based and did not fit an organization where 
teamwork, learning new skills and collaboration were essential.
(e) The Interim Compensation Committee
    As part of the reengineering effort, the NYRO had combined numerous 
positions into two: Case Manager and Case Technician. While this change 
was made, issues involving advancement, growth and development in the 
new work environment had not been addressed. The NYRO formed the 
Interim Compensation Committee (ICC) that included representatives from 
the teams and the union to look at this problem. The Committee 
developed an Interim Compensation System that established core skills, 
skill blocks and the combination of skill blocks that the team members 
would need to demonstrate before being promoted. They also had 
developed a certification procedure for promotion.
    The ICC's work was recognized in May 1995 when the committee 
received a National Performance Review Hammer Award. What is most 
significant about this effort is that it was driven by the 
organization's needs and is so clearly tied to the NYRO's 
organizational outcome measures.
    The ICC results also made it very clear that the NYRO needed to 
request demonstration status from OPM to align its human resource 
system with its organizational goals and culture.

III. Personnel System Changes

A. The Human Resource Process

    ``Ultimately, the results HRM processes achieve must be synonymous 
with organizational success. Recent studies in the private sector have 
established a linkage between progressive HRM practices and the firm's 
financial performance. These findings make a strong case for HR to 
concentrate its efforts on those activities that add value to 
organizational performance.''
    The above quotation from the study, Innovative Approaches to Human 
Resources Management: Implementing Real Change in Human Resources 
Management, published by the National Academy of Public Administration, 
July 1995, clearly explains why it is essential to align human resource 
systems to organizational outcome measures. Human resource systems 
exist because customers and employees, who deliver service to 
customers, exist. The human resource systems must support the 
organizational outcome measures and add value to the benefits and 
services VBA provides veterans and their families. The project proposal 
identifies basic principles and operating guidelines as well as options 
the Regional Offices may use. The demonstration project process will be 
evolutionary and flexible so it will be able to support changing 
organizational, employee and customer needs and expectations. The 
demonstration project will refer to team and team members, but to add 
flexibility to the offices involved in the project these terms can also 
be applied to work unit and work unit members.
    The human resource process has three stages: The Entrance Stage 
that brings employees into the organization and introduces them to its 
mission, vision, values and culture; the Maintenance and Support Stage 
that includes everything that sustains, develops, and focuses employees 
upon serving veterans and their families and meeting its organizational 
outcome measures; and, the Exit Stage that deals with issues affecting 
employees leaving the organization.
    The following chart provides another explanation of the human 
resource process and a more complete

[[Page 58949]]

explanation of each step of the process follows:

Demonstration Project Human Resource Innovations

Entrance Stage

    Selection and Placement
    Orientation and Assimilation

Maintenance and Support Stage

Role Description
The Compensation System
    Skill-Based Pay
    Variable Pay
Organizational Performance Management
Learning
    Performance Feedback
    Learning Contract
    Recognition

Exit Stage

    Reduction-in-Force
    Exit Interviews

B. Entrance Stage

Selection System
    The Regional Offices will use a selection process for both external 
and internal candidates that is aligned to the organization's measures 
and values and that will include core competencies needed to 
successfully function in a customer service environment. The basic 
principles and the operating guidelines for the selection system are:
    (a) The selection process will focus on hiring individuals 
committed to serving veterans and their families; (b) The selection 
process will use organizational values in establishing competencies for 
its business lines; (c) The selection process will follow Merit System 
Principles and apply veterans' preference; (d) Team, or work unit, 
members will be fully involved in selecting future members; and (e) All 
procedures developed will be streamlined, customer-focused and cost 
effective, keeping administrative costs at a minimum.
    Instead of the traditional occupational series, the selection 
system will place people in business lines which are Veterans Benefits, 
Veterans Homes, Veterans Jobs and Support. Selections for the business 
lines will be based on the core competencies and the knowledge, skills 
and abilities needed for those business lines. All applicant sources 
will be used to ensure that the Regional Offices find the best 
qualified candidates who are able to serve veterans in a team 
environment.
    The process will use a rating mechanism that will assess the 
experiences and ability of the applicants to provide veterans and their 
families with excellent service. The process will identify the 
necessary and desirable job-related knowledge, skills and abilities 
which support the organization's goals and values. The process will 
then assess how well candidates meet those requirements, using a review 
of individual applications and one or more of the following tools: (a) 
A structured interview process involving members that will use 
organizational measures and values as the anchors for the interview 
process; (b) An interview or assessment process that will focus on core 
competencies, such as communications, customer service, flexibility and 
innovation, which are the people and business skills critical for 
quality customer service; (c) An assessment process to determine the 
applicant's ability to work on a team providing service to veterans and 
their families; (d) Teamwork and partnership involvement in the 
selection process; and (e) A pre-appointment visit to a team for 
external applicants to help them understand what it is like to work on 
a team.
    This assessment process would serve several purposes: (a) The 
applicants would get an idea of what it is like to work on a team; (b) 
It would provide a way to rate applicants based on concrete situations; 
and (c) Team members would own the process and have a stake in the 
quality of the candidates selected.
    The assessment process would be used for all external hires to the 
team. The Regional Offices will have the option of having examining 
authority delegated to them.
    Selection for coach and leadership will require a special, 
competitive selection process. All coach and leadership positions will 
require the use of an assessment process that will evaluate the 
individual's ability to provide leadership in a team environment and 
will assess the applicants on how well they can serve in the leadership 
role. The leadership roles include: coach, facilitator, process 
champion, and organizational strategist.
Orientation and Assimilation
    Veterans and their families are the reason VA exists. Working in a 
team environment that is customer-focused requires a special degree of 
commitment and caring from the employees involved. For this reason, an 
orientation to the organization's unique mission, vision, values and 
organizational outcome measures and goals is essential.
    Upon joining the Regional Office and one of its business lines, the 
new team or work unit member will be required to undergo an orientation 
and assimilation program that will include: (a) The Mission and Vision 
of the Department of Veterans Affairs and the partnerships existing 
within organizational components of VA; (b) The Mission and Vision and 
Values of VBA and the Regional Offices; (c) The History of VA and 
Veterans Benefits; (d) Veterans Awareness--An Overview of the Concerns 
and Needs of Veterans; (e) The Balanced Scorecard or a Similar 
Organizational Tool--The Core Measures and How to Contribute to the 
Success of the Organization; (f) The Team, or Work Unit, Member's Role 
in the Organization; (g) An Overview of the Human Resource Process 
Supporting the Team or Work Unit Member; (h) The Compensation System--
Pay for Applied Skills and Variable Pay; (i) Learning Contracts and 
Skills Acquisition; (j) Diversity, Sexual Harassment and Other Required 
Training; (k) The Union and Partnership; and (l) Team Skills.
    The new team member will have a learning contract developed that 
will identify the training he or she will receive and will have a peer 
trainer, or mentor who will help the new person with the transition 
into the organization and the team environment.

C. Maintenance and Support Stage

Role Description
    Every team member should understand how he or she works on a team 
that is customer focused and how he or she contributes to 
organizational outcome goals, to service delivery and to the 
organization and the team. The purpose of a role description is to 
focus on the customer rather than upon control and authority. Teams 
will develop the role descriptions and review them during their renewal 
meetings that are held semi-annually to assess progress and establish 
organizational, team and self-development goals for the year. The role 
description will include: (a) the customer--veterans and their 
families; (b) the process used to provide service; and (c) the measures 
and values of the organization.
    The following chart identifies questions to be answered by the role 
description:

Questions the Role Description Will Answer

Customer Profile

    Who are your customers?
    What do they need or want?

Capability Profile

    What is necessary for you to perform these functions at an optimal 
level (primary capabilities)?

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Resource Profile

    From whom do you receive resources (e.g., Materials, information, 
money, etc.)?
    What do they provide you?

Value-Added Profile

    How do you utilize these resources to serve your customers (i.e., 
Primary accountabilities)

Team Profile

    How do you know if you are supporting your team?
    What do you have to do to serve your customers?

Performance and Capability Profile

    How do you know if you are performing your services well (i.e., 
primary performance measures)?

Skill Block Profile

    What skill blocks are needed for this role?
    The role description will help the team member understand how he or 
she supports organizational performance.
Compensation System
    ``If you develop skills we need, apply them in ways that help the 
organization succeed and behave in accordance with organizational 
values, the organization will provide a challenging work environment, 
support worker development toward employability and reward 
contribution.'' Peter Drucker, Post-Capitalist Society.
    The total compensation or pay system is an important indicator of 
what an organization believes is important to its success. A well-
designed compensation system provides a battery of tools to support 
organizational goals and outcomes. The design should be strategic, 
flexible, nimble and customer-focused. The current compensation system, 
because it was implemented in a piecemeal fashion for a hierarchical, 
functional organization, does not relate to emerging business needs and 
is static, cumbersome and hidebound. The demonstration project will 
test a compensation system that is able to change based on the needs of 
the entire organization, of the taxpayer and of the customer being 
served.
Parts of a Compensation System
    A compensation system consists of base pay, variable pay and 
indirect pay. Since indirect pay covers employee benefits such as 
retirement and insurance which statute excludes from demonstration 
projects, indirect pay will not be included in the demonstration 
project. The demonstration project will cover only base pay and 
variable pay as defined below:
    (a) Base pay is a set salary and focuses on the strategic value of 
the skills an individual learns and applies in support of the 
organizational outcome measures.
    (b) Base pay initially will only include a Pay for Applied Skills 
System.
    (c) If the demonstration project develops the necessary 
organizational maturity and ability to work in an environment where 
organizational outcome measures are the focus of every member, the 
project will design and implement a phase that will be a ``Pay at 
Risk'' option for handling annual pay adjustments. This addition will 
provide employees an opportunity to increase their base pay by all or 
part of the annual adjustment only if the organization is successful. 
Base Pay at Risk will be another tool considered for the organization 
to use. It will help the entire organization develop and practice the 
behaviors needed to be successful and strategically focused. Until this 
innovation is adopted, employees will be entitled to the full general 
increase.
    (d) Variable pay which includes incentives, bonuses, gainsharing 
plans and goal sharing plans ``* * * is any form of direct pay that is 
not folded into base pay and that varies according to performance.'' 
(Schuster & Zingheim, 1992). Funding will come from the traditional 
awards funding process, but a later phase of the project may use funds 
following a gainsharing formula based on savings that may be used to 
support payouts based on meeting projections identified through a 
goalsharing plan.
    Both base pay and variable pay will focus upon the organizational 
outcome measures. The proposal includes options for both base pay and 
variable pay which the Regional Offices may use during the project.
Overview of Base Pay
    For the demonstration project, base pay will include the following:
    (a) Pay for Applied Skills is the foundation of the compensation 
system. It is a skill-based pay system that will pay employees for the 
skills they learn and use to support the mission of providing benefits 
and services to veterans and their families. It will set a value on the 
skills based on their strategic use and impact upon providing benefits 
and services to veterans.
    (b) Base Pay at Risk is base pay that varies based on 
organizational performance. The project includes an option to implement 
Base Pay at Risk. It is not part of the project's initial 
implementation but may be considered for use later in the project. This 
could involve using the annual pay adjustment under 5 U.S.C. 5303, or 
part of this increase, as part of an incentive strategy tied to 
accomplishment of organizational goals. It is another tool that a 
mature organization can use to help shape its strategic organizational 
behavior.
Overview of Pay for Applied Skills
    Pay should reflect and support what is important to the 
organization. In a skills-based pay system, skills and competencies a 
person learns determines that person's pay. In a Pay for Applied Skills 
System, the skills and competencies a person learns and uses become the 
basis for pay. A Pay for Applied Skills System aligns very well with 
VBA's organizational outcome measures and, in particular, those 
measures dealing with employee development. In addition, since a Pay 
for Applied Skills System works well in a high employee involvement 
organization, the structural and organizational systems adopted or 
being adopted in the Regional Offices also will fit this type of 
change.
Pay for Applied Skills--General Features
    Pay for Applied Skills will be base pay. The following are its 
basic principles and operating guidelines. When implemented, it will: 
(a) Pay employees for the skills that they have acquired and used, and 
that have been certified; (b) The number of employees that may be 
certified (concurrently) for each skill block and groups of skill 
blocks will be based on employees' ability to learn and apply the 
skills and on mission requirements (e.g., organizational goals, 
workload) and may change over time as conditions warrant; (c) Include a 
certification process to verify acquisition and application of skills; 
(d) Be tied to organizational planning through the employee development 
measures; (e) Provide flexibility to respond to changing work 
requirements at the Regional Offices; (f) Provide leadership skill 
blocks that will emphasize the importance of leadership in a flattened 
organization and that will provide a bridge between these skills and 
the skills found in the business lines; (g) Involve employees in the 
development of the compensation system; (h) Provide the options of a 
temporary payment (differential pay) for skill blocks when the 
organization knows the use of a skill is not permanent (e.g., a team 
member could receive differential pay for instructing); (i) Allow 
employees to understand how learning and applying the skills they learn 
can affect their pay; (j) Focus upon

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keeping administrative costs at a minimum, since cost is one of the 
organizational outcome measures and will be included in the project's 
evaluation plan; (k) Include a pay back period during which the 
employee will normally not receive training for the next skill block so 
that they can concentrate on fully mastering the new skill for which 
they have just been certified to pay back the organization for the 
investment it has made in their training. This does not apply to lump 
sum skill blocks. The length of time will be determined by the skill 
block's complexity; (l) Provide that the employee will, whenever 
possible, be given every opportunity to acquire, apply and be certified 
for a new skill block if the organization loses the need for an 
existing skill block due to such things as new legislation, a 
reorganization, loss of a function, or new technology. The situation 
described is a reduction-in-force (RIF) and the RIF procedures in Part 
III-D of this plan will apply.
    Skills and Competencies. The definition of skills and competencies 
for this demonstration project are as follows: (a) Skills are the 
technical, work, or process skills needed for the specific business 
line. In the Regional Offices, the four business lines are Veterans 
Benefits, Veterans Homes, Veterans Jobs, and Support. (b) Competencies 
are the people and business skills which are just as critical as the 
technical skills to quality customer service. These focus upon personal 
characteristics which an employee can develop and will need if the 
organization will be successful. These include such things as 
communications, flexibility, customer focus and team orientation.
    Skill Levels. Pay for Applied Skills will have three skill levels. 
Because of the nature of the skills involved, it may be possible for 
skills to be at only one level: (a) Fundamental Level--This level 
consists of skills that are used for the most basic, continuing 
assignments, or are those needed to progress to the proficient and 
expert levels, to begin moving towards self-management, and to develop 
as a team member; (b) Proficient Level--This level consists of skills 
that are essential for the business process and allow the employee to 
independently complete with speed and accuracy the full range of tasks 
and assignments needed for the business process involved and to 
function as a full team member; and (c) Expert Level--This level 
consists of skills needed for the most complex business processes and 
assignments and that demonstrate the ability to perform in a manner 
showing a complete knowledge of their concepts, principles, and 
applications. It also includes those skills needed for providing 
guidance, instruction and advice to others in all skill and competency 
areas.
    Skill Blocks. Skill blocks consist of skills: (a) Each block will 
focus on specific areas of expertise/knowledge needed to perform 
assignments; (b) Blocks (when appropriate) may fall into one of three 
skill levels (Fundamental, Proficient, and Expert) based on the 
complexity and scope of the skills involved; and (c) The value of the 
skill blocks will be set by the organization and tied to the 
Organizational Measures dealing with employee development, (for 
example, in the NYRO, the Technical Skills Matrix will form the basis 
for the technical or work skill blocks). (d) The value of a skill will 
depend upon the organization's future need for the skill that such 
things as customer needs, stakeholder requirements, and changes in 
technology will help determine; and (e) An employee will receive Pay 
for Applied Skills when he or she has learned and applied all of the 
skills found in one or more skill blocks.
    Competency Block. Competency blocks consist of the people or 
business skills needed at each skill level. While the competency blocks 
have no monetary values assigned to them, employees must demonstrate 
the potential to acquire and use competencies before moving into each 
skill level. In New York, the Team Development Matrix and the 
Individual Needs Analysis Survey will help define competencies. In 
addition, employees must demonstrate the people or business skill 
identified for each competency skill block before advancing to the next 
skill level. For example, before advancing into the proficient skill 
level, an employee must have demonstrated the competencies listed under 
competency block C1.
    Skill Paths. Pay for Applied Skills may use skill paths to show 
progression and movement through the system. Skill Paths: (a) Show the 
options for acquiring skill blocks in the organization that will be 
based on the organization's needs and the employee's developmental 
needs, and as defined by its outcome measures; (b) Emphasize horizontal 
and lateral movement rather than the traditional hierarchical 
progression of career ladders; (c) Encourage flexibility in the ways 
employees acquire and learn new skills; and (d) Emphasize the 
importance of investing in the development of employees to help support 
the organization's performance and outcome measures.
    Leadership Skill Blocks. The leadership skill blocks will 
supplement the Business Line Skill-Based Pay Model by including 
positions formerly covered by the GS 14, Step 1 to GS 15, Step 10 pay 
range. They will provide a bridge to the Business Line Skill-Based Pay 
Model by linking with the coach skill blocks. Competitive procedures 
will be followed for movement into these skill blocks, since the 
organization will limit the number of individuals applying these skill 
blocks. As in the case of the coach skill blocks, a formal assessment 
process will be required also for the leadership skill blocks. The 
leadership skill blocks will continue to be critical to organizational 
success even as the organization becomes flatter and team members 
broaden their capabilities. The leadership skill blocks are based upon 
the Office of Personnel Management's Leadership Framework that covers 
traditional supervisory, managerial, and executive jobs.
    The leadership skill blocks provide the leadership skills that 
support the business lines. These skills are critical to the coach, 
facilitator, process champion and organizational strategist roles. The 
leadership skill blocks will include coaching, facilitation, change 
management, business management and organizational systems management. 
As with the skill blocks found in the Business Line Skill-Based Pay 
Model, the leadership skill blocks will be flexible and will change 
with organizational needs. However, movement into these skill blocks 
will be competitive, since the organization will limit the number of 
individuals applying these skill blocks.
The Business Line Skill-Based Pay Model
    The Business Line Skill-Based Pay Model is the basic model for the 
business lines. The model, shown in Figure 5, is a template that the 
New York Regional Office developed and will be applied to all the 
business lines, although the number of skill blocks may vary by 
business line. While the skills, competencies, and levels presently 
reflect those required to process and pay veterans claims, the same 
basic model with perhaps a different number of skill blocks will also 
be used to reflect the skills required for the Veterans Benefits, 
Veterans Home, Veterans Jobs, and Support Business Lines. The model is 
not static, but will change as skill blocks are added, deleted, or 
modified. In addition, the model may vary from Regional Office to 
Regional Office depending upon organizational needs.

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    The model also provides a bridge to the leadership skill blocks 
that replace the traditional supervisory and management functions. The 
pay range for the leadership skill blocks will be from GS 14, Step 1 to 
GS 15, Step 10, only to accommodate the few remaining managerial 
positions that still exist within the organization and to recognize 
that organizational needs may dictate the need for additional 
leadership skills.

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    Skill Blocks. Currently, the New York Regional Office's Business 
Line Skill-Based Pay Model consists of twenty-two skill blocks and 
three competency blocks: (a) Seventeen blocks are used for setting 
continuing base salary; (b) Fourteen of these skill blocks consist of 
technical skills. An employee's pay may increase as he or she acquires 
and demonstrates the technical skill blocks, assuming the skills are 
needed by the organization; (c) Three are competency blocks, which are 
people skills; and (d) The remaining eight skill blocks represent 
opportunities for lump-sum payments.
    As necessary, the number and the composition of the skill blocks 
may change to respond to organizational requirements or to reflect 
refinements in the Pay for Applied Skills System.
    The Levels. The seventeen blocks, used to set continuing base pay, 
are divided into three levels: (a) The Fundamental level. This first 
level consists of four blocks: one competency block and three technical 
skill blocks. Technical skills at this level enable employees to 
process mail, obtain evidence and maintain files. All four of these 
blocks must be mastered before advancement to the proficient level; (b) 
The Proficient level. This middle level consists of five blocks: one 
competency block and four technical skill blocks. Technical skill 
blocks include those skills essential to processing compensation and 
pension claims, making and documenting administrative decisions, and 
counseling veterans. Again, an employee must master all the blocks at 
this level before advancement to the next or expert level, and (3) The 
Expert level. This top level includes nine blocks: one competency 
block; and five skill blocks relating to the most complex functions of 
the claims adjudication process, (e.g., authorization or quality 
assessment and ratings or medical decisions).
    There will be a bridge from the coach skill blocks at the expert 
level to the leadership skill blocks. The leadership skill blocks will 
require competitive selection, and the use of these skill blocks will 
be restricted.
    Lump-Sum Blocks. The eight lump-sum blocks consist of skills 
required to perform tasks or functions which may last for a limited 
period of time or tasks which only one or two members of the team need 
perform in support of the team. The teams may rotate these functions or 
tasks periodically. This rotation will give all team members the 
opportunity to both gain the skills within the block and receive a one-
time payment for utilization of those skills. The one-time payment 
would be based on the monetary value of the block and the length of 
time the skills are applied.
    Pricing of Competency or Skill Blocks. The following guidelines 
will be followed for pricing competency and skill blocks: (a) The 
competency blocks will have no dollar values placed on them; however, 
acquisition of all the necessary competencies at any level will be 
required for advancement to the next higher level. For example, to 
advance to proficiency level, an employee must acquire all competencies 
at fundamental level, and (b) A monetary value will be assigned to each 
of the twenty-two skill blocks, based on its importance to the 
organization and its complexity. The value of skill blocks will be 
determined by several factors, including the demand for the skills, the 
difficulty of obtaining them, and the complexity of the tasks. 
Generally, the higher the level, the more valuable the skill block. For 
example, the expert level skills represent the most complex functions 
within the claims adjudication process.
    Pay Model Pricing. Excluding the leadership skill blocks, the pay 
range selected for the Business Line Skill-Based Pay Model as applied 
to the Benefits Line is GS-3, Step 1 to GS-13, Step 10. This range 
reflects the grades of those employees who will initially be covered by 
the demo (i.e., GS-3 to GS-13). The GS-3, Step 1 pay rate will serve as 
the floor of the model and GS-13, Step 10 will serve as the ceiling.
    The skill-based pay range (GS-3/1 to GS-13/10) for the business 
lines will be divided between the three levels and dollar values will 
be assigned to the various skill blocks based on organizational need at 
the time of conversion. The system will be modeled using one or two 
teams and assessing the skills of every team member and then applying 
the dollar values of the skill blocks to each team member to evaluate 
potential impact of the skill-based pay model on the employees and the 
organization. The skill block dollar values will be adjusted based on 
the results of the model and in consideration of the value of the skill 
block to organizational need.
    Skill Block Progression (General). As is mentioned in the previous 
paragraph, an employee must have mastered all the technical skill 
blocks and the competency block in one level before progressing to the 
next level. (NOTE: In very unusual circumstances to meet organizational 
needs, an employee who has not acquired all the skill blocks at a 
particular level may be asked to acquire a block at a higher level.) 
Additionally, certain skill blocks within the fundamental and 
proficient levels are prerequisites for other blocks at the same 
levels; however, both the proficient and expert levels permit more than 
one career path for progression among the blocks. Certification of 
skill possession in a block an employee is currently utilizing would 
result in a compensation increase equal to the dollar value of the 
skill block.
    Examples of Progression Through Skill Blocks. In Figure 6, the 
Progression or Skill Path Model, shows various options for skill 
acquisition and progression through the skill and competency blocks. 
The following are examples of how an employee will progress through the 
model.
    (a) New Recruit. Newly hired case managers would begin their 
progression at the fundamental level that includes three skill blocks 
B1, B2, and B3 and one competency block C1. While an individual 
organization may, based on its need, require the acquisition of the 
skills in one block before another, this is not a requirement at the 
fundamental level.

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    For example, an employee could begin with B1 (Mail, File and 
Control), B2 (Development), B3 (Transition), or C1 (Competencies). As 
indicated by the arrows, the new case manager could tackle the skills 
blocks in the order of his or her choice. The case manager would have 
to demonstrate all of the skills and competencies at the fundamental 
level before progressing to the proficient level.
    For entry into the proficient level, the employee must demonstrate 
the potential to perform all of the competencies listed under C2. At 
the proficient level, the employee could first undertake B4 
(Compensation and Pension) or B6 (Counseling). The skills described in 
B5 (Adjudication) would likely be more easily acquired after 
acquisition of the skills in B4. B7 (Counseling) requires a breadth of 
counseling skills not required by B6. B6 would, therefore, serve as a 
prerequisite for B7. The case manager would have to acquire and 
demonstrate the skills and competencies (C2) of the proficient level 
before progressing to the expert level.
    Again, Figure 6 shows the options for movement at the expert level. 
B8 (Quality Assessment) is a prerequisite for B9 (Advanced Quality 
Assessment). B10 (Medical Decisions) is a prerequisite for B11 (Medical 
Decisions) and B12 (Medical Decisions). While an employee could move 
into B13 after completing the proficient level, the move into B13 
(Coaching) would require an organizational need for someone to assume a 
coaching role, competition and a formal assessment. B13 is a 
prerequisite for B14 (Advanced Coaching). Movement into the leadership 
skill blocks would require competitive selection.
    (b) Current Employee. Placement for existing employees into the Pay 
for Applied Skills System will require an assessment of each employee's 
skill level. Credit for the skill block will only be granted when the 
employee possesses all of the skills listed for that skill block.
    For example, an employee worked as a Veterans Benefits Counselor 
for 3 years prior to 1993. In 1993, she was placed on a team and became 
a Case Manager. The employee previously possessed the skills described 
in B6 and B7. In the last three years, as a Case Manager, the employee 
acquired the skills in B1, B2, B3, B4, B5 and a portion of B8. The 
employee has demonstrated the competencies at the C1 fundamental level, 
but has not yet demonstrated them at the C2 proficient level. The 
employee is currently a GS-9.
    Upon transition into the Pay for Applied Skills System, the 
employee would receive compensation based on the value of B1 through 
B7. The employee would not be compensated for B8 until he or she 
possesses and demonstrates the competencies described by C2 at the 
proficient level and all of the skills for B8.
    (c) Transferred Employee. Employees transferring into the Pay for 
Applied Skills System would be assessed in the same manner as existing 
NYRO employees. The employee transferring into the NYRO would be paid 
for the skill blocks when all of the skills in the block are possessed 
and demonstrated, subject to organizational need. Sources of 
information could include in-depth team interviews, work samples and 
detailed input from previous supervisors.
Certification and Recertification Process
    The Pay for Applied Skill System will include a certification/
recertification process that will determine whether or not the employee 
has the skills required for a particular skill set.
    The certification process may include a variety of techniques that 
will take into consideration the growing complexity of skills needed. 
The certification process will reflect the skills identified in the 
employee development measures.
    General Principles and Operating Guidelines for Certification and 
Recertification: (a) The process will be developed with employee 
involvement and input in line with the Partnership Agreement; (b) The 
process will be linked to the learning plans developed by the teams and 
the organization; (c) Partnership principles will be key to the success 
of this process; (d) The process will adjust to changing organizational 
requirements as well as to the need of team members for development and 
advancement in terms of the breadth, depth, and lateral growth of 
skills; (e) The process will provide a systematic way to identify 
skills that are needed or no longer needed in the organization; (f) The 
process will provide a way to know whether or not the employee 
continues to use and maintain a skill or competency for which he or she 
had previously been certified; (g) Certification will be systematic and 
will use consistent and objective measures; (h) The process will make 
clear to employees the skills for which they are being paid; (i) 
Accountability and oversight will be at the team level; (j) Team review 
of performance could include determination of which skills are no 
longer needed; (k) The process will reflect the learning needs 
identified by the employee development outcome measures; (l) The 
certification process will be evolutionary and will move towards a mix 
of work samples, and peer reviews geared to the level of performance. 
An exploration of options is an important part of the project; (m) The 
certification process may use levels of difficulty or development to 
select assessment tools. These could be defined as follows:
    Expert--Peer reviews, work samples, joint work or interviews; 
Proficient--Peer review process using work samples, joint work, testing 
or interviews; and Fundamental--Self-Certification with peer 
concurrence; (n) Pay will increase only after the employee has 
acquired, used and demonstrated performance of the skills through the 
certification process; (o) An employee will not be able to undergo 
certification for the skill immediately after training. Pay for Applied 
Skills will establish specific time frames for certification based on 
the complexity of the skills involved and upon input from team members; 
(p) Organizational needs will help identify the need for skill block 
acquisition; (q) The opportunity to be certified for a skill block will 
be managed based on organizational need; and (r) Team members will help 
determine who within the team will receive training for new skills.
Special Circumstances in the Certification and Recertification Process
    (a) The situation where the organization no longer needs a skill 
and decides to discontinue a skill block, i.e., discontinue as no 
longer needed, is a Reduction-in-Force. The process found in Part III-D 
pertaining to Reduction-in-Force will be followed.
    (b) If the organizational performance review leads to the 
determination that an individual team member may have a performance 
problem, the certification process may be used to help determine 
whether or not the employee has maintained the skills he or she needs. 
The certification process will not replace the organization's 
responsibility to resolve a performance problem.
    (c) The certification process will help ensure that employees 
maintain the skills needed to provide benefits and services to veterans 
and their families. The certification process could be triggered by the 
peer assessment process or result from a coach review. If the employee 
is unable to be recertified for a skill for which he or she was 
previously certified and for which the organization has a need, the 
process described in the Organizational Performance Review Process 
under Part

[[Page 58957]]

III. Personnel System Changes will be followed.

Base Pay at Risk

    Base Pay at Risk will provide a tool to use organizational success 
as a way to increase base pay. This will occur only if the organization 
has shown success and has developed confidence in using variable pay 
incentives based on organizational outcome measures. It will include: 
(a) Using part of the annual adjustment under 5 U.S.C. 5303; (b) 
Involving all members in developing the formula used for the addition 
to base pay, and (c) No reductions in base pay.

    Note: Base Pay at Risk is an option that may be considered in 
the future, but is not part of the demonstration project's initial 
implementation.
Variable Pay
    Overview of Variable Pay. Variable pay will provide not only an 
organizational reward structure, but it will provide the organization 
with a way to compensate members for special skills needed to meet work 
and customer requirements. Variable pay is not base pay. It provides a 
one-time, lump-sum payment to an employee that is not included in base 
pay. For the demonstration project, variable pay will not only be used 
for incentives, but as a way to deal with special workload 
requirements, and as a bonus when appropriate for the acquisition of 
critical skills or competencies, or to meet other special 
organizational needs that may develop during the project.
    Variable Pay as an Incentive. As an incentive, variable pay will 
base awards on how well organizational goals are met and will include a 
form of goal sharing as an important component.
    Phase One will use team awards based on how well the core teams, or 
comparable group of work units, and the Regional Office achieve goals. 
This type of award is similar to the group awards currently authorized 
under existing law; however, the award structure will provide a way to 
provide greater payouts if the entire organization meets its 
organizational outcome goals.
    Phase Two will involve goalsharing. Goalsharing evolved from 
gainsharing. Goalsharing includes not only efficiency as seen in the 
speed measure, but effectiveness as seen in the customer service, 
employee development and cost measures. Unlike Phase One, goalsharing 
would be funded from savings, using a set formula and based on the 
``unit cost'' core measure. It would differ from Base Pay at Risk, 
since it would be a one-time payment and not be part of the employee's 
regular salary.
    Features of Incentive Variable Pay. Variable pay will provide an 
organizationally focused incentive structure tied to organizational 
measures and the ``Balanced Scorecard.'' Variable pay as an incentive 
will meet the following general principles and operating guidelines: 
(a) It will be Pay at Risk since payment will depend upon how well the 
organization meets its goals; (b) It will not reinforce competition 
between individual teams, but will use the core teams as the minimum 
unit for incentives. The payouts will occur at the core team level and 
up to the whole organization; (c) It could evolve from a group 
incentive system to a full goalsharing plan based on the accomplishment 
of organizational goals using a pre-determined formula. Team members 
will be involved in the development of the goalsharing plan as will the 
union partners; (d) Payments will be made for results related to the 
following organizational measures: Speed, Cost, Customer Based 
Measures, and Employee Measures; and (e) Accuracy is not used, since 
the organization wants to encourage employees to find errors. However, 
accuracy measures will be included as part of the Organizational 
Performance Review Process described in Section III of this plan.
    Variable Pay for Workload Flexibility. This option will provide the 
Regional Office with a way to use ``one-time'' lump-sum payments or a 
continuing differential pay to meet special organizational needs. These 
payments will not become part of base pay and will not become long-term 
costs. The following are examples of variable pay used to provide 
workload flexibility.
    (a) As a lump-sum payment, variable pay will provide a way to pay 
team members for rare skills not generally needed throughout the 
organization or needed infrequently. Employees could bid for work that 
the organization needs for short periods of time in order to meet 
special workload or customer requirements. This might include special 
projects or special field assignments.
    (b) As a lump-sum payment, variable pay could also be used to pay 
employees for new or developing skills identified by the organization 
until the continuing need for the skill is determined, and
    (c) Variable pay will provide a way to pay team members for work an 
organization needs to meet special work or customer requirements which 
are expected to last for a significant period but not become permanent 
work of the organization. An example would be a team member who 
functions as a coach during the absence of the regularly assigned coach 
because of long-term illness. It could also be used to compensate 
employees who serve as instructors on a major training effort.
Organizational Performance Management
    In October 1990, the General Accounting Office (GAO) issued the 
report, PERFORMANCE MANAGEMENT: How Well Is the Government Dealing with 
Poor Performers. GAO concluded that under the performance management 
system ``identifying and dealing with poor performers * * *'' was often 
``* * * a difficult and time-consuming task * * *'' and that it was ``* 
* * unfair to expect managers and supervisors to operate in an 
environment where identifying and dealing with poor performers tends to 
be much more difficult than it needs to be.''
    This GAO report dealt with performance appraisals in a traditional 
organization where each employee received an individual performance 
rating from his or her supervisor. While it was always assumed that the 
employee's performance standards were clearly tied to the 
organization's mission, the employee's ``line of sight'' between his or 
her work outcomes and those of the organization was often too great or 
too nebulous.
    GPRA provides an opportunity to improve the employee's ``line of 
sight'' to the organization's outcome measures. In an environment where 
teamwork is encouraged, valued and expected, the team, or work unit, 
sets goals based on the organizational outcome measures. Because each 
team member's ``line of sight'' is initially limited to his or her 
team, the team member will be able to understand more readily how his 
or her work affects the work of the entire organization.
    The demonstration project will test organizational performance 
management's link to individual performance and contribution by using 
data collected for the ``Balanced Scorecard,'' or similar 
organizational tool, and the continuous improvement process inherent in 
an environment where teamwork is encouraged. Organizational Performance 
Management is directly linked to and literally supports the 
compensation system. The basic principles and operating guidelines of 
organizational performance management are: (a) If the Regional Office 
does well, employees do well; (b) The organizational outcome measures 
are the focus of every member; (c) Every member of the organization is

[[Page 58958]]

responsible for contributing to the success of the organization; (d) 
Every member must understand and be able to explain how his or her 
performance contributes to the organization's success; and (e) Teams 
and coaches, or other organizational equivalents, will assess 
individual members in terms of contribution to the organizational 
outcome goals.
Organizational Performance Review Process
    Organizational performance management is a continuous process that 
goes on throughout the organization. In a traditional setting, 
information concerning an organization's performance and the process 
involved in setting and reviewing goal accomplishment is generally 
considered to be in management's purview. The demonstration project 
will utilize the process of ``Open Book'' management that was developed 
by the NYRO GPRA pilot site following its organizational system design 
model. This is a high involvement strategy that includes every employee 
in some aspect of collecting, reviewing, and assessing information 
about performance at all organizational levels. This process involves 
reviews at three levels, focuses upon the ``Balanced Scorecard,'' or 
its equivalent, and is data-driven. Since employee involvement is 
critical to the success of any organizational performance system, the 
Detroit Regional Offices will develop a system that will meet 
organizational needs and the general guidelines and operating 
principles of the project. The system developed by the NYRO that may be 
used as a model is outlined below.
    Regional Office Level Review. The Regional Office's progress is 
reviewed at weekly team goal meetings, at bi-weekly Director staff 
meetings, at quarterly reviews of the organization's Quality Plan, and 
at semi-annual renewal sessions. The ``Balanced Scorecard'' and the 
goals set in the Quality Plan support each other and focus everyone on 
improving service to veterans and their families.
    Team Level Review. The team will evaluate its own performance 
against the measures reflected in the ``Balanced Scorecard'' and will 
assess how well it is contributing to the success of the organization. 
The team not only works towards its own goals, but also works towards 
improving the success of other teams as well as the success of the 
entire organization.
    Team Review Process. Each team conducts weekly goal meetings during 
which the team assesses how well it met the weekly goals it had set for 
itself. Since the goals relate to the ``Balanced Scorecard,'' the 
organizational outcome measures, the team members understand how their 
work fits into the work of the entire organization at the Regional 
Office, division, and core team levels.
    The team review process provides each team member with specific, 
concrete data for the organizational outcome measures and the weekly 
goals the team sets to support the organizational goals. Since the 
discussion looks at the causes for meeting or failing to meet the 
weekly team goals, each team member develops a real sense of how he or 
she contributed to the outcomes the teams produced during the week. The 
process is designed to develop individual accountability and ownership 
for the outcomes being achieved with feedback from both the coach and 
the team members. The assessment requires specific responses that 
include corrective action or additional help. There is a consequence 
for every action that does not support organizational performance. In 
addition, each team member is expected to learn to prepare and present 
data at the team goal meeting. Each team member also has a role in 
determining the team's goal for the next week. Because organizational 
outcome data is reviewed and discussed weekly, the employee never loses 
sight of the organization's goals and mission and of the team's 
contribution to the core group, the division and the Regional Office. 
Following this process, performance management becomes organizational 
rather than individual.
    Team Member Level Review. The teams will also assess how each team 
member contributes to the achievement of the organizational measures. 
The assessment helps to determine the individual performance rating.
    Team Member Review Process. The team members will assess each other 
to determine how well each person is contributing to the achievement of 
organizational goals. The team will evaluate team members twice a year 
on such categories as: Output, Customer Service, Reliability, Team 
Support, and Accuracy.
    In offices with highly developed teams, team members will help 
define the behaviors for each rating level. An initial option will be 
to define the levels as follows:
    GREEN ZONE = Contributes to Achieving Organizational Goals
    AMBER ZONE = Needs to Improve Efforts to Meet Organizational Goals
    RED ZONE = Does Not Contribute to Organizational Goals
    Action Options Based on Team Member Ratings. Based on the ratings, 
these are the options for taking action ( See Figure 7--Peer Assessment 
Options).

GREEN ZONE

    The team member and coach will prepare a Learning Contract for the 
year. The Learning Contract will include developmental activities 
selected to strengthen the employee's skills and to increase the 
organization's ability to meet its goals.

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[[Page 58959]]

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[[Page 58960]]

AMBER ZONE--First Time in Amber Zone

    The coach, whose role is to move the team to self-direction, will 
discuss the ratings with the employee and counsel him or her on areas 
for improvement. This is important, since the Amber Zone is 
unacceptable. The coach will give the team member assistance to 
improve. The coach and the team member will develop a Learning Contract 
that will include developmental activities designed to help improve his 
or her contribution to the organization as well as to help his or her 
individual growth. The areas for improvement may include technical 
skills, or competencies. The following are possible activities: (a) 
Reading, (b) Special Team Assignment or Project, (c) Output Goals, (d) 
Formal Training, (e) Peer Training, (f) Specific Behaviors to model and 
practice; and (g) Assignment to a Mentor, or Peer Advisor.
    The team member and coach will determine the specific days they 
will meet to discuss how well he or she is meeting the goals set in the 
Learning Contract. This will help the team member set improvement goals 
for himself or herself.

AMBER ZONE--Second Time in Amber Zone

    If the team member goes into the Amber Zone for a second time in a 
calendar year, the team member automatically moves into the Red Zone.

RED ZONE

    If an employee is in the Red Zone, the coach will become more 
actively involved with the team member. As the flowchart, ``Review 
Process for `Red Zone' Assessments'' (Figure 8) shows, the action taken 
will vary with the category involved.

BILLING CODE 6325-01-P

[[Page 58961]]

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BILLING CODE 6325-01-C

[[Page 58962]]

    (a) If output, accuracy or customer service are involved, the coach 
will place the team member under a 90 day review using individual 
performance standards;
    (b) If team support is involved, the coach will help the team 
member identify improvement actions; or
    (c) If reliability is involved, the coach will discuss how the team 
member's behavior needs to improve and will closely monitor the team 
member's behavior.
    While a performance improvement plan will be used to document how 
the team member has to improve in the areas of output, accuracy and 
customer service, a learning contract could be used to document the 
actions the team member will take or the behavior the team member will 
practice to eliminate the problem. The Red Zone Action Chart (Figure 9) 
identifies the action to be taken, the documentation needed, and the 
possible consequences for these situations.

                                         Figure 9: Red Zone Action Chart                                        
----------------------------------------------------------------------------------------------------------------
                                                       90 Day review and                                        
                                                         standards and                        Action if there is
            Category                  Counseling          performance      Learning contract    no improvement  
                                                       improvement plan                                         
----------------------------------------------------------------------------------------------------------------
Output..........................  Yes...............  Yes...............  No................  Decertification or
                                                                                               Removal.         
Customer Service................  Yes...............  Yes...............  No................  Decertification or
                                                                                               Removal.         
Reliability.....................  Yes...............  No................  Yes...............  Discipline or     
                                                                                               Adverse Action.  
Team Support....................  Yes...............  No................  Yes...............  Reduced Variable  
                                                                                               Pay Amount.      
Accuracy........................  Yes...............  Yes...............  No................  Decertification or
                                                                                               Removal.         
----------------------------------------------------------------------------------------------------------------

    Out-of-Cycle Assessment. If at any time based on observation or 
team feedback a team member's performance or behavior does not meet 
team or organizational expectations, an out-of-cycle assessment may be 
done. Based on this assessment, corrective action, if required, will be 
taken.
    Appeal Process. Existing appeal rights to the Merit Systems 
Protection Board, the negotiated grievance procedure, or the 
administrative grievance procedure will continue for adverse actions. 
Decertification due to the inability to do a particular skill block may 
be appealable through an internal certification appeals process that 
will be established in line with the Partnership Agreement. In 
addition, the employee would have the right to appeal a decertification 
action to the Merit Systems Protection Board as a reduction in pay as 
provided for in 5 CFR Sec. 1201.3(a)(2).
Individual Performance Ratings
    All employees will receive an annual performance rating in terms of 
how well they contribute to and support organizational goals. The 
ratings will be pass or fail. Employees will receive a rating of pass, 
unless through the Organizational Performance Management System they 
receive a rating of fail or are unable to be recertified in the 
appropriate skills.
Learning
    Since employee development is one of the organizational outcome 
measures, learning is an important organizational activity. Learning is 
more than just classroom training; it involves feedback, goal setting, 
self-development activities as well as classroom and peer training. The 
general principles and operating guidelines for learning are: (a) Every 
person is accountable for his or her own development and growth; (b) 
Learning is tied to organizational goals and needs; (c) The 360 deg. 
feedback system will provide honest feedback from co-workers and will 
help define areas for improvement;
    (d) The organizational employee development measures form the basis 
of the organization's training plan; (e) Learning supports the 
certification and recertification process; and (f) To develop and 
implement a career development, education and training strategy that 
supports the organizational measures and values, the Learning process 
will include performance feedback and Learning Contracts.
    Performance Feedback. Performance feedback will provide all 
employees with information on their contribution to the organization's 
performance. It will also help them identify their training and 
developmental needs by pinpointing areas to strengthen and improve that 
they could include in their Learning Contracts. The system will use 360 
degree feedback from: (a) The Coach, (b) Peers, and (c) Customers.
    The feedback mechanism will help team members to identify learning 
objectives and could provide information on where to focus skill 
acquisition. It would also help focus the team members on team 
development. The performance feedback system is tied to learning.
    In addition, team members will participate in group feedback 
exercises during periodic training. The training will allow team 
members to practice and develop face-to-face feedback skills. It will 
include providing constructive feedback, reacting to feedback and 
improving listening skills.
    Learning Contract. Every team member will have a Learning Contract 
that will consider needs identified by the employee development 
measures, the performance feedback system and the Certification/
Recertification System. There will be learning activities identified 
for each skill block and each developmental level in the organization. 
Activities could include: (a) On-the-job assignments and reading 
assignments to support growth; (b) Formal training sessions that would 
support learning specific skills needed for development and growth; (c) 
Feedback and evaluation mechanisms to measure learning as it relates to 
the organization's goals and measures; (d) Mentoring to help support 
developmental efforts and to provide support and feedback as needed; 
(e) Individual learning plans that identify activities for which the 
individual team member will be accountable to meet learning objectives; 
(f) Team learning plans to identify the things a team will follow to 
foster team development; (g) Methods to reinforce personal 
accountability for learning; (h) Special Projects (HRM, Planning, 
Instructing, ADP, Public Relations, etc.); (i) Sabbaticals; (j) 
Exploring recognition/variable pay incentives that would supplement 
special learning activities; and (k) Team members will be accountable 
for learning and the organization will be accountable for fostering a 
learning environment.
    Recognition. Recognition activities provide team members and the 
organization with the opportunity to celebrate the successes of team 
members, teams and the organization. These efforts are often non-
monetary. The teams will help to determine the types of recognition 
efforts that will be used. The recognition efforts will support the 
organization's outcome measures. Based on the need and

[[Page 58963]]

purpose, this could consist of the following: (a) Organization wide 
celebrations; (b) Honorary Awards; (c) Special Group Awards; (d) Team 
Specific Individual Awards; (e) Core Team Specific Awards; (f) 
Suggestion Awards; (g) On-the-Spot Awards; (h) Special Developmental 
Opportunities; and (i) Time-Off Awards.

D. Exit Stage

Reduction-in-Force
    Reduction-in-Force (RIF) will be strategic and closely tied to 
organizational needs. While the current RIF process will remain 
essentially the same, the demonstration project will require 
adjustments to reflect skills, since positions will no longer exist.
    The basic principles and operating guidelines to be used for an RIF 
are: (a) Veterans preference will remain an important factor in the RIF 
procedure developed; (b) Employees will be assigned a role code 
relating to the role they play in the organization. For example, the 
roles in the NYRO's Veterans Services and Benefits Division are Case 
Technician, Case Manager and Coach. Role levels will replace the 
current competitive levels; (c) Keeping in mind that service to 
veterans is paramount, any RIF will be a strategic RIF focusing on 
organizational outcome measures. For this reason, the organization will 
use certified skills and competencies as key factors in establishing 
any retention register. The organization will identify the skills 
having the greatest value and assign to them greater points when 
establishing a retention register. For example, the Regional Office may 
need to retain individuals who are certified as having medical decision 
skills or development skills. The points designating the value the 
skills have in the organization will be published annually; (d) In an 
RIF, retention will be determined as follows:

--Tenure of Employment. Groups will be established for career, career-
conditional and all other employees.
--Veterans Preference. (Military preference subject to section 3501(a) 
of Title 5.) Sub-groups will be established for veterans having a 
compensable service-connected disability of 30% or more, all other 
preference eligibles, and all others.
--Performance Ratings, Core Group Rating, Skills and Competencies, and 
Length of Service will be used to establish the retention register 
scores. Credit for military service subject to section 352(a) (A) and 
(B) of title 5. The Retention Register Point Chart (Figure 10) provides 
information on the point system.

                                                       Figure 10.--Retention Register Point Chart                                                       
--------------------------------------------------------------------------------------------------------------------------------------------------------
                   Factor                                                                    Point system                                               
--------------------------------------------------------------------------------------------------------------------------------------------------------
       Individual performance rating                                               Pass--10 points; Fail--0 points                                      
--------------------------------------------------------------------------------------------------------------------------------------------------------
      Core group (as concept matures)                         Number of core groups                       One          Two         Three         Four   
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                             Met stretch goal.......................................            4            8           12           16
                                             Met station goal.......................................            2            4            6            8
                                             Did not meet goal......................................            0            0            0            0
Skill block certification                                                                                                                               
(4) Points Set Annually and Published                                                                                                                   
Length of service                                                                                                                                       
(4) 1 Point for Each Year Based on Service                                                                                                              
 Computation Date                                                                                                                                       
--------------------------------------------------------------------------------------------------------------------------------------------------------

    (e) To determine assignment rights between positions covered by the 
demonstration project and positions not covered by the demonstration 
project, grade level equivalents for groups of skills blocks will be 
used; (f) In an RIF, which could be either a reduction in the number of 
employees needed in a particular skill block or a reduction in the 
number of skill blocks needed by the organization, an employee will be 
offered when possible the opportunity to be trained in a new skill 
block that is equal to the skill block being lost. The employee would 
receive retained pay including the full amount of any general pay 
increase during the period of training. When the training is completed, 
the employee would have to go through the certification process to 
demonstrate he or she is able to apply the skill. If he or she is 
certified, he or she would be paid for the equivalent skill block and 
retained pay would end. If the employee fails to obtain certification, 
the employee will be placed on indefinite pay retention and will 
receive one-half of any general pay increase until such time as the 
``true'' rate equals or exceeds the retained rate of pay. (g) If an 
employee cannot be offered a skill block that is equal to the skill 
block being lost, but can only be offered a new skill block that is of 
lesser value, the employee would be given the opportunity to learn the 
new skill and to be certified for the application of the new skill 
block. During the period of training necessary to be eligible for 
certification in the new skill block, the employee will retain his or 
her existing rate of pay and the full amount of any general pay 
increase. If the employee passes certification, the employee will 
receive pay for that skill block. In addition, the employee will be 
placed on indefinite pay retention and will receive one-half of any 
general pay increase. If the employee fails to obtain certification, 
the employee will be placed on indefinite pay retention and will 
receive one-half of any general pay increase until such time as the 
``true'' rate equals or exceeds the retained rate of pay. (h) If an 
employee cannot be offered any skill block to replace the skill block 
lost, but is certified in skill blocks the organization still needs, 
the employee is entitled to indefinite pay retention and will receive 
one-half of any general pay increase until such time as the ``true'' 
rate equals or exceeds the retained rate of pay.
    In determining an involuntarily separated employee's entitlement to 
severance pay, the definition of ``reasonable offer'' applicable to 
employees covered by the demonstration project will be included in this 
section of the final plan that will be published in the Federal 
Register notice and provided for in VA's operating procedures for the 
demonstration project.
    Employees involved in an RIF would have appeal rights to the Merit 
Systems Protection Board. Employees would use the internal 
Certification Appeal process for all certification actions; this appeal 
process will be developed in line with the Partnership Agreement.
Exit Interviews
    Exit interviews are an evaluation tool that: (a) Will provide for 
the organization and the teams, feedback from individuals who are 
leaving the organization or the teams, and (b) Will help evaluate 
systems the Regional Office has put into place that affect customer 
service and employees.

[[Page 58964]]

    The process could include a survey that will ask employees who are 
leaving the organization or a team with feedback tied into 
organizational measures, team development, and individual development. 
Exit interviews could also provide assessments of the compensation 
system and the other supporting human resources systems in use in the 
organization.

IV. Training

    As part of the implementation process, all employees will attend an 
orientation session on the new Human Resource Process that will include 
demonstration project requirements, timeframes for phasing in segments 
of the project, an explanation of how the project will affect them, and 
future training requirements.
    To understand how the systems will affect them, employees will 
receive in-depth training on: (a) Pay for Applied Skills; (b) Variable 
Pay; (c) The Certification and Recertification Process; (d) 
Organizational Performance Management; (e) Learning Contracts; and (f) 
Performance Feedback.
    Employees involved in the certification process, peer training, 
mentoring or in the selection system will also receive in-depth 
training to help them understand their responsibilities.
    Coaches will receive training in mentoring and their 
responsibilities under the new systems.

V. Conversion

A. Conversion of Employees Into the Demonstration Project

    The following procedures are used for converting existing employees 
from the General Schedule (GS) system to the demonstration project's 
Pay for Applied Skills System. They address employees who are converted 
in place at the beginning of the demonstration project and also GS 
employees from other organizations who enter the project through 
lateral transfer or reassignment after the project is underway. No such 
employee will suffer a reduction in pay at the time of conversion into 
the project. If conversion into the demonstration project is 
accompanied by a geographic move, the employee's GS pay entitlement in 
the new geographic area will be determined prior to converting the 
employee into the project.
Skill Assessment
    Before being covered by the Pay for Applied Skills System, affected 
employees will undergo a skills assessment to determine which skill 
blocks and competencies they possess. On-board employees converting in 
place at the beginning of the project will be assessed 30 to 60 days 
prior to conversion as part of their pre-conversion training. The 
employee's base pay will be set based on this assessment. Employees who 
enter the project after initial conversion through transfer or 
reassignment either from within the demonstration project sites or from 
outside will have their skills assessed to determine their base pay 
when entering the project, subject to organizational need.
Pay Protection
    If the base pay of an on-board employee under the GS system 
immediately before conversion exceeds the base pay set by the skills 
assessment, the employee will be allowed two years to become certified 
in additional skills in order to justify his or her pay level at the 
time of conversion. The employee will continue to receive their 
existing base pay (pay continuation) and receive the full general 
increase during this two-year period. If at the end of the two-year 
period, the employee's rate of pay exceeds the base pay justified by 
the certification process, the employee will be placed on indefinite 
pay retention and will receive one-half of any future general pay 
increases until such time as the ``true'' rate equals or exceeds the 
retained rate.
    Employees who either lateral into the Pay for Applied Skills System 
or transfer from another organization after the initial conversion to 
the system will also undergo a skills assessment in order to determine 
their base pay. For those employees who lateral into the demonstration 
project from within Veterans Affairs, if the existing rate of basic pay 
exceeds the base pay rate set by the skills assessment process, the 
employee will be allowed two years to become certified in additional 
skills in order to justify his or her pay level at the time of 
conversion. The employee will continue to receive their existing base 
pay (pay continuation) and receive the full general increase during 
this two-year period. If at the end of the two-year period the 
employee's rate of pay exceeds the base pay justified by the 
certification process, the employee's pay will be reduced to the level 
that reflects the actual skills attainment. For those employees who 
transfer from another organization outside of the Department of 
Veterans Affairs, the organization will have the flexibility to provide 
pay continuation at its option.
Locality Pay
    Locality pay will be an add-on payment that will remain separate 
and distinct from the Pay for Applied Skills System. This will be 
consistent with the way in which locality pay is handled for employees 
under the General Schedule. As with GS employees, locality pay will be 
considered base pay for certain purposes but not for others as 
indicated in 5 CFR 531.606 (b).
Special Salary Rates
    Special salary rates will no longer be applicable to demonstration 
project employees. Upon entering the project -by conversion in place or 
by lateral reassignment or transfer-special salary rate employees will 
undergo a skills assessment, as provided above. To set a special rate 
employee's base pay (including pay continuation, if applicable), his or 
her GS pay must first be converted. The employee's initial base rate 
under the demonstration project is derived by dividing the employee's 
highest GS adjusted rate of pay (i.e., special rate or locality rate) 
by the applicable locality pay factor for the employee's official duty 
station. A full locality adjustment will then be added to the 
employee's new demonstration base rate. Thus, the employee's locality-
adjusted rate under the demonstration project will equal the employee's 
former highest GS adjusted rate of pay. Adverse action and pay 
retention provisions will not apply to the conversion process because 
there is no change in total salary. If the employee's converted rate of 
base pay exceeds the base rate set by the skills assessment, the 
employee will be allowed two years to become certified in additional 
skills in order to justify his or her pay level at the time of 
conversion. Any pay continuation or pay retention (as described in the 
preceding section) will apply to the converted base rate.
Step Buy-Ins
    For employees who are converted in place at the beginning of the 
demonstration project-- at the time of conversion, each converted 
employee will be given a lump-sum cash payment for the time credited to 
the employee toward what would have been the employee's next within-
grade (step) increase under 5 U.S.C. 5335. (See section VIII.B. for 
additional details.)

B. Conversion of Employees Out of the Demonstration Project

    If a demonstration project employee is moving to a GS position not 
under the demonstration project, or if the project ends and each 
project employee must be converted in place back to the GS

[[Page 58965]]

system, the following procedures will be used (prior to movement or 
conversion out of the demonstration project and any accompanying 
geographic movement, promotion, or other simultaneous action) to 
determine the GS grade and converted GS rates of pay (including any 
locality rate or special rate).

Grade Conversion

    When an employee is converting back to the GS system, the 
employee's GS-equivalent grade under the demonstration project at the 
time of conversion must be determined. The Pay for Applied Skills level 
and the skill blocks and competencies possessed by the employee will be 
used to determine the GS-equivalent grade. (See the Skill Block/Grade 
Conversion Table in section V.C.)
    For employees leaving the demonstration project for a position at 
another organization, the gaining organization may request a statement 
of comparison between demonstration project levels and corresponding GS 
grades to attach to their application. Eligibility for outside 
positions will be determined by the outside organization based on the 
information in the employee's application as is true in the GS system. 
The GS converted grade will be used in applying GS pay administration 
rules (e.g., promotion rules); it is not necessarily the grade the 
employee will have at the gaining organization.
    For conversions upon termination of the project and for lateral 
reassignments, the converted GS grade will automatically become the 
employee's GS grade.

Pay Conversion

    An employee's pay within the converted GS grade is derived by 
converting the project rates to GS pay rates (including locality rates 
and special rates, as applicable) before any geographic movement or 
other pay-related action that coincides with the employee's movement or 
conversion out of the demonstration project.
    To derive an employee's converted GS rates of pay--(a) If possible, 
the employee's demonstration project locality-adjusted rate will be 
slotted into the highest applicable GS locality rate range or special 
rate range for the employee's converted grade. If the employee's rate 
falls between step rates for the applicable range, it will be raised to 
the next higher step rate. The employee's GS unadjusted basic rate of 
pay (i.e., excluding locality payments or special rates) will be 
derived based on the grade and step associated with the converted rate. 
(b) If the employee's locality-adjusted rate under the project cannot 
be slotted into the range because it exceeds the maximum rate of the 
converted grade, it will be converted into a locality-adjusted GS 
retained rate, from which the base retained rate will be derived.
    After conversion, the employee's converted GS rate is used in 
applying GS pay administration rules, as necessary--e.g., promotion, 
maximum payable rate determinations, pay retention. For conversions 
upon termination of the project and for lateral reassignments, the 
converted GS rates will automatically become the employee's GS rates.

C. Skill Block/Grade Conversion Table

    Skill Based Pay places emphasis on the skills and abilities of the 
individual rather than the duties of a position. However, the skills 
described in the skill blocks in combination with the tasks which would 
typically be assigned, given the skill level of the employee, may be 
assigned a grade in the traditional sense. This will be of particular 
importance when an employee leaves a site which compensates based on 
skills and moves to a site that continues to compensate based on the 
grade assigned to a position description. The Conversion Chart (Figure 
11) was developed to provide a reference point between skill blocks and 
GS grade equivalents.

                                     Figure 11--Skill Block Conversion Chart                                    
----------------------------------------------------------------------------------------------------------------
       Skill Block                Grade                Associated competencies            Description of work   
----------------------------------------------------------------------------------------------------------------
B-1                        GS-3                C1                                      The employee establishes 
                                                                                        that the applicant is a 
                                                                                        member of a class of    
                                                                                        beneficiaries by either 
                                                                                        comparing the           
                                                                                        information in the      
                                                                                        application with        
                                                                                        official records        
                                                                                        submitted or requesting 
                                                                                        verification of the     
                                                                                        information from        
                                                                                        official records at a   
                                                                                        records center.         
B2                         GS-4                C1                                      The employee determines  
                                                                                        what supporting         
                                                                                        ``proofs'' or evidence  
                                                                                        are required by the     
                                                                                        case. As the ``proof''  
                                                                                        material is received, it
                                                                                        is analyzed to establish
                                                                                        accuracy, validity and  
                                                                                        acceptability under     
                                                                                        governing legal         
                                                                                        requirements. Also      
                                                                                        provides straight-      
                                                                                        forward factual         
                                                                                        information on          
                                                                                        preparation of forms.   
B3                         GS-5                C1                                      The employee is typically
                                                                                        assigned cases involving
                                                                                        confused or missing     
                                                                                        records, cases involving
                                                                                        duplicate claimants or  
                                                                                        cases which contain an  
                                                                                        excessive amount of     
                                                                                        detail. Also develops   
                                                                                        and makes final         
                                                                                        determination of award  
                                                                                        for certain one-payment 
                                                                                        awards with fixed       
                                                                                        monetary limits.        
                                                                                        Provides counseling on  
                                                                                        questions covered by    
                                                                                        guidelines or by clear- 
                                                                                        cut procedures.         
B4                         GS-7                C1 and some C2                          The employee makes       
                                                                                        determinations          
                                                                                        pertaining to such      
                                                                                        matters as entitlement  
                                                                                        to medical treatment,   
                                                                                        funeral expense,        
                                                                                        compensation and        
                                                                                        pension. Adjudication of
                                                                                        such claims normally    
                                                                                        requires determinations 
                                                                                        relating to the         
                                                                                        application of          
                                                                                        appropriate regulations.
                                                                                        Counsels individuals    
                                                                                        regarding a variety of  
                                                                                        benefits or obligations 
                                                                                        that are closely        
                                                                                        related.                
B5                         GS-9                C1 and some C2                          The employee prepares    
                                                                                        decisions on basic      
                                                                                        eligibility for         
                                                                                        claimants to various    
                                                                                        benefits provided by    
                                                                                        law. He/she must analyze
                                                                                        and evaluate numerous   
                                                                                        types of documents and  
                                                                                        consider the many       
                                                                                        variables which may     
                                                                                        affect the amount of the
                                                                                        award granted. Counsels 
                                                                                        individuals regarding a 
                                                                                        wide variety of         
                                                                                        comprehensive programs  
                                                                                        of benefits and         
                                                                                        services, each with a   
                                                                                        different set of        
                                                                                        regulations.            
B6                         GS-7                C1 and some C2                          The employee makes       
                                                                                        determinations          
                                                                                        pertaining to such      
                                                                                        matters as entitlement  
                                                                                        to medical treatment,   
                                                                                        funeral expense,        
                                                                                        compensation and        
                                                                                        pension. Adjudication of
                                                                                        such claims normally    
                                                                                        requires determinations 
                                                                                        relating to the         
                                                                                        application of          
                                                                                        appropriate regulations.
                                                                                        Counsels individuals    
                                                                                        regarding a variety of  
                                                                                        benefits or obligations 
                                                                                        that are closely        
                                                                                        related.                

[[Page 58966]]

                                                                                                                
B7                         GS-9                C1 and C2                               The employee prepares    
                                                                                        decisions on basic      
                                                                                        eligibility for         
                                                                                        claimants to various    
                                                                                        benefits provided by    
                                                                                        law. He/she must analyze
                                                                                        and evaluate numerous   
                                                                                        types of documents and  
                                                                                        consider the many       
                                                                                        variables which may     
                                                                                        affect the amount of the
                                                                                        award granted. Counsels 
                                                                                        individuals regarding a 
                                                                                        wide variety of         
                                                                                        comprehensive programs  
                                                                                        of benefits and         
                                                                                        services, each with a   
                                                                                        different set of        
                                                                                        regulations.            
B8                         GS-11               C1 and C2 and some C3                   Facilitates the          
                                                                                        development of and      
                                                                                        provides technical      
                                                                                        guidance to less        
                                                                                        experienced Case        
                                                                                        Managers. Adjudicates   
                                                                                        claims involving        
                                                                                        unusually complex or    
                                                                                        novel issues. Reviews   
                                                                                        consideration and appeal
                                                                                        cases. Issues often     
                                                                                        point up need for new   
                                                                                        rulings. Develops facts 
                                                                                        and evidence; defines   
                                                                                        legal and factual       
                                                                                        issues, researches      
                                                                                        precedent decisions,    
                                                                                        applies law,            
                                                                                        regulations, policies   
                                                                                        and procedures; and     
                                                                                        drafts letters,         
                                                                                        decisions and           
                                                                                        notifications. Counsels 
                                                                                        individuals regarding a 
                                                                                        wide variety of distinct
                                                                                        types of benefits, each 
                                                                                        with a different set of 
                                                                                        regulations.            
B9                         GS-11               C1 and C2 and some C3                   Facilitates the          
                                                                                        development of and      
                                                                                        provides technical      
                                                                                        guidance to less        
                                                                                        experienced Case        
                                                                                        Managers. Adjudicates   
                                                                                        claims involving        
                                                                                        unusually complex or    
                                                                                        novel issues. Reviews   
                                                                                        consideration and appeal
                                                                                        cases. Issues often     
                                                                                        point up need for new   
                                                                                        rulings. Develops facts 
                                                                                        and evidence; defines   
                                                                                        legal and factual       
                                                                                        issues, researches      
                                                                                        precedent decisions,    
                                                                                        applies law,            
                                                                                        regulations, policies   
                                                                                        and procedures; and     
                                                                                        drafts letters,         
                                                                                        decisions and           
                                                                                        notifications. Counsels 
                                                                                        individuals regarding a 
                                                                                        wide variety of distinct
                                                                                        types of benefits, each 
                                                                                        with a different set of 
                                                                                        regulations.            
B10                        GS-12               C1 and C2 and some C3                   Facilitates the          
                                                                                        development of and      
                                                                                        provides technical      
                                                                                        guidance to less        
                                                                                        experienced Case        
                                                                                        Managers. Adjudicates   
                                                                                        claims involving        
                                                                                        unusually complex or    
                                                                                        novel issues. Reviews   
                                                                                        consideration and appeal
                                                                                        cases. Issues often     
                                                                                        point up need for new   
                                                                                        rulings. Develops facts 
                                                                                        and evidence; defines   
                                                                                        legal and factual       
                                                                                        issues, researches      
                                                                                        precedent decisions,    
                                                                                        applies law,            
                                                                                        regulations, policies   
                                                                                        and procedures; and     
                                                                                        drafts letters,         
                                                                                        decisions and           
                                                                                        notifications. Counsels 
                                                                                        individuals regarding a 
                                                                                        wide variety of distinct
                                                                                        types of benefits, each 
                                                                                        with a different set of 
                                                                                        regulations.            
B11                        GS-12               C1 and C2 and some C3                   Facilitates the          
                                                                                        development of and      
                                                                                        provides technical      
                                                                                        guidance to less        
                                                                                        experienced Case        
                                                                                        Managers. The employee  
                                                                                        has final signatory     
                                                                                        authority for allowing  
                                                                                        or disallowing the novel
                                                                                        or unusually complex    
                                                                                        claims. He/she is       
                                                                                        responsible for the     
                                                                                        propriety and technical 
                                                                                        sufficiency of          
                                                                                        authorization actions,  
                                                                                        coordination with Rating
                                                                                        Board personnel,        
                                                                                        identification of those 
                                                                                        cases requiring legal   
                                                                                        precedence decisions and
                                                                                        certification of appeal 
                                                                                        actions. Serves as      
                                                                                        Chairperson of Boards   
                                                                                        convened to conduct     
                                                                                        personal hearings in    
                                                                                        cases involving         
                                                                                        reconsiderations.       
B12                        GS-12               C1 and C2 and some C3                   Facilitates the          
                                                                                        development of and      
                                                                                        provides technical      
                                                                                        guidance to less        
                                                                                        experienced Case        
                                                                                        Managers. The employee  
                                                                                        has final signatory     
                                                                                        authority for allowing  
                                                                                        or disallowing the novel
                                                                                        or unusually complex    
                                                                                        claims. He/she is       
                                                                                        responsible for the     
                                                                                        propriety and technical 
                                                                                        sufficiency of          
                                                                                        authorization actions,  
                                                                                        coordination with Rating
                                                                                        Board personnel,        
                                                                                        identification of those 
                                                                                        cases requiring legal   
                                                                                        precedence decisions and
                                                                                        certification of appeal 
                                                                                        actions. Serves as      
                                                                                        Chairperson of Boards   
                                                                                        convened to conduct     
                                                                                        personal hearings in    
                                                                                        cases involving         
                                                                                        reconsiderations.       
B13                        GS-13               C1 and C2 and some C3                   Guides team in short and 
                                                                                        long term planning.     
                                                                                        Resolves conflicts,     
                                                                                        provides feedback,      
                                                                                        counsels, rewards and   
                                                                                        disciplines team members
                                                                                        as appropriate.         
                                                                                        Facilitates and assesses
                                                                                        team and team members'  
                                                                                        development. Serves as  
                                                                                        liaison with other teams/
                                                                                        cores management, the   
                                                                                        union and external      
                                                                                        stakeholders.           
B14                        GS-13               C1 and C2 and some C3                   Guides team in short and 
                                                                                        long term planning.     
                                                                                        Resolves conflicts,     
                                                                                        provides feedback,      
                                                                                        counsels, rewards and   
                                                                                        disciplines team members
                                                                                        as appropriate.         
                                                                                        Facilitates and assesses
                                                                                        team and team members'  
                                                                                        development. Serves as  
                                                                                        liaison with other teams/
                                                                                        cores management, the   
                                                                                        union and external      
                                                                                        stakeholders. Models    
                                                                                        organizational values,  
                                                                                        communicates            
                                                                                        organizational vision,  
                                                                                        and demonstrates        
                                                                                        commitment to           
                                                                                        organizational mission. 
                                                                                        Promotes consensus and a
                                                                                        results oriented        
                                                                                        approach to business.   
                                                                                        Educates and mentors to 
                                                                                        enhance team's          
                                                                                        understanding of        
                                                                                        organizational measures,
                                                                                        performance goals, and  
                                                                                        achievement of stretch  
                                                                                        goals. Encourages and   
                                                                                        rewards innovation which
                                                                                        enhances customer       
                                                                                        service.                
----------------------------------------------------------------------------------------------------------------

VI. Project Duration

    In accordance with section 4703 of title 5, United States Code, the 
project shall terminate at the end of the 5-year period beginning on 
the date on which the project takes effect. The project may continue 
beyond that period to the extent necessary to validate the results of 
the project or be terminated at any time during the 5-year period if 
deemed unsuccessful.

VII. Evaluation Plan

A. Introduction

    The demonstration project authority requires that each 
demonstration project be evaluated to determine the demonstration 
project's ``impact on improving public management'' (5 U.S.C. 4703). 
The results from this demonstration project evaluation will serve two 
primary purposes. First, the results allow us to know when we have been 
successful in meeting the objectives of the project. Second, the 
results serve as the basis for mid-course correction decisions. A mid-
course correction is a fine-tuning of the project based on early 
feedback and knowledge gained through the evaluation.
    The demonstration project evaluation will be a results oriented 
evaluation focusing on the innovations' impact on organizational 
outcomes, mission accomplishments, and management in general. Rather 
than test each change in personnel rule and regulation

[[Page 58967]]

separately, this evaluation will consider the innovation as a whole and 
treat it as a single intervention. This will allow the participants to 
determine the extent to which the new skill-based pay, with a variable 
pay component, in a team environment effects organizational performance 
by aligning the human resources systems with business needs. In effect, 
the evaluation attempts to gauge the link between human resources 
management (HRM) and agency mission. In the attempt to link HRM to 
outcomes, some of the more detailed process questions will be less of 
an emphasis than has been in the past.
    A results-oriented evaluation will allow the agency to tie the 
demonstration project to other reinvention efforts and to comply with 
GPRA.

B. General Methodology

    The evaluation will measure the impact of a skill-based pay/
variable-based pay system in a team environment on the projects three 
objectives: improve customer satisfaction, increase value to the 
taxpayer, and increase opportunities for employee development. The 
evaluation model shown in Figure 12 represents the consensus of the 
Department of Veterans Affairs, the New York Regional Office, the 
Detroit Regional Office, and the Office of Personnel Management 
regarding project constraints, objectives and expectations.
    The project objectives are theoretical constructs which will be 
measured by other directly observable variables. As shown in Figure 12, 
it is hypothesized that the personnel interventions, taken together, 
will cause an increase in value to the taxpayer; an improvement in 
customer satisfaction; and increased opportunities for employees to 
develop and apply skills and competencies. The impact of the 
intervention on these three objectives will be tracked using the five 
measures of the Balanced Scorecard: cost per claim (including payroll 
costs), accuracy, speed, customer satisfaction, and employee 
development.

C. Three Phase Methodology

    The evaluation will be conducted in three stages. Stage one will 
involve collecting baseline data prior to implementation of the 
demonstration project at each experimental and control site. Stage two 
will provide information for mid-course correction. The third summative 
stage will assess the overall impact of the project.
    The evaluation will focus primarily on the overall impact of the 
interventions based on before and after comparisons of the data, using 
both quantitative and qualitative data. This will be accomplished using 
a longitudinal design, baseline data, and control groups along with the 
following three phase methodology:
    (a) Interrupted Time-Series Comparison Group Design--A time series 
design will be used to track cost, speed, accuracy, customer 
satisfaction over time. Comparisons will be made between experimental 
groups and between experimental and control groups;
    (b) Case Study--A case study approach will be used to understand 
the implementation, process, and dynamics of team management and their 
effects on other organizational measures. Quantitative data will be 
combined with focus group, interview, documentary information, and 
other qualitative data sources; and
    (c) Survey Analysis--An employee attitude survey will be used to 
garner information on job satisfaction, organizational climate, and 
employee development.
    Control groups will be established that are similar to the 
experimental groups. The VA will make an effort to collect the same 
type of data from the control groups and experimental groups whenever 
possible.
    To make the evaluation cost effective and to ensure the evaluation 
dovetails with on-going GPRA efforts, the evaluation will rely on data 
collected for other purposes. This includes the balanced scorecard and 
the employee attitude survey. Also, workforce data from CPDF and ILDRS 
will be tracked to ensure that Veterans Preference, along with Merit 
System Principles, are observed.
    VA will enter into an agreement with an evaluator to conduct the 
evaluation of this project. However, in accordance with its statutory 
responsibilities, OPM will monitor the evaluation and provide oversight 
throughout the project's life cycle.

                         Figure 12.--Evaluation Outcome Model--VA Demonstration Project                         
----------------------------------------------------------------------------------------------------------------
           Intervention                 Expected effects         Observable measures           Data source      
----------------------------------------------------------------------------------------------------------------
                                                                                                                
Skill-Based Pay, with a variable   Increase value to          Cost per claim..........  Balanced Scorecard.     
 pay component, in a team           taxpayer.                                                                   
 environment.                                                                                                   
                                   Improve customer service.  Accuracy................  Balanced Scorecard.     
                                                              Speed...................  Balanced Scorecard.     
                                                              Customer satisfaction...  Customer satisfaction   
                                                                                         survey.                
                                   Improve employee pay       Employee attitudes        Employee attitude       
                                    satisfaction.              toward pay.               survey.                
                                   Improve employee           Employee satisfaction...  Employee attitude       
                                    development.                                         survey.                
                                                              Increase opportunities    Balanced Scorecard.     
                                                               for developing and                               
                                                               applying skills and                              
                                                               competencies.                                    
                                                                                        Case study.             
                                   Maintain workforce         Workforce composition...  Workforce data.         
                                    diversity.                                                                  
----------------------------------------------------------------------------------------------------------------

VIII. Demonstration Project Costs

A. Budget Strategy

    The demonstration project budget strategy focuses upon: (a) 
Reducing costs while continually improving service to veterans in line 
with organizational outcome measures; (b) Utilizing savings to pay 
employees for learning and applying skills; and (c) Rewarding employees 
who contribute to the organization's success, improve service to the 
customers, and ensure the taxpayer's best interests are served.

B. Step Buy-Ins

    Under the GS pay system, employees progress through their assigned 
grade by means of within-grade increases (WGIs) which are based on time 
in step and an acceptable level of competence. Since WGIs will not be a 
part of the Pay for

[[Page 58968]]

Applied Skills System, employees will receive a one time lump-sum 
payment at the time of conversion to the new system.
    At the time of conversion, each converted employee performing at an 
acceptable level of competence will receive a lump-sum cash payment 
based on the number of full weeks of the waiting period he or she has 
completed towards the next within-grade increase at the time of 
conversion. For example, an employee in a one-year waiting period who 
has completed 8 weeks towards his or her next within-grade increase 
would receive 8/52nds (.1538) of the applicable within-grade increase.

C. Cost Controls

    The following cost control principles will be adhered to throughout 
the demonstration project: (a) The number of skill slots established 
for each skill block and groups of skill blocks will be based on 
employees' ability to learn and apply the skills and on mission 
requirements (e.g. organizational goals, work load) and may change over 
time as conditions warrant. Changes in the subject group's skill mix 
over time will be explainable based on reassessment or changes in 
mission requirements; (b) The dollar adjustment amounts assigned to 
skill blocks will be based on mission requirements; and (c) Increases 
in average base pay under the project that exceed the increases at the 
control sites will be justified by the enhanced skill level of the 
subject employee group and by the improvements in organizational 
outcome measures that can be attributed to those enhanced skill levels.
    Cost control will further be ensured by the following specific 
means: (a) Setting a maximum rate linked to the General Schedule. The 
maximum rate for the Business Line Skill-Based Pay Model is GS-13, Step 
10; (b) Limiting new skill block assignments to no more than 2 per 
year; (c) Requiring a pay-back period for the demonstration of the new 
skills; (d) Managing the opportunity to attain skill blocks based only 
on organizational need; and (e) Tracking base pay increases, i.e., 
skill block attainment, and comparing them to equivalent base pay 
(promotions, WGI's and QSI's) increases at the control sites on an 
annual basis. Variations will be analyzed factoring in adjustments to 
staffing levels, changes in skill mix, and most importantly, increases 
in overall organizational productivity and other positive outcomes. The 
leadership skill blocks will add the GS 14, Step 1 to GS 15, Step 10 
pay ranges to the model; however, the use of these skill blocks will be 
limited since competitive selection will be required for entry into 
these skill blocks.
    Should the need arise to add a skill block, increase the number of 
slots for skill blocks or increase the value (adjustment amount) of a 
skill block, VA will internally document the rationale for the change 
in order to conduct proper cost analysis.
    It is anticipated that, in any given year, base pay costs may vary 
as compared to the control sites from time to time. Variances in base 
pay costs between the demonstration project sites and the control sites 
will be analyzed and explained to facilitate project evaluation. The 
goal is to maintain cost neutrality over the life of the project while 
still testing the merits of the new pay system. Adjustments in project 
goals/processes may be required as evaluation results are analyzed.

IX. Required Waivers to Law and Regulation

    The following table lists the Civil Service laws and regulations 
that must be waived to implement this demonstration project. The 
project is in accordance with 5 U.S.C. 4703(c) and is consistent with 
all merit principles. All waivers are made only to the extent that 
project provisions as outlined in this plan conflict with existing law.

 Provisions of Laws or Regulations That Require Waivers--Title 5, United
                               States Code                              
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
Section 5107.................  Classification of positions.             
Section 5110.................  Review of classification of positions.   
Section 5111.................  Revocations and restoration of authority 
                                to classify positions.                  
Section 5112(b)..............  Employee and agency requests for         
                                classification appeals.                 
Chapter 53:                                                             
    Secs.  5301; 5302 (1),     Pay Comparability System (This waiver    
     (8), and (9); 5303; and    applies only to the extent necessary to 
     5304.                      allow demonstration project employees to
                                be treated as General Schedule employees
                                and to allow rates of basic pay under   
                                the demonstration project to be treated 
                                as scheduled rates of basic pay.)       
    Sec.  5305...............  Special Pay Authority.                   
    Secs.  5331-5336.........  General Schedule Pay Rates.              
    Sec.  5362...............  Grade Retention.                         
    Sec.  5363...............  Pay Retention.                           
Chapter 55:                                                             
    Sec.  5545(d)............  Hazardous Duty Differential (This waiver 
                                applies only to the extent necessary to 
                                allow demonstration project employees to
                                be treated as General Schedule          
                                employees.)                             
Chapter 57:                                                             
    Secs.  5753, 5754, and     Recruitment and Relocation Bonuses;      
     5755.                      Retention Allowances; and Supervisory   
                                Differentials (This waiver applies only 
                                to the extent necessary to allow        
                                employees and positions under the       
                                demonstration project to be treated as  
                                employees positions under General       
                                Schedule.)                              
Chapter 75:                                                             
    Sec.  7512(4)............  Adverse Action (This waiver applies only 
                                to the extent necessary to provide that 
                                adverse action provisions do not apply  
                                to conversions from a General Schedule  
                                special rate to a demonstration project 
                                pay rate that do not result in a        
                                reduction in the employee's total rate  
                                of pay.)                                
------------------------------------------------------------------------


                    Code of Federal Regulations (CFR)                   
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
Section 300.601..............  Time in grade restrictions,              
                                applicability.                          
Section 351.401..............  Determination of retention standing.     
Section 351.403(a)...........  Reduction-in-Force, Competitive Level.   
Section 351.404(a)...........  Reduction-in-Force, Retention Register.  
Section 351.504..............  Performance Ratings.                     
Part 511, Subpart B..........  Coverage of General Schedule.            

[[Page 58969]]

                                                                        
Part 511, Subpart F..........  Classification Appeals.                  
Part 511, Subpart G..........  Effective Dates of Positions             
                                Classification Actions or Decisions.    
Part 550:                                                               
    Subpart G Sec.  550.703..  Severance Pay [This waiver applies only  
                                to paragraph(c)(4) under the definition 
                                of ``reasonable offer'' that will be    
                                defined in Section III-D of the final   
                                plan that will be published in the      
                                Federal Register.]                      
    Subpart I, Sec.  550.902,  Hazardous Duty Pay (This waiver applies  
     definition of              only to the extent necessary to treat   
     ``employee''.              demonstration project employees as      
                                General Schedule employees.)            
Part 575:                                                               
    Subparts A, B, C, and D..  Recruitment Bonuses, Relocation Bonuses, 
                                Retention Allowances, and Supervisory   
                                Differentials (This waiver applies only 
                                to the extent necessary to allow        
                                employees and positions under the       
                                demonstration project to be treated as  
                                employees and positions under the       
                                General Schedule).                      
Part 752:                                                               
    Sec.  752.401(a)(4)......  Adverse Action (This provision is waived 
                                only to the extent necessary to provide 
                                that adverse action provisions do not   
                                apply to conversions from a General     
                                Schedule special rate to a demonstration
                                project pay rate that do not result in a
                                reduction in the employee's total rate  
                                of pay.)                                
------------------------------------------------------------------------

Appendix A--Organizational Outcome Measures

    The NYRO uses a ``BALANCED SCORECARD'' for its organizational 
outcome measures. The scorecard displays outcomes for each team, 
each core group (cluster of 4 teams) and total organization. There 
are five types of measures: Customer Measures, Speed, Accuracy, 
Cost, and Employee Development Measures.
    The scorecard lists GOALS for each measure. Goals are the ideal 
state for each data element. Goals must be acceptable that is 
reasonable, understandable, measurable, believable and achievable. 
For example, if veteran surveys show that veterans think their 
compensation claims should be processed in 70 days, then this is 
``acceptable.'' The following chart describes the measures.

------------------------------------------------------------------------
           Measures                            Definition               
------------------------------------------------------------------------
CUSTOMER MEASURES............  Based on monthly SERVQUAL survey results 
                                for each team.                          
SPEED Ranges/Miscellaneous/    Each area is measured by the average days
 Simple Authorizations.         it takes to complete a claim (ADTC) and 
                                the average number of days unprocessed  
                                claims are pending (DAYS PD).           
SPEED Phone Time/Personal      The average amount of time a customer    
 Interview Time.                waits to speak to a team member on the  
                                phone or in person.                     
SPEED Lost Call..............  The percent of callers who receive our   
                                initial phone message but hang up before
                                speaking to a team member.              
SPEED--Backlogs..............  The total number of unprocessed (TOTAL   
                                PDG) and unprocessed claims over six    
                                months old (+180 days). Measures will be
                                taken on a predetermined date each      
                                month.                                  
ACCURACY--State Change I.....  Measures the accuracy of information     
                                requests (telephone/personal).          
ACCURACY--State Change II....  Measures the accuracy of how well cases  
                                were controlled and how successfully    
                                evidence was requested (CNTRL and DEV); 
                                how well benefits applications were     
                                completed with VA help (INTRNAL); and   
                                without VA help (EXTRNL).               
ACCURACY--State Change III...  Measures the accuracy of the             
                                determinations made on the claim.       
ACCURACY--State Change IV....  Measures how well we notified the        
                                claimant of our decision.               
ACCURACY--State Change V.....  Measures how long it took for the        
                                claimant to receive payments from VA    
                                once they've been ``released'' by the   
                                regional office. Not currently measured.
                                Will probably be done by phone surveys. 
COST.........................  Measures the gains/losses of each team,  
                                each month. Calculated by comparing team
                                costs (salaries, overtime, etc.) with   
                                claims produced with each claim being   
                                given a value-based on established work 
                                rate and local salary rates.            
EMPLOYEE MEASURES--Climate...  Measures how a team develops from initial
                                startup to total self-management.       
EMPLOYEE MEASURES--Team        Survey feelings of employees throughout  
 Development.                   the organization to determine areas of  
                                strength and weakness.                  
EMPLOYEE MEASURES--Technical   Measures how individual team members are 
 Development.                   progressing in their individual skill   
                                development program.                    
------------------------------------------------------------------------

[FR Doc. 96-29563 Filed 11-18-96; 8:45 am]
BILLING CODE 6325-01-P